CHEN YU TSUI v. TONG KUI KWONG

HCA1/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1 OF 2003

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JUDGMENT

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1. The plaintiff’s late husband Mr. Tong Kui Ming (“deceased”) and the defendant are registered tenants in common in equal share of Block D, 3/F, 1 Walnut Street, Kowloon (“the Property”).  The plaintiff is suing on behalf of the deceased’s estate for an account of rent collected by the defendant.  The defendant counterclaims a declaration that the deceased held the half share of the Property as trustee for him, and denies that the deceased’s estate is entitled to any rent.

Introduction

2. The deceased was the younger brother of the defendant.  They were partners in the family partnership of Kong Hing Plastic Factory (“the Factory”). 

3. In 1973, the partnership was incorporated as Kong Hing Plastic Factory Limited (“the Company”).   The shareholders were: the defendant (1,200 shares); the deceased and the two younger brothers (500 shares each); Madam Cheung Po Ling, the defendant’s wife (400 shares).  The deceased and the defendant are the two permanent directors of the Company.  The defendant is the Chairman of the Company, and the deceased became a full time employee of the Company in 1984. 

4. On 20 February 1967, the deceased and the defendant entered into an agreement for the purchase of the Property.  The purchase price was $107,996.00.  The construction of the Property was then still uncompleted.  Prior to completion, certain part payments as deposit and instalments were made.

5. On 14 March 1968, the sale and purchase was completed.  On the same date, the deceased and the defendant executed a mortgage in favour of the Hang Seng Bank Limited to secure the loan and interest of $60,553.  The loan was repayable by 19 equal instalments of $3,187.00.  On 16 October 1969, the Property was reassigned to the deceased and the defendant upon repayment.

6. Ever since completion, the Property was let to the Factory, and then the Company for the use as office and/or factory.  The registered office of the Company was and is situated at the Property.  The accounts of the Company showed that between 1987 and 1992, a monthly rent of $15,000 was paid by the Company in respect of the Property.  It is not in dispute that between 1987 and 1989, the deceased received sums out of the Rent Account of the Company.  The entries do not always show $7,500 per month, but the defendant admitted that a personal subsidy of $7,500 per month was paid by him to the deceased, which unbeknown to him at the time was booked to the Rent Account.  The payment stopped after 11 November 1991.

7. The deceased left the employment of the Company some time after November 1991.

8. On 1 April 1993, the deceased through his solicitors wrote to the Company demanding payment of the arrears of rent in respect of the Property (being the half payable to the deceased) from 1 November 1991 to 31 March 1993 in the sum of $127,500 ($7,500 x 17).

Plaintiff’s case

9. The plaintiff’s pleaded case can be summarised as follows:

(1)	The plaintiff is beneficially entitled to half share of the Property as tenant-in-common.
(2)	Since completion of the purchase in about March 1968, the Property was let by the deceased and the defendant to the Factory and later to the Company.
(3)	From October 1988 to 1991, the rent paid by the Company was $15,000 per month, i.e. $7,500 each to the deceased and the defendant for their respective half share of the Property.
(4)	After 11 November 1991 and continuing, the Company has been paying the deceased’s rent to the defendant receiving as the deceased’s agent for the use of the deceased (“the Collected Rents”).
(5)	Since 1993 and from time to time, rent was revised.

10. It is common ground that the Company’s audited accounts show that rent was paid in respect of the Property up to the end of 1998.  No further accounts have been produced.  The Company is not wound up and the Court is asked to infer that the defendant is still in receipt of rent.

11. Mr. Chan SC for the plaintiff based the claim as follows :

(1)	duty to account in equity as between co-owners;
(2)	agency and breach of fiduciary duty;
(3)	money had or received or unjust enrichment or restitution;
(4)	constructive trustee and liability to account for the Collected Rents with all profits and/or interest thereon.

Mr. Chan clarified that he is not claiming any occupation rent on the ground of ouster.

Defence case

12. The defendant’s pleaded case can be summarised as follows:

(1)	The purchase price of the Property (deposit, downpayment and mortgage loan) was paid for entirely by the defendant pursuant to the common intention of the deceased and the defendant that the deceased would hold the half share of the Property conveyed into his name as trustee for the defendant, and the defendant counterclaims a declaration that he owns the entire beneficial interest in the Property.
(2)	Until the end of December 1998, $15,000 was paid by the Company to the defendant for the letting of his interest in the Property (as beneficial owner of the whole of the Property or alternatively for his share as tenant in common).
(3)	It is denied that the Company ever paid $7,500 to the deceased as rental, and it is denied that the defendant was ever appointed by the deceased as his agent for the letting of the Property or the receiving of rent from the Company.
(4)	At the end of December 1998, the Company ceased to be the tenant of the Property and thereafter, the defendant has not received any further rent in respect of the Property.
(5)	Insofar as the plaintiff’s claim against the defendant for rent collected prior to 2 January 1997 is founded on simple contract or tort or on account or an action of breach of trust, the same is times-barred by virtue of section 4(1) and (2) and section 20(2) of the Limitation Ordinance, Cap.347.

13. The defendant admitted that he had paid the deceased a personal subsidy of $7,500 per month.  This subsidy ceased on 11 November 1991.

14. Further, Mr. Yin for the defendant stated that in the event that the deceased were found to be a beneficial owner, the plaintiff is put to the strict proof of whether:

(a)	Prior to 11 November 1991, there is one single letting jointly by the deceased and the defendant, or two separate lettings of the respective shares of the Property;
(b)	If there were one joint letting, whether the same letting continued after 11 November 1991, or it was replaced a new letting by the defendant at $15,000.
(c)	If there were two separate lettings, whether the defendant had let his half share to the Company at $15,000 after 11 November 1991.

Issues

15. The issues in this case are:

(1)	Beneficial ownership of the Property:
	(a) Whether the defendant provided the entire purchase price of the Property;
	(b) Whether the deceased received any rent from the Property;
	(c) If the deceased were a trustee of the defendant for the Property, whether the trust was for an illegal purpose with an intention of defrauding the Commissioner for Inland Revenue (“CIR”);
(2)	Whether the defendant collected the rent for the deceased after November 1991:
	(a) If the deceased were a beneficial owner, whether the rent paid by the Company from November 1991 to 1998 related to the deceased’s half share of the Property;
	(b) The amount of rent for 1996 and 1997;
	(c) Whether the Company is still paying rent from 1999 until now;
(3)	Whether tenants in common are accountable to each other in equity for rents collected by one of them;
(4)	Whether the defendant collected the rent as agent for the deceased;
(5)	Whether the defendant held the Collected Rent as constructive trustee for the deceased;
(6)	Restitution;
(7)	Limitation of action.

Plaintiff’s evidence

16. Both the plaintiff and her daughter Tong Kit Chi (PW2) gave evidence that the deceased had told them that he paid for half of the purchase price of the Property, and he retained the mortgage instalment receipts of repayment made by him.

17. The plaintiff only met the deceased in 1969.  But she said by reason of the deceased’s education and career, he should have means to purchase the Property in 1967.  He graduated from university in Taiwan in 1963, and returned to join a French construction company as a draftsman, rising to assistant engineer.  In 1965, he joined a shipping company as assistant engineer, and eventually as General manager.

18. Mr. Lee Yuet man (PW1) had known the deceased and the defendant for over 30 years.  He introduced the Property to the deceased and the defendant.  He said that at around the time of the purchase, the deceased had a good job, and was very thrifty.  The deceased once said he used all his money to help the family business.  Mr. Lee had accompanied the deceased to the bank to pay the mortgage instalments, and he presumed it was for the Property.

19. Miss Tong Kwok Wai (PW3) is the sister of the deceased and the defendant.  She said when the Property was purchased, she asked the defendant whether he had enough money.  The defendant told her that the Property was purchased with the deceased, and the mortgage instalments were paid by them together, and there should be no problem.  She said the deceased once told her that he received a cheque for rent from the Company.  She said what caused the rift between the deceased and the defendant was that the defendant highhandedly increased his shareholding in the Company.

20. It is noted that on or about 28 August 1992, the defendant’s shareholding in the Company was increased to 4,100 shares with the others remaining unchanged. 

21. The daughter produced documents from the belongings of the deceased to support the purchase and receipt of rent by the deceased.  They include:

(1)	A memo written by the deceased when he contemplated legal proceedings against the defendant in 1993.   The memo stated, inter alia, that :
	(a)  the Property was purchased by both the defendant and himself as tenants in common in equal share;
	(b)  he contributed to the purchase including eleven mortgage instalments by cash between November 1967 and September 1969;
	(c)  the Property was occupied by the Factory since September 1967 and then by the Company since 1973;
	(d)  various rents were paid by the Factory and the Company to both the defendant and himself, and the rent from October 1988 to October 1991 was $7,500 per month;
	(e)  the last payment of rent to him was made on 11 November 1991.
(2)	An original receipt from Messrs. Woo & Kwan, Solicitors dated 10 November 1967 for $3,187 being part payment of the purchase price of the Property.
(3)	10 original receipts for $3,187 each between 29 March 1968 and 25 September 1969 for the mortgage instalments to the Hang Seng Bank Limited
(4)	Notices for Assessment and Demand for Tax to the deceased for years of assessment 1966/67 to 1972/73 showing:

Year of	Date of Issue	Assessable Profit Assessment from Properties
1966/67	--	$0
1967/68	30 July 1973	$6,410
1968/69	29 June 1973	$6,410
1969/70	29 June 1973	$5,128
1970/7	13 July 1974	$5,128
1971/72	29 May 1974	$5,128

(5)	A letter dated 11 December 1982 by the deceased to the CIR stating properties owned under his name and his wife’s name included the Property purchased on 20 February 1967 for rental purpose, and his share in the Property was half, and his share in the purchase price was $53,998, and the payment method being $26,674.765 during 20 February 1967 to February 1968 by his earning and saving and $27,323.235 as from February 1968 by mortgage instalments to the Hang Seng Bank.
(6)	A letter dated 25 February 1983 by the defendant to the CIR stating properties owned by him and his wife included the Property purchased on 20 February 1967 for rental purpose and his share in the Property was half, and the purchase price was $53,998 with term of payment of initial payments of $26,674.763 made during 20 February 1967 to February 1968, and the balance of $27,323.235 was paid by mortgage instalments to Hang Seng Bank Limited.
(7)	A letter dated 3 October 1983 by the defendant to the CIR that he obtained a loan of $80,000 from the deceased or the initial payment of a property at 9 Elm Street, Tai Kok Tsui purchased on 30 August 1974 for the price of $500,000.
(8)	Payment vouchers of the Company between 1987 and 1989 stating payment of rent for the Property (without specifying the recipient) approved by the defendant and with the deceased’s signatures, with a particular one dated 9 November 1989 stating “Rent – KM Tong Rent for 3/F “D” (May to September) $37,500”.
(9)	An Audit Confirmation dated 24 July 1992 sent by Messrs. M.B. Lee & Co, auditors for the Company to the deceased and signed by the deceased confirming as at 31 December 1991, the rent payable for the Property on the deceased’s account was $15,000.
(10)	A letter dated 19 January 1993 by Messrs. M.B. Lee & Co to the Commissioner for Canada stating that the deceased has been receiving rent from the Property ever since 1973, in support of the deceased’s application for immigration.

22. The plaintiff relied on the audited accounts of the Company to prove that the Company had paid rent for the Property up to the financial year ending 31 December 1998.  The details are as follows :

Year	Amount
1991	$180,000
1992	$180,000
1993	$252,000
1994	$216,000
1995	$216,000
1998	$216,000

23. The audited accounts of the Company for 1996 and 1997 are not produced.  The plaintiff’s contention is that judging from 1994, 1995 and 1998, the rent for 1996 and 1997 should be $216,000.

24. The plaintiff has asked the defendant to produce the audited accounts of the Company from 1999.  The defendant refused to do so.  The plaintiff relies on the fact that up to the present, the Company is not wound up, and the Property is still the registered office for the Company, and contends that rent is still being paid by the Company for the Property.

25. The plaintiff sought to rebut the defendant’s allegation that the Company ceased production since 1993, and had moved out of the Property since 1993 by referring to the Company’s documents.

26. In the Supporting Analysis for Factory Rent and Rates in the audited accounts of the Company for 1995, both the Property and the adjacent property of Block B & C were included under factory premises.  In the Supporting Analysis for 1998, the Property was still stated to be the office and Block B & C were the warehouse.

27. In the Company’s Notice of Extraordinary General Meeting on 3 January 2000 (“EGM”) signed by the defendant as Chairman, it stated that “Toy business has slowed down much due to increasing replacement of electronic toys”; “Especially in Swatow, the costs are only 70% as much as in Hong Kong”; “Some Hong Kong factories have already closed down as Hong Kong factories cannot compete”; “In view of above and future status, we suggest that we have to hold a meeting to discuss the following issues: A) Closing our company effectively from Jan 1, 2000. B) Other alternative methods.”

28. The minutes of the EGM and meeting of the Board of Directors of the Company on 3 January 2000 stated that it was “resolved that the meeting concluded that our Company would be closed & that production would stop effectively from January 4, 2000”; “Our company would proceed to sell all the inventories & assets for cash to pay off all debts including staff.”

29. Miss Tong Kit Chi said that in October 2001, she visited the Property and saw the door was open with workers going in and out of it.  She said that meant the Company was still occupying the Property.

Defence evidence

30. The defendant said he purchased the Property entirely with his own money.   He used his personal cheque to pay the deposit of $15,979, and he retained a photocopy of the receipt.  He also retained the original sales and purchase agreement.  The original assignment is kept by the mortgagee bank upon the re-mortgage in 1980, and it was not returned because the bank required the signature of the deceased. 

31. The defendant said the deceased had no money for the purchase.  The deceased only returned from Taiwan in late 1964, not 1963.  In 1967, the deceased earned $500 to $600 per month.  Due to over-spending, the deceased often had to borrow money from him.  The defendant said he never told PW3 that the Property was purchased by the deceased and himself jointly. 

32. The defendant said he might have asked the deceased to pay the mortgage instalments, but he gave the deceased the money and the deceased always gave him back the receipts.  The mortgage instalment receipts were later stolen by the deceased.

33. At the time of the purchase, the defendant was not yet married.  Originally, he intended to purchase the Property under his sole name.  But a friend told him that in case he were to die unexpectedly, his assets would be frozen pending payment of estate duty and/or grant of probate.  If he added a name of someone he could trust as the owner, the Property would not be frozen, and his family could use the rent in the meantime, or mortgage the Property to borrow money.  He asked to “borrow” the deceased’s name.  The deceased said no problem and promised to transfer the Property back to him at any time.  He only intended the arrangement to be interim, and he would ask the deceased to transfer the half share back to him after he got married and gained confidence in his wife.

34. In 1982 after his son was born, the deceased offered to transfer the half share of the Property back to him.  The defendant said there was no urgency.   Secondly, the Tong family would not give valuable property to a woman, and his mother might object to giving property to a daughter in law.  In 1992, he asked the deceased to give him back his half share of the Property but the deceased made excuses for not doing so.

35. The defendant said his letter to the CIR in 1983 stating the deceased and him jointly owned the Property was untrue.  At that time both the deceased and him faced CIR enquiries.  The deceased had already replied and stated the position of ownership as per the Land Registry record.  The deceased drafted the letter for him along the same line.  He never read the letter because the deceased said it was alright.  He did not care whether the letter stated the true position.

36. The defendant admitted that he had paid a personal subsidy of $7,500 per month to the deceased.  In 1987 or 1988, the deceased asked for a pay rise.  At the relevant time, the deceased’s monthly salary was $10,000.   The defendant said the Company would not do so, but he could personally give the deceased $7,500 per month.  It was purely co-incidental that monthly rent he received from the Company was $15,000 and the monthly subsidy was $7,500.

37. At the time his wife was responsible for keeping the accounts for the Company.  He told his wife to pay $7,500 per month to the deceased.  He did not know that his wife had paid it out of the Company’s Rent Account.  He did not know about the payment vouchers of the Company at the time.  He only knew about them after the present litigation.  The initials on the payment vouchers purportedly showing he had approved the payment of rent were not made by him.  He had authorized his wife to initial on his behalf generally. 

38. The defendant said the Company ran a special system of cash expenditure.  In order to increase the cash flow of the Company, he would not normally withdraw the rent due to him unless he needed money.  Whenever purchases in cash were needed, the sum would be booked to the Rent Account and charged against his unwithdrawn rental income.  For example, if the staff member needed to make purchase of $10,000, he would pay the staff $10,000.  After the purchase, he would give the receipt of $10,000 to the Company and the Company would pay him back $10,000 from the Rent Account.  He expected the $7,500 might have been booked to the Rent Account in this manner.  It would explain why the payment vouchers retained by the deceased stated “rent”.

39. In late 1991, the defendant stopped the subsidy of $7,500.  The subsidy was subject to the conditions that the deceased had to work diligently and to make a moulding machine work.  The deceased failed to do so.  After that, his mother told him that the deceased took away the mortgage instalment receipts placed in two boxes in her mother’s room. 

40. Mr. But Hoi Hung (DW3), an employee of the Company, produced a Cash Advance Book purportedly to prove the above system.  Mr. But could only tell of cash advances to him in making purchases, he did not know about the accounting system and in particular the use of the Rent Account.  The Cash Advance Book covered the period from 1995 to 1997.  The defendant’s wife emigrated to Canada in 1994 and she ceased to keep the books of the Company.  From then on, the system of cash advance was handled by the defendant himself.

41. The Defence originally pleaded that the Company ceased renting the Property in 1993.  After discovery of the Company’s audited accounts disclosing the payment of rent until 1998, the Defence was amended.  The defendant said the Company ceased production in Hong Kong in 1993.  He told his wife to move out of the Property and not to pay rent anymore.  His understanding was no rent was paid since 1993, and he only realized at the end of 1998 that his wife made a mistake in continuing to pay rent.   He told his wife to stop paying rent after 1998.  He signed the audited accounts without looking at the description in the Supporting Analysis for rent.  The accounts for 1999 were drawn up but not audited.  There were no further accounts done.

42. Since 1993, the Property could not be used or rented out because of concrete spalling. He asked his staff to repair it but they never got round to do it.  It was basically left idle since 1993, and was used to store some useless items and fixtures for convenience, and the staff might have used the toilet.  There was no urgency to let it out.  Since the Company still occupied Block B & C, the Property was kept as the registered office merely for correspondence.

43. The defendant explained that the production referred to in the minutes of the EGM in 2000 was not the business directly operated by the Company, but business of Wo Hing in the Mainland.  Woo Hing is a factory owned by the defendant and his wife.  It is not a subsidiary of the Company.  It is a sub-contractor of the Company.

44. The defendant’s wife Cheung Po Ling (DW3) handled the accounts of the Company before she emigrated to Canada in 1994.  She had no formal training in book keeping.  She treated the Rent Account as the defendant’s personal Auto Teller Machine.  Therefore, when the defendant asked her to pay the deceased $7,500 subsidy per month, she subconsciously charged it to the Rent Account.  She never encountered a situation where the Rent Account was insufficient for cash purchases because she would see to it not being so.  In 1992, the accountant said it was messy to charge cash purchases to the Rent Account and suggested that a Petty Cash Account be used.  Since 1992, the Rent Account was only used for rent and not cash purchases.

45.  Madam Cheung said she put the defendant's initial on the payment vouchers because the auditors said the payment vouchers should be approved by someone.  She said that she feared no consequence of putting other’s initial because the defendant would never check on her.  Although she had emigrated in 1994, she would come back to supervise the drawing up of the annual accounts.  She told the book keeper to book rent of $15,000 per month.  Even in 1998 where she did not return to Hong Kong, she told the book keeper to do the same for the 1997 accounts.  The payment voucher dated 9 November 1989 stating “Rent – KM Tong Rent for 3/F “D” (May to September)  $37,500” was not prepared by her although so stated.  The deceased prepared it for her when he came up to receive payment of subsidy.

46. Madam Cheung said after 1993, the Company only used the Property as the office, and the warehouse was move to neighbouring premises of Block B & C.  Finally in 1999, even the office was moved to Block B.

47.  Madam Cheung said the rent for 1996 and 1997 should be $180,000 (i.e. $15,000 per month) instead of $216,000 (i.e. $18,000 per month) as in 1994, 1995 and 1998, because there were periodic fluctuations in the rental market.

48. Mr. William Lee Cheuk Yin (DW2) is the manager of Messrs. M.B. Lee & Co.   Mr. Lee was in charge of the Company’s audit from 1974 to its cessation of business in 1998.  In relation to the Audit Confirmation dated 24 July 1992 asking the deceased to confirm that the Company owed the him rent for the Property in the sum of $15,000, he presumed that his staff would send audit confirmations to both owners based on the record of owners in the Land Registry.  There should be no enquiry as to who actually received the rent as the auditor of the Company was only concerned with payment of rent, not with the receipt.  On the other hand, he never heard from anyone that the rent payment to the deceased was not real.  As to the letter to the Commission for Canada, he drafted it based on information supplied by the deceased.

Beneficial ownership of the Property

49. The burden of proof of provision of the entire purchase price rests with the defendant, whereas the burden of proof relating to the receipt of rent rests with the plaintiff. 

50.  Mr. Yin for the defendant pointed out that the defendant is the only witness with personal knowledge of the purchase.  The plaintiff’s evidence is either hearsay, or documentary hearsay.  Mr. Yin submitted that the plaintiff should not reap a forensic advantage by reason of the deceased not being available for cross-examination.

51.  Mr. Yin submitted that it is common ground that at the time of the purchase the deceased did not have other business or investment, and the Factory never distributed profits to the partners.  The defendant simply could not have afforded to purchase the Property.   Mr. Lee Yuet Man did not know whether the deceased was paying the mortgage instalments for the Property or else.  Miss Tong Kwok Wai had an axe to grind against the defendant because they had quarrelled over other investments, and at any rate, she was dismissed from the Company by the defendant allegedly for poor performance.

52.  Mr. Yin submitted that the documentary evidence are inconclusive.  The Audit Confirmation was issued on the basis of the owner’s record of the Land Registry.  The letter to the Commission of Canada was written on the instructions supplied by the deceased. 

53. The tax record was inconsistent with the date of occupation of the Property.   The assignment was dated 14 March 1968, which meant the occupation of the Property should commence from mid-March 1968.  Hence, the assessable profits from Properties for the years of assessment 1967/68 and 1968/69 could not possibly have been the same $6,410.  Even the deceased stated in his memo that renting only commenced in September 1968.  It either means the assessable profits from properties for 1967/68 were mis-stated, or they related to other properties.  Further, the assessments were retrospectively raised in 1973 and the rental income could have been mis-stated. 

54.  The mortgage instalment receipts could not prove the source of fund.  In any case, the deceased only had some mortgage instalment receipts and 1 downpayment receipt, but not other payment record.  The deceased had 10 receipts out of 19 instalments in total.  That is not consistent with paying half of the instalments.  Except for the one payment voucher dated 9 November 1989, the others never stated the payment to the deceased was rent.  And that one was but an aberration.

55.  Mr. Yin submitted that although the defendant produced only one copy of the downpayment receipt of $15,979, it is not surprising since the purchase was 40 years ago and the documents could have been lost.

56.  Granted that the plaintiff’s witnesses and the documentary evidence referred to above are hearsay in nature, I consider that one document stands apart from them, that is the letter by the defendant to the CIR stating that he was owner of only half share of the Property.  It might have been drafted by someone else, but it was signed by the defendant.  It is an admission against interest.

57.  Mr. Chan for the plaintiff submitted even if the Court were to accept that the letter did not state the truth, it would mean the defendant was defrauding the CIR, and the original intention to avoid the Property being frozen was also improper.  Hence, the defendant is not entitled to rely on any resulting trust in his favour by reason of illegality.

58.  Mr. Yin submitted that the defendant’s intention to save the Property from being frozen pending payment of estate duty is not necessarily illegal, and the letter to the CIR stating he owned only half of the Property was not part of any underlying transaction at the time of the creation of the trust.  Hence, the defendant did not have to rely on any facts disclosing any illegality to prove the resulting trust.

59.  In Tinsley v. Milligan [1994] 1 AC 340, the plaintiff and the defendant, two single women, purchased a house in which they lived together and which was vested in the sole name of the plaintiff, but on the understanding that they were joint beneficial owners of the property.  The purpose of that arrangement was to assist in the perpetration of frauds on the Department of Social Security.  A quarrel between the parties led to the plaintiff moving out, leaving the defendant in occupation.  The plaintiff claimed possession asserting sole ownership of the property.  The defendant counterclaimed a declaration that the property was held by the plaintiff on trust for the parties in equal shares and for an order for sale. The House of Lords (by a majority) held that a claimant to an interest in property, whether based on a legal or equitable title, was entitled to recover if he was not forced to plead or rely on an illegality, even although it transpired that the title on which he relied was acquired in the course of carrying through an illegal transaction; that in the circumstances, by showing that she had contributed to the purchase price of the property and that there was a common understanding between the parties that they owned the property equally, the defendant had established a resulting trust; that there was no necessity to prove the reason for conveyance into the sole name of the plaintiff, which was irrelevant to the defendant’s claim, and that since there was no evidence to rebut the presumption of a resulting trust the defendant was entitled to succeed on her counterclaim.  Lord Browne-Wilkinson stated at 371 F-H that :

“Where the presumption of resulting trust applies, the plaintiff does not have to rely on the illegality.  If he proves that the property is vested in the defendant alone but the plaintiff provided part of the purchase money, or voluntarily transferred the property to the defendant, the plaintiff establishes his claim under a resulting trust unless either the contrary presumption of advancement displaces the presumption of resulting trust.  Therefore, in cases where the presumption of advancement does not apply, a plaintiff can establish his equitable interest in the property without relying in any way on the underlying illegal transaction.”

60. In Tribe v. Tribe [1996] Ch 107, the English Court of Appeal held that an action for restitution could be brought by the transferor either at common law or in equity, but as a general rule would fail if it would be illegal for the transferor to retain any interest in the property; that in a case where no presumption of advancement arose a transferor could recover property transferred without consideration if he could do so without reliance on an illegality and could show an intention to retain a beneficial interest in the property; where the presumption of advancement arose, an exception to the general rule against recovery applied if the illegal purpose which the transferor had to rely on in order to rebut the presumption had not been carried into effect in any way.

61.  Tinsley v. Milligan has been considered and Tribe v. Tribe has been applied in Hong Kong in Yue Shiu Ngam v. Zen She Lin & anor [1999] 2 HKLRD 21 per Beeson J.

62.  Mr. Chan sought to argue that the doctrine of locus poenitentiate discussed by Millet LJ (as he then was) in Tribe v. Tribe ought to be applied in the present case, in view of the defendant further perpetrating the fraud against the CIR in his letter dated 3 October 1983.  I am afraid I shall not delve into this interesting topic as I reject the defendant’s evidence that his letter to the CIR did not state the true position, just as I reject his evidence on the provision of the entire purchase price of the Property.

63.  The defendant’s allegation that by adding the deceased name as a joint owner would save the Property from being frozen pending the payment of estate duty is ludicrous.  He agreed that his friend who gave him this advice did not know any law, and he did not know whether the Property would be frozen if there were two owners, or whether it would also be frozen if the deceased were to die first, yet he never sought the advice conveniently available from the solicitor who acted for him in the purchase of the Property.  His explanation that the solicitor only knew how to collect money is simply incredible. 

64.  The defendant said the deceased had no money for the purchase because he was a spendthrift and often had to borrow money from him.  If so, why would he trust the deceased to make him a trustee of the Property?  Further, he told the CIR that he had borrowed $80,000 from the deceased to purchase another property.  True that related to a later period in 1983, but it was contrary to the picture of the deceased’s spendthrift and impecuniosities the defendant was trying to paint.

65.  The defendant said he was in no hurry to get the half share back from the defendant in 1982 because he feared his mother might object to his wife holding valuable property of the family.  Yet, he had given his wife 400 shares in the Company in 1974, and he had purchased another property jointly with her in 1979.  He said the deceased stole the mortgage instalment receipts inside two boxes which held title documents, yet somehow he still retained the sale and purchase agreement and a photocopy deposit receipt.

66.  As to receipt of rent by the deceased before November 1991, Mr. Yin submitted that the payment vouchers were not rental receipts.  Mr. William Li of the auditors said that the function of the payment voucher was only to record how an item of expenditure is to be classified in the Company’s books.  The fact that the deceased had also signed on the payment vouchers only made it a receipt, not necessarily rental receipt.  The single payment voucher dated 9 November 1989 which referred to payment of rent of the Property to the deceased was but an aberration.

67.  Mr. Yin also pointed out that the payment vouchers were not always in amount of $7,500 or multiples or factors of $7,500, and might not relate to the payment of half of the rent.  Be that as it may, the defendant did not deny that $7,500 were paid to the deceased monthly.  The only dispute was whether it was rent or a personal subsidy.  On this point, I totally reject the evidence of the defendant and his wife.

68.  The defendant and Madam Cheung’s evidence of the use of Rent Account for cash purchases by the staff before 1993 was contrived and convoluted.  I cannot imagine the amount of cash purchases of the Company would be artificially limited by the amount of unwithdrawn rent at any time.  It is even more incredible that after her emigration to Canada, Madam Cheung told the clerk to continue to book rent for the Property between 1993 and 1998 without the knowledge of the defendant,

69. The defendant said according to his understanding at the time, there was no payment of rent since 1993.  Then as far as the defendant was concerned, cash purchases could not be charged against the Rent Account any more.  When being asked what account would be used instead, the defendant could only say that no account was necessary. 

70.  On the other hand, given the defendant’s understanding that no rent was charged and the practice of charging cash purchases against the Rent Account had ceased in 1994, the Rent Account would have been saddled with undistributed rent (as rent was actually charged).  When being asked where the rent from 1993 to 1998 had gone while there was no withdrawal nor contra entries against the Rent Account, again, the defendant could only say his wife would know.

71. Madam Cheung said she put the defendant’s initials on the payment vouchers in order to satisfy the auditor’s query that they were not properly approved.  What is the credibility of one who could do such a thing?  I find that she is simply trying to shield the defendant from the fact that he actually knew and approved of the payment of $7,500 to the deceased out of the Company’s Rent Account.  I reject her evidence on this point and find to the contrary.

72.  I find that the payment voucher dated 9 November 1989 was an accurate record of what it stated : “Rent – KM Tong Rent for 3/F “D” (May to September) $37,500”.  Although this was the only voucher which connected the deceased to payment of rent of the Property, I am satisfied that the other vouchers were in the same vein.  I find that the deceased did receive half of the rent paid by the Company for the Property up to October 1991.  The payment of rent to the deceased by the Company was with the knowledge and approval of the defendant.

73.  All in all, I disbelieve the defendant and his wife.  They are using each other as excuses for lies they each told.  I reject the defendant’s evidence that he had provided all the purchase money of the Property and that there was a common intention that the deceased would hold the half share in trust for him.  I find that the deceased was a beneficial owner of the half share of the Property, and he received $7,500 as rent from the Property before 11 November 1991.

Payment of rent by the Company after November 1991

74.  The first issue was whether there was one joint letting after November 1991. 

75.  Mr. Chan referred to Woodfall’s Law of Landlord and Tenant (Release 21) at 2.102 that:

“Each tenant in common could at common law make a lease in respect of his own share alone, the interest of each being separate and distinct, and if tenants in common all joined in one lease it operated as a lease by each of his respective share, and a confirmation by each as to the shares of the others.” 

He contended that all along, the letting to the Company was a joint letting by the deceased and the defendant. 

76.  Mr. Yin submitted that even if the deceased did receive rent of $7,500 per month from the Company before November 1991, it did not necessarily mean that there was a joint letting by the deceased and the defendant either before or as from November 1991.

77.  Mr. Yin referred to Jacobs v. Seward (1872) 5 L.R.H.L. 464 as an illustration that tenants in common could lease their respective share of the land without reference or even knowledge of each other.  By reason of the unity of possession of the tenancy in common, the lessee is entitled to occupy the entire property.  As a general proposition, I agree.  But the position must be viewed against the circumstances of the case.

78. The Property was let to the Factory ever since it was first occupied.  The deceased and the defendant were partners of the Factory.  Then it was let to the Company, and they were the two permanent directors of the Company.  Since 1984, the deceased also worked for the Company at the Property.  At the relevant time, the rent paid by the Company was $15,000 per month.  I have already found the deceased received the rent of $7,500 per month.  The only reasonable inference is that there was one joint letting and the deceased received half of the rent.

79.  The defendant’s only evidence of any change in the letting was that the Company had ceased renting the Property since 1993.   This is contrary to the audited accounts of the Company.  The effect of Madam Cheung’s evidence was that she just continued to book the same (and revised) rent from 1993 to 1998 without the defendant’s knowledge.   I reject their evidence.  I find that the Company was paying rent for the Property from November 1991 to the end of 1998 at the least. 

80.  The next issue is whether the rent paid by the Company from November 1991 to 1998 covered the half share of the Property of the deceased.  Notwithstanding that the deceased no longer worked for the Company, his shareholding and permanent directorship of the Company remained unchanged.  There is no documentary evidence of the Company as to any change of letting.  The only reasonable inference is that the previous joint letting arrangement continued save that the deceased was not paid his half share of the rent after 11 November 1991.

81.  Mr. Yin referred to the letter of the solicitors for the deceased dated 1 April 1993, giving notice to the Company that the half of the rentals of the Property payable to the deceased would be increased from $7,500 to $12,000 per month with effect from 1 May 1993.  Mr. Yin submitted that this indicated there were separate instead of joint letting.  In the light of all the evidence, I do not find those letters casting any doubt on my conclusion on joint letting.

82. The next issue is the amount of rent for 1996 and 1997.  Madam Cheung said it was $180,000 (i.e. $15,000 per month) as in 1991 and 1992, as opposed to $216,000 (i.e. $18,000 per month) for 1994, 1995 and 1998.   She said that was due to fluctuations in the rental market.  I reject the evidence of Madam Cheung and infer that the rent for 1996 and 1997 was $18,000 per month.

83.  The next issue is whether the Company was paying rent for the Property from 1999 onwards.  The defendant said the production of the Company stopped in 1993, and since then, the Property was only of limited use: as the registered office for the Company, storage for unused items and unremoved shelves, and toilet for the staff.  The minutes of the EGM held on 3 January 2000 stated that the business had slowed down, but not stopped.  The defendant explained that the business referred to was Woo Hing, not the Company.   It was not so stated in the minutes.  In any case, Woo Hing belonged to the defendant and Madam Cheung.  The deceased and the other shareholders had no interest in it.  I reject the evidence of the defendant that the Company’s production ceased in 1993. 

84.  The registered office of the Company is still at the Property.  I find that that Company is still occupying the Property now, at least to the same limited extent as in 1993 to 1998 as alleged by the defendant himself.

85. Although there were no written tenancy agreement, the use of the Property was stated in writing in the Company’s audited accounts up to 1998.  If there were any change in the position thereafter, the matter should be stated in the 1999 accounts.  The defendant had access to the unaudited accounts for 1999.  He could have produced the accounts to rebut the payment of rent if that was the case.  As for the subsequent years, as the Company is still in existence, there ought to be some accounts, at least for the shareholders.  Since the defendant chose not to disclose the 1999 unaudited accounts or any other accounting documents, an adverse inference is more readily drawn against him.  Hence, I infer that the Company is still paying the same rent as in 1998.

Finding of facts

86. On the accepted evidence, I find that:

(1)          The deceased was a beneficial owner of the half share of the Property;

(2)          There was a joint letting of the Property to the Company prior to November 1991 whereby the deceased received half share of the rent;

(3)          After November 1991, the joint letting continued;

(4)          The Company was and is in continued occupation of the Property since 11 November 1991;

(5)          The Company was and is continuing to pay rent for the Property since 11 November 1991;

(6)          The rent for 1996 and 1997 were $18,000 per month;

(7)          The rent from 1999 onwards is $18,000 per month;

(8)          The deceased’s half share of the rent since 11 November 1991 was received by the defendant.

Equitable Accounting

87.  The position of joint tenant or tenant in common at common law is stated in Sir Edward Coke’s commentary On Littleton (1823) at 172a and 200b, as cited in Henderson v. Eason (1851) 17 QB 701, 707-8; 117 ER 1451, 1453:

“If there be two joint tenants or tenants in common of land, and the one make the other his bailiff of his moiety, he shall have an action of account against him as bailiff, and so are the books to be intended, that speak of an action of account in that case.”

“But although one tenant in common or joint tenant without being made bailiff take the whole profits, no action of account lieth against him; for in an action of account he must charge him either as guardian, bailiff, or receiver, as hath been said before, which he cannot do in this case, unless his companion constitute his bailiff.”

88. In 1705, the Administration of Justice Act, section 27, often cited as the statute of 4 & 5 Anne c. 3 s. 27, gave a joint tenant or tenant in common at law the right to an account against the other co-owners where they had taken more than their fair share of the rents and profits of the land.  This statute was repealed by the Law of Property (Amendment) Act 1924, section 10.  The statute was originally applied in Hong Kong by section 3 of the Supreme Court Ordinance 1844.  However, it was repealed in 1966 by non-adoption under the Application of English Law Ordinance (Cap. 88). 

89.  Mr. Chan submitted that even without the Statute of Anne, there has always been a duty to account as between co-owners in equity.  He relied on Strelly v. Winson (1685) 1 Vern 298; 23 ER 480 for the proposition. 

90. In Strelly v. Winson, there being three part-owners of a ship, one of them refuses to fit out the ship to sea, and the others do it without his consent, and the ship is lost in the voyage, it was held by the Lord Keeper of the Great Seal in the Court of Chancery that:

“In this case the loss of the ship shall be equally borne by all three; for though one of the partners did not consent to fitting out of the ship, yet he would have been entitled to one third part of the freight, and in this court should have had an account of the third part of the profits of that voyage: (2), and so where one tenant in common receives all the profits, he shall account in this court as bailiff to the other two for two-thirds.”

91.  Mr. Chan also relied on Leake v. Cordeaux (1856) 4 WR 806 where a tenant in common of a farm brought a suit in equity against his co-tenant, who had alone occupied it and cultivated, for a moiety of the profits.  On appeal, Turner LJ said that:

“It was clear from the case decided before the statute of Anne, and from Turner v. Morgan, which had been decided subsequently, that a tenant in common always had a remedy in this court against his co-tenant by a bill for account.  The only question was on what principle the account should be taken, which question was not now before the Court.”

92.  Mr. Yin submitted that the remedy of accounting is an ancillary jurisdiction in equity.  It is either ordered in aid of an equitable right, e.g. an account given by a trustee to a cestui que trust, or ordered in aid of a legal right, e.g. the duty to account by an agent to the principal.  He referred to Snell’s Equity (13^th ed., 2000) at 44-09 on accounting between co-owners:

“(a) Background.  Where land is held by several co-tenants they are all, as between themselves, entitled to possession of the whole.  Hence there is no remedy in trespass again an occupying co-owner unless he has ousted or excluded the other or others.  There is no exclusion if one merely stays away, allowing the other to occupy a house or take all the profits whether by way of rents, crops or minerals.  Where one ousts the other or others, he will be liable for an occupation rent.  Where there is no ouster there is no such liability in the absence of any contract to pay rent or other assumption of liability.  If a co-tenant was dissatisfied with the situation, his remedy was to apply to the court for an order compelling partition.  From 1868 the court was empowered, in the alternative, to order a sale of the jointly-owned land.

(b) Accounting.  A statute of 1705 gave a joint tenant or tenant in common at law a right to an account against the other co-owners where they had taken more than their fair share of the rents and profits of the land.  Courts of equity would direct similar inquiries especially in the case of beneficiaries under trusts.  More significantly, in partition actions in which court of equity had exclusive jurisdiction, the court would inquire into the position between the co-owners so as to adjust accounts between them consequent on making an order for partition or sale.  If it were found that one party was in occupation to the exclusion of the other, the court would direct an inquiry as to the occupation rent to be paid unless it were shown that the party not in occupation could have enjoyed the right to occupy but chose not to do so voluntarily.  Conversely, if the occupier has expended money in improvements or repairs, the court will inquire into the amount of the increased value as a result of such expenditure and give him credit for it.  The increase value is a charge on the land to be paid out of the proceeds before division, but liability for an occupation rent is personal to the occupying co-owner and is not chargeable on the purchaser or mortgagee of his share.  The 1925 legislation abolished partition actions and imposed a trust for sale on all form of co-ownership.  A co-owner who wishes to terminate the joint tenancy may seek an order for sale and as ancillary to the sale the court can direct the same type of accounts as formerly in a partition action.”

93.  Mr. Yin referred to Kennedy v. de Trafford [1897] AC 180 where the House of Lords held that there is no fiduciary relationship between tenants in common of real estate as such.  Nor can one tenant in common of real estate by leaving the management of the property in the hands of his co-tenant impose upon him an obligation of a fiduciary character.  Lord Hershell said at p. 186 that:

“Dodson was an owner of this property – the owner of an undivided moiety, it is true, but each owner of an undivided moiety is none the less truly an owner – and Dodson in collecting those rents and profits collected them in the right which he possessed as a co-owner of the property.  He did not need agency or the appointment of agent to justify him in collecting those rents.  If nothing had ever passed between the two co-owners which constituted an authority from the one to act for the other, his right to collect those rents would not have been one jot or one tittle less than it was.  No doubt an arrangement was come to that these rents when collected were to be paid into a bank upon which both the co-owners were to draw, but that was an arrangement that might have been put an end to at any time.  It was merely an arrangement which was come to by voluntary agreement between the two co-owners.  Each co-owner would have an obligation to account to the other in respect of any rents he collected or moneys he received under it.”

94. In the Australian textbook Meagher, Gummow and Lehane’s Equity: Doctrine and Remedies (4^th ed., 2002) at 25-605, the authors dealt with the right to an account by joint tenants or tenants-in common of realty or personalty inter se, where one co-owner contributes more than the other co-owners to the property owned by them all, or one co-owner receives more profits from the property than his colleagues.  The Statute Anne has also been repealed in New South Wales.  The learned authors stated that:

“It was in these circumstances that a statutory remedy of account was given to all co-owners against their colleagues: 4 & 5 Anne c.3 s.27.  Apart from statute, in equity there is ancient but frequent forgotten authority that one co-owner could be sued in account, but perhaps at the suit of all the others: Strelly v. Winson (1685) 1 Vern 297 (sic.); 23 ER 480.  The only other remedy was also provided in equity, where an account lay as incidental to a suit for partition: Swan v. Swan (1819) 8 Price 518, 146 ER 1281; Pascoe v. Swan (1859) 27 Beav 508, 54 ER 201; Leigh v. Dickonson (1884) 15 QBD 60, [1881-5] All ER 1099; or in proceedings analogous thereto: for example, suits to regulate the distribution of the proceeds of the co-owned property after a mortgagee’s sale: Re: Cook’s Mortgage [1896] 1 Ch 923.  It is in this category that one should place the decision of Millet J (as he then was) in Re Pavlou (a bankrupt) [1993] 3 All ER 955, [1993] 1 WLR 1406.”

95. It is noted that Meagher, Gummow and Lehane observed that the equitable jurisdiction referred to in Strelly v. Winson was somewhat shadowy.  One of the authors, Meagher JA of the Court of Appeal of New South Wales, commented in Forgeard v. Shanahan (1994) 35 NSWLR 206 that Strelly v. Winson was an Admiralty case wandering into the Chancery Courts, a solitary and curious decision which might suggest the contrary to the other authorities. 

96.  In Forgeard v. Shanahan, there was an application for appointment of a trustee for sale under section 66G of the Conveyancing Act 1919 (NSW).  (Section 66G empowers the court to order statutory trusts for sale or partition of property held in co-ownership.)  The plaintiff sought to make the defendant accountable for an occupation fee, and the defendant sought an allowance in her favour for the expenditure incurred by her.  This raises the question of what rights one co-owner has against another, particularly when one has been in occupation and the other has not.  Meagher JA (with whom Mahoney JA agreed) summarized the position as follows:

“1. Since both joint tenants and tenants in common have joint possession of the land in which they have the estate, it was a settled rule of law that the possession of any one of them was the possession of the other of them, so as (for example) to prevent the statutes of limitation from affecting them; nor did the bare receipt of all the rents and profits by one operate as an ouster of the other: Ford v Grey (1703) 1 Salk 285; 91 ER 253; 6 Mod 44; 87 ER 807.

2. It follows that, where one co-owner is in occupation and the other not, but there has been no actual ouster or exclusion by the former of the latter, the law treats the latter simply as someone who has chosen not to exercise his legal right to occupy the land.

3. It also follows that a co-owner not in occupation was normally virtually without remedy.  He could not sue in trespass unless there was an ouster (Creswell v Hughes (1862) l H & C 421, 158 ER 950).  In the case of personalty, he could not bring trover, absent ouster (Jacobs v Seward (1872) LR 5 HL 464), and even the secret removal of chattels by one co-owner for the purpose of selling them and applying them to his own use, did not amount to a conversion or confer any right on a co-tenant to sue in trover: Jones v Brown (1856) 25 LJ (Ex) 345. A co-owner out of occupation could not even recover his share of rents and profits if the co-owner in occupation appropriated them to himself; no action of account lay either at law or in equity: Henderson v Eason (1851) 17 QB 701; 117 ER 1451 at 1457 per Parke B.

4. Apart from statute, a co-owner out of occupation had remedies at law in two situations, and no more.  If he had been ousted, he could bring ejectment and mesne profits: Goodtitle v Tombs (1770) 3 Wilson 118; 95 ER 965; Luke v Luke (1936) 36 SR (NSW) 310; Dennis v McDonald [1982] 2 WLR 275.  If, on the other hand, his co-owner were in occupation by agreement that co-owner became an agent or bailiff and rendered himself liable in a common law action of account.  In either case (i.e. of ouster or occupation by agreement) he would be liable for rents actually received and possibly also for an occupation fee.

5. Apart from Statute, in equity the plight of a co-owner not in occupation was little better.  There did not seem to be any action which would render a co-owner in occupation liable to refund any rents received, much less liable for an occupation fee.  It is true that there is a solitary and curious decision in 1685 which might suggest the contrary.  That case is Strelly v Winson (1685) 1 Vern 297; 23 ER 480, an Admiralty case which seems to have wandered into the Chancery Courts.  In the course of the judgment the Lord Keeper said: "and so where one tenant in common receives all the profits, he shall account in this court as bailiff to the other two for two-thirds", a proposition which has never been relied on, or even noticed, in any case decided since that date.

6. In 1705 things improved a bit with a statute of Anne.  That statute is properly cited as 4 & 5 Anne c 3 s 27, although often referred to as 4 Anne cl6 s27.  Insofar as it is here relevant it provides:

‘And from and after the said first day of Trinity term shall and may be brought ... by one joint tenant and tenant in common his executors and administrators against the other as bailiff for receiving more than comes to his just share or proportion and against the executor and administrator of such joint tenant or tenant in common.’

Thereafter, as far as rents actually received were concerned, a non-occupying co-owner had a statutory right of action both at law and in equity, which caused the courts no problem subject to occasional disputation about what constituted an accountable "rent": see, for example, Wheeler v Horne (1851) Willes 208; 125 ER 1135 and Squire v Rogers (1979) 27 ALR 330 at 343.

7. In New South Wales the Statute of Anne although formerly available, was repealed by the Imperial Acts Application Act, 1969, a piece of legislation recommended by a Law Reform Commission.  It is a neat illustration of the havoc which can be wrought by high-minded but ignorant people, putting litigants in New South Wales back into the position they would have been in before 1705 in England.

8. So much for rents actually received.  Turning to the liability of a co-owner in occupation to pay an occupation fee, the position at law is fairly clear.  He was not liable unless he excluded his co-owner, in which case he rendered himself liable in ejectment and for mesne profits, or if he constituted himself a bailiff, in which event he would be liable in an action of account, like any other bailiff: In re Tolman's Estate (1928) 23 Tas LR 29 at 31; Rees v Rees [1931] SASR 78 at 80-81.  Indeed, the whole bias of the law against making a co-owner in occupation liable to account is precisely based on the rationale that if such a liability were to exist a co-owner could, by abstaining from entering into occupation, turn his co-owner into an involuntary bailiff.  As far as equity is concerned, an occupation fee will be exacted in at least two circumstances: first, in a partition suit (or related litigation): if there has been an exclusion, the tenant in occupation will be charged with an occupation fee: see, for example, Pascoe v Swan (1859) 27 Beav 508; 54 ER 201: this is an example of equity following the law; and secondly, if the owner in occupation claims an allowance in respect of improvements effected by him, equity will permit such an allowance only on terms that he is accountable for an occupation fee this is an example of he who comes to equity having to do equity: see Teasdale v Sanderson (1864) 33 Beav 534; 55 ER 476.”

97.  In paragraphs 9 to 14, Meagher JA dealt with the principles relating to the claim of an allowance for improvement and its variation and the set-ff against an occupation fee, and his Lordship continued:

“15. All the above principles are applied in partition actions, and cannot be relied on elsewhere, except in administration actions: Lawledge v Tyndall [1896] 1 Ch 923; Boulter v Boulter (1898) 19 LR(NSW) Eq 135; and in other cases where there is a fund in court eg. because of a resumption: Brickwood v Young (1905) 2 CLR 387.  They should also be applied, as Mr Harris argued, in cases where the court decrees sale under section 66G of the Conveyancing Act, 1919.  Sale and partition are true alternatives, and should, mutatis mutandis, be governed by the same principles.

98.  Mr. Yin echoed the point that Strelly v. Winson was an Admiralty case wandering into the Chancery Courts and referred to Green v. Briggs (1847) 6 Hare 393 for the proposition that the law relating to the earnings of a ship, whether as freight, cargo or otherwise, follows the general law of partnership.  Sir James Wigram VC said at pp. 402-3:

“Holderness v. Shackels (8 B. & C. 612) is a case in point.  The Court distinguished between the ship itself and her earnings; and held in that case that although part-owners were tenants in common of the ship, they were jointly interested in the use and employment of the ship, and that the law as to earnings must follow the law in partnership cases.  And in Ex parte Hill the Vice-Chancellor said, “If there had been no sale the creditors would have had no lien on the ship, because that was not joint property; but the earnings of the ship would have been joint property, and liable to the joint creditors, not from any doctrine peculiar to the earnings of a ship, but on the general principle applicable to the joint property of every partnership” (1 Madd. 66).”

99.  Mr. Chan referred to two Australian cases which have acted on the authority of Strelly v. Winson.  In Ryan v. Dries [2002] NSWCA 3, Hodgson JA of the Court of Appeal of New South Wales said:

“63. There is a quite detailed discussion of the principles by Meagher JA in Forgeard v Shanahan (1994) 35 NSWLR 206 at 221-6.  Mahoney JA (at 219) agreed in the principles stated by Meagher JA.  However, some of the statements of principle in that case were obiter only, and in some respects I am not in complete agreement with them.  Because some of these principles are relevant to this case, I should indicate the areas where I have some disagreement.

64. At 222, Meagher JA said that, apart from statute, there did not seem to be any action by which one co-owner could recover a share of rent received by the other co-owner.  He referred to the case of Strelly v Winson (1685) 1 Vern 297; 25 ER 480, which decided otherwise, but pointed out that this case had not subsequently been relied on or noticed.  He noted that the same result was provided by a 1705 statute; but that this statute had been repealed in New South Wales by the Imperial Acts Application Act 1969, so that the remedy provided by the 1705 statute was not available in New South Wales.

65. For my part, with respect, I would be prepared to act on the authority of Strelly v Winson, and would treat its lack of subsequent celebration as explicable by reason of the passing of the statute just twenty years later.  For my part, I cannot accept that a court exercising equitable principles would not treat a co-owner of property who had collected rents paid for the use of that property as having done so as an agent for all co-owners and liable to account to other co-owners.  I would respectfully agree with the statement made in the 1670s in Lord Nottingham’s “Manual of Chancery Practice” and “Prolegomena of Chancery and Equity” (D.E.C. Yale ed., Cambridge University Press, 1965) at p.214 that in such a case “equity construes all receipts to the common profit, and that without great strain”.

66. At 224, Meagher JA said that a co-owner who has effected repairs and maintenance to a co-owned property, as distinct from making improvements cannot have any allowance, and he referred inter alia to Leigh v Dickerson (1884) 15 QBD 60.  That case did decide, as noted in the headnote, that a co-owner of a house who expends money on ordinary repairs has no right of action against another co-owner.  However, the judgment of Cotton LJ at 67 makes it clear that, if the value of a property is increased by repairs, a co-owner who paid for the repairs is entitled, in partition proceedings, for an allowance in respect of that increase in value (that is, treating repairs as no different from improvements).  Brett LJ at 65 noted that no claim for partition was made in that case, and while Lindley J did not refer to partition, he said he was of the same opinion as the other judges.

67. At 224, Meagher JA also said that the principles can only be applied in partition actions, administration actions, where there is a fund in court, and where the court orders sale under section 66G of the Conveyancing Act.  I note that in (Luke v. Luke (1936) 36 SR(NSW) 310) at 318, Long Innes CJ in Eq expressed the view that the maxim requiring the seeker of equity to do equity is not limited to suits for partition; and in my opinion, the principles may be applicable in a case where one party claims an interest in property by reason of a resulting trust or constructive trust, and the court is asked to quantify that interest.”

100.  The other case is Hitchins v. Hitchins (1057/97 NSW Supreme Court, 11 December 1998), where Bryson J referred to Forgeard v. Shanahan and said at pp. 5-6 of the judgment:

“At 223 Meagher JA said “Indeed, the whole bias of the law against making a co-owner in occupation liable to account is precisely based on the rationale that if such a liability were to exist a co-owner could, by abstaining from entering into occupation, turn his co-owner into an involuntary bailiff.”  This observation sufficiently explains the common law rule stated by Lord Coke : a co-owner could not impose responsibility for looking after his interests on another co-owner simply by staying away from the land, but there was such responsibility to a co-owner who was actively excluded, or on a co-owner who in some way undertook the responsibility.

The law as stated by Lord Coke was taken in later times to have been the law in 1685 when Strelly v Winson (1685) 1 Vernon 297, 23 ER 480, on which Meagher JA commented at 222, was decided.  In Henderson v Eason, Strelly v Winson although not noticed, in the judgment, conforming with Meagher JA’s comment at 222, was the subject of notice in the argument and there disposed of; see QB 715-716, ER 1456 where the anonymous case reported at Skinner 230 seems to have been treated as the same case as Strelly v Winson and was disposed of with Parke B’s observation that “… by the context it seems to be grounded upon a supposed consent.”

Meagher JA showed at paragraphs 6 and 7 that the Common Law was altered by the Administration of Justice Act 1705, 4 & 5 Anne c.3 s 27 which enabled a joint tenant and a tenant in common to bring an action of account against another as bailiff “for receiving more than comes to his just share or proportion”.  The Law Reform Commission addressed the Administration of Justice Act 1705 in their report on the application of the Imperial Acts LRC 4 of November 1967 and recommended the re-enactment of some of its provisions, now found in s 34 of the Imperial Acts Application Act.  Their report at page 103 shows that they regarded s 27 as procedural only; they said “The more modern procedure is by suit in Equity.  This provision is unnecessary.”  The Commissioners were distinguished lawyers: Mr justice Manning then a judge of this Court and Mr Hector Scott, for long Deputy Crown Solicitor and deeply learned with a reputation for caution and deep research.

In my opinion where one co-owner in any way, either by express agreement or impliedly from conduct, undertook the task of collecting rents on behalf of co-owners and distributing them he was, in Lord Coke’s expression, a bailiff or in more modern language he acted on behalf of the co-owners and was at all times liable to an action at law for a share, and the effect of the Statute of Anne in that case was no more than procedural, even though it had a substantive effect in some cases.  In my opinion its repeal has no continuing effect on procedure, because since 1972 there no longer is any procedure in this Court which could be recognized as an action for account at Common Law.  The effect of its repeal on rights of substance, of which Meagher JA spoke so deprecatingly at paragraph 8, is not an effect which relates to the rights of the present parties.  Neither the Statue of Anne nor its repeal had any effect on equitable claims.”

101.  It is noted that in none of the cases cited by Mr. Chan that the claim for accounting was based simply on the incidence of co-ownership.  In Ryan v. Dries, the court was concerned with the quantification of an interest held on resulting trust.  In Hitchins v. Hitchins, the co-owners were in partnership and one managed fund for the other co-owners.  As Bryson J said, the co-owner who in some way undertook the responsibility was accountable as fiduciary.  The duty to account seems to be grounded on a supposed consent.

102. In Leake v. Cordeaux, an undivided moiety of the estate at Bilsby, Lincolnshire was held by John Taylor, and another undivided moiety was held on trust for sale for his sister Frances Taylor.  John Taylor was in occupation of the estate and cultivated it for his own benefit.  The estate was sold by Cordeaux, the trustee by succession.  John Taylor made a claim against the estate of Frances Taylor for money expanded by him for the benefit of the estate.  The plaintiff took out letters of administration de bonis non of the estate of Frances Taylor, and instituted the suit against Cordeaux to pay over the purchase money, so that it might be ascertained what was due to John Taylor for improvement, and that he might be charged with an occupation rent.  Hence, the account was taken when the relationship between the tenants in common came to an end, and the position was akin to partition.

103.  With due deference to Meagher JA, I adopt his analysis on the duty to account between co-owners for rent received in Forgeard v. Shanahan.  Upon the repeal of the Statute of Anne, a co-owner out of occupation has remedies at law in two situations: damages for occupation rent for ouster, or an account if the other co-owner has rendered himself liable as agent or bailiff.  Agency and ouster aside, the duty to account will arise in partition actions, administration actions, in other cases where there is a fund in court, or where the court makes an order for sale as an alternative to partition, or as suggested by Hodgson JA in Ryan v. Dries, an account for a share of rent where one party claims an interest in property by reason of a resulting trust or constructive trust, and the court is asked to quantify that interest.

104.  Strelly v. Winson seems to be in opposite to the mainstream of the authorities.  The statement in Strelly v. Winson that “so where one tenant in common receives all the profits, he shall account in this court as bailiff to the other” seems to have loomed larger than its fact that the part owners of a ship were partners of the venture of the ship. 

105.  Hence, I find that there is no duty to account for rent received by one co-owner arising simply by reason of the incidence of co-ownership.

106.  Be that as it may, Mr. Chan submitted that on the facts of this case, an agency should be implied upon the defendant.  I shall consider this point.

Agency

107.  Bowstead & Reynolds on Agency (17^th Ed., 2001) at 2-030 stated that:

“Agreement between principal and agent may be implied in a case where one party conducted himself towards another in such a way that it is reasonable for that other to infer from that conduct consent to the agency relationship.”

108. Mr. Yin submitted that there was no agency between the deceased and the defendant before November 1991 as the Company paid the rent to the deceased directly.  Thereafter, the defendant could not have been an agent as he never consented to it.  On the contrary, he denied that the deceased was either a beneficial owner, or had ever received any rent from the Company.  How then could he be taken to have collected rent on behalf of the deceased?  Further, the deceased wrote to the Company demanding the payment of the arrears of rent, and purportedly to increase the rent for his half share.  These acts were inconsistent with any agency.

109.  Mr. Chan submitted there was a joint letting by the deceased and defendant after November 1991 (as actually found by me).  Hence, the Company continued to be liable to pay rent to the deceased.  As from November 1991 to 1998, the Company’s audited accounts recorded full payment of the rent on the Property without provision for any arrears due to the deceased.  Hence, as far as the Company was concerned, the debt to the deceased had been fully discharged.  As a matter of fact, all the rent was received by the defendant since November 1991.  As the Chairman and majority shareholder and controlling mind of the Company, the defendant must be taken to be ad idem in knowledge with the Company.  The Company could not have recorded in the accounts that it had made full payment of the rent on the Property if the defendant had not collected the rent on behalf of the deceased and giving discharge to the Company on behalf of the deceased.  Hence, the deceased cannot be allowed to approbate and reprobate, and must be held to have collected the rent as an agent of the deceased.

110. Mr. Yin submitted that even assuming that the deceased accepted the instruction from the Company to pay the deceased, it only made the defendant an agent of the Company, but not an agent of the deceased.

111.  I agree with the submission of Mr. Chan.  As I have found against the defendant on the resulting trust and personal subsidy of $7,500, the truth is the defendant knew from the beginning that the deceased was a beneficial owner of the half share and the deceased had been receiving half of the rent before November 1991.  He cannot be allowed to gainsay the position otherwise.  Insofar as the defendant was trying to do so, it must have been his lame excuse to hold on to the rent payable to the deceased.  This evidence must be rejected as contrary to the truth. 

112.  The defendant did not merely accepted the instruction from the Company to pay the deceased.  It had given discharge to the Company on behalf of the deceased, such that the Company could report in the audited accounts that the rent on the Property was fully paid.  Hence, the defendant must be taken to be an agent of the deceased.

113. Granted that the deceased did write to the Company demanding the arrears and increase of rent.  However, there is nothing inconsistent given that he must have regarded the defendant as controlling the Company.

114.  Hence, I find that the defendant has been an agent of the deceased in collecting the rent since 11 November 1991.   The defendant is liable to account to the deceased.  However, this is not the end of the matter, because the deceased’s claim is subject to a limitation period of six years, unless the claim is proprietary as opposed to merely personal in nature.

Constructive trust

115.  Mr. Chan submitted that the defendant was a constructive trustee in collecting the rent as agent for the deceased.                  

116.  Bowstead & Reynolds ob. cit. at 6-040 deals with when an agent holds for principal as trustee:

“When agent holds for principal as trustee.  The analogy with trust would suggest first, that when an agent holds title to money or other property for his principal, he always does so (in situations where the principal does not himself own it) as trustee.  This would often be impractical and has never been the rule.  It is perfectly possible for property so held, especially money, to be the agent’s own, and mixed with his own assets subject only to a duty to transfer or account for it to his principal.  Equally however he may certainly hold as trustee.

Sometimes the answer turns on the contract between principal and agent.  It is clear in this context and in general that the existence of a contractual relationship of debtor and creditor between the parties does not prevent the existence of a simultaneous trust relationship, or a fiduciary relationship of a less onerous nature involving nevertheless that certain money or property is held on trust.  Thus it may be provided expressly between principal and agent that money received is so held.  At other times the intention to create a trust may be inferred; the matter turns on the objective interpretation, according to general principles, of the intentions of the parties.  It is sometimes said that there is a prima facie duty on an agent to keep the principal’s money and property separate; but it may be that even this is overstated…”

117.  Insofar as Mr. Chan is relying on a constructive trust to avoid the application of the statue of limitation, it is necessary to distinguish between constructive trust in the true or institutional sense and “constructive trust” in the remedial sense.  A claim based on the former is proprietary in nature and is not barred by the lapse of time.  The statute of limitation has been held to apply to the later by analogy.

118.  Section 20(1) of the Limitation Ordinance provides that:

“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.”

119.  On the other hand, section 4(7) of the Limitation Ordinance provides that the general period of limitation of 6 years in actions of contract or on tort, etc. may be applied to other equitable relief by analogy:

“This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the court by analogy in like manner as the corresponding enactment contained in the Limitation Act 1980 (1980 c. 58 U.K.) is applied in the English Courts.”

120. In Paragon Finance plc v. DB Thakerar & Co (a firm) [1999] 1 All ER 400, Millet LJ (as he then was) said at p. 408j to 409g:

“Regrettably, however, the expressions ‘constructive trust’ and ‘constructive trustee’ have been used by equity lawyers to describe two entirely different situations.  The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff.  The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.

A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another.  In the first class of case, however, the constructive trustee really is a trustee.  He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff.  His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust…

The second class of case is different.  It arises when the defendant is implicated in a fraud.  Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity.  In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be ‘liable to account as constructive trustee’.  Such a person is not in fact a trustee at all, even though he may be liable to account as if he were.  He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff.  In such a case the expressions ‘constructive trust’ and ‘constructive trustee’ are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are ‘nothing more than a formula for equitable relief’: Selangor United Rubber Estates Ltd v Cradock (No 3)[1968] 2 All ER 1073 at 1097, [1968] 1 WLR 1555 at 1582 per Ungoed-Thomas J.” …

“The importance of the distinction between the two categories of constructive trust lies in the application of the statutes of limitation.  Before 1890 constructive trusts of the first kind were treated in the same way as express trusts and were often confusingly described as such; claims against the trustee were not barred by the passage of time.  Constructive trusts of the second kind however were treated differently.  They were not in reality trusts at all, but merely a remedial mechanism by which equity gave relief for fraud.  The Court of Chancery, which applied the statutes of limitation by analogy, was not misled by its own terminology; it gave effect to the reality of the situation by applying the statute to the fraud which gave rise to the defendant’s liability : see Soar v Ashwell [1893] 2 QB 390 at 393, [1891-4] All ER Rep 991 at 993 per Lord Esher MR:

‘If the breach of the legal relation relied on … makes, in the view of a Court of Equity, the defendant a trustee for the plaintiff, the Court of Equity treats the defendant as a trustee … by construction, and the trust is called a constructive trust; and against the breach which by construction creates the trust the Court of Equity allows Statutes of Limitation to be vouched.’”

121. In Coulthard v. Disco Mix Club Ltd [2000] 1 WLR 707, Deputy Sher QC said at p.730 B-C:

“Now, in my judgment, the true breaches of fiduciary duty, i.e. the allegations of deliberate and dishonest under-accounting, are based on the same factual allegations as the common law claims of fraud.  The breaches of fiduciary duty are thus no more that the equitable counterparts of the claims at common law.  The court of equity, in granting relief for such breaches would be exercising a concurrent jurisdiction with that of the common law.  I have little doubt but that to such a claim the statute would have been applied.”

122. Mr. Chan submitted that the defendant in receiving the deceased’s rent on his behalf owed him a fiduciary duty, and was liable to him as a constructive trustee (of a real constructive trust of the first kind), as there could not be any contemplation that the defendant could use the deceased’s rent as part of the defendant’s cash flow, nor was the relationship between the deceased and the defendant a commercial one (they were just brothers) in relation to the defendant’s collection of the deceased’s rent on behalf of the deceased.

123.  Mr. Yin submitted that a constructive trust which give rise to proprietary relief cannot arise in the absence of an intention to create a trust. 

124. In SJ v. Hon Kam Wing & Ors [2003] 1 HKLRD 524, where the Government claimed under a constructive trust the bribe received by a civil servant, Deputy Judge Barma SC (as he then was) said at p. 537E-G:

“I would accept that most trusts arise as the result of some agreement or understanding between the trustee and some other person (not necessarily the beneficiary – in the classic case of an express trust, the agreement is between the trustee and the settlor, who may not be a beneficiary, and the beneficiaries may never have been consulted in relation to the setting up of the trust).  However, it does not seem to me that every trust must arise in this way.  The present case would appear to be one in which there was no consensus or agreement as to the creation of the trust, but the trust seems to me nonetheless to be a real one, in which Hon is properly to be described as a trustee for the Government.”

And his Lordship held that the trust was a real one and was not time-barred.

125. I have already found that the defendant was an agent of the deceased in receipt of the rent paid by the Company to the deceased after 11 November 1991.  I proceed to find that the defendant was a constructive trustee in the real or institutional sense for such rent.  Insofar as the defendant had collected those rent from the Company, it was his duty to hand them over to the deceased as a conduit.  There was no occasion to suggest that the defendant could use the money first before paying the deceased.  True that the Company in the past might not have paid the deceased promptly by month, but it is one thing for the Company to retain the money before payment to the deceased, and an entirely different matter for the defendant to retain it after payment by the Company as recorded in the audited accounts.  Hence, the plaintiff’s claim is not statute-barred.

126. ; By reason of my conclusion on constructive trust, it is not necessary for me to examine Mr. Chan’s contention of the primary trust under Barclays Bank Ltd v. Quitclose Investments Ltd [1979] AC567, or under money had and received and other claims of restitution.

Conclusion

127. In the premises, I hold that the defendant is liable to account to the deceased’s estate the Collected Rent, at the rates I have found above.

128.  As I have not been addressed on tracing of the Collected Rent into other properties, I shall not order any consequential relief.

129.  I order that the defendant do pay interest at judgment rate from the date of the writ.

130.  I make an order nisi that subject to any costs order made previously, the defendant do pay the costs of the action to the plaintiff, to be taxed if cost agreed.