RE LI KAM KWAN

[English Translation – 英譯本]
HCB 749/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT BANKRUPTCY PROCEEDINGS NO. 749 OF 2005

-------------------------------------

-------------------------------------

HCMC 3/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT MATRIMONIAL CAUSES NO. 3 OF 2006

-------------------------------------

BETWEEN

-------------------------------------

(Consolidated Hearing)

------------------------

JUDGMENT

------------------------

Applications in bankruptcy and matrimonial proceedings

1. Mr Li Kam Kwan and Madam Ho Chui Fan (何翠芬) were husband and wife. On 15 April 2004, Madam Ho took out divorce proceedings in the District Court, seeking custody of her 3 daughters and a number of orders for financial provision. The District Court granted a divorce decree nisi on 25 April 2005. On 25 May 2005, the District Court granted custody of the 3 daughters to Madam Ho, subject to reasonable rights of access by Mr Li.

2. In the course of the matrimonial proceedings, Mr Li instituted proceedings in the High Court on 26 January 2005, applying for a bankruptcy order on the ground that he was insolvent. He had never notified Madam Ho of his bankruptcy petition. On 15 March 2005, in the absence of any objection to the petition, the Master made a bankruptcy order against Mr Li.

3. On 8 July 2005, Madam Ho issued a summons in the bankruptcy proceedings, by which she applied to annul the bankruptcy order pursuant to section 33(1)(a) of the Bankruptcy Ordinance (Cap. 6). The grounds for the application was that Mr Li was in fact solvent when he petitioned for bankruptcy, that he had deliberately concealed his assets and income and exaggerated his liabilities and expenses, and that his bankruptcy petition was an abuse of process intended to defeat Madam Ho’s application for financial provision. Although Madam Ho was not a creditor (the interim maintenance owed by Mr Li was not regarded as a debt for the purpose of the bankruptcy proceedings), her interests were obviously affected by the bankruptcy order, and therefore she was entitled under section 33(6) to apply to annul the bankruptcy order (Re Cheuk On Ching, HCB No. 10013 of 2001, Deputy Judge Poon, 7 May 2004, paras. 10 to 14).

4. As the evidence adduced by both parties in the application to annul the bankruptcy order was by and large the same as that adduced in the relevant applications in the matrimonial proceedings, the two actions should be heard together. On 4 January 2006, I adjourned the hearing of the summons for annulling the bankruptcy order and suggested that the parties first apply to the District Court to have the matrimonial proceedings transferred to the High Court. An order for transfer was made by District Judge Chan on 3 March 2006. On 30 March 2006, I ordered that the application to annul the bankruptcy and the applications in the matrimonial proceedings were to be heard together.

5. The matrimonial proceedings involved two applications, both of which were made by Madam Ho. First, she sought an order requiring Mr Li to make financial provision to her and the daughters in the forms of a lump sum and of periodical payments, the former to enable her to purchase a property as residence for her and the daughters, and the latter to enable her to meet their daily expenses. Second, on 2 March 2005, she took out a summons, seeking to set aside the following 3 transactions pursuant to section 17 of the Matrimonial Proceedings and Property Ordinance (Cap. 192):

(1)   On 9 June 2004, Madam Liao Yu Qun, Mr Li’s mother (hereinafter “Li’s mother”) executed an assignment by which she assigned, for a consideration of HK$750,000.00, the property registered under her name and situated at Flat 2, 3^rd Floor, Block A together with Carport No. 1 on Ground Floor of Shun Lung Garden, 33 Shun Lung Street, Sha Tau Kok, New Territories (hereinafter “Shun Lung property”) to Li’s mother and her daughter Madam Li Yue Ling (hereinafter “Li’s sister”) as joint tenants. Madam Ho claimed that Li’s mother was merely a nominal owner of the Shun Lung property and that Mr Li was the beneficial owner of that property.

(2)   On 30 November 2004, Li’s mother and Li’s sister executed an assignment by which they as joint tenants assigned the Shun Lung property to Li’s sister and Ms Liao Pei Qin (hereinafter “Ms Liao”) as joint tenants for a consideration of HK$730,000.00. Ms Liao is the daughter of Li’s mother’s sister. She was aged 18 at the time of execution of the assignment and will be studying in Form 6 this year.

(3)  On 26 March 2004, Mr Li and his elder brother Mr Li Kam Fai (hereinafter “Li’s brother”) executed a second legal charge by which the property registered under Mr Li’s name and situated at Flat C with rooftop, 1^st and 2^nd Floors, Block 8 together with Carport No. 56 of Glamour Garden, 2 Wai Hon Road, Fanling, New Territories (hereinafter “Glamour property”) was mortgaged by way of second charge to Li’s brother as security for a loan of HK$1,000,000.00 by Li’s brother to Mr Li.

6. There were two more applications in the matrimonial proceedings, which I did not deal with at the present hearing. One of the applications, made by Mr Li on 13 December 2004, was for variation of an order of the District Court on 12 July 2004 by varying the amount of interim maintenance payable by Mr Li in the course of the matrimonial proceedings from HK$15,000.00 per month to HK$4,000.00 per month. On 20 December 2004, this application was adjourned to 4 February 2005 to be heard together with a judgment summons issued by Madam Ho on 3 November 2004 (for the reason that Mr Li had only paid maintenance for July and August 2004). On 4 February 2005, the District Court directed that the above application was not to be fixed for hearing until after Mr Li provided the documents and particulars as requested by Madam Ho within a specified period. As at 3 March 2006, the date on which District Judge Chan transferred the case to the High Court, Mr Li had not complied with the order of 4 February 2005 by supplying the requisite documents and particulars.

7. On 30 March 2006, I ordered that the judgment summons be adjourned sine die with liberty to restore. I also ordered that Madam Ho was to provide Mr Li again with the interrogatories seeking documents and particulars and that Mr Li was to provide an answer thereto within 14 days of receipt of the interrogatories. To date, Mr Li has still not complied with the order of the District Court of 4 February 2005 and my order of 30 March 2006 by providing the documents and particulars sought by the other party.

8. In light of the procedure approved by the Court of Appeal in C v C [2004] 1 HKLRD 243, the application for variation of interim maintenance should be heard together with the judgment summons. As it was inappropriate for these two applications to be heard together with the applications for financial provision and for setting aside the transactions, only the latter two applications were dealt with at the present hearing. Furthermore, as the application to annul the bankruptcy order must be heard in open court, the applications in the matrimonial proceedings, which were dealt with at the same time, were also heard in open court.

9. Madam Ho obtained legal aid in both bankruptcy proceedings and matrimonial proceedings and was represented by Mr Tong Ng, Counsel instructed by Messrs. Wong & Poon.

10. In the matrimonial proceedings, Mr Li was represented by Messrs. KF Lau & Co prior to 15 February 2005. In the bankruptcy proceedings, Mr Li was represented by Messrs. Li, Chow & Company until the bankruptcy order was made. Thereafter, Mr Li was unrepresented and his application for legal aid failed. In mid August 2005, Mr Li, Li’s mother, Li’s brother, Li’s sister and Ms Liao filed affirmations respectively, rebutting Madam Ho’s allegations and objecting to her application to set aside the 3 transactions. These affirmations, all of which were drafted by a solicitor surnamed Hui, will be discussed below.

Factual background

11. Mr Li and Madam Ho are aged 30 and 29 respectively. They were married on 31 December 1997. They have three daughters, born in January 1999, August 2000 and November 2002 respectively. The eldest daughter will be studying in Primary 2 as from September of this year, whereas the second and youngest daughters will be studying in Primary 1 and upper kindergarten respectively. The youngest daughter is aged less than 4. She has a slight speech problem and has received medical diagnosis upon recommendation of the kindergarten. A speech therapist has advised that ideally she should receive treatment before she attains the age of 6.

12. During the first two to three years following marriage, Madam Ho still worked as a clerk, earning a monthly salary of about HK$7,000.00. In 2000 she ceased to work and became a housewife.

13. Li’s mother has 5 children, of whom Mr Li is the youngest. This family, comprising 7 members, moved from Yantian, Shenzhen to Hong Kong in 1979 and has lived in Sha Tau Kok ever since. Mr Li’s father, Mr Li Zhao Yong (hereinafter “Li’s father”) and Li’s mother had both worked as construction workers. In 1987, Li’s father started working for the government as a cleaning worker. He retired in late 1999 because of illness and passed away in August 2003.

14. In 2001, Li’s father purchased a property at Room 7C1, Phase 3, Bi Hai Yuan, Huan Cheng Lu, Yantian, Sha Tau Kok (hereinafter “Bi Hai Yuan property”). Madam Ho alleged that the purchase price of the Bi Hai Yuan property was paid by Mr Li, who therefore beneficially owned that property. On 13 February 2003, Li’s father entered into a sale and purchase contract by which the Bi Hai Yuan property was sold at a price of RMB 822,620.00.

15. On 7 March 2002, Mr Li applied for business registration of a business known as “Siu Wah Goods Delivery Company” (transliteration) (兆華貨運公司) (hereinafter “Siu Wah”), of which he was the sole proprietor. The date of commencement of that business was stated to be 28 April 2001. On 24 April 2004, Mr Li notified the Business Registration Office that Siu Wah had ceased business, and the date of such cessation was stated to be 15 April 2004.

16. On 28 March 2002, Mr Li purchased the Glamour property for a sum of HK$2,750,000.00. He executed an assignment and became the owner of that property. He applied to the Bank of China for a mortgage loan of HK$1,700,000.00 or HK$1,800,000.00 (different figures were stated in Mr Li’s affirmation) and the Glamour property was mortgaged to the Bank as security therefor. Li’s brother also executed a deed of guarantee as guarantor for the repayment of the said loan. Mr Li and Madam Ho’s family then moved into the Glamour property.

17. On 10 October 2002, Mr Li and one Mr Ngai Gwin Kwong applied for business registration of a business in the form of a partnership, known as “Kwong Fai Trading Company” (transliteration) (光輝貿易公司) (hereinafter “Kwong Fai”). The date of commencement of that business was stated to be 6 October 2002. Mr Li claimed that he was merely a named partner of Kwong Fai and that the real partners of Kwong Fai were Mr Ngai Gwin Kwong and Mr Ngai Gwin Fai, from whose names the name of Kwong Fai was derived. On 22 March 2004, Mr Ngai Gwin Fai notified the Business Registration Office that he joined Kwong Fai on 2 March 2004 as a partner. On 19 January 2005, Mr Li notified the Business Registration Office of his withdrawal from the company on the same date.

18. On 21 January 2003, Li’s mother executed a provisional sale and purchase agreement by which she purchased the Shun Lung property for a sum of HK$1,738,000.00. The formal sale and purchase agreement and the assignment were executed on 18 February 2003 and 10 March 2003 respectively, and Li’s mother became the owner of that property. It is not in dispute that Mr Li withdrew two sums from his bank account – HK$471,400.00 (withdrawn on 17 February 2003) and HK$1,216,600.00 (withdrawn on 10 March 2003) – in order to buy cashier orders for the purpose of paying the purchase price. Mr Li claimed that the cash used for buying the cashier orders had been deposited into his account in advance by Li’s father and Li’s mother and that part of the cash came from the proceeds of sale of the Bi Hai Yuan property.

19. Following the purchase of the Shun Lung property, Mr Li and Madam Ho’s family moved from the Glamour property to the Shun Lung property. Li’s mother also resided with them. At that time, Li’s father was in such poor health that it was difficult for his family members to take care of him. He was therefore sent to a home for the aged, in which he resided until he passed away. He had never resided in the Shun Lung property.

20. On 20 March 2003, Mr Li executed a tenancy agreement by which the Glamour property was rented out for 2 years commencing 1 April 2003 at a monthly rental of HK$12,000.00. The monthly mortgage repayment of the Glamour property was HK$8,077.76.

21. On 20 February 2004, Li’s brother applied for business registration of a business in the form of a limited company known as “Wing Fat Trading International Company Limited” (transliteration) (永發貿易國際有限公司) (hereinafter “Wing Fat”). Wing Fat was incorporated in Hong Kong on 20 February 2004 and had a registered office at Poplar Street, Shamshuipo. The company had an issued share capital of HK$10,000.00 divided into 10,000 shares, 9,999 of which were held by Li’s brother. On 2 March 2004, Li’s brother was appointed as the sole director of the company, whereas Li took up the position of company secretary. When Li’s brother applied for business registration of Wing Fat, he also applied for business registration of Wing Fat’s branch business known as “Siu Wah China-Hong Kong Goods Delivery Company” (transliteration) (兆華中港貨運公司) (hereinafter “Siu Wah China-Hong Kong”). The date of commencement of that business was stated to be 3 March 2004. Mr Li denied having any interest in either Siu Wah or Wing Fat.

22. It appears from the Petition for Divorce and the Defence thereto that, in 2001 and 2002, Madam Ho twice moved out of the matrimonial property by reason of arguments with Mr Li. Mr Li also claimed that Madam Ho had on many occasions asked for a divorce. Their marriage broke down in 2004 and Madam Ho instituted divorce proceedings in the District Court on 15 April. She moved out of the Shun Lung property with her 3 daughters. They stayed with Madam Ho’s family at Kwong Fuk Estate, Tai Po, and then resided in a unit at Yee Tak Court, Tai Po Plaza that Madam Ho rented.

Application to set aside the transactions – main issues

23. I think I should first deal with the application to set aside the transactions because, if the application is wholly or partly successful, it will have a bearing on the assets owned by Mr Li, which in turn is an important consideration in an application for financial provision. Whether the bankruptcy order against Mr Li is to be annulled depends on the solvency or otherwise of Mr Li, and in this respect the assets owned by him is of course a factor to be considered.

24. The application to set aside the transactions involves the following main issues:

(1)   Who is the beneficial owner of the Shun Lung property?

(2)   In respect of the assignment of the Shun Lung property between Li’s mother and Li’s sister, was the assignment made for valuable consideration? Did the assignees act bona fide without knowing the assignor’s intention to defeat the claim for financial provision?

(3)   In respect of the assignment of the Shun Lung property among Li’s mother, Li’s sister and Ms Liao, was the assignment made for valuable consideration? Did the assignees act bona fide without knowing the assignors’ intention to defeat the claim for financial provision?

(4)   Did Li’s brother make a loan of HK$1,000,000.00 to Mr Li? Was there an agreement between them regarding interest on the loan? and

(5)   In respect of the second legal charge executed by Mr Li and Li’s brother over the Glamour property, was it made for valuable consideration? Did the mortgagee act bona fide without knowing the mortgagor’s intention to defeat the claim for financial provision?

Ownership of the Shun Lung property

25. As stated above, Mr Li does not dispute that he had withdrawn HK$471,400.00 and HK$1,216,600.00 from his bank account in order to buy cashier orders for the purpose of paying the purchase price of the Shun Lung property. However, Mr Li claims that the money used for purchasing that property belonged to his parents.

26. In this respect, in his affirmation dated 18 August 2005, Mr Li had the following to say:

(1)   The purchase of the Shun Lung property was made in early 2003 because Li’s father had difficulty in walking and it was intended to buy a flat which was served by elevators. Mr Li had also suggested that his family move in to reside with his parents.

(2)   As Li’s father did not have a current account and had difficulty in walking, every time before he paid for the purchase of a property, he would hand cash to Mr Li, who would then deposit it into his bank account, and then Mr Li would buy a cashier order in favour of the property vendor. All purchase monies were paid by Li’s father.

27. In her affirmation of the same date, Li’s mother said as follows:

(1)   In late 2002, Li’s father was diagnosed with nasopharyngeal cancer and was wheelchair-bound. At that time, Li’s father and Li’s mother resided in a unit at Sha Tau Kok Estate, which did not have elevator service. In early 2003, Li’s father expressed an intention to purchase a flat served with elevators and Mr Li also suggested purchasing a larger flat so that his family could move in to reside with his parents.

(2)   Knowing that his health was on the decline, Li’s father decided to purchase the property in Li’s mother’s name only, so as to obviate the need for a change of name after Li’s father passed away.

(3)   Li’s mother knew that the purchase price was paid by no one other than Li’s father. In order to pay for the purchase of the Shun Lung property, Li’s father sold the Bi Hai Yuan property, which was registered in his name, on 13 February 2003.

(4)  From 1982 to 1987, Li’s mother worked as a hawker in Chung Ying Street, Sha Tau Kok. She sold fashion and the business was apparently lucrative. She handed all the profits to Li’s father and therefore had no idea how much she earned. The Shun Lung property was purchased with money which belonged to Li’s mother and Li’s father.

28. The second report of the Official Receiver’s Office dated 20 December 2005 shows that Mr Li had made the following allegations regarding the purchase of this particular property:

(1)   The purchase price was paid in 3 stages: HK$50,000.00 was paid upon execution of the provisional sale and purchase agreement; HK$471,400.00 was paid on 18 February 2003 upon execution of the formal sale and purchase agreement; HK$1,216,600.00 was paid on 10 March 2003 upon execution of the assignment. The second and third sums were withdrawn from Mr Li’s account.

(2)   Li’s father handed to Mr Li cash totalling HK$1,560,000.00 for the purpose of purchasing the property. Mr Li deposited all this money in his account, as per the following details:

Date of deposit	Amount (HK$)
11/2/03	380,000
17/2/03	80,000
10/3/03	200,000
10/3/03	300,000
10/3/03	400,000
10/3/03	200,000
	1,560,000

(3)   The balance of the purchase price, in the sum of HK$178,000.00 (HK$1,738,000.00 – HK$1,560,000.00) was given to Mr Li in cash by Li’s mother.

29. The evidence of Mr Li and Li’s mother is in many respects contradictory and illogical. Examples are set out below:

(1)   As mentioned in paragraph 28(2) above, Mr Li represented to the Official Receiver’s Office that he had on 6 occasions deposited the money that Li’s father gave him for the purpose of property purchase. This, however, is in serious conflict with what he stated in his affirmation of 18 December 2004 (the affirmation was prepared by a solicitor). In that affirmation, Mr Li stated that the two sums of money that he deposited on 11 February and 17 February were given to him by his business clients and that the sum of HK$471,400.00 that he withdrew on 17 February was for the purpose of making payments on behalf of his clients. He could not account for the discrepancy in his statements. He merely tried to explain it away by saying that he had always been weak at figures and his memory did not serve him well, and that he realized only subsequently that the sums that he thought he had deposited and paid on behalf of his clients should actually have been the money used for purchasing the Shun Lung property.

(2)   In his affirmation, Mr Li stated that the purchase price was paid by Li’s father only and made no mention of Li’s mother having given him any money for paying the purchase price. It was only in the report of the Official Receiver’s Office in December 2005 that Mr Li made mention of Li’s mother having given him HK$178,000.00. His account had never recorded a deposit of HK$178,000.00. Under cross-examination, Li’s mother said she had no idea how the property purchase was paid for. Under cross-examination, Mr Li said he could not remember whether Li’s mother had given him any cash.

(3)   In respect of the sale of the Bi Hai Yuan property, Mr Li testified that the purchase price was paid in 2 to 3 stages, the final one being on 13 February 2003 when the contract was signed. He deposited all the proceeds of sale, in the sum of approximately HK$820,000.00, in his bank account. However, he was unable to identify which entry or entries in the relevant monthly bank statement represented the alleged deposit of HK$820,000.00. As a matter of fact, none of the deposits during the relevant period as shown in the bank statement matches the said sum of money.

(4)   Mr Li subsequently testified that, of the 4 sums of money deposited in his account on 10 March 2003 (i.e. HK$200,000.00, HK$300,000.00, HK$400,000.00, HK$200,000.00), one of the sums of HK$200,000.00 was from the purchaser of the Bi Hai Yuan property and was deposited by Mr Li himself, whereas the remaining 3 sums were deposited by his parents. This evidence is at variance with what he previously said and also inconsistent with what appeared in his affirmation and what he had told the Official Receiver’s Office. He also failed to explain the following: given he already received on 13 February 2003 the balance of the purchase price in the sale of the Bi Hai Yuan property, why did he not deposit the money until 10 March?

(5)   The contract for sale and purchaser of the Bi Hai Yuan property provided that the contract took effect from the date on which it was executed and that the purchase was to pay the purchase price in full to the vendor within 10 days of the date on which the contract took effect. Mr Li’s evidence was that the purchaser paid the purchase price in full on the date of execution of the contract, but he failed to explain why it was not the case that he only received the purchase price in full within 10 days of the execution of the contract.

(6)   Li’s mother did explain in her affirmation why Li’s father purchased the Shun Lung property. However, she testified that at that time she and Li’s father were residing in the Bi Hai Yuan property and not Sha Tau Kok Estate as stated in her affirmation, and elevator services were available at Bi Hai Yuan. She said the purchase of the Shun Lung property had nothing to do with elevators; rather, the purchase was made because Bi Hai Yuan was located in Shenzhen and Li’s father found it inconvenient to have to travel to Hong Kong for medical consultations. The area of the Shun Lung property was similar to, and not larger than (as stated in the affirmation), that of the Bi Hai Yuan property. In fact, Li’s father had moved into a home for the elderly before the family moved in the Shun Lung property. According to Li’s mother, Li’s father, knowing that he would not recover from the illness, told her how the assets were to be dealt with and asked her to take care of the children and grandchildren. The assets that Li’s father talked about were confined to foreign currency deposits. Mr Ng of Counsel specifically asked Li’s mother whether Li’s father had mentioned the Shun Lung property, and she answered in the negative.

30. In my view, Mr Li and Li’s mother failed to state all the truths and their evidence was unable to withstand cross-examination. Mr Li explained that he was not a meticulous person and did not have the habit of recording everything or keeping documentary records. He also said that he was easily confused by time and figures and that the intensive cross-examination had made him utterly exhausted. Had Mr Li’s affirmation and testimony represented all the truths, then notwithstanding his poor memory or extreme exhaustion, the inconsistencies and discrepancies described above should not have existed. Furthermore, Mr Li knew all along that the focus of the present litigation is on the purchase of the Shun Lung property, and he did have sufficient time to prepare evidence on this issue. The key affirmations that he previously filed, including the affirmation dated 18 August 2005, were all drafted by his solicitor. I agree with Mr Ng’s submission that Mr Li had all along been evasive about the purchase of the Shun Lung property. I harbour considerable doubts about the credibility of his evidence.

31. Li’s mother was illiterate and gave evidence in the Hakka dialect. As regards the drafting of her affirmation, she was evasive and said that she felt dizzy and discomposed at that time and that she neither recalled nor understood the procedure of making the affirmation. I regard this as a sheer excuse. The 5 affirmations dated 18 August 2005 were prepared by a solicitor surnamed Hui, and Li’s brother said that he had paid legal fees of over $10,000.00 for these affirmations. Apart from Li’s mother, Li’s brother also appeared hesitant in answering questions about what had happened in making the affirmations. According to Li’s sister, the affirmations were signed in the presence of a solicitor who, however, did not write his name as administrator of affirmation in the spaces in the affirmations. The circumstances were in my view suspicious and I have serious reservations about the truth of the contents of these 5 affirmations. The affirmations that the individuals signed on that day were obviously made following discussions, and were it not for the inconsistencies with these individuals’ subsequent evidence, the truth or otherwise of the contents of the affirmations would not so easily have been open to challenge.

32. I do not consider it necessary to make a ruling on the beneficial ownership of the Bi Hai Yuan property. Even if this property was owned by Li’s father, I do not think there is sufficient credible evidence to establish that the money used for purchasing the Shun Lung property was provided by Li’s father.

33. As for the allegation of Li’s mother that the profit she earned from her hawking business from 1982 to 1987 was also used for purchasing the Shun Lung property, I do not consider that it rests upon a sound factual basis. First, Li’s mother had no idea whatsoever how much profit she had earned and was not even able to give an approximate figure. Second, the purchase of the Shun Lung property was made more than a decade from the days when she worked as a hawker. Third, on the evidence of Li’s mother, in 1992 more than RMB 400,000.00 was withdrawn from her and her family’s savings for the purpose of purchasing a unit at Tian Le Court, Tian Fu Garden, Shenzhen. That unit was sold in 1998 and, using the proceeds of sale, Li’s mother and her younger brother Mr Liao Wei Qiang built two abutting houses in the countryside of Feng An Wei, Yantian.

34. There is no need for me to delve into the question of why the Shun Lung property came to be registered in her name when she had not paid for the purchase of that property.

35. I do not accept the evidence of Mr Li and the witnesses he called. I do not believe that payment of the purchase price of the Shun Lung property was made from assets of Li’s father or Li’s mother. In my judgment, Mr Li is the beneficial owner of that property, and Li’s mother is merely holding the property on resulting trust for Mr Li.

The assignment executed by Li’s mother and Li’s sister

36. If the two assignments that Li’s mother executed in 2004 in respect of the Shun Lung property were set aside, the court would proceed to make an order for financial provision in favour of Madam Ho. Whether these transactions are to be set aside depends on whether the assignors intended to defeat the claim for financial provision. Both of these dispositions of property were made within a few months after Madam Ho lodged the said claim.

37. In her affirmation of 18 August 2005, Li’s mother made the following statements in relation to the transfer of 50% ownership of the property to Li’s sister on 9 June 2004:

(1)   In mid 2004, Li’s mother intended to sell the Shun Lung property and move back to a public housing estate, but Li’s sister suggested a transfer of 50% ownership of the property to her. Li’s mother agreed and acceded to Li’s sister’s request not to pay the price of the property until year-end.

(2)   On 8 December 2004, through the bank account of her husband Mr Tai Keung, Li’s sister paid HK$600,000.00 to Li’s mother. Although the assignment stated that the consideration for the transfer of 50% ownership was HK$750,000.00, Li’s mother in fact agreed to receive only HK$600,000.00.

38. In her affirmation of 18 August 2005, Li’s sister had the following to say:

(1)   She purchased from her mother 50% ownership of the Shun Lung property for investment purposes.

(2)   Following execution of the assignment, she and her husband tried their best to obtain money to pay for the purchase of 50% ownership, and in the end, a sum of HK$600,000.00 was deposited to her mother’s account on 8 December 2004 as payment of the consideration for the purchase.

39. When they testified at trial, Li’s mother and Li’s sister provided more detailed descriptions of the circumstances. Their evidence contains a number of contradictions and is obviously at variance with the contents of their brief affirmations. I am unable to accept their evidence for the following reasons:

(1)   Li’s mother explained that her intention to sell the property was prompted by the breakdown of marriage between Mr Li and Madam Ho and the petition for divorce filed by Madam Ho. Li’s mother did not want to stay at what was the couple’s former matrimonial home, and therefore she wished to sell the property and move back to the public housing unit in Sha Tau Kok. In fact, although Li’s mother executed, in June and November 2004 respectively, two assignments transferring the whole of her ownership of the Shun Lung property, she continued to reside in the property until August to September 2005. Even after she moved out, she frequently went back to the property to cook for Madam Ho’s children.

(2)   Li’s mother claimed that the sale of her 50% ownership to her daughter made it more convenient for her to visit her daughter. However, she admitted that, after the transfer of the ownership, her daughter’s family had never resided in the property.

(3)   Li’s sister claimed that she purchased 50% ownership for investment purposes. Li’s sister had 4 young children, and her husband, a truck driver, was the breadwinner. Prior to 2004, her family resided at the public housing unit in Sha Tau Kok and had to be financially assisted by her mother-in-law from time to time. In early 2004, her mother-in-law gave her husband a sum of money, and a residential unit in Chung Ying Street, Shenzhen was then purchased for RMB 130,000.00. The mother-in-law also paid for refurbishment of the unit. The family did not move out of the public housing unit until the summer of 2004. During 2004, Li’s sister and her husband simply did not have the means to purchase 50% ownership of the Shun Lung property. Li’s sister claimed that, of the HK$600,000.00 that her husband paid to Li’s mother in December 2004, HK$500,000.00 was provided by her mother-in-law and the remaining HK$100,000.00 was her own money. Even though the mother-in-law had always been willing to provide financial assistance to her son and his family in order to help them improve their living standard, I very much doubt whether Li’s sister’s mother-in-law would agree to give her son HK$500,000.00 in order to purchase only 50% ownership of a property for investment purposes.

(4)   The evidence of Li’s mother and Li’s sister in relation to the payment of purchase price is also burdened with contradictions. They both testified that Li’s sister only paid part of the purchase price and that Li’s mother agreed that she did not have to pay the balance of HK$150,000.00 until her children grew up. This is obviously different from what they said in their affirmations. Li’s mother’s testimony that she went to the solicitors firm to execute the assignment only after she acknowledged receipt of HK$600,000.00 is at variance with what she said in her affirmation. Nor could she provide a convincing explanation of the provision in the assignment that the vendor had confirmed receipt of the purchase price. Similarly, Li’s sister’s initial testimony that she went to the solicitors firm with her mother to execute the document only after she paid HK$600,000.00 is at variance with the contents of her affirmation. Later in the course of testifying, Li’s sister changed her stance and said that she could not recall whether she had paid HK$600,000.00 when she signed the document. She was also unable to explain why she did not first give her mother the HK$100,000.00 that she claimed to be her own money.

40. In my judgment, it appears from all the above that the assignment executed on 9 June 2004 was not an ordinary transaction, the sole objective of which was to defeat Madam Ho’s claim for financial provision. The assignment was handled by Messrs. KF Lau & Co, and the solicitor who witnessed the signatures was the very solicitor who represented Mr Li in the divorce proceedings. Li’s mother’s testimony that the solicitor who handled the assignment was instructed by Li’s brother is inconsistent with the evidence of Mr Li and Li’s sister. I believe that Li’s mother made a false statement that the solicitor was not instructed by Mr Li because she was intent on helping him escape liability in this matter. The transaction itself was laden with suspicions. Li’s mother was well aware of the true intention of executing the assignment and Li’s sister was not acting bona fide. It is also doubtful whether Li’s sister gave any valuable consideration for the transaction.

The assignment executed by Li’s mother, Li’s sister and Ms Liao

41. In her affirmation of 18 August 2005, Li’s mother made the following statement in respect of the assignment executed on 30 November 2004. In November 2004, she reached an agreement with her younger brother Mr Liao Wei Qiang whereby he authorized Li’s mother to collect all the rental income of the property at Flat B, No. 81 Feng An Wei, Yantian, as consideration for the transfer of 50% ownership of the Shun Lung property by Li’s mother to his daughter Ms Liao.

42. Ms Liao did not know much about the said agreement and acted solely in accordance with her father’s instructions. She testified that, for those below 18 years of age who studied at a school in Hong Kong, the school could apply for Closed Area Permits for them so that they could have access through the Sha Tau Kok boundary. Ms Liao attained the age of 18 in 2004 and had to apply individually for a Closed Area Permit. As she became a joint tenant of the Shun Lung property, she was eligible to make the application, and for this reason her younger brothers and sisters also obtained Closed Area Permits. She and her younger brothers and sisters all went to school in Hong Kong and had resided in the property since September 2005. During holidays they returned to their parents’ residence at Flat A, No. 81 Feng An Wei, Yantian.

43. The transfer of 50% ownership of the Shun Lung property by Li’s mother to Ms Liao was an act of expediency which aimed to make the latter eligible to apply individually for a Closed Area Permit. The assignment purportedly stated that the 50% ownership was sold for a price of HK$730,000.00 and that the vendor confirmed that she had received the purchase price when she executed the assignment. This, however, did not accurately reflect the fact. Furthermore, when Li’s mother gave evidence about the agreement between her and her younger brother, she made no mention of the amount of purchase price, and when she was subsequently asked under what circumstances the solicitor put down the said figure as the purchase price, she changed her stance and said that she had discussed the purchase price with her younger brother.

44. Li’s mother’s answers to questions about the property over which she came to receive rental income were equivocal. At first she said that she received rental income over Flat B and her younger brother continued to keep Flat A. When Counsel requested her to confirm whether the property meant No. 81 Feng An Wei, she firmly gave a negative answer, saying that the property was Flat B of No. 80 something but not Flat B of No. 81. This is at variance with both her affirmation and Ms Liao’s evidence. Li’s mother denied that the property which she obtained in exchange for her share of ownership was in fact the abutting houses that she and her younger brother built with their own monies in 1998, but she was unable to tell the court the street number of the abutting houses. Nor was there any documentary proof of the rental income received over the property obtained by exchange.

45. I agree with Mr Ng’s submission that Li’s mother’s evidence in this respect is incredible. I do not think that Ms Liao’s father had given any valuable consideration for this transaction. One of the reasons for transferring 50% ownership of the Shun Lung property to Ms Liao was to defeat the claim for financial provision.

The loan by Li’s brother

46. Mr Li alleged that Li’s brother had lent him a total of HK$1,000,000.00. On 26 March 2004, they executed two documents at Messrs. KF Lau & Co, one being a loan agreement and the other being the second legal charge mentioned earlier in this judgment. The loan agreement stipulated that Mr Li agreed to pay interest on the loan at 10% per annum and to make immediate repayment upon demand of Li’s brother. In his affirmation of 18 August 2005, Mr Li gave the following details of the dates and amounts of loans and the method by which the loans were made. Bank transfer slips were also provided in support of those details.

Date	Amount (HK$)	Method of granting loan
2/7/03	160,000	Bank of China account transfer
3/11/03	280,000	Bank of China account transfer
5/12/03	160,000	Cash loan
5/12/03	80,000	Bank of China account transfer
3/1/04	140,000	Bank of China account transfer
16/1/04	100,000	Bank of China account transfer
4/2/04	80,000	Bank of China account transfer

47. On the face of it, the loan is supported by documents and appears to be a genuine transaction. However, I find many aspects of the transaction difficult to understand and suspicious.

48. The first aspect relates to the amount of the loan. According to the affirmation of August 2005, the loans were made between 2 July 2003 and 4 February 2004. In other words, by the time of the execution of the loan agreement, i.e. 26 March 2004, Li’s brother had lent HK$1,000,000.00 to Mr Li. In his affirmation of 18 August 2005, Li’s brother stated that, having lent HK$1,000,000.00 to Mr Li, Li’s brother felt that the loan was approaching “the verge of riskiness” and that the proceeds of sale of the Glamour property might not be sufficient to satisfy the loan, and therefore he requested Mr Li to mortgage the Glamour property to him and execute a second charge. If all this were true, it could be inferred that, when the loan agreement was entered into, Li’s brother should have clearly known the amount he had lent to Mr Li and had no intention to lend additional amounts.

49. Li’s brother testified that he instructed Messrs. KF Lau & Co to prepare the loan agreement and that he alone gave instructions to the solicitor (this is contrary to the evidence of Mr Li, who said that it was he who looked for and then gave instructions to the solicitor). As a matter of common sense, there was no reason for Li’s brother not to indicate clearly to the solicitor that he had lent HK$1,000,000.00 to Mr Li and that he did not intend to grant any additional loan. The wordings of the loan agreement and the second legal charge, to which both parties had agreed, were that the borrower “has borrowed or will borrow” from the lender, or that the lender “has agreed to advance or has advanced” to the borrower, loans in the total sum of HK$1,000,000.00. I do not believe that the solicitor would have carelessly or improperly used words and phrases in drafting these two legal documents. Under cross-examination, Li’s brother at first said that he had told the solicitor how much he had lent to Mr Li and when the loans were made, but he could not recall whether he had shown the solicitor the Bank of China account transfer slips. When Counsel put to him the discrepancy in the wordings of the loan agreement, Li’s brother changed his stance and said that he could no longer remember the sequence of events. Mr Li also alleged that he had told a clerk at the law firm that he had borrowed HK$1,000,000.00, but he could not explain the discrepancy in the wordings of the document drafted by the solicitor.

50. Another aspect which I find difficult to understand is this. On 18 June 2004, the solicitor acting for Madam Ho requested Mr Li to provide particulars of the relevant loans, and Mr Li’s solicitors (i.e. Messrs. KF Lau & Co, which witnessed the execution of the loan agreement and legal charge and subsequently represented Mr Li in the matrimonial proceedings) replied on 24 June 2004, saying that “The sum [of HK$1,000,000.00] was borrowed [from Li’s brother] in or about September 2003”. Under cross-examination, Mr Li said that what he had told his solicitor was that he started to borrow from Li’s brother in September 2003 and that his solicitor has misunderstood what he said. Counsel then pointed out to Mr Li that, according to the bank account transfer slips that he subsequently provided, no loan was made whatsoever in September 2003. Counsel went on to ask Mr Li how come he told his solicitor that the borrowings started in September 2003. Mr Li became tongue-tied and put forward the excuse that he had a poor memory and might have mistaken the date.

51. The next questionable aspect relates to the interest. Mr Li had explained to the Official Receiver’s Office the method of calculating interest and the amounts of interest on the basis of an interest rate of 10% per annum. The total amount of interest from 2 July 2003 to 25 March 2004 (the date preceding the execution of the agreement) was HK$36,278.68; the total amount of interest from 26 March 2003 to 26 January 2005 (the date of filing of the bankruptcy petition) was HK$84,109.58; the grand total was HK$120,388.26. According to the latest Statement of Financial Position submitted by Mr Li in the matrimonial proceedings, the total amount of interest up to 2 August 2006 was HK$271,621.15.

52. Mr Li testified that he and Li’s brother had never talked about the interest on the various loans. Li’s brother did not make mention of interest when he gave evidence on the circumstances of each loan, but he subsequently changed his stance and said that he did mention about interest when he granted the loans although he could not recall when interest was mentioned.

53. Mr Li and Li’s brother gave the same evidence on this point: the interest and the interest rate of 10% per annum were raised by the solicitor or the clerk at the solicitors firm in the course of drafting the agreement. When Mr Li was asked why, according to the Statement of Financial Position submitted on 14 June 2004, the outstanding sum secured by the second charge over the Glamour property was merely HK$1,000,000.00, he explained that Li’s brother would not charge him any interest provided that he repaid the loan in full. Li’s brother testified that he had to charge interest because, knowing that Mr Li would soon be having a divorce, he was worried about not being able to recover the outstanding sum of HK$1,000,000.00. Whether the parties had reached a genuine and true agreement in respect of interest is, in my judgment, very much open to doubt.

54. Furthermore, the alleged circumstances of the loans are laden with contradictions and defy common sense.

55. In his affirmation of August 2005, Mr Li deposed that his financial condition had become “very dire” since March 2002 when he purchased the Glamour property and that his goods delivery business “went down drain” after the SARS epidemic in 2003. For these reasons, in mid 2003 he started to borrow from Li’s brother in order to obtain sufficient cash for paying the business “suppliers”. When he borrowed the money, he had promised Li’s brother that, once the Glamour property was sold and the bank mortgage over that property discharged, the balance of the proceeds of sale would be given to Li’s brother in satisfaction of the loan.

56. Similar statements were made by Li’s brother in his affirmation of August 2005. After Mr Li purchased the Glamour property, he talked to Li’s brother about his “financial difficulties” from time to time. In mid June 2003, Mr Li told Li’s brother that he was no longer able to pay the suppliers. Mr Li requested a loan from Li’s brother and promised that he would sell the Glamour property and, subject to the discharge of the bank mortgage over that property, would give Li’s brother the balance of the proceeds of sale. Li’s brother agreed to lend him money because he knew that, after the bank loan was paid off and the mortgage discharged, the proceeds of sale of the Glamour property should be sufficient to repay the loan to be made by him to Mr Li.

57. What Mr Li and Li’s brother said under cross-examination was a far cry from the contents of their affirmations. Li’s brother testified that, in requesting a loan, Mr Li merely said he was in urgent need of cash for reasons that he did not disclose. Li’s brother thought that the loan was related to Mr Li’s business. He inquired Mr Li of the reasons but Mr Li did not reply. Up to November 2003, Li’s brother still did not know that Mr Li was in financial difficulties. Li’s brother was unable to provide sufficient reasons for the discrepancies in his affirmation; instead he merely put forward the excuse that he had forgotten what happened. At the early stage of his testimony, he made no mention of Mr Li’s promise to sell the Glamour property to satisfy the debt to be owed to him; subsequently, when he was asked about the affirmation, he said Mr Li told him he was unable to make the monthly repayments of the mortgage loan and he might not have money to repay Li’s brother after the Glamour property was sold. Such an explanation is in my view strained and unreasonable. The Glamour property was rented out by April 2003 and the monthly rent exceeded the monthly repayment of the mortgage loan by HK$4,000.00. Furthermore, if, as Li’s brother stated in his affirmation, Mr Li promised in June 2003 to sell the Glamour property to satisfy the debt, and given that Mr Li had at that time not yet suggested a loan amount and had no knowledge that the loan would come up to as much as HK$1,000,000.00, for what reason would he have said that he might not have money to repay Li’s brother?

58. In his testimony, Mr Li was unable to explain the purpose of each withdrawal from his bank account following the deposit of the alleged loan in his account, notwithstanding the fact that some of the withdrawals were substantial in amount. He did not say that when he borrowed from Li’s brother he promised to sell the mortgaged property to satisfy the debt; rather, he did not make that promise until after Madam Ho suggested a divorce. He also said that, when he requested the loan, he did not tell Li’s brother why he needed cash urgently.

59. Both Mr Li and Li’s brother testified that, in respect of each loan, Mr Li approached Li’s brother in the morning at a restaurant in Sha Tau Kok. After agreeing to grant the loan, Li’s brother went to the Bank of China branch on foot (the journey took 2 to 3 minutes) to make the money transfer from his account to Mr Li’s account. After this was done, either Li’s brother notified Mr Li on the phone or Mr Li sought confirmation of the transfer with the bank. Li’s brother did not explain why the two of them did not go to the bank together so that, as soon as the transfer was made, Mr Li could then access his own account to make the necessary cash arrangements.

60. A most unreasonable aspect of their evidence concerns the alleged loans on 5 December 2003. The affirmations stated that two loans were involved: one for the sum of HK$80,000.00 and made by bank transfer; and the other for the sum of HK$160,000.00 and made in cash which was not deposited in Mr Li’s account. In his testimony, Mr Li at first only referred to the HK$80,000.00 loan; on the other hand, Li’s brother only referred to the HK$160,000.00 loan when he talked about the circumstances of the loan on 5 December 2003. When they were each asked about how the other loan was made, they appeared to be between the devil and the deep sea and were at a loss for an explanation. Li’s brother said that Mr Li requested the HK$160,000.00 loan because he needed money urgently to “save his life”, and that he (Li’s brother) then went to the bank alone to withdraw the money, which he then handed to Mr Li who was waiting for him at the marketplace. I accept Counsel’s submission that, as a matter of common sense, given Mr Li was in urgent need of money to “save his life”, he would have accompanied Li’s brother to the bank for the money instead of having Li’s brother withdraw a large amount of money on his own and then hand it to Mr Li at a crowded marketplace. Furthermore, Mr Li failed to explain why he borrowed two sums of money as opposed to a single sum if he was in urgent need of cash.

61. Li’s brother testified that he set up Siu Wah in 1994 and managed this business until 1998, earning a lot of profits during the 4-year period. As he suffered from kidney problems and had to seek medical consultation regularly, he handed over the business to Mr Li in 1999. In 2002, he underwent a kidney transplant in Mainland China and then got married. His wife was an office worker, and their son was born in 2003. He said that during the period from 1999 to March 2004 (when Siu Wah China-Hong Kong was set up), he was jobless and lived solely on his savings.

62. Li’s brother refused to disclose his financial condition. However, Mr Li did say that Li’s brother had granted him a total of 7 loans, and the loan amount on each occasion must have depended on the amount of disposable cash that Li’s brother had. If Li’s brother had no income, why was disposable cash available from time to time in his bank account?

63. According to Mr Li, when he was in charge of Siu Wah, its business was to receive and execute orders for the delivery of goods. Some of the orders were assigned to owners of other trucks for execution, including trucks bearing registration numbers FB 5336 and DL 2868 which were admittedly owned by Li’s brother. The petrol-filling expenses of these trucks were first paid by Mr Li, and the delivery money received by Siu Wah was divided between Siu Wah and the relevant truck owner. The registration plate of DL 2868 was originally owned by Mr Li. His vehicle was damaged in a collision in March 2003, and he then transferred ownership of that registration plate to Li’s brother. Li’s brother’s DL 2868 truck was registered in October 2003, but the hire-purchase instalments of the truck for the months of December 2003, January 2004 and April 2004 were paid by Mr Li. As for the FB 5336 truck, it was listed as an asset of Siu Wah in the accounts of March 2002 and March 2003 submitted by Mr Li on behalf of Siu Wah to the Inland Revenue Department. Mr Li said that he subsequently sold the truck to Li’s brother but could not recall when this took place.

64. The subsequent cessation of business of Siu Wah was immediately followed by the commencement of business of Siu Wah China-Hong Kong. Madam Ho had instructed a company to investigate Siu Wah China-Hong Kong, and the information thereby obtained will be looked at more closely below. Mr Li said that, prior to March 2004, business had all along been carried on under the name “Siu Wah China-Hong Kong Goods Delivery” although the business had never been registered. And whether or not Mr Li had an interest in Siu Wah China-Hong Kong, at least he did admit that, after Siu Wah ceased business, he carried on goods delivery business in his personal capacity and passed on to Li’s brother all the orders that he was unable to execute.

65. Neither Mr Li nor Li’s brother disclosed all the truths to the court in the course of giving evidence. I harbour considerable doubts about whether Li’s brother was out of job for the whole period from 2002 (when he underwent an operation) to March 2004. Judging from the transfers of vehicles and the relevant expenses, I believe that a close business relationship existed between the two brothers. It is unnecessary for me to conjecture as to the real reason for the 6 transfers of money from Li’s brother’s account to Mr Li’s account between July 2003 and February 2004. I do not accept their evidence that these 6 transfers were genuine loans. The remaining cash loan as alleged is not evidenced by any document, and the evidence of Mr Li and Li’s brother in this regard is also incredible.

The second legal charge over the Glamour property

66. As the second legal charge was executed on 26 March 2004, which was less than 3 years before Madam Ho lodged a claim for financial provision, the presumption under section 17(3) of the Matrimonial Proceedings and Property Ordinance applies. Madam Ho may rely on the presumption, which means that, unless Mr Li can adduce evidence to the contrary, the legal charge of the Glamour property in favour of Li’s brother will be presumed to have been made with the intention of defeating the claim for financial provision.

67. As has been pointed out above, there is conflicting evidence from Mr Li and Li’s brother as to who instructed the solicitor to prepare the loan agreement and second legal charge. I tend to accept Mr Li’s evidence in this regard. Clause 6 of the loan agreement stated that Messrs. KF Lau & Co did not represent the borrower (i.e. Mr Li), and the solicitors firm had advised the borrower of his duty to obtain the consent of the first mortgagee before he executed the second charge, but the borrower decided not to seek such consent. Mr Li said that a clerk at the solicitors firm had explained to him that, as the firm was acting for him in the divorce proceedings, it was inappropriate for the firm to act for him in respect of the loan agreement and second charge.

68. The above shows that, at the time of execution of the two documents, although Madam Ho had not yet petitioned for divorce, Mr Li was aware of the impending divorce proceedings and intended to instruct Messrs. KF Lau & Co to act for him in those proceedings.

69. I do not accept the affirmations of Mr Li and Li’s brother in August 2005 that, when the alleged loan was made, there was any mention or promise of selling the Glamour property to satisfy the debt. In my judgment, all the evidence shows that the two documents were executed with the intention of defeating Madam Ho’s impending claim for financial provision. Nor was Li’s brother acting bona fide when he executed the documents.

70. In my judgment, Mr Li and his witnesses have failed to adduce evidence to rebut the said presumption. He executed the second legal charge with the intention of defeating the claim for financial provision.

Conclusions on the application to set aside the transactions

71. Pursuant to the above discussion, I make the following orders in respect of the application to set aside the transactions:

(1)   I declare that Mr Li is the beneficial owner of the Shun Lung property;

(2)   The assignments executed on 9 June and 3 November 2004 in respect of the Shun Lung property are set aside;

(3)   Li’s mother is to execute an assignment to transfer the ownership of the Shun Lung property to Mr Li. The legal expenses of drafting the assignment and witnessing the execution thereof are to be borne by Mr Li. If no assignment is executed within 28 days of the date of this order, Madam Ho’s solicitors shall be entitled to draft an assignment and submit it to the Registrar of the High Court, who shall execute it as assignor in place of Li’s mother;

(4)   The second legal charge executed on 26 March 2004 over the Glamour property is set aside, and the registration of this legal charge with the Land Registry on 23 April 2004 is vacated.

The application for financial provision: matters to be considered

72. Section 7(1) and (2) of the Matrimonial Proceedings and Property Ordinance provides that, in deciding whether financial provision is to be given to a party to a marriage and a child of the family, the court shall have regard to “the conduct of the parties and all the circumstances of the case” including the matters set out in the provision.

73. I have already described the ages of Madam Ho and her 3 daughters, the period of subsistence of the marriage, the present status of the daughters’ academic studies, the special needs of one of the daughters, Madam Ho’s financial support, and their current residence. I now add the following observations on the living conditions of Madam Ho and the daughters:

(1)   Before the marriage broke down, the family members and Li’s mother resided in the Shun Lung property, which commands a floor area of approximately 1,320 square feet. Mr Li was responsible for all family expenses, and the family was served by a domestic helper. Mr Li also gave Madam Ho HK$7,000.00 per month for her own use, and she was entitled to use a supplementary credit card issued by Mr Li in her favour. The family took a trip overseas once a year, and Mr Li owned a 7-seat private car for the purpose of carrying the family members. The eldest and second daughters learned ballet and drawing, and the eldest daughter also learned the piano. The family, it can be said, was leading quite a comfortable life.

(2)   The unit in which Madam Ho and the 3 daughters currently reside as tenants is approximately 550 square feet in size. It is Madam Ho’s wish to purchase a property at an estate in the vicinity in order to give her daughters a stable living environment. The property transaction data as appears at the website of an estate agent reveals that the sale prices of similar properties in the same district range from slightly more than HK$1,100,000.00 to slightly more than HK$1,600,000.00.

(3)   From September 2004 to August 2005, Mr Li failed to pay interim maintenance of HK$15,000.00 per month or any part thereof. From November 2004 to August 2005, Madam Ho was granted comprehensive social security assistance by the Social Welfare Department, pursuant to which she received HK$10,920.00 per month to meet the family’s daily expenses. From September 2005 to July 2006, Mr Li resumed paying maintenance but, save for two instalments, he failed to pay the full amount of maintenance as required by the relevant court order. During the last 4 months, he paid only HK$5,000.00 per month. In the past 2 years or so, Madam Ho received continuous financial support totalling approximately HK$580,000.00 from her own family.

(4)   The joint expenses of Madam Ho and her daughters amount to approximately HK$9,100.00 per month; Madam Ho’s personal expenses are approximately HK$2,700.00 per month; her daughters’ personal expenses add up to approximately HK$5,700.00 per month. The youngest daughter is receiving speech therapy at a private clinic (the waiting list at public clinics is long, and an expert has advised that it is the best if that daughter receives treatment before she attains the age of 6), which entails additional expense of HK$2,800.00 per month. Not counting such additional expense, the joint and personal expenses of Madam Ho and the 3 daughters add up to approximately HK$17,500.00 per month. Due to their financial condition, the eldest and second daughters have stopped learning dancing, music and drawing.

74. Mr Ng submitted that Madam Ho and the daughters are seeking financial provision as follows:

(1)   Madam Ho seeks a lump sum of about HK$2,000,000.00 mainly for the purpose of purchasing a residential property for the family;

(2)   In order to reserve her right to apply for periodical maintenance in future, she now seeks a periodical payments order requiring Mr Li to pay a nominal sum of HK$1.00 per annum;

(3)   Periodical maintenance for her daughters. The amount sought is HK$5,000.00 per person per month, totalling HK$15,000.00 per month.

75. I do not consider the above financial provision to be excessive. Nevertheless, apart from considering the needs of Madam Ho and the children of the family, regard must also be had to the income, earning capacity, assets and other financial resources that Mr Li may have at present or in the foreseeable future, and also to the financial needs, liabilities and responsibilities that he may face at present or in the foreseeable future.

Mr Li’s assets

76. I first look at Mr Li’s assets. I have already held that the Shun Lung property is beneficially owned by Mr Li, and I have set aside the two assignments in 2004 as well as the second legal charge over the Glamour property.

77. According to a surveyor’s report dated 22 April 2005, the market value of the Shun Lung property was estimated at HK$1,600,000.00.

78. According to the report of the Official Receiver’s Office dated 10 August 2006, the Glamour property was sold on 27 March 2006 for a price of HK$3,450,000.00. The mortgagee’s solicitors estimated that, after the first mortgage loan with the Bank of China, all expenses associated with the sale of the property and all expenses payable in respect of the property were paid off, the net proceeds of sale would be about HK$1,400,000.00. As Messrs. KF Lau & Co (which represented Li’s brother) and Madam Ho’s solicitors had both claimed against that sum of money, the mortgagee’s solicitors withheld the money pending judgment of the court. Pursuant to the rulings that I made above, the said sum of approximately HK$1,400,000.00 is also an asset of Mr Li’s.

79. The total asset value of Mr Li’s two properties is approximately HK$3,000,000.00.

80. Following a bankruptcy order being made against him, Mr Li closed all of his bank accounts. The report of the Official Receiver’s Office dated 16 September 2005 indicates that the amount of cash owned by Mr Li that went into receivership at that time was less than HK$7,000.00.

Mr Li’s income, earning capacity and financial resources

81. Mr Li had all along been engaged in the goods delivery business. He was an employer until Siu Wah ceased business, following which he became a self-employed person. After he was adjudged bankrupt, the trustee in bankruptcy allowed him to continue to own a light goods vehicle bearing registration number FB 5339 so that he could earn a living. In a Statement of Financial Condition dated 4 August 2006, Mr Li stated that his current average income is HK$15,000.00 per month.

82. Mr Li has adduced information that Siu Wah submitted to the Inland Revenue Department on Siu Wah’s earnings during the last 3 years. The details are set out below:

	Goods delivery earnings (HK$)	Gross profits (HK$)	Net profits (HK$)
1/4/01 to 31/3/02	1,380,259	961,128	555,271
1/4/02 to 31/3/03	1,543,364	983,554	523,927
1/4/03 to 15/4/04 (date of cessation of business)	738,500	*	181,638

*   No gross profits were calculated, but operating costs were set out, including one new item – remuneration of the proprietor in the sum of HK$120,000.00

83. The above information shows that, although the goods delivery earnings of Siu Wah from 2003 to 2004 were substantially less than those during the preceding two years, the business was still lucrative as at the time of its cessation (which was also when Madam Ho filed a petition for divorce). Mr Li alleged that he ceased Siu Wah’s business because of the SARS epidemic in 2003 and because in 2004 the Mainland customs authorities tightened control over the delivery of goods through Chung Ying Street, Sha Tau Kok, leading to a serious deficit in Siu Wah’s business and a huge loss of delivery orders. Counsel cast doubts about these allegations and contended that the real reason for the cessation of Siu Wah’s business was that Mr Li intended to escape his liability to pay maintenance and hence made various arrangements to dispose of his assets.

84. Leaving aside the business of Siu Wah China-Hong Kong, Mr Li admitted that, after Siu Wah ceased business, notwithstanding the heightened control by the Mainland customs over the delivery of goods through Chung Ying Street, he continued to be engaged in the business of goods delivery between China and Hong Kong. The only difference was that the delivery of goods through Chung Ying Street used to be very smooth, but with heightened control by the authorities, Mr Li had to resort to other ports to deliver goods or, where a small quantity of goods was involved and where Chung Ying Street was used for delivering those goods, the delivery had to take the form of “ants moving from one residence to another” (i.e. breaking the goods down into lots, each of a small quantity, and delivering them one by one). Mr Li also admitted that, although there was only one truck following cessation of Siu Wah’s business (Mr Li alleged that, when Siu Wah ceased business, he engaged a sales dealer to sell on his behalf several trucks that Siu Wah bought on hire purchase), he continued to receive delivery orders from time to time which required more than one truck, and in such cases, he would enlist the assistance of Siu Wah China-Hong Kong or his friends. From this perspective, there would appear to be no need for him to cease Siu Wah’s business at all.

85. Furthermore, the frequency of deposits in and withdrawals from Mr Li’s bank account in the few months preceding and following the cessation of Siu Wah’s business was not markedly different from that in 2003. And at the time when Siu Wah’s business was allegedly in dire shape with insufficient delivery orders, there did not seem to have been a significant reduction in the wages that Mr Li paid to the casual workers.

86. As far as Mr Li’s earnings from goods delivery after the cessation of Siu Wah’s business is concerned, Mr Li has been selective in submitting information to the court. At the time when he was legally represented, he did not take the initiative to submit stubs of trade invoices and receipts together with his affirmation. The stubs of invoices issued between August 2004 and January 2005 were submitted by Madam Ho, at whose home Mr Li had inadvertently left the invoice book. Large amounts of money were shown in some of the stubs, and Mr Li explained that those amounts represented the prices of the goods rather than Siu Wah’s delivery charges and that those invoices were issued upon customers’ demand for production to the customs. Mr Li also said that he did not issue invoices to customers he knew well and customers who immediately settled the delivery charges in cash. For these reasons, the total amount shown in the invoice book (HK$757,066.00) did not represent Mr Li’s earnings during the said 6-month period.

87. It was only on the third day of his giving evidence at trial that Mr Li submitted to the court the invoices issued after February 2005. The stubs as submitted only covered the period from September 2005 to early March 2006, and after March 2006 Mr Li was disqualified from driving for 6 months. These stubs, unlike the invoice book submitted by Madam Ho, did not show a substantial amount of money. Mr Li at first said that no invoices were issued during the 7 months from February to September 2005, but he later changed his stance and said that he could not recall what happened. These stubs which were subsequently submitted cannot indicate Mr Li’s total earnings during the relevant period because he did not issue an invoice for each and every delivery job.

88. Mr Li has confidently informed the court of his belief that, after the present litigation is over, he will, with his experience, skills and interpersonal networks, be able to stand up. He has also said that he does not have to work too strenuously, that he is earning HK$300.00 to HK$400.00 per day although he believes he can earn more, and that he is good at negotiating goods delivery business and widening the customer base. I have no reasons for casting doubts about his capabilities – as a matter of fact, the Siu Wah business run by him earned handsome profits from 2001 to 2004. Although there is currently no evidence to clearly establish Mr Li’s monthly income, I am of the view that his income and earning capacity at present and in the foreseeable future can properly be taken into consideration.

89. A litigant in a financial claim is under a duty to make full and frank disclosure to the court of his own financial condition and resources. Where the respondent is considered to have wilfully withheld information on his assets, the court is entitled to draw inferences against him. I have serious reservations about Mr Li’s allegation that he has no interest whatsoever in the businesses of Siu Wah China-Hong Kong and Kwong Fai. In my judgment, he has not made full and frank disclosure of his financial resources.

90. The report and video recording prepared by the investigation company do not appear to support Mr Li’s allegation that he does not have any business relationship with Siu Wah China-Hong Kong save and except that he works as honorary secretary for that company. An investigator posing as a potential customer twice conducted negotiations with Mr Li in July and August 2004 respectively, with a view to instructing Siu Wah China-Hong Kong to deliver goods. The negotiations took place at the company’s office in Shamshuipo and Huanggang Control Point respectively. The video recording of the meeting between Mr Li and the investigator shows that Mr Li appeared to be very familiar with the business of Siu Wah China-Hong Kong. In a tone which suggested that he was the person-in-charge of the company, he said that he was in charge of “Siu Wah”. He said his mobile phone was always switched on and invited the investigator to give him a call at any time if the investigator had any delivery order for the company. He also said that he stayed in Huanggang or Sha Tau Kok most of the time and returned to the Shamshuipo office twice a week, and that the investigator could also contact one Ms Luk at the office. But he did not invite the investigator to contact Li’s brother. He claimed that he had instructed a car dealer to sell Siu Wah’s trucks, but the investigator found that two of the trucks, bearing registration numbers GB 187 and KR 8012, were subsequently used in the delivery business of Siu Wah China-Hong Kong. For this neither Mr Li nor Li’s brother was able to provide a reasonable explanation. Li’s brother testified that he had never allowed Mr Li to conduct business negotiations at the office of Siu Wah China-Hong Kong and that he had never told the staff members that Mr Li was in any way related to the company, but all this is clearly inconsistent with the findings of the investigation.

91. Mr Li told the investigator that Siu Wah China-Hong Kong had 5 trucks, all of which travelled between China and Hong Kong every day, and that customers from China and Hong Kong could deliver the goods to the collection points at the Shamshuipo office or in places such as Guangzhou and Tai Ping. Mr Li claimed that he was more familiar with goods delivery in Mainland China than Li’s brother was and that Li’s brother had to seek his advice in this respect.

92. As regards the business of Kwong Fai, it is also not true that Mr Li is no more than a named partner of that business. The stubs referred to above had the names of Siu Wah and Kwong Fai printed thereon. Mr Li told the investigator that he had a company in Sha Tau Kok named “Siu Wah Company” which traded in miscellaneous daily goods. The contact phone number with which Mr Li provided the petrol supplier was not the number of Siu Wah or Mr Li’s mobile phone number, but was the number of Kwong Fai’s office in Sha Tau Kok.

93. As Mr Li has failed to make frank disclosure of his income and financial resources, the court cannot possibly know the benefits that he may gain from Siu Wah China-Hong Kong and the other trading company in Sha Tau Kok. In view of his earning capacity, I assess Mr Li’s monthly income at no less than HK$15,000.00.

Mr Li’s financial needs and liabilities

94. In his Statement of Financial Condition dated 4 August 2006, Mr Li stated that he and Li’s mother have moved out of the Shun Lung property. They are residing at a public housing unit at Sha Tau Kok Estate. He does not have to pay rent and only has to pay public utility charges and sundry household expenses amounting to approximately HK$610.00 per month. Not counting the maintenance paid, Mr Li’s monthly personal expenses amount to HK$5,500.00 (including HK$1,500.00 for the purpose of supporting Li’s mother). This means Mr Li’s monthly total expenses are approximately HK$6,110.00.

95. Mr Li stated that he has 3 debts, and the creditors are a credit card company (approximately HK$700,000.00), Li’s brother (more than HK$1,200,000.00) and one Mr Pang (HK$30,000.00). Of these 3 creditors, only the credit card company has submitted a proof of debt to the trustee in bankruptcy. Mr Li’s previous indebtedness to the Bank of China was discharged with the proceeds of sale of the Glamour property.

96. Apart from the debts, Mr Li is subject to another liability, namely Madam Ho’s costs, which amount to more than HK$1,200,000.00 as shown in the bill of costs submitted by Madam Ho’s solicitors. This is subject to taxation by a Master, and for present purposes I only have to know an approximate figure. In the present action, I have rejected the evidence of Mr Li and his family members and have set aside the transactions among them. Furthermore, as Mr Li has wilfully withheld information on his income and financial resources, Madam Ho’s solicitors have had to do a lot of work in that regard. It is therefore reasonable for Madam Ho’s costs to be borne by Mr Li. Apart from this, there are also the costs of the Official Receiver’s Office, the amount of which is unknown at this stage. If the bankruptcy order is annulled, the relevant costs should also be borne by Mr Li.

Conclusions on the application for financial provision

97. Having considered the needs of the parties, Mr Li’s financial means and all the circumstances of the case, I hold that the items sought by Counsel for Madam Ho (see paragraph 74 above) are reasonable. I make the following orders:

(1)   Mr Li is to make financial provision to Madam Ho in a lump sum of HK$2,000,000.00. Half of this amount is to be paid within 28 days of the order, and the remaining half within 3 months of the order;

(2)   Mr Li is to pay to Madam Ho periodical maintenance in a sum of HK$1.00 per annum;

(3)   Mr Li is to pay to the 3 daughters periodical maintenance, in a sum of HK$5,000.00 per person per month, until each daughter attains the age of 18 or ceases full-time academic studies or receives vocational or professional training (whichever occurs latest).

98. In light of the above orders for financial provision, I now make the following declarations pursuant to section 18 of the Matrimonial Proceedings and Property Ordinance:

(1)   All the children of the family to whom section 18 applies are the 3 daughters specified in the above orders;

(2)   I am satisfied that the above financial provision for the 3 daughters and the arrangements for their welfare are satisfactory or are the best that can be devised in the circumstances. 

99. I allow the divorce decree nisi made on 25 April 2005 to be made absolute.

Assets and liabilities at the time of bankruptcy petition and of bankruptcy order

100. Finally, I deal with the application to annul the bankruptcy order against Mr Li. The first consideration is whether Mr Li was unable to pay his debts when he petitioned for bankruptcy (on 26 January 2005) and when the bankruptcy order was made (on 15 March 2005), because this is the only basis on which a debtor may petition for bankruptcy (section 10(1) of the Bankruptcy Ordinance).

101. According to the Statement of Debtor’s Affairs that accompanied Mr Li’s petition for bankruptcy, he was indebted to secured creditors for the sum of HK$2,820,000.00 (Bank of China: HK$1,700,000.00; Li’s brother: HK$1,120,000.00) and to unsecured creditors for the sum of HK$228,000.00, totalling HK$3,048,000.00. He stated that his only assets were a truck used for earning a living (the value of which he estimated at HK$10,000.00) and the Glamour property which had been mortgaged to the bank and Li’s brother. If that property was compulsorily sold, the sale price would, in Mr Li’s estimate, be merely HK$2,600,000.00, which was lower than the market price. For this reason, his assets were not sufficient to meet the debts to which he was at that time subject.  

102. In considering whether a bankruptcy order should have been made in the first place, the matters to be taken into account are not confined to the information submitted by the petitioning debtor but also include all the facts that existed at that time, including the facts and truths that the petitioner has not disclosed (Butterworths Hong Kong Bankruptcy Law Handbook, 2^nd ed., para. [33.04]; Re Ditfort, ex p Deputy Commissioner of Taxation (NSW) (1988) 83 ALR 265). I have already held that the Shun Lung property is beneficially owned by Mr Li. His assets at the relevant time were clearly sufficient to meet all the debts that he disclosed, even if such debts were to include the debts owed to Li’s brother, although I do not accept that the transfer of money by Li’s brother was a genuine transaction, nor do I accept that there was any cash loan or any genuine agreement regarding the payment of interest.

103. In my judgment, Mr Li was in fact able to pay his debts both at the time of the bankruptcy petition and at the time of the making of the bankruptcy order. The order should not have been made and should be annulled.

Has there been an abuse of the bankruptcy procedure?

104. Madam Ho also submitted that the bankruptcy order should be set aside because Mr Li’s bankruptcy petition was intended to defeat the claim for financial provision and, as such, was an abuse of process (Woodley v. Woodley (No. 2) [1994] 1 WLR 1167 at 1176B to C). The burden of proof rests with the party who makes the allegation, and the standard of proof is the civil standard of proof on a balance of probabilities. However, as the allegation is serious and may constitute a blot on the character of the opposing party, there are stringent legal requirements on the evidence needed to prove the allegation (F v. F (Divorce: Insolvency: Annulment of Bankruptcy Order) [1994] 1 FLR 359 at 366D to G).

105. Applying the above standard, Madam Ho’s allegation is in my view established. I have already held that, before and after the filing of the petition for divorce, Mr Li arranged for 3 transactions to be made, with the intention of defeating the claim for financial provision. I have also held that, at the time of the filing of the bankruptcy petition, Mr Li’s assets were clearly sufficient to meet his debts. This is something he would certainly have known.

106. I also notice that, when the bankruptcy petition was being prepared (Mr Li signed the petition on 18 January 2005), the solicitors acting for him in the divorce proceedings wrote to Madam Ho’s solicitors on 13 January, 14 January and 26 January 2005, seeking an adjournment of the call-over hearing from 4 February (the date originally fixed) to another date to be fixed, with the length of hearing estimated at one day. I do not accept Mr Li’s evidence that he had not instructed his solicitors to issue the above letters. I believe this was a delaying tactic so that Mr Li could first obtain a bankruptcy order. Mr Li was legally represented at the hearings both on 4 February and 7 March 2005 (although on 17 February he filed a Notice to Act in Person). It was only after a bankruptcy order against him was made on 15 March that he wrote to the District Court on 20 March, notifying the court that he consented to a divorce but that he would not pay costs of the opposing party as he had been adjudged bankrupt.

107. In my judgment, Mr Li’s bankruptcy petition was an abuse of process, and the bankruptcy order against him should be annulled for this reason as well.

Conclusions on the annulment of the bankruptcy order

108. In respect of the application to annul the bankruptcy order, I make the following orders:

(1)   The bankruptcy order is to be annulled pursuant to section 33(1)(a) of the Bankruptcy Ordinance;

(2)   The bankruptcy petition is to be set aside;

(3)   The Official Receiver’s Office is to arrange for the publication of a notice of annulment of bankruptcy order in the Gazette and a newspaper, and the relevant expenses are to be borne by Mr Li.

Costs

109. As regards costs of the above applications, I make the following orders nisi, which will become absolute after 14 days unless an application to vary the orders is made within 14 days of the orders.

110. In respect of costs of the application to set aside the transactions, I make the following orders:

(1)   Mr Li, Li’s mother, Li’s brother, Li’s sister and Ms Liao are jointly and severally liable for Madam Ho’s costs, such costs to be taxed if not agreed;

(2)   The above costs are to include ⅓ of the costs of the hearings on 30 March and 15 to 24 August 2006.

111. In respect of costs of the application for financial provision, I make the following orders:

(1)   Mr Li is to pay Madam Ho’s costs, such costs to be taxed if not agreed;

(2)   The above costs are to include ⅓ of the costs of the hearings on 30 March and 15 to 24 August 2006.

112. In respect of costs of the application to annul the bankruptcy order, I make the following orders:

(1)   Mr Li is to pay Madam Ho’s costs, such costs to be taxed if not agreed;

(2)   The above costs are to include ⅓ of the costs of the hearings on 30 March and 15 to 24 August 2006;

(3)   Mr Li is to pay costs of the Official Receiver’s Office. Within 14 days of the order, the Official Receiver’s Office is to submit to the court and Mr Li a bill of costs, and this court is to fix the amount of costs payable in accordance with rule 32A(1)(b) of the Bankruptcy Rules in lieu of taxation.