LCH v. WPSN

FCMC 1936/2020

[2024] HKFC 81

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 1936 OF 2020

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J U D G M E N T

(Master’s Appeal: Charging Order Absolute)

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1.  This is a hearing of the Petitioner Husband (“H”)’s appeal against the Charging Order Absolute (“COA”) granted by Master TK Lam of the Family Court on 15 December 2023 in respect of the property in Tseung Kwan O, New Territories (“the TKO Property”).

2.  The Respondent Wife (“W”) opposed the appeal.

3.  After hearing counsel submissions, I have decided to make the following orders:

(1)  The COA with interest and costs being granted on 15 December 2023 to be set aside.

(2)  A preliminary issue on the beneficial ownership of the TKO Property to be tried before the determination of the COA.

(3)  A call-over hearing to be fixed before a Master for directions on the preliminary issue with 30 minutes reserved, and the parties’ proposed directions are to be lodged and served at least 7 days before hearing.

4.  These are my reasons.

Background

5.  The parties were married in 2014.

6.  Within wedlock, they have 2 daughters, now aged 9 and 8 respectively.

7.  On 20 April 2020, H issued a petition for divorce based on behaviour. A decree nisi of divorce was granted on 2 February 2021, which was later made absolute on 29 March 2021.

8.  On 30 November 2020, 2 consent orders were made. The first one was a joint custody order in respect of the 2 daughters with detailed shared care arrangement. The second consent order was for H to pay the daughters’ maintenance at the rate of HK$30,000 per month (HK$15,000 each) until they reach the age of 18 or cease full time education, whichever is later. In Recital C of the second consent order, H also undertook to pay the daughters’ school and related expenses.

9.  As far as ancillary relief between the parties is concerned, a consent order was made on 2 February 2021 (“the AR Order”) in which W would accept, inter alia, a lump sum of HK$3,500,000 payable by instalments in full and final settlement of the parties’ respective claim for ancillary relief. As part of the consent order, W expressly agreed not to make claims on 3 properties held under the name of H, including the TKO Property.

10.  Despite the granting of decree absolute and the making of various consent orders, the parties’ dispute on various fronts continue. On 14 September 2023, H issued a summons asking for a discharge of the undertakings in Recital C to E of the second consent order dated 30 November 2020 and for the variation of the daughters’ maintenance downward to a monthly sum of HK$20,900. I am given to understand that the next call-over hearing of H’s variation application has been fixed on 21 May 2024.

11.  In the month of October 2023, H only paid a sum of HK$4,325 for the daughters’ maintenance leaving the sum of HK$25,675 outstanding. As a result, W issued an ex-parte application on 31 October 2023 for a Charging Order on the TKO Property. A Charging Order: Notice to Show Cause (or commonly known as Charging Order nisi) (“CON”) was granted by HH Judge Own with a return date on 15 December 2023 before Master TK Lam. On the return date, H acted in person and raised objection to the CON, submitting that he had no beneficial interest in the TKO Property. Despite such objection, the learned Master made COA on the TKO Property for the sums of HK$25,675 as arrears of maintenance, HK$185.66 as interest and HK$6,100 as costs.

12.  H being dissatisfied with the COA, issued his summons on 27 December 2023 (A/1-2) to appeal against the Master’s decision. The appeal was fixed before this court for argument.

Master’s Appeal

13.  Appeal from decisions of a Master to a judge in chambers is as of right under s.63 (1A) of the District Court Ordinance, Cap.336:

“63…

(1A) Subject to subsection (1B), an appeal lies as of right to a judge in chambers from a judgment, order or decision of a master in any civil cause or matter.

…”

14.  When the appeal comes before the judge in chambers, it is to be dealt with by way of actual rehearing of the application and the judge treats the matter as though it came before him for the first time: Hong Kong Civil Procedure 2024 §58/1/2.

H’s Submissions

15.  H was represented by Ms. Bridget Huang of counsel. According to Ms. Huang, H’s case for appeal is three-fold:

(1)  W’s failure to draw the court’s attention to the dispute on the beneficial ownership of the TKO Property when applied for the CON.

(2)  There was sufficient evidence to show a genuine claim of proprietary interest in the TKO Property by H’s mother.

(3)  It is an obvious case of over-security on the TKO Property for such a small debt of HK$25,675.

Failure to draw the court’s attention at the CON stage

16.  As submitted by Ms. Huang, W has failed her duty to make full and frank disclosure when she made her ex-parte application for a CON in deliberately refraining from informing the court that there might be a genuine dispute on the beneficial ownership of the TKO Property. It was submitted that during the course of negotiation for a settlement of the parties’ AR claims, H has already disclosed in his Form E and subsequent discovery that all payments for the TKO Property were paid by his mother, including all outgoings and mortgage repayments, and that he only held the TKO Property on trust for his mother. That was why when the parties entered into the settlement agreement, it was expressly provided at Recital D of the AR Order that for the avoidance of doubt, W would not make any claims against some properties, including the TKO Property. In H’s mother’s 2^nd Affirmation filed on 14 September 2023 (§25, A/56), that position was reiterated but W still decided not to inform the court at the ex-parte stage, and therefore rendering the CON to be set aside. Ms. Huang referred this court to the case of Hwang Joon Sang and Another v. Golden Electronics Inc. and Others[1] setting out the principles on setting aside an ex-parte injunction in which Coleman J stated at §37:

“37. The guiding principles on material disclosure are well-established. For present purposes they can be summarised as follows, without reference to previous authority:

(1) An applicant making ex-parte application must act fairly in all material aspects when preparing and presenting the application.

(2) This includes the duty to disclose to the Court all matters which are material, meaning those matters material to the court’s assessment and decision whether or not to grant the relief without notice, and if so on what terms.

(3) The test as to materiality is an objective one, and ultimately a question for the court. Hence, it is no excuse for an applicant subsequently to say that he was generally unaware, or did not believe, that the facts were relevant or important.

(4) Non-disclosure may be material even if its effect is just to give a serious different ‘flavour’ to the case.

(5) The duty of full and frank disclosure is a stringent one, designed to protect the absent party.

(6) Therefore, if material non-disclosure has occurred at the ex-parte application, the order obtained at such an application would likely be set aside automatically without going into the merits.

(7) Nevertheless, there is a discretion to re-grant the same order. That jurisdiction should be only sparingly exercised, taking into account the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(8) Hence, an assessment will be made as to the degree and extent of the culpability with regards to the non-disclosure. The more serious or culpable the non-disclosure, the more likely the court is to set aside and not renew it, however prejudicial the consequences.

(9) It is therefore relevant that the breach was innocent, but there is no general rule that innocent breach will not attract sanction of discharge. Nor is there a general rule that a deliberate breach will attract such sanction.

(10) The application of principles which seek to uphold the integrity of the judicial process should not be carried to such lengths as will allow them to become the instrument of injustice.

(11) Because of the penal nature of the jurisdiction, the court should have regard to the proportionality between the punishment and offence.

(12) When exercising the discretion whether to re-grant the order. The court should take into account all relevant circumstances.”

Discussion

17.  I think there can be no dispute that a charge can only be imposed on a property that is beneficially owned by the judgment debtor: s. 52AA(1) of District Court Ordinance, Cap.336:

“52AA. Property which may be charged

(1) Subject to…., a charge may be imposed by a charging order under this Ordinance only on -

(a) an interest held by the judgment debtor beneficially –

(i) in an asset of a kind mentioned in sub-section (2); or

…

(2) The assets referred to in subsection (1) are –

(a) land;

…” (underline added)

Therefore, whether the property (i.e. the TKO Property in the present case) is beneficially owned by H is an important consideration in the court’s determination on whether a Charging Order should be granted.

18.  If one should look at the history of the case, H’s stance that he was only holding the TKO Property on trust for his mother must be known to W. Of course, whether such assertion has any merit may need a trial to determine. However, it is my view that such information should be disclosed at the ex-parte stage as W has a clear duty to inform the court of any possible defence by H even though such information may be detrimental to her case. Regrettably, W has failed in that duty.

19.  The next and more pertinent question to be asked is: in view of W’s failure to disclose such information in her ex-parte application, should the CON be set aside?

20.  My answer to such question is no. Or even if yes, it is my view that the CON should be re-granted under the circumstances of this case.

21.  In reaching this conclusion, one has to bear in mind that there is clear authority to say that at least prima facie, legal ownership is presumed to be the same as beneficial ownership: Stack v Dowden [2007] 2 AC 432 at §§56, 68. The onus is upon the person seeking to persuade the court that the beneficial ownership is different from the legal ownership. The whole scheme of Charging Order as a tool for enforcement is entirely consistent with that approach. The CON was granted against a legal owner who is presumed to be the beneficial owner in order to preserve the property in question, but with an opportunity given to the judgment debtor to show cause why the CON should not be made absolute.

22.  In the present case, the onus is upon H to show that the beneficial ownership of the TKO Property belongs to his mother. In my view, there is nothing wrong in procedure, nor any prejudice would be caused for the CON to be granted in the first place but with a return date for H to show cause why the interim order should not be made absolute.

23.  If one should look at it from another angle: what if the dispute on beneficial ownership is made known to the court at the ex-parte stage? Will the court refuse to make the CON? In exercising my discretion afresh, I have no hesitation in granting the CON in order to preserve the TKO Property, but would allow H or his mother to try to persuade this court that the beneficial ownership does not belong to H at the COA stage.

Is there a genuine claim of proprietary interest in the TKO Property by H’s mother?

24.  At §26 of her submissions, Ms. Huang for H set out all the evidence that tend to show a genuine dispute on the beneficial ownership of the TKO Property. I would highlight the more important evidence here below:

(1)  In his Form E as early as 2020, H has already indicated that the TKO Property was held by him on trust for his parents. In reply to W’s Questionnaire, H answered that there was no trust document being executed and the foundation of the trust was based on mutual understanding.

(2)  H has also provided evidence that the purchase moneys for and outgoings of the TKO Property were provided by his mother or parents.

(3)  There was evidence that the rental income of the TKO Property went into the bank account of H’s mother, suggesting that she was the beneficial owner of the property.

(4)  When the parties negotiated for a settlement of their AR claims, W has expressly agreed not to make claim against 3 properties under the name of H, one of which was the TKO Property. In the settlement, W accepted a relatively small lump sum of HK$3,500,000 payable by instalments, leaving aside the 3 properties, including the TKO Property, which were worth tens of millions of dollars in value. These, according to Ms. Huang, suggested that W has already accepted the 3 properties, including TKO Property does not really belong to H beneficially.

25.  Ms. Fiona Chong, counsel for W counter-argued that:

(1)  The fact of H’s mother paying the purchase moneys is also consistent with a gift of the TKO Property to H.

(2)  Despite the fact that W agreed not to claim the 3 properties, including the TKO Property, there was no acknowledgment or agreement that W accepted H had no beneficial interest in the TKO Property. The settlement sum of HK$3,500,000 accepted by W also did not necessarily lead to the inference that she must have accepted H having no beneficial interest in the properties.

(3)  H’s mother’s case on beneficial ownership is rather confusing. At one stage, it was H’s case that both of his parents were beneficial owners of the properties, but at present, it was argued that just H’s mother is the beneficial owner. Moreover, H’s mother has not even applied to join in the proceeding to assert her beneficial ownership.

My View

26.  The present issue before the court is not whether this court accepts H’s case that the TKO Property belongs to his mother (or his parents) beneficially. The court only concerns with whether there is a genuine claim on beneficial ownership to be tried. By looking at the overall evidence, whether disputed or undisputed, and in particular by reference to the evidence described in paragraph 24 above, I have come to the conclusion that there is indeed a genuine claim by H’s mother on the beneficial ownership of the TKO Property. Of course, whether the court will accept H or his mother’s case on beneficial ownership at the end of the day has to depend on evidence and the outcome of the trial.

27.  Upon the court’s acceptance of a genuine claim on beneficial ownership, the next issue is what approach should be adopted in respect of W’s Charging Order application. The proper approach could be found in Po Kwong (China) Stone Ltd. v. Cheung Wai Wah t/a Axis Zone Interior Design [2] in which Cheung JA adopted the English approach of ordering a preliminary issue on beneficial ownership to be tried. His Lordship stated at §§11-12 of the Court of Appeal judgment:

“11. Although Rule 3 seems to suggest that the only choice that is available to the court on the further consideration of the case is to impose the charging order absolute or to discharge the charging order nisi, the English courts have interpreted the provisions in such a way as to allow the court to direct an issue to be tried on whether the judgment debtor in fact holds any beneficial interest in the property sought to be charged. In Rosseel N.V. v. Oriental Commercial and Shipping (UK) Ltd. and others (Hearing date 8 October 1991 Lexis Nexis Transcript) Parker LJ of the English Court of Appeal stated that

‘Where there is a real dispute, it is, as it seems to me, necessary in order to do justice that an issue should be tried and the court can in the exercise of his power to regulate its own procedure direct such issue. ’

In that case a dispute on the beneficial ownership of the charged property.

12. We will respectively adopt the same approach as well. In an usual case, unless the natter is clearly unarguable, the question as to whether a registered owner of a piece of land is holding the beneficial interest on trust for someone who provided the purchase price can only be resolved by a trial. We do not see why there should be any difference in approach when the judgment creditor is applying for a charging order. In our view the defendant has provided sufficient evidence for the issue to be tried. She has produced sufficient evidence to show the mother paid for the deposits and for a substantial period, the mother paid for the mortgage repayment. This is not a case that can be determined on affidavit evidence alone. What the defendant and her mother said on affidavit must be tested in cross examination.”

28.  I will adopt the same approach in directing that the issue on the beneficial ownership of the TKO Property is to be tried before determination of whether the CON should be made absolute. For this reason, the COA granted on 15 December 2023 has to be set aside.

29.  For the way forward, I have thought of giving procedural directions for the filing of pleadings on the preliminary issue of beneficial ownership. But at the end of the day, I am of the view that a call-over hearing should better be fixed before a Master for such purpose, with 30 minutes reserved. The fixing of such hearing will allow time for H’s mother to apply for joinder, if she deems it necessary. Moreover, it will also give the parties sometime to reflect on whether a full blown trial on beneficial ownership is really necessary. After all, the amount of arrears of maintenance is relatively small and at the same time, there is already a pending application for variation, the determination of which will have an important impact on the charging order application.

The issue of over-security

30.  The last ground of H’s appeal is that in view of the very small amount of judgment debt (HK$25,675), it was not a proper exercise of the court’s discretion to make a charging order on such a valuable asset of the TKO Property, which indisputably worth at least a few millions of dollars if not more: Chan Miu Cheung v. Prague Enterprises Ltd. [2012] 3 HKLRD 414 at §39.

31.  On the other hand, Ms. Chong for W submitted that over-security is only one of the factors that the court may consider in exercising its discretion. The TKO Property is the only property under the name of H in Hong Kong and up to date, H has made no proposal on repayment of the outstanding children maintenance. More importantly, the amount of arrears of maintenance is continuing and at time of COA (i.e. December 2023), the total arrears of maintenance has already accumulated to HK$74,215. It would be unreasonable to suggest that the total amount of arrears has to snowball to a sufficiently large sum before a charging order is justified.

32.  In my view, an important feature of outstanding children maintenance is its continuing nature. The sum of arrears is mounting every month. Therefore, one cannot view it as an ordinary judgment debt, which is more or less static except with interest to be added. I accept Ms. Chong’s submission that it is totally unreasonable to require the outstanding children maintenance to be snowballed to a bigger sum before a charging order could be applied for.

Orders

33.  Based on the above discussion, I hereby make the following orders:

(1)  The COA with interest and costs being granted on 15 December 2023 to be set aside.

(2)  A preliminary issue on the beneficial ownership of the TKO Property to be tried before the determination of the COA.

(3)  A call-over hearing to be fixed before a Master for directions on the preliminary issue with 30 minutes reserved, and the parties’ proposed directions are to be lodged and served at least 7 days before hearing.

Costs

34.  Although H succeeded in having the COA set aside, but the overall charging order application is still at large. Whether such application is successful very much depends on the outcome of the preliminary issue. In the circumstances, I would make an order nisi that the costs of this Master appeal to be costs in the cause of the charging order application, with certificate for counsel. This costs order nisi is to be made absolute upon the expiry of 14 days from the handing down of this judgment.

35.  Last but not least, I thank counsel for their assistance.