Trust — Resulting trust — Declaration — Nomination of defendant as purchaser — Whether agreement unenforceable due to illegality — Reassignment of property — Estoppel — Limitation of time

Parties :

Mr. James C.C. Cheng instructed by Messrs. Johnnie Yam, Jacky Lee & Co. for the Plaintiff.

Mrs. Lisa Remedios leading Mr. Samuel Yip instructed by Messrs. P.T. Yeung & Tang for the Defendant.

Judge H.C. Wong 


JUDGMENT

[1] In this action, the Plaintiff Madam Wu Wai Sum Stella ("Madam Wu") applied for a declaration against the Defendant Mr. Man Ting Chu ("Mr. Man") that the property known as 1st floor, a portion of Lot No. 381 in D.D.236 Sai Kung, New Territories ("the suit property") was and has been at all material times held by the Defendant on an express trust and/or resulting trust and/on constructive trust on behalf of and/or for the benefit of the Plaintiff absolutely and is still so held. Madam Wu further sought an order against the Defendant to do all acts and things necessary to re-assign the suit property and the interest therein to the Plaintiff free of encumbrance, failing which or alternatively an order to appoint a Receiver to execute in the name of the Defendant an assignment to re-assign the said property to the Plaintiff pursuant to the provisions of section 52B of the District Court Ordinance, Chapter 336, Laws of Hong Kong. The Defendant counterclaimed for vacant possession of the suit property and damages for trespass from 1 June 2008 to the date of recovery of possession of the suit property.

Background

[2] Madam Wu met Mr. Man in 1983, they began living together in or about early 1986. During the cohabitation period, Madam Wu gave birth to their two sons on 8 July 1986 and 8 September 1988. They separated when Mr. Man moved out of the suit property in 1995.

[3] It is not disputed that Madam Wu and Mr. Man first cohabited in Madam Wu’s flat in Whampoa. After Madam Wu sold her property in Whampoa on 1 October 1986, they moved to live in a house owned by Madam Wu’s elder sister Madam Wu Wai Ping; they resided there until they moved to the suit property in the latter part of 1987.

[4] On or about 9 February 1987, Madam Wu signed a Sale and Purchase Agreement for the purchase of a property known as Lot No. 381 in D.D. 236, Sai Kung, New Territories ("the said house"). The said house is a 3 storey building divided into the ground floor; the 1^st floor; and the 2^nd floor and roof. The purchase price for the said house was HK$980,000.00. The Sale and Purchase Agreement was registered in the Land Registry under Memorial No. SK 118047.

[5] Madam Wu executed two nominations, nominating her elder sister Madam Wu Wai Ping as the purchaser of the ground floor and Mr. Man as the purchaser for the suit property. Under paragraph 2 of the Sale and Purchase Agreement of 9 February 1987, out of the purchase price of HK$980,000.00, $400,000.00 was attributed to the ground floor, HK$250,000.00 to the 1^st floor and HK$330,000.00 to the 2^nd floor and roof. On or about 18 November 1986, Madam Wu’s elder sister Madam Wu Wai Ping ("Madam Ping") sold the ground floor flat for the sum of HK$600,000.00.

[6] Soon after the purchase, a decision was made to convert the suit property and the 2^nd floor of the said house into a duplex apartment to provide a home for Madam Wu, Mr. Man and their children together with Madam Wu’s daughter from a previous marriage.

[7] On 22 July 1987, a mortgage of $250,000.00 and general banking facilities to a limit of HK$100,000.00 were secured by charging the said property together with the 2nd floor of the said house. The legal charge was redeemed on 9 November 1989 by Mr. Man with a loan from Hang Seng Finance Limited ("HSFL") on the security of a mortgage on the suit property alone.

[8] In early 1995, the parties’ relationship broke down and Mr. Man left the suit property and Madam Wu with her three children. In April 1996, Mr. Man obtained an order for the care and control of their 2 sons from the High Court. In May 1995, Madam Wu reconverted the suit property and the 2^nd floor flat into two separate apartments. She remained in the suit property after the 2^nd floor flat was sold by her in October 1995.

[9] Mr. Man, in spite of his moving out of the suit property in 1995, had continued to pay the insurance premium and rates on the suit property.

The Plaintiff’s Case

[10] Madam Wu claimed that she alone had supplied the purchase money for the said house consisting of the ground floor flat with a portion of garden, the 1^st floor flat with a portion of garden and the 2^nd floor with the roof. She admitted that the reason why she had nominated Mr. Man to take up the assignment of the 1^st floor and her elder sister the ground floor was to reduce the payment of stamp duty. Madam Wu claimed that both her elder sister and Mr. Man knew and agreed to the arrangement that they would hold the respective properties for the benefit of Madam Wu. She further asserted that not only did she pay the entire purchase price in full on 30 March 1987, she had also paid all legal expenses relating to the purchase of the house. When her elder sister Madam Wu Wai Ping ("Madam Ping") sold the ground floor in November 1987 at HK$600,000.00, it was done on her instruction and the sale proceeds were paid over to her.

[11] Madam Wu further claimed she had paid the major part of the costs of converting the 1^st and 2^nd floors into a duplex apartment; she had also paid for all the furniture. She spent approximately HK$400,000.00 altogether while Mr. Man had only paid a small portion of the renovation costs and expenses relating to the garden and road area. They moved into the 1^st and 2^nd floors of the said house after the renovation work was completed in late 1987.

The Defence’ Case

[12] In his defence and counterclaim, Mr. Man claimed that he had paid a total of HK$330,000.00 to Madam Wu for the purchase of the 1^st floor and part of the renovation costs. He denied he is holding the property on behalf of Madam Wu as the beneficial owner. He claimed the $100,000 he paid Madam Wu on 27 March 1987 represented part payment for the suit property. In May 1987, Mr. Man’s application for a HK$250,000.00 loan from the Hang Seng Bank Ltd. (HSBL) repayable by 60 monthly instalments of HK$5,039.25 with overdraft facilities of HK$100,000.00 secured on the mortgage of both the 1^st and 2^nd floors of the said house was approved. He claimed the mortgage was obtained to finance the purchase of the suit property. He alleged that on 3 August 1987 he withdrew HK$230,000.00 from the "joint loan account" at HSBL and paid the sum to Madam Wu as the balance for the purchase price and miscellaneous expenses relating to the purchase including the decoration and renovation of the suit property. All along, he alone had repaid the said monthly instalments to HSBL. In November 1989, he redeemed the said mortgage with a loan obtained from HSFL by mortgaging the suit property alone. In May 1995, Mr. Man paid off the mortgage loan to HSFL and the suit property was discharged from the mortgage. In July 1995, he re-mortgaged the suit property to secure banking facilities which was subsequently discharged in September 2005.

[13] Mr. Man claimed that he had allowed Madam Wu and her daughter to reside at the suit property as a licensee after he obtained a care and control order of their two sons in April 1996 solely because they would stay with Madam Wu at weekends under the court order. However, as their sons have both reached the age of majority and studying abroad now, there is no longer a need for him to allow Madam Wu and her daughter to reside at the suit property.

[14] Mr. Man admitted that the only reason why he had continued to pay rates and rental for the short term tenancy of the garden to the government, insurance premium and the renovation expenses was because he is the owner of the suit property.

[15] It is the defence’s alternative case that Madam Wu has waived her rights and interests in relation to the suit property, or alternatively she is estopped from asserting the same. Further, it is the defence case that even if there is a trust created, it was created for an illegal purpose and is therefore unenforceable and/or unconscionable. The defence therefore asked for vacant possession of the suit property and damages for trespass from 1 June 2008.

The Issues

[16] (a) Whether the Plaintiff had paid the purchase price of the suit property in full and whether the Defendant had reimbursed the Plaintiff in the manner alleged by him?

(b) Whether there was an agreement or understanding between the parties that the Defendant would hold the suit property as trustee for and on behalf of the Plaintiff and for her benefit or was it paid for and intended for the Defendant?

(c) Was there a resulting trust or constructive trust in favour of the Plaintiff? If so, would the nomination of the Defendant as the purchaser for the purpose of stamp duty avoidance, rendered the agreement unenforceable due to illegality and/or unconscionable liability?

(d) Whether the Plaintiff is estopped by way of proprietary estoppel and/or promissory estoppel by virtue of her representations and/or renouncement and/or declarations in the nomination agreement?

Findings

(a) Whether the Plaintiff had paid the purchase price of the suit property in full and whether the Defendant had reimbursed the Plaintiff in the manner alleged by him?

[17] In 1983, when Madam Wu came to know Mr. Man, she was working as a dance hostess at the China City Nightclub. At the time, she was married and had a daughter born in 1977 with her then husband. They separated in 1985. On 24 February 1984, she purchased a residential property in Hung Hom at Flat B1408, 13^th Floor, Whampoa Building, 2A – 2H Bulkeley Street, Nos. 1-29 Ming On Street and 87-101 Baker Street, Kowloon ("the Whampoa flat"). In early 1986, Mr. Man moved into the Whampoa flat to cohabit with her.

[18] In May 1986, Madam Wu and Mr. Man put down a deposit for a property yet to be completed at Flat 4D, Block 6, Tsing Yi Garden, 7-19 Tsing Luk Street, Tsing Yi, New Territories ("the Tsing Yi flat"). The price of the property was HK$363.500.00 financed by a mortgage at the Bank of East Asia in the sum of HK$327,150.00 taken out in early February 1987. The Tsing Yi flat was sold on 26 February 1987 for $417,000.

[19] On 19 June 1986 Madam Wu won the 2^nd prize at the Hong Kong Jockey Club mark six and received the sum of HK$279,141.00 in prize money. At the same mark six lottery, her elder sister Madam Ping won the 1^st prize; the prize money was HK$7.9 million. Madam Wu claimed that Madam Ping gave to her out of the prize money the sum of HK$500,000.00. Consequently, in June 1986, she had about HK$800,000.00 in cash. She decided she would invest the money in a property.

[20] On 1 October 1986, she sold the Whampoa flat. As she had already paid off the bank mortgage on the Whampoa flat, she received the full proceeds of sale in the sum of HK$310,000.00 in cash.

[21] After the sale of the Whampoa flat, she and Mr. Man moved in with Madam Ping at House 13 Bueno Vista in Sai Kung. The house belonged to Madam Ping who owned several other properties as well as the Buena Vista house.

[22] In early 1987, Madam Wu, at the introduction of her sister, decided to purchase a 3 storey village house at Lot 381 in D.D. 236 consisting of a ground floor, the 1^st floor and the 2^nd floor with roof ("the said house"). The purchase price of the said house was HK$980,000.00.

[23] Madam Wu produced a receipt from her then solicitor Messrs. Lo, Wong & Tsui dated 6 February 1987 for the payment of the deposit on the said house in the sum of HK$294,000.00 with a Hang Seng Bank cheque (no. 483100). The receipt recorded the payment was received from ‘Stella Wu’. She further produced a Sale and Purchase Agreement dated 9 February 1987 that she had signed; the vendor was a Mr. Lau Hon Cheung. On 30 March 1987, Madam Wu paid to Messrs. Lo, Wong & Tsui the balance of the purchase price in the sum of HK$686,000.00 with a Hang Seng Bank cheque no. 513126. She was given a receipt no. 22589. The receipt recorded the payment was received from Man Ting Chu, Wu Wai Sum Stella and Wu Wai Ping. Madam Wu further produced a receipt for the payment of legal expenses on the purchase of the suit property dated 31 March 1987 for the sum of HK$5,600.00. The receipt recorded the payment was from Mr. Man Ting Chu. She produced a second receipt in the sum of HK$10,550.00 of the same date that stated the legal expenses payment was for the 2^nd floor and roof of Lot No. 381 in D.D. 236 from Madam Wu Wai Sum Stella paid with a Hang Seng Bank cheque no. 483104. The numbers of the two receipts are in sequence (nos. 22620 and 22621) and the payment of both sums of legal fees was drawn from the same bank account with the same cheque no. 483104.

[24] Madam Wu admitted that in order to reduce the stamp duty payable on the said house, she decided to nominate her elder sister Madam Ping as the purchaser of the ground floor and Mr. Man as the purchaser of the 1^st floor; leaving the 2^nd floor and roof to herself as the purchaser even though the purchase price was paid by her alone.

[25] Madam Wu claimed she was the beneficial owner of the ground floor and 1^st floor, this was the understanding of both Madam Ping and Mr. Man and both had agreed to hold the said two properties on her behalf.

[26] Madam Wu claimed that she had agreed to Mr. Man’s suggestion in May 1987 to mortgage the 1^st and 2^nd floors of the said house to enable Mr. Man to obtain a loan of HK$250,000.00 from the Hang Seng Bank because the 1^st floor flat alone would not provide sufficient collateral for the loan he required. As a result of her consent, Hang Seng Bank approved the legal charge and general banking facilities of HK$350,000.00. Madam Wu claimed that Mr. Man required and used the money for his business investments; she did not take any money from the "joint mortgage loan account". As the mortgage of the suit property and the 2^nd floor was for Mr. Man’s own business investment purpose, he alone paid the legal expenses for the execution of the mortgage documents in August 1987.

[27] Madam Wu claimed that the ground floor of the said house was an investment while the 1^st and 2^nd floors of the said house she had intended as a residence for herself and her children. She therefore converted the 1^st and 2^nd floors into a duplex apartment. She alleged that the costs of the conversion together with the renovation and furniture came to HK$400,000.00, it was paid by her alone. She admitted that Mr. Man had from time to time requested the contractor to take up additional work; these items were settled by him.

[28] By the end of 1987, property prices had inflated, she therefore requested her elder sister to sell the ground floor flat. As a result, in November 1987, Madam Ping sold the ground floor property at around HK$600,000.00 which she turned over to Madam Wu (see memorial no. 122741 of the Agreement for Sale and Purchase of 3 November 1987 at P.215). In or about the end of 1987, upon the completion of the conversion and renovation work on the 1^st and 2^nd floors of the said house, Madam Wu moved into the renovated property with her daughter, her elder son and Mr. Man. They lived there together until early 1995 when Mr. Man moved out of the property.

[29] In or about August or September 1989, at the request of Madam Wu, Mr. Man redeemed the mortgage on the 1^st and 2^nd floors of the said house and re-mortgaged the suit property in his own name to Hang Seng Finance Limited. In October 1995, Madam Wu sold the 2^nd floor and roof after she reconverted the duplex apartment into 2 separate flats. She has been staying at the suit property up to the present.

[30] According to Mr. Man, on 27 March 1987 he took out HK$100,000.00 from his savings account at the Kwangtung Provincial Bank, a cheque for the same amount was paid into Madam Wu’s savings account at the Hang Seng Bank. He alleged that the $100,000 was intended as part of the payment towards the purchase of the suit property. He further claimed that a part of the money he obtained from the mortgage of the 1^st and 2^nd floors of the said house was to finance the balance of the payment of the purchase price of the suit property. That of the HK$350,000.00 loan, HK$230,000.00 was used to pay the balance of the purchase price and renovation costs of the said property. The HK$100,000.00 overdraft facilities were intended for his own business purpose. He claimed that on 3 August 1987, he drew a cheque from the joint account in the sum of HK$230,00.00 and paid it to Madam Wu.

[31] He claimed that with the HK$100,000.00 paid to Madam Wu in March 1987 and the HK$230,000.00 in August 1987, they made a total sum of $330,000.00 which were more than sufficient to reimburse Madam Wu for the purchase of the suit property. The balance of HK$80,000.00, he claimed, was intended for the conversion and renovation costs on the 1^st and 2^nd floor flats. However, in the end, he had to pay all the renovation and conversion costs.

[32] On top of the conversion and decoration expenses, he claimed he had paid all the rates and rental on the short-term tenancy of the garden land adjoining the said house. Furthermore, he had also paid the insurance premium on the suit property and additional stamp duty levied. Mr. Man claimed he would not have paid these sums if he were merely holding the suit property on trust for Madam Wu.

[33] From the evidence disclosed by Madam Wu and the exhibit of the receipts from Messrs. Lo, Wong & Tsui, it is clear that Madam Wu had paid the deposit for the purchase of the said house and the completion price from her own resources. She has shown that she had sufficient funds from her savings to pay the whole of the HK$980,000.00 for the purchase of the said house in cash. Madam Wu has further produced evidence to show that she had paid these sums from her own bank account as well as the legal expenses for the purchase of all 3 floors. The legal costs for all 3 floors were paid with the same cheque from Madam Wu’s account even though the receipt for the suit property was in Mr. Man’s sole name. There was no documentary evidence showing Mr. Man had repaid the legal expenses and costs to Madam Wu nor were there any documents setting out in writing the specific purpose or acknowledgment of the two alleged payments. There are obvious doubts as to whether the $230,000.00 was paid to Madam Wu and whether the $100,000.00 payment was a re-imbursement of the purchase price from Mr. Man to Madam Wu.

[34] Furthermore, there was no evidence from Mr. Man as to whether there was an agreement between him and Madam Wu prior to the purchase of the suit property as to how he was going to finance the purchase. It has been shown that Madam Wu had paid the initial deposit of HK$294,000.00 on 6 February 1987 and on 30 March 1987 she paid the balance of the purchase price for the completion. His evidence of re-payment consisted of the assertion that he paid HK$100,000.00 to her after she paid the initial deposit for the house and that this payment can be traced in the Kwangtung Provincial Bank account documents produced by him. Mr. Man claimed that the balance of HK$150,000.00 was raised by mortgaging the suit property and the 2^nd floor flat together. Evidence showed the joint mortgage account was opened in July 1987, almost 4 months after Madam Wu had paid the purchase price in full for the purchase of the said house. There was no banking document in support of Mr. Man’s claim that the sum of HK230,000.00 was deposited into Madam Wu’s bank account. The only evidence in support of Mr. Man’s claim is the withdrawal of HK$230,000.00 from the Hang Seng Bank joint mortgage account in August 1987 but no documentary evidence had been adduced to show to whom the HK$230,000.00 was paid to.

[35] Mrs. Remedios, Counsel for the Defendant, queried the inclusion of paragraph 2 of the sale and purchase agreement of 9 February 1987 where the breakdown of the purchase price was specified. It stated:

"The purchase price is the sum of $980,000.00. For the purpose of sub-sale of part of the Property by the Purchaser and subject that all legal costs occasioned by the preparation and approval of such Assignments to be borne by the Purchaser or her sub-purchasers and nominees in any event, the parties hereto agree that of the price of $980,000.00, $400,000.00 is attributed to the Ground Floor, $250,000.00 is attributed to the First Floor and $330,000.00 is attributed to the Second Floor and Roof of the property."

[36] Mrs. Remedios further queried as to why nominees are mentioned in the sale and purchase agreement in addition to the breakdown of the sale price on each floor of the said house when at the time the signing of sale and purchase agreement did not carry any stamp duty. She submitted that the only logical reason is Madam Wu had truly intended the 3 floors to be individually assigned regardless of any stamp duty savings.

[37] Mrs. Remedios found further support in the nomination agreement which stated:

"I (Plaintiff) hereby declare that part of the monies paid on deposit to you (the Vendor) in respect of the said premises (the Premises) were in fact provided by the said Man Ting Chu for the purchase of the said premises. I direct and request your goodself to execute the Assignment of the said premises to the said Man Ting Chu and to regard the said Man Ting Chu as having all the benefits and burdens of the Purchaser under the said Agreement in so far as the premises is related."

[38] Mrs. Remedios submitted, if the aforesaid paragraph were untrue why would it be included in the nomination agreement. According to Madam Wu’s explanation, it was included because Mr. Man required its inclusion to facilitate his application for a loan from the bank. If that was so, why did a similar paragraph appear in Madam Ping’s nomination agreement when Madam Ping had no need to borrow from the bank?

[39] Mrs. Remedios further queried Madam Wu’s declaration in the bottom paragraph of the nomination agreement which stated:

"And I declare that I have no further beneficial interest or estate whatsoever in the said premises and I have no further claim whatsoever arising out of or in connection with the said Agreement so far as it relates to the said premises."

[40] The document exhibited showed that this paragraph did not appear in the original nomination agreement of March 1987. It only appeared in a copy of the nomination agreement stamped in 1989. Again, Madam Wu’s explanation under cross-examination was that she was unaware this paragraph was included in the 1989 nomination agreement nor was it explained to her at the time.

[41] Madam Wu admitted that when she purchased the said house she did not intend to occupy all 3 floors, she had intended to sell part of it and retain only a portion of the said house for her own use. The intention was therefore set out when she signed the sale and purchase agreement with the option for sub-sale and the right to appoint nominees with a break down of the purchase price for each of the 3 floors.

[42] Madam Wu clearly is a shrewd investor in properties. The said house was not the first property she purchased, she had invested and lived in her own property in Whampoa since 1984, she had also invested in a Tsing Yi property jointly with Mr. Man after they started cohabitation. Her sister Madam Ping who had a number of properties had advised her and introduced the said house to her. When she purchased the said house, she clearly was a knowledgeable investor.

[43] The advantages of the inclusion in the sale and purchase agreement of a clause allowing for the sub-sale and nominees of different floors in the said house are obvious to seasoned investors of real properties. The inclusion provided for sub-sale before completion of different floors of the said house, it also allowed different floors in the said house to be sold to different persons. These are mechanisms built in for profits tax as well as stamp duty savings. I have no doubt conveyancing solicitors have full understanding of such requirements of their clients who are seasoned investors of real properties in Hong Kong.

[44] I accept Madam Wu’s explanation that she had signed the nomination agreement stating the money paid on deposit was provided by Mr. Man to enable Mr. Man to obtain a loan from the bank which he subsequently did in August 1987, 5 months after Madam Wu paid for the purchase of the suit property. The deposit payment clause was probably a standard clause in all nomination agreements.

[45] It is not difficult to understand why a further clause was added into the nomination agreement in 1989 after the original nomination agreement was stamped in 1987. The date coincided with Mr. Man’s new mortgage loan from Hang Seng Finance Limited in 1989 on the suit property alone. While the August 1987 legal charge and mortgage was executed on the 1^st and 2^nd floors of the said house naming Madam Wu and Mr. Man the mortgagors, the 1989 mortgage was executed by Mr. Man alone.

(b) Whether there was an agreement or understanding between the parties that the Defendant was to hold the suit property as trustee for and on behalf of the Plaintiff and for her benefit or was it paid for and intended for the Defendant?

[46] Madam Wu admitted she was not a well-educated person; she was working as a dance hostess when she first met Mr. Man who was visiting Kong Kong. He is a Dutch national, born, educated and brought up in the Netherlands. His father was an indigenous villager of the New Territories who had immigrated to the Netherlands many years ago and had married his Caucasian mother in that country.

[47] Mr. Man claimed he could not write or read Chinese but could speak simple Cantonese. After Mr. Man met Madam Wu in 1983, he made frequent visits to Hong Kong, and finally moved to Hong Kong where he set up a garment trading business in early 1986.

[48] Among the miscellaneous papers produced by Madam Wu (page 473 and page 474 of the agreed bundle) are two letters written in Chinese signed by Mr. Man. They were apparently written to Madam Wu by Mr. Man expressing his affections for her and his eagerness to return to Hong Kong to be with Madam Wu. The first letter at page 473 was dated 8 October 1983 while the second letter was undated. In the 2^nd letter at page 474, Mr. Man expressed that after having just returned to Holland and staying with his father, he missed her and wanted to return to Hong Kong to live with her. He further told her that before his return to Hong Kong he needed to save up some money.

[49] Not only did the two letters explain the affection between Mr. Man and Madam Wu after they met in 1983, they also explained why Mr. Man came to Hong Kong to live with Madam Wu and disclosed he had to save up his money at the time. It further explained why when Mr. Man came to Hong Kong he was living with her in her flat in Whampoa in 1986. According to Madam Wu, Mr. Man was starting a business in Hong Kong and at the same time, he was intending to develop village houses at his ancestral village in the New Territories. There is evidence showing that in 1987, he was in the process of developing his father’s and his own village house in Chau Tau Chuen in Sun Tin, Yuen Long. Madam Wu explained that he had to mortgage the suit property together with the 2^nd floor flat to finance his trading business and to build the village houses in Yuen Long.

[50] Mr. Man did not adduce any evidence of his financial position in 1987; neither did he explain how he had obtained the funds to develop the village houses in Chau Tau Chuen. On the other hand, Madam Wu was able to produce ample proof from her bank account passbook that she had sufficient cash in 1987 to pay for the said house without mortgaging the property. She had the proceeds from her Whampoa flat, the mark six money in June 1986 and the money given to her by Madam Ping. It is clear that in 1987, Madam Wu and Mr. Man were in a steady and affectionate relationship. All along, she had been generously allowing Mr. Man to live with her at the Whampoa flat, when the flat was sold, they moved in with Madam Ping at her house in Sai Kung. When they moved to the suit property and the 2^nd floor flat, Madam Wu had already given birth to their first son in July 1986. In September 1988, she gave birth to their second son.

[51] I accept Madam Wu’s evidence that because of their close relationship, she did not mind helping him in his business, when Mr. Man asked her if he could mortgage the suit property for a loan from the bank, she agreed. When he found out the Hang Seng Bank refused to lend the sum of HK$250,000.00 using the suit property alone as collateral, Madam Wu agreed to Mr. Man’s request to use both the suit property and the 2^nd floor flat as collateral for a loan and general banking facilities in a joint account opened for the mortgage in Mr. Man and Madam Wu’s joint names. Madam Wu claimed that Mr. Man had promised her that he alone would be responsible for repayment for the monthly mortgage and general banking facilities instalments, interests and other expenses. That was why even though she had already paid for the purchase of the said house in full, she agreed to a mortgage of both the 1^st and 2^nd floor flats of the said house for the sum of HK$350,000.00 solely for the purpose of Mr. Man’s own business investments. That was why he paid the legal costs on the mortgage on 20 August 1987 with his own cheque.

[52] It is not logical for Madam Wu to agree to a mortgage of the 2^nd floor flat together with the suit property if the sole purpose for the mortgage was to enable Mr. Man to repay Madam Wu the purchase price for the suit property if she had already paid the purchase price in full with cash. Why would she agree to a mortgage of the 2^nd floor flat so that she would get HK$230,000.00 but be bound by a mortgage to Hang Seng Bank for which she was liable to pay interests on the mortgage loan and monthly instalments to the bank? Evidence from her savings account passbook showed she had cash in the bank and had placed part of the cash in ‘time deposits’ to earn higher interests. There was no evidence that she was engaged in any form of investment business other than putting her money in time deposits and in real properties. There is no logical reason for her to take out a mortgage loan when the interests she received from the time deposits were lower than the interests she would have to pay the bank on the mortgage loan. The only plausible conclusion to her action must be her support of Mr. Man in his business ventures. In doing so, she agreed to allow Mr. Man to mortgage the two flats that she had paid for so that he can finance his own business investments on the promise that he alone would be responsible for the repayment of the loan, the interest and other expenses. In August 1989, she discovered Mr. Man had failed to repay outstanding instalments to the bank, it is not disputed that she had requested Mr. Man to settle the debts to the bank and to redeem the mortgage of the 2^nd floor, removing her name from the mortgage and closing the joint mortgage account. This resulted in the November 1989 redemption of the 1^st and 2^nd floor flats of the mortgage and the re-mortgage to Hang Seng Finance Limited by Mr. Man of the suit property alone.

[53] On the aforesaid basis, I am satisfied that Madam Wu had the funds from savings to finance the purchase of the said house without a mortgage. On the other hand, Mr. Man, due to his new business ventures in Hong Kong and the development of village houses in Chau Tau Chuen in Yuen Long, was in need of finances. Madam Wu was clearly financially comfortable at the time as evidenced by her Hang Seng Bank savings account record (P.354-362).

[54] I accept her evidence that she had from time to time lent money to Mr. Man and the HK$100,000.00 Mr. Man gave her on 27 March 1987 consisted of repayment of debts he owed Madam Wu and the profits from the sale of the Tsing Yi property in their joint names. According to the evidence of Madam Wu, she did not ask for a breakdown of the HK$100,000.00. She clearly knew how much she had lent him and he also knew she had to pay for the purchase with money from her savings in the same month. Madam Wu claimed the money was given to her on her birthday. She had taken the HK$100,000.00 as a repayment of the $60,000.00 debt and the balance as the profits of their joint investment. She claimed she did not mind if Mr. Man took the profits from the sale of the Tsing Yi flat, it seems she did not mind accepting the money as a gift when Mr. Man gave her the money either. She denied he had ever told her the HK$100,000.00 was part payment of the suit property.

[55] It is obvious at that stage they had a trusting and loving relationship and she was not counting every penny and cent she was spending on the home that they would share. I accept her evidence that she had paid for the renovation and conversion of the 1^st floor and the 2^nd floor flats and furnished it with furniture with her own money.

[56] As to Mr. Man’s claim that he had expended some HK$200,000.00 on the renovation of the 1^st and 2^nd floors of the said house, the receipts produced by him do not support this claim, they consisted mainly of installation of aluminium windows and some wood-works in 1987 with a value of under $50,000. The other receipts were for work-done to windows and the road outside the house in 1990 to 1992. He was not able to produce receipts that added up to HK$200,000.00 for the period of renovation before or immediately after he and Madam Wu moved into the suit property and the 2^nd floor flat with the 2 children at the end of 1987.

[57] Mr. Man claimed that he had paid for the insurance on the suit property throughout the years, even after the mortgage on the suit property had been redeemed in 2005; he claimed it was not just because it was required by the bank. I find Mr. Man to be a cautious person; it is not out of character for him to continue with the insurance on the suit property even after the mortgage had been redeemed in 2005. After all, the mortgage premium is small compared to the value of the property and the contents inside the property. As the suit property was registered in his name, he was liable to pay the government rates and the rate demands were addressed to him. As to the rental on the short term tenancy of the garden land, he was named the lessee in the contract with the government, and therefore was liable for the rental after Madam Wu sold the 2^nd floor flat. Mr. Man failed to pay quite a few instalments of government rates on the suit property until the Secretary for Justice took him to the Small Claims Tribunal on two occasions in spite of repeated reminders and warnings sent to him at 29 Chau Tau Chuen in Sun Tin, Yuen Long, it indicated that he was reluctant to pay up the government rates on the suit property. He claimed he had moved around after 1995 even though evidence showed he had settled in his own house in Chau Tau Chuen in Yuen Long after he left Madam Wu in 1995 (see judgment of Mr. Recorder R. Wong S.C. at P.464H). There was no acceptable reason why he did not ask for the rate demands to be forwarded to him or notify the relevant government authority that he had moved to different addresses at Chau Tau Chuen if he did genuinely believe the suit property belonged to him. It is difficult for this court to accept that if he genuinely believed he is the rightful beneficial owner of the suit property he would only settle an outstanding rate payment after he was taken to the Small Claim Tribunal the second time in August 2008. I find Mr. Man’s explanation contrived and difficult to accept.

[58] Based on the aforesaid reasons, I accept Madam Wu had paid with her own money the full purchase price of the said house including the suit property. Before the signing of the sale and purchase agreement, she had already decided she was going to sell part of the said house while retaining a portion for her own use. I further accept her explanation that the reason for her nominating her sister Madam Ping as the purchaser of the ground floor flat and Mr. Man as the purchaser for the 1^st floor flat was for stamp duty purpose. With Madam Wu’s education background, it is unlikely that she would be able to give detail instructions as to what should be included in the nomination agreements. Like most lay persons, she would accept the advice of her legal advisers. The terms in the sale and purchase agreement were probably standard terms prepared and drafted by Madam Wu’s then solicitor Messrs. Lo, Wong & Tsui in an active property market in 1987.

[59] I further accept that Mr. Man and Madam Wu did have an understanding he would be holding the suit property on her behalf because she alone provided the money for the purchase. It follows that Madam Wu is the beneficial owner of the suit property for it is not the Defendant’s case that the suit property was a gift from Madam Wu to him nor did the Defendant raise the allegation of advancement from Madam Wu to him.

(c) Was there a resulting trust or constructive trust in favour of the Plaintiff? If so, would the nomination of the Defendant as the purchaser for the purpose of stamp duty avoidance, render the agreement unenforceable due to illegality and/or unconscionability?

[60] Mrs. Remedios argued that even if the court should find the purchase price was solely paid for by Madam Wu, she is not entitled to beneficial ownership of the suit property as the presumption of resulting trust cannot be raised in the present case because she cannot rely on her own illegal act to recover interests in the suit property. She relied on the Court of Appeal case of Yim Po-ying v. Chung Iu Warm [1985] HKLR 354. Mrs. Remedios further distinguished the House of Lords case of Tinsley v. Milligan [1993] 1 AC 340.

[61] The plaintiff in Yim Po-ying was the registered owner of certain premises, she brought an action claiming possession and mense profits from her son-in-law, the defendant. The defendant counterclaimed for a declaration that the plaintiff held the suit premises upon resulting trust for his benefit and an order directing the plaintiff to convey the title to the premises to him. He alleged that he had purchased the entire building where the suit premises was located but had directed the suit premises to be conveyed into the name of the plaintiff merely in order to effect the stamp duty saving. He further claimed that it was a common intention of both parties that the plaintiff should hold the premises on trust for his benefit. His claim was disputed by the plaintiff; she claimed she had provided the money to purchase the suit premises. On appeal to the Court of Appeal by the plaintiff, the main issue for the court was whether it was against public policy to allow the presumption of resulting trust to arise when the defendant’s purpose for investing the suit premises in the plaintiff’s name was improper and illegal viz. evading stamp duty which was otherwise payable to the government. The Court of Appeal held that it would be against public policy to permit the presumption of a resulting trust to arise in the defendant’s favour where the defendant himself disclosed the improper purpose for which the property he said he had paid for was conveyed into another’s name. The situation was different where the plaintiff had no reason to disclose any illegality and did not do so. It further held the basic principle is that he who seeks equity must come with clean hands to receive it. The Court held the principle was of general application and is not limited to cases where it is sought to rely on evidence of an improper purpose to rebut the presumption of advancement.

[62] Mr. Cheng, counsel for the Plaintiff, argued on the issue of illegality when there was no evidence adduced to prove that trusts constructive or otherwise created to effect reduction of the incidence of stamp duties must necessarily be illegal in law. He relied on the House of Lords decision of Tinsley v. Milligan where the plaintiff relied on the equitable principle of resulting trust but the underlying illegal agreement was not relied on and the House of Lords granted her relief on the claim ignoring the question of illegality.

[63] The learned authors of Goff and Jones’s Law of Restitution, 7^th edition said in Chapter 24 at page 605:

"The general rule is that if a transaction is illegal, the defendant may plead the illegality as a defence to a restitutionary claim. However, there are situations where a claimant is able to rely on illegality itself as the ground to support his restitutionary claim. There is an overriding principle that: "if a transaction be objectionable on grounds of public policy, the parties to it may be relieved; the relief not being given for their sake, but for the sake of the public."

[64] The learned authors then went on to consider the differences between contracts prohibited by statutes and those where statutes had imposed a penalty if one party was prohibited from entering without authority. Para. 24-003 at page 607 stated:

"In all these cases the illegality in the performance of the contract did not transform the contract into an illegal contract. The true question is, has the statute impliedly forbidden the contract? The object of each statute was simply to impose a fine; and the legislature did not intend to impose on the shipowner, the landlord and the asset management company, respectively, and forfeiture beyond the prescribed penalty; the relevant statute had not forbidden the particular contract."

[65] And in para. 24-004 the learned authors said:

"The primary rule denying the courts’ assistance to a man who must found his cause of action on an illegal or immoral act often leads to a denial of justice. It would then be against public policy to deny the restitutionary claim. Again, the claimant may have an independent ground of recovery which is not tainted by illegality."

[66] In Para.24-010, the authors set out the situation where the claimant has proprietary title to, or possession of, property in the hands of the defendant:-

" (i) Reliance on Title

As a general rule, title passes at law to the recipient notwithstanding the illegal purpose for which the transfer was made. But, on occasions, it may not. In these circumstances it appears to be established that a claimant may rely on an independent legal title which is not tainted by illegality.

As Lord Browne-Wilkinson said in Tinsley v Millgan :

"Neither at law nor in equity will the court enforce an illegal contract which has been partially, but not fully performed. However, it does not follow that all acts done under a partially performed contract are of no effect. In particular it is now clearly established that at law (as opposed to in equity), property in goods or land can pass under, or pursuant to, such a contract. If so, the rights of the owner of the legal title thereby acquired will be enforced, provided that the plaintiff can establish such title without pleading or leading evidence of the illegality. It is said that the property lies where it falls, even though legal title to the property was acquired as a result of the property passing under the legal contract itself."

Moreover, "it is irrelevant that the illegality of the underling agreement was either pleaded or emerged in evidence: if the plaintiff has acquired legal title under the illegal contract that is enough".

In Tinsley v Milligan the House of Lords concluded, Lord Keith and Lord Goff dissenting, that a similar principle should be applied in equity. In that case Miss Tinsley and Miss Milligan bought a house. They took out a mortgage and the balance of the purchase money was provided by them in equal shares. But the title to the house was transferred into the sole name of Miss Tinsley, so that Miss Milligan could misrepresent to the DHSS that she had no stake in the house or in the business which the parties ran from it. They quarrelled and Miss Tinsley moved out. She then gave Miss Milligan notice to quit and subsequently claimed possession of, and asserted ownership to, the house. Miss Milligan counterclaimed for an order for sale, and a declaration that the property was held by Miss Tinsley upon trust for the two of them in equal shares. The House of Lords affirmed the decision of, but did not endorse the reasoning of, the Court of Appeal, allowed the counterclaim, and granted the declaration. The House of Lords rejected the submission, which the dissenting Law Lords adopted, that Miss Milligan should be denied relief because she did not come to equity with clean hands and consequently was precluded from asserting that she enjoyed an equitable interest in the property.

The primary rule, formulated by Lord Mansfield, was that equity will never aid a plaintiff who has transferred property to another for an illegal purpose. But the House of Lords concluded that later in the nineteenth century the courts had recognised that there were exceptions to that rule."

[67] On page 622, the authors commented on the clean hands rule formulated by Lord Mansfield in Holman v. Johnson at the last paragraph of para. 24-010:

"The clean hands rule may be a good reason for denying equitable relief, but arguably not for denying the existence of equitable title. Miss Milligan had established the resulting trust by demonstrating that she had contributed to the purchase price of the house and that the common understanding of the parties was that they owned the house equally. Her claim was based on the fact that the house was vested in Miss Tinsley alone. The illegality emerged only because Miss Tinsley sought to raise it. Moreover, on the facts of the case, the presumption of advancement had no application; consequently Miss Milligan did not have to rely on her own illegality in order to rebut it."

[68] At para. 24-011 on page 623, the author said:

"In Tinsley v Milligan the resulting trust was not rebutted by the counter-presumption of advancement. If the parties had been in relationship which had given rise to that counter-presumption, then seemingly Miss Milligan’s claim would have failed. She would have to rely on the illegality to defeat the counter-presumption; the house had been bought for an illegal purpose that purpose had been carried out."

[69] After careful consideration of the judgment of the majority decision of the House of Lords in Tinsley v. Milligan and applying the House of Lords’ interpretation of the clean hands rule to the facts in the present case, it is clear that Madam Wu’s claim is not based on the illegal act, it was based on her full payment of the purchase price of the suit property. She is not relying on an illegal act to establish her equitable title. I find she has therefore established a resulting trust. The basis of Madam Wu’s claim is not based on the illegality to defeat the counter-presumption, as there was no counter-presumption pleaded, neither was the illegality pleaded by her. Her case falls into the exception to the clean hands rule similar to the case of Tinsley v. Milligan.

(d) Whether the Plaintiff is estopped by way of proprietary estoppel and/or promissory estoppel by virtue of her alleged verbal representations and/or renouncement and/or declarations in the nomination agreement?

[70] Madam Wu said she had signed the nomination agreement containing the two clauses acknowledging Mr. Man was the purchaser of good value and he had paid the purchase price on the suit property because she did not fully understand the two clauses in the nomination agreement and she had signed the nomination agreement because they would allow him to borrow money by taking out a mortgage on the suit property. Further, it was her intention for the purpose of saving stamp duty that Mr. Man and her sister should be nominated as the purchasers for the 1^st floor and the ground floor flats. I find they are part and parcel of the act of transfer and appointing them as the nominees of the two properties. Furthermore, the defence of estoppel can only be relied on if there was a change of position. Mr. Man suffered no detriment from Madam Wu’s declaration in the nomination; on the contrary, he benefited from it, as he was able to obtain a loan by mortgaging the suit property for a period of 18 years. And, he had the enjoyment and the use of the suit property for the first 7 years when he was living in the suit property.

[71] Should my interpretation and application of Tinsley v. Milligan be wrong and that Madam Wu’s claim is defeated by the clean hands rule due to the illegal act to reduce the stamp duty payable on the suit property, it is an established and undisputed fact that she has occupied the suit property after she reconverted the suit property and the 2^nd floor flat into two separate flats and sold the 2^nd floor flat in October 1995. She has been living there without any evidence of prior consent or licence from Mr. Man, this would afford her a claim for adverse possession against the registered owner of the suit property.

[72] Section 7 of the provided:

"7. Limitation of actions to recover land

…………

(2) No action shall be brought by any other person to recover any land after the expiration of 12 years from the date on which the right of action accrued to him or, if it first accrued to some person through whom he claims, to that person."

[73] Section 8 of the Limitation Ordinance further stated:

"8. Accrual of right of action in case

of present interests in land

(1) Where the person bringing an action to recover land, or some person through whom he claims, has been in possession thereof, and has while entitled thereto been dispossessed or discontinued his possession, the right of action shall be deemed to have accrued on the date of the dispossession or discontinuance."

[74] Section 17 of the Ordinance further provided:

"17. Extinction of title after expiration of period

Subject to the provisions of section 10, at the expiration of the period prescribed by this ordinance for any person to bring an action to recover land (including a redemption action), the title of that person to the land shall be extinguished."