CHINA WEAL LTD. v. LAM SAU WAH

CACV 187 & 199/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 187 & 199 OF 2000

(ON APPEAL FROM HCA NO. 12281 OF 1997)

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REASONS FOR JUDGMENT

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Hon Rogers VP :

1. This is an appeal from a judgment of Deputy Judge Woolley given on 18 April 2000. At the conclusion of the hearing, the appeal in CACV 187/2000 was dismissed and the appeal in CACV 199/2000 was not pursued. An order for costs was accordingly made in favour of the defendant, who was the respondent to the appeal. It was indicated that the reasons would be given later in writing.

The Background

2. The plaintiff's claim was that Flat G, 27th floor, Yee Shan Mansion, Kao Shan Terrace, Tai Koo Shing which had been purchased in the name of the defendant in 1992 was held on trust for the plaintiff absolutely.

3. The judge below dismissed the plaintiff's claim. In doing so he held, amongst other things, that the plaintiff had not established its claim that the flat had been purchased by the plaintiff, but if anything, the purchase money had been provided by Mr Deng Liu Gen who is the chief executive officer of the plaintiff as a personal matter but in any event Mr Deng was repaying a loan from the defendant.

4. In summary, the plaintiff's pleaded case was that the flat had been purchased at the behest of Mr Yuen Hau Ting who was, in early 1992, the "Chief" of the Foshan Branch of the Bank of China in Guangdong. It was said that in early 1992, Mr Yuen had requested Mr Deng to help him purchase a flat because Mr Yuen expected to be able to come to Hong Kong on a one-way permit. It was then pleaded that it was "inconvenient" for Mr Yuen to purchase a property in Hong Kong whilst he was living in the Mainland and that Mr Deng himself did not wish to become the legal owner of a property in which he was not living. The arrangement it is said was come to was that the property would be purchased in the name of the defendant. It was agreed between Mr Yuen and Mr Deng that when Mr Yuen could immigrate to Hong Kong he would purchase the property from the plaintiff.

5. There is no doubt that the flat was purchased in early 1992. However, the initial deposit of $50,000 was provided from the defendant's own resources. The further deposit of $190,500 was provided by means of a cheque from the plaintiff company as was a cheque for the final payment including the costs of the transaction of $2,249,147.50.

6. In this respect a number of matters should be observed. In the first place, it was the defendant's evidence that she had loaned to Mr Deng a sum of $2,440,000 in cash and that Mr Deng had procured the plaintiff to provide the cheques in repayment of that loan. It was the defendant's case that she had been earning large sums of money in commission from conducting a business which comprised "arranging emigration" for residents of her home area in the Mainland namely Fujian Province. It was said that the defendant's role in the business was to introduce would be emigrants and to collect the commission when they passed through Hong Kong. The commissions were all paid in cash and ranged from US$5,000 to US$10,000. The defendant said that she kept no records and paid no tax. As a result, she had a large accumulation of cash in her possession which she was in a position to pass to Mr Deng. She said that Mr Deng came round to her apartment and counted the cash, taking a considerable time to do so. He had given her a receipt. That receipt was later returned to Mr Deng at the defendant's residence after the purchase monies for the flat had been provided and that Mr Deng had burned the receipt.

7. The defendant's evidence was that she had been asked by Mr Yuen to assist Mr Deng and that in return for her assistance she would be able to make an investment in some shares which were anticipated to make a considerable profit. There is some evidence that the defendant was able to put some $680,000 towards the purchase of shares but it would seem that no profit was derived from that transaction.

8. On the other side of the coin there is no documentary evidence emanating from the plaintiff company indicating that the plaintiff had indeed purchased this property i.e. Flat G. Indeed, such documentary evidence as exists would appear to go the other way. The plaintiff's internal accountant gave evidence. She explained that the flat which had been purchased had not been put into the company's accounts because the flat was not in the plaintiff's name. Be that as it may, it also has to be observed that there was no declaration of trust by the defendant that the flat belonged to the plaintiff, nor was there any other indication such as a minute of a board meeting or a memo to show that the plaintiff had purchased that flat. None of the expenses of ownership of that flat were ever paid by the plaintiff. They were all paid by the defendant, including not only the decoration costs but also the management fees and other costs of upkeep. Indeed, there is no suggestion that the initial deposit of $50,000 was reimbursed to the defendant.

9. Fundamental to the plaintiff's case is the question of whether the purchase money was in fact provided by the plaintiff or, on the evidence adduced by the plaintiff, was provided by Mr Deng. In this respect, two matters, which emerge from the documents, are relevant. In the first place, it is agreed that a piece of paper showing the essential financial calculations in relation to the purchase of the flat had been provided to Mr Deng. It is the defendant's evidence that this sheet was prepared by the defendant's husband in relation to the defendant and her husband's assessment of the cost of purchase of the flat. At the side of that document was written a notation "agree to pay charge it to my account" that was signed by Mr Deng. That was apparently a note to the plaintiff's accounts department. On the face of it, that note would indicate that it was Mr Deng's direction that the sums required to be paid for the purchase of this property would come from Mr Deng's account with the plaintiff. As the judge recorded the only entry in the plaintiff's account was under "amounts due from directors". That showed a debit due from Mr Deng to the company. There was no reference to the flat. Neither was the precise amount paid for the flat recorded in the plaintiff's account. Furthermore, the plaintiff's account showed that on 1 April 1992 Mr Deng owed the company $8,400,000. Not only had that amount been discharged within a year but exactly a year later there was a credit due from the plaintiff to Mr Deng of $714,424. This would all go to show that it was Mr Deng's funds which were used to provide the balance of the purchase monies and not the plaintiff's.

10. It is the plaintiff's case on this appeal that the matter should be decided on the inherent probabilities. Mr Chan, SC, who appeared on behalf of the plaintiff said that the plaintiff's story was more believable than the defendant's and that accordingly it was open to this court to reverse the judge's findings. In my view that cannot be the correct approach. Since this is an appeal on a question of the judge's findings of fact, it is necessary for the plaintiff to show that the judge's findings of fact were wrong. It is also necessary for the plaintiff to show that it has a good cause of action on the face of its own case.

11. Pausing there, I fail to see how it could be said that the judge should have been satisfied that the flat was held on trust for the plaintiff. On the face of the evidence adduced, the plaintiff paid no money; it was Mr Deng who paid the money from his own account with the plaintiff, he subsequently repaid the plaintiff in full. In the absence of any documentary evidence supporting the fact that the plaintiff had purchased the flat or that the flat had been purchased for the plaintiff, it seems to me that the plaintiff's case must fail at that hurdle at the very least.

12. Going further, however, this is not a case where it can be said that this court is in an equal position to the judge at first instance to decide a question of fact.

13. The co-signatory of the two cheques who was also a director of the plaintiff was not called when, presumably, he could have given evidence as to the reason for issuing the cheques.

14. Mr Yuen was not called as a witness for the reason that he was in prison in the Mainland. He had been arrested in August 1992 and was sentenced to 15 years imprisonment in January 1998. In those circumstances the only witness apart from the accountants on behalf of the plaintiff was Mr Deng. In the course of his cross-examination, Mr Deng was forced to admit that he drew no distinction between Mr Yuen or the Bank of China. He said : "I treated him and the bank as the same thing because he represented the bank."

15. It seems that at one stage that Mr Deng was giving evidence that the money had been loaned because the bank needed the plaintiff to provide $2.5 million. His answer was :

"It's not surprising at all because at that time in China, there was the foreign currency control."

Later on, there is a passage :

"Q. So you believed there was somehow, some way, the Bank of China, Fo Shan Branch, could not provide $2.5 million now, in two months' time would be -- therefore you had to borrow from, effectively, asked for financial assistance from China Weal Limited?

A. Yes, I believe that it was only a temporary flow of funds problem."

16. Mr Deng could provide no satisfactory explanation as to why the plaintiff would be prepared to lend the Bank of China money interest free and yet would at the same time be borrowing money from the Bank of China and paying interest.

17. In summary, Mr Deng's explanation as to why money should be provided effectively for the Bank of China interest free and never demanded from them, in respect of the purchase of a flat in an arrangement which would entail the flat being transferred to Mr Yuen or the Bank of China at cost price, simply, in my view, fails to attract any ring of truth. Indeed, I would go further. There are passages in the transcript of the cross-examination of Mr Deng from page 186 onwards which could only be regarded as being absurd.

18. Whilst I appreciate that the defendant's version of events may itself have credibility problems, if it be true that the defendant had been generating large sums of money in cash from what would be a dubious business the proceeds of which were not reported to the Inland Revenue, I can see every incentive for the defendant wishing that the proceeds be converted into a tangible asset purchased ostensibly by funds coming from a company which would provide a respectable cover.

19. Whilst, in my view, it can legitimately be said that it is more than likely that the full truth in this matter has not emerged, I cannot regard the plaintiff's case as either believable or as a sound foundation for its claim that the defendant holds the flat on trust for the plaintiff.

20. Whether it is to the ultimate benefit of the parties that there has been an airing of those facts which have emerged, and whether further investigations might be made by the appropriate authorities, remains to be seen.

Hon Le Pichon JA :

21. I agree.

Hon Stone J :

22. I agree with the judgment of the Vice President.

23. For my own part, I am unable to see how it can begin to be said, in the circumstances disclosed in this case, that the learned trial judge was plainly wrong, which is the benchmark Mr Chan SC recognised that he was required to attain.

24. Other considerations apart, it seems to me clear that the plaintiff was but a conduit for the funds advanced, which fact negates the plaintiff's reliance upon the presumption of trust relied upon. Absent such evidential assistance, the plaintiff has signally failed to discharge the legal burden of demonstrating that the defendant's legal title should be displaced, and a resulting or constructive trust found or imposed in favour of the plaintiff.

In my view, the learned trial judge was more than justified, in a case in which the evidential waters are particularly murky, in coming to the conclusion which he did.