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HCA 1781/2013
HCA 1782/2013
[2022] HKCFI 1188
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1781 OF 2013
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BETWEEN
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CHAN KIM HONG |
Plaintiff |
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and |
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CHAN YAN HONG |
1st Defendant |
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TO LAI KING DEDE |
2nd Defendant |
________________________
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1782 OF 2013
________________________
BETWEEN
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CHAN KIM HONG |
Plaintiff |
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and |
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CHAN YAN HONG |
Defendant |
________________________
Before: Deputy High Court Judge Winnie Tsui in Court
Dates of Hearing: 5 to 9, 12 to 16 and 21 July 2021
Date of Judgment: 29 April 2022
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J U D G M E N T
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INTRODUCTION
1. This is a family dispute between two brothers over the beneficial ownership of a Hong Kong company and a residential flat in Yiu Hing Road, Hong Kong. The company held an industrial unit in Chai Wan and still holds a residential flat and a car parking space in Laguna City, Kowloon.
2. Mr Chan Kim Hong, the eldest son of the family and now in his 70’s, is the plaintiff in HCA 1781/2013 and HCA 1782/2013. Mr Chan Yan Hong, the fourth son of the family and now in his 60’s, is the 1st defendant in HCA 1781/2013 and the sole defendant in HCA 1782/2013. His wife, Ms To Lai King Dede, is the 2nd defendant in the former action.
3. The two actions were commenced in 2013. They have been ordered to be heard together. In this judgment, I shall refer to Mr Chan Yan Hong and Ms To Lai King Dede as “the 1st defendant” and “the 2nd defendant” respectively, and together “the defendants”.
4. HCA 1781/2013 concerns the beneficial ownership of Junpool Limited (“Junpool”). The 1st and 2nd defendants are its shareholders holding 9,900 and 100 shares respectively.
5. Junpool acquired Unit 202 of Chai Wan Industrial City, Phase 2, 70 Wing Tai Road, Chai Wan (“Unit 202”) in 1989. It sold the unit in 2014, that is about one year after the commencement of the actions.
6. Junpool acquired Flat A, 22nd floor, Block 35, No 5 South Laguna Street, Laguna City, Kowloon and the car parking space at Space No 77 of the same estate in 1992 (“the Laguna flat and parking space”). Junpool is at present still the owner. In the course of the 2nd defendant’s cross-examination, it was revealed that just a couple of months before the trial, the defendants had arranged for Junpool to mortgage the Laguna flat and parking space to secure a loan of $4 million.
7. The plaintiff says that the shares in Junpool registered in the name of the defendants are held on trust for him. He seeks a declaration to that effect and asks for a transfer of the shares to him. He also seeks orders for accounts and inquiries in respect of the rental receipts and sales proceeds of Unit 202 and the mortgage sum of the Laguna flat and parking space. The defendants oppose the claim. In gist, they say that the 1st defendant has been the beneficial owner of Junpool since 1989.
8. HCA 1782/2013 concerns Flat No 8 on 29th Floor of Block B (Yat Hei House), Tung Hei Court, No 38 Yiu Hing Road, Hong Kong (“the Tung Hei flat”). It was acquired under the Home Ownership Scheme of the Hong Kong Housing Authority in 1995. The property was conveyed to Mr Chan Chok Wah, the father of the plaintiff , and the 1st defendant as joint tenants. The father passed away in 2002. Since then, the 1st defendant is the sole legal owner.
9. The plaintiff claims that the 1st defendant holds the Tung Hei flat on trust for him. He seeks a declaration to that effect and an order of transfer.
10. On the other hand, the 1st defendant contends that he is the beneficial owner all along. He makes a counterclaim. He alleges that the plaintiff’s children had been occupying the property since 2006. He seeks vacant possession and claims mesne profits. It is common ground that the 1st defendant has taken back possession since 2018. In opening submissions, Mr Damian Wong, appearing for Ms Jenny Lok for the defendants, confirmed that the 1st defendant would no longer pursue the counterclaim.
11. In both actions, the plaintiff’s claim is based on common intention constructive trust and resulting trust.
12. This case is primarily a factual dispute. The material events in dispute span over three decades from the 1980’s up to the commencement of the actions in 2013. There are a number of milestone events which took place during this period. The occurrence of such events are not in dispute. Parties have however put forward conflicting or opposite accounts of how these events had come about. My task is to evaluate the credibility of the rival cases. I will set out these milestone events in chronological order in the next section. That will be followed by the parties’ respective cases on them.
13. The plaintiff and his wife, Ms Lily Lin, gave evidence.
14. Mr Chan Fu Hong, the second brother who is aged about 70, made two witness statements for the plaintiff in these actions. However, in his written opening submissions, Mr Ricky KY Li, counsel for the plaintiff, informed the court that Chan Fu Hong would not be able to come to Hong Kong to testify. He lives in Canada. He contracted COVID-19 in October 2020. In cross-examination, the plaintiff said that while his brother told him over the phone that he could travel to Hong Kong, his brother’s wife later called the plaintiff raising her concern over the brother’s health and her worry whether he could withstand the long flight and the compulsory quarantine after landing in Hong Kong. In the end, the plaintiff told his brother not to come.
15. Both defendants gave evidence. In addition, they called eight witnesses. Two of them are the siblings of the plaintiff and the 1st defendant. (There are five children altogether in the family.)
(1) Ms Lam Ling Hong (“Ling Hong”). She is the third daughter. She resides in Canada.
(2) Mr Lam Wai Hong (“Wai Hong”). He is the fifth and youngest son. He also lives in Canada.
16. The other witnesses are 李榮就, 朱錦雄, 郭偉雄, 楊國龍, 李錦華 and 葉麗娟. Their written statements are short and their cross-examination brief. They are friends and/or business clients of the 1st defendant. Their evidence primarily revolves round their dealings with the 1st defendant and Junpool, and their impression of who operated Junpool. However, it is plain that the six witnesses do not have any direct or close knowledge of the dealings between the brothers. In fact, in his 60-page closing submissions, Mr Wong has only devoted one short paragraph to their evidence.
17. I should record at the outset that the 1st defendant had a stroke in December 2011. As a result, he is wheelchair bound. Furthermore, according to recent medical records, he suffers from mild to moderate expressive aphasia with relatively preserved receptive language abilities. Mr Wong confirmed to the court that he was fit to give evidence. It is plain from observing him in cross-examination that, generally speaking, with some repetition, he was capable of understanding the questions put to him. However, while he tried very hard to answer the questions, his ability to express himself clearly was much hampered by his physical condition.
THE MILESTONE EVENTS
18. I set out below the milestone events which happened over the years. The facts stated in this section are not in dispute or are indisputable.
19. Junpool was a ready-made limited liability company. Its two shares were initially issued to two company secretarial companies.
20. On 28 March 1989, the two shares were transferred to the 1st defendant and Wai Hong respectively. An Instrument of Transfer and a set of Bought and Sold Notes were executed in respect of each transfer. The documents were stamped on the following day. The 1st defendant and Wai Hong were also appointed directors of Junpool.
21. On 30 March 1989, Junpool executed an agreement for sale and purchase of Unit 202. On 4 September 1989, Unit 202 was assigned to Junpool.
22. In 1992, Junpool purchased the Laguna flat and parking space.
23. In 1995, the Tung Hei flat was assigned to the father and the 1st defendant as joint tenants.
24. In April 1996, Junpool allotted 9,899 shares to the 1st defendant and 99 shares to Wai Hong. As a result of the allotment, the 1st defendant and Wai Hong held 99% and 1% of Junpool’s shares, respectively.
25. In October 2006, Wai Hong transferred his 100 shares in Junpool to the 2nd defendant. Since then, the 1st and 2nd defendants have been the shareholders of Junpool. Lily was appointed as a director in the same month.
THE PLAINTIFF’S CASE
26. In summary, the plaintiff’s case is that Junpool is at all times his company.
27. In March 1989, he acquired it as a vehicle to hold assets. He asked his two brothers, the 1st defendant and Wai Hong, to hold the shares in Junpool for him. At that time, the plaintiff was running a profitable business in the name of Cannes Film Production (“Cannes”). He followed the advice of his accountant and set up Junpool and another vehicle to hold his real properties in order to protect them from liability arising from Cannes, an unincorporated business. Over the years, the plaintiff injected funds into Junpool. Rental income from Cannes’s business were also paid into Junpool. He would then direct Junpool to apply its money towards the living expenses and well-being of the parents and the financial needs of the siblings.
28. As regards the Tung Hei flat, it was the plaintiff who directed the 1st defendant to acquire it for the use and benefits of the parents. He also directed the 1st defendant to make use of the money in Junpool to pay for the purchase. The plaintiff is the beneficial owner of the flat.
29. I set out below the plaintiff’s case in more detail. It is more easily understood by reference to the following periods:
(1) From about 1984 to about 1995. This is the period when the business of Cannes was profitable. In 1989, the plaintiff set up Junpool. During this period, he purchased a number of real properties through his vehicles. These included Unit 202 and the adjoining unit, Unit 201, the Laguna flat and parking space, and a residential flat in Heng Fa Chuen. The Tung Hei flat was purchased in 1995. Units 201 and 202 were used by Cannes as a film studio to shoot advertisements and commercials. The plaintiff purchased equipment for use at the studio.
(2) From about 1995 to about 2000. During this period, the business of Cannes gradually declined. The enlargement of the shareholding in Junpool happened in 1996.
(3) From about 2000 to about 2011. In about 2000, Cannes laid off nearly all the employees. Since then, income from renting out the studio and the equipment at Units 201 and 202 became the primary revenue. The milestone events which happened during this period include the transfer of Wai Hong’s shares in Junpool to the 2nd defendant in 2006 and the appointment of Lily as a director.
(4) From 2010 or 2011 to the commencement of the actions in 2013. In late 2010 or early 2011, the plaintiff discovered that the 1st defendant had been withdrawing sizable sums of money from Junpool without his authorisation. The relationship between them worsened.
From about 1984 to about 1995
30. The plaintiff is the eldest son of the family. When he was young, his parents’ income barely made ends meet. The family lived in a public housing estate in Kwai Fong. The plaintiff left school and joined the workforce when he was 17 years old. Two years later, his father was laid off. The plaintiff became the sole breadwinner of the family until his younger siblings started to work later.
31. The plaintiff worked in the filming industry, taking up various positions in different companies and starting off as a casual labourer at Shaw Brother. He gradually moved up the ranks, working as props technician, production assistant, and associate producer. Under his guidance and through his introductions, his younger brothers also worked in the film industry. In 1982, the plaintiff introduced the 1st defendant to work as a cameraman assistant with Colour Ad, an advertisement production company.
32. In about 1984, the plaintiff set up his own business in the trade name of Cannes to carry out film production for advertisements and commercials. The shooting was carried out in a studio in rented premises in Wanchai. In 1985, the plaintiff employed the 1st defendant to work as an apprentice. Lily also joined the firm in the same year. The plaintiff and Lily later married in 1992.
33. The business was doing very well in the 1980’s and 1990’s. Not long after Cannes was set up, the plaintiff was making annual profit of about $3 million. It increased to $15 million in the 1990’s.
34. In around 1989, the plaintiff wanted to invest the profits to purchase a bigger studio to accommodate the flourishing business. At that time, he consulted an accountant known as Mr Sung about his plan. It was Sung who introduced the plaintiff to the Chai Wan Industrial City where Units 201 and 202 were located.
35. The plaintiff had previously learnt that Colour Ad had to make huge financial compensation to workers who sustained injuries during film shooting. He was worried that this might happen to him. On the advice of Sung, the plaintiff decided to form limited liability companies to hold his real properties and ask his family members to hold the shares for him. He did not have any doubt at that time that his family members were trustworthy and reliable. This way, he could protect his personal assets from the business liability of Cannes.
36. Furthermore, his intention was to have one of these companies to receive the rental income of the studio and equipment from Cannes’s clients and such revenues would be applied for the living expenses and well-being of the parents and the financial needs of the siblings and other uses if and when circumstances arise.
37. At that time, Fu Hong had emigrated to the US. His mother was in ill health. The plaintiff explained his plan to his father, the 1st defendant, Ling Hong and Wai Hong and asked them to act as the trustee of his shares. They all agreed to the plan.
38. In about March 1989, the plaintiff decided to purchase Units 201 and 202. Through Sung, he acquired two companies, namely Goldorb Limited (“Goldorb”) and Junpool, to hold the two respective units.
39. The shares of the two companies were transferred to his family members as follows:
(1) On 13 March 1989, one share of Goldorb was transferred to the father and another one share to Ling Hong.
(2) On 28 March 1989, one share of Junpool was transferred to the 1st defendant and another one share to Wai Hong.
40. On 28 March 1989, a meeting took place at Sung’s office. The father, the mother, the plaintiff, the 1st defendant, Fu Hong, Ling Hong, Wai Hong and Lily were present. Sung explained the set-up of the companies and the trust arrangement. Everyone understood. The share transfer documents, including the Bought and Sold Notes and the Instruments of Transfer, were signed. The consideration for each transfer was stated to be $1. In addition, each of the father, Ling Hong, the 1st defendant and Wai Hong signed a Declaration of Trust to the effect that they held their respective shares in Goldorb or Junpool on trust for the plaintiff.
41. In these actions, the plaintiff has produced the Declaration of Trust and an accompanying letter signed by Wai Hong in respect of his share in Junpool (“the Declaration and Letter signed by Wai Hong”). The Declaration was stamped. The stamp date was 29 March 1989. The plaintiff is unable to produce the originals or copies of the other three Declarations of Trust. I shall come back to the reasons later.
42. The Declaration and Letter signed by Wai Hong are material contemporaneous documents relied on by the plaintiff. I reproduce the relevant parts below.
43. The Declaration provided:
“1. That the stocks and shares specified in the Schedule hereto [ie one share in Junpool] and all dividends and interest accrued or to accrue upon the same, including bonuses rights and other privileges arising from such stocks and shares or any of them, do not belong to me/us but to Mr. Chan Kim Hong of A5/19, Lok Sing Centre, 19-31 Yee Wo Street, Hong Kong.
(hereinafter referred to as “the Beneficial Owner” which expression shall include his personal representative/its successors in title and assigns.)
2. That I/We hold the said stocks and shares UPON TRUST for the said Beneficial Owner AND I/We hereby agree to transfer, pay and deal with the said stocks and shares and the dividends and interest payable in respect thereof and any bonuses rights and privileges arising therefrom in such manner as the Beneficial Owner shall from time to time direct.” (underline added)
44. There was a space for the witness to sign at the bottom of the page. But no signature appeared there. It was only signed by Wai Hong.
45. The Letter read:
“To: Mr. Chan Wai Hong,
[Address omitted]
I hereby place to you HK$1.00 in cash for the purpose of acquiring one share of HK$1.00 each in Junpool Limited (‘the Company’) from Symbol (Nominees) Company Limited, transferor to you as transferee as well as trustee for me. Accordingly, any share certificate to be issued by the Company in respect of such one share though registered in your name is belonging to me.
[signature]
Chan Kim Hong
Hong Kong, 28 MAR 1989
To: Mr. Chan Kim Hong,
[Address omitted]
I acknowledge receipt HK$1.00 in cash from you for my acquiring one share of HK$1.00 each in Junpool Limited from Symbol (Nominees) Company Limited, transferor, and I further declare that the said share though registered in my name, is beneficially owned by and belonging to you.
[signature]
Chan Wai Hong
Hong Kong, 28 MAR 1989” (underline added)
46. Sung later emigrated to Canada. The plaintiff lost contact with him.
47. The plaintiff made use of Goldorb to acquire Unit 201 and Junpool to acquire unit 202. He used his own money to fund the purchases.
48. Returning to the business of Cannes, Unit 201 is about 5,000 square feet and Unit 202 about 2,000 square feet and they were used as studios for film shooting by Cannes. The partition walls between the units were demolished to make way for a passage. The plaintiff spent $4 million to purchase cameras and other photography equipment. It is not in dispute that the equipment at the studios belonged to the plaintiff but the defendants dispute how much the plaintiff had spent on this.
49. Cannes’s business model was that the studios at the two units would be made available for hire at a daily charge when Cannes was not shooting films there. The cameras and other equipment were also available for hire at a daily charge. The rental revenue generated this way (“the studio rental income”) would be credited to Junpool’s bank account. During this period, the studio rental income was not substantial as Cannes was busy with its own film shooting business.
50. For convenience and expediency, the plaintiff caused the 1st defendant to act as the sole bank signatory of Junpool, because the 1st defendant was the plaintiff’s employee and the 1st defendant stayed in the studios most of the time. Although the 1st defendant was the signatory, he had to utilise the money according to the plaintiff’s directions. The plaintiff was in control of the financial matters of Junpool.
51. In addition to the studio rental income, the plaintiff from time to time, through Cannes, injected funds into Junpool’s bank account.
52. Upon the plaintiff’s direction, the 1st defendant directed Junpool to apply its money for the benefit of the family members. This included paying a monthly sum to his parents, paying the salary of the parents’ domestic helpers, giving money to Wai Hong for refurbishing his home, giving money to Ling Hong when her husband passed away, and giving money to the 1st defendant, Fu Hong and Wai Hong when they got married.
53. As confirmed by Mr Wong in his written closing submissions, the defendants in fact do not dispute that the plaintiff took good care of the parents and his younger brothers and sister. There is also no dispute that the plaintiff was very generous to his family members and would not hesitate to give financial support to them when needed. The relationship between the plaintiff and the 1st defendant was particularly close as the 1st defendant was the plaintiff’s employee and the two of them worked together for many years.
54. In 1992, the plaintiff directed Junpool to purchase the Laguna flat and parking space as his investment. He injected money into Junpool to make the down payment. Junpool made the monthly mortgage instalments. He spent about $150,000 to refurbish the flat and let the 1st defendant live there. At that time, the plaintiff considered that it was undesirable for the 1st defendant to continue to live with their parents in the public housing unit in Kwai Fong.
55. In about September 1994, the plaintiff made another investment in real property. He acquired a company called Good Point Enterprises Limited (“Good Point”) and used it to purchase a flat at Heng Fa Chuen. For Good Point, he asked the father and the 1st defendant to hold its shares on trust for him. By that time, Sung had already emigrated. The plaintiff did not bother to go through the trust documentation.
56. After the Heng Fa Chuen flat was purchased, the plaintiff let the 1st defendant live there as the 1st defendant said that it was close to the studios at Units 201 and 202 and would be more convenient. The Laguna flat was then let out.
57. In December 1995, the father applied for the Tung Hei flat under the Home Ownership Scheme. He surrendered the public housing unit to the Housing Authority.
58. Before that, the plaintiff had been persuading the father to move to a better accommodation as the plaintiff was prepared to provide him with a flat. But the father was a frugal person and maintained that the public housing unit was sufficient. But he eventually yielded to the plaintiff’s request to purchase a Home Ownership Scheme flat in 1995. At that time, the 1st defendant was still a registered tenant of the public housing unit. He and the father became the registered owners of the Tung Hei flat.
59. The plaintiff directed Junpool to settle the purchase price and purchase expenses of the Tung Hei flat, and also directed it to make the monthly mortgage repayments.
60. The plaintiff instructed Lily to handle the decoration works. She engaged a contractor to do the work and purchased furniture and fittings and electrical appliances. She spent about $220,000 in total. All these expenses came from Cannes.
61. The parents moved in to live at the Tung Hei flat till they passed away in 2000 and 2002 respectively.
62. That was the extent of the written evidence of the plaintiff and Lily. In cross-examination, the plaintiff said for the first time that prior to the purchase, there was a family gathering at a Chinese restaurant in Causeway Bay. The parents, the plaintiff, Lily and the 1st defendant were there. During the gathering, in the presence of the parents, the plaintiff expressly told the 1st defendant that the plaintiff would be responsible for all expenses in relation to the purchase of the Tung Hei flat, and that when the parents passed away, the 1st defendant needed to give it back to him. The 1st defendant agreed and said that he would not take the property as it was not his.
63. The Heng Fa Chuen flat was sold in January 1997 at a profit. The plaintiff directed Junpool to rent another flat in the same estate to be the 1st defendant’s residence. In 1998, when the tenancy of the Laguna flat expired, the plaintiff let the 1st defendant move back there.
64. It is the plaintiff’s estimate that from 1989 to late 2006, he had injected through Cannes not less than $20 million into Junpool.
From about 1995 to about 2000
65. During this period, the business of Cannes gradually declined.
66. The milestone event which took place during this period is the allotment of shares in Junpool in 1996.
67. At that time, Wai Hong was about to emigrate to Canada. In a family gathering, the high tax rate in Canada was discussed and there was concern about Wai Hong’s shareholder status in Junpool. The plaintiff sought advice from an accountant and the advice was that the most convenient and cost-effective option was to change the shareholding of Wai Hong. Accordingly, on the plaintiff’s instruction, Junpool allotted additional shares to the 1st defendant and Wai Hong. After the allotment, Wai Hong held only 1% of the shares. The plaintiff says that the further shares were held on trust for him by the two brothers.
68. Returning to the business of Cannes, the plaintiff and Lily applied for emigration to Canada in 1996. They landed in Canada as residents in 1997. However, they travelled back to Hong Kong regularly to take care of the business.
69. Since 1997, the business of Cannes was dwindling as the plaintiff and Lily spent less time on it and also due to the decline of the industry across the board.
70. The accounting ledger of Junpool was kept by the plaintiff. It is produced as evidence by him in these proceedings. It is in the form of a notebook filled with handwritten entries of the studio rental income. The ledger covered the period from January 1996 to March 2005. Mostly, there was a short remark made against each receipt stating what it was for. As an illustration, I quote below the entries for May 1997:
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“3/5/97 |
1351/97 |
[Column stating names of clients omitted] |
✔ |
202广 |
4632 |
[Column omitted] |
|
1352 |
✔ |
机 |
856 |
|
5/5/97 |
1353 |
✔ |
202广 |
10,000 |
|
7/5 |
1354 |
✔ |
机 |
2300 |
|
9/5 |
1355 |
✔ |
广202 |
7208 |
|
1356 |
✔ |
机 |
7188 |
|
23/5 |
1357 |
✔ |
广202 |
5256 |
|
1358 |
✔ |
机 |
7352 |
|
1359 |
û |
广用201 |
4536 |
|
26/5 |
1360 |
✔ |
机 |
810 |
|
25/5 |
1361 |
✔ |
广201 |
8418 |
|
1362 |
✔ |
机 |
7976 |
|
31/5 |
1363 |
✔ |
Package |
8536 |
| |
|
|
|
|
|
|
|
|
|
|
|
75068” |
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71. The plaintiff contends that if Junpool was the 1st defendant’s company, the ledger should have been kept by him. But in fact it was kept by the plaintiff.
72. Furthermore, it is not in dispute that Unit 201 and the equipment belonged to the plaintiff. It is clear from the ledger entries that rental income from Unit 201 and the equipment were entered in the same way as rental income from Unit 202. If Junpool had in fact been the 1st defendant’s company, there would have been no reason why the studio rental income derived from Unit 201 and the equipment, which belonged to the plaintiff, would also be booked into Junpool’s account. The ledger entries are therefore clear proof that Junpool was the plaintiff’s company, not the 1st defendant’s.
From about 2000 to about 2010
73. The mother passed away in 2000.
74. In about 2000, the plaintiff ceased the film making business altogether but carried on letting out the studios and equipment at a daily charge to earn income. He laid off all the employees of Cannes and retained only a part-time bookkeeper. The 1st defendant continued to look after the studio rental business. He was arranged to receive his salary from Junpool’s bank account.
75. In 2001, the father was in poor health. It was decided that the one share he held in Goldorb should be reverted to the plaintiff. The transfer took place in 2001. The father passed away in 2002.
76. After that, the plaintiff’s daughter moved to live at the Tung Hei flat. She lived there till 2011. The plaintiff’s son moved in in 2004. Later, he married and his family resided at the flat till about 2017.
77. The milestone event which took place during this period was the transfer of Wai Hong’s shares in Junpool to the 2nd defendant and the appointment of Lily as its director in October 2006.
78. At that time, the 1st defendant complained about the difficulty to get Wai Hong to sign the company documents of Junpool, like audit report. In a family gathering where the plaintiff, Lily, the 1st and 2nd defendants, Fu Hong, Ling Hong and Wai Hong were present, the 1st defendant proposed that the 2nd defendant replace Wai Hong as shareholder for the sake of convenience. The plaintiff agreed and told the 2nd defendant that she was a mere trustee without any work to do. Her role was to sign the documents together with the 1st defendant.
79. The transfer took place on 17 October 2006.
80. On the accountant’s advice, Lily was appointed as a director to monitor the financial position of Junpool.
81. In 2007, Ling Hong’s health became poor. She had to remain in Canada and refrained from coming back to Hong Kong regularly as she used to. The one share she held in Goldorb was transferred to Lily.
82. The plaintiff said in cross-examination that the Declarations of Trust signed by the father and Ling Hong were lost after the Goldorb shares were transferred back to him and Lily.
From about 2010 or 2011 to 2013 when the actions were commenced
83. In 2010 or 2011, the plaintiff discovered that the 1st defendant had been withdrawing money from Junpool to the tune of about $3 million without his authorisation. The relationship between them worsened.
84. In cross-examination, the plaintiff was asked why he did not remove the 1st defendant as the bank signatory of Junpool’s account after the discovery. He said that he felt upset about it. Even though the 1st defendant took his money, he would not go and report him to the police as he was his brother. Three million dollars was not a huge thing to him. The 1st defendant had worked for him for many years.
85. It was further put to the plaintiff that he could at least have added Lily as a bank signatory. The plaintiff replied that he did not want to do this as he did not want to see the relationship between him and his brother break down just because of $3 million. He reiterated that the 1st defendant had worked for him for 30 years and he forgave the 1st defendant. He added that he did not want Lily to know about this as he did not want her to complain about it.
86. The plaintiff wanted to let out Units 201 and 202 in the rental market instead of dragging on the studio rental business. But the 1st defendant implored him to allow him to carry on the rental business as his daughters were still young. The plaintiff acceded to his request and only let out Unit 201. The plaintiff agreed to give the 1st defendant two years to try the business. Subsequently, the plaintiff let out Unit 201 on its own.
87. From then on, when a client came to hire the studio at Unit 202, the 1st defendant would return to the unit and make the arrangement. Otherwise, the plaintiff, Lily and the 1st defendant would not go back every day. However, they would still have lunch together every day like they used to.
88. The plaintiff arranged for a cockloft to be constructed at Unit 202 as storage where he would store some of the old documents and a safe. The trust documents and title documents and some expensive equipment were kept in the safe. He let the 1st defendant keep a key to the safe as the latter was responsible for handing over the equipment to clients.
89. The plaintiff and Lily lived in a rented flat in Taikoo Shing. Since Junpool had been earning rental income, since 2006, the plaintiff arranged for the monthly rents to be paid directly by Junpool. For accounting purpose, the rents were recorded as directors’ fees paid to Lily.
90. The 1st defendant suffered a stroke in December 2011.
91. In about June 2013, the 2nd defendant suggested to Lily that the 2nd defendant should replace the 1st defendant as the signatory of Junpool’s bank account as the 1st defendant was still not able to talk or move around. Lily did not express an opinion then. She eventually confronted the 1st defendant about it. He denied that it was his idea.
92. Lily then arranged a family meeting which she, the plaintiff, the 1st and 2nd defendants and the plaintiff’s son and daughter attended. The plaintiff made it plain to the 2nd defendant that she had no role to play in Junpool and under no circumstance would she replace him as its bank signatory.
93. Several days later, a manager of the bank called Lily and asked for her consent to change the account signatory. The 2nd defendant had taken the 1st defendant to the bank and made the request. Lily refused. She told the plaintiff about it. They did not give the matter further thought as they knew that the 2nd defendant was not able to change the bank signatory by herself. They were of the view that she was anxious and felt insecure because the 1st defendant was to an extent incapacitated.
94. Later, the 2nd defendant emailed Lily asking her to resign from Junpool as a director. Lily refused.
95. Sensing the seriousness of the matter, the plaintiff and Lily immediately returned to Unit 202 to check the safe but only to find out that the title documents and trust documents signed by the 1st defendant were no longer there. It was later that Lily managed to find the Declaration and Letter signed by Wai Hong in a stack of company documents.
96. In July 2013, Lily was removed by the defendants as a director of Junpool. This was done without the plaintiff’s prior knowledge or consent.
97. The plaintiff then commenced the actions.
After the commencement of the actions in 2013
98. Over the years, the plaintiff, through Cannes, had been injecting funds into Junpool. For accounting purposes, the plaintiff was recorded as a creditor of Junpool in respect of funds which remained, after monies had been applied for the benefit of the family from time to time.
99. In July 2013, the plaintiff and Lily instructed their accountant to prepare a summary of the movement of funds between Goldorb, Junpool and Gallion Limited, another vehicle owned by the plaintiff. The summary is produced in the evidence (“the movement summary”). According to the accountant, the summary was prepared based on the audit papers of the company. It covers the financial year ended 31 March 1997 to the financial year ended 31 March 2010.
100. In October 2014, the plaintiff served a statutory demand on Junpool for the sum of $2,204,013.90, which was owed to him as shown in the movement summary. He did so in order to protect his interest as at that time Junpool was in the hands of the 1st and 2nd defendants who refused to follow the plaintiff’s directions any more.
101. Junpool paid the sum in November 2014.
102. The plaintiff subsequently discovered that in October 2014, while the plaintiff was away from Hong Kong, the defendants caused Junpool to sell Unit 202 without the plaintiff’s consent. The sale was completed in November of that year. As of now, the defendants have failed to give an account of the proceeds of sale.
The movement summary and the financial statements of Junpool
103. In the trial, the plaintiff also relies on the movement summary and the financial statements of Junpool to show that he was its real owner.
104. The plaintiff points to the frequent movement of funds between Junpool on the one hand and the plaintiff and his vehicles on the other and says that this is proof that Junpool was in fact one of the plaintiff’s vehicles to manage his assets and expenses.
105. For instance, according to the movement summary:
(1) The plaintiff withdrew cash of $110,000 from Junpool’s bank account in 1999.
(2) Goldorb’s secretary service fee was paid by Junpool in 2001.
(3) Goldorb’s business registration fees were paid by Junpool in 2004 and 2006 to 2010.
(4) In 2000, Gallion withdrew cash of $23,000 from Junpool’s bank account.
106. Mr Li also relied on the audited financial reports of Junpool in the trial.
(1) In the financial report for the year ended 31 March 1998, Junpool’s transaction with Cannes was categorised as “related party transaction” and the plaintiff was stated as “the shareholder of the company”. In the balance sheet, the amount owing to the plaintiff was stated to be “amount due to a shareholder”.
(2) Such description of “amount due to a shareholder” continued for some years until 2003. Since then, the plaintiff had been re-categorised as “sundry creditors”.
(3) In the audited financial reports from 1998 to 2010, the amount owing to Goldorb was stated to be “amount due to a related company”.
Role of the 1st defendant
107. According to the plaintiff’s case, the 1st defendant’s role in Cannes and Junpool is as follows.
108. In about 1985, he employed the 1st defendant to work for Cannes. When Cannes ceased its film making business in 2000, his monthly salary was $25,000. Over the years, out of love and affection, he provided the 1st defendant with free accommodation from 1992.
109. After Cannes ceased its film making business in 2000 and laid off its employees, the 1st defendant received a reduced monthly salary of $20,000 paid by Junpool.
110. All along, the 1st defendant was the plaintiff’s employee.
Summary
111. To sum up, the shares in Junpool have all along been held on trust for the plaintiff by his family members. He denies that Junpool is at any time the 1st defendant’s company.
112. Over the years, it was the plaintiff who, through Cannes, injected funds into Junpool. He also arranged for Junpool to receive the studio rental income of Units 201 and 202. He caused the monies kept in Junpool to be applied for the benefit of his family. The plaintiff was at all times in financial control of Junpool. The 1st defendant was its bank signatory only at the direction of the plaintiff.
113. As regards the Tung Hei flat, it was at the plaintiff’s direction that the property was registered in the name of the father and the 1st defendant. The purchase price and expenses were funded by the plaintiff via Cannes and Junpool.
114. In these premises, the 1st and 2nd defendants hold the shares in Junpool on a common intention constructive trust and/or resulting trust for the plaintiff. The 1st defendant holds the Tung Hei flat on a common intention constructive trust and/or resulting trust for the plaintiff.
THE DEFENDANTS’ CASE
115. The defendants’ case about Junpool and the Tung Hei flat is, by comparison to the plaintiff’s, relatively simpler.
The setting up of Junpool and the purchase of Unit 202
116. In March 1989, the plaintiff was renting premises to carry out the business of Cannes. After experiencing repeated rental increase, he decided to purchase his own business premises and eventually set up Goldorb to acquire Unit 201.
117. The 1st defendant was working for Cannes and became aware of the plaintiff’s plan to buy Unit 201. The 1st defendant also thought about buying his own business premises. He discussed the matter with the plaintiff and sought his financial support.
118. Eventually, it was decided that the 1st defendant would do the same by acquiring a company to purchase Unit 202. The plaintiff agreed to provide financial assistance to the 1st defendant by lending money to the company to be acquired by him.
119. With the assistance of the plaintiff, the 1st defendant acquired Junpool.
120. As the company law at that time required a company to have at least two shareholders and directors, apart from the 1st defendant, Wai Hong also became its shareholder and director. The common understanding was, however, that Wai Hong held the one share in Junpool on trust for the 1st defendant.
121. The 1st defendant denies that there was any agreement with the plaintiff for the 1st defendant and Wai Hong to hold the shares in Junpool for the plaintiff. He denies that he attended the alleged meeting at Sung’s office on 28 March 1989. He cannot now recall who asked him to sign the documents for acquiring Junpool.
122. It was Wai Hong’s evidence that he was to hold the share in Junpool for the 1st defendant and from time to time the 1st defendant asked him to sign documents and he simply signed them without looking at the content. In any event, he does not read English and would not understand those documents.
123. In cross-examination, Wai Hong confirmed that the signatures in the Declaration and Letter appear to be his. However, he could not recall where he signed those documents. But he was positive that he did not go to Sung’s office on 28 March 1989 to sign documents.
124. According to the Declaration and Letter signed by Wai Hong, he was to hold Junpool’s share for the plaintiff. He did not know why that was the case. He added that the plaintiff’s signature was probably not yet on the Letter when he signed it because otherwise he would have paid more attention to it.
125. After acquiring Junpool, the 1st defendant caused it to purchase Unit 202. The plaintiff lent money to Junpool by paying the deposit on its behalf. The balance of the purchase price was paid by a bank mortgage.
126. In short, Junpool was and remains to be beneficially owned by the 1st defendant.
The purchase of the Laguna flat and parking space
127. In late 1991, the 1st defendant intended to use Junpool to purchase a flat as his residence. As Junpool lacked the required fund, he sought financial support from the plaintiff. It was agreed between them that the plaintiff would advance money to Junpool for payment of the deposit for the Laguna flat and parking space.
128. The plaintiff advanced the money for the deposit as agreed. Junpool took out a mortgage loan to finance the balance of the purchase price. The monthly repayments were made by Junpool.
129. After the purchase, the 1st defendant resided there from August 1992 to September 1994. The flat was then rented out. The 1st defendant and his family moved back in from late 1998.
The Tung Hei flat
130. The Tung Hei flat was acquired in the name of the father and the 1st defendant in 1995. The down payment was paid by the plaintiff as a gift to the father and/or the 1st defendant. The outstanding balance was financed by a mortgage. The monthly instalments were paid by Junpool.
131. The 1st defendant denies that there was a family gathering in Causeway Bay before the purchase, as alleged by the plaintiff.
132. Since its acquisition, the title deeds of the Tung Hei flat has been in the 1st defendant’s retention.
133. In the premises, the 1st defendant says that he is the beneficial owner of the Tung Hei flat.
The allotment of shares in Junpool in 1996
134. In August 1995, the 1st and 2nd defendants started to live together as husband and wife after a wedding banquet. In March 1996, the 2nd defendant was pregnant. This prompted the 1st defendant to begin to think seriously about the future welfare of his family. He realised that the then shareholding structure of Junpool, with each of himself and Wai Hong holding 50% of the shares, did not truly reflect the fact that the 1st defendant was the real owner.
135. The 1st defendant consulted the plaintiff who in turn consulted the auditor of Junpool. The auditor advised the 1st defendant to allot new shares and he agreed. That was how the allotment of the shares in 1996 came about.
136. In cross-examination, the 1st defendant said that he did not arrange for Wai Hong’s shares to be transferred to the 2nd defendant and that was because she was pregnant and was not knowledgeable at that time.
137. It was Wai Hong’s evidence that the 1st defendant made the decision about the allotment because the 2nd defendant was pregnant. He denied that the change of shareholding was due to his emigrating to Canada, as alleged by the plaintiff. In fact, he landed in Canada in 1995 and had since obtained the status of resident. But he had no plan to settle there for good. It was never his concern that his holding of Junpool’s share would attract any tax liability in Canada as he only held it for the 1st defendant and he never received any benefit or income from Junpool.
138. Both Wai Hong and Ling Hong denied that there was any family gathering in 1996 to discuss the allotment of shares.
139. The 1st defendant denies that the allotment in 1996 was caused by the plaintiff or that there was any family meeting to discuss it, as alleged by the plaintiff. He further denies that the new shares were held on trust for the plaintiff.
The agreement concerning Unit 201 made in about 2000
140. In his witness statements, the 1st defendant referred to an agreement reached between him and the plaintiff about Unit 201 (“the alleged Unit 201 agreement”). In his supplemental witness statement, the alleged agreement was said to be reached in 2006. However, the 1st defendant corrected the year to 2000 in his second supplemental witness statement.
141. Reading the two written statements together, the 1st defendant said that prior to 2000, he helped the plaintiff to handle the studio rental business of Unit 201. For this work, the plaintiff would pay him salary through Cannes. In about 2000, Cannes’s business became inactive. The 1st defendant and the plaintiff reached an agreement that the 1st defendant through Junpool would take over the right to operate Unit 201, including receiving all its rental income and at the same time bearing all the operating expenses. In return, Junpool would pay considerations to the plaintiff in different ways.
142. The considerations included making payments to the plaintiff’s vehicles, namely Goldorb and Gallion, under different descriptions, such as hiring of equipment, and from 2006 onwards paying the monthly rent for the plaintiff and Lily’s rented flat in Taikoo Shing. The agreement came to an end in December 2010 as Goldorb took back Unit 201 and let it out itself.
143. In his second supplemental statement, the 1st defendant referred to various entries in the audited financial reports of Junpool of the relevant years and some documents executed between Junpool and Gallion to demonstrate that these considerations were paid.
144. However, in cross-examination, many of the 1st defendant’s answers on the alleged Unit 201 agreement were incoherent and inconsistent with his written evidence. I have mentioned above that he had difficulty in expressing himself when testifying due to his physical condition. I shall have to come back to how his evidence should be evaluated in the circumstances below.
145. In any event, it is notable that Mr Wong made no mention of the alleged Unit 201 agreement in his written closing submission. It is therefore not entirely clear to me whether the 1st defendant is still relying on the alleged Unit 201 agreement as part of his case.
The use of the Tung Hei flat after the father passed away
146. The father passed away in 2002. About a month later, the plaintiff’s daughter and son moved in to the Tung Hei flat. They had returned from the US to Hong Kong. As the two children had no job and no income at that time, the 1st defendant let them live there free of rent.
147. This arrangement continued for about 10 years. It was after the 1st defendant suffered the stroke that they started to pay a monthly rent of $5,000 to the 2nd defendant.
148. It is in fact common ground that the plaintiff’s children paid a sum of $5,000 to the 2nd defendant from February 2013 for six months. There were also WhatsApp messages exchanged at the time between the plaintiff’s son and the 2nd defendant in which the sum of $5,000 was referred to as “rent”.
The transfer of Wai Hong’s shares to the 2nd defendant in 2006
149. In about 2006, as Wai Hong frequently worked in mainland China and had plan to settle in Canada for good, he decided to cease to be director and shareholder of Junpool. Therefore, he resigned as director and was replaced by the 2nd defendant in September 2006. The 1st defendant also took the opportunity to appoint Lily to be a director as she had been helping the plaintiff to handle the account of his companies. Wai Hong transferred his 100 shares to the 2nd defendant in October 2006.
150. The defendants deny that there was any family gathering in which the issue was discussed.
After the actions were commenced
151. In this action, the plaintiff disclosed a letter signed by Ling Hong in Canada dated 27 November 2013. In that letter, Ling Hong effectively confirmed the plaintiff’s case on the signing of the trust documents by the 1st defendant in respect of Junpool, the allotment of shares in 1996 and the transfer of shares to the 2nd defendant in 2006. At the end of the letter, she said that she knew about the litigation between the plaintiff and the 1st defendant and she signed the letter in order to tell the facts which she knew.
152. In her witness statement, Ling Hong said that the content of the letter did not reflect her knowledge and intention. It was signed in Canada in the presence of Fu Hong. After she signed it, Fu Hong did not give her a copy. It was later when the letter was disclosed by the plaintiff in these proceedings that she became aware that the content was different from what the plaintiff had previously told her.
153. She explained that when she signed it, she was in very poor health and could not properly concentrate her mind. She signed the letter without reading the content properly. At that time, he trusted the plaintiff. In fact, on the following day, she was admitted to hospital and underwent a surgery.
154. In 2017, the 1st defendant found out that the plaintiff’s children no longer lived in the Tung Hei flat. In 2018, the 1st defendant moved in there with his family.
Summary
155. In summary, the 1st defendant’s case is that Junpool was acquired by him to hold real properties, including Unit 202 and the Laguna flat and parking space. At all times, he was and still is the beneficial owner of the shares in Junpool. The sums of money advanced by the plaintiff to settle the deposits for the purchases were by way of loans to the plaintiff. The loans were repaid after the plaintiff served the statutory demand on Junpool in 2014.
156. As regards the Tung Hei flat, the sum of money advanced by the plaintiff to settle the deposit was a gift to the father and/or the 1st defendant. Junpool made all the mortgage repayments. There was no common intention that the plaintiff would beneficially own the property. Nor did any resulting trust arise in favour of the plaintiff. The 1st defendant is the beneficial owner of the property.
LEGAL PRINCIPLES
157. On common intention constructive trust, the principles are not in dispute. They are recently summarised by Deputy High Court Judge Alexander Stock, SC in Leung Hang Lin v Lam Mei Yung [2019] HKCFI 2819 at para 8.
(1) The starting point is that equity follows the law. There is a presumption that the beneficial interest follows the legal interest. Where the property is registered in a defendant’s name, the plaintiff bears the burden of showing, on the balance of probabilities, that the defendant held the property on trust for him such that the beneficial ownership differs to the legal ownership.
(2) The burden may be discharged by showing that (a) there was a common intention held by the plaintiff and the property owner at the time of the purchase (or exceptionally, after that) that the beneficial ownership was to be different to the legal ownership, (b) the plaintiff altered his position in detrimental reliance upon the common intention, and (c) it is unconscionable for the property owner to assert ownership in reliance on the legal title. The constructive trust is constituted by the plaintiff’s detrimental reliance on the common intention and the unconscionability of the legal owner departing from that.
(3) The approach to ascertaining common intention is objective. One looks to the intention of each party which was reasonably understood by the other party to be manifested by the first party’s word and conduct.
(4) The doctrine is sometimes described as having two limbs. First, where at any time prior to the acquisition (or exceptionally, at a later date), there is an agreement, arrangement or understanding reached between the parties as to how the property is to be held beneficially, based on evidence of express discussions. Second, where there is no evidence to support such a finding but the court relies on the parties’ conduct as a basis from which to infer a common intention. There is some authority that under the second limb, direct contributions to the purchase price by a party who is not a legal owner will readily justify the inference.
(5) However, the modern approach is to assess the parties’ common intention by a holistic approach having regard to the context and the particular facts. The court is not constrained to consider only pure direct monetary contributions to the purchase price. In a Chinese setting, especially for the older generations, where explicit discussions on property rights within the family are not that common, the court has to pay more regard to circumstantial matters.
158. In the present case, the shares in Junpool were previously registered in the name of the 1st defendant and Wai Hong and are, subsequently, registered in the name of the 1st and 2nd defendants. The starting point of the analysis is therefore that prima facie the defendants are the beneficial owners of the shares. The plaintiff, however, says that the beneficial interest solely belongs to him. The burden is therefore squarely on him to make good that case: Stack v Dowden [2007] 2 AC 432 at para 58.
159. The same analysis also applies to the Tung Hei flat. It was previously held in the name of the father and the 1st defendant and is now held in the sole name of the 1st defendant. The burden is therefore squarely on the plaintiff to make good his case that the common intention was that he would own the property beneficially.
EVALUATION OF THE EVIDENCE
160. The parties have put forward almost opposite versions of events.
161. The resolution of the factual disputes primarily turns on the credibility of the witnesses. My task is to evaluate the competing evidence against the backdrop of undisputed and indisputable facts. I am to weigh the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events. Generally speaking, contemporaneous documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility. The internal consistency (or inconsistency) of the witnesses’ evidence should be taken into account. The court would also be guided by its overall impression of the characters and motivations of the witnesses. The court should caution itself against the dangers of too readily drawing conclusions about the truthfulness and reliability solely or mainly from the appearance of the witnesses. See, eg, Re B (Children) [2009] 1 AC 11, para 31; Standard Chartered Bank v Li Wai Ping HCA 10587/2000 and 3575/2003, 17 February 2011, para 19; Hui Cheung Fai v Daiwa Development Limited HCA 1734/2009, 8 April 2014, paras 76 to 82.
162. On the whole, I find that the plaintiff’s version of events is inherently plausible and well supported by contemporaneous documents, and hence credible. On the other hand, while the defendants’ factual case can be said to be inherently plausible, material parts of his case are contradicted by contemporaneous documents, and hence not credible. I consider that the following matters are the material considerations in the evaluation exercise.
The background context in which the evidence should be evaluated
163. When evaluating the evidence, I consider that there are a number of matters which are important to bear in mind as general background context.
164. First, the factual backdrop is that the family was a closely-knit one, even though some of the members had emigrated to Canada at different times during the past three decades. This was so at least until the early 2010’s. Mr Wong confirmed in his closing submissions that the defendants do not dispute that the plaintiff took good care of the parents and his younger brothers and sister. There is also no dispute that the plaintiff was very generous to his family and would not hesitate to give financial support when needed. There had clearly been trust and affection between the family members.
165. The credibility of the parties’ cases must be assessed against the above context. These were not individuals who dealt with each other on an arm’s length basis. They were close to each other. When considering whether it is inherently plausible or implausible for a person to take a certain course of action in the present case, this background context must be taken into account.
166. Secondly, I also highlight the “family” nature of this case. In their closing submissions, counsel for both sides referred me to different allegations made by the other side and pointed out their inherent implausibility and suggested the individuals concerned could or should have done things differently and hence their allegations are untrue.
167. My general comment is this. For many of these submissions, counsel might have raised legitimate queries over certain aspects of the other side’s case. However, these queries are not such as to cast significant doubt over its veracity.
168. To take an example, the defendants contend that there was no meeting at Sung’s office on 28 March 1989. One of the submissions made by Mr Wong to attack the plaintiff’s case is that it is difficult to understand why the mother and Fu Hong were asked to attend the meeting when they played no role in the alleged trust arrangement with respect to Goldorb and Junpool. It is particularly difficult to understand why the mother attended the meeting, as she was wheelchair bound and she lived in Kwai Fong. The plaintiff’s explanation in cross-examination was that it was a happy occasion, as he was setting up his own companies and purchasing real properties, and the whole family would celebrate after the meeting.
169. Mr Wong then queried why the family would celebrate the signing of the trust documents in a dinner afterwards, and even assuming that they would celebrate, he queried why they could not have arranged for the mother and Fu Hong to wait in the restaurant, instead of asking them to make a detour to Sung’s office.
170. I do not find this submission, and other similar submissions made along the lines of “why not did it this way” or “could have done it that way”, to be convincing or illuminating when assessing the credibility of the parties’ cases. This is for the simple reason that we are dealing with a family context here and different families do things differently.
171. Another example is Mr Wong’s query on the plaintiff’s case on the allotment of shares in Junpool in 1996. The plaintiff’s case is that the purpose of the allotment was to resolve the tax concern arising out of Wai Hong’s plan to emigrate to Canada. Mr Wong submitted that the most obvious choice would have been to ask Lily or the father to take over Wai Hong’s shares. The latter would have been “the most natural choice” as at that time he was already holding one share in Goldorb on trust for the plaintiff. In cross-examination, the plaintiff said that he never thought about it and simply went along with the accountant’s advice.
172. Mr Wong submitted that this is an example of the plaintiff pretending to be ignorant when he could not explain the rationale of the transaction, and that it does not require an accountant to see the easiest way to solve the problem was to transfer the share to the father.
173. Mr Wong’s query is in itself a legitimate one. But once again it is one of those “why not did it this way” questions. I am not sure that the father was “the most natural choice” to resolve the tax issue in the first place. But even assuming that he was, I do not think that just because the plaintiff did not go for “the most natural choice”, there necessarily arises a serious doubt over the credibility of his allegation.
174. Thirdly, one important context in the present case is that the material events took place a long time ago. Junpool was set up in March 1989, more than 30 years before the trial. The plaintiff is in his early 70’s whereas the 1st defendant was in his 60’s. It is unrealistic to expect that they could recall the details of events which happened over the course of 30 years with precision. There are bound to be inaccuracies or lapses of memory. I bear that in mind and where there are internal inconsistencies found in the parties’ respective case, that is not necessarily a sign that the witnesses were not speaking the truth.
175. Fourthly, as noted at the outset, the 1st defendant suffered a stroke in 2011 and it has seriously affected his ability to articulate himself.
176. Mr Wong confirmed to the court that the 1st defendant was able to testify, notwithstanding his physical condition. In the course of his cross-examination, more breaks were taken than usual to allow him to rest as he wished. When it appeared that he did not understand the questions, they were repeated or re-formulated. I am satisfied that the 1st defendant understood the questions put to him (or eventually did so). The difficulty he had was to express himself clearly. Very often, his answers were short and brief. When he attempted to elaborate them, he often got stuck in his speech. On a number of occasions, it seems plain that he became frustrated after trying (and failing) to expressly himself more clearly and gave up.
177. In his closing submissions, Mr Li cited a number of instances where the 1st defendant’s oral testimony was inconsistent with, or contradictory to, his written evidence. The most unsatisfactory instance was when the 1st defendant was being cross-examined on his written evidence on the Tung Hei flat. Initially, he disavowed the paragraph in which he said that the plaintiff had gifted the deposit and renovation expenses to the father and the 1st defendant. When he was reminded that it was his own witness statement, he said that the content might be true and might be false. He said that the event took place too long ago. It was then put to him that he relied on his very vague memory to write it out, he replied yes.
178. In a normal case, this type of outright contradictions or inconsistencies would very likely cause the court to reject the witness’s evidence as incredible or unreliable. In closing submissions, I asked Mr Wong in general what I should make of the plain inconsistencies between the 1st defendant’s oral and written evidence. Mr Wong asked me to have regard to the 1st defendant’s written evidence only and disregard the inconsistent oral evidence.
179. I have some difficulty with this approach. As the 1st defendant had chosen to give oral testimony and counsel had confirmed his ability to testify, it seems not right to disregard his oral evidence altogether when it was in conflict with his written evidence. On the other hand, it also seems unjust to the 1st defendant to treat his inconsistencies in the usual way when it was plain for all to see that his difficulty to express himself was genuine.
180. In the present case, however, I do not have to resolve this issue. This is because even if I adopt Mr Wong’s approach and disregard the 1st defendant’s inconsistent or unsatisfactory oral evidence, I would still find that his case is not likely to be true. I shall proceed below on the basis of the 1st defendant’s written evidence and disregard his oral evidence which conflicts with it.
Inherent plausibility
181. I consider that the plaintiff’s case is on the whole inherently plausible. It seems without dispute that the plaintiff had run a successful business in film making in the area of advertisements and commercials, and had made decent earnings from the business over the years. He gave an explanation why he set up Goldorb and Junpool to hold real assets. In essence, it was to ring-fence the assets from any personal liability that might arise from his business. This is an inherently plausible motive. His factual case is consistent with the common ground fact that Goldorb was his company beneficially, notwithstanding that the father and Ling Hong were initially its shareholders.
182. A material part of his case is that apart from the studio rental income booked into Junpool, he would from time to time inject money into Junpool. And the money would be used for the benefit of the family. This allegation is also inherently likely, when viewed against the undisputed context that the plaintiff took good care of the family and was generous with them.
183. Mr Wong submitted that some of the plaintiff’s evidence defies common sense. The most striking example, he contended, is that the plaintiff insisted that, in general, the family would meet up at Units 201 and 202 before going to restaurants for family gatherings. It does not make sense as the family members lived in different parts of Hong Kong, the parents were old and the mother was wheelchair bound. Mr Wong submitted that such arrangement was made up by the plaintiff to support his allegation that there would be family gatherings at the units from time to time.
184. As noted above, I do not find this type of submission to be convincing or helpful in evaluating the credibility of the evidence. When it comes to how the family met up in general, I do not agree that the plaintiff’s evidence defies common sense.
185. Mr Wong submitted that the statutory demand issued by the plaintiff on Junpool in 2014 is totally inconsistent with his allegation that he was its real owner. If he had been, it is inherently improbable that he would choose to demand payment of the debt, instead of the return of the trust documents and the title deeds. I agree that prima facie the service of the statutory demand does seem to be at odds with the plaintiff’s case.
186. The plaintiff gave an explanation why he chose to issue the statutory demand. He said that Junpool was at that time in the hands of the defendants who refused to follow his instructions. He demanded the debt in order to protect his interest. That explanation is not incapable of belief or inherently implausible.
187. I now turn to the defendants’ case. Similarly, in my view, their case is also inherently plausible. The undisputed background is that the plaintiff was generous and was prepared to support the financial needs of his siblings. Against this backdrop, the defendants’ case that the plaintiff made substantial loans to him to acquire Unit 202 and the Laguna flat and parking space is inherently plausible. The same applies to the alleged gift the plaintiff made in relation to the Tung Hei flat.
188. In his closing submissions, Mr Li made the point that when the alleged loans were made, there was no discussion at all between the brothers as to the terms of the loan, eg, the interest payable and the repayment date. However, in my view, when the close and trusting relationship of the family is taken into account, the absence of such discussion is not inherently improbable.
189. Separately, the objective fact that the 1st defendant was the sole bank signatory of Junpool’s account is supportive of his case that he was the true owner of the Junpool.
Contemporaneous documents
190. In my view, what differentiates the plaintiff’s case from the defendants’ is the former’s consistency with two important pieces of contemporaneous documents and the latter’s inconsistency with them. The documents are the Declaration and Letter signed by Wai Hong and Junpool’s ledger recording the studio rental income.
191. The Declaration was dated 28 March 1989 and stamped with the date of 29 March 1989. The Letter was not stamped but bore the date of 28 March 1989. It is more likely than not that the two documents were signed together on 28 March 1989.
192. I have set out Wai Hong’s evidence in paras 122 to 124 above. It is plainly unsatisfactory. His insistence that he held the Junpool share for the 1st defendant is directly contradicted by the Declaration and the Letter signed by him. For his evidence to be capable of belief, there must have been at least an explanation why the two documents had been drafted in the way they were. There has so far been no explanation offered by Wai Hong or the 1st defendant on the Declaration and the Letter.
193. In this regard, it is of note that the plaintiff is not able to produce the Declaration of Trust allegedly signed by the 1st defendant in respect of Junpool, which would arguably be the most important piece of evidence in support of his case. He explained that it was no longer in the safe in Unit 202 where he had kept it and suggested that the defendants had taken them. The plaintiff’s inability to produce the document is no doubt a point which in a way undermines his case. However, his allegation that it was lost is not inherently improbable.
194. The other material piece of contemporaneous document is Junpool’s ledger. The ledger covered the period from January 1996 to March 2005. On its face, the income earned from renting out Unit 201, Unit 202 and the equipment were all booked into Junpool. Therefore, the ledger fully corroborates the plaintiff’s case on the studio rental income.
195. More importantly, it is not in dispute that the plaintiff owned Unit 201 (through Goldorb) and the equipment. The fact that the rent received from renting out Unit 201 and the equipment was booked into Junpool’s books points strongly, if not overwhelmingly, to the conclusion that Junpool was the plaintiff’s company, instead of the 1st defendant’s. Otherwise, why would income belonging to the plaintiff go into the 1st defendant’s company?
196. The defendants say that there was the alleged Unit 201 agreement. That would provide a reason why the Unit 201 income would go to Junpool. However, the agreement was allegedly made in 2000. Hence the existence of the alleged agreement cannot explain why the income earned from Unit 201 before 2000 would be booked into Junpool.
197. In my view, Junpool’s ledger is clear proof which directly contradicts the defendants’ case.
198. On this contemporaneous document, Mr Wong made this submission:
“Whilst it is accepted that the deposit of rental income of Unit 201 into Junpool’s account may support P’s case, it is submitted that that is not the only conclusion that can be drawn from it. There could be many reasons for so doing particularly when P and D1 enjoyed a very close relationship. Even taking it to the highest, it is just one of many pieces of evidence that the Court needs to take into account.”
199. In these actions, the burden is on the plaintiff to show that he was the beneficial owner of Junpool. The ledger is a forceful piece of evidence which he has produced to make good his case. Even Mr Wong accepted that the evidence could support the plaintiff’s case. In the circumstances, if there had indeed been a reason for booking the rental of Unit 201 into Junpool, one would expect the defendants to expressly spell it out. They have not done so. What we have here is simply counsel’s submission that “[t]here could be many reasons for so doing”.
200. In the circumstances, the Junpool ledger carries significant weight in favour of the plaintiff’s version of events.
201. In my view, the above two pieces of contemporaneous documents are highly material and relevant documents which go to support the plaintiff’s case and discredit the defendants’.
202. On contemporaneous documents, I should add that I have considered the movement summary and the audited financial reports of Junpool over the years. However, in my evaluation exercise, I do not consider that too much weight should be accorded to them.
203. On their face, these documents do seem to support the plaintiff’s case in that there were frequent movement of funds as between Goldorb, Gallion and Junpool. That goes to suggest that these three companies were all vehicles of the plaintiff and there were therefore frequent dealings between them for accounting purposes.
204. However, it is notable that in none of the witness statements of the plaintiff or Lily was there an account or explanation given for the movement of funds. The dealings between the companies were not explained at all. In these circumstances, I do not feel able to accord much weight to them in assessing the credibility of the parties’ cases.
Internal inconsistencies
205. In the evaluation exercise, I have considered that both side’s cases are tainted to some extent by internal inconsistencies.
206. In the plaintiff’s case, there are three matters which seem to be internally inconsistent and which are of more significance when compared to other minor inconsistencies.
207. First, the issue of the statutory demand. I have addressed this point above.
208. Second, the fact that the plaintiff’s son paid the 2nd defendant a monthly sum of $5,000, which was referred to as “rent” for the Tung Hei flat at the time, for six months in 2013 seems to support the defendants’ case that the property belongs to the 1st defendant beneficially. There was no explanation in the plaintiff’s witness statements for that.
209. It was only in the course of the plaintiff’s cross-examination that he explained that his son is a timid person by nature and he was approached by the 2nd defendant in 2013 and was asked to vacate the property immediately. At that time, his son dared not tell the plaintiff and paid the sum for a few months. After that, he ceased to pay any monthly sum and continued to live there for a few more years. Then one day he found that the door lock was glued. After that, he vacated the flat.
210. Naturally, the plaintiff was asked why he did not mention this in his witness statement or why he did not ask his son to make a witness statement for him. The plaintiff replied that it was not a huge matter and his son is a timid person.
211. The court is bound to treat this kind of fresh revelation made for the first time in cross-examination with some scepticism. The evidence is not an expansion of evidence already revealed in the proceedings. Nor is it purely supplementary in nature.
212. It is an allegation which the plaintiff had had an opportunity to make after exchange of witness statements but had failed to do so. The fact that his son had paid a sum which was referred to as “rent” is clearly something which undermines the plaintiff’s case that he has all along been the beneficial owner of the Tung Hei flat. The fact that the plaintiff chose not to explain why that had happened before the trial is a matter that casts some doubt over the allegation.
213. That said, however, one must at the same time bear in mind the objective fact that the plaintiff’s children had indeed resided at the Tung Hei flat for about 15 years but had only paid “rent” for six months. This does seem to go to support more the plaintiff’s case than the defendants’.
214. Third, the new evidence regarding the family gathering which preceded the purchase of the Tung Hei flat. The comment which I have made about fresh revelations above applies here. In my view, the court should be sceptical about this new revelation.
215. In these proceedings, the plaintiff claims the beneficial ownership of the Tung Hei flat based on common intention constructive trust. In the alleged family gathering at the Chinese restaurant, the ownership of the property was explicitly discussed. If the court finds that the alleged gathering had in fact happened, it would strongly support a common intention constructive trust. There is no immediately apparent reason why the plaintiff did not plead to it or refer to it in his written statements. The court should also be sceptical whether the plaintiff could genuinely recall a conversation which took place more than 20 years ago when he was in the witness box, but failed to refer to it previously in these proceedings.
216. For these reasons, I have reservation whether there was indeed such a family gathering.
The other witnesses called by the defendants
217. On the other hand, I also have reservation about the evidence of Wai Hong and Ling Hong.
218. I have discussed Wai Hong’s evidence in para 192 above.
219. As regards Ling Hong, she basically disavowed the written statement she signed in Canada. Her allegation was that she had trust in the plaintiff at that time, she was in poor health and could not concentrate, and therefore did not carefully read through the content of the letter before signing. This allegation is not outright incredible, given the close relationship between her and the plaintiff then. However, in cross-examination, she revealed that she in fact drove to the restaurant herself that day. That would suggest that her physical condition was not as bad as she was trying to make out in her written evidence.
220. Also, when Mr Li went through the document with her in cross-examination, she accepted that she had in fact read certain parts of the letter on the day when she signed. These included the part which said that the plaintiff was supportive of the parents, and that Junpool had in the past made payment to her to support her financially. Furthermore, she corrected a typo in her name as stated in the document. Her name was printed as “陳令康”. She spotted the mistake and corrected it to “陳玲康” by hand. All these again suggest that she was not as poorly as she said she was. It is also more likely that she had in fact read through the document before she signed.
221. As to the other six witnesses called by the defendants, they did not know the arrangement between the brothers in relation to the beneficial ownership of Junpool. Mr Wong highlighted that they are independent witnesses who have no interest in the outcome of the actions. Mr Wong acknowledged that they have no direct knowledge on who is the real owner of Junpool. However, he submitted that their evidence supports the defendants’ case.
222. In my view, the evidence of the six witnesses does not add any weight to the defendants’ case.
FACTUAL FINDINGS
223. In both actions, the burden is squarely on the plaintiff to make good his factual case. I am of the view that he has discharged the burden. As I have sought to explain above, both side’s cases are inherently plausible but they are both tainted to some extent by some internal inconsistencies. However, the contemporaneous documents in the form of the Declaration and Letter signed by Wai Hong and the Junpool ledger supports the plaintiff’s case and flatly contradicts the defendants’.
224. On the balance of probabilities, subject to two exceptions, I find in favour of the plaintiff’s case and hold it as facts. The two exceptions are (1) his explanation why his son paid “rent” for the Tung Hei flat to the 2nd defendant, and (2) his new allegation that a family gathering was held in a Chinese restaurant in which the ownership of the Tung Hei flat was explicitly discussed between, among others, him and the 1st defendant.
RULINGS
225. On the facts as found, I am satisfied that there was a common intention shared between the plaintiff, the 1st defendant and Wai Hong in March 1989 that the shares of Junpool held in the name of the latter were held on trust for the plaintiff. The signing of the declaration documents is a clear pointer of that intention. Pursuant to that common intention, the plaintiff regarded Junpool as his own company and used it as a vehicle to hold Unit 202 and the Laguna flat and parking space, and to receive the studio rental income. The common intention continued and applied also to the new shares allotted to the 1st defendant and Wai Hong in 1996. When Wai Hong’s shares were transferred to the 2nd defendant, those shares were subject to the trust and, in light of the express discussion at that time, the 2nd defendant knew about it. There was a common intention that she held the shares for the plaintiff.
226. Accordingly, I hold that the 1st and 2nd defendants hold the 9,900 shares and 100 shares respectively for the plaintiff on common intention constructive trust.
227. As regards the Tung Hei flat, I find as facts that the plaintiff convinced his father to apply for the property under the Home Ownership Scheme so as to improve the living condition of the parents. He directed Junpool to settle the purchase price and the purchases expenses, and also directed it to make the monthly mortgage repayments. Lily also spent about $220,000 on the decoration works and furniture. These expenses came from Cannes.
228. On these facts, I am satisfied that there was a common intention shared among the plaintiff, the father and the 1st defendant at the time of the acquisition that the father and the 1st defendant were to hold the legal title of the property for the plaintiff.
229. There is no proper evidence before me to suggest that there was any express discussion about the ownership of the property. However, the case law has made it clear that in a family context, explicit discussions on property rights might not be common and the absence of such discussions is not necessarily fatal to a claim. Here, it was the plaintiff who funded the purchase through Junpool. This readily supports the finding of a common intention in the plaintiff’s favour.
230. Mr Wong submitted that the plaintiff has not properly pleaded a case of common intention constructive trust in the amended statement of claim. It was incumbent on him to plead with full particulars the common intention, including the circumstances in which the intention was formed and, more importantly, the content of the alleged common intention. He contended that the amended statement of claim is plainly defective. The plaintiff should not be allowed to run the case at all.
231. I do not agree with the submission. The plaintiff has in fact pleaded that it was pursuant to the plaintiff’s directions and instructions that the Tung Hei flat was purchased for the use and benefit of the parents and that funds from Junpool were used to acquire the property. Furthermore, there is a plea to the effect that the plaintiff owned the shares in Junpool beneficially and Junpool was used to provide for the living expenses and well-being of the parents and other family members, including the 1st defendant. All the facts which go to support the finding of a common intention constructive trust has been pleaded. The pleading point is not tenable.
232. There is a separate issue which arises out of the fact that it was Junpool who directly settled the purchase price and the purchase expenses. The question is whether the common intention was one to hold the property on trust for Junpool, as opposed to the plaintiff. If the trust is held to be in favour of Junpool, the plaintiff’s claim against the 1st defendant must fail, as the plaintiff is a separate legal person from Junpool, even though he is its sole beneficial owner.
233. Having reflected on the evidence as a whole, I hold that, objectively speaking, the common intention was that the father and the 1st defendant held the Tung Hei flat on trust for the plaintiff.
234. The court’s task is to adopt a holistic approach having regard to the context and the particular facts. This is a case where the three family members did not expressly talk about the ownership of the property. It follows that there was no express discussion of the identity of the beneficial owner. The fact as found is, however, that it was the plaintiff who expressly directed that the property be purchased. Taking into account the family context and having regard to the fact that the purchase was made as part of the family arrangement, I hold that as between himself, the father and the 1st defendant, the intention was that the property belonged to the plaintiff beneficially.
235. I have not disregarded the fact that it was Junpool who directly funded the purchase. While in a resulting trust context, this fact will dictate the rebuttable presumption as to the identity of the beneficial owner, in the constructive trust context, it is but one of the factors which should be taken into account when ascertaining the objective common intention of the parties. Junpool is a vehicle of the plaintiff. The purchase of the Tung Hei flat was a family arrangement to improve the living conditions of the parents. As such, objectively speaking, the common intention of the family members was that the plaintiff was intended to be the beneficial owner. I therefore hold that the 1st defendant holds the Tung Hei flat for the plaintiff on common intention constructive trust.
236. In light of my rulings, it is unnecessary to consider the plaintiff’s claims based on resulting trust in both actions. More specifically, in relation to the Tung Hei flat, it is unnecessary to deal with the issue of the identity of the beneficial owner and in this regard Mr Li’s submissions on the Court of Appeal decision in Lo Man Yau v Chiu Sung Fai [2018] 6 HKC 221.
237. On the basis that liability is established, Mr Wong did not take issue with the reliefs sought save for the orders for accounts and inquiries for the rental receipt and sale proceeds of Unit 202 and the mortgage sum of the Laguna flat and parking space. He submitted that it is Junpool, not the plaintiff, who owned or owns these properties. Even though the plaintiff solely owns Junpool, it is nonetheless a separate legal entity from him. Hence, the plaintiff is not entitled to such reliefs which can only be granted to Junpool.
238. I agree with the gist of that submission. I have accordingly modified the reliefs for accounts and inquiries as below.
CONCLUSION
239. I make the following orders.
240. In HCA 1781/2013:
(1) There be a declaration that the 9,900 shares of Junpool registered in the name of the 1st defendant is held by him on trust for the plaintiff.
(2) The 1st defendant do transfer such shares to the plaintiff.
(3) An injunction that the 1st defendant, whether by himself, his agents or servants or otherwise, be restrained from parting with, selling, charging or in any other way disposing of such shares pending the transfer.
(4) There be a declaration that the 100 shares of Junpool registered in the name of the 2nd defendant is held on trust by her for the plaintiff.
(5) The 2nd defendant do transfer such shares to the plaintiff.
(6) An injunction that the 2nd defendant, whether by herself, her agents or servants or otherwise, be restrained from parting with, selling, charging or in any other way disposing of such shares pending the transfer.
(7) An injunction restraining the defendants from disposing of, or causing the disposal of, the Laguna flat and parking space, pending the transfer of the Junpool’s shares to the plaintiff.
(8) An order for account and inquiry of any sum received by or to the order of the defendants by reason of their being shareholders of Junpool in relation to any lease or the sale of Unit 202 and the mortgage of the Laguna flat and parking space.
(9) There be liberty to apply.
241. In HCA 1782/2013, there be a declaration that the Tung Hei flat is held by the 1st defendant on trust for the plaintiff. I further order that the 1st defendant do transfer the property to the plaintiff. There be liberty to apply. I dismiss the 1st defendant’s counterclaim.
242. I make an order nisi that the plaintiff do have costs of the two actions and the counterclaim in HCA 1782/2013, including any costs reserved, to be taxed if not agreed.
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( Winnie Tsui ) |
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Deputy High Court Judge |
Mr Ricky KY Li, instructed by LIMS, Solicitors, for the plaintiff in HCA 1781/2013 and HCA 1782/2013
Mr Damian Wong and Ms Jenny Lok, instructed by Chan, Tang & Kwok, for the 1st and 2nd defendants in HCA 1781/2013 and the defendant in HCA 1782/2013
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