AU YUK LIN v. WONG WANG HIN, EDDY

CACV 234/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 234 OF 2012

(ON APPEAL FROM HCMP NO. 272 OF 2011)

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JUDGMENT

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

1. The Defendant in this appeal is the son of the Plaintiff. The subject matter involved is 180,000 shares [“the Shares”] in a company called Menfond Electronic Art & Computer Design Co Ltd [“the Company”]. The Shares were transferred from the Plaintiff to the Defendant on 19 December 2006. The transfer was effected by an instrument of transfer on that date and the parties also executed bought and sold notes. On the face of the documents, the transfer was for a consideration of $180,000. However, it is common ground that no payment had been made.

2. The Plaintiff said, notwithstanding the transfer, the Defendant held the Shares on trust for her.  On the other hand, the Defendant said that the transfer was a gift from the Plaintiff.

3. In these proceedings, the Plaintiff sued for a declaration that the Defendant is holding the Shares on resulting trust for her.  She also sought an order directing the Defendant:  (1) to execute an instrument of transfer and all necessary documents for the transfer of the legal title of the Shares to her; and (2) to procure the approval of the transfer by the board of the Company. 

4. After a trial which lasted 6 days, L Chan J [the Judge”] found for the Plaintiff in a judgment dated 7 September 2012.  The Judge granted the relief sought by the Plaintiff.  This is the appeal by the Defendant.

5. In the judgment, the Judge accepted the evidence of the Plaintiff and her witnesses and rejected the evidence of the Defendant and his witnesses.  According to the evidence of the Plaintiff, the Company was set up in the following circumstances, see paras 16 and 17 of the judgment:

“16.   Au also referred to the setting up of Menfond Computer by their sons in 1989.  Their sons set up Menfond Computer to do business in digital animation and design.  Their sons had just finished with their education and had no capital to set up the business.  Everything required by the business was provided by the parents.  The parents had certain premises at Kowloon Bay which were owned by them through their investment company, Menfond Company Limited (“Menfond Investment”).  The parents initially were the only shareholders of this company, but some shares were later given to the sons.  The sons were allowed to use the Kowloon Bay premises for the business of Menfond Computer free of charge.  All funds required for the business operation in the first two years including the costs for incorporating Menfond Computer, the purchase of computers and other equipment, some HK$700,000 for decorating the premises and the salaries of two employers were met by the parents.  The advances by the parents were booked as interest free loans from the parents to the company.  The parents were also given shares of the company.  Au further said that she and Wong also allowed their sons to create a second legal charge on the Shop in favour of WHB on 13 March 1992 to secure banking facilities for Menfond Computer.

17.   The legal charges in favour of WHB were discharged on 14 May 2002 with funds borrowed from the Standard Chartered Bank (“SCB”).  The Shop was then mortgaged to SCB to secure the repayment of such loan.  Au said that this mortgage was made with the consent from her and Wong.  They gave their consent to help their sons.  Au admitted that she was aware of the risk of a mortgage over the Shop as the mortgagee would take possession of it if Menfond Computer should fail to repay the mortgage loan.  She explained that though she had to look after her relatives, her sons had the first priority to use the Shop.  If the sons should fail in their business, then she would have nothing to say (but to accept the consequence).”

6. On the Judge’s findings based on the Plaintiff’s evidence (which he accepted), the Shares were transferred to the Defendant in the following circumstances, see paras 22 to 27 of the judgment:

“22.   Regarding the 180,000 shares of Menfond Computer that Au transferred to Eddy in December 2006, they were transferred to meet the demand of SCB for granting of banking facilities to Menfond Computer.  Menfond Computer was negotiating with SCB in the last quarter of 2006 for renewal of banking facilities.  Menfond Computer in fact wanted the overdraft facilities to be increased.  The facilities were guaranteed by Victor and Eddy.  SCB wanted the guarantors to be the majority shareholders of the company or else there should be additional guarantors.

23.   The then CFO Janson Law calculated that each of Victor and Eddy would require the transfer of 180,000 shares from their parents so as to become the majority shareholders.

24.   Au and Wong duly executed the share transfer documents by which each of them transferred 180,000 shares to Victor and Eddy respectively. Au said that they did so only for the purpose of showing that Eddy and Victor were the majority shareholders of Menfond Computer so that it could obtain banking facilities.  They did not intend to transfer their beneficial interests in the shares to their sons.  They intended that the sons would hold these shares on trust for them. 

25.   In oral evidence, Au clarified that she and Wong were lending the shares to their sons.  Though the consideration stated in the transfer documents was HK$180,000 for each transfer, there was no discussion within the family on any payment as no transfer of beneficial interest was intended.  Regarding the defendant’s allegation that Clarice had asked Au and Wong to transfer 180,000 shares to each of their sons as a gift, Au said Clarice only asked them to lend the shares to the sons. 

26.   After the transfers, each of Au and Wong was still holding 770,000 shares of the company.  Au denied that she and Wong were holding the shares of the company ultimately for the sons’ benefit.  She also maintained that the shares were their investments and had considerable sentimental value if not substantial financial value to them.

27.   Regarding the undertakings given by Victor and Eddy to SCB that they would inform the bank of any change in the beneficial shareholding of the company, Au denied knowledge of the same as she and Wong were not involved in the negotiation with the SCB for the banking facilities. They had also not been shown the relevant documents from the bank which they in any event would not have been able to understand as the documents were in English.”

7. Her evidence was corroborated by the evidence of her husband, the father of the Defendant.

8. This was supplemented by the findings based on the evidence of Victor, the other son who gave evidence for the Plaintiff, see para 54.

“54.   Regarding the transfers of shares by Wong and Au to him and Eddy respectively, he said SCB required him and Eddy to be the majority shareholders of Menfond Computer.  Janson Law, the then CFO of the company, calculated that each of them needed 180,000 shares from their parents in order to satisfy the requirement.  He then talked to his parents who promised to lend the shares to them so that they would on paper appear to own more than 50% of the shares.  He added that the transfers were not meant to cover the beneficial interest.  There was no discussion of valuation or payment and there was no intention for any payment to be made.  The entire transaction was just to satisfy the requirement of SCB.”

9. The Defendant himself did not talk to the Plaintiff about the transfer before the documents were executed in 2006.  Amongst his witnesses, only his wife Clarice had talked to the Plaintiff about it. The Judge referred to her evidence at paras 69 to 72 of the judgment:

“69.   Regarding the transfer of 180,000 shares of Menfond Computer to Eddy, she referred to the requirement of SCB that Victor and Eddy should be the majority shareholders of the company or else there should be additional guarantors.  She discussed this with Janson Law and came to the view that each of Victor and Eddy needed a transfer of 180,000 shares from their parents.  She then informed Au about this.  She asked Au for Wong and Au to transfer the shares to Victor and Eddy.  Au said that that would not be a problem.  There was no mention either of trust or payment.  She then instructed the auditors of the company to prepare the transfer documents which were duly signed by Wong and Au.

70.   In cross-examination, she said when she asked Au on the phone to transfer the shares to Victor and Eddy.  She felt that Au already knew what she was asking for.  She agreed that Victor, who was living with Au, had already talked to Au about the matter.

71.   Regarding the transfer documents, she said she only reckoned that they were for transfer of the shares.  She had not thought of the need to pay the HK$180,000 as stated in documents.  She also had not mentioned the question of payment with Au and did not know or thought that the shares had to be paid for.  Though she wanted the shares to be transferred, she said she did not intend to benefit from them.  She agreed that the transfer was to satisfy SCB’s requirement for granting of facilities.

72.   However, after a break, she changed the tenor of her evidence.  She said she had not thought of the need to return the shares to Au after the repayment to SCB of the loan.  She even wanted the court to believe that she had the understanding that the shares, after having been transferred to Eddy, could not be transferred back to Au.  This is a far-fetched idea.”

10. As the Judge observed at para 87 of the judgment, Clarice was not the first person who talked to the Plaintiff about the transfer and she accepted that Victor should have discussed it with the Plaintiff before she did. And there was no clear indication in Clarice’s conversation that she was asking the Plaintiff to make a gift of those shares to the Defendant.

11. The Judge carefully considered all the evidence including those of the witnesses.  At paras 85 to 99 of the judgment, he analysed the evidence and gave reasons why he rejected the contention that the Plaintiff intended to make a gift of the Shares to the Defendant. In particular, he said at paras 89 and 91:

“89.   The 360,000 Menfond Computer shares were part of the 1,900,000 or 24.26% shares held by Wong and Au before the transfer.  There is no evidence on when exactly these shares were allotted to them.  The evidence in general suggests that they were allotted the shares at about the time of or shortly after the incorporation of the company.  The allotments were in recognition of their support of the company.  There is no suggestion that they had parted with any of these shares until the two transfers to their sons in December 2006.  When they were asked to transfer 180,000 shares to each of their sons, they did so, but they did just that.  They did not transfer a rounded up quantity of 200,000 shares each or the whole of their holdings of 950,000 shares each.  There is every indication that they wanted to keep the shares save to the extent of meeting SCB’s requirement that the sons should jointly be the majority owners. 

90.  … 

91.   Victor was clear that he only asked his parents to lend the shares to him and Eddy for them to satisfy SCB’s requirement.  He was only concerned with formal validity to satisfy SCB’s requirements.  Hence, he only asked his parents to lend the shares to them.  After all the help that the parents had already given them, if he should have asked for the beneficial interest in the shares, I suppose he would have offered to pay for them.  But nobody had ever mentioned payment for the shares.  Hence, I am inclined to think that he only asked for loans of the shares from the parents rather than gifts.  I agree that formal validity of the transfers without passing the beneficial interest in the shares was not a genuine satisfaction of SCB’s requirement.  However, that was what they were prepared to do so as to get the facilities from SCB.  Even the CFO Janson Law was concerned with formal validity only.”

12. And at para 95:

“95.   On the whole, the picture that Eddy and Clarice want to paint about the parents is not in conformity with the parents’ obvious intent to hold on to the shares.  The parents accepted that the shares might not have substantial financial worth.  They however attached great sentimental value to the shares because they represent the fruits of their sons’ labour and their support to their sons.”

13. At para 99, the Judge resolved the conflict in the evidence by preferring the evidence of the Plaintiff and her witnesses to those of the Defendant and his witnesses.  He concluded:

“I hold that Au has rebutted the presumption of advancement in respect of the 180,000 shares. I further hold that these shares are held by Eddy on trust for Au.”

14. Mr Manzoni SC (appearing together with Mr D’Souza for the Defendant in this appeal) contended that the Judge erred in finding that there was a common intention of “lending” the shares at the time of transfer.  And counsel emphasized in his submissions that this case only concerns resulting trust as there was no contention based on constructive trust.

15. As clearly stated in para 99 of the judgment, the Judge decided the case by analyzing it through the angle of resulting trust and he found that the Plaintiff had rebutted the presumption of advancement.

16. We were told that there are conflicting first instance decisions on the applicability of the presumption of advancement in terms of a transfer of property from a mother to her son: Lee Tso Fong v Kwok Wai Sun [2008] 4 HKLRD 270 contra.  Suen Shu Tai v Tam Fung Tai HCA 1466 of 2010, 15 August 2013.

17. It is not necessary for us to decide in this appeal whether there is any presumption of advancement under such circumstances.  The Judge proceeded on the basis that there was such a presumption but found on the evidence that the presumption had been rebutted by the Plaintiff.

18. Even assuming that the presumption is capable of application to a transfer from mother to son (and we do not decide that is so as a matter of law), as observed by Godfrey JA in Overseas Trust Bank Ltd v Lee See Ching John [1999] 3 HKC 197 at p.201, it only applies where the intention of the transferor cannot be resolved by relevant and admissible evidence and even then, it

“…is … a device ‘whereby the courts are entitled to pronounce on an issue notwithstanding that there is no evidence or insufficient evidence about it … It describes the readiness of the courts to draw inferences from common human experience … In reality it is no more than a slightly grandiose term for the ordinary process of judicial reasoning about facts … It follows that if there is evidence, even if only slight evidence, militating against the operation of the ‘presumption’, the court is at liberty to treat the ‘presumption’ as displaced.”

See also Lavelle v Lavelle [2004] 2 FCR 418 at p.422-424.

19. Thus, when there is sufficient evidence to enable the court to resolve the question of intention of the transferor, there is no need to resort to the presumption of advancement, see also Drake v Whipp [1996] 1 FLR 826 and Yuen Yat Shan Fiona v Sit Hin Kau  [2005] 4 HKC 170 at para 20.

20. As recited above, there was ample evidence before the Judge to enable him to make a finding as to the real intention of the Plaintiff when she executed the transfer of the Shares in 2006.  The real issue is whether the Judge was correct in coming to the conclusion that her intention in 2006 was not to make a gift of the Shares to the Defendant.

21. The Judge’s conclusion is a primary findings of fact and the Defendant has to satisfy this court that the Judge was plainly wrong before this court can disturb the same: Ting Kwok Keung v Tam Dick Yuen (2002) 3 HKLRD 1.

22. In this connection, we are not persuaded by Mr Manzoni’s submission that he did not seek to disturb any primary findings by the Judge.  Counsel submitted that on the evidence as a whole, it is clear that the Shares were given by the Plaintiff to the Defendant as a gift.  He referred to the following matters in support of his contention:

(a) The provision made by the parents to the children in the past in terms of financial support for university education, the initial funding for their business, the use of family property to obtain banking facilities;

(b) The only documentation of loan was the advances to the Company when it was set up.  The other financial supports to the business were not so documented;

(c) The father’s evidence on giving to whoever he wanted to give in the family;

(d) The financial support to Victor by the parents;

(e) The email by Janson Law describing the transfer of the Shares without any reference to “lending”;

(f) There was no mention of payment of any money or consideration for the transfer; and

(g) There was no reference to the splitting of legal and beneficial ownership in the transfer documents.

23. But the Judge had before him other evidence as recited above. In our judgment, the most direct evidence of the intention of the Plaintiff in making the transfer was the conversation between Victor and her when the former asked her to lend the shares to the sons.  Mr Manzoni submitted that such evidence was inadmissible as it was not communicated to the Defendant.  We do not agree. In approaching the Plaintiff, Victor was acting on behalf of himself as well as the Defendant.  He asked for the lending of the shares to both him and the Defendant. On Clarice’s evidence, she was aware of Victor’s discussion with the Plaintiff. The Plaintiff’s own evidence (which the Judge preferred as compared with Clarice’s evidence) was that Clarice also asked for the lending of the shares.  

24. As submitted by Mr Coleman, there was evidence before the Judge indicating that the Defendant was content with leaving it to Victor and Clarice to procure the transfer of the Shares from the Plaintiff to him.  Mr Manzoni’s reference to the Defendant’s denial of knowledge of Victor’s discussion with the Plaintiff cannot avail the Defendant because the Judge rejected his evidence.  Given the circumstances leading to the request for transfer, we think it is unrealistic to suggest Defendant was not aware that Victor approached the Plaintiff on behalf of both of them.

25. Thus, on the evidence accepted by the Judge, the sons (including the Defendant) asked for the shares to be “lent” to them.  It does not matter that the Defendant did not make the request personally and left it to Victor and Clarice to do it instead.  The rule in Shephard v Cartwright [1955] AC 431 has no bearing.

26. In the context of rebutting the presumption of advancement, it is the intention of the transferor, viz the Plaintiff, that is relevant, see Lewin on Trusts, 18^th Edn, paras 9-07 and 9-08.  It is not necessary for the Plaintiff to establish that the Defendant shared such intention.

27. We have no hesitation in rejecting Mr Manzoni’s submission that this is a case of common intention of gift.  In light of the Judge’s finding at para 85 that the Defendant himself could not tell whether it was a gift and his finding on the Plaintiff’s intention, there cannot be any common intention of gift.

28. Further, the transfer documents were in the form of a sale transaction.  Whilst it is common ground that the transfer was not by way of sale as no payment had been made, neither do the documents reflect any intention on the part of the Plaintiff to transfer the Shares by way of gift. Clarice agreed in evidence that the Plaintiff did not say that transfer would be by way of gift.

29. In view of the evidence on the specific intent as to the transfer, the matters highlighted by Mr Manzoni paled into insignificance.  It is also clear from the judgment that the Judge was aware of the matters relied upon by Mr Manzoni but reached a different conclusion on the intention of the Plaintiff in light of evidence to which Mr Manzoni did not attach any significance. 

30. Neither do we see any significance in the absence of the reference to the Shares in the demand letter of 23 October 2009.  At that stage, the parents only wished to obtain repayment of the shareholders’ loan and the return of the Shares was not on the agenda.  The disputes between Victor and the Defendant were intensified in 2010. This led to the statement by Clarice in October 2010 about not returning the Shares which precipitated action by the Plaintiff in respect of the Shares. 

31. Mr Manzoni referred to the absence of any reference to the beneficial ownership of the Shares in the negotiations in 2010.  With respect, that does not take the Defendant’s case further.  As submitted by Mr Coleman (appearing with Ms Winnie Chan for the Plaintiff), on the evidence the Judge was entitled to accept the explanation by Victor that it was not opportune to open another front of dispute at that stage.

32. On the whole, we are of the view that the Judge had taken all relevant evidence into account and there is ample evidence to support his findings on the Plaintiff’s intent.

33. Mr Manzoni suggested that the case of resulting trust as claimed in the originating summons is inconsistent with the case of the lending of the Shares as accepted by the Judge.  With respect, there is nothing in this contention.  No pleadings have been ordered in this case. The evidence filed by the Plaintiff clearly set out her case on her intention with regards to the transfer.  The Defendant had no difficulty in understanding it and relied on the presumption of advancement to claim that the transfer was a gift.  The Judge concluded on the evidence that the presumption of advancement had been rebutted because the Plaintiff did not intend to make a gift of the Shares to the Defendant, a conclusion which he was quite entitled to reach. 

34. The Judge’s reference to Childers v Childers (1857) 2 De G & J 482 and Re Gooch (1890) 62 LT 384 attracted the criticism from Mr Manzoni that these cases are distinguishable. It is clear from para 93 of the judgment that the Judge only referred to these cases as illustration that shares lending are not unheard of.  The Judge did not rely on these authorities as deciding the present case against the Defendant as a matter of law. The reference to these cases was unnecessary.  It is plain that the Judge resolved the issue before him by making findings of fact based on the evidence before him.  As we have held, he had reached the right conclusion.  Mr Manzoni’s criticism based on the distinction on the facts of those cases and the present one is a matter of no moment in terms of the outcome of this appeal. 

35. For these reasons, we dismiss the appeal with an order that the Defendant shall pay the Plaintiff’s costs of the appeal, with certificate for two counsel.