China Life Trustees Ltd v. China Energy Reserve and Chemicals Group Overseas Company Ltd and Another

CACV 337 & 346/2022, [2023] HKCA 1251

On Appeal From [2023] HKCA 966

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 337 & 346 OF 2022

(ON APPEAL FROM HCA NO 146 OF 2020)

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J U D G M E N T

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Hon G Lam JA (giving the Judgment of the Court):

1.The 1^st defendant (the appellant in CACV 337/2022) and the Ad Hoc Committee (the appellant in CACV 346/2022) have each applied for leave to appeal to the Court of Final Appeal from the judgment of this court dated 10 August 2023 dismissing their appeals.[1] In that judgment, this court held, inter alia, that the money in the 1^st defendant’s bank account was not subject to a Quistclose trust in favour of a sister company of the 1^st defendant (namely Trading), so that the garnishee order obtained by the plaintiff in respect of the credit balance in the bank account ought to be made absolute.

2.Two questions have now been put forward by both the 1^st defendant and the Ad Hoc Committee as questions of great general or public importance that ought to be submitted to the Court of Final Appeal for determination:

Question 1

What is the proper approach to assessing the issue of intention giving rise to a Quistclose trust, in particular whether the important intention is an intention for the transferor to retain some control of and/or beneficial interest in the assets qua transferor, or an intention for the transferee to not have free disposal and/or the whole beneficial interest in the assets.

Question 2

What is the proper approach to determining whether a Quistclose trust has arisen in the context of an intra-group transfer, in particular whether the fact or potential of common control being exercised over the transferor and the transferee (by virtue of the corporate chain or grouping) is a weighty or even crucial factor including, or indicating an absence of, any intention for the transferor to retain some control qua transferor or any intention for the transferee not to have free disposal and the whole beneficial interest in the assets.

3.We note that the principles governing the creation and nature of Quistclose trusts have not been dealt with directly by the Court of Final Appeal in previous cases. This may be said to be in certain respects a developing area of the law. Further, the fact that the payments in question were intra-group transfers between two sister companies provides a novel context for the application of the principles found in previous authorities. Although the appellants’ contentions failed both before the judge and before us, we would not characterise them as totally unarguable. The appeals to this court were brought with leave of the judge below.

4.In all the circumstances, we consider this an appropriate case in which to give leave to appeal to the Court of Final Appeal. Costs of the application for leave will be in the cause of the appeals.

Written submissions by Mr Victor Dawes SC & Mr Joshua Chan, instructed by Messrs. DLA Piper Hong Kong, for the Plaintiff

Written submissions by Mr Laurence Li SC & Mr Sik Chee Ching, instructed by Messrs. Kirkland & Ellis, for the 1^st Defendant and the Ad Hoc Committee