LO MAN KAM v. LAW MAN WAI

CACV 249 & 250/2013

CACV 249/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 249 OF 2013

(ON APPEAL FROM HCA NO. 2307 of 2009)

________________________

________________________

________________________

________________________

J U D G M E N T

________________________

Hon Cheung JA :

Facts

1)6^th Aunt

1.   Madam Lo Pui Kau（羅佩球）was an able and wealthy woman. She came from a well to do family in Macau.  Although she was married, she had no children of her own.  But she had many nephews and nieces.  She was known to them as 6^th Aunt.  She died in December 2001.  In her will she gave her estate to her nephews and nieces and also her grandnephews.  Amongst her nephews are Law Man Wai（羅文蔚）(‘Wai’) (the plaintiff in HCA No. 2307 of 2009) and Lo Man Kam（羅文錦）(‘Kam’) (the plaintiff in HCA No. 143 of 2010). 

2)Wai and Kam

2.1   Wai was born in 1942 and received his primary education in Macau.  He came to Hong Kong when he was 14, attending, firstly, St Louis School and later on St Paul’s Co-Educational College where he graduated with good results.  He did not continue higher education because his mother was ill and he returned to Macau to be with her.  In Macau he started working in the Permit Department of the British Consulate.

2.2   In 1966 Wai came to Hong Kong and worked in the inward bills department of a bank.  He married in 1967.  However he committed an offence and was jailed between 1983 and 1985, during which time his wife deserted him.  He has no children.

2.3   In 1987 Wai met up with Kam in Hong Kong.  Kam was then 35 and working as a part time chauffeur.  He was already married to Kwan Sau Sim（關秀嬋）(‘Sim’) (the defendant in HCA 2307 of 2009) who was a beautician, and they had a young son (‘Tung’).

2.4   After Wai and Kam met up again, they became very close and they visited 6^th Aunt frequently who had by then moved to live in Hong Kong with her sister known as the 5^th Aunt.  6^th Aunt loved Wai and Kam and they were her close relatives.

3)The gifts

3.1   6^th Aunt gave a lot of money to Wai who was helping her with her foreign currency investments.  By Wai’s own admission, between January and November 1999 6^th Aunt had given him about $29 million.  6^th Aunt later had a stroke.  Kam said 6^th Aunt told him and Sim during one of their visits in 1999 after she had recovered from the stroke that she had transferred part of her savings to Wai which was to be shared between him and Wai equally after she passed away.  When Wai turned up later, 6^th Aunt asked Wai to confirm the transfer which he did and he said the money was about $30 million.

3.2   Kam further said that Wai later confirmed with him on two other occasions that the gift from 6^th Aunt was about $30 million to $35 million respectively.  On the first of these occasions, Wai told Kam half of the money was Kam’s.

3.3   Wai’s position was different.  He maintained in these proceedings that the money given by 6^th Aunt was gift to him only.  However what is clear is that starting from January 2000 up to June 2004 Wai had been giving Kam and Sim a total of $12.8 million.  Wai insisted that the money he gave to Kam was entirely out of love and goodwill.

4) The properties

4.1   6^th Aunt’s estate included real properties.  Two of these were sold by the executors of the estate to Wai, Kam and another nephew Lo Man Hing.  Two other properties were sold by the executor to Sim.  These two properties are a flat in Fung Yip Building (‘the flat’) where 6^th Aunt lived before she died and a shop in Hoi To Court (‘the shop’).  Wai claimed that although Sim purchased the properties in her name, it was him who provided the consideration of $7.96 million.  Between June and August 2004, Wai had given Kam and Sim $8.3 million in cash.  He claimed that Sim held the properties on trust for him.  As made clear in the judgment below there is no dispute that payments made by Wai to Sim were to be treated as payments to Kam.

4.2   Sim denied this.  She said she was the legal and beneficial owner of the two properties and the money used for the purchase of the properties was part of the gift given by 6^th Aunt to Wai and Kam.  She counterclaimed damages against Wai for obstructing the sale by her of the flat to a purchaser.  She also claimed that Wai had not accounted for the rent he received from the shop.  Kam’s action against Wai was for, among other things, a declaration that Wai holds on trust for him half of the money transferred by 6^th Aunt to Wai for their benefit, an account of the money that 6^th Aunt had given to Wai and payment of money found to be due from Wai to him on the taking of the account.

The judgment

5.  Recorder Jat SC, after a four day trial, found for Sim and Kam.  Wai now appeals.

The appeal

6.  Wai is represented by Ms Margaret Ng who ably conducted the appeal on his behalf.  Originally her challenge of the Recorder’s judgment was on two factual grounds, namely, first, he erred in finding that 6^th Aunt had intended to give her money to both Wai and Kam, and, second, he erred in finding that Sim was the beneficial owner of the two properties.  Shortly before the appeal Wai’s notice of appeal was amended and a challenge on a point of law was raised, namely, the Recorder erred in failing to hold that, on Kam’s pleaded case that there was no perfected trust or gift in favour of Kam on the monies transferred to Wai.

Validity of the gift

7.1   I will deal first with the challenge on the validity of the gift.  This was not a point raised by Kam at the trial below.  However, the Recorder obliquely dealt with this issue in paragraph 8 of the judgment, where he stated that ‘Ms Ng did not dispute that the 6^th Aunt’s gift, if proved, did not constitute a valid trust’.  Ms Ng informed the Court that this point was simply not raised at the trial.  The Recorder, however, did not elaborate how this would affect the parties’ case and he did not address this matter further in his judgment.

7.2   Ms Ng’s attack on the validity of the gift is on two limbs.  First, the trust over 6^th Aunt’s money was void for uncertainty (‘the uncertainty argument’) and second, the gift was an imperfect gift in that 6^th Aunt merely expressed an intention of gifting an as yet incompletely transferred and unspecified sum of money to be held by Wai for Kam (‘the imperfectly gift argument’).

7.3   Kam and Sim (represented by Mr Albert Yau and Ms Melo Man) objected to Wai raising this challenge for the first time on appeal.  Mr Yau argued that had this matter been raised below, there would be factual evidence called to deal with the challenge. 

7.4   Ms Ng relied on Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356 and argued that Wai is not barred from taking this point on appeal because it arises on Kam’s pleadings and no factual issue is involved.  She relied on Bokhary PJ’s judgment at page 369 B-C that :

‘ He will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial.’

I.   The uncertainty argument

1)  The principle

8. One of the three requirements for a valid trust is that the subject matter of the trust must be certain.  The following principle from Pettit’s Equity and the Law of Trusts (12^th Ed) page 51 illustrates the point :

‘(B) CERTAINTY OF SUBJECT

(i) It is abundantly clear that, in order to establish a trust, the trust property must be identifiable.  Where it cannot be clearly identified, the purported trust is altogether void as, for instance, in Palmer v Simmonds, in which the subject of the alleged trust was ‘the bulk of my said residuary estate’; nor was a trust established in Re London Wine Co (Shippers) Ltd,in which a company had stocks of wine in various warehouses, which it sold to various customers, the intention being that the wine purchased should become the property of the customers, but stored by the company at the customers’ expense.  It was argued that if the legal title had not passed to the customers, there was a trust in their favour.  The court seems to have accepted that there was an intention to create a trust, but held that it nevertheless failedon the ground of uncertainty of subject matter, because there was never any segregation or appropriation of the wine within the warehouse until actual delivery of the wine to a purchaser.  This last decision seems right in principle, but the subsequent Court of Appeal decision in Hunter v Moss causes difficulties. In that case, it was held at first instance that the requirement of certainty does not apply in the same way to trusts of intangible assets such as, in the case before the court, 50 out of 950 indistinguishable shares.  In such cases, it was held, the question of certainty depends not on the application of any immutable principle based on the requirements of a need for segregation or appropriation, but rather on whether, immediately after the purported declaration of trust, the court could, if asked, make an order for the execution of the purported trust.  On this basis, the trust was upheld. The Court of Appeal expressly agreed with the conclusion of the judge below on the uncertainty point and should, perhaps, be treated as accepting his reasoning, although it has been much criticized by most of the commentators, arguing that intangible assets are not in a different position from tangible. Nor is the analogy drawn by the court with a demonstrative legacy of shares valid, because a trust of such shares will become completely constituted only when the particular shares have been vested in the trustee.

Thomson & Hudson, however, while accepting that the distinction is made by the authorities, argue that the criticism is based on a misunderstanding on what is required to have ‘certainty’.  They suggest that the law does not require absolute or mathematical certainty but looks for ‘workability’, which was present in Hunter v Moss.’  (emphasis added)

2)  The pleading

9.1    In respect of the gift from 6^th Aunt, Kam in his pleadings relied on an express trust or alternatively a trust ‘by operation of law’ but without specifying its precise nature.  In respect of the gift, this is what Kam pleaded in his re-amended statement of claim : 

‘ 3. In 1999, the late Madam Lo started to transfer money to the Defendant for the benefit of the Plaintiff and the Defendant. Until after discovery, interrogatories and/or exchange of witness statements, the best particulars the Plaintiff can provide are as follows :

PARTICULARS

1)  In or about early 1999, the late Madam Lo told the Plaintiff that she had transferred various sums of money in foreign currencies and Hong Kong dollars currency to the Defendant and would continue to do the same.

2)  According to the late Madam Lo, the monies which had been transferred to and would be transferred to the Defendant (collectively referred to as “the Fund”) were intended as a gift to be shared by the Plaintiff and the Defendant equally.

……’  (emphasis added)

9.2   The Fund as defined by paragraph 3(2) is pleaded as the subject matter of the trust :

‘ 6. By reason of the matters set out above, an express trust, the subject of which being the Fund, was created since 19 February, 1999, and/or at latest by 19 November 1999, by the late Madam Lo for the equal benefit of the Plaintiff and the Defendant (‘the late Madam Lo’s Trust’).

6A. Further to para 6 above or in the alternative, if the plaintiff’s case of an express trust cannot be made out, he avers that the Defendant holds the Fund on trust for both of them in equal shares by operation of law having regard to the circumstances as to how the Defendant first came into possession of the various sums which comprised the Fund.  (Such circumstances, apart from those stated above, include the fact that he received these various sums from the late Madam Lo with full knowledge that the sums were not meant for his own exclusive or personal use but were meant for the equal sharing between him and the Plaintiff.)’  (emphasis added)

3)  Wai’s argument

10.1   Ms Ng argued that there is uncertainty in the subject matter of the trust because the Fund consisted of both of the money that had been transferred from 6^th Aunt to Wai and also money of unspecified amount that had not yet been transferred. Ms Ng argued that at the time of 6^th Aunt’s expression of intent in early 1999 of making the future gift, the subject matter of the purported gift had not yet been constituted and was uncertain.  It was uncertain at what point and what further transfers would be made to constitute the purported gift.  On the particulars pleaded, five transfers were made between 19 February and 23 March 1999.  No declaration of trust was made on the transferred amounts by 6^th Aunt as, according to Kam, the transfers constituting the gift were still incomplete, and other transfers were made on or after 19 November 1999.  No declaration of trust was made on the final sum after further transfers were made to Wai.  On Kam’s pleadings there was no further conversation between Kam and 6^th Aunt on the alleged gift. 

10.2   Accordingly, Ms Ng argued that neither the subject of the gift nor the intention of gifting of the final sum was certain or ascertainable.  Indeed, on Kam’s pleadings the sum of money constituting the purported gift was uncertain as to the total value as well as to the meaning of ‘transfer’, whether it included any cash withdrawals by Wai from time to time.  This can be seen from paragraph 4(2) of the Re-Amended Statement of Claim :

‘ 4(2) Upon a preliminary enquiry with the Executor, the total sum transferred by the late Madam Lo to the Defendant in respect of the Fund was approximately HK$35,000,000, before taking into account of interest accruing thereto.

 

PARTICULARS
Date of Transfer	Amount
19 February 1999	GBP733,000
19 February 1999	AUD1,850,000
22 February 1999	CAD290,000
9 March 1999	USD513,000
23 March 1999	HK$2,500,000
19 November 1999	HK$2,700,000
On divers dates from 1999 to 2001, cash withdrawal by the Defendant	HK$6,800,000 (approx)
	_____________________
Total (approx) :	HK$35,000,000 ’

4)  Wai can take this point on appeal

11. It is clear that arguments on the uncertainty of trust are based solely on the state of the pleadings which I have set out above.  In my view Wai is entitled to raise this point on appeal.

5)  Merit of this point

12.1   I am also of the view that Ms Ng’s submission on the uncertainty of the subject matter is correct.  When 6^th Aunt informed Kam of the gift, the subject matter of the gift had not yet been constituted and was uncertain because the gift consisted of both the money that had been transferred to Wai and also money of unspecified amount that had not yet been transferred.  It was uncertain at what point and what further transfers would be made to constitute the gift.  I disagree with Mr Yau’s contrary argument that there is no uncertainty in the subject matter. 

12.2   Mr Yau argued that future assets may be included in the trust fund.  He relied on Underhill and Hayton’s Law Relating to Trusts and Trustees, 18^th ed., paragraph 1.4, where the editors stated that :

‘ Whether or not spelled out in the definition section of a trust instrument, the concept of a trust fund extends beyond the original settled assets (often of a small value, e.g. ₤100) and the fruits thereof and further assets subsequently transferred by the settlor or another settlor to the trustees. It extends to assets subsequently from time to time successively substituted for such assets.’

12.3    In my view this passage does not assist Mr Yau.  The discussion of this passage proceeded on the basis of a validly constituted trust.  The issue of uncertainty of the subject matter is not discussed.

12.4    Mr Yau further relied on the statement in Hayton and Mitchell’s Commentary and Cases on the Law of Trusts and Equitable Remedies, 13^th ed., paragraph 4‒99 that :

‘ To create a valid trust, the settlor must make it certain exactly which property is to be held on trust for otherwise there will be nothing specific to which the trust can attach. The beneficial interests to be taken by the beneficiaries must also be certain.’

12.5   He submitted that there is no suggestion that the trust is void simply because some of the assets comprising that trust fund happen to be unascertained at the time of its creation. Certainty of subject matter requires that the property to be held on trust must be certain for otherwise there will be nothing specific to which the trust can attach.  As long as there is at the time of its creation sufficiently ascertainable assets settled on that trust (and no doubt they encompass assets already transferred to the trustee to hold on trust), the trust is valid even though it also consists of future-acquired property.

12.6   In my view this passage in fact supports the uncertainty argument.  The uncertainty of the subject matter renders the trust void is well established.

12.7   Further the traditional trust precedent that appeared at paragraph 1‒161 of Hayton and Mitchell and relied upon by Mr Yau does not help him.  His reliance on Recital (C), namely :

12.8   As can be seen from Recital (B), the trust is to be declared in respect of the specified assets.  In other words a valid trust is to be properly constituted by the specified assets.  It is upon this valid and subsisting trust that the settlor may transfer further assets to the trustees to be held on trust by them.  The definition of ‘trust fund’ in the precedent does not carry the matter further.  The starting point is that there is a properly constituted trust with the subject matter being certain, namely, the designated assets which is the first item in the definition.  This is unlike the present case where the subject matter of the trust is to consist both the transferred money and unspecified money to be transferred in the future.

12.9   Mr Yau also relied on a trust by operation of law.  He submitted that it is in the nature of a constructive trust.  Constructive trust was not pleaded nor argued upon at the trial.  Mr Yau now submitted that it was unconscionable for Wai to deny on one hand the gift and on the other hand continue receiving the money from 6^th Aunt who made the transfer on the assumption that the gift was good and Wai would honour his obligation.  This renders Wai a constructive trustee.  He referred to Underhill and Hayton at paragraph 8.29 where it reads :

̒ Where a court is imposing a constructive trust over the defendant’s property in order to prevent his unconscionable behavior in trying, to the detriment of the claimant, to take advantage of uncertainty created by the defendant, the court will circumvent the uncertainty.  Thus, a common intention constructive trust of a “fair share” of a home will not be void for uncertainty but will be converted into a trust of a specific share that the court considers fair in the circumstances.’

12.10   Mr Yau, however, did not articulate how this would convert an otherwise invalid trust into a valid one.

12.11  Subject to the issue of estoppel that I will later discuss, I conclude that there is no valid trust.  I also tend to agree with Ms Ng that if the express trust fails, Wai would either hold on resulting trust for 6^th Aunt as to the half share intended for Kam, or is accountable to her (or her estate) as her agent, but in neither case would Kam have any recourse against Wai by way of an account.

II.  Imperfect gift without transfer

1)  The principle

13. Ms Ng relied on Milroy v Lord 4 DE G.F. & J. 264 at 274 and 275 where Turner LJ held that :

‘ I take the law of this Court to be well settled, that, in order to render a voluntary settlement valid and effectual, the settler must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him. He may of course do this by actually transferring the property to the persons for whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds it in trust for those purposes; and if the property be personal, the trust may, as I apprehend, be declared either in writing or by parol; but, in order to render the settlement binding, one or other of these modes must, as I understand the law of this Court, be resorted to, for there is no equity in this Court to perfect an imperfect gift. The cases I think go further to this extent, that if the settlement is intended to be effectuated by one of the modes to which I have referred, the Court will not give effect to it by applying another of those modes. If it is intended to take effect by transfer, the Court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust. These are the principles by which, as I conceive, this case must be tried.’ (emphasis added)

2)  Not necessary to address this point

14. The imperfect gift argument is a related although different issue from the uncertainty argument.  The uncertainty of the subject matter will render the trust void.  But an imperfect gift may arise even when there is no issue of uncertainty of the subject matter but when the trust fund was not transferred to the trust.  Having found that the trust is void for uncertainty, it is not necessary for me to discuss this topic further.

Factual challenges

1)  Wai’s argument

15.1   Ms Ng submitted that in respect of the gift to Kam, Kam bears the burden of proof and he had failed to discharge the burden.  She submitted that Kam’s evidence was unsatisfactory.  He relied solely on a single conversation with 6^th Aunt in early 1999 during a social visit.  There was no written record of the gifting.  He could not recall the exact date or the actual words of gifting, or when the gift was intended to be transferred to him.  The only corroboration came from Sim.  By his own admission he had never mentioned the gift to anyone except Wai, neither during 6^th Aunt’s lifetime nor after her death or disclosed to any third party its existence until shortly before these actions 10 years after 6^th Aunt’s death.  On such unsatisfactory evidence, and given the considerable inherent improbability, Kam’s claim should have been dismissed :

1) If 6^th Aunt wanted to make a gift to Kam, there was no reason why she did not transfer the money to him;

2) For such a substantial gift it was strange that neither Kam nor anyone kept any record of it at any time;

3) A total sum of $3,600,000 was paid by Wai to Kam in 2000.  If it was part payment of the gift, it was strange that Kam never even acknowledged it to 6^th Aunt;

4) 6^th Aunt’s transfers to Wai were made known after her death, and Wai paid $4.77 million in estate duty; even then Kam did not disclose that he had a share in the gift and he did not pay any part of the estate duty;

5) In the 10 years between the alleged gift and the commencement of proceedings, no account was kept by Kam of how much of Wai’s obligation under the gift had been discharged and how much remained outstanding, whether interests were payable and if so at what rate (Kam claimed interests on the gift in his statement of claim); and

6) Stranger still, neither did Wai keep any account in spite of his being a meticulous person with money.

15.2   Ms Ng further submitted that :

1) the Recorder had reversed the burden of proof by requiring Wai to explain why he gave so much money to Kam;

2) the Recorder had made his finding on a false premise, namely, Wai was a man of modest means who had a relatively humble job with a pizza restaurant;

3) the Recorder had given inconsistent treatment to the evidence of Sim and Madam Lee, the wife of the late tenant who gave evidence for Wai; and

4) the Recorder had failed to take proper account of the only relevant contemporaneous records of Wai which did not show he was paying off any obligation to Kam.

15.3   In respect of the two properties, Ms Ng submitted that Sim would only succeed if Kam could establish the $8.3 million was part of the gift from 6^th Aunt.  Wai’s intention to buy the properties was supported by independent evidence.  The payment of $8.3 million by cash was different from the previous payments to Kam by cheque or direct transfer who was consistent with Wai’s explanation that he wished to avoid any evidence of an inter vivos transfer attracting estate duty as he had just paid $4.77 million in estate duty for 6^th Aunt’s gift.  The Recorder was wrong in his doubts about Wai’s evidence on his reasons for changing the name of the purchaser of the shop and finally the Recorder had overly relied on demeanor and his assessments of characters.

2)  Overview on factualchallenge

16. It is necessary to take an overview before the detailed complaints are considered.  As this is an appeal against the finding of fact by the Recorder, the well-established principle in this regard is that the appellate court will not disturb such a finding unless it is shown to be plainly wrong, for example, where the finding is contrary to some uncontroverted evidence or that the judge had ignored some material evidence (Ting Kwok Keung v. Tam Dick Yuen & Others [2002] 3 HKLRD 1).  For a recent affirmation of this approach, see the United Kingdom Supreme Court judgment of McGraddie v McGraddie [2013] 1 WLR 2477.

3)  Nature of payment

17.1   In terms of the context of this case, the most prominent feature is that of the $29 million that Wai admitted 6^th Aunt had given him, he had given more than half of them to Kam.  The total amount was about $18 million.  Even if the $8.3 million used in the purchase of the properties are to be excluded from this sum, Wai had still given about $10 million to Kam.

17.2   Many of the payments continued after the purchase of the properties until 2009.  Even if some of the later payments are rentals as Kam and Sim had claimed, the amount paid by Wai to Kam was very substantial indeed.  If 6^th Aunt had indeed transferred about $35 million to Wai as Kam’s inquiry with the executor had suggested, then the payment made by Wai to Kam represented nearly half of that amount. 

17.3   The payment was made by Wai to someone who is only his first cousin.  Before they met up again in Hong Kong in 1987, their two families were not close at all.  When they eventually met again in 1987, Wai was aged 45 and Kam was 35. While they became close until their falling-out in November 2009, the inevitable question one has to ask is why was Wai so generous to Kam?  There really is no indication that Wai and Kam had bonded so much in their relationship that Wai would go to such length to help Kam out.  It is said that Wai is not married and has no family of his own and it is not odd for him to help Kam out.  On the other hand Wai has his own siblings and the evidence shows that he had only given $500,000 to one of his sisters. 

17.4   One may ask, is it more likely that, Wai and to his credit, was merely fulfilling the obligation that 6^th Aunt had imposed on him to share the money between him and Kam or that Kam had made up a false story about the gift of 6^th Aunt and Wai’s payment to him was entirely out of Wai’s generosity towards him?  There is no presumption of gift from Wai to Kam because this presumption applies only between parent and child and between spouses.  In any event this presumption can easily be displaced (see Suen Shu Tai v Tam Fung Tai (CACV 187/2013)). 

17.5   This is the stark context that the Recorder had to decide on the nature of the money given by Wai to Kam.  The amount of the payment cried out for an explanation from Wai.  Ms Ng urged upon us not to be overly concerned with the reason why Wai chose to give away his money.  In my view one must consider the inherent probability of Wai’s actions.  I do not regard the Recorder had reversed the burden of proof which admittedly was imposed on Kam, when he rejected Wai’s explanation for the payment.  In my view the Recorder’s factual finding in favour of Kam can be supported by the inherent improbability of Wai’s case of the gift. 

17.6   Many of the complaints raised by Ms Ng had been argued and considered by the Recorder.  Specifically he had borne in mind of Ms Ng’s impassioned closing submission that Kam and Sim were ‘putting words in the mouth of an elderly person who, has been dead for 10 years’.

17.7   Kam’s case on the nature of the gift is of course dependent on his and Sim’s oral evidence.  The Recorder held that Kam gave the impression of being a straightforward man who is not very sophisticated.  Why 6^th Aunt chose to give to him and Wai is not entirely without reason.  While Wai may be 6^th Aunt’s favourite nephew and since 1995 had been looking after her affairs, the Recorder also accepted Kam’s evidence that :

‘ 32. After 6^th Aunt’s stroke, Kam and Sim took more time to visit and look after 6^th Aunt. When Kam and Sim were cross-examined, both of them showed grief and sorrow when they recounted how they visited 6^th Aunt frequently and looked after her, taking her to hospital visits and staying with her in hospital, and so on. I find this aspect of their evidence genuine and I accept it without hesitation.’

17.8   The Recorder rejected Wai’s explanation that the $5.6 million given to Kam within a couple of months in early 2000 was to reimburse him for his loss in foreign currency investment.  He found that :

‘ 85. ….There is no evidence that he had the means to invest which would result in him incurring obligations of that magnitude. There is, I should add, no evidence that Wai ever asked him to repay the $5.6 million.’

17.9   In respect of Wai’s generosity, Ms Ng’s submission was that Wai is a person with a strong sense of family solidarity, and with no children of his own, Kam’s family was the closest resemblance he had of a family, which would explain why he had been so generous towards Kam and Sim.  To that the Recorder held :

‘ 88. In my judgment, while accepting that Wai was a generous person, I am unable to accept that that fact by itself could satisfactorily explain the size of the bounty he had bestowed on Kam and Sim. It seems to me most extraordinary, as generous as Wai may be, for him to gift to Kam and Sim something like half of what he had received from 6th Aunt. As will be seen below, he is not able to provide satisfactory explanation of a number of undisputed or indisputable facts which seriously undermine his case. I am therefore not persuaded that all these payments were his gifts to Kam and Sim.

89. On the whole, while Kam’s version of the 6th Aunt’s Gift is somewhat unusual, it is not incredible and I would need to assess it together with other evidence of the dealings between the parties.’

17.10  \The Recorder plainly had considered the issue of inherent probability and other evidence in order to form an overall assessment of the parties’ credibility and the strength of their case.  This includes the episode regarding the sale of a flat in Classic Mansion by Madam Chow, a lady friend of Wai, to Sim.  Sim entered into a sales contract to buy the flat for $1 million in May 2004.  Kam’s evidence is that he asked Wai to return some of 6^th Aunt’s gift to him so as to acquire the property.  Sim said Wai told her that he would deduct the purchase price from the amount he had to pay Kam from 6^th Aunt’s gift.  The sale was completed without Sim paying the vendor anything.  In addition Wai gave her $100,000 to return the 10% deposit that Sim had paid Madam Chow.  Wai’s case was that the flat was his and Madam Chow held it on trust for him, and he directed Madam Chow to transfer the property to Sim as a gift.

17.11   The Recorder was clearly not impressed with Wai’s version of the event.  A conclusion, he, as a trial judge, was entitled to reach on the evidence he had heard and seen. 

17.12   The Recorder also considered Wai’s evidence on the purchase of the two properties unsatisfactory.  The initial offer to purchase the shop was made on behalf of Ever Rise Investment Ltd, a company jointly owned by Wai and Sim.  The offer to buy the flat was made on behalf of Wai alone.  The Recorder found Wai’s insistence that he intended to buy the shop alone unsatisfactory.  While Wai maintained that Sim had never expressed any interest in buying the shop and the flat, he was unable to explain why the offer to purchase the shop was originally made on behalf of Ever Rise.  Wai then said Sim became the purchaser because Kam who worked as a clerk in a solicitor’s firm told him that this was to avoid potential conflict of interest problems.

17.13   The Recorder held that he was unable to accept Wai’s explanation :

‘ 100. …… It is an objective fact that three beneficiaries, Wai, Kam and Lo Man Hing, had previously purchased two properties from the estate in their own names.  Thus there was, so far as Wai was concerned, already a precedent.  On the other hand, the advice about seeking the beneficiaries’ consent would be exactly what one would expect a solicitor to give, whether the solicitor knew of the previous purchase by Wai, Kam and Law Man Hing or not (although there is no evidence whether Mr Au knew of that incident).

101. Moreover, using Sim’s name would not have solved any perceived problem as she was Kam’s spouse.  Indeed, Law Man Shing did write to all the beneficiaries explaining that Sim was Kam’s wife and sought their confirmation that they did not object to her purchasing the Properties.’

17.14   The Recorder also found that Wai’s evidence on the payment of $8.3 million in cash unsatisfactory :

‘106. Ms Ng suggested when she cross-examined Sim that Wai decided to put the Properties in her name after he had heard of solicitor Au’s advice about beneficiaries buying the Properties from the estate, and he withdrew cash from his accounts in order to avoid any paper trail with a view to avoiding possible estate duty.  I am not convinced by the reasons advanced by Ms Ng.  First, I note that when Wai gave evidence, he said that he had not met solicitor Au and did not get any advice from him, which is inconsistent with what was suggested to Sim in cross-examination.  I will not put much weight on this discrepancy, although it is a sign that Wai’s case may not be as clear as he would want to suggest. Secondly, the explanation that Wai put the Properties in Sim’s name with a rather long term view of them eventually passing to Tung is unconvincing.  That purpose would only have worked if Sim continued to keep the Properties after Wai had passed away and chose to pass them to Tung.  Plainly Wai would have no way of ensuring that it would happen as he had wished.  Thirdly, the avoidance of estate duty reason is more plausible, bearing in mind that he had recently paid $4.77 million estate duty in respect of monies he had received from 6^th Aunt, but there was no suggestion that Wai was somehow thinking that something might happen to him.  This is, in my view, a weak reason for registering the Properties in Sim’s name.

107. The lack of any convincing reason from Wai is highlighted when one considers the events after the assignment of the Properties to Sim, to which I turn.’

17.15   It is apparent that the Recorder had also considered factors in Wai’s favour when he assessed the case :

‘103. Ms Ng pointed out that on Kam and Sim’s case, Wai would have started from a position where he was to pay half of the purchase price of the Shop to get 50% interest, and the full price of the Fung Yip Flat to get 100% ownership, but he ended up paying all the purchase price without owning any interest in either Properties.  She submitted that it would be most odd for Wai to intend that to happen.  I agree that it is one of the major oddities in this case, but it cuts both ways and the reason for this oddity is precisely the issue to be resolved.

104. I accept that there is evidence, including Law Man Shing’s email in 2009 and Madam Li’s evidence, suggesting that Wai must have told them that he was the purchaser of the Shop.  There is Kam’s own evidence that when Wai found out about the sale of the Fung Yip Flat, he accused Kam and Sim of selling “his” flat.  There is no attempt by Mr Yau to explore why Wai would have said that.  I must take such evidence in his favour into account in assessing the overall picture.’

17.16   But having taken all these factors into account, the Recorder found against Wai on the gift issue.  In my view the Recorder was clearly entitled to such a view.  It cannot be said that he was plainly wrong on this issue.

17.17   I do not consider the Recorder had decided this issue simply on the demeanour of the parties.  No doubt he had taken this into account as he said in paragraph 102 of the judgment referring to Wai’s demeanour when he gave evidence on the purchase of the two properties.  But his finding is clearly supported by other evidence.

17.18   I do not regard the Recorder’s finding was materially affected when he stated that Wai was a man of humble means who had a relatively humble job, when in fact he had earlier found Wai to be well educated and between 1995 and 1999 was profitably engaged in foreign exchange trading.  Nor do I find the Recorder had applied different standards in assessing the evidence of Sim and Wai’s witness.

17.19   I do not regard my view on the invalidity of the trust by reason of the uncertainty of the subject matter has any adverse bearing on the finding of fact by the Recorder.  These are two distinct and unrelated issues.

4)  The purchase of the properties

18. In my view the Recorder was clearly entitled to find that the $8.3 million used for the purchase of the properties was part of the gift that 6^th Aunt had given to Kam.  He was entitled to find that there was no agreement between the parties that Sim was to hold the properties for Wai.

Estoppel by convention

19.1   In his written submission, Mr Yau alluded to estoppel but without specifying what kind of estoppel and how it is to be applied.  This Court is of the view that on the basis of the finding on law and facts, estoppel by convention, which will preclude Wai from denying the validity of the gift notwithstanding the invalidity of the trust, is an arguable point and because of the late challenge on the validity of the trust, this point should be considered and further submissions on this point was directed and received from the parties.

1) The principle

19.2  Simply put, estoppel by convention is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other’s detriment.  

19.3   In First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569 at 601 the Court of Final Appeal summarized the restatement of the principles on estoppel by convention by Ribeiro PJ in Unruh v Seeberger (2007) 10 HKCFAR 31 as follows :

‘(1) the parties entered into some transaction or legal relationship on the basis of an assumption that was shared by or common to them both, and it was the element of commonality of the assumption that marked out estoppel by convention as a distinct form of estoppel [133];

(2) it must be shown that assumption was communicated between the parties and acted upon, and there must be some mutually manifest conduct by the parties [135];

(3) there was no necessity for the parties to believe that the assumed state of affairs was true, nor was there any necessity for the parties to have been mistaken [136];

(4) what is important is for them to act in the belief, manifested by words or conduct, that they are both proceeding with the transaction on the basis of the same shared assumption [137];

(5) the contents of the common assumption must be sufficiently certain to enable the court to give effect to it [138];

(6) estoppel by convention is concerned with a common assumption relied upon as a basis upon which the persons sharing such assumptions enter into a transaction or legal relationship [142]; and

(7) there must be an attempt by one party to depart from the common assumption which departure would be unjust because of the part taken by him in occasioning its adoption by the other party, and the other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption if the opposite party were afterwards allowed to set up rights inconsistent with the assumption [150].’

19.4   See a further discussion of this doctrine in Ryan v. Moore [2005] 2 SCR 53 (Supreme Court of Canada) and Prime Sight Ltd. v Lavarello [2014] 2 WLR 84 (Privy Council on appeal from Gibraltar).

2)  The pleading

19.5   In her written response, Ms Ng argued that the estoppel must be specifically pleaded by reference to Muskham Finance Limited v Howard [1963] 1 QB 904 at 913, Li Kwai Fong Ah Pat v Bachy Soletanche Group & Another, unreported, CACV 30/1989 at p.3 and Gillett v Holt [2001] Ch. 210 at 224B.  Since it has not been pleaded, it is not open to Kam to rely on it now.

19.6   In my view, Wai may rely on this estoppel.  As Coppinger v. Norton [1902] 2 Ir. R. 241 observed, the requirement of pleading estoppel is subject to the pleader having the opportunity to do so.  The principle is stated in the judgment of Wright J at 237.  Although Wright J was the dissenting judge, there was no disagreement by the other members to this principle on pleading :

‘I think the rule of pleading is very shortly stated at p. 192 of the first volume of Roscoe’s Nisi Prius, last edition :—“The judgment is conclusive (i.e. an estoppel), if pleaded, where there is an opportunity of pleading it; but where there is no such opportunity, then it is conclusive as evidence; but if the party forbear to rely upon an estoppel, when he may plead it, he is to be taken to waive the estoppel, and to leave the prior judgments as evidence only for the jury.’  (emphasis added)

19.7   This is also reflected in Hong Kong Civil Procedure 2014 volume 1, paragraph 18/8/11:

‘Estoppel must be specifically pleaded, unless there is no opportunity to do so.’

19.8   The unusual feature in this case is that the invalidity of the trust is only raised for the first time on appeal.  It brings into focus the question now faced by this Court, namely, what is the consequence of the parties’ respective case if the challenge to the validity of the trust is substained while the factual findings are maintained.  In my view fairness in the circumstances must allow Mr Yau to raise this point despite the matter not having been pleaded before.  Further, it is quite impossible for Mr Yau to have pleaded this beforehand in the absence of a specific plea on the invalidity of the trust.  This Court will, if necessary, grant leave to Mr Yau to file a respondent’s notice to rely on the estoppel by convention as identified in paragraph 19.1 herein.

Application of the estoppel in the present case

20. In my view estoppel by convention applies on the basis of my finding :

(1)   i) The parties in this case entered into a transaction or legal relationship on the basis of an assumption that was shared by or common to them both, namely, there was a valid gift of money from 6^th Aunt to Wai and Kam.  As Ribeiro PJ explained in Unruh v Seeberger :

‘142. As is made clear in the statements of principle cited in s.D.2 above, an estoppel by convention is concerned with a common assumption relied upon as the basis upon which the persons sharing such assumptions enter into a transaction, with the word “transaction” to be understood here in the broad sense of the parties engaging in acts or omissions affecting their mutual legal relationship.’  (emphasis added)

ii)  Ms Ng challenged the application of the estoppel.  She submitted that Kam has not satisfied the threshold requirement because it is not shown that the parties had entered into some transaction or legal relationship.  Ms Ng argued that as far as Kam’s action was concerned, Kam was merely receiving presents and payments from Wai to which he was not entitled, since there was no gift. As for Wai’s action, there was still no ‘transaction’ between Wai and Kam.  The ‘transaction’ over the two properties were between the purchaser and Law Man Shing as vendor.

iii)  I disagree.  Here the parties must have been engaged in acts or omissions affecting their mutual relationship.  On the basis of the factual finding the parties must have proceeded on the assumption of a valid gift.  On that assumption Wai was required to pay Kam his share of the gift and Kam could enforce the payment from Wai.  Had the trust been a valid one, Wai was the trustee and Kam the beneficiary of the trust with the attendant legal rights arising from this relationship.

iv)  Ms Ng further argued that there was no inducement on the part of Wai for Kam to enter into the transaction.  She relied on the part of the seventh proposition identified in paragraph 19.2 herein which deals with departure by one party from the common assumption : the departure is unjust because of the part taken by him in occasioning its adoption by the other party. 

v)  On the facts of this case as found by the Recorder, Wai must have relied upon and adopted what Wai told him about 6^th Aunt’s gift in his relationship with Wai.  Examples of this reliance can be found in paragraphs 35 and 84 of the judgment :

‘35. Kam further claims that a few months later, during a trip he and Wai took to Macau for ancestral worship, Wai raised the matter with him and told him that the monies he had received from 6^th Aunt were in different currencies but the total amount was about $30 million. In his oral evidence, Kam described the scene in some detail, including that Wai put his hand on his shoulder and said to him words to the effect that “half of the money was yours”, and Kam responded by saying to Wai “good/faithful brother” (好兄弟).’

‘ 84. Kam turned noticeably emotional when he was cross-examined on why he did not mention to 6^th Aunt that Wai had not been making prompt payments to him, and explained that he genuinely cared for 6^th Aunt who was very frail after her stroke, and he did not want to trouble 6^th Aunt with this matter lest she might think that he and Sim only cared for her because of her money.  Anyway, his evidence is that his uneasiness was alleviated when Wai paid him $5.6 million within a couple of months in early 2000, and he had no reason not to trust Wai.’  (emphasis added)

(2) The assumption was communicated by some mutually manifest conduct in the light of the factual findings that Wai had orally confirmed to Kam what 6^th Aunt had told Kam about the gift.

(3) The issue of the invalidity of the trust is irrelevant because there is no necessity for the parties to believe that the assumed state of affairs was true.

(4) Wai and Kam had acted on the basis of the same shared assumption in the form of Wai providing the money to Kam and Kam receiving them over a substantial period of time.

(5) The content of the common assumption is sufficiently certain, namely, there was a valid gift of money from 6^th Aunt to Wai and Kam equally. Ms Ng’s successful argument on the uncertainty of trust which is based on a point of law does not in any way lessen the certainty of the content of the common assumption.

(6) Wai had departed from the common assumption by asserting that his payment to Kam was not pursuant to 6^th Aunt’s gift and this departure is unjust because in his action against Sim, he is denying that the payment of $8.3 million for the purchase of the two properties is part of the gift from 6^th Aunt and by his assertion of right to these two properties, he is seeking to deprive Kam and Sim what truly belongs to Kam under the gift.  I disagree with Ms Ng that Kam could not be said to have suffered any detriment.

(7) As a result Wai is estopped from denying the gift and his obligations towards Kam in respect of the gift. 

Backdoor argument

21.1   Ms Ng submitted that to extend estoppel by convention to apply to the circumstances of this case is in effect to override Milroy v Lord, by coming to the aid of a volunteer and perfecting an imperfect gift by the backdoor on the mere confirmation by a non-trustee of a failed gift of the gift.  If Wai acted unconscionably in receiving money intended by the transferee for a different purpose and retaining it for his own use, equity’s remedy is to make him accountable to the transferee, not to the volunteer or any other person.

21.2   The Court of Final Appeal in First Laser Ltd discussed the backdoor argument in paragraphs 87-89 in the context that estoppel by convention cannot normally be used in effect to validate an agreement which by statute would otherwise be invalid or unenforceable.  In this case, the estoppel does not contravene any public policy.

Disposition of the Appeal

1)  Wai’s action (CACV 249/2013)

22.1   Wai claimed that he is the beneficial owner of the two properties.  Sim’s case is that the money provided by Wai for the purchase of the two properties was money from the gift which Kam was entitled to receive from Wai and there was no agreement that she was to hold the two properties on trust for Wai.  The Recorder found for Sim on these two points. 

22.2   As a result of the application of the doctrine of estoppel by convention, notwithstanding the invalidity of the trust, Wai is precluded from denying that the purchase price he had provided for the two properties was money that Kam was beneficially entitled to.  Further as a result of our conclusion that the Recorder was correct to find that there was no agreement for Sim to hold the two properties on trust for Wai, there is no issue of Sim holding the properties on resulting trust for Wai because she does not.  Accordingly the Recorder is correct to give judgment in favour of Sim.  Wai’s appeal is accordingly dismissed.

2)  Kam’s action (CACV 250/2013)

23.1   Kam’s action is based entirely on the gift.  Mr Yau informed the Court that due to the long lapse of time and the substantial amount he had already received from Wai, Kam does not intend to enforce the judgment ordering the taking of account and payment arising from the result of the taking of account.  Instead he invited this Court to declare that the money transferred by 6^th Aunt to Wai was her gift to Wai and Kam and this gift included the $8.3 million for the purchase of the two properties. 

23.2   In my view the declaration that should be granted in the light of this Court’s conclusion on estoppel is that Wai is estopped from denying that the money (which included the $8.3 million) that he had paid to Kam was in the nature of a gift from 6th Aunt to Kam.  This will replace the declaration made by the Recorder that :

‘ [Wai] holds on trust for [Kam] half of the Fund or Gift transferred by the late Madam Lo Pui Kau to [Wai] for the benefit of [Kam] and [Wai].’

23.3   The Court further records Kam’s position that he will not pursue the order for an account and payment upon taking account.  Wai’s appeal is allowed to this limited extent. 

Costs

24. The two appeals were heard together and there were common issues between them.  Wai fails on the issue of the gift because he is precluded from denying that the money he had paid to Kam was in the nature of a gift from 6^th Aunt to Kam.  This affects both appeals.  However, he succeeds in challenging the validity of the trust which took up a substantial part of the hearing.  The costs order nisi in respect of the two appeals is that Wai is required to pay half of the costs of the appeals respectively to Sim and Kam.

Hon Chu JA :

25. I agree with the judgment of Cheung JA and the orders His Lordship proposes.

Hon Poon J :

26. I agree.