ZSL v. TMF AND ANOTHER

FCMC 5104/2019

[2022] HKFC 179

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 5104 OF 2019

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JUDGMENT

(Avoidance of Dispositions)

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A.  The Application

1.  This is the Petitioner (Wife)’s application under section 17 (“Section 17”) of the Matrimonial Proceedings and Property Ordinance, Cap. 192 (“the Ordinance”), for setting aside the 1^st Respondent (Husband)’s disposition of his one-fourth interest in 3 pieces of land, viz: Property A, Property B and Property C (collectively “the 3 Lots”) to the 2^nd Respondent under a Deed of Gift dated 1 November 2019 (“Deed of Gift”).

2.  The market value of the 3 Lots with immediate vacant possession and free from legal encumbrances was HK$1,940,000 as at 24 January 2022[1]. The value of the 1^st Respondent’s one-fourth interest was therefore about HK$485,000.

B.  Background Facts

3.  The Petitioner and the 1^st Respondent married on 10 January 2005. On the Petitioner’s case, they separated on 20 October 2010[2], but the 1^st Respondent contended that they separated about 1 year earlier on 1 October 2009[3].

4.  Around 9 to 10 years after their separation, the Petitioner presented the Petition on 3 May 2019 and lodged her claims for ancillary relief on the same date. The 1^st Respondent’s acknowledgment of receipt of the Petition was dated 11 June 2019.

5.  The 2^nd Respondent is the eldest brother of the 1^st Respondent. They have 2 younger brothers, Brother W and Brother M (collectively “Younger Brothers”) and a younger sister (“Sister”).

6.  For convenience,

(1)  The 1^st Respondent, the 2^nd Respondent, the Younger Brothers and the Sister are collectively referred to as the “Siblings”.

(2)  The 1^st Respondent, the 2^nd Respondent and the Younger Brothers are collectively referred to as the “Brothers”.

7.  The 3 Lots and a Lot 12 were initially owned by the ancestors of the Respondents. In 1978, the 3 Lots and Lot 12 were held by the Respondents’ father (“Father”) and his brother (“Uncle”) as tenants in common in equal shares.

8.  Father passed away intestate on 6 January 2008. It is common ground that the Siblings are the beneficiaries of Father’s estate. Each of them is entitled to one-fifth of the interests in Father’s estate, including Father’s interests in the 3 Lots.

9.  On 21 December 2015, Uncle assigned his interest in the 3 Lots and Lot 12 to his son (“Cousin”).

10.  The Letters of Administration of Father’s estate was granted on 26 May 2016. The 2^nd Respondent was appointed the administrator of Father’s estate.

11.  On 31 July 2017, Sister passed away intestate. There is no dispute that the Brothers are the beneficiaries of Sister’s estate. Therefore, following the death of Sister, each of the Brothers is entitled to one-fourth of Father’s interest in the 3 Lots.

12.  The Letters of Administration of Sister’s estate was granted on 20 September 2019. The 2^nd Respondent was appointed the administrator of Sister’s estate.

13.  On 18 June 2019, the 2^nd Respondent (in his capacity as the administrator of Father’s estate) entered into a Deed of Partition with Cousin. The effect of the Deed of Partition was to swap the respective interests of Cousin and Father’s estate in the 3 Lots and a Lot 12. Following the Deed of Partition, the 3 Lots are wholly owned by Father’s estate while Lot 12 is wholly owned by Cousin.

14.  The following three documents were made dated 1 November 2019:

(1)  An Assent by which the 3 Lots were vested equally in the Siblings. Thus, the 2^nd Respondent has two-fifth of the 3 Lots (one-fifth in his own capacity, and one-fifth as the administrator of Sister’s estate), and each of the 1^st Respondent and the Younger Brothers has one-fifth of the 3 Lots.

(2)  An Assent by which the interests held by Sister’s estate in the 3 Lots were vested equally in the Brothers, thus each of them has one-fourth of the 3 Lots.

(3)  The Deed of Gift signed by the Brothers, pursuant to which the 1^st Respondent and the Younger Brothers gave their interests in the 3 Lots to the 2^nd Respondent. The 2^nd Respondent therefore became the sole owner of the 3 Lots.

C.  The relevant legal principles

15.  The following legal principles are not in dispute.

16.  Section 17(1)(b) of the Ordinance provides that if the court is satisfied that a person made a disposition with the intention of defeating a party’s claim for financial provision (“the Requisite Intention”), and that if the disposition was set aside, no financial provision or different financial provision would be granted, the court may make an order to set aside the disposition and give such consequential directions as the court thinks fit.

17.  The purpose of Section 17 is to give power to the court to prevent a party from diminishing the assets of the family which would otherwise be available for the court’s consideration in a claim for ancillary relief by such disposition. It is not to protect the interest, if any, enjoyed by the applicant in any of those assets. (Kemmis v Kemmis (Welland and Others, Interveners) [1988] 1 WLR 1307, per Purchas LJ at 1315G)

18.  In ascertaining the intention, the court shall have regard to the following principles:

(1)  The court is to find the subjective intention of the party against whom the order is sought at the time of the disposition, but not the consequence of the party’s act.

(2)  The intention is to defeat the applicant’s claim for financial relief or reduce the amount of the financial relief that will be awarded to the applicant.

(3)  It must be clear that such intention played a substantial part in the intention as a whole, but it does not have to be the sole or dominant intention.

(4)  In determining whether an intention could be inferred, the court shall assess the evidence holistically, including the circumstances surrounding the disposition and the consequence of the act of the party against whom the order was sought.

(5)  The standard of proof is on the balance of probabilities.

(6)  What is required to be proved is not merely a dishonourable intention, but a dishonest intention to defeat or diminish the other side’s claim for ancillary relief, the court is to be satisfied that there exists convincing evidence which “tipped the balance”.

(Kemmis v Kemmis, supra, per Purchas LJ at 1315H-1316A, per Lloyd LJ at 1326 E-H; per Nourse LJ at 1330H-1331B; C v T (Section 17 Application) [2010] HKFLR 38; LYL v KKP v KPT, unreported FCMC 15800/2012, 31 August 2015; Rayden and Jackson on Relationship Breakdown, Finances and Children, LexisNexis, issue 4 [22.118])

19.  The 1^st Respondent’s gift to the 2^nd Respondent was made less than 3 years prior to the application for financial provision. By operation of Section 17(3) of the Ordinance, there is a rebuttable presumption that the 1^st Respondent had the Requisite Intention, and he bears the burden of showing, on the balance of probabilities, that the disposition of his interests in the 3 Lots was not made with the Requisite Intention.

20.  The disposition to the 2^nd Respondent was not made for valuable consideration. By reason of Section 17(2) of the Ordinance, Section 17(1)(b) applies to a disposition (whether before or after the commencement of the proceedings for financial provision), which is not made for valuable consideration, to a person who, at the time of the disposition, acted in relation to the disposition in good faith and without notice of the Requisite Intention of the party who made the disposition.

21.  The burden is on the applicant (i.e. the Petitioner) to establish that the third party in whose favour the disposition has been made (i.e. the 2^nd Respondent) was not acted in good faith and with notice of the Requisite Intention of the disposing party (i.e. the 1^st Respondent). (Kemmis v Kemmis, supra, per Purchas LJ at 1316 C-D)

D.  The Issues

22.  It is common ground that the issues to be determined in this trial are:

(1)  Whether the 1^st Respondent had the Requisite Intention.

(2)  If the 1^st Respondent is found to have the Requisite Intention, whether the 2^nd Respondent acted in good faith and without notice of such intention of the 1^st Respondent at the acquisition of the interests in the 3 Lots.

E.  Witnesses

23.  The Petitioner, the 1^st Respondent and the 2^nd Respondent have given oral evidence at the trial.

F.  The Respondents’ Case

24.  The Respondents’ case is that the 3 Lots are ancestral lands held by their ancestors since 1910s. In 1962, their grandfather (“Grandfather”) passed the 3 Lots (together with Lot 12) to Father and Uncle. According to the land search records, Father and Uncle were registered as tenants in common of the 3 Lots in equal shares under a Conveyance as a Gift dated 16 April 1978.

25.  The 3 Lots have been used in accordance with the wishes of their ancestors as well as under the instructions and arrangements of Father.

26.  In around 1960s, the ceiling of the house on Property A collapsed. At that time, Father’s cousin (“Father’s Cousin”) needed a place for residence. Grandfather agreed to allow Father’s Cousin to build a small house on Property A at his own costs and to use it as his family’s residence during the lifetime of Father’s Cousin. Property A is still being used by the family of Father’s Cousin as residence.

27.  Since about 1914, Property B was used as the Ancestral Tong (香火堂). The Respondents’ ancestors were worshipped there. The Ancestral Tong was managed by Father. After Father passed away in 2008, the 2^nd Respondent, who is the eldest son of Father, became responsible for the management, repair and maintenance of the Ancestral Tong. According to the 2^nd Respondent, he had paid several tens of thousand dollars in 2016 to repair the ceiling of the Ancestral Tong.

28.  The Petitioner spent most of her time in the Mainland after her marriage with the 1^st Respondent. In about 2006, the Petitioner came to Hong Kong. Sister had arranged for her to stay in the Ancestral Tong as her temporary residence. The Petitioner left the Ancestral Tong when its condition was not suitable for residence. The Petitioner has not returned to the Ancestral Tong since then.

29.  Property C is an agricultural land. Although the Respondents knew from their ancestors that they have this property, they do not know its exact location and have never been to this property. It has been left idle for a long time.

30.  When Father passed away in 2008, the Respondents did not take immediate steps to administer his estate, including the distribution of the 3 Lots. The Respondents said that there was no need to do so because all of them knew that Father’s estate would pass to the Siblings in equal shares. Moreover, Property A was being used by Father’s Cousin and would continue to be used by his family. The Ancestral Tong is located on Property B under the management of the 2^nd Respondent and would continue to be used as the place for worshipping ancestors. Property C is an agricultural land which was left idle for a long time. There was no immediate need to distribute the 3 Lots.

31.  After the death of Father, the 1^st Respondent told the Younger Brothers that he did not want to get involved in the 3 Lots and was not interested in having any rights in the 3 Lots. The 2^nd Respondent came to know the above views of the 1^st Respondent during meals with the Siblings.

32.  In 2015, Uncle was sued by a third party in a civil action in the High Court. Uncle was concerned that if he was not successful in defending that action, the assets held in his name might be enforced by the plaintiff in that action. He was worried that the ancestral properties, which were being held in the joint name of him and Father, might be affected. Therefore, Uncle proposed to divide and distribute the ancestral assets among the family members (分家) (“Division of Ancestral Assets”).

33.  Around that time, Cousin told the 2^nd Respondent that he was not interested in the 3 Lots, but he would like to have Lot 12. The Siblings agreed to Cousin’s proposal of exchanging their respective interests in Lot 12 and the 3 Lots.

34.  In about 2016, the 2^nd Respondent instructed Leung Kin & Co to handle the application for probate of Father’s estate. The Letters of Administration in respect of Father’s estate was granted on 26 May 2016.

35.  In the course of planning the implementation of the agreement on the Division of Ancestral Assets, Sister got sick and eventually passed away on 31 July 2017.

36.  The 2^nd Respondent was upset about the passing of his family member, he travelled overseas with his family.

37.  In about September 2018 while the 2^nd Respondent was travelling overseas, he was informed by a staff of Leung Kin & Co over the phone that the Division of Ancestral Assets could only be done after the grant of probate of Sister’s estate.

38.  On 16 November 2018, the 2^nd Respondent signed two engagement letters instructing Leung Kin & Co to deal with matters concerning (1) Sister’s estate; and (2) the half shares’ interest in Lot 12 and the 3 Lots.

39.  According to the 2^nd Respondent, the instructions for the Division of Ancestral Assets were confirmed by Cousin and himself in around January 2019. These include the exchange of the respective interests in the 3 Lots and Lot 12 between the Siblings and Cousin, and the Brothers’ gift of the entire interest in the 3 Lots to the 2^nd Respondent.

40.  In January 2019, the 1^st and 2^nd Respondents, together with Brother W, signed the two Assents and the Deed of Gift at the office of Leung Kin & Co. As Brother M was not in Hong Kong at that time, he could only sign the documents later. It was understood by the Respondents and Brother W that the Assents and the Deed of Gift could only be completed after the issuance of Letters of Administration of Sister’s estate and the signature of Brother M.

41.  The 1^st Respondent does not understand English and was briefly told about the purpose of the documents when he signed them in January 2019. He had not read the documents himself.

42.  The 1^st Respondent denied that he had the Requisite Intention when he disposed of his interests in the 3 Lots. He explained that:

(1)  The 3 Lots are ancestral lands.

(2)  He considered that the 3 Lots do not worth much.

(3)  Property A was occupied by Father’s Cousin and his family. The Brothers would honour the agreement of Father and allow Father’s Cousin to continue using Property A.

(4)  The Ancestral Tong (Property B) was in a poor condition and would require substantial costs for repair and maintenance. He did not have the money to pay such costs.

(5)  Property C was left idle for a long time. The Brothers do not even know its exact location.

(6)  He did not want to have any interest in the 3 Lots and did not bother to inquire about the 3 Lots.

(7)  In addition, he has built his own house at Lot 109 (“Lot 109”) in about 1998 by exercising his “Ding’s” right with the financial support from the 2^nd Respondent and another brother. He has his own property and did not bother to care about the 3 Lots, which to him would require a contribution to the costs for repair and maintenance. He has no money to make such contribution.

(8)  After the death of Father, he indicated to Younger Brothers his lack of interest in having the 3 Lots.

(9)  Although the 1^st Respondent understood that the Deed of Gift would only take effect after the grant of Letters of Administration of Sister’s estate and the signature of Brother M, he had not enquired about the matter after he signed the documents in January 2019. He did not know the time when the Deed of Gift took effect.

(10)  He had lost contact with the Petitioner for a substantial period. When he decided to give his interests in the 3 Lots to the 2^nd Respondent and signed the Deed of Gift in January 2019, he did not know that the Petitioner would present a divorce petition. The disposition of his interests in the 3 Lots was not related to the Petition or the Petitioner’s claim for financial provision.

43.  To answer the Petitioner’s challenge on the execution date of the Deed of Gift,

(1)  the 2^nd Respondent’s evidence was that he remembered that the documents were signed by them in January 2019;

(2)  the 1^st Respondent’s evidence was that he remembered that the Deed of Gift was signed before the incidents relating to the 2019 proposed amendments to Fugitive Offenders Ordinance. As the incident started in about February or March 2019, the documents should have been signed by him in January 2019.

44.  The Letters of Administration in respect of Sister’s estate was granted on 20 September 2019. The 2^nd Respondent was appointed to be the administrator of her estate.

45.  By 1 November 2019, Brother M signed the Assents and the Deed of Gift. These documents were dated 1 November 2019.

46.  The 2^nd Respondent had not contacted the Petitioner for a long time. He only knew the present divorce proceedings when he was served with the Petitioner’s application under Section 17. The 2^nd Respondent took the view that the 1^st Respondent’s disposition was unrelated to the Petitioner’s claim for financial provision. He considered that it is impossible for the 1^st Respondent to have the Requisite Intention. He has no notice of such intention in any event.

G.  The Petitioner’s Case

47.  At trial, the Petitioner said, inter alia, that:

(1)  She took care of Father before he passed away in 2008.

(2)  She obtained the one-way permit on 20 October 2010 and came to Hong Kong. She resided at various places including the Ancestral Tong, Lot 109 and its vicinity.

(3)  The 1^st Respondent provided her with financial support through Sister.

(4)  She met the 1^st Respondent a few days prior to the death of Sister in 2017.

(5)  She maintained that she separated with the 1^st Respondent on 20 October 2010, which is the date when her one-way permit was issued.

(6)  She has no knowledge of the Deed of Partition, the Assents and the Deed of Gift prior to the present proceedings.

48.  The Respondents maintained that they have not seen the Petitioner since the date of separation. The Respondents contended that the Petitioner’s evidence about her residence in the Ancestral Tong or its vicinity after she obtained the one-way permit was not true, and she had not even mentioned the above in the affirmations.

49.  The Petitioner questioned the veracity of the Respondents’ evidence concerning the Division of Ancestral Assets, especially the Respondent’s evidence that it was triggered by Uncle’s litigation in 2015. The Petitioner contended that:

(1)  According to the land search record, Uncle transferred his interest in the 3 Lots to his son (Cousin) on 21 December 2015, there would be no risk of the 3 Lots being subject to enforcement by the plaintiff in that civil action.

(2)  The Deed of Partition is only an agreement between Cousin and the Brothers. It is not related to Uncle. It is inaccurate to describe the Deed of Partition as Division of Ancestral Assets.

(3)  Even if the Deed of Partition was triggered by Uncle’s litigation, the Respondents could have completed it in 2016 after the Letters of Administration of Father’s estate was issued.

50.  As to the Respondent’s contention that the Deed of Gift was signed by the 1^st Respondent in January 2019, the Petitioner contended that it is not credible for the following reasons:

(1)  The Deed of Gift could not be effective after the grant of Letters of Administration of Sister’s estate in September 2019. Leung Kin & Co could not and should not arrange for the signing of the same in January 2019. Especially, there are specific references in the Assents to the Deed of Partition dated 18 June 2019 and the grant of the Letters of Administration of Sister’s estate on 20 September 2019. It is not possible for anyone to put these dates in the documents for the Respondents' signature in January 2019.

(2)  The 1^st Respondent had not disclosed the Deed of Gift and the Assents in his Form E dated 23 October 2019. Given the closeness in time with the date of the Deed of Gift, there is no reasonable explanation provided by the 1^st Respondent on the coincidence in time and the lack of disclosure of the disposition in Form E.

H.  Decision

51.  The core issue is whether or not the 1^st Respondent disposed of his interests in the 3 Lots with the Requisite Intention. By operation of the rebuttable presumption stipulated in Section 17(3) of the Ordinance, the 1^st Respondent shall show on a balance of probabilities that he did not have the Requisite Intention at the material times.

52.  The Petitioner did not dispute the Respondents’ evidence on the origin and the uses of the 3 Lots. The Respondents have adduced documentary evidence including the land search records and photos in support of the same.

53.  Given the agreement to permit Father’s Cousin to reside in Property A during his lifetime and the use of Property B as the Ancestral Tong, it is unlikely that the 1^st Respondent’s one-fourth interests in these lands can be realised for his own benefit in the near future.

54.  I accept the 1^st Respondent’s evidence that he would be required to contribute to the costs of repair and maintenance of the Ancestral Tong if he owns an interest in Property B, and he did not want to be subjected to this obligation.

55.  The fact that the 1^st Respondent required financial assistance from his brothers for the building of his house on Lot 109 (which was not disputed by the Petitioner) supported the 1^st Respondent’s evidence that he did not have much financial resources to pay the possible costs for maintenance of the Ancestral Tong.

56.  I accept the reasons put forward by the 1^st Respondent for the gift of his interests in the 3 Lots to his eldest brother, the 2^nd Respondent.

57.  If the purpose of the Deed of Gift was to defeat the Petitioner’s claim for financial provision, there is no need nor any logical reason for the Younger Brothers to give up their interests in favour of the 2^nd Respondent as well.

58.  On the face of the copy of the Deed of Gift before the court, the Respondents and Brother W signed on the same page next to the same execution clause, while Brother M signed on a separate page next to a separate execution clause. Similarly, in the two Assents, the signatures of the Respondents and Brother W were on the same page while Brother M signed on a separate page next to a separate execution clause. This gives credence to the Respondents’ evidence that the Assents and the Deed of Gift were executed by Brother M on a date different from the date of execution by the Respondents and Brother W.

59.  The Petitioner argued that the date of the Deed of Partition (18 June 2019) and the date of the Letters of Administration of Sister’s estate (20 September 2019) were stated in the body of the Assent, the Respondents could not have these dates in January 2019. Therefore, the Petitioner argued that the Assent, and a fortiori, the Deed of Gift could not have been signed by the Respondents before the grant of the Letters of Administration of Sister’s estate. There is some force in this argument. However, this alone is not sufficient to establish that the 1^st Respondent’s reasons for disposing of the 3 Lots are not credible, nor that the Deed of Gift was not signed in January 2019. Even if the Deed of Gift was signed after the commencement of divorce proceedings, this alone, when considered in light of the totality of the evidence received by this court, is not sufficient to dispel the 1^st Respondent's evidence on his intention to make the disposition.

60.  It is also of note that the Petitioner and the 1^st Respondent had separated for many years. There is no evidence that the 1^st Respondent anticipated the petition for divorce after the long period of separation.

61.  The Petitioner contended that the 1^st Respondent and her separated on the same date when she obtained the one-way permit and came to Hong Kong. This contention is rather odd. In any event, I do not consider the date of separation (whether it was in 2009 as the 1^st Respondent contended, or in 2010 as the Petitioner contended) has any material impact on the 1^st Respondent’s intention to make the Deed of Gift in 2019. I do not need to make a finding on the date of separation at this stage. The dispute on whether the Petitioner had resided in the 1^st Respondent’s property after the date of separation is red herring.

62.  I find that the 1^st Respondent’s disposition of the 3 Lots was not intended to defeat the Petitioner’s claim for financial provisions.

63.  Having found that the 1^st Respondent did not have the Requisite Intention, there is no need for me to deal with the second issue on the bona fide of the 2^nd Respondent in connection with the disposition. For the sake of completeness, I accept the 2^nd Respondent’s evidence that he did not know the existence of the present divorce proceedings when the Deed of Gift was executed and completed. I also accept that the 2^nd Respondent acted in good faith in the transaction without notice of the Requisite Intention of the 1^st Respondent.

64.  By reasons of the above, I dismiss the Petitioner’s application, and make an order nisi that the Petitioner pays the 1^st and 2^nd Respondents the costs of this application, with certificate for counsel, to be taxed if not agreed. The above costs order will become absolute if there is no application to vary within 14 days. The Petitioner’s own costs to be taxed in accordance with the Legal Aid Regulations.