CHUNG PUI TONG v. QIAN ZHEN

CACV 68/2020, [2024] HKCA 593

On appeal from [2020] HKCFI 187

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 68 OF 2020

(ON APPEAL FROM HCA NO 2555 OF 2014)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  This is an appeal of the plaintiff against the judgment of Mimmie Chan J handed down on 16 January 2020 (“Judgment”) after a four-day trial[1]. The plaintiff brought this action against his former wife seeking declarations that she held these assets on trust for him:

(1)  a sum of $2.7 million (“the Sum”) deposited into a bank account in their joint names (“Joint Account”) and withdrawn by her;

(2)  a property known as Flat F, 9^th Floor, Nam Tin Building, 275 King’s Road, Hong Kong (“9F”) held in their names as joint tenants; and

(3)  a property known as 27A and 29A, 4^th Floor, Cheung Sha Wan Road, Kowloon (“CSW”) held in the name of the defendant.

2.  The defendant counterclaimed for declarations that she is the sole legal and beneficial owner of the Sum and of CSW, and that she and the plaintiff are legal and beneficial co-owners of 9F in equal shares as tenants-in-common.

3.  The judge dismissed the plaintiff’s claim and gave judgment to the defendant on her counterclaim. The main reasons for dismissal of the plaintiff’s claim are:

(1)  he is bound by a consent order (“Consent Order”) in the divorce proceedings for the full and final settlement of the parties’ claims to assets and financial relief, and cannot now seek to assert there was any further sum owing to him or any further interest in the Sum, 9F or CSW; and

(2)  he is bound by the receipt clause in the memorandum of agreement for sale and purchase and the assignment which he signed as the vendor in respect of 9F, and the receipt clause in the assignment which he signed as the vendor in respect of CSW, and is estopped from asserting that these properties were assigned to the defendant without receiving the consideration as stated.

Background

4.  The relevant background matters taken from the Judgment may be stated as follows.

5.  The plaintiff and the defendant were married on 5 April 2008. He was then 45 years old, she was ten years younger. They first met in Shenzhen in 2000. They come from very different backgrounds.

6.  The plaintiff, although well educated (he obtained a bachelor’s degree and a postgraduate diploma in economics from the University of London, and a postgraduate diploma in education from the University of Hong Kong), was found by the judge to be unsophisticated and simple. He had lived with his aunt for a good part of his apparently sheltered life, and made a modest living in Hong Kong, first as an English teacher in secondary schools until 2002 with a monthly salary of $12,000, and later as a security guard earning $9,000 a month. He supplemented his income with distributions of $4,000 per month from the estate of his deceased mother. CSW was his home since childhood. It is unclear if CSW formed a part of his deceased parents’ estate, but it became vested in his name in 2003. He paid little attention to details and gave insufficient regard to his financial affairs.

7.  The defendant is a native of Zhejiang. She did not complete her secondary school education and was not conversant in English. She appeared to the judge to be shrewder than the plaintiff and more money conscious, due to her life experience on the Mainland. The judge did not consider her an honest witness, and found much of her evidence tailored to suit the presentation of her case. She was working in Shenzhen when she met the plaintiff. The parties had occasional contacts from 2000 to 2004. She made trips to Hong Kong and the plaintiff bought her gifts, including a diamond ring. In early 2002, he gave her $50,000 to purchase a property in Shenzhen. They had no contact from 2005 to 2007. During this period the defendant got married and gave birth to a son in August 2006. She was separated from her husband after giving birth.

8.  In mid-2007, the parties re-established their relationship. In November 2007, the plaintiff gave the defendant $50,000 by obtaining a loan from a finance company, as the defendant had represented to him that she needed money for her mother’s medical treatment. But the judge found that she used $45,000 to pay a car company on the Mainland instead.

9.  According to the defendant, the plaintiff proposed to her and gave her $50,000 to hire a domestic helper to take care of her son and her parents. With the assurance from the plaintiff that he was willing to take care of her and her son, and having been told by the plaintiff that he would come into his inheritance, she thought it financially viable for the plaintiff to look after her and her family. She married the plaintiff on 5 April 2008 and moved to live with him at CSW whilst her son continued to live with her parents in the Mainland.

10.  Soon after their marriage, the defendant left CSW in June 2008 and returned to live in Shenzhen. So the parties cohabited under one roof for only about two months. Thereafter, the defendant made day trips to Hong Kong regularly, but did not spend the night at CSW. During the entire course of their relationship, the defendant had never brought her son to meet the plaintiff.

11.  The plaintiff had expected to receive some landed properties from his parents’ estates, of which his sisters were the executrices. It was with the defendant’s assistance that he discovered he was the sole beneficiary. She introduced him to a firm of solicitors in Hong Kong and he discovered that his parents’ estates comprised properties not hitherto been disclosed by his sisters. Litigation was commenced and, as a result, he was able to receive the Sum from the estates in January 2009, and in May 2009 9F and another property not involved in this action (called “9E” in the Judgment) were vested in him. The defendant has asserted that the plaintiff is yet to receive more assets from the estates, but there is no evidence of any further transfer of assets from the estates to him after 2009.

12.  When the plaintiff received the Sum in a cashier order drawn in his favour from the solicitors in January 2009, the defendant collected it on his behalf. She deposited it in the Joint Account which was opened in December 2008, in anticipation of the assets to be received by the plaintiff from the estates.

13.  According to the plaintiff, he opened a bank account in joint names for convenience, to enable the defendant to handle his affairs and properties on his behalf. It was also intended that the rental income from 9E and 9F would be collected by the defendant and paid into the Joint Account, which could be managed by the defendant when she was in Hong Kong, as the plaintiff had to work long hours on shift as a security guard.

14.  Shortly after the Sum was deposited, the defendant withdrew $100,000 for her own use, and transferred the balance of the Sum being $2.6 million to her own personal account. The defendant claimed that the Sum was the plaintiff’s absolute and unconditional gift to her.

15.  The plaintiff asserted that his financial situation was not healthy and he had to rely on the defendant, who had sole control of the Sum, whenever he had to meet his substantial medical bills for his deteriorating periodontal disease in 2010. He also required funds to finance the litigation with his sisters over their parents’ estates.

16.  After 9E and 9F were vested in the plaintiff’s name in May 2009, a memorandum of agreement for sale and purchase dated 30 November 2009 and an assignment of the same date were signed by the parties in respect of 9F. By these documents, 9F was transferred from the plaintiff’s sole name to the names of the plaintiff and the defendant as joint tenants, at a stated consideration of $1.4 million. The plaintiff claimed he transferred 9F into their joint names under the defendant’s undue influence, that she had told him she could deal with the tenants on rental matters as a co-owner. She alleged that the transfer was made as an unconditional gift to her.

17.  As for CSW, the plaintiff claimed that the assignment for its transfer to the defendant’s sole name in December 2010 was made under her undue influence at a time when he needed money. He required $200,000 for his urgent dental implant, as well as funds to pay for the legal expenses of his litigation with his sisters. The defendant only agreed to return $1.3 million of what she took from the Joint Account to him on condition that he was to transfer CSW to her. The consideration stated in the assignment was $1.7 million and she was to pay him $400,000 later. He received initial payments of RMB 150,000 and $930,000 when the assignment was signed on 3 December 2010, with promise from the defendant that the balance of the consideration would be paid by instalments later.

18.  The defendant testified that CSW was transferred to her when the plaintiff told her in around November 2010 he needed cash and wanted to sell CSW. She proposed to purchase from him at $1.7 million. She had paid him $1.3 million and the balance was agreed to be paid from her half share of the rental payments from 9F after December 2010[2].

19.  In June 2013, the plaintiff gave the title deeds of CSW to the defendant.

20.  On 8 July 2013, the plaintiff petitioned for divorce on the ground of two years’ separation. The plaintiff was legally represented and the defendant acted in person. On 19 July 2013, the plaintiff (both personally and by his solicitors) and the defendant signed a consent summons in Chinese in FCMC 9522/2013 recording the agreement they reached on ancillary relief. In the consent summons, the plaintiff and the defendant confirmed to the court that the summons dealt with arrangements in respect of assets of both parties and/or assets of both parties derived during marriage (雙方財產及/或雙方在婚姻期間所衍生的財產).

21.  On 13 September 2013, His Honour Judge K W Wong granted a decree nisi for divorce and made the Consent Order in Chinese, which provided inter alia as follows:

(1)  The plaintiff and the defendant acknowledged to the court that they are entitled to seek disclosure from each other regarding their assets and financial circumstances, and have agreed to waive such entitlement.

(2)  The plaintiff and the defendant acknowledged to the court that the financial arrangement is on the basis of the ‘clean break’ principle and is in full and final settlement of all claims for ancillary relief.

(3)  The plaintiff agreed to pay the defendant a lump sum of $30,000 in full and final settlement of all claims for ancillary relief, to be paid within one month of the decree absolute for divorce.

22.  On 16 December 2014, the plaintiff brought this action against the defendant seeking declarations that she held on trust for him the Sum, 9F and CSW.

23.  At the pre-trial review of this action, both parties indicated to the court that they do not seek to set aside the Consent Order.

The findings in the Judgment

(1)  The Sum

24.  The judge found the plaintiff’s testimony regarding the Sum and the Joint Account to be honest on the whole. Apart from the monetary expectations of the defendant, the judge did not think there was a close and loving relationship between them. She found it inherently improbable in all the circumstances that the plaintiff would have made an outright gift of the entire Sum to the defendant in January 2009. The plaintiff only had a modest salary. He had been making continuous borrowings from 2005 to 2008 and had to make monthly repayment of these loans. The Sum would have been a significant asset and a welcomed windfall to him in 2009. The judge found it more credible that the Joint Account was opened at the defendant’s request, on her representation that since the plaintiff had to work long hours as a security guard, and in anticipation that 9E and 9F would be transferred to the plaintiff from the estate in January 2009, she could help him to deposit the rents collected into the Joint Account and manage his expenses from the Joint Account when she came to Hong Kong. The payment of the Sum into the Joint Account was more consistent with the plaintiff maintaining an interest in the Sum, and contradicts the alleged intention to make an outright gift of the entire Sum to the defendant[3].

25.  The judge accepted the plaintiff’s evidence that upon finding out the defendant had withdrawn the Sum and transferred it to her own account, he had called her to find out what had happened. The judge found it credible that the defendant assured the plaintiff she would keep the money for him to pay for his expenses as he required. This is supported by the subsequent conduct of the defendant in paying for the legal expenses for the litigation with the plaintiff’s sisters and the plaintiff’s dental implants. The judge rejected the defendant’s claim that the payments were loans made by her to the plaintiff[4].

26.  The judge found the Sum was paid into the Joint Account not as an outright and unconditional gift to the defendant but was held by her on trust for the plaintiff, in accordance with the understanding reached when the Joint Account was set up. She was to be the custodian of the funds on behalf of the plaintiff, and to manage the rental receipts and expenditure and the fiscal matters of the plaintiff[5].

27.  The judge’s findings regarding the Sum are not challenged on appeal.

(2)  9F

28.  On the plaintiff’s pleaded case, he agreed to transfer 9F into their joint names under the defendant’s undue influence, so that she could manage the property as his trustee and nominee. He claimed this was because the defendant controlled the Sum, which was the bulk of his finance and assets. She abused his reliance and trust, by demanding the transfer of 9F and later CSW, in exchange for releasing or making payments of the funds he needed.

29.  The defendant’s pleaded case was that the transfer of the half share in 9F was an unconditional gift to her and also because she had made a loan to the plaintiff of around $170,000 to $200,000, for legal fees incurred by the plaintiff for the estate. She denied she had any domination over the plaintiff.

30.  The judge rejected the defendant’s evidence of the circumstances leading to the execution of the memorandum and assignment of 9F, and her claim that the transfer of the half interest to her was in consideration of a loan she made to the plaintiff. The judge found that the payment of the legal fees incurred for the estate was made from the Sum withdrawn from the Joint Account, and the use of the Sum to pay for the legal fees was consistent with the plaintiff’s evidence that the defendant had assured him the Sum she transferred out of the Joint Account would be used to pay for his expenses when needed[6].

31.  As for the plaintiff’s case, the judge was not satisfied on the balance of probabilities that the assignment of 9F was procured by the defendant’s abuse of his trust and confidence. The plaintiff admitted that he had freely signed the memorandum of agreement and assignment of 9F prepared for him by the solicitors in November 2009. This was some 15 months after the defendant had moved out of CSW, when she was only making periodic day trips to Hong Kong. Any domination which the defendant might have exerted over the plaintiff’s mind and will must have been either removed or diminished, with the defendant staying away in Shenzhen after June 2008. During her absence in Hong Kong, the plaintiff could have consulted lawyers and given instructions to them, to prepare the necessary documents to reflect his true intention, of having the defendant hold 9F on trust for him and as his nominee only. The plaintiff accepted that at the time when he signed the documents for the transfer of 9F, he had done so willingly, and had not even read the documents[7].

32.  More significantly, since the plaintiff claimed that the defendant had asked him to transfer both 9E and 9F into their joint names, and he had only transferred 9F, this is some evidence that the plaintiff had exercised independent judgment when he made the transfer. This casts doubt on the suggestion that he had no will of his own, and no alternative but to agree to the defendant’s demand for the transfer[8].

33.  Due to the lack of evidence of the plaintiff’s alleged financial difficulties,[9] the judge was not able to infer on the balance of probabilities that he was so vulnerable he had entered into the assignment of 9F against his will, or as a result of the defendant’s abuse of his alleged vulnerability. He has not adequately and credibly explained why, at a time when he required funds to pay for his dental treatment, he was not able to obtain further loans when he was in a position to offer 9E or 9F as security[10].

34.  The judge found evidence to the contrary which suggests that the plaintiff had intended to transfer 9F to the joint names of the defendant and himself. The plaintiff claimed he had actually given instructions to his solicitors when the documents for the transfer of 9F were prepared that the defendant was only to be co-owner in name, with no beneficial interest which was to be held on his behalf. The judge found it incredible if the plaintiff had expressed his intention to his solicitors, they would not have prepared a declaration of trust or some other document to be signed by the parties to reflect his true intention. Instead, the relevant memorandum and assignment were expressed to transfer the beneficial interest in 9F from the plaintiff to the defendant as co-owner. By signing the documents, the plaintiff is bound thereby[11].

35.  Further support can be obtained from the fact that although the plaintiff had stopped paying the rental income from 9E into the Joint Account from November 2010, he had continued to deposit the rental income from 9F into the Joint Account, which is more consistent with his treating the defendant at all material time as a co-owner of 9F[12].

36.  As for the plaintiff’s assertion that he did not receive the $1.4 million stated as consideration and that the memorandum and assignment was not supported by any consideration, the judge held the plaintiff is bound by the documents which he signed, which referred to the purchase money of $1.4 million “paid by the Purchaser to the Vendor” and receipt of the purchase money was acknowledged by the plaintiff as vendor. See Ming Shiu Chung v Ming Shiu Shum (2006) 9 HKCFAR 334 at §84 and Prime Sight Ltd v Lavarello [2014] AC 436 at §§47, 49 and 54[13].

(3)  CSW

37.  The judge rejected the plaintiff’s claim that the assignment of CSW to the defendant was procured by her undue influence, for the same reasons as those in respect of 9F.

38.  The defendant’s case is that there was an actual agreement of sale and purchase. Her pleaded case was that the plaintiff offered to sell CSW to her at $1.7 million and $1.3 million was to be paid by instalments and payment of the balance of $400,000 had not been agreed. There is no dispute that the plaintiff received $930,000 by cashier order upon the signing of the assignment. She pleaded further that she had made an arrangement with the plaintiff to settle the remaining balance of $400,000 by utilizing her half share of the rental proceeds from 9F (from December 2010 up to the time of the divorce proceedings) and by utilizing a sum of RMB 40,000 paid to the plaintiff on 9 May 2012.

39.  The judge found her evidence on the alleged payment of $1.3 million “riddled with inconsistencies and obscurities”. The alleged payments do not tally with the amount of $1.3 million, and she could not have envisaged in December 2010 that divorce proceedings would be commenced[14].

40.  Although the plaintiff maintained that the balance of $400,000 remained unpaid, the judge rejected his claim that he had not received the stated consideration and that the assignment should be set aside for total failure of consideration, for the same reason as in respect of 9F[15].

41.  The judge also rejected the plaintiff’s submission that since the Sum was held by the defendant on trust for him, and as all the payments she made for the transfer of CSW were from the Sum, he is entitled as beneficial owner to trace the Sum into CSW. The reason is that the plaintiff agreed to transfer CSW to the defendant, upon her alleged undue influence that she would only return the Sum to him if he would transfer CSW to her. The judge rejected the claim of undue influence, on the basis of lack of evidence of the alleged financial difficulty and dependence on the defendant, lack of evidence of any loss of independent free will and no other practical alternative to recover the Sum without transferring CSW. She found that the plaintiff knew and intended the defendant to use the Sum or a part of it to pay the stated consideration, and had agreed to this as an exchange. Once the court formed the view that consent was freely given with full knowledge of the consequences of entering into the relevant transaction, that is the end of the matter, however improvident the transaction may objectively appear, citing Bank of China (Hong Kong) Ltd v Wong King Sing & Ors [2002] 1 HKLRD 358 at §34[16].

42.  The judge found these payments were made: $930,000 (by cashier order on the signing of the assignment on 3 December 2010); RMB 150,000 (on 2 December 2010); $20,000 (on 8 December 2010); $100,000 (on 9 December 2010); RMB 30,000 (on 31 March 2011); RMB 40,000 (on 9 May 2012). Some of the payments were for the plaintiff’s dental implants. She noted also that on the defendant’s case, the balance remaining was to be deducted from her half share of the rental income from 9F, although she did not appear to have made a finding on this[17].

43.  The judge also found further evidence to support the fact that the parties had accepted the terms and reality of their deal on the Sum and CSW, on account of the plaintiff giving the title deeds of CSW to the defendant in June 2013[18].

(4)  Effect of the Consent Order

44.  The defendant argued that the plaintiff is bound by the Consent Order and is estopped from asserting his claims to any property from the defendant, who was released from any and further liabilities she might have had in relation to the Sum, 9F and CSW. The plaintiff contended to the contrary.

45.  The defendant pleaded that when the plaintiff sought a divorce, she had agreed orally with him that she would remain the legal and beneficial owner of the Sum and of CSW, and of the half share in 9F, and the plaintiff would pay a lump sum of $30,000 for her maintenance, and each would waive his or her debt which was due and outstanding at the time of the divorce, including any unpaid balance of the stated consideration of CSW. This was denied by the plaintiff. The plaintiff pleaded that he had informed the defendant he might have to commence legal proceedings to recover the trust monies and properties after the divorce.

46.  The judge rejected the pleaded versions of both parties. She found on the balance of probabilities it is more probable and believable that the plaintiff had not mentioned to the defendant at the time the alleged trust monies and properties, nor the possibility he might recover them by civil proceedings. The plaintiff accepted that he had not given instructions to his lawyers in the divorce proceedings with regard to the claims he subsequently made in this action[19]. He also accepted that the defendant believed at the time of the divorce that she had obtained from him the Sum, a half share of 9F and CSW, and she had told him what she had obtained was sufficient to maintain herself and her son. If she had been told the plaintiff would seek the return of those assets, she would no doubt have sought other ancillary relief. The judge found it was only in retrospect that the plaintiff decided to bring this action, to seek recovery under what he regarded to have been improvident and unfair transactions[20].

47.  The judge had regard to the principle that a consent order gives rise to an issue estoppel between the parties, even if the court making the order has not heard arguments or evidence directed to the merits[21]. She went on to say that in determining the scope of a consent order, the test is what a reasonable person, with the parties’ background knowledge, would have understood the order to mean. She distinguished Lit Wing Yee v Tang Cheuk Lun [2018] 2 HKLRD 227 in rejecting the plaintiff’s contention that the Consent Order only dealt with matters relating to ancillary relief, it cannot cover matters relating to civil claims for property held on trust and thus the plaintiff is not barred from pursuing his claims in the present action[22]. She was not persuaded that the plaintiff’s claims for the defendant’s transfer back to him of 9F and CSW are unrelated to or outside the scope of ancillary relief. One of the necessary steps taken by the Family Court in dealing with ancillary relief is to identify what assets a party to the marriage has, before a fair distribution can be made. Hence, the plaintiff and the defendant would need to identify, and should have identified, in the divorce proceedings, their respective assets and any of the other’s assets which it is claimed should be put in the pool, or to be transferred to the other party[23].

48.  As the Consent Order is evidence of the parties’ agreement and confirmation to the court with regard to the arrangements they made concerning their respective property, and confirmation that their agreement on the financial arrangements as recorded is in full and final settlement of all their claims for ancillary relief, the plaintiff is bound by the terms of the Consent Order. The judge held that the plaintiff cannot now seek to assert there is any further sum owing to him or any further interest in the Sum, 9F or CSW to be transferred back to him by the defendant[24].

49.  Thus, notwithstanding the judge did not consider the defendant an honest witness, made a number of factual findings against her, and found that the Sum was paid into the Joint Account not as an outright gift to her but was held on trust for the plaintiff, the judge dismissed the plaintiff’s claims with costs. Judgment was given to the defendant on her counterclaim, granting declarations in her favour regarding the Sum, the half interest in 9F, and CSW. In addition, the plaintiff was ordered to deliver up vacant possession of CSW to the defendant within six months, pay her mesne profits for his occupation of CSW from 8 June 2015 (date of service of the counterclaim) until the delivery up of vacant possession, and pay her half the rental payments from 9F from January 2015 (the date when the plaintiff ceased to deposit the rental into the Joint Account) to 16 January 2020 (date of the Judgment).

This appeal

50.  The plaintiff filed a notice of appeal, a supplemental notice of appeal and a 2^nd supplemental notice of appeal. The grounds set out in these documents are prolix and unfocussed. Mr Abraham Chan, SC[25], who did not appear for the plaintiff below, confirmed to this court that he would not pursue the grounds of appeal not covered in his skeleton argument and oral submissions.

51.  The issues raised by the plaintiff on appeal fall into three broad areas.

52.  The first relates to the effect of the Consent Order. It is contended that:

(1)  the judge misconstrued the scope of the Consent Order in that it is restricted to matrimonial assets, as opposed to non-matrimonial assets; and

(2)  the Consent Order only served as full and final settlement of claims for ancillary relief and the judge erred in finding the plaintiff estopped from asserting the claims over the Sum, 9F and CSW in this action in holding that such claims were issues that were necessarily part of the ancillary relief proceedings.

53.  The second relates to 9F. It is contended that:

(1)  the judge erroneously confined the plaintiff’s case to undue influence and total failure of consideration and failed to consider the question of common intention constructive trust or resulting trust;

(2)  she wrongly dismissed the plaintiff’s case on undue influence in that her key factual findings were plainly wrong; and

(3)  she was plainly wrong to dismiss the plaintiff’s claim based on total failure of consideration and erred in relying on the receipt clause of the assignment and the analysis in Prime Sight Ltd v Lavarello.

54.  The third relates to CSW. It is contended that:

(1)  the judge wrongly confined her analysis of the plaintiff’s case to undue influence and similarly erred in failing to consider his claim as a matter of trust analysis;

(2)  she wrongly dismissed the plaintiff’s case of undue influence;

(3)  she wrongly rejected there was total failure of consideration; and

(4)  she wrongly held the plaintiff was not entitled to trace his beneficial interest in the Sum to CSW.

55.  The issues will be considered in the order set out above.

Effect of the Consent Order

(1)  Construction of the Consent Order

56.  The Consent Order read as follows:

“呈請人及答辯人向法庭及對方承諾如下:

A. 呈請人及答辯人向法庭確認接受以此傳票申請的命令作出針對雙方財產及/或雙方在婚姻期間所衍生的財產的安排;

B. 呈請人及答辯人向法庭確認他們充分知悉有權針對對方財產及經濟狀況作透露文件、質詢，或披露的權利，而雙方均同意放棄及不採取進一步的行動，以執行各自針對對方財產及經濟狀況作透露文件、質詢，或披露等的權利;

C. 呈請人及答辯人向法庭確認以下財務安排是以「清晰解決」原則，並為完全和最終解決所有申索附屬濟助，包括但不限於根據‘婚姻訴訟條例’(第179章)，‘婚姻法律程序與財產條例’(第192章)及‘已婚者地位條例’(第182章)及所有其他相關條例申索所有附屬濟助;

在雙方同意的情況下，法庭命令如下:

1. 呈請人支付答辯人整筆付款港幣30,000元作為完全和最終解決雙方所有申索的附屬濟助，該港幣30,000元須於絕對離婚判令發出後一個月內支付; …”

57.  The principles applicable to the construction of a consent order are the same as those applying to a commercial contract. “The question is what a reasonable person, circumstanced as the actual parties were, would have understood the parties to have meant by the use of specific language; the answer to that question is to be gathered from the text under consideration and its relevant contextual scene.”[26]

58.  Mr Chan made the point that the Consent Order is marked by “informality and brevity”, and appeared “much less thoroughly drafted” than a conventional one. Whilst the recitals contained an acknowledgment that the parties’ agreement was in full and final settlement of their ancillary relief claims, the recitals did not list all the possible claims which could be made under the main matrimonial ordinances. There was no clarification as to the ownership of a particular asset, and no acknowledgment that subject to what has been agreed, all other assets should remain in the parties’ sole names and the other cannot make a claim against them[27]. He submitted that in these circumstances, there should be greater emphasis on the factual matrix[28]. The matrix here would include the short period of marriage and brief period of cohabitation; the defendant’s acceptance that the plaintiff’s inheritance was a reason, if not the major reason, for her to marry the plaintiff[29]; and that the Sum, 9F and CSW were all derived from the plaintiff’s inheritance.

59.  Mr Chan submitted that the judge failed to recognise a well-established distinction between matrimonial and non-matrimonial assets, which is of particular importance in a short marriage[30]. The Sum, 9F and CSW are assets acquired by the plaintiff before or during the marriage through inheritance. They should be regarded as non-matrimonial assets to be excluded from the award in ancillary relief.

60.  He drew attention to these words in clause A of the recitals (雙方財產及/或雙方在婚姻期間所衍生的財產)[31] and contended that these words restricted the scope of the Consent Order to matrimonial assets only, as opposed to non-matrimonial assets which cannot be regarded as assets “belonging to both parties” (雙方), and being assets derived from the independent and unmatched contribution by one party. He argued that if clause A was intended to catch all of the parties’ assets, it would not have been necessary to specify in the latter part of clause A “雙方在婚姻期間所衍生的財產” (assets of both parties derived during marriage) at all.

61.  Mr Sam Ng, who appeared for the defendant on appeal but not below, argued that Mr Chan’s construction should be rejected. He submitted that “雙方財產” (assets of both parties) could not be understood as restricting the scope of the Consent Order to matrimonial assets only, otherwise there would be no need to include after these words “及/或雙方在婚姻期間所衍生的財產” (assets of both parties derived during marriage). “雙方財產” must refer to all of the parties’ assets. On the evidence accepted by the judge, the plaintiff did not give instructions to his solicitors in the divorce proceedings regarding his claims over the assets in this action, nor did he tell the defendant that he might bring proceedings later to recover those assets. Given this background, the plaintiff’s solicitors could not have drafted clause A in the recitals to mean matrimonial assets only.

62.  Mr Ng further submitted that as the plaintiff had received the Sum and 9F with the defendant’s assistance, these assets were not purely non-matrimonial assets acquired by the plaintiff’s “independent and unmatched contribution” as contended by Mr Chan. They were partly matrimonial assets that could have been shared in the ancillary relief proceedings.

63.  Mr Ng pointed out that the construction point was not taken below[32], and submitted that this point should not be entertained on appeal on the principle in Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356 at §38. It does not appear to us that the Flywin principle is engaged. The evidence he suggested that could have been adduced are the parties’ interpretation of clause A and what their “matrimonial assets” were. The parties’ subjective interpretation of clause A is irrelevant, and the same applies to what they thought were the “matrimonial assets”.

64.  As stated, the proper test of construction is what a reasonable person with the parties’ background knowledge would have understood the Consent Order to have meant. From the text of clause A, the words “雙方財產及/或雙方在婚姻期間所衍生的財產” (assets of both parties and/or assets of both parties derived during marriage) cannot be interpreted as referring only to matrimonial assets, and excluding non-matrimonial assets. It begs the question why those words were used instead of simply stating in clause A “婚姻財產” (matrimonial assets), a readily available expression in this context. More importantly, the words “雙方財產” (assets of both parties) and “雙方在婚姻期間所衍生的財產” (assets of both parties derived during marriage) do not necessarily connote that the assets must be jointly owned or derived from the joint effort or contribution of the parties. As a matter of language, these words are sufficiently broad to cover the situations where assets are owned individually on both sides and where assets are derived from independent contributions on both sides. After all, under section 7(1)(a) of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“MPPO”), the court must have regard to “the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future”. At the stage of ascertaining the financial resources of each of the parties, there is no need for the court to distinguish between matrimonial and non-matrimonial assets.

65.  As to the factual matrix relied on by Mr Chan, there is nothing in the factual matrix that would cast a different light on the plain meaning conveyed by the text in clause A, in which both parties acknowledged to the court their acceptance of the arrangements made pursuant to the consent summons in respect of assets of both parties and/or assets of both parties derived during marriage.

66.  For the above reasons, we reject Mr Chan’s contention that on the proper construction of the Consent Order, its scope is restricted to matrimonial assets.

(2)  Is the plaintiff estopped by the Consent Order

67.  Before we embark on the analysis of estoppel, it is necessary to be clear about the different bases on which the Consent Order might be said to give rise to estoppel. The judge had dealt with this on the basis of issue estoppel[33]. She also made findings on the words and conduct of the parties, and the language used might be said to give rise to estoppel by conduct or representation[34], albeit she did not hold estoppel by conduct is established[35]. A third possible basis of estoppel is the wider concept of res judicata and abuse of process arising originally from Henderson v Henderson 3 Hare 100, based on the flexible principles in Johnson v Gore Wood & Co [2002] 2 AC 1, namely, that it covers issues not raised in the earlier proceedings but could and should have been raised[36]. The basis for this type of estoppel was not argued before the judge and hence not considered, but is raised on appeal by Mr Ng, under the rubric of issue estoppel.

68.  For adopting the position that the estoppel in this instance is founded on issue estoppel, Mr Ng cited the statements of Lord Keith of Kinkel in Arnold v National Westminster Bank plc [1991] 2 AC 93 at 106A and of Lord Sumption JSC in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2014] AC 160 at §22.

69.  In the relevant passage in Arnold at 106A, Lord Keith said as follows:

“Issue estoppel, too, has been extended to cover not only the case where a particular point has been raised and specifically determined in the earlier proceedings, but also that where in the subsequent proceedings it is sought to raise a point which might have been but was not raised in the earlier.”

70.  In the paragraphs that follow, Lord Keith expanded on this statement and quoted from various judgments on the Henderson type of abuse (at 106F to 107C). He then observed at 107C that although Henderson was a cause of action estoppel, the statement by Wigram V-C has been held to be applicable “also to issue estoppel” and that the instant case “is concerned with the nature of such special circumstances”. He later formulated the exception of special circumstances at 109A to B:

“In my opinion your Lordships should affirm it to be the law that there may be an exception to issue estoppel in the special circumstance that there has become available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided, being material which could not by reasonable diligence have been adduced in those proceedings.”

71.  In the other citation relied on by Mr Ng being Virgin Atlantic Airways at §22, Lord Sumption stated that Arnold is authority for a number of propositions including the following:

“Except in special circumstances where this would cause injustice, issue estoppel bars the raising in subsequent proceedings of points which (i) were not raised in the earlier proceedings or (ii) were raised but unsuccessfully. If the relevant point was not raised, the bar will usually be absolute if it could with reasonable diligence and should in all the circumstances have been raised.”

72.  As Lord Sumption has mentioned, the principle in Henderson has always been thought to be directed against the abuse of process involved in seeking to raise in subsequent litigation points which could and should have been raised before. It is important to appreciate the critical distinction in Arnold was between a case where the relevant point had been considered and decided in the earlier occasion and a case where it had not been considered and decided but arguably should have been. The tenant in Arnold had not failed to bring his whole case forward in the earlier proceedings. He had argued the point which he wished to reopen (because of a subsequent in the law) and had lost. It was not a Henderson case. The real issue in the House of Lords was “whether the flexibility in the doctrine of res judicata which was implicit in Wigram V-C’s statement extended to an attempt to reopen the very same point in materially altered circumstances”[37].

73.  As we understand it, the defendant’s complaint is that the plaintiff could and should have brought his whole case forward in the ancillary relief proceedings when the Family Court was to identify the assets of each party before deciding what assets are in the matrimonial pool to be divided between the parties. In the ancillary relief proceedings, he should have raised his claim that the assets held in the defendant’s name are not beneficially owned by her and are non-matrimonial assets that would not be shared in the distribution of assets. Reasonable diligence does not come into this at all. This is a Henderson case, not a case of an exception to issue estoppel in the special circumstance envisaged in Arnold that there might have become available to a party further material which could not have been adduced in the earlier proceedings by reasonable diligence. The plaintiff is not seeking to litigate a point that he should have raised before in materially changed circumstances. Mr Ng has misunderstood the law in formulating the question as whether the plaintiff is within the Arnold exception (“This question turns on whether the plaintiff would (and should) have, with reasonable diligence, claimed beneficial ownership of the Assets if the parties did not settle their ancillary relief proceedings.”). The estoppel he asserts is a Henderson type of abuse, just like Chan Man Ki v Yau Chun For [2021] 2 HKLRD 366, in which an application was made by a husband to strike out the wife’s claim for certain assets in a civil action on the basis that she could and should have brought such claim in the divorce proceedings but chose not to do so. The Court of Appeal dealt with it as a Henderson case.

74.  Leaving aside the Henderson type of abuse for the time, we consider first issue estoppel as dealt with by the judge. Issue estoppel may arise where a particular issue forming a “necessary ingredient” in a cause of action has been litigated and decided[38]. In subsequent proceedings between the same parties, it precludes a party “from contending the contrary of any precise point which, having once been distinctly put in issue, has been solemnly and with certainty determined against him”. Issue estoppel applies to matters “fundamental or cardinal” to the prior decision, “legally indispensable” to the conclusion, or “necessarily involved in it as its legal justification or foundation”, as opposed to “steps in the process of reasoning tending to establish or support the proposition upon which the rights depend”. (Sam Woo Marine Works Ltd v The Incorporated Owners of Po Hang Building [2022] HKCA 733 at §25)[39]

75.  A consent order is capable of giving rise to issue estoppel, as explained by Morris J in Jellett v Brooke & Anr [2017] 1 WLR 1177 at §§78(4) to (6) and 79:

“(4)	A consent order is capable of creating an estoppel such as will bar a party from bringing a second action and creates an estoppel if the parties in the second action are the same as the parties to the first and the issues raised in the second action were necessarily compromised in the first action. There is a question as to whether this type of estoppel should be properly described as estoppel by res judicata or whether it would more accurately be described as estoppel by conduct or indeed is founded on abuse of process: see debate in the Zurich Insurance case [2011] CP Rep paras 23-25, 47-50 and 63. Where the consent order expressly provides for judgment to be entered, then it is more readily described as res judicata. In any event, it is noteworthy that on the facts of Kinch v Walcott [1929] AC 482 – the authority cited for the effect of a consent order – the allegation which the defendant was precluded from raising in the subsequent action had been ‘expressly withdrawn’ as part of the settlement of the first action.
(5)	Where the consent order is in the form of a Tomlin order (ie an order for a stay with confidential terms of settlement scheduled to the order), whether this creates cause of action estoppel is not clear: see Moore-Bick and Smith LJJ in the Zurich Insurance case [2011] CP Rep 39. If and in so far as it does not, then what will prevent a party from taking an inconsistent position in the later proceedings will be the terms of the agreement itself which is scheduled to the order by dint of their contractual force: see in particular Moore-Bick LJ at paras 48 and 50.
(6)	In any event, there can only be a cause of action estoppel or issue estoppel arising from a consent order/settlement if there is clarity as to what was in fact compromised: see the Zurich Insurance case, per Smith LJ at para 26.
79. Regardless of this juridical basis, what emerges from the Zurich Insurance case is that no estoppel will arise unless the issues raised in the second action were ‘necessarily’ compromised in the first action and that will depend upon the terms on which the first action was settled.”

76.  Mr Chan submitted the judge was wrong to hold that the Consent Order created an issue estoppel. In determining the question of issue estoppel, she applied the wrong test of whether the plaintiff’s claims were “unrelated to or outside the scope of ancillary relief which may be ordered in his divorce proceedings”[40]. She failed to consider whether beneficial ownership of the disputed assets was a “necessary ingredient” in the plaintiff’s ancillary relief claim or an issue “legally indispensable” to the claim. It would not have been necessary for the Family Court to decide the issue of beneficial ownership of the disputed assets in ancillary relief proceedings. Only a broad brush approach would be required in ascertaining the financial resources of each of the parties, and it is not necessary to reach firm conclusions on who owned precisely what and in what shares[41].

77.  Mr Chan further submitted that even though the Family Court has power to order a return of specific properties under section 6 of the MPPO, that would not necessitate the plaintiff’s assertion of beneficial ownership over the disputed assets. Ancillary relief proceedings “deal with the respective financial resources and financial obligations of the parties to the marriage … and to make reasonable distribution”. They are “not related to whether or not a party to the marriage has to discharge liabilities in contract, tort or a trust outside the marriage (not referring to the ante-nuptial or post-nuptial settlement made on the parties to the marriage …)”. The provisions relating to ancillary relief in MPPO[42] “do not empower the Family Court, in dealing with ancillary relief, to deal with these liabilities of a party to the marriage to the other party”. In making an order for ancillary relief, the Family Court “has no power to require at the same time a party to the marriage to discharge these liabilities to the other party”, such as to “discharge liabilities in a trust unrelated to ancillary relief”[43].

78.  We will return to Mr Ng’s arguments relevant to the Henderson type of abuse of court process. On issue estoppel, he submitted that the terms of the Consent Order represented the product of an independent assessment by the Family Court of the factors under section 7(1) of the MPPO to enable it to discharge its statutory function thereunder[44]. As the judge observed[45], the Family Court has to identify the parties’ assets before deciding what assets are in the matrimonial pool to be divided. Hence, the Consent Order has effectively dealt with the plaintiff’s claim of beneficial ownership.

79.  As noted by Smith LJ in Zurich Insurance Company Plc v Hayward [2011] EWCA Civ 641 at §26, it will often be more difficult to ascertain exactly what issues are subject to an estoppel where the first action has been compromised than where it has been decided by a judge. There should only be an estoppel if it is clear that the issue now raised has been compromised in the prior proceedings.

80.  We agree with Mr Chan the judge has applied the wrong test for issue estoppel. The Consent Order provided in paragraph 1 that the plaintiff was to pay the defendant a lump sum payment of $30,000 in full and final settlement of all claims for ancillary relief of both parties (作為完全和最終解決雙方所有申索的附屬濟助). Upon the terms of settlement, it is far from clear that the issues raised in the claims of the plaintiff in the present action were “necessarily compromised” by the Consent Order.

81.  Notwithstanding that the Family Court has to discharge a statutory function under section 7(1) of the MPPO, and that the terms of settlement converted into a court order should represent the court’s independent review applying the section 7 criteria to the circumstances of the case and the terms of settlement, it cannot be assumed on the available materials that such a review was undertaken or properly undertaken. The Consent Order merely tracked the contents of the consent summons. There is no mention in the Judgment of the circumstances in which the Consent Order came to be made by His Honour Judge K W Wong on 13 September 2013. Nor did the parties draw our attention to any part of the evidence that may throw light on the making of the Consent Order by the Family Court.

82.  We agree also with Mr Chan that the issue of beneficial ownership of the disputed assets was not a “necessary ingredient” in the ancillary relief claim or “legally indispensable” to that claim. He made a further valid point that the Family Court has no power under the provisions for ancillary relief in the MPPO to deal with outstanding liabilities of a party to the marriage to the other party in a trust outside ancillary relief.

83.  For the above reasons, the judge’s holding that by the Consent Order the plaintiff is precluded by issue estoppel from pursuing the claims in this action cannot be supported.

84.  Next, we turn to estoppel by conduct or representation. This was not argued by Mr Ng. We mention this for completeness, as there are findings on the words and conduct of the parties which might be said to support a case of estoppel on this basis. We think that an estoppel on this basis must be rejected. There is the hurdle of the Flywin principle. We do not think it can be said that had this issue been raised below, the plaintiff would not have adduced any further evidence to address this issue. Besides, we have reservations if the plaintiff’s failure to inform the defendant about his intended claims (there was no express representation found by the judge) could be elevated into a clear and unequivocal representation that he would not bring new proceedings to recover the assets held by the defendant to give rise to an estoppel.

85.  Lastly, we turn to the Henderson type of abuse, which would appear to be the main contention relied on by the defendant in opposing this appeal. There are difficulties about an estoppel on this basis.

86.  As stated in Chan Man Ki v Yau Chun For at §47(2), when the court deals with this type of abuse, it is not looking at an absolute bar to litigation such as issue estoppel or cause of action estoppel. Instead, the court is required to assess a number of factors and balance competing interests. It is a “broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.”[46] The decision on whether there is the Henderson type of abuse is an exercise of judicial discretion, based on the assessment or balancing a number of factors[47]. “It is one thing to refuse to allow a party to relitigate a question which has already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which has not previously been adjudicated upon.”[48]

87.  As we have noted, this basis of estoppel was not raised below and hence not considered by the judge and the judicial discretion was not exercised. No respondent’s notice was filed by the defendant to support the holding of estoppel on account of the Consent Order on an additional basis that the plaintiff should have made the claim for beneficial ownership in the ancillary relief proceedings such that his claims in this action is an abuse and the defendant is vexed by this action. The hurdle of the Flywin principle would need to be overcome, even though Mr Chan has not taken any objection on that ground.

88.  Leaving aside the absence of a respondent’s notice, we do not think the difficulties owing to the Flywin principle can be surmounted. As this contention was not raised below, evidence focusing on the crucial question whether the plaintiff was misusing or abusing the process of the court in not litigating the beneficial ownership of the disputed assets was not fully explored and properly considered. The plaintiff gave evidence he had not raised the issues of trust monies and trust properties because he did not want to delay the divorce proceedings[49]. The judge regarded this as going to issues of credibility, in particular the credibility of the plaintiff’s claims to the properties said to be held on trust. She found it incredible that he would not have asserted such claims when he instructed his lawyers to petition for divorce and raised those issues before the Consent Order was made, if indeed 9F and CSW were transferred to the defendant under her undue influence, and found it was only in retrospect that he decided to bring this action[50]. She did not direct her mind to whether he was abusing the court process in not litigating the issues of trust. Quite clearly, we could not be satisfied that we have before us all the facts bearing upon this new contention or that there is no reasonable possibility that the state of evidence relevant to this would have been materially more favourable to the plaintiff if the point had been taken below.

89.  We wish to emphasise that in exercising the judicial discretion whether to deny the plaintiff the opportunity of litigating for the first time the issues of beneficial ownership in this action, we ought to embark on a “broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case”. As this contention was not raised below, for the reasons mentioned above, obviously we would be handicapped in making an assessment of relevant factors and balancing competing interests if we are to exercise this discretion on appeal.

90.  Lastly, even if we are to entertain Mr Ng’s arguments on this new basis of estoppel, we are not persuaded there is abuse of process on the available materials so as to bar the plaintiff from claiming beneficial ownership in this action.

91.  Mr Ng emphasised it is the statutory duty of the Family Court to consider the assets of each party to the marriage and had ancillary relief not been compromised, each would be obliged to make a full and frank disclosure of his or her assets in Form E, including assets in which they have beneficial interest. Such disclosures would have revealed the plaintiff’s dispute regarding beneficial interest and his claim that the disputed assets are non-matrimonial assets. The Family Court would likely have considered why the plaintiff transferred the assets to the defendant and arguably mingled the assets causing them to lose their non-matrimonial character. The disputes of beneficial ownership of assets between spouses in ancillary relief proceedings would be overridden by the power of the Family Court to redistribute assets under section 7 of the MPPO, and property rights of the parties would be adjusted according to the statutory criteria and the principles on ancillary relief[51].

92.  Mr Ng prayed in aid these words of Chu JA (as she then was) in Chan Man Ki at §53:

“Generally speaking, it is desirable that one court should exercise its jurisdiction over all financial and property disputes between husband and wife. Ordinarily it would be appropriate to transfer financial and property claims that fall within its jurisdiction to the Family Court, provided that such a course will not do injustice to either party.”

93.  Mr Ng also pointed out that the Family Court has jurisdiction to resolve property disputes by making an order for transfer of assets under section 6 of the MPPO.

94.  Insofar as he is suggesting that this action is an abuse of process in that the plaintiff should have litigated the issues of beneficial ownership in ancillary relief proceedings because it is desirable that the Family Court should exercise its wide jurisdiction over all financial and property disputes between the spouses, this is not supported by Chan Man Ki.

95.  On the facts in that case, the Court of Appeal found that the wife had not acted unreasonably, still less vexatiously, in bringing a claim in the District Court for recovery of certain assets. There was no dispute over the ownership of the assets when she applied for the decree nisi to be made absolute and the husband only raised in his defence that the assets were matrimonial assets and the wife should have claimed ancillary relief and was estopped as she had not done so. The Court of Appeal found it was not an abuse for the wife to bring the District Court action, and on the husband’s indication he would make an ancillary relief application in respect of the disputed assets, ordered that the District Court action be stayed. In the event that the Family Court should find the assets were non-matrimonial assets, the stay would be lifted for the wife to seek redress in the civil action.

96.  Chan Man Ki serves as an illustration there are occasions where civil proceedings seeking financial or property relief may exist in parallel with matrimonial proceedings. As Chu JA pointed out in §67, while the Family Court has jurisdiction to resolve the dispute over the ownership of assets including making an order of transfer under section 6 of the MPPO, it does not have jurisdiction to order a spouse to return the assets to the other if it decides that the assets should not be shared or distributed between the parties. Nor does it have jurisdiction to order damages if a party should refuse to return the assets. In situations like these, the aggrieved party would need to seek redress by way of civil proceedings. Similar observations were made in Liu Wing Yee v Tang Cheuk Lun regarding the kinds of relief that the Family Court is not empowered to grant.

97.  In this instance, both parties have confirmed to the judge at the pre-trial review they do not seek to set aside the Consent Order[52]. Up to the hearing of this appeal, neither has indicated an intention of going back to the Family Court to resolve the dispute whether the assets are matrimonial or non-matrimonial assets. If the plaintiff’s assertion that the assets are non-matrimonial is upheld, the assets would not be available for re-distribution in the ancillary relief proceedings. It would be more natural for the party who asserts that the assets are matrimonial assets to make an application for ancillary relief, as in the situation in Chan Man Ki.

98.  The Family Court has no jurisdiction to grant the declarations sought by the plaintiff in this action that the assets are held on trust for him, or for that matter the declarations sought by the defendant in her counterclaim as to her legal and beneficial interest of the assets.

99.  As Chu JA stated in Chan Man Ki in §§53 and 70, notwithstanding the desirability of having all financial and property disputes between husband and wife resolved in one court, which ordinarily is the Family Court having regard to its wide discretionary power to do justice between the parties under the MPPO, such a course must not cause injustice to either party. For the reasons given above, we do not think injustice was caused to the defendant for the plaintiff to bring this action to litigate for the first time their disputes over the assets. It is not an abuse of process for the plaintiff to bring this action.

100.  We do not think any of the three possible bases on which the Consent Order might be said to give rise to estoppel can be established. The judge is wrong to dismiss the plaintiff’s claims on this basis. It is necessary to consider the grounds of appeal relating to 9F and CSW and what order should be made regarding the Sum which the judge found was held on trust by the defendant for the plaintiff.

The grounds of appeal relating to 9F

(1)  If the plaintiff’s case was erroneously confined

101.  Mr Chan submitted that the primary basis of the plaintiff’s claim in respect of 9F was based on trust, but the judge wrongly confined his case to undue influence and failure of consideration and failed to consider common intention constructive trust or resulting trust. There is sufficient basis on the facts found to find a common intention constructive trust between the parties that the plaintiff was to remain the beneficial owner of the half share in 9F that he transferred to the defendant. Mr Chan pointed to these matters: (1) the Joint Account was opened in anticipation that 9E and 9F would be transferred to the plaintiff; (2) one of the purposes of the Joint Account was to allow the defendant to help the plaintiff deposit the rents collected into it; (3) the defendant’s case that the Sum deposited into the Joint Account was an unconditional gift to her was rejected; and (4) her allegation that the transfer of a half share of 9F was in consideration of a loan from her to the plaintiff was also rejected[53]. Hence, the judge should have found that the transfer of the half share of 9F was intended for the defendant to help the plaintiff manage the rental affairs and the plaintiff was to retain full beneficial ownership of this property. In any event, if the matters urged upon this court did not suffice to infer a common intention constructive trust, the judge should have found a resulting trust in favour of the plaintiff. Taking a further fallback position, Mr Chan raised for the first time in his oral submissions that the matter should be remitted to the judge to consider whether 9F was subject to a common intention constructive trust or a resulting trust.

102.  It does not appear to us that the plaintiff has properly pleaded a case of common intention constructive trust. The judge has summarised his case as follows. After 9E and 9F had been transferred to the plaintiff in May 2009, the defendant told him the rental income from these properties was too low and asked him to increase the rent as soon as possible, claiming that she could discuss these rental matters with the tenants on his behalf. In November 2009, she asked him to transfer the title of 9E and 9F into their joint names, so that as co-owner and trustee, she could deal with the tenants and manage the tenancy affairs. We agree with the judge his pleaded case is that he agreed to transfer 9F only under her undue influence, so that she could manage the property as the trustee and nominee and as he never received the consideration stated in the assignment of $1.4 million, there was total failure of consideration for the assignment[54]. This is borne out by the way in which both parties set out the issues in dispute in their opening submissions, and reflected in the issues for determination stated in the Judgment[55]. It is pertinent to note in the plaintiff’s opening submissions, common intention constructive trust was raised only in respect of the Joint Account and the Sum[56].

103.  When it came to the exchange of closing submissions, the defendant still regarded the issues in respect of 9F as undue influence and total failure of consideration and addressed them accordingly[57]. However, the plaintiff’s former counsel changed tack in his closing submissions as regards 9F and raised for the first time common intention constructive trust[58]. Needless to say, the seven matters he relied on as supporting this kind of trust had not been pleaded. They are also different from the four matters now relied on in the skeleton submissions on appeal of Mr Chan.

104.  We were given to understand that the judge heard oral submissions in addition to the written closing submissions. But as none of the counsel appearing on appeal on both sides were involved in the trial, we have not been assisted as to whether the judge had allowed the point on common intention constructive trust to be run for the first time in the plaintiff’s written closing submissions. Nor do we know what submissions, if any, were made by the defendant’s former counsel in response.

105.  There is no rigid requirement in the Rules of the High Court for a party to plead the legal consequences of particular facts and the rules (Order 18 rule 11) are permissive as to the raising of points of law in pleadings[59]. Nevertheless, to ensure fairness between the parties and secure the just resolution of disputes in accordance with the substantive rights between them, there is much to be said for the pragmatic virtues of setting out the legal consequences so that the other party (and the court) would not be taken by surprise[60].

106.  As stated by Lam VP (as he then was) in Re Lehmanbrown Ltd v Union Trade Holdings Inc & Ors[61]:

“Whilst the Court of Appeal obviously has power to entertain new points in an appeal, it is also clearly and firmly established that new points which are fact sensitive or otherwise affect the course of evidence or conduct of the case at the hearing below should not be allowed. Though this principle is usually applied in situations where the new points necessitate further evidence to be adduced, it is not confined to such scenarios. Very often, the raising of new point by one party may lead to the other party raising counter arguments and the consideration of such counter arguments may involve factual assessment in a different light from that undertaken by the court below. Sometimes, it may involve a different weighing of factors in the exercise of discretion. Alternatively, the other party may embark on a different course of forensic conduct if the new point were taken earlier. The appellate court, in considering whether the new point would be entertained, is entitled to take these matters into account in order to avoid unfairness to the other party.”

107.  We do not know why the judge did not deal with common intention constructive trust and confined the plaintiff’s case to undue influence and total failure of consideration. We do not wish to speculate if it was oversight or a refusal to entertain this issue. Whatever the reason for not dealing with this, we think there are good grounds why the issue should not be entertained, whether at the trial or on appeal. It is far too late for the plaintiff to raise this for the first time in closing submissions. This issue is fact sensitive (amply demonstrated by the different ways in which the plaintiff’s former counsel and Mr Chan would run this issue) and may well affect the course of evidence and the conduct of the case at the trial. The defendant may embark on a different course of forensic conduct had the point been taken earlier, not to mention the evidence that may be elicited from her in response. We reject the contention that the judge was wrong to confine the plaintiff’s case on 9F to undue influence and total failure of consideration.

108.  This leaves the issue of resulting trust. Apparently, the judge did not find it necessary to consider resulting trust in light of her conclusion on the effect of the receipt clause in the assignment, which would be dealt with in the latter part of this judgment. Assuming that the plaintiff could establish there was total failure of consideration thereby giving rise to the presumption of resulting trust, this would be rebutted by the presumption of advancement as the transfer was made by a husband to his wife. Mr Chan submitted that the presumption of advancement is rebutted by the four matters he relied on in support of his contention for inferring a common intention constructive trust. We do not agree with this submission. Three of those matters relate to the Joint Account and the Sum. It does not follow from the finding that the plaintiff had no intention of making an absolute gift of the Sum to the defendant that he would likewise have no intention of making a gift to her of an entirely different property, namely, a half share of 9F. As for the rejection of the defendant’s allegation that the transfer of a half share of 9F was in consideration of a loan from her, this is not inconsistent with the plaintiff making a gift to her.

109.  Furthermore, there are findings in the Judgment which would support a gift to the defendant. The plaintiff admitted he had freely signed the memorandum of agreement and the assignment and the evidence suggests that he had intended to transfer this property to their joint names. The judge rejected his evidence he had actually given instructions to his solicitors that he intended the defendant was only to act as a mere nominee, with no actual or beneficial interest[62]. Some support can also be obtained from the fact that although the plaintiff had stopped paying the rental income from 9E into the Joint Account from November 2010, he had continued to deposit the rental income from 9F into the Joint Account, which is more consistent with his treating the defendant at all material time as a co-owner[63].

110.  We reject the request to remit the matter to the judge to consider whether 9F was subject to a common intention constructive trust or a resulting trust. There is no good reason why the plaintiff should have another chance to re-run these issues.

111.  This ground of appeal fails.

(2)  Undue influence

112.  This is a challenge on findings of fact, which does not meet the high hurdle to succeed on appeal notwithstanding the assertion that the judge was plainly wrong on a number of matters.

113.  As noted by the judge, there are no detailed particulars in the plaintiff’s pleadings as to how the alleged undue influence was exerted by the defendant to procure the transfer of 9F to her in November 2009. There is only his general evidence of financial difficulties and his reliance on the defendant who controlled the Sum[64]. Having reviewed the evidence, the judge was not satisfied on the balance of probabilities that the assignment of 9F was procured by the defendant’s abuse of the plaintiff’s trust and confidence and concluded that there is no evidence whatever to support the contention of undue influence[65]. She was entitled to find that the plaintiff had exercised independent judgment when he made the transfer. The matters raised in Mr Chan’s submissions either go to weight or matters that the judge was entitled not to take into account.

114.  The judge inferred from the fact that the plaintiff only assigned 9F into joint names despite his claim that the defendant had asked him to transfer both 9E and 9F as indicative of the plaintiff exercising independent judgment on the transfer of property[66]. Mr Chan contended that the judge failed to take into account the plaintiff’s explanation for only assigning 9F into joint names. He referred to the tenancy agreement of 9E dated 29 June 2009 entered into by the defendant on behalf of the plaintiff as the landlord. If this document is meant to show that the tenant of 9E was willing to deal with the defendant as representing the plaintiff on rental matters, we fail to see how this would materially affect the case of undue influence. Whether the plaintiff had good reason not to transfer 9E as sought by the defendant is immaterial. The fact remains that the defendant had allegedly asked for the transfer of both 9E and 9F into joint names in November 2009 and the plaintiff acceded only to the transfer of 9F, casting doubt on the suggestion he had no will of his own. Mr Ng drew our attention to the plaintiff’s evidence in which he confirmed that he had independent capability in deciding what to give to the defendant[67].

115.  There is no basis to disturb the finding of fact that the transfer was made with the informed consent of the plaintiff, given with full knowledge of the consequences of entering into the relevant transaction[68]. We find no support for the contention that the judge had failed to apply properly the legal principles on undue influence[69].

116.  We reject this ground of appeal.

(3)  Effect of the receipt clause

117.  The plaintiff’s contention is that the judge was wrong to reject his case there was total failure of consideration for the transfer of property. The judge held that the plaintiff was bound by the receipt clause in the memorandum and assignment in which he acknowledged that $1.4 million was paid to and received by him as consideration for the transfer, relying on the analysis in Prime Sight v Lavarello[70].

118.  Mr Chan’s submissions[71] may be summarised as follows:

(1) The correctness of Prime Sight v Lavarello and its application to standard receipt clauses is open to challenge[72]. It was decided without regard to the well-established rule in equity that a receipt clause does not effect an estoppel if the purchase money was not in fact paid, and evidence is admissible to contradict a receipt clause. Equity ignored formalities and concerned itself with true intention[73]. As between immediate parties who know all the circumstances, there can be no estoppel by deed[74].

(2) The correct position is as submitted by the authors of Spencer Bower: Reliance-Based Estoppel (5^th ed) at §8.78:

“The tension between the Privy Council and the Court of Appeal decisions is yet to be definitively addressed, but it is submitted that it may be resolved on the basis that prima facie a receipt in a contract or deed is understood as intended by the parties only to establish a presumption as to its accuracy, which may therefore be displaced by evidence as to its inaccuracy sufficient to rebut the presumption, unless the parties (and any successors bound by the estoppel) are precluded from adducing such evidence because it is established that they intended to contract or make their deed on the contractual basis that the money had been paid or was due, whether or not it was true. Thus, in Destine Estates Ltd v Muir[75], Newey J observed that, ‘There may be room for argument as to how far the Lavarello case detracts from equity’s traditional reluctance to allow a party to a deed to rely on a receipt clause when payment has not in fact been made’, but nonetheless upheld an estoppel against denial that the sum stated to have been received was due, because the deed also recited that the lender had agreed to lend the sum for the relevant purchase and provided for its repayment. If, therefore, as in that case, in Lavarello and in Slocom Trading Ltd v Tank Inc[76], the evidence, including the terms of the deed, shows that the recited making of the relevant payment was agreed as the basis of the transaction between the parties, as opposed to the clause being a standard term to which no attention was paid, it seems that the recital will estop.”

(3) The receipt clause in the assignment merely states, parenthetically, that “(the receipt whereof [i.e. the consideration] is hereby acknowledged)”. Nothing in the assignment indicates that the receipt clause is meant to be categorically conclusive for any issue regarding the payment of purchase money.

(4) Any notion that equity has no jurisdiction to relieve the binding effect of the receipt clause only applies if it is, in matter of fact, the parties’ genuine intention that is being upheld[77]. In this instance, the judge never accepted the plaintiff’s case that 9F was assigned to facilitate the defendant’s management of rental affairs as the plaintiff’s co-owner and trustee. She also rejected the defendant’s case that 9F was transferred in consideration of a loan the defendant allegedly made to the plaintiff. There was no finding that the genuine intention was for the transfer of 9F to the plaintiff and the defendant as joint tenants, for the consideration of $1.4 million.

(5) The judge failed to consider whether there was detrimental reliance from acting on the footing of the state of affairs assumed in applying the estoppel by convention analysis[78].

119.  Mr Ng submitted that the judge’s conclusion the plaintiff was estopped by the receipt clause is correct and the Lavarello case was rightly decided, and hence the claim of total failure of consideration and resulting trust must fail. His arguments may be summarised as follows:

(1) Prime Sight v Lavarello was not based on estoppel by deed. The true basis of this decision was contractual estoppel[79].

(2) In the case of a contract, whether or not it takes the form of a deed, a party may be contractually estopped by an agreed statement in the nature of a receipt. The doctrine of contractual estoppel should displace the rule in equity so that where there are no vitiating factors (such as undue influence), a vendor is barred from denying receipt of consideration by virtue of a receipt clause on the deed of assignment.

(3) The doctrine of contractual estoppel has been confirmed as part of Hong Kong law. It operates where parties agreed a certain state of affairs should form the basis of a transaction. If so, neither party can subsequently deny the existence of the facts and matters upon which they have agreed[80].

(4) In this instance, the state of affairs acknowledged in the agreement was that consideration was given for the transfer, even though both parties knew the state of affairs recorded was untrue. Their signatures signified their assent to what the assignment relates[81]. Since they have agreed the state of affairs should form the basis of the transaction, the party who denies the state of affairs is in breach of contract and it is right that the court should not allow that party to benefit from his own wrong[82]. The plaintiff was therefore barred by contractual estoppel arising from the receipt clause from denying he had received the consideration stated in the assignment.

120.  On the submissions before us, two bases were advanced for an estoppel to arise from the receipt clause in the memorandum and assignment. One is estoppel by deed at common law, but this is subject to the well-settled rule of equity that as between parties to the deed, evidence may be adduced to contradict the statement of the payment of the purchase money. The other is contractual estoppel. Whilst Mr Ng has submitted that contractual estoppel was the true basis for the estoppel in Prime Sight v Lavarello and should equally apply in this instance, Mr Chan’s submission would appear to be that the plaintiff should not be precluded from adducing evidence to rebut the receipt clause, regardless of whether estoppel by deed or contractual estoppel is invoked.

121.  We are inclined to agree with Mr Chan by and large, in particular with the views of the authors of Spencer Bower: Reliance-Based Estoppel at §8.78 quoted earlier.

122.  Prime Sight could be explained on the basis that notwithstanding the omission to mention the rule in equity, the basis of the estoppel in that case was not the formality of the deed but contractual intention. It proceeded on the basis there was a binding contract between the parties. As stated by the Board in §54:

“… On the basis that the deed contained a valid contract of sale, the company is entitled on ordinary contractual principles to rely on the terms of the deed by which the purchase price was treated as between the parties as having been paid.”

123.  Further, it is principled and correct on the facts in that it accords with the true nature of the equitable rule which only gives relief from formality lest it suppress the true intention of the parties. The decision gave effect to a domestic arrangement between a husband and wife who chose to frame as a sale, at a price acknowledged to be paid, what in substance was a gift. The finding of contractual agreement in that case brought out the true intention of the parties and hence there was no room for equity to intervene[83].

124.  Mr Ng made an assertion that contractual estoppel should apply equally to the present situation, but made no mention of any basis for asserting there is evidence the parties intended to transfer the property on the contractual basis that the purchase price had been paid, whether or not it was true, other than relying on the receipt clause itself in the assignment executed by the parties without any vitiating factors. In Spencer Bower: Reliance-Based Estoppel at §8.78, a distinction was drawn between Lavarello and Slocom Trading Ltd v Tank Inc (in which the evidence, including the terms of the deed, showed that the recited making of the relevant payment was agreed as the basis of the transaction between the parties) and the situation in which the only evidence is a standard term receipt clause to which no attention was paid. The authors opined there would be no estoppel in the latter situation.

125.  A similar view was taken in Receipt Clauses and ‘Contractual Estoppel’ Revisited by Mark Leeming at 174:

“The position when a plaintiff who wishes to contend, contrary to a receipt clause, that no consideration had in fact been paid so as to allege a presumed resulting trust, is slightly different from, say, rectification. The critical issue will be the intention to be imputed to the plaintiff, and it may fairly be said that an acknowledgment is powerful evidence of that. But consistently with the decisions referred to above, it is hard to see how a receipt clause which is no answer of itself to a claim for rectification or misrepresentation, could preclude an examination of the facts where it is claimed that the purchaser holds on a resulting trust having taken for no consideration. Rather, it is evidence in light of which the court will determine whether the presumed resulting trust (or other basis for relief in equity) is established.”

126.  Although the receipt clause may be powerful evidence that purchase money was paid, we do not think the clause in itself would be sufficient to give rise to a contractual estoppel to preclude the plaintiff from adducing evidence to show the contrary.

127.  The judge was in error to hold there was estoppel by deed without having regard to the equitable rule that parties to the deed are not estopped from adducing evidence as to the true state of affairs. As for contractual estoppel, we do not think there is sufficient evidentiary basis to give rise to this.

128.  Although this ground of appeal succeeds and the plaintiff may invoke the presumption of resulting trust, this does not assist him in the end on account of the presumption of advancement and there is no evidence to rebut it.

(4)  Conclusion on 9F

129.  In summary, as there is no evidence to rebut the presumption of advancement, the plaintiff fails in his claim that the defendant holds her half share in 9F on trust for him. The declaration made on the counterclaim that the plaintiff and the defendant are the legal and beneficial co-owners of 9F would be upheld.

The grounds of appeal relating to CSW

(1)  If the plaintiff’s case was erroneously confined

130.  Mr Chan submitted that the judge failed to consider the plaintiff’s claim over CSW as a matter of trust analysis and wrongly confined her analysis to a case of undue influence. She merely upheld the legal effect of the assignment, which concerns legal ownership of this property, without dealing with the question of beneficial ownership.

131.  There is no merit in his submission. The plaintiff’s case as pleaded, as rightly summarised by the judge, was that the assignment was procured by the defendant’s undue influence and there was total failure of consideration in that the alleged part payment of $1.3 million for the transfer of this property was derived from the Sum which was held by the defendant on trust for the plaintiff. The judge dealt with the plaintiff’s case as pleaded adequately.

(2)  Undue influence

132.  The complaint here is that the judge wrongly dismissed the case of undue influence in failing to take proper account of the plaintiff’s vulnerability at the time of the assignment when he desperately needed $200,000 for a dental implant for an acute gum condition. It was said that the judge failed to consider the “clear indicia” of the defendant’s abuse of the trust and confidence placed by the plaintiff in her and her domination.

133.  There is no valid basis to disturb the findings of fact of the judge. The judge rejected the claim of undue influence for the same reasons as in 9F. She was entitled to find there was no credible explanation why the plaintiff could not have obtained loans (despite having obtained various loans from at least one finance company between 2005 and 2008) or offer 9E or 9F as security to obtain further loans to pay for his dental treatment[84]. The evidence given by the plaintiff[85] contradicts his claim of being vulnerable to the alleged undue influence. The plaintiff also admitted in evidence he had never depended on the defendant financially[86], and that he freely agreed to assign CSW to the defendant[87]. Lastly, he handed over the title deeds to the defendant two years after the assignment, showing that the parties had accepted the terms and reality of their deal on the Sum and CSW[88].

(3)  If the plaintiff was precluded from contending total failure of consideration

134.  The judge rejected the claim that the plaintiff had not received the consideration for CSW and that the assignment should be set aside for total failure of consideration on the basis of estoppel by the receipt clause, applying Prime Sight v Lavarello[89].

135.  We have dealt with this under the grounds of appeal of 9F. Even if the judge was wrong to consider the plaintiff estopped by the receipt clause (whether on the basis of estoppel by deed or contractual estoppel as contended by Mr Ng), it is of no consequence as the judge did go on to consider the plaintiff’s evidence and contentions regarding payment of the purchase price and made findings accordingly[90].

136.  The present case is akin to Asgain Co Ltd v Cheng Ka Yan (No 2) where the defendant made part payments after the execution of the assignment, which were accepted by the plaintiff towards the purchase price. The Court of Appeal drew the necessary inference from the parties’ conduct that the assumption of discharge of the payment obligation in the receipt clause was extinguished by a counter-estoppel arising from the part-payments (at §18).

(4)  If the plaintiff was entitled to trace his beneficial interest in the Sum to CSW

137.  Mr Chan submitted that having found that the Sum was held on trust by the defendant for the plaintiff, the judge should have held that the plaintiff was entitled to trace his beneficial interest in the Sum to CSW. As trust money was applied in the purchase of land, the beneficiary can assert his proprietary remedy against the land because the money was validly comprised in a trust and the land represents it[91].

138.  The judge rejected the contention of tracing into the land. We agree with the judge that tracing is not available to the plaintiff in light of the findings that consent was freely given in this instance with full knowledge of the consequences of entering into the transaction for sale and purchase and both parties had accepted the terms and reality of their deal on the Sum and CSW[92].

(5)  Conclusion on CSW

139.  There is no basis to overturn the dismissal of the claim that CSW was held by the defendant on trust for the plaintiff. We would uphold the declaration granted on the counterclaim that the defendant is the sole legal and beneficial owner of CSW.

What orders should be made regarding the Sum

140.  To recap, we have held that the plaintiff is not estopped by the Consent Order from asserting his claims to the Sum, 9F and CSW. In light of the ruling that the Sum was held by the defendant on trust for the plaintiff, appropriate relief should be granted to him in respect of the Sum, the exact amount of which is $2,733,832.12.

141.  The plaintiff seeks an order for a proper account and enquiries for the balance amount due and owing by the defendant to him[93].

142.  Of the payments made by the defendant to the plaintiff as found by the judge[94], the plaintiff should give credit in respect of the sums paid to him for his own benefit, such as for his dental implants and settlement of his legal expenses. The balance of the amount not incurred for his benefit, such as towards payment of the defendant’s purchase of CSW, would be held on trust for him and is due from the defendant.

143.  We would order an account and enquiries of the Sum before a master, with directions to be given by the master who has conduct of this exercise.

Orders on appeal

144.  For the above reasons, we allow this appeal in part. These are the orders we make in the appeal:

(1) The declaration in the Judgment that the defendant is the sole legal and beneficial owner of the sum of $2,733,832.12 is set aside, in lieu thereof a declaration is granted that the defendant holds the said sum on trust for the plaintiff.

(2) An account and enquiries of the sum of $2,733,832.12 is to be conducted before a master, and the defendant is ordered to pay to the plaintiff the amount found due on the taking of the account.

(3) These declarations in the Judgment are upheld: (a) the plaintiff and the defendant are the legal and beneficial co-owners of 9F; and (b) the defendant is the sole legal and beneficial owner of CSW. The orders in the Judgment on delivery up of vacant possession of CSW and payment of mesne profits of CSW are upheld.

(4) The order in the Judgment for payment to the defendant of half the rental payments of 9F from January 2015[95] is upheld.

(5) The costs order in the Judgment that the defendant is entitled to the costs of the action and the counterclaim is set aside.

Costs

145.  The orders on costs are orders nisi.

146.  The plaintiff is partially successful on appeal. Most of the time taken was on the effect of estoppel arising from the Consent Order and the receipt clause in the assignments and these are points the plaintiff is largely successful. We would order the defendant to pay 60% of the plaintiff’s costs on appeal.

147.  As for the costs below, according to the outcome of this appeal, the plaintiff would have succeeded on part of his claim and the defendant on part of her counterclaim. It is better to consider submissions from the parties before we make a costs order of the action and the counterclaim. We direct the parties to lodge submissions on this of not more than five pages within 14 days of the handing down of this judgment and exchange submissions in reply of not more than three pages within seven days thereafter.