LUO XING JUAN ANGELA v. THE ESTATE OF HUI SHUI SEE WILLY, DECEASED AND OTHERS

HCCW 568/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 568 OF 2002

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. 285 OF 2003

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BETWEEN

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(HEARD TOGETHER)

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J U D G M E N T

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The two proceedings

1.  There are two related matters before me, a petition and an action.

2.  The petition was brought by Luo Xing Juan Angela (“Miss Luo”). The estate of Hui Shui See Willy (“the deceased”) is the 1^st respondent, Hui Mi Chi (“Miss Hui”) is the 2^nd respondent, and the company in question, Glory Rise Limited (“the Company”), is the 3^rd respondent. Miss Hui is a sister of the deceased. Miss Luo sought to wind up the Company on the just and equitable ground, alternatively relief under section 168A of the Companies Ordinance, Cap. 32.

3.  The action was brought by the Company against Miss Luo. The Company claimed vacant possession of a property held by the Company at No. 11 Ka Shue Road, Hillview Court, Block 5, 1^st Floor, Flat A in Sai Kung, New Territories (“the Property”), mesne profits and a declaration that Miss Luo holds 3,500 shares in the Company on trust for the estate of the deceased. It alleged that Miss Luo was granted a bare licence to occupy the Property jointly with the deceased in about May or June 1999, that the licence was terminated by one month’s notice served on 22 January 2001, and that Miss Luo has continued in occupation as a trespasser.

The background matters

4.  The background matters are largely not in dispute and may be stated as follows.

5.  Miss Luo was married to one Mr. Yik in the Mainland in 1992. Their daughter, Mon Din, was born in 1993. In 1995, Mr. Yik arranged for Miss Luo to come to Hong Kong. They separated not long after she had arrived. Miss Luo then lived in Hong Kong by herself. Mon Din was looked after by Miss Luo’s parents in Shanghai. Miss Luo supported herself with a job in a property agency. Later she worked as a receptionist in a nightclub.

6.  Miss Luo first met the deceased when she was working in the property agency. The deceased was involved in the buying and selling of properties for investment. They met again by chance when the deceased went to the nightclub she worked. They became friends and developed an intimate relationship. After several months, they started to live together. Their cohabitation began in 1996 and lasted until the deceased passed away suddenly on 1 September 2000. Miss Luo ceased to work full time after she had lived with the deceased.

7.  In the beginning, Miss Luo and the deceased cohabited at the premises rented by her at Unit A3, 11^th Floor, Wah Po Building, Prat Avenue, Tsimshatsui. In about September 1997, they lived in a small flat in Unit A4 on the 4^th Floor of the same building. This property was purchased in the name of Miss Luo with a mortgage. The rest of the purchase money in about HK$500,000.00 was put up by the deceased. He also paid for the decoration and furniture, the salary of the maid and the mortgage instalments.

8.  The deceased had a number of girl friends before Miss Luo, and he had cohabited with one of them between 1983 to 1989. He had never married. Before he lived with Miss Luo, the deceased lived with his mother and unmarried sisters, including Miss Hui, in Mount Kellett Road. In September 1996, the deceased’s family moved to premises in Clear Water Bay Apartments, No. 8 Ka Shue Road, Sai Kung, New Territories. At all times a room was kept for the deceased in his family home; he had some of his personal belongings there and some of his bank statements were sent to that address. I do not attach any significance to this.

9.  The deceased was a businessman. From about 1980, he and Miss Hui were in business together. They held shares in various companies. Some of these companies were used to hold properties as investments, and one of them was Inter-Trade Agencies Limited (“Inter-Trade Agencies”) in which the deceased held 80% of the shares and Miss Hui 20%.

10.  In 1993, the deceased was diagnosed with lung cancer and had undergone surgery. After that, he relied on Miss Hui to handle many of the business affairs for him, and spent more time on his leisure.

The Company and the purchase of the Property

11.  The Company was incorporated on 6 June 1997 with a nominal capital of HK$10,000.00, divided into 10,000 shares of HK$1.00 each. It was acquired as a vehicle for investment by the deceased and his business partner Cheng Pui Kit (“Mr. Cheng”) in July 1997. They were appointed the first directors. Mr. Cheng held 6,000 of the shares and the deceased held the remaining 4,000 shares.

12.  In about April 1998, the deceased and Miss Hui attended the sales office of the developer for Hillview Court which was then under construction and decided to purchase a property in the development for investment. On 2 April 1998, Miss Hui signed a Memorandum of Sale of the Property on behalf of the Company to purchase the Property at HK$7,790,600.00. All the initial expenses for the purchase of the Property were borne by the deceased and Miss Hui in the respective proportions of 80:20; these expenses comprised the initial deposit of HK$350,000.00, the further deposit of HK$429,060.00, the stamp duty and legal fees of HK$215,602.00, and two sums paid as further deposit of HK$779,060.00 each. They decided to use the Company as the vehicle for this purchase. Until then, no investment or business activity was carried out by the Company. Mr. Cheng agreed to transfer all his shares in the Company to the deceased and Miss Hui, although the transfer did not actually take place until 3 February 1999, shortly before completion of the purchase of the Property. At a board meeting of the Company on 3 April 1998, it was resolved inter alia that Mr. Cheng should resign as a director and Miss Hui was to be appointed a director with immediate effect.

13.  On 2 February 1999, in anticipation of the completion of the purchase of the Property, the Company obtained a term loan of HK$4 million from the Bank of America to finance the purchase, repayable by 180 monthly instalments of HK$41,768.99 each, with a first legal charge over the Property and a joint and several personal guarantee given by the deceased and Miss Hui.

14.  On 3 February 1999, Mr. Cheng transferred 4,000 shares in the Company to the deceased and 2,000 shares to Miss Hui. The deceased’s shares in the Company were increased to 8,000. The shareholdings in the Company thus reflected the respective contributions that had been made by the deceased and Miss Hui towards the purchase price of the Property.

15.  The Property was assigned by the developer to the Company on 12 February 1999. The deceased and Miss Hui paid two mortgage instalments in March and April 1999, again in the proportions of 80:20, until the deceased moved into the Property in the circumstances as mentioned below. The total contributions made by Miss Hui towards the purchase price and the mortgage instalments amounted to HK$528,576.40.

16.  At all material times, other than holding the Property, the Company has not carried out any other business.

17.  In or about April 1999, the deceased and Miss Hui engaged various property agencies to sell the Property at HK$8.2 million or to let it at HK$35,000.00 exclusive of rates, government rent and management fees. They had some offers but did not find them attractive, as the property market was on the decline at that time. The deceased then decided to reside in the Property with Miss Luo. From about the time the deceased moved into the Property, he took up the entire responsibility for paying the mortgage instalments. He also came to an arrangement with Miss Hui in about June 1999 to acquire all her interest in the Property and her shareholding in the Company and he was to pay back all her contributions towards the purchase price. On 25 June 1999, Miss Hui signed in escrow the documents for the transfer of her shares in the Company. The transfer was not effected until March 2000, when Miss Hui was paid back her contribution of HK$528,576.40. According to a shareholders’ resolution on 6 March 2000, they approved the transfer of 1,999 of the shares of Miss Hui to the deceased. On 28 March 2000, these shares were transferred by Miss Hui to the deceased.

18.  Miss Hui admitted that the one remaining share held by her was held on trust for the deceased. She has remained as a director of the Company to this day. I accept her evidence that the deceased wanted her to hold one share on trust for him and to remain a director so as to oversee the administrative affairs of the Company. I do not attach any particular significance to the fact that the deceased wanted Miss Hui to tend to the administrative matters of the Company when necessary, even after he had transferred 35% of the shares to Miss Luo as mentioned below. This is understandable as Miss Hui and the deceased were in business together for a long time and he had come to rely on her to handle many of the business affairs since he cut down on his work after his surgery. Besides, Miss Luo had no business background and she does not know English. I also decline to attach any significance to the fact that Miss Hui remained a guarantor of the indebtedness of the Company to the bank until the deceased paid off the entire mortgage loan in March 2000, in view of the close relationship between the deceased and Miss Hui. I reject the contention that by virtue of the fact that Miss Hui held one share and remained a director, it should be inferred that the deceased had intended the Company to be run as a commercial undertaking or that he had reserved to Miss Hui the right and obligation to make decisions regarding the affairs of the Company or that he had intended to exclude Miss Luo from decisions relating to the affairs of the Company. I see no cogent reason why Miss Hui should be actively involved in making decisions for the Company after her shares were bought out. Insofar as Miss Hui has asserted on affirmation that one of the reasons the deceased wanted her to remain a director was to use the Property to finance their other businesses as necessary and that he had wanted to exclude Miss Luo from taking part in business decisions of the Company, I regard these self-serving assertions as incredible.

19.  Miss Luo claimed that she and the deceased had moved into the Property in about February 1999. I find it more probable that they had done so after April 1999, when the deceased took up the entire responsibility for paying the mortgage instalments. Since then, Miss Luo has let her property at Unit A4 on the 4^th Floor of Wah Po Building. She has applied the rent to discharge the mortgage instalments of Unit A4.

The marriage proposal

20.  Miss Luo gave evidence that the deceased proposed marriage to her in February and June 1999, she had accepted his proposal and that the planned marriage did not take place because of the sudden death of the deceased. This was disputed by Miss Hui, who asserted that none of the family members were told that the deceased had intended to marry Miss Luo. Miss Hui claimed that Miss Luo was no different from the other girl friends of the deceased and her brother had no intention of marrying her.

21.  Miss Luo’s evidence on this may be summarised as follows.

22.  In 1998, Miss Luo filed a petition for divorce in the District Court in Hong Kong. On 14 June 1999, a decree nisi for the dissolution of her marriage to Mr. Yik was granted. The decree was made absolute on 21 September 1999.

23.  The deceased first proposed marriage to Miss Luo in February 1999 and she accepted his proposal. Also around this time, they went to Shanghai to take Mon Din to Hong Kong to live with them. It is not in dispute that the deceased had treated Mon Din like his own daughter when she was living with them in Hong Kong. When Mon Din was admitted to hospital in March 2000, the deceased gave her surname as Hui.

24.  In June 1999, at the time Miss Luo told the deceased of her decree nisi for the dissolution of her marriage, the deceased proposed to her again, with an antique ring, and she accepted his proposal. He agreed to talk to her parents at her suggestion. In July 1999, Miss Luo applied for her relatives in Shanghai to visit Hong Kong. In March 2000, Miss Luo’s mother, brother and sister-in-law came to Hong Kong and stayed in the Property from two weeks to a month. The deceased gave Miss Luo’s mother HK$50,000.00 and gold jewellery, in accordance with Chinese customs, after he had made known to Miss Luo’s relatives his intention of marriage. They expected to get married in about October 2000. The deceased told her he did not wish to have a lavish wedding, they would register their marriage and go on a trip to Europe with Mon Din.

25.  Since 1997, the deceased had brought Miss Luo to have dinner with his family at his family home. They would go there every weekend to have dinner with the deceased’s family. Miss Luo was also present on family occasions to celebrate festivals and birthdays of family members, as borne out by the photographs she has produced. At one time, the deceased’s mother and Miss Luo shared the same maid as the Property was near to the family home and the deceased’s mother had helped to look after Mon Din. She had frequent contact with the deceased’s family.

26.  In the summer of 2000, the deceased visited Mongolia and became ill on his return. On 31 August 2000, he was admitted to hospital after receiving treatment in a clinic and died in the early morning of 1 September 2000. He was aged 56; he did not leave a will.

27.  Two friends of the deceased, Wu Pao Shuen Frankie (“Mr. Frankie Wu”) and Hui Yung Chi Fernando (“Mr. Fernando Hui”) also gave evidence for Miss Luo. They and the deceased were members of the Lions Club. Mr. Frankie Wu had known the deceased for 15 years and Mr. Fernando Hui had known him for over 20 years. The deceased had brought Miss Luo to regular functions of the club and introduced her to his friends as his ‘wife’. Mr. Frankie Wu and Mr. Fernando Hui later realised the deceased and Miss Luo were not married. Both testified that the deceased had told them a few months before his death that he was going to marry Miss Luo, and that she seemed to be the only steady girl friend the deceased had. They have no apparent interest in the outcome of these proceedings and their evidence on what they knew of the deceased’s relationship with Miss Luo was hardly challenged in cross-examination.

28.  I find that the deceased had proposed marriage to Miss Luo in 1999 and that they would probably have married but for his sudden death. There is no reason I should reject this part of Miss Luo’s evidence, or disbelieve the witnesses she called. Miss Hui claimed the deceased had never informed his family members of his plans of marriage. Even assuming Miss Hui were right about this, I do not find it inherently improbable that the deceased would have chosen to disclose this to some of his old friends without first telling his family about it. Besides, Miss Hui accepted in cross-examination that on one occasion she had said to the deceased words to the effect that although it was not her style to wear a skirt, she would do so when the deceased was to marry Miss Luo. Miss Hui might have spoken in jest, she did not say if the deceased had regarded the exchanges as made in jest, but at the very least the deceased did mention to Miss Hui a possibility of his marrying Miss Luo.

The transfer of shares to Miss Luo

29.  On 25 June 1999, which was the same date when Miss Hui signed in escrow a transfer of all but one of her shares to the deceased, the deceased transferred 3,500 out of his 8,000 shares to Miss Luo at par value. On 9 June 1999 he gave instructions by letter to the outside accountant to arrange for the transfer and the latter was requested to do so “as soon as possible”. The deceased and Miss Luo executed bought and sold notes and an instrument of transfer for this purpose. She did not at any time pay the par value of the shares transferred to her.

30.  As in June 2000, the deceased held 6,499 shares in the Company, Miss Luo held 3,500 shares and Miss Hui held 1 share on trust for the deceased. The deceased and Miss Hui were the only directors of the Company.

31.  Miss Luo gave evidence at all material times she did not know that the Property was held by the Company. She thought the Property was held by the deceased and Miss Hui, as the deceased had told her at the time he and Miss Hui had jointly purchased the Property, that he would acquire Miss Hui’s interest by returning her share of the purchase price, and that he would do so after he sold a property in the Peak. When she executed the documents of transfer in English, she thought that they were in connection with the deceased’s promise to give her 35% interest in the Property, in the circumstances that I will go into. She only learned after the death of the deceased that actually 35% of the shares in the Company was transferred to her and claimed that the shares were transferred to her as a gift. The fact that she had no idea at the time of what was actually transferred to her does not mean that there could not be a valid gift of the subject of transfer, provided the court is satisfied of the intention of the donor to make a gift, and that the donor had done what was needed to effect the transfer to the donee who retained the gift.

32.  Miss Hui alleged that the shares are not owned by Miss Luo beneficially as they were transferred to her as security for a loan of HK$1 million that Miss Luo had made to the deceased on 8 June 1999; since the loan was repaid to her in March 2000, she should have transferred the shares back to the deceased and she has been holding them on trust for his estate.

33.  It is common ground that Miss Luo had lent HK$1 million to the deceased and that the loan was repaid with interest in March 2000. However, in the ledgers of the Company, it was recorded that HK$1 million was paid to the deceased and the entry of 8 June 1999 read: “Angela Luo buying 35% shares from Willy Hui”. The ledgers also recorded that HK$1,038,500.00 was paid by the deceased to Miss Luo and the entry of 3 March 2000 read: “Willy Hui buying 35% Shares from Angela Luo”. On the face of it, these entries are not consistent with the allegation of Miss Luo or the allegation of Miss Hui. Further, notwithstanding the entry in March 2000 that the deceased had bought back the shares, there is no evidence that the deceased had ever given instructions to any one to prepare the documents for the transfer of the shares back to him.

34.  The entries in the ledgers were nonetheless relied on by Miss Hui to show that there was some kind of connection between the transfer of the shares and the loan. The account clerk of the Company who prepared the ledgers, Shirley Wong Lai Yi, did not give evidence and there was no explanation why she had not done so. Miss Hui admitted in cross-examination that she had no personal knowledge or involvement in the loan of HK$1 million. There is only double hearsay from Miss Hui as to what the account clerk had told her of the deceased’s instructions to the account clerk. I am not prepared to accept such unsatisfactory evidence or to attach weight to the entries in the ledgers.

35.  It was suggested by Mrs. Catton, who appeared for the respondents in the petition and the Company in the action, that HK$1 million represented 35% of the market value of the Property in June 1999, less the outstanding amount of the mortgage loan which was about HK$3.9 million. I regard this a fanciful suggestion. Besides, the figures do not tally. The Property was purchased in April 1998 at about HK$7.8 million, the deceased and Miss Hui put it on the market in April 1999 at HK$8.2 million although they did not receive any offer at that price. There is no direct evidence on the market value of the Property in June 1999; assuming this to be in the region of HK$7.8 million, 35% of the net equity of the Property would be about HK$1.3 million whereas HK$1 million would be 25% of the net equity.

36.  I do not find it incredible that Miss Luo would have lent HK$1 million to the deceased in June 1999 without security, in view of their close relationship and she had agreed to marry him. Notwithstanding the proximity in dates between the undisputed loan (8 June 1999) and the instructions given by the deceased to the outside accountant to arrange for the transfer of 35% shares of the Company to Miss Luo (9 June 1999), I decline to infer that the transfer of the shares to Miss Luo was related to the loan she had advanced to the deceased. I think it more significant to note that at the time the deceased proposed marriage to Miss Luo in June 1999, he had made an arrangement with Miss Hui to buy out her interest in the Property, even though he was not actually in a position to pay her the agreed consideration. Further, when the deceased paid Miss Hui the agreed price in March 2000, he also took steps to discharge the mortgage of the Property and caused Inter-Trade Agencies (a company substantially owned by him as aforesaid) to make a loan of HK$2.9 million to the Company on 9 March 2000, for the full retirement of the loan from the bank. A notice of discharge of the mortgage was given by the bank on 14 April 2000 and the Property has not been mortgaged since. According to the accounts of the Company as at 31 March 2001, the Company was indebted to the estate of the deceased in the amount of HK$5,653,840.00 and to Inter-Trade Agencies of HK$2,919,850.00.

37.  I accept Miss Luo’s evidence here and find that the deceased had transferred the 3,500 shares to her as a gift with the intention that she should hold them beneficially, for the reasons mentioned below. I reject the claim for a declaration that Miss Luo holds these shares on trust for the estate of the deceased.

The representations of the deceased

38.  Miss Luo gave evidence the deceased had represented to her that he would buy out Miss Hui’s interest and give her 35% interest in the Property, so that she and the deceased would jointly own the Property, which was to be their matrimonial home. He told her that this was to provide her with financial security at the time he proposed marriage. By then, she had been living with the deceased for two years. She said that if the deceased had not proposed and promised to give her security, she would not have continued their relationship.

39.  Miss Hui gave evidence that it was she who had proposed to the deceased to buy out her interest, as she had no idea how long the deceased would be living in the Property and she had purchased the Property with him as an investment to be let or sold. However, she has not mentioned this in any of her affirmations. She also asserted in one of her affirmations the fact that the Property was free from encumbrance since April 2000 was indicative of the intention of the deceased to use the Property to finance his businesses by charging it to obtain banking facilities.

40.  Mr. Thomas Au, who appeared on behalf of Miss Luo, submitted that her evidence on this is inherently credible and supported by the following matters.

41.  Firstly, by the time the deceased proposed to buy out Miss Hui’s interest in the Property, there was clearly a departure from their original intention which was to hold the Property as an investment to be let or sold, in that it was to be used as the residence of the deceased and Miss Luo.

42.  Secondly, the timing of the transfer of 3,500 shares in the Company to Miss Luo coincided with that of two important events: the marriage proposal (which I find to have been established); and the deceased buying out the entire interest of Miss Hui in the Property (the only reason the actual transfer was deferred to March 2000 was because the deceased could only pay the consideration at that time).

43.  Thirdly, when the deceased paid Miss Hui the agreed amount to buy out her interest in the Property in March 2000, he also obtained a loan from his company Inter-Trade Agencies to pay off the outstanding mortgage loan to the bank. This action taken by the deceased to free the Property from encumbrance would seem to be more consistent with an intention to give Miss Luo financial security by providing for her a beneficial interest in the Property free from encumbrance. I would add that it does not appear to me the purpose of paying off the mortgage loan in its entirety in March 2000 was indicative of the deceased’s intention to hold the Property for a business purpose such as by charging it to obtain banking facilities at a later date. There is no evidence that the deceased’s businesses were in need of banking facilities in 2000 or within the foreseeable future; besides, he had to obtain a loan from Inter-Trade Agencies to pay off the mortgage loan to the bank.

44.  I find that the deceased had intended to confer 35% beneficial interest in the Property to Miss Luo so as to give her some form of financial security in anticipation of their marriage.

45.  I also find that in transferring the 3,500 shares in the Company to Miss Luo, it must have been the deceased’s intention to assign to her as well 35% of the loans that he had provided or caused to be provided to the Company to fund the purchase price and the outgoing expenses of the Property. To hold otherwise would defeat the deceased’s intention that she should have a 35% interest in the Property through her shareholding in the Company. It would have been meaningless merely to give her 35% of the shareholding without a corresponding proportion of the loans to the Company, as she would hardly have derived any real benefit from her shareholding if the proceeds of realisation of the only asset of the Company were to be used wholly or substantially to pay off the existing loans to others. I note that similarly, when the deceased bought out Miss Hui’s interest in the Property, Miss Hui’s loan to the Company, which comprised the contributions she had made to the purchase price of the Property, was in effect transferred to the deceased, as borne out by an entry in the ledgers.

Reliance on the deceased’s representations

46.  It is Miss Luo’s case that in reliance on the deceased’s representation, she had done the following: she had spent HK$70,000.00 to decorate the master bedroom in the Property and to purchase furnishings; she had arranged for all her furniture in her property in Tsimshatsui to be moved to the Property; she had paid one mortgage instalment of HK$40,000.00 for the Property in August 1999; she had remained living with the deceased and had not sought employment until after he passed away.

47.  I accept her evidence that she had done the above. I do not think the evidence of Mr. Frankie Wu is such that it should cast doubt on her evidence that she was not working when she cohabited with the deceased. I also accept that she would not have done the above and continued her relationship with the deceased if he had not proposed marriage and offered her tangible financial security.

Events leading up to legal proceedings

48.  After the deceased’s death, and on 22 November 2000, Miss Hui appointed one of her sisters Hui Mi Lai Miranda as a director of a number of companies to fill the position of the deceased, including the Company and Inter-Trade Agencies. Miss Luo was not informed about the appointment before hand.

49.  On 20 January 2001, Miss Hui and her sister passed a board resolution of the Company to issue a notice to Miss Luo to terminate her licence to occupy the Property and to require her to deliver up vacant possession within a month. Pursuant to the resolution, a notice of termination was served on Miss Luo on 22 January 2001 by the Company’s solicitors.

50.  Two letters were sent by Miss Luo’s solicitors in response on 21 February 2001. In one of the letters, it was asserted on her behalf that she did not occupy the Property under a bare licence but by virtue of her entitlement as a holder of 35% of the shares in the Company and based on a mutual understanding with the deceased that the object of the Company was to hold the Property for the use of Miss Luo, her daughter and the deceased. It was alleged that the demand of the Company that she should vacate the Property was contrary to the basic understanding of her becoming a shareholder and that she had been unfairly prejudiced. She made an offer to resolve the matter as follows: the Property was to be sold at a reasonable price and 35% of the proceeds of sale after deduction of the conveyancing expenses be distributed to her and the Company be wound up voluntarily; or the other shareholders were to purchase Miss Luo’s shares with the consideration being 35% of the reasonable market value of the Property. The allegations of Miss Luo and her offer were rejected by the Company on 23 February 2001.

51.  On 27 February 2001, the Company issued a writ in the District Court against Miss Luo. This is the action I am seized with. Two weeks before trial of the action and on 27 May 2002, Miss Luo presented her petition for winding-up, alternatively for relief under section 168A. She also issued a summons to stay the action pending the determination of the petition. On 10 June 2002, the District Court stayed the action on condition that Miss Luo was to make payments into court of mesne profits for her occupation of the Property. On 10 January 2003 and by consent, the action was transferred to the High Court.

The legal contentions in the petition

52.  The complaints relied on to justify a petition to wind up the Company on the just and equitable ground and for relief under section 168A are identical.

53.  The main complaint is that there was a mutual understanding among the shareholders, namely the deceased and Miss Luo, that they would occupy the Property as their home without payment (except for outgoings such as management fees, rates and government rent) for as long as they wished, as they jointly owned the entire beneficial interest in the Property through their shareholdings in the Company. After the death of the deceased, the Company’s affairs were managed in a way contrary to the mutual understanding aforesaid in that the Company has required Miss Luo to deliver up vacant possession of the Property on one month’s notice, and it has brought proceedings against her for vacant possession and mesne profits for her occupation of the Property.

54.  A subsidiary complaint is that Miss Luo was not given any notice of the annual general meeting of the Company. An annual general meeting was held on 6 June 2001 and after the presentation of the petition two annual general meetings were held on 6 June 2002 and 2 June 2003. Miss Luo did not attend any of these meetings. She alleged that no notice was given to her. Miss Hui claimed that Miss Luo was notified in writing but adduced no evidence of the service of such notice and did not mention this in any of her affirmations filed. I do not accept her claim.

55.  On behalf of the respondents, it was submitted that the action taken by the Company to demand vacant possession was in the commercial interest of the Company as the Company should be run as a business to generate income from the Property, hence such action cannot be regarded as unfair or prejudicial to the interests of its members qua members. The unfairly prejudicial conduct complained of did not affect Miss Luo’s interest qua member, but only in her personal capacity in that she is merely asserting a personal right to stay in the Property, unrelated to the affairs of the Company. It is an abuse of process to petition for winding up as it should have been clear from the Company’s accounts that its liabilities have exceeded its asset and there is no tangible interest to be gained by Miss Luo if the Company were wound up. Miss Luo’s default in paying the management fees from November 2002 to January 2004 and the rates from July 2002 to December 2003 was detrimental to the Company, so she is not entitled to equitable relief as she has not come to court with clean hands.

The legal contentions in the action

56.  The Company’s action in trespass is founded on the basis that it is the registered and beneficial owner of the Property, that Miss Luo is in occupation as a bare licensee and that her licence has been revoked on reasonable notice. It also claimed that the 3,500 shares held by Miss Luo were held on trust for the deceased as they were transferred to her as security for a loan, which claim I have rejected.

57.  Miss Luo contended that the Company is merely an agent or nominee holding the Property on trust for its shareholders, namely the deceased and herself. Up to the death of the deceased, the deceased and Miss Luo were jointly entitled to possession of the Property, as beneficial owners of the same. Her right to remain in the Property should not have been affected upon the death of the deceased.

Common intention constructive trust

58.  Miss Luo’s right to remain in the Property is the central issue in both proceedings. She asserted her right to remain in the Property by a common intention constructive trust, premised on the express common intention of the deceased and herself that she is to have 35% beneficial interest in the Property, and that she had acted in reliance on such intention to her detriment (i.e. the first kind of situation discussed by Lord Bridge in Lloyds Bank plc v. Rosset [1991] 1 AC 107 at 132E to G). But can there be a common intention constructive trust where the property is held by a company? Mr. Au cited a number of authorities to show the affirmative.

59.  The first of these authorities is Re Schuppan, Trustee of the Estate of Schuppan v. Schuppan [1997] BPIR 271. There the wife claimed a beneficial interest in the properties in question, which were held by offshore companies wholly owned by her husband, on the basis of the principles established in Lloyds Bank v. Rosset. On the facts, Judge Maddocks held that the wife did not have a beneficial interest in the properties. As to whether the court could find a constructive trust where the property was held by a company owned by the husband, the judge said obiter at 283C to D and G to H as follows:

“The case is of course complicated by the interposition of [the offshore companies]. But as those companies were wholly owned by Mr. Schuppan both as to the shares and the loan money, [the wife] would invite me to apply the principle as if the property itself had been vested in Mr. Schuppan.

If those points are valid, then she would say that her interest ought not to be defeated by the property being acquired or held by a company owned by her husband instead of being owned by him direct. In that event either the trust should bind the company or, if the company exists solely as a repository for the property, then her interests should be attached to the husband's interest in the company. I would have welcomed legal representation for Mrs. Schuppan to advance her submissions more fully, and hope my own formulation does justice to them. As a matter of general principle I do not reject the proposition that the claim under the first limb of Lord Bridge's speech would necessarily be excluded where property was acquired through a company. Certainly the court would not allow an otherwise valid claim to be defeated by the legal owner using a company to hold the property and sheltering behind the company.”

60.  The above dicta in Re Schuppan were adopted in Chan Pui Chun v. Leung Kam Ho [2002] BPIR 723 at 729G to H, where the property was held by a company incorporated in the British Virgin Islands in which the couple, who were not married, held all the shares. On their separation, the claimant made a claim of 51% beneficial interest in the property, which was the percentage of her shareholding in the company, and asserted an agreement not to sell the property without her consent, on the basis there was a common intention constructive trust. The defendant claimed that the property was owned by the company beneficially and sought to wind up the company on the ground it was insolvent, alternatively on the just and equitable ground. In upholding the claim of the claimant, Judge McGonigal held that the company, which was a vehicle for the investment of the parties, held the property as a trustee for them in the proportion of their shareholdings. Whereas the wife in Re Schuppan was not legally represented, the judge noted that both counsel in the case before him accepted that “the intervention of a company cannot of itself frustrate a common intention by two parties that they should share beneficial ownership of a property”.

61.  In the local decision of Re Superyield Holdings Ltd. [2000] 2 HKC 90, the question was whether the property held by a company was held on a resulting trust for the person who provided the funds to purchase the property. Recorder Kotewall, SC answered that question in the affirmative, having regard to the actual intention of the individual who provided the funds and that he owned the shares in the company beneficially, and if there had been any need to resort to the presumption of resulting trust, the presumption had not been rebutted. Although this is not a case of a common intention constructive trust, Mr. Au submitted that this was an instance in which the court held that a company was holding an only asset on trust for a person who owned beneficially the shares in the company and the property. Similarly, the intervention of a company should not pose any difficulty in applying the principle of a common intention constructive trust.

62.  The last decision cited by Mr. Au in this connection is Popely v. Ayton Ltd. [2004] All ER (D) 149. The property was held by a company which was owned by an offshore trust established for the claimants who had provided the funds for the purchase of the property. The issue for determination was whether the company held the property on a constructive or resulting trust for the claimants, or whether the company acquired the property beneficially on the basis that, as the company was owned by the trust, the property was owned indirectly by the beneficiaries of the trust. Charles Aldous, QC, sitting as a deputy judge of the High Court, found on the evidence of the parties’ intention at the time of the acquisition of the property that it was clearly intended that the property was owned beneficially by the company, and in turn by the trust through its ownership of the shares of the company, rather than being held on trust for the claimants in the proportions in which they each contributed to the purchase price. The judgment was largely concerned with an analysis of the evidence, as there was much common ground on the law. No one raised any impediment of applying the principles of constructive trust and resulting trust to a situation with the interposition of firstly a company then an offshore trust.

63.  I note also in one of the cases cited by Mrs. Catton, Re Hansby Co. Ltd., HCMP No. 4610 of 2003, 12 May 2004, Barma J considered the question whether a company was holding properties as a trustee for the shareholders and concluded on the material before him that it was not shown that the company was not holding the properties beneficially by way of investment.

64.  Where it is appropriate to impose a common intention constructive trust, the court seeks to give effect to an express or inferred common intention of the parties concerned, either with regard to the evidence of actual intention, or where such evidence is not available, by resorting to a presumption, such as the presumption of advancement. It should make no difference to the application of the principles of constructive trust that the legal title is held by a company instead of an individual, so long as it is established to the satisfaction of the court that at the time of the acquisition of the property, or at some subsequent relevant period in exceptional circumstances, the intention is that the company is not to own the property beneficially but to hold it as a trustee or nominee for the beneficial owner. I accept the submission of Mr. Au that there is no legal impediment to find that the Company is only holding the Property as a constructive trustee for the shareholders who are the beneficial owners, provided I am satisfied on the evidence that the requisite common intention is established. I am mindful that I must weigh the evidence carefully in this situation, as it is not uncommon that a company is established, acquired or used specifically for the purpose of holding a property and this alone does not provide support that the company is not holding the property beneficially but merely as a trustee.

65.  Lord Diplock said in Gissing v. Gissing [1971] AC 886 at 906B to C:

“… the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words or conduct, notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party. On the other hand, he is not bound by any inference which the other party draws as to his intention unless that inference is one that can reasonably be drawn from his words or conduct.”

66.  With the above dicta in mind, I turn to consider the findings I have made on the evidence.

67.  As I have found earlier, in about June 1999 there was a change of intention as to the purpose of holding the Property. I think it is fair to say that when the Property was purchased in April 1998 and the Company was used by the deceased and Miss Hui as the vehicle to hold the Property, there was nothing to suggest that the Company was not to hold the Property beneficially as an investment in a business undertaking. Mr. Au has not contended otherwise.

68.  I have accepted Miss Luo’s evidence that in June 1999, the deceased had represented to her he was to buy out Miss Hui’s interest in the Property and that he would give her 35% interest in the Property, this was to provide her with financial security when he proposed marriage to her a second time. He had further told her that the Property would be owned by them jointly and it was to be their matrimonial home. I have found that it was the intention of the deceased to give her 35% beneficial interest in the Property. His intention to do so was manifested by his conduct as by April 2000, he had transferred 35% of the shares in the Company to her, bought out Miss Hui’s interest in the Property and discharged the mortgage with a loan that he had obtained from Inter-Trade Agencies. In his representation to Miss Luo that she was to have 35% interest in the Property, it was understood by her and reasonably so understood that he was to hold the other 65% interest in the Property. It is immaterial that he did not communicate to her the legal niceties, that the Property was held in the name of the Company and that they were to hold shares in the Company in the proportion of 35% and 65%.

69.  In view of the above, the present situation is very different from the case where a company is holding a property as an asset or investment in a business undertaking.

70.  I have considered the ledgers and audited accounts of the Company which recorded the Property as an asset and the funds provided by various parties for the purchase of the Property and discharge of the mortgage loan (the deceased, Miss Hui, Inter-Trade Agencies) as liabilities being loans to the Company. As mentioned earlier, the account clerk who prepared the ledgers did not give evidence. The audited accounts were approved only by Miss Hui and her sister. There is no evidence that the deceased had told Miss Luo of how the Property was treated in books of the Company and it is unlikely that he would have done so as I accept her evidence she did not know the Property was held by the Company until after his death. Notwithstanding it might appear from the ledgers that the deceased could have acted with a different intention in respect of the Property, this different intention was not communicated to Miss Luo and so should not be taken to detract from the representations he had made to her.

71.  I have also found that there was reliance of Miss Luo on the deceased’s representations. I accept her evidence she had altered her position in reliance on the representations. In ascertaining whether there was a “sufficient link” between the representation and the conduct which constitutes the detriment, this must be considered as part of a broad enquiry. The representations do not have to be the sole inducement for the conduct which constitutes the detriment, it is sufficient that they are an inducement. Where the conduct is of such a nature that inducement may be inferred, the burden of proof shifts to the other party to establish that the claimant did not rely on the representations (Wayling v. Jones [1995] 2 FLR 1031H to 1032B, per Balcombe LJ). It is immaterial that detrimental reliance in a situation within the first limb of Lord Bridge’s speech “fell far short of such conduct as would by itself have supported the claim in the absence of an express representation” by the other party that claimant was to have an interest in the property (Lloyds Bank v. Rosset, supra. at 133G). It was contended on behalf of the Company and Miss Hui that Miss Luo had done what she did “willingly” and so did not act to her detriment. This is beside the point. They have not discharged the burden of establishing that Miss Luo had not relied on the deceased’s representations. I find that Miss Luo had acted to her detriment in the reasonable belief that by so acting she was acquiring a beneficial interest in the Property.

72.  Mrs. Catton submitted that the court should not impose a common intention constructive trust where an unconnected third party is involved. Here, the deceased had caused the mortgage loan to be paid off by a loan he obtained from Inter-Trade Agencies, in which he and Miss Hui owned the shares in the proportion of 80% and 20%. I do not see why there should be a legal impediment in finding that a company is holding a property on trust for its shareholders, where a loan has been obtained from a bank to finance the purchase of the property, or where a loan has been obtained from a third party to discharge the mortgage loan of a bank. The liability to the third party would not be altered.

73.  For the above reasons, I find in favour of Miss Luo that the Company holds the Property as a trustee for her and the deceased in the proportion of their respective shareholdings and that she has a 35% beneficial interest in the Property. As a tenant in common in equity, she is entitled concurrently with the other tenant in common to possession of the whole Property and neither is entitled to turn the other out (Bull v. Bull [1955] 1 QB 234 at 237; Chin Lan Hong & Ors. v. Cheung Poh Choo & Ors., HCA No. 1208 of 2000, 15 January 2004, Dep. J. To, paras. 66 to 78), so an action for trespass or for rent will not lie at the suit of a co-owner against another co-owner. Miss Luo is entitled to possession of the Property only on a non-exclusive basis, not on an exclusive basis as averred in her defence filed in the action and asserted in the petition.

74.  As Miss Luo is not a trespasser, the Company’s claim for trespass and mesne profits in the action must fail.

75.  I also find she has made out her primary complaint in the petition that after the death of the deceased, the affairs of the Company have been managed in a way contrary to her legitimate expectation, founded on the deceased’s representations to her, that she should have a right to remain in the Property without payment of rent, although not on an exclusive basis. The writ in the action was issued by the Company notwithstanding a letter was sent by Miss Luo’s solicitors setting out her right in the Property. The right asserted by her also related to the affairs of the Company, in that the Company was holding the Property as a trustee for its shareholders in the proportion of their respective shares. The conduct complained of was unfairly prejudicial to Miss Luo’s interest as a member of the Company. The present case is distinguishable from Re J E Cade & Sons Ltd. [1992] BCLC 213 cited by Mrs. Catton. Here, the activities complained of were by the company and in the course of the company’s affairs. Miss Luo has suffered harm or damage, not in a merely emotional sense. As a trustee holding the Property on trust, and the Company has no other activity apart from holding the Property, the Company has exercised its legal right over the Property without regard to the interest of a beneficiary whose right is attached to a proportionate part of the shares in the Company. This is sufficient reason to found a petition for winding up on the just and equitable ground. Further, I see no reason why unfairness should be considered only and invariably from the perspective of commercial interest, as submitted by Mrs. Catton; conduct may be unfair where it does not accord with the fundamental understanding upon which the members are associated.

76.  It is unnecessary to have regard to the subsidiary complaint in the petition that Miss Luo was not given notice of the annual general meetings. In the circumstances of this case, I find this a trivial infringement.

The reliefs sought

77.  In the prayer of the petition, Miss Luo sought the following reliefs:

(1)    an order that the Company and/or its directors be restrained from proceeding with the action;

(2)    an order that the Company and/or its directors be restrained from, without the consent of Miss Luo, doing any acts and/or from causing any acts to be done either by themselves, their agents, servants or employees to demand her to quit and deliver up vacant possession of the Property and/or to pay any rentals or consideration, save and except the daily maintenance costs of the Property, for her exclusive occupation and use of the Property;

(3)    alternatively, an order that the Company and/or Miss Hui do purchase the 3,500 shares in the Company held by Miss Luo at such value as assessed by an independent auditor appointed by the court and upon the said purchase the Company should repay to Miss Luo 35% of the shareholder’s loans made by the deceased to the Company; and

(4)    alternatively, the Company be wound up by the Court.

78.  It does not seem necessary or appropriate to grant the injunctions in (1) and (2). The action has been heard at the same time as the petition and I have adjudicated on the Company’s claim for trespass and mesne profits in the action. There is nothing to indicate that the Company will not abide by the court’s ruling.

79.  What Miss Luo wants is to be paid a proper price in respect of her 35% interest in the Property, the only asset and undertaking of the Company. I have also held that it was intended by the deceased that 35% of the loans he had provided or caused to be provided to the Company should be assigned to Miss Luo, together with 35% shares in the Company, to enable her to enjoy fully the benefit of 35% interest in the Property. She has accepted that the Property would have to be sold to realise her interest.

80.  The Company and Miss Hui (who is the sole personal representative of the deceased’s estate) have indicated through their counsel they would rather have the Company wound up than to buy out Miss Luo’s interest.

81.  I am satisfied that Miss Luo does have a tangible interest in seeking to wind up the Company and it is not an abuse of process to petition for the winding up of the Company. This is the only way by which she could realise her interest in the Property, and her beneficial interest in 35% of the loans provided or caused to be provided by the deceased to the Company, given that the other shareholder and the Company are unwilling to buy out her interest. I note further there is no evidence on the market value of the Property, whether at the time of the petition or as of today.

82.  As for Miss Luo’s failure to pay management fees, rates and government rent, she has explained that as her mother was hospitalised in Shanghai, she had to stay with her mother for several months. She did not receive the demands for rates and government rent from her maid when she returned. Until late 2003 or early 2004, the outstanding management fees, rates and government rent were all paid for by Inter-Trade Agencies for the Company. After she learned that the Company had settled the outstanding sums, she issued a cheque to reimburse the Company but the cheque was not accepted as the Company’s bank account was frozen on the presentation of the winding-up petition in May 2002. I decline to find that her conduct is such as to justify refusing her the relief sought in the petition. The total amount settled by Inter-Trade Agencies in this regard would appear to be in the region of HK$80,000.00.

The orders

83.  In respect of the action, I dismiss all the Company’s claims. Miss Luo is not liable to pay mesne profits to the Company but is liable to reimburse the Company for the management fees, rates and government rent paid on her behalf. I order that the amounts paid into court by Miss Luo pursuant to the order made on 10 June 2002 be paid out with the accrued interest to the Company in respect of the management fees, rates and government rent it has caused to be settled on her behalf (the exact amount of which is to be provided by the Company’s solicitors) and the balance be returned to Miss Luo.

84.  I make an order nisi that the Company is to pay Miss Luo the costs of the action.

85.  In respect of the petition, I order the Company to be wound up. The liquidator is to have regard to the rights and interests of the shareholders as adjudicated upon in these proceedings, namely, that the Company holds the Property on trust for its shareholders in the proportion of their respective shareholdings and that Miss Luo has a beneficial interest in 35% of the loans provided or caused to be provided by the deceased to the Company. It would be simpler if Miss Luo’s share in the loans should come out of the portion of the loans provided directly by the deceased, which exceeded 35% of the total advances made to the Company.

86.  I make an order nisi that the estate of the deceased and Miss Hui are to pay the costs of Miss Luo in the petition.