F v. F

FCMC 11295/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 11295 0F 2001

________________

_________________

Reasons for Ruling

1.  This is an application of the petitioner wife against the respondent husband for the discovery of information and documents in respect of 2 trusts in which the respondent husband is one of the discretionary beneficiaries.

2.  For convenience, I shall call the petitioner the wife and the respondent the husband herein below.

Background

3.  The parties married in Hong Kong on 18.5.2000. The wife gave birth to a girl on 21.2.2001. She moved out of the matrimonial home on 28.10.2001 and petitioned for divorce on 2.11.2001 on the ground of unreasonable behaviour.

4.  As far as the child is concerned, before the petition for divorce was issued, there had been a wardship proceeding in the High Court whereby the custody of the child was granted to the wife. Leave was also granted to the wife to remove the child to live in Portugal. The husband is now paying voluntary interim maintenance to the wife and the child at the rate of Euros 3,000 per month.

5.  Decree Nisi was granted on 15.3.2002 and the question of ancillary relief was adjourned for the parties to file and serve their respective affidavits of means. The trial of the ancillary relief application has now been fixed to be heard on 1.3.2005 with 7 days reserved.

6.  I think there is no dispute that the husband comes from a very wealthy family which controls a public company. The consolidated annual accounts of the company for the year ended 31.12.2000 shows that the turnover of the company amounted to HK$ 922,877,282 with a profit after tax of HK$ 106,599,467. Dividends declared for that year amounted to HK$ 94,794,995 and the net assets of the company valued at HK$ 450,094,986.

Application for discovery

7.  During the discovery process, it has come to the wife’s attention that the husband is a beneficiary under 2 discretionary trusts. This information can be seen from the financial statements of the public company. Under the item of Directors’ Interests, the accounts disclosed that 342,575,601 shares in the company were held by 2 discretionary trusts, the beneficiaries of which included the husband, his brother and the other family members.

8.  Under the item of Related Party Transactions, the accounts also disclosed that the company has paid rental to a related company (later known as SLCL) amounting to HK$ 3,931,960 in which again the husband and his brother had beneficial interests. As later explained by the husband, this SLCL is also part of the 2 discretionary trusts which he believed to be set up by his parents for him and the other family members.

9.  Upon such discovery, the wife’s solicitors have since 9.4.2002 requested the husband to produce documents and information concerning the trusts. For present purposes, it suffices just to start with the wife’s solicitors’ letter dated 3.2.2004 which has set out the information and documents requested by the wife concerning the 2 discretionary trusts. They include:

(i)	All details of Discretionary Trust(s);
(ii)	Copies of the Discretionary Trust(s) Deeds;
(iii)	Names of the Trustees;
(iv)	Classes and names of all the beneficiaries;
(v)	Dividend and income derived by the Respondent out of such Discretionary Trust(s); and
(vi)	Copies of the annual accounts/financial statements of the Trust(s) for the last three years.

10.  The first response from the husband’s solicitors on this issue was not received until 3 months later. On 12.5.2004, the solicitors for the husband replied and said that the husband only had limited rights in terms of the information he could secure from the trusts and he would make appropriate enquiries and to incorporate as much information as he could get into the 4th affirmation that he planned to file, which was supposed to be not later than 3.7.2004. That deadline was passed without the filing of the necessary affirmation as promised by the husband.

11.  Being not satisfied with the husband’s delay, the wife took out a summons on 3.12.2004 seeking the production of the information as itemised in paragraph 9 above.

12.  Subsequently, a consent summons was entered into between the parties on 10.12.2004 and on the issue of discovery, they have agreed on the following term:

“

2.

the Respondent is to include in the said Affirmation such information as he can provide regarding the discretionary Trust(s) in which the Respondent and his brother are discretionary beneficiaries, as first requested in the letter from Messr Stevenson Wong & Co dated the 3rd February 2004, a copy of which is attached herewith;”

13.  In other words, the husband has agreed to provide such information as he could in respect of the 6 items as requested by the wife.

14.  On 6.1.2005, the husband finally filed his 4^th affirmation. Concerning the enquiries on the discretionary trusts, he had this to say in paragraph 17 of the affirmation (p.2781 of the Pleadings Bundle):

“

17.

The Petitioner has enquired as to any interest that I might have in any Discretionary Trust. I have no details of any Trust information save and except as has been disclosed in the annual report of the public company. I am aware that there is a Discretionary Trust, and I can also confirm I have received no payments out or benefits of which I am aware from the Trust and I have not settled any money into the Trust. Any Trust that might have been established would have been done so by one or other of my parents for the benefit of the family, but I have no knowledge or expectations in connection with the same. I am unable to give details concerning the Trustees, or any other of the information sought by the Petitioner, as I have no knowledge of the same.”

15.  So what the husband was saying was that, after over 7 months’ inquiries, he had no information on the trusts except:

(1)	There are 2 discretionary trusts in which he is one of the beneficiaries;
(2)	The trusts might have been set up by one or other of his parents;
(3)	He has not settled any money into these trusts;
(4)	He has received no payments or benefits from the trusts

16.  Not being satisfied with the husband’s answers, the wife’s solicitors took out the present summons asking for an order for discovery from this court. In the summons, the wife prayed for an order for the husband to provide the 6 items of information on the 2 discretionary trusts as listed out in paragraph 9 above. They are exactly the same items that they have asked for in the earlier summons. 

17.  There have been 2 developments since the filing of the summons. The first one being that the solicitors for the husband had written to his father on 25.1.2005 to enquire about the information on the trusts. The father, through his solicitors, wrote back to say that he did create 2 family trusts and he had never provided with details on those trusts including copies of the trust deeds to the husband. He further said as a settlor of the trusts, he had parted with the properties to the trustees and he had no further legal interests in the trust properties and he had no right to information from the trustees. The names of the trustees were provided with their respective addresses in Jersey and Guernsey, Channel Islands. The solicitors for the father went on to pass some comments on the duties of trustees to provide information on the trusts to discretionary beneficiaries which they said would very much depend on the law of the relevant jurisdictions and the terms of the trust deeds. They further said should proceedings be commenced against the trustees or the settlors, they would probably intervene in the proceedings.

18.  The second development was that the solicitors for the husband then wrote to the trustees for the information. One of the trustees, CTL, replied on 1.2.2005 saying that the beneficiary himself should make the request instead of through his solicitors.

19.  There is no reply yet received from the other trustee up to the date of the hearing of this summons.

The wife’s arguments

20.  The 1^st argument put forward by the wife was that she was entitled to investigate into the husband’s entitlement or potential entitlement under the 2 discretionary trusts. Her counsel, Mr. Pilbrow relies on Rule 77(4) of the Matrimonial Causes Rules, which read as follows:

“

(4)

Any party to an application for ancillary relief may by letter require any other party to give further information concerning any matter contained in any affidavit filed by or on behalf of that other party or any other relevant matter, or to furnish a list of relevant documents or to allow inspection of any such document, and may, in default of compliance by such other party, apply to the court for directions.”

21.  Mr. Pilbrow further submitted that the information they now require from the husband are all within his power to get. If those information or documents are within his power to obtain from the trustees, then the husband has a duty to disclose them: O.24 r.2 (1), R.H.C.

22.  It is further argued on behalf of the wife that the potential value of these 2 discretionary trusts amounts to HK$ 2.3 billion. Despite the fact that the husband may only be a discretionary beneficiary, his potential entitlement under the trusts will have an impact on her, as well as the child’s entitlements in the ancillary relief proceedings from the husband. Therefore, the terms of the trusts, in particular, the number and identities of the discretionary beneficiaries are directly relevant to the ancillary proceedings.

23.  At the hearing, Mr. Pilbrow informed me that out of the 6 items of information as originally requested, he now only requires 3 of them, namely:

(ii)	Copies of Discretionary Trust(s) Deeds;
(iv)	Classes and names of all the beneficiaries;
(vi)	Copies of the annual accounts/financial statements of the Trust(s) for the last three years.

He accepts that the other 3 items are either too wide in scope or that they have already been answered.

The husband’s arguments

24.  The husband was represented by Ms. Jacqueline Leong, S.C. whom I think has raised 3 points of argument in resisting this application.

25.  Ms. Leong argued that the present application is an abuse of process and should therefore be dismissed. She said the wife’s solicitors have already issued a first summons asking for the disclosure of identical items on 3.12.2004. That summons was dealt with by way of consent which resulted in the order dated 13.12.2004. The court has, in pursuance of the consent, ordered that the husband has to include in his affirmation:

“… such information as he can provide regarding the discretionary trusts …” (para. 2 of the order)

26.  If the court is going to allow the present application to proceed, it would amount to a re-litigation of the same subject matter. This is against the rule of res judicata and the application should be halted. If the wife is of the view that the husband has not complied with the consent order dated 13.12.2004, the wife can always apply for leave to have the husband committed for contempt; or alternatively, invite the court to draw an adverse inference against the husband at the trial.

27.  The 2^nd argument put forward by Ms. Leong was that the husband has already done his best endeavours and it was unreasonable for the wife to ask for further information of which the husband was not in a position to supply. The husband only knew that his parents might have established a trust for the family members including himself. This proves to be right in view of the father’s reply through his solicitors on 1.2.2005. He has also affirmed that he is not in possession of any trust deeds or other information as requested by the wife. This also proves to be the case by the father’s letter. He is only a discretionary beneficiary and so he only has limited rights under the trusts. What else can one expect the husband to do under those circumstances?

28.  Moreover, the trusts are situated in Jersey and Guernsey and so they are not governed by Hong Kong law. So if the wife is seeking an order to bind the trustees, the proper venue for such inquiry should therefore be the courts in Jersey and Guernsey in determining the issue. Therefore, the present application against the husband is totally misconceived.

29.  The 3^rd argument put forward by the husband was that there is no dispute that he is a person of substantial means. The marriage only lasted for about 20 months. He has sufficient means to meet any order that is likely to be granted against him in the ancillary relief proceeding. There is no need to resort to or investigate into the 2 discretionary trusts.

30.  I will now deal with the husband’s arguments.

Abuse of Process

31.  I think there is no dispute between the parties on the general principle that it may be an abuse of process to litigate matters which have, or could have been decided in earlier proceedings. But this is not an absolute rule. It is recognized that the rule on res judicata may not be applicable to interlocutory proceedings (O.18/19/11 Hong Kong Civil Procedure 2004).

32.  In the case of Chu Hung Ching v. Chan Kam Ming, Chu Oi Ling and Wong Chi Wai (t/a Ming Lee (Internationnal ) Trading Co.), [2001] H.K.C. 396, at 400-1, the Court of Appeal approved the decision of the Alberta Court of Appeal in Pocklington Foods Inc. v. Alberta Provincial Treasurer (1995) 123 D.L.R. (4^th) 141, where at 144-145 the following guidelines were put forward:

“	McDonald J relied on the decision of this court in Talbot v. Pan Ocean Oil Corp. (1977) 4 CPC 107, 3 Alta LR (2d) 354, 5 AR 361 (SCAD), in concluding that the principles of res judicata and issue estoppel do not apply to procedural interlocutory motions… While in the judgment of Clement JA in Talbot, there is considerable discussion of the position where a decision is made on the adequacy of the material rather than on the merits of the application, when read as a whole the decision support the position taken by McDonald J in this case.
	However, the court is not powerless to deal with attempts to re-litigate issues already decided by it.  In Talbot, after refusing to apply res judicata to an interlocutory procedural application, Clement JA stated at 112:
	‘		I am of the opinion that the principle does not apply to an interlocutory application of the nature now before us; rather, the second application is subject to control by the exercise of judicial discretion in determining whether it is frivolous or vexatious in all the circumstances then appearing.’
	McDonald J went on to consider the reasoning which should apply in controlling abuse of process.  He cited from the decision of Lord Maugham LC in New Brunswick Ry. Co. v. British & French Trust Corp. Ltd. [1939] AC 1 (HL) at 20 (cited with approval in Talbot) as follows [at 282]:
	‘		If an issue has been distinctly raised and decided in an action, in which both parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them.’
	He continued:
	‘		Thus the raison d’etre of the principle of res judicata or issue estoppel lies in what is just and reasonable.  Applying that notion to an assertion that a ruling on an interlocutory application is res judicata when the same issue is raised in a subsequent interlocutory application in the same action, it will not be unjust or unreasonable to allow the second application to be heard, for what is involved is not re-litigation of an identical issue of law or fact:
		(a)	if the ruling on the first application was not based on the merits of the issue but on a technical objection…
		(b)	if upon the first application the applicant had failed to prove essential facts from mistake or inadvertence…
		(c)	if there is new evidence that seriously justifies reconsideration of the issue...
		(d)	if there is a material change of circumstances of a non-evidentiary nature.’”

33.  No doubt the wife has already taken out the first summons on 3.12.2004 which resulted in the consent order dated 13.12.2004 with the husband being ordered to provide “…such information as he can provide regarding the discretionary trust(s)…” The fact remains that there has never been any adjudication on the merits of the summons by the court.

34.  More importantly, it has always been the position of the husband that he knew almost nothing about the trusts. He said he suspected his parents might have created the trusts for him and the other family members but no details (presumably including the names of the trustees) had ever been given to him by his parents. Of course, the husband could then argue that without knowing the names of the trustees, how could he obtain the necessary information even if he may have the relevant rights for information against the trustees.  However, that is no longer the case now. The names of the trustees are now known. I think there is a material change of circumstances which makes it just and reasonable for the court to reconsider the wife’s application for discovery on the trusts. I therefore do not find this application an abuse of process.

Best Endeavours of the Husband

35.  The law on discovery is governed by O. 24, Rules of High Court.  Under O.24 r.2, a party is required to disclose all documents which are or have been in his possession, custody or power relating to any matter in question between the parties.

36.  The husband claims that the documents sought by the wife are not and have not been in his possession or custody.  The wife has no grounds to challenge this, but asserts that the documents sought are within the husband's  ‘power’.  So, the question here is whether the documents sought are within the husband's power to obtain from the trustees or other sources.

37.  In answering this question, one has to look at the nature of the documents sought.  At the hearing, I was informed by Mr. Pilbrow that the fundamental documents that they request are the trust deeds.  If they can get hold of the trustee deeds, not only the terms of the trusts will be apparent, presumably, the names of all the beneficiaries will also be known.  As to the accounts, even if they are not forthcoming, there would be no difficulty for the court to infer that the value of the trusts is very substantial.

38.  It is the wife’s case that it is within the husband’ power to obtain at least the trust deeds from the trustees but he has failed to do so. I have no difficulty in accepting this proposition. It is a fundamental principle of trust law that the trustees are always under a duty to give information to the beneficiaries.  Support can be found in Halsbury’s Laws of England (4^th Ed. para.838):

“

838.

Duty to give information to beneficiary.  A trustee must furnish to a beneficiary, or to a person authorised by him, on demand, information or the means of obtaining information as to the mode in which the trust property or his share in it has been invested or otherwise dealt with, and as to where it is and full accounts respecting it, whether the beneficiary has a present interest in the trust property or only a contingent interest in remainder, or is only an object of a discretionary trust...”

39.  At the hearing, counsels from both sides have cited various authorities on the topic, in particular, the case of In the Matter of Rabaiotti 1989 Settlement (Royal Courts of Jersey 30^th May 2001). It can be said that there are many similarities between the case of Rabaiotti and our present case. In Rabaiotti, there were divorce proceedings in England and the husband was ordered by the High Court of England to disclose certain documents in relation to the trusts in which he is a beneficiary. The documents sought included, inter alia, the trust deeds, accounting documents and a letter of wishes of the trusts. The trustees then sought the Jersey Court’s directions under art.47 of the Trusts (Jersey) Law 1984 on whether the documents should be disclosed and whether the trustees should intervene in the divorce proceedings. The court had the following to say (at p.183 The Jersey Law Reports 2000):

“	In our judgment, the court does have a discretion to refuse to order disclosure of trust documents that a beneficiary is normally entitled to see.  Clearly, the general principle is that a beneficiary is entitled to see trust documents which show the financial position of the trust, what assets are in the trust, how the trustee has dealt with those assets, etc.  That is an essential part of the mechanism whereby the trustee can be held accountable for his trusteeship to a beneficiary.
	……
	The court does not wish to encourage trustees to refuse disclosure on weak grounds.  One starts with a strong presumption that the beneficiary is entitled to see trust documents of the nature described.  There would have to be good reason to refuse disclosure of such documents.  But the court is satisfied that, as a matter of general equitable principle, the court has an overriding discretion to withhold documents where it is satisfied that it is in the best interests of the beneficiaries as a whole.” (my underlining)

40.  In that particular case, the court held that there were no good reasons for preventing disclosure of the trust deeds and other accounting documents. As to the letter of wishes, the Jersey court also ruled that it should be disclosed or otherwise the English court might proceed on an erroneous basis, having regard to information essentially different from that contained in the letter of wishes, and this was clearly not in the best interests of the beneficiaries.

41.  Coming back to our present case, I am of the view that if the husband has made his request to the trustees for the trust deeds and accounting documents, I just do not see they have any valid grounds to refuse the same unless they were told by someone to be uncooperative.

42.  One further feature I want to mention in this application is the rather reluctant attitude to give information and documents on the trusts by the husband and his parents. The first formal request for documents from the wife came in the questionnaire on 9.4.2002. Over a period of almost 3 years, not much information on the trusts was given. There is no evidence that the husband has done anything seriously about the matter although he was aware that he was one of the discretionary beneficiaries under 2 family trusts created by his parents. I do not think he has used his best endeavours to get the information. It was only after the filing of the present summons that the solicitors for the husband started to write to the father on 25.1.2005 asking for the information. The reply of the parents was quite astonishing in that they confirmed that they had given no information to the husband but there was no mentioning of the reasons for not doing so. There is no evidence to suggest that the husband and his parents are not on good terms. In the earlier wardship proceeding, when he was asked if he could be regarded as the heir apparent to his father, there was not any strong objection from the husband except by saying that he could still be fired at the end of the day. From the Annual Return of SLCL, both the husband and his father reported to reside at the same address. The husband is also a director of a great number of family controlled companies. I just find it hard to believe that the father of the husband would withhold those information of the family trusts from the husband, bearing in mind that it was him who named the husband as one of the discretionary beneficiaries in the first place.

43.  Now with the names of the trustees clearly known to the husband, I think there is no more hurdle in getting the necessary information even though the attitude of the parents might not be that helpful.

The relevance of the trusts

44.  In the husband’s 4^th Affirmation of Means dated 6.1.05, he stated that he holds 1,986,000 shares in the public company with a value of about HK$ 13,802,700. That constitutes his major asset. He went on to say he has an outstanding loan from the Standard Chartered Bank in the sum of HK$ 7,717,857.22. In other words, the net assets he has at the moment is about HK$ 6 million.

45.  As to the value of the 2 family trusts, I think it is rather difficult to know without the accounts as sought by the wife. But I would think that the value would be anything but very substantial. Mr. Pilbrow suggested that they have a potential value of up to HK$ 2.3 billion. Whether that is true is uncertain and that is exactly why the accounts of the trusts are so relevant to these proceedings.

Orders

46.  Based on the above reasons, I do not find any of the arguments of the husband can stand. I rule that the three items of documents as sought by the wife are all relevant to these proceedings and the husband has a duty to produce them. The wife asked for the production to be made within 7 days. However, I note that there would be intervening holidays during the Lunar New Year and it would not be unreasonable to give the husband a little bit more time to comply with the orders. I am minded to give the husband 14 days instead.

47.  Therefore, I grant an order in term of paragraph 1 of the summons but with the following modifications:

(1)	in respect of the 2 family trusts, the documents that the husband has to disclose are only restricted to:
	(a)	the Trusts Deeds;
	(b)	the classes and names of all the beneficiaries;
	(c)	the accounts/financial statements of the trusts for the last 3 years;
(2)	the time allowed to comply with the order be 14 days from the date of this order.

48.  I note from paragraphs 2 and 3 of the present summons that the wife is also asking for the disclosure of the credit card and securities account statements and also the tax returns of the husband. However, there was not a single word mentioned on these 2 items by either counsel at the hearing. I can only presume that the parties must have reached some form of agreement on these items and so an order from the court is no longer required. If I should be wrong in this regard, a new summons can always be issued requesting the court to make a determination on the issue. Of course, there would be an implication on costs if a new hearing be necessary. Under these circumstances, paragraphs 2 and 3 of the summons are dismissed.

Costs

49.  I will also grant an order nisi that the husband shall bear the costs of this application with certificate for counsel, such costs to be taxed if not agreed. The wife’s own costs to be taxed in accordance with Legal Aid Regulations. The order nisi be made absolute within 14 days.