CHAN HIN v. CHEN BAI DYI AND ANOTHER

HCA 680/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 680 OF 2014

________________________

_______________________

_____________________

J U D G M E N T

_____________________

1.  This is a dispute over a small landed property situated at Hart Avenue in Tsim Sha Tsui (Property). The Property was acquired and registered in the names of the Plaintiff and the 1^st Defendant as tenants-in-common in 1991. In 2012, the 1^st Defendant transferred her interest in the Property to her daughter, the 2^nd Defendant, as a gift.

2.  Pursuant to the directions of the court, the parties have filed a Statement of Agreed Facts and a List of Agreed Issues. There are 5 issues set out in the latter, 1 of which (Issue 2) is no longer advanced by the Plaintiff (the concession was made after the conclusion of the evidence).  However, it will be seen below that there is 1 core issue in this action, namely, whether the Plaintiff and the 1^st Defendant intended that the beneficial entitlement in the Property would be different from the legal ownership. 

Background

3.  Much of the background facts are uncontroversial, and unless identified as such the following are not in disputed.

4.  The 1^st Defendant is 90 years old. She has a younger brother, Mr Chan Tsan Man (TM), who is the father of the Plaintiff. 

5.  The 1^st Defendant was born in the Mainland.  She came to settle in Hong Kong in 1948 and worked as an actress. She maintained a close relationship with her family in the Mainland.  During the years from 1968 to 1980, the 1^st Defendant periodically remitted money to TM to relieve the hardship which he and his family were living under.   

6.  In about 1980, TM came to live in Hong Kong. There is disagreement whether TM’s migration to Hong Kong was attributable to the assistance of the 1^st Defendant with the use of her connections.  However, this is not an important detail which requires resolution.  It is undisputed that after TM’s arrival in Hong Kong the 1^st Defendant found him a job at which he stayed until his retirement.

7.  In 1983, the Plaintiff also came to live in Hong Kong.  The 1^st Defendant continued to assist her brother and niece by providing them with a temporary home and introducing the latter to work as a salesperson in a ladies’ fashion company[1].  Between 1984 and 1988, the 1^st Defendant shared her own flat with the Plaintiff.   

Linotte Fashion Co

8.  There is controversy over the ownership of a fashion business under the name Linotte Fashion Co (Linotte).  This is an important issue because it is agreed that all the funds used to purchase the Property (including the mortgage repayments) were generated from this business until about the end of 2002[2].

9.  According to the 1^st Defendant, in around late 1987 to early 1988, the Plaintiff proposed to her to start a fashion business together.  The Plaintiff wanted to take advantage of her aunt’s social network for that business.  In February 1988, they decided to start such a business at a domestic premise at Knutsford Terrace, Tsim Sha Tsui.  The name of the business was coined by the 2^nd Defendant, who also procured the company logo.  There is in the documents before the court a business card of the 1^st Defendant bearing the name of Linotte.

10.  In support of her case, the 1^st Defendant relies on a simple handwritten agreement under her hand dated 16 September 1990 (Agreement) which stated, inter alia, that: (a) Linotte was a partnership between her and the Plaintiff (each having contributed half of its capital of HK$100,000); and (b) Linotte’s business started in February 1988 and only the Plaintiff’s name was used for registration.  The Agreement bore the signatures of the partners and TM who acted as a witness.  The original of this document was produced as exhibit “D1” at the trial.

11.  The Plaintiff disagrees that Linotte was a partnership.  She says that it was her sole proprietorship business throughout.  She had never entered into any agreement in relation to that business with the 1^st Defendant.  The Plaintiff’s case is that she had only borrowed HK$50,000 as a loan from the 1^st Defendant for the start-up of the business, and that loan was fully repaid in about December 1989. 

12.  The issue over the authenticity of the Agreement is no longer advanced.  I shall deal with the Plaintiff’s evidence over this document below.

The Property

13.  The Property was acquired (in 1991) at the price of HK$900,000.  It is common ground that the initial deposit of HK$20,000 was paid by a cheque drawn on the account of Linotte.  Two further deposits, in the sums of HK$70,000 and HK$270,000 were paid.  The first sum was paid by way of a personal cheque of the Plaintiff.  The second was also paid by cheque but there is no evidence as to whose cheque it was.  However, the receipt issued by the solicitors representing the Plaintiff and the 1^st Defendant in the transaction acknowledged having “received from [them]” the funds in question. 

14.  In all the transaction documents, namely, the Sale and Purchase Agreement, the Assignment and the Legal Charge executed in favour of the Bank of East Asia which provided a mortgage loan of HK$540,000 to finance the acquisition, both the Plaintiff and the 1^st Defendant were named as purchasers and tenants-in-common in equal shares. 

Plaintiff’s Claim

15.  The Plaintiff seeks a declaration that: (a) all of the 1^st Defendant’s interest in the Property has at all material times been and is held by her and/or the 2^nd Defendant upon trust for the Plaintiff solely and absolutely; and (b) the Plaintiff has at all material times been and is the sole beneficial owner of the Property. 

16.  The trust pleaded by the Plaintiff is one of resulting trust and/or common intention constructive trust.

17.  The common intention relied upon by the Plaintiff is an agreement reached between her and the 1^st Defendant in the afternoon of the 10 July 1991 after an inspection of the Property (the Provisional Agreement for Sale and Purchase of the Property was also signed on that day) that :

(1) the 1^st Defendant’s name would be added as a tenant-in-common purely for the sake of convenience and to monitor the Property;

(2) the 1^st Defendant would have no beneficial interest whatsoever in the Property.

Defendants’ Case

18.  The 1^st Defendant says that the Property was an investment made with the profits generated from Linotte, and it was intended that the Property would be used as a storage for it (there is no dispute that the Property was indeed used for such purpose).  The Defendants maintain that the Property was and is held by the Plaintiff and the 1^st or 2^nd Defendant as tenants-in-common in equal shares legally and beneficially, which was the agreement between the Plaintiff and the 1^st Defendant before they bought the Property. 

19.  By way of Counterclaim, the Defendants ask the Plaintiff to account for and hand over the rent she had received from the Property[3] which is due to the Defendants.  The parties have agreed the quantum of such rent, in the event that the Counterclaim is upheld by the court, at HK$342,512.20[4].

Witnesses

20.  The Plaintiff and the 2^nd Defendant gave evidence at the trial and were the only live witnesses.  Unfortunately, the 1^st Defendant was unfit to give evidence.  Apart from her age, she is suffering from various medical conditions including cognitive impairments.  Quite sensibly, the parties agreed that the 1^st Defendant’s witness statement be admitted as hearsay evidence, subject to the issue of weight. 

Law

21.  It is not in dispute that the 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 Stack v Dowden [2007] 2 AC 432, §§ 56 and 68, per Baroness Hale; applied in Re Liu Yi Fang (a bankrupt) [2015] 3 HKLRD 668, §§ 13 and 14.

22.  Although the Plaintiff seeks to rely on both resulting trust and common intention constructive trust, I agree with Mr Leung, who appeared for the Defendants, that given that both sides say that there was common intention as to where the beneficial interest in the Property should lie, there is little scope for the operation of resulting trust.  See Re Superyield Holdings Ltd [2000] 2 HKC 90 at 111D-F; and Liu Wai Keung v Liu Wai Man [2013] 5 HKLRD 9 at §45.

23.  The central issue before the court is therefore whether there was a common intention constructive trust as contended by the Plaintiff. 

24.  The elements required to prove this type of trust were summarised in Liu Wai Keung v Liu Wai Man,supra, at §§46-50 (approved in WML v LCK, CACV 82/2014, unrep., 27 February 2015, at §41) :

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

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

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

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

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

25.  It should be added that context is a fundamental consideration: see Stack v Dowden, supra, at §69; and Marr v Collie [2017] UKPC 17 at §54, per Lord Kerr.

Analysis

26.  Given that the Defendants’ case is that the beneficial entitlement over the Property is the same as the legal ownership, and that the burden of proof in this case rests squarely on the Plaintiff, the focus of analysis must be on the credibility of the Plaintiff’s case. 

27.  Like the case of Liu Wai Keung, it is the common intention of the parties at the time of acquisition of the Property which is relevant because there is no suggestion that the intention had changed.  Further, according to the Plaintiff’s pleaded case, there was an express agreement between her and her aunt that the latter was only an owner of the Property in name.  There is therefore no need to consider the question of inference arising from the conduct of the parties[5]. 

Linotte

28.  The context of the acquisition in the present case is the ownership of Linotte, and the relationship between the Plaintiff and her aunt.  The fact that the two had a very close relationship, like that of mother and daughter, is not in dispute.  This is an important backdrop. 

29.  According to the Plaintiff, she was very interested in the fashion business.  The evidence of the 1^st Defendant that she had a good social network which would be useful for a new fashion business is inherently credible and supported by the evidence of the 2^nd Defendant.  In such circumstances, there is nothing unusual for the Plaintiff and the 1^st Defendant to have embarked upon a new fashion business as equal partners. 

30.  The Agreement is a powerful proof of the partnership.  It was preceded by 2 drafts.  The first draft contained little details.  However, it is worthy of note that: (a) the capital for the business was stated to be HK$100,000 and (b) there were 4 signature lines for the partners, which suggests that the thinking at the time was that there would be 4 partners.

31.  The second draft was in the hand of the 1^st Defendant.  It stated, inter alia, that: (a) the registered person of the company (公司註冊負責人) would be the Plaintiff; (b) the capital of HK$100,000 would be paid by the Plaintiff and the 1^st Defendant in equal share; (c) the four partners would be the Plaintiff (4 shares), the 1^st Defendant (4 shares), Ms Fung Lam (a close friend of the 1^st Defendant) (1 share) and the 2^nd Defendant (1 share); (d) the Plaintiff would become the manager with a salary of HK$3,000 per month payable from February 1988; and (e) the 1^st Defendant would have a monthly salary of HK$500 per month payable from March 1988. 

32.  The undisputed evidence of the 2^nd Defendant is that the agreement encapsulated in the second draft did not take effect mainly due to Ms Fung’s decision to withdraw from it. 

33.  Although the second draft was not dated, in light of the reference to February 1988 it is quite likely that the document was produced before or at about that time. 

34.  These draft agreements, viewed in the context of the undisputed facts, lend credence to the Defendants’ case that Linotte was a partnership between the Plaintiff and the 1^st Defendant. 

35.  In addition, this court has the evidence of the 2^nd Defendant that both she and the Plaintiff participated in the discussions over the new partnership business.  Although the 2^nd Defendant was unable to be specific about the details of the discussions involving them due to the passage of considerable time, it is inherently probable that there were such discussions when both of them were to be involved in this new business. 

36.  Regardless of the withdrawal of the issue over the authenticity of the Agreement, and notwithstanding the fact that the Agreement was only signed 2 years and 7 months after the commencement of Linotte’s business, I have no hesitation in holding that it is a genuine document.  The contents of the Agreement appear to follow much of the second draft.  Importantly, it was witnessed by TM.  It is inherently unlikely for someone to engineer a false document which can be easily exposed (with the evidence from TM). 

37.  I do not believe that the time gap between the commencement of Linotte’s business and the signing of the Agreement adversely impact on the Defendants’ case as submitted by Mr Lee SC, who appeared with Mr Lee for the Plaintiff.  I see nothing wrong with the parties having decided later to have their partnership formalised in writing.  Indeed, the Agreement referred to the business having been commenced in February 1988.  

38.  I also take into account the fact that the Plaintiff did not have the requisite capital to start a new business.  It was quite natural for her to form a partnership with her aunt, who could provide the capital and input to the business, and with whom she had a very close relationship. 

39.  In respect of the 1^st Defendant’s Linotte name card, the Plaintiff explained that it was to enable her aunt to introduce customers to the business.  I find the explanation unconvincing.  I do not see why a name card is necessary for introducing customers to Linotte. Further, having a name card suggests that the introduction role was not a casual one.  Why would the 1^st Defendant assume such a responsibility if that was not her business? 

40.  I also note that the role of introducing customers was consistent with that stated in the Agreement in respect of the 1^st Defendant.  Under that document, she was responsible for “providing advice, promotion and exploration of markets” in relation to Linotte’s business.  I am of the view that the name card is more consistent with the Defendants’ case.

41.  Turing to the evidence of the Plaintiff, I must say that she had a good demeanour generally as a witness.  However, she was noticeably uncomfortable when she was cross-examined about the Agreement.  Her evidence is that one of the signatures on the Agreement looked like hers but she was adamant that she had never signed the Agreement.  Despite being pressed in cross-examination, the Plaintiff refused to “speculate” whether her aunt had forged the document[6]. In my view, such evidence lacks conviction and is not that of a person who is the victim of a forgery.  The withdrawal of the authenticity issue does not reflect favourably on the Plaintiff’s case.

42.  During cross-examination, the Plaintiff gave 5 reasons why she would not have signed the Agreement.  However, those reasons were not advanced in her pleadings or witness statement.  More probable than not, these were the afterthoughts of the Plaintiff. 

43.  The Plaintiff’s evidence of her father’s reaction after looking at the Agreement is also unconvincing.  She said that her father did not recall signing such a document but he said that there seemed to be no such event.  In all likelihood, it would have been a unique event for TM, and it would be quite extraordinary for him not to be able to remember whether he had witnessed the signing of an agreement between his sister and his daughter.  If the Plaintiff did show a copy of the Agreement to her father as she said, I do not believe that what she told the court about her father’s response is true. 

44.  Before I deal with the beneficial ownership of the Property, I should mention that the evidence of both the Plaintiff and 1^st Defendant suggest that Linotte was run in an informal manner. The 1^st Defendant’s evidence is that apart from introducing clients to the business, she took little part in the running of the business.  She had no interest in the books or accounts.  The Plaintiff’s evidence is that she had little expertise in the management of a business.  She never produced any accounts for the business or had any produced with outside help[7].  The income of the business was dealt with in the manner she saw fit, using both her personal account and Linotte’s account, and the money left in the bank accounts was regarded by her as the profits of Linotte, from which she financed, inter alia, her personal expenses[8].

45.  The Plaintiff’s evidence is that Linotte’s business was profitable and growing until about July 1997 when there was a global financial crisis.  Eventually, that business was terminated in late 2002. 

46.  The 1^st Defendant’s evidence is that in or about 1996 or 1997, due to her desire to spend more time on charitable work she decided to “walk away” from Linotte (it is not clear from the evidence what precisely that means).  Subsequently, she learned that the business ran into trouble. 

47.  I shall come back to these matters below. However, for the above reasons, it is certainly more likely than not that Linotte was a partnership between the Plaintiff and the 1^st Defendant[9].   

The Property

48.  The Plaintiff’s evidence on the agreement between her and her aunt on the beneficial ownership of the Property (see para 17 above) is, like her evidence on the ownership of Linotte, shaky.  She was asked to explain what she meant by “monitoring the Property” (「睇住」該物業).  In answer, she said that she was a spendthrift at the time and she wanted her aunt to become a co-owner of the Property so that she would not be in a position to sell it.  However, it was something she had in her mind which she never told the 1^st Defendant.  The Plaintiff said that she only asked the 1^st Defendant to become a co-owner, and after a few seconds her aunt responded by saying that it would facilitate getting a mortgage over the Property. 

49.  I find this version of events quite strange. Normally, a person would ask for the reason why it is thought that he should become a co-owner of a property which has nothing to do with him.  Further, the mortgage over the Property was indeed taken out by both the Plaintiff and the 1^st Defendant.  Why would the 1^st Defendant assume the obligations under the mortgage?

50.  Further, the evidence of the Plaintiff highlighted in para 48 above is materially different to her pleaded case. 

51.  Apart from the absence of any independent evidence to support the Plaintiff’s case, I find it unusual that she did not inform her solicitors handling the purchase of the Property that, for whatever reason, her aunt would only become an owner in name.  The Plaintiff sought to rely on her lack of experience in buying property to explain the situation.  On the other hand, she was a young person who had been operating a business for over 3 years.  Such a person would not normally shy away from asking her advisors important questions. 

52.  In respect of Mr Lee’s submission that the acquisition of the Property was solely financed by the Plaintiff[10], it is premised on the assumption that Linotte was solely owned by the Plaintiff, a proposition which I find to be against the evidence.  However, there are 2 points which I should address.

53.  Firstly, it is common ground that the 1^st Defendant was paid a sum of HK$3,000 per month by the Plaintiff but there are disagreements on the period where that sum was paid and what it was for.  The 1^st Defendant’s evidence is that she was paid HK$3,000 each month as remuneration for her marketing and sales efforts.  She agreed with the Plaintiff to stop drawing that payment since about 1991 and it was applied towards the mortgage instalments[11]. 

54.  On the other hand, the Plaintiff said that she started paying her aunt HK$3,000 per month as “pocket money” from about the end of 1991 due to her financial need.  Such payment ceased at the end of 1994. There are documents produced by the Plaintiff to suggest that 6 payments of HK$3,000 were made between the period from February 1992 to February 1993.

55.  I am inclined to accept the 1^st Defendant’s version over the payment of HK$3,000 as more likely of the two.  It is consistent with the facts that Linotte was a profitable business and she had invested HK$50,000 in it.  Also, that sum was about half of the mortgage instalment.  Although the timing of the cessation of payment is questionable in light of the 6 payments identified above, I have to bear in mind that these were events which took place many years prior to the making of the 1^st Defendant’s witness statement.  Also, it might have been the case that further payments were made to the 1^st Defendant when the business was prosperous. 

56.  On the other hand, I see no evidence to suggest that the 1^st Defendant was in financial need at the end of 1991.  To the contrary, the Plaintiff’s evidence is that her aunt purchased a property in Tai Hang Road in November 1991.  Further, HK$3,000 was not a small sum of money back in 1991.  It would have been unusual for the Plaintiff to be giving her aunt a large amount for pocket money on a regular basis. 

57.  Secondly, it was argued by Mr Lee that even if this court accepts that Linotte was a partnership business the Defendants’ case on the ownership of the Property cannot succeed because the Property, having been paid for by the partnership, should belong to the same.  Mr Lee also submitted that, having walked away from the partnership and never shared its losses, it would be quite unfair for the 1^st Defendant to profit from the Property.

58.  With respect, I have great difficulty with the argument.  It is neither the case of the Plaintiff nor that of the Defendants that the Property belongs to Linotte.  It was never pleaded or featured in the List of Agreed Issues.  The directions of the court are that the parties are bound by that List.  There was no application made to expand the List.  It is therefore plainly wrong for the argument to be made.

59.  In any case, I fail to see any substance in the argument.  The agreed facts (it appears that such facts had spring-boarded the argument) are that the acquisition of the Property was funded “from money generated from Linotte’s business”.  It is a quantum leap to say that the Property therefore belongs to Linotte.  It is common case that the Property was purchased because of the wish to invest the profits made from Linotte.  The profits belonged to the partners.  The most powerful evidence of the ownership of the Property must be the fact that it was purchased in the names of the Plaintiff and the 1^st Defendant.  Further, as pointed out by Mr Leung, the mortgage payments were made from a joint account in the names of the Plaintiff and the 1^st Defendant. 

60.  Furthermore, it is not clear from the evidence whether the 1^st Defendant should have shouldered certain responsibility over Linotte’s losses.  Whilst I have no reason to doubt the Plaintiff’s evidence that she had paid off Linotte’s debts over the years, the absence of any accounts means that one does not even know whether Linotte’s business was an overall loss or gain, let alone whether any of the partners had borne more or less than her fair share of the losses if that be the case.  In any case, I fail to see any relationship between these matters and the ownership of the Property.

61.  For these reasons, I am unable to accept the Plaintiff’s case on the common intention constructive trust, and her claim must fail. 

62.  In light of the determination of issues 1, 3 and 4, the withdrawal of issue 2 and the agreed quantum on the Counterclaim, I see no remaining issue left in this case. 

63.  For completeness, firstly, I should mention that, like the Plaintiff, the 2^nd Defendant also impressed me in respect of her demeanour as a witness.  Fortunately, there are documentary evidence and agreed facts which the court can rely upon, in addition to inherent probabilities, to adjudicate the factual disputes[12].  I have detected no real fragility in the 2^nd Defendant’s evidence despite having been subjected to very detailed cross-examination.  I find her to be a credible witness but it must be said that a good deal of her evidence is outside her personal knowledge.

64.  Secondly, I have dealt with the material evidence of the 1^st Defendant above.  I rely on her evidence when it is uncontroversial or supported by other evidence or inherently probable.

Conclusions

65.  For the above reasons, the Plaintiff’s claim is dismissed.  I grant the following relief in respect of the Counterclaim: (a) the registration of the writ herein against the Property be vacated; (b) the Plaintiff do pay the Defendants the sum of HK$342,512.20; (c) interest be paid on the said sum at judgment rate(s) from the date of judgment until payment[13]. Finally, I award the costs of this action and the Counterclaim to the Defendants, to be taxed if not agreed.

66.  Last but not least, I am grateful for the assistance of counsel.