WONG KA SEK and WONG KA LAM KING, The Joint and Several Trustees of the property of LEUNG SIU WAI, a bankrupt v. KWOK SIN MAN KAT

HCB 1440/2014

[2020] HKCFI 1502

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1440 OF 2014

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DECISION AND DECISION ON COSTS

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INTRODUCTION

1.  There is before me an application by the joint and several trustees of the property of Mr Leung Siu Wai (“the Bankrupt”) by their summons issued on the 6^th of December 2019 (“the Summons”).

2.  The summons seeks as follows:

(1) a declaration be made that :

(i) the transaction was entered into for undervalue pursuant to section 49 of the Bankruptcy Ordinance (“the Ordinance”); (“the Transaction at an Undervalue Limb”)

(ii) further or alternatively, the transaction was entered into with unfair preference given to the Respondent pursuant to section 50 of the Ordinance; (“the Unfair Preference Limb”)

(iii) further or alternatively, the transaction is void for being entered into with intent to defraud creditors pursuant to section 60 of the Conveyancing and Property Ordinance (“the CPO”); (the “S.60 Limb”)

(2) the transaction be set aside:

(i) and the position reverted to what it would have been had the Bankrupt and the Respondent not entered into the transaction at undervalue pursuant to section 49 (2) of the Ordinance;

(ii) further or alternatively, the Bankrupt not given the Respondent that unfair preference pursuant to section 50 (2) of the Ordinance;

(iii) further or alternatively, the Bankrupt and the Respondent not entered into transaction with intent to defraud creditors pursuant to section 60 of the CPO be restored;

(3) the Bankrupt’s interest in and of the property that was transferred to the Respondent be vested in the Applicant as part of the estate of the Bankrupt pursuant to section 51A (1) of the Ordinance;

(4) the Respondent to pay the Applicant half the benefits received by her in connection with/ or incidental to the transaction or such sums as this Honourable Court may direct.

3.  They also seek other ancillary directions which I do not need to set out in full here.  While “the transaction” is not defined in the Summons, in the affirmation in support of the Summons it is defined as the “Consent Summons with the Respondent in his [sic] divorce proceedings by which [the Bankrupt] agreed to transfer all his interest of and in the Property to the Respondent at Nil consideration” (“the Transaction”).

4.  The application is supported by an affirmation of Mr Wong who is one of the Trustees.

5.  The matter was first before the Court on the 10^th of March this year, whereby by consent, it was agreed that the Respondent be given leave to file evidence and the Trustees be given leave to file evidence in reply 28 days thereafter^[1].

6.  The other matter of note is that it was agreed between the parties that the Summons would be adjourned for substantive argument to a date to be fixed before a Judge with three hours reserved.

7.  No cross-examination of the deponents on affidavits was sought and therefore none was ordered.  This is something of significance to which I will come back to later.

THE TRUSTEES’ CASE AND EVIDENCE FILED IN SUPPORT

8.  The affirmation filed on behalf of the Trustees is only in substance six pages long.  Most of this knowledge save one or two matters are hearsay and are of no direct relevance to the present application.  The evidence relied upon is therefore largely hearsay and circumstantial.  There is no evidence from the Bankrupt himself which is not uncommon in these type of cases, and no evidence as to what his explanation was for entering into the Transaction sought to be impugned.

9.  It is common ground that the Respondent had married the Bankrupt on 30^th of January 1994.  On the 26^th of July 2001, the Bankrupt and the Respondent then purchased a property (“the Property”) under the Home Ownership Scheme as joint tenants for the sum of HK$1.168 million which was financed by a mortgage loan drawn from HSBC.

10.  The Trustees point to the fact it would appear that at least for a period of time both the Bankrupt and the Respondent made contributions into an HSBC joint account from which the HSBC loan was repaid out.  As of May 2014 it would appear that the outstanding mortgage was in excess of HK$548,000.  The Trustees note that on the 31^st of May 2013 the joint ownership of the Property was severed by the Bankrupt into tenants in common in equal shares by a Notice of Severance which was later registered in the Land Registry.

11.  The Trustees also point to a loan agreement (“Well Gain Loan”) which was entered into by the Bankrupt on 31^st of May 2013, in the sum of HK$200,000 in favour of one Well Gain (Asia) Finance Company Ltd (“Well Gain”) and it appears that the Bankrupt had charged his share in the Property as security for the loan.  The Well Gain Loan appears to have been registered with the Land Registry.

12.  The matter which gives rise to a contention and indeed is the fons et origo of the present proceedings is the divorce proceedings (“Divorce Proceedings”) which were initiated by the Respondent in 2013 and which led to, on the 31^st of October 2013 the Bankrupt entering into a consent summons with the Respondent (“Consent Summons”), by which he agreed to inter alia transfer his interest of and in the Property to the Respondent at nil consideration.

13.  By an Order dated 30^th of January 2014 (“the Consent Order”) made by Deputy District Court Judge KK Pang (as His Honour then was) it was ordered that the Bankrupt do transfer all his interest of and in the Property to the Respondent within six months after the Decree Absolute has been granted.

14.  There is one further matter which is relied upon by the Trustees which is this.  According to paragraph A of the Consent Order, it would appear that the Respondent had made certain advances or loans to the Bankrupt which in their total sum amounted to some HK$300,000 and therefore it is suggested that the Respondent was a creditor at the relevant time.  This is a matter which the Trustees need to establish in order to mount one of their claims in the present proceedings in so far as they rely on there being an “unfair preference”.

15.  On the 27^th of February 2014, in other words less than one month after the Consent Order, the Bankrupt had petitioned for his own bankruptcy.  On the 15^th of April 2014 a Bankruptcy Order was thus made against him and was discharged from bankruptcy four years later on the 15^th of April 2018.

16.  It is also being said that Well Gain had filed a proof of debt in the present bankruptcy proceedings in a sum exceeding HK$200,000.

17.  The factual basis relied upon the Trustees for suggesting that there was either a transaction at an undervalue, a transaction with intent to defraud creditors or otherwise an unfair preference all rely at their core similar factual matters.  By reference to some publicly available documents, the Trustees say that at the material times, ie around the time of the transfer of the Property, the Property was worth in the region of HK$3 million^[2].

18.  Although in the evidence it is not stated in stark terms, the Trustees seem to have some doubts about the bona fides of the settlement of the Divorce Proceedings by the Consent Order which led to the Transaction being impugned.

19.  They further pointed to the fact that although the divorce petition (“the Petition”) refer to unreasonable behaviour on the part of the Bankrupt he nevertheless apparently continued to live in the Property for at least a period of time afterwards since it was said by him during an interview with the Trustees on the 4^th of March 2015 that he had not moved out of the Property.  The Trustees also say that during the period of his bankruptcy, the Bankrupt did not say to them that he was no longer residing in the Property and during that period the Bankrupt did not report any rental expenses.  To the Trustees’ mind, the inference is therefore that he must have resided at the Property.

20.  The Trustees further point to the fact that prior to becoming bankrupt, the Bankrupt worked as a driver with a monthly income of close to HK$15,000 and yet in the Consent Order he agreed to a monthly maintenance in the sum of HK$5,000 for the benefit of their son and HK$3,000 for the Respondent.  They therefore say that this is far beyond the means which the Bankrupt could afford, bearing in mind he would also need to incur some expenses for himself.

21.  This is in essence the sum total of the evidence relied upon by the Trustees.

22.  I will now deal with the evidence filed by the Respondent.

RESPONDENT’S EVIDENCE AND THE LACK OF EVIDENCE CONTRADICTING HER MAIN CLAIMS

23.  The Respondent filed a short 7-page affirmation.

24.  She explains that even after the Property had been acquired (with a 5% down payment) the Bankrupt continued being a spendthrift.  She affirms that “He did not change his extravagant lifestyle even after we purchased the Property.  Since about 2002, he had been heavily indebted for his overdue credit card payments.  Between 2002 and 2006, I had helped him to pay off his debts in a total of more than HK$300,000… I was very frugal to save up for the family and my son but it ended up using most of my own savings to pay of the Bankrupt’s debts.  In 2006 I wanted a divorce... but my parents disapproved and my son was still very young so I abandoned the idea of a divorce.  I told the Bankrupt I was unable to help him to pay off his debts anymore.  He told me that he would sort it out on his own.  Since then, he had not told me about his financial condition”.

25.  She further affirms that since October 2006 up until the Petition the Bankrupt did not pay household expenses/outgoings (save a few thousand dollars from time to time) nor money into their joint account for the purpose of mortgage repayments save for two instalments in October and November 2012 respectively.

26.  As a result of their son falling seriously ill in 2008 and requiring multiple operations, the Respondent had to cease working for 5 months but even then the Bankrupt did not assist financially.

27.  The decision to end the marriage was due to “a total lack of financial, physical and emotional support from the Bankrupt”.  She explains that the straw which broke the proverbial camel’s back was his failure to attend the Respondent’s mother’s birthday under a false pretext.  A week later she thus filed her Petition.

28.  While she had filed her Petition while acting in person, she instructed lawyers shortly afterwards and this is how she says she found out about the Well Gain Loan.

29.  She filed her application for ancillary relief on 23 October 2013 and was advised by her solicitors that the Bankrupt did not oppose the Petition and an agreement by consent was thus reached with the Bankrupt.  The Respondent was granted custody of their son who was then a minor.  In any event, she explained that prior to the Petition was filed she had reached an agreement on the terms she had proposed to settle with the Bankrupt.

30.  The Property she estimated was worth around HK$2.5 million with a mortgage exceeding HK$577,000.  The Bankrupt had agreed to pay in addition maintenance of HK$8,000 for both her and their son (such sum to continue to be paid until the son reached 18 or after completing full time education whichever is later) which she believed the Bankrupt could afford if he lived a frugal life and worked hard.  Incidentally in the Bankrupt’s own statement of affairs which he swore in February 2014 under the “statement of means” section he had estimated his monthly spending to be approximately HK$18,600 inclusive of the maintenance of HK$8,000 whereas he had stated his income in the last year be around HK$200,000.  I note that in his interview with the Trustees the Bankrupt had indicated that he was a “casual worker” for 2-3 years prior to the Bankruptcy Order.

31.  Unsurprisingly given the previous history, she also suspected that the Bankrupt might not keep his promise to pay the monthly maintenance.  The Respondent confirmed on oath she was unware of the Bankrupt’s insolvency nor of his intention to file a petition for bankruptcy.  As matters transpired the Bankrupt only paid intermittently the maintenance payments, not in full and often late.

32.  After the Consent Order was made she affirms that she had asked the Bankrupt to move out but he had refused to as he claimed he had not been able to find an affordable place to move out.  She recollects that the Bankrupt had moved out in or around October 2014.  To her knowledge the Bankrupt’s last address was at a Housing Estate in Tuen Mun.  This is the address at which a letter was sent by her solicitors to the Bankrupt in September 2017 on matters which concern the Divorce Proceedings.

APPLICABLE LEGAL PRINCIPLES

33.  I will deal with the applicable legal principles which relate to the Transaction at an Undervalue Limb, the Unfair Preference Limb, the S.60 Limb as well as those authorities which deal with the interaction between family law and insolvency law.  Save as to one area, the applicable legal principles are well settled.

S.49 of the Ordinance

34.  The relevant statutory framework, in particular those concerning sections of the BO have been considered by G Lam J in Re Cheung Siu Kin [2015] 5 HKLRD 923:

“22. S.49 of the Ordinance governs transactions at undervalue. It provides:

‘(1) Subject to this section and sections 51 and 51A, where a debtor is adjudged bankrupt and he has at a relevant time (defined in section 51) entered into a transaction with any person at an undervalue, the trustee may apply to the court for an order under this section.

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that debtor had not entered into that transaction.

(3) For the purposes of this section and sections 51 and 51A, a debtor enters into a transaction with a person at an undervalue if-

(a) he makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide for him to receive no consideration;

(b) he enters into a transaction with that person in consideration of marriage; or

(c) he enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the debtor.’

23. S.50 of the Ordinance governs unfair preference and provides:

‘(1) Subject to this section and sections 51 and 51A, where a debtor is adjudged bankrupt and he has at a relevant time (defined in section 51) given an unfair preference to any person, the trustee may apply to the court for an order under this section.

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that debtor had not given that unfair preference.

(3) For the purposes of this section and sections 51 and 51A, a debtor gives an unfair preference to a person if-

(a) that person is one of the debtor’s creditors or a surety or guarantor for any of his debts or other liabilities; and

(b) the debtor does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the debtor’s bankruptcy, will be better than the position he would have been in if that thing had not been done.

(4) The court shall not make an order under this section in respect of an unfair preference given to any person unless the debtor who gave the unfair preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in subsection (3)(b).

(5) A debtor who has given an unfair preference to a person who, at the time the unfair preference was given, was an associate of his (otherwise than by reason only of being his employee) is presumed, unless the contrary is shown, to have been influenced in deciding to give it by such a desire as is mentioned in subsection (4).

…’

24. S.51 of the Ordinance contains provisions on the relevant periods of time during which transactions may be impugned as transactions at undervalue and unfair preferences:

‘(1) Subject to subsections (2) and (3), the time at which a debtor enters into a transaction at an undervalue or gives an unfair preference is a relevant time if the transaction is entered into or the unfair preference given-

(a) in the case of a transaction at an undervalue, at a time in the period of 5 years ending with the day of the presentation of the bankruptcy petition on which the debtor is adjudged bankrupt;

(b) in the case of an unfair preference which is not a transaction at an undervalue and is given to a person who is an associate of the debtor (otherwise than by reason only of being his employee), at a time in the period of 2 years ending with that day; and

(c) in any other case of an unfair preference which is not a transaction at an undervalue, at a time in the period of 6 months ending with that day.

(2) Where a debtor enters into a transaction at an undervalue or gives an unfair preference at a time mentioned in subsection (1)(a), (b) or (c) (not being, in the case of a transaction at an undervalue, a time less than 2 years before the end of the period mentioned in subsection (1)(a)), that time is not a relevant time for the purposes of sections 49 and 50 unless the debtor-

(a) is insolvent at that time; or

(b) becomes insolvent in consequence of the transaction or preference,

but the requirements of this subsection are presumed to be satisfied, unless the contrary is shown, in relation to any transaction at an undervalue which is entered into by a debtor with a person who is an associate of his (otherwise than by reason only of being his employee).

(3) For the purposes of subsection (2), a debtor is insolvent if-

(a) he is unable to pay his debts as they fall due; or

(b) the value of his assets is less than the amount of his liabilities, taking into account his contingent and prospective liabilities.’

25. In the case of transaction at an undervalue, s.51(1)(a) of the Ordinance provides that, subject to s.51(2) and (3), ‘relevant time’ means a time within ‘the period of 5 years ending with the day of the presentation of the bankruptcy petition on which the debtor is adjudged bankrupt’.

26. The effect of s.51(2) is that, in the case of a transaction at an undervalue, the 5-year period is sub-divided into two periods:

(1) Any time during the period which is less than 2 years before the end of the period mentioned in s.51(1)(a) (i.e. the period ending with the day of the presentation of the bankruptcy petition) (i.e. the period between 26 August 2006 and 25 August 2008) will be a ‘relevant time’.

(2) Any time during the rest of that 5-year period (i.e. the period between 26 August 2003 and 25 August 2006) is not a relevant time unless the debtor-

‘(a) is insolvent at that time; or

(b) becomes insolvent in consequence of the transaction or preference’.

27. There is no dispute that Dickson and Winnie are ‘associates’ of Alex within the meaning of s.51(2) as defined in s.51B (2) & (7), being his relative (i.e. brother) and the spouse of his relative respectively. From this three consequences follow:

(1) By virtue of s.51(1)(b), the relevant period in which payments may be impugned as unfair preferences is 2 years instead of 6 months.

(2) As far as transactions at undervalue are concerned, by virtue of the provision in the final part of s.51(2), in respect of the period between 5 and 2 years prior to the bankruptcy, the burden would lie on the respondents to show that Alex was not and did not become insolvent. This stands in contrast to the position in unfair preference where the burden is on the trustees to prove insolvency, though the relevant period for unfair preference was within 2 years prior to bankruptcy.

(3) By virtue of s.50(5), where it is found that there was an unfair preference of the respondents, Alex would be rebuttably presumed to have been influenced by the requisite desire.”

35.  His Lordship then proceeded to consider whether the bankrupt in that case was influenced by a desire to prefer.  He analysed the issue as follows:

“116.  This issue raises two separate questions: (i) whether Alex had a desire to prefer Dickson and, if so, (ii) whether he was influenced by it.  S.50(5) creates a statutory rebuttable presumption that a debtor who has given an unfair preference to an associate has been influenced by a desire to prefer him.  This subsection is not entirely easy to construe, for it is not clear from the language itself whether the debtor is presumed both to have had the desire and to have been influenced by it, or is only presumed to have been influenced by the desire which is not presumed.

117. The Court of Appeal has held that the rebuttable presumption in s.50(5) of the Ordinance applies to influence by the desire but not the existence of the desire: Trustees of the Property of Hau Po Man Stanley (in bankruptcy) v Hau Po Fun Ivy [2005] 2 HKC 227 at §16 per Le Pichon JA.  The question of presumption was of some importance in that case since there was no oral evidence.  In the present case I have heard live evidence from the bankrupt and other witnesses.  While I proceed on the basis of the interpretation of s.50(5) adopted in Hau Po Man Stanley, I do not think the present issue actually turns on presumptions or the burden of proof.

118. On the basis of Hau Po Man Stanley:

(1) It is for the trustees to prove that in making the relevant payments to Dickson, Alex had a desire to produce in relation to Dickson the effect of putting him into a position which, in the event of Alex’s bankruptcy, would be better than the position he would have been in if those payments had not been made.

(2) If there was such a desire, it is presumed by virtue of s.50(5) that Alex was influenced by such desire in deciding to give the unfair preference.  The presumption is rebuttable, and it would be for the respondents to prove that Alex was in fact not so influenced.

119. Both counsel referred me, with different emphases, to the following passages in the judgment of Mummery Jin Re Fairway Magazine Ltd [1993] BCLC 643 at 649f-g:

‘Secondly, a desire to produce that effect is a subject state of mind.  As it is subjective, there may often be no direct evidence of that state of mind.  The existence of the state of mind may, however, be inferred from all the relevant circumstances, and contrary to the denials of those whose state of mind is inquired into to determine what state of mind is attributed to the company making the decision.

Thirdly, it does not follow that, because there was a desire to grant the debenture or to make the payment, there was a desire to prefer the creditor in the event of insolvency.  If the company is influenced by “proper commercial considerations” and not by a “positive wish to improve the creditor’s position in the event of its insolvent liquidation”, then the debenture will be valid.  If a desire to prefer is present, however, it is sufficient that it influences the decision.  It does not have to be the sole or decisive influence on the decision.’

120. In this context, the effect or result of one’s actions is to be distinguished from desire motivating such actions.  As Le Pichon JA said in Hau Po Man Stanley, supra, at §15:

‘What is important is to consider what influenced a person to take a particular course. In other words, why did that person do what he did? If a person appreciates that his act may have a particular result, he may allow that result to occur even though his reason for so doing may be to achieve some other objective. Hence what would have influenced him to do the act was the cause rather than one of the results of the act.’

121. As Millett J said in Re M C Bacon Ltd [1990] BCC 78, 87:

‘There must have been a desire to produce the effect mentioned in the subsection, that is to say, to improve the creditor’s position in the event of an insolvent liquidation. A man is not to be taken as desiring all the necessary consequences of his actions. Some consequences may be of advantage to him and be desired by him; others may not affect him and be matters of indifference to him; while still others may be positively disadvantageous to him and not be desired by him, but be regarded by him as the unavoidable price of obtaining the desired advantages. It will still be possible to provide assistance to a company in financial difficulties provided that the company is actuated only by proper commercial considerations. Under the new regime a transaction will not be set aside as a voidable preference unless the company positively wished to improve the creditor’s position in the event of its own insolvent liquidation.’

Matrimonial Proceedings and Property Ordinance (“MPPO) and interaction with insolvency law

36.  It is noteworthy that S.24 of the MPPO provides that “the fact that a settlement or transfer of property had to be made in order to comply with an order of the Court under section 6 shall not prevent that settlement or transfer from being a settlement of property to which section 49 of the Bankruptcy Ordinance applies”.

37.  In LKW v DD (2010) 13 HKCFAR 537,  the Court of Final Appeal has authoritatively provided guidance on how the broad discretion of the Courts ought to be exercised in so far as S.7 of the MPPO is concerned.

38.  Ribeiro PJ held at paragraphs 48-73 that :

“D.1 Guidelines only

48. Section 7 confers a very broad discretion on judges dealing with financial provision. They must consider all the circumstances of the case including the matters specified in deciding whether and how to exercise their powers. The obvious intention is that the court should be able to deal flexibly with a great variety of different cases. However, the price of such flexibility is an inevitable element of legal uncertainty. As Wall LJ recently reminded us, Ormrod LJ made this point in relation to complaints about uncertainty voiced by practitioners some 23 years before White v White:

‘I appreciate the point [counsel] has made, namely, that it is difficult for practitioners to advise clients in these cases because the rules are not very firm. That is inevitable when the courts are working out the exercise of the wide powers given by a statute like the Matrimonial Causes Act 1973. It is the essence of such a discretionary situation that the court should preserve, so far as it can, the utmost elasticity to deal with each case on its own facts. Therefore, it is a matter of trial and error and imagination on the part of those advising clients. It equally means that decisions of this court can never be better than guidelines. They are not precedents in the strict sense of the word. There is bound to be an element of uncertainty in the use of the wide discretionary powers given to the court under the Act of 1973, and no doubt there always will be, because as social circumstances change so the court will have to adapt the ways in which it exercises discretion.’

49. While recognizing that some uncertainty is inescapable, it is nevertheless desirable that the appellate courts should attempt to provide guidance with a view to encouraging consistency and predictability. As Lord Nicholls pointed out in Miller/McFarlane:

‘... an important aspect of fairness is that like cases should be treated alike. So, perforce, if there is to be an acceptable degree of consistency of decision from one case to the next, the courts must themselves articulate, if only in the broadest fashion, what are the applicable if unspoken principles guiding the court’s approach.’

Baroness Hale added that consistency and predictability should be promoted in order ‘to enable and encourage the parties to negotiate their own solutions as quickly and cheaply as possible’.

50. However, as Ormrod LJ observed, the courts’ pronouncements on a provision like section 7 ‘can never be better than guidelines’. This is because, as Gibbs CJ explained, the courts ‘cannot put fetters on the discretionary power which the Parliament has left largely unfettered.’ Dealing with the natural tension existing between the need for flexibility on the one hand and the desire for consistency on the other, Brennan J stated:

‘The only compromise between idiosyncrasy in the exercise of the discretion and an impermissible limitation of the scope of the discretion is to be found in the development of guidelines from which a judge may depart when it is just and equitable to do so -- guidelines which are not rules of universal application, but which are generally productive of just and equitable orders.’

51. As his Honour pointed out, Lord Denning MR addressed the problem of guiding the exercise of an unfettered judicial discretion in Ward v James in the following terms:

‘The cases all show that, when a statute gives discretion, the courts must not fetter it by rigid rules from which a judge is never at liberty to depart. Nevertheless the courts can lay down the considerations which should be borne in mind in exercising the discretion, and point out those considerations which should be ignored. This will normally determine the way in which the discretion is exercised, and thus ensure some measure of uniformity of decision. From time to time the considerations may change as public policy changes, and so the pattern of decision may change: this is all part of the evolutionary process.’

52. Accordingly, the first point to be made in the present context is that the principles enunciated in this judgment are in the nature such guidelines. Financial provision applications are highly fact‑specific and judges dealing with them must ultimately be guided by section 7 and the implicit aim of arriving at a fair financial outcome as between the parties.

53. Moreover, the guidance given in this judgment cannot be and does not purport to be comprehensive. Thus, in Charman v Charman (No 4), referring to the guidance given in White and Miller” Sir Mark Potter P noted that ‘there is no doubt that, under that guidance, the House has left much for the courts to develop’. The recent Supreme Court decision in Granatino v Radmacher, provides an example of the courts working out the status of pre‑ and post-nuptial agreements against the background of the scheme laid down by White and Miller/McFarlane.

D.2 The exercise often stops at ‘needs’

54. The second point is that in most cases, discussion of the guidelines is superfluous. Usually, the available assets are insufficient to cater for the needs of both parties after termination of the marriage so that the exercise does not progress beyond consideration of their needs. As Lord Nicholls put it in Miller/McFarlane:

‘In most cases the search for fairness largely begins and ends at this stage. In most cases the available assets are insufficient to provide adequately for the needs of two homes. The court seeks to stretch modest finite resources so far as possible to meet the parties’ needs.’

55. It is therefore only in cases where surplus assets remain to be distributed after seeing to the parties’ needs that the guidelines may require consideration. The disposal of simple cases should not be pointlessly complicated by inappropriate attempts to apply such guidelines.

E. HOW SECTION 7 SHOULD BE APPROACHED

E.1 The principles underpinning the White v White line of cases

E.1.a Objective of fairness

56. Four principles appear to me to underpin the White and Miller line of cases. The first is that the implicit objective of a section 7 exercise is to arrive at a distribution of assets which is fair as between the parties. This has been discussed in Section B above.

E.1.b Rejection of discrimination

57. The second is that the concept of fairness requires the refutation of any gender or role discrimination. Lord Nicholls reiterated this at the start of his speech in Miller/McFarlane when, referring to White v White, he stated:

‘... the House emphasised that in seeking a fair outcome there is no place for discrimination between a husband and wife and their respective roles. Discrimination is the antithesis of fairness. In assessing the parties’ contributions to the family there should be no bias in favour of the money‑earner and against the home-maker and the child‑carer. This is a principle of universal application. It is applicable to all marriages.’

E.1.c Yardstick of equal division

58. The third principle is that, with a view to eliminating insidious discrimination and promoting fairness, judges should check their tentative views on distribution against a ‘yardstick of equal division’ which should be departed from only for good, articulated reasons. Lord Nicholls put it thus:

‘... a judge would always be well advised to check his tentative views against the yardstick of equality of division. As a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so. The need to consider and articulate reasons for departing from equality would help the parties and the court to focus on the need to ensure the absence of discrimination.’

59. In Miller/McFarlane, the ‘yardstick’ concept was elaborated into the ‘equal sharing principle’ as further discussed below. However, it is worth emphasising that according an equal status to the role played by each of the parties during the marriage does not necessarily or even usually mean that their assets should be equally divided. Thus, in White Lord Nicholls stated:

‘Sometimes, having carried out the statutory exercise, the judge’s conclusion involves a more or less equal division of the available assets. More often, this is not so. More often, having looked at all the circumstances, the judge’s decision means that one party will receive a bigger share than the other.’

60. And in Miller/McFarlane, he referred to the equal sharing principle as follows:

‘When their partnership ends each is entitled to an equal share of the assets of the partnership, unless there is a good reason to the contrary. Fairness requires no less. But I emphasise the qualifying phrase: “unless there is good reason to the contrary”. The yardstick of equality is to be applied as an aid, not a rule.’

61. There has been some discussion as to whether it is permissible to use the ‘yardstick’ as a ‘starting‑point’ or whether it can only be employed at the end of the section 7 exercise. It appears to me that this question has become largely a matter of semantics. Once it is understood that the ‘yardstick of equal division’ and the ‘equal sharing principle’ are merely conceptual aids and do not imply the existence of any legal presumption or burden of proof, it does not matter when or how many times a judge may use them to test conclusions tentatively reached. The process is by its nature iterative so that the debate about ‘starting‑point’ is of little practical relevance.

E.1.d Rejection of minute retrospective investigations

62. The fourth principle is that the court should not countenance any attempt to engage in costly and often futile retrospective investigations of the failed marriage which tend to deplete the parties’ (and the courts’) resources and to increase antagonism and discourage settlement.

63. Such attempts have been encountered in various contexts, including disputes over the extent of a party’s assets; over the contribution made to the welfare of the family; over the parties’ conduct; over claims to be compensated for having suffered some disadvantage, and so forth.

64. The English courts’ response to allegations of ‘special contributions’ by parties seeking to justify departure from an equal division is instructive. Referring in 2002 to the then growing practice of examining minutely the respective contributions of the parties, Coleridge J stated:

‘The effect is not at all dissimilar to the “conduct” debates of the 1970s. In those days “conduct” was similarly raised against wives to try and limit their claims. However, the court, recognising the undesirable consequences inherent in those arguments and further the impossibility of fairly adjudicating upon them introduced the concept of “obvious and gross” very effectively to limit their application. It is suggested by some that these current “special contribution” debates are reintroducing conduct by the backdoor. I would say by the front door.’

His Lordship added:

‘... the parties are not assisted to achieve compromise when they are encouraged by the law to indulge in a detailed and lengthy retrospective involving a general rummage through the attic of their marriage to discover relics from the past to enhance their role or diminish their spouses.’

65. The courts’ disquiet was noted by Lord Nicholls in Miller/McFarlane:

‘Apparently, in this post-White era there is a growing tendency for parties and their advisers to enter into the minute detail of the parties’ married life, with a view to lauding their own contribution and denigrating that of the other party. In the words of Thorpe LJ, the excesses formerly seen in the litigation concerning the claimant’s reasonable requirements have now been “transposed into disputed, and often futile, evaluations of the contributions of both of the parties”: Lambert v Lambert [2003] Fam 103, 117, para 27.’

66. Heeding Coleridge J’s ‘powerful observations’ in G v G, Lord Nicholls held that:

‘Parties should not seek to promote a case of “special contribution” unless the contribution is so marked that to disregard it would be inequitable. A good reason for departing from equality is not to be found in the minutiae of married life.’

67. Adopting the dictum of Bodey J in Lambert v Lambert, [72] his Lordship explained that disregarding the contribution would not be inequitable unless the circumstances are ‘of a wholly exceptional nature, such that it would very obviously be inconsistent with the objective of achieving fairness (ie, it would create an unfair outcome) for them to be ignored.’

68. Baroness Hale took the same view, holding that the question should be approached by deploying a standard equivalent to the ‘obvious and gross’ standard applicable in ‘conduct’ cases.

69. The essence of this fourth principle is reflected in Thorpe LJ’s illuminating comment in Parra v Parra:

‘... the outcome of ancillary relief cases depends upon the exercise of a singularly broad judgment that obviates the need for the investigation of minute detail and equally the need to make findings on minor issues in dispute. The judicial task is very different from the task of the judge in the civil justice system whose obligation is to make findings on all issues in dispute relevant to outcome. The quasi‑inquisitorial role of the judge in ancillary relief litigation obliges him to investigate issues which he considers relevant to outcome even if not advanced by either party. Equally he is not bound to adopt a conclusion upon which the parties have agreed. But this independence must be matched by an obligation to eschew over‑elaboration and to endeavour to paint the canvas of his judgment with a broad brush rather than with a fine sable. Judgments in this field need to be simple in structure and simply explained.’

70. The four principles discussed above should be borne in mind when embarking on the section 7 exercise to which I now turn.”

39.  In so far as assessing the parties’ financial needs is concerned in particular where assets can be said to be “meagre” the Court considered that :

“74. The next step is for the court to assess the parties’ financial needs.  As has been note the section 7 exercise often stops at this point since the total resources may be insufficient to go beyond or even to meet both parties’ needs.  If so, no room is left for the application of any sharing principle.  Addressing the needs of say, the wife and children may immediately absorb more than half of the total assets.  If so, ‘needs’ are, for want of any alternative, determinative.  Where the assets are meagre, a ‘clean break’ may not be possible and it may be necessary to have recourse to an order for periodical payments.

75. The position is neatly summarised by Sir Mark Potter P in Charman v Charman (No 4) as follows:

‘... when the result suggested by the needs principle is an award of property greater than the result suggested by the sharing principle, the former result should in principle prevail: per Baroness Hale in Miller at [142] and [144]. ... It is also clear that, when the result suggested by the needs principle is an award of property less than the result suggested by the sharing principle, the latter result should in principle prevail: per Lord Nicholls in Miller at [28] and [29] and Baroness Hale at [139].’

76. This is an approach which should dispel the fear expressed in Figgins v Figgins, that ‘rule equality’ is likely to work injustice where the assets are meagre.

77. As section 7(1)(b) indicates, the process of evaluating ‘needs’ involves assessing the financial needs, obligations and responsibilities which each of the parties has or is likely to have in the foreseeable future in the light of present and foreseeable resources.  The matters referred to section 7(1)(c) to (e), that is, standard of living, age and disability, will often be relevant.  As Lord Nicholls put it in White:

‘Financial needs are relative. Standards of living vary. In assessing financial needs, a court will have regard to a person’s age, health and accustomed standard of living.’

78. And in Miller/McFarlane his Lordship stated in respect of ‘needs’:

‘When the marriage ends fairness requires that the assets of the parties should be divided primarily so as to make provision for the parties’ housing and financial needs, taking into account a wide range of matters such as the parties’ ages, their future earning capacity, the family’s standard of living, and any disability of either party. Most of these needs will have been generated by the marriage, but not all of them. Needs arising from age or disability are instances of the latter.’

79. Baroness Hale stressed that the parties’ needs should be ‘generously interpreted’.  Accordingly, in trying to ensure that each party and their children have enough to supply their needs set at a level that equates, in so far as resources allow, to the standard of living they enjoyed during the marriage, those needs should not be assessed according to some perceived lowest common denominator, but with flexibility in the light of all the relevant circumstances.”

Interaction between bankruptcy and family law

40.  In Hill v Haines [2007] EWCA Civ 1284, the English Court of Appeal considered that in principle a property adjustment order could be attacked as a transaction at an undervalue where there had been some fraud, collusion or non-disclosure.

41.  Sir Andrew Morritt C considered at paragraph 35 of the judgment that :

“If one considers the economic realities, the order of the court quantifies the value of the applicant spouse’s statutory right by reference to the value of the money or property thereby ordered to be paid or transferred by the respondent spouse to the applicant. In the case of such an order, whether following contested proceedings or by way of compromise, in the absence of the usual vitiating factors of fraud, mistake or misrepresentation the one balances the other. But if any such factor is established by a trustee in bankruptcy on an application under s.339 then it will be apparent that the prima facie balance was not the true one and the transaction may be liable to be set aside.”

42.  Thorpe LJ added at paragraphs 46-48 that :

“46. These authorities did not, of course, establish that all ancillary relief orders are proof against the claims of the trustee in bankruptcy. Plainly if the ancillary relief order was the product of collusion between the spouses designed to adversely affect the creditors the trustee would intervene in the ancillary relief proceedings and apply for the order to be set aside. Such a situation is illustrated by the decision of Ferris J in re: Kumar (a bankrupt) [1993] 1 WLR 225.

47. Additionally the ancillary relief order, like any other order, might be set aside if some other vitiating factor could be established, including a failure on the part of the wife to make full and frank disclosure of her own assets.

48. It can be assumed that ancillary relief orders resulting from a hard fought trial are less likely to be tarnished by collusion or fraud on the creditors than consent orders. However the same principles apply, albeit that the trustee’s burden of proof may be more easily discharged.”

43.  Rix LJ observed that at paragraph 82 that :

“Finally, as to policy, it would be unfortunate in the extreme if a court approved, or even (an a fortiori case) a court determined property adjustment order would be liable, in practice, to be undone for up to five years because the husband goes bankrupt within that period.  That could even encourage such bankruptcy on the part of a disaffected husband.  Although a collusive agreement by a divorcing husband and wife to prefer the wife and children over creditors and thus dishonestly to transfer to her more than his estate can truly bear, if his debts were properly taken into account, and thus more than her ancillary relief claim could really and knowingly be worth, is no doubt susceptible to section 339 relief despite the existence of a court order in her favour (see the decision in Kumar): nevertheless, in the ordinary case, where there is no dishonest collusion, and where a court approves or determines the sum or property to be transferred, it would be entirely foreign to the concept of a ‘clean break’ if the husband’s creditors could thereafter seek to recover, in bankruptcy, the property transferred or its value.  However, in my judgment, it would require the overthrow of long established jurisprudence, the re-interpretation of section 39, the misunderstanding of the doctrine of consideration, and an assault on current views of the statutory entitlement to ancillary relief, to arrive at that unhappy and unnecessary situation.” (emphasis added)

44.  It seems to me that this is consistent with the broad discretion conferred upon the Court under S.49(2) of the Ordinance which provides that the Court “shall…make such order as it thinks fit”.  As Nicholls VC (as Lord Nicholls then was) in Re Paramount Airways [1993] Ch 223 “the discretion is wide enough to enable the court, if justice so requires to make no order against the other party to the transaction”.

45.  I however recognise that this “residual discretion” to refuse to make an order when the statutory requirements have all be met will in practice be rarely exercised although I do not consider there to be any fetters to the exercise of that discretion.  In short, it will be a rare case where notwithstanding that the statutory requirements have been met the Court would nevertheless conclude it to be unfair, having regard to all the surrounding circumstances to make an order.

S.60 of the CPO

46.  The applicable legal principles have been recently and succinctly summarised by B Chu J in Catherwood Ltd v Feng Jin Liang [2018] 6 HKC 522 at paragraphs 42-46 :

“42.   S.60 CPO states as follows :-

‘(1) Subject to subsections (2) and (3), every disposition of property made, whether before or after the commencement of this section, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.

(2) This section does not affect the law of bankruptcy for the time being in force.

(3) This section does not extend to any estate or interest in property disposed of for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the disposition, notice of the intent to defraud creditors.’

43. The leading authority on s.60 CPO is the decision of the Court of Final Appeal in Tradepower (Holdings) Ltd v Tradepower (HK) Ltd [2010] 1 HKLRD 674.  The case concerned a disposition of assets for no consideration made at the time when the disponor was insolvent.  Much of the discussion focused on the proper formulation and application of the so-called rule in Freeman v Pope in Hong Kong.  Having considered various authorities, Ribeiro PJ formulated the rule as follows at paragraph 88:-

‘I would formulate the applicable rule for cases like Freeman v Pope as follows. Where it is objectively shown that a disposition of property unsupported by consideration is made by a disponor when insolvent (or who thereby renders himself insolvent) with the result that his creditors (including his future creditors) are clearly subjected at least to a significant risk of being unable to recover their debts in full, such facts ought in virtually every case to be sufficient to justify the inference of an intent to defraud creditors on the disponor’s part. In cases falling outside the rule, that is, in cases where the disposition is made for valuable consideration, or where the disponor is not insolvent or where the disposition does not deplete the fund potentially available to the creditors, an actual intent to defraud creditors must be shown as an inference properly to be drawn on the available evidence before s.60 is engaged.’

44. Whether the requisite intent to defraud creditors is proved is a question of fact to be judged as a whole on the evidence available as to the surrounding circumstances: Skink Ltd (in liquidation) v Comtowell Ltd [1994] 2 HKC 286 at 291E-F per Godfrey JA; Cheung Ying Lun v Legal Way Ltd [2014] 1 HKLRD 106 at paragraphs 25-26 per Godfrey Lam J.

45. Further, as set out by Fok JA, as he then was and sitting as an additional Judge of the Court of First Instance, in New China Hong Group Ltd v Ng Kwai Kai Kenneth, HCA 519/2010, unrep, 11 February 2011:

‘The facts and matters pleaded in paragraph 41(1) to (6) of the draft AmSoc are put forward as facts from which an intent to defraud [creditors] is sought to be inferred. In this regard, it is trite that fraud or dishonesty must be “distinctly alleged and as distinctly proved” and that it must be “sufficiently particularised”. Particulars of facts which are consistent with honesty are not sufficient. It is not open to the court to infer dishonesty from facts which have not been pleaded or from facts which have been pleaded but are consistent with honesty: see Three Rivers DC v Bank of England (No.3) [2003] 2 AC 1 per Lord Millett at §§184 & 186 [13].’

46.     Fok JA’s decision to strike out the s 60 CPO claim was subsequently upheld by the Court of Appeal in New China Hong Group Ltd v Ng Kwai Kai Kenneth [2011] 5 HKLRD 216 where it was held, amongst other things, that as the case fell outside the rule in Freeman v Pope, there was a need to establish an actual intent to defraud creditors and this had not been established in the case [14].”

ANALYSIS

General

47.  There is very little in the evidence filed by the Trustees which directly throws light on the Bankrupt’s state of mind at the time of the impugned Transaction.

48.  Given that there was no order for cross examination, I asked Ms Cheng for the Trustees if she agreed that in the circumstances I should give such weight to the evidence as I thought appropriate, to which she fairly agreed.  Ms Wong for the Respondent did not suggest otherwise.  This was the approach taken by Lam J (as Lam VP then was) at first instance in The Joint and Several Trustees of the Property of Hau Po Man Stanley v Hau Po Fun Ivy & Anor., HCB 924/2002, unrep, 10 July 2004.

49.  There is almost no evidence filed by the Trustees which directly contradicts the Respondent’s sworn evidence.  It is true that while the Respondent states that to her recollection the Bankrupt moved out in October 2014, the Bankrupt stated in his interview with the Trustees in 4^th March 2015 that he still resided at the Property.  There is no suggestion that this matter was taken up with the Bankrupt again, and while the Respondent has explained that at least by 2017 the Bankrupt had moved to another address yet no evidence has been filed by the Trustees to challenge this was not the case, nor was an inspection conducted at that address to contradict that claim.

50.  It seems to me that little can be made of the fact the Respondent was allowed to stay in the Property.  He was after all the father of their son who was still residing there.  In her Form A, the Respondent had explained in October 2013 that while she had allowed the Bankrupt to stay in the flat they were not occupying it as a couple and had their separate beds and therefore had not lived in it as a couple.  She accepted she would help him with laundry but stopped cooking meals for him after September 2013.

51.  Although this is an arrangement which may at very first blush seem incongruous, in the circumstances of Hong Kong where housing costs are high and given the present circumstances, notwithstanding the ground for seeking a divorce was unreasonable behavior, there was no suggestion that the Bankrupt was violent or otherwise threatening.  I cannot infer from the fact of cohabitation alone that the Divorce Proceedings and thus the Consent Order was obtained by reason of collusion based on that fact alone.

52.  I have of course borne in mind the fact that (1) the Bankrupt self-petitioned for Bankruptcy soon after entering into the Consent Order (2) he must have been aware of the amounts of debt he was owing to third parties (which include a number of finance companies as well as DBS and HSBC) and his obligations under the Consent Order regarding maintenance to the Respondent and their son. It is also true as Ms Wong has reminded me this morning that if the Bankrupt had been minded to shield his ex‑wife, he could have dragged on longer before being bankrupted by others rather than self‑petition.

53.  Since there is no direct evidence from the Bankrupt on his state of mind, one has to look at (1) the undisputed or indisputable evidence and (2) circumstantial evidence.  The Trustees rely on the timing, the Bankrupt’s precarious financial position and also the fact that he had apparently not immediately moved out of the Property after the Petition was filed.  I have taken these into account.

54.  It should be borne in mind that in 2013, when the Divorce Proceedings had been commenced their son was attending Form 4 at a school in Shatin ie the same district as the Property in which he lived.  Most if not all child care related expenses were borne by the Respondent although she only earned HK$14,000 as an accounting clerk.

55.  When making the Consent Order, the Court would have been aware of the fact that since 2005 the Respondent had paid almost all of the mortgage instalments, and that after February 2005 until July 2010, the Bankrupt did not provide any maintenance and also the fact was that between 2002 and 2006 the Bankrupt had been indebted and the Respondent helped him pay the loans.  The Respondent had explained that after January 2009, the Respondent’s behaviour grew for the worse and that he became obsessed with football and lingering around the football pitch.  While a maintenance amount was provided for, given the Bankrupt’s past behaviour there was a serious risk that he would not make good on his obligation.

56.  The sum total of the evidence leads one to infer that the Bankrupt was quite irresponsible about his affairs and his duty to his family and to others. In the absence of any direct evidence, and doing the best as I can, it seems to me that the Bankrupt’s generally childish and irresponsible behaviour is more consistent with simply trying to solve problems as they immediately arise, rather than having any premeditated plan either to pass his interest in the Property to defeat creditors or of a similar sort.

The Transaction at an Undervalue Limb

57.  There was some debate before me as to whether the “Consent Order” was a transaction.  It seems to me that on proper analysis what the Trustees are really contending for is that on the making of the Consent Order, the Bankrupt was released from his financial obligation to the Respondent pursuant to the MPPO and in exchange he lost his 50% share in the Property (market value minus the mortgage) subject to the loan which was charged to his share.  In short, the Bankrupt was financially worse off than he was before the Consent Order was made.

58.  One way to test it would be this: had the Divorce Proceedings be fought to the bitter end, and at arms-length, what financial settlement would the Respondent have ended up with?

59.  Notwithstanding the persuasive submissions of Ms Wong, it seems to me that the disposal of the Bankrupt’s share in the Property pursuant to the Consent Order is something which amounts to a Transaction (albeit one made under and pursuant to a Court order by consent) and thus one which is susceptible to be impugned.  Were it otherwise debtors would seek when in financially stressed times to enter into artificially favourable agreements (ie not at arms length) with their spouses which would defeat the purpose of S.49 of the Ordinance.  After all S.24 of the MPPO explicitly states that that “the fact that a settlement or transfer of property had to be made in order to comply with an order of the Court under section 6 shall not prevent that settlement or transfer from being a settlement of property to which section 49 of the Bankruptcy Ordinance applies”.

60.  It seems to me that the fact that there was a settlement of the Divorce Proceedings as set out in the Consent Order to be twofold:

(1)    Notwithstanding it was done by way of a Consent Order, this is not to say the Court would operate as a rubber stamp nor that there would be an absence of judicial scrutiny.

(2)    The fact there was such a Court Order would influence how parties and their spouse settling the litigation would expect the future to hold.  It seems to me that this is a matter which squarely goes to discretion not to undo a transaction even when the statutory criteria has been met.

61.  Having regard to the evidence before me I cannot conclude that the terms of the Consent Order are such which would be much different from those which would have been made had the Divorce Proceedings be fought out, having regard to the way the Family Court considers S.7 applications for ancillary relief and the need of the parties in particular the need for the minor who was a student and who needed some stability in the form of having a permanent roof over his head.  The Court would have in mind the past contributions made by the Respondent both in terms of the mortgage payments themselves which led to the equity interest in the Property itself as well as her general contributions in terms of time and money.  As is recognised in the Consent Order, she had also previously paid HK$300,000 to bail the Bankrupt out.

62.  Thus, even looking at the settlement as a “transaction” I cannot say that the Respondent’s entitlement under the Divorce Proceedings worth “significantly less” than the Bankrupt’s asset (in terms of “his” 50% of the equity of redemption minus the value of the loan under the share charge).  It seems to me that having regard to the jurisdiction of the Court under S.7 of the MPPO and considering the facts of this particular case, the Order which was made by consent might very well have been made had the matter been fought to the end.

63.  I echo the salutary words of Lord Justice Rix in Hill v Haines (supra) at paragraph 82, ie that it would be unfortunate in the extreme if a court‑approved, and a fortiori a court‑determined property adjustment order would be liable, in practice, to be undone for up to a number of years.

64.  It seems to me that his Lordship’s observation must be correct, and I would tend to think that:

(1)    Short of dishonest collusion between spouses it would be hard to imagine any case where it could be demonstrated that the settlement in favour of a spouse to be worth “significantly less” than what the other spouse agreed to provide for bearing in mind this is not a science and there is bound to be a range of reasonable outcomes in such proceedings bearing in mind the fact sensitivity inherent in the exercise under S.7 of the MPPO.  Unless it could be shown that the settlement was outside such a generous and wide ambit, the jurisdiction of the Court would not even be triggered under the Ordinance to impeach the transaction.

(2)    Further, even if the statutory requirements were all met the Court does retain a discretion to make or not to make the Order.  In cases where there was no dishonesty or collusion, it would in many cases be unjust to re-open what the spouses had assumed to be foregone litigation.  This is especially so, as in the facts of the present case, where the transaction is sought to be re‑opened years after the event.

65.  Had I concluded that on the evidence what the Respondent gave up to settle the Divorce Proceedings to be worth “significantly less” than what the Bankrupt agreed to transfer I would have on the facts of the present case exercised my discretion against making such an order not least because I did not think it could be shown there was any collusion between the spouses or any dishonesty involved.

66.  The Bankrupt’s modus operandi on the evidence is more consistent with someone who has no plan but rather goes along and hopes things will somehow manage to sort themselves out.  It is inconsistent with someone who would have made an elaborate plan.  It may well be that soon after his divorce arrangements being completed the Bankrupt then decided to start afresh.  Given the lack of direct evidence, it is impossible to tell.

The Unfair Preference Limb: Was there a loan? Was there a desire to prefer?

67.  There is some dispute about whether the Bankrupt was indebted to the Respondent at the material times.  It is the Respondent’s own evidence that she had helped the Bankrupt pay some of his loans although it is not entirely clear that she expected to be repaid.  The high point of the Trustees’ submission is the reference to an “undertaking” in the Consent Order which stated that “between 2002 and 2006 the Respondent borrowed from the Petitioner around HK$300,000 and the Respondent confirmed he did not repay the whole sum or any part thereof to the Petitioner”.  There is also some debate as to whether that loan if it had been a loan was been time‑barred by the time of the Transaction.

68.  I am prepared to assume that technically the Respondent was a creditor of the Bankrupt although for practical purposes she most probably did not expect to be repaid, nor did she intend to make a formal claim for it.

69.  It was accepted by Ms Cheng that while the Trustees had to establish the requisite desire i.e.  to produce in relation to the Respondent the effect of putting her in a position which in the event of his bankruptcy, would be better than the position he would have been had those payments not been made, by reason of the Respondent being his wife at the material time she was an “associate” and therefore where it is found that there was an unfair preference the Bankrupt would be rebuttably presumed to have been influenced by the requisite desire.  Ms Wong agreed with this proposition.

70.  In the annex of the Petition the Respondent explains that the Bankrupt “only cares about playing soccer and having fun and did not take care of the family and take the responsibilities to be a good father” noting he bought new mobile phones from time to time, played soccer 7 times a week and often did not go home at all.  The burden of maintaining the household and raising their son rested almost exclusively on her shoulders.

71.  For similar reasons set out above under the heading of “Transaction at an Undervalue Limb” I do not think that it can be said that the Bankrupt had the relevant desire at the relevant time.  Even if he had considered himself to be indebted to the Respondent (which is doubtful) given that he had apparently never shown any interest to repay her, I do not think it occurred to him that the Transaction should be entered into in order to put her in a better position. Rather he had agreed to settle the Divorce Proceedings because it was the more expedient thing to do, in other words this is the course which took the least effort to make, rather than fighting it.

The S.60 Limb

72.  Ms Cheng very fairly accepted that if the Court did not agree with the Trustees that they have established either the core ingredients which are required in order for them to succeed under either the Transaction at an Undervalue Limb or the Unfair Preference Limb it was unlikely to succeed under this limb.

73.  Having regard to my findings above, and the high threshold required for this I find that it had not been established that the Bankrupt had the requisite state of mind as set out by the Court of Final Appeal in Tradepower.

CONCLUSION

74.  For these reasons the Summons is dismissed.

75.  It remains for me to thanks both parties counsel for their helpful assistance.

On whether costs to be borne by the Trustees or out of the Bankrupt’s estate

76.  After I made my decision and gave my reasons, while it was not disputed that costs generally followed the event, there was a dispute on whether costs should be paid out of the Bankrupt’s estate or whether the Trustees had to pay those personally at least at the first instance.

77.  As the parties did not have the relevant authorities I allowed time for them to file short submissions and to rely on any other authorities they wished to draw to my attention.

78.  I have received their helpful submissions for which I am grateful.

79.  I agree with Ms Cheng that although the Summons was dismissed I did not find that the proceedings were pursued other than reasonably and in good faith.

80.  I accept however Ms Wong’s submission the general rule is that “if a trustee in bankruptcy is a litigant and is unsuccessful, he is made personally liable for costs” (per Cheung JA at 66E in Re Trustee in Bankruptcy of Lo Siu Fai [2005] 4 HKC 51).

81.  The apparent harshness on the office holder can be mitigated as explained by Yuen J.A (in the context of liquidators suing under their name) in Re Cashbox Credit Services Ltd (unrep Judgment dated 13^th November 2017) “they could of course protect themselves (if there is a risk that the company’s assets are insufficient) by obtaining financial support, prior to the start of the proceedings from the general body of creditors who would benefit from the proposed litigation” (at paragraph 45).

82.  I have considered the background and circumstances prior to the issuing of the Summons which has been highlighted by Ms Cheng.  However, I consider that these individually or collectively do not provide sufficient justification to depart from the general rule.

83.  I will therefore order that the Respondent’s costs of the Summons are to be borne by the Trustees personally, to be taxed if not agreed, without prejudice to the Trustees’ position as between themselves and the estate although I understand that it is possible that given the financial position of the estate this may not provide them with much comfort.