YIP WAI HONG v. YIP KAI TONG AND ANOTHER

HCA 1412/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1412 OF 2011

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J U D G M E N T

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1.  The plaintiff is the father of both defendants.  These proceedings concern the disputed ownership of two village houses (with three flats in each house) completed in 2002 and 2003 on a plot of land known as Lot 496 in Demarcation District 94 in Sheung Shui, New Territories.

2.  The plaintiff married the defendants’ mother (Madame Yau Ying Kiu) in 1970.  For about 38 years it was a harmonious, unremarkable, typical family unit.  In 2008 however, the marriage broke down leading to a divorce in 2011. But for the divorce this unfortunate dispute would never have arisen.  The key events concerning the transfers of land and the building of houses had taken place 10 years earlier, in the late 1990s and early 2000s.  After the divorce the six units have been occupied by or used by or rented out by the defendants, their mother and members of the mother’s family.

3.  The two blocks are referred to as Blocks A and D.  In Block A the 1^st defendant (the younger son) lives with his mother on the ground floor.  The two upstair units have been “reserved” for Madame Yau’s sister‑in‑law, Lam Chi Ying, following a payment of $1.68 million in about 2005.  In Block D the elder son and his family live on the top floor.  The middle floor was “reserved”, upon a payment of $750,000 in 2004, for Madam Yau’s sister, Yau Yuen Ling.  The ground floor is rented out.  The plaintiff has not been in occupation of any of the units since approximately 2008.

4.  In these proceedings the plaintiff seeks a declaration that he is the beneficial owner of both blocks and that the defendants are holding the blocks on trust for him.  The defendants claim that the land on which the houses were built was given to them in 1998.

5.  Under the heading “Facts” below I recite a history of the matter.  They are the facts as I find them to be having heard the evidence and submissions thereon.  The plaintiff gave evidence.  For the defence there were five witnesses; the defendants, Madame Yau, her sister and her sister‑in‑law.  The plaintiff was represented by Mr Roy KY Lau and the defendants by Mr Frederick HF Chan.  The evidence was adduced efficiently and helpful submissions, both written and oral, made.

FACTS

6.  The plaintiff’s father became the registered owner of Lot 496 in 1950.  In 1977 he assigned the land to the plaintiff.  Although the assignment referred to a consideration of $25,000 no money in fact changed hands.  It was, in effect, a gift from father to son.  The plaintiff claimed that the money had been paid.  He said the money for the transfer had been given to him by his mother.  However, she had died in 1975.  I did not accept the plaintiff’s version of events on this issue.

7.  The plaintiff’s father died in January 1996.  After his death the plaintiff was approached by the village head Mr Tse Chun Shang (“Tse”) who proposed a development scheme to him for Lot 496.  It was a scheme to build seven village houses (21 units in all) on seven sub‑divided sections of Lot 496.  Such a scheme was governed by and would inevitably contravene the Hong Kong government’s Small House Policy.  The plaintiff agreed with the proposal and entered into an agreement with Tse on 25 March 1996.  In short, the agreement stated that the plaintiff would provide the land, and all costs and expenses would be paid by Tse.

8.  So as to purportedly comply with the Small Houses Policy Tse would recruit seven indigenous villagers to whom an assignment of a section would be made who would then individually apply for a building licence to build one village house per section.  When the houses were built the units would be divided between Tse and the plaintiff in a ratio of 2:1, that is, 2/3 to Tse and 1/3 to the plaintiff.

9.  It cannot be seriously challenged that the scheme was tainted by illegality.  Each indigenous villager when applying for a building licence would be required to declare on oath that he was an indigenous villager who was the sole owner of the land lot and that he had not entered into any development scheme for the small village houses to be built.

10.  The 1^st and 2^nd defendants were recruited to be two of the seven applicants.  It was subsequently agreed that they would be paid $120,000 each for the use of their indigenous villager (“Ting”) rights.  I accepted that the plaintiff himself was not in a position to utilise his own Ting rights because he had sold it on a previous occasion.

11.  On 27 April 1998 the plaintiff formally assigned section A to the 1^st defendant and section D to the 2^nd defendant for a purported consideration of $250,000 each.  In fact no money changed hands, in the same way as the transfer to the plaintiff in 1977.

12.  The development scheme continued.  The 1^st and 2^nd defendants’ applications for building licences were dated the same day as the 1996 agreement, 25 March 1996. After the assignments in 1998 their applications proceeded.  On 4 January 2000 they, together with the plaintiff, attended a District Lands office and both swore a statutory declaration to the effect that they were the sole rightful owner of the land and had no intention to enter into any private arrangement to sell their rights and entitlements under the Small House Policy to anyone.

13.  The defendants’ applications were approved and a building licence was granted to the 1^st defendant on 21 December 2000 and to the 2^nd defendant on 31 October 2001.  The village house on section A was completed on 6 August 2002 and the house on section D on 17 December 2003.  Of the remaining applications relating to the sub‑divided sections a further two licences were granted.

14.  Throughout all these events the Yip family remained a conventional, united family unit, a situation which persisted for approximately another four to five years.  During that period, following family discussions, it was agreed between them that for a sum of money three of the units could be “reserved” for the use and occupation of Madame Yau’s sister‑in‑law and sister.  Sums were paid by instalments and ultimately the sister‑in‑law paid $1.68 million for two units and the sister $750,000 for one unit.  The plaintiff was at the forefront of these arrangements.  When instalments were paid he was involved with the banking of the money and on one particular occasion received £20,000 in £50 notes from Madame Yau.  I did not believe the plaintiff when he said that he was unaware of these transfers and had never received any money from them.  The original development had been for the benefit of the family and the subsequent receipt of money for three of the units was also for the benefit of the family.

15.  There was no credible evidence during this time in support of the plaintiff’s contention that the assignments of the land to his sons were intended to create a resulting trust.  At the material time and with a harmonious family the assignments were a normal thing to do.  Even in 2007 when it was necessary to execute a further deed in connection with rights of way the plaintiff acknowledged his sons to be owners of sections A and D.  The single issue is can the plaintiff, after the family relationships turned sour post 2008, claim that the purpose of the assignments in 1998 was for his sons to hold the properties on a resulting trust exclusively for him or were they gifts from father to sons, which Madame Yau described in her evidence as being “in the traditional way”?

WITNESSES AT TRIAL

16.  When assessing the reliability of the witnesses I have been careful to remember that the first casualty of war is the truth.  So when a family declares war on itself the atmosphere of bitterness may cloud the search for the truth. I was however, particularly impressed with Madame Yau, the defendants’ mother, as a witness.  Her dignity was unscathed and I believed her on the occasions that she said that she was telling the truth and the plaintiff was not.  The sons were undoubtedly loyal to their mother in the divorce proceedings and have remained so since.

17.  On the other hand, in many respects, the plaintiff did not persuade the court, on a balance of probabilities, that his evidence was reliable.  In particular he, disingenuously, attempted to portray a picture of him having little or no involvement in the development scheme once he had signed the 1996 agreement with Tse.  On the contrary I was satisfied that he was heavily involved with the scheme from the first day it was agreed.  I accepted that he would have been well aware of the need to sub‑divide the land, the need to recruit seven indigenous villagers willing to sell their “Ting rights” (including his sons) and the need for them to make statutory declarations for the purpose of implementing the entire scheme which was for the mutual benefit of the village head and the Yip family, a scheme which was contrary to the Small House Policy and tainted with illegality.  He was involved and a knowing participant at every stage up to and including the making of the sons’ statutory declarations in 2000.

18.  The fact that he had disposed of his own “Ting right” on an earlier occasion provides evidence of two things; first, his knowledge of his rights as a New Territories land owner and second, his character trait of accepting opportunities to make money as and when they arose.  Another example was his agreement to transfer three of the units to his wife’s family members between 2002 and 2005 for cash.

19.  Mr Lau posed a number of questions which he submitted were inconsistent with a man “giving away” property to his sons.  For example, if he had “given away” the houses to his sons in 1998 why did he receive some of the money for the transfers to his wife’s family in the 2000s?  Why would a man who was regarded by his wife as “greedy” embark on a scheme which left him with no property?

20.  These rhetorical questions must be considered in context.  Up until 2008 the Yip family was a conventional, traditional New Territories village family.  But for the divorce the family atmosphere and decisions, with the plaintiff as the family head, would have mirrored the situation when the plaintiff’s father was the head.  In 1977 the plaintiff’s father assigned the land to the plaintiff. The grandfather nonetheless remained the family head.  But for the divorce the picture would very probably have been similar until the plaintiff’s death.  In my judgment the questions posed by Mr Lau add little weight to the contention that the assignments to the sons set up resulting trusts.

21.  The sons’ evidence also had to be considered in context.  The risk of their loyalty to their mother and to their own case outweighing their duty to tell the truth had to be borne in mind.  I nonetheless concluded that their answers in cross examination were straightforward, thoughtful and reliable.  I believed their evidence that their father had accompanied them to the Lands Department offices (which the plaintiff had denied).  I believed them when they said that the plaintiff explained that the reference to $250,000 in the assignment was “only a formality”.  I accepted that the idea to transfer flats to their mother’s family members for cash, was at least “approved by” and maybe even “proposed by” the plaintiff.  I accepted that £20,000 in cash was handed to the plaintiff which, again, he had claimed no knowledge of.  The evidence from Madame Yau Yuen Ling (sister) and Madame Lam (sister‑in‑law) concerning the transfers was believable, corroborative and reliable.

22.  The totality of the evidence satisfies me that that the ownership of the land was knowingly transferred to the sons by their father as a gift.  The plaintiff nonetheless continued as head of the Yip family with Madame Yau playing the role of a mother with a strong personality and careful and sensible on matters of family finances.  But for the divorce this would have been a continuing state of affairs.

DIVORCE EVIDENCE

23.  In the course of the trial I admitted de bene esse, certain evidence relating to negotiations in the divorce proceedings.  It was accepted by the defendants and their mother that an arrangement had been proposed for the purpose of a consent summons prior to the divorce which involved the transfer of some of the property in issue to the plaintiff.  However, this was never effected because the plaintiff, somewhat unwisely in retrospect, required a lady’s name, unknown to the defendants, to be included as a joint owner.  This caused the proposal to flounder.  Ultimately, a Consent Order was, on 10 October 2011, agreed which included the following:

“… the Petitioner and the Respondent acknowledging to the Court and agreeing with each other that … all shares and interest in real properties … now belonging to … the Respondent or in their respective possession and control or in their respective sole names and/or held jointly with others shall remain undisturbed and retained absolutely by the party concerned, and the other party shall disclaim all rights and/or claims, if any, whatsoever he or she may have in or against such properties …”

24.  This followed correspondence from the plaintiff’s solicitors, on 29 June 2011, stating that:

“We are instructed and write to confirm that the Petitioner would not claim any interest in relation to the matrimonial home.”

The “matrimonial home” was not part of the property in issue in the current litigation.

25.  Arising out of these “divorce” issues, the defendants, on 3 March 2015, six days before the commencement of the trial, filed an inter partes summons to be heard as a preliminary issue, to which I now turn.

PRELIMINARY ISSUES

26.  The summons was in two parts.  The first limb sought a strike out pursuant to Order 18, rules 10 and 19, Rules of the High Court premised on the primary argument that such a transaction tainted by illegality was unenforceable and doomed to failure.

27.  The second limb sought a strike out of paragraph 9 of the Amended Reply and Amended Defence to Counterclaim and paragraphs 47 to 49 of the plaintiff’s witness statement dated 9 March 2013.  These paragraphs, pleaded for the first time in the plaintiff’s reply, concerned the alleged consent summons, referred to above, by which some units would be transferred to the plaintiff.

28.  In respect of both limbs of the summons I directed that I would give my decisions upon them not before hearing any evidence but afterwards.  The evidence was relatively short, the parties would not be prejudiced, counsel could submit on both limbs in their final written submission and both counsel agreed to such a direction.

29.  The second limb can be dealt with shortly.  Mr Chan’s submission was that the issue constituted a new cause of action which could not be pleaded for the first time in the plaintiff’s Reply.  Moreover, the defendants have not had an opportunity of pleading a defence to this “new cause of action” (if it be so) under section 3 of the Conveyancing and Property Ordinance, Cap 219.

30.  Mr Lau, on the other hand, submits that it is not and never was intended to be a “new cause of action”.  His case remains a plea of resulting trust.  The evidence concerning the pre‑divorce discussions are relied on solely in connection with the evidential dispute as to whether the original transfers to the sons over 10 years earlier were gifts or not.  Mr Lau also acknowledges that the actual “Consent Order” in the divorce is the only one which binds the parties and he does not seek to alter this situation.  Mr Lau made it clear that he is not claiming a breach of an oral contract made in 2011.

31.  On this basis, I am satisfied that Mr Chan’s attack based on the second limb of the preliminary summons is not sustained and the evidence may be admitted and considered.

32.  As for the first limb I regard it as being made too late in all the circumstances.  It was filed almost two years after the Amended Reply and six days before trial.  The failure to file the summons during the two years before trial is not explained.  Entertaining a strike‑out application on the first day of the trial itself in such circumstances is not merited.  The issues contained in the summons are no different from the issues at trial.  The preferable course is to determine them in the context of the trial.  Naturally, the helpful written and oral submissions made on those issues for the purpose of the strike‑out application merit equal careful consideration, albeit at the conclusion of all the evidence.

LEGAL ISSUES

33.  There are two key issues which require a determination.

1. The presumption of advancement

34.  Mr Lau for the plaintiff submits that because no consideration was, in fact, paid at the time of the assignments the starting point is that a resulting trust arises which it is for the defendants to rebut.  I do not agree.  I accept Mr Chan’s starting point which is that the transfers were from father to sons which gives rise to a presumption that it was a gift by virtue of the presumption of advancement which it is for the plaintiff to rebut.  The submission continues that the presumption is not rebutted due to the illegality of the development scheme.

35.  Mr Lau however takes an additional point.  He submits that the defence cannot rely on the presumption of advancement because it has not been specifically pleaded in the sense that the words “presumption of advancement” do not appear in the pleadings and being an equitable defence there is a requirement for it to be spelt out.  Again, I do not agree, for the following reasons.

36.  The presumption of advancement should be regarded as an equitable doctrine.  A doctrine which inevitably arises as a result of incontrovertible facts, namely the pleaded fact that the plaintiff is the defendants’ father.  If any specific pleading is required arising out of this fact, it would be a requirement on the plaintiff to plead in his reply that it does not apply, which he has not done.

37.  In Lena Weber Antoni v M Kirk Antoni [2007] UKPC 10, Lord Scott described the presumption as a “construct of equity” and, as such, in my judgment, it falls outside the rule that certain equitable “defences” should be specifically pleaded.  In context Lord Scott said:

“The approach of Lyons J was, in their Lordships’ opinion, misconceived in law. It overlooked the relevance and importance of the presumption of advancement. This presumption, a construct of equity, applies when a parent places assets in the name of a child and assumes that the parent intends to make a gift to the child. It is a rebuttable evidentiary presumption. In the absence of adequate rebuttal evidence the presumption bars the application of the converse presumption, namely, the presumption of a resulting trust.”

38.  Not in the above case, nor in any other case relied on, does it suggest that there is a rule, non‑compliance with which would be fatal,  that the words “presumption of advancement” must be typed into the pleadings.  In Lord Scott’s words it simply “applies”.

39.  Mr Lau’s second submission is that, pleaded or not, the defence should not be permitted to rely on it in this case.  He notes that it is a transfer from a father to adult children and cites recent Hong Kong authority which suggests that the presumption is a “weak concept” and its application in these circumstances is an “open question”.  He submits that if, out of fairness, the presumption should not apply, the competing presumption of a resulting trust would take its place.

40.  In my judgment, the overwhelming weight of authority supports the application of the presumption and confirms its place as the starting point in this case.

41.  In Tribe v Tribe [1996] Ch 107, Millet LJ stated:

“Mr David Tribe transferred his shareholding in his family company to his son for a pretended consideration which was not paid and was not intended to be paid. The transfer was, therefore, made for no consideration. If the transferee had been a nephew or a trusted stranger, the transaction would have given rise to a resulting trust. In such a case equity places the burden of proving that the transfer was intended to be by way of gift upon the transferee. If he cannot discharge that burden, he holds the shares as nominee and in trust for the transferor. Mr Tribe, however, transferred the shares to his son, and accordingly the transaction gave rise to the presumption of advancement. In such a case the transfer is presumed to have been intended by way of gift. The burden of proving that it was not intended as a gift lies upon the transferor.”

42.  In Calverly v Green [1984] 56 ALR 483 in Australia, Deane J observed:

“The third ‘presumption’, usually called the ‘presumption of advancement’, is not, if viewed in isolation, strictly a presumption at all. It is simply that there are certain relationships in which equity infers that any benefit which was provided for one party at the cost of the other has been so provided by way of ‘advancement’ with the result that the prima facie position remains that the equitable interest is presumed to follow the legal estate and to be at home with the legal title. …”

2. Is the presumption rebutted?

43.  Once established the burden falls on the plaintiff to rebut the presumption.  In this case there are two reasons why the plaintiff has failed to do so.

(a) Illegality

44.  This issue gives rise to a number of sub‑issues? Was the scheme illegal? Has the defence proved the illegality? If so, was the plaintiff a party to its illegality?  If so, does it create a bar to his reliance on a claim based on a resulting trust?

45.  There can be little doubt that the overall development project was illegal.  A scheme whereby a plot of land is handed over by the owner to a village head who then recruits seven indigenous villagers who each sell their “Ting rights” and each apply for a building licence involving the making of an untrue statutory declaration with the ultimate objective of dividing the houses thereafter built of the land between the village head and the original land owner is plainly contrary to the government’s Small House Policy.  Mr Lau’s submission that there is insufficient proof in this case that such a scheme was illegal is without merit.  The policy itself, albeit a 2001 revised version, is exhibited.  There is no plea as to its legality.  The statutory declarations of both sons have been exhibited which contain two misrepresentations: firstly, that the declarant has “no intention at present to make any private arrangement for any rights under the Small House Policy to be sold to other individual/developer” and secondly, that “I am the sole owner of …”.  In Chan Yau v Chan Calvin [2014] 5 HKLRD at page 331, Lam J stated that “sole owner” meant unqualified legal and beneficial sole owner.

46.  Even if illegality is established, Mr Lau goes on to submit that such illegality should not disadvantage the plaintiff as he was only a party to the three “Joint Development” agreements with Tse and was otherwise not involved, either as a participant or as a signatory to subsequent events and transactions other than the agreements with Tse.  In particular he was not a party to the agreement between the village head and the defendants to use their “Ting rights” on payment of $120,000.

47.  I find no merit in this submission.  The legal framework was stated by Lord Browne Wilkinson in Tinsley v Milligan [1994] 1 AC at page 372:

“ … On a transfer from a man to his wife, children or others to whom he stands in loco parentis, equity presumes an intention to make a gift. Therefore in such a case, unlike the case where the presumption of resulting trust applies, in order to establish any claim the plaintiff has himself to lead evidence sufficient to rebut the presumption of gift and in so doing will normally have to plead, and give evidence of, the underlying illegal purpose.”

And later at page 374:

“ … A party to an illegality can recover by virtue of a legal or equitable property interest if, but only if, he can establish his title without relying on his own illegality. In cases where the presumption of advancement applies, the plaintiff is faced with the presumption of gift and therefore cannot claim under a resulting trust unless and until he has rebutted that presumption of gift: for those purposes the plaintiff does have to rely on the underlying illegality and therefore fails.”

48.  Lewin on Trusts (19^th edition) describes it as follows:

“Quite different considerations apply in a case involving a presumption of advancement. In such a case, the claimant needs to rebut the presumption in order to establish his beneficial title, but is not allowed to lead evidence of the improper purpose to rebut the presumption if that purpose has been carried out. And so a son in whose name his father had bought property as part of a fraud was able to retain it, as he could rely on his completed legal title and the presumption of advancement, and his father could not rely on the illegality to undo it.”

49.  The question then arises, is the plaintiff “a party to the illegality”?  On Mr Lau’s analysis the court should infer no involvement beyond his participation in the 1996 and subsequent “Development” agreements.  Indeed, the plaintiff’s evidence was that he had nothing to do with the scheme once the land was handed over to the village head.

50.  This turns a blind‑eye to reality.  The court should not look at pieces of evidence in isolation but it should have regard to the whole of the facts and, where appropriate, draw inferences concerning the issues of the plaintiff’s true involvement and participation.

51.  In fact, there is no dispute that he signed the 1996, 1997 and 2002 development agreements; he executed a Power of Attorney to a village head who then executed a Deed Poll to sub‑divide the land into seven lots for building applications and he executed both assignments to his sons on 27 April 1998 of sections A and D within the sub‑divided Lot 496.  Also, he attended the District Lands office with his sons for the statutory declarations later in the scheme.

52.  In my judgment his involvement must be viewed as a man who knew how the scheme would work, who knew that his sons’ “Ting rights” would be used and who knew how the conditions in the Small House Policy were to be circumvented and manipulated. I had no difficulty in rejecting those parts of his testimony which suggested otherwise.

53.  The plaintiff’s awareness and involvement in the entire scheme may also be gleaned from the pleadings.  The plaintiff’s own case sets out many details which are ingredients of the illegality and from which it may be inferred that his case was founded on a knowing manipulation of the Small House Policy.  For example, at paragraph 13 of the Re‑amended Statement of Claim:

“… Subsequent to the aforesaid assignments, the 1^st and 2^nd defendants or Tse and the plaintiff on behalf of the 1^st and 2^nd defendants caused the following applications for building licences under the Small House Policy to be made, which were then granted.”

54.  In my judgment all that needs to be shown is that the plaintiff knew that the purpose of the scheme was tainted with illegality to prevent his attempt to rebut the presumption.  Dressing up a number of indigenous villagers as land owners to make applications which are intended to result in development profits is illegal per se and any feigned ignorance by the plaintiff is, at best, disingenuous.

(b) Evidence

55.  Regardless of the issue of illegality, my preference for the evidence adduced by the defence leads me to conclude that the plaintiff failed on a balance of probabilities to establish that a resulting trust had been intended at the material time.

56.  Given the family situation at the material time gifting the land to his sons would not diminish his role as head of the Yip family, tempered as it would have been by the wise counsel of his wife.  I am satisfied that the evidence from the defendants and their mother was a fair reflection of the original joint intention.  Subsequent events were interpreted, by counsel, both to support and to contradict this intention.  I prefer the former on the basis that the decision to transfer properties to members of the mother’s family was as much the plaintiff’s decision as anybody else.  He was not prevented from being a party to that decision by virtue of him having gifted away the properties but rather he was instrumental in it by virtue of remaining head of the family.  As such there was no question but that he would benefit financially by those “reservations”.

57.  Moreover, there is a striking similarity between the mind‑set or intention of the plaintiff’s father in 1977 and the plaintiff in 1996.  In 1977, the plaintiff would have been a similar age to the defendants (mid‑20s) in 1996.  The evidence of discussions at family dinners concerning the transfer of the land to the sons as gifts is credible.  History was repeating itself.  The plaintiff’s present claim, embarked on at the same time as the divorce, represents a forlorn change of mind ten or more years later.

DECISION

58.  Counsel having addressed the issue of costs in their final oral submissions, I now make the following final order.  The plaintiff’s claim is dismissed with costs and there will be judgment for the defendants in terms of paragraphs A, B and C of the Amended Counterclaim dated 18 April 2013 with costs. I make no order on the defendants’ inter partes summons dated 3 March 2015 save for costs to the plaintiff.  The costs orders to be taxed if not agreed.  I finally express my gratitude to counsel for their assistance in this unfortunate dispute.