PANG KAM HONG EDDIE v. YEUNG SUK MAN AND ANOTHER

DCMP 3210/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 3210 OF 2007  

____________________

____________________

___________________

_______________________

JUDGMENT  

_______________________

1.  In these proceedings, the Plaintiff is asking the court to make a declaration that a total sum of about HK$930,000 deposited at the 1^st Defendant’s safe deposit box at Hang Seng Bank No. 275-060731 (“the Deposit Box”) has been and is still held by the 1^st Defendant on trust for the Plaintiff.  The claim is not contested by the 1^st Defendant.  However, as she was adjudicated bankrupt in 2004, the Official Receiver (“the OR”) has applied to be joined as the 2^nd Defendant so as to appear in the hearing and to assist the court to make a balanced and considered decision in respect of the Plaintiff’s claim.

The Plaintiff’s case

2.  According to the Plaintiff’s case, his former wife had issued divorce proceedings against him in Canada in 1990.  It was a bitter litigation and his wife had applied to court to freeze most of his bank accounts and assets in Canada.  By that time, the Plaintiff still had cash in Canadian Dollars which was roughly equivalent to about HK$930,000.  With a view to preserve this amount of money for his daughter and mother, he asked the 1^st Defendant, who was a friend he met after coming back to Hong Kong from Canada, to hold the money on trust for him.  The money was handed to the 1^st Defendant in a few batches in around 1994 and 1995.  It was the understanding that the 1^st Defendant would keep the money in the form of cash at her home.  By that time, the Plaintiff did agree to let the 1^st Defendant to use part of the money to meet her immediate cash flow problem, but the 1^st Defendant promised to return the money promptly after use.  In 2002, the 1^st Defendant told the Plaintiff that there were a number of burglaries in the vicinity of her apartment, and Plaintiff therefore told her to put the money in a bank’s safe deposit box.  The 1^st Defendant therefore hired the Deposit Box from Hang Seng Bank (“the Bank”) in September 2002 and put the money inside the same.

3.  The parties do not dispute the following facts concerning some of the subsequent events:

(i)   a bankruptcy petition was filed against the 1^st Defendant on 27 March 2003, and she was subsequently adjudicated bankrupt on 25 June 2003;

(ii)   the 1^st Defendant paid 6 visits to the Bank with access to the Deposit Box in the period from September 2002 to May 2003, with 4 of such visits made after the issuance of the bankruptcy proceedings;

(iii)  the 1^st Defendant attended a preliminary interview before her case insolvency officer on 3 July 2003, and she was given a number of documents to complete;

(iv)  the 1^st Defendant was expected to complete the Preliminary Examination Questionnaire within 7 days, however she only submitted her completed questionnaire to the OR’s Office on 11 November 2003, in which she disclosed that she was holding a sum of HK$900,000 on trust for her friend;

(v)  the total proof of debts lodged with the OR in respect of the 1^st Defendant’s bankruptcy case amounted to HK$4,369,690.41;

(vi)  in another interview on 23 April 2004, the 1^st Defendant gave more details about the trust to her case insolvency officer, who told the 1^st Defendant to provide documentary evidence to prove the alleged trust arrangement and to inform her friend to lodge his claim with supporting documentary evidence;

(vii)   on 11 May 2004, the Plaintiff, through his solicitors, wrote to the OR requesting to retrieve the sum of HK$930,000 from the Deposit Box as the same was held by the 1^st Defendant on trust for the Plaintiff;

(viii)   in response to the OR’s request to provide documentary proof, the Plaintiff’s solicitors sent a declaration dated 15 September 2002 executed by the 1^st Defendant confirming the trust;

(ix)  there was then correspondence between the Plaintiff’s solicitors and the OR, and it was clear from the letters by the OR that the latter was not satisfied with the claim of the Plaintiff;

(x)  the Plaintiff took no further action for a period of about 3 years after receiving the letter from the OR dated 10 August 2004;

(xi)  on 21 June 2007, the OR wrote to the Plaintiff’s solicitors asking for the Plaintiff’s reply, otherwise the OR would proceed to seize the contents in the Deposit Box;

(xii)  the 1^st Defendant was discharged from bankruptcy on 25 June 2007;

(xiii)  there was then further correspondence between the OR and the Plaintiff’s new solicitors, and the Plaintiff sent to the OR a Statutory Declaration dated 15 August 2007 with a view to prove the trust, which was not accepted as sufficient by the OR;

(xiv)  on 14 November 2007, the Plaintiff commenced the present proceedings to ask the court to make a declaration about the alleged trust; and

(xv)  during a joint inspection of the Deposit Box on 29 November 2007, it was found that the total amount of money kept inside was as follows:

(a)HK$900,000;

(b)US$480; and

(c)RMB43,000.10.

Evidence at the hearing

4.  There has been a previous court order for the deponents of the various affirmations to attend the hearing for cross-examination.

5.  At the hearing, the Plaintiff himself is the only witness who testifies in support of his claim.  He gives evidence as to how he obtained the money for the trust, the reason why he gave the money to the 1^st Defendant to keep it on his behalf, and why he later advised the 1^st Defendant to put the money in the Deposit Box.  He has been cross-examined in length by the counsel for the OR.

6.  The position of the OR in respect of the Plaintiff’s claim is neutral.  At the hearing, the OR relies on the affirmation of the case insolvency officer, Madam Leung Mei Ling, who also produces a report prepared by the OR’s Office in respect of this case.  The OR’s report provides a factual account about the management of the 1^st Defendant’s estate by the OR and the dispute between the Plaintiff and the OR about the trust arrangement.  In order to test the Plaintiff’s claim, the OR has also issued a subpoena to the 1^st Defendant to give evidence at the hearing.

7.  It is not too surprising that the oral testimony of the 1^st Defendant does support the Plaintiff’s claim.  She gives a factual account as to why the Plaintiff asked her to hold the money on his behalf.  As to her financial difficulty, it all originated from a property transaction in 1997.  In that year, she purchased a property with her friend when the property market was booming.  However, the property market then crashed because of the Asian financial crisis.  As she was not able to repay the loans secured by the mortgages of that property, bankruptcy proceedings were instituted against her.  She had no knowledge of such proceedings until about July 2003 when she failed to present a cheque for payment.  At the initial stage, the 1^st Defendant was quite optimistic about the discontinuance of the proceedings as she actively proposed some sort of voluntary arrangement with the 2 mortgagee banks.  In fact, the bank of the first mortgage agreed to her proposed arrangement, but as the second mortgagee did not agree to her debt restructuring proposal, she could not avoid being adjudicated bankrupt.

Assessment of the evidence

8.  After listening to the evidence of the witnesses, I find, on the balance of probabilities, that the money in the Deposit Box was held by the 1^st Defendant on trust for the Plaintiff.

9.  As I see it, it was a somewhat unusual arrangement to put cash in the Deposit Box, as one would lose the opportunity of earning interest from depositing the money in bank account or dividend from other kinds of investment with the use of the money.  In my judgment, there were only 2 logical reasons as to why the money was kept in such way.  The first one was that the Plaintiff wanted to conceal the money from his former wife, or he wanted to preserve this sum of money for his loved ones.  That was why the Plaintiff was prepared to sacrifice the interest or the dividend.  The second reason was that, in view of the possible litigation and bankruptcy proceedings, the 1^st Defendant wanted to put her own money in the Deposit Box beyond the reach of her creditors.  However, if that was her plan, the 1^st Defendant should have known that in the course of the bankruptcy proceedings, the Bank would freeze all the properties inside the Deposit Box pending the administration of her estate.  In such case, the 1^st Defendant should not have kept the money in the Deposit Box in the first place.  Further, the 1^st Defendant could have had access to the Deposit Box after the issuance of the bankruptcy proceedings, and it would have been much better for her to take the money out of the Deposit Box and put it elsewhere, for example at her own house.  This would have served her purpose of concealing the money from her creditors, and yet the 1^st Defendant had not done so.

10.  Mr. Suen, counsel for the OR, suggests that one possible reason for the 1^st Defendant to leave her own money in the Deposit Box was that she only learnt about the bankruptcy proceedings in July 2003.  This might also be just a contingency plan on the part of the 1^st Defendant.  If she could persuade her creditors to accept her proposed debt restructuring plan, she could keep the money in the Deposit Box for her own use.  If not, she could rely on the declaration dated 15 September 2002 alleging the trust.  However, if it was a deliberate arrangement planned by the 1^st Defendant, it is very difficult for me to accept that she was not aware of the bankruptcy proceedings until July 2003.  Further, Mr. Suen’s suggestion also does not answer the question as to why the 1^st Defendant did not just simply leave the money at her own house which would serve the same purpose.  This would also save all the complicated argument relating to the proof of the alleged trust.  Hence in my judgment, the Plaintiff’s allegation carries more weight, and I accept that the money inside the Deposit Box had been given by the Plaintiff to the 1^st Defendant quite some time ago for the purpose of concealing it from his former wife.

11.  Despite such findings, I must agree with Mr. Suen that the Plaintiff’s allegation is not free from doubts, with some weaknesses of the Plaintiff’s case listed as follows:

(i)  there was some confusion in the Plaintiff’s evidence about the source of the trust money;

(ii)   the alleged trust was created in 1994 or 1995 but the 1^st Defendant only hired the Deposit Box and put the money inside in 2002;

(iii)   the divorce proceedings involving the Plaintiff should have been concluded quite some time ago, and there was no point for the Plaintiff to ask 1^st Defendant to keep the money for such a long period of time;

(iv)   it was quite inconceivable that the Plaintiff would have entrusted his friend, the 1^st Defendant, to hold such a large sum of money on his behalf;

(v)   with not much assets in 1998, the Plaintiff should have asked the 1^st Defendant to return the money to him so that he could start his business of operating a factory in the Mainland in 1998;

(vi)   the 1^st Defendant only disclosed the alleged trust to the OR about 5 months after the making of the bankruptcy order;

(vii)   the 1^st Defendant first disclosed to the OR that she was holding cash of HK$900,000 on trust for her friend, and such figure did not tally with the sum of HK$930,000 later claimed by the Plaintiff as the subject of the trust; and

(viii)   the Plaintiff did not take any action to recover the money in the Deposit Box in the period from 2004 to 2007.

12.  In their testimonies, both the Plaintiff and the 1^st Defendant try to offer some explanations for such doubts.  In respect of how the Plaintiff got the cash of about HK$930,000, he confirmed that the money came from: (i) proceeds of sale from a property in Vancouver; (ii) some of his Canadian bank accounts not frozen by court order; and (iii) his cash at hand.  Due to the passage of time, he does not have a clear recollection of the exact details about the source of the fund.  As to the reason why he entrusted the money to the 1^st Defendant, the Plaintiff testifies that through the introduction of a common friend, he came to know the 1^st Defendant and found her to be a trustworthy person.  As the money was reserved for his mother and daughter, he did not use the money to start his business in the Mainland in 1998.  Further, as he did have any pressing financial needs, he just let the 1^st Defendant to keep the money for him for all these years.  Regarding the discrepancy in the exact amount of the trust money, the Plaintiff explains that the money was given to the 1^st Defendant in a few batches with some of the cash in different currencies.  Due to the passage of time, the Plaintiff and the 1^st Defendant might have different recollections as to the exact amount of cash at the Deposit Box, and that explains the discrepancy in the figures.  Finally, the 1^st Defendant disclosed the trust arrangement to the OR at the first opportunity when she filed the Preliminary Examination Questionnaire, and the Plaintiff also informed the OR about his claim without much delay.

13.  Despite these explanations, I still have doubt in my mind as to whether the Plaintiff and the 1^st Defendant had told the court the whole truth about the money in the Deposit Box.  In particular, I have some reservation about the exact relationship between the Plaintiff and the 1^st Defendant.  Nevertheless, there is some degree of truth in the Plaintiff’s allegation that the whole purpose of creating the trust was to conceal the money from his former wife, and that was why the Plaintiff was prepared to sacrifice the interest or the dividend associated with the more productive use of the money.  On the other hand, if it was a deliberate plan of the 1^st Defendant to put her own money beyond the reach of her creditors, it would have been much better for her to keep the cash at her own home, rather than putting it in the Deposit Box which might be frozen by the Bank any time after the commencement of the bankruptcy proceedings.  Further, by trying to conceal the asset from the creditors, there should have been some discussion between the Plaintiff and the 1^st Defendant about the plan in 2002.  With the plan then freshly in their minds, one would not expect them to make any mistake about the exact amount of the money in the Deposit Box.  In my judgment, the mistake made by them actually supports the Plaintiff’s allegation that the trust money was given to the 1^st Defendant quite some time ago.  As they did not pay much attention to the casual arrangement between friends, the Plaintiff and the 1^st Defendant made a genuine mistake about the exact amount of the trust money.  Lastly, after reading the documents about the proposed voluntary arrangement supplied by the 1^st Defendant, I accept her evidence that there had all along been great hope for her creditors to accept her debt restructuring proposal.  In such case, it seemed less likely that the 1^st Defendant need to put money in the Deposit Box to defraud her creditors.

14.  Based on the aforesaid reasons, I find in favour of the Plaintiff on the balance of probabilities and make the declaration that the money inside the Deposit Box has been and is still held by the 1^st Defendant on trust for the Plaintiff.

Costs

15.  Mr. Cheung, counsel for the Plaintiff, submits that there should be no order as to costs about the present proceedings.  On the other hand, Mr. Suen contends that the Plaintiff should pay the costs of the OR.

16.  As the trustee in bankruptcy of the 1^st Defendant’s estate, the OR has a statutory duty to manage the estate of the bankrupt.  In discharging such duty, it would only have been reasonable for the OR to take part in the proceedings and to present an objective view for the court to make a considered and balanced decision in respect of the Plaintiff’s claim.  Without the benefit of hearing from the OR, the court would have been put in the most difficult position of having to make a ruling based on the unilateral assertions of the Plaintiff.  Further, the OR has all along been acting reasonably in the course of the present proceedings.  There are doubts about the Plaintiff’s allegation and it is the duty of the OR to raise the weaknesses of the Plaintiff’s case for the consideration by the court.

17.  In Angel Lee Oi Sheung v Queenie Leung Wai Ling and Others, unreported, HCMP 2668/2006 (decision of Sakhrani J. on 4 May 2007), the plaintiff there was asking the court to make a similar declaration that the money in the 2 safe deposit boxes in the joint names of the 2 defendants, one of them had been adjudicated bankrupt, were held by them on trust for the plaintiff.  The OR had also applied to be joined as a party in the proceedings.  After considering the evidence, Sakhrani J made the declaration as sought by the plaintiff, who voluntarily agreed to pay for the costs of the OR.  In another case, Best Sheen Development Ltd. v Official Receiver [2001] 1 HKLRD 866, the plaintiff, a land developer, applied to the court for a declaration that certain land in the New Territories was held by an indigenous villager on trust for it.  The arrangement between the plaintiff and that villager was somewhat illegal as it involved a contract to commit a civil wrong, namely the tort of misrepresentation on the Government.  However, as the declaration of trust constituted an express trust which could be enforced by the plaintiff irrespective of the illegality, Yuen J, as she then was, made the declaration as sought by the plaintiff.  On the issue of costs, Yuen J took the view that the proceedings were of the plaintiff’s own making.  As the plaintiff devised the scheme and concealed the trust for its own gain, the OR was acting properly when he required the plaintiff to prove its case.  The learned judge therefore ordered the plaintiff to pay for the costs of the OR.

18.  In my judgment, the observation made by Yuen J in Best Sheen is also applicable here.  The purpose of the trust was to assist the Plaintiff to conceal his asset from his former wife.  Although I am not sure whether the Plaintiff had breached any order made by the Canadian court, these proceedings were certainly of the Plaintiff’s own making.  As the OR has a public duty to administer the estate of a bankrupt and the OR has all along been acting reasonably in the present proceedings, I order the Plaintiff to pay for the costs of the OR.

19.  Mr. Suen is inviting the court to make a gross sum assessment of the OR’s costs.  However, without listening to the Plaintiff’s submission on this particular application, I am not prepared to make such assessment at this stage.  I therefore direct that any application for gross sum assessment of costs should be made within 14 days from the date of the handing down of this judgment.  In the absence of such application, the OR’s costs would be taxed in the normal way if not agreed.  I also make an order nisi that there be no order as to costs between the Plaintiff and the 1^st Defendant which shall be made absolute 14 days after the date of the handing down of this judgment.