GIANT RICHES LTD. v. HUNG LAI PING AND ANOTHER

HCA15461/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.15461 OF 1999

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J U D G M E N T

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1. The present dispute arose out of an abortive sale and purchase agreement dated 29 January 1997 ("the Formal Agreement") whereby the plaintiff agreed to sell to the Madam Hung Lai Ping and Ms Kwok Yee Ha Flat A, 21st Floor The Panorama, No. 520-526 Castle Peak Road, Tsuen Wan, New Territories ("the Property"), at a price of HK$4,449,000. The Property was then uncompleted.

2. Pursuant to the Formal Agreement, deposits in the total sum of HK$1,112,250 had been paid. But in breach of the Formal Agreement, Madam Hung and Ms Kwok failed to make any further payment towards the balance of the price. On 4 November 1998, the plaintiff determined the Formal Agreement. On 14 March 1999, it resold the Property to another purchaser at HK$2,571,000. On 26 October 1999, the plaintiff commenced the present action against the defendants and on 27 March 2000 obtained interlocutory judgment for damages to be assessed.

3. On 29 November 1999, Ms Kwok issued a third party notice against Mr Ho Kwong Choi, alleging that she was only a bare trustee for and on his behalf, holding the Property on a resulting trust for his benefit. She claimed for a full indemnity from Mr Ho in respect of the plaintiff's claim against her.

4. This is the trial of the third party proceedings.

Undisputed facts

5. The facts summarised in this section are not in dispute.

6. Madam Hung is the mother of Mr Ho. Mr Ho ran a business known as Bright World Industries Limited ("Bright World"). Both Madam Hung and Mr Ho were at all material times a shareholder and director of Bright World. Madam Hung owned Flat D, 2nd floor, Evergreen Tower, 30-42 Fei Fung Street, Wong Tai Sin, Kowloon ("the Evergreen Property"), which was mortgaged to Wing Lung Bank to secure banking facilities advanced to Bright World which were limited to HK$1 million in April 1994 and then extended to all monies in December 1997.

7. Ms Kwok came to know Mr Ho at the extra-mural English course at Baptist College in about 1992. Mr Ho was then a teacher of the course. Ms Kwok was about 21 of age and was then working as a secretary at a construction company known as Guangdong Water Conservatory and Hydro Power Engineering Company Limited, which she first joined in 1988.

8. Ms Kwok and Mr Ho became lovers in about 1994. There is a dispute as to how intimate their relationship was. I will come back to this point in a moment when dealing with the parties' evidence. At that time, Mr Ho was married but had already separated from his wife. Ms Kwok was aware of his marital status. (He obtained the decree absolute in September 2000, well after his relationship with Ms Kwok had ended.) At about the same time, Ms Kwok left Guangdong Water Conservatory and Hydro Power Engineering Company Limited and joined Bright World with a monthly salary of about HK$8,000. She used to earn about HK$10,000 while working for her former employer. In 1996, she left Bright World and joined China State Construction Engineering Corporation as a secretary in the construction section with a monthly salary of about HK$11,000 to $12,000. It would appear that while Ms Kwok was working at Bright World, Mr Ho had transferred 1,000 shares to her. It is however not clear if she is still a shareholder of Bright World.

9. On 18 January 1997, Madam Hung and Ms Kwok signed a preliminary sale and purchase agreement in respect of the Property ("the Preliminary Agreement") as co-purchasers. Mr Ho also put his signature next to where their signatures were. The office address and telephone number of Bright World were given as the purchasers' address and telephone number. Mr Ho's pager number was given as well. The initial deposit of HK$300,000 was paid by two cashier orders : (1) cashier no.384519 issued by China State Bank and (2) cashier no.223738 issued by Hang Seng Bank. On 13 January 1997, Ms Kwok paid a sum of HK$150,000 into the bank account of Madam Hung, who then used that sum of money to buy the first cashier order.

10. The Formal Agreement was signed by Madam Hung and Ms Kwok on 29 January 1997 at the office of Messrs Richards Butler, the solicitors representing the developer. Pursuant to the Formal Agreement, the price was to be paid as follows :

(1) the sum of HK$444,900 including the initial deposit of HK$300,000 to be paid upon signing of the Formal Agreement;

(2) the sum of HK$222,450 as 1st further deposit to be paid on or before 20 February 1997 ("the 1st further deposit");

(3) the sum of HK$222,450 as 2nd further deposit to be paid on or before 20 June 1997 ("the 2nd further deposit");

(4) the sum of HK$222,450 as 3rd further deposit to be paid on or before 20 December 1997 ("the 3rd further deposit");

(5) the sum of HK$222,450 as 4th further deposit to be paid on or before 20 June 1998 ("the 4th further deposit");

(6) the balance of HK$3,114,300 to be paid within 14 days of the purchasers being notified in writing that the occupation permit had been issued and the vendor was in a position to validly assign the Property.

11. Ms Kwok paid a sum of HK$160,000 into Mr Ho's bank account on 20 January 1997. That sum was used to pay the balance of the initial deposit on the signing of the Formal Agreement. The payment of the balance of HK$144,900 is evidenced by a receipt issued by Messrs Richards Butler dated 20 January 1997 containing a reference to a cashier order no.855636 drawn by Hong Kong Bank.

12. On 10 March 1997, Ms Kwok made a payment of HK$111,250 (representing half of 1st further deposit) directly to Messrs Richard Butler. It would appear that indulgence had been given to effect payment of the 1st further deposit. Ms Kwok made a further cash advance of HK$1,589. The total amount that she had paid which was ultimately applied towards the price of the Property is thus HK$422,814.

13. Between 26 July and 27 December 1997, upon Ms Kwok's request, Mr Ho had paid the exact sum of HK$422,814 back to her by various payments.

14. After the 3rd further deposit, no further payment had been made. By a letter dated 22 June 1998 drafted by Mr Ho and purportedly issued in the joint name of the defendants ("the Letter"), a request was made for a two-month extension to pay the 4th further deposit because of their financial difficulty. The developer was asked to contact Mr Ho for discussion. Mr Ho accepted that the Letter was written without the prior knowledge or approval of Ms Kwok.

15. Having set out these facts, I now turn to the parties' evidence.

Ms Kwok's evidence

16. Ms Kwok's evidence may be summarised as follows.

17. At the end of 1996 or the beginning of 1997, Mr Ho told her that he had done some research and was confident that the property market would rise and profit could be made by buying property. He then took her to view the site of The Panorama and asked her to buy the Property. She refused. Knowing that she had some savings, Mr Ho then asked her to lend him some money to enable him to buy the Property. He told her he would sell it within a short period of time and promised to repay her as soon as possible. As security for the loan, Mr Ho suggested that she would be named as a purchaser of the Property so that she could hold on to the flat if he failed to repay her. Ms Kwok acceded to his request.

18. Subsequently, at Mr Ho's request, she transferred HK$150,000 to Madam Hung's bank account on 13 January 1997. On 18 January 1997, she signed the Preliminary Agreement for sale and purchase as a co-purchaser with Madam Hung. Under cross-examination, Ms Kwok said that she signed as told by Mr Ho. She was not aware of the price or details of the transaction. All these were handled by Mr Ho whom she trusted. Mr Ho signed on the Preliminary Agreement to guarantee that he would repay her as soon as possible. It was their agreement that after repaying her in full, her name as a purchaser would be changed to Mr Ho's.

19. Ms Kwok made a further payment in the amount of HK$160,000 into Mr Ho's bank account on 20 January 1997 as requested. On 29 January 1997, she signed the Formal Agreement again as told by Mr Ho. She was likewise not aware of the nature of the Formal Agreement. Ms Kwok subsequently made a further payment of HK$111,250 on 10 March 1997 into the account of Messrs Richards Butler as requested by Mr Ho. Ms Kwok confirmed in her oral testimony that all the monies she had paid came from a pool of funds contributed by her family members and herself.

20. Mr Ho started repaying her in July 1997 and all monies owed to her was repaid by December 1997. After the monies were repaid, she asked Mr Ho to "change the name" of the Formal Agreement, but he ignored her and said, "I will do it. You already had the money back." She did not know that payments to the plaintiff were not kept up until she received the writ in the main action.

21. She denied the suggestion that she was at the material times cohabiting with Mr Ho at a flat rented by him. They were just seeing each other. But her witness statement did suggest that she was at least staying with Mr Ho at the flat from time to time. When confronted, she explained that it was not the case. Lastly, she denied that it was she who suggested to buy the Property as their future matrimonial home. Her relationship with Mr Ho ended in about July 1987.

Mr Ho's evidence

22. Mr Ho said he was "very fond of" Ms Kwok. They lived together in their rented flat for a year and nine months since January 1996. Before the purchase of the Property, Ms Kwok took Mr Ho to Castle Peak Road to view the site where the Property was being built. She was very interested in buying the Property and issued a cheque of HK$50,000 to an agent working for the developer as a deposit. He concurred in the purchase because he had "no particular preference". He intended the two of them to reside in the Property as a matrimonial home together with his mother although he admitted that at that time, he had not divorced his wife yet. His mother assisted him in buying the Property and he would purchase the interest from her when he had the ability. It was intended that Madam Hung and Ms Kwok would share the purchase price of the Property and Bright World would help out if either was in need. Bright World was then having a stable income.

23. Mr Ho estimated that the monthly mortgage payment, to be obtained by Ms Kwok taking advantage of family connections, would be around HK$30,000. When asked about Ms Kwok's ability to pay the mortgage instalments, he said her family members would assist her.

24. Regarding the payments totalling HK$422,814 from Ms Kwok, he said in his oral testimony that he was asked by Ms Kwok to repay her as her family was in need. In view of his intimate relationship with her, he acceded to the request, while still hoping that she would continue to make payments towards the purchase of the Property. These were just temporary provisions. However, according to his witness statement, Ms Kwok told him that as her family members refused to support her any more, she wanted to withdraw from the deal and asked for repayment. Mr Ho adamantly denied that there was any agreement or understanding between him and Ms Kwok that she would retain no further interest in the Property as a result of his repayment to her. In fact, he asked Ms Kwok to pay for the subsequent further deposits but she did not respond.

25. In June 1998, he drafted the Letter asking for an extension of time for the payment of the last further deposit. He admitted that he did not seek the permission or authorisation from Ms Kwok beforehand but she was absolutely clear about the need for payment.

Madam Hung's evidence

26. Madam Hung corroborates her son's evidence on the issue that the Property was acquired as a matrimonial home for the three of them. She said that Ms Kwok and herself were to share half of the purchase price and what Ms Kwok could not pay for, Bright World would make up for it. She seemed to believe that Bright World would pay for the mortgage instalments in any event, because it had the advantage of a HK$1 million overdraft from Wing Lung Bank on the strength of the Evergreen Property. The parties did not think of buying the Property in the name of Bright World or Mr Ho instead of herself because she had to protect her own interest.

Central issue

27. The central issue is whether the payments made by Ms Kwok in the total sum of HK$442,814 were loans to Mr Ho to enable him to buy the Property so that upon repayment she only held the Property as a bare trustee for him on a resulting trust. There are also a number of collateral issues concerning, for example, the extent of intimacy between Ms Kwok and Mr Ho, who initiated the purchase, etc. They are all factual disputes the determination of which depends purely on the credibility of the parties.

Assessment of credibility

28. Having considered their evidence carefully, I am not convinced that Madam Hung, Ms Kwok and Mr Ho had been entirely truthful in their evidence. In some major aspects, their evidence is difficult to accept. I will explain why below.

29. Ms Kwok in her oral testimony tried to play down her relationship with Mr Ho. But it is obvious that her relationship with Mr Ho was something more than just seeing each other. Her witness statement gave an impression that she did stay with Mr Ho in the rented flat from time to time, albeit she might not have cohabited with Mr Ho as claimed by him. Her denial on this aspect of her witness statement sounds hollow. The reason why she attempted to play down the relationship is obvious. It is to counter Mr Ho's allegation that because of their close relationship at the time, they intended to buy the Property as their future matrimonial home. Further, her attempt did not sit well with her evidence why she would agree to lend money to Mr Ho which in the end exceeded HK$420,000. Her own income was modest to say the least. She had to utilise the family's pool of funds in order to lend money to him. If they were just seeing each other and their relationship was not particularly intimate, would she do all these for him? I do not think so. Further, there was no IOU or other document evidencing the loan. (The only thing in writing that Ms Kwok pointed to is the Preliminary Agreement. I will come to that in a moment.) Would she so trust him if her evidence on their relationship is true? Again, I do not think so.

30. Ms Kwok promised to lend Mr Ho money to purchase the Property. He told her that her name would be added as a purchaser to give her security so that if he did not repay, she would have the Property. It is, however, not apparent from her evidence that Mr Ho had specified the amount that he would like to borrow. Nor did she ask. Common sense dictates that an amount should be specified for a loan. In the absence of any specified amount, why would Mr Ho allow her to have apparently half of the interest in the Property as security? And how could she be sure that she could afford the loan? She said she did not know the price of the Property. This is odd enough given she did sign on the Preliminary Agreement where the price was clearly stated.

31. Ms Kwok said that she did not know the details of the transaction or the nature of the Preliminary Agreement and the Formal Agreement. In my view, she entered into the transaction well knowing that it was a sale and purchase of the Property. She said she just signed the Agreements as told by Mr Ho. I do not believe that she was so naive and ignorant. And why should she be so subservient? "I trusted him" is the explanation. But why would she? Ms Kwok did not give a satisfactory answer. She also said that Mr Ho signed on the Preliminary Agreement to guarantee that he would repay her as soon as possible. This simply defies common sense. Nothing in the Preliminary Agreement indicated that he had borrowed money from her and that he would repay her as soon as possible. An IOU or a note evidencing the loan and the promise to repay signed by Mr Ho seems more reasonable. I reject her evidence that she did not know about the details of the purchase or the nature of the Agreements she signed. She knew that she was signing as a co-purchaser.

32. Further, as rightly pointed out by Mr Mui, counsel for Mr Ho, changing her name as a purchaser to Mr Ho's would involve substantial and additional expenses (in the region of $100,000 odd), which were disproportional to the sums she had lent. It is highly doubtful if Mr Ho would agree to such an arrangement.

33. On the other hand, Mr Ho's evidence is not without difficulty. He tried to suggest that he played a passive role in the transaction. It was Ms Kwok who initiated the purchase. She raised the idea of buying the Property as a future matrimonial home, took him to visit the site and even prepared the cheque of HK$50,000 paid to the agent for preparatory work whereas he had no particular preference. But that was inconsistent with other evidence. According to his own evidence, he did sign on the Preliminary Agreement as an agent. He explained that he was required to sign because his mother was old and not really literate and that the agent asked him to sign to indicate that she fully understood the contents thereof. I note, however, that he was not signed as a witness. Nor is there anything in the Preliminary Agreement to show that he signed it for the alleged purpose. He did sign as an agent and it speaks for itself : he was to handle the matter as an agent for them. That is why the office address and telephone number of Bright World and his pager number were given. This was obviously to enable the developer or the agent to contact him in connection with the transaction. He as the defendants' agent could then deal with the matter for them. In fact, he purported to act on Ms Kwok's behalf when he drafted and issued the Letter without her prior knowledge and approval.

34. He said that his mother and Ms Kwok would each be responsible for half of the future deposits. Whereas his mother could and did draw from the financial resources of Bright World to fulfil her obligation, it would appear that Ms Kwok with her modest income would have difficulty to meet hers. Mr Ho said she had family members would support her. But why would they do so, bearing in mind paying off the mortgage instalments of roughly HK$30,000 per month to pay off the balance of the price was a long-term commitment? That Mr Ho could not satisfactorily explain.

35. Nor could Mr Ho satisfactorily explain why he would pay Ms Kwok the exact sum she had paid previously. I do not accept his evidence that after Ms Kwok had difficulty to come up with her share of future deposits, their relationship did not deteriorate. In this respect, I would prefer Ms Kwok's evidence that in mid 1997, their relationship turned sour. I see no reason why he would pay her the money. After all, it was her obligation to make those payments. Paying her would drain the already diminishing financial resources of Bright World further. He said the payments to Ms Kwok were temporary provisions. But according to his witness statement, she told him that she wanted to withdraw from the deal, which must be permanent. Any hope that she would repay the money is simply unrealistic. Mr Ho did not explain this apparent consistency in his evidence.

36. Madam Hung corroborated her son's evidence. She said she and Ms Kwok would bear half of the price. Like Mr Ho, she could not satisfactorily explain how Ms Kwok would be able to come up with her shares of mortgage instalments in the future. Madam Hung suggested that Bright World could make up what Ms Kwok could not pay. But she was already drawing from Bright World's financial resources to meet her own obligation.

Conclusion

37. In light of the poor quality of their evidence, I am unable to accept either of the versions advanced by the parties as truthful. Thus I am unable to make a finding as to what actually happened regarding the purchase of the Property and the true nature of the payments made by Ms Kwok.

38. The best that I can come up with (without making a finding) is this. Mr Ho, Madam Hung and Ms Kwok intended to speculate by buying the Property. Ms Kwok took a share in it and was named as a co-purchaser with Madam Hung. However, she did not have sufficient resources herself. She therefore made use of the family funds. Since it was speculation, she hoped that the Property would be resold at a relatively short time and she could then repay the family funds from the sale proceeds. Madam Hung also took part at least in name. Her contribution however would and did come from Bright World. She might even represent Mr Ho's interest in the deal. When the parties were eventually unable to finance the purchase any further, Ms Kwok pressed for repayment of her contributions, which was somehow acceded to by Mr Ho.

39. The burden of proving the loans and the resulting trust rests squarely with Ms Kwok. For the above reasons, I hold that she has failed to discharge the burden. I will dismiss her claim against Mr Ho.

Costs

40. Costs would normally follow the events. However, as I have found that Mr Ho's case is not credible either, I will depart from the normal rule and make an order nisi that there shall be no order as to costs. The order nisi is to be made absolute within 14 days after handing down.