CHENG NGAR MAN, ANGELA, MELWANI v. VISHAL PRAKASH MELWANI

CACV 274/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 274 OF 2013

(ON APPEAL FROM HCA NO 1817 OF 2012)

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REASONS FOR JUDGMENT

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

1.  This was an appeal by the defendant, Mr Vishal Prakash Melwani, against the decision of Deputy Judge Seagroatt dated 25 November 2013, by which the Deputy Judge gave summary judgment against the defendant in respect of the plaintiff’s claim in these proceedings, declared that the defendant held on trust for the plaintiff half of certain funds which had previously been held in joint accounts in the names of the plaintiff and the late Mr Prakash Pitamberdas Melwani (“Mr Melwani”), and made various consequential orders for the taking of accounts and making of inquiries, and for the assessment of damages for breach of trust. At the conclusion of the appeal, we allowed the appeal with reasons to be handed down later, and gave the defendant unconditional leave to defend the proceedings. We also ordered that the costs of this appeal should be paid by the plaintiff to the defendant, and that the costs of the hearing below should be in the cause.

2.  As will be apparent from what appears below, this was an unfortunate family dispute, and in giving our decision on the appeal, we expressed the hope that it would be possible for the parties to put aside any ill feelings they might have and explore further the possibility of an amicable resolution of the disputes between them.  We were subsequently informed that the parties had in fact been able to resolve the proceedings on mutually acceptable terms.

3.  These are our reasons for allowing the appeal.

4.  The factual background to these proceedings can be briefly summarised.

5.  The plaintiff was married to the late Mr Melwani, with whom she had two children, a son (Roshan) and a daughter (Roshni), who were respectively aged 19 and 16 at the time of this appeal.  She was Mr Melwani’s second wife, he having been previously married and divorced.

6.  The defendant was Mr Melwani’s son from his first marriage.  At the time of the appeal, he was in his late thirties and was a partner at a firm of solicitors in Hong Kong.

7.  Mr Melwani was born in 1945, was educated in Hong Kong and worked with the Hong Kong Government until his retirement in 1998.  He married the plaintiff in 1993.  For her part, the plaintiff is also a university graduate, and has worked in the marketing field for most of her career.

8.  In 1996, Mr Melwani made a will, by which he left 40% of his estate to the defendant, and 20% to each of his mother, the plaintiff and Roshan (Roshni had not yet been born).

9.  On retirement in 1998, Mr Melwani and the family emigrated to Canada.  At around this time, his mother declared herself to be a trustee, for Mr Melwani, of a USD 500,000 bond issued by an Indian company, Tata Iron and Steel Company Limited, and the sums standing to the credit of seven bank accounts.  These assets were then injected by Mr Melwani into a trust known as the Prakmel Trust, which appears to have been set up to minimise the taxation consequences of the family’s move to Canada.  It appears that, in order to achieve the tax minimisation objectives, it was necessary for Mr Melwani not to be a beneficiary of this trust.  However, under a Letter of Wishes pertaining to the trust, Mr Melwani had to be consulted in respect of investment decisions by the trust.  The Letter of Wishes also provided for the defendant to have a 50% share of the trust assets, with the plaintiff and her children having 20%, 15% and 15% respectively, in the event of Mr Melwani’s death.

10.  In 2002, the family returned to Hong Kong.  At this time, the Prakmel Trust was terminated by Mr Melwani.  However, as he was not a beneficiary of the trust, its assets could not be transferred to him.  The assets of the trust were appointed to the plaintiff and the defendant in equal shares, being paid into joint accounts of theirs with Kleinwort Benson Channel Islands (“KBCI”) and NM Rothschild & Sons (“NMRS”) – some USD 1 million and GBP 1.2 million to the account with KBCI, and some USD 3.8 million to the account with NMRS.  These joint accounts appear to have been set up by Mr Melwani, who was authorised to operate the accounts on his own, without the need for either the plaintiff or defendant to join him in giving instructions to KBCI and NMRS.

11.  Thereafter, between 2003 and 2008, Mr Melwani caused all of the funds in the KBCI and NMRS joint accounts mentioned above to be transferred to various other accounts in the joint names of himself and the defendant, including an account with the State Bank of India that provided a higher rate of interest to non-resident Indians, which was the first such account to be opened.

12.  In June 2008, Mr Melwani made a new will, naming the defendant as the sole executor.  By this will Mr Melwani purported to give each asset held in a joint name to the other named joint account holder.  He also provided for the remainder of his estate (the main asset of which would appear to be the home in which he lived with the plaintiff and their children) to be divided equally between his mother, the defendant, the plaintiff, Roshan and Roshni.

13.  Mr Melwani died in November 2009.  After Mr Melwani’s death, a dispute arose between the plaintiff and the defendant as to the ownership of the funds in the joint accounts referred to in paragraph 11 above.  The defendant contended that they were solely owned by him, as the other joint account holder, by the right of survivorship or alternatively as a result of the terms of Mr Melwani’s will. The plaintiff, having initially contended that the funds formed part of Mr Melwani’s estate, now contends that 50% of those amounts were held by Mr Melwani and the defendant on trust for her.  As the parties were unable to resolve their differences, the plaintiff commenced these proceedings.

14.  In her Statement of Claim, the plaintiff referred to the Prakmel Trust, setting out some of its salient terms, the Letter of Wishes, and the Deed of Appointment by which the Prakmel Trust was terminated.  She contended that as a result of the payment of that trust’s assets into the joint accounts she held with the defendant at KBCI and NMRS, she and the defendant became the beneficial owners of the funds in those joint accounts in equal shares.  She went on to allege that she agreed with Mr Melwani that he should manage the funds in those joint accounts for her and the defendant, and said that Mr Melwani was authorised to operate those accounts for this reason, and thereby became her agent and trustee in operating those accounts.  She referred to the opening of the joint account with the State Bank of India (in Mr Melwani’s and the defendant’s joint names) using funds from one of her joint accounts with the defendant, saying that this was opened to obtain a better return, and that her name could not be on the account as she (not being Indian) did not qualify for a non-resident Indian account.  She then pleaded the transfers by Mr Melwani out of those joint accounts into the joint accounts in his and the defendant’s joint names. She alleged that in consequence of such transfers, the funds in the joint accounts held by Mr Melwani and the defendant were held by them on trust for herself and the defendant in equal shares, and that since Mr Melwani’s death, the defendant has held such funds on the same basis – i.e. as trustee for himself and her in equal shares.  On this basis, she sought declaratory relief to this effect, together with other consequential relief.

15.  As we have noted, the plaintiff successfully applied for summary judgment in respect of her claim. In his judgment, the Deputy Judge described the relationship between the parties, noting the close and affectionate relationship that appeared to exist between the plaintiff and Mr Melwani.  He dealt with the setting up and later termination of the Prakmel Trust, and expressed the view that the proceeds of the trust standing in the joint accounts of the plaintiff and the defendant were beneficially owned by them, and that in operating that account pursuant to the authority given to him to do so, Mr Melwani was acting as a trustee of the funds for both the plaintiff and the defendant.  He rejected the defendant’s suggestion that in leaving the funds under Mr Melwani’s control, thus permitting him to transfer them into the various joint accounts opened in the names of Mr Melwani and the defendant (which the defendant says were similarly operated by Mr Melwani alone until his death), the plaintiff was effectively giving the funds back to Mr Melwani, no doubt believing that he would deal with them for the benefit of her and their children, but without imposing any trust over the funds in his hands.  The Deputy Judge went on to say that certain documents which the defendant relied on as tending to show that Mr Melwani regarded the funds as his own, such as declarations of beneficial ownership naming him as the beneficial owner of the accounts in which they were held, could not be regarded as overriding the plaintiff’s interest in the funds.  He expressed surprise at the terms of Mr Melwani’s last will, commenting adversely on the defendant’s role in the making of that will.

16.  The Deputy Judge’s conclusion was that as a result of the transfer of the funds from the joint accounts held by the plaintiff and the defendant to those held by Mr Melwani and the defendant, a resulting trust arose in favour of the plaintiff in respect of her 50% interest in those funds, as the plaintiff should not be taken as having intended to transfer her beneficial interest in her share of the funds to Mr Melwani (or the defendant), so as to enable him to dispose of them to the defendant or otherwise, whether by placing them in joint accounts in his and the defendant’s joint names, or by his will.  He took the view that the principal facts and documents were not in dispute, and that it was therefore open to him to come to this conclusion in the context of an application for summary judgment.  He accordingly gave judgment for the plaintiff.

17.  Before us, Mr Chua SC (who did not appear for the defendant below) suggested that there were four main reasons why summary judgment should not have been entered against the defendant :

(1) The basis on which the Deputy Judge found in favour of the plaintiff, namely that the funds in the joint accounts of Mr Melwani and the defendant were impressed with a resulting trust in favour of the plaintiff had not been adequately pleaded in the Statement of Claim (which proceeded on the basis that there was an express trust, or perhaps an agency of some sort), so that it was not a claim included in the writ for the purposes of Order 14 rule 1(1).  Further or alternatively, in coming to his judgment, the Deputy Judge made findings as to the liability of Mr Melwani, who was not a party to the proceedings as his estate had not been joined, so that for this reason too, judgment had been given on claims that were not included in the writ.

(2) The resulting trust found by the Deputy Judge to have existed in favour of the plaintiff in respect of 50% of the funds in the joint accounts of Mr Melwani and the defendant was based on an analysis which was wrong in fact and in law, and was, at the lowest, one in respect of which there were triable issues arising such that it was not appropriate to enter summary judgment.

(3) Summary judgment should not have been entered because the Deputy Judge had, in doing so, made speculative, damaging and unfair findings in respect of the conduct and integrity of the defendant.

(4) There were other reasons why the case was not a suitable one for summary judgment, namely :

(a) it was inappropriate to give summary judgment where a claim involves the true state of an account, which was suggested to be the position here;

(b) the complexity of the case required the court to make findings of fact in order to reach its conclusions; and

(c)  there were alternative claims for damages for breach of trust and for an account of profits between which the plaintiff should have been required to elect.

18.  In our view, it is sufficient for the purposes of this appeal to deal only with the second of these points.

19.  We have summarised the plaintiff’s claims in paragraph 14 above.  It is fair to say that the legal basis on which it is said that a trust arose in respect of the funds transferred from the joint accounts of the plaintiff and the defendant to those of Mr Melwani and the defendant is not explicitly stated.  One possibility is that there was some form of express trust, based on the agreement alleged in paragraphs 12 and 13 of the Statement of Claim, to the effect that Mr Melwani and the plaintiff agreed that he should manage the funds for her and the defendant’s benefit, and for this purpose Mr Melwani was given authority to operate the plaintiff and defendant’s joint accounts.  An alternative analysis would be that which appears to have been adopted by the Deputy Judge, namely that there was a resulting trust arising from the transfers of funds from accounts beneficially owned (in part) by the plaintiff to accounts in the names of Mr Melwani and the defendant.  That analysis would involve an inquiry into the plaintiff’s intention in making those transfers (or, more accurately, in putting Mr Melwani in a position to make them and in that sense allowing them to be made).  The Deputy Judge’s conclusion was that in doing so, the plaintiff did not intend to make a gift of the transferred funds to Mr Melwani and the defendant.

20.  In our view, neither of these routes is susceptible to determination on paper in a summary judgment application.  Both require the taking and consideration of oral evidence from the parties involved.

21.  Inasmuch as the express trust approach is based on the allegation of an agreement between Mr Melwani and the plaintiff, this is an agreement which is denied by the defendant, the other joint account holder and co-owner of the funds with the plaintiff.  It does not seem to us to be possible to determine whether or not such an agreement in fact existed without hearing evidence from the plaintiff and the defendant, with each side having the opportunity to test the other’s evidence through cross-examination.

22.  As for the resulting trust analysis (which seemed to us to be at the forefront of the submissions of Mr Lin, who appeared for the plaintiff here and below), although Mr Lin urged upon us that this analysis had to lead to a conclusion in his client’s favour, given that it was acknowledged that she was the beneficial owner of 50% of the funds while they were in the joint accounts in her and the defendant’s names, as there was no presumption of advancement where a transfer was made from wife to husband, it seems to us that it will inevitably be necessary to take evidence from the plaintiff as to her actual intentions in relation to the transfer, on which she can be cross-examined on behalf of the defendant with a view to testing such evidence.

23.  As Mr Chua submitted, the presumptions of resulting trust (and of advancement) are a means of seeking to ascertain the intention of the parties involved in the particular transaction – the focus is always on the parties’ actual intentions, as it is these that will determine the question of whether there has been a transfer of beneficial ownership, or merely a transfer of legal ownership with the intention that the property in question be held on trust for the transferor.  The presumptions will be decisive only when the other evidence available to the court does not provide an answer one way or another.

24.  In the present case, while it is fair to say that there appears to be force behind Mr Lin’s submissions as to the likely intentions of the parties, it does not seem to us to be possible to say that the arguments that the defendant seeks to advance as to the parties’ intention are not reasonably arguable.  Thus, for example, the origin of the funds that found their way into the Prakmel Trust, the nature of the family relationship, the manner in which Mr Melwani was permitted throughout to make the investment decisions in relation to the funds, are all matters which could, in our view, bear on the assessment of what the plaintiff intended when she put Mr Melwani in a position to dispose of the funds as he saw fit.  While it may be that the defendant’s contentions will fail at the end of the day, it does not seem to us that they can be said to be so lacking in substance as to justify denying the defendant the opportunity to advance them, and to test the plaintiff’s evidence at trial.

25.  We therefore consider that the defendant has raised triable issues in relation to the plaintiff’s intentions in relation to the transfers of the funds away from the joint accounts in her and the defendant’s names, such that it was not appropriate for summary judgment to be entered against the defendant.

26.  In the light of our conclusion on this point, it is not necessary for us to express any concluded views as to the other arguments raised by Mr Chua, and we do not do so.  However, it necessarily followed that the appeal had to be allowed, and the defendant given unconditional leave to defend.