TYP v. CWY AND ANOTHER

FCMC 12184 / 2021

[2025] HKFC 92

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 12184 OF 2021

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DECISION

(Discovery, Injunction, Valuation of Property)

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A.  The Applications

1.  Before me are 3 Summonses filed by R1: two Discovery Summonses and an Injunction and Valuation Summons.

2.  By the 1^st Discovery Summons filed on 25 January 2024, R1 sought against P and R2 for disclosure of B Limited’s financial statements for the years 2004 to 2014 and all documents used for the purpose of valuation.

3.  By the 2^nd Discovery Summons filed on 27 January 2025, R1 sought against R2 for disclosure of:

3.1.  Financial statements of B Ltd for the years 2001 to 2005 and 2015; and

3.2.  Financial statements of M Limited for the years 2005 to 2024.

4.  By the Injunction and Valuation Summons filed on 27 January 2025, R1 sought the following reliefs:

4.1.  Appointment of a single joint expert (“SJE”) to give an opinion on the market value and rateable value of B Property and HL Property, for the latter, as at September 2017; and

4.2.  an injunction to restrain any transfer or mortgage of those properties.

5.  The 1^st Discovery Summons was filed on the same day of R1’s Section 17 Summons. On 20 February 2024, this Court adjourned the 1^st Discovery Summons to be heard after the determination of R1’s application to join R2 in the Section 17 Summons. By an Order dated 11 July 2024. R2, the younger sister of P, was joined in the 1^st Discovery Summons and the Section 17 Summons as the 2^nd Respondent.

B.  Background

B1.  The Parties and the divorce

6.  P and R1 have separated since around 2013 or 2015.

7.  It was R1’s case that P deserted him and two daughters in May 2015 and moved to stay in the Mainland with her boyfriend.

8.  P presented the petition in 2021. The decree nisi was granted on 12 August 2022. Both P and R1 have ancillary relief claims against each other.

B2.  B Limited and B Property

9.  B Limited was incorporated in around 2001. The initial shareholders of B Limited were R2’s husband (“R2 Husband”) (50%), P’s mother (“Mother”) (25%) and P (25%).

10.  It was R2’s case that:

10.1.  All the initial capital of B Limited was paid by R2 and R2 Husband.

10.2.  Mother had mortgaged her property to open a financing account for B Limited.

10.3.  No consideration was paid by P for her 25% shares in B Limited. P was named as a shareholder because Mother wished to include her in name, but both P and R2 knew that the 25% shares in the name of P was held on trust for R2.

10.4.  On around 6 February 2004, R2 and R2 Husband purchased B Property under the name of B Limited at the consideration of HK$2,210,000. P did not contribute to the purchase of the B Property.

10.5.  On around 12 May 2014, P transferred her 25% shares in B Limited to R2 at nil consideration. P also resigned as a director of B Limited on the same day.

11.  For completeness, I should state that Mother passed away and left a Will made in May 2014 under which Mother bequeathed all her estates to R2. R1 contended that the Will was made about 1 year prior to the parties’ separation and was made for the purpose of excluding him from the interest of Mother’s estate. There was no application before the Court concerning the Will. The Will is not relevant to the applications now before me.

B3.  M Limited and HL Property

12.  M Limited was incorporated in October 2005.

13.  It was R2’s case that:

13.1.  M Limited was incorporated by R2 after she left her former employer.

13.2.  On around 21 January 2009, R2 purchased the HL Property at the consideration of HK$1,390,000 for her own use.

13.3.  The HL Property was registered in the name of R2 and P as tenants in commons, but it was their understanding that P was holding the interest on trust for R2.

13.4.  The purchase was entirely funded by the funds belonging to M Limited, which was wholly owned by R2. P did not make any financial contribution to the acquisition nor other miscellaneous expenses including commission, rates, management fees etc.

13.5.  On 21 September 2017, P transferred her interest in HL Property to R2. P did not receive any payment from R2 for this transfer because the initial purchase price for the HL Property was paid entirely by R2 through M Limited.

14.  R1 accepted that P is not a legal shareholder of M Ltd. His case was that P had participated in the operation of M Limited, and she (together with R2) were allocated M Limited’s profits. In January 2009, they used the profit from the operation of M Limited to purchase HL Property.

B4.  R1’s Section 17 Application

15.  On 25 January 2024, R1 took out the Section 17 Summons seeking the joinder of R2 as a party to these proceedings (the joinder was granted by an Order dated 11 July 2024), and the setting aside of the following transactions:

15.1.  P’s transfer of 25% shares in B Limited (“Transferred B Shares”) to R2 on 12 May 2014; and

15.2.  P’s transfer of 50% interest in HL Property to R2 on 21 September 2017.

C.  The 1^st and 2^nd Discovery Summons

C1.  Legal principles

16.  R1 did not specify in the Summonses nor his submission the rules that he relied on for his discovery applications.

17.  By virtue of Rule 3 of Matrimonial Causes Rules, Order 24 of the Rules of High Court is applicable to the present proceedings with necessary modification.

18.  Specific discovery may be made under Order 24 rule 7. In essence, under Order 24 rule 7,

18.1.  The applicant has to establish a prima facie case that (a) the document exists which the other party has not disclosed; (b) the document relates to a matter in issue in the action (in the present context, issue in the Section 17 Summons); and (c) the documents are in the possession, custody or power of the other party.

18.2.  The test of relevance is the Peruvuan Guano test.

18.3.  Further, the Court has to be satisfied that the discovery sought is necessary or necessary at that stage either for disposing fairly of the cause or matter or for saving costs (Order 24 rules 8 and 13).

18.4.  The application should not be a “fishing” exercise, nor should it be oppressive.

See: Jade’s Realm Ltd v Director of Lands, HCA 1509/2012, 9 January 2015; Lee Nui Foon v Ocean Park Corp (No 1) [1995] 2 HKC 390 at 391-3; Paul’s Model Art GMBH v UT Ltd [2006] 1 HKC 238 at §§ 24 & 32.

19.  It is not the purpose of discovery to allow a party an opportunity to prowl through the extensive documents in the hope to find improprieties or materials to make further enquiries: In the estate of Ng Chan Wah, Deceased, HCAP 5/2003, 5 March 2003 §16.

C2.  Scope

20.  The 1^st Discovery Summons was filed against P and R2.

21.  The 2^nd Discovery Summons was against R2 only.

22.  Prior to the 2^nd Discovery Summons, R2 had voluntarily disclosed to R1 B Limited’s financial statements for the periods from 2006 to 2014 (9 years) for saving time and costs:

22.1.  2006 to 2009 financial statements of B Limited were provided to R1 via P’s solicitors in July 2024, prior to R2 having been joined to these proceedings;

22.2.  2010 to 2014 financial statements of B Limited were provided on 14 October 2024.

23.  The above disclosure effectively disposed of the 1^st Discovery Summons except for B Limited’s 2004 and 2005 financial statements, which were covered by the 2^nd Discovery Summons.

24.  The documents in issue are those sought in the 2^nd Discovery Summons, in which R1 has widened the scope of discovery to cover 2001 to 2005 and 2015 B Limited financial statements and 2005 to 2024 M Limited financial statements.

25.  During the hearing, R2 agreed to provide 2015 B Limited financial statements to R1 purely for saving time and costs and without prejudice to her position that R1 is not entitled to the discovery sought.

26.  Hence, the parties agreed that what remained to be considered are disclosure of (a) 2001 to 2005 B Limited financial statements (“B Documents”) and (b) 2005 to 2024 M Limited financial statements (“M Documents”). The scope of discovery was wide. It covered financial statements prepared 24 years ago and in the spread of more than 20 years.

C3.  Existence, possession, custody and power

27.  R1 did not dispute that there is no obligation for a company to keep documents beyond 7 years. He submitted that since R2 had provided financial statements and some other documents dated more than 7 years ago, she must have the financial statements sought albeit beyond 7 years. I am unable to accept this submission.

28.  R2 has stated in her affirmation that (a) 2001 to 2005 B Limited financial statements, and (b) 2005 to 2017 M Limited financial statements are not in her possession, custody and power. There is no evidence before this Court to suggest that R2’s above statements deposed in affirmations are not true or unlikely to be true.

29.  As for financial documents within 7 years (i.e. from 2017 onwards), there is a prima facie case that these documents exist and are in the possession of the respective company which is controlled by R2.

C4.  Relevance – B Documents

30.  R1 submitted that B Documents are relevant for determining the value of the Transferred B Shares, whether the Transferred B Shares has no value, and whether disposal by P was unreasonable.

31.  P and R2 accepted that the Transferred B Shares have value because B Limited was holding a landed property. Their case was that P transferred them to R2 without consideration because P was holding on trust for R2. If they fail to establish the trust relationship, in other words, they fail to show that P did not have beneficial interest in the Transferred B Shares, this would suggest that P had disposed of her valuable assets to R2 with no consideration. It is not necessary to determine the value of the Transferred B Shares either for disposing fairly of the Section 17 Summons or for saving costs.

32.  The subject transfer was made in May 2014. R1 failed to show how the financial statements dated back to 2001 to 2005 are relevant.

C5.  Relevance – M Documents

33.  R1 submitted that M Documents are relevant to show the fund flow of M Limited’s profits and the acquisition of HL Property. His case was that P was entitled to the profits of M Limited and had used the profits she received from M Limited to pay for part of HL Property’s purchase price.

34.  P is not and has never been a shareholder of M Limited. The Memorandum of Association of M Limited produced by R1 showed that R2 was the sole shareholder of M Limited. At the hearing, R1 accepted that P was not a legal shareholder of M Limited.

35.  R1 referred to a bank slip stating that P had income from M Limited. However, there is no evidence to show the nature of this income nor the capacity in which P received this income. Specifically, one cannot deduce from the bank slip that P was entitled to a share in the profits of M Limited.

36.  R1 further referred to P’s participation in the operation of M Limited. However, participation in a company’s activities can be in many different roles, e.g. employee. It does not necessarily mean that P has beneficial interest in M Limited or a right to share the profit of M Limited. There is no prima facie evidence of P’s entitlement to the profit of M Limited.

37.  Further, the issue is whether P has any beneficial interest in the 50% of HL Property (not M Limited) prior to the disposal of the same to R2. The source of acquisition fund is an indication but not conclusive factor.

C6.  Conclusion on Discovery Application

38.  The cases cited by R1 do not assist him. These cases either relate to different issues or are fact sensitive.

39.  By reasons of the above, the 1^st and 2^nd Discovery Summons ought to be dismissed.

D.  Injunction and Valuation Summons

D1.  Injunction application

40.  The legal principles on granting injunction in matrimonial proceedings are trite: see CCL aka L, CC v JRC aka C, JR (Injunction) [2021] HKFLR 202 §§37-43.

41.  For completeness, at the call over hearing, R2 offered in her counsel’s written submissions that she was willing to provide an undertaking not to dispose of these properties on an interim interim basis pending the determination of the Injunction Summons. Nothing materialised from that offer.

42.  The injunction application should be dismissed for the following reasons:

42.1.  B Property belongs to B Limited, which is not a party to these proceedings.

42.2.  There is not a shred of evidence to suggest any likelihood of movement or dissipation of B Property or HL Property with the intention to defeat R1’s claims for ancillary relief.

42.3.  R1 has not shown that he has a proprietary interest in these properties.

42.4.  R1’s claim, even if proved, can be compensated in monetary terms.

42.5.  At the hearing, R1 was not able to give undertakings as to damages if it turns out that the injunction should not be granted.

42.6.  The balance of convenience in favour of refusing the grant of an injunction.

42.7.  The cases cited by R1 are either unrelated to the issues or fact sensitive to individual cases. They do not assist R1’s claim.

D2.  Valuation application

43.  R1 cannot show the necessity to have a valuation of the 2 properties for the purpose of adjudicating the Section 17 Summons.

44.  The valuation of HL Property may be marginally relevant because of R1’s allegation of a transfer undervalue. It is however of note that P and R2 accepted that P had not received any consideration from the transfer. The main issue is whether P was holding the property on trust for R2. If this is established, it will likely be the end of the matter. If this is not established, irrespective of whether the named sale price was undervalue or not, the Court may proceed to consider whether the transaction was made with an intent to defeat the ancillary relief claims.

45.  If it is for the purpose of the dispute in the ancillary relief, a valuation at this stage is premature and may become outdated at the time of the trial.

46.  Therefore, it is not apt to order the appointment of a SJE for valuation of the two properties for the purpose of Section 17 Summons. This does not prevent R1 from filing his own evidence to support the allegation of sale at undervalue, if he so wishes.

E.  Order

47.  For the reasons set out above, the two Discovery Summonses and the Injunction and Valuation Summons are dismissed.

48.  There is no reason to depart from the starting point of costs follow the event.

49.  The hearing bundles contain about 1,400 pages. R1’s allegations and arguments have not been put in such clarity that one would prefer to see. It takes some extra time to go through the materials and his arguments. I thank Mr Li and Ms Chui for their helpful assistance to the Court.

50.  I make an order nisi that R1 do pay the costs of P and R2 in these 3 Summonses, on party and party basis with certificate for counsel, to be taxed if not agreed. P’s own costs be taxed in accordance with the Legal Aid Regulations.

51.  R1 may, if he so wishes, make an appointment with the Court for interpretation of this Decision to him in Cantonese in the Court building.