WONG KWOK LEARN BALDWIN AND ANOTHER v. INTERNATIONAL TRADING CO LTD

HCMP 2397/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2397 OF 2008

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REASONS FOR DECISION

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1.  This is a bold application which in effect sought the court’s approval of a scam.  I dismissed it after the hearing.  The following are the reasons.

2.  The background facts, disclosed in what in effect was an ex parte application (by way of originating summons), were in short as follows.

3.  The 1^st plaintiff (“P1”) and his late father (“the deceased”) were accountants practising in Hong Kong.  The defendant was in gist a corporate vehicle owned by them (and other family members) for holding real properties.

4.  In substance, this action sought orders from the court to vest shares in the defendant unto the plaintiffs (P1 in his own right and P2 as the executor of the deceased’s estate).

5.  In the 1960’s, P1 and the deceased were the professional advisers to the now-defunct Canton Trust & Commercial Bank Ltd. (“the Bank”).  Around the time of the Bank’s demise, the Bank commenced an action against them for professional negligence.

6.  According to P1’s affidavit:-

“… about mid 1969 … my father considered it in our best interest to transfer our shares in [the defendant] to some other persons … so as to put our property in the shares … beyond the reach of our potential creditors … It was our common understanding at the time that we would transfer our shareholding for a pretended consideration which was not intended to be paid” (para. 14 thereof).

7.  The scheme was in fact implemented when their shares were purportedly “sold” to two people who were said to reside outside the jurisdiction (either in Taiwan or the US).

8.  While acknowledging the purpose of the transfer might have been illegal, it was contended that the court should nevertheless grant the relief sought because the scam was not “carried into effect”.

9.  The evidential basis allegedly in support is this:-

“… the litigation with the Bank was subsequently settled in the early 1970s.  The matter did not proceed to full trial and the Bank did not obtain any judgment against us.  Therefore, there was simply no need to carry out the illegal/improper purpose anymore and the Bank was not aggrieved or prejudiced by the trust arrangements … ” (para. 30 thereof).

10.  The assertion that the scam was not “carried into effect” must have been premised on the case that the scam was not operative on the mind of the Bank.  Indeed, in Tribe v. Tribe [1996] Ch. 107 (a decision relied on by the plaintiffs), this was considered to be the basis for concluding that the illegal transaction was not “carried into effect”:

“Having then said that there was an established exception from the rule in cases where the illegal purpose had not been carried into effect, the judge made these important findings:-

‘There is no evidence that [the plaintiff] carried his illegal purpose into effect in any way.  The transfer was … never shown to the landlords or any other creditor.  The negotiations for release from the liability … were conducted by [the defendant] alone’” (p. 116).

11.  The affidavit in this action falls far short of establishing such an important matter:-

(a)  details about the Bank’s claim are totally lacking;

(b)  particulars were not given about the negotiations which led to the settlement of the Bank’s claim;

(c)   in particular, nothing was mentioned as to why the Bank agreed to settle its claim;

(d)  likewise, nothing was mentioned as to whether the financial status of P1 and/or the deceased might have had any effect on the decision to settle, or why the Bank was not aggrieved or prejudiced.

12.  The decisions in Tribe and in Tinsley v. Milligan [1994] 1 AC 340 cannot advance the plaintiffs’ case.  Both decisions concerned litigants who were parties to the illegal transactions and who attempted to benefit from them.  In Tribe, the court concluded that the illegal transaction was not “carried into effect”; in Tinsley, the claimant repented and confessed the illegal transaction to the affected party.  It was in such circumstances the courts permitted the claimants in both decisions to set aside the illegal transactions.

13.  This action is very different.  It is an action commenced in the hope of obtaining the court’s assistance to perfect title to properties which were earlier “disposed of” for admittedly illegal/improper purpose.

14.  The plaintiffs also argued that they should be able to obtain relief based on their alternative case of resulting trust; there is no need for them to rely on the illegality for such purpose.

15.  I disagree.  There is no difference in substance between the two cases.  In order to establish a resulting trust, the plaintiffs must ask the court to find that, despite its appearance, the “sale” was a mere scam in that title was never intended to pass, and the share price was never intended to be paid.

16.  In deciding to dismiss this action, I also bore in mind the time lapse of nearly 40 years; the purported “sale” took place in July and August 1969 and this action was commenced in December 2008.  No satisfactory explanation was given for the delay.  It very likely resulted in the absence of a meaningful opposing party, as well as the lack of reliable evidence regarding what happened between the “sale” and the settlement of the Bank’s claim.

17.  After an exchange between the court and the plaintiffs regarding the matters set out in para. 11 above, the plaintiffs sought an adjournment of the hearing to enable them to file and serve further affidavit evidence to “patch up” the evidence in support.

18.  I refused the application.  Apart from the obvious reason that a litigant should be fully prepared for his own application, I refused it because:-

(1)  P1 deposed he no longer had documentary records pertaining to the Bank’s claim (para. 13 thereof);

(2)  any self-serving assertions made by the plaintiffs would likely be motivated by self-interest and lacking in details because of the long lapse of time.