Cheung Man Kwong Thomas v. Mok Chun Bor

DCCJ 2133/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2133 OF 2007

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BETWEEN

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Coram : Her Honour Judge Mimmie Chan in Court

Dates of hearing  :  8 - 10 June & 17 July 2009

Date of handing down Judgment  :  11 August 2009

JUDGMENT

Background

1.Mr. Cheung commenced these proceedings against Mr. Mok, sued in his personal capacity and as administrator of the estate of his wife, Madam Helen Lin ("Madam Lin").

2.There is no dispute that Madam Lin was the registered sole proprietor of a company known as Ocean Management Services Company ("Ocean"), which was set up in September 1990. Mr. Cheung claims that at all material times from September 1990 until Madam Lin's death on 30 May 2000, it had been agreed between Mr. Cheung and Madam Lin that Madam Lin would act as Mr. Cheung's nominee and trustee in her ownership of Ocean and all the assets and undertaking held in Ocean's name. Mr. Cheung's case is that for tax planning reasons, he had asked Madam Lin to act as his trustee and nominee, and that the only business carried on by Ocean was the provision of Mr. Cheung's consultancy services to Pilot Pen Company (Hong Kong) Ltd. (" Pilot HK"), a company of which Mr. Cheung is a shareholder and director. Mr. Cheung claims that Ocean's sole income was derived from consultancy fees paid by Pilot HK to Ocean for Mr. Cheung's services, that such income was paid by Ocean to Mr. Cheung by way of salary or drawings, and that all Ocean's expenses and liabilities, including tax liabilities, were paid for by Mr. Cheung. It is Mr. Cheung's case that Madam Lin was never involved in the running of any aspect of Ocean's business, save for acting as one of Ocean's bank signatories.

3.Mr. Cheung relies on various documents signed by Madam Lin and Mr. Mok in March 2000, shortly before Madam Lin's death, whereby Madam Lin and Mr. Mok acknowledged that Ocean had raised an objection to the Inland Revenue Department ("IRD") to seek a refund of profits tax charged to and paid by Ocean (“Tax Refund”), and undertook to pay the Tax Refund in full amount to Mr. Cheung when it is received by Ocean.

4.From late 2006 to early 2007, a sum of $514,406 ("Refund") was received from the IRD and paid to Mr. Mok as the administrator of the estate of Madam Lin, who had since died. Mr. Cheung claims that despite his demands, Mr. Mok failed to pay over the Refund to him. He claims that by reason of Mr. Mok's said failure, Mr. Mok has wrongfully converted, retained and/or misappropriated the Refund, and is liable, in his personal capacity and as the administrator of the estate of Madam Lin, for conversion and/or breach of trust. By these proceedings, Mr. Cheung seeks a declaration that at all times since September 1990, Ocean and all its undertaking and assets were and still are beneficially owned by Mr. Cheung, and were held by Madam Lin prior to her death, and after her death by Madam Lin's estate and by Mr. Mok, upon trust for Mr. Cheung.

5.In his Defence, Mr. Mok denies that the assets and undertaking of Ocean were beneficially owned by Mr. Cheung and held by Madam Lin and himself upon trust for Mr. Cheung. Mr. Mok does not admit the authenticity of the documents signed by Madam Lin and himself, and further claims that Mr. Cheung had never provided the documentary proof of his claims made in respect of his alleged ownership of Ocean and the Refund, or the alleged trust arrangement.

6.Despite arguments made by Counsel for Mr. Mok to dispute the causes of action relied upon by Mr. Cheung as against Mr. Mok, it was clarified by Counsel at the time of submissions that if the Court accepts, on the evidence, that Mr. Cheung is the beneficial owner of Ocean and its undertaking and assets, including the Refund, a declaration should be made in terms of that sought by Mr. Cheung in these proceedings with regard to the ownership of Ocean.

Issues

7.The issues for determination at trial are:

1) Is Mr. Cheung the beneficial owner of the business of Ocean?

2) Did Madam Lin hold Ocean and its assets as a trustee of Mr. Cheung?

3) Did Madam Lin agree to transfer the Tax Refund to Mr. Cheung?

4) Did Mr. Mok agree to transfer the Tax Refund to Mr. Cheung?

8.In deciding the factual disputes involved in this case, my considerations include: (1) the inherent probability of the parties' assertions; (2) whether the parties' assertions are consistent with their conduct and the contemporaneous documents; and (3) the credibility and demeanor of witnesses. I do not think that it is necessary to repeat the numerous cases which discuss how these considerations work in resolving factual disputes. If required, reference can be made to the more recent cases such as Esquire (Electronics) Ltd. v. The Hong Kong & Shanghai Banking Corporation Ltd., CACV No. 312 of 2005 (12 October 2006) and Profit Boat Development Ltd. v. Craft Projects (Hong Kong) Company Ltd., HCCT 122 of 2000 (31 August 2007).

9.When considering the testimony of the witnesses, I bear in mind that they are testifying as to key events which took place in 2000. Although this is not an unusually long gap, it is nevertheless not a short delay between events and trial. The accuracy of the memory of witnesses has therefore to be approached with some caution. Comparison with contemporaneous documentation is always an aid to the reliability of oral testimony, unless there is reason to believe that the documentation is contrived or materially incomplete. Where the passage of time between events and trial is long, and where there is a host of contemporaneous documentation, it would generally be appropriate to place more reliance on contemporaneous documentation.

Is Mr. Cheung the beneficial owner of the business of Ocean?

10.In summary, Mr. Mok claims that he had no personal knowledge of his wife's business affairs. He claims that Mr. Cheung has never produced sufficient evidence to prove his assertion that he was at all material times the beneficial owner of the business and assets of Ocean, which was at all material times since its formation registered in the name of Madam Lin according to the available documents. It is Mr. Mok's position that as the administrator of the estate of Madam Lin, he has the duty to administer Madam Lin's estate in accordance with the law, and this entailed the duty to ascertain and verify the claim made by Mr. Cheung as to his alleged ownership of the Refund.

11.In answer to Mr. Cheung's claim of his entitlement to the Tax Refund by virtue of the documents signed by Madam Lin and Mr. Mok in March 2000, Mr. Mok claims that Mr. Cheung has failed to supply any documentary evidence to support the alleged trust arrangement between Mr. Cheung and Madam Lin, to explain Mr. Cheung's entitlement to the entire sum of $514,406 representing the Tax Refund, and to show that Ocean had carried on no other business which generated profits to which Madam Lin may be entitled (paragraph 9(6)(c) of the Defence).

12.Mr. Cheung is now 76 years old. According to his evidence, he was appointed by Pilot Corporation of Japan ("Pilot") in 1965 to act as Pilot's sole and exclusive distributor for the sale and marketing of Pilot stationery items in Hong Kong and Macau. He became Pilot's joint venture partner in 1981, when Pilot HK was set up in Hong Kong and Mr. Cheung became a shareholder and the Managing Director of Pilot HK. Pilot was also a shareholder of Pilot HK.

13.Mr. Cheung came to know Madam Lin in the 1970s, when Madam Lin worked as the manager of the fashion store then operated by Mr. Cheung's family in Tsimshatsui, selling products under the international brand "Celine". Mr. Cheung claims that she became a good friend of his family over the years of her working for the family business, and he regarded Madam Lin to be a kind, helpful, hard-working and trustworthy person. Mr. Cheung pointed out that this was also the general perception of his employees with regard to Madam Lin's character.

14.In about 1985, the Celine Group took over the operation of its own fashion stores in Hong Kong and the Celine shop operated by Mr. Cheung's family closed down. Madam Lin ceased working for Mr. Cheung after the closing of the Celine shop, but Mr. Cheung claims that she maintained close contact with Mr. Cheung and his family. Madam Lin operated a beauty clinic from her home and Mrs. Cheung became one of Madam Lin's customers.

15.According to Mr. Cheung, Madam Lin's beauty clinic did not operate successfully in 1985 and in order to help her out, Mr. Cheung said that he asked Madam Lin to help him run a counter at the Sogo Department Store in Causeway Bay to sell Pilot pens. Madam Lin took up the job and was paid a salary by Pilot HK. After a few months, the counter was closed because the turnover was not good.

16.In about January 1989, Mr. Cheung was planning to immigrate to Canada with his family. It was agreed between Mr. Cheung and Pilot HK shortly before 4 January 1989 ("Consultancy Fee Arrangement") that he would be engaged as a Marketing Consultant for Pilot HK, and that the consultancy fees payable by Pilot HK to Mr. Cheung would henceforth be paid to a consultancy company to be set up by Mr. Cheung for tax planning reasons. Mr. Cheung was advised that the consultancy company to be paid in respect of the marketing consultancy fees would have to be held, not in his own name, but by a trustee and nominee on his behalf. As part of this tax planning, Mr. Cheung decided to approach Madam Lin to hold the consultancy company as his nominee.

17.According to Mr. Cheung, he spoke with Madam Lin about the trustee/nominee arrangement and he claims that Madam Lin agreed, without hesitation, to act as the registered owner of the consultancy company to be set up, as nominee and trustee for Mr. Cheung, and to hold all the interests in and assets of such company upon trust on Mr. Cheung's behalf. Mr. Cheung claims that it was clearly understood between Madam Lin and himself that it would be Mr. Cheung who would be liable for all the expenses and liabilities arising out of the arrangement between them relating to the consultancy company. Mr. Cheung also claims that Madam Lin agreed to hold such position as his trustee or nominee without any reward.

18.The records show that Ocean was set up in September 1990, and registered in the name of Madam Lin. The nature of Ocean's business was stated to be "management services".

19.Mr. Cheung was able to produce, albeit at a very late stage of the proceedings as those acting for Mr. Mok sought to emphasize, a copy of a letter from Ocean to Pilot HK dated 1 October 1990, whereby Ocean confirmed its appointment of Mr. Cheung as marketing consultant to provide technical support services to Pilot HK. It was signed by Miss Peon Liu on behalf of Ocean. Mr. Cheung also produced copies of the Advisory Agreements dated 1 May 1991 and 1 May 1996 and made between Ocean and Pilot HK, whereby Ocean agreed to provide services to Pilot HK and to make available business and management advice relating to the undertaking of Pilot HK's business.

20.Although they were produced just before trial, Mr. Cheung explained that he only came across these old documents in the course of his recent house moving. In the light of all the evidence available in this case, I see no basis to doubt either the authenticity of the documents or Mr. Cheung's explanations. I would point out that even without these late documents, my findings in this case would not have been altered in any way.

21.There are also: (1) a letter from Ocean dated 9 March 1992, whereby Ocean confirmed its appointment of Mr. Cheung as marketing consultant to provide technical support on behalf of Ocean to Pilot HK; and (2) a letter from Pilot dated 3 April 1992, confirming its hiring of Mr. Cheung through Ocean as marketing consultant to Pilot HK to expand Pilot's business in Hong Kong and in China.

22.Mr. Cheung obtained his Canadian citizenship in about 1999, and he and his wife returned to Hong Kong. He terminated the Consultancy Fee Arrangement with Pilot HK, and resumed his position as the managing director of Pilot HK, receiving his salary from Pilot HK. According to Mr. Cheung, Ocean received the last consultancy fee from Pilot HK in April 1999.

23.Mr. Cheung's claim is that there was no documentation to evidence the initial trust arrangement agreed between Madam Lin and himself at the time when Ocean was set up in Madam Lin's name. He claims that it was all a question of trust, and that Madam Lin had never disputed the arrangement between them from 1990 until her death in 2000.

24.On Mr. Cheung's evidence, the only business carried on by Ocean was the provision of Mr. Cheung's consultancy services to Pilot HK. Its source of income was the consultancy fees paid by Pilot HK. Ocean's bank account was set up at the Tsimshatsui branch of the Hang Seng Bank, where Mr. Cheung maintained his personal bank account and the account of Pilot HK. The signatories of Ocean's bank account were Madam Lin and Peon Liu Mui Lan (" Miss Liu"), the accountant of Pilot HK. Miss Liu signed all the cheques for Ocean on Mr. Cheung's instructions. Miss Liu left the employment of Pilot HK in November 1998, whereupon the bank signatories for Ocean became Madam Lin, Mr. Cheung's wife and Mr. Cheung's daughter. Ocean's cheques were then signed by Mrs. Cheung. All the company chop, cheque books, accounts and documents of Ocean were kept by Mr. Cheung or under his control. Ocean's registered place of business, as is apparent from its Business Registration Certificate, was stated (for the period from 5 September 1990 to 31 March 2000) to be at an address in Homantin, Kowloon which was owned by Mrs. Cheung, and subsequently, by a limited company owned and controlled by Mr. Cheung. As from 1 April 2000 until the cessation of Ocean's business upon Madam Lin's death on 30 May 2000, Ocean's registered place of business was stated to be a property which was owned by Pilot HK. The Financial Statements of Ocean (referred to in the paragraphs below) confirm that no rent or licence fee was paid by Ocean for the use of these properties as its place of business.

25.I consider it to be credible and inherently more probable that there would not be any written or formal documentation for the setting up of the tax planning scheme referred to by Mr. Cheung. He was obviously a traditional Chinese businessman who believed in trust and operated on trust. He pointed out that he had worked with Pilot from 1965, first as a distributor and then as a joint venture partner, with very little or no formal documentation. He clearly regarded Madam Lin as a loyal and faithful employee, and even as a family friend, to whom he could entrust the nominal holding of Ocean on his behalf. Apart from the tax returns and the Financial Statements (referred to below) which were submitted in respect of Ocean's profits and which were signed by Madam Lin, the other documents which were issued in the name of Ocean and which were produced as evidence in these proceedings were all signed by Miss Liu, the accountant of Pilot HK who, on Mr. Cheung's evidence, acted on Mr. Cheung's instructions. Madam Lin's only perceived role from the evidence adduced in these proceedings is to be registered in name as Ocean’s proprietor.

26.The Profit and Loss Accounts and the Balance Sheets of Ocean from the years ending 30 April 1992 to 30 April 1998 ("Financial Statements") were all disclosed by Mr. Cheung by way of discovery and produced in evidence in these proceedings. Mr. Dominic Chan ("Mr. Chan"), whose firm acted as auditors of Ocean and of other companies associated with Pilot HK and Mr. Cheung, also gave evidence at trial. Mr. Chan was clear in his evidence that in the course of preparing the Financial Statements, his staff had conducted field audits or "spot checks" of documents, and had examined the business records of Ocean to verify that the income and expenses of Ocean related to Ocean. He and his staff had worked in close liaison with Miss Liu, who was Pilot HK's accountant as well as Mr. Cheung's secretary or personal assistant. The Financial Statements were prepared with Miss Liu's assistance, audited and checked by Mr. Chan's firm, signed by Madam Lin as the registered proprietor of Ocean, and then submitted by Mr. Chan's firm on Ocean's behalf.

27.The Financial Statements clearly show that Ocean's only source of income was the substantial amounts stated to be "management fee income". These range from $820,000 as reflected in the Financial Statements for the year ended 30 April 1992, to $1,080,000 as reflected in the Financial Statements for the year ended 30 April 1995. Mr. Chan confirmed in his testimony in court that these were the service or consultancy fees paid by Pilot HK to Mr. Cheung. Mr. Chan also confirmed that the "management fee expenses" recorded in the Financial Statements were the expenses paid by Ocean to other companies operated by or associated with Mr. Cheung. In my judgment, Mr. Chan was also clear in his evidence that the amounts of "salaries and allowances" reflected in the Financial Statements were salaries and allowances which were paid to Mr. Cheung. According to his recollection, no person other than Mr. Cheung had received salaries or allowances from Ocean. Mr. Chan further confirmed that the overseas traveling expenses recorded in the Financial Statements related to Mr. Cheung's trips to Canada or Japan, and that the entertainment expenses related to Mr. Cheung’s.

28.In response to questions raised by the Court, Mr. Chan confirmed that the instructions relating to Ocean's Financial Statements and the tax returns filed on behalf of Ocean were all obtained from Miss Liu and Mr. Cheung. Mr. Chan confirmed that Madam Lin had never given any instructions to Mr. Chan or his staff in relation to their dealings with Ocean, and that there was in fact no necessity at all to seek any directions from Madam Lin. In relation to the Financial Statements, Mr. Chan was also able to confirm to the Court in his evidence that he had never seen any documents or information relating to Madam Lin's personal income.

29.Having considered the Financial Statements and having heard Mr. Chan's evidence in relation to these Financial Statements, I have no doubt that the income and expenses recorded in Ocean's Financial Statements were all related to Mr. Cheung's consultancy services to Pilot HK. I have seen no evidence whatsoever to suggest that Madam Lin had any involvement with the business, income, profits or expenses related to Ocean, save for her signing the tax returns and the Financial Statements.

30.Madam Lin signed standard form tax returns for the years of assessment from 1993/1994 to 1997/1998. The only income she declared for all these years related solely to the profits which she stated accrued to her from Ocean, which was registered as her sole proprietorship business. Mr. Chan confirmed in his testimony that the amount of profit stated in Madam Lin's tax return for each year from 1993 to 1998 corresponded to the amount of profit as recorded in the Financial Statement of Ocean for that year of assessment. By way of illustration, in the tax return signed by Madam Lin for the year of assessment 1993/1994 (filed with the IRD on 20 May 1994), it was stated that an amount of $273,088 had accrued to Madam Lin from the business of Ocean. This corresponds exactly to the profit for the year recorded in Ocean's Financial Statement for the year ended 30 April 1992 - no more, no less.

31.It is Mr. Cheung's evidence that he had paid all the tax assessed in respect of the profits received in the name of Ocean.

32.In conjunction with Mr. Chan's evidence relating to the Financial Statements, I am satisfied on a balance of probabilities that all the profits reported by Madam Lin to the IRD in respect of Ocean's business are the profits derived from the management fee Pilot HK paid to Ocean for Mr. Cheung's consultancy services. In my judgment, this supports Mr. Cheung's claim that the only business carried on by Ocean was the provision of Mr. Cheung's consultancy services to Pilot HK.

33.I am satisfied on a balance of probabilities that Mr. Cheung was the beneficial owner of Ocean at the material time.

34.The only evidence to which Mr. Mok has referred as supporting his contention that Madam Lin might have been involved in some business of her own under the name of Ocean is the fact that Ocean's cheque book for the entire period from October 1998 to 1 May 2000 includes one cheque issued to Mr. Mok for the sum of $1,200. There may be many reasons for this, which may, or may not, support Mr. Mok's contention. I do not consider this one cheque to be sufficient, in the light of all the evidence, to raise any or sufficient doubt in my mind as to the conclusion which I have reached.

35.Mr. Mok raised the rhetorical question of how Madam Lin could have supported herself, Mr. Mok and their son, if she had no interests in Ocean's business. Being Madam Lin's husband and a member of her household, I consider that Mr. Mok is in a better position to answer this question than either Mr. Cheung or this Court. Suffice it to say that I have seen no evidence whatsoever which suggests that Madam Lin had any interest in Ocean's business from which she can claim any right, or had in fact made any claim prior to her death to any right, to Ocean's profits.

Did Madam Lin hold Ocean and its assets as a trustee of Mr. Cheung?

36.On the basis of my analysis of the first issue, I am satisfied on a balance of probabilities and for the reasons set out under the first issue, that Madam Lin did hold Ocean and its assets as a trustee of Mr. Cheung. This, in my judgment, is supported by the contemporaneous documents signed by her in March 2000 prior to her death, and by the evidence relating to the circumstances of the execution of these documents.

37.Mr. Cheung claims that in around March 2000, he and Madam Lin had a discussion. By that time, he had returned to Hong Kong from Canada in 1999. The IRD had also commenced investigations into Mr. Cheung's financial affairs and into the companies operated by or associated with him, as a result of a complaint made by a former (and apparently disgruntled) employee of Mr. Cheung. Mr. Cheung had had a meeting with the IRD on 22 March 1999 in relation to the operations of Pilot HK, Ocean and other companies, the management fee income which Mr. Cheung had received through Ocean, and Mr. Cheung's tax liability in respect of such income. By March 2000, Mr. Cheung had been advised by Mr. Chan that according to the IRD's calculations, Mr. Cheung had been double charged for tax for the period from 1992/1993 to 1997/1998. According to the IRD, Mr. Cheung would have to pay salaries tax on the consultancy fees that Ocean had received on his behalf, but that there would be a refund of the profits tax which Mr. Cheung had overpaid for Ocean for the same period.

38.At his meeting with Madam Lin in March 2000, Mr. Cheung told Madam Lin about the discussions which he had had with the IRD. Mr. Cheung claims that it was Madam Lin who suggested that Mr. Cheung should prepare some documents for her to sign to ensure that the Tax Refund which Mr. Cheung was due to receive from the IRD would actually be received by him. According to Mr. Mok, Madam Lin had been ill with cancer since the fall of 1999. In early 2000, Madam Lin had undergone chemotherapy and was recuperating at home.

39.It is Mr. Cheung's evidence that he informed Mr. Chan of Madam Lin's desire in March 2000 to have some documentation signed in order to confirm Mr. Cheung's beneficial ownership of Ocean. As a result, documents were prepared by Mr. Chan's staff. The parties agree that at a meeting in early 2000, 3 documents were signed. According to Mr. Cheung, the meeting took place in March 2000 at Mr. Chan's offices in Kowloon. According to Mr. Mok's recollection, the meeting took place some time in the spring of 2000 at the home of Mr. Mok and Madam Lin. I do not regard the venue of the meeting to be material.

40.The following facts are clear from the evidence and is not disputed on the pleadings.

41.Madam Lin signed a letter to the IRD bearing date 8 March 2000 ("Authorization"). It was signed by her on behalf of Ocean, and expressly authorized the IRD "to utilize any tax refund arising from reassessment of (Ocean) to set off the tax liability of Mr. Cheung". Mr. Cheung's identity card number was given in the Authorization.

42.A document described as a "Letter of Undertaking" bearing date 12 March 2000 (" Lin Undertaking") was also signed by Madam Lin, and witnessed by Mr. Mok who signed on the document to confirm that Madam Lin was of sound mind, memory and understanding of the Lin Undertaking. The Lin Undertaking was further signed by Mr. Cheung at the end by way of "agreement and acceptance".

43.The Lin Undertaking was expressed to be from Madam Lin to Mr. Cheung. It recited the fact that Madam Lin was the sole proprietor of Ocean, and that Ocean had raised an objection to the IRD for a refund of profits tax. The Lin Undertaking provides as follows:

"I. Upon (Ocean) receive (sic) any tax refund from Inland Revenue Department in relation to Case No. BD-6722-12-YTW, Lin willfully, solemnly and sincerely agrees to transfer of the tax refund in full amount to (Mr. Cheung) without any consideration.

II. Unconditionally, Lin hereby agrees that (Ocean) will receive the said tax refund on behalf of (Mr. Cheung). Lin grants an irrevocably (sic) and exclusively (sic) right to (Mr. Cheung) for receiving the said tax refund in full amount without any deduction. (Mr. Cheung 's) rights, benefit, titles and interest to and in the said tax refund may not be affected by any change of ownership.

III. …

IV. The undertaking and obligations on Lin's part shall be binding on her executors, administrators and successors in title."

44.Mr. Mok also signed a letter addressed to Mr. Cheung, bearing date 12 March 2000. It was also expressed to be a "letter of undertaking" ("Mok Undertaking"). The Mok Undertaking provides as follows:

"Dear Mr. Cheung,

Re : Letter of undertaking

I, Mok Chun Bor (莫振波) of HKID No. xxxxxxx(x), being the spouse of Lin Oi Wan (連靄雲), do hereby confirm that my wife is a sole proprietor of Ocean Management Services Company (hereinafter called "the Company") of BR No. 13799030.

I fully understand that the Company raised an objection to the Inland Revenue Department for a refund of profits tax under Case No. BD-6722-12-YTW.

As per the letter of undertaking issued by my wife on 12 March 2000, I hereby confirm that, upon receiving the tax refund from IRD, the Company will willfully, solemnly and sincerely transfer the said tax refund in full amount without any deduction to you.

I would not object you to have an irrevocably (sic) and exclusively (sic) right to receiving the said tax refund in full amount without any deduction. Your rights, benefit, titles and interest to and in the said tax refund may not be affected by any change of ownership of the Company.

Yours sincerely,

Mok Chun Bor"

45.Mr. Mok claims that he was asked by Mr. Cheung and by Madam Lin to sign certain documents in March 2000 as a witness to the signature of Madam Lin. Mr. Mok's evidence is that due to his trust of his wife, he had not inquired into the contents and effect of the documents which he signed. Mr. Mok further queried the Lin Undertaking, as the last line on page 1 of the document (i.e. the first line of clause IV) was repeated as the first line on page 2 of the same document, and claims that he never had the opportunity to verify the authenticity of the Lin Undertaking.

46.I accept the evidence of Mr. Chan, a professional accountant whom I find no basis to doubt, that the duplication of the first line of Clause IV of the Lin Undertaking was a mere typographical error. There is no evidence to suggest that the Lin Undertaking had been tampered with, or to support any finding that the Lin Undertaking was not authentic.

47.On the face of the Authorization and the Lin Undertaking signed by Madam Lin, I find no difficulty in accepting that Madam Lin had fully accepted and acknowledged, prior to her death, that she held Ocean's assets as trustee of Mr. Cheung. At the material time, Ocean's assets comprised mainly the funds in its bank accounts and its right to the Tax Refund to be recovered from the IRD. On the evidence adduced in this case, I consider that Madam Lin's acknowledgment that Ocean's Tax Refund may be used by the IRD to set off Mr. Cheung's personal tax liability, and her agreement to transfer the Tax Refund to be received from the IRD in full to Mr. Cheung, without any deduction and for no consideration, clearly evidence her acknowledgment that Mr. Cheung is beneficially entitled to Ocean's property. I see no reason why Madam Lin would agree to the IRD using the Tax Refund due to Ocean to set off Mr. Cheung's personal tax liability, if she did not consider Mr. Cheung to be beneficially entitled to the Tax Refund, either because he had paid for Ocean's tax, or because Mr. Cheung was generally entitled to Ocean's money and assets.

48.Madam Lin had signed the tax returns filed in respect of Ocean's profits. She knew the amount of profits involved, and hence the tax liability in respect of such profits. If she had received any income or profit from Ocean which did not relate to Mr. Cheung's dealings with or consultancy services to Pilot HK, but related instead to her own business under Ocean's name, she would have known that she might have a claim to any tax refund that may be made by the IRD to Ocean in respect of the tax paid for Ocean's profits. It is incredible that she would have agreed in such circumstances to the transfer of the Tax Refund "in full amount" to Mr. Cheung without any deduction. For the same reason, I do not believe that she would then have asked Mr. Mok to sign the Mok Undertaking to transfer the tax refund "in full amount without any deduction" to Mr. Cheung. She would at least have alerted Mr. Mok to the possibility that she might have an interest in the Tax Refund, and to give Mr. Mok any necessary information with which Mr. Mok could verify whether any part of the Tax Refund should be retained in respect of Madam Lin's own, beneficial interest in Ocean's business. It has never been Mr. Mok's case that he had been so advised by Madam Lin.

49.Mr. Mok sought to explain that Madam Lin would not discuss her work or financial affairs with him. Even if this was true, I consider it inherently improbable that at a time when she was seriously ill, and possibly on her deathbed, Madam Lin would not have disclosed either to Mr. Mok or her son, the other beneficiary to her estate in the event of her death, that a part of the Tax Refund to be made to Ocean may belong to her estate in the event of her death - if that was indeed the case.

Did Madam Lin agree to transfer the Tax Refund to Mr. Cheung?

50.In my judgment, it is clear from the Authorization and the Lin Undertaking that Madam Lin had agreed to transfer to Mr. Cheung the Tax Refund to be received by Ocean from the IRD, in full.

51.Mr. Mok sought to argue that the amount to be returned to Mr. Cheung from the Refund which Ocean received from the IRD in 2006 should be confined to the sum of $150,000. I will consider this under the next issue.

Did Mr. Mok agree to transfer the Tax Refund to Mr. Cheung?

52.In his Defence, Mr. Mok did not deny that he had signed the Mok Undertaking, and had further signed the Lin Undertaking as a witness. He claims in his evidence that he was asked by Mr. Cheung and by Madam Lin to sign certain documents in March 2000 as a witness to the signature of Madam Lin. He claims that the contents of the documents which he had signed were not explained to him, and that he did not understand English. It was due to his trust of his wife that he had not inquired into the contents and effect of the documents which he signed. He maintained that Madam Lin would not ask him to sign anything which would be prejudicial to his interests.

53.Mr. Mok never pleaded the defence of non est factum. Indeed, on his own evidence, such a defence would have no chance of succeeding. The law is incontestably clear. Where a person is content to put his signature to a document without bothering to read it, or to have someone explain any contents he cannot understand, then that person is bound by the document and it is no excuse for him later to say that he actually had not read or known or understood what he had signed, or had a subjective understanding of the contents which turn out to be incorrect (see, for example, Ming Shiu Chung & others v. Ming Shiu Sum & others FACV No. 25 of 2005, 23 May 2006).

54.Mr. Mok maintained in his testimony that he was asked by Madam Lin to sign on the Lin Undertaking as a witness, and that his intention was to act as witness. That was indeed the purported effect of his signature to the Lin Undertaking. From Mr. Mok's testimony when he was asked about the different documents on which his signatures appear (and in particular the letter from the IRD dated 26 September 2006 which enclosed a computation of the Refund and an Indemnity to be signed by Mr. Mok as administrator of the estate of Madam Lin) and when he was asked about his work experience, I am satisfied that Mr. Mok had an adequate understanding of English to appreciate and understand the effect of the Mok Undertaking, and the words which appear next to his signature on the Lin Undertaking, to confirm that Madam Lin was of sound mind, memory and understanding of the Lin Undertaking.

55.Further, Mr. Mok finally accepted on cross-examination that although he did not have a clear recollection, he would not be surprised that at the time when the documents were signed in March 2000, he had in fact understood from the conversation exchanged between Madam Lin and Mr. Cheung that there was a tax refund due to be transferred first to Ocean, and then to Mr. Cheung.

56.In the light of the circumstances of Mr. Mok's execution of the Lin Undertaking and the Mok Undertaking, and on the face of the express and clear terms of these documents as well as the Authorization signed by Madam Lin, I have no hesitation in concluding that Mr. Mok had knowledge in March 2000 that a tax refund was due to be received by Ocean from the IRD, and that he had agreed to transfer the Tax Refund to Mr. Cheung upon Ocean's receipt.

57.Having considered the evidence, I see no basis for Mr. Mok to maintain that the Tax Refund to be returned to Mr. Cheung should be confined to the sum of $150,000.

58.The first and important point to note is that none of the Authorization, the Lin Undertaking and the Mok Undertaking contains any limit or restriction in the amount of the Tax Refund to be transferred to Mr. Cheung.

59.The Authorization refers to "any tax refund arising from reassessment of Ocean" (my emphasis), and authorizes the IRD to utilize such tax refund to set off Mr. Cheung's tax liability.

60.The Lin Undertaking refers to Ocean's receipts of "any tax refund from IRD in relation to Case No. BD-6722-12-YTW" (my emphasis". By the Lin Undertaking, Madam Lin granted the irrevocable right to Mr. Cheung to receive "the said tax refund in full amount without any deduction" (again my emphasis).

61.Under the Mok Undertaking, Mr. Mok referred to Ocean's objection to the IRD for "a refund of profits tax under Case No. BD-6722-12-YTW", and confirmed that Ocean will transfer the said tax refund "in full amount without any deduction".

62.Mr. Mok and those advising him place emphasis on the references to "Case No. BD-6722-12-YTW" made in the documents signed in 2000. Mr. Mok claims that no explanation had ever been given to him prior to the commencement of proceedings as to what such reference means, and to what it relates.

63.Mr. Chan explained in his testimony in court that the reference “BD-6722-12” used in the documents signed in March 2000 meant "Bad Duty Case 6722”, followed by the initials of the officer then in charge of the case at the IRD. Mr. Chan explained that the IRD's investigations into Mr. Cheung's tax liability and the tax liability of companies associated with Mr. Cheung, including Ocean, spanned a number of years and that the case handling officer had changed a number of times from “YTW” in about 2000 to “KKY” in 2006, the latter evidenced by the file references appearing in the documents issued by the IRD in 2006 when the Refund was received.

64.Essentially, Mr. Chan's evidence in court is that the letter from the IRD to Mr. Mok dated 26 September 2006 ("IRD 26/9/06 Letter"), which enclosed the computation of the Refund, and which bears the file reference "6K1-A7272319/4C2-B026722-KKY(35)", refers to the same matter as that mentioned in the March 2000 documents and which bear the file reference "BD-6722-12-YTW".

65.Mr. Chan explained that "6K1" in the reference in the IRD 26/9/06 Letter refers to salaries tax. "xxxxxxxx" refers to Madam Lin's identity card number, as the Tax Refund and the Refund both relate to tax paid on behalf of Ocean, of which Madam Lin was the registered sole proprietor.

66."4C2" was the team of the IRD which was investigating and handing the matter in 2006. According to Mr. Chan, "B026722" is the derivative of "BD6722", formerly known as "Bad Duty Case 6722", but the term "Bad Duty Case" is no longer used by the IRD.

67.On Mr. Chan's evidence, "KKY" refers to the initials of the IRD officer handling the case in 2006, and "35" indicates that the officer can be located on the 35th floor.

68.Mr. Chan's explanation appears to me to be credible, in view of his work experience of dealing with the IRD on tax matters. If it is sought to be argued that any refund or repayment to Mr. Cheung has to be confined to any tax refund from the IRD which relates to Case No. BD-6722-YTW, the IRD 26/9/06 Letter, which enclosed the calculations of the sum of $514,406 in respect of the Refund of the tax paid by Ocean, was sent under reference "6K1-A7272319/4C2-B026722-KKY(35)". On the basis of Mr. Chan's explanation with regard to the reference numbers, I am satisfied that the Refund relates to the same Tax Refund referred to in the Authorization, the Lin Undertaking and the Mok Undertaking.

69.In any event, Counsel for Mr. Cheung has pointed out to the Court that the 3 documents from the IRD dated 8 December 2006 which accompany the Refund ("IRD Payment Documents") all bear the references "B026722". Counsel for Mr. Mok sought to highlight the fact that one of these 3 documents bears the business registration number of Ocean, whereas the other 2 documents do not. This, it was argued, suggests that the one which bears the business registration number may be different in nature, and may relate to the tax liability of Madam Lin herself, and not to Ocean's tax liability.

70.As I have endeavored to make clear in the earlier parts of my Judgment, I have seen nothing in the evidence which suggests that Madam Lin had operated any business in the name of Ocean which is not related to the provision of Mr. Cheung's consultancy services to Pilot HK, and in which she has a personal beneficial interest. I am satisfied, on a balance of probabilities, that the IRD Payment Documents dated 8 December 2006 and the IRD 26/9/06 Letter show that the Refund is that contemplated by and referred to in the Authorization, the Lin Undertaking and the Mok Undertaking.

71.Those advising Mr. Mok have throughout argued that in the correspondence exchanged between the IRD and Mr. Chan acting on behalf of Mr. Cheung in the course of their negotiations regarding Mr. Cheung's tax liability, Mr. Chan's firm had proposed a tax refund of $150,000 only. It is claimed that this somehow supports Mr. Mok's suspicion that the difference between the Refund and $150,000 should not be related to Ocean's profits from the consultancy fees paid by Pilot HK to Mr. Cheung, but related instead to Madam Lin's own business profits.

72.In answer, Mr. Chan explained that the investigations made by the IRD related to a number of companies associated with Mr. Cheung and his family. It was a complex investigation, spanning a period from March 1999 until 2006. The Note of Interview prepared by the IRD with regard to the meeting held on 22 March 1999 between Mr. Cheung, Mr. Chan and assessors of the IRD gives an idea of the nature of the investigations, and the numerous companies and parties involved, including Mr. Cheung's daughter.

73.According to Mr. Chan's evidence, the proposal made by his firm to the IRD on 15 September 2006 for Mr. Cheung's acceptance of a refund of $150,000 was on a without prejudice basis, in settlement of the IRD's investigations into Mr. Cheung's interests in the companies involved (including Ocean), the tax he had already paid in relation to these companies, and the ultimate tax for which he should be personally liable. According to Mr. Cheung, it is the normal practice in these negotiations for tax refund for the accountant representing the taxpayer to start with a lower figure by way of settlement. Mr. Chan explained that as the settlement proposal finally agreed was on a global settlement basis, he did not have the necessary information at the material time as to the IRD's method of calculation of either the sum of $162,000 which the IRD considered to be the tax underpaid by Mr. Cheung, or the sum of $514,406 representing the IRD's computation of the Tax Refund to which Mr. Cheung was ultimately entitled after payment of the additional tax of $162,000.

74.Counsel for Mr. Mok placed some reliance on the fact that of the total profits tax which Mr. Cheung claims he had paid for Ocean and in respect of which the Refund was ultimately made, a sum of $162,000 was only paid by Mr. Cheung in February 2007, and not before. It was also pointed out that a small part of the tax paid to the IRD in 2007 (in the sum of $6,000) was paid by Mr. Cheung's daughter. In this regard, I bear in mind that, as evidenced by the Note of Interview dated 22 March 1999, the IRD investigations and their computation of Mr. Cheung's liability for tax was considered in the context of the many different companies with which Mr. Cheung and his family were associated. Mr. Cheung's overall "tax planning scheme" appeared to have involved Mr. Cheung's receipt of profits and payment of tax through various companies. As a result of the IRD's computation of the tax which Mr. Cheung ought to have paid, and conditional on his payment of any balance found due by the IRD, the Refund of the profits tax hitherto paid in the name of Ocean was finalized by the IRD and made to Mr. Mok as administrator of the estate of the registered sole proprietor of Ocean. Against such background, I do not consider that the matters referred to by Counsel cast sufficient doubt on Mr. Cheung's case.

75.In my Judgment, Mr. Mok had acknowledged by the Mok Undertaking that the Tax Refund was held on trust by his wife for Mr. Cheung, and that Mr. Cheung was entitled to the Tax Refund relating to Ocean, without any limitation in amount. In his testimony, Mr. Mok also came to agree that at around the time of his receipt of the IRD 26/9/06 Letter, he considered that it was highly possible that the Tax Refund belonged to Mr. Cheung. He only disputed whether the entire Refund belonged to Mr. Cheung. Despite his reluctance to acknowledge that the trust extends to the entire Refund, my finding is that there is no evidence whatsoever that Madam Lin's estate is entitled only to the difference between the Refund of $514,406 and the sum of $150,000 proposed by Mr. Chan in September 2006.

76.Those advising Mr. Mok have sought to emphasize that Mr. Mok was under a duty to the beneficiaries of the estate of Madam Lin, which are himself and his son, to require Mr. Cheung to prove his entitlement to the Refund. It was stressed that Mr. Cheung has never produced any trust instrument, nor bank statements to prove his payment of Ocean's expenses and taxes and his receipt of all of Ocean's profits and income. Whilst it is true that the Financial Statements and Mr. Chan's evidence relating to the file references (the latter being regarded by Mr. Mok as essential) were only available after the commencement of proceedings, the Acknowledgment, the Lin Undertaking and the Mok Undertaking were all produced to Mr. Mok at the outset. Mr. Mok himself eventually accepted that it was highly possible that the Tax Refund belonged to Mr. Cheung, although he had questions as to whether Mr. Cheung should be entitled to the entire sum of the Refund, as opposed to the $150,000 or $160,000 which he mentioned. In these circumstances, if Mr. Mok was truly bona fide, he should have considered making payment into Court of the sum of $150,000, but failed to do so. The offer of payment made by his solicitors on 14 May 2007 was still conditional on various events, such as clearances with the Canadian government, which obviously led to nowhere.

77.Mr. Mok claims that he is entitled to require Mr. Cheung to produce proof of his entitlement to the Tax Refund. However, it should be borne in mind that it would be unduly onerous for Mr. Mok to expect Mr. Cheung to prove the trust arrangement and his interests to the Tax Refund on any standard beyond the usual standard of a balance of probabilities. In my Judgment, when Mr. Cheung produced the Financial Statements, the tax returns signed by Madam Lin and the documents signed in March 2000, it is for Mr. Mok to present some evidence to suggest that Madam Lin had an interest in Ocean's profits and the tax paid, before Mr. Mok is entitled to retain the Refund and to seek further evidence from Mr. Cheung. Even if, as Mr. Mok claims,

he had had no knowledge of Madam Lin’s financial and business affairs during her life, upon her death, Mr. Mok as Administrator of the estate of Madam Lin would have had access to Madam Lin’s property and documents, such as her bank statements. He should thus have been able to ascertain whether Madam Lin had indeed carried on any business activities in Ocean’s name apart from Mr. Cheung’s consultancy services to Pilot HK, and obtained evidence from Madam Lin’s statements as to her income, payment and expenses, including any substantial tax payments. The fact remains that Mr. Mok has neither referred to nor produced any such evidence.

78.Mr. Mok suggests that he had no alternative but to defend these proceedings. He did so by (amongst other things) including claims in his witness statement that Madam Lin's signature on the Lin Undertaking is different to her signature on Ocean's other documents, and that he had had no knowledge of Ocean until receipt of the IRD correspondence in 2006. However, these were either not pursued in earnest at the trial, or were contradicted by Mr. Mok's oral testimony. In view of his testimony on the circumstances of the execution of the Lin Undertaking and the other documents in 2000, and his admission to having signed on the Lin Undertaking as witness, I fail to see how his attempt of denial of the authenticity of Madam Lin’s signature to the Lin Undertaking can succeed. It is clear from the Defence and Mr. Mok's witness statement that he was not simply putting Mr. Cheung to proof of his claims, but was actively resisting and denying the claims. These are matters which will have to be addressed on the question of costs.

Conclusion

79.I am satisfied on the evidence that Mr. Cheung is the beneficial owner of the Tax Refund, and will make a declaration as sought by Mr. Cheung: that at all times since September 1990, Ocean and all its undertaking and assets were and still are beneficially owned by Mr. Cheung and held upon trust prior to the death of Madam Lin by her, and after her death, by her estate, and upon and after the grant of letters of administration of the estate of Madam Lin to Mr. Mok, by Mr. Mok, for Mr. Cheung.

80.I am also satisfied from Mr. Mok's evidence that on the occasion of the execution of the documents in March 2000, he had understood from the conversation exchanged between Mr. Cheung and Madam Lin, and between Madam Lin and himself, that the documents signed related to a tax refund to be received by Ocean, which was then to be transferred from Ocean to Mr. Cheung. I am therefore satisfied on the evidence that in March 2000, Mr. Mok knew that Mr. Cheung was beneficially entitled to the Tax Refund.

81.Further, I am satisfied that Mr. Mok understood at the time of his receipt of the IRD 26/9/06 Letter and the Indemnity enclosed that the communication related to the Tax Refund. Mr. Mok accepted that he considered at that time that it was highly possible that Mr. Cheung was entitled to the Tax Refund. Mr. Mok also accepted that when he had dinner with Mr. Cheung around the time of his receipt of the IRD 26/9/06 Letter, Mr. Cheung had produced to him the Mok Undertaking that he had signed, as evidence of his agreement to return the Tax Refund to Mr. Cheung.

82.I find therefore that in September 2006, Mr. Mok knew that he and Madam Lin had agreed in March 2000 to transfer the Tax Refund to Mr. Cheung upon Ocean's receipt of the same, and that Mr. Cheung was beneficially entitled to the Tax Refund. He knew that the Tax Refund was trust property, held on trust for Mr. Cheung. He thought that perhaps Madam Lin's estate may have an interest in a part of the Refund, but he knew that Mr. Cheung was beneficially entitled to at least a part of it. In seeking Mr. Cheung to prove his entitlement to the entire Refund, Mr. Mok must have known that he has to bear the consequences of the Court finding that Mr. Cheung is entitled to the trust property, ie. the Refund, in full.

83.In my Judgment, the Tax Refund was clearly subject to a constructive trust by virtue of the fact that Mr. Mok was a knowing recipient of trust property. I am also satisfied that the circumstances of the case make it unconscionable for Mr. Mok to retain the benefit of the receipt of the Refund. In retaining the Refund, he is liable as constructive trustee.

84.I therefore make an order that Mr. Mok is to pay to Mr. Cheung the sum of $514,406, with interest at judgment rate from the date of the service of the Writ. I will further grant the orders sought in paragraphs (3), (5) and (6) of the prayer to the Statement of Claim. In view of these orders, findings on the alternative claims for equitable compensation for breach of trust and damages for conversion should not be necessary.

85.I will be hearing separate submissions from Counsel with regard to costs.

Miss Ann Lui, instructed by Messrs. Kao, Lee & Yip, for the Plaintiff

Miss Verna Lui, instructed by Messrs. Yau and Lau, for the Defendant