CH v. TTHM

FCMC 8214/2011

[2024] HKFC 17

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 8214 OF 2011

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JUDGMENT
( preliminary issue)

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1.  This is the trial in respect of :

(i)  the summons filed by the Respondent/ Husband (“H”) on 5 January 2017 for determining the beneficial ownership of the Disputed Properties (as defined below) in Hong Kong as preliminary issue and

(ii)  the summons filed by the Petitioner/ Wife (“W”) on 26 January 2017 to set aside certain depositions in relation to the Disputed Properties pursuant to section 17 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“MPPO”).

2.  By letter dated 18 January 2024 from H’s solicitors, H requested to lodge and serve his closing submissions by 1 February 2024. Up to the date of this judgment, H has not lodged with the court his closing submissions.

Introduction

3.  The crux of these two summonses essentially concerns the beneficial ownership in respect of the following 7 landed properties (collectively “Disputed Properties”):

(1)  Flat D, 18/F, Rialto Mansion, No. 183 King’s Road, Hong Kong (“Rialto Mansion”);

(2)   Unit No. 7, 4/F, Wellborne Commercial Centre, Java Road, North Point (“Unit 407”);

(3)  Unit No. 17, 2/F, Wellborne Commercial Centre, Java Road, North Point (“Unit 217”);

(4)  Flat No.2, 13/F, Block B, Wah Hoi Mansion, 254-280 Electric Road, Hong Kong (“Wah Hoi Mansion”);

(5)  Workshop A, 13/F, Block 1, Kingswin Industrial Building, Nos.32-50 Lei Muk Road, Kwai Chung, New Territories (“the Workshop”);

(6)  Flat C, 8/F, Chu Kee Building, No.435 King’s Road, Hong Kong (“Chu Kee Building”); and

(7)  Flat B, 8/F, Hoover Court, No.41 Tai Pak Tin Street, Kwai Chung, New Territories (“Hoover Court”).

4.  H purchased Unit 407 in his sole name in 2006 and then transferred in its entirety to Well Bond Property Management Services Limited (“Well Bond”) ie the 1^st Intervener, in 2011.

5.  Well Bond was incorporated in Hong Kong on 19 January 2009. At the time of its incorporation, H was its sole registered shareholder and sole director. Thereafter, the shareholding of Well Bond was changed as follows:

(1)  From the date of incorporation of Well Bond and as at 19 January 2011, H was the sole registered shareholder and director of Well Bond.

(2)  According to H, on 23 May 2011, he executed a declaration of trust (“the Alleged Declaration of Trust”) to the effect that he held 9,900 out of 10,000 shares registered in his name on trust for his son of his former marriage, the 2^nd Intervener (“Desmond”).

(3)  As at 19 January 2013, Desmond holds 9,900 out of 10,000 shares of Well Bond and becomes the sole director of Well Bond. In the annual return dated 19 January 2013, Desmond’s address was stated to be Wah Hoi Mansion.

6.  Further, on about 15 February 2012, H transferred 30% ownership of Rialto Mansion (which was purchased in July 1997 and registered in his sole name) to Desmond and 30% ownership to the 3^rd Intervener (“Clarissa”), who are H’s son and daughter of his former marriage.

7.  Pursuant to the Order made by DDJ Tse Ching (as she then was) on 2 June 2017, Well Bond, Desmond and Clarissa were joined as the 1^st, 2^nd and 3^rd Interveners respectively for the purpose of W’s section 17 application.

8.  Pursuant to the Order made by DDJ Tse Ching (as she then was) on 3 November 2017, Pamela Mei Ting Tsang and Evelyn Sook Yin Tsang (another 2 children of H’s former marriage) were joined as the 4^th and 5^th Interveners respectively for the purpose of H’s application for preliminary issue.

9.  Presently, the registered owners of the Disputed Properties can be summarised as follows: -

Property	Current ownership
Rialto Mansion	H (40%), Desmond (30%) and Clarissa (30%) as tenant in common
Unit 407	Well Bond
Unit 217	H
Wah Hoi Mansion	H and W as joint tenants
Chu Kee Building	H
The Workshop	H
Hoover Court	H

10.  H claims that the Disputed Properties represent “trust” assets he has been holding for the benefit of the 2^nd to 5^th Interveners pursuant to a Consent Order allegedly made by a court in Canada and a Trust Agreement allegedly executed between H and his former spouse.

11.  The main issue is therefore whether H can prove to the satisfaction of the Court that the Disputed Properties belong beneficially to the 2^nd to 5^th Interveners as alleged.

Relevant factual background

12.  H is now about 74 years old and W is about 50.

13.  On 12 May 1976, H married Madam MY Mar (“Madam Mar”) with 4 children of the family, namely Desmond, Clarissa, Pamela and Evelyn (ie 2^nd to 5^th Interveners).

14.  On 3 July 1997, H purchased Rialto Mansion with his own funds.

15.  On 29 April 2001, H and Madam Mar were divorced by an order of the Supreme Court of British Columbia, Canada.

16.  H claims to have settled his marital financial disputes with Madam Mar by way of a Consent Order dated 6 February 2003 (“the Alleged Consent Order”). He alleges that pursuant to the Alleged Consent Order, a family trust called “The Agnes M.Y. Tsang Family Trust” (“the Alleged Trust”) was set up by Madam Mar on 2 March 2004.

17.  On 30 May 2002, H and W married in Zhanjiang City, PRC. There is no child of the family of H and W.

18.  In these proceedings, H claims that his marriage with W was a sham to assist W’s immigration to Canada by H in his professional capacity as an immigration consultant. As such, the parties entered into an alleged Pre-Nuptial Agreement (“the Alleged PNA”) to outline the purpose and boundaries of the parties’ relationship.

19.  On 25 November 2004, H and W purchased Unit 416 of 金地豪園天驪閣in Zhanjiang PRC in joint names (共同共有) (“the Zhanjiang Flat”). The purchase price of the Zhanjiang Flat was RMB 539,800 which was wholly funded by H.

20.  On 21 June 2011, W issued the petition for divorce (with claims for ancillary relief) (“Petition”) in Hong Kong.

21.  It is W’s case that between 2005 and 2008, W and H stayed at Rialto Mansion as their former matrimonial home when they were in Hong Kong.

22.  H and W are registered owners of Wah Hoi Mansion as joint tenants. Between 2008 and 2011, W and H used Wah Hoi Mansion as their matrimonial home when they were in Hong Kong.

23.  H obtained mortgage loans in purchasing Unit 217, Wah Hoi Mansion, Chu Kee Building, the Workshop and Hoover Court. In each of these mortgage applications, H represented to the relevant banks that he is the only beneficial owner of these properties, namely Unit 217, Chu Kee Building, the Workshop and Hoover Court.

24.  On 31 July 2012, Decree Absolute was granted by the Hong Kong court.

25.  On 24 May 2012, H commenced divorce proceedings in Zhanjiang Economic and Technological Development Zone People’s Court (“Zhanjiang ETD Court”) in PRC after W filed the Petition in Hong Kong.

26.  At the first instance hearing in PRC, H claimed that the parties married each other after communicating online for 3 months, and they entered into marriage because W was deeply in love with H. H never raised any issue of the Alleged PNA in the Zhanjiang ETD Court.

27.  On such basis, the Zhanjiang ETD Court dissolved the marriage between H and W on 12 September 2013 and handed down its ruling regarding division of their finances, including the Zhanjiang Flat. There is no mention about the Disputed Properties in the ruling.

28.  H subsequently appealed against the decision of the Zhanjiang ETD Court on division of finances to the Guangdong Zhangjiang Intermediate People’s Court and the Guangdong Higher People’s Court. His appeals were dismissed by the PRC Courts.

The Issues

29.  H’s case as pleaded in his Points of Claim dated 12 January 2018 can be summarized as follows:-

(1)  The Disputed Properties (including Wah Hoi Mansion which are registered in the joint name of H and W) are held on trust by him for his children of his former marriage (i.e. the 2^nd to 5^th Interveners) pursuant to the Alleged Trust.

(2)  Properties under the Alleged Trust were deployed for payment of the initial deposit and part of the mortgage repayments of the Disputed Properties (except Rialto Mansion).

(3)  Desmond’s funds were also used to fund part of the purchase price of Unit 407. Hence, Unit 407 is held by H on constructive trust.

(4)  Desmond is the true beneficial owner of Well Bond pursuant to the Alleged Declaration of Trust.

(5)  W knew about the Alleged PNA and the Alleged Trust all along and is estopped from asserting that the Disputed Properties form part of the matrimonial assets.

30.  W’s case as pleaded in her Points of Defence and Counterclaim dated 22 March 2018 is that the Disputed Properties all belong to H.

31.  According to W’s understanding, H purchased the Disputed Properties with his own funds and is both the legal and beneficial owner of the Disputed Properties. It is W’s case that the purpose of the dispositions in respect of Well Bond (and hence Unit 407) and Rialto Mansion were made by H with an intent to defeat W’s ancillary relief claim and should be set aside pursuant to section 17 of the MPPO.

32.  W contests the authenticity (and hence the existence) of a number of documents produced by H, including but not limited to the Alleged PNA, the Consent Order, the Alleged Trust and the Alleged Declaration of Trust. A Notice under Order 27 rule 4(2) of the Rules of the High Court, Cap 4A was issued by W on 12 April 2019 to formally challenge the authenticity and contents of such documents as contained in H’s List of Documents.

Absence of the 2^nd to 5^th Interveners

33.  The 2^nd to 5^th Interveners who H alleges to be the real owners of the Disputed Properties have never come forward to assert their interests, if any. Nor did they make any appearance, file any pleadings, affidavits and witness statements in these proceedings. There is also no explanation from H as to why he does not intend to call any of them to testify in Court.

34.  On 21 August 2017, H’s former solicitors, Messrs. Withers, served (i) H’s summons for joinder and (ii) his 9^th Affirmation on the 2^nd to 5^th Interveners by way of registered post to their last known address at “2738 West 22^nd Avenue, Vancouver, British Columbia, V6L 1M4, Canada”.

35.  W invites the Court to draw an adverse inference against H for his failure to call the 2^nd to 5^th Interveners to give evidence.

36.  Mr Yim for W submitted that the legal principles regarding drawing of adverse inference for failure to call relevant witness was laid down by the English Court of Appeal in Wisniewski v Central Manchester Health Authority [1998] PIQR 3242. The Wisniewski principles were adopted by CA in §27 of Tjang Siu Thu v Profield Construction Engineering Ltd [2015] 5 HKC 22:-

(1)  In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2)  If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3)  There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4)  If the reason for the witness’s absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.

37.  The CA said the following regarding the Wisniewski principles at §33 of Tjang Siu Thu: -

(1)  The Wisniewski principles do not constitute a presumption. Mere failure of a party to call a witness does not automatically confer an evidential benefit on the opposing party;

(2)  The Wisniewski principles concern the drawing of inferences and whether any inference is drawn will depend upon the quality of the primary facts on which the inference is based. This is a fact sensitive matter and will vary from case to case;

(3)  The primary facts must allow of the inference to be drawn in the sense that the inference logically flows from those facts;

(4)  In the circumstances of the case the judge must be persuaded that it is appropriate to draw the inference; and

(5)  One circumstance where it will not be appropriate to draw the inference is where there is an explanation for the party’s failure to call the witness.

38.  In South China Securities Ltd v Lam Kwen Yuen [2012] 5 HKLRD 524, DHCJ Lisa Wong SC (as she then was) said at §7 that:-

“… I take note, of the principle that where a person without explanation fails to call as a witness a person who he might reasonably be expected to call, it is open to the Court to infer that that person’s evidence would not have helped that party’s case. See, e.g., Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC 434, 443E–444C, per Le Pichon JA citing O'Donnell v Reichard [1975] VR 916, 929, per Newton and Norris JJ. The same principle would apply to a failure without proper explanation to produce a document or other real evidence that a party might reasonably be expected to disclose.” (Emphasis added)

39.  In my view, the 2^nd to 5^th Interveners are the parties to the preliminary issues proceedings issued by H. There is no explanation why H is unable to call any of the 2^nd to 5^th Interveners to give evidence after 6 years of joining them into these proceedings. They are the alleged beneficial owners of the Disputed Properties and H’s biological children. If they are indeed beneficial owners, they should have been most eager to give evidence to resist W’s section 17 application. They are also best placed to support H’s version of events.

40.  Furthermore, Desmond and Clarissa are both transferees of 30% interest each in Rialto Mansion. If such transfers were really made pursuant to the Alleged Trust, Desmond and Clarissa are clearly in the best position to give evidence to support H’s version of events.

41.  H also transferred 9,900 shares in Well Bond to Desmond. Desmond was subsequently appointed the sole director of Well Bond. Desmond must be able to explain how the transfer happened and why did he suddenly assumed the onerous duties of a sole director of Well Bond, a company which he had no prior involvement. Besides, there is no reason why Desmond could not hold the said shares in Well Bond when it was incorporated.

42.  Further, according to H, Desmond pooled his income to pay for part of the purchase price of Unit 407. However, H is unable to testify as to e.g. how much Desmond had contributed, how Desmond could afford to contribute to the purchase price of Unit 407 while working as an intern, and how Desmond paid H. Similarly, Desmond would be in the best position to testify on H’s case. Indeed, no documentary evidence was produced by H.

43.  In the circumstances, I conclude that I shall draw an adverse inference against H for his failure to call the 2^nd to 5^th Interveners to give evidence.

Legal Principles relating to Ownership issue and MPPO section 17

44.  In Fisher Meredith LLP v JH [2012] 2 FLR 536, Mostyn J made the following observations in §§42-44 & 49:-

“[42] In my judgment there is a clear distinction to be drawn between the state of affairs where a claimant is saying that a property held in the name of a third party is the property of the respondent; and the situation (as here) where the respondent says that property to which he has legal title is beneficially owned by a third party.

[43] In the former case I strongly endorse my discipline. In such a case there is a clear obligation on the claimant to apply to join the third party at an early stage and to seek to invoke the discipline in TL v ML (Ancillary Relief: Claim Against Assets of Extended Family). Only in this way can the pool of assets over which the dispositive powers of the court ranges be established and an effective FDR take place.

[44] In the latter situation, which is the case here, the duties are by no means so clear cut. If an asset is (say) in the name of the respondent husband then in my judgment the starting point, or prima facie position, is that it belongs to him both legally and beneficially. In my judgment this cannot be seriously disputed in the light of Stack v Dowden [2007] UKHL 17, [2007] 2 WLR 831, [2007] 1 FLR 1858, [2007] BPIR 913 where Baroness Hale of Richmond stated at para [56]:

‘[56] Just as the starting point where there is sole legal ownership is sole beneficial ownership, the starting point where there is joint legal ownership is joint beneficial ownership. The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership. So in sole ownership cases it is upon the non-owner to show that he has any interest at all. In joint ownership cases, it is upon the joint owner who claims to have other than a joint beneficial interest.’

…

[49] ... In the second class of case referred to by me at para [42] above (ie where the asset in dispute is held in the sole name of the respondent to the claim) it is my opinion that the duty to bring the claim of the non-legal-owner third party before the court lies primarily and equally on the respondent to the application on the non-legal-owner, and not on the claimant.” (Emphasis added)

45.  Lord Walker made similar observations in Jones v Kernott [2012] 1 AC 776 at §52:-

“This case is not concerned with a family home which is put into the name of one party only. The starting point is different. The first issue is whether it was intended that the other party have any beneficial interest in the property at all. If he does, the second issue is what that interest in the property is. There is no presumption of joint beneficial ownership. But their common intention has once again to be decided objectively from their conduct. If the evidence shows a common intention to share beneficial ownership but does not show what shares were intended, the court will have to proceed as at [51](4) and (5) above…” (Emphasis added)

46.  It is trite that H is required to show on a balance of probabilities that the beneficial ownerships for the Disputed Properties are different from their legal ownership, which rests with him.

47.  On the other hand, W bears the burden of proof for her section 17 application in relation to the transfer of Rialto Mansion and Unit 407. There is no dispute that the dispositions of H’s interest in Unit 407 and Rialto Mansion took place after W filed the Petition on 21 June 2011. H’s defence to the section 17 application is that he was holding Unit 407 and Rialto Mansion on trust prior to the dispositions. Naturally, H bears the burden of proof in respect of the beneficial ownership of Unit 407 and Rialto Mansion.

48.  Ms Cheung for H relied on WSW v CKU (unrep., FCMC 3040/2008, 17 March 2008) and argued that the Court is entitled to take a broad-brush approach (without the need to engage in forensic accounting) towards assessing the likelihood of whether landed properties were more likely than not to have been purchased with trust.

49.  Mr Yim for W disagree that WSW is applicable to this case on the following reasons:-

(1)  It is questionable whether the approach adopted by Judge Bruno Chan can be regarded as a “broad brush approach”. The learned Judge did not use this label or any label himself. Rather, His Honour insisted that it was necessary to determine the source of funding for purchasing the landed properties (see §52 at N-O).

(2)  Judge Bruno Chan did not need to engage in dollar-to-dollar forensic accounting regarding fund flow because there was no dispute in that case that the “trust money” was already deposited into the petitioner wife’s bank accounts (as executrix and trustee) before the purchase of any landed properties.

(3)  In the present case, however, a live issue is whether any fund from the Alleged Trust was used to purchase the Disputed Properties.

(4)  More importantly, in WSW, Judge Bruno Chan refused to find some of the landed properties to be held on trust as alleged by the wife on the ground that wife failed to prove that the trust funds were deployed in purchasing those properties (see §§77-78).

(5)  It is therefore flawed to suggest that the Court can examine the source of funding loosely in the context of the present case.

50.  Mr Yim further submitted that in determining a dispute as to ownership between a spouse and a third party, the Court must approach the issue “on exactly the same legal basis as if it were being determined in the Chancery Division”: see e.g. LWYA v KYW & Or (unrep., CACV 151/2013, 4 December 2014), §30; see also Bhura v Bhura (No 2) [2014] EWHC 727 (Fam) [2015] 1 FLR 153.

51.  I accept Mr Yim’s submissions and consider that the approach in WSW is not applicable in the preliminary issue proceedings and section 17 application.

Whether H can prove the fund flow from the Alleged Trust into the Disputed Properties (save for Rialto Mansion)

52.  On day 2 of the trial, Ms Cheung for H produced a document titled ‘Schedule A “Trust Assets”’ seeking to set out the documentary evidence relied upon by H in showing the flow of funds.

53.  It is suggested in Scheduled A that H relies on the following documents to prove that the purchases of the Disputed Properties were funded by assets under the Alleged Trust:-

(1)  The respective Sales and Purchase Agreements (“SPAs”) of each of the Disputed Properties.

(2)  The respective tenancy agreements.

(3)  Bank passbook records allegedly showing cheque payments or deposits of rental payments into a Bank of China account numbered 01287410834335[1].

(4)  Three cheques relating to the purchase of Wah Hoi Mansion.

54.  H also relied on an email allegedly written by Madam Mar stating that she refused to release any information related to the respective mortgage loans of all the Disputed Properties.

55.  I accept Mr Yim’s submission that none of the above documents can support H’s case.

56.  First, all the SPAs (except that for Wah Hoi Mansion) were signed by H himself. The SPA for Wah Hoi Mansion was entered into by H and W as joint tenants. There was no reference to the Alleged Trust in any of the SPAs.

57.  Second, the tenancy agreements and bank passbook cannot help H’s case:-

(1)  H entered into all tenancy agreements with himself being the landlord. There is no mention in any of the tenancy agreements that rent should be paid to someone else or a bank account not belonging to H.

(2)  Although H claimed during cross-examination that he kept a record of rental income collected, he refused to produce the records, claiming the records are private between him and Madam Mar. Nor did H give evidence as to how he received rent and the details of the bank account of the Alleged Trust.

(3)  There was also no documentary evidence showing that the rental income was transferred to the bank account of the Alleged Trust at any point in time.

(4)  Ms Cheung for H was unable to identify from the bank passbook records which item is said to be corresponding to rental income collected from which property.

(5)  More specifically, for Unit 407, it is H’s pleaded case that Desmond became the beneficial owner of Unit 407 by 25 July 2011. Nonetheless, in October 2011, H still represented to be the landlord of Unit 407 in a tenancy agreement.

(6)  H gave four different answers when he was asked whether he transferred the rental income of Unit 407 to Desmond, who he claims to be the sole beneficial owner. At first, he answered “yes or no, both”. Upon further cross-examination, H said the rental income of Unit 407 was paid into the Alleged Trust by Desmond. Finally, when Mr Yim for W suggested to H that he did not pay the rental income of Unit 407 to Desmond, H agreed by saying “Yes, so what. We are family”. None of his answers can be safely relied upon as true.

(7)  There is also no documentary record showing that rental income was used to pay off the respective mortgages of each property. Indeed, there was no evidence showing how the mortgages were paid off.

58.  Third, the email allegedly written by Madam Mar does not assist H’s case on the following reasons:-

(1)  H was put on notice that the authenticity of the email is challenged by W’s Order 27 Notice. He did not produce the original email at trial. Nor did he call Madam Mar to give evidence to support his case. For this reason alone, little weight should be given to this alleged email.

(2)  From the contents of the alleged email, the need to seek Madam Mar’s approval is inconsistent with H’s representation to the mortgage banks of the relevant Disputed Properties that he is the sole beneficial owner of the relevant property.

(3)  The need to seek Madam Mar’s approval is also inconsistent with the wide powers conferred to H as trustee. According to the Alleged Trust, H has unlimited discretion in investments. H can even remove the whole of the Alleged Trust and the administration of the Alleged Trust to any jurisdiction that is convenient for him. It is inherently improbable that H would require authorisation from Madam Mar to disclose mortgage information for a lawsuit which he commenced and is actively pursuing to prove the existence of the Alleged Trust and protect the interest of the alleged beneficiaries.

(4)  Most importantly, upon H’s pleaded case, Rialto Mansion was not purchased with money from the Alleged Trust. It was allegedly transferred to H’s children pursuant to the Alleged Consent Order. It naturally begs the question why Madam Mar’s approval is required to release mortgage information of Rialto Mansion.

59.  Fourth, the three cheques relating to the purchase of Wah Hoi Mansion actually contradict H’s case that the purchase was funded by money from the Alleged Trust. These three cheques were paid out of H’s personal bank account in Bank of China (Hong Kong). There is no evidence that sums of similar amount were transferred into H’s personal account from the Alleged Trust before H purchased Wah Hoi Mansion.

60.  H suddenly sought to allege during his oral evidence that Madam Mar injected funds into the Alleged Trust via two cheques in 2008. This is the first time H mentioned that Madam Mar injected funds into the Alleged Trust after it was set up in 2004. The payee of the cheques is simply stated to be “Bank of China (Canada)”. When H was challenged by Mr Yim for W regarding the absence of specific payee account on the cheques, H was unable to provide any satisfactory answer. I have no doubt to reject H’s evidence.

61.  In the circumstances, I conclude that H is unable to prove that funds were drawn from the Alleged Trust for purchasing any of the Disputed Properties.

62.  Regarding Wah Hoi Mansion which was purchased in the joint name of H and W, if it was indeed purchased with money from and for the Alleged Trust, there is no reason why W has to be named as a co-owner. H did not give any explanation.

63.  The Alleged Trust Agreement is dated 2 March 2004 and H only purchased Wah Hoi Mansion as joint tenant on 30 July 2008, ie about 4 years later. However, Wah Hoi Mansion is stated as H’s address in the Alleged Trust Agreement at a time when he had not even acquired Wah Hoi Mansion.

64.  H tried to explain that he knew the previous owner, Mr Lau Chi Man. Nevertheless, Mr Lau Chi Man only purchased Wah Hoi Mansion on 14 May 2005 i.e. after the date of the Alleged Trust Agreement.

65.  I consider that the Alleged Trust Agreement was only created at a time after he purchased Wah Hoi Mansion. It is more likely than not that the Alleged Trust Agreement was fabricated to suit his case in these proceedings.

66.  In addition, despite being tasked to manage the Alleged Trust as trustee, H could not identify the amount, type, and value of stocks under the Alleged Trust. If the Alleged Trust exists and H has indeed managed it, he should be able to identify at least the estimated value of stocks held under the Alleged Trust.

67.  In relation to management of the Alleged Trust, H said in cross-examination for the first time in these proceedings that his sister, Florence Tsang, managed the Disputed Properties for him. However, despite her allegedly pivotal role in the management of trust properties, Florence Tsang was not called to give evidence in H’s support. I am entitled to draw the adverse inference against H and consider that his evidence regarding Florence Tsang will not assist H.

68.  Turning to the Alleged PNA, it is dated 29 May 2002 and Clause 3 thereof referred to the Alleged Trust. Nonetheless, the Alleged Trust was only set up on 2 March 2004 (about 1 year and 9 months after the date of the Alleged PNA) pursuant to the Alleged Consent Order dated 6 February 2003. I doubt very much about the authenticity of the Alleged PNA. H also fails to explain why there is no mention of the Alleged PNA in the ruling of Zhanjiang ETD Court.

69.  As a whole, upon observing his demeanour in court, H is not a credible witness. For all the above reasons, H has failed to discharge his burden of proof to show that the beneficial ownerships of the Disputed Properties (except Rialto Mansion) are different from their respective legal ownerships.

Whether H is the sole beneficial owner of Rialto Mansion

70.  H’s pleaded case is that Rialto Mansion was to be transferred to his children within 10 years of February 2003 or as extended pursuant to the Alleged Consent Order made on 6 February 2003.

71.  However, H’s case is noticeably different in his Opening Submissions, which states that Rialto Mansion is part of the Alleged Trust as well as his oral evidence under cross-examination in the afternoon of day 4 trial. There is no explanation from H as to how and why Rialto Mansion which was purchased as early as in July 1997 (over 5 years before the date of the Alleged Consent Order) is now said to be part of the Alleged Trust.

72.  The background leading to W’s section 17 application is that H purchased Rialto Mansion as the sole legal and beneficial owner. On 21 June 2011, W issued the Petition for divorce with ancillary relief claims. One month later, on 25 July 2011, H transferred Unit 407 to Well Bond. Then on 15 February 2012, H transferred 30% interest in Rialto Mansion to Desmond and Clarissa respectively. But he is still hold the remaining 40% interest. There is no explanation from H as to why he did not transferred the entire interest to Desmond and Clarissa, or other children of his former marriage.

73.  H’s sole defence regarding W’s section 17 application is that ever since his divorce with Madam Mar, he has been holding Rialto Mansion on trust for his children pursuant to the Alleged Consent Order. The Alleged Consent Order was only made on 6 February 2003, over 5 years after the purchase of Rialto Mansion in 1997. On a balance of probabilities, I reject H’s evidence of trust.

74.  W also challenges the authenticity of the Alleged Consent Order vigorously. Ms Cheung for H accepted that the onus is on the party who produces documents and asserts their validity to prove that they are genuine. Mr Yim for W submitted that there are THREE different versions of the Alleged Consent Order.

75.  In H’s witness statement filed for this trial, he exhibited a “sealed copy” of the Alleged Consent Order as Exhibit TTHM-3 at Bundle B/252/23. This “sealed copy” can be found at Bundle D/895-898 (“D895 Copy”).

76.  Since the authenticity of the Alleged Consent Order is challenged by W, DDJ Tse Ching (as she then was) ordered H to file an affirmation to exhibit the documents related to his divorce with Madam Mar. Pursuant to the court order, H filed his 11^th Affirmation dated 26 October 2017 and exhibited a “certified copy” of the Alleged Consent Order as Exhibit TTHM-11-2 at Bundle A/189/6. The “certified copy” can be found at Bundle C/553-555 (“the C553 Copy”).

77.  At day 4 of the trial, H produced Exhibit R1 as the original of the C553 Copy during his cross-examination. However, it transpired during re-examination that Exhibit R1 does not represent the C553 Copy. The real original of the C535 Copy was said to be Exhibit R2.

78.  Exhibit R1 had never appeared in these proceedings prior to H’s re-examination, some 4 years after H claimed to have obtained it. Also, it is markedly different from the C553 Copy – Exhibit R1 is the only copy which comes with a certificate by the Deputy Registrar claiming it to be the certified true copy of the Alleged Consent Order.

79.  I accept Mr Yim’s submission that Exhibits R1 and R2 (allegedly original of the C535 Copy) are different from the D895 Copy: -

(1)  The D895 Copy, which H claims to be a “sealed copy”, does not bear a rectangular seal of the Vancouver Registry of the Supreme Court of British Columbia (which appears on both Exhibit R1 and R2).

(2)  More importantly, neither Exhibits R1 nor R2 is likely to be the original of the D895 Copy as the D895 Copy is the only copy with a back page

80.  As I have already rejected H’s evidence of trust, I do not think that it is necessary to consider the authenticity of the Alleged Consent Order. Just for the sake of completeness, I have no doubt to find that H has failed to discharge the burden of proof in respect of the authenticity of the Alleged Consent Order.

81.  H further gave evidence in court that H remained in a common law relationship with Madam Mar after their divorce. He tried to explain the tax benefits he would obtain from divorcing Madam Mar and entering into a common law relationship. Nonetheless, it is simply his bare assertion without any proof. Besides, I do not believe Madam Mar would trust him with all her assets with virtually no supervision after their divorce, especially when she chose not to come forward to testify to protect her children’s interest. In any event, such evidence is not relevant to the issues in dispute in these 2 applications.

82.  In my judgment, even if the Alleged Consent Order is genuine, H still fails to discharge the burden to prove that Rialto Mansion belongs beneficially to his children pursuant to the Alleged Consent Order.

Conclusion

83.  For the purpose of determining the beneficial ownership of the Disputed Properties as preliminary issue in the ancillary relief proceedings, I find that they are all beneficially owned by H.

84.  I also make an order in terms of para. 1(a), (b) and (c) of W’s section 17 summons dated 26 January 2017.

85.  Mr Yim for W asks for costs on an indemnity basis. As I accept that H has been running an entirely false case and that H fails to give instructions to his solicitors for the preparation of his closing submissions to assist the court as per letter dated 18 January 2024 from H’s solicitors, I exercise my discretion to make an order nisi that H do pay W costs of H’s summons dated 5 January 2017 and W’s summons dated 26 January 2017 on an indemnity basis with all costs reserved and certificate for counsel, which shall become absolute unless any of the parties apply to vary by summon with supporting affidavit, if necessary, within 14 days.

Mr Eugene Yim instructed by Chow & Chow Solicitors for the Petitioner

Ms Janine Cheung instructed by TC Wong & Co. for the Respondent

FCMC 8214/2011

[2020] HKFC 236

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 8214 OF 2011

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J U D G M E N T
( Discovery )

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1.  By way of the summons taken out on 30 April 2019 (“Summons”), the petitioner (“W”) applies to compel the respondent (“H”) to file an affirmation stating whether he has at any time in his possession certain documents as specified in the Schedule as follows:

(1)   The bank books, bank statements and/or relevant material relating to the following: -

(a)   the bank account of 012874XXX34335 with the Bank of China (Hong Kong) Limited in the name of the Respondent as shown on item 36, namely tenancy agreement, of the Respondent’s List of Documents dated 3^rd May 2018 (“the List”) from the date of 3^rd November 2010 to 14^th November 2012, and thereafter, if any;

(b)   the bank account of 014-XXX-00080391 with the Bank of China (Hong Kong) Limited in the name of the Respondent as shown on items 27，28 and 29, namely the Respondent’s cheques, of the List from the date of 1^st July 2008 to the date of 30^th September 2008;

(c)   the bank account of 012678XXX31240 with the Bank of China (Hong Kong) Limited in the name of the Respondent as shown on item 50, namely tenancy agreement, of the List from the date of 1^st February 2011 to the date of 31^st January 2013, and thereafter, if any;

(d)   the bank account in the name of the Respondent in relation to its being used for rental payment by the tenant of items 43 and 44, namely tenancy agreements respectively, of the List from the date of 1^st July 2011 to the date of 31^st October 2013, and thereafter, if any;

(e)   the bank account in the name of the Respondent in relation to its being used for rental payment by the tenant of item 45, namely tenancy agreements, of the List from the date of 22^nd October 2011 to the date of 21^st October 2013, and thereafter, if any;

(f)    the bank account in the name of the Respondent in relation to its being used for rental payment by the tenant of item 46, namely tenancy agreements, of the List from the date of 1^st March 2012 to the date of 28^th February 2014, and thereafter, if any;

(2)   All the correspondence and other document passing between the Respondent and/or other party and Agnes Miu Ying Tsang relating to the assets, money and/or financial transfers and/or transactions of the assets from items 1 to 11 of the Schedule “A” to a trust settlement made on 2^nd day of March 2004 as shown on item 20 of the List from the period of about December 2005 to October 2010 in relation to purchase of the Properties (Items No.2 to No.7) allegedly being purchased with rental income, the trust property and/or loans from family member and the time afterwards relating to respective repayment of mortgage loans; and

(3)   All the correspondence and other documents passing between the Respondent and Desmond Kwon Fai Tsang (“the 2nd Intervener”) relating to assets, money and/or financial transfer and/or transaction of the income allegedly pooled by the 2^nd Intervener together with some of the Trust Property in relation to the purchase of Unit No.7, 4th Floor, Wellborne Commercial Centre, No.8 Java Road, North Point on 26 January 2006 (“Unit 217[1]”) and the time onwards to the date of 26th January 2007; and

(4)   Declaration by the Respondent (re: bank account) dated 19^th June 2011, (item No.41 of the List).

Background

2.  W issued a petition for divorce based on 2-year separation on 21 June 2011 and decree absolute was granted on 31 July 2012.

3.  After filing and service of the parties’ Form Es, questionnaires and answers, W issued a summons to join in several parties (ie the 5 interveners herein) and to set aside certain dispositions made by H in their favour.  Thereafter, H took out a summons asking for an order for determining the beneficial ownerships of 7 specified items of landed properties as particularized therein (“the 7 Properties[2]”) by way preliminary issue on 5 January 2017.  An order to such effect was made by DDJ AN Tse Ching (as she then was) on 3 November 2017 and 5 interveners were ordered to be joined.  As directed by the court, H filed and served his point of claims, W filed her defence and counterclaim and H filed his reply and defence to counterclaim. However, no point of defence has ever been filed by the 5 interveners as ordered.

4.  As pleaded in H’s point of claims, pursuant to the consent order in the Canadian divorce proceedings dated 6 February 2003 between H and his ex-wife Agnes Miu Ying Tsang (“Madam Mar”), a family trust had to set up for investment for the benefit of the 4 children of H and Madam Mar, who are the 2^nd to 5^th Interveners (“the 4 Children”).  On 2 March 2004, they entered into a written trust agreement wherein Madam Mar was the settlor and H was appointed as trustee.  In short, H pleads that he holds the 7 Properties on express, implied and/or constructive trust for the benefit of the 4 Children.

5.  H filed his list of documents producing, inter alia, some cheques, tenancy agreements etc in relation to the 7 Properties.

6.  Although H has not filed any affirmation to oppose this application nor stating that he is or is not in his possession the documents sought by W. Mr But for H has made submission to object this application.

The Law

7.  Mr Yim for W accepts that this discovery application is taken out in the context of the preliminary issue proceedings rather than under the ancillary relief proceedings, and submits that the relevant legal principles are governed by Order 24 rules 3, 7 and 8 of RHC.  In my view, it is necessary for the court to look at the pleadings filed by the parties under the preliminary issue proceedings in order to identify the real issues in dispute and to determine this application.

8.  The relevant parts of commentary concerning discovery can be found in para 24/7/1 to 24/7/6 and para 24/8/1 to 24/8/2 in the Hong Kong Civil Procedure 2021, which is not necessary to be reproduced here.

9.  In gist, the main legal principles governing the present application are briefly summarised as follows:-

(1)     The court must be satisfied that the documents sought are in existence, in the possession, custody or power of H and relevant to the issues in dispute.

(2)     The court will not order production unless it is satisfied that the production is necessary either for disposing fairly of the issues between the parties or for saving costs.

(3)     Discovery should not be allowed if it is oppressive, fishing or too wide and sweeping in scope.

(4) The order for specific discovery must identify with precision the documents required to the disclosed, for otherwise the person giving discovery may find himself in serious trouble for swearing to a false affidavit.

(5)     Where discovery is sought in relation to a class of documents, the class should not be defined or described too widely, and should not be defined so as to include documents which are not relevant.

Discussion

10.  In para (1) of the Schedule to the Summons, W asks for “the bank books, bank statements and/or relevant material relating to” various bank accounts as set out in the sub-para (a) to (f).  In my view, the wordings of “and/or relevant material” are too general and the scope of this class of documents is too wide.  W simply fails to establish as to how she or her lawyer believes that the so-called relevant material exists and indeed what they are.  As said, order for specific discovery must identify with precision the documents required to the disclosed.  I consider that the wordings of “and/or relevant material” amounts to “fishing” and should be disallowed.  I now turn to discuss each paragraph of the Schedule below.   

Para (1)(a) of the Schedule andChu Kee Building[3]

11.  H pleads in his point of claims that the mortgage repayments in respect of Chu Kee Building were partly paid by the rental income derived from leasing out of this property, which was registered in H’s name.  H must bear the burden of proof of such allegation and this is one of the real issues in dispute.

12.  According to the tenancy agreement in respect of this property dated 3 November 2010 produced by H in his list of documents, the term of the tenancy is 2 years from 15 November 2010 to 14 November 2012 and the tenant shall pay monthly rent to the bank account of 012874XXX34335 with the Bank of China in the name of the landlord (ie H) pursuant to the said tenancy agreement.

13.  I am satisfied that the entries in the said bank account showing the deposits of the rental paid by the tenant is relevant and necessary for disposing fairly of the matter since it is the pleaded case of H of using the rental income to pay the mortgage instalments of this property, which is disputed by W. 

14.  However, W asks for the bank record covering not only the terms of the tenancy but also the period “thereafter, if any” whilst` there is no evidence before me whether or not the tenant renewed the tenancy after 14 November 2012.  In the circumstances, the wording in para (1)(a) of the Schedule to the Summons are unreasonably wide and I exercise my discretion to narrow its scope and revise as follows:

“The bank account of 012874XXX34335 with the Bank of China (Hong Kong) Limited in the name of H showing the deposits of the rental paid by the tenant from 3 November 2010 to 14 November 2012 in respect of Chu Kee Building as defined in H’s point of claims”

Para (1)(b) of the Schedule andWah Hoi Mansion

15.  H pleads in his point of claims that he paid the initial deposit of Wah Hoi Mansion, which was registered in joint name H and W.

16.  In his list of documents, H produces 3 copy cheques issued by him from his bank account of 014XXX00080391 with the Bank of China (Hong Kong) Limited for purchase of this property and payment of estate agent fees.

17.  I am satisfied that as some Chinese characters “華凱大廈落大訂” and “華凱大廈落首期” were hand-written on the cheques nos. 630253 and 630254, the entries in the said bank account showing the withdrawals of these 2 cheques are relevant and necessary for disposing fairly of the matter.

18.  However, for the cheque no 630258 for payment of estate agent fee, I disagree that it is relevant to any real issues in dispute, discovery of which shall be disallowed.

19.  For para (1)(b) of the Schedule, I exercise my discretion to revise as follows:

“the bank account of 014XXX00080391 with the Bank of China (Hong Kong) Limited in the name of H showing the withdrawals of the 2 cheques as per items 27 and 28 of H’s list of documents.”

Para (1)(c) of the Schedule andRialto Mansion

20.  This property was originally registered in H’s name in 1997 but H pleads that he subsequently transferred the interest to 2 of the 4 Children (ie 2^nd and 4^th Interveners) and himself in 2012. H only pleads that he repaid the mortgage loan from his own resources to the exclusion of W but never said that the mortgage repayments were paid by the rental income derived from leasing out of this property. Accordingly, even if the tenant of this property did pay rent into H’s bank account of 012678XXX31240 as obliged by the term in the relevant tenancy agreement, I consider that it is irrelevant.  I would disallow para (1)(c) of the Schedule.

Para (1)(d) of the Schedule andWorkshop

21.  This property was registered in H’s name and H pleads in his point of claims that the mortgage repayments were partly paid by the rental income derived from leasing out of this property.

22.  According to the 2 different tenancy agreements produced by H in his list of documents, it seems that the Workshop was divided into 2 units (ie Unit AB and Unit AA) which were rented out to 2 different tenants.  For the agreement in respect of Unit AB, H’s bank account of 012874XXX34335 with the Bank of China was written therein.  Although there is no express contractual obligation on the part of the tenant to pay rent into this specific account as stipulated, I still consider that it is implied or very likely for the tenant to do so.  I would order the discovery of “the bank account of 012874XXX34335 with the Bank of China (Hong Kong) Limited in the name of H showing the deposits of the rental paid by the tenant from 1 July 2011 to 31 June 2013 in respect of Unit AB of the Workshop as defined in H’s point of claims”

23.  For Unit AA, as there is simply no mention of any bank account of H in the relevant tenancy agreement, I disagree that there is any business practice or whatsoever for this particular tenant to pay rent into any of the H’s designated account and hence, the discovery for this part shall be disallowed.

Para (1)(e) of the Schedule andUnit 407

24.  This property was originally registered in H’s name in 2006 and subsequently transferred to the 1st Intervener in 2011.  H pleads in his point of claims that the mortgage repayments were partly paid by the rental income derived from leasing out of this property.

25.  According to the tenancy agreement produced by H in his list of documents, the tenant of Unit 407 issued 24 post-dated cheques in advance to H.  I am satisfied that the production of the said cheques by H is relevant and necessary for disposing fairly of the matter.  However, W asks for the bank books and statements of the account being used for accepting such rental.  Although there is no evidence as to which bank account is used by H, I accept that H should have deposited these cheques into one of his bank accounts.  I therefore order discovery of “the bank account in the name of H showing the deposits of the 24 post-dated cheques from 22 October 2011 to 21 October 2013 in respect of Unit 407 as defined in H’s point of claims”.

Para (1)(f) of the Schedule and Unit 217

26.  This property was registered in H’s name.  Similarly, H pleads in his point of claims that the mortgage repayments were partly paid by the rental income derived from leasing out of this property.

27.  According to the tenancy agreement produced by H in his list of documents, the tenant of Unit 217 issued 11 post-dated cheques in advance to H.  I am satisfied that the production of the said cheques by H is necessary for disposing fairly of the matter.  Similar to Unit 407, W asks for the bank books and statements of the account being used for depositing such rental.  Although there is no evidence which bank account is indeed used, I order discovery of the bank account similar to the above.

Paras (2), (3) and (4) of the Schedule

28.  For paras (2) and (3) of the Schedule, W asks for discovery of all correspondence and other documents between H and Agnes Miu Ying Tsang (ie Madam Ma) relating to the 7 Properties and between H and the 2^nd Intervener relating to Unit 407.  There is no plea in H’s point of claims nor any document produced by H concerning these classes of documents.  I am not satisfied there is any established practice between the said parties who are or were family members to communicate with each other by way of written correspondence or documents in the past. W simply fails to prove that the documents sought are in existence. I consider that W is to launch a fishing expedition with a view to hooking something.  I refuse to order discovery of this part.

29.  Lastly, Mr But for H confirmed that the Declaration sought in para (4) of the Schedule has been produced as exhibit in H’s 2^nd affirmation dated 14 July 2015.  I therefore refuse to order discovery of this document.

Conclusion

30.  In the circumstances, I make an order in terms of the Summons with the Schedule revised as follows:

(1)     the bank books and bank statements relating to the following:

(a)  the bank account of 012874XXX34335 with the Bank of China (Hong Kong) Limited in the name of H showing the deposits of the rental paid by the tenant from 3 November 2010 to 14 November 2012 in respect of Chu Kee Building as defined in H’s point of claims;

(b)the bank account of 014XXX00080391 with the Bank of China (Hong Kong) Limited in the name of H showing the withdrawals of the 2 cheques as per items 27 and 28 of H’s list of documents;

(c)  the bank account of 012874XXX34335 with the Bank of China (Hong Kong) Limited in the name of H showing the deposits of the rental paid by the tenant from 1 July 2011 to 31 June 2013 in respect of Unit AB of the Workshop as defined in H’s point of claims;

(d)the bank account in the name of H showing the deposits of the 24 post-dated cheques drawn by the tenant from 22 October 2011 to 21 October 2013 in respect of Unit 407 as defined in H’s point of claims; and

(e)  the bank account in the name of H showing the deposits of the 11 post-dated cheques drawn by the tenant from 1 March 2012 to 28 February 2013 in respect of Unit 217 as defined in H’s point of claims.

31.  For the avoidance of doubt, I disallow the discovery of the documents as per paras (2) to (4) of the Schedule.

32.  Regarding the question of costs of this application, I consider that W only partly succeeds in this application and that a fair costs order shall be costs in the cause of the preliminary issue proceedings.  I make a costs order nisi which shall be absolute unless any of the parties apply to vary within 14 days by summons.