Tong Kwok Cheong v. Tong Wai Lin

CACV 268/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 268 OF 2012

(ON APPEAL FROM HCA NO 1939 OF 2007)

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J U D G M E N T

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Hon Cheung CJHC :

1.I agree with the judgment of Poon J.

Hon Poon J :

A. INTRODUCTION

2.The plaintiff and the defendant are the 3^rd son and the eldest daughter of the Tong family.  Their father founded a metal business, Sam Hing Metal Company (“Sam Hing”) in the 1950s.  It was his wish, shared by his wife, that the family would participate in the business, which should continue to operate as long as possible.  The plaintiff, in his 60s at the time of the trial, was a graduate of the then Baptist College and was by profession an accountant.  Following his father’s wish, he had been involved Sam Hing nearly all of his life.

3.Sam Hing operated its business at various premises including Shop A (No.87 Prince Edward Road West) of G/F Lee Shing Building Nos.83, 83A, 85, 85A & 87 Prince Edward Road West, Kowloon, Hong Kong (“the Property”).  It was the father’s practice when purchasing properties to put the property in the name of his wife and children as the case might be, although it was he who provided the purchase moneys.  Thus when the Property was bought in 1966, the defendant was named as its registered owner.  No rent was ever paid by Sam Hing for its occupation of the Property to the defendant.

4.The defendant was 72 at the time of the trial.  She obtained her BA degree in Taiwan in 1960s.  After her marriage in 1969, the defendant migrated to the USA in 1971 and has since resided there with her husband. Initially, she worked as a housewife.  Later she obtained a master degree.  Since 1982 or 1983, she had been working as a teacher at a public primary school.

5.In November 2005, the defendant returned to Hong Kong to see her ailing mother.  While in Hong Kong, she and the plaintiff entered into a Chinese agreement dated 18 November 2005 (“the Agreement”) in these terms :

“有關香港九龍旺角太子道87號地下鋪位以26萬美元買賣轉讓事宜. USD260,000.xx

現賣方 : 湯惠蓮(簡稱大姊)及買方 : 湯國祥(簡稱三弟)雙方達成以下二點協議 :

I. 完成以上物業法律轉讓日期 (A) 以母親百年歸老去世後三個月內或 (B) 大姊因病危或遇意外去世後三個月內或 (C) 由此文件日期計算,三年內經雙方同意在任何時間可完成以上正式交易。

II.      在此,大姊承諾放棄,一旦母親去世後,其大姊所享有任何遺產及權益的承繼權及並交由其三弟全權處理分配。”

6.The Agreement can be translated as follows :

“Concerning the sale and purchase and transfer of Ground Floor Shop at 87 Prince Edward Road, Mongkok, Kowloon for USD260,000.

Now the Seller Tong Wai Lin (hereinafter referred to simply as ‘Big Sister’) and the Purchaser Tong Kwok Cheung (hereinafter referred to simply as ‘3^rd Younger Brother’) both sides reached the following two points of agreement : -

I. Completion of legal transfer of the above property (A) within 3 months after mother passed away naturally, or (B) within 3 months of Big Sister’s death by illness or accident, or (C) within 3 years from the date of this document, upon mutual agreement of the parties.

II. Big Sister hereby promises to give up, in case/when mother passes away, her inheritance or interests in mother’s estate and give the same to 3^rd Younger Brother to dispose of.”

7.The mother died in June 2007.  Thereafter, the plaintiff called upon the defendant to honour the Agreement but with no avail. In September 2007, the plaintiff sued the defendant for breach of the Agreement and sought an order for specific performance.  The defendant denied liability, contending that the Agreement was not legally binding or alternatively that it was an unconscionable bargain.  She counterclaimed for an order that the Agreement be set aside.

8.After trial, Deputy High Court Judge Mayo found that the Agreement was legally binding and rejected the defence of unconscionable bargain.  He entered judgment for the plaintiff by making made an order of specific performance of the Agreement and dismissed the defendant’s counterclaim.  The defendant now appeals.

B. TWO NEW POINTS

9.At the hearing before us, Mr Pirie, who did not appear at the trial below, sought to raise two new points for the defendant.  First, the Agreement was liable to be set aside on the ground of undue influence.  Second, there was no consideration for the defendant’s expectancy interest in the mother’s estate, rendering the same to be a gift.  He has in fact devoted much of his written submissions to these new points.  These points were neither pleaded nor advanced before the Deputy Judge.  Mr Pirie nevertheless argued that he was entitled to raise them for the first time on appeal because, he reasoned, all the evidence pertaining to them was before the Judge.  With respect, we disagreed.

10.The law had been settled as early as 1890 when Lord Herschell had this to say in The Tasmania (1890) LR 15 App Cas 223 at p 225 :

“My Lord, I think that a point such as this, not taken at the trial, and presented for the first time in the Court of Appeal, ought to be most jealously scrutinised. The conduct of a cause at the trial is governed by, and the questions asked of the witnesses are directed to, the points then suggested. And it is obvious that no care is exercised in the elucidation of facts not material to them.

It appears to me that under these circumstances a Court of Appeal ought only to decide in favour of an appellant on a ground there put forward for the first time, if it be satisfied beyond doubt, first, that it has before it all the facts bearing upon the new contention, as completely as would have been the case if the controversy had arisen at the trial; and next, that no satisfactory explanation could have been offered by those whose conduct is impugned if an opportunity for explanation had been afforded them when in the witness box.”

11.Recently, the principle was enunciated again by Bokhary PJ in Flywin Co Ltd v Strong Associates Ltd (2002) 5 HKCFAR 356.  After referring to Lord Herschell’s statement, his Lordship said at para 38 :

“Where a point is taken at the trial, the facts pertaining to it are open to full investigation at the evidence-taking stage of the litigation. That is as it should be. Therefore where a party has omitted to take a point at the trial and then seeks to raise that point on appeal, the position is as follows. He will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial.”

12.Here, the defendant had in both her pleadings and evidence asserted a relationship of trust and confidence between the parties as a factor relevant to the question of undue influence.  The plaintiff denied that such a relationship existed and explained why that was not the case.  Other than that, the parties had not adduced any other evidence which might bear on the new point of undue influence which Mr Pirie now sought to raise.  Contrary to his argument, all the facts pertaining on undue influence were simply not before the Judge.

13.The same is also true for the other new point that the transfer of the defendant’s expectancy interest in the mother’s estate was a gift.  At trial, the defendant’s case was that the transfer was undervalued, which is quite different from a gift supported by no consideration.  Although the parties focused on the value of the Property, the plaintiff did say that the consideration of US$260,000 covered both the Property and the defendant’s expectancy interest in the mother’s estate.  So, contrary to Mr Pirie’s contention, the evidence that the transfer was a gift was not before the Judge at all.

14.For these reasons, we ruled in the course of Mr Pirie’s submissions that he was not entitled to raise any of these new points on appeal.

C. UNCONSCIONABLE BARGAIN

15.What remains are those grounds of appeal pertaining to unconscionable bargain, the defendant having not appealed against the Judge’s other finding that the Agreement was legally binding.

C1. The Judge’s reasoning

16.The Judge had before him two dramatically opposed versions as to how the parties entered into the Agreement.

17.After carefully analyzing the evidence, the Judge found that although the plaintiff was at times somewhat muddled over dates and times, his evidence was on the whole unshaken.  He was satisfied that the plaintiff was a truthful and honest witness.  According to the plaintiff’s version, which the Judge accepted :

(1) During her lifetime, the mother had been concerned about the fact that the Property which were the main premises out of which Sam Hing operated were in the defendant’s name.  She feared that if anything untoward were to happen to the defendant, the Property might cease to be in the control of the family.  It might prejudice Sam Hing’s interest. She therefore attempted to persuade the defendant to sell the Property back to the family to forestall this.  She had in fact offered to buy the Property back for US$80,000, which the defendant rejected.  That caused frictions between the mother and the defendant.

(2) In about September 2005 when the mother’s health had been deteriorating, the plaintiff had a long distance telephone conversation with the defendant (“the Telephone Discussion”), discussing the mother’s health.  The defendant however expressed her dissatisfaction with the Tong family and said that she wished to become dissociated from it.  She then enquired if the plaintiff would consider purchasing the Property and any interest she might have in the mother’s estate.  The plaintiff said he was. They then went on to discuss what might be a suitable price.

(3) Both parties agreed that the appropriate price should be such as to accord with the wishes of their late father, which was that the family members should enjoy a comfortable living and should be able to live in a property which was free form mortgage payments. The defendant was then living in a house in Sacramento, California.  Upon the plaintiff’s enquiry, the defendant said that the outstanding mortgage was US$260,000.  They then agreed that this would be an appropriate price for buying the Property and the defendant’s interest in the mother’s estate.

(4) Importantly, the plaintiff said he did not know what the value of the mother’s estate would be as there were many imponderables as to what expenses might be incurred in the future in relation to her medical condition or whether she might give or bequeath her estate to other people.

(5) When the defendant was in Hong Kong, the plaintiff and she had a meeting at a café on or about 15 November 2005 (“the Meeting”).  They discussed when the agreement they had made over the phone would come into effect.  They agreed that it would be either 3 months from the mother’s death or 3 months from the defendant’s death.  The time could be varied by the parties’ mutual agreement.  The defendant then asked the plaintiff to draft a suitable document.

(6) The plaintiff then prepared the Agreement, which was in duplicate, signed it and placed it in the book containing the medical records of the mother at her flat on or about 17 November 2005.  He then called the defendant informing her of the same.  He also told her that there was no hurry and that if she agreed to it she could sign it and keep one of the copies.  No deadline was set.

18.The defendant did later sign the Agreement.  On 19 November 2005, the plaintiff’s wife went to see the defendant off.  The Judge found that she did so in order to ensure that she obtained a signed copy of the Agreement from the defendant.

19.On the other hand, the Judge was not impressed by the defendant’s evidence.  He found that she was not a reliable, honest or convincing witness.  Although she was undoubtedly a person of quite high intelligence, she strongly gave the impression of giving evidence which she thought would best serve her interests.  She was an evasive witness who attempted to qualify many of her answers given under cross examination.

20.The defendant said that she reposed trust in the plaintiff.  That assertion the Judge rejected.

21.The defendant denied that the Telephone Discussion had ever taken place.  As to the Meeting, the defendant denied that there had been any meaningful discussion as referred to by the plaintiff.  What happened was to her surprise the plaintiff suggested for the first time to her that she should sell the Property to him at the price of US$260,000.  He supported the suggestion by saying that if she were to pass away prematurely the Property might pass to a third party which might create problems for the continued operation of Sam Hing.  On 17 November 2005, she received a telephone call from the plaintiff, telling her that he had drafted the Agreement, which was placed with the medicine book used for the mother.  He requested her to read it and if she agreed to the contents sign it and he would collect it.  The defendant said she was then suffering from physical and mental stress because she had looked after the mother for 17 days.  She did not at first read the document as she needed to attend to the mother.  After about an hour, she did cursorily read it and then signed it.  She had no idea that it was a document having legal consequences.  She thought that all that might be achieved by signing it would be to assist Sam Hing.

22.The Judge rejected her evidence.  She was, in the Judge’s view, trying to persuade the court to believe that she would have been prepared to sign the Agreement when there had been virtually no previous discussions or negotiations.  The Judge found that incredible.  The Judge also did not believe that the defendant would simply sign the Agreement on the basis of the alleged trust in the plaintiff, bearing in mind that she was a highly educated and experienced person.  He also rejected the defendant’s allegation that she did not understand the contents of the Agreement when under cross examination, she was shown to be fully aware of and capable of understanding its contents as well as significance.

23.Turning to the law, the Judge rejected the submission of Mr Miu, for the defendant, that as the Agreement involved the transfer of the defendant’s expectancy interest in the mother’s estate at an undervalue, the burden rested upon the plaintiff to show that it was fair just and reasonable.  He then held that the general principles on unconscionable bargain as summarized by Mason J (as he then was) in Commercial Bank of Australia Limited v Amadio (1982-83) 151 CLR 447 at p 461, applied.

24.Appling those principles, the Judge dealt with the five reasons advanced by the defendant why the Agreement was an unconscionable bargain thus :

“109. In her defence and evidence, the defendant advances five reasons why the Agreement was an unconscionable bargain. I propose dealing with these in turn.

(1) That when the defendant signed the contract she was mentally and physically exhausted.

As indicated when commenting upon her evidence this justification is without merit. She gave evidence that at about that time she had referred to medical reference works in relation to the mother’s physical condition. It would require greater mental acuity to do this than it would to read a one page document which did not contain any concepts which were difficult to understand.

(2) The defendant lived overseas and was unfamiliar with the HK property market.

This contention also is without merit. It is clear from the evidence that the plaintiff did not impose any time pressure upon the defendant. It would have been an entirely simple matter for her to obtain professional advice which would place her in a similar or better position than the plaintiff.

(3) The defendant only took a cursory look and did not read or consider the contents of the contract.

Again this was a matter which was dealt with in some detail during the defendant’s cross examination.

She was taken through the document sentence by sentence and it was apparent that it was obvious that it was a document dealing with the sale and purchase of the suit premises. When this is taken in conjunction with the plaintiff’s evidence which I accept that there had been previous discussions and negotiations concerning this and the transfer of her interest in the mother’s estate, it is inconceivable that the defendant was not fully aware of the contents and meaning of the contract and that it would lead to legal consequences.

(4) The defendant placed trust and confidence in the plaintiff.

…

The defendant’s evidence on this topic is very thin. Although they were brother and sister, there had been very little contact between them since 1971. It has not been pleaded that the plaintiff exercised undue influence and having regard to the overall circumstances this is not surprising. The correct way of viewing this matter was that the brother and sister were trying to work out the solution to the problems which might arise in the event that the suit premises came into the hands of a third party.
There is no merit in this complaint.

(5) The purchase price of US$260,000 under the contract was an undervaluation.

110. This goes back to the nature of the transaction. According to the plaintiff whose evidence on this I accept what was being discussed was the endeavour to resolve a family matter according to the siblings’ understanding of what their parent’s wishes would have been. It was not focused upon actual market values. What the defendant was getting was a large measure of certainty.

111. On completion of the Agreement she would receive US$260,000. This would in all likelihood be a sufficient amount to ensure that she would be able to enjoy a comfortable future.

112. Although according to the valuation which was obtained the value of the suit premises was HK$4,940,000 in 2005 the time when the Agreement was entered into there was every likelihood that Sam Hing would continue to occupy the suit premises for the foreseeable future.

113. Clearly this would have a negative impact upon the value of the property.

114. So far as the interest in the mother’s estate is concerned there was little reliable information concerning the value of the estate and even more uncertainty as to what the value would be at the time of the mother’s death.

115. Now with the wisdom of hindsight it is known that the administration of the estate is bogged down in uncertainty and it is by no means impossible that there will not be further protracted litigation.

116. It cannot be said that given all of the imponderables that a reasonable person in 2005 would not enter into the Agreement which was presented to the defendant for acceptance.

117.   What can be said with certainty is that by no stretch of the imagination can it be said that anyone viewing the overall situation would feel a sense of outrage that an unconscionable bargain had been concluded or that the defendant had been exploited by the plaintiff.”

25.The Judge finally concluded that the Agreement had been freely entered into by the defendant.

C2. Three main grounds

26.Mr Pirie’s submissions really boil down to three main grounds.

C2.1. The Agreement at an undervalue is per se unconscionable

27.Mr Pirie argued that the sale of the defendant’s expectancy interest in the mother’s estate is at an undervalue.  That per se is unconscionable.  With respect, Mr Pirie’s argument is plainly untenable, even assuming the transaction was at an undervalue.

28.In England, before the enactment of the Sales and Reversions Act 1868, the general rule was that where a person dealt with an expectant heir for his reversionary interest, the burden of proof lied upon such person to prove the fairness of the transaction.  A sale of reversionary interest was liable to be set aside for inadequacy of consideration alone : see Bromley v Smith (1859) 26 Beav 644.  As Sir John Romilly, MR explained in Salter v Bradshaw (1858) 26 Beav 858 at pp 164-165 :

“Modern decisions have established this – that the burden of establishing that a full price has been given for a reversion lies upon the purchaser, and in order to maintain the validity of such a transaction, it is essential that he should preserve abundant evidence that, at the time he purchased the reversion, it was of the value, and of no greater value, than that which he gave for it. In the present case the purchaser has not only preserved no such evidence, but he has made it impossible that any such evidence should be obtained. It is out of the question to suppose that the Court can arrive at any satisfactory conclusion from speculative opinions as to the probable value of the property at the time of the sale, derived from its value nine years previous, (2) or from its value at the present time. It is, as I have already observed, a perfectly bona fide case, but it is one in which the purchaser has not thought fit to preserve any evidence of its value he bought it, nor in fact did he ascertain, at the time, what was its value, for that is very clearly shown ; and it is this circumstance, now, when it has fallen in, which has made it impossible to ascertain what the value was.”

29.Then came the enactment of the 1868 Act which effectively abolished the rule that undervalue alone would allow the court to intervene in equity to set aside a sale of reversionary interest by an expectant heir in these terms :

“…no purchase, made bona fide and without fraud or unfair dealing, of any reversionary interest in real or personal estate shall hereafter be opened or set aside merely on the ground of undervalue.”[1]

30.Under the 1868 Act, undervalue remained a relevant consideration, as Lord Selborne LC observed in Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at p 490 :

“…[the 1868 Act] is carefully limited to purchase ‘made bona fide and without fraud or unfair dealing,’ and leaves under-value still a material element in cases in which it is not the sole equitable ground for relief.”

31.In Hong Kong, the relevant provision is section 59 of the Conveyancing and Property Ordinance, Cap 219, which replicates the 1868 Act thus :

“(1) No purchase, made bona fide and without fraud, of any interest in property of any kind within Hong Kong shall be opened or set aside merely on the ground of undervalue.

(2) For the purpose of this section, ‘purchase’ (購買) shall include every kind of disposition under or by which any beneficial interest in any kind of property may be acquired.”

32.The law is clear.  After the intervention of the statute, undervalue per se does not render a sale of reversionary interest unconscionable.  It is only one of the factors that the court will take into consideration in the overall matrix of the case to determine if unconscionability is established or not.

33.This brings me to Mr Pirie’s next main argument, which concerns the burden of proof.

C2.2. Burden of proof

34.Mr Pirie argued that equity treats a sale of a party’s expectancy interest in another’s estate as a special category and presumes that the transaction is prima facie unconscionable.  The burden shifts and rests on the party who seeks to uphold the transaction to show that it is fair, just and reasonable.  See Goff & Jones on The Law of Unjust Enrichment, 8^th Edition, para 11-61 at p 360.  Mr Pirie placed particular reliance on Fry v Lane (1888) 15 Ch D 312. He argued that the Judge had erred in rejecting the defendant’s submission that the burden rested on the plaintiff, who sought to uphold the Agreement, to show that it was a fair, just and reasonable transaction.

35.In Boustany v Pigott (1995) 69 P & CR 298, the Privy Council, in Lord Templeman’s judgment at p 303, agreed with the following statements of law :

“(1) It is not sufficient to attract the jurisdiction of equity to prove that a bargain is hard, unreasonable or foolish ; it must be proved to be unconscionable, in the sense that ‘one of the parties to it has imposed the objectionable terms in a morally reprehensible manner, that is to say, in a way which affects his conscience’ : Multiservice Bookbinding v. Marden [[1979] Ch. 84, 110].

(2) ‘Unconscionable’ related not merely to the terms of the bargain but to the behaviour of the stronger party, which must be characterised by some moral culpability or impropriety : Lobb (Alec) (Garages) Limtied v. Total Oil (Great Britain) Limited [[1983] 1 WLR 87, 94].

(3) Unequal bargaining power or objectively unreasonable terms provide no basis for equitable interference in the absence of unconscientious or extortionate abuse of power where exceptionally, and as a matter of common fairness, ‘it was not right that the strong should be allowed to push the weak to the wall’ : Lobb (Alec) (Garages) Limtied v. Total Oil (Great Britain) Limited [[1985] 1 WLR 173, 183].

(4) A contract cannot be set aside in equity as ‘an unconscionable bargain’ against a party innocent of actual or constructive fraud. Even if the terms of the contract are ‘unfair’ in the sense that they are more favourable to one party than the other (‘contractual imbalance’), equity will not provide relief unless the beneficiary is guilty of unconscionable conduct : Hart v. O’Connor [[1985] AC 1000] applied in Nichols v. Jessup [[1986] NZLR 226].

(5) ‘In situations of this kind it is necessary for the plaintiff who seeks relief to establish unconscionable conduct, namely that unconscientious advantage has been taken of this disabling condition or circumstances’ : per Mason J in Commercial Bank of Australia Ltd. v. Amadio [(1983) 46 ALR 402, 413].”

36.It is reasonably clear from these general statements of law that generally speaking, the burden rests on the party who seeks relief to establish unconscionable bargain.  The question is whether, as contended by Mr Pirie, exceptionally, equity automatically presumes bargains with expectants per se to be unconscionable, thereby reversing the burden of proof to the party seeking to uphold the bargain.

37.In my view, when the relevant authorities are read carefully, they do not support the very wide proposition advocated by Mr Pirie.

38.A presumption of fraud, based on which a transaction with an expectant may be challenged as being unconscionable, may arise from the actual circumstances of the case but not merely because the bargain is a transaction involving reversionary interests.  In Earl of Aylesford v Morris, supra, Lord Selborne LC dealt with the presumption of fraud in bargains with expectants at pp 489-491 thus :

“There is hardly any older head of equity than that described by Lord Hardwicke in Earl of Chesterfield v. Janssen [2 Ves. Sen. 125, 157] as relieving against the fraud ‘which infects catching bargains with heirs, reversioners, or expectants, in the life of the father,’ &c. ‘These (he said) have been generally mixed case,’ and he proceeded to note two characters always found in them. ‘There is always fraud presumed or inferred from the circumstances or conditions of the parties contracting – weakness on one side, usury on the other, or extortion, or advantage taken of that weakness. There has been always an appearance of fraud from the nature of the bargain.’

With respect to the first of these two characters he had spoken just before, when he said of that kind of fraud which might be presumed from the circumstances and condition of the parties contracting [Ibid. 155] – ‘This goes further than the rule of law, which is, that it must be proved, not presumed ; but it is wisely established in this Court to prevent taking surreptitious advantage of the weakness or necessity of another, which knowingly to do is equally against conscience as to take advantage of his ignorance ; a person is equally unable to judge for himself in one as the other.’ To a certain extent, protection against this class of transactions was afforded by the laws against usury, now repealed, which (as Lord Hardwicke also said) were made, ‘not for want of power in this Court to give relief in many of these contracts, but to make them void in law, to give the party a short remedy against them’. [Ibid 159]

…

The usury laws, however, proved to be an inconvenient fetter upon the liberty of commercial transactions ; and the arbitrary rule of equity as to sales of reversions was an impediment to fair and reasonable, as well as to unconscionable, bargains. Both have been abolished by the Legislature ; but the abolition of the usury laws still leaves the nature for the bargain capable of being a note of fraud in the estimation of this Court ; and the Act as to sales of reversions (31 Vict. c. 4) is carefully limited to purchases ‘made bona fide and without fraud or unfair dealing,’ and leaves under-value still a material element in cases in which it is not the sole equitable ground for relief. These changes of the law have in no degree whatever altered the onus probandi in those cases, which, according to the language of Lord Hardwicke, raise ‘from the circumstances or conditions of the parties contracting – weakness on one side, usury on the other, or extortion, or advantage taken of that weakness’ – a presumption of fraud. Fraud does not here mean deceit or circumvention ; it means an unconscientious use of the power arising out of these circumstances and conditions ; and when the relative position of the parties is such as prima facie to raise this presumption, the transaction cannot stand unless the person claiming the benefit of it is able to repel the presumption by contrary evidence, proving it to have been in point of fact fair, just, and reasonable.” (Emphasis supplied)

His Lordship’s speech makes it clear that it is the circumstances of the case, including the conditions of the parties, which determine if a presumption of fraud arises.

39.Lord Selborne’s statement was endorsed by Lord Blackburn in O’Rorke v Bolingbroke (1877) 2 App Cas 814, at p 833.  More relevantly for present purposes, his Lordship went on to say at p 834 :

“In each case it must depend upon the circumstances whether the presumption which Lord Hardwicke spoke for, is raised. Sometimes there may be a serious question whether it is or is not.”

40.Finally in Fry v Lane, supra, Kay J adopted what Lord Selborne had said in Earl of Aylesford v Morris, supra, at p 321 :

“It is obvious that the words ‘merely on the ground of undervalue’ [in the 1868 Act] do not include the case of an undervalue so gross as to amount of itself to evidence of fraud, and in Earl of Aylesford v. Morris [Law Rep. 8Ch. 484, 490] Lord Selborne said that this Act ‘leaves undervalue still a material element in cases in which it is not the sole equitable ground for relief.’ These changes of the law have in no degree whatever altered the onus probandi in those cases, which, according to the language of Lord Hardwicke, raise ‘from the circumstances or conditions of the parties contracting – weakness on one side, usury on the other, or extortion, or advantage taken of that weakness’ – a presumption of fraud. ‘Fraud,’ says Lord Selborne, ‘does not here mean deceit or circumvention ; it means an unconscientious use of the power arising out of these circumstances and conditions ; and when the relative position of the parties is such as prima facie to raise this presumption, the transaction cannot stand unless the person claiming the benefit of it is able to repel the presumption by contrary evidence, proving it to have been in point of fact fair, just, and reasonable.”

41.Kay J then gave some examples where the court might interfere in equity at pp 321-322 :

“The most common case for the interference of a Court of Equity is that of an expectant heir, reversioner, or remainderman who is just of age, his youth being treated as an important circumstance. Another analogous case is where the vendor is a poor man with imperfect education, as in Evans v. Llewellin [1 Cox, 333.] ; Haygarth v. Wearing [Law Rep. 12 Eq. 320]

…

The result of the decisions is that where a purchase is made from a poor and ignorant man at a considerable undervalue, the vendor having no independent advice, a Court of Equity will set aside the transaction.”

Plainly, Kay J did not depart from what Lord Selborne had said about how a presumption of fraud might arise in bargains with expectancy interests when what he did was just to cite them as an example of how the court might interfere.

42.Thus analyzed, contrary to Mr Pirie’s submission, Fry v Lane does not support the proposition that equity presumes bargains with expectants per se, without more, to be unconscionable.

43.Whether a presumption of fraud in bargains with expectants arises is a fact-sensitive question, which must depend on the actual circumstances of the case.  That presumption is an evidential tool to enable the court to examine the evidence in a more structured approach to see if unconscionablity is established.  If the party seeking the equity relief wishes to invoke the presumption, then he bears the burden to establish the necessary facts which might give rise to the presumption of fraud.  If so established, the presumption will arise and shift the burden to the party seeking to uphold the transaction to show that it is fair, just and reasonable.

44.In my view, the Judge was correct in holding that the presumption did not automatically arise in the present case merely because the Agreement involved the sale of the defendant’s expectancy interest in the mother’s estate.  Further, based on the findings made by the Judge, the presumption did not in fact arise here.

45.This brings me to Mr Pirie’s third main submission, which attacks the findings of facts by the Judge.

C2.3. Findings of facts

46.Mr Pirie argued that the Judge had made various findings of facts in favour of the plaintiff when reaching his conclusion that the Agreement was not an unconscionable bargain.  Those findings were wrong and should be reversed.  The defendant’s evidence should be accepted instead.  This argument can be disposed of shortly.

47.The Court of Appeal should intervene with the findings made by a trial judge only if it is satisfied that he was plainly wrong and that his decision ought to have been the other way.  Unless the Court is so satisfied, it should defer to the trial judge’s conclusion even if in some doubt as to its correctness : Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at paras 41-42 at pp349I-350G.

48.Here, I need not set out each and every attack levelled by Mr Pirie against the Judge’s findings.  Having considered all the evidence and his submission carefully, I am not satisfied that Mr Pirie has demonstrated that the Judge’s findings were plainly wrong.  In fact, I think the Judge was correct in making the findings as he did.  He was entirely correct in concluding for the reasons that he gave that the Agreement was not an unconscionable bargain.

D. CONCLUSION

49.For the above reasons, I would dismiss the appeal.

50.Costs should follow the event.  I would make an order nisi that the defendant do pay the plaintiff’s costs of the appeal, to be taxed if not agreed.

Hon Au J :

51.I agree.

Hon Cheung CJHC :

52.Accordingly, the appeal is dismissed, with costs (on a nisi basis) to the plaintiff, to be taxed if not agreed.

Mr Christopher Chain, instructed by C Y Tsang & Co, for the plaintiff

Mr Nicholas Pirie, instructed by Liu, Choi & Chan, for the defendant