TANG KIM KWAN PATRICK ALSO KNOWN AS PATRICK TANG AND ANOTHER v. LEE CHI TING KAREN ALSO KNOWN AS KAREN LEE

CACV 163/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 163 OF 2012

(ON APPEAL FROM HCA 920/2009)

____________

BETWEEN

	TANG KIM KWAN PATRICK also known as  PATRICK TANG	1st Plaintiff
	PRIWAY INVESTMENTS LIMITED	2nd Plaintiff
	and
	LEE CHI TING KAREN also known as  KAREN LEE	Defendant

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Before: Hon Cheung CJHC, Yuen and Kwan JJA

Dates of Written Submissions: 6, 17, 20 and 24 March 2014

Date of Judgment: 7 April 2014

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JUDGMENT (ON COSTS)

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Hon Cheung CJHC (giving the judgment of the court):

1. On 21 February 2014, we handed down our judgment in this appeal, which we disposed of as indicated in paragraphs 32, 45 and 46 of our judgment. The defendant now seeks the costs of the inquiry on restitutionary compensation ordered against her in the judgment below which we set aside, on an indemnity basis. The 1^st plaintiff is prepared to bear the costs of the inquiry, which he pursued despite the lodging of the appeal against the judgment below. However, he does not agree that costs should be paid on an indemnity basis.

2. The 1^st plaintiff also seeks to vary the costs order nisi which we made in paragraph 46 of our judgment, giving the defendant 70% of the costs of the action below.  He contends that he should be given 20% of the costs of the action.  Alternatively, looking at the matter globally, he says that there should be no order as to the costs of the action (including the costs of the inquiry).

3. The defendant maintains that our costs order nisi is fair and just, and should be made absolute.

4. We will not repeat what has been said in our judgment.

5. As regards the costs of the inquiry, the 1^st plaintiff is correct to concede the costs thrown away by the futile inquiry.  The position is governed by this court’s decision in Active Profit Ltd v Nissho Iwai Hong Kong Corp Ltd [2005] 3 HKC 499.  In that case, the court pointed out that as a matter of commonsense and logic, costs incurred in enforcing a judgment which is subsequently set aside and in pursuing remedies granted by such a judgment must naturally be to the party that has successfully had the judgment set aside and incurred costs as a result of it.  In particular, a plaintiff who insists on proceeding with an inquiry does so at the risk that if the judgment in his favour is overturned on appeal, he will have to bear the costs of the inquiry which have been wasted by his insistence on pressing ahead with it.  See paragraphs 6 to 9 of the judgment.

6. However, we see no logic or reason why, as a matter of general principle, such costs should be ordered on an indemnity basis absent some special or unusual feature[1] going beyond the mere fact that the paying party had insisted on enforcing the judgment or pressing ahead with the remedy granted by it despite the pending appeal.  In our view, the reversal of a judgment on appeal is a normal incident of litigation.  Costs thrown away as a result of such reversal are costs incurred in the normal course of litigation.  They are recoverable from the unsuccessful respondent to the appeal on a party and party basis, just like all other costs incurred for the purposes of litigation, absent some special or unusual feature justifying the award of costs on a higher basis.  Looking at this from the perspective of the unsuccessful respondent to the appeal, he has caused the incurrence of costs on the other side by his enforcement of the judgment below or his pressing ahead with the remedy granted thereunder despite a pending appeal.  He is therefore rightly required to pay the costs of his opponent who is successful on appeal.  However, that by itself is no different, in substance, from his seeking to defend the judgment below by resisting the (successful) appeal and thereby causing, in that sense, the incurrence of costs by his opponent.  Absent some special or unusual feature, such costs of his opponent are awarded on a party and party basis.

7. In the present case, we see no special or unusual feature justifying the award of costs on any basis other than a party and party basis.  We therefore order that the costs of the inquiry be paid by the 1^st plaintiff to the defendant, to be taxed on a party and party basis if not agreed.

8. As for the costs of the action below, we believe that our costs order nisi best reflects the course of the litigation and its result.  The action involved four properties purchased under different circumstances.  The defendant has successfully defended her title to three of them, and in relation to the fourth one, she has been successful in asserting an entitlement to the net profit of sale.  In our view, awarding 70% of the costs of the action in favour of the defendant would fairly and justly reflect the issues involved, the course taken to resolve them and the final outcome.  In the circumstances, we refuse the 1^st plaintiff’s application to vary the costs order nisi.  Instead, the same is made absolute.

9. For the reasons explained above, we further order that the costs thrown away by the taxation of the 1^st plaintiff’s costs of the action ordered under paragraph 7(a) of the sealed judgment be paid by the 1^st plaintiff to the defendant, to be taxed on a party and party basis if not agreed.

10. As for the present applications before us regarding costs, looking at the matter globally, we order that the defendant shall have 70% of the costs of these two applications, to be taxed if not agreed.

(Andrew Cheung)	(Maria Yuen)	(Susan Kwan)
Chief Judge of the	Justice of Appeal	Justice of Appeal
High Court

Mr KC Chan, instructed by W K To & Co, for the plaintiffs

Mr Albert Yau, instructed by Lau, Chan & Co, for the defendant

CACV 163/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 163 OF 2012

(ON APPEAL FROM HCA 920/2009)

____________

BETWEEN

	TANG KIM KWAN PATRICK also known as PATRICK TANG	1st Plaintiff
	PRIWAY INVESTMENTS LIMITED	2nd Plaintiff
	and
	LEE CHI TING KAREN also known as KAREN LEE	Defendant

____________

Before: Hon Cheung CJHC, Yuen and Kwan JJA in Court

Date of Hearing: 16 January 2014

Date of Judgment: 21 February 2014

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JUDGMENT

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Hon Cheung CJHC:

1. This is the defendant’s appeal from the judgment dated 26 June 2012 of Deputy High Court Judge Houghton SC (now a Recorder) and his sealed judgment dated 24 August 2012 following the trial of the action.

The facts

2. Very briefly, the 1^st plaintiff, a married businessman of substantial wealth, began a relationship with the defendant in 2002.  That relationship lasted until early 2009 after the defendant started a new relationship with another person.  A daughter was born to the 1^st plaintiff and defendant in 2004.  During that relationship of over six years, the defendant did not work and was maintained entirely by the 1^st plaintiff.  The 1^st plaintiff gave her a monthly personal allowance and made to her a number of gifts of substantial value, including cash and jewellery.  Moreover, in 2003 and 2004, a total of four properties were purchased, that is, a flat in a development known as Metro Harbour View (“Metro Harbour View”), a house at Marina Cove, Sai Kung (“Marina Cove”), a flat at a development known as the Royal Peninsula (“Royal Peninsula”), and an office unit in Cheuk Nang Centre (“Cheuk Nang”).  Whilst Marina Cove was purchased in the joint names of the two, the other three were all purchased in the sole name of the defendant.  The properties were purchased with funds provided by the 1^st plaintiff or the 2^nd plaintiff, a company owned and controlled by the 1^st plaintiff for speculation purposes, and (in some cases) mortgage loans were obtained.

3. The purchase of Metro Harbour View as an uncompleted flat in January 2003, at the price of $1.71 million, was funded by a mortgage taken out in the name of the defendant for $1 million, with the remaining purchase price provided by the 1^st plaintiff.  Completion of the purchase took place in May the same year, and in the same month, the defendant moved into the property.

4. After the 1^st plaintiff broke up with the defendant, he commenced action against her for the recovery of the four properties, which he claimed were held by the defendant for him on resulting trust, he or his company having provided the purchase monies.  The defendant defended the claims on the basis that the properties were all gifts made by him to her in view of their relationship at the material times.

The reasoned judgment

5. After trial, in which both the 1^st plaintiff and the defendant as well as the brother of the defendant (Tim) gave oral evidence, the learned deputy judge found in favour of the 1^st plaintiff in relation to Metro Harbour View and Royal Peninsula, but found that Marina Cove and Cheuk Nang were gifts made by the 1^st plaintiff to the defendant.  In his reasoned judgment dated 26 June 2012, the deputy judge indicated his (provisional) views on the relief that he should grant in favour of the 1^st plaintiff.  It should be noted that by then, Metro Harbour View had long been sold by the defendant – the 1^st plaintiff had said in evidence that he had been unaware of the sale, which had taken place in December 2005 for $2.1 million, until much later.  The deputy judge indicated in paragraph 71 of his judgment that the 1^st plaintiff was entitled to an account and inquiry as to the net proceeds of sale of Metro Harbour View, and for an order for payment upon such account and inquiry.  In relation to Royal Peninsula, the deputy judge indicated in paragraph 72 that the 1^st plaintiff would be entitled to a declaration of his beneficial interest in that property and an order directing the assignment of the legal title of the property to the 1^st plaintiff.  The deputy judge added that any such order “must however recognise the defendant’s entitlement to a share in any profits arising on sale of this property” since he had found that the 1^st plaintiff had agreed with the defendant to a sharing of profit upon a quick resale of the property.

The sealed judgment

6. However, the parties could not agree on the exact terms of the order to be made, and that led to a further hearing before the deputy judge, which resulted in a sealed judgment dated 24 August 2012.  By that sealed judgment, the deputy judge ordered, in relation to Metro Harbour View, an inquiry as to the amount of restitutionary compensation the defendant ought to pay to the 1^st plaintiff for her breach of trust by wrongfully selling the property, and that the defendant pay to the 1^st plaintiff the sum found due in the inquiry with interest.  In relation to Royal Peninsula, the sealed judgment simply made a declaration of the 1^st plaintiff’s beneficial interest in the property and ordered the defendant to assign her legal title to the property to the 1^st plaintiff, without mentioning the sharing of any profits arising on resale of the property.

This appeal

7. In this appeal, the defendant challenges the deputy judge’s finding of a resulting trust in relation to Metro Harbour View. Mr Albert Yau (together with Ms Melo Man), appearing for the defendant before us (but not below), took three points.  First, he argued that the deputy judge treated as equivocal some words used by the 1^st plaintiff which are, counsel submitted, commonly accepted in the local community as indicative of an intention to make a gift.  Secondly, he criticised the deputy judge for taking into account matters which were not borne out by the evidence.  Thirdly, he said the deputy judge was wrong to exclude some post‑acquisition statements made by the 1^st plaintiff to Tim and the defendant’s other family members against his interest.

8. Alternatively, Mr Yau argued that credit should be given for the mortgage payments that the defendant had made in relation to the property.  Those payments should be regarded as her contributions to the purchase price of the property, and they therefore gave her a beneficial share in the property and the proceeds of sale.

9. In relation to relief, Mr Yau said that the deputy judge was wrong to order an inquiry of restitutionary compensation in his sealed judgment, instead of an account and inquiry of the net proceeds of sale received by the defendant as originally indicated in his reasoned judgment.

10. As regards Royal Peninsula, Mr Yau complained that the deputy judge was wrong to omit, contrary to what he had indicated in his reasoned judgment, a direction for the sharing of any profits arising on resale of the property in recognition of the defendant’s entitlement to a share thereof, when he made a declaration of beneficial interest and ordered the assignment of the legal title in favour of the 1^st plaintiff in the sealed judgment.  In her supplementary notice of appeal, the defendant asked for an order of sale of the property and for directions for the sharing of the net profit on resale.

Metro Harbour View – the deputy judge’s reasoning

11. Turning first to the finding of a resulting trust in relation to Metro Harbour View, the deputy judge observed at the outset that the relationship between the 1^st plaintiff and the defendant was primarily a personal and clandestine one, such that the degree of commercial commonsense that might be expected in a purely commercial relationship was not necessarily to be expected in the case.  He also noted that the relationship between the two was one that could come to an end at a moment’s notice.  This uncertainty, according to the deputy judge, had an influence on the behaviour of both parties but that of the 1^st plaintiff in particular.  By that he meant that the 1^st plaintiff had used the properties in question to continue, and perhaps deepen, his relationship with the defendant by, in some cases in particular, seeking to achieve what might be described as a halfway house between giving and not giving.  The deputy judge therefore took the view that observations by the 1^st plaintiff to others about his generosity to the defendant in regard to the properties were made by the 1^st plaintiff in some cases with the primary intention of holding out the prospect of a gift rather than making a gift.

12. The deputy judge found as a fact that the 1^st plaintiff had said on different occasions, in referring to the purchase of Metro Harbour View in the name of the defendant, that it was purchased to give the defendant a property “to hold onto” and to collect rental income (“等你有D嘢揸喺手同埋有樓收租”). The deputy judge understood the words “to hold onto” to be equivocal in meaning.  It could mean that the defendant was to hold the property beneficially.  It could also mean that she was to hold the property for the 1^st plaintiff. It was therefore equivocal and not clear enough to evidence the intention of making a gift of the property to the defendant – it being undisputed that so far as law is concerned, there was no presumption of advancement in favour of the defendant (who was not married to the 1^st plaintiff); rather, there was a rebuttable presumption of resulting trust in favour of the 1^st plaintiff who had advanced the purchase money (leaving aside the mortgage for the time being).

13. The deputy judge found that the 1^st plaintiff had subsequently referred to this and other properties as being the defendant’s when it suited him to boast of his generosity.  However, he took the view that such comments after the purchase of the property did not convert something that was not a gift into a gift unless that was the clear intention of what was said or done subsequently, and it was not the defendant’s case that there was any such unequivocal subsequent conferral of a gift.

14. The deputy judge also gave significant weight to the fact that the defendant took up residence of Metro Harbour View immediately after completion of the purchase, and there was no evidence of any effort to lease out the flat for rent.

15. On the primary facts as found by him, the deputy judge concluded that the property was purchased and put in the name of the defendant simply for the purpose of housing the defendant (who had told the 1^st plaintiff that she was pregnant at the time) and nothing more.  No gift was intended.

16. As regards the mortgage, the deputy judge found that the 1^st plaintiff was understood to be underwriting the defendant’s liability under the mortgage, and did so, at least for as long as she was resident.  He found that it was the common intention of the 1^st plaintiff and the defendant that the defendant would in fact bear no responsibility for the mortgage payments, which were all made by the defendant from monies given to her by the 1^st plaintiff.

17. The deputy judge therefore concluded that the property was held by the defendant on resulting trust for the 1^st plaintiff.

Counsel’s arguments

18. Mr Yau appreciated that the deputy judge had made findings of primary fact.  He acknowledged the deputy judge’s advantage in seeing and hearing the witnesses first hand.  Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336.  However, the focus of his argument was on the meaning of the words “揸手” (to hold onto) found by the deputy judge to have been used by the 1^st plaintiff as evidence of his intention relating to the property.  The nub of Mr Yau’s argument was that the deputy judge had not fully grasped the meaning of the Chinese words used.  Mr Yau argued that whilst the translation “to hold onto” might be equivocal in meaning, the original Chinese words, when used by the 1^st plaintiff in the context of the relationship between the two, were not.  “揸手” signifies, according to Mr Yau, the making of a gift of the subject property to the person in whose name it is bought, for the purposes of providing financial comfort or security to the latter.  This is particularly so when those words are used by a Chinese man to his partner or family member in a loving or close family relationship.

19. Mr Yau also emphasised the context here, that is, this was the first property the 1^st plaintiff bought for the defendant after their relationship had become close and intimate.  Further, he told others it was hers.  What else, Mr Yau asked rhetorically, could he have meant when he said those words?

20. Mr KC Chan, for the 1^st plaintiff, submitted otherwise.  He maintained the original Chinese words used were equivocal in meaning.  He emphasised that the deputy judge’s finding of fact was not “plainly wrong” and is therefore not challengeable on appeal.

My views

21. I am with Mr Yau. We are not concerned with a finding of primary fact here.  We are concerned with the meaning of words in Chinese found to have been used by the 1^st plaintiff, as evidence of his intention.  We are concerned with reasonable inferences that can be drawn from the 1^st plaintiff’s words or conduct: Gissing v Gissing [1971] AC 886, 906 B‑D (quoted by the deputy judge in paragraph 16 of his judgment).

22. There is no dispute that “to hold onto” is as good a translation of the original Chinese words as any.  However, I accept Mr Yau’s contention that to provide something for someone to “揸手”, when used in Hong Kong, is generally understood to mean the provision of something by one person in favour of another, so as to give the recipient some sort of security, comfort and/or control, particularly if something unexpected, untoward or the like should happen.  It is usually used in the type of situation where the relationship between the provider and recipient is less than absolutely secure or certain, and the provision of the subject matter in question is intended to address the anxiety or concern that very often arose out of such insecurity or uncertainty.  Thus, in the context of a man and his mistress, the provision of a property by the man to the mistress for the purposes of “揸手”, would convey in the ordinary usage of the language in the local community, the idea of the man providing some form of security to the woman (whose position or relationship is less than perfectly secure, as compared, for instance, with the wife of that man), so as to redress the underlying anxiety or unease.  And, should anything happen in future, including the breaking up of the relationship between the two, the woman would have something to “hold onto” (“揸手”).

23. Another possible example of how the term may be used is the provision of some property as security for a loan borrowed from another, particularly when the lender is not an institutional lender and the lending is done informally.  The property so provided to the lender to “揸手”, would serve as a security for the repayment of the loan.  In case the borrower fails to repay the money as agreed, the lender will have something to hold onto (“揸手”).

24. “揸手”, when used in the context under discussion, is, therefore, quite inconsistent with the idea of the recipient being a bare trustee, someone who is to deal with the subject property in full accordance with the directions of the beneficiary.

25. For these reasons, I think the words used on more than one occasion by the 1^st plaintiff to describe the purchase of Metro Harbour View for the defendant to “揸手” were not equivocal, when used in the known context of the case.  Rather, they were quite unequivocal in meaning, and provided good evidence of the true intention of the 1^st plaintiff.  I believe this was a reasonable inference that could, and indeed should, have been drawn by the deputy judge against the 1^st plaintiff.

26. Moreover, I am with Mr Yau on his criticism of the deputy judge’s treatment of the post‑acquisition statements made by the 1^st plaintiff against his interest.  The deputy judge considered those statements only in the context of whether they were sufficient to convert “something that was not a gift into a gift” (paragraph 52 of his judgment) – he concluded that they were not.  However, that begs the prior question of whether the original purchase of the property was meant to be a gift in the first place.

27. In my view, whilst the weight to be attached to those post‑acquisition statements adverse to the 1^st plaintiff’s interest was a matter for the trial judge, the fact that the deputy judge failed to consider at all those statements as possible evidence of the 1^st plaintiff’s intention at the time of purchase must inevitably call into question the correctness of his ultimate conclusion that this was not a gift.  In this regard, I reject Mr Chan’s argument to the contrary that the deputy judge had actually taken those statements into account in the context I have just described.

28. In my view, the inference drawn by the deputy judge from the primary facts that no gift was intended at the time of purchase cannot stand.  This court is quite entitled to interfere with that inference and substitute therefor an inference of its own.  In my view, on the totality of the evidence before the court and the findings of primary fact made by the deputy judge, the proper inference to be drawn from the words and conduct of the 1^st plaintiff is that the property was purchased by him as a gift to her.  I find this inference sitting very comfortably with the known circumstances.  As mentioned, it was the first property bought by the 1^st plaintiff in her name.  As the deputy judge found, he was then infatuated with her.  It was bought at a time not long after their relationship had become close and intimate.  It was bought at a time when he was told by the defendant that she was pregnant with his baby. The price of the property was not, relatively speaking, particularly high.  It was a small property.  Besides, there were other gifts of substantial value made to her.  In a relationship of this type, it was not unusual at all for the woman to ask for, and the man to be agreeable to provide, something substantial for her to “揸手”.  As the deputy judge very rightly observed, the relationship between the two was a rather insecure one such that it could be terminated “at a moment’s notice”.  It was indeed most natural for the woman to want something from the man to “揸手” in order to provide her with some comfort and security under that inherently insecure and uncertain relationship.

29. In my view, all in all, that the property was intended to be a gift and understood to be so is the more natural and proper inference to be drawn, once the meaning of the actual Chinese words used is fully appreciated.  “To hold onto” is as good a translation as any for the Chinese words used.  But in this court, we have the advantage of working on the original Chinese words.

Conclusion on Metro Harbour View

30. Given this conclusion of mine, it is quite unnecessary to deal with Mr Yau’s arguments on the mortgage payments.  Whether the mortgage payments, made by the defendant from monies given to her by the 1^st plaintiff, should be regarded as gifts made by the 1^st plaintiff, or as payments made by the defendant personally from monies gifted to her for her general use, does not really matter.

31. Nor is it necessary to deal with the question of relief, that is, whether it was right for the deputy judge to order an inquiry of equitable compensation, rather than an account of the net proceeds of sale of the property, against the defendant.

32. Given my conclusion, judgment should be given for the defendant against the 1^st plaintiff in relation to the property and the net proceeds of sale.  In other words, the 1^st plaintiff’s claim regarding Metro Harbour View should be dismissed.

Royal Peninsula – the deputy judge’s views

33. That leaves Royal Peninsula.  The deputy judge found that the property was purchased for speculation purposes.  Again, a mortgage was taken out by the defendant for $1 million, and the 1^st plaintiff (through the 2^nd plaintiff) was responsible for the rest of the purchase price.  The intention of the parties at the time of purchase was that this would be a short term proposition funded by the 1^st plaintiff. There was no actual intention that the defendant would acquire an interest in the property wider than an entitlement to a share in the profit upon a quick resale by undertaking the responsibility of taking out a mortgage in her name. (The mortgage was subsequently discharged and replaced by another mortgage taken out by the defendant for her own use and purpose).

34. On that basis, the deputy judge found that the property was held on resulting trust for the 1^st plaintiff. He made a declaration to that effect and ordered the assignment of the legal title to the property to the 1^st plaintiff.  The deputy judge said in paragraph 70 of his reasoned judgment, after finding that the property was purchased with a view to resale for profit to be shared by the parties (and Tim), that the question before him turned on whether the gift of the share of profit to be made on resale was to be considered as an incomplete gift.  He observed that the point was barely argued at the hearing.  He said he accepted the principle that courts will not step in and perfect an imperfect gift.  However, he took the view that the 1^st plaintiff had done all that was necessary on his part to complete the gift by placing the property in the name of the defendant.  Accordingly, the defendant was entitled to a share of the profit, if any, on resale of the property, and this had to be recognised in the declaration and order for conveyance which he indicated he was minded to make.

35. However, after further hearing on the proper form of relief, the deputy judge changed his mind and the suggested recognition was omitted from the sealed judgment.  Although no reasons were given for that change, they are quite apparent from the transcript of the further hearing and Mr Chan’s arguments on that occasion (which were substantially repeated before us).

Mr Chan’s arguments

36. Essentially, Mr Chan argued that the deputy judge was wrong to indicate in his reasoned judgment that the defendant would be entitled to a share in the potential profit upon resale.  He argued that the issue of a gift of the potential profit was never a live one such that the parties never properly prepared for it or dealt adequately with it at trial.  He further submitted that in any event, the promise of a share of the profit to be made on resale was an incomplete gift that could be withdrawn at any time by the 1^st plaintiff.  He submitted that by the issue of writ at the latest, the 1^st plaintiff had already revoked that incomplete gift.

37. Mr Chan, who, unlike Mr Yau and his junior, appeared for the plaintiffs at the trial below, conceded, however, that there was actually no evidence before the deputy judge to support his finding that the profit to be made upon resale (if any) was to be shared amongst the 1^st plaintiff, the defendant and Tim.  Rather, the evidence was that it was to be given to the defendant alone as a gift.  This concession is clearly borne out by the witness statements of the 1^st plaintiff which he adopted as part of his evidence in chief.  The deputy judge, according to Mr Chan, has probably confused a previous transaction with the transaction relating to Royal Peninsula.  But Mr Chan submitted that this did not affect the correct position which the deputy judge reached in his sealed judgment.

My views

38. I do not accept the pleading point taken by Mr Chan.  It is the 1^st plaintiff’s own case that by reason of his payment of the purchase price, the property is held by the defendant on a resulting trust for him.  However, it is also an inherent part of his own case that the property was purchased with a view to making a profit upon a quick resale, which profit would be given to the defendant as a gift.  When it comes to relief, particularly when the 1^st plaintiff is seeking relief in equity, it is quite impossible to ignore this inherent part of the 1^st plaintiff’s own case, that is, that the profit (if any) to be made upon resale will belong to the defendant.  After all, he who seeks equity must do equity.  See generally Spry, The Principles of Equitable Remedies (8^th ed) 248, 412‑413.

39. In those circumstances, I take the view that it is the 1^st plaintiff’s own pleaded case that raises the question of the defendant’s entitlement to the profit upon resale.  That, therefore, is a live issue that the court, when considering equitable relief, cannot ignore but must deal with.

40. As regards the incomplete gift point, according to the deputy judge, the 1^st plaintiff accepted he had told the defendant that she could herself engage in property investment for profit.  When she told the 1^st plaintiff that she did not have the money to do so, he simply asked her to look for a suitable flat and that he would “help her out” or perhaps “help her to fix it” (paragraphs 32 and 33 of the judgment).  That arrangement, according to the deputy judge, was not to give the defendant any beneficial interest in the property.  Rather, it was entered into so that the 1^st plaintiff could “help out the defendant to take part in property speculation” (paragraph 58).  The deputy judge specifically found that at the time of purchase, the intention of the parties was that this would be a short term proposition which was to be funded by the 1^st plaintiff.  There was no actual intention that the defendant would acquire an interest in the property wider than an entitlement to the profit (paragraph 59).  In the deputy judge’s view, the 1^st plaintiff had done all that was necessary on his part to complete his gift of the profit upon resale (if any) to the defendant by placing the property in the name of the defendant (paragraph 70).

41. On these facts as found by the deputy judge, it is quite plain that the purchase of the property in the name of the defendant was part and parcel of a property speculation exercise of the defendant.  It was her speculation exercise; it was for her to sell, and decide when to sell, the property for profit.  Significantly, the property was purchased in her name, rather than the name of the 1^st or 2^nd plaintiff.

42. In my view, the position is therefore this. Based on the deputy judge’s findings, the defendant, as trustee of the property pending its resale for profit, was given a power of sale of the property in order for her to earn the profit.  That power of sale was part and parcel of the understanding reached by the parties of which the holding of the property on trust pending its resale and the giving of the profit to be earned upon resale also formed part.  In itself, the profit to be made upon resale is a mere expectancy which cannot be made the subject matter of a gift: Halsbury’s Laws of England (5^th ed), vol 52, para 225; Re Ellenborough, Towry Law v Burne [1903] 1 Ch 697.  However, the distinguishing feature here is that the defendant as trustee has been given a power of sale in order to enable her to earn the profit upon resale.  In other words (and to be more precise), the power of sale is coupled with a further power to keep part of the proceeds of sale, representing the net profit upon resale, for the defendant’s own use and benefit.

43. A power of disposition or sale is of course something recognised by law and can be made the subject matter of an agreement or a gift. See generally Snell’s Equity (32^nd ed), chap 10.  On the facts of the present case, the power was given by the 1^st plaintiff to the defendant, in whose name the property was purchased, for her to sell the property to earn the profit that she was promised.  In so far as this power of sale constituted a gift in itself, it was completed when the property was purchased in the name of the defendant.  Thus analysed, the case does not turn on whether there could be a gift of the future profit upon resale (if any), whether that gift was a complete one or not, or whether it had been revoked or withdrawn.  This case is concerned with a power given to the defendant as donee to sell and to keep part of the proceeds.

44. For all these reasons, whilst I have no difficulty with the declaration in favour of the 1^st plaintiff of a trust regarding the property, that only represents half of the story. There is still this power to sell and to keep part of the proceeds of sale representing the net profit that may be earned upon resale to give recognition to.  In other words, the declaration of trust must be subject to this power of sale.  And it also impacts on the further relief granted by the deputy judge, that is, the order for the conveyance of the legal title of the property to the 1^st plaintiff.  I note that the defendant has in her supplemental notice of appeal asked for an order for sale of the property.  In my view, the just and fair order to make, in order to give effect to the true intention of the parties and to recognise the power of sale described above, is to direct the defendant to so sell the property, to repay the purchase price contributed by the 1^st plaintiff, and to keep the net profit of sale (if any) after accounting for the rentals received.  I have heard no suggestion that under the current market conditions, there is any chance of the defendant not making some gain upon resale.

Conclusion on Royal Peninsula

45. For these reasons, I would also allow the defendant’s appeal in relation to Royal Peninsula; qualify the declaration made in paragraph 3 of the sealed judgment by subjecting it to the power to sell and to keep part of the proceeds of sale representing the net profit of resale (if any); set aside paragraph 4 of the sealed judgment and in substitution therefor, make the following orders and directions :

(1) there be a sale of Royal Peninsula by private treaty at a price to be agreed, failing which by public auction, within 60 days of the order to be made;

(2) for the purpose of the sale, the defendant shall procure at her own expense the discharge of any charge or mortgage to which the property is subject;

(3) the net proceeds of sale, after deducting the expenses of or incidental to the sale, be distributed in the manner provided below :

(a) the 1^st  and 2^nd plaintiffs shall first be repaid (i) the original purchase price of the property, that is, $2.68 million and any expenses of or incidental to the purchase and the original mortgage of the property; and (ii) the rental income received by the defendant up to the date of sale (less any reasonable outgoings such as government rent, rates, management fees and property tax that have been paid by the defendant), to be decided by a Master if not agreed; and

(b) the balance be paid to the defendant;

(4) there be liberty to apply for further or other directions.

Costs

46. As regards costs, I would set aside the costs order made by the deputy judge in relation to the costs of the action, and in substitution therefor, make an order nisi that the 1^st plaintiff shall pay to the defendant 70% of her costs of the action.  As regards the costs of this appeal, I would make a costs order nisi that they be paid by the 1^st plaintiff to the defendant.  Any application to vary the costs orders nisi shall be dealt with by written submissions only.

Hon Yuen JA:

47. I agree with the judgment of the Chief Judge.

Hon Kwan JA:

48. I have had the benefit of reading in draft the judgment of the Chief Judge.  I agree with it and the orders he proposes to make.

Hon Cheung CJHC:

49. Accordingly, the appeal is disposed of as indicated in paragraphs 32, 45 and 46.

(Andrew Cheung)	(Maria Yuen)	(Susan Kwan)
Chief Judge of the	Justice of Appeal	Justice of Appeal
High Court

Mr K C Chan, instructed by W K To & Co, for the plaintiffs

Mr Albert Yau and Ms Melo Man, instructed by Lau, Chan & Co, for the defendant

CACV 163/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 163 OF 2012

(ON APPEAL FROM HCA NO. 920 OF 2009)

________________________

BETWEEN

	TANG KIM KWAN PATRICK also known as PATRICK TANG	1st Plaintiff (1st Respondent)
	PRIWAY INVESTMENTS LIMITED	2nd Plaintiff (2nd Respondent)
	And
	LEE CHI TING KAREN also known as KAREN LEE	Defendant (Appellant)

________________________

Before : Hon Lam JA in Chambers

Date of Hearing : 20 November 2012

Date of Decision : 20 November 2012

Date of Reasons for Decision : 26 November 2012

_________________________

REASONS FOR DECISION

_________________________

 

1.  This is an application for stay of execution in respect of a judgment of Deputy High Court Judge Houghton SC entered on 24 August 2012. That sealed judgment was entered pursuant to an earlier judgment handed down on 26 June 2012 in HCA 920 of 2009.

2.  As I understand from counsel, the application concerns the following paragraphs in the sealed judgment.

“Metro Harbour View Property

1. There be an Enquiry as to the amount of restitutionary compensation the Defendant ought to pay to the 1^st Plaintiff for the Defendant’s breach of trust by wrongfully selling the Plaintiff’s property known as Flat D, 21^st Floor, Block 1, Metro Harbour View, No.8 Fuk Lee Street, Kowloon on or about 14^th November 2005;

2. The Defendant do pay the 1^st Plaintiff the sum found due in the said Enquiry with interest;

Royal Peninsula Property

3. A declaration that the Defendant holds her legal title in the Property known as Flat M, 35^th floor, Block 2, Royal Peninsula, No. 8 Hung Lai Road, Kowloon (“Royal Peninsula Property”) on trust for the 1^st Plaintiff;

4. The Defendant do assign or vest her legal title in the Royal Peninsula Property to the 1^st Plaintiff; and the Defendant do within the next 30 days execute all necessary instruments to be prepared by the 1^st Plaintiff for that purpose;”

3.  The other paragraphs in the sealed judgment provide for the dismissal of the Plaintiffs’ other claims, to which there is no cross-appeal.  There is also a paragraph with regard to costs.  Having regard to the submissions of counsel and the materials before the court, there is no basis for granting any stay with regard to that part of the sealed judgment.  Mr Yau did not seriously argue otherwise.  I shall therefore concentrate on the part of the judgment set out at para 2 above.

4.  Counsel accepted that the principles governing the exercise of discretion in respect of stay of execution  are set out in the judgment of Ma J (as he then was) in Star Play Development Ld v Bess Fashion Management Co Ltd [2007] 5 HKC 84, in particular paras 6 to 10.  There is no need for me to recite them in this judgment.

5.  In respect of the Metro Harbour View Property, it had been sold by the Defendant before the litigation.  Paragraphs 1 and 2 of the sealed judgment directed an inquiry to be held with regard to restitutionary compensation that the Defendant ought to pay the 1^st Plaintiff. Though there is also a judgment to the effect that the Defendant shall pay the 1^st Plaintiff the sum found due, that payment obligation cannot be immediately enforceable until the inquiry has been held.  There has not been any directions given by the court for the holding of the inquiry and it might take some time before the inquiry can be actually heard.  Subject to the state of the court diaries, I see no reason why the appeal may not be heard before the conclusion of the inquiry.

6.  In those circumstances, even assuming there is an arguable appeal in respect of the judge’s finding on the beneficial ownership of this property (and having considered the matter in light of the submissions before me, I am prepared to take a provisional view that the appeal is arguable even though it may involve a challenge to finding of facts of the judge), I do not think the Defendant has shown that the appeal would be nugatory if there is no stay of execution in respect of paras 1 and 2 of the sealed judgment. This is particularly so when counsel for both parties agreed at the hearing before me that the Defendant is at liberty to raise whatever arguments she deems fit in respect of the proper basis for calculating the equitable compensation at the inquiry.  There is nothing in para 1 of the sealed judgment to prevent the Defendant from arguing at the inquiry that in the circumstances of the present case the proper reference date for calculating the compensation should be the date of actual sale, or the date of the writ, as opposed to the date of judgment.

7.  As regards the discrepancy between para 71 in the June judgment and the final order made in paras 1 and 2 of the sealed judgment of August, the court has jurisdiction to re-open the issue of remedies as long as the final order has not been perfected: see Charlesworth v Relay Roads [2000] 1 WLR 230; Stewart v Engel [2000] 1 WLR 2268; Hertfordshire Investments Ltd v Bulb [2000] 1 WLR 2318. Here, the judge had heard submissions from the parties as a result of the disagreement on the draft judgment.  After hearing submissions, the judge ruled in favour of the Plaintiffs on paras 1 and 2 of the draft.

8.  Mr Yau had not placed the transcript of the hearing of 24 August before me and, not being the counsel who conducted that hearing and with the change of solicitors on the part of the Defendant, counsel could not offer much assistance in terms of the reasons of the judge in coming to that conclusion. Despite the court raising concern as to lack of information in that respect, Mr Yau decided to continue with the application for stay instead of seeking an adjournment in order to facilitate the transcript to be obtained.

9.  In a sense paragraph 71 in the June judgment is ambivalent because it provided for both account and inquiry.  The two should be alternative remedies.  A taking of account should proceed on the basis of affirming the sale and the Defendant should account back to the 1^st Plaintiff the sale proceeds and the profit she derived from such sale proceeds, if any. On the other hand, an inquiry should be conducted on the basis that the sale was wrongful and the Defendant should compensate the 1^st Plaintiff as to the loss he suffered as a result of that sale.  The 1^st Plaintiff had the option of electing between these remedies.  It may be that the parties have not drawn this to the attention of the court at the trial and para 71 may have unduly limited the 1^st Plaintiff to an account of the sale proceeds. However, as explained, the matter was re-opened and after the hearing on 24 August 2012, the judge ruled in favour of the 1^st Plaintiff. Though there is a discrepancy, I do not see that as a strong ground of appeal.  It does not, by itself, give rise to a good reason for stay of paras 1 and 2 of the August sealed judgment.   

10.  I am also not persuaded that there are other good reasons to order a stay of those parts of the sealed judgment. Some costs may have to be incurred in the inquiry before the hearing of the appeal.  However, there is no suggestion that the 1^st Plaintiff is not in a position to pay for such costs if the appeal is successful.

11.  Turning to the appeal in respect of the Royal Peninsula Property, as shown in the grounds set out in the Supplementary Notice of Appeal lodged on 14 November 2012 the appeal focuses on the discrepancy between the judge’s judgment in June and the sealed judgment. In his June judgment, the judge said at para 72,

“72. The 1^st Plaintiff is also entitled to a declaration that the Defendant holds her legal title in Royal Peninsula Property on trust for the 1^st Plaintiff, from which it follows that there is also an entitlement to an order directing the Defendant to assign or vest her legal title in Royal Peninsula Property to or in the 1^st Plaintiff, and, so far as necessary, to an order directing the Defendant to execute all necessary instruments for that purpose. Any such order must however recognise the Defendant’s entitlement to a share in any profits arising on sale this property.”

12.  In contrast, there is no provision in the sealed judgment for the Defendant’s entitlement to a share in the profit upon a sale of the property. This comes about at the instigation of the Defendant in the following manner.

13.  In a draft of the formal judgment sent by the Plaintiffs’ solicitors to the Defendant’s former solicitor for comment under the cover of a letter dated 12 July 2012, there were the following additional paragraphs with regard to the Royal Peninsula Property,

“5. There be an Enquiry

(a) as to the amount of profit a notional sale of the Royal Peninsula Property would have earned had it been sold in the open market for a fair market value on 31^st March 2009; and

(b) as to the amount of all the net income earned by renting out the Royal Peninsula Property up to the date of the Enquiry;

6. An order that the 1^st Plaintiff do pay the Defendant an amount being half of the profit found in the Enquiry ordered in paragraph 5(a) above but deducting thereform all the net income found in the Enquiry ordered in paragraph 5(b) above;”

14.  The Defendant’s former solicitor did not reply to that letter until sometime after the lodging of original Notice of Appeal in this appeal. A holding reply was given on 26 July.  A substantive reply was given on 6 August 2012. For present purposes, it is pertinent to set out the substantive reply,

“We enclose herewith the draft judgement dated 26 June 2012 drafted by Messrs. W.K. To & Co. (“WKTO”) with our proposed amendment thereon in red (as advised by counsel) for your reference.

In this connection and upon scrutiny of the Judgment handed down by the learned Judge on 26^th June 2012, we having obtained counsel opinion would comment that there was not made in the said Judgment such orders as proposed in paragraphs 1,2,5,6 and 9 of the draft judgment as proposed by WKTO.  Parties should confine to only those stated in the said Judgment when drafting the judgment for sealing.”

15.  In the proposed amendment of the draft attached to that reply of 6 August, the paragraphs dealing with inquiry and the sharing of profit in respect of the Royal Peninsula Property (viz. paras 5 and 6 in the Plaintiffs’ draft) had been deleted.

16.  As mentioned, the judge held a hearing on 24 August 2012 to deal with the disagreement between the parties on the draft.

17.  The stance as to the deletion of paras 5 and 6 was repeated in the skeleton submissions of the Defendant of 22 August 2012 placed before the judge for the hearing on 24 August 2012. I quote from paras 19 to 22 of that skeleton submissions,

“19. Paras. 5 and 6 are wholly novel unilateral inventions by Ps.

20. Not only are the matters therein raised not part of the Judgement, they have not even ever been raised on the pleadings by any party.

21. In addition to being novel and unilateral:-

(i) Para.5(a) is also problematic as the suggested relief of ordering an enquiry “as to the amount of profit of a notional sale” may not even be available as a matter of law. Ps have not produced any authority to suggest that it is;

(ii) Para. 5(b) is in direct conflict with what is stated in Para. 69 of the Judgment;

(iii)Para. 6 is premised upon the order of enquiry set forth in Para. 5(a) and is bad for the same reason as Para. 5(a). Further, it is also bad as attributing to D “half of the profit”. That attribution is neither justified by the Judgment nor P1’s own pleadings:-

a. In the Judgment, the Judge stated the evidence seemed to him to be :

“clear that the property was “intended to be one which would be bought and sold at a profit, with the profit shared between the 1^st Plaintiff, the Defendant and Tim”

[Para. 58]

b.  In the Amended Reply at Para. 22(c) [TBA/43], P1 had pleaded:

“(c) In acquiring the Royal Peninsula Property in the name of the Defendant, the Plaintiff orally told the Defendant that he would give the profit earned from the resale of the Royal Peninsula Property to her as gift if the same could be successfully resold at a quick time”

22. What P1 is in effect seeking by Paras. 4, 5 and 6 of Ps’ Draft is to : re-plead and re-argue his case, and also assume the role of the Judge and re-write the Judgment in part and in another part to overrule the Judgement.”

18.  To be fair to the former counsel for the Defendant, in the attachment to her skeleton submissions, she sought the following paragraph in place of para 4 of the draft prepared by the Plaintiffs’ solicitors,

“The Defendant do assign or vest her legal title in the Royal Peninsula Property to or in the 1^st Plaintiff and execute all necessary instruments for that purpose, subject to a recognition of the Defendant’s entitlement to a share in any profits arising on the sale of the property.”

19.  Based on the existing materials before me, in the absence of the transcript of the hearing on 24 August 2012, it would appear that the disagreements between the parties on the terms of the formal order in this respect were,

(a)  Whether there should be a limit on the sharing of profit by the Defendant by reference to a notional sale on 31 March 2009;

(b)  Whether there should be any deduction of net income received by the Defendant in respect of this property from her share of profit.

20.  Whilst there was a reference to para 58 of the judgment at para 21(iii) of the skeleton submissions of Defendant’s former counsel placed before the judge for the hearing of 24 August, she did not seek any order for the sharing of profit with Tim in her draft attached to her skeleton.    

21.  Mr Chan indicated that the 1^st Plaintiff would file a respondent’s notice challenging the judge’s finding that the Defendant is entitled to a share of profit.  The 1^st Plaintiff would seek to argue, as he had before the judge at the trial, that the original intention as to the sharing of profit had been superseded by subsequent developments. 

22.  As I said, I do not know the basis on which the judge came to his decision on the final form of the sealed judgment as the transcript was not produced.

23.  It should be noted that in the original Notice of Appeal, the grounds for challenging the judgment in respect of the Royal Peninsula Property were quite different from those set out in the Supplementary Notice of Appeal. By reason of Order 59 Rule 7(1)(b), upon the service of the Supplementary Notice of Appeal, the original Notice of Appeal is amended and insofar as they are not repeated in the Supplementary Notice, the grounds in the original Notice are taken as abandoned.   

24.  The Defendant changed her legal team after the hearing of 24 August 2012.  But her new legal advisers should be aware of the history leading to the settlement of the sealed judgment in its final form as the Affirmation of 1^st Plaintiff of 9 November 2012 referred to it. 

25.  Notwithstanding that, the Supplementary Notice of Appeal was filed on 14 November 2012, substituting the grounds of appeal in respect of the Royal Peninsula Property.  The current grounds of appeal (as set out in the Supplementary Notice) regarding this property are as follows,

“9. The Deputy Judge erred in departing from the June Decision omitting to provide for the sharing of the profits between the parties on the sale of the Property.

10. Had there not been such a departure, the Deputy Judge should have held that the profit of sale should be shared among the 1^st Plaintiff, the Defendant and her younger brother equally, in common with what they had done in respect of the profits from a previous property transaction: paragraph 33 of the Decision.

11. alternatively to paragraph 10 above, but as a fall back, the profits should have been shared equally between the 1^st Plaintiff and the Defendant.”

26.  In her 2^nd Affirmation filed on 14 November 2012, the Defendant pinpointed the prejudice that may be caused to her if a stay is not granted on this part of the judgment as follows,

“9. The prejudice occasioned to me, if the stay is refused, is that I will have to chase Mr Tang for my share of profits to which I am entitled on the conclusion reached in the June Decision. (One can also see that, in the judgment which was drafted by Mr Tang’s lawyers for approval by the Court this July, they also inserted direction for sharing of profits: see TKKP-1) Although I trust that Mr Tang will have the financial means to pay me and my brother our shares, I am afraid to say that Mr Tang will not easily agree on the amount Tim and I can take without further litigation. Monies are no object to him. He will not be as keen as I am in finding out how much the share of profits should be, particularly if the property is conveyed to him.”

27.  If the basis of the sharing of profit were her real concern all along, instead of a wholesale objection to paras 5 and 6 of the draft prepared by solicitors for the Plaintiffs, she should have invited the judge to modify them.

28.  I do not know why the judge rejected the Defendant’s proposed revision to para 4 at the same time when he deleted paras 5 and 6 of the Plaintiffs’ draft.  For my part, I find the revised para 4 suggested by  former counsel for the Defendant to be unsatisfactory as it did not specify the extent of the Defendant’s entitlement in terms of her share of profit and what should be done to give effect to such interest.  It would only be an invitation to future litigation.

29.  Be that as it may, I am prepared to accept that the Defendant has an arguable appeal insofar as there is an omission in the August sealed judgment to deal with her entitlement to a share of the profit.  I do not express any view with regard to the younger brother entitlement.  He was not a party to the action and there had never been any relief claimed in respect of his share of profit. There was no averment in the pleadings as to his interest in a share of profit.

30.  But an arguable appeal is not enough to give rise to a good reason for granting a stay of paras 3 and 4. Even putting the Defendant’s appeal at its highest, as it is now accepted on behalf of the Defendant that her interest is confined to a share in the profit, there is no reason why the title of the property should not be assigned back to the 1^st Plaintiff. She can still argue about her entitlement to a share in the profit in the appeal and, if she were successful in the appeal, the 1^st Plaintiff would be obliged to pay such share of profit to her after the sale of the property. Given the wealth of the 1^st Plaintiff, there is nothing to suggest that he would not be able to pay. It is clear to me that the Defendant is not entitled to rely on her interest in a share of the profit to delay the transfer of the property back to the 1^st Plaintiff. Yet this seems to be what she is trying to achieve by seeking a stay of paras 3 and 4.    

31.  The implementation of paras 3 and 4 would not render the appeal nugatory. Neither do I see any other good reasons to justify a stay of those paragraphs.

32.  For these reasons, the application for stay was dismissed with costs at the hearing on 20 November 2012.

(M H Lam) Justice of Appeal

Mr K C Chan, instructed by W K To & Co, for the 1^st and 2^nd Plaintiffs (Respondents)

Mr Albert Yau, instructed by Lau, Chan & Ko, for the Defendant (Appellant)