Choy Yuen on David v. Soka Gakkai International of Hong Kong Ltd

HCA 2804/2018

[2023] HKCFI 3171

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2804 OF 2018

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JUDGMENT

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1.In this action, the Plaintiff (“Choy”) seeks to recover HK$2,000,000 paid to the Defendant (“HKSGI”) in July 1999 for breach of an oral agreement, or alternatively, on the basis that the sum was paid to HKSGI for a specific purpose which failed and thus was liable to be returned to Choy by way of a Quistclose trust.

2.It is particularly noted that Choy is not claiming for any other loss or damages for breach of agreement other than for the recovery of the said sum.  There is thus little significance, in terms of relief, as to which of Choy’s two causes of action prevails, so long as one of them does.  There may be some difference in terms of the award of interest regarding the two causes of action.

3.The factual disputes between the parties turned out to be much narrower in ambit because at trial HKSGI did not call any witness despite having filed the witness statements of 3 witnesses, and moreover the parties have agreed to a number of factual matters which they set out in an Agreed Statement of Facts dated 25 May 2023.

4.The focus regarding the factual disputes therefore is whether Choy, being the only witness for his case, came up to proof on the disputed matters mentioned below. 

5.The ambit of disputes was further narrowed by HKSGI confirming at the opening stage of the trial through Mr Yin, its counsel, that HKSGI would not rely on a number of pleaded defence or averments, which I will mention in due course.

Factual background

6.The following factual background and matters are either expressly agreed or not disputed, unless otherwise specifically indicated.

7.HKSGI was incorporated in 1966 by a number of devoted Buddhist believers, and since 1974 it has been registered as a charitable organization under and pursuant to section 88 of the Inland Revenue Ordinance.  Its primary object has been the advancement of Buddhism and Buddhist belief and one of its other objects has been to undertake and execute any educational trust which may be lawfully undertaken by it.

8.Choy has been a member of HKSGI since 1978. Between 1992 to 2013, Choy was a director of HKSGI.  As I understand it, there were at the material times about 20 such directors who would help guide and conduct the affairs and activities of HKSGI.

9.At the material time, Mr Hisashi Kajiura (“Kajiura”) was the General Secretary and Chairman of the Committee of HKSGI.  Since the time Choy joined as a member of HKSGI in 1978, he had considered Kajiura a mentor and teacher.

10.Following a number of conversations between Kajiura and Choy, and on 20 July 1999, Choy gave HKSGI a cheque (no. 451814 dated 24 June 1999) for a sum of HK$2,000,000 made payable to it, which was duly presented for payment by HKSGI.  On the same day, ie 20 July 1999, HKSGI issued to Choy a receipt[1] (no. 14906, “the Receipt”) acknowledging the receipt of the said HK$2,000,000 (“the Donation”) which was stated in the Receipt to be in payment of “H.K.SGI 蔡源安教育基金捐贈”. 

11.These conversations, particularly their contents and effect, are disputed.

12.It is Choy’s case that Kajiura has orally agreed on behalf of HKSGI to set up and operate as trustee an education trust known as “Choy Yuen On Education Fund” for the specific purpose of providing funds to the talented and gifted young members of HKSGI in need to finance the costs of their overseas education (respectively “the Oral Agreement”, “the CYO Education Trust” and “the Specific Purpose”) and that the Donation was made to HKSGI for setting up the CYO Education Trust to further the Specific Purpose.

13.It is admitted as a fact by HKSGI that on 6 August 1999, a resolution to establish “Choy Yuen On Education Fund” was passed by a meeting of the directors of HKSGI (“the Meeting”), as evidenced by the agenda of the Meeting[2] (“the Agenda”) which contained an item “設立蔡源安教育基金;港幣貳佰萬元”.

14.Choy’s case is that the passing of the resolution was a step in implementing the Oral Agreement and setting up the CYO Education Trust.  HKSGI’s case is that the resolution was passed to create an education fund named after Choy to show HKSGI’s appreciation of the generosity of Choy.  It does not admit that the resolution was passed to establish the CYO Education Trust as alleged by Choy.

15.Around the same time and on 1 September 1999, the directors of HKSGI also resolved to establish a sub-committee to consider the viability of founding a primary school in Hong Kong to be operated by HKSGI (“the Primary School Project”). Subsequently between 2000 to 2001, an application to the Education Department was indeed made, which was later rejected.  One of HKSGI’s witness said that the Donation was made for the Primary School Project, which is disputed by Choy.

16.About 15 years later, and in July 2014, Choy received an enquiry by email of a young member of HKSGI named Otto who told Choy that he heard about the existence of a “Choy Yuen On Education Fund” but was told that the CYO Education Trust has never been established.

17.It is common ground that indeed HKSGI has never set up or operated the CYO Education Trust, whether according to the terms as Choy said, or at all.

18.Shortly after Otto’s enquiry, Choy had a telephone conversation with Kajiura on 1 August 2014 in which this matter of the CYO Education Trust was discussed.  Choy produced a transcript of this telephone conversation (“the Transcript”).

19.The parties exchanged solicitors’ letters in November 2014.  HKSGI’s solicitors informed Choy, as is now common ground between the parties, that the Donation has always been kept by way of fixed deposit in a bank account together with other education funds and has never been used.

20.Eventually in November 2018, Choy commenced this action.

The Issues

21.As mentioned, Mr Yin expressly stated on behalf of HKSGI that HKSGI would not rely on a number of pleaded defence, namely:

(a)  the limitation defence pleaded in paragraph 18 of the Defence;

(b)  the equitable defence of laches pleaded in paragraph 20 of the Defence; and

(c)  the locus standi challenge averred to in paragraph 19 of the Defence that the Donation “[has] been impressed with a trust for an exclusive charitable purpose which can only be enforced in the name of the Secretary of Justice. As such, the Plaintiff has no locus standi to bring a claim founded on the alleged trust”.

22.In light of the fact that HKSGI has not called any witness to testify, the main issues between the parties can be stated as follows:

(a)  Whether the Oral Agreement had in fact been reached as alleged by Choy, and if so, what were the terms, including whether there were the implied terms or express terms as alleged by Choy?

(b)  Further or alternative to the Oral Agreement, is it proven that the Donation was made by Choy to HKSGI exclusively for the Specific Purpose?

(c)  Mr Yin contended that even if the Oral Agreement to set up the CYO Education Trust was proven and was breached and/or the Specific Purpose was proven, Choy as the settlor was not entitled to the return of the Donation (i) as the same was impressed with a trust, and/or a binding trust has been constituted, and/or (ii) the education trust cannot fail even if HKSGI refuse to carry out its obligation as trustee as some other trustee can be appointed, and/or (iii) the Specific Purpose has not failed as only HKSGI refused to carry it out and the identity of the person to carry out the purpose is not to be confused with the purpose itself. 

Choy’s case on the terms of the Oral Agreement – as pleaded in the Statement of Claim versus as spoken to in his witness statement

23.It is convenient at this stage to set out and examine Choy’s case on the terms of the Oral Agreement, as pleaded in the Statement of Claim as compared to as spoken to in his witness statement.

24.Choy so pleaded in paragraphs 4 and 5 of his Statement of Claim:

“ 4. By an agreement made between the Plaintiff and the Defendant, through one Hisashi Kajiura (‘the said Kajiura’). Its then General Director and Chairman and made in mid 1999, in consideration of the Plaintiff making a donation of Hong Kong HK$2 million to the Defendant for the specific purpose of proving funds to finance the costs of overseas education to the talented and gifted young members of the Defendant in need (‘the said specific purpose’), the Defendant agreed to set up and operate a trust in the name of the Plaintiff known as ‘Choy Yuen On Education Fund (蔡源安教育基金)’(‘the Education Trust’) for such purpose (‘the Agreement for education trust’).

5. The following were, inter alia, implied terms of the Agreement for education trust:-

(a) That the Defendant would notify its members the creation and operation of the Education Trust so as would enable them to apply for grant thereunder;

(b) That the Defendant would notify and refer the Plaintiff any and all application for grant under the Education Trust so that the same might be considered by the Plaintiff; and

That the Defendant would, from time to time, report and account to the Plaintiff, the operation of the Education Trust.”

(my emphasis in bold)

25.However, in paragraph 21 of Choy’s witness statement, he said:

“ 21. In mid 1999, after several rounds of discussions with Mr Kajirua on the CYO Trust Fund, we came to the following terms for the purpose of setting up the CYO Trust Fund:-

(a) All applicants must be young, and the definition of “young” would be solely determined by the Association after the founding of CYO Trust Fund;

(b) All applicants must demonstrate financial need, the requirement would be set by the Association after the founding of the CYO Trust Fund;

(c) All applicants must be members of the Association to ensure they are devoted to the core values of Soka Gakkai, and immediate family members of the applicant such as sibling or even children cannot apply unless they become members of the Association;

(d) All applicants must either have been enrolled at or have been accepted by a university or college for overseas’ studies at the time of his or her application, with documentary evidence in support;

(e) As long as the applicants demonstrated enrolment or acceptance by a university or college overseas, he or she does not have to demonstrate grades or test scores;

(f) All successful applicants will only receive partial financial subsidies as opposed to full scholarship towards the applicant’s tuition fees, without exception;

(g) All applicants must make their applications directly to the Association, or to the committee to be set up. All applications and CYO Trust Fund itself will be fully operated, handled and managed by the Association, and I as the sponsor would not interfere with the decision-making process or the operation of CYO Trust Fund by any means (e.g. the selection of suitable candidate to take benefit thereunder); and

(h)  A lump sum of $2 million as the initial start-up fund for CYO Trust Fund would be donated by me, and I would continue to sponsor CYO Trust Fund with further donations should the capital become insufficient in the future.”

(my emphasis in bold)

26.A comparison of the two sets of terms would readily reveal that they are very different in certain material respects :

(a)  Regarding the criteria of entitlement, what it meant to be (i) “young”, (ii) have “financial need”, “gifted and talented”, and “overseas education”, the set of terms given in the witness statement added definitions, and set out the mechanism for determining whether an applicant met these criteria, including who it was that would determine them.

(b)  That the sponsorship was invariably only a partial sponsorship rather than full sponsorship was something that is entirely new as compared to the set of terms pleaded.

(c)  There is a complete shift in this very important aspect of the administration of the “CYO Trust Fund” – who would be considering and deciding on the applications - from Choy in the pleaded set of terms to entirely HKSGI in the set of terms in the witness statement.

(d)  There is the newly added detail and reference as to the Donation being a start-up capital, suggesting that either only or mainly the income earned by the Donation would be used and there is the added promise by Choy to make further donations.

(e)  Furthermore, in the Statement of Claim, all of the detail provisions for implementation of the “CYO Trust Fund” were pleaded to be implied terms.  In stark contrast, in the version in the witness statement, all of the detail provisions for  implementation (which are significantly different from the pleaded set of terms) were said to have been expressly agreed between Choy and Kajiura.

Discussion and my findings regarding whether the Oral Agreement was reached and whether the Donation was made solely for the Specific Purpose

27.It is common ground that no other contemporaneous documentary evidence ever existed, in whatever form, be it notes, text messages, emails or the like that record or refer to the relevant conversions in 1999 between Choy and Kajiura, save arguably the Receipt and the Agenda.  It is also not disputed that there was no third-party present in any of the relevant conversations, such that there is no person who could have been a witness to those conversations.

28.There is then the Transcript.  The telephone conversation was held on 1 August 2014, some 15 years after the Donation, in Punti between Choy and Kajiura which lasted about 32 minutes (“the 2014 Conversation”).  It is common ground that it was Choy who called Kajiura as a result of Otto’s enquiry and Choy wanted to clarify with Kajiura the whole situation regarding the Donation and the “CYO Trust Fund”.  It can be seen from the Transcript that Choy was patiently recounting to, and reminding, Kajiura of the circumstances leading to the making of Donation.

29.The Oral Agreement and the Specific Purpose are therefore sought to be proved by Choy’s own evidence.  Mr Yin has indicated in final submissions that HKSGI was not challenging Choy’s general honesty as a witness.

30.In considering and evaluating Choy’s evidence regarding his conversations with Kajiura, including the 2014 Conversation, I bear very much in mind the particular context that Kajiura had been Choy’s teacher and mentor in Buddhism since 1978.  This context in my view is significant as it would provide a different setting for understanding the conversations, say, as opposed to the setting when Choy was negotiating a commercial deal at arms-length with another party.  In the long-held role by Kajiura as teacher and mentor of Choy, he might very well be giving guidance and advice to Choy at the time as opposed to “negotiating”, as in negotiating a deal, with Choy.

31.In Choy’s witness statement:

(a)  He said that he had no opportunity to study overseas and he considered it as “the shortfall” in his life.  He therefore would like to help young members of HKSGI to pursue their studies overseas.

(b)  He mentioned that in early 1999, he was informed by Kajiura that one Mr Lei Loi Tak had donated in tranches a total of HK$37 million as “Lei Loi Tak Education Trust Fund” for the purpose of the Primary School Project.

(c)  Around the same time, Kajiura approached Choy to enquire whether Choy would also be interested in establishing “an education trust” to fund the building of the primary school and its operation[3].  Choy replied that he did not have the financial means to fund the building of a primary school. Choy counter-proposed that he was prepared to consider the idea to subsidize young people, who were without the means, to study overseas.

(d)  Kajiura then suggested that Choy could establish “a trust fund” to subsidize young and devoted members of HKSGI to study at universities overseas and that the up-front requirement would be HK$1 million.

(e)  After several rounds of discussion, Choy and Kajiura “came to the following terms for the purpose of setting up the CYO Trust Fund”[4], which are the terms quoted in paragraph 25 above.

(f)  Kajiura then said that he had to consult Japan SGI first.  In or about June 1999, Choy was told by Kajiura that Japan SGI had given a “green light”.  He then made the Donation. He considered that the Oral Agreement was thus concluded

(g)  It was not mentioned that there were further conversations between Kajiura and Choy on the subject.

32.However, in the 2014 Conversation:

(a)  Choy never mentioned to Kajiura that they had reached the Oral Agreement.

(b)  Choy reminded Kajiura how Kajiura “proposed” to him the matter set out in paragraph 31(d) above[5], and that Choy had accepted his proposal.

(c)  Choy emphasized that the Specific Purpose was the purpose (目的) why the Donation was made[6].  To this Kajiura did not disagree, but said that he might have misunderstood or that he did not remember[7].

(d)  Choy never mentioned that there were further discussions / agreement with Kajiura concerning the detail and additional matters concerning implementation of the “education trust” as I set out in paragraph 25 and 26 above.  Choy only mentioned the discussion between them (i) concerning possible further future donations (and not that he had promised to make further donations) and (ii) that Choy initially would like to use the name of his mother as the name of this education fund.

(e)  Kajiura essentially explained that he did not recollect what Choy now asserted as the understanding between them, that HKSGI would make donations to the universities ran by SGI and let the universities gave out scholarships, that previously certain members of HKSGI who were students were financially sponsored in their education privately by other members, that HKSGI did not operate, nor wanted to operate, “private” education fund/trust as there were difficulties in deciding which member should be given the sponsorship and which would have to be refused.

33.Bearing in mind that:

(a)  the conversations in dispute took place in 1999, which was 24 years ago; while the 2014 Conversation was the only occasion that Choy and Kajiura talked about what they understood as having been discussed / agreed in those conversations;

(b)  evidence based on recollection of what was said in an undocumented conversation which occurred so long ago is inherently problematic and the various judicial and academic observations concerning evidence based on memory, which have been helpfully summarized by Coleman J in Yu Man Fung Alice v Chiau Sing Chi Stephen[8] §§53-56 (though I have borne them in mind, I would not quote them here);

(c)  there is no other probative documentary evidence (the probative value of the Receipt and the Agenda are discussed below);

(d)  Choy made the telephone call to Kajiura when he discovered from Otto that the trust he had in mind, and for which he had made the Donation, was not established.  He therefore was keen to clarify matters with Kajiura;

(e)  the 2014 Conversation was recorded by Choy; and

(f)  as seen from the Transcript, it was a conversation that lasted 32 minutes in which Choy and Kajiura both have had ample opportunities to speak out their respective side of story,

I would place weight and reliance on the 2014 Conversation, the contents of which are set out in the Transcript.

34.Concerning whether the Oral Agreement was in fact reached, one of Mr Yin’s main lines of cross-examination and submissions was that, while Choy subjectively was adamant that there was a concluded Oral Agreement, the evidence on the actual communications was far from clear that, objectively assessed, there was a concluded contract in the legal sense.  He further submitted that the broad but clear effect of Choy’s evidence was that Kajiura merely made a suggestion to Choy concerning his intended donation which Choy acted upon by the Donation; and that there was no evidence of a clear discussion, not to say a clear communication of acceptance, that HKSGI would contractually bind itself to acting as a trustee to operate the alleged trust.

35.Mr Chong submitted that Kajiura’s proposal was an offer, and Choy making the Donation was the acceptance, and the Oral Agreement was thus formed.  He submitted that the Receipt stated the purpose of the Donation, and that the resolution passed in the Meeting showed that the Oral Agreement was being implemented.  Mr Chong also asked me to draw an adverse inference against HKSGI in failing to call Kajiura to give evidence.

36.I would first make this observation and finding.  I note that while the term “education trust” was liberally and consistently used in Choy’s witness statement, however, in the Receipt, in the Agenda, and particularly throughout the 2014 Conversation, the term “基金”(a fund) was invariably used and not the words “trust” (信托) or “education trust” (教育信托) or “trust fund” (信托基金).  If it had been the case, as said in Choy’s witness statement, that “education trust” was discussed between him and Kajiura in the many rounds of conversation, I find it inherently improbable and incredible that the term did not come out at all in the 2014 Conversation.  I take the view that“education trust”was something that Choy himself subjectively understood subsequently when he was preparing the witness statement rather than it being the actual term used by the parties in the relevant conversations.

37.The starting point in deciding whether a contract was formed is, as is trite principle of contract law, that the court would examine what the parties’ communications and conducts conveyed objectively to ascertain whether there was an offer and then an unconditional acceptance of the offer leading to the formation of a contract.

38.Choy impressed me favourably as an honest witness and, as mentioned, his general honesty was not challenged by HKSGI. However, in view of the fact that the disputed factual matters are sought to be proved by his memory of what was said some 25 years ago mixed with what he understood subjectively, I am particularly mindful of the reliability of his evidence, on which I will focus my analysis and assessment.  In the round, I would accept his evidence generally, except in respect of certain specific matters his evidence on which I find not reliable.

39.I accept Choy’s following evidence, for the stated reasons, and I find:

(a)  As shown by the summary of Choy’s donations to HKSGI between the years 1986 to 2013[9], as was his oral evidence, which was undisputed, the Donation stood out as a single donation in an exceptionally large amount compared to all his donations in the course of 27 years, which were about HK$15,000 to HK$30,000 yearly and the next largest single donation was the one made on 12 July 1994 of HK$100,000.

(b)  I find the exceptionally large amount of the Donation strongly supports Choy’s evidence, in that it makes it very inherently probable, that the Donation was for a specific purpose.

(c)  By not calling any witness, there is no evidence to substantiate HKSGI’s case that the Donation was made for the Primary School Project or that the Donation was a general donation to HKSGI. In any case, the exceptionally large amount of the Donation as compared to the usual made it most inherently improbable that the Donation was a general one.

(d)  There is thus before me no other purpose or reason why the Donation was made except Choy’s version.

(e)  There is no evidence before me from HKSGI explaining (i) why the Donation has been kept separately from HKSGI’s general fund but together with other education funds, and (ii) importantly, why the Donation has never been used by HKSGI to date.

(f)  As mentioned, Kajiura did not dispute in the 2014 Conversation when Choy recountered the circumstances and reminded him of the fact that at the time Kajiura proposed to Choy that Choy could donate a substantial amount as an education fund to financially aid young members of HKSGI, who otherwise could not have afforded it, to further their studies at universities overseas (“Kajiura’s Proposal”).  Nor, importantly, was Kajiura called as a witness to contest it.

(g)  Therefore, I find as a fact that the Kajiura Proposal was made to Choy as Choy said, and Choy accepted Kajiura’s Proposal and pursuant to it made the Donation.

40.However, I am unable to accept Choy’s evidence that there were these rounds of discussions with Kajiura and that he and Kajiura “came to” the terms listed in paragraph 21 of his witness statement, for the reasons listed below: 

(a)  In the same paragraph of his witness statement, he said that these rounds of discussions took place, and these terms were “came to”, before Kajiura sought approval from Japan SGI.

(b)  These discussions and these detail terms concerning the practical working of the “CYO Education Trust” should have been memorable for Choy, and at least not to the extent of being completely forgotten, if they had actually occurred. As mentioned, the terms themselves were set out in detail and with much accuracy in his witness statement.

(c)  However, there was merely the bare assertion that certain express terms were “came to” after rounds of discussions, and there was no mention anywhere of any detail regarding these “rounds of discussions”, like when and where they took place, what the contents of the discussions were.

(d)  These discussions and express terms were not pleaded in the Statement of Claim.  Importantly, they were not mentioned to Kajiura at all, not in a single bit, in the 2014 Conversation, which I find most inherently improbable and incredible.

(e)  I have analysed and set out above the very significant difference between the two versions of the terms as pleaded and as spoken to in Choy’s witness statement.  By any view, their differences are major and very significant.  Moreover, the case that the more detail provisions were implied terms (that is, have not been expressly agreed, but understood to be the terms nevertheless) and the case that they have been expressly agreed are mutually inconsistent scenarios.  It was not explained by Choy anywhere why there were such major and significant divergence in his case as to the contents of the terms and why there are two mutually inconsistent scenarios as to how they came about – implied versus expressly agreed.

(f)  I come to the view that the above matters at the very least show that Choy’s memory, and thus his testimony, on these significant matters in relation to the formation and contents of the Oral Agreement are not reliable.  I so find.

41.I take the view that the reference to “H.K.SGI 蔡源安教育基金捐贈”in the Receipt and the existence of the item “設立蔡源安教育基金;港幣貳佰萬元”in the Agenda were as much consistent with the implementation of Kajiura’s Proposal as with the alleged existence of the Oral Agreement.  I do not think they are probative one way or the other.

42.I take a similar view over Choy’s evidence, which I accept, that in the Meeting he introduced briefly to the other directors about his education fund.  Lacking the precise details of what Choy said there, and of what the directors actually resolved, the mere facts of briefly introducing it and the directors voted in favour by the show of hands were as much consistent with the existence and implementation of the Kajiura’s Proposal as with the alleged existence of the Oral Agreement and its implementation.

43.I thus find Choy’s factual case over and above what I find for in paragraph 39 above not proved on balance of probabilities.

44.As I do not find these primary facts on the formation and terms of the Oral Agreement proved on Choy’s own evidence, the absence of Kajiura to contest them would not in any way aid Choy in their proof.

45.In the round, I accept Mr Yin’s submissions (see paragraph 34 above).  Since I find against Choy’s evidence on these rounds of discussions and the alleged agreement on the further matters there reached, I do not accept Mr Chong’s submission that the Kajiura’s Proposal, by itself, was “an offer” capable of acceptance thereby forming the Oral Agreement.  In my view, it was a mere proposal by Kajiura as mentor and teacher concerning Choy’s then intended donation.

46.For these reasons, I do not find it proved that the Oral Agreement was formed between Choy and Kajiura on behalf of HKSGI.

47.I turn now to Choy’s factual case on the Quistclose trust.

48.Mr Yin submitted that if I did not accept Choy’s evidence on factual matters supporting the formation of the Oral Agreement, I should also not accept Choy’s evidence on his case of the Quistclose trust.  I am unable to accept this submission.  As I have explained above, I find myself unable to accept Choy’s evidence in support of the Oral Agreement based on my assessments and analyses of the matters specified above, and not because there are reasons to generally reject Choy’s evidence.

49.Despite vigorous cross-examination by Mr Yin as to whether the Donation was made only because and solely for it to be applied to the Specific Purpose, Choy answered all questions directly and without hesitation and his evidence thereon was not shaken.  I accept his such evidence.

50.Mr Yin also urged on the court to take particular note of the subsequent conduct of Choy in the form of his inaction for almost 15 years to follow up as to whether the Donation had been used for the Specific Purpose.  Though this court finds somewhat weak Choy’s explanation (a) that he trusted HKSGI would use the Donation according to the Specific Purpose and (b) that it seemed to him that some young members had been obtaining financial support in their education.  However, weighing the weakness against the totality of evidence, I conclude the inaction was not of such weight as to make the existence of Specific Purpose not proved.

51.Based on Choy’s evidence and the findings I made in paragraph 39 above for the reasons there expressed, I find that the Donation was made by Choy to HKSGI for the sum to be applied by HKSGI solely to the Specific Purpose, and HKSGI had had notice that the Donation was to be so applied solely when it received it.

Choy not entitled to the return of the Donation ?

52.Choy’s case is that he is entitled to its return by way of a resulting trust under Quistclose as the Specific Purpose has failed, for whatever reason.

53.The Quistclose type of resulting trust is well established.  The principles were explained by Lord Millet in Twinsectra Ltd v Yardley[10]:

“76. … As North J explained in Gilbert v Conard (1884) 54 LJ Ch 439, 440:

‘ It is well known law that if one person makes a payment to another for a certain purpose, and that person takes the money knowing that it is for that purpose, he must apply it to the purpose for which it was given. He may decline to take it if he likes; but if he chooses to accept the money tendered for a particular purpose, it is his duty, and there is a legal obligation on him, to apply it for that purpose.’

The duty is not contractual but fiduciary. It may exist despite the absence of any contract at all between the parties, as in Rose v Rose (1986) 7 NSWLR 679; and it binds third parties as in the Quistclose case itself.  The duty is fiduciary in character because a person who makes money available on terms that it is to be used for a particular purpose only and not for any other purpose, thereby places his trust and confidence in the recipient to ensure that it is properly applied.  This is a classic situation in which a fiduciary relationship arises, and since it arises in respect of a specific fund it gives rise to a trust.”

54.In the Hong Kong Court of Appeal case of Typhoon 8 Research Ltd v Seapower Resources Ltd & Another[11], Le Pichon JA applied Quistclose and Twinsectra, and while discussing Twinsectra her Ladyship had this to say:

“ 19. Where a Quistclose trust arises, the money remains the property of the lender unless and until it is applied in accordance with his directions and insofar as it is not so applied, must be returned to him. The money is not at the free disposal of the borrower. Lord Millett observed (at [83]):

‘  The borrower's interest pending the application of the money for the stated purpose or its return to the lender is minimal.  He must keep the money separate; he cannot apply it except for the stated purpose; unless the terms of the loan otherwise provide he must return it to the lender if demanded; he cannot refuse to return it if the stated purpose cannot be achieved; and if he becomes bankrupt it does not vest in his trustee in bankruptcy.  If there is any content to beneficial ownership at all, the lender is the beneficial owner and the borrower is not.’ ”

55.As I find in favour of Choy’s case that the Donation was made to HKSGI for HKSGI to apply it solely to the Specific Purpose, and HKSGI had had notice of this when it received the Donation, it follows that a Quistclose trust arose in respect of the Donation, and it not having been applied to the Specific Purpose for 19 years from 1999 to 2018 (when this action was commenced), Choy should be entitled to its return.

56.Mr Yin submitted that Choy is not so entitled. He advanced a number of contentions.  Without disrespect to Mr Yin, I think his contentions can be disposed of succinctly.

57.Firstly, he contended that the Donation was impressed with a trust or that a binding trust has been constituted, and therefore under trite principles of trust, the settlor is not then entitled to the return of the settled sum.

58.The basis and premise of this contention is that a binding trust has been constituted.  As I find against the existence of the Oral Agreement, it follows therefore (which is also the defence case) that when HKSGI received the Donation, it was not receiving it qua trustee of the CYO Education Trust or receiving it for the purpose of setting up the CYO Education Trust.  Thus, no binding trust was ever constituted.  This contention therefore fails.

59.Secondly, he also contended that the education trust could not fail for want of a trustee, as a person suitable could be appointed as trustee in place of HKSGI.  This contention is also premised on the fact that a valid “education trust” has been constituted, which I have rejected as above explained.  In this connection, days before the trial was due to commence this court invited submissions from the parties as to whether the alleged CYO Education Trust (if the Oral Agreement proven) might not qualify as a trust for a charitable purpose for the advancement of education as it might lack the necessary element of public benefit, and as such not qualified as a charitable trust, and therefore whether the CYO Education Trust would be void for uncertainty as to objects.  However, in light of my clear conclusion that no trust (of whatever nature) has been constituted, I do not find it necessary to address these further issues.

60.Lastly, Mr Yin contended that the Specific Purpose has not failed in that other person(s) could have carried it out, and that one should not confuse the failure of the purpose with the failure of the person or body chosen by Choy to carry out the purpose.

61.With respect, such contention might be tenable in the case of a valid purpose trust (which usually needs to be a charitable purpose trust), but  not tenable in respect of a Quistclose trust, when the nature of a Quistclose trust and the nature of the interest and the respective obligation and entitlement of the payer and the recipient thereunder are properly understood.

62.As analysed at length and then explained and held by Lord Millett in Twinsectra (referring there to “the lender” and “the borrower” as the respective person making and receiving the payment for the stated purpose), thus:

“ 100. … I would reject all the alternative analyses, which I find unconvincing for the reasons I have endeavoured to explain, and hold the Quistclose trust to be an entirely orthodox example of the kind of default trust known as a resulting trust. The lender pays the money to the borrower by way of loan, but he does not part with the entire beneficial interest in the money, and in so far as he does not, it is held on a resulting trust for the lender from the outset. Contrary to the opinion of the Court of Appeal, it is the borrower who has a very limited use of the money, being obliged to apply it for the stated purpose or return it. He has no beneficial interest in the money, which remains throughout in the lender subject only to the borrower’s power or duty to apply the money in accordance with the lender’s instructions. When the purpose fails, the money is returnable to the lender, not under some new trust in his favour which only comes into being on the failure of the purpose, but because the resulting trust in his favour is no longer subject to any power on the part of the borrower to make use of the money. …”.

63.Le Pichon JA observed and said similarly in the quote I cited in paragraph 54 above.

64.Thus, the payer has always retained a beneficial interest in the sum paid for the stated purpose, and the recipient only “has very limited use of the sum being obliged to apply it for the stated purpose or return it”.

65.In the present case, there is no issue that HKSGI has not applied the Donation to the Specific Purpose for 19 years up to the time this action was commenced. Using the actual words of Lord Millett, HKSGI is “obliged to apply it for the stated purpose or return it”, as the Donation “is held on a resulting trust for [Choy] from the outset”.  Moreover, HKSGI’s obligation to return Choy the Donation is a personal obligation imposed by equity on HKSGI.  Thus, it is no answer for HKSGI to deny the returning of the Donation to Choy, the one who retains a beneficial interest, by pointing at some third person and says, “he could have applied the Donation for the stated purpose on your behalf”.  For completeness, I would mention that this court did ask Mr Yin if HKSGI had the identity of this “third person” in mind and this court did not receive a clear answer.

66.I must therefore reject this contention.

Conclusion and Disposal

67.I hold in favour of Choy’s alternative claim but not in favour of his contractual claim.  I give judgment to Choy and order HKSGI to return the Donation in the sum of HK$2,000,000 to Choy.

68.As the Donation was made in 1999, the interest to be awarded against HKSGI could be substantial, and the parties have not yet had the opportunity to address me fully.  Towards the end of the closing submissions Mr Chong on behalf of Choy invited me to award interest at 10% per annum compound annually, as was awarded in Typhoon 8 Research Ltd.

69.Provisionally, I am not convinced that such would be a just and appropriate award on the facts before me.  I would on nisi basis award interest on the sum of HK$2,000,000 at the prime rate per annum from the date of the Donation to the date of this judgment and thereafter at judgment rate until full payment.  If any party seeks a different award of interest, he/it may lodge and serve short written submissions, limited to 7 pages, within 21 days from today, and the other may lodge and serve reply written submissions, limited to 5 pages, within 14 days thereafter. The question of interest will then be disposed of on paper unless otherwise directed.  If no such submissions are lodged within 21 days, this nisi award will become absolute.  

70.On costs, I order on nisi basis that HKSGI do pay Choy’s costs of this action, including all costs reserved, to be taxed if not agreed.  Unless any party applies by summons to vary within 21 days, the above nisi order on costs will become absolute after the expiry of that period.

71.It remains for me to thank all counsel for their assistance.