Hsu Ching Fang v. Ng Chor Kuen and Others

CACV 113/2023, [2025] HKCA 348

On Appeal From [2023] HKCFI 725

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 113 OF 2023

(ON APPEAL FROM HCMP NO 651 OF 2014)

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BETWEEN

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REASONS FOR JUDGMENT

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

A. INTRODUCTION

1.This matter concerns a fight between the plaintiff (“P”)  and the 3^rd defendant (“D3”)  (who are brothers)  over the shares of Bestfibre Company Limited (“Bestfibre”), a company established by their now deceased father (“the Deceased”). The principal dispute between them in the action is whether the beneficial interest in those shares had been properly and validly gifted by the Deceased to both of them before his death at a dinner.

2.After trial, by a judgment dated 15 March 2023 (“the Judgment”), Recorder William Wong, SC (“the Recorder”)  allowed P’s claim and declared that the 1^st and 2^nd defendants (respectively “D1” and “D2”)  are holding all the 8,000,000 shares of Bestfibre on trust for both P and D3; and further ordered, inter alia, that D1 and/or D2 do transfer respectively 4,400,000 and 3,600,000 of those shares to Zenith Top Holdings Limited (P’s nominee)  (“Zenith Top”)  and D3, with costs of the action and D3’s counterclaim to P.  The Recorder has explained in detail his reasons for the judgment in his written judgment of the same date [2023] HKCFI 725 (“the Written Judgment”).

3.By a Notice of Appeal filed on 12 April 2023 (“NOA”), D3 appealed against the Judgment.  P also filed his Respondent’s Notice on 3 May 2023 (“the Respondent’s Notice”)  seeking to affirm the Judgment on additional grounds.

4.At the end of the hearing, we dismissed the appeal with costs.  We indicated that we would hand down our reasons in due course.  This is what we do now.

B.  THE DISPUTE

5.The Recorder has set out in detail in the Written Judgment[1] the background leading to P’s claim.  We gratefully adopt them.  Given that this appeal does not involve any challenge on the primary facts as found by the Recorder, we only need to highlight the following which are pertinent to the issues in this appeal.

6.First, the following are the common and undisputable facts underlying the case.

7.P and D3 are respectively the youngest and eldest sons of the Deceased.  D1 was a trusted trading partner of the Deceased and the mother of D2.  D4 was, at the material time, the Deceased’s cohabitee.

8.Bestfibre is a Hong Kong company and the registered owner of an industrial property in Kwai Chung.  The issued share capital was 8,000,000 shares (“the Bestfibre Shares”).  It is common ground that the Bestfibre Shares were beneficially owned by the Deceased and, at the material time, registered in the names of D1 (6,700,000 shares)  and D2 (1,300,000 shares[2])  as bare trustees.

9.In May 2011, the Deceased was diagnosed with lung cancer.

10.On 25 August 2011, the Deceased arranged a dinner gathering (“the Dinner”)  at a hotel in Taiwan.  The Dinner was attended by the Deceased, P, D1, D3 and D4, the Deceased’s Taiwanese lawyer (“Huang”)  and some others (including one Ms Ng, who was P’s assistant).

11.Following the Dinner, in September 2011, P and D3 met and discussed the distribution of the Deceased’s assets, and they agreed at that time to split the Bestfibre Shares and the shares in Wah Luen International Investments Ltd (“the Wah Luen Shares”), another company beneficially owned by the Deceased with the shares registered in the names of D1 and D2, in the ratio of 60% (P)  and 40% (D3).  A few days later, this ratio was agreed by them to be changed to 55% (P)  and 45% (D3)  (“the Agreed Ratio”).

12.Thereafter, D3 by a fax sent on about 7 December 2011 (“the December Fax”)  gave written instructions to D1 asking her to transfer the Wah Luen Shares and the Bestfibre Shares to Zenith Top (P’s nominee)  and Chen Hui-E (D3’s nominee)  (“Chen”)  in accordance with the Agreed Ratio.

13.The Wah Luen Shares were transferred to Zenith Top and Chen in accordance with the Agreed Ratio on 14 December 2011.  However, given that D2 was involved in a divorce proceedings in Hong Kong at the time, D1 requested P and D3 to delay the then transfer of the Bestfibre Shares for a few months.

14.The Deceased then passed away on 31 December 2011.

15.In February 2012, all the beneficiaries except D3 and the Deceased’s wife renounced their entitlements to the estate of the Deceased (“the Deceased’s Estate”).  On 16 April 2012, D3 and the Deceased’s wife signed a deed of family arrangement whereby she would only get NTD100,000 and all the remaining assets would belong to D3.

16.Sometime later, D3 informed D1 that the former instructions were to be withdrawn and that none of the Bestfibre Shares was to be transferred pursuant to the December Fax but should instead be transferred to him as the representative of the Deceased’s Estate.

17.P later took out these proceedings against D1 to D4 seeking various declarations to the effect that (a)  the Deceased gave his beneficial interest in the Bestfibre Shares to P and D3 as inter vivos gift at the Dinner, and (b)  those shares are held on trust by D1 and D2 for P and D3; and an order that D1 and D2 do transfer the Bestfibre Shares to the respective nominees of P and D3 in accordance with the Agreed Ratio.

18.The trial of the matter went before the Recorder.  D3 was the main opponent to the claim, where D1, D2 and D4 were neutral to it and agreed to be bound by the court’s decision.

19.P’s case at the trial, as set out by the Recorder, was essentially this:

(1)  At the Dinner, the Deceased announced to all persons present in Chinese that he was not in good health and gave all his assets to P and D3 (“這些就都給你們了”).  The Deceased also told D1 that “萬好股份給兩個仔” and orally notified D1 that the trust in relation to the Bestfibre Shares be ceased and instructed her to deal with P and D3 thereafter to have the Bestfibre Shares transferred to P and D3.  D1 expressed her agreement and said she would inform D2 of the said instructions so that the shares could all be transferred as instructed.

(2)  Thereafter, in September 2011, P and D3 met to discuss the distribution of the Deceased’s assets.  At first, D3 proposed he would only take 40% leaving 60% to P.  A few days later, D3 asked P to give 5% to his eldest son, to which P agreed and the ratio was changed to 55% to P and 45% to D3 (ie, the Agreed Ratio).  There was no mention of P’s taking care of their two sisters throughout the discussion.  The Agreed Ratio was evidenced and supported by the December Fax.

(3)  However, after the Deceased’s wife and all beneficiaries of the Deceased’s Estate renounced their entitlements to the Estate in February 2012, and D3 and the Deceased’s wife signed a deed of family arrangement whereby she would only get NTD100,000 and all remaining assets would belong to D3 in April 2012, D3 started to allege that the Bestfibre Shares should all fall into the Deceased’s Estate and be given to him solely.

20.On the other hand, D3’s case in opposing the claim is this:

(1)  Bestfibre was originally incorporated by him and the Deceased but as D3 fell ill in around 1992, the Deceased agreed to take over its operations and D3 transferred all his shareholdings to the Deceased and the Deceased told him “我以後會還給你”.

(2)  At a family meeting (“the Family Meeting”)  held in May  2011, the Deceased orally expressed his intention that after death, D3 shall receive the majority of the Deceased’s assets in Hong Kong and Taiwan while P shall receive the majority of the Deceased’s assets in the USA.  This was evidenced in a fax sent by a Mr Tsang[3] to the Deceased dated 2 November 2011[4].

(3)  At the Dinner, which was held a few months after the Family Meeting, he did not hear the Deceased saying (“這些就都給你們了”)  or any words with the effect of making the gift as alleged by P.

(4)  He initially agreed with P’s suggestion that the Bestfibre Shares be split between them in a 60:40 split as P had represented to him that he had been taking care of their younger sisters by making monthly gratuitous payments (“the Alleged Representation”).  Later, D3 regarded the ratio as giving too much to P and consented to a 55:45 ratio upon the implied understanding that he would still be entitled to 35% of the USA Assets as indicated by the Deceased at the Family Meeting.

(5)  However, the Agreed Ratio should be set aside because (a)  the Alleged Representation was false or untrue as he later became aware that all or at least part of the monthly payments made by P to his sisters were obtained from the interest generated from the sisters’ assets[5], and/or (b)  he further discovered that P had taken the majority of the USA Assets for himself and that his 35% of the USA Assets had gone unaccounted for and not given to him.

(6)  In these circumstances, he informed D1 that the former instructions were to be withdrawn and that none of the Bestfibre Shares was to be transferred pursuant to the December Fax and should instead be transferred to him as the representative of the Deceased’s Estate.

21.D3 therefore also counterclaimed for a declaration that the Bestfibre Shares were beneficially owned by the Deceased and, after his death, the Deceased’s Estate, or alternatively restitution of the beneficial interest in 55% of the Bestfibre Shares from P to D3 on the basis of fraudulent misrepresentation and/or total failure of consideration.

22.Given these contentions, the Recorder summarized at [1] and [4] of the Written Judgment the two principal issues in the trial as follows:

(1)  Whether at the Dinner, the Deceased made an immediate and outright inter vivos gift of his beneficial interest in all the Bestfibre Shares to P and D3 (“the Inter Vivos Issue”)  ; and

(2)  Whether the Bestfibre Shares should be distributed in accordance with the Agreed Ratio, or as D3 contended, that they should fall into the Deceased’s Estate and go to him alone (“the Distribution Issue”).

23.P, D1, D4, D3, Ms Ng and one of P and D3’s sisters all gave evidence at the trial.

C.  THE WRITTEN JUDGMENT

24.The Recorder first set out in detail the essentially undisputed factual background of the matter at [1] - [50] of the Written Judgment and the principles relevant to the evaluation of evidence, gifting/transferring an equitable interest and mutual promise at [51] - [62], [101], [106] - [107].

25.Having considered and evaluated in detail all the relevant evidence, the Recorder accepted P’s case and rejected D3’s.  In particular, the Recorder found that P’s case was supported and/or consistent with the evidence of all the other witnesses (D1, D4 and Ms Ng)  who attended the Dinner (which he accepted), the contemporaneous documents, conduct of the parties and common sense.  See: [63] - [105] of the Written Judgment.

26.Hence, in relation to the Inter Vivos Issue, the Recorder found that the Deceased did intend and gift his beneficial interest in the Bestfibre Shares to P and D3 at the Dinner.  The Recorder further found that at the Dinner, following his announcement of that intention, the Deceased instructed D1 (and D2)  to transfer the legal title of the Bestfibre Shares to P and D3, and he executed (and caused D4 to execute)  the two Powers of Attorney prepared by Huang to effect that.  See [59] and [103] of the Judgment.

27.In relation to the Distribution Issue[6]:

(1)  The Recorder rejected D3’s defence on misrepresentation as he preferred and accepted in full P’s evidence (including the evidence of the sister)  under this issue and found as a fact that P did not make the Alleged Representation, or alternatively, the said representation was true and/or not causative to D3’s agreeing to the Agreed Ratio.

(2)  The Recorder also rejected D3’s arguments that he was entitled to resile from the Agreed Ratio as the agreement was not supported by consideration and thus not binding.  The Recorder held that there was valid consideration in law in the form of “mutual agreements”.

28.Accordingly, the Recorder granted the Judgment in favour of P.  See [129] of the Judgment.

D.  THIS APPEAL

D1.  Grounds of appeal

29.By the NOA, D3 raised the following three grounds of appeal:

(1)  The Recorder erred in law that he had failed to consider and/or address “the legal principle” that if a beneficial owner gives instructions to pass both the legal and beneficial title in property by way of gift, they have to be both passed before the gift can be perfected.  Had the Recorder properly applied this principle to the facts of the case, he ought to have held that the gift had not been perfected as the legal title had not been passed before the Deceased’s death[7] (“Ground 1”);

(2)  The Recorder misapplied the burden of proof in his finding that the Deceased had made an inter vivos gift of the Bestfibre Shares[8] (“Ground 2”);

(3)  Even if the Recorder had correctly found that the Deceased had gifted the Bestfibre Shares to P and D3 at the Dinner, the Recorder erred in law, applied the wrong test, and/or was plainly wrong in holding that there was a valid agreement on the Agreed Ratio as the agreement was not supported by valid consideration as a matter of law[9] (“Ground 3”).

30.D3 therefore asked this court to set aside the Judgment and declared that D1 and D2 hold the Bestfibre Shares on trust for the Deceased’s Estate and that D1 and D2 do transfer the Bestfibre Shares to the Deceased’s Estate together with any dividends or other related interest, if any.  He also asked for the costs of this appeal.

D2.  Discussion

D2.1  Ground 1 – the Recorder erred in law

31.This ground relates to the Recorder’s findings that (a)  the Deceased expressed his intention to make an immediate and outright gift of his beneficial interest and the Bestfibre Shares to P and D3, and (b)  the Deceased then instructed D1 and D2 to later transfer the legal title of those shares to P and D3.

32.In relation to these, Mr Richard Leung[10] for D3 confirmed in his oral and written submissions[11] that D3 did not seek to challenge the primary findings of fact made by the Recorder.

33.However, Mr Leung submitted that in relation to this finding, the Recorder erred in law in his holding at [102] of the Written Judgment that:

“102. I agree that the fact that a beneficial owner instructs his or her trustee to transfer the legal title to the donee at the same time when he or she makes the gift of beneficial interest does not mean that, as a general rule, all beneficial interest could only be passed when the legal title is transferred.” (emphasis added)

34.Counsel said the Recorder had erred as he had failed to apply the “legal principle” laid down in Vandervell v LRC [1967] 2 AC 291 at 311E (per Lord Upjohn)  and 317G-318A (per Lord Donovan)  that if a beneficial owner gives instructions to pass both the legal title and beneficial interest in a property by way of gift, that gift is only perfected when both the beneficial interest and the legal interest have been passed.

35.If the Recorder had correctly applied Vandervell, submitted Mr Leung, he would have held that based on the instructions given by the Deceased, the beneficial interest in the Bestfibre Shares could only pass to P/D3 at the same time together with the legal title.  As any authority granted by the Deceased under the two Powers of Attorney to enable D1 and D2 to transfer those shares to P and D3 must have been revoked upon his death, no legal titles in the Bestfibre Shares could be so passed and the gift was not perfected.  The Bestfibre Shares must then go to the Deceased’s Estate in entirety.

36.In our view, there is nothing in these contentions, as properly read, Vandervell simply does not lay down the alleged legal principle.

37.In Vandervell, the appellant (“V”)  decided to make a gift of £150,000 to the Royal College of Surgeons (“the College”)  by way of gifting his interest in 100,000 shares (“the Shares”)  in a private company (“the Company”)  so that the College could receive the dividends payable therefrom.  At that time, the Shares were held by a bank as a bare trustee for V.  The arrangements for the gift to be made were carried out by the transfer of the Shares by the bank as trustee to the College, but with an option granted by the College to V’s Vandervell Trustee Ltd to purchase those shares back within five years for £5,000.  The Shares were then transferred to the College in November 1958.  During the tax years 1958-59 and 1959-60, the Company declared dividends on the Shares amounting to £162,500 and £87,500, which were paid to the College.  However, V was assessed by the Inland Revenue Commissioner (“the IRC”)  to pay tax for those dividends on the basis that, given the option, he had not absolutely divested himself of the Shares, so that under section 415 of the Income Tax Act 1952, V was to be assessed tax on those dividends.  In particular, the IRC contended that V remained as the beneficial owner of the Shares as there had been no written disposition within the meaning of section 53(1)(c)  of the Law of Property Act 1925 or alternatively by reason of resulting trust.

38.The Court of Appeal upheld the IRC’s assessment and V appealed to the House of Lords.  The House of Lords dismissed the appeal by a majority.

39.The first issue dealt with by the House of Lords in Vandervell concerned the applicability of section 53(1)  of the Law of Property Act 1952, which provides that “… a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same.”  The IRC argued that this section applied and thus the beneficial interest in the shares had not been validly passed to the College.

40.The House of Lords unanimously held that the provision was inapplicable as, properly construed, it was directed to cases where dealing with the equitable estate were divorced from legal estate.  The object of the provision was to prevent hidden oral transactions in equitable interests in fraud of those truly entitled, and therefore cases where (as in this case)  the beneficial owner of the whole beneficial estate desired and was in a position to give directions to his bare trustee to deal with the legal estate as well as the equitable estate were not within this ambit.  See: 311B-312B per Lord Upjohn, and 317E-318A per Lord Donovan.  This plainly has nothing to do with the principle contended for by Mr Leung.

41.The second issue related to whether under the option arrangement, the intention was that Vandervell Trustee Ltd was to hold the shares on trust for V.  In other words, under these settlement arrangements, V still maintained his beneficial interest in the shares.  The majority of the House of Lords (Lord Pearce, Lord Upjohn and Lord Wilberforce)  held that it did, and hence the dividends paid were to be treated as that of V under section 415 of the Income Tax Act.  Lord Reid and Lord Donovan dissented and held otherwise.  Again, this also has nothing to do with the alleged principle.

42.Mr Leung sought to rely on the following observations in Vandervell to support his contentions:

(1)  Per Lord Upjohn at 311E: “But if the intention of the beneficial owner in directing the trustee to transfer the legal estate to X is that X should be the beneficial owner I can see no reason for any further document or further words in the document assigning the legal estate also expressly transferring the beneficial interest; the greater includes the less. X may be wise to secure some evidence that the beneficial owner intended him to take the beneficial interest in case his beneficial title is challenged at a later date but it certainly cannot, in my opinion, be a statutory requirement that to effect its passing there must be some writing under section 53 (1)  (c).” (emphasis added)

(2)  Per Lord Donovan at 317G-318A: “when Mr. Vandervell, being competent to do so, instructed the bank to transfer the shares to the college, and made it abundantly clear that he wanted to pass, by means of that transfer, his own beneficial, or equitable, interest, plus the bank's legal interest, he achieved the same result as if there had been no separation of the interests. The transfer thus made pursuant to his intentions and instructions was a disposition not of the equitable interest alone, but of the entire estate in the shares.  In such a case I see no room for the operation of section 53 (1)  (c).” (emphasis added)

43.It is however plain that these passages do not support Mr Leung’s contention.  Leaving aside that on any plain reading, the alleged “legal principle” is simply not borne out by these passages, they must also be understood in its proper context.  Their Lordships were discussing the proper construction and application of section 53(1)  of the Law of Property Act 1952, and were simply trying to explain, by these observations, why the statutory provision could not have been intended to apply to those facts before the court.

44.It is therefore clear that Vandervell is principally concerned with the operation and applicability of section 53(1)  of the Law of Property Act 1925 to the facts of that case, and does not lay down the legal principle as contended by Mr Leung.  As observed by Lord Wilberforce at pp 323G-324A, “…, this appeal, apart from the point which arises under section 53(1)  of the Law of Property Act, 1925, involves, in my opinion, no question of principle or of law.  It depends upon the interpretation one places on the facts as found.”[12]

45.Without the support of the purported legal principle Mr Leung had contended for, there is nothing in this ground.  Ground 1 therefore fails.

D2.2  Ground 2 – wrong burden of proof

46.Although under the NOA, this ground is described as the Recorder having “misapplied the burden of proof”, Mr Leung confirmed and corrected it at the hearing that this ground in substance was a complaint that the Recorder had failed to apply the proper standard of proof in his assessment of the evidence.

47.As we understand it, counsel’s contentions run in gist as follows.

48.First, as a matter of principle, the alleged donee of a gift made by a deceased person must discharge a heavy burden to prove the gift and rebut the presumption of resulting trust, and that the donee must demonstrate a clear intention of the deceased person to make a gift.  In this respect, relying on Beijing Hantong Yuzhi Convention Centre Ltd v Lao Yuan Yi (unreported, HCA 1208/2010, 11 May 2018, Recorder Linda Chan)  at [45], Mr Leung submitted that the court has to satisfy himself that the evidence or acts relied upon by a claimant “must admit no other interpretation” than that the deceased had made such a gift before his death.

49.Second, Mr Leung submitted that however, the findings of primary facts made by the Recorder were equally consistent with the Deceased making a gift of the Bestfibre Shares to P and D3 subject to the completion of all the formalities required to transfer those shares to them.

50.In support of this, Mr Leung had advanced elaborated arguments at paragraphs 12(1) - (7)  of his written submissions as to why the evidence assessed by the Recorder in support of his findings[13] is at most equivocal as it is equally consistent with a case that the Deceased merely gave authority to P/D3 to deal with his assets instead of making an outright inter vivos gift.

51.We are not persuaded by these submissions.

52.First, we do not think Beijing Hantong Yuzhi Convention Centre Ltd assists Mr Leung.

53.The context of Beijing Hantong Yuzhi Convention Centre Ltd is about the proof of a claim based on an express trust, and thus related to the question of whether there was sufficient evidence to prove the “3 certainties” required for the creation of an express trust.  The reference to “the donor should have evinced by acts which admit of no other interpretation” made in [45] and [46] was in relation to the proving of the element of “certainty of words”:

“45.  Mr Man submits that where, as here, the plaintiff’s claim is based on an express trust, it must satisfy the ‘3 certainties’ namely, certainty of words evincing an intention to create a trust, certainty of subject matter and certainty of object.  On certainty of words, Sir James Bacon VC stated in Heartley v Nicholson (1874-75)  LR 19 Eq 233 at 242 thus:

‘It remains, therefore, only to be considered whether or not the testator did in his lifetime constitute himself such trustee. It is not necessary that the declaration of a trust should be in terms explicit. But what I take the law to require is, that the donor should have evinced by acts which admit of no other interpretation, that he himself had ceased to be, and that some other person had become, the beneficial owner of the subject of the gift or transfer, and that such legal right to it, if any, as he retained was held by him in trust for the donee.’ (underline supplied)

46.  The court should construe the substance and effect of the expression used by the settlor against the background of the relevant circumstances (Snell’s Equity, 33^rd ed, §22-013).”

54.This is very different from the present case, which is concerned with the question of whether there was evidence, on balance of probabilities, to show that the Deceased, who was holding only the beneficial interest of the Bestfibre Shares, had made an outright inter vivos gift of his beneficial interest to P and D3 at the Dinner as pleaded by P[14].

55.In the premises, the purported reliance on Beijing Hantong Yuzhi Convention Centre Ltd is misplaced.  The challenge made under this ground is in substance a disguised attack on the Recorder’s fact findings (see Mr Leung’s attempt to re-argue the assessment of the evidence as summarized at [50] above).

56.In this respect, the principles governing an appeal against findings of fact (whether primary or secondary)  are well established.  This court on appeal would not interfere those fact findings unless it can be shown that they are plainly wrong, or that the judge in making those findings had failed to take into account relevant matters or had taken into account irrelevant matters.  As explained by Kwan VP in the recent judgment of Redland Precast Concrete Products (China)  Ltd v Permasteelisa Hong Kong Ltd [2023] HKCA 1278:

“20. The appeal court exercises similar restraint in respect of findings of secondary fact drawn from findings of primary fact. Where a judge draws inferences from findings of primary fact which have been dependent on his assessment of the credibility or reliability of witnesses, who have given oral evidence, and of the weight to be attached to their evidence, an appeal court may have to be similarly cautious in its approach to his findings of such secondary fact and his evaluation of the evidence as a whole. The ‘plainly wrong’ test is applicable unless the finding of fact is based purely on inferences, or otherwise has nothing to do with the witnesses’ demeanour or the trial judge’s having received the evidence at first hand. ‘Plainly wrong’ in the context of an appeal against a finding of fact directs the appeal court to consider whether it was permissible for the trial judge to make the findings of fact which he did in the face of the evidence as a whole, and the appellant is required to identify a mistake in the judge’s evaluation of the evidence that is sufficiently material to undermine his conclusions.

21. Where the inference of the trial judge was made not on primary fact (as discussed above)  but was based on an evaluation of facts which involved the assessment of a number of factors weighed against each other, this is often a matter of degree upon which different judges can legitimately differ. Such cases may be closely analogous to the exercise of a discretion and appeal courts would approach them in a similar way and would not interfere unless satisfied that the judge’s conclusion lay outside the bounds within which reasonable disagreement is possible.” (Emphases added)

57.In the present case, in reaching this conclusion that the Deceased did intend and make an immediate and outright gift of his beneficial interest in the Bestfibre Shares to P and D3, the Recorder had carefully and comprehensively assessed and weighed all the relevant evidence in detail (including those evidence relied on by Mr Leung in support of this ground)  at [58] - [106] of the Written Judgment.  In our view, it is not only reasonably open to, but indeed also plainly right for the Recorder to come to the conclusion as he did after weighing and assessing those evidence.

58.Ground 2 is without merit and must be dismissed.

D2.3  Ground 3

59.This ground relates to the Recorder’s ruling in relation to the Distribution Issue that (a)  there was a binding agreement between P and D3 on the Agreed Ratio, which was supported by valid consideration in the form of mutual agreements ([106] - [108] of the Written Judgment), and (b)  alternatively, even if (as contended for by D3)  there was no such agreement and the default position as matter of principle was that P and D3 should share the Bestfibre Shares equally, there was a clear intention on the part of D3 to gift 5% of the shares to P, which gift was perfected by the December Fax (which resulted in the same Agreed Ratio)  ([109] - [110] of the Written Judgment).

60.The Recorder explained his reasons for the above rulings at [106] - [110] of the Written Judgment as follows:

“The Distribution Issue

106. The Distribution Issue is relatively straightforward. The Plaintiff’s pleaded case is that on or about 1 September 2011, P and D3 ‘agreed between themselves on the distribution proportion of 8,000,000 shares in Bestfibre, namely 55% and 45% for the Plaintiff and the 3^rd Defendant respectively’. In other words, the Plaintiff is seeking to enforce the agreement between him and the 3^rd Defendant. The 3^rd Defendant submitted that there is no consideration in support of the agreement. I disagree. It is established law that mutual promise can amount to consideration (See Chitty on Contracts, 34^th edition, paragraph 6-008). In Hang Seng Finance Limited v. Chan Kwok Yim, HCA 995/2000, 17^th April 2002, Deputy High Court Judge Ronny Tong SC, at §15 said:

‘First, Mr Au-Yeung sought to argue that the Plaintiff’s claim as pleaded was defective in that no consideration had been pleaded. This is a bad point. The Plaintiff pleaded in paragraph 8 the retainer given to the Firm. There was obviously consideration in that the Plaintiff had agreed to retain the Firm and the Firm had agreed to act as the Plaintiff’s solicitors to prepare the mortgage in question. Such mutual promise is sufficient consideration for the enforcement of a contract; see: Chitty, 28^th edn., vol. 1, para.3.011. In any event, it was plainly an implied term that as solicitors acting on behalf of the Plaintiff, the Firm was entitled to fees to be paid by the Plaintiff.’ (Emphasis added).

107. Further, in Whitlock v. Moree [2018] 3 LRC 250, Lord Briggs (with whom Lady Hale and Lord Sumption agree)  at §24said:-

‘Next, the co-owners receiving a transfer of property into joint names may themselves declare their agreement as to the beneficial interests on which that property is or is to be held and, if they do so in a written instrument, such as the conveyance to them, the identification of those beneficial interests will again be a matter of construction of the instrument, and recourse to doctrines of resulting, implied or constructive trust is impermissible: see Pettitt v Pettitt [1969] 2 All ER 385 at 405-406, [1970] AC 777 at 813 per Lord Upjohn and Gissing v Gissing [1970] 2 All ER 780 at 789-790, [1971] AC 886 at 905 per Lord Diplock.’ (Emphasis added)

108. From the evidence, whether it is the Plaintiff’s version or the 3^rd Defendant’s version, the parties had negotiated on the distribution ratio and finally they mutually agreed on the Agreed Ratio. I accept Mr Wong’s submission that by mutually agreeing on the Agreed Ratio and jointly sending the Fax dated 7 December 2011 to the 1^st Defendant to request transfer of shares in accordance with the Agreed Ratio (the Fax dated 7 December 2011 was sent to the 1^st Defendant by the 3^rd Defendant with the Plaintiff’s consent), there is no room for the 3^rd Defendant to argue that he is not bound by the agreement, subject only to his defence of misrepresentation.

109. Mr Lau for the 3^rd Defendant ingeniously submitted that the default position is that the Bestfibre Shares were to be shared equally between the Plaintiff and the 3^rd Defendant and the agreement on distribution ratio means an inter vivos gift of 5% from the 3^rd Defendant to the Plaintiff. I am of the view that it is not necessary for this Court to go into this analysis as it has never been the Plaintiff’s pleaded case that the extra 5% was a gift from the 3^rd Defendant to the Plaintiff. It is clear to this Court, after the negotiation or discussion in September 2011, the parties have reached an agreement on distribution which the 3^rd Defendant now seeks to set aside on the ground of misrepresentation.

110.  In any event, I agree with Mr Wong’s analysis that the intention of the 3^rd Defendant to gift 5% more to the Plaintiff (for whatever reasons)  is clear from the 3^rd Defendant’s own oral testimony as well as the Fax dated 7 December 2011.  It is difficult to see how the 3^rd Defendant can now argue that there was no clear intention of gift of 5% from the 3^rd Defendant.  The gift of 5% of the beneficial interest in the Bestfibre Shares has been completed at the time when they agreed on the distribution ratio and evidenced by the Fax dated 7 December 2011.”

61.Mr Leung submitted that the Recorder erred in law in the above holdings and, had he applied the correct legal principles, he ought to have held that the Bestfibre Shares should be equally distributed between P and D3.

62.As far as we could understand it, counsel’s arguments in support can be summarized as follows:

(1)  It is the Recorder’s finding that the Deceased had only gifted the beneficial interest in the Bestfibre Shares to P and D3 but without mentioning how they should be apportioned between them.  As such, the starting position as a matter of legal principle is that they should share them equally (ie, 50:50): Snell’s Equity (34^th ed), at paragraph 5-012.

(2)  In the premises, given the starting position of equal distribution, on a proper analysis, D3’s promise to have only 45% of those shares amounted only to a unilateral gratuitous promise to gift 5% of his share to P, without P “promising or agreeing something in return”.

(3)  The Recorder therefore erred in law to hold at [106] of the Written Judgment that there was valid consideration to support the Agreed Ratio agreement on the basis of mutual promises.

(4)  The Recorder then further erred in concluding that D3’s intended gift of 5% of his share in the Bestfibre Shares was perfected by the December Fax, as the gift was in relation to the legal interest of the Bestfibre Shares, which would only be perfected until after all the legal formalities to effect the transfer had been completed.  Given that they had not been so completed, the gift was not perfected and D3 was entitled to and did resile from his promise to gift those 5% shares to P.

63.There is also nothing in this ground.

64.First, as pointed out by Chu VP at the hearing (and accepted by Mr Leung), D3 did not seek any relief in the NOA for distributing the Bestfibre Shares equally.  It is therefore not open to him to contend for this position in this appeal.

65.Second and in any event, for the following reasons, there is no merit in this ground.

66.The fundamental underlying plank of Mr Leung’s contentions is that, as a matter of legal principle, the starting or default position in relation to the share of the Bestfibre Shares gifted by the Deceased should be 50:50.  In support, counsel relied on Snell’s Equity (34^th ed), at paragraph 5-012, which states relevantly as follows:

“This maxim standing alone is, again misleading. The wisdom of Solomon does not require the baby to be divided in half. Equity is said to ‘delight in equality’, but the application of the maxim in cases where assets are to be distributed between two or more parties does not show the courts adopting a positive preference for equality. Rather, the maxim ‘provides no more than a fall-back position where no other basis of division is appropriate’….” (Emphases added)

67.However, this does not support Mr Leung’s proposition.  As emphasized by the learned editors in that paragraph, the maxim of equality “provides no more than a fall-back position where no other basis of division is appropriate”.  In the premises, quite to the contrary of what Mr Leung had submitted, where there is indeed evidence pointing to how the distribution should be made, the court should look to that and apply that first.  It is only in the absence of evidence showing the parties’ intention as to how to distribute the gifted property in question that the court would, as a matter of last resort and fall-back, apply the equality principle.

68.Thus, the Privy Council in Gany Holdings (PTC)  SA v Khan (BVI) [2018] UKPC 21 observed at [17] as follows[15]:

“It is convenient to begin with a re-statement of the basic principles by which equity (which in this respect is shared by England and Wales and the British Virgin Islands)  provides for identification of beneficial interests arising from a gratuitous transfer of property. First, if either the transferor or the transferee makes a written (or oral)  declaration as to those beneficial interests, or they do so together in an agreed form, that will generally be decisive, regardless of the subjective intentions of either of them: see for example Whitlock v Moree [2017] UKPC 44. Secondly, in default of any such declaration, the court looks for evidence from which a common intention as to beneficial ownership may be inferred. This may include evidence of statements made by either party before, at the time of or even after the relevant transfer, the parties’ conduct, and the factual context in which the transfer takes place. Sometimes, a choice between possible conclusions as to beneficial interest may properly be arrived at by a process of elimination, whereby the most unlikely conclusions are first removed, leaving the least unlikely as the correct one. Finally, recourse may be had to time-honoured presumptions, such as the presumption of advancement or the presumed resulting trust, where there really is no evidence from which an inference as to common intention may properly be drawn. But these are, in modern times, a last resort, now that historic restrictions on the admissibility of evidence have been removed, and the forensic tools for the ascertainment and weighing of evidence are more readily available to the court.” (Emphases added)

69.In the premises, the Recorder was fully entitled to and should in fact first look at the evidence on how P and D3 had intended to distribute the beneficial interest in the Bestfibre Shares gifted to them by the Deceased.  For this, as noted by the Recorder at [108] of the Written Judgment, whether it was P’s version or D3’s version, the evidence was that the parties had negotiated on the distribution ratio and eventually agreed on the Agreed Ratio.  That was their intention as to how to distribute the Bestfibre Shares.  The Recorder therefore did not err in principle as contended and was instead entirely correct to uphold and apply that ratio to the distribution of the Bestfibre Shares as a matter of fact finding.

70.Further, in relation to Mr Leung’s submission on why D3 was entitled to resile from the Agreed Ratio, given P’s evidence (which was preferred and accepted by the Recorder)  that he agreed to the Agreed Ratio at the request of D3 in giving 5% of P’s share to D3’s son, unlike what Mr Leung had submitted, there was plainly a “promise in return” by P for agreeing on the Agreed Ratio.  The Recorder was therefore also correct to hold that there was valid consideration in support of the agreement on the Agreed Ratio.

71.Accordingly, Ground 3 also fails.

E.  DISPOSITION

72.For the above reasons, we dismissed D3’s appeal[16] and ordered that costs be paid by D3 to P, to be taxed if not agreed.

Mr Richard Leung and Mr Joshua Yeung, instructed by Fongs and from 9 January 2025 by K T Lo & Co, for the 3^rd Defendant

Mr Damian Wong and Ms Jenny Lok, instructed by So, Lung & Associates, for the Plaintiff

The attendance of the 1^st and 2^nd Defendants was excused