LIU WAI KEUNG v. LIU WAI MAN

HCA 1106/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1106 OF 2011

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J U D G M E N T

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INTRODUCTION

1.  The plaintiff and the defendant are a brother and sister aged 58 and 57 respectively.  The defendant was the registered owner of a property, namely, Flat D9 on 6^th Floor, Kut Cheong Mansion, 217 Tsat Tsz Mui Road, North Point, Hong Kong (“the Property”), until it was sold earlier this year for redevelopment.  By this action, the plaintiff seeks a declaration that the defendant held the Property and now holds its net sale proceeds on trust for him absolutely.

COMMON GROUND

2.  The family of the plaintiff and defendant was one of modest means.  Their parents had worked for many years as minor staff (with the mother being a janitor) in Pui Kiu Middle School, which I shall call “the school”.  They had three children including the plaintiff, the defendant and a younger son.  Initially the family lived in staff quarters inside the school in Happy Valley.

3.  The plaintiff started working in 1972 after graduating from the school.  Later he studied radio technology and obtained professional qualification as a radio officer.  The defendant began her first job in the Sheung Shui branch of the Kwangtung Provincial Bank (which I shall call “the bank”) in December 1974.  The plaintiff changed his job and became a seaman (radio officer) in April 1977.

4.  The mother retired from her job in 1976.  She had a chronic liver illness and by the late 1970s, if not before, she was in poor health.

5.  Towards the end of the 1970s, it was rumoured among the school staff that the school campus would be redeveloped into residential property, the school would be relocated, and there would be no staff quarters at the new campus.

6.  The father retired from his job in the school in about August 1980.  Also in around 1980, the family moved out of the staff quarters inside the school campus to certain premises situated beneath a flyover immediately outside the school entrance.

7.  In April 1981, the mother died suddenly of head injury after a fall at home.

8.  The Property was purchased in mid 1981 in the name of the defendant with the help of a mortgage loan from the bank, where the defendant was an employee.  Specifically, in around June 1981, an agreement was entered into in the name of the defendant to purchase the Property for the price of $295,000.  A sum of $28,500 was paid to the solicitors, Messrs. Philip K H Wong & Co, on 29 June 1981 for making a part payment to the vendors.  It is probable that $1,000 had been paid earlier, perhaps when the preliminary agreement was signed, which together with the sum of $28,500 amounted to 10% of the total purchase price.  The source of that money is in dispute.  Because of the long lapse of time no bank records could be found showing the source and movement of funds.

9.  The assignment to the defendant was dated 27 July 1981 and so was the mortgage deed.  The mortgage loan drawn down was in the sum of $235,000.  An additional sum of $39,980 was paid to the solicitors on 20 July 1981 which, it can be inferred, was for payment of the balance of the price to the vendors and to cover the expenses of the purchase.  Again, the source of this sum of $39,980 is in dispute.

10.  The Property was a flat slightly over 400 square feet in size with two bedrooms.  It became the family home for the plaintiff, the defendant, their younger brother Liu Wai Kong and their father. 

11.  The mortgage loan was initially advanced on preferential terms available to staff of the bank.  It was for the duration of 20 years and at a concessionary interest rate.  The monthly repayment instalments up to around October 1983 were paid on the 22^nd day of each month by automatic transfer from the defendant’s account with the bank.  The source of such money in the defendant’s account is in dispute.

12.  At the end of October 1983, the defendant left her employment with the bank.  On 14 November 1983 she went to the United Kingdom to further her studies.  As a result, the preferential mortgage loan terms would no longer be available, and a deed of variation of the mortgage was entered into (which, though dated 18 November 1983, was signed by the defendant before she left Hong Kong).  This stated that the term of the loan would be reduced to 10 years and interest would be charged at 16.5% p.a.  On this basis the monthly repayment instalment would steeply increase to around $4,000.

13.  An early partial repayment of the mortgage loan was made on 22 November 1983 in the sum of $106,234.07, which reduced the outstanding amount of the loan to the sum of $110,000.  The monthly repayment instalments were reduced to about $2,000. From then onwards until the mortgage loan was fully repaid in 1991, the monthly repayment instalments were paid by automatic transfer from the father’s account with the bank.  The precise source of such money is in dispute.

14.  In July 1987, the plaintiff quit being a seaman and returned to Hong Kong permanently, and began living in the Property on a long-term basis.

15.  In late 1987, the defendant returned to Hong Kong after completing her studies in the United Kingdom and lived in the Property.

16.  In 1989, the plaintiff married his wife, who moved in to live in the Property with him.

17.  In May 1990, the defendant gave birth to a son.  She and her son continued to live in the Property.

18.  In 1990 or 1991, the younger brother moved out of the Property to live with his then girl friend and her family. 

19.  On 22 July 1991, the mortgage loan was fully repaid.

20.  In July 1992, the plaintiff’s wife gave birth to a son in Canada.  Before they returned to Hong Kong, the defendant moved out of the Property with her young son to live in a rented suite.

21.  Thereafter the plaintiff’s own family lived in the Property with his father, who passed away in 1998.  The plaintiff, his wife and their children lived in the Property until 2012.

22.  In 1997, the defendant bought a flat in her own name in Hoi Kwong Street, Quarry Bay.  She let this flat out and moved to live in another rented apartment.

23.  In December 2005, a property agent wrote to all the owners of units in the building in which the Property is situated about the potential of the building for redevelopment.

24.  In 2006, the defendant took steps to obtain a formal release of the mortgage on the Property.  In August 2006, the bank executed a formal discharge of the mortgage.

25.  The plaintiff issued the writ in this action on 4 July 2011. 

26.  In February 2012, the developer who had acquired a majority interest in the building applied to the Lands Tribunal for an order for the compulsory sale of the building.  By an agreement between the plaintiff, the defendant and the developer, which was completed in April 2013, the Property was sold and assigned to the developer. These proceedings have therefore become a contest for the right to receive the proceeds of that sale.

THE PARTIES’ RESPECTIVE CASES

The plaintiff’s case

27.  In this section I shall briefly outline the parties’ respective contentions.  The plaintiff’s case is that, right at the outset when he started working, as a responsible eldest son, he would hand over the bulk of his income to his mother.  She told him she would save up the surplus for him after meeting household expenses, for his future use in getting married and buying a property.  The mother also stressed that she wanted to live with him.

28.  The plaintiff says that when he embarked upon a career as seaman (working as radio officer on ocean-going vessels) in April 1977, he achieved a substantial increase in his income.  His wages in those days compared favourably with those of other jobs. (For example, the plaintiff was paid $2,700 per month when he worked on the Oceanic Liberty in 1977 and $4,700 per month when working on the “Energy Courage” in 1980, while the defendant earned $2,000 to $2,500 a month as a bank officer in 1979.)  The plaintiff continued to pay a large portion of his income to his mother.

29.  During his career as a seaman, the plaintiff would typically only return to Hong Kong once or twice a year, each time for a couple of weeks.  While he was at sea, he maintained contact with his family through brief long distance telephone conversations and through a radio which he had installed at home.

30.  Starting from about 1978, there were rumours that the school’s existing campus would be acquired by developers and that the new campus to which the school would move would comprise no staff quarters.  In September 1979 when the plaintiff returned to Hong Kong, these rumours were confirmed.  It was decided and agreed among the plaintiff, his parents and the defendant that the plaintiff would fund the purchase of a property for the new family home, using the preferential staff’s mortgage terms available to the defendant who was by then working in the bank.

31.  There were discussions about this subject again when the plaintiff returned to Hong Kong in August 1980.  By then, the money that he and his mother had saved up for the purchase of property amounted to about $80,000 to $90,000.

32.  The plaintiff says that it was the common understanding of the family that although it was to be the family home, the property to be acquired would belong to the plaintiff as he was the one who would be funding the purchase.

33.  In July 1981, the father informed the plaintiff, who was at sea, that a flat (namely, the Property) had been purchased with the help of a mortgage loan.  The plaintiff says that the purchase price other than the proceeds from the mortgage loan would have come from the accumulated surplus of what he gave his parents, which it was agreed would be used for the purchase of a property to be owned by him and to be used as the family home.

34.  The plaintiff says that the monthly repayment instalments from the purchase of the Property up to August 1983 were paid by him, initially by the plaintiff causing funds to be paid into his father’s bank account, who transferred funds to the defendant’s bank account.  Between August 1982 and August 1983, the plaintiff says he caused funds to be paid directly by his employer into the defendant’s bank account, as the “home allotment” part of his seaman’s wages (the other part being money paid on board to the plaintiff for his own use during the voyages).

35.  In September 1983, the plaintiff was in Hong Kong.  Because of the defendant’s departure from the bank and the consequent change in the necessary monthly mortgage repayment instalment, the plaintiff decided to make a lump sum repayment (the precise sum of which turned out to be $106,234.07) of the mortgage loan so that the monthly repayment instalment would decrease to about $2,000.  The repayment was made on 22 November 1983, out of the plaintiff’s own funds, after the defendant had left Hong Kong for the United Kingdom.

36.  From then on to 1991 when the mortgage loan was completely repaid, the monthly repayment instalments were paid out of the father’s bank account.  In turn, the plaintiff had given money to the father with which to defray household expenses and repay the mortgage loan.

37.  The plaintiff says that he had occupied the Property for many years in right of his ownership, and that the defendant moved out of the Property with her young son in 1992 because the Property had become crowded and she recognised that it belonged to the plaintiff.

The defendant’s case

38.  The defendant, on the other hand, says that she is not only the legal owner but also the beneficial owner of the Property.  It is her case that it was she and not the plaintiff who funded the payments (together with the disbursements) in 1981.  She says she was the principal source of income of the family, and that most of the subsequent mortgage repayment instalments including the lump sum early repayment made in November 1983 were paid by her.  In respect of the period of time during which she was away in the United Kingdom, her case is that the father paid the monthly instalments as a gift to her.  She takes the stance that the plaintiff did not make any financial contribution towards the purchase of the Property at all.

39.  The defendant denies that the family had any discussion or plan to acquire any property as early as 1979 or 1980.  Rather, it was only in about 1981 when it became necessary for the family to look for a new residence that they planned to purchase a property.  She and her father decided to buy a flat without any involvement of the plaintiff.  She says that because she was working in Sheung Shui at the time, it was the father, accompanied by her younger brother, who selected the Property.

40.  The defendant says that she was able to make the two part payments in 1981 and the early partial repayment in 1983 out of her own savings and a gift of over HK$100,000 given to her by the mother a few months before her death.  She says that she had a decent salary as a bank officer and managed to save a good proportion of it every month.

41.  The defendant says that it was because the plaintiff was her brother and she felt she was in a better financial position than he was, that she decided to move out in 1992 and let the plaintiff’s family live in the Property free of charge thereafter, even after the father died in 1998.  The plaintiff had to pay all the outgoings including rates while he lived there.

42.  The defendant says that the documents concerning the purchase of the Property and the mortgage loan that the plaintiff had produced in these proceedings were her property but had fallen into the plaintiff’s possession because she did not bring them with her when she moved out in 1992.

43.  Finally, the defendant contends that even if she is found to have been a trustee of the Property for the plaintiff, the plaintiff’s action against her is barred upon expiry of the 6-year limitation period pursuant to s 20 of the Limitation Ordinance (Cap 347).

THE LEGAL PRINCIPLES

44.  The principles of trust law applicable to the present case are not in dispute.  The Property being registered in the defendant’s name, the plaintiff bears the burden of showing, on the balance of probabilities, that the defendant held the Property on trust for him absolutely.

45.  The plaintiff seeks to achieve that by pleading both a resulting trust and a constructive trust. However, given that both parties allege there was express discussion and actual intention as to where the beneficial interest in the Property should lie, there is little scope for the operation of resulting trust: Re Superyield Holdings Ltd [2000] 2 HKC 90, 111.  At the commencement of the trial, indeed, counsel agreed that constructive trust is the real issue, and that resulting trust is not relevant except perhaps if I should decide to reject both parties’ evidence on intention. 

46.  The focus of the inquiry is therefore on the elements that the plaintiff has to prove in order to establish a constructive trust in his favour.  In the context of this case, this means that the plaintiff must prove (i) there was a common intention between him and the defendant that the plaintiff was to be the beneficial owner of the Property despite that it was acquired in the defendant’s name; (ii) the plaintiff altered his position in detrimental reliance upon such common intention; and (iii) it is unconscionable for the defendant to assert ownership in reliance on her legal title to the Property.

47.  In ascertaining whether there was a common intention, it is the objective intention of each party “which was reasonably understood by the other party to be manifested by that party’s words and conduct” that one must examine: Gissing v Gissing [1971] AC 886, 906; Jones v Kernott [2012] 1 AC 776, 794 at para. 51.

48.  In the present case it is the parties’ common intention at the time of the acquisition of the Property that is relevant, there being no suggestion from anyone that the intention had changed.

49.  Such intention is to be found, first and foremost, from any agreement, arrangement or understanding reached between the parties with respect to the beneficial ownership of the property concerned based on evidence of express discussions.  It is only where there is no evidence to support a finding of such an agreement or arrangement that the court seeks to infer from the conduct of the parties the relevant common intention: Lloyds Bank v Rosset [1991] 1 AC 107, 132-133.

50.  Even where, as in this case, reliance is placed on an express agreement, arrangement or understanding between the parties, their other conduct remains relevant as a matter by reference to which their assertions about the agreement or understanding must be gauged and tested.

DISCUSSION OF THE EVIDENCE AND FINDINGS

51.  The plaintiff’s and the defendant’s versions of events are at odds with each other in a large number of respects.  Both were cross-examined extensively, and so was the younger brother who was called to give evidence by the defendant.  I have closely observed them at trial and evaluated their testimony in the context of all the evidence.

52.  I find the plaintiff to be a witness of truth.  His evidence was given in a calm and spontaneous manner.  He was fair and in my view frank in his answers.  His case was consistent throughout.  His evidence was unshaken by two and a half days’ cross-examination.  His version of events accords with inherent probabilities.

53.  In contrast, I find the defendant’s evidence to be unreliable.  The main thrust of her evidence is contrary to the inherent probabilities having regard to all the circumstances. In several important respects such as the dowry and the early partial repayment, I find her evidence is not to be believed.  I prefer the plaintiff’s evidence where it conflicts with that of the defendant.  I shall comment generally on the younger brother’s evidence later on in this judgment.

54.  It is neither necessary nor useful to set out my analysis of each and every allegation of fact made by the parties.  I shall deal with several aspects of the facts and evidence below which I view as being of greater significance.

When the family first discussed buying a property

55.  The defendant’s witness statement and her evidence in cross-examination gave the impression that the idea of the family purchasing a private flat only first appeared in April 1981.  She said that the family were only asked to move out of the staff quarters (referring to the premises under the flyover) after the mother died.

56.  The younger brother also tried to give the impression that it was only in April or May 1981 that the family knew they had to look for accommodation.  He said the family was told then to move out as soon as possible.  As a result, he and his father went to view properties because the defendant, who was working in Sheung Shui, had no time to do so.  He said that the defendant and the father decided to purchase the Property for $295,000.

57.  I do not believe this evidence.  On the defendant’s own evidence, there were indications in 1978 that the school campus would be redeveloped so that the family would have to look for a new roof over their heads.  It is common ground that there was an attempt by the family to apply for a Home Ownership Scheme flat in 1978 which was unsuccessful.  In his evidence the younger brother claimed that the application had nothing to do with relocation of the school, but this was contradicted by the defendant’s own witness statement.  I find that the application was made because of the concern that the family needed to move as a result of the expected redevelopment of the school campus.

58.  Ms Kei says that the plaintiff’s evidence that the mother helped view flats in about 1979 and 1980 is incredible because of her poor health.  While I accept the mother was in poor health, I do not accept she was bedridden.  I do not think the mother’s illness was such as to prevent her from taking any part at all in the search for accommodation for the family, a matter that would be very close to her heart.

59.  In 1980 the family moved out of the staff quarters to live under the flyover.  That, in my judgment, was not understood by the family to be their permanent home.  The younger brother in his evidence tried to make that place sound like an improvement over the staff quarters inside the school, but it seems that the main advantage in his then teenager’s mind was that living outside the school meant that his movements would no longer be restricted by the hours when the school gates were closed. 

60.  I reject the defendant’s evidence that when they moved to the place under the flyover in 1980, the family thought they could live there forever.  The younger brother tried to suggest that the family could have continued to live there and that there were still people living there in 2013.  The fact however is that, as the defendant accepts, the family were in 1981 required to leave.  Moreover, the defendant’s version seems to me to be inconsistent with the younger brother’s evidence that when the family moved there, they hoped they would be given compensation when they were required to leave.  The hope for compensation suggests there was anticipation that the family would have to move again.

61.  Moreover, it has to be accepted by the defendant, given her case of the dowry, that by 1979 or 1980, the mother had saved a substantial sum of money which could be used to make the down payment for the purchase of a flat.  I do not believe that in these circumstances, the family had, up to April 1981, planned on living indefinitely and permanently under the flyover.  I find that the family did discuss buying a private property starting in 1979.

62.  The defendant did not seriously suggest that she could afford to buy a property in 1979.  Even by 1981, it would appear, on her case, that she was only able to buy a property with the help of the dowry that she said she was given by the mother.  She accepted that in 1979, only the plaintiff could afford buying (in the sense of putting up the down payment for) a property and no one else in the family could do so, though she said that the plaintiff would have difficulty in getting a mortgage loan because of the nature of his job and the irregularity of his income.

63.  I accept the plaintiff’s evidence, and I find, that there was a consensus reached in the discussions among the plaintiff, the defendant and their parents in 1979 and 1980 that the family would seek to purchase a property as the new family home and that as the acquisition was intended to be funded with money originating from the plaintiff, the property would belong to the plaintiff.

Payments totalling $68,480 in 1981

64.  The plaintiff accepts that he was not in Hong Kong when the part payments and expenses were paid in 1981 in connection with the purchase of the Property.  He was therefore unable to give evidence of the actual mechanics of the payments.  He adduced in evidence the transactional documents relating to the acquisition of the Property, which he said the father had subsequently given him because he was the real owner of the Property.

65.  From the documents one can now see that two tranches of $28,500 and $39,980 respectively were paid to the solicitors in June and July 1981.  The solicitors’ receipts were issued in the defendant’s name but this is explicable by the fact that she was the client who was going to be the purchaser, and is therefore not probative of the real source of funds.

66.  The defendant’s initial case, as pleaded in paragraph 10(a) of her Defence dated 3 January 2012, was that, of the sum of $60,000 which was the difference between the purchase price of the Property and the amount of the bank loan, $29,500 came from the father and $30,500 was paid by her.

67.  In her witness statement dated 25 June 2012, however, the defendant says she paid the entire amount, out of her money, which included approximately $100,000 cash and some gold jewellery that her mother had given her as a dowry before her death.  She also amended paragraph 10(a) of her Defence in November 2012 to say that the sums were all paid by herself.

68.  The defendant said that when she first pleaded her case, she relied on her own recollection and that of her younger brother in stating that the father paid the first $29,500.  Later, she saw the solicitors’ receipts disclosed by the plaintiff which indicated payment was made by cheque, and concluded she paid both sums because she said she was the only person in the family who had cheques of the bank and no one had given her any money since she started working.  She later qualified that answer by saying that the mother did give her the dowry.

69.  The younger brother in his evidence however said he knew his father did not have the money to pay the down payment and that his father had told him he did not pay those amounts. This sits uncomfortably with the defendant’s assertion that it was based in part on the younger brother’s recollection that she initially pleaded that the father paid the first $29,500. 

70.  Actually, the receipts of the solicitors contain a line starting with the words “By Cash / Check No. …”.  In the receipt for the sum of $28,500, the word cash was crossed out and the letter “B” was inserted before the word “Check”.  In the receipt for the sum of $39,980, the word cash was crossed out but no letter “B” was inserted. It possibly suggests, but is not clear enough to support any finding, that the first sum was paid with a bank’s draft.

71.  In any event, contrary to the amended paragraph 10(a), in paragraph 11(b) of the Re-Amended Defence (as explained in paragraph 3 of the particulars of the Defence), the defendant continues to assert up to now that the common understanding of the family was that the price of the Property except the “initial deposit” (which refers to the sum of $29,500) was to be paid by the defendant. 

72.  Leaving aside this unexplained discrepancy in the defendant’s pleaded case, the real question seems to me to be the origin of the money, not the immediate source of the payment to the solicitors’ firm. 

73.  On this, the plaintiff’s case is that whether or not the money was paid by the defendant’s cheques to the solicitors, it would have come from the money saved up by the mother for him.  Notably, the defendant does not really dispute that the source of money (at least in large part) was the mother, but she says that the mother had given the money to her as a dowry.

74.  This suggestion of a dowry of over $100,000 had to be tested with reference to the circumstances of the family.  The mother was earning only a few hundred dollars per month as a janitor before she retired.  The father was hardly well off, owned no real property and received a meagre salary.  The defendant said she did not know whether the mother knew that the father had no landed property and no high income.  At the same time, the defendant said she had a very close relationship with the mother.  I find that evidence hard to believe and I do not accept it.

75.  The defendant said it was only after the mother died that the family was asked to leave the premises under the flyover, and that before that, they thought they could live there forever.  As stated above, I reject that evidence.  It was certainly known by 1980 that the family would sooner or later have to look for a new home.

76.  In these circumstances, if the mother had money in the order of $100,000 from her independent savings and earnings, it would be odd that she gave it all to the defendant as a dowry.  If the money had in fact originated from what the plaintiff regularly gave the mother, it would be even stranger that she would have given it all to the defendant.  I reject the defendant’s case of the dowry. 

77.  Miss Kei makes the point that there was little documentary evidence to support the plaintiff’s case that he gave his parents money.  The lack of documentation after a lapse of over 30 years is in my view understandable.  There are salary records which do show that the plaintiff was enjoying a relatively high level of income.  I accept the plaintiff’s account that he gave money to his parents and saved up money himself.  I find that the money that went towards the payment of the two sums of $28,500 and $39,980 came from the money that the plaintiff had placed in the hands of his parents and were so applied pursuant to the consensus referred to above.

Repayment instalments between July 1981 and November 1983

78.  The plaintiff says that between the acquisition of the Property and November 1983, the repayment instalments were paid with money transferred monthly from the father’s bank account to the defendant’s repayment account, except for the period from August 1982 to August 1983.  During that latter period, the plaintiff says he paid the monthly household contribution into the defendant’s bank account directly because he was told by the defendant to do so having regard to the father’s drinking problem.  Miss Kei criticises the plaintiff’s evidence on the mechanics of such payment, but I do not think that one can expect clear recollection on how the payments were precisely arranged after all these years. 

79.  Ms Kei says the plaintiff’s evidence that after the mother’s death and until March 1982, the home allotment part of his wages continued to be paid into the mother’s bank account is wholly improbable because no one could have withdrawn money from the account after the mother’s death.  I do not think the premise is necessarily correct.  There was no investigation of the means (for example, use of personal seals) of withdrawing money from that account.  I accept the plaintiff’s version of events.

Lump sum partial repayment in November 1983

80.  As stated above, because the defendant was leaving the bank’s employment, the loan interest rate jumped to 16.5% and the term of the loan was reduced from 20 years to 10 years.  The repayment instalments would substantially increase from between $1,000 and $2,000 to around $4,000.

81.  The plaintiff says he deposited money into the defendant’s repayment account.  There is no magic in the precise repayment amount of $106,234.07.  It was simply the sum required to reduce the outstanding balance of the loan to the round sum of $110,000.  The monthly repayment instalment, at the prevailing interest rate, became just over $2,000.  I am not impressed by Ms Kei’s attack on the plaintiff’s evidence regarding the details of this repayment.  Recollection about such matters as the account into which the money was first deposited and the rank of the bank officer with whom the plaintiff made enquiry about early repayment is bound to be hazy after 30 years.

82.  The defendant says she paid the money for early repayment.  It is likely that the immediate source of payment was indeed the defendant’s account.  The real question however is the ultimate source of that money.  On her own case, I find it hard to believe that the defendant, even with the dowry from the mother, was able to pay the down payment and expenses in 1981 and to pay another sum of $106,234.07 as early repayment in 1983 and at the same time to have saved enough money to finance her trip to and her further studies in the United Kingdom.

83.  As for the letter written by the defendant to the bank requesting early partial repayment and the deed of variation signed by the defendant, these are documents that had to be prepared and give no indication of who really funded the early partial repayment.

84.  I accept the plaintiff’s evidence that it was he who put up the funds for the early partial repayment in November 1983.  Given the long lapse of time, I do not regard as significant the evidence on the precise mechanics of the payment.

Repayment instalments between November 1983 and July 1991

85.  The plaintiff says the repayment instalments were thereafter made from the father’s account, with the money he paid the father.

86.  Initially, the defendant pleaded that from the inception of the mortgage loan until February 1986, the repayment instalments were paid by her to the bank from her bank account, and that from February 1986 onwards to 1991, they were paid from the father’s bank account.  The defence was amended in November 2012 to say that the instalments were paid out of the defendant’s account up to December 1983 and thereafter from the father’s account.  In March 2013, the defendant further amended her defence to say that between January 1984 and 1987, the monthly instalments paid by the father were paid “by way of gift to the defendant”. 

87.  In her evidence, however, the defendant did not mention any such “gift”.  She said that she discussed with her father and younger brother before she left Hong Kong, and they told her that they could cope with the level of monthly instalments after the partial lump sum repayment.  She said that the father had found a job as a cleaner, and that he was able to pay the monthly instalments using his income as a cleaner, the money that the younger brother paid him every monthly and the government’s old age allowance (commonly known as “fruit money”).  This case of “gift” is to be contrasted with what the younger brother said, namely, that he regarded the mortgage payments paid during that period as “rent” paid to the defendant.

88.  The defendant also pleaded that in December 1983, while she was in the United Kingdom, the father was told by the bank that there were problems with the defendant’s account, namely there were insufficient funds in it to pay the monthly repayment instalment, and that it was for this reason that the arrangement was changed so that the repayment would be deducted from the father’s account with the bank. 

89.  If the defendant was really the owner of the Property and made arrangement for early partial lump sum repayment of the mortgage, it was surprising that she took no steps to make sure that the designated account would be funded regularly to pay the repayment instalments.

90.  This sits uncomfortably with the defendant’s oral evidence that she discussed with the father and the younger brother, who told her that they could cope with the repayment instalments.

91.  When asked who forgot to put money into the bank account which led to the “problem”, the defendant said she did not know.

92.  I accept the plaintiff’s account and reject the defendant’s version of events. 

Occupation of the Property

93.  As stated above, there is no dispute that the plaintiff had lived in the Property permanently since mid 1987 after he ended his seafaring days.  On the defendant’s own evidence, the arrangement then was that the plaintiff occupied one room, the father and the younger brother shared one room, and the defendant slept in the living room.  This would be a surprising arrangement if the defendant was the owner and the plaintiff was depending on her largesse for a roof over his head.

94.  The defendant said the plaintiff did not discuss with her where his wife would live after their marriage, and that the plaintiff’s wife simply moved into the Property in 1989 without the defendant’s prior consent.  That would be surprising if the Property did in fact belong to the defendant. 

95.  When the Property became too crowded, it was the younger brother first and the defendant later who moved out.  What the defendant moved to was a rented suite within a flat, where she lived with her son between 1992 and 1997.  She had to pay about $3,000 to $4,000 in rent per month.

96.  The notion that it was out of love or affection for the plaintiff that the defendant chose to live in a rented room for 5 years while the plaintiff and his wife lived in the Property belonging to the defendant, seems to me to be, in light of all the circumstances, far-fetched.  The defendant was a single mother raising a young son.  She was by no means affluent.  Moreover, she did not have a close relationship with the plaintiff at all.  They did not see each other for Chinese New Year.  Nor would they go grave-sweeping together.  On the defendant’s own evidence, they seldom saw each other even before the father died.  When the defendant wanted to see her father, she would not go to the Property but would make an appointment to meet him somewhere else.  According to the defendant, the plaintiff’s wife had always been unfriendly towards her. The last time the defendant went to the Property was when the father was still alive. 

97.  It is also significant that the defendant without prior notice to the plaintiff vacated the Property before the plaintiff and his wife returned to Hong Kong and the defendant had not discussed with or explained to the plaintiff the reason of her move.

98.  Moreover, the plaintiff bought a mobile phone for over $40,000 in about 1987 and a private car for about $50,000 in November 1991.  These were relied upon by the defendant to suggest that the plaintiff liked to indulge himself and spend his money on luxuries he could ill afford.  On that basis, it is all the more difficult to see why the defendant should move out of her own Property to a rented place, leaving the plaintiff to live in the Property rent-free, without having any discussion with the plaintiff.

99.  On the defendant’s evidence, there was also no discussion at all about the Property when the father died.  I would have thought, if it was her Property, there would at least have been a conversation in which she agreed to allow the plaintiff’s family to continue living there.  Instead, on her own case, the plaintiff simply continued to live there as before.

100.  On the evidence, I find that the plaintiff had paid all the outgoings including utilities charges in respect of the Property after the defendant moved out. 

101.  Moreover, when the defendant purchased her present residence in Hoi Kwong Street in June 1997, she let it out for rental income, and rented a separate smaller flat to live in at a rent of $7,000 to $8,000.  She moved to live in the Hoi Kwong Street flat in around 2004 and moved out to live in a rented flat again in 2007.

102.  The defendant said that the Hoi Kwong Street flat was an investment.  The idea was that when her son went to university, she could sell that property if she did not have enough money to pay for his studies.  However, her son would be going to university only in 2008.  Why did the defendant not intend to sell the Property at that point?  What she did in 1997 seems to suggest that she did not regard the Property as hers to dispose of even in another decade’s time.

103.  The situation continued even after the father died in 1998.  For the next 14 years, the plaintiff continued to live rent-free in the Property.  The above facts seem to me to support the plaintiff’s case rather than the defendant’s.

Whether the plaintiff asked for transfer of title to him

104.  The plaintiff gave evidence that the defendant had mentioned before that she was willing to transfer the title to the Property back to him, including at a meeting with a former business partner of the plaintiff called Mr Sin in 2004.  In the defendant’s own supplemental oral evidence in chief, when asked whether she had told the plaintiff she would transfer title of the Property to him at that meeting with Mr Sin, the defendant said “no”.  However, when asked whether she had at any time told the plaintiff she would transfer the title of the Property to him, she said: “as far as my recollection goes, it should be “no”, but I can’t be sure”.

105.  Counsel for the plaintiff, not surprisingly, followed up and asked the defendant why she could not be sure, if she really had always believed the Property belonged to herself. The defendant could not satisfactorily explain that answer, except to say that she was distracted when she gave it.  In my view there is force in Mr Maurellet’s submission that this was a “Freudian slip”.  I find that the defendant had mentioned to the plaintiff before her willingness to transfer the title to him, though no one took any step to that effect.

The younger brother’s evidence

106.  The younger brother gave evidence for the defendant.  Given his youth in 1978 to 1981, however, it is not clear that he would have been privy to the financial arrangements.  In fact he admitted in cross-examination that he did not know where the money came from.   

107.  As mentioned above, I find that the younger brother’s evidence in parts conflicts with inherent probabilities.  Further, he tried to portray the plaintiff as a spendthrift.  He said that immediately after the plaintiff returned to live permanently Hong Kong in 1987, he bought a private car for $50,000.  But the documentary evidence shows that the car was in fact bought only in November 1991. 

108.  The younger brother stated that he had made financial contributions towards repayment of the mortgage loan during the four years (late 1983 to late 1987) when the defendant was in the United Kingdom.  Yet he denied that he had sought to have a share of the proceeds of sale.  He physically participated in certain meetings the parties had to resolve the dispute.  His explanation that the only reason for his presence was to protect the defendant from physical injury is difficult to accept, when there was no threat of physical violence.  It seems to me more likely than not that he had at least an expectation of financial interest if the defendant was successful in this litigation.  He might have believed that the money he paid his father in the 1980s as his contribution towards household expenses should entitle him to a share in the Property.  I consider that I should approach the evidence of the younger brother with some caution.  Where his evidence conflicts with that of the plaintiff, I prefer the plaintiff’s version.

Miscellaneous other matters

109.  There are several miscellaneous points that I should mention.  First, the defendant called one Mr Lai Sum, who was her colleague in the bank at the time, to give evidence.  Mr Lai testified that the bank had a rule against double benefit for spouses, so that if one employee had taken out a mortgage loan on terms available to bank staff, his or her spouse (albeit also an employee of the bank) would not be eligible to have another mortgage loan on such preferential terms.

110.  Based on this, the defendant argues that the plaintiff must have been mistaken to say in his witness statement that if the defendant got married with her then boy friend who was also working at the bank, they could buy a property with the help of a loan taken out by her husband on preferential terms.  While I accept Mr Lai’s evidence that there was eventually such a rule, there is no evidence that either the defendant or the plaintiff was aware of this rule at the time.  Mr Lai said he only knew of this policy of the bank from his colleagues, and that the staff began to discuss this policy in early 1980s.  So it is not clear that this rule existed in 1979, 1980 or even by June 1981, when the agreement was entered into to purchase the Property.

111.  Secondly, the defendant says that in 2003, the plaintiff sent the rates demand to the defendant’s home for her to pay the rates.  The plaintiff denied it was he who forwarded the rates demand.  I accept his evidence.

112.  Thirdly, the defendant relies on the fact that she paid a fine of $200 in September 2010 because the owners of units in the building collectively failed to have certain electrical installations properly certified.  The plaintiff explained that the summons was issued to the registered owners of units in the building and that was why the defendant had to respond to it.  The plaintiff offered to reimburse the defendant but she declined.  Again I accept the evidence of the plaintiff.  It is in my view more probable than not that, like the younger brother, the defendant already had some general knowledge at that stage about the potential redevelopment of the building.  So any act by her in 2010 to demonstrate her ownership of the Property could be self-serving.  I therefore place little weight on this piece of fact.

Conclusion on beneficial ownership

113.  In conclusion, I find that there was a common understanding and intention formed in 1979 or 1980 that a property would be purchased, with the down payment to be funded by money sourced from the plaintiff’s payments to his parents and saved up by them for this purpose, and with the help of a mortgage loan from the bank.  The property was intended to be the plaintiff’s and to be used meanwhile as the family home, but was agreed to be put into the defendant’s name to enable a mortgage loan to be borrowed on the preferential terms available to the bank’s staff.  It was on the basis of this understanding and intention that (i) the Property was purchased in 1981 using the funds saved up by the parents from the plaintiff’s payments to them, (ii) the plaintiff continued to pay money to the defendant and his father for the purposes of funding the monthly repayment instalments, (iii) the plaintiff funded the early partial repayment in November 1983 when the defendant left the bank and went to the United Kingdom, and (iv) the plaintiff went into continuous occupation of the Property until 2012 and paid all outgoings.  Accordingly the plaintiff had altered his position in reliance upon the common intention, and it would be unconscionable for the defendant to assert her legal title to the Property against the plaintiff.

LIMITATION

114.  By re-amendment of her defence the defendant avers that the plaintiff’s claim is in any event time-barred by reason of s 20(2) of the Limitation Ordinance (Cap. 347).  Curiously the plea is so drafted as to be directed only at a resulting trust, though I understand the limitation argument to be raised also against any constructive trust found.

115.  The argument is that since the plaintiff on his case had required the defendant to assign the Property back to him in 1998 or 1999, his cause of action accrued then and was time-barred by 2004 or 2005.

116.  S 20 of the Limitation Ordinance (Cap 347) provides:

“(1) No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action-

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Ordinance, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property, until the interest fell into possession.

(3) …”

117.  Under the Limitation Ordinance, the words “trust” and “trustee” have the same meanings respectively as in the Trustee Ordinance (Cap 29), which in turn provides that “trust” and “trustee” extend to implied and constructive trusts. 

118.  The plaintiff contends that this action, being an action to recover trust property, is exempted by s 20(1)(b) from the application of any limitation period.  Counsel for the defendant argues, however, that because the plaintiff had been living in the Property and the defendant had not, even if the defendant was a constructive trustee, the Property was not “in the possession of” the trustee, and s 20(1)(b) therefore does not apply.

119.  I have no hesitation in rejecting this argument.  The paradigm situation of what constitutes a trust is where the legal estate in some property is held by one person and the equitable interest by another.  A constructive trust typically arises where it would be unconscionable for the holder of the legal estate to assert beneficial ownership of the property and deny the interest of another person whom equity regards as the true beneficial owner.

120.  In my view, where the legal estate is vested in the trustee, the relevant property is for present purposes “in the possession of” him.  He holds the legal estate qua trustee.  He may be a bare trustee with no other duty than to hold the legal estate for the beneficiary.  Still he is in possession of the trust property because he holds the property on trust, i.e. he holds the legal estate with the equitable estate being vested in the beneficiary. 

121.  Because the trustee’s possession is not in virtue of any right of his own but is taken for and on behalf of the beneficiaries, his possession is treated as the possession of the beneficiaries, with the result that time did not run in his favour against them: see Hovenden v Lord Annesley (1806) 2 Sch. & Lef. 607 at pp 632-633.

122.  Ms Kei relies on three English cases.  I do not think these decisions support her contention.  In Thorne v Heard [1894] 1 Ch 599, the first mortgagees having sold the mortgaged property allowed the solicitor whom they had retained to conduct the sale to handle the surplus.  The solicitor, instead of paying the second mortgagee, applied the surplus to his own use.  In the action brought by the second mortgagee against the first mortgagee, the court held that the relevant limitation period applied by virtue of s 8 of the Trustee Act 1888 (the predecessor of s 19 of the Limitation Act 1939), since the money was not “still retained” by, ie in the hands or under the control of, the first mortgagee at the commencement of the action.

123.  In re Timmis, Nixon v Smith [1902] 1 Ch 176 was a case where three executors and trustees had wrongly paid a settled fund outright to the tenant for life and were, subsequently more than six years after the death of the tenant for life, sued by the remaindermen for an account of the settled property.  Kekewich J held that the action was barred by limitation, there being no property “still retained” by the trustees in the sense of “money … invested in his name” or “land belonging to him”.

124.  These two cases show that to invoke the relevant rule under s 20(1)(b) of the Limitation Ordinance, it must be shown that the trustee was in possession of the trust property at the commencement of the action.  If the property had been paid away to third parties, albeit wrongfully, and is beyond the trustee’s control, it is no longer in his possession.

125.  In In re Howlett (William Henry), Deceased [1949] 1 Ch 767, a trustee who had wrongfully occupied a property for his own use and benefit was held chargeable with an occupation rent and to have notionally received the rent on behalf of the beneficiary.  Danckwerts J held that the trustee “must be considered as still having [such rent] in his own pocket”.  The defence of limitation of action therefore failed.

126.  These decisions have no bearing on the present case, where between 1981 and 2013 the legal title to the Property was vested in the defendant.  In fact, Kekewich J said in In re Timmis, Nixon v Smith,at p 186, in relation to the effect of the provisions found in Hong Kong in section 20 of the Limitation Ordinance:

“The intention of the statute was to give a trustee the benefit of the lapse of time when, although he had done something legally or technically wrong, he had done nothing morally wrong or dishonest, but it was not intended to protect him where, if he pleaded the statute, he would come off with something he ought not to have, i.e. money of the trust received by him and converted to his own use.”

To suggest that the defendant can plead the limitation statute in the present case would be to say that she “would come off with something [she] ought not to have”, i.e. title to the Property and the proceeds of sale thereof.

127.  It seems to me it would defeat the very purpose of trusts if a trustee could plead limitation of action against the beneficiary where the trustee still has the legal title but where the beneficiary has been in beneficial enjoyment of the trust property for over six years.

CONCLUSION AND ORDERS

128.  For the above reasons, the plaintiff’s claim succeeds.  There will be a declaration that the Property was held by the defendant on constructive trust for the plaintiff absolutely, and that the plaintiff is entitled to the proceeds of sale thereof subject to payment of all outgoings and the costs of and incidental to the sale.  I give the parties liberty to apply in connection with the payment of such proceeds.

129.  There will be a costs order nisi that the defendant pay the plaintiff’s costs of the action, and that the parties’ own costs be taxed in accordance with the Legal Aid Regulations.