LWYA v. KYW

CACV 151/2013 AND CACV 152/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 151 AND 152 OF 2013

(ON APPEAL FROM FCMC NO. 14018 OF 2011)

________________________

CACV 151/2013

________________________

________________________

J U D G M E N T

________________________

Hon Cheung JA:

1.  I agree with the judgment of Kwan JA and the orders she proposes to make.

Hon Yuen JA:

2.  I agree with the judgment of Kwan JA.

Hon Kwan JA:

Introduction

3.  This court is concerned with the appeals against the determination of a preliminary issue in an application for ancillary relief, after a five-day trial before Deputy District Judge Carlson in November 2012.  Judgment was given on 4 March 2013.  The issue for determination relates to the beneficial interest in 20 million shares in a private company, Nicegood Properties Limited (“NPL”), held in the name of the wife petitioner (“the wife”).  The husband respondent (“the husband”) contended that the shares are beneficially owned by the wife.  The wife and her father (“the father”), who appeared as the intervener in the trial of the preliminary issue, contended that she held the shares on trust for the father.  The judge found in favour of the husband and granted a declaration that the shares do stand as part of the wife’s beneficially owned assets and are available for distribution on the hearing of the ancillary relief application.  The wife and the father separately appealed against the judgment, with leave granted by the Chief Judge on 15 July 2013.

The background

4.  I will first relate the relevant background matters in chronological order.

5.  The father is an extremely wealthy and very successful businessman.  He received only primary education and started as a factory worker.  He rose to become a pioneer of the polyfoam manufacturing industry in Hong Kong.  His factories in China are among the leading manufacturers of crash helmets which are sold worldwide.  At the time of the trial in 2012, he was aged 79.

6.  The father has two daughters and two sons by his wife.  The eldest is a housewife living in Canada.  The wife is the second child.  The third child is a son now living in Canada.  He is referred to in the judgment as “Cham”.  The fourth child is a son living in Hong Kong.  He is referred to in the judgment as “Kwun”.  At the time of the trial in 2012, the wife was 46 years old, Cham was 44 years old and Kwun 40 years old.

7.  The father gave this description of his children and his relationship with them[1]:

“7. My family is a very traditional Chinese family. I have brought my children up that way and have instilled in them the traditions in which I was raised. Like most of the traditional family business, all my children (except my eldest daughter who is married and has been living in Canada for years) have been working in my companies for the family business. Cham in the past and [the wife] have assisted me in taking care of the finance, administration and real estate investments of the family business. Kwun has been responsible for sales and marketing. My children report their work to me directly and interpret to me the English documents such as the financial reports and companies’ resolutions, whenever necessary.

8. In the light of our family culture education and tradition, my children are very obedient to me and regard me as the “Patriarch” of our family as well as the family business. I have retained the sole overall control and ownership of the family business and all family assets.”

8.  The father has invested most of the profits he made from his businesses in real estate in Hong Kong.  In March 1995, on the advice of his accountant, he acquired NPL as a shelf company.  He used this as a vehicle to hold his property investments.

9.  Shortly after acquiring NPL, the father increased its authorised share capital to $66 million, divided into 66 million shares of $1 each.  According to the return of allotments on 28 April 1995, the father held 40 million shares (60%), Cham and Kwun each held 13.2 million shares (20% each).  Cham and Kwun did not pay for their shares.

10.  The father had this to say about the shares allotted to his sons[2]:

“11. All along, before and after the transfer of the said shares, from time to time, I told my children that they had to return all the shares to me upon my request or when they left the family business. They could not transfer, cede, sell or in any way deal with or dispose of the shares in [NPL] without my prior consent and they confirmed their understanding each time. In this regard, I am well aware that it became our mutual understanding and agreement that the shares registered in the names of my two sons actually belonged to me and were not owned by them beneficially. To repeat, they had to return all the shares to me upon my request or when they left the family business.”

11.  Cham left the family business when he left Hong Kong for Canada in 1996 or 1997.  He made a transfer of his 13.2 million shares in NPL to the father in this manner.  He and the father executed an instrument of transfer and bought and sold notes dated 15 December 1997, in which Cham was named as the seller and the father as the purchaser, with a consideration paid and received of $13.2 million.  Stamp duty of $22,825 was paid for the transaction.

12.  The father asserted, contrary to the above documents, that Cham returned the 13.2 million shares to him at no consideration.  The judge made the observation that “this transaction is not free from difficulty” and “on the face of it therefore an arms length sale and purchase of this shareholding by son to father which plainly contradicts any notion that the son held the shares as nominee/trustee for his father as beneficial owner and at his father’s pleasure”[3].

13.  In May 1999, the husband and the wife got married.  The wife gave birth to a daughter in 2001.  In that same year, the husband also joined the father’s business.  During their 12-year marriage, the husband and the wife had lived in several properties in succession; all provided by NPL free of rent, outgoings and utilities expenses.  They were provided with a car by another of the father’s companies, with petrol and maintenance expenses all paid for.

14.  Likewise, Kwun’s residence was also provided by NPL on the same basis.  He had the free use of two cars.

15.  In 2004, the father’s relationship with Kwun turned sour.  In November that year, he asked the wife to tell Kwun to sign a declaration of trust in respect of the 13.2 million shares held by Kwun since 1995.  Kwun did so and executed a declaration of trust dated 11 November 2004 in favour of the father, with an undertaking to transfer the shares to the father or as directed by him when called upon to do so.  Stamp duty was paid in respect of this document at $19,880.

16.  Shortly afterwards, the father asked the wife to replace Kwun as the nominee shareholder in respect of those 13.2 million shares.  Kwun executed an instrument of transfer dated 8 December 2004 in which he was the transferor and the wife the transferee and the consideration was described as “nil (change of nominee)”.  The wife executed a declaration of trust also dated 8 December 2004 in favour of the father, in the same terms as the declaration executed by Kwun in November.  The transfer and the declaration were adjudicated not chargeable with stamp duty.

17.  On 18 January 2005, the wife told the father she did not want to get involved in the conflict between Kwun and the father by holding the shares previously in Kwun’s name and insisted on transferring the shares back to the father.  On 18 January 2005, she executed an instrument of transfer in which she was the transferor and the father the transferee.  The consideration was described as “nil (Being shares transfer back from Nominee to Beneficial Owner)”.  No ad  valorem duty was payable for this transfer.

18.  The transfer that gave rise to the present dispute came in less than three months’ time.  On 31 March 2005, the father transferred 13.2 million shares to the wife.  They executed an instrument of transfer and bought and sold notes in respect of the 13.2 million shares, with the father described as the seller and the wife as the purchaser and that $13.2 million was paid and received as consideration.  Stamp duty of $15,209 was paid in respect of the transaction.

19.  The father and the wife maintained that she was to hold the shares on trust for him, even though no declaration of trust was executed by the wife on this occasion.  Both asserted that the wife did not pay any consideration for the transfer.

20.  The father’s evidence on the reason for this transfer, and why no declaration of trust was signed, was summarised in the judgment at §23:

“What he has in effect said is that with Cham out of the picture in Canada and, given his poor relationship with his younger son Kwun, the wife was the only person who he could trust in purely family-related matters as well as in business in which she had been of great help to him in finding real property to invest in through NPL. Rightly or wrongly, his belief was, he says, that by allowing her to hold shares in NPL this would add to her authority and, as he puts it, “bargaining power” when dealing with third parties such as estate agents and bankers. This being his view, he decided that she too should hold shares in NPL as her brothers before her had done. That is to say without having to sign any Declaration of Trust in respect of such a shareholding.”

21.  The father also gave evidence that he told the wife on this occasion she had to work hard for the family business and that if she ever left the business she had to transfer the shares back to him.

22.  In 2005 or 2006, NPL purchased some industrial properties with secured loans from the banks.  As at 31 March 2006, the father’s loans to NPL amounted to $22 million.  He received advice from his tax adviser that NPL might be regarded by the Inland Revenue Department as speculating in properties instead of holding properties as long-term investments because most of its capital could easily be transferred via the repayment of director’s loans.  Hence, the father injected working capital to NPL and increased its authorised share capital to $126 million by allotting 60 million shares for cash.  According to the return of allotments dated 5 December 2006, the father was allotted 33.2 million shares, the wife 6.8 million shares and Kwun 20 million shares.

23.  At this time, the father’s relationship with Kwun had improved. Kwun was promoted to general manager of one of the father’s companies by the end of 2006.  The father explained he allotted 20 million shares to Kwun “to restore the shareholding arrangement to that of 1995” and, to treat his two children (the wife and Kwun) working in the family business equally, he also allotted 6.8 million shares to the wife so that each held 16% shares in NPL[4].

24.  The father gave evidence that the funds for the allotment of new shares were provided by him alone.

25.  It is not in dispute that the father controlled NPL throughout.  He provided all its working capital and operational funds, and retained sole control over the operation of its bank accounts.  He regards NPL as a personal “piggy bank”.  He keeps his property investments and rarely sells.  No dividends were ever declared by NPL.  The children did not gain any benefit, nor did they bear any responsibility, from their holding of the shares in NPL.  The share certificates in respect of the 20 million shares held by the wife have not been signed by any director and the seal of NPL has not been affixed.  As at 31 March 2011, NPL’s statement of financial position stood at about $451 million.

26.  On 11 October 2011, the wife filed a petition for divorce.  In December 2011, the husband resigned from the father’s companies and the father learned of the divorce petition.  On 4 October 2012, a decree nisi of divorce was granted on the petition.

27.  NPL made two substantial purchases of properties even after the father had known about the divorce petition.  In February 2012, a residential property in The Albany, Albany Road, Central was assigned to NPL for $83.8 million.  In April 2012, a shop in Nathan Road, Mongkok was assigned to NPL for $125 million.

The trial of the preliminary issue

28.  On 18 May 2012, at a hearing for directions before HH Judge Melloy, the husband’s counsel raised the issue of the ownership of 20 million shares in NPL held by the wife as the wife had stated in her Form E that these shares are beneficially owned by the father.  Counsel submitted that if there was to be a full ancillary relief hearing, this issue should be determined first as a preliminary issue.  Judge Melloy made an order that day for the case to be listed before Deputy District Judge Carlson for preliminary issue hearing with a call over hearing on 8 October 2012 and that the substantive hearing of the preliminary issue was to commence on 5 November 2012.

29.  On 25 September 2012, Judge Melloy made an order that the father be joined as an intervening party “to seek a declaration in respect of shares in [NPL] held in the name of [the wife] in which he claims beneficial ownership.”  Directions were given for the wife to serve copies of all pleadings, orders, affidavits and other relevant documents in this suit[5] on the father within a specified time, and for three rounds of affirmations to be served by the father, the wife and the husband.

30.  It is well established that a dispute between a spouse and a third party as to the beneficial ownership of property can be adjudicated in ancillary relief proceedings.  In  TL v ML & Ors (ancillary relief: claim against assets of extended family) [2006] 1 FCR 465, Mostyn, QC, sitting as a Deputy High Court Judge, had this to say about the task of a judge determining such a dispute and the procedure that should be followed:

“[34] It is to be emphasised, however, that the task of the judge determining a dispute as to ownership between a spouse and a third party is of course completely different in nature to the familiar discretionary exercise between spouses. A dispute with a third party must be approached on exactly the same legal basis as if it were being determined in the Chancery Division[6].

…

[37] In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen: (i) the third party should be joined to the proceedings at the earliest opportunity; (ii) directions should be given for the issue to be fully pleaded by points of claim and points of defence; (iii) separate witness statements should be directed in relation to the dispute; and (iv) the dispute should be directed to be heard separately as a preliminary issue, before the [Financial Dispute Resolution].”

31.  In this instance, there was not even a proper framing of the issue required to be determined as a preliminary issue, not to mention the pleading of the issue fully in points of claim and points of defence.  No discovery ever took place.  It seems to this court that much of the criticisms made for the appellants as to what case was advanced by the husband in opposition to the father’s claim, how the husband’s case was conducted in the course of the trial, and the findings that should be made by the judge on the competing claims or contentions to resolve the dispute, could have been avoided if the parties here had followed the procedure mentioned in TL v ML that is essential for the proper resolution of this kind of dispute.

32.  To ascertain the respective cases of the parties here, one could only go to the affirmations they filed.

33.  The father and the wife filed affirmations of themselves and their witnesses in support of their case that the shares in the wife’s name were held on trust for the father.  Some of that evidence has been summarised in the background matters mentioned above.

34.  In his affirmation in opposition, the husband denied the wife’s allegation that she had told him from time to time she was holding her NPL shares on trust for the father.  He deposed that neither the wife nor anybody else suggested that they held the NPL shares on trust for the father.  He alleged that the transfer of the 13.2 million shares by the father to the wife in March 2005 was a gift, as the wife was the only child supporting and assisting the family business at the time and the father transferred the shares to her as a gift to secure her loyalty and continuous support of him as well as her assistance in the family business[7].

35.  In the affirmation in reply of the father, he denied he had ever made gifts of the shares in NPL to Cham, Kwun and the wife.

36.  When the husband opened his case at the trial in November 2012, his counsel maintained the contention in his affirmation that the shares were gifts to the wife for her continued contributions to the family business, and reliance was also placed on the presumption of advancement[8].

37.  When the husband’s counsel came to cross-examine the father, much emphasis was placed on the documents executed by the father and his children on the various occasions when the shares were transferred, and the suggestion was made to the father that the documents signed and the payment of substantial stamp duty contradicted the notion that the wife held the shares as a nominee or trustee for him[9].  The judge described the husband’s stance and the arguments he advanced at the trial in this manner:

“The husband’s stance is that where these shares, on the face of the documents, belong to the wife for which apparent value has been given by her then these must be brought into account as part of the matrimonial estate and divided between them in such proportions as the court decides.”[10]

“Mr Clough[11], in a trenchant submission, says that there can only be one conclusion to this issue. These documents speak for themselves and are to be taken at face value.”[12]

“… Mr Clough submits that there is simply no reason why, had a relationship of trustee and beneficial owner been the desired outcome, the documents evidencing the transfer of shares into the wife’s name had not been prepared as they had been on the previous occasion with a declaration of trust. This was a deliberate decision to bring about a transfer of shares between father and daughter on the basis of an outright sale for value ($13.2 million) upon which stamp duty had to and was paid.”[13]

38.  It was the manner in which the trial was conducted, the failure to formulate properly the issue for determination, and the lack of pleadings that generated much debate on appeal whether it was open to the judge to make a finding of gift of the shares to the wife, which was apparently inconsistent with the notion of a sale for value that was pursued by the husband vigorously in the course of the trial.

The judge’s findings

39.  Having summarised the evidence of the parties and some of the witnesses of the father[14], and the submissions made by the parties on the evidence[15], the judge set out the approach he should take regarding the evidence.  He correctly recognised that his task was to discover what the father’s intention was when he transferred these shares to the wife[16], citing these relevant passages in the judgment of Lord Phillips MR in Lavelle v Lavelle [2004] 2 FCR 418:

“[13] Where one person, A, transfers the legal title of a property that he owns or purchases to another, B, without receipt of any consideration, the effect will depend on his intention. If he intends to transfer the beneficial interest in the property to B, the transaction will take effect as a gift and A will lose all interest in the property. If he intends to retain the beneficial interest for himself, A will take the legal interest but will hold the property in trust for A.”

“[14] Normally there will be evidence of the intention with which a transfer is made. Where there is not, the law applies presumptions. Where there is no close relationship between A and B, there will be a presumption that A does not intend to part with the beneficial interest in the property and B will take the legal title under a resultant trust for A. Where, however, there is a close relationship between A and B, such as father and child, a presumption of advancement will apply. The implication will be that A intended to give the beneficial interest in the property to B and the transaction will take effect accordingly.”

“[19] In these cases equity searches for the subjective intention of the transferor. It seems to me that it is not satisfactory to apply rigid rules of law to the evidence that is admissible to rebut the presumption of advancement.”

40.  He set out his analysis and conclusion on the evidence of the subjective intention of the father when the shares were transferred to the wife at §§57 to 62.  He expressly stated he had taken these matters into account: the father’s relationship with the wife and his two sons Cham and Kwun, the pattern of share transfers both on the basis of trusteeship and of apparent transfers of beneficial interests, the absence of signatures on the share certificates of the wife, and the purchase by the father of valuable property after he knew of the pending divorce.

41.  I quote in full §§ 60 to 62 of the judgment, which are material:

“60. I am bound to say that I have great difficulty in accepting the logic of the father’s case that the motive in transferring the shares to the wife in this way was to provide her with “a psychological lift” and in giving her more clout when dealing with third parties. As to the former I cannot really discern any “lift” when the recipient of the shares was a mere nominee. As to added status, the fact of the matter is that her status, if any, comes from the fact that she is a director but, even more importantly, that she is her father’s daughter who overwhelmingly controls the group. No doubt when she speaks, she speaks for him so much so that she would need to consult with him before entering into any important transaction. This really betrays a certain contradiction; more standing with third parties in representing the company and yet, to the knowledge of the third parties called as witnesses, having to defer and consult her father before any final decision is to be taken. I do not believe this proferred motive for transferring the shares as nominee in this way can hold any water at all. I reject it as a reason.

61. In the final analysis I am afraid to say that the truth of this matter is that this kind and generous father decided to reward his beloved daughter and Kwun, with whom he had happily become reconciled, with this very valuable interest in NPL. As to the point that he would not do so because this would favour some relatives over others, is not a matter that I find at all persuasive. The fact is that when the time comes, he still holds great wealth in his own hands, he will be able to do what is right for the remainder of them. The wife in his case is his right hand and he intended, I use the word advisedly, to transfer these shares to her outright, which is what he did. Had it been otherwise he would have created a specific instrument of trust as he had in the past. This must have been, I find this as a fact, a deliberate choice to bring about a transfer of the beneficial interest in the shares.

62. Now of course this has become very inconvenient because the husband is saying, and rightly so on my finding, that the shares, being the wife’s must form part of the matrimonial estate which falls to be divided up between him and the wife in such proportion as the court considers correct and just. In order to avoid such a consequence, I regret to say that these usually honest and decent people have decided that they would give false evidence as to the basis of the transfer of these shares.”

42.  The judge then said in §63 that for the reasons he gave above, he dismissed the father’s summons and would order that the shares do stand as part of the wife’s beneficially owned assets and available for distribution on the hearing of the ancillary relief application.  In the above paragraphs, the judge had clearly found on his analysis of the evidence that all the shares held in the wife’s name, whether transferred or allotted to her, were in the nature of a gift to her.  In making this finding of gift as the father’s true subjective intention, the judge did not find it necessary to invoke the presumption of advancement.  I will come back to the appellants’ arguments whether the judge had also made an inconsistent finding of a sale for value of the shares.

43.  In the remaining paragraphs of the judgment, the judge dealt with a separate issue which was raised on his own initiative in the course of the father’s cross-examination, namely, whether the father and the daughter would be estopped by virtue of the documents they executed which evidenced a sale of the shares for valuable consideration from asserting that in truth the wife was merely the father’s nominee[17].

44.  As what the judge said in addition regarding the issue of estoppel gave rise to much argument on appeal, I will quote §§ 66 and 67 of the judgment in full:

“Having found that the father’s intention was to and did transfer the beneficial interest in the shares to the daughter is sufficient to dispose of the issue and I am therefore not required to decide whether an estoppel is available to Mr Clough as an additional ground for succeeding in this matter.

In deference to counsel’s researches, and in case the matter needs to be considered in another court, I am persuaded by Mr Clough’s submissions and for the reasons that he has given that father and daughter are now estopped from denying the truth of the contents of the instrument of transfer and of the bought and sold notes. So this must stand as a further ground for the dismissal of the Intervener’s summons and as reason for saying that the wife is to be held as the beneficial owner of these shares.”

45.  This finding of the judge on estoppel is clearly wrong in law, and Mr Charles Sussex, SC[18], appearing for the husband on appeal, did not support it. In short, there is no estoppel by deed or by record (which the judge seemed to have in mind) or by representation.

Finding of primary fact

46.  Before I consider the arguments advanced on appeal by Mr Wong Yan Lung, SC[19] for the father and Mr Russell Coleman, SC[20] for the wife, it is apposite that I should first deal with Mr Wong’s submission that the judge’s finding of the father’s intention was not a finding of primary fact but a finding of fact made by a process of inference and so the appeal court should be in as good a position as the trial judge in drawing the proper inference on the evidence.

47.  Mr Wong made the point that the judge rejected all the oral evidence given in support of the father’s intention to create a trust.  There was no witness who gave direct evidence to prove a contrary intention.  So the judge’s finding of the father’s intention was an inference drawn from primary evidence including the father’s words and conduct, the documents adduced in evidence, and the surrounding circumstances.  He submitted that it was a conclusion reached not of primary fact, nor was it based on the credibility of witnesses.  So for the appeal court to reverse the judge’s finding made by inference, he does not need to demonstrate that the judge was plainly wrong, and the appeal court should be able to form an independent opinion about the proper inference of fact to be drawn.  Mr Wong cited the statement of Lord Reid in Benmax v Austin Motors Ltd [1955] AC 370 at 376:

“But in cases where there is no question of the credibility or reliability of any witness, and in cases where the point in dispute is the proper inference to be drawn from proved facts, an appeal court is generally in as good a position to evaluate the evidence as the trial judge, and ought not to shrink from that task, though it ought, of course, to give weight to his opinion.”

48.  He referred also to Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 335, see in particular §34.

49.  I do not agree with his submissions.

50.  In Metropolitan Borough of Battersea v The British Iron and Steel Research Association [1949] 1 KB 434 at 471, Denning LJ had this to say about primary facts and inferences:

“On this point it is important to distinguish between primary facts and the conclusions from them. Primary facts are facts which are observed by witnesses and proved by oral testimony or facts proved by the production of a thing itself, such as original documents. Their determination is essentially a question of fact for the tribunal of fact, and the only question of law that can arise on them is whether there was any evidence to support the finding. The conclusions from primary facts are, however, inferences deduced by a process of reasoning from them.”

51.  The judge’s evaluation and rejection of the oral evidence of the father and the wife is crucial to his conclusion regarding the father’s intention.  It was a conclusion drawn from his findings of primary fact.  And it is not correct to say that his findings of primary fact, from which his conclusion was drawn, were not based on the credibility of witnesses.  That there was no witness able to give direct evidence of an intention contrary to the father’s avowed intention of a trust is beside the point.  A finding of primary fact can be a positive or a negative finding.  This is certainly not a case where the conclusion of the judge is not based on or in any respect influenced by his opinion of the witnesses orally examined before him.  This is not a case, in the words of Lord Reid, “where there is no question of the credibility or reliability of any witness”.

52.  In seeking to overturn the judge’s conclusion of the father’s intention arrived at by a process of inference, the appellants are in effect challenging the underlying findings of primary fact made by the judge based on the oral testimony evaluated and rejected by the judge.

53.  Cheung JA said in Z v X (C: Intervener) [2012] 5 HKLRD 791 at §18(1):

“Unless the Judge had erred on the well established grounds where a finding of fact may be vitiated, such as, for example, he had ignored some relevant evidence or considered some irrelevant evidence which rendered the finding plainly wrong, this Court is unlikely to interfere. This is to give recognition to the fact that the Trial Judge had the benefit of directly seeing and hearing the witnesses giving evidence and the danger of an appellate court forming a view which is based on a reading of parts of the evidence referred to by the parties without the benefit of having a complete picture of the evidence as it unfolded at the trial.”

54.  This is the approach that should be adopted for these appeals.

Inconsistent findings of fact

55.  At the forefront of the arguments of Mr Wong and Mr Coleman is the contention that the judge had made findings of fact on the mutually inconsistent bases of a gift and an arms length sale for value.  This contention was put in a number of ways.

56.  Firstly, it was submitted by the appellants that the judge’s finding in §67 of the judgment that the father and the wife are estopped from denying the truth of the contents of the instrument of transfer and the bought and sold notes is a substantive finding that there was a sale for value.  This finding of a sale for value undermined his earlier finding of a gift.  As these are mutually inconsistent findings of fact, they should cancel each other out.

57.  I firmly reject this submission.

58.  The judge had clearly stated in §66 of the judgment that he was not required to decide whether an estoppel is available as an additional ground for the husband to succeed in this matter.  It was an entirely free-standing point.  The error of law made by the judge in the issue of estoppel did not undermine or cancel out his finding of fact that the father’s intention was one of gift.  The ruling on estoppel was not a finding on the facts that there was a sale for value.  As the judge had said at §67, if an estoppel were available, its effect would be to preclude the father and the wife from denying the truth of the contents of the documents they executed.  The truth of the contents of the documents would not be established by estoppel.

59.  Secondly, it was contended by Mr Coleman that quite apart from the ruling concerning estoppel which came at the end of the judgment, the judge must have already made a finding that there was a sale for value in the earlier paragraphs.  Having held that the wife had purchased the shares, the judge was wrong to hold simultaneously that the intention was one of gift. His argument was along these lines.

60.  In §43 of the judgment, it was said that there is a burden to be discharged by the father and the wife, “given that the documents hold out the wife to be the legal and beneficial owner of the shares, shares apparently purchased by her for $13.2 million, it is for her and her father to prove on a balance of probabilities that the wife is the father’s trustee and that he remains the beneficial owner of the shares”.  In the ensuing paragraphs, the judge set out the husband’s submission that the documents should be taken at face value, the salient parts of which I have quoted earlier on.  Then in §60, the judge rejected the father’s evidence on his reasons for transferring the shares to the wife as his nominee.  In the latter part of §61, the judge said that the father’s intention was “to transfer these shares to [the wife] outright”, and that was echoing or accepting the submission of the husband in §48 that “this was a deliberate decision to bring about a transfer of shares between father and daughter on the basis of an outright sale for value”.

61.  I am simply unable to read the judgment in that way.  On a fair and proper reading of the judgment, the only finding of the father’s intention was one of gift.  The judge did not make any finding of fact that there was a sale for value.

62.  Thirdly, it was submitted by Mr Wong that the judge reached the conclusion that the father’s intention was to transfer the beneficial interest of the shares to the wife on the mutually inconsistent bases of gift and an arms length sale for value.  His decision-making process was plainly defective and the finding he reached by that method was unsafe (AA v NA (Appeal: Fact-Finding) [2010] 2 FLR 1173 at §[15]).  Mr Coleman made a similar submission.  Mr Wong had argued as follows.

63.  Mr Wong submitted that the expressions “on the face of the documents” and “estoppel” were key themes in the judgment, citing §§16, 26, 27, 42, 43, 45, 56.  The error of law regarding estoppel permeated the whole judgment and rendered the decision-making process defective.  Mr Wong referred to §§27, 43 and 56 and made the point that insofar as the judge had found that the documents “compel a conclusion that this is a sale for value at arms length”, it was contradicted by the judge’s “final analysis” in §61 that the father decided to “reward his beloved daughter and Kwun … with this very valuable interest in NPL”.  Conversely, insofar as the judge found “reward” in §61, he contradicted himself by the earlier conclusion that the documents compelled him to conclude an arms length sale for value.

64.  I do not agree with counsel that estoppel permeated the judgment or that the decision-making or fact-finding process of the judge was in any way defective.  The paragraphs in the judgment cited by Mr Wong, in which emphasis was placed on what appeared on the face of the documents, were by and large the contentions of the husband’s counsel.  The judge did not take up Mr Clough’s suggestion in §45 and find that there was a sale for value on the face of the documents[21].  What the documents appeared to say on their face is material to the proper assessment of the explanation given by the father and the wife in the face of the documents.  Thus, in §46, he set out the submission of the father that “whilst the documents may show otherwise, the situation has been clearly and logically explained by the father”.  In §55, he cited relevant passages in Lavelle v Lavelle dealing with the situation of transfers of legal title without the receipt of any consideration.  In the end, he rejected the father’s explanation in §60 and found in §61 that the father’s intention was one of gift.  The judge did not arrive at his conclusion that the father’s intention was to transfer the beneficial interest of the shares to the wife on the mutually inconsistent bases of gift and an arms length sale for value.

The finding of gift

65.  The father and the wife sought to impugn the factual finding of a gift on a number of grounds.

66.  Firstly, Mr Wong took us at some length to the share allotments and transfers in the past to make the point that the judge had failed to consider the consistent pattern of trust arrangements which the father had made with Cham, Kwun and the wife over the years.  I have set out earlier those share allotments and transfers in the background matters.

67.  Mr Wong submitted that when Cham left for Canada, he returned his shares to the father in 1997 at no consideration, notwithstanding that an instrument of transfer and bought and sold notes evidencing a sale for value were executed.  This, he said, was similar to the transfer in question by the father to the wife of 13.2 million shares in March 2005, when like documents were executed.  Mr Wong contended that the fact-finding process was compromised by the judge placing “undue emphasis” on what the documents said, wrongly thinking that he was precluded from finding a trust arrangement by the documents as they stood.

68.  Next, the allotment of 13.2 million shares to Kwun in 1995 was made without the execution of a declaration of trust.  Mr Wong made the point that it was only when Kwun’s relationship with the father had turned sour that he was asked to execute a declaration of trust in November 2004.  So the execution of a declaration of trust was done in exceptional circumstances, and provided support for the father’s case that his normal relationship with his children was such that no such document was required as they had understood and agreed they only held the shares as his nominee and had to return them at his request.  Mr Wong submitted it was wrong for the judge to equate the strained circumstances in November 2004 with the situation in March 2005 when the father transferred the shares to the wife.  He also submitted that the judge had placed heavy reliance on stamp duty, which would have to be paid in any event and this was not something of great concern to the father.  It could hardly be suggested that where stamp duty was paid in circumstances where exemption might be claimed by submission to adjudication, the father had any intention to mislead or defraud the government.

69.  As for the reasons given by the father for transferring the shares to the wife, other than the reasons mentioned in §§46 and 60 of the judgment (providing the wife with a “psychological lift” and giving her more clout when dealing with third parties), which were rejected by the judge, Mr Wong submitted there was yet another reason mentioned by the father, not apparently dealt with by the judge.  When the father was cross-examined why he asked Cham to transfer the shares back to him when Cham left the family business, he said these in answer:

“And I wanted to let him know that I would give them to him in future if he put up a good performance in the company, I would give them to him, because in reality I want him to be back badly.”[22]

“I badly wanted him to know that when he left the company, I had to get them back. I wanted him to return from Canada badly so that my business - - so that he could continue to deal with my business because I am old.”[23]

70.  Later on when the father was cross-examined about his reasons for transferring the shares to the wife, he said these:

“I wanted to show to other children that if they performed better and if they came back to the company, I would transfer the shares to them so that they would come back to the company.”[24]

“It was able to encourage Kwun because later on Kwun came back to work for me.” [25]

71.  When he was asked why that would encourage his children if the wife was only to hold the shares as nominee for him, he said “they would be satisfied spiritually”[26].

72.  In re-examination, he was asked to explain why he thought transferring the shares to the wife might encourage the other children to come back to the company and he said:

“There are two things: firstly, so that they would be more motivated to work and they would be encouraged psychologically. Well, secondly, the traditional Chinese family wants to pass their business to the next generation because there is a Chinese saying that everything is hard to come by, and we hope our children would continue the business, sorry, the factories that we have been dealing with.”[27]

73.  Mr Wong submitted from the above statements that the father’s purpose of transferring the shares to the wife for her to hold as a nominee was to provide motivation to her and the other children to work for the family business and if they should perform well, they would get the shares in the end.  Mr Wong reasoned that if the shares were transferred to the children outright, that would defeat the purpose of motivation.

74.  Mr Wong also emphasised that the transfer of 13.2 million shares to the wife in March 2005 was the first time that the father had transferred shares to one of his children and said this was significant somehow.  As for the instrument of transfer by Kwun of 13.2 million shares to the wife in December 2004 which was executed with a declaration of trust, Mr Wong said this was not an instance of the father transferring out the shares but getting them back from Kwun.

75.  I am not persuaded by Mr Wong’s submissions that the judge had overlooked some relevant evidence or had considered irrelevant evidence which rendered his finding of a gift plainly wrong.

76.  To start with, the judge had expressly stated in §58 that he had “noted with care the pattern of share transfers both on the basis of trusteeship and of apparent transfers of beneficial interests”.

77.  Further, just as Mr Wong had sought to persuade us by looking at the pattern of transfers and allotments in a particular light, equally if not more cogent reasons could be advanced showing that the transfer in dispute was not a trust arrangement as alleged.

78.  The transfer of shares to the wife was made at a time when she was the only child the father could trust in family related and business matters.  As pointed out by Mr Sussex, the transfer to the wife in March 2005 was made without a declaration of trust, and this came not long after declarations of trust were executed by Kwun in November 2004 and by the wife in December 2004.  No plausible explanation was given by the wife why she should have been unwilling to be the express nominee of the father when she returned the shares to him in January 2005, but was happy to take on this status in April 2005, without a declaration of trust.  When the father was pressed for an explanation why he executed documents stating that consideration was paid and received when the shares were transferred to the wife, when it was his case that no consideration was paid as it was a trust arrangement, he said the documents were just formalities and claimed he did not remember much and did not know the contents[28].  The father admitted at that time, he understood what a declaration of trust was, that it was a simple way of setting out the true beneficial ownership as opposed to registered ownership[29].

79.  As for transferring the shares to the wife as a nominee to provide motivation for the other children to join the family business and work hard, Mr Sussex asked rhetorically why would Cham come running back from Canada only to be made a mere nominee shareholder as he had already been before, on the father’s case.  That the father had wanted all along his children to carry on the family business was entirely consistent with a gift of the shares to them.

80.  Mr Sussex also submitted there was no credible explanation why the wife’s shareholding was increased to 20 million in 2006 if it were a merely nominal shareholding for spiritual or psychological purposes.  He submitted this later transaction would only make sense if the beneficial interest had also passed.  In that case, there would need to be a further allotment of shares to the wife to preserve an equality of substance between her and Kwun.

81.  I do not think it is right for the appeal court to attempt to form a view which of the rival contentions should be accepted solely on the basis of the transcript of evidence and documents, without the benefit of seeing and hearing the witnesses.  The trial judge was entitled to disbelieve the father and the wife on their evidence with the result that they have failed to discharge the burden of establishing that the shares of the wife were held on trust for the father and to find against them that the shares were a gift to the wife.

82.  Secondly, the appellants submitted that the judge’s finding was vitiated in that he appeared to have overlooked there were two separate lots of shares held by the wife, a transfer in March 2005 of 13.2 million shares and an allotment in March 2006 of 6.8 million shares.  The allotment of 6.8 million shares was wholly unaffected by the judge’s views regarding the father’s explanation of the use of an instrument of transfer and bought and sold notes.  Further, it was contended that the judge had apparently not considered what the father’s intention was when he caused the 6.8 million shares to be allotted to the wife.

83.  I also reject this submission.  When the judge found in §61 that the father had “decided to reward his beloved daughter and Kwun … with this very valuable interest in NPL”, he must have been referring to the whole of the 20 million shares held by the wife, as it was by the subsequent allotment of 6.8 million shares that she and Kwun each held an equal amount of shares.  It is correct that the judge did not analyse separately the father’s intention regarding the allotment of the 6.8 million shares to the wife.  I do not think that matters, as there was no suggestion by the father or the wife that the father had a separate intention regarding the allotment of shares in 2006, different from his intention for the transfer of shares in March 2005.  As Mr Sussex has submitted, it was the father’s case that his intention of putting the shares in the wife’s name on both occasions was “all pervading”.  This is demonstrated by the father’s answer when he was cross-examined about his reasons for putting 20 million shares in the wife’s name.  He was clearly treating his reasons as applicable to both parcels of shares held by the wife[30].

84.  Thirdly, Mr Wong and Mr Coleman criticised the way the trial was conducted for the husband and submitted that this vitiated the fact-finding process.  It was pointed out that Kwun was not cross-examined on his evidence he held his shares on trust for the father, so the judge could not or should not have come to the conclusion that the allotment of shares to Kwun and the wife in March 2006 was in the nature of gift.  There was no evidence from the husband to contradict the evidence of Kwun.  There was no cross-examination of the father regarding his intention of the allotments to Kwun and the wife in March 2006.  It was not put to the father or the wife that the shares transferred or allotted to her were in the nature of gift.  To the contrary, it was put to the wife in cross-examination “the position is either the document represents the true transaction and [she] paid $13.2 million or [her] affidavits and [her] oral evidence establishes the true position and [she] didn’t pay $13.2 million, but both propositions can’t be correct”[31].  The focus of the husband’s counsel in the cross-examination of witnesses and his closing submission was on the documents and the judge was asked to take the documents at face value, namely, that it was a sale for value. Counsel did not press for the finding of a gift.

85.  I am not persuaded that any of the criticisms should vitiate the judge’s finding of a gift.  Whatever emphasis the husband’s counsel chose to place on the documents which on their face suggested consideration was paid and received, so as to undermine the credibility of the evidence given by the father and the wife, it is clear that the husband had not at any time abandoned his case asserted on affirmation at the outset that the shares of the wife were a gift.  The father and the wife were aware of the husband’s allegation of a gift, they were given the opportunity to respond to this and did so in the affirmations filed in reply.  That Kwun did not respond to the allegation of gift further in his evidence in chief and was not cross-examined about this is not material.  Nor did it matter it was not put to the father or the wife the shares she held were a gift.  It was open to the judge to make that finding on his analysis of the evidence.  That there was no evidence to the contrary from the husband as he was not privy to the arrangements between the father and his children is not a matter of consequence.

86.  Fourthly, it was urged upon us there were undisputed matters pointing away from a gift, the significance of which the judge had ignored.  The share certificates of the shares held by the wife were not signed by the directors and did not bear the company seal.  The father retained control of NPL throughout.  He continued to make substantial investments buying properties through NPL even after he had known of the divorce proceedings.  And although the father had been happy to provide rent-free accommodation to his children, he had not given them the ownership of the properties, which are all held by NPL.  It is therefore unlikely that he would make a gift to them of significant shareholdings in the company that owns the properties.

87.  I see nothing in these points.  The judge mentioned specifically the points about the share certificates of the wife and the father’s continual investment in §§58 and 59 and said they would need to be given careful consideration.  He was entitled to give these matters such weight as he saw fit when he made his final analysis.  As for the father retaining control in NPL, this is just as consistent with a gift of part of the shares.  The fact that the father had not made a gift of the properties to the children does not have a direct bearing regarding his intention in respect of the NPL shares, as the father had said in evidence he used the shares to encourage and entice his children to work for the family business.

88.  There is no basis to impugn the finding of a gift or any reason for this court to interfere with the judge’s finding.

The complaint of procedural unfairness

89.  Mr Wong and Mr Coleman both raised a point based on Browne v Dunn (1894) 6 R 67 HL, making complaints that it was unfair to the father, the wife and the witnesses called in that various matters were not put to them in cross-examination and particular aspects of their evidence were not specifically challenged.  It was not put to them that a trust arrangement never took place, that their evidence regarding a trust was deliberately untrue, or that the shares transferred to the wife were a gift.

90.  At the trial, the father’s counsel Mr Grossman, SC had also made the point that it was not suggested by the husband’s counsel in cross-examination that the father or the wife was not telling the truth when they said the shares were held by the wife as a trustee.  The judge did not think it necessary to put to the father or the wife they were lying.  As stated in §44 of the judgment,

“Everybody knows where they have stood in this regard. … The issue is well and truly joined and if I find for the husband, I am afraid that the basis of such a conclusion will be that the father’s and the wife’s evidence has not been truthful. The fact that such a suggestion was not in terms put to them is in my view neither here nor there. Everybody knows that their evidence is under the severest challenge.”

91.  I agree with the judge.  I am satisfied there was no procedural unfairness.  The parties knew their respective positions regarding the issue plainly in contest.  The father and the wife knew the imputation intended to be made against them and had the opportunity to make any explanation open to them.  There was no need to put to them what was obvious.

Conclusion and costs

92.  For the above reasons, I would dismiss the appeal.  I would make an order nisi that the father and the wife should pay the husband’s costs of this appeal, as well as the costs of their application to the Court of Appeal for leave to appeal.  I would grant a certificate for three counsel to the husband in resisting the two appeals.  The costs awarded to the husband are to be taxed by a taxing master.