Soshila Keswani v. Motiram Keswani

CACV 26/2020

[2022] HKCA 543

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 26 OF 2020

(ON APPEAL FROM DCCJ 579 OF 2013)

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Before:  Hon Kwan VP, Cheung and Chu JJA in Court

Date of hearing and judgment:  20 March 2021

Date of Reasons for Judgment:  27 April 2022

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REASONS FOR JUDGMENT

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Hon Chu JA (giving the Reasons for Judgment of the Court):

Introduction

1.This is the plaintiff’s appeal against the judgment of His Honour Judge Edmond Lee (“the Judge”) given on 31 January 2019 dismissing the plaintiff’s claim and entering judgment for the defendant on his counterclaim with costs of the action. Leave to appeal was given by this Court (Kwan VP and Cheung JA) on 6 January 2020[1].

2.At the appeal hearing, after hearing counsel, we allowed the appeal, dismissed the Respondent’s Notice and set aside the Judge’s judgment. We entered judgment for the plaintiff for an order that the defendant gives an account of the income received from the Property (as defined below) and remitted the case to the District Court for directions to be given on the taking of account. We also dismissed the counterclaim and ordered the defendant to pay the plaintiff the costs of the appeal[2] and of the action. Our reasons appear below.

Background

3.The plaintiff and the defendant are siblings. Their parents, Ratanchand Keswani (“Father”) and Wong Sui Yeung (“Mother”) had five children. The defendant is the eldest son, followed by three sons, Hira, Viroo and Ramchand (respectively “the 2^nd brother” to “the 4^th brother”), and the plaintiff is the youngest child and the only daughter of the family.

4.Father passed away on 4 July 1961 and Mother passed away on 23 May 2001. Hira also passed away in 2003.

5.The dispute between the parties relates to a building situated at No. 50C Wing Hong Street, Kowloon (“the Building”), which was acquired by Father in 1958.

6.By his will dated 17 November 1960 (“Father’s Will”), Father bequeathed the whole of the ground floor of the Building (“Ground Floor”) to the plaintiff, and the front and rear portions of the 1^st to 5^th floor of the Building (“the Property”) to Mother. It was stipulated in Father’s Will that: “The [Building], or any parts of [the Building], must not be sold or mortgages [sic] to anyone in any ways, but could be transferred to their children on the same conditions.” (“the Restriction”)

7.After Father’s death and by an assignment dated 22 October 1968, Mother became the registered owner of the Property which, as provided in the assignment, was subject to the Restriction.   

8.Mother died on 23 May 2001 leaving a will dated 27 September 1991 (“Mother’s Will”) appointing the defendant as the executor and bequeathing the Property to the four sons. The plaintiff was not a beneficiary under the will. Probate of Mother’s estate was granted to the defendant on 28 June 2002.

9.There is no dispute that after Mother’s death, a Deed of Family Arrangement dated 13 June 2002 (“the Deed”) and a Vesting Assignment dated 3 September 2002 (“the Assignment”) were executed by all the siblings, including the plaintiff and the defendant. Both documents were prepared by Ho & Wong, a firm of solicitors, and Ms Julianna Chu (“Chu”) was the handling solicitor. The parties’ dispute concerns the circumstances leading to the preparation and execution of the two documents and their validity.

10.By the Deed, the siblings agreed that the Property was to be shared equally by all five of them, including the plaintiff, and the defendant, as executor of Mother’s estate, was to assign the Property to them in equal shares. Paragraph (1) of the recital referred to the Restriction and the fact that Mother became the registered owner of the Property subject to it. Paragraphs (3) and (6) of the recital, which are of particular relevance to the dispute between the parties, state as follows:

“(3) Doubt occurred as to whether the last Will of the Deceased Mother is in breach of the condition aforesaid as contained in the last Will of the Deceased Father and repeated in the Assignment since the class of children of the Deceased Mother should include the 1^st, 2^nd, 3^rd, 4^th and 5^th Beneficiaries.”

“(6) For the purposes of avoiding any title defects which may arise out of the different ways of interpretation of the condition contained in the Assignment which might be contradictory to the gift contained in the Will of the Deceased Mother, and in consideration of their natural love and affection for each other, the parties hereto have agreed to distribute the Property in manner hereinafter contained.”

11.By the Assignment, the defendant, as executor of Mother’s estate, assigned the Property to the five siblings as tenants in common in equal shares.  

12.The defendant executed the Deed and the Assignment in his capacity as the executor of Mother’s estate as well as a beneficiary under the arrangement set out in the Deed. The other siblings, including the plaintiff, executed the documents as the beneficiaries. Except the 4^th brother, Ramchand, all the siblings executed the Deed and the Assignment in the presence of Chu. In the case of Ramchand, he executed the Deed in Australia in the presence of a notary public, and the Assignment in Hong Kong in the presence of Chu.

13.The Deed and the Assignment were both registered in the Land Registry shortly after their execution.

14.It is not disputed by the defendant that the Property has been let out and he has, since the death of Mother in 2001, been collecting the rental income from the Property. He stated in his witness statement that he divided the rental income into four shares and sent one share each to Viroo and Ramchand, but not to Hira[3].

DCCJ 579/2013

15.On 15 February 2013, the plaintiff commenced proceedings in the District Court against the defendant (DCCJ 579/2013). Based on her entitlements under the Deed and the Assignment, the plaintiff sought to recover from the defendant her share of the rental income from June 2001 together with interest and also for an order that the defendant shall pay her 1/5^th of the income to be received by him in the future and provide to her the breakdown of the rental income from the Property[4].

16.The defendant disputed the validity of the Deed and the Assignment and denied that the plaintiff has 1/5^th interest in the Property. He claimed that the two documents are void and/or liable to be rescinded by reason of (1) misrepresentation made by Chu as agent of the plaintiff; (2) non est factum; and (3) alternatively, common mistake. The defendant counterclaimed for a declaration that, as between the plaintiff and the defendant, the Deed and the Assignment were rescinded and/or void.

17.Up to the conclusion of the trial, the plaintiff acted in person while the defendant was represented by solicitors and counsel.

18.The trial took place before the Judge and lasted for five days. The parties’ disputes centred around the circumstances leading to the preparation of the Deed and the Assignment, and the circumstances in which the defendant executed the two documents. Both the plaintiff and the defendant gave evidence. The defendant also called Viroo’s son, Hiro, as his witness. At the start of the trial, the plaintiff applied to subpoena Chu as a witness. The application was opposed by the defendant. The Judge heard submissions on the application from both sides. On the second day of the trial, the plaintiff withdrew the application and was ordered to pay the costs. I will come back to this when discussing the grounds of appeal.

19.In gist, the plaintiff’s evidence is that after Mother’s death, it was thought that Mother died intestate, hence Hira, the second son, suggested she applied to be the administratrix. Subsequently Hiro took her to Ho & Wong and introduced her to the partner, William Ho, who in turn referred her to Chu to deal with the application for letters of administration. The plaintiff signed the papers for the application on 22 October 2001. However, in early 2002 it became known that Mother had left a will. Her brothers (excluding the defendant) then decided that the Property should be shared by the five siblings equally. When she executed the Deed and later the Assignment, all her brothers had already signed on them. The plaintiff denied that she was the one who instructed Chu to prepare the two documents. She contended that the defendant all along was well aware that she had 1/5^th interest in the Property by reason of the Deed and the Assignment, and he had even asked her to seek legal advice about removing the Restriction.

20.The defendant’s case is that Chu prepared the Deed and the Assignment on the plaintiff’s instructions and she was thus the plaintiff’s agent. The defendant’s evidence is that, at Hiro’s suggestion, he engaged Ho & Wong to handle the application for probate of Mother’s estate. William Ho was the handling partner and he was assisted by Chu. He did not know at the time that the plaintiff had already retained Ho & Wong to apply for letters of administration. According to the defendant, in June 2001, he went to Ho & Wong, accompanied by Hiro, and signed some documents, one of which turned out to be the Deed. Later in September 2001, he again went to Ho & Wong, accompanied by Hiro, and signed another document which turned out to be the Assignment.

21.It is the defendant’s evidence that on both occasions, he was attended by Chu. Chu did not explain in detail the nature and contents of the two documents. He was under the belief that the documents were routine and standard documents for applying for probate. The defendant said that he trusted Hiro and expected he would inform him if the documents would prejudice his rights. He therefore simply signed the documents without reading them. It was after the plaintiff commenced the District Court action and after being explained by his lawyers that he came to know the contents of the two documents.

22.Hiro’s evidence is that he did not introduce Ho & Wong to the plaintiff. Neither did he know at the time that the plaintiff had retained Ho & Wong to apply for letters of administration. He said that Chu did not mention the nature of the documents when she asked him to bring his father and uncles to her office to sign documents. He separately took his father and the defendant to Ho & Wong. Similar to the defendant, he said that Chu did not explain in detail the nature and contents of the two documents.

The Judge’s judgment 

23.By his judgment handed down on 31 January 2019, the Judge dismissed the plaintiff’s claim, allowed the counterclaim and made a declaration that, as between the plaintiff and the defendant, the Deed and the Assignment were void. He also awarded costs of the action to the defendant with certificate for counsel.

24.The Judge considered the plaintiff’s evidence not credible and preferred the defendant’s evidence to hers. In coming to his conclusion on the plaintiff’s credibility, the Judge took into account the fact that the plaintiff had given inconsistent account of her finances in a claim brought by Hira (HCA 918/1991) and in her application for ancillary relief in her divorce (FCMC 9789/1996) as well as in her evidence at the trial; the defendant’s suggestion that the plaintiff had altered an answer in the Form 4 filed in the divorce proceedings; as well as inconsistency between her witness statement and oral evidence with regard to whether she knew Ho & Wong or whether she was introduced to the firm by Hiro.

25.In the case of the defendant and Hiro, the Judge considered their evidence supported each other. He rejected the plaintiff’s criticisms of their evidence, having regard to the fact that the events in question took place many years ago and the defendant was 88 years old when he gave evidence. He concluded they were honest witnesses and accepted their evidence.

26.The Judge found as a fact that the plaintiff engaged the service of Ho & Wong not on the recommendation of Hiro, and that the Deed and the Assignment were prepared by Chu on her instruction. In reaching this finding, the Judge considered that the defendant had no reason to instruct Chu to prepare the documents and there was no evidence that the other brothers had done so whereas the plaintiff was the only person with the motive to do so since she was the one who stood to benefit from the two documents. The Judge also took into account a will made by Father in 1961 (which is ineffective as it was witnessed by only one witness) bequeathing the entire Building, including the Ground Floor, to Mother. He considered that in light of Father’s testamentary intention as evidenced by this will, it was unlikely that the brothers would be prepared to give the plaintiff the largest share in the Building. The Judge further acceded to the defendant’s submission and drew adverse inference against the plaintiff for not calling Chu as a witness without any satisfactory explanation.

27.With regard to the defendant’s various defences, the Judge held that the defence of misrepresentation was not made out on the evidence. Contrary to his pleaded case, it was not the defendant’s evidence that Chu had made any representation that the two documents were for his probate application. His evidence was only that Chu did not explain in detail the nature and contents of the documents, and it was his own understanding and impression that the documents were routine, standard documents for applying for probate and would not affect his rights.

28.In respect of the defence of non est factum, the Judge, while noting that the defendant was a person of full age and capacity who should normally be bound by his signature to a document, took the view that there were special and exceptional circumstances in the case. He took into account the fact that Chu was instructed by the plaintiff, and she did not explain in detail the nature and contents of the two documents. He also considered it was understandable that the defendant signed the documents without paying much attention to them as he was then 73 years old, had retained Chu to apply for probate and had trusted Hiro to inform him if the documents would prejudice his rights. He further found there was no apparent reason for the defendant to give up part of his interests in his building, having regard to the fact that the plaintiff and the defendant were not on good terms.

29.The Judge accepted that the defendant signed the Deed and the Assignment under the mistaken belief that they were standard and routine documents for probate application. He held that the two documents were essentially or fundamentally different from what the defendant intended to execute. He further found the defendant was not negligent in signing the documents having regard to his old age, his only intention in instructing Chu was to apply for probate, and the trust he reposed in Hiro. He held that the defence of non est factum had been established.  

30.As for the defence of common mistake, the Judge held that it was not made out. This is because he had found on the evidence that the defendant signed the Deed and the Assignment under the mistaken belief that they were for the probate application, whereas the mistake relied on for the defence of common mistake was the parties’ doubt over whether Mother’s Will violated the Restriction.

31.The Judge accordingly dismissed the claim. In relation to the counterclaim, the Judge took the view that the Deed and the Assignment could be severed into separate agreements, including an agreement between just the plaintiff and the defendant. He therefore granted a declaration that the Deed and the Assignment were void as between the plaintiff and the defendant, notwithstanding that the other brothers had not been joined as parties to the action.

The plaintiff’s grounds of appeal

32.In this appeal, the plaintiff advanced three grounds of appeal as follows (respectively “Ground (1)” to “Ground (3)”) as follows:

(1)  The Judge failed to properly apply the principle of non est factum and erred in finding that the defendant was not negligent in signing the Deed and the Assignment.

(2)  The Judge failed to properly assess the evidence.

(3)  The Judge erred in granting the declaration claimed in the counterclaim without joining all the affected parties, including the defendant in his capacity as the executor of Mother’s estate.

Respondent’s Notice

33.The defendant had filed a Respondent’s Notice which sought to affirm or vary the Judgment on the following grounds:

(1)  The Judge’s holding that the Deed and the Assignment were void on the ground of non est factum should be upheld in that (i) the defendant was not negligent when he executed the two documents; (ii) the plaintiff had not pleaded that the defendant was negligent or cross-examined the defendant on this; and (iii) whether the defendant was negligent was irrelevant since the Deed and the Assignment were voluntary dispositions.

(2)  As between the plaintiff and the defendant, the Deed and the Assignment were void on the ground of common mistake in that (i) the plaintiff and the defendant both agree, or are estopped from denying, that one of the main reasons for executing the Deed was that there was doubt as to whether Mother’s Will breached the Restriction, which might create a title defect to the Property, when in fact the Restriction was void as a matter of law and Mother’s Will did not violate the Restriction; and (ii) the plaintiff and the defendant both agree, or are estopped from denying, that they entered into the Assignment on the basis that the Deed was valid when in fact the Deed was void for the reasons set out above.

(3)  The plaintiff’s claim to recover arrears for rent or damages in respect of arrears of rent that became due after 15 February 2007 is time barred by reason of section 18 of the Limitation Ordinance, Cap. 347, such that the plaintiff’s claim should only be allowed at HK$599,820.

Ground (1): Non est factum

34.For the defence of non est factum to apply, it has to be established that (i) the defendant was under a disability, whether permanent or temporary; (ii) the document he signed was fundamentally different from what he thought he was signing; and (iii) he was not careless in appending his signature to the document: Saunders v Anglia Building Society [1971] AC 1004. The defendant bears a heavy burden of proof and he must establish each of the three components.

35.As the Judge correctly noted, a person of full age and capacity is normally bound by his signature to a document. This point was highlighted by the Court of Final Appeal in Ming Shiu Chung & Others v Ming Shiu Sum & Others (2006) 9 HKCFAR 334 at [84] to [86]:

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

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

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

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

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

36.The class of persons who can avail themselves of the defence is rather limited. On the facts of this case, although the defendant was 73 years old when he signed the Deed and the Assignment, there is nothing to show that he was under any permanent or temporary disability. It is not the defendant’s evidence that he was unable to read or could not have any understanding of the documents. On the contrary, it would appear that he is conversant with the English language. This can be seen from the fact that the plaintiff wrote to him in English and that he signed his witness statement, which is in English, without the need of interpretation. With respect to the Judge, the factors he identified (see [28] above) do not amount to exceptional circumstances enabling the defendant to pray in aid the defence.

37.As to the requirement that the person must not be negligent, this refers to the need to take reasonable precautions to ascertain the character of the document before signing.

38.Mr Chang SC, who together with Mr Wong appeared for the defendant, had in his written submission sought to rely on the decision of the Australian High Court in Petelin v Cullen (1975) 132 CLR 355, which drew a distinction between asserting the defence of non est factum against an innocent party who is unaware of the circumstances in which the document came to be executed, and raising the defence against the immediate party to the document who knows or has reason to suspect that it was executed under some misapprehension as to it its character. The Australian court held that in the case of the former, the public policy favours holding the signatory to his signature whereas in the latter, the law should give effect to the public policy that requires a person not to be held to a bargain to which he has not brought a consenting mind.

39.Mr Chang argued that, on the Judge’s findings, the plaintiff was not an innocent third person and she either knew that none of her brothers agreed to the re-division of the Property into five shares or did not make enquiries as to whether they agreed. He, however, did not press the point after this Court drew attention to Woolf LJ’s judgment in Lloyd’s Bank plc v Waterhouse [1993] 2 FLR 97 at 117 and the obiter judgment in Yen Wing Choi & Others v Match Power Investment Limited (unreported) HCA 1829/2005, 24 December 2009, at [50] and [51]. It was accepted that the defendant had to prove he was not careless in signing the Deed and the Assignment.

40.Mr Lau, who appeared for the plaintiff in this appeal, challenged the Judge’s finding that the defendant was not negligent in signing the Deed and the Assignment. He submitted that on the evidence the defendant was plainly negligent. Firstly, he could have read the two documents or asked Chu to explain them before he signed. It was also pointed out that, in any event, the defendant could not have believed that it was a document for probate application because probate was granted on 8 June 2002, which was before he signed the Assignment on 3 September 2002, and the Assignment had recited the granting of probate. Secondly, the defendant was negligent in not enquiring the reasons why he had to sign twice on the Deed and the Assignment (as he was signing in his capacities as executor and beneficiary) whereas his siblings only had to sign once.

41.We agree with the submission. Neither his age nor his reliance on and trust in Hiro relieved the defendant from his duty to take care before signing the two documents. The fact that he had instructed Chu to apply for probate is of no relevance given that probate had already been granted when he signed the Assignment. We also do not think it is relevant that the defendant had no reason to agree to re-distribute Mother’s estate or that he was not on good terms with the plaintiff. In any event, it was expressly stated in the Deed that the plaintiff was included as a beneficiary to remove any doubt over whether Mother’s Will might have breached the Restriction.

42.We are further of the view that it is immaterial that the plaintiff did not plead that the defendant was negligent and had not cross-examined the defendant on this point. In the first place, the plaintiff was not legally represented in the proceedings below. More importantly, to succeed in the defence of non est factum, the defendant is required to prove that he had not been negligent or careless in executing the Deed and the Assignment. On the evidence, he had failed to discharge the burden.  

43.In short, we are of the view that the Judge’s holding that the defence of non est factum was established cannot be supported. Ground (1) was made out.

Ground (2): Assessment of evidence

44.Ground (2) is a challenge to the Judge’s evaluation of the evidence and finding of fact. The plaintiff has to overcome a high hurdle to satisfy the court that the Judge has fallen into some palpable errors which are sufficiently material to undermine his finding on the facts: China Gold Finance Limited v CIL Holdings Limited & Ors (unreported) CACV11/2015, 27 November 2015, at [16] and [17].

45.The plaintiff referred to several aspects of the evidence at the trial and submitted that the Judge had either failed to have regard to them or failed to properly assess them, such that his evaluation of the evidence and finding of fact could not stand. The defendant, on the other hand, argued that the matters identified by the plaintiff were irrelevant or immaterial to the Judge’s finding on the witnesses’ credibility and the facts. For the reasons set out below, we consider there is cause for concern over the Judge’s approach to, and treatment of, some of the evidence and, in turn, his findings on credibility and the facts of the case.

46.Firstly, it is the defendant’s case and evidence that until after the commencement of the District Court action, he did not know the contents of the Deed and the Assignment. He also disputed the plaintiff’s evidence that he was aware she has an interest in the Property. However, some of the documents adduced by the plaintiff at the trial[5] either show, or can give rise to an inference, that the defendant knew, or ought to have notice that the plaintiff has an interest in the Property. Notably, there were three documents issued by the Buildings Department in respect of the Building, namely, (i) a Fire Safety Direction dated 31 January 2008; (ii) a Building Order dated 25 June 2010; and (iii) a letter dated 1 November 2010 acknowledging completion of the work required under the Building Order dated 25 June 2010. The three documents were addressed to all the five siblings with the plaintiff being named twice as she is the owner of the Ground Floor and a co-owner of the Property. To say the least, these documents from the Buildings Department should have put the defendant on notice that the plaintiff has some interest in the Property.

47.There is also a fax dated 5 January 2006 from a firm of solicitors, Pansy Leung Tang & Chua, to the plaintiff quoting the fees for preparing a deed of rectification, a deed of family arrangement and a vesting agreement, on which the defendant had written “Confirm to proceed the above” and signed. This document supports the plaintiff’s evidence that not only did the defendant have knowledge of her interest in the Property, but he had also asked her to obtain legal advice on the removal of the Restriction.

48.Although the above documents impact directly on the credibility of the defendant’s denial that he did not know the plaintiff had an interest in the Property and his challenge to the plaintiff’s case, no mention was made of them when the Judge accepted the defendant’s evidence and rejected the plaintiff’s evidence. Also relevant to the credibility of the defendant’s evidence that he did not know the contents of the Deed and Assignment is the incontrovertible evidence that the probate of Mother’s estate was granted a few months before the execution of these documents. This was mentioned in the plaintiff’s witness statement. On the defendant’s case, he had instructed Chu to apply for probate. It is to be expected that Chu would have informed him of the grant of probate, in which case he could not have been under the impression that he was executing routine documents for the probate application when he signed the Deed and the Assignment. This aspect of evidence was not considered by the Judge when he accepted the defendant’s evidence and found he executed the two documents under the mistaken belief that they were documents for probate application.   

49.Secondly, in rejecting the plaintiff’s case and finding that the Deed and the Assignment were prepared by Chu on the plaintiff’s instruction, the Judge took into account the will made by Father in 1961 which purported to bequeath the entire building to Mother, and held that it was unlikely that the sons would be prepared to give the plaintiff the largest share in the Building in light of Father’s testamentary intention as evidenced by this will. However, it is not in dispute that this 1961 will has no effect and has never been proved. It is also not disputed by the defendant or any of the sons that the plaintiff was given the Ground Floor by Father in his 1960 will. We agree with Mr Lau’s submission that the 1961 will is irrelevant and cannot be said to reflect Father’s testamentary intention. The Judge ought not to have taken it into account when assessing the credibility of the parties’ case and evidence.

50.Thirdly, the finding that Chu prepared the Deed and the Assignment solely on the plaintiff’s instruction and that she did not explain the nature and contents of the documents to the defendant is difficult to accept as a matter of inherent probabilities. According to the defendant, he had retained Ho & Wong, and Chu was acting for him, to apply for probate of Mother’s estate. It was not suggested by the defendant, and there is no evidence, that Chu colluded or conspired with the plaintiff or that she was aware of the plaintiff’s agenda to obtain an interest in the Property without her brothers’ consent. Against such background, the Judge ought to have considered whether it was inherently probable that Chu would act on the plaintiff’s sole instruction to prepare the Deed and the Assignment, under which the Property was dealt with in a manner different from what was provided in Mother’s Will. The Judge ought further to have considered whether it was inherently probable that Chu would have asked the defendant and the other brothers to sign the Deed and the Assignment without any explanation as to their nature and effect, including that their interest in the Property would be reduced from 1/4^th to 1/5^th.

51.We also do not think there is proper basis to draw adverse inference against the plaintiff for not calling Chu to testify. In the first place, the role of Chu and her acts or omissions (namely, she prepared the Deed and the Assignment on the plaintiff’s instruction and she did not explain the nature and contents of the documents to the defendant) were raised by the defendant as part of his defence of misrepresentation and non est factum[6]. It would be for him to call Chu to prove his case, and not for the plaintiff to call her to disprove the defendant’s allegations. The submission of the defendant’s trial counsel that there was no reason for the defendant to call Chu in view of the allegations he made against her was irrelevant, and the Judge should not have taken it into account in deciding whether the plaintiff had any satisfactory explanation for not calling Chu as her witness[7]. After all, the plaintiff was unrepresented. She had applied to subpoena Chu as a witness, albeit belatedly on the first day of the trial. It was opposed by the defendant and she withdrew the application in the end. In the circumstances, there was no justification to draw adverse inference against the plaintiff for not calling Chu and, on this basis, to find for the defendant that Chu acted on the plaintiff’s instruction in preparing the Deed and the Assignment.

52.For the above reasons, there are palpable errors in the Judge’s assessment of credibility and evidence such that his findings that Chu prepared the Deed and the Assignment on the plaintiff’s sole instruction and she was the plaintiff’s agent, that Chu did not explain to the defendant the nature and contents of the two documents, and that the defendant was not aware of their effects and the plaintiff’s 1/5^th interest in the Property cannot stand. Ground (2) was made out.

Ground (3): Declaration that the Deed and the Assignment were void as between the plaintiff and the defendant

53.Ground (3) concerns the declaration granted by the Judge on the counterclaim, which declared the Deed and the Assignment to be void as between the plaintiff and the defendant. The plaintiff argued that the declaration could not properly be granted when all the necessary parties had not been joined in the counterclaim. It was submitted that, apart from the other three brothers, it was necessary to join the defendant qua his capacity as the executor of Mother’s Will.

54.In granting the declaration, the Judge had noted that the other parties to the Deed and the Assignment were not parties to the proceedings below. He, however, held that each of the Deed and the Assignment could be construed as severable into separate agreements, including an agreement only between the plaintiff and the defendant. He considered the position to be similar to an insurance policy involving syndicate of underwriters where there were in reality a number of contracts between the assured and each of the underwriter: Touche Ross & Co & Ors v Colin Baker [1991] 2 Lloyds Law Reports 230 at 236, column 1; a composite insurance policy involving two or more insured with separate interests, which would be construed as containing separate contracts: Arab Bank PLC v Zurich Insurance Co [1999] 1 Lloyd’s Law Reports 262 at 277, column 2; and a company’s articles which were treated in law as a contract between the company and each of the members as well as a contract among the members, relying on section 86 of the Companies Ordinance, Cap. 622.

55.In seeking to uphold the declaration, Mr Chang argued that the Deed and the Assignment could be construed as five independent agreements, with the defendant qua executor assigning an equal 1/5^th share of the Property to one of the siblings under each agreement. Accordingly, he submitted, the Court could rescind or avoid one or some of the agreements without doing the same to the other agreements.

56.We do not agree that the Deed and the Assignment can properly be construed as severable into a number of separate, independent agreements between the defendant qua executor and each of the five siblings, as held by the Judge or argued by Mr Chang. Under Mother’s Will, the Property was bequeathed on her four sons in equal shares. If the executor wished to distribute the interest in the Property differently, he needed to have the agreement of all the four beneficiaries. Hence, by the Deed, the four sons and the plaintiff jointly agreed that the Property be shared equally among the five of them, and that the defendant, qua his capacity as executor of Mother’s estate, was to assign the Property to the five siblings in equal shares. In furtherance of the agreement under the Deed, by the Assignment, the defendant, as the executor of Mother’s estate, assigned the Property to the siblings as tenants in common in equal shares.

57.The Deed and the Assignment therefore represent a joint agreement among the five siblings. There is no room to construe either of them as severable into five distinct, independent bipartite agreements between the defendant qua executor and one of the siblings. It follows that a declaration declaring the Deed and the Assignment to be void only as between the defendant and the plaintiff is untenable.

58.This is particularly so when the defendant did not counterclaim in his capacity qua executor. Even on the defendant’s contention, the Deed and the Assignment were five separate agreements made between the defendant as executor of Mother’s estate and each of his siblings. In this regard, Mr Chang’s argument that it was incorrect to make an individual a defendant twice just because he happened to fill two capacities or had two different interest, and the case Hardie and Lane Ltd v Chiltern [1928] 1 KB 663 at 690 and 700 cited in support of the argument, are nothing to the point. The point here is not about naming the defendant twice, but rather the need to spell out in the pleading (whether in the title or in the body) the capacity in which the defendant brought the counterclaim.

59.We also do not agree with Mr Chang’s submission that so long as the defendant is a party to the action, there is no reason why the Court cannot proceed to rule on his rights and obligations, whether in his personal capacity or as executor of Mother’s estate. Not do we consider the cases of Allnutt v Wilding [2006] EWHC 1905 (Ch) and Armstrong v Armstrong [2019] EWHC 2259 (Ch) support his submission.

60.Allnutt v Wilding is a claim for rectification of a settlement executed by the deceased brought by his two executors against themselves (as trustees of the settlement), the solicitor who prepared the settlement and the residuary legatees of the settlement. Mr Justice Rimer (at [4]) held that the naming of the executors as defendants was contrary to the principle that a person cannot be the plaintiff and the defendant at the same time, and ordered that they be struck out as defendants. He then proceeded to deal with the claim, as he considered that the striking out of the two defendants “make no difference to the substance of the claim as all the right people are before the court.”

61.In Armstrong v Armstrong, the claimant is the sole trustee of a trust and a joint trustee of a second trust as well as the beneficiary under the two trusts. She brought a claim for declaratory relief relating to, or alternatively rectification of, the two trusts against herself and the other joint trustee of the second trust, who is also a beneficiary under the two trusts. Following Allnutt v Wilding, the Court removed the claimant as a defendant and proceeded to hear the claim.

62.The essence of the decision in these two cases is that while it was wrong to name the claimant(s) as defendant(s), the proper parties were before the court. The court was therefore in a position to, and did, proceed to adjudicate the claim after regularizing the defect in the constitution of the claim. This is not the case here. The counterclaim was brought by the wrong party. It is defective and the declaration sought could not have been granted.

63.For the reasons above, Ground (3) was made out and the declaration granted by the Judge should be set aside.

Respondent’s Notice: Common mistake

64.By the Respondent’s Notice, the defendant sought to affirm or vary the judgment on two grounds. The first relates to the defence of common mistake, which was pleaded in [15] to [18] of the Re-Re-Amended Defence and Counterclaim. The Judge held that the defence was not made out in light of his finding that the defendant executed the Deed and the Assignment under the mistaken belief that they were for probate application, which was different from the common mistake pleaded by the defendant.

65.In this appeal, Mr Chang submitted that the defence should be upheld having regard to the elements for establishing the plea of common mistake[8]. His argument was as follows:

(1)  As recorded in paragraphs (3) and (6) of the recital of the Deed (see [10] above), the parties executed the Deed upon the common assumption that there was doubt whether Mother’s Will was in breach of the Restriction, and they are estopped by deed or contract from denying this, even if they in fact did not hold the assumption: Nokia Corporation v TCT Mobile Ltd [2017] 3 HKC 102 at [20] to [24]; and Wilken & Ghaly, The Law of Waiver, Variation and Estoppel (3^rd ed) at §12.14.

(2)  The assumption was, however, incorrect because:

(i)  the Restriction constituted a total restraint on Mother’s power of alienation and was consequently void: Ng Tung v Chung Hing Transportation and Godown Co Ltd [2007] 4 HKLRD 200 at [15], Megarry & Wade, The law of Real Property (9^th ed) at §3-039, Chesire and Burn’s Modern law of Real Property (18^th ed) at pp.620-622; and Theobald on Wills (18^th ed) at §§27-016 and 27-017; and

(ii)  Mother’s Will did not violate the Restriction because the Property was bequeathed to her children and not someone outside of the family.

(3)  As the very purpose of the Deed, namely, to address the possible title defect in the Property, never existed, and the performance of the contractual adventure was either impossible or essentially different to what the parties anticipated[9], the Deed was void.

(4)  The above analysis applied to the Assignment, except that the mistake in question was the assumption that the Deed was valid, as reflected in paragraph 5 of the recital of the Assignment.

66.The principal difficulty with the submission is that it is far from certain that the common assumption contended for is incorrect. In Ng Tung v Chung Hing Transportation and Godown Co Ltd, Le Pichon JA relevantly observed (at [15]) that:

“The common law renders void any condition attached to an estate that imposes an absolute restriction on alienation of the estate by the grantee. Such a condition is considered repugnant to an owner’s rights over his property. But over time, the courts have upheld certain restrictions, thus giving rise to distinctions between total and partial restraints, the latter being permissible. What is undoubtedly true is that not only are the cases difficult to reconcile, it is difficult to discern the ambit of what restraints are permissible or the principle underlying the exception. See Pearson J in In re Rosher at 819; Cheshire and Burn’s Modern Law of Real Property, 16^th ed. p. 368.”

The other authorities cited by Mr Chang made similar observations on the uncertainty and difficulty in ascertaining what restraints are permissible and the underlying principles: see Megarry and Wade (at §3-039), Chesire and Burn (at p. 622) and Theobald at §27-017.

67.On the authorities and the facts of this case, it cannot be said for certain whether the Restriction is a total or partial restraint on Mother’s power of alienation and/or that it is void as a matter of law. Further, the construction of the Restriction is also open to arguments; whether it restrains the transfer to only some of the children or it merely restrains transfer to people other than the children. There are thus doubts over whether the bequest to the four sons under Mother’s Will is in breach of the Restriction. It follows that paragraphs (3) and (6) of the Deed, and the assumption said to be held by the parties when they executed the Deed, are well founded. The same is true of the execution of the Assignment. Accordingly, the defence of common mistake cannot be maintained.    

Respondent’s Notice: Limitation

68.The Respondent Notice also sought to limit the plaintiff’s claim by relying on section 18 of the Limitation Ordinance, which provides that:

“No action shall be brought, or distress made, to recover arrears of rent, or damages in respect thereof, after the expiration of 6 years from the date on which the arrears became due.”

69.Relying on Romain v Scuba T.V. Ltd [1997] QB 887 at 893F-894D, it was argued that the application of section 18 was not limited to actions between landlords and tenants, and the plaintiff was accordingly barred from claiming the rental income accrued before 15 February 2007, being six years prior to the commencement of DCCJ 579/2013.

70.We do not agree that section 18 can be applied to limit the plaintiff’s claim. The central issue in Romain v Scuba T.V. Ltd is whether section 19 of the Limitation Act 1980 (which is the equivalent of our section 18) applied not only to claims against lessees, but also claims against guarantors or other third parties. In holding that the six-year limitation under the section applied not only to actions against the lessee but also to actions against the guarantor of his undertaking to pay the rent reserved by the lease, Evans LJ pointed out that in both cases, the action is brought to recover arrears of rent, or damages in respect of arrears of rent. The decision therefore highlights the fact that the section 18 limitation only applies to a claim to recover arrears of rent or damages in respect of arrears of rent.

71.In this case, the plaintiff’s claim is not for arrears of rent or damages for arrears of rent. The plaintiff is suing the defendant to recover her share of the rent that the defendant has collected over the years but failed to account and pay over to her[10]. Section 18 has no application.

Disposition

72.For the above reasons, we had allowed the appeal, dismissed the Respondent’s Notice, and set aside the Judge’s judgment. Upon Mr Lau clarifying that the plaintiff elected for an order for the taking of account and Mr Chang indicating agreement to it, we also entered judgment for the plaintiff for an order of account of the profits and directed that the case be remitted to the District Court for directions on the taking of account. We further ordered that the costs of the appeal[11] and the action below be to the plaintiff against the defendant, to be taxed if not agreed.

Mr Roy Lau, instructed by Francis Kong & Co, for the plaintiff

Mr Jonathan Chang SC and Mr Thomas Wong, instructed by Wilkinson & Grist, for the defendant