MA HON WAI AND ANOTHER v. TSUI EDWARD AND ANOTHER

DCMP 4504/2021

[2024] HKDC 259

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 4504 OF 2021

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JUDGMENT

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Introduction

1.  This is the judgment of the court after hearing a trial of an Originating Summons under Order 28 of the Rules of the District Court. The case concerns a property scam in respect of a property situate at 7^th Floor, No 3 Hing Yan Street, Kowloon, Hong Kong (“the Property”).

2.  The plaintiffs are the older and younger brothers, now aged 61 and 57. They received the property from their parents (as tenants in common in half equal shares) in 1987 by way of a vesting assignment. In fact, the Property had already been declared by their parents to be held in trust for them in 1970 (by way of a contemporary declaration of trust) when their father purchased the Property in the joint names of the parents as joint tenants.

3.  The family lived in the Property until the 1990s when they moved out. The 2^nd plaintiff had his own family, and the 1^st plaintiff had been living with their mother since their father passed away. They both had their own accommodation elsewhere. Since then, they have rarely visited the Property, except for the 2^nd plaintiff who goes there once in a few years to pay for the government rates/rents. The Property is in a poor and dilapidated condition. They do not live there and have not rented it out, and the Property has been empty for all these years. The Property was left unoccupied pending acquisition for redevelopment.

4.  One day in early July 2021, the police called and informed the plaintiffs that the Property had allegedly been sold to one Edward Tsui, the 1^st defendant herein. The plaintiffs were shocked as they had never sold or signed any conveyancing documents to sell the Property and the title deeds of the Property had all along been in their custody.

5.  According to the Press Statement issued by the Law Society of Hong Kong on 25 November 2021, the police reported their investigation into alleged fraudulent transactions involving properties worth over HK$60 million at a press conference in September 2021. The police investigation revealed that Messrs Flora Lam & Co and Messrs Li & Associates were allegedly handled those property transactions. The Law Society had subsequently conducted its own investigation and concluded that it had reason to suspect dishonesty on the part of the two solicitors’ firms that had allegedly signed off on the conveyancing documents as the witness to the allegedly forged signatures of vendors. Given the seriousness of the findings of its investigation, the Law Society exercised its power to intervene into the practice of the two firms. It was also reported in newspapers that the police had arrested 12 people in connection with the fraudulent transactions involving 8 flats. Since the purchase and sale of the Property were also handled by the same two firms and the transaction was seized by the police, it is indisputable, as per the plaintiffs’ case, that the Property is one of the properties concerned.

6.  The 2^nd defendant is the father of the 1^st defendant. He purchased the Property for the 1^st defendant and attended the solicitors’ office together when the 1^st defendant signed as the purchaser.

7.  The defendants’ case was that it was an ordinary sale and purchase transaction, although it involved loss of title deeds by the vendors and a mortgagee sale of a foreclosed unit (銀主盤). There was, said the defendants, nothing unusual about the transaction. The defendants did not admit that the plaintiffs had not signed the Provisional Sale and Purchase Agreement dated 10 November 2020, the Formal Sale and Purchase Agreement dated 23 November 2020, the Statutory Declaration (for loss of title deeds) dated 23 November 2020, and the Assignment dated 16 December 2020 (collectively “the Conveyancing Documents”) and put the plaintiffs to strict proof of any forged signatures.

8.  At the trial, the plaintiffs were represented by Mr Simon Lam of counsel, and the defendants were represented by Mr Paul Wong of counsel. The defendants’ current solicitors are Kevin L H Kwong & Co, not their conveyancing solicitors Flora Lam & Co which has now ceased operation.

The issues

9.  The parties agreed that the issues for the trial were as follows:

(1)  Whether the Conveyancing Documents were signed by the plaintiffs or by the imposters;

(2)  If the Conveyancing Documents were signed by the imposters rather than the plaintiffs, then whether the defendants could rely the doctrine of “bona fide purchaser for value without notice” to defeat the plaintiffs’ claim?

(3)  Whether in particular or in general, who bears the burden of proof?

10.  The defendants have dropped their claim for unjust enrichment with respect to the renovation works carried out on the Property after the closing of the transaction. Likewise, the plaintiffs also agree not to pursue their claim for mesne profits against the defendants.

11.  Therefore, the issues of this case have been succinctly confined.

Order 28 rule 4

12.  The Originating Summons was originally set for one day for a substantive hearing before this court. There were 3 affirmations made by the 2^nd plaintiff and 2 affirmations made by the 2^nd defendant.

13.  At the beginning of the hearing, I expressed my concern that this court was not satisfied that the 1^st plaintiff could simply rely on the 2^nd plaintiff to make affirmations on his behalf for the purposes of these proceedings. As there was a serious dispute as to the execution of the Conveyancing Documents and the 1^st plaintiff was apparently one of the signatories as a co-owner, I granted leave to the 1^st plaintiff to file his own affirmation denying his signing of the documents.

14.  Having considered rounds of conflicting affirmations made between the parties, the plaintiffs offered in the 3^rd Affidavit of the 2^nd plaintiff that they were prepared to make themselves available for cross-examination by the defendants on all matters in dispute during the substantive hearing of the Originating Summons. The defendants did not entertain this offer.

15.  In fact, the defendants objected that the court should not hear any oral evidence from the plaintiffs on the ground that the originating summons process was intended for summary disposal of the matters, and as such the plaintiffs had to prove their case on the basis of affidavit evidence only. Mr Wong submitted that any enquires made by the court of the plaintiffs as witness would prejudice the defendants’ case.

16.  I was unable to accept Mr Wong’s submission. The court has power under Order 28 rule 4(1) of the RDC to dispose of the matter summarily if it is satisfied that no triable issues of fact are raised. But if there are genuine or substantial factual disputes that cannot be resolved on affidavit evidence, the court has the power under Order 28 to give directions for evidence to be taken orally, including cross-examination of the deponent under Order 28 rule 4(3) (King Wong Development Limited v Yat Fat Limited, unreported, HCMP 658/2013, 9 January 2014, per DHCJ Marlene Ng (as she then was) at paras 53-54).

17.  I considered that the factual dispute between the parties could not be practically resolved without hearing oral evidence. It was of the court’s view that the present Originating Summons should be heard partly on oral evidence and partly on affidavit evidence. I ordered the hearing to be part-heard with oral evidence to be taken on the return day with cross-examination of all the deponents of affirmations.

Burden of proof

18.  It may be convenient to first deal with the issue of burden of proof.

19.  Mr Lam submits that the defendants were wrong to place a great deal of emphasis on the issue of the burden of proof in his written submissions. He submits that the court would only turn to the burden of proof as a last resort in some exceptional cases where the state of the evidence was so unsatisfactory that the judge could not reasonably make a finding one way or the other on a disputed issue. He refers to Phipson on Evidence, 20^th Ed (2022), at para 6-07 for the burden of proof in civil cases:

“While a judge or tribunal of fact should make findings of fact if it can, in exceptional cases it may be forced to the conclusion that it cannot say that either version of events satisfies the balance of probabilities. In such a case the burden of proof may determine which party succeeds. The judge or tribunal of fact may only dispose of a case on this basis if it cannot reasonably make a finding one way or the other on a disputed issue. A judge should only do this where the state of the evidence is so unsatisfactory that no other course was open to them.”

20.  On the contrary, Mr Wong submits that when the plaintiffs allege forgery, the burden rests on them to prove the same. There is no burden on the defendants to prove the otherwise. Mr Wong relies on Emmanuel v Avison [2002] EWHC 1969 (Ch), per Birss J at paragraphs 54 to 57 (to which I will refer below).

21.  Both counsel submissions touch on the very important question: where does the burden of proof lie? On the one hand, the general rule is that the party who asserts must prove (Phipson on Evidence, para 6-04). The plaintiffs must prove the forgery when they claim that they did not sign the Conveyancing Documents. On the other hand, the defendants rely on the very documents to assert their legal title. It would seem that the defendants would also have the burden of proving the due execution of those documents. This issue has been hotly contested between the parties in every aspect of the case as to whose onus to call or adduce evidence. For instance, the plaintiff complained that a number of eyewitnesses to the signatories had not been called by the defendants to testify, whereas the defendants insisted that they had no general duty to disprove forgery. I shall deal with this issue hereafter.

22.  Meanwhile, it is important to bear in mind the basic principle, as stated in Phipson on Evidence, para 6-06, that:

“The burden of proof is fixed at the beginning of the trial by the state of the pleadings, and it is settled as a question of law, remaining unchanged throughout the trial exactly where the pleadings place it, and never shifting.”

23.  In Emmanuel, the claimant claimed that she was a victim of fraud. She sought, inter alia, declarations that her signatures on the legal charge and the loan agreement were forgeries and not binding on her and that she was not indebted to the defendants under the loan agreement. The trial judge concluded that the case was one of those cases in which it was not possible to say where the truth lies on the key issue and so he decided the matter on the burden of proof. Since he had held that the burden was on the claimant, the claim failed. The claimant appealed. In relation to the question of where the burden of proof lies, it was common ground between the parties that the general rule is that they who assert, must prove. The claimant accepted that it was her case that she did not enter into the loan or charge, and the burden of proving such allegations was on her. However, the claimant contended that if the defendant brought a claim to enforce the loan agreement then they would have to prove that the contract was entered into by the claimant. It followed that it did not matter who was the claimant or the defendant. Birss J, in hearing the appeal, did not accept that argument, and held that the burden of proof lay with the claimant:

“54. The legal rule is, as counsel for Ms Emmanuel submits, that where a given allegation, whether affirmative or negative, forms an essential part of a party’s case, the proof of such allegations rests on them. However in my judgment the proper application of that rule in this case does not help Ms Emmanuel. Putting it another way, there is nothing about the facts of the present case which means that the general principle that they who assert must prove does not apply in its simplest way. Ms Emmanuel has brought this claim. In it she is asserting that her signatures on the documents are forgeries, and that she was not indebted to Mr and Mrs Avison. Ms Emmanuel seeks declarations to that effect and an order to alter the register accordingly. Prima facie, the burden of proving those facts is on her.”

And the reasons are apparent from the following passages:

“55. I agree with counsel for Ms Emmanuel that if instead Mr and Mrs Avison had sued Ms Emmanuel to enforce the loan agreement then they would have to assert, as part of that claim, that it had been entered into by Ms Emmanuel and, assuming the assertion was denied or not admitted, the burden of proof would lie on them. However I do not agree that point provides the answer to the problem in this case. Part of the argument on Ms Emmanuel’s behalf was that it cannot matter who is the claimant or the defendant. I do not accept that. The reason why not is that one function of the burden of proof is to operate as a rule of law which determines the outcome of a claim in certain circumstances. A claim is a claim for relief.

56. I recognise that in a case like this, one may end up with the unsatisfactory result that Ms Emmanuel cannot prove she did not enter into the loan, but neither could Mr and Mrs Avison prove that she did. Moreover it would mean that Mr and Mrs Avison have the benefit of a legal charge which, on this assumption, they cannot prove Ms Emmanuel accepted. However considerations of this kind are the reason why the courts strive to avoid deciding cases in this way; they are not a justification for a different approach to the onus of proof.

57. Therefore the judge was right to find that the burden of proof lay with Ms Emmanuel on conventional principles. …”

24.  I agree with what Birss J said, respectfully noting that the likely unsatisfactory result that neither party can prove its case is not a justification for a different approach to the onus of proof. I agree that “a claim is a claim for relief.” It cannot be denied that one function of the burden of proof is to operate as a rule of law which determines the outcome of a claim in certain circumstances. In this regard, I accept Mr Wong’s submission that the burden of proof lies on the plaintiffs to prove forgery.

25.  Having said that, it does not mean that I disagree with Mr Lam’s submission. I particularly agree with him that this court may not need to resort to the burden of proof to decide on the issue of forgery where there is overwhelming evidence to support a proper finding. I accept that this is the correct approach for the court to take in determining the disputed issue. This is not inconsistent with my finding that the burden of proof on forgery, which the court has borne in mind, was on the plaintiffs.

26.  As to the burden of proof for the defence of bona fide purchaser, it is not in dispute and I so find that the burden lies on the defendants to prove that the 1^st defendant was a bona fide purchaser for value without notice. I shall call this the second stage burden.

27.  As to the first stage burden, it still remains on the plaintiffs to prove the forgery.

Calling the witnesses

28.  Both parties accused the other of failing to call additional witnesses or to adduce evidence other than that of the parties themselves. Both invited the court to draw adverse inferences against each other. I shall state my view first.

29.  Here, at the first stage burden of proving forgery, it is the plaintiff’s responsibility to produce evidence and convince the court that the document in question was indeed forgery. If the defendant does not call a witness who could reasonably be expected to rebut the plaintiff's allegation of forgery, this may only weaken the defendant's position, as the court may consider this as a lack of evidence to counter the plaintiff’s claim. There is no general responsibility for the defendant to call any witness to disprove the same. The court will not draw adverse inference on the defendant’s failure to call witness. However, it is for the court to evaluate the evidence presented by both parties and make a decision based on the strength of the evidence.

30.  At the second stage, the burden of proof is on the defendant to produce evidence in support of his defence. It will be the defendant’s responsibility to call the witnesses who could reasonably expect to be called, failing which the court may draw adverse inference against the defendant’s case if there were no good reasons why they were not called.

Proving the forgery

The loan agreement

31.  The 2^nd plaintiff gave evidence to support the plaintiffs’ claim. He denied ever having signed any of the Conveyancing Documents. In response to the defendants’ allegation that the 2^nd defendant had been informed by the estate agent that “the younger brother” was a heavy gambler and had incurred various debt, and that the plaintiffs had to borrow money from the finance company, the 2^nd plaintiff denied these allegations and told the court that he was an engineer and his monthly income was HK$200,000. This evidence of his profession and income was not challenged. I accept the 2^nd plaintiff’s evidence as a matter of fact. His courteous and fair manner during the exchange with the court would support this. And I give no weight to and reject the hearsay evidence given by the 2^nd defendant in relaying what was said about 2^nd plaintiff by the estate agent.

32.  It is also important to note that the alleged loan agreement would not support the defendants’ case that this was a mortgagee sale for a foreclosed unit. The 2^nd plaintiff was given a copy of the loan agreement from the police during the police interview. The loan agreement was allegedly made between King Tat Finance Limited as lender and Ma Hon Wai and Ma Hon Ngai (namely the plaintiffs herein) as borrowers. The payment terms are as follows:

(1)	Loan Amount:	HK$3,800,000
(2)	Interest Rate (p.a.):	12.00%
(3)	Total Tenors:	12 monthly repayments
(4)	Installment Amt:	HK$38,000
(5)	Interest Method:	Interest only
(6)	Loan Date:	25 June 2020
(7)	1st Repayment Date:	25 July 2020
(8)	1st Repayment Amt:	HK$38,000
(9)	Last Repayment:	25 June 2021 ($38,000 as interest and $3.8M as principal)

33.  As the purported loan agreement provided that the initial 11 months was for the repayment of interest only, the repayment of the principal of HK$3.8 million was not yet due until July 2021. The date of the Provisional Agreement for the sale and purchase of the Property was 10 November 2020, which is about the time between the 4^th or 5^th instalment of HK$38,000 only. Given that the 2^nd plaintiff was a professional with high income, it seems unlikely that the plaintiffs would lack sufficient financial means to meet the monthly repayments resulting in the forced sale of the Property as alleged.

34.  More importantly, there was not even a shred of evidence to suggest that there was any mortgage entered into by the plaintiffs against the Property. Therefore, it could not have been a mortgagee sale or, in the absence of any court order for sale, a private treaty sale made by the creditor of the underlying loan agreement.

The forged signatures

35.  During the course of examination, I asked the 2^nd plaintiff to indicate to the court which part of the signature appeared to be forged. The 2^nd plaintiff was asked to compare the original signature he signed on the 1987 assignment, coupled with the more recent signature he signed on his affidavit, with the signatures that appeared on the each of the purported Conveyancing Documents and the purported loan agreement. The reason for this exercise is not for the court to conduct any forensic comparison of the signatures, but it is my view that, in the absence of handwriting expert evidence, the person claiming that his signature was forged could instantly identify which part of the signature has been falsified. The lack of handwriting expert’s assistance is not necessarily fatal in proving forgery, because sometimes even handwriting expert’s opinion would not be conclusive. Ultimately, it is for the court to decide whether it is more probable than not that the signatories were forged.

36.  The 2^nd plaintiff drew the court’s attention to the letters “M”, “N” and “g” of his signature. These letters were signed differently on the forged signatures. For example, the last stroke of the letter “N” was ended in an opposite direction to the correct one’s. In fact, I have also noted that each of the allegedly forged signatures appearing on the Conveyancing Documents was quite different in the overall size and shape. It just occurred to me that the imposter was trying hard to imitate the 2^nd plaintiff’s signature from the 1987 assignment, but was not quite successful. I am satisfied that all the signatures of the 2^nd plaintiff on the Conveyancing Documents are forged.

37.  The 1^st plaintiff also carried out the same exercise to compare his signatures in front of the court. He pointed out that the letter “H” of Hon was signed by the imposter with three strokes, whereas he always signed his name with the letter “H” with one stroke. I accept the 1^st plaintiff’s evidence that these were not his signatures at all.

38.  At this juncture, I should also mention that one should not lose sight of the fact that the plaintiffs did not receive any purchase money for the Property and they had and still have the title deeds in their possessions (they even brought them to court) but not lost. This would have a significant bearing on the authenticity of the signatures, as there was simply no legitimate reason for the plaintiffs to sign the documents.

39.  For the sake of completeness, I should also mention that there was an episode when the court noticed the signatures of the 2^nd plaintiff signed on his 1^st, 2^nd and 3^rd Affidavits are all in different formats. I confess that at one point I doubted whether this would undermine the plaintiffs’ case. To this, the 2^nd plaintiff explained that:

(1)  The 1^st signature he signed on the 1^st Affidavit was the same one as he signed on the 1987 assignment. He was under the impression that he had to sign in the same way as in the original style as shown on the 1987 assignment, even though he had adopted a new style of signature already. He apologised that it was his misunderstanding that this was required. He strikes me as an honest person. I find it believable as the purpose of making the 1^st Affidavit was the time the plaintiffs had just commenced the proceedings, and the crux of the proceedings was about forged signatures. It would just be prudent for him to sign the 1987 signature.

(2)  The 2^nd Affidavit’s signature was a short form that the 2^nd plaintiff used to sign at work. He said that as an engineer, he has to sign to approve a lot of plans and papers every day. He said that before signing the said affidavit, he had asked the solicitor whether he could sign the new signature that he was now using. I find nothing unusual at this point.

(3)  By the time he signed the 3^rd Affidavit, he said he had already forgotten which signature he was supposed to use. He then simply signed with the one he felt was the most secure, ie the bank signature. In my view, it is quite common to have a different or more formal signature when signing for bank accounts or other formal occasions.

40.  I fully accept the 2^nd plaintiff's explanation. This episode has not changed my view of the witness, who remains a candid and reliable witness.

41.  I have not forgotten the 1^st plaintiff whom I also find him as a credible witness too. He gave evidence in a sincere and straightforward manner.

42.  That being said, there are two more events I have taken into account:

(1)  The fraudulent transaction was discovered by the police during their own investigation. It was the police who informed the applicants that their signatures on the sale of the Property had been forged by an imposter.

(2)  The person who allegedly witnessed the plaintiffs signing on the Formal Sale and Purchase Agreement and the Assignment was one Mr Ip Chi Leung, a legal executive to Messrs Li & Associates. That Mr Ip had left the employment of the solicitors’ firm after the transaction. It was clearly stated in the Press Statement of the Law Society that “as a result of the investigation into Firm Li (Li & Associates), the Council had reason to suspect dishonesty on the part of a former employee of Firm Li who allegedly signed off on the conveyancing and legal charge documents as the witness to the allegedly forged signatures of vendors and borrowers …” I considered that the said Mr Ip must have been the ‘former employee’ mentioned in the Press Statement. Thus, I reject the defendants’ suggestion that the plaintiffs ever signed the said documents in the presence of anyone from the solicitors’ firm.

43.  Mr Lam submits, and I agree, that the defendants were not present when the documents were signed, so they cannot give any positive evidence as to who signed the documents.

44.  Mr Lam further complains that the defendants have refrained from calling a number of witnesses that they could reasonably be expected to call. These witnesses include, in particular, Ms Lui Lai Mui (“Ms Lui”), the estate agent, who allegedly brought the Provisional Agreement to the plaintiffs for signature. It was the defendant’s evidence that Ms Lui was available and he was able to talk to Ms Lui after the incident happened. Mr Lam urged the court to draw adverse inference against the defendants for failing to call Ms Lui as a witness. However, as I mentioned above, the defendants do not have the burden of proof at this first stage burden. It would be wrong for the court to draw adverse inference without regard to where the burden lies. But suffice it for the present purposes, I will give no weight on that part of the 2^nd defendant’s evidence. It was the defendants’ own choice to leave their evidence as weak as they intended it to be.

45.  Having considered all the above evidence, I find that all the signatures of the plaintiffs on the Conveyancing Documents and the loan agreement were forgeries.

The 2^nd defendant’s evidence

46.  The 2^nd defendant is now at the age of 55. He said that, since 2005, he had started to invest in the local real property market, mainly in newly built or fairly new buildings. In 2019, he began to invest in older buildings as he saw greater potential in them. Whenever he bought a property, he would renovate and decorate it before renting it out for rental income.

47.  In recent years, the 2^nd defendant would very often engaged a contractor Mr Chan Wah Fung (“Mr Chan”), who is also his personal friend, to carry out renovation works on his investment properties.

48.  In around 2019 or 2020, Mr Chan occasionally told him that he had bought a property from a mortgagee, where the owner was not able to repay the mortgage instalments and therefore the property was sold by the mortgagee to settle outstanding debts. He said Mr Chan referred to this type of property as “foreclosed unit” (銀主盤).

49.  It is also the 2^nd defendant’s evidence that Mr Chan told him the advantage of buying foreclosed unit is that its price is usually lower than the prevailing market price. Mr Chan also said that he personally knew well an estate agent Ms Lui who had sources of foreclosed units irregularly. He further said that he would invite the 2^nd defendant to view foreclosed units together in the future. The 2^nd defendant told Mr Chan that he was very interested in it and wanted to buy a foreclosed unit as well.

50.  On 9 November 2020, Mr Chan told the 2^nd defendant that the estate agent Ms Lui had a foreclosed unit available. The 2^nd defendant believed in Mr Chan’s words that the foreclosed unit could be a good investment opportunity. The 2^nd defendant understood that, if he bought a foreclosed unit, he needed to pay the whole purchase price in cash without the assistance of mortgage as the banks usually would not grant mortgage for foreclosed units.

51.  On the following day 10 November 2020, the 2^nd defendant joined Mr Chan, Ms Lui, and one Mr Lee, a representative for the mortgagee concerned, to have an inspection of the Property. At the Property, Mr Lee offered the Property for sale for HK$4 million. During this visit, the boss of the estate agency also came. Ms Lui then explained the background of the sale that the younger brother had got into trouble for gambling and had to sell the Property to repay debts with the elder brother’s consent.

52.  The 2^nd defendant said that he was attracted by the sea view of the Property, and thought that the Property could have a high potential for long term investment. The 2^nd defendant then immediately discussed the necessary renovation costs with Mr Chan, and, at the same time, Ms Lui urged him to make a decision for the purchase at the scene. Mr Lee also mentioned that all title deeds had been lost and certain steps had to be taken by lawyers to rectify that issue.

53.  The price was finally negotiated and agreed to be reduced to HK$3.85 million. Ms Lui then prepared the Chinese Provisional Sale and Purchase Agreement for the parties to sign. Mr Lee strongly advised the 2^nd defendant to instruct Messrs Flora Lam & Co as they had extensive experience in dealing with foreclosed units. The 2^nd defendant called his usual solicitors but they refused to undertake the conveyancing of the foreclosed unit. The 2^nd defendant followed Mr Lee’s advice to engage Messrs Flora Lam & Co as his conveyancing solicitors.

54.  The 2^nd defendant said he did not lose sight of checking the names of the vendors. He was shown a land search of the Property which stated the owners are “Ma Hon Wai and Ma Hon Ngai”, in line with the vendors’ name stated in the Provisional Agreement. Ms Lui told him that she would bring the Provisional Agreement to the vendors for their endorsement and then return it to him.

55.  The 2^nd defendant signed (for his son) the Provisional Agreement and issued a cheque in the sum of HK$385,000, being the 10% deposit of the purchase, payable to the vendors’ solicitors Messrs Li & Associates. He handed the cheque to Ms Lui for further handling.

56.  On the night of the same day, Ms Lui called him and said that the vendors had duly signed the Provisional Agreement.

57.  The 2^nd defendant’s evidence can be summarized as follows:

(1)  He learned about the investment in foreclosed units from his contractor Mr Chan;

(2)  The present mortgagee sale of the Property was introduced by Mr Chan and his acquainted estate agent Ms Lui;

(3)  There were 5 persons presented at the first inspection of the Property: The 2^nd defendant, Mr Chan (the contractor), Ms Lui (the estate agent), Mr Lee (representative of the mortgagee bank), and the boss of the estate agent company;

(4)  The 2^nd defendant (on behalf of his son, the 1^st defendant) signed the Provisional Agreement on the spot. Ms Lui then personally delivered the said agreement to the vendors for their signatures. The signed agreement was returned on the following day by Ms Lui to the 2^nd defendant for him to pass on to his solicitors;

(5)  The 2^nd defendant retained Flora Lam & Co as conveyancing solicitors. The 2^nd defendant together with the 1^st defendant attended the solicitors’ office to have the 1^st defendant execute the Formal Sale and Purchase Agreement and the Assignment. The plaintiffs vendors were allegedly represented by Li & Associates and signed the documents of which the defendants have no direct knowledge;

(6)  The 2^nd defendant paid the initial 10% deposit of HK$385,000 and the further deposit of HK$385,000 to Li & Associates and the balance of the purchase price of HK$3,008,000 to his conveyancing solicitors Flora Lam & Co. The 2^nd defendant also paid for the stamp duty in the sum of HK$577,500. The solicitors had given him receipts; and

(7)  Both solicitors’ firms were subsequently investigated by the police for fraudulent conveyancing transaction, and the Law Society of Hong Kong intervened in the practice of these two firms.

58.  Mr Lam submits that there are a number of matters that should have alerted the defendants or their solicitors that the purported sale was a sham:

(1)  According to the 2^nd defendant, the Property had a very old interior and was in an uninhabitable condition. It was obviously in a state of disrepair. The possibility of it being broken into and the question of vacant possession of the Property ought to have occurred to the defendants’ solicitors, if not to the defendants themselves.

(2)  Although the purported sale was described as the sale of a “foreclosed unit” by the 2^nd defendant, there was no mortgage action (Order 88) taken out by the finance company.

(3)  The title deeds of the Property were said to have been lost.

(4)  The Statutory Declaration (“SD”) made in relation to the alleged loss of title deeds for the purposes of this transaction is highly suspicious in that:

(a)  The SD was only executed by one of the purported owners (the 1^st plaintiff) and not by the other; there was no explanation as to why;

(b)  The SD was supposed to be signed only by the 1^st plaintiff, but it was also signed by the 2^nd plaintiff, but crossed out by the solicitor who administered the declaration;

(c)  The purported owner who made the SD did not say that he had made enquiries with the other co-owner;

(d)  Given the state and condition of the Property, the 2^nd defendant should have known that it could not be correct, as stated in the SD, that the title deeds had been kept at “home” all along and the home was stated as the address of the Property; and

(e)  Both the declaration clause and the interpretation clause referred to the declarant as "her" when in fact the 1^st and 2^nd plaintiffs are both men. The gender of the plaintiffs should be obvious from their Chinese names (馬漢威 and 馬漢毅).

(5)  The alterations made in the Formal Sale and Purchase Agreement and the Assignment were initialed by one party only.

59.  I agree with Mr Lam’s all these observations, except that, in my view, there was no strict requirement that a mortgagee must resort to Order 88 proceedings for mortgagee sale (see Bank of China (Hong Kong) Ltd v Ng Ai Keng Jasmine, unreported, HCA 741/2004, 11 November 2005). In that case, Chu J (as she then was) held that:

“21. … there is no need for the plaintiff to resort to Order 88 proceedings or to issue legal proceedings before it can take possession of and sell the Property. …

…

23. In China and South Sea Bank Ltd v Tan Soon Gin [1990] 1AC 536, the Privy Council held that a mortgagee could decide on its own interest whether to sell the mortgaged property and when to do so. The law only puts the mortgagee under a duty to take reasonable care that the actual sale price represents the proper or true market value of the property at the time of sale: Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 1 Ch 949.”

60.  In such circumstances, I would say (notwithstanding the fact that there was no mortgage being registered against the Property in the Land Registry) that if the purported sale was a genuine transaction, the mortgagee could have sold the Property without any court order for sale, but resorted only to a private treaty sale. Therefore, I do not consider the absence of O 88 proceedings to be a material point to be taken.

61.  Instead, I think that the proper question to be asked (as once raised by Mr Lam during closing submissions) is whether, if the purported sale was indeed a mortgagee sale for a foreclosed unit as the defendants contended, the vendors named in the Conveyancing Documents should be the mortgagee bank or the registered owners, as they now appeared in those documents?

62.  I find that the answer must be the former. If it had been a mortgagee sale, the conveyancing documents, eg the assignment, would have read as follows:

“BETWEEN

(1) XXX FINANCE LIMITED whose registered office … (“the Vendor”); and

(2) YYY (Holder of Hong Kong Identity Card No …) … (“the Purchaser”)

WHEREAS:

(1) By a Legal Charge dated … and registered in the Land Registry by Memorial No … (“the Mortgage”), the Property was mortgaged and/or charged by the Mortgagor to the Vendor for securing general loan facilities as more particularly set out in the Mortgage and subject to the terms and conditions and the proviso for redemption contained therein.

(2) According to the provisions of the Mortgage, the Vendor is entitled in certain events to sell the Property and events have happened which empowered the Vendor to sell the Property to the Purchaser on terms hereinafter contained.

NOW THIS DEED WITNESSETH as follows:

1. IN CONSIDERATION of the sum of HONG KONG DOLLARS … paid by the Purchaser to the Vendor (the receipt whereof is acknowledged) the Vendor as mortgagee in exercise of the power of sale conferred on it under the Mortgage and of all other enabling powers (if any) ASSIGNS to the Purchaser the Property TO HOLD …”

…

SEALED with the Common Seal of the	) [Common Seal]
Vendor and SIGNED by ZZZ, the director	) [Company Chop]
duly authorized by its Board of Directors	) [Signed]
whose signature is verified by:-	)

[Signed by solicitor]”

63.  In our present case, the Conveyancing Documents provided by the defendants all showed that the plaintiffs, not the finance company, were named as the vendors. I find it more probable than not that the imposters (whether or not the 2^nd defendant was a party to the fraud) must have been mistaken about the identity of the vendor in the purported mortgagee sale. The 2^nd defendant was also unable to provide a satisfactory explanation, other than to maintain the position that since the payment was made to the finance company, the finance company must be the vendor. In this regard, I find against the defendants’ case that it was sale of foreclosed unit by the mortgagee.

64.  It is also noteworthy that the purported loan agreement once appeared in a land search record of the Property produced by the defendant as a “deed pending registration” with date of delivery for registration of 14 December 2020, namely only two days before the Assignment dated 16 December 2020. The date of this land search record was 18 December 2020, which was made two days after the completion of the Assignment. Such evidence would suggest that the imposters or their solicitors were attempting to register the purported loan agreement in order to justify the purported mortgagee sale of the Property. However, the facts remain that there is no evidence that the registered owners (the plaintiffs) have any mortgage on the Property and the loan was not secured by any mortgage either. Therefore, a mortgagee sale against the Property is not possible.

65.  Moreover, I consider that there are also other oddities in the defendants’ case making it hard to believe.

66.  First of all, when 2^nd defendant was challenged by Mr Lam under cross-examination that whether the purchase payment should have been made to the vendors instead of the finance company, he abruptly replied that his version should be believed because he “had been working in the bank for more than a dozen years and was working in the loan department.”

67.  It was striking for the Court to hear this, as the Court's impression of the 2^nd defendant was that he was an amateur when it came to investing in foreclosed property. In his Affirmation, he described how, as a layman, he came to know about foreclosed units:

“In casual chatting with Mr Chan [his usual contractor and personal friend], he told me that the advantage of buying Foreclosed Unit (銀主盤) is that its price is usually lower than the prevailing market price. However, it is not usually available in the market. Once a Foreclosed Unit is put up for sale, the potential purchaser should act fast in grabbing the deal. He said he would invite me to look at a Foreclosed Unit in the future if the opportunity arises as he personally knows an estate agent who may have irregular sources. He added that he was also interested in buying more Foreclosed Unit if his financial means allowed. I replied that I would also be interested if the right opportunity arose.”

68.  I find it hard to believe that a bank manager or bank officer working in the loan department would have needed his contractor to tell him about what foreclosed sale unit was. When the court inquired further, the 2^nd defendant tried to explain that he had left the bank a long time ago in the year of 2000, and that foreclosed units were handled by a separate department, not the loan department. I do not accept his explanation and, as I had pointed out to him in court, it would be incredible for him to need someone else to tell him that the price of a foreclosed unit was cheaper. I considered that he had fabricated the story of how he came to know about the property. He tried to paint a picture that he was naive and innocent about the transaction. He fabricated a story to distance himself from any knowledge or involvement in the fraudulent transaction.

69.  It is also hard to believe that the 2^nd defendant, when he said that he was very diligent in checking the names of the owners against the names in the land search record shown to him by the estate agent, would have forgotten or failed to notice that there was no mortgage registered against the Property in the land search record. As a former bank manager, he would have made enquiries as to whether the finance company represented by Mr Lee had a power of sale. Apparently there was no evidence that this had been done.

70.  Mr Lam urged the court to draw adverse inference against the defendant’s failure to call Mr Lee or at least Ms Lui to give evidence. With respect, I do not accede to that. As I have explained above, in the first stage burden, it was the plaintiffs’ burden to prove forgery, the defendants cannot be blamed for any failure to call witnesses. All this court would say is that the defendants’ case remains weak when they had the opportunity to call any witnesses to rebut the plaintiffs’ case, but they chose not to do so. This court would give little or no weight to any hearsay evidence unless there were good reasons for not calling the witnesses.

71.  In conclusion, I find that the evidence was overwhelming and I therefore find that the purported sale and purchase of the Property was a sham, and the plaintiffs have not assigned the Property to the defendants. I find that the plaintiffs have discharged their burden of proving fraud in that they were victims of the fraud and that they never executed any documents in the sale of the Property to the 1^st defendant.

The bona fide purchaser defence

72.  Mr Lam submits that where a bona fide purchaser successfully and validly acquires legal title to a property, the bona fide purchaser doctrine will assist him in overriding any adverse equitable rights or interests in the property. However, if the purchaser fails to acquire legal title to the property, the doctrine is of no assistance. Nor does the doctrine override legal rights or interests. He places reliance on Snell’s Equity, 24^th Edn (2020), at para 4-018:

“The doctrine is most easily understood by an example taken from a disposition of unregistered land. A legal estate or interest was generally enforceable against any person who took the property, whether or not he had notice of it. This followed from the basic rule of priority that interests in property rank in the order in which they were created. If V sold to P land over which W had a legal right of way, P took the land subject to W’s right even if he was ignorant of it. But, historically, it was different for equitable rights: a bona fide purchaser for valuable consideration who obtained a legal estate at the time of his purchase without notice of a prior equitable right was entitled to priority in equity as well as in law. He took free of the equitable interest. In such a case equity followed the law; the purchaser’s conscience was in no way affected by the equitable right so there was no justification for invoking the jurisdiction of equity against him. Where there was equal equity the law prevailed.”

73.  I agree with Mr Lam that the legal proposition is correct.

74.  The next question Mr Lam invited the court to consider is whether the imposters were able to pass any legal title of the Property to the defendants? He submits that the answer must be no – Nemo dat quod non habet (no one gives who possesses not). He refers to Goff & Jones on Unjust Enrichment, 10^th Edn (2022), at paras 29-03 & 29-04:

“29-03 The law generally holds that no one can pass a better title to property than the title he has. At common law, this principle is encapsulated in the rule nemo dat quod non habet (“no one gives what he does not have”); in equity the principle informs the operation of the rule qui prior est tempore potior est jure (“he who is first in time is stronger in law”). However, the law also provides that in some exceptional situations a purchaser of legal title from a vendor whose title is defective will acquire legal title free of defects if he gives value and acts in good faith and without notice.

29-04 At common law the nemo dat rule invalidates many purported conveyances of property to which the vendor has no valid title, but the bona fide purchase exception operates in one frequently occurring case, namely where money passes into currency. When a bona fide purchaser provides goods or services in exchange for stolen money he acquires legal title to the money, and the original owner loses his legal title, even where the notes and coins are still identifiable in the purchaser’s hands. An early decision to this effect is Miller v Race, where Lord Mansfield emphasised that “trade and commerce … would be much incommoded by a contrary determination”. Hence the policy of the rule is to preserve the effectiveness of money as currency in the interests of maintaining an efficient market economy.”

75.  I agree with Mr Lam’s submission. I find that property scam would not be an exceptional situation like the money as currency under the policy of the rule. In a situation of property scam, the nemo dat rule still applies. Otherwise, our legal system would be undermined if an imposter could pass legal title of the true owner’s property to another.

76.  Mr Lam further relies on a Court of Appeal authority. In Rock Vast Investments Ltd v Naturary H Development Ltd & Others (unreported, CACV 182/2005, 27 June 2006), the plaintiff company sold certain units in Stanley Street, Central to the 1^st defendant. The provisional sale and purchase agreement, the formal sale and purchase agreement, as well as the assignment concerned were all signed by an estate agent on behalf of the plaintiff company. The Court found that, while the agent had proper authority from the plaintiff to sign and enter into the provisional and formal agreements, the assignment was executed without proper authority from the plaintiff, and was therefore null and void. The 1^st defendant then sold the properties to the 2^nd defendant, who claimed to be a bona fide purchaser for valuable consideration without notice of the agent’s lack of authority. Tang JA (as he then was), giving the judgment of the Court, said:

“36. Here, in signing and sealing the Assignment, Mr Cheng was on a frolic of its own.

37. Having regard to the 1^st defendant’s knowledge of Mr Cheng’s lack of authority, no question of estoppel against the plaintiff can arise. …

…

39. Although the Assignment was unauthorised and void, the provisional agreement and the formal agreement were not void. However, in the absence of any relevant estoppel, since the legal interest remained in the plaintiff, even if the 2^nd defendant was a bona fide purchaser for value without notice, the plaintiff being the holder of the legal interest would have priority.”

77.  Mr Wong submits that Rock Vast Investment should be distinguishable. He submits that, in our present case, since the 2^nd defendant had no knowledge of any fraud before the completion of the transaction, the 1^st defendant became the registered owner of the Property upon the completion of the transaction. He submits that the plaintiffs no longer remain as the legal owners of the Property but only have equitable rights to set aside all the Conveyancing Documents solely on the basis of forgeries.

78.  With respect, I am unable to agree with Mr Wong’s submission. The effect of registration the title documents in the Land Registry in Hong Kong was not like the registered land system in the United Kingdom. The mere registration of title documents in Hong Kong is only prima facie evidence to the ownership. The effect of the registration in Hong Kong is to facilitate the tracing of titles and to give priority of interests by way of registration of the relevant instruments. Registration under the Land Registration Ordinance does not effect or create any interest in land (Halsbury’s Laws of Hong Kong, Vol 35, 2022 Reissue, para 230.374).

79.  Having considered the above authorities, I find that the legal interest of the Property still remains in the plaintiffs and the doctrine of bona fide purchaser for value without notice is not applicable in the present case.

Factual findings on the bona fide purchaser defence

80.  In the event that if I were wrong in the decision above that the bona fide purchaser doctrine does not apply, I shall go on to make my finding on the defendant’s defence.

81.  In addition to the aforesaid findings, I would say that had it been necessary, I would draw adverse inference against the defendants for failing to call some or all of the key witnesses in proving their defence. In this second stage burden, it is for the defendants’ responsibility to call those witnesses who could reasonably be expected to be called. The defendants have failed to do so without providing any good reasons. I do not accept the 2^nd defendant’s explanation that he could, for the purposes of this trial, simply rely on the professional services of the conveyancing solicitors, namely the two firms which had been subject to intervention by the Law Society for dishonesty and fraudulent transactions.

82.  Although Mr Ip, the legal executive of Li & Associates, might no longer be located, it is the 2^nd defendant’s evidence that he was able to speak to Ms Lui after the fraudulent transaction incident was discovered. According to the defendants’ case, Ms Lui is the only remaining eyewitness who at least allegedly witnessed the plaintiffs signing on the Provisional Agreement, which were brought over by her for the plaintiffs to sign. I would draw adverse inference that there was no such delivery of the Provisional Agreement for the plaintiffs to sign. As such, I find that the defendant has failed to prove that the plaintiffs did sign on the purported Provisional Agreement.

83.  As to the absence of calling Mr Lee as witness, I would draw adverse inference that there was no default in the repayment of the purported loan agreement (if it ever existed) as suggested by the 2^nd defendant and that the purchase money did not go to the finance company.

84.  The court would also take into account that no enquiry was made by the defendants to the Law Society in respect of his purchase money paid to the two solicitors’ firms who intervened. The Press Statement of the Law Society produced by the 2^nd defendant clearly states that:

“11. In the meantime, the respective Intervention Agent will contact clients appearing on the records of the relevant firm to advise them of the situation and the steps they need to take in relation to their matters including the need to engage alternative solicitors and how to lodge claims for the return of money they have paid to any of the two Firms.”

85.  All of this would lead to the court’s finding against the credibility of the 2^nd defendant.

86.  I find that the 2^nd defendant is not a credible witness. I also find that the purported sale could not have been a mortgagee sale of a foreclosed unit as the defendants suggested. As such, I do not accept the defendants being victims of fraud. What is certain is that the 2^nd defendant lied about how he got involved in the purported sale of the Property. Bearing in mind that in order to carry out this property scam, the estate agent, the representative of the finance company, the conveyancing lawyers, and the purchaser each of them would have their role to play in making it happen. Mr Chan, Ms Lui and Mr Lee were witnesses who were expected to have material evidence to give on the issues of the action. It is the 2^nd defendant’s evidence that he was able to contact these witnesses but chose not to call them to testify. Not only does this leaves the 2^nd defendant’s evidence with no corroboration, it follows that the only reasonable inference is that the defendants have notice of the forgeries. Hence, I find that the 1^st defendant was not a bona fide purchaser for value without notice.

87.  I find that the defendants have not discharged its burden of proof for the defence of bona fide purchaser.

Conclusion

88.  For the foregoing reasons, I would allow the plaintiffs’ claim and grant the declarations sought, with possession of the Property.

89.  I make an Order in terms of paragraphs (1) to (6) of the Amended Originating Summons, with the amendment as follows:

(1)  In paragraph (6), adding “and the 1^st Defendant do delivery vacant possession of the Property to the Plaintiffs within 30 days of this Judgment”; and

(2)  Adding paragraph (7): The registration of the Formal Agreement dated 23 November 2020 and the Assignment dated 16 December 2020 be vacated forthwith.

90.  There be a Costs Order Nisi that the defendants do pay the plaintiffs’ costs of the Originating Summons, to be taxed if not agreed, with certificate for counsel.