TANG WAI CHO v. TANG WAI LEUNG

HCSD 7/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO 7 OF 2016

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AND

HCA 2207/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2207 OF 2007

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J U D G M E N T

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1.  In the underlying action (HCA 2207/2007), Mr Tang Wai Cho (“Cho”) claimed against Mr Tang Wai Leung (“Leung”) for beneficial ownership of a property on the ground of resulting trust. The claim was dismissed after trial with costs. Cho made a number of unsuccessful applications to appeal and to adduce evidence on appeal, for which he had to bear costs. Separately, Leung lost an interlocutory application before trial but successfully obtained costs for the appeal (which was dismissed because Cho could not provide security for costs).

2.  The net position is that Cho owed Leung costs of $727,388.60, whereas Leung owed Cho costs of $168,486.50 for the interlocutory application, at which point in time Cho was legally aided.

3.  Cho issued the present statutory demand for $168,486.50 against Leung. 

4.  Leung applied to set it aside on the ground that he should be allowed to set off costs owed by him against the costs owed by Cho pursuant to rule 48(5)(a) of the Bankruptcy Rules, Cap 6A.

5.  Cho disagreed, pointing out that all moneys payable to the respondent as a legally aided person should be paid to the Director of Legal Aid (“DLA”) under section 19A of the Legal Aid Ordinance, Cap 91, (“LAO”); and that under section 18A of LAO, DLA has a first charge against the money so recovered, unless a set-off was granted by the court under section 18A(4) of LAO.

6.  The sole issue is whether or not set-off of the costs between a legally aided person and a non-aided person is permissible.

The legal framework under the Ordinance

7.  Under section 18A(1) of LAO, DLA has a first charge on any property which is recovered or preserved for the aided person in the proceedings (“the first charge provision”).  Under section 18A(3)(a), such property includes any sums recovered under an order for costs made in the legally aided person’s favour with respect to the proceedings.

8.  Under section 18A(4) of LAO (“the set-off provision”):

“The charge created by subsection (1) on any damages or costs shall not prevent a court or the Court of Final Appeal allowing them to be set off against other damages or costs in any case where a solicitor’s lien for costs would not prevent it.”

9.  Section 19A provides as follows:

“(1)  All moneys which may become payable to an aided person–

(a)  by virtue of an order, including an order of the Court of Final Appeal, made in connection with the proceedings to which his legal aid certificate relates;

...

shall be paid or repaid, as the case may be, to the Director unless the Director by notice in writing to the person responsible for payment and to the aided person directs otherwise. (“the payment provision”) (emphasis added)

...

(4)  Only the Director shall be capable of giving a good discharge for moneys which may become payable to the Director under this section. (“the discharge for moneys provision”) (emphasis added)

(5)  In this section reference to an "aided person" (受助人) includes an aided person whose legal aid certificate has been revoked or discharged.”

10.  Section 19B(1)(a)(i) of LAO provides that “upon receipt of all moneys paid to him pursuant to section 19 or 19A, the Director shall retain any sum paid by virtue of an order or agreement for costs made in the aided person’s favour.”

11.  Regulation 9(6A) of the LA Regulations provides that:

“The Director has the right to enforce an order for costs in favour of an aided person made in proceedings for which the Director has issued a certificate, whether the certificate has been discharged or revoked, and the Director may bring proceedings in his official name in a court of competent jurisdiction to recover the costs ordered.” (“the enforcement provision”)

Development of the law in UK

12.  The English legislation has undergone various changes but do contain provisions substantially similar to the Hong Kong legislation, with differences which I will identify.

13.  The English courts have refused to grant set-off in Anderson and The Debtor v The Law Society; but granted set-off in Carr v Boxall; Cook v Swifen; Currie v Law Society; and Lockley.

14.  In Carr v Boxall [1960] 1 WLR 314, having considered the payment to Law Society provision and set-off provision, the court ordered payment or set off of the plaintiff’s taxed costs against the legally aided defendant’s award of damages standing in court. 

15.  In Anderson v Hills Automobiles (Woodford) Ltd [1965] 1 WLR 745, the court considered the payment provision and the discharge for monies provision and declined to order set-off.  Carr v Boxall was considered of no assistance because the provisions were not argued there.

16.  In Cook v Swinfen [1967] 1 WLR 457, at 463, set off of costs against damages was likewise permitted.  The Court of Appeal recognized that the contest for £1,100 damages awarded to the plaintiff was really between the Legal Aid Fund (which had a charge on damages) and the defendant who won on costs.

17.  In Currie & Co v The Law Society [1977] 1 QB 990 at 995, May J considered set-off to be permissible but declined to grant it as a matter of decision.  He considered the equivalent of the payment provision (payment to Law Society instead of to DLA), the first charge provision, the set-off provision and the enforcement provision.  He held that the mere fact that a party was in receipt of legal aid, or the existence of a charge in favour of the Law Society should not necessarily prevent the court from ordering a set off (p 997A). Upon proper construction, the court should in general exercise its discretion under the set-off provision to allow a set off of costs and/or damages, before giving effect to the first charge provision.  Prima facie there should be a mutual set off in the first place and only thereafter was the legal aid fund entitled to recoup itself out of the remaining balance.  Nevertheless, even though the discretion should generally be exercised in a particular way, the court still had discretion.  It remained a question of what was fair and just between the parties and the legal aid fund (pp 999H to 1000A).

18.  Referring to the conflicting decisions in Carr and Anderson, May J opined that if the set-off provision had been drawn to the attention of the Court of Appeal, Anderson would have been decided differently and that Anderson was decided per incuriam (pp 996F to 997B).

19.  Inexercising discretion,May J noted that the costs order was imposed on the plaintiff personally, pursuant to the court’s disciplinary power.  He considered that the real question was whom did the judge intend to compensate by the order made against the plaintiff personally.  The answer must be that the judge intended to compensate the legal aid fund.  To allow a set off would not achieve the object of that costs order and so set off was disallowed (pp 997C to 998B).  The court also interpreted Cook v Swinfen as a case in which the contest on costs was between the non-aided party to the litigation and the legal aid fund; and that it was only just and equitable that the privately funded litigant should be preferred to the fund itself, which had been set up not to penalize unassisted parties but to give assistance to those who needed it.

20.  In The Debtor v The Law Society (1981 WL 695915), 9 Feb 1981, CA, the husband owed his former wife (legally aided) costs in divorce proceedings. The wife became bankrupt and the husband acquired some of her debts pursuant to various assignments.  The Law Society issued a bankruptcy notice against the husband for the costs.  The husband sought to set off the costs against the debts acquired from the wife.  Templeman LJ considered the UK equivalent of the payment provision, discharge for monies provision and enforcement provision and refused to order set-off.

21.  The rationale of Templeman LJ was that the State having paid out solicitors, counsel and other expenses of litigation of an assisted person in the first instance, got its money back.  The money never belonged beneficially to the legally aided person (p 2). 

“[referring to Regulation 18(4), ie the enforcement provision] In my judgment this means that the assisted person never obtains the slightest entitlement as beneficiary to a single penny payable by virtue of an order in his favour for costs made after his legal aid certificate has been granted. Any order for costs is only made in the name of the assisted person for the purposes of identification and taxation. The money must be paid to the solicitor or the Law Society; the assisted person can neither sue, nor give a good receipt for the money; the Law Society can bring proceedings in its own name and ignore the assisted person altogether, and thus the money comes to the Law Society, or to the solicitor, and from them it goes straight to the Legal Aid Fund, to which it belongs by section 8(1) [of the Legal Aid Act 1974]. No set-off can arise, because the money never belongs to the assisted person; it belongs to the Legal Aid Fund, whence it is paid out in the first instance and comes back in due course.”

22.  This case did not refer to any of the precedents, nor did it discuss the set-off provision.  It may also be distinguishable on the ground that the debts acquired from the wife could not be regarded as “costs” or “damages” to which the set off provision could apply.

23.  Lockley v National Blood Transfusion Service [1992] 1 WLR 492 at 496, involved set-off of costs in interlocutory proceeding (which the legally aided plaintiff had to pay) against costs and/or damages of the main action which the plaintiff may recover. 

24.  Scott LJ considered the first charge provision and the set-off provision. He found that the set-off provision did not create any new right of set-off (and dissented from Currie to that extent) but simply preserved the position under general law against legally aided parties notwithstanding the legal aid board’s charge (p 495A-B).  An assessment of the amount that would be reasonable for the legally aided person to pay, was not a precondition of, and, indeed, had nothing to do with, set-off (p 496B-E).

25.  Scott LJ laid down the broad propositions that set-off of costs against damages or costs to which a legally aided person has become or becomes entitled in the action may be permissible.  The set-off is no different from and no more extensive than the set-off available to or against parties who are not legally aided. The broad criterion for the application of set-off is that the plaintiff’s claim and the defendant’s claim are so closely connected that it would be inequitable to allow the plaintiff’s claim without taking into account the defendant’s claim.  As it has sometimes been put, the defendant’s claim must, in equity, impeach the plaintiff’s claim (pp 496G to 497C).

26.  Applying those principles, Scott LJ considered that interlocutory costs incurred in the progress of an action to trial and ordered to be paid by a plaintiff to a defendant would in equity impeach the right of the plaintiff to recover from the defendant costs of the action ordered to be paid by the defendant.  A set-off of costs against costs, when all were incurred in the prosecution or defence of the same action, seemed so natural and equitable as not to need any special justification.  Scott LJ would expect a party objecting to the set-off to give some special reason for the objection.  It was less obvious that a set-off of costs against damages would always be justified. 

27.  Scott LJ considered Anderson to be no longer binding for the reason that there was no UK provision similar to the payment to DLA provision at the time of Lockley (p 496E).  This is distinguishable from the Hong Kong legislation.  Moreover, Scott LJ did not refer to the enforcement provision or The Debtor v The Law Society.  Accordingly, there are 2 English Court of Appeal authorities having different views on the set-off provision. 

Development of the law in Hong Kong

28.  In Chan Sai Lun Henry v Chan Wai Wah, Lily-Ann, CACV 96/1997, 15 May 2000, pp 6-8, a Master ordered that the issue of a certificate for costs of the legally aided D2 be delayed until she had paid (1) the non aided plaintiff a taxed sum of $90,820.50, and (2) other costs for which D2 was liable (estimated to be $3 million).  The order was akin to a set off.  DLA sought leave to appeal out of time.

29.  Cheung J (as he then was) opined, obiter, that there were merits in DLA’s intended appeal that sections 19A(1), 19A(4), 19B and Regulation 9(6A) arguably prevented set-off of costs by the plaintiff against costs awarded to a legally aided defendant (p 8).  He also observed, obiter, that if the condition imposed by the Master was set aside, it would mean that the DLA would be able to enforce the costs order in favour of D2 against the plaintiff when the plaintiff, for all practical purposes, would not have any prospect of recovering the substantial costs that had been ordered in his favour. However, leave to appeal was refused on other grounds.

30.  Cheung J has considered Anderson, Carr, Cook, Currie and Lockley.  Like Scott LJ in Lockley, Cheung J was alert to the fact that the payment to DLA provision applied to Anderson but not Lockley.  He did not, however, consider the impact of the set off provision on the other provisions that he relied on.

31.  Lockley was followed in other Hong Kong cases but none of these cases referred to the reasoning of Templeman LJ in The Debtor v The Law Society.  Set-off of costs in different but related employees compensation proceedings and personal injuries proceedings was ordered in Singh Harpel v Najib Transport, DCPI 494/2009, 23 November 2009, §§47-49 & 51, HH Judge Lok (as he then was).  Set-off of costs in the same proceeding was ordered in Yeung Kam Shing v ISS Eastpoint Facility Services Limited, DCEC 999/2008, §17, HH Judge Leung.

Proper interpretation of the relevant provisions in LAO

32.  Mr Maurice Chan submits that neither the legally aided party (by private settlement with the unaided party to set off each other’s payable costs)nor the court can circumvent DLA’s power.  He submits that if The Debtor v The Law Society had been brought to Scott LJ’s attention, Lockley might not have been decided in the way that was.  Likewise in Yeung Kam Shing.  He also submits that Anderson was correctly decided in accordance with the law at the time, similar to the Hong Kong law. Anderson applies and there should be no set-off.

33.  Mr Maurice Chan submits that the set off provision is not a statutory set off creating a new right against DLA’s first charge but a mere preservation of the general law; and that as such, it cannot “trump” the payment to DLA provision and discharge for moneys provision, as fortified by the enforcement provision.

34.  I note that the enforcement provision was added to the Regulations in 1995.  According to the explanatory note in the gazette, Reg 9A(6) is to make clear DLA’s right to recover costs where an order for costs is made in favour of a legally aided person.  In my view, the starting point is that the enforcement provision, read with the payment to DLA provision, first charge provision and discharge provision make clear that DLA (and no one else) is beneficially entitled to an order for costs in favour of a legally aided person.  The rationale is that DLA, having paid on behalf of the legally aided person, recoups as much as possible for the benefit of the legally aid fund: The Debtor v The Law Society.

35.  To vary this position, there must be a written direction from the DLA under section 19A(1).  I agree with Mr Maurice Chan that the legally aided party cannot, by private settlement, agree to a set-off of costs with the unaided party without DLA’s consent and that the payment provision is more strongly worded than the UK counterpart.

36.  Alternatively the position can be varied if there is a court order on set-off under section 18A(1) of LAO, notwithstanding the first charge provision.  The principles laid down by Lord Scott in Lockley (paragraphs 25-26 above) apply.  The reason is that the purpose of the LAO, as set out in its preamble, is “to make provision for the granting of legal aid in civil actions to persons of limited means and for purposes incidental thereto or connected therewith.”  LAO does not exist to penalize non-aided litigants: Currie. Set-off is only to the extent of costs that “may become payable” to DLA and DLA is not personally required to pay the non-aided person beyond that.  

37.  Section 19A(4) does not undermine the court’s power to grant set-off.  After set-off, it may be that no money becomes payable to the DLA, as in Yeung Kam Shing.  That would mean there is nothing for the DLA to enforce or give a valid discharge under section 19A. 

38.  I therefore disagree with Mr Maurice Chan that the set off provision cannot “trump” DLA’s rights under section 19A(1) and (4) and Reg 9(6A).

39.  By way of example, the set-off provision is useful in the following scenarios:

(a)  When both parties are legally aided;

(b)  When there are several applications, a claim and counterclaim, or related claims, between the legally aided person and the non-aided person, and the court directs set off of costs and pronounces a net order in favour of the legally aided person.

40.  However, it has to be borne in mind that equitable set-off is permissible for unliquidated claims (such as untaxed costs), but requires the cross-claims to be between the same parties and to be sufficiently connected: Hong Kong Civil Procedure 2017, Vol 1, §18/17/2.

41.  The statutory power of set-off is of course discretionary.  The test is whom did the cost order intend to benefit in the first place.  It is up to the party opposing the set-off to come up with reasons.  Currie (paragraph 17 above) should be followed.

42.  Singh Harpel was correctly decided.  After trial, the court allowed the defendant to set off costs that the plaintiff (then non-aided) had to bear in employees’ compensation proceedings against damages that the defendant had to pay the plaintiff (then legally aided) in personal injuries proceedings.  It was not a case of setting off costs payable by or to DLA.

43.  Yeung Kam Shing was also correctly decided.  The trial judge expressly deferred the question of payment out of monies in court until after taxation and set-off (§7) and DLA was permitted to make representation.  Accordingly, it could not be said that DLA has become beneficially entitled to the costs made in favour of the legally aided person meanwhile. HH Judge Leung held that the monies in court did not form property recovered for the purpose of the first charge.  As a result of the set-off, simply no money became payable to the legally aided person for the purpose of section 19A.

Ground for setting aside the statutory demand

44.  Neither DLA nor the court has directed set-off.  I am afraid this cannot be done now because the beneficiaries to the costs orders are different.  With regard to the taxed costs of $168,486.50, the payor is Leung and the beneficiary is DLA. With regard to the taxed costs of $727,388.60 (the bulk of it being pre-legal aid), the payor is Cho personally and the beneficiary is Leung. Leung cannot ask for DLA’s money to be applied to set off Cho’s liability.  There is no unfairness to Leung, because, instead of set-off, DLA has already paid Leung in full for costs incurred in the period covered by legal aid.  It may be different if DLA has not yet paid Leung all costs due under a court order.

45.  Since set-off is not available, there is no ground to set aside the statutory demand.

46.  After this hearing, as directed by this court, Cho has taken out a summons seeking a declaration that Leung is not entitled to set off his costs against Cho/DLA’s costs.  Although served with this summons, DLA has not taken a stance different to that advanced by Mr Maurice Chan.  Having regard to my views in paragraphs 32-45 above, I grant the declaration sought. 

Conclusion

47.  The application to set aside the statutory demand is dismissed.  I also grant an order in terms of Cho’s summons.  There shall be an order nisi for Leung to bear Cho’s (effectively DLA’s) costs, to be summarily assessed on 16 March 2017 on the papers.  There shall be legal aid taxation of Cho’s own costs.

48.  I do not think Leung refused to pay DLA out of spite or with a view to delay but because of a debatable view taken of the LAO.  Pursuant to rule 48(7) of the Bankruptcy Rules, I order that Cho/DLA be at liberty to issue a petition for bankruptcy only 28 days after this decision is handed down.

49.  I thank counsel for their able assistance.

HCA 2207/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2207 OF 2007

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BETWEEN

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J U D G M E N T

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Introduction

1.  Grand Court, 18 Caine Road, Mid-levels is an old building which is ripe for re-development.  A developer has appeared and it has purchased most, if not all, of the various flats in the building from their owners.  As is the case on such occasions, it has paid these owners a premium over and above the market value of their flats to secure of the purchases. This case is concerned with the Basement of Blocks A and B which, over the years, has been used as a shop.  I will refer to the basements at both blocks collectively as “the premises”.

2.  The developer has offered $17.5 million to purchase the premises.  This offer has been made to the Defendant who is the registered owner.  The Plaintiff is his eldest brother.  They come from a large family of , on my count, 9 brothers and sisters.  Not for the first time, money has caused enmity and discord in a family.  The Plaintiff says that he is the beneficial owner of the premises.  He provided all of the purchase price but asked the Defendant to take the purchase in his name for a number of reasons which I will need to explore.  He says that he is the beneficial owner and that the Defendant holds the legal title on a resulting trust for him.  Accordingly, he is seeking a declaration of trust to that effect in his favour. As beneficial owner, the Plaintiff does not wish to sell to the developer. In recent times he has operated a stationery shop from part of the premises, the other part having been sublet, also as shop premises.  He will not part with the premises.  He refuses to sell to the developer even though under the relevant Ordinance the developer, who now owns a sufficient number of the flats, may be able to force a sale of the premises to it.

3.  For his part, the Defendant says that it is he who purchased the premises using his own money.  He has counterclaimed for possession.  He wants the Plaintiff out so that he can complete the sale to the developer with whom he has entered into a provisional sale and purchase agreement.

4.  This therefore is what the case is all about, but as with all family disputes there is much background and history to be filled in by me in recounting the evidence in this most unfortunate dispute.

Background

5.  The premises were purchased in the Defendant’s name on 31 July 1991.  As Mr Wilfred Tsui, who appears for him, correctly observes neither brother is able to show that it was he who paid the purchase price.  The case must therefore turn on the credibility of the parties and their witnesses.  I will come to my assessment of the evidence once I have laid out the important aspects of the case as a whole.

6.  Although the case starts and finishes with the purchase in July 1991, but because the outcome of the case must turn entirely on whether the Defendant took both the legal and beneficial title to the premises as he says or, whether he agreed to hold the legal title as trustee for the Plaintiff as beneficial owner, the evidential journey which I need to undertake in determining that result begins in 1980 and finishes with the issue of the writ 2007.  What is called for therefore is an examination of the conduct of the parties from that first date, what they said and did thereafter, insofar as is necessary for the purposes of deciding the result and, of such documents as may be helpful in that determination.

7.  The demeanour of the witnesses is of assistance but, in deciding where the truth lies, it seems to me that the inherent probabilities of the facts which they seek to establish leading to how and why the purchase of the premises was taken in the Defendant’s name is going to be far more significant.

8.  As part of my review of the basic facts, it is important in this case to remind myself of the Plaintiff’s intellectual functioning.  After the first three days of the trial, he having completed his evidence in chief and shortly into his cross-examination by the Defendant’s then counsel,  I formed the view, at least provisionally, that the Plaintiff was labouring under substantial cognitive disabilities.  This all appears in the transcript of the evidence of the proceedings at that stage.  I concluded that it would be right to have the Plaintiff examined by a psychologist in order to determine whether I should appoint a guardian-ad-litem to represent him, this especially as the Defendant had been making offers to him to settle the action as to which the Plaintiff was saying that he was not interested in accepting any offer.  He was examined by Professor Peter Lee of Hong Kong University whose report is in the papers.  Professor Lee determined that the Plaintiff’s mental functioning was of low average intelligence although he laboured under a number of intellectual disadvantages.  Nevertheless, he was not mentally handicapped which would have required the appointment of a  guardian-ad-litem. Professor Lee suggested and recommended a number of ways in which the process of questioning should be conducted so that the Plaintiff could best understand the import of the questions being put to him and in that way he might give a proper account of himself as best as could be achieved.  In view of Professor Lee’s findings it was not possible to appoint a guardian-ad-litem and so the Plaintiff continued acting for himself represented by his experienced and competent counsel and solicitors.

9.  I mention all this again here because it seems to me that in my assessment of the Plaintiff’s evidence I need to make proper allowances for any perceived mental slowness on his part as well as determining, as best I can in all the circumstances, whether his low average intelligence may have caused him to judge things in a less realistic or sensible way than a person of, even a little, superior intellectual ability.  I need to have regard to all of this, judging his evidence broadly and as part of the whole of the evidence as presented not only by him but by all of the witnesses who have given evidence and in the documents that have been placed before me.

10.  Apart from these two brothers, the other principal witnesses are two of their uncles.  Mr Cheung Fook Min (uncle Min as he has been referred to) has sided with the Defendant and Mr Jackson Cheung Fook Chung (uncle Chung) with the Plaintiff.

11.  These two gentlemen, also brothers, have had a serious falling out.  But in 1977 they had been partners in a company called Bogo Industrial Company Limited which manufactured toys from premises at Chai Wan.  The Plaintiff worked for them.  Uncle Chung was then employed with Cathay Pacific and so the business was really run by uncle Min.  Chung would come and work whenever he could.  This factory closed down in 1980 because of rising costs.  After the closure Min and Chung resumed working together in a logistics company.  In the meantime the Plaintiff involved himself in selling off the old stock from the Chai Wan factory. He says he was successful at this and even set up and operated a stall at the Lunar New Year Market in Victoria Park.

12.  Thereafter, a new Bogo business was set up.  The Plaintiff has said that it was largely set up by him with assistance from uncle Min who was too busy to give this fulltime attention.  The premises (at Caine Road) were found and rented and it was from there that new Bogo was operated. Originally, the business traded in selling toys as a successor to the original Bogo business.  There is an issue as to the extent of the Plaintiff’s involvement in the establishment and operation of new Bogo.  He does and is entitled to rely on the fact that the Business Registration Certificate for new Bogo, set up as a partnership, is in his name [B2/1533-1534].  Uncle Min says this was because he was too busy to do this himself.  Min’s evidence is that it was he who set up and financed this business to provide a source of employment and income for his nieces and nephews.  He wished to provide for his sister’s family (she being the parties mother).  If they found themselves without employment, they could go to the premises and help out in the shop and in that way earn a wage. This was his motive in setting up new Bogo.  It is right to say that between late 1980 when new Bogo got going and 1985 when he went to Australia, the Plaintiff was ever present in running the business.

13.  In 1984, Min had his application to emigrate to Australia granted and he went to live there with his family.

14.  In 1985, the Plaintiff was encouraged to go and try his luck there as well.  At about this time the Defendant, who is considerably younger than the Plaintiff, had left school and he went to work at new Bogo with some supervision from uncle Chung who at that time had remained in Hong Kong.

15.  I have heard a lot of evidence about what happened to the Plaintiff whilst he was in Australia.  The Plaintiff in particular has sought to place much emphasis on this but, in my view its only importance is as part of the chronology.  I propose to take this shortly.  The Plaintiff started living with Min at his home in Canberra.  He says that Min abused his labour by working him hard and with little reward.  Whether that is true or not does not matter.  He then found other employment in Queensland as a kitchen hand and also worked in Sydney and even managed to save enough to buy a take-away fish and chip shop.

16.  What he is anxious to emphasise is that whilst in Australia he continued to keep in touch with Chung to see that all was going well with new Bogo.  An important part of his case is that he never relinquished his interest in the shop and the premises, the operation of which was being supervised by uncle Chung with the assistance of the Plaintiff’s brothers and sisters including the Defendant who was working there on his behalf and drawing wages from the takings.

17.  In time the Plaintiff met and married a Chinese/Vietnamese woman with a view to improving his chances of becoming a permanent resident of Australia.  The problem for him was that he had overstayed his leave to remain in the country.  At all events, he lodged his application which was considered and rejected.  One of the findings of the Australian immigration authorities was that his marriage was not a genuine one.  As a result he was required to leave Australia and to return to Hong Kong.  This was in April 1991.  He returned to Hong Kong on 5 May 1991.

18.  In terms of the chronology that matters this dovetails with the lead-up to the purchase of the premises which I must now consider in detail.

The Circumstances of the Purchase of the Premises

19.  It is convenient to start this crucial part of the narrative by recording that in February 1990 Chung also moved to Australia as so many Hong Kong residents had done in the run up to 1997.

20.  His evidence is that he had been left in charge of things at Bogo and that his nephews, including the Defendant, were looking after the premises, although the business was very much the Plaintiff’s being taken care of by him and the Plaintiff’s younger brothers.

21.  Contrary to that account is that of the Defendant who says that he was working there and running the business which included paying rent to the landlord.  In May 1991 during one of his monthly visits to the landlord’s offices in Mongkok to pay the rent he was asked whether he might be interested in purchasing the premises.  The asking price was a very reasonable $350,000 which he was able to reduce to $330,000.  He consulted uncle Min about the proposal and decided that he should proceed with the purchase.  He obtained a loan of $200,000 from his father and paid the initial deposit of $22,000 on 11 May 1991.  This was then followed by a further deposit of $44,000 on 22 July 1991 and the balance of $264,000 on completion on 31 July.  The purchase was funded from his own savings, the loan of $200,000 from his father and a further loan of $50,000 from his brother Tang Wai Hang.

22.  This part of the Defendant’s evidence, as to his ability to pay the purchase price, has not been the subject of great challenge although other parts of it have been, which I will need to refer to in a moment.

23.  The Defendant’s case therefore is uncomplicated. He had been the person operating the business in the run-up to the purchase. He had been paying the rent for the premises from the income of the business.  An offer to sell was made.  The price was good.  He was able to obtain loans totalling $250,000 from his father and brother.  He had the balance himself, saved following the sale for $140,000 of a property that he owned in the New Territories and was therefore able to complete the purchase in this way.

24.  The Plaintiff’s case is diametrically opposed. It is a completely different account.  It takes in the Plaintiff’s version of events as well as the evidence of uncle Chung and of a Mr Tam Mou Wai.  It also involves the circumstances of the purchase of a flat at Conway Mansion, Conduit Road as long ago as 1973 by uncle Chung and its re-sale in 1991, again by uncle Chung to Mr Tam Mou Wai who is related by marriage. 

25.  The Plaintiff had just returned to Hong Kong from Australia in early May 1991 when he received the offer to purchase the premises for $330,000.  He spoke to uncle Chung who told him that he would lend him $325,000 from which the $22,000 deposit was paid on 11 May.  This was done by the Defendant on his behalf.  The balance of the purchase price of $308,000 was paid by him to his solicitors on 22 July 1991 so that they might complete the purchase on his behalf.

26.  How the $325,000 was obtained, as a loan, from uncle Chung has led down a side-track which is mostly relevant to the credibility of uncle Chung and of the Plaintiff as well which, in turn, directly impacts on whether it was the Plaintiff or the Defendant who paid the purchase price for the premises.

27.  One of the unfortunate aspects of this dispute is that it has caused a deep rift not only between the Plaintiff and the Defendant as brothers but also between their uncles Min and Chung who are of course also brothers.

28.  In 1973 an opportunity arose to purchase Conway Mansion which was then a new building.  Chung’s case is that he had purchased and paid for the flat at Conway Mansion himself.  This is vehemently contradicted by Min.  He says that Chung was then only 22 years old and was earning his living as a meter reader with China Light and Power.  He could not possibly afford such a large outlay to purchase Conway Mansion.  In reply to this, Chung says he also earned additional income as a tutor to secondary school pupils and earned between $100 and $200 an hour.  In response Min says that this could not possibly be true.  Chung was only a Form 6 graduate himself who had not even matriculated.  It is absurd for him to suggest that he could have tutored Form 6 pupils and charged them between $100 and $200 an hour.  These claimed hourly rates would have been well in excess of anything that could be earned by even the best qualified private tutor in the early 1970’s.

29.  Min says that the purchase of Conway Mansion was taken as a family venture which included their parents.  Min says that being older than Chung he was well into gainful employment for some years and at the time had a workshop producing shoulder pads for garments which produced a good income.  As a result he was able to pay his share in that purchase and thereby had a one-third interest in Conway Mansion.

30.  I will attempt to resolve these differences once I have rehearsed the important parts of the parties’ respective narratives.

31.  The Plaintiff has given the following account of how he obtained the finance for the purchase of the premises.  Uncle Chung, if he is to be believed, sold Conway Mansion, in his own right, to Mr Tam.  Chung therefore had the $325,000 to lend to the Plaintiff which enabled him to purchase the premises.

32.  As to the deposit of $22,000, which he says he gave to the Defendant to pay on his behalf, this came from cash of AUD10,000 which he had brought with him from Australia.  In cross-examination, Mr Tsui asked him why he was carrying so much cash on him especially when, at that stage, the offer to purchase the premises had not been made.  He said that he might have needed it to spend on the aircraft or at the airport.

33.  As to the balance of the purchase price and why it was that he needed to borrow $325,000 from uncle Chung, he said that he had a $200,000 time deposit with his father which was yet to mature.  Mr Tsui asked why not use this money even if it meant losing the interest on the capital.  He said that his father had banked this money somewhere on the mainland, he did not know where, and that this particular deposit was one that could not be released until maturity even on payment of a penalty.

34.  The purpose of the $325,000 loan from uncle Chung was closely investigated by Mr Tsui which required him to question uncle Chung and Mr Tam who was called on the Defendant’s behalf.

35.  It is convenient to begin by considering Mr Tam’s evidence first because although called by the Defendant he has no particular interest to serve in this dispute.  He purchased Conway Mansion in 1991.  He was instructed by uncle Chung to pay a sum of money into the Plaintiff’s bank account, which is what he did. At the trial he could not recall how much it was nor the date of the payment into the account.  From the contemporaneous banking documents it is possible to say that he transferred $325,431.88 on 13 May 1991.  A crucial part of his evidence is that he had been told by the Plaintiff that this money was to assist in the Plaintiff’s renewed application to emigrate to Australia.  Despite being ordered to leave Australia he wished to re-apply to enter and for this purpose he needed to demonstrate to their authorities that he had money to maintain himself.

36.  The importance of Mr Tam’s evidence, that this is what he was told by the Plaintiff, cannot be under-estimated, contradicting as it does the Plaintiff’s account that it was to be used to fund the purchase of the premises.

37.  The Plaintiff has sought to explain this by saying that using the loan from Chung, given to him on Chung’s behalf by Mr Tam, to assist his emigration application had been his original intention which is what he had told Mr Tam but, he changed his mind once he discovered that the premises were being offered for sale, albeit that this offer became known to him just two days after his return to Hong Kong.

38.  Uncle Chung’s evidence, on the Plaintiff’s behalf, is that he had instructed Tam to make this payment to the Plaintiff from part of the proceeds of sale of Conway Mansion that Mr Tam owed him.  In this regard Chung’s evidence in the trial needs careful attention.  At the start of his evidence in chief he indicated that he wished to amend his witness statement in order to change the date of the telephone call with the Plaintiff concerning the loan of $325,000, so that the latter could purchase the premises.  The statement, as originally drafted, was that this conversation was after he had spoken to Mr Tam who had confirmed to him that the money had been paid to the Plaintiff’s account, that is to say after 13 May 1991.  I asked him why the change was necessary.  He responded that it was only a small amendment.  It is now said by Mr Tsui that far from being a small amendment it is one of great significance.  Without making the amendment Chung’s evidence would be inconsistent with that of the Plaintiff whose evidence is that he had obtained Chung’s agreement to lend him this money on 8 May 1991 to purchase the premises which was before payment of the initial deposit on 11 May.

39.  He was also asked why it was that only now, at the trial, he had sought to make the amendment.  He said that the first time that he discovered the mistake, and therefore the need to amend his witness statement, was when he made his supplementary witness statement which was on 10 July 2009.  Mr Tsui submits that if this is true then this would have been the time and opportunity to make the correction.  Nevertheless, this criticism in my view is of limited assistance to Mr Tsui because whether the amendment would be made then or at the trial was something that was in the hands of the solicitors representing the Plaintiff rather than the witness himself.

40.  Uncle Min’s evidence on this loan and its purpose differs from the Plaintiff’s and from uncle Chung.  His evidence is that at all times it was the Defendant who was the purchaser of the premises for himself.  Min had been telephoned about it by the Defendant and, given the attractive asking price of $350,000, bargained down by the defendant to $330,000, he encouraged the Defendant to purchase the premises.  As to the loan by Chung, he says this was entirely related to the Plaintiff’s emigration application.

The Plaintiff’s Case as to the Flow of Funds for the Purchase

41.  The amount of $325,431.88 was paid into his HSBC account by Mr Tam on 13 May 1991.  On 10 June 1991, he took that amount out by cashier’s order and paid it into his Standard Chartered Savings Account and 11 days later on 21 June 1991 converted this sum into AUD on a fixed one month deposit.  On maturity he says he converted this into Hong Kong dollars and paid $308,000 to his solicitors, this being the amount required to complete the purchase.

42.  These therefore are the financial facts as he presents them.  I have already observed that neither party is able to provide proof positive that the premises were purchased with money provided by him.  All they can show is that each had the means, in one way or another, to make the purchase.

The Plaintiff’s Reasons Why the Purchase Was Taken in the Defendant’s Name Rather Than His Own

43.  What is alleged by the Plaintiff is a trust that has arisen by operation of the rules of equity.  A resulting trust for which of course there is no trust document or other direct evidence save what he has told me in the course of his testimony.

44.  He has put forward three reasons for taking the purchase in the Defendant’s name.  Firstly, because he had a wife in Australia he feared that if she came to know of this property she could in divorce proceedings try and gets a share.  And so, he wished to hide it from her.

45.  The second reason is that because he had registered new Bogo in his name, as owner of the business, he feared that if the business failed creditors would look to his personal assets, including the premises, to claim what was owned to them.

46.  Thirdly, if he owned real property in Hong Kong then the Australian tax authorities might make some claim on his Hong Kong property.

47.  Each reason will fall to be examined once I complete my review of the evidence.

What Happened After the Purchase Until the Issued of the Writ

48.  Following his return to Hong Kong in May 1991, the Plaintiff returned to work in the Bogo business.  The Defendant was also concerned in the running of the premises as were other brothers and a sister.

49.  In terms of how the Plaintiff seeks to mount his claim, he places much reliance of his, in the circumstances, fortunate discovery in 1995 that the Defendant, who had since the purchase obtained a mortgage on the premises, had allowed the mortgage instalments to go into arrears.  Additionally, it was discovered by the Plaintiff that there was also outstanding an additional stamp duty payment on the premises.  What had happened was that although the original 1991 purchase price was an above board arms length transaction, the Revenue had determined that the premises were worth much more than the actual purchase price and levied additional stamp duty reflecting its own valuation.

50.  Arrears on the mortgage and non-payment of the stamp duty had come about because the Defendant had become unemployed, any income from Bogo being insufficient to maintain himself and the mortgage instalments, with the result that he could not make these payments.  It was left to the Plaintiff to settle this indebtedness to the mortgagee and to the Revenue.  The Plaintiff was upset to have discovered these arrears and paid them, he says qua owner of the Bogo business and as owner of the premises.  He had been upset by the fact that the Defendant had not told him about the arrears and that non-payment would have put the business at risk.  These arrears were by no means trivial, in the amount of $311,000.  The value of the premises had been assessed to be $2.6 million by the Revenue when it levied the claim for additional stamp duty.

51.  Thereafter, the business continued operating, mostly with the Plaintiff at the helm with, as I have said, some help from the siblings.

The Developer Appears

52.  Factually, the matter can be advanced to 2006 when the developer made its offer to the Defendant, as registered owner, culminating in the Plaintiff issuing the writ.

53.  Whilst this cannot affect the outcome of the action, both uncles have tried to mediate a settlement between the parties but without success.  The Defendant has told me, and this appears to have been the case from the inception of the dispute, that he is willing to share the $17.5 million equally with the Plaintiff.  Even if he is successful in the action he still intends to give the Plaintiff half.

54.  I can pay no attention to this because it does not bear on the merits of the action, but it explains what I have already drawn attention to which is that in March last year I had been told that offers had been made to the Plaintiff and given my doubts as to his mental capacity I adjourned the trial to have him examined by Professor Lee.

The Legal Principles That I Need to Apply

55.  What appears in the preceding paragraphs is in my view a sufficient recital of the evidence which presently I will need to discuss and come to a conclusion about.  Before I do so it will be helpful to set out what burden the Plaintiff needs to carry in order to succeed and what are the governing legal principles.  These would appear to be very clear. Certainly, both counsel are in agreement about them.

56.  The starting point is that when a person purchases property using his own money and directs that the property should be transferred into another person’s name, the law presumes that the property is held by that person under a resulting trust in favour of the one who provided the purchase price.  It is only necessary to refer to Dyer v Dyer [1788] 2 Cox Eq Cas 92 which is authority for this proposition and which has been followed ever since.

57.  What is of equal importance is how the burden of proof plays in establishing the existence of a resulting trust.  In Lee Tso Fong v Kwok Wai Sun [2008] 4 HKLRD 270 at p.282 (para.23), Deputy Judge To (as he then was), who was faced with a similar situation to the one before me and who had been referred to all the relevant authorities held as follows:

“Prima facie, beneficial ownership goes hand in hand with legal ownership. If a plaintiff seeks to divorce the beneficial ownership from legal ownership and to claim the beneficial ownership in the property which he purchased and transferred to the name of another, he must bear the burden of proving his equitable right which is inconsistent with the undisputed legal title. He may discharge that burden by proving an express trust. Or, he may be assisted by the presumption of resulting trust by proving that he paid the purchase price of the property. But, like all presumptions, the presumption of resulting trust operates only in the absence of evidence to the contrary. Once this presumption is raised, the party seeking to challenge it bears the evidential, but not legal burden, of adducing evidence to displace the presumption of resulting trust. That party may adduce evidence of a contrary common intention of making a gift. If that evidence is insufficient to displace the presumption of resulting trust, the presumption prevails. But if that evidence is sufficient to displace the presumption of resulting trust, the party who has the legal burden will fail unless he can prove the resulting trust.”

I apprehend this to be a correct statement of the law.  As I say, both counsel are also agreed that this is so.

Discussion of the Evidence

58.  After all the family history has been travelled over and how and why old Bogo and then new Bogo were established and operated, one needs to come to and attend very carefully to the Plaintiff’s reasons for putting the premises in the name of the Defendant.  This, of course, predicated on the basis that he was the true purchaser and that it was he who provided the purchase price largely from uncle Chung’s loan to him from the proceeds of sale of Conway Mansion.

59.  Additional to the three reasons that he has given, which I have set out in paras.43 to 47 above, the Plaintiff also says that the Defendant was a suitable person to hold the legal title on his behalf because he was then single and had no girlfriend.  This presumably meant that he had no wife in sight who potentially might claim against the premises in the event of divorce.

60.  Mr Maurice Chan submits that this reasoning by the Plaintiff is perfectly sensible.

61.  It really does strike me, contrary to Mr Chan’s submissions, that the three reasons offered by the Plaintiff for putting the premises in the Defendant’s name make no sense at all.  I reject them for reasons which I am about to give, and I reject them as an ex post facto, 16 years post facto (from 1991 when the purchase was taken until 2007 when the writ was issued), made up explanation for what purportedly had taken place.

62.  The notion that he wished to hide this purchase from his “wife” in Australia is fanciful.  The authorities in Australia had held his marriage to be a sham, it was not a genuine marriage, and I am satisfied that he knew that what he had contracted with the lady in Australia was a marriage of convenience.  The thought that this woman would then seek to litigate, in ancillary relief proceedings in the Australian divorce court, a share in the value of the premises is simply not worth reasoned contemplation.

63.  The second reason that, if Bogo as a business failed, creditors would look to him and his assets (the premises), as Bogo’s registered owner does not stand up to scrutiny.  There were so many ways that this could be done such as having the business incorporated or the premises being held by a registered overseas company, as so often happens in Hong Kong. In any event, Bogo’s business really does not appear to have contracted indebtedness of any size that would cause concerns about it becoming insolvent.  I am afraid that this is yet something else that he has thought of now (that is to say in 2007) to justify a false case.

64.  His third reason is even more far-fetched.  He says that he feared that the Australian tax authorities, if they heard that he owned real property in Hong Kong, might come after him.  The simple fact is that he had been ordered to leave and his “marriage” to an Australian had been held to be a sham.  The Australian authorities did not want anything further to do with him.  This reason is pure fiction.  It has no substance whatsoever.

65.  As to his choice of the Defendant a single man, this simply fails to address the point that he would one day marry, which is what has happened.  This is just another made-up reason.

66.  The simple truth of this case is that the Plaintiff has decided that this offer of $17.5 million for the premises, where he had worked for so many years before he left for Australia and also following his return, was simply too good to be passed over and left to the Defendant, his younger brother.

67.  The facts are as uncle Min and the Defendant have given them in their evidence.  The Plaintiff left Hong Kong behind in 1985 for the hope of a new life in Australia which, unfortunately for him, ended in failure and his removal from there.  When he left, all he left behind was new Bogo, a very modest business operating from a basement in an old building on Caine Road.  In due course the Defendant came to run it.  Unexpectedly, a very cheap offer came for its sale.  The Defendant purchased it.  I have no doubt about it, using loans from his father and younger brother and from his own resources.  That is why the purchase was taken in the Defendant’s name and for no other reason.

68.  The Plaintiff has fallen on the idea that he might try and make out a case based on the coincidental fact that he had just returned from Australia when the purchase of the premises was taking place.  The loan from uncle Chung to him, via Mr Tam, was intended to show the Australian authorities that he had assets to support another attempt by him to be allowed to live in Australia.  That was its only purpose. In the event his renewed application failed.

69.  Where the evidence of Min and Chung differs, I prefer the evidence of Min.  I disbelieve Chung about the circumstances of the purchase of Conway Mansion in 1973.  I believe Min’s evidence about this. Chung simply had no funds, or at all events no sufficient funds, as a 22-year old gas meter reader, supplementing his income by part-time work as a tutor, to buy this flat.  He only had, at best, a one–third interest in it.  Min had another third.  Min had more money because he was then operating a shoulder pad manufacturing workshop.

70.  Misguidedly, Chung has decided to side with the Plaintiff because he considers that is how the justice of the matter lies and he has been prepared to give evidence in support of the Plaintiff which has not been truthful.

71.  So far as the Plaintiff is concerned, he has had to embark on an attempt to reconstruct the history of this purchase by evidence which is false.  That is all that can be said about it.  Just as he has tried to take advantage of the fact that he had returned to Hong Kong in 1991 and received a loan from Chung at about the time of the purchase which he has attempted to relate to this purchase and he has also sought to take advantage of the fact that after the mortgage had gone into arrears and there was a further levy of stamp duty on the premises, which he paid off.  He has seen this as providing justification for his claimed beneficial ownership of the premises.  None of which is true.  He is very fortunate indeed that despite this litigation and the lies that he and uncle Chung had been prepared to tell in the course of their evidence, apparently his younger brother is still prepared to share the proceeds of the developer’s offer equally.  This is not a binding promise by the Defendant and if he carries this through the Plaintiff can count himself extremely fortunate.

The Orders

72.  The Plaintiff’s claim for a declaration of trust must stand dismissed with costs, as are all the other parts of the prayer to the amended statement of claim.  Costs will be taxed on a party-and-party basis.  The order for costs will be an order nisi.

73.  On the counterclaim, there must be judgment to the Defendant.  Firstly, an order for possession to be given within 14 days of today. If he wishes to press for these, there will also be mesne profits payable by the Plaintiff to the Defendant from 1 January 2008 until the delivery up of possession, which will be assessed by a Master together with interest thereon as the Master may deem appropriate. Lastly, the Plaintiff will be liable to indemnify the Defendant for such loss or damage suffered and/or which may be suffered as a result of any breach of the Provisional Sale and Purchase Agreement entered into with the developer caused by the Plaintiff’s failure to deliver vacant possession.  Thus far the developer has been prepared to wait but it now needs to be seen what stance it may take after the end of the trial.  The Plaintiff will also pay the Defendant his costs on the counterclaim which will be taxed on a party-and-party basis. The order for costs will be an order nisi.

Maurice Chan, instructed by Messrs Fung, Wong, Ng & Lam, for the Plaintiff

Wilfred Tsui, instructed by Messrs Simon C W Yung & Co., for the Defendant

HCA 2207/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2207 OF 2007

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________________________

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J U D G M E N T

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1.  The trial having taken an unexpected course after three days, the Defendant now seeks to have the action struck out under O.18 r.19 on the ground that it is frivolous, vexatious and an abuse of process failing which, for an order that there be a sale of the property which is the subject matter of the action and a payment into court of the net proceeds of sale pending judgment in the case.

2.  I will now explain what has happened which will put these two applications into their proper context.

3.  The parties are brothers.  The property in question, which is a ground floor shop in a residential building above in Caine Road, is registered in the name of the Defendant.  The plaintiff says that he has provided all of the purchase price and that the Defendant therefore holds the property on a resulting trust for him.

4.  The Plaintiff has said in his witness statement [A283] that he and the Defendant agreed that the latter would hold the legal title in his name so that the Plaintiff’s wife in Australia, from whom he was estranged, would not learn that he owned property against which she might wish to claim in ancillary relief proceedings consequent upon their divorce and also to protect himself from potential tax liabilities that might be brought against him by the Australian authorities.  This was all set out in the Plaintiff’s witness statement on 21 January 2009.

5.  The trial started but by the third day in the course of the Plaintiff’s evidence, it had become clear to me that the Plaintiff was probably labouring under distinct cognitive difficulties such that it might well be imperative for him to have a guardian-ad-litem to represent him.  What occurred appears in the transcript of the proceedings of 5 and 8 March this year.  The upshot of all of this is that, with the Plaintiff’s agreement, I directed that he be examined by a psychologist to see whether his intellectual functioning was such that he could not continue to represent himself without a guardian-ad-litem.

6.  He was examined by Professor Peter Lee of Hong Kong University who has provided me with a very detailed report dated 14 April.  Professor Lee concluded that the Plaintiff was of a low average level of intelligence and as such cannot be classified as a mentally handicapped person.  This being so the trial will have to proceed as currently constituted.

7.  The point to all this is that the Defendant has entered into an agreement with a property developer to sell the shop premises for $17.5 million.  I was very concerned that the Plaintiff should bring to bear a properly reasoned judgment on how best to proceed in relation to this offer.  I was told, without of course being provided with the detail, that the parties had been negotiating to see if they could settle the action.  The Plaintiff was not minded to settle on the terms being offered to him, whatever those may have been, nor was he willing to agree to a sale to the developer for $17.5 million which, for all I know, may be an extremely advantageous price from a seller’s point of view.  It is against this background that I called for the psychologist’s report.

8.  On the resumed hearing after Professor Lee’s report was known, the Plaintiff told me that he did not want to sell at any price, certainly not at $17.5 million and, that he wanted the premises for himself because he wished to continue to run his business from it.

9.  The Defendant’s reaction to this has been to make these two applications.  His agreement to sell for $17.5 million expires today.  He therefore wants me to order a sale and have the proceeds paid into court so as not to lose this, according to him, very advantageous sale which if it does not go on will expose him, or at least may expose him, to a claim for damages for non-completion.  But his main application now is to have the entire action struck out because he says the transaction being relied on by the Plaintiff is an illegal one and on old and good authority the law will not allow this Plaintiff to rely on an illegality to succeed by enforcing the resulting trust that is contended for.  It is this which I will consider first.  If the Defendant can deliver a knockout below now, in this way, the property will become his to deal with as he wishes.

10.  Mr B K Ho, for the Defendant, relies on the House of Lords case of Tinsley v Milligan [1994] 1 AC 340.  In that case, by a majority of 3 to 2, the House of Lords decided (and I take this from the holding in the headnote to the report) that:

“… a claimant to an interest in property, whether based on a legal or equitable title, was entitled to recover if he was not forced to plead or rely on an illegality, even although it transpired that the title on which he relied was acquired in the course of carrying through an illegal transaction; that, in the circumstances, by showing that she had contributed to the purchase price of the property and that there was a common understanding between the parties that they owned the property equally the defendant had established a resulting trust; that there was no necessity to prove the reason for the conveyance into the sole name of the plaintiff, which was irrelevant to the defendant’s claim, and that since there was no evidence to rebut the presumption of a resulting trust the defendant was entitled to succeed on her counterclaim (post, pp. 367B-E, 368G-369A, 375B-C, 376D-G).

         Bowmakers Ltd. V. Barnet Instruments Ltd. [1945] K.B. 65, C.A. applied.

         Muckleston v. Brown (1801) 6 Ves. 52; Singh v. Ali [1960] A.C. 167, P.C. and Palaniappa Chettiar v. Arunasalam Chettiar [1962] A.C. 294, P.C. considered.

         Per curiam.  A public conscience test has no place in determining the extent to which rights created by illegal transactions should be recognized (post, pp. 351A, 361D, 363A-C, 367D-E, 369A-B).

         Saunders v. Edwards [1987] 1 W.L.R. 1116, C.A.; Euro-Diam Ltd. V. Bathurst [1990] 1 Q.B. 1, C.A. and Howard v. Shirlstar Container Transport Ltd. [1990] 1 W.L.R. 1292, C.A. disapproved.

        Decision of the Court of Appeal [1992] Ch. 310; [1992] 2 W.L.R. 508; [1992] 2 All E.R. 391 affirmed on different grounds.”

Unsurprisingly, Mr Maurice Chan, for the Plaintiff, also relies on this authority, which he says is on all fours with the matter before me.  The facts of this case can also be conveniently reproduced from the headnote:

         “The plaintiff and the defendant, two single women, formed a joint business venture to run lodging houses.  Using funds generated by the business they purchased a house in which they lived together and which was vested in the sole name of the plaintiff, but on the understanding that they were joint beneficial owners of the property.  The purpose of that arrangement was to assist in the perpetration of frauds on the Department of Social Security (‘D.S.S.’) and over a number of years the defendant, with the connivance of the plaintiff, made false benefit claims on the D.S.S.  The plaintiff did likewise.  The money thus obtained helped the parties meet their bills but did not represent a substantial part of their income and contributed only in a small way to their acquisition of the equity in the house.  Subsequently the defendant repented of the frauds and disclosed them to the D.S.S.  A quarrel between the parties led to the plaintiff moving out, leaving the defendant in occupation.  Thereafter the plaintiff gave the defendant notice to quit and in due course brought proceedings against the defendant claiming possession and asserting sole ownership of the property.  The defendant counterclaimed for an order for sale and for a declaration that the property was held by the plaintiff on trust for the parties in equal shares.  The judge dismissed the plaintiff’s claim and allowed the counterclaim.  On appeal by the plaintiff, the Court of Appeal (by a majority) dismissed the appeal on the ground that in the circumstances the public conscience would not be affronted if the defendant’s counterclaim were to succeed.”

11.  Mr Chan, correctly in my judgment, analyses the effect of the speeches of the majority as follows:

“(1)     D was entitled to recover even though her title was acquired in the course of carrying through an illegal transaction [at 340];

 (2)      There was no necessity on D’s part to prove the reason for the arranged conveyance, which was irrelevant [at 340];

(3)  Since there was no evidence to rebut the presumption of a resulting trust, D was entitled to succeed on her counterclaim (at 340).”

The speech of Lord Jauncey of Tullichettle, pages 366B-H and 367A-D explains the ultimate basis for the conclusions of the majority and for that reason should be repeated here:

         “At the outset it seems to me to be important to distinguish between the enforcement of executory provisions arising under an illegal contract or other transaction and the enforcement of rights already acquired under the completed provisions of such a contract or transition.  Your Lordships were referred to a very considerable number of authorities both ancient and modern, from which certain propositions may be derived.

         First, it is trite law that the court will not give its assistance to the enforcement of executory provisions of an unlawful contract whether the illegality is apparent ex facie the document or whether the illegality of purpose of what would otherwise be a lawful contract emerges during the course of trial: Holman v Johnson 1 Cowp 341, 343 per Lord Mansfield CJ; Pearce v Brooks (1886) LR 1 Ex 213, 217-218 per Pollock CB; Alexander v Rayson [1936] 1 KB 169, 182; Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65, 70.

         Second, it is well established that a party is not entitled to rely on his own fraud or illegality in order to assist a claim or rebut a presumption.  Thus when money or property has been transferred by a man to his wife or children for the purpose of defrauding creditors and the transferee resists his claim for recovery he cannot be heard to rely on his illegal purpose in order to rebut the presumption of advancement: Gascoigne v Gascoigne [1918] 1 KB 223, 226; Pallanippa Chettiar v Arunasalam Chettiar [1962] AC 294, 302; Tinker v Tinker [1970] P 136, 143, per Salmon J.

         Third, it has, however, for some years been recognised that a completely executed transfer of property or of an interest in property made in pursuance of an unlawful agreement is valid and the court will assist the transferee in the protection of his interest provided that he does not require to found on the unlawful agreement: Ayerst v Jenkins LR 16 Eq 275, 283; Alexander v Rayson [1936] 1 KB 169 184-5; Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65; and Singh v Ali [1960] AC 167, 176.  To the extent, at least, of this third proposition it would appear that there has been some modification over the years of Lord Eldon’s principles.”

         The ultimate question in this appeal is, in my view, whether the respondent in claiming the existence of a resulting trust in her favour is seeking to enforce unperformed provisions of an unlawful transaction or whether she is simply relying on an equitable proprietary interest that she has already acquired under such a transaction.  The nature of a resulting trust was described by Lord Diplock in Gissing v. Gissing [1971] A.C. 886, 905:

     ‘A resulting, implied or constructive trust – and it is unnecessary for present purposes to distinguish between these three classes of trust – is created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny to the cestui que trust a beneficial interest in the land acquired.  And he will be held so to have conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land.’

I find this a very narrow question but I have come to the conclusion that the transaction whereby the claimed resulting trust in favour of the respondent was created was the agreement between the parties that although funds were to be provided by both of them, nevertheless the title to the house was to be in the sole name of the appellant for the unlawful purpose of defrauding the D.S.S.  So long as that agreement remained unperformed neither party could have enforced it against the other.  However, as soon as the agreement was implemented by the sale to the appellant alone she became trustee for the respondent who can now rely on the equitable proprietary interest which has thereby been presumed to have been created in her favour and has no need to rely on the illegal transaction which led to its creation.”

12.  The foundation of Mr B K Ho’s submission is that this amounts to a transaction between the brothers in two parts.  Firstly, that the legal title would vest in the Defendant, which has been executed, this in order to further the illegal purposes which I already referred to, and an unexecuted part which is now sought to be enforced by the Plaintiff which is the transfer back of the property to the Plaintiff, presumably the illegal purposes having run their successful course.

13.  Mr Chan submits that this has nothing to do with an unexecuted part of the transaction whatsoever, nor is there any presumption of advancement between the two brothers.  The simple fact is that the purchase monies having been advanced by the Plaintiff a resulting trust has come into existence which he now seeks to enforce.  To do so he does not have to rely on any part of the allegedly illegal purpose for having structured the conveyance in the Defendant’s sole name.  This is mere background which explains what he did and why he did it.  He now seeks a declaration of trust in his favour and a transfer of the legal title to him thereby giving effect to the declaration.  It is the advance of the money for the purchase that binds the conscience of the Defendant.  There is no reliance placed on any illegal scheme.  This is in my view the correct analysis and the strike out application must therefore stand dismissed.  I should observe that it is one which could have been brought and should have been brought, if it was to have been brought at all, once the Plaintiff had made his case clear when he filed his witness statement in January last year and not three days after the start for the trial.

14.  I now turn to the application for an order for sale and the payment into court of the net proceeds of sale to await judgment.

15.  I can find no basis for such an order.  The Plaintiff wants to keep this property if he were to succeed in the action.  The Defendant has rather unwisely entered into his private agreement with the property developer and must live with the consequences of that decision.  If the Plaintiff is right and he is the true beneficial owner of the property then he is entitled to keep it for himself.  I am afraid all must await the outcome of the trial when the parties’ respective rights will be known.

16.  I will now give directions as to the restoration of the action to the list for it to continue to its conclusion.

17.  I make an order nisi that the Plaintiff is to have the costs of these two applications in any event on a party and party basis, with legal aid taxation of the Plaintiff’s costs.

Appeal by the defendant to Court of Appeal dismissed. Please refer to CACV116/2010 dated 12 November 2010