LO KAI BUN v. PONG MAN YI AND OTHERS

cacv 127 / 2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 127 of 2006

(on appeal from HCA NO. 4700 of 2002)

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J U D G M E N T

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Hon Stock JA:

1.  This appeal arises from a dispute between husband and wife about businesses established and run by them in the course of their marriage, a marriage that is now at an end.  They married in 1975 and have one son, the second defendant.  The first business was a partnership called Gaylite Company which they ran together from the 1980s.  They also established and carried on a number of other companies, he as the marketing man and she as the administrator and bookkeeper.  Topsca Limited, the third defendant, owned properties; Topsca Lighting, the fourth defendant, exported lighting products, and Feeble Industries Limited, the fifth defendant, manufactured lighting on the Mainland.  The precise shareholdings matter not for the purpose of this appeal.  It suffices to say that husband and wife were each directors of and shareholders in the defendant companies in equal proportions, save in the case of the third defendant in which the son also had a share.

2.  The companies prospered but the marriage did not, and when the relationship was at a particularly low ebb, the husband signed a series of documents the effect of which was to resign his directorships and to transfer his shareholdings in these companies to the wife and son, save that in the case of the third defendant the assets were transferred to the two companies as trustees under a deed of settlement for the benefit of the son.  The husband says that he did so as a result of the wife’s fraudulent conduct; and the wife says that he knew full well what he was doing.

3.  In January 1999, he signed the deed of settlement by which a trust was established in favour of his son in respect of which the trust property was the share capital of the third defendant.  He resigned his directorship and transferred his shares to the sixth defendant and to another company called Twilight International Holdings.  These two companies were appointed trustees under the settlement.

4.  The next significant date is 15 September 2000, the date upon which he signed documents by which he transferred to the wife and son his interests in the fourth and fifth defendant companies as well as his share in Gaylite.

5.  His allegation was that all documents necessary to effect these transfers – instruments of transfer, board resolutions, the deed of settlement – were prepared without his knowledge and that when it came to their signing by him, the wife fraudulently concealed what the documents were or simply placed them in front of him at times when he was otherwise occupied, representing to him that they were routine company documents.

6.  In April 2002, the wife filed a petition for divorce pleading that the marriage had broken down irretrievably on the basis of unreasonable conduct by the husband.  The allegations were of habitual philandering, including a particular relationship in and from 1988 which she viewed as more serious than the others.  The husband first left the matrimonial home in 1996, but returned when he was ill; left again in mid-2000 but again became ill and returned; and it was the wife who finally left in April 2001.  A decree of divorce has been pronounced and made absolute.  Proceedings for ancillary relief are pending.

7.  In December 2002, the husband instituted these proceedings.  At issue was the transfer of his interests in the defendant companies.  He asserted that on 28 January 2002 he had ascertained, for the first time, that his shareholdings in, and directorships of, these companies “had somehow been purportedly terminated in 1999 or 2000 and purportedly transferred to the first defendant and/or the second defendant and/or the sixth defendant as the case may be.”  He had never agreed, he said, to the extinction of his interests in these companies or to resign as a director of any of them, and he asserted that his signature to the documents in question, including the deed of settlement and instruments of transfer, were procured by his wife’s fraud.  He sought declarations that the various resignations as director and transfers of interests were void, and orders the effect of which would be to reinstate him to his former position.

8.  The wife’s case was that during the marriage the husband did not properly attend to the businesses, gambled, and associated with women.  She asserted that in early January 1999, at a time when there was a major row over his relationship with a woman called Yeung, she, the wife, challenged the plaintiff and raised her real fear that the family’s substantial savings were at risk because of his behaviour.  From this discussion came an agreement to establish a trust in favour of the son, the concept that led to the deed of settlement, the details of which her husband was, she said, fully aware.

9.  In relation to the agreements of September 2000, that again, according to her case, followed a discussion about the future, he having said that he would never return to her.  Her evidence was that she told him that she had not worked her whole life for nothing and would hate to see the assets fall into the hands of other women and wished to retain the companies and the accumulated wealth for the ultimate benefit of their son; and he then agreed to transfer all his shares in the group of companies to her and the son on condition that the companies would waive his substantial indebtedness to them and that he would receive a regular income of $50,000 per month.  Accordingly, the necessary documents were signed.

10.  The case was tried in the Court of First Instance by Deputy Judge Carlson over the course of three sessions, the first in November 2004, the second in July 2005, and the third and longest in November 2005.  The judge found in favour of the wife.  He was, he said, left in no doubt whatsoever that the wife had been completely truthful and that the husband had not.  The judge, reminding himself that the husband was an experienced and educated businessman and that the very appearance of the documents rendered it most unlikely that he would not first have acquainted himself with their essential content, concluded, not surprisingly, that it was “simply inconceivable that this lady could, in the circumstances, have tricked him into signing all of these documents without realising what he was doing. …. it is perfectly plain that at each instance he knew what he was signing and why he was signing the particular documents.  To suggest otherwise, as he does, is frankly, offensive to his oath to tell the truth. … I accept everything that she has told me.”  He dismissed the claim.

11.  There is no appeal against the findings thus far recited, nor against the dismissal of the action.  This appeal is restricted to other findings which it is said ought not to have been made and which, it is argued, impermissibly impinge upon issues due to be decided in the matrimonial proceedings for ancillary relief.

12.  The issue arises in this way.  It was the wife’s contention at trial that in late 2001 and early 2002 the husband was in the throes of establishing a rival business, in other words his own lighting business in competition with the defendant companies and that, in pursuit of that aim, companies were formed in Hong Kong and on the Mainland which were owned by nominees on his behalf and, further, that those companies had poached staff and customers of the defendant companies.  The suggested relevance of these assertions was simple: that if indeed the husband had never intended to transfer his interests in the defendant companies and in Gaylite to the wife and son and to the trust, he would hardly have engaged in setting himself up in competition.  This limb of the wife’s case was not originally pleaded, but we see it surface in an application that was made by the defendants in the January 2005 session, that the husband disclose his immigration records from January 2001.  In allowing this application, the judge said in a ruling that the information:

“… goes to the issue of the circumstances in which the plaintiff signed away his interest in the defendant companies.  The fact that he may or may not have been busy establishing a rival company or companies in Mainland China may well go to explain that he did not terribly mind doing what the first defendant (his wife) had asked him to do which was to divest himself of his interest in the family companies.  This information may – but not necessary will – assist on this issue.  Mr Chan [counsel for the husband] in opposing this aspect of Miss Lau’s submissions says that the dates of the information sought are too far down the chronological chain to be of any relevance …. The information should be provided and the weight to be attached to it will depend on how it sits with all the other evidence in the case.”

13.  Because of the lateness of the defendant’s application, the judge awarded costs of the application to the plaintiff, permitted him, though he had commenced his oral evidence, to discuss the issue with, and give instructions to, his solicitors, and ordered the preparation of a supplemental witness statement.  The hearing was thus further adjourned.

14.  Then in July 2005 the defendants made a further application in relation to this evidence.  They sought leave to file a further list of documents and an additional witness statement.  This late discovery related to the businesses established on the Mainland.  The judge allowed the application saying that:

“3.    … The central issue in the action is whether the Plaintiff knew the nature and effect of the documents and agreements that he was signing in the course of transferring the core family businesses to the control of his wife, the 1st Defendant.  Her case is that he most certainly knew and that he had prepared himself for all of this by starting off businesses of his own which have since traded with customers of the original family companies; in effect, that he has set up rival businesses.  In this regard, these allegations have already been pleaded. 

4.    This current late discovery relates to further and subsequently established businesses with factories, or at least a factory, in China.  The Defendants say the directorships and shareholdings have been given to family and associates but that these persons are no more than the Plaintiff’s nominees and that the real control lies with the Plaintiff. 

5.    Ms Lau submits that although down the chronological line, this new evidence is part of a pattern of the Plaintiff developing a new business persona for himself after he had knowingly transferred the original family business to the control of the 1st Defendant.  That is how relevance is established and the evidence should be admitted. 

….

8.    … I am persuaded that the new documents pass muster on that score.  The Defendants should have an opportunity, all other things being equal - which they are not - to develop this crucial part of their case that the Plaintiff knew what he was originally signing.  The next question is whether Ms Lau needs to plead their effect.  …

9.    … Ms Lau will need to provide particulars of knowledge relating to the Plaintiff’s signature of the original documents as these new documents are said to affect that averment by the Defendants and which, should include the main constituents of these new documents, before she can be allowed to use them in the trial.  Mr Yip [counsel for the husband] will be allowed to respond, if he so wishes, by amendment of his present pleadings. 

10.    …  I will give [the plaintiff] any further time that he, reasonably, requires to consider the documents with his solicitors.  He has already had most of yesterday. 

11.    I will not permit cross-examination on these documents until he is in a position to respond to them properly.  I will also allow him to file further witness statements by himself and of other witnesses who can respond to this new evidence.  This case will inevitably have to go over after we complete this five-day segment and so that delay will remove any constraints as to time that have at present been placed on him by the lateness of the documents.  Lateness can and will be compensated for in costs.”

15.  In his judgment, the trial judge made the finding to which I have earlier referred, that everything in the evidence of the wife was true and that it was inconceivable in the circumstances that she had tricked her husband into signing the documents as he had suggested.  Having so found, he went on at paragraph 53 as follows:

“53.    This would be sufficient to dispose of the Plaintiff’s case but, in the interests of dealing with this matter comprehensively, I am also left in absolutely no doubt that by the end of 2001, [the husband] had decided to start up another business in precisely the way that Miss Lau has sought to demonstrate through the later round of discovery which I allowed.  All of this evidence holds together with a most compelling logic in the way that Miss Lau has put forward in that part of her skeleton submission, which I have reproduced at paragraph 48.  Apart from establishing the fact that he is now operating a rival business, this evidence also shows that he was fully aware of everything that he had done at the time that he had done it and signed the many documents that put these agreements into effect.  It is perfectly clear that he realised it was time to move on and start afresh both in terms of his personal life as well as his commercial interests.”

16.  Amongst the evidence upon which the defendants relied was evidence that in mid-January 2002, the plaintiff had asked a staff member for cheque books and company chops, the relevance of which was that in February 2002 he used these to withdraw substantial sums from the accounts of the fourth defendant and Gaylite.  There was evidence of approaches made by him to members of staff of the defendant companies to go and work for him, and of the identities of those who were directors and shareholders in the new companies, including relatives of the plaintiff with no previous experience in the lighting business; and, further, evidence that customers of the defendants had transferred their custom to the new companies.

17.  What is sought by this appeal is not a reversal of the order or judgment by which the action was dismissed, but a reversal of the judge’s findings that the new companies to which the evidence related were in fact those of the husband, and that he had established them in rivalry to the defendant companies.

18.  In my opinion, it is not open to the appellant to advance an appeal on this basis.  Section 14(1) of the High Court Ordinance, Cap. 4, provides that “an appeal shall lie as of right to the Court of Appeal from every judgment or order of the Court of First Instance in any civil cause or matter.”  In this case, the judgment was that which disposed of the proceedings, namely, the dismissal of the action.  Judgment in this context is not to be equated with the reasons leading to that result: see Lake v Lake [1955] 2 AER 538, and Hong Kong Civil Procedure 2006, para 59/1/5.  As has been said by Hale LJ, as she then was, in Cie Noga SA v Australia and New Zealand Banking Group [2003] 1 WLR 307, at 328:

“It has long been axiomatic that these words [‘judgment or order’] refer to the result of the hearing rather than to the reasons given by the judge for reaching that result.”

19.  In this appeal, the judgment itself is not attacked.  No order is sought in the Notice of Appeal for judgment on the claim in favour of the appellant, or for a retrial.  The Notice of Appeal seeks only an order that the appeal be allowed, and that prayer and the grounds in support betray the fact that what in truth is desired is that this Court should set aside certain findings of fact that led to the decision to dismiss the claim; and there is no attempt to set aside other findings of fact, that stand on their own, and that – as is positively asserted by Mr Kwok – suffice to support the judgment.  That all this is so is evident from the skeleton argument filed by Mr Kwok on the appellant’s behalf which admits that: “in this appeal, the appellant does not seek to overturn the learned judge’s main finding on whether there had been an agreement between the parties regarding the transfer of assets to the respondent.”  He goes on to identify the core issue in the appeal which, he says, is “whether it was necessary and/or justified for the learned judge to have made the further findings.”  He was pressed in today’s hearing as to the order that he sought, and he was constrained to say that he sought a new trial but with judgment entered nonetheless against the plaintiff expressed, however, to be a judgment entered only on the basis of the facts excluding those that relate to the new businesses.  I am satisfied that this course is not open to us. 

20.  Mr Kwok argues that in cases where findings might affect some other proceedings “it might be appropriate to make a declaration so as to enable a party to challenge those findings and not find him or herself prejudiced by them”: Waller LJ in Cie Noga SA v Australia and New Zealand Banking Group [2003] 1 WLR 307 at page 322 para 28.  It is noteworthy that no-one at trial on either side asked the judge to take such a course but, in any event, neither party suggests before us that the issue as to who established the new businesses and to whom they belong cannot now be raised afresh in the matrimonial proceedings.  Mr Kwok asserts that issue estoppel does not arise in the ancillary proceedings.  Miss Lau, for her part, says that she will not suggest in those proceedings that issue estoppel arises, though she reserves the right to argue that the findings of the learned deputy judge are persuasive.  In such circumstances, I fail to see the point of this appeal.  But in any event, the attack is not against the judgment itself but merely upon a particular finding of fact, and it is my opinion that this appeal should for that reason alone be dismissed.

21.  If that reason were not of itself sound reason, I would dismiss the appeal in any event, because the complaints made are in my judgment without merit.  Mr Kwok refers to the fact that the application to adduce additional evidence was strenuously opposed as relating to matters irrelevant to the issue between the parties and as causing forensic prejudice to the appellant who had already started giving evidence.  Having admitted the additional evidence, so the argument is put, the judge “ultimately held that notwithstanding those additional evidence he was able sufficiently to dispose of the appellants case,” and it is therefore submitted that “based on the learned judge’s own finding, the additional evidence had indeed [proved] to be irrelevant to the determination of the issue between the parties.”

22.  With respect, that is not so.  What the judge said was that it would suffice for him to rely on the oral testimony of the wife and upon inherent probabilities in order to dismiss the action.  But, and this is the effect of paragraph 53 of the judgment, if that were not enough, the additional evidence supported or fortified that conclusion.  That is clear from a natural reading of these two paragraphs, and we see also that the concluding paragraph of the judgment begins with the sentence: “These being my conclusions, the action must stand dismissed.”  “Conclusions” includes his conclusion about the effect of the additional evidence.

23.  It is then said that not only were these findings unnecessary for the disposal of the case but that they had potential adverse implications for the plaintiff in the ancillary relief proceedings.  Upon this issue I have already touched.   Mr Kwok makes a further point that the judge ought to have ordered this trial and the ancillary relief proceedings to be heard one immediately after the other, so that the entire dispute between the parties could be determined at once, thereby avoiding the danger of inconsistent findings in the two proceedings.  This danger was all the more acute, he says, because during the third and last session of the trial, in November 2005, the appellant was not represented and chose not to adduce evidence to gainsay the additional evidence filed by the wife.

24.  I note that there was no application on the husband’s behalf that the two proceedings be heard either together or one immediately after the other, and it is difficult in the circumstances to see how this complaint can have any force.  In the event, it is clear to me that the evidence which the defendants sought to adduce about the rival businesses was material to the issue which had to be decided in these proceedings, proceedings themselves commenced by the plaintiff.  Having decided to initiate and pursue the allegations he made in them, he could not then pick and choose what evidence suited his then current purpose.  The consequences for the ancillary issues in the matrimonial case may fall for consideration but that is not a matter for us, and in any event from the concessions and submissions of counsel today, it seems to us clear that no issue estoppel will be argued.  It is not in any event a matter that affects the correctness of the judge’s decision to allow further discovery and testimony in relation to the new businesses.

25.  For these reasons, I would dismiss this appeal.

Hon Yuen JA:

26.  I agree.

Hon Waung J:

27.  I agree.

Hon Stock JA:

28.  Accordingly, the appeal is dismissed.

[Submissions as to costs]

29.  We do not think an award of costs on an indemnity basis is appropriate.  We shall order that costs of the appeal be to the respondent, to be taxed if not agreed.