ANGEL FUND CO LTD v. CHAN YAU KWONG AND OTHERS

HCMP 3022/2015

[2019] HKCFI 1821

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3022 OF 2015

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(Converted into a writ action by Order of Master Lai dated 20^th July 2016)

By Original Action

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By Counterclaim

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J U D G M E N T

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Table of Contents

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Introduction

1.  The present proceedings essentially concern the beneficial ownership of a piece of land in Sai Kung and a 3 storeyed “Small House” erected thereon pursuant to the Government’s “Small House Policy”.

2.  The plaintiff in the Original Action and the 2^nd defendant in the Counterclaim will be referred to as “P”, and the 1^st defendant by Original Action and the Counterclaim will be referred to as “D1”.  The other defendants in the Original Action and the 1^st to 5^th plaintiffs in the Counterclaim will be referred to respectively as “D2” to “D6”, or collectively “Ds”.

3.  The piece of land is known as Lot no 441 in DD 248 (“Land”) and is situate in the Tseung Kwan O Village in Hang Hau, Sai Kung (“Village”).  On 25 May 1992, upon D1, an indigenous village, agreeing fully to observe and perform the General and Special Conditions set out in the grant, the Land was granted to D1 for a term commencing from 25 May 1992 to 30 June 2047[1] (“New Grant”) with rights to build thereon a “Small House” (“Building Rights”).

4.  A 3 storeyed “Small House” has been erected on the Land (“Property”).  The Certificate of Compliance of the Property was issued on 6 May 1997.

5.  P is and was at all material times a licensed money lender under the Money Lenders Ordinance, Cap 163.  D1 has since the New Grant been the registered legal/paper owner of the Property.

6.  The Original Action was commenced by P on 12 November 2015 as a straightforward mortgagee action by way of an originating summons issued under Order 88 of Rules of the High Court (RHC) to seek (1) repayment by D1 of two loans of a total of HK$6m plus interests thereon as provided in the Loan Agreements (as defined later), which loans and interests were secured by the Mortgage Deeds (as defined later) registered against the Property, and (2) delivery up of vacant possession of the Property by D1.  D1 did not file enter any acknowledgment of service.

7.  The Original Action came to the notice of Ds, the occupants of the Property.  Ds issued a summons for joinder as defendants in the Original Action and by consent, an order for joinder was granted on 15 December 2015. 

8.  On 20 July 2016, P obtained a default money judgment against D1, for the sum of HK$7,542,495.59, being the then two outstanding principal sums and accrued interests, plus continuing interests at the contractual rates until full payment.  P’s claim for possession of the Property was ordered to continue as if begun by writ and directions were made for the filing of pleadings.

9.  D2 and D3 are brothers and they claim to be beneficial owners of 1/3 interest in the Land as tenants in common and entitled to the exclusive possession of the ground floor of the Property (“Ground Floor”) where they alleged they have been residing since “purchase” of their 1/3 interest.  D4 claims to be the beneficial owner of 1/3 interest in the Land and entitled to the exclusive possession of the 1^st floor of the Property (“1^st Floor”) where he alleged he has been residing since “purchase” of his 1/3 interest.  D5 and D6 are husband and wife and they claim to be the beneficial owners of 1/3 interest in the Land as tenants in common and entitled to the exclusive possession of the 2^nd floor and roof of the Property (collectively “2^nd Floor”) where they alleged they have been residing since “purchase” of their 1/3 interest.  Save as already described, Ds are not related to each other.

10.  Ds counterclaim against D1, amongst other things, for declarations that Ds are the beneficial owners in the manner set out above. 

11.  Ds further counterclaim against P, amongst other things, for a declaration that the Mortgage Deeds (as defined later) and the Assignment of Rental (as defined later) are unenforceable and the registrations of these documents in the Land Registry against the Land and/or the Property be vacated.

12.  Counsel Mr Roland Lau appeared for P at the trial, and Counsel Mr Stanley CK Siu appeared for Ds.  D1 was not represented and had throughout not participated in these proceedings.

The parties’ respective case

P’s case

13.  P had advanced to D1 two sums, respectively HK$4m and HK$2m pursuant to two loan agreements both dated 20 January 2015 (collectively “Loan Agreements”).  On the same day, D1 executed two mortgage deeds (collectively “Mortgage Deeds”) in respect of his interest in the Land and the Property, together with personal guarantees in favour of P, as security of the loans. 

14.  It was P’s case that at the time entering into the Loan Agreements and the Mortgage Deeds, the Property was subject to a tenancy and that D1 had produced to P the original of a stamped tenancy agreement signed by D1 as landlord and one “Chan Bing Kwong” as tenant for a term of two years commencing from 1 December 2014 to 30 November 2016 at a monthly rent of HK$36,000[2] (“Tenancy Agreement”).  D1 had further executed an assignment of rental on 20 January 2015 in favour of P which was registered in the Land Office against the Property (“Assignment of Rental”).  

15.  After D1 failed to repay the outstanding amount due to P, a letter of demand was sent by P’s present solicitors to D1 on 22 October 2015.   This later led to P’s issue of the Original Action.

D’s case

16.  Ds’ counterclaim is based on common intention constructive and/or resulting trust.  In essence, Ds’ case was that by virtue of a common intention as pleaded (“Common Intention”), between D1 the registered title holder of the Land and a Mr Chan Yuk Shing/陳玉成 (“YS Chan”), and Ds and by Ds’ contribution to the purchase price of the Land, they have acquired equitable proprietary interest in the Land.  Furthermore, Ds had factual occupation of the Land for about 25 years up to now, and D1 is estopped from denying the Common Intention and Ds’ interest in the Land and that D1 has simply held the Land in trust for Ds.

17.  Ds had produced various agreements which served as the factual matrix and background leading to the common intention constructive trust and/or resulting trust. 

18.  Ds’ case was that it was part of the Common Intention that Ds were to pay for the additional land premium to the Government to remove the non-alienation restriction in the Special Conditions of the New Grant (“Restriction”) 3 years after the issuance of the Certificate of Compliance and thereupon, D1 was to complete the formality of assigning his legal/paper title of the Land to Ds.

19.  The Certificate of Compliance was issued on 6 May 1997[3]. According to Ds, in about September 2000, they had purported to make payment for the additional land premium of the Land and they had asked D1 to complete the formality of assigning his legal title of the Land to Ds but D1 became evasive and avoided contact with Ds.  Ds then lost contact with D1 until about November 2015 when by chance D4 saw D1 inside the Village and when D4 asked D1 to assign formally his legal/paper title to Ds, D1 claimed he had left the matter to be dealt with by a finance company and that D1 claimed he would be paid HK$1m by the finance company after the finance company had dealt with the matter. 

20.  The present proceedings came to the attention to Ds on about 16 November 2015 when a copy of the originating summons in the Original Action was posted up at the entrance to the Property.  As mentioned earlier, Ds then applied to join in the Original Action and subsequently filed their joint defence and counterclaim.

21.  Subsequently, on about 31 March 2016, Ds filed a complaint at the Tseung Kwan O Police Station under Case No TKO RN16009809 regarding D1’s fraudulent conduct.

Disputed Issues

22.  The agreed Scott Schedule contained 14 factual issues of Ds’ case of which P said it had no knowledge, and 4 factual issues of P’s case of which Ds said they had no knowledge.

23.  As submitted by Mr Lau in P’s Closing Submissions, the major bone of contention between P and Ds lie in:

(1)  whether P, as mortgagee, was “a bona fide purchaser for value without notice”;

(2)  whether there was a common intention constructive trust and/or resulting trust as alleged by Ds.

24.  I will deal with (2) first.

25.  It was initially P’s pleaded case that even if the agreements and matters as pleaded by Ds existed, the same were not enforceable on the ground of illegality for being in breach of public policy[4].  At the trial, Mr Lau indicated that P would not be pursuing the illegality argument and there were no submissions or authorities in P’s Closing Submissions on breach of public policy. 

26.  There was also no dispute on the applicable general legal principles.

The witnesses and valuation reports

27.  Ds had each provided a witness statement and D4 further provided a supplemental witness statement and they had attended trial to be cross examined. 

28.  The originating summons was supported by an affirmation from P’s Manager, Ms Cheung Mei Yu Stella (“Ms Cheung”), who also made an affirmation in response to Ds’ application for joinder.  After P’s claim for possession was ordered to proceed by writ, Mr Chan Chun Fung (“CCF”), a then director of P, had provided a witness statement on P’s behalf and he was the only witness who attended the trial to give evidence on behalf of P.  CCF informed the Court during the trial that in June 2018, he had transferred out his 38% shareholding in P to a friend, and thereafter he no longer held any shares in P.  He remained a director until his resignation in September 2018. Notwithstanding the transfer and the resignation, CCF has remained the holder of P’s money lender licence and that he is a registered representative.

29.  There was a valuation report dated 10 February 2015 (“Lawson Valuation Report”) which was prepared by Lawson David & Sung Surveyors Limited upon P’s instructions.  According to the Lawson Valuation Report, the market value of the Property as at 10 February 2015 was HK$ 11m on vacant possession subject to the payment of the modification premium to the Government to remove the non-alienation restriction (“Restriction”). There was no indication in the Lawson Valuation Report as to the amount of premium payable.

30.  Subsequently, in the course of the present proceedings, a valuation report was prepared by Citiland on Ds’ instructions. According to this report, the market value of the Property as at 1 February 1994 assuming the additional premium had been settled in full was HK$5,590,000 and that the additional premium payable at that time was estimated to be about HK$2,260,000.

31.  There was no dispute over the above valuations and neither valuer was called to give evidence at the trial.

The agreements alleged by Ds 

32.  According to Ds’ pleaded case, there were the following agreements, namely:

(1)  D1 entered into a joint development agreement with YS Chan  in about 1993[5], which will be referred to in this judgment as the “1993 JD Agreement”;

(2)  An agreement between YS Chan, D5 and D6 in July 1993 which was evidenced by a handwritten agreement in Chinese entered into by YS Chan, D5 and D6 on 28 July 1993 (“28.07.93 Agreement”)[6];

(3)  On or about 27 January 1994, D1, YS Chan, and Ds attended a joint meeting (“Joint Meeting”) during which certain terms were acknowledged and agreed by them.  This agreement will be referred to in this judgment as the “27.01.94 Agreement”[7].

(4)  Under the Common Intention pleaded, and as evidence of the Common Intention, it was pleaded by Ds that two Chinese handwritten transfer agreements were signed on 27 January 1994, namely:

(i)  One agreement signed by YS Chan on one part and signed by D2 and D3 on the other part in relation to the Ground Floor (“G/F Transfer Agreement”)[8], and D1, D4 and D6 had also signed thereon;

(ii)  One agreement signed by D6 on one part and D4 on the other part in relation to the 1^st Floor (“1/F Transfer Agreement”)[9], and D1, D2, D3 had also signed thereon. 

33.  In the witness statements of D2 and D4, they had alleged that they met up with YS Chan on 19 January 1994 to sign a “preliminary transfer agreement”.  For some reasons, a copy of this agreement was not disclosed in Ds’ List of Documents nor did P seek a copy and a copy of this preliminary transfer agreement was produced by D2 during the trial (“G/F Preliminary Agreement”)[10]. This was a handwritten agreement dated 19 January 1994 signed by YS Chan as Party A, and D2 on behalf of D2 and D3 as Party B and D4 signed as a witness, and the agreement stated that the consideration for the transfer of the Ground Floor was HK$1.2m, and that a deposit of HK$50,000 was to be paid on 19 January1994 and HK$800,000 was to be paid upon signing of formal documents at the solicitors’ office and the balance of HK$350,000 was to be paid by a post- dated cheque within 7 months.

34.  In Ds’ List of Documents, they had also produced a “joint development agreement” purported to be signed between D1 and a developer called Citilight Investment Limited dated 20 March 1992 (“Citilight Agreement”) which contained a handwritten paragraph at the end of the agreement indicating that D1 and Citilight had agreed to cancel the Citilight Agreement , which was signed by Citilight and D1 on 28 July 1993 and which stated that payments received by D1 and paid by Citilight had already been agreed and arranged by D1, Citilight and the new developer and that there was nothing outstanding as between D1 and Citilight (“Cancellation Paragraph”)[11]. 

35.  During the trial, D5 had also mentioned that he had signed an another agreement with YS Chan prior to or on about 28 July 1993, namely a “轉讓合作發展協議”, or an agreement to transfer YS Chan’s interest in the joint development to D5 and D6 (“D5 Transfer Agreement”).

Documents/information obtained from other sources

36.  After Ds’ joinder and further during the course of the trial, Ds had obtained various documents/information:

(i)  from the Land Registry; and

(ii)  from Messrs Wong, Hui & Co (“WH & Co”) who were the solicitors acting for YS Chan, D1 and Ds in relation to the development of the Land and/or the Property.

37.  The following information is set out as part of the factual matrix and the history in relation to the Land and the Property.

Information from documents obtained from the Land Registry

38.  On 20 August 1987, D1 had already entered into a “joint development agreement” with a developer called Gleeful Investment Limited[12] (“Gleeful Agreement”).  Although it bore a date which was in 1987, the Gleeful Agreement was only registered in the Land Registry on 17 February 1994, over 6 years later and 21 months after the issue of the New Grant. 

39.  Pursuant to the Gleeful Agreement, D1 agreed to sell to Gleeful the piece of land which would be allotted to him and the building rights of a “Small House” for a sum of HK$130,000, in addition to which Gleeful was to pay for the costs of construction of the “Small House” on the Land and to pay the additional premium to the Hong Kong Government for its consent to remove the Restriction.

40.  It would appear that at the same time as entering into the Gleeful Agreement with D1, Gleeful had entered into similar agreements with 15 other indigenous villagers entitled to be allotted various pieces of land around or close to the Land.

41.  As mentioned earlier, the New Grant was issued to D1 on 25 May 1992.

42.  What then happened to the proposed development was not clear, but in 1994, 16 villagers including D1 issued a writ, as plaintiffs, under HCA 599 of 1994 against Gleeful, as defendant.  The statement of claim was not registered in the Land Registry but the defence and counterclaim filed by Gleeful on 17 March 1994 was registered.

43.  It was alleged by Gleeful in its defence and counterclaim that a sum of HK$40,000 had been paid to each of the plaintiffs under an agreement entered into respectively by Gleeful with each of the plaintiffs and Gleeful alleged that the plaintiffs had by issuing the action evinced an intention of refusing to perform any further obligations under the relevant agreement and Gleeful counterclaimed for specific performance by each of the plaintiffs of their respective agreement and damages.

44.  It can be seen from the record of the Land Registry that   Gleeful was later wound up under HCCW 258/1994 and pursuant to an order of 23 August 2000, which was registered in the Land Registry on 18 November 2000, the Official Receiver was granted leave to compromise the proceedings under HCA 599 of 1994 and leave was granted to 10 of the plaintiffs (including D1) to discontinue their respective claims against Gleeful and leave was also granted for Gleeful to discontinue its counterclaim against the plaintiffs.

45.  Pursuant to the order, the registration as lis pendens of the Gleeful Agreement and the defence and counterclaim filed by Gleeful was then vacated[13].

46.  On 10 July 2014, D1 entered into a loan agreement with a finance company called Yeung Lee Finance Limited (“Yeung Lee”) for a loan of HK$2m.

47.  P then came into the picture.  There were 3 documents all dated 20 January 2015 which were registered at the Land Registry on 18 February 2015, namely the Mortgage Deeds and the Assignment of Rental.  There was a Memorandum of Release of the Yeung Lee loan agreement dated 20 January 2015 which was later registered in the Land Registry on 27 March 2015.

Information from WH & Co

48.  Ds’ solicitors first sent a letter to WH & Co on 14 November 2016 stating that Ds’ solicitors understood that WH & Co were solicitors acting for D1 and Ds regarding the development of the Land and the Property in about 1994 and enquired whether WH & Co had kept the original copy of the New Grant.

49.  WH & Co replied with a short sentence confirming that the New Grant was in their possession.  They did not deny they were solicitors acting for D1 and Ds in 1994.

50.  For some reasons, thereafter, there was no follow up by Ds’ solicitors with WH & Co.  This was notwithstanding that Ds had disclosed in their list of documents an invoice issued by WH & Co to D2 dated 29 January 1994 setting out the services rendered and the documents prepared by WH & Co.

51.  The next letter Ds’ solicitors wrote to WH & Co was some two years later, on 31 October 2018 enquiring whether all along the New Grant was in the possession of WH & Co since 1994, and seeking a confirmation that WH & Co would continue to hold it until after this trial and to release to Ds’ solicitors for the purpose of the trial.

52.  WH & Co replied on 2 November 2018 to say that the New Grant was passed to them after 9 June 1998 and that it was still in their possession and indicated that they would continue to keep it until a court order for release or a request made jointly by the registered owner (ie D1), or his developer [YS Chan], together with Ds for its release, and further they agreed to release the original of the New Grant for the trial upon Ds’ solicitors undertaking to return the same after the trial or upon demand.

53.  Up until then, again for some reasons, apart from enquiring about the New Grant, Ds’ solicitors did not ask WH & Co whether they had in their possession any other documents or any records or information which could assist Ds’ case.

54.  Eventually, on 2 January 2019, shortly before the trial, Ds’ solicitors suddenly wrote to WH & Co to enquire whether the originals of (i) the Citilight Agreement (ii) the 28.07.93 Agreement (iii) G/F Transfer Agreement (iv) 1/F Transfer Agreement were kept by WH & Co and also whether WH & Co was keeping documents like the will given by D1 to Ds.  WH & Co replied that the originals of the 4 agreements were still with them and they also had in their possession 3 “limited wills” executed by D1 in favour of Ds respectively and all dated 28 January 1994 (“Limited Wills”).

55.  Two days into the trial, this Court then raised certain queries as a result of which Ds’ solicitors wrote to WH & Co again to make further enquiries.

56.  To summarise, the information eventually revealed from the communications between Ds’ solicitors and WH & Co as at 15 January 2019 included the following:

(1)  WH & Co was acting for D1, YS Chan and Ds regarding the development of the Land and the Property in 1993/1994;

(2)  WH & Co had referred to YS Chan as D1’s “developer”;

(3)  WH & Co were holding the originals of the New Grant, the Certificate of Compliance , and also the 4 agreements referred to earlier, and further 3 Limited Wills namely (i) one whereby D1 bequeathed the Ground Floor to D2 and D3 jointly, (ii) one whereby D1 bequeathed the 1^st Floor to D4, and (iii) one whereby D1 bequeathed the 2^nd Floor to D5 and D6 jointly[14].

(4)  As to when the New Grant was passed to them, WH & Co had corrected that it was the “Certificate of Exemption (of drainage)” which was passed to them “after 9 June 1998” and that they believed that the New Grant was passed to them by D1 before 9 June 1998.

(5)  WH & Co had no record in their file of the “so called Joint Venture Agreement made between D1 as registered owner, YS Chan and D5 and D6 dated on or before 28 July 1993” referred to in the recital of the 28.07.93 Agreement.

(6)  “Party A” referred to in the recital of the 1/F Transfer Agreement was D6.

(7)  As to why WH & Co was retaining the originals of the New Grant and the Certificate of Compliance, they had stated that this was because the parties to the Citilight Agreement had wanted them to keep the originals pending their instructions.

(8)  WH & Co have in their possession records of the firm’s invoices issued respectively to (i) D2, (ii) D4, and (iii) D5 and D6 in relation to matters on 27 January 1994 (the 3 invoices collectively referred to “29.01.94 Invoices”)[15]. The 29.01.94 Invoices issued to D2 in respect of the Ground Floor and to D4 in respect of the 1^st Floor were identical in the description of the services rendered, namely:

“Attending taking your urgent instructions to prepare a Chinese agreement in assigning the interest and benefit of the Development Agreement of [the Land]; attending preparing same for execution; and drafting and executing a Will and its relating Deed in accordance with your instructions.”

(9)  The services rendered as stated in 29.01.94 Invoice issued to D5 and D6 in respect of the 2^nd Floor were:-

“Attending you in conference on 27 January 1994 for executing a Chinese Agreement; and drafting and executing a Will and its relating Deed in accordance with your instructions”.

(10)  WH & Co had also sent another invoice dated 10 August 1993 addressed to YS Chan/D5/D6 (“10.08.93 Invoice”)[16].  The services rendered in the 10.08.93 Invoice was in relation to the Land and stated as follows:

“Attending in conference with your goodselves on 28 July1993; taking your instructions thereon; drafting a Chinese agreement on urgent basis; explaining to you the contents thereof; attending executing same together other new development agreements”.

(11)  It would appear from the above invoices from WH & Co, there were also “Deeds” executed by D1 at the same time as the Limited Wills, and further there were other development agreements executed on 28 July 1993.

Whether the alleged agreements existed and signed on the respective dates stated therein

57.  According to Ds’ case, those agreements alleged or produced by Ds would also serve as the factual matrix and background leading to the common intention constructive trust and/or resulting trust.  As P’s case was that it had no knowledge of these alleged agreements, the burden would be on Ds to establish that the alleged agreements did exist and/or signed on the dates stated thereon.  I will consider those agreements as set out below.

The Citilight Agreement

58.  During the trial, D5 had said he had no knowledge of the Citilight Agreement nor had he seen it in 1993/1994, and that it was only after the present proceedings had started that a photocopy of the Citilight Agreement was given to him by Mr Chu Chong Wah of WH & Co[17] (“Mr Chu”), the handling solicitor of the development of the Land and/or the Property.

59.  D1 entered into the Citilight Agreement about two months before and in anticipation of the New Grant, and pursuant to that agreement, D1 agreed to sell his interests in the Land and the Building Rights to Citilight for HK$300,000.  The Citilight Agreement was not registered in the Land Registry.  

60.  As seen in P’s Closing Submissions, P did not appear to challenge the existence of the Citilight Agreement and that P accepted that on 28 July 1993 someone had written the Cancellation Paragraph to signify the cancellation of the Citilight Agreement[18]. In any event, as mentioned earlier, WH & Co has confirmed that they are still holding the original Citilight Agreement in their possession.

61.  Having considered the evidence, and as it was not really challenged by P that the Cancellation Paragraph was written on the Citilight Agreement, I find that on 28 July 1993, D1 and Citilight did cancel their joint development agreement as set out therein.

62.  D5’s evidence was that the only time he met D1 was at the Joint Meeting and that he did not know Citilight and was not aware of the Citilight Agreement until Mr Chu gave him a copy.  In light of D5’s evidence which I accept, it would appear that although the Cancellation Paragraph was also dated 28 July 1993, it was not signed at the same time when YS Chan, D5 and D6 attended the office of WH & Co to sign the 28.07.93 Agreement.

The 1993 JD Agreement

63.  It was Ds’ pleaded case that pursuant to the 1993 JD Agreement, it was agreed that[19]:

(a)  YS Chan would construct a “Small House” at his own cost and pay a guaranteed profit to D1;

(b)  in return, D1 would transfer all of his interest in the Land to YS Chan.

64.  No copy of the alleged 1993 JD Agreement was produced by Ds.    It would appear from the pleadings that the 1993 JD Agreement was a 2-party agreement, namely between D1 and YS Chan[20].

65.  However, according to their 1^st joint supporting affirmations for joinder filed on 1 December 2015, D5 and D6 had referred to D1 having entered into a joint development agreement with YS Chan, D5 and D6 in 1993[21], which as Mr Lau had described as a “4-party” joint development agreement.  In their 2^nd affirmations filed on 6 April 2016, D5 and D6 again referred to a 4-party agreement whereby YS Chan would become the owner of the Ground Floor, D6 the owner of the 1^st Floor, and D5 and D6 jointly the owners of the 2^nd Floor[22]. However, whether in their 1^st affirmation or the 2^nd affirmation, the agreement exhibited by Ds was the 28.07.93 Agreement which was only an agreement between 3 parties only, namely YS Chan on one part, D6 on the 2^nd part, and D5 and D6 jointly on the 3^rd part, and D1 was not a party to that agreement.

66.  It was the evidence of D5 and D6 in their witness statements that in around mid 1993 they were introduced to YS Chan through a friend of D6 and that YS Chan told them that they could participate in the development of a “Small House” in the New Territories with YS Chan and that YS Chan had agreed to jointly develop a piece of land in Sai Kung owned by D1.  YS Chan then proposed that D5 and D6 to pay him a sum of HK$2,280,000 and YS Chan would use the money as part of the costs for the construction of the “Small House” and that after completion, the 1^st floor of the small house would be assigned to D6 and the 2^nd floor and the roof would be assigned to D5 and D6 and that YS Chan would be entitled to the ground floor.  This was agreed and this led to the signing of the 28.07.93 Agreement by YS Chan, D5 and D6.

67.  The recital of the 28.07.93 Agreement had also referred to a 4-party joint development agreement between D1, YS Chan, D5 and D6.

68.  D5 was the first of Ds to give evidence during the trial.  He was asked by Mr Lau in relation to the 4-party joint development agreement between D1, YS Chan, D5 and D6 referred to in the recital of the 28.07.93 Agreement.  D5 however said that he and D6 did not sign any joint development agreement with D1 prior to or at the time of the 28.07.93 Agreement, but there was another agreement which D5 and D6 had signed with YS Chan for the transfer of YS Chan’s interest in the joint development of the Land to D5 and D6, namely the D5 Transfer Agreement.    

69.  D5 had at first said the D5 Transfer Agreement was signed about one week prior to the 28.07.93 Agreement and later he said it could be signed on the same day as the 28.07.93 Agreement, but he then said he could not recall clearly. 

70.  When asked why he and D6 had referred to a 4-party joint development agreement in their 1^st and 2^nd Affirmations, D5 had explained that according to his understanding, YS Chan was representing D1 all along.

71.  As for D6, she said she had let all the decision making to her husband D5 and that she could not recall what documents she had signed. Further, it would appear from her evidence that her understanding was that she and D5 were purchasing the 1^st Floor and the 2^nd Floor from YS Chan and that the price for the 1^st Floor was HK$1,080,000 and the price for the 2^nd Floor was HK$1,200,000. 

72.  D6’s evidence was that she met YS Chan through introduction of a friend and that YS Chan was the developer and that she did not know the 丁/ “Ding”, referring to D1 and that she only met the “Ding” later at the office of solicitors WH & Co.  She confirmed that she signed the 28.07.93 Agreement and agreed that there was no consideration stated in that agreement. When asked about the 4-party joint development agreement she referred to in her joint 1^st affirmation with D5, she said she did not understand.  However, she said the “Ding” must have signed something before she and her husband could buy the 1^st and the 2^nd Floors.  She said she recalled having attended the office of WH & Co on two occasions, on one occasion to buy and the other occasion to sell.

73.  Anyway, D5 was adamant during the trial that there was no joint development agreement signed by him and D5 directly with D1 and that he had only signed two agreements with YS Chan, namely the D5 Transfer Agreement and the 28.07.93 Agreement.  D5 had also said he had heard that there was a joint development agreement signed between D1 and YS Chan but the handling solicitor Mr Chu did not show him a copy of the agreement.  As mentioned earlier, D5 had also said at the trial that YS Chan had full authority to represent D1, and that by YS Chan signing an agreement with D5 and D6, this meant that D1 no longer had any interest in the Land and/or the Property.

74.  It was also D5’s evidence that Mr Chu had explained to them during the Joint Meeting on 27 January 1994 that neither D1 nor YS Chan had any more interest in the Land and the Property and that after 3 years, D1 would follow up the matter on payment of premium.

75.  I accept that the evidence of D6 and D5 was rather muddled and confusing.  This was not really surprising as the transactions took place some 25 years ago by the time of the trial.  Both D5 and D6 are now in their 70s and they did not receive a high education.  In D5’s witness statement, he had said he was a “secondary school graduate” but during the trial, he explained that he only studied up to初中 level, ie Form 3 level.  In D6’s witness statement, she said she was an “elementary school graduate”, but during the trial she said only received education up to primary 2 level and that she has always been a housewife and currently had health problems and had to undergo regular kidney dialysis.  Neither of them had any previous experience of buying a “Small House” or a “Ding” house.

76.  YS Chan was never made a party in this action, nor was he called as a witness.  D5 had said during the trial that he last saw YS Chan on 27 January 1994, and that he was not able to find YS Chan after the commencement of this action.  D5 had also said he had gone to WH & Co to make enquiries, and was given YS Chan’s telephone number by Mr Chu. However, when he tried to telephone YS Chan at the number, YS Chan did not answer his call.

77.  Apart from the recital of the 28.07.93 Agreement, the reference to a joint development agreement between D1 and YS Chan could also be seen in the recital of the G/F Transfer Agreement.

78.  In the G/F Transfer Agreement signed by YS Chan as Party A and D2 and D3 as Party B, it was stated in paragraph 1 of the recital that Party A had previously entered into a joint development agreement with D1 in respect of the Land, and paragraph 2 of the recital stated that the Property had already been constructed thereon, and then paragraph 3 of the recital stated that Party A and D1 and others had already reached an agreement regarding division of profits and that the guaranteed profits D1 would receive or already received would be calculated in HK Dollars, and Party A’s profit would be the profit from the sale of the Ground Floor less the total capital invested by Party A and Party A’s 1/3 share of the premium and other remaining expenses.   As stated earlier, Party A in the G/F Transfer Agreement was YS Chan.

79.  The recital in the 1/F Transfer Agreement was in exactly the same terms as that in the G/F Transfer Agreement but as the 1/F Transfer Agreement concerned the transfer by D6 of the 1^st Floor to D4, thus Party A was D6.  

80.  The letter from WH & Co of 11 January 2019 in response to Ds’ present solicitors’ enquiry of 10 January 2019 stated that Party A in the recital of the 1/F Transfer Agreement referred to D6. 

81.  Thus, on the face of the two Transfer Agreements, it would appear that there were two joint development agreements in respect of the Land, one between D1 (and others) on one part and YS Chan on the other part as referred to in the recital of the G/F Transfer Agreement and another one between D1 (and others) on one part and D6 (but not D5) on the other part as referred to in the recital of the 1/F Transfer Agreement.  It was however not Ds’ case, nor was it the evidence of D5 or D6 that they or D6 had on her own entered into a joint development agreement with D1 in respect of the Land and the Building Rights.

82.  D5 had said the first time he met D1 was on 27 January 1994 at the office of WH & Co.  D6 said she had only been to WH & Co to sign documents on two occasions.  She could not recall whether she met D1 the 1^st or 2^nd of the two occasions, but said she had met D1 on one of those two occasions.  There was no sufficient evidence to contradict what they said.  D6 in particular had said at the trial she did not understand what distribution of profits meant in the 28.07.93 Agreement and did not know that she and D5 had to pay for the construction costs of the Property pursuant to the 28.07.93 Agreement.

83.  Anyway, D5 was adamant that he had never signed any joint development agreement directly with D1.  It did not seem likely that D6 would have signed a joint development agreement on her own with D1.  In any event, whether D6 did or not, as seen earlier, Party A in the G/F Transfer Agreement was clearly YS Chan and D1 had also signed on the agreement to signify his acknowledgment and consent to the matters stated therein. 

84.  Having considered all the evidence, and notwithstanding the evidence of D5 and D6 being confusing and Ds’ failure to call Mr Chu, I find that there was indeed a joint development agreement, signed by at least YS Chan and D1 in respect of the development of the Land and the Building Rights, which contained the terms as pleaded by Ds.  My reasons for so finding include the following:

(1)  As seen in the authorities, there have been various “devices” adopted in the transfer of “Ding” rights in land in New Territories by an indigenous male villager entitled to those rights.  In the present case, the “device” adopted in the sale or transfer of D1’s rights and interests in the Land and the Building Rights had been by way of a “joint development agreement” with a “developer”, as seen in the Gleeful Agreement and the Citilight Agreement.

(2)  It is also clear in the present case that D1 had no intention of holding on to his rights and interests in the Land and/or building the “Small House” himself as he had entered into the Gleeful Agreement years before even the New Grant was issued to him.  In fact, before the cancellation of the Gleeful Agreement, he entered into the Citilight Agreement without disclosing to Citilight that he had earlier signed the Gleeful Agreement and instead stating that he had not entered into any agreement with any one in relation to the transfer of his “Ding” rights[23], which was clearly untrue.

(3)  As it was not really disputed and I have so found that the Citilight Agreement was cancelled and the Cancellation Paragraph on the Citilight Agreement which was dated 28 July 1993 had referred to a “new developer”;

(4)  In light of the past history, it would seem unlikely that D1 would have entered into an oral agreement with the new developer and I find it more probable than not, D1 would have entered into a new joint development agreement with the new developer upon the cancellation of the Citilight Agreement.

(5)  WH & Co had in their letter of 2 November 2018 referred to YS Chan as D1’s “developer” and had further stated that they would hold the original New Grant until a request jointly made by D1 or his developer YS Chan and Ds or a court order, without mentioning Citilight at all, which in my view would seem to indicate that YS Chan had taken the place of Citilight and had become the new developer, or in effect the new purchaser of the Land and the Building Rights.

(6)  As the Cancellation Paragraph in the Citilight Agreement was signed on 28 July 1993, and that was also the day that YS Chan signed the 28.07.93 Agreement with D5 and D6, it would seem more probable than not that the new joint development agreement D1 signed with the new developer YS Chan would have been signed on the same day, prior to the signing of the 28.07.93 Agreement.

(7)  As mentioned earlier, D1 had signed on the G/F Transfer Agreement, and by doing so, he had acknowledged and agreed what was stated in the agreement to be true and correct.  In particular, D1 had acknowledged and agreed that : (i) he had previously signed a joint development agreement in respect of the Land with YS Chan; (ii) a “Small House” had already been built on the Land by YS Chan; (iii) D1 and YS Chan had already reached an agreement in relation to distributions of profits from the joint development of the Land; (iv) guaranteed profits received or to be received by D1 would be calculated in Hong Kong dollars; (v) YS Chan’s profits would be the net sale proceeds of Ground Floor, after deducting YS Chan’s total investments and his 1/3 share of the premium and expenses; (vi) D1 agreed to YS Chan transferring all his interests in the joint development with D1 including profits to D2 and D3.

(8)  Thus, from the above terms, I find it more probable than not that there was a joint development agreement D1 had signed with YS Chan which provided for YS Chan to build a “Small House” at his own costs and to pay a guaranteed profit to D1.  Further, the agreement had provided for YS Chan’s profits to be from his net sale proceeds of Ground Floor, which would mean that YS Chan had the right to sell his interests in respect of the Ground Floor.

85.  Thus, whether it was 2-party, 3-party or 4-party or whether others were involved together with YS Chan or not, it is my finding that more probable than not that the 1993 JD Agreement as pleaded by Ds did exist and that pursuant thereto D1 had agreed to transfer all of his interests in the Land and Building Rights to YS Chan in return to YS Chan constructing a “Small House” at his own costs and to pay a guaranteed profit to D1.

The D5 Transfer Agreement and the 28.07.93 Agreement

86.  As said earlier, during the trial, D5 had mentioned that there was another agreement, or the D5 Transfer Agreement, which he and D6 had signed with YS Chan.  There had been no reference by D5 to such an agreement whether in the pleadings, or in his joint 1^st and 2^nd affirmations with D6 or in his witness statements.  On the first day of the trial, D5 had maintained that he had signed two agreements with YS Chan, one was the D5 Transfer Agreement and the other was the 28.07.93 Agreement.  However, later, D5 seemed to waver and his evidence was that the 28.07.93 Agreement was a joint development agreement as well as an agreement to purchase the 1^st and 2^nd Floors of the Property.

87.  As said earlier, D6’s evidence was that she did not know what documents were signed by her.

88.  Insofar as the 28.07.93 Agreement was concerned, it would appear from the 10.08.93 Invoice that the 28.08.93 Agreement was likely to be the Chinese agreement drafted by WH & Co as referred in that invoice.  In fact, the original of the 28.07.93 Agreement is still in the possession of WH & Co.  In any event, having considered the evidence of D5 and D6, I accept their evidence that the 28.07.93 Agreement was indeed signed by them with YS Chan on 28 July 1993 at the office of WH & Co.

89.  As to whether there was another D5 Transfer Agreement signed by D5 and D6 with YS Chan, the 28.07.93 Agreement was titled “有關合作發展將軍澳村第441地段248約事宜, namely “In relation to the matters of the joint development of the Land” and the recital had referred to an earlier 4-party joint development agreement.

90.  After the recital, Clause (1) of the 28.07.93 Agreement stated that the 3 Parties, namely Party A being YS Chan, Party B being D6, and Party C being D5 and D6 agreed to sign the agreement to stipulate the apportionment of the profits between the 3 parties in relation to the small house to be constructed.  Clauses (2) to (4) then respectively stated that the 3 parties agreed to each being entitled to the sole/exclusive possession of one of the floors of the small house to be constructed, namely Party A (YS Chan) being entitled to the sole possession of the Ground Floor to the exclusion of Party B and Party C, Party B (D6) being entitled to the sole possession of the 1^st Floor to the exclusion of Party A and Party C, and Party C ( D5 and D6) entitled to sole possession of the 2^nd Floor to the exclusion of Party A and Party B.  Then, Clause (5) stated that all three parties agreed that all the costs of the development including construction costs, premium and all miscellaneous expenses were to be borne by the 3 parties in equal shares.

91.  The title of the G/F Transfer Agreement, the 1/F Transfer Agreement and in fact also the G/F Preliminary Agreement was “轉讓合作發展協議”.  The title of the 28.07.93 Agreement was quite different and was stated to be in relation to the matters of the joint development of the Land, which seemed to indicate that it was an “addendum” and that there had already been an earlier or another agreement entered into between YS Chan and D5, D6 in relation to the joint development of the Land.  

92.  The services rendered in the 10.08.93 Invoice had been set out earlier in this judgment.  The 10.08.93 Invoice was issued to 3 persons namely YS Chan/D5/D6 and the reference in the 10.08.93 Invoice to attending execution of “other new development agreements” would in my view also support that there were probably other new development agreements executed by YS Chan, D5 and D6 at WH & Co’s office for which the 10.08.93 Invoice was issued.  It is not possible to say whether one of these “new development agreements” was a transfer agreement or D5 Transfer Agreement or not.

93.  In any event, although the evidence of D5 and D6 was confusing, bearing in mind that they were not highly educated and were buying a “Ding” house for the first time, whether there had been an earlier joint development agreement or the D5 Transfer Agreement or not, I find that so far as D5 and D6 were concerned, the effect of signing the 28.07.93 Agreement was that they were purchasing the 1^st and 2^nd Floors of the Property.

The G/F Preliminary Agreement, 27.01.94 Agreement, the G/F Transfer Agreement and the 1/F Transfer Agreement

94.  It was Ds’ evidence the Property was substantially built by about end of 1993, and that D5 and D6 then moved in. It was the evidence of D5 and D6 that initially they had wanted to purchase two floors and D5 had said there was no particular reason why D6 was to have 1^st Floor and that the two of them were to have the 2^nd Floor jointly.  D5 had agreed that all the money came from him, and that it was his idea that the 1^st Floor was to be held by D6 in her sole name.  It was the evidence of D5 and D6 that after they moved into the 2^nd Floor, they changed their minds to have two floors and decided to sell the 1^st Floor for HK$1,080,000.  They then told YS Chan.

95.  In about late 1993, D5 and D6 were told that YS Chan had lined up a potential purchaser for the 1^st Floor, and this turned out to be D4.

96.  According to D4, he was a childhood friend of YS Chan and that in around late 1993, YS Chan had told him that he was developing a “Small House” in New Territories and D4 was asked whether he would be interested in purchasing one of the floors.  D4 said he did not previously know D1, or D5 or D6.  D4 said he was accompanied by YS Chan to view the Property in about late 1993 and it was then he was introduced to D5 and D6.  D4 said that after viewing the 1^st Floor, he really liked it and decided to purchase the same.

97.  According to D6, D4 had gone to view the Property on two occasions, the first time D4 only looked around, and then D4 then telephoned her and said he would buy the 1^st Floor and then he went to meet her at the Property again, this time bringing HK$480,000 in cash to pay her, and that the balance of HK$600,000 was to be paid upon signing formal documents at the solicitors office.  D6 said she did not issue any receipt or wrote down anything to record the payment, and that if there was anything in writing, it would have been done by her husband D5.

98.  Anyway, after D4 decided on the 1^st Floor, he said YS Chan had asked him if he knew anyone who would be interested in buying the Ground Floor.  D4 said he then thought of D2 whom he knew through his occupation as a taxi driver.  D4 later introduced D2 and D3 to YS Chan.

99.  D2 said he did not previously know D1 or YS Chan.  In about late 1993, he and D3 were accompanied by YS Chan to view the Property and he was told that the asking price for the Ground Floor was HK$1.2m, and that after viewing, he and D3 liked it and decided to purchase the same as co-owners.  They were told by YS Chan that they would be required to pay a deposit of HK$50,000 upon signing of a preliminary transfer of joint development agreement, and then a further sum of HK$800,000 was to be paid at the solicitors’ office upon signing of a formal joint development transfer agreement, and that the balance of HK$350,000 was to be paid within 7 months of the date of the formal agreement.

100.  Later, on 19 January 1994, D2 met up with YS Chan and    they signed the G/F Preliminary Agreement that day.  D4 had signed thereon as a witness.  D2 said he signed on behalf of himself and D3 and that he had handed to YS Chan a cheque for HK$50,000 as deposit upon signing of the G/F Preliminary Agreement.  D2 had produced a copy of a cheque dated 20 January 1994 for the sum of HK$50,000 with the payee’s name left blank but there was a receipt chop by a Kingland Construction Company[24].  Although the G/F Preliminary Agreement was only produced by D2 at the trial, D2 did mention the same in his witness statement. 

101.  D2’s evidence was corroborated by D4.  I accept his evidence that the G/F Preliminary Agreement was signed by him on behalf of himself and his brother D3 with YS Chan and that he had handed the deposit cheque to YS Chan afterwards.

102.  Ds were later all notified by YS Chan to attend the office of WH & Co on 27 January 1994 to sign the relevant documents.  Present at the Joint Meeting were D1, YS Chan, Ds and Mr Chu.  It was at the Joint Meeting that the G/F Transfer Agreement and the 1/F Transfer Agreement were signed.

103.  It was Ds’ pleaded case that at the Joint Meeting on 27 January 1994, D1, YS Chan and Ds had acknowledged and agreed 3 matters, namely:

(i)  D1 be entitled to receive his guaranteed profit in return for his agreement to transfer his beneficial interest in the Land to the following persons;

(ii)  YS Chan agreed to transfer his beneficial interest in the Land with exclusive possession of the Ground Floor to D2 and D3;

(iii)  D6 agreed to transfer her beneficial interest in the Land with exclusive possession of the 1^st Floor to D4.

104.  As said earlier, Ds had produced the G/F Transfer Agreement and the 1/F Transfer Agreement.  The 29.01.94 Invoices issued to D2 in respect of the Ground Floor and to D4 in respect of the 1^st Floor had referred to WH & Co preparing a Chinese agreement in assigning the interest and benefit of the Development Agreement of the Land and attending execution thereof.

105.  It was not really disputed that the G/F and 1/F Transfer Agreements were prepared by WH & Co and signed at their office on 27 January 1994.  WH & Co has further confirmed that the originals are still in their possession.

106.  Ds’ evidence was largely consistent. Both D2 and D4 were high school graduates.  D3 was educated to elementary/primary school level.  Like D5 and D6, they were all first time buyers of “Ding” houses and had no previous experience in the buying and selling of “Ding” houses.  I find them generally credible witnesses.

107.  As said earlier, the G/F and 1/F Transfer Agreements were both signed by D1 acknowledging and agreeing to the contents thereof.  Having considered the two Transfer Agreements, the 29.01.94 Invoices, and Ds’ evidence, I find that the G/F and 1/F Transfer Agreements were indeed signed at the Joint Meeting on 27 January 1994 and by the persons as stated therein, and that there was the 27.01.94 Agreement as pleaded.

The common intention constructive trust and/or resulting trust

Common Intention

108.  It was Ds’ pleaded case that the Common Intention was formed between D1, YS Chan, and Ds on or about 27 January 1994 and the Common Intention was:

(1)  1/3 of the beneficial interest in the Land be vested in D2 and D3;

(2)  1/3 of the beneficial interest in the Land be vested in D4;

(3)  1/3 of the beneficial interest in the Land be vested in D5 and D6;

(4)  D1 had no beneficial interest in the Land;

(5)  YS Chan to have no interest in the Land;

(6)  Ds to pay for the additional land premium to the Government 3 years after issuance of the Certificate of Compliance and D1 was to complete the formality of assigning his legal/paper title in the Land to Ds;

(7)  D1 acknowledged that he had previously received the guarantee profit from YS Chan and needed not refund the guaranteed profit to YS Chan.  The payments by Ds to YS Chan were to be regarded as payments to D1 for purchasing the Land including the Property.

109.  It was further pleaded that under the Common Intention, the G/F Transfer Agreement and the 1/F Transfer Agreement were entered into as evidence the Common Intention, and further under the Common Intention: -

(1)  D2 and D3 paid HK$1.2m to YS Chan who in turn had paid D1 the guaranteed profit;

(2)  D4 paid HK$1.09m to D6 who had paid YS Chan whilst YS Chan had previously paid D1 the guaranteed profit;

(3)  D5 and D6 had previously paid HK$2.28m to YS Chan who in turn had already paid D1 the guaranteed profit.

110.  Further, Ds had moved into the Property and had lived there until todate and had been paying for all outgoings of the Property.  As earlier, it was also Ds’ pleaded case that they had purported to make payment for the additional premium in about September 2000 and that D1 became evasive and avoided contact with Ds and Ds then lost contact with D1 until about November 2015 when D4 saw him by chance inside the Village.

The legal principles

111.  As has been said by Yuen JA in the case of Lau Kwai Kiu v Bian Xintian [2012] HKLRD 954 (CA)[25], in affirming Yam J’s approach in the trial[26]:

“43. The Judge was not entitled to make any assumptions about the nature of the documents in the case just by reason of the location of the property in question, but that is not to say that he was bound to accept them at face value. These documents were not of a binding nature and the Judge was entitled, and in fact under a duty, to consider them in the light of all the surrounding circumstances, including the plaintiff’s expenditure of money on, and her occupation of, the property.”

112.  As submitted by Mr Siu, which I accept, the Court must consider the express wordings of the “various devices” against the peculiar background of the Small House Policy and bear in mind that those devices are actually created in an attempt to avoid the restrictions imposed by the Government, in particular the non-alienation clause and that those devices are deliberately drafted in a way as if they are not a sale and purchase agreement and in the present case, as in Lau Kwai Kiu, the consideration for the transfer of interest was not even expressly stated in the devices.

Surrounding circumstances and corroborative surrounding circumstances

113.  I have said earlier that as seen from the Gleeful Agreement and the Cililight Agreement, the “devices” which D1 had been involved in transferring his interests in the Land and the Property had been by way of a “joint development agreement”.  I have found that the 3 written agreements alleged by Ds, namely the 28.07.93 Agreement, the G/F Transfer Agreement, and the 1/F Transfer Agreement were indeed signed by the various persons therein as alleged by Ds.

114.  As said by Yuen JA in Lau Kwai Kiu, this Court is not bound to accept those written agreements at face value and is entitled to consider all the surrounding circumstances.

115.  Mr Siu had set out in Ds’ Closing Submissions some 21 surrounding circumstances and 16 corroborative surrounding circumstances including the matters set out hereinafter in support of Ds’ claim on the common intention constructive trust and/or resulting trust regarding their respective 1/3 interest in the Land and the Property. 

Payments and occupation by D5 and D6

Payments

116.  As found earlier, there was the 1993 JD Agreement signed at least by D1 and YS Chan and that the terms of the agreement were as pleaded.  Thus, all D1’s rights and interests in the Land including the Building Rights would be transferred to YS Chan and that YS Chan would construct a “Small House” at his own costs and pay a guarantee profit to D1.

117.  I have also found earlier that D5 and D6 agreed to participate in the joint development of the Land with YS Chan at a consideration of HK$2,280,000 in return of which after the completion of the “Small House”, they would be entitled to exclusive possession of the 1^st and the 2^nd Floors. 

118.  D5 and D6 had produced copies of two Wing Lung Bank cheques both in favour of YS Chan and two other persons, namely Wong Ai Kwan (黃愛群) (“Mr Wong”) and Cheung Shek On (張錫安) (“Mr Cheung”), one no 718761 dated 9^th July 1993 for HK$700,000[27] and the other one no 718764 dated 31 July 1993 for HK$1,025,000[28].

119.  In D5’s witness statements, he had said that the cheque for HK$700,000 was drawn in favour of Junk Bay Construction Company  (“Junk Bay”) pursuant to YS Chan’s instructions[29]. This turned out to be not correct.  D5 had also produced two official receipts issued by Junk Bay, one for the sum of HK$700,000 and one for the sum of HK$1,025,000[30]. The official receipt issued by Junk Bay for HK$700,000 was for a Wing Lung Bank cheque no 718760.  During the trial, D5 had produced a copy of this cheque to show it was cancelled[31]. However, the cancelled cheque was in fact drawn in favour of YS Chan, Mr Wong and Mr Cheung and it was then replaced by the one no 718761 dated 9 July 1993 also drawn in favour of the YS Chan, Mr Wong and Mr Cheung and not Junk Bay.  Anyway, to demonstrate that the official receipts issued by Junk Bay were in respect of the two cheques drawn in favour of YS Chan, Mr Wong and Mr Cheung, D5 had produced a copy of the Wing Lung Bank credit advice to show that the cheque 718764 for HK$1,025,000 was indeed credited into a bank account held in the joint names of YS Chan, Mr Wong and Mr Cheung[32].

120.  Since the official receipts issued by Junk Bay bore the cheque numbers of D5’s Wing Lung Bank cheques to YS Chan, Mr Wong and Mr Cheung, I accept D5’s evidence that those receipts were in respect of the payments made by his two cheques.  I further accept his evidence that his two cheques were drawn in favour of YS Chan, Mr Wong and Mr Cheung pursuant to YS Chan’s instructions.

121.  The two cheques totalled HK$1,725,000.  When asked about the balance, D5 had said during the trial that he had paid YS Chan the balance of HK$555,000 about a month after the signing of the 28.07.93 Agreement, by two instalments, one instalment of HK$260,000 was by cheque and the balance was by cash.  He said he had mortgaged his taxi with the assistance of YS Chan in order to raise the amount for the balance.  He agreed that the mortgagee/finance company of the taxi had paid him by cashier order, but he then withdrew cash to pay YS Chan.

122.  D5 said he did not keep a copy of the cheque for HK$260,000 and that he had paid YS Chan privately and he could not recall whether the cheque was drawn in favour of 3 persons, ie YS Chan, Mr Wong and Mr Cheung, or only in favour of YS Chan.  There was no receipt produced by D5 in respect of the balance payment of HK$555,000.

123.  D5 did not mention in his 1^st and 2^nd Affirmations, nor in his witness statement that he had paid the balance of HK$555,000 to YS Chan in the manner described above by him during the trial.  It was put to D5 that he did not pay the balance of HK$555,000 to YS Chan to which D5 did not agree. 

124.  I accept there was no receipt issued by YS Chan nor was there any documentary evidence/cheque produced to show that the balance of HK$555,000 was indeed paid by D5 to YS Chan. 

125.  However, there was no evidence to contradict the evidence of D5 and D6 that they later decided to sell the 1^st Floor to D4, a friend of YS Chan, and this then led to the signing of 1/F Transfer Agreement which I find was indeed signed by the persons therein at the Joint Meeting.  YS Chan was present at the Joint Meeting.  If by then, YS Chan had not yet received the balance of the HK$2,280,000 from D5 and D6, it would seem inherently improbable that YS Chan would agree and even assist D6 in selling the 1^st Floor to D4 and for D6 to receive all the consideration from D4 without YS Chan himself being paid.  

126.  Having considered the evidence, it is my finding that more probable than not, that by 27 January 1994, YS Chan had received the consideration of HK$2,280,000 in full from D5 and D6.

Occupation

127.  As mentioned earlier, it was the evidence of D5 and D6 that the Property was built completed by late 1993 and they had moved into the 2^nd Floor then.  D6 had produced a copy of a “Confirmation of Application for Electricity Supply”[33], which indicated that there was a change of name application dated 2 November 1994 by her, although it seemed to be received by China Light & Power Company Limited only on 7 December 1994.  It was not clear prior to the “Name Change” who was the holder of the electricity account.  In any event, as the application was not for “new supply”, it would appear that there had been electricity supplied to 2^nd Floor prior to 2 November 1994 (date of Name Change). 

128.  As seen later, it would appear that all Ds applied for the application for name change on about the same date in early November 1994.   When D4 was asked about this, D4 had explained that there was electricity supply prior to the application for name change, as one could use the electricity supply from the neighbouring house by connecting the electricity wires from the neighbouring house to the Property.

129.  Thus, even though the application for electricity account to be changed to D6’s name was made only in November 1994, this would not necessarily contradict the evidence of D5 and D6 that they moved into the 2^nd Floor at end of 1993 and would show that at least by early November 1994, they were living there.

130.  D5 and D6 had also produced two copies of rates and government rent demand notes, one for 1^st quarter of 2009 and the other one for 1^st quarter 2015, both sent to D5 at the address of the 2^nd Floor[34]. 

131.  Although D5 and D6 did not produce any utilities bills between end of 1993 and 2015 save as above mentioned, as said earlier, I find them credible witness and accept their evidence that they moved into the 2^nd Floor at about end of 1993, or at least by early November 1994, and have since been living there with their family members and they have been paying the utilities and expenses including the rates and government rents since.

Payments and occupation by D4

Payments

132.  As mentioned earlier, after D4 decided to buy the 1^st Floor from D6 at the agreed consideration of HK$1,080,000, he had paid D6 in cash HK$480,000 as a 1^st instalment and subsequently at the Joint Meeting, upon signing the 1/F Transfer Agreement, and on the same day, he wrote a cheque for HK$600,000 to D6 for the balance of the payment.  He had produced a copy of the cheque for HK$600,000[35] .

133.  Even though HK$480,000 seemed a large amount to be paid in cash, it was not inherently improbable for D4 to pay that amount in cash and there was no sufficient evidence to contradict what D4 and D6 had said. Anyway, D6 confirmed that she had received the consideration for the sale of the 1^st Floor in full from D4 and I accept their evidence in this respect.

Occupation

134.  D4’s evidence was that he and his wife and their 3 children moved to the 1^st Floor in around early 1994 and all 5 of them have lived there until now.  He had also produced a copy of a “Confirmation of Application for Electricity Supply”[36], which indicated that there was a change of name application of the electricity account to the name of D4’s wife and received by China Light & Power Company Limited on 7 December 1994, similar to the application made by D6.  The date of “Name Change” was stated to be 23 November 1994 and again as the application was not for “new supply”, it would appear that there had been electricity supplied to 1^st Floor prior to that date.  As mentioned earlier, it was also D4’s evidence that one could use the electricity supply from the neighbouring house.

135.  D4 had further produced copies of (i) a gas bill for supply of gas  dated 3 February 1994, (ii) a demand note for installation of water meter dated 30 August 1995 and a water bill issued on 12 May 2011, and (iii) demand notes for rates and government rent for the 2^nd quarter 2008 and 1^st quarter 2016[37].

136.  Having considered the above, I accept D4’s evidence and that he and his family moved to the 1^st Floor in early 1994 and have since been residing continuously on 1^st Floor, and that they have been paying for the various utilities bills and expenses including rates and government rent since.

Payments and occupation by D2 and D3

Payments

137.  The consideration for the purchase of the Ground Floor by D2 and D3 was HK$1.2m.  As said earlier, D2 had produced a copy of his cheque dated 20 January 1994 for the initial deposit of HK$50,000 and that on the copy of the cheque produced by him there were handwritten words acknowledging the receipt and there was a chop of a company Kingland Construction Company although there was no signature by the recipient.  D2 had said during the trial he believe that the company was YS Chan’s company and that the handwritten words thereon were written by YS Chan.

138.  As for the 2^nd instalment of HK$800,000, according to the G/F Preliminary Agreement, D2 was to pay this at the solicitors’ office.  He said during the trial that he did bring along either a cheque or a cashier order for HK$800,000 to WH & Co on 27 January 1994 but was told by YS Chan to change to 3 cashier cheques in favour of respectively YS Chan, Mr Wong and Mr Cheung, for the sum of HK$266,667 each. He then went and bought 3 cashier cheques on 29 January 1994, each in the sum of HK$266,667, respectively in favour of YS Chan, Mr Wong and Mr Cheung[38].  D2 had produced a copy of these cashier cheques.  There were 3 Chinese words “收款人” and a signature of a person who appeared to be Mr Cheung on the copy of the cashier cheques. D2 claimed he did not know who that person was.  D2 initially said he handed the 3 cashier cheques to YS Chan when YS Chan returned to him his cheque for HK$800,000 and handed over the keys to the Ground Floor to him at the Property on 29 January 1994. 

139.  D2 agreed that the cheque he issued for payment of the invoice of WH & Co was from his bank account at Dao Heng Bank.  He had explained that he did have an account at HSBC at the time, and that when he sold his taxi to buy the 1^st Floor, the purchaser of his taxi had given him a cashier cheque which he had credited into his HSBC account, and therefore he then decided to buy the 3 cashier cheques from HSBC.  As to why he did not issue 3 cheques, he said it was on the instructions of YS Chan that he bought the cashier cheques instead.  He agreed that the requirement for the payment by cashier cheques was not mentioned in the G/F Preliminary Agreement

140.  What D2 said under cross examination was inconsistent with his evidence in paragraph 14 of his witness statement.  What he had said in paragraph 14 was that he bought the 3 cashier cheques on 29 January 1994 and later that day he went to WH & Co to complete the transaction when he handed the 3 cashier orders to Mr Chu, and also paid WH & Co’s invoice by a cheque.  D2 had admitted that paragraph 14 was not correct.

141.  When asked about his inconsistency, D2 said he had only been to WH & Co once.  Although D2 had said earlier that the original cheque for HK$800,000 was given back to him in exchange for the 3 cashier cheques on 29 January 1994, he later then said that it should be on 27 January 1994 that he and YS Chan had already agreed to a time for the handing over of the 3 cashier cheques and that the original cheque for HK$800,000 was given back to him by YS Chan then and there on 27 January 1994.  D2 had also said D1 was present at the time when the keys were handed to him by YS Chan and this was on 27 January 1994.  It was also D2’s evidence that the photocopy of the 3 cashier cheques with signed receipt thereon was given to him by YS Chan at the time when he met YS Chan for the payment of the balance of HK$350,000.

142.  According to D2, he only went to the office of WH & Co once when he had given a cheque for HK$6,800 to WH & Co to pay for their bill.  It seemed clear that D2 was present at the Joint Meeting and had signed the G/F Transfer Agreement on 27 January 1994 and therefore D2 must have given his cheque for HK$6,800 to WH & Co on that day.  In fact, WH & Co’s receipt was dated 28 January 1994[39]. Since there was no evidence that D2 had gone again to WH & Co on 29 January 1994 to meet with YS Chan, he must have given the 3 cashier cheques to YS Chan elsewhere on 29 January 1994. 

143.  Notwithstanding that D2’s evidence in relation to when and how the 3 cashier cheques were handed to YS Chan was inconsistent and confusing,   the fact that (i) D2 had in his possession a copy of the 3 cashier cheques with a receipt which appeared to be signed by Mr Cheung and (ii) the payees of the 3 cashier cheques were YS Chan, Mr Wong and Mr Cheung who were the same persons as the payees on the cheque mentioned below for the balance of HK$350,000 issued by D2, would in my view support D2’s case that the 3 cashier cheques were bought by D2 for the 2^nd instalment of the consideration of HK$1,200,000 for the purchase of the Ground Floor.  

144.  As for the balance of HK$350,000, this was paid by D2 by a cheque drawn in favour of YS Chan, Mr Wong and Mr Cheung[40].  In his witness statement, D2 said he gave the cheque to Mr Wong who acknowledged receipt.  During re-examination, D2 had said that the copy of the cheque with the signatures was given to him by YS Chan.  The copy of the cheque in fact bore 2 signatures, one appeared to be that of YS Chan and one appeared to be that Mr Wong and appeared to signify their receipt.

145.  In any event, as seen later, I accept the evidence of D2 and D3 that they moved to the Ground Floor in 1994 and D2 has been living there since.  Even though there was no receipt or record of D2 having handed over a cheque for HK$800,000 on 27 January 1994 to YS Chan, it does not seem probable that D2 could have occupied the Ground Floor all these years with no problems without having paid the consideration in full to YS Chan.

146.  Further, there was no sufficient evidence to contradict D2’s evidence and I accept his evidence that he had paid in full the consideration of HK$1,200,000 for the purchase of the Ground Floor. 

147.  As to whether D3 had reimbursed D2 in full his half share of the purchase price, D3’s evidence was there was a set-off between the brothers after the sale of a taxi jointly owned by him and D2.  There was no sufficient evidence to contradict D3’s evidence.  I accept his evidence that he had paid for his ½ share in Ground Floor.

Occupation

148.  According to D2, he moved to the Ground Floor with his wife and two children and his younger brother D3 around early 1994. D3 later moved out about 8 years ago.

149.  D2 had also produced a copy of a “Confirmation of Application for Electricity Supply” in relation to the Ground Floor[41], which indicated that there was a change of name application of the electricity account to the name of D4’s wife and received by China Light & Power Company Limited on 7 December 1994.  The date of “Name Change” was 23 November 1994, same as D4.  When D4 was asked why his wife applied for the electricity account of Ground Floor to be in her name, he had said as D2 and D3 were working in a garage, his wife was helping them in applying for the account in connection with the Ground Floor and that his wife had asked D2 and D3 to reimburse any charges she paid for them.  Anyway, during the trial, the evidence of D2 and D3 was that the electricity account had later been changed back to the Kong family’s name.

150.  As said earlier, even though the application for name change was made only in November 1994, it would appear the occupants of the Property could obtain electricity supply from the neighbouring house prior thereto. 

151.  D2 had produced a gas bill dated 3 May 2014 to show that the gas account was held in the name of his wife[42].  There were also 3 demand notes for rates and government rent for last quarter 1998, 1^st quarter of 2000 and 3^rd quarter 2015 issued to D3 at the Ground Floor address[43].

152.  Although there were no utilities bills from 1994 to 1998, there was no evidence to contradict the evidence of D2 and D3 and I find that D2 and D3 moved to the Ground Floor some time in 1994 and D2 and his family have been living there since, while D3 lived there since moving in until about 8 years ago.  I accept their evidence and find that all along during their occupation, they have been paying for the utilities and expenses of the Ground Floor, including rates and government rent. 

Whether D1 had any interest in the Land and the Property after 27 January 1994

153.  Paragraph 3 of the recital of the Transfer Agreements stated that “甲方及陳有光先生等人已就合作發展該地段之利潤分配達成了共識。陳有光先生將拿取或已拿取發展該地段之保証利益，以港幣計算。…”, or “Party A and [D1] plus others have already reached agreement in relation to the distribution of profits of the joint development of the [Land].  [D1] will receive or has already received the guaranteed profits of the development of the [Land], being calculated in HK Dollars”.   

154.  Mr Lau had submitted that it is clear that from the above Clause 3 that on 27 January 1994, D1 had not yet received (at least fully) the ‘guaranteed profit’ and that in the absence of a copy of the 1993 JD Agreement, it would be natural to infer that D1’s interest in the Land/Property had not yet been extinguished and would only be extinguished upon his receipt of all payments guaranteed or promised to him.

155.  Although initially when D5 was asked about the wording of paragraph 3 of the recital during cross-examination, D5 appeared to agree that the wording seemed to indicate that maybe D1 had not yet received part of the guaranteed profits, later during re-examination, D5 had said D1 should have received all the guaranteed profits on 27 January 1994.  D5 said he believed that D1 had received all the monies, otherwise D1 would not have agreed to the sale of the Ground Floor and the 1^st Floor at the Joint Meeting. It was also D5’s evidence that at the Joint Meeting, Mr Chu had told Ds that D1 had received all the money and that D1 no longer had any rights or interests in the Land/Property and Mr Chu had explained that 1/3 of the interests of the Land was D2’s and D3’s, 1/3 was D4’s and 1/3 was D5’s and D6’s.  There was no reaction from YS Chan or D1 who were present at the Joint Meeting during Mr Chu’s explanation. 

156.  D4’s evidence during the trial was also that Mr Chu had explained at the Joint Meeting that he was to have 1/3 of the interests of the Land, D2 and D3 1/3 and D5 and D6 1/3, and that D1 and YS Chan no longer had any rights or interests, but 3 years later, Ds would need to pay the additional premium for the removal of the Restriction. According to D4, Mr Chu had also told Ds that D1 had already received all the monies and that he would execute a will respectively in their favour. D4 also confirmed that when Mr Chu was explaining this to Ds, there was no reaction from D1 or YS Chan who were present.

157.  As mentioned earlier, D2 had also said that it was on 27 January 1994 that YS Chan gave the keys to the Ground Floor of the Property to D2 in the presence of D1.  

158.  Having considered all the evidence, I find it more probably than not that D1 had received all the “guaranteed profits” on 27 January 1994, otherwise D1 would not have consented to the onward transfer of interests in the Land and the Property to D2, D3 and D4.  In any event, by signing on the G/F and 1/F Transfer Agreements, D1 had acknowledged that Ds were to pay for the additional premium of the Land whereupon they could sell the Property and this was inconsistent with the interest of D1 as owner of the Land if he were to retain any interest.  Further, I find that the fact that D1 had indicated no objection to executing wills in respect of the interests of the Land and the Property in favour of Ds would further support Ds’ case that after 27 January 1994, D1 had no interests in the Land and the Property save for being the legal/paper title holder.

The Limited Wills

159.  As said earlier, Ds’ evidence was that they were told by Mr Chu at the Joint Meeting that D1 would execute wills in relation to the Property in their favour, although their evidence was that they did not see any of the Limited Wills at the time until their solicitors obtained copies just before the trial.

160.  P challenged the admissibility of the Limited Wills.

161.  The 3 Limited Wills were all dated 28 January 1994 and were in identical terms save for the number of the floor and the name/s of the beneficiaries and executors.  D1 executed the 3 Limited Wills to give devise and bequeath the Property to Ds respectively.  The Limited Wills did not deal with D1’s other assets.  They were prepared by WH & Co and executed in the presence of two witnesses one of whom was Mr Chu.  WH & Co are still holding the originals of the Limited Wills.  Even though Mr Chu was not called, I am prepared to accept Ds’ evidence that they were told at the Joint Meeting that D1 would be executing wills in relation to the Land/Property in their favour and in fact the costs of preparation and execution of those wills were paid for by Ds.  As seen in the 29.01.94 Invoices, the Limited Wills were prepared upon Ds’ instructions.  In my view, they were clearly prepared to protect Ds’ interests in the Land and the Property.

162.  There were no restrictions or conditions set out in the Limited Wills.  As seen in the 29.01.94 Invoices, there were relating “Deeds” executed at the same time as the Limited Wills which were prepared and executed pursuant to Ds’ instructions and the costs thereof were also paid for by Ds.  However, Ds’ current solicitors did not obtain these.

163.  The 3 Limited Wills indicated that as at the date thereof, D1 had intended that the Property was to be bequeathed to Ds if anything were to happen to D1.  Ds were also named respectively, not only the beneficiaries of the Property but also as executors of the Property.

164.  Since Ds were not related to D1, there was no reason as to why D1 would wish to bequeath to them the Property.  I am satisfied that D1’s due execution of the 3 Limited Wills further indicated that D1 had acknowledged that all his interests and rights in the Land and/or the Property had been assigned to Ds on 27 January 1994, subject to his legal/paper title. 

165.  I also find that the 3 Limited Wills support Ds’ case on the Common Intention, and that they had purchased their respective interests in the Land and/or the Property on 27 January 1994.

Other surrounding or corroborative circumstances

166.  After 27 January 1994, D1 did not retain the original of the New Grant or the original of the Certificate of Compliance, or it seems, the original of the Certificate of Exemption (of drainage)[44].  The originals of such documents form part of the title deeds of the Land and the Property, as D1 would not be able to sell or transfer or otherwise dispose of his rights and interests in the Land and/or the Property without the original New Grant or the original Certificate of Compliance.

167.  The fact that those title documents had to be held by WH & Co would be consistent with Ds’ case that D1 no longer had any rights and interests in the Land pursuant to the Common Intention.  In my view, more probably than not, the originals of these title documents were held by WH & Co to secure the performance of D1 to formally transfer his legal/paper title of the Land to Ds upon Ds payment of the additional premium. 

168.  Furthermore, by the time of the trial, Ds have been living inside the Property for some 25 years.  There was no evidence that they had to pay any rent, licence fees or payments for their occupation to D1, or indeed anyone else.  Even when D1 entered into loan agreement with Yeung Lee, D1 did not evict Ds from the Property.  There was no evidence that D1 had ever issued any legal proceedings against Ds as he had in relation to the Gleeful Agreement.  There was no evidence that D1 had after 27 January 1994 tried to transfer or “sell” his interests in the Land or the Property.  All this would indicate that D1 did not regard himself as having any beneficial interests in the Land or the Property.  The only mortgages he entered into were with P in January 2015, some 21 years after 27 January 1994.

Failure to call YS Chan and Mr Chu

169.  P did not accept that Ds could not get in touch with YS Chan.  Further, it was submitted on behalf of P that it must have also been a conscious decision on the part of Ds not to call Mr Chu or to ask Mr Chu to tender the relevant file of WH & Co on the matter, and that this Court should draw adverse inference against Ds for failing to call YS Chan and Mr Chu.

170.  Although there was no mention of this in Ds’ witness statements, it was the evidence of Ds that in September 2000 when they were trying to find D1 in relation to the matter of payment of additional premium they had also tried to find YS Chan. 

171.  D5 had at first said he had not made any efforts to try to contact YS Chan after 27 January 1994 and that in 2000, he was only trying to contact D1 in relation to the payment of premium and did not try and contact YS Chan.  However, as D5 did not have the contact number of D1, he had asked Mr Chu to contact D1 for him but there was no response from Mr Chu. Later, D5 then said when he could not find D1 in 2000, he had also tried to contact YS Chan but was unable to find either of them and that after the commencement of this action, D5 said he had again tried to contact YS Chan at the number given to him by Mr Chu but again failed to contact YS Chan.   Although D6 was introduced to YS Chan through her friend, D6 had said YS Chan was not a close friend and that her only contact with YS Chan was in relation to the purchase of the 1^st Floor and the 2^nd Floor of the Property.

172.  D4’s evidence was that he had also tried to contact YS Chan in 2000 in trying to find D1, but was not able to find YS Chan. Although D4 had said he YS Chan was a childhood friend of his, he had explained that they used to play together during childhood days but they not were really that close, and that in 2000, he was not able to reach YS Chan by his telephone number.

173.  The evidence showed YS Chan was out of the picture after 27 January 1994 or latest by August 1994 when he received the balance of the payment from D2 for the Ground Floor.  Anyway, by September 2000, it was some 6 years later.  Having considered their evidence, I do not find it improbable that Ds were not able to find YS Chan in September 2000.  There was no evidence anyway as to YS Chan’s relationship with D1 or whether YS Chan would be able to find D1.  As to whether YS Chan would be able to shed any light on the Common Intention, in my view, it would be sufficient for Ds to rely on the documents and the surrounding circumstances and in any event, there was nothing to contradict Ds’ evidence that they were unable to find YS Chan.

174.  Ds had also said D1 had been avoiding contact with them.  Ds’ evidence was that they only met him for the first time at the Joint Meeting and that they had to rely on Mr Chu in order to contact D1.

175.  As mentioned earlier, it was D4’s evidence that in about November 2015, he had by chance saw D1 inside the Village.  There was no reason why D4 would want to make this up.  I accept his evidence and find it more probable than not that it was D1 who had been avoiding contact with Ds.  I also accept Ds’ evidence that they were not able to find D1.

176.  It was clear that WH & Co had acted for D1, YS Chan and Ds at the time of Ds’ “development” or “purchase” of the Land and the Property and had continued to deal with matters pertaining thereto at least until 1998, including obtaining the Certificate of Compliance and registering the same at the Land Registry.  

177.  Although there was no clear explanation as to why Mr Chu was not called, there was no sufficient evidence that Ds had objected to call Mr Chu.  Ds’ evidence was that they had tried to make enquiries directly from Mr Chu.  In particular, during the trial, D5 had mentioned Mr Chu on many occasions in his answers and the evidence indicated that there was no objection from D5 or any of Ds for their solicitors to make further enquiries or to obtain further information/documents WH & Co.  In fact, as seen earlier, it was only shortly before the trial that D’s solicitors even wrote to seek copies of the Limited Wills, which in my view could only be helpful to Ds’ case.  It was not clear why Ds’ solicitors had not written earlier, nor was it clear why they did not follow up thereafter to obtain documents for which their clients had paid for the preparation.  Ds are unsophisticated persons and they had relied on their present solicitors to deal with these proceedings.  Anyway, I do not find that there was sufficient evidence that the failure to call Mr Chu would necessarily mean that Mr Chu’s evidence would not have helped Ds’ case.  I am not prepared to draw that adverse inference against Ds.   

Conclusion on the constructive trust and/or resulting trust

178.  Having considered all the surrounding and corroborative surrounding circumstances submitted on behalf of Ds and the above, although Ds evidence was confusing and at times inconsistent with their own witness statements, as said, I have found that they were generally credible witnesses. I am satisfied that there was the Common Intention as pleaded and that there was a common intention constructive trust as pleaded, and Ds have acted in detrimental reliance on the Common Intention by paying for the “purchase” price and all outgoings of the Property.  Alternatively, I am satisfied that there was a resulting trust by reason of Ds’ payments.  I am further satisfied that D1 had no interest in the Land and the Property after 27 January 1994, save a paper title, and that the nature of Ds’ payments were for their purchase of the Land and the Property and that Ds’ equitable and beneficial interest in the Land and the Property was acknowledged by D1 who is estopped from denying the same. 

Whether P was a “bona fide purchaser without notice”

CCF’s evidence

179.  The evidence of CCF in his witness statement was that on or about December 2014 D1 approached P through an intermediary, who indicated to P at the time that D1 wanted to borrow money for his business use and for repaying his then loan with another finance company namely Yeung Lee, and that the Property would be used as security for the loan.

180.  According to CCF, there was a team of 4 colleagues including himself who dealt with D1’s loan application, and that so far as CCF was concerned, he only met D1 on 20 January 2015 at the time of signing of the Loan Agreements. 

181.  It was CCF’s evidence that P had conducted a land search on 18 December 2014 of the Property and found that D1 was the registered owner and that there was no other encumbrance except Yeung Lee’s loan agreement. 

182.  CCF’s evidence in his witness statement was that at the time of D1’s loan application, D1 had produced to P the original stamped tenancy agreement dated 1 December 2014 (“Tenancy Agreement”) and other documents such as (i) D1’s Hong Kong identity card, (ii) address proof, (iii) various bank statements with the Bank of East Asia.  During the trial, when asked whether any other documents were produced by D1 to P, CCF mentioned there was also a “declaration” that D1 had declared that he had financed the building of the Property himself. 

183.  CCF also claimed that P had carried out credit assessment on D1, and site inspection of the Property, and due diligence in relation to D1’s loan application.  Thereafter in or about January 2015, P decided to grant a loan in the total sum of HK$6m to D1 first to pay off his then outstanding loan with Yeung Lee and the remaining balance to be advanced to D1 and that P then instructed its solicitors Messrs Chan & Tsu (“C & T”) to prepare the Mortgage Deeds and the Assignment of Rental and other legal documents after their due approval of the title deeds of the Property and other matters.

184.  According to CCF, on 20 January 2015, D1 then went to P’s office to sign the Loan Agreements and the memoranda of agreement, and then D1 was told to go to the office of C & T to sign the Mortgage Deeds and the Assignment of Rental and a cheque in the total sum of HK$3,578,799 was then drawn in D1’s favour by C & T.

185.  D1 paid 4 monthly instalments to P and since 20 June 2015, D1 ceased to pay. 

186.  However, CCF did not disclose in his witness statement that in fact on 19 June 2015, D1 had instructed solicitors Messrs Tung, Ng, Tse & Heung to write to P indicating that D1 was desirous to redeem the two mortgages with P and had asked P for the total amount of principal and interests payable on discharge.  P had then instructed C & T to prepare for the discharge on 22 June 2015. 

187.  It was not clear what happened to the proposed discharge and CCF was not cross examined regarding this.  As said earlier, it was only on 22 October 2015 that their present solicitors sent D1 a demand letter.

188.  P also claimed that they had made a report to the police on 22 September 2016 and denied that they had refused to provide details and documents to the police in relation to Ds’ report on 31 March 2016.  P said it had never been approached by the police for any request for information in relation to Ds’ report complaint to the police.

The “title deeds”

189.  Although CCF’s evidence in his witness statement appeared to be that P only instructed C & T after P’s due approval of the title deeds of the Property and other matters, during the trial, CCF had clarified that the title deeds were not provided by them to C & T, and that after the land search, it was C & T who prepared all the documents. 

190.  CCF admitted during the trial that he was not clear whether C & T had checked the originals or certified true copies or only photocopies of any “title deeds” at the time of preparing the Mortgage Deeds.  When asked whether D1 had produced any documents to P prove his ownership of the title to the Land and/or the Property at the time of his loan application, CCF’s answer was he could not recall but accepted that D1 did not provide to P the original, or certified true copies, or even photocopies of the New Grant or the Certificate of Compliance at the time of D1’s loan application. 

191.  As seen earlier, the originals of the New Grant and the Certificate of Compliance have always been in the possession of WH & Co until todate.  Further, the certified true copies of the New Grant and the Certificate of Compliance produced by P were only obtained on 3 February 2015, which can be seen by the chops of the Land Registry on those two documents[45]. Thus, neither P nor C & T would have the certified true copies of those two documents at the time of the preparation or at the time of the execution of the Mortgage Deeds.

192.  It was CCF’s evidence during cross examination that when P approved the loans, it was not necessary for P to see a copy of the New Grant or copies of title deeds and that there was no precedent or practice that P should have copies of title deeds.

193.  When asked when he first saw a copy of the New Grant, CCF at first said he could not recall and later said it was when C & T returned the “title deeds” to them.  P had produced a copy of a letter dated 7 September 2015 from C & T with an attached schedule of “title deeds and documents”[46]. Items 1- 6 appeared to be certified true copies of documents which were obtained from the Land Registry, including the certified true copies of the New Grant, the Gleeful Agreement, Gleeful’s defence and counterclaim, Certificate of Compliance and the order of 23 August 2000 in HCCW 25/1994 mentioned earlier.

194.  In any event, it was clear that at the time of entering into the Loan Agreements and the Mortgage Deeds, P did not have any proper title deeds of the Land and/or the Property or any evidence of D1’s ownership of the Land and/or the Property other than a copy of the land search indicating D1 was the registered owner.  Further, as seen in the letter dated 20 January 2015 from C & T to P, the only document which C & T seemed to have as proof of D1’s ownership was only a copy of a land search[47].

195.  The so called “title deeds” including the aforesaid certified true copies of the New Grant and Certificate of Compliance were eventually sent to P by C & T in their letter of 7 September 2015 but there was no information as to how or when C & T obtained them.  In any event, I find that C & T could not have obtained the certified true copies of the New Grant and the Certificate of Compliance prior to 3 February 2015.

Payment of the additional premium

196.  It was the evidence of CCF during the trial that at the time of D1’s loan application, P thought that the additional premium had been paid.  This was however never mentioned by CCF in his witness statement. 

197.  CCF admitted that P had never asked D1 to provide any evidence or confirmation that the additional premium had been paid.  CCF admitted he knew if the additional premium had not yet been paid, then the Land/Property could not be mortgaged, but he then said according to the intermediary who introduced D1 to P, there was no problem, but the intermediary was not called to give evidence.

198.  The Lawson Valuation Report was only prepared on 10 February 2015[48]. This was some 20 days after the execution of the Loan Agreements and the Mortgage Deeds.  As seen in the report, the valuation of HK$11m was subject to the payment of the additional premium to remove the Restriction.  CCF had claimed during the trial that prior to the issue of the Lawson Valuation Report, P had sought a valuation orally from the valuer and that the valuer had sent by email the value prior to its formal report.  According to CCF, the practice of finance companies was to lend 20% of the market value of a village house with additional premium fully paid and that at the time when P received the valuation by email, P did not know that the additional premium had not yet been fully paid.  A copy of the email referred to by CCF was never produced.  I do not find what CCF said was credible since even on its own case, P did not advance 20% of the valuation of HK$11m, and only advanced to D1 about 55% of the valuation of $11m.  I also find it improbable that any valuation of the market value of a “village house” would not be subject to full payment of additional premium and upon receipt of the valuation, P should have been alerted to the issue of additional premium.  

199.  When asked when P found out that the additional premium had not been paid, CCF had at first said it was after approval of the loans, and then he had said it was when the payments were overdue, and later he changed again to say that P learnt only in October 2015. 

200.  Even if P was not aware of this at the time of D1’s loan application, in an email, latest by 10 February 2015, on P’s own case, the Lawson Valuation Report had been issued and P must have known by then and at least alerted to the matter of the additional premium.  There was no evidence that P was caught by surprise or had confronted D1 over this matter.  

201.  Further, on about 19 March 2015, D1 had through P’s solicitors C & T applied to the District Lands Office in Sai Kung to remove the Restriction, as seen in a copy of the Demand Note sent by the District Lands Office to “D1 c/o Messrs Chan & Tsu” in relation to the payment of the administration fee of HK$4,360[49]. It would appear that P was at that time taking step to arrange for the Restriction to be removed.  In any event, by then, P ought to know that the additional premium had not yet been paid.  I thus do not find CCF’s evidence credible as to when P learnt of the additional premium not having been paid.

202.  CCF joined P as a director in 2013, and that he had been in the money lending business since 2007.  By early 2015, CCF had had 7-8 years experience in money lending.  After the New Grant and after the matter with Gleeful was resolved in 2000, for some 15 years, there had been no other mortgages or charges entered into by D1 prior to the Mortgage Deeds with P.  Even for the loan from Yeung Lee, Yeung Lee only registered the loan agreement in the Land Registry and did not enter into any mortgage of the Property as security.  As a money lender charges a very high interest and much higher than a bank, had D1 paid the premium in full, he could have obtained a mortgage loan from a bank at a much lower interest rate.  P ought to be aware of this.

203.  Having considered all the evidence, I find that P must know or ought to have known that D1 had not paid the additional premium in full at the time of his loan application.

The Tenancy Agreement

204.  As stated earlier, the Tenancy Agreement was purported to be entered into by D1 with a tenant Chan Bing Kwong on 1 December 2014 at a monthly rental of HK$36,000, inclusive of government rates and rent, and a two month deposit of HK$72,000[50]. The tenant’s Chinese name 陳丙光 differs from D1’s Chinese name 陳有光by only the middle Chinese character.  Although the Tenancy Agreement was dated 1 December 2014, it was not stamped until 23 December 2014.

205.  As pointed out by Mr Siu, the Tenancy Agreement was entered into in the same month as D1’s loan application.  According to CCF, P had conducted a land search on 18 December 2014 which would mean by then D1 had made an application for the loans.  

206.  I agree with Mr Siu that the fact that the Tenancy Agreement or the alleged tenancy was entered into less than 3 weeks prior to D1’s application for the loans should have put P on the alert.  However, there were no enquiries or investigation by P into the identity of the tenant, nor did P request for a copy of the Hong Kong Identity Card of the tenant.  In fact, the contact telephone number of the tenant was left blank on the cover page of the Tenancy Agreement.

207.  Further, under the loan agreement with Yeung Lee, D1 had covenanted and undertaken not to, without the prior written consent of Yeung Lee, amongst other things, part with possession of the Property or any part thereof (whether by way of tenancy lease or otherwise) after the date of that loan agreement[51]. There was no evidence that P had enquired or sought any confirmation from D1 or Yeung Lee that D1 had obtained the prior written consent of Yeung Lee when entering into the Tenancy Agreement.

208.  Although CCF said that there was site inspection, he conceded that the purpose of the inspection was to ascertain if there was a small house built on the Land.  There was no evidence that P had carried out any due diligence as to the status of the occupiers or residents inside the Property.     

209.  Further, as it was stated in the purported Tenancy Agreement that the monthly rental was HK$36,000 payable on the 1^st day of each calendar month (inclusive of all property tax, rates and government rent) and the rental deposit was HK$72,000, P could have asked D1 to produce evidence or receipt of the rental deposit and the rental income, or evidence of past payment of rates and government rent, prior to the drawdown of the loans.  When CCF was asked during cross examination, he said P had not asked D1 for any proof of rental payment, but he later then changed and said P did ask but D1 did not provide.  Yet, P went ahead to approve the drawndown. 

210.  Eventually, under re-examination, CCF disclosed that D1 had told P at the time of his loan application that that the Property was rented to his “brother” or his relative in the same village but D1 had told P that there was no written tenancy agreement and that it was only after P had requested for the same, that D1 then produced a copy of the Tenancy Agreement. This was never disclosed in CCF’s witness statement.  In any event, this should have put P even more on guard as to the alleged tenancy.

211.  It would appear from CCF’s evidence that P later accepted that the Tenancy Agreement was probably a false document as P found out that there was no person by the name of the purported tenant living at the Property.   According to CCF, P only found out in November 2015 when P sent its staff round to the Property to look for D1 and the tenant.  However, P only made a complaint to the police in October 2016.  There was no satisfactory explanation as to why P had waited such a long time before making a complaint to the police.  CCF mentioned vaguely that there was mediation but still this should not have prevented P to make an earlier complaint to the police.  According to CCF, P’s complaint was that D1 was using a false document, namely the Tenancy Agreement, to deceive P.  A copy of P’s complaint to the police was not produced, nor was a copy of P’s statement made to the police.

212.  Anyway, in light of the evidence, I am of the view that the fact there was no written tenancy agreement produced by D1 until P had requested for a copy and that the copy was only stamped on 23 December 2014 should have put P on the alert and that P should have carried out due diligence on the status of the occupants of the Property before approving D1’s loan application. 

The credit assessment

213.  CCF had claimed that P carried out credit assessment on D1.   It was not clear what credit assessment was carried out by P.  It was CCF’s evidence in his witness statement that D1 had wanted to borrow the loans for his business use and for repayment of the Yeung Lee loan.  When asked what business D1 was in, CCF’s evidence was vague and claimed that D1 was a contractor in construction business, “or that kind of business”. 

214.  CCF had also said at the trial that there was a “credit assessment report” prepared report by P at the time of D1’s loan application, but this was never produced, nor did CCF mention any credit assessment in his witness statement. 

215.  CCF had produced D1’s bank statements of his “i-account” at Bank of East Asia which P had obtained from D1 at the time of the loan application.  These statements covered 4 months from 15 September 2014-15 January 2015.  The only credits were:

15 October 2014	Cheque deposit	$70,000
14 November 2014	Cash deposit	$40,000

216.  There was no evidence that the rental deposit or rental income was credited into the above account.  Furthermore, D1’s cheques for the monthly repayment instalments of HK$49,352 each for November 2014 and December 2014 towards his loan with Yeung Lee were returned initially.  It would appear that D1 was already having difficulty in meeting his repayments to Yeung Lee in November and December 2014.

217.  Yet, the total monthly interests payable under the Loan Agreement with P were HK$130,000 payable on the 20^th day of each month commencing from 20 February 2015[52], which was more than double D1’s monthly repayments towards D1’s loan from Yeung Lee.  There was no evidence that P had sought any income proof from P, nor was there any evidence as to how P was expecting D1 to pay the monthly interests of HK$130,000.

218.  According to P, D1 had paid 4 monthly instalments of interests, the last being on 20 May 2015 and there was no payment on 20 June 2015.  Even though D1 had signed an “Assignment of Rental”, there was no evidence that P had sent any written request to D1 requiring D1 to sign the form in the Schedule attached to the Assignment of Rental.  It was not until 22 August 2015, after D1 had defaulted in his payments, that C & T had written to the occupiers and tenants of the Land giving them notice of D1’s “Assignment of Rental” and demanded the occupiers and tenants to pay “all rent, licence fees and/or all other monies, income and revenues” due and to become due and payable to D1 to P’s bank account[53].

219.  According to the “Repayment Tables ” produced by P[54], D1 was supposed to provide 13 post-dated cheques, 12 for the payment of each monthly instalment of interest plus one for each of the loan principals.  P did not produce copies of these cheques.  D1 was said to have paid the monthly instalments totalling HK$130,000 for 4 months from 20 February 2015 until 20 May 2015.  It was not clear whether the amounts were paid by crediting those post-dated cheques or not and whether they were paid on due dates. 

220.  Anyway, having considered all the evidence, I find there was simply no sufficient evidence that P had carried out a proper credit assessment of D1 prior to approving the loans to D1 and/or before drawdown. 

Whether any notice

221.  In light of all the above, I find that P did have actual, or constructive notice, that at the time of D1’s loan application and/or prior to entering into the Mortgage Deeds, D1 had not paid for the additional premium in full to remove the Restriction, and D1 did not have the original New Grant and the original Certificate of Compliance in his possession, and the Property was occupied by someone other than D1.  In the circumstances, I find that P ought to have known that D1 did not have exclusive possession of the Land and the Property and/or D1’s title to the Land and the Property was defective in that D1 only had a legal/paper title.

Conclusion on P’s case

222.  In any event, it is my finding that P was not a “a bona fide purchaser for value without notice”, and that P’s claims must fail.

Conclusion  

223.  I therefore dismiss P’s claims for vacant possession of the Property and mesne profits against D1 and Ds.  I allow Ds’ Counterclaim against D1 and P and grant the declarations and orders sought by Ds, subject to any rights of the Government under the New Grant.

224.  I order P and D1 to pay jointly and severally Ds’ costs of this action including all costs reserved, to be taxed if not agreed.