FACV No. 34/2007

IpsofactoJ.com: International Cases [2008] Part 8 Case 12 [CFA]


COURT OF FINAL APPEAL, HKSAR

Coram

P.Y. Cheung

- vs -

Worldcup Investments Inc

JUSTICE KEMAL BOKHARY PJ

JUSTICE PATRICK CHAN PJ

JUSTICE R.A.V. RIBEIRO PJ

JUSTICE HENRY LITTON NPJ

LORD SCOTT OF FOSCOTE NPJ

29 OCTOBER 2008


Judgment

Justice Bokhary PJ

  1. I agree with the judgment of Lord Scott of Foscote NPJ. 

    Justice Chan PJ

  2. I agree with the judgment of Lord Scott of Foscote NPJ. 

    Justice Ribeiro PJ

  3. I agree with the judgment of Lord Scott of Foscote NPJ. 

    Justice Litton NPJ

  4. I am in total agreement with Lord Scott’s judgment, and would simply add a few words concerning the presumption of advancement.

  5. In para. 106 of Le Pichon JA’s judgment, she concluded that Madam Chin was holding the one Doran share on a resulting trust for the testator. This conclusion was reached by rejecting the proposition that the presumption of advancement operated in Madam Chin’s favour.

  6. The presumption of advancement is nothing more than an evidential tool; its weight varies with the circumstances of the case. English case law over the past half-century indicates that the presumption, in a family context, now carries less weight than it did in earlier times. Lord Diplock explained why this is so in Pettitt v Pettitt [1970] AC 777at 824 A-D. As he said, a person’s intention depends upon the social environment in which he lives and the common habits of thought of those who live in it. And he went on:

    The consensus of judicial opinion which gave rise to the presumptions of ‘advancement’ and ‘resulting trust’ in transactions between husband and wife is to be found in cases relating to the propertied classes of the nineteenth century and the first quarter of the twentieth century among whom marriage settlements were common, and it was unusual for the wife to contribute by her earnings to the family income. It was not until after World War II that the courts were required to consider the proprietary rights in family assets of a different social class. The advent of legal aid, the wider employment of married women in industry, commerce and the professions and the emergence of a property-owning, particularly a real-property-mortgaged-to-a-building-society-owning, democracy has compelled the courts to direct their attention to this during the last 20 years. It would, in my view, be an abuse of the legal technique for ascertaining or imputing intention to apply to transactions between the post-war generation of married couples “presumptions” which are based upon inferences of fact which an earlier generation of judges drew as to the most likely intentions of earlier generations of spouses belonging to the propertied classes of a different social era.

    It was observations like these which led Lord Denning M.R. in Falconer v Falconer [1970] 1 WLR 1333 at 1336A to say that, as between husband and wife, the presumption of advancement had very little place in the law today.

  7. But, as Cons VP observed in Re Mak Woon Shui, deceased [1992] 2 HKC 144 at 149, the social changes which influenced their Lordships in England do not have the same force in Hong Kong; the presumption of advancement in the local context is not so easily displaced.

  8. In the present case, Le Pichon JA (at para. 105) says that because Madam Chin had not proved that she was either “wife” or “concubine” according to Chinese customary law, she had failed to establish that she was “within the category of persons in whose favour a presumption of advancement would arise”. In my respectful view this mis-states the position. The legal pigeon-hole into which a party is put is not determinative of the issue.

  9. The reality in the present case is that since 1977, when Madam Lim Bee died, Madam Chin was the testator’s only “wife”. By the time the Doran share was issued, they had lived together in the same household as man and wife for some forty years. Le Pichon JA categorized the relationship between the testator and Madam Chin as a “de facto matrimonial relationship”. Assuming this to be an accurate categorization, it does not conclude the matter. The true question is whether such a relationship makes it more probable than not that a gift was intended : see observations to this effect in Calverley v Green [1984] 155 CLR 242 at 250-1. But, as regards the one Doran share issued to Madam Chin on 18 March 1985 the question of presumption of advancement does not even arise; what I have said above is, in a sense, academic. As Lord Scott in paras 25 and 44 has observed, there is no reason to conclude that Madam Chin did not become the legal and beneficial owner of the Doran share when it was issued to her on 18 March 1985. There is no evidence to indicate that she held the bearer share on a resulting trust for the deceased; and there is even less reason to so presume, given the nature of her relationship with the deceased.

    Lord Scott of Foscote NPJ

    Introduction

  10. The substantive issue in this appeal is whether there was an effective and completed gift of bearer shares by the above-named deceased, Cheung Kung Hai, to the lady, Chin Lan Hong, who is described in the pleadings and in the judgments below as his concubine but to whom the description of “secondary wife” would seem to me in the ordinary usage of the English language to be more apt (see para. 7 of the judgment of Bokhary PJ in Suen Toi Lee v Yau Yee Ping (2001) 4 HKCFAR 474. I will in this judgment refer to her as “Madam Chin”. There is also an issue regarding costs that will require a careful analysis of the nature of the proceedings which have led to this appeal and to the need for a decision whether, or to what extent, the costs of the plaintiffs, appellants in this Court, ought to be borne by the deceased’s estate. It is convenient to start with the substantive issue.

    THE BEARER SHARES ISSUE

    The background

  11. Everyone agrees that the deceased, who died in 2000 at the age of 84, died an “immensely rich man” (para. 1 of Reyes J’s judgment).  His fortune was self-made although, remarkably, he could neither speak nor write nor understand English, characteristics which have some relevance to the bearer shares issue. The deceased had a wife, Lim Bee, who died in 1977, with whom he had a number of children and grandchildren. He maintained a household also with his secondary wife, Madam Chin, with whom, too, he had a number of children and grandchildren. By his will dated 26 July 1996 the deceased appointed Madam Chin and two of their three sons, Cheung Kee Wee and Cheung Lin Wee, to be his executors and left his estate to be divided among the surviving members of his two households in specified proportions. The details are not relevant to the issues in this litigation. The three executors were, of course, among the beneficiaries. 

  12. The companies which issued the bearer shares in question are Liberian companies, Worldcup Investments Inc. (“Worldcup”), Profit-taking Company Inc. (“Profit-taking”) and Doran Limited (“Doran”). The question whether Madam Chin became the owner of the bearer shares in the circumstances relied on as constituting the gift of the shares to her depends not only on the findings of the judge, Reyes J, concurred in by the majority in the Court of Appeal (Le Pichon JA dissenting), but also on the characteristics of the subject matter of the alleged gift, namely, the bearer shares.

  13. Shares in a company are legal choses in action. They are not chattels. Share certificates, the pieces of paper issued by the company which record the issue of the shares to which they relate, are, on the other hand, chattels. The rights and obligations of the owners of shares in a company, the owners of the legal choses in action that the shares constitute, depend upon the articles of association of the company and the terms on which the shares in question were issued – provided, of course, that the terms of issue were authorized by the articles. None of these principles is, I believe, contentious, but they need to be borne in mind for the judgments in the courts below, and the submissions that have been made to this Court, have proceeded on the basis that the rules of law relating to the transfer of chattels apply to the transfer of bearer shares as if bearer shares were chattels. But bearer shares are not chattels; they are legal choses in action. Share certificates are chattels but their role in relation to the shares themselves is evidential (see Longman v Bath Electric Tramways Ltd [1905] 1 Ch 646 at 659/660 and 665/666). In Longman Romer LJ said at p.665, uncontroversially I would have thought, that “.... a certificate of shares is not a negotiable instrument ....”. He was not speaking of bearer shares but of registered shares. Registered shares are transferable by an instrument of transfer leading to the registration of the transferee in the books of the company as the owner of the shares transferred. But why, in principle, should the analysis be different where bearer shares are concerned?  In Palmer’s Company Law (loose leaf edition: Part 2 para.520) is to be found the statement that “.... the situs of bearer shares is the place at which those shares are held because they are negotiable instruments which are transferred by delivery”. No authority is cited in support of the, to me, startling proposition that bearer shares (it is clear that the author means the share certificates) are negotiable instruments. In my respectful opinion, the proposition is fallacious, whether one is speaking of bearer shares or of bearer share certificates. The nature of a negotiable instrument is described in Halsbury Vol. 4(1), 4th Ed. 2002 Reissue para.303:

    To be a negotiable instrument a document should contain substantially an order or a promise to pay a definite sum of money and no more.

    (See e.g. Nawab Major Sir Mohammad Akbar Khan v Attar Singh [1936] 2 All ER 545 (PC) per Lord Atkin at 550.)

    A bearer bond issued by a company may constitute a negotiable instrument. A bearer share certificate cannot, in my opinion, do so. It promises no payment. It constitutes evidence of ownership of the shares specified in the certificate and may, also, indicate a means of effecting a transfer of those shares that would not suffice in the case of registered shares. It is, in my opinion, an error to equate a share certificate with the shares in the company to which the shares relate and I repeat that the role of a share certificate is evidential. Possession of the share certificate enables the holder to represent to the company that he is the owner, or is entitled to be treated as the owner, of the shares to which the certificate relates. And, a fortiori, the shares themselves are not negotiable instruments. 

  14. The characteristics of the Worldcup bearer shares and the Profit-taking bearer shares and the documentation of the issue of them to the deceased are identical, as, also, are the circumstances relied on as constituting a gift of them to Madam Chin. The comparable characteristics and documentation relating to the Doran bearer shares are different and it is convenient to start with the Worldcup and Profit-taking shares. I can do so by reference simply to Worldcup. 

  15. Worldcup was incorporated in Liberia as an “on-the-shelf” company on 30 August 1984. Its incorporator was a Mr Goweh whose address was given as 80 Broad Street, Monrovia, Liberia. The same address was given as Worldcup’s registered address in Liberia. The International Trust Company of Liberia was named as Worldcup’s “registered agent” at that address. Worldcup’s authorized share capital was described in para.D of its articles of incorporation as “Five Hundred (500) registered and/or bearer shares without par value”. Mr Goweh subscribed on the incorporation of the company for 1 share (para.F of the articles). Under Liberian company law one shareholder sufficed. Paragraph D of the articles went on to say that:

    The Corporation shall mail notices and information to holders of bearer shares to the address provided to the Corporation by the shareholder for that purpose.

    and that:

    The holder of a stock certificate issued to bearer may cause such certificate to be exchanged for another certificate in his name for a like number of shares, and the holder of shares issued in the name of the owner may cause his certificate to be exchanged for another certificate to bearer for a like number of shares.

    These articles were duly filed with the Liberian Minister of Foreign Affairs on 31 August 1984 and thereupon Worldcup acquired corporate existence (para.I of the articles).

  16. A few days later, on 3 September 1984, Worldcup was acquired, off-the-shelf, by the deceased. Mr Goweh’s one subscription share was transferred “for value received” to the deceased and a first meeting of the company’s board of directors was recorded as taking place on 1 October 1984. The minutes of this meeting record three persons as being present, namely, the deceased who took the chair, was appointed president of the company and signed the minutes, Madam Chin, who was appointed secretary of the company, and a Madam Hoh Kwok Hing who was appointed treasurer. The minutes record that the transfer by Mr Goweh to the deceased of the one subscription share was presented to the meeting and that it was resolved that one share be issued to the deceased. The minutes were in English. 

  17. A share certificate relating to the one share was issued. Its terms are important for it is those terms that, coupled with the relevant provisions of Worldcup’s articles, establish the characteristics of the chose-in-action that the share certificate evidences. The front side of the certificate was in the form set out below:

    Certificate No. - 1 -

    No. of Shares - 1 -

    Incorporated under the laws of the Republic of Liberia

    WORLDCUP  INVESTMENTS  INC.

    AUTHORIZED CAPITAL STOCK 500 SHARES

    WITHOUT PAR VALUE

    This Certifies that BEARER is the owner of

    - ONE -

    fully-paid and non-assessable Shares of the Capital Stock of

    WORLDCUP  INVESTMENTS  INC.

    transferable on the books of the Corporation in person or by duly authorized Attorney

    upon surrender of this Certificate properly endorsed

    Shares may be either bearer or registered.

    In Witness Whereof the Corporation has caused this Certificate to

    be signed by its duly authorized officers and its Corporate Seal to

    be hereunto affixed this 1st day of October 1984

     

    --------------------------

    ---------------------------

    Secretary
    Treasurer

    President
    Vice-President

     


    The reverse side of the certificate showed the following:

    WORLDCUP INVESTMENTS INC.

    Certificate No. ....- 1 -....

    For

    ........ - 1 - ........ Shares

    Issued to

    ........ BEARER ........

    ............

    Dated

    ........ 1ST OCTOBER 1984 ........

    Transferred from

    ........ S. B. GOWEH ........

    Date of Transfer

    ........ 3RD SEPTEMBER 1984 ........

    No. Original Certificate

    No. Original Shares

    No. of Shares Transferred

    ............

    Received

    Certificate No. ............

    For

    ........ Shares

    ........ 19 ........

    ............

  18. The documentation relating to the deceased’s acquisition of Worldcup includes, also, minutes recording a second meeting of the Worldcup board of directors also held on 1 October 1984. The minutes record the attendance at the meeting of, not surprisingly, the same three persons who were recorded as having attended the first meeting on that day. The purpose of this second meeting was to authorize and record the issue to the deceased of the remaining 499 shares in Worldcup. These, unlike the first share were, according to the minutes, to be allotted for US$1.00 each “payable in full in cash”. Twenty-five bearer share certificates were issued; one of these certificates related to 19 shares and the other twenty-four certificates related to 20 shares each. The front side of each of these 25 certificates was in identical form to that of the certificate relating to the one share, save that the certificates were numbered, consecutively, 2 to 26, and the number of shares to which each certificate related was 19, for No. 2, and 20 for the rest. Everything else was the same. The reverse side of each certificate, too, was the same as the reverse side of the first certificate save, of course, for the number of the certificate, the number of shares to which it related and the absence of any details indicating that a transfer of the shares had taken place.

  19. The two sets of 1 October 1984 board minutes and the accompanying documentation were in form entirely regular and appropriate. Whether they demonstrate anything more than that documents were produced by the deceased’s lawyers in order to satisfy the formal requirements of an off-the-shelf purchase by the deceased of a Liberian company may be regarded as unlikely. But nothing, perhaps, turns on that. What is, however, important to notice is that each of the share certificates recorded that the shares were issued to “Bearer” and that the documentation, save in the board minutes, contained no indication of the name or address of the “Bearer” to whom the shares had been issued. 

  20. The deceased became, unquestionably, the legal and beneficial owner of the 500 Worldcup shares upon this issue of the share certificates on 1 October 1984. Of particular importance are the details on the front side of the certificates about transfer of the shares:

    .... transferable on the books of the Corporation in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed.

    This is the only provision indicating the requirements for a transfer of the shares. There is nothing at all in the articles dealing with the matter. There may have been some relevant provision about share transfers in the Liberian Business Corporation Act, pursuant to which the company was incorporated, but no reference to any such provision was made either in this Court or in the courts below. The words on the front of the share certificates to which I have referred may appear on first impression inconsistent with the concept of a bearer share. The concept of a “bearer” share is, surely, that entitlement to the shareholder rights attributable to that share can be claimed, vis-à-vis the company, by the person holding the share certificate. The company undertakes, so to speak, to recognize the holder as entitled to those rights. The words to which I have referred suggest, however, that an entry in the books of the company of a transfer of the shares and a surrender of the share certificate properly endorsed by the transferor is a necessary pre-condition of the recognition by the company of the title of the transferee. Is this consistent with the nature of bearer shares?  I do not think that this oddity regarding the Worldcup bearer shares makes any difference at the end of the day to the result of this appeal but it is a feature of the Worldcup shares that needs to be kept in mind when considering the critical question, namely, whether the deceased made a complete and effective gift of the bearer shares to Madam Chin.

  21. Some of the details relating to the deceased’s acquisition of Profit-taking were different from those relating to his acquisition of Worldcup. The date of incorporation of Profit-taking was 17 July 1984. The incorporator to whom the one subscription share was issued was a Mr Fully. But Mr Fully’s address and Profit-taking’s registered office were the same as those of Mr Goweh and Worldcup. And the same Liberian registered agent was named. Two sets of minutes purporting to record two board meetings of Profit-taking on 21 September 1984 were identical to the minutes of the Worldcup board meetings of 1 October 1984. The same individuals became president, secretary and treasurer of Profit-taking and the deceased, as chairman of the meetings, signed the minutes. Mr Fully’s subscription share was transferred to the deceased and a share certificate relating to that share was issued. Under the authority of a resolution at the second 21 September 1984 meeting that the remaining 499 shares be allotted to the deceased “payable in full in cash” at the price of US$1.00 each, twenty-five further certificates, one relating to 19 shares and each of the others relating to 20 shares, were issued. The contents of these share certificates were, save for the name of the company and the date of the certificate, identical to the contents of the Worldcup certificates, both front side and reverse side. There is no doubt at all that on 21 September 1984 the deceased became the legal and beneficial owner of the Profit-taking shares.

  22. The arrangements regarding the issue of the Doran shares were, however, different in some respects. The date of the incorporation of Doran was 3 December 1984. The incorporator was Mr Goweh of the familiar Monrovia address, 80 Broad Street. He subscribed for one share. He and two other individuals, also of 80 Broad Street, were named in the articles as the company’s first directors. 80 Broad Street was the address of the company’s registered office. As in the Worldcup and Profit-taking articles, para.D of the Doran articles authorized the issue of 500 “registered and/or bearer shares without par value” and continued with the same two sub-paragraphs about exchange of bearer shares for registered shares and vice-versa as had been contained in para.D of the Worldcup and Profit-taking articles.

  23. Mr Goweh “for value received” transferred his one subscription share to the deceased on 5 December 1984. The documentation does not disclose when or by what means Mr Goweh and his two 80 Broad Street associates ceased to be directors of Doran but minutes of a board meeting held on 18 March 1985 record the attendance of the deceased and Madam Chin and the appointment of the deceased, Madam Chin and a Mr Lam Wai Ping as respectively the president, the secretary and the treasurer of the company. The minutes record, also, a resolution for the issue to the deceased of one share “in a bearer certificate”. It is plain from the context that this share was intended to replace the subscription share. The minutes further record an application by Madam Chin for one share at a price of US$1.00 and a resolution is recorded:

    .... that the one share be and is hereby allotted payable in full in cash upon allotment to Madam Chin .... and that subject to payment being made therefor, the relevant certificate which at the request of the said applicant will be registered in the name of Bearer be issued to Madam Chin .... duly signed and sealed.

  24. Bearer share certificates relating to one share each in Doran were accordingly issued to the deceased and to Madam Chin on 18 March 1985. These certificates were subsequently mislaid, could not be found and by statutory declarations made on 10 February 1996 the deceased and Madam Chin so declared. They were then issued by Doran with substitute bearer share certificates. There is nothing to suggest that the substitute certificates were not in the same form as the original certificates and they differ in one particular respect from the Worldcup and Profit-taking share certificates. In the latter certificates, it will be recalled, the bearer shares are expressed to be “transferable on the books of the Corporation or by duly authorized Attorney upon surrender of certificate properly endorsed”. In the Doran share certificates, however, the bearer shares are simply expressed to be “.... transferable by delivery of this Certificate”. 

  25. It is not in dispute that on 18 March 1985 the deceased became the legal and beneficial owner of one bearer share in Doran. I can, for my part, see no basis on which it can reasonably be disputed that Madam Chin on the same date became the legal and beneficial owner of the bearer share issued to her. It is contended in the pleadings that she held her bearer share on a resulting trust for the deceased but no reason has been advanced in support of that proposition. It is surely a matter of complete irrelevance as to whether he or she, or indeed anyone, paid the US$1.00 referred to in the minutes. There is no evidence as to who paid it or whether it was paid at all. For my part I doubt whether it was. Doran, like Worldcup and Profit-taking, was, on its acquisition off-the-shelf by the deceased, a shell company without assets. Liberian company law did not require more than one shareholder and no explanation has been offered why the deceased should have made arrangements for the issue of a bearer share to his secondary wife in order for her to hold the share on trust for him. On the available evidence the bearer share issued to Madam Chin, valueless at the date of issue, was not the subject of any gift and there is no evidence justifying the inference that she held the share on trust for the deceased. 

    Transfer of bearer shares

  26. Before coming to consider the events and circumstances relied on as constituting a gift by the deceased to Madam Chin of the Worldcup and Profit-taking bearer shares, it is convenient to consider in principle and as a matter of law the requirements for a transfer of the bearer shares. Two points need to be made at the outset. First, when one speaks of a transfer of property, be it land, chattels or incorporeal rights, one may be speaking of a transfer of a legal title or of an equitable title or of both without distinguishing between them. A transfer of shares in a company may be complete as between transferor and transferee but incomplete as between transferee and the company. In such a case the equitable title to the shares may have vested in the transferee but with the legal title to the shares remaining vested in the transferor. The vesting in a transferee of the legal title to shares in a company will depend upon the requirements for transfer imposed by the company’s articles supplemented by the terms on which the shares were issued and, if necessary, by any relevant provisions of the law governing the company, in this case the law of Liberia.

  27. Second, throughout the period relevant to the transfer of the shares to Madam Chin, say, 1984 and 1985, Worldcup and Profit-taking were, in reality, the deceased in corporate guise. The company books, as far as they existed, were contained in a suitcase belonging, at least until March 1985, to the deceased. No formal board meetings were held although minutes recording board meetings prepared by the deceased’s lawyers were brought into existence to provide a semblance of formality to corporate decisions. The two companies were, on their acquisition by the deceased, shell companies with, at most, US$500 of paid-up capital. But by the end of 1984 Worldcup had acquired eleven subsidiaries (see paras 28 and 29 of Reyes J’s judgment) which, in turn, held equity interests in associated companies of a considerable combined value. Profit-taking by the end of 1984 had two subsidiaries both of which began acquiring assets of considerable value. Yet from the time of their incorporation until the deceased’s death neither Worldcup nor Profit-taking maintained any accounting records and neither even had its own bank account. They were simply convenient vehicles to hold, via their subsidiaries, valuable assets the arrangements for the acquisition of which were made by the deceased. They were, of course, by reason of their corporate status, legal persona, but in no other discernable respect were they distinguishable from the deceased.

  28. A transfer of the legal title to chattels requires, it is common ground, an act of, or equivalent to, delivery of the chattels to the transferee coupled with the requisite intention on the part of the transferor to transfer ownership. If the delivery were pursuant to a contract of sale, the requisite intention would usually be plain enough. If it were pursuant to an intention to make a gift, the intention would, if challenged, need to be proved. The proof might, however, given an appropriate relationship between transferor and transferee, be assisted by the evidential and rebuttable presumption of advancement. All of this is trite law and not in the least in dispute in this appeal. However, shares in a company, whether bearer shares or registered shares, are not chattels. They are legal choses-in-action. Share certificates, the pieces of paper evidencing the issue of and title to the shares, are chattels. They may be sold or pledged or made the subject of a gift as may be any other chattels. The requirements for proof of a gift of share certificates, of the pieces of paper, would, in principle, be the same as for any other chattels. But an effective gift, or sale or pledge, of the share certificates could not, in my opinion, by itself vest in the transferee the legal title to the shares themselves. The transfer would entitle the transferee, as against the transferor, to the benefit of the transaction, whatever that might be, and to retain the share certificates accordingly, but in order to perfect the legal title of the transferee to the shares notice to the company of the transfer would, in principle, be necessary. The rights of a shareholder as against the company depend upon the articles of the company but, subject to that, would be expected to include the right to notice of company meetings, the right to vote at company meetings, the right to receive a dividend if a dividend were declared, the right to participate in any capital distribution, and so on. None of these rights could be enforced by a transferee against the company unless the legal title to the shares had vested in the transferee, or, perhaps, unless an order giving effect to the rights were made in an action in which the legal owner was a party.

  29. Section 9 of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23, to the same effect as s.136(1) of the Law of Property Act 1925 (15 – 16 Geo.5 c.20), requires notice in writing of the assignment of a legal chose-in-action to be given to the person against whom the chose-in-action can be claimed (i.e., in the case of shares in a company, the company) in order to perfect the legal title of the assignee. But an assignment may be perfectly valid in equity without any such written notice (see Gorringe v Irwell India Rubber Works (1887) 34 Ch D 128). And mere oral notice to the company may suffice to protect the position of the transferee (see re Worcester (1868) 3 Ch App 555). 

  30. So, in principle, a gift of bearer shares, effected by the delivery by the donor of the share certificates to the donee, the donor having the requisite intention to make a gift of the shares, would entitle the donee to the ownership of the certificates but would not constitute the donee the legal owner of the shares. In order to vest the legal title to the shares in the donee it would be necessary, in my opinion, for notice of the transfer to be given to the company. Until that were done the donee’s title to the shares would be an equitable title, albeit absolute as against the donor. 

    The gift of the bearer shares to Madam Chin

  31. I have been at pains to emphasise the distinction in law between the bearer shares and the share certificates mainly because I am in revolt against the notion that a gift of bearer shares can be treated as a gift of chattels but also because an answer to the question whether the donor, the deceased, had done “.... everything which, according to the nature of the property ..., was necessary to be done in order to transfer the property and render the [transfer] binding upon him” (see Milroy v Lord 4 De G. F. & J. 264, per Turner LJ at 274) must surely be preceded by a correct analysis of the nature of the subject-matter of the intended gift.

  32. The pleaded case for the contention that the deceased made a gift to Madam Chin of his bearer shares in Worldcup and Profit-taking is based upon the assertion that in early 1985 he handed Madam Chin a suitcase, together with its keys, containing inter alia the bearer share certificates relating to the issued shares in the two companies and that he did so for the purpose and with the intention of making her a gift of the bearer shares. If this assertion can be made good, it would follow that on the date of that delivery she became the owner of the share certificates. The assertion falls into two parts; first, the delivery by the deceased to Madam Chin of the share certificates; second, the intention of the deceased in doing so. Both parts of the assertion are challenged on the pleadings but the real dispute, both in the Court of First Instance and in the Court of Appeal, related to the intentions of the deceased in handing Madam Chin the suitcase. The judgments of Reyes J at first instance and in the Court of Appeal of Rogers VP (who gave the judgment of the majority) and Le Pichon JA (who dissented) refer to the handing over of the suitcase to Madam Chin, and to the presence in the suitcase of the Worldcup and Profit-taking share certificates, without any indication that these factual matters were in dispute (see Reyes J paras 56 to 59, Rogers VP para.39 and Le Pichon JA para.93). 

  33. Mr Michael Thomas SC, Counsel for the appellants before us, invited us to bear in mind Reyes J’s expressed reservations about the evidence given by Madam Chin and to conclude that his references to the delivery to her of the suitcase and to its contents at that time were no more than a recital of evidence Madam Chin had given and did not constitute findings of fact. I do not read Reyes J’s judgment in that way. He did not accept Madam Chin’s evidence of what the deceased had said to her when he handed her the suitcase and his expressed reservations about her testimony were directed particularly to her evidence about the deceased’s intentions (see para.104 of the judgment). If he had felt unable to accept that the deceased had handed her the suitcase and its keys and that its contents had included the Worldcup and Profit-taking share certificates, he would, I do not doubt, have said so. Both Rogers VP (para.39) and Le Pichon JA (para.93) regarded the judge as having accepted Madam Chin’s evidence that the suitcase had been handed to her in 1985 and about its contents. They were, in my opinion, justified in doing so. There are, therefore, concurrent findings of fact in the lower courts on the handing to Madam Chin of the suitcase and of its contents. An attack on those findings cannot be entertained by this Court.

  34. Mr Thomas suggested, also, that such possession of the share certificates as was constituted by their presence in the suitcase that was handed over was inadequate to constitute the delivery of them to Madam Chin. He pointed out that the deceased and Madam Chin were living together in Taiwan, no doubt sharing the same rooms. If the suitcase had been kept under the bed (as it may well have been), it would have been no more under her bed than under his. But the facts, as recited by the judge in his judgment, indicate that Madam Chin did have possession of the contents of the suitcase. She inspected its contents (para.57); she “kept custody of the suitcase” (para.59); she handed custody of the suitcase for a short time to one of her and the deceased’s sons (para.59); she asked for it to be handed back to her and then emptied the contents into a chest in her wardrobe (para.63). These details, recited by the judge as facts, seem to me consistent only with the conclusion that Madam Chin was in possession both of the suitcase and of its contents, including the share certificates, and that if the requisite intention on the part of the deceased when handing her the suitcase, were established, the legal requirements for a gift to her of the share certificates would have been made good. So the critical issue is, before us as it was in the lower courts, the issue about the deceased’s intentions at the time he handed over the suitcase. Was he intending to make her a gift of the bearer shares in Worldcup and Profit-taking?

  35. The only witness to give oral evidence about the deceased’s intentions was Madam Chin. She gave evidence that, on giving her the suitcase and its keys, he told her that it contained valuable and important documents which he wanted her to own. But the judge expressed some dissatisfaction with her oral evidence (para.64) and said in terms that (para.104):

    On the basis of [Madam Chin’s] evidence of what happened in Taiwan in 1985, I cannot conclude that [the deceased] intended to make a gift to her of bearer shares in any of the Liberian companies.

    However, having regard to the contents of two statutory declarations in identical terms, made by the deceased on 11 January 1996, one relating to the shares in Worldcup, the other to the shares in Profit-taking, the judge accepted that in handing the suitcase to Madam Chin in 1985, the deceased had intended to make her a gift of the Worldcup and Profit-taking shares. There is no doubt that the contents of the statutory declarations (set out in para.75 of Reyes J’s judgment), if accepted as reliable evidence, make that conclusion of fact inevitable and indisputable.

  36. Mr Thomas, naturally enough, attacked that reliability. He did so on a number of grounds. He pointed out that the statutory declarations were in English, a language that the deceased could not read, and that they had been prepared by a solicitor, Ms Grace Fung (“Ms Fung”), acting on instructions given by Madam Chin and/or one of her and the deceased’s sons. Ms Fung gave evidence before the judge. She said that she would have interpreted the statutory declarations to the deceased. The judge concluded that the deceased must have understood her interpretation (para.129). Shortly before the 1996 events, the deceased had been diagnosed as suffering from a brain tumour. The tumour led to his death in 2000. The medical evidence, however, accepted by the judge, was that the tumour would be unlikely to have impaired his cognitive faculties in 1996 (para.128). A suggestion also appears to have been made about undue influence but the judge held that there was “simply no evidence” supporting any such suggestion (para.131).

  37. Other items of evidence were relied on before the judge and by Mr Thomas before us as indications that the deceased had not intended to make a gift of the shares to Madam Chin.

    1. There were handwritten charts prepared by the secretaries in the offices from which the deceased conducted his business affairs which listed the various subsidiaries and associate companies in the deceased’s corporate empire. These charts showed the deceased holding 100% interests in the Liberian companies. The evidence was that these charts were prepared from “office hearsay” and the judge did not regard them as of assistance.

    2. Under the Securities (Disclosure of Interests) Ordinance, Cap. 396, directors of listed companies had to disclose beneficial share interests held by them in the listed companies or their associated companies. In 1996, the deceased made disclosures of beneficial interests that would only have been correct if he had been the beneficial owner of the Worldcup (and Doran) shares. Both he and Madam Chin signed the disclosure forms. Here, too, the evidence was that the disclosure forms, which were in English, were prepared in the group secretarial department. The judge thought it likely that the deceased, and Madam Chin, would have signed them without paying much attention to their accuracy.

    3. The subsidiaries of the Liberian companies did keep accounting records (unlike the Liberian companies themselves) and the records show a regular system under which the deceased would draw money from one or other company in the group of companies of which he was in control (and n.b. that the Liberian companies and their subsidiaries represented only about 15 per cent in value of the whole corporate group) in order to use the money for the benefit of another company in the group. The system, explained by Reyes J in paras 96 to 102 of his judgment, led to the practical impossibility of striking an account as to the state of indebtedness between the deceased and individual companies in the group and the ability and practice of the deceased to draw money as and when he pleased from whichever Liberian company subsidiary he chose was put forward as consistent with the retention by the deceased of beneficial ownership of the shares in the Liberian companies. So it is, but, given the relationship between the deceased and Madam Chin, it is not necessarily inconsistent with Madam Chin’s beneficial ownership of the shares, and so the judge found (paras 155 and 164).

  38. There are, therefore, findings of fact by the judge underpinning his acceptance of the deceased’s 1996 statutory declarations as reliable evidence of the deceased’s intention in 1985 to make a gift to Madam Chin of the Worldcup and Profit-taking bearer shares. In the Court of Appeal Rogers VP, having reviewed the relevant evidence, said that he had “‘no doubt’ that the judge’s conclusion in relation to the 1985 gift of the shares was correct” (see paras 39 and 41). Sakhrani J concurred.

  39. Le Pichon JA’s dissent on this issue seems to me to have been based, if I may respectfully say so, on a confusion, repeated I think in the submissions made to us by Mr Thomas, of the need on the one hand for a delivery of the share certificates to Madam Chin and, on the other hand, for the delivery to have been made by the deceased with the requisite intention. She observed, correctly, that the deceased could not have intended to make a gift to Madam Chin of everything contained in the suitcase. The contents included the companies’ books (such as they were) and had in 1985 included the two Doran share certificates. The deceased could not have intended to make a gift to Madam Chin of the companies’ books, for they were not his to give, and, it has always been accepted, did not intend to make her a gift of the Doran bearer share that had been issued to him. So, said Le Pichon JA, the handing to Madam Chin of the suitcase could not be taken to be a sufficient delivery for the purposes of effecting a valid gift. It constituted “nothing more than giving Madam Chin possession of the shares” (para.99). The handing over of the suitcase constituted the giving of possession of the share certificates, not the shares, but the learned Justice of Appeal’s point about delivery indicates the confusion to which I have referred. Where chattels are concerned – and the suitcase and its contents were chattels – the giving to Madam Chin of possession of the chattels constituted delivery of them. The effect of the delivery depends upon the intention of the deceased in handing over these chattels. The person to whom chattels are delivered may receive them as bailee, or as pledgee, or as purchaser, or as owner pursuant to a gift. Which of these possibilities is the right one depends upon the purpose of the delivery. The 1996 statutory declarations constituted the evidence of the deceased’s intention when handing over the suitcase on which the judge was entitled to rely and did rely.

    The effect of the 1985 gifts

  40. The effect of the 1985 events was, on the findings of fact made by the judge and concurred in by the Court of Appeal, that as between the deceased and Madam Chin she became the legal owner of the share certificates and the beneficial owner of the shares. If the companies had not been, as I have already put it, the deceased in corporate guise, it would, in my opinion, have been necessary, in order for each company to become bound to recognize Madam Chin as the owner of the shares, for notice of the transfer to Madam Chin to be given to the company. But the deceased was the only director of each company, and he, of course, knew about the gift of the shares for he, himself, had made the gift. His knowledge was the knowledge of each company. There was nothing more that he needed to do to perfect Madam Chin’s entitlement to the shares and nothing more that she needed to do to put the companies on notice of her entitlement. The gifts to her were, in my opinion, complete and irrevocable by the deceased in 1985 when they were made.

  41. When, in January 1996, the deceased made his statutory declarations regarding the 1985 gifts, steps were taken to cancel the Worldcup and Profit-taking bearer shares and to replace them with registered shares in Madam Chin’s name. The requisite documents, including board minutes, were prepared by Ms Grace Fung and signed by the deceased and Madam Chin on the same occasion as he signed the statutory declarations. The effect of this was that on any footing the legal title to the shares in the two companies became vested in Madam Chin. On the findings of the judge, the events of 1996 did not constitute a gift of the shares to Madam Chin. That had happened in 1985. But the exchange of the bearer shares for registered shares perfected the gift by putting beyond any argument her legal, as opposed to beneficial, title.

    The Doran shares

  42. The Doran bearer share certificates, one of which had been issued to the deceased, the other to Madam Chin, were in the suitcase handed by the deceased to Madam Chin in 1985. For the reasons I have already explained Madam Chin was, in my opinion, the owner of the share issued to her, just as the deceased was the owner of the share issued to him. I can see nothing surprising in the circumstance that in the short period between the issue of the Doran shares on 18 March 1985 and the handing over of the suitcase, which must have taken place very shortly after that date (see paras 55 and 56 of Reyes J’s judgment), a period during which the deceased would have had custody of the suitcase, he had custody of her share certificate. The handing over of the suitcase did not constitute a gift to her of her share; she already owned it. It might have constituted a gift to her of his Doran share if that had been his intention, but both he and she agreed that that had not been his intention (see the joke referred by Ms Grace Fung and cited in para.83 of Reyes J’s judgment).

  43. At some time, post–1985, the Doran share certificates were mislaid and replacement bearer share certificates were issued. There was no statutory declaration by the deceased regarding a gift by him of the Doran share to Madam Chin but none was needed for the issue of the share to her was not a gift. Doran was, at the time of the issue, a shell company. The board minutes authorizing the issue referred to an application for the share at a price of US$1.00 that had been made by Madam Chin, not by the deceased. So far as the documentation goes, the share was issued accordingly. The “gift” comes later with the injection into Doran of valuable subsidiary companies, or the injection into the subsidiaries of valuable assets. But those circumstances cannot be taken to have divested Madam Chin of the beneficial ownership of her Doran share.

  44. There was, I think, something of a muddle, both at first instance and in the Court of Appeal regarding Madam Chin’s one share in Doran. Reyes J, in paras 132 and 136 of his judgment, considers the question whether by handing over the suitcase the deceased made a gift to Madam Chin of the Doran share. In the Court of Appeal, Rogers VP, in para.1 of his judgment describes the first issue before Reyes J as including the question whether the deceased had made a gift of the Doran share to Madam Chin, and in paragraph 39 refers to the gift of the Doran share effected by the handing over of the suitcase. But the share had been issued to her, not to him, and there is no suggestion, or evidence, that she ever transferred it to him. Le Pichon JA does refer to the defendants’ primary case being that Madam Chin had become the owner of the share on its issue on 18 March 1985 but concludes that Reyes J must have rejected that case (para.106). I do not myself take that view. Reyes J, I think, must have overlooked that primary case, as also, I think, did Rogers VP. For my part I think the primary case to be plainly correct. In any event, as between the deceased and Madam Chin, his secondary wife and, with whom he had been cohabiting as his only wife since the death of Lim Bee in 1977, I can see every reason why the evidential presumption of advancement should apply; and I can see no merit whatever in the contention that a resulting trust under which she would be taken to hold her one share on trust for him should be presumed.

    Conclusion

  45. For the reasons I have given I would dismiss this appeal on the substantive issue.

    THE COSTS ISSUE

  46. It has not been necessary, in order to deal with the substantive issue, to identify the plaintiffs and the defendants and their respective roles in this litigation. That is now necessary. It is necessary also to describe the history of this litigation and the circumstances which have given rise to it.

    The parties and the issues

  47. There are eight plaintiffs/appellants. Each is a child or grandchild of the deceased and Lim Bee. There are several other children and grandchildren of the deceased and Lim Bee who have the same interest in the deceased’s estate as the plaintiffs but who are not parties to the proceedings. The plaintiffs, being concerned about the administration of the deceased’s estate and dissatisfied with the explanations and information provided to them by his executors, and having already, in circumstances that I will describe, commenced administration proceedings against the executors, brought three issues before the court for determination. The first issue was the substantive issue that I have dealt with in the first part of this judgment, namely, whether the deceased at the time of his death had any beneficial interest in the Worldcup and Profit-taking shares or in the Doran share that had been issued to Madam Chin. This has been referred to in the courts below as “the Disputed Shares” issue. The second issue was whether at the time of the deceased’s death he owed money to one or more of the subsidiaries of the three Liberian companies, and, if so, how much was owed. This was the “Disputed Debts” issue. The third issue, the “Disputed Assets” issue, was whether assets standing in the name of any of the subsidiaries were held on trust for the deceased, and, if so, which assets. The Disputed Debts issue and the Disputed Assets issue were related to one another since both arose out of the manner in which these subsidiaries had acquired their respective assets, very considerable assets indeed, and out of the manner in which the deceased had been accustomed to draw money from the subsidiaries as and when he wished. 

  48. There were eight defendants. The first three were the three Liberian companies. They were not necessary parties to the Disputed Shares issue, although for obvious reasons they were interested in the result, but they were necessary parties both to the Disputed Debts issue and to the Disputed Assets issue. It was their subsidiaries’ debts and assets that were in question. The 4th defendant, Four Pillars Investments Limited (“Four Pillars”), became in 1998, pursuant to a transfer of the shares by Madam Chin, the owner of the Worldcup and Profit-taking shares and of Madam Chin’s one share in Doran. Four Pillars remains the owner of the Worldcup shares and the Doran share but in 2002 sold the Profit-taking shares to Megabest Securities Limited (“Megabest”), the 5th defendant, which remains the owner of those shares. Both Four Pillars and Megabest are BVI companies. They were necessary parties to the Disputed Shares issue. The 6th, 7th and 8th defendants are the deceased’s three executors (see para.11 above). They are the defendants in the administration proceedings commenced by the plaintiffs and necessary parties to each of the three issues.

  49. The Disputed Shares issue is an issue between Four Pillars and Megabest on the one hand and the deceased’s estate on the other. Four Pillars, however, is a company the shares in which are wholly owned by the three sons of Madam Chin, two of whom are, with Madam Chin, the deceased’s executors, and Megabest is a company the shares in which are wholly owned by Madam Chin. It is apparent, therefore, that so far as the Disputed Shares issue is concerned the executors have always had a conflict of interest. As to the Disputed Debts issue and the Disputed Assets issue, the state of indebtedness as between the deceased and the subsidiaries of the three Liberian companies, Worldcup, Profit-taking and Doran, and the question whether assets of any of the subsidiaries are assets in which the deceased before his death had, and therefore his estate after his death has, beneficial interests raises issues between the three Liberian companies and the estate, thus producing the same conflict of interest for the executors.

  50. The plaintiffs, on each of the three issues, were presenting a case that, if it succeeded, would increase the assets of the estate and thereby enhance the value of the beneficial interests in the estate of every beneficiary. And the plaintiffs were prosecuting each of the three issues pursuant, as I shall explain, to a direction by the judge, Reyes J, given in the administration proceedings, that they should do so.

    The costs orders

  51. Reyes J, having held that the deceased’s estate did not have any beneficial interest in the Worldcup shares, the Profit-taking shares or the Doran share that had been issued to Madam Chin (i.e. the plaintiffs lost on the Disputed Shares issue), that there was no debt owing by the deceased to any of the three Liberian companies, or to any of their subsidiaries, that was still enforceable (i.e. the plaintiffs won on the Disputed Debts issue) and that the deceased’s estate did not have a beneficial interest in any of the assets of any of the Liberian companies or their subsidiaries (i.e. the plaintiffs lost on the Disputed Assets issue) made the following order for costs:

    1. He ordered the party-and-party costs of the five corporate defendants and the plaintiffs’ own costs on an indemnity basis to “be recoverable against” the beneficial interests in the deceased’s estate of the members of the Lim Bee side of the deceased’s family.

    2. He ordered that the executors’ costs, on an indemnity basis, be recoverable out of the estate.

  52. The plaintiffs appealed to the Court of Appeal against the declarations made by Reyes J on the Disputed Shares issue and the Disputed Assets issue and asked the Court of Appeal to order in any event that their costs both of the hearing before Reyes J and of the appeal be met, on an indemnity basis, out of the estate. The executors filed a cross-appeal on a costs issue.

  53. Both the plaintiffs’ appeal on the substantive issues and the executors’ cross-appeal were dismissed but the Court of Appeal set aside the costs order that Reyes J had made and substituted an order under which:

    1. the party-and-party costs of the five corporate defendants were to be recoverable against the beneficial interests in the estate of the eight plaintiffs – this, if I may say so, was an adjustment that was plainly necessary, there being no reason why the interests of those beneficiaries on the Lim Bee side of the family, who were parties neither to the action nor to the administration proceedings that the plaintiffs had commenced, should have had their beneficial interests in the estate burdened with the costs of the five corporate defendants;

    2. the plaintiffs’ own costs, on an indemnity basis, were to be recoverable against their beneficial interests in the estate, but not against the estate as a whole; and

    3. save as to the executors’ costs of discovery which were “to be regarded as their costs of the administration of the Estate”, the executors’ own costs, on an indemnity basis were to be recoverable against the estate – I find this a puzzling order for the executors would be entitled in any event to take their costs of administration out of the estate and I cannot see how this order produces any different result from that which Reyes J’s order (see para.51 (ii) above) would have produced.

  54. As to the costs of the appeal, the Court of Appeal ordered:

    1. the plaintiffs to pay the five corporate defendants’ party-and-party costs and authorized the executors to pay those costs out of the plaintiffs’ “share of distribution from the estate after the grant of probate”;

    2. the executors’ party-and-party costs of the plaintiffs’ appeal to be recoverable from the plaintiffs’ share of the estate and that “such costs which cannot be recoverable on this basis be borne by the Estate”; and

    3. the executors’ costs of their own appeal to be borne by the estate.

  55. The plaintiffs appealed to this Court against the dismissal by the Court of Appeal of their appeal on the Disputed Shares issue and the Disputed Assets issue (see para.102 of the plaintiffs’ Revised Case) but at the outset of the hearing of the appeal Mr Thomas told us that the appellants would not be pursuing the appeal on the Disputed Assets issue. In the event their appeal on the Disputed Shares issue has failed. However, in para.103 of their Revised Case the appellants seek an order that:

    In any event, the Estate do indemnify the Appellants against the costs of the action, and of the appeal in the Court of Appeal and Court of Final Appeal.

    This, therefore, is the costs issue that I must now deal with.

  56. The case on costs, as explained by Mr Thomas, is based on the principle that where proceedings have been properly instituted for the benefit of a trust fund, or a deceased’s estate, the court may, in an appropriate case, make an order for the costs of the proceedings to be borne by the fund or estate, as the case may be. The principle was explained by Kekewich J in In re Buckton [1907] 2 Ch 406 at 414/415. He referred, first, to cases in which trustees ask the court to determine some question which has arisen in the administration of the trust. In such cases, said Kekewich J, the general rule would be that the costs of all necessary parties would be taxed as between solicitor and client and paid out of the estate. He then referred to a second class of case in which the question for determination by the court is raised not by the trustees but by some of the beneficiaries. In such a case, if the question raised would have justified an application by the trustees but for some reason or other the application has been made by beneficiaries, the same costs consequences, he said, should follow (p.415):

    The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate as a whole.

    Kekewich J distinguished, however, the first and second classes of case from the third class, a class where the application to the court is made by a beneficiary but is, in substance although not in form, an adverse claim made in hostile litigation. In such a case, said the judge, the rule applicable to hostile litigation should be applied and the unsuccessful party ordered to pay the costs.

  57. Kekewich J pointed out, at 415, the difficulty in many cases in deciding whether the particular case falls within the second class or the third class he had described but, subject to that difficulty, the distinction is a legitimate and well recognized one. It is relied on by Mr Thomas. He is entitled, in my opinion, to do so. The events regarding the gift of the Worldcup and Profit-taking shares in 1985 were known at first hand only to the deceased and Madam Chin and the probative weight proper to be given to the 1996 declarations, critical to the success of Four Pillars and Megabest, was a matter that cried out for judicial evaluation and determination. The executors’ conflict of interest (see para.49 above) made it reasonable for beneficiaries to initiate the proceedings.

  58. There is, moreover, a further principle regarding litigation to resolve questions arising in the administration of a deceased’s estate that needs to be borne in mind. If it is the deceased who is responsible for the creation of the doubts that have necessitated an application to the court for the doubts to be resolved, it is the deceased’s estate on which the costs of the application should fall. The principle is a well known one: “where the difficulty is occasioned by the .... conduct of the testator .... the costs are costs of administration” (Williams, Mortimer & Sunnucks’ Executors, Administrator & Probate 19th Ed. at para.66 – 25; see also In re Hall-Dare [1916] 1 Ch 272 at 277 and, in Hong Kong, Nina Kung v Wang Din Shin (No.2) (2006) 9 HKCFAR 800 at 811).

  59. But these principles do not constitute rules. They provide a guide as to how, in probate or administration proceedings, judicial discretion regarding the costs of litigation should be exercised. The answer to that may depend not only on the principles referred to but also upon the particular circumstances in which the litigation has been commenced and prosecuted. So I must turn now to the litigation that has led to this appeal.

    The litigation

  60. Quite soon after the death of the deceased questions began to be asked by some members of the deceased’s family on the Lim Bee side about the deceased’s interests, or the lack of any, in the three Liberian companies and their subsidiaries. Questions also began to be asked about debts said to have been owed by the deceased at the time of his death to these companies. The executors’ responses to these questions disclosed that they did not regard the estate as having any interest in the Worldcup or Profit-taking shares or in one-half of the Doran shares.

  61. Being dissatisfied with this response and with the sufficiency of the information about the assets and liabilities of the estate that they had been given by the executors, six members of the family on the Lim Bee side issued on 27 September 2002 an originating summons, OS 3956/02, to which the three executors were made defendants, seeking accounts and inquiries as to the assets and liabilities of the estate and seeking associated discovery of documents. It is an oddity of the history of the administration of the estate not only that at the date of the originating summons probate of the deceased’s will had not been obtained but that probate has apparently still not been obtained. Nothing turns on this but it does seem to me a rather curious feature. Presumably it has been the existence of the litigation and the family disputes about the assets and liabilities of the estate that has postponed the grant of probate, although I cannot see why that should have been so. Corrective affidavits of assets and liabilities can always be filed later. The six plaintiffs who issued this originating summons are all plaintiffs to the proceedings (No. 34 of 2007) now before this Court. The 5th and 8th plaintiffs in the present proceedings were not among those six.

  62. In an affirmation sworn in OS 3956/02 on 4 March 2003, Cheung Kee Wee, one of the executors, described the shareholding history of Worldcup and Doran and exhibited the relevant documentation, including the 11 January 1996 statutory declaration (see para.22 of the affirmation). And on 31 March 2003 the executors provided the OS 3956/02 plaintiffs with a “List of liabilities due from the Estate to Foreign Companies as at 2 October 2000”. This was expressed to have been prepared on the basis of the then known information and to be subject to later revision but showed the estate as owing Doran $28,689,347.48, Profit-taking $22,743,584.78 and Worldcup $76,500,395.13. The Doran figure was later reduced to $19,409,347.38. These figures are the origin of the Disputed Debts issue.

  63. On 8 August 2003 the executors issued their own originating summons (OS 3477/03) asking the court whether they should instruct independent solicitors to advise whether they should, on behalf of the estate, take action in relation to the Disputed Shares. In an affirmation of 8 August 2003 sworn in OS 3477/03 Cheung Kee Wee gave similar information and exhibited similar documentation about the Profit-taking shares as he had given and exhibited in his earlier affirmation about the Worldcup and Doran shares.

  64. An affirmation made in OS 3477/03 on 26 November 2003 by Cheung Phei Chiet (the 2nd plaintiff in the present proceedings and 6th plaintiff in OS 3956/02) made clear the existence of the issues regarding the Disputed Shares and the Disputed Debts and said also that there was (para.38)

    .... the issue of whether the assets held by [the three Liberian companies] or their subsidiaries were in fact held in trust for [the deceased].

    So the Disputed Assets issue, too, was up and running.

  65. On 26 November 2003 Cheung Phei Chiet swore an affirmation in support of yet another originating summons (OS 5186/03). This originating summons had been issued by all eight of the plaintiffs in the present proceedings. The three executors were the defendants. According to the affirmation, OS 5186/03 was issued for the purpose of “.... seeking orders and/or directions in response to ....” OS 3477/03. Why it should have been thought necessary to issue a new originating summons for that purpose is difficult to discern. Be that as it may, this was the third set of proceedings relating to the administration of the deceased’s estate that had been commenced in a period of just over one year.

  66. OS 3956/02 came before Reyes J for what was, apparently, a three day interlocutory hearing, 27 to 29 January 2004. Despite, or perhaps because of, the three day hearing, the judge was able to record in para.12 of his interlocutory judgment (delivered on 29 January) that there was “no dispute between the parties” that the court should order a determination of the Disputed Shares issue, the Disputed Debts issue and the Disputed Assets issue “.... sooner rather than later”. But, he added:

    The only substantial question is over the mechanism of where (whether in these proceedings .... or some other proceedings) and how that investigation should be ordered.

    In the passage cited, and in other references in his judgment to the proceedings before him (see paras 13 and 48) the judge refers to the proceedings before him as being OS 5186/03. But the title to his judgment and the recital to the order he made on 29 January 2004 indicate that it was OS 3956/02 that was before him. The bundles and papers prepared for this appeal have treated Reyes J’s judgment and order of 29 January 2004 as being given and made in OS 3956/02 (see the Index to Bundle B2 and the respective chronologies prepared by the parties). However, given the unnecessary, to my mind, proliferation of originating summonses, the judge’s muddle, if muddle it was, is understandable. 

  67. By his order of 29 January 2004 the judge ordered that “an inquiry be conducted for the determination” of each of the three issues and made an order for discovery by the executors and inspection by the plaintiffs of a number of classes of documents. As to costs, he ordered:

    1. that the costs of the inquiry he had ordered be reserved;

    2. that the costs of the executors’ compliance with the discovery and inspection orders be borne by the deceased’s estate; and

    3. that “the costs of this application up to today’s hearing including the appearances before the Chief Judge in November 2003 be paid by the [executors] personally to the plaintiffs, such costs to be taxed on a party-and-party basis if not agreed”.

    For the reasons I have given I assume that by “this application”, recited in (iii) above, the judge meant OS 3956/02, not OS 5186/03. There has been no appeal by the executors against the costs order against them referred to in (iii) above and no appeal by the plaintiffs against the party-and-party basis of taxation that the judge had directed. These orders must therefore stand. Finally, the judge gave the parties “liberty to restore the originating summons herein”. Bearing in mind the title and first recital to the order, that can only have been a reference to OS 3956/02.  It cannot be read as a reference to OS 5186/03.

  68. In the period between 29 January 2004, when the order directing the inquiry was made, and 1 June 2005 when Reyes J heard an application for directions regarding the conduct of the inquiry, correspondence between the Liberian companies and the executors, or the executors’ solicitors, regarding the Disputed Debts, apparently took place. The companies agreed that the majority of the Disputed Debts that had been claimed as due from the deceased were time-barred and the suggestion was made that any balance should be set-off against a dividend of $8 million odd said to be payable by Doran to the estate.   

  69. On 1 June 2005, on an application for directions made in OS 3956/02, Reyes J decided that for the purpose of enabling the inquiry to produce a final determination of all issues, a separate writ action should be commenced by the eight plaintiffs who had issued OS 5186/05. It will be recalled that only six of them were plaintiffs in OS 3956/02. The defendants to this new action would, if all issues were to be determined, have to include the three Liberian companies and Four Pillars and Megabest, as well as the executors, and Reyes J so ordered. I emphasise, however, that this was not, contrary to what is suggested by the plaintiffs in the Table of Events that they have supplied to this Court, an order made in OS 5186/03. The order included directions for pleadings, discovery and the other usual matters that would have been dealt with on a summons for directions in the new action that the plaintiffs had been directed to commence.

  70. At the directions hearing the plaintiffs had placed before Reyes J a written submission of 32 pages opposing the executors’ proposal that the inquiry proceed by way of a separate action in which the five companies would be joined as parties. The plaintiffs characterised that proposal as “unworkable and an unnecessary complication”. Whether it was necessary to have a new court action I am not sure, but it was certainly necessary to join the five companies in the inquiry. Otherwise they would not have been bound by the result. The tenor of the written submission was that the inquiry should proceed as an inquisitorial inquiry, concentrating on “.... the conduct of the Executors and how the interests of the beneficiaries can be properly protected ....” (para.1.10) rather than on the issues that had to be determined between the estate on the one hand and the companies on the other (see also paras 1.11 and 1.12). The written submission contended that the Disputed Debts issue should be dealt with in advance of the Disputed Shares issue, notwithstanding that if the estate were to succeed on the Disputed Shares issue the other two issues would become irrelevant and, in any event, that the bulk of the Disputed Debts issue appeared already to have been conceded by the companies that had claimed to be the creditors. It is not difficult to glean from the terms of the judge’s 1 June 2005 order and from the terms of the Reasons For Decision that he handed down on 7 June 2005 that he was not impressed by the written submission which, I do not doubt, played a material part in leading him thereafter to view the litigation as representing adversarial litigation between hostile parties (see in particular paras 22, 30 and 39 of the Reasons).

  71. The writ that commenced the new action sought, inter alia, a determination of the validity and enforceability of the Disputed Debts. But Further and Better Particulars supplied by the five corporate defendants on 3 September 2005 confirmed a concession that had earlier been made in correspondence that, on account of the lapse of time, “the Estate is no longer indebted to Worldcup and Profit-taking”. As to Doran, the pleading conceded that a substantial part of the debts that had been claimed by Doran had become time-barred, specified $11,330,091.10 as the amount of the indebtedness still due, gave particulars of the alleged origin of that indebtedness, claimed to set-off a declared dividend of $8,665,000.05 due from Doran to the estate and contended that $2,665,091.05 remained due to Doran from the estate. The contents of the Further and Better Particulars showed, however, that by 4 September 2006, when the hearing before Reyes J of the three issues commenced, the whole of that remaining $2,665,091.05 had become time-barred. And Reyes J recorded in his judgment that “no part of the amounts originally claimed by the Liberian companies and their subsidiaries [from the deceased’s estate] is now enforceable ....” He made a declaration to that effect. The Disputed Debts issue was thus disposed of.

  72. As to the Disputed Assets, the judge said, and I would respectfully agree, that (para.173 of his judgment):

    As a matter of first impression, the assets of a given Liberian company or subsidiary belong to that company. The assets would have been injected into the subsidiaries as loan capital.

    He noted, also, that (para.174)

    .... no particular case has been pleaded that some identified asset injected into a given company is held on resulting trust for the .... estate for some special reason.

    and that the trial had concentrated on the beneficial ownership of the Liberian companies shares. He, therefore, made a declaration that the assets held by the three companies and their subsidiaries were owned by them. This was a declaration that was, in my opinion, inevitable. The deceased’s estate could not have had a better right to the assets held by these companies and their subsidiaries than the deceased himself could have had in his lifetime. Money or assets injected into a company by a director otherwise than for the issue of shares may well justify a conclusion that the company becomes correspondingly indebted to the director. But the proposition that the company holds the money or assets on a resulting trust for the director cannot, absent some very clear documentation establishing both the fact and the propriety of the arrangement, be right. The door would otherwise be open for a fraud on the company’s creditors to take place.

  73. I would, for my part, accept that it was reasonable for the plaintiffs to have brought before the court for determination both the Disputed Shares issue and the Disputed Debts issue. As to the issue regarding the gifts of the Worldcup and the Profit-taking shares, the uncertainty entertained by the plaintiffs as to whether the gifts relied on had been completed and irrevocable gifts resulted from the manner in which the gifts had been made in 1985 without any contemporary documentation and from a not unnatural suspicion about the 1996 statutory declarations. In my opinion, a judicial investigation into the validity of these gifts falls squarely within the second of the classes of case identified by Kekewich J in In re Buckton and, moreover, the need for the judicial investigation had been produced by the conduct of the deceased. I do not think the same can be said about the Doran share issued to Madam Chin. The issue had been documented by contemporaneous documentation, copies of the documents had been supplied to the plaintiffs, and, as I have said, I can see no reasonable basis on which the effect of that documentation could be questioned. On the other hand, I do not think the addition of the Doran share to the matters to be looked into by the court made any material difference to the length or the costs of the trial before Reyes J. 

  74. As to the Disputed Debts, there is an even clearer case for regarding the case as falling within the second class of cases. The deceased was, both before and after the gift of the Worldcup and Profit-taking shares in de facto control of the Liberian companies and their subsidiaries and, therefore, of their assets. The accounting records of the subsidiaries and the deceased’s practice of using himself as an intermediary to take money from one company in the group and use it for the benefit of other companies in the group plainly made the task of striking a balance of the indebtedness between the deceased and the companies somewhat of a nightmare. The plaintiffs were, in my opinion, well justified in challenging the indebtedness claimed to be owing by the deceased to the companies and in requiring a judicial determination of the alleged indebtedness. In the result their challenge led to concessions that nothing remained enforceable against the estate and to a judicial determination of the initial validity of the debts that had been claimed becoming unnecessary.

  75. I am less clear about the position regarding the Disputed Assets issue but the deceased’s accounting system, to which I have more than once referred, was bound after his death to create, and did create, confusion. In the circumstances, this issue, too, can shelter in the second class of cases.

  76. On the other hand, the plaintiffs’ conduct of the administration proceedings assumed, in my opinion unfortunately, a markedly adversarial character at the directions hearing before Reyes J on 1 June 2005. The adversarial flavour of the lengthy written submission made by senior counsel (not Mr Thomas) on behalf of the plaintiffs is unmistakable and was unnecessary. Counsel was inviting the judge to embark upon an inquisitorial, open-ended inquiry into the conduct of the executors in their administration of the estate. This was in my opinion quite inappropriate and was rightly resisted by the judge. The executors’ sensible suggestion, adopted by the judge, for a new action to be started in order to bring in as defendants the five companies and thereby to enable the determination of the three issues to be final as against all parties, was resisted by the plaintiffs. And, at the hearing before Reyes J time spent and costs incurred by the plaintiffs in adducing evidence about the Disputed Debts or in seeking to investigate the initial validity of the indebtedness claims was unnecessary. These costs cannot, in my opinion, be franked by the In re Buckton second class banner.

  77. Viewing the litigation in the round, the new action, and the resolution in the new action of the three issues, enables that action to retain its place in the In re Buckton second class of cases. The costs of the new action and the hearing before Reyes J should, in my opinion, be treated as costs of the administration of the estate and fall on the estate but, bearing in mind the adversarial quality of the plaintiffs’ prosecution of the Disputed Debts issue and the unnecessary time spent on that issue at the hearing, I would deprive the plaintiffs of the right to recover from the estate their costs attributable to that issue.

  78. Once the determination of the three issues by Reyes J had taken place, the further prosecution by the plaintiffs of any of the three issues by their appeals, essentially appeals on factual issues, first to the Court of Appeal and then to this Court, cannot, in my opinion, be brought under the protective costs umbrella available to cases falling within the In re Buckton second class of cases. The plaintiffs must be taken, in my opinion, to have appealed at their own risk as to costs. 

    Conclusions on the costs issues

  79. The costs orders made by Reyes J (see para.51 above) and by the Court of Appeal (paras 53 and 54 above) failed, in my respectful opinion, to recognize the legitimacy of the plaintiffs’ refusal to accept the fait accompli with which they were presented regarding the Disputed Shares and, initially, the Disputed Debts. The adversarial stance that was adopted by the plaintiffs at the directions hearing before Reyes J, and perhaps evident earlier, did not, in my opinion, undermine the reasonableness of their request for a judicial resolution of their doubts regarding the gift of the Worldcup and Profit-taking shares and the debts claimed by those companies and Doran from the estate. The failure to recognize the legitimacy of that request was an error of law that entitles this Court to review those orders.

  80. The Court of Appeal rightly recognized that Reyes J’s order that the costs of the five corporate defendants and of the plaintiffs be recoverable against the beneficial interests in the estate of the members of the Lim Bee side of the family was unfair to those members who were not parties to the proceedings. But I, for my part, would go further. To the extent that costs orders against individual parties to litigation are justified, it is surely for the paying parties to decide from what assets of theirs the orders should be satisfied. If the paying party and the receiving party agree to the identification of particular assets from which the costs are to be paid, then by all means let the costs order so direct; but absent such agreement, the direction would be, in my opinion, wrong in principle.

  81. As will have appeared, the plaintiffs are, in my opinion, entitled to some part, but not all, of their costs of the hearing before Reyes J to be paid out of the estate. The irrecoverable part of their costs, i.e. that part attributable to their unnecessary prosecution of the Disputed Debts issue after that issue had become moot, I would assess at 20 per cent of their costs up to and including the hearing. It follows that on their appeal to this Court on the costs issue the plaintiffs have had some success. I would reflect that success by reducing by 10 per cent the costs of the appeal that they would otherwise have to pay the executors.

  82. I would, therefore, make the following costs orders:

    1. The costs of the directions hearing before Reyes J on 1 June 2005 

      These were costs incurred in OS 3956/02 in which there were only six plaintiffs. The judge could have simply directed at the hearing on 1 June 2005 that pleadings be lodged to define the three issues and given liberty at the same time for the additional parties to be joined. The fact that a fresh writ was issued was a mere technicality. In these circumstances it would be appropriate for this Court to deal with the costs incurred at that hearing. I would allow the executors’ costs to be treated as administration costs payable out of the estate but I would, bearing in mind the tone of the plaintiffs’ written submissions, leave them to bear their own costs.

    2. The costs of the action No. 1138 of 2005 up to and including the judgment of Reyes J

      I would set aside the parts of the Court of Appeal’s costs order referred to in para.53(i) and (ii) above, and

      1. order the costs of each of the five corporate defendants, taxed if not agreed on a party-and-party basis, to be paid by the executors out of the estate;

      2. order 80 per cent of the costs of the plaintiffs, taxed if not agreed on an indemnity basis, to be paid by the executors out of the estate; and

      3. order the executors’ costs, on an indemnity basis, to be treated as administration costs recoverable out of the estate.

    3. The costs of the appeal to the Court of Appeal

      I would set aside the parts of the Court of Appeal’s costs order referred to in para.54(i) and (ii) above, and

      1. order the costs of each of the five corporate defendants, taxed on a party-and-party basis if not agreed, to be paid by the appellants; and

      2. order 90 per cent of the costs of the executors, taxed on a party-and-party basis if not agreed, to be paid by the appellants and the balance of the executors’ costs, on an indemnity basis, to be treated as administration costs recoverable out of the estate.

    4. The costs of the appeal to this Court

      I would make the same order as is set out in (a) and (b) of the last foregoing paragraph, save that the order set out in (a) will apply only to Four Pillars and Megabest.

  83. I would direct, also, that the executors be at liberty to set-off costs due to the plaintiffs out of the estate against costs due to the executors from the plaintiffs, so that only the balance would be payable, with liberty to the executors, if the balance is a sum due from the plaintiffs, to recover the balance out of the plaintiffs’ share in the estate.    

  84. The costs orders indicated above must be treated for the time being as orders nisi but the parties should bear in mind that this Court has already had the advantage of written submissions on the costs issue made on behalf of the plaintiffs and the executors respectively and some, albeit perhaps incomplete, oral submissions.        

    Justice Bokhary PJ

  85. By the unanimous decision of the Court, (i) the appeal on the substantive issue is dismissed and (ii) the appeal on costs and the costs of this appeal are dealt with in the manner set out in paras 82 to 84 of Lord Scott of Foscote NPJ’s judgment.


Representations

Michael Thomas, SC & Malcolm Lim (instructed by Messrs DLA Piper Hong Kong) for 1st – 8th plaintiffs / appellants.

Edward Chan, SC & Damian Wong (instructed by Messrs Cheung, Tong & Rosa) for 4th & 5th defendants / respondents.

Lisa K.Y. Wong, SC & Bernard Man (instructed by Messrs Chui & Lau) for 6th – 8th defendants / respondents.


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