Ho Wai Kwong, Executor of the Estate of Yu King, Deceased v. Ho Kam Chui

CACV 301/2023, [2025] HKCA 174

On Appeal From [2023] HKCFI 2218

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 301 OF 2023

(ON APPEAL FROM HCA NO 1224 OF 2016)

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BETWEEN

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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):

A. Introduction

1.The protagonists in this dispute are members of a family.  The mother of this family had, during her lifetime, by what appears on the face of the documents to be a sale and purchase, transferred a shop held in her sole name to herself and a daughter as joint tenants.  No money changed hands by way of payment of the price.  The mother died, after giving notice of severance of the joint tenancy.  One of her sons, the executor of her will, then brought an action against the daughter to recover the daughter’s half-share of the shop, on the ground that the transaction was a sale which had been repudiated by the daughter.  The daughter contended that the transaction was a gift to her but that if it was a sale, she was willing and ready to pay the price.

2.In his judgment dated 29 August 2023 (“Judgment”),[1] the trial judge, Lok J, held that the transaction was a sale and not a gift, that the daughter had repudiated it by failing to pay the price, that the mother had terminated the sale and purchase by accepting the repudiation, and that under the law of restitution the daughter held the half share on trust for the mother. 

3.This is the daughter’s appeal against the Judgment.

B.  Background

4.The principal facts are as follows.

5.The late Mr Ho Chee (“Father”)  and the late Madam Yu King (“Mother”)  were born in around 1922 and 1927 respectively.  They had 8 children born between 1947 and 1960 in the following order: (1) Ho Kam Hing, daughter, deceased in 2007; (2) Ho Kam Chui, daughter, the defendant; (3) Ho Kam Chuen, daughter, deceased in infancy; (4) Ho Kam Ling (“Ling”), daughter; (5) Ho Wai Tim (“Tim”), son; (6) Ho Kwok Leung (“Leung”), son; (7) Ho Wai Kwong, son, the plaintiff; and (8) Ho Kam Sheung (“Sheung”), daughter.

6.The Father used to run a metal works business.  In 1976 the Father and Mother bought the property known as Shop B, Ground Floor, Kam Fook Mention, 148-156 Jaffe Road, Hong Kong (“Property”)  as joint tenants.  It was used as the office and workshop of the business until 2005, when the business ceased.  Thereafter the Property was let for rental income.

7.The Father died in 2009, and the Mother became the sole owner of the Property by right of survivorship.

8.It appears that at some point prior to 7 February 2013, the Mother formed an intention to dispose of the Property.  At around that time, on a date unknown,[2] the Mother and the defendant both signed on a document written in Chinese (“Chinese Memorandum”)  before a witness who was a former classmate of one of the defendant’s daughters.  The Chinese Memorandum read as follows:

“ I, YU King, also known as YU Yip-king, am the holder of Identity Card no. xxxxxxxx. Prior to the making of the will on 1 February 2010, the market value, according to bank valuation, of Shop B, G/F, Kam Fook Mansion, 150 Jaffe Road, Wan Chai, was between HK$15 million and 16 million. To prevent this shop from going to an outsider, I, YU King, have decided to sell the title, together with the lease, of Shop B, G/F, 150 Jaffe Road, Wan Chai, at the price of HK$16 million to my second eldest daughter, HO Kam-chui, holder of Identity Card no. xxxxxxxx. My second eldest daughter, HO Kam-chui, has agreed to take the conveyance, and carry out and complete the sale and purchase of the said property at a law firm on 7 February 2013. I, YU King, request my second eldest daughter, HO Kam-chui, to firstly pay HK$1 million by cheque as the deposit for the property, and to separately pay the balance of HK$15 million by another cheque to complete the sale and purchase of the property. The cheque for [HK$15 million] is to be deposited in the bank on (my)  behalf by my second eldest daughter, HO Kam-chui, as time deposit, until I, YU King, pass away, for the purpose of fulfilling the provisions of the will. To avoid disputes among people after my death, I, YU King, request my second eldest daughter, HO Kam-chui, to jointly execute this document as proof, which is witnessed and confirmed as correct by a third person.” [3]

Although the Chinese Memorandum stated that the whole of the Property would be sold to the defendant for $16 million, the documents actually executed for the transaction on 7 February 2013 (as described in the following paragraph)  were for the sale and transfer of the Property to the Mother and the defendant as joint tenants (or, in other words, a sale and transfer of a half share in the Property to the defendant)  for $8 million to be paid by the defendant.

9.On 7 February 2013, a number of documents were executed by the Mother and the defendant at the office of a solicitor’s firm, Messrs. K M Lai & Li, before a solicitor, Ms Rosaline Ma (“Ms Ma”), including:

(1)  The Mother as vendor and the Mother and the defendant as purchasers signed a Memorandum of Agreement for Sale and Purchase of the Property (“SPA”).  The purchase price was stated to be $8 million payable in one lump sum on completion.  The completion date was the same date of 7 February 2013.  There is subsequent evidence from the Rating and Valuation Department that the value of a half share of the Property at that time was $18.5 million, more than double the agreed price.

(2)  The Mother as vendor and the Mother and the defendant as purchasers executed an Assignment of the Property by the former to the latter as joint tenants (“Assignment”).  The Assignment was stated to be in consideration of the sum of $8 million “paid by the said HO KAM CHUI to the Vendor (receipt whereof is acknowledged)”, though it is common ground that the defendant had not actually paid that sum.

(3)  The Mother and the defendant each made a statutory declaration stating their relationship and that they did not need separate legal representation.

(4)  The Mother signed a will (“2013 Will”)  which, inter alia, would appoint the defendant as executor and, after specified devises and bequests, give the residuary estate to the defendant. The Mother also made a statutory declaration explaining why the 2013 Will made no provision for Ling and Leung and his wife.

10.According to the plaintiff, starting from around July 2014, the Mother had expressed misgivings about what the defendant had done in relation to the Mother’s assets.  In particular, the Mother said that the defendant had told her that there had to be sufficient cash in her bank account for the Mother to make a will giving monetary legacies, and that the defendant suggested that the Mother sell half of the Property to her to generate enough cash for that purpose.  At the Mother’s behest, from July 2014 onwards, the plaintiff asked the defendant for, inter alia, payment of the $8 million for the half share of the Property, but the defendant responded only by saying that this was a matter between her and the Mother.

11.On 25 October 2014, according to the plaintiff, the Mother gave him oral instructions in accordance with which he prepared a letter from the Mother to the defendant, which the plaintiff and the Mother both signed (“25 October 2014 Letter”).  The part of the letter concerning the Property read as follows:

“ Ah Chui, on that day I sold the shop to you at a low price, in the hope that you would keep your late father’s property. However, you did not pay me any of the relevant sums at all in the course of the sale and purchase. I even had to bear the legal fees and stamp duty. In my mind I really do not understand what your intent is. Concerning the sale and purchase of the shop, I want you to give a clear account:

1. Where is the sum in connection with the purchase of the shop?

2. After deduction of my expenses over this period of time, how much is the balance of such sum?

3. The computation of interest to date since the transaction.

4. What do you propose to do with the remaining money.” [4]

12.The plaintiff’s evidence was that after collecting that letter, the defendant told the Mother that Ms Ma said what the Mother proposed to do would be to commit a “double breach of law”.  The plaintiff however ascertained from Ms Ma that she had not given any such opinion, and arranged for Ms Ma to have a meeting with the Mother directly on 29 October 2014.  After the meeting, on the Mother’s instruction, the plaintiff prepared a letter from the Mother to the defendant (“29 October 2014 Letter”), which was given to the defendant a few days later.  That letter relevantly read as follows:

“ Regarding the sale and purchase of the shop, Lawyer Ma remembers clearly that you did not pay the $8 million through the law firm. You told Lawyer Ma that you would deal with that with me in private. In the event that Lawyer Ma is able to prove that you did not pay in accordance with the terms of the sale and purchase agreement when you purchased 50% of the title of the shop from me, I will be entitled, according to Lawyer Ma, to set aside the transaction and recover the title of the shop. Lawyer Ma even indicated that, upon the execution of the agreement between us, she had reminded us that, since we paid the stamp duty for the transaction at the time based on the price of 8 million, it is possible that additional stamp duty would be charged by relevant government departments. The reason is that, as shown in the records at the law firm at that time, the market value of the shop on G/F, 150 Jaffe Road, was HK$40 million! On this matter, Lawyer Ma even produced a demand note for additional stamp duty issued by the Rating and Valuation Department in August this year to the owner of the shop at G/F, 150 Jaffe Road. The content therein mentioned that the market value of the subject property was $40 million odd. I told Lawyer Ma that I had not received this letter. Lawyer Ma then told me that the letter was sent to your home in MacDonnell Road, but you indeed did not tell me about it!

I told Lawyer Ma that quite apart from not paying the said sum of $8 million, you had not paid me any rent received to which I was entitled for the 50% of the title and the interest accrued on the $8 million over this period of time since the transaction. Meanwhile, Lawyer Ma told me to ask you verbally for payment and give you time to do so, and to take legal action only when you still do not cooperate!” [5]

13.After the meeting, Ms Ma prepared a Deed of Severance for severing the joint tenancy in relation to the Property, which was executed by the Mother.  However, according to the plaintiff, Ms Ma told him it was ineffectual because the defendant refused to sign it.

14.On 15 November 2014, while she was staying in hospital, the Mother made a new will also prepared by Ms Ma’s firm (“2014 Will”), which would continue to appoint the defendant as executor.  So far as the Property is concerned, this new will provided in clause 4(3)  as follows:

“ Shop B, G/F, Kam Fook Mansion, 148, 150, 154 and 156 Jaffe Road, Wan Chai, Hong Kong, is under the joint ownership of me and my daughter, HO Kam-chui, who is the executor of this will. In the event that the ownership of the property is converted into tenancy in common in my lifetime, the entirety of my interest in the said property is to be devised to my daughter, HO Kam-chui.” [6]

15.According to the plaintiff, on 28 March 2015, the Mother dictated to him her recollection of certain matters concerning her dealings with the defendant, which he typed up and the Mother signed (“28 March 2015 Memorandum”).  The part relating to the Property stated as follows:

“ As to the rent of the shop amounting to upwards of 70k or 80k per month – I do not remember which is the case – you will remember that evening before the New Year when I had her over to account for the money, she lost her temper and complained that I was being troublesome, and [said] that anything that needed to be accounted for had been clearly accounted for in front of Lawyer Ma, Ah Tim and Ah Leung at the hospital, and that [“]if you have any questions, ask Lawyer Ma yourself at your own costs.[”]  She said she had now decided not to purchase the shop, and would return it to me.  She would go back, calculate the rent, and give me an account.  But to date she has neither come nor called.” [7]

16.On 15 April 2015, according to the plaintiff, on the Mother’s instruction he prepared a memorandum of the matters on which they intended to consult Ms Ma (“15 April 2015 Memorandum”), including the following:

“ 3. YU King wishes to find out the current ownership status of the shop at G/F, Kam Fook (Mansion). During the abovementioned encounter, HO Kam-chui complained that YU King was being troublesome, and decided not to buy the shop, saying she would go back, calculate the rent, and give YU King an account. Since then 3 months have passed, but not a phone call did HO Kam-chui make to give an account. YU King wishes to pursue:

(l)  If HO Kam-chui has bought the shop, where is the money plus interest?

(2)  If the shop is not bought, where are the rents plus interest since February 2013?

(3)  Where is the rent paid in advance and deposit from Tim’s Kitchen, the tenant of the shop?” [8]

The plaintiff said that when they met with Ms Ma the next day, however, she gave no positive reply to their queries and repeated that since the defendant declined to sign the Deed of Severance, there was no other way to sever the joint tenancy.

17.This led to the Mother and the plaintiff consulting another firm of solicitors, Messrs Yip, Tse & Tang, shortly afterwards.  They advised that severance could be effected by a joint tenant unilaterally, and prepared a notice of severance for the Mother to sign, which she did on 23 April 2015, and had it registered in the Land Registry and sent to the defendant (“Notice of Severance”).

18.On 28 April 2015, there was a family meeting at the Mother’s home.  One of the matters discussed was whether a deed of family arrangement could be entered into for the return of the half share in the Property held by the defendant to the Mother.  The minutes drawn up by the plaintiff recorded as follows:

“ 1. YU King demanded that HO Kam-chui return half of the title in the shop at G/F, Kam Fook (Mansion)  …

2. HO Kam-chui responded with an accusation against YU King for not honouring her words, saying that [Yu] having agreed to sell half of the G/F shop at 8 million to her, went back on the deal. YU King said in reply: HO Kam-chui, you have never made the payment; now I need money for hemodialysis to survive; you either pay the money at once or return half of the G/F shop to me. HO Kam-chui answered: I do not have that much money now; besides, the agreement was to sell the entire shop to me; now that we are only talking about half a shop, I am not buying …

…

4. HO Kam-chui said to YU King: I now return the shop to you, lest your sons accuse me of scamming you. HO Wai-tim pointed out to HO Kam-chui at that time that it was indeed an unjust arrangement for her to buy half of the title to the G/F shop from Mother at $8 million which was much below market price.

5. HO Kam-chui then said to YU King: watch closely, I now return all your title deeds to you in front of your sons; you (YU King)  send someone to check and receive them. YU King there and then directed HO Kwok-leung to check and receive them …” [9]

19.On 11 May 2015, the Mother made another will at the office of Messrs Yip, Tse & Tang (“2015 Will”), under which the plaintiff would be the executor.

20.On 5 March 2016, the Mother died.

21.There were two further family meetings after the Mother’s death, respectively on 25 and 30 March 2016, but they did not bear fruit.

22.By a writ issued on 10 May 2016, the plaintiff, as executor of the Mother’s estate, commenced the action below against the defendant.

C.  The parties’ contentions

23.The plaintiff’s pleaded case was that the transaction was a sale and purchase on the terms of the SPA and the defendant never paid any part of the price which resulted in a total failure of consideration for the SPA and the Assignment and constituted a wrongful repudiation of the same.  The repudiation was accepted by the Mother during the family meeting on 28 April 2015 or by the plaintiff by the issue of the writ on 10 May 2016.  The Mother remained the sole beneficial owner of the Property and upon the Assignment, the defendant held the legal title as a joint tenant on resulting or constructive trust for the Mother.  After the Notice of Severance of 23 April 2015, the defendant held her half share as a tenant-in-common on resulting or constructive trust for the Mother.

24.The plaintiff claimed a declaration that the half share of the Property registered in the defendant’s name was at all material times and is held by her on trust for the Mother’s estate absolutely, and an order for her half share to be transferred to the plaintiff as executor of the estate, together with all necessary accounts and inquiries as to what is due to the estate.

25.The defendant’s case at trial was that the SPA and the Assignment represented a gift dressed up as a sale.  Her pleaded primary case was that there was a gift of the entirety of the Property to her, and that the Mother was estopped from severing the joint tenancy without bequeathing her share to the defendant.[10] But this was abandoned at trial,[11] where the defendant’s primary case was that the transfer to her as a joint tenant was a gift of a half share in the Property.

26.As an alternative, the defendant contended that if it was not a gift, then the transaction was a sale and purchase of a half share in the Property on the terms of the SPA.  The defendant did not become a trustee of her share through restitution even though she had not paid the contract price.  If there was a breach of contract by the defendant, it took place on 7 February 2013 when she failed to pay the price.  The Mother never unequivocally accepted the repudiation and rescinded the contract.  The defendant was willing to pay the contract price if the court found the transaction to be a sale.

D.  The Judgment

27.The judge heard oral evidence from 3 witnesses called by the plaintiff, namely, the plaintiff himself, Leung and Sheung, and 2 defence witnesses, namely, the defendant and her husband, Li Kwok Wah, in a trial that lasted 9 days.  His Lordship recorded in the Judgment his views on the credibility of each of them.  He found the plaintiff, Leung and Sheung to be honest and reliable,[12] and in addition said that Leung was a “most impressive witness whose demeanour and answers in cross-examination were impeccable”.  In contrast the judge did not find the defence witnesses reliable.[13]

28.To put the arguments on this appeal in context, it is necessary to describe the judge’s reasoning on the factual question of whether the transaction was a sale or a gift.  Before setting out his reasons in detail, the judge made 4 preliminary observations in the Judgment.  First, the transaction was stated in the SPA and the Assignment to be a sale.  It was for the defendant to prove it was instead a gift.  Second, the defendant’s evidence, alleging a gift made by a person who had since died and could not therefore testify, must be approached with great caution.  Third, under the modern approach, evidence of subsequent conduct of the parties is generally admissible, subject to the question of weight, and may be looked at for assessing the credibility of the evidence of the parties as to their intention at the time of the transfer.  Fourth, the defendant’s change of stance in abandoning her case of gift of the whole of the Property undermined the credibility of her case.[14]

29.The judge then gave his reasons under several headings.  First, the judge considered that there was no good reason why the Mother would give her main income-generating asset to the defendant alone. Apart from Leung and Ling with whom the Mother was displeased in February 2013, there were 3 other children, namely, the plaintiff, Tim and Sheung, and more than 10 grandchildren.  The judge considered the plaintiff’s evidence of what the Mother told him in July or August 2014 to be a “far more plausible reason” why the Mother transferred a half interest in the Property to the defendant. That was because the 2013 Will contained monetary legacies to children and grandchildren totalling $7.3 million, and the defendant persuaded the Mother that she needed sufficient cash in bank for those bequests.[15]

30.Secondly, the judge found the defendant’s case “full of contradictions”.  There was no reason why the Mother had to keep the gift secret and could not have made a written declaration that she intended to gift the Property to the defendant, like the declaration in which she explained why she decided to disinherit Leung and Ling.  It was also inexplicable, if the Mother had intended a gift, why she made the gift then rather than as a bequest upon her death.  A bequest would be much more consistent with her alleged desire to keep it secret, whereas the SPA and Assignment would become public knowledge from being registered in the Land Registry.[16]

31.Thirdly, the judge found it difficult to understand, given that the documents were prepared by a solicitor, why the transfer was dressed up as a sale and purchase rather than executed by way of a deed of gift if it was in fact a gift.  The judge thought it unlikely a solicitor would have designed a sham transaction involving false declarations. Nor could the defendant explain how dressing up the gift as a sale could resolve any “stamp duty problem” as she alleged.[17]

32.Fourthly, the judge found the defendant’s case inconsistent with the conduct of the parties after the transfer of the Property, which he identified, including the following matters:

(1)  The defendant’s case of gift was inconsistent with the Chinese Memorandum which was signed by both the Mother and the defendant and attested by a friend of the defendant’s daughter.  The judge noted that the defendant did not call either her daughter or her friend to give evidence.[18]  (The judge proceeded on the basis the Chinese Memorandum was signed after the SPA and Assignment, but it is not clear to us this was the case.)

(2)  The 25 October 2014 Letter showed that the Mother was then demanding that the defendant account for the purchase price payable by the defendant.  The judge found that the letter accurately reflected what the Mother told the plaintiff at the time.[19]

(3)  The 29 October 2014 Letter showed that the Mother regarded the transfer as a sale and she demanded that the defendant pay the purchase price.  The judge appears to have found that this letter also truly represented what the Mother had said to the plaintiff at the time.[20]

(4)  The judge found that on 1 November 2014, the defendant told Leung, inter alia, that in order to save stamp duty payment, the Mother had sold the Property to her by way of a joint-tenancy arrangement, and that the lawyer (Ms Ma)  had asked the defendant to execute the Deed of Severance in respect of the Property.[21]

(5)  In the statement of account for transactions between April 2008 and November 2014 prepared by the defendant and given to her siblings in early January 2015, there were 2 entries, namely: (i) a sum of $1 million on 28 February 2013 described as “謝斐道150舖訂金” (Jaffe Road No 150 Shop deposit); and (ii) another sum of $1 million on 30 September 2014 described as “謝斐道150舗付款” (Jaffe Road No 150 Shop payment).  This shows that the defendant herself claimed at the time that she had paid $2 million towards the purchase price.  The judge did not accept the defendant’s attempt to explain away these entries.[22]

(6)  The 28 March 2015 Memorandum also suggested that the transaction was a sale for which the defendant had to pay the agreed price.  The judge accepted it to be a genuine document recording the Mother’s intentions at the time.[23]

(7)  The 15 April 2015 Memorandum again suggested the transfer of the Property to the defendant as a joint tenant was a sale.  The judge accepted this to be an authentic document.[24]

(8)  The instructions given by the Mother to the solicitors firm of Messrs. Yip, Tse & Tang in April 2015, as set out in the firm’s letter dated 3 October 2017, were that the defendant had refused to pay the agreed consideration for the transfer of the Property.  This is again inconsistent with the defendant’s case of gift.[25]

(9)  What was said by the Mother and the defendant at the 28 April 2015 family meeting, as recorded in the notes produced by the plaintiff which the judge accepted as an accurate record of the discussions, was also inconsistent with the transaction being a gift to the defendant.  The defendant never mentioned any alleged gift.[26]

(10)  In a WhatsApp chat group among the family members following the 28 April 2015 family meeting, the defendant herself described the agreement she had with the Mother as a “sale and purchase agreement” (買賣協議)  and never mentioned it was a gift.[27]

(11)  The judge also noted that the Mother said words to a doctor who examined her on 8 May 2015 suggesting that she regarded herself as the full owner of the Property, which would be inconsistent with the case that she had gifted the whole or half of it to the defendant.[28]

(12)  At the 25 March 2016 family meeting, as recorded by the notes prepared by the plaintiff which the judge accepted as accurate, the defendant admitted she had not made any payment towards the price, alleging that the rental income had been used to set off the initial deposit.  At the 30 March 2016 family meeting held a few days later, the defendant again agreed to return her 50% interest in the Property and never said to her siblings that the Mother had given her the Property or half of it as a gift.[29]

(13)  In her WhatsApp message to her siblings on 11 April 2016, the defendant complained that her siblings had “twisted the fact that [she] had bought the Property with real money” (將我真金白銀購買舖頭的事實扭曲).  The judge thought there was no reason the defendant would have said this unless the transaction was indeed a sale.  He rejected the defendant’s subsequent explanations of this message.[30]

(14)  The judge noted that it was only in the Defence and Counterclaim filed on 22 June 2016 that the defendant first raised the case of gift, and considered that the lateness of this allegation “destroys the credibility of the defence case”.[31]

33.Having found the transaction to be a sale and purchase rather than a gift, the judge went on to consider the legal position between the parties as vendor and purchaser.  He found that the mother had not insisted upon payment being made on the completion date (7 February 2013)  and only started to chase for the outstanding price of $8 million in July or August 2014, and that the defendant committed a “repudiatory breach” by failing to pay within a reasonable time after such demand.[32]

34.The judge next found that the Mother accepted the defendant’s repudiation of the SPA at the 28 April 2015 family meeting and that, in any event, the defendant had failed to show any unequivocal election by the Mother to affirm the SPA.[33] The judge reasoned that upon the Mother’s acceptance of the defendant’s repudiation, the SPA came to an end.  Also, during that meeting the defendant had decided not to buy the Property and returned the title deeds to the Mother.  Even if the SPA was not terminated on 28 April 2015, as the defendant had continued to fail to pay the price, the plaintiff had accepted that repudiation at the latest by the issuance of the writ of summons on 10 May 2016.[34]

35.The judge concluded at §133 of the Judgment, citing in a footnote Carter’s Breach of Contract (2^nd ed)  §13-50 at pp 642-643 as authority in support:

“ As pointed out by [counsel for the plaintiff], before the termination of the SPA by the Mother’s acceptance of the Defendant’s repudiatory breach, the Mother enjoyed an equitable unpaid vendor’s lien over the Property. However, upon its termination, there was no longer any legal basis whatsoever for the Defendant to continue to hold any beneficial interest in the Property. Under the law of restitution, from that moment, the Defendant must have been holding the 50% interest in the Property registered in her name as joint tenant on trust for the Mother (and the Plaintiff as executor of the Mother’s estate upon her death).”

36.At §135 the judge concluded that the half share in the Property registered in the defendant’s name “was at all material times and is held by the Defendant on trust for the Mother’s estate”, and ordered her to take steps to transfer the half share to the plaintiff and account for the rental income received subject to specified deductions.

E.  The questions arising on appeal

37.On this appeal, the defendant has advanced arguments in support of three broad contentions:

(1)  that the judge was wrong to find that the transfer of the Property by the Mother to herself and the defendant as joint tenants on 7 February 2013 was a sale rather than a gift of a half share;

(2)  that the judge was wrong to find that the Mother or the plaintiff had accepted the defendant’s repudiation of the SPA and ought to have found instead that the Mother had affirmed the SPA; and

(3)  that the judge was wrong to hold that under the law of restitution, the defendant held the 50% interest in the Property on trust for the Mother; at most, the failure of consideration gives rise to a personal restitutionary remedy.

38.In the discussion below we shall first deal with the appeal on the question of fact as to whether the transaction was a sale and purchase or a gift.  Secondly, we shall analyse the legal position of the parties and the remedies available to the plaintiff on the basis that the transaction was a sale and purchase and the defendant had failed to pay the price.  Thirdly, we shall touch on the challenge against the finding that the Mother had accepted the defendant’s repudiation of the SPA, which, as explained below, is in our view a non-issue.

F.  Whether the transaction was a sale and purchase or a gift

39.The judge’s finding that the transfer of the Property by the Mother to herself and the defendant as joint tenants on 7 February 2013 was a sale and not a gift was a finding of primary fact as regards the intention of the parties to the transaction, i.e. the Mother and the defendant, at the time.  It is moreover the outcome of a fact-finding exercise in which oral evidence played a significant part, as the plaintiff’s counsel submit.  It is plain that the defendant faces a high hurdle in seeking to impugn this finding of fact.  There is no room for intervention by this court unless it is demonstrated that the judge’s finding is plainly wrong: Ting Kwok Keung v Tam Dick Yuen (2002)  5 HKCFAR 336, §42; Cheung Yuk Ying Engracia v Macgregor Isabella [2023] 3 HKLRD 164, §28.  Having considered the various arguments put forward by counsel for the defendant, we have no hesitation in rejecting the attack on this factual finding as utterly hopeless. Those arguments fall into three broad points.

40.The first broad point is that the judge failed to give due weight to the documents contemporaneous with the transaction and placed undue weight on subsequent documents and events.  To start with, this is hardly a promising argument, for the weight to be placed on particular pieces of evidence is pre-eminently a matter for the trial judge, with which the appellate court will rarely interfere: see Tang Kwok Ming v Daxprofit Scaffolding Ltd [1999] 1 HKC 657, 663.

41.When the specific documents to which the judge is accused of giving inadequate weight are examined, it is clear that the argument does not get off the ground.  First, it is said that the Assignment, which contained a receipt clause (“receipt whereof is acknowledged”)  with respect to the price of $8 million, evinced the intention of a gift.  We accept it is possible that parties to a transaction have entered into what appears to be a sale and purchase, with the intention that the price need not be paid, giving rise in substance to a gift.  But such a receipt clause is in itself hardly conclusive evidence of a gift, and no estoppel by deed arises from it as between immediate parties who know all the circumstances: Tsui Hoi Pan v Wong Chun Ling (CACV 150/1999, 1 December 1999), p 3; Suen Shu Tai v Tam Fung Tai [2014] 4 HKLRD 436, §7.11.  The judge was in our view entitled to attach greater weight to the direct evidence from the parties as regards the nature of the transaction.  The judge was aware of the need for caution in relying on the Mother’s declarations and conduct subsequent to the transaction.[35] According to the Mother, as recorded in the 29 October 2014 Letter, the defendant told Ms Ma that she would deal with the issue of the price with the Mother in private (“你當時無透過律師樓付款八佰萬元，你向馬律師表示你會私下跟我處理”).  But even if one discounts the weight to be placed on what the Mother later said as being subsequent self-serving declarations, the striking fact is that in the face of such demands the defendant never said it was a gift and that no price was payable (until she filed her pleadings in the action, when the Mother had already died).  As pointed out by Lord Phillips MR in the English Court of Appeal’s decision in Lavelle v Lavelle [2004] EWCA Civ 223 at §19: “Where the transferee is an adult, the words or conduct of the transferor will carry more weight if the transferee is aware of them and makes no protest or challenge to them.”  In the present case, not only did the defendant not protest against the Mother’s characterisation of the transaction as a sale, she herself positively claimed to her siblings and the Mother that she had “bought” the interest in the Property: see §32 above. 

42.The defendant also relies on the 2013 Will and in particular on the fact that it did not provide for the devolution of the Property.  In our view this does not assist the defendant at all.  Whether the assignment of the Property to the Mother and the defendant was made pursuant to a sale or a gift, the result was the same to the extent that they had become joint tenants and as such the defendant would become sole owner on the Mother’s death.  The absence of any provision relating to the Property in the 2013 Will is therefore not probative on the issue.

43.On the other hand the defendant criticises the Judge for placing undue weight on certain subsequent documents, i.e. the Chinese Memorandum, the 25 and 29 October 2014 Letters, the 15 April 2015 Memorandum and the records of the family meetings on 25 and 30 March 2016.  We do not see any merit in the points raised regarding the reliability of these documents.  So far as the documents emanating from the plaintiff are concerned, the judge heard the witnesses especially the plaintiff and was entitled to be satisfied that the documents represented an accurate record of what was said. So far as the Chinese Memorandum is concerned, as a document prepared and signed by the defendant herself and shown by her to Leung, clearly the judge was entitled to rely on it against the defendant’s interest.

44.It is in particular argued that any suggestion in the 25 and 29 October 2014 Letters that the transaction was a sale and purchase and the defendant remained liable to pay the price is contradicted by clause 4(3)  of the 2014 Will.  We do not agree.  What clause 4(3)  would do was to devise the Mother’s half share in the Property to the defendant in case the joint tenancy was severed before the Mother’s demise.  It did not purport to deal with the defendant’s existing half share in the Property and did not shed any light on whether the defendant had acquired that half share in February 2013 through a sale and purchase or a gift.

45.The second broad point of the defendant is that the judge was wrong to think that the Mother needed any additional cash in order to fund the $7.3 million cash bequests under the 2013 Will.  This point is not properly raised in the Notice of Appeal and is not open to the defendant.  Whilst there was $5 million in fixed deposits left by the Father, they were under the defendant’s control, and the Mother could have other plans for them.  In any event, even if the $5 million fixed deposits were taken into account for the purposes of funding the legacies, there would still be a shortfall of over $2 million, as the judge pointed out.[36]  The Chinese Memorandum also shows that it was the Mother’s intention that the proceeds of sale of the Property were to be used for implementing the provisions of her will.  This point therefore falls far short of the hurdle for impugning the judge’s findings of fact.

46.The third broad point made is that the judge misunderstood the defendant’s case as one involving a “sham transaction”.  It is submitted that it was Ms Ma the solicitor who advised and structured the transfer in the form of the SPA and the Assignment, and that the parties relied on her advice in executing the gift in that form.

47.Again this point has no merit.  First, there is nothing wrong for the judge to take into account the fact that both the Mother and the defendant made statutory declarations that they were “associated parties” in the sale and purchase of the Property for the purpose of permitting the same solicitors firm to act for both of them.  The declarations were made in the context of Rule 5C of the Solicitors’ Practice Rules (Cap 159H)  which prohibits a solicitors firm from acting “for both the vendor and the purchaser on a sale or other disposition of land for value” subject to exceptions of which the relevant one is that they are associated parties.  Had the transaction been a gift, Rule 5C would not have come into play.

48.Further, as counsel for the plaintiff point out, faced with the plaintiff’s criticism that the defendant had not called Ms Ma to give evidence, the defendant submitted at trial that it was never her case that Ms Ma knew of the gift.  This was confirmed by the defendant in her evidence during cross-examination.  In these circumstances we agree with the plaintiff’s counsel that it is an abuse of process for the defendant to argue on appeal, inconsistently with her case below, that she had left it to the solicitor to devise the form of documents for “executing the gift”.

49.For all these reasons, the challenge against the finding that the transaction was a sale and purchase rather than a gift fails.

G.  The parties’ legal position and the remedies available to the plaintiff under a sale and purchase

50.On the basis the transaction was a sale and purchase, what was the legal position of the parties in light of the defendant’s failure to pay the price?  The judge’s reasoning, following the plaintiff’s submissions, consisted of these steps: (1)  The defendant’s failure to pay the price within a reasonable time after the Mother started to chase for it in July or August 2014 was a repudiatory breach of the SPA.[37]  (2) As the vendor, the Mother was entitled to accept the wrongful repudiation, thereby terminating the contract, so long as she had not affirmed the contract.[38]  (3) On the facts, the Mother had not affirmed the SPA, and at the family meeting on 28 April 2015,[39] or at the latest by the issuance of the writ on 10 May 2016,[40] the defendant’s repudiation was accepted by the Mother or the plaintiff, bringing the SPA to an end.[41]  (4) Upon termination of the SPA, “there was no longer any legal basis whatsoever for the Defendant to continue to hold any beneficial interest in the Property.”[42]  (5) “Under the law of restitution, from that moment, the Defendant must have been holding the 50% interest in the Property registered in her name as joint tenant on trust for the Mother.”[43]  Each of these steps calls for close examination. 

51.Upon reading the papers, it occurred to this court that there might be aspects of the correct legal analysis in this regard which had not been focused upon.  The court therefore by letter before the hearing invited counsel to address our concerns.  We are grateful for the effort counsel made at short notice to deal with the matters raised, and especially for the detailed written supplemental submissions of the plaintiff’s counsel.

52.Regarding the first two steps of the judge’s reasoning, under the SPA the price was to be paid in one lump sum upon completion, and completion was fixed for 7 February 2013.  Assuming time was not of the essence in that respect, the question could arise, upon the purchaser’s failure to tender payment at the stipulated time or after the vendor gave the requisite notice, as to whether such failure was a repudiation of the SPA and whether the vendor could accept the repudiation and thereby bring the contract to an end. 

53.But this question would only be meaningful if the contract had remained executory and there were outstanding obligations for the vendor to perform from which she wished to be discharged.  Termination of a contract by acceptance of a wrongful repudiation is a mechanism for the innocent party to be released from his obligation further to perform his own remaining obligations under the contract.  It is prospective in operation and does not unwind what has been executed under the contract: see e.g. Chitty on Contracts (35^th ed), vol. 1, §§28-078 & 28-082. 

54.In Heyman v Darwins Ltd [1942] AC 356 at 399, Lord Porter said:

“ To say that the contract is rescinded or has come to an end or has ceased to exist may in individual cases convey the truth with sufficient accuracy, but the fuller expression that the injured party is thereby absolved from future performance of his obligation under the contract is a more exact description of the position. Strictly speaking, to say that on acceptance of the renunciation of a contract the contract is rescinded is incorrect. In such a case the injured party may accept the renunciation as a breach going to the root of the whole of the consideration. By that acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded.”

55.In the present case the Mother had already performed her part of the contract by assigning the Property to herself and the defendant as joint tenants.  She had acquired an immediately enforceable right to the price, and the defendant had correspondingly incurred the liability to pay it, which was actionable as a debt.  There was nothing that remained for the Mother to perform, and nothing in reality for her to terminate.  Termination is sometimes also used by the innocent party to discharge himself from his obligation to accept performance by the other party if made or tendered.  But here what remained to be performed by the defendant was simply the payment of the purchase monies.  The defendant had already incurred the liability to pay it, which would remain despite termination.  It follows in our view that the use of the concepts of repudiation, acceptance and termination in the context of this case was inapt.  Likewise, in sale of goods, it is stated in Benjamin’s Sale of Goods (12^th ed 2024), Vol. 1, §15-117 and §16-021 fn 160, that where the buyer has been given both possession of and property in the goods, a seller cannot terminate the contract for failure to pay the price so as to entitle him to retake the goods.

56.For the same reason, the third step in the judge’s reasoning, concerning whether and when the defendant’s repudiation was in fact accepted by the Mother, has no significance. 

57.The fourth step is in our view erroneous in law.  It appears to have stemmed from a mistaken assumption that upon termination of a contract, it can no longer provide the basis for property rights acquired before.  As stated above, termination of a contract operates prospectively.  It does not operate as a rescission ab initio, and does not negative the historical subsistence of the contract.  Nor does it automatically operate to denude transfers of property made under the contract during its currency of all legal basis.

58.In McDonald v Dennys Lascelles Ltd (1933)  48 CLR 457 at 476-477, Dixon J explained the position in a classic passage, which had since been cited with approval in Johnson v Agnew [1980] AC 367 at 396 and Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] 1 AC 1056 at 1098-1099, as follows:

“ When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach. ”

We do not understand the plaintiff’s counsel to dispute this well-established principle.

59.Thus, applying that principle, where a contract for the sale and purchase of property was terminated by the vendor due to the purchaser’s breach in failing to pay a deposit on time, it was held that as the termination occurred after the obligation to pay the deposit had accrued due, the vendor could sue the purchaser for the deposit as a debt: Howarth Cheung Natalie Jane Y. S. v Tsang Hong Kwang Ok & anor (CACV 272/2013, 15 October 2014).

60.In the present case, the Property was conveyed to the Mother and the defendant as joint tenants pursuant to the SPA during its currency, resulting in an accrued liability for the defendant to pay $8 million. Termination of the contract thereafter (assuming it was possible)  did not retrospectively remove the basis for the transfer.

61.As a vendor of an interest in land, the Mother had by operation of law an equitable lien over the interest sold, even after it was conveyed to the defendant, to secure any part of the purchase money which remained unpaid, even though the Assignment contained a receipt for the purchase money: Barclays Bank plc v Estates & Commercial Ltd [1997] 1 WLR 415, 419H-420B.[44] This lien however only functioned as a charge on the interest in land as security for the price entitling the Mother upon default in payment to a court order for sale; it did not operate to re-vest the beneficial interest in her.

62.The fifth step in the judge’s reasoning is in our view also erroneous.  The Mother having conveyed the property had an accrued right to the price enforceable by an action in debt.  In these circumstances, the parties’ legal relationship, and their respective rights and liabilities, are governed by contract, and there is no need or scope for bringing in the law of restitution.  The judge erred in accepting the plaintiff’s submission that applying the law of restitution to these facts results in the defendant becoming a trustee of the 50% interest in the Property registered in her name.

63.An important authority for the principle involved is the House of Lords’ decision in Pan Ocean Shipping Co Ltd v Creditcorp Ltd (The Trident Beauty) [1994] 1 WLR 161.  There, Pan Ocean, as charterer, entered into a time charter with Trident, the vessel’s disponent owners.  Trident obtained finance from Creditcorp, and assigned to it all receivables under the charterparty with notice to Pan Ocean.  On 31 May 1991, Pan Ocean paid, in advance as provided in the charterparty, an instalment of charterhire covering the period from 31 May to 15 June, to Creditcorp as assignee.  However, the vessel was not available to Pan Ocean throughout that period as it was off-hire for repairs and later withdrawn by the head owners.  By clause 18 of the charterparty all overpaid hire was to be returned at once.  On 10 July, Pan Ocean accepted Trident’s conduct as a repudiation and the charter came to an end.  As Trident was not worth suing, Pan Ocean sued Creditcorp to recover the instalment in restitution on the ground that there had been a total failure of consideration.

64.The House of Lords held that Pan Ocean’s claim failed.  At p 164B-E Lord Goff referred to clause 18 of the charterparty and said that the instalment paid in advance, in respect of a period during which the vessel turned out to be off hire, was repayable under that clause, and that even in the absence of that express provision, it would be repayable under an implied term to similar effect.  His Lordship went on to say:

“ All this is important for present purposes, because it means that, as between shipowner and charterer, there is a contractual regime which legislates for the recovery of overpaid hire. It follows that, as a general rule, the law of restitution has no part to play in the matter; the existence of the agreed regime renders the imposition by the law of a remedy in restitution both unnecessary and inappropriate. Of course, if the contract is proved never to have been binding, or if the contract ceases to bind, different considerations may arise, as in the case of frustration (as to which see French Marine v. Compagnie Napolitaine d’Eclairage et de Chauffage par le Gaz [1921] 2 A.C. 494, and now the Law Reform (Frustrated Contracts)  Act 1943). With such cases as these, we are not here concerned. Here, it is true, the contract was prematurely determined by the acceptance by Pan Ocean of Trident’s repudiation of the contract. But, before the date of determination of the contract, Trident’s obligation under clause 18 to repay the hire instalment in question had already accrued due; and accordingly that is the relevant obligation, as between Pan Ocean and Trident, for the purposes of the present case.

It follows that, in the present circumstances and indeed in most other similar circumstances, there is no basis for the charterer recovering overpaid hire from the shipowner in restitution on the ground of total failure of consideration. …”

65.The principle has been explained, at a high level of generality, by Lord Leggatt (dissenting but not on this point)  in the decision of the UK Supreme Court in Barton v Morris [2023] AC 684 as follows:

“ 191.  … there is also another broader reason why the existence of a contract precludes a claim based on the law of unjust enrichment.  This is that there already exists a system of law for determining what rights and remedies contracting parties have in relation to the subject matter of their contract.  It is called the law of contract.  In relation to the subject matter of the contract, the law of contract determines, and governs the consequences of, not only the existence but also the absence of an obligation on one contracting party to confer a benefit on the other.  To redistribute the allocation of benefits and losses provided for by the law of contract by applying another set of legal principles would undercut this regime.

   192.  A leading authority in which this point is made is Pan Ocean Shipping Co Ltd vCreditcorp Ltd (The Trident Beauty) [1994] 1 WLR 161. …”

See also §§90-96 of the judgment of Lady Rose, with whom Lord Briggs and Lord Stephens agreed.

66.Counsel for the plaintiff submit however that restitutionary claims are only excluded where there is a subsisting contract between the parties, and that different considerations apply where the contract is “ineffective” such as where an initially valid contract has been discharged for breach or frustration or the contract was void or unenforceable.  It is submitted that as the SPA here was terminated for breach, it was rendered ineffective and there was no longer any subsisting contract between the parties.  Counsel refer to passages at §§89-92 of the judgment of Ribeiro PJ in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004)  7 HKCFAR 79 (with whom the other members of the Court agreed)  which caution against allowing restitutionary claims to subvert contracts subsisting between the parties, as follows:

“ 89. In dealing with this argument, care must be taken to distinguish between cases (i)  where the plaintiff makes payment to the defendant pursuant to a subsisting contractual obligation owed by him to the defendant; and (ii)  where the plaintiff makes payment to the defendant pursuant to a contractual obligation owed by the plaintiff to a third person.

90. It is generally accepted that in relation to the first category, a restitutionary claim based on total failure of consideration is excluded during the subsistence of the contract: see eg, Dimskal Shipping Co SA v International Transport Workers Federation (‘The Evia Luck’)  (No 2) [1992] 2 AC 152 at 165; Pavey & Matthews Pty Ltd v Paul 162 CLR 221 at 256.

91. Professor Burrows explains the principle as follows:

‘ ...... the ambit of failure of consideration is rightly kept in check by the principle that, before a party can claim restitution for failure of consideration, he must establish that he has no contractual obligation to confer the relevant benefit on the defendant: any relevant contract must be ineffective. This may be, for example, because an initially valid contract has been discharged for breach or frustration; or because the contract was void, unenforceable or incomplete. It is by this principle that an undermining of contract by restitution is avoided and restitution is made subservient to contract. It is only when the parties’ own allocation of risk is ineffective that the imposed standards set by the law of restitution can step in.’ (Burrows, The Law of Restitution (2^nd ed 2002), at pp 323-324; see also Goff and Jones: The Law of Restitution (6^th ed 2002), at §1-063; Hedley and Halliwell, The Law of Restitution (2002)  §§19.3-19.5)

92. While a contract continues to subsist between the parties, one party who makes a payment to the other party in accordance with his obligations under that contract cannot be allowed to mount a claim in restitution for the return of that sum since such a claim would be inconsistent with what the parties had agreed. It is in this sense that the contract would be ‘undermined’ or, as Professor Birks puts it, that the restitutionary claim would ‘subvert bargains’ (Birks, An Introduction to the Law of Restitution (1989 Rev ed)  p 47).” [45]

67.Reliance is also placed by the plaintiff on the following passage in Carter’s Breach of Contract (3^rd ed 2024), §13-50 at p 616, which is relevantly the same as that in the second edition of the same work cited to the trial judge and adopted by his Lordship in support of his conclusion in §133 of the Judgment:

“ Termination required. Subject to statute, restitution is not available for a benefit conferred in performance (or part performance)  of an obligation under an effective contract. In general, therefore, the contract must be or become ineffective. It is now well established that a contract discharged by termination for breach (or repudiation)  is a species of ineffective contract. The claim may relate to money paid in or towards payment of the contract price or partial performance of an obligation to provide a non-monetary benefit.”

68.It is clear, however, that neither the above passages in Shanghai Tongji nor the passage in Carter’s Breach of Contract focussed on the vested rights and accrued obligations under a contract which was later terminated for breach.  In contrast the point arose in Pan Ocean itself.  There Lord Goff noted that even though the contract had been terminated by Pan Ocean’s acceptance of Trident’s repudiation, the contractual obligation under clause 18 of the charterparty to repay the hire instalment in question had already accrued due before the date of termination, and held that that was the relevant obligation, leaving no scope for a claim in restitution on the basis of failure of consideration.  In Shanghai Tongji, at §97, Ribeiro PJ specifically referred to that part of Lord Goff’s judgment and said that because the contractual regime provided, during the contract’s subsistence, for repayment of the unearned hire, the established principle applied to prevent Pan Ocean from mounting a restitutionary claim which would cut across the agreed regime.  Thus the Court of Final Appeal clearly recognised that notwithstanding a contract has since been terminated for breach, the existence of rights and obligations accrued under the contract prior to its termination may nevertheless exclude a claim in restitution.

69.The passage in Carter’s Breach of Contract refers to restitution for partial performance of an obligation to provide a non-monetary benefit rendered under a contract that has since been discharged by breach.  The reason for the reference to “partial” performance seems to us to be that where the obligation is “entire”, partial performance will not entitle the performing party to the promised sum, whereas if the obligation has been fully performed, a right to payment under the contract will usually have accrued, which will generally exclude a claim in restitution even if the contract is subsequently terminated for breach. 

70.Furthermore, among the cases cited in the footnotes to the passage in Carter is Mann v Paterson Constructions Pty Ltd (2019)  267 CLR 560.  There the building contract provided for progress payments to be made to the builder at identified stages of the construction of the townhouses in question.  Eventually the contract was terminated by the builder’s acceptance of the employer’s repudiation.  But prior to that, certain work had been done which comprised completed stages as specified in the contract. It was held that for such work, in respect of which a contractual right to payment had accrued, the builder’s sole cause of action was a contractual claim for debt or damages for breach of contract, and no claim could be brought in restitution for a quantum meruit.[46] The logic of this holding has been described as “compelling” in Goff and Jones on Unjust Enrichment (10^th ed 2022)  at §3-15, which states (footnotes omitted):

“ Where a contract has been terminated for breach, its provisions no longer necessarily exclude a claim in unjust enrichment. It is, however, essential to distinguish between benefits in respect of which no unconditional right to payment under the contract has accrued, and those in respect of which such a right has accrued. The accrued right to payment survives the termination of the contract, and remains the sole recourse available to the claimant. Thus, in the Australian decision of Mann v Paterson Constructions Pty Ltd, a building contract provided for work to be paid for in stages. Some of those stages had been completed when the contract was terminated for breach. No claim in unjust enrichment was permitted in respect of work within the completed stages – the builder’s sole recourse in respect of that work was a contractual claim for debt. Although this decision is not binding on English courts, its logic is compelling. …”

See also Virgo, The Principles of the Law of Restitution (4^th ed 2024), pp 156-157.

71.In the present case, where the Mother had fully performed her obligations prior to any purported termination of the SPA and earned her contractual right to the price, Carter, the only authority cited by the plaintiff in §57 of his closing submissions which the judge adopted almost word for word as §133 of the Judgment, does not support the conclusion.  On the contrary, the authorities discussed above show that there is no scope for a claim in restitution in such a case so as to allow the court to give her a quantum valebat, i.e. a reasonable value for the property transferred, or to order the property to be returned to her.  That would be to subvert the contractual arrangement.

72.Counsel for the plaintiff seek to distinguish the present case as one where the defendant has not only committed a repudiatory breach by failing to pay the price, but has repudiated the existence of the sale contract itself by contending that the whole transaction was a gift. Reliance is placed on what Lord Porter said in Heyman v Darwins Ltd at p 398: “Where the contract itself is repudiated in the sense that its original existence or its binding force is challenged, … the parties are not bound by any contract and escape the obligation to perform any of its terms including the arbitration clause unless the provisions of that clause are wide enough to include the question of jurisdiction.”  It is submitted that the court may treat the present case like one of fraud or mistake and hold that the plaintiff is entitled to remedies as if the contract had been rescinded ab initio.  We are unable to accept this argument.  That sentence in Heyman concerned whether an arbitration clause in a contract that covered “any dispute [arising] between the parties hereto in respect of this agreement” was applicable to the dispute between the parties there so as to warrant staying the proceedings commenced in court, and must be interpreted in that context.  In the present case, the judge, accepting the plaintiff’s case, found there was a simple contract for sale and purchase.  There is no basis in law to find that a breach of this contract by the buyer, whether by failing to perform it or by repudiating its existence altogether, can lead to its being treated by the court as never having come into existence.

73.The judge’s decision gives rise to the notion that where a buyer has acquired the property bought but failed to pay the price, the seller may “accept the repudiation” and terminate the contract of sale and purchase and, upon such termination, automatically regain beneficial ownership in the property so that the buyer holds it on trust for the seller.  The words “from that moment” in §133 of the Judgment suggest that the trust arises as from the date of termination, but the finding at §135 that the half share was “at all material times” held by the defendant on trust suggests that the trust arose retrospectively as from the date of the Assignment.  Counsel have been unable to cite any authority that supports this proposition of law in either variant.  Counsel for the plaintiff submit that the present case involves the unusual fact that the Mother executed the Assignment despite the defendant’s failure to pay the price.  But sale and delivery of goods on credit is common place.  If the plaintiff’s proposition were right, it would fundamentally alter the law relating to the rights and liabilities of sellers and buyers and the passing of property.  The decision below cannot, in our view, be supported.  We should add that the converse situation, i.e. where the buyer has fully performed by paying the price but the seller has repudiated by failing to deliver the property sold, is treated differently by the law: it is well established that in such a case the buyer may terminate the contract and sue in restitution to recover the money paid on the ground of a total failure of consideration as an alternative to suing in contract for damages for breach: see Benjamin’s Sale of Goods (12^th ed 2024), vol. 1, §17-090. 

74.Counsel for the plaintiff submit that the judge’s decision is consistent with the stance adopted by the defendant at trial.  They refer to §121 of the defendant’s written opening at trial (signed by the defendant’s then counsel, not Mr Norman Nip SC)  which stated:

“ In P’s pleaded case, the wording ‘total failure of consideration’ is used. If used in the contractual sense, the simple position would have been that there was a breach of contract on the part of D and D would have been regarded to have repudiated it and it was then for the Deceased to decide whether to accept the repudiation and rescinded the transaction. If the Deceased had done so, then D should return her interest in Shop B to the Deceased. In that scenario, it can be said that D came to hold her interest on trust for the Deceased. However, on such analysis the trust as claimed by P now would have required a contractual rescission of the transaction first. As said below, there was never rescission of contract by the Deceased.” (emphasis added)

75.However, §123 of the same opening submissions referred to certain passages (§§79, 90-91 and 93)  in Shanghai Tongji including the proposition that a restitutionary claim based on total failure of consideration is excluded during the subsistence of the contract.  Further, §124 stated that:

“ In this case, as P has already pitched his case on the basis that there was a sale and purchase agreement and D got her title to Shop B by reason of such sale and purchase transaction, P cannot advance a different case based on unjust enrichment as premised on total failure of consideration. In any event, P has not pleaded a clear case on unjust enrichment in the pleadings as said above.”

76.At §5 of the defendant’s opening, it was stated that the defendant’s case was that the transaction was a gift but that her fall-back position was that if it was a genuine sale and purchase transaction, then the defendant was only liable to pay $8 million as the Mother had affirmed the contract.  Further, at §86(5), the defendant stated:

“ D refers to §99 of [Plaintiff’s Opening Submissions]. It is unclear what is the usefulness of citing Takahashi [v Cheng Zhen Shu (2011)  14 HKCFAR 558, §33]. Insofar if it is cited for purpose to say that one can have alternative claim for breach of contract or restitution because of total failure of consideration (§33 of Takahashi), that is only an obiter dictum. In any event, in term of pleading, P has not pleaded a proper case for restitution. …”

77.We regret to say that the defendant’s opening submissions were somewhat confusing.  It is not entirely clear what her stance was with respect to the principle explained in Pan Ocean and Shanghai Tongji.  The use of the terms “rescinded” and “rescission” (said to be a “fertile source of confusion”[47])  further muddied the waters because nowadays they are more commonly used to refer to the cancellation of a contract with retrospective effect such as where the intention to enter into the transaction was vitiated from the start by fraud, mistake, undue influence or similar factors: Goff and Jones on Unjust Enrichment (10^th ed 2022)  at §40-02. 

78.As referred to in the defendant’s opening, §99 of the plaintiff’s own opening submissions (signed by the plaintiff’s then counsel, not Mr Wong Yan Lung SC)  stated that if the transfer was actually a sale, the defendant’s failure to pay the price of $8 million was a repudiatory breach, “thus allowing the Deceased to rescind the SPA and Assignment, and then claiming back the half interest in the Property on the ground of total failure of consideration”, citing Takahashi v Cheng Zhen Shu (2011)  14 HKCFAR 558, §33, in support.  For the reasons explained above, we consider this submission to be wrong in law.  Nor is it supported by Takahashi which was no longer cited in the plaintiff’s closing submissions at trial.  Instead, Carter’s Breach of Contract (2^nd ed), §13-50 was cited in §57 of the plaintiff’s closing submissions which was adopted and became §133 of the Judgment.

79.In these circumstances we do not think that the plaintiff can rely on the defendant’s trial opening to uphold what is in our view a result alien to the law arrived at in reliance on the plaintiff’s own erroneous submissions to the judge.  Nor is there any unfairness, in our view, in this court raising the legal questions with the plaintiff on appeal.  These are matters of law concerning the evident legal defects in the plaintiff’s own case for a trust.  The plaintiff chose not to plead any cause of action that would give rise to rescission ab initio, but simply pleaded total failure of consideration and, later by re-amendment, “rescission” of the contract by acceptance of repudiation.  It is far-fetched to suggest, as the plaintiff’s counsel did, that if the questions this court raised were raised during the trial, either by the defendant or the judge, the plaintiff could have changed his case to contend that the SPA and the Assignment were vitiated from the start by mistake, undue influence or even fraud, or that there was some collateral agreement enabling the Mother to reclaim the half share conveyed.  None of these bases was pleaded in the statement of claim or covered by the witness statements filed.

H.  Acceptance of the repudiation of the SPA

80.In the light of our conclusions above, whether the Mother had affirmed the SPA or terminated it by acceptance of the defendant’s repudiatory breach is inconsequential and does not arise for decision.  In any event, we are inclined to agree with the plaintiff’s counsel that the points the defendant has raised on appeal, namely that the Mother had affirmed the SPA by the 25 and 29 October 2014 Letters, by her conduct as a whole from the date of the SPA to the family meeting on 28 April 2015, or by her inaction or failure to elect within a reasonable time after the repudiatory breach, are all new and unpleaded arguments which are fact-sensitive and therefore not open to the defendant on appeal.

I.  Conclusion and orders

81.For the above reasons, the appeal has to be allowed in part.  The judge’s declaration that the half share in the Property registered in the defendant’s name was at all material times and is held on trust for the Mother and the order for that half share to be transferred to the plaintiff must be set aside.  In other words, §§1-3 of the sealed judgment below dated 29 August 2023 are set aside.

82.The defendant’s counsel accept that there should be an order for payment of the price and do not dispute that the plaintiff should receive interest at prime plus 1% per annum from July 2014 onwards.  We will dispense with any amendment of the plaintiff’s pleadings to make that claim.  Accordingly, there will be judgment against the defendant for $8 million with interest at prime plus 1% per annum from 1 July 2014 to the date hereof.  Interest at judgment rate accrues on the entire judgment sum hereafter until payment.  The defendant will have 2 months to make payment.

83.The judge’s order dismissing the defendant’s counterclaim is upheld.

84.It is common ground that on the above basis, the defendant and the Mother or her estate should be entitled to the rental income of the Property as from 7 February 2013 in equal shares.  The order for payment out of the sum paid into court in §5 of the sealed judgment below is varied accordingly, so that the portions to which the plaintiff and the defendant are respectively entitled are to be paid out to their solicitors.  The parties should work out the precise amounts and enter them in the draft order to be approved.

85.The orders for accounts and inquiries and payment of the sums found due on the taking of account as set out in §§6-8 of the sealed judgment below will be retained, on the basis that the plaintiff is entitled to only half of the monies received by the defendant in respect of the Property from 7 February 2013 onwards.

86.As to costs, we make the following order nisi:

(1)  We do not disturb the costs order made below, which is that the defendant do pay the plaintiff the costs of the action (including the claim and counterclaim), with a certificate for two counsel, to be taxed if not agreed.

(2)  As regards the costs of the appeal, the defendant shall pay 80% of the plaintiff’s costs of the appeal, to be taxed if not agreed.

Mr Wong Yan Lung SC & Ms Kay Seto, instructed by Messrs., Hasting & Co., for the Plaintiff (Respondent)

Mr Norman Nip SC, Ms Chantel Lin & Mr Axis Yu, instructed by Messrs. Chan Wong & Yip, for the Defendant (Appellant)