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Yang Foo-oi By Leung Ping Chiu, Roy Her Next Friend v Wai Wai Chen And Another

Judgment Cited authorities 23 Cited in Precedent Map Related
Vincent
Judgment Date29 November 2016
Year2016
Judgement NumberHCA1739/2010
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA1739C/2010 YANG FOO-OI by LEUNG PING CHIU, ROY her next friend v. WAI WAI CHEN AND ANOTHER

HCA 1739/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1739 OF 2010

________________________

BETWEEN
YANG FOO-OI by LEUNG PING CHIU, ROY her next friend Plaintiff
and
WAI WAI CHEN 1st Defendant
TIMFORD RESOURCES LIMITED 2nd Defendant

________________________

Before: Hon Anthony Chan J in Court
Date of Hearings: 21-23 September, 26-30 September, 3-7 October,
11-14 October, 17-18 October, 31 October and 1 November 2016
Date of Judgment: 29 November 2016

_________________

J U D G M E N T

_________________


1. This action arose from the distribution of assets (mainly landed properties) belonging to the late Dr Chen Din Hwa (“Chen”), who was the founder of the Nan Fung Group (“Nan Fung”), to his family members. The distribution arrangements in question were embodied in a written Proposal A59807 dated 21 August 2004 (“Proposal A”) which was approved by Chen.

2. The plaintiff (“Yang”) was, until their divorce in April 2011, Chen’s wife. They have 2 daughters, Angela Chen (“Angela”) and Vivien Chen, the 1st defendant (“Vivien”).

3. On the face of Proposal A, Chen would distribute to each of Yang, Angela and Vivien HK$3b (billion) worth of assets. This was to be done by distributing to Angela and Vivien each HK$4.5b worth of assets, out of which each of them was to transfer HK$1.5b worth of assets to Yang.

4. This action concerns the arrangements made between Yang and Vivien in respect of the former’s share of the assets distributed to the latter by Chen. These arrangements were evidenced in 2 Proposals[1], namely, B58031 dated 7 August 2004 (“Proposal Y3”) and B78532 dated 27 October 2004 (“Proposal Y5”). Under these arrangements, Yang agreed, inter alia, to receive from Vivien cash of HK$1.5b in lieu of properties. These arrangements are referred to in the pleadings as Cash Distribution Agreement and Plaintiff’s Distribution Arrangement (collectively, “Disputed Agreements”).

5. Yang says that Vivien had taken unfair advantage of her in that the properties she was entitled to under Proposal A were worth considerably more than HK$1.5b[2]. Yang’s primary contention is that the Disputed Agreements are voidable and liable to be set aside for breach of fiduciary duties, non-disclosure in family arrangement, undue influence, misrepresentation and unilateral mistake, and that Vivien remains liable to transfer to her 1/3 in value of the properties she received under Proposal A.

6. Alternatively, if the Disputed Agreements are valid and binding, Yang has, firstly, a claim in relation to the beneficial ownership of the shares in the 2nd defendant (“Timford”), which was incorporated to receive HK$300m (million) to be transferred by Vivien to her under Proposal Y5. Secondly, under both Proposals Y3 and Y5 Vivien was to arrange for a donation of HK$400m to Yang’s Charity Trust. There is a shortfall in the donation arranged by Vivien.

7. There is a further alternative claim by Yang on the basis that if the Disputed Agreements had not extinguished her 1/3 entitlement under Proposal A, there remains outstanding assets that have not been distributed to her under the same.

8. There is a counterclaim by Vivien for declarations that: (a) the distribution of the HK$1.5b from her to Yang and the manner in which the latter would further distribute those assets were governed by various agreements referred to in the pleadings as the July 2004 Agreement as varied by the August 2004 Agreement and October 2004 Agreement[3]; and (b) the shares and assets of Timford are governed by the terms of a declaration dated 20 January 2005, referred to as the “Timford Declaration”, with the implied term that Yang is not entitled to deplete the value of Timford’s shares.

9. The above is a brief introduction. Apart from the complexity of the many legal arguments in this case, Yang is now in a state of incapacity, having suffered a major stroke on 7 June 2014[4], and unable to give evidence. This action is being conducted by her next friend. Three affirmations of Yang are being relied upon under a Hearsay Notice. Apart from factual disputes, Vivien takes issue with Yang’s mental capacity at the time when she approved her pleadings and made those affirmations.

10. Vivien and Timford are represented by the same legal team. Timford is apparently under the control of Vivien because, apart from Yang, its directors are Vivien and her 3 children.

Background

11. There is little dispute over the background facts[5]. Where there is a dispute, it will be indicated so below.

12. Chen was the founder and former Chairman of Nan Fung, which was and is a substantial group of companies in the business of real estate and property development. Chen was a very successful businessman before he passed away on 17 June 2012 at the age of about 89. He had assets of about HK$50b in 2002, which were located in Hong Kong and overseas.

13. Yang and Chen got married in 1949 and divorced in April 2011. They have two daughters, Angela and Vivien.

14. Angela is the elder daughter. She was living in the US and running the business of Nan Fung there before 2003. Vivien began working for Nan Fung after having returned to Hong Kong in the 1980s[6]. She became the Chairman and managing director of Nan Fung in 2009.

15. Timford is a BVI company incorporated in 2005 pursuant to the Disputed Agreements (see below). It was set up to receive the cash to be distributed to Yang by Vivien. Vivien was and is the sole shareholder of Timford, and its first directors were Yang, Vivien and Mr Daniel Yip (“Daniel”).

16. Daniel was a senior staff member of Nan Fung. He retired in 2009 but continues to work for Nan Fung as a part-time consultant. He was a witness in this trial. Together with 3 other senior staff, namely, Stephen Cheung (“Stephen”), KL Wong (“Wong”) and Alan Chan (“Alan”), Daniel was involved in the preparation and execution of various Proposals. These Proposals are important contemporaneous evidence in this case. Stephen and Alan were also witnesses in this trial.

The Proposal System

17. As Chairman of Nan Fung at the time, Chen’s approval would be required for various affairs and transactions of Nan Fung. A proposal system (“Proposal System”) was adopted whereby Chen’s decisions in relation to the operation of Nan Fung would be recorded in standardised Chinese Proposals endorsed by him.

18. The Proposal System operated as follows:

(1) A Chinese Proposal summarising the matters that arose for Chen’s decision would be prepared by the relevant person(s) or staff in charge, who would then submit the Proposal to Chen for his review, and where appropriate, endorsement or approval;

(2) In relation to important decisions, the person(s) submitting the Proposal and other relevant person(s) or staff who might be affected would be summoned for a meeting to discuss the matters raised in the same;

(3) The outcome of the meeting would be recorded on the particular Proposal, and Chen would sign the appropriate part of the Proposal where the matters raised were approved;

(4) The Proposal signed by Chen would then be circulated and copied to all the relevant departments and senior staff of Nan Fung, who would then carry into effect Chen’s directions as recorded on the signed document;

(5) Where a board resolution was needed for a transaction, the matter, having been approved by Chen via a Proposal, would be considered and sanctioned by the relevant board.

19. The Proposal System was also used for Chen’s personal financial matters, including arrangements for the distribution of his assets. Chen’s decisions were normally abided by his family.

20. Yang also used the Proposal System in relation to the distribution of her assets. Such Proposals were drafted by the senior staff of Nan Fung.

21. The senior staff responsible for a particular Proposal would be listed as “the handlers” (負責經辦人) on the document.

Chen’s Holding Ltd

22. Chen was diagnosed with prostate cancer in about September 1999. From around late 1999, various Hong Kong assets beneficially owned by Chen were transferred to Chen’s Holding Ltd (“CHL”), the sole shareholder of which was Vivien, for estate duty planning purposes.

23. There is a dispute between the parties as to whether the assets transferred to CHL were intended to be gifts from Chen to Vivien. Vivien says that those were gifts to her absolutely. According to Yang and Angela, one evening in January 2003, Chen suddenly told his wife that he recalled having transferred approximately HK$18b worth of assets to Vivien but could not recall the details (he was suffering from the onset of dementia at the time). He asked his wife to look into the matter. Yang suggested seeking the help of Angela and Chen agreed. Yang then called Angela and asked her to return to Hong Kong immediately.

24. Yang’s case is that the shares in CHL, which was holding most of Chen’s Hong Kong assets, were in fact held by Vivien on trust for her father. This factual assertion is relevant to a key argument in Yang case, namely, breach of fiduciary duty on the part of Vivien. This argument has gained prominence by reason of the fact that Yang is unable to give evidence in this trial (see the details of this argument below).

25. The tax scheme alluded to above was succinctly described by Daniel in his evidence, which was not challenged. In 1999 to 2000, Chen had put in place an estate duty tax scheme (“Scheme”). A Nam Fung staff by the name of Mr Peter Wu was responsible for the Scheme. He was assisted by Daniel for that purpose. The advice from lawyers (including that of an English Queen’s Counsel) and accountants were obtained in...

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