SUN HENG v. TE THENG

HCA 585/2019

[2026] HKCFI 604

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 585 OF 2019

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J U D G M E N T

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1.  The present action is brought by Mr Sun Heng as the Plaintiff against Mr Te Theng as the Defendant for breach of trust and fiduciary duties with respect to three properties in Hong Kong (“HK Properties”), namely, Flat 6A on 6^th Floor, Vancouver Mansion, No 6 Kingston Street, Hong Kong (“Flat 6A”), Haven Shop located at G/F, No 13 Haven Street, Hong Kong (“Haven Shop”), and Flat C on the 28^th Floor of Tower 3, Larvotto, 8 Aplei Chau Praya Road (“Larvotto”).

Parties

2.  The Plaintiff is a French national ordinarily residing in France. The Defendant is a Hong Kong resident ordinarily residing here.

3.  In the 1970s, the Parties were neighbours in Cambodia, where they developed profound friendship. The Defendant regarded the Plaintiff as his “kin” elder brother.

4.  In the early 1970s, the Plaintiff left Cambodia and settled down in France. Around the same time, the Defendant left Cambodia and settled in Hong Kong. The Defendant’s mother, brother and younger sister also eventually relocated to and settled in France.

5.  Despite settling in different countries, the Parties had remained close friends. Their friendship went beyond mere social notions and included mutual commitments to co-invest in various businesses in France and in three key properties in Hong Kong. The Parties remained best friends until their fall out in 2012 or 2015 over the investments, and that led to the present dispute.

6.  This action revolves around the nature of the Parties’ agreements and contributions towards the HK Properties (Flat 6A, Haven Shop, and Larvotto), whether the Defendant held the HK Properties on trust for the Plaintiff, whether the Defendant owes any fiduciary duties to the Plaintiff with respect to the HK Properties, and if so, whether the Defendant is in breach of his fiduciary duties.

7.  It is indisputable, and in fact not disputed, that from August 2004 to September 2011, the Plaintiff procured funds to be remitted/transferred from the bank accounts of French companies jointly owned by the Parties (which will particularised below) to the Defendant’s bank account in France, and then to the bank account of the Defendant’s wife (“Chan”) in Hong Kong (“Remittances”). On the Plaintiff’s case, a total of €361,930.79 was paid from the Defendant’s French account, and a total of €356,980.72 was credited to Chan’s account in Hong Kong for the investment here. There were further sums totalling €20,000 which were remitted from the French company SCI Huguerie and from Chan’s French bank account, to Chan’s Hong Kong account on 21 February 2007. The Defendant made meticulous handwritten notes and detailed records of these Remittances (“Defendant’s Notes”), and these are new relied upon by the Plaintiff as supportive of his claim, and showing the Defendant’s express acknowledgment and admission of the Plaintiff’s capital contribution made to, and the Plaintiff’s interests in, the HK Properties. The Plaintiff claims that the Defendant’s Notes support his claim that these was a common intention constructive trust between the Plaintiff and Defendant as to their joint ownership of the HK Properties.  

8.  On the Defendant’s part, his case is that all these notes and acknowledgment made by him as to the Plaintiff’s interests in the HK Properties had been made by the Defendant in the mistaken belief that the Remittances were made by the Plaintiff from his own source of funds, when in fact, it transpired that they were from money which should belong to the Defendant solely. According to the Defendant, the Plaintiff never made any monetary contribution to the acquisition of the HK Properties at all.

Background

9.  What follows below is a brief narrative of the key facts and of the Parties’ arguments pertaining to those facts.

10.  Whilst the Parties agree on a certain limited number of documented facts as set out below, such as the conclusion of the sale and purchase agreements for the HK Properties, the Parties are in bitter disagreement over the nature of their arrangements which had preceded the purchase. It is those arrangements preceding the formal agreements which play an important role in my decision. Those arrangements are largely undocumented and depend on witness evidence. Unfortunately, the Parties’ falling out has resulted in such a bitter feud that every factual allegation is vehemently disputed.

11.  My findings in this case have to depend on my assessment of the witnesses’ credibility in the face of their dramatically conflicting evidence, and ultimately, on the burden of proof. As this Court endeavoured to explain in earlier judgments (see for example Maxful Sail Limited v Yan Chung Wo Jeremiah [2024] HKCFI 2994, para 1): 

“In litigation, he who comes to assert must prove his case and it is the Court which is tasked to ascertain, on a balance of probabilities, on the evidence available and on the case as pleaded, what is more probably the true version of facts. At times, reality may well be stranger than fiction, but the Court must decide what is objectively more reasonable and credible on any independent evidence as may be available, short of relying on the protagonists’ own self-interested and often biased assertions.”

12.  Moreover, as pointed out by the court in Nagata v New Japan Securities International (Hong Kong) Ltd (No 1) CACV 136/1993 para 25, courts cannot aim for perfect justice, as it can only attempt to achieve practical justice within the constraints of time and circumstances as they exist. The court cannot ascertain the absolute truth. It can only decide on what appears to be the truth, on a balance of probabilities, and on the materials as presented to the court in the manner presented by the parties.

13.  It is also pertinent to bear in mind the observations made by the Court of Final Appeal in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387, generally on inferences, and on the importance of findings made only on proved facts: 

“185. A related principle should be applied in tandem. Where, as in the present case, the court is invited to reach a conclusion of forgery as an inference to be drawn on the basis of circumstantial evidence, any such inference must be properly grounded in the primary facts found. The court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question.…

186. The High Court returned a few years later in Jones v Dunkel & Another (1958-1959) 101 CLR 298 at p.305, to stress the need for a proper foundation for the inference. It is not permissible merely to choose what may be considered to be the more likely of two guesses if neither is properly justified by the primary facts found. While the court was divided as to its application to the facts of that case, it was agreed as to the nature of the principle. Dixon CJ (who was in the minority), referring to the abovementioned passage from Bradshaw v McEwans Pty Ltd (unrep., High Court of Australia, 27 April 1951), stated:

But the law which this passage attempts to explain does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others. The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied. (at p.305)

And Kitto J (for the majority) cautioned:

One does not pass from the realm of conjecture into the realm of inference until some fact is found which positively suggests, that is to say provides a reason, special to the particular case under consideration, for thinking it likely that in that actual case a specific event happened or a specific state of affairs existed. (at p.305)”

(Emphases added)

14.  The courts have further acknowledged that witnesses’ evidence in court of their recollection of events is often unreliable, due to the nature and defects of human memory. This is particularly so on the facts of this case and in the context of the witnesses involved. Both Parties are of advanced age, and their recollection of events and figures compiled in 2004 to 2011 cannot be expected to be clear or reliable. The evidence of both the Plaintiff and the Defendant can, at best, be described as vague. On particular aspects, their evidence is either evasive, or incoherent, or unclear. Contemporaneous documents prepared before the contemplation of hostile proceedings are in the circumstances of this case more reliable than the evidence of either of the two protagonists.

Joint investments in France

15.  Turning to the facts in this case, on various dates between 1988 and 1993, the Parties jointly invested in three landed properties in Paris and Bordeaux (“French Properties”) to be held in equal shares. The French Properties were acquired with a view to renting them out for profits which were intended to be shared by the Parties equally (“French Investments”).

16.  The Parties structured their French Investments to be held for them jointly by three French companies (“French Companies”), in the following manner:

(i)  SCI FONTAINE D’OR (“Fontaine”), incorporated on 27 July 1988, of which the Parties are shareholders each holding 50%, which was the registered owner of the property at 53 Rue, Lafaurie Monbadon, 33000 Bordeaux;

(ii)  SCI T&S (“T&S”), incorporated on 25 November 1991, of which the Parties equally hold 50% each and was the registered owner of the Property of 3-5 Rue Olivier de Serres, 75015 Paris;

(iii)  SCI HUGUERIE (“Huguerie”), incorporated on 2 December 1993, also held by the Plaintiff and the Defendant (through Chan) in equal shares, and was the registered owner of the property at 34 Rue Huguerie Bordeaux, 33000 Bordeaux.

17.  Each of the French Companies maintained a bank account to receive the income from the French Investments. In order to collect his share of the proceeds from the French Investments, the Defendant and his wife each opened a bank account in France, and authorised the Plaintiff to act on their behalf with respect to the French Properties and the bank accounts.

18.  Being a French resident, the Plaintiff was in charge of the day-to-day operations of the Parties’ French Investments. Apart from collecting the rent and maintaining the French Properties, it was the Plaintiff who was tasked with preparing and submitting all relevant documents to the French accountants. The Defendant alleges that the Plaintiff had never provided to him any account for the profits or rental income derived from the French Investments, nor any documents, accounts or financial statements of the French Companies, or any documents concerning the rental income.

19.  The Plaintiff claims that the accounting and bookkeeping of the French Companies was entrusted to French accountants, and that the Defendant’s own French accountant would have supplied to him any and all required information in light of the Defendant’s shareholding in the French Companies. The Plaintiff alleges that up until 2012 (when the Parties’ relationship broke down), the Plaintiff had sent documents pertaining to the French Investments to Chan in Hong Kong, and that he had from time to time responded to various oral and written questions raised by the Defendant with respect to the French Investments.

20.  The Defendant claims that he had not asked the Plaintiff to account for the French Investments until 2015. What prompted the Defendant to seek accounts was the Defendant’s discovery, in 2015, that the Plaintiff had closed the Defendant’s bank accounts in France in 2012 without informing the Defendant, and that for years, the Defendant had received no share of any profits from the Parties’ French Investments.

21.  On his part, the Plaintiff argues that the French Properties were not rented on a permanent basis but had often remained vacant, aside from a commercial property that the Plaintiff had once operated as his own restaurant. As such, the Plaintiff claims that the French Properties generated close to no income, and frequently, not enough income to cover the mortgage payments, of which the Plaintiff had kept the Defendant informed.

22.  On the evidence, the Plaintiff did make the Remittances to the Defendant’s accounts in Hong Kong, and the sums remitted were (on the Plaintiff’s case) for the purposes of his investment in the HK Properties. The Defendant claims that these remitted sums in fact comprise money to which the Defendant is entitled, as a co-investor in the French Investments. In response to this, the Plaintiff maintains that the Parties had outsourced the bookkeeping and accounting of the French Companies to French accountants who had already reported to the Defendant as a shareholder, that all the profits from the French Investments had already been settled, and that nothing further is or was due to the Defendant as representing his interests in or entitlement to the French Investments. The Plaintiff further maintains that the Defendant had (ever since 2004) handled his own tax matters in France, and had knowledge of the financial statements, status and income of the French Properties, the French Companies, and what was due or not due to him. The French Companies have now all been wound up on the Defendant’s own application.

23.  In culmination of the Parties’ feud, on 12 January 2016, the Defendant applied for the dissolution of the French Companies and revoked his authorisation to the Plaintiff to act on his behalf with respect to the French Investments. On 12 November 2018, the High Court of Bordeaux granted the dissolution orders. The Plaintiff appealed but was not successful in his appeal.

24.  The Defendant alleges that the Plaintiff had deceived him with regard to the amount of profits due to him in respect of the French Investments, and with regard to all the Plaintiff’s alleged contributions towards the Parties’ acquisition of the HK Properties, which were in fact made from money which should be the Defendant’s.

25.  The Defendant’s allegation is premised upon the fact that the Plaintiff had not accounted to the Defendant for the profits and statements of the Parties’ French Investments, that money was in fact due to the Defendant in respect of the French investments, and that (as he discovered only in August 2015) the Remittances in fact represented the Defendant’s share in the French Investments (rather that the Plaintiff’s contribution to the investment in the HK Properties). On that basis, the Defendant claims that the Plaintiff had made no financial contribution to the purchase of the HK Properties at all, and that they should be wholly and beneficially owned by the Defendant.

The HK Properties acquisition

1. Flat 6A

26.  The Parties do not dispute the dates of acquisition and subsequent disposal of the HK Properties, and these details will not be repeated here. Significantly, on 6 August 2004, Flat 6A was acquired in the joint names of the Parties, with the Plaintiff and the Defendant named as co-tenants, for the consideration of HK$3,950,000.

27.  The acquisition was completed on 30 September 2004, following a mortgage arrangement of HK$1,300,000 of which the Parties were both named as the mortgagors, and the Plaintiff was named as the guarantor. On the Defendant’s evidence, this was on the basis of the Plaintiff being a co-owner of the French Investments, the ownership of which had been considered by the bank for the grant of the mortgage loan for Flat 6A.

28.  The Parties are in dispute as to whether there was any oral agreement or understanding reached, at the time of the purchase, that Flat 6A was to be a joint investment.

29.  On the Plaintiff’s case and as pleaded, the Parties had agreed in about August 2004 to jointly invest in Flat 6A in equal shares, the agreement being that the Defendant would pay a major portion of the down payment, and the Plaintiff would be primarily responsible for making the repayments of the mortgage loan, and to make monthly contributions to the Defendant for that purpose, of not less than half of the purchase price and disbursements including the renovation costs of Flat 6A. The Plaintiff also agreed to provide a personal guarantee as security for the mortgage, and it was agreed that the Defendant and his family could use Flat 6A as their residence without payment of any rent. This was referred to in the Statement of Claim as the Flat 6A Joint Investment Agreement (“Joint Investment Agreement”).

30.  On his part, the Defendant denies that there was a Joint Investment Agreement. According to the Re-Amended Defence (“Defence”), Flat 6A was acquired by the Defendant with the intention and for the purpose of being his own residence and property. However, as he did not have any sufficient income or asset proof for the purpose of obtaining a mortgage loan, the Defendant enlisted the Plaintiff’s help to act as a guarantor for the mortgage loan from the bank in Hong Kong. According to the Defendant, the Plaintiff agreed to do so, but subsequently asked for security from the Defendant in exchange for acting as a guarantor.

31.  According to the Defence, it was then agreed between the Parties that as security for the Plaintiff’s liability for the mortgage loan, he would be named as a tenant in common for Flat 6A, and when the mortgage loan was paid off, the Plaintiff would transfer Flat 6A back to the Defendant.

32.  When the mortgage loan was duly paid off by June 2010, there was an assignment of the Plaintiff’s share in Flat 6A from the Plaintiff to the Defendant, for no consideration (“2010 Assignment”).

33.  On the Plaintiff’s pleaded case, the 2010 Assignment was made as a result of the Defendant’s representation to the Plaintiff that if Flat 6A was sold in the future, less profits tax would be payable if the property was to be owned and sold by a single owner claiming the property to be self-used, rather than for investment. The Plaintiff relied on such representation and accordingly agreed to the 2010 Assignment, on the basis that the Plaintiff’s interest in Flat 6A would only be transferred nominally to the Defendant, for the Defendant to hold the same on trust for the Plaintiff.

34.  In the premises, the Plaintiff claims that the Defendant had been holding 50% of Flat 6A under an express trust for the benefit of the Plaintiff.

35.  In the alternative, the Plaintiff claims that the Defendant had been holding 50% of Flat 6A on constructive trust for the Plaintiff, on the basis of a common intention arising from the Joint Investment Agreement, and that the Plaintiff had suffered the detriment of having transferred his legal title in the 50% of Flat 6A to the Defendant by virtue of the 2010 Assignment.

36.  Apart from denying the existence of the Joint Investment Agreement, there is also the Defendant’s denial that the Plaintiff had made contribution to the mortgage repayment of Flat 6A, on the basis that the Remittances in fact represented the Defendant’s share in the French Investments, rather than money emanating from the Plaintiff as he claims.

37.  It transpires that Flat 6A was sold by the Defendant in 2012.

2. Haven Shop

38.  These is no dispute, that the agreement and assignment for the  purchase of Haven Shop were made in the sole name of the Defendant, at the purchase price of HK$2,100,000.

39.  On the Plaintiff’s case, the Haven Shop was intended to be the Parties’ joint investment whereby the Plaintiff would contribute HK$500,000 to the purchase price and hold 30% of Haven Shop, the Defendant would hold 30%, and a third party Mr Chiu (“Chiu”) would contribute the remaining amounts and hold 40%, all to be reflected in the beneficial ownership structure of Haven Shop. The Haven Shop was to be let out, to generate rental income to service the mortgage repayment.

40.  The Defendant denies that Haven Shop was the Parties’ joint investment and denies that the Plaintiff had paid any money towards the acquisition, arguing again that while the Plaintiff did pay HK$500,000, that was the Defendant’s money owed to him as a shareholder of the French Companies.

41.  In February 2010, the Defendant sold Haven Shop which had been leased to a commercial tenant until then. The Defendant initially offered different accounts of the sale price, but the completion statement of the sale shows that the sale proceeds amounted to HK$7,500,000 and that the Defendant received HK$5,669,230.89 upon completion, after taking into account the various deposits he had received, and the redemption money due to the bank. The conveyancing documents show that the consideration of the eventual sale was HK$8,800,000 (as a confirmor sale was involved).

42.  The Plaintiff claims that he should have beneficial interest in Haven Shop on the basis of the contributions of HK$500,000 and a further €20,000 which he had made.

3. Larvotto

43.  Larvotto was acquired and registered in the names of the Defendant and his wife as joint tenants. The sale and purchase agreement was dated 9 August 2010 and the assignment was dated 16 May 2011.

44.  According to the Defendant’s Notes, “part of the source of funds for acquiring Larvotto 28C was the Plaintiff’s share of proceeds out of Haven Shop.” The Defendant repeated his claim, that the Defendant’s Notes were made in the mistaken belief that the Remittances represented the Plaintiff’s own money. It is noted, however, that there is no dispute that part of the proceeds of sale of Haven Shop was used to acquire Larvotto.

45.  The Plaintiff alleges that as the proceeds of sale of Haven Shop were used in the acquisition of Larvotto, he has beneficial interests in Larvotto which is held on trust for him by the Defendant.

Whether there was a Joint Investment Agreement

46.  Whether the Plaintiff can assert a beneficial interest in Flat 6A turns mainly on the question of whether there was a Joint Investment Agreement made at the time when Flat 6A was purchased. On the pleadings, this is denied by the Defendant, as he claims that under their agreement, the Plaintiff was only to act as his guarantor for the loan from the bank, and the property was registered in their joint names only to give the Plaintiff comfort and security, on the understanding that when the mortgage loan was fully repaid, Flat 6A would be transferred back to the Defendant’s sole name.

47.  However, the evidence in the Defendant’s witness statement does not support his pleaded case.

48.  In his witness statement made on 18 December 2020, the Defendant first set out his case on his intention to acquire Flat 6A as a residence for himself and his family, as it was near to the premises of his boutique business and was also suitable for his daughter’s needs. He explained that because he already had some outstanding mortgage loans on three other properties in Hong Kong, and the business of his boutique in Causeway Bay was suffering a decline, he could not get a mortgage loan for lack of sufficient income proof. According to the Defendant, he then asked the Plaintiff to give him information on the Parties’ rental income from the French Investments, and also to act as a guarantor for the Defendant’s application for a mortgage loan (since the Plaintiff was a joint owner of the French Investments). The Defendant claimed that the arrangement was only for the Plaintiff to act as a guarantor, and that at the Plaintiff’s request for some security and protection, the Defendant agreed to include the Plaintiff’s name as a co-owner of Flat 6A to be acquired. He claimed that their agreement was for the entire beneficial ownership to be transferred back to the Defendant when the mortgage loan was repaid.

49.  However, the Defendant immediately went on in his witness statement to point out that in early September 2004, which was before the mortgage loan was successfully obtained for Flat 6A and completion took place on 30 September 2004, the Plaintiff told him that he had remitted €44,000 to the Defendant as part of the repayment he was making of the mortgage loan. The Defendant only complained of the fact that the Plaintiff had made this contribution without first informing him, but he did not object to the Plaintiff’s contribution. His evidence is that he had “passively accepted the Plaintiff’s contribution”. I fail to see how this can alter the fact that he had, in fact, accepted the contribution made - however passively, or reluctantly. He only told the Plaintiff that he only had to make the mortgage repayments, and that the property was for the Defendant’s self-use, and not for investment. The Defendant also stated that his receipt of the Plaintiff’s contribution was only “temporary”, to be discussed when the time came to calculate the Plaintiff’s share of the net profit. Again, I fail to see how this can make a difference to his acceptance of the Plaintiff’s contributions, as it is not the Defendant’s evidence that he had told the Plaintiff that the receipt of his funds was conditional in any way.

50.  On the evidence, it is clear that the contributions made by the Plaintiff to the acquisition of Flat 6A had been used for making repayment of the mortgage loan and the installment loan for Flat 6A.

51.  Accordingly, I accept that there was indeed a Joint Investment Agreement as alleged by the Plaintiff.

52.  The more critical issue is whether the contributions made by the Plaintiff in the form of the Remittances represented his monetary contributions, or in fact represented funds which should belong to the Defendant as his entitlement to the French Investments. This is the basis of the Defendant’s denial of the Plaintiff’s claims to his share of Flat 6A, the Haven Shop and Larvotto, or the proceeds of sale thereof.

The Remittances

53.  The pleadings and witness statements in this case are rambling, unfocused and distracting. What is clear, however, is the state of account of the contributions and money received by the Defendant and the expenses incurred for the HK Properties, since the Defendant made meticulous contemporaneous notes, and had kept detailed records of the installment repayments of the mortgage loans. These are the Defendant’s Notes referred to in this Judgment, containing the Defendant’s own record and annotation of the contributions received from the Plaintiff (and from Chiu in respect of Haven Shop) and the proceeds/profits due to be distributed to them in respect of the HK Properties. They are clear acknowledgment of the funds received from the Plaintiff and Chiu, although the Defendant now claims that the Notes are erroneous and were made under the mistaken belief that the money sent by the Plaintiff was his money and not the Defendant’s.

54.  On behalf of the Defendant, Counsel submitted that the Defendant was an unsophisticated man, less intelligent and less experienced than the Plaintiff, which was why he became a victim of the Plaintiff’s schemes and deception, in devising a scheme of transferring money which would hide the fact that the Plaintiff was in fact using the Defendant’s money.

55.  I find the above depiction of the Defendant difficult to accept.

56.  On his own evidence, the Defendant had made investments in landed property not only in Hong Kong, but also in France. He claims property investment was his passion, that he would purchase properties, lease them out, and sell them when their market value rise. At the time of the Flat 6A acquisition, he already owned 3 properties in Hong Kong: in Tung Shan Terrace, in Horizon Plaza and another shop premise at Horizon Plaza. They were all acquired by mortgage loans, and the Defendant was on all accounts a seasoned investor. He had also been operating a boutique since shortly after his arrival in Hong Kong in the 1970s. That business had, at least at one stage, involved import and export of goods to markets worldwide until the Defendant’s retirement in 2012.

57.  The Defendant’s Notes also show that he was meticulous, and conscious of his accounts, his income and expenditure, and had kept a vigilant eye on financial matters. I do not consider that he was a person who was careless or could be easily deceived as to accounting and fiscal matters. He may have placed trust in the Plaintiff whom he regarded as his friend and “elder brother”, but even on the Defendant’s evidence, he was not particularly generous or lax even with the Plaintiff. Rather, the Defendant was mindful and cautious when it came to money, and was looking out for his own interests. This can be seen in his treatment of the acquisition of the Haven Shop in 2006.

58.  When the Defendant acquired the opportunity to purchase the Haven Shop for a good price in 2006, he claimed that he had asked Chiu to take part in the investment in order to benefit Chiu (to repay Chiu for enabling the Defendant to make profits on the share market), and Chiu had made a contribution of HK$600,000 for the Haven Shop investment. The Defendant then decided to also include the Plaintiff in the investment, and asked the Plaintiff if he had interest to contribute HK$500,000. According to the Defendant, the Plaintiff indicated that he did not have so much cash, and asked if Chan could act as a guarantor for him to obtain a loan. When Chan declined, the Defendant told the Plaintiff outright, that either he injected cash, or there would be no deal. This is on the Defendant’s own evidence.

59.  A further instance is the Defendant’s treatment of the sale proceeds of Haven Shop, which will be dealt with below.

60.  When it came to monetary matters, my impression from the Defendant’s evidence is that, even vis-à-vis the Plaintiff, he was precise and uncompromising. I do not agree that the Defendant was unsophisticated, or could be easily deceived, as his Counsel suggested.

Credibility of the Defendant

61.  Before dealing with the question of the Remittances, it is pertinent to record matters relating to the Defendant as a witness.

62.  Counsel for the Plaintiff had solid grounds to attack the Defendant’s credibility.

63.  Despite having been cautioned by the Court not to discuss with anyone his evidence in these proceedings before completing his testimony in the witness box, the Defendant admitted on being questioned that he conversed and discussed with his wife during the morning break of Day 6 matters relating to the French Companies/French Investments. This was in breach of the express direction and order of the Court, and cannot be excused simply on the ground of ignorance.

64.  Secondly, from the documents filed in the French Court, the Defendant had made an untrue statement to the French Court that Flat 6A was sold by him in 2012 at the price of HK$10 million. According to the Completion Statement produced in evidence in these proceedings concerning the sale of Flat 6A, the property was in fact sold for HK$12 million.

65.  From the above, and from the matters referred to below in relation to his treatment of the sale proceeds of Haven Shop, it would appear that the Defendant generally has no hesitation in misstating the facts and giving untrue accounts, even in and for court proceedings.

The Defendant’s case on the Remittances

66.  The essence of the Defendant’s case on the Remittances being a deception and his acknowledgment and admission of the Plaintiff’s interests in the HK Properties being a mistake, is as follows.

67.  First, there is no dispute that the Remittances were all made from the bank accounts of the French Companies, to the bank accounts of either the Defendant or his wife, Chan. The Defendant KNEW this from inception. He did not question this, as the parties and known and agreed that the French bank accounts (of which the Plaintiff was authorized to operate) were used in order to remit funds from France to Hong Kong.

68.  The Defendant thought that the money which was transferred to him was the Plaintiff’s money, and only found out (as he claims) in around August 2015 that the Remittances represented the Defendant’s money. The Defendant has not given a detailed explanation as to how he made the discovery, but from the evidence presented by Counsel at trial, this appears to be on the basis of the ledgers and accounts of the French Companies which came to light.

69.  Counsel for the Defendant referred the Court to 4 transfers totaling €11,400 made from Fontaine to the Defendant’s bank account (as part of the Remittances), comprising:

(1)  €4,000 on 21 February 2011;

(2)  €3,900 on 14 March 2011;

(3)  €2,000 on 23 May 2011; and

(4)  €1,500 on 10 November 2011.

70.  It was highlighted that these 4 transfers were all booked in the general ledgers of Fontaine, as amounts debited to the Defendant, ie amounts owing from the Defendant to Fontaine. As a result of or taking into account these entries, a total sum of €55,576 was recorded as being owing from the Defendant to Fontaine on the company’s accounts.

71.  By way of contrast, Counsel referred to the ledgers of T&S, which recorded a payment made by the Plaintiff of €3,200 on 30 June 2011, which was credited to the Plaintiff, and that the ledgers of T&S showed that the company owed a total sum of €93,760 to the Plaintiff.

72.  Counsel highlighted that the Plaintiff has not produced any ledgers of the French Companies before 2011, but that on the Plaintiff’s evidence, the same accounting method applied to the pre-2011 accounts which were prepared in the same way as shown in the documents disclosed for Fontaine and T&S for 2011.

73.  On the basis of these entries, it was contended that there is evidence that the Remittances were amounts debited to the Defendant in the accounts of the French Companies, and accordingly represent amounts payable to the Defendant as representing his interests in the French Companies. In short, it is said that as the Defendant had been recorded as a debtor of the French Companies for these amounts, the same amounts transferred to the Defendant and which went into the investment in the HK Properties were actually the Defendant’s money.

74.  I am not satisfied that the limited evidence referred to by the Defendant can logically and reasonably lead to the conclusion made by the Defendant with regard to the Remittances.  

75.  As the Defendant rightly pointed out, the Plaintiff has not produced all the relevant accounts of the French Companies in these proceedings, and the Court does not have a complete picture of the state of affairs between the French Companies and the Parties in this case. The Plaintiff claimed that he had endeavoured to obtain more accounting documents, but was told by the French accountant that all the earlier documents had been destroyed. Apart from the ledger entries referred to above, and the bank statements of the French Companies regarding the Remittances, all that is revealed to the Court is that the accounts of the French Companies were prepared by professional accountants, the French Companies are now dissolved, and liquidators have been appointed. The Defendant referred to the findings made by the French Court, in dissolving the companies, that the Defendant had experienced difficulties in getting the Plaintiff to disclose the company documents, and that the bank transfer records did not show that the Plaintiff had paid any income to the Defendant over 10 years. There is no finding made by the French Court as to whether the Plaintiff had made payments into the French Companies to support the credit entries in his favour, nor any finding as to the debit entries against the Defendant or the transactions to which they related.

76.  In relation to Flat 6A, Counsel for the Plaintiff reminded the Court that when it was first purchased, it was purchased and registered in the joint names of the Plaintiff and the Defendant. The Joint Investment Agreement and the alleged common intention comprising or giving rise to the trust claimed was in 2004, and at that time, Flat 6A was in the joint names of the Plaintiff and the Defendant. The Plaintiff was at that time registered as one of the legal owners. The onus is on the Defendant to establish that the beneficial ownership should not follow the legal ownership which was vested in the Plaintiff at that material time. Although the Plaintiff’s legal ownership was transferred to the Defendant at the time of the 2010 Assignment, I have already rejected the Defendant’s claim that this was pursuant to any initial agreement for the Plaintiff to act only as guarantor, or that he had agreed that the entire interest in Flat 6A should be transferred to the Defendant when the mortgage loan was fully repaid. I accept the Plaintiff’s claim that the 2010 Assignment was made on the Defendant’s representation to the Plaintiff that tax could somehow be saved if Flat 6A was to be held by the Defendant only as a residence, but on trust for the Plaintiff.

77.  The Defendant’s Notes were clearly a contemporaneous acknowledgment by him of the amounts received from the Plaintiff, of the Plaintiff’s interests in the HK Properties and his entitlement to the proceeds of sale representing same. The Defendant made the claim in these proceedings that the Defendant’s Notes and his admission should be ignored, and that the Remittances shown in the Defendant’s Notes in fact represent the Defendant’s own money. This is an allegation which he must prove, or at the very least, adduce sufficient and credible evidence to establish a prima facie case that the money was his. On the evidence available in this case, I am not satisfied that this has been shown, to cast doubt on the nature of the Remittances.

78.  On behalf of the Plaintiff, and to show the unreliable nature of the Defendant’s assertion, Counsel pointed out that as apparent from the accounting documents adduced, the Plaintiff himself had remitted €4,000 into the Defendant’s French bank account on 15 June 2011, before the remittance of €3,900 was made to Chan’s account on 16 June 2011. From that, it can be seen that not all of the Remittances were made from the French Companies out of funds which belonged to the Defendant. Even on the Defendant’s argument, the debit entries against the Defendant in the ledgers of the French Companies only represented €11,400 of the total Remittances.

79.  The fact that the ledgers of the French Companies show that there were amounts due from the companies to the Plaintiff, or amounts due from the Defendant to the companies, cannot by themselves mean that the Plaintiff had not paid to the Defendant sums equivalent to the Remittances. Nor does the state of the ledgers mean that the Plaintiff had not made prior payments into the bank accounts of the French Companies, before monies were paid out to the Defendant’s account. There is no evidence in these proceedings to explain all the debit entries made against the Defendant in respect of Fontaine, for the Court to conclude whether they tally with all the payments included in the Remittances, or were properly made against the Defendant, or could be justified by other transactions between the Defendant, the Plaintiff, and the French Companies concerned. Nor is there sufficient evidence to explain whether and how the debit and credit entries had been settled or accounted for. To find, on the basis only of the evidence to which the Defendant has referred, that all the Remittances represent the Defendant’s money would require the Court to make guesses and assumptions, which the Court is not entitled to make in the absence of any solid facts which have been proved.

80.  As part of his submission, the Defendant claimed that he had received nothing from the French Companies, which can explain the debit entries. However, his tax records suggest otherwise. According to the Tax Notices and invoices produced in evidence, the Defendant had to pay tax of €152,410 to the French authorities for “net property income” during the period from 2004 to 2011. In cross-examination, the Defendant acknowledged the accuracy and truth of the tax records as to the income reported to the French authorities. There is nothing to suggest that he had not in fact received the income in respect of the French Properties and for which he had been taxed for the periods in question, and this is inconsistent with his claims made in these proceedings, that he had never received anything from the French Investments or the French Companies.

81.  Even if there are amounts due from the French Companies to the Defendant, that cannot mean that the Remittances made by the Plaintiff to the Defendant through the accounts of the French Companies represented the Defendant’s money, as he maintains. The Court is simply not in a position, on the limited evidence available and the Parties’ testimonies in these proceedings, to decide on the shareholders’ rights and entitlement to the funds represented by the Remittances. It will be plain surmise, whether the Defendant is entitled to half, or more, or less, of these funds. The Plaintiff did accept in cross-examination (on Day 3) that the money that he had transferred to Hong Kong from the French Companies was “not entirely his”, but claims that a large proportion of it belonged to him. This was in the context that he had to give credit for any entitlement which the Defendant may have to the revenue of the French Companies, if it should be established that he had any. The Plaintiff maintains that the accounts between the Plaintiff and himself in relation to the French Investments had all been settled by 2004, and on his case, nothing further was due to the Defendant. His Counsel highlighted the fact that even if the Defendant had a claim to any profits from the French Investments, the total Remittances exceeded any such entitlement.

82.  If it is true, and it can be clearly shown on the evidence, that there are monies due from the French Companies to the Defendant, that is a matter which should be resolved between the Defendant and the French Companies/the liquidator thereof, or between the Plaintiff and the Defendant as shareholders of the French Companies. If the Defendant claims that the ledgers do not represent any debt actually or properly due from him, this is again a matter which should be taken up with the liquidators. In any event, there is no set-off asserted in the Defence in these proceedings, and no Counterclaim made, relating to the French Investments between the Plaintiff and the Defendant. The evidence adduced before this Court is neither complete, nor clear nor satisfactory as to the state of accounts between the Parties in relation to the French Investments, and as to the state of the accounts between the French Companies and the Defendant, to support or justify any findings which can properly be made in these proceedings, eg as to how much in rental returns or profits the Defendant was entitled to under the French Investments.

83.  It is unfortunate that, notwithstanding the Court’s suggestions, the Parties never seriously considered or discussed the possibility of settling (out of Court) all their accounts under the HK Investments and the French Investments, nor attempt to agree on their accounts for the French Companies and what may be due to them as shareholders. In the absence of all the necessary particulars and evidence, this Court is not in a position to resolve this for them outside the confinement of the pleaded issues in this case.

84.  Further, the alternative case of the Plaintiff highlights the fact that the total Remittances far exceed both the €11,400 debit entries of Fontaine which may be linked to the Remittances, as well as the reported income of €152,410 from T&S and Fontaine for the period from 2004 to 2011 as reported to the French authorities.

85.  On the evidence, I am not satisfied that the Defendant has shown that the Remittances should be equated with the Defendant’s entitlement to funds of the French Companies, and I reject the Defendant’s contention that the Remittances were his own funds. As Counsel for the Plaintiff submitted, there is simply insufficient evidence to support such a sweeping statement.

86.  My finding on the evidence and pleadings is that under the Joint Investment Agreement, the Parties were to have equal shares in Flat 6A. The documents evidencing the Remittances are accepted as evidence of the Plaintiff’s contributions made to the acquisition of Flat 6A including the financing of the mortgage payments. To the extent necessary, I find that the Plaintiff had acted to his detriment when he agreed to the 1990 Assignment, and there was an agreement that Flat 6A was to be held by the Defendant on trust for the Plaintiff in respect of his half share in the beneficial ownership of the property.

Haven Shop

87.  The Defendant’s Notes clearly record the contribution received from the Plaintiff of HK$500,000 for the purchase of Haven Shop, and that received from Chiu of HK$600,000. When the Defendant sold the Haven Shop in November 2009, he also recorded the net profit to be distributed to the Plaintiff and Chiu respectively, in the stated proportion of 30% for the Plaintiff, 30% for the Defendant and 40% for Chiu. This was on the basis of the sale price of HK$4,700,000.

88.  I totally reject the Defendant’s denial of the Plaintiff’s contribution of HK$500,000. Irrespective of whether the Remittances were sourced from the Defendant’s funds as he claims, and whether the Defendant’s Notes were misleading to that extent (which I have found against), the Defendant’s Notes clearly acknowledge the funds received for purchase of the Haven Shop, and these include the sum of HK$500,000 from the Plaintiff. I see no basis for the Defendant’s denial, apart from the claim that the money sent was his own money (which I have rejected).

89.  The Defendant was further discredited by the evidence he gave on the sale price of the Haven Shop. The Defendant’s Notes record a sum of HK$4,700,000 for calculating the net proceeds for sharing with his co-investors, the Plaintiff and Chiu. However, the documents produced at trial include the completion statement of the sale of Haven Shop and this shows unequivocally that the actual sale proceeds were HK$7,500,00 and that on completion, the Defendant had received HK$5,660,230.89. This was confirmed by the Defendant in cross-examination. His bank statement also shows that the sum of HK$5,669,230.89 was received in the Defendant’s bank account on 4 February 2010 on completion of the sale.

90.  The Defendant gave incomprehensible answers in the witness box, when he was asked about the discrepancies, and I am unable to accept his excuses as to how the sum of HK$4,700,000 was arrived at in calculating the alleged sale price for distribution to Chiu and the Plaintiff. I can only conclude that he had not given an honest account to his co-investors as to their entitlement. That casts serious doubt on the veracity of the Defendant’s assertions and claims made in these proceedings.

91.  On the completion statement produced in evidence, the Haven Shop was sold for HK$7,500,000, and the Plaintiff’s 30% share is HK$2,250,000.

Larvotto

92.  According to the Defendant’s Notes, the Plaintiff was entitled to receive HK$1,067,277.60 as the proceeds of sale of the Haven Shop, and this sum was used to finance the purchase of Larvotto. The Plaintiff is accordingly entitled, on the Defendant’s acknowledgment and own calculations, to trace his interest in the sale proceeds of the Haven Shop into Larvotto.

Disposition

93.  In failing to properly account for and to pay to the Plaintiff his share of the proceeds of sale of the HK Properties, the Defendant is in breach of his duties as trustee.

94.  On the basis of the findings which I have made as to the Plaintiff’s entitlement to the beneficial interests in the HK Properties, I grant the declarations and relief sought in the Amended Statement of Claim. The Plaintiff is to submit a draft order for the Court’s approval.

95.  The Defendant has failed in his Defence, and the costs order should be for him to pay the costs of the entire action. This order shall become absolute unless application for variation is made within 21 days.