SHERMAN NGAI WING LEE v. LEE HOI WING MICHAEL AND OTHERS

HCA 2905/2017

[2024] HKCFI 2552

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2905 OF 2017

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(By Original Action)

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(By Counterclaim)

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D E C I S I O N

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1.  Introduction[1]

1.1  This is Sherman’s application by his summons dated 15 March 2024 (“Summons”) for stay of execution of the judgment (“Judgment”) and order (“Order”) of DHCJ Roxanne Ismail SC (“Trial Judge”) dated 1 December 2023[2] pending his appeal to the Court of Appeal. On 1 December 2023, the Trial Judge handed down her Reasons for Judgment (“Reasons”).

1.2  In these proceedings, Sherman seeks a declaration that the Settlement Agreement (dated 28 December 2012) between him and Father, the late Mr Lee Koon Wan, is binding on the estate of the Father. Father passed away in May 2015.

1.3  Father has 6 sons, namely Sherman, Michael, Gordon, Stephen, Norman and David. Sherman is the Plaintiff (by original action). Michael and Gordon are the executors of Father’s estate and are, in that capacity, the 1^st Defendant (by original action). The other siblings are respectively the 2^nd to 4^th Defendants (by original action). Michael and Gordon are, in their personal capacities the Plaintiff (by counterclaim) and Sherman is the Defendant (by counterclaim). Michael, Gordon, Stephen, Norman and David are hereinafter collectively referred to as “Brothers”.

1.4  As summarized by the Trial Judge (Reasons §§4-17), the disputes between the parties relate to the true ownership of the 2 Properties, namely the Lai Shing Flat[3] and the Bridge of Don House[4]. In gist:

(1)  The 2 Properties were at all material times registered in the name of Sherman;

(2)  In 2009, Father commenced the 2009 Action against Sherman claiming beneficial ownership of the 2 Properties;

(3)  On 24 July 2012, DHCJ Seagroatt handed down the Seagroatt Judgment, by which he found in favour of Father. In particular, by the Seagroatt Judgment:

(a)  It was declared that Sherman held the 2 Properties on trust for Father during his lifetime and thereafter for Sherman and the Brothers in equal shares;

(b)  Sherman was required to transfer the 2 Properties to Father;

(c)  Sherman was required to account to Father for rents and profits thereon;

(d)  Sherman was required to pay Father’s costs.

(4)  On 12 August 2012, following a hearing to address the final relief to be ordered, DHCJ Seagroatt delivered the Addendum to the Seagroatt Judgment. Essentially the orders made in respect of the 2 Properties were for delivery of the title deeds (or any necessary written authority to effect the transfer of deeds) to the Registrar of the High Court until further order; Father was to receive rent directly from the tenant and be responsible for all expenses; Sherman was to provide an account of rent, profits and/or monies received by him for the 2 Properties; Sherman was to return to Father all rent, profits and/or monies received by him for the 2 Properties, subject to deductions of proven expenses; in respect of the 2 Properties, some other proper person, namely the Official Solicitor if willing, be appointed trustee jointly with Sherman, but no other member of the family was to be appointed trustee without the court’s approval;

(5)  Sherman lodged an appeal on 12 September 2012. Father issued a Respondent’s Notice on 3 October 2012;

(6)  On 28 December 2012, Sherman and Father signed the Settlement Agreement setting out terms of agreement as to the entitlements in respect of the 2 Properties and the costs of the 2009 Action;

(7)  On 31 January 2013, Sherman and Father executed the Deed of Settlement prepared by Sherman’s solicitors setting out different terms of agreement as to entitlements in respect of the 2 Properties and the costs of the 2009 Action.

1.5  At the trial of the current proceedings:

(1)  Sherman sought a declaration that the Settlement Agreement was enforceable, notwithstanding the Seagroatt Judgment, and not withstanding the subsequent Deed of Settlement;

(2)  The Brothers opposed the declaratory relief sought by Sherman on the following bases:

(a)  The Seagroatt Judgment was a judgment in rem binding on all the world as to the status of the 2 Properties;

(b)  Even if the Seagroatt Judgment was in personam, the Brothers were privy thereto and are bound by and entitled to rely on it;

(c)  The Brothers put Sherman to proof as to the Settlement Agreement;

(d)  The Settlement Agreement was unenforceable on the basis that Father could not have understood and agreed its terms, relying insofar as necessary on non est factum;

(e)  The Brothers put Sherman to proof as to the Deed of Settlement.

(3)  The Brothers counterclaimed against Sherman for an order compelling Sherman to assign and transfer a 1/6 interest in each of the 2 Properties to each of them and to account to them for rent and/or mesne profits in respect of the 2 Properties from the date of Father’s death.

1.6  On 1 December 2023, the Trial Judge found against the Plaintiff, in that:

(1)  She found that neither the Settlement Agreement nor the Deed of Settlement was valid or enforceable (Reasons §50);

(2)  She (a) made an order compelling Sherman to assign and transfer 1/6 interest and title in the 2 Properties in favour of each of the Brothers[5], (b) ordered an inquiry as to the rights and liabilities between Sherman as trustee and Brothers as beneficiaries in respect of the 2 Properties[6] and (c) gave the parties liberty to apply for consequential directions (Reasons §130).

1.7  Pursuant to Reasons §130 and the Order, on 30 January 2024, the Trial Judge gave consequential directions in the following terms (“Consequential Directions”):

(1)  Sherman to execute and deliver to Stephen within one month hereof a conveyance/transfer to the legal title of the Lai Shing Property with the title deeds, through his solicitors;

(2)  Sherman to execute and deliver to Stephen within one month hereof a conveyance/transfer to the legal title of the Bridge of Don Property together with the title deeds, and any written authority or instruction or other documents in order to effect the transfer of the said deeds, through his solicitors;

(3)  Sherman is to provide within 1 month an account of the rent, profits and/or monies received by him from the 2 Properties subject to deductions upon documentary proof in respect of all necessary payments made by him by way of management fees, utilities, and government rates and rents;

(4)  On that date Sherman is to pay (1) to Father’s estate the amounts relating to the period prior to 6 May 2015, plus interest at the judgment rate and (b) to the Brothers the amounts in respect of the period since 6 May 2015, plus interest at the judgment rate;

(5)  All parties are to agree the final account within 1 month thereafter.

1.8  In the present application, Sherman is represented by Mr KM Chong, Michael and Gordon by Ms Prisca Cheung[7] (with Ms Sakinah Sat), Stephen, Norman and David act in person. Pursuant to the joint application by the parties, directions were given for the Summons to be disposed on the papers.

2.  The Reasons

2.1  The Trial Judge identified the issues for her determination at Reasons §§18 to 19 as follows.

2.2  For Sherman to obtain a declaration that the Settlement Agreement is enforceable against the estate, he must establish that (1) the Seagroatt Judgment is not binding on the Defendants and (2) the Settlement Agreement is not superseded by the Deed of Settlement (termed as P’s necessary issues).

2.3  For the Brothers to succeed, they must establish that (1) the Seagroatt Judgment is binding on the Brothers and (2) Father and Sherman could not validly enter the Settlement Agreement or the Deed of Settlement (termed as D’s necessary issues).

2.4  In the Reasons:

(1)  The Trial Judge found that the Seagroatt Judgment with the Addendum is not a judgment in rem (Reasons §§22 to 33);

(2)  She, however, found that the Brothers are privy to the parties in the 2009 Action (Reasons §§34 to 43);

(3)  She noted that it was not disputed by Mr Chong on behalf of Sherman that, if Sherman and the Brothers are bound by the Seagroatt Judgment, whether as parties or privies, then it is not open to Father and Sherman to enter into an agreement to vary the effect of the Seagroatt Judgment (Reasons §47);

(4)  She found that, in any event, by virtue of the Seagroatt Judgment, Sherman and the Brothers had at all material times an indefeasible vested interest in the 2 Properties. It is therefore not possible for Father and Sherman alone to dispose of or destroy such interest without the consent of the Brothers (Reasons §§48 and 49);

(5)  Accordingly, she came to the view that neither the Settlement Agreement nor the Deed of Settlement is valid or enforceable (Reasons §50).

2.5  It is pertinent to note that the matters stated in the preceding paragraph formed the Trial Judge’s “principal decision” (“Principal Decision”) (Reasons §§51 to 52). In the remainder of the Reasons, the Trial Judge then considered, if contrary to her primary findings that the Seagoratt Judgment was not binding on Sherman and the Brothers, the second of P’s necessary issues, namely whether the Settlement Agreement was binding upon the Deceased, in particular whether the Deed of Settlement has superseded the Settlement Agreement (“Secondary Decision”).

2.6  In respect of the Secondary Decision, the issues advanced were: (1) by the Brothers, whether the Settlement Agreement or the Deed of Settlement was vitiated by non est factum and (2) by Sherman, whether Father intended to be bound by the Settlement Agreement or the Deed of Settlement (Reasons §54). As noted by Trial Judge, the issues were fact-sensitive (Reasons §55). At Reasons §§108 to 110 and 126, the Trial Judge decided against the Brother’s case on non est factum but found as a fact that in so far as it was open to Sherman and Father to make an agreement as to the beneficial ownership of the 2 Properties, the Deed of Settlement had superseded the Settlement Agreement.

3.  The Notice of Appeal

3.1  In the Notice of Appeal dated 20 December 2023, 9 grounds are advanced on the issue of liability[8]. The 9 grounds are grouped under two headings. Grounds 1 to 5 seek to challenge the Trial Judge’s finding that the Brothers are privy to the parties in the 2009 Action. Grounds 6 to 9 are directed against the Trial Judge’s findings that the Settlement Agreement is not binding upon Father.

4.  The rival contentions and the applicable principles

4.1  Mr Chong submits that Sherman has (1) strong appeal grounds and (2) even if the grounds of appeal are merely arguable, Sherman’s appeal will be rendered nugatory absent a stay because of the serious deleterious effect that enforcement of the Judgment would have on him. In relation to the latter, two matters are specifically relied on by Mr Chong:

(1)  It is said that costs will have to be incurred for the transfer to the 2 Properties. In particular, as regards the Bridge of Don House, the transfer of the title/interest entails the engagement of foreign lawyers and may take considerable time and may not be completed before the determination of the appeal;

(2)  The Brothers except for Stephen are residents abroad.

4.2  The Brothers oppose the present application on the following broad grounds:

(1)  There is no arguable appeal;

(2)  The transfer of title and interest in the 2 Properties would not render a successful appeal nugatory;

(3)  The accounting and payment of money by Sherman to Father’s estate and Brothers can be carried out regardless, as the money can be repaid to Sherman if he succeeds in the appeal;

(4)  Michael and Gordon have offered an undertaking that they would not dispose of the interest and title in the 2 Properties and there is no basis for Sherman to allege the Brothers would dissipate the interest and title in the 2 Properties;

(5)  The disputes concerning the 2 Properties have lasted for years, and the Brothers have not been able to participate or received any rental income;

(6)  The Brothers have no knowledge as to Sherman’s management of the 2 Properties, or the whereabouts or use of the rental income of the 2 Properties collected by Sherman in the last 14 years;

(7)  The Brothers invite the court to consider Sherman’s application for stay not only in terms of the present proceedings but also on his conduct after the Seagroatt Judgment.

4.3  The applicable principles are not in dispute: Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 §§6 to 10. In summary:

(1)  Whether or not to grant a stay is within the discretion of the court. Unless the applicant can justify a stay of execution, one will not be ordered. The practice of the court is that justification can be demonstrated only if good reasons exist;

(2)  A good reason can exist in a variety of forms. It will be wrong to set out any exhaustive definition of what would constitute a good reason, but, commonly, reference is made to factors such as whether the absence (or existence) of a stay would render an appeal nugatory (thus bringing into focus the relative prejudice that may be caused to the appellant and to the respondent by a stay of execution) and the merits of the appeal;

(3)  In determining the question whether or not an appeal would be rendered nugatory, the court must first have regard to the nature of the order that is the subject matter of the appeal. If the order appealed against is a money judgment, the court will require evidence as to why the levying of execution will result in the appeal being rendered nugatory, such as, for example, an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal. Sometimes, the nature of the order will by itself almost be determinative of the question. Where the relevant order is, for example, an injunction (and particularly so if it is a mandatory injunction), it may well be that, without a stay, an appeal would be rendered nugatory in the event of a successful appeal;

(4)  That said, whatever the nature of the order or judgment appealed from, the court will still require evidence as to why an appeal will be rendered nugatory in the event of a stay not being granted. The requisite quality of the evidence will, of course, depend on the nature of the order or judgment appealed against;

(5)  Where it is said that the levying of execution would result in financial ruin or serious financial consequences for the appellant, the court will require good evidence to support this contention, such as the production of accounts or other documents to justify the assertion. A bare assertion is unlikely to meet with much sympathy where more substantial evidence is available;

(6)  An appeal being rendered nugatory does not mean in all cases that without a stay, the appellant faces financial ruin or the loss of all his property. Demonstrating that the failure to grant a stay would have a serious deleterious effect is enough;

(7)  While it is impractical and even undesirable for the court in dealing with an application for a stay of execution to go deeply into the merits and strengths of an appeal, it must however form a preliminary view of these aspects;

(8)  The existence of merely an arguable appeal cannot by itself amount to sufficient reason to justify a stay. The existence of an arguable appeal (that is, one with reasonable prospects of success) is the minimum requirement before a court would even consider granting a stay. In other words, however exceptional the circumstances may be otherwise justifying a stay of execution, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted;

(9)  Conversely, however, the existence of a strong appeal or a strong likelihood that the appeal would succeed, will usually by itself enable a stay to be granted because this would constitute a good reason for a stay;

(10)  Often, the court will be faced with simply the existence of an arguable appeal. Here, it becomes necessary for the appellant to provide additional reasons as to why a stay is justified. The demonstration of an appeal being rendered nugatory is one example, albeit a common one. Where it is demonstrated that an appeal would be rendered nugatory if a stay was not granted, the court may require no more than the existence of an arguable appeal. Correspondingly, where it cannot be shown that an appeal would be rendered nugatory if a stay were not granted, the court will require, in the absence of any other factors, the appellant to demonstrate strong grounds of appeal or a strong likelihood of success;

(11)  It is important to stress that the court must not at any stage forget the position of the successful party. It is always relevant to consider the prejudice that would be caused to the successful party (the respondent in the appeal) in the event a stay is granted and if necessary, to impose conditions so as to minimize the prejudice caused to him. A fortiori, the court must consider any contention that the appeal would be rendered nugatory to him (in the event the appeal is dismissed) should a stay of execution be imposed;

(12)  Ultimately, the court embarks on a balancing exercise and uses its common sense, but bearing in mind at all times the starting point that the successful party is not to be deprived of the fruits of his success.

5.  Analysis

5.1  I proceed to analyze the present application by reference to (1) merits of Sherman’s appeal and (2) whether the appeal would be rendered nugatory absent a stay.

(i)  Merits of Sherman’s appeal

5.2  In my view, the focus should be on Grounds 1 to 5, namely those directed at the learned Deputy Judge’s Principal Decision. Unless Sherman can demonstrate that Grounds 1 to 5 are viable, no assistance may be derived from the other grounds which are directed at the Secondary Decision.

5.3  As regards Grounds 1 to 5, in Mr Chong’s written materials, the only submission made is that an interest in the Seagroatt Judgment per se does not confer privity, relying on Zhang Rui Kang & Ors v Tunghsu Group Co Ltd[2023] HKCFI 1866 §§57 to 59.

5.4  As set out at Zhang Rui Kang §59(1):

“In determining whether there is a sufficient degree of identification between Party A (a party to previous proceedings) and [Party] B (a new party), it would be necessary to examine:

(a) the extent to which Party B had an interest in the subject matter of the previous action;

(b) the extent to which Party B can be said to be, in reality, the party to the original proceedings by reason of his relationship with that party; and

(c) against this background to ask whether it is just that the new party should be bound by the outcome of the previous litigation.”

5.5  As pointed out by Ms Cheung, Mr Chong has not made any attempt to engage with the Trial Judge’s detailed reasons. At Reasons §§37 to 42, she said as follows:

“[37] A person will be bound by a judgment in personam notwithstanding he was not a party to the action if he was in privity with the parties…

[38] In Gleeson v. J Wippell & Co Ltd [1977] 1 WLR 510 at p.515H, Megarry VC stated:

(1) “[H]aving due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two [persons said to be privies] to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party”.

(2) In relation to trust property, he thought there will normally be a sufficient privity between the trustees and their beneficiaries to make a decision that is binding on the trustees also binding on the beneficiaries, and vice versa.

[39] Stock JA reviewed the authorities on privies in China North, at paras.77-81. He noted that the question of privity of interest is difficult territory, and stated (at para. 81):-

“The required commonality is a direct interest in the subject matter of the litigation, a parallel or corresponding interest in that subject matter and not simply a financial interest in the result of the action: Genesee Enterprises Ltd v Abou-Rached [84 BCLR (3^rd) 277], so that:

‘Privies include any person who succeeds to the rights or liabilities of the party upon death or insolvency, or who is otherwise identified in estate or interest. It is essential the party to be estopped by privity must have some kind of interest, legal or beneficial, in the previous litigation or its subject matter. Privity was described by the US Supreme Court as a mutual or successive relationship to the same right of property, although this cannot be exhaustive.’”

[40] In The Secretary of State for Business, Innovation & Skills v. Nadham Singh Pottiwal [2012] EWHC 3723 (Ch), para.20, Briggs J stated:-

“…the question is whether the degree of identification of interest makes it just for the one to be bound by the outcome of proceedings about that issue involving the other, and bound regardless which way that outcome goes. The effect of identification of two parties as privies is automatic, and gives rise to an estoppel which prevents the dispute or the issue being revisited, regardless of the circumstances of the first trial, and of the outcome. It is precisely because those consequences are automatic and potentially far-reaching that the law should in my view be slow to recognise privity of interest between different persons. ”

[41] The Seagroatt Judgment declared the 2 Properties were held by Sherman on trust for the Father during his lifetime, and, upon the Father’s death, for all sons in equal shares. Consequently, whilst the Father was alive:

(1) both the Father and the 6 sons had a vested interest in the 2 Properties although the Father had an immediate right of enjoyment;

(2) the sons’ beneficial interests were a present right to future enjoyment, and not a contingent interest.

See Lewin on Trusts (20^th ed.) para 1-048.

[42] I agree with Mr Kwong that the 5 sons other than Sherman are privy to the parties in the 2009 Action. That is, in my opinion, because:

(1) They are clearly identified as beneficiaries of the trust held by Sherman, a party, and his interest as trustee is the corollary of their interest as beneficiaries. Where one cannot exist without the other, it is just to hold that a decision binding on Sherman must be binding on the beneficiaries;

(2) The Seagroatt Judgment found that they have a direct interest in the 2 Properties, which are the subject-matter of the 2009 Action; and/or

(3) All 6 sons will automatically acquire an immediate right of possession of the 2 Properties interest upon the Father’s death pursuant to the terms of the trust as confirmed by the Seagroatt Judgment.” (emphasis added)

5.6  Although the Trial Judge did not refer or was not referred to Zhang Rui Kang, she was clearly aware of the principles set out at Zhang Rui Kang §59(1), as is plain from Reasons §§38-40. As pointed out by Ms Cheung, unlike the present case, Zhang Rui Kang is not a trustee case. No attempt has been made by Mr Chong to address the Trial Judge’s reasoning that privity arose by virtue of Sherman being trustee for all 6 sons upon the demise of the Deceased.

5.7  On the basis of submissions advanced by Mr Chong, my preliminary view is that Grounds 1 to 5 do not amount to an arguable appeal. Therefore, the present application should be dismissed on this ground alone.

5.8  For completeness, I deal briefly with the grounds directed at the Secondary Decision. It is plain that Grounds 6, 7 and 9 are appeals against the Trial Judge’s factual findings. My preliminary view is that they do not amount to strong grounds.

5.9  Ground 8 is directed at the Trial Judge’s finding that the Deed of Settlement had superseded the Settlement Agreement. Ground 8 contends that the Trial Judge had erred in allowing the Brothers to run such a case, on the basis that their pleaded case was that the Deed of Settlement was a sham and there was no alternative defence that it was a valid document.

5.10  The Trial Judge had rejected Sherman’s pleading objection. At Reasons §127, it is stated:

“Mr Chong sought to argue that it was not open to D1 to cross-examine Sherman on the basis that, or otherwise submit that, if any agreement was operative between Sherman and the Father, it was the Deed of Settlement, because that positive case had not been pleaded. As indicated during the trial when allowing the questioning, all of the Defendants pleaded that they put Sherman to proof as to the alleged Settlement Agreement and Deed of Settlement as they had no direct knowledge. It seems to me entirely proper that they should test Sherman’s evidence as to the validity of the Settlement Agreement, and make submissions thereafter on the basis of the evidence.”

5.11  For the reasons set out at Reasons §§111 to 126, the Trial Judge had rejected Sherman’s pleaded case and evidence that the Deed of Settlement was not intended to create legal relations on the bases of her dim views on Sherman’s credibility, the contemporaneous documents and inherent probabilities (Reasons §114). My preliminary view is that Ground 8 is not an arguable appeal ground.

(ii)   Whether appeal rendered nugatory

5.12  Were I wrong in my preliminary view that no arguable appeal exists in relation to (1) the Primary Decision and (2) the Trial Judge’s factual finding that the Deed of Settlement had superseded the Settlement Agreement (and therefore the present application falls to be dismissed on the foregoing bases), I proceed to deal with Mr Chong’s arguments that the appeal would be rendered nugatory absent a stay.

5.13  The Judgment comprises of 2 separate parts, namely (1) the assignment and transfer of the 5/6 interest and title in the 2 Properties to the Brothers and (2) an account and payment of sums due on the accounting exercise.

5.14  In relation to (1) above, the primary point taken by Mr Chong is the issue of wasted time, costs and effort incurred in the engagement of a firm of solicitors in Scotland to advise and handle the conveyance of the Bridge of Don House and, in the event that Sherman succeeds in his appeal, the reconveyance.

5.15  As pointed out by Ms Cheung, there is no absolute rule or principle that where the relevant order concerns the possession or transfer of property, the appeal would necessarily be rendered nugatory absent a stay. The burden remains on the applicant to establish and put forward evidence that the appeal would be rendered nugatory. As I understand the position, the 2 Properties are used to generate rental income. There is therefore no suggestion of by Sherman of any hardship other than financial ones, namely the costs associated with the conveyance and the potential reconveyance should Sherman succeed in his appeal.

5.16  I do not regard the factors relied on by Mr Chong amount to good reasons. As pointed out at Indian Overseas Bank v Seabulk Systems Inc [2023] 4 HKLRD 125 §29, compliance with a judgment is a matter of legal obligation, not a matter of choice or preference.

5.17  In relation to (2) set out at §5.13 above, the primary point taken by Mr Chong is that the Brothers (except Stephen) are residents abroad. It is said that, given the distrust between the parties, it may be difficult for Sherman to recover payment made to them should Sherman be successful on appeal, relying on, for example, Shanghai Ornate Candle Art Co Ltd v Transbest Holdings Limited t/a ACME Company, HCA 1605 of 1999, 5 May 1999.

5.18  The matters stated in the preceding paragraph can only have a bearing on Consequential Directions §4 and does not affect Sherman’s obligation to provide an account.

5.19  Even in respect of Sherman’s payment obligation, it is stated in John Joseph Mcgee v Nold (HK) Ltd & Ors[2023] HKCFI 409:

“[13] Second, whilst it may be said that there is, in any matter involving a foreign plaintiff, a general risk that the appeal might be rendered nugatory owing to the fact that the Plaintiff is resident outside the jurisdiction, considering matters in the round, I do not consider that this Plaintiff in this particular case should be deprived of the fruits of the judgment. It is suggested that it would be unfair for the Summonsed Defendants to have to go to the United States (where the Plaintiff is resident) to seek a return of the judgment sum paid if they are successful in their appeal. This submission, however, presumes that the appeal will be successful, which necessitates the Court’s considering the merits thereof. It also assumes that the Plaintiff will not abide by the procedures of the Hong Kong Court when there is no specific evidence to suggest that he is prone to such conduct.

[14] Every given case must be considered on its own circumstances. Given that I consider the merits of the appeal to be weak, and taking all of the above factors into consideration, I do not consider this to be an appropriate case in which to grant a stay. I would further mention that I do not agree with the general proposition that once there is a foreign plaintiff involved, this would necessarily mean that a stay ought generally to be ordered…” (emphasis added)

5.20  In my view, the evidence put forward by Sherman falls far short of showing that the Brothers who are resident abroad will not abide by the procedures of the Hong Kong court.

5.21  I am therefore not persuaded that the appeal would be rendered nugatory absent a stay.

5.22  Given my above conclusions, it is not necessary for me to deal with the further reasons advanced by the Brothers set out at §§4.2(5) to (7) above to oppose the present application.

6.  Conclusion

6.1  For the above reasons, in the exercise of my discretion, I dismiss the Summons. I also make a costs order nisi that Sherman is to pay to the Defendants (by original action) and the Plaintiff (by counterclaim) the costs of the Summons. Such costs are to be summarily assessed on the papers. The Brothers are to lodge and serve their statements of costs within 21 days hereof (a lengthier period is given to accommodate the unrepresented Brothers who reside abroad). Sherman is to provide his comments on the Statements of Costs within 7 days thereafter.

Mr K.M. Chong, instructed by Au-Yeung, Chan & Ho, Solicitors, for the Plaintiff (by original action) and the Defendant (by counterclaim)

Ms Prisca Cheung and Ms Sakinah Sat, instructed by L & L Lawyers, for the 1^st Defendant (by original action) and the Plaintiff (by counterclaim)

Lee Hoi Yin Stephen, acting in person, the 2^nd Defendant (by original action)

Lee Hoi Wan Norman, acting in person, the 3^rd Defendant (by original action)

Lee Hoi Yeung David, acting in person, the 4^th Defendant (by original action)

HCA 2905/2017

[2023] HKCFI 3056

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2905 OF 2017

________________________

(By Original Action)

(By Counterclaim)

________________________

________________________

REASONS FOR JUDGMENT

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Introduction

1.  In this action, the Plaintiff seeks a declaration that a settlement agreement dated 28^th December 2012 between the Plaintiff and his father, the late Mr. Lee Koon Wan (“the Father”) is binding on the estate of the Father.

2.  The Father had six sons: Sherman Lee (the Plaintiff, “Sherman”), Michael Lee (“Michael”), Gordon Lee (“Gordon”), Stephen Lee (“Stephen”), Norman Lee (“Norman”), David Lee (“David”).

3.  Michael and Gordon are the executors of the Father’s estate and are, in that capacity, the First Defendant (“D1”). Stephen, Norman and David are the Second to Fourth Defendants (“D2” to “D4”) respectively.

4.  The dispute relates to the true ownership of two properties:

(1)  Unit A on 16^th Floor, Lai Shing Garden, Nos. 1-7 Shatin Wai Road, Shatin, New Territories, Hong Kong (“the Lai Shing Flat”); and

(2)  29 North Donside Road, Bridge of Don, Aberdeen, Scotland (“the Bridge of Don House”)

(together, “the 2 Properties”).

5.  The 2 Properties have at all material times been registered in the name of Sherman.

6.  In 2009, the Father commenced an action against Sherman claiming beneficial ownership of the 2 Properties (“the 2009 Action”).

7.  On 24 July 2012, Seagroatt DHCJ gave judgment (“the Seagroatt Judgment”) whereby:

(1)  The Court made declarations that Sherman held the 2 Properties on trust for the Father during his lifetime and, thereafter for the 6 sons in equal shares;

(2)  Sherman was required to transfer the 2 Properties to the Father;

(3)  Sherman was required to account to the Father for rents and profits thereon; and

(4)  Sherman was required to pay the Father’s costs.

8.  On 12 August 2012, following a hearing to address the final relief to be ordered, Seagroatt DHCJ delivered an Addendum to the Seagroatt Judgment. Essentially the orders made in respect of the 2 Properties were for delivery of the title deeds (or any necessary written authority to effect the transfer of deeds) to the Registrar of the High Court until further order; the Father was to receive rent directly from the tenant and be responsible for all expenses; Sherman was to provide an account of rent, profits and/or monies received by him for the property; Sherman was to return to the Father all rent, profits and/or monies received by him for the property, subject to deductions of proven expenses; in respect of both properties, some other proper person, namely the Official Solicitor if willing, be appointed trustee jointly with Sherman, but no other member of the family is to be appointed trustee without court approval (“the Addendum”).

9.  Sherman lodged an appeal on 12 September 2012. The Father issued a Respondent’s Notice on 3 October 2012.

10.  On 28 December 2012, Sherman and the Father signed a handwritten document apparently setting out terms of agreement as to entitlements in respect of the 2 Properties and the 2009 Action costs (“the Settlement Agreement”).

11.  On 31 January 2013, Sherman and the Father executed a deed of settlement prepared by Sherman’s solicitors setting out different terms of agreement as to entitlements in respect of the 2 Properties and the 2009 Action costs (“the Deed of Settlement”).

12.  At the trial of the current action before me:

(1)  Sherman was represented by Mr KM Chong with Ms Yvonne Yip;

(2)  Michael and Gordon, as the executors of the Father’s estate defending Sherman’s claim and in their personal capacities as plaintiffs on the counterclaim, were represented by Mr Alan Kwong with Ms Sakinah Sat;

(3)  Stephen and David attended in person.

(4)  Norman did not attend trial.

13.  Sherman seeks a declaration that the Settlement Agreement is enforceable, notwithstanding the Seagroatt Judgment, and notwithstanding the subsequent Deed of Settlement.

14.  The Defendants oppose the declaratory relief sought by Sherman on the basis (as pleaded in their defences) that:

(1)  The Seagroatt Judgment was a judgment in rem binding on all the world as to the status of the 2 Properties;

(2)  Even if the Seagroatt Judgment was in personam, the Defendants were privy thereto and are bound by and entitled to rely on it;

(3)  They put Sherman to proof as to the alleged Settlement Agreement;

(4)  The Settlement Agreement is unenforceable on the basis that the Father could not have both understood and agreed its terms, relying insofar as necessary on non est factum and res ipsa loquitur;

(5)  They put Sherman to proof as to the alleged Deed of Settlement.

15.  It should be noted at the outset that whilst undue influence appeared to be raised by the Defendants in their written openings, they clarified that it was not pursued as a defence, as it was not pleaded.

16.  By the time of closing, the Defendants were not pursuing the res ipsaloquitur defence.

17.  Michael and Gordon (now in their personal capacities), Stephen, Norman and David have a counterclaim against Sherman. They counterclaim for an order compelling Sherman to assign and transfer a 1/6 interest in each of the 2 Properties to each of them, and to account to them for rent and/or mesne profits in respect of the 2 Properties from the date of the Father’s death.

The issues

18.  For Sherman to obtain a declaration that the Settlement Agreement is enforceable against the estate, he must establish that:

(1)  The Seagroatt Judgment is not binding on the Defendants; and

(2)  The Settlement Agreement is not superceded by the Deed of Settlement. (“P’s necessary issues”)

19.  For the Defendants to succeed, they must establish:

(1)  The Seagroatt Judgment is binding on the Defendants;

(2)  The Father and Sherman could not validly enter the Settlement Agreement or the Deed of Settlement.  (“Ds’ necessary issues”)

20.  Ds’ necessary issues can be decided by reference to undisputed facts and the law. I will therefore address Ds’ necessary issues first.

Is the Seagroatt Judgment binding on the Defendants?

21.  The Defendants submit that the Seagroatt Judgment is either a judgment in rem; or a judgment in personam to which the Defendants are privies; or that Sherman’s claim is a collateral attack amounting to an abuse of process.

(i) Judgment in rem?

22.  Mr Chong referred me to the decision in Si Tou Chou Kam v Wealth Credit Ltd [2018] 4 HKC 247. Si Tou involved the following facts. A husband and a wife were registered owners of a property. The husband owed debts to a judgment creditor, who obtained charging orders against the property. The husband became bankrupt. The wife sought a declaration that she and her husband held the property on trust for her sole benefit, and the husband had no beneficial interest. The court required notice of the proceedings to be given to the judgment creditor. Notice was given but the judgment creditor did not participate in the proceedings. The wife obtained the declaration she sought (“1st Judgment”). The wife sought to discharge the charging orders. She failed at first instance, and appealed. Overall, she succeeded but she failed on her argument that the 1^st Judgment was a judgment in rem. The Court of Appeal summarized the relevant principles and addressed the argument as follows.

“21. … As has been explained by Lord Mance in Pattni v Ali[2007] 2 AC 85, paras 20 and 21, a decision in rem may be described as one by a tribunal with jurisdiction to determine not merely on the rights of the parties, but also on the disposition of the thing. The importance of this distinction is that a judgment in personam binds only the parties to the proceedings, as distinguished from one in rem'which fixes the status of the matter in litigation once for all, and concludes all persons'. Spencer Bower & Handley, Res Judicata(4th Ed) puts the distinction this way (pp 58 and 157):

'4.20 Whether a foreign judgment is in rem or in personam is a question of fact. A judgment in rem deals with the status of persons or things, or effects a disposition of movable or immovable property. Judgments in rem derive their validity from the situation of the person or property within the jurisdiction. Judgments dealing with status, to be effective, must bind the so called world because status must be generally accepted. If the action is in rem service on or notice to the defendant must still be proved.'

…

10.01 A decision in rem conclusively determines the status of a person or thing; that is its jural relation to persons generally, not just parties and privies. It is sometimes said to be binding on the world, unlike decisions in personam which determine the jural relation of persons to each other.'

22. In the present case, the declaration determined the trusteeship of the husband of the property in favour of the plaintiff. It did not deal with any disposition of the trust property. It could not possibly prevent, as a hypothetical example, a close relative of the couple, who had been unaware of the High Court proceedings, from emerging subsequently and making a claim to the property as being the real person who had contributed to the purchase of the property: see the example given by Lord Mance in Pattni (para 29) of a third party making a claim subsequent to the relevant judgment there. As explained by his Lordship:

' ... in order for a judgment to have in rem effect. .. , the determination must be a determination regarding the status or disposition of property which is to be valid as against the whole world. The fact that a judicial determination determines or relates to the existence of property rights between parties does not in itself mean that it is in rem.' (para 23)

23. It is true that para 2 of the Order of 26 November 2015 directs the Official Receiver to execute an assignment to convey the registered legal title of the bankrupt husband to the plaintiff, and therefore, so Mr Remedios argued, constitutes an order determining disposition of property. However, the proceedings below were not concerned with this part of the Order, that is, the proceedings below had nothing to do with the Official Receiver's transferring the legal title to the plaintiff, or the situation after the conveyance is so made. Rather, the material part of the Order involved in the proceedings below and this appeal relates to the declaration by the court that the husband has been holding the legal title on trust for the plaintiff.”

23.  I accept that the Seagroatt Judgment relates to the existence of property rights, but did it make a disposition of property and if so, has there been a determination regarding the status or disposition of property which is to be valid against the whole world?

24.  In the 2009 Action before Seagroatt DHCJ, the Father’s Amended Statement of Claim alleged:

(1)  It was agreed between the Father, his wife, and Sherman that the 2 Properties would be bought by the Father and registered in Sherman’s name, and they would be in the sole control of the Father until his death and thereafter would be shared between all 6 sons.

(2)  In accordance with those intentions, the Father bought the 2 Properties in Sherman’s name.

(3)  The 2 Properties were beneficially owned by the Father.

(4)  Sherman held the Properties on trust for the Father and/or his wife; and held the rent monies therefrom on trust for the Father.

(5)  The Father claimed (in his prayer) a declaration that the 2 Properties were held on trust for the Father and/or his wife; and an order for a conveyance of the Properties into the Father’s name, and an account of profits (amongst other things).

25.  Also in the 2009 Action, Sherman counterclaimed that he was the sole beneficial owner of the 2 Properties and sought a declaration to that effect.

26.  The Seagroatt Judgment and Addendum:

(1)  Accepted the Father’s evidence of the agreement reached and the intention with which he bought the Properties;

(2)  Found that on this basis Sherman held the 2 Properties as constructive trustee for the Father during his lifetime, and for all 6 sons equally on the Father’s death;

(3)  Made orders to give effect to the declaration.

27.  Whilst the Seagroatt Judgment and Addendum provided for orders consequential to the declaratory relief, the material part of the order made in the 2009 Action is the declaration that Sherman holds the 2 Properties on trust for the Father for life and the 6 sons equally thereafter.

28.  The Seagroatt Judgment has not been appealed and there is no basis for Mr Chong to argue on behalf of Sherman that there are mistakes in the judgment such that I should assess the scope of its decision more narrowly than it provides: China North Industries Investment Ltd v. Chum [2010] 5 HKLRD 1, at para. 48.

29.  Mr Kwong for D1 submitted that I should distinguish the present case from Si Tou. He submitted that I must find that Seagroatt DHCJ intended that the judgment bind the whole world for two reasons:

(1)  The Seagroatt Judgment gave judgment in favour of non-parties; and

(2)  The Seagroatt Judgment departed from how either the Father or Sherman ran their cases.

30.  I accept that (1) the declaration of trust made by Seagroatt DHCJ benefited 5 sons who were not party to the 2009 Action; and (2) that the declaration made mirrored the factual allegation pleaded by the Father, although it went further than the declaration sought in the prayer thereof.

31.  However, neither of these points enables me to distinguish the present case from the Si Tou decision. A declaration that property is held on trust was held by the Court of Appeal not to amount to a disposition of property so as to amount a judgment in rem.  A declaration of trust which identifies beneficiaries other than the parties may be a necessary consequence of the findings on pleaded facts and evidence advanced by the parties. I do not think that by itself would demonstrate an intention to bind the world. The declaration made in the Seagroatt Judgment could not prevent, as a hypothetical example, someone unaware of the 2009 Action emerging subsequently and making a claim to one of the properties on the basis of having been the real person who had contributed the purchase price.

32.  I was also concerned that one of the properties in question is situated in Scotland as it seems unlikely that a judgment by a court in a different jurisdiction from where the property is situate would be a judgment in rem, but neither party addressed that as an issue. In response to my question, Mr Kwong’s submission was that the parties in the 2009 Action accepted the Hong Kong court’s jurisdiction and there was no material before Seagroatt DHCJ suggesting that a judgment in the 2009 Action would not be enforceable in Scotland. For present purposes, I simply note that submission as neither counsel developed the point.

33.  Accordingly, I consider that I am bound by the decision of the Court of Appeal in Si Tou, and I find that the Seagroatt Judgment with Addendum was not a judgment in rem.

(ii) Are the sons other than Sherman privy to the Seagroatt Judgment?

34.  Mr Kwong submits that, by virtue of Sherman being trustee for all 6 sons on the Father’s death, the 5 sons other than Sherman are privy to Sherman’s interest in and are bound by the Seagroatt Judgment.

35.  The significance of a privy is to be seen in the context of the law of res judicata.

36.  In China North Industries Investment Ltd v. Chum [2010] 5 HKLRD 1, paras.47-59, Stock JA (as he then was) summarized the law of res judicata and the extended doctrine of abuse of process.

(1)  Res judicata arises where:

(a)  a claim has previously been finally determined between the parties, or their privies, by a court of competent jurisdiction and the same issue falls directly in question in subsequent proceedings (cause of action estoppel); or

(b)  where the issue has been determined by such a court as a necessary step in reaching judgment in case between those parties or their privies (issue estoppel).

(2)  The correctness of the final decision is not relevant. It binds the parties until such time as it is set aside on appeal. This rests on the fact that a competent tribunal has jurisdiction to decide wrongly, as well as correctly and if it makes a mistake its decision is binding unless corrected on appeal.

(3)  An extension to the res judicata doctrine recognises that where the doctrine does not strictly apply, there may nonetheless be circumstances in which a collateral challenge to a previous decision offends the principles underlying the doctrine, namely:

(a)  the second action visits manifest unfairness upon one proposed party, or

(b)  the second action would bring the administration of justice into disrepute.

(4)  A collateral attack will not necessarily be an abuse of process: if the parties to the second proceedings were not parties or privies of parties to the first proceedings, a collateral attack will only be an abuse of process if one of the two conditions above is demonstrated by the person alleging abuse.

37.  A person will be bound by a judgment in personam notwithstanding he was not a party to the action if he was in privity with the parties: Pattni v Ali at para. 21; Si Tou at para. 27.

38.  In Gleeson v. J Wippell & Co Ltd [1977] 1 WLR 510 at p.515H, Megarry VC stated:

(1)  “[H]aving due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two [persons said to be privies] to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party”.

(2)  In relation to trust property, he thought there will normally be a sufficient privity between the trustees and their beneficiaries to make a decision that is binding on the trustees also binding on the beneficiaries, and vice versa.

39.  Stock JA reviewed the authorities on privies in China North, at paras.77-81. He noted that the question of privity of interest is difficult territory, and stated (at para. 81):-

“The required commonality is a direct interest in the subject matter of the litigation, a parallel or corresponding interest in that subject matter and not simply a financial interest in the result of the action: Genesee Enterprises Ltd v Abou-Rached [84 BCLR (3^rd) 277], so that:

‘Privies include any person who succeeds to the rights or liabilities of the party upon death or insolvency, or who is otherwise identified in estate or interest.  It is essential the party to be estopped by privity must have some kind of interest, legal or beneficial, in the previous litigation or its subject matter.  Privity was described by the US Supreme Court as a mutual or successive relationship to the same right of property, although this cannot be exhaustive.’”

40.  In The Secretary of State for Business, Innovation & Skills v. Nadham Singh Pottiwal [2012] EWHC 3723 (Ch), para.20, Briggs J stated:-

“…the question is whether the degree of identification of interest makes it just for the one to be bound by the outcome of proceedings about that issue involving the other, and bound regardless which way that outcome goes. The effect of identification of two parties as privies is automatic, and gives rise to an estoppel which prevents the dispute or the issue being revisited, regardless of the circumstances of the first trial, and of the outcome. It is precisely because those consequences are automatic and potentially far-reaching that the law should in my view be slow to recognise privity of interest between different persons. ”

41.  The Seagroatt Judgment declared the 2 Properties were held by Sherman on trust for the Father during his lifetime, and, upon the Father’s death, for all sons in equal shares. Consequently, whilst the Father was alive:

(1)  both the Father and the 6 sons had a vested interest in the 2 Properties although the Father had an immediate right of enjoyment;

(2)  the sons’ beneficial interests were a present right to future enjoyment, and not a contingent interest.

See Lewin on Trusts (20^th ed.) para 1-048.

42.  I agree with Mr Kwong that the 5 sons other than Sherman are privy to the parties in the 2009 Action. That is, in my opinion, because:

(1)  They are clearly identified as beneficiaries of the trust held by Sherman, a party, and his interest as trustee is the corollary of their interest as beneficiaries. Where one cannot exist without the other, it is just to hold that a decision binding on Sherman must be binding on the beneficiaries;

(2)  The Seagroatt Judgment found that they have a direct interest in the 2 Properties, which are the subject-matter of the 2009 Action; and/or

(3)  All 6 sons will automatically acquire an immediate right of possession of the 2 Properties interest upon the Father’s death pursuant to the terms of the trust as confirmed by the Seagroatt Judgment.

43.  In order to test the position, I asked Mr Kwong: What if one of the sons, not knowing about the 2009 Action, then says, actually I paid the purchase price, so I want to claim the 2 Properties? Mr Kwong responded that that son would be bound as a privy but would still have the remedy of appeal on the basis of material unavailable at trial, in common with the other parties. I accept that submission.

(iii) D1’s argument of collateral attack

44.  By this Action, Sherman argues that the Settlement Agreement is valid and enforceable. That in itself is not seeking a relitigation of the issue before Seagroatt DHCJ because he is relying on a new significant factual matter. He is asking the Court to endorse an action following the Seagroatt Judgment. This is not then a case of issue estoppel.

45.  D1 asserts this is a case of manifest unfairness or abuse of process because Sherman is disputing the other brothers’ beneficial entitlement to the 2 Properties and thereby undermining the Seagroatt Judgment. It is not necessary for me to decide this (given my decision on privity) but I would be minded to think that, if the Seagroatt Judgment were not binding on the other 5 sons, the enforceability of the Settlement Agreement is a new issue which has not yet been decided which may require, for example, a determination of Sherman’s duties as trustee.

Consequences of the Seagroatt Judgment being binding on all sons

46.  All of the Defendants have pleaded that the Settlement Agreement is void, unenforceable and/or of no effect at all; that it was not open to the Father and Sherman  to reach any agreement to dispose of the interests in the 2 Properties without consent from each of the six sons; and none of the six sons save for Sherman knew of the alleged Settlement Agreement or consented to the full beneficial interest being transferred to Sherman.

47.  I do not think it was disputed by Mr Chong on part of Sherman that, if all sons were bound by the Seagroatt Judgment, whether as parties or privies, then it was not open to the Father and Sherman to enter into an agreement to vary the effect of the Seagroatt Judgment.

48.  In any event, I find that by virtue of the Seagroatt Judgment, the 5 sons other than Sherman had at all material times an indefeasible vested interest in the 2 Properties.

(1)  A beneficiary may have a vested interest in trust assets even though he is not entitled to immediate enjoyment of those assets under the terms of the trust. Where property is held on trust for “A” for life then to “B” absolutely, both A and B have a vested interest in the property albeit A has an immediate right to enjoy the property.  Lewin on Trusts (20^th Ed), para. 1-048.

(2)  An interest is indefeasible if there is no prior or concurrent interest or power which is capable of defeating it in whole or in part. To take the simple case of a trust for A for life and then to B absolutely, the existence of A’s life interest operates to postpone the vesting in possession of B’s interest, but it cannot defeat it, and so B has an indefeasible interest. Lewin at para. 1-049.

49.  Accordingly, all 6 sons having at all material times an indefeasible vested interest in the 2 Properties, it was not possible for the Father and Sherman alone to dispose or destroy of such interest without the consent of the other sons.

50.  Accordingly, neither the Settlement Agreement nor the Deed of Settlement are valid and enforceable.

Principal decision

51.  I therefore find that the Defendants’ necessary issues are established, and accordingly that Sherman’s claim fails.

52.  For completeness’ sake, I turn to consider the position if, contrary to my primary findings, the Seagroatt Judgment is not binding on all 6 sons. I must address the second of P’s necessary issues.

If the Seagroatt Judgment is not binding on all sons, is the Settlement Agreement or the Deed of Settlement binding?

53.  Here, the undisputed starting-point is that, if only Sherman and the Father are bound by the Seagroatt Judgment, then it was open to them to agree to alter their rights as between themselves.

54.  The relevant arguments advanced are:

(1)  By the Defendants, non est factum operates so that none of the Settlement Agreement or Deed of Settlement are enforceable. It is common ground that the key elements for a successful plea of non est factum are as follows: (i) the belief of the signer that the person is signing a document of one character or effect whereas its character and effect were quite different; (ii) the need for some sort of disability which gives rise to that state of mind; and (iii) the plea cannot be invoked by someone who does not take the trouble to find out at least the general effect of the document: Chitty on Contracts (34th Ed), para. 5-049.

(2)  By Sherman, that the Father did not intend to be bound by the Deed of Settlement and that is not enforceable, whereas the Settlement Agreement is.

55.  These issues are fact-dependent, and the relevant facts are disputed. I now turn to the factual evidence advanced at trial.

(i) Witness evidence

56.  Witnesses at trial

(1)  Sherman, Stephen, Gordon and David gave evidence and were cross-examined.

(2)  Norman did not attend trial and by letter to the Court requested that his witness statement nevertheless stand as evidence in chief. Mr Chong provided written submissions in opposition. I considered and dismissed that application on 16 November 2023.

57.  I have in mind the guidance given to courts when assessing witness evidence and the dangers of relying on deceptive matters such as demeanour. I aim to start with the undisputed facts, then to add the facts very likely to be true such as those recorded in contemporaneous documents or spoken by independent witnesses; to bear in mind the likely unreliability of a witness whose evidence  is materially inconsistent with undisputed or indisputable facts, or is materially inconsistent; to bear in mind a witness’ possible motivation for not being truthful; and then to decide which story seems the more probable. See ‘The Judge’, by Patrick Devlin, (1979 ed.), p.63; Sun Hoi Tat v. Profectus Investment Group Limited[2016] HKCFI 1263, at para. 11.

58.  To the extent that allegations are made against the Father (now deceased), especially in the case of an alleged gift where the only witness in support of the claim is the donee, it is necessary to approach them with some suspicion: Yung Shu Wu v. Vivienne Sung Wu (2011) 14 HKCFAR 39 at paras. 73-76, as cited in Tang Wai Lam, v. Chung Wai Sing (HCA 2373/2012, 17^th June 2015) at paras. 58-59.

59.  It became apparent from the oral evidence that:

(1)  David and Gordon could not give any material evidence in respect of the matters in dispute, namely the two settlement agreements signed by Sherman and the Father;

(2)  Gordon was able to clarify to clarify his knowledge (or lack thereof) in respect of the settlements when writing to Sherman as executor in August 2015;

(3)  Stephen was not present when either agreement was signed but he was involved with the Father’s life and affairs and had some insight into the Father’s situation in the material period of late 2012 to late 2014;

(4)  Sherman was the only witness who had been directly involved with the signing of the agreements.

60.  All of the witnesses stand to gain if they succeed in this action. Only Stephen and Sherman had material evidence to give. The material issues are:

(1)  The Father’s ability (or lack thereof) when signing the agreements;

(2)  The Father’s understanding of the nature of the content of the agreements;

(3)  The Father’s intentions when signing the agreements.

(ii) Preliminary comment on documents

61.  Before addressing the material facts of this case in chronological order, I wish to comment at the outset on some of the documents adduced: (1) the KST Response; (2) documents  prepared for the Father to sign (3) documents witnessed by Winnie Wong.

62.  The KST Response.

(1)  Kitty So & Tong solicitors (“KST”) acted for the Father from the commencement of the 2009 Action until mid-2013. After the Seagroatt Judgment, whereby Sherman was ordered to pay the Father’s legal costs (i.e. the fees of KST), there developed a situation where KST sought recovery of the fees but neither Sherman nor the Father made payment.  The Father submitted a complaint against KST to the Law Society of Hong Kong (“LSHK”) on 18 April 2013. KST’s response to the LSHK dated 11 June 2013 includes a chronology of their dealings with the Father from May 2009 to May 2013 (“the KST Response”).

(1)  Sherman’s counsel Mr Chong effectively opened the case by reference to the KST Response as providing a chronological run down of material events, and he used the KST Response when cross-examining witnesses. The Defendants did not dispute the accuracy of the contents of the KST Response. However, in one respect, Sherman himself in cross-examination disputed the account in the KST Response, i.e. that the Father was telling KST to pursue costs against Sherman. In light of the contemporaneous documents set out below, I am satisfied that in that one respect, the KST Response is reliable.

(2)  Some but not all of the documents referred to by the KST Response are in the trial bundles. The KST Response is in my view consistent with the documents I have seen.

(3)  I therefore proceed on the basis that the KST Response is essentially an accurate contemporaneous record of KST’s dealings with and on behalf of the Father.

63.  Documents prepared for the Father to sign.

(1)  Following the lodging of the complaint against KST, KST applied to cease to act, and subsequently sued the Father for unpaid fees. In 2013 onwards, the Father obtained assistance from Sherman and, to a more limited extent, Stephen in preparing and submitting documents for the various proceedings afoot and generally. The complaint and the subsequent documents filed on behalf of the Father were prepared predominantly with Sherman’s assistance, but on 1 occasion in about September 2014, the Father sought Stephen’s assistance.

(2)  Sherman and Stephen both gave evidence as to the amount of involvement the Father and they had with the preparation of these documents. I will consider the contemporaneous documents before making findings as to this issue.

64.  Documents witnessed by Winnie Wong.

(1)  There are 2 documents endorsed with Winnie Wong’s attestation that she has interpreted the document to the Father: the Settlement Agreement and the Father’s affirmation of 5 June 2013 on KST’s application to cease to act. Winnie Wong was not a witness in this action.

(2)  I will not attach any significance to whether a document was read to the Father in English or interpreted in Chinese on the basis that:

(a)  The undisputed evidence is that the Father was bilingual and familiar with commercial and legal documents.

(b)  It is undisputed that the Father signed the Settlement Agreement and the Deed of Settlement;

(c)  It is not suggested that Sherman or anyone else misled the Father as to the contents of either document.

(iii) Material Facts

65.  On 24 July 2012, the Seagroatt Judgment was delivered.

66.  On 12 August 2012, Seagroatt DHCJ delivered the Addendum.

67.  Sherman lodged an appeal on 12 September 2012.

68.  According to the KST Response:

(1)  On 20 September 2012, Sherman’s solicitors wrote a without prejudice letter to the Father’s solicitors KST proposing settlement.

(2)  KST responded by letter of 21 September 2012 that the Father was willing to settle subject to how it may be done in light of the Seagroatt Judgment.

69.  On 13 December 2012, Sherman’s solicitors sought to fix a date for the appeal hearing. On 27 December 2012, the Court asked the parties to attend on 31 December 2012 to fix the appeal hearing date. 

70.  Sherman’s unchallenged evidence is that:

(1)  Sherman then called the Father and asked if he wanted to settle and they agreed the Father would visit Sherman to discuss terms;

(2)  Sherman took the Father to his home on 27 December 2012 and agreed the terms of what would become the Settlement Agreement;

(3)  The Father asked Sherman to go to Tai Po the next day to sign the Settlement Agreement in front of a witness.

71.  The Settlement Agreement was made on 28 December 2012. It is a handwritten document made by Sherman and addressed to the High Court. The Father and Sherman signed it. In essence, it provides that:

(1)  Sherman remain the beneficial and registered owner of the 2 Properties;

(2)  The Father be entitled to rental income during his lifetime;

(3)  Sherman need not account for past rent and profits;

(4)  Each party bears their own costs;

(5)  The appeal be dismissed.

72.  There is detailed evidence from Sherman about the fact that he read out the terms of the Settlement Agreement in full to the Father, and that Winnie Wong did the same before witnessing the Father’s signature. Sherman initially insisted that the Father could read the Settlement Agreement for himself and that his eyesight did not prevent him from doing so. Ultimately, Sherman accepted by the end of his cross-examination that the Father was unable to read small handwritten script such as that in the Settlement Agreement even with a magnifying glass. No-one present at the signing of the Settlement Agreement other than Sherman gave evidence. There was no suggestion in cross-examination that the Father was misled as to the contents of the Settlement Agreement.

73.  According to the KST Response:

(1)  The Settlement Agreement was sent to KST by Sherman’s solicitors on 28 December 2012;

(2)  The Father confirmed to KST that he had signed it;

(3)  KST advised it was against his interests;

(4)  The Father stated that his relationship with Sherman had improved and that Sherman had told him the appeal would be costly;

(5)  KST explained the costs consequences of the Settlement Agreement and that KST’s estimated costs and disbursements to date were in the region of HK$1.5 million to date;

(6)  The Father asked KST to seek recovery of the costs from Sherman;

(7)  KST advised that any settlement needed to be by way of consent summons, and the Father said he needed to talk to Sherman;

(8)  KST said they would seek to postpone fixing the appeal hearing date to facilitate settlement discussions.

74.  I pause to note that, whatever the Father thought when signing the Settlement Agreement, he must have thought that matters were not finalized in light of KST’s advice.

75.  According to the KST Response, on 24 January 2013, Sherman’s solicitors sent KST a draft deed of settlement and, after discussing the costs consequences with the Father, KST were instructed by the Father to seek costs from Sherman. The draft deed is not in evidence, but the KST Response states that the draft deed contained changes which were unfair to the Father on costs and the rental that he had won, and engineered a different sharing of the 2 Properties “ignoring the other beneficiaries found entitled”.

76.  On 28 January 2013, KST wrote to Sherman’s solicitors stating that the Father was considering the draft Deed of Settlement and that could be dealt with after the appeal was dealt with; stating the Father would agree to dismissal of the appeal with costs to the Father [emphasis added]; and stating that the costs were about HK$1.5 million but that a reduced amount of HK$800,000 would be accepted if there was agreement by 31 January 2013.

77.  On 31 January 2013, Sherman’s solicitors sent KST an executed Deed of Settlement together with a draft Dismissal by Consent. The signatures of Sherman and the Father on the Deed of Settlement were witnessed by Sherman’s solicitors and Stephen Yap of Yap & Lam respectively. Stephen Yap also attested to interpreting the contents of the deed to the Father.

(1)  In essence, the Deed of Settlement provides that:

(a)  Sherman remain the beneficial and registered owner of the Bridge of Don House but the Father be entitled to rental income during his lifetime;

(b)  Sherman transfer the Lai Shing Flat to the Father, but the Father be required to reimburse Sherman for expenses on the Lai Shing Flat;

(c)  Sherman need not account for past rent and profits;

(d)  Each party bears their own costs of the 2009 Action;

(e)  The appeal be dismissed.

(2)  The draft Dismissal by Consent sought a dismissal of the appeal with no order as to costs. [Emphasis added]

78.  The KST Response states that KST explained the contents of the Deed of Settlement to the Father with counsel on 5 February 2013, including the fact that it went behind the Seagroatt Judgment, was adverse to his interests and he would be responsible for his own costs thereunder. The Father asked KST to seek costs from Sherman again. This is corroborated by an unsigned draft instruction from the Father to KST (containing a statement of understanding that the Deed of Settlement was not binding and contained adverse provisions including costs, and that he would bear the costs of the 2009 Action and appeal without claiming them from Sherman). This draft is unsigned and is annotated by KST as to the fact of interpretation of the contents to the Father at 2pm on 5 February 2013 and a note of the Father’s instructions to pursue costs against Sherman.

79.  Between February and May 2013, according to the KST Response, KST sought to find a way forward with the appeal and their costs bill. It seems that the Father did not wish to pursue the appeal, nor did he wish to pay more costs, and he was asking KST to pursue costs against Sherman – which would mean the dismissal of the appeal on the terms set out by Sherman’s solicitors could not be pursued. This is corroborated by the following correspondence.

(1)  By letter dated 5 February 2013, KST wrote to Sherman’s solicitors asking for their thoughts on the legality of the Deed of Settlement, and asking them to amend the costs order element of the draft Dismissal by Consent to reflect the Father’s position that he seeks the costs of the 2009 Action and appeal against Sherman.

(2)  By letter dated 22 February 2013, KST informed the Father that they had not heard from Sherman’s solicitors in response to the 5 February letter and they advised the Father to seek an appeal hearing date or to register the Seagroatt Judgment in the Land Registry in Hong Kong and in Scotland to protect the rights of the Father and the other beneficiaries.

(3)  By letter dated 22 March 2013 from KST to the Father, KST stated that they had received a letter directly from Sherman but that it would be improper for them to liaise with him directly whilst he was legally represented. KST stated that they did not understand where the confusion lay for Sherman, as the Father had clearly instructed KST to pursue costs against Sherman for the 2009 Action and appeal. They asked the Father to give them written instructions if he had changed his mind and no longer wanted to pursue costs against Sherman. A draft instruction letter was attached which refers to an agreement to dispose of the appeal on the basis of no order as to costs and no enforcement of the costs orders in the 2009 Action, notwithstanding the bills delivered to the Father on 18 March 2013 showing appeal costs to be some HK$96,000 and the 2009 Action costs to be some HK$1.7 million.

(4)  This draft instruction letter was not signed by the Father.

(5)  By a letter dated 26 April 2013, KST sent the father a draft instruction and draft consent order, stating that if he did not provide the instruction letter they may have no choice but to cease to act. The draft instruction was to instruct KST to agree to dismissal of the appeal and withdrawal of the Respondent’s Notice with costs to the Father, and agreement to the contents of the consent order. The draft consent order is not attached to the letter in the bundle.

(6)  The draft instruction was not signed by the Father.

(7)  According to the KST Response, on 9 May 2013, the Father informed KST that he had signed a complaint to the LSHK against KST which had been prepared by Sherman. KST stated that they would apply to cease to act for him. The Father offered to pay KST HK$300,000 to settle their bill but said he would have to talk to Sherman.

80.  This correspondence set against the KST Response demonstrates that the direct dealings apparently occurring between the Father and Sherman were at odds with KST’s understanding of the Father’s wishes.

81.  The Father filed an affirmation dated 5 June 2013 on KST’s application to cease to act. The affirmation was typed by Sherman at a time when the Father had limited reading abilities. I treat this document with some caution. The affirmation refers to the provision of both the Settlement Agreement and the Deed of Settlement to KST. As to the Deed of Settlement, it states that a signed version of the Deed of Settlement was provided to KST but they refused to act on it. (I pause to note that the KST Response reflects a different picture with KST seeking to protect the Father’s interests). The affirmation continues to state that the Father then went to different solicitors namely Stephen Yap of Yap & Lam to assist; Mr Yap read out and interpreted the terms of the Deed of Settlement to Father in his Tai Po office; Father agreed to the terms and then Mr Yap witnessed Father’s signature on the Deed of Settlement. This account of events in the Father’s affirmation is corroborated by the Deed of Settlement itself which on its face has been sworn before Stephen Yap who attested to interpreting the contents of the deed to the Father. (This is a document the contents of which I have treated with much caution. This affirmation is peppered with allegations of KST falsifying the Father’s instructions and/or asking the Father to sign documents without reading and interpreting the contents. It has not been suggested to me that any of the Father’s complaints against KST were upheld. I am not inclined to accept that the allegations apparently made by the Father are true. I note that it is in small closely-spaced typed script. It must then fall within the category of documents that the Father probably could not read by himself. However, some of the contents of this affirmation are corroborated by contemporaneous documents so that it is reliable in some respects).

82.  An email dated 9 April 2014 from Mike Anderson (a Scottish lawyer) records notes of a meeting on 25 February 2014 attended by Sherman, the Father and Raymond and Tai Yuen Fong, prospective tenants of the Bridge of Don House. The notes record that Mr Anderson acted for Sherman, and record the negotiation of a lease to be signed by Sherman as landlord. This does provide evidence of the Father and Sherman behaving in February 2014 on the basis that Sherman remained the legal owner of the Bridge of Don House. However, that is consistent with them behaving pursuant to the Seagroatt Judgment or either of the Settlement Agreement or the Deed of Settlement.

83.  A tenancy agreement was signed between Sherman and a Carol Cheung dated 12 July 2014 in respect of the Lai Shing Flat. Again, that is consistent with the Father and Sherman behaving pursuant to any of the Seagroatt Judgment or the Settlement Agreement or the Deed of Settlement.

84.  The Father made his last will on 29 April 2014. The will left the Father’s estate to all 6 sons in equal shares. (I note that David does not accept that the Father made this will or that it bears the Father’s signature but he did not wish to make an application to challenge the authority of Michael and Gordon to defend Sherman’s action. On the basis that Michael and Gordon have been granted probate, and have been acting as executors with legal representation at least in this action, I proceed on the basis that the will is valid).

85.  There is controversy around a letter dated 15 August 2014 entitled “Instructions of [the Father]”. It is a typed letter, addressed to two firms of solicitors Yap & Lam (who were involved in the Deed of Settlement) and Kevin Li & Co (the firm used by Father to prepare his will of 29 April 2014). Sherman accepts he typed the letter but, as with other documents typed by him, he claims the Father dictated it to him and he was merely the typist, and  that was challenged by Stephen in cross-examination. The letter bears the Father’s signature. The content is “I, Lee Koon Wan instruct solicitors to present my signed agreement dated 28th December 2012 with my son [Sherman] to the [Court] to amend the [Seagroatt Judgment and Addendum]. I declared and confirmed (sic)  this is my instructions and properly and correctly record my wishes, intentions and agreements with my son [Sherman]. In witness whereof I have hereunto set my hand..”]. I will consider this letter later.

86.  The Father filed a second “defence statement” dated 17 September 2014 in response to KST’s claim against him for unpaid fees. Stephen assisted the Father with the preparation of this document.

(1)  The Father refers to why he employed KST to commence the 2009 Action. He states that he brought the 2009 Action against his eldest son with reluctance and despite the consequent public shame, but he felt driven to do it in the face of Sherman’s utter intransigence and failure to return the 2 Properties to the Father upon his request. The Father also states his reasons for wanting to settle the case in December 2012.

(2)  On the topic of settlement, this document says (a) the Father agreed to settle with Sherman on 28 December 2012 believing at the time that his maximum remaining costs liability to KST was $300,000; (b)  KST wrote to Sherman on 28 January 2013 offering to settle the $1.5 m costs bill owed by Sherman for $800,000, but Sherman did not take up this offer. The document says nothing else about settlement with Sherman e.g. the Deed of Settlement, but the purpose of this document was to address fees owed to KST.

87.  It was accepted by Sherman in his oral evidence that he had contacted all of the other brothers in about November 2014 to say that the Father would die soon, and all the brothers flew in to Hong Kong in about November, December 2014 or January 2015.

88.  A medical report from the Alice Ho Miu Ling Nethersole Hospital (bearing date 9 January 2015) states that the Father was admitted to the hospital from 15 December 2014 for his heart and kidney problems; that he had chronic medical conditions; and that he was noted to have deteriorating mental capability as assessed by an occupational therapist.

(1)  In his opening, Mr Chong requested that 4 medical reports relating to the Father be removed from the bundles on the basis that they did not meet the requirements for expert evidence. I dismissed that application on the basis that the reports (whose authenticity was unchallenged) were factual evidence of the opinions stated by the relevant doctors on the relevant dates, and the weight to be attached to them would depend on their contents and submissions made.

(2)  I do not attach any material weight to this report given its date, but I note that the contents of this 9 January 2015 report seem to align with the evidence from Stephen and Sherman at trial in respect of the late 2014 period.

89.  A medical report and medical certificate by Dr Fung Wai Choy Richard both dated 23 April 2015 state that the father was assessed on 22 April 2015 and found to be suffering from significant cognitive impairment and assessed to be mentally incapable in asset or finance management. Dr Fung also expressed the view that the present mental incapacity had lasted for at least a few months. I note that the date of the report is after the material events for present purposes so I do not attach any weight to this. Indeed, none of the medical reports directly assist me with assessing the Father’s understanding or intentions at the material times.

90.  The Father died on 6 May 2015.

91.  On 10 August 2015 there was an e-mail exchange between Sherman and Gordon. Gordon, as executor, requested evidence from Sherman that rent from the 2 Properties had been paid into the Father’s account from the time of the Seagroatt Judgment until his death, as per the Seagroatt Judgment, and queried whether that was required under Sherman’s “Settlement”. The exchange does not make clear whether Gordon had seen the terms of the alleged settlement under discussion. In cross-examination, Gordon said that he had not seen it at that time in August 2015 but had heard Sherman talk about it so he had used the quotation marks. I accept that evidence.

92.  By a letter dated 13 January 2016 from Sherman’s solicitors to the executors’ solicitors, Sherman’s solicitors refer to the Deed of Settlement as “made, agreed and duly executed” between the Father and Sherman. They state that the executors are duty-bound to administer the estate which also includes the Deed of Settlement, which requires dismissal by consent of the appeal and an application for release of the title deeds from court.

93.  By letter dated 16 August 2016, Sherman’s solicitors wrote again to the executors’ solicitors. (I note that the letters appear to be from and to different firms, but Sherman clarified that the case-handlers for each of Sherman and the executors remained the same). Sherman’s solicitors now asserted in their letter that Sherman and the Father had intended to carry out the terms of the Settlement Agreement, and had entered the Deed of Settlement with the sole purpose of persuading KST to file a consent summons to dispose of the appeal, and that Sherman would be claiming under the Settlement Agreement. This appears to be the first time that it is suggested by Sherman that the Deed of Settlement is not the relevant agreement; and this is notably after the Father’s death.

94.  On 12 June 2017, the Court of Appeal made an order (at the request of Sherman) dismissing Sherman’s appeal against the Seagroatt Judgment with no order as to costs. The supporting affirmation of Sherman dated 9 June 2017 “confirms” that before and after the death of the Father, there was no change to the agreement made between them regarding the dismissal of the appeal with no order as to costs as stated in the joint letter dated 28 December 2012, attached to the Father’s affirmation of 5 June 2013. In other words, Sherman gave evidence to the Court of Appeal that there was no change in the agreement with respect to no order as to costs since the settlement agreement of 28 December 2012, without mention of the solicitor correspondence recording the unwillingness of the Father to abandon his costs claims.

(iv) Assessment of witness evidence

95.  As to the several documents which Sherman accepted he prepared for the Father to sign, Sherman claimed to have typed the document as dictated by the Father without question or comment. That limited level of involvement was challenged by Stephen on cross-examination. Stephen reminded Sherman of the Father’s summary in his 17 September 2014 defence statement of his age, in his 80’s, and his health deterioration. Sherman acknowledged that the Father had described himself in this way. Stephen referred to the Father’s medical condition at the time. He referred to the Prince of Wales Hospital report dated 26 November 2013 which listed dates of the Father’s cataract operations and intravitreal injections of lucentis. When Stephen put it to Sherman that Sherman had accompanied the Father for some of these injections, he replied he might have done. When Stephen asked Sherman if he remembered that the Father found the injections painful, Sherman replied “uncomfortable”. When Stephen asked Sherman to agree that the Father “said it was a big needle in the eye, and after the injection he was as blind as a bat?” Sherman said it depends on different people. Stephen asked again “We are talking about your father and when you took him?” Sherman responded “I don’t remember”. Stephen put it to Sherman that the Father was simply not capable of formulating a document like the complaint to the LSHK by himself. Sherman simply denied that.

96.  Stephen was cross-examined by Sherman’s counsel in respect of assisting the Father to file the second defence statement dated 17 September 2014. Stephen stated that it had not been possible to operate on a “Father dictates, I type” basis. Stephen stated that the preparation of this defence statement was a very long and laborious process because of the Father’s health and eye problems; that although the Father was not mentally deficient, he could not remember things, and he got tired and sometimes he did not understand, and it took a while to talk to him and ask questions and refer to the documents that the Father gave him. Stephen also said he had a little personal knowledge of the events addressed by the document because he had attended some of the Father’s meetings with KST. In response to Mr Chong’s suggestion that the Father dictated to Stephen, Stephen responded that, at the time, the Father could not dictate more than one sentence coherently, and it might have inconsistencies which would need clarification.

97.  I am conscious that both Stephen and Sherman stand to gain if they win this action, and the Father is deceased so he cannot clarify the position. I am conscious that it would be deceptive to rely on demeanour.

(1)  I bear that in mind whilst I record various observations about the witnesses, knowing that some of them could be deceptive and that I must have regard to more reliable evidence obtained from the undisputed facts and the contemporaneous documents.  Stephen seemed to be a very calm, straight-forward speaker who had empathised with the Father’s frailty in 2013. Stephen and David were both candid as to the awkwardness of the situation of having to cross-examine their older brother in court, where they had not even spoken to each other for a long time. These were clearly sincere feelings. Sherman seemed to be much less emotionally open. All of this may simply be individual personality issues and does not assist me in who is telling the truth.  

(2)  However, other aspects of the witnesses’ demeanour seem to be more relevant in the context of the trial. Where direct questions on material matters were evaded more than once, and where the contemporaneous documents show that these were difficult matters to explain away, there I think I am able to assess whether, for example, the witness did not understand the question, or whether the witness  was seeking to evade the question. And where the witness seeks to evade material questions, I believe I can draw an inference from the evasion that the witness believes a truthful answer might harm their position.

98.  I note that, although the period in time when the Father signed the settlement agreements was late 2012, early 2013, Sherman and Stephen were giving evidence about the Father’s ability to dictate formal documents without assistance other than the act of typing throughout 2013 and into 2014.

99.  The contemporaneous documents seem to me to show an inconsistency in the Father’s behaviour given the documents being signed by the Father with Sherman, and the instructions being given by the Father to KST, as stated in the KST Response. However, KST did not seem to have any reservations about whether the Father understood the advice he was being given, or to doubt the clarity of his instructions to them. So the Father appears to have been able to understand what he was doing, but not to be able to adopt a consistent approach.

100.  I have regard to the fact that Sherman started his evidence insisting that the Father could read in 2012, but finally agreed, by the end of his cross-examination on behalf of the executors, that by December 2012 the Father could not read small script even with a magnifying glass.

101.  In my view, Sherman tried to avoid answering questions which he perceived as potentially harmful to his own case, e.g. in relation to the Father’s health when cross-examined by Stephen; in relation to the Father’s sight ability when cross-examined by Mr Kwong; in relation to whether or not Sherman envisaged that there would be a formal agreement drawn up by solicitors to give effect to the Settlement Agreement, also when cross-examined by Mr Kwong.

102.  That said, Sherman did ultimately answer some of those questions in a manner which was detrimental to his case albeit only after material cross-examination: e.g.

(1)  After insisting that the Father could read the Settlement Agreement, he accepted finally that the Father could not;

(2)  After insisting that the Settlement Agreement was a final agreement, written down, he accepted finally after being taken to the correspondence showing that the solicitors were discussing how to formalize the agreement that it would be normal for the solicitors to draw up a formal agreement after the homemade Settlement Agreement.

103.  By contrast, towards the end of cross-examination, when Mr Kwong put it to Sherman that if the Father had insisted on him providing the Lai Shing Flat deeds pursuant to the Deed of Settlement, Sherman would not have been able to say no, after only two questions, Sherman agreed that in theory, he thought that was correct.

104.  So far as it is necessary, I find that Sherman may not have been an entirely honest witness, but he was not able to  avoid truthfulness when pressed.

(v) Summary of the factual position

105.  It seems to me that the Father brought the 2009 Action against his eldest son with reluctance and despite the consequent public shame, but he felt driven to do it in the face of Sherman’s utter intransigence and failure to return the 2 Properties to the Father upon his request. The Father also clearly wanted reconciliation with Sherman. When Sherman lost the 2009 Action and became liable for all of the legal costs, Sherman started direct contact with the Father to discuss reconciliation and settlement.  We then see on the one hand, the Father entering into settlement agreements which provide that Sherman should not pay those costs; and, on the other hand, the Father instructing KST that they must pursue costs against Sherman because the Father would not pay them. As Stephen puts it in his evidence, the Father was “stuck between two stools”.

106.  I do accept that the Father’s eyesight and deterioration in physical and mental health made it difficult for him to deal with litigation and formal documents, and that he relied on his sons to help him. The contemporaneous documents seem to me to reveal that the Father was clear in discussions with KST that he wished to act in his own interests to have Sherman pay his legal costs, but then he would act in a directly contrary manner when he spoke or met with Sherman. 

107.  Against that background, I find Stephen’s account of dealings with the Father, in particular his ability to misremember and be inconsistent, to be credible. By contrast, I find it improbable that the Father was dictating formal documents to Sherman which Sherman faithfully typed without comment, question or input.

 (vi) Non est factum

108.  By the end of Sherman’s cross-examination, it was accepted that by the end of December 2012, the Father was unable to read small writing even with a magnifying glass. Effectively, he was unable to read, at least, the Settlement Agreement.

109.  I am not however satisfied that the Father did not understand the character or effect of each of the Settlement Agreement and Deed of Settlement as:

(1)  It is apparently accepted that Sherman did read out the terms of Settlement Agreement before the Father signed; and it was not put to Sherman in cross-examination that Sherman misled the Father about the contents.

(2)  The Deed of Settlement was interpreted by Stephen Yap, a solicitor acting for the Father, before the Father signed.

110.  Accordingly, the defence of non est factum would fail.

(vii) No intention to be bound by Deed of Settlement

111.  Sherman pleads by his Amended Statement of Claim dated 15 December 2017 at para. 11:

“Solely with a view to inducing the [Father’s] solicitors to accept his instructions and to file a consensual dismissal of [Sherman’s] appeal in CACV 204 of 2012 and with no intention to create legal relationship thereunder, on 31.1.2013, the [Father] and [Sherman] jointly signed a deed of settlement upon terms that:-….”

112.  Sherman’s witness statement dated 3 August 2019 at paras. 44 and 45 asserts:

“ 44. As KST refused to carry out the [Father’s] instructions on the basis that it was unfair to the [Father], the [Father] told me to prepare another document that would be acceptable to KST for the sole purpose to cause KST to carry out the [Father’s] instructions to file a consensual dismissal of the appeal to end the litigation between us. However, this document would not be treated as having any legal effect, and we would only carry out the terms of the Settlement Agreement.

45.The [Father] and I agreed to prepare another document (being the Deed of Settlement). The main difference between the terms of the Settlement Agreement and the Deed of Settlement is that, according to the latter, I would transfer the title deeds of the Lai Shing Flat to the [Father]. It was agreed between us that I would only transfer the title deed of the Lai Shing Flat to the [Father] for the purpose of causing KST to carry out the [Father’s] instructions and to negotiate costs with KST, but the [Father] would not register the said title deed and would transfer the same back to me after KST carried out his instructions. Our mutual intention and agreement was to ensure that the legal and beneficial ownership of the Lai Shing Flat remains mine.”

113.  Mr Kwong for D1 submits that the allegation is tantamount to Sherman claiming that the Deed of Settlement was a sham, and a vehicle to deceive the solicitors involved and the Court. He put it to Sherman that the Father, as a retired policeman, would not have acted in this way. Sherman responded that these were the Father’s instructions and he personally saw nothing wrong with this course of action. This exchange does not assist me in deciding whether or not there was actually the side-agreement in respect of the Deed of Settlement alleged by Sherman.

114.  The Father is now deceased and I must carefully consider the available evidence to see if Sherman’s assertion is supported, in circumstances where Sherman stands to gain if the Settlement Agreement is effective rather than the Deed of Settlement. This is particularly so where Sherman is the only witness to the alleged oral agreement, and where I have found that Sherman has been less than an honest witness in other regards. I must have regard to the undisputed facts and contemporaneous documents to assess whether the existence of the alleged oral agreement is more probable than not.

115.  The contemporaneous evidence indicates that the Father wanted to end the dispute with Sherman but did not want to be responsible for the KST fees, which had been ordered to be paid by Sherman by the Seagroatt Judgment. However, I bear in mind that the Father did enter into both settlement agreements despite them being against his own interests.

116.  The starting point must be that where the Deed of Settlement was signed after the Settlement Agreement, it is reasonable to suppose that the Father intended the Deed of Settlement to replace the Settlement Agreement.

117.  The KST Response indicates that KST was unwilling to pursue dismissal of the appeal on the basis of the Settlement Agreement or the Deed of Settlement as being against the Father’s interests. There is no written contemporary evidence that KST considered (let alone advised the Father) that the Deed of Settlement would be considered more appropriate than the Settlement Agreement to end the 2009 Action.

118.  The Deed of Settlement was prepared by solicitors, interpreted to the Father by solicitors, and signed before solicitor witnesses. That is consistent with an intention to be bound.

119.  When Sherman requested a dismissal of the appeal in his June 2017 affirmation lodged with the Court of Appeal, he relied on the Settlement Agreement, not the Deed of Settlement, so this does not corroborate the alleged “sole purpose” of the Deed of Settlement.

120.  Sherman claims that the Father orally promised Sherman that he would not enforce the Deed of Settlement, and that if Sherman transferred the title deeds of the Lai Shing Flat to him, he would not register the transfer but transfer the deeds back to him once the appeal was dismissed.  The evidence does not support this.

(1)  The contemporary documents show that the Father and Sherman did not operate on the basis of trusting each other’s oral promises. In particular, I have in mind the fact that the Father had to sign a written receipt for keys to the Lai Shing Flat on 24 October 2013. I find it hard to accept that such a significant side agreement to the Deed of Settlement as alleged by Sherman (if real) would not be documented.

(2)  The 5 June 2013 affirmation filed by the Father on KST’s application to cease to act refers to the Settlement Agreement and the Deed of Settlement but not to any side agreement. When asked in cross-examination how Sherman could type the contents relating to the Deed of Settlement without the mention of any side agreement, and not raise that, Sherman stated they had an agreement and did not need to type it there. This seems unlikely. In any event, the Father’s account in this affirmation does not support Sherman’s current claim of a side-agreement.

(3)  Sherman confirmed in cross-examination that he did not transfer the title deeds of the Lai Shing Flat to the Father. His actions do not corroborate the existence of the alleged oral promise or side-agreement.

121.  Sherman relies on payment of rent from the 2 Properties to the Father during his lifetime and/or Sherman having paid some expenses in respect of the 2 Properties during the Father’s lifetime as evidence of performance of the Settlement Agreement. But, whether operating on the basis of the Seagroatt Judgment, the Settlement Agreement or the Deed of Settlement, all of them provided for the payment of rent on the 2 Properties to the Father during his lifetime. (I note, although not necessary for my reasoning, that there is certainly no complete record with supporting bank documents before the Court as to the recipient of the rent payments throughout the July 2012 to May 2015 period; or ultimate provider of funds to meet relevant expenses).

122.  Sherman seeks to rely on the Father’s letter of instructions dated 15 August 2014 (typed by Sherman) as evidence that the Father wished to rely on the Settlement Agreement rather than the Deed of Settlement in order to end the proceedings. The letter is set out in full at para. 85 above. This document was formal. It was not disputed it was typed by Sherman. I find  that, in August 2014, it was highly unlikely that (on Sherman’s case), having intentionally signed the Deed of Settlement in January 2013 for the sole purpose of getting the appeal dismissed, the Father would then, without the appeal having been dismissed, initiate an instruction to state his intention to rely on the Settlement Agreement, where his own interests (as opposed to those of the ultimate beneficiaries) would be unaffected by whether the Settlement Agreement or Deed of Settlement was enforced. I accept that the Father signed this instruction letter. I do not accept, in light of the contemporaneous documents showing the Father’s inconsistent behaviour, and in light of Stephen’s evidence of the Father’s health and condition, that this letter typed by Sherman in August 2014 is good or reliable evidence of the Father’s intention in January 2013 that the Deed of Settlement should not be enforceable but only be used for the purpose of dismissal of the appeal.

123.  It seems to me from Sherman’s solicitors’ correspondence with the executors that Sherman was relying on the Deed of Settlement until August 2016, when he switched his reliance to the Settlement Agreement. The latter is obviously more favorable to Sherman. As put to Sherman in cross-examination by Stephen, Sherman appears to change his case as and when suits him.

124.  As to the general context, I note that the Father’s will left his estate to all sons equally. On the other hand, it is undisputed that the Father gave financial assistance to some of his sons as they needed it, without equality between the sons. I am not able to derive assistance from this in deciding whether it is likely or not likely that the Father would have made the alleged oral agreement.

125.  In circumstances where I treat an allegation made against a deceased person with great caution, I do not find support for Sherman’s contention of a side-agreement or oral promise in the contemporary documents. On the balance of probabilities, I find it  improbable that the oral agreement alleged by Sherman was made.

126.  Insofar as it was open to Sherman and the Father to make an agreement as to the beneficial ownership of the 2 Properties, then the latest agreement in time, i.e. the Deed of Settlement, would be the relevant document.

127.  Mr Chong sought to argue that it was not open to D1 to cross-examine Sherman on the basis that, or otherwise submit that, if any agreement was operative between Sherman and the Father, it was the Deed of Settlement, because that positive case had not been pleaded. As indicated during the trial when allowing the questioning, all of the Defendants pleaded that they put Sherman to proof as to the alleged Settlement Agreement and Deed of Settlement as they had no direct knowledge. It seems to me entirely proper that they should test Sherman’s evidence as to the validity of the Settlement Agreement, and make submissions thereafter on the basis of the evidence.

Other points

128.  Mr Chong objected to Michael and Gordon counterclaiming under the trust as beneficiaries in their own right, when they had been sued by Sherman in their capacity as executors of the estate. Once it was highlighted that the Court had (on 17 August 2021) permitted an amendment to allow a counterclaim to be brought by Michael and Gordon in their personal capacities, Mr Chong accepted that he could not pursue this argument.

Relief

129.  At the end of trial, Mr Chong and Mr Kwong helpfully identified the relief they submitted was appropriate depending on who won. D2 and D4 stated that they were also content with what was proposed. It is clear that any substantive order made must treat all of the Defendants in the same way.

130.  In respect of the outcome that the Defendants win, as they have, it was agreed that the Plaintiff’s claim be dismissed; and on the counterclaim:

(1)  There be an order compelling the plaintiff to the original action to assign and transfer 1/6 interest and title in (a) the Lai Shing Flat and (b) the Bridge of Don House in favour of each of the counterclaimants.

(2)  There be an inquiry as to the rights and liabilities between the plaintiff to the original action as trustee and the counterclaimants as beneficiaries in respect of the properties referred to in (1) above.

(3)  Liberty to apply for consequential directions.

131.  As to costs, they would normally follow the event. Mr Chong on behalf of the Plaintiff submitted that in light of the service of a Notice to Admit Facts dated 19 September 2022, he reserved the right to make submissions on costs after seeing the findings of fact. As it transpires, the decision did not turn on the resolution of disputed facts.

132.  I make an order nisi in respect of costs that the plaintiff to the original action pay the costs of the action and the counterclaim, to be taxed if not agreed. Should any variation be sought, then application should be made on paper within 5 days, with written responses 3 days thereafter.

Mr K M Chong and Ms Yvonne Yip, instructed by Chan & Tsu, for the Plaintiff (by Original Action) and the Defendant (by Counterclaim)

Mr Alan Kwong and Ms Sakinah Sat, instructed by L & L Lawyers, for the 1^st Defendant (by Original Action) and the Plaintiff (by Counterclaim)

The 2^nd and 4^th Defendants, appeared in person

The 3^rd Defendant was not represented and did not appear