TYT v. TLH

FCJA 3690 / 2017

[2020] HKFC 153

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

JOINT APPLICATION NO. 3690 OF 2017

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J U D G M E N T
(Avoidance of Dispositions; Joinder; Injunction)

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1.  This is the hearing of the 1^st Applicant (“Husband”)’s 3 summonses:

(i)  Summons dated 5 July 2018 for setting aside the 2^nd Applicant (“Wife”)’s dispositions to the Intended Intervener, the parties’ daughter (“Daughter”) (“Section 17 Summons”);

(ii)  Summons dated 17 August 2018 for joining Daughter as the intervener in these setting aside proceedings (“Joinder Summons”); and

(iii)  Summons dated 21 August 2018 restraining Daughter from further dissipating Wife’s dispositions (“Injunction Summons”).

2.  At the conclusion of this hearing, I dismissed the Injunction Summons with costs to Daughter. Reserved reasons for decision is now given under paragraphs 56 to 71 below. 

3.  Pending determination of the Section 17 Summons and the Joinder Summons, Wife by Summons filed on 4 September 2019 sought leave to adduce further affidavit evidence in opposition to the Section 17 Summons (“Post-hearing Evidence Summons”). Husband opposed.

4.  Upon filing of affidavits and submissions as directed for paper disposal of the Post-hearing Evidence Summons, I made a ruling on 6 March 2020 whereby Wife was granted leave to adduce further affidavit evidence. Reserved reasons for decision is now given under paragraphs 72 to 100 below; and costs order nisi under paragraphs 101 and 103. 

5.  In light of further affidavit evidence being adduced, directions were given for parties to supplement their respective closing submissions on the Section 17 Summons/Joinder Summons. This was only completed on 18 May 2020.  

Relevant Background Facts

6.  The joint application for divorce (attaching the divorce agreement dated 3 August 2017) was filed on 3 August 2017 by the parties together with the attendance of Daughter.

7.  Under the said divorce agreement, Wife is entitled to (a) cash lump sum of RMB 100 million (to be paid in two tranches, RMB 40 million by 21 August 2017 and RMB 60 million by 21 December 2017); (b) keep the Belcher’s property; and (c) keep the former matrimonial home (“Divorce Agreement”).

8.  The dispositions in issue concern a total amount of around HKD 93.34 million, representing exactly Wife’s receipt of payment  under the Divorce Agreement except the said second tranche of cash payment which is not yet paid to date.

9.  The dispositions comprised the following:

(i)  On 16 August 2017, Wife received from Husband the first tranche cash payment of RMB 40 million and in turn transferred the same to Daughter (around HKD 48 million);

(ii)  In September 2017, Wife sold the Belcher’s property and transferred the net proceeds of around HKD 22.67 million to Daughter; and

(iii)  In December 2017, Wife sold the former matrimonial home and transferred the net proceeds of around HKD 22.67 million to Daughter.

(altogether “the Dispositions”)

The Law

10.  Section 17 of the Matrimonial Proceedings and Property Ordinance, Cap 192 provides that (emphasis added):

(1) Where proceedings for relief under any of the relevant provisions of this Ordinance (hereafter in this section referred to as "financial provision") are brought by a person (hereafter in this section referred to as "the applicant") against any other person (hereafter in this section referred to as "the other party"), the court may, on an application by the applicant-

(a) if it is satisfied that the other party is, with the intention of defeating the claim for financial provision, about to make any disposition or to transfer out of the jurisdiction or otherwise deal with any property, make such order as it thinks fit for restraining the other party from so doing or otherwise for protecting the claim;

(b) if it is satisfied that the other party has, with the intention aforesaid, made a disposition to which this paragraph applies and that if the disposition were set aside financial provision or different financial provision would be granted to the applicant, make an order setting aside the disposition and give such consequential directions as it thinks fit for giving effect to the order (including directions requiring the making of any payment or the disposal of any property);

(c) if it is satisfied, in a case where an order under the relevant provisions of this Ordinance has been obtained by the applicant against the other party, that the other party has, with the intention aforesaid, made a disposition to which this paragraph applies, make such an order and give such directions as are mentioned in paragraph (b);and an application for the purposes of paragraph (b) shall be made in the proceedings for the financial provision in question.

(2) Paragraphs (b) and (c) of subsection (1) apply respectively to any disposition made by the other party (whether before or after the commencement of the proceedings for financial provision), not being a disposition made for valuable consideration (other than marriage) to a person who, at the time of the disposition, acted in relation to it in good faith and without notice of any such intention as aforesaid on the part of the other party.

(3) Where an application is made under this section with respect to a disposition which took place less than three years before the date of the application or to a disposition or other dealing with property which is about to take place and the court is satisfied-

(a) in a case falling within subsection (1)(a) or (b), that the disposition or other dealing would (apart from this section) have the consequence, or

(b) in a case falling within subsection (1)(c), that the disposition has had the consequence of defeating the applicant's claim for financial provision, it shall be presumed, unless the contrary is shown, that the other party disposed of the property with the intention aforesaid or, as the case may be, is, with that intention, about to dispose of or deal with the property.

Parties’ respective stance on the Section 17 Summons and the Ancillary Relief Proceedings

Wife’s stance

11.  Wife denied the Depositions were made with the intention of defeating Husband’s claim for financial provision. She asserted that the setting aside application is wholly unnecessary and has no bearing on the ancillary relief proceedings at all, because Wife will ultimately be the payee for further financial relief beyond her entitlement under the Divorce Agreement.

12.  Wife objected the Divorce Agreement being full and final. She said she was under extreme stress and confusion when being tricked and threatened to sign it.

13.  By her Form A dated 12 September 2017, Wife claims ancillary relief against Husband. By a letter dated 18 December 2017 from her then solicitors, Wife also notified Husband that she no longer wished to be bound by the Divorce Agreement.

Daughter’s stance

14.  Daughter asserted that Husband will definitely be the ultimate payor, and has no matrimonial claim anyway which is capable of being defeated under Section 17.

Husband’s stance

15.  Despite his claim for ancillary relief against Wife by Form A dated 25 June 2018, Husband’s primary stance of the ancillary relief proceedings has never changed. All along Husband’s position is to ask the Court to uphold the terms of the Divorce Agreement as the final distribution of matrimonial assets. At this hearing, Husband through his Counsel confirmed again that this is still his primary stance.

16.  On his alternative stance, Husband submitted that upon the ancillary relief trial where the nuptial agreement is only one of the many factors to be considered, Wife may end up being the payor. Therefore, the Section 17 Summons and the Injunction Summons are necessary to preserve the Dispositions for fair division since they form part of the matrimonial pot.

17.  Husband’s position sounds out of tune to me. It virtually means to say, while the Court should find in favor of him and make him the payor under the Divorce Agreement, he has to safeguard his interest in case he fails, i.e. the Court makes him the payee.  While Husband asserted that Wife’s assets could be 10 times more than his, he nonetheless has agreed to pay Wife HKD 93.34 million under the Divorce Agreement and still intends to hold Wife to its terms. It is embarrassing for Husband to run this point.

Issues under the Section 17 Summons

18.  There are mainly two issues in question, namely Wife’s intention of the Dispositions (“Intention Issue”); and whether financial provision or different financial provision would be granted if the Dispositions were set aside (“Payor/Payee Issue”).

19.  On the Intention Issue, an intention to defeat is presumed in the present case. The Court has to determine whether the 3-year presumption of intention under Section 17(3) is rebutted. The burden to rebut is on Wife.

20.  On the Payor/Payee Issue, the Court will not at this stage quantify the matrimonial pot nor determine the outcome of financial distribution which are matters for the ancillary relief trial. Therefore, this issue is confined only to whether Wife can demonstrate on balance of probabilities she would be the ultimate payee in addition to her entitlement under the Divorce Agreement. If yes, Husband is bound to fail because it is not shown financial provision would be granted to him.

Discussion

Intention Issue

21.  In a nutshell, the evidence of Wife and Daughter is that the Dispositions were made as gift. Upon the transfer, Wife needed not be troubled by the administration of her finances anymore; she could entrust and count on Daughter to look after her and to pay for her expenses.

22.  Husband submitted that such explanation was inherently unsustainable and failed to negate the presumption of the intention to dissipate. The following are, inter alia, comment and analysis made on the evidence of Wife and Daughter in order to discredit them:

(i)  There is no rational explanation and is absurd for Wife to transfer such an enormous sum which is the brunt of her wealth to Daughter in order that Daughter could look after her and pay for her expenses which is only around HKD 100,000 per month. There are so many ways Wife can achieve this without the need of giving almost all she has to Daughter.

(ii)  Timing is extremely sensitive. Wife sold the 2 properties (Belcher’s property and the former matrimonial home in the same area) hastily having to pay additional HKD 2.52 million being Special Stamp Duty in selling the Belcher’s property. If Wife was indeed worried about “Feng Shui”, she should have leased them out; she would not have been living at the former matrimonial home and carried out major renovation in mid-2016.

(iii)  There is no explanation why the first tranche cash payment had to be transferred to some third parties in PRC first  before sending back to Hong Kong for Daughter.

(iv)  Wife’s affidavit evidence is inconsistent with her 1^st Answer filed in August 2018. In the 1^st Answer, Wife said the 2 properties were sold because of poor “Feng Shui”, but this was not mentioned in her affidavit.

(v)  Receipts showed that Wife sometimes paid for her own expenses; this is inconsistent with Wife’s evidence that  Daughter would pay for her expenses.

23.  I do not think Wife’s evidence would be discredited by the above challenges.

(i)  In reality, people with different financial management concepts do handle their wealth in different ways of which some may look unnecessary or irrational to others. The objective test of reasonableness is whether the behavior is so beyond logic and comprehension, inconceivable or unimaginable as considered in the factual matrix of the case. In the present case where it is a mother gifting the bulk of her wealth to her daughter whom she relied on and is attached to, I do not think the gifting is inconceivable irrational or inherently unsustainable as Husband suggested.

(ii)  Wife’s explanation of selling the 2 properties due to poor “Fung Shui” should not be read out of context. Wife was saying that she attributed the misfortune of marriage breakdown to poor “Fung Shui”; she sold them so that she could leave the area to start afresh. This explains why she did not continue to own the properties despite having expended on major renovation of the former matrimonial home in mid-2016.

(iii)  There is no evidence on why the first tranche cash payment was transferred to Daughter via PRC, but what matters is to whom the money finally goes. Husband is suspicious about this route of transfer but there is no suggestion of how this infers an intention to defeat.  

(iv)   While the content of Wife’s affidavit and her 1^st Answer are not identical, they are not contradictory. The affidavit explains the purpose of the Dispositions; the 1^st Answer explained why she decided to sell the 2 properties upon which the net sale proceeds would be gifted to Daughter. 

(v)  The fact that Wife at times paid for her own expenses is not anything so irrational to get surprised with.  Although Wife could count on Daughter to pay for her expenses out of the gifted money, the gifting arrangement need not be seen as creating strict contractual right and obligation between mother and daughter. 

24.  After all, it is Wife’s burden to rebut the presumed intention. It is necessary she proves her genuine intention and belief at the time of the Dispositions. The following background facts are highly relevant.

(i)  The Dispositions took place between mid-August and December 2017, shortly after the joint application for divorce was filed. During such time, Wife has filed her Form A on 12 September 2017, claiming against Husband for financial provision beyond her entitlement under the Divorce Agreement; and by a letter dated 18 December 2017 from her then solicitors, Wife notified Husband that she no longer wished to be bound by the Divorce Agreement.

(ii)  Despite Wife’s clear indication aforesaid, Husband took no step to claim against Wife for financial provisions. The Dispositions completed in December 2017.

(iii)  The Dispositions were disclosed by Wife in her Form E dated 21 May 2018 on her own initiative.

(iv)  It was not until 25 June 2018 Husband filed his Form A claiming financial relief against Wife, but only as his alternative stance.

25.  At the time of the Dispositions, Husband was not yet a claimant for financial provisions. Although Section 17 covers dispositions before or after the commencement of the proceedings for financial provision, the chronology of events is highly relevant in ascertaining Wife’s belief at the material time.

26.  There is no suggestion and indeed nothing points to the fact that at the material time Wife knew or ought to have reasonably known that Husband would come forward as the claimant after a few months such that she would have to defeat his claim by dissipating assets. This is supported by Wife’s frank disclosure of the Dispositions in her Form E.  

27.  The steps taken by Wife in the proceedings clearly show her genuine belief that she would be awarded more in addition to her entitlement under the Divorce Agreement. Hence, I accept that the Dispositions were made under her genuine belief that she was simply dealing with assets which were already hers.

28.  In such circumstances, I find that the presumption of intention to dissipate is rebutted. Wife has discharged the duty of negating intention.

Payor/Payee Issue

29.  This issue is extensively argued. Majority of the evidence including those adduced post-hearing are targeted at this issue.

30.  In Wife’s Form E, she disclosed her assets at the sum of HKD 40.9 million. Adding up the sum of around HKD 93.34 million which she had gifted to Daughter, her total asset is HKD 134.3 million.

31.  Husband complained about Wife’s material non-disclosure and that her asset was grossly undervalued. He asserted that about HKD 1,500 million worth of assets should be added to Wife’s side of the balance sheet, making a total of HKD 1,650 million.

32.  The alleged undisclosed assets include:

(i)  undervaluation of HKD 9.7 million for 12 shops in Shenzhen;

(ii)  undisclosed HSBC account with a deposit of HKD 100 million from securities trading (Note: there was no such sum in the said account at the time when Husband left Wife in 2011);

(iii)  Wife’s receivables of HKD 14.5 million representing her  claims in two High Court proceedings (Note: the Judgment sums are respectively HKD 3,359,190 and HKD 5,475,757.87, making a total of 8,834,947.87); and

(iv)  Wife’s 280,000,000 shares in a Hong Kong listed company (“Shares”) which was once worth HKD 1,388.8 million based on the average price of HKD 4.96 per share in 2007. The Shares were sold in 2007 but the sale proceeds were not accounted for.

33.  According to Husband’s Form E, his asset is HK$186.8 million. Husband said Wife could have assets 10 times more than his, therefore he is not necessarily the payor for ancillary relief.

34.  Pausing here trying to understand Husband’s position, it is bewildering why Husband up to date still intends to hold Wife to the Divorce Agreement. Husband seeks a court order to pay Wife HKD 93.3 million who has assets in billions as he alleges, leaving himself with only HK$186.8 million. In trying to understand this against Husband’s business background, it appears to be beyond comprehension. Anyway this is a matter for the ancillary relief trial, if unfortunately parties have to fight till the bitter end.

35.  It can be seen from above the biggest disputed item is the Shares. In response to Husband’s evidence on the valuation, Wife with leave of the Court has adduced post-hearing evidence to show that Husband’s calculation and valuation is indisputably wrong.

36.  Wife said the listed company in about 2017 issued a Public Announcement whereby “The Board proposes to implement the Share Consolidation whereby every eight (8) issued and unissued Existing Shares of HK$0.01 each be consolidated into one (1) Consolidated Share of HK$0.08 each”. In other words, prior to 2017 the Shares were unconsolidated and had face value of HK$0.01 each; whereas after 2017 the Shares were consolidated 8:1 and have face value of HK$0.08 each.

37.  Wife said since the Shares were never consolidated shares prior to 2017, even adopting Husband’s formula based on average price of shares in 2007, the Shares could only worth about HKD 173.6 million; the difference being 8 times less than Husband’s alleged figure of HKD 1,388.8 million.

38.  The issue of the Shares was first brought up by Husband by sending Wife a copy of his 2^nd Questionnaire in November 2018. In the Questionnaire Wife was being described as the beneficial owner of the Shares; she was asked to give an account of the acquisition of the Shares, sale and the whereabouts of sale proceeds.

39.  In Husband’s 7^th Affirmation dated 9 May 2019, the issue of the Shares was raised again. He only touched on the issue lightly and this time describing Wife as the registered shareholder of the Shares, as opposed to beneficial owner.

40.  Shortly before this hearing, Wife filed and served on 29 May 2019 her Answer to Husband’s 2^nd Questionnaire. She gave a detailed account on the acquisition of the Shares. Wife said the Shares under her name were acquired by Husband using family funds. The Shares were controlled by Husband and operated by a company staff under Husband’s instructions. In 2007, the Shares were all sold to fund the properties development under the family company. The sale proceeds were transferred to Husband’s designated persons.

41.  On 31 May 2019, Daughter filed and served her 3^rd Affirmation providing in paragraphs 9 to 14 therein a very detailed account on the Shares. They covered detail background on how Wife held the Shares as nominee for Husband, how the Shares were managed by Husband, and how the sale proceeds were transferred to his designated recipients and ultimately returned to Husband.

42.  It is noteworthy Husband abandoned his right to reply to Daughter’s 3^rd Affirmation. Not only that, Husband’s beneficial ownership of the Shares can hardly be argued to the contrary.

43.  Among the post-hearing evidence, there are two disclosures of interests made by Husband to Hong Kong Exchange and Clearing Limited (“HKEX”) respectively on 10 May 2004 and 30 December 2004 as shareholders of the Shares under Wife’s name. Before this evidence is revealed and exposed, Husband is silent on the said disclosure of interests to HKEX and his ownership of the Shares.

44.  In support of the setting aside, Husband submitted that there is a real uncertainty at this stage of the proceedings on who will be the payor or payee; so the Court does not have to come to any concluded view on this issue; it suffices as long as Wife is “not necessarily” the payee. I disagree.

45.  The so-called uncertainty includes:

(i)  the disparity of the valuation of the Shares calls for clarification;

(ii)  Husband did not claim his calculation as final, and that actual value and sale proceeds of the Shares are subject to assessment; and

(iii)  Wife’s assets and the size of the matrimonial pot will unfold upon further issue-specific discovery.

46.  Regarding item (i) under paragraph 45 above, by the Wife’s 9^th Affirmation filed and served on 27 November 2019 in support of the Post-hearing Evidence Summons, the disparity of the valuation of the Shares is clearly explained. The closing price of the Shares on 31 December 2003 was 0.73 (as opposed to Husband’s figure of 5.84 which is exactly 8 times more); the closing price of the Shares on 31 December 2006 was 0.51 (as opposed to Husband’s figure of 4.08 which is exactly 8 times more). Indisputably, Husband has wrongly applied the value of new consolidated shares (consolidated 8 into 1) in calculating the value of old unconsolidated shares. (It is once suggested that expert evidence is required to explain such disparity, sensibly no application is taken out.)

47.  Regarding item (ii) under paragraph 45 above, since Wife merely held the Shares on behalf of Husband and the sale proceeds were fully accounted for, no matter how much the actual value and sale proceeds were, the amount the Shares worth of should be added to Husband’s side of the balance sheet instead of Wife’s.

48.  On Husband’s valuation, the Shares are worth of HKD 1,388.8 million; adding it to Husband’s side of the balance sheet,

(i)  Husband’s assets would be HKD 1,575.6 million (HKD 186.8 million + HKD 1,388.8 million);

(ii)  Taking Husband’s case to its highest as set out in paragraph 32 above, Wife’s assets would be HKD 252.8 million (HKD 134.3 million + HKD 9.7 million + HKD 100 million + HKD 8.83 million).

49.  It is obvious that Wife would get significantly more than HKD 93.34 million; Husband would be the ultimate payor.

50.  There is Wife’s evidence to correct the valuation of the Shares to HKD 173.6 million; adding it to Husband’s side of the balance sheet,

(i)  Husband’s assets would be HKD 360.4 million (HKD 186.8 million + HKD 173.6 million);

(ii)  As set out in paragraph 48 (ii) above, Wife’s assets would be HKD 252.8 million.

51.  On the equal sharing principle, Wife is entitled to have HKD 306.6 representing half share of the HKD 613.2 million in total (HKD 360.4 million + HKD 252.8 million). Hence, Wife would be paid the difference of HKD 53.8 million; Husband would still be the ultimate payor.

52.  Regarding item (iii) under paragraph 45 above, there may well be further discovery for the purpose of the ancillary relief trial, but all parties are content to have the Court determine the 3 summonses by affidavit evidence. The Court is capable of making provisional finding of facts on affidavit evidence in interlocutory proceedings by testing a party’s case against documentary evidence incontrovertible evidence, or evidence which is not in dispute. There is no prejudice.

See: Melvin Waxman v Li Fei Yu & Ors, unreported, HCA1973/2012 (23 August 2013)

53.  As discussed above, Wife succeeded on the Intention Issue by rebuttal; Husband failed on the Payor/Payee Issue to show that financial provision would be granted to him. The Section 17 Summons is dismissed.

54.  The 3 summonses could have been avoided had Husband sensibly accepted Wife’s undertakings.

(i)  As early as on 20 June 2018 (well before Husband’s Form A and the Section 17 Summons), Wife has already agreed to add back the full sum of HKD 93.34 million to her side of the balance sheet, subject to deduction of living expenses.

(ii)  In Wife’s 2^nd Affirmation dated 8 Jan 2019, she again provided an undertaking of adding back the full sum on her side of the balance sheet, subject to deduction of HKD 1.7 million legal costs already incurred and future living expenses capped at HKD 100,000 per month. 

The Joinder Summons

55.  The Joinder Summons aims to join Daughter in order to give effect to the order of setting aside. Upon dismissal of the Section 17 Summons, the Joinder Summons must fail.

Reasons for Decision (Injunction Summons)

56.  The application is of interim nature pending determination of the Section 17 Summons, in order to preserve assets giving effect to  an order of setting aside.

57.  Having dismissed the Injunction Summons on 5 June 2019, I now give the reasons for decision. At the time when the decision was made, there was no post-hearing evidence on the value of the Shares.   

Jurisdiction

58.  Both Wife and Daughter disputed jurisdiction because the injunctive power under Section 17(1)(a) is restricted to the parties to the marriage and not third parties. Hence, an injunction cannot be granted against the Daughter who is a non-party.

59.  Husband emphasized that he is invoking the inherent jurisdiction of the court. Wife argued that the Family Court’s jurisdiction is not ‘inherent’ per se, but limited by Section 52B of the District Court Ordinance, Cap 336.

60.  Husband therefore referred to CYYC v TVKT, unreported, FCMC 14649 of 2014 (21 December 2015) where it is discussed that the procedure or the test applicable under the statutory mechanism (i.e. Section 17 of the Matrimonial Proceedings and Property Ordinance (Cap 192) does not differ from that under the inherent jurisdiction. However, this does not assist Husband on jurisdictional point because the injunctive power under Section 17(1)(a) does not extend to third parties.

61.  Husband once boldly suggested that Daughter has become a party by notice of the Section 17 application given on 5 July 2018. This must be wrong. If there is any force in this suggestion, there is no need for Husband to take out the Joinder Summons.

62.  Husband further seeks to rely on the “Chabra jurisdiction” i.e. the Court’s jurisdiction to extend the ambit of a Mareva injunction to a non-party.

63.  In China Baolo Technologies Holdings Ltd v Orient Equal International Group Ltd, unreported, HCA 1399 of 2016 (12 June 2017), the principles of the Chabra jurisdiction are usefully summarized :

“70…. The relevant principles derived from the various authorities cited may be summarized as follows:

(i)The Mareva injunction can be exercised against non-parties : Hui Chi Ming v Kong Wing Yee (unreported, HCA 1479 of 2009 on 1 April 2010)

(ii)Where the court is invited to include the scope of the Mareva injunction assets which appear on their face to belong to a third party, the applicable principles are those enunciated by Lloyd LJ in Masri [1985] 1 WLR 876;

(iii)For the Masri principles to apply, the court must be satisfied that there is “good reason to suppose” (to be equated with a good arguable case: XY, LLC v Jesse Zhu CACV 11/2016 on 5 December 2016 at§24(2)) that the assets are in truth: (a) assets belonging to the defendant; or (b) assets of which the defendant has control, or a right of access or some other right where the Mareva injunction is sought to restrain the disposal/removal of assets held by third parties: Hui Chi Ming at§§27-30.

(iv)It is not necessary for the applicant to demonstrate, at the injunction state, that the assets sought to be frozen belong to the defendant: what has to be shown is good reason to suppose as against a non-party that the assets held by the non-party would be susceptible to a procedure which would lead to satisfaction of a judgment in the defendant’s favour: Dadourian Group International Inc v Azuri Limited [2006] WTLR 239 at§26;

(v) It is unnecessary for the plaintiff to have a cause of action against the third party:see TSB Private Bank International SA v Chabra [1992] 1 WLR 231 at 237B-D.”

64.  In light of the above legal principles and authorities, the Court has  jurisdiction to grant injunction against Daughter as a non-party.

Merits

65.  Husband said the risk of further dissipation by Daughter is real and imminent. He relied on the following evidence to show the likelihood of the movement or dissipation of assets.

(i)  Daughter acquired a flat in Argyle Street at the consideration of HKD 38,393,000 in October 2017; and

(ii)  Daughter obtained a loan from Bank of China in February 2019, showing that she is in need of money.

66.  Husband also submitted that since Wife’s assets are illiquid and there is a likelihood of Wife being the payor, there is good reason to suppose as against Daughter that the assets of or held by her would be susceptible to a procedure which would lead to satisfaction of a judgment in his favour.

67.  It is insufficient to show the likelihood of the movement or dissipation of assets, it has to be shown that they are done with the intention of defeating Husband’s claim. Whether Wife has the intention to defeat (if yes, such intention would be imputed on Daughter as Husband suggested) is a crucial factor to be considered whether to grant the injunction sought.

68.  As discussed in paragraphs 24-28 above, I accept that the Dispositions were made under Wife’s genuine belief that she was simply dealing with assets which were already hers with no intention to defeat.

69.  Further, since Husband has no reply to Daughter’s 3^rd Affirmation deposing that he was the beneficial owner of the Shares and sale proceed were fully accounted for, he would be the ultimate payor as discussed in paragraphs 48 & 49 above. Therefore, it is not shown the sum sought to be injuncted is one over which Husband could have a claim.

70.  By reason of the aforesaid, there is no good ground to suppose as against Daughter that the assets of or held by her would be susceptible to a procedure which would lead to satisfaction of a judgment in his favour.

71.  Hence I have dismissed the Injunction Summons with costs to Daughter.

Reasons for Decision (Post-hearing Evidence Summons)

72.  The post-hearing evidence concerns mainly Wife’s valuation of the Shares. Having granted Wife leave on 6 March 2020 to adduce further affidavit evidence, I now give the reasons for decision.

73.  At the hearing, evidence on the value of the Shares was adduced by Husband only. He relied on information from Yahoo Finance website. Based on the average price of HKD 4.96 per share in 2007, Husband said the Shares were worth HKD 1,388.8 million when they were sold in 2007.

74.  This was an important plank of Husband’s case. Husband was saying that Wife may well be the payor because the matrimonial  pot had more than HK$1,388.8 million back in 2007 which has since disappeared.

75.  3 months post-hearing, Wife seeks leave to adduce evidence to show that Husband’s valuation is indisputably wrong. She relied on the publicly available information of HKEX. In about 2017, the listed company issued a Public Announcement whereby “The Board proposes to implement the Share Consolidation whereby every eight (8) issued and unissued Existing Shares of HK$0.01 each be consolidated into one (1) Consolidated Share of HK$0.08 each”. In other words, prior to 2017, shares were unconsolidated and had face value of HK$0.01 each; whereas after 2017 shares were consolidated 8:1 and have face value of HK$0.08 each.

76.  Wife said Husband has wrongly applied the value of new consolidated shares (consolidated 8 into 1) in calculating the value of old unconsolidated shares. Since the Shares were never consolidated share prior to 2017, even adopting Husband’s formula, they only worth about HK$173.6 million, the difference being 8 times less than Husband’s figure of HK$1,388.8 million.

77.  Wife explained the disparity of the valuation of the Shares and sought leave to adduce further affidavit evidence. She said it is wholly wrong to ask the Court to proceed to determine the Section 17 Summons on the basis that the Shares were worth HK$1,388.8 million back in 2007 when it is indisputably inaccurate.

Legal Principles

78.  In Keen Lloyd Energy Limited v Bank of China (Hong Kong) Limited, unreported, HCA 1299/2004 & HCA 1092/2006 (4 January 2008), Poon J (as he then was) referred to 2 different approaches to adducing evidence after hearing but before judgment.

79.  One approach is on the English decision in Secretary of State for Trade and Industry v Pauling [2005] 2 PCLC 667. The English Court of Appeal said that the principle applicable to an application to admit fresh evidence after hearing but before judgment is no more instructive than would be applied by the Court of Appeal on appeal from a judge i.e. the Ladd v Marshall conditions apply.

80.  The 3 conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 at 1491 (Denning LJ) are that :

(i)  the evidence could not have been obtained with reasonable diligence for use at the trial;

(ii)  the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(iii)  the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.

81.  The other approach is to apply the test of whether or not the interests of justice are better served by allowing or rejecting the application.

82.  The Court in Keen Lloyd Energy Limited did not have to come to any definite view as to which approach was correct, since both parties agreed that the main consideration was whether the new evidence was relevant to the application and whether it would have an impact on the outcome of the application in that case.

83.  In Balram Chainrai v Kushnir Family (Holdings) Limited & Ors[2018] HKCFI 17, unreported, HCA 1462/2014 (4 January 2018), Lisa Wong J held that viewing from the perspective of exercising the Court’s discretion and balancing the competing interests of the parties and the Court, the Ladd v Marshall questions would always be relevant.

84.  Lisa Wong J also agreed with the approach of applying Ladd v Marshall with flexibility as held by Deputy High Court Judge Carlson in Mak Kit Ching Kitty and Fu Mee Yuk Shirley, administratrices of the estate of Fu Kwok Kai, Daniel (deceased) v Tsang Yiu Wing, unreported, HCPI 811/1999 (18 October 2006) that the plaintiff needed to show “exceptional circumstances” to justify the calling of additional evidence at such a late stage.

85.  In Galsworthy Ltd v Liu Por (appointed to represent the estate of Liu Cheng Chan, deceased) & Ors[2019] HKCFI 2397 (unreported, HCA 560/2017, 30 Sep 2019), Marlene Ng J held that the different approaches are similar in that the Court should consider admitting evidence that were material and/or directly relevant by examining the cogency/relevance of the new evidence, and whether it would have an impact on the outcome, the public interest to do justice by deciding the rights of the parties, and the underlying objectives in Order 1A of the RHC.

86.  On the above authorities and principles, I accept that in exercising the discretion of whether leave should be granted, the following are relevant factors to be taken into account and balanced against each other.

(i)  the 3 Ladd v Marshall conditions are relevant considerations;

(ii)  materiality, cogency and relevance of the new evidence as well its impact on the outcome;

(iii)  whether there are exceptional circumstances to justify introducing new evidence at a late stage;

(iv)  underlying objectives in Order 1A including costs effectiveness, expedition as reasonably practicable, proportionality and procedural economy, fairness between parties etc; and

(v)  other relevant factors such as delay, conduct etc.

Husband’s objections

87.  Husband complained that the delay is inexcusable. Husband’s calculation of the value of the Shares was disclosed to Wife as early as 16 November 2018. Despite ample opportunities, Wife did not introduce evidence of her own to refute Husband’s valuation. The first time Wife took steps to obtain evidence was 16 August 2019, more than 2 months post-hearing.

88.  It is submitted that the 1^st condition of Ladd v Marshall cannot be satisfied. Since the new evidence concerns historical records, they did not become available only after the hearing; with due diligence Wife should have obtained the evidence before the hearing.

89.  It is also submitted that the new evidence is irrelevant. In considering the Payor/Payee Issue, it is unnecessary to consider the value of the Shares. On Husband’s case, Wife’s assets even without the Shares, have already exceeded Husband’s.

90.  Husband submitted that parties’ valuations do not represent the actual value of the Shares or the actual sale proceeds received. They merely represent Wife’s possible proceeds some 13 to 17 years ago, therefore the probative value of such evidence is limited and will not affect the outcome of the application. The Court is not to make a ruling on the precise valuation of the Shares for the Section 17 Summons when discovery is not yet completed.

Discussion

91.  In terms of delay and conduct, Husband’s complaints are well-grounded and justified. Wife could and should have obtained the evidence well before the hearing when she had ample opportunities to do so.  It is not fair to accuse Husband of deliberately misleading the court with a wrong valuation by relying on Yahoo Finance website.

92.  In terms of relevance, it is strange Husband now says valuation of the Shares is irrelevant when he is the one who first adduced the $1,388.8 million evidence to deal with the Payor/Payee Issue. Central to Husband’s submission is the proposition that Wife could very well be the payor, and this point is premised, inter alia, upon the assertion that Wife is accountable for the Shares which were worth HK$1388.8 million back in 2007.

93.  If Husband genuinely considers valuation of the Shares irrelevant, he ought to have agreed to withdraw the argument premised on the original $1,388.8 million evidence. As such, the Post-hearing Evidence Summons can be avoided. However, Husband did not accede to such request of Wife.

94.  Therefore, as long as Husband is relying on the value of the Shares, the Court should also have Wife’s version considered to achieve an overall and balance view. Although it remains uncertain whether the Shares sold in 2007 are points permitted to be pursued at the ancillary relief trial, it is relevant to the Section 17 Summons.

95.  I note that Wife’s valuation does not necessarily represent the actual value or the actual consideration received for the Shares.  Further, the Court is not to make a ruling on the precise valuation of the Shares. However, Wife’s valuation is not immaterial. As long as it would impact on the outcome, it need not be conclusive.

96.  The Court cannot be asked to make a determination based on information which is apparently inaccurate. To assess evidence on the Payor/Payee Issue, no matter how preliminary it is or how general or broad-brush the approach is, available evidence on valuations have to be taken into consideration. This is done as stated in paragraphs 48-51 above.

97.  Further, among the post-hearing evidence is Husband’s disclosure of interest to HKEX as stated in paragraph 42 above. As it concerns beneficial ownership of the Shares, it is material and cogent evidence with strong probative value.

98.  Despite the aforesaid, I remind myself to be cautious in granting leave post-hearing; and would therefore look for unusual features/exceptional circumstances in deciding whether to  exercise discretion in favour of Wife.

99.  Looking at the nature of the new evidence, I am satisfied that there exists an unusual feature. Wife is seeking to correct what is indisputably inaccurate (Husband wrongly applied the value of new consolidated shares in calculating the value of old unconsolidated shares) so that the Court will not be making determination based on wrong facts. This unusual element distinguishes this case from other cases where the applicant is seeking to adduce further controversial evidence to support own case or attack opposite party’s case.

100.  Having considered and balanced the factors as set out in paragraph 86 above, I granted leave for Wife to adduce further affidavit evidence.

101.  Regarding costs of the Post-hearing Evidence Summons, although Wife is the successful party, I do not think she is entitled to costs. As said, Wife could and should have obtained the evidence well before the hearing when she had ample opportunities to do so.  Costs order nisi is as set out in paragraph 103 below.

Order

102.  Both the Summons dated 5 July 2018 (Section 17 Summons) and the Summons dated 17 August 2018 (Joinder Summons) be dismissed.

103.  I make the following orders nisi on costs respectively for the Post-hearing Evidence Summons, the Section 17 Summons and the Joinder Summons.

Summons dated 4 September 2019 (Post-hearing Evidence Summons)

(i)  As between the 1^st Applicant and the 2^nd Applicant, there be no order as to costs including all reserved costs.

(ii)  As between the 1^st Applicant and the Intended Intervener, costs including all reserved costs be in the cause of the Joinder Summons.

(iii)  For the avoidance of doubt, costs incurred for the supplemental closing submissions arising from the further affidavit evidence should go towards costs of the Section 17 Summons/the Joinder Summons.

Summons dated 5 July 2018 (Section 17 Summons)

The 1^st Applicant do pay the 2^nd Applicant’s costs of and occasioned by the application including all reserved costs, with certificate for counsel, to be taxed if not agreed.

Summons dated 17 August 2018 (Joinder Summons)

The 1^st Applicant do pay the Intended Intervener’s costs of and occasioned by the application including all reserved costs, with certificate for two counsel, to be taxed if not agreed.

104.  Unless there is application within 14 days to vary, the nisi order(s) shall become absolute.

Ms Anita Yip S.C. leading Ms Lily Yu and Mr Caspar Ng instructed by Messrs Kwan & Chow for the 1^st Applicant/Husband

Mr. Jeremy S.K. Chan instructed by Messrs Chaine Chow & Barbara Hung for the 2^nd Applicant/Wife

Mr Richard Todd leading Ms Theresa Chow instructed by Messrs Wong & Co. for the Intended Intervener

FCJA 3690 / 2017

[2020] HKFC 53

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

JOINT APPLICATION

NUMBER 3690 OF 2017

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J U D G M E N T
(Application for Transfer of Proceedings)

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1.  This is the 2^nd Applicant’s (W’s) application for the proceedings to be transferred to the Court of First Instance of the High Court (“CFI”) whereby the 1^st Applicant (H) opposed.

Brief background of the case

2.  The parties acted in person when they filed the Joint Application for divorce on 8 August 2017.  Attached to the Joint Application was a three-page divorce agreement (“nuptial agreement”) written in Chinese, with the last page bearing the signatures of the parties and the witnesses.  Both parties argued strenuously the circumstances leading to the signing of the nuptial agreement.

3.  As all the children in this case are grown-ups, the only outstanding matter is ancillary relief between the parties.

Applicable legal principles

4.  There is no dispute that the Family Court has unfettered discretion to order a transfer of proceedings to the CFI. When exercising the discretion, the Family Court is guided by Rules 32 and 80 of the Matrimonial Causes Rules, Cap 179A as well as Practice Direction 15.14.

“32 Order for transfer of cause

(1) The court may order that a cause or application pending in the District Court be transferred to the Court of First Instance, where, having regard to all the circumstances including the difficulty or importance of the cause or application or of any issue arising therein, the court thinks it desirable that the cause or application should be heard and determined in the Court of First Instance.

(3)   Any cause or application transferred to the Court of First Instance under paragraph (1) may be re-transferred to the District Court at any stage of the proceedings if the Court of First Instance thinks it desirable.”

“80. Transfer of application for ancillary relief: general provisions

(3) The court may order the transfer to the Court of First Instance of any application for ancillary relief pending in the District Court where the transfer appears to the court to be desirable. (25 of 1998 s. 2; L.N. 26 of 2002)

(5) In considering whether an application should be transferred to the Court of First Instance the court shall have regard to all relevant considerations, including the nature and value of the property involved, the relief sought and the financial limits for the time being relating to the jurisdiction of the District Court in other matters. (25 of 1998 s. 2; L.N. 26 of 2002)”

5.  A2 of the Practice Direction 15.14 states that,

“The fundamental principle is whether in light of the overall circumstances including the nature of the issues of fact or law involved, the proceedings or part of them are more desirable to be dealt with in the CFI.”

6.  Under the same paragraph, three cases, all unreported, were cited for the practitioners as examples of how the jurisdiction is exercised:

(1) B v B, FCMC3105/1999, unreported, 11 July 2000;

(2) H v H, FCMC7173/2000, unreported, 1 February 2002; and

(3) SWM v PYC, CACV308/2002, unreported, 6 November 2002.

7.  The Family Court still needs to be satisfied that the transfer is justified even when all the parties agree.

8.  When the proceedings or part of them are ordered to be transferred, it will impact on the future conduct of the case.  Thus an application for transfer should be made as soon as practicable after it becomes apparent that a transfer is required.  The summons should be supported by affidavit evidence setting out all the grounds for transfer.

9.  The Family Court may order a transfer at any time of the proceedings.  It is not bound to order a transfer as soon as the application is brought.  For example, it may order the transfer to take effect after the filing of the Form Es (annexed to PD 15.11), or after the parties have gone through the Financial Dispute Resolution (“FDR”) or after all or some outstanding interlocutory matters are disposed of, see PD15.14,

“B. Giving directions when ordering transfer

6. When ordering a transfer, the Family Court will give case management directions as may be necessary to ensure that the transferred proceedings will be expedited without delay. To facilitate the Family Court in making the appropriate directions to deal with the specific needs of the case, the following shall apply.

B1. Interlocutory applications

7. If a party wishes to pursue any interlocutory application, such as maintenance pending suit, challenge against jurisdiction based on lack of substantial connection or forum non conveniens, or specific discovery, he should, as far as possible, take out the summons before or at the same time of the application for transfer.

8. The Family Court may hear and dispose of the interlocutory application before ordering the transfer. In that scenario, the extant practice of the Family Court applies.

9. If the Family Court decides that the interlocutory application should be deferred to the Court of First Instance, it will give directions for future conduct, including filing of evidence, factual and expert (if required), with a view to ensuring that once the proceedings are listed in the Court of First Instance, the application will be disposed of expeditiously without delay.”

10.  Counsel for the respective parties do not have dispute on the applicable legal principles gleaned from the above cases in respect of transfer of a case to the CFI. The relevant considerations are:

(1) Whether there is a matter of public interest;

(2) Where there are novel or difficult points of law to be resolved;

(3) Where delay will work a clear injustice;

(4) Where there is unduly complicated or conflicting evidence the resolution of which is likely to be so protracted that it will unduly prejudice the Family Court lists and this work against the interests of other litigants;

(5) Whether the financial limits for the time being relating to the jurisdiction of the District Court in other matters (but this factor alone is not decisive);

(6) In general, whether there is special complexity.

Discussion

11.  Mr Benjamin Yu leading Ms Bonnie Cheng representing W submitted three reasons for transfer and I would deal with the easier one first.

(i) Value of the Properties involved

12.  Mr Yu submitted that the value of the assets involved is substantial whereas Ms Anita Yip leading Ms Lily Yu and Mr Caspar Ng for H disputed the figures put forward by Mr Yu.  Both Counsel have spent some time to draw my attention as to the respective parties’ Form E.  For my part, I have no intention to rule at this stage what the value of the family assets is but suffice to say that even Ms Yip has agreed in her oral submission that the amount involved in this case is not small, though not mega, she added.

13.  In B v B,FCMC 3105/1999, unreported, 11 July 2000, one of the cases specifically referred to in PD 15.14, Deputy Judge Jenkins said in page 4 of his judgment, “(Mr Peaker who appeared for the husband) pointed to the decision of Deputy Judge Saunders, as he then was, in DJ No 7929 of 1995, a case where the total assets were possibly in excess of HK$30,000,000.00.  An application to transfer those proceedings to the High Court failed. The judge noted that the amount at issue, though significant, was “not a sufficient ground to transfer the proceedings to the High Court.”

14.  In H v H, FCMC7173, unreported, 1 February 2002, another case also specifically referred to in PD 15.14, HH Judge Saunders also said in page 9 of his judgment,

“The High Court and the District Court have a concurrent jurisdiction in divorce and in ancillary relief. Parties are however required to commence their proceedings in the District Court. There are now 6 judges sitting on a permanent basis in the District Court who are solely engaged in matrimonial work. There is a separate Family Court Registry, and although the "Family Court" does not have any substantive legislative basis it exists as a de facto separate branch of the District Court. The effect of this has been to build a pool of judges who are very experienced in this particular field. The judges deal with a wide range of ancillary relief cases, regularly involving many millions of dollars and with international implications.

There is no equivalent "Family Division" in the Court of First Instance of the High Court. Ancillary relief cases rarely go to the High Court and when they do there is no assurance that the judge who tries the case will have any special expertise in the field. In most cases however, fortunately, trials are able to be allocated to a judge who has been promoted to the High Court from the District Court and who has gained experience in the Family Court.

In these circumstances there must be cogent reasons why a case should be removed from the ambit of a group of specialist judges. It is right that R 80 requires the court to take into account the financial limits for the time being relating to the jurisdiction of the District Court in other matters, but that is only one consideration. Very large sums of money alone will rarely be sufficient to justify transfer. There must be some special complexity in the case which will demand that it be given the attention of a Judge of the Court of First instance.”

15.  In light of the guidelines laid down by the decision, I refuse leave on the ground that the value of the assets is substantial.

16.  Whilst we are on the topic of H v H, Ms Yip also drew my attention that since H v H, we now have 11 full-time family judges who are dealing with family cases and unlike in 2002 where there had been quite a number of judges being promoted to the High Court from the Family Court, there are only one, i.e., Her Honourable B Chu.

17.  Ms Yip also pointed out that FDR which is an important aspect of the judicial process in the matrimonial financial dispute should be heard by family judges who have special expertise.

18.  Mr Yu on the other hand submitted that under s32(3), CFI can always transfer the case back to the Family Court.

19.  I have no comment as to the number of judges who has been promoted to the High Court and I am sure that the High Court Judges can handle the cases which we transfer but as Mr Yu rightly and repeatedly pointed out in his oral submission, the factors that I have to consider for transfer is to have regard to all the circumstances including the difficulty or importance of the cause (emphasis added).

(ii) Complex and difficult issues of law and facts

20.  Mr Yu submitted that the parties’ dispute involves complex and difficult issues of law and facts, in particular the nuptial agreement and the ownership of some shares in Shenzhen. 

21.  In relation to the nuptial agreement, Mr Yu submitted that the parties have advanced diametrically opposite versions of how the purported nuptial agreement came into being. 

22.  After reading the parties’ Affirmations, I agree that quite a number of witnesses would have to be called to support and/or to rebut their respective versions.  However, these are only facts finding which I disagree that it is complicated.

23.  As for Mr Yu’s submission that it is a protracted exercise, my view is that if calling of a number of witnesses are inevitable, the amount of judicial time taken would be the same be it in Family Court or CFI.

24.  Mr Yu also submitted that although our Court of Final Appeal in SPH v SA [2014] 17 HKCFAR 364 has adopted the principles laid down in Granatino v Radmacher [2011] 1 AC 534 and has provided some guidance, the jurisprudence has since developed further in England.  Mr Yu cited the case of LCYP v JEK & Anor[2019] HKCFI 1588 whereby A Chan J had referred to some of the English cases subsequent to Radmacher.

25.  Mr Yu also drew my attention to paragraph 137 of the judgment whereby A Chan J said,

“I do not believe that the law requires the court to quantify the amount of weight to be attached to an unvitiated nuptial agreement. In this case, it would not be right to attach no weight to the PNA. On the other hand, it would be wrong to place great weight on it because it would be unfair to do so.”

26.  Mr Yu submitted that this statement is neither here nor there as it does not assist much.

27.  Ms Yip on the other hand submitted that the law relating to nuptial agreement has been discussed by the Court of Final Appeal in SPH v SH [2014] HKCFA 56 (SPH) adopting the principles in Granatino v Radmacher [2011] AC 534 (Radmacher). The principle has been re-affirmed by the decision of A Chan J in LCYP v JEK & Anor[2019] HKCFI 1588 (Date of Judgment 8 July 2019).  She submitted that the law has not been changed in terms of the validity of the nuptial agreement or as part of the overall (or the weight to be given to the) s.7 consideration.

28.  Ms Yip also drew my attention to the case of FHM v KYM & Ors [2015] HKFLR 241. 

29.  In that case, the parties were from Hubei Province and they were married in Mainland China.  The husband came to Hong Kong in 1978 to develop his business.  The parties signed a Deed of Separation in 1985 and in the years after the Deed of Separation was signed, the husband had been doing very well in his business until he suffered a stroke in January 2012.  In 2013, the wife petitioned for divorce on unreasonable behaviour and the husband filed the Answer and cross-petitioned based on two years’ separation.

30.  In paragraph 19 of the judgment (“the Judgment”), Deputy District Judge G Chan (as she then was) (Judge G Chan) said,

“There is no doubt that this is a big money case. The husband estimates in his Form E….that his total assets amount to nearly $23 million. This has not taken into account the value of business/shares of the Transactions, and the withdrawal/transfer of over $500 million from the husband’s bank account(s) to Madam N between 2012 and 2013.”

31.  The wife applied for section 17 against the share transfer.  The husband applied for a preliminary issue to determine on the Deed of Separation.  Both validity and effect of the Deed were disputed by the Wife.  The husband then applied for the Court to transfer the whole set of the proceedings to CFI which was dismissed by this Court.

32.  When disagreeing with the Counsel for the husband’s submission that judicial guidance is warranted on how the Family Court should approach after SPH, Judge G Chan said that,

“44.…The law on the determination on the validity of a nuptial agreement is already set out in SPH in which the English authority of Radmacher is approved and which the Family Court being composed of a panel of specialized judges dealing with matrimonial proceedings on a daily routine basis, would have no difficulty in applying the law into the facts of the case.

45.  Although the facts and the development of this case may have spanned for over 5 decades, its factual matrix, in my view, does not give rise to particularly complicated questions of facts and law.”

33.  Furthermore, when agreeing with the submission made by the Counsel for the wife, Judge G Chan also said that,

“…..whether the Deed of Separation is valid, and if so, how much weight is to be given to it remains part of the section 7 exercise in the ancillary relief trial. (The Counsel) explains that even if the Deed is to be given full force, the Family Court still have to perform its quasi-inquisitorial role under section 7 of the MPPO, in particular to have regard to the income, earning capacity, property and other financial resources which each of the parties has or is likely to have in the foreseeable future (see section 7(1)(a) of MPPO). He further submits that it is more appropriate to consider the Deed under step (4) set out by the Court of Final Appeal in LKW v DD [2010] 13 HKCFAR 537 under ‘conduct of the parties’ and ‘all the circumstances of the case’.”

34.  I agree in its entirety and I also disagree that there is a public interest to be served by trying the case in the CFI.

35.  With regard to the parties’ disputes over the ownership of assets, Mr Yu in his written submission submitted that,

“16.….it is plain that they will result in complicated and protracted trial(s) of preliminary issues.  To take the example of深圳市坤祥投資有限公司(“Shenzhen Kuncharm”), it is W’s case that H was and remains the ultimate owner of this company, which shares have been held on trust for him, under which H accepted that Shenzhen Kuncharm was one of the companies in which he held an interest directly or through nominees.  On the other hand, H now alleges that he had a mere 2% shares in the company which was sold through his nominee back in May 2018.  The record of registered shareholding shows the company’s shares have changed hands multiple times since 2003.  To determine the true beneficial ownership of these shares one needs to trace through each and every one of these transfers and examined the circumstances at the time including the parties involved, the consideration in question, the alleged reason(s) for the transfer, who was in control of the company before and after, etc.

17. It will be a colossal exercise in respect of one company.  It is probable that a similar exercise needs to be performed for other companies as well (such as深圳市坤祥國潤電器有限公司), given the parties (particularly H’s) longstanding practice of holding assets in Mainland China through nominees.”

36.  He further submitted that another area of controversy is H’s position that multiple bank accounts under his name (one of which has a balance of HK$72 million) are allegedly subject to a “代為持有” arrangement and their true beneficial owner is his brother.  As W does not accept this and therefore, Mr Yu submitted that the matter will have to be litigated in these proceedings.

37.  Mr Yu submitted that this Court is not dealing with a question of TL v ML beneficial interest but also complicated trust arrangement which involves cross-border issue.

38.  I must admit that I do find some force in Mr Yu’s submission in this respect.  However, in the recent Court of Appeal decision in LLC v LMWA [2019] 2 HKLRD 529, the Court of Appeal directed for the first time that cases involving third party interests may still be suitable for FDR before the trial of the ownership dispute.

“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. If the underlying ancillary relief claim is settled or resolved satisfactorily between the spouses, often there would be no further need or justification for proceeding with a determination of a dispute on the ownership.

24. Alternatively, if the ancillary relief can be determined or settled without any adjustment to or encumbrance being imposed upon the title to and/or the proprietary interest in that property (e.g. where a spouse does not seek any transfer of property order or any charge being imposed on the same to secure a claim [“a proprietary order”], and content with the claim being satisfied by other properties in the matrimonial pot whilst having the value of the disputed property being taken into account), it may be possible to confine the dispute to one between the spouses.

25. Further, even in cases where a spouse seeks a proprietary order in respect of the disputed property, the third party must be involved only if he or she has a competing claim to that property.  In this respect, there is a difference between cases where the third party is the legal owner or one of the legal owners of the disputed property and cases where a spouse claims that the third party has a beneficial interest in a property legally held under the name of that spouse.  In the former case, the third party should be joined as a party since the legal title of the disputed property would have to be transferred or subject to encumbrance if the ownership issue is resolved by the making of a proprietary order.  In the latter case, the third party should be notified of the claim and if he or she decides to contest the ownership issue, he or she should apply to be joined as party to the proceedings.  If the third party does not apply to be joined, he or she shall be bound by the judgment: see Order 15 Rule 13A(4) of the Rules of the High Court, applicable by virtue of Rule 3 of the Matrimonial Causes Rules.”

39.  In this case, only one first appointment has been conducted so far.  The rests were all interlocutory applications.

40.  Mr Kwok, the instructing solicitor of H, in his affirmation dated 3 December 2019 stated that the parties including the interested parties have taken out 11 summons in total (excluding those summons which are procedural in nature such as summons for leave to file and serve additional affirmations)[1].

41.  Ms Yip has helpfully set out in her written submission of the long list of outstanding matters in this case,

“39. (1) H’s s17 application which was heard on 5 June 2019 with impending decisions;

(2) W’s re-opening, and adducing further evidence on H’s s.17 application, which will be disposed of on paper with impending decisions;

(3) W’s paper application to the Court of Appeal for leave to appeal against the Decision of Deputy Judge D To in relation to W’s specific discovery application, with impending decision;

(4) Clarification and/or further particulars to be sought by H arising out of W’s Answer to H’s 2^nd Questionnaire;

(5) Clarification and/or further particulars to be sought by W arising out of H’s Answer to W’s 2^nd Questionnaire;

(6)   Potential interlocutory applications(s) including TL v ML proceedings and/or s.17 application that W claims she intends to take out against H or other third parties in relation to companies and bank accounts.”

…

42.  Ms Yip also submitted that,

“41…..the outcome of W’s present application for leave to appeal as referred to in 39(3) against the Decision of Deputy Judge D To is very likely to alter the landscape of the whole case. One of the key issues of the intended appeal was whether the period for general discovery of bank statements in this case should be extended to January 2014 or remain as prescribed by Form E (i.e. from June 2017). H has complied with the disclosure requirement as per Form E. W on the other hand wants a carpet search of all H’s bank statements since January 2014. Apparently, if W succeed in her intended appeal, further questionnaires would arise because of the production of new bank statements.”

43.  Ms Hung, the instructing solicitor of W said in her affirmation dated 2 August 2019,

“Timing of Transfer

17. It is believed now is the suitable timing for transfer. Firstly, save and except the 1st Applicant’s application for specific discovery, which is schedule to be heard on 23rd September 2019, all interlocutory applications took out by the parties have been heard. For the 1st Applicant’s specific discovery application, it is likely that such application may be resolved by consent shortly as 2nd Applicant has already confirmed that she will provide the answer.

 18. The parties intend to take out TL v ML application…”

44.  In my view, if all interlocutory applications taken out by the parties have been heard except TL v ML, I agree that it is simply premature to transfer the case at this stage.  It is also my view that after TL v ML application is taken out by W and all pleadings are in order, this Court can conduct FDR first before the transfer application is re-visited.

45.  In this respect, I agree with what Ms Yip submitted in her written submission,

“31. The Family Court judges are not only experienced in dealing with ownership disputes involving third parties; they are also au fait and possess the expertise to give sound indications to ownership disputes at FDRs.”

46.  Mr Benjamin Yu also submitted that since all the interlocutory applications were heard by my learned colleague, Deputy Judge D To as the de facto docket judge of this case but now that the case has been re-assigned to me, therefore, it is the opportune time for the matter to go up to CFI. 

47.  I disagree.  As I have already formed the view that once TL v ML application to be taken out by W is in order, this Court can conduct FDR soonest possible so as to encourage parties’ settlement. I refuse leave on this reason.

(iii) Lack of jurisdiction to make formal declarations

48.  Mr Yu also submitted that this Court has no power to make formal declarations.  As for the declarations as to the ownership of properties, there is a financial limit imposed by s26(b) of the District Court Ordinance and in this case, the value is well exceeded that limit.  Mr Y therefore submitted that W could therefore be facing unnecessary difficulties in enforcement, including enforcement in Mainland China where the parties have substantial assets.

49.  Although I agree that I do not have power to make declarations in this case, I have no idea of what application W’s legal team has in mind to take out.  If it is purely a TL v ML application, I cannot see any reasons why I have to transfer this case to the CFI.

50.  In this respect, I borrowed what Judge G Chan said in paragraph 51 of the Judgment,

“The Family Court judges, being judges in this specialised field have been determining in a matter of daily routine, claims on third party beneficial interests and/or whether dispositions of property should be set aside under section 17 of the MPPO.”

51.  Furthermore, it has also been specifically set out in Practice Direction 15.14 that all interlocutory applications should be taken out before and at the same time as this application is made.  Without the benefit of knowing what application W is going to make, I refuse leave to transfer on this reason.

Conclusion

52.  W’s summons for application for transfer to CFI be dismissed.

Costs

53.  Costs should follow the event.  The costs of and incidental to this application be to H to be taxed if not agreed, with certificate for counsel.

54.  Last but not least, it remains my gratitude for both Ms Yip and Mr Yu for their helpful assistance.

FCJA 3690/2017

[2019] HKFC 231

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

JOINT APPLICATION NO. 3690 OF 2017

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Decision
(Leave to Appeal)

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1.  This is the 2^nd Applicant/Wife’s(“W”) application for leave to appeal against the Decision made on 5 July 2019 whereby it was ordered that W’s Summons filed on 24 September 2018 for discovery be dismissed with costs (“the Decision”). The 1^st Applicant/Husband (“H”) opposed this application.

2.  Section 63A of the District Court Ordinance Cap 336 provides that leave to appeal shall not be granted unless the court is satisfied that the appeal has a reasonable prospect of success or there are some other reasons in the interests of justice that the appeal should be heard. 

Scope of Intended Appeal

3.  The Court has dismissed all four heads of W’s discovery requests. As described in paragraph 2 of the Decision, they are (i) Bank Statement Request; (ii) Table A Request; (iii) Audited Financial Statement Request; and (iv) List of Assets Request.

4.  W’s intended appeal covers only the first two heads, namely Bank Statement Request and Table A Request.

Grounds of Intended Appeal

5.  It is apparent from the paragraph structure of the Decision that the Court’s dismissal of the two subject requests was based respectively on different grounds and reasoning: paragraphs 13 to 17 on the Bank Statement Request, and paragraphs 18 to 23 on the Table A Request.     

6.  However, instead of identifying precisely her ground(s) of appeal under a particular dismissed request, W’s grounds of intended appeal have got muddled up, stretching across different reasoning in the Decision including those given under Requests (iii) and (iv) which are beyond the scope of the intended appeal.

7.  According to the draft Notice of Appeal, the grounds of the intended appeal can be summarized as follows :

(i)     The Court did not properly consider the following, hence failed to find that discovery is necessary for the fair disposal of the cause or matter or for saving costs.

(a)     there is a strong prima facie case of H concealing assets;

(b)     it can readily be inferred that there are most likely to    have been significant outflows and dissipations to be set aside; and

(c)     the ‘bare minimum’ 12-month Form E period is plainly   insufficient and disproportionate for this big money case.

(ii)     The Court erred in adopting the threshold of requiring findings of fact, an approach which is wrong and self-contradictory in the Decision.

(iii)     The Court also adopted a wrong approach in requiring W to make application for joinder when such obligation is on H;  hence reversing the burden and misapplied TL v ML principles/procedures.

Whether the intended appeal has a reasonable prospect of success

Bank Statement Request

8.  As set out in paragraphs 14(b), 14(c) and 15(a) of the Decision, main reason for disallowing the Bank Statement Request is that suspected dissipations of matrimonial assets do not justify an extension of general discovery period for W to fish for any possible Section 17 setting-aside applications or to hunt around for improprieties on the part of H.

9.  On the evidence available (without conducting forensic examination at the interlocutory stage : paragraph 15(b) of the Decision), the Court did not accept that there is sufficient prima facie evidence to infer concealment of assets or likely outflows and dissipations to be set aside. This led to the conclusion in paragraph 16(c) that W failed to discharge her burden to establish a prima facie case for discovery.

10.  W also takes issue that the Court erred in elevating the 12-month Form E period to become a statutory requirement. Although the mandatory Form E is not a statutory form, it is clear from the Decision that the Court recognized and exercised its power and duty to consider the appropriate level and extent of discovery for this case.

11.  Whether the ‘minimum’ 12-month Form E period is sufficient depends on the facts of each case, it being a big money case is simply one amongst various factors to be considered. While the Court was well aware that this case involves substantial matrimonial assets, it nonetheless rejected W’s discovery requests because W has not established that they are necessary either for disposing fairly of the cause or matter or for saving costs.

12.  A decision to discovery is an exercise of judicial discretion. W failed to show the Court’s exercise of discretion is plainly wrong such that it was outside the generous ambit within which a reasonable disagreement is possible.

13.  Due to misapprehension of the Court’s reasoning, it is also submitted for W that paragraph 15(b) of the Decision (the Court declined to conduct forensic examination of evidence at the discovery stage) contradicted paragraph 24 (the Court required evidence of H’s beneficial ownership before holding him being privy to the documents sought).

14.  On proper reading of these two corresponding paragraphs, the reasoning should be obvious : while the Court considers discovery on factual basis and evidence, it will not decide upon questions of fact which may or may not lend credence to W’s suspicion. The approach adopted by the Court was to consider whether, on the evidence before the Court, disclosure is necessary for the fair disposal of the cause or matter.

15.  By reason of the aforesaid, I do not think the intended appeal against the dismissal of the Bank Statement Request has a reasonable prospect of success.

Table A Request

16.  By the Table A Request, W seeks particulars of bank transactions and documentary evidence in support. The reasons for refusing Table A Request and W’s request for an O 24 r 7 affidavit from H are set out in paragraphs 19 to 22 of the Decision.

17.  H (as stated in paragraphs 6 and 7 of the Decision) has already in his affidavit given explanation of why he could not provide the information sought, that is conclusive for the purpose of discovery.

18.  Therefore, ordering an O 24 r 7 affidavit of H will not be purposeful unless W can identify specific document(s) for H to depose to, i.e. to state whether it (the specified document) has at any time been in his possession custody or power, and if not then in his possession custody or power, when he parted with it and what has been of it.

19.  It is against the above reasoning the Court said in paragraph 22 of the Decision that “if the documents in support of the bank transactions can be specified, I agree that W is entitled to an O 24 r 7 affidavit of H”. Unfortunately it appears from paragraph (5)(c) of the draft Notice of Appeal that W still missed the point. W now submits that she has specified the bank transactions in Table A, and the particulars and documents sought are already set out in paragraph 2 of her Summons for discovery.

20.  Paragraph 2 of W’s Summons for discovery simply states “ The 1^st Applicant do provide particulars of the transactions listed in the “Table of Ping An Bank Transactions” annexed as Table A within 14 days. For withdrawals, please give full particulars including the destination and purpose with documentary evidence in support; for deposits, please give full particulars including the source of payments and purpose with documentary evidence in support.”  W has not identified any “documentary evidence in support” for the purpose of seeking an O 24 r 7 affidavit.

21.  As regards paragraph (4) of the draft Notice of Appeal, the Court has never required W to apply for joinder in respect of the Ping An accounts which are held in H’s name; to do so would be wrongly reversing the burden and misapplied TL v ML procedures. It would be both confusing and misconceived if W regards paragraph 25 of the Decision to be of relevance to the intended appeal.

22.  Paragraph 25 deals with the four PRC companies of which H is not the legal owner. In alleging H is the beneficial owner, the obligation to apply for joinder indisputably rests on W. In any event, paragraph 25 is irrelevant to the present intended appeal because it is only concerned with the dismissal of the Audited Financial Statement Request and the List of Assets Request.     

23.  By reason for the aforesaid, I do not think the intended appeal against the dismissal of the Table A Request has a reasonable prospect of success.

Whether there are other reasons in the interests of justice that the appeal should be heard 

24.  W by the intended appeal invites the Court of Appeal to consider the appropriate test and relevant factors for financial disclosure in big money cases where there is an issue as to adequacy of the discovery of a party, and/or applications for the same in the context of matrimonial proceedings for ancillary relief. W submits the Hong Kong Court of Appeal has not had the opportunity to consider the scope, ambit and proportionality of discovery in a ‘big money’ divorce case.

25.  As H submits which I agree, there is a body of case law on discovery in matrimonial context setting out the principles to be applied. It is unnecessary and impossible to craft one standard test solely applicable to all so-called ‘big money’ cases. Facts of each case differ widely. The scope of discovery depends on peculiar factual matrix of each individual case. The significance of a ‘big money’ factor varies from case to case.

26.  Furthermore, having one standard test for “big money” cases may potentially increase costs and delay the process of adjudication. There may even be argument on a preliminary issue on whether a case qualifies as a “big money” case.  

27.  I do not accept that to have the Hong Kong Court of Appeal  consider the scope, ambit and proportionality of discovery in a ‘big money’ divorce case is a reason in the interest of justice that the appeal should be heard. 

Conclusion

28.  By reason of the aforesaid, I am not satisfied that the appeal has a reasonable prospect of success or there are some other reasons in the interests of justice that the appeal should be heard.  Leave to appeal is refused.

Order

29.  The 2^nd Applicant’s Summons dated 19 July 2019 is dismissed.

30.  The 2^nd Applicant do forthwith pay the 1^st Applicant’s costs of the application, summarily assessed at HK$185,000.

FCJA 3690 / 2017

[2019] HKFC 186

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

JOINT APPLICATION NO. 3690 OF 2017

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__________________________

Decision
(use of documents in other proceedings)

__________________________

1.  This is the hearing of the 2^nd Applicant/Wife’s (“W”) Summons dated 14^th February 2019 (“the Summons”) for leave to use in the court proceedings commenced by her in the PRC (“the PRC Proceedings”) some documents filed by the 1^st Applicant/Husband (“H”) in the ancillary relief (“AR”) proceedings herein.

Relevant Background

2.  In the AR proceedings herein, H by his Form E dated 6 June 2018 provided voluntary disclosure that he owned 2% shares of a PRC company through a trustee/nominee and such shares were already sold to a third party on 16 May 2018.

3.  Further to this disclosure, there are H’s Answer dated 27 August 2017 to W’s questionnaire and request for further and better particulars, as well as H’s discovery of documents concerning ownership and sale of the 2% shares.

4.  In reliance of her PRC legal opinion that the sale of the 2% shares without her consent constituted inappropriate disposition,W commenced the PRC Proceedings. According to the 民事起訴狀(statement of claim) dated     (date of Statement of Claim) (“the Statement of Claim”), W sues against     (number of defendants) defendants,     (descriptions of defendants) for a declaration that the said 2% shares once owned by H was communal property. 

The Subject Documents

5.  As listed in the Summons, W originally asked for the entire 8 items of document. At the hearing, W decided to only pursue for 7 items and conceded that some can be substantially redacted to only show the information being relevant and necessary to the PRC Proceedings.

6.  The scope of documents sought are therefore narrowed-down to the following: -

(1)     H’s Form E dated 6 June 2018; limited to the front page, item 5.1 at page 19, and the signature page

W further conceded that the selling price and net proceeds stated under item 5.1 can be redacted; and it is sufficient to only show the following admission of H : “本人於2018年5月16日賣出由 [name of the trustee/nominee] 代本人持有在 [name of the PRC company] 的2% 股份。”

(2)     H’s Answer dated 27 August 2017 to W’s Questionnaire and Request for Further & Better Particular; limited to the following :

(i)     heading of the document at the front page;

(ii)     pages 18 and 19 showing W’s Request No. 27 for details of the sale of shares (purpose of sale, identity of the purchaser, basis of pricing, documents in support etc), and H’s Answer thereto; and

(iii)     page 20 showing W’s Request No. 28 regarding the sale proceeds of the 2% shares, and H’s Answer thereto.

(3)     financial statement of the PRC company for the year 2016;

(4)     financial statement of the PRC company for the year 2017;

(5)     valuation report of the shares of the PRC company;

(6)     H’s statement of bank account with China Agricultural Bank from 5 June 2017 to 13 January 2019; limited to the heading of the document and the page showing only the transaction dated 4 June 2018; and

(7)     H’s statement of bank account with Bank of China (PRC) from 19 June 2017 to 4 January 2019; limited to the heading of the document and the page showing only the transaction dated 21 May 2018 and one of the transactions dated 4 January 2018 (i.e. the one with transaction time 083258)

Grounds of Application

7.  W’s application is premised mainly on the following grounds:

(1)     The subject documents are direct evidence of H’s beneficial ownership and disposition of the shares and would very likely contribute to achieving justice in the PRC Proceedings;

(2)     Although W is entitled to seek discovery against the defendants under the PRC Proceedings for relevant documents and information relating to the 2% shares, it is unlikely she is able to do so in view of the attitude adopted by H in the PRC Proceedings.  H has avoided service such that the PRC Court has ordered for substituted service to be effected on H. There is every reason to believe that H will continue to avoid service and may even be absent when a hearing date is fixed.  In such circumstances, the subject documents are particularly crucial to W achieving justice in the PRC Proceedings;

(3)     The application is clearly necessary to the PRC Proceedings rather than merely for convenience. Since H has already made admission in the proceedings herein, W is entitled to ensure that the same evidence is placed before the PRC Court, so that H cannot run contradictory and inconsistent cases;

(4)     The documents sought are limited to what are necessary and relevant; and

(5)     H will not be put to any “significant disadvantage”. H cannot suffer any prejudice by being asked to face his own evidence.

8.  W stressed the open justice principle and relied on the case of DJ v LRM (FCMC No. 8507 of 2013; 07 July 2015) where the wife in the matrimonial proceedings was permitted to use relevant and necessary materials for the purpose of conducting her defence in the criminal proceedings.

9.  There is no doubt that the subject matter should be approached on the basis of what is fair and just, however the nature of proceedings in DJ v LRM should be distinguished from the present one. The public interest in pursuing investigations and defence in a criminal case was considered as outweighing the interest to maintain confidentiality. I do not regard DJ v LRM having laid any principle concerning leave to access to documents in a general situation. It is noteworthy that the authority of Florence Tsang (CFA) was not considered in that case at all.

10.  W also sought to rely on O. 24 r. 14A in support of her application. This section does not apply because no proceedings in this present action have taken place in open court. 

RelevantLegal Principles

11.  It has long been established that a party who obtains documents on discovery gives an implied undertaking to the Court that he will make use of them only for the purposes of that action, and no other purpose. However, in appropriate circumstances the implied undertaking can be released or modified by the court. Where release from the undertaking is sought, it is for the person who obtained the documents to demonstrate cogent and persuasive reasons why it should be released. The court will not release or modify the implied undertaking given on discovery save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery.Each case turns on its own facts. The exercise involves a balancing exercise in terms of weighing the relevant conflicting interests and rights.

See : Secretary for Justice v. Florence Tsang Chiu Wing (2014)HKCFAR 739, per Ribeiro PJ at §§22 & 23, citing Crest Homes Plc v Marks [1987] AC 829

12.  When considering an application to release or modify the undertaking, the Court will consider the risk of general publication, and will take into account the force of any implied or express undertaking as to confidentiality made by the applicant in respect of the documents in the pursuit of foreign proceedings.The Court will also consider whether the application is merely for convenience, rather than being necessary to the applicant’s foreign proceedings.

See :TCWF v LKKS(No 2)  [2014] 1 HKLRD 1014

13.  In Cobra Golf Inc v Rata [1996] FSR 819 at §11, Laddie J set out the following as relevant circumstances which may be taken into account when deciding whether to exercise the Court’s discretion to relax the undertaking: -

“(a) The extent to which relaxation of the undertaking will cause injustice to the party which provided the discovery.

(b) Whether the proposed collateral use is in court proceedings or outside litigation (e.g. for disclosure to the press as in Harman). Prima facie if it is for use outside litigation, it is not the court’s function to release for that purpose.

(c)Whether, if the collateral use is in aid of criminal or civil proceedings, those proceedings are in this country or abroad.

(d) In so far as the satellite proceedings are in this country:

… …

(iii) In so far as the documents are to be used in proceedings abroad.

(a)Whether those proceedings are criminal or civil.

… …

(c) If the satellite proceedings are civil, the court should take into account whether the disclosure would put the disclosing party at a significant disadvantage in those proceedings – for example by forcing it to produce in the public domain documents which, under the local procedure, would not otherwise be made public.”

Discussion

The Summons

14.  H complains about the Summons not properly framed in that W only seeks leave to use documents without also seeking a release from the implied undertaking as to confidentiality.

15.  Indeed W ought to have claimed for both,but I am prepared to indulge.Factors to be considered overlap;if the Court is satisfied that permission to use document in other proceedings ought to be granted, it will inevitably have to grant a release of the implied undertaking.

The PRC Proceedings

16.  I shall not undertake an examination on the strength of the PRC Proceedings. As to the extent to which the court should examine the merits of the other proceedings, the relevant approach is set out by Scott J. in Sybron Corporation and Another v Barclays Bank Plc. [1985] Ch. 299, at 326-327: -

“… I do not think it can be right … for the court to undertake an examination of the strength of the proposed action in which it is sought to use the documents. I accept that it must be open to the respondent to resist leave on the ground that the proposed action would represent an abuse of process or for one reason or another was bound to fail or ought to be struck out. The court would always I think refuse leave if persuaded that the proposed action was of that character. But that apart, I feel great doubt whether it could ever be appropriate to try to gauge the strength of the proposed action in order to decide whether or not to give leave to use discovered documents for the purposes of that action. If a proposed action is not shown to be an abuse of process or obviously unsustainable then prima facie a plaintiff is entitled to prosecute it. Whether leave to use discovered documents for the purposes of such an action should be granted should depend in my view on the nature of the first action, the circumstances in which discovery was given and the nature of the proposed new action. There may be some cases in which for the purposes of an application for leave to use discovered documents some assessment of the strength of the case should be attempted, but where, as here, the case is of complexity I do not think it represents the right approach.” (emphasis added)

17.  Although the PRC Proceedings are not shown to be an abuse of process or obviously unsustainable (despite the critique by H’s PRC lawyer), W did not demonstrate why the proceedings are necessary. W submitted that the PRC Proceedings are akin to section 17 applications or TL v ML ownership disputes. I disagreed; it is clear from the prayer in the Statement of Claim that they are not.

18.  The only relief (apart from costs) sought by W in the PRC Proceedings is a declaration that the 2% shares once owned by H was communal property.By H’s admission and declaration, these are already stated facts in the AR proceedings herein. I do not understand why W needs a declaration by the PRC Court on the same fact.

19.  Both H and W have already submitted to the matrimonial jurisdiction of the Hong Kong Court to adjudicate the ancillary relief disputes between them. The sale proceeds of the 2% shares are fully accounted for in the proceedings herein and are available for distribution. W fails to demonstrate how a declaration by the PRC Court on the same fact would enhance her interest, nor how her interests would be prejudiced even if the PRC Proceedings could not go further for want of evidence.

Risk of Harm and Prejudice

20.  H relied on his PRC legal opinion and expressed the following concern of harm and prejudice :

-     the subject documents will be disclosed or published in the verdict or judgment in the PRC proceedings as evidence; as the public could search all judgments and verdicts online, the particulars of the documents produced as evidence will become public;

-     anyone who institutes proceedings related to H’s finances could apply to the PRC Court to inspect or copy the documents previously adduced as evidence;

-     prejudice will also be caused to third parties who are referred to in the documents in question; and

-     the exposure could be extensive since the Notice of the PRC Proceedings had been posted at the different offices of the PRC company.

21.  In reliance on her new PRC legal advice, W submits that if the PRC Court is faced with an application to access the documents, it is required under PRC law to consider the need to protect H’s confidentiality. Further, the PRC Courts do not unselectively or undiscriminatingly publish all judgments; they do not publish judgments which involve matters of privacy or which for other reasons should not be published.

22.  Although there is no suggestion that the PRC Court would not respect W’s undertaking of confidentiality, its practice and procedures in safeguarding sensitive information still hang in doubt. In light of the conflicting PRC legal advice, I do not think the possibility of risk can be ruled out.

23.  Although there are substantial redactions already conceded by W, financial statements of the PRC company and its valuation report (items (3) – (5) under paragraph 6 above) are still un-redacted. If leave is granted to use them in the PRC Proceedings, a lot of information on finances which are not necessary for the PRC Proceedings will be exposed to risks of disclosure or publication.

Relevant Documents

24.  What are relevant documents depend on the nature of the PRC Proceedings, in particular the relief W claims therein.

25.  If leave is to be granted, I think the only document W needs is H’s redacted Form E (item (1) under paragraph 6 above).  Reasons are as follows:

(1)     Item 5.1 of Form E already contains H’s admission and declaration of his beneficial ownership and disposition of the 2% shares of the PRC company. W did not explain why she needs documentary evidence (items (2), (6) and (7) under paragraph 6 above) to prove or reinforce H’s own admission.

(2)     Although W in the Statement of Claim has challenged the selling price of the 2% shares, “selling at an under-value” is not an issue relevant to the relief sought. Therefore, W does not need financial statements or valuation report of the PRC company (items (3) – (5) under paragraph 6 above). This is supported by the letter of W’s PRC lawyer dated 19 February 2019, making no request for financial statements and valuation report of the PRC company.

Should leave to use the redacted Form E/release of the implied undertaking be granted?

26.  Although there is no harm on H to permit W’s use of the redacted Form E in the PRC Proceedings, this reason alone does not justify the grant of leave.

27.  Although H’s admission under item 5.1 of Form E may be useful in the PRC Proceedings, leave should not be granted for mere convenience. The Court is not here to assist W to pursue proceedings which is not shown to be necessary in the first place.   

28.  There is a heavy burden on W to justify a release of the implied undertaking with cogent and persuasive reasons. W failed to do so.

Order

29.  The 2^nd Applicant’s Summons dated 14 February 2019 be dismissed.

30.  There be a costs order nisi that the 2^nd Applicant do pay the 1^st Applicant’s costs of the application in any event, with certificate for two counsel, to be taxed if not agreed.

31.  Unless there is an application within 14 days to very, the nisi order shall become absolute.

FCJA 3690/2017

[2019] HKFC 177

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

JOINT APPLICATION NO. 3690 OF 2017

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Decision
(Discovery)

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1.  This is the hearing of the 2^nd Applicant/Wife’s (“W”) Summons dated 24 September 2018 for discovery (“the Summons”).

2.  At the hearing, the scope of discovery sought by W is narrowed down to the following:

(a)     the 1^st Applicant/Husband’s (“H”) bank statements since January 2014 (“Bank Statements Request”);

(b)     particulars of certain bank transactions listed out in Table A annexed to the Summons, with documentary evidence in support (“Table A Request”);

(c)     audited financial statements of four PRC companies since 2014 (“Audited Financial Statements Request”); and

(d)     updated lists of assets owned by the four PRC companies (“Lists of Assets Request”).

W no longer sought any order in respect of the request for a list of valuable artworks.

H’s stance regarding the above requests

The Bank Statements Request

3.  H by his Form E disclosed that he has or has had various accounts with Ping An Bank, but claims that he only held them on behalf of others. Nevertheless, H has produced the Ping An Bank statements from June 2017 (12 months before June 2018, the date of Form E).

4.  H objects to W seeking general discovery of bank statements from January 2014 which is beyond the 12-month Form E period; and that W is not entitled to carpet searching without justification. 

The Table A Request

5.  The Table A Request is for particulars of some specified Ping An Bank transactions, including the destination/source/purpose of payments, with documentary evidence in support. These transactions amount to more than RMB160 million in total.

6.  H said those accounts listed in Table A are held by him for his brother and are ultimately controlled by his brother. His brother   assigned the operations of those accounts to some accounting staff whose identities are unknown to H; and his brother refused to provide further information.

7.  In short, H is saying that he is unable to provide those information; and he has already provided full particulars on what he has knowledge of.

The Audited Financial Statements Request and the Lists of Assets Request

8.  W asked for audited financial statements of four PRC companies with start date from 2014. She also asked for updated lists of assets which are necessary for assessing the values of the companies.

9.  H said he does not own the said PRC companies and none of them are registered under H’s name. He disputed W’s allegation that these companies are held on H’s behalf by his nominees.

10.  In short, H is saying that he is unable to produce documents which do not belong to him; and he has already provided full particulars on what he has knowledge of.

Relevant Legal Principles

11.  O 24 r 7 of RHC is applicable to matrimonial proceedings for discovery by virtue of Rule 3 of the Matrimonial Causes Rules (Cap 179A). The party seeking discovery must establish a prima facie case that

(a)     the specified document or class of documents exists;

(b)     the party against whom the order is sought has or had the documents in his possession custody or control;

(c)     the specified document or class of documents relates to a matter in question; and

(d)     the discovery sought is necessary either for disposing fairly of the cause or matter or for saving costs. 

12.  As part of its case management role, the court should regulate the extent of the discovery of documents so that the exercise is proportionate to the issues in question, and to ensure that the discovery process does not become a fishing expedition approved by the court.  Following the CJR, the increasing emphasis is for the court to limit discovery in the context of its duty actively to manage the case.

See : HSBC Private Bank (Suisse) SA v Mission Bridge Ltd (unreported HCA 406/2008 on 18 June 2012)

Discussion

The Bank Statements Request

13.  The Petition was issued in 2017; W seeks financial disclosure as from 2014. She relies mainly on the following grounds :

(i)     In recognition that W is entitled to apply for setting aside any dispositions pursuant to section 17 of MPPO with a 3-year presumption in her favor, she should have 3 years’ worth of financial documents to see whether there is any possible application.

(ii)     Amongst the financial disclosure already made by H, there are huge unexplained transactions involving substantial sums all of which took place during the parties’ separation. This is a long marriage of 40 years; parties have separated for more than 7 years by the time the Petition was filed.

(iii)     While H seeks to uphold a divorce agreement dated 3 August 2017 that he would pay W RMB 100 million, H’s financial disclosure does not show anything near such figure. The irresistible inference is that H has hidden assets and the scale of non-disclosure is massive.

(iv)     In light of the size of the matrimonial pot and the substantial transactions involved, to allow a 3-year period of discovery is not disproportionate to the issue in question.

14.  (a) I reject ground (i) without hesitation.

(b)     The statutory 3-year presumption under Section 17 MPPO  does not justify any extension of general discovery period. An extension to enable W to search for any possible Section 17 application is akin to approving a fishing expedition, hence wrong in principle.  If there is any force in this argument, a 3-year period of general discovery shall apply to all cases, and the 12-month statutory requirement for financial disclosure would fall apart.

(c)     W has in her affirmation set out some suspected dissipations of matrimonial assets by H, such as incorporating new companies to take over the family businesses and/or companies, and transferring matrimonial assets to his son for setting up business in Thailand etc. However, suspicion is insufficient; it does not justify an extension of general discovery period.

(d)     W makes reference to CLS v LPKP [2018] 1 HKLRD 786 where disclosure of 3 years’ worth of financial documents is ordered. However, it is to be noted that the Judge has not ordered such discovery in recognition of the statutory 3-year presumption; she has only approved parties’ consent to the extension.

15.  (a) On grounds (ii) and (iii), if there are unexplained   transactions or untenable position amongst the financial disclosure already made by H, W should follow up by questionnaires to request for information, clarification as well as production of documents. In appropriate cases, specific discovery may be ordered. It is unjustified to have general discovery to give W an opportunity to hunt around the documents in the hope that they will reveal some improprieties on H’s part or will provide information for them to pursue more enquiries.

See : Re the Estate of Ng Chan Wah, unrep, HCAP5/2003, 5 March 2003

(b)     I note that W has spared no effort in analyzing the evidence in detail with an attempt to demonstrate how incredible H is, how probable he has hidden assets and how unsatisfactory his financial disclosure is. However, the Court shall not in an interlocutory application for discovery conduct forensic examination of evidence.    

16.  (a) On ground (iv), W submitted that the mutual 12-month Form E period is just a starting point. In light of the size of the matrimonial pot and the substantial transactions involved, to allow 3 years is not disproportionate to the issue in question. W also submitted that there is no unfairness since the same extended period of discovery should apply both ways.

(b)     Firstly, I disagree that any extended period of discovery has to apply both ways. There is no need for a “tit for tat” equivalent; parties’ respective scope of discovery depends on relevance and necessity which are assessed in the circumstances of the case.

(c)     Secondly, even extending the discovery period to 3 years is not disproportionate in the context of the case, the test is whether it is necessary either for disposing fairly of the cause or matter or for saving costs. I do not think W has established this.

17.  By reason of the aforesaid, I disallow the Bank Statements Request.

The Table A Request

18.  W said it is no answer to resist discovery by simply saying that the account belongs to third parties beneficially.  She relied on Fisher Meredith v JH [2012] 2 FCR 241 regarding the law of ownership presumption :-

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

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

[44] In the latter situation which is the case here the duties re by no means so clear cut. If an asset is (say) in the name of the respondent husband then in my judgement the starting point or prima facie position, is that it belongs to him both legally and beneficially. In my judgment this cannot be seriously disputed in the light of Stack v Dowden [2007] UKHL 17, [2007] 2 FCR 280, [2007] 2 All ER 929 where Baroness Hale of Richmond stated :

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

19.  I do not think the law of ownership presumption can assist W at the interlocutory discovery stage. Discovery should not be ordered base on a prima facie position that H owns the accounts legally and beneficially. It has to be demonstrated that H has or had the documents specified (documents in support of the Table A Ping An Bank transactions) in his possession custody or control.

20.  W submitted that she is at least entitled to have H filing an affidavit in accordance with O 24 r 7. H said he has already in his affidavit given explanation of why he cannot provide the information sought, and that is conclusive for the purpose of discovery.

21.  An affidavit of H explaining the nominee arrangement in favor of his brother and why H cannot provide the information sought is different from an O 24 r 7 affidavit. The latter is an affidavit to state whether the document specified is, or has at any time been, in his possession, custody or power, and if not then in his possession, custody or power, when he parted with it and what has been of it.

22.  If the documents in support of the bank transactions can be specified, I agree that W is entitled to an O 24 r 7 affidavit of H. However, unless and until the bank transactions are particularized, there cannot be any identifiable supporting documents.

23.  By reason of the aforesaid, the Table A Request is disallowed.

The Audited Financial Statements Request and the List of Assets Request

24.  While none of the PRC companies are registered under H’s name, W alleged that these companies are held on H’s behalf by his nominees. To substantiate her allegation, W has made every effort to identify H’s involvement with the companies’ accounts. However, unless there is a factual finding that H held these companies via nominee arrangements, it remains that H is not privy to these documents.

25.  When legal ownership is vested in third party and W disputes his/her beneficial ownership, there is a clear obligation on W to apply to join the third party at an early stage and to seek to invoke the discipline in TL v ML. In those chancery proceedings,  discovery will automatically follow.

26.  While the court cannot compel H to disclose documents which he is not privy to, W asked for an order that H do use his best endeavors to make disclosure. Firstly, there is no legal basis to make such order when W has failed to establish possession, custody and control. Secondly, H has deposed that he has already disclosed to the best of his knowledge. 

27.  Therefore, I disallow both the Audited Financial Statements Request and the Lists of Assets Request.

Order

28.  The 2^nd Applicant’s Summons dated 24 September 2018 is dismissed.

29.  There be a cost order nisi that the 2^nd Applicant do pay the 1^stApplicant’s costs of this application in any event, with certificate for two counsel, to be taxed if not agreed.

30.  Unless there is an application within 14 days to vary, the nisi order shall become absolute.