CHEUNG YUK YING ENGRACIA v. MACGREGOR ISABELLA

CACV 120/2022, [2023] HKCA 749

On Appeal From [2022] HKCFI 376

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 120 OF 2022

(ON APPEAL FROM HCA NO 2870 OF 2017)

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REASONS FOR JUDGMENT

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Hon G Lam JA (giving the Reasons for Judgment of the Court):

1.  The question in dispute between the parties is whether certain listed shares transferred by the plaintiff to the defendant in 2009 were given to the defendant to be held on trust for the plaintiff or as a gift. After a 4-day trial, Recorder José-Antonio Maurellet SC (“judge”)  held that they were a gift. The plaintiff appealed against his judgment[1] (“Judgment”)  to this court. At the conclusion of the hearing, we dismissed the appeal with costs. Below are the reasons for our decision.

Background

2.  The essential facts which fall within a narrow compass may be stated as follows.  The plaintiff, born in 1932, and the defendant, born in 1947, are cousins.  Though 15 years apart in age, they had always been very close, treating and referring to each other as a sister.  The plaintiff was well off and had, as a doting elder sister, showered the defendant with gifts in earlier years when she was in humbler circumstances.

3.  They were both married but in 2006, the plaintiff’s husband sought a divorce with her and in November 2007, the defendant’s husband (in her second marriage)  died after a long illness.  The plaintiff’s divorce involved contentious ancillary relief proceedings that culminated in a decision of the Court of First Instance in July 2011 and of the Court of Appeal in October 2012.[2]

4.  By June or July 2009, the plaintiff had acquired shares in 10 different Hong Kong listed companies that were the subject matter of this appeal (“Shares”).  They were worth over $7 million in 2009.  The plaintiff held the Shares in scrips which were deposited with a broker, Patrick Chan (“Patrick”), at Prudential Brokerage Ltd (“Prudential”).

5.  One day in June or July 2009, the plaintiff brought the defendant and the defendant’s youngest son from her first marriage, Miguel Cruz (“Miguel”), to Prudential where the plaintiff executed documents for the transfer of the Shares to the defendant.  The Shares were thereafter held in the name of the defendant.  The share certificates continued to be kept at Prudential by Patrick.

6.  The plaintiff’s case was that the transfer of the Shares in 2009 was made pursuant to an oral agreement between her and the defendant that the defendant would hold the Shares on trust for the plaintiff, apply them for the plaintiff’s medical and other expenses, pay all dividends to the plaintiff according to her instructions, and transfer the Shares back to her in accordance with her instructions in future.  In contrast, the defendant contended that the Shares were transferred by the plaintiff to her by way of gift.

7.  Meanwhile, the divorce proceedings between the plaintiff and her husband had progressed to the stage where she filed her Form E (financial statement)  with the Court of First Instance on 31 August 2009.  The plaintiff did not include the Shares in her Form E although she listed some other securities there as her assets.

8.  After the transfer, the dividends paid on the Shares were received by the defendant.  She did not make any payment to the plaintiff referable to the dividends except on one or possibly two occasions. On 5 October 2010, the defendant withdrew $78,897 from her bank account and paid it to the plaintiff.  The sum comprised two dividend payments the defendant had received in respect of two stocks among the Shares in the amounts of $57,630 and $21,267 respectively in September 2010.  In addition, towards the end of 2010 or in early 2011, the defendant gave the plaintiff a cheque for an amount of over $200,000, but the plaintiff did not cash the cheque in the end.

9.  On about 15 November 2010, the defendant gave written instruction to Prudential to cancel the authorisation for the plaintiff to operate the defendant’s securities account with immediate effect.

10.  The plaintiff and the defendant did not apparently have much contact in the next few years.  By 2014 or 2015, they had fallen out with each other.  The plaintiff wanted to get back the Shares.  In 2015 she asked the defendant to return them but the defendant did not, and then refused to respond to her calls or messages.  On 14 May 2015, the plaintiff went to Prudential and took away the share certificates from Patrick.

11.  The plaintiff continued to press the defendant to transfer the Shares back to her but the defendant refused.  Miguel tried to mediate the dispute but did not succeed.  On 12 December 2017, the plaintiff commenced the action below against the defendant claiming principally a declaration that the Shares and the related dividends were held by the defendant on trust for the plaintiff.  In February 2018, the defendant filed a defence pleading that the Shares were a gift to her.

12.  The trial took place in early January 2022.  The plaintiff (who was by then almost 90 years old), the defendant (who was 74 years old)  and Miguel testified before the judge.

The Judgment

13.  The judge identified the sole issue to be the plaintiff’s intention at the time of transferring the Shares to the defendant,[3] and held that the burden lay on the defendant to establish that the Shares were intended as a gift.[4]  He noted the absence of any document or direct message between the parties and the paucity of contemporaneous documents, which in his Lordship’s view rendered the fact-finding exercise quite difficult.[5]

14.  As mentioned above, the judge heard evidence from the plaintiff, the defendant and Miguel.  Patrick’s evidence was not available as he had passed away and neither party had obtained a statement from him.  Nor did either side call a Mr Sit who was acquainted with both of them and who, as might appear from their witness statements, would have had some knowledge of the arrangements surrounding the transfer of the Shares.  This means that, as the judge observed, there was no truly independent witness that gave evidence.[6]

15.  Having reminded himself of various judicial observations on the proper approach to assessing the credibility of witnesses,[7] in paragraph 83 of the Judgment onwards the judge set out what he regarded as the more important factors in his assessment of the evidence but made clear that his evaluation was a holistic exercise.

16.  The judge considered that both the plaintiff and the defendant felt a sense of betrayal by each other but that on most issues both tried to give their evidence as they remembered it at trial.[8]  He did not consider either party to have been motivated primarily by money in pursuing and resisting the claim respectively.[9]

17.  On the absence of documents evidencing the plaintiff’s intention at the time of the transfer, the judge noted that while it would be unusual and embarrassing for the defendant to ask for a document confirming the Shares were a gift, it would have been easy for the plaintiff to ask the defendant to sign a document to record that she was holding the Shares for the plaintiff.  Nevertheless, the lack of such record could not be said to be a strong pointer in the non-commercial setting of the case.[10]

18.  The judge noted that the parties had a relationship as close as two sisters for over half a century and had become even closer as a result of the plaintiff and the defendant suffering from divorce and bereavement respectively.  There was a pattern of presents and doting from the plaintiff in that relationship.  Whilst the value of previous presents was considerably lower, the Shares only represented a relatively modest percentage of the plaintiff’s wealth at the time which stood at about $120 million.[11]

19.  In 2009 the plaintiff was 77 years old.  Her husband had left her and her only daughter was estranged from her and had not been in contact for many years.  The plaintiff had no real incentive to keep so much money when there were no other obvious recipients worthy of her generosity and she had no other immediate relatives.  The defendant and Miguel were there for her when she most needed support and company.  This made giving the Shares not particularly improbable and on the contrary quite probable.[12]

20.  The judge accepted that the plaintiff might well have been influenced in her decision to make the transfer of Shares by what had happened to a friend of hers who had suffered a stroke in February 2007 and lost self-care ability overnight.  She was understandably concerned that if something similar happened to her, she would be in great difficulty, without having anyone to look after her.[13] This however did not support the plaintiff’s case since it was equally consistent with the possibility that having received the Shares, there was a very strong moral expectation that the defendant, one of the few persons the plaintiff could trust with that burden, would take care of the plaintiff if anything happened to her.[14]

21.  The judge accepted the defendant’s evidence that the plaintiff had told the defendant at the time of the transfer of the Shares that it was better to benefit the defendant and Miguel rather than the plaintiff’s ex-husband (“益你地好過益死老鬼”), and considered this to be consistent with the inherent probabilities favouring a gift.[15]  As to the plaintiff’s argument that as a matter of law, a gift to the defendant in such circumstances could still be taken by the family court into account as part of the plaintiff’s assets, the judge noted that there was no suggestion that the plaintiff had sought legal advice on this point before making that decision. The judge also observed that this might simply be a kind and delicate way for the plaintiff to get the defendant to accept her generosity without feeling embarrassed or uncomfortable.

22.  The judge also accepted the evidence of Miguel that after signing the documents at Prudential:[16]

“ … the plaintiff was very happy. She walked near me and linked her arm with mine and said loudly ‘It is so good for your mommy to have a few million more’ (你媽咪就好啦，身家咁就多左幾百萬). I remember this sentence clearly, because the plaintiff’s voice was so loud that everyone there would hear that and that made me extremely embarrassed. Afterwards, the defendant said that if she could not take care of the plaintiff by herself in the future, I would have to take care of the plaintiff. I did not really pay attention to their dialogue and thus I answered in the affirmative with a smile out of politeness.”

The judge did not however consider this evidence to add much to the defendant’s case since Miguel might not have been told about any trust arrangement even if there was one, and what Miguel said about taking care of the plaintiff could be said to be at least consistent with the plaintiff’s case that the purpose of the transfer was to ensure that she would be looked after and that there was money for this purpose.[17]

23.  The plaintiff’s Form E in the ancillary relief proceedings (affirmed on 31 August 2009)  was made close to the date of the transfer of the Shares.  The plaintiff disclosed therein certain securities that were beneficially owned by her but did not mention the Shares at all.  The judge found it unlikely the plaintiff would have forgotten about the Shares. Neither party had suggested that the plaintiff consciously hid the Shares from her ex-husband.  The judge found that the Form E was one “fairly strong indicator” of the plaintiff’s state of mind and intention at that time.[18]

24.  The judge also noted that the plaintiff was unable to produce any report of dividends received by the defendant or documentary evidence of a single demand for dividends before 2015.[19]  The judge accepted that a payment of $78,897 made in October 2010 by the defendant to the plaintiff represented the sum of two dividends received from the Shares in September 2010.  He rejected the defendant’s evidence that the payment was a loan to the plaintiff, but added that it was not possible to find whether the payment was due to a one-off arrangement or a strong moral obligation.[20]  On the other hand, he observed that there was no real explanation from the plaintiff as to why there would be just that one payment to her when there were many dividends received by the defendant either before or after, as shown in the table of dividends appended to the Judgment.  The judge concluded that one or even two payments (assuming the cheque for over $200,000 given to the plaintiff in late 2010 or early 2011 was also attributable to dividends)  did not suffice to evidence a trust arrangement.[21]

25.  The judge noted that after the transfer the Shares continued to be kept physically with Patrick, but did not regard this fact to be probative of either party’s case.[22] As to the incident in May 2015 when the plaintiff took the share certificates from Patrick, the judge thought that it only showed that Patrick believed perhaps that the plaintiff was allowed to deal with the Shares, but did not show that Patrick necessarily knew or had reasons to know that the plaintiff beneficially owned them.  It was only a weak point supporting the plaintiff’s case to a limited extent and the judge felt unable to place much weight on it.[23]

26.  Overall, after evaluating all the evidence, the judge found that the defendant had discharged her burden of proving that the Shares were transferred to her as an outright gift.  He found that the Shares were legally and beneficially owned by the defendant after the transfer and there was no oral agreement or consensus for a trust as alleged by the plaintiff.  Accordingly, he dismissed the plaintiff’s action, but made no order as to costs.

The Appeal

27.  The plaintiff appealed against the Judgment, contending that the judge erred in finding that the Shares were a gift.  There are only two grounds raised, which respectively related to the judge’s rejection of the defendant’s evidence that the sum of $78,897 was a loan to the plaintiff and the incident in May 2015 when the plaintiff took back the share certificates. 

28.  It is well established that the Court of Appeal is not entitled to interfere with the trial judge’s findings of primary fact unless it is satisfied, even though it does not have the advantages of receiving the evidence at first hand, that the judge’s conclusion on the facts is plainly wrong: Ting Kwok Keung v Tam Dick Yuen (2002)  5 HKCFAR 336, §42.  Often, as in the present case, the appellate court examines excerpts of the evidence without “a panoramic vista of the evidence as a whole”; it sees “a selected series of stills, rather than the complete film”.[24]  Even if there is a transcript of the entire trial, the impression left on the judge by witnesses “in their demeanour, in their manner, in their hesitation, in their nuance of their expressions, in even the turns of the eyelid … can never be reproduced in the printed page”.[25] The facilities enjoyed by the trial judge go beyond the ability to watch the witnesses’ demeanour.  Even reading the transcripts at length cannot give the appellate court the same immersion in the atmosphere of the trial.  The judge has observed “the drift and conduct of the case” and “has impressed upon him by hearing every word the scope and nature of the evidence in a way that is denied to any Court of appeal”.[26]  Accordingly, to succeed in this appeal the plaintiff had to meet the heavy burden of demonstrating that despite these advantages enjoyed by the judge but not by this court, we can nevertheless be satisfied that the conclusion of fact he has reached is not one that is reasonably open to him on the evidence.

29.  Mr Robert Pang SC, appearing with Ms Agnes Kwong on behalf of the plaintiff, pointed out that given the paucity of contemporaneous documents, the judge had found the case “quite difficult”.  The plaintiff’s case on appeal was that the fact-finding exercise was a finely balanced one, where the judge did not find the plaintiff to be a dishonest witness, but he failed to appreciate the significance of the two matters raised in the grounds of appeal and thus erred in his finding of fact: Bright Gold Ltd v Mega Well Development Ltd [2020] 4 HKLRD 26, §48.  The two matters, it was said, would individually or cumulatively be sufficient to tip the balance.  It was submitted that the appeal should be allowed and judgment should be entered in the action against the defendant.

30.  For the first ground of appeal, the plaintiff relied on the judge’s rejection of the defendant’s evidence relating to the sum of $78,897.  The plaintiff’s case on that payment was that during lunch on 5 October 2010, the defendant showed her a cheque for the amount of $78,897 and told her it was dividends from the Shares.  After lunch, they went to a nearby bank where the defendant cashed the cheque and handed the cash to the plaintiff.

31.  The defendant’s evidence in contrast was that since 2010, when they went out together the plaintiff had always said to the defendant that it was not convenient for her to spend money as she was dealing with the divorce proceedings, and so the defendant would pay the bills.  Later on, the plaintiff asked the defendant on four occasions to lend her money.  The third occasion was when the sum of $78,897 was lent to the plaintiff.  The defendant did not know why the plaintiff borrowed such an odd sum but said that she had previously shown the plaintiff several dividend notices relating to the Shares, though she did not know if the plaintiff had seen the figures there and decided to ask her for loans in equivalent amounts.

32.  The judge rejected the defendant’s version and found that the sum of $78,897 was plainly attributable to the dividends on two of the stocks among the Shares.  The judge went on to state:

“ 147. While I do not accept the Defendant’s evidence on this point, it is not possible to find whether this was due to a one off arrangement or whether it was due to a strong moral obligation either before or after the Transfer to pay dividends.

148. Although this is to some extent the high point of the Plaintiff’s case, one has to look at this not just together with all the relevant admissible evidence but also one has to consider that there is no real explanation emanating from the Plaintiff as to why there would just be that one payment when there were many more dividends either before or after. A table of dividends post Transfer (‘the Table’)  has been helpfully produced by the parties. While there are some comparatively minor disagreements on some figures these do not matter for the present analysis and I append the Table to this judgment.

149. It seems to me that one or even two (assuming in her favour the other drawn cheque was also attributable to dividend payments)  payments attributable to dividends paid under the Shares do not suffice to evidence a trust arrangement.

150. The Table demonstrates that there is no pattern of payments of dividends arising from the Shares before 2015 nor is there any documentary evidence of a single demand before then. Had there been a pattern of payments this would obviously have been weighty evidence probative of a trust arrangement.

151. Even on the Plaintiff’s case as explained at paragraphs 35-38 of her witness statement, it was the Defendant who would have [shown her] the cheque of HK$78,898 and told her it was the dividend from the Shares. The Plaintiff does not really account for the lack of reporting or payment save that ‘with stable rental income, I had no financial difficulty in my daily life and my health deteriorated afterwards, so I did not particularly make any inquiries with [D] about the dividends’.

152. Of course I appreciate that the relationship was one which was informal and close but nevertheless the lack of any such pattern makes the Plaintiff’s claim less inherently probable.

Other contradictions?

   153.  I note that in the pre-action letter dated 22^nd November 2016 when the Plaintiff’s then solicitors set out what they called the ‘Trust Agreement’ a number of particulars were provided and in particular it was claimed that ‘it was also expressly agreed by the parties that whenever dividends were paid on the Shares you would pay the same to our client …’ which suggests it’s a pay when paid arrangement.  This is not entirely consistent with the way in which the Plaintiff explains the agreement now in her witness statement i.e. there is no suggestion that whenever a dividend was paid it ought to be paid to the Plaintiff immediately or shortly thereafter.  This reflects the difficulty in trying to exactly remember what was agreed and/or intended so long ago and also of the fact that the parties are trying to on an ex post facto basis reconstitute in clear legal concepts what had been perhaps a mixture of hope and expectations rather than of a legally binding promise.”

33.  Mr Pang submitted that the judge failed to consider how the rejection of the defendant’s evidence on this incident impacted on her credibility generally, and that the judge compounded his error by postulating the possibilities that the payment of $78,897 was a one off arrangement or was made out of a strong moral obligation when neither was the defendant’s case, and by omitting a third possibility, namely, that the plaintiff’s case was the truth. 

34.  With respect, we do not accept this submission. In assessing the witnesses’ credibility, the judge clearly had in mind his rejection of this part of the defendant’s testimony, as is evident from his conclusion that “on most issues” both the plaintiff and the defendant tried to give their evidence as they remembered it[27] and that “notwithstanding the misgivings [he had] about parts of the Defendant’s evidence (which [he had] set out above)”, he accepted the defendant’s evidence that the Shares were a gift.[28] It is not in dispute that even though the judge found the defendant untruthful in one aspect, he was entitled to accept other aspects of her evidence.  As observed by Peter Smith J in EPI Environment Inc v Symphony Plastic Technologies plc [2005] 1 WLR 3456 at §74: “… witnesses can regularly lie.  However, lies themselves do not mean necessarily that the entirety of that witness’s evidence is rejected.  A witness may lie in a stupid attempt to bolster a case, but the actual case nevertheless remains good irrespective of the lie.”  The plaintiff was unable to show how the judge was wrong in accepting the core of the defendant’s case whilst rejecting part of her evidence.

35.  The judge rejected the defendant’s evidence on this incident because he considered it incredible and that the payment clearly was attributable to the amount of dividends recently received on the Shares.  The rejection of the defendant’s version however does not prove the plaintiff’s explanation or make it more probable.  The judge rightly went on to examine the probative value of that payment.  In doing so, he cannot be faulted for considering the alternative possible explanations; he was not bound to make a binary choice between the parties’ versions. 

36.  Quite plainly the judge did not fail to consider the plaintiff’s case that the payment was made pursuant to the trust arrangement.  Nor did he ignore the other payment of $200,000 odd, which was expressly referred to in paragraph 149 of the Judgment.  He was entitled to ask why, if the Shares were held on trust, there was just one payment of $78,897 to the plaintiff (or, implicitly, why there were just two payments including the cheque for $200,000 odd which was not cashed), when the uncontroverted evidence shows that the defendant would have received dividends on the Shares on numerous occasions from January 2010 to May 2015 totalling over $3 million. Mr Pang tried to answer this by referring to the defendant’s evidence that she had blocked the plaintiff in social media since November 2010 and terminated the plaintiff’s authority to operate the account at the same time. But the plaintiff’s own evidence was that she only stopped seeing the defendant frequently in 2012.[29] There was anyhow no difficulty for the plaintiff to reach Miguel if she had wanted to.  Yet there was no evidence of a single demand for the dividends before 2015 – a fact that the judge could take into account despite the plaintiff’s explanation that her health deteriorated and she had no financial difficulty and hence no urgency to make such demand.  Nor was there any answer at all as to why, on the plaintiff’s own case, there was no payment of dividends to her before October 2010.  The defendant withdrew two sums in cash from her bank account in February and August 2010 respectively the amount of which bore some relation to the dividends received on the Shares,[30] but the plaintiff’s case was that those sums were not paid to her.

37.  In our view, the judge’s reasoning in relation to the dividends was unassailable.  The plaintiff had not come close to demonstrating any ground for saying that his Lordship’s finding was plainly wrong.

38.  The second ground of appeal in our view also failed to show any error in the judge’s decision.  It was based on the evidence that the plaintiff physically took back the share certificates from Patrick in May 2015. Referring to that incident, the judge stated in his Judgment:

“ 168. I should also refer to the incident whereby the Plaintiff ‘took away’ share certificates. This is to some extent supportive of the fact perhaps that at least Patrick must have thought that the Plaintiff was entitled or allowed or permitted to ‘deal’ with them. Mr Pang submits it is odd why there would not have been any complaints on the Defendant’s part against Patrick nor was there any apology on Patrick’s part.

   169.  I agree that this is to some extent odd, but it only shows that Patrick believed perhaps that the Plaintiff was allowed or permitted to deal with the Shares.  This does not show that Patrick necessarily knew or had reasons to know that the Plaintiff beneficially owned them.  All in all, I accept that in principle this is a weak pointer or factor supporting to a limited extent the Plaintiff’s case.  However, given that Patrick was not asked to give evidence while he was alive it is not possible to give much more weight to the somewhat cryptic and short WhatsApp messages.  I am thus unable to place much weight on this factor.”

39.  On behalf of the plaintiff, Mr Pang contended that the incident affected the inherent probabilities in favour of the plaintiff’s version of events and against the defendant’s.  It was submitted that the delivery of share certificates to the plaintiff whose authority had been revoked was a serious matter for Patrick and his firm, and that the fact that Patrick did so was a “weighty matter” in support of a common understanding between him and the parties that the Shares belonged to the plaintiff.

40.  As shown in the passages quoted above, the judge had fully considered the incident and its evidential value.  He concluded that it was in principle a weak pointer supporting the plaintiff’s case to a limited extent but he felt unable to place much weight on it, especially as there was no evidence from Patrick.  In our judgment there is nothing objectionable in the view his Lordship took.  The weight of the evidence is a matter for the trial judge.  It must not be forgotten that the judge came to his findings after evaluating all the evidence (as summarised above)  including the plaintiff’s Form E to which, it was not disputed, the judge was entitled to attach especial weight.

41.  The parties here were as close as sisters.  The resolution of factual disputes between family members not infrequently presents challenges to the court, for there is often not much documentation to go by; commercial standards of behaviour may not be appropriate for gauging the parties’ conduct; and the rights and wrongs of parties to intimate human relationships can elude the closest scrutiny in a court of law.  As is evident from his admirable Judgment, the judge paid sensitive attention to the “subtle intricacies of feeling and conduct”[31] of the parties and drew measured support from the relevant evidence for his conclusion whilst acknowledging there were facts that perhaps went the other way but were insufficient to carry the day.  In our view, the plaintiff has failed to make out any ground for impugning the Judgment.

42.  For these reasons, the appeal was dismissed.