Case Document

100%Judiciary

HCA 571/2003
HCMP 2820/2002 and
HCMP 4511/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 571 OF 2003

MISCELLANEOUS PROCEEDINGS NOS. 2820 and 4511 OF 2002

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BETWEEN

	ERIC EDWARD HOTUNG	Plaintiff
	and
	HO YUEN KI	1^st Defendant
	ANTHONY ERIC RYAN HOTUNG	2^nd Defendant
	SEAN ERIC MCLEAN HOTUNG	3^rd Defendant
	HILLHEAD LIMITED	4^th Defendant
	SHERIDAN PATRICIA HOTUNG SHEA	5^th Defendant
	GABRIELLE MARIE HOTUNG	6^th Defendant

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AND

MISCELLANEOUS PROCEEDINGS NO. 2820 OF 2002

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IN THE MATTER of Order 85, rules 2(1) and (3)(c) of the Rules of the High Court, Cap. 4, section 27 of the Trustee Ordinance and section 25A of the High Court Ordinance, Cap. 4

BETWEEN

	SEAN ERIC MCLEAN HOTUNG	Plaintiff
	and
	HILLHEAD LIMITED	Defendant

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AND

MISCELLANEOUS PROCEEDINGS NO. 4511 OF 2002

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IN THE MATTER of Order 85, rules 2(1) and (3)(c) of the Rules of the High Court, Cap. 4

BETWEEN

	SEAN ERIC MCLEAN HOTUNG	Plaintiff
	and
	HILLHEAD LIMITED	Defendant

---------------------

(Consolidated by the order of Deputy High Court Judge To
dated 10 April 2003)

Before : Hon Tang JA in Court (Sitting as an additional Judge of the Court of First Instance)

Dates of Hearing : 11 to 14, 17 to 21 and 24 to 26 January 2005

Date of Judgment : 4 March 2005

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J U D G M E N T

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PARTIES

1.The plaintiff, Mr Eric Edward Hotung, has eight children by his wife Patricia Ann Shea (“Mrs Hotung”). Their names and dates of birth appear below :

Name Date of Birth

(i) Michael Eric Hotung (“Michael”) 8 January 1960

(ii) Robert Eric Hotung (“Robert”) 28 January 1961

(iii) Eric Shea Kim Hotung (“Eric”) 10 August 1963

(iv) Sean Eric Mclean Hotung (“Sean”) 17 January 1965

(v) Anthony Eric Ryan Hotung (“Anthony”) 14 March 1966

(vi) Mara Tegwen Hotung Lamb (“Mara”) 20 July 1967

(vii) Gabrielle Marie Hotung (“Gabrielle”) 3 January 1972

(viii) Sheridan Patricia Hotung Shea (“Sheridan”) 27 March 1973

2.Anthony, Sean, Sheridan and Gabrielle are the 2^nd, 3^rd, 5^th and 6^th defendants respectively.

3.The 6^th defendant has withdrawn her defence. So only three of the children are now involved in these proceedings.

4.The 1^st defendant, Ho Yuen Ki, is the trustee of the so-called Ho Trusts. The beneficiaries of the Ho Trusts are the plaintiff’s third, fourth and fifth sons, namely Eric, Sean and Anthony (“the three sons”). The 1^st defendant is a cousin of the plaintiff. The plaintiff is the father of two of her children.

5.The 4^th defendant, Hillhead Limited (“Hillhead”), is the trustee of the so-called Hillhead Trusts. Hillhead was a service company used by Arthur Young & Co. As a result of various mergers, Arthur Young & Co. has become part of Ernst & Young. The beneficiaries of the Hillhead Trusts are his three daughters, Mara, Gabrielle, and Sheridan (“the daughters”).

6.I shall refer to the Ho and Hillhead Trusts collectively as the Trusts.

THE TRUSTS

7.The assets of the Trusts are shares in Hotung Enterprises Limited (“HEL”) and Hotung Investment (China) Limited (“HICL”). In particular, 20,004 shares in HEL and six shares in HICL. The 1^st defendant and Hillhead each made two declarations of trusts.

8.The first dated 29 November 1979 in respect of 10,002 shares in HEL by which the 1^st defendant declared that she held those shares upon trust for the three sons equally. Hillhead made a declaration of trust also dated 29 November 1979 in favour of the daughters in respect of 10,002 shares in HEL equally.

9.The Hillhead declarations of trusts were witnessed by Peter Mark, a well-known solicitor and director of some of the plaintiff’s companies. Both the Ho and Hillhead declarations of trust were prepared by his firm.

10.There were also a declaration of trust made by the 1^st defendant in respect of the three shares in HICL in favour of the three sons equally and a declaration of trust made by Hillhead in respect of the three shares in HICL in favour of the daughters equally. They were both dated 6 February 1980. The declaration of trust executed by the 1^st defendant was witnessed by Peter Mark. It is not known who prepared these declarations of trusts.

DEVOLUTION OF SHARES

HEL

11.Prior to 17 September 1979, the authorised share capital of HEL was $2 million divided into 20,000 shares of $100 each. The 20,000 shares in HEL were held as to 19,999 thereof by the plaintiff, the remaining share was held by the 1^st defendant. Although there was no declaration of trust, I am satisfied that the 1^st defendant held her one share in trust for the plaintiff. By a resolution dated 17 September 1979, the authorised share capital of HEL was increased by the creation of a further 10 shares of $100 each.

12.By a resolution of the board of HEL held on 17 September 1979 chaired by Peter Mark, it was resolved that the transfer of 10,002 shares by the plaintiff to Hillhead as well as the transfer of 9,997 shares by the plaintiff to the 1^st defendant be approved and that : “the relative new share certificates be sealed and issued in connection therewith”. New share certificates were indeed issued to the 1^st defendant and Hillhead dated 17 October 1979.

13.At the same meeting, it was recorded that four shares of $100 each allotted to the 1^st defendant had been fully paid up for cash.

HICL

14.Prior to 28 September 1979, it had only two paid up shares. The board minutes of a meeting held on 28 September 1979 resolved that the transfer by Malcolm Anthony Barnett to the 1^st defendant of one share and the transfer by Brian Henry Tisdall to the 1^st defendant of one share in HICL be approved. Barnett and Tisdall held those shares for the plaintiff.

15.It was also resolved that four shares of $50 each be allotted as fully paid up for cash and that three of these shares be allotted to Hillhead and one share to the 1^st defendant.

16.It was also resolved that relative share certificates be sealed and issued in connection with both the transfer and the allotment. New certificates were duly issued dated 6 February 1980.

HILLHEAD MINUTES

17.To complete the corporate documents : there were minutes of (i) a meeting of the board of Hillhead on 17 October 1979, where it was resolved : “a trust deed in the attached form was tabled before the meeting and it was resolved that Mr Alan Hann (“Alan Hann”) and Mr C.P. James be authorised to sign on the document under the common sealed of the company”, (ii) a similar board minutes of a meeting held on 6 February 1980 in relation to a trust deed in respect of the three shares in HICL.

18.The trust deeds were the declarations of trusts referred to in paragraphs 8 and 10 above.

PLAINTIFF’S CASE

19.It is the plaintiff’s case that the trusts that he intended to set up in favour of his children were subject to conditions. These conditions as pleaded in the plaintiff’s Re-re-amended Statement of Claim in relation to the Ho Trusts were :

(a) that the trusts would be subject to a power of revocation exercisable by the plaintiff during his lifetime and that the trustee would only be entitled to distribute the shares to the sons in equal shares after the death of the plaintiff;

(b) that during the lifetime of the plaintiff, the trustee was to hold and to deal with any income that may be derived from the shares, in the trustee’s absolute discretion, by distributing the same to the plaintiff, his wife and the sons including his other two sons Robert and Eric (or any of them), or to accumulate the same; and

(c) that the trustee was not to be concerned with and would be relieved of all duties regarding the management of the company to which the shares related.

20.It is the plaintiff’s case that similar conditions were imposed in relation to the Hillhead Trusts save that the distribution of income was confined to the plaintiff, his wife and the daughters or any of them.

PLAINTIFF’S CLAIM

21.The plaintiff’s claim for relief has been put on several bases in the Re-re-amended Statement of Claim : rectification, paragraph 18; mistake, paragraph 18A; and because the deeds did not accord with his intentions they ought to be set aside, paragraphs 17 and 18.

22.But the heart of the matter is : whether or not the plaintiff intended when the Trusts were established that they should be subject to all or some of these conditions, in particular, that they should be revocable. If so, whether, insofar as the declaration of trusts did not give effect to his intention, they ought to be set aside or rectified.

LARCO (CAP. 23)

23.In relation to these conditions, it did not matter exactly when or how the trusts were established. However by an amendment made on 26 November 2004, the plaintiff relied on section 6(1)(c) of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23 (“LARCO”). Section 6(1)(c) was in force in 1979/1980 although it has been since been repealed by Ordinance 62 of 1984. Section 6(1)(c) provided as follows :

“ a disposition of an equitable interest or trust subsisting at the time of the disposition, shall be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorized in writing or by will”

Section 6(1)(c) was based on section 53(1)(c) of the Law of Property Act, 1925.

24.The LARCO point depended on whether at or immediately after the time of the transfer or allotment of shares to the 1^st defendant and Hillhead, they held the shares on resulting trusts for the plaintiff. If they or either of them did then the declarations of trusts would have amounted to a disposition of an equitable interest within the meaning of section (6)(1)(c). Since neither the 1^st defendant nor Hillhead who signed the trust deeds had been authorised in writing by the plaintiff to do so, the depositions were invalid. I will deal with this point separately later.

REVOCATION

25.By two deeds of revocation both dated 14 January 2004, the Trusts were revoked by the plaintiff. The recital of the two deeds of revocation are in substance the same. For convenience sake, I shall refer to the recitals in the deed of revocation in relation to the Ho Trusts.

“ (A) By oral declaration made in or about 1979, the Settlor constituted Ho Yuen Ki (‘the Trustee’) trustee of certain property and directed the Trustee to hold the same upon certain trusts then specified for the benefit of three of his sons namely Michael Eric Hotung, Sea Eric Mclean Hotung and Anthony Eric Ryan Hotung but orally reserved to himself the power to revoke the trusts in whole or in part should he so think fit.

(B) The Trustee recorded the said trusts by two Declarations of Trusts respectively dated 29^th November 1979 and 1980 without mentioning the power of revocation (but without being authorized by the Settlor to omit any reference to the same) but the Trustee affirmed the continuing control of the Settlor over the trusts (as intended to be achieved by his reservation of the power of revocation) by vesting the said deeds in the possession of the Settlor and allowing him to retain the same together with the certificate to the shares comprised in the said trusts.”

THE LAW

26.The law can be taken from Gibbon v. Mitchell [1990] 1 WLR 1304, when Millett J (as he then was) after reviewing the authorities said at 1309E :

“ In my judgment, these cases show that, wherever there is a voluntary transaction by which one party intends to confer a bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it.”

In that case, Millett J was “satisfied on the internal evidence of the deed itself, as well as on the evidence provided by the contemporaneous correspondence…” that the deed was contrary to the settlor’s “instructions and intentions” 1309F. He set aside the deed.

27.The standard of proof is the civil standard of the balance of probability as explained by Buckley LJ in Thomas Bates Ltd v. Wyndham’s Ltd [1981] 1 WLR 505 :

“ … The requisite degree of cogency of proof will vary with the nature of the facts to be established and the circumstances of the case. I would say that in civil proceedings a fact must be proved with that degree of certainty which justice requires in the circumstances of the particular case. In every case the balance of probability must be discharged, but in some cases that balance may be more easily tipped than in others.”

28.Mr McCoy SC, leading counsel for the plaintiff, has referred me to authorities illustrating the approach of the court to this kind of cases.

29.AMP (UK) Ltd plc v. Barker& Ors [2001] OPLR 197, (Lawrence Collins J), there AMP claimed that certain amendment to the rules of the pension scheme (“the scheme”) of the National Provident Institution (“NPI”) were made as a result of a mistake by the trustees who passed the resolution to amend the rules of the scheme and which amendments were subsequently approved by NPI in accordance with the scheme rules. On a claim for revocation, the learned judge said :

“ 59. The starting point is free form difficulty. In the case of a bilateral transaction, there must be convincing proof that the concluded instrument does not represent the common intention of the parties. The policy reason for the need for convincing proof is that certainty and ready enforceability of transactions would otherwise be hindered by constant attempts to cloud the issue: The Olympic Pride [1980] 2 Lloyd’s Rep 67, at 72. The claimant does not have to meet more than the civil standard of balance of probabilities, but convincing proof is required to counteract the cogent evidence of the parties’ intention displayed by the instrument: Thomas Bates and Sons v Wyndham’s Ltd [1981] 1 All ER 1077, [1981] 1 WLR 505, 521 (CA); Grand Metropolitan plc v William Hill Group Ltd [1997] 1 BCLC 390 at 394; Lansing Linde Ltd v Alber [2000] Pensions LR 15, 44.

…

66. There must, therefore, be cogent evidence of the intentions both of the Trustees and of NPI, but not necessarily of their agreement or accord. In some of the earlier cases on voluntary settlements, rectification was ordered on the uncontradicted affidavit evidence of the settler without any need for objective manifestation of intention: see, eg, Hanley v Pearson (1879) 13 Ch D 545. Mr Nigel Inglis-Jones QC for the Trustees suggested that a similar approach would be appropriate in a case such as this. It may be that the need for objective manifestation in the case of a unilateral transaction is simply one element of the need for convincing proof of the mistake. It was present in the two leading modern cases on mistake in unilateral transactions, Re Butlin’s Settlement and Gibbon v Mitchell [1990] 3 All ER 338, [1990] 1 WLR 1304, infra, para 81. The certainty of transactions would be undermined if the court could act, otherwise than in exceptional circumstances, simply on the assertion of a party to the transaction. But when one is considering the intentions of a collective body such as a group of trustees or a committee of a board it is their collective intention which is relevant, and it would be a very odd case (and certainly not this one) if that collective intention were not objectively manifested.”

30.Anker-Petersen & Ors v. Christensen & Ors [2002] WTLR 313 was a decision of Davis J. In that case the claimants, who were the beneficiaries sought to set aside two deeds of assignments made by them in favour of the defendants as trustees, arising out of the exportation of the trusts outside the United Kingdom for tax purposes, on the basis that they were mistaken as to the effect of the declarations of trusts and that they had been led to believe that these declarations of trusts were the same as, or at least substantially similar to, the existing Will trust as varied. Davis J said :

“ 36. Moreover, it is clear that this equitable jurisdiction is analogous to the equitable jurisdiction as to rectification. It has always been the law that where a person seeks to rectify an instrument the burden of proof is upon the person seeking so to rectify. Indeed it is commonly said that cogent evidence needs to be adduced before rectification will be granted. Accordingly in my view the burden in this case is upon the claimants to show why the deeds of assignment should be set aside and to know that they had not understood the effect of the deed into which each of them had entered.”

31.Here in Hong Kong in Keswick v. Jardine Matheson & Co. & Ors [1959] HKLR 29, at page 39, Reece J relied on the following dictum of Cotton LJ :

“ In Tucker v. Bennett at page 15, cited by Mr. D’Almada, Cotton L.J. emphasized the type of evidence required to justify rectification of a voluntary settlement in these words: —

‘ It requires very clear and distinct evidence to show that there was some different intention at the time when the settlement was executed, and, with the exception of this, there is hardly a single case where many years after the settlement was executed, on mere parol evidence, uncontradicted because there was no one to contradict it, the Court has altered a deed because one of the parties afterwards desired that it should not stand as it was executed.’ ”

32.I refer to two other authorities. First, Shephard v. Cartwright [1955] AC 431, the leading authority on rebuttal of the presumption of advancement. At page 445, Viscount Simonds cited with approval this passage from Snell’s Equity which has been retained in all subsequent editions :

“ The acts and declarations of the parties before or at the time of the purchase, or so immediately after it as to constitute a part of the transaction, are admissible in evidence either for or against the part who did the act or made the declaration … But subsequent declarations are admissible as evidence only against the party who made them, and not in his favour.”

But as Viscount Simonds went on to say :

“ But although the applicable law is not in doubt, the application of it is not always easy. There must often be room for argument whether a subsequent act is part of the same transaction as the original purchase or transfer, and equally whether subsequent acts which it is sought to adduce in evidence ought to be regarded as admissions by the party so acting, and whether, if they are so admitted, further facts should be admitted by way of qualification of those admissions.”

33.Secondly, Ip Man Shan Henry & Anor v. Ching Hing Construction Co. Ltd & Ors (No.2) [2003] 1 HKC 256, a decision of Lam DJ (as he then was) where he expressed the view that evidence of the settlor as to his intention was admissible when the court had to decide whether he had intended to make a gift. This was a case where the parents bought a property in the name of their son, and the issue was whether they intended to make a gift of the property to the son. The learned judge was of the view that evidence of the parents of their intention at the material time was admissible. At paragraph 181 of his judgment, he cited and relied on the dictum of Heydon JA in the case of Damberg v. Damberg [2001] NSWCA 87 :

“ … However, Viscount Simonds’ formulation does not exclude testimonial evidence of intention. The reference to ‘declarations’ is a reference to out of court declarations. In truth the propositions enunciated by Viscount Simonds are not peculiar to this field, nor are they an exhaustive statement: they merely summarise parts of the common law rules relating to res gestae evidence and admissions. ‘Questions … as to the relevancy and admissibility of evidence … can best be considered … by reference to the principles and authorities to be found in a textbook on evidence. There are no special rules relating to cases of this kind; such cases merely illustrate general evidentiary principles’: Davies v The National Trustees Executors & Agency Co. of Australasia Ltd [1912] VLR 397 at 402 per Cussen J. In general a person whose intention at an earlier time is in issue may give evidence of it, and the position is the same here, even though the weight of the evidence, coming as it does from an interested witness, must be scrutinized with care: Devoy v Devoy (1857) 3 Sim & Giff 403 at 406; 65 ER 713 at 714 per Stuart VC; Dumper v Dumper (1862) 3 Giff 583 at 590; 66 ER 540 at 543 per Stuart VC; Davies v The National Trustees Executors & Agency Co. of Australasia Ltd [1912] VLR 397 at 403; Drever v Drever [1936] ALR 446; and Martin v Martin (1959) 110 CLR 297 at 304 per Dixon CJ, McTiernan, Fullagar and Windeyer JJ. It follows from the proposition that the rules for admissibility of evidence tendered to rebut the presumption are simply those of the general law that any modifications effected by the Evidence Act 1995 are applicable.”

34.It is obvious that evidence by a solicitor of what the settlor told him as to his intention at or about the time of the establishment of the trust is admissible. I see no logical reason why evidence from the settlor of what he told the solicitor should not be admissible. So I approach the matter on the basis that the plaintiff’s evidence of his intention at or about the time of the Trusts is admissible evidence. Naturally, such evidence must be scrutinized with such care as the circumstances require.

35.I do not believe it is disputed that the plaintiff had intended to give the beneficial interests in the shares to his children. The dispute is whether the gifts were subject to conditions, in particular, the condition of revocability. Nor am I concerned with uncommunicated intention. It is the plaintiff’s case that he had communicated his intention to the trustees and possibly to Peter Mark who was in charge of the preparation of at least some of the trust deeds.

36.Mr McCoy accepted that I am entitled to approach the plaintiff’s evidence and his case with caution. I must decide whether they are sufficiently cogent for me to act on them. I believe the authorities cited above support this approach.

BACKGROUND

37.The plaintiff was born on 8 June 1926. He is now 78 years old. Unfortunately, he suffers from bad health. He was 53 in 1979. Even then he was not in good health. Moreover, he had received death threats, it seems, because of his toughness as a businessman.

38.He is the grandson of Sir Robert Hotung. He came to his inheritance as a relatively young man. Sir Robert Hotung died in 1956 and his father Mr Edward Sai Kim Hotung died in 1957. So he inherited part of the vast fortune of his grandfather as well as part of his father’s considerable estate.

39.The plaintiff was no idler. He was engaged in many different businesses including development of real estate, import and export, and trading in shares. It would appear that in the middle of 1960s, he had suffered some reverses of fortune but he was able to weather the storm because of his inheritance. By the 1970s, his business was steady and prosperous again and he had floated two companies, Hong Kong Development and Cosmopolitan Properties & Securities Limited (“Cosmopolitan”). His evidence is not very clear because when he was asked about his health in the 70’s, he said words to the effect that one day he was looking at his fingers and thought that he would be happy to swap a finger to pay off debt. However, it seemed clear enough that by 1979/1980, he had recovered financially, although he said he had to work so hard that he became a wreck. He said that he was worried about his children and he wanted to protect his family.

40.So in 1978 he asked Mr Peter Vine, a well-known solicitor, to prepare a Will which he signed. Under the Will, he appointed his wife as sole executrix and trustee, and failing her, his “three oldest living sons who shall then have attained the age of 21…”. His residuary estate was to devolve “upon trust for such my children who shall survive me and attain the age of 21 years in equal shares as to the corpus thereof one-third thereof when each such child shall attain the age of 30, one-third thereof when each such child shall attain the age of 35 and the balance when each such child shall attain the age of 40 and as to the income thereof …”. He also made careful and detail provisions which showed his care and concern for the welfare of his family. The only comment I wish to make about this Will is that it was such as one would expect a loving husband and father to make.

41.There is no evidence that this Will had been revoked prior to the establishment of the Trusts. Indeed there is no evidence whether this Will had been revoked prior to a later Will of the plaintiff, dated 3 October 2001, when he disinherited all his sons.

42.The plaintiff was asked in chief his reasons for establishing the Trusts. He said they were to be his second line of defence because one could never tell how trustees might behave and because he had been dissatisfied with professional trustees. He also said that the Trusts were to provide a “rapid deployment fund”.

43.The plaintiff said his experience with professional trustees was unsatisfactory. I believe he was referring to the trustees of his grandfather’s Will. His father had not appointed a professional trustee. I believe he was complaining about their deferring to his uncle. That may explain why in his 1978 Will, he appointed his wife and failing her, his adult sons, if any, as trustees of his Will.

44.According to the plaintiff, two of his sons, the two elders, had behaved badly because they were involved in a bar brawl in Wanchai so he decided when he set up the Ho Trusts that the beneficiaries should be the three younger boys who were then aged 16, 14 and 13 respectively.

45.The plaintiff also explained why there were two sets of trusts. He said he picked the 1^st defendant because she was a brilliant businesswoman and that he wanted his sons to learn from her. However, he did not want her to be trustee for the daughters because that might hurt Mrs Hotung’s feelings. He said that he spoke to the 1^st defendant in his office at 10 Stanley Street and that he told her of the conditions quite briefly namely, that they were to be revocable at any time, they were to be secret, and income, if any, were distributable as and when needed. But as far as distribution was concerned, she could distribute not just to the three sons but also to his wife and himself. I believe also the other two sons.

46.As for the daughters he approached Mr Ronald Ho (“Ronald Ho”), his nephew, who was an accountant at Arthur Young & Co. He said he told Ronald Ho in his office that he wanted a secret trust with powers of revocation and that Ronald Ho told him that he had to report to his partners. He was told that a nominee company would be used as trustee and the company was Hillhead. The same conditions were imposed on Hillhead although the income, if any, were to be distributed, if necessary, to the daughters as well as Mrs Hotung and him. Hillhead was to have nothing to do with the management of HEL or HICL.

47.The plaintiff said that one Eric Machado who was his trusted assistant was asked to help. The plaintiff was unable to locate Eric Machado despite efforts to find him. There was some suggestion that the plaintiff had left it to Eric Machado to tell Peter Mark the conditions. Peter Mark was clear that he received no instructions from Eric Machado.

48.The plaintiff instructed Peter Mark to prepare the trust deeds. He said to the best of his memory or recollection he told Peter Mark the conditions. He said that when the trust documents were returned to him after execution, he only looked at them superficially. He also said that he had expected the conditions to be included in the trust deeds and that he had never authorised any of the trustees to execute a trust deed without those conditions.

49.The plaintiff also said he decided to come to the court to see where he stood after he was told about other proceedings (see paragraphs 62 to 69 below) brought by the children against the 1^st and 4^th defendants.

50.As I have said the plaintiff said he established the Trusts for the protection of his children and because he wanted a rapid deployment fund. When the plaintiff was asked by me how would the children know that a rapid deployment fund was available in case of need since the Trusts were to be kept secret from them, he said Peter Mark who had his ears close to the ground would tell him if any of his sons were to get into trouble. He also explained that in case he and Mrs Hotung were to be incapacitated the trustees would be able to help. It is obvious that the concept of a rapid deployment fund was an important reason for the establishment of the Trusts. If he had merely intended to make a revocable gift to take effect on death, he could do so by a will or a codicil. If he wanted to help his children during his lifetime, he could do so, even without the Trusts.

HAD THE PLAINTIFF TOLD PETER MARK?

51.Peter Mark was a good friend. It is common ground that Peter Mark was a competent solicitor. Peter Mark was also a director in a number of the plaintiff’s companies, including listed companies.

52.Peter Mark said that although he might have taken instructions from the plaintiff over a cup of tea, he would normally record the instructions on an internal memo and pass it on to one of his assistants.

53.There was no reason why the plaintiff should not have told Peter Mark. Particularly, having regard to his idea of the rapid deployment fund and his belief that Peter Mark had his ears close to the ground.

54.Peter Mark said he did not remember being told. I believe he had not been told. Had he been told, I find it inconceivable that he would have made no reference to these conditions in the declaration of trusts. Although the Trusts were to be kept secret from the children, there was no suggestion that the conditions themselves should not appear on the face of the declaration of trusts. Indeed, the plaintiff’s evidence was to the contrary. As a competent solicitor, he would have recorded the conditions in the declaration of trusts especially the conditions under which the trustees were given power to use the income of the trusts, if any, for the benefit of persons other than the beneficiaries. If Mr and Mrs Hotung were incapacitated, the trustees would be unprotected if they allow income to be used their benefit should they not recover from their incapacity.

55.As for the plaintiff’s evidence regarding Peter Mark, Mr McCoy reminded me that in the plaintiff’s first witness statement, he said :

“ 31. I could not recall the exact instructions I gave to Peter Mark for the preparation of the trust documents except that I said I wanted the trust documents to be simple. I had not informed Peter Mark about the conditions I wished to impose on the trusts because I thought the trusts would be kept secret from my children during my lifetime and those conditions and terms I would like to impose (such as my right of revocation or the trustees not being required to manage the business of HEL and HICL) would no longer be relevant after my death. In any event, I also retained the power to revoke the trusts.”

56.But in the transcript of his oral evidence in the afternoon of 12 January 2005, at page 5 this is recorded :

“ Q. And did you tell Peter Mark about the conditions you’d imposed on the trustees?

A. Yes, I said that, to the best of my memory.

COURT: You said you did.

A. To the best of my memory.”

57.The discrepancy between the plaintiff’s witness statement and his oral evidence supports caution when I come to assess the reliability of the plaintiff’s recollection.

58.I believe the plaintiff had not told Peter Mark the conditions. I do not believe he left it to Eric Machado to tell Peter Mark the conditions. I believe the fact that he had not told Peter Mark cast doubt on whether he really had the conditions in mind at the time. I believe, had he intended the Trusts to be subject to these conditions, he would not have failed to tell Peter Mark.

RONALD HO AND ALAN HANN

59.The plaintiff said he told Ronald Ho and Alan Hann the conditions. Both Ronald Ho and Alan Hann were called as witnesses.

60.Ronald Ho is the nephew of the plaintiff. He is the grandson of the adoptive son of Sir Robert Hotung. He is a chartered accountant. In 1979, he was an audit manager at Arthur Young & Co. He retired in 2002. By that time, Arthur Young & Co. had become part of Ernst & Young. In 1979, he was in charge of the audit of Cosmopolitan. He was reporting to Alan Hann who was the managing partner.

61.Ronald Ho gave his evidence in a narrative form. I told him I was more interested in the actual conversation that he had with the plaintiff. He said he would try his best to recollect and this is the transcript of his evidence :

“ A. Yes. Basically Mr Hotung says he wanted to set up a trust for his daughters and he would have total control of the trusts and the trust would be a secret trust, not to be divulged to anybody until his demise.

COURT: And were these the words used by Mr Hotung?

A. Yes. But if he didn’t use the word ‘demise’ but used this word ‘until my death’.

Q. And you recall where this conversation took place?

A. In the Stanley Street headquarters of Cosmopolitan Group.

Q. And are you able to remember approximately when it took place?

A. Some time in 79, I cannot remember the exact month or date.”

And then at page 24 of the transcript of his evidence of 18 January 2005, he said :

“ Q. Well, for whatever reason he did that, what is your evidence as to revocation being imposed as a condition of the trust when it was formed in 1979?

A. Mr Hotung wanted ultimate control, including revocation – total control of the trust. As I said, once the package of documents which includes the declaration of trust, the instrument of transfer signed blank and bought and sold note and the share certificates returned to the client, our service would have come to a conclusion.

Q. And what you’ve just described was the normal practice that your firm would carry in just these cases.

A. Yes.

COUIRT: Now, when you said he wanted ultimate control, including revocation, earlier in your evidence you did not say that he mentioned revocation.

A. I - - maybe I did not say he wanted revocation, but his instruction clearly include that he wants ultimate control and for …

COURT: Now, I understand, but - - and then what effect it may have as a matter of law is of course something that we have to decide in due course.

A. M’mm.

COURT: So I’m more interested in exactly what it was that he said to you rather than any gloss that you might put on it, do you see what I mean?

A. He said he wants to have ultimate control.

COURT: Ultimate control. Good, yes. That I understand. He wanted ultimate control.

Q. I’m going to ask you, did he use the expression – his Lordship’s asked you questions about this – did he use the expression ‘revocation’ at all, the phrase ‘revocation’?

A. I can’t remember whether he used the word ‘revocation’. But by the fact that he stressed on ultimate control, I take it that it includes transferring the shares to some other parties including himself, and to me that’s a complete - - it would completely nullify the trust.”

OTHER PROCEEDINGS

62.It would be helpful to the consideration of Ronald Ho’s evidence if I were to pause and mention other proceedings between the parties.

63.There were earlier proceedings brought against the trustees.

64.The first proceeding brought was HCMP 5851/2001. That was brought by Anthony and Sean against the 1^st defendant. Essentially, it was an action for documents and some documents were ordered to be supplied by the 1^st defendant by Gill DJ on 11 December 2001.

65.The second set of proceeding was HCMP 2031/2002. The parties were the same. Essentially, it was an action to compel the 1^st defendant to execute certain powers of attorney in relation to the Ho Trusts. This was dismissed by Chung J on 26 June 2002. The appeal, CACV 315/2002, was dismissed on 29 April 2003. The application for leave to appeal to the Court of Final Appeal had been stayed until after the determination of HCA 571/2003 or until further order.

66.HCMP 2820/2002 was an action brought by Sean against Hillhead, to compel Hillhead to execute certain powers of attorney, essentially, giving to Sean, the power to vote the shares under the Hillhead Trusts. This was stayed pending the disposition of CACV 315/2002 by Chu J on 5 September 2002.

67.HCMP 4511/2002 by Sean against Hillhead requiring Hillhead as holder of 10,002 shares in HEL to convene an EGM pursuant to section 113 of the Companies Ordinance. This was adjourned by Kwan J on 15 January 2003 to await the determination of the Beddoe application in HCMP 5250/2002.

68.HCMP 4815/2002 brought by Sean and Anthony against the 1^st defendant for a declaration that each of the plaintiffs was beneficially entitle to 3,334 shares in HEL and one share in HICL and an order that the 1^st defendant as trustee requisition or convene meetings of HEL and HICL.

69.Lastly, HCMP 5250/2002, the Beddoe application brought by Hillhead against Sean, Eric, Mara, Sheridan and Gabrielle. Hillhead who was the plaintiff in the Beddoe application was, as now, represented by Simmons & Simmons. One of the partners who had conduct of the Beddoe proceedings was Mr Henry Ong (“Henry Ong”).

HENRY ONG

70.Henry Ong made three affirmations in the Beddoe application and Ronald Ho was cross-examined on the some of the contents of these affirmations.

71.As background, I should also mention that on 5 November 2002, Simmons & Simmons wrote to Ms Anthea Chan, a solicitor acting for the plaintiff that :

“ …

As you are aware, pursuant to trust declarations or trust deeds dated 29 November 1979 and 6 February 1980 (‘Trust Declarations’), Hillhead holds the HEL Shares and the HICL Shares (collectively, ‘Shares’) respectively as bare trustee and nominee of Mara Tegwen Hotung, Gabrielle Marie Hotung and Sheridan Patricia Hotung (together ‘Mr Hotung’s Daugthers’). You will also be aware of Eric Hotung’s suggestion or assertion in August this year to the effect that there is in existence some other or further understanding or arrangement such that the Shares (or perhaps only the HEL Shares) should vest in Mr Hotung’s Daughters only upon Mr Hotung’s death.

Mr Hotung’s assertions appear inconsistent with what is stated in the Trust Declarations. This is very surprising, given in particular that Mr Hotung had sight of the Trust Declarations on many occasions since 1979/1980 and it was not until August 2002 that Mr Hotung raised this issue for the first time. In any event, Mr Hotung’s assertions are clearly of concern to Hillhead.

Accordingly, the purpose of this letter is to seek clarification and further information with respect to Mr Hotung’s assertions and, if Mr Hotung maintains such assertions, to request Mr Hotung to make the appropriate Court application to rectify the present arrangements and the Trust Declarations (or otherwise to settle the issue by agreement with his daughters and/or Sean Eric Hotung).

…

If Hotung’s position is that his assertions are correct:

1.1 Mr Hotung should provide this firm, on behalf of Hillhead, with further details and particulars of the understandings or arrangements that he believes exist pertaining to the Shares, including his views as to:

· the identity/identities of the present beneficial owner(s) (whether absolute or contingent) of the HEL Shares and the HICL Shares;

· the person(s) entitled to instruct Hillhead in respect of the Shares; and

· whether or not Hillhead should comply with the EGM Request.

1.2 In addition, Mr Hotung should apply to Court for rectification of the Trust Declarations. An obvious alternative is for Mr Hotung to seek to settle this issue with his daughters and/or Sean Eric Hotung by agreement (if that is possible).”

72.Messrs Herbert Choi & Partners replied on behalf of the plaintiff on 5 December 2002. Since the plaintiff was not cross-examined in relation to the alleged August assertions, I cannot take them into consideration, in particular, I cannot proceed on the basis that in August 2002, the plaintiff’s assertions were in any way different from those which were made in December 2002. I mention this to show that in considering the reliability of the plaintiff’s evidence, I would not take into consideration any suggestion that in August 2002 he had made any different assertions from those which were made in December 2002. Also, I have placed no weight on Mr Egan’s submission, on behalf of the 2^nd, 3^rd and 5^th defendants, on the amendments made to the conditions in the Re-re-amended Statement of Claim. I do not believe they are sufficiently serious. Moreover, there had been no meaningful cross-examination on the discrepancies.

73.Paragraphs 7 to 10 of Henry Ong’s first affirmation were put to Ronald Ho :

“ Mr Ronald Ho

7. In relation to Mr. Ho, I am advised by Mr. Howard Lau, a former director of the Plaintiff and a partner of Ernst & Young, that Mr. Lau had a telephone discussion with Mr. Ho following the initial oral assertions of the 2^nd Defendant and that Mr. Ho’s response was to the effect that Mr. Ho did not know, and was not in a position to know, the circumstances surrounding the establishment of the Trusts back in 1979 and 1980 and that the persons who should have such knowledge are Mr. Hann and Mr. James.

8. I am informed by Mr. Lau that, following receipt of the Assertions Letter and during the first half of December 2002, Mr. Lau again attempted to contact Mr. Ho at his home in Canada, but to no avail. It later transpired that Mr. Ho was then in Hong Kong and, on 19^th December 2002, I wrote to Mr. Ho seeking his comments on the 2^nd Defendant’s assertions (‘the Assertions’) and the various allegations regarding the Plaintiff's administration of the Trusts (‘the Allegations’). There is now produced and shown to me a copy of my letter to Mr. Ron Ho marked ‘OSLH-2’.

9. As I had not heard from Mr. Ho by Monday 30^th December 2002, I tried to contact Mr. Ho and did manage to speak to him at his house in Hong Kong on that date. Mr. Ho stated that it was difficult to recollect the circumstances surrounding the establishment of the Trusts back in 1979/1980 and that, in any event, Mr. Hann and Mr. James would be in a better position to advise on that issue. I pointed out to Mr. Ho that, in the Assertions Letter, it was suggested that the 2^nd Defendant had informed Mr. Ho of the terms of the Trusts, and that Mr. Ho had initially agreed to act as trustee. Mr. Ho’s response was that he could not be sure as to whether or not the 2^nd Defendant had discussed this with him.

10. Mr. Ho did comment, however, that the Plaintiff had not charged any fees for the holding of the shares in Hotung Enterprises Limited (‘HEL’) and Hotung Investment (China) Limited (‘HICL’) and, if the Trusts were not bare trusts, the Plaintiff would have charged fees on the basis of a percentage of the value of the trust assets; and on that basis he would be surprised if the Trusts were anything other than bare trusts. Mr. Ho also stated that, at all I relevant times, he had dealt only with the 2^nd Defendant (or the 2^nd Defendant’s office) in relation to administrative matters concerning the Trusts. Mr. Ho confirmed that it was the office of the 2^nd Defendant who instructed the Plaintiff to send to the 2^nd Defendant the instruments of transfer relating to the shares in HEL and HICL (executed by the Plaintiff but left blank as to transferee). As far his involvement with the Trusts was concern1d, Mr. Ho stated that the Trusts would have been administered as ‘normal’ bare trusts.”

74.Ronald Ho was also cross-examined on paragraphs 7 and 8 of Henry Ong’s third affirmation which I produce below :

“ Ron Ho

7. I had meeting with Mr. Ron Ho on 9^th January 2003 at my office. I was told by him that the 2^nd Defendant approached him on 24^th December 2002 requesting him to sign a statutory declaration regarding the Assertions in the form as shown hereto and marked ‘OSLH-14’. During that meeting, when Mr Ho had an opportunity to review some of the documents from his ‘old’ files, Mr Ho indicated that what he could recall at that point was that, when the two Trusts were set up, it was the 2^nd Defendant’s intention to retain control over the administration of Hotung Enterprises Ltd. and Hotung Investment Ltd. notwithstanding that the legal interest in the shares of these companies had been transferred to Madam Y.K. Ho and the Plaintiff.

8. On 10^th January 2003, I received a draft statutory declaration from Mr. Ho regarding the Assertions which is now produced to me and exhibited ‘OSLH-15’. I was told by my partner, Wanda Tong, that she had been trying to get hold of Mr. Ho seeking his confirmation whether he would be signing the statutory declaration but Mr Ho asked her to speak to his lawyer, Mr. Thomas Chau of Rowland Chow Chan & Co. I was further told by Ms. Tong that she was advised by Mr. Chau at 4:00pm today that Mr. Ho had still not decided whether to sign the statutory declaration or any other documents in relations to the Assertions.”

75.So far as paragraph 7 of Henry Ong’s first affirmation was concerned, Ronald Ho denied the content. Mr Howard Lau has not been called. I ignore this paragraph.

76.Henry Ong gave evidence on behalf of the defendants. He also produced the notes of his conversation with Ronald Ho. They were sketchy. But they are in general agreement with what he had deposed to in his affirmations. For example, in his note of conversation dated 31 December 2002 (at page 2 of the typed up version) :

“ So long ago – diff. [difficult] to recollect

Not even a partner – Just made principal. Could X [not] [sentence incomplete]

Did X [not] believe Hillhead had any obliges [obligations].

…

Hillhead would x [not] have been used for a trust like this.

Whether he had spoken to me – need to really scratch

my head

Cannot be sure.”

77.I find Henry Ong’s evidence helpful and reliable. I believe the passages quoted from his affirmations are reliable and accurate record of what he was told by Ronald Ho.

RONALD HO

78.Ronald Ho said that he was cautious when he was speaking to Henry Ong. Indeed shortly after the conversation on 31 December, he retained separate solicitors and that it was only after he had been given an indemnity by the plaintiff that he was willing to give a statement. I can understand his caution because he might be liable to a claim by the plaintiff, the beneficiaries, or his former firm. I do not have to assess the risk of any such claim. It is sufficient that he believed he had reason to be cautious.

79.Be that as it may, it is clear from the evidence of Ronald Ho that so far as he was concerned, there never was the second condition. In other words, he was not aware that Hillhead could use the income, if any, for the benefit of the beneficiaries much less than the plaintiff and Mrs Hotung. So far as Ronald Ho was concerned, Hillhead was given no discretion or power. That is in general agreement with what Henry Ong had recorded, and paragraph 10 of his first affirmation.

80.However, Ronald Ho supported the evidence of the plaintiff on the first condition.

81.Mr McCoy said that the conditions do not have to succeed or fail together. Strictly speaking, that is right. However, given the fact that according to the plaintiff, the purpose of the Trusts was to establish a rapid deployment fund, it would make no sense if he had not made known this condition to Ronald Ho. But, as will be seen later, Alan Hann was also unaware of this condition.

82.As for Ronald Ho’s evidence on revocability, I believe it is more probable that he had confused control with revocability. I do not believe he was ever told by the plaintiff that the plaintiff wanted to have the power to revoke the Hillhead trusts. Mr McCoy said that the plaintiff might not have used the words, “revoke” but that he would have used other “lay” expressions. Even so, I do not believe that any such intention was ever conveyed.

83.I do not doubt Ronald Ho’s honesty. Indeed, that was never challenged. But after a lapse of 26 years, I do not believe his recollection on this vital issue is reliable enough for me to act on it. I am not satisfied that his oral evidence has provided me with a sufficiently clear or convincing basis to find that the plaintiff had told him of his intention to retain a power of revocation. I believe it is more likely that insofar as Ronald Ho’s evidence was to that effect, it was the result of an inference drawn by him based on his belief that all the documents including blank instruments of transfer had been given to the plaintiff.

ALAN HANN

84.Mr McCoy realised the vulnerability of Ronald Ho’s evidence. That is why in his final submission he laid particular emphasis on Alan Hann’s evidence. He made the valid point that if I was sufficiently satisfied with Alan Hann’s evidence, that was enough.

85.I have considered his evidence with care. He said that he did not remember being given any instructions as to the payment of dividends or interests, either from the plaintiff or anyone else. In other words, no recollection of the second condition at all. He also said that it was the practice of Arthur Young & Co. at the time to make a record in Hillhead’s files of any particular specific wishes and understandings, pertaining to any of the trusts set up where Hillhead was a trustee and party. Also that they would have been recorded in the minutes book behind the minutes.

86.He said under cross-examination that he was contacted in December 2003 and January 2004 by Simmons & Simmons who were acting for Hillhead and he said he recollected two or three phone calls from Henry Ong.

“ Q. I think you were contacted in both December 2003 and January 2004 by Simmons & Simmons, that is the solicitors for Hillhead. Did you mention these oral conditions at that time to Simmons & Simmons?

A. Now, my recollection of the - - I think there are two or three phone calls from a Mr Henry Ong. My recollection of those discussions was that I would need time to allow me to recollect as best as I could the circumstances surrounding the two trusts. And I think before I could go back to Henry, the question of my drawing up an affidavit came about and, therefore, the affidavit needed my attention. It took time to produce that accurately. And, ultimately, that affidavit was copied to Simmons & Simmons, as I recollect it.

Q. When did the clouds part and your recollection become as clear as it is today?

A. Well, when you say ‘as clear as it is today’, it would suggest that you’re saying it’s crystal clear. It is not. It is to the best of my recollection. Each - - everything that I am saying is subject to that comment. It can only be something of that 20 years’ duration.”

And later, in his evidence, he said :

“ I was not bound to reveal them (Simmons & Simmons) to anybody until I had completed my recollections, which were formulated into the affidavit that I’d signed. I think as much as we’re dealing with something that is in excess of 20 years ago, one needs to do some ferreting around before just giving an off-the-cuff reaction to a question asked over the telephone out of blue.”

87.I am satisfied that he tried his best to recollect the events of 26 years ago. He too had been separately represented. He also had the plaintiff’s indemnity. His lawyer’s fees were paid for by the plaintiff. He was also paid professional remuneration for the time he had taken in preparing his witness statements, giving evidence and debriefing after his testimony. On top of his lawyer’s fees, he was paid $274,000. This gives some idea of the time he required for recollection before he could give evidence.

88.It is understandable that after so many years Alan Hann needed time to complete his recollection. The result, of course, can be perfectly reliable evidence.

89.He also said that he had personal knowledge or experience of some 40 or 50 trusts which were set up by Hillhead. There might have been other trusts set up by other partners and that in almost all of them, the control would revert to the settlor and that he did not remember any case where Hillhead was actually trustee in a proper sense, for example, with duties or powers.

90.He also explained in chief, why he was able to recall.

“ Q. May I ask why it is that you are able to recall him imposing these specific pre-conditions on you?

A. Well, it is, as I mentioned right at the beginning, to the best of my recollection. But the facts surrounding the setting up of the trust, the documentation that I see in front of me, and various other supporting information, and the knowledge that a number of trusts were set up in exactly this manner throughout the office in Hong Kong, during the period that I was there, lead me to believe that my recollections are, to the best of my knowledge, true and fair.”

91.Alan Hann’s evidence was that in the trusts which had set up by him, the documentation would normally include a blank signed instrument of transfer and this is what he said at page 7 of the transcript :

“ Q. And you have already indicated that the majority of the trusts that Hillhead was trustee for contained some power of revocation. Was that orally imposed, or would that be in written trust document?

A. Typically, it was not in the written trust document. It was understood by virtue of the fact that the documentation would normally include a blank signed Instrument of Transfer over the shares which were the subject of the trust, which, of course, gives the holder of that document a revocability power.”

92.Alan Hann did not say he had any particular reason to recall the Hillhead Trusts. According to him, the assets were small. I believe he probably inferred from the fact that it was the normal practice of Hillhead, indeed of Arthur Young & Co., to provide the settlor with blank instruments of transfer, thereby giving the settlor the ability to transfer the shares to anyone he pleased, that the plaintiff intended to retain a power of revocation.

93.I am not satisfied that Alan Hann’s recollection is reliable enough for me to conclude that the plaintiff had made known his intention to him that the Hillhead Trusts were intended to be revocable.

94.I have noted Mr McCoy’s point that the conditions need not succeed or fail together. That is correct. But I am not satisfied that I can rely on Alan Hann’s evidence about the first condition.

THE 1^ST DEFENDANT

95.She is in bad health. I permitted her to give evidence by video link from her home. During her evidence, it was obvious that she was not following the proceedings very well. Although she had given a statutory declaration in December 2002 when her health and presumably memory was better, I do not think I can rely on her evidence. There was little cross-examination of her, which was understandable, having regard to her health and obvious difficulty in following the questions.

BLANK INSTRUMENTS OF TRANSFER

96.In 1998 the plaintiff by his assistant, Mrs Patricia Will (“Mrs Will”), requested Ronald Ho or Hillhead to provide them with blank instrument of transfer in relation to the shares in HICL. Hillhead was prepared to provide blank instrument of transfer provided that the daughters were willing to give them an indemnity. Indemnities were duly given by the daughters at the request of the plaintiff. The indemnities as drafted were given on the basis that there had been earlier blank instrument of transfer which had been lost or mislaid and that the daughters agreed to indemnify Hillhead against any improper use of the earlier instrument of transfer.

97.The evidence is not very clear how or when the plaintiff became aware or thought that there were earlier blank instruments of transfer or how and when, if there were such blank instruments of transfer, they had become lost. There has been a faint suggestion, both by the plaintiff as well as Mrs Will, that they might have been purloined, to use the word of the plaintiff, by one of the sons.

98.Mr McCoy accepted that there was no evidence that any of the sons had done so. There were other serious allegations by the father and some of the children in their witness statements. Happily, these allegations were not given in evidence before me and I can ignore them.

99.It is clear from the evidence that the plaintiff’s control of important documents was inadequate. Thus, Hillhead’s trust deed of 29 November 1979 was in the custody of Johnson Stokes & Masters (“JSM”) although neither JSM nor the plaintiff could remember when, how or by whom, that document was given into JSM’s custody.

100.It was Alan Hann’s evidence that, it was the normal practice of Arthur Young & Co. as well as his own normal practice, when Hillhead was used as a nominee shareholder, for blank instruments of transfer to be provided to the settlor. In its simplest form, a client would cause shares to be transferred to Hillhead to hold on trust for the transferor. Ronald Ho said this was very often done by multinationals. The nominee would hold on a resulting trust anyway. But the nominee would make a declaration of trust. For companies, such as Hillhead, they would also execute blank instruments of transfer, bought and sold notes, so that the shares could be transferred to whomever the transferor pleased without further reference to Hillhead.

101.In answer to a question by me, Ronald Ho said that he told the plaintiff that “the trust will be set up and he will be in possession of all the controlling documents so that he can execute the transfer, whatever, however, and to whoever he wants to”.

102.Be that as it may, Mr McCoy accepted that even if the plaintiff wanted ultimate control, that was not necessarily the same as reserving to himself the power of revocation. Control would be consistent with a power of revocation but does not necessarily give such a power. Indeed, one could have the power of revocation without control. A settlor could reserve to himself an express power of revocation whilst at the same time leaving control in the hands of the trustees.

103.Here there was no express power of revocation, so unless the plaintiff actually intended to reserve to himself a power of revocation and that is proved and accepted by the court, no power to revoke can arise.

104.Here, the Trusts were kept secret from the children for many years. The daughters learned about the Hillhead Trusts in 1998 because of Hillhead’s requirement for indemnity. According to Anthony (who gave evidence), Sean learned of the Ho Trusts from Gabrielle. The secrecy is consistent with a power of revocation. But it is not necessary or enough to establish a power of revocation. However, it is part of the circumstances which I must take into consideration.

105.But were blank instruments of transfer provided to the plaintiff? That was the evidence of both Alan Hann and Ronald Ho. Their evidence seemed to be based on their understanding of the normal practice, rather than on any personal recollection. According to Alan Hann, there should have been some written record of the fact that blank instruments of transfer had been provided but no such written record has been found.

106.There are two documents from Hillhead which may have some bearing on this. First, a letter dated 28 February 1980, signed by Alan Hann and addressed to the plaintiff :

“ As requested, I enclose herewith the following documents in respect of Hotung Investment (China) Limited for your safe custody:-

1. Declaration of Trust executed by Madam Ho Yuen Ki together with Share Certificate No . –1– for 3 shares held in trust for Michael Eric Hotung, Sean Eric Mclean Hotung and Anthony Eric Ryan Hotung.

2. Declaration of Trust executed by Hillhead Limited together with Share Certificate No. –2– for 3 shares held in trust for Mara Tegwen Hotung, Gabrielle Marie Hotung and Sheridan Patricia Hotung.

Kindly acknowledge receipt by signing and returning the attached copy of this letter to us.”

107.The other letter is a letter dated 5 September 1983 from Tenby Company Limited (“Tenby”). It covered the shares in HEL. Otherwise, it was similar in terms to the letter of 28 February 1980. So far as the letter of 5 September 1983 was concerned, it might have been written in response to a letter which is undated but signed by Mr Ricky Chan, an employee of the plaintiff’s companies, which asked for the share certificates and declarations of trust in relation to HEL.

108.The evidence of Alan Hann is that he would expect the blank instruments of transfer together with the board and sold notes to have been supplied together with the letter of 28 February 1980. He could not explain why there was no reference to the blank instrument of transfer in the letter of 28 February 1980 which was signed by him. He also said that there should have been a written record somewhere but no such record has been found. The letter dated 28 February 1980 was very close to the date of the declaration of trusts which was 6 February 1980. The fact that there was no reference to blank instruments of transfer suggests that they had not been supplied together with the letter of 28 February 1980. There is no evidence as to when, if ever, blank instruments of transfer were supplied.

109.So far as the shares in HEL were concerned, the only letter showing that the declaration of trusts and relevant share certificates were supplied is the letter dated 5 September 1983 by Tenby. Again, there was no reference to any blank instrument of transfer. Tenby was a service company for Hillhead and that is why the letter dated 5 September 1983 was written in the name of Tenby.

110.I also note that in both letters Hillhead and Tenby were sending to the plaintiff not just the Hillhead’s declaration of trust and the associated share certificates, but they were also sending to the plaintiff the Ho declarations of trusts together with the relevant share certificates. There is no evidence when and how the Ho declarations of trust and the share certificates were supplied to Hillhead.

111.Mr Yin, counsel for the 1^st defendant, in his argument suggested in relation to the letter of 5 September 1983 that there might have been an earlier occasion when the relevant documents were sent to the plaintiff but that they were subsequently returned, and that the letter of 5 September 1983 showed their return to the plaintiff. But this is pure speculation. That is no evidence to that effect.

112.There is also a letter dated 22 February 1990 from Ernst & Young to Cosmopolitan (attention Mrs Patricia Will). It reads as follows :

“ RE: HOTUNG INVESTMENT (CHINA) LTD.

HOTUNG ENTERPRISES LTD.

Further to our telephone conversation this morning, I enclose some correspondence in relation to the above two companies for your kind attention. As you can see, both the Declarations of Trusts and the Share Certificates were forwarded to the companies for their safe keeping. I trust that this would be of assistance to you in locating the original documentations.”

113.Again in this letter, there was no reference to any blank instrument of transfer. It seems that Mrs Will was not then trying to locate any blank instruments of transfer. It is not entirely clear what were the enclosed correspondence. I believe they were probably the letters dated 28 February 1980 and 5 September 1983 referred to (paragraphs 106 and 107) above.

114.The two deeds of revocation referred to in paragraph 25 above mentioned that the settlor had possession of the trust deeds together with the share certificates. There was no mention of any blank instrument of transfer. Nor that they had been supplied to affirm “the continuing control of the settlor over the trusts …”.

115.Even so, in 1998, Ronald Ho seemed to have proceeded on the basis that blank instruments of transfer had been supplied earlier. So did Mrs Will. I have to say that both Alan Hann and Ronald Ho in their witness statements seemed to have assumed that to be the case. Of course, the daughters had given letters of indemnities in respect of “lost” instruments of transfer.

116.I also refer to a letter dated 10 July 1998 from Mrs Will to Gabrielle in connection with the letter of indemnity that was required of the daughters. In this letter, Mrs Will wrote :

“I have been informed by Mr. Ronald Ho of Ernst & Young that originally several years ago, he signed a blank Transfer Form regarding the shares held by Hillhead Ltd. in Hotung Enterprises Ltd. This Transfer Form cannot now be found and must be considered lost.”

117.It was not the evidence of Ronald Ho and Alan Hann that blank instrument of transfer were only supplied “several years ago”. Nor that they were signed by Ronald Ho. I am not assisted by this letter.

118.I turn to consider whether it has been proved that blank instruments of transfer had been supplied at or about the time of the relevant declaration of trust.

119.I should say that in the course of the evidence of Alan Hann and Ronald Ho, they emphasised the absolute control which the plaintiff had by reference principally to the fact that he had in his possession blank instruments of transfer which he could have filled in any time he pleased. Also that if the beneficiaries had not been told about the existence of the Hillhead trusts, nobody would ever get to know of the trusts anyway and to that extent, the plaintiff could do what he wanted.

120.However there was not how the case was opened on behalf of the plaintiff. There was not how the case was pleaded. The Statement of Claim was first issued on 24 March 2003, it was amended on 26 July 2003. Again, on 6 February 2004 and then lastly, on 26 November 2004. In the evidence-in-chief of the plaintiff, he made no reference to the fact that he had been given any blank instrument of transfer at or about the time of the establishment of the Ho or Hillhead Trusts. However, the recital in the deeds of revocation gives some support to this argument.

121.So far as the Ho Trusts were concerned, there was no evidence that any blank transfer was given. In the core bundle, at p. 380, there was a blank transfer in relation to three shares in HICL signed by the 1^st defendant. However, there was no evidence that this was provided at or about the time of the Ho Trusts. Indeed, from the address given of the witness, it appears more likely that this was given in late 1990s. It may be that as the plaintiff said in his evidence he was confident that the 1^st defendant would do his bidding. However, in the case of sudden death or incapacity of the 1^st defendant, he was not in a position to procure a transfer of the shares.

122.I turn again to consider whether the fact that, Ronald Ho and Alan Hann, both by word and conduct seemed to have proceeded on the basis that blank instruments of transfer had been supplied to the plaintiff, is sufficient evidence for me to infer that that had been done. I do not believe in the circumstances of this case, I should proceed on that basis. I am not satisfied that it has been proved on a balance of probabilities that blank instruments of transfer had been supplied.

123.I take into account that according to Alan Hann, the normal practice was for all the documents (trust deeds, instruments of transfer, bought and sold notes, etc) to be given to the settlor. However as would have been seen from the Tenby letter, so far as the HEL declaration of trusts and share certificates were concerned, they had been kept by Tenby until September 1983. Even in the case of the HICL, in Hillhead’s letter of 28 February 1980 the declaration of trusts and share certificates were enclosed “as requested”. In other words, they were not being returned as a matter of course. It seems to me, it may be that in this particular case, the normal practice had not been followed.

124.But, even if blank instruments of transfer had been given to the plaintiff, it did not follow that he had reserved to himself a power of revocation. Nor that he intended thereby to reserve a power of revocation. It might simply indicate that he wanted absolute control vis-à-vis Hillhead to the extent that should he wish to do so, he could change the trustees without the cooperation or agreement of Hillhead. Or so that he could run the companies without any interference from the trustees. This is consistent with paragraph 7 of Henry Ong’s third affirmation quoted in paragraph 74 above. Ronald Ho confirmed that he might have said that to Henry Ong. The plaintiff could simply transfer the shares to new trustees should he wish to do so. That would protect him against any interference by the trustees. One’s control over trustees often depended on one’s ability to change them.

125.Mr McCoy made the point that all the witnesses spoke to the plaintiff’s insistence on absolute control. I am prepared to accept that he wanted absolute control vis-à-vis Hillhead and the 1^st defendant, and that in the case of Hillhead the possession of blank transfers would ensure control. Also that the 1^st defendant would simply do his bidding. I believe the plaintiff was used to getting his way. I also accept that the trustees were not permitted to interfere in the affairs of the companies. This is similar to the third condition though not quite the same. Mr McCoy said that it was not in the plaintiff’s DNA to have made unconditional gifts of the shares to his children. That I believe is an overstatement. It seems to be common ground that in 1985, he established the MR Trust and put a property bought for $1.9 million in 1985, on trust for Anthony, Mara, Gabrielle and Sheridan equally. Although the existence of the MR Trust was kept secret until 1991, there was no suggestion that it was revocable. I note also that the plaintiff’s eldest son, Michael, was a co-trustee in the MR Trust.

126.I should also mention that at the time of the Trusts, the underlying assets were, according to the plaintiff, worth 10 to 12% of his fortune. Although those assets have since increased substantially in value, they constituted a smaller percentage of the plaintiff’s wealth today. It is probable that the plaintiff did not believe it was necessary for him to make the Trusts revocable. He might well have thought that the expectation of a share in his larger estate would be a powerful incentive to the children not to displease him.

127.Mr McCoy also referred to Deepak Fertilizers and Petrochemical Ltd v. Davy McKee (UK) London Ltd [2002] EWCA 1396, a decision of the English Court of Appeal. Mr McCoy submitted that Mr Egan not having challenged the integrity of any of the witnesses he was not entitled to do so in his closing submission. That is right. Any suggestion by Mr Egan, no matter how faint, in this regard, will be disregarded by me. Mr McCoy also submitted that as Mr Egan had not put the reliability of the witnesses’ recollection in issue in his cross-examination, he was not entitled to submit that I should find the witnesses’ recollection to be unreliable. Reliability of recollection was clearly in issue. Anyway, as Latham LJ said at paragraph 51 of the judgment “at the end of the day each case will defend upon the way in which the issue arose, and was dealt with in evidence”.

CONDITIONS NOT PROVED

128.Although the plaintiff said the first condition was more important than the second, I think, it is clear from his evidence, that the idea of a rapid deployment fund, was the reason for the Trusts. I believe Alan Hann and Ronald Ho were not told about the second condition at all. Nor Peter Mark. I do not believe if they had been told they would have forgotten the second condition. That throws serious doubt on the reliability of the plaintiff’s recollection. Nor am I satisfied that I should proceed on the basis that the plaintiff’s recollection of the second condition (but not the first) was faulty since the idea of a rapid deployment fund was an important reason for the establishment of the Trusts. If the plaintiff misremembered the reason for the Trusts, how much weight can I rely on his recollection of the first condition. I believe the only “condition” at the time was that the trustees were not to interfere in the management of the companies. This is consistent with paragraph 7 of Henry Ong’s third affirmation. This is consistent with the conduct of the plaintiff and Hillhead. I believe this condition led Ronald Ho and Alan Hann to infer that the plaintiff had intended to retain a power of revocation. I have explained why I think that if the plaintiff had the conditions in mind, he would not have failed to tell Peter Mark and indeed the trustees. I am of the view that Ronald Ho and Alan Hann’s evidence on revocation were inferences drawn by them from what they believed to be the standard practice of Hillhead and not from any communication from the plaintiff.

129.So for the reasons stated in this and earlier parts of the judgment, I am not satisfied that the plaintiff has proved the first condition. I do not regard his recollection to be sufficiently reliable. I will not act on his evidence. The second condition is academic because there was never any income. But I am not satisfied that there ever was this condition. As for the third condition, I am prepared to accept that probably it had been made known to Alan Hann and Ronald Ho that they were not to interfere with the management of the companies. I am also satisfied that the plaintiff insisted on secrecy. As for the 1^st defendant, I do not think it ever entered into the plaintiff’s mind that she would interfere. But I do not believe he ever communicated any intention to retain a power of revocation to anyone.

130.The plaintiff’s case was not based on any uncommunicated intention. It is not necessary for me to deal with that possibility. For the avoidance of doubt, I should say that I do not accept that possibility. It made no sense for him not to communicate any such intention.

131.This is not a case which turned on the honesty of any of the witnesses called on behalf of the plaintiff (which, of course, included the plaintiff himself). I accept that they have tried their best and told me what they believed to be true. However, I am not satisfied that I can rely on their recollection. As for Anthony (the only defence witness), he was unable to give any evidence regarding the conditions.

LARCO

132.I turn to consider the LARCO point. In my opinion, this turned on one issue and one issue alone, namely, whether at the time when the transfers and allotments were made, there was a resulting trust in favour of the plaintiff. In this connection, with the exception of the one share in HEL held by the 1^st defendant in favour of the plaintiff prior to 17 September 1979, I am of the opinion that when the transfers or allotments were made, there was no resulting trust in favour of the plaintiff.

133.The leading authority on the subject is Vandervell v. Inland Revenue Commissioners [1967] 2AC 291, the headnote reads as follows :

“Held, (1) that section 53 (1)(c) of the Law of Property Act, 1925, was inapplicable since it was directed to cases where dealings with the equitable estate were divorced from the 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 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 its ambit (post, pp. 311B-312B, 317E-318A).”

Lord Reid said at page 307 :

“The law with regard to resulting trusts is not in doubt. It is stated conveniently in Underhill on Trusts, 11^th ed. (1959), p. 172, and in Lewin on Trusts, 16^th ed. (1964), p. 115. Underhill says:

‘(1) When it appears to have been the intention of the donor that the donee should not take beneficially, there will be a resulting trust in favour of the donor…’ Lewin says that the general rule is that whenever ‘it appears to have been the intention of a donor that the guarantee, devisee or legatee was not to take beneficially’ there will be a resulting trust. The basis of the rule is, I think, that the beneficial interest must belong to or be held for somebody: so if it was not to belong to the donee or be held by him in trust for somebody it must remain with the donor.” (Emphasis added)

134.I have no doubt that at the time of the transfer of the legal title to the trustees, it was intended that the beneficial interests be held by the trustees in trusts for the children. Hence, there was no resulting trust in favour of the plaintiff. This is what Lord Upjohn said at page 312 :

“ So I will be as brief as I can upon the principles. Where A transfers, or directs a trustee for him to transfer, the legal estate in property to B otherwise than for valuable consideration it is a question of the intention of A in making the transfer whether B was to take beneficially or on trust and, if the latter, on what trusts. If, as a matter of construction of the document transferring the legal estate, it is possible to discern A’s intentions, that is an end of the matter and no extraneous evidence is admissible to correct and qualify his intentions so ascertained.

But if, as in this case (a common form share transfer), the document is silent, then there is said to raise a resulting trust in favour of A. But this is only a presumption and is easily rebutted. All the relevant facts and circumstances can be considered in order to ascertain A’s intentions with a view to rebutting this presumption.

As Lindley L.J. said in Staning v. Bowring :

‘Trusts are neither created nor implied by law to defeat the intentions of donors or settlers; they are created or implied or are held to result in favour of donors or settlers in order to carry out and give effect to their true intentions, expressed or implied.’

The law was well stated by Mellish L.J. in Fowkes v. Pascoe :

‘Now, the Master of the Rolls appears to have thought that because the presumption that it was a trust and not a gift must prevail if there was no evidence to rebut the presumption, therefore when there was evidence to rebut the presumption he ought not to consider the probability for improbability of the circumstances of the case, and whether the presumption was really true or not, but ought to decide the case on the ground that the evidence of Pascoe and his wife taken alone was not satisfactory. But, in my opinion, when there is once evidence to rebut the presumption, the court is put in the same position as a jury would be, and then we cannot give such influence to the presumption in point of law as to disregard the circumstances of the investment, and to say that neither the circumstances nor the evidence are sufficient to rebut the presumption.’

James L.J. in the same case also pointed out in effect that it was really a jury matter, on the basis, I may add, of weighing the evidence on the balance of probabilities.

A very good example of this is to be found in the case of In re Curteis’ Trusts where Bacon V.-C., without any direct evidence as to the intention of the settlor, drew a common-sense deduction as to what he must have intended. In reality the so-called presumption of a resulting trust is no more than a long stop to provide the answer when the relevant facts and circumstances fail to yield a solution.”

135.I think the plaintiff had not intended a resulting trust. I do not believe he intended that if he should die following the transfer or allotment to the trustees but before the declaration of trusts were executed, the shares should go to his estate rather than to his children.

136.Indeed, if the trustees had made their declaration of trust on the same day as the transfers or allotments to them there was really no reason for the implication of a resulting trust in the plaintiff’s favour.

137.I do not know why there was delay between the transfer or allotment and the declaration of trust. It was suggested by Mr Yin that the plaintiff wanted time to consider the conditions or to change his mind. I think that is highly speculative and inconsistent with his evidence. I believe it was more likely that there was a time gap because the declarations were considered to be formalities and not urgent.

138.I also note that in the Hillhead declaration of trust in relation to the 10,002 shares in HEL, this recital appears :

“…

(2) Such transfers as aforesaid specified in the Schedule hereto were made to the Trustee as a nominee of the Beneficiaries of 3334 (Three thousand three hundred and thirty four) shares each and it was agreed prior to the date of such transfers that the Trustee should execute such declaration of trust as hereinafter contained.”

This recital does not appear in any of the other trust deeds.

139.However, I believe that it is reasonable to infer that the same was true in relation to each of the transfer or allotment. So going back to Lord Upjohn’s dictum above, “where A transfers, or directs a trustee for him to transfer, the legal estate in property to B otherwise than for valuable consideration it is a question of the intention of A in making the transfer whether B was to take beneficially or on trust and, if the latter, on what trusts”. So, on what trusts, the 1^st defendant and Hillhead, were to hold? In my opinion, trusts in favour of the children and not a resulting trust for the plaintiff.

140.I also refer to the recital in the deed of revocation :

“(A) By oral declaration made in or about 1979, the Settlor constituted Ho Yuen Ki (‘the Trustee’) trustee of certain property and directed the Trustee to hold the same upon certain trusts then specified for the benefit of three of his sons namely Michael Eric Hotung, Sea Eric Mclean Hotung and Anthony Eric Ryan Hotung but orally reserved to himself the power to revoke the trusts in whole or in part should he so think fit.”

There is a similar one in respect of Hillhead Trusts. They support the view that the settlor never intended to reserve to himself the beneficial interest by means of a resulting trust prior to the written declaration of trusts.

141.Mr Yin made a point regarding the difference in the dates between the board resolution approving the transfers or allotments, the dates of the share certificates and the dates of the trusts. He said the recital quoted in paragraph 138 above is ambiguous. I do not think so. Nor does it matter.

142.I think it is clear that it was intended by the plaintiff that at the date of the transfer, whenever the transfer was effectuated, he was transferring the legal title to the trustees to hold on trusts for his children. In other words, there was no room for any resulting trust in his favour. Put another way, if there was a presumption of resulting trust that had been rebutted by all the circumstances.

143.I turn to consider that one share in HEL which was held by the 1^st defendant in favour of the plaintiff. See paragraph 11 above. I have no doubt that the 1^st defendant held that share on a resulting trust for the plaintiff. That being the case, that share is caught by section 6(1)(c). See Grey v. Inland Revenue Commissioners [1960] AC 1.

144.Mr Steven Kwan, junior counsel for the plaintiff, submitted that having regard to the pleadings, the 2^nd, 3^rd and 5^th defendants were not entitled to argue that there was no resulting trust in favour of the plaintiff (apart from on the basis that there were valuable considerations for the shares) or that the trusts were not only constituted by the declarations of trusts.

145.I am not satisfied that any valuable consideration had been given in respect of any of the shares.

146.I regret to say the defence has not been well pleaded. But the plaintiff has not been taken by surprise. Moreover, the plaintiff claims declaratory relief, and it is for the plaintiff to satisfy me that the shares were or are held by the 1^st and 4^th defendants on trust for the plaintiff (prayer (g)). That is why notwithstanding Gabrielle’s withdrawal of her defence, no judgment has been entered against her for any declaratory relief.

CONCLUSION

147.For the above reasons, the plaintiff’s claim is dismissed save that in relation to one share in HEL held in the name of the 1^st defendant, I would make a declaration that she holds that share on trust for the plaintiff absolutely.

COSTS

148.The parties are invited to make written submissions to me on costs within 21 days of this judgment. If a hearing is required, the parties should fix a date for the hearing as soon as is practicable.

(Robert Tang)
Justice of Appeal
(Sitting as an additional Judge of the
Court of First Instance)

Mr Gerard McCoy, SC leading Mr Steven Kwan, instructed by Messrs Sit, Fung, Kwong & Shum, for the Plaintiff

Mr Michael Yin, instructed by Messrs C.K. Mok & Co., for the 1^st Defendant

Mr Kevin Egan and Ms Kathy Kukreja, instructed by Messrs Oldham, Li & Nie, for the 2^nd, 3^rd and 5^th Defendants

Mr Anderson Chow, SC (appear on 11, 19 and 21 January 2005), instructed by Messrs Simmons & Simmons, for the 4^th Defendant

The 6^th Defendant, absent

Cites 6 cases

Cases cited in this judgment

Olivia Davies v. Lau Shek Yau John and Others

[1912] VLR 397

High Court CFI11 Sep 1995

Eric Edward Hotung v. Ho Yuen Ki and Others