Tse’s Brothers Co Ltd v. Kinghall Development Ltd and Another
Read the full judgment text of CACV 372/2018 on BabelCite. This Court of Appeal judgment was delivered on 15 June 2021.
131. Having said the above, I do not however find that there was any sufficient, or clear and equivocal evidence that Tai Chi was an agent of Tai Wing in the manner as pleaded by Chong Sang.’
Cites 5 cases
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CACV 371/2018, CACV 372/2018 [2021] HKCA 874 CACV 371/2018 & IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 371 OF 2018 & CIVIL APPEAL NO. 391 OF 2018 (ON APPEAL FROM HCA NO. 1341 OF 2012)
________________________ AND CACV 372/2018 & IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 372 OF 2018 & CIVIL APPEAL NO. 392 OF 2018 (ON APPEAL FROM HCA NO. 2401 OF 2012) ________________________
(Heard together) ________________________ Before : Hon Cheung, Au and Chow JJA in Court Date of Hearing : 28 May 2021 Date of Judgment : 15 June 2021 ________________________ J U D G M E NT ________________________ Hon Cheung JA (giving the Judgment of the Court) : I. The appeal 1.1B Chu J tried two actions. The protagonists of these two actions are two brothers, namely Tse Chong Sang (‘Chong Sang’) and Tse Tai Wing (‘Tai Wing’). The Judge referred to their two camps as the Chong Sang camp and Tai Wing camp. 1.2In the first action (HCA 1341/2012), the plaintiff (‘Tse’s Brothers’) is part of the Tai Wing camp. The defendants belong to the Chong Sang camp. The plaintiff is the registered owner of an industrial unit in San Po Kong, Kowloon, Hong Kong (‘Unit 16G’). Tse’s Brothers sued Kinghall Development Limited (‘Kinghall’) and Skygift (Kinghall) Company Limited (‘Skygift’) for vacant possession and mesne profit of this unit. 1.3The defence and counterclaim raised by the Chong Sang camp was that Tse’s Brothers held Unit 16G in trust for Chong Sang and Tai Wing in equal shares and also there were various agreements both written and oral between the parties pursuant to which Chong Sang or such persons nominated by him including Kinghall and Skygift were allowed to occupy Unit 16G on a rent‑free basis. 1.4In the 2nd action (HCA 2401/2012), Chong Sang sued Tse’s Brothers and Tai Wing based on the same allegations raised in the defence and counterclaim of Kinghall and Skygift in the 1st action and seeking similar relief mirroring the counterclaim of Kinghall and Skygift in the 1st action. 1.5The Judge upheld the contention of the Chong Sang camp and made a declaration in terms of the contention of the Chong Sang camp. 1.6Tai Wing appeals against the Judge’s decision in favour of the Chong Sang camp in respect of the 1st action (CACV 391/2018) and in respect of the 2nd action (CACV 392/2018). 1.7The Judge further ordered Chong Sang to pay 50% of the mesne profits (which is agreed to be HK$29,000 per month) to Tai Wing/Tse’s Brothers, and 50% of the Related Expenses as from January 2013. 1.8The Chong Sang camp appeals against this order in respect of the 1st action (CACV 371/2018) and in respect of the 2nd action (CACV 372/2018). II. Background 1) Brief introduction 2.1The brief nature of the litigation is as follows. 2.2Chong Sang, Tai Wing and their elder brother (‘Tai Chi’) had been doing business together. In 1993, Unit 16G was acquired by Tse’s Basketball, a company jointly owned by them. By an agreement reached in 1994 (‘the 1994 Agreement’), they divided up their business such that Unit 16G was stated to be owned by Tai Wing and Chong Sang. A day after the 1994 Agreement, Tse’s Brother was incorporated with Chong Sang and Tai Wing as the only two directors and shareholders. It is common ground that they were also equal shareholders despite a slight variance in their registered shareholdings. Then, three months later in March 1995, Unit 16G was transferred to Tse’s Brothers. Chong Sang and Tai Wing had been doing business together through Tse’s Brothers and some other companies. One of the businesses is a loudspeaker factory located at No 21 Factory. 2.3In about 2005/2006,Chong Sang and Tai Wing decided to split up their businesses. Tai Chi was asked by their mother to assist them. There was no dispute that they entered into the Share Distribution Agreement. 2.4Chong Sang’s claim is that they had further entered into three other agreements (collectively referred to as the ‘Composite Agreement’), whereby Tse’s Brothers held Unit 16G in trust for them equally. The three other agreements were described by the Judge as the 3 Disputed Agreements. Subsequently, the parties made the 2007 Share Transfers to redistribute their ownership in various Hong Kong companies whereby Tai Wing became the sole owner of Tse’s Brothers. Chong Sang said they further entered into the Oral Agreement whereby it was agreed that Unit 16G was to be occupied by Chong Sang’s camp rent free for as long as Tai Wing’s camp could occupy a factory in the Mainland (‘No 21 Factory’). 2.5Tai Wing, however, said there was no Oral Agreement but instead the parties had entered into the Final Agreement whereby the ownership of the Hong Kong companies was settled in the 2007 Share Transfers and the sharing of assets in the Mainland should be negotiated in future. 2.6In order to understand the case fully, it is necessary for me to refer to the background of the case which is based mainly on the summary by the Judge. 2) The beginning 1981 - 1995 2.7In 1981 the three brothers set up a business of reprocessing of plastic products under a company called Tse’s Basket Ball Products Limited/謝氏籃球製品廠有限公司(‘Tse’s Basketball’). Their respective interest in Tse’s Basketball was as follows :
2.8The three brothers had all along worked together to build up their family business until the division in 1994. 2.9Kinghall was established on about 4 June 1985. 2.10Chong Sang was mainly in charge of the production side of their business, whereas Tai Chi and Tai Wing were respectively in charge of finance and sales. 2.11In 1987, the factory for the production arm was relocated from Hong Kong to the Mainland and the production factory then known as「謝氏製品廠」was set up by Tse’s Basketball there. By a lease dated 7 September 1987 Chong Sang entered on behalf of Tse’s Basketball for the leasing of a piece of land in Jin Sha for building of factory premises thereon, for a period of 25 years commencing from 1 October 1987 and the factories were referred to as the No 1149 Factory and No 1151 Factory. The lease was later varied or terminated by agreement upon the signing of a new lease on 20 October 1991 in the name of Kinghall for the land for a period of 50 years from 1 January 1992. 2.12In 1990, a company called Double Faith Industrial Limited/再誠實業有限公司 (‘Double Faith’) was acquired by Tai Wing, and another third party, each holding one of the two issued shares. Tai Chi was initially the company secretary and later by April 1991 Chong Sang had become the company secretary. The business of Double Faith included the further processing works in sound speakers/loudspeakers and hi-fi (‘Loudspeaker Business’) and the Loudspeaker Business was since early 1990s operated by Double Faith, initially through a sino-foreign entity set up in the Mainland called Haiyin Electronic Company Limited (‘Haiyin’), with the Mainland shareholder holding 51% and Double Faith holding 49%. 2.13Unit 16G was purchased in the name of Tse’s Basketball on 21 January 1993 at HK$1,530,000. On 12 May 1993, Unit 16G was mortgaged to HSBC to secure general banking facilities. It had been used as an office for Kinghall and still is. 2.14On 13 March 1994, Kinghall (signed by Tai Wing on behalf of Chong Sang) entered into another long lease with a Mainland Co-operative entity on another piece of land upon which a number of factories were built. Amongst which two were known as No 21 Factory and No 22 Factory. Further, as one side of No 22 Factory was on another road and that part of the No 22 Factory has also been called the No 7 Factory. It was also in about October 1994, that the Mainland company/factory called 深圳市龍崗區坑梓沙田群豪製品廠(‘Kinghall Mainland Company’) was set up by Kinghall which then occupied No 22 Factory. Part of No 21 Factory was occupied by the Loudspeaker Business (‘the Loudspeaker Factory’). 3) The first division 2.15In December 1994, the three brothers decided to formally divide up the businesses and properties of Tse’s Basketball and Kinghall into two : Tai Chi on one part, and Chong Sang and Tai Wing jointly on the other part. There was a settlement agreement titled「謝氏籃球製品廠有限公司－分股協議書」dated 28 December 1994 entered into by Tai Chi as Party A and Tai Wing and Chong Sang jointly as Party B (‘1994 Agreement’). It was stated in the 1994 Agreement that upon the terms therein being complied with, Party A agreed to transfer his shareholding/interest in Kinghall to Party B and thereafter Kinghall was to be operated solely by Party B and Party B agreed to transfer their shareholding/interest in Tse’s Basketball to Party A and thereafter Tse’s Basketball was to be operated solely by Party A. 2.16The date of incorporation of Tse’ Brothers was 29 December 1994, one day after the signing of the 1994 Agreement. Chong Sang and Tai Wing were the only two directors of Tse’s Brothers, with Tai Wing registered as holding 51% of the issued shares and Chong Sang holding the remaining 49%. As mentioned before it was common ground that Chong Sang and Tai Wing were equal shareholders of Tse’s Brothers despite the slight variance in their registered shareholding. 2.17On 30 January 1995, the three brothers signed a further agreement in relation to the share transfers in the two companies. Subsequent thereto, the three of them executed a deed on 10 March 1995 in relation to the transfer of shares in the presence of Mr. Tai, a solicitor at the firm of Tai, Tang Chong. 2.18The day before the execution of the deed, on 9 March 1995, an agreement for sale and purchase and an assignment was entered into between Tse’s Basketball and Tse’s Brothers under which Unit 16G was transferred by Tse’s Basketball to Tse’s Brothers at a stated consideration of HK$2,750,000, and further on the same day, the mortgage to HSBC for general banking facilities to Tse’s Basketball was discharged. 2.19After the division, Tai Chi went on to run his own businesses including Tse’s Basketball. 2.20It was Chong Sang’s case that after the 1994 Agreement, he and Tai Wing agreed to conduct their respective businesses together and that they had been doing so since 1995 until the later split between them in 2007. It was also his case that pursuant to the 1994 Agreement, Unit 16G was to be beneficially owned by Tai Wing and Chong Sang in equal shares and Tse’s Brothers held Unit 16G on trust for them. 2.21There was dispute as to the nature of Chong Sang’s holding of 4,000 shares in Double Faith. Chong Sang said he was invited by Tai Wing to invest in Double Faith. This was denied by Tai Wing who said that Chong Sang was all along his nominee in Double Faith. The Judge found against Tai Wing on this issue. 2.22Subsequent to 1995, another company called Shinwoo Electronics Company Limited/信宇電子有限公司(‘Shinwoo’) was established. According to Tai Wing, this company was established by him and a Korean investor to set up a Mainland factory for plastic coating on fabrics, and when the Korean investor withdrew, Tai Wing asked Chong Sang to hold the shares as nominee for him and later in about 1998/1999, they used Shinwoo to invest in properties and there had been no business operation since. 2.23Chong Sang’s evidence was on the other hand it was the agreement and understanding between him and Tai Wing that they owned equal stake in their businesses and properties. In particular, they owned or held equal shares in the following four Hong Kong companies (‘4 Companies’) up until the 2007 Share Transfers (as defined later) :
2.24In respect of the 4 Companies :
2.25The businesses of Chong Sang and Tai Wing appeared to flourish. On 1 July 2001, Kinghall entered into another long lease where Zhang Feng Factory長豐厰房 (‘Zhang Feng Factory’) is located. It was Tai Wing’s evidence that the Zhang Feng Factory was adjacent to the No 1151 Factory and that this was purchased by him and Chong Sang jointly. 2.26On 8 January 2002, Double Faith further entered into another long lease and the Long Tin Factory built thereon was also for the use of the Loudspeaker Business. 2.27On about 22 January 2003, 大海音電子(深圳)有限公司(‘DHY (SZ)’) was established in Shenzhen as a wholly foreign owned enterprise of Double Faith, for operating and/or taking over the Loudspeaker Business from Haiyin. 2.28No 21 Factory was mainly occupied/used by the Loudspeaker Factory and/or DHY (SZ), but part of it, also used as a warehouse by Kinghall Mainland Company. No 22 Factory was occupied/used by Kinghall Mainland Company, although there were about four buildings on No 22 Land with iron sheet roofs/鐵皮屋 (‘Iron Roof Buildings’) and two of which were used by the Loudspeaker Factory/DHY (SZ) for production of the covering cloth for the exterior of the loud speakers「布車間」(‘Cloth Factory’). 4) The second division 2.29Tai Wing claimed that from 2004 there were disputes between him and Chong Sang over their businesses. 2.30According to Chong Sang, in February 2006, he discovered that without his prior knowledge and consent, Tai Wing had transferred or procured the transfer of Double Faith’s interest in DHY (SZ) to a company called Kingswell Investments Limited/海音投資有限公司(‘Kingswell’), incorporated in Hong Kong on 17 November 2005 by Tai Wing without Chong Sang’s knowledge. Further, on the same day, Chong Sang was removed as a director of DHY (SZ) without his knowledge and consent and replaced by one Ng Siu Ho (‘Ng’). Ng is the son of their sister. 2.31The transfer agreement was dated 20 December 2005 and was signed by Mr Lee as director of Double Faith and Tai Wing on behalf of Kingswell and the transfer was said to be at a consideration of HK$100,000 (‘DHY (SZ) Transfer’). It was Chong Sang’s case that the DHY (SZ) Transfer was without his authorisation and that his signatures on two Double Faith minutes dated 17 November 2005 approving the transfer and the replacement of himself as a director and Ng’s appointment as director of DHY (SZ) were forged (‘Forged Minutes’). 2.32Tai Wing admitted that Chong Sang’s signatures on the Forged Minutes were signed by him on behalf of Chong Sang, and his explanation was that this was because Chong Sang never had any beneficial interest in Double Faith and was only holding 4,000 shares as his nominee, and that Chong Sang was only appointed as a director of DHY (SZ) because he was a registered shareholder of Double Faith. As stated earlier, the Judge rejected Tai Wing’s allegation that Chong Sang was merely a nominee shareholder for him. The Judge further rejected Tai Wing’s later allegation that he only agreed to Chong Sang having equal shares in Double Faith/DHY (SZ) after repayment to Tai Wing of his initial capital investment. 2.33Thereafter, the two brother’s relationship deteriorated and Chong Sang proposed to Tai Wing to split up their businesses. In the process, Tai Chi was asked by their mother to assist Chong Sang and Tai Wing in their separation. According to Chong Sang, Tai Chi was the agent of Tai Wing, and on his behalf had entered into four agreements (‘4 Agreements’) which formed part and parcel of a composite agreement (‘Composite Agreement’). It was Chong Sang’s case that under the Composite Agreement, amongst other things, Unit 16G was agreed to be owned by Chong Sang and Tai Wing equally. 2.34It was also Chong Sang’s case that Tai Chi had taken the 4 Agreements to the solicitor Mr Tai, and that subsequently there were various share transfers effected in 2007 (‘2007 Share Transfers’), and that shortly before the execution of the relevant transfer documents, an oral agreement was also reached between Chong Sang and Tai Wing (through Tai Chi) whereby it was confirmed and agreed that, amongst other things, Unit 16G was to be owned by Chong Sang and Tai Wing equally and that Chong Sang and/or persons nominated by him could occupy Unit 16G rent free for as long as Tai Wing/Loudspeaker Factory and/or persons nominated by him could occupy No 21 Factory/Loudspeaker Factory pending further resolution on or after 31 December 2011 (‘Oral Agreement’). 2.35On the other hand, Tai Wing’s evidence was that, save for the Share Distribution Agreement (as defined later), it was only in May 2007 when he, Tai Chi and Chong Sang went to Mr Tai’s office that he first saw the other three of the 4 Agreements, namely the 1st Agreement, the 2nd Agreement and the Addendum (these documents were collectively referred to as ‘3 Disputed Agreements’). It was Tai Wing’s case that he had never authorised Tai Chi to enter into the 3 Disputed Agreements on his behalf and that he had never agreed to the terms thereof. Tai Wing denied there was the Oral Agreement. The Judge accepted Chong Sang’s case of the Oral Agreement. 2.36Further, according to Tai Wing, Mr Tai had advised those present that he was unable to assist regarding the transfer of assets in the Mainland and that notwithstanding this, there was a final agreement reached at the office of Mr Tai in May 2007 between him and Chong Sang that Chong Sang’s shareholding in Tse’s Brothers and Double Faith (together with their respective holding assets which were situated in Hong Kong including Unit 16G) be transferred to Tai Chi as nominee of Tai Wing and Tai Wing’s shareholdings in Kinghall and Shinwoo (together with their respective holding assets which were situated in Hong Kong) be transferred to the children of Chong Sang and the ownership of the holding assets of the 4 Companies which were situated in the Mainland should be negotiated in future (‘Final Agreement’). 2.37It was Tai Wing’s case that the 2007 Share Transfers were effected pursuant to the Final Agreement. Chong Sang denied there was the Final Agreement. The Judge rejected Tai Wing’s claim that there was the Final Agreement. 2.38The 2007 Share Transfers were effected by Instruments of Transfer and the Bought and Sold Notes all dated 5 July 2007 but they were not actually signed by all the transferors and transferees on that day. 2.39Prior to the 2007 Share Transfers, the registered shareholdings of the 4 Companies were :
2.40Pursuant to the 2007 Share Transfers :
2.41Thus, as a result of the 2007 Share Transfers, Tai Wing (through himself and Tai Chi) became the sole owner of Tse’s Brothers and Double Faith, and Chong Sang and his children became the sole owner(s) of Kinghall and Shinwoo. 2.42After the 2007 Share Transfers, according to Tai Wing, every one carried on as before peacefully for a while, namely he/DHY (SZ) continued to occupy the Loudspeaker Factory/No 21 Factory, and Chong Sang/Kinghall Mainland Company continued to occupy part of No 21 Factory and No 22 Factory, and also Unit 16G. However, not long thereafter Chong Sang started to complain that he received less than Tai Wing from the division, and their mother asked Tai Chi to mediate again. It was Tai Wing’s and Tai Chi’s evidence that a further agreement was then reached between Tai Wing and Chong Sang through the mediation of Tai Chi (‘Mediated Agreement’). This was denied by Chong Sang. The Judge rejected Tai Wing’s allegation of the existence of the Mediated Agreement. 2.43Anyway, it was not disputed that the Cloth Factory was soon vacated by Tai Wing/DHY (SZ) in about 2007/2008. Afterthe Cloth Factory was vacated, the Iron Roof Buildings on No 22 Land were demolished and a new four‑floor factory was then built thereon. 5) The Hong Kong actions 2.44The mother passed away in September 2011. Not long after, the conflict between Chong Sang and Tai Wing flared up again concerning the occupation of the factories. 2.45There were reports made to the Mainland police/security bureau by Chong Sang, and it would appear that by about September 2012, both No 21 Factory and No 22 Factory were taken over by Tai Wing/ Tai Wing camp and they had rented the factories out to tenants. 2.46The disputes between the two brothers had led to Chong Sang/Kinghall demanding the return of No 21 Factory and No 22 Factory and Tai Wing/Tse’s Brothers demanding the return of Unit 16G. 2.47Tse’s Brothers instructed solicitors to write to Kinghall and Skygift, initially on 2 June 2012 a ‘without prejudice subject to contract’ letter (‘WP Letter’), demanding vacant possession of Unit 16G or alternatively that the two companies enter into a tenancy agreement to pay rent as from 1 July 2012, and having received no response thereto, a letter dated 4 July 2012 was sent to Kinghall and Skygift demanding the two companies to deliver up vacant possession of Unit 16G (‘Notice to Quit’). Kinghall and Skygift did not do so and they denied Tse’s Brothers’ entitlement to such demand. As a result, Tse’s Brothers issued the 1st Action on 31 July 2012 against Kinghall and Skygift seeking vacant possession of Unit 16G. 2.48This was followed by Chong Sang issuing the 2nd Action on 28 December 2012. 6) The Mainland litigations 2.49The two actions also sparked off litigations in Mainland China (‘Mainland Litigations’). 2.50In early 2013, Kinghall issued a claim against Tai Wing in the People’s Court in Long Gang District in Shenzhen (Claim No 78/2013) in which Kinghall sought a confirmation that it had the right to occupy both No 21 Factory and No 22 Factory. The claim was dismissed. This claim is not relevant to this appeal. 2.51In 2015, Kinghall issued another claim in the Long Gang People’s Court against, amongst others, Tai Wing, under Claim No 570 of 2015, claiming, amongst other things, for the delivery up of No 21 Factory and No 22 Factory (including the No 7 Factory) to Kinghall. Tai Wing had sought a dismissal of this claim. A decision was eventually handed down by Long Gang People’s Court on 23 January 2018 (‘570/15 Decision’), just two months before the trial below. The Long Gang People’s Court ordered Tai Wing to deliver up both No 21 Factory and No 22 Factory to Kinghall, and to pay compensation. The 570/15 Decision was later overturned. The Shenzhen Intermediate People’s Court has by a decision dated 12 November 2018 set aside the 570/15 Decision and dismissed Kinghall’s application for the delivery up of the No 21 Factory and No 22 Factory (including the No 7 Factory) to Kinghall. The Court further ruled that the construction of the factory buildings on the No 21 Land and No 22 Land was without the approval of the relevant authority and therefore they were all unauthorised buildings, hence the parties’ respective claim and counterclaim were not within the jurisdiction of the People’s Courts. This decision was subsequently affirmed and upheld by a decision of the High People’s Court of Guangdong dated 24 December 2020. 7) The agreements (1) The Composite Agreement 2.52The Composite Agreement relied on by Chong Sang consisted of the 4 Agreements which are summarised by the Judge as follows :
(2) The Share Distribution Agreement 2.53The Share Distribution Agreement was a typed agreement dated 11 April 2006 and signed by Chong Sang on the one part and on the other part signed by Tai Chi on behalf of Tai Wing, and further signed by Tai Wing as a witness. It set out four points in relation to the division of the shares of three companies, DHY (SZ), Kinghall and Tse’s Brothers, namely :
(3) The 1st Agreement 2.54The 1st Agreement was undated and handwritten by Tai Chi who wrote that according to the information provided by the two sides, he had summarised five points, namely :
(4) The 2nd Agreement 2.55The 2nd Agreement was undated and handwritten by Tai Chi setting out in the opening sentence that「現在在壯生，大穎，兄弟在互相互讓及兄弟之情誼，作出以下的協議」, namely that ‘Chong Sang and Tai Wing made the following agreement with mutual concessions and brotherly friendship’, and thereunder Tai Chi set out the following terms : i) In relation to the arrangements of the businesses and the Mainland assets : a) The business of Kinghall in Jinsha, machinery and tools and factory premises, including the original Jingsha Factory, the original Zhang Feng Factory, the No 22 Factory, to belong to Chong Sang; b) The business of DHY (SZ) in Hang Tze town, machinery and tools and factory premises, including the Long Tin Factory, Loudspeaker Factory/No 21 Factory, to belong to Tai Wing; Remark: the two brothers discussed amicably for Tai Wing to lend the dormitory, the 4th and 5th floors of No 21 Factory for use of Chong Sang for five years, and then to discuss further as to who would have a greater need for those premises; at the same time Tai Wing had to vacate the Cloth Factory on the east side of the 2nd Shenzhen Land within two years; c) In relation to the assets in Hong Kong, the brothers agreed to take out Unit 16G for the use of Chong Sang, but the title not to be transferred in the interim and only to be transferred when the matter of No 21 Factory is resolved. (No need for valuation of all the assets and properties under A, B, C under item (1) above「均不作價」). ii) In relation to the shareholding and assets of Kinghall, Tse’s Brothers, Shinwoo : a) Tai Wing agreed to transfer his shareholding in Kinghall and Shinwoo to Chong Sang, including all assets (listing out all properties held by Kinghall and Shinwoo) which would belong to Chong Sang; b) Chong Sang agreed to transfer his shareholding in Tse’s Brothers to Tai Wing, including all assets (listing out all properties held by Tse’s Brothers, except Unit 16G) which would belong to Tai Wing. All the properties in A, B under item (2) had to be valued/at a price「要作價」, and the valuation to be carried out by solicitors Messrs Tai Tang Chong (Mr Tai’s firm), and the transfer of the shares and the properties after valuation, would be distributed to Chong Sang and Tai Wing in equal shares, and any differences would be paid at the solicitors’ office. (5) The 1st Addendum 2.56As mentioned earlier, there were three versions of the 1st Addendum but the main body of all three versions consisted of the same four points :
III. The Issues 3.1The Judge summarised the disputed issues as follows :
3.2In respect of the first issue, the Judge held that Tse’s Brothers held Unit 16G on resulting trusts for Chong Sang and Tai Wing equally :
3.3In respect of the second issue, the Judge held that Tai Chi was an arbiter, arbitrator or adjudicator, but he was not an agent of Tai Wing :
3.4In respect of the third issue, the Judge held for Chong Sang :
3.5In respect of the fourth issue, the Judge held that proprietary estoppel was established.
IV. Tai Wing’s appeal 4.1Seven grounds of appeal are relied upon by the Tai Wing camp. Mr. Li SC (together with Mr. Yuen) for the Tai Wing camp accepted that the appeal is primarily a challenge in law under Grounds 1 and 2 and the appeal should be allowed based on these two grounds alone. The other grounds, if established, will supplement the overall appeal but are not individually decisive. 1) Ground 1 (1) Tai Wing’s arguments 4.2Mr Li argued that the Judge erred in law in finding that upon the transfer of Unit 16G on 9 March 1995 from Tse’s Basketball to Tse’s Brothers, the latter is only the legal owner of Unit 16G and is holding the beneficial interest for Chong Sang and Tai Wing upon a resulting trust. In a case where a property is held by a limited company with funds provided by its shareholders, the rebuttable inference is that the beneficial interest was intended to pass to the company. The burden is on the shareholder who claims there is a trust in his favour to rebut the inference by proving the parties’ intention. It is in stark contrast to a case of non‑corporate context where the rebuttable presumption is that the provider of the funds has a beneficial interest in the property by resulting trust : Lo Man Yau v Chiu Sung Fai & Or [2018] HKCA 387 at [12-13]. In other words, the shareholder cannot simply say a resulting trust arises by relying on the absence of payment made by the company. He has to prove something more, i.e. intention. That intention must be the common intention of both Chong Sang and Tai Wing. 4.3Mr. Li argued that the Judge was wrong to rely solely on the absence of payment by Tse’s Brother in respect of the transfer of Unit 16G to say that a resulting trust had arisen and that the burden was shifted to Tai Wing/Tse’s Brothers to prove otherwise. He argued that absence of payment is irrelevant and referred to Re Hansby HCMP 4610/2003, 12 May 2004 where Barma J (as he then was) said at [20] and [22] : (1) if a company were intended to be a bare trustee, there would have been no point in its existence; and (2) it is common for persons to acquire property through a limited company, and to advance funds by way of loan to the company in order to enable it to acquire the property, which it will own beneficially. He further argued that the legal position is that a settlor can intend a trustee to have both the legal and beneficial interest, Snell’s Equity 34th Ed [25‑027] and [25‑028]. He argued that Chong Sang had failed to discharge his burden at all. The Judge has overlooked the fact that Chong Sang has failed to adduce any evidence to prove that Unit 16G had not been injected into Tse’s Brothers as capital assets when Tse’s Brothers has genuine business of trading operation and properties investment, whether by way of capital contribution or shareholder loans by Chong Sang and Tai Wing. Chong Sang should have discharged such burden by producing the accounts of Tse’s Brothers after Unit 16G was assigned to it. The failure to do so is fatal to Chong Sang’s case on resulting trust especially when the Judge acknowledged that the available account of Tse’s Brother showed that Unit 16G was recorded as an asset of Tse’s Brother and that all rates and related expenses of Unit 16G were paid by Tse’s Brother. 4.4Mr. Li argued that the Judge further erred in law in taking into consideration the evidence of Chong Sang in his witness statement that he and Tai Wing merely nominated Tse’s Brothers to hold Unit 16G in trust for them. The alleged nomination which was essential to Chong Sang’s case of trust has not been pleaded but just slipped into Chong Sang’s witness statement. Chong Sang could only have succeeded by relying on common intention constructive trust. But it is neither his pleaded case, nor the way he argued in the trial, nor being the basis of finding by the Judge. 4.5The Judge also erred in law in finding that all three brothers (Tai Chi, Chong Sang and Tai Wing) have treated the landed properties of their companies as their own properties based on the 1994 Agreement and the Share Distribution Agreement. If the landed properties of their companies were all intended to be held on trust for them equally, there was no need to negotiate distribution of assets in 2006. The true purpose of those agreements was for the division of assets amongst the siblings and not being the records or evidence of the parties’ intention when the properties were transferred to the companies. 4.6It has often been said that context is everything in a case. In my view, this is more so in this case. For all intents and purposes the two brothers had regarded the assets in their business belonged to them jointly. This is reflected in the 1994 Distribution as a result of which Tse’s Basketball held Unit 16G in equal shares by Tai Wing and Chong Sang. It is important to recognize the family context in which the division was made. The brothers had actually used the term 分 家 (Fan Ga), a term usually connected with the division of family assets between its members. Tse’ Basketball was the corporate vehicle holding the unit on trust for these two brothers equally. This was accepted by the Tai Wing camp in the court below and this must be the basis and starting point of the inquiry. When this unit was later transferred to Tse’s Brothers, there is no indication that this agreement and arrangement had, somehow, been changed by the change in the corporate vehicle which holds this property. The principles in Lo Man Yau, Re Hansby and Snell’s are not disputed. Lo Man Yau is concerned with a purchase of a property made in the name of company. Re Hansby deals with the situation where an asset is purchased in the name of a company and the question arises as to whether the purchase would vest equitable title separately in the shareholders. But to rely on these authorities is to ignore the context or the factual matrix of this case. The facts of this case is clearly different when the parties had already accepted before the transfer to Tse’s Brothers that each of them had an equal beneficial interest in Unit 16G which was held on trust for them by a corporate vehicle. 4.7As to Mr. Li’s argument that Unit 16G was injected to Tse’s Brothers as a capital asset and as a result, according to the authorities, the legal and beneficiary interest vested in Tse’s Brothers and the two brothers do not have any beneficial interest in the property, there is no evidence that the two brothers ever intended to inject Unit 16G as a capital asset to Tse’s Brothers. It is not in dispute that notwithstanding the unit was said to have been sold to Tse’s Brothers for a consideration of $2,750,000, this sum was not paid at all by Tse’s Brothers and Tse’s Basketball had not received this sum. It is impossible, given the nature of this transaction together with the other evidence available to the Judge below, for the Court to hold that Tse’s Brothers hold Unit 16G solely as its own asset and without the imprint of a trust. Mr. Li referred to the absence of accounts. I fail to see the relevance of this, bearing in mind the actual legal documents relating to the sale of Unit 16G did not reflect the real position in respect of the payment and receipt of the consideration. 4.8Further, the fact that Tse’s Brothers held the property in trust for Tai Wing and Chong Sang equally is further supported by other evidence. Starting with the 1994 Agreement, the Judge held :
4.9The Judge also referred to the 2nd Agreement which provided that Unit 16G was to be 100% Chong Sang’s but the title was not to be transferred until the matter of the occupation of the No 21 Factory had been resolved in five years’ time. The Judge then held that Unit 16G was 50/50 was, in fact, part of the four points stated in the 1st Addendum. She held :
4.10The Judge also referred to other documents which supported Chong Sang’s view that Unit 16G is held on trust by the two brothers equally, namely :
4.11The Judge referred to the fact that Chong Sang had collected the title deeds to Unit 16G which remained in his possession after the signing of the relevant documents for the 2007 share transfers. The Judge further accepted Chong Sang’s evidence that Tai Chi had made oral admissions during a family gathering on 23 June 2012. On that occasion Tai Chi admitted that Kinghall and Skygift should pay the whole of the rent first and that half of the rent would be returned to Chong Sang after one year so that the rent would be equally distributed between Chong Sang and Tai Wing. Tai Wing himself on 27 July 2012 said he was reneging on what he had agreed in relation to Unit 16G. 4.12Mr. Li also submitted that Chong Sang had not properly identified the nature of the trust be it resulting trust or common intention constructive trust. The Judge had, in fact, addressed this argument :
4.13In my view, the Judge’s finding that Tse’s Brothers held Unit 16G on trust for Chong Sang and Tai Wing is fully supported by the evidence. Even for the purposes of argument, Chong Sang bears the burden of rebutting the presumption that the beneficial interest belongs to the company, he had fully rebutted the presumption. 4.14Accordingly Ground 1 does not provide valid reasons for upsetting the Judge’s finding on this issue. 2) Ground 2 4.15Mr. Li argued that the Judge had rejected Chong Sang’s pleaded case that Tai Wing through his agent, Tai Chi, entered into the Composite Agreements with Chong Sang but she erred in law in finding that Tai Chi was an arbiter/arbitrator/adjudicator in the negotiation of division of business and assets between Chong Sang and Tai Wing. The finding was not supported by evidence and it was not the pleaded case of Chong Sang. It should be overruled as it is not supported by evidence and/or the Judge had misdirected herself on this matter (United Muslims Association of Hong Kong v Yusuf Yu [2018] 4 HKLRD 22 at [38-41]). The finding that Tai Chi was authorized by Chong Sang and Tai Wing to decide on how to equally divide their assets was contrary to the oral evidence of Chong Sang that (1) the general practice was that Tai Chi after getting any information from either younger brother would have to negotiate with the other brother and Tai Chi would only write down the agreement after both Chong Sang and Tai Wing reached a consensus; and (2) the 2nd Agreement was proposed by Tai Wing and the 1st Addendum was a counter proposal made by Chong Sang. Thus, the further finding that the Composite Agreement was binding on Tai Wing as they were made out by Tai Chi on the basis of the latter’s role as an arbiter/arbitrator/adjudicator is wrong. 4.16In my view, it is correct that the only pleaded case of Chong Sang was that Tai Chi acted as an agent for Tai Wing. The other capacity of Tai Chi as found by the Judge was not pleaded by Chong Sang. However, as submitted by Mr. Suen (together with Mr. Cheung) for the Chong Sang camp and I agree, the Judge did not rely on her ruling that Tai Chi is an arbiter/arbitrator/adjudicator to find that Tai Wing accepted the Composite Agreement. Instead, she made express findings of Tai Wing’s knowledge and acceptance of the contents of the Composite Agreement. Similarly, for the same reason it is irrelevant that the Judge had rejected Chong Sang’s case on agency. 3) Grounds 3 and 5 4.17Mr. Li argued that the Judge erred in law in finding that Tai Wing was fully aware of what was written in the 3 Disputed Agreements, and had at the time accepted and agreed to what was written therein. As a matter of law, objectively the 3 Disputed Agreements were not made for the following reasons :
4.18The Judge also erred in failing to consider that the Composite Agreement is unenforceable in that it lacks contractual force for want of certainty of terms and it was not intended to be legally binding. It is the finding of the Judge that the 4 Agreements formed part and parcel of the Composite Agreement as pleaded by Chong Sang. (Ground 5) 4.19Grounds 3 and 5 can be dealt with together. In my view they should be rejected for three reasons. First, many of the matters now relied upon by Tai Wing in respect of the Composite Agreement such as contradictory provisions, incomplete, uncertainty of terms and lack of performance were not relied upon by the Tai Wing camp before the Judge. These arguments which involve evidence were simply not advanced in the court below. Accordingly, Tai Wing is barred from relying on these grounds under the Flywin principle. The second reason for rejecting Grounds 3 and 5 is that, as the Judge had pointed out, the actions were not over whether the Composite Agreement or the Oral Agreement was enforceable when neither side was seeking any specific performance or damages for breach of contract. The real issue is whether the trust existed as evidenced by, among other things, documents including the 1st Addendum. Third, in so far as these grounds challenge the findings of fact by the Judge, Tai Wing camp had not shown that such findings were plainly wrong which is the threshold for the Court of Appeal to upset any findings of fact by the Judge who had the benefit of observing the demeanour and evidence of the witnesses at first hand. 4) Ground 4 4.20Mr. Li argued that the Judge erred in relying on a number of documents and matters as listed in the judgment in support of her finding that Tai Wing did agree to the terms of the 2nd Agreement and the 1st Addendum. These documents and matters at most showed the subjective intention of Tai Wing which is irrelevant in deciding whether the parties had the contractual intention to enter into the Composite Agreement as alleged and relied on by Chong Sang. 4.21I disagree. The Judge’s reliance on the documents and admissions went beyond merely showing the subjective intention of Tai Wing. On the contrary, the documents and admissions relied upon by the Judge are evidence of Tai Wing’s knowledge and acceptance of the Composite Agreement. It has not been shown such findings are plainly wrong. 5) Ground 6 4.22Mr. Li argued that the Judge erred in accepting the existence of the Oral Agreement but not the Final Agreement. 4.23I disagree. Again Tai Wing camp had failed to show that the Judge’s acceptance of the Oral Agreement and rejection of the Final Agreement was plainly wrong. 6) Ground 7 4.24Mr. Li argued that the Judge also erred in finding that Chong Sang’s case on proprietary estoppel was established on the basis that the parties had entered into the 2nd Agreement, the 1st Addendum and the Oral Agreement. But he accepted that Ground 7 will rise and fall together with the other grounds. This being the case, as I have rejected the other grounds of appeal, Ground 7 likewise fails. 4.25Accordingly Tai Wing’s appeal is dismissed. V. Chong Sang’s appeal 5.1Chong Sang appeals on the decision on mesne profits. The Judge referred to the 570/15 Decision where the Long Gang People’s Court ordered Tai Wing to deliver up and return both No 21 Factory and No 22 Factory to Kinghall and to pay compensation to Kinghall calculated by reference to rent from the tenants as from January 2013 onwards. She held that by this decision as from January 2013 onwards, Tai Wing’s occupation of the factories on a rent-free basis had ended. This would mean that the arrangement under the Oral Agreement was brought to an end by January 2013. As Chong Sang is only 50% owner of Unit 16G, she held he will have to pay 50% of the mesne profits to Tai Wing/Tse’s Brothers, and 50% of the Related Expenses as from January 2013 onwards. As noted, the 570/15 Decision was overturned. 5.2Mr. Li accepted that if the Tai Wing camp fails in its appeal, the appeal by Chong Sang should be allowed. 5.3On that basis, Chong Sang’s appeal is allowed. IV. Costs 6.Costs of appeal be to Chong Sang with certificate for two counsel.
Mr. Jenkin Suen SC and Mr. Tommy Cheung, instructed by S. K. Wong & Co., for the 1st and 2nd Defendants (in CACV 371 & 391/2018) and the Plaintiff (in CACV 372 & 392/2018) Mr. C. Y. Li SC and Mr. Ross M.Y. Yuen, instructed by Jun He Law Offices, for the Plaintiff (in CACV 371 & 391/2018) and 1st and 2nd Defendants (in CACV 372 & 392/2018) |
Cases cited in this judgment
Further hearings and rulings under CACV 372/2018