YUEN YAT SHAN FIONA v. SIT HIN KAU

CACV 41/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 41 OF 2005

(ON APPEAL FROM HCA NO. 4038 OF 2002 AND

HCA NO. 260 OF 2004 (CONSOLIDATED))

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HCA 4038/2002

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HCA 260/2004

AND BETWEEN

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(Consolidated pursuant to Order of Master Lung on 3^rd April 2004)

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J U D G M E N T

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Hon Tang JA (giving the judgment of the Court):

1.  By an agreement for sale and purchase dated 30 August 2000, made between MTR Corporation Ltd. and the plaintiff, the plaintiff agreed to purchase an uncompleted unit known as Flat D, 36/F, Tower 9, Park Avenue, No.18 Hoi Ting Road, Kowloon (“the property”), at a price of $4.452 million.  The purchase was partly financed by a mortgage from the American Express Bank for $1.2 million.

2.  Since the purchase, the market value of the property has dropped so that by 2001, the value was between $3.9 million and $4.1 million.

3.  By a sub-sale agreement dated 7 June 2001 (following a provisional agreement made on or about 31 May 2001) made by the plaintiff as vendor and the defendant as purchaser, the property was sold by the plaintiff to the defendant for $3.95 million.  In both the provisional agreement and the sub-sale agreement, she acknowledged receipt of a deposit and part payment in the sum of $2.67 million.  The balance of the purchase price was to be paid by the defendant to the American Express Bank in discharge of the mortgage.

4.  On the same date as the sub-sale agreement, 7 June 2001, the plaintiff also gave an irrevocable Power of Attorney to the defendant.  By that irrevocable Power of Attorney, the plaintiff effectively ceded all control over the property to the defendant.  In the irrevocable Power of Attorney, it was stated in the recital that she had received from the defendant the sum of $2.67 million being the money deposit and part payment of the purchase price.

5.  Eventually, the defendant sold the property for $3.9 million by an agreement dated 16 June 2001.

6.  It is common ground that the defendant did not pay the $2.67 million to the plaintiff.

7.  It was the plaintiff’s pleaded case and that it was agreed that the defendant not only had to redeem the mortgage but he also had to pay HK$3,170,000 (being $2.67 million plus $500,000 interest) to the plaintiff within one year from the date of completion of such transfer of the property.  It was also alleged that the agreement was made partly orally in or about May 2001 between the plaintiff and one Ho Kar-lun Benson (“Ho”) as agent for and on behalf of the defendant.

8.  The defendant’s case as pleaded in para. 4 of the amended defence was that it was agreed between the defendant and Ho that the deposit of $2.67 million be paid as follows:

The defendant would relinquish his claim against Ho’s indebtedness to the defendant for the sum of $1.5 million.  The defendant would lend a further sum of $1.17 million to Ho.  Ho would pay the plaintiff instead of the defendant.  This has been referred to as the set-off agreement. 

9.  It was also agreed that all the expenses, including legal expenses, in the sale and purchase of the property should be set off and deducted from the purchase price.

10.  At the trial, the plaintiff gave evidence.  Her evidence was rejected by the judge.  He accepted the evidence given by the defendant.  There is no appeal from this.

11.  However, by a late amendment at the trial, the plaintiff also relied on a resulting trust.  It was alleged that the defendant held the property on a resulting trust for the plaintiff by operation of law, and that the defendant was liable to account to the plaintiff, from the net proceeds of sale, a sum of HK$2,701,162.27.

12.  Mr Danny Ng, counsel for the plaintiff, submitted that since it is a common ground that no payment was made by the defendant to the plaintiff, a resulting trust would follow.

13.  He submitted that although the judge rejected the plaintiff’s evidence, the judge was not entitled to hold that there was indeed a set-off agreement since there was no evidence of any direct agreement between the plaintiff and the defendant. 

14.  We do not agree.  We are of the view that the judge was entitled on the facts which were found by him and having regard to the conduct of the plaintiff, to infer that the agreement was that she would look to Ho and not the defendant for payment.

15.  This is what the judge said about resulting trust in para. 46 of his judgment:

“Resulting trust?

46.    Having found there was no loan agreement between the plaintiff and the defendant, and the plaintiff was looking to Ho for the repayment of the money, the next issue raised by the plaintiff in her re-amended statement at the trial (i.e. in the event that there was no loan agreement between the plaintiff and the defendant, whether there was any resulting trust held by the defendant when he was selling the plaintiff’s Property to the final purchaser in the proceeds of the sub-sub-sale he received), would not even arise.  It is therefore unnecessary to consider the issue of resulting trust.”

We agree that having regard to the judge’s finding that the plaintiff was looking to Ho for the repayment of the money, no question of resulting trust could arise.

16.  Ms Queenie Ng, counsel for the defendant has referred us to Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 and in particular to the speech of Lord Browne-Wilkinson at p. 708 where he said:

         “Under existing law a resulting trust arises in two sets of circumstances:

(A)    where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions.  It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter-presumption of advancement or by direct evidence of A’s intention to make an outright transfer: see Underhill and Hayton, Law of Trusts and Trustees, pp. 317 et seq.; Vandervell v. Inland Revenue Commissioners [1967] 2 A.C. 291, 312 et seq.; In re Vandervell’s Trusts (No. 2) [1974] Ch. 269, 288 et seq. (B) Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest: ibid. and Quistclose Investments Ltd. v. Rolls Razor Ltd (In Liquidation) [1970] A.C. 567.  Both types of resulting trust are traditionally regarded as examples of trusts giving effect to the common intention of the parties.  A resulting trust is not imposed by law against the intentions of the trustee (as is a constructive trust) but gives effect to his presumed intention.”

17.  We are of the view that on the facts of this case, it is obvious that the plaintiff intended to make an outright transfer of all her interests to the defendant.  In other words, it was not the presumed intention of either party that the plaintiff should retain any interest in the property.  That being the case, no question of resulting trust can arise. 

18.  Mr Danny Ng submitted that there is an apparent conflict between what Lord Browne-Wilkinson said and the following passage from Lewin On Trusts (17^th ed.) at para. 9-07:

“It will be observed from what is said above that a resulting trust, whether based on a presumption, or simply on evidence, is founded on a presumption or evidence as to the transferor’s intention.  There is no requirement as such for the transferee to share or participate in that intention.  Consequently, there may be a resulting trust even though property is put into the transferee’s name without his knowledge.”

19.  There is in fact that no inconsistency.  In that situation, the transferee is not a trustee, although the transferor is entitled to enforce his equitable interest against the property which has been transferred to the transferee.  See per Lord Browne-Wilkinson at page 707:

         “The bank contended that where, under a pre-existing trust, B is entitled to an equitable interest in trust property, if the trust property comes into the hands of a third party, X (not being a purchaser for value of the legal interest without notice), B is entitled to enforce his equitable interest against the property in the hands of X because X is a trustee for B.  In my view the third party, X, is not necessarily a trustee for B: B’s equitable right is enforceable against the property in just the same way as any other specifically enforceable equitable right can be enforced against a third party.  Even if the third party, X, is not aware that what he has received is trust property B is entitled to assert his title in that property.  If X has the necessary degree of knowledge, X may himself become a constructive trustee for B on the basis of knowing receipt.  But unless he has the requisite degree of knowledge he is not personally liable to account as trustee: In re Diplock; Diplock v. Wintle [1948] Ch. 465, 478; In re Montagu’s Settlement Trusts [1987] Ch. 264.  Therefore, innocent receipt of property by X subject to an existing equitable interest does not by itself make X a trustee despite the severance of the legal and equitable titles.  Underhill and Hayton, Law of Trusts and Trustees, pp. 369-370, whilst accepting that X is under no personal liability to account unless and until he becomes aware of B’s rights, does describe X as being a constructive trustee.  This may only be a question of semantics: on either footing, in the present case the local authority could not have become accountable for profits until it knew that the contract was void.”

20.  Further, when there is sufficient evidence on actual intention at the time of the transaction, there is no room for the operation of presumption of resulting trust, see Drake v Whipp [1966] 1 FLR 826.  In effect, the learned Judge found that the common intention of the parties at the time of the transfer was to effect an outright transfer from the plaintiff to the defendant.  Given such intention shared by the plaintiff, the question of presumed intention does not arise.

21.  For the above reasons, we dismiss the appeal.

22.  We also make an order nisi that the defendant is to have the costs of the appeal to be taxed if not agreed.