CACV 241 /2016
[2021] HKCA 941
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 241 OF 2016
(ON APPEAL FROM HCA NO 1739 OF 2010)
________________________
BETWEEN
LEUNG PING CHIU, ROY, appointed by Order dated 12 May 2020 to represent the ESTATE OF YANG FOO-OI, since deceased
Plaintiff
and
WAI WAI CHEN 1st Defendant
TIMFORD RESOURCES LIMITED 2nd Defendant
________________________
Before:
Hon Kwan VP, Cheung JA and Chu JA in Court
Dates of Hearing:
27 and 28 April 2021
Date of Judgment:
30 June 2021
________________________
J U D G M E N T
________________________
The Court:
Introduction
1. This appeal[1] st and 2nd defendants, Chen Wai Wai Vivien (“Vivien ”) and Timford Resources Ltd (“Timford ”) against the judgment of Anthony Chan J on 29 November 2016 (“Judgment ”)[2] Chen ”), founder of the Nan Fung Group (“Nan Fung ”; a substantial group of companies based in Hong Kong engaged primarily in property development business), to his immediate family members, being his wife Yang Foo-Oi[3] Yang ”; the plaintiff herein) and their two daughters Angela Chen (“Angela ”) and Vivien.
2. The distribution arrangements were contained in a written proposal A59807 dated 21 August 2004 (“Proposal A ”), according to which Chen would distribute to each of Yang, Angela and Vivien HK$3 billion worth of assets, and this was to be done by distributing to Angela and Vivien each HK$4.5 billion worth of assets, out of which each was to transfer HK$1.5 billion worth of assets to Yang.
3. This action concerned the arrangements made between Yang and Vivien in respect of Yang’s share of the assets distributed by Chen. The arrangements were evidenced in two proposals, Proposal B58031 dated 7 August 2004 (“Proposal Y3 ”) and Proposal B78532 dated 27 October 2004 (“Proposal Y5 ”). These arrangements were referred to in the statement of claim as “the Cash Distribution Agreement” and “Plaintiff’s Distribution Arrangement”[4] Disputed Agreements ”)[5] inter alia , breach of fiduciary duties, non-disclosure in family arrangements and undue influence[6]
4. The judge found in favour of Yang on the above causes of action in that Vivien had failed to disclose to Yang material information, namely, that the properties distributed or to be distributed to Vivien at the time of Proposal A were worth around HK$7 to 8 billion, greatly in excess of the stated worth of HK$4.5 billion. Vivien had dealt with Yang on the basis of Yang agreeing to take only HK$1.5 billion with a modest appreciation in respect of HK$300 million reserved to Yang’s own use[7] 80RR units ”)[8]
5. The judge dismissed Vivien’s counterclaim for declarations that (1) the distribution of the HK$1.5 billion from her to Yang and the manner in which Yang would distribute those assets were governed by various agreements referred to in the defence and counterclaim as the “July 2004 Agreement” as varied by the “August 2004 Agreement” and the “October 2004 Agreement”, and (2) the shares and assets of Timford are governed by a declaration of trust made by Vivien dated 20 January 2005 (“Timford Declaration ”), with the implied term that Yang is not entitled to deplete the value of Timford’s shares.
6. These are the key findings of the judge:
(1) Proposal A amounted to a binding and enforceable agreement (specifically a family arrangement) entered into by Chen, Vivien, Angela and Yang. On account of Vivien agreeing to the terms of Proposal A, Chen gifted to Vivien and/or allowed her to hold the HK$4.5 billion worth of assets. The meaning of Proposal A is plain: Vivien had to give to Yang one-third of what she received from Chen[9]
(2) Vivien owed fiduciary duties to Yang in respect of the properties she received from Chen pursuant to various proposals in 2003 to 2004, stated to be worth about HK$4.5 billion[10]
(3) Vivien acted in breach of her fiduciary duties in that: (a) she failed to disclose to Yang the true market value of the properties distributed to her (Vivien); (b) she failed to pay or account to Yang the full market value of Yang’s one-third entitlement to the properties[11]
(4) By reason of her non-disclosure, she failed the same duty under the law of family arrangement[12] [13]
7. Vivien raised a number of contentions on appeal. They may be summarised as follows:
(1) Vivien was the beneficial owner of the assets transferred to her by Chen in 1999/2000 under an estate duty saving scheme (“Scheme ”) adopted by Chen on the advice of specialist advisers. The judge was wrong to hold that the exercise carried out under the Scheme was a sham. Even though Vivien confirmed repeatedly in writing to Chen that she would deal with such assets in a manner which respected his wishes and for the benefit of the family, the ex post facto documents did not alter the ownership of the assets or affect legal relations, but were merely reflective of Vivien’s obedience to the wishes of Chen as a respectful and obedient daughter.
(2) The asset distribution directions in Proposal A given by Chen, who was not the owner of the assets, could have no legal effect on Vivien’s beneficial ownership and could not have conferred an interest on Yang. Besides, Proposal A was non-binding.
(3) Even if the assets transferred under the Scheme were owned by Chen beneficially, Vivien was Chen’s fiduciary, not Yang’s. The judge was wrong in law to hold that Vivien owed a fiduciary duty to Yang in relation to the asset distribution exercise and that she owed a duty of disclosure to Yang. Nor does the law relating to family arrangement come into this.
(4) The judge was plainly wrong to hold there was breach of a duty of disclosure. Before Proposal A was made, Yang had decided to forgo most of what Chen intended to gift her by distributing to her daughters, grandchildren and charity, reserving to herself only HK$300 million (3/15ths of the HK$1.5 billion to be at her disposal pursuant to Proposal A). Yang obviously knew there was appreciation in the value of those assets. The precise extent of the appreciation in property value was not material information that Vivien was obliged to disclose to Yang, as such information would not have affected Yang’s intended dispositions of the assets. Failure to show that disclosure by Vivien would have made any difference is fatal to Yang’s case on undue influence, family arrangement, rescission and equitable compensation or an account of profits.
(5) Even if Vivien owed Yang a fiduciary duty following Proposal A, the duties associated with that would come into play in relation to Proposal Y5 only, and any non-disclosure would only go to a discrete element of the asset distribution arrangements, namely, the provision in Proposal Y5 for adjusting upwards the HK$300 million cash value of the distribution reserved to Yang by reference to the increase in value of the 80RR units. This cannot justify the more general rescission ordered by the judge, and the award of equitable compensation in the region of HK$8 billion which followed from that. Yang’s complaint of the failure to confer on her the benefit of the general portfolio value increase should relate only to the HK$300 million cash value, entailing a much more limited rescission and a much reduced amount of equitable compensation.
8. Yang brought a cross-appeal to raise a point as to the relief granted. She contended that the judge should have made an order that she is also entitled to elect for transfer of properties, apart from the alternatives granted to her of equitable compensation and an account for profits.
Background
9. We will first set out the relevant background facts and findings. By and large, they are taken from the Judgment, supplemented where appropriate by documentary and oral evidence adduced at the trial.
10. The background matters are largely based upon uncontroversial contemporaneous documents. They evidenced important factual matrix against which the key documents are construed and the lack of viva voce evidence from Yang[14]
(1) General background
11. Chen was the founder of Nan Fung and was its Chairman until about November 2008. Vivien was his chosen successor and she became the Chairman and Managing Director in 2009. Angela has taken up residence in the United States since the early 1970s and has been running the business of Nan Fung in the United States.
12. Yang was married to Chen in 1949. She petitioned for divorce in December 2009 and they were divorced by a decree absolute granted by consent in April 2011. Angela is their elder daughter and Vivien the younger.
13. Chen was a very successful businessman before he passed away on 17 June 2012 at the age of 89. In 2002, he had assets of about HK$50 billion located in Hong Kong and overseas.
14. Yang only received primary school education, and, in the words of Daniel Yip Ho (“Daniel ”), a senior staff of Nan Fung who looked after her financial affairs, she lacked “understanding of how modern commercial structures and finance works operate”, leaving her “vulnerable to manipulation”. She first suffered a minor stroke in October 2010 and a more severe stroke in December 2010. She brought this action against Vivien and Timford in November 2010. She had since been in poor health and passed away on 18 February 2020 aged 95.
(2) Factual witnesses and their credibility
15. Two factual witnesses were called for Yang: Angela and a solicitor, Mr Lam Ching Chun, who witnessed the making of three affirmations by Yang at a hospital. The factual witnesses of the defendants were Vivien, Stephen Cheung Pui Kuen (“Stephen ”), Daniel, Alan Chan Cheuk Yin (“Alan ”) and Karen Cheung Tih Loh (“Karen ”). Stephen, Daniel and Alan were senior staff of Nan Fung at the time. Karen is Vivien’s daughter. Other than Mr Lam, Alan and Karen, whose evidence was not under any real challenge, the factual witnesses were cross-examined at considerable length.
16. The judge found Angela an impressive witness. He rejected without hesitation the allegation that Angela instigated Yang to bring a false case against Vivien. He struggled to find many subjects of her cross-examination of real relevance to this action and saw no reason to doubt her evidence.
17. Stephen had been Vivien’s executive assistant since 1995 and drafted most of Chen’s Proposals that featured in this action. The judge did not find him a reliable witness. A clear example of the unsatisfactory nature of his evidence was his attempt to resile from his evidence that Vivien had told him on more than one occasion she was holding Chen’s Holding Ltd (“CHL ”) on behalf of the family.
18. Daniel was qualified as an accountant. He had worked in Nan Fung for over 35 years before retiring on 1 August 2009. From 1 June 2000 until his retirement, he was the Finance Director and Head of Accounting Department of Nan Fung. Since his retirement, he had been working for Nan Fung as a part-time consultant. Together with Stephen, K L Wong (“Wong ”) and Alan, Daniel was involved in the preparation and execution of various Proposals. The judge formed a clear impression that Daniel was very careful not to say anything which might be thought unfavourable to Vivien’s case. It took many questions to get him to admit that Vivien had told him on more than one occasion she was holding the shares in CHL on behalf of the family. The judge found him evasive in answering questions and did not think him a reliable witness. His evidence showed that he was doing Vivien’s bidding.
19. As for Vivien, the judge was in no doubt she was not a candid witness and that she resorted to long repetitive answers because she was unable to answer the questions and took refuge in a script she had worked out before giving her evidence. When she was taxed in cross‑examination about her ownership of the shares in CHL, many of her answers were vague and she contradicted herself in the course of her evidence. She has deep-seated feelings against Angela and took every opportunity to make adverse comments against her sister. Whilst the court was not concerned with the relationship between the sisters and who was right or wrong, the way in which Vivien kept bringing out irrelevant evidence in her answers gave the judge the impression that she had no good answers and was shifting the focus.
(3) The Proposal System
20. As Chairman of Nan Fung at the time, Chen’s approval was required for various affairs and transactions of Nan Fung. A proposal system (“Proposal System ”) was adopted whereby Chen’s decisions in relation to the operations of Nan Fung would be recorded in standardised Proposals in Chinese endorsed by him.
21. The Proposal System operated as follows:
(i) a Proposal summarising the matters that arose for Chen’s decision would be prepared by the relevant person(s) or staff in charge, who would then submit the Proposal to Chen for his review, and where appropriate, endorsement and/or approval;
(ii) in relation to important decisions, the person(s) submitting the Proposal and other relevant person(s) or staff who might be affected would be summoned for a meeting to discuss the matters raised in the same;
(iii) the outcome of the meeting would be recorded on the particular Proposal, and Chen would sign the appropriate part of the Proposal where the matters raised were approved;
(iv) the Proposal signed by Chen would then be circulated and copied to all the relevant departments and senior staff of Nan Fung, who would then carry into effect Chen’s directions as recorded on the signed document;
(v) where a board resolution was needed for a transaction, the matter, having been approved by Chen via a Proposal, would be considered and sanctioned by the relevant board.
22. The Proposal System was also used for Chen’s personal financial matters, including arrangements for the distribution of his assets. Chen’s decisions were normally abided by his family.
23. Yang also used the Proposal System in relation to the distribution of her assets. Such Proposals were drafted by the senior staff of Nan Fung.
24. The senior staff responsible for a particular Proposal would be listed as “the handlers” (負責經辦人) on the document.
(4) The Scheme and CHL
25. In about September 1999, Chen was diagnosed with prostate cancer. In 1999 to 2000, Chen had put in place the Scheme for estate duty planning purposes. The staff in Nam Fung responsible for the Scheme was Peter Wu, assisted by Daniel. Advice from lawyers (including an English Queen’s Counsel) and accountants was obtained in respect of the Scheme.
26. As overseas assets were exempted from estate duty under the estate duty legislation at the time[15] [16] [17]
27. Vivien’s case at the trial was that the assets transferred to CHL were intended to be gifts from Chen to her absolutely. Yang’s case was that the shares in CHL, the entity which held most of Chen’s Hong Kong assets, were held by Vivien on trust for Chen. According to Yang and Angela, one evening in January 2003, Chen, who was then suffering from the onset of dementia, told Yang he recalled having transferred approximately HK$18 billion worth of assets to Vivien but could not recall the details. He asked Yang to look into the matter and Yang suggested seeking the help of Angela, to which Chen agreed. Yang then called Angela and asked her to return to Hong Kong immediately. A family discord followed when Yang and Angela found out about CHL in January 2003[18]
28. As noted by the judge, there is an abundance of undisputed documentary evidence which supported Yang’s contention that Vivien was to hold the assets transferred to Vivien on behalf of Chen who was to be the beneficial owner. These documents included the following:
(i) an undated document in Chen’s handwriting which read:
“轉慧慧名下 物業轉還 陳廷記名下 頂多付稅”
This referred to a demand for Vivien to transfer assets back to Chen’s personal account even at the cost of paying tax. It clearly referred to the properties under CHL. The judge rejected Vivien’s evidence that she could not understand what Chen was referring to and that the reference to tax might be to stamp duty[19]
(ii) two notes in Vivien’s handwriting dated 19 July 2002 which read:
“本人陳慧慧現有的南丰名下之物業是代為管理。”
“本人陳慧慧現有的南丰名下之物業是代為管理。隨時隨地還出來。”
These notes stated that Vivien was “managing on behalf[20] [21]
(iii) a document in Chen’s handwriting dated 30 December 2002 which read:
“向慧慧取慧慧代我管物業之我簽字文件”
This referred to properties managed by Vivien on behalf of Chen and his desire to have them returned[22]
(iv) a handwritten note of Vivien dated 14 January 2003 which read:
“我名下的陳氏控股公司股份乃是代為管理，隨時可以轉出。我承諾我從爸爸的遺產當中可以分得的數目一定不會多得過陳慧芳可以分得的數目。一定相信爸爸會公平分配。”
This again stated that Vivien was holding the shares in CHL in that she was managing them on behalf of Chen and was willing to transfer the shares at any time. She also promised that she would not be distributed more assets than Angela from Chen’s estate[23]
(v) the notes of a family meeting held at Chen’s office on 24 January 2003 made by Alan[24]
“於1999年有200-300家公司轉給陳慧慧，手續為期7-8個月，由胡偉文主理，張葉協助。
董事長說是因為將來要避稅之安排。
葉，如要付稅將來，估計要21-22億，所以董事長說要作出此安排，葉補充陳慧慧表示是代 [sic] 不當作自己，是代陳 先生 家族持有，1999年至今沒有取股息等。張補充自1999年後，所有批簽建議書手續沒有改變，仍由董事長批示。
董事長問現在如何處理，要轉回陳先生，將來要付稅仰 [sic]或維持現狀。
葉張補充，現在資產分配未有決定。”
The notes recorded Daniel as saying that Vivien had indicated that she was holding CHL on behalf of Chen, which was subsequently amended to “the family” (Alan was unclear who crossed out the reference to “Mr Chen” and altered it to “the family”), and that Vivien was not treating it as her own asset[25]
(vi) report of Daniel to Vivien dated 6 February 2003
Daniel reported to Vivien he had explained to Yang how Vivien came to hold the CHL shares, and he said “她從頭到尾都只是代管而持有的心態”, ie Vivien was all along “managing and holding on behalf”. Vivien agreed that she had seen a copy of this report, and, according to Daniel, she did not object to his explanation to Yang. The judge rejected her evidence that she was preserving the assets (CHL) for the family although they were her assets[26]
(vii) a note written by Daniel on 13 February 2003
This recorded that HK$15.6 billion was gifted to Vivien and that Chen had kept a note from Vivien in his wallet which stated that she was willing to return the CHL shares to him at any time. Daniel had seen the note taken out by Chen from his wallet[27]
(viii) record of a telephone conference with Angela on 14 February 2003
The persons who attended the conference in Hong Kong included Vivien, Wong, Daniel, Alan and Stephen. The relevant parts of this record read:
“(7) 陳慧慧表示陳太亦曾查問有關陳氏控股的158億港元資產當中有關陳慧慧貸款給陳氏控股的事情，但陳慧慧亦不知道詳情，故由葉浩解釋。當時是由陳董事長轉款給陳慧慧，再由陳慧慧貸款給陳氏控股，再由陳氏控股將款項付給陳董事長以購入南豐在香港之大部份公司。實際情況是陳氏控股的資產淨值是2億港元，陳慧慧給陳氏控股的貸款是156億港元，但葉浩已向美寶律師[28]
(8) 有關陳董事長說要陳慧慧將陳氏控股轉回給陳董事長，陳慧慧說絕對無問題，並可以立刻做。葉浩及張沛權亦曾回答陳董事長要轉回股份是非常簡單，可以在一星期左右辦妥。但陳慧慧已提醒陳董事長要多付24億港元稅，並向陳慧芳解釋陳慧慧不是因為自己得不到而寧願益政府，實情是全部要由陳董事長決定及話事，陳慧慧自己是無所謂，因為相信陳董事長及陳太會公平處理。”
This recorded the explanation provided to Angela by the senior staff of Nan Fung of the loan by Vivien to CHL in the total sum of HK$15.6 billion in that Vivien would forgo the loan after Chen agreed to proceed with this. Vivien again stated she was willing to transfer the CHL shares to Chen at any time and everything must be decided by Chen.
(ix) report from Daniel to Chen dated 31 March 2003
Daniel stated that the purpose of selling the assets of Nan Fung to CHL was to avoid estate duty (“上述的目的是避免陳先生的遺產稅”). He wrote repeatedly that in respect of CHL, in law Vivien was the shareholder but in fact she was holding it on behalf of Chen (“法律上，陳慧慧是股東，實際上，代陳先生持有”). The judge found this the clearest expression by a qualified accountant, who knew the distinction between legal and beneficial ownership, that CHL was held by Vivien on trust for her father[29]
(x) a report by Daniel dated 7 March 2005 recording the events of early March 2005, copied to Vivien and Stephen
He recorded Chen’s inquiry with him on 1 March 2005 about the progress of returning the Hong Kong assets to him, in the course of which Chen spoke to Vivien on the telephone and Chen was recorded to have said: “那些香港資產是我要你代為出面代管的，我現在要收回，為什麼不交還給我?” The judge found this document showed there was an understanding between the father and daughter that CHL was held by Vivien on behalf of her father, and Chen had the right to require their return[30]
(xi) Proposal B82727 dated 18 March 2005
This recorded the history of the transfers of funds overseas by Chen to Vivien, by which CHL purchased Chen’s assets in Hong Kong worth about US$1.8 billion. The relevant parts stated:
“4. 因為陳董事長認為陳慧慧所持有的陳氏控股是由陳慧慧代陳董事長持有，而陳董事長要求收回陳氏控股，因此，陳慧慧準備將其擁有的陳氏控股的全部股份及股東貸款之權益以現有狀況無條件以送贈方式交回給陳董事長(亦即把陳氏控股交回給陳董事長) …
5. … 現在陳董事長要收回陳氏控股，他有絕對權力如此做。…
6. 陳董事長願意承擔陳慧慧及其後人於此建議書內提及或準備實行把陳氏控股以送贈方式交回給陳董事長而需要支付的稅項及其他費用。倘有任何人在日後因為陳慧慧把陳氏控股送回給陳董事長(因陳董事長要收回)而向陳慧慧提出任何索償或要打官司，而陳慧慧因而受到損失或一切由此所引起的費用、責任，概由陳董事長(包括其遺產)負責。陳慧慧並要求: 把陳氏控股的全部股份及股東貸款權益交回/轉回給陳董事長之時，由律師及醫生在場見証，及由陳董事長指示黃維弼律師把收回陳氏控股的決定知會陳慧芳的律師呂馮美儀 (美寶)律師。”
This Proposal bore the characters written by Chen “陳洽可即”, indicating his “approval for immediate action”. It recorded the exercise of his “absolute right” to ask Vivien to transfer to him the entire shareholding in CHL and all the interest in the shareholder’s loan by way of gift, and that he would indemnify her of any loss and expense arising therefrom. The judge rejected Vivien’s evidence that she had not seen this document and found that she would have seen it soon after it was made[31]
(xii) Deed of Indemnity between Chen and Vivien dated 3 May 2005
This deed confirmed and carried into effect Proposal B82727. It was drafted by Chen’s solicitors and Vivien was represented by her own solicitors. By this deed, the entire shareholding in CHL and Vivien’s shareholder’s loan(s) to CHL were transferred by her back to her father. Recital (b) stated that “Dr Chen has demanded Chen Vivien to re-vest in him the shares in [CHL] and the remaining balance of the shareholder’s loan to CHL”. The judge noted that this terminology is consistent with a transfer back to the beneficial shareholder[32]
The judge found the evidence compelling. He found that the CHL exercise was no more than a tax evasion scheme and Chen remained at all material times the beneficial owner of the assets transferred to Vivien via CHL, and he had no doubt that at all material times Vivien was holding the shares or assets of CHL on trust for her father[33]
(5) Distribution of Chen’s assets
29. From 2003 to 2004, Chen approved various Proposals for the distribution of his assets. This came about after Yang and Angela had discovered that the shares in various property holding companies owned by him were transferred to CHL.
30. Various reports and Proposals regarding the distribution of Chen’s assets were drafted by the senior staff subsequent to the family meeting of 24 January 2003. These Proposals included the following:
(i) Proposal B63780 dated 11 March 2003: Angela and Vivien would each be given HK$9 billion worth of assets;
(ii) Proposal B69271 dated 17 March 2003: detailed arrangements were made for the distribution of HK$9 billion of assets to each of Angela and Vivien. It should be noted that such assets included the assets held by CHL;
(iii) Proposal B69291 dated 12 April 2003: Chen amended Proposal B69271 and directed that each of Angela and Vivien be given 50% of the shareholding in CHL estimated to be worth about HK$8 billion each. In the event of further gifts or distribution of assets to them, each would receive one half in accordance with the principle of fairness. Both Angela and Vivien signed on the Proposal to record their agreement.
31. In a document entitled “資產分配事” dated 14 July 2003, Chen’s decision to give HK$6 billion worth of assets to each of Angela and Vivien was recorded. It was also recorded that three properties at the Peak and a London property were given to Vivien at her request, but those assets would have to be taken into account in the total distribution to her[34]
32. In Proposal A58540 dated 11 December 2003, Chen decided to transfer certain assets to Angela’s trust (the trust was to be set up to minimise her exposure to US tax). The principle of parity between Angela and Vivien was again mentioned, and the sisters signed on the Proposal.
33. There were a number of documents created in July to October 2003[35]
34. Vivien disputed at the trial the principle of parity applied to all three in the distribution. She asserted that the principle only applied as between her and Angela.
35. It is apparent from the contemporaneous documents that Chen changed his mind repeatedly on the distribution of assets, both as to the amount and the manner of distribution. In Proposal 70653 dated 14 June 2003, it was recorded: “建議書B69291…曾經批准陳氏控股公司的股權分配辦法，但其後陳董事長曾多次考慮作出修改，包括調低贈送金額及以其他資產代替，惟至今尚未有定案”.
(6) 5 January 2004 Proposals and Stephen’s draft Proposal in March 2004
36. On 5 January 2004, Chen approved Proposal A58826 and directed that all previous Proposals, relevant documents and discussion regarding the distribution of assets be cancelled, and that each of Yang, Angela and Vivien was to be given HK$4.5 billion worth of assets.
37. On the same day, Chen further approved Proposal B70699 whereby he directed that:
(i) Since Angela had already been given assets of about HK$4.1 billion (including US real estates and the property at No 8 Mount Austin (“8 MA ”), and the value of the London property and three Peak properties already given to Vivien amounted to HK$955,745,306.59, about HK$3 billion worth of Hong Kong real estates should be transferred to Vivien;
(ii) From the two groups of Hong Kong properties listed in the Annexure (“Group A Properties ” and “Group B Properties ”), each said to be worth roughly HK$3 billion, Vivien should cause to be transferred by way of gift to Yang one of the two groups of properties at the choice of the latter[36]
38. On the next day, 6 January 2004, Yang made her choice in favour of the Group A Properties. That decision was made at a meeting between Yang and Vivien at the residence of the former during which Proposal B70699 was discussed. As evidenced by a report made by Alan dated 6 January 2004:
(i) Yang had a long distance telephone conversation with Angela, during which Yang consulted Angela on Proposal B70699;
(ii) After the conversation, Yang decided in favour of the Group A Properties;
(iii) Yang also indicated her intention that the HK$4.5 billion to be distributed to her would be further distributed in the following manner: (a) HK$1 billion to each of her daughters; (b) HK$0.1 billion to each of her five grandchildren; and (c) HK$1 billion to each of her charity trust to be managed by respectively Angela (Foo-Oi Foundation Ltd (“Foundation A ”)) and Vivien (Chen Yang Foo-Oi Foundation Ltd (“Foundation B ”)).
39. At the trial and on appeal, Vivien relied heavily on Yang’s intention to distribute her assets to her family and charities.
40. Acting on the instructions of Chen, Stephen drafted and submitted Proposal A58835 dated 23 March 2004 for Chen’s approval. This would appear to be the genesis of Proposal A. The arrangement set out in this Proposal was that Angela and Vivien would each be distributed HK$4.5 billion worth of assets (Angela would be allocated US real estates, 8 MA and other Hong Kong real estates, whereas Vivien would get the London property and Hong Kong real estates), and each of them was to gift HK$1.5 billion to Yang, so each of Yang, Angela and Vivien would receive HK$3 billion:
“以往所有關於資產分配金額的建議書、有關文件及討論現一律予以取消，而分配給陳慧芳及陳慧慧的數目更改為每人45億港元的資產，但陳慧芳及陳慧慧每人將來應要將其所分得的45億港元資產其中15億港元送給陳太，即陳太、陳慧芳及陳慧慧每人將可分得的數目為30億港元。”
41. On 14 May 2004, Alan wrote a note in Chen’s office upon his direction to record what Chen was told about the distribution of his wife’s HK$3 billion. The recorded distributions were in favour of the family and charities (similar to Alan’s report dated 6 January 2004), except that Yang would keep a sum of HK$0.3 billion (ie HK$300 million) with each of her daughters.
(7) The 8 July 2004 meeting and Proposals on distribution of Yang’s assets
42. On 8 July 2004, there was a meeting in Chen’s office attended by Chen, Vivien, Wong, Daniel, Stephen and Alan. According to a note of the meeting[37]
(i) Chen approved the proposal that in respect of the remaining balance to be distributed to Angela and Vivien, respectively HK$0.3 billion and HK$0.6 billion worth of assets, they could take certain units from 80 RR and transfer them to the charities in such manner as Yang might decide;
(ii) Vivien telephoned her mother and sought her view. Yang had previously confirmed that Angela and Vivien should donate respectively HK$0.5 billion and HK$0.4 billion of assets to her charity trusts, and that each of them should gift her HK$0.3 billion. It was recorded that the assets (the 80RR units) would be “taken out” (取出) at the valuation of 31 March 2003 but they would be valued at market rate at the time of injection into the charities[38]
(iii) Chen directed that Stephen should draft a proposal for the said arrangements.
43. The judge found that the idea for the inflation adjustment in respect of the 80RR units to be given to Yang did not come from Yang. He noted that this sits poorly with Vivien’s evidence that her mother did not want the appreciation over the other properties but only asked to be paid that in respect of the 80RR units[39]
44. On 15 July 2004, Proposal B75192 (“Proposal Y1 ”) was prepared by Stephen[40]
(i) HK$0.5 billion be paid to each of Angela and Vivien;
(ii) HK$0.1 billion be paid to each of the two children of Angela and the three children of Vivien;
(iii) Angela should directly donate certain 80RR units, which were valued at HK$0.26 billion as of 31 March 2003 and about HK$0.32 billion as of 15 July 2004, and HK$0.18 billion cash into Foundation A (totalling HK$0.5 billion). Vivien should directly donate certain 80RR units of the same value and HK$0.08 billion cash into Foundation B (totalling HK$0.4 billion);
(iv) Angela should give Yang HK$0.3 billion in cash. Yang originally intended to take 8 MA or the shares in the company holding the same, but since Angela had another arrangement she agreed that Angela could give her cash. However, the appreciation in the value of 8 MA and the 80RR units should be accounted for, and the total amount of cash that Angela should give her (taking into account such appreciation) was estimated at HK$0.42 billion. Vivien should give to Yang the same sum in cash.
45. As noted by the judge, the scheme under Proposal Y1 was rather complicated. Stephen was unable to explain the “logic” of the appreciation mechanism (that certain 80RR units would be injected into Yang’s charity trust, Foundation A and Foundation B, at 15 July 2004 valuation but the appreciation between 31 March 2003 and 15 July 2004 would be paid to Yang). Daniel, who personally dealt with Yang on her financial matters, was clear that the old lady could not have come up with the complicated mechanism for calculating appreciation in this Proposal. According to Stephen’s evidence, it was either the staff or Vivien who came up with the mechanism. The judge took the view that in light of Stephen’s inability to explain the “logic” of the appreciation mechanism, the idea came from Vivien, given that she stood to gain from it. By using the appreciated value for the purpose of payment to Yang’s charity trust, this would minimise Vivien’s obligation and at the same time she knew or expected that the appreciation given to Yang would eventually fall back into her hands by way of Yang’s estate [41]
46. Next came Proposal A56987 dated 30 July 2004 (“Proposal Y2 ”), in which it was stated that Yang agreed to cancel Part A of Proposal Y1 regarding the arrangements with Angela and that it would be replaced by other arrangements to be discussed between the two. Angela’s unchallenged evidence was that she knew nothing about Proposal Y1 before seeing it. She was quite upset by it because she did not have the means to make the substantial payments suggested in it. She duly got in touch with her mother and obtained her agreement to cancel Part A of that Proposal.
47. On 7 August 2004, Proposal B58031 (“Proposal Y3 ”) was made[42]
(i) HK$0.5 billion would be gifted to Vivien, and HK$0.1 billion to each of her three children;
(ii) Vivien would arrange donation of HK$0.4 billion to Foundation B;
(iii) the other matters (which probably meant the remaining HK$0.3 billion) would be subject to further discussions between Yang and Vivien.
48. Proposals Y1, Y2 and Y3 were signed by Yang.
(8) Proposal A and Proposal B
49. Proposal A, which contained the distribution arrangements that are the subject of this action, was dated 21 August 2004 and was signed by Chen with his notation “陳洽可即” (“approved for immediate action”). It was drafted by Stephen who confirmed in evidence he had followed Chen’s instructions and had not left out anything of importance. It is a short document in simple terms and read as follows:
“建議書A58826及B70699批准分配給陳太、陳慧芳及陳慧慧每人45億港元資產的安排現予以取消，分配金額改為陳太、陳慧芳及陳慧慧每人30億港元，而分配方法亦更改為分配給陳慧芳及陳慧慧每人45億港元資產，惟陳慧芳及陳慧慧每人會將她所分得的45億港元資產其中15億港元資產送給陳太。”
50. By Proposal A, Chen directed that:
(i) Proposals A58826 and B70699 (both dated 5 January 2004, which have been mentioned above) were cancelled;
(ii) the amount allocated to each of Yang, Angela and Vivien was amended to HK$3 billion;
(iii) each of Vivien and Angela should be allocated HK$4.5 billion worth of assets, but they should respectively gift HK$1.5 billion worth of assets therefrom to Yang.
51. By Proposal B58043 dated 30 September 2004 (“Proposal B ”) and signed by Chen with the same notation, he approved the allocation of assets to Vivien under Proposal A. They included the HK$3,977,378,420.80 worth of London and Hong Kong properties already distributed to her. With the agreement of Yang, the balance of HK$522,621,579.20 would be made up of 67 unsold units and carparks in 80 RR. It was stated that the valuation as at 31 March 2003 would continue to be used in calculating the value of such units and carparks. As for Angela, the assets already allocated to her, namely, US real properties and 8 MA were worth HK$4,246,752,899.75. The remaining HK$253,247,100.25 would be considered and approved later after Angela had set up the trust to receive 8 MA.
52. There were two attachments to Proposal B, namely, two lists of properties of 80 RR. They were referred in the trial as “A List ” and “B List ”. It appears that the 67 units were identified in these Lists. They were signed by both Vivien and Yang.
53. On the evidence before the judge, Proposals A and B contained the final decisions by Chen in respect of the distribution of assets to his wife and daughters in 2004. Proposal A provided the broad structure of distribution, and Proposal B filled out the details. The judge pointed out four matters of note[43]
(i) It was a distribution of landed properties;
(ii) The distribution exercise actually began in July 2003. There is a table which set out precisely the properties received by Vivien[44]
(iii) The properties were valued as at 31 March 2003. Valuations based on that date were used to calculate the amount of assets to make up the HK$4.5 billion;
(iv) Hong Kong was affected by SARS in 2003. The property market suffered badly as a result. However, the market quickly recovered and by September 2004 (date of Proposal B) property prices had significantly appreciated. The fact of significant appreciation was not in issue. The difference between the parties was the precise amount of appreciation.
(9) Proposals Y4 and Y5 and Timford
54. Two Proposals concerning Yang’s asset distribution came into existence in October 2004, namely, Proposal B78519 dated 15 October 2004 (“Proposal Y4 ”) and Proposal B78532 dated 27 October 2004 (“Proposal Y5 ”). Proposal Y4 was not signed by Yang, but the material part was repeated in Proposal Y5, which was signed by her[45]
(i) Vivien would transfer the 80RR units allocated to her under Proposal B to a company held by her and raise funds by mortgaging them;
(ii) The gift of HK$0.3 billion to be made by Vivien to Yang would be increased by the appreciation in the value of the 80RR units from 31 March 2003 in accordance with the valuation of the bank;
(iii) The HK$0.3 billion in cash (or such increased amount) should be paid by Vivien to Yang before 31 January 2005. Yang agreed to put the funds in an overseas company and to invest in overseas assets so as to reduce the risk of taxation in the future;
(iv) A timetable was provided for the donation of HK$0.4 billion by Vivien to Foundation B, which was to be completed before 30 June 2008.
55. By virtue of Proposals Y3 and Y5, Yang had disposed of one half of her entitlements under Proposals A (the HK$1.5 billion assets to be received from Vivien), mostly in favour of Vivien and her children. In this action, Yang seeks to rescind the distributions in these Proposals[46]
56. Timford was incorporated in the British Virgin Islands on 5 January 2005 to receive the HK$0.3 billion or such increased amount. Its first directors were Yang, Vivien and Daniel. Yang, Vivien and Daniel signed a board resolution dated 17 January 2005 whereby Vivien was allotted 1,000 shares in Timford.
57. In a report dated 19 January 2005, Daniel reported to Yang that based on the valuation of the bank, the HK$0.3 billion (to be received by her via Timford) would be increased to HK$378,870,000 by reason of appreciation in value of the 80RR units (an uplift of 26.3% based on the December 2004 value; the general portfolio increase on the evidence was 55 to 77%) and Vivien would arrange for a sum of HK$379 million to be paid to Yang in accordance with the method provided in Proposal Y5. It was stated that the HK$379 million transferred to Timford would be invested in foreign currency deposits, foreign stocks and foreign bonds.
58. The judge found Vivien’s evidence “quite unsatisfactory” as to what she had told her mother about the appreciation in the value of the properties distributed to Vivien. Vivien knew at the time of Proposal A that the properties distributed or to be distributed to her were worth around HK$7 to 8 billion and she never told Yang about this. She only mentioned to Yang the appreciation in the 80RR units and told her mother that the assets she received had appreciated by about 20 odd %, which the judge found to be “misleading”[47]
59. Vivien executed the Timford Declaration[48] inter alia that she held the entire issued shares in Timford as trustee for the beneficial interest of Yang during Yang’s lifetime and promised to inject into Timford HK$379 million as soon as possible[49] [50]
60. By a Chinese letter dated 2 December 2007 addressed to Daniel, Stephen and Wong, Yang confirmed that the distribution of assets to her via Vivien pursuant to Chen’s directions in 2003/2004 had been fully accomplished and completed.
61. In July 2008, Angela made an application to the court for Chen to be declared a mentally incapacitated person and for the appointment of a committee to take care of his affairs. An order was accordingly made in November 2008. The family was fractured into two sides as a result of the mental health proceedings, with Yang and Angela on one side and Vivien the other.
62. At Yang’s request, Timford transferred US$19.35 million to her absolutely on 5 December 2008.
63. In December 2009, Yang petitioned for divorce with her husband. A decree absolute for the divorce was granted by consent on 19 April 2011.
64. By a note dated 21 December 2009, Yang gave a direction to Vivien or Timford for the transfer of the entire shareholding of Timford to her. Vivien refused to comply with the direction. No further transfer of shares or assets of Timford had been made to Yang despite her requests and directions. Vivien admitted that she defended the claim against Timford for the transfer of all its assets to Yang absolutely owing to her belief that Angela would benefit from Timford[51]
65. As regards the donation by Vivien to Foundation B, it is common ground that there is an outstanding obligation of HK$140.855 million[52]
The defendants’ application to adduce new evidence on appeal
66. About a week before the hearing of this appeal, the defendants issued a summons dated 19 April 2021 for leave to adduce additional evidence on appeal (being the 3rd affirmation of Billy Yick Chung Lam dated 16 April 2021 with exhibits) and to re-amend the Amended Notice of Appeal. We heard the summons at the outset of the hearing and dismissed it. These are the reasons of our decision.
67. In respect of the additional evidence, the defendants seek to rely on a Deed of Trust dated 26 June 2008 together with other related documents (“Trust documents ”) which were disclosed by the plaintiff’s solicitors, Clifford Chance, to the defendants’ solicitors, Mayer Brown, on 30 March 2021. The Deed of Trust purported to transfer all the rights and benefits that Yang should have under and arising from Proposal A and the Disputed Agreements through Vivien including her company and trust (defined as「該資產」(“Assets ”) under the Deed of Trust) to Angela as trustee to hold the same on trust for Yang.
68. The Deed of Trust was executed by Yang and Angela in the presence of a solicitor on 26 June 2008. Apart from Clauses 1 and 2 dealing with the transfer of the Assets and the powers of Angela over the Assets, Clause 3 of the Deed of Trust provided for a special declaration by Yang that Angela is the sole beneficiary of her will made earlier (“2008 Will ”).
69. Mr Jat Sew Tong, SC[53]
70. In the proposed amendment to the Amended Notice of Appeal, the defendants pleaded abuse of process and miscarriage of justice by reason of the concealment of the Deed of Trust and the Trust documents. It is pleaded, among other things, that:
“14D. More generally, as a result of the non-joinder, Vivien has suffered a general prejudice of misapprehending the correct identity of the plaintiff, which clearly affected her approach and strategy to the litigation, and there was thus an inherent unfairness in the trial process.
14E. In the premises, there should be a re-trial of this action on the ground of miscarriage of justice.”
71. In her affirmation in response, Angela stated that after the Deed of Trust and the Trust documents were executed, she had put them aside and did not pay attention to them. It was only recently when she was preparing for the Probate action[54]
72. Mr Benjamin Yu, SC[55] locus of Yang to maintain this action was raised during the locus trialbefore the judge in late 2019 (which caused the adjournment of this appeal in October 2017), it is not at all surprising that Angela and her solicitors paid little attention to the Deed of Trust and had even forgotten about its existence. The focus of the locus trial was on four documents: a Deed of Gift, a Gift Declaration, an Irrevocable Power of Attorney (all dated 12 December 2012) and a Deed of Assignment dated 20 December 2012 (collectively “Gift Documents ”), sought to be adduced by Vivien as fresh evidence on appeal and contended by her as vesting Yang’s claims in this action in Angela. The Deed of Trust, if it did have any effect, would have been superseded by the Gift Documents in 2012, as, on the face of these subsequent documents, Yang had sought to gift to Angela and make her the beneficial owner of all Yang’s assets save for HK$200 million.
73. We are not satisfied that Angela had deliberately concealed the Deed of Trust and the Trust documents. She had, in fact, disclosed the Deed of Trust and the other documents to her legal advisers in 2012 and 2017 respectively. We agree that there is no possible reason why Angela would provide the Trust documents to her lawyers if she had any intention to conceal them from the court. It is also not established that her lawyers had deliberately concealed the documents.
74. More importantly, we do not accept that the second condition in Ladd v Marshall [1954] 1 WLR 1489 is satisfied, namely, if the documents are given at the trial, it would probably have an important influence in the result of the case.
75. The defendants did not allege the Deed of Trust and the Trust documents showed that Yang had been deprived of the locus to bring the proceedings. In the proposed amendment to the Amended Notice of Appeal, the defendants contended that if the Deed of Trust had been disclosed, the court would have known that Angela was more than a mere witness; that the cross‑examination of Angela was curtailed at the trial by the judge on the basis that she was a mere witness; and that given the defendants’ contention that Yang was advancing a false case against Vivien at Angela’s instigation, the court might have come to a different view on the credibility of the witnesses. As submitted by Mr Yu, most of these points had been argued by Vivien during the trial on locus and had been rejected by the judge in his decision on 20 January 2020. There is no appeal against the locus decision. It is clear from the evidence that Angela was not involved in the dealings or transactions between Yang and Vivien. In that context Angela was a mere witness. Further, the judge found for Yang on the basis of the documentary evidence and Vivien’s evidence. The credibility of Angela’s evidence is not germane to the case.
76. The proposed amendment also stated that had Angela been a party to the action, she would have made discovery of documents which were not placed before the judge at the trial. Such documents would include a fax dated 9 July 2004 with Angela’s handwriting, demonstrating her full awareness of the meeting on 8 July 2004 (contrary to her oral testimony, which led to the preparation of Proposal Y1). Quite apart from the fact that the judge had already rejected this argument in the decision on locus , the 9 July 2004 fax was, in fact, in the files of Nan Fung to which Vivien had access.
77. No particulars were given to the allegation that Vivien had suffered general prejudice which affected her approach and strategy to the litigation.
78. Accordingly, the application to adduce the new evidence and to re‑amend the notice of appeal was dismissed.
The issues in the appeal and cross-appeal
79. We now turn to the broad issues raised in the appeal and cross-appeal. They may be stated as follows:
(1) Was Vivien the beneficial owner of the assets transferred to her under the Scheme in 1999/2000?
(2) What was the legal effect of the asset distribution directions in Proposals A and B?
(3) Did Vivien owe fiduciary duties to Yang (in particular a duty of disclosure) on one or more of these bases: (a) agency type relationship; (b) ascendancy or trust and confidence relationship; (c) conditional receipt and retention of property based on de Bruyne v de Bruyne [2010] 2 FCR 251; (d) direction by Chen as beneficial owner of CHL?
(4) Was undue influence engaged?
(5) Were there binding family arrangements in that: (a) there was intention to create legal relationship; and (b) there was consideration to support a binding agreement?
(6) Alternatively, if there were no binding family arrangements, was there estoppel by convention to preclude Vivien from denying that they were binding in law?
(7) Was Vivien in breach of fiduciary duties in particular the duty of disclosure?
(8) Was the non-disclosure only in relation to the HK$0.3 billion cash value reserved to Yang?
(9) In respect of the reliefs granted, (a) was causation established in respect of rescission, equitable compensation and account of profits; (b) was rescission an appropriate remedy; (c) should there be a general portfolio increase in respect of dispositions acknowledged by Yang for which credit should be given, namely, gifts of HK$300 million to Vivien’s children and the donation made via Vivien to Foundation B?
(10) In respect of the reliefs granted, should Yang be given a further option to elect for transfer of properties?
80. The issues will be considered in the order set out above.
Issue (1): Was Vivien the beneficial owner of the assets transferred to her under the Scheme in 1999/2000
81. The judge found that the transfer of Chen’s Hong Kong assets to Vivien via CHL was no more than a tax evasion scheme, that Chen remained at all material times the beneficial owner of such properties, that the Scheme was a sham to avoid potential estate duty, and that at all material times Vivien was holding the shares or assets of CHL on trust for her father[56]
82. On behalf of Vivien, it was asserted that she was the beneficial owner of the CHL shares, the CHL loans and the Crosby shares[57]
83. It was submitted that the judge was wrong to hold that the Scheme was a sham. It was emphasised that the CHL exercise was a conventional estate duty saving scheme adopted by Chen on the advice of leading specialist advisers in Hong Kong and the UK, that the Scheme only affected about 35% of Chen’s total assets at the time, and that the round‑robin flow of funds was the “standard way” of avoiding the three‑year rule by gifting non-Hong Kong situs assets to a donee who would use such assets to purchase for full value via an offshore company owned by the donee (ie CHL) the donor’s Hong Kong situs assets. It was essential to the efficacy of this legitimate estate duty saving scheme that Vivien actually be the beneficial owner of the CHL shares and the CHL loans. Looking at this exercise objectively, it was contended there was no reason to hold that Chen and Vivien had intended otherwise, and no basis to suggest that in 1999/2000 they intended to create rights and obligations different from those appearing from the documents they entered into at the time so as to give a false impression to the Inland Revenue on the true effect of the documents.
84. For good measure, it was submitted that the shares in CHL were acquired by Vivien “independently” before Chen made the gifts of money to her in Singapore, and there was no suggestion that the CHL shares were purchased with the moneys gifted to her. As far as the assets of CHL were concerned, it was CHL that had the title to them and hence Vivien could not hold these assets for anyone. But CHL was not joined as a party to this action. Further, the judge had overlooked the CHL loans in his analysis. Similar submissions were made about Crosby, that there was no basis to treat Crosby as Vivien’s nominee, nor was Crosby joined as a party to this action.
85. Much was made in the submissions for Vivien about the legal principles and the operation of an estate duty saving scheme to counter the finding that the exercise was a sham. We agree with Mr Yu this is beside the point. Even though the CHL exercise may have been in the form of a conventional estate duty scheme, with the execution of documents declaring the intention to make a gift of the funds which were to belong to the donee absolutely, the effectiveness of the Scheme ultimately depended on the intention of Chen and Vivien at the time[58] [59]
86. The judge’s finding of their intention (clearly a finding of fact) was based on the contemporaneous documents[60] ex post facto documents are consistent with Vivien owning the assets transferred, but, as a respectful and obedient daughter, being prepared to make the assets available to other family members if Chen so wished. It was also contended that the judge wrongly relied on the artificial nature of the exercise[61] [62]
87. We do not think the above contentions, taken separately or cumulatively, would be sufficient to impugn the judge’s finding of fact regarding the intention of Chen and Vivien as to the transfer of assets under the Scheme.
88. The weight to be given to the documents in 2002 to 2005 is a matter for the trial judge, who had considered them with the benefit of the oral evidence. Most of the documents the judge referred to, although created subsequently, referred to the position or intention prevailing when the Scheme was first put in place[63] ex post facto is not to the point. Vivien also accepted in cross-examination that Chen was not intending to favour her in making the gifts of money to her under the Scheme, and that the primary purpose was to minimise estate duty[64]
89. As for the artificial nature of the exercise, “the fact that a particular transaction is palpably artificial is a factor which can properly be taken into account when deciding whether it is a sham”, National Westminster Bank plc v Jones [2001] 1 BCLC 98 at §39.
90. The judge was entitled to treat as important the willingness of Vivien (demonstrated repeatedly in the documents) to acknowledge that she held the assets on Chen’s behalf as shedding light on the original intention, and disregard her oral testimony in which she asserted that she had not agreed with her father she was not at liberty to deal with the assets transferred as she wished, that she was not obliged to follow the directions of Chen and that she would only do so out of respect for him and where it was appropriate[65] [66] [67]
91. There is nothing in the point that the CHL shares were acquired independently before the gifts of money were made. Quite clearly, the opening of overseas bank accounts, the setting up of CHL and the allotment of its shares were all part of the Scheme[68] [69]
92. The fact that the assets held by CHL included not just the assets acquired under the Scheme but also the Hong Kong assets transferred to it upon the termination in 2000/2001 of two trusts set up by Chen in 1989 and 1991 is immaterial. Quite clearly, the transfer of such Hong Kong assets to CHL was treated as a re-vesting of the assets in Chen and CHL held such assets on the same footing as those assets acquired under the Scheme, namely, for the beneficial interest of Chen[70]
93. The judge was also entitled to find on the evidence that Crosby was Vivien’s nominee. Crosby was nominated by Vivien to hold the companies (which held the London property and three Peak properties) transferred from CHL pursuant to a Proposal approved by Chen, on the basis that the assets transferred in this manner would be taken into account in the total distribution of Chen’s assets to her in 2004[71] [72]
94. There is nothing in the criticism that CHL and Crosby were not joined as parties to this action. Neither CHL nor Crosby could have a different intention from that of Chen and Vivien.
95. Much emphasis was placed by Vivien’s counsel on the concept of “sham”[73] Hitch v Stone [2001] EWCA Civ 63 at §§66 and 69; Shalson v Russo [2005] Ch 281 at §190) “An allegation of sham carries with it a degree of dishonesty, and the court should be slow (but not naively or unrealistically slow) to find dishonesty”. There is a “strong and natural presumption” against holding a provision or a document a sham. (National Westminster Bank plc v Jones at §§46 and 59)
96. It was submitted on Vivien’s behalf that the court could not have concluded that the Scheme/CHL was a sham had the principles and approach in the above cases been followed. Further, the sham point was not pleaded in the Re-amended Statement of Claim and it is not permissible to raise this by making a brief reference to “sham” in the Re-amended Reply. Whilst the judge permitted Mr Yu to cross-examine Vivien and her witnesses on the allegations of sham, no case of dishonesty or deceit in relation to the CHL exercise was put to them. To the contrary, when counsel was questioning Vivien, he reassured her that he was not suggesting that Chen had committed a crime[74]
97. The pleading objection is of no merit. The sham point was properly raised in the pleadings. It was all along pleaded in the Re-amended Statement of Claim that Chen’s transfer of shares in various companies beneficially owned by him to CHL was conducted for estate duty planning purposes and that Vivien held the CHL shares on trust for Chen at all material times[75] [76] [77] [78]
98. As for sham involving a degree of dishonesty, it was distinctly put to Vivien that the CHL exercise did not involve a real gift and it was the understanding of Chen and Vivien that Chen could call for the return of the assets at any time[79] [80]
99. There is no basis to disturb the judge’s finding that the Scheme was a sham to avoid potential estate duty, and that at all material times Vivien was holding the shares or assets of CHL on trust for her father.
Issue (2): What was the legal effect of the asset distribution directions in Proposals A and B
100. Three topics are raised under this issue: (1) whether there was intention to create legal relations; (2) whether Proposal A was supported by consideration; and (3) the proper construction of Proposal A. It was submitted on behalf of Vivien that as her contentions on one or more of these topics should be held in her favour, the Proposals did not bring about any disposition of beneficial interest in favour of Yang.
(1) Whether there was intention to create legal relations
101. These Proposals contained directions by Chen as beneficial owner to Vivien who held the assets as his trustee as to the distribution of the assets. The judge held there was an intention to create legal relations by these Proposals[81]
102. On behalf of Vivien, it was contended that Proposals A and B were not legally binding on Chen even if he was the beneficial owner of the assets. The Proposals regarding inter vivos distribution of assets to the family were merely unilateral documents setting out Chen’s thinking and intention at the time the Proposals were made, akin to letters of wishes of a settlor in discretionary trust cases, which are not binding on the trustee of the settlement. Chen had changed his mind repeatedly on the distribution of assets, both as to the amount and the manner of distribution. He was always entitled to and did replace one Proposal by another or even cancel the Proposal altogether. Proposals A and B were not even addressed to the legal owners of the assets (CHL, Crosby, Vivien, Angela or the trustee of Angela’s US trusts), and none of them were parties to the Proposals. Further, there was lack of identification of assets constituting the HK$1.5 billion worth of assets (other than the 80RR units) to be transferred by Vivien to Yang out of the HK$4.5 billion worth of assets distributed to Vivien. The fact that Vivien abided by the Proposals was not an indication that these Proposals were of legal effect, she abided by the Proposals because she was obedient to her father.
103. The contention that the Proposals are akin to non-binding letters of wishes in discretionary trust cases quite simply ignores salient facts not in dispute and taken into account by the judge, namely, the operation of the Proposal System and the endorsement of Chen on them as “approved for immediate action”. Quite clearly, they represented the ultimate decisions of Chen which would be carried into effect; there were no subsequent steps where a separate decision (as distinguished from subsequent acts of implementation) would be made, such as by the entities or individuals holding the legal title of the assets. There is clear evidence that Proposal A was discussed among family members beforehand[82] [83] [84]
104. The HK$4.5 billion worth of assets distributed to Vivien was identified in Proposal B. That the HK$1.5 billion worth of assets to be transferred to Yang was not identified in the Proposals only meant that this did not form part of the Proposals, this factor does not negate any intention to create legal relations by the Proposals.
105. Vivien’s counsel took issue with the statement at §186 of the Judgment that Proposals A and B were intended to have legal effect “unless and until they were revoked”. It was submitted that this is recognition that the Proposals were not intended to be contractually binding, as a promise will not be regarded as binding if it means “I will only perform if I do not change my mind”. The judge did not find that Chen promised to perform only if he did not change his mind. To the contrary, Chen had directed Stephen to seek the agreement of Yang to cancel the earlier Proposal A58826 (under which she was to receive HK$4.5 billion worth of assets) and of his daughters to abide by the terms of the draft Proposal to distribute HK$1.5 billion worth of assets from each of them to Yang, thus showing that their consent was required for the earlier Proposals to be revoked[85] [86] Jones v Padavatton [1969] 1 WLR 328 at 336H, 337C to E.
106. There was no answer to the matters mentioned in §§186 and 187 of the Judgment. The Proposals involved assets worth billions. They were drawn up with care by the senior staff, and the assets were calculated to the cents. Vivien accepted in cross-examination that she was bound by Proposal A[87]
(2) Whether Proposal A was supported by consideration
107. The judge held that Proposal A was supported by consideration from Yang. Proposals 58826 and 70699 in January 2004 were cancelled by Proposal A. Under the cancelled Proposals, Yang was entitled to be distributed HK$4.5 billion worth of assets and she had chosen to receive the Group A Properties. Proposal A involved changes in Yang’s entitlements in return for Vivien’s obligation to give Yang one‑third of the assets that had been distributed and were to be distributed to Vivien. Further, the 80RR units were originally among the Group A Properties, and these properties or a substantial part thereof was transferred to Vivien (or Crosby) under Proposal B, with Yang’s consent. Hence, there good consideration moving from Yang[88]
108. On behalf of Vivien, it was contended that Yang’s agreement to the cancellation of her entitlements under the earlier Proposals in January 2004 could not amount to consideration as Yang had no legal entitlement under those Proposals. The judge applied the cases which showed that an agreement between persons who have expectations of receiving a gift from a third person to share the same among themselves is a valid agreement supported by good consideration (Beckley v Newland (1723) 2 P WMS 182; Houghton v Lees (1854) 1 Jur NS 862; Higgins v Hill (1887) 56 LT 426). He reasoned that the position of an expectant donee is no different from an expectant legatee under a will in those cases, the consideration from each party would be the giving up of their expectant bounty from the donor/testator[89]
109. As to the judge’s holding that Yang’s agreement to distribute most of the assets she was to receive from Vivien to Vivien and her children and this also amounted to consideration[90]
(3) The proper construction of Proposal A
110. The judge held that the plain meaning of Proposal A is that Vivien had to give to Yang one-third of the distributions she received from Chen[91] [92]
111. It was contended on her behalf that even on this construction, Chen’s wish as expressed in Proposals A and B was simply that Angela and Vivien were to deal with one-third of their respective distributions in accordance with Yang’s wishes. Thus, Vivien was to transfer to Yang only that part of one-third of what Vivien received as Yang designated, and to hold the rest of the one-third as Yang decided.
112. This construction was said to be supported by the factual matrix: Chen was concerned to avoid estate duty in respect of his and Yang’s estate; an outright disposition of HK$3 billion worth of assets to Yang (then aged 80) would have increased her estate and exposed her to significant future estate duty liability, besides Yang had no need of such vast amounts being a frugal person with a modest lifestyle; Proposal A was issued against the backdrop of Proposals Y1 and Y3, which made clear how much of the HK$1.5 billion Yang did and did not wish to receive from Angela and Vivien and Chen was fully aware of Proposals Y1 and Y3 when he signed Proposal A. The judge also found Proposal Y3 gave effect to Chen’s wishes on the distribution of his assets[93] [94]
113. A similar argument was run before the judge that Yang’s Proposals constituted an important part of the factual matrix such that Proposal A would have to be construed in light of the same. The argument was rightly rejected by the judge[95]
114. The construction sought to be advanced would appear to be contradictory to the wording of Proposal A, which required the daughters to act as follows: “惟陳慧芳及陳慧慧每人會將她所分得的45億港元資產其中15億港元資產送給陳太”. On the clear wording of Proposal A, it does not appear that this was conditional upon any particular way in which Yang was to deal with her share. As noted by the judge, it is clear that from at least the beginning of 2004, Chen was treating his wife and daughters with parity in the distribution of assets[96] [97]
115. As for the concern to save estate duty, we are inclined to think this was overstated. We agree with the judge it is clear from the evidence that Chen respected his wife’s wishes and was not minded to dictate how Yang should deal with her share[98]
116. The idea of gifting assets of HK$1.5 billion to Yang without putting them in her name does not assist Vivien’s case. Yang would still be the beneficial owner of the one-third share and the full vigour of fiduciary duties (if they were owed to her) would still apply.
117. We reject the submission of Vivien on the construction of Proposal A as an attempt to rewrite the Proposal.
118. For all the above reasons, we reject Vivien’s contention that Proposals A and B did not constitute a disposition in favour of Yang of Chen’s beneficial interest in one-third of the assets he distributed to Vivien.
Issue (3): Did Vivien owe fiduciary duties to Yang
119. The judge applied the principles of ad hoc fiduciary relationship in Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at §§60 to 69 and held that Vivien owed fiduciary duties to Yang on each of these four bases advanced by Mr Yu: (1) there was an agency type relationship between Vivien and Yang; (2) Vivien was in a position of ascendancy and influence over Yang; (3) Vivien received and retained very substantial properties on condition that she would give one-third of what she received to Yang (based on de Bruyne v de Bruyne ); and (4) Vivien, through CHL (which was a sham) or Crosby (which was Vivien’s nominee), held one-third of the shares in the relevant property-holding companies on trust for Chen and at his direction she then held such shares on trust for Yang and thereby owed fiduciary duties to her[99]
120. On appeal, it was contended by Vivien that of the four bases, the only one of potential substance was (4), and if Yang could not succeed on this, she would fail on the other bases.
121. We will consider each of them in turn.
(1) Agency type relationship
122. The judge took the view that this is a very clear case of fiduciary relationship. He reasoned that on any view Vivien had an obligation to Yang under Proposal A to transfer to Yang one-third of what had been given to Vivien. In other words, Vivien received one-third of the assets on behalf of Yang. This must be “analogous to an agency type relationship”, as considered in Libertarian at §§60 to 63 and 65[100]
123. The agency relationship was premised on Proposal A imposing an obligation on Vivien. Vivien repeated her submission that Proposal A did not create any such obligation. We have rejected this submission in Issue (2). As mentioned earlier, there is clear evidence that Proposal A was discussed among family members beforehand and it was directed by Chen that the terms of the draft Proposal must be agreed to by Yang, Angela and Vivien. The judge had found that they all agreed to Proposal A and the method of distribution and acted on the Proposals[101]
124. Mr Jat contended that the judge was wrong to hold this was analogous to an agency situation as Yang did not create any principal-agent relationship with Vivien, nor did Vivien agree anything with Yang under Proposal A. In Libertarian at §65, the court gave an “obvious example” of the agency type of situation as giving rise to fiduciary duties, being the case “where a person receives money or other property for and on behalf of or as trustee of another person”. We agree with Mr Yu it is clear that the applicable principle is not restricted to formal agencies.
125. There is no merit in Vivien’s contention regarding the agency type relationship.
(2) Ascendancy relationship
126. In holding that Vivien owed fiduciary duties to Yang on this basis, the judge applied the law in Libertarian at §§64, 66 to 68. He considered there was little doubt there was a relationship of ascendancy or trust and confidence between Yang and Vivien[102]
127. On appeal, Vivien contended that the holding was erroneous in law in that the mere presence of a relationship of trust and confidence or ascendancy does not trigger a fiduciary duty. For a fiduciary duty to arise, it is necessary in addition for the person to have vested in him discretionary powers exercisable in the interests of another, whose exercise will affect the other person in a legal or practical sense.
128. Libertarian explained the law at §68 with this passage from Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 96 to 97:
“The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions “for”, “on behalf of” and “in the interests of” signify that the fiduciary acts in a “representative” character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal. It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed …”
129. It was argued that for Vivien to have owed a fiduciary duty to Yang on this basis, it must be shown that Vivien had discretionary powers capable of affecting Yang’s property or legal rights. Vivien plainly did not have such powers before Proposal A was issued. The submissions that Proposal A did not confer any interest on Yang and Vivien did not assume any obligations under Proposal A were repeated.
130. It is correct that in this section of the judgment, the judge did not mention that Vivien had undertaken obligations for Yang or to act on her behalf but merely focussed on the evidence of ascendancy. However, we do not think he had overlooked this aspect on a fair reading of the Judgment.
131. As pointed out by Mr Yu, the four bases giving rise to fiduciary duty complement each other. The judge had found in the foregoing paragraphs under the agency type relationship that Vivien had received one-third of the assets distributed by Chen on behalf of Yang and hence she had assumed an obligation to Yang under Proposal A to transfer one-third of the assets received to Yang. There was power or discretion of Vivien which would affect the interests of Yang “in a legal or practical sense” and this gave Vivien the opportunity to exercise the power or discretion to the detriment of Yang, who was vulnerable to abuse by Vivien of her position. This requirement of the law as giving rise to a fiduciary duty is plainly satisfied.
132. Vivien sought to attack the judge’s finding on the facts of a relationship of trust and confidence between her and Yang. It was contended that there was no oral evidence from Yang; that the judge should have accepted the written evidence of Yang in prior proceedings that she was experienced in the operations of Chen’s business and made her own decisions on financial matters after listening to advice and the evidence of Angela that Yang was strong-willed; that the allegation was not “directly” put to Vivien in cross-examination; that Yang was of old age, not of good health and trusted both her daughters were “unremarkable” and not sufficient in themselves to support a finding of fiduciary relationship; that the judge failed to have regard to the discord between Vivien and Yang following the latter’s discovery of the CHL exercise in January 2003, that Yang had relied on other persons such as Chen and Angela in relation to Chen’s asset distribution, that Yang had changed her own Proposals, that Vivien had sought Yang’s views on Proposal Y1 and that Yang’s Proposals included benefits conferred on Foundation B and Vivien’s children the validity of which Yang did not seek to impugn.
133. As mentioned earlier, the judge had little doubt that on an objective assessment of the evidence, there was a relationship of ascendancy or trust and confidence between Yang and Vivien. There is nothing to suggest that the matters urged by Vivien on appeal have not been weighed by the judge in assessing the evidence. Importantly, there was evidence from Vivien and Daniel that Yang trusted Vivien on how to arrange for the distribution of assets under Proposal A[103]
(3) Conditional receipt and retention of property based on de Bruyne v de Bruyne
134. The kind of constructive trust based on de Bruyne v de Bruyne was characterised as a “fiduciary duty trust” in Lewin on Trusts (20th ed) at §§8-016 and 8-019. It is imposed by operation of law on someone who has accepted or assumed a fiduciary position in circumstances such that it would be unconscionable for him to assert a personal beneficial interest in property acquired as fiduciary and deny the beneficial interest of those for whom he undertook to act. It affects the conscience of persons who have willingly undertaken fiduciary duties. Examples of such “fiduciary duty trusts” arising include: a case where the defendant agreed to buy property for the claimant but the trust was imperfectly recorded[104] [105] [106] [107]
135. It should be noted that in de Bruyne v de Bruyne , the imposition of a constructive trust did not depend on detrimental reliance, but “on the circumstances in which the transferee came to acquire the property”. In that case, unconscionable or inequitable conduct “in the form of a denial or refusal to carry out the agreement to hold the property for the benefit of the third party which was the only basis upon which the property was transferred” was regarded as sufficient in itself to create the fiduciary obligation and to require the imposition of a constructive trust. (at §51)
136. In contrast, the type of equity considered in Pallant v Morgan and Banner Homes Plc v Luff Developments Ltd has much in common with the principles developed in proprietary estoppel cases and it is necessary that in reliance on the pre-acquisition arrangement or understanding, the non-acquiring party should do or omit to do something which confers an advantage on the acquiring party in relation to the acquisition of the property, or is detrimental to the ability of the non-acquiring party to acquire the property[108]
137. In this instance, the Pallant v Morgan equity was not invoked and the judge’s ruling was based on de Bruyne v de Bruyne. He held that fiduciary obligations could arise among family members where one member of the family received property on the understanding that the property was to be held for the benefit of another family member. The judge found on the facts of the present case there can be “no doubt” that it would be “wholly unconscionable” to allow Vivien to retain all the assets she received from her father without regard to the condition imposed on her by Proposal A, namely, to give one-third of the assets she received to her mother[109]
138. Two arguments were raised in opposition before the judge. First, it was contended that the principle in de Bruyne v de Bruyne had no application because Vivien had already received HK$3.9 billion worth of assets as absolute owner and did not receive the HK$4.5 billion worth of assets under Proposal A. Second, it was submitted that there was no certainty of subject matter for the trust property because the direction for the gifting of assets representing one-third in value to Yang did not identify any particular property or share to form the subject matter of the transfer. The judge rejected both submissions and remarked that equity would not allow Vivien to cheat her mother with such technical legal arguments[110]
139. On appeal, the two arguments raised below were again relied upon.
140. In respect of the first argument, it was emphasised that a de Bruyne v de Bruyne type of trust could not arise as Vivien had already acquired the CHL shares and the Crosby shares before Proposal A, and similarly CHL had acquired all of the relevant assets and Crosby had acquired HK$3.977 billion of those assets between July 2003 and May 2004, before Proposal A was issued. Vivien and Crosby had acquired “unencumbered beneficial ownership” of such property “independently of any condition”. Alternatively, even if they were not the beneficial owners prior to Proposal A, the only person for whose benefit they could have acquired the property would be Chen not Yang. The submission that Proposal A did not impose any legally binding obligation on Vivien was repeated, not even in respect of the HK$523 million (made up of the 80RR units as per the A List and B List attached to Proposal B) transferred to Crosby after Proposal A in that the assets were received by Crosby not Vivien. Putting Yang’s case at the highest, a de Bruyne type of constructive trust could only arise in relation to the HK$523 million assets but there was no breach of fiduciary duty in respect of the 80RR units, as Yang knew these properties had increased in value and was given the monetised value of that increase on her retained HK$300 million under Proposal Y5.
141. We do not accept the above submissions. We agree with the judge’s analysis. On the evidence, Vivien accepted that the assets received prior to Proposal A would have to be taken into account when it came to the final reckoning, ie when Chen finally decided on the distribution of his assets[111] [112] inter vivos distributions by Chen[113]
142. Under the terms of Proposal A, Vivien had to distribute to Yang one-third of the HK$4.5 billion worth of assets Vivien received. That must include the HK$3.9 billion worth of assets already distributed to Vivien. Furthermore, Vivien had agreed to Proposal A and she took advantage of the further distribution to her of assets of HK$523 million. The additional distribution was made on condition she would give to Yang HK$1.5 billion worth of assets out of the total of the HK$4.5 billion received. Vivien’s obligations under Proposal A must cover the entire HK$4.5 billion worth of assets and she was allowed to retain existing properties and given additional properties on this condition. We agree with the judge it would be unconscionable for her to deny the terms on which she was allowed to retain and was distributed further properties[114]
143. As Chadwick LJ stated in Banner Homes Plc v Luff Developments Ltd at 397E to F, “equity must never be deterred by the absence of a precise analogy, provided that the principle invoked is sound”, and equity must retain its “inherent flexibility and capacity to adjust to new situations by reference to mainsprings of the equitable jurisdiction”. Instead of looking for a “precise analogy”, one should identify the features that would give rise to an equity based on de Bruyne v de Bruyne.
144. We are satisfied that the relevant features are found in this instance where a substantial part of the properties was received by Vivien on a provisional basis subject to the final decision to be made by Chen on the distribution of his assets, where further distribution of assets was made to her under Proposal A to make up HK$4.5 billion worth of assets, and where she had agreed to the terms of Proposal A and thereby assumed a fiduciary obligation to distribute one-third of what she received to Yang. It would be unconscionable for Vivien to deny the terms under which she was allowed to retain the assets that had been distributed on a provisional basis and was distributed further assets on the final reckoning, without regard to the obligation she had assumed under the Proposal. We do not think it would affect the fiduciary obligation undertaken by Vivien in these circumstances whether she received the assets transferred in her own name or chose to put the assets under the name of a company controlled by her.
145. Turning to the other argument of Vivien, it was contended that no trust could have arisen due to Proposal A’s lack of certainty of intention to create a trust and the failure in the Proposal to identify assets compromising HK$1.5 billion worth of assets out of the HK$4.5 billion received by Vivien, citing again In re Goldcorp Exchange Ltd [1995] 1 AC 74 at 91D to G.
146. Regarding the lack of intention to create a trust, as the judge had noted, the underlying principle in de Bruyne is much wider and is based on the assumption of fiduciary duties upon receiving properties upon certain terms, and the unconscionability of the recipient denying those terms. It does not depend on the establishing of a trust[115]
147. As to the lack of certainty of subject matter of the trust property, it was common ground where the Proposals referred to transfer of landed properties, they were sometimes shorthand for transfer of shares in companies which directly or indirectly held the landed properties[116] [117] Re Lehman Brothers International (Europe) [2010] EWHC 2914 (Ch) at §225(iii):
“A trust of part of a fungible mass without the appropriation of any specific part of it for the beneficiary does not fail for uncertainty of subject matter, provided that the mass itself is sufficiently identified and provided also that the beneficiary’s proportionate share of it is not itself uncertain.”
148. On appeal, it was submitted for Vivien that the assets here were not identical and interchangeable and it was critical to be able to identify which assets any trust would attach to. We are inclined to agree with Mr Yu that a pragmatic approach is warranted in the present circumstances and the assets can be regarded as interchangeable. On the proper construction of Proposal A, the fiduciary obligation assumed by Vivien and hence the trust imposed by law would attach to one-third of what Vivien received under the Proposal. By convention, the references to landed properties in the Proposals were treated as the shares in the holding companies. On that basis, Yang’s entitlement to one-third in value of the HK$4.5 billion worth of assets received by Vivien should be treated as a one-third share in the assets that made up the HK$4.5 billion (being the shares of the relevant property holding companies and the shareholder’s loans), as this is the only way to give one-third in value. This would be the default position in the absence of agreement between Yang and Vivien as to how to make up the distribution of HK$1.5 billion worth of assets to Yang. It was found by the judge Chen had intended that Yang and Vivien would work out how they would divide the HK$4.5 billion assets, possibly with cash adjustment[118]
(4) Direction by Chen as beneficial owner
149. The judge held that the directions by Chen to Vivien as to distribution of assets amounted to directions by him as beneficial owner to his trustee, and this provided a further basis for imposing fiduciary obligations on Vivien. It made no difference that the shares in the property holding companies were transferred to Crosby as Crosby was merely a nominee of Vivien and she still held the shares in the property holding companies as trustee and should follow Chen’s directions under Proposal A[119]
150. The arguments that Vivien was the beneficial owner of the CHL and Crosby shares and that Proposal A did not confer any interest on Yang (because Proposal A did not create or affect legal relations and could not operate as a disposition of interest on certainty grounds) were repeated. They have been dealt with in Issues (1) and (2) and in the foregoing section.
151. We agree with the judge’s analysis. As the judge had found, CHL was merely a nominee or vehicle for carrying out the Scheme by which Chen purportedly sold his shares in the property holding companies to CHL and the exercise was a sham. Hence, Vivien held the shares of the property holding companies on trust for Chen.
152. For all the above reasons, we upheld the judge on his finding that a fiduciary duty was imposed on Vivien such that the fair-dealing rule and the concomitant obligation of disclosure would apply.
Issue (4): Was undue influence engaged
153. The judge also invoked undue influence as an additional route to finding that Vivien was under a duty of disclosure to Yang[120] Hewett v First Plus Financial Group Plc [2010] 2 P&CR 374, he raised three questions for determination: (1) whether Yang reposed a sufficient degree of trust and confidence in Vivien to give rise to an obligation of fairness and candour; (2) whether Vivien failed to disclose all material facts; and (3) whether objectively the fact that Vivien was receiving assets worth HK$7 to 8 billion was material.
154. On question (2), the judge held that Vivien had failed to make full disclosure of material facts to Yang[121] [122] [123]
155. On appeal, the earlier contention that the judge was wrong in finding a relationship of trust and confidence was repeated. We have dealt with this in Issue (3). Two further submissions were made for Vivien.
156. First , it was submitted that if Vivien (and in turn CHL and Crosby) were the beneficial owners of the assets and Yang merely a “contemplated donee” with no interest in the assets before the gift was made, there is no scope for undue influence to operate. Where what is in issue is a donor proposing to make a gift to a donee, there is no question of the donee’s weakness being exploited, nor are the donee’s interests affected.
157. We reject the first submission. We do not agree that Yang was a mere “contemplated donee” as against Vivien. The legal effect of Proposal A was that Vivien was obliged to give to Yang one-third of the assets worth HK$4.5 billion which she received. Yang plainly had some rights under Proposal A to dispose of, and she did so through the Disputed Agreements with Vivien, the wording of which was premised on HK$1.5 billion worth of assets being Yang’s property. Proposal Y3 was made before Proposal A was issued and Proposal Y5 was made after. There is no reason in principle why a binding agreement would be free from the doctrine of undue influence merely because the complainant was disposing of an expectant gift in which she had no present legal entitlement.
158. Second , it was submitted that non-disclosure in a relationship of trust and confidence does not automatically constitute undue influence. It must be established there was deliberate suppression of information which the defendant knew would, if disclosed, deter the plaintiff from proceeding with the transaction, and that the non-disclosure procured or brought about the plaintiff’s entering into the transaction. The judge made no findings there was deliberate suppression, nor did he find the undisclosed facts made a difference to Yang’s intentions in reaching the Disputed Agreements. It was contended that the dispositions were readily explicable as having been made in favour of Yang’s children, grandchildren and charity, with Yang, a frugal 80-year-old with no significant wants of her own, retaining significant value for herself.
159. In respect of deliberate suppression of information, reliance was placed on Royal Bank of Scotland v Chandra [2010] EWHC 105 (Ch), affirmed in [2011] EWCA Civ 192. In that case, the wife sought to set aside the guarantees she provided to a bank alleging they were procured by undue influence by her husband. In affirming the judgment of David Richards J, Patten LJ said at §39:
“Mr Chandra did not give his wife an inaccurate explanation of the transaction. The most he can be accused of is an over‑optimistic assessment of the chances of a future overspend. This might be said to give rise to a claim for a breach of a duty of care but that is not relied upon in this case and does not (for the reasons given earlier) amount to undue influence. Mr Chandra was not representing (either expressly or by implication) that there were no arguments to the contrary. He was simply expressing his own view. As the Vice-Chancellor said in paragraph 131 of his judgment:
“Mis-stating the position or misleading the wife is different from an inadvertent failure to disclose, a distinction familiar in the law of misrepresentation. Of course a statement which, though strictly true, is misleading without qualification will fall within these observations of Lord Nicholls[124]
160. On the need to establish a causal link between the undue influence and the consent of the complainant to the transaction, the statement of the English Court of Appeal in Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 at 971D to E was relied upon:
“We think that, at least in ordinary circumstances, it would not be appropriate for the court to exercise this jurisdiction in a case where the evidence establishes that on balance of probabilities the complainant would have entered into the transaction in any event.”
161. It was contended by Vivien that a ‘but for’ standard of causation should be applied as this is not a case involving actual fraud. Even if a lower standard should be applied (requiring only that the undue influence was a significant, or substantial or contributing cause, or even that it was only a factor in the production of the complainant’s consent)[125]
162. In §131 of the judgment of David Richards J quoted above, he was contrasting a situation of a deliberate suppression of information with inadvertent non-disclosure, see also Hewett v First Plus Financial Group Plc at §28. We do not think the courts in Royal Bank of Scotland v Chandra were laying down a requirement that only the deliberate suppression of information would amount to undue influence. As stated by David Richards J at §128, undue influence consists in the use of “unacceptable means”, there can be no exhaustive definition of such means as the circumstances of human life are too varied to allow it. The material question is whether the conduct would be regarded as unconscionable and hence unacceptable behaviour.
163. In Hewett v First Plus Financial Group Plc , the husband’s conduct consisted of the non-disclosure of his extra-marital affair and on an objective test it was held that this was a material fact calling for disclosure, as the wife’s decision to accede to the husband’s request to charge the matrimonial home to re-finance his debts was based on an assumption that he was as committed as she was to the marriage. The court did not find it necessary to ask the additional question whether the non-disclosure was innocent and inadvertent or a deliberate concealment, as, either way, the non-disclosure was a breach of the husband’s “obligation of fairness and candour he owes a wife who is looking to him to make the major financial decisions”[126]
164. It is also apparent from the statement of David Richards J in §131 that a misleading statement would fall within the observations of Lord Nicholls in Royal Bank of Scotland plc v Etridge (No 2) that undue influence has a connotation of impropriety, and, in the eye of the law, that influence has been misused.
165. In this instance, the judge found on the evidence what Vivien told Yang about the appreciation was misleading. Vivien knew at the time of Proposal A the properties distributed or to be distributed to her were worth around HK$7 to 8 billion and never told Yang that this was the case. Her evidence was that she only mentioned the appreciation in the 80RR units, which was 20 to 30%. Later she said she told her mother that the assets she received had appreciated by about 20 odd %, which would be misleading, and yet later in her evidence, she claimed that Yang knew the property market had appreciated by 30 to 40%[127] [128]
166. As to causation, it was argued before the judge that “it is not shown that Yang would not have entered into the Disputed Agreements had the true facts been disclosed”, in other words the ‘but for’ standard should be applied. This was rejected by the judge, who quoted §34 of Hewett :
“Mr Lightfoot submitted that there was no evidence at trial that, had Mrs Hewett known of her husband’s affair in January 2004, she would have decided not to participate in the re-mortgage. That is in my judgment nothing to the point. It has never been part of the proof of undue influence that, but for the relevant abuse of trust, the impugned transaction would not have been entered into[129]
167. Two decisions of the English Court of Appeal (UCB Corporate Services Ltd v Williams [2003] 1 P&CR 12; and Hewett v First Plus Financial Group Plc ) subsequent to Aboody have adopted a different approach to causation and departed from the view that it was not enough to show the complainant’s consent was procured by undue influence but was required to show in addition the complainant would not have entered into the transaction in the absence of undue influence. It was recognised in Snell’s Equity at §8-020 “it is not entirely clear which causal test the courts have settled for undue influence” and at least until further consideration of the matter by the Court of Appeal, “the less demanding ‘a factor’ test is now, by convention, the causal test applied in all cases of undue influence”. See also Duress, Undue Influence and Unconscionable Dealing (3rd ed) by Nelson Enonchong at §§8-033 to 8-038.
168. In UCB Corporate Services Ltd v Williams , the court took the view that where it is shown the complainant’s consent was procured by the exercise of undue influence, that is sufficient and it is not necessary to show in addition the complainant would not have entered into the transaction in the absence of the undue influence. Jonathan Parker LJ reasoned at §86 that in a case of undue influence, equity proceeds on the basis that the complainant did not consent to the transaction and that was enough to give rise to an equity in the complainant to set aside the transaction as against the wrongdoer. In support of this, he quoted Lord Browne-Wilkinson in CIBC Mortgages Plc v Pitt [1994] 1 AC 200 at 209B to C:
“Actual undue influence is a species of fraud. Like any other victim of fraud, a person who has been induced by undue influence to carry out a transaction which he did not freely and knowingly enter into is entitled to have that transaction set aside as of right.”
169. Jonathan Parker LJ went on to say at §86:
“I cannot see any reason in principle why (for example) a husband who has fraudulently procured the consent of his wife to participate in a transaction should be able, in effect, to escape the consequences of his wrongdoing by establishing that had he not acted fraudulently, and had his wife had the opportunity to make a free and informed choice, she would have acted in the same way. The fact is that the husband’s fraud deprived the wife of the opportunity to make such a choice, and, as I see it, it is that fact which founds the wife’s equity (as against her husband) to set aside the transaction.”
170. He commented on the approach in Aboody at §91:
“So far as Aboody is concerned, it seems to me that the passage cited by the judge [at p 971D to E] … cannot be reconciled with CIBC v Pitt (and in particular with the observations of Lord Browne-Wilkinson [at 209B to C]). The proposition stated in Aboody , that “at least in ordinary circumstances” it would not be appropriate to set aside a transaction which has been procured by the undue influence of the other party if it be established that the complainant would have entered into the transaction in any event, seems to me to be flatly inconsistent with Lord Browne-Wilkinson’s statement of principle in CIBC v Pitt that a victim of undue influence is entitled to have the transaction set aside “as of right”. The words “as of right” in this context seem to me to admit of only one meaning; viz . regardless of other considerations.”
171. We are inclined to follow the approach in the subsequent English decisions. We agree with these decisions that since the law is concerned to protect the complainant against the wrongdoer’s unconscionable use of influence, the court should intervene when it is shown that the consent to enter into a transaction was procured by such unconscionable use of influence. As Lord Browne-Wilkinson had said in CIBC v Pitt at 209D: “The effect of the wrongdoer’s conduct is to prevent the wronged party from bringing a free will and properly informed mind to bear on the proposed transaction which accordingly must be set aside in equity as a matter of justice”.
172. Further, since undue influence is a species of fraud, an analogy may be drawn with fraud and duress suggesting that for causation to be established, the undue influence need not be the principal or substantial cause for the complainant entering into the transaction. It need only be a cause. (Duress, Undue Influence and Unconscionable Dealing by Nelson Enonchong at §§8-033, 8-038) If it could be established that the Disputed Agreements were procured by the undue influence of Vivien, that would be sufficient.
173. On behalf of Vivien, it was contended that the judge had failed to find that the exercise of undue influence procured or caused Yang to make the Disputed Agreements. On a proper reading of the Judgment, we do not think that is the position.
174. The judge had referred to Li Sau Ying v Bank of China (Hong Kong) Ltd (2004) 7 HKCFAR 579 at §34 and was mindful that instead of relying on evidential presumption, the court should “focus on whether the evidence justifies an inference that, on a balance of probabilities, the impugned transaction was procured by undue influence”[130] [131] [132] [133] [134]
175. For the above reasons, we uphold the judge’s ruling on undue influence.
Issue (5): Were there binding family arrangements
176. The judge also held that a duty of disclosure arose because Proposals A and B, together with Yang’s Proposals, are to be regarded as binding family arrangements, being a species of contract “between members of the same family, intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour”. “Given these circumstances, there is a duty on all the parties to a family arrangement to make full disclosure, before the arrangement is entered into, of all material facts known to them so that no party’s ignorance of the true state of affairs is taken advantage of.” (Halsbury’s Laws of England (5th ed), vol 91, at §903; Kwek Siang Wei v Kuek Siew Chew [2015] 5 SLR 357 at §§47 to 50, 63 and 66(b)(i))[135]
177. He held that Proposal A was an agreement to preserve the family peace following the CHL dispute[136] [137] [138] Kwek Siang Wei v Kuek Siew Chew at §§55 to 57 and 66(b)(iv); Houghton v Lees )
178. Two issues were raised before the judge on Vivien’s behalf. It was submitted that Proposals A and B and the Disputed Agreements were not intended to have legal effect. Further, it was contended that Yang had not provided consideration for the family arrangement. These contentions are repeated on appeal.
179. We have dealt with these contentions with regard to Proposals A and B in Issue (2). Similar reasoning should be applied in respect of the Disputed Agreements. We affirm the judge’s holdings that Proposals A and B and the Disputed Agreements were all intended to have legal effect and that Yang had given consideration in respect of the overall family arrangement.
180. It was further contended by Vivien that the English jurisprudence on family arrangement (almost all of which is 19th century and earlier) developed when it was wrongly considered there was a duty of disclosure in compromises, which were formerly regarded as a form of contract uberrimae fidei . Now that modern law has abandoned the notion that contracts of compromise are uberrimae fidei , there is “no truly rigorous basis” for family arrangements to carry with them a duty of disclosure and the decision of the Singapore Court of Appeal in Kwek Siang Wei v Kuek Siew Chew should not be followed. Further, as the law relating to undue influence has been developed and clarified in the last 150 years and it now fills “any relevant gap”, we were invited to “draw a line” under this “historical anomaly”.
181. The first of the authorities cited in support by Vivien was The Law of Rescission by Dominic O’Sullivan et al (2nd ed) at §5.52:
“There are certain old cases that may suggest that there is a general duty of disclosure before a compromise is entered. Many of these cases are discussed in The Law Relating to Compromises [139] uberrimae fidei , and non-disclosure of material facts not known to the other renders the agreement voidable. But all of the authorities cited appear to be concerned with fact patterns peculiar to their time, involving compromises of uncertain claims to family assets by members of the family. They are best understood as founded on the special requirement for disclosure in ‘family arrangements’, … and not as establishing principles that govern compromises generally. It is suggested that the true principle is that stated by Lightman J in BCCI v Ali [140]
182. The above extract does not support Vivien’s contention. To the contrary, it supports the proposition that it is well recognised there is a duty of disclosure in family arrangements and this remains part of the modern law. All the other authorities to which we have been referred on both sides[141] [142] [143] Greenwood v Greenwood (1863) 46 ER 285 at 290 (that “upon the footing of family arrangement, the parties must be upon an equal footing, and there must be a full and fair communication of all the circumstances affecting the question which forms the subject of the arrangement”) is eminent good sense and good law.
183. The last contention made by Vivien (apparently not taken before the judge) in respect of this issue is that even if there was breach of a duty of disclosure under a family arrangement, the burden was on Yang to prove that she entered into Proposals Y3 and Y5 as a result of the breach. She had to show not only that the non-disclosure was material but also that it induced her to make the Proposals in the sense that ‘but for’ the non‑disclosure she would not have proceeded on those terms. In support of this contention, an analogy was drawn with non-disclosure in an insurance contract in Assicurazioni Generali SpA v Arab Insurance Group [2003] 2 CLC 342 at §§53, 56, 59, 62(iv) and 187.
184. Assicurazioni Generali SpA concerned a reinsurance contract and the English Court of Appeal followed the House of Lords decision in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501 on the proper construction of sections 18(2) and 20(2) of the Marine Insurance Act 1906 which relate to non-disclosure and misrepresentation as applicable by analogy to a non-marine case. It was held in Pan Atlantic that the material non-disclosure or misrepresentation must induce the contract and it is not sufficient that the non-disclosure or misrepresentation is material. At §62(iv) of Assicurazioni , the court held that in order to prove inducement, the insurer or reinsurer must show that the non-disclosure or misrepresentation was an “effective cause” of his entering into the contract on the terms on which he did. He must show that “but for” the relevant non-disclosure or misrepresentation, he would not have entered into the contract but, on the other hand, he does not have to show that it was “the sole effective cause” of his doing so.
185. We agree with Mr Yu that the analogy with the test in marine insurance is not apposite to the realm of family arrangement, as family arrangements are not made on commercial basis. It has been established in the cases of family arrangement there must be a “full and complete disclosure of all material circumstances within the knowledge of any of the parties” and breach of the duty entitles a party to the settlement, to whom disclosure was not made, to rescind it[144] Kwek Siang Wei v Kuek Siew Chew at §§62 and 66(c)(iv), material facts in this context refer to “such facts as may reasonably affect the parties’ determination of whether they will enter into the agreement in question” (citing Greenwood v Greenwood at 290) and the agreement will be set aside if it is found that any party to it had either intentionally suppressed facts that might have been material or suggested matters that were false before the agreement was entered into “so as to influence another party’s decision on whether or not to adopt the family arrangement in question”.
186. Given our earlier holding that the Disputed Agreements were procured by the undue influence of Vivien, namely the failure to make full disclosure of material facts and the making of misleading statement, we are inclined to think that an apparent causal connection is established that the unacceptable conduct of Vivien had reasonably affected Yang’s decision to make the Disputed Agreements. If it is necessary to show that Yang would not have made the Disputed Agreements but for the non-disclosure or misleading statement of Vivien, the onus should be on Vivien, as the defaulting fiduciary, to disprove the apparent causal connection and to show that even if there were no such unacceptable conduct, Yang would still have proceeded with the Disputed Agreements on the same terms, applying the law as regards equitable compensation in Libertarian at §§76, 82, 93 and 96. We do not think Vivien would have succeeded in discharging this onus on the facts as found by the judge.
187. The position with regard to rescission is similar. Once the court has determined there was material non-disclosure, speculation as to what course the claimant would have taken is irrelevant. The Privy Council said in Brickenden v London Loan & Savings Co [1934] 3 DLR 465 at 469:
“When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent’s action would be solely determined by some other factor… Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant.”[145]
Issue (6): Was there estoppel by convention
188. Estoppel by convention was relied upon by Yang as a fall back argument before the judge, in the event that the Proposals did not amount to valid and binding family arrangements. This was dealt with briefly in the Judgment[146] [147]
189. On appeal, it was contended by Vivien that neither Yang nor Vivien had conducted themselves on the basis that the Proposals were legally binding, and Yang could not have been proceeding on the basis that Proposal A was binding at a time when this Proposal had not been made. It was further contended that estoppel by convention cannot be used to accord contractual effect to assurances for which no consideration has been given, citing Johnson v Gore Wood & Co [2002] 2 AC 1 at 38H to 40E; Baird Textile Holdings Ltd v Marks & Spencer plc [2001] CLC 999 at §§86 to 94; SmithKline Beecham plc v Apotex Europe Ltd [2007] Ch 71 at §§109 to 112; Chen v Ng [2017] UKPC 27 at §§28 to 36.
190. We are of the view there is sufficient basis for the judge to find on the facts that Yang and Vivien entered into the Disputed Agreements on the basis that Proposal A was binding. Proposal Y5 made reference to the distribution under Proposal A and plainly made on the basis that Proposal A would be performed. It is not to the point that Yang is seeking to rescind the Disputed Agreements evidenced in Proposals Y3 and Y5. We have held earlier that Yang had provided consideration and the overall family arrangement she made was not gratuitous.
191. It is not strictly necessary to consider the proposition that estoppel by convention cannot be used to accord contractual effect to assurances for which no consideration has been given. In any event, this is inconsistent with the law as stated by the Court of Final Appeal in Unruh v Seeberger at §§151 to 154, which preferred the position in the Australian cases to the English approach, the effect of which is that estoppel by convention can be relied on to establish a missing element in a cause of action with the result that an otherwise incomplete or ineffective cause of action becomes viable.
Issue (7): Was Vivien in breach of the duty of disclosure
Issue (8): Was the non-disclosure only in relation to the HK$0.3 billion cash value reserved to Yang
192. The judge held that Vivien had breached her fiduciary duties on two key aspects: (1) she failed to disclose to Yang the true market value of the properties distributed to her; and (2) she failed to pay or account to Yang the full market value of her one-third entitlement. He held that she acted under a conflict of interest, and had made unauthorised profits in doing so[148]
193. The judge rejected the argument that as Yang would have known the market had rebounded after the recovery from SARS, there was no failure of Vivien to make adequate disclosure to her mother. He found there is no reason to believe that the 80-year-old lady would have anything more than a general notion that the market had recovered, and it is fanciful to suggest that she would have known that the HK$4.5 billion assets had become HK$7 to 8 billion[149]
194. As for Vivien’s argument that Yang had agreed to give away most of her share of the distribution to Vivien, Vivien’s children and charity, the judge held this is no answer to Vivien’s breach of fiduciary duties. As Vivien and her children stood to benefit from Yang’s distributions, it is elementary for Vivien as a fiduciary to make full disclosure to her mother so that she would be in a position to make informed decisions[150]
195. The last argument was developed extensively on appeal. It was emphasised that long before Proposal A was issued on 21 August 2004, Yang had decided, in circumstances not alleged to have been influenced by Vivien, not to receive most of what Chen had earmarked as being available for her. As at 6 January 2004, Yang had indicated her intention that she would not receive any of the HK$4.5 billion that was to be distributed to her[151] ths of the HK$1.5 billion distribution via Vivien could not have been affected by any breach of duty of Vivien. And there was no allegation in the statement of claim that any of Yang’s decisions made prior to July 2004 were vitiated. Of Yang’s signed Proposals, Proposals Y1 and Y3 significantly preceded Proposals A and B. No duty of disclosure could have arisen prior to Proposals A and B and hence Proposals Y1 and Y3 could not have been vitiated by any breach of duty of Vivien.
196. It was submitted for Vivien that the only possible complaint Yang might have is that after Yang acquired an interest in the assets pursuant to Proposal A, she made Proposal Y5 on 27 October 2004, which involved her taking the HK$300 million reserved by her at HK$378,870,000, having regard to the appreciation in value of the 80RR units (an uplift of 26.3% of the 31 March 2003 value based on the December 2004 value), when the general portfolio increase was around 55 to 77%.
197. It was argued that even on this complaint in relation to Proposal Y5, there was no breach of duty by Vivien for these reasons. The evidence is that Yang liked the 80RR units and chose them in January 2004 after consultation with Angela. As Yang had specifically agreed with Chen the 80RR units would be included in the final distribution of assets of HK$523 million to Vivien under Proposal B and Yang had agreed which units would be transferred, the obvious inference is that this was agreed between Chen and Yang that Yang could take the monetised value of the 80RR units in satisfaction of her 3/15ths in accordance with her independently formed wishes ultimately set out in Proposal Y5. Accordingly, the appropriation to Yang of the value of the 80RR units in Proposal Y5 had been approved and authorised by Chen. Such implicit authorisation negates any breach of duty by Vivien in relation to Proposal Y5; alternatively, the scope of Vivien’s fiduciary duty must be moulded to permit this agreed aspect of the asset distribution to be given effect in Proposal Y5. Hence, Proposal A was a direction that Vivien should give effect to Yang’s wishes and there was no breach of duty in her doing so.
198. Moreover, as the only part of Proposal Y5 that could have been affected was that Yang took the updated monetised value of the 80RR units in satisfaction of her reserved HK$300 million, the judge was wrong to find Vivien liable on the basis that she had not drawn the attention of Yang to the general increase in value of the entire HK$1.5 billion distribution via Vivien.
199. A related point was taken by Mr Jat that as Yang had a general notion the market had recovered, as the judge had found, and she had all along dealt with the assets made available to her by dividing them into fractional shares and reserving only 3/15ths to herself, the “precise extent” of the appreciation in property value was not material information that Vivien was obliged to disclose to Yang as such information would not have affected Yang’s intended dispositions of 12/15ths to Vivien, Vivien’s children and Foundation B. So there is no reason for Vivien to be alive to any need to inform Yang of the extent of appreciation of the 12/15ths of the assets.
200. In summary, Vivien’s arguments are premised on three planks: first, any duty of disclosure only arose after Proposal A was issued; second, prior to Proposal A, Yang had decided not to receive most of the assets Chen would give to her; third, Yang decided she would keep only 3/15ths of whatever she was entitled to receive through Vivien and as Vivien was only under a duty of disclosure in respect of the HK$300 million reserved to Yang, there was no breach of duty.
201. Mr Yu acknowledged that the proper time to consider Vivien’s non-disclosure of the value of the whole portfolio should be the time of Proposal Y5. We agree with his submissions. The properties that made up the HK$4.5 billion assets distributed to Vivien were only confirmed by Proposal B. If Vivien owed any duty of disclosure as a result of Proposal A, it is only sensible to talk about a duty of disclosure of the value of the properties after they had been identified. Prior to the properties being identified, any “decision” by Yang could not be treated as having effectively disposed of her interest in such properties. The fact that Yang had, prior to Proposal A, indicated an intention to make certain gifts under Proposals Y1 and Y3, is not to the point. Any “decision” of Yang prior to Proposal A was made on a provisional basis only, pending the finalisation by Chen of the distribution of his assets.
202. The transaction which effected the disposal of Yang’s share of HK$1.5 billion worth of the assets under Proposal A is Proposal Y5. It is plain that Proposal Y5 was to be the final agreement between Yang and Vivien as to how Yang’s share held by Vivien was to be dealt with. We reject Vivien’s contention that Proposals Y1 and Y3 had effectively disposed of the entirety of the distributions to Yang, leaving only the retained portion of HK$300 million or 3/15ths to be dealt with in Proposal Y5.
203. Turning to the question whether non-disclosure should go to all of the appreciation across the whole portfolio or only a fractional share of 3/15ths , Mr Yu made a valid point that Vivien’s contention would seem to be premised on the basis because Yang agreed to give away HK$1.2 billion out of the HK$1.5 billion distribution to her, she would give away the same ratio regardless of the real value of the assets, and hence could only complain about the portion of HK$300 million reserved to her. Vivien’s contention cannot be right. Yang’s decision under the Disputed Agreements to make specific cash gifts were in circumstances where Vivien had failed to disclose to her the true value of the assets Yang was entitled to. We see no basis to construe Yang’s proposal to gift fixed amounts of cash to Vivien, Vivien’s children and Foundation B to be fractional shares of Yang’s one-third share of distribution via Vivien. It is a strained interpretation of Yang’s Proposals that instead of dealing with specific sums, these should be regarded as fractions of Yang’s one-third share of the distribution via Vivien. Yang did not commit to make a fixed percentage of her share to Vivien or anyone else. This could be contrasted with Proposal A, which on its terms provided that Yang, Angela and Vivien were each to receive HK$3 billion out of HK$9 billion worth of assets and Chen knew what were the properties that constituted the HK$9 billion worth of assets. The further argument that the precise extent of appreciation was not material information as Yang had decided to dispose of her distribution by fractional shares must also be rejected.
204. Mr Yu further submitted the arguments pertaining to fractional shares are new points not raised below, likewise the contention that there was agreement between Chen and Yang she could take the monetised value of the 80RR units in satisfaction of her 3/15ths and hence Chen’s authorisation would negate any breach of duty by Vivien in relation to Proposal Y5. Mr Yu argued it cannot be said that had these points been raised, they would not have affected the course of the evidence. He suggested that Vivien could have been cross-examined on the basis for saying that Yang was only making gifts of fixed sums, and Angela could also have given evidence. The evidence of the staff who drafted Proposals Y1 and Y2 would also be relevant. Hence, Vivien should not be permitted to run these new points on appeal.
205. On behalf of Vivien, it was contended that the point regarding fractional shares is just a point of construction and the point regarding Chen’s implicit authorisation of what would otherwise be breaches of duty is a pure point of law.
206. We are inclined to think it is not permissible to raise these new points on appeal, as they do not relate to purely matters of construction or of law. In any event, we do not accept these new contentions. The contention that by a series of inferences Chen had authorised any breach of duty by Vivien is unsound. It does not follow from the fact the 80RR units to be transferred to Vivien were identified that Chen had agreed Vivien need not disclose the value of the appreciation, whether for the whole of the HK$4.5 billion assets or just part of the assets. Nor did Chen dictate or direct in any way the terms of Proposal Y5.
207. The argument that Yang was happy to forego a substantial part of the distribution to her does not absolve Vivien from the duty to make a full disclosure when she entered into the Disputed Agreements with Yang. There is no escaping that this is a case of a fiduciary dealing with a principal and it is incumbent on the fiduciary to prove affirmatively that the transaction was fair and that in the course of which full disclosure was made of all facts material to the transaction; even inadvertent failure to disclose will entitle the principal to rescind the transaction. (Bristol and West Building Society v Mothew [1998] Ch 1 at 18D)[152]
208. A parallel may be found in Dougan v MacPherson [1902] AC 197 in which Halsbury LC expressed surprise at the persistent argument of the trustee who failed to disclose to beneficiary what he knew to be the value of the interest in seeking to uphold the purchase (at 201)[153] Snell’s Equity at §7-022; Lord Selsey v Rhoades (1824) 2 Sim & St 41 at 49 to 50; Beale v Trinkler (2009) 11 ITELR 862 at §20, citing Jacobs’ Law of Trusts in Australia (7th ed) at §1747).
Issue (9): Reliefs – Vivien’s contentions
209. Having found Vivien was in breach of the duty of disclosure, the judge exercised his discretion to order rescission of the Disputed Agreements[154] [155] [156] [157]
210. In respect of rescission, these arguments were advanced for Vivien on appeal:
(1) The judge did not find that disclosure of the general portfolio value increase would have made a difference to Yang’s decision to accept the monetised value of the 80RR units. It is impossible to see why the complaint, whether couched in fair-dealing or non-disclosure, should impact the gift of HK$500 million to Vivien, the gift of HK$300 million to Vivien’s children, and/or the donation of HK$400 million to Foundation B. As it has not been proved that Yang would have acted differently if there had been full disclosure, rescission should be refused. The lack of causal connection is also fatal to the claims for equitable compensation and an account of profits.
(2) Rescission is plainly an inappropriate remedy in light of the acceptance before the judge that Yang would be adequately compensated with an award of money[158] Johnson v EBS Pensioner Trustees Ltd [2002] EWCA Civ 164 at §§76 to 82.
(3) It was wrong in principle for the judge to grant partial rescission of the asset distribution arrangements in Proposals Y3 (Yang does not want to rescind the part of Proposal Y3 that cancelled Proposal Y1) and Y5, whilst upholding Proposal A and those parts of Proposals Y3 and Y5 which directed dispositions in favour of Foundation B and Vivien’s children, in the absence of hearing from Foundation B and Vivien’s children, who should have been joined as parties but were not, and whose interests were affected. Yang cannot cherry-pick which parts of the family arrangement she seeks to rescind. The court may not order partial rescission of non-severable elements of an overall transaction, citing de Molestina v Ponton [2001] CLC 1412 at §§6.1 and 6.4. As partial rescission is impermissible, the claim to rescind must fail.
211. As for equitable compensation, Vivien made these contentions on appeal:
(1) The judge did not look into any causal connection and failed to inquire what would have happened “but for” the breach of fiduciary duty. As Yang has failed to prove any such loss, equitable compensation should not have been awarded. In any event, the evidence suggests that Yang would anyway have chosen the monetised value of the 80RR units, as she liked them[159]
(2) Even if the judge was right in principle to award equitable compensation, he quantified it erroneously by awarding around HK$8.7 billion calculated by reference to the July 2016 value[160]
(a) The judge accepted that credit should be given for the dispositions under Proposals Y3 and Y5 to Foundation B and Vivien’s children, which he treated as being HK$400 million and HK$300 million respectively. However, properly construed, the dispositions were 4/15ths and 3/15ths of one-third share of the distribution via Vivien, for which credit should be given, instead of the fixed amounts of HK$400 million and HK$300 million. The judge also omitted to add “investment return”[161]
(b) Yang would have wanted her HK$300 million uplifted by the general portfolio value increase (55% to 77%) instead of 26.3%, giving a maximum loss arising out of her election in Proposal Y5 of about HK$152.1 million as of 2004 (HK$531 million (ie HK$300 million uplifted by 77%) less HK$378.9 million (ie HK$300 million uplifted by 26.3%)). As Vivien did not pay the HK$378.9 million but only made the Timford repayment in 2008, credit would be given for “investment return” on the HK$531 million from 2004 and on the Timford repayment from 2008.
(c) In the alternative to (b), Yang would have opted in Proposal Y5 for a transfer of her 3/15ths and is entitled to equitable compensation based on 3/15ths of the July 2016 value, in the region of HK$1.7 billion (ie 3/15ths of the HK$8.7 billion claimed by Yang), less the Timford repayment with credit given for “investment return” on that amount and with credit being given for Vivien’s development of one-third of the assets in the distribution to her since 2004.
212. For an account of profits, similar argument was made for Vivien regarding the need to establish a causative link between the breach of fiduciary duty and the profit earned. As Yang failed to prove what happened as a result of the non-disclosure, she is in no position to seek an account of profits. Alternatively, any profits would more or less be the counterpart of the equitable compensation quantified on the basis of (2)(c) above.
213. We do not accept the contentions of Vivien summarised above.
214. We have dealt with causation to some extent in the foregoing parts of this judgment, citing Libertarian at §§76, 82, 93 and 96 and Brickenden v London Loan & Savings Co at 469. We do not think the judge could fairly be criticised for not making findings on causation when he came to discuss relief, as causation was pleaded in a very general way in Vivien’s pleading and was not the focus of her submissions on rescission, equitable compensation and an account of profits.
215. It was not canvassed in her pleading or submissions that rescission should be refused in the exercise of discretion because there was no finding that the non-disclosure had any causal effect on the entry into the Disputed Agreements. In any event, we would reject her submissions on causation with regard to rescission, in light of the statements in Brickenden quoted earlier and this being a case where the fair-dealing rule was engaged. In such a case, as stated in Bristol and West Building Society v Mothew at 18D, the fiduciary “must prove affirmatively that the transaction is fair and that in the course of the negotiations he made full disclosure of all facts material to the transaction.” This Vivien had not attempted to do.
216. Johnson v EBS Pensioner Trustees Ltd relied on by Vivien is distinguishable on the facts. The English Court of Appeal upheld the judge below that even though there was non-disclosure by the solicitors of the service charge received in breach of fiduciary duty, the judge was entitled to hold that fairness required an order for an account of the service charge but not rescission of the surety covenant, as the transaction was fair and there was no challenge to the judge’s findings that the breach of duty by the solicitors was marginal and the client, being an experienced business man, would still have gone ahead with the transaction if the service charge had been disclosed (at §80). In contrast, Vivien pocketed very substantial appreciation in the properties which she had not disclosed to Yang.
217. As for causation with regard to equitable compensation and an account of profits, the law is as stated in Libertarian. The basic test is to show some causal connection between the breach and the loss on a “but for” basis. For a breach causing loss to trust property or property under the fiduciary’s control, or a breach involving disloyalty or infidelity (the first and second categories of breaches discussed in Libertarian ), strict rules of causation apply and the common law rules on remoteness and foreseeability do not apply. The basic premise of equitable compensation is to restore the lost property to the trust, together with an account of profits if applicable. The court is entitled to assess compensation with the full benefit of hindsight. Consequently, the loss is assessed at the time of judgment and the court is entitled to take into account any post-breach changes affecting the value of the lost trust property. Where the plaintiff provides evidence of loss flowing from the breach of duty, the onus lies on a defaulting fiduciary to disprove the apparent causal connection between the breach of duty and the loss apparently flowing therefrom[162]
218. The assets in respect of which Vivien owed fiduciary duties were “lost” under the Disputed Agreements and Vivien is liable to restore the trust assets, being one-third of the distribution via Vivien. Yang’s prima facie loss is the difference in value between one-third of the value of the distribution to Vivien by Chen and what Yang actually received. In light of the prima facie position, it is for Vivien to prove any alternative scenario in terms of causation. None was advanced by her in her pleading.
219. We turn to the remaining arguments on rescission.
220. We do not accept that the rescission granted by the judge was partial rescission. What was sought by Yang and granted by the judge was rescission in total, with counter-restitution by way of giving credit[163] [164] [165]
221. On rescission of the Disputed Agreements, the benefits received by Yang (payments made by Vivien on Yang’s behalf to Vivien’s children and Foundation B and to Yang via Timford) would be repaid by Yang by way of giving credit. Thus, Vivien would be returned to the original position so as to effect counter-restitution[166]
222. The court has no power to create a new bargain for the parties, but it does have power to make ancillary adjustments to and in aid of restitution to take account of changes to property or benefits received, to do practical justice between the parties and to restore them substantially to the status quo, even if exact restitution cannot be achieved, and even if third parties are involved. (de Molestina v Ponton at §§6.2 to 6.3, citing Lord Wright in Spence v Crawford [1939] 3 All ER 271 at 288-289; Snell’s Equity at §15-015).
223. We agree with Mr Yu it is incorrect to suggest that rescission of Proposals Y3 and Y5 requires rescission of Proposal A because they were part of the same transaction. Proposal A provided a framework and Proposals Y3 and Y5 were further agreements to implement Proposal A. They were different agreements with different parties, even though the purpose of all these Proposals could be “seen as part of the overall exercise, and also part of the arrangement for maintaining the family peace”[167] de Molestina v Ponton at §6.9)
224. As explained in The Law of Rescission by Dominic O’Sullivan et al (2nd ed) at §19.05:
“The rule against partial rescission applies to bargains rather than individual contracts. Rescission will accordingly be refused where the contract in question is part of a wider transaction, the components of which are commercially interdependent in the sense that they were contracted each in consideration or contemplation of the others and were intended to be performed together. For example, in Maguire v Makaronis [168]
By contrast, where a contract or wider transaction is severable according to conventional principles, there is usually no difficulty with rescinding one severable part and leaving the remainder on foot. In effect the court must find that the obligations in respect of which rescission is claimed form a self‑contained bargain. …”
225. We do not think Proposal A and Proposals Y3 and Y5 are parts of a wider transaction in that the components “are commercially interdependent in the sense that they were contracted each in consideration or contemplation of the others and were intended to be performed together”. Proposal A could stand alone without any of Yang’s Proposals, and it is pertinent to note that Chen did not impose any condition into Proposal A that Yang would have to make further distributions[169] [170]
226. Turning to the remaining arguments in respect of equitable compensation, we have rejected earlier the contention that the dispositions made in Proposal Y5 should be treated as fractional shares. Credit should only be given for the amounts actually paid by Vivien to Foundation B and her three children, not by reference to fractional shares in the rescinded Disputed Agreements.
227. As for the other contentions made on the suppositions of what Yang would have done with her HK$300 million or her 3/15ths , these have not been pleaded in Vivien’s defence or explored in evidence or even canvassed in closing submission. We agree with Mr Yu that Vivien should not be allowed to run this new case on appeal. In any event, the suppositions have no evidential basis.
228. As for credit to be given to “investment return” on the Timford repayment, this was not pleaded in the defence. Any investment return made on the Timford repayment by Yang after 2008 would have nothing to do with Vivien. The judge has given directions for the sorting out of any differences in computation of the amounts in respect of equitable compensation.
Issue (10): Reliefs – Yang’s contentions
229. This is the subject of Yang’s cross-appeal. She contended that the judge should also have made an order that she is entitled to elect for a transfer of the properties still retained by Vivien.
230. In rejecting this contention, the judge said at §232 of the Judgment:
“I am not attracted by the first option. The properties retained by Vivien (currently valued in the region of HK$6.9b to HK$8b depending on what valuation evidence is to be accepted) constitute only part of what she received under Proposal A (the others had been sold). I have little doubt that it was intended by Chen that his wife and Vivien would work out how they would divide the HK$4.5b assets under Proposal A, possibly with cash adjustment. Therefore, I am reluctant to order a transfer which would result in Vivien losing the Peak properties, which she no doubt cherishes, when it is accepted that Yang would be adequately compensated with an award of money[171]
231. Hence, the judge had taken into account the following matters in refusing to order a transfer of properties: (1) the properties retained by Vivien constituted only part of what she received under Proposal A; (2) it was intended, back in 2004, that Yang and Vivien would work out how they would divide the HK$4.5 billion worth of assets under Proposal A, possibly with cash adjustment; (3) Vivien cherished the Peak properties, which are part of the properties retained by her; and (4) an award of money would adequately compensate Yang.
232. Following the adjustments made by the judge for “quantum adjustment”[172]
233. His arguments went along these lines.
234. First, Yang had acquired a beneficial interest in the shares of the property holding companies by reason of Proposal A. Although there was no agreement between Yang and Vivien as to which of the properties were to be transferred to Yang, since Vivien decided to dispose of the majority of the properties on her own, the retained properties, by default, must be used to satisfy Vivien’s obligation to transfer properties to Yang under Proposal A.
235. Alternatively, if the matter is analysed as an issue of specific performance of Proposal A, none of the matters taken into account by the judge was good reason to refuse specific performance. The fact that only part of the properties received by Vivien are still retained does not defeat specific performance, as a monetary adjustment can be made in respect of the unperformable part. As for the original intention that Yang and Vivien would agree on which properties to be transferred, Vivien as the fiduciary at fault, cannot by her actions taken without reference to Yang, the innocent beneficiary, deprive Yang of the option of obtaining the properties in specie . The fact that Vivien cherished the Peak properties is irrelevant. It was due to her own fault that she had disposed of the other properties without reference to Yang such that she would have to use the Peak properties to satisfy her obligation to transfer properties to Yang under Proposal A. Given that the subject matter was the transfer of landed properties (whether directly or indirectly through the shares of holding companies), a monetary award should not be regarded as an adequate remedy in this instance.
236. In support of the proposition that where a fiduciary dissipates a part of a portfolio containing her property and the fiduciary’s property, the beneficiary can insist on a punitive presumption that the dissipation by the fiduciary is from her share of the mixed portfolio, Mr Yu cited Snell’s Equity at §30-057. So to the extent that Vivien is unable to comply with Chen’s directions by transferring properties to Yang of one‑third of the distributions received by Vivien, it should be presumed that Vivien has not disposed of properties to be transferred to Yang.
237. Under Proposal A, Yang has not acquired beneficial interest in specific properties that are to make up her one-third share of the distribution via Vivien. Proposal A does not provide for a right to take specific properties. We do not think Yang has an entitlement to the transfer of specific properties or the shares of specific property holding companies. As the judge has held[173]
238. It is a matter of discretion for the judge whether to allow Yang the additional option of taking a transfer of the properties still retained by Vivien. We are not persuaded there are sufficient grounds to disturb the judge’s exercise of discretion. We do not think he had erred in taking into account the matters he mentioned. As for the punitive presumption relied on by Mr Yu, this is an evidential presumption, which may be rebutted on the evidence.
239. Mr Jat referred us to two documents showing the intention of Chen in gifting the Peak properties to Vivien in 2003. The first is a document dated 30 June 2003, which recorded that Vivien requested Chen to transfer to her the three Peak properties (which were developed and purchased by her), as these properties could readily be gifted to her three children when she is to pass away, and Chen agreed to gift the properties to Vivien immediately on the basis that the properties would be taken into account in the total distribution to be made to Vivien. The other document was dated 14 July 2003, recording again that Chen had agreed to gift the three Peak properties to Vivien, with a total value of HK$880 million, to facilitate her distribution of these properties to her children in future.
240. Mr Yu submitted that these documents are not in the nature of any undertaking or assurance by Vivien, nor did Chen stipulate any condition for gifting the Peak properties to Vivien save that the properties would be taken into account in the total distribution to Vivien. We do not think these are material. What is important is that there was a common intention of Chen and Vivien regarding these properties which were gifted to and retained by Vivien. And that is a matter the judge is entitled to take into consideration in the exercise of his discretion.
Conclusion and costs
241. We dismiss the appeal of Vivien and the cross-appeal of Yang.
242. We make an order nisi that costs should follow the event for the appeal and the cross-appeal. We grant a certificate for three counsel in each instance.
(Susan Kwan)
(Peter Cheung)
(Carlye Chu)
Mr Benjamin Yu SC, Mr Bernard Man SC and Mr Keith Lam, instructed by Clifford Chance, for the Plaintiff (Respondent)
Mr Jat Sew Tong SC, Mr Victor Dawes SC and Mr James Man, instructed by Mayer Brown, for the 1st and 2nd Defendants (Appellants)
[1] The appeal first came before the Court of Appeal on 24 and 25 October 2017 but was adjourned due to the defendants’ challenge of the plaintiff’s locus in this action. The Court of Appeal ordered that the appeal be adjourned pending the determination by the Court of First Instance of the challenge of locus and Yang’s application to join Angela as a party to this action. The appeal was restored for hearing after the locus challenge was heard by Anthony Chan J with cross-examination of witnesses in November and December 2019 and dismissed on 20 January 2020 ([2020] HKCFI 235 ), in light of which it was unnecessary to deal with the application to join Angela.
[2] For ease of reference, the abbreviations and terminology in the Judgment will be followed.
[3] Yang commenced this action against the defendants in November 2010. In April 2016, the next friend was appointed to represent her in this action. She passed away on 18 February 2020. An order was made on 12 May 2020 that further proceedings in this action and the appeal be continued as between her estate and the defendants, and that the next friend be appointed to represent her estate for the purpose of the proceedings.
[4] Re-Amended Statement of Claim §§38 and 39; these terms were adopted in the order for rescission drawn up pursuant to the Judgment.
[5] Judgment, §4
[6] The judge dismissed Yang’s claim in misrepresentation, as there was difficulty to find this case proved owing to the lack of oral evidence from Yang. Yang did not press her claim based on unilateral mistake in the closing submissions at trial. See Judgment, §§218, 222.
[7] Timford was incorporated to receive the HK$300 million (the cash value was to be increased by reference to the 80RR units) to be transferred by Vivien to Yang under Proposal Y5. Timford’s sole shareholder was and is Vivien and it is apparently under Vivien’s control, as, apart from Yang, its directors are Vivien and her three children.
[8] Judgment, §161
[9] Judgment, §§170 to 172, 118 to 123
[10] Judgment, §§125 to 156
[11] Judgment, §§161 to 162
[12] Judgment, §§206 to 207
[13] Judgment, §§208 to 217
[14] Yang suffered a major stroke in June 2014 and was in a state of incapacity before the trial commenced in September 2016.
[15] Hong Kong estate duty was chargeable on Hong Kong situs assets, comprised in the estate of Hong Kong persons at their death, or ceasing to be so comprised otherwise than on arm’s length terms within three years prior to death, see Estate Duty Ordinance, Cap 111 sections 6 and 10(b).
[16] Each of the eight gifts of money was evidenced by a letter in Chinese from Chen to Vivien stating that the money was gifted to her and paid into various bank accounts in Singapore, that the funds were to belong to her absolutely and she could use the money freely according to her own wishes. The letters were dated 28 September 1999, 26 October 1999, 2 November 1999, 15 November 1999, 25 November 1999, 2 December 1999, 8 December 1999 and 4 January 2000.
[17] Judgment, §26
[18] Judgment, §§23, 32
[19] Judgment, §114(1)
[20] The person or persons on whose behalf Vivien was managing the properties was not stated.
[21] Judgment, §§104, 114(4)
[22] Judgment, §114(2)
[23] Judgment, §§32, 102
[24] The family meeting was also attended by Stephen, Daniel and Alan. Vivien joined the meeting at a later stage.
[25] Judgment, §114(3)
[26] Judgment, §§102, 103
[27] Judgment, §114(4)
[28] Angela’s solicitor, Mrs Mabel Lui
[29] Judgment, §114(5)
[30] Judgment, §114(6)
[31] Judgment, §105
[32] Judgment, §114(7)
[33] Judgment, §§112, 117
[34] By Proposal B70664 dated 30 June 2003, Chen decided that four companies held by CHL which indirectly held the London property and the three properties at the Peak be transferred to Crosby Investment Holdings Inc (“Crosby ”), a company wholly owned by Vivien. The transfers were effected between June 2003 and January 2004.
[35] Document entitled “資產分配事” dated 22 July 2003; document entitled “資產分配事” dated 31 July 2003; and document entitled “陳氏控股公司屬下資產的分配辦法” dated 15 October 2003.
[36] It should be noted that CHL, which was holding the Hong Kong assets, was still under Vivien’s name at the time.
[37] Although there are some illegible Chinese characters, the meanings of the document are tolerably clear.
[38] “陳慧慧以電話徵詢陳太物業以31-3-03價取出，放入基金會時以現市值計”
[39] Judgment, §164
[40] On Vivien’s case, this Proposal evidenced the “July 2004 Agreement” pleaded in the Amended Defence and Counterclaim §28.
[41] Judgment, §§166 to 169
[42] On Vivien’s case, this Proposal evidenced the “August 2004 Agreement” pleaded in the Amended Defence and Counterclaim §30.
[43] Judgment, §54
[44] Mostly via the transfer of shares of the property holding companies.
[45] On Vivien’s case, Proposal Y5 evidenced the “October 2004 Agreement” pleaded in the Amended Defence and Counterclaim §37.
[46] Referred to and defined in the Re-Amended Statement of Claim §§38 and 39 as “the Cash Distribution Agreement” and “Plaintiff’s Distribution Arrangement”. Yang did not seek to rescind the whole of Proposals Y3 and Y5, she did not seek to rescind that part of Proposal Y3 which cancelled Proposal Y1.
[47] Judgment, §161
[48] Subject of a declaration sought in Vivien’s counterclaim.
[49] The judge rejected Vivien’s evidence that Yang represented to her Yang was only to have a life interest in Timford and that the declaration of trust was prepared on the basis of this representation, see Judgment at §§59, 95 to 97.
[50] Judgment, §228
[51] Judgment, §110
[52] The figure in §64 of the Judgment is apparently an error. See Re-Amended Statement of Claim §§77 and 78.
[53] With Mr Victor Dawes, SC and Mr James Man
[54] HCAP 10 of 2020, brought by Angela against Vivien in March 2020 in respect of the 2008 Will challenged and disputed by Vivien.
[55] With Mr Bernard Man, SC and Mr Keith Lam
[56] Judgment, §§112 to 117
[57] As mentioned in footnote 34, at Chen’s subsequent direction in 2003, four companies held by CHL which indirectly held a London property and three Peak properties were transferred to Crosby.
[58] An example of a sham was cited in the Judgment at §116, being Midland Bank Plc v Wyatt [1997] 1 BCLC 242, in which the defendant made a declaration of trust giving his equity interest in the family home to his wife and daughters but was found by the court he had no intention to part with his beneficial interest and continued to act as though he remained a joint equity owner with his wife.
[59] Transcript Day 11 p 67 lines 8 to 17
[60] Judgment, §§114(1) to (7)
[61] Judgment, §113
[62] Judgment, §117
[63] The documents mentioned in the Judgment at §§114(2), (3), (5) to (7) clearly referred to the original position.
[64] Transcript Day 10, p 77 line 18 to p 78 line 15
[65] Transcript Day 10, p 78 line 16 to p 82 line 12; Judgment, §§102 to 106
[66] Notes of family meeting on 24 January 2003 made by Alan
[67] Transcript Day 11, p 47 lines 10 to 20, p 48 lines 10 to 22; Day 12 p 62 line 18 to p 63 line 1
[68] Report dated 31 January 2004 of Peter Wu, Stephen and Daniel
[69] Amended Defence, §§10(4) and (6); Re-amended Reply and Defence to Counterclaim, §11
[70] Report dated 31 January 2004 of Peter Wu, Stephen and Daniel
[71] Proposal B70664 dated 30 June 2003
[72] Judgment, §156
[73] The Judgment at §115 referred to the definition of sham by Diplock LJ in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802D, namely, that a sham refers to things done which are intended “to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.”
[74] Transcript Day 11 p 67 lines 2 to 4: “我不是說你爸爸做犯法的事，你爸爸就以這樣做可以做一個安排，可以減低他的遺產稅。我不是說你爸爸做犯法的事，你不要誤解，okay。但是，所做出來的，做到好像是一個贈送一般，其實是完全沒有一個意圖真的贈送給你。”
[75] §§10, 12(3) to (5)
[76] §11: “Insofar as may be necessary, the Plaintiff avers that the Chen’s Holdings Exercise was artificial and a sham, in that the exercise was made solely or predominantly for estate duty purposes, and was not intended as an absolute and unconditional inter vivos gift of the assets to [Vivien].”
[77] §1
[78] Transcript Day 3, p 99 line 9 to p 111 line 8
[79] Transcript Day 11 p 63 lines 2 to 15
[80] Estate duty in Hong Kong was abolished before Chen’s demise.
[81] Judgment, §§184 to 188
[82] The meeting on 8 July 2004 and the telephone call with Yang
[83] Note dated 25 March 2004 written by Stephen
[84] Judgment, §§188, 200, 203
[85] Judgment, §§186, 200
[86] In respect of an earlier Proposal B69291 dated 12 April 2003 involving the distribution of 50% of CHL shares to each of Angela and Vivien, Vivien was concerned this might create legal rights entitling Angela to sue and Angela’s solicitors had issued a letter to Vivien’s solicitors claiming that Proposal B69291 was binding on Vivien and Angela, see report of Daniel dated 7 March 2005 of his discussion with Chen on 1 March 2005. A Deed of Indemnity dated 3 May 2005 was later provided by Chen to Vivien. See Judgment at §187.
[87] Transcript Day 10 p 73 lines 2 to 11; Judgment, §188
[88] Judgment, §200
[89] Judgment, §§196 to 198
[90] Judgment, §199
[91] Judgment, §119. The averment in Vivien’s Amended Defence and Counterclaim §32(1) that “the only true and proper construction of [Proposal A] is that each of Angela and [Vivien] was to gift HK$1.5 billion worth of assets to [Yang]” was not pursued at the trial, see Judgment §120.
[92] Notwithstanding Ground 2, §2A(2)(a) of the Amended Notice of Appeal. See §50 of Vivien’s skeleton argument dated 12 September 2017.
[93] Judgment, §183
[94] “但每人要將其中15億送給陳太，惟不用轉名給陳太”
[95] Judgment, §122
[96] Judgment, §122(5)
[97] Judgment, §122(4)
[98] Judgment, §122(2)
[99] Judgment, §§126, 127 to 156
[100] Judgment, §127
[101] Judgment, §§188, 200, 203; Transcript Day 10, p 73 lines 7 to 11
[102] Judgment, §130
[103] Judgment, §133
[104] Rochefoucauld v Boustead [1897] 1 Ch 196
[105] Pallant v Morgan [1953] Ch 43; Holiday Inns Inc v Broadhead 232 EG 951; Banner Homes Group Plc v Luff Developments Ltd [2000] Ch 372
[106] De Bruyne v de Bruyne
[107] AM v SS [2014] EWHC 2287 (Fam) at §§13 to 17, 24 to 27, applying de Bruyne v de Bruyne . Archibald v Alexander [2020] EWHC 1621 (Ch) at §§3, 32 to 35 was another instance in which a constructive trust was imposed where essential ingredients of a common intention constructive trust were absent, the trust was held to arise from the terms on which the property was transferred and it would be unconscionable for the transferees to treat the property as their own.
[108] Banner Homes Group Plc v Luff Developments Ltd at 397G to H, 398E to F
[109] Judgment, §§136, 142
[110] Judgment, §§143 to 150
[111] Transcript Day 10 p 75 lines 11 to 24, Transcript Day 11 p 102 lines 9 to 11; written notes by Vivien dated 30 June 2003 and Chen dated 16 September 2003; witness statement of Vivien §113
[112] Transcript Day 6 p 18 line 5 to p 19 line 4; Transcript Day 8 p 91 line 14 to p 92 line 5
[113] Judgment, §144
[114] Judgment, §145
[115] Judgment, §148
[116] Statement of Agreed Facts, §9
[117] Judgment, §§148, 149
[118] Judgment, §232
[119] Judgment, §§151, 152, 156
[120] Judgment, §§208 to 217
[121] Judgment, §§157 to 169. The arguments on appeal are dealt with in Issue (7).
[122] Proposals Y3 and Y5
[123] Judgment, §215
[124] In Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 at §§32 to 33
[125] Snell’s Equity (34th ed) at §8-020
[126] As referred to in Royal Bank of Scotland plc v Etridge (No 2) at §33
[127] Judgment, §161
[128] Judgment, §162
[129] Aboody did not appear to have been referred to in Hewett .
[130] Judgment, §210
[131] Judgment, §§213, 215
[132] Judgment, §§214, 161
[133] Judgment, §§166 to 169
[134] Judgment, §215
[135] Judgment, §§170 to 200, 204
[136] Judgment, §178
[137] Judgment, §§176, 180, 181
[138] Judgment, §§177, 183
[139] The Law Relating to Compromises of Litigation, Disputes and Differences with a Chapter on Family Arrangements and Similar Transactions by W D Edwards (1925) at 141-47
[140] Bank of Credit and Commerce International SA v Ali [1999] 1 ICR 1068 at 1077-78
[141] Spencer Bower on Actionable Non-Disclosure (2nd ed) at §§9.12 to 9.14; Misrepresentation, Mistake and Non-Disclosure by John Cartwright (4th ed) at §§17-33 and 17-35; Chitty on Contracts (33rd ed) at §7-174; Clarion Ltd v National Provident Institution [2000] 1 WLR 1888 at 1904 to 5; Halsbury’s Laws of England (5th ed), vol 91, at §917; Treitel on the Law of Contract (15th ed) at §9-173; Cheshire, Fifoot & Furmston’s Law of Contract (17th ed) at pp 390 to 391; Anson’s Law of Contract (31st ed) at pp 360 to 361
[142] Spencer Bower on Actionable Non-Disclosure at §9.13
[143] Judgment, §205
[144] Cases cited in Misrepresentation, Mistake and Non-Disclosure by John Cartwright at §17-35 at footnotes 160 and 161. See also Halsbury’s Laws of England , vol 91 at §917.
[145] Quoted in the Judgment at §163. See also Underhill and Hayton on Law Relating to Trusts and Trustees (19th ed) at §55.2
[146] Judgment, §§201 to 203
[147] Unruh v Seeberger (2007) 10 HKCFAR 31 at §§133, 135, 138-139, 150; Sealegend Holdings Ltd v China Taiping Insurance (HK) Co Ltd , HCAJ 95/2012, 24 October 2014, at §83
[148] Judgment, §160
[149] Judgment, §162
[150] Judgment, §163
[151] By Proposals A58826 and B70699, subsequently cancelled by Proposal A.
[152] Quoted in the Judgment at §157
[153] The other Law Lords concurred entirely, see 203, 204, 205, 206.
[154] Contrary to Vivien’s contention, the judge did not order Proposals Y3 and Y5 to be rescinded. The judge did not treat these Proposals as synonymous with the Disputed Agreements. The plaintiff’s case is that the Disputed Agreements were evidenced in Proposals Y3 and Y5, see Re-amended Statement of Claim §§38 to 41.
[155] Judgment, §§230, 231
[156] Judgment, §§234 to 266
[157] Judgment, §267
[158] Judgment, §232
[159] Judgment, §§42, 200
[160] Applying the principle that the measure of equitable compensation should be at the date of assessment. The parties have adopted 1 July 2016 as a proxy for the date of judgment. See Judgment, §234.
[161] There is no elaboration as to what “investment return” entails in all the submissions lodged on behalf of Vivien, nor was this pleaded in her pleadings.
[162] Libertarian at §§75, 78-79, 82, 85-87, 90, 91, 93
[163] Judgment, §230
[164] Re-amended Statement of Claim, §54(3)
[165] Opening submissions for plaintiff, §205
[166] As Yang sought rescission in toto, there is no question of allowing the gift to Vivien to stand.
[167] Judgment, §181
[168] (1997) 188 CLR 449 at 474-5
[169] Judgment, §122
[170] Transcript Day 10, p 71 line 20 to p 72 line 2, p 72 lines 13 to 15; Transcript Day 12, p 95 lines 16 to 17
[171] Transcript Day 21, pp 107 to 108. Yang did not make any concession that damages would be an adequate remedy. She sought specific performance with a transfer of properties and indicated that equitable compensation is an option.
[172] Judgment, §§250 to 254
[173] Judgment, §§148, 149