In Li Miaoli and Others v Chan Shu Fong and Others HCA 845/2011, the Court held that a father did not make an inter-vivos gift of shares to his son. This case is an illustration of how the Court will apply legal principles relating to inter-vivos gifts and proprietary estoppel.
The dispute arose in relation to the estate of Chan Choi (the "Father") who it seems died intestate. The Father had a number of sons including Shee Yuen, Shu Chun, Shu Nam and Shu Fong. Sek Lam was the son of Shee Yuen. The estates of Shee Yuen, Shu Chun and Sek Lam (the "Plaintiffs") brought a claim against Shu Fong (the "1st Defendant") for their interest in 150 shares in Luk Hoi Tong (the "2nd Defendant"), registered under the name of the Father (the "Shares").
The Plaintiffs sought a declaration that the Shares belonged solely to the estate of the Father. The Plaintiffs sought an order that the 1st Defendant return dividends received from the Shares between 1991 and 2002 to them for distribution amongst the beneficiaries of the Father's estate.
The 1st Defendant argued that the Father had gifted the Shares to him in 1959 or, alternatively, that the Father had assured him the Shares would be his. In reliance on this promise, he suffered detriment maintaining his mother for life and supporting his younger brothers, thereby creating a proprietary estoppel in his favour.
Questions before the Court
There was no dispute between the parties that the Shares were held in the Father's name when he died. Therefore, the sole issue before the Court was whether there was a gift of Shares to the 1st Defendant or if a proprietary estoppel existed in his favour.
- Did the Father make a gift of the Shares to the 1st Defendant?
The burden of proof was on the 1st Defendant to show that the Father had gifted him the Shares.
The 1st Defendant alleged that the Father was impecunious and unable to support his family. He provided significant financial assistance to his parents and family prior to and after the Father's death and the gift of the Shares was recognition of this contribution. He argued that the Father had gifted the Shares to him during a visit to HSBC and the offices of the 2nd Defendant in 1959. He alleged that the Father attempted to transfer the Shares into his name but was only unable to do so because he failed to produce the original share certificates. The 1st Defendant continued to support his family after the Father's death.
The 1st Defendant argued that equitable title to the Shares had passed by way of gift, or failing that, proprietary estoppel. It was common ground between the parties that the legal interest in the Shares remained with the Father's estate and therefore, any gift to the 1st Defendant would be an imperfect gift. However, the 1st Defendant did not put forward a detailed analysis on how the imperfect gift was completed (except by way of proprietary estoppel).
The Court held that the Father had not intended to gift the Shares to the 1st Defendant in return for him caring for the family. Further, even if the Father had intended to make the gift of Shares, the alleged visit to the offices of the 2nd Defendant in 1959 was not sufficient to render the imperfect gift complete. The Court did not consider this issue any further because it was not included in the 1st Defendant's pleaded case.
The Plaintiffs alleged that the 1st Defendant's version of factual matters was wrong. They claimed Father was a man of considerable wealth with substantial assets in Hong Kong. They alleged that the Father had paid all dividends on the Shares to his wife during his lifetime which the 1st Defendant continued to do after his death. The Plaintiffs therefore rejected the 1st Defendant's suggestion that the Father was unable to support his family.
The Plaintiffs referred heavily to earlier proceedings brought against the 1st Defendant in which the Court held that the Father had not intended to gift a piece of land to the 1st Defendant (the "1st proceedings"). In that case the 1st Defendant's version of events (particularly as to the Father's impecuniosity) was found to be incorrect and the Plaintiffs urged the Court to reach a similar conclusion on these facts. The Court held that certain findings of fact made by the judge in the first proceedings were binding on them under the principle of issue estoppel. The earlier court's finding that the Father had purchased the property and was not impecunious was binding on the Court in its consideration of the present case.
The Court made a finding of fact that the 1st Defendant's version of events was incredible and did not satisfy the burden of proof. The judge found that the evidence provided was inconsistent (particularly as to the Father's impecuniosity) and did not indicate that the Father intended to gift the Shares to the 1st Defendant.
- Was there proprietary estoppel to perfect the alleged gift of the Shares to the 1st Defendant?
The Court went on to consider whether a proprietary estoppel had arisen.
The Court held that the law on proprietary estoppel is not in dispute and referred to the doctrine as summarised in Luo Xing Juan v Estate of Hui Shui 12 HKCFAR 1, namely that:
- the parties must be in a relationship involving enforceable and exercisable rights, duties or powers;
- one party (the promisor), by words or conduct, conveys or is reasonably understood to convey a clear and unequivocal promise or assurance that the promisor will not enforce or exercise some of those rights, duties or powers; and
- the promisee reasonably relies on that promise and is induced to alter his/her position on the faith of it so that it would be inequitable or unconscionable for the promisor to act inconsistently with that promise.
The Court held that the 1st Defendant must fail on proprietary estoppel in light of the finding of fact set out above. The Father did not promise the 1st Defendant that he would be gifted the Shares in return for caring for family members before and after his death. The 1st Defendant also failed to demonstrate that he had relied on or altered his position in relation to the alleged promise.
This case demonstrates how the Court will apply legal principles relating to inter-vivos gifts and proprietary estoppel. The key take away point is that the Court will make a finding of fact in relation to inter-vivos gifts and the burden of proof is on the party alleging a gift to prove the donor's intention. Parties should therefore keep accurate records of any inter-vivos gifts to demonstrate the donor's intention.