SIU WAI MING v. SHIU WAI HONG AND ANOTHER

HCA 290/2014

[2020] HKCFI 386

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 290 OF 2014

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J U D G M E N T

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Table of Contents

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A.     Introduction

1.  The main protagonists in this action are the plaintiff and the 1^st defendant who are two brothers and the dispute between them is over a 50% equitable interest in a property sold over 10 years ago, which was said to be held by one in trust for the other and the main issue is whether the other brother had surrendered his equitable interest in May 1998.

2.  There are in fact 3 brothers, namely (i) Siu Wai Yin (“Wai Yin”) being the oldest who was born in about 1949 and about 70 years old[1]; (ii) the 1^st defendant (“D1”) being the 2^nd brother who was born in about 1952 and about 67 years old at the time of the trial; and (iii) the plaintiff (“P”) being the youngest who was born in 1956, and about 63 years old at the time of the trial (collectively “3 Brothers”).

3.  The 2^nd defendant (“D2”) is the son of D1, and the 3^rd defendant is D2’s wife (“D3”). The 4^th defendant (“D4”) was incorporated in Hong Kong on 18 April 2008 and at all material times, D2 held 999 shares out of 1,000 shares of HK$1 each and D3 held the remaining 1 share.  D2 was at all material times the only director of D4 and D3 was the company secretary.  They are being named as defendants as a result of P’s tracing claim of the net sale proceeds of the property.  D1, D2, D3, and D4 will be collectively referred to as “Ds”.

4.  Counsel Mr Lam Shun Chiu and Ms Sezen Chong appeared for P, and Mr Richard Khaw SC, Mr Tim Wong and Mr Jason Lee appeared for Ds.

B.      Brief Background 

5.  The father of the 3 Brothers was Mr Shiu King (邵敬) (“Father”) and their mother was Madam Tong Fung Ying (湯鳳英) (“Mother”).  In about January 1946, Father started a business in making and selling wood furniture.  As seen in the business registration record, Father carried out the business  as a sole proprietor under the trade name of “Pao Sun” (寶新/寶新號) (“Pao Sun”) at a rented shop space at 71, Hennessy Road in Wanchai[2].

6.  In about 1968, Father’s furniture business moved to another shop space at G/F, 15 Queen’s Road East, Wanchai Hong Kong (“15 QRE”).  D1 had said in his witness statement that although he was only 16 years old in 1968, Father and Mother often asked him to help work in the shop at 15 QRE and that in 1972 Wai Yin also started to work there.   

7.  Wai Yin and D1 both got married on the same day in June 1974.  Wai Yin married Madam Tam Chiu King (譚昭琼) (“Madam Tam”) and D1 married Madam Cheung Suk Fun (張淑芬) (“Madam Cheung”).

8.  In 1975, Wai Yin and D1 branched out, and each set up a business along Queen’s Road East.  D1 was the sole proprietor registered under the name of “Pao Sun Furniture” (寶新傢俬) (“Pao Sun Furniture”) at G/F, 103, Queen’s Road East (“103 QRE”), selling rose wood furniture.  Wai Yin was the sole proprietor registered under the name of “Sun Lai Camphor Wood Chests” (新麗樟木槓) (“Sun Lai”) at G/F, 23 Queen’s Road East (“23 QRE”), making and selling camphor wood chests[3].

9.  As for P, he graduated from secondary school in 1975, and it was his evidence that in early 1976, under the arrangement of Father, he also started to help and work in Father’s furniture business Pao Sun, although, according to D1, P only started helping out in the business in 1977.

10.  In November 1976, 15 QRE came up for sale and Father and Mother purchased 15 QRE in their joint names for HK$210,000 and thereafter, Father’s furniture business Pao Sun continued be carried out at 15 QRE.

11.  Sun Lai and Pao Sun Furniture did not last long at 23 QRE and 103 QRE and they ceased in 1976/1977.  Wai Yin and D1 moved the businesses and stock back to 15 QRE and the businesses were all consolidated and were then continued solely under the name of Pao Sun at 15 QRE (“Family Furniture Business”).  It was D1’s case that thereafter, he, Wai Yin and Father were jointly operating the Family Furniture Business as equal partners.

12.  In about 1977, another furniture business under the name of “Pao Sun Furniture Co”/寶新傢俬 (“Pao Sun Furniture Co”) was started and carried out at G/F, 36-38 Queen’s Road East (“38 QRE”), for selling rosewood furniture this time and the business was registered in the sole name of Wai Yin. 

13.  It was also in 1977, that a business under the name of “Wo Fung Furniture Co” (和豐傢俬公司) (“Wo Fung”) was started and carried out at 7-9, Queen’s Road East (“9 QRE”), selling rosewood furniture. The business registration of Wo Fung and also the lease were both under D1’s name, and according to D1, this was when P started to help out by delivering goods.  Later in 1979, Wai Yin and D1 set up another furniture shop at 26 Queen’s Road East (“26 QRE”) to take the place of Wo Fung Furniture Co.

14.  Thus, between 1977 and about 1985, there seemed to be at least 3 businesses being carried out respectively at 15 QRE, 38 QRE, 9 QRE (later 26 QRE), namely Pao Sun, Pao Sun Furniture Co and Wo Fung.

15.  In October 1984, Mother passed away, and according to D1, thereafter, Father handed over the finances of the Family Furniture Business to him, with Madam Cheung managing the daily affairs of the business. 

16.  According to D1, it was in about 1987, that he and Wai Yin admitted P into the Family Furniture Business, without requiring P to make any capital contribution, and that the 3 Brothers operated the Family Furniture Business as equal partners (“Partnership”).  What was not disputed was that on 6 March 1987 a new business under the name of “Pao Sun Furniture Co” (寶新傢俬公司) (“Dominion Centre Business”)[4] was set up , with the 3 Brothers registered as equal partners on the business  registration, at 2 shop spaces at Dominion Centre at 43-59, Queen Road East (“Dominion Shops”).  The business at 38 QRE registered in Wai Yin’s name then ceased.  Father however continued to maintain the business registration of Pao Sun as sole proprietor at 15 QRE.

17.  The Dominion Shops were purchased in March 1987 in the joint names of the 3 Brothers, with the help of the Father, who mortgaged 15 QRE to obtain a loan for the 3 Brothers to purchase the Dominion Shops.

18.  In 1991, the 3 Brothers sold the Dominion Shops and divided the net sale proceeds equally.  They then moved the Dominion Centre Business and stock from the Dominion Shops back to 15 QRE and thereafter from May 1991 onwards, the Partnership continued to operate the Family Furniture Business under Father’s business registration of Pao Sun (and/or Pao Sun Furniture Co) until, on P’s case, until April 1995.  It was P’s case that Father by then had retired from the business and Father was renting 15 QRE to the 3 Brothers for a monthly sum of HK$15,000 per month which the 3 Brothers agreed to pay.

19.  Apart from operating and/or working in the Family Furniture Business, the 3 Brothers had jointly invested in real properties in equal shares between 1982 and April 1995, and below is a table of the properties (“Table”):

Date of purchase and purchase price	Property	Registered owners	Date of Sale	Remarks
29.07.1982 (HK$584,000)	Tai Koo Shing Property (Flat B on 12/F, Wai Sing Mansion)	Joint names of the respective wives of the 3 Brothers	28.07.1990 (HK$1,038,000)	Net sale proceeds used for investment in a Canadian fund for the purpose of emigration of the 3 Brothers to Canada (“Emigration Fund”)
02.07.1983 (HK$296,800)	Tsuen Wan Property (Flat C on 33/F & Roof of Block 12, Tsuen Wan Centre )	P	21.10.1989 (HK$543,000)	Net sale proceeds said by P to be used for the Dominion Centre Business)
08.06.1984 (HK$238,000)	Kar Yau Property (Flat B, 13/F Kar Yau Building, 34-38 Queen’s Road East)	Wai Yin	30.12.95 (assigned to Madam Tam by way of gift)	Pursuant to the 3 Brothers’ Agreement, as from April 1995 onwards, Wai Yin became sole beneficial owner
23.04.1987 (HK$2.9m)	The Dominion Shops (Shops Nos 2 and 3 G/F, Dominion Centre, 43-59A Queen’s Road East)	3 Brothers	30.04.1991 (HK$11.88m)	After repayment of the mortgage loans of the Dominion Shops and 15 QRE, the net sale proceeds equally distributed among 3 Brothers
04.08.1989 (HK$2,824,327)	Scenic Garden Property (Flat A on 12/F, Block 1, Scenic Garden, 9, Kotewall Road )	D1	12.03.09 (HK$13,800,000)	Pursuant to the 3 Brothers’ Agreement, P and D1 became equal beneficial owners
In about August 1992 (Flat C for HK$680,200 and Flat D for HK$640,000)	Guangzhou Properties (Flat 6C, and Flat 6D,  Mu Dan Ge, Tian He District)	Flat 6C purchased in name of P and Flat 6D purchased in name of Wai Yin		Flat 6 C was repossessed by the mortgagee bank; Flat 6D awarded to Wai Yin’s mistress pursuant to an order of the Mainland Court in 1996 and Wai Yin’s appeal dismissed in 1997
19 May 1993 (HK$500,000)	Sanshan Development in Nanhai

20.  About 6 months after the sale of the Dominion Shops, D1 and his family emigrated to Vancouver, Canada.  It was not really disputed that Family Furniture Business at 15 QRE was handed over to P to operate and manage.  The Scenic Garden Property was at the time occupied by P, P’s family and Father.

21.  As seen in the Table, the Guangzhou Properties was purchased in August 1992.  Wai Yin had a mistress in Guangzhou at the time and after purchase, Wai Yin and his mistress were occupying Flat 6D.

22.  In 1993, the 3 Brothers also decided to invest in a development in their hometown, Sanshan Development in Nanhai.  It was in 1993 that Father remarried.  As his wife, Madam Wong Chi Fa (“Madam Wong”), was living in Mainland China at the time, Father started to often commute between Mainland and Hong Kong. 

23.  In August 1994, P and his family also decided to emigrate to Vancouver, Canada, and the Family Furniture Business was handed over to Wai Yin and his wife Madam Tam to manage and operate, and Wai Yin and his family then moved to live with Father at the Scenic Garden Property.

24.  It was D1’s case that shortly after P’s emigration and after Wai Yin took over the operation of the business, Madam Tam telephoned D1 to complain about P’s misappropriation of funds from the Family Furniture Business.  This was denied by P.

25.  Anyway, according to D1, in March 1995, Father telephoned him to complain that Wai Yin and Madam Tam were not able to manage the business properly resulting in the business owing a lot of debts of over a million dollars and Wai Yin had also failed to pay the monthly rent of 15 QRE to Father.  According to D1, Father then requested him to return to Hong Kong to help save the business, which D1 did.

26.  In April 1995, according to D1, P and his wife were asked by Father to return to Hong Kong and to join a family tip to Singapore.  P said it was Wai Yin who asked him to return to discuss about the Partnership and properties.  Anyway, when P was in Hong Kong, there was a meeting between the 3 Brothers in April 1995 (“April 1995 Meeting”). During the April 1995 Meeting, an agreement was reached by the 3 Brothers (“3 Brothers’ Agreement”).  There were disputes as to the exact terms of the agreement and whether there was any agreement regarding the termination of the Partnership, but it was not disputed that pursuant to the agreement, Wai Yin would have the sole beneficial interest in the Kar Yau Property while P and D1 would each have 50% of the beneficial interest of the Scenic Garden Property.  

27.  It was P’s case that upon the 3 Brothers’ Agreement being reached, he and D1 orally reached a further agreement in relation to the Scenic Garden Property (“2 Brothers’ Agreement”). This was however denied by D1.

28.  It was not disputed Wai Yin took over the management and operation of the Family Furniture Business after P’s emigration in August 1994 for about 7 or 8 months, and that after the 3 Brothers’ Agreement, D1 took over the management and operation of the business from Wai Yin in about March/April 1995.  It was D1’s case that at the time the business owed over $2m in debts.

29.  It also appeared that at around that time, the relationship between Wai Yin and his mistress was breaking up and in 1996, there was a court case in Tianhe District in Guangzhou which eventually led to Flat 6D of the Guangzhou Properties being awarded to the mistress by the Mainland Court.

30.  So far as the business was concerned, D1 was managing and operating the business until about September 1998.  It was D1’s case that in early May 1998 there was a telephone call between him and P during which D1 was requesting P to send money to meet the mortgage instalments of the Scenic Garden Property but P declined and that P then surrendered his interest in the Scenic Garden Property and everything in Hong Kong. (“May 1998 Telephone Call”)[5]. This was denied by P. 

31.  It was P’s case that D1 failed to pay Father the monthly rent of 15 QRE, and Father then evicted D1 from the business.  This was in turn denied by D1, but it seemed that D1 did return to Canada in about September 1998.  Thereafter, Father himself took back the management and operation of the business and that after about a year, according to P, Father then asked him to return from Canada to manage and operate the business.  On 1 August 1999, P moved back to Hong Kong from Vancouver.   

32.  15 QRE was eventually sold by Father on 24 March 2000 for HK$11.5m.  By then Father had a daughter by Madam Wong, and Father was living in Flat A on 21/F of Kar Yau Building, a property purchased by Father[6].

33.  After the sale of 15 QRE, a limited company, Pao Sun Furniture Company Limited was set up by P (with him and his wife as equal shareholders) on about 21 June 2000 to carry on the furniture business.  The registered office of the limited company was initially at Flat C, G/F, Kar Yau Building and later between 2006 and 2013, the registered office was at G/F Dominion Centre. 

34.  Eventually, in early 2005 D1 and his family also moved back to Hong Kong from Canada.

35.  According to P, over the years, he had difficulty in locating D1. and that he only discovered that D1 sold the Scenic Garden Property from a newspaper report in early February 2009.  He then said towards the end of February 2009 he accidentally saw D1 and his family (including D2) having dinner at Tao Heung Restaurant in Wanchai (“Tao Heung Restaurant”), and that he had asked D1 about the sale of the Scenic Garden Property and D1 replied that he would account to P the net sale proceeds but D1 failed to do so.

36.  It was on 12 March 2009 that D1 completed the sale of the Scenic Garden Property for HK$13.68m.  

37.  On 1 April 2011, a flat on Broadwood Road Hong Kong was purchased in the name of D4 for HK$36.65m together with a carpark for HK$1.3m (collectively “Broadwood Property”).  It was P’s case that part of the purchase costs came from the rental income and/or sale proceeds of the Scenic Garden Property. 

38.  Father passed away on 27 December 2012.  In his will dated 17 October 2000, he appointed his wife Madam Wong and Wai Yin as his executors and bequeathed his properties in Nanhai to P and D1 as tenants-in-common in equal shares, and left his residuary estate to Madam Wong and their daughter.

39.  According to P, he had asked D1 at Father ‘s funeral for an account of P’s share of the net sale proceeds of the Scenic Garden Property and that D1 had responded that he would do so in two days but again thereafter D1 went missing without doing so.

40.  The writ herein was issued by P on 19 February 2014, alleging (1) breach of agreement (both the 3 Brothers’ Agreement and the 2 Brothers’ Agreement), (2) breach of trust (both resulting and constructive trust) and (2) proprietary estoppel.

41.  D1 was initially the only defendant and his Defence was filed on 20 May 2014.  D2 to D4 were subsequently added as defendants on 24 July 2014 and P’s Re-Amended Statement of Claim was filed the same day, which was further re-re-amended on 4 July 2017.     

42.  After D2 to D4 were added as defendants, an Amended Defence was filed on behalf of all Ds on 17 November 2014.  It was admitted therein that P had 50% equitable interests in the Scenic Garden Property pursuant to the 3 Brothers’ Agreement.  It was however D1’s case that the 3 Brothers Agreement was only in relation to the division of their joint investment properties in Hong Kong, namely the Kar Yau Property and the Scenic Garden Property, and not in relation to the Partnership.  It was also D1’s case that as reflected in the May 1998 Telephone Call, P had surrendered all his interests in Scenic Garden Property to D1 (“Surrender”)[7].  Further D1 alleged that P had misappropriated funds of the Partnership and that P had refused to make contribution to the mortgage payments of the Scenic Garden Property and the Guangzhou Properties.

43.  It was also Ds’ case that no trust monies in relation to rental and/or sale proceeds of the Scenic Garden Property could be traced into the Broadwood Property because part of the purchase costs were from D2’s own savings placed with D1 and the rest was a loan D1 made to D2. 

C.      The agreed disputed issues and various matters

44.  There were a total of 9 agreed disputed factual issues in the parties’ Scott Schedule of Disputed Issues, essentially as follows:

(1) What were the terms of the 3 Brothers’ Agreement?

(2) Whether P had surrendered his interests in the Scenic Garden Property by virtue of the May 1998 Telephone Call?

(3) Whether and how much rental income derived from the Scenic Garden Property for the period from 1 November 1995 to 12 March 2009 D1 should account to P;

(4) Whether D1 wrongfully re-mortgaged the Scenic Garden Property with HSBC for a loan facility on around 15 July 1996 and how much of the funds D1 should account to P;

(5) Whether and how much sale proceeds D1 should account to P taking into account the additional mortgage liability incurred by D1 by virtue of the re-mortgage;

(6) Whether D1 made direct payments to the conveyancing solicitors for D4 in the purchase of the Broadwood Properties on 30 March 2011 and whether such money was traceable trust money from the Property;

(7) Whether D2 and D3 dishonestly assisted D1 in dissipating the trust money;

(8) Whether D4 is imputed with the knowledge of its director (D2) and knowingly received the trust money misappropriated by D1 in the purchase of the Broadwood Properties;

(9) How P’s interests in the Broadwood Properties should be quantified.

45.  Although not listed as agreed disputed issues in the Scott Schedule, there were certain factual matters raised during the trial which I will consider first as I find that they will set the scene for the disputed issues.  These matters are:-

(1) The source of funds for the setting up of the various businesses mentioned earlier;

(2) The source of funds for the acquisition of the 3 Brothers’ joint investment properties;

(3) The modus operandi of the Partnership before and after the emigration of D1 and/or P;

(4) P’s alleged misappropriation of funds from the Partnership;

(5) Whether there were Partnership Debts at the time of P’s emigration to Canada.

D.      The parties’ respective witnesses

46.  P called no other witness apart from himself at the trial.

47.  On Ds’ side, D1 and his wife Madam Cheung attended trial to be cross examined on their respective witness statements.  D2 also attended trial to be cross examined on his witness statement.

48.  As seen later in the judgment, I have found neither P nor D1 a completely reliable witness. It was one brother’s word against the other, and the disputed matters took place some 21 years or more by the time of the trial.  Neither P nor D1 had asked their eldest brother Wai Yin or Wai Yin’s wife Madam Tam to give a witness statement or to give evidence during the trial.  Wai Yin is clearly an important witness in the disputes between P and D1.  There was no clear explanation from P or D1 as to why Wai Yin could not have been called or served with a subpoena, save that D1 did say that he decided not to call Wai Yin as Wai Yin had asked him for money for giving evidence.  

49.  P and Ds have produced respective valuation reports of the valuations of the Kar Yau Property, the Scenic Garden Property and the Broadwood Property at various relevant dates.  Their respective experts subsequently were able to agree to the market values and the market rental and in 3 joint expert reports.

E.      The source of funds for the setting up of various businesses

50.  As said earlier, Father started the furniture business under the trade name of Pao Sun as a sole proprietor in about January 1946.

51.  It was D1’s evidence in his 1^st witness statement that after his marriage to Madam Cheung, he used his own savings and loans from his fellow students to start the rosewood furniture business Pao Sun Furniture at 103 QRE in 1975 and at about the same time Wai Yin started his own camphor wood chest business Sun Lai at 23 QRE.  

52.  It was further D1’s evidence that at the time when Father and Mother learnt that the then owner of 15 QRE wanted to sell the shop premises, D1 had sold his furniture at his shop at a low price to raise funds to help his parents purchase 15 QRE.  Father and Mother also borrowed money from a pastor surnamed Cheung, and altogether they raised a total of HK$210,000 for the purchase of 15 QRE, which was purchased in the joint names of his parents.  It was also D1’s evidence that ultimately he was the one who had paid off the loan from Pastor Cheung.

53.  P accepted that he did not put up any funds to help his parents to purchase 15 QRE, but he denied that D1 had paid any part of the purchase price of 15 QRE on behalf of Father and Mother.  It was P’s evidence that it was Pastor Cheung who had lent all the money to his parents for the purchase and Father repaid Pastor Cheung eventually.  

54.  As for the businesses Sun Lai at 23 QRE and Pao Sun Furniture at 103 QRE, P’s evidence was that although such businesses were registered under the respective names of Wai Yin and D1, the source of funds for those businesses all came from Father (and Mother), and that Father was only allowing his two elder brothers to manage the businesses at those two shop premises and that his brothers had to account to Father for any profits.  In fact, P’s evidence was that everything was paid by Father (and Mother) including the weddings of his two elder brothers and that everything came from Father and Mother.

55.  Although D1 had said in his witness statement that he was asked by his parents to help in the business in 1968 when he was only 16, it appeared from D1’s evidence during the trial was that he and Wai Yin started working full time in Father’s business more or less the same time in the 1970s and that they had been working for the business two or three years when P joined.  Anyway, as D1 is older than P, I accept that he had started helping and working in the Father’s business a few years earlier than P.

56.  In June 1974, when D1 got married, he was only about 22 years old and in 1975, he was only about 23 years old.  On his own evidence during the trial, he would not have been working full time in the business that long.  It would also appear that Pao Sun was not that profitable in those early days, otherwise Father and Mother would not need to have to borrow from Pastor Cheung to purchase 15 QRE.  In my view, there was no sufficient evidence that D1 would have been able to amass sufficient savings or that he had obtained sufficient loans from friends for him to set up a business on his own without any help from Father.   

57.  The agreement for sale and purchase for 15 QRE was signed on 20 July 1976, although the purchase was completed on 22 November 1976.  Again, I do not find sufficient evidence that by November 1976, D1 would have sufficient personal funds to contribute towards the purchase price of 15 QRE.  Indeed, if the business Pao Sun Furniture at 103 QRE had been doing well, there would have been no need for that business to cease in 1976/1977 after only two years in operation.  

58.  In any event, I am of the view that more probable than not, the source of capital and funds for the setting up of Pao Sun Furniture at 103 QRE and of Sun Lai at 23 QRE all came from Father (and Mother). 

59.  As said earlier, after those two businesses registered at 23 QRE and 103 QRE ceased in 1976/1977, the businesses and stock were moved back to 15 QRE, and consolidated into the Family Furniture Business.  It was D1’s evidence that Father, Wai Yin and him were partners in the Family Furniture Business.  However, the business registration of Pao Sun continued to be registered in Father’s name as sole proprietor.  In fact, the evidence indicated that all profits tax returns filed on behalf of Pao Sun (as seen in those produced from 1988 onwards to about 1992) were personally signed by Father and although there were salaries paid to staff, there was no sufficient evidence that Father had shared any business profits with Wai Yin and/or D1.  However, bearing in mind that this was a traditional Chinese family business, it was probable that Father did share some profits from his business with his two sons who had been helping him and working in the business.

60.  Even on D1’s own evidence, although the business Pao Sun Furniture Co at 38 QRE was registered in the sole name of Wai Yin, it was not really regarded by D1 to be the sole business of Wai Yin, as D1 had said, it was managed by Mother and D1’s wife Madam Cheung and that Wai Yin was only responsible for delivery and further Father and D1 were responsible for purchase of stock. 

61.  Having considered all the evidence, in my view, the various furniture businesses whether they were held in the name of Wai Yin or D1 were all part of the Family Furniture Business started by Father and that all along, the capital or source of funds for the setting up of those various businesses all came from Father (and Mother).  Even though Wai Yin and P were working together with Father after they moved back in 1976 when the businesses of Sun Lai at 23 QRE and Pao Sun Furniture at 103 QRE had ceased, I do not find that there was sufficient evidence that Wai Yin and P had formally become equal partners with Father in the Family Furniture Business in 1976, in that they were entitled to share any profits with Father. I find the evidence indicated that Father remained in control of the Family Furniture Business although he could have allowed his two older sons to share profits.   

62.  It was D1’s evidence that in 1977 the Family Furniture Business improved.  Whether it was in 1976 or 1977, it was not really disputed by D1 that by 1977, P was also working in the business and P had said he initially was working at 15 QRE and later working at 38 QRE.

63.  The Family Furniture Business began to flourish and as seen in the Table set out earlier, the 3 Brothers then started to jointly invest in properties.   

64.  As mentioned earlier, in 1987, the Dominion Shops were purchased in the joint names of the 3 Brothers with the help of the Father and the Dominion Centre Business was set up with the 3 Brothers as equal partners.

65.  It was D1’s evidence that the capital of the new Dominion Centre Business came from Wo Fung Furniture Co and also from the Family Furniture Business, and that P had never invested any personal money as capital into the business[8].

66.  On the other hand, it was P’s evidence that it was Father who told the 3 Brothers to set up the new business as equal partners. It was  Wai Yin who went to apply for a new business registration certificate in the name of Pao Sun Furniture Co on 5 March 1987 with the 3 Brothers named as partners[9], and thereafter, the former business under the name of Pao Sun Furniture Co at 38 QRE held by Wai Yin ceased, and Wo Fung also ceased business at 9 QRE.

67.  P’s evidence at the trial was that the source of the stock and the capital of the new Dominion Centre Business all came from Father, as with all the various furniture businesses set up over the years, whether held under the name of Wai Yin or D1 and the 3 Brothers had to account to Father their profits.  I am of the view that this was probably the case in particular as it was Father who had helped them buy the Dominion Shops for the business by mortgaging 15 QRE.

68.  Even though P did not pay any capital into the Family Furniture Business, there was no sufficient evidence that Wai Yin or D1 had themselves paid any capital into the Family Furniture Business out of their personal monies which in any event would come from their income from the Family Furniture Business.   

69.  In 1991, after the sale of the Dominion Shops, the Dominion Centre Business (under the name of Pao Sun Furniture Co) ceased and the business and stock was again moved back to 15 QRE.  Thereafter, the 3 Brothers did not apply for any new business licence in their names and only continued operating the Family Furniture Business at 15 QRE.  Pao Sun had remained registered under Father’s name as sole proprietor until sale of 15 QRE.  Further, it would appear from the Notices of Assessment of Profits Tax that in 1991/1992, that the business of “Pao Sun Furniture Co” was also carried on at 15 QRE, but with Father being registered as sole proprietor thereof[10].

70.  It was not clear exactly when Father retired.  It seemed to be both P’s and D1’s evidence that after the 3 Brothers moved the business and stock at the Dominion Shops back to 15 QRE in end of April/May 1991, Father had retired and the 3 Brothers continued operating the Family Furniture Business at 15 QRE as equal partners and they agreed to pay Father rent every month for 15 QRE, until events later described.  However, there was never any formal transfer of business and officially on record, Father remained the sole proprietor of the Family Furniture Business and the Partnership was really an agreement by the Father for the 3 Brothers to manage and operate the Family Furniture Business as equal partners and to share its profits and the 3 Brothers had to pay a monthly rent to Father for operating the business at 15 QRE.  It would further seem that Father had continued to remain in control of the Family Furniture Business 15 QRE since the business registrations of “Pao Sun” and “Pao Sun Furniture Co” were both held in his sole name and it was also not disputed that, as seen later between about September 1998 and August 1999, Father took back the management and operation of the Family Furniture Business.  In fact, P’s evidence during the trial was that Father and the 3 Brothers were all signatories of the business bank accounts of the Family Furniture Business, until August 1999 when D1 ceased to be a signatory.  Such evidence was not really challenged.

F.      The source of funds for the acquisition of the joint investment properties

71.  As set out earlier in the Table, there were 5 joint investment properties in Hong Kong and then there were the Guangzhou Properties and the Sanshan Development in Mainland China.

F.1    Tai Koo Shing Property, Tsuen Wan Property and Kar Yau Property

72.  It was D1’s evidence in his 1^st witness statement that the 3 Brothers transferred a sum of HK$584,000 from the Family Furniture Business bank account for the purchase of the Tai Koo Shing Property on 29 July 1982 in the names of their respective wives[11].  It was further D1’s evidence that the property was originally meant to be for the residence of D1 but was later sold for HK$1,038,000 and although in his witness statement, D1 had said the net proceeds were divided among the 3 Brothers equally.  It was not disputed that part of the net proceeds were used to invest in the Emigration Fund for the 3 Brothers to apply for emigration to Canada.  

73.  In July 1983, according to D1, he and Wai Yin handed a cheque to P to buy a flat in City Garden for P’s residence but later P decided to buy the Tsuen Wan Property instead on 2 July 1983 and because the Tsuen Wan Property was far away from Wanchai, P had to use the van belonging to Pao Sun for transport and that the Family Furniture Business had to rent on his behalf a car parking space for the monthly rent of HK$2,000.  It was not disputed that the money for the purchase of the Tsuen Wan Property came from the Family Furniture Business.  According to D1, upon sale on 21 October 1989, the net sale proceeds were divided equally among the 3 Brothers but P said it was used for the Dominion Centre Business.

74.  As for the Kar Yau Property, according to D1, Wai Yin had been renting the property as his residence, and the landlord later was interested in selling it.  After discussion the 3 Brothers decided to purchase the property for HK$238,000 in the name of Wai Yin for Wai Yin’s residence.

75.  Anyway, it was quite clear from the evidence that the above 3 properties were purchased by the 3 Brothers with monies from the Family Furniture Business and that those 3 properties were held by the 3 Brothers in equal shares.

F.2    The Dominion Shops

76.  During the trial, it was P’s evidence that one day when Wai Yin was walking past Dominion Centre in Wanchai, he saw the Dominion Shops for sale and that he then discussed with Father.  Father then agreed to finance the purchase and to mortgage 15 QRE to obtain a loan for the 3 Brothers to purchase the Dominion Shops at a consideration of HK$2.9m.  

77.  According to D1, it was actually Wai Yin’s wife Madam Tam who saw the Dominion Shops for sale and the 3 Brothers dealt directly with the landlord/vendor, and that the preliminary sale and purchase agreement was signed about one week prior to the formal agreement for sale and purchase or about end of February 1987.  In his 1^st witness statement, D1 had said that he and Wai Yin decided that they should purchase the two shop spaces by each of the 3 Brothers paying HK$50,000 towards the deposit, with a mortgage loan from the Belgian Bank.  However, the day before the completion (which at the trial, D1 corrected himself and said it should be the day before the signing of the formal sale and purchase agreement), P suddenly said he did not have HK$50,000 and walked away.  D1 said fortunately he was able to borrow HK$50,000 from a supplier.

78.  P disputed that Wai Yin and D1 had respectively paid HK$50,000 out of their personal monies and maintained that the monies for the purchase of the Dominion Shops all came from Father and Father’s mortgage loan of 15 QRE.

79.  As seen from the copy of the formal agreement for sale and purchase which was only produced during the trial[12], the vendor was actually the Belgian Bank.  In fact, a total of HK$290,000 were paid by the purchasers (namely the 3 Brothers) to the vendor on 6 March 1987 as part payment of the purchase price and the balance was to be paid on completion on 23 April 1987.  As seen in the land registration record, Father then entered into a legal charge with the Belgian Bank of 15 QRE to obtain general banking facilities on 23 April 1987 and on the same day, the 3 Brothers also entered into a legal charge with the Belgian Bank of the Dominion Shops to secure general banking facilities.  It would thus appear that 90% of the purchase price was financed by loan facilities obtained from the Belgian Bank and secured by both 15 QRE and the Dominion Shops.

80.  What was clear was that a total of HK$290,000, namely 10% of the purchase price, was recorded as having been paid on 6 March 1987. It was not clear whether the HK$150,000 mentioned by D1 was part of that sum, or was paid earlier at the time of signing of the preliminary sale and purchase agreement.  Since D1 himself appeared to be confused as to when the HK$150,000 was paid and who had paid it, and having considered the evidence that clearly Father was helping the 3 Brothers, I find it more probable that the initial deposit and the down payment all came out of the funds of the Family Furniture Business.   

81.  Further, whether there was any agreement of each brother to pay HK$50,000, or whether P had failed to pay his share or not, it did not matter as it was the agreement of the 3 Brothers that they were to each have one third equal interest in the Dominion Shops.  It was not disputed that upon sale on 30 April 1991, after repaying both the then outstanding mortgage loans of the Dominion Shops and of 15 QRE, the balance of the sale proceeds were equally distributed among the 3 Brothers.

F.3    The Scenic Garden Property

82.  According to P, each of the 3 Brothers had paid HK$100,000, totalling HK$300,000, towards the down payment of 10% for the Scenic Garden Property at the time of the signing of the formal sale and purchase agreement on 20 October 1988.  D1 then arranged for a mortgage loan from Bank of East Asia for 90% of the purchase price of HK$2,824,327. 

83.  On the other hand, it was D1’s evidence that the 10% down payment came from the Dominion Centre Business and that the Scenic Garden Property was originally intended for the residence of D1 and Father.  It was further D1’s evidence that the original plan was to purchase the property under the joint names of D1 and P, but P was concerned that the Inland Revenue Department might enquire over his source of income and P then refused to provide his Hong Kong Identity Card.  As a result of this, the property was purchased under the sole name of D1.

84.  According to D1, the mortgage instalments of the Scenic Garden Property were paid out of the Dominion Centre Business and later by the Partnership/Family Furniture Business at 15 QRE, and that this continued to be the case even after the 3 Brothers’ Agreement.  He accepted during the trial that this would be not be in Wai Yin’s interest, but D1 said he and Wai Yin would work it out.

85.  Anyway, whether the down payment was paid by the business or by the 3 Brothers from their respective personal accounts did not really matter, since it was not disputed that the 3 Brothers had equal beneficial interest in the property until at least the 3 Brothers’ Agreement.

F.4    The Guangzhou Properties

86.  As for the Guangzhou Properties, as seen in the Table, Flat 6C was held in the name of P, and Flat 6D washeld in the name of Wai Yin.

87.  According to P’s evidence in his 1^st witness statement, the down payment and other expenses of about HK$200,000 for the purchase of Flat 6D in August 1992 were advanced by Wai Yin and there was a mortgage loan of HK$440,000 from Bank of East Asia Shenzhen branch with 120 mortgage instalments payable from October 1992 until 25 September 2002.  As said earlier, Flat 6D was all along occupied by Wai Yin and his mistress in Guangzhou and in 1996, when their relationship broke down, Flat 6D, being under the sole name of Wai Yin, was regarded as Wai Yin’s sole property by the Mainland Court and was later awarded to his mistress[13]. The mortgage instalments were paid out of the Partnership until the Mainland Court order.    

88.  As for Flat 6C, according to P, the down payment and other expenses of about HK$200,000 was advanced by P in August 1992 on behalf of the 3 Brothers and that all mortgage instalments were paid from the Partnership. It was also P’s evidence that Wai Yin was responsible for renting out Flat 6C and that Wai Yin had not accounted to P for any rental income[14]. 

89.  According to D1, as there were no monies from the Partnership/Family Furniture Business to continue to pay for the mortgage instalments of Flat 6C, the property was later re-possessed by the mortgagee bank, ie Bank of East Asia. 

90.  Anyway, it was not really disputed that the mortgage instalments of the two Guangzhou Properties were paid out of the Partnership prior to April 1995.  There was no sufficient evidence that Wai Yin had accounted to the Family Furniture Business any rental income said to be collected by him.  It would further appear that any amount paid by P towards the Guangzhou Properties on behalf of the 3 Brothers were taken into account in calculating the Equity Share (as defined later) of each of the brothers at the time of the 3 Brothers’ Agreement.  However, it was D1’s evidence that the mortgage instalments of both Flat 6C (until repossession) and 6D (until the Mainland Court order) were continued to be paid from the Family Furniture Business.

F.5    The Sanshan Development

91.  It was P’s evidence in his 1^st witness statement that between 1992 and 1993, Wai Yin had proposed the 3 Brothers to invest in the Sanshan Development their hometown in Nanhai.  According to P, at Wai Yin’s request, he had paid a sum of about HK$500,000 into a bank account designated by Wai Yin for the purpose of the investment.  P had produced a copy of his credit advice for $500,000[15].  Again, the amount P said was paid by him was later taken into account in calculating the Equity Share at the time of the 3 Brothers’ Agreement.

F.6    Conclusion

92.  To conclude, it is my view the purchase price including all mortgage instalments and expenses of all the 5 Hong Kong properties, the Guangzhou Properties and Sanshan Development had all come from the Family Furniture Business whether during the time of the Partnership or not and the 3 Brothers held an equal one third beneficial interest therein until the 3 Brothers’ Agreement.

G.      The modus operandi of the Family Furniture Business before and after the emigration of D1

93.  As mentioned earlier, P had said that each of the 3 Brothers   had single signing rights to the business bank accounts of the Dominion Centre Business and the Family Furniture Business at 15 QRE.  In fact, as seen earlier, it was P’s evidence that Father was also a bank signatory.

94.  As for their responsibilities in the business, P’s evidence and D1’s evidence were more or less similar.  Wai Yin, who was often not in the Dominion Shops was responsible for dealing with documentations, communications with the banks, or people in the trade.  P would be responsible for delivery of goods and that D1 himself was in charge of finances and accounts. 

95.  It was P’s evidence that Wai Yin would come to the Dominion Shops only about two or three times a month, and that every time he came, he would check the accounts and then would decide on the amount he would withdraw which would always by cheque, and that P and D1 would then follow and would withdraw the same amount by cheques.  Wai Yin was also responsible for preparing the tax returns and that the business accounts were prepared by a firm of professional accountants Kelly Wong & Co (“Accountants”). There were also 3 staff at one stage, one responsible for sales and the other two responsible for delivery of goods.

96.  According to P, the monthly drawings of each of the 3 Brothers could be more than HK$100,000.  P’s evidence was also that 30% of the “purchases” in the Balance Sheets (as defined later) would be the gross profits and that each of the 3 Brothers would receive between HK$800,000 to HK$1m a year out of the profits.  However, when asked to clarify, P confirmed that between 1987-1988 it was a little more than HK$1m year for all 3 Brothers and that for the years 1990-1991, he said the profits should be more and that the drawings for the 3 Brothers would total HK$2-3m a year.  This was because the height of emigration of Hong Kong people was in 1990-1991 and that due to the 4 June 1989 incident, many people were buying new furniture to take with them for their move abroad.

97.  It was also P’s evidence that at the time of the sale of the Dominion Shops, most of the stock had to be disposed of, as they had to move the stock to 15 QRE which was only about 700 sq ft.  The turnover was much reduced after the move but according to P, there was always a profit. Anyway, it was not disputed that the 3 Brothers continued to manage and operate the business at 15 QRE in the same modus operandi as when they were at the Dominion Shops and also every month, HK$15,000 would be paid to Father out of the business bank account by cheque or by cash until events described later.

98.  After the 4 June 1989 incident, the 3 Brothers also decided to apply for emigration to Canada.  As seen in the Table, they had invested in the Emigration Fund with part of the net sale proceeds of the Tai Koo Shing Property, which would then be used for the 3 Brothers’s respective emigration, with D1 being the first to emigrate and then after a few years when D1 returned to Hong Kong after obtaining his Canadian citizenship, then it would be used for P’s emigration and after P returned, then it would be Wai Yin’s turn. 

99.  D1 and his family were the first to emigrate on 1 November 1991.  According to P, prior to 1 November 1991, the modus operandi of the business was still the same as described earlier.  P’s evidence was that after 1 November 1991, he would withdraw HK$12,000 as a monthly salary, and that D1 had also continued to withdraw HK$12,000 each month as “housing allowance”, and that Wai Yin would return from time to time to withdraw some money.  P said there were cheque stubs as records of Wai Yin’s drawing as he would only allow Wai Yin to make withdrawals by cheques.

100.  However, D1 said that the housing allowance payable to him should be HK$20,000 per month and that this payment ceased in February 1992, while P’s evidence was that it was HK$12,000 per month and that it only ceased in February 1994 after P told D1 that he could no longer afford to pay D1.  There was no sufficient evidence one way or the other.  Suffice to say, even after D1’s emigration, he had continued to receive a monthly sum for awhile and that Wai Yin was also making withdrawals.

101.  It was not disputed that after D1’s emigration on 1 November 1991 and prior to P’s emigration to Canada in August 1994 (“Relevant Period”), the Family Furniture Business at 15 QRE was managed and operated by P, and that after P’s emigration, the business was then managed and operated by Wai Yin before March/April 1995 and thereafter by D1.

102.  Anyway, the evidence indicated that, as said earlier, notwithstanding D1’s emigration, and later P’s emigration, and irrespective of which of the 3 Brothers was in charge of management and operation, until at least the 3 Brothers’ Agreement, the Partnership continued at 15 QRE and was carried out under the name of Pao Sun and/or Pao Sun Furniture Co with Father’s agreement and but there was also an agreement with Father that 3 Brothers were to pay him rent for 15 QRE.

H.      P’s alleged misappropriation of funds from the Partnership

H.1    How the alleged misappropriation was discovered by D1

103.  It was D1’s case that during the Relevant Period, funds in the sum of HK $1.2m which should have been used to pay the supplier Shen Fat Furniture Company (深發傢俬) (“Shen Fat”) were misappropriated by P (“Misappropriated Sum”).  Shen Fat was said to be the single most important supplier of goods to the Family Furniture Business.  It was D1’s case that P’s misappropriation was first revealed by Wai Yin’s wife, Madam Tam.

104.  It was D1’s pleaded case in the Amended Defence that about one month after P’s move to Canada, Wai Yin’s wife, Madam Tam, telephoned him in Canada informing him that P had prior to his emigration to Canada misappropriated monies of the funds of the Partnership which should have been applied for the purpose of payments to various suppliers, thereby causing the business to be indebted to its suppliers to the tune of over HK$1m[16]. Thus, according to D1, there were at the time debts to the business suppliers (“Partnership Debts”).  According to D1, upon hearing this he immediately tried to telephone P who was in Canada at the time but to no avail, and D1 then telephoned Mr Cheung Chuk Lam 張祝林 (“Chuk Lam”), the proprietor of Shen Fat.  It was D1’s case that Chuk Lam had confirmed to him that the business then owed Shen Fat about HK$1.2m for goods sold and delivered.

105.  It was also D1’s pleaded case that at about the end of 1994, Chuk Lam’s wife telephoned D1’s wife to inform her that as Pao Sun had failed to pay outstanding invoices of Shen Fat for over a year and that Pao Sun had incurred another sum of HK$700,000-HK$800,000 outstanding amounts to Shen Fat, Shen Fat was no longer able to continue to supply goods to Pao Sun.  According to D1, he had to agree to assume personal responsibility for all the outstanding sums to Shen Fat in order to secure the continuing supply of goods by Shen Fat to Pao Sun[17]. 

106.  Thus, there were two telephone calls, one from Madam Tam in about September 1994 (ie about a month after P emigrated to Canada), and one from Chuk Lam’s wife at about end of 1994.  D1’s evidence in his witness statement was during the 1^st call, Madam Tam told him that the Misappropriated Sum was about HK$1.2m and that Madam Tam had suggested reporting to the police, but as D1 was concerned that this might affect P’s emigration, he told Madam Tam to let him find out what happened first.  It was D1’s evidence that when he telephoned to confront P, P then directly admitted to D1 that there were outstanding unpaid invoices from Shen Fat for over a year.  When D1 asked why he did not tell him, P simply said he had forgotten and then hung up on D1.  When D1 tried to telephone him again, he was unable to contact him.  D1 said he then drove over to P’s residence but he refused to open the door.  D1 then later telephoned Chuk Law who confirmed to him about HK$1.2m was outstanding for over a year.

107.  Thus, it would appear that that the alleged misappropriation was between September 1993 to September 1994.

108.  It was D1’s pleaded case that the outstanding amounts owing to Shen Fat by Pao Sun were about HK$2m at end of 1994.  It meant the Partnership Debts were then about HK$2m.  It was also D1’s pleaded case that in about late 1995, the Partnership Debts were still over HK$2m[18].

H.2    The Shen Fat Statements

109.  P strongly denied the allegations made by D1 and the alleged misappropriation.  P had produced copies of  bundles of invoices issued by Shen Fat to Pao Sun from July 1994 to March 1995, and from about March 1996 to August 1996[19] and some 8 handwritten statements from Shen Fat to Pao Sun.  In particular, there were the following 4 statements (collectively “Shen Fat Statements”):

(1) Undated Statement[20]: Shen Fat listed out therein that between August 1994 up till 21 February 1995, Pao Sun had paid HK$410,000 to Shen Fat;

(2) Statement dated 5 September 1994[21]: Shen Fat listed out therein 10 invoices for the month of July 1994 issued to Pao Sun totalling HK$209,052, plus $96,216 for August 1994[22] making $305,268 in total;

(3) Statement dated 30 November 1994[23]: Shen Fat listed out therein 4 invoices for November 1994 and added amounts owing for July, August, September and October 1994 totalling $670,726 and after deducting receipts of $110,000, the amount owing was $560,726;

(4) Statement dated 30 March 1995[24]: Shen Fat listed out therein the invoices for June 1994 and January 1995, totalling $1,113,511 and after 2 items of deductions, the amount owing was stated to HK$670,581;

110.  D1’s response to the above Shen Fat Statements was that those statements only recorded the outstanding Shen Fat invoices during the period of Wai Yin’s management and operation, not P’s.  Further, the Shen Fat Statements did not show whether there had been a sum of HK$1.2m outstanding to Shen Fat for more than a year prior to September 1994.

111.  Mr Lam pointed out on behalf of P that Chuk Lam would not know at any material time as to which of the 3 Brothers was in charge of the Family Furniture Business or which debt was owed to Shen Fat by which of the 3 Brothers and that the Shen Fat Statements were issued to Pao Sun without differentiation between the 3 Brothers.  However, it would appear that Chuk Lam knew the family well, and he would probably know which one of the 3 Brothers was in charge of the management and operation of the business although officially Father remained the sole proprietor. There was also no sufficient evidence to challenge what D1 had said, that he had himself telephoned Chuk Lam from Canada after Madam Tam’s call.  

112.  Anyway, the Shen Fat Statements were issued to Pao Sun, and they showed invoices for supply of goods to Pao Sun from June 1994 to January 1994, which covered June-August 1994, namely the last 3 months of P’s management prior to his emigration.   

113.  What could be seen from the Shen Fat Statements was that as at 30 March 1995, there was a total amount of HK$670,581 unpaid by Pao Sun for the invoices delivered between June 1994 to January 1995.  It was submitted by Mr Lam that they showed a accumulative or a continuing account and that as at end of March 1995 the total amount owing to Shen Fat was only HK$ 670,581.  

114.  However, the Shen Fat Statements did not show any invoices issued by Shen Fat prior to June 1994, or what amounts were outstanding or paid, say from about August 1993 to September 1994.  I find there was no sufficient evidence that the Shen Fat Statements showed an accumulative account or continuing account or that the total amount owing to Shen Fat at that time was only HK$670,581.

H.3    P’s alleged selective disclosure

115.  D1 complained that there had been selective disclosure on part of P.  In particular, P had failed to disclose any financial records or business documents relating to part of the Relevant Period.  This was notwithstanding D1 had already pleaded in the Amended Defence that there was a sum of HK$1.2m being outstanding to Shen Fat for more than a year prior to summer 1994. 

116.  P had filed a total of 5 lists of documents in this action, 1^st list in September 2015 and then 4 supplemental lists at various times during 2017.  There were some 550 pages of documents produced.  D1 had complained that notwithstanding that the documents disclosed by P in his 4 supplemental lists were clearly relevant documents, there had been no proper explanation by P was to why those documents were disclosed in a piecemeal fashion.  

117.  The business documents which were disclosed in P’s lists of documents and produced by P in relation to the Family Furniture Business and the Dominion Centre Business included the following:

(i) Application for business registration by Father as sole proprietor of Pao Sun dated 11 August 1952;

(ii) Application by Pao Sun Furniture Co (Dominion Centre Business) for business registration dated 5 March 1987 submitted by Wai Yin with the 3 Brothers as partners and valid business registration certificates of Pao Sun Furniture Co (Dominion Centre Business) until 5 March 1992, the last one indicating fee paid on 25 February 1991 and with the handwritten words “31/8/91 stopped”;

(iii) Copies of Profits Tax Returns of “Pao Sun Furniture Co” (Dominion Centre Business) from 1 April 1988 to 31 March 1991 with Balance Sheets and Trading and Profit & Loss Accounts (collectively “Balance Sheets”) attached;

(iv) Copies of Profits Tax Returns of “Shiu King trading as Pao Sun” at 15 QRE from 1 January 1988 to 31 December 1989 and copies of Notices of Assessment of Profits Tax of “Shiu King trading as Pao Sun” at 15 QRE for 1989/1990, 1990/1991, 1991/1992;

(v) Copies of Notice of Assessment for Profits Tax of “Shiu King trading as Pao Sun Furniture Co” for 1991/1992, 1994/1995, 1997/1998, 1998/1999;

(vi) Bundles of Shen Fat invoices from July 1994 to March 1995, and from March 1996 to August 1996 with the Shen Fat Statements earlier mentioned.

118.  Apart from the above, P also disclosed personal documents belonging to Father as well as those belonging to D1 including tax returns, notices of assessment, telegraphic transfer forms and bank deposit confirmations.  However, what were missing were the business bank account statements (save for one bank statement dated 30 December 1999 of Pao Sun Furniture Co[25]) and all the supporting financial documents for the profits tax returns produced by him.  In particular, it would appear that the Profits Tax Returns and Notices of Assessment of Profits Tax of Pao Sun and/or Pao Sun Furniture Co for 1992/1993 and 1993/1994, and the relevant supporting financial documents thereof including business bank account statements and Balance Sheets for those years were missing. 

119.  It was D1’s evidence that he had left all the business documents and financial records of Pao Sun and/or Pao Sun Furniture Co and all financial records relating to the Scenic Garden Property and the Guangzhou Properties at 15 QRE when he returned to Canada in about September 1998.

120.  In January 2018, Ds had issued a summons against P for specific discovery for financial records during the period between 1987 and 1999, including (i) financial statements, bank statements, tax returns and assessments for Pao Sun and for Pao Sun Furniture Co; (ii) Father’s and P’s respective personal bank account statements and tax returns; (iii) invoices, receipts and demand letters issued by Shen Fat and other suppliers to Pao Sun and/or Pao Sun Furniture Co; (iv) financial records for the payments and expenses for the Scenic Garden Property and tenancy agreements thereof; (v) financial records for payments and expenses for the Guangzhou Properties and tenancy agreements thereof.  

121.  As seen above, the specific discovery sought by Ds covered the period from the commencement of the Dominion Centre Business in 1987 until 1999, which included the Relevant Period, which was from November 1991 to August 1994.

122.  In relation to P’s application for specific discovery, P had made an affirmation on 25 January 2018 confirming that the documents sought by Ds had never been in his possession except those which had been disclosed by him.  As for P’s own bank accounts and/or financial records, he confirmed that he had them between 1987 and 1995 and they had been disposed of a very long time ago and that in any event, they were not relevant.

123.  When cross examined at the trial on why P had not produced any financial or business documents for the entirety of the Relevant Period, P claimed that at the time of his emigration, he had left the business for Wai Yin to manage and that all financial documents were left at 15 QRE, and later they were taken away by Father at the time of the sale of 15 QRE.  

124.  It was also P’s evidence during the trial that in about 2004/2005, Father had given him a box (“Box”) containing various documents for him to keep as a souvenir of the Family Furniture Business.  P had initially said that all the documents produced by him in this action were inside the Box and P had also said after all documents taken out, he did not keep the Box which was then dismantled.  However, later, he then changed his evidence and said not all the documents he disclosed in this action were inside the Box.  

125.  When asked about the business documents for the Relevant Period, he said they were not kept by him nor were they in the Box and he said he did not know where they were as he had emigrated to Canada but before he left, they were all along at 15 QRE, P said that he did not take any of the business documents when he emigrated save for his personal bank accounts which he said he took to Canada but later had thrown them away.

126.  As pointed out by Mr Khaw SC on behalf of Ds, P had changed his evidence several times as to the contents of the Box, in particular whether there were any documents relating to the business during the Relevant Period.  His final version seemed to be that there were business documents in the Box, but the financial/business documents for the Relevant Period were not in the Box and that he did not know where they were.

127.  It was put to P by Mr Khaw during the trial that he had selectively produced the financial documents relating to the business for the Relevant Period as he owed suppliers HK$1.2m and he owed the Partnership monies as he had misappropriated sums from the business.  Upon hearing this, P became emotional and said D1 fabricated this.  However, P did not provide a convincing explanation for his piecemeal disclosure and for those missing documents in particular the business bank statements and financial records or accounts of the business during the Relevant Period.

128.  I find P’s evidence as to where those disclosed documents were kept was completely unsatisfactory.  It was not disputed that the financial documents relating to the Family Furniture Business had always been kept at 15 QRE.  P’s case was he was asked by Father to return to take over the management and operation of the Family Furniture Business at 15 QRE, which he did on 1 August 1999.  Thus, all the business documents should from that time onwards be in his possession, custody and/or power.  There was no reason why, say the Notices of Profits Tax Assessment for the business “Shiu King trading as Pao Sun Furniture Co” at 15 QRE from 1 April 1992 – to 31 March 1994, or from 1 April 1996 – 31 March 1997 would not have been kept together with those for the financial years immediately prior thereto or those for the financial years immediately thereafter. 

H.4    The Balance Sheets

129.  The Notices of  Profits Tax Assessment and Balance Sheets of  “Shiu King trading as Pao Sun” at 15 QRE from 1988 to 1989, and Notices of Profits Tax Assessment for 1990 to 1991[26] showed as follows (figures in HKD and rounded up):

Year ended	Cash (in hand & at bank)	Stock	Sundry Creditors	Account payable	Purchases	Sales	Net Profits
31.12.88	33,553	20,665	35,518	nil	173,225	311,624	32,796
31.12.89	20,359	45,258	30,791	nil	265,500	402,880	59,068
31.12.90							62,731
31.12.91							79,553

130.  The Balance Sheets of Pao Sun Furniture Co at the Dominion Shops (Dominion Centre Business) from 1 April 1987 to 31 March 1991[27] showed as follows (figures in HKD and rounded up):

Year ended	Cash (in hand & at Bank)	Stock	Sundry Creditors	Account Payable	Purchases	Sales	Net Profits
31.03.88	25,011	106,619	89,500	328,853	4,226,186	5,094,060	150,594
31.03.89	63,966	128,947	55,000	493,221	4,340,566	5,461,390	155,350
31.03.90	23,874	190,386	125,800	728,932	5,297,078	6,492,700	277,481
31.03.91	37,301	200,497	158,630	768,649	5,792,333	7,188,540	250,394

131.  The Notices of Profits Tax assessment of “Shiu King trading as Pao Sun Furniture Co” at 15 QRE showed that :

Financial year	Net assessable profits in HKD
1991/1992 ( ended 31.03.92)	79,553[28]
1994/1995 (ended 31.03.95)	110,066[29]
1997/1998 (ended 31.03.98)	110,114[30]
1998/1999 (ended 31.03.99)	131,095[31]

132.  As seen above, the Balance Sheets of the Dominion Centre Business did not in fact indicate the amount of net profits to the extent of what was said by either P or D1.  Also, for some reasons, the Balance Sheets for 1987/1988 and 1988/1989 only showed partners’ emoluments for P and D1 and none for Wai Yin.

133.  P’s evidence during the trial was that he was not sure how the Accountants prepared the Balance Sheets and he was not able to explain as to why there were no partners’ emoluments for Wai Yin for 1987/1988 and 1988/1989.  P said that D1 was in charge of the accounts and that for 1987 to 1988 as the Dominion Centre Business had only just commenced at the Dominion Shops, the turnover was not that high and that for the 3 Brothers, their drawings would be a bit more than HK$1m a year in total but the drawings of the 3 Brothers were very much higher in 1989/1990 due to the height of emigration, and would be in the region of HK$2-3m for the 3 Brothers.  P had also maintained that 30% of the “Purchases”, rather than “Sales”, would be the gross profits.

134.  D1’s evidence was also that the Dominion Centre Business had an average of net profits of HK$2.5m before he emigrated in November 1991[32].

135.  Thus, whether on P’s case or on D1’s case, the net profits of the of Pao Sun Furniture Co (Dominion Centre Business) between March 1987 to 1991 should be much higher than that stated in the Balance Sheets and it would appear that the Balance Sheets did not reflect the true financial position of the Dominion Centre Business.

136.  Anyway, the true financial position of the Family Furniture Business would possibly only be ascertained if the business bank statements, internal accounts, books and vouchers including invoices and receipts issued by suppliers and invoices and receipts issued by the business to purchasers/customers were produced.  These were all financial documents belonging to the Family Furniture Business and, as I said earlier, they should be last in the possession of P when he took over the management and operation of the business on 1 August 1999.  Even though the Balance Sheets did not reflect the true financial position of the business, they would reflect to certain extent at least “Sundry Creditors” and “Account Payable”.  There was no reasonable explanation as to why P was able to produce Balance Sheets (which appeared to be attached to the Profits Tax Returns) for the business prior to March 1991 and not those thereafter. 

137.  Having considered all the evidence, I find that, on a balance of probabilities, that there had been selective disclosure on part of P.   

138.  Further, the Balance Sheets for Pao Sun Furniture Co (Dominion Centre Business) for the year ended 31 March 1991, which was about 7 months prior to D1’s emigration to Canada, showed net profits of HK$250,394, notwithstanding there were “Sundry Creditors of HK$156,630 and “Account Payable” of HK$768,649.  The Balance Sheets did not show any losses, nor did the various Notices of Assessment of the Profits Tax for “Shiu King trading as Pao Sun” or “Shiu King trading as Pao Sun Furniture Co”.  On the contrary, the Notices of Profits Tax Assessments of “Shiu King trading as Pao Sun Furniture Co” between 1991/1992 and 1994/1995 showed increases in net assessable profits.  The Notices were thus not consistent with P’s evidence that profits from the business dropped to zero sometime in 1993/1994. However, without the Balance Sheets and supporting documents, it is not possible to see to how the net profits stated in those Notices of Profits Tax Assessments were calculated.

H.5    D1’s evidence

139.  It was D1’s evidence in the witness box that in around September 1995, he had spent time in reviewing the vouchers and/or internal ledgers of the Family Furniture Business which confirmed that P did misappropriate HK$1.2m from the business during the Relevant Period.  D1 said he then made entries in the accounting book/ledgers of Pao Sun.  Under cross examination, D1 agreed that his review was a time-consuming exercise.  However, there was no mention by D1 in his witness statement that he had personally reviewed the vouchers and/or internal ledgers of the Family Furniture Business during the Relevant Period and confirmed P’s misappropriation of funds.  

140.  Since Madam Tam was the one who allegedly told D1 that P had used the cheques of the Family Furniture Business to pay for his personal items and expenses, and she had suggested making a report to the police, she would also be an important witness in this case.  It was not clear as to why Madam Tam was not called by either side.

141.  Mr Khaw however submitted on behalf of D1 that there was ample evidence which suggested that P had mismanaged the Family Furniture Business and misappropriated its funds and thus P owed the Family Furniture Business money: -

(1) It was D1’s evidence that P had admitted to misappropriation when confronted by D1 on the telephone when D1 called P after Madam Tam’s call;

(2) It was D1’s evidence that Chuk Lam had confirmed to him during his call to Chuk Lam that the Family Furniture Business owed a debt of around HK$1.2m to Shen Fat;

(3) Even though P’s oral evidence was that although the business did make a profit in the beginning during the Relevant Period but such profit dropped to zero sometime in 1993, and yet there were sufficient funds for Wai Yin to withdraw at least HK$400,000 from the business for his personal use.

(4) As P had failed to disclose or produce any documents for the period between early 1992 and June 1994 to substantiate his case and the Court should draw adverse findings against him;

(5) The documents produced by P immediately before and after the above period strongly suggested that the Family Furniture Business was making a profit during the Relevant Period;

(6) The 3 Brothers proceeded with their decision to purchase the Guangzhou Properties in August 1992;

(7) P admitted in cross-examination that he did make personal withdrawals from the funds of the business from time to time allegedly as his salary without making any records of the same.

H.6    Conclusion

142.  I accept Mr Khaw’s submission that P had failed to dispute or address D1’s evidence that P had admitted to D1 that the Partnership owed Shen Fat around HK$1.2m during P’s management, and further Chuk Lam had confirmed to D1 that Shen Fat was owed around HK$1.2m around that time.  D1 was not specifically cross-examined on this part of his evidence.

143.  It was P’s evidence that Wai Yin had withdrawn HK$400,000 for his personal use during the Relevant Period.  It was also  not disputed that it was in August 1992 that the 3 Brothers decided to purchase he Guangzhou Properties and the mortgage instalments were paid by the business and later in May 1993, the 3 Brothers decided to invest in the Sanshan Development in May 1993[33]. There was also the purchase of a MPV in Canada.  I accept all of this would not indicate that business was doing badly at the time.

144.  On P’s own evidence, he was paying D1 the housing allowance out of the business until February 1994.  Again, this would show that the business was not doing badly before then.   

145.  In any event, the financial documents of the business mentioned earlier between early 1992 and June1994 would assist in showing the then financial situation of the business.  As said earlier, I have found there was selective disclosure of business documents on the part of P.  I find that P’s failure to produce relevant business documents from early 1992 to June 1994 of the Relevant Period, without reasonable or credible explanation would indicate that there was information in those documents which P did not wish to disclose.  Having considered the circumstances of this case, I am prepared to draw an adverse inference against P that there were withdrawals of funds by him from the business for his personal use which he had not accounted for, and mismanaged the business.  

I.      Whether there were Partnership Debts at the time of P’s emigration to Canada

146.  As seen earlier, the Balance Sheets of both Pao Sun Furniture Co (Dominion Centre Business) and Pao Sun showed net profits in 1991.  It was common ground that at the time of D1’s emigration to Canada on about 1^st November 1991, the Family Further Business was making a net profit.  P’s evidence was that the business was not doing well after D1’s emigration and that the profits were down to zero by 1994 for reasons including the following:

 (i) Wai Yin took away over HK$400,000 of the funds of the business and never accounted for it;

 (ii) D1 took away about HK$200,000 of furniture from the stock of the business when he and his family emigrated for their personal use;

 (iii) A monthly sum of HK$12,000 had to be paid to D1 for the housing allowance, the cheque for which was collected by Madam Cheung’s brother every month;

 (iv) In about early 1992, when P and Wai Yin and their family members visited D1 in Canada, P advanced about CAD 40,000 (about HK$200,000) to purchase a 7 seater multipurpose vehicle (MPV) for D1’s use;

 (v) After their return to Hong Kong after the above visit, Wai Yin suggested the 3 Brothers to buy the Guangzhou Properties as earlier mentioned for which about HK$200,000 was paid to Wai Yin for the down payment of Flat 6D, and further a sum of HK$500,000 was paid into Wai Yin’s account on 19 May 1993 for the Sanshan Investment;

 (vi) The monthly mortgage of the Guangzhou Properties was of about HK$11,000;

 (vii) The monthly mortgage of Scenic Garden Property was of about HK$27,000;

 (viii) There were also the management fees and rates for the Scenic Garden Property and the Kar Yau Property,

 (ix) the monthly rental of HK$15,000 the 3 Brothers had to pay Father for 15 QRE, monthly salaries of employees of HK$12,000, and also monthly operating expenses of the business.

147.  However, as mentioned earlier, the fact that the 3 Brothers decided to buy the Guangzhou Properties in August 1992 and to invest in the Sanshan Development in May 1993 would in fact indicate that the business was doing not too badly at the time.  There was also the purchase of the MPV in 1992.  D1 had denied misappropriating more than HK$200,000 worth of furniture from the business and according to D1, the furniture taken by him when he emigrated were gifts from suppliers.  Further, he said when he and his family arrived in Canada, he had already used his own savings to buy a car for his family’s use, and that the MPV was purchased by P to use when he and his family visited D1 and that although the MPV was all along parked in D1’s car park, later when P arrived in Vancouver, the MPV was handed back to P.

148.  There was no sufficient evidence that D1 had taken away HK$200,000 of furniture.  In particular, on P’s own evidence of the 3 Brothers’ Agreement, there was no mention of this matter, nor was D1 asked to account for the furniture he had allegedly taken away.

149.  As said earlier, it was P’s evidence that profit from the business dropped to zero sometime in 1994.  In fact, it was also P’s evidence in his witness statement that when there were shortfalls of funds, P would transfer monies from his personal bank accounts to the business bank account and that it was P’s case that he had advanced a total of $1.1m to the Partnership, for the purchase of the Guangzhou Properties, the Sanshan Development, and to meet business expenses. 

150.  In P’s 2^nd witness statement, his evidence was that according to the Shen Fat Statement dated 30 March 1995, the Partnership only owed Shen Fat HK$338,000.  According to D1’s evidence during the trial, some of the handwritings at the lower part of Shen Fat statement dated 30 March 1995 were D1’s own handwritings and that there was a sum of HK$500,000 pre-paid to Shen Fat.  

151.  D1’s evidence on what were written by him was confusing as to what Chuk Lam owed to the 3 Brothers, and in any event, the amount seemed to have been divided by 2 and not by 3.    

152.  As seen in the Shen Fat Statement dated 30 March 1995, the invoices issued by Shen Fat for 4 months between June 1994 and September 1994 amounted to a total sum of $704,738.  The undated Shen Fat Statement indicated that a sum of HK$200,000 was paid to Shen Fat in cash in August 1994.  Thus it would appear that in September 1994, when Madam Tam was said to have called D1, the amount of invoices outstanding to Shen Fat for June, July, August and September 1994 would appear to be around HK$504,738 (ie HK$704,738 less HK$200,000 cash paid).  However, as I have said earlier, it was unknown whether any Shen Fat invoices prior to June 1994 were outstanding. 

153.  There was also no sufficient evidence as to what amounts were owing to other suppliers, if any.   

154.  Having considered those Shen Fat Statements, I find there were Partnership Debts at the time when P emigrated, in that there were at least “Accounts Payable” to Shen Fat.  However, due to P’s selective disclosure, it is not possible to tell whether by end of 1994 the Partnership Debts had gone up to HK$2m.  The Shen Fat Statement dated 30 March 1995 showed that by January 1995, the total amount of invoices was HK$1,113,511, of which the total amount as at December 1994 was HK$964,091, and deducting, say HK$365,000 paid by Pao Sun (including the amount paid at end of December 1994) as seen in the undated Shen Fat Statement, it would appear that at least about HK$600,000 should still be owing to Shen Fat at end of December 1994 for the invoices rendered from June 1994 to December 1994.

155.  To summarise, although I find there were Partnership Debts at the time of P’s emigration in August 1994, the exact amount cannot now be ascertained, save that for those invoices rendered by Shen Fat between June and December 1994, the total amount outstanding in September 1994 did not appear to be less than HK$500,000 and at end of December 1994, it did not appear to be less than HK$600,000.     

J.     Issue (1) – The 3 Brothers’ Agreement

156.  It was not disputed that after P’s emigration in August 1994, Wai Yin was managing and operating the Family Furniture Business at 15 QRE, until about March/April 1995.

157.  P’s evidence was that it was D1 who requested that the Family Furniture Business be managed and operated by him solely in March/April 1995 and that all profits and/or losses would thereafter be D1’s solely.

158.  As said earlier, D1’s evidence on the other hand was that it was Father who had asked him in March 1995 to return to Hong Kong to save the Family Furniture Business, as there were a million dollars of debts at the time.     

159.  There was no sufficient evidence that D1 was planning to move back to Hong Kong at the time.  His daughter appeared to be still at secondary school in Vancouver and his wife had to take care of her.  I accept D1’s evidence that it was Father who asked him to return in March 1995 to save the Family Furniture Business.  Insofar as P was concerned, it was his evidence that it was Wai Yin who had asked him to return to Hong Kong.

160.  Whether it was at the request of Father or Wai Yin, P did return to Hong Kong in April 1995 and it was common ground that when the 3 Brothers were in Hong Kong, they had a meeting and they arrived at the 3 Brothers’ Agreement.  As said earlier, the terms of the agreement were disputed.

J.1     P’s pleaded case

161.  It was P’s pleaded case that the 3 Brothers, after express discussion, decided to terminate the Partnership and their joint investment in the properties in Hong Kong.  According to P, as of April 1995, the net assets of the Partnership and of their joint investment in properties in Hong Kong (“Net Assets”) were valued to be HK$8.4m, namely the total of Kar Yau Property (value estimated by the 3 Brothers to be at HK$2m free of mortgage) and Scenic Garden Property (value estimated by the 3 Brothers to be at HK$9.5m with an outstanding mortgage of about HK$2m) less loans totalling about HK$1.1m owed to P by the business.

162.  The 3 Brothers then agreed that the Net Assets be divided equally among the 3 Brothers namely HK$2.8m each (“Equity Share”) and that Wai Yin would take the Kar Yau Property and P and D1 would take the Scenic Garden Property, and to make up the shortfall in the Equity Share,  Wai Yin was to receive a sum of HK$1m[34]. To account for the differential over the Equity Share, P would waive the outstanding loan of HK$1.1m owed to him by the business whilst D1 would pay the HK$1m to Wai Yin[35]. According to P’s evidence, there would be no division of the Guangzhou Properties or the Sanshan Development[36].

163.  Further, as mentioned earlier, it was P’s pleaded case that there was the 2 Brothers’ Agreement on the same occasion after the 3 Brothers’ Agreement was reached, as follows:

 (1) Since the Scenic Garden Property was still under mortgage, to save trouble and costs, no legal formalities would be effected to register P as a legal co-owner thereof;

 (2) The legal title of the Scenic Garden Property would continue to be vested in D1;

 (3) D1 would be responsible for the management and maintenance of the Scenic Garden Property;

 (4) D1 would lease the Scenic Garden Property out to generate rental income for mortgage payments;

 (5) D1 would consult with P pertaining important matters relating to the property such as a sale;

 (6) Subject to the approval of P, D1 would sell the Scenic Garden Property when the real estate market was favourable in future years; and

 (7) D1 would share the sale proceeds of the Scenic Garden Property equally with P.

J.2     D1’s pleaded case

164.  D1’s pleaded case was that the 3 Brothers orally agreed to split the beneficial ownership of their remaining joint properties in Hong Kong namely Kar Yau Property and the Scenic Garden Property as follows:

(1) The express terms were:

(i) D1 and P would surrender all their interests and rights in the Kar Yau Property so that Wai Yin would become the sole beneficial owner of Kar Yau Property to the exclusion of D1 and P;

(ii) In return for a sum of HK$1m to be paid by D1 to Wai Yin, Wai Yin would surrender all his interests and rights in the Scenic Garden Property and that D1 and P would become the beneficial owners in equal shares of the Scenic Garden Property to the exclusion of Wai Yin;

(2) By necessary implication:

(i) P and D1, upon becoming the beneficial owners of the Scenic Garden Property to the exclusion of Wai Yin, would be responsible for sharing equally all outgoings, expenses and liabilities in respect of the property including repayments of the mortgage loans;

(ii) The 3 Brothers would be responsible for sharing equally all outgoings, expenses and liabilities in respect of the Guangzhou Properties including repayments of the mortgage loans;

(iii) All outstanding amounts arising from the Scenic Garden Property and the Guangzhou Properties would need to be settled and/or set off against any amount(s) outstanding under the business at the request of any of the 3 Brothers in due course.

165.  Essentially, D1’s case that that the 3 Brothers’ Agreement was only in relation to the division of the Kar Yau Property and the Scenic Garden Property and there was no termination of the Partnership.

J.3     Whether there was termination of the Partnership

166.  To support his case that the 3 Brothers’ Agreement was to terminate the Partnership as well, P had produced 5 sheets of handwritten notes said by P to be written during the April 1995 Meeting.  His evidence in his 1^st witness statement was that during the April 1995 Meeting, P himself had written 3 sheets of draft calculations (“P’s Notes”)[37] and Wai Yin also wrote two sheets of draft calculations (“Wai Yin’s Notes”)[38].  It was also P’s evidence that the 2^nd sheet of Wai Yin’s Notes represented the final calculations as to the Equity Share.  It was further P’s evidence that at the time the 3 Brothers had confirmed the business was of no value and they agreed to allow D1, as requested by D1, to continue the business as a sole proprietor, in that D1 was to be solely entitled to any profits and solely liable for any liabilities. 

167.  It was P’s evidence that the originals of P’s Notes and D1’s Notes were kept by him and neither Wai Yin nor D1 had sought any copies thereof and that it was only after commencement of the present action that P accidentally found these 5 sheets of notes among Father’s business documents, including the originals of another 3 sheets of handwritten notes written by D1’s wife Madam Cheung (“Madam Cheung’s Notes”)[39].

168.  The originals of those Notes were not produced. I find the 2^nd page of P’s Notes appeared to have the business letter head blocked out on the photocopy[40]. Also, the 1^st page of Wai Yin’s Notes also appeared to have the letter head blocked out[41]. As for Madam Cheung’s Notes, the 2^nd page clearly had parts on the right bottom part blocked out[42].

169.  It can be seen in P’s Notes, the value assumed for the Scenic Garden Property was HK$9.2m and the amount which was said to have been paid by P on behalf of the Partnership was HK$1.12m being (i) “公數” (“Partnership Funds”) $355,000, (ii) Sanshan Development $500,000, (iii) Guangzhou Properties and the MPV $265,000.  There was   a reference to the Emigration Fund of Can $153,000.

170.  There was also a reference to a total payment of HK$410,000 being “總支出” and after deducting a sum of HK$256,000 paid by Wai Yin on behalf of the 3 Brothers for the Guangzhou Properties, Wai Yin was stated to owe the Partnership Funds HK$154,000.  Where P was cross-examined as to why the amount of HK$400,000 allegedly taken by Wai Yin was not recorded in P’s Notes, P then said that the “總支出” or “total payment” of HK$410,000 was the amount misappropriated by Wai Yin from the Partnership.  However, the amount of HK$410,000 was said by D1 to refer to the amount of $410,000 in the undated Shen Fat Statement, which was the total amount paid to Shen Fat between August 1994 and 21 February 1995[43], namely what was paid to Shen Fat by Wai Yin after Wai Yin took over management of the Partnership.

171.  The 1^st page of Wai Yin’s Notes, the 1^st page contained an assumed value of $9.2m for Scenic Garden Property, less HK$2m for the balance of the mortgage loan, and less $1 million P’s “公數” or Partnership Funds, namely (i) purchase of the MPV; (ii) payment of invoices to Shen Fat; (iii) for the Sanshan Development; (iv) for the Guangzhou Properties. There was no reference to the sum of $410,000 or there being any sum misappropriated by Wai Yin, but it appeared to state instead that Wai Yin should receive HK$800,000.

172.  All along, P’s evidence was the amount allegedly misappropriated by Wai Win was HK$400,000 and not HK$410,000.  In any event, I find that there was no sufficient evidence that the amount of HK$410,000 which was stated as being total payment in fact referred to a sum allegedly misappropriated by Wai Yin.  In my view, more probable than not, as D1 said, it was the amount paid to Shen Fat during the period of Wai Yin’s management of the business.

173.  As for Madam Cheung’s Notes, there were some differences in the figures with those in P’s Notes or Wai Yin’s Notes.  P had said it was his surmise that Madam Cheung’s Notes were written after the 3 Brothers’ Agreement, ie after April 2015 and were written by Madam Cheung when she was following up on various matters for D1 after the 3 Brothers’ Agreement.

174.  Madam Cheung’s Notes bore a different letterhead, namely that of Pao Sun Furniture Co at the address of the Dominion Shops which were sold in 1991.  It was however possible that Madam Cheung was using some old letter sheets.  Anyway, it was common ground that Madam Cheung’s Notes were written at different times from P’s Notes or Wai Yin’s Notes.

175.  Madam Cheung had explained that the starting figure of “1000” on the 2^nd page of her notes meant HK$10m which was the assumed value for Scenic Garden Property and divided by 3, each share would be “333” as seen as the top opening figure in each of the 3 columns (referring to (大), (中), (小) or the 3 Brothers) on the 1^st page.  Under P’s column, there was an item “+72 Partnership Funds”, and under Wai Yin’s column and D1’s column, there was an item of “-36 Repayment to P for Partnership Funds”.  Then there were various deductions and additions in relation to the MPV etc, and ended up with Wai Yin’s share being “285” (before deducting “180” being HK$1.8m for the Kar Yau Property”, D1’s share being “291” and P’s share being “423”, totalling “999”.

176.  Further calculations followed and Wai Yin’s signature appeared at the bottom of the column headed (大) which seemed to indicate his actual share was “84”.

177.  The words “祝林”, being the Chinese name of Chuk Lam, appeared a number of times in Madam Cheung’s Noes.  In relation to the item “祝林雜項 (夾)”, it was Madam Cheung’s explanation during the trial that this item and the figure “50” thereunder represented the sum of HK$500,000 which Pao Sun pre-paid or deposited with Shen Fat to ensure priority and exclusivity for supply of goods.

178.  Madam Cheung’s evidence would mean that the sum of HK$500,000 was an amount owing by Chuk Lam to the Partnership/Family Furniture Business, namely an asset of which the 3 Brothers each had an equal share of HK$170,000.  Mr Lam thus submitted on behalf of P that this would in fact support P’s case that the 3 Brothers were terminating or winding up the Partnership, in that any sums due from Chuk Lam was to be taken into account as an asset.

179.  However, in none of the columns was there any “+17 from Chuk Lam” indicating that each of the 3 Brothers was credited with HK$170,000, being 1/3 share of HK$500,000 held by Chuk Lam/Shen Fat.  The only “+17” was from Wai Yin.  Further, what could be seen under Wai Yin or P was in fact “-17 Chuk Lam”, namely debited HK$170,000.  Also, on the 2^nd page of Madam Cheung’s Notes, there were the words “O.D. Chuk Lam”.

180.  None of the witnesses could really provide a satisfactory explanation of all the figures in those handwritten notes.  I accept that by the time of the trial, the notes were written at least some 24 years ago.  Anyway, Madam Cheung’s evidence was that her notes were written before the 3 Brothers’ Agreement and she wrote out the figures as told by Wai Yin.  She further pointed out that the figures did not take into account the mortgage payments of Scenic Garden Property and also the figures were incorrect.  As mentioned earlier, the 2^nd page Madam Cheung’s Notes contained a part which was clearly blocked out.

181.  There was no sufficient evidence to contradict Madam Cheung’s evidence that she wrote her notes pursuant to what Wai Yin told her.  As it was P’s evidence that the 2^nd page of Wai Yin’s Notes represented the final calculations, it did not seem probable Wai Yin could have made a mistake after the 3 Brothers’ Agreement as to the valuations adopted in the final calculations of the Equity Share.  Having considered the evidence, it is my finding that Madam Cheung’s Notes were probably written before the 3 Brothers’ Agreement and the calculations in Madam Cheung’s Note were superseded by P’s Notes and Wai Yin’s Notes. 

182.  P had admitted during the trial that at the time of P’s Notes or Wai Yin’s Notes in April 1995, the 3 Brothers did not have any of the Balance Sheets or any other financial statements before them, that there were no documents or bank statements to show how much money was left in the Partnership at the time, nor were there any documents to show how much stock there was at the time, and nor did they ask the Accountants for any business records.  P had said that all stock was cleared at that time but there was no sufficient evidence of this since in January 1995, as seen in the Shen Fat Statement dated 30 March 1995, there was still an invoice of $149,420 issued by Shen Fat for goods supplied to Pao Sun.

183.  As said earlier, it was P’s evidence in his 1^st witness statement that the 2^nd page of Wai Yin’s Notes represented the final calculations in  the 3 Brothers’ Agreement, and that each Equity Share was HK$2.8m[44].  It was quite clear from the 2^nd page of Wai Yin’s Notes that the only matter taken into the calculations apart from the valuations of the two properties were a sum of HK$1.1m paid by P on behalf of the 3 Brothers of which HK$355,000 was stated to be paid by P on behalf of the business.  During the trial, P had explained the amount of HK$355,000 was what P had paid on behalf of the Partnership for various business expenses such as wages etc but not for payments of Shen Fat invoices.

184.  Having considered P’s Notes and Wai Yin’s Notes, in particular the 2^nd page of the Wai Yin’s Notes, the calculations therein appeared to only indicate that the 3 Brothers agreed to P being reimbursed for what he said he had paid for or on behalf of the Partnership. 

185.  It was D1’s evidence that at the time of the 3 Brothers’ Agreement, since P claimed that the business owed him money, and that P was agreed to waive those amounts, D1 then agreed to pay HK$1m to Wai Yin for the division of the two Hong Kong properties.  According to D1, the accounts of the business under the Partnership would be worked out later.  Further, as pointed out by D1, there were still the Guangzhou Properties and the Sanshan Development which had not been divided. Also there was no accounting of the Emigration Fund.

186.  Anyway, even if the business was not doing well in April 1995, one would have thought there would be still be goodwill in the business, or at least there would have been unsold stock and/or accounts receivable and/or accounts payable.  None of these seemed to have been taken into account or reflected in the 2^nd page of the Wai Yin’s Notes or those handwritten notes.  There were also the continuing mortgage payments of the Guangzhou Properties which P seemed to accept were to continue to be met from the business and the accounting to be dealt with later.

187.  Further, it was P’s own evidence that D1 was evicted by Father from the business at 15 QRE in September 1998 and that P was later asked to return.  The business could not have been D1’s sole business if D1 could be simply evicted by Father.  In fact, in my view, as the business registration of “Shiu King trading as Pao Sun” and of “Shiu King trading as Pao Sun Furniture Co” at 15 QRE after the sale of the Dominion Shops were both held by Father in his sole name, I do not think it was up to the 3 Brothers to decide whether the Partnership should be terminated without Father’s agreement or involvement.  Notwithstanding I accept D1’s evidence that it was Father who asked him to return to take over the operation and management of the business, there was no sufficient evidence that Father was involved in the 3 Brothers’ Agreement or that Father had agreed to D1 to be the sole proprietor of the Family Furniture Business. 

188.  Without calling Wai Yin, I find those handwritten notes would not be sufficient evidence that the 3 Brothers were terminating the Partnership or that there was any agreement that D1 was to continue the business as sole proprietor or Father had agreed to such an arrangement.  I also find P’s case inherently improbable as I have said earlier, there was no evidence that D1 was at the time planning to move back to Hong Kong, and he was only returning to save the business at Father’s request and there was no reason why D1 would want to shoulder all the responsibilities of an unprofitable business solely which neither of his two brothers wanted.     

189.  In short, I have come to the conclusion that there was no sufficient evidence that the 3 Brothers’ Agreement had terminated the Partnership and there after D1 was to operate the business as a sole proprietor.  There was no evidence that Wai Yin’s or P’s signing rights to the bank accounts of whether the Partnership or the Family Furniture Business were cancelled immediately after the 3 Brothers’ Agreement.  As said earlier, it was in fact P’s evidence at trial that Father and the 3 Brothers remained signatories to the business bank accounts until about 1 August 1999.

190.  I find it more probable than not that, as D1 had said, Wai Yin had, for reasons of his own, suggested that he be the sole beneficial owner of Kar Yau[45] and that he would give up his beneficial interests in the Scenic Garden Property which was to be beneficially owned by P and D1, and that the 3 Brothers’ Agreement was only to effect their agreement in achieving this.  I accept D1’s evidence that as P claimed that he had paid various payments on behalf of the Partnership, D1 then agreed to pay Wai Yin HK$1m for Wai Yin’s shortfall in the Equity Share on the basis that P would waive those sums allegedly owed to him.  To conclude, I find D1’s version of the terms of the 3 Brothers’ Agreement more probable and I am prepared to accept D1’s version. 

191.  As mentioned earlier, it was also P’s pleaded case that there was the 2 Brothers’ Agreement between him and D1 in relation to the Scenic Garden Property, although this was not specifically set out as a disputed issue in the Scott Schedule.

192.  D1 had denied that there was the 2 Brothers’ Agreement save that D1 admitted that there was an outstanding mortgage loan on the Scenic Garden Property with the Bank of East Asia, and that pursuant to the 3 Brothers’ Agreement, the legal title of the Scenic Garden Property remained vested in D1 and that D1 and P were to share the beneficial ownership equally and that D1 had solely maintained and managed the Scenic Garden Property after the 3 Brothers’ Agreement.

193.  It was not disputed that after P emigrated, Wai Yin and his family moved to the Scenic Garden Property to live with Father. P’s evidence was confusing as to whether Wai Yin was still living there when he returned in April 1995.  During the trial, P had said that Wai Yin and his family had already moved out in April 1995, and D1 was living there with Father.  P had also said after he landed in Hong Kong in April 1995, he went and stayed in the Scenic Garden Property that night and that next day, he had discussed the matter of renting the property out with D1 at 15 QRE, and that D1 agreed to rent out, but that D1 had said he had to wait until Wai Yin moved to Kar Yau Property first before renting out.  What P said seemed to indicate Wai Yin had not yet moved out from the Scenic Garden Property at the time. 

194.  P was also asked during the trial that since the mortgage payments for Scenic Garden Property had been paid from the Family Furniture Business up to April 1995, and if according to P’s case, the Partnership was terminated pursuant to the 3 Brothers’ Agreement, then whether P had considered that he might have to pay his share of the mortgage if the property was not rented out or if the rent was not sufficient to cover the mortgage, P’s response was that since D1 had moved into the Scenic Garden Property, D1 would have to pay rent, and that as D1 was living there, D1 was to be responsible for all the mortgage payments and that P would not interfere with the steps taken by D1. 

195.  There was no mention that as part of the 2 Brothers’ Agreement that D1 had to pay rent for the period he was living in the Scenic Garden Property.  In fact, after purchase of the property, P and his family and Father had been occupying the property and later after P’s emigration, Wai Yin and his family had been occupying the property with Father, there was no evidence that either P or Wai Yin or Father had ever paid any rent or was required to pay rent.  I do not find any sufficient evidence that D1 had agreed to pay rent for his (and/or for Father’s) occupation of the Scenic Garden Property.  P had claimed that it was a term of the 2 Brothers’ Agreement that D1 was responsible for management and maintenance of the property but it was not alleged that this was in consideration of rent. 

196.  There was no mention in the 2 Brothers’ Agreement as to who was to pay for the mortgage payments during the period after the 3 Brothers’ Agreement until the property was rented out.  There was further no mention as to who was to pay for renovation after Wai Yin, D1 and Father had all moved out, which according to D1 was about HK$400,000.  When asked during the trial, P’s evidence was that he (and his family and Father) had lived there for 5 years and he claimed there was no need for renovation and at most only a repainting or repolishing of the floor.  As seen in the tenancy agreement, the property was let with household facilities provided, in order words furnished with furniture.  D1 was not really cross-examined on the amount of HK$400,000 which he said he had spent on the renovation, and there was no sufficient evidence to contradict his evidence.  The fact was that D1 was able to rent out the property furnished at a monthly rent of HK$53,000 when P’s own evidence was the then market rent was only HK$35,000 per month, which would indicate that D1 had spent money in renovating and furnishing the property.  In fact, as later seen in this judgment, the original furniture in the property was placed in storage with Shen Fat.  I am prepared to accept D1’s evidence on the amount he had spent on renovation.  In any event, even on P’s case, some expenses would still have to be incurred before the property could be rented out, and yet, there was no mention by P as to who was to pay for it.   

197.  If there had indeed been an express discussion leading to the 2 Brothers’ Agreement, one would have thought that some of the above matters or expenses would have been discussed and the agreement would provide for the same.

198.  I find that after April 1995, P simply left everything in relation to the Scenic Garden Property and the Family Furniture Business for D1 to deal with while he himself returned to live in Canada.  I do not find that there was sufficient evidence that P and D1 had any express discussions during the April 1995 Meeting or that they had reached an oral agreement with those terms as alleged in the 2 Brothers’ Agreement by P

K.  Issue (2) – Whether there was the alleged Surrender on the part of P

K.1    D1’s pleaded case

199.  In the Defence, D1 had pleaded that due to P’s misappropriation , he had to mortgage his property in Canada to transfer  CAD 400,000 to the Family Furniture Business and that P owed him the amount which D1 had paid for P’s misappropriation (“Debt”)[46].  It was D1’s initial pleaded case in the Defence that in about April 2016 D and Wai Yin were able to contact P and P replied that he proposed to transfer his beneficial interest over the Scenic Garden Property to D1 in consideration of the discharge of the Debt and that P would not have to make any further contribution towards the mortgage payments of the Guangzhou Properties[47].

200.  In the Amended Defence, D1 had amended his case to one based on the Surrender, in the May 1988 Telephone Call in the presence of Madam Cheung and Wai Yin[48]. 

201.  It was D1’s pleaded case that the Debt was what P owed D1 for what D1 had paid for P’s misappropriation[49] and that the Surrender was[50] :

(a) to evade the Debt which P had never repaid;

(b) to evade P’s responsibility of making payment for the repayment of the mortgage loans and other outgoings and liabilities of the Scenic Garden Property and the Guangzhou Properties, the net equity values of which were falling;

(c) to evade P’s responsibility of having to settle all outstanding accounts arising from the Scenic Garden Property and the Guangzhou Properties and also the accounts arising between the 3 Brothers in respect of the Partnership (including the repayment of the Debt to D1 and the sharing of the profits of the Partnership).

K.2    The Debt

202.  D1’s pleaded case was however that the Debt amounted to HK$2m[51] being the amount of the overdraft facility of CAD 400,000 (which was equivalent to about HK$2m) obtained by D1 from the mortgage of his own property in Canada and which he then transferred to the business in stages to pay off the Partnership Debts, which were subsequently repaid by about 1997.

203.  D1’s evidence in his witness statement was that the Debt was HK$2.2m[52], being the alleged Misappropriated Sum of HK$1.2m plus the mortgage payments of the Scenic Garden Property which P should have paid but failed to do so and which D1 had to pay, and the total came to HK$2.2m, but then later in his witness statement, his evidence was again the Debt was about HK$2m[53]

204.  There appeared to be two versions from D1 in relation to the amount of the Debt:

Version (1): About HK$2m (or CAD 400,000) raised out of the mortgage of D1’s property in Canada and transferred into the Family Furniture Business in stages for payments of outstanding Partnership Debts or payments to suppliers.

Version (2): About HK$2.2m, consisting of the Misappropriated Sum of HK$1.2m plus P’s share of the mortgage repayments of Scenic Garden Property

205.  During the trial, D1 was asked to clarify which of his above versions was correct.  D1’s initial response that versions (1) and (2) were both correct as they were in relation to 2 different sets of figures.  He said during the Relevant Period when P was managing the business, there should have been HK$1.8m profit, plus the renovation fee of HK$400,000 for the Scenic Garden Property, the total should be a total of HK$2.2m.  Later, on the 2^nd day of cross examination, D1 then said that the HK$2.2m was made up of HK$1.2m being the Misappropriated Sum plus HK$1m being the sum which P ought to contribute to Scenic Garden Property.  However, when he was asked to explain the HK$1m in relation to the Scenic Garden Property, he gave calculations which did not seem to add up to HK$1m.

206.  I have to say D1’s evidence as to the amount of the Debt and/or the calculations of the amount was rather confusing.  I have earlier made an adverse inference against that P, namely that he had withdrawn funds from the Family Furniture Business for his personal use but there was no sufficient evidence the amount was $1.2m.  I have found that there were Partnership Debts and at the time of August 1994 when P emigrated but there was no sufficient evidence that the amount was about HK$2m.  However, I find that as at the end of December 1994, the Partnership Debts, that is “Accounts Payable” to Shen Fat would be at least about $600,000 for those invoices rendered from June 1994 onwards.  Since I have found that there was no sufficient evidence of the termination of the Partnership pursuant to the 3 Brothers’ Agreement, the Partnership would have continued after April 1995, but managed and operated by D1 on behalf of the 3 Brothers and/or Father.  As mentioned earlier, it would appear that the 3 Brothers had remained signatories together with Father to the business bank account/s at least until August 1999 when P returned to manage the business and it was then that D1 ceased to be a signatory according to P.

207.  As for the Scenic Garden Property, it was D1’s pleaded case that Wai Yin and his family moved out therefrom in about mid 1995, and that D1 moved in while he was in Hong Kong.  During the trial, D1 had explained that after the 3 Brothers’ Agreement in April 1995, he did not move back to Hong Kong permanently and was commuting between Hong Kong and Canada as his children were all in Canada.  Initially, he remained in Hong Kong for 2 to 3 months and he then returned to Canada to arrange for the mortgage of his property in Canada.  He stayed in Canada for 1 to 2 months before returning to Hong Kong and remained here until Christmas 1995 when he again returned to Canada until after Chinese New Year.  It was also D1’s evidence that he and Father moved out from Scenic Garden Property to a small rented room in about late 1995.

208.  I have accepted earlier that in order to rent out the Scenic Garden Property, D1 said he had to incur about HK$400,000 on renovation works.  In fact, it would appear that the original furniture in Scenic Garden Property during the family occupation had to be arranged to be stored with Shen Fat, as evidenced by a handwritten record of Madam Cheung’s which was undated but said to be written in 1995[54].  All this must have taken place prior to 1 November 1995, since the evidence showed that on 1 November 1995, the property was rented out to a Korean finance company (“KEB”) for 24 months at a monthly rental of HK$53,000[55].

209.  As the Scenic Garden Property was only rented out on 1 November 1995, it would thus seem there was a period of at least 6 months after the 3 Brothers’ Agreement in which there was no rental income, and there would be mortgage payments and other outgoings plus the renovation costs.

210.  D1 then arranged for a refinancing/re-mortgage of the Scenic Garden Property in August 1996 (“Re-Mortgage”).  I will come back to the Re-Mortgage issue later.

211.  At the time of the 3 Brothers’ Agreement, it was not disputed that there was an outstanding mortgage loan on the Scenic Garden Property from Bank of East Asia which was estimated to be about HK$2m.  As can be now be seen from the BEA bank statements, the exact amount of mortgage loan outstanding as at 27 April 1995 was HK$1,787,676.29 and that the monthly instalment was HK$27,687.50.  There were also other outgoings in relation to the property of some HK$10,000 per month[56]. 

212.  There was no reason why P should not be responsible for paying for 50% of mortgage instalments plus outgoings prior to the Scenic Garden Property being rented out, and 50% of the renovation expenses, and also 50% of mortgage instalments (at least at the pre Re-Mortgage amount) plus outgoings for about 2 months, for July and August 1998 which was after KEB moved out and before the new tenant started to pay rent.  Then there were also the outstanding mortgage instalments on Guangzhou Properties and their related expenses of which P should bear at least one third thereof.

213.  P’s case was that his understanding at the time was that the then monthly instalment payment was about HK$27,000 per month and that the market rental of the property should be of about HK$35,000 per month and the rental should be sufficient to cover the expenditure incurred of the Property[57]. However, there were other expenses apart from the mortgage instalment as seen above and a market rental of HK$35,000 per month would not be sufficient or would only be barely sufficient to cover the expenses and the mortgage payments for the Scenic Garden Properties, but there was no evidence from P as to how any deficit was to be met.  As said earlier, there were also the mortgage instalments of the Guangzhou Properties of some HK$11,000 per month of which P should be at least responsible for 1/3 thereof.

214.  It was D1’s evidence during the trial that after the 3 Brothers’ Agreement until end of 1995, he had paid HK$1.4m to Shen Fat and that in June/July 1995, he had remitted Can $400,000 from the mortgage of his property in Canada to the business, but at end of 1995 he still owed Shen Fat about HK$700,000.  Also as Wai Yin had no money, D1 had said he had to pay Wai Yin HK$600,000 to help him resolve his financial difficulties, and that he then arranged for the Re-Mortgage of the Scenic Garden Property in July/August 1996 to raise funds for the Family Furniture Business. 

215.  It was D1’s case that the Family Furniture Business repaid all its debts in about 1997[58].

216.  Although D1’s evidence was confusing at times, there was no sufficient evidence to contradict his evidence that he had remitted Can $400,000 (HK$2m) which was obtained from a mortgage loan of his Canadian property to the business.  I am prepared to accept that P did owe D1.    

217.  Anyway, it was also D1’s evidence that between about 1996 and 1998, he had tried to telephone P on many occasions to try to ask P to repay the Debt, but was unable to contact P except on one occasion when P had said he would find time to deal with this.  There was no sufficient evidence to contradict what D1 had said.  I am prepared to accept D1’s evidence that he was not able to contact P in relation to the Debt.

K.3    The Re-Mortgage

218.  As seen from the Land Registry record, the Re-Mortgage took place on 16 August 1996.  It would appear from HSBC’s offer letter of 15 July 1996, the banking facilities consisted of two parts, namely (i) a Home Mortgage Loan of HK$1,605,000 to be repaid by 120 monthly instalments with interest (“Home Mortgage Loan”) and (ii) a loan of HK$1.2m and repaid by 60 monthly instalments of HK$20,000 each (“Personal Loan”)[59].

219.  It was P’s case that D1 had rented out the Scenic Garden Property without accounting to him for the income and expenses of the property, and further the Re-Mortgage by D1 was without P’s knowledge or consent. 

220.  D1 explained in his 1^st witness statement that he had arranged for the Re-Mortgage due to a lower interest from HSBC and that he also obtained the Personal Loan of HK$1.2m for the business to repay the Partnership Debts[60].

221.  It was not disputed that the Home Mortgage Loan from HSBC was utilised to pay off the then outstanding amount of mortgage loan from the Bank of East Asia.  As seen from a final statement of instalment loan account, a sum of HK$1,590,768.88 was paid to Bank of East Asia on 17 August 1996.

222.  P had however produced various banking documents to show that the Personal Loan of HK$1.2m was applied by D1 towards his personal use.  According to P, CAD 30,000 (about HK$ 169,305) was transferred to the joint CAD account of D1 and Madam Cheung at HSBC, and further as seen from a HSBC Time Deposit Confirmation, a sum of HK$700,000 was first placed on a one month deposit from 16 August 1996 to 16 September 1996 in the joint names of D1 and Madam Cheung[61]. As further seen from HSBC transfer advices, a sum of CAD25,000 (about HK$141,087.50) was  later remitted from the joint account of D1 and Madam Cheung on about 19 August 1996 to an account at HSBC in Canada in the name of their son Edmond Kam Man Shiu, namely D2 herein and a sum of CAD30,000 (about HK$169,305) was remitted by D1 and Madam Cheung to their other 2^nd son[62].

223.  D1 admitted that he did not inform P of the Re-Mortgage but D1 denied that there was any misappropriation of funds or any wrongful act on his part[63]. In particular, D1 averred that the Personal Loan was retained by D1 to repay the Partnership Debts and the mortgage loans of the Scenic Garden Property and the Guangzhou Properties and that it was P who did not share the responsibility of maintaining and managing the Scenic Garden Property and paying for expenses and liabilities and it was D1’s case that he did not have any duty to inform P of the Re-Mortgage or seek his consent thereon. 

224.  In D1’s 1^st witness statement, he had said that the Personal Loan was obtained to repay the Partnership Debts. During cross-examination, he had explained that out of the HK$1.2m of the Personal Loan, HK$500,000 was remitted to Canada for his children’s education fees and HK$700,000 was placed on a monthly fixed deposit with the bank as the sum was intended to be for Chuk Lam whom D1 had promised to pay all amounts outstanding to Chuk Lam by end of the year and that he had later paid Chuk Lam in October 1996 and it was D1’s evidence that between April 1995 when he took over the operation and management of the business until October 1996, he had repaid all HK$2m then outstanding to Chuk Lam.  He accepted that Wai Yin should bear 1/3 of the HK$2m, but he said he had asked Wai Yin but Wai Yin had no money, and that as he required capital for the business, he decided to arrange for the Re-Mortgage.  It was also D1’s evidence that before approaching HSBC for the Re-Mortgage in July 1996, he had telephoned P and suggested that at least he should repay the Misappropriated Sum of HK$1.2m to the Partnership but P said he was busy and that he had to go to USA and then hung up on D1, and D1 was not even able to tell P about the Re-Mortgage.

225.  It was D1’s evidence that between August 1995 until end of 1995, he had paid HK$1.4m to Chuk Lam, and that at end of 1995, he still owed Chuk Lam about HK$700,000.  He therefore applied for the Re-Mortgage. 

226.  It was further D1’s evidence that the mortgage instalments of the Guangzhou were paid until April/May 1998 and although Flat 6D was awarded to Wai Yin’s mistress, D1 said he did not know at the time and had continued to arrange the business to pay the mortgage instalments from the HKD business account at HSBC by cheques being deposited respectively into Wai Yin’s personal HKD account at Bank of East Asia for Flat 6D, and P’s personal HKD account at Bank of East Asia for Flat 6C.  D1 had also said he had spoken to Wai Yin and told him as Flat 6D belonged to the 3 Brothers/Partnership, and that Wai Yin should resolve the matter with his mistress.  As for Flat 6C, he was later told by Wai Yin in about August/September 1998 that it was repossessed by the mortgagee bank.

227.  D1 took the view that he did not need to tell P about the Re-Mortgage, as P had left everything for him to deal with but in any event, he had tried to tell P over the telephone but P hung up on him.  It was also P’s own evidence that after the 3 Brothers’ Agreement, and the 2 Brothers’ Agreement, he returned to Canada and simply left everything to D1 to deal with.  I have found earlier that there was no 2 Brothers’ Agreement.  In my view, as P had left everything for D1 to deal with, it was not unreasonable for D1 to form the view that he did not have to consult or inform P over the Re-Mortgage.

228.  It was pointed out on behalf of P that had there not been the additional Personal Loan of HK$1.2m, with a monthly rental of HK$53,000 over 24 months, after deducting the original BEA mortgage instalment of about HK$27,687.50 per month and even assuming various expenses of say HK$10,000 per month[64], there should still be a net of at least HK$15,000 per month, which should well cover the month mortgage payments of the Guangzhou Properties of about HK$11,000. In any event, the mortgage payments of the Guangzhou Properties should in fact be shared equally by the 3 Brothers, and not just paid by P and D1, and there was no sufficient evidence that D1 had sought any payment from Wai Yin. 

229.  However, I have found earlier there were Partnership Debts and I accepted D1’s evidence that he had transferred about HK$2m (Can$400,000 obtained from the mortgage of his Canadian property) into the business and that he had incurred $400,000 for renovation of the Scenic Garden Property.  The Re-Mortgage and D1’s transfer of HK$500,000 of the Personal Loan back to Canada to meet his sons’ education expenses had to be seen in the then background and circumstances.

K.4    The May 1998 Telephone Call

230.  As said earlier, from 1 November 1995, the Scenic Garden Property was rented out to KEB at a monthly sum of HK$53,000 for 24 months.  After the expiry of the initial 24 months, the tenancy with the KEB was renewed for another 12 months from 1 November 1997 until 31 October 1998 at the same monthly rental of HK$53,000 with an early termination clause after 6 months.  However, due to the Asian economic crisis, KEB later requested for early termination of the tenancy in early 1998 and that the last day of the rental payment was to be end of 30 April 1998.  The tenant later moved out on 30 June 1998. 

231.  It was D1’s evidence that the market value of Scenic Garden Property had fallen drastically by then.

232.  D1’s evidence was that as KEB gave notice in early May 1998 for terminating the tenancy and he was not able to raise funds to pay for the mortgage payments for the Scenic Garden Property and also the Guangzhou Properties, he had approached Wai Yin as to whether he could pay for some instalments, but Wai Yin said he did not have any money. 

233.  It was D1’s evidence that Wai Yin, in the presence of D1 and Madam Cheung, telephoned P who was in Canada at the time. During this call, Wai Yin had requested P to remit some money to meet the mortgage payments of the Guangzhou Properties, but such request was refused by P.  D1 said he then took over the telephone and he himself spoke to P to explain that the tenant of the Scenic Garden Property was moving out and the Family Furniture Business turned worse, and requested P to remit HK$30,000 odd to Hong Kong, to pay for one month’s mortgage instalments for the Guangzhou Properties and the Scenic Garden Property, in order to avoid repossession by the mortgagee banks, but P told D1 that (i) he had no money; (ii) he did not want anything; (iii) he had already “cut off “ Hong Kong; (iv) not to call him again.  P then hung up on D1.  In Chinese, what was alleged to have been said by P was “我冇錢，我咩都唔要，我都賣斷香港，以後唔好再打電話俾我”.  Although Wai Yin had tried to call P again, P never answered the call.

234.  Eventually, according to D1, although he managed to pay the mortgage instalment for the Scenic Garden Property but not the Guangzhou Properties.  As mentioned earlier, later Flat 6C was repossessed by the mortgagee bank.

235.  It was not denied by P that there was a telephone call between him and D1.  In his Amended Reply he had pleaded that sometime in 1998, during a telephone call D1 had represented to P that the rental income from the Scenic Garden Property was insufficient to meet the mortgage payments and that P replied to D1 that the rental income should be more than enough and that P seriously doubted about the words of D1.  P further proposed that if D1 did not wish to retain the Scenic Garden Property, P would agree to sell the property immediately and to share the sale proceeds equally with D1, but that on such conversation, D1 appeared evasive and did not respond to P’s demands for accounts or proposal for sale[65].

236.  Anyway, it was D1’s pleaded case that, as a result of the May 1998 Telephone Call, P had surrendered his interest in the Scenic Garden Property.  It was further D1’s evidence that between April 1995 and March 2009, D1 had to be solely responsible for all maintenance, management and rental matters of the Scenic Garden Property and mortgage instalments, and that his monthly payments included:

 (i) Monthly mortgage instalments of HK$27,683.50 increased to about HK$40,000 per month after the Re-Mortgage;

 (ii) As mentioned, other monthly payments averaging about HK$10,000, including management fees, government rent and rates, property tax, insurance costs, property agency fees, and legal costs for preparation of tenancy agreements.

237.  A new tenant for the Scenic Garden Property was eventually found in July 1998 but the tenancy only commenced from 7 September 1998 and was for 24 months until 6 September 2000 at a monthly rental of HK$35,000 per month[66].

238.  Even though a new tenant was found and that KEB had paid 2 months rental deposit, there was still be 2 months with no rental income.  I accept D1’s evidence that upon KEB giving notice of early termination and with the possible loss of a monthly rental income of HK$53,000 and with the mortgage instalments and business expenses, this would have caused D1 serious concerns at the time.  I accept D1’s evidence that he and Wai Yin had telephoned P in May 1998 to seek help out of desperation.

K.5    The legal principles on Surrender

239.  It has been held in Jones v Kernott [2012] 1 AC 776 where a family home had been bought in joint names of an unmarried cohabiting couple who were both responsible for any mortgage, but without any express declaration of their beneficial interest, that, amongst other things, (1) the starting point was that equity followed the law so that the presumption was that they were joint tenants both in law and in equity; (2) the presumption could be displaced by showing that the parties had had a different common intention at the time when  they  had acquired the home or that they had later formed a common intention that their respective shares would change; (3) the primary search was for what the parties had actually intended and their common intention was to be deduced objectively from their words and conduct; (4) financial contributions were relevant but there were also other relevant factors which might enable the court to decide what shares had been intended by the parties or were fair; and (5) each case would turn on its own facts[67].

240.  In Quaintance v Tandan [2014] WTLR 1609, the Court, referring to Jones v Kernott upheld the declaration granted by the trial judge that the entire beneficial interest was vested in one of two co-owners where the other had abandoned the trust.  The Court held that the common intention of the parties had changed when the partner had left the property and failed to contribute any mortgage payments.

241.  Mr Khaw further referred this Court to Pang Ketian Sally v Tam Yuk Hung Annie HCA 298/2012, 11 June 2013, which was affirmed on appeal in CACV 147/2013, 25 April 2014.  Recorder Coleman SC, as he then was, dismissed the plaintiff’s claim for a 5% share in the property on the basis that she had surrendered her interest in the property when the property market deteriorated, in return for being released from any obligation to fund the purchase and any other costs associated with it.

242.  There was no dispute in the above general legal principles but Mr Lam submitted that for a surrender to be valid and effective, the following conditions should be met :-

(1) The expression of surrender must be clear, unequivocal and intended to create legal relationship rather than an emotional outburst; and

(2) The decision to surrender must be an informed one.  

243.  However, as said by Lord Walker and Baroness Hale in Jones v Kernott[68], the parties’ common intention is to be deduced objectively from their conduct, referring to the following passage of Lord Diplock in Gissing v Gissing [1971] AC 886, at 906 :

“the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words and notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party”. (emphasis added)

244.  Essentially, as held in Jones v Kernott, each case will turn on its own facts.

K.6    Discussion

245.  It was not disputed that the 3 Brothers had reached a fresh agreement after the date of purchase of the Scenic Garden Property pursuant to the 3 Brothers’ Agreement.  The issue was whether P and D reached another fresh arrangement or understanding during the May 1998 Telephone Call whereby P had confirmed surrender of his interest in the Scenic Garden Property.  

246.  As set out earlier, the mortgage repayments and other outgoings and expenses of the Scenic Garden Property had always paid out of the Family Furniture Business which was run by the Partnership prior to the 3 Brothers’ Agreement.  Notwithstanding his own case that the Partnership was terminated and that he had no share in the business, P accepted during cross examination that after the 3 Brothers’ Agreement he had never paid for the mortgage instlaments or outgoings or expenses of the Scenic Garden Property or the mortgage instalments of the Guangzhou Properties.  It was also clear from his answers during cross-examination that he never considered that he would have to make any personal contributions towards the mortgage instalments or any of outgoings/expenses of the Scenic Garden Property even if the property could not be rented out.  All he had said was that he knew it was rented out for a good rent, and there was no reason why the rent could not cover the mortgage repayments/outgoings/expenses and that if it could not, then the property could be sold.  Further, he had also said that prior to Father and D1 moving out, he considered that D1 should pay the rent as D1 was occupying the property with Father even though this was not a matter ever raised by him before the trial.

247.  P had agreed during the trial that after the 3 Brothers’ Agreement, everything concerning the Scenic Garden Property was dealt with and managed by D1 and if there was not enough money to pay the mortgage instalments then D1 was to deal with the matter.  When P was asked whether it was the case that he would not interfere with how D1 had dealt with the property, P’s response was as he was living in Canada, how could he have dealt with the property.  I agree with what was submitted by Mr Khaw, that P’s answer showed that his attitude was that D1 was to sort everything out and not to bother P. 

248.  In fact, I find P’s attitude also contradictory.  On one hand, D1 was to sort everything out and not to bother him and on the other hand, P’s case was that D should consult with him on matters concerning the Scenic Garden Property.  I find it odd that although P repeatedly complained that D1 had failed to consult him over the Re-Mortgage or to account to him the rental of the Scenic Garden Property, there was no evidence that P himself had taken any positive steps to find out about the details of the rental/outgoings/expenses of the property.  It would appear from P’s evidence that he had regular contact with Father and it was his evidence that it was Father who had told him about Flat 6C of the Guangzhou Properties being rented out by Wai Yin for RMB 5,000 per month and that Flat 6D was occupied by Wai Yin and his mistress.  Flat 6C was registered in P’s name and he thus held the property in trust for his 3 brothers and yet, he seemed content to again leave everything in relation to that property to his brothers to deal with. 

249.  Under cross-examination, P admitted that he had heard from Father that Scenic Garden Property had been rented out, and it was revealed further during cross examination that P knew that the property was rented out at a good rent which he said D1 had told him but he claimed he did not know the actual amount of the rental as D1 had never told him the exact amount.  However, it was P who produced copies Copies of Property Tax Assessments of D1 for 1996/1997, 1997/1998, 1998/1999 (which were sent to 15 QRE) D1’s Tax Returns for Personal Assessment, (also sent to 15 QRE), HSBC facility letter for the Re-Mortgage, tenancy agreements.  P’s evidence was that he only found these documents during the present litigation.  It was also P’s evidence that he was not in Hong Kong, and that he also was not aware that Flat 6C of the Guangzhou Properties was repossessed by the mortgagee bank because there was failure to pay the mortgage instalments.   

250.  As P took over the management and operation of the Family Furniture Business in August 1999, one would have thought that all the financial documents/information would have been in his possession and/or available to P from that time onwards.  In fact, the Notices of Property Tax Assessment in relation to the Scenic Garden Property produced by P were issued to D1 and were sent to 15 QRE including one dated 22 March 2000[69], which would be after P’s return to take over the management of the business.  

251.  Anyway, if P considered himself as a 50% beneficial owner, P should have personally contributed towards all the expenses prior to the property being rented out including renovation expenses. 

252.  It was not disputed at the time when the May 1998 Telephone Call was made, the Hong Kong economy and the property market had collapsed due to the Asian financial crisis, and I have found earlier that KEB’s early termination of the lease would have caused D1 serious concerns as both the property market and the business looked gloomy.  I find that it was against such background that D1 together with Wai Yin had made the May 1998 Telephone Call to P asking P to transfer HK$30,000 odd to meet expenses.  The small amount in fact would be consistent with D1’s concern and desperation.  P did not deny there was a call from D1 but as said earlier, his attitude was that the rental income should cover the mortgage payments/outgoings/ expenses and that if not, D1 could sell the property.  I find that P’s evidence indicated that D1 did in the May 1998 Telephone Call mention the financial difficulties faced by D1 at the time in the business, and with the continuing mortgage repayments and other outgoings not only for the Scenic Garden Property but also Flat C of the Guangzhou Properties.

253.  Further, I find what happened after the May 1998 Telephone Call was consistent with D1’s case that P refused to help out and did not want to be called upon again in relation to the Scenic Garden Property or the business and in fact surrendered his interest in the Scenic Garden Property.

254.  It would appear that the May 1998 Telephone Call was the last straw and the relationship between P and D1 broke down completely thereafter.  P admitted that D1 never contacted him again after the May 1998 Telephone Call, and never made any further request for contribution.  P also admitted he did not attempt to contact D1 after the May 1998 Telephone Call to ask about what happened to the Scenic Garden Property and the Guangzhou Properties save that P alleged he did ask D1 about the Scenic Garden Property in 1999 when D1 and Madam Cheung allegedly went to back 15 QRE to retrieve various documents about 10 days after P had taken over the operation of the business on about 1 August 1999.  It was P’s evidence that on that occasion D1 had indicated he would sell the Scenic Garden Property after two years and that D1 would then render account and/or calculations of their respective share. 

255.  D1 and Madam Cheung denied that they had returned to 15 QRE to retrieve documents in 1999.  It was clear that after the May 1998 Telephone Call, P and D1 had no further communications with each other and as said earlier, the relationship between the two brothers had broken down completely.  Although D1 did visit Father whenever he returned to Hong Kong between 1998-2005, it was his evidence that after the May 1998 Telephone Call with the relationship between him and P severed, he had not returned to 15 QRE in particular after P returned to take over the management and operation of the Family Business.  Madam Cheung’s evidence was in fact that she and D1 did not return to Hong Kong in 1999 at all, and that their son D2 returned in 1999 all by himself and that D2 had to stay with Madam Cheung’s mother in Hong Kong as his parents had not accompanied him.

256.  In light of the breakdown of the relationship between P and D1, it did not seem probable that D1 would return to 15 QRE after P had taken over the management and operation of the business.  In any event, I find there was no sufficient evidence that D1 had returned to 15 QRE in 1999 to retrieve documents.  Even if D1 and Madam Cheung did return to 15 QRE in 1999 to retrieve documents, and P did ask them about the Scenic Garden Property on that occasion, on P’s own evidence, it was not until another chance encounter 10 years later in 2009 at the Tao Heung Restaurant that P brought up the matter again with D1.

257.  Thus, even on P’s own evidence, he had not raised the matter of Scenic Garden Property again for at least 10 years, and P’s only explanation was that he was unable to locate D1 and that it was only by chance that he saw D1 and his family at the Tao Heung Restaurant at the end of the February 2009.  It did not seem credible that after 10 years of no contact, and just a few weeks after P read about the newspaper report of the sale, he then by chance saw D1.  In any event, I do not find P’s explanation that he could not locate D1 credible, and there was no reason why he never asked Father or Wai Yin.  In fact, even if he did see D1 and his family at the Tao Heung Restaurant, at the time, the sale of Scenic Garden Property had not in fact been completed and he could have easily found out from the Land Registry as to the solicitors involved in the conveyancing and contacted D1 through his conveyancing solicitors regarding P’s share of the net sale proceeds.  During re-examination, P suddenly said that D1 must have known about his new shop at Dominion Centre because he had seen D1 on the other side of the road from time to time but that D1 would literally hurried away from him.  As pointed out by Mr Khaw, such evidence was never mentioned in P’s witness statements and I do not find such evidence credible.  I find that it was P who had done nothing to show any interest in relation to the Scenic Garden Property after the May 1998 Telephone Call.

258.  According to D1, the first time P brought up Scenic Garden Property was at Father’s funeral in 2013.  The immediate response from D2 who was present with D1, was that P had already surrendered his interest in the Scenic Garden Property and further P had not paid for his misappropriation.  D2 was not cross examined or challenged on this part of his evidence.

259.  I find that P only changed his mind and raised the matter of the Scenic Garden Property with D1 after Father’s death and after he found out that the price of the property had increased fourfolds at time of sale.

260.  All in all, having considered the evidence of P, I find that P did say to D1 during the May 1998 Telephone Call that he had no money and he did not want anything and want to sever with Hong Kong and that that he asked D1 not to call him again in future, namely he did say “我都冇錢，我咩都唔要，我都賣斷香港，以後唔好再打電話俾我。”.

261.  Mr Lam submitted that even if P did say what was alleged to have been said, there was no surrender in law, as :

 (i) P had no legal responsibility to pay for the shares of the mortgage payments of D1 and Wai Yin in respect of the Guangzhou Properties, and P had every reason to refuse the request of D1 for HK$30,000 during the May 1998 Telephone Call;

 (ii) D1 had misapplied the trust funds (ie the rental income of the Scenic Garden Property) in subsidizing the business, and that the inability to meet the mortgage payments was caused by D1’s misapplication of the trust funds;

 (iii) D1 could not rely on his own breach of trust to establish the Surrender.

262.  For (i) above, P was the legal owner of Flat 6C of the Guangzhou Properties, and as trustee of the Flat 6C, he should have paid for the mortgage payments and in any event, he had the responsibility to pay for at least 1/3 of the mortgage payments for both the Guangzhou Properties, until at least as Flat 6D was concerned, when flat 6D was awarded to Wai Yin’s mistress.  As for the Scenic Garden Property, as mentioned earlier, being 50% of the beneficial owner, he had the responsibility of paying 50% of any mortgage payments/outgoings/ expenses.

263.  In relation to (ii) above, as pointed out by Mr Khaw, it was never P’s pleaded case that D1 had misapplied trust funds in subsidizing the Partnership or the Family Furniture Business.  This was not an issue in the Scot Schedule and in any event, there was no sufficient evidence of such misapplication. 

264.  As for (iii) above, again this was not pleaded by P, and this was also not an issue in the Scott Schedule. 

265.  Mr Lam had argued that even if P did utter the words as alleged by D1 during the May 1998 Telephone Call, such utterance was ambiguous, equivocal and at most an emotional outburst, and that there was no certainty of words evincing an intention to create a serious legal relationship nor was there certainty of subject or object.  

266.  The  professional valuation of Scenic Garden Property in April 1995 was HK$9.63m[70] but as seen earlier, a figure of HK$9.5m was adopted for the valuation of the Scenic Garden Property in what P said was in the final calculations of Wai Yin’s Notes of the 3 Brothers’ Agreement and the then outstanding mortgage loan was estimated to be HK$2m.  Thus to P’s and D1’s mind, based on a net value of about HK$7.5m, 50% each would be around HK$3.75m each.  In August 1996, the time of the Re-Mortgage, the outstanding mortgage loan to BEA was about HK$1.6m.  There was no valuation of the property in August 1996.  However, in April 1998, the agreed valuation was HK$8.4m[71] and on 5 May 1998, the agreed professional valuation was HK$8.3m[72]. The property was clearly dropping in value by May 1998 from the time of the 3 Brothers’ Agreement.  I accept that had there been no Re-Mortgage, the outstanding mortgage loan to BEA should be around HK$1.4m in May 1998, or net value of HK$6.9m and 50% beneficial interest would be about HK$3.45m each. If with the Re-Mortgage of HK$2.8m, the net value would be around HK$5.5 m, and 50% beneficial interest about would be HK$2.75m each.

267.  Mr Lam submitted that given the exclusive knowledge and information on part of D1, there should not be an honest belief that P would just there and then give up the Scenic Garden Property which was of substantial value just for avoiding to help by paying HK$30,000. 

268.  However, it was not simply to avoid contributing about HK$30,000.  P could be called upon by D1 to meet his share of the Partnership Debts and his liability of the Debt.  In light of the falling property market, and the early termination of the tenancy by the tenant, if D1 was not able to pay the mortgage instalments of the Scenic Garden Property without any rental income, the mortgagee bank might commence a mortgagee action to recover the property.  There was no guarantee that the property could be sold within a short period of time.  In addition to this, there were the continuing mortgage payments of Flat 6C of HK$5,728 per month.  Faced with all this, I find it probable that D1 did believe and accept P’s surrender of his interest in the Scenic Garden Property. 

269.  Mr Lam had argued that the surrender in the Ketian Sally case was an informed one in that the plaintiff all the time knew the dilemma in the purchase of the property and made her decision to walk away from the investment and that she had by a meeting with the defendant clearly and unequivocally evinced an intention to surrender her interest in the properties.

270.  It is my finding that that P was aware of the then falling property market in Hong Kong and even if he did raise the matter with D1 in 1999, P’s conduct and/or non-action thereafter until after the sale of the property was consistent with the D1’s case of the Surrender.  As I have found earlier, P only changed his mind, it seemed after Father’s death and after he learnt of the sale at 4 times the purchase price.

271.  Having considered the above, I find that P did surrender his beneficial interest in the Scenic Garden Property by what he said to D1 during the May 1998 Telephone Call.

L.      Issue (3) – Whether and how much rental income from the Scenic Garden Property D1 should account to P

272.  In light of my finding that P had surrendered his beneficial interest in the Scenic Garden Property during the May 1998 Telephone Call, and as seen in Quaintenace v Tandam and also the Pang Ketian Sally case, this would mean surrender of his beneficial interest from day one.  Thus. P was/is not entitled to seek an account from D1.

M.      Issue (4) – Whether the Re-Mortgage was wrongful 

273.  As mentioned earlier, although D1 had transferred HK$500,000 out of the Personal Loan back to Canada for his children’s school fees, it was all along D1’s case that he had transferred Can $400,000 raised from the mortgage of his Canadian property to the Partnership in 1995, which I have accepted earlier. 

274.  Having considered all the circumstances, I am not satisfied that D1 had misappropriated trust funds or that the Re-Mortgage was wrongful. Further, in light of my above finding above that there had been the Surrender which would mean P surrendered all beneficial interest from day one, the Re-Mortgage would not have been wrongful.

N.      Issue (5) – Whether and how much sale proceeds D1 should account to P  

275.  In light of my above finding that P did surrender his interest in the Scenic Garden Property, it would follow that P would not be entitled to any account any of the sale proceeds of the property to P.

O.      Issues (6) – (9)

276.  These issues concern P’s tracing claim, in the event P was able to establish that he had continued to have equitable interest in the Scenic Garden Property notwithstanding the May 1998 Telephone Call.

277.  The sale of the Scenic Garden Property was completed on 12 March 2009 and D1 had received an amount of $10,587,562.09 on that day from the balance of the sale proceeds.  Prior to that, D1 received $1,380,000 as a deposit on 9 February 2009.

278.  The Agreement for Sale and Purchase of the flat of Broadwood Property was entered into by D4 on 1 March 2011 for $36,650,000 and in respect of the car parking space on same date for $1.3m.  It was not disputed that D1 had paid on behalf of D4 the following sums for the purchase price of the Broadwood Property:

(i) HK$65,000 for initial deposit on the car parking space by using his credit card;

(ii) To D4’s conveyancing solicitors a total sum of HK$15,180,000 by 2 cashier orders of $10m and $5,180,000 respectively on 16 and 14 March 2011;

(iii) HK$22,165 for costs and expenses.

279.  Whether D4 was a volunteer or not was neither here nor there since D4 was clearly only the vehicle used by D2 to purchase the Broadwood Property and D2 held 99.9% of the shares in D4.  Ds’ case was that a sum of HK$6,406,000 out of HK$15,180,000 in (ii) above, was repayment of various sums D2 had previously entrusted to D1.  The rest was said to consist of loans from D1 to D2. 

280.  D2 had said during the trial that when he was young and before his family emigrated to Canada, he had also helped in the Family Furniture Business in delivering goods.  He returned to Hong Kong in 1999 to develop his own career and started to work at the Hong Kong Stock Exchange.  He later joined the financial would and although his salary at the Stock Exchange was not that high, later when he joined an investment bank, his income became much higher and that between 2010-2012, his annual income would exceed HK$10m. 

281.  In D2’s witness statement, he had set out all the payments he had paid his father as from 2006, and said an amount of HK$6,406,000 was D2’s own money.  D2 had explained whenever he received his quarterly bonuses, he would place any extra money with his father for his father to save on his behalf and this was also because D2 had no securities account of his own.  Thus, it was D2’s case that HK$6,406,000 was in fact D2’s own money which he had placed with his father.  As for the balance HK$8,774,000 of the HK$15,180,000, he said this was a loan from D1 to him.

282.  The Broadwood Property was bought in the name of D4, and D2 was/is the director of D4, and as the director, he was the one who provided a guarantee for the mortgage loan of the Broadwood Property and D2 said he has been paying the mortgage instalments since April 2011. Further, it was D2’s evidence that his wife D3 had paid HK$1m towards the initial deposit for the Broadwood Property on 22 January 2011 out of her own personal money.  D3 herself was at the time working in the insurance field.

283.  D2 had set out in his witness statement a further 27 payments from him to D1, which he said were for repayments to D1 for the loan.  D2 maintained that he and his wife D3 were solely responsible for the payment and expenses of the Broadwood Property and that he had fully repaid D1 for the loan, and that D1 and/or P had never had any legal or beneficial interest in the Broadwood Property.

284.  D2 accepted that the money for the down payment had come from D1’s bank account/s where the sale proceeds of the Scenic Garden Property were deposited, but according to him, his family members had told him about the Scenic Garden Property and that although in 1995, P and D1 were equal beneficial owners, P had later surrendered his beneficial interest.

285.  The was no sufficient evidence to contradict D2’s evidence that he had paid monies to his father after he started working.  I find D2 a credible witness and, having considered his evidence, I accept what he said.

286.  As pointed out by Mr Khaw, it is only if P could establish that D2 was guilty of dishonest assistance or knowing receipt that P could then trace the sale proceeds of the Scenic Garden Property to the Broadwood Property. I do not find there was sufficient evidence that D2 was guilty of dishonest assistance or there was knowing receipt on his part.  P’s tracing claim must in my view fail in any event.

P.      Conclusion 

287.  In light of what was said above, P’s claims against Ds are hereby dismissed.  P is to pay Ds’ costs to be taxed on party and party basis, if not agreed, with certificate for only 2 counsels.