CCL aka L, CC v. JRC aka C, JR
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FCMC No. 1548/2020
[2021] HKFC 54
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
MATRIMONIAL CAUSES
NUMBER 1548 OF 2020
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| BETWEEN | ||
| CCL aka L, CC | The Applicant | |
and | ||
| JRC aka C, JR | The Respondent | |
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| Coram: | His Honour Judge I Wong in Chambers (Not open to Public) |
| Date of Hearing: | 20 October 2020 |
| Date of Judgment: | 15 March 2021 |
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J U D G M E N T
( Injunction )
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The Application
1. This is the petitioner wife’s application for injunction to preserve the matrimonial pot pending ancillary relief.
2. The wife alleges that the husband has been guilty of extremely serious dissipations of his assets. He has, behind his wife’s back, dissipated about $2.3 billion worth of publicly listed shares to his relatives (mainly his younger brother) since their separation in September 2018. The wife therefore took out the present application on 20 May 2020 to prevent their further dissipation in respect of publicly listed shares within Hong Kong.
3. In this judgement, for the ease of reference, I shall refer to the petitioner as the wife and the respondent as the husband. I shall also adopt the same abbreviations and nomenclatures used in the MPS Judgment as referred to in the following paragraph.
4. At about the same time of this application, the wife applied for interim maintenance for herself and the 3 children of the family. The judgment for that application was handed down on 29 January 2021 (the “MPS Judgment”). I found this family is of great means. Its members enjoyed a very high standard of living during the subsistence of the marriage. The husband is ordered to pay an interim maintenance of $799,000 per month, plus the mortgage repayments of 2 properties, which are referred to as the AA Property and the BB Property in that judgment, at about $4.25 million monthly.
Background
5. In the MPS Judgment, I gave a brief summary of the background which, with some additions, might usefully be repeated as below.
6. The parties are from the Mainland. They met each other when they were attending university in Vancouver, Canada and married there in 2011. They have 3 young children. They are now 8 years old (gender), 6 years old (gender) and 3 years old (gender) respectively.
7. On 13 March 2020 the wife petitioned for divorce on the ground of the husband’s unreasonable behaviour.
8. At about the same time, the husband also filed his own petition for divorce. The parties subsequently agreed to have the divorce proceeded on the wife’s petition. Leave was granted on 19 May 2020 for the husband to withdrawn his petition.
9. So far, decree nisi on the basis of the wife’s petition has not been obtained yet. It appears that there would also be dispute over the children’s arrangement.
10. The wife, aged 33, currently resides with the children at the former matrimonial home, ie the AA Property. The wife is taking care of the children with the assistance of 3 domestic helpers, a nanny and 2 drivers. At all material times the wife - a homemaker - and the children have been living on the wealth of the husband and/or her parents-in-law (ie the husband’s parents).
11. The husband is 32 years old. He moved out of the former matrimonial home in September 2018. The husband described himself as “a merchant” in his affirmations. I must say little is known from this description as to what he has been doing for a living. In her affirmation, the wife described the husband as “a seasoned and serial investor in Hong Kong stock market and Shenzhen stock market”. The husband, being the eldest son of the family, works in his family business which is based in Shenzhen but also operates substantially in Hong Kong. She understands the husband also has substantial interests in many other private companies and investments worldwide.
12. What can be gathered from the evidence is that, broadly speaking, the husband has been running his business through a complex web of corporate entities in Hong Kong and in the Mainland whose names include the title “EG”. Together with his father and younger brother, the husband holds shareholdings and directorships in many companies. According to the wife, the husband is an active investor in private and publicly listed companies, making investments and buying and selling stocks. The husband used to be the shareholder of 54 companies. At the time of the hearing, the numbers have reduced to 26.
The MPS Judgment
13. The wife’s application for injunction was heard within a month after the MPS application. A number of grounds advanced by the parties, especially those by the husband who on both occasions were represented by Ms Yip SC, were repeated in the present application. That being the case, it would be useful to set out briefly those grounds, findings and conclusions reached by this court relevant to the present application. Unless otherwise stated, the references to paragraph numbers in [14] to [18] below are references to the paragraphs in the MPS Judgment.
The Husband’s Ground - Alleged Financial Difficulties
14. The husband said he has run into financial difficulties and is essentially insolvent. At all the material times, the husband has had a monthly receipt of $128,000 only, which comprised of $100,000 from sub-letting his apartment at the Repulse Bay and $28,000 from acting as the director for one of his companies. He advanced the following reasons: see [40] – [48].
(1) He has been dragged into 3 sets of proceedings as a defendant in Hong Kong. His father and his father’s company are co-defendants in one of these proceedings.
(2) He has provided personal guarantees on 16 occasions.
(3) The husband’s father was very disappointed at him when learning that he had acted as personal guarantors on so many occasions and had dragged himself into at least 3 sets of civil proceedings, together with the fact that the father was unhappy about his divorce. For these reasons, his parents decided they would no longer provide further financial assistance to him.
(4) Whilst he has assets of about $606.6 million, of which about $30 million are liquid assets, he owes various personal debts, in particular, he owes his father’s company “EGCL” $454.9 million and his liabilities arising from the 16 personal guarantees are totalling $2,659 million. His total liabilities are standing at $3,676.8 million; hence, he is in fact in the red in the region of ($3,070 million). Even where merely crystalized liabilities are taken into account, they are still at a staggering figure of about $659 million, hence the husband is still in the red up to about ($53 million): see [42], [44], [59] – [60].
(5) The husband disclosed in his Form E of 4 August 2020 that he has shareholdings or beneficial interest in 26 private companies (previously 54 companies within 36 months before the petition). Of these 26 companies, 21 of them are worthless and the value of the remaining 5 “to be confirmed”. He said he is “still retrieving the relevant records and particulars” see: [61]. This remained to be the situation as at the injunction hearing.
15. It is significant to note a recurring and intriguing feature running through all the husband’s companies is that notwithstanding his companies are “worthless”, multi-millions and even billions worth of shares in listed companies are being held by some of these companies. These include the multi-million dollars’ worth of listed shares that have already been disposed of and those subject to the present application.
The Court’s Conclusions
16. In respect of the personal guarantees, I agreed with Mr Chan, who appeared for the wife in the MPS application, that the personal guarantees must be business transactions and are quite simply not the husband’s debts as represented: see [56]. I concluded the husband’s assertion that his father was angry about his having entered into so many personal guarantees is unsupported by objective evidence and is a mere say-so on his part: see [57].
17. As for the remaining allegations of the husband, I said the following,
76. I am told the companies involved are inter-related in terms of shareholders, directors, loans and debts. This complex web of companies is a labyrinth for outsiders of whom the wife is one. I consider it is the duty of the husband, as part of the duty to give full and frank disclosure of his financial situation, to outline the labyrinth of his business in a comprehensible fashion. However, I was not taken to any part of the husband’s affirmations or Form E where he made any attempt at all to give an overall picture of:
1. The nature or type of his business or investments;
2. The overall structure of his business;
3. How the companies are related to one and other;
4. How the “worthless” companies have been able to hold assets worth billions of dollars; and
5. What went wrong, in other words, how the husband has fallen into financial difficulties?
77. I agree with Mr Chan that the husband’s disclosure remains deliberately confusing and incomplete. I am sure the husband was in a position to give a much clearer picture with just some paragraphs, tables and/or charts in his affirmations or Form E. This would have helped the wife and the court to navigate through the myriad of documents. It is not in anyone’s interest and certainly not in the husband’s interest if the wife does not see the wood for the trees. I believe if the husband had done so, it could have readily been seen whether the companies are “worthless” or not. This could have saved a lot of time (including court’s time) and costs. This is, in my view, the deplorable “catch me if you can” tactic and a “wait and see” approach with the hope that the wife may fail to ask the right question.
78. This reminds me of L v L [2006] 1 HKFLR 121 where Hon Lam J (as he then was) gave heavy criticism over the manner in which the wife in that case had disclosed her financial situation. At [197] and [198] he said,
197. I do not wish to rehash all the details set out in the chronology of non-disclosure prepared by the solicitor for the Husband. The manner in which the Wife chose to deal with request for information regarding KH in her answer of 11 May 2004 and then supplied bundles of documents in October 2004 for those advising the Husband to digest was singularly unhelpful. Given the level of professional advice the Wife could have obtained if she so wished, I find it hard to believe that she could not provide a more intelligible and meaningful answer in a timely and orderly manner. The party who gives disclosure also carries the obligation to present the information in a way that could be readily comprehensible to his opponent. Straightforward and direct answers could have been given by the Wife to questions like how much has been invested into a business and what were the sources of fund. A good litmus test for distinguishing a bona fide fulfillment of the duty to give disclosure from an attempt to obfuscate is to ask whether the answer or the material can on its own meaningfully assist in informing others as to the means of that party. I regret to say that having regard to the way in which the Wife had given disclosure of her means throughout the course of these proceedings, it is clear to me that she deliberately chosen not to give meaningful disclosure of her means.
198. It is high time that litigants in matrimonial proceedings and those advising them should appreciate that affirmation of means and answer to questionnaire are not a game of hide and seek. Too much legal costs and judicial time had been spent on such wasteful exercise. As stressed by Mr Mostyn, the onus falls squarely and fairly on a party to give full and frank disclosure of his or her own means. To adopt a wait and see approach with a hope that the opponent might fail to ask the right question is a tactic to be deplored. That by itself is a breach of the positive duty to give disclosure. As Coleridge J put it recently in J v V [2004] 1 FLR 1042, “all cards must be put on the table face up at the earliest stage if huge costs bills are to be avoided.” (emphasis added)
79. The husband was the director of 54 companies (now 23 companies). The husband said he earns $28,000 per month. This is the remuneration from being the director of one of his companies. It is significant to note that counting from the date of his Form E, this employment only started about ½ month ago.
80. When one looks at the crystalized liabilities of $659 million, the main item is $504.5 million that is claimed to be owed to EGCL of which his father is the majority shareholder (90%). There is no evidence of pending action by EGCL against him.
81 As for the litigation debts that the husband said he has been dragged into, it is true that there is currently a summary judgment against him for $45.7 million. Given the colossus of the husband’s business, this sum can be considered as ‘modest’. As for the remaining litigation cases, they are still pending in interlocutory matters. I agree with the wife that the husband has produced no documentary proof whatever in support of his claim that he is liable to pay in these remaining litigation proceedings. There is no way that the truth and accuracy of the husband’s assertions can be ascertained.
82. If the husband truly has had no income or if he is in as serious debt as he alleged, he could not possibly have met the repayments for the AA Property and the BB Property, nor could he have been able to afford the eminent legal team with senior counsel and multiple junior counsel.
83. Counsel agree that the BB Property has been mortgaged to its maximum capacity and the AA Property is in the name of the wife. Apparently, there is no other resources that the husband may tap into for cash. However, as I referred to in [29] above, the husband is prepared to continue to pay the mortgage payments in respect of the AA Property and the BB Property in the region of $4.25 million per month. I have some difficulty in reconciling this position with the husband’s allegation that he has been in financial difficulties. Where does the husband have the money to pay all these? The only logical answer is from the husband himself and/or his family. On the above analysis and having rejected the assertion about the father’s reaction to the personal guarantees the husband has entered, I have come to the view the claim that his parents have decided and made it clear that they would no longer provide further financial assistance to him is a mere ‘say-so’. The conclusion is that either the husband can pay from his own assets or borrowings, or he can request financial assistance from his father or family companies.
18. I found, among others, that the husband had failed to give a full and frank disclosure of his financial situation: see [122]. The mysterious question of how these worthless, non-profitable companies were / have been able to hold millions and even billions’ worth of assets is yet to be answered.
The Wife’s Summons
19. By her inter-parte summons the wife seeks to restrain the husband from disposing of or dealing with his existing shares in publicly listed companies in Hong Kong, whether held by himself or indirectly through private companies, including but not limited to the shareholding in 3 Hong Kong listed companies, namely, (1) “A Company”; (2) “B Company”; and (3) “C Company”.
20. A Company’s shares are held:
(1) directly by the husband;
(2) indirectly by EEHL of which the husband holds 50%; and
(3) indirectly by SWHL, of which the husband holds 100%.
21. B Company’s shares are held:
(1) directly by the husband; and
(2) indirectly by the said EEHL.
22. C Company’s shares are held:
(1) directly by the husband;
(2) indirectly through the said EEHL; and
(3) indirectly through a private company ESEL, which is a wholly owned subsidiary of another private company of which the husband holds 100%.
23. I shall collectively refer to these listed shareholdings as “the Assets”.
24. Interim orders have been granted on 25 May 2020 by this court to maintain the status quo pending the determination of the summons.
The Wife’s Case
25. The wife did not know much about the husband’s business. She only learned from the news in or around 2019 that the husband had begun transferring assets out of his name since September 2018. That was about the time when he moved out of the AA Property. Specifically, from what she unearthed from publicly available information, ie Hong Kong Stock Exchange (“HKSE”)’s announcements, the husband had made multiple wholesale transfers of shareholdings in various Hong Kong listed companies to his younger brother at negligible consideration, eg for USD1. These shareholdings were owned by the husband via some private companies (on some occasions, through layers of private companies); so on the surface there were no direct transfers of shareholdings in these listed companies. The modus operandi for these exercises was to transfer the shares or the ownership of these private companies to his brother. Since the husband was required by the HKSE to report to it whenever there were changes in the significant ownership of these listed companies (eg by way of an Individual Substantial Shareholder Notice), the transfers eventually came to light in the public domain. This was how the wife had come to the knowledge of the transfers. So far 4 transfers have been identified. For the sake of simplicity, I shall refer to these 4 listed companies as D, E, F and G:
(1) On 12 December 2018, the husband transferred his indirect interests in the shares of D Company worth about $85 million to his brother (“the 1st Transfer”);
(2) On 19 June 2019, there was the transfer of the husband’s entire interest in a private company UGL that held shares in E Company worth about $75 million to his brother at the consideration of USD1 (“the 2nd Transfer”);
(3) Again on 19 June 2019, there was the transfer of his indirect interest in F Company worth about $21 million held through a private company, which in turn is a wholly owned subsidiary of another company EIGL at a consideration of USD1 (“the 3rd Transfer”);
(4) On 18 September 2019, the husband transferred his entire ownership in a private company PTL that held shares of G Company worth about $992,117,076 to his brother at the consideration of USD1 (“the 4th Transfer”).
26. These transfers are collectively called “the 4 Transfers”.
27. Additionally, across the border:
(1) between 13 August 2019 and 18 March 2020, the husband disposed of 2.1% (11,747,156 shares) interest in a Shenzhen listed company (“theSZ Company”) worth about RMB 278 million (“the 1st SZ disposal”); and
(2) between 19 March 2020 and 23 March 2020 (right after the petition for divorce was issued), the husband transferred away 5.66% (31,713,100 shares) in the SZ Company worth about RMB 751 million (“the 2nd SZ disposal”).
28. I shall refer to these disposals as “the SZ Disposals”.
29. The wife says all the above dissipations totalling to the tune of over $2.3 billion were transferred away by the husband during the last 1 ½ years or so. The wife has no information as to whether the husband has transferred out of his name smaller shareholdings for which public disclosure was not required. She worries that the vast majority of the assets has long gone. Insofar as the wife is aware, the husband continues to retain only about $614 million worth of publicly listed shares directly or indirectly.
30. Mr Pilbrow SC submits that all of these transactions complained of are caught by the section 17 statutory presumption of 3-year pre-application.[1] Without an order stopping further dispositions of shares of Hong Kong publicly listed companies, she would be left without recourse in respect of her financial application and will suffer irreparable harm.
The Husband’s Case
31. The husband relies upon the following grounds.
32. First, he refers to his financial difficulties as outlined above: see: [14] above and also [44] and [59] of the MPS Judgment.
33. Secondly, the major pieces of family assets, viz, the AA Property, which is in the sole name of the wife, and the BB Property, which is in the name of the husband, should provide sufficient protection to the wife in her ancillary relief claim.
34. Thirdly, while the husband admits the 4 Transfers did happen, they were made in the course of his business and were arranged for the purposes of “family wealthy (sic) planning”.
35. Fourthly, as for the SZ Disposals, the husband also agrees these happened and gives his justification which I will come to in due course.
36. The husband refuses to give any undertaking not to further deal with or dispose of the Assets whether pending financial disclosure or determination of the ancillary relief claim.
Legal Principles
37. In the context of matrimonial proceedings, an application for injunction in the Family Court, being a division of the District Court, may be made by two routes, namely,
(1) under section 52B of the District Court Ordinance (Cap 336) and/or;
(2) under section 17 of the Matrimonial Proceedings and Property Ordinance (Cap 192) (“MPPO”).
38. The tests applicable to the two routes were discussed by Mostyn J in ND v KP (exp. Application)[2011] EWHC 457 (Fam); [2011] 2 F.L.R. 662; [2011] Fam. Law 677; (2011) 161 N.L.J. 702:
“4. I want to begin this judgment, which is being given ex tempore and which I hope will be comparatively short, with some statements of principle. In ancillary relief proceedings there are two routes available to obtain a freezing order. An application can either be made under section 37 of the Matrimonial Causes Act 1973 or it can be made under the inherent jurisdiction. It was submitted by Mr Turner QC in a case called Khreino v. Khreino [2000] FCR 80, CA that the effect of the decision of the House of Lords in Richards v. Richards [1984] AC 174, HL was that the only permissible route was the statutory one, but that submission was rejected.
5. That said, it would be a strange state of affairs if either the procedure or the test applicable under the statutory mechanism differed materially from that which applies under the inherent jurisdiction. Under the statutory test the court can restrain the transaction if it is satisfied that the other party to the proceedings is, with the intention of defeating the claim for financial relief, about to make any disposition, or to transfer out of the jurisdiction, or otherwise deal with, any property. So under the statutory test there has to be identified by evidence an impending transaction, or at least the risk of an impending transaction taking place.
6. It is really not very different from the test that applies under the inherent jurisdiction. I quote from Civil Procedure otherwise known as the White Book at paragraph 25.1.25.5 which states, citing a decision of Sir Peter Pain of O'Regan & Ors v Iambic Productions Ltd (1989) 139 NLJ 1378 , that the applicant should depose to objective facts from which it may be inferred that the respondent is likely to move assets or to dissipate them; unsupported statements or expressions of fear have little weight. The notes go on to say that great care should be taken in the presentation of evidence to the court so that the court can see not only whether the applicant has a good arguable case but also whether there is a real risk of dissipation of assets. A freezing order should not be granted unless the applicant has established an appropriately strong case showing, amongst other things, that the respondent owns the assets concerned or has some interest in them. It is for the applicant to make out his case, and orders should not be granted simply because the respondent cannot show an immediate and obvious prejudice. That formulation is really not very different from the formulation in section 37 which I have recited above.
7. Indeed, it is mirrored by the comments in more vivid language of Thorpe LJ in the case of Khreino where he says this:
“Family Division judges day in day out exercise the inherent jurisdiction to grant injunctions to ensure that one spouse does not selfishly or irresponsibly salt away, squirrel away or spirit away family assets which may be in his name but which must be carefully preserved pending the ultimate judicial determination as to what proportion of that asset must be either transferred to or made available for the benefit of the applicant spouse.”
8. So whilst the words used are different the language all points in the same direction, namely that there must be a good case put before the court, supported by objective facts, that there is a likelihood of the movement, or the dissipation, or the spiriting away, or the salting away, or the squirreling away, or the making of a disposition, or the transfer, of assets, with the intention of defeating a claim. It all comes to the same thing.
9. What is to be emphasised is that in this country, unlike some other countries on the continent, we do not have a system of general saisie conservatoire whereby assets are automatically frozen pending the determination of a divorce claim. Indeed, one must remind oneself that the basic rule in this country is of separate property, and that is bolstered by Article 1 of Protocol 1 of the European Convention on Human Rights which says that every natural person is entitled to the peaceful enjoyment of his possessions. So, in order to obtain a freezing order there must be before the court a demonstration of objective facts that evidence the likelihood of the movement or dissipation of assets with the intention of defeating the applicant's claim. That is the first principle. (emphasis added).
39. And at [32], the learned judge said the following regarding the applicant in that particular case,
“32. Those submissions, in my view, expose the real motive behind the wife's application which was to obtain a freeze over the husband's assets for no reason other than it would be desirable to keep them preserved until trial. But that, as I have explained, is not the law in this country…”
40. In brief, there are two basic points.
41. The first is that the procedure or the test applicable under the statutory mechanism (ie Section 17 of MPPO) does not differ from that under Section 52B of the District Court Ordinance, Cap 336. The same point was made by Mr Justice Mostyn in L v K (Freezing Orders: Principles and Safeguards) [2013] EWHC 1735 (Fam); [2014] Fam 35.
42. The second is that there must be evidence showing the likelihood of the movement or dissipation of assets with the intention of defeating the applicant's claim.
43. Subsequent to ND v KP (exp. Application) (supra), Mostyn J further elaborated his views and summarized the principles and safeguards of injunction in L v K (Freezing Orders: Principles and Safeguards) (supra), at [51]:
“(1) The court has a general power to preserve specific tangible assets in specie where they are the subject matter of the claim. Such an order does not necessarily require application of all the freezing order principles and safeguards, although it is open to the court to impose them.
(2) For a freezing order in a sum of money which is capable of embracing all of the respondent's assets up to the specified figure it is essential that all the principles and safeguards are scrupulously applied.
(3) Whether the application is made under the 1981 Act or the 1973 Act the applicant must show, by reference to clear evidence, an unjustified dealing with assets(which would include threats) by the respondent giving rise to the conclusion that there is a solid risk of dissipation of assets to the applicant's prejudice. Such an unjustified dealing will normally give rise to the inference that it is done with the intention to defeat the applicant's claim (and such an intention is presumed in the case of an application under the 1973 Act).
(4) The evidence in support of the application must depose to clear facts. The sources of information and belief must be clearly set out.
(5) ...
(6) ...
(7) ...”
44. There have been some debates over the nature of the wife’s claim.
45. Ms Yip submits that there is a sharp distinction between an injunction to preserve assets over which a proprietary claim is asserted and a Mareva injunction to inhibit dealings with general assets in order to keep them available for possible future execution of a monetary judgment: see K&L Gates v Navin Kumar Aggarwal, HCA No 1061/2011 (unreported, 18 August 2011) at [16]. She further refers to the Court of Final Appeal decision in WLK v TMC (2009) 12 HKCFAR 473, [2010] 1 HKLRD 495 where Ribeiro PJ said at [14] that the wife’s claim for ancillary relief is undoubtedly an unliquidated monetary claim that involves no assertion of any entitlement to a particular item of property or proprietary right. Thus, the wife in the present case has no entitlement or any proprietary right over the shareholdings now being sought to be restrained.
46. Whilst Mr Pilbrow accepts the sharp distinction mentioned above, he nevertheless argues that the wife’s claim is a proprietary claim.
47. In my view, Ribeiro PJ’s statement must be understood in the context of the proceedings before the Court of Final Appeal. It seems clear to me that His Lordship was discussing about the nature of an ancillary relief claim and was not referring to the particular property that is subject to an injunction.
48. I think the answer can be found in section 17 itself. It is pertinent to set out the provision in full,
17. Avoidance of transactions intended to defeat certain claims
(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 3 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.
(4) In this section—
disposition does not include any provision contained in a will or codicil but, with that exception, includes any conveyance, assurance or gift of property of any description, whether made by an instrument or otherwise;
the relevant provisions of this Ordinance means any of the provisions of sections 3, 4, 5, 6, 6A, 8, 11 (except subsection (6)) and 15; and any reference to defeating an applicant’s claim for financial provision is a reference to preventing financial provision from being granted to the applicant, or to the applicant for the benefit of a child of the family, or reducing the amount of any financial provision which might be so granted, or frustrating or impeding the enforcement of any order which might be or has been made at the instance of the applicant under the relevant provisions of this Ordinance.
(5) The provisions of this section shall not apply to a disposition made more than 3 years before the commencement of this Ordinance.
49. Section 17 is taken from section 37 of the Matrimonial Causes Act (“MCA”) 1973; the two provisions are essentially the same.
50. On the meaning of “property”, Rayden & Jackson on Relationship Breakdown, Finances and Children said,
[22.34] Property in the context of the MCA 1973, s 37 refers to property in which either or both of the parties has or had a beneficial interest, either in possession or reversion. It cannot mean property generally, whoever it may belong to, because the MCA 1973, s 37 is concerned to supplement primary provisions in the earlier sections of the Act.
51. In Hong Kong’s context, the earlier sections are sections 3, 4, 5, 6, 6A, 8, 11 (except subsection (6)) and 15 of the MPPO: see section 17(4). They are the financial provision orders that the court may grant in matrimonial proceedings. It should be noted that the same word “property” is used in section 6 (Orders for transfer and settlement of property and for variation of settlement in cases of divorce, etc) and 6A (Orders for sale of property).
52. As pointed out in Annotated Ordinances of Hong Kong (Matrimonial Proceedings and Property Ordinance, Cap 192) at [17.03], the purpose of section 17 is,
“to give power to the Court to prevent a party acting so as to diminish the assets of the family which would otherwise be available for consideration by the Court when making orders for ancillary relief; it is to protect the family assets and not to protect the interest, if any, enjoyed by the applicant party in any of those assets: Kemmis v Kemmis (Welland intervening) [1988] 1 WLR 1307, [1988] 2 FLR 223 (CA, Eng).”
53. In the context of matrimonial proceedings, it is rather common for an applicant (usually the wife) to seek an injunction against her husband restraining him from say disposing of the former matrimonial home that was purchased in his sole name. An injunction under section 17 would no doubt include not only the former matrimonial home but other family assets too be they real or specified property and is not restricted to property within the jurisdiction but include real and personal property situated abroad such as the shares in the present case: see Hamlin v Hamlin [1985] 3 WLR 629; [1986] Fam 11. Mostyn J described them as “specific tangible assets in specie where they are the subject matter of the claim” in ND v KP (exp. Application) (supra) at [51] and set out in [43] above.
54. I therefore conclude that the Assets could be the “property” subject to an injunction under section 17.
55. Counsel also have arguments over where the burden of proof lies.
56. It is Mr Pilbrow’s submission that the present application can be premised upon section 17(1)(a) of MPPO and/or on the more general Mareva basis. As opined by Mostyn J in ND v KP (exp. Application) (supra), the “tests” are essentially similar and that all conditions have been met. In the instance case, since all the transactions complained of by the wife are caught by the section 17 statutory presumption of 3 years’ pre-petition, the burden is on the husband to show he did not and does not have the intention to defeat the wife’s claim.
57. In response, whilst Ms Yip accepts that the tests applicable to section 17 and Mareva injunction are very similar, she submits that in order to invoke section 17(1)(a), there has to be “identified by evidence an impending transaction, or at least the risk of an impending transaction taking place”: (ND v KP (exp Application) (supra) at [5]) and the burden is on the wife to do so. It is her submission that the wife has failed to so.
58. Further, whilst it is correct for Mr Pilbrow to have pointed out that the dispositions (ie the 4 Transfers and the SZ Disposals) took place within 3 years prior to the wife’s petition for divorce, there is no application to have them set aside under section 17(1)(b) so the rebuttable presumption does not apply.
59. Ms Yip argues where section 17(1)(a) cannot be invoked, the court would have to refer to the legal principles applicable to Mareva injunction. She draws the attention of the court to a recent decision by Coleman J in Universal Entertainment Corporation & Anor v Kazuo Okada[2020] HKCFI 1406 where the learned judge summarized the relevant principles at [35], [37] and [72]. Specifically, Ms Yip stresses that the burden is on the wife to show there is a real risk of dissipation of assets, and that for Mareva injunction, the interference should only be to a minimum, so it is an essential requirement to have a ceiling figure and the wife should show a good arguable case for damages to a certain or approximate sum. The wife however failed in all these respects.
60. Ms Yip is certainly correct to have pointed out that there is no application to have the dispositions set aside under section 17(1)(b). As I see it, the crux of the matter is whether the husband is about to make the dispositions complained of. If the answer is in the positive, then the next question is whether the impending disposition, if carried out, would have the consequence of defeating the wife’s claim. The burden is on the wife to satisfy the court that this is the case.
61. Once the court is satisfied that the husband is about to make the dispositions and the dispositions would have the consequences of defeating the wife’s claim for financial provision, it shall be presumed, unless the contrary is shown, that the husband is about to make the dispositions with the intention to defeat the wife’s claim. In other words, the burden would then fall upon the husband to show he does not have that intention. If the husband fails to do so, the court may make such order as it thinks fit for restraining the husband from so doing or otherwise for protecting the claim.
62. Before I end this part, I quote what Mostyn J said at [19] of L v K (Freezing Orders: Principles and Safeguards), (supra), about the “difference” between the two routes.
19. In my judgment it is therefore a fallacy to suggest that under section 37 of the Matrimonial Causes Act 1973 proof of intention is required whereas under section 37 of the Senior Courts Act 1981 it is not. Under both procedures an unjustified dealing with assets will likely supply prima facie proof of an intention to dissipate. And, of course, under section 37(5)(b) of the 1973 Act[2] the intention to defeat the applicant's claim is presumed in the case of an immediately prospectant transaction. This would suggest that, if anything, it is in fact easier to obtain the injunction under section 37 of the 1973 Act than under the 1981 counterpart because under the former all the applicant has to show is that a transaction is about to happen which would have the effect, if not restrained, of defeating her claim, while under the latter there has to be shown by her some unjustified dealing by the respondent with assets giving rise to a risk of dissipation. But I repeat that I do not believe that there is in fact any real difference between the two tests.
Is the Husband about to make the dispositions complained of by the Wife?
The 4 Transfers
63. As referred to above, the husband admits the transfers did take place; they were made in the course of his business and arranged for the purposes of family wealth planning.
The SZ Disposals
64. The husband has given his explanation on the SZ Disposals in his Form E and in his affirmation of 11 August 2020. In brief, in order to acquire the SZ Company shares, the husband entered into 2 financial arrangements as a result of which a total of RMB 1.2 billion were raised:
(1) In order to borrow RMB 600 million, the husband transferred his right to receive dividend and/or income from his shares in the SZ Company in favour of a financier for a term of 36 months with a right to buy back; and
(2) As for the remaining RMB 600 million, the husband made a similar arrangement by transferring his right to receive dividend and/or income from his shares in “NC” (“the NC Shares”), another listed company in Shenzhen, in favour of another financier for a term up to February 2020 with right to buy back.
65. However, when the 2 financial arrangements came to maturity, the husband had to count on his father’s company EGCL to discharge his indebtedness by making repayment of RMB 1,344,998,839.02 on his behalf. In order to repay EGCL, the husband had to sell the SZ Company shares to EGCL and to third parties in two batches for a total sum of RMB 988,946,470. As of 24 March 2020, he still owed EGCL a total of RMB 454,921,912.
66. The husband claims the wife was fully aware of these financial arrangements for the reason that she, as his spouse, had signed the necessary letters of consent.
Discussion
67. As regards the 4 Transfers, instead of recapitulating his explanation, it is useful to set out what he said in its entirety in his affirmation dated 11 August 2020,
27. These transfers were made in the course of my business. It has nothing to do with diminishing the family assets and defeating (the wife)’s ancillary relief claim.
28. The transfers were arranged for the purposes of family wealthy (sic) planning. With a view to further growing the family wealth and managing (the brother)’s and my investments more efficiently, (the brother) and I decided to streamline our investments portfolio and transfer some of the investments held by me and corporations jointly held by us to (the brother).
68. The husband then said in §29 that, “a team of accountants is currently conducting an auditing exercise over my finances and companies. They are still in the process of locating therelevantdocuments in order to explain the said transfers…”.
69. The husband claimed in his affirmation that at the time of the transfers these private companies holding the investment portfolios were worthless or running at a loss, so each of their value is $0. Probably this is to explain why the consideration for the 2nd, 3rd and 4th Transfers was for a nominal USD1 each. However, in respect of the 1st Transfer, the consideration stated on the Bought and Sold Note was $574,395. There appears to have no explanation whatsoever in the husband’s affirmation as to why that was the case.
70. It is evidently clear that the husband’s explanation is extremely terse and devoid of substance. It is not the duty of the court to guess what the husband meant by “family wealth planning” and how the transfers of some worthless companies to his brother could have achieved “further growing the family wealth”. There was simply no attempt whatsoever on his part to elaborate on how the transfers of worthless companies could have achieved the asserted ends.
71. More importantly, it is significant to note that the husband never says the “family wealth planning” has been completed and that no more transfers of this nature needed to be done. The husband certainly does not say he has no intention or plan of disposing of these assets. Quite to the contrary, he criticises that the injunction, if granted, is extremely wide and will cover his assets up to the value of at least $581,867,000 – the value stated by the wife - and that in view of his current financial condition, this is unjustified.
72. This conveniently brings us to the husband’s assertion that he has been in financial difficulty which was his main ground of contention in resisting the wife’s application for MPS. When the husband said the injunction is unjustified in view of his current financial condition, he must be referring to his alleged dire financial situation. It is abundantly clear that his alleged insolvency and the “family wealth planning” for “further growing the family wealth” were things happening contemporaneously. The obvious and logical question one would have is whether the two have any relationship or correlation. The objective fact is there were transfers of companies which held substantial assets and which were seemingly part of the matrimonial pot. The husband certainly has not gone so far as to say that by accepting the transfers his brother was kind enough to take up his liabilities.
73. The husband is adamant that the companies, being the subject matter of the 4 Transfers, were worthless but it is rather perplexing to note that Ms Yip, on behalf of the husband, concedes that proper valuation should be conducted to assess their fair market values as at the date of transfers. This proposal even includes the 1st Transfer which was made, as referred to above, for the consideration of $574,395. I acknowledge Ms Yip has her own reasons for so suggesting but with this proposal, the clear implication is that the 4 Transfers were likely to be undervalued. Did the husband and his brother obtain any advice from their professional accountants as regards the values when the “the family wealth planning” was carried out?
74. In response to the husband’s claim that the wife was fully aware of the SZ Disposals, the wife recalled in her affirmation that throughout the marriage she had signed documents which might be company documents or bank facility documents at the request of the husband and/or his staff. She did not keep copies of these documents, nor did she know or understand the same. But she was made aware that this was for the husband and his business interest.
75. Be that as it may, it would appear Mr Pilbrow does not seriously challenge the husband’s version regarding the RMB 1.2 billion financial arrangements. It is quite clear that at the end of the exercise, the husband has regained the NC Shares which apparently are of great value. At the hearing it was unclear as to the number and the value of the shares that the husband is still holding; specifically, whether the husband has already disposed of some of the NC Shares or there was a split of the shares. Nevertheless, I do not think this dispute is material for the purpose of my deliberation.
76. Subject to what I am going to say regarding the husband’s relationship with his father and brother below, the SZ Disposals were apparently for some business reasons. However, this cannot be so said in respect of the 4 Transfers.
77. Although it is axiomatic that the facts of every case are different, it has to be recognised that the Assets that the wife seeks to restrain are publicly listed shares held by layers of private companies of which the husband is the ultimate beneficial owner. This is quite unlike the usual scenario in the context of matrimonial proceedings where a wife seeks to restrain her husband from selling the matrimonial home or some landed properties or draining funds from bank accounts in which cases the wife could normally be able to uncover her husband’s surreptitious move by making inquiry with estate agents in the neighbourhood or by conducting some due diligence.
78. As for the present case, I cannot fathom out any investigation or inquiries the wife might have carried out in order to uncover any impending transactions. What happened in the past was it was only after the transfers had taken place that the wife came to know of them in the public domain. As a matter of fact, during the proceedings, it transpired that the husband had at some point already disposed of the SWHL that held some of A Company’s shares referred to in the summons: see [20] above. The history of the matter is the best guidepost of what would happen for this particular case. I have no doubt that the wife (and the court as well) is entitled to look at the manner in which the husband dealt with his assets of the same nature, ie publicly listed shares indirectly held by him. I have no hesitation in coming to the conclusion there have been unjustified dealing with his assets.
79. On the above analysis, looking at the history of the matter and considering that the husband has declined to give any undertaking in relation to the Assets, I am convinced that there is sufficient evidence upon which inference can be drawn to conclude that the husband is about to make the dispositions complained of by the wife. In coming to this conclusion, I have given due consideration regarding the husband’s version about the SZ Disposals.
Whether the dispositions which are about to take place would have the consequences of defeating the wife’s claim for financial provision?
80. Section 17(4) describes defeating the wife’s claim for financial provision as referring to:
(i) Preventing financial provision from being granted to the wife or to the children of the family;
(ii) Reducing the quantum of any financial provision which might be granted; or
(iii) Frustrating or impeding the enforcement of any order which might be or has been made in the wife’s favour.
81. The wife claims the 4 Transfers and the SZ Disposals were worth as much as $2.3 billion. It is pointed out by Mr Pilbrow that the Assets now subject to the application are only about a quarter of the value of the dispositions. That is disputed by the husband and I acknowledge that the value may not be as large as alleged, but on any view they were worth enormously.
82. The husband is opaque in his approach to financial disclosure. I have already set out my criticism on the manner in which the husband made his financial disclosure. I concluded that the husband had failed to give a full and frank disclosure of his financial situation.
83. It is true there are two landed properties – the AA Property and the BB Property but it should not be forgotten that both properties are heavily mortgaged for the benefit of the husband or his business. The wife, so highlighted by Mr Pilbrow, is still very young, so are the 3 children of the family. The wife would likely be able to obtain a considerable sum even on Duxbury calculation.
84. As the matter now stands, the size of the matrimonial pot has not been ascertained. Given the enormous value involved in the 4 Transfers and the SZ Disposals, I am satisfied that, on balance, any disposition of the Assets or part of them would have the consequence of preventing financial provision from being granted to the wife or to the children of the family and/or reducing the quantum of any financial provision which might be granted.
Whether the husband has the intention to defeat the wife’s claim?
85. With the conclusion that I have come to, the husband has the burden to prove that he does not have the intention to defeat the wife’s claim.
86. Mr Pilbrow has adroitly taken me to the accounts of the private companies involved in the 4 Transfers. It seems clear there is a striking common feature explaining why on the surface these companies were worthless: notwithstanding that these companies held substantial financial assets, at the same time they owed enormously to “related companies” and “shareholders” who, according to Mr Pilbrow, must be the husband, his brother or his father and/or their companies.
87. When her back was against the wall, Ms Yip said in reply that loans are loans and there is no evidence that any of these loans are bogus. The loans are on the books and have to be repaid. There was no waiver on the part of the creditors. The husband is entitled to say these companies were worthless.
88. Ms Yip further referred to the definition of “related parties” in the Accounting Standards which was drawn to my attention during the hearing. The gist of her argument is that according to this public document the definition of “related parties” do not necessarily mean the father and/or the brother or their companies and is much wider in ambit. I do not know the extent of applicability of these standards. There is no evidence in this regard before me. What I do know is the husband knew who these “related parties” are. When the court raised this observation Ms Yip conceded that the husband is obliged to make the disclosure but added that the husband is not saying that he is not going to supply. Even if these loans are within the family, they are genuine. What the wife should have done was to seek disclosure from the husband before taking out the application for injunction. Ms Yip further submitted that the parties are still at the nascent stage of the proceedings and the husband is going to answer the wife’s Questionnaire. The wife was premature in taking out the application.
89. I must say I am not persuaded by these arguments. With very simple and uninformative management accounts, the wife has little clarity with regards to the husband’s finances. My attention is particularly drawn to EEHL, which is now holding some of the listed shares subject to the present application and, which the husband asserts is valueless and in which the husband and his brother each owns 50% of the shareholdings. The company’s 31 March 2019 audited statements clearly show the husband and his brother’s companies are “related companies”.
90. The court must look at the reality of the situation and have regard to matters of substance and not just form. The identity of “the related parties” is of course a relevant issue. The bigger issue is how in light of the husband’s assertion that he was / has been in financial difficulty, the transfers of these worthless companies could have achieved what the husband claimed.
The 16 Personal Guarantees
91. Apart from the 2 personal guarantees given by the husband alone in respect of the mortgage of the AA Property, all the other 14 personal guarantees are given by the husband and his father and/or brother. To be more specific, 3 are given by the husband and the brother, another 4 by the husband and the father and the remaining 7 by all three of them.
92. Mr Pilbrow has taken me to the particulars of these 16 personal guarantees, I do think it is necessary to deal with each and every one of them here. Suffice to say is that all these personal guarantees are featured by two common phenomena:
(1) all these companies are valueless and the brothers and the father have given personal guarantees for multi-millions dollars; and
(2) there appears to have no direct relationship between being a guarantor and being a shareholder or having an interest in the companies.
93. The following are some examples.
(1) UGL is in relation to the 2nd Transfer. There is a personal guarantee dated 5 November 2018 given by the husband, the father and the brother for $149 million and it was renewed on 4 July 2019. The husband used to hold 100% of this company but shortly before the renewal of the personal guarantee he disposed of them entirely on 19 June 2019. It is significant to note that the husband has continued to be the co-guarantor upon renewal notwithstanding that he ceased to have any interest in the company.
(2) PTL is in relation to the 4th Transfer and there are two personal guarantees.
(i) The husband, the father and the brother provided a personal guarantee on 21 December 2017 for $249.87 million. It was renewed on 1 February 2018 and 6 August 2019 respectively, with a maturity date on 6 August 2020.
(ii) The other personal guarantee is one dated 21 June 2018 given by the husband and his brother and was renewed on 31 January 2019 for $373.7 million.
The husband used to own 100% of this company but disposed of them entirely on 18 September 2019. Notwithstanding the disposal, the husband has continued to be the co-guarantor of these personal guarantees.
(3) There is a Deed of Guarantee dated 20 November 2017 between AW Limited as borrower and HR Limited as lender for $29 million. The maturity date is said to be 21 November 2019. The husband disclosed that he used to hold 100% shares in AW Limited. His shareholding was reduced to 20% on 2 November 2017. So it was within a month of his disposal that the husband entered into this Deed of Guarantee and he continues to be so.
(4) Another example is the guarantee that he and his father have given for $390 million in respect of KDHL on 18 May 2018. The guarantee was renewed on 23 May 2019, with a maturity date on 23 May 2020. The husband disclosed that he used to hold 50% of the shareholding but disposed of them on 7 August 2019. Notwithstanding the disposal the husband continues to be the co-guarantor.
(5) GHIL is owned by the brother solely. There is a personal guarantee dated 21 November 2019 given by the husband, the father and his brother for $418.66 million. Notwithstanding that the husband (and for that matter the father too) has no interest in this company, all three of them are co-guarantors. It is remarkable to note that the BB Property has also been pledged for the financial needs of this company.
94. I agree with Mr Pilbrow that it simply does not make any sense for the husband to have presented the picture that all these banks and financiers have been lending millions and millions of dollars against assets of nil value. Common-sense is that there must have been security to back them.
95. As pointed out in [68] of the MPS judgment, the BB Property was bought in May 2017 free of mortgage. The husband claimed in view of his financial difficulties, in about January 2020, he created 2 mortgages over the property. However, the borrower in the first mortgage is a company of which his brother is the sole director and with which he appears to have no relationship whatsoever. Mr Pilbrow rightly points out that right now the husband is repaying over $3 million for his brother.
96. Considering that the litigation in which the husband and the father and their companies are co-defendants, that they, together with the husband’s brother, are co-guarantors of all these loans, that the 4 Transfers are said to be for family wealth planning and most importantly, in the absence of any full and frank disclosure from the husband, the only logical conclusion is that the father and the two sons’ businesses are intermingled and it is actually one big bundle.
97. Mr Pilbrow refers to the repeated assurances given by the husband in his affirmation and counsel on his behalf that a team of accountants has been instructed to conduct an auditing exercise over his finances and companies. It is submitted by Mr Pilbrow that this is a remarkable case where, despite having spent many months alleged sorting out his financial disclosure, the husband on his own case and evidence has still not provided full and frank financial disclosure.
98. It is quite clear that despite the assurance from the husband, there has not been much progress in his disclosure. I agree that months down the road since the wife’s petition up to the hearing, she (and for that matter, the court as well) was still in the dark about the husband’s financial situation.
99. The husband’s personal bank accounts show enormous sums of money going in and out. Take the husband’s current account with the Bank of East Asia as an example, from December 2018 to March 2020 there were withdrawals totalling about $24.345 million and in respect of the saving account with the same bank, from January 2019 to April 2020, there were withdrawals of about $2.3 million and deposits of about $31.961 million. And in one of his regular account with another bank, from January 2019 to March 2020, the deposits and withdrawals were about $50.499 million and $53.762 million respectively.
100. It is to be recalled that the husband claims he has been in financial difficulty. Yet the statement of his American Express Centurion Card shows on a single day, ie 10 January 2020, he spent $564,800 in the purchase of some luxurious items.
101. Further, this application has to be seen in light of the husband’s own disclosure in his Form E of 4 August 2020 that in the past 36 months he disposed of his interest / shares in at least 24 companies, including the SWHL, being one of the companies specifically named on the summons: see [78] above. The husband has not provided the relevant information and the identity of the transferee is still unknown.
102. For the above reasons, I thus conclude that the husband has failed to show he does not have the intention to defeat the wife’s claim. Indeed, I take the view that there are sufficient materials before me to conclude there is a real risk of dissipation of family assets.
Should the Injunction be continued?
103. Ms Yip submits that the burden is on the wife to justify the need and the scope of the injunction, which is extremely wide. She argues that the extent of protection that the wife seeks under the application is far more than necessary and would far exceed what she could realistically obtain in the end. Her argument runs as follows:
104. The husband disclosed in his Form E that the total value of the Hong Kong listed shares held by him was $8,011,693 and according to the wife, the shareholdings now the wife seeks to restrain are worth $581,867,079. Adding these two sums and together with the value of the BB Property which is about $575,640,718 would give a total of over $1 billion ($8,011,693 + $581,867,079 + $575,640,718 = $1,165,519,490).
105. It is emphasized by Ms Yip that it is not the purpose of a freezing order to provide security for the claim. The purpose is to avoid “the effect of making the defendant judgment-proof”. Further, the court’s interference “with a person’s ability to deal with his own assets as he sees fit” should only be “to the minimum appropriate amount”. The burden is on the wife “to show a good arguable case for damages to a certain or approximate sum”: see Universal Entertainment Corporation & Anor v Kazuo Okada (supra), at [37(3)], [35] & [72].
106. It is Ms Yip’s submission that since the wife has already registered her Form A at the Land Registry against the BB Property, the actual restraint of the sale of the property is sufficient to prevent the husband from making himself judgment-proof.
107. Mr Pilbrow draws my attention to the fact that subsequent to the Form A, there has since a Deed of Transfer of Mortgage registered against the BB Property in April 2020. He submits that the Form A is just a notice; it does not give the wife the priority nor does it pre-empt other creditors to obtain a charging order and have the property sold. Otherwise there would not have been a new financier willing to lend by way of the Deed of Transfer of Mortgage.
108. I agree that even if the wife’s Form A has been registered at the Land Registry, it does not prevent the husband’s creditors from applying for and obtaining a charging order and have the property sold. If one needs an example, it can be found in SJH v CYHC, FCMC 4264/2012 (unreported, 26 May 2012) where Judge Bruno Chan drew guidance from Harman v Glencross [1986] 1 All ER 545, [1986] Fam 81 and Kremen v Agrest [2013] EWCA Civ 41. In essence, the court would have to strike a balance between the wife’s interest, specifically the financial needs of the wife and the children, and those of the husband’s judgment creditors.
109. Ms Yip repeats her argument advanced in the MPS application that the parties’ marriage is only 7 years old and should be regarded as a short one. As such, it is likely that the wife’s ancillary relief claim is a ‘needs’ case. In any event, the short duration of the marriage is a well-recognised departing factor. Even if the present case is a ‘sharing’ case, fairness may dictate that the wife should exit the relationship with less than one half of the total assets.
110. Further, there is clear evidence that the wife has had the financial assistance from her parents-in-law, so this is a reverse KEWS case: see KEWS v NCHC [2013] 2 HKLRD 314; (2013) 16 HKCFAR 1.
111. It is therefore Ms Yip’s submission that given the husband’s financial position and the duration of the marriage, the final lump sum that the wife is going to get at the conclusion of the final ancillary relief hearing is likely to be limited.
112. I have already rejected the “short” marriage and the “sharing” arguments in the MPS Judgment. I do not propose to repeat the same here; reference can be made to [162] to [165] of the MPS Judgment.
113. As for the reverse KEWS case, I considered that this issue should be reserved for trial: see [120] of the MPS Judgment. As such, I do not think this is relevant.
114. Ms Yip also argues that he wife has ignored the need to make good her case on the approximate sum and offends the fundamental principle of restraining only to the minimum appropriate amount, so it is essential to have a ceiling figure. The wife failed to articulate this figure. Ms Yip also reassures that the husband is going to give his answers to the wife’s Questionnaire, emphasizing that the proceedings are still at the nascent stage.
115. I am not persuaded by the specious argument. I have already found the husband failed to give a full and frank disclosure and it was because of the husband’s failure that one does not have the faintest idea as to the identities of the matrimonial assets and their overall size months after the commencing of the proceedings. One has to bear in mind that at the same time there were dispositions on a very grand scale and according to my finding there are impending dispositions too. I do not think the husband is entitled to ride on his own failure for mounting this challenge. It is fearful that the situation might be irreparable by the time when disclosure is completed, if that happens.
116. It is apt to be reminded of what Thorpe LJ said in Khreino v Kheino (No 2) (court’s power to grant injunctions) [2000] 1 FCR 80 and quoted by Mostyn J in ND v KP (exp. Application) (supra) at [7],
“Family Division judges day in day out exercise the inherent jurisdiction to grant injunctions to ensure that one spouse does not selfishly or irresponsibly salt away, squirrel away or spirit away family assets which may be in his name but which must be carefully preserved pending the ultimate judicial determination as to what proportion of that asset must be either transferred to or made available for the benefit of the applicant spouse.”
117. The EEHL in which the husband has 50% of the shareholding (the other 50% is being held by his brother) is holding some of the 3 publicly listed companies referred to in the summons. Ms Yip reminds the court that according to EEHL’s audited financial statements for the year ended 31 March 2019, the company has already pledged these shares for loans against which the husband has given his personal guarantees up to $572 million. As of 31 March 2021, EEHL’s bank borrowing was almost $2.8 million. Ms Yip cautions that once there is an injunction, there is a real likelihood that it will trigger the banks to recall the loans and/or a fire-sale of the shares. This is highly detrimental and may indeed collapse the husband’s economy, while the wife benefits nothing but only suffers financially.
118. In response, Mr Pilbrow points out that there has been an interim injunction since May 2020 and there has not been any problem.
119. I agree.
120. Mr Pilbrow accepts that an injunction should not be made freezing all the assets of the husband. Jackson’s Matrimonial Finance (9th Ed) stated at [16.36] that:
“In matrimonial proceedings, an injunction should not be made freezing all the assets of the other party. The purpose of a freezing injunction is to safeguard the applicant from being unable to enforce a judgment because the opposite party has disposed of assets. In matrimonial proceedings, a party is unlikely to be awarded the whole of the available assets and consequently it would be wrong for there to be an injunction covering the entirety of the assets.”
121. The wife’s current application is rather limited; it is on the shareholdings in publicly listed shares in Hong Kong only and the husband may apply to court for leave where the situation warrants.
122. The wife’s application is made in light of the husband’s substantial disposition of assets detailed above. I sympathize with the wife’s concerns that probably there remains very little worth of publicly listed shares directly or indirectly still with the husband; the vast majority is already gone.
123. The injunction being sought by the wife covers assets that are highly liquid and easily dissipated. I am told the husband also has indirect interests in some publicly listed shares in Shenzhen that are worth about $32 million; these are not subject to the present application. Further, if the husband would like to engage in any transactions in respect of these publicly listed shares, he can seek the wife’s consent, and if that is not forthcoming he can apply to the court for an ad hoc leave. The husband’s other assets such as his bank accounts and his listed shares in Shenzhen are not covered. Seen in this light, I do not consider the scope of the restraint is over-inclusive.
124. I recognise that (as is always the case where no stone is left unturned by the parties’ legal representatives) there is some dispute over the value of the Assets. This is understandable given the fluctuation of the stock market.
125. I also give weight to the fact that the husband is currently out of the jurisdiction of Hong Kong.
126. In the absence of any undertaking from the husband – not even an undertaking to inform the wife before the disposal, I consider that the balance is clearly in favour of the wife. I accept that an injunction prayed for by the wife ought to be made in order that the ancillary relief claim may be properly dealt with.
Undertaking as to Damages
127. Mr Pilbrow argues that there is no reason why the husband would suffer damages; he can always ask the wife for consent or come back to court for leave, on urgent basis, if necessary.
128. On the issue of undertaking as to damages, Mr Pilbrow refers me to an earlier edition of Rayden & Jackson on Divorce & Family Matters (18th Edition), where it states at [27.7] that,
“Generally it will be inappropriate to exact an undertaking as to damages when an interlocutory injunction is made in ancillary relief proceedings where the person injuncted is the other spouse. This is because an undertaking is unnecessary as the court will ultimately be able to redress any injustice to the injuncted spouse by the exercise of its statuary powers under Matrimonial Causes Act 1973, s 25.”
129. I understand the source of authority for this statement is from Munby J’s judgment in W v H (Family Division: without notice orders) [2001] 1 All ER 300, sub nom W v H (ex parte injunctions) [2000] 3 FCR 481, [2000] 2 FLR 927.
130. Mr Pilbrow also relies upon Hong Kong Civil Procedure (2021) which states that, “An undertaking will not normally be required in family cases”, citing Will (Mary Regina) v Will (Edward William Rudolf Helmuth) [1993] 2 HKLR 398: see §29/1/20.
131. On that basis, he submits that undertaking as to damages is not required to be given by the wife.
132. I have not been able to find a similar statement or reference in the latest edition of Rayden and Jackson on Relationship Breakdown, Finances and Children. I am aware that the practice in England and Wales has changed to come in line with other Divisions of the High Court – it is that unless the court orders otherwise, any order for an injunction must contain “an undertaking by the applicant to the court to pay any damages which the respondent sustains which the court considers the applicant should pay”: see Family Procedure Rules (2010), Practice Direction 20A – Interim Remedies, at §5.1(a) and see also L v K (Freezing Orders: Principles and Safeguards) (supra), at [45].
133. It is not Ms Yip’s submission that the wife is required to provide an undertaking to pay damages. I do not know what caused the change in the English practice but what I do know is, ultimately it is a matter of discretion to be exercised by the court. I agree with Mr Pilbrow that the husband can always ask the wife for consent or come back to court for leave. Considering the circumstances of this case as a whole, including the fact that the bulk of the family assets are with the husband, and that the husband could have easily given an undertaking such as an undertaking to inform the wife if he intends to dispose of any of the Assets, I do not think this is an appropriate case where the wife should be required to give an undertaking as to damages to the husband.
Order
134. For the reasons aforesaid, I grant an injunction in terms of paragraph 1 of the Summons.
Costs
135. As I find in favour of the wife, I see no reason why the husband should not bear the costs of the application, including all costs reserved and with certificate of two counsel, and I so order.
136. Penal notice be endorsed. Personal service of the order on the respondent be dispensed with.
| (I. Wong) | |
| District Judge |
Mr David Pilbrow SC and Mr Jeremy SK Chan, instructed by Howse Williams, appeared for the Petitioner
Ms Anita Yip SC, Mr Eugene Yim and Ms Alison Choy, instructed by Tung, Ng, Tse & Lam, appeared for the Respondent