Wong To Yick v. Wong Tin Chee Tinly and Others

CACV 364/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 364 OF 2007

(ON APPEAL FROM HCA NO. 1311 OF 2005)

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BETWEEN

Before: Hon Rogers VP, Le Pichon and Hartmann JJA in Court

Date of Hearing: 20 July 2009

Date of Judgment: 20 July 2009

Date of Handing Down Reasons for Judgment: 29 July 2009

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REASONS  FOR  JUDGMENT

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Hon Rogers VP:

1.This was an appeal from a judgment of Lam J given on 15 March 2007. The judge had before him two actions. This appeal relates only to the second action. The second action related to a claim by the plaintiff that he was entitled to the shares held by the second and third defendants in Wong To Yick Wood Lock Ointment Limited (“the Company”), namely 400 shares held in each of their names.

2.In the second action the judge had held that the plaintiff’s case had failed. At the conclusion of the hearing of this appeal, this court dismissed the appeal with reasons to be given in writing.

Background

3.The history of the matter is set out in detail in the judgment below. For present purposes it suffices to say that the plaintiff commenced business as a bone setter in Shamshuipo in 1967. In the course of that business he developed a medicated oil. The plaintiff used his name and also his photograph as trade marks on the packaging. The sale of the medicated oil very soon became a far more important part of the business than the operation of the bone setting clinic. In 1988 the Company was set up by the plaintiff with the help of the first defendant, his son. The shareholding of the Company was divided as to 51% in the plaintiff’s name, 9% in the plaintiff’s wife’s name, 12% in the first defendant’s name and the remaining 28% was divided equally between the plaintiff’s seven daughters. The Company took over the medicated oil business but the clinic remained. The clinic was also used for selling medicated oil and, as the judge held, due to some misguided estate duty planning advice the registration of the clinic was put into the first defendant’s name although the business still belonged to plaintiff.

4.At some stage, it would appear that some, at least, of the plaintiff’s children became aware that the plaintiff had a romantic attachment to a lady, Kwan Sau Yung (“Kwan”), who had previously worked in the plaintiff’s business. It transpired that the plaintiff had bought her a flat in the same development as he and his wife lived. Whatever some members of the family may or may not have known or suspected previously, it became clear at the end of 1995 that the plaintiff was having an affair with Kwan. The plaintiff had agreed, after being confronted by some of his children, to tell his wife about his affair. Two of the daughters who were in Canada came back to Hong Kong to comfort their mother.

5.There was clearly a great deal of time taken up during the evidence at the trial going over what had happened in the period between late 1995 and early 1996. The judge held that there had been considerable consternation as a result of the revelation of the plaintiff’s affair with Kwan. Although Mr Liao SC, who appeared on behalf of the plaintiff, tried to suggest that matters were not so serious because the plaintiff’s wife had suspected the plaintiff of having an affair, the judge was not satisfied about that. Indeed, the judge did not accept much of the plaintiff’s evidence. Two important things appear to have resulted from the revelation of the affair.

6.In the first place, the first defendant secretly set up a company to take over the goodwill and business in relation to the medicated oil. He commenced doing so in the second half of January 1996. Although, it would indeed seem quite possible that the first defendant did so in order to try to preserve the business in the family’s hands and prevent Kwan having any influence in respect of it, there was clearly no justification for what he did. That led, not only, to a complaint to the police by the plaintiff but also to the first action. The first defendant’s conduct in this regard, his defence of that action and his evidence in relation to it clearly reflect very badly on him. The judge was more than alert to this and did not disguise his disapproval. Moreover, he held that much of the first defendant’s evidence was not to be believed.

7.The other matter which the judge was satisfied took place was the adjustment of the shareholding in the Company; that was effected by allotting further shares which had the effect of diluting the plaintiff’s shareholding to 45%, increasing the plaintiff’s wife shareholding to 11% and putting 400 shares each (i.e. 2% each) in the names of the second and third defendants, who were the plaintiff’s grandsons and the first defendant’s sons. The allotment took place at the end of January 1996. The judge was satisfied that there had been discussions amongst the family that led up to it.

8.One of the matters that the judge took into consideration was the document that has been referred to as D7. That was a handwritten document. It was written on the back of some printed material, which is irrelevant as regards this case. The document was signed by two of the plaintiff’s daughters as well as the first defendant and the plaintiff and his wife. It is unnecessary to set out the terms of that document, save to say that it shows different alternatives, in some respects similar to that in other respects dissimilar, to the ultimate shareholding in the Company. As he was clearly entitled to, the judge held that that document was corroboration for the evidence that had been given that there were discussions in late 1995 or early 1996 as to the shareholding in the Company. Mr Liao SC suggested that the document might have come into existence at a much later stage when the plaintiff and his wife were in the midst of divorce proceedings. His argument in this respect was not supported in any way by any of the evidence, was not accepted by the judge and as Mr Lee SC, who appeared on the behalf of the defendants, pointed out, D7 was consistent with discussions taking place about the end of 1995 or beginning of 1996 and prior to the allotment at the end of January 1996.

9.The plaintiff’s wife, Madam Law, filed a total of two petitions for divorce. The first was in May 1999 after she had left the matrimonial home. It would seem that at that stage there was also a deterioration of the relationship between the plaintiff and his children including, in particular, the first defendant and two of his sisters. There was a reconciliation and the first petition was dismissed on 27 August 1999. Despite that, it would appear that ill feeling between members of the family did not improve. In December 1999 the first defendant and two of his sisters were removed as directors of the Company and the three elder sisters were appointed as directors in their place. It would appear that the plaintiff sought professional advice on estate duty planning in early 2000 and in March 2000 he transferred all his shares in the Company to a BVI company. A few days later Madam Law filed a petition for divorce for the second time.

10.It was shortly thereafter that the plaintiff made a complaint to the police in respect of the first defendant’s actions in relation to the Company in 1999. In the statement that he made on 25 April 2000, he set out the shareholding of the Company and specifically mentioned that his two grandsons, the second and third defendants, were shareholders. In an affirmation made on 13 May 2002 in the course of the divorce proceedings, the plaintiff again said that his two grandsons are and were at all material times shareholders of the Company. A few months later, on 31 August 2002 the plaintiff made a further affirmation in which he said that in 1996 the first defendant had told him that the Company’s assets would be frozen by the estate duty office after his death if he had been holding more than 51%. He said that he had been asked to change the shareholders, he then set out the shareholding and he listed the two grandsons as each holding 400 shares.

11.Up until just prior to the commencement of these proceedings the plaintiff had not claimed that the shares that were in the names of the second and third defendants belonged to, or were held on the behalf of, the plaintiff.

12.In paragraphs 103-4 of the judgment the judge pointed out that the second and third defendants had attended a meeting of the Company in March 2003 without any objection from the plaintiff. There was a winding up petition against the Company, namely HCCW 668 of 2000, presented by the first defendant and two of his sisters. That proceeded on the basis that the second and third defendants were shareholders and when application was made to strike out those proceedings of the plaintiff in this action, the plaintiff did not raise any question about his having any interest in his grandsons’ shares.

13.In paragraph 114 of the judgment the judge set out how the plaintiff came to be at loggerheads with his second and third daughters. It thus came about that by the time of the meeting which was held on 5 May 2005, the plaintiff was only just able to defeat a motion to appoint Madam Law as a director by dint of his using his own shareholding and a further 4% which he had acquired from the eldest daughter. It might be noted that the judge was not altogether complimentary about the father’s evidence in relation to the acquisition of that 4%. The judge described how the plaintiff had been forced to change his evidence during the course of cross-examination, from saying that the shares had simply been given to him to saying that he had written off a debt of $8 million. For that and other reasons, the judge concluded the passage by saying that he had to treat the plaintiff’s evidence with considerable scepticism.

14.The judge cogently pointed out in paragraphs 116-8 that there was a powerful incentive for the plaintiff to lie about the circumstances leading to the allotment of shares to the second and third defendants. He said:

“That was the only means by which he could command majority control in the Company after the two daughters refused to side with him against the mother.”

15.Quite simply, the only way by which the plaintiff could increase his shareholding from, as it then was, 49% to above 50% was to claim that some of the other shares belonged to him. It thus came about that in the action the plaintiff sought to claim the shares held in the names of the two grandsons. He did so on the footing that he had been misled by what was alleged to have been a fraudulent misrepresentation made by the first defendant that “as the plaintiff was the majority shareholder in the Company, the Company would be frozen by the Government upon the Plaintiff’s death for 2 to 3 years and therefore could not be operated.” See paragraph 8 of the Statement of Claim.

16.For logical reasons, which it is unnecessary to repeat any further than has already been done, the judge went further than simply considering the plaintiff’s evidence with scepticism but analysed the events which had happened over the course of the years and came to the clear conclusion in paragraph 123 that he rejected the suggestion made by the plaintiff that the allotment of shares to the second and third defendants was the result of any misrepresentation by the first defendant.

17.The judge went on in paragraphs 124-130 to reach the conclusion that the 1996 allotment had been made as a result of the family discussions and agreement which had eventually ensued and manifested itself in that allotment. He referred to that as the common intention. Having rejected the plaintiff’s case that the allotment had been made because of the misrepresentation and held that, on the contrary, the allotment was made because there had been a consensus amongst the family members that that was what should happen, there was no room, as the judge said, for the operation of any resulting trust.

This appeal

18.On this appeal Mr Liao SC emphasised that the first defendant had been shown to be unreliable and dishonest in a number of important respects. That is a matter which is clear. It is also a matter of which the judge lost no sight at all. The judge was fully conscious of the shortcomings of the first defendant and his evidence. It might also be added that the judge was also fully conscious of the unreliability of the plaintiff’s evidence. In those circumstances, however, the judge was quite entitled to accept part of the first defendant’s evidence, and indeed part of the plaintiff’s evidence, if he had reason to do so. In my view, there is no basis for saying that the judge was not entitled to accept that much of the first defendant’s evidence as he did. What the judge found appears to me to accord not only with such documents as exist but with common sense and what might be expected given the events which took place over the period with which this case is involved.

19.It was said that the judge failed to take into account the second affirmation made in August 2002 referred to in paragraph 10 above. As has already been observed it was not, however until much later, as the judge aptly pointed out, at a time when it suited the plaintiff’s purpose, that the plaintiff alleged that the shares were held for him.

20.Reference has also been made to the document D7, which Mr Liao said did not support the suggestion that the allotment in January 1996 had come as a result of it. In my view, the judge did not place any more reliance on that document than was appropriate.

21.Perhaps, it might be said, that the argument on behalf of the plaintiff in this court was ultimately pursued on the basis that the plaintiff had retained the dividends that were payable in respect of the second and third defendants’ shares. It was said that the plaintiff had paid for those shares, he had retained the share certificates and he had retained the dividends. As Mr Lee pointed out, the plaintiff had paid for and retained all the shares in the Company. It was indeed always part of the first defendant’s case that the plaintiff would retain the income from the second and third defendants’ shares until they obtained their majority. Again, that is not a surprising arrangement. Until they obtained their majority, clearly, the second and third defendants would not need the income from the shares as they would be looked after by their own parents. In this respect some parallel can be drawn with the 2% of shares which were put in the wife’s name in January 1996. It was only when one of daughters arranged for the payment of the dividends to the wife that she received that income.

22.Hence, in so far as this appeal was an appeal in relation to the findings of fact by the judge, it remains only to be said that nothing raised on this appeal has come anywhere close to being able to disturb the judge’s findings of fact. Although there was an attempt to raise an argument that there would be a resulting trust and that the shares would be held on behalf of plaintiff, given the rejection of the plaintiff’s contention that the allotment was made as a result of a misrepresentation and the findings of fact by the judge as to how it came about that the allotment was made, that argument is, quite simply, untenable. It was for these reasons that I considered that the appeal failed to be dismissed.

Hon Le Pichon JA:

23.I agree.

Hon Hartmann JA:

24.I agree.

Mr Andrew Liao SC & Mr Martin Liao, instructed by Messrs JSM, for the Plaintiff/Appellant

Mr Martin Lee SC & Mr Michael Liu, instructed by Messrs P.C. Woo & Co., for the 1^st to 3^rd Defendants/Respondents