BERMUDA TRUST (HONG KONG) LTD v. LEE PO SAN

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JUDGMENT

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1. Madame Lee Po San ("the Plaintiff") now aged 69 had led a colourful life. She was born in 1928 (although her Hong Kong Identity Card shows her to be born in 1933 as result of her having understated her age by 5 years when she first obtained her Hong Kong Identity Card) and came from a wealthy family in Canton, China. She married, very young in China, an engineer by the name of Lee ("Lee") and thereafter she and her husband Lee started their chemical factories in Canton. The chemical factories must have been very successful because from an Order of the Chinese Court dated 9th May 1954, it would seem that very large sums were assessed to be the business turnover of the chemical factories business.

2. When the Plaintiff was about 18, she gave birth to her one and only son Lee Dick Kee ("Dick"). This was in or about 1946. When the People's Republic of China was established in late 1949, Lee was arrested and imprisoned and some 4 or 5 years later, in or about 1954 the Plaintiff and her son Dick then aged about seven came to Hong Kong from Canton. The Plaintiff carried with her to Hong Kong hidden in a traditional Chinese quilt a large sum of money amounting to some $200,000 stitched inside the quilt.

3. A few years after the Plaintiff came to Hong Kong, round about 1957 the Plaintiff met Fung Shing Ting ("Fung") and apparently not long afterwards they cohabited together. Fung and the Plaintiff went through some sort of Chinese marriage ceremony and gave a Chinese dinner in the traditional way to announce that the Plaintiff and Fung had become man and wife, even though at that stage it would seem that the Plaintiff was still legally married to her husband Lee who might have perished in a Chinese prison and Fung was still married to an Ivy Hung having married her formally in 1954. For a short time, Fung and his wife, the Plaintiff together with the young boy, Dick lived in a farm in the New Territories but because of the difficulty of Dick being properly schooled, the family of three moved in late 1957 or early 1958 to 31 Seymour Road. Dick changed his surname to Fung and went to Sam Yuk Middle School. Although the three of them lived as a family, the life style of that family was by any standard different from those of the ordinary families of Hong Kong. Fung and the Plaintiff were both professional gamblers in the sense that each of them pursued horse racing as the main and principal activity in life. They were not otherwise gainfully employed and it would seem that other than the gambling income mostly from the Plaintiff (when there was any winning from horse racing), neither the Plaintiff nor Fung had any income from any employment or work. From her successful gambling and her fortune which she brought from China, the Plaintiff apparently supported the family.

4. Unfortunately the household of three could not be held together for long as there was constant friction between Fung and the growing Dick. Eventually when Dick was about 11 or 12, Dick moved out to live with his maternal grandmother (the mother of the Plaintiff) while the Plaintiff and Fung continued on with their bizarre existence of living together as man and wife and as fellow gamblers.

5. This state of affairs continued until late 1968, when with her fortune running low and Fung refusing to work to provide for the family, the Plaintiff married at the Hong Kong Marriage Registry an English airman. She left Hong Kong with her new English husband to live initially in Singapore but subsequently in the United Kingdom. This new foreign union of the Plaintiff however did not last long and in or about 1972 or 1973, the Plaintiff came back to live in Hong Kong (having spent a year back in Hong Kong between 1971 and 1972), initially with her son Dick who by then had changed his family name back to Lee. Mother and son lived in North Point but about 1972 they rented a flat at 139 Caine Road which they turned into a Bed and Breakfast business. Upon the son getting married shortly thereafter, the Plaintiff ran the Bed and Breakfast business at 139 Caine Road alone and this was a very profitable business bringing in to the Plaintiff a substantial monthly net income apparently in excess of $4,000.

6. While the Plaintiff was doing well, Fung's fortune had also apparently changed because he must have come into sufficient money to enable him:-

The Plaintiff had some involvement with the Flat from the beginning as she told the Court that she helped him to move into the Flat. He in fact asked her to live with him at the Flat. But she did not wish in 1973 to move into the Flat with Fung as she was happy and successful with her profitable Bed and Breakfast business. In 1973, the Plaintiff and Fung saw each other occasionally but they were not living together.

7. Fung's life however in the early seventies was unstable as shortly after the Plaintiff left him in 1968, he started his mental breakdowns. Unfortunately the history of his mental breakdowns and illness was very incomplete and unreliable but it seemed that whatever might be his various admissions into Castle Peak Hospital in early seventies, he was there in or around 1975/76 (even possibly later) and it was when he was so there that he urgently telephoned the Plaintiff and begged her to get him out of Castle Peak Hospital. In order that he could be released from Castle Peak Hospital, someone in close personal relationship such as a wife would have to sign for his release and give assurances to the Castle Peak Hospital that the patient would be well looked after. Fung wanted to be discharged from Castle Peak Hospital and he telephoned the Plaintiff and promised that upon her securing his release from the Castle Peak Hospital, they would live together in the Flat as man and wife and he would support her and pay for all expenses of their living together. He was desperate to get out of the mental hospital and he needed her and wanted a quiet life with her. She agreed to secure his release and she did by signing the various forms as his wife which in a way she was so regarded by both Fung and the Plaintiff.

8. However upon his release from the Castle Peak Hospital, he could not go and live in the Flat. During his long absence from the Flat, all utilities had been cut off and the physical condition of the Flat had also deteriorated to such an extent that it was not fit for human habitation. Fung therefore went to live with the Plaintiff at 139 Caine Road. She lodged him and fed him. His harassment of the lodgers at 139 Caine Road however made it difficult for her to continue with her business of keeping a Bed and Breakfast establishment. He did not want to leave and she could not make him go away as he insisted that he would only leave if both the Plaintiff and he would move together to the Flat and live there as man and wife. He promised her that as his wife, the Flat would be her home and that he would pay for the family expenses. He wanted her to live with him as his wife in the Flat and he would not move out of 139 Caine Road. He just wanted her to stay with him forever in the Flat which would be hers after he was gone. He persuaded her and she accepted this new life with him living together again as man and wife in their home, the Flat.

9. In mid 1975 or probably later, the Fungs namely Fung and the Plaintiff moved out of 139 Caine Road into the Flat at Valley Road, Happy Valley. The Plaintiff spent some $2,500 to reconnect power, telephone and water supplies. The Flat was repainted and new air conditioners and water heater were installed. All these were done by the Plaintiff and paid by the Plaintiff. Fung gave a Reunion Dinner and invited friends and relatives to celebrate the reunion of the Plaintiff and Fung as man and wife and their living in the new family home. The couple thereafter lived quietly in the Flat as man and wife until Fung died in 1986.

10. In May 1976, Fung made an English Will under which some 80% of the estate would go to the Methodist Church and 15% of the residuary estate would go to his wife and 5% of the residuary estate would go to the Plaintiff.

11. On 2nd of October 1981, Fung made a Chinese Will under which everything he owned would go to the Plaintiff. When Fung made the Chinese Will in 1981, he informed her that everything he owned would be hers and showed her the Bible in which he had put the Chinese Will. He took her to see his solicitors to prove to her that the Flat, which would go to her after his death, really belonged to him. He took her to his Bank to see the title deeds of the Flat in the safe deposit box. He also gave her the key to the Bank safe deposit box. He told her to keep the key and that upon his death the Flat, the papers to which are in the safe deposit box, would be hers. She kept the key until his death.

12. After his death in 1986, she went to the Defendant, namely the Standard Chartered Bank Trustee ("the Defendant") with the English Will and Chinese Will as Fung told her that she should go to the Defendant after his death for the Defendant would help her. Unfortunately, the Defendant did not really help the Plaintiff. The Defendant took away the 2 Wills, the key to the Bank safe deposit box and also all the money in his bank accounts. The Defendant refused to recognise her rights or even to pay for his funeral. The Plaintiff was therefore forced to sue the Defendant and the Methodist Church for a declaration of the validity of the Chinese Will. The trial of this Chinese Will Action came before Bokhary, J. (as he then was) and by his Judgment delivered on 21st June 1991, he refused to declare the Chinese Will valid because of the doubts on the mental capacity of Fung in 1981 to make the Chinese Will. The earlier English Will was pronounced valid. The learned Judge ordered that the costs of the Plaintiff in that Chinese Will Action be paid out of the estate of Fung. But the Defendant did not comply with that Order but instead alleged that the Plaintiff owed the Defendant as trustee of the Estate, a large sum of money being the mesne profits of the Flat for the period from the time of the death of the Deceased until possession is given to the Defendant. The Defendant trustee also sought recovery of possession of the Flat from the Plaintiff.

13. It was in these circumstances that the Plaintiff brought this Action against the Defendant trustee and the main dispute between the Plaintiff and the Defendant at the trial of this Action is whether the possession of the Flat could be retained by the Plaintiff or the ownership of the Flat declared for her by reason of:-

14. At the commencement of the Trial, one preliminary matter was raised by the Defendant, namely the mental competence of the Plaintiff to give evidence. What happened is that by Order of Master Cannon dated 5th March 1997, Dick Lee the son was appointed a next friend of the Plaintiff and that Order was made on the basis of what might have been said about the Plaintiff's mental condition in a medical Report by Dr. Chung-Kwong Wong ("Dr. Wong") dated 16th February 1997. This February 1997 Report was given by the Plaintiffs Solicitors to the Defendant's Solicitors around 21st February 1997. There was no reaction by the Defendant's Solicitors to this Report nor was there any request by the Defendant's Solicitors to have the Plaintiff independently assessed for mental competence to give evidence. It was therefore something of a surprise to the Plaintiff's legal team when the Defendant's Counsel at the trial took issue on the competence of the Plaintiff to give evidence. After having read the February 1997 Report of Dr. Wong and the authorities on the matter, I indicated that I took the view that the Plaintiff was mentally competent to give evidence and that the evidence of the Plaintiff would be considered as being admitted de bene esse if subsequently upon hearing her evidence I come to a view against her mental competence to give evidence. Having seen her at close range and heard her evidence over some 7 days and with the benefit of a May 1997 Supplementary Psychiatric Report by Dr. Wong, I have no doubt that the Plaintiff was mentally fit to give evidence to this Court. I found her to be intelligent, alert, responsive and coherent. She may not be the best witness but she is certainly mentally more than competent to give evidence to this Court. I believe at the end, the Defendant had also recognised and accepted that the lady was mentally capable of giving evidence to the Court. However, it is relevant for the Court to bear in mind that this was a claim based on the evidence of a person who had some mental problem and that therefore such evidence should be received with caution (see Durham v Durham [1885] 10 PD 80 at 86-7). Furthermore, the Court must also "scrutinised with very great care" this claims to a property of a deceased person (see In re Basham Decd. [1986] 1 WLR 1498 and 1505). Accordingly in examining the evidence in relation to both the claim based on constructive trust as well as the claim based on estoppel, I remind myself of the special double necessity of exercising great caution.

15. The real issue between the parties is the quality of the evidence given by the Plaintiff and by her son and to what extent the evidence should be accepted and the consequence of such acceptance or non acceptance.

16. It is common ground that in order for the Plaintiff to succeed in retaining possession of the Flat against the Defendant trustee, she would have to persuade the Court either on the ground of constructive trust or estoppel. There is much overlapping of the evidence under these two heads of claim but in essence the case of the Plaintiff rests on acts and conduct of Fung and of the Plaintiff in relation to the Flat as told to the Court by the Plaintiff. To a large extent therefore everything depends on the credibility of the Plaintiff and in a secondary way on that of her son Dick Lee.

17. In the course of the 7 days of evidence given by the Plaintiff before me, I have occasion to observe her closely. The lady was no doubt at times demanding, exasperating, child-like, inconsistent and even puzzling in her responses. But in my view, what defines her particularly is that she is also a very traditional old-fashioned Chinese lady with all that it implies of reticence, understatement and honesty. Whether by the dignity of her position or her cultural upbringing, she would rather understate a situation to her disadvantage where in fact the real position which the Court ought to find is more favourable to her. To that extent therefore her evidence must not always be taken literary against her and I do not do so. I accept her evidence except where patently she must be mistaken by reason of the lapse of time and loss of memory. Substantially therefore, I find that her case has been proved by her. To the extent that her son's evidence also supplements or supports her evidence, I also accept his evidence. So far as the quality of the son's evidence is concerned, although I find him to be a honest witness, I have no hesitation in saying that I am more persuaded by the mother's evidence.

CONSTRUCTIVE TRUST

18. The principle underlying the Plaintiff's claim can be found in the two leading cases of Grant v Edwards [1986] 1 Ch. 638 and Lloyds Bank v Rosset [1991] 1 A.C. 107 and in particular is stated with clarity in the following passage from the speech of Lord Bridge in Lloyds Bank v Rosset at page 132:-

In the two cases subsequent to Lloyds Bank v Rosset (not cited to me in argument) of Hammond v Mitchell [1991] 1 W.L.R. 1128 (Waite, J.) and Midland Bank v Cooke [1995] 4 A.E.R. 563 (Stuart-Smith, Waite & Schiemann, L. JJ.) the law was somewhat uncertainly developed. In the new third edition (1997) of Oakley on Constructive Trust (not referred to during argument) the learned author in the Section on Inequitable Conduct, discussed with learning the nature of "common intention constructive trust" and equitable proprietary estoppel. After a detailed consideration of the development of this branch of the law starting with Pettitt v Pettitt and Gissing v Gissing, through the long line of English cases and by way of the development in the Commonwealth, the learned author in his Summary at page 83 said the following:-

"The legacy of the "new model" constructive trust in this area of the law has been to produce a line of authority culminating in Lloyds Bank v Rosset and ironically, in a considerable narrowing of the circumstances in which this type of constructive trust will be held to arise, something which remains the case despite the rather more generous decision reached in Midland Bank v Cooke. This in turn has thrown into sharper relief the principle of unconscionability which now underlies much more clearly the new "common intention constructive trusts". The short existence of the "new model constructive trust may therefore in the end lead to the development of a general principle of unconscionability on the Australian pattern which would then replace both the "common intention constructive trusts" and the doctrine of equitable proprietary estoppel; this would certainly be preferable to adopting the Canadian approach and applying the principle of unjust enrichment and the remedial constructive trust."

As I did not have the benefit of arguments on the detailed matters discussed in the new Oakley on Constructive Trust, it will not be appropriate for me to base my judgment on the principle of unconscionability. The action can be decided on the principle laid down in Lloyds Bank v Rosset and accordingly I will proceed in this Judgment on the basis of Lloyds Bank v Rosset as having laid down the correct principle (which both parties have accepted) and apply that principle to the facts as disclosed by the evidence placed before me.

19. It seems to me clear from a reading of Lloyds Bank v Rosset that in this kind of dispute involving matrimonial partners or co-habitees, the Court should look to the following Questions:-

Questions 1 and 2 are the first limb of the Rosset requirements. Question 3 is the 2nd limb of the Rosset requirements. The case of the Plaintiff as I understand it does not really rely on Question 3. The evidence adduced by the Plaintiff also in my view does not support a case based on the 2nd limb of Rosset requirements. To succeed with its claim, the Plaintiff must persuade the Court that the answers to Questions 1 and 2 are both Yes. I will now consider each Question in turn.

ANY AGREEMENT, ARRANGEMENT OR UNDERSTANDING

20. The evidence given by the Plaintiff on the question of the giving of the Flat to her by Fung was long and at times very rambling. Sometimes her evidence is even contradictory but this is not surprising when a lady of her advanced age and obviously not of very good health was subjected to difficult oral evidence over some 7 working days. But I am at the end totally satisfied that there were repeated discussions, understandings, arrangements and indeed agreements between the Plaintiff and Fung on the giving of the Flat to her by Fung. I find as a fact the following instances of agreement, arrangement and understanding between the Plaintiff and Fung that the Plaintiff was to be given the Flat or that she could regard the Flat as permanently her home:-

In my judgment, there were clear, express and repeated discussions between the Plaintiff and Fung about the Flat and her entitlement to the Flat. I conclude and find therefore that I am satisfied that the requirement of agreement, understanding and arrangement under the first limb of Lloyds Bank v Rosset is satisfied.

DETRIMENT OR ALTERATION OF POSITION

21. Despite the misgivings of Mr. Liang for the Defendant, I am equally satisfied that the Plaintiff had established that as result of the aforesaid agreement, understanding and arrangement, the Plaintiff had changed her position. The evidence of the Plaintiff was very long and it is sufficient for the purpose of this Judgment if I state as my findings of fact that the following are detriments to the Plaintiff and/or alterations of position by the Plaintiff:-

22. In the circumstances, I am satisfied that the answers to Questions 1 and 2 posed earlier are Yes. My conclusion on the claim based on Constructive Trust is that it had been clearly made out. It follows therefore that the Defendant is not entitled to have possession of the Flat but is obliged to transfer the title of the Flat to the Plaintiff.

PROPRIETARY ESTOPPEL

23. Strictly speaking, having regard to my conclusion in favour of the Plaintiff on Constructive Trust, it is not necessary for me to go on to consider the matter of Proprietary Estoppel but as a claim has also been made on this alternative basis, I will just briefly state what are my conclusions on this head of claim.

24. Proprietary Estoppel as a ground for resisting the claim of legal owner to deprive the partner/co-habitee of the beneficial interest of the property is now considered very akin to the principle of constructive trust. As was said by Browne-Wilkinson, V.C. (as he then was) in Grant v Edwards [1986] Ch. 638 at page 656G:-

"... In both, the claimant must to the knowledge of the legal owner have acted in the belief that the claimant has or will obtain an interest in the property. In both, the claimant must have acted to his or her detriment in reliance on such belief. In both, equity acts on the conscience of the legal owner to prevent him from acting in an unconscionable manner by defeating the common intention. The two principles have been developed separately without cross-fertilisation between them: but they rest on the same foundation and have on all other matters reached the same conclusions."

At page 76 of Oakley on Constructive Trust, it is said by the learned author that there is an increasing overlap between the common intention constructive trust and the doctrine of equitable proprietary estoppel and it has even been suggested that the distinction between the two is now quite illusory and that it is, quoting Hayton & Marshall on Commentary and Cases on the Law of Trusts and Equitable Remedies, page 373:-

"time that the courts and counsel moved beyond pigeon-holing circumstances into common intention constructive trusts and equitable estoppels and concentrated upon the basic principle of unconscionability underlying both doctrines".

This overlap aspect and the concentration upon the principle of unconscionability would have to await its development in another case when it is appropriate to do so. I confine myself in this Judgment to only a brief consideration of whether the alternative claim of the Plaintiff based on Proprietary Estoppel has been made out.

25. The relevant principle of Proprietary Estoppel applicable to the present claim is best set out by the Edward Nugee, Q.C. sitting as a High Court Judge in In re Basham Deceased [1986] 1 WLR 1498 where at page 1503H he said:-

"... where one person, A, has acted to his detriment on the faith of a belief which was known to and encouraged by another person, B, that he either has or is going to be given a right in or over B's property, B cannot insist on his strict legal rights if to do so would be inconsistent with A's belief."

It seems to me that for this Proprietary Estoppel to apply the following facts are required to be established:-

26. Firstly, the evidence clearly established and I so find that the Plaintiff believed that she was going to be given the Flat upon the death of Fung. Secondly, there can be no doubt on the evidence that the aforesaid belief of the Plaintiff was encouraged and expressly promised by Fung. In fact it could be said that this was the bargain struck in 1975/6 by the Plaintiff and Fung when they came to terms and she agreed to move out of Caine Road and to move with him into the Flat. The Flat was also promised in the Chinese Will and by the giving of the Bank safe deposit box key to the Plaintiff. Thirdly from the totality of the evidence I find that the Plaintiff did rely on the aforesaid belief. I know that Mr. Liang for the Defendant took strong issue on this and attempted to establish that in fact the Plaintiff did not rely on the belief. I regret that I do not accept his submissions and I said it for two reasons. Reason one is that the totality of the evidence, having regard to my assessment of the character of the Plaintiff, point to this conclusion. Reason two is that once I come to a conclusion that the Plaintiff has such genuine belief, it follows very naturally that the Plaintiff will also rely on that belief. It is really a contradiction in terms to say that A has a belief but A does not rely on his belief. I am not saying that it is impossible to establish this but there must exist very unusual circumstances and very strong evidence to contradict the natural linking of belief with reliance on belief. There are no proved special circumstances or acceptable strong evidence to persuade me that the Plaintiff did not rely on her stated belief. Fourthly and finally, I find that the Plaintiff's action relying on the belief had resulted in detriments which I had set out in some details earlier. It follows therefore that I am satisfied as was the Judge in In Re Basham that the deceased Fung and therefore his estate is estopped from denying the absolute and beneficial title of the Flat to the Plaintiff. In many ways in fact, this case bears a great deal of resemblance to the case of In Re Basham and as in that case, I am also convinced that the Defendant must be estopped from denying that the Plaintiff is entitled to the ownership and possession of the Flat.

27. In the circumstances, there must be judgment to the Plaintiff. At a time convenient to the parties after the handing down of this Judgment, I will hear the parties as to the precise form of the Judgment to be entered and what costs order should be made.