LAM SAN KEUNG, the Executor of the Estate of PONG PING KUEN v. BEAUTI RICH INTERNATIONAL ENTERPRISE LTD

HCA 2390/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2390 OF 2012

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JUDGMENT

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The facts

1.  The fundamental facts that I now state are essentially not in dispute. Where there is a dispute as to the facts I shall indicate that and how I have resolved that dispute.

2.  On 10 April 2000, the plaintiff, Mr Pong, became the registered owner of a three story property at 38 San Tsuen St, Tsuen Wan, (“the property”).  At that time his wife was the owner of another, smaller, property, at 2/F, 6 Yi Pei Square in Tsuen Wan.  Mr Pong resided there with his wife, Madam Au Yeung Kee (“Madam Au Yeung”).

3.  The property had an agreed value, in 2012, of some $50 million.

4.  In 2008, Mr Pong, having retired in 2002, suffered a stroke.  The unchallenged case for Mr Pong is that after the stroke Mr Pong entrusted his youngest son, C K Pong, his next friend in these proceedings, with handling Mr Pong’s financial affairs.  Mr C K Pong lived at the Yi Pei Square property with his parents, and helped take care of his father.

5.  In 2000, Mr Pong’s second son, Pong Chin Hung, passed away, childless. In October 2010, Madam Au Yeung passed away, intestate.  In February 2011, Mr Pong’s eldest son, Pong Chin Kwan, passed away.  Mr Pong has a daughter, Pong Miu Hing (“Ms M H Pong”), who lives in Germany, and visits her father on about a yearly basis.

6.  The eldest son, Pong Chin Kwan, had cohabited intermittently with a woman named Lui Lai Wah, with whom he had had three children, including a son, Kimson Pong Kiu Chun (“Kimson Pong”).  They lived on 3/F of the property.  The unchallenged evidence (neither Lui Lai Wah nor Kimson Pong were called to give evidence) was that on a number of occasions Lui Lai Wah had ceased to live with Pong Chin Kwan. 

7.  After Pong Chin Kwan’s death in February 2011, Lui Lai Wah moved out of the property.  C K Pong’s evidence, unchallenged, was that he lost contact with Lui Lai Wah and her children after the death of his brother.

8.  In November 2011, Mr Pong suffered a second stroke, and C K Pong was no longer able to sufficiently care for Mr Pong at home.  Mr Pong then began to reside at the Centre of Wellness, Hong Kong Sheng Kung Hui, Ngau Tau Kok.  While Mr Pong was there, efforts were made in respect of rehabilitation, but it appears that those efforts were largely unsuccessful.

9.  Consequently, from February 2012, Mr Pong moved to the Yan Chai Hospital Jockey Club Care & Attention Home (“the Yan Chai Home”).  C K Pong then employed a Filipino domestic helper, Zenadia Pareja Frederico (“Zenadia”), to help care for Mr Pong in the Yan Chai Home.

10.  Madam Au Yeung Kee’s estate has recently been distributed.  The property she owned was her only significant asset.  It had a value, in the draft estate accounts, of around $11 million.  Mr Pong’s youngest son (and next friend in these proceedings), C K Pong holds letters of administration in her estate.  That property has now been sold for $18.5 million. 

11.  It was agreed that under an intestacy, Mr Pong would take the first $500,000 in the estate, and half the remainder.  The other half of the remainder is shared equally between C K Pong, Ms M H Pong, and the three children of his deceased eldest son.  Mr Pong’s interest in the estate, now liquid, was accordingly in the order of $9 million.  At the time of the events with which this trial is concerned, the estate had not been distributed.

The available witnesses

12.  Although Zenadia’s involvement in this matter was referred to by a number of witnesses called by Beauti-Rich, remarkably, she was not called to give evidence.  In particular, it was asserted by Beauti-Rich’s witnesses that instructions had been given to the Yan Chai Home by C K Pong that nobody could visit Mr Pong without first obtaining C K Pong’s permission. Nobody from the Yan Chai home was called to verify this assertion, nor was there anything in the patient notes from the Yan Chai Home to this effect.

13.  As will subsequently be shown, Mr Pong left the Yan Chai Home on at least three occasions to attend meetings at a restaurant, and C K Pong knew nothing of this.  That he left home and attended those meetings, having been taken there apparently by Zenadia, is entirely inconsistent with the proposition that C K Pong’s permission was required before anybody could visit Mr Pong.

14.  C K Pong denied the assertion.  If such an instruction had been given, I have no doubt at all that Zenadia would have been able to say so.  She was not called.

15.  Kimson Pong took an active role in receiving the deposit that was paid by the purchasers of the property, a sum of $2.6 million.  It was agreed that after receiving the cheque, he took Mr Pong to the bank, where the cheque was banked, and the proceeds immediately withdrawn and given to Kimson Pong. 

16.  That circumstance stood in marked contradistinction to the case advanced by Beauti-Rich, that Mr Pong was not being given any money by his son, and that he needed to sell the property in order to be able to buy noodles when he went out from the Yan Chai Home.  In the light of Mr Pong’s purported “gift” of the proceeds of the deposit to Kimson Pong, the absence of any evidence from Zenadia, the assertion that Mr Pong needed money to buy noodles as a justification for the sale of the property is simply unbelievable.

17.  The deposit has subsequently been repaid by Kimson Pong.

18.  Having regard to the fundamental issue, whether or not Mr Pong understood the document of sale that he signed in a meeting at which both Kimson Pong and Lui Lai Wah were present, it is extraordinary that they were not called to give evidence.  There was no suggestion at all that they were not available to give evidence.

19.  The clear inference to be drawn from the failure to call Lui Lai Wah, Kimson Pong and Zenadia to give evidence is that the evidence they would have given would not support the proposition being asserted by Beauti-Rich, that Mr Pong fully understood, appreciated, and agreed to the sale in terms of the documents signed.

The sale of the property

20.  On 25 May 2012, Mr Pong was taken by Zenadia to a meeting at a restaurant.  Also at the meeting were two brothers, Ng Chi Po (“C P Ng”), and Ng Sang Chun (“S C Ng”), Zenadia, Ng Hong Ying, of Ng & Fang (“Solicitor Ng”), said to have been instructed by Mr Pong.  Also present was a friend of the Ng brothers, Chan Wai Cheong (“C W Chan”), said also to be a friend of Mr Pong. 

21.  At the meeting there were discussions concerning the sale of the property by Mr Pong to the Ng brothers.  It does not appear that any formal agreement was reached at that meeting, although the evidence of the Ng brothers was that Mr Pong expressed his willingness to sell the property at $24 million and that they agreed to that offer.

22.  C K Pong was not told of this meeting. 

23.  Although, as will be seen, Solicitor Ng attended each of three meetings concerning the sale of the property, explained documents to Mr Pong, and was referred to by witnesses for Beauti-Rich, he was not called to give evidence.  The fact that he was not called by Beauti-Rich could not be explained by any assertion of legal professional privilege.  Solicitor Ng’s entire file for the actions he undertook, apparently on the instructions of Mr Pong, in relation to the sale of the property, was produced.  It was plain that there had been a waiver of any privilege.

24.  In those circumstances, it is simply extraordinary that Solicitor Ng was not called to give evidence.  Who better to testify as to the mental capacity of his client then an independent solicitor who gave advice on the contract at issue?  The only inference that can be drawn from the failure to call Solicitor Ng to give evidence is that the evidence that he would have given would not have supported the case for the defence.

25.  On 4 June 2012, Mr Pong’s identity card was reported as having been lost.  It was not in fact lost, but was in the possession of C K Pong.  In the circumstances in which C K Pong was taking care of his father’s affairs, albeit in an informal manner, it is not surprising that he held his father’s identity card.  No complaint can be made about that fact.

26.  Subsequently, with the assistance of Kimson Pong, a replacement identity card was obtained for Mr Pong.  The replacement identity card was used where necessary in respect of the steps surrounding the purported sale of the property.

27.  On 6 June 2012, there was a second meeting at the same restaurant, attended by the same people.  Again the question of the sale of the property was discussed.  Again, the Ng brothers said that Mr Pong was willing to sell the property at $24 million and after the meeting they authorised their solicitor to take care of matters.

28.  Again, C K Pong was not told of this meeting.

29.  On 21 June 2012, the defendant company, Beauti-Rich was incorporated. The shareholders of the company were C P Ng, who held 4,990 shares and S C Ng, who held 5,000 shares.  Both were directors of the company.  Both were known to W C Chan.

30.  On 16 August 2012, believing that they had received instructions from Solicitor Ng, acting for Mr Pong, B I Appraisals Limited completed a valuation certificate in respect of the property certifying the market value of the property as at 12 June 2012 at HK$32,500,000.  The valuation certificate was sent by B I Appraisals to Solicitor Ng.

31.  The valuation was partially paid for by C P Ng, by a cheque drawn on his account.  The balance of the valuation fee of $7,000 was paid for by Cheax (Tse) Yung Wing (“Mr Tse”).  There was no attempt to explain why Mr Tse should contribute half the payment for a valuation, purportedly requested by the seller of a building, when the other half of thepayment was made by the purchaser of the building.No attempt was madeto explain why Mr Tse did not give evidence as to these circumstances.

32.  It is quite clear that although the instructions in respect of the valuation physically came from Solicitor Ng, it was in fact C P Ng who made the arrangements for the valuation.

33.  It was not possible for counsel for Mr Pong to properly explore this aspect of the matter in cross examination because during his cross-examination, C P Ng suffered an angina attack, and was hospitalised and unable to complete giving evidence.  Mr S C Ng, when cross-examined about this matter asserted that he knew nothing of it, but that he was merely following his brother’s instructions.

34.  Mr Bruce accepted that notwithstanding that the cross-examination was not completed, it is open to me to reach a conclusion on any issue not yet dealt with in cross examination, so long as I have due regard to the fact that cross examination was not complete.

35.  No explanation was contained in any of the defence witness statements as to why the valuation report would be obtained by the Ng brothers, paid for in part by them, but the instructions structured to make it appear that it was Mr Pong who had arranged the valuation report through his own solicitor.  The matter is compounded by the failure to call Solicitor Ng and Mr Tse.

36.  The clear inference that arises from the evidence, even making appropriate allowance for the incomplete cross examination of C P Ng, is that obtaining this valuation was part of the devices being used by which it could later be said that Mr Pong was in control of his faculties, and had been dealt with fairly.

37.  The evidence was that the valuation obtained showed that the property was worth $32.5 million.  It was said that Mr Pong, in the light of this valuation report, (there was no evidence he ever saw or knew of it), requested upward adjustment to the property price.  The Ng brothers increased their offer to $26 million.  There was no explanation as to why, if there was to be an increase in the purchase price it was only $2 million more than the original price, and $6.5 million less than the valuation report.

38.  The evidence of the Ng brothers was that on 24 August 2012 they instructed their solicitor to inform Mr Pong’s solicitor that they were willing to increase the price to $26 million, and subsequently agreement was reached. They were subsequently informed that the agreement for sale and purchase had been signed at a price of $26 million.  Both had attended the earlier two meetings, they did not attend the meeting at which the sale and purchase agreement (“the SPA”) was signed by Mr Pong.

39.  On 11 September 2012, in a meeting at a restaurant, Mr Pong signed the SPA to sell the property to Beauti-Rich for the sum of HK$26 million, with a deposit to be paid of HK$2,600,000.

40.  Present at the meeting were Mr Pong; W C Chan; Yeung Kwai Sang, an acquaintance of Mr Pong (and apparently known to the Ng brothers); Zenadia; Kimson Pong; Lui Lai Wah; and Solicitor Ng. 

41.  Mr Pong signed the SPA after it had been purportedly explained to him by Solicitor Ng.  Aspects of Solicitor Ng explaining the document, and Mr Pong signing it, were recorded on videotape during the meeting.  The video formed part of the evidence before me.

42.  The video shows that Mr Pong sits at the restaurant table, next to Solicitor Ng during the explanation.  He appears to take little interest in the explanation and says nothing.  When he is asked to sign he first hands the pen to Lui Lai Wah and asked her to sign for him.  She declines and says that he must sign.  He is shown an earlier example of his signature and asked by Lui Lai Wah to copy that.  It is apparent that he is struggling with the matter but ultimately makes a mark for a signature.

43.  Yet again, C K Pong was not told of this meeting, nor of the fact of the sale.

44.  On 26 September 2012, Beauti-Rich registered the SPA in the Land Registry.

45.  In October 2012, C K Pong applied to the Chong Hing Bank Ltd for a release of the mortgage over the property, which had been fully paid off.  The Bank sent the release to C K Pong.  Shortly thereafter, C K Pong learned of the registration of the SPA, and took steps to commence these proceedings.

46.  On 17 and 20 November 2012, Mr Pong was examined by two approved doctors under the Mental Health Ordinance who certified that he was incapable, by reason of mental incapacity, of managing and administering his property and affairs.

47.  On 29 November 2012, C K Pong received a valuation of the property from S K Pang Surveyors & Co Ltd.  The open market value was assessed at HK$55 million.

48.  On 30 November 2012, by ex parte Originating Summons, HCMH 84/2012, C K Pong made application to this Court for an enquiry under section 7 of the Mental Health Ordinance, Cap 136.  In the required certificate of family and property, C K Pong stated Mr Pong’s assets as being the property, which produced a rental income of $95,000 per month and another property which produced an income of $8,000 a month.  Expenses on the property were $8,000 a month and on the other property, $2,000 per month.

49.  The certificate also stated that C K Pong was aware that Mr Pong had made a will, leaving all his property to himself, C K Pong, and Ms M H Pong.  It is to be noted that no provision was made for either Lui Lai Wah or Kimson Pong.

50.  On 14 December 2012, an order was made by Au Yeung J appointing C K Pong as next friend for the purposes of commencing this action.  The action was duly commenced on 27 December 2012.During December 2012, Mr Pong was moved to the United Christian Nethersole Care Home in Kwun Tong.

51.  The sale of the property was due for completion on 11 January 2013, but because of these proceedings, completion did not take place.

52.  On 14 March 2013, an order was made by Andrew Chan J declaring that Mr Pong was incapable by reason of mental incapacity of managing and administering his property and affairs.  A solicitor, Mr Lam San Keung was appointed his Committee.

The pleadings

53.  The Amended Statement of Claim (“ASoC”) pleads:

(i) that Mr Pong was the registered owner of the property;

(ii) that an agreement for sale and purchase (SPA) between Mr Pong and Beauti-Rich, dated 11 September 2012 was registered against the property in the Land Registry:

(iii) that the consideration for the sale price was $26 million, with a deposit paid in the sum of $2.6 million;

(iv) that the SPA was to be completed on or before 11 January 2013;

(v) that the SPA was executed by Mr Pong without knowledge, understanding or approval of its contents in that he lacked the requisite mental capacity to enter into a contract (with particulars);

(vi) that Mr Pong’s mental incapacity should have been obvious to Beauti-Rich (with particulars);

(vii) alternatively, that the SPA was concluded under suspicious circumstances indicating that Beauti-Rich entered into the transaction with actual or constructive notice of Mr Pong’s lack of mental capacity (with particulars);

(viii) that by reason of the foregoing matters, the contract was null and void and/or voidable at Mr Pong’s option.

54.  Paragraph 11 of the ASoC contains the following plea:

“ Further or alternatively, [Mr Pong] avers that the AS&P was not his deed, given that he executed it when he was mentally incapacitated and without knowledge, understanding or approval of its contents.”

The pleadings noted at §53(v) – (vii) above were then repeated.

55.  The Amended Defence and Counterclaim (“ADC”) admitted the paragraphs noted at §53(i) – (iv).

56.  In response to the pleading noted at §53(v) Beauti-Rich admits knowing that Mr Pong was of advanced age, and that he had suffered from a stroke rendering him wheelchair-bound. Otherwise the paragraph was denied.  It was further asserted that Mr Pong was capable of understanding, knew and approved the contents of the SPA, and had the necessary mental capacity to enter into the SPA (with particulars)

57.  Paragraph 8 of the ADC asserted that (at the time of the SAP), no Committee had been appointed in respect of Mr Pong under the Mental Health Ordinance, and in so far as Mr Pong relied upon medical reports by Dr Cheung Hung Kin or Dr Au Ming Kai, both psychiatric specialists, there was no proper foundation for the doctors to hold the opinion that Mr Pong was mentally incapacitated.

58.  Paragraph 9 of the ADC sets out particulars whereby Beauti-Rich asserts that it was not aware of Mr Pong’s mental incapacity and had taken reasonable steps to ensure that Mr Pong had the mental capacity to enter into the AS&P.

59.  In response to the paragraph noted at §53(vii) above, Beauti-Rich asserts, with particulars, that there was nothing suspicious about the circumstances in which the SPA was made.

60.  The plea to paragraph 11 of the ASoC is a simple denial, and a repetition of the relevant paragraphs of the ADC responding to the repeated paragraphs in the ASOC.

61.  The counterclaim is a claim for specific performance of the SPA, or alternatively damages.

The relevant law

62.  The claim is based upon two alternative legal propositions.  First, the plaintiff relies upon the principle in Imperial Loan v Stone[1892] 1 QB 599.  Second, the plaintiff relies upon non est factum.

63.  The principle in Imperial Loan is that where a party to a contract is mentally incapacitated, and the other contracting party knows of that mental incapacity, the contract is voidable at the option of the incapacitated party.  In York Glass Co Ltd v Jubb[1925] All ER 285, the principle was extended so that the contract will be voidable for a party’s mental capacity when the other contracting party knew or ought to have known of that incapacity.  That extension was confirmed in the recent Supreme Court decision in Dunhill v Burgin (Nos 1 and 2) [2014] 1 WLR 933.

64.  The necessary knowledge of the contracting party may be direct, or it may be obtained via an agent: see El Ajou v Dollar Land Holdings plc[1994] 2 All ER 685.  Consequently, a company (as the defendant is in this case) may be seized of the appropriate knowledge through its directors.

65.  The standard of mental capacity, and the level of understanding that is required, depends on the circumstances of the transaction.

66.  I do not understand these propositions of law to be in dispute.

67.  As to the plea of non est factum, Mr Bruce first contended that it was not open on the pleadings for the plea to be raised.  He is quite correct to say that the defence (or the basis of a claim to set a transaction aside) must be specifically pleaded: see Ming Shiu Chung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334, at §87, where Ribeiro PJ, delivering the judgment of the court said, having first stated the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature:

“ The vitiating factors at common law include fraud, mistake, misrepresentation, non est factum, duress, undue influence and lack of mental capacity: see, for instance, Blay v Pollard & Another[1930] 1 KB 628; and Gillman v Gillman (1946) 174 LT 272. To disown a signed legal document, facts constituting the particular vitiating factor relied on must be pleaded and established by the evidence.”

68.  Paragraph 11 of the statement of claim complies completely with this requirement.  The assertion that it is a claim of non est factum is clear from the use of the expression:

“ … the AS&P was not his deed.”

That is a clear plea of non est factum.  The basis for the assertion is seen in the statement that Mr Pong:

“ … executed it when he was mentally incapacitated and without knowledge, understanding or approval of its contents.”

The facts and matters upon which that statement is made are those contained in the earlier paragraphs referred to in §53(v) – (vii) above, and which are specifically relied upon.

69.  It is quite clear that non est factum has been properly pleaded. Whether the evidence is sufficient to support the plea is a matter that will be dealt with later in this judgment.

Mental incapacity and the medical evidence

70.  The fundamental issue plainly is whether or not, at the time he signed the SPA, Mr Pong was suffering from dementia to such an extent that he was mentally incapacitated and without knowledge, understanding or approval of its contents.

71.  Two psychiatric specialists examined Mr Pong just two months after he signed the SPA.  Both certified that at that time Mr Pong was mentally incapacitated and incapable of managing and administering his property and affairs, and consequently that he was a mentally incapacitated person within the meaning of s 2 Mental Health Ordinance.  Both put reports before the court, and both were cross examined.

72.  Their evidence was that Mr Pong suffered from a moderate to severe vascular dementia.  It is particularly important that the evidence of both was that vascular dementia is a condition which occurs by way of “steps”, each step resulting in a worsening of the condition.  Unlike other conditions of dementia such as Alzheimer’s disease, it is usually possible in the case of vascular dementia to identify the particular steps resulting in the dementia. 

73.  In the present case, I have been left in no doubt at all that the relevant step causing the state of dementia suffered by Mr Pong at the time he signed the SPA was the stroke he suffered in November 2011.  That is entirely consistent with the failure of the Centre of Wellness to effect any realistic rehabilitation, leading to the requirement to move Mr Pong to the Yan Chai Home.  There is no evidence of any other significant cerebral events being suffered by Mr Pong between November 2011 and September 2012.

74.  At the request of the defence Mr Pong was examined by a consultant psychiatrist, Dr Lai Tai Sum Tony, on 20 August 2014, virtually two years after the SPA was signed.  In his report, it was Dr Lai’s opinion that there was no evidence of mental incapacity on the part of Mr Pong in September 2012.  His proposition was essentially that the diagnosis in November 2012, which he did not challenge, could not be extrapolated retrospectively to September 2012.

75.  In cross examination he subsequently modified this position to say that there was no evidence of mental incapacity before September 2012, so that one could not rule out that Mr Pong might have had adequate mental capacity at that time.

76.  It is significant that Dr Lai agreed that the appropriate diagnosis was vascular dementia, and that he accepted the “step” sequence proposition.  In re-examination, Dr Lai accepted that from Mr Pong suffering from vascular dementia in November 2012, a diagnosis which Dr Lai accepted, Mr Pong must have suffered major brain damage for there to be that result.  But there was no evidence at all that between September 2012 and November 2012, Mr Pong suffered any such event.

77.  I prefer the evidence of Dr Cheung and Dr Au for the following reasons.

78.  There was no dispute between the doctors that the appropriate diagnosis was vascular dementia.  There was no dispute between the doctors that vascular dementia does not arise on a slow gradual basis, but as a result of specific cerebral events.  There was no evidence at all of Mr Pong suffering any cerebral event between the time he signed the SPA and the examination by the psychiatrists in November 2012. 

79.  As I have said, the cerebral event suffered by Mr Pong in November 2011, and his subsequent condition throughout 2012, is entirely consistent with Mr Pong suffering from vascular dementia to the extent of relevant incapacity throughout the whole of 2012.

80.  In the absence of any cerebral event between September 2012 and November 2012, I accept the evidence of Dr Cheung and Dr Au, and reject that of Dr Lai.

81.  I am accordingly satisfied that when he signed the SPA Mr Pong was suffering from vascular dementia giving rise to him being incapable by reason of mental incapacity of managing and administering his property and affairs.Simply, he had no understanding of the document he signed.

82.  Dr Cheung had seen the video recorded at the time Mr Pong signed the SPA.  His evidence was that Mr Pong’s demeanour at that time was exactly the same as it was when he examined Mr Pong.  That demeanour was, Dr Cheung said, of a man who, while apparently aware ofhis surroundings, was only acting passively, and following the instructionsof people around him.  Dr Cheung pointed out that the only point at which Mr Pong took initiative was when he asked Lui Lai Wah to sign the SPA.  That act demonstrated that Mr Pong could not have properly understood that he was in fact selling his own property.

83.  Dr Cheung pointed out that the lack of communication on the part of Mr Pong could not be explained by embarrassment at a speech slurred but was consistent with patients suffering from dementia who lose their speech due to a poverty of ideas or lack of content in the brain.

84.  No weight at all can be placed upon a brief medical report from a general practitioner, Dr Ting Kar Wai, purporting to assert that Mr Pong was capable of making a clear decision.  This report was said by K S Yeung to have been obtained at Mr Pong’s request, “because he [Mr Pong] wanted to know about his own mental capacity”.  When pressed on this in cross examination Mr Yeung said that it was himself, Mr Yeung, who wanted to know about Mr Pong’s mental capacity.

85.  The explanation is remarkable.  That a mere “friend” would “want to know” about another man’s mental capacity, and that that man would agree to go to a doctor for an examination, is itself a demonstration that that man is not aware of what is happening but simply does what he is asked to do.

The nature of capacity required for a valid transaction

86.  I accept Ms Cheng’s submission that there is no fixed standard of mental capacity which is requisite for all transactions.  The level of understanding required will depend on the circumstances of the transaction. The matter is explained in In Re Beaney[1978] 1 WLR 770 at 774E–F:

“ In the circumstances it seems to me that the law is this. The degree or extent of understanding required in respect of any instrument is relative to the particular transaction which it is to effect. In the case of a will the degree required is always high. In the case of a contract, a deed made for consideration or a gift inter vivos, whether by deed or otherwise, the degree required varies with the circumstances of the transaction. Thus, at one extreme, if the subject matter and value of a gift are trivial in relation to the donor’s other assets a low degree of understanding will suffice. But, at the other extreme, if its effect is to dispose of the donor’s only asset of value and thus, for practical purposes, to pre-empt the devolution of his estate under his will or on an intestacy, then the degree of understanding required is as high as that required for a will, and the donor must understand the claims of all potential donees and the extent of the property to be disposed of.”

87.  In the present case it cannot be said that the sale of the property pre-empts the devolution of Mr Pong’s estate, as part of his estate necessarily comprises the sum of approximately $8 million that he would have received from his late wife’s estate.  Notwithstanding that, the evidence establishes that this was the sale of a $50 million property at a very substantial undervalue, nearly 50%.  It was the disposal of 86% of Mr Pong’s estate.

88.  In those circumstances the standard of understanding required of the vendor of the property must be very high, if not that of the standard of the ability to make a will, then close to that standard.  There is no doubt on the evidence that Mr Pong did not have the requisite capacity to understand properly the transaction.

Non est factum

89.  A person signing a document can rely on the plea of non est factum if he shows the following three factors:

(i) at the time he signed the document he was unable to understand it;

(ii) the document was fundamentally or radically different from what he believed he was signing; and

(iii) he was not careless.

90.  Lord Reid in Saunders v Anglia Building Society[1971] AC 1004 at 1016A described the circumstances in which a plea of non est factum applies in these terms:

“ …in favour of those who are permanently or temporarily unable through no fault of their own to have without explanation any real understanding of the purport of a particular document, whether that be from defective education, illness or innate capacity.”

91.  A particular factor that distinguishes a plea of non est factum from the principal in Imperial Loan v Stone is that on a plea of non est factum, it is not necessary for the other party to have known of the disability.

92.  The circumstances in this case are such that I am satisfied that at the time he signed the SPA Mr Pong had no proper appreciation or knowledge of the document that he was signing.  The document was fundamentally and radically different from whatever he thought it was.  I have no doubt at all that he would not have been willing to sell a building worth $50 million for the sum of $26 million.  I have no doubt at all that he would not have disposed of 86% of his estate for 50% of its value, and without any knowledge at all as to who might receive the proceeds of sale.

93.  In the circumstances of Mr Pong’s incapacity it cannot be suggested that he was careless in any way.

Imperial Loan v Stone

94.  The claim of non est factum having succeeded, little need be said about the principles in Imperial Loan.

95.  The additional factor required to establish a claim under this principle is that the other party knew or ought to have known of the incapacity: see York Glass Co Ltd v Jubb[1925] All ER 285 at 292F, and Dunhill v Burgin (Nos 1 and 2)[2014] 1 WLR 933 at [1], where Baroness Hale, delivering the judgment of the court, says:

“ … the normal rule of English law … is that a contract made by a person who lacks capacity is valid unless the other party to the contract knew or ought to have known that [that person] lacked that capacity in which case it is voidable …”

and at [25]:

“ In Imperial Loan Co Ltd v Stone[1892] 1 QB 599, the Court of Appeal held that a contract made by a person who lacked the capacity to make it was not voided, but could be avoided by thatperson provided that the other party to the contract knew (or, it isnow generally accepted, ought to have known) of his incapacity.”‌

96.  The whole of the circumstances of this case lead inexorably to the conclusion that the directorial mind of Beauti-Rich, the Ng brothers, knew or ought to have known of Mr Pong’s incapacity. 

97.  These are factors which I take into account:

(i) the devious way in which Mr Pong was taken to a restaurant without the knowledge of his only surviving son;

(ii) the totally unsatisfactory explanation for the sale of the property as being a requirement on the part of Mr Pong to have cash to buy noodles, when the entire deposit was immediately gifted to Kimson Pong;

(iii) the arrangement for Mr Pong of a solicitor whom he had never previously met;

(iv) the peculiar circumstances in which the valuation report was obtained and paid for, at least in part, by the purchaser Ng brothers, and in part by Mr Tse, who had no apparent connection with Mr Pong, with the request for the valuation report dressed up to look as though Mr Pong had requested the report through his own solicitor;

(v) the absence of an explanation why, in the face of a valuation report putting the property at value of $32.5 million, an offer of $26 million might be accepted;

(vi) the videotaping of the act of signing the SPA;

(vii) the unsatisfactorily explained obtaining of a medical report from Dr Ting; and

(viii) the unexplained absence of evidence from Zenadia, Solicitor Ng, Kimson Pong and Lui Lai Wah, and Mr Tse.

98.  The only inference which can be drawn from all of the circumstances is that the steps taken by purchasers were steps taken by persons who knew or ought to have known that Mr Pong was suffering from incapacity and an inability to understand the transaction they wished him to enter into.  Had this been a genuine arm’s length transaction in which the Ng brothers believed they were dealing with a man of full capacity none of the above events would have occurred.

99.  I am accordingly satisfied that the directors of Beauti-Rich, the brothers Ng knew or ought to have known that Mr Pong was suffering from a mental incapacity to the extent that he had no proper ability to understand the transaction.

Disposal

100.  There will accordingly be a declaration that the Agreement for Sale and Purchase executed by Mr Pong on 11 September 2012, to sell the property to Beauti-Rich for the sum of $26 million is null and void.

101.  The relief sought by Beauti-Rich for specific performance of the SPA is refused.

Costs

102.  There will be an order nisi that the defendant must pay the plaintiff’s costs, on the claim and counterclaim, to be taxed on a party and party basis, with a certificate for two counsel.