MING SHIU CHUNG AND OTHERS v. MING SHIU SUM AND OTHERS

FACV No. 25 of 2005

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

 FINAL APPEAL NO. 25 of 2005 (CIVIL)

(On appeal from CACV No. 180 of 2004)

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 J U D G M E N T

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Mr Justice Bokhary PJ:

1.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Chan PJ:

2.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Ribeiro PJ:

3.  Ming John Foo (“the father”) was the father of seven children.  Lawrence Ming Shiu Sum (“Lawrence”) is one of his sons. He is the 1^st defendant in the proceedings and the appellant in this appeal.  The four plaintiffs, namely, Hubert Ming Shiu Chung, Ming Shiu Tong, Ronald Ming Shiu Hung and Bertha Ming Shiu Kuen, are all siblings of Lawrence and are the 1^st to 4^th respondents in this appeal. 

4.  Another sibling, Alex Ming Shiu Kow was joined in the action as 4^th defendant.  He took an active part in the proceedings, representing himself.  He continues to represent himself in this appeal but, not having filed a printed case, was not entitled to be heard (as stipulated by rule 24 of the Rules of the Court).  A further sibling, Kenneth Ming Shiu Wah, died in 1998.  His personal representative was joined as 3^rd defendant but did not take an active part. 

5.  The father, who was born in 1909, died on 21 December 1992.

6.  The Court is indebted to counsel for their helpful submissions, Mr Benjamin Yu SC appearing with Mr Johnny Mok for Lawrence, and Mr Clive Grossman SC appearing with Mr Paul Lam for the plaintiffs.

A. The dispute

7.  In 1972, the father, then in his sixties, commenced a property development business.   This was done using Ming Hsing Development Co Ltd (“MHD”) as the corporate vehicle, with the father acting as chairman, and Lawrence as managing director, but without the participation of the other children who had all settled abroad.  Over the next 20 years, the business prospered with the father and Lawrence at the helm.  Older buildings were acquired, redeveloped and sold, with the proceeds, together with bank borrowings, used to acquire further buildings for similar redevelopment. 

8.  In 1992, through this process of trading up its assets, the business had grown to encompass a group of at least six companies, including MHD, with holdings worth some $288 million.  In support of the banking facilities enjoyed by the group, Lawrence was providing personal guarantees carrying an exposure of some $214 million.  However, the health of the father, then in his eighties, was failing.  With a view to saving estate duty, he caused J F Ming Inc (“JFM”), a British Virgin Islands company, to be formed and to act as the holding company of the group.  JFM was joined as the 2^nd defendant in these proceedings.

9.  It is common ground that each of the seven children had duly been allotted 1,000 bearer shares in JFM.   However, Lawrence claims to have been allotted 10,000 additional shares in JFM (comprising 5,000 bearer shares and 5,000 ordinary shares issued in his name), constituting him the majority shareholder.  The plaintiffs dispute this and ask the Court to declare the purported issue and allotment of the 10,000 shares void and of no effect. 

10.  Both Deputy High Court Judge To (HCA 18407/1999, 30 April 2004) and the Court of Appeal (Cheung and Tang JJA, and Kwan J, CACV 180/2004, 26 May 2005; Tang JA giving the judgment of the court) granted the declarations of invalidity and consequential orders sought by the plaintiffs, although on different grounds.  Lawrence brings this appeal.

B. The documents challenged by the plaintiffs

11.  In support of his claim to be holder of the 10,000 shares, Lawrence relies on two board minutes dated 8 August 1992 (referred to as “M1” and “M2” respectively and together as “the August minutes”).  He also relies on ten share certificates for 1,000 shares each of the same date. 

12.  The August minutes purport to relate to a meeting of JFM’s directors attended by the father and Lawrence on 8 August 1992 at the company’s offices in Jade Centre on Wellington Street.  M1 records a resolution to issue 5,000 ordinary shares in JFM to Lawrence, while M2 does the same in relation to the issue of 5,000 bearer shares.  The ten share certificates comprise five certificates (numbered 01 to 05) for 1,000 ordinary shares each made out in Lawrence’s name, and five certificates (numbered BSS1 to BSS5) for 1,000 bearer shares each.   Each of the August minutes and the ten share certificates bear the purported signatures of the father and Lawrence signing as officers of JFM.

C. The basis of the plaintiffs’ challenge

13.  The basis of the plaintiffs’ challenge to the validity of Lawrence’s shareholding is set out in the following paragraphs of the Statement of Claim:

“15. There was no director’s meeting of [JFM] held on 8 August 1992 as alleged or at all.  The minutes produced by [Lawrence] were tampered with, they were in fact dated October 1992.

16. The plaintiffs dispute the genuineness of all the purported signatures of [the father] on the [relevant] ...... share certificates and the minutes of the 2 board meetings allegedly held on 8th August 1992.

17. The plaintiffs aver that the alleged allotment and/or issuance of the 10,000 shares of and in [JFM] to [Lawrence] was carried out without the knowledge or consent of the [father], and there has never been any valid allotment and/or issuance of the 10,000 shares to [Lawrence] in August 1992 as alleged or at all.”

14.  Although the Statement of Claim does not expressly allege that the documents are forgeries, it is clear that such is the gravamen of the charge made in paragraphs 15 and 16. 

15.  On its face, paragraph 17 appears merely to be consequential on the plea of forgery.  If, as the two preceding paragraphs allege, the documents were signed by a forger and not by the father, the purported allotment and issuance of the 10,000 shares were not the father’s acts and one can well understand why paragraph 17 goes on to allege that he did not know of and did not consent to those acts.

16.  However, it has been essential to the plaintiffs’ case below and is essential to its case before the Court, that paragraph 17 should be understood as asserting an independent and alternative basis for alleging that there has been no valid allotment and issuance of the 10,000 shares.  The plaintiffs seek to contend that even if the father’s signatures are held to be genuine, he signed the documents without knowing what he was doing.  By this, Mr Grossman explained, they mean that the father did not know the nature and quality of, that is, did not know the contents of, the documents he was signing.

17.  Such a case is not what the language of paragraph 17 of the Statement of Claim conveys.  Nevertheless, it is clear that the case has always proceeded on the footing that the plaintiffs are making a separate assertion of lack of knowledge and consent in the sense explained by Mr Grossman and that no objection based on the pleadings was taken on Lawrence’s behalf.  Thus, summarising the plaintiffs’ case, the Judge states:

“The inference they ask me to draw is that the Father’s signatures on some of the share certificates were forged or even if they were genuine, they were signed without the Father’s knowledge and consent as to the contents and effect of these documents.” (§8)

And, likewise, the plaintiffs’ case was articulated by the Court of Appeal as follows:

“The plaintiffs’ claim was put on two bases.  First, the minutes as well as the share certificates (the documents) were not signed by the father.  Secondly, if they had been signed by the father, he did not know what he was signing.” (§22)

18.  What is very much in issue is whether, without the alleged forgery being established, an absence of knowledge and consent as to the contents of the documents can be inferred and, if so, whether that is capable of constituting a sound, free-standing, legal basis for invalidating the allotment and issuance of the 10,000 shares.

D. The decision at first instance

(i) The evidence relied on by the plaintiffs

19.  At the forefront of the plaintiffs’ case is the document in Chinese dated 29 September 1992, referred to as “the Chinese memorandum”.  This was the document which the father caused to be prepared and which, on 10 October 1992, he caused to be read out to his seven children whom he had assembled in Hong Kong, offering them each the incentive of $5 million for attending.  In its English translation, it is a three-page document with a schedule of assets and liabilities annexed.  The schedule shows JFM as the holding company of six other companies, indicating the assets and liabilities of each such company and giving a figure of some $288 million as the net assets of the group.  In the body of the Chinese memorandum, the father provides an account of how the business was built up and conveys to his children his wishes and advice as to how they should conduct themselves after his death.   

20.  Various aspects of the father’s message have been analysed in detail by each side.  But its prime importance to the plaintiffs’ case derives from its paragraphs 8, 9 and 10 which state as follows:

“8. To resolve the problem of my future estate tax, I founded Ming Cheung Fuk Overseas Company [JFM] where I put all the capital and assets in my name. The statement of assets and liabilities is in the appendix.

9. Now I have decided to divide the shares of [JFM] into seven parts, each of which has the same number of shares and worth.  Each of you is entitled to one part (these are all bearer stocks), i.e. Siu-chung, Siu-sum [Lawrence], Siu-tong, Siu-wah, Siu-hung, Siu-kuen and Siu-kau shall all have one part.”

10. While I am still alive, Siu-sum [Lawrence] and Ka-fok are required to store these seven parts of shares in a safety box of a bank which can only be opened when they sign for its opening at the same time.  The shares shall only be given to you after my death.  Let me reiterate: none of you is a shareholder of the company before you are given the bearer stocks.  You have no right to interfere with the company’s business, internal affairs and policies until you are all given one bearer stock. If you want to transact any business which involves Ming Cheung Fok Overseas Company’s assets, you have to secure Siu-sum’s consent first because he knows all the procedures and is well-informed on Hong Kong’s realty.”

21.  The plaintiffs submit that these statements by the father are wholly inconsistent with him ever having constituted or ever intending to constitute Lawrence majority shareholder and are the strongest possible evidence that his purported shareholding cannot be valid.  Thus, they argue, in the Chinese memorandum the father is treating the assets of the JFM group as his own assets which need to be protected against estate duty, and not assets beneficially shared with Lawrence.   He is informing the assembled children that the shares in JFM are to be equally divided among them in the form of bearer shares, with no suggestion that Lawrence has, or is to have, a larger portion.  He also emphasises that “none of you is a shareholder” in JFM before they receive the bearer shares, indicating that Lawrence is in no different position. 

22.  Secondly, the plaintiffs relied at the trial on expert handwriting evidence.  However, the experts were unable to conclude that the questioned signatures of the father were forgeries.  Instead, they agreed that four of them were genuine and that the remaining questioned signatures “might be” or “might well be” genuine.  I will return later to aspects of this evidence.

23.  Thirdly, the plaintiffs relied on the existence of alterations (which were admitted to have been made by Ivy Wong Man Yin, Lawrence’s then secretary and later his mistress and mother of his child) to the dates of the August minutes and the share certificates as well as to the serial numbers of the share certificates.  This, it was argued, was highly suspicious, reinforcing doubts as to the validity of Lawrence’s claimed shareholding.

24.  Finally, the plaintiffs relied on various aspects of Lawrence’s conduct as giving rise to further suspicions.  They relied, for instance, on his failure to insist on his father disclosing and so confirming to his other children during his lifetime the legitimacy of Lawrence’s purported shareholding to avoid what would otherwise be inevitable discord among them; on Lawrence’s own failure to disclose his alleged shareholding to his siblings until February 1994 when an attempt was made to remove him as a director of JFM; on his acting in the meantime, for all outward intents and purposes, as merely a one-seventh shareholder in JFM (in respect of his entitlements to dividends and otherwise); and on his dogged resistance to having the August minutes and share certificates subjected to forensic examination.

25.  Taking all of these matters into account, the plaintiffs contended that the inescapable inference was that the August minutes and at least some of the share certificates were forgeries and, to the extent that they were not forgeries, that the father cannot possibly have known what he was signing when he signed them.  To hold otherwise, they argued, would be to conclude that the father had, in the Chinese memorandum, deliberately misled his other children as to the percentage of JFM they could each expect to receive (or to put it more emotively, had told them “a cruel lie”), which was unthinkable.

(ii) The evidence relied on by Lawrence

26.  Lawrence adduced documentary evidence which is not disputed, showing his pivotal role in the development of the business over 20 years, with a view to explaining why he was installed as majority shareholder.  It was clearly a business which owed its success in large measure to his efforts and his willingness to assume financial commitments by giving personal guarantees in its support.  The documents also make it clear that Lawrence was entrusted by his father with the power to act singly on behalf of the companies, including JFM, and to operate their bank accounts acting alone.

27.  Indeed, the father repeatedly emphasises Lawrence’s contribution to the business in the Chinese memorandum, recalling that Lawrence had given up his job to help establish MHD and that it was on his advice that the first property redevelopment project was launched, with Lawrence conducting the negotiations for acquisition of the properties concerned.  As Lawrence points out, in §7 of the Chinese memorandum, his father speaks not of his efforts, but of their joint efforts, describing what “we” had done to make the business grow.  He also argues that in §10 of that document, his father entrusts the keeping of the bearer shares to be issued to the children to Lawrence (and an uncle) and, emphasising his different status in his father’s eyes, enjoins the others not to interfere with the company’s business before they are made shareholders, stressing that any business they might wish to transact involving JFM’s assets requires Lawrence’s prior consent.  Lawrence points out that at the end of the Chinese memorandum, the father returns to remind the others that JFM’s achievements are due to “the hard work of [an uncle, Ka-fok] and [Lawrence]”.

28.  Lawrence attributed his father’s reticence about disclosing Lawrence’s majority shareholding to his father’s desire to avoid repetition of an unhappy episode in 1977 when, having distributed shares in MHD to the siblings, the father was distressed to see that they attempted to use those shares to remove Lawrence as managing director.  This had led (so the documentary record shows) to the father purchasing back the shares from each of his children and the business continuing to be run by the father and Lawrence. 

29.  Lawrence submitted that the worry that this might happen again and attempts at avoiding a recurrence can be discerned in the Chinese memorandum.  Thus, so Lawrence argued, the document starts with the father acknowledging his failing health and expressing his wish to spend his “remaining days in leisure and peace” – and not beset by strife amongst his children.   It spends much time stressing how painstakingly the business was built up and underlining the father’s desire that it should continue to prosper and not be disrupted – Lawrence would add – as happened in 1977.  He suggested that the repeated references to his contribution to the business were intended to lend support and justification to his being installed as majority shareholder.  The same applies to the repeated warnings against the children being “greedy”.  The document ends with the father exhorting the children not to let him down “and spoil the efforts I have made in my life” – that is, disrupting or dismantling the business founded by the father.

30.  The foregoing matters involve a consideration of contemporaneous documents and drawing inferences from them.  They do not raise issues of credibility.  However, Lawrence and Ivy Wong also gave first-hand evidence on the genesis of the disputed documents.  Lawrence furthermore sought to explain his conduct with a view to meeting allegations of suspicious activity on his part.   Much of that evidence did depend on their credibility.

31.  Thus, Lawrence testified to his father acknowledging that he was to be treated as a business partner (in the light of the important role he had in the business) and agreeing to his having the 10,000 shares to reflect that status.  He said that his understanding with his father was that the shareholding should also compensate him for drawings the father had made from the assets of the business for distribution to his children.  There had been such distributions in the sums of $14 million and $35 million in 1988 and in October 1992 respectively.  He said that he had discussed with his father whether his majority shareholding should be disclosed to the others but that his father had decided that this would be unnecessary as he would let them know in writing.  He said too that he had told Kenneth Ming (since deceased) of his majority shareholder after Kenneth had become a director of MHD in January 1994.  He explained that he had sought to defer disclosing his shareholding to his siblings because he was afraid that their reaction might be such as to provoke the group’s bankers to withdraw credit and so place him at risk as guarantor.

32.  Ivy Wong gave evidence that she had innocently made the alterations found on the disputed documents.  She stated that she had first dated the August minutes 8 October 1992 and then corrected them by removing that date with the use of the lift-off correction tape provided on an electric typewriter and re-typing the date as 8 August 1992.  She had done this because the father had told her that the date originally typed was incorrect and that 8 August was when the meeting was held.  The share certificates were similarly re-dated.  She had also changed the serial numbers of the share certificates at the request of Lawrence.   More importantly, she testified that after the alterations had been made, she took the documents to the father who signed them in her presence. 

(iii)    The Judge’s findings on the evidence

33.  If the first-hand evidence of Lawrence and Ivy Wong had been accepted, that would have been the end of the plaintiffs’ case.  However, the Judge, having seen and heard them, was very unimpressed and rejected their evidence.  He found that they had given inconsistent versions of aspects of the facts; that some of their explanations where wholly incredible; and that they had omitted to mention important facts which, when later disclosed, he took to be recent concoctions.   There is no basis for upsetting such findings on credibility on appeal. 

34.  As examined in greater detail below, the Judge went on to hold that the plaintiffs had satisfied him to the requisite degree that the disputed documents had come into being by a combination of forgery and the father’s lack of knowledge and consent (in a specific sense which will be explained) and so had to be declared invalid.   In particular, the Judge held that the August minutes had been forged and that, of the ten share certificates relied on by Lawrence, three had been forged, although he was unable to say which three.  And in so far as the father had genuinely placed his signature on the other seven share certificates, he had signed them in ignorance of their contents.

35.  I turn now to an examination of how the Judge arrived at that conclusion and to assess its legal implications.  To understand his decision, it is necessary to take notice of two significant pieces of undisputed expert evidence. 

(iv)    The expert evidence on indentations

36.  The first concerns the August minutes viewed in the context of the expert evidence concerning the board minutes dated 18 September 1992 which have been referred to as “M3” or “the September minutes”.  

37.  As previously mentioned, the parties are all agreed that the father unquestionably intended each child to have 1,000 bearer shares in JFM, as stated in the Chinese memorandum.  All are agreed that this was effected at the board meeting recorded in M3, signed by the father and by Lawrence, where it was resolved that 7,000 bearer shares should be issued.  Accordingly, everyone is agreed that the father’s signature on M3 is genuine; that he was of sound mind when signing it; and that he obviously knew full well what he was doing when appending his signature to that resolution, signifying his assent to the issuance of those shares.  As it happens, the 7,000 bearer shares were not actually issued until January 1993, after the father’s death.  The share certificates then issued were all signed by Lawrence alone (as permitted by JFM’s articles) and no question as to their validity arises.  Those later acts all stemmed from the unquestionably valid resolution recorded in M3.

38.  What is highly significant is the evidence, on which both sides’ experts were agreed, that latent indentations on M1, M2 and M3 were revealed on forensic examination using an electrostatic detection apparatus.  In particular, the examination showed that an impression of the unquestioned M3 signature can be found on M1, indicating that M3 had been signed when placed on top of M1.  Moreover, the examination showed that M3 itself bore the impression of the signature on M2, indicating that M2 had been placed on top of M3 when it was signed.  In other words, as it was put at the hearing, the unquestioned M3 was the meat in the “sandwich” between the questioned M2 and M1. 

39.  Mr Westwood, Lawrence’s expert, noted (without contradiction) in his expert report and in his evidence at the trial, that the presence of such indentations “creates a nexus between them which gives rise to the reasonable inference that they were executed by [the father] on the one occasion.”

40.  This obviously puts substantial difficulties in the way of inferring that the father’s signatures on M1 and M2 are forgeries or, if not forgeries, of inferring that when he signed those minutes, he did not know what he was doing.  If it is reasonable to infer that the three sets of board minutes were signed on the one occasion, then it is hard to see how one can accept that M3 is unquestionably genuine but infer that the other two documents are forgeries.  Similarly, if the father signed M3 knowing what he was doing, it is hard to see how any inference can be drawn that he lacked such knowledge in relation to the other two documents.  I return later to how the Judge dealt with this problem.

(v)     The implications of the genuine signatures on four share certificates

41.  The second important item of expert evidence has been touched on above.  The experts were agreed that the father’s signatures on four of the ten questioned share certificates were genuine.  These were the ordinary share certificates numbered 02 and 03 and the bearer share certificates numbered BSS1 and BSS2 respectively.  As to the remaining six questioned share certificates, the experts could only go so far as to say that they might be or might well be genuine.

42.  This finding is especially significant in relation to the ordinary share certificates.  Given that the father is accepted to have signed those two documents, it must be highly likely that he will have seen that they were certificates relating to shares in JFM; that they were for 1,000 shares each and that they were being issued in the name of Ming Shiu Sum (ie, Lawrence).  Indeed, the father’s signature was affixed just below that name (in a space marked “Director”) and the signature ran into the box containing that name.  While it was accepted that the father’s knowledge of English was rudimentary, it was equally accepted that he had much experience in trading stocks and shares on the US market.  It is therefore extremely likely that he realised that they were share certificates that he was signing.  He would have understood the Arabic numerals indicating that 1,000 shares were involved and that their value was US$1.00 per share.  No one could reasonably suggest that he was unable to recognize his son’s name written in English, having co-signed a great number of English documents together with Lawrence in the course of their business over the years.  As I point out below, the Judge did not suggest otherwise.

43.  The effect of this expert finding is first of all that the plaintiffs’ allegation of forgery of the signature fails in relation to these four documents.  Moreover, if the father is taken to have understood the nature of the documents he was signing, the inference would have to be that he knew and approved the issue of shares to Lawrence which were ordinary shares made out to him, this being something not mentioned in the Chinese memorandum and quite different from the bearer shares referred to therein.  The Judge was able to hold for the plaintiffs only by finding, on the basis of a theory examined below, that while those four signatures were genuine, it was proper to infer that the father did not know or consent to the contents of the share certificates signed.

(vi)    How the Judge dealt with the M3  indentations

44.  The Judge obviously had to accept the existence of the inter-related indentations.  He nevertheless upheld the allegation that M1 and M2 were forgeries by suggesting that the indentations might not have been created by the three documents being signed on the same occasion.  He states:

“Though it must be conclusive that the documents bearing the indentations of the signature of another document must be placed beneath that other document when that other document was signed, that does not mean the two documents must have been signed on the same occasion.” (§90)

Indeed, in §91, he seeks to turn the existence of the indentations into a point suggesting that Ivy Wong was implicated in a fraudulent plot, which I deal with later in this judgment.

45.  It is difficult to see any justification for the Judge’s approach.  He was being asked to draw the inference that someone had forged the August minutes (as well as some of the questioned share certificates).  As Sir Anthony Mason NPJ pointed out in HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336, at §72, inferences of fraud or serious misconduct are “......not to be reached by conjecture nor ...... on a mere balance of probabilities.”  They are “to be plainly established as a matter of inference from proved facts”. 

46.  The Judge’s reasoning with a view to sustaining a finding of forgery is plainly conjectural.  It involves postulating that the forger chose to forge the father’s signature on M2 having placed M3 underneath so that the M2 signature’s impression appeared on M3.  The forger must then be assumed to have separately caused M1 (then either unsigned or already bearing a forged signature of the father) to be placed underneath M3 which the father was invited to sign, thus accounting for M1 bearing an impression of the M3 signature.  This requires one to accept that the forger was content to assume the obvious risk that the father would notice and query the presence of M1 (either as an unsigned document apparently awaiting his signature or, more alarmingly, already bearing his forged signature).  It is then envisaged that the forger managed to retrieve M1 and, if it was still unsigned, to have proceeded to forge the father’s signature on it or, if the forgery had already been done, to retrieve it for use by Lawrence.  There is simply no basis for a finding that such a contorted series of events took place, particularly on any footing capable of justifying a forgery allegation.  Instead, the natural and reasonable inference is, as Mr Westwood suggested without contradiction, that all three sets of minutes were signed at the same time.

(vii)   How the Judge dealt with the share certificates

47.  As indicated above, the implications of the father having genuinely signed the certificates for ordinary shares allotted to Lawrence are potentially very damaging to the plaintiffs’ case.  The only way this could be met was by obtaining a finding that the father had signed them in ignorance of their contents (assuming for the moment the legal viability of that proposition as a ground for invalidating the transaction).  However, given that those were simple documents on one side of paper, indicating in patent and obvious terms that they were share certificates, some compelling basis would have to be advanced for inferring such lack of knowledge on the father’s part.  As noted above, he was admittedly of sound mind and, while he was not familiar with the English language, it is highly probable that he would have known that the documents were share certificate and that he would have recognized Lawrence’s name on those pertaining to ordinary shares.

48.  The Judge did not suggest otherwise.  What he found was that the father signed the share certificates knowing they were such, but having been somehow induced to believe they were the share certificates for the 7,000 bearer shares intended to be distributed equally among his children.  It was in this highly specific sense that the Judge found that the father did not know what the contents of the share certificates he had genuinely signed were.  And on the basis of this theory, the Judge held that the father must have been induced to sign three additional share certificates (so that he would have signed seven in all, as he would have expected to do if he were signing certificates for the 7,000 bearer shares).  Taking this reasoning to its logical conclusion, the Judge found that of the remaining six questioned share certificates, three must bear genuine signatures of the father although he could not say which three.

49.  That this is what the Judge decided appears from the following passages in his judgment (with italics supplied for emphasis):

(a) In §§116 and 117:

“116.    As for the ten share certificates in respect of the Additional Shares, I have found that four of the signatures on two bearer share certificates and two ordinary share certificates in the name of Lawrence Ming were signed by the Father.  The Father had expressed his intention to divide his shares in JFM Inc in the form of bearer shares into seven equal lots for distribution to each of his children.  As I have rejected Ivy Wong’s evidence about the Father signing the August Minutes and the share certificates for the Additional Shares and as I have rejected Lawrence Ming’s evidence about the allotment of the 10,000 Additional Shares to himself and found that there never was any resolution passed allotting the Additional Shares, the Father would not have knowingly created any ordinary shares by signing the two ordinary share certificates, “02” and “03” and would not have given Lawrence Ming these 4,000 shares without giving each of his other six children the like amount of shares.  The Father was a man of eighty-three when he signed the share certificates.  He had in mind giving to each of his children an equal one-seventh share in JFM Inc by way of bearer shares.  He was not in good health then and he died two months afterwards.  I draw as the only reasonable inference that when he signed his name on these four share certificates he thought he was signing four of the seven lots of bearer shares in JFM Inc for distribution to his children and had no knowledge that two of them were ordinary share certificates in the name of Lawrence Ming.  The shares represented by these shares certificates were accordingly invalid despite the genuine signature of the Father.

117. I cannot come to a concluded view, one way or the other as regards the authenticity of the Father’s signatures on the remaining six share certificates.  As the Father had in mind creating seven equal lots of bearer shares in JFM Inc and as he had signed four share certificates, I draw as the only reasonable inference that at the highest, three of the purported signatures of the Father in these six certificates were genuine and the other three were forgeries.  I cannot say which is which.”

50.  Since Ivy Wong admitted that she had placed the share certificates in front of the father for signature at Lawrence’s behest, the theory must imply that the two of them were parties to this fraudulent scheme.  An examination of the judgment shows that this was indeed the basis of the Judge’s thinking although, perhaps because of the absence of any plea of fraud against them, he equivocates in making the charge.

(a) Thus, in §71, when surmising why it became necessary to alter the serial numbers, he implicates both Ivy Wong and Lawrence:

“......the change in the share certificate numbers from ‘B008’ etc. to ‘BSS1’ etc. is also significant in that it supports the fact that the purported allotment of the 10,000 shares to Lawrence Ming came after the allotment of the 7,000 shares to the Father.  At the time, Ivy Wong who had not yet developed an affair with Lawrence Ming, might have been an innocent agent and typed in the numbers B008 etc because of her knowledge of the prior allotment of the 7,000 shares to the Father.  At a later stage, it became necessary to change the numbers to ‘BSS’ series to suit the fraudulent design because a simple change of the numbers to ‘B001’ etc. would be too obvious.”

(b) As mentioned above, at §91, the Judge even saw the indentations on the August and September minutes as possibly implicating Ivy Wong :

“These indentations are inconsistent with and even discredit Ivy Wong’s evidence.  Ivy Wong would not have placed the three minutes in that illogical order with the September Minutes between the two August Minutes for the Father to sign.  A possible, though not necessarily irresistible, inference is that someone or Ivy Wong had re-arranged the minutes and placed them in that illogical order for the Father to sign as one set of minutes. ......

The Father was of old age and could not read English.  One may surmise that these minutes and seven of the share certificates were given to the Father by someone whom he trusted to sign in one lot as if they were one set of minutes allotting the 7,000 bearer shares to the Father.  I am not drawing such an inference and for the purpose of this judgment there is no need for me to.”

Although the Judge here disclaims drawing that inference, it is precisely such an inference that he draws.  It is an inference necessary to his theory.  It requires him to postulate that someone (inevitably Lawrence and Ivy Wong) misled the father as to the transaction to which the instruments related or else the natural inference would be that the father must have realised what he was doing.

(c) Although with the equivocation of heading the paragraph “Conjecture”, the Judge in §118 levels a direct accusation against Lawrence, implicating him in fraud:

“This is a case of fraud.  Lawrence Ming presented the August Minutes and the ten share certificates as having been signed by the Father, when in fact some of them were not.  I am satisfied that a fraud has been practised on the Father who was induced to sign some of the share certificates and perhaps the August Minutes as well.  Three of the purported signatures of the Father on three of the certificates or the August Minutes could be forgeries.”

(d) Any doubt that there might have been that the Judge had found Lawrence guilty of fraud is dispelled by §120 when he gives effect to such a finding by awarding indemnity costs against him:

“What Lawrence Ming did involved a fraudulent breach of trust.  It would be appropriate that he should be ordered to pay costs to the Plaintiffs on a full indemnity basis.”

(viii)  The Judge’s approach cannot be accepted

51.  While the Judge, having seen and heard Ivy Wong and Lawrence in the witness-box, was perfectly entitled to reject their evidence on the basis that he did not believe them, it remained for the plaintiffs to make good their contention that the allotment and issuance of the 10,000 shares to Lawrence was invalid because the instruments creating this shareholding were forged or executed without knowledge of or consent to their contents (assuming the legal validity of the latter plea for the moment).  This, the Judge appears to have accepted.

52.  However, the fundamental and virtually the sole basis for the findings of forgery and lack of knowledge made in favour of the plaintiffs was that the Chinese memorandum was so irreconcilably inconsistent with any agreement for Lawrence to have the 10,000 shares, that the documents had to be forgeries or, according to the theory developed by the Judge, had partly to have been obtained by inducing the father to believe that he was signing instruments relating to the 7,000 bearer shares instead.

53.  The meaning and evidential status of the Chinese memorandum is discussed further below in the context of the Court of Appeal’s judgment.  Just what can be inferred on the basis of that document is in issue.  However, what is entirely clear is that fraud – by necessary implication fraudon the part of Lawrence and Ivy Wong – cannot legitimately be inferred, whether on the basis of the Chinese memorandum or on the basis of any of the other evidence in the case.

54.  The fraud theory was simply not open to the Judge.  It is nowhere pleaded.  It was not explored in evidence and was never put to either Lawrence or Ivy Wong when they gave evidence at the trial.  As Lord Hoffmann reminds us in Aktieselskabet Dansk Skibsfinansiering v Brothers & Others (2000) 3 HKCFAR 70 at 91-92: 

“It is well established that an allegation of fraud has to be pleaded with sufficient particularity to give the defendant fair notice of the case he has to meet.  This is true of pleadings in general but especially so if the charge is one of fraud.......  In addition to particularity in the pleadings, fairness requires that the adverse findings which the judge will be invited to make should have been put squarely to the witness in cross-examination, so that he can have the opportunity to offer an explanation.”

55.  The Judge’s imputation of fraud against Lawrence and Ivy Wong (whether under the guise of “surmise” or conjecture” or more directly expressed) was quite unjustified and should not have been made.

E. The decision of the Court of Appeal

(i) Reversal of the Judge’s finding of forgery

56.  The Court of Appeal reversed the Judge’s finding of forgery.  It did so firstly because it thought the finding of forgery in relation to the August Minutes was not unequivocal (§27) and, more definitively, because it felt that the Judge could not properly find three of the share certificates forged since he was unable to say which of them these were (§30).  Accepting, on the basis of Re H  (Minors) [1996] AC 563 and HKSAR v Lee Ming Tee [2003] 6 HKCFAR 336, that the serious allegation of forgery must be proved by evidence of a commensurate cogency and taking into account evidence of the indentations, the Court of Appeal stated:

“We believe that on the basis of such evidence, the judge ought to have concluded that the signatures on the August Minutes as well as all ten share certificates were the signatures of the father.” (§34)

(ii) Rejection of findings of fraud

57.  The Court of Appeal (§72) also ruled that the Judge was not entitled to find fraud since none had been pleaded.  It noted that Mr Grossman accepted this and was not relying on any findings of fraud. 

58.  It recognized (§73) that in §118, under the heading “Conjecture”, and in §120, when dealing with costs, the Judge did apparently find Lawrence guilty of fraud.  This, the Court of Appeal obviously thought to be wrong.  However, with respect, the central importance of that finding as the basis for the Judge’s finding of lack of knowledge does not appear to have registered with the Court of Appeal.  Instead, they treated the Judge’s finding of fraud as an incidental aberration, brushing it aside (§74) as follows:

“What the judge said in paragraph 118 of the judgment was not necessary to his judgment.  It is obvious that it was not meant to be part of his reasons for his decision.”

59.  I cannot agree.  As I have endeavoured to demonstrate, the Judge’s theory of fraud was crucial to his decision.  It was in the specific sense that the father had been misled into thinking that he was dealing with the 7,000 bearer shares (and on no other basis) that the Judge found that the father did not know what he was doing. 

 (iii)   The issues for the Court of Appeal

60.  Having rejected the Judge’s findings of forgery and of fraud, the Court of Appeal ought to have asked itself two questions:

(a) Given that the father did in fact sign all 12 of the questioned documents on what basis could the plaintiffs satisfy the court (it being correctly held that they bore the burden of proof: §78) that he did so in ignorance of their contents?

(b) Even if the court were satisfied that the father did sign the documents unaware of their contents, is that a sufficient basis, without the plaintiffs alleging anything more, for holding that the documents signed were therefore invalid?

61.  The first question concerns the inferences that can properly be drawn on the evidence while the second question is one of law.  I turn to deal with the first question making the assumption for present purposes that it raises a legally competent plea, an assumption which is examined when the second question is addressed.

F.      The Court of Appeal’s conclusion that the father signed without knowing what he was doing

62.  The Court of Appeal was satisfied “that the father could not have known what he was signing” and that “had he known he would not have signed” (§78).  

(i)      An absence of explanation by the Court of Appeal

63.  However, it does not explain how it was that the father, when signing the documents (which he is now found to have done), did not realise that he was signing ten share certificates and the August minutes.  It does not discuss, for instance, how lack of knowledge on his part can be inferred in relation to M1 and M2 when it is accepted that he signed M3, fully knowing its nature and intending the consequences of his signature, given that the indentations reasonably lead to the inference that they were all signed at the same time.  Why should the court hold that there was such lucidity in relation to the meat in the sandwich but not otherwise?

64.  Nor does the Court of Appeal explain why, upon its rejection of forgery, the father should be taken not to have known that he was signing the ten share certificates.  He was undoubtedly aware that he was appending his signature to those documents.  What did he think he was signing, if not share certificates?  Why should he be taken not to have been aware that the share certificates were ten in number or that they covered a total of 10,000 shares: something obviously not envisaged in the Chinese memorandum.  Nor is there any discussion as to why he should be thought to be ignorant of the fact that five of those share certificates named Lawrence, and not “bearer”, as the shareholder, particularly since he made it clear in the Chinese memorandum that he was fully aware of certain shares having the status of bearer shares.

65.  The Judge at least advanced a rational, if evidentially unsupported and legally impermissible, hypothesis to meet those questions, namely, that the father did not know what he was signing because he had been led to believe they were instruments relating to a share transaction of which he approved, as evidenced by the Chinese memorandum.  That was of course a hypothesis based on an untenable fraudulent scheme.  But, having rejected any such fraudulent deception, the Court of Appeal gives no indication of how the questions posed above are to be answered.

66.  It may be that the Court of Appeal, not having focussed on the true basis of the Judge’s finding of absence of knowledge and consent felt that they could simply adopt his finding without any independent analysis.  Thus, in §20, when excluding a finding of gift, the Court of Appeal did so “having regard to the finding that the father did not know what he was signing”.  Moreover, in §82, responding to Mr Yu’s submission that they should be willing to draw different inferences from those drawn by the Judge, the Court of Appeal stated:

“That we are perfectly willing to do.  But as we have explained above we are clearly of the view that the judge has come to the correct conclusion.  Namely that the father did not know and could not have known the content of the August Minutes or the ten share certificates when he signed them.”

 (ii)    The Chinese memorandum as the basis for inferring lack of knowledge

67.  After construing its provisions, the Court of Appeal, in common with the Judge, considered that properly understood, the father’s intentions as expressed in the Chinese memorandum were wholly inconsistent with an intention to install Lawrence as majority shareholder of JFM.  Thus, at §44, they stated:

“We believe, unless the father intended to mislead his other children, the Chinese Memorandum is irreconcilable with the issue of the 10,000 shares to the 1st defendant.”

68.  The Court of Appeal agreed with the Judge that to accept that the father had expressed himself as he did in the Chinese memorandum while having agreed to Lawrence being given 10,000 additional shares “would be telling a very cruel lie to the six children” (§58).  It seems very likely that this reading of the Chinese memorandum was the dominant factor in the Court of Appeal’s decision.

69.  The Judge applied principles derived from the judgments of Lord Hoffmann in Jumbo King Ltd v Faithful Properties Ltd & Ors (1999) 2 HKCFAR 279 at 296; and Investors Compensation Scheme Ltd and West Bromwich Building Society [1998] 1 WLR 896 at 912-913.  In the latter authority, his Lordship described the process of interpretation of a document as “the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.

70.  The Court of Appeal agreed with the Judge that such an approach should be adopted.  But Mr Yu sought to argue against it, suggesting that some form of “subjective” interpretation should be adopted and that the language of the key paragraphs 8, 9 and 10 of the Chinese memorandum must be understood as qualified or modified by an understanding of the subtle messages discernible elsewhere in the document (along the lines discussed in Section D(ii) of this judgment).

71.  In my view, two aspects of the court’s approach to the Chinese memorandum are important.  First, there is the question of how the language of that document should be understood.  Secondly, the aim or purpose of ascertaining the meaning of that document must be kept in mind.

72.  As to the court’s approach to the language contained in the Chinese memorandum, it is my view that the guidance offered by Lord Hoffmann is applicable.  One must obviously read the Chinese memorandum to decide what it means.  It can only be looked at objectively with a view to deciding what meaning its language conveys to a reasonable person in the light of the background knowledge which would reasonably have been available to the father and his children at the time of making the document.  There is no question of ascertaining any “subjective” meaning.  This is not a case where the author seeks to give evidence of his subjective intention with a view to contradicting what the document states. 

73.  So approached, I am in no doubt that paragraphs 8, 9 and 10 of the Chinese memorandum set out in Section D(i) above, must be taken to express the father’s intention that the shares in JFM are to be equally distributed among the seven children.  Nothing in the Chinese memorandum compels the reasonable reader to adopt a modified understanding of the relevant words.

74.  But turning to the second question – the object or purpose of ascertaining the meaning of the document – the present situation differs from, for instance, the situation with which Lord Hoffmann was concerned in Jumbo King.  There, the Court was construing a deed of mutual covenant with a view to giving it legal effect in accordance with the interpretation arrived at.  Here, the dispute is about whether Lawrence was validly allotted and issued with the 10,000 shares in question.  It is not about ascertaining the true meaning of the Chinese memorandum in order to give it legal effect in accordance with that meaning.  No one puts forward the Chinese memorandum as an operative legal document, for instance, effecting a disposition of shares in JFM.  On the contrary, the father was careful to stipulate that no distribution of shares was to take place until after his death. 

75.  The Chinese memorandum was essentially a letter written by the father to his children expressing fatherly concerns, giving fatherly advice and informing them of how he intended his assets to be distributed after his death.  If the father had previously acted inconsistently in relation to his assets in a legally binding manner but had conveyed a different (and therefore misleading) message in the Chinese memorandum, the contents of the Chinese memorandum, not being legally operative, could not be relied on in themselves to set aside the earlier legally binding acts.  Similarly, if the father had changed his mind after having read out the document to his children he could, with or without informing them of his change of mind, go on to make binding arrangements for his assets to be differently distributed.  The Chinese memorandum it itself would not found a cause of action or give rise to an equity to upset such subsequent transactions.

 (iii)   Can the inference be justified by the evidence as a whole?

76.  The Chinese memorandum, in other words, may legitimately be relied on as one piece of evidence supporting an argument that the father did not know what he was doing when signing.  Such an argument turns on inconsistency as a basis for inferring the father’s ignorance.  In Section D(i) above, I have pointed to other pieces of evidence similarly relied upon by the plaintiffs.  Equally, Lawrence is entitled to rely on other items of evidence (not rejected on credibility grounds) in support of a contrary inference, for instance: the simultaneous signing of M1, M2 and M3 for an inference of knowledge on his father’s part; the evidence of his undoubted contributions to the business as motivation for the shares being genuinely allotted to him; features of the Chinese memorandum tending to show that his father treated him differently from the others, as discussed in Section D(ii) above, and so forth. 

77.  The court is not attempting to give the Chinese memorandum a definitive and authoritative interpretation, resolving ambiguities and excluding any contradictory meaning, which it might seek to do if construing a document to determine its legal effect.  There is therefore no reason why the present document cannot, when taken as a piece of circumstantial evidence, be understood – if its contents so warrant – as conveying mixed and possibly contradictory messages in different paragraphs, but without prejudice to the clear meaning which I have held is conveyed by §§ 8, 9 and 10.

78.  Whether, at the end of the day, the court is entitled to draw the inference sought by the plaintiffs therefore depends on the evidence as a whole, the evidence both for and against such inference.  Mr Grossman correctly accepts that the plaintiffs bear the burden of showing that when the father signed the 12 documents, he did not know what he was doing.  That is a matter of inference and what I stated in Nina Kung alias Nina T H Wang v Wang Din Shin (FACV No 12 of 2004, 16 September 2005), albeit there stated in relation to drawing an inference of forgery, equally applies in the present case:

“Where ...... 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.” (§185)

79.  As was there pointed out, Dixon CJ stressed in Jones v Dunkel (1959-1960) 101 CLR 298 at 305, that a court is not entitled 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 305)

80.  In my view, the evidence did not justify the Court of Appeal in drawing the inference that such knowledge was lacking on the father’s part. 

81.  It does not logically and reasonably follow that because the father stated an intention in the Chinese memorandum to effect an equal distribution of shares in JFM he must therefore have signed the instruments allotting and issuing the 10,000 shares to Lawrence without knowing what he was doing.  The existence of such inconsistency does not logically entail doubt as to the father’s consciousness of what he was signing.  Other conclusions which are at least equally plausible can be drawn, not least that, for his own motives, the father acted in a consciously inconsistent manner (however “cruel” the disappointed children might regard such conduct).  

82.  The problem is not confined to a question of logic.  The evidence falls far short of compelling a “lack of knowledge” conclusion.  It is at best equivocal and, with respect, was not fully considered by the Court of Appeal.  Thus, as discussed in some detail above, the Court of Appeal did not address the implications of the expert evidence nor of the patently obvious character of the instruments themselves, being matters which give substantial support for the inference that the father signed the instruments knowing full well what he was doing.  Other matters relied on by each side do not resolve the overall equivocality of the evidence.  The plaintiffs have therefore, in my view, plainly fallen short of establishing that the father signed in a state of ignorance.  I would have reached this conclusion simply applying the balance of probabilities.  They certainly fail to satisfy a Re H standard of proof.

G.      The legal viability of the “no knowledge and consent” argument

(i)      The Court of Appeal’s approach

83.  Even if, contrary to what is stated above, it could properly be inferred that the father signed the instruments unaware of their contents, it can by no means be assumed that such fact, without more, suffices to invalidate the instruments signed.  However, the Court of Appeal appears to have proceeded on precisely that assumption.  They stated:

“Provided that the plaintiffs succeed in proving that the father did not know what he had signed, it was unnecessary for them to prove how or why it was that he nevertheless signed.” (§75)

(ii)     The applicable principles

84.  With respect, that approach is contrary to principle.  It is in law highly material to ask how or why the father nevertheless signed the documents.  Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states.  Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed.  It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed.  But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.

85.  Thus, in Saunders v Anglia Building Society [1971] AC 1004 at 1016, Lord Reid warned against an approach, like that of the Court of Appeal, which inverts the general rule:

“We find in many of the authorities statements that a man's deed is not his deed if his mind does not go with his pen. But that is far too wide. It would cover cases where the man had taken no precautions at all, and there was no ground for his belief that he was signing something different from that which in fact he signed. I think that it is the wrong approach to start from that wide statement and then whittle it down by excluding cases where the remedy will not be granted. It is for the person who seeks the remedy to show that he should have it.”

86.  And in Bank of China (Hong Kong) Ltd v Fung Chin Kan (2002) 5 HKCFAR 515 at 533, Litton NPJ acknowledged:

“......the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature : As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.”

87.  The vitiating factors at common law include fraud, mistake, misrepresentation, non est factum, duress, undue influence and lack of mental capacity: see, for instance, Blay v Pollard and Morris [1930] 1 KB 628; and Gillman v Gillman (1946) 174 LT 272.  To disown a signed legal document, facts constituting the particular vitiating factor relied on must be pleaded and established by the evidence.  Some authorities illustrating this are as follows:

(a) In Parker v South Eastern Railway (1877) 2 CPD 416, Mellish LJ stressed that in the absence of a vitiating factor (his Lordship specified fraud in this case), the contention that the person signing does not know its contents is “wholly immaterial”:

“In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents.”  (421)

(b) That judgment was applied by the English Court of Appeal in the well-known case of L’Estrange v F Graucob Ltd [1934] 2 KB 394 where Scrutton LJ stated:

“When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.” (at 403)

(c) In The Luna (1920) P 22, the court was concerned with a Dutch master of a fishing vessel who had verbally agreed certain terms for towage of his vessel by a tug.  He then signed a contract in English, it being found that he knew he was signing a contract but that he “understood very little spoken English, and could speak English very little, and could not read English at all”.  That contract contained terms not mentioned verbally and which he therefore did not know formed part of its contents.  Hill J held that this was irrelevant:

“Here I am dealing with a document admitted to be a contract, and signed by the party who says that a part of its contents is to be rejected as not forming part of the contract. There is no suggestion or ground for suggestion of any deceit. The master was not trapped into signing one thing, thinking it to be something quite different. There was no common mistake on which the contract, if it had not been performed, could be rectified. The document was signed, and signed with the intention of its being a contract. The master, in my view, is bound by the contract, whether he read it or not, and, therefore, the owners of the Luna, whose agent he was, are bound, too.” (at 28)

(d) To like effect is the judgment of Kerr J in The Polyduke [1978] 1 Lloyd’s Rep 211, where, citing cases including the foregoing, his Lordship stated:

“If, as here, the document purports to have contractual effect and is signed, then, in the absence of any suggestion of fraud or misrepresentation, the signature binds and signifies knowledge of, and assent to, the contents of the document.” (at 215-216)

88.  Equity may intervene in certain circumstances to relieve a person of a bargain, a disposition of property or some other legal obligation embodied in a document signed by that person.  It will do so in circumstances involving fraud, not only in the sense used at common law (and in respect of which the courts of equity have always had a concurrent jurisdiction) but also in the broader sense used in the exclusive equitable jurisdiction, as explained by Viscount Haldane LC in Nocton v Lord Ashburton [1914] AC 932:

“It must now be taken to be settled that nothing short of proof of a fraudulent intention in the strict sense will suffice for an action of deceit. This is so whether a Court of Law or a Court of Equity, in the exercise of concurrent jurisdiction, is dealing with the claim, ......  But when fraud is referred to in the wider sense in which the books are full of the expression, used in Chancery in describing cases which were within its exclusive jurisdiction, it is a mistake to suppose that an actual intention to cheat must always be proved. A man may misconceive the extent of the obligation which a Court of Equity imposes on him. His fault is that he has violated, however innocently because of his ignorance, an obligation which he must be taken by the Court to have known, and his conduct has in that sense always been called fraudulent, even in such a case as a technical fraud on a power. It was thus that the expression ‘constructive fraud’ came into existence. The trustee who purchases the trust estate, the solicitor who makes a bargain with his client that cannot stand, have all for several centuries run the risk of the word fraudulent being applied to them. What it really means in this connection is, not moral fraud in the ordinary sense, but breach of the sort of obligation which is enforced by a Court that from the beginning regarded itself as a Court of conscience.” (at 953-954)

89.  Various categories of cases, such as those involving breaches of trust or fiduciary duty or other conduct which equity impugns as a species of fraud in equity, have been held to justify such equitable intervention.  However, the courts have emphasised that the doctrine does not involve some vague notion of unconscionability but requires the establishment of specific grounds for relief, with proof of the necessary elements.  As the learned authors of Meagher, Gummow and Lehane, Equity – Doctrines and Remedies (3^rd Edition, Butterworths) state: “...... until there is a clear change in direction by the courts, protection in equity will continue usually to depend upon finding an established head of the jurisdiction” [1209].  This is echoed in McGhee, Snell’s Equity (31^st Edition, Thomson Sweet & Maxwell) at 227, as follows:

“It remains the case that there is no general jurisdiction to set aside transactions either because of inequality of bargaining power between the parties or because the transaction was improvident.  In order to obtain relief, therefore, a complainant must bring himself or herself within one of the discrete doctrines of ‘constructive fraud’ ......”

90.  Thus, in Bridge v Campbell Discount Co Ltd [1962] AC 600, a case concerning a hire-purchase contract, Viscount Simonds stated:

“I must dissent, as Harman LJ did, from the suggestion that there is a general principle of equity which justifies the court in relieving a party to any bargain if in the event it operates hardly against him. In particular cases, for example, of expectant heirs or of fiduciary relationship, a court of equity (and now any court) will if the circumstances justify it, grant relief. So also if there is duress or fraud ‘which unravels all.’ In the present case there is nothing which would justify the court in granting relief to a hirer who exercised his rights under clause 6.” (at 614)

And, as Lord Radcliffe warned:

“‘Unconscionable’ must not be taken to be a panacea for adjusting any contract between competent persons when it shows a rough edge to one side or the other, and equity lawyers are, I notice, sometimes both surprised and discomfited by the plenitude of jurisdiction, and the imprecision of rules that are attributed to ‘equity’ by their more enthusiastic colleagues. Since the courts of equity never undertook to serve as a general adjuster of men's bargains, it was inevitable that they should in course of time evolve definite rules as to the circumstances in which, and the conditions under which, relief would be given, and I do not think that it would be at all an easy task, and I am not certain that it would be a desirable achievement to try to reconcile all the rules under some simple general formula. Even such masters of equity as Lord Eldon and Sir George Jessel, it must be remembered, were highly sceptical of the court's duty to apply the epithet ‘unconscionable’ or its consequences to contracts made between persons of full age in circumstances that did not fall within the familiar categories of fraud, surprise, accident, etc, even though such contracts involved the payment of a larger sum of money on breach of an obligation to pay a smaller sum......” (at 626)

(iii)    The Court of Appeal’s approach was erroneous

91.  The Court of Appeal’s approach which was to base invalidity of Lawrence’s shareholding solely on a finding that the father signed the documents in ignorance of their contents, expressing indifference as to how and why he did so, is plainly contrary to the principles discussed.

92.  Once it accepted that forgery and fraud could not be made out, no viable legal or equitable basis remained, either on the pleadings or in the evidence, for setting aside the instruments executed by the father. 

(iv)    The plaintiffs’ argument on appeal

93.  Mr Grossman contended for a somewhat more extreme version of the Court of Appeal’s approach.  He sought to argue that it was sufficient to establish the inference – for whatever reason – that the father, at the end of the day, did not know the contents of the documents he was signing.  He submitted that it was open to the Court to discover for itself some reason such as mental incapacity, forgery other than in respect of the father’s signature, or even some form of fraud as a logical stepping-stone to that ultimate conclusion, even though the intermediate step in the reasoning was neither pleaded nor explored in evidence. 

94.  As authority for that proposition, he cited §§176-177 of my judgment in Nina Kung alias Nina T H Wang v Wang Din Shin (FACV No 12 of 2004, 16 September 2005):

“176. If someone wishes to dispute the validity of a will on the grounds that there is want of due execution, or of testamentary capacity, or of the requisite knowledge and approval, that person bears an evidential burden of putting the relevant ground of challenge in issue.  If the evidence adduced by him or otherwise arising in the case is of a sufficient cogency to raise such an issue, the court, when assessing the evidence as a whole at the end of the case, decides whether the proponent of the will has discharged the persuasive burden in relation to the relevant fact in issue on the balance of probabilities. 

177. On the other hand, where a person seeks to challenge a will on the grounds that the testator was induced to make the will by fraud or by undue influence, such person bears the persuasive burden of establishing the fraud or undue influence: Boyse v Rossborough (1857) 6 HLC 2; Craig v Lamoureux [1920] AC 349 (PC).  These pleas presuppose execution of the will by the testator.  The allegation is that such execution was procured by acts of fraud or undue influence performed by others: Tyrrell v Painton [1894] P 151 at 157; C H Sherrin et al, Williams on Wills (Butterworths, 8th Ed) §5.9.”

95.  Mr Grossman’s argument was that these paragraphs show – by analogy – that it is unnecessary to bring oneself into any specific vitiating category (as envisaged in §177), it being enough to show that the father lacked knowledge and consent (as envisaged in §176).  One modification which he proposed for his analogy was his acceptance that the legal (and not merely an evidential) burden lay on his clients, as the persons challenging the validity of the signed documents, to demonstrate the absence of knowledge and consent.

96.  With respect, that argument is unsustainable: there is no analogy.  In the context of wills, it is a substantive rule of law that places the burden of proof, not only of due execution and testamentary capacity, but also of knowledge and approval of the will’s contents, on the person propounding the will as a condition of that person establishing the will’s validity: Cleare v Cleare (1869) LR 1 P&D 655 at 657.  But the principles discussed above (relating generally to documents purporting to have legal effect) impose no such burden.  A document signed by someone of full age and ordinary understanding is treated as valid unless and until it can be set aside on one of the established bases.  The person relying on the document does not need to show that it was signed “with knowledge of its contents” before the document is taken to be valid.  It is therefore unsurprising that Mr Grossman accepted that the burden of showing lack of knowledge and consent was on him.  But, in line with the established principles, even if he were able to discharge that burden, it would not in law be sufficient.  As the authorities show, he has to establish that the document was signed in circumstances falling within a recognized legal or equitable doctrine capable of invalidating the transaction.  This the plaintiffs have not done.

97.  Mr Grossman also sought to contend that the well-established principles do not apply to “non-business” transactions which, on his argument, can therefore be set aside on the basis of no knowledge and consent and without recourse to any specific vitiating factor or category of equitable relief.  He cited Dutton v Thompson (1883) 23 Ch D 278, and Wilton v Farnsworth (1948) 76 CLR 646, in support.  Those cases cannot be read as authority for the proposition advanced. 

98.  Those two authorities come within the category of cases where equitable relief is granted because the bargain or disposition of property in question constitutes “unconscientious dealing” with someone under a special disadvantage.  

(a) In Dutton v Thompson, relief was granted setting aside a voluntary settlement made by a man described by Jessel MR (at 281-282) as “very weak minded” and, although not sufficiently so “to make him a lunatic”, as a person who did not have “full enjoyment of his faculties which average persons have” and as someone who was treated “as a baby and not as a man of average intellect”: a condition known to the defendant who had caused the property to be transferred to him on trust.  In such circumstances, the defendant was held to be under “a special obligation ...... to see that the plaintiff understood the settlement” which he had not discharged.

(b) In Wilton v Farnworth, the donor who had improvidently parted with all his savings was found to quite deaf and of no education, markedly dull-witted and stupid, as was obvious to the defendant.  The donor did not know the value of the gift he was making and had a history of curious conduct.  He was “bustled” into making the deed without any copy being left with him. 

99.  The conditions which must be satisfied before equitable relief can be sought on the basis of unconscientious dealing have been helpfully set out in The Commercial Bank of Australia Ltd v Amadio [1982-1983] 151 CLR 447:

(a) Gibbs CJ put it thus:

“A transaction will be unconscientious within the meaning of the relevant equitable principles only if the party seeking to enforce the transaction has taken unfair advantage of his own superior bargaining power, or of the position of disadvantage in which the other party was placed. The principle of equity applies ‘whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands’:  Blomley v Ryan (1956) 99 CLR 362 at 415, per Kitto J, and see (at 405-6) per Fullagar J.” (at 459)

(b) Mason J (as he then was) explained the doctrine as follows:

“......relief on the ground of ‘unconscionable conduct’ is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, eg a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink.”  (at 461)

(c) Having noted that a great variety of cases may fall within this category, his Honour continued:

“......the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created.  I qualify the word ‘disadvantage’ by the adjective ‘special’ in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.”  (at 462)

(d) Deane J articulated the principle as follows:

“The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them, and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable......”  (at 474)

100.  Plainly, no case based on unconscientious dealing is open to the plaintiffs.  There is no pleading, nor any evidence, nor any case put to Lawrence relating to the elements necessary to such a plea:  No suggestion that the father was under a “special disability” which seriously affected his ability to make a judgment as to his own best interests; nor that Lawrence knew or ought to have known of the existence of such condition; and no suggestion that he had taken unfair or unconscientious advantage of that condition.

101.  I am accordingly, for all the foregoing reasons, unable to accept the arguments advanced on behalf of the plaintiffs on this appeal.

H. Conclusion

102.  I would allow the appeal and set aside the Court of Appeal’s decision.  I would dismiss the plaintiffs’ claim against Lawrence and make an order nisi that the plaintiffs pay Lawrence’s costs here and below.  I would direct that the order for costs become absolute unless any written submissions which the plaintiffs may wish to make regarding costs are received by the Court and served on Lawrence within 14 days from the date of this judgment, in which event, any written submissions in reply should be served and filed within 14 days thereafter.

Mr Justice Fuad NPJ:

103.  I agree with the judgment of Mr Justice Ribeiro PJ.

Sir Thomas Eichelbaum NPJ:

104.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Bokhary PJ:

105.  The Court unanimously allows the appeal in the terms set out in the final paragraph of the judgment of Mr Justice Ribeiro PJ.