ANTHONY ERIC RYAN HOTUNG v. HOTUNG, MICHAEL ERIC A.B. MAK SHUN MING, the Executor of the Estate of HO YUEN KI WINNIE, also known as HO YUEN KI, deceased

CACV 151/2021

[2022] HKCA 1658

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 151 OF 2021

(ON APPEAL FROM HCA NO 1216 OF 2006)

________________________

________________________

______________________

J U D G M E N T

______________________

Hon Kwan VP (giving the Judgment of the Court):

1.  This is the plaintiff’s application for leave to appeal to the Court of Final Appeal against a judgment of this court handed down on 29 June 2022 (“CA Judgment”)[1], in which we dismissed his appeal against the judgment of Lok J on 9 March 2021 (“CFI Judgment”)[2]. We will adopt the same expressions and abbreviations as in the CA Judgment.

2.  The relevant background matters are set out at §5 of the CA Judgment quoting the relevant parts of the CFI Judgment.

3.  In brief, the plaintiff alleged breaches of duties by Ho as the trustee of certain shares in 2 private companies, HEL and HICL, which were at all times controlled by the settlor of the trusts who was the plaintiff’s father, Eric. The breaches of duty were referred to as “Failure to Inform Claim”, “Dubious Payments Claim” and “Undervalue Sale Claim”[3]. The complaint was that Eric had caused losses to the companies through his misfeasance as director and Ho had failed in her duty as the trustee shareholder to inquire into and take appropriate action to prevent Eric’s mismanagement of company affairs. Among the relief claimed was an order that an account be taken of what is due to the 2 Trusts and payment of all monies found due on taking the account.

4.  Of the three breaches of duties complained of, the judge held that the only breach established was the Failure to Inform Claim, based on the undisputed fact of Ho having failed to inform the plaintiff of his interests in the 2 Trusts when he reached the age of majority of 21 in March 1987[4]. However, the judge only awarded nominal damages of $1. It was found that the circumstances would not have been very different even if the plaintiff had known of his interests earlier. The plaintiff has not substantiated what Ho should have done to protect his beneficial interest in the shares of HEL and HICL, nor has sufficient evidence been produced to substantiate any possible losses from the Dubious Payments Claim and the Undervalue Sale Claim. So even if Ho was in breach of her duty in failing to inform the plaintiff of his interests in the 2 Trusts after he attained the age of majority, he has failed to prove any damage caused by such breach of duty[5].

5.  The judge rejected the allegations of breach of duty in the Dubious Payments Claim, holding there were insufficient materials to conclude that the alleged dubious transactions were improper[6], it being the plaintiff’s duty to prove that the transactions were improper and the quantum of the related losses, or at the very least “he should put enough materials before the court to call for an explanation or account on the part of Ho”[7], and the plaintiff should at least “discharge the duty to establish a prima facie case calling for the trustee to account”[8].

6.  The Undervalue Sale Claim, which is the plaintiff’s main claim, was rejected as there were insufficient materials to conclude that the sale of the Land was made at an undervalue[9]. The judge also refused the plaintiff’s applications made at trial to amend pleadings and to adduce new evidence[10].

7.  On appeal, the plaintiff advanced 12 grounds in his Supplemental Notice of Appeal dated 20 July 2021 (“Supplemental NOA”), grouped under the headings of “Failure to Inform Claim”, “Dubious Payments Claim” and “Undervalue Sale Claim”. When the appeal came to be presented in the written submissions and argued in court, the plaintiff’s leading counsel Mr Barlow SC sought to re-direct our focus to the issue of breach of duty of a trustee on a much broader basis, instead of the three specific breaches of duty that had been pleaded[11]. He called this general duty of the trustee the “Safeguarding Duty” and submitted that Ho was in breach of the Safeguarding Duty by abrogating her duties as trustee in ignoring the affairs of HEL and HICL and sought an order that Ho should provide an account upon the “wilful default” basis[12]. As the grounds of appeal in the Supplemental NOA did not feature at the forefront of Mr Barlow’s submissions, they were dealt with succinctly in the CA Judgment[13].

8.  We refused to allow Mr Barlow to pursue a new case on breaches of the Safeguarding Duty on the basis of lack of pleadings[14]. For completeness, we held that the alleged breaches of the Safeguarding Duty had not been proved at the trial and hence the new case on breaches of the Safeguarding Duty advanced on appeal cannot get off ground[15].

9.  We also affirmed the judge’s rejection of the Dubious Payment Claim and the Undervalue Sale Claim and his award of nominal damages for the Failure to Inform Claim[16]. We agreed with Mr Michael Yin appearing for Ho that a finding both that Ho has in breach of her duties omitted to take certain steps and that such breaches have caused a loss to the trust estate is necessary before an account could be ordered on the wilful default basis[17]. We affirmed the judge’s findings[18] and held that it “has not been proved on the evidence that Ho had abrogated her duties as a trustee, or that she should be put on inquiry of questionable transactions, or that losses have arisen as a result of the alleged breaches.”[19]

10.  In this intended appeal against the CA Judgment, the plaintiff has not sought to appeal against the rejection of his new case regarding the Safeguarding Duty. It is made clear in the Notice of Motion filed on 27 July 2022[20] that the intended appeal is “based solely on the pleaded case advanced at trial” and further that no appeal is made against the judge’s decision (affirmed by this court)[21] that the plaintiff should not be permitted to advance arguments based on unpleaded issues. The plaintiff has apparently accepted that any appeal to the Court of Final Appeal would only be concerned with the three specific breaches of duty.

11.  The Notice of Motion set out the following question (“the Question”) for the prospective appeal which is said to be of great general or public importance, or otherwise ought to be submitted to the Court of Final Appeal for decision:

“Whether a party seeking an order for an account against his trustee is obliged to plead and prove:

(a) only that the trustee failed to take action to investigate transactions undertaken by a company which the trustee was under a duty to investigate; or

(b) in addition to (a), that the transactions in question were in fact improper and that the trustee’s failure to take such action has caused loss to the trust fund.”

12.  It was also asserted in the Notice of Motion that the Question “raises the issue of the correct onuses of proof … in an action for an account against a defaulting trustee”[22] and various “facts and matters” were set out from which the Question is said to arise. Those “facts and matters” are essentially contentions similar to the grounds of appeal in the Supplemental NOA[23], which were not the main focus of the appeal argued before us.

13.  On behalf of the plaintiff, Mr Chan Pat Lun argued in this application that the plaintiff had sufficiently made out a case of breach of duty in the Dubious Payments Claim and the Undervalue Sale Claim; and that the plaintiff should not have been expected to prove the impropriety of the relevant transactions and the quantum of losses of the Dubious Payments Claim, nor should he have been expected to provide evidence of the value of the Land (at the material time) in the Undervalue Sale Claim. He contended that to hold a beneficiary must prove the transactions which should have been investigated were actually improper or that a breach of the duty to investigate has actually caused loss is “to erect a barrier to the obtaining of an account which is not justified in law”[24] and this passage in the judgment of Page Wood VC in Sleight v Lawson (1857) 3 K&J 292 at 299 was cited in support:

“… you may raise your contest upon any items or item you choose to fix upon as a specific instance of wilful neglect or default; and if you make out a case of suspicion in the mind of the Court, if it remains doubtful whether wilful neglect and default have not been committed, then you may have the inquiry in question.” (emphasis supplied)

14.  The Failure to Inform Claim was argued on a slightly different basis. It was accepted that the onus is on the plaintiff to demonstrate that the breach of duty had caused the loss on a “but for” basis[25] and that it is only once he has provided evidence of such loss following from the relevant breach of duty that the onus then falls on Ho as the defaulting trustee to disprove the apparent causal connection between the breach of duty and the loss apparently flowing therefrom[26]. The plaintiff’s case is essentially that the denial of opportunity to him to take action in respect of alleged misfeasance in turn caused loss to the trust property. It was submitted that this suffices to establish “prima facie value of loss” sufficient to put the onus on the trustee to disprove the apparent causal connection between the breach and the losses.

Discussion

15.  The Question simply does not arise from the factual findings made by the judge in the CFI Judgment and as affirmed by us in the CA Judgment.

16.  Part (a) of the Question presupposes that it was found or ought to be found by the court that the plaintiff had successfully pleaded and proved that Ho had “failed to take action to investigate transactions undertaken by a company which [Ho] was under a duty to investigate”, thus leading to part (b) of the Question whether the plaintiff must additionally plead and prove impropriety of the transactions and causal loss to the trust fund. Contrary to the supposition, the CA Judgment held that insofar as the Dubious Payments Claim and the Undervalue Sale Claim are concerned, the alleged duty to investigate and the corresponding failure were not made out, as summarised earlier. On the facts of the case as held below and affirmed in this court, the plaintiff has not established that Ho was under a duty to investigate those transactions and had failed to do so. Part (a) of the Question is not established.

17.  Turning to the Failure to Inform Claim, the plaintiff has accepted that the onus is on him to demonstrate the breach of duty had caused the loss, and only after such evidence of loss flowing from the breach is provided would the onus fall on the defaulting trustee to disprove the apparent causal connection. The CA Judgment did not deviate from this approach, citing Libertarian Investments Ltd v Hall at §§75 to 77 for the similar proposition that there must be shown to be “some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable”[27]. In affirming the judge’s award of nominal damages, we agreed with the judge it would have made no difference even if the plaintiff had been properly informed of his interests, and the plaintiff had not discharged the onus of showing that the breach had caused loss. Even in the present application, the plaintiff was unable to pinpoint what was the loss to trust property that was established at trial shown to be caused by the breach which could be said to shift the onus of proof. We do not think there are any disputed questions of onus of proof which would give rise to the Question.

18.  Mr Chan submitted that this appeal gives rise to questions of general public importance in relation to “the applicable relevant thresholds and the relative burdens between a beneficiary and a defaulting trustee, when seeking a remedy, for a breach of trustee’s duty and the causal loss, and for an order to account on the ground of wilful default and consequential equitable compensation thereafter” and that the law “needs to be re-clarified or re-stated” by the Court of Final Appeal.

19.  The principles on relative burdens when seeking relief arising out of breach of duty of a trustee, and the circumstances in which there is liability to account on a wilful default basis have been stated in two decisions of the Court of Final Appeal (Man Ping Nam v Man Fong Hang[28] and Libertarian Investments Ltd v Hall[29]) and the law does not need to be clarified again.

20.  As for the passage in Sleight v Lawson at 299 quoted in support of the contention that the plaintiff would only need to make out a case of suspicion to obtain an account on wilful default footing, we do not think this provides proper support for his contention when read in its proper context, which was to affirm and not relax the rule of Lord Eldon, namely that “in order to obtain an inquiry as to wilful neglect and default against an executor and a trustee, the Plaintiff must allege and prove at least one act of wilful neglect or default” (headnote and 297 to 298). Far from suggesting that the onus of proving causal loss does not first lie with the plaintiff, Page Wood VC stated at 298: “It is for the Plaintiff to fix on any item he pleases, and adduce proper evidence to shew that but for the wilful neglect or default of the Defendant, it might have been received” (emphasis added).

21.  The “facts and matters” raised in the Notice of Motion insofar as they repeat the contents of the Supplemental NOA, were arguments rejected by the judge and by the Court of Appeal, for the reasons fully set out in the respective judgments. We do not think they are reasonably arguable.

22.  We refuse to grant leave to appeal for the Question.

“Or otherwise” limb

23.  It is not apparent from the Notice of Motion or the plaintiff’s submissions what are the grounds for invoking the “or otherwise” limb. The usual practice of the Court of Appeal is to defer to the Appeal Committee whether leave to appeal should be granted on this basis. We see no reason to depart from the usual practice here.

Conclusion and costs

24.  We dismiss the application of the plaintiff for leave to appeal to the Court of Final Appeal, with costs to the 1^st defendant which we assess summarily at $170,000.