YYT v. CCM AND OTHERS

FCMC 4498 / 2016

[2023] HKFC 201

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 4498 OF 2016

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_____________________________________

DECISION
(Variation of Costs Order Nisi in
Preliminary Issue Proceedings)

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A.  Rs’ Application

1.  On 31 October 2022, this court handed down a judgment (“Judgment”) [1] after a 9-day trial on preliminary issue with a costs order nisi (“Costs Order Nisi”) to the effect that Rs pay 70% of W’s costs of the preliminary issue proceedings on a party and party basis with certificate for two counsel.

2.  Rs seek to vary the Costs Order Nisi to either:

(1)  W pays 30% of Rs’ costs of the preliminary issue proceedings on a party and party basis with certificate for counsel; or

(2)  there be no order as to costs of the preliminary issue proceedings.

3.  The definitions and abbreviations used in the Judgment are adopted in this decision.

B.  Brief Background

4.  The parties were in dispute on the beneficial ownership of 3 groups of properties (collectively “Disputed Assets”):

(1)  First, properties held in the name of R6, i.e. House D44 and the 3 Workshops (“Assets 1”).

(2)  Second, properties held or once held in the name of R1 to R4, i.e. Lotus Villas, House 63 and House 29 (“Assets 2”).

(3)  Third, shares of the Companies held in the name of R5 (“Assets 3”).

5.  W argued at the trial that it was the common intention and/or mutual understanding of R1 and her that they shall be the equal beneficial owners of the “family business” set up and operated by them. The “family business” includes the Companies. The Disputed Assets were acquired with the funds of or generated from the “family business”. Her primary case was that R1 and W have the beneficial interests of the Disputed Assets in equal shares. Alternatively, if Assets 1 and 2 were “made out of” H’s own money, W shall have beneficial interest in those properties to an extent to be assessed in due course[2]. In respect of Assets 1 and 3, W relied on the operation of common intention constructive trust and/or resulting trust[3]. In respect of Assets 2, W relied on the operation of resulting trust only[4].

6.  Rs relied on the principle of equity interest follows the legal title. They maintained that beneficial ownership of the Disputed Assets vested in the legal owners. Those legal owners who had not provided financial contribution to the acquisition of the properties acquired a specific proportion of the beneficial interests by way of gift from R1. There is no dispute that R3 to R5 had made no financial contribution to the respective assets. Rs failed to prove their assertion that R2 had financially contributed to the acquisition of Assets 2.

7.  After trial, this court dismissed W’s claim on Assets 1. H’s evidence on the use of House D44 was also rejected.[5] Rs’ case on Assets 2 and 3 failed. It was found that by operation of resulting trust, Assets 2 and 3 were/are beneficially owned by H[6].

C.  Legal Principles

8.  It is not in dispute that the court has an unfettered discretion in the determination of costs. This discretion must be exercised judicially. In exercising the discretion, Order 62 rule 5(1) sets out special matters to be taken into account by the court. These include,

(1)  the underlying objectives set out in Order 1A, rule 1 (paragraph aa);

(2)  the conduct of the parties (paragraph e);

(3)  whether a party has succeeded on part of his case, even if he has not been wholly successful (paragraph f).

9.  Order 62 rule 5(2) further provides that the “conduct of the parties” include:

(1)  Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(2)  The manner in which a party has pursued or defended his case or a particular allegation or issue;

(3)  Whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(4)  Conduct before, as well as during, the proceedings.

10.  After the implementation of the Civil Justice Reform, the well-known principles in Re Elgindata (No. 2) were modified. The proposition of costs follow the event operates as a starting point, but not as a general rule. The unsuccessful party has the burden of showing that a different approach should be adopted.

11.  In Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China[7], Kwan JA held that:

“100. Although the principles in Re Elgindata (No. 2) [1992] 1 WLR 1207, 1214A-C continue to apply after the Civil Justice Reform, the approach these days is to regard the proposition that costs should follow the event not as a general rule but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case (Chan Mei Yiu Paddy v Secretary for Justice (unrep., HCAL 16/2007, [2010] HKEC 1910), para. 5 (Saunders J)), the rationale being that a mechanistic adoption of follow the event principle may result in parties incurring unnecessary costs in civil litigation (Wong Kam Tong v Tin Shing Court, Yuen Long (IO) (No.2) [2012] 2 HKLRD 1128, paras. 10-13).”

12.  Rs invited this court to adopt an issue-based approach. They cited KJ v KMLM[8], per To J,

“17. … the starting point does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or costs of the proceedings he may be deprived of the whole or part of his costs. Since CJR, the court is more ready to take an issue-based approach. It is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed … Nor is it necessary to show that the successful party has deliberately wasted time and costs … For the purpose of this guideline, a significant increase in the length or costs of the proceedings means one that can be estimated as a more than trifling proportion of the total costs. The costs need not be assessed with precision. It suffices if the court can give an estimate of the proportion of these costs … A party may be deprived of part of his costs on the failed issues even if such costs overlap with those of the succeeded issues …”

18. … where the successful party raises issues or makes allegations improperly or unnecessarily (or unreasonably, in the United Kingdom), the court may not only deprive him of his costs but may order him to pay the whole or part of the unsuccessful party’s costs: Order 62 rule 7(1). By implication, a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs.”

13.  On an issue-based approach, the practice commonly adopted is to make a global order in terms of the overall percentage of costs to be awarded to one side instead of giving separate orders for different issues: Keen Lloyd Holdings Ltd & Ors v Commissioner of Customs and Excise[9] and Hung Sau Fung v Lai Ping Wai[10].

14.  The credibility of the witnesses and conduct of the parties in regard to the case they allege and seek to prove is a relevant matter for a judge to take into consideration in dealing with costs: Hung Fung Enterprises Ltd v Agricultural Bank of China, supra [104(4)].

15.  In Zhuhai International Container Terminals (Jiuzhou) Limited v Lo Tong Hoi[11], Kwan JA said that:

“33 … On the established principles, it is not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs. The court may so order where the failed allegation of the successful party has caused a significant increase in the length or costs of the proceedings … By the amendments introduced to Order 62 rule 5, litigants should bear in mind the possible costs implications. There is incentive to conduct litigation in a responsible way and be selective as to the issues raised.”

16.  Rs also referred to Lui Ming Lok v Ng Im Fong Loretta, the executrix of the estate of Lui Kwan Cheung, Deceased under the Grant of Probate No. HCAG016896/2015[12], and Siu Shu Ching and others v Siu Kwok Cheung and Anor[13], in which the above principles were applied.

D.  Rs’ Grounds for Variation

17.  Rs first advanced that they are the only successful party in the preliminary issue proceedings, because they succeeded in Assets 1 claim and, Rs argued, no party succeeded in the claims on Assets 2 and 3.

18.  Rs’ second ground was that W shall be deprived of her costs or part of it because she had unnecessarily, improperly and/or unreasonably took and maintained the following points which unduly complicated and prolonged the proceedings, time and costs had been wasted[14]:

(1)  the Matrimonial Pot issues which was outside the scope of the preliminary issue proceedings;

(2)  the pleas of common intention constructive trust which disclosed no reasonable cause of action;

(3)  the issue of accounting practice; and

(4)  D Limited issue.

E.  Decision

19.  There are two issues in this application. Firstly, whether W succeeded on Assets 2 and 3 claims. Secondly, whether W shall be deprived of her costs or part of it for failure in four identified areas which were said to have unduly complicated and prolonged the proceedings.

20.  Before I consider the first issue, it is useful to repeat that the preliminary issue trial was to establish the extent of the assets to be considered in the ancillary relief proceedings, and was pendent on the ancillary relief proceedings. The effect of the court’s finding on the beneficial ownership of Assets 2 and Assets 3[15] was that these assets would be included as part of the matrimonial assets in the ancillary relief dispute. On this, W succeeded although the court did not accept the other part of her case that she was one of the beneficial owners. Whether W would be entitled to any interests or shares in these properties on divorce would be one of the issues to be determined in the ancillary relief dispute.

21.  Pursuant to Order 62 rule 5(1)(f), the court may take into account the factor that a party has succeeded on part of his case, even if he has not been wholly successful.

22.  Rs referred this court to FWY v TYCY[16] in which it was found that all parties are unbelievable witnesses. HHJ I Wong took the view that none of the parties can be considered as successful in terms of each of their cases, the litigation could be avoided if the parties were not led by greed, and they should take the consequences for not being truthful. An order nisi that there be no order as to costs was made in the third party ownership dispute.

23.  FWY v TYCY is different from the present case. Here, this court only found that H is not a reliable witness. W successfully established her case that R5 is holding R5’s Shares as nominee only and a resulting trust arose. In a similar vein, R2 to R4 held/are holding Assets 2 as nominee only. Although this court did not find for W’s claim on direct beneficial interest in R5’s Shares, whether she has an indirect beneficial interest in R5’s Shares (which is not within the scope of the preliminary issue proceedings) is a live issue. See [136] of the Judgment.

24.  As to the second issue, the starting point of costs follow the event does not cease to apply because the successful party failed on issues or allegations raised by him. If these issues have caused a significant increase in the length or costs of the proceedings, the court may exercise the discretion to deprive the successful party of his costs or part of it. It is not necessary to show that the successful party have acted unreasonably or improperly nor that he has deliberately wasted the time and costs. The court shall evaluate the entirety of the case in the exercise of discretion.

25.  The issue on accounting practice was raised by Rs in their pleadings. This evidence is essential for H to establish his own case that the funds used to purchase Assets 2 were his own funds although they were mostly drawn from the Companies, the funds drawn were recorded in the Companies’ accounting documents, and H has to repay them to the Companies. I do not see any basis to deprive W from any part of her costs for the time spent on the evidence on the accounting practice. It may create unnecessary complication and unfairness if, in the award of costs, the court is to separately consider the success of proving each and every category of the evidence that are not improperly or unnecessarily raised.

26.  W’s allegation in connection with D Limited was premised on a wrong factual basis. The time spent on this point did not cause a significant increase in the length or costs of the proceedings.

27.  Substantial amount of time was spent in W’s failed arguments on the Matrimonial Pot Issue and her defective pleadings on the common intention constructive trust claims. These two matters had been dealt with extensively in [56] to [72], and [86] to [110] of the Judgment. The time and costs spent on these arguments could be avoided if care had been taken to make sure that the pleadings were properly drafted and did not go beyond the scope of the preliminary issue proceedings. Although W lost the claims on Assets 1 for this reason, the time spent on these issues are also relevant to the other claims. It is fair to deduct part of the costs awarded to W for the time and costs spent on these matters.

28.  Taking all these matters into consideration as a whole, the proper costs order is to reduce the amount of W’s costs to be paid by Rs to 30%. The Cost Order Nisi be varied to this effect. The basis for taxation remain to be party and party, and so is the Certificate for two counsel.

F.  Costs of this application

29.  Rs succeeded in the variation application. Having considered the parties’ Statement of Costs and Lists of Objections, I order that W do pay Rs forthwith the costs of this application, with certificate for one counsel, at an amount summarily assessed to be HK$95,000.

Ms. Yanky Lam instructed by Oliver C.M. Chan & Co. for the Petitioner.

Mr. Aidan Tam instructed by Lee Chan Cheng for the 1^st to 6^th Respondents.

FCMC 4498 / 2016

[2023] HKFC 110

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 4498 OF 2016

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DECISION
(Leave to Appeal)

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1.  On 31 October 2022, I handed down a judgment (“Judgment”) after a 9-day trial on the determination of beneficial ownership of 7 Properties and R5’s Shares as preliminary issue.

2.  Rs sought leave to appeal against the following part of the orders made in the Judgment and costs:

(1)  H was the beneficial owner of Lotus Villas and House 63 before the sale, and their sale proceeds;

(2)  H is the beneficial owner of House 29;

(3)  R5 is holding R5’s Shares on trust for H[1].

3.  For ease of reference, the definitions used in the Judgment are adopted in this Decision. Lotus Villas, House 63 and House 29 are collectively referred to as the “3 Properties”.

4.  The background facts are set out in §§4 to 39 of the Judgment.

Legal Principles

5.  Section 63A of the District Court Ordinance (Cap. 336) stipulates that leave to appeal should not be granted unless there is a reasonable prospect of success, or there is some other reason in the interests of justice that leave should be given. A reasonable prospect of success involves the notion of the prospect of success must be more than fanciful, without having to be probable: SMSE v KL [2009] 4 HKLRD 125; KNM v HTF, HCMP 288/2011, 7 September 2011 §§8 – 9. Even if the Court takes the view that there is a reasonable prospect of success, the Court retains a discretion as to whether to grant leave: Ho Yuen Ki Winnie v Ho Hung Sun Stanley, HCA 391/2006.

6.  Where an appeal is against the findings of fact or is involved the exercise of discretion, there is a higher threshold. The appellant must show that the decision was plainly wrong, or that the judge made some error of law, or has taken into account irrelevant matters or omitted to have regard to relevant matters, or that the discretion was not exercised at all. The appellant must identify palpable errors in the judgment. The assertion that the finding of the judge is against the weight of the evidence or that the judge should have reached another conclusion because of the points advanced in the submissions are not errors coming within that category: See TAC v VDC nee VDM, HCMP 2198/2012, 5 December 2012; China Gold Finance Limited v CIL Holdings Limited, CACV 11/2015, 11 November 2015; NLC v YMF[2022] HKCA 1310, §16.

7.  The Court of Appeal has reiterated in China Gold Finance Limited v CIL Holdings Limited, CACV 11/2015, 11 November 2015:

“11. It is well settled that in respect of findings of fact, this court can only intervene when we are satisfied that the findings by the primary judge is plainly wrong: Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 is often cited and applied in this court.

……

14. …. In our judicial system, the appellate process is not designed to give a litigant (or his counsel) a platform for regurgitating his closing submissions on the evidence and factual aspects of the case again with the hope that the appellate judges may come to a different view to that of the primary judge. ……

15. In an appeal, the court of appeal should focus on the question whether the primary judge has fallen in palpable errors which could give rise to grounds for intervention by the appellate court. As explained in the cases, it is not germane that judges in this court may reach a different conclusion from that of the judge. There are many areas, particularly those in relation to findings of fact, where judges can reasonably reach different conclusions from each other. That would not be a ground for intervention.

16. Thus, in an appeal, it is not helpful if counsel and litigant (acted in person) only repeat submissions already advanced and considered by the primary judge at the trial. The starting point should be the judgment of the primary judge and the identification of palpable errors (which must be errors of such nature which warrants intervention from this court) in the judgment. The mere assertion that the finding of the judge is against the weight of the evidence or that the judge should have reached another conclusion because of points advanced in the closing submissions below are not errors coming within that category.

……

23. See also the well know statement of Lord Hoffmann in Piglowska v Piglowski [1999] 1 WLR 1360 at 1372 on the findings of fact by a judge as inherently incomplete statement of the impression upon him or her and the judgment of Bokhary PJ in Ting Kwok Keung v Tam Dick Yuen, supra.

24. In To Pui Kui v Ng Kwok Piu, supra, after referring to McGraddie v McGraddie, supra, this court also explained at paragraphs 12 to 16 why institutionally it is not appropriate for our Court of Appeal to take over the role of the trial judge as the primary assessor of the evidence.”

(emphasis in bold added)

8.  The Court of Final Appeal in Ting Kwok Keung v Tam Dick Yuen & others (2002) 5 HKCFAR 336 adopted what Lord Hoffmann repeated in Piglowska v Piglowska [1999] 1 WLR 1360 at 1372D-F:-

“The need for appellate caution in reversing the trial judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance ... of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation.”

9.  I consider the intended grounds of appeal advanced by Rs in the Draft Notice of Appeal (“DNOA”) according to the above principles.

Intended Grounds 1 and 4

10.  Rs argued that W’s pleaded case on resulting trust over the 3 Properties disclosed no reasonable cause of action. Relying on TL v ML and Leung Wing Yi Asther, Rs stressed that the family court shall approach the dispute between a spouse and third party on the beneficial ownership of a property in the same way as the civil court, and contended that, therefore this Court has to dismiss W’s claim on resulting trust for failure to disclose a reasonable cause of action in her pleadings, the Court is not entitled to consider Rs’ pleaded case and evidence for the determination of the beneficial owner of the 3 Properties in this trial on preliminary issue: Intended Ground 1 of DNOA.

11.  With respect to the family court’s approach for the dispute on beneficial ownership of a property involving third party’s interest, the Court of Appeal in LLC v LMWA [2019] 2 HKLRD 529 has confirmed that a trial of preliminary issues (as is the present trial) is a part of the ancillary relief dispute in the matrimonial proceedings. The parties only raised the preliminary issue on beneficial ownership because of the dispute on the ancillary relief in the matrimonial proceedings. The underlying matrimonial dispute and the application for ancillary relief is the origin and the substratum for the litigation on ownership. The issue on ownership between a spouse and a third party, insofar as it is necessary to determine the same, have to be decided by reference to the general law of property, and in many cases formal pleadings should be required in order to identify the issues for such determination. In essence the claim remains a claim by the wife against the husband, which is ultimately a claim for discretionary relief. Careful preparation for the trial is necessary, but this does not require or permit the import of the entire civil procedural rules:

“18. We start by making some general observations on the resolution of dispute of beneficial ownership which may involve third party interest in the context of ancillary relief applications. In TL v ML [2006] 1 FLR 1263, Deputy High Court Judge Mostyn QC highlighted the difference between determining a dispute of ownership between a spouse and a third party and the discretionary exercise of determining ancillary relief between spouses. Procedurally, he opined as follows at [36] and [37]:

“ [36] In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen:

(i) The third party should be joined to the proceedings at the earliest opportunity;

(ii) Directions should be given for the issue to be fully pleaded by points of claim and points of defence;

(iii) Separate witness statements should be directed in relation to the dispute; and

(iv) The dispute should be directed to be heard separately as a preliminary issue, before the financial dispute resolution (FDR).

[37] In this way, the parties will know at an early stage whether or not the property in question falls within the dispositive powers of the court and a meaningful FDR can take place. It also means that the expensive attendance of the third party for the entire duration of the trial can be avoided. It is a great pity that none of these steps took place in this case. Had they happened, I believe that a great deal of the costs would have been saved.”

19. Those observations were taken on board in subsequent cases. In A v A [2007] 2 FLR 467, Munby J said at [23] and [24],

“ [23] The deputy judge recorded, at para [35] [in TL v ML], the complaint of counsel in that case that the issues had never been ‘properly defined, pleaded or particularised’ and went on to suggest, at para [36], how such issues should in future be handled by way of appropriate case management. I am sympathetic to the approach being suggested by the deputy judge, though I would not wish to be quite so prescriptive as he appears to be. Vigorous judicial case management in such cases is vital, but the appropriate directions to be given in any particular case must reflect the case managing judge's appraisal of how, given the forensic realities of the particular case, the issues can best be resolved in the most just, effective and expeditious manner.

[24] I do, however, entirely share the deputy judge's view that directions should normally be given for such issues to be properly pleaded by points of claim and points of defence. In the present case the muddle, confusion and ambiguities in the wife's case would have been more pitilessly exposed, and at a much earlier stage in the proceedings, had the presentation of her case been exposed to the intellectual discipline which is one of the advantages of any system of pleading. Moreover, if the wife had been required to plead her case everyone would have had a much clearer idea, and at a much earlier stage, as to exactly what she was or was not asserting and as to exactly what the husband and the interveners were or were not saying by way of defence. As it was, matters were wholly unclear even as late as the first day of the final hearing.”

20. In Hong Kong, similar endorsement of these procedural considerations can be found in the judgment of Stock NPJ in Leung Wing Yi Asther v Kwok Yu Wah (2015) 18 HKCFAR 605. In that case, the concern was about the lack of pleadings to identify the issues in the trial on beneficial ownership, see [29] and the judgment of Kwan JA in the Court of Appeal, CACV 151 and 152 of 2013 at [30] and [31].

21. We agree that issues on ownership between a spouse and a third party, insofar as it is necessary to determine the same, have to be decided by reference to the general law of property and in many cases formal pleadings should be required in order to identify the issues for such determination. However, we have reservations on prescribing that a trial of preliminary issue as the only way forward once an issue on third party beneficial ownership is raised. We also have reservations on prescribing that a FDR must be postponed until after the trial of preliminary issue.

22. One must not lose sight that the dispute on ownership in these cases often arisen from matrimonial proceedings. But for the breakdown of marriage and the application for ancillary relief by one spouse in a divorce petition, there would not be any claim on the property. In other words, the parties only raise the issues on beneficial ownership for the court to determine because of the matrimonial proceedings.

23. The underlying matrimonial dispute and the application for ancillary relief, in our judgment, is the origin and the substratum for the litigation on ownership irrespective of the procedural routes adopted by the parties and the court to resolve the same. ……

……

26. Irrespective of the role of the third party in contesting the ownership issue, given the ancillary relief application is the substratum for such contest, the primary protagonists are often the spouses.

27. Having regard to the above analysis, the observations of Thorpe LJ in Goldstone v Goldstone [2011] 1 FLR 1926 on the underlying nature of the proceedings despite the joinder of a third party are apt even in respect of cases where the relief sought is only a proprietary order without any claim for setting aside some property transaction as in that case. At [39], the learned judge said:

“ Of course, the ultimate trial required the family division judge to apply the law of property and the law of sham just as his brother judge would do in the Chancery Division. Careful preparation for that trial was necessary. However, these impeccable directions do not require or permit the import of the CPR.In its essence the claim remains a claim by the wife against the husband.Ultimately it is a claim for discretionary relief. In this, as in many cases, there must be a preliminary issue trial to establish the extent of the assets over which the discretion is ultimately exercised. Here, as in many cases, the preliminary issue trial determines the claims and the rights of third parties. The preliminary issue trial is pendent on the originating application. It has no independent existence.” (our emphasis)

28. Thus, we firmly reject Mr Clough’s submission that the trial of preliminary issue is not part of the matrimonial proceedings.”

(emphasis in bold added)

12.  To support their arguments under Intended Ground 1, Rs referred this Court again to Wong Leung Wing (which was cited in the trial) where DHCJ MK Liu dismissed the claim against D2 on his own motion for the plaintiff’s failure to plead D2’s knowledge on the arrangement between D1 and the claimed beneficial owner: Judgment §97.

13.  Wong Leung Wing is not a matrimonial dispute on ancillary relief. I do not see this case is an authority in support of Rs’ argument that where a party’s pleadings do not disclose a reasonable cause of action but not struck out, the Court is barred from considering the evidence at the trial for the purpose of determining the issue in dispute.

14.  This Court was tasked with the identification of assets available for the distribution between H and W on their divorce. The Court is not bound by the pleaded case of the parties in discharging this task. The Court’s duty is to achieve a fair and equitable outcome in the resolution of the ancillary relief dispute. The purpose of the pleadings is to define the issues, so that the other side knows the case he is expected to meet. In the present case, Rs knew that the question to be determined is the beneficial ownership of the 3 Properties for the purpose of the ancillary relief claim, and that issues on resulting trust were raised. Rs have pleaded their positive case of gift in defence, adduced evidence and testified at the trial. In the circumstances, this Court is entitled to consider all the evidence to reach a finding on the issues, including findings that were not pleaded by the parties. Rs produced no authority to suggest otherwise.

15.  I echo the following view of HHJ I Wong in FWY v TYCY[2022] HKFC 67:

“140. As pointed out by the Court of Appeal, but for the breakdown of marriage and the application for ancillary relief, there would not be any claim on the properties on the part of the mother. The underlying matrimonial dispute and the application for ancillary relief is the origin and the substratum for the litigation on ownership irrespective of the procedural routes adopted by the parties and the court to resolve the same; see: LLC v LMWA & LELP [2019] 2 HKLRD 529 at [8], [22] & [23]. In the present case, the court is tasked to identify the matrimonial assets for the purpose of division between the husband and the wife. In doing so, in my view, the court is entitled to come to findings on ownership that were not pleaded by the parties.”

16.  §§84 and 85 of the Judgment must of course be read in the context of the above approach, and could not have the meaning of preventing the Court from making findings not pleaded by the parties.

17.  Further, in Yip Lai Ngor, cited by Rs at the trial (Judgment §§95-96) and in this application, Au-yeung J had considered and relied on the evidence at cross examination to support her decision to dismiss the plaintiff’s case on constructive trust although she found that the plaintiff had not pleaded the defendant’s knowledge of the agreement or common understanding with respect to the beneficial ownership of the property, and this lack of plea “contained its own seed of destruction”: Yip Lai Ngor §§26 to 28, 39 to 41.

18.  Rs were not able to adduce any legal authority to support their arguments that this Court was barred, by the defective pleadings of a party, from considering the pleaded case of the other party and evaluating the evidence adduced before it to determine the beneficial ownership of a property for the purpose of identifying the assets available for distribution on divorce.

19.  There is no reasonable prospect of success in Intended Ground 1, and thus Intended Ground 4 does not stand.

20.  For the avoidance of doubt, I shall mention that the legal and factual matrix underlying the common intention constructive trust claim in House D44 and the 3 Workshops are different from the resulting trust claim against the 3 Properties. House D44 and the 3 Workshops are held in the name of R6 (a limited company). The intention of the legal owner, being a limited company, is a crucial element. The absence of a plea and evidence on R6’s intention on the acquisition of House D44 and the 3 Workshops are fatal to the claim on common intention constructive trust. Therefore, this Court found that W did not make out her claim for beneficial interest in House D44 and the 3 Workshops which are held to be owned by R6.

21.  Since Rs had made extensive submissions on whether W’s pleadings disclosed a reasonable cause of action on resulting trust, I address Rs’ argument on this point below although this is, in my view, academic.

22.  Rs’ argument hinges on their allegation that on W’s pleaded case, the money used to acquire the 3 Properties were from the “family business run by the Companies” or “from the Companies”, and by relying on the legal principle set out in Lo Man Yau, Rs said that such money are the assets of the Companies: DNOA §1(1), §1(2)(a). However, on reading her pleadings and without considering the evidence, I do not think this is a correct description of W’s pleaded case.

23.  W pleaded in §7 of the Amended Points of Claim that in about 1983, H and W started their own diamond and/or jewellery business and formed Old KTC, a partnership, with their funds.

24.  In §12, it was pleaded that H and W decided to continue and expand their diamond and/or jewellery business (which was defined as “family business”) by setting up R6.

25.  Old KTC had once been closed down after R6 was established: §9 of Amended Points of Claim.

26.  W admitted that W and H decided to shift the family business operated under Old KTC to R6: Re-Amended Points of Reply §8(1).

27.  W also admitted that W and H decided to shift the family business operated under R6 to DGIL in order to avoid the risk of the family business of R6 on its landed properties: Re-Amended Points of Reply §9(1). DGIL was incorporated in October 1996: Judgment §19(1).

28.  The other companies including MCHL, WCL and DGJML were incorporated to take up different areas of the business: Judgment §19(2)-(3).

29.  In about 1998, Old KTC, the partnership, was reopened and recommenced business. In 2000, the name of Old KTC was changed to New KTC: §9 of Amended Points of Claim.

30.  In §32 of Amended Points of Claim, W changed the definition of “family business” to the business of exporting jewellery to overseas customers, without specifying the vehicle used for this “family business”.

31.  In §§48-68 of the Amended Points of Claim, W pleaded that H unilaterally utilised the funds of “family business” to acquire the 3 Properties respectively in 1999, 2010 and 2012, by virtue of resulting trust, the 3 Properties were/are held on trust for H and W. As noted above, by this time, Old KTC had recommenced business.

32.  In §75 of Amended Points of Claim, W pleaded an alternative case where it was found that the acquisition money was sourced from H.

33.  Bearing in mind that Old KTC (and subsequently renamed as New KTC) had recommenced business at the time when the 3 Properties were acquired and the definition of “family business” in §32 of the Amended Points of Claim was not confined to the business operated under the Companies, reading W’s pleadings as a whole and without considering the evidence, the “family business” at the time of acquisition of the 3 Properties was not confined to the business operated by the Companies.

34.  Rs referred to §25(1) of Re-Amended Points of Claim and §§8(6), 8(8), 9(6), 9(8), 10(6), 10(8), 11(5) and 11(7) of the Re-Amended Points of Reply. In these paragraphs, W had pleaded “family business” under different companies. These show that the “family business” was not conducted or operated by one company only, neither can it be concluded that the family business was conducted exclusively by the Companies.

35.  In §§17, 19 and 21 of the Re-Amended Points of Reply, W had pleaded that the 3 Properties were “acquired with and financed by the monies and funds generated and yielded from the family business jointly and beneficially owned by [W] and [H] through the companies concerned during the subsistence of their marriage. In the premises, the net sale proceeds of [Lotus Villas and House 63], and House 29 form part and parcel of the family/matrimonial assets of [W] and [H].” These 3 paragraphs were pleaded with reference to the Matrimonial Pot Issue. To construe these paragraphs in the context of the pleaded fact as a whole, the words “companies concerned” would be liberally construed and was not restricted to mean the Companies only.

36.  To reach a finding on the beneficial ownership of the 3 Properties, I have duly considered and rejected Rs’ arguments, including those set out in §107 of Rs’ Opening Submission and §§27 to 29 of Rs’ Reply Submission.

37.  If I am wrong on this point, by the reasons set out in §§11 to 18 above, this Court was not prevented by the defective pleadings of W from reaching the findings in §137(2) and (3) of the Judgment after consideration of all evidence holistically (including the evidence adduced by Rs). The conclusion in §19 above stands.

Intended Grounds 2(1) and 3(1)

38.  It bears repeating the following legal principles set out in the Judgment:

“77(1) The starting position is that equity follows the law, that is, the legal owner of a property also has the beneficial interest in the property.

(2) The party who asserts that the beneficial interest of the property does not lie with the legal owner bears the burden of proving it. …

……

(9) In assessing the intention of the parties, the Court is to assess all relevant evidence holistically. Context is crucial. …

(10) As a matter of common experience, contemporaneous conduct was inherently more likely to be a reliable indicator of intention than words and conduct after the event, especially in the case of self-serving statements and conducts, but it did not follow that subsequent conduct was necessarily inadmissible or irrelevant: Leung Wing Yi Asther v Kwok Yu Wah (2015) 18 HKCFAR 605 [54] to [56].

(11) Resulting trust operates in the absence of evidence of intention of the parties. If the Court makes a finding on the intention of the parties with respect to the beneficial ownership, it would not be necessary to resort to presumptions, including the presumption of resulting trust: Primecredit [2.15]; Leung Wing Yi Asther [53]

(12) In a non-corporate context, there is a rebuttable presumption that the person who provide the funds for the purchase of a property has a beneficial interest in the property by virtue of a resulting trust.”

39.  All parties contended that the beneficial ownership of the 3 Properties are different from the legal ownership. W contended that H and W are the beneficial owners in equal shares. Rs contended that the beneficial ownership of the 3 Properties are different from the legal title of joint tenancy in that, instead of holding the properties with unity of possession as joint tenants, H gifted each of R2 to R4 a specific percentage of the beneficial ownership of the 3 Properties respectively.

40.  It is thus obvious that the Court could not simply stay at the starting position that equity follows the law without considering the evidence on intention. The assertion that this Court has ignored or overlooked this starting position is erroneous. The Court had proceeded to consider the evidence on intention of the relevant parties with respect to the beneficial ownership, and the circumstances surrounding the acquisition.

41.  In this connection, the intention of the legal owners (ie. H and R2 in the case of Lotus Villas and House 63; H, R2 to R4 in the case of House 29), and the fund provider are relevant. As it was found that the acquisition money was H’s money, it was not necessary to consider the intention of the other alleged fund providers, for example, the entities which carried out the “family business”.

42.  H and R2, as the legal owners adduced the evidence on gift and their respective financial contribution to the acquisition. Accordingly, these evidence were considered in §§117 to 125 of the Judgment.

43.  The dispute concerning R5’s Shares is similar in that W contended that the beneficial ownership of R5’s Shares is different from its legal ownership. The Court could not stay at the starting position, and should evaluate the evidence, including the evidence on the intention of H and R5 as well as the circumstances under which R5 was given R5’s Shares.

44.  There was no reversal of burden as alleged in Intended Ground 2(1) and 3(1) of DNOA. The Court has not required Rs to prove the making of gift. What the Court had done was to evaluate all the relevant evidence holistically with respect to the acquisition of the 3 Properties and R5’s Shares.

45.  After consideration of the evidence, it was found that there was no reliable evidence on the intention of the parties with respect to the beneficial interest of the 3 Properties and R5’s Shares. This Court resorted to the presumptions, and concluded that the presumption of resulting trust should apply upon the findings that the acquisitions were funded by H.

46.  There is no reasonable prospect of success in Intended Grounds 2(1) and 3(1).

Intended Grounds 2(2) and 2(4)

47.  The argument in these intended grounds, with respect, is devoid of merits and logic. H contended that I have contradicted myself by finding that there is no documentary evidence while I have accepted that it is not common to have documentary evidence in domestic context.

48.  Existence (or the lack) of documentary evidence is a crucial consideration. The findings of lack of documentary evidence in §118, §123 and §126 of the Judgment are findings of fact, which were undisputed.

49.  The lack of documentary evidence is just one of the reasons for rejecting H’s assertion of gift, and similarly, one of the reasons for rejecting R2’s case on her financial contributions to the acquisition. This Court has set out in the Judgment the other evidence, which have been viewed holistically, before rejecting the aforesaid cases of H and R2.

50.  Intended Ground 2(4) of DNOA, which reads below, is not understood as it has not identified the error said to have made by this Court.

“(4) further, in rejecting R2’s case and evidence that she had contributed financially to the acquisition of Lotus Villas for want of documentary support (Judgment §§122-124), the learned judge erred in principle.”

Intended Ground 2(3)(a)

51.  It is Rs’ own pleaded case that the 3 Properties were/are held by the respective Rs as joint tenants but H gifted to the respective Rs the specific percentage of the properties concerned: Re-Amended Point of Defence §17(1), 18(1) and 19(1).

52.  In the Re-Amended Points of Defence (with Statement of Truth signed), it was specifically pleaded that H and R2 were legally and beneficially entitled to the net sale proceeds of Lotus Villas and House 63 in equal shares, H gifted to each of R2 to R4 25% legal and beneficial interest in House 29. Rs have specifically denied that R2 to R4 held the respective properties or their sale proceeds “as trustees for anyone else”: Re-Amended Point of Defence §17(2)-(3), 18(2)-(3) and 19(1)-(2).

53.  At trial, H sought leave (which was granted) to top up evidence in examination in chief that he gave R2 to R4 as a gift the specific percentage of beneficial interest in the 3 Properties respectively on which R2 to R4 had not made financial contribution to the acquisition. And Lotus Villas and House 63 were beneficially owned by him and R2 in equal shares, each of H, R2 to R4 beneficially owns 25% of House 29. Under cross-examination, H repeated similar evidence. There is no evidence nor reason to suggest that H was not fully aware of the differences between joint tenancy and tenants in common, otherwise there was no need for him to seek leave to top up this part of evidence.

54.  The swaying of H’s evidence was exemplified by Rs’ Opening Submissions which were inconsistent with H’s evidence and pleadings:

(1)  In §119.2 and §119.3 of Rs’ Opening Submission, Rs submitted that Lotus Villas and House 63 were beneficially owned by H and R2 as joint tenants, and House 29 is beneficially owned by H, R2 to R4 as joint tenants.

(2)  In §105 of Rs’ Opening Submission, Rs submitted that Rs accepted that each of H, R2 to R4 owns the specific percentage of the 3 Properties respectively for the purpose of quantification in the trial of preliminary issue only. Counsel for Rs did not provide any reason or basis for the alleged quantification and the appropriateness of such quantification.

55.  Rs’ contention of gift and financial contribution by R2 were put to strict proof by W: Re-Amended Points of Reply §§16-21.

56.  It was clear to all parties (including the witnesses) that the contention of gift was not accepted and the truth of H and R2’s evidence was severely challenged. Everybody knew where they have stood. The opportunity to make explanation was open to Rs at the trial. Further, this is an evaluation of evidence which the Court is entitled to do although this was not pleaded. If Rs are raising the Browne v Dunn point, this point is not reasonably arguable. There is no procedural injustice against Rs. The Court has a duty to investigate issues which it considers relevant and is not bound to adopt a conclusion accepted by any party. It could not be said that issues not put to a witness in cross-examination should be taken as accepted: Leung Wing Yi Asther [43]; LWYA v KYW, CACV 151/2013, 4 December 2014 [89] – [91]; SSLT v SMFC[2019] HKFC 250 [20] – [23].

Intended Grounds 2(3)(b) to (e)

57.  These are essentially appeals against findings of facts.

58.  The matters raised in Intended Grounds 2(3)(b) to (e) were indisputably known to all parties and the Court; and have been considered. The argument that a different conclusion should be reached is not a ground for intervention by the appeal court. These intended grounds are an attempt to re-argue the case on points that had been canvassed and considered.

59.  There shall be certainty in the making of a valid gift. The right of survivorship in joint tenancy registered in the name of R2 to R4 who had not financially contributed to the acquisition of the properties may suggest the intention to gift. However, a gift to hold a property as joint tenants is vastly different from a gift of a specific percentage of beneficial interest in a property. H’s evidence on the gift of a specific percentage of interest in the property is inconsistent with a holding as joint tenants. I was not satisfied that on the evidence, a valid gift or an intention to give the specific percentage of interest in the 3 Properties were shown.

60.  The assertion that a party can sever the joint tenancy is neither here nor there. The fact remains that there was no severance nor evidence of any intended severance.

61.  The presumption of advancement was considered. Having rejected H’s evidence on gift, the presumption of advancement was rebutted.

62.  Rs have failed to show that the findings are plainly wrong or otherwise fall within the category that should be intervened by the appellant court.

Intended Grounds 3(2) to 3(5)

63.  Rs appeared to have overlooked H’s own evidence that the position of W and R5 are the same insofar as the shareholdings are concerned: Judgment §25. Comparison between the position of W and R5 as shareholders are apt to test the evidence of H.

64.  Rs appeared to have overlooked that all parties accepted that the shares held in the name of W (0.01% to 5% respectively) are beneficially owned by her. The beneficial ownership of the shares held by W was not an issue in dispute. It is incorrect for Rs to assert in Intended Ground 3(2)(b) that the Court has rejected Rs’ pleaded case and evidence of his gift to P the shareholding of the Companies. The assertion in Intended Ground 3(2)(c) is also incorrect.

65.  The findings on the beneficial ownership of R5’s Shares were reached not only because of the provision of personal guarantee by W, but after a holistic evaluation of all the evidence before the Court.

66.  Intended Grounds 3(2) to (5) are an attempt to reargue the matters which have been raised and considered at the trial and suggest that another conclusion should have been reached. This is not an error within the category of acceptable grounds for appeal against findings of fact.

Intended Grounds 5 and 6

67.  It is trite that the Court assesses the credibility of a witness by evaluating all the evidence before the Court as an overall process, by taking into account observation of the demeanour of the witnesses, the inherent probabilities, the documentary evidence or the lack of it: Ageas Insurance Company (Asia) Limited v Lam Hau Wah Inneo, CACV 65/2014, 9 January 2015.

68.  The Court did not reject Rs’ case only because of the findings on the lack of the credibility of the witnesses in general. There is no reasonable prospect of success in Intended Ground 5.

69.  Intended Ground 6 is a repetition and has no substance of its own.

Disposition

70.  There is no reasonable prospect of success in the intended appeal. Rs’ application for leave to appeal is dismissed.

71.  There is no reason to depart from the general rule of costs follow the event. On a nisi basis, I order that Rs do pay W the costs of this application summarily assessed to be $120,000. The above costs order will be made absolute if no variation application is made within 14 days.

Ms. Yanky Lam and Ms. Kwok Sin (not appeared at the oral hearing on 20 December 2022) instructed by Oliver C.M. Chan & Co. for the Petitioner.

Mr. Aidan Tam and Mr. Jonathan Tsang instructed by Lee Chan Cheng for the 1^st to 6^th Respondents.

FCMC 4498 / 2016

[2022] HKFC 230

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 4498 OF 2016

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

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_____________________________________

JUDGMENT
(Preliminary Issue, Beneficial Ownership)

_____________________________________

A.  INTRODUCTION

1.  This is the trial of the following disputes as preliminary issues pursuant to paragraphs 6 and 7 of the Order of Judge C.K. Chan dated 29 March 2018 (“2018 Order”).

(1)  The dispute in relation to the respective beneficial ownership of the following landed properties (“7 Properties”):

(a)  House D44 in Sai Kung (“House D44”);

(b)  Workshop 1 in Kowloon (“Workshop 1”);

(c)  Workshop 2 in Kowloon (“Workshop 2”);

(d)  Workshop 3 in Kowloon (“Workshop 3”);

(e)  Lotus Villas in Sai Kung, which was sold in 2005 (“Lotus Villas”);

(f)  House 63 in Tai Po, which was sold in 2010 (“House 63”);

(g)  House 29 in Tai Po (“House 29”)

(Workshop 1, Workshop 2 and Workshop 3 are collectively referred to as “3 Workshops”).

(2)  The dispute in relation to the respective beneficial interests concerning the shareholding held in the name of the 5^th Respondent (“R5’s Shares”) in the following limited companies (“Companies”):

(a)  R6;

(b)  DGIL;

(c)  DGJML:

(d)  MCHL; and

(e)  WCL.

2.  The Petitioner (“W”), the 1^st Respondent (“H”), the 2^nd Respondent (“R2”) and the 5^th Respondent (“R5”) testified at this trial.

3.  R5 is the younger sister of H. R2 is H’s cohabitee. The 3^rd Respondent (“R3”) and the 4^th Respondent (“R4”) are the children of H and R2.

B.  FACTS

General

4.  W and H are now in their sixties. They got acquainted in about 1977 and married on 30 December 1984 in Hong Kong. They have no children. W presented the divorce petition on 20 April 2016. The Decree Nisi was granted on 6 April 2017.

Setting up of CM Company

5.  In 1981, H and W started to live together in a flat in North Point with a common friend, Mr Lam. H was employed as a sales person selling diamond at that time. W worked in another company.

6.  During their cohabitation, a partnership business was set up and registered in the name of Mr Lam and W as owners (“CM Company”).

(1)  W said this was a partnership owned by Mr Lam and her in equal shares. Both of them had invested and worked in it. W handled the administration and accounts while Mr Lam handled the business development.

(2)  H said that W held the interest in CM Company as his nominee for the purpose of business registration since he was working under the employment of another company at that time. Mr Lam was solely responsible for the operation of CM Company.

Old KTC and R6

7.  In about 1983, an unlimited company (“Old KTC”) was established.

8.  There was a heated debate on the identity of the person who provided the funds for the setting up and operation of Old KTC.

9.  On this heavily disputed issue, there was only H and W’s conflicting oral assertions. Not a piece of document was adduced by either party in support.

(1)  W’s case is that Old KTC was set up as a partnership beneficially owned by H and W. W described this as a family business and said that they worked as equal partners. W stated in her witness statements that she and H pooled their funds together to provide for the running of the business. She has not provided any particulars of the investment. Under cross examination, she said that the start-up funds for Old KTC came from borrowings from her parents of about HK$400,000, and her own savings of about HK$100,000.

(2)  On the other hand, H said that he was the sole provider of the funds for Old KTC. He has not provided any particulars of the funds he put in Old KTC nor any evidence to show that he has the resources to fund Old KTC at that time. However, under cross-examination, H said he had the financial resource to set up Old KTC as he owned the flat in North Point. This suggestion was not put to W when she gave evidence, and there is no documentary evidence to substantiate such assertions of H.

10.  R5, H’s younger sister, was employed as a clerk of Old KTC after it was established.

11.  Old KTC ceased its business in 1988. In about 1998 (that is about 10 years later), W and H formed another partnership company in the same name as Old KTC, which was subsequently changed to KJC in 2000 (“New KTC”). There is no dispute that H and W are the beneficial owners of New KTC, each holding 50% interest.

12.  R6 was established in 1988 at about the same time when Old KTC ceased its business. Both parties contended that the jewellery business of R6 originated from Old KTC. W said that R6 was a continuation of the “family business” after the cessation of Old KTC beneficially owned by H and W equally. H however said that he is the sole owner of R6, and the shares held in the name of W and R5 are his gift to them.

13.  Initially, H held 9,998 shares in R6, each of W and R5 held 1 share. According to R6’s Annual Returns for the year of 2004 and 2017, H held 9,000 shares while each of W and R5 held 500 shares in R6. W was appointed R6’s Company Secretary on 1 November 2001[1].

House D44

14.  House D44 was purchased in January 1989. R6 is the registered owner. H and W lived in House D44. W’s case is that House D44 is the matrimonial home. However, H contended that House D44 was R6’s staff quarter. He said that R5 resided in House D44 between 1989 and her marriage. W’s younger brother and his family also lived there since about 2000 until his resignation from DGIL in 2017.

R2 and the relationship between H and W

15.  In around 1989, R2 was employed as a clerk of R6. Shortly thereafter, H and R2 developed an extra-marital affair. They gave birth to R3 (a daughter born on 28 January 1991) and R4 (a son born on 4 November 1992). R2 has ceased to work since her cohabitation with H.

16.  H and W’s respective evidence on their relationship were also different. W’s case was that:

(1)  In 1991 and 1992, W and H had undergone two courses of fertility treatments or surgeries in Hong Kong Sanatorium and Hospital, attempting to have their own child with Assisted Reproductive Technique. The attempts were not successful. W produced medical records showing that she had undergone these surgeries. W said that H participated in these treatments and he settled the medical bills.

(2)  In about 1991 and 1993, H brought a baby girl and later a baby boy to House D44 and asked W to look after the children as if their own. W did take care of them. In or about the end of 1993, H took the children away. W produced photos showing the children with her and H’s parents.

(3)  W has regular family gatherings at the house of H’s parents as wife of H until around 2016.

(4)  Their marital relationship changed in 2000 when W found out that H stayed overnight about 2 to 3 times a week. W continued to reside in House D44 until 2008 when she acquired another property in Yuen Long in her own name.

(5)  W discovered that H had improper association with R2 shortly after their marriage. H pacified her that he merely used R2 to have child with him, and he treated W as his only lawful wife.

(6)  W said that she invited her younger brother’s family to live with her in House D44 in around 2000. Her younger brother’s family lived there until about early 2017.

(7)  In 2016, H started to treat W badly, especially in the presence of staff in the office. In about April 2016, H forced W to leave the business.

17.  H contended a different case as follows:

(1)  H only lived with W in House D44 until 1991 when he moved out and cohabited with R2.

(2)  He separated with W in 1991.

(3)  Since then, he maintained a working relationship with W until 2016 when W left the Companies.

(4)  He had only brought the children to the home of his parents for gathering, but not to House D44.

(5)  He did not want to upset his parents and therefore had not told his parents about the breakdown of marriage with W. W continued to have meal gatherings with H’s parents until 2014.

(6)  He denied that he had participated in the fertility treatments with W.

The setting up of the other companies

18.  In 1993 and 1999, R6 purchased the 3 Workshops, which were being used as office and showroom of the jewellery business.

19.  To avoid the landed properties held by R6 from being exposed to the risk of the jewellery business, several companies were established to take up the jewellery business.

(1)  In October 1996, DGIL was established. R6’s jewellery business was shifted to DGIL. DGIL developed the business in the US market, which was subsequent declined in about 2010. Since then, DGIL conducted local jewellery business only.

(2)  MCHL and WCL were incorporated in 2001. They were acquired to collaborate with the US jewellery business carried on by DGIL, mainly for tax and customs issues.

(3)  In March 2009, DGJML was established, which was mainly used to explore the jewellery business in Europe.

20.  R5 continued to work in the Companies.

Summary of the Companies’ registered shareholdings

21.  According to the records of the Companies Registry, H is the majority shareholder of the Companies, W and R5 are the minority shareholders. All three of them are the directors of the Companies. Their respective shareholdings in the Companies are as follows:

	Company	H	W	R5
(1)	R6	90%	5%	5%
(2)	DGIL	99.98%	0.01%	0.01%
(3)	DGJML	98%	1%	1%
(4)	MCHL	90%	5%	5%
(5)	WCL	90%	5%	5%

R5’s Shares

22.  It is common ground that R5 had not made any financial contribution to the acquisition of R5’s Shares nor the operation and business of the Companies.

23.  W’s case was that H suggested to nominate R5 to be a nominee shareholder of the Companies for the sake of convenience. W followed H’s suggestion as she trusted H at that time. The intention between W and H was that R5 was holding R5’s Shares on trust for them.

24.  H and R5 contended that R5’s Shares were H’s gift to R5 for recognition of and incentive for R5’s efforts in the business. They said R5 is the beneficial owner of R5’s Shares.

25.  According to H, he gave both W and R5 some shares in the Companies as gift in recognition of their efforts in the business and as an incentive. H emphasised that insofar as the shareholdings are concerned, the position of W and R5 are the same. Both W and R5 worked in the Companies and received salaries.

26.  W denied. She contended that she had made a lot of contributions to the Companies because this was the “family business” beneficially owned by H and her equally. In addition to her investment in Old KTC and R6, she also participated and contributed the following:

(1)  W obtained the qualifications in 1991 and 1992 respectively of Asian Jewellery Training Centre Diploma and Diploma of the Gemmological Association and Gem Testing Laboratory of Great Britain. She was the only person in the Companies who obtained these qualifications. She was the one who used to sign the diamond grading reports in the course of the Companies’ business.

(2)  W has been and still is the guarantor in her personal capacity for the banking facilities, loans, mortgages granted to R6, MCHL and WCL.

(3)  The banking facilities of HK$11 million and instalment loans of about HK$2.7 million offered by DBS Bank to DGIL in 2012 was secured by, among others, W’s personal guarantee for an unlimited amount. There had been variations to the loan amounts in subsequent years which were supported by the same securities, including W’s personal guarantee. In 2015, the facility limit was increased to HK$15.5 million.[2]

(4)  The bank facilities offered by China Citic Bank to DGIL in 2014 with a total facility amount of HK$23 million (including Trade Finance-Import Invoice Financing of HK$6 million, revolving loan of HK$11 million, and instalment loans of about HK$6 million) were secured, among others, by W’s personal guarantee for an unlimited amount, and a corporate guarantee provided by Diamond Trading Asia Limited (a company owned by W) for an unlimited amount[3].

(5)  R5 has not provided any personal guarantee to secure the Companies’ loans, nor has she incurred any liability or exposure for the business of the Companies.

(6)  W devoted her time in the operation and expansion of the business, in particular, she travelled overseas extensively since 1988 for the Companies’ business. W produced records of her business travels showing that there were over 100 travels in the period between 1988 and 2009. She reduced the number of business trips since about 2010 due to her health condition. She was hospitalised for pneumonia in 2009/2010, and she had a stroke in about 2011/2012.

(7)  Apart from receiving salary and commission, all her credit cards bills were settled by the Companies.

Lotus Villas, House 63 and House 29

27.  In August 1999, Lotus Villas was purchased at the price of HK$7,720,000 and was registered in the name of H and R2 as joint tenants. In H’s Amended Answer to W’s Request for Further and Better Particulars dated 6 September 2021, H stated that he had contributed the whole purchase price of Lotus Villas less R2’s contribution. R2’s initial evidence was that she paid HK$20,000 as part of the purchase price. Subsequently, she changed and said that the amount paid by her should be HK$300,000 to HK$400,000.

28.  H did not deny that Lotus Villas was purchased substantially with the funds drawn by him from R6. H and R2 contended that:

(1)  Insofar as the funds drawn by H from the Companies for the purchase of Lotus Villas, they are borrowings by H and had been accounted for.

(2)  R2 has contributed around HK$300,000 to HK$400,000 for the acquisition of Lotus Villas. The remaining part of her 50% interest in Lotus Villas was H’s gift to her.[4]

(3)  Although Lotus Villas was registered in their names as joint tenants, each of them held 50% of beneficial interests in Lotus Villas.

29.  Lotus Villas was sold in 2005 for HK$12,500,000, with a gross profit of HK$4,780,000.

30.  In late 2007/early 2008, House 63 was purchased at the price of HK$9,000,000 and was registered in the name of H and R2 as joint tenants. It is H and R2’s case that the acquisition of House 63 was financed by the respective own funds of H and R2 in equal shares and bank borrowings. Insofar as their own funds are concerned, they said it included money drawn by H from the Companies as loans, money earned from the sale of Lotus Villas and R2’s personal funds accumulated from her trading in the stock market. Rs accepted that R2 had not contributed to the repayment of mortgage for financing the purchase of House 63, but they said that H gifted the interest to her.[5]

31.  In 2010, House 63 was sold for HK$9,400,000 with a gross profit of HK$400,000.

32.  In the same year, House 29 was purchased at the price of HK$22,500,000. H, R2 to R4 are the registered owners as joint tenants.

33.  Rs admitted that:

(1)  R2 has not contributed to the mortgage loan repayment. The deficit in her 25% of repayment was a gift to her by H; and

(2)  R3 and R4 have not paid for the purchase of House 29. Their respective 25% interests in House 29 were gift to them by H.[6]

34.  H sought to legitimatise his use of the Companies’ funds to finance the acquisition of these properties by contending that there was a current account between him and the respective Companies. The amounts drawn by him were reflected in the audited accounts as sums owed by him to the respective Companies.

35.  H can sign cheques of the Companies by himself. H said that although he did not require the approval by W and/or R5 for his drawings, W knew his drawings because she was the person handling the accounting matters of the Companies. H further suggested that W and R5 (in their capacities as shareholders of the Companies) would know the drawings/loans in any event when they reviewed the audited accounts.

36.  Under cross examination, R5 said that she did not know how much money H had taken from the Companies. She said that she did not care how much money H owed to the Companies. She believed that H would repay them.

37.  W contended that she had never been informed of nor approved such drawings or borrowings by H from the Companies. She was not the person handling the accounting matters of the Companies. There were accounting staff in the Companies handling the same. R5 was responsible for the accounting matters and bookkeeping together with the staff since she joined Old KTC in around 1983[7]. She pointed out that in the initial years, the Annual Return of R6 recorded that R5’s occupation was an accountant, and she was a secretary. Moreover, the audited accounts for the years ended 2012 to 2017 were prepared after she left the Companies in 2016. These audited accounts were signed by H and R5. She had no knowledge of the contents of these accounts, nor had she approved them.

38.  The sums owed by H to the Companies are not subject to any repayment term and are non-interest bearing. W suggested that H did not have the intention to repay.

Summary of the 7 Properties’ registered owners

39.  In summary, the respective registered owners, the dates and prices of acquisition and/or sale of the 7 Properties are as follows:

	Property	Registered Owner	Acquisition   (Date and Price)	Sale (Date and Price)
(1)	House D44	R6	30.1.1989   $3,308,000
(2)	Workshop 1	R6	8.2.1994   $5,290,000
(3)	Workshop 2	R6	16.8.1999   ($1,157,050)
(4)	Workshop 3	R6	6.12.1999   ($1,986,960)
(5)	Lotus Villas	H & R2 (joint tenants)	5.8.1999   $7,720,000	21.3.2005 $12,500,000
(6)	House 63	H & R2 (joint tenants)	11.2.2008   $9,000,000	28.7.2010 $9,400,000
(7)	House 29	H, R2, R3 & R4 (joint tenant)	28.9.2012   ($22,500,000)

C.  CREDITABILITY OF WITNESSES

40.  This is a battle of credibility of witnesses. On most of the events that are crucial to the issues in dispute, the parties relied on their bare assertions only.

41.  The Court’s approaches to assessment of evidence are well established. There is no need to repeat these principles. Among others, the inherent plausibility and consistency of the parties’ respective cases, the existence or the lack of documentary evidence or contemporaneous records to collaborate one’s case are all relevant: Lee Fu Wing v Yau Po Ting Paul [2009] 5 HKLRD 513; Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, 480-481; Progetto Jewellery Co Ltd v Lau Chiu Ying[2020] HKCFI 209 at [28] to [31].

42.  I also bear in mind that this is a dispute between family members and the following remarks are relevant:

(1)  In Chen Tek Yee & Ors v. Chan Moon Shing CACV 1356/2015, 29 February 2016, per Yuen JA:

“29. …… when the parties are in a personal relationship (as contrasted with parties in a commercial transaction), it would be unrealistic to expect written records of assurances ……”

(2)  In Cheung Lai Mui v. Cheung Wai Shing & Ors HCA 1562/2012, 10 April 2017, per Wilson Chan J:

“95. …… Members of the family dealt with each other on the basis of trust, not mistrust. They could not have envisaged litigation in the future, and they would not have generated records to protect themselves out of the blue.”

43.  At trial, both W and H were subject to lengthy and rigorous cross-examinations.

44.  I have carefully considered the evidence. I find that H is not a credible witness. He is not honest and is ready to make things up in order to suit his case. The evidence of R2 and R5 was, to a large extent, polished to fit in H’s case.

45.  There are many glaring examples. As some of the facts featured in this trial may be relevant to the disputes in ancillary relief matters, I will not comment on all the evidence here. The facts that are pertinent to the issues to be determined in this trial will be discussed below.

46.  It is obvious that H has deliberately distanced himself from W. He was at pains to suggest that he had separated with W as early as in 1991. In an attempt to align with his case of separation in 1991, he said that he only maintained a working relationship with W since then. I find this assertion unbelievable and inherently improbable.

47.  Firstly, after 1991, W continued to attend regular meal gatherings with H and his parents as H’s wife. H admitted that he had not informed his parents of separation with W. The whatsapp messages in 2014 and 2015 showed that H expected W to have dinner with his family at his parents’ home regularly and during festival such as winter solstice.

48.  Secondly, W had undergone two fertility treatments in around 1991 and 1992. H simply denied his participation in these treatments. I find it improbable that W would have undergone the treatments with another man in 1991/1992. There is no suggestion that W had an intimate relationship with another man at that time or that the hospital would have performed the treatments with any man other than W’s husband.

49.  Thirdly, W's devotion in and contribution to the operation and business of the Companies does not sit well with H’s assertions that H and W had already separated in 1991 and W is only a minority shareholder holding around 0.01% to 5% shares of the respective companies.

50.  Fourthly, H’s own evidence was that because W was his spouse, she (but not R5) was asked to provide personal guarantee for DGIL’s bank borrowings in 2012 and 2014.

51.  Fifthly, as shown in the whatsapp messages exchanged between H and W in around 2016, H had sent messages to W saying that he wanted to have meals with W in House D44 every Thursday, he wanted W to be his wife for her life, W is his wife and he would take care of her, he asked W to travel with him to Beijing, he did not believe in R2 and so on[8].

52.  H sought to explain the messages by saying that they were sent for the purpose of inducing W to complete the accounts for the Companies, not to fight with him in the divorce litigation and have a speedy compromise. H might or might not have the above purposes in his mind when he wrote the messages. If his explanation is true, it only shows that H is ready to lie in order to suit his purposes.

53.  Sixthly, W’s contention that H moved out in 2000 coincided with the purchase of Lotus Villas in 1999/2000, the first property purchased in the name of H and R2.

54.  The above shed clear light on H’s lack of credibility. He is ready to steer his evidence in the way that suits his own case.

55.  Before the analysis of evidence, I shall deal with the disputes on the scope of this trial and the issues on W’s pleadings.

D.  SCOPE OF THIS TRIAL

56.  Pursuant to the 2018 Order, this trial is to determine the beneficial ownership of the 7 Properties and R5’s Shares (“Beneficial Ownership Issue”).

57.  W contended that apart from the Beneficial Ownership Issue, the Court shall also determine whether the 7 Properties and the Companies form part of the matrimonial assets that shall be subject to distribution in the ancillary relief proceedings. (“Matrimonial Pot Issue”). In the Amended Points of Claim, W sought, as an alternative claim[9], declarations that the Companies and 7 Properties “form part and parcel of the matrimonial/family assets and are subject to the distribution in the ancillary relief proceedings”[10]. Counsel for W, Ms Yanky Lam and Ms Kwok Sin, asked the Court to determine the Matrimonial Pot Issue in this trial.[11]

58.  To argue that the Court shall determine the Matrimonial Pot Issue in this trial, Ms Lam referred to the following cases in her written opening submission: McFarlane v McFarlane and Miller v Miller [2006] 2 AC 618; LKW v DD [2011] HKFLR 106; LWH also known as WHHL v NKWS also known as KWSN and others, FCMC 2953/2015, 13 June 2017 (FC) & [2018] HKCA 260 (CA); and WSS v DKPA, FCMC 9725 of 2012, 15 July 2014.

59.  She submitted that assets generated or acquired during the marriage, using monies earned during the marriage is prima facie matrimonial property. She further submitted that it is the practice of the Family Court as adopted by the learned Judge in LWH and WSS that the Matrimonial Pot Issue shall be determined in the same trial after the determination of the Beneficial Ownership Issue.

60.  With respect, the flaw of Ms Lam’s submission lies in the ignorance of the fact that beneficial ownership of a property is not the sole determining factor for inclusion or exclusion of that property in the “matrimonial pot” for distribution upon divorce.

61.  It is trite that in an ancillary relief application, there are situations where an asset or value of an asset that are not beneficially owned by a party ought to be included for distribution upon divorce, for example, when there was a dissipation of funds or bad behaviour of a party that justifies an “add back”. In a similar vein, there are situations where an asset beneficially owned by a party ought to be excluded, for example, property that ought to be considered as “non-matrimonial asset”. Further, in considering ancillary relief matters, the Court would have to determine whether the sharing principle should apply and whether there are good reasons for departing from equal division.

62.  The dispute of whether an asset should be included in or excluded from the “matrimonial pot” for distribution is, in my view, better to be determined in the trial on ancillary relief matters when all evidence relevant to section 7 of the Matrimonial Proceedings and Property Ordinance was adduced and the Court is in a position to consider and weigh all relevant factors holistically.

63.  This is not to dispute the proposition put forward by Ms Lam that assets generated or acquired during the marriage, using monies earned during the marriage is prima facie matrimonial property. A finding on the beneficial ownership of the property held in the name of third party provides a useful basis for consideration in ancillary relief application. If the property is held to be beneficially owned by a spouse notwithstanding the legal title is with a third party, prima facie, the property should form part of the matrimonial pot, and vice versa. This remains a prima facie position which the Court will take into account at the trial on ancillary relief matters. There is little assistance to make a declaration of a prima facie position as suggested.

64.  Moreover, the context and factual matrix of each case is different. The Court, and of course the parties and their legal representatives as well, have to consider whether it is suitable to adopt a certain approach in the context of the case before them. An approach was adopted in LWH and WSS does not necessarily mean that it is suitable to be adopted in the present case.

65.  I do not accept Ms Lam’s submission that there is an established practice of the Family Court to determine the matrimonial pot assets in a trial on beneficial ownership of property as between a spouse and a third party. If the factual and legal matrix of a case suggest that the inclusion or exclusion of a property for distribution upon divorce must follow the beneficial ownership, there will be little qualm for the Court to determine the matrimonial pot question at the preliminary issue stage after the beneficial ownership is decided. In such case, the parties shall raise it when they seek leave for determination of preliminary issue so that the scope of the preliminary issue can be properly defined at that stage, and both parties can prepare their case accordingly.

66.  In the present case, the Matrimonial Pot Issue is not part of the scope of the trial defined in the 2018 Order. A party shall not expand the scope of the trial by insertion of a plea in the Points of Claim or by submission.

67.  In view of the factual matrix of this case, it is inappropriate to determine the Matrimonial Pot Issue in this preliminary issue trial on Beneficial Ownership Issue.

68.  Further, the 2018 Order only covers the question of the beneficial ownership of R5’s Shares, but not the beneficial ownership of the shares held by H and W in the Companies. I also decline Ms Lam’s submission that the beneficial interest in the Companies as between H and W shall be determined in this trial.

69.  Since the case of TL v ML [2006] 1 FCR 465, it is well established that where a party in matrimonial proceedings disputes the ownership of certain property between a spouse and a third party, the Court shall approach the question on the legal basis as the dispute is before a civil court.

70.  In TL v ML, Mostyn QC has held that:

“34. It is to be emphasised, however, that the task of the judge determining a dispute as to ownership between a spouse and a third party is of course completely different in nature to the familiar discretionary exercise between spouses. A dispute with a third party must be approached on exactly the same legal basis as if it were being determined in the Chancery Division.

35. Mr Brett makes the valid complaint that this issue has never been properly defined, pleaded or particularised. At no stage since the first appointment has this discrete issue been the subject of any case management, notwithstanding that the parties have been before the court on numerous occasions.

36. In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen: (i) the third party should be joined to the proceedings at the earliest opportunity; (ii) directions should be given for the issue to be fully pleaded by points of claim and points of defence; (iii) separate witness statements should be directed in relation to the dispute; and (iv) the dispute should be directed to be heard separately as a preliminary issue, before the FDR.

37. In this way the parties will know at an early stage whether or not the property in question falls within the dispositive powers of the court and a meaningful FDR can take place. It also means that the expensive attendance of the third party for the entire duration of the trial can be avoided. It is a great pity that none of these steps took place in this case. Had they happened, I believe that a great deal of costs would have been saved.”

(emphasis added)

71.  The practice of approaching a dispute between a spouse and a third party on ownership of property in the same manner as in civil courts was endorsed by the Court of Final Appeal in Leung Wing Yi Asther v Kwok Yu Wah (2015) 18 HKCFAR 605, per Stock NPJ:

“29. …… In this regard, I endorse the practice commended by the Court of Appeal that in the context of matrimonial proceedings for ancillary relief, disputes between a spouse and a third party as to ownership of property should procedurally be approached as in standard claims for ownership of property: in other words, after a direction for trial of the dispute as a preliminary issue and the joinder of the claimant as intervener, by directions for the filing of pleadings on the preliminary issue and for witness statements and discovery relevant to that issue.” (emphasis added)

72.  By reasons of the above, I agree with Counsel for H, Mr Aidan Tam and Mr Jonathan Tsang, that the issues to be determined in this trial shall be restricted to the scope set out in the 2018 Order, viz, the Beneficial Ownership Issue. The Court shall not deal with the Matrimonial Pot Issue in this trial. That is a matter to be determined in the trial on ancillary relief matters, which has been adjourned after the determination of the preliminary issues.

E.  RELEVANT LEGAL PRINCIPLES

73.  W mainly relied on two grounds:

(1)  common intention constructive trust and/or resulting trust in regard to R5’s Shares, House D44 and the 3 Workshop; and

(2)  resulting trust in regard to Lotus Villas, House 63 and House 29.

74.  Counsel for H criticised W’s pleadings for failure to disclose a reasonable cause of action, and submitted that W’s claims in the Beneficial Ownership Issue are bound to fail on pleadings.

75.  I first summarise below the relevant legal principles on common intention constructive trust and resulting trust, as well as the principles on pleadings.

General principles on common intention constructive trust and resulting trust

76.  The legal principles on common intention constructive trust and resulting trust are not in dispute.

77.  In summary:

(1)  The starting position is that equity follows the law, that is, the legal owner of a property also has the beneficial interest in the property.

(2)  The party who asserts that the beneficial interest of the property does not lie with the legal owner bears the burden of proving it: Stack v Dowden [2007] 2 AC 432 [56].

(3)  Where it is asserted that a constructive trust arose on the basis of the parties’ common intention, the claimant has to prove that (a) there was a common intention between the claimant and the legal owner that the claimant was to be the beneficial owner of the property despite that it was acquired in the name of the legal owner; (b) the claimant altered its position in detrimental reliance upon such common intention; and (c) it is unconscionable for the legal owner to assert ownership in reliance of the legal title to the property: Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1 [37] and [38] Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327; Mo Ying v Brillex Development Ltd [2014] 3 HKLRD 224 [33] to [46] Liu Wai Keung v Liu Wai Man [2013] 5 HKLRD 9 [46].

(4)  The fact that A and B might form a common intention that they should have shared the beneficial interest in C’s property cannot, in principle be sufficient to impose a constructive trust on C to hold C’s property on trust for A and B: Luo Xing Juan [39].

(5)  To ascertain whether there was a common intention, one must examine the objective intention of each party “which was reasonably understood by the other party to be manifested by that party’s words and conduct”: Liu Wai Keung [47]; Gissing v Gissing [1971] AC 886, 906; Jones v Kernott [2012] 1 AC 776 [51].

(6)  The focus is on the intention of the parties at the time of acquisition of the property. Clear evidence is required to justify a finding of a subsequent change in the ownership of beneficial interest of the property: Stack v Dowden [138].

(7)  Such common intention is first to be found from any agreement, arrangement or understanding reached between the legal owner and the claimant with respect to the beneficial interest of the property concerned on the basis of contemporaneous documents or express discussion.

(8)  When there is no evidence to support a finding of such an agreement, the court seeks to infer from the conduct of the relevant parties the relevant common intention. The conduct of the parties is relevant to test the allegation of an agreement, arrangement or understanding with respect to the beneficial ownership.

(9)  In assessing the intention of the parties, the Court is to assess all relevant evidence holistically. Context is crucial. The domestic context is very different from the commercial context. Contrary to the commercial world, the parties in a domestic context might not have put their agreement on paper. Moreover, when assessing the parties’ intention in a domestic context, especially in relation to a matrimonial home, the Court is not constrained by pure direct monetary contribution to the purchase price: Stack v Dowden [69]; Primecredit [1.6].

(10)  As a matter of common experience, contemporaneous conduct was inherently more likely to be a reliable indicator of intention than words and conduct after the event, especially in the case of self-serving statements and conducts, but it did not follow that subsequent conduct was necessarily inadmissible or irrelevant: Leung Wing Yi Asther v Kwok Yu Wah (2015) 18 HKCFAR 605 [54] to [56].

(11)  Resulting trust operates in the absence of evidence of intention of the parties. If the Court makes a finding on the intention of the parties with respect to the beneficial ownership, it would not be necessary to resort to presumptions, including the presumption of resulting trust: Primecredit [2.15]; Leung Wing Yi Asther [53].

(12)  In a non-corporate context, there is a rebuttable presumption that the person who provide the funds for the purchase of a property has a beneficial interest in the property by virtue of a resulting trust.

(13)  The operation of resulting trust in a corporate context is different. A limited company has a separate legal entity. In general, the shareholders have a right to share the profits of the company, but they do not have legal or equitable interest in the company’s property.

(14)  In a corporate context, the usual inference is that the beneficial interest of the property acquired in the name of the company with funds provided by the shareholder was intended to pass to the company. The shareholder who claims that the beneficial interest in the property was intended to be vested in him personally by way of resulting trust bears the burden to the rebut the inference.

78.  On the topic of presumption of resulting trust in a corporate context, the Court of Appeal summarised the following legal principles in Lo Man Yau v Chiu Sung Fai[2018] HKCA 387:

“12. The present case concerned a property held by and in the name of a limited company but the purchase price partly came from the funds provided by its shareholder. In such a context, the legal principles governing how a resulting trust may arise can be briefly stated as follows. The summary below is largely taken from the judgment of Madam Recorder Linda Chan, SC in Re Fortune King Trading Limited, HCCW 432/2012, unreported, 19 May 2017, at [24] – [26] and [31].

(1) It is axiomatic that a company is in its own right a legal person having a separate and distinct identity from its shareholders. Therefore, as a general rule, a shareholder has no legal or equitable interest in the company’s property, as opposed to a right to share in the profits of its business and to a distribution of any surplus on liquidation. See Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1, per Ribeiro PJ [34].

(2) It follows that when the purchase of a property is made in the name of a company, the starting point is that the purchase was intended to vest both the legal and beneficial interest in the company. This is true even if the funds for the purchase are provided by a shareholder.

(3) Both (1) and (2) are general propositions. Combined together, they give rise to a normal, but rebuttable, inference that the beneficial interest of the property acquired in the name of the company with funds provided by the shareholder was intended to pass to the company. When the shareholder claims that by providing the funds, the equitable interest in the property was intended to be vested in him personally by way of a resulting trust, he bears the burden to rebut the inference by proving that the legal interest and the equitable interest of the property were so vested in the company and him separately.

(4) The time to take stock of the respective interest taken by the company and the shareholder in the property is the time of its acquisition. The focus is on the parties’ intention at the time of purchase: whether the parties intended to vest the beneficial interest of the property in the shareholder as the provider of the funds, having regard to all the circumstances.

13. Contrast such a corporate context with a non-corporate context. In the latter, the rebuttable presumption is that the provider of the funds of the purchase of the property has a beneficial interest in the property by virtue of a resulting trust.”

79.  If W was arguing that R6 was a mere “interposition” to hold a property acquired by funds provided by shareholder, such argument, in view of the following dicta of the Court of Final Appeal in Luo Xing Juan, would not assist W.

“44. Several decided cases were cited to the Judge in support of the suggestion that the “interposition” of a company makes no difference where a common intention exists as between individual shareholders that they should enjoy shared beneficial interests in the company’s property. However, with one exception mentioned below, none of those cases involve the court actually deciding that such suggestion is correct. Thus, although Re Schuppan (a bankrupt) (No 2); Philip Lowe (Chinese Restaurant) Ltd v Sau Man Lee; and Lalani v Crump Holdings Ltd, are cases containing dicta which may be thought to admit of the possibility of that suggestion being valid, they were each in fact disposed of on findings that the evidence did not establish any common intention in the first place. The court therefore never had to confront the question whether the fact that the disputed property was vested in a company made any difference and the judgments contain no analysis of that issue.

45. Re Superyield Holdings Ltd; Popely v Ayton Ltd; and Re Hansby Co. Ltd, were also cited but are, in my view, not relevant. The issue in those cases was whether persons causing property to be vested in a company had intended (or by a presumption of resulting trust, were presumed to have intended) the company to hold such property as their nominee or trustee; or whether, on the other hand, they had intended the company to hold it beneficially (treating, for example, the purchase monies they had provided as a loan). No such questions arise in the present case. As noted previously, Miss Luo was not even aware of the involvement of any company in holding the Property.

46. The one case which does appear to lend support to the approach which I have rejected is Chan Pui Chun v Leung Kam Ho, where His Honour Judge McGonigal, sitting as a Deputy Judge of the English High Court, referred to Re Schuppan and then stated in respect of the facts of his case:

“...it is clear that the agreement was that the parties would be beneficial owners of Hill House in the proportions of 51 to 49. Accordingly, Melodious is a trustee and a shareholding of 51 to 49 in Melodious reflects the parties’ interests in the sole asset of Melodious at that time, namely Hill House.”

I would respectfully decline to adopt this approach for the reasons previously given."

General principles on pleadings

80.  The importance of pleadings has been repeatedly emphasised in many legal authorities. It bears repeating some of them below.

81.  In Sinoearn International Ltd v Hyundai-CCECC Joint Venture (2013) 16 HKCFAR 632, Ribeiro PJ reminded practitioners that:

“34. Pleadings are not mere formalities. They impose a necessary discipline and are fundamental to enabling every procedural facet of the adversarial system to operate fairly."

82.  To allow a party to run an unpleaded case would give rise to confusion and a real likelihood of procedural unfairness: Sinoearn International Ltd, supra [27].

83.  In Kwok Chin Wing v 21 Holdings Ltd (2013) 16 HKCFAR 663, Ma CJ (as he then was) reiterated that:

“21. It should by now really be quite unnecessary to issue yet another reminder on the rationale behind pleadings. The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues: Wing Hang Bank Ltd v Crystal Jet International Ltd. It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced. As the Court of Appeal remarked in Wing Hang Bank Ltd v Crystal Jet International Ltd:

(2) In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained. It will simply not do for unpleaded issues to be “slipped in” when evidence is being given in the hope that the other side is not sufficiently alert to object.

22. …. one does not sift through the evidence adduced in a trial in the hope that something was said that can conceivably found a cause of action. Issues, I would reiterate, must be properly pleaded unless for some reason the pleadings have assumed a less significant role in the proceedings. …

23. The purpose of pleadings, in clearly and unambiguously setting out the true extent and nature of a dispute not just for the benefit of the parties but also for the Court in managing and trying cases, remains important under our system of civil justice. The retention of the old rules as to pleading as well as the introduction of new provisions over four years ago under the Civil Justice Reform, reinforce this.”

84.  The above principles apply equally to the present trial on preliminary issue concerning beneficial ownership of properties held in the name of third parties, where the family court shall approach the issues in the same way as one would expect in the civil court.

85.  It is elementary that a party must plead all the elements and particulars required to support a cause of action.

F.  W’S PLEADINGS

86.  Counsel for Rs took a pleading point and submitted that W failed to plead the necessary facts and particulars to support her claims on common intention constructive trust and resulting trust.

The Pleas

87.  W’s pleas in the Amended Points of Claims in connection with R5’s Shares are as follows:

“13. At all material times, it was the common intention and mutual understanding of the Petitioner and the 1^st Respondent that they continued to run and expand their diamond and/or jeweler (sic) business by [R6] as the only true and beneficial co-owners in equal shares as if their equal co-ownership in [Old KTC] and [New KTC].

14. The Petitioner and the 1^st Respondent utilized the funds generated from [Old KTC] and their own monies as the initial capital fund and operating fund for [R6]. The 5^th Respondent made no capital contribution whatsoever to the acquisition and maintenance of [R6].

15. The 1^st Respondent suggested to nominate the 5^th Respondent to be a nominal shareholder and director of [R6] for convenient sake as alleged. By reason of the fact that the Petitioner trusted the 1^st Respondent as her husband and business partner at that times, the Petitioner followed the 1^st Respondent's suggestion.

16. In the premises, at all material times, for all intent and purpose, the Petitioner and the 1^st Respondent were the only true and beneficial co-owners of [R6] in equal shares.

17. By reasons of the facts and matters pleaded hereinabove, all legal titles, rights, and interests in [R6] were at all material times and still are, by virtue of resulting trust and/or common intention constructive trust, held by the 5^th Respondent as trustee for the benefit of the Petitioner and the 1^st Respondent.

18. Further and/or in the alternative, for the purpose of preliminary issue proceedings and/or ancillary relief proceedings in this suit, [R6] forms part and parcel of the matrimonial/family assets of the Petitioner and the 1^st Respondent and is subject to distribution upon divorce.”

88.  Similar pleas were made in the Amended Points of Claim in regard to the other limited companies:

“19. From time to time, the Petitioner and the 1^st Respondent decided to set up and/or acquire, inter alia, the following limited companies. At all material times, it was the common intention and mutual understanding of the Petitioner and the 1^st Respondent that they set up, acquired, and operated the following limited companies as the only true and beneficial co-owners in equal shares as if their equal co-ownership in [Old KTC], [New KTC], and [R6]. The Petitioner and the 1^st Respondent utilized the funds generated from [Old KTC], [New KTC] and [R6], and/or other limited companies they set up from time to time, and their own monies as the initial capital fund and operating fund for the following limited companies. The 5^th Respondent made no capital contribution whatsoever to the acquisition and maintenance of the following limited companies.

[a table set out the registered shareholders and directors of DGIL, DGJML, MCHL and WCL]

20. The 1^st Respondent suggested to nominate the 5^th Respondent to be a nominal shareholder and director of the aforesaid limited companies for convenient sake as alleged. By reason of the fact that the Petitioner trusted the 1^st Respondent as her husband and business partner at that times, the Petitioner followed the 1^st Respondent's suggestion.

21. In the premises, at all material times, for all intent and purpose, the Petitioner and the 1^st Respondent were the only true and beneficial co-owners of the aforesaid limited companies in equal shares.

22. By reason of the facts and matters pleaded hereinabove, all legal titles, rights, and interests in the aforesaid limited companies were at all material times and still are, by virtue of resulting trust and/or common intention constructive trust, held by the 5^th Respondent as trustee for the benefit of the Petitioner and the 1^st Respondent.

23. Further or in the alternative, for the purpose of preliminary issue proceedings and/or ancillary relief proceedings in this suit, the aforesaid limited companies form part and parcel of the matrimonial/family assets of the Petitioner and the 1^st Respondent and are subject to distribution upon divorce.

24. For the benefit of the diamond and/or jewellery business, the Petitioner obtained the qualification of Gemmologist Diploma awarded by Asia Jewellery Trade Technological Training Centre in December 1991 and of Diploma in Gemmology awarded by The Gemmological Association and Gem Testing Laboratory of Great Britain in November 1992.

25. As one of the true and beneficial equal co-owners of [R6] and the aforesaid limited companies, inter alia,

(1) The Petitioner was the one who used to signify diamond grading reports (commonly known as diamond certificates) which contained essential details about the qualities and characteristics of diamonds in the course of business of [R6] and the aforesaid limited companies (as the case may be) from time to time.

(2) The Petitioner acted and still is acting as the surety or guarantor of the mortgage loans, banking facilities, indebtedness granted by various banks to [R6] and the aforesaid limited companies (as the case may be) from time to time.”

89.  W’s pleas in regard to House D44 are as follows:

“26. It was the common intention and/or mutual understanding of the Petitioner and the 1^st Respondent to acquire a matrimonial home for their marriage and/or family.

27. By an agreement for sale and purchase dated 31^st January 1989, [W] and [H] through [R6] acquired [House D44] … Bank mortgages and/or banking facilities were granted at the time of acquisition and/or at some later stages. All the acquisition monies and mortgage repayments were from the funds of the family business and/or the monies of [W] and/or [H], and the said bank mortgages and/or banking facilities.

28. [R5] made no capital contribution whatsoever to the acquisition and maintenance of House D44.

29. At all material times, House D44 was the matrimonial home for [W] and [H] and is the current residence of [W].

30. By reason of the facts and matters pleaded hereinabove, all legal titles, rights, and interests in House D44 were at all material times and still are, by virtue of resulting trust and/or common intention constructive trust, held by [R6] as trustee for the benefit of [W] and [H].

31. Further or in the alternative, for the purpose of preliminary issue proceedings and/or ancillary relief proceedings in this suit, House D44 forms part and parcel of the matrimonial/family assets of [W] and [H] and is subject to distribution upon divorce.”

90.  The pleas in regard to the 3 Workshops are similar except that the relevant intention pleaded was that the common intention and/or mutual understanding of W and H was to acquire an office or showroom to expand their family business.[12]

91.  W’s pleaded case, in gist, is that it was the common intention of H and W that the business of Old KTC, New KTC and the Companies were to be beneficially owned by the two of them in equal shares. H suggested to nominate R5 as a nominee shareholder. W agreed. R5 made no contribution to the setting up or operation of the companies concerned. Therefore, W contended that a common intention constructive trust arose to the effect that H and W are the true and beneficial co-owners of the Companies, alternatively, the two of them shall be the true and beneficial co-owners by virtue of resulting trust.

92.  Insofar as House D44 and the 3 Workshops are concerned, W’s pleaded case was that it was the common intention of H and W that these properties shall be held by R6 on trust for them. R5 made no capital contribution to the acquisition and maintenance of these properties. These properties are held by R6 as trustee for H and W by virtue of resulting trust and/or common intention constructive trust.

The arguments and the court’s decision on the pleading point

93.  Mr Tam criticised that the Amended Points of Claim failed to plead the necessary facts and particulars to support W’s claim on common intention constructive trust and resulting trust against R5 and R6. Specifically, Mr Tam submitted that W has failed to plead the following:

(1)  Knowledge of R5 that she was holding the shares of Companies as trustee of W and H and that she agreed to do so[13];

(2)  Knowledge or agreement of R5 with the said common intention and mutual understanding between W and H[14];

(3)  R5’s knowledge or agreement amongst the directors and shareholders of R6 that R6 would be holding the title of House D44 and the 3 Workshops on behalf of W and H personally[15];

(4)  detrimental reliance by W and it was unconscionable for the legal owner to assert beneficial ownership.

94.  Mr Tam referred to the following authorities where the High Court found that claims on the ground of common intention constructive trust failed for the failure to plead the intention of the plaintiff and the legal owner of the property in regard to the beneficial ownership of the property concerned.

95.  In Yip Lai Ngor v Chau Kam Siu, HCA 1716/2012, 29 July 2015, the plaintiff Madam Yip was married to Mr Chau. The subject matter of dispute is a property held in the sole name of the defendant, Mr Chau’s father. The purchase price came partly from Madam Yip and partly from the defendant.

96.  Madam Yip has petitioned for divorce and instituted the claims against the defendant to resolve the disputes on the beneficial ownership of the property. Madam Yip relied on an agreement or common understanding between her and Mr Chau. Madam Yip has not pleaded any agreement with the defendant, nor that the defendant knew about her agreement or common understanding with Mr Chau. Au-Yeung J found that Madam Yip’s case on constructive trust must fail for lack of agreement or common intention with the defendant. See [23] and [26] to [28] of the judgment as follows:

“23. Whether resulting trust or constructive trust is relied on, the court will first ascertain the true intention of the parties as to beneficial ownership and the share of it.

……

26. Madam Yip pleaded an agreement or common understanding between her and Mr Chau, not Chau senior. She never pleaded that Chau senior knew about it. This supported §4 of the defence. Her plea contained its own seed of destruction. There was no plea that Mr Chau was either party’s agent. Madam Yip also agreed under cross-examination that Chau senior was not informed of the “agreement” between the couple as he “was just holding on trust”. Hence, even if I were to accept that the couple had an agreement, that could not bind Mr Chau senior. To him, he was purchasing a property for himself.

27. In addition, the 2007 declaration was a contemporaneous document which, on its face, discredited any suggestion of agreement or common understanding as to Madam Yip’s beneficial ownership in the Property. I will discuss more of it in Section L2 below.

28. Madam Yip’s case on constructive trust must fail for lack of agreement or common intention with Chau senior.”

97.  In Wong Leung Wing, a mentally incapacitated person, suing by his wife and next friend Tsoi Pui Wah v Wang Jen Kang and Hui Lai Nai[2020] HKCFI 3086 [22] to [24], MK Liu DHCJ held that:

“22. However, in respect of D2, the situation is different. D2 is only mentioned in [5] of the statement of claim. There is no plea in the statement of claim alleging that D2 has ever had any discussion with WLW. There is also no plea alleging that D2 has actual or constructive knowledge of all the matters between P and D1 as set out in [4] of the statement of claim.

23. Counsel for P submits that it has been pleaded in [5] of the statement of claim that D2 refused to transfer the Property back to WLW, and that would be sufficient to hold D2 liable. With respect, I am unable to agree. There is simply nothing in the statement of claim explaining why D2 should have an obligation to transfer the Property back to WLW.

24. In my judgment, no reasonable cause of action against D2 has been pleaded in the statement of claim. Since the issues in a trial can only be defined by the pleadings and not by the evidence, as no reasonable cause of action against D2 has been pleaded, P’s claim against D2 must be dismissed.”

98.  Insofar as the claims for common intention constructive trust is concerned, W bears the burden of proving that as between (a) the respective legal owners (i.e. R5 in the case of R5’s Shares, and R6 in the case of House D44 and the 3 Workshops) on one hand, and (b) the contended beneficial owners (i.e. H and W) on the other hand, they had the common intention that although R5 and R6 have the legal title of the respective properties, the beneficial interest of the properties concerned vest with H and W, and that R5 and R6 were holding the properties respectively as trustee for H and W.

99.  The problem of W’s case is that she had only pleaded the intention of H and W that they were to be the beneficial owners. There was no plea of all necessary elements to establish a common intention constructive trust, including the following:

(1)  the intention or the state of mind of the legal owners, namely R5 and R6 respectively, for the acquisition of the properties concerned;

(2)  the circumstances under which R5 received R5’s Shares, for example, how R5 was told, and what R5 had said when she was given R5’s Shares;

(3)  there was no board meetings or shareholders meetings of R6 (which is a limited company with separate legal identity) nor the plea of the circumstances under which R6 acquired House D44 and the 3 Workshops;

(4)  there was also no plea that R5 (being the only shareholder and director of R6 other than H and W) has actual or constructive knowledge of the intention or agreement or discussion between H and W insofar as the beneficial ownership of House D44 and the 3 Workshops are concerned;

(5)  there was no plea of detrimental reliance or that the repudiation of the common intention is unconscionable.

100.  In her closing submission, Ms Lam cited Hong Chi Yung v Chung Ngai Kit (the executor of the Estate of Chung Hung Chong, Deceased, HCA 54/2014, 19 October 2016 to support her submission that the Court does not have to consider the intention of R5 in this claim[16].

101.  Ms Lam’s reliance on Hong Chi Yung is wholly misconceived. The defendant in Hong Chi Yung is the executor of the deceased. He defended the case in the capacity of an executor and beneficiary under the will of the deceased. The deceased was the registered owner of the property. The transaction concerned was between the deceased and the widow in that case. The transaction was not privy to the executor, who is the plaintiff in that case. It was in those circumstances that the Court considered the intention of the defendant (the executor) was not material.

102.  Ms Lam has quoted in her closing submission [54] of the decision of Recorder Coleman SC (as the Judge then was) in Hong Chi Yung:

“54. While a constructive trust is alleged to arise on the basis of the parties’ common intention, it is the intention commonly held by the property owner and the claimant regarding their shared beneficial interests in the property that matters. The trust is constituted by the claimant’s detrimental reliance on their common intention and the unconscionability of the property owner departing therefrom: Luo at §38.” (emphasis added)

103.  It is thus clear that the intention to be considered are the intention of the property owner (i.e. R5/R6, the legal owner), and the intention of the claimant (i.e. W and H, the asserted beneficial owners). Ms Lam seems to have confused and mistaken that the reference to “property owner” as meaning the “beneficial owner”[17]. Such interpretation put forward by Ms Lam defies logic and is not correct.

104.  Ms Lam’s contention is also contrary to the following holdings by the Court of Final Appeal in Luo Xing Juan:

“39. … The fact that A and B might form a common intention that they should have shared beneficial interests in C’s property cannot in principle be sufficient to impose a constructive trust on C to hold C’s property on trust for A and B. C is not party to and does not unconscionably depart from any common intention, so there is nothing to constitute C a trustee for A and B. If B does not make good his promise, he might attract personal liability to A, but it does not mean that an equitable interest in C’s property is created in favour of A.”

105.  I am satisfied that the Amended Points of Claim does not disclose a reasonable cause of action of common intention constructive trust against R5 insofar as R5’s Shares are concerned, nor one against R6 insofar as House D44 and the 3 Workshops are concerned. W could not remedy these deficiencies by raising evidence or submission in this regard.

106.  In any event, there is no evidence in support of any intention of R5 or R6 that they were holding the respective properties on trust for W and H or for anyone. The intention of W and H alone, even if proved, is not sufficient to create a common intention constructive trust on R5 to hold R5’s Shares as trustee, nor a common intention constructive trust on R6 to hold House D44 and the 3 Workshops as trustee.

107.  W’s claim on the existence of a common intention constructive trust on R5’s Shares, House D44 and the 3 Workshops must fail.

108.  The requirements to substantiate a claim on resulting trust is different. The principle of resulting trust is a presumption that operates in the absence of evidence of the parties’ intention. The lack of a plea on the intention of R5 and/or R6 to hold the properties as trustee is not necessarily fatal.

109.  In the case of Yip Lai Ngor, although the Court found that the plaintiff’s case on common intention constructive trust failed for the lack of agreement or common intention with the property owner, the Court found that the parties did not intend to make a gift and was satisfied that a resulting trust arose.

110.  I do not agree with Mr Tam that W’s pleadings failed to disclose a reasonable cause of claim on resulting trust.

G.  BENEFICIAL OWNERSHIP OF THE 7 PROPERTIES AND R5’S SHARES

111.  Following the above decision on the pleading point, the remaining issue is the claims for beneficial ownership of the 7 Properties and R5’s Shares by operation of resulting trust.

House D44 and the 3 Workshops

112.  House D44 and the 3 Workshops were purchased by R6. There is no dispute that the purchase price was paid out of R6’s funds generated from its operation.

113.  R6, is a legal entity separate and distinct from its shareholders. As the Court of Appeal confirmed in Lo Man Yau v Chiu Sung Fai, supra, a shareholder has no legal or equitable interest in the property of the company. The normal presumption is that the beneficial interest of the property acquired in the name of the company with funds provided by the shareholder was intended to pass to the company.

114.  The funds for the acquisition of House D44 and the 3 Workshops were the funds of R6. Although it was claimed that H and W provided the capital and operational costs of R6, this does not rebut the presumption. There is no other evidence to rebut the presumption that the property held in the name of R6 was intended to pass to R6.

115.  R6 is the legal and beneficial owner of House D44 and the 3 Workshops.

116.  H’s assertion that House D44 was R6’s staff quarter is not proved. R5 and W’s younger brother who had resided in House D44 are the relatives of H or W. No other staff of R6 had resided in House D44. There is no record to reflect that R6 provided housing benefit to its staff.

Lotus Villas, House 63 and House 29

117.  It is trite that the Court will only resort to the presumption of resulting trust when no intention was proved. H’s claims of gift to R2, R3 and R4 respectively shall first be considered.

118.  There is no document evidencing the alleged gift. The evidence before the Court does not support any inference on the existence of gift as alleged.

119.  The three properties were held by H and R2 to R4 respectively as joint tenants. H alleged that he had given a specific proportion of interest to R2, R3 and R4 (viz, 50% of interest of Lotus Villas and House 63 to R2, 25% interest of House 29 to each of R2, R3 and R4). If H really had such intention at the time of acquisition, he would have registered their interests as tenants in common to reflect the alleged intention. However, they chose not to do so. The choice of holding the properties as joint tenants indicated an intention against a gift of specific proportion of interests in the properties as H alleged.

120.  H, R2, R3 and R4 failed to prove the alleged gift of 50% interest of Lotus Villas and House 63 by H to R2, and 25% interest of House 29 by H to each of R2, R3 and R4.

121.  Rs admitted that R2 had not contributed to any repayment of the bank borrowings obtained to finance the purchase of Lotus Villas and House 63, R3 and R4 had not made any contribution to the purchase of House 29.

122.  H and R2 contended that R2 contributed part of the purchase price of Lotus Villas. R2 initially said that she contributed HK$20,000 to the purchase of Lotus Villas. She subsequently changed the amount to HK$300,000 to HK$400,000. Her explanation was that when she first prepared the Answers, she recalled that she had only paid a small part of the purchase price, so she gave the figure of HK$20,000. Subsequently, she thought over the matter again. She remembered that, at that time, she had a total of about HK$400,000 to HK$500,000 accumulated from the money given to her by H since 1991 and she had profits earned from investment in stock market. She said she also remembered that she contributed a substantial part of her then savings. Therefore, she thought she had paid HK$300,000 to HK$400,000 for the purchase of Lotus Villas[18]. She changed the figure in the witness statement accordingly.

123.  Under cross examination, R2 said that she had not referred to or checked any documents when she gave the first figure and the revised figure. She confirmed that she was not sure of the exact amount of money she had paid. She provided no document to substantiate her assertions that she had the aforesaid amount of savings or that she had earned from stock investment at the relevant time.

124.  R2 accepted that she gave the evidence from her memory. The event happened some twenty years ago. She admitted that she did not recall the details. The change of her evidence suggested that she did not have a clear memory on this point. R2 and H’s bare assertions that R2 had paid part of the purchase price of Lotus Villas is not accepted.

125.  The acquisition of these 3 properties were funded by H. I am satisfied that by operation of resulting trust, Lotus Villas and House 63 were beneficially owned by H before sale, and House 29 is beneficially owned by H.

R5’s Shares

126.  R5 has not made any financial contributions to acquire R5’s Shares. H’s case is that he gave the shares to R5 in recognition of her efforts and for motivation. He did the same to W. H relied on oral evidence with no contemporaneous or documentary evidence in support.

127.  H had not given any particulars in his witness statements on the circumstances under which the gift was made. When he was asked in cross examination, he initially said that he gave the 5% shares to R5 and W without telling them the reason. He said that there was no need to tell the reason as they knew it. He said that there was consensus among them. Later, he said he had told them that the shares were their rewards. When he was then asked for the circumstances in which he told R5 and W that the shares were their rewards, he said he met R5 and W in office every day. He frequently said encouraging words to them separately, such as “gave you 5%, you work better”. This is not credible.

128.  R5 is H’s sister. She has been working for him since the eighties. There is no suggestion that R5 intended to leave the Companies or needed the shares as incentive to work in the Companies.

129.  The evidence showed that R5 had not exercised any rights as a shareholder, nor had she obtained any benefit in her capacity as a shareholder. She was not subject to any liability or exposure that would be incurred by a shareholder of the Companies.

130.  H initially said that R5 received salary and commission. No dividends were distributed to shareholders. When it was put to H that R5 had not received any dividend as a shareholder, H changed to say that the money he gave R5 at the end of the years was dividend. This is another example of H changing his evidence to suit his purpose.

131.  There was no record in the Companies’ documents that dividend was declared. There is no evidence that the shareholders were distributed the “dividend” in accordance with the percentage of shareholdings.

132.  R5 is the only shareholder who was not required to provide any personal guarantees or security for the Companies’ bank borrowings.

133.  Under cross examination, H said that W was required to provide personal guarantees to the banks because she is his spouse but R5 is not. This is plainly unbelievable. It is obvious from the documents that W provided her personal guarantees in her capacity as a shareholder and director of the relevant companies in 2012 and 2014. This assertion of H also flatly contradicted his case that (a) R5 and W were treated equally insofar as the “gift” of the shares are concerned; and (b) he has separated with W since 1991.

134.  Moreover, H was free to draw substantial sums of money (tens of million dollars) from the Companies at his own wishes for his own personal use without any term of repayment. H’s drawings would certainly affect the profitability and cashflow of the Companies, hence would damage the interest of shareholders. R5 said that she did not know and she did not care about H’s drawings as H would repay them. This is very strange if R5 is truly a beneficial shareholder. This, in my view, supports the inference that R5 is a mere nominee holder of R5’s Shares.

135.  H and R5 failed to prove a gift of R5’s Shares by H. By operation of resulting trust, R5 is holding R5’s Shares on trust for H, who caused to allot or transferred the same to her.

136.  For the avoidance of doubt, as the issue of beneficial ownership of the shares held by H and W in the Companies is not part of the scope of this trial, no determination is made on this issue. The above finding shall not be taken as a decision that W has or does not have a beneficial interest on the shares held in the name of H.

H.  ORDER

137.  In summary, I find that:

(1)  R6 is the beneficial owner of House D44 and the 3 Workshops.

(2)  H was the beneficial owner of Lotus Villas and House 63 before the sale, and their sale proceeds.

(3)  H is the beneficial owner of House 29.

(4)  R5 is holding R5’s Shares on trust for H.

138.  There is no reason to depart from the general principle of costs follow the event. I make an order nisi that the Respondents shall pay 70% of W’s costs of the preliminary issue proceedings with certificate for two counsel, the amounts are to be taxed on a party and party basis if the parties cannot reach an agreement. The above costs order will be made absolute if no variation application is made within 14 days.

139.  I thank counsel’s assistance.