SL v. CPYD AND ANOTHER

FCMC 12136/2011

[2020] HKFC 105

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 12136 OF 2011

------------------------

------------------------

-----------------------

J U D G M E N T
(Preliminary Issue on Beneficial Interest)

------------------------

Preliminary Issue

1.  This is a hearing of a preliminary issue on the beneficial ownership of a property at No.7, 3 Yong Kang Yuan Street, Gu Wei Xin Cun, Panyu, Guangdong, China (中國廣東省番禺谷圍新邨永康園3街7號) (“the Disputed Property”) which is currently registered in the sole name of the Petitioner (“the Husband”) but claimed to be beneficially owned by his father, the 2^nd Respondent (“the Father”).   The 1^st Respondent (“the Wife”) disputes such contention leading to the present trial on this preliminary issue before the determination of the parties’ respective claim for ancillary relief.

Background

2.  The Husband and Wife were married in 1995.  They have no children born from this marriage.  The parties separated as from about April 2009.   In 2010, the Husband (acting in person at that time) first issued a petition for divorce based on behaviours, which proceedings were later stayed when the present petition for divorce based on 2-year separation was issued instead.  In the new petition, he has also made a list of ancillary relief claims against the Wife.  The Wife (also acting in person at that time) did not defend the divorce and a decree nisi was granted, which decree was later made absolute on 13 February 2012.

3.  The proceedings on ancillary relief seems to have taken a long and winding road between the years of 2012 and 2017, during which much time and efforts have been used on interlocutory hearings, mainly on the issue of discovery.   For reasons not entirely clear to me, 2 attempts for FDR were aborted in late 2012 and early 2013.

4.  When the matter first came before me on 27 July 2017, there was an application by the Husband asking for the Father to be joined as a party.  According to him, the Father is the beneficial owner of the Disputed Property despite the fact that it is now registered under his sole name.  The Husband asked for this preliminary issue to be determined first before the court would proceed to hear the parties’ respective claim for ancillary relief.

5.  On 21 September 2017, I granted the order to join the Father as the 2nd Respondent and have given various directions on the filing of pleadings so that the issues to be determined could be properly framed.

6.  The trial of preliminary issue was conducted on 13-14 December 2018, with the parties making their final submissions on 10 April 2019.  The case was then adjourned for judgment, which I now give.

The pleaded case of the Husband

7.  The pleaded case of the Husband (as in the Husband’s Amended Points of Claims and Points of Reply (Bundle pp. 5-10, 18-21)) can be summarised as follows:

(1) The Father inherited a property situated at No.10, 3 Hang Sui Shi Xiang Xi Yue Cun Xin Street, Panyu, Guangdong, China (中國廣東省廣州市番禺區穗石鄉西約村新街3巷10號) (“the Ancestral Home” or「祖屋」) from the Husband’s grandfather.

(2) Neither the Father, nor his issues including the Husband, lived in the Ancestral Home at all material times.

(3) The Ancestral Home was at all material times occupied by the Husband’s cousin-in-law Madam Wu Run Bi (吳潤碧) (“Madam Wu”) since 1950’s.

(4) In or about 2003, the Ancestral Home was resumed by the local government for the development of the Guangzhou Higher Education Mega Centre (廣州大學城) (“GHEMC”).

(5) The local government agreed with the Father that the government would pay compensation for the resumption by which the Father could get monetary compensation together with a right to buy a house at Gu Wei Xei Cun (谷圍新邨) in a nearby area of Sui Shi Xiang Xi Yue Cun (穗石鄉西約村).

(6) The Father chose to exercise the right and the Disputed Property was purchased with the monetary compensation from the government.

(7) As the Father was old and well settled in Canada, all the paper works were done by Madam Wu and the Husband who was residing in Hong Kong.

(8) Both the Husband and Madam Wu agreed and promised the Father that they would hold the Disputed Property on trust for the Father.

(9) On 21 June 2003, the compensation agreement was signed by Madam Wu.

(10) On 28 June 2003, the supplemental compensation agreement was signed by Madam Wu.

(11) On 8 November 2003, the sale and purchase agreement to purchase the Disputed Property was signed by the Husband and Madam Wu.

(12) The Disputed Property was assigned to the Husband and Madam Wu on 8 November 2003.

(13) The Husband later became the sole registered owner in late 2010 but still holds the Disputed Property on trust for the Father.

(14) The Husband further promised the Father that the Disputed Property would be divided among himself and his 3 brothers in equal shares upon the death of the Father.

(15) The Disputed Property which is currently held under the sole name of the Husband is in fact held on trust for the Father.

8.  I wish to pause here to deal with the submissions by Ms. Yu, counsel for the Wife on the Husband’s pleadings.  It was firstly submitted by Ms. Yu that the Husband has not specifically pleaded his claim on resulting trust in his Amended Points of Claims.  The first time that he asserted such a case was in his counsel’s opening dated 10 December 2018 and the Wife was taken to a total surprise of this new case.   Therefore, the Husband should not be allowed to run a case of resulting trust.

9.  Ms. Yu further submitted that the Husband has not specifically pleaded that the Father had altered his position in reliance on the common intention and it would be unconscionable for the Husband and Madam Wu to assert their legal title against the Father, which are essential elements in establishing a constructive trust in favour of the Father.

Discussion

10.  It is indisputable that one of the important functions of properly particularised pleadings is to inform the other side the nature of the case that he has to meet.  A party may also by his pleadings raise any point of law: O.18. r.11 of RHC. 

11.  I note that at paragraph 5 of the Husband’s Amended Points of Claims (Bundle p.7), he specifically pleaded that:

“…However, both [the Husband] and [Madam Wu] agreed and promised [the Father] that they would hold [the Disputed Property] on trust for [the Father]. Later [the Husband] became the only trustee but [the Husband] still holds it for [the Father]. [The Husband] was fully aware that [the Disputed Property] would be divided among himself and his three brothers in equal shares after {the Father}’s death. That is what [the Husband] has promised to [the Father] before [the Husband] becomes the sole trustee.” (italics added)

Although not saying it loud, the Husband has put forward a case of an express agreement and promise being made between himself, Madam Wu and the Father to found his case of a common intention constructive trust in favour of the Father.

12.  I was referred by Ms. Yu to Liu Wai Keung v Liu Wai Man [2013] 5 HKLRD 9, in which Godfrey Lam J said at §§45-46 (which were adopted by the Court of Appeal in WML v LCK [2015] HKFLR 201) that if a party alleges that there was express discussion and actual intention as to where the beneficial interest in the property should lie, there is little room for the operation of resulting trust:

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

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

13.  I accept Ms. Yu’s submissions that in the context of the present case, there is little room for the Husband and the Father to assert a case of resulting trust, which is a presumption and may only apply in the absence of an actual intention.

14.  However, as to Ms. Yu’s other submissions on the Husband’s failure to specifically plead the Father’s detrimental reliance and unconscionability for the Husband and Madam Wu to assert their legal title, I note that the Husband has already pleaded the fact that the Father has paid the purchase price of the Disputed Property by using the compensation money he received from the government.  This could form the factual basis (if accepted) upon which the court could make the findings on detrimental reliance and unconscionability.  I am not convinced that these are valid objections to the Husband’s pleadings in his Amended Points of Claims. 

The pleaded case of the Wife

15.  The Wife’s Points of Defence (Bundle pp.11-14) are rather short and simple.  In gist:

(1) The Wife denies that the Husband is holding the Disputed Property on trust for the Father.

(2) The Wife further avers that the Disputed Property was purchased with the Husband and her own money upon the Husband’s request.

(3) The Husband and Madam Wu held the Disputed Property on trust for both the Husband and the Wife as part of their matrimonial assets.

(4) Paragraphs 2, 3-7 of the Husband’s Points of Claims are denied and the Husband is put to strict proof thereof.

The pleaded case of the Father

16.  In his Points of Defence (Bundle p.15), the Father:

(1) Agrees with the matters averred in the Husband’s Points of Claims.

(2) Averred that he never intends to part with his beneficial interests in the Disputed Property.

(3) Agreed that the Husband and Madam Wu had promised and agreed that the Father would remain as the sole beneficial owner of the Disputed Property.

17.  In her final submissions, Ms. Yu submitted that the Husband and the Father were actually running conflicting cases because the Father had not amended his Points of Defence upon the Husband’s slight amendment to his Points of Claims.  I am of the view that this is only a technical argument which does not go to the substance of the dispute.  I am prepared to accept that both the Husband and the Father are running a similar case.

The main issues

18.  After considering the parties’ evidence and respective submission, these are the main issues that need to be resolved by this court:

(1) In determining whether there was a constructive/resulting trust for the Father, what laws should apply in view of the fact that the Disputed Property was located in the Mainland?

(2) Was there a common intention between the Husband, Madam Wu and the Father for a constructive trust to be established?

(3) Who pay for the purchase price of the Disputed Property?

The applicable law

19.  There is a divergence of views on whether Hong Kong law or the laws of the Mainland (“PRC law”) should apply in determining whether there was a constructive/resulting trust in favour of the Father.  Mr. Kay Chan, counsel for the Husband and the Father contends that Hong Kong law should apply.  On the other hand, Ms. Yu for the Wife contends that PRC law should apply.  This may be important because it is not disputed that there are no comparable common law concepts of constructive/resulting trust under PRC law.  Therefore, if PRC law applies, the simple outcome is that the Husband’s claim of constructive/resulting trust must inevitably fail.

Discussion

No pleadings or proof on PRC Law

20.  After going through the pleadings and the submissions of the parties, I am afraid that the Wife’s argument fails at the very first hurdle.  

21.    It is trite that the content of foreign law is a question of fact that needs to be pleaded and proved.  In support of this well-established principle, it is sufficient to refer to Dicey & Morris, The Conflict of Laws, Volume 1 (15^th Edition, 2012) Rule 25 p. 318 without the need to go into the relevant cases:

“Rule 25-

(1) In any case to which foreign law applies, that law must be pleaded and proved as a fact to the satisfaction of the judge by expert evidence or sometimes by certain other means.

(2)  In the absence of satisfactory evidence of foreign law, the court will apply English law to such a case.”

Therefore, if the Wife argues that PRC law applies, then this fact has to be pleaded in her Points of Defence.   I am afraid that she has failed in that regard and therefore, her argument on the applicability of PRC law could not even get off the ground in the first place.

22.  Furthermore, even if the Wife had pleaded the applicability of PRC law in her Points of Defence (which she had not), she has still failed to prove the contents of PRC law in evidence.  Consequently, the court can only assume that they are the same as Hong Kong law: Koninklijke Philips Electronics N.V. v Laser Media International Ltd [2001] HKEC 1134; Igal Dafni v CMA CGM SA [2013] 2 HKLRD 73.

Further discussion

23.  Apart from the above procedural failures, I accept Mr. Chan’s submission that after a more in depth analysis of the relevant case laws, one would still come to the same conclusion that Hong Kong law applies, instead of PRC law, under the circumstances of this case.

24.  The main plank of Ms. Yu’s submissions is that under our choice of law rules, the situs of absolute rights of ownership in goods or land is straightforward:  the territory within which the property is physically located at the relevant time, therefore, the applicable law is the lex situs: Johnston, The Conflicts of Laws in Hong Kong (3^rd Ed.) at §6.010.   As the Disputed Property is situated in the Mainland, therefore, the applicable law in determining whether there is a trust in favour of the Father should be PRC law.

25.  Although not being cited by Ms. Yu, I note that the author of Johnston also suggests at §6.053 that as a matter of principle, the beneficial proprietary interests should be deemed to be in the same place as the asset to which they relate:

“6.053 As a matter of principle, it is suggested that the beneficial proprietary interests should be deemed to be situated in the same place as the assets to which they relate. It seems wrong in principle to undermine the lex situs rule by, in effect, imposing, extra-territorially, domestic Hong Kong law notions as to the informal creation of proprietary interests by, for example, the concept of the constructive trust.”

26.  Despite the views of the learned authors in Johnston cited above, Mr. Chan for the Husband submitted there was in fact clear authority from the English case of Lightning & Anor v. Lightning Electrical Contractors limited & Others 97/1055 CMS3 to say otherwise.

27.  The facts of Lightning are that the 1^st Defendant therein, Lightning Electrical Contractors Limited (“LEC”), bought a property in Scotland which was registered in the name of LEC.  But the 1^st Plaintiff, Mr. Lightning, who was a shareholder in and the managing director of LEC, claimed to have provided the whole of the purchase price with the intention that LEC should hold the property on a resulting or constructive trust for him.  If English law applies, there would be a presumption of a resulting trust which would automatically arise on that purchase by LEC with Mr. Lightning’s money, but not under Scottish law.  It is to be noted that the circumstances of Lightning are in fact very similar to our present case.

28.  It was stated in Lightning that in a dispute in foreign land or involves interests in foreign land, which a court of equity in England recognises, but the courts of the foreign land would not, has never been a bar to the English court exercising jurisdiction over a person amendable to the jurisdiction. This does not only concern with jurisdiction but according to Lord Justice Gibson, it also concerns with applicable law:

“Mr. Lord said that these authorities go only to the question of jurisdiction and not go to the question of the applicable law. But, for my part, whilst that may be correct, it seems to me implicit that the English court not unnaturally regarded English law as applicable to the relationship between the parties before it in the absence of any event governed by the lex situs destructive of the equitable interest being asserted.

As is pointed out by Millett LJ when sitting at first instance at Macmillan Inc v Bishopgate Trust (No 3) [1995] 1 WLR 978 at page 989 (commenting on Norris v Chambres (1891) 29 Beavan, 246, affirmed 3 De Gex Fisher and Jones 583), where a plaintiff invokes the in personam jurisdiction of the English court against a defendant amenable to the jurisdiction and there is an equity between the parties which the court can enforce, the English court will accept jurisdiction and apply English law as the applicable law, even though the suit relates to foreign land.  In contrast if the equity which is asserted does not exist between the parties to the English litigation, for example where there has been a transfer of the property to a third party with notice of an equity but by the lex situs governing the transfer, the transfer extinguished the plaintiff’s equity, the English court could not then give relief against the third party even though he is within the jurisdiction.”

29.  Lord Justice Millett expressed a similar view in the same judgment:

“I agree. If A provided money to B, both being resident in England, to purchase landed property in his own name but for and on A’s behalf, and B does so, the consequences of that transaction are governed by English law. It would be absurd if they were governed by the law of the place where the property in question happened to be located.

Such a rule would lead to bizarre results if, for example, A’s instructions were to buy properties in more than one jurisdiction, for the consequences of the same arrangement might then be different in relation to the different properties acquired.  It would also lead to bizarre results if A left it to B’s discretion to choose the property to be acquired, since that would give B the unilateral power to decide on the legal consequences of the transaction which he had entered into with A.  Accordingly, for the reasons given by my Lord, both as to the applicable law and as to the result in the Scottish proceedings, I agree that this appeal must be dismissed.”

30.  Based on this clear English authority of Lightning, I am satisfied that for the determination of whether a constructive/resulting trust exists between the Husband and the Father in the present case, the lex situs principle does not apply.  As both the Husband and the Father are amenable to Hong Kong jurisdiction, naturally, Hong Kong law should apply to determine their equitable relationship, if any.

Recognition of Trust Ordinance, Cap.76

31.  In Ms. Yu’s submissions, reference has been made to Article 7 of the Convention on the Law Applicable to Trusts and their Recognition set out in the Schedule to the Recognition of Trusts Ordinance, Cap. 76.  In essence, Ms. Yu tried to convince this court that the applicable law in determining the purported trusts should be PRC law by reference to the factors listed therein.  However, it seems that Ms. Yu has failed to note that under Article 3, the Convention applies only to trusts created voluntarily and evidenced in writing.  Constructive/resulting trusts obviously do not fall under these categories.  Therefore, the Recognition of Trusts Ordinance, Cap. 76 simply does not apply to our situation and I will say no more on this.

The law on constructive/resulting trust

32.  After ruling that Hong Kong law applies, instead of PRC law, in determining the beneficial ownership of the Disputed Property, it is now opportune to state briefly the law on constructive/resulting trust here, which I believe is not controversial.

33.  In this regard, I would gratefully adopt the succinct discussion given by Madam Recorder Winnie Tam SC in a recent case of Chin Nai Man v Chin Yat Keung Alex [2020] HKCFI 403 at §§10-15:

“10. The following legal principles are not in dispute. Legal ownership of a property is normally consistent with the beneficial entitlement. The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership: see Chan Hin v Chen Bai Dyi (unreported, HCA 680/2014, 25.7.2017, Anthony Chan J) at §21; Stack v Dowden [2007] 2 AC 432 at §§56, 68. In the present case, the burden rests on the plaintiff.

11. In a domestic context, if it is possible to resolve the matter by reference to common intention, there is no need to resort to resulting trust: see the recent Court of Appeal decision of Primecredit Ltd v Yeung Chun Pang Barry (unreported, CACV 246/2016, 21.7.2017) at §1.3 (per Lam VP).

12. In ascertaining the (alleged) common intention;

(a) The plaintiff must prove (i) there was a common intention between him and the defendant that the plaintiff was to be the beneficial owner of the property despite that it was acquired in the defendant’s name; (ii) the plaintiff altered his position in detrimental reliance upon such common intention; and (iii) it is unconscionable for the defendant to assert ownership in reliance on his legal title to the property;

(b) In ascertaining whether there was a common intention, it is the objective intention of each party which was reasonably understood by the other party to be manifested by that party’s words and conduct that one must examine;

(c) Such intention is to be found, first and foremost, from any agreement, arrangement or understanding reached between the parties with respect to the beneficial ownership of the property concerned based on evidence of express discussions. It is only where there is no evidence to support a finding of such an agreement or arrangement that the court seeks to infer from the conduct of the parties the relevant common intention;

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

See Liu Wai Keung v Liu Wai Man [2013] 5 HKLRD 9 at §§46‑50, Godfrey Lam J, approved in WML v LCK (unreported, CACV 82/2014, 27.2.2015 at §41).

13. The modern approach in conducting the assessment is to adopt a holistic approach having regard to the context. Context was even described as a “fundamental consideration”: Chan Hin v Chen Bai Dyi (unreported, HCA 680/2014, 25.7.2017).

14. In the context of a traditional Chinese family involving older generations, where explicit discussions on property rights within the family was not that common, the Court has to pay more regard to circumstantial matters: Primecredit Ltd v Yeung Chun Pang Barry (unreported, CACV 246/2016, 21.7.2017).

15. As to the demeanour of witnesses, Chu J (as Chu JA then was) in Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5.5.2011 at §§35, 39-41) also gave helpful guidance:

“… it will not be a satisfactory approach to assess the creditability and reliability of [the witnesses] by reference to their demeanours or solely with regard to how they respond to questions and behave in the witness box. The appropriate approach is to assess their evidence in terms of their inherent probabilities or improbabilities.” “

Was there a common intention between the Husband, Madam Wu and the Father for a constructive trust to be established?

The evidence of the Husband

34.  The Husband has filed a total of 3 narrative affidavits (Bundle pp. 37-107, 160-178 and 305-324) along the line of his pleaded case.  According to him, the Ancestral Home was passed to the Father who left Mainland China in 1946.  Since the 1950’s, neither the Husband nor his siblings resides at the Ancestral Home anymore.   With the permission of the Father, a cousin of the Husband called Lu Bingtian (陸炳添) lived in the Ancestral Home.  The cousin died some 40 years ago and it was the Husband’s cousin-in-law Madam Wu (i.e. the wife of Lu Bingtian) who continued to live there.  That explains why the Ancestral Home was registered in the name of Madam Wu.

35.  The Ancestral Home was resumed by the government in 2003 in order to build the GHEMC (廣州大學城), the information of which was exhibited in “SL-1” and “SL-2” of his affidavit (Bundle pp.164-176).  The monetary compensation offered by the government was RMB 268,315.78 plus a right to purchase a subsidized new house in another location. 

36.  As the Father was already 83 years of age and living in Canada, and for the sake of convenience of management, the Father instructed the Husband to hold the new property for him.  Therefore, when the agreement for the sale and purchase of the new house was signed, it was the Husband and Madam Wu’s names being put in the said agreement. 

37.  According to the Husband, a compensation of RMB 268,315.78 was received which was used to purchase the new property offered by the government, i.e. the Disputed Property.  As the Father was the true owner of the Ancestral Home, therefore, everyone in the family agreed that the Father should be the beneficial owner of the Disputed Property as well.

38.  Although it was not clearly stated in the Husband’s various affidavit evidence, I think there is no dispute from the subsequent documents that in or about late 2010, Madam Wu transferred her ownership in the Disputed Property to the Husband making him the sole registered owner thereof. 

The Father

39.  Although the Father was joined as the 2^nd Respondent and he had purportedly filed a Points of Defence basically agreeing to what was said by the Husband, the Father had not filed any affidavit evidence in support of his case.  He has all along been represented by the same firm of solicitors of the Husband, but he had never attended any of the hearings, including the trial.  I understand that the Father is a very senior person (aged 99) and there may be difficulties for him to travel long distance from Canada.  However, there was no explanation on why a narrative affidavit could not be filed on his behalf, nor was there an attempt to make arrangement for him to give evidence by way of video link. Therefore, as far as the Father is concerned, there is simply no evidence from him on this preliminary issue of beneficial interest in the Disputed Property.

40.  Not only that there was no such evidence from the Father, I was asked by Ms. Yu to draw an adverse inference on such failure.  Ms. Yu referred me to the case of Ip Man Shan Henry & Anor v Ching Hing Construction Co Ltd & Ors (No.2) [2003] 1 HKC 256, in which Lam J (as he then was) said at §§155-156:

“155…. In my judgment, the relevant principles applicable to civil proceedings can be summarised as follows,

(a) If a prima facie case is made out, and if there is evidence available to the party against whom the case is established which could displace the prima facie case, and he omits to call such evidence, an inference could be drawn;

(b) However, the inference could be rebutted by a plausible explanation by the party who elected not to call the evidence;

(c) If an inference is to be drawn, it would be an inference that such available evidence, even if called, would not displace the prima facie case;

(d) It is also open to a tribunal of fact, upon the drawing of such an inference, to take it into account in respect of a matter with respect to which the person not called as witness could have spoken,

i. In deciding whether to accept any particular evidence, which has in fact been given, either for or against that party;

ii. In deciding whether to draw inferences of fact, which are open to them upon evidence which has been given.

156. In the present case, for reasons already canvassed, the evidence established a strong prima facie case that the intention of the parents was not giving the property to Henry as a gift. Arnold did not call Cecilia as a witness who could give material evidence on this issue. She was available.”

41.  In the present case, there is prima facie evidence that the beneficial ownership of the Disputed Property belongs to the Husband as he is the sole registered legal owner.  It is a heavy burden for both the Husband and the Father to discharge if they want to prove otherwise.  One would naturally expect the Father as the true beneficial owner to come forward to prove his case.  

42.  As to the Father’s failure to file or to give evidence, I understand that the explanation given by the Husband was his old age and unsuitability to travel long distance back to Hong Kong.  However, there is no plausible explanation on why he could not give his evidence by way of narrative affidavit.  I note that despite his age, the Father was able to sign the Statement of Truth in his Points of Defence.  There is no reason why he could not swear an affidavit to set out his evidence on the issue of common intention constructive trust.  Equally, there is no plausible explanation on why his evidence could not be given by way of video link.   Therefore, I am prepared to draw an inference that the evidence of the Father, even if adduced, would not displace the prima facie case that the Husband is the beneficial owner of the Disputed Property.

Madam Wu

43.  Another important character is Madam Wu who has filed and served an affirmation (in Chinese) on 18 December 2017 for the purpose of this preliminary issue.  She said she was the cousin-in- law (堂嫂) of the Husband.  Her husband passed away more than 30 years ago.  She and her husband used to live at the Ancestral Home not because they were the owners thereof, but was only allowed to stay there by the Father who had inherited the property from his ancestors.  The Father and his children had moved away from the Ancestral Home in the 1950s and in order not to allow the property to stay vacant, the Father allowed her and her husband to stay there for free.  Due to her long stay in the Ancestral Home, her name was also put in the land registration document (房產証).  But she well knew that the Ancestral Home belonged to the Father and she was only acting as his trustee.  That was why there was her signature in the compensation documents and the newly purchased property (i.e. the Disputed Property) was later transferred into the sole name of the Husband upon the instructions of the Father.

44.  It was very unfortunate that Madam Wu passed away some 4 months later (on 6 April 2018) at the age of 73 and was therefore not able to give parol evidence or being cross examined at trial.  Despite the hearsay nature of her affirmation, there was no formal objection to its admission as part of the Husband’s evidence.  But if one should look at her evidence (Bundle 179-180) in more details, one would realize that she had explained the circumstances under which she and her husband were allowed to stay at the Ancestral Home with the permission of the Father and why her name was later registered as its owner. However, there was no assertion that a constructive trust in favour of the Father was intended by all 3 parties before or at the time of purchase of the Disputed Property, i.e. 8 November 2003.  Madam Wu had not stated the circumstances under which a common intention of constructive trust was founded.  She had not given particulars of any dates or discussion details between the 3 parties giving rise to such a common intention.  Therefore, I am of the view that the evidence of Madam Wu gives us more insight into the historical background to the purchase of the Disputed Property rather than proving the establishment of a common intention constructive trust in favour of the Father.

Madam Wu’s son

45.  At trial, the Husband has called Madam Wu’s son (陸漢祺) to testify on his behalf.  But since a large part of his affirmation (Bundle pp. 186-188) was purely hearsay evidence, I can only say that his evidence did not add much to the case of the Husband.

The Wife’s Response

46.  In respect of the Husband’s evidence, the Wife denied that the Husband and Madam Wu, or later just the Husband himself, were holding the Disputed Property on trust for the Father.  She put the Husband to strict proof of his case and the facts as claimed therein.

Discussion

47.  I remind myself that it is the Husband who claims that there is in existence a constructive/resulting trust of the Disputed Property in favour of the Father and the burden is therefore on him to prove, on a balance of probabilities that such a constructive/resulting trust does exist.

48.  There are 2 important points of time being mentioned in the evidence, firstly, 8 November 2003, when the Sale and Purchase Agreement was signed resulting in the Disputed Property being purchased in the joint names of Madam Wu and the Husband, and secondly, late 2010 when Madam Wu transferred her share in the Disputed Property into the sole name of the Husband.  It is the Husband’s case that the constructive/resulting trust in favour of the Father was created on 8 November 2003 when the Disputed Property was first purchased in the joint names of Madam Wu and him.  The subsequent transfer of Madam Wu’s share to the Husband in late 2010 did not affect the Father’s beneficial ownership in the Disputed Property in any way.

Facts not disputed or beyond dispute

49.  In considering the Husband’s evidence, I have paid attention to the following basic facts, which are either not disputed or beyond dispute.

50.  Although the Wife does not expressly agree to the claim that the Father owned the Ancestral Home (or 「祖屋」) situated at Sui Shi Xiang (穗石鄉 or 穗石村), Panyu, Guangdong which was being resumed by the government, there can be little doubt that the Father was a native villager of that place before he left the Mainland in 1940s.

51.  At the same time, there is also incontrovertible evidence that in about 2003, the government had resumed land from the Father’s village to build the GHEMC. This was followed by the signing of 2 compensation agreements by Madam Wu (on 21 and 28 June 2003) and then the purchase of the Disputed Property in the joint names of Madam Wu and the Husband (by the Sale and Purchase Agreement signed on 8 November 2003).  

52.  In the 2 compensation agreements signed by Madam Wu alone (Bundle pp. 46-54), it was stated that she would receive compensation of RMB 268,315.78 by surrendering the Ancestral Home, without mentioning the right to purchase any other property as part of the agreement. 

53.  However, if one should look at the subsequent Sale and Purchase Agreement signed on 8 November 2003 (Bundle pp. 56-59), it was abundantly clear that such purchase was a kind of resettlement due to the resumption of Madam Wu and the Husband’s property.  It was stated in the middle of page 1 of the Sale and Purchase Agreement (Bundle p.56) that:

「因廣州大學城項目建設的需要，乙方[meaning Madam Wu and the Husband] 位於新造鎮小谷圍島內的房屋及附著物被拆遷；根據 《廣州市番禺區廣州大學城項目徵地拆遷補償安置辦法》和有關法律規定，現甲、乙雙方在平等、自願的基礎上，經協商，就乙方向甲方購買位於新造鎮谷圍新邨(安置區)內的房屋，達成如下協議。」 (underline added)

As it has never been any party’s case that the Husband had once owned any property in Guangzhou, the reasonable inference to be drawn is that the “property and attachment being demolished” as mentioned therein was the Ancestral Home owned by the Father, who was a native villager of 穗石村 and only left for Hong Kong in the 1940s.  This should be the case because if not, I simply cannot see how the Husband could have any entitlement to purchase (as a trustee or not) the Disputed Property.

54.  Even in the Wife’s own evidence (which will be discussed in more details later), she testified that the Husband had once told her that the Father intended to give the Disputed Property to the Husband provided that he would pay for the purchase price and its future maintenance.  This lends support to the claim that the purchase of the Disputed Property was only made possible if not for the resumption of the Ancestral Home owned by the Father.

55.  Based on the above discussion, I am prepared to accept the following facts being proved by the Husband:

 (1)     The Father owned the Ancestral Home.

 (2)     After he left for Hong Kong, the Ancestral Home was left vacant and Madam Wu (with her husband before he died) was allowed to live there.  Due to that fact, Madam Wu was registered as the owner of the Ancestral Home but its true owner remained to be the Father.

 (3)     When the Ancestral Home was resumed by the government for development of the GHEMC, monetary compensation and an option to purchase a new home nearby was offered to the owner.

 (4)     As Madam Wu was at the time the registered owner of the Ancestral Home, that explains why the compensation agreements were signed in the sole name of her on 21 and 28 June 2003.

56.  With the facts as being established in the preceding paragraph, I am satisfied that purchase of the Disputed Property was only made possible if not for the resumption of the Ancestral Home which was beneficially owned by the Father.  

57.  Despite reaching such a conclusion, I must remind myself that the real issue in this case is not simply the Father’s (or anybody’s role) in the acquisition of the Disputed Property, but whether there was an agreement or common intention between the Husband, Madam Wu and the Father that the former two would hold the Disputed Property on trust for the latter.  By looking at all the evidence, the only direct evidence in this regard was from the Husband alone.  Therefore, it is important for this court to critically examine the evidence of the Husband to see if he has discharged the burden of proof to the satisfaction of this court.

Assessment of the Husband’s evidence

58.  The first observation to be made on the Husband’s evidence is that despite his claim of an agreement and promise made between himself, Madam Wu and the Father for a common intention constructive trust, there is a general lack of details on the said agreement or promise.  There is no evidence on when and where such an agreement or promise was being made.  Nor is there evidence on what has actually been said or done to form the basis upon which such a common intention constructive trust is to be founded.

Criticisms on the Husband’s evidence

59.  In Ms. Yu’s submissions, she was very critical on many aspects of the Husband’s evidence.  

60.  The first attack was on the non-disclosure of Madam Wu’s transfer of her share to the Husband in late 2010, which was only made known to the Wife in the Husband’s Points of Claims in October 2017.   The same applies to the Certificate of Ownership (房產証) in the sole name of the Husband which was only revealed in the Husband’s 3^rd Supplemental List of Documents dated 26 September 2018.  

61.  I accept that it would have been better if the information was disclosed to the Wife much earlier, but the important issue here is whether there was a constructive/resulting trust in favour of the Father when the Disputed Property was purchased on 8 November 2003.  The said transfer in 2010 was not really relevant to whether there was such a trust in 2003.   Therefore, I am not convinced that this was a case of material non-disclosure which on its own has rendered the Husband’s case being unbelievable.

Inconsistencies in the Husband’s evidence

62.  The second attack was on the consistency of the Husband’s case which has much more substance. 

63.  It was pointed out that in the Husband’s answer to questions dated 7 June 2012 (Bundle p.298), he said:

“[The Father] is at his age of 91 years old, Exhibit 10 his will was filed on July 28, 2011. I just hold the title on behalf of [the Father]. This is [the Father]’s property which is jointly owned with [Madam Wu]. This house is the compensation of Chinese government to [the Father] for our farm. Exhibit 11-14 are the compensation agreement.”

64.  In the said answer, the Husband seems to be suggesting that both the Father and Madam Wu were joint owners of the Disputed Property and he was only holding the Father’s share on trust.  This proposition was inconsistent with his case that both he and Madam Wu were holding on trust for the Father.  When he was cross examined on this point at trial, he paused for almost a minute and only came up with an answer that he was acting in person and without legal representation at the time.

65.  I agree with Ms. Yu’s submission that this was a highly unsatisfactory answer.

66.  According to Ms. Yu, the Husband’s case changed further during the course of litigation. In another answer dated 3 June 2015, the Husband gave another version by saying that he was holding the Disputed Property on trust for himself and his 3 brothers (Bundle p.337):

“Answer: [The Husband] avers that [the Husband] has already accounted to [the Wife] as how the Joint Property was now in the name of [the Husband] by way of his affirmation of 19^th January 2015. The Joint Property is indeed a property inherited by [the Husband]’s father from the ancestors. [The Husband] is now holding the same in trust for himself and three other brothers in equal shares. There was no thing as purchase price for the Joint Property. The Joint Property is obtained because the local government has to pay his father compensation for pulling down another property belonging to the Luk’s family for developing university campus.” (italics added)

67.  This answer was given at a time when the Husband’s present solicitors have already been instructed.  The answer was in fact given to the Wife through his solicitors and therefore, it would be difficult for the Husband to argue that a mistake or misunderstanding occurred due to the lack of legal advice.

68.  When the Husband was asked under cross examination on why he said he was holding the Disputed Property on trust for himself and his brothers, he could not come up with a reasonable explanation except by saying that there was a will by the Father in saying so.  A copy of the “will” can be seen at p. 324 of the Bundle, which was in the following terms:

「日期：2011年7月15日

我本人[the Father]…..

…..

現委託兒子[the Husband]持有故鄉祖屋位於[the Disputed Property]及在美國萬利理財的AC9002703帳戶。

當我百年歸老後，我的意願是[the Husband] 應安排我以上物業及AC9002703帳戶平均分配我四兒子包括陸東榮(HKID xxxxxxx)，陸東文(HKID xxxxxxx)，陸東成(HKID xxxxxxx)，[the Husband] (HKIDxxxxxxx)。

 我同意以上安排

 (Signed)

[the Father]

 日期: 2011年7月15日

 見證人

 (Signed) 

 陸東榮

 日期: 2011年7月15日」

69.  The validity of this so called “will” was rather doubtful in view of the deficiency in attestation and the difference in the testator’s signature from previous documents.  But even if it was a valid will, it would only be effective upon the death of the Father.  Therefore, it could hardly be a good explanation for the Husband to say that he was holding the Disputed Property on trust for himself and the 3 brothers as at the date of the answer (i.e. 3 June 2015) or even as at today.

No full and frank disclosure

70.  The Husband was further criticized for failing to give full and frank disclosure about the rental income received from the Disputed Property.   It was undeniable that the Husband had never disclosed that the Disputed Property had been yielding rental income in the proceedings, despite the Wife’s repeated requests on paper (Bundle p.330).  Under cross examination, when he was asked why he did not produce the particulars of the tenancy, he simply said:

「因為我覺得麻煩，因為[Madam Wu]係收左啲錢既，而果啲錢岩岩好夠offset 番maintenance 個物業。」

This is again a highly unsatisfactory answer.

Payment of purchase price and contemporaneous documents

71.  There were other criticisms on the Husband’s evidence, especially on the payment of the purchase price of the Disputed Property.  According to the Husband, part of the compensation money (RMB 268,315.78) was used to set off the purchase price of RMB 239,127.12 on the date of purchase, i.e. 8 November 2003.  He said on that particular day, he was present standing at the back of the crowd watching whilst Madam Wu did the paper work.  He also mentioned seeing piles of cash lying on the table pending the transactions, suggesting that compensation money was received in cash and used to pay off the purchase price on 8 November 2003.

72.  However, the contemporaneous documents produced by the Husband do not seem to support his version of events.  The first compensation agreement (Bundle pp. 46-49) was signed on 21 June 2003.  At paragraph 5 of the agreement (Bundle p.48), it was stated that Madam Wu agreed and guaranteed to move out of the Ancestral Home on or before 10 July 2003 and the compensation money would be paid in one sum within 5 days of moving out.  At first page of the agreement (Bundle p.46), there was a chop with the words “already paid” printed thereon. 

73.  In the supplemental compensation agreement signed on 28 June 2003 attaching therewith a compensation table (Bundle pp.51-54), it was stated at paragraph 1 (Bundle p. 51) that the compensation of RMB 268,315.78 was agreed to be paid on the signing of that supplemental agreement, namely 28 June 2003.  Paragraph 2 recorded that Madam Wu had delivered the land registration documents to the relevant local government office and paragraph 4 recorded the completion of the handover of Ancestral Home and all title documents on that day. A similar chop of “payment received” could also be seen at top right corner of the compensation table (“Compensation Table”) attached.

74.  All these evidence suggest that Madam Wu has already moved out on or before 28 June 2003 and a supplemental compensation agreement was needed to record the handover of the Ancestral Home and the actual receipt of the compensation money by her. They contradict the Husband’s evidence that the compensation money was only received and used to pay off the purchase price of the Disputed Property on 8 November 2003.

75.  By looking at the Compensation Table (Bundle p.52), it seems that there were actually 2 houses built on the site of the Ancestral Home.  The telling point is that those houses were built in 1995 and this fact does not sit well with the Husband’s case that the Ancestral home was inherited by the Father from his ancestors before he left the Mainland in the 1940s. 

Conclusion

76.  There are other minor criticisms on the Husband’s evidence but I do not intend to go into each and every one of them here.  It suffices for me to say that based on the above discussion, I do have serious doubts on whether the Husband has told this court the whole truth about the purchase of the Disputed Property and the related issue of common intention constructive trust. As the burden of proof of such a common intention constructive trust rests squarely on the Husband, I am not convinced that he has discharged that burden to the satisfaction of this court.

Did the Wife pay for the Disputed Property?

77.  I am aware that it is the Wife’s case that she and the Husband have paid the purchase price of the Disputed Property, and if that is true, the Husband’s claim of a constructive/resulting trust in favour of the Father must fail. Therefore, it is also necessary to have a discussion of the Wife’s evidence in this regard.  Again, the burden is on the Wife to prove, on a balance of probabilities that what she said was indeed the case.

78.  In her 2^nd Affidavit (Bundle pp. 182-184), the Wife testified that in about 2003, the Husband told her that his family would like to purchase the Disputed Property as the family house but they had no money to pay for it.  The Husband said that the Father intended to give the Disputed Property to him provided he would pay for the purchase price and the future maintenance fees.  As the Husband claimed that he had no money, he asked the Wife to pay for the purchase price upon a belief that he would eventually inherit the Disputed Property once the Father passed away.

79.  The Wife agreed to the proposal.  But as both she and the Husband had never purchased any property in Mainland China, she asked one of her clients Mr. Chan Chun Sang (“Mr. Chan”) for advice.  Through her arrangement, Mr. Chan met the Husband and brought him to a money exchange shop in Hong Kong for the remittance to the Mainland.  Before that, the Husband withdrew money in Hong Kong currency equivalent to around RMB 240,000 from a joint bank account and then exchanged the money into RMB for the remittance.

80.  As the purchase was upon the Husband and the Father’s proposal, the Wife did not pay much attention to the actual conveyancing arrangement.  After the purchase, the title deeds were kept in the former matrimonial home in Hung Hom.  But during one day in 2009, i.e. shortly after the parties were separated, the Husband went to the former matrimonial home and cheated her mother to let him in.  He then took away all the title deeds without the Wife’s agreement or knowledge.

81.  As the Disputed Property was purchased with both her and the Husband’s money, therefore, the Wife was of the view that Madam Wu and the Husband were holding the Disputed Property for both of them as matrimonial assets.

82.  The evidence of the Wife was disputed by the Husband.

Discussion

83.  I note from Mr. Chan’s final submissions that the Wife was criticised for being inconsistent in her evidence in that she once said she had never heard of any resumption of land belonging to the Father, nor heard of any compensation money before or after the purchase of the Disputed Property (Bundle p.184, paragraph 10).  But in a later affidavit, she said that the Husband had informed her of such a scheme and requested her to pay for the purchase (Bundle p.198, paragraphs 7-8).  When being asked on this under cross examination, the Wife could not come up with a reasonable explanation for such inconsistency.   Be that as it may, I have to bear in mind that the main theme of the Wife’s evidence is that the purchase price of the Disputed Property was paid by her and the Husband jointly, instead of whether the Disputed Property was a kind compensation for the resumption of the Ancestral Home.  But in any event, I shall bear the Wife’s inconsistency in mind in assessing the credibility of her overall evidence.

The Wife’s documentary evidence

84.  In assessing the Wife’s evidence on the payment of the purchase price by her and the Husband, it is noted that there does not seem to be any direct documentary evidence on such payment.  For instance, the Wife was not in a position to produce banking records showing the movement of funds from the parties’ joint account. Despite such failure, the Wife was able to produce some important documents, which may not be in direct support of actual payment of the full purchase price by her and the Husband, but at least has thrown some serious doubts on the case of the Husband that the purchase price was totally paid by the Father.  Those documents were contained in pages 288-294 of the Trial Bundle.

85.  Page 288 was a handwritten document in which the name「陳春生」 (i.e. Mr. Chan), a bank account number and some telephone numbers being written thereon.  The Husband accepted that those were probably his handwriting.  On the upper left corner, there were the names 「景緻」「容先生」 and a telephone number which should be the information of a money exchange shop in North Point.  According to the Wife, this Mr. Chan was one of her former clients helping them to remit the purchase money to the Mainland.  The Husband denied, saying that Mr. Chan was just one of their former clients but had nothing to do with any remittance of the purchase money.

86.  Pages 289-291 showed that a sum of HK$56,340 was withdrawn or transferred from the Husband’s HSBC account in Hong Kong to a person called “Pong Chui Kwai” on 11 November 2003 and on the same date, a sum of RMB 60,002 was remitted to a Madam Lai (黎品端) in Guangzhou through the money exchange shop「景緻」. According to the Husband, he has no idea of who this “Pong Chui Kwai” was but Madam Lai was another cousin-in-law of his (堂六嫂).   Although there was no direct evidence on the issue, there is reason to believe that the sum of RMB 60,002 actually represented the sum of HK$56,340 after conversion by adopting an exchange rate of 1:106.5 (as stated in the remarks at p.291).   In other words, it was quite clear that the Husband had deposited or transferred the sum of HK$56,340 to “Pong Chui Kwai” who later converted it into RMB 60,002 and remitted it to Madam Lai in Guangzhou through the money exchange shop「景緻」just 3 days after the purchase of the Disputed Property.

87.  Pages 292-294 were another set of documents showing the withdrawal or transfer of HK$83,688 from the Husband’s HSBC account to “Pong Chui Kwai”, who converted it into RMB 89,128 and remitted to Madam Wu through 「景緻」on 14 November 2003, i.e. 6 days after the purchase of the Disputed Property.

88.  Under examination, the Husband said Mr. Chan was a former client but had nothing to do with this case.  But by reading the document at p.288 of the Bundle, obviously Mr. Chan was involved in some way or otherwise his name would not be there.

89.  According to the Husband, he had no idea of who the transferee “Pong Chui Kwai” was. Despite the fact that the transactions were made some years ago, I find it hard to believe that the Husband would have no idea or recollection of who this person was.  After all, these were 2 very specific transfers but not some ordinary transactions one would easily forget.

90.  The Husband said he could not remember the purpose of the money transferred to Madam Lai, but he was sure that it had nothing to do with this case. 

91.  For the money transferred to Madam Wu, he said it was for the decoration of the Disputed Property.  This was the first time the Husband had mentioned about the sending of money to Madam Wu for decoration of the Disputed Property.  Apart from this assertion, there were no other documents or evidence in support of such a contention.  There was also no other evidence on the role of Madam Wu in the decoration of the Disputed Property. 

92.  I note that the money was sent to Madam Wu (HK$83,688 or RMB 89,128) on 14 November 2003, i.e. just 6 days after the purchase of the Disputed Property.  It is inconceivable that the decoration of the Disputed Property could have completed within 6 days after purchase, and therefore, any money sent for decoration had to be payment in advance or on account, instead of being a reimbursement.   I find it inexplicable for money on account to be at such an odd sum of RMB 89,128.

93.  Furthermore, according to Ms. Yu, when the Husband was asked if these 2 transfers (one to Madam Lai and one to Madam Wu) were in any way related, the answer from him was that they were not.  However, if one should look at the deposit/transfer form concerning the transfer to Madam Lai (Bundle p.289), the figure “83688” was written thereon which was the same as the transfer money to Madam Wu (Bundle pp.292-294).  Obviously, the 2 transfers were closely connected and the Husband had not been telling the whole truth to this court.

94.  Based on the above discussion, I find the Husband’s evidence not being truthful.  Despite some inconsistency in the Wife’s evidence as mentioned in paragraph 83 above, if I have to choose between the evidence of the Husband and that of the Wife on the payment of the purchase price, I find it more likely than not that the Wife was telling the truth but not the Husband.  I find the Wife’s evidence that the purchase price, or at least a part of it, came from the Wife and the Husband jointly more believable than the Husband’s version that all the purchase money came from the Father or the compensation money from the government.

95.  In the event that this court should consider the Husband’s case of resulting trust, he has also failed to discharge the burden of proof that the Father has paid the whole of the purchase price and his claim of a resulting trust in favour of the Father should also fail.

Conclusions and Findings

96.  Based on the above discussion, these are my findings:

 (1)     The right to purchase the Disputed Property was part of the compensation package (together with monetary compensation) enjoyed by the Father due to the resumption of the Ancestral Home.

 (2)     The purchase price of the Disputed Property, or at least a part of it, came from the Wife and the Husband jointly.

 (3)     There was no agreement, common intention or understanding between the Husband, Madam Wu and the Father that the Husband and Madam Wu would hold the Disputed Property on constructive trust for the Father when it was purchased on 8 November 2003.  Therefore, the claim of the Husband that he is now holding the Disputed Property on constructive trust for the Father fails.

 (4)     The Husband’s claim that Madam Wu and he were holding the Disputed Property on resulting trust for the Father also fails.

 (5)     The Husband is holding the Disputed Property as the sole beneficial owner as from late November 2010 when Madam Wu transferred her joint title in the Disputed Property to the Husband.

 (6)     As a result of the above findings, the Disputed Property does form part of the Husband’s assets, and thus a part of the matrimonial assets of the family.

Costs

97.  Costs to follow event.  The Wife succeeds in this trial of preliminary issue and shall have the costs against the Husband and the Father, including all costs reserved with a certificate for counsel.  This will be in the form of an order nisi to be made absolute after the expiry of 14 days from the handing down of this Judgment.

Way forward

98.  After the conclusion of the preliminary issue trial, it is now time for the case to move forward.  For this purpose, I now fix a First Appointment return date on 8 July 2020 at 12:00 noon in Court No.2 with 30 minutes reserved and the following directions are given for both parties to:

(1) file and exchange their respective up-dated Form E within 28 days from the date of this order;

(2) lodge and exchange their respective First Appointment Bundle 7 days before next hearing; and

(3) lodge and exchange their respective Form H 3 days before next hearing.

99.  Last but not least, I take this opportunity to thank both counsel for their able assistance.