H v. W AND OTHERS

HCMC 6/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO 6 OF 2008

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J U D G M E N T

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EXECUTIVE SUMMARY

A.  INTRODUCTION

1.  In this judgment, I shall use abbreviations to preserve confidentiality of persons and companies.  The parties should have no difficulty in understanding who I am referring to.

A1.  The core issues

2.  This is an application by W for ancillary relief against H.  There is no dispute that the sharing principle in LKW v DD should apply.  The core disputes are the size of the matrimonial pool of assets, the standard of living of W before the separation and how the Trust should be varied.

A2.  The marriage was dissolved after 19 years

3.  H and W were both born in 1966 and are now aged 47.  They moved to Hong Kong in 1992.  They had been married for 18 years before they separated in August 2007.  There are 3 Children of the marriage: The eldest son (aged 22), N (aged 20) and J (aged 15).  The eldest son has graduated from his first degree this summer.  N will be in university for the 2^nd year in England.  J shall be in year 11 in a UK boarding school.

4.  As with many marriages, the break-up was attributable to many factors and it is not possible to attribute the cause to only one party.  A glimpse of their conflicts, especially over upbringing of the Children, during subsistence of the marriage, could be seen from H-1^st and W-2^{nd  [2]}.

5.  An incident of violence occurred at home on 3/1/2005 which caused W to be hospitalized for serious injuries and H likewise suffered injuries.  I find that to be more of a fight than an assault by one spouse on another.  As a result, I find that H had consulted Ms Sharon Ser, a divorce lawyer.  I do not find evidence that H had firm plans to divorce then, still less plans to dissipate matrimonial assets.

6.  On 22/8/2007, H moved out of the matrimonial home after an argument with W.  He took the son J with him.

7.  In the initial petition for divorce filed on 23/8/2007, H made serious allegations against W for violence towards him and the Children.  He sought interim custody. 

8.  At H’s suggestion, there was a “truce” for 6 months from 17/9/2007 to March 2008, which provided that if H wished to take further steps in the proceedings, he would be required to advise W in writing.

9.  During the truce, on about 21/1/2008, H suddenly abandoned his pursuit for the custody of J, despite all his criticisms on affidavit as to W’s ability and capability of being a mother. 

10.  Decree nisi was pronounced on 24/11/2008 on the basis of one year separation.  Soon thereafter, H gave up custody of all 3 Children. He sought decree absolute on the ground of his parent’s serious illness, the urgency of his intended remarriage as his then fiancé, Ling, was pregnant.  Decree absolute was granted on 10/6/2009.  He married Ling on 2/7/2009.

11.  It is W’s case that since April 2008, after expiry of the truce, H has been unreasonably restricting and reducing maintenance for her and the children.  He gradually failed to maintain the lifestyle to which they were accustomed to and shifted more family expenses (including those relating to the Peak Property, the London Property and the Singapore Property) on W, whilst accusing her of overspending.  W had to supplement the children’s needs from her own resources.  She had to make 6 applications for maintenance pending suit (“mps”).

12.  At present, H is paying W HK$400,000 per month under my order dated 26 August 2012 for her personal spending and household expenses.  Additionally, H pays the eldest son HK$35,000 direct; $39,000 and $25,000 to W for N and J respectively.  H continues to bear the costs of the Children’s education and air fares. He pays for the holiday expenses.

13.  Pending trial, H had, among others, paid W 3 lump sums – HK$10m, HK$1.6m and HK$3.65m on account of maintenance.  W was also allowed to use HK$2.8m from JC Ltd.

A3. The financial position and luxurious lifestyle before separation

14.  H is a chartered accountant and a venture capitalist.  Although possessing a post-graduate degree in business studies, W has not worked (save for a short time) and has been wholly dependent on H.

15.  H and W started off with nothing in terms of capital but their wealth accumulated in about 10 years since 1997.  In that year, H set up EK Ltd and E Inc as a boutique bank with his then business partner.  He subsequently became sole owner.  The 2 companies acquired a partial interest in E, a listed company now known as CM.  H held a substantial shareholding of between 25.87% and about 28.85% in E between 20/4/2000 and 31/5/2008.  He sold his stake and resigned as executive director of E on 31/5/2008.  He also held directorships and investments in other companies.

16.  H and W have had good fortune on 3 occasions. The first was sale of the dotcom business in 2000.  The second was the significant growth in value of the Peak Property, which became their matrimonial home.  The third was the sale of H’s interests in E just before the collapse of the Lehman Brothers in 2008, whereby H reaped about $257m, which would be taken into account in these ancillary relief proceedings.  W did not complain about the sale being at undervalue.

17.  During the marriage, there is no dispute that the family has led a luxurious life style.  They resided at the Peak Property. They also have a house in London and a property in Singapore. All of these are free from mortgage. There were 5 cars, 3 live-in maids, 2 drivers and a personal assistant for H and W.  They had 5 club memberships.  The Children went to expensive schools in England.  The family purchased clothing from brands like Hermes, Chanel and LV.  W shopped in Europe. 

18.  There were luxurious holidays.  In addition, W would visit the Children during the exeats and travel to Europe with her friends.  She would also visit her mother in Singapore.

19.  The luxurious lifestyle was financed through investments, business deals and H’s directorships, not through salary.  H has had effective control over most of the financial assets of the family, although W also had some investments under her autonomy.

A4.  The parties’ assets can broadly be divided into non-trust assets and trust assets

20.  The non-trust assets include properties, bonds/shares, share options, bank accounts, valuable items, and pension/MPF.  Liabilities are taken into account.  The disclosed assets are worth about HK$293m to HK$309m.

21.  The trust asset is the Trust which holds the Peak Property and other assets in the controlled companies. The named beneficiaries are H, W and the Children. The Trust is worth about HK$237.65m.

22.  Exhibit Schedule A1 prepared by counsel sums up the value of the disclosed assets as of 30/9/2012 as HK$530m to HK$546m.

A5.  For non-trust assets, the main dispute was on the scale of undisclosed assets and their worth

23.  W alleged that there were 25 unsubstantiated payments each of over HK$1,000,000; unsubstantiated payments each below HK$1,000,000; unidentified payments in the total amount of HK$12.97m; and 4 groups of companies (SECAHL, SECHK, SEC and Cor Groups) held by H’s nominees.  A growth rate should be applied to them.  She maintained (in Mr Howard QC’s opening submission) that H’s non-trust assets should be in the range of HK$458m to HK$2,988m.

24.  In addition, there were other undisclosed assets revealed in the course of the trial, which will be discussed in Section D14 below.

25.  W’s case was built on H’s lack of full and frank disclosure and concealment of assets.  She alleged that H has been conspiring with his nominees including K, B, SS, Beh and Chen to hide his assets, and the purported transactions with K and B were shams.  W, however, made clear that she did not have a case of, eg conspiracy or fraud against the nominees, but only allegations against them.  Her case was against H, and not the nominees themselves.  The court was invited to draw adverse inferences against him.  The court was also invited to ensure that W’s needs, reflected in her Duxbury calculations, should be generously interpreted in the light of the standard of living before breakdown of the marriage. 

A6.  For trust assets, the Trust should be varied but the terms of variation and how the Trust should be treated as an asset are disputed 

26.  The Trust is a discretionary trust.  There was no dispute that it has to be varied.  The dispute was only as to the form of the variation.  W sought an order for H to exit the Trust, whereas H made 5 proposals.

27.  W suggested that the Trust ought not to be equated to liquid assets when it came to making an award.

A7.  W’s claim for financial relief

28.  W asked for a strict 50:50 distribution of the matrimonial pool of assets as found by this court, which H did not dispute.  She sought transfer to her of the Peak Property, the London Property and the Singapore Property, which was also not opposed by H.  In fact, H has made this offer way back in 2007/8.

29.  W asserted that, at least in the medium term, the London Property (because it provides an essential base for the children in UK), and the Singapore Property (which was and continues to be provided as a residence for W’s mother, who has been and continues to be financially dependent upon H and W), ought not be treated as fully liquid assets in any sharing award.

A8.    W’s Duxbury needs

30.  In case her needs became a relevant issue, W’s Duxbury needs were said to be a lump sum of at least HK$397m, apart from housing.  Her claims made in closing submission are reproduced in Annex A to this judgment.  She maintained that her legitimate share would exceed her needs.  W also asked that H do continue to support the children since he has earning capacity.

A9.  Standard of living before the separation

31.  The core dispute was over what constituted the standard of living of W before the marriage.  W claimed her personal and household monthly expenses are in the region of HK$900,000.  H’s case was that W has significantly inflated the expenses for herself and the Children after separation.  The level of expenses was hardly affordable.

A.10.  H claims to have retired and his earning capacity has reduced

32.  H claims to have stepped down from all executive positions in the corporate world after sale of E.  He claims to have worked too hard in the past.  With the change in economic environment, he wished to retire and spend more time on his new family.  The limited directors’ fees and income from his holding of shares in WT Ltd were only about HK$400,000.  He claimed to have reduced earning capacity.  The lump sum to represent H’s Duxbury needs was $284m, which included the costs of buying a property at the Peak.  He claimed that Ling is not working and does not plan to return to full time employment.  W disputed H’s retirement and reduction in earning capacity.

B.  THE PRINCIPLES TO APPLY IN ANCILLARY RELIEF MATTERS

B1.  The law on distribution of assets requires the court to consider a whole host of factors under section 7 MPPO

33.  Sections 4 to 6A MPPO give the court power to grant various types of ancillary relief.  Section 7(1) requires the court, in exercising such powers, to consider, the conduct of the parties and all the circumstances of the case, amongst which are: the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future; his/her financial needs, obligations and responsibilities; the standard of living enjoyed by the family before the breakdown of the marriage; and his/her contributions to the welfare of the family.

34.  In LKW v DD (2010) 13 HKCFAR 537, the Court of Final Appeal established four principles to be applied when embarking upon the section 7 MPPO exercise.  

(i) That the section 7 exercise is to arrive at a distribution of assets which is fair between the parties;

(ii) Fairness requires the refutation of any gender or role discrimination;

(iii) A “yardstick of equal division” should be departed from only for good, articulated reasons; and

(iv) Retrospective investigations of the failed marriage which tend to deplete the parties and the court’s resources and to increase antagonism and discourage settlement should be discouraged.

35.  Mr Justice Ribeiro PJ explained the task to be carried out by the court in 5 steps:

36.  First, identification of the parties’ assets.

37.  Second, assessment of the parties’ financial needs.

38.  Third, deciding to apply the sharing principle.  The court observes that the sharing principle should always be engaged where surplus assets exist after needs are catered for, and the total assets should be divided equally save for good reasons for departure.

39.  Fourth, considering whether there are good reasons for departing from equal division. 

“In my view, our courts ought to proceed on the footing that the parties’ respective contributions to the welfare of the marriage are implicitly recognised within the sharing principle itself and that there will, if at all, only be rare and exceptional cases where an issue can properly be raised in favour of departing from equality on the basis of “special” or “stellar” contribution.” LKW v DD, at para 118

40.  Fifth, determining the outcome.  Mr. Justice Ribeiro PJ remarked, in para 131 of the judgment, that the question as to whether factors exist justifying a departure from equality is fact-sensitive and remains a discretion for the court.  But where the court decides upon a departure, articulation of the reasons for doing so is necessary as a check to ensure fairness of the outcome.

B2.  Duty of full and frank disclosure

41.  To enable the court to exercise its discretion properly under section 7 MPPO, H and W have a duty of full and frank disclosure.

42.  Disclosure must be correct, complete and up to date: Livesey v Jenkins [1985] AC 424, 436-437, Lord Brandon of Oakbrook. 

43.  It must be readily comprehensible to the other side: L v L, unrep, HCMC 1/2003, 18 November 2005, Lam J (as he then was)

197.   … The party who gives disclosure also carries the obligation to present the information in a way that could be readily comprehensible to his opponent.  ...  A good litmus test for distinguishing a bona fide fulfillment of the duty to give disclosure from an attempt to obfuscate is to ask whether the answer or the material can on its own meaningfully assist in informing others as to the means of that party…

198. It is high time that litigants in matrimonial proceedings and those advising them should appreciate that affirmation of means and answer to questionnaire are not a game of hide and seek.  Too much legal costs and judicial time had been spent on such wasteful exercise.  As stressed by Mr. Mostyn, the onus falls squarely and fairly on a party to give full and frank disclosure of his or her own means.  To adopt a wait and see approach with a hope that the opponent might fail to ask the right question is a tactic to be deplored.  That by itself is a breach of the positive duty to give disclosure.  As Coleridge J put it recently in J v V [2004] 1 FLR 1042, “all cards must be put on the table face up at the earliest stage if huge costs bills are to be avoided.”

44.  Where the affairs of a party are complex, involving accounts relating to a number of businesses, he/she carries the primary duty to see that disclosure is properly made even where professional advisers have been engaged: L v. L.

“199. Although the financial affairs of the Wife were complex involving accounts relating to a number of businesses, there is all the more reason for her to give clear and meaningful disclosure of her affairs as early as possible. Understandably, she needed to engage the services of professional advisers to assist her in the exercise. But she should appreciate that the primary duty rested on her to see to it that the exercise was done properly and satisfactorily in a timely fashion. She should have enlisted the necessary help from the professionals and supply them with all the necessary information soon after the commencement of ancillary relief proceedings. It is no excuse, as the Wife had tried to mitigate in the witness box, to say one had no idea as to how such an unsatisfactory state of disclosure has arisen because the job had been left to others.”

45.  The case of Lykiardopulo v Lykiardopulo [2011] 1 FLR 1427 at §36-37 identifies two broad categories of non-disclosure: breach by omission and breach by commission. Thorpe LJ states as follows:

“[36] … Breach by omission is commonplace. A bank account or some other asset is not declared. That tactic gives rise to the counter, filching and copying the contents of desk, briefcase or computer (now proscribed by the decision of this court in Tchenguiz v Imerman…).

[37] Breaches by commission are more serious. An omission once detected can be excused as an oversight. A breach by commission is plain perjury and thus risks serious consequences …”

46.  Where a party breaches the duty, the court may draw adverse inferences against him/her as to means: LKW v DD (2013) 13 HCFAR 537,at para 71; or find that beneath the false presentation, and the reasons for it, are undisclosed assets: Baker v Baker [1995] 2 FLR 829,per Butler-Sloss LJ.

47.  Where a party leaves gaps in the court’s knowledge, in such a state that two alternative inferences may be drawn, the court will normally draw the less favourable inference – especially where it seems likely that his able legal advisers would have hastened to put forward affirmatively any facts, had they existed, establishing the more favourable alternative: J-P C v J-A F [1955] 3 WLR 72, Hodson LJ.

48.  Inferences should only be drawn if there is some proper basis to do so.  In NG v SG [2012] 1 FLR 1211 at §7, Mostyn J states:

“There must surely be a sound evidential basis for reaching a conclusion as to the scale of undisclosed assets. The court should not be led into a knee-jerk reaction that says simply because evasiveness and opacity is demonstrated there is some vast sum salted away. This is not to say that the court has to put a precise figure on the scale of the hidden assets, let alone to identify by reference to evidence where they are or what they comprise...”

49.  Para 16 of the same judgment provides a list of factors to be considered in circumstances where the court is satisfied that a party’s disclosure has been materially deficient:

(i) The court is duty bound to consider by the process of drawing adverse inferences whether funds have been hidden.

(ii) But such inferences must be properly drawn and reasonable. It would be wrong to draw inferences that a party has assets which, on an assessment of the evidence, the court is satisfied he has not got.

(iii) If the court concludes that funds have been hidden then it should attempt a realistic and reasonable quantification of those funds, even in the broadest terms.

(iv) In making its judgment as to quantification the court will first look to direct evidence such as documentation and observations made by the other party.

(v) The court will then look to the scale of business activities and at lifestyle.

(vi) Vague evidence of reputation or the opinions or beliefs of third parties is inadmissible in the exercise.

(vii) The Al-Khatib v Masry technique of concluding that the non-discloser must have assets of at least twice what the claimant is seeking should not be used as the sole metric of quantification.

(viii) The court must be astute to ensure that a non-discloser should not be able to procure a result from his non-disclosure better than that which would be ordered if the truth were told. If the result is an order that is unfair to the non-discloser it is better than that the court should be drawn into making an order that is unfair to the claimant.”

50.  If a party omits to call an available witness, then unless there is some plausible explanation for that omission, an adverse inference can be drawn against him in respect of that matter.  But a prima facie case must first be shown. See Ip Man Shan Henry & Anor v Ching Hing Construction [2003] 1 HKC 256, at para 155, Deputy Judge Lam (as he then was).

51.  The standard of proof required to infer the existence and amount of assets which a spouse declines to reveal to the court should be the balance of probabilities.

52.  Once satisfied that one party’s non-disclosure is a material consideration in the proceedings the court must then determine the scale of the undisclosed assets.

C.  THE EVIDENCE AND CREDIBILITY OF WITNESSES

C1.  “Himalayan papers” have been placed before the court

53.  Mr Todd SC leading Mr Jeremy Chan describes the documentation as “Himalayan papers”.  I cannot agree more.  There are over 107 trial bundles, 20 additional pieces of documentary exhibits and 16 bundles of written submissions and authorities.

54.  Lengthy submissions have been filed by all parties.  On the part of W, there are additionally 4 bundles of Financial Analyses that set out in great detail the history of corporate activities of H, with changes in shareholding and directorship.

55.  I have studied all the documents referred to in the reading list and all the submissions.  It is impossible to set out all the details of this case, so I will only state the necessary facts to decide matters in issue.  Specific examples on witnesses’ credibility will be given when I come to discuss each issue.  I just state my broad views in this Section.

C2.    Credibility of W’s witnesses

56.  W has herself, her mother and her assistant Ms Lai as witness. 

57.  W is a housewife but is not ignorant or unsophisticated.  She has a postgraduate degree (although it was 25 years ago) in business studies, although her working life was short.  She has participated in investing the family funds and felt sufficient confidence to ignore H’s advice against investment in accumulators, thereby losing US$1.6m. (I hasten to add that I lay no blame on her for that loss.) 

58.  On the following aspects, W has been pretentious:

(i) That with knowledge of the sale of E and that H had kept her up to date on the sale, though not the details, she has applied for an ex parte injunction pretending that H has done something behind her back.  In the end the sale was not challenged as at an undervalue.

(ii) W was upfront in admitting that she had signed her mother’s name on a piece of blank paper when H told W that it was for opening bank accounts for her.  W did so without challenging H, despite her “suspicion” that H would be using her mother for his business.  Yet W pretended not to know about H’s simulation of her mother’s signature.  I am sure that she knew about it although she did not know the extent to which H had done so, or that H had the alleged Sioh PA.

(iii) That she tried to distance herself from the engagement of Drew & Napier (Singapore lawyers for her mother), when clearly she was the person who engaged them and made assertions in a letter dated 24/12/2008 that her mother had a legal right to remain in the Singapore Property which her mother was unable to make. 

59.  The facts, which I find, were that W (or her mother) changed the lock of the Singapore property without H’s consent.  H was denied access to his own property which he regularly used as he was then the executive chairman of a securities operation in Singapore.  Neither W nor her mother responded to H’s request for keys.  So H regained possession by changing the lock and delivered a set of keys to W.  He consented to Madam Sioh occupying the Singapore Property on condition that she would not change the locks.  These were all documented in the solicitors’ correspondence. 

60.  Despite all these, I accept that W was ignorant of the deals happening after the petition was filed except that she was informed by H of the sale of E at about HK$257m.  She exaggerated some of her needs.  But overall she was more credible than H.  Save where otherwise specified, I accept W’s evidence.

61.  With regard to Madam Sioh, there was inconsistency in her evidence.  In her affidavit, she said that W had asked her to go to the Circuit Road property to search for letters and documents and she had found many unopened letters[3]. Under cross-examination, she said that there was not much mail and denied that her daughter had asked her to go there.  Madam Sioh just occasionally piled them up and put them aside.  After the divorce W only came on one occasion and took away the mail.  After being shown her affidavit, she decided to go back to the written version but refused to acknowledge the inconsistency in her oral evidence. 

62.  Madam Sioh is illiterate. She lives in Singapore. She was muddled at times when she was in the witness box but she was careful to ask what a question meant when it was not clear to her before answering.  I accept that she was not suffering from Alzheimer’s disease. It was, however, dangerous to rely on her word as it was not clear to whom she told her story when she made the affidavit. Save where otherwise specified, I reject her evidence.

63.  Ms Lai was a truthful witness.  She faithfully recorded the monthly expenses of W with supporting documents.  She prepared W’s 2011 schedule of expenses and assisted W to do the 2012 projected expenses in her latest Form E.  I accept her evidence although whether W was living above the pre-separation standard is another matter.

C3.  H’s witnesses

64.  There were so many lies and misleading statements, so much non-disclosure or apologies for wrong statements that H was hardly believable.  He is a chartered accountant.  Given his job in the financial market, he would have lived and breathed with figures every day.   He has a very high English standard.  The number of mistakes in his affidavit evidence and inconsistencies with his oral evidence could not be explained away by oversight, low level of standard of the English language, or his being annoyed by W’s lengthy letters and Questionnaires.  He made long speeches to answer simple questions, not simply to qualify his yes or no answer, but to buy time to make up explanations. 

65.  It could not just be that he was trying to be “brief” when he refused to disclose his interest in CSE or details in relation to the CSE transactions such as who the registered shareholders and directors of CSE were, the relationship of DA Ltd, Lee and C Finance, who bought H’s interest in CSE.  His answers in the Questionnaire concerning the CSE transaction went round in circles. 

66.  He made new allegations in the witness box 4 years after litigation has begun that W was involved in specific dealings with CSE, Ong or Wong.  He was truly a “good and ruthless businessman” as he described in his email to the eldest son and N dated 23/8/2007. 

67.  It might be that in his usual business dealings, confidentiality was important.  It might be that third parties having business dealings with H were reticent to give evidence or make disclosure in his favour.  It might be normal in his financial world for there to be destruction of documents soon after a deal was over.  However, it was for him to satisfy the court where substantial transactions were in doubt.  It was not for him to say that W should have subpoenaed witnesses whom he had not called. This was particularly so given the complex picture of his financial world. It was a stonewall to a wife who did not take part in his business.

68.  H was not an honest or reliable witness. Save where otherwise specified, I reject his evidence.

69.  SS and Chen gave evidence.  K and B gave evidence on their own behalf and for H.  None of them are entirely truthful witnesses. Their evidence was full of inconsistencies and not backed up by documents. Save where otherwise stated, I reject their evidence.

C4.  The accountants’ evidence

70.  Mr Lees and Mr Borrelli acting on behalf of W and H, respectively, prepared reports and gave oral evidence. I rely on their Joint Reports, and refer to their primary reports where they differ. I shall not set out their respective views in full save to highlight the salient points to support my reasons for decision.

71.  Mr Borrelli is qualified as a liquidator in Australia, Hong Kong, Singapore, and an approved foreign liquidator in the BVI and Cayman Islands, whereas Mr Lees is not correspondingly qualified except in Hong Kong.  More weight should be attached to Mr Borrelli’s views in relation to those jurisdictions outside Hong Kong.

72.  An accountant may comment that there was lack of evidence or insufficient evidence to enable him to make a meaningful assessment on value.  The court will, of course, be careful to ensure that evidence of an expert witness will not go overboard to make submissions in the place of counsel.

73.  The bundle F4 was given to H’s side on 5/11/2012, just 7 days before the commencement of the trial.  It was said to be the joint effort of W’s counsel and Mr Lees that formed part of W’s opening, and an updated version of F1, although the updated parts have not been identified.  In my view, it was quite unfair in the sense of adding pressure to H’s side when counsel was heavily engaged in the preparation of the trial.  Consequently, Mr Borrelli has to come up in haste with Exhibit A6 in answer to F4 which W’s side comments (and I agree) as consisting of submissions and comments without independent verification of the accuracy or truthfulness based on objective documents.  I place more emphases on counsel’s submission rather than F1-4.

74.  I appreciate the accountants’ effort in trying to assist the court.  The fact that I do not accept certain parts of their evidence was largely due to my different view as a result of considering the circumstances peculiar to this case.  However, there were aspects of their evidence (identification of undisclosed assets, valuation and calculation of the Duxbury sums) that showed a partisan approach in favour of the party who engaged that expert.  I shall refer to specific examples under Sections E and G below.

D.  EXAMINATION OF HISTORICAL DEALINGS TO ASCERTAIN THE CONCEALED ASSETS

D1.  The assets are largely controlled by H

75.  As part of the exercise to identify the assets, the court has to look into various past dealings of H.  Not only would this reveal undisclosed assets but also the evasive attitude of H in terms of disclosure.

D2.  The “truce” for 6 months between 17/9/2007 and March 2008

76.  There was no dispute that during the truce, there had been counselling and attempts on reconciliation.  The family went on a luxurious ski trip together in Courchevel in France in December 2007, spending about HK$1m. 

77.  It is W’s case that this truce was a pre-meditated plan of H to buy time to make significant alterations to the family’s financial position behind her back, with the clear aim of avoiding giving full financial disclosure and to prevent W being awarded her full, fair and equitable division of assets upon divorce.[4]

78.  The truce was “fake” in my view and the reconciliation half-hearted.  A document known as “Geneva Part I and Part II”, which I find to have been stolen by the Children from H’s computer when they visited him, told a lot. It marked August 2007 as the beginning of a time line and hence a relationship between H and a lady called PP.

79.  As shown from Geneva Part I, H was talking about giving PP S$2m, moving to Singapore and making long term plans to enter into business ventures together.  The relationship lasted only a few months. In around February 2008, H was dating Ling.  These were done all the while when W thought H was working on reconciliation (a suggestion which H did not deny in cross-examination but responded with a long pause). 

80.  More importantly, over those 6 months, H entered into significant transactions that had the effect of cashing out his valuable assets.  Many of those transactions are reflected the home-made schedules. 

81.  Those transactions included sale of H’s interests in E for HK$257m. Further, a valuable cluster of companies was transferred out of 2 listed companies (E and SI), parked under the CSE group for a short time, and then transferred out to companies, before CSE was struck off the BVI register about a year later.  W asserted that the ultimate transferees (K, B, and H’s brother in law Beh) were holding those companies as nominees for H. There were also purchase of interests in W Travel Ltd and investments in Singapore through Wong and Ong.

82.  The truce caused the filing of Form Es to be deferred.

83.  There had been times when H offered to settle with W, including the occasion of 23 January 2008 when he kept persuading W to sell the Properties and offered to give her some monies if he sold E. 

84.  In February 2008, H suddenly declared that he no longer wished to continue with the counselling and would proceed with his divorce.  He even threatened W that he could be very ruthless and nasty if she did not settle with him.[5] In an email dated 20/3/2008, he mentioned about privatizing his securities operation and offering jobs to all his former staff.  He said little about sale of the Listcos.

85.  Solicitors came on the record for W in March 2008.  W said she “discovered” that H was about to dispose of his shareholding in E at a consideration of HK$500m.  In fact, it was not as if she had discovered something out of the blue, but H had informed her about the sale and the consideration.  In April 2008, W obtained an injunction on ex parte on notice basis (“the injunction”), which threatened to sabotage the E sale. I am satisfied that this act of hers put an end to all hopes on the part of H for reconciliation.

86.  The injunction was subsequently discharged upon H’s undertaking to treat the HK$257m as his assets for the purpose of the eventual financial settlement between the parties, regardless of how he chose later to use/invest such proceeds in the meantime.  This sum has been taken into account in my final award.

87.  I do not regard H’s consultation with solicitors in 2005 was the result of a firm decision to divorce. Reading the emails leading up the present divorce, I find that he was in a state of confusion and have not yet made up his mind.  I also do not doubt that H had some intention of reconciliation during the truce.  He surely wanted an early settlement to save litigation.  Even after the filing of Form Es, he had been making offers of settlement before W had the full picture of the scale of the matrimonial pool of assets.  He had once offered the amount of HK$300m, which was not a bad offer based on the sharing principle, having regard to the value of the matrimonial assets then.  He did not intend to deprive W of her rights then. The truce was false in the sense that he certainly wanted to buy time to concentrate on the transactions.  He made early offers to settle to avoid the filing of Form Es and to avoid what turned out to be a costly, convoluted and embarrassing disclosure exercise for him and his close business partners like Yu, SS, K, B and others who have not been called as witnesses.

D3.  The White Lie

88.  H had removed US$2m out of the joint account. Instead of spending it on ChinaR, he used it for the CSE deals without telling W.  In his email to W on 20/3/2008, who was chasing H for the money, H told her it was being tied up in privatizing a securities operation in Hong Kong (which was SECAS).  He said it was a “white lie” for her benefit, so that she would not go rambling on but focus on the reconciliation and the Children.

89.  H claimed that he had told W about the CSE deal.  If so, why wasn’t it stated in the email?  What benefit would that white lie have brought her?  Why wouldn’t telling her about the CSE deal have a better effect in shutting her up and enhancing prospects of reconciliation? Even if H did not tell her the truth then, why did he conceal the truth later, in his Form E and disclosures?  H even denied in cross-examination that he ever owned a securities operation in March 2008.

90.  I am not convinced that the email was a white lie.  It truly reflected H’s intention of privatizing SECAS and offering a job to everyone including K and B.  H was simply making up an explanation.

D4.  Use of people as nominees

91.  One feature of H’s financial dealings is his admitted use of nominees.  It was to protect his assets from creditors and to conceal his identity in transactions.  The identity of the nominees is in dispute.

D4.1.  W as personal nominee

92.  I do not think it is right to describe W as H’s nominee.  W had directorship and shareholding in respect of T Ltd, JC Ltd, W.com Ltd, FL Inc and LV Ltd.  (See also Section D5 on Companies as Nominees.)  Though H might have been in control of those companies, and W had signed documents at his bidding, she had her own rights that have never been denied by H both before or after the separation.

D4.2.  Madam Sioh as personal nominee

93.  The evidence firmly established that H had simulated her “English signature” in respect of transactions of various companies (T Ltd, JC Ltd, W.com Ltd, CT Ltd, WS Ltd) legally owned by Madam Sioh and a credit card held in her name.  This contradicted H’s position in early correspondence.  In answer to Madam Sioh’s Singapore lawyers for copies of all documents evidencing the appointment of H as Madam Sioh’s attorney, H’s solicitors stated in a letter dated 4/12/2008 as follows:

“Our client could not recall what those documents were as he has no copies of such documents on records now. In any case, our client remembered that it was mostly concerned about issues where our client had no interest…” (emphasis added)

94.  H had clearly lied.  He could not have forgotten his heavy use of the Sioh PA in the year before this letter.  Even though caught lying, under cross-examination, H only admitted that what was stated in his solicitors’ letter was in fact “misleading”.

95.  The issue was whether H had simulated Madam Sioh’s signature pursuant to the Sioh PA. 

96.  Neither H nor any of the companies (eg SECS, WS Ltd, CT Ltd) which he operated by simulating Madam Sioh’s signature could produce a copy of the Sioh PA even under compulsion of a subpoena. 

97.  H believed it was kept by W or Madam Sioh.  That could not be true because H would need to hold that  power of attorney to prove to others that he was donee of the power. 

98.  Madam Sioh’s evidence on the alleged power of attorney was contradictory.  The letter of Drew & Napier to H referred to many occasions when she was told by H to sign documents.  That was consistent with her affidavit in which she essentially said that she would sign anything she was asked to without query as she trusted H.  In cross-examination, however, she said she had only signed twice at the request of H, once in Singapore when she understood that the documents related to giving something to her grandson; the other time in Hong Kong when  she and W had opened an account in Hong Kong.  She went so far as to suggest that she would have refused to act as a nominee and would not have agreed to give a power of attorney even to her daughter. She would have signed documents if her daughter had asked her to but the fact was that her daughter had not.  She was not aware of the company T Ltd. She has not used the account or seen its statements. W had not asked her to become a director.  She was not aware that she had any credit card.

99.  I am not satisfied that Madam Sioh had given a power of attorney to H.  Even if she had given one, that was without her knowing or consent. 

100.  When it was put to H that a power of attorney would only authorize him to sign on Madam Sioh’s behalf and not simulate her signature, H gave the ridiculous answer that he had not been guided by legal advice at that time and that he understood a power of attorney allowed a person to sign anyway he liked. 

101.  Incidentally, H also alleged for the first time under cross-examination, that W had been given verbal authorization by Madam Sioh to operate the latter’s account.  I disbelieve this new allegation.

102.  As will be seen under Section D5 on company nominees below, not only had H simulated Madam Sioh’s signature in various companies, but he had also permitted others (eg Chen and Yu) to use her companies’ securities accounts under the backing of the Sioh PA.  H said he believed he could “delegate” the power, which was nonsense.

103.  I find that Madam Sioh was H’s nominee in all those companies or accounts in which her name was used or simulated.  H could have no better nominee than someone who was illiterate, not inquisitive, could only sign her name in Chinese and lived outside Hong Kong. 

D4.3.  Ong as personal nominee

104.  Ong had, as admitted by H, made investments on behalf of H in Singapore.  Those investments have been reflected in the Ong home-made schedule referred to in Section D9.1 below.

D4.4.  Wong as personal nominee

105.  Wong had, as admitted by H, made investments on his behalf.  Those investments have been reflected in the Wong home-made schedule referred to in Section D9.2 below.

D4.5.  Ling as personal nominee

106.  Ling used to be a junior employee in H’s Shanghai office.  According to H’s Form E, Ling had a small income of HK$40,000 and the engagement ring was her only asset.  Yet she was the shareholder and legal representative of SBJ which had a registered capital of US$150,000.  She was also a director of one of the C Group of companies and a non-executive director of W Travel Ltd.

107.  W believed that H was the beneficial owner of SBJ, which was denied by H. Neither H nor Ling had provided any information and documents relating to the source of funds for setting up the companies, nature and operation of the business and the reason for using “S” as part of the name of the company.  In any case, Ling had, after giving birth to the elder son, liquidated the company.  The audited financial statements showed that this company had a deficit of RMB 725,408.87 as at 31/12/2010, larger than the registered capital.   

108.  There was not even a prima facie case that H had eg provided capital to Ling to set up SBJ.  The company was not worth anything.  There was no basis to infer that Ling is holding any asset on behalf of H.  Though she is a director of W Travel Ltd, H has not denied his ownership. 

D4.6.  Yap as personal nominee

109.  According to H, she was a business woman who was a neighbour of H’s brother and a family acquaintance.  She was not H’s adopted sister.  He denied that she was his nominee.  However, H has never explained why Yap’s name appeared on SECS’ securities account statement in relation to WS Ltd and the statement was sent to the Singapore Circuit Road property of Madam Sioh.

110.  Yap did not want to be involved in these proceedings and has not given evidence. Given the flimsy evidence, whilst I hold that Yap had been H’s nominee in WS Ltd, I am unable to find that she is currently holding any asset on behalf of H.

D4.7.  Loo as personal nominee

111.  Loo was one of the witnesses to the signatures on the instrument of transfer in respect of the transfer of shares in C Finance from Lee to Beh.

112.  Loo’s name also appeared in the CT Ltd statements.  A sum of US$655,000 was transferred to her on 16 March 2007 from the UBS account of CT Ltd which H claimed to be payment of some renovation costs of his father’s home. 

113.  According to W, H’s father was a very wealthy man with many properties.  It was impossible that the money transferred to Loo was for the repair of the house of H’s father.  Loo was said to be a developer of the Penang project at which H held one unit.

114.  H’s explanation was that his parents’ house was damaged by fire in around 2006.  The father, though a wealthy man, was very careful in his spending and refused to renovate the place.  H felt guilty with the mother whom he had not reconciled with before she lost consciousness. Against such background, Loo got her family contractor to repair the house of H’s parents and H later reimbursed her with US$655,000.  There was no documentary evidence to support the payment or repair work.

115.  It was W’s case that the funds to Loo might be related to some property transactions made on behalf of H.

116.  I can only find that US$655,000 was unsubstantiated by documentary proof [6]. I am unable to find on the state of evidence that there are assets held by Loo on behalf of H.

D4.8.  Nancy

117.  According to Register of Directors of SECAM No.1 (now known as Chen Ltd) provided by Chen, Nancy was a director.  She was also an employee of the SEC Group as at, at least, 6 April 2009 and 8 June 2010.  H does not have her contact details and so it was impossible to call her as a witness. I cannot see any basis for holding that she held or holds assets on behalf of H.

D4.9.  Sally

118.  Sally was H’s assistant from 1999-Aug 2010 [49/19240] She now works as Head of Group HR and Administration of the SGROUP. She had no exact recollection about the circumstances of signing the relevant instrument of transfer as she had witnessed signatures from time to time.  She had not given an affidavit.  I am unable to find that she held or holds any asset on behalf of H.

D4.10.  Other personal nominees

119.  W has named other possible nominees of H.  In respect of SS, K, B, Chen, Yu, Lee and Beh, I prefer to deal with them in the context of their relevant companies.  (See under Sections D9.3 and D9.4 on the Yu and CSE home-made schedules.) I wish to add that not every business partner who had dealings with H was H’s nominee.  That partner might have traded in his own right.

120.  The personal nominees for H that I find under this section were Madam Sioh, Ong, Wong and Yap.  There was no evidence that any of them still hold assets on behalf of H.

D5.  H also used companies as his nominees

121.  A number of companies have been set up by H using W and her mother as directors/shareholders.  T Ltd, JC Ltd, W.com Ltd, FL Inc and LV Ltd were companies related to W/her mother which W knew of before these proceedings.   As the true picture unfolded through discovery, it became apparent that there were in fact companies (CT Ltd and WS Ltd) operated by H without the knowledge of W or her mother.  

122.  H adopted an evasive attitude towards discovery concerning these nominee companies.  He put forward the incredible assertions that it was W who suggested using her mother and herself as directors and shareholders of such companies as “she wanted to be in control of the family wealth”.  H kept stating that W should have disclosed the relevant bank statements and financial documents since she was in control.  He also said that documents in relation to some of the nominee companies were sent to the Singapore Property or the Peak Property to which he no longer had access. Clearly, H had the intention to hide assets and his illicit conduct in simulating Madam Sioh’s signature. 

D5.1. T Ltd

123.  T Ltd was a BVI company held in the names of W and her mother.  They were authorized signatories to the bank account. 

124.  I accept, as claimed by W, that she did not manage the account, as is evident from the fact that a credit statement of T Ltd was not sent to the matrimonial home but to a place at On Hing Building.  It was H who prepared everything and she just signed.  She did not know about the source and destination of the huge amounts (as much as HK$80m) that went through the account, which W as a housewife with no independent income could have earned.

125.  However the transfer documents were in simple terms.  W might have forgotten the terms but she would have known the contents at the time she signed.

126.  Indeed, W admitted knowing that S$3,500,000 or S$3,050,000 had gone towards purchase of the Singapore Property.  HK$70m went from T Ltd’s account to W.com Ltd (of which W was a sole director), of which HK$48m was for the purchase of the Peak Property.  US$2.7m (about HK$16m) went to the Trust, which W said she was not aware of.  H pointed out that after all the funds in T Ltd account were transferred to the Trust, W closed the T Ltd account.

127.  It was pointed out by H that W has never disclosed the W.com Ltd account in her financial resource nor given any explanation about this HK$70m.  T Ltd was one of the companies that H kept blaming W for not getting bank statements from Coutts Bank but sought documents by way of a subpoena.

D5.2.  JC Ltd

128.  This is a Hong Kong company that holds the Peak Property and is under the Trust.  W and her mother were directors and shareholders.  W signed the sale and purchase agreement for the Peak Property in the capacity of a director. 

129.  H admits that he had been performing the day to day administration of this company.  He operated the bank account and a credit card in the name of Madam Sioh with the Sioh PA by simulating her signature, allegedly to minimize the company’s tax. He continued to do so despite the fact that Madam Sioh had ceased to be a director/shareholder on 5/2/2004 when she was replaced by R Holdings Limited (a company under the Trust).   I accept that W only learnt about Madam Sioh’s credit card and the simulation of her signature in respect of this company through discovery.

D5.3.  W.com Ltd

130.  This was a BVI company of which W was a director and shareholder.  This was not a company dominated by H.  W agreed that she was able to make decisions unilaterally on investment, although sometimes she would consult H on products she was not familiar with. 

131.  W’s investment in accumulators through this company was virtually a total loss.  The balance of the Bank Sarasin-Rabo account was reduced from US$1.67m to a debit balance of about US$30,000.  I accept that accumulators were popular at the time but the investment was against H’s advice.  In addition, W had not taken the advice of H to salvage loss and failed to make a claim against the bank or file a complaint to the SFC. Anyway, these should not have impact on W’s rights in these proceedings.

D5.4.  FL Inc

132.  FL Inc was in fact set up in the presence of H, W and her mother in Hong Kong, as demonstrated by (i) the minutes of first meeting of the directors, signed by the mother-in-law in her Chinese name in full and (ii) consent to act as director signed by W.  They were simple documents and W could have understood both.  The HSBC account was also opened on the same day by W and her mother and subsequently a securities account was also opened.  W said she came to know that she became the sole director and shareholder of this company after the start of these proceedings.  I do accept that W might not have remembered her directorship and shareholding by the time of these ancillary relief proceedings.  I find nothing sinister in that.

133.  H admitted operating this company with the Sioh PA.

D5.5.  L Finance Ltd

134.  This was a Hong Kong company of which W was one of 2 directors and shareholders.  This company used to hold the AMC debenture and had always been operated by H.  H had relinquished his membership and designated W to be the new principal member so that she could take care of all her expenses after the divorce.  H subsequently bought a new membership for his new family.  W is not aware of any other business/trading activities of this company.

D5.6.  CT Ltd

135.  This was a BVI company, of which Madam Sioh (without her knowing) was the sole shareholder and director.  W only found this out after the start of these proceedings. It has also been discovered by W in these proceedings (by issue of subpoenas) that CT Ltd held a UBS bank account and 4 accounts with SECS.

136.  Clearly, this was H’s nominee company, which he operated by simulating Madam Sioh’s signature and using the alleged Sioh PA. Section D6 below sets out H’s non-disclosure re CT Ltd. 

D5.7.  WS Ltd

137.  Again, Madam Sioh (without her knowing) was made the director and shareholder of this company by H.  W found this out only after the start of these proceedings.  She discovered bank statements sent to Madam Sioh’s Circuit Road Property in Singapore concerning, among others, accounts of WS Ltd held with SECS.  On 2/2/2009, H arranged for WS Ltd’s shareholding to be transferred back to himself (without involving Madam Sioh, H and W having separated by then).

138.  H has operated WS Ltd’s accounts with SECS purportedly under the Sioh PA.  Clearly this was H’s nominee company.  As revealed in the statements of such accounts, a lot of trading in E shares was made through these accounts.  See Section D7 below.

139.  In summary, T Ltd, JC Ltd, FL Inc, L Finance Ltd were operated by H, for the benefit of H and W.  CT Ltd and WS Ltd were truly nominee companies of H operated by him without W’s knowledge.

D6.   H’s breach of duty of disclosure re CT Ltd, assisted by SECS

140.  The evidence firmly established that CT Ltd had a UBS bank account and 4 accounts with SECS.  H was the sole authorized signatory to the UBS account.  That was why he could close it without intervention of Madam Sioh and transfer the money to his personal account.

141.  It was H who signed CT Ltd’s account opening forms at SECS in January 2001, using Madam Sioh’s name and her ID card copy. Madam Sioh was not even present, as admitted by H.  Madam Sioh was stated in the “Client Information Statement” to be the director of CT Ltd, the ultimate beneficial owner of the accounts and the sole person authorized on behalf of CT Ltd to give instructions in relation to the operation of the accounts using the signature “Sioh”.  H admitted operating this account, by simulating “Sioh” pursuant to the non-existent Sioh PA.  There were other people trading through this account, including Ong.

142.  On 7/7/2008, all the funds in the HK dollar account (ie HK$356,771) were withdrawn in cash, with K himself approving the withdrawal.  H signed “Sioh” to acknowledge receipt of the sum and to give written instructions for all the 4 accounts to be closed on that day.  H never mentioned the sum of HK$356,771 in the 1^st Form E filed less than one month later on 1/8/2008 and never accounted for that amount.

143.  SECS could not produce the Sioh PA and yet it was able to “verify” Madam Sioh’s signature when approving payment.

144.  The discovery process against H in relation to CT Ltd was a cat and mouse chase.  It involved rounds of Questionnaire, and 2 subpoenas issued by W in 2010 and 2012.

145.  Initially, H’s attitude was one of non-disclosure.  Given his heavy involvement in CT Ltd, H could not have forgotten this account. His assertion under cross-examination that he was not aware that there was any money in the account at the time of closure was but a lie. Yet, having closed it on 6/5/2008, he failed to mention the UBS account in his 1^st Form E filed 3 months later on 1/8/2008[7]. He only disclosed it in the 3^rd Form E filed in December 2010, 2 years after the petition was filed, after rounds of Questionnaires. 

146.  When W found out the UBS account, H first distanced himself by denying his involvement, claiming that it was W’s idea to open the account so she could “control some of the family wealth”.  That was in my view wholly illogical.  If W had that idea, she instead of H would have been the sole signatory.  H would not have taken the CT Ltd company chop when he left the matrimonial home.  The UBS account had had vast sums of money transferred to persons who had dealings with H but not W, eg Yu, Loo, Ong, Wong, CSE.

147.  Anyway, H shifted the blame for the non-disclosure on W who was said to have access to the bank statements at the Singapore Property.  Again, this was incredible because Madam Sioh, being illiterate, would not know how to forward those statements to H or W.  Only when confronted with the fact that he was the one who closed the account and transferred the monies therein to his personal bank account was H forced to admit his involvement.  Even so, he claimed not to have access to the bank statements.  W could only get the bank statements for 2005 to 2008 from UBS directly.

148.  H then understated his involvement.  He claimed that the company was “dormant” since 1/1/2005 save the USB account. That was a big lie as there was heavy securities trading in the SECS accounts.

149.  W suspected that there might be other accounts opened by H in the name of CT Ltd. as there was a notice of dividend issued to CT Ltd by E.  She therefore issued 2 subpoenas against SECS.  The responses to the subpoenas were startling.  Not only did they reveal H’s heavy involvement in CT Ltd. but they also showed that SECS assisted H in misleading W and the court.

150.  W’s 1^st subpoena in 2010 against SECS revealed that CT Ltd had an account with SECS, which H had never disclosed.  K acting on behalf of SECS, stated in a letter that, amongst others, there were no other accounts (save for the ones disclosed) in which H has/had an interest or has/had operated or has/had power to operate. 

151.  It was also revealed that HK$4.3m was deposited into the HSBC account of SECS by CT Ltd on about 1/2/2008.  As a result of W’s enquiries, SECS confirmed by letter to W that the sum was subsequently deposited on the same day into CT Ltd’s client account held with SECS.  This newly discovered account was never disclosed by H.

152.  W issued a 2^nd subpoena in 2012 against SECS.  SECS had initially agreed to provide the documents, then resiled and tried to oppose the subpoena.  It eventually produced the documents sought.  The discovery revealed that CT Ltd had 4 accounts with SECS which SECS ought to have disclosed pursuant to the 1^st subpoena 2 years ago.  No wonder H earlier (falsely) announced that W might have opened other accounts without his knowledge. Contents of K’s letter in answer to the 1^st subpoena were demonstrated to be false.  They showed that all 4 accounts were closed on the written instructions of H (signing “Sioh”) and funds withdrawn in cash.  K himself approved the withdrawal.  H acknowledged receipt (signing “Sioh”).  That was on 7/7/2008, less than one month before filing of H’s 1^st Form E.

153.  When confronted with his lie in cross-examination, H had the audacity to say that it was an “oversight” and that though he was the one who closed the CT Ltd securities accounts in July 2008, by June 2010, when he gave his answer to a Questionnaire, he had “forgotten” about these accounts. 

154.  The disclosure pursuant to the 2^nd subpoena revealed CT Ltd’s account opening forms and the “Client Information Statement.  Still, H maintained that it was W who opened the SECS accounts in 2001 and signed “Sioh" thereon, witnessed by authorized representatives in SECS.  H himself had never seen the account opening documents of such accounts.  It was W who had given the telephone number, which was her phone number. 

155.  If CT Ltd were W’s nominee company to control the family wealth:

(i) There was no reason why account statements were not sent to the Peak Property. 

(ii) The SECS account was set up in 2001 after H and W had moved out of the former matrimonial home between 1995-7. There was also no reason why the SECS account statements continued to be sent there and even in 2008, some 13 years after they had moved out. 

(iii) Faced with such anomaly, H stated that W was the one managing this account and it was her responsibility to provide updates to SECS.  Such evidence from H was plainly incredible, particularly given that he was in control of SECS at the time.  The idea of using the Singapore address or Stanley address must have come from H.

156.  H also made up the story that in fact W asked him to print statements for her in respect of these accounts so she had access to “instant information”.  This was, in my view, a recent invention in his oral evidence.  In fact, as accepted by H, he had full access to the statements of CT Ltd (and indeed WS Ltd) with SECAS (held by the Listcos of which he was chairman of one of them).  He should not have left W to resort to subpoenas.

157.  That was not the end of the story to the discovery.  When confronted with the dividend payment slip (in respect of E shares) addressed to CT Ltd sent to an address at Bowen Road, H suggested that he wasnot even aware of the shares (albeit he undisputedly was a shareholder of E before selling his stake in 2008), or the Bowen Road address which, according to him, was what W had rented and to which he had no access.  These were never put to W in cross-examination.

158.  I have no doubt that CT Ltd was H’s nominee company under his control.  This was one the serious examples of breach of duty of disclosure – non-disclosure, understatement of involvement, shifting the burden of disclosure on W who was not involved, telling lies. K, who ran the risk of contempt of court, assisted H by not disclosing all the information sought on CT Ltd in response to the 1^st subpoena. 

159.  The question was whether or not W had knowledge of the trading in CT Ltd.  I will deal with this together with WS Ltd in the following Section D7 on WS Ltd.

D7.  H’s breach of duty of disclosure re WS Ltd assisted by SECS

160.  WS Ltd was closely tied to E in which H had interest.  Whilst under H’s operation, WS Ltd had taken over a cluster of subsidiaries from E before H sold out all his interests in 2008.  In E’s public announcement in February 2008 concerning the take-over, WS Ltd was described as an “independent third party”, notwithstanding Madam Sioh’s shareholding and directorship.  H did not disclose his control of WS Ltd when the deal was completed.  Instead, H signed a “Letter from the Board” of E as Co-Chairman on 22/2/2008 stating that WS Ltd and its sole shareholder Yap (not Madam Sioh) were independent parties.  This was purportedly made after verification with legal advisers.  In doing so, H made deliberately misleading disclosure to the public. 

161.  WS Ltd had apparently maintained 2 securities accounts with SECS. Between 9/8/2007 and 21/4/2008 (covering the truce), a substantial amount of E shares were traded through such accounts, whilst important public announcements were made by E during that period.   H, being the co-Chairman of E and owner of a total 28.25% in E at the time, was restricted from trading in E shares, whether for himself or on behalf of others, during any period when there was confidential price-sensitive information not available to the public.  He did so through WS Ltd which was not owned by him on the face of corporate documentation. 

162.  Two and a half years since its acquisition, H caused WS Ltd to be transferred to himself on 2/9/2009, entirely without the involvement of Madam Sioh and without consideration.  He did not even disclose the transfer deed, claiming that it “seems to have gone missing”.

163.  H refused to provide the statements of accounts claiming that they were sent to the Singapore Property and W should have provided the same.  Again, the discovery was a cat-and-mouse chase to try and find out who was in control and who negotiated the takeover. 

164.  His case on how he acquired WS Ltd was inconsistent. On affidavit, H admitted that WS Ltd was purchased by him at HK$6m odd from Cheng (alleged to be a close friend of Ong), together with cash and a securities account maintained with SECS.  The transaction was negotiated by H, and W played no part in it. 

165.  Under cross-examination, H alleged that it was he and W who jointly put monies into WS Ltd; and that W was involved in the discussions as to the consideration for the purchase.  When challenged, H alleged that the source of funds in his UOB account might have been from accounts controlled by W.  However, there was no documentary evidence to this effect and W was never cross-examined on this.

166.  When asked to explain whether Yap has been his nominee, H’s purported explanation in his Answers to W’s Questionnaire was that Yap “may have been named in certain documents as owner of company controlled by the Petitioner due to mistake of the Petitioner’s former assistant”.  How his assistant could have made such a big mistake was unimaginable.  It could only have been H who had provided Ms. Yap as the contact person on the account.  Yet H forgot this explanation when he answered under cross-examination that he had no idea as to why Ms Yap’s name was on the statement.

167.  In his Answers, H stated that Ms. Yap was “mistakenly named as the owner of companies controlled by me...”  That was a plain admission by H that WS Ltd was his company, and that there were other companies belonging to H in which Ms. Yap was “mistakenly” named as the owner. H’s denial in cross-examination that there was no other company in respect of which such “mistake” was made and that he had only “put it down as a plural in case [he] got it wrong” was most absurd. 

168.  Then with regard to the simple question in cross-examination of who on behalf of WS Ltd, and who on behalf of E negotiated the take-over, H made a short speech to avoid answering it.  He claimed that the HK$7m consideration had come from the WS Ltd account but it was not done by him and it was “a mystery” to him.  The question is: if not H, who else?  Definitely not W or Madam Sioh. 

169.  With regard to his trading of the E shares in the WS Ltd account, H tried to explain it away by stating that they were done on behalf of Yu and Chen.  This begged the question as to why Yu and Chen could not have opened their own accounts. 

170.  Anyway, whilst H acknowledged that he made the trading decisions in relation to the E shares under the WS Ltd securities account held in SECS, he had changed his case to say that it was Chen who gave instructions directly to the trading staff of SECS for the transactions and not him.  

171.  It was incredible to suggest that SECS would have allowed Chen (who was not its client), to trade in E shares through WS Ltd’s account.  H said  that the traders did not check the identities of the callers so long as the callers could identify the account number.  This begged the question of who the callers were and how they could have got hold of the account number of WS Ltd.

172.  Moreover, as H accepted, in order for a third party to give instructions to trade through the accounts held by WS Ltd and CT Ltd, authority from the authorised persons of the companies would have been required.  H stated that such “authority” could be “verbal authority” from the authorised representative or director, which was most incredible and against common sense.  It was unbelievable that Madam Sioh would have given verbal authorization or that W had the power to do so.

173.  H has stated on affidavit that CT Ltd and WS Ltd were his companies and the investments conducted through them were his and not joint investments with W or that she knew about them, let alone made decisions in relation to them.  Yet, in his evidence under cross-examination, he suggested that for every dealing held in the name of Madam Sioh, he would have first informed/consulted W and jointly authorized the use of the accounts of those 2 companies. H retracted from his previous answers which he described as “incomplete” and “slightly misleading”.  H was inconsistent with his case.

174.  H made new allegations against W in the witness box :

(i) That she “volunteered the use of such account (of CT Ltd and WS Ltd) especially for dealings with Yu”. 

(ii) That W had given instructions to Ong in the past for trading through the accounts; but H later changed his evidence to say that W had in the past given direct verbal instructions to authorized representatives of SECS to trade in shares.  This contradicted the evidence of K, who confirmed that he never had any dealings with W. 

(iii) That the CT Ltd account with SECS was “primarily used by [W] to make investments for the family” and not for H’s own business.  However, when reminded that the account was in fact used in his dealings with Ong, he said that it was used to receive money from Ong “on the ultimate instructions” of W and that it was W who was investing money with Ong. These allegations were contrary to what H has stated to be his personal dealings with Ong and Wong.  

(iv) H attempted to explain away his late assertions by stating that in his affidavit he was just being “brief with the answer” and that instead of referring to “I”, he should have referred to “we” (i.e. that all investments/decisions were jointly made by himself and W) and that all these references to “I” should have been “we” and that all these mistakes were oversight on his part!

175.  H’s answers obviously had nothing to do with brevity.  He had been given ample time to answer the issue of whether H or W was in control of certain assets.  He has been seriously challenged in respect of all transactions and dealings with Wong, Ong and Yu.  It was illogical that H would have failed to mention W’s knowledge and role in the WS Ltd or CT Ltd transactions if she did have knowledge.  He alleged that the questions raised by W to obtain information in respect of CT Ltd UBS account were dishonest because she was well aware of the transactions.  He also suggested in cross-examination that the subpoena taken out by her to obtain information on such accounts was “a whole charade to hide the respondent’s own involvement” If these allegations were true, it was most extraordinary for H not to have mentioned this in any of his previous affidavits or put them to W in cross-examination.  I reject H’s version in the witness box as being recent fabrication.  He was clearly making up evidence as he went along.

176.  It was not the purpose of these proceedings to decide if H had breached any regulations in relation to securities trading. The important thing was that H has failed to disclose WS Ltd in his 1^st Form E.  He failed to confirm directly that he had an interest in WS Ltd. although he admitted injecting funds into it.  He had simulated Madam Sioh’s signature using the alleged Sioh PA.  He, Yu and Chen had traded in E shares through WS Ltd which was not legally owned by him.  WS Ltd was involved in very complicated business deals which Madam Sioh and W (all along been a housewife) would not have been able to handle.  I find that they only knew about the CT Ltd and WS Ltd accounts from these proceedings.  WS Ltd and CT Ltd were clearly H’s nominee companies. 

D8.  SECS’ system of verification of client identity was not adhered to

177.  H’s concept of a power of attorney was weird enough – that not only could he simulate the signature of the donor but that he or W (as alleged) could also permit Yu or Chen to operate the accounts on oral instructions.  What was more weird was how SECS could have allowed that to happen, without written authorization from Madam Sioh, especially given the magnitude of the securities trading.

178.  According to H, W was able to operate the securities account by phone calls, pretending to be Madam Sioh or giving written instructions simulating Madam Sioh’s signature.  Moreover, the accounts held by WS Ltd and CT Ltd with SECS were “house accounts”, and whoever borrowed the account could give direct instructions for trading.  According to H, “there would have been verbal authorization” to allow Yu and Chen to use the accounts. 

179.  According to K, in accordance with SFC requirements, SECS would ask a client to disclose the ultimate beneficial owner of the account.  The client has to provide a specimen signature of the authorized signatory to the account.  There would be a system of verification of signatures conducted by SECS in the operation of an account.  Where the client wanted to operate the account through an attorney, there must be a written power of attorney. To protect itself, SECS would not take oral instructions to operate an account over the phone.  Nor would it take instructions from a third party to operate an account.  SECS would not allow someone to simulate the signature of the account holder unless there was written authorization permitting this.

180.  These internal procedures for verification of client identify were apparently not adhered to.  SECS did not have information as to the ultimate beneficial owner of the WS Ltd account.  SECS allowed H to open the CT Ltd account by H simulating Madam Sioh’s signature.  How would it be possible for someone to have witnessed Madam Sioh signing the account opening form of CT Ltd and checked her identity against her document, in accordance with the procedure described by K?

181.  In the following examples, H had admittedly simulated Madam Sioh’s signatures:

(a) The transfer of SGD500,000 from the CT Ltd account on 1/6/2006 was approved by K.  The “Sioh” signature was clearly verified by someone within SECS. 

(b) Instructions on 29/1/2008 involving a transfer of HK$4 M from the CT Ltd UBS account to an HSBC account with SECS (which ultimately ended up in CT Ltd’s securities account with SECS) were given by H.  H clearly placed the CT Ltd chop on the documents, and the signature was expressly stated to have been “Confirm with [H]”.  

(c) The “Sioh” signature on the account closing instructions and the receipt of the entire cash balance (in the sum of HK$356,771) of the CT Ltd SECS account was specifically “verified” by SECS staff and K approved the withdrawal.

SECS could not produce the Sioh PA.  So how could the signature of Madam Sioh have been “verified” by SECS/K? 

182.  It also remained a puzzle as to how Chen or Yu could have held shares through WS Ltd, as K confirmed that there was no written authorization given to them to operate that account.

183.  Such weird phenomenon not only refuted the existence of the Sioh PA but also showed that SECS colluded with H and turned a blind eye to H’s simulation of Madam Sioh’s signature, his illicit trading in E shares and permitted other unauthorized people to trade through the accounts of WS Ltd and CT Ltd.

184.  Further, one wondered how SECS verified who the owner of WS Ltd was.  On the one hand, K stated that he was not aware that Yap was the owner of WS Ltd.  Yet the statement issued by SECS in December 2008 in respect of WS Ltd’s account held with SECS were addressed to Yap and sent to the Circuit Road Property.

185.  On the other hand, B (the head of Legal and Compliance of E at the relevant time), who no doubt would have ensured that the public announcements were accurate and compliant with law, said that he thought Yap was the ultimate owner and shareholder of WS Ltd.  According to B, he had checked the WS Ltd account opening form with SECS which stated that Yap was the beneficial owner, which was inconsistent with B’s evidence that there was no such form in the file.  He would have sent a draft of the public announcement to all directors (including H) for them to check accuracy.  Clearly, B was deceived as well, if he was telling the truth. 

186.  In summary, the incredible and inconsistent aspects in the evidence of H, K and/or B, gave rise to an inference that much truth was suppressed.  H was unable to even give a rough estimate of how much profit he has made through dealings in CT Ltd and WS Ltd. 

187.  Mr Howard QC submits that there is every possibility that there may be other accounts and dealings in the name of CT Ltd and WS Ltd which have not yet come to light. There may also well be other nominee companies which H had concealed from the court.  I agree.

D9.  The home-made schedules

188.  The 4 home-made schedules produced on 2/10/2009[8] form another category of H’s gross breach of duty of full and frank disclosure.  They were produced in answer to W’s Questionnaire, to explain some of H’s dealings with 4 persons or business entities – Ong, Wong, CSE and Yu. They were “home-made” in the sense that it was H who made them as containing his word for it, without the support of contemporaneous documents or even narrative explanations. 

189.  In both the payment and receipt sections, the figures in the home made schedules were precise down to the last cent. 

190.  Eventually, in H-25^th, H had to concede that the home-made schedules were based on bank and accounting records (which he described to be incomplete).  He confirmed to have his own records and the home-made schedules were based on his own handwritten records on each bank account.  However, the underlying records were thrown away during the pendency of these proceedings.  Given the period (covering the truce) in which most of the transactions took place, the throwing away of the underlying handwritten records was, in my view, nothing but deliberate acts of concealment of material information.

191.  H said that his friends were reluctant to be involved in his matrimonial litigation and he did not have the opportunity to check his records against theirs.  I do not accept that, as H had had his own records. Some of the items were clearly within the knowledge of H that did not depend on records, eg the receipts by B Ltd. 

192.  Where a party relies on the contents of a document, he cannot deprive his opponent of the chance of forensic examination of it. Nor can he expect the court to act on his bare assertions.  This is particularly so where the party is at pains to conceal his interest in various investments. H’s intention was clearly much beyond preserving the confidentiality of others who invested with him.  His disclosure was plainly with a view to mislead.

193.  In respect of the Ong and Wong home-made schedules, H had all along admitted on affidavit that Ong and Wong had conducted investments with him and on his behalf in the past.  He had in his affidavit categorically confirmed that the investments made through them were his investments, conducted upon his decision and under his control.

194.  In respect of the Yu home-made schedule, H stated on affidavit that it was he who co-invested with Yu; Yu had previously advanced monies and provided investment capital to H himself.  Where H stated that the CT Ltd SECS account was used for payment to and from Yu, it was for the “personal dealing” between Yu and H and that instructions were issued by H.

195.  However, H said for the first time under cross-examination, that W was in fact fully aware of every single transaction on the home-made schedules, save for the payment of HK$4.3m for the alleged purchase of the SC stake in the Yu home-made schedule.  He alleged that the investments were actually joint investments and decisions were made by her. 

196.  This was wholly incredible for H to raise such important allegation only in the course of cross-examination. I reject the same. H was simply making up stories as he went along in evidence.

D9.1.  The Ong home-made schedule

197.  This recorded the investments which Ong admittedly did for H in Singapore.  Ong was a Malaysian who came to Hong Kong to work for H between 2001 and 2009 in E and the SEC Group.  H had allegedly invested about HK$4.45m through Ong in Singapore listed investments between the years 2005 to 2007 and got back HK$13,54m, representing a profit of over HK$9m. H said he did not know the full details of the investment apart from the amounts he paid to and received from Ong.  He did not retain records after Ong had paid him back the investments.

198.  W claimed that H was more familiar with the Singapore market than Ong and it was unlikely that H would have relied on Ong to invest for him; that if there were truly any investments made through Ong, he was just holding the same on trust for H.  W believed that Ong is still holding investment on behalf of H.

199.  H has admitted Ong’s trading for him and I do not see the logic of comparing Ong and H”s familiarity with the Singapore market.  One should also note that H has volunteered some of the transactions with Ong in 2004, whilst the parties’ duty of disclosure was to commence only from 2005. 

200.  Ong has not given evidence.  His statement has been excluded from the evidence.  Though there were some documents to prove payment to and receipts from Ong’s personal account, I am not satisfied that the payments and receipts from Ong were for the purposes as stated in the Ong home-made schedule.  However, Ong’s past capacity as H’s nominee, or W’s observations, are not sufficient to enable me to draw the inference that Ong is still holding assets on behalf of H.

D9.2.  The Wong home-made schedule

201.  This recorded the investments which H admittedly did through Ong in Singapore between 2005-2007.  H had allegedly given Wong HK$7.93m for investment and got back about HK$7.85m, representing a small loss.

202.  W made similar attacks on Wong as for Ong.

203.  Similarly, H is unable to produce supporting documents, Wong did not give evidence.  His statement has been excluded from the evidence. He would not give any written confirmation or be a witness. According to H, being an ex-lawyer, Wong knew what it meant to be a witness.  He did not want to be implicated in these proceedings with W whom he knew personally.

204.  For lack of documentary evidence, I am not satisfied that the payments and receipts in the Wong home-made schedule were for the purposes stated therein.  Similar to Ong, I am not satisfied that Wong is still holding assets on behalf of H.

D9.3.  The Yu home-made schedule

205.  Yu was an important business partner of H. The 2 of them kept very little record of their dealings, which was based on trust.

206.  Out of 4 items of receipt and 7 items of payment, H subsequently through his narrative affidavit had to change his explanations for 5 items altogether.

(i) US$218,493.27 received – instead of being for sale of Winbox shares, it should have been half share of a loan to a Japanese gentleman repaid by Yu.

(ii) HK$10m received – H had lied twice, first to say that it was for sale of E shares; then to say that it was from Chen for investment in E shares.  The evidence, however, firmly established the source as being from B Ltd (a company for H’s tax reduction) and had nothing to do with Yu. 

(iii) HK$15.5m payment – instead of being partial repayment of E proceeds to Yu, it was payment to Chen, a mutual acquaintance whom H “assumed to be the nominee” of Yu.  Chen’s written acknowledgement of receipt (“Chen’s acknowledgement”) purportedly confirmed that the cheque for HK$15.5m from SECS to him was for sale of 9,400,000 shares of E held by WS Ltd, with HK$768,902.64 in cash, to the client account of SEC.

(iv) HK$1m payment – instead of being for SH set up, H allegedly accepted Yu’s record that it should have been for purchase of SC shares; H “rectified his mistake which was inadvertent”.  He said there was no other payment in respect of SH set up.

(v) HK$5.9m payment - said to be for repayment of E share proceeds but Yu’s accountant could not confirm it; H accepted that it might not be so but he could no longer recall the purpose due to the lapse of time. 

207.  In respect of the HK$10m received, H’s version on the flow of funds has changed several times:

(i) Initially, he said that the HK$10m was received into his personal account with SECS (not his UOB account), which he admitted to be a mistake.  Then he said he received HK$10m in cash from Yu.

(ii) When confronted with documents unearthed from a subpoena, he said that the $10m came from Chen.

(iii) In his oral evidence, he said that the HK$10m was received by transfer into his personal UOB account but H did not inquire of the source.

(iv) In his oral evidence, he said that Chen had told him that the HK$10m would be coming in and it had been handed over in cash to Jin. 

(v) In fact the evidence firmly established that the HK$10m came from B Ltd.

208.  Apart from stating that Chen was introduced to both H and Yu and they had discussions, H could not explain why he thought the money had anything to do with Yu.  H said that when he prepared the Yu home-made schedule, he had consulted Yu on some but not all of the transactions and that begged the question why some only.  In particular, he did not consult Yu on the very HK$10m which H said came from Yu.  Despite his good relationship with Yu, H could not explain why Yu was not asked to verify the home-made schedule and provide underlying documentation.  Yu was not called as a witness either. 

209.  Chen purported to corroborate H’s version. His evidence was that he put up HK$10m cash and received HK$15.5m in return. According to Chen, he was introduced by Jin (of SI) and K to H (Chairman and CEO) in early 2007.  At that time, Chen’s business in J Fashion was doing well.  He wished to make investments in the Hong Kong Stock Market and sought help from S2 on restructuring J Fashion to minimize taxation in the Mainland.  Chen invested in E at the suggestion of Jin.  Instead of opening a new account, thereby missing the investment opportunity, Chen made investment via a client account of SECS (later known to be WS Ltd).  He entrusted RMB10m to Jin for him to purchase 10m shares.  He did not know how Jin got the money into S2.  A few days later, Chen was told he was allocated 9.4m shares and the uninvested cash remained in what Chen understood to be an existing client in E who had given consent for the account to be used.

210.  Chen’s evidence was hard to believe.  He did not have a receipt but only oral confirmation of receipt of HK$10m cash from someone of E.  He did not know through which account the shares were purchased. Chen’s acknowledgement was strange. It was allegedly passed by him to H in the course of these proceedings.  It was undated and was not addressed to anyone. It was obviously not drafted by Chen who had no idea of what WS Ltd was.  It did not refer to the HK$10m.  His lack of knowledge of WS Ltd showed the artificiality in his affirmation evidence. SECS could have provided some supporting documents but never did. 

211.  Even if Chen’s evidence is believed, it would not assist H in explaining that H had received instructions from Yu to part with the proceeds of HK$15.5m in favour of Chen who was believed to be Yu’s nominee.  H’s claim that Chen agreed to let Yu keep HK$5.9m (presumably an uninvested sum)[9] was flatly denied by Chen. 

212.  Chen’s transfer of money from the Mainland required going through an indirect route to get round exchange controls.  It was impossible for Chen to be seen on the records as having any sort of account with substantial sums in Hong Kong and the use of nominees was inevitable. Chen might have invested in shares and made big profits.  However, his evidence could not convince me that the HK$10m or HK$15.5m in the Yu home-made schedule were connected to H.

213.  In fact, the HK$10m came from B Ltd.  This brought up other questions: where did Chen’s money for investment through WS Ltd, if at all, come from?  Where did it go from Jin?  Why, if at all, did it go into B Ltd? If there was no payment of HK$10m from Chen, why would Chen receive HK$15.5m? 

214.  Lie upon lie, the payments and receipts in the Yu home-made schedule were so misleading as to be totally misleading. H could have provided documents through SECS, K, Chen or Yu but he only produced very limited documents.  H tried to explain away the mistakes by saying that he took a great deal of care in trying to put answers to the questions about the receipts and the payments and he based them on incomplete records and inaccurate memory. He admitted that he knew about W’s allegations against him for non-disclosure, deliberately providing false information and redactions but he was rushing against time in trying to provide answers and explanations to over 100 entries.

215.  I do not accept that time rush would have produced the sort of errors and inconsistent versions in the Yu home-made schedule.  H had clearly been making up stories.  But for W’s subpoena proceedings, the lies would never be revealed.  And even so, the truth was far from known.  I draw the inference that H had concealed assets and material information in relation to transactions with Yu.

216.  I will come back to B Ltd in Section D14 when I discuss other undisclosed assets. 

D9.4.  The CSE home-made schedule

217.  See section D10 next.

D10.  The CSE home-made schedule

D10.1.  H has/had an interest in CSE

218.  The CSE home-made schedule requires separate consideration because of its complexity. H failed to disclose his interest in CSE in his 1^st Form E.  H has now admitted that he had an interest in CSE.  According to the CSE home-made schedule, he had paid HK$15m and received HK$35m, making a profit of HK$20m.  However, the discovery obtained from a convoluted channel of using subpoenas will show that contents of the CSE home-made schedule were grossly misleading.

219.  It was W’s case that valuable companies were transferred out of the Listcos (SI and E), “parked” under CSE as a temporary depository, and then hived off to companies held by K, B or Beh, who were or still are H’s subordinates/nominees.  W invited this court to draw the adverse inference that CSE belonged to H and that H has further undisclosed assets. 

D10.2.  Background to the CSE deals

220.  CSE was incorporated on 25/4/ 2007.  As a BVI company, its shareholders and directors were not ascertainable from public search.  For a time, from 13/9/2007 to at least 26/9/2008 (covering the truce), CSE appeared to be owned by SS.

221.  CSE acquired the following from the Listcos (“the CSE deals”):

(i) ST Ltd;

(ii) SECAS Group indirectly from the Listcos at a consideration stated to be HK$76.76m (US$10m);

(iii) SEC Group at a consideration of HK$17.6m for E’s 49% shares and a Promissory Note of HK$81m for SI’ 49% shares. 

222.  H resigned from his senior executive directorships in E and SI on 31 May 2008 and 1 August 2008 respectively, only retaining a position as a non-executive director of SI until 8 December 2009.

223.  The subsidiaries of the SECAS Group were then purportedly sold by CSE, within a matter of months:

(i) On 18/9/2008 and 11/11/2008, SECAHL[10] and some subsidiaries were sold to NM Ltd (solely owned by K) for HK$60m;

(ii) On 11/11/2008, SECHK[11] was sold to RG Ltd (solely owned by B) for HK$10m;

(iii) On 10/12/2008, ST Ltd was transferred to E Inc (held by H as to15%, WiseF as to 30% and Yu as to 55%).

224.  SEC was transferred to C Finance [12], which was owned on its face by Beh, H’s brother-in-law.

225.  About a year later, CSE was struck off the BVI register on 2/11/2009.  CSE had existed only for 30 months. 

226.  H maintained that he had “indirect interest” in CSE only between March and October 2007, but no interests before or after that. 

D10.3.  Credibility of H and SS

227.  H’s case on CSE was fraught with bare assertions, non-disclosure, inconsistencies, lies and redactions.  He also gave evasive answers to the Questionnaires.  Limited documentary proof did not support his CSE home-made schedule.  He was not to be believed, save where otherwise expressly specified.

228.  H has called SS as a witness.  H said that it took him a long time to convince SS, who has been going through some tough times personally in the US, to consent to a revelation about his identity and to produce his affidavit.  The first statement of SS in support was given only 2 years since the Petition.  As confirmed by SS, it was SS who maintained records of the CSE deals and controlled bank accounts in various jurisdictions, for US tax considerations.  However, SS had not produced any documentary proof except documents in relation to several Swiss accounts pursuant to my order dated 30/11/2012 made when SS was giving evidence.

229.  In assessing the credibility of SS, I have disregarded the fact that he had once faced serious criminal charges in the USA. I disregard the web article from Webb-site.com in respect of the CSE deals as being hearsay.  I give no weight to the bio of SS from internet search which H used to show that SS had control of resources in excess of US$100m, for lack of primary proof.

230.  Despite all these considerations, I do not find SS to be entirely truethful.

231.  In the following analyses, I will highlight the unusual features surrounding the CSE deals and the roles of K, B and SS in the CSE deals to demonstrate that SS was not the only owner of CSE.  I will analyze the disclosure made by H, including examining each of the payments and receipts in the CSE home-made schedule.

D10.4.  Unusual features in the CSE deals

232.  The CSE deals took place at a time when H was either chairman or co-chairman of the Listcos.  The other directors included Yu’s son and Wong.  CSE (the purchaser) was described as “an independent third party” according to the public announcement and subsequent annual reports issued by the Listcos.  As H has now admitted having an interest in CSE, such public announcement was misleading in the first place and yet H could not explain why.  H said he told the Company Secretary Department and the directors of SI about the fact that he had “lent” money (without specifying how much) to CSE and it was up to them to determine whether disclosure had to be made.  In the end, no disclosure was made. 

233.  Another unusual feature was that there was no independent valuation conducted before the CSE deals. 

234.  Specifically on the SECAS deal, SS had no recollection of the persons/entity with whom he negotiated.  He claimed to have paid US$1m from T7 (a company alleged owned by him). However, the documentary proof showed that the money was paid by T7 to one SECAL, not to the Listcos.  SS paid the remaining US$9m from the CS account of SECAS Singapore in September 2007 but there was no documentary proof at all. Most curious of all, despite the alleged payment of some US$10m by CSE, the audited financial statements of the Listcos showed a net cash inflow on disposal of just HK$6.07m.  When H was asked to explain, he stated that he did not wish to comment and left it to the accountants to deal with.

235.  In respect of the SEC deal, the consideration was curious.  H was unable to explain the huge difference in the consideration for SI and E, save to say that it was negotiated by different people and a different board.  

236.  When asked whether CSE had any prospect of paying the HK$81m at all, H stated that he could not comment and he had not even asked SS whether CSE could pay the HK$81m.  One wondered how SI could satisfy itself that CSE could honour the promissory note.  All that H could say was that he was “not involved in the deal due to the sensitivity and the perceived conflict of interest”, a most extraordinary answer given that all the public announcements were issued by him on behalf of the board).

237.  There was no documentary proof of payment. H’s purported explanation was that he was not asked to produce such proof, and that it was “preposterous” for counsel to ask him.  H admitted that he never asked E for records of the alleged payment of HK$17.6m by CSE.  That was a poor excuse as W had all along asserted that H was the true owner of CSE, and the co-chairman of the Listcos who procured the disposals.  He shifted the responsibility to SS who was said to have kept records, but SS had none to prodice.

D10.5.  SS’ and B’s role in the Groups of companies acquired by CSE was dubious

238.  SS never became a director of any of the companies acquired although he was allegedly the true owner.  Instead, K and B were appointed directors.  He stated in his oral evidence that he ceased to be a director of all companies as of May 2007 when in fact he had continued to be a director (with B) of CSE until 31/3/2009.  He said he planned to assume directorship some time in 2010 but the plan was overtaken by events. SS himself confirmed that there were no documents to show his involvement at all in the divested companies.

239.  SS did not even remember receiving dividends from the divested companies during the time when they were owned by CSE.  When confronted with K’s own table that SECS paid some HK$14.2m to SS in 2008, K changed his evidence to say that in fact SS did receive those dividends.  The transfer documents in fact showed that HK$4.2m went to NCI Ltd (allegedly owned by SS but without proof) and HK$10m went to SECSS (a company owned by H and Fung).  K’s table aside, there was no objective evidence to show that SS received any dividends from the companies allegedly purchased by CSE.

240.  The aforesaid evidence simply did not support SS himself being the sole owner of CSE.

241.  B became a director of CSE but he had no idea as to the affairs of CSE.  He said he was not concerned at all because CSE was not his.  He clearly was acting as a nominee but I am unable to say that it was for H or for S or someone else.

D10.6.  H’s disclosure re CSE was evasive

242.  H stated for the very first time in cross-examination that W knew “everything about CS” and that they had discussed this as early as March 2007.  This was a plain lie.

243.  H failed to disclose the CSE deals in his 1^st Form E filed in August 2008.  He could not have forgotten to do so given the close proximity in time to those deals.  He had to be asked 3 times whether he “has/had” a beneficial interest in CSE before admitting that he “had” an interest in CSE which was owned by a US acquaintance (later identified as SS).  All that he could produce was the CSE home-made schedule.

244.  W had to resort to Questionnaires and subpoenas but her efforts were met with unhelpful answers.  H alleged that he had “repeatedly answered” W’s questions and that all information had been supplied previously, which was not the case.  He also accused W of not reading his answers in full but chose to rely on her own inaccurate sources or inaccurate interpretation. Such were H’s attempts to create a false impression of W being unreasonable in making repeated requests.  He described W’s subpoena application to be “aggressive tactic” deployed with a view to fish for something to support her personal but erroneous belief that he had been hiding assets.  All of these allegations were unjustified having regard to the fruits of the discovery.

245.  Mr Howard QC summarized the position neatly: more than two years after H’s 1^st Form E, 18 affidavits from H and 7 Questionnaires from W, the following points were made by H:

(i) That H had paid some money in 2007 to acquire an interest  in CSE from SS.  Yu and H initially loaned monies in anticipation of ultimate conversion into equity ownership but before the percentage of ownership could be ascertained, he sold the interest to SS. 

(ii) Apart from the home-made schedules, he had no other documents.

(iii) The 2 other partners of CSE were SS and Yu.

246.  With regard to (i), H’s interest was unclear. H had vacillated among loan, direct interest, indirect interest, derivative interest, convertible bond. As an accountant, he could not have got these concepts wrong. There was no disclosure on how H acquired his interest in CSE in the first place, whether his shareholding had changed between March and October 2007, the source of funds, the subsidiaries falling within the CSE Group, what constituted the “entire interest” that H sold, where he deposited the sale proceeds and proof of his indirect owndership. 

247.  With regard to (ii), though SS was said to be in charge of the records, very little was produced.  SS had explained that instead of transporting 150 boxes of documents on his return to the USA, he simply had them shredded.  SS, of course, had no duty to preserve evidence for these ancillary relief proceedings.  However, that would not reduce H’s obligation to satisfy the court of his state of finance.

248.  With regard to (iii), (save for some hint in the Swiss accounts bundle) there was no document in proof of the partnership relationship, or that Yu or SS had paid anything into the partnership.  H was not even aware of how much the other 2 partners paid for acquiring SECAS.  He lied when he said in his Answers that he had no information as to the registered shareholders of CSE at 10/12/2008, when he knew full well about SS’ shareholding.

D10.7.  What H disclosed as “payments” in the CSE home-made schedule were not borne out by objective documents

249.  H allegedly made 4 payments in relation to CSE:

(i) US$945,024.96 to DA Ltd (owned by Lee);

(ii) US$1,000,024.83 to SUSA (owned by SS);

(iii) HK$5,000,000 on 18/9/2007 to acquire SC shares held by Yu;

(iv) HK$4,300,000 on 1/2/2008 to acquire SC shares held by CSE.

Items (i) and (ii) add up to HK$15m which H allegedly paid to CSE.

250.  Item (i) for US$945,024.96 – This payment was for the acquisition of C Finance, which, according to H and SS, was originally to be used as a vehicle of the partnership.  SS later decided to use CSE instead.  The 3 partners have, nevertheless, allegedly tretained C Finance as one of the partnership accounts and SS has considered item (i) paid by H as his first capital contribution to CSE. 

251.  This sum was in fact paid to DA Ltd, owners of which were unknown to SS.  It contradicted SS’ version that C Finance was acquired from Lee for US$1 only.  How item (i) ended up in CSE was never established in the evidence.

252.  It is now established affirmatively that ownership of C Finance was changed from Lee to Beh from 18/7/2007 onwards.  Beh replaced Lee as a sole director and shareholder of C Finance and Beh was authorized to give oral and written instructions on behalf of C Finance to operate its SECS securities account. 

253.  H denied being in control of C Finance or signing on behalf of Beh.  He said that Beh was a nominee for SS but Beh has not come forth as a witness.  H never disclosed his interest in C Finance in his Form E either.

254.  There was nothing to connect SS to C Finance except a copy power of attorney from Beh to SS (“the Beh PA”) and a copy of Beth’s passport.  On his own evidence, SS has never signed documents as attorney of Beh but caused 2 of his staff members to simulate Beh’s name instead.  This manner of simulating the donor’s signature was strikingly similar to the way H simulated Madam Sioh’s signature.  In addition, SECS does not have a copy of the Beh PA, similar to the situation with the Sioh PA!

255.  Item (ii) for US$1,000,024.83 - There was nothing to show SS’ ownership of SUSA, to whom this payment was made.

256.  Items (iii) and (iv) for HK$5m and HK$4.3m - H reached a deal to buy 108,780,000 SC shares from CSE. As Yu also wanted to exit out his interest in SC shares (while he was happy to retain his interest in SECAS), H said he was asked by SS to pay HK$5,443,209 directly to Yu, which H did.  H paid the other HK$4,300,000 from the UBS account of CT Ltd on 1/2/2008 to the designated account in SECS. 

257.  SS said that H did not have an interest in SC as the capital H provided to CSE was a loan.  SS also corrected himself to say that H did not “exchange” his interest in CSE for an interest in SC; H exited CSE in November and paid for the SC shares separately.  SS decided to take the HK$5m H paid in the second capital call in September 2007 as an outstanding loan on account of CSE.

258.  H was the Chairman of SC at the material time since 18 September 2007.  SS said he filed the transfer of shares to H.  However, it was not until 6/3/2008 that HKSE was notified that H held any interest in SC[13].  H’s explanation was that due to “some administrative issues in the company secretarial department SC, details of which [H] was not aware of, the shares were not transferred to [H], via [FH Ltd], until 6 March 2008”.  Such a substantial time lag in the announcement cast doubt as to whether or not there had been other movements of funds or shares in the meantime.

259.  Further, there appeared to be some discrepancy between the total shares allegedly sold by CSE (103,868,000) and the total shares purchased by H (108,780,000) as well as the consideration paid for such purchase.  The difference was a substantial volume of about 5,000,000 shares for which no credible explanation was given.

260.  Overall, the objective evidence did not show that any payments were made to SS or entities owned by him in respect of CSE.

D10.8.  What H disclosed as receipts in the CSE home-made schedules were misleading

261.  There were 4 receipts totalling over HK$35m:

(i) HK$1,600,000;

(ii) HK$9,903,912.76;

(iii) US$2,850,000 (equivalent to HK$22,120,275);

(iv) US$285,638 (equivalent to HK$2,213,694.50).

262.  Effectively, SS’ evidence was that he looked at where the cash was in the companies that he owned in order to make payment. 

263.  Items (i) and (ii) for HK$1.6m and HK$9.9m – these 2 sums were paid to a trading account of GL Ltd (a company admittedly belonging to H) held with SECS.  According to H, it “so happened” that these 2 payments came on their respective dates.  He was chasing for payment because he had committed to buy his Tregunter property.  It was inconsistent with SS’ evidence that he had no idea why H needed the money at that time.

264.  The 2 recipts were evidenced by 2 internal transfer vouchers (as opposed to cash/cheque payment) of SECS. They were produced by SECS in response to a subpoena. The identity of the account holder who directed the transfer was redacted.  It subsequently transpired from the unredacted version that the transferor was C Finance.

265.  SS stated that it was he who signed “BCh” on the 2 internal transfer vouchers of SECS on behalf of C Finance, which was entirely inconsistent with his previous evidence (both on affidavit and in cross-examination) that he never simulated “BCh” but directed his staff to.  He later appeared to change his evidence to say that he was not sure who signed it. SS even stated that it could have been Beh himself. 

266.  Notably, the signature was verified by someone in SECS. It begged the question as to how the signature could have been properly verified when SECS did not have the Beh PA.

267.  According to SS, he had no idea from which account these sums were paid nor did he know who GL Ltd was or who its owner was.  SS was not even sure whether those sums were paid to H.  When asked why C Finance was transferring the sums to GL Ltd, SS stated that it was merely a matter of convenience that the C Finance account was used, as it had cash in it at the time.

268.  This was inconsistent with his evidence that the money in C Finance’s account in fact came from some of his “other accounts”, which he had never identified.

269.  It was readily apparent that SS had very little idea as to these payments from C Finance. It might be that he did not arrange the payments at all, or the payments had nothing to do with him or CSE. It might have been H transferring his own money to buy a property.

270.  Item (iii) for US$2.85m (or HK$22m) – This sum was stated in the CSE home-made schedule to be paid to a “personal account” at SECS.  The document produced by SECS in answer to the subpoena was an HSBC inward remittance advice, redacted by 2 modes - blackening out the remitting bank, account number and amount credited; and whitening out the name under “by order of”. 

271.  The unredacted version of the HSBC inward remittance advice shows that the payment was made “by the order of” H, ie H paid himself.  The payment out was from the ABN Amro Bank in Switzerland, an account which H had never disclosed. He denied that this account was his, but I disbelieve him (See Section D10.10.2 on the Swiss accounts).

272.  Item (iv) for US$285,638 (or HK$2.2m) – This receipt was from a US company called SVI which was apparently SS’ company.  According to H and as corroborated by SS, upon receipt of this sum, it was agreed between himself, SS and Yu that H had “completely exited” his interest in CSE. 

273.  When H allegedly exited CSE on 22/11/2007 he earned a handsome profit of HK$19m.  Compare this to Yu who invested HK$19.19m (later corrected to HK$14m in SS-2^nd) in CSE and received the same amount when he exited in November 2009.

274.  H gave a long speech in the witness box to avoid answering the question of how his return was calculated.  Effectively, he was saying that he left it to SS to decide the consideration for the exit payment which H was unable to work it out.  One just wondered why, if H’s interest was a “loan” of HK$15m, he could reap a profit of HK$20m within 8 months (annualized return being 200%).

275.  SS tried to rescue him by saying that the timing of an exit and H’s value to SS affected the price that SS paid for H’s exit.  H wanted to exit at a time when SS thought that the market was going up[14]. They looked at the amount of work they had done together until then and H’s contribution.  SS chose HK$22m based upon the amount of moneys he had made.  It was sale of an interest in CSE and paying back H for the assistance in non-CSE investment.  This explanation was never mentioned in SS’ affidavit/statement. If the explanation was true, a part of the exit payment did not relate to CSE or there might have been other undisclosed work/ investments of H.

D10.9.  The alleged “exit” from CSE was unbelievable

276.  I find it most unusual, according to H’s own evidence, that there was an outstanding loan of HK$5m (item (iii) “payment” under the CSE home-made schedule) which he had advanced to CSE kept in a separate account in SECS “for future determination”.  It did not make commercial sense.  Moreover, how could his paying HK$22m by order of himself lead to his exit?

D10.10. The convoluted process of discovery by subpoenas showed a deliberate intention to mislead and concealment of the ABN Amro Bank account and H’s interest in C Finance

277.  The redacted internal transfer vouchers of C Finance and the HSBC inward remittance advice were obtained from subpoenas served on SFC and SECS (a brokerage firm owned by K) in 2010.

278.  Notwithstanding that he had already produced the redacted documents without protest, K applied by summons dated 30/11/2010 to set aside the subpoena in the face of threatened committal proceedings against SECS.  K accused W of doing an exercise of discovery against a non-party fishing for possible evidence and attempting to trace H’s assets through SECS or K because she had received unsatisfactory responses to her Questionnaires from H.  Since H had produced the documents, K said that the continuation of the subpoena was oppressive; W’s proper remedy should be against H.  Such sounded like an advocate for H.

279.  K subsequently undertook on behalf of SECS to produce the unredacted documents, whereupon his summons was dismissed.

280.  Production of the unredacted documents must have caused a reader of the CSE home-made schedule to feel completely fooled. The present hearing is not concerned with committal for contempt.  However, this court is entitled to take into account the explanations for the redactions to determine the veracity of H’s case.  I am aware that findings that H and K had deliberately redacted documents might call for punishment for contempt for them and I have to be convinced by cogent evidence.

281.  In assessing the credibility of K’s explanations for the redactions, I have taken into account the fact that K had never been served with any subpoena prior to the present case.  He had taken no legal advice until the commencement of the committal proceedings against him. He only applied for setting aside the subpoena upon counsel’s advice. There was no basis for W to suggest that H had funded K’s (and B’s) litigation, otherwise they would have consulted lawyers when the subpoenas were first served on them and would have mounted more fierce opposition in resisting subpoenas and the joinder.

282.  According to K, it was his staff who gathered the information in response to the subpoena.  However, there was something glaringly deficient in the process of gathering information and K clearly turned a blind eye to what had been gathered.

D10.10.1.  K’s explanations for redactions of the HSBC inward remittance advice by 2 modes

283.  K claimed that the reason for redacting the name below “by order of” was because HSBC “wrongly asserted” that H had ordered the inward remittance to SEC's bank account.  One immediately queries how K would have known HSBC’s error, without even asserting that his belief was based on what H told him.

284.  W’s enquiry with the HSBC showed that HSBC had not made a wrong assertion.  The information from ABN Amro Bank clearly stated that the ordering customer was H, and the payment came from a sub-account of ABN Amro Bank.

285.  In his oral evidence, K further stated the following:

(1) That the redaction was done on 2 occasions.  The one in black to cross out things in relation to the privacy of the client and the one in white was casually tippexed out on the morning before the submission of documents.  Initially K did not disclose the tippexed copy but only a copy of it.

(2) At no stage had H asked K to redact any document (and this was confirmed by H).

(3) K had called H to complain about the trouble that his divorce proceedings was causing to SECS.  In the course of that phone call H asked for an example of what was troubling K and K referred to the payment of HK$22 m. (H confirmed that that was the only inquiry K made of him.)  H told K that the money had been deposited by SS.  As SS was a close partner of H, K believed H. 

(4) K had redacted the text under “By order of” but not the words “By order of” themselvesto show others that there was some information below and the relevant people could have a chance to ask again

286.  The discussion between H and K was borne out by the letter dated 28/12/2010 to W from Messrs Chong & Yen acting for K:

“Regarding your allegation against our client concerning [the HSBC inward remittance advice], our client denied that he was untruthful when he affirmed that the remittance has no relevance to the Subpoena and unrelated to the Petitioner. Our client based his belief on information provided by the Petitioner who knows the source of funds of his own account and our client has no reason to doubt the Petitioner who has personal knowledge in this matter.”

This was a clear piece of evidence of K’s assistance to H in putting forth misleading documents to the court in answer to the subpoena.

287.  In my view, if K had exercised independent judgment and there was nothing to hide, there was no reason for K to have called H. There was no reason to redact the HSBC inward remittance advice as the redacted data pointed to H.  There was no reason why K did not ask H specifically if the ABN Amro Bank account belonged to H.  There was no reason for K not to verify with HSBC to see if HSBC was “wrong”.  There was also no reason for H and K to talk about only one document when K had to produce many for the divorce proceedings.

288.  I do not believe K or H.  The irresistible inference is that K called H to discuss and they discussed on how to respond to the subpoena and the redactions came about as a result of that.

D10.10.2.  The Swiss accounts

289.  The redaction of the HSBC inward remittance advice revealed the ABN Amro Bank account.  As expected, H denied beneficial ownership.

290.  When challenged with the unredacted document, there was no evidence that H had ever sought confirmation from HSBC that HSBC got it wrong.  SS maintained that it was by his order and could not tell why it was “by order of” H either.

291.  H stated that he only “recently discovered” that SS has opened this account in H’s name in the ABN Amro Bank for which SS was to operate on H’s behalf.  How SS could have done this without H’s knowledge was beyond one’s imagination.  There was no evidence that he ever asked SS to explain why his name was there in the ABN Amro Bank, the reason being, strangely, “inconvenient time difference”.  H was unable to answer how SS could operate an account in H’s name.

292.  H had written to the Bank but apparently there was no meaningful reply.  He claimed to have telephoned the bank’s general line and spoke to a receptionist, which contradicted his version in an affidavit in 2012 that he has not had any oral contact with any person in the Bank regarding this account.  He said he had by then delegated fully to his solicitors.  He did ask SS to write to the bank, presumably to clarify but apparently there was no evidence that H pursued this to clarification.  At no time had SS and H written a joint letter to ABN Amro Bank to seek clarification.

293.  H claimed in H-20^th that he did not have in his “possession and control” the documents and information in relation to the ABN Amro Bank account, deliberately omitting the word “power”.  H had pretended to be cooperative in seeking discovery from the ABN Amro Bank.  He had purportedly sent a letter to ABN Amro Bank asking for confirmation as to whether he had an account with the bank.  He provided, at the suggestion of ABN Amro Bank, a notarized authorization to his solicitors.  In answer to a summons by W, H provided a “new” power of attorney signed by him asking the ABN Amro Bank to provide information and documents which he said he had not revoked.  W issued a letter of request to obtain the relevant disclosures from ABN Amro Bank, which remained unanswered till the date of trial..

294.  SS stated on affidavit that there were 3 accounts opened in Switzerland, one for each of himself, Yu and H and only one had H as a “reference name”.  The ABN Amro Bank account was a CSE “partnership account” which he operated to facilitate transfers between accounts.  All the Swiss accounts were closed before he moved back to the States in 2009.  When the accounts were closed all funds in them were owned by him.  He was unable to provide any account details and he allegedly no longer had the records. 

295.  In cross-examination, SS told an entirely different story – that in fact the Swiss Account was not a CSE partnership account, nor did he own the funds.

296.  According to SS, an account will have the name of a beneficial owner, a reference name (in the present case, H’s name) for the bank to title the account and for SS’ convenience in tracking things.  H’s name was used as a “reference name” on one of the accounts and CSE’s name on another.  SS was not willing to disclose other reference names.  SS claims to have powers of attorney from the beneficial owners and he was the only person having control over the accounts.

297.  According to SS, the bank account with H’s reference name was owned by someone who was not H or SS.  The beneficial owner was not a nominee of H.  The trades that SS did in that account were related to what H advised SS on.  The account with H as reference name was closed in 2008.  SS could not provide any bank statements as they were all shredded when he moved back to the USA. 

298.  SS initially stated that aside from the account with H as the reference name, the other 3 accounts with ABN Amro Bank had nothing to do with CSE.  He later changed his evidence to say that they were “related” to CSE without being directly involved in the operation of CSE, used to track monies related to the partnership, and they were opened for SS’s own investments in CSE.  SS also changed his evidence to say that the funds before the closure of these accounts were not owned but controlled by him.

299.  The sudden change in SS’s evidence to reveal that he/the partnership had in fact never been the beneficial owner of the ABN Amro Bank Amro Bank Account was most astonishing.  Why would an account owned by some third party be used to pay HK$22m upon H’s exit from CSE? 

300.  SS could not explain this change in evidence, save to say that there was “no reason to say it”, that it was only a matter of “convenience” to describe it as a partnership account at the time, and because monies were paid to H out of that account.

301.  After his cross-examination on day 13, SS flew back to USA and eventually provided some documents in relation to 4 Swiss accounts. (This additional discovery was not fully in compliance with my order dated 30/11/2012.)  They were placed into a bundle known as “Reference to Documents Provided by SS”.  I will call that “the Swiss accounts bundle”. These documents showed that SS was in control of and had power to operate these Swiss accounts.

302.  SS was bound by his duty of confidentiality to his clients.  To safeguard the interests of beneficial owners who were not connected to this case, I have directed that the documents be released only to the legal teams of H and W.  SS has offered to present himself for further cross-examination after the Swiss accounts bundle was produced but that offer has not been taken up by W.  To preserve confidentiality as promised, I shall not express quotations from documents in the Swiss accounts bundle although I note the following points:

(i) The dates of setting up each of the accounts were closely tied to the period of the CSE deals referred to in Section D10.2.

(ii) These accounts had clear connections with CSE.  See eg para 2 to the preamble of page 10 of the Swiss accounts bundle; account names (reference) at pages 33-35, 36-38.

(iii) SS has affirmatively said that H had not put money into the Swiss accounts.  However, pages 33-35 of the documents were very telling.  The power stated on eg page 34 was strong evidence to support my view that H was transferring money from himself to himself.

303.  Such being the state of the evidence, I find that not only was the HSBC not wrong but that H was the owner of the ABN Amro Bank account referred to by HSBC.  The persistent failure of H and SS to disclose details of the ABN Amro Bank led to the inference that there were substantial funds therein which H wanted to hide.

D10.10.3.  K’s explanations for redaction of the 2 internal transfer vouchers of C Finance

304.  With regard to the 2 internal transfer vouchers of C Finance, K explained that they were for transfer of funds between in-house accounts (ie from one SEC client to another).  He redacted the 2 documents of his own motion, for protection of client’s privacy.  In a letter dated 31/8/2010, K stated that the beneficiary was not related in anyway to H and that K knew who the client was.  It was K’s evidence that at the time he handled the subpoenas, he did not know that Beh was H’s brother-in-law. 

305.  K said he thought that Lee was the client in relation to the C Finance account with SECS.  This could not be true, as a search of the SECS file would have revealed a copy of the instrument of transfer re C Finance (“the instrument”) showing that shares had been transferred from Lee to Beh on 18/7/2007 and then to Wang in March 2010.  If the owner had been changed to Beh, SECS should have kept a record of Beh’s signature or had him fill in a client information statement.  K accepted that he came to know about Beh being the owner of C Finance after referring to the documents, later changing his evidence that he only knew about this after being joined in these proceedings. K also stated in cross-examination that as H was his “client” (not sure of which account), K believed him. 

306.  Any reasonable person would have checked with H or Beh before the redaction or giving an affirmative statement in his letter dated 31/8/2010. But K allegedly never checked with H.  K even changed his testimony to say that in fact he did not recall who he thought the owner of C Finance was at the time he made his affirmation in December 2010.  K had clearly been lying and making up evidence as he went along.

307.  The instrument was witnessed by H’s friend (Loo) and H’s assistant (Sally).  The instrument did not show anything below the words “witness name and address”.  I find it hard to accept that the original instrument of transfer would not have those particulars of witness. 

308.  Sally who could have given first hand evidence did not testify, claiming lack of recollection.  Nor did Loo (still in contact with H) or Beh.

309.  Whether the particulars of witnesses were deliberately omitted or redacted, it was meant to conceal the truth.  The only person who stood to gain from the redaction of the internal transfer vouchers was H. The only plausible explanation was that Sally and H had been acting in collusion to cause a copy of the instrument with simulated signature to be prepared.

310.  After the court ordered the production of the unredacted internal transfer vouchers, the Beh PA was produced.  However, K said that there was no power of attorney in respect of the C Finance file.  If so, how could SS or his 2 staff, still less H, have operated C Finance’s account?

311.  K’s answer was based on information that his staff found.  K stated that if he had known that it was SS’ staff who signed the document on behalf of C Finance, he would have regarded it as improper and would be inclined to find out more. 

312.  On the other hand, new evidence emerged in H’s oral evidence, contradicting his version on affidavit:

(i) H admitted that he had asked K for underlying documents and obtained the same documents as what W had through subpoenas.  So why didn’t he disclose them in the first place but left W to find out for herself? 

(ii) H asserted that the home-made schedules were obtained from information which his personal assistant obtained on his behalf from SECS, which contradicted his previous evidence that he prepared the schedules by reference to his handwritten records and his memory. 

(iii) H stated that SECS gave him positive confirmationthat the top 3 receipts referred to in the CSE home-made schedule were from accounts controlled by and related to SS.  When asked how SECS could have known that, H said that SS might have communicated with K.  This version was inconsistent with K’s.  K thought that C Finance was owned by Lee (not Beh), and that the ABN Amro Bank account was not related to H.  K has never stated that he knew that the accounts from which these sums were paid had anything to do with SS, or that H inquired with him before preparing the homemade schedule. 

313.  It was most surprising that if H did in fact make inquiry with SECS about the first 3 payments, he was not (according to H) provided with the 3 redacted documents.

314.  Taking all circumstances into account, I draw the inference that H and K had colluded. The only reason for redaction was to cover up the extent of H’s involvement in CSE, and his interest in C Finance. K redacted the 2 internal transfer vouchers with knowledge that Beh was related to H.

D10.11.  K’s assistance to H in the cover-up was beyond the CSE deals.

315.  It was astonishing that K had decided to set aside the subpoena on his own volition when he had already produced the documents.  It was also incredible for H to say that K made his affirmation in support of the application to set aside the subpoena without showing the documents to H and verifying the information with him.

316.  In addition, paragraph 1 of the subpoena required SECS to produce statements of all transactions of all accounts with SECS, including those accounts held in the name of H’s nominees/agents or in others’ names including but not limited to Madam Sioh.  K clearly failed to disclose 4 accounts relating to CT Ltd and those of WS Ltd held in the name of Madam Sioh.   He shifted the blame on his staff and said he did not check their findings.  This contradicted his position that he personally dealt with the subpoena.

317.  Judging from section D8 whereby K purportedly “verified” Madam Sioh’s signature and approved payments, K could not have missed the point that H operated those accounts.  K was clearly part of a scheme of collusion in assisting H in concealing crucial and prejudicial information from the court, at the risk of contempt of court.

D10.12.  H had interest in CSE

318.  The CSE deals took place partly during the truce.  The disclosure by H on his entry to and alleged exit from the CSE was appallingly deficient.  The CSE home-made schedule was so full of misleading information as not to be reliable at all.

319.  In relation to payments, Mr Lees accepted that there was no evidence that H had paid more than US$1.945m (HK$15m) to CSE. However, there was nothing on documents to connect those payments with SS. In relation to the receipts, 3 of the 4 sums had no apparent connection with SS. There was nothing to show his partnership with Yu and SS.  There was nothing on documents to show that SS was the true owner of C Finance or had injected funds into CSE.  CSE has by now been struck off and all paper trails are lost.

320.  There was some evidence of SS having provided receipt item (iv) to H through SS’ company.  SS was also in control of the Swiss accounts that were apparently connected to CSE.  I do not think he was doing it purely as a nominee for someone without having his own interests to serve.

321.  Moreover, SS has come all the way from USA to give evidence for no apparent benefit.  At risk of subjecting himself to criminal or regulatory sanctions, he had come to state on oath that he had lied in past tradings and that he had directed his staff to simulate Beh’s signature.  It was unlikely, if he were not an owner or part owner of CSE or C Finance, for him to testify.

322.  I cannot exclude the possibility that SS was also one of the beneficial owners of CSE.

323.  The totality of the evidence led to the inference that H did have interest in CSE and he had not fully exited from it. Based on his alleged investment of US$1.945m and SS’ US$10m, H had at least 16.28% interest in CSE.

D11.  CSE’S DISPOSAL OF SECAHL GROUP AND SECHK TO K AND B RESPECTIVELY

D11.1.  The background

324.  CSE completed its acquisition of SECAS in September 2007 (“the Upstream Sale”)[15]. On 11/11/2008, CSE disposed of:

(a) SECAHL and named subsidiaries to NM Ltd (solely owned by K) for HK$60m;

(b) SECHK and named subsidiaries to RG Ltd (solely owned by B) for HK$10m;

(“the Downstream Sales”).

325.  Each of the Downstream Sales was funded by a 100% loan from SS, secured by a 100% mortgage on shares of NM Ltd or RG Ltd. Each loan was repayable in 4 years on or before 17/9/2012.  Interest was 1%. SS may foreclose the security in the case of default in repayment.

326.  Neither H nor W have a pleaded case against K and B or sought relief against them.  However, W’s allegations have been set out in W-17^th, W-26^th and section 7.1. and 7.2 of the Financial Analyses (F1 and F4).  W asserted that K and B were H’s nominees holding his interests in the 2 groups of companies on his behalf pursuant to sham transactions.  These were denied by H.

D11.2.  Joinder of K and B and framing of issues

327.  K and B have been joined as parties at the instigation of H for the purpose of “clawing back” his assets from them if the court were to find that they were his nominees.[16]  W objected to the joinder although she “reserved her position” as regards enforcement against them.

328.  Lam J (as he then was) ordered the joinder of K and B to determine and declare the beneficial ownership of the shares in:

(a) NM Ltd, SECAHL and their named subsidiaries;

(b) RG Ltd, SECHK and their named subsidiaries.

329.  In ordering the joinder, Lam J summarized W’s position and his reasons for decision as follows:

“29. [K and B] are said to be acting as nominees for the Husband in the SECAS group of companies. Both of them are Hong Kong residents. The case of the Wife is set out at paras.1.3.19 to 1.3.24 and section 7.2 of the Analysis[17]. In particular, at paras.7.2.22 to 7.2.25, the Wife specifically invited the court to draw the inference that [K and B] are and were at all material times the Husband’s nominees and continue to do at his bidding for him in various corporate entities in which they were and are on paper the director, shareholder or person in control. According to the corporate chart presented by the Wife, at the operating level of the corporate webs of companies, the SECAS group carries on business in Hong Kong through several Hong Kong companies. The total value of the SECAS group, according to counsel, is $260 million, which account for a very substantial part of the alleged undisclosed assets of the Husband.

30. In the light of the figures set out in paragraph 2 above, even though the Wife is only seeking a monetary judgment (by way of lump sum payment) from the Husband as opposed to a transfer of these assets in specie, bearing in mind that the parties have always been proceeding on a 50-50 division of the overall assets of the family, there is a real risk that eventually the Wife may find it necessary to take enforcement actions in respect of the assets in the SECAS group. Understandably, the Wife is not able to give an undertaking the she will not do so.  If the Wife were to take such action in the future, the issues as to the beneficial ownership of the SECAS group would have to be litigated between the Wife and [K and B].  Unless they are joined as parties at this stage, there would be a risk of multiplicity in proceedings even in the context of the matrimonial proceedings with the attendant risk of inconsistent judgment.”

The joinder has never been challenged by K or B.

330.  At the PTR on 12/7/2011, I directed that “H and W do jointly compile a list of those documents relating to W’s case against B and K.  No further documents not stated in this list shall be relied on by either party for or against B and K without leave of the court”.  That was intended to tie W’s hands so that K and B would know what case to meet.

331.  At the 2^nd PTR on 13/6/2012, Mr Howard QC made clear that W’s case against K and B was not one of undervalue[18]; it was simply that they had not provided consideration.  Accordingly valuation evidence was not admissible against K and B.

D11.3.  The legal principles when third parties are involved

332.  A dispute with a third party must be approached on exactly the same legal basis as if it were being determined in the Chancery Division. In TL v ML and others (Ancillary Relief: Claim against Assets of Extended Family) [2006] 1 FLR 1263, at §33-37, N Mostyn QC says:

“33.   It is well established that a dispute between a spouse and a third party as to the beneficial ownership of property can be adjudicated in ancillary relief proceedings: see Tebbutt v Haynes [1981] 2 All ER 238, per Lord Denning MR at 241:

‘It seems to me that, under s.24 of [the Matrimonial Causes Act 1973], if an intervenor comes in making a claim for the property, then it is within the jurisdiction of the judge to decide on the validity of the intervenor's claim. The judge ought to decide what are the rights and interests of all the parties, not only of the intervenor, but of the husband and wife respectively in the property. He can only make an order for transfer to the wife of property which is the husband's property. He cannot make an order for the transfer to the wife of someone else's interest.’

34.     It is to be emphasised, however, that the task of the judge determining a dispute as to ownership between a spouse and a third party is, of course, completely different in nature from the familiar discretionary exercise between spouses. A dispute with a third party must be approached on exactly the same legal basis as if it were being determined in the Chancery Division.  (emphasis added)

35.     Mr Brett makes the valid complaint that this issue has never been properly defined, pleaded or particularised. At no stage since the first appointment has this discrete issue been the subject of any case management, notwithstanding that the parties have been before the court on numerous occasions.

36.     In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen:

(i) The third party should be joined to the proceedings at the earliest opportunity;

(ii) Directions should be given for the issue to be fully pleaded by points of claim and points of defence;

(iii) Separate witness statements should be directed in relation to the dispute; and

(iv) The dispute should be directed to be heard separately as a preliminary issue, before the financial dispute resolution (FDR).

37.     In this way, the parties will know at an early stage whether or not the property in question falls within the dispositive powers of the court and a meaningful FDR can take place. It also means that the expensive attendance of the third party for the entire duration of the trial can be avoided. It is a great pity that none of these steps took place in this case. Had they happened, I believe that a great deal of costs would have been saved.”

333.  It is also firmly established that it is for the party who contests a third party’s beneficial ownership to prove his/her case.  As Nicholas Mostyn QC (sitting as a Deputy Judge) held in Rossi v Rossi  [2007] 1 FLR 790:

“39. In seeking to demonstrate that the beneficial interests do not follow the legal title Mr Tidbury accepts that there is a heavy burden of proof laid on his client. H has to prove that at the time of the incorporation of Rossi & Rossi Ltd it was the common intention of himself and W that he would have a beneficial interest in the shareholding of the company. Similarly he has to prove that at the time of the purchase of the apartments it was the common intention of himself, W and Fabio that he (H) would have a beneficial interest in the properties.”

D11.4.  Position of the Parties

334.  H denied having beneficial ownership in NM Ltd and RG Ltd.  Mr Howard maintains that W only has allegations but not a case against H.  She says that SS had never been the beneficial owner of CSE and K and B were H’s nominees pursuant to sham transactions.  In his opening submission, Mr Howard QC makes clear that this case is not about resulting trust or constructive trust but he adds that there was/were a conspiracy(ies) involving K and B.  Still further, he submits that NM Ltd and RG Ltd are “financial resources” under section 7(1) MPPO to which W could have resort.  She does not, however, seek a declaration of ownership or transfer of property order against K or B.   It is open to a judge to deal with the assets on the basis that it remained throughout H’s without going through formality of setting aside orders.  See Purba v Purba [2000] 1 FLR 444, Thorpe LJ at 446E to H, Re W (ex parte orders) [2000] 2 FLR 927, 938B-E. 

335.  K’s position is essentially twofold:

(i) That there was no evidence that he participated in the Upstream Sale or that he had knowledge of the nature of the Upstream Sale as a sham transaction that had the intention of defeating W’s claim in ancillary relief.

(ii) Even if there is a successful challenge to the Upstream Sale by W, that does not necessarily mean that K has not acquired a beneficial interest in SECAHL or the Subsidiaries.

336.  B’s position is that W has no sufficient evidence to prove a sham/conspiracy or that H is still in control of SECHK or RG Ltd, or that H is able to recover benefits generated from the operations of SECHK. I will add that although Mr Chung (counsel for B), has not set out B’s case as fully as Mr Wong SC (counsel for K), the submission in respect of K is laregely applicable to B.  Therefore, K and B’s cases will be considered together, save where it is necessary to depart.

337.  I agree with Mr Wong SC that it is irrelevant that W does not presently seek a transfer of property order and just reserves her position for the future.  Determination of the ownership issue will give rise to issue estoppel that will bind all parties in this case. 

338.  In Edgerton v Edgerton [2012] 1 WLR 2655, the husband and a third party had Chancery proceedings over properties alleged to belong to a partnership between them.  W joined as a party but was barred from participation due to procedural default.  The Chancery proceedings were settled between the husband and the third party by an order which provided for payment to the third party out of the disputed property.  The Court of Appeal held that the wife was barred from disputing the partnership or the interest of the third party over the disputed assets.  For so long as the Chanery order remains in force, it involved a final determination as between the parties in that action as far as concerned the issues it dealt with and it therefore operated as an estoppel.  The order made in the Chancery proceedings has intended the resolution of the issues raised by the wife in that action to be determinative of those issues in the ancillary relief proceedings.  The fact that the Chancery order was a consent order as between the husband and the third party, and a default order insofar as the wife was concerned, did not alter the conclusion. Lord Neuberger of Abbotsbury MR says,

“36. Judge Wallwork thought that, as the court in the ancillary relief proceedings had an inquisitorial, or quasi-inquisitorial (as Thorpe LJ put it in Parra v Parra [2003] 1 FLR942, para 22), role, the normal rules as to issue estoppel did not apply. I do not agree. It is true that the law relating to res judicatahas been described as 'difficult and … now in retreat in matrimonial proceedings' - see Halsbury’s, para 1178. However, as Sir Mark Potter P said in Charman v Charman (No 4) [2007] 1 FLR 1246, para 67, 'the starting point of every inquiry in an application of ancillary relief is the financial position of the parties', and that 'inquiry is always in two stages, namely computation and distribution'. At the computation stage, the court is determining what the assets of the parties are, and its determination, when embodied in an order must, in my view, create estoppel between the parties. In Tebbutt v Haynes [1981] 2 All ER 238, the determination by a Family Division judge as to the beneficial ownership of an asset between spouses was held to be binding between the same parties in proceedings in the Chancery Division. It would be absurd if a different result obtained in the reverse situation. Further, where a third person is a party to the action in which the ownership of an asset is determined by a court, it would also be absurd if he could not be bound by, and entitled to rely on the determination.”

339.  The findings on the issue framed by Lam J will thus operate as issue estoppel against W, H, K and B.  W is not at liberty to reserve her position.

D11.5.  The applicable legal principles on sham transactions

340.  Where a transaction is alleged to be not in truth what it purports to be, it is important to bear in mind the different nature of the transactions:  A v A (St George Trustees Ltd v Others, Interveners) [2007] 2 FLR 467, Munby J.

“15. A number of different principles, rules or doctrines (call them what you will) may come into play if it is said that some document or transaction is not in truth entirely what it purports to be. The following list is not intended to be exhaustive, but what I have in mind would include, for example:

i) the principle that the court looks to the substance rather than the label: Street v Mountford [1985] AC 809;

ii) the approach adopted by the court when faced with a pre-ordained series of transactions or a composite transaction which includes an artificial step inserted for no commercial purpose: W T Ramsay Ltd v Inland Revenue Commissioners, Eilbeck (Inspector of Taxes) and Rawling [1982] AC 300 (Ramsay), Furniss (Inspector of Taxes) v Dawson [1984] AC 474 and Craven v White [1989] AC 398;

iii) the principle that in certain circumstances the court can 'pierce the corporate veil': see most recently Mubarak v Mubarak [2001] 1 FLR 673 (not affected on this point by the decision on appeal) [2001] 1 FLR 698);

iv) the approach adopted by the court when faced with the assertion that property conveyed to another is in fact held on a resulting trust for the transferor: see, for example, Tinker v Tinker [1970] P 136; (emphasis added)

v) the doctrine of sham as defined in Snook v London and West Riding Investments Ltd [1967] 2 QB 786, at 802; (emphasis added)

vi) the various statutory provisions entitling the court to set aside conveyances or other transactions entered into with intent to defeat or defraud creditors. Conceptually analogous to such provisions is the provision familiar to practitioners in this Division, s 37 of the Matrimonial Causes Act 1973, which enables the court to set aside transactions intended to prevent or reduce financial relief under the Act;

vii) the approach adopted by the matrimonial court when faced with the assertion that the ‘financial resources’ available to a spouse within the meaning of s  25(2)(a) of the Matrimonial Causes Act 1973 include some asset which is either not the property of the spouse (for example, an expectation of future bounty from a friend or relative) or in relation to which he has less than an absolute interest (for example, the interest of the beneficiary of a discretionary trust): see Thomas v Thomas [1995] 2 FLR 668 and, most recently, Charman v Charman [2005] EWCA Civ 1606 [2006] 1 WLR 1053, [2006] 2 FLR 422. (emphasis added)

16.     I draw attention to these various different types of case in part to make the point that conceptually they proceed on very different – and in some cases completely inconsistent – bases. There is, I suppose, no difficulty, other than possible forensic embarrassment, in pleading inconsistent cases in the alternative, but it is important to recognise that due to their analytical inconsistency many of these doctrines can operate only as alternatives. …”

341.  A recentgeneral analysis of the doctrine of sham transaction is contained in Arden LJ’s judgment in Stone & ors v Hitch [2001] STC 214, at para 63-69:

“63. The particular type of sham transaction with which we are concerned is that described by Diplock LJ in Snook v. London & West Riding Investments Ltd [1967] 2 QB 786. It is of the essence of this type of sham transaction that the parties to a transaction intend to create one set of rights and obligations but do acts or enter into documents which they intend should give third parties, in this case the Revenue, or the court, the appearance of creating different rights and obligations. …

64. An inquiry as to whether an act or document is a sham requires careful analysis of the facts and the following points emerge from the authorities.

65. First, in the case of a document, the court is not restricted to examining the four corners of the document. It may examine external evidence. This will include the parties' explanations and circumstantial evidence, such as evidence of the subsequent conduct of the parties.

66. Second, as the passage from Snook makes clear, the test of intention is subjective. The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties.

67. Third, the fact that the act or document is uncommercial, or even artificial, does not mean that it is a sham. A distinction is to be drawn between the situation where parties make an agreement which is unfavourable to one of them, or artificial, and a situation where they intend some other arrangement to bind them. In the former situation, they intend the agreement to take effect according to its tenor. In the latter situation, the agreement is not to bind their relationship.

68. Fourth, the fact that parties subsequently depart from an agreement does not necessarily mean that they never intended the agreement to be effective and binding. The proper conclusion to draw may be that they agreed to vary their agreement and that they have become bound by the agreement as varied: (see for example Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1966] 1 QB 650 at 683-684 per Diplock LJ, which was cited by Mr Price).

69. Fifth, the intention must be a common intention: see Snook …”

342.  The intention to create a sham must be common to both parties: Shalson and Others v Russo and Others [2005] Ch 281, 342A-D, Rimer J held that:

“… When a settlor creates a settlement he purports to divest himself of assets in favour of the trustee, and the trustee accepts them on the basis of the trusts of the settlement. The settlor may have an unspoken intention that the assets are in fact to be treated as his own and that the trustee will accede to his every request on demand. But unless that intention is from the outset shared by the trustee (or later becomes so shared), I fail to see how the settlement can be regarded as a sham. Once the assets are vested in the trustee, they will be held on the declared trusts, and he is entitled to regard them as so held and to ignore any demands from the settlor as to how to deal with them. I cannot understand on what basis a third party could claim, merely by reference to the unilateral intentions of the settlor, that the settlement was a sham and that the assets in fact remained the settlor's property. One might as well say that an apparently outright gift made by a donor can subsequently be held to be a sham on the basis of some unspoken intention by the donor not to part with the property in it. But if the donee accepted the gift on the footing that it was a genuine gift, the donor's undeclared intentions cannot turn an ostensibly valid disposition of his property into no disposition at all. To set that sort of case up the donee must also be shown to be a party to the alleged sham. In my judgment, in the case of a settlement executed by a settlor and a trustee, it is insufficient in considering whether or not it is a sham to look merely at the intentions of the settlor. It is essential also to look at those of the trustee.”

343.  A transaction which was initially a sham could subsequently lose that character.  A v A [2007] 2 FLR 467, Munby J at paras 45-47:

“45. I turn to consider the converse case. Can a trust which is initially a sham subsequently lose that character? I see no reason in principle why that should not be possible. The situation is best explained by an example. S has purportedly vested property in T1 as trustee of a trust which is in fact, consistently with their common intention, a sham from the outset. T1 now wishes to retire as ‘trustee’. S, executing all the appropriate documents, purports to appoint T2 as T1’s successor and to transfer the “trust property” into T2’s name. Now if T2 knows that the “trust” is a sham and accepts appointment as ‘trustee’ intending to perpetuate the sham, then nothing has changed. The ‘trust’ was a sham whilst T1 was the “trustee” and remains a sham even though T1 has been replaced by T2. But what if T2 does not know that the ‘trust’ was a sham, and accepts appointment believing the ‘trust’ to be entirely genuine and intending to perform his fiduciary duties conscientiously and strictly in accordance with what he believes to be a genuine trust deed? I cannot see any reason why, in that situation, what was previously a sham should not become, even if only for the future, a genuine trust.

46. On the contrary, principle argues compellingly that in such circumstances there is indeed, for the future, a valid and enforceable trust. After all, in the circumstances I have postulated, the trust property has been vested in someone who accepts that he holds the property as trustee on the trusts of a document which he believes to be a genuine instrument. He has no intention that the arrangement should be a sham. Conceptually, as it seems to me, the situation is, in reality, no different from that which was considered by Rimer J in the passage in Shalson and Others v Russo and Others (Mimran and Another, Part 20 Claimants) [2003] EWHC 1637 (Ch), [2005] Ch 281, at para [190] that I have already quoted.

47.    … even if the earlier trustee was party to a sham, a new trustee cannot become an unknowing party to the sham. Once the new trustee becomes legal owner of the trust property, provided he exercises his powers and fulfils his duties in accordance with the terms of the trust instrument, the trust cannot be regarded as a sham, no matter what may have passed before. I agree.”

344.  The same law on sham transactions applies to ancillary relief proceedings: A v A (St George Trustees Ltd and Others, interveners) [2007] 2 FLR 467, at paras 20-21, Munby J states:

“20. There is one other preliminary point that I wish to emphasise. In deciding whether or not, and, if so, in what manner, these principles operate in any particular case, the court will of course have regard to the particular context and to the particular factual matrix. …

21. In this sense, and to this limited extent, the typical case in the Family Division may differ from the typical case in (say) the Chancery Division. But what it is important to appreciate (and too often, I fear, is not appreciated at least in this division) is that the relevant legal principles which have to be applied are precisely the same in this division as in the other two divisions. There is not one law of ‘sham’ in the Chancery Division and another law of ‘sham’ in the Family Division. There is only one law of ‘sham’, to be applied equally in all three Divisions of the High Court, just as there is but one set of principles, again equally applicable in all three divisions, determining whether or not it is appropriate to ‘pierce the corporate veil’. ”

345.  The court does not lightly find a transaction to be a sham.  In A v A [2007] 2 FLR 467, Munby J at para 53-54:

“53.  An allegation of sham is a serious matter. As Neuberger J said in National Westminster Bank plc v Jones [2000] BPIR 1092 at para [59]:

‘there is a very strong presumption indeed that parties intend to be bound by the provisions of agreements into which they enter, and, even more, intend the agreements they enter into to take effect.’

Moreover, and because as Neuberger J pointed out (see paras [40], [46] and [59]) ‘a degree of dishonesty is involved in a sham’, it follows (see para [59]) that:

‘there is a strong and natural presumption against holding a provision or a document a sham.’

54.    Moreover, it has to be borne in mind that a finding of sham may have serious implications, not least for trustees. As the Royal Court of Jersey said in CI Law Trustees Limited and Another v Minwalla and Others [2005] JRC 99 at para [17]:

‘It is a serious matter to find that a professional trustee in Jersey has been party to a sham. It is a finding moreover which might well have adverse consequences under the statutory regime which regulates the activities of professional trustees in Jersey and which, incidentally, is absent in England and Wales.’ ”

346.  The more serious the allegation, the less likely it is that the event occurred and, hence, the stronger the evidence is required to satisfy the court on a balance of probabilities: HKSAR v Lee Ming Tee, FACC 1 of 2003, 22 August 2003, Sir Anthony Mason NPJ, at paragraph 71.

347.  The court guards against conjecture under the guise of drawing inferences where there is no evidential basis to do so:  Nina Kung v Wang Din Shin, FACV 12 of 2004, 16 September 2005, Mr Justice Chan PJ.  In Ming Shiu Chung v Ming Shiu Sum, FACV 25 of 2005, 23 May 2006, Mr Justice Ribeiro PJ, at para 45 held that inferences of fraud or serious misconduct are

“ ‘...not to be reached by conjecture nor ... on a mere balance of probabilities.’ They are ‘to be plainly established as a matter of inference from proved facts’. ”

348.  Accordingly, the burden rests on W to prove, on a balance of probabilities and by cogent evidence that the Downstream Sales were sham transactions at the time they were entered into with a view to defeating her claims.

349.  I agree with Mr Wong SC that amere successful challenge to the Upstream Sale does not per se meet the criteria mentioned above, if each of the Downstream Sales is not also proved to be a sham that was intended by H, SS and K/B to preserve H’s beneficial interests.

D11.6.  Application of the law on sham transaction

350.  SS denied holding shares on behalf of H.  Mr Howard QC is unable to point to evidence showing that K and B had knowledge of the Upstream Sale or the nomineeship between H and SS.  He invites me to draw inferences but that is not permissible under the principles of Ming Shiu Chung v Ming Shiu Sum. In any case, I did not find SS to be a nominee but possibly he was a partner of H and H had not exited CSE.

351.  It was also apparent that W has not provided particulars concerning the common intention of SS, and K or B to create a set of rights and obligations different from that on the face of the agreements concerning NM Ltd and RG Ltd, and that they intended to give a false impression of those rights and obligations.  The assertions that K and B were “dishonest” or had “knowledge” of the Upstream Sale being a sham were likewise missing.

352.  W’s allegations against K were contained in W-17^th, F1 and F4. The former can be summarised as follows:

(i) W did not know K personally and K was a “junior staff” of the E Group when H was a director;

(ii) K colluded with H to conceal information in answering the 2010 Subpoena;

(iii) H, but not K, appeared at the hearing of the summons to set aside the 2010 Subpoena; and

(iv) K “does not give [W] an impression as someone who owned a list of 4 SFC licensed companies of great value”.

353.  Item (i) on K’s status in the E Group were flatly contradicted by the documentary evidence exhibited to K-1^st.  Items (ii) and (iii) occurred way after the Downstream Sales were entered to.  Item (iv) was evidence of impression which was of no value.  Whether viewed individually or collectively, allegations in W-17^th were not sufficient to establish a sham.

354.  F4 was served very shortly before trial.  In essence, F4 made the following points:

(i) K was a director of various companies alleged to have been owned by H;

(ii) SECAHL provided no cash or other assets for its acquisition of the former SECAS subsidiaries;

(iii) The non-payment of cash or other assets was inconsistent with SS’ stated desire to repatriate capital;

(iv) SEC continued to provide guarantees for banking facilities to SECAHL after it ceased to be a related company; and

(v) The Downstream Sale was not an arm’s length transaction and was structured to transfer H’s interest in SECAHL Group to his nominees for a nominal value.

355.  On point (iv), K has now produced the 2008 and 2009 banking facility letters from Standard Chartered Bank (Exhibit R2-3). He has also explained that after the Downstream Sale there had to be a period of transition for SEC to cease to be guarantor, and that the negotiations with Standard Chartered Bank took about half a year.  K’s evidence on the SEC guarantee and the circumstances in which it was superseded was not challenged in cross-examination.  I accept such evidence and place no weight on point (iv).

356.  Points (i) to (iii) and (v) are subsumed in the following examination of the circumstances leading to the Downstream Sale.

D11.7.  The background leading to the Downstream Sale

357.  According to SS, collapse of Lehman Brothers (18/9/2008) brought about massive panic in the capital markets, which dropped 22% in that week.  Any outstanding loans that banks had were called in and people were terrified of anything financial services related.

358.  Between a choice of liquidation (which would have required severance pay of about HK$10 million; unquantifiable sums in damages to clients of SECAS; and inability of SECAS to recover trade receivables of about HK$30 million), SS chose the latter.  He wanted repatriation of his capital. 

359.  K and B decided to make a management buyout. SS provided a 100% loan in return for a 100% mortgage of the issued shares of NM Ltd and RG Ltd.  The transactions were approved by SFC.

360.  In the present proceedings, K has undertaken not to repay the loan pending trial.  (See Order dated 17/8/2012.) B has agreed to notify W at least 14 days before any steps are taken to repay the loan.  (See Order dated 27/8/2012.)

361.  W disputed the authenticity of the loan agreements and that they represented genuine commercial transactions.  In fact, when one analysed the facts, on could see suspicions surrounding the Downstream Sales, from H’s involvement, negotiation between SS and K/B, terms of the agreements, funding for the purchase, raising of funds for repayment of the loans, and enforcement of the loans.  H, SS, K or B were not entirely reliable witnesses.

D11.8.  H’s involvement

362.  There was inconsistency in witnesses’ evidence as regards H’s involvement.  According to H, he was involved as an intermediary.  He assisted K in the negotiation, mainly to give assurance about the character and ability of K to SS.  K and B alleged that H was at the first meeting whereas SS stated under cross-examination that H was not there.

D11.9.  Negotiation leading to the Downstream Sales

363.  Each witness told different versions as to how long the negotiation lasted before the deals were struck.

364.  Between K and SS:

(i) K’s evidence was that the length of meeting was 30 minutes whereas SS said there were short conversations of minutes. 

(ii) K’s oral evidence was that the negotiations took “roughly a week’s time, several days” and involved “roughly about 8 to 10 meetings”, each of them between 5 and 30 minutes, less than 5 hours in duration and that B was not present at all of these meetings.  This contradicted K’s affirmation evidence that the discussions with SS took place between August (which could not have related to collapse of Lehman Brothers) and October 2008 and he “took some time to consider Mr. SS’s proposal and discussed his offer with my colleagues, my family and friends”.  He later changed his evidence to say that he “did not discuss the buy-out in detail with anyone else other than B, Carla and [SS]”.  K was clearly making up his story as he went along.

365.  Between B and SS:

(i) SS stated that it was he who informed H of his plan to dispose of SECAS and SECHK; K and B learned through H of SS’ intended sale and expressed interest.  However, B said that it was he who initiated the idea of purchasing SECHK and he asked H to relay his idea to SS; B did not recall any concrete negotiations with SS. 

(ii) There was a maximum of one 5-minute meeting between the initial meeting with H and the “closing” with SS. The time gap between the first and the final meeting was “probably a month”.  B said that SS was not often in Hong Kong at that time.  This contradicted SS’ version that he was in the office and had many conversations during the day with K and B about the deals.

366.  SS’ evidence was that there was no formal meeting as such, but that he probably had 30 conversations involving B or K(or both of them) and that he could have conversations on the subject with B “as he was walking down the hall to leave for the day for walking down the hall for lunch”.

367.  The deals were closed with lightning speed, with hardly any negotiation or documentation.  Despite all these inconsistencies, I find that there was a series of discussion between K and B and SS and that H was present at the first meeting for the purpose he mentioned. 

368.  I accept the evidence that the sale and purchase agreements and loan agreements were “home-made” by K from templates.  B, the one with legal qualifications, was content with such agreements.  I am satisfied that the agreements were signed in their present form.  They were not witnessed as there was no legal requirement for witnessing.

369.  No due diligence or valuation was done on K and B’s side.  K had not sought legal advice although he had never purchased a company before.  K simply took the net book value based on the latest management account and rounded the figure up to HK$60m, without taking into account the market conditions on 18/9/2008. In fact K accepted in re-examination that there was a risk that the company could in fact be worth “nothing at all” and no one in the market was willing to buy this company at net book value in light of the then economic climate. 

370.  It must not be forgotten, however, that K and B were not strangers but at the management level of the 2 groups of companies and hence, unlike outsiders, would have known the financial situation of the 2 Groups. Specifically K had been working at E, SEC and SECAS.  He only left SECAS on 23/10/2008.  B had experience in corporate re-organization, corporate finance and regulatory compliance and has headed the Corporate Finance Department of SECHK.  The informality of the discussions, lack of witnessing, lack of due diligence, and home-made documentation were not surprising.

D11.10.  The funding for the Downstream Sale was strange:

371.  The funding for the Downstream Sale was strange:

(i) K clearly could not afford the purchase with his free capital of HK$4-5m and annual income of HK$2m or provide collateral for a loan of HK$60m.  He had made “several attempts” to borrow funds for the purchase but “was not successful”. The only personal loan he was granted was for HK$0.5m but there was no documentary proof. 

(ii) Similarly, B could not afford the full purchase price with his capital of HK$5m and income of about HK$3m per year. 

(iii) SS provided all the funds, seemingly without negotiation of the repayment terms.  His intention to repatriate capital was not fulfilled.

372.  The loan agreements were never mentioned by SS until after K and B were joined as parties.  Previously SS mentioned that K and B issued “IOUs” as consideration.  

373.  The security on the shares of NM Ltd and RG Ltd provided no protection to SS at all, as the loan agreements bound the companies but not K and B personally. K and B could have extracted all value of both companies leaving empty shells for SS.  SS, however, was not worried because of his belief in the SFC procedure that required a filing and regulatory process before K and B could strip assets out. 

374.  The net effect was that K and B got SECAHL and SECHK for nil consideration.  SS took the entire risk of loss even if the security is enforceable but K and B would only risk losing 4 years’ time.  Such Downstream Sales simply did not appear to me to bear commercial sense.  Despite SS’ assertion that the business would go bankrupt, the 2 Groups did continue to operate after the Downstream Sales without any injection of further capital. 

D11.11.  Fund raising for repayment of the loans

375.  K and B had allegedly intended to list their respective groups within 4 years.  Nothing was done in terms of listing except K’s “preliminary inquiries” with a solicitor in late 2009 for which there was no independent proof.  According to K, in mid-2011, he and B decided that SECAHL was not performing sufficiently well and so they abandoned the idea of listing altogether, bearing in mind that the business had to be profitable for 3 years to be listed and the listing process would take about a year.

376.  After the joinder, K made 2 attempts to seek the court’s permission to sell SECAHL in order to repay SS’ loan[19]. Meetings involving SS and H with the buyer (SIG) in respect of the first attempt were not disclosed when the 1^st application for leave was made.  The clear inference was to conceal the involvement of H and SS.  It was rather odd that H would be attending the meeting with SIG when he allegedly had nothing to do with SECAHL.

377.  NM Ltd had no bank account, securities account or financial statements.  Ten months before the loan became due for repayment, K could not confirm whether NM Ltd would be able to repay with interest. These paragraphs on fund raising cast doubt as to whether there were loans to repay.

D11.12.  “Enforcement” of the loans

378.  The “enforcement” of the loan agreements by SS was “artificial”.  Just 2 days after K stated that he was not aware of any notice of default, SS issued a notice of default to K and B on 1/12/2011 for the immediate repayment (within 30 days) of the loan plus interest (which was not due until some 10 months later) based on a “material adverse change” (being SS’ belief that the borrower was not able to repay the loan in the following September).  K made no protest to SS but replied 2 days later, stating that he could not repay at the moment but was trying to sell his shares to repay him.  SS raised no objection as a mortgagee.  Shortly after, K sought leave to dispose of SECAHL to one SIG. There was no evidence of further correspondence before the court’s decision in February 2012, although SS claimed that there were emails which had been deleted.

379.  SS allegedly has begun enforcement proceedings in the BVI to enforce the 2 alleged loans to NM Ltd and RG Ltd, although there was no documentary proof of this.  K and B could not tell what plans they had to repay but they were simply waiting for the outcome of these proceedings. 

380.  SS alleged that W has also been made a defendant in legal actions but he was unable to articulate what W had done which amounted to fraudulent conversion/interference with his assets, why he sued in BVI when the governing law, the potential defendants and the transactions were all connected to Hong Kong.

381.  What was more puzzling was the totally new evidence that emerged in the evidence of SS and K at the trial.  When SS was asked whether it was true that he never got anything from K and B, SS first said he got HK$2m from K sometime in 2012.  According to SS, he got daily reports from K on the capital position of his company despite the fact that he had “sold” SECAHL to K and that SS was not entitled to those reports; and SS asked K to send him the “excess capital”.  SS said it was a loan, a payment “on account of” the HK$60m owed to him by K.  However, SS did not recall if there was a loan agreement, whether it bore interest or when it was repayable. 

382.  The “loan agreement” produced by K (Exhibit R2-1) threw SS’ assertions in grave doubt for the following reasons:

(i) It was not a loan agreement but a promissory note.

(ii) It was signed by SS who undertook to pay SECAHL HK$15m with interest at 6% per annum on 14 August 2012.  K said he “forgot” to sign on this promissory note.

(iii) The promissory note was secured by the HK$60m receivable by SS.  It begged the questions whether K did provide the sum of HK$15m to SS; and if not, why there was no enforcement against the HK$60m receivable?

(iv) SS only had 2 drawdowns of HK$1m each (paid into the account of JS, presumably someone related to him).  And if the HK$2m was “on account of” K’s loan, why would there be a need to give a promissory note of HK$15m?

383.  The above analyses were largely applicable to B.

384.  B has concealed material information.  In September 2011, a year before the loan from SS was due, B had been allegedly negotiating a “convertible loan agreement” with one BBHL (the “Lender”). In answer to W’s Questionnaire in November 2011 as to whether RG Ltd would be in a position to repay SS’ loan in September 2012, B answered in the affirmative, without disclosing the negotiation for the BBHL loan, or that the shares in SECHK had been pledged as security.

385.  Eventually an agreement dated 1/2/2012 was entered into among the Lender, SECHK, RG Ltd and B (the “Convertible Loan Agreement”). The Lender lent HK$6m to SECHK, which loan was repayable by transfer of 30% shares of SECHK. 

386.  Five days later, at the hearing before this court on 6^th and 7^th February 2012, in response to W’s summons for an order that B should provide written notification to W 14 days before any intention to dispose of the 2 groups of companies, B’s counsel submitted to the court that “there is not a shred of evidence to show that there is dissipation of the shares by B”.  That was clearly contrary to the truth as set out in the preceding paragraph. 

387.  B explained that there was a “mutual understanding” that the Lender would not demand the shares before the determination of ownership but such an important term was not spelt out in the loan agreement itself.

388.  Further, if the loan was intended for repayment of SS’ loan to RG Ltd with interest to be settled in September 2012, and accepting that time was needed for B to arrange the loan, why was it necessary to obtain the loan as long ago as a year?  Why would the loan that attracted interest of 10% per annum be placed in a deposit account instead of being applied towards reduction of SS’ loan?  In the end, B had incurred 2 rounds of interest without achieving his alleged intention. The Convertible Loan has since been repaid (together with interest at 10% p.a.) to the Lender on 6/6/ 2012, after W commenced committal proceedings against B.

D11.13.  H’s role after transfer of SECAHL and SECHK to K and B

389.  H continued to receive benefits from K and B’s companies. He introduced business to them.  His travelling expenses were paid for by them.

390.  Since he allegedly “exited” CSE in October/November 2007,  H continued to be provided with the following benefits from K and B’s companies for free (not disclosed until trial):

(i) Personal assistant:  H accepted that Sally could have been paid by K’s company (SECAHL) even after H had allegedly nothing to do with it.   Sin (who replaced Sally) was, according to H, employed by MS/SECAM (used to be owned by H and MS in equal shares but later fully held by MS in 2012).  However, K stated that Sin was actually employed by SECAHL but assigned to SECAM. 

(ii) A driver (not for H’s exclusive use and was also an office assistant) until 2011, provided by SECAHL.  However, neither K nor B had a driver.  According to B, there was a costs sharing arrangement whereby for all the expenses paid for by SECAHL, SECHK paid 25%. 

(iii) Office space at SECS for about a year (confirmed by K).  Although H denied that he still had an office there, his bank statements were still sent there even up to May 2012.

(iv) Office space at a building owned by Yu or his brother until the 2^nd quarter of 2012.

(v) H also continued till now to use an e-mail address at the same company as Sin who worked for SECAHL. 

391.  A substantial number of invoices for H’s trips abroad since August 2008 were invoiced to Sally/Sin and paid for by companies allegedly owned by K or B[20]. H had to change his evidence in cross-examination to say that it was a “gradual retirement”, and that he assisted K and B to maintain client relationships without remuneration. 

392.  These trips paid for by K and B’s companies were very frequent.  For example, in the 1 ½ years from October 2008 to April 2010, there were 15 trips paid for by SECHK for H.  According to B, these were all “business trips” he or his colleagues had with H, concerning the business of SECHK.  In fact, B revealed that during these trips, H either referred clients to SECHK or it may be the case that there were Mainland enterprises which might be interested in listing in Hong Kong who might request them to invest via a fund and since H was an owner of SECAM, he would be invited to invest via SECAM.  

393.  H’s purported explanation was that K and B’s companies paid for his travel to the extent that he referred clients or maintained relationships with previous clients for SECHK and SECAHL. K mentioned an IPO which H referred to him in 2009 which enabled him to make a profit of several million dollars.  Although H travelled more for SECAHL than K himself, K said that his company would pay for these trips upon H’s word that it was in relation to clients of K’s company.

394.  Further, both K and B entered into an employment contracts with SECAHL or SECHK respectively.  They received notices of salary increase just like other employees.  Some other staff of SECAHL or SECHK were paid higher salary than K or B.

395.  Aside from referring business, H was also the one who arranged for the meeting between himself, Lo and K at which Lo was asked to join SECAHL.

396.  All these suggest that H might still have interest in SECAHL and SECHK.

D11.14.  Were the Downstream Sales Sham Transactions?

397.  Mr Howard QC does not go further than saying that his analyses of the Downstream Sales were “highly suspicious”[21]. He submits that all these smack of collusion.  He also submits that the purported loans to NM Ltd and RG Ltd by SS were no more than shams, “part and parcel of the conspiracy” to put SECHK and SECAHL beyond the reach of W[22]. That begs the questions: collusion between whom and what the particulars of the conspiracy are?  W never clarified.

398.  Firstly, there was nothing to show that K/B had any part to play in the Upstream Sale.  SS confirmed they had none.  Any sham in the Upstream Sale would have been between SS and H.  There was no evidence that K/B knew about H’s exit or non-exit from CSE either.

399.  Secondly, I have found that SS was possibly a partner of H.  the SECAHL and SECHK deals appeared to be transactions between SS and K/B.  W has not pleaded any “common intention” between SS on the one part and K/B on the other.  Nor has she explained what appearance of legal rights and obligations each of SS and K/B subjectively wanted to create that was different from the actual legal rights and obligations appearing on the documentation governing the 2 deals: Stone v Hitch and Others [2001] EWCA Civ 63, at para 63. 

400.  Thirdly, if H’s intention was to have K and B as nominees in the Downstream Sales, then what was H and SS’ intention (as partners) as against each other?  H might have the intention defeat W’s claims but SS had no reason to join in with H in that move. 

401.  Fourthly, different people might gain in the bear or bull market.  The Downstream Sales might appear to be commercially nonsensical, but they might have been the best that could be procured in the then circumstances.  They had turned out to be profitable, although not to the extent of having SECAHL and SECHK listed. 

(i) K resigned, in the light of that state of the financial markets, from SECS as Chief Financial Officer in or around July 2008 to “pursue new ventures and challenges”.  He was confident to buy because the companies were different from Lehman Brothers which carried a lot of liabilities.  His confidence that the business would be made profitable again in the end of 2009 (ie in just 1 year’s time) turned out to be true.  He cut costs and there had been dividends for the years 2009 and 2010.

(ii) B’s was able to successfully pull off two IPOs in 2009, secured three IPO mandates in 2010 and two in 2011 until now.  SECHK made a profit in 2009 and 2010. 

402.  Fifthly, SS and K/B had treated the agreements between them as binding.  Whether as a creditor (or even owner), SS has got K’s consent to read the accounts.  What was there to show that SS and K/B did not want the agreements to bind their relationship?

403.  Sixthly, there was little to show that H was involved in the Downstream Sales.  There was only one initial meeting when SS wanted to sell the SECAHL and SECHK Groups.  The other meeting with SIG to try and sell SECAHL was years after the Downstream Sale.

404.  Seventhly, grave allegations of entering into sham transactions might affect K and B’s status within the securities business.  It was true that SFC’s letters concerning the acquisitions of K’s Groups of companies did not “in any way confirm the legality of [K’s] acquisition of the shares in [the 3 subsidiaries].  However, the SFC letter also stated that:

“… It is incumbent on the parties involved in the transactions to ensure that all relevant laws and regulations in Hong Kong and overseas, including the SFO and the Companies Ordinance are complied with. Any such breaches might impugn the fitness and properness of [SBIS], [SBIC] and [SBIB] to remain licensed.”

Cogent evidence is required to prove serious allegations: HKSAR v Lee Ming Tai, FACC 1 of 2003, Nina Kung v Wang Din Shin, FACV 12 of 2004.

405.  Eighthly, it was B’s evidence that H had cancelled his Type 6 license in 2007 and that his Type 1 license had ceased to be registered (although he did not recall the date).  It was inherently improbable that H would elect to remain involved in any operations of any licensed subsidiaries of SECAS (not just SECHK) at risk of criminal sanctions.  Why would K and B, being SFC regulated persons, be willing to engage in sham transactions that deceived the SFC and the court, with no apparent benefit to themselves, at risk of the subsidiaries losing their licences, disciplinary proceedings, and even criminal proceedings with potential fine of up to HK$1m and 2 years’ imprisonment: A v A, at para 54.

406.  Ninthly, K’s responses to the subpoenas should of course be taken into account.  The redactions were all made long after the Downstream Sales. K has frankly admitted his redaction of the C Finance and HSBC documents but not the B Ltd documents.  They could have been motivated by a sense of loyalty to the ex-boss.  The redactions did not point irresistibly to H’s involvement in the Downstream Sales.

407.  Tenthly, in my view, whether SECAHL was owned by H or SS or K, there was nothing sinister in an attempted sale in itself.  H might have wanted to make profits or get funds for this litigation.  SS or K as creditor and debtor might have wanted to get their debt settled earlier than the due date in an amicable way.  The true concern would be the sale price.

408.  K had not concealed his intention to sell.  He even proposed paying the proceeds into court.  The reason for rejecting the 1^st application, as stated in the Reasons for Decision, was my doubt as to whether the sale was at arms-length and whether the price was appropriate.  The decision might have been different had there been valuation evidence.  Indeed, unknown to everyone, the current joint valuation of SECAHL is between HK$60.9 and HK$109.9m, which meant that the sale price offered by SIG for 51% shareholding (HK$89-90m) was not disadvantageous to the matrimonial estate.  The 2^nd application need not be considered since it was adjourned.

409.  The 2 attempted sales could not, in themselves, give rise to any inference of sham transaction.

410.  There were other factors which Mr Howard QC invites me to take into account.

(1) The costs and fees (US$710) for the acquisition of NM Ltd were paid for by SECAS (held by CSE at the time).  This was, in my view, a trivial sum (compared to the acquisition price).

(2) K and B acted as co-directors of NM Ltd and RG Ltd.  K’s assertion that B was not involved in SECAHL’s operations and B’s denial of having attended any board meetings of SECAHL were contradicted by K’s approval of SECAHL’s dividend on 24/12/2009. 

(3) There were inter-company transfers of funds, which were not what one would expect if the companies were independently owned.  B gave evidence in cross-examination that this was some sort of costs-sharing arrangement for small companies which could not afford to employ staff for each department.  B gave free legal and compliance advice to NM Ltd if necessary.  He paid 25% back office expenses of NM Ltd and staff (including secretaries and driver).  This was a plausible explanation. 

The factors, taken individually or collectively, would not have changed my conclusion.

411.  Mr Wong SC reminds me that there were 5 other allegations made by W in the course of the evidence to show the existence of a sham transaction as against K:

(1) K’s role as director in various companies which W alleged were still owned by H;

(2) K’s continued provision of staff, office space and travel expenses to the Husband;

(3) The allocation of shares in NM Ltd to Lo (10%) and Tsang (5%);

(4) K’s two applications to the court for leave to sell SECAHL; and

(5) Alleged collusion between SS and K in respect of the notice of default.

412.  W also relied on the frequent travels of H to show that he sourced business for SECHK and SECAHL, which was more consistent with his being the beneficial owner of those 2 Groups.  This and the preceding paragraph were not in her original allegations against K and B.  She should not be permitted to rely on them.

D11.15  Summary on sham transactions

413.  Mr Horace Wong SC points out that W’s case, built on allegations that H has engaged in non-disclosure, could not have a bearing on K’s interests as a third party, and certainly did not in itself prove that the Downstream Sale was a sham.  Moreover, assertions that the Downstream Sales made no commercial sense were insufficient to discharge W’s burden of proof of sham transactions.  I agree. See Stone v. Hitch, at para 67.  The case against B is even weaker.

D11.16.  The law on conspiracy

414.  The principles are well-known.  Conspiracy has to be pleaded distinctly and with the utmost particulars: Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co. Ltd. & ors [1994] 2 HKC 264at 270B-C.  A plea on conspiracy is not to be left to be inferred from the facts.

415.  Acts might be consistent with innocence and they should not be presumed that they were done with a fraudulent intention: Davy v Garrett (1878) 7 Ch D 473at 489. 

D11.17.  Application of the law on conspiracy

416.  Mr Wong’s real complaint was not the difference between F1 and F4 but W’s failure to state her case until her opening submission -   that the various co-conspirators wanted to create an impression that H did not have anything to do in the first instance with CSE (though he eventually had to admit he did have a small interest); the pretence was that SS was the sole owner of CSE and then the pretence went on that K and B are the owners of NM Ltd and RG Ltd.

417.  It was time that W’s allegation of conspiracy was raised against K in the committal proceedings even before K was joined as a party, but it was a different conspiracy to conceal information.

418.  The lack of particulars made it difficult to know eg whether there was one conspiracy executed over a period of time or different conspiracies for the Upstream and Downstream Sales, who the conspirators for each conspiracy were, what the overt acts were.  There were at least 4 candidates (H, SS, K and B) and the conspiracy could have involved any combination of 2 or more of them.  This was not only a technical failure to provide particulars of the conspiracy.  It went to the substance of the issues and what the court should find.  If the conspiracy involved only H and K/B, there was no reason why SS’ existence was ignored. 

419.  It was true that W’s allegation of conspiracy was raised against K in the committal proceedings even before K was joined as a party, but it was a different conspiracy to conceal information.

420.  The questions put to H, SS, K and B were wide ranging, much beyond the averment that K and B were nominees in the Downstream Sales.  Mr Wong SC has helpfully set out those allegations of conspiracy in his closing submission.  By way of examples, they included:

(i) Conspiracy between H and K:

· Concealment of the CT Ltd accounts and that K knew that H had been simulating Madam Sioh’s signature;

· Redaction of documents relating to payment of bonus by B Ltd, the HSBC inward remittance advice and 2 internal transfer vouchers of C Finance.  K opposed to the subpoena re CT Ltd and applied to set aside the 2010 subpoena;

· Concealment or destruction of evidence;

· Concealment of the link between H and C Finance;

(ii) Conspiracy between SS:

· And H and K to conceal documents;

· And K to disclose only part of what was under the redactions;

· And K and B to strip assets from SECAHL and SECHK, including dissipation of SECAHL through the intended sale to SIG;

· And H, K and B in respect of enforcement proceedings.

(iii) Conspiracy between B:

· And K and SS in the Downstream Sale;

· And H, K and SS to dissipate assets.

421.  Speculative bases for drawing inferences were impermissible. Clearly these were attempts to fish for a case on conspiracy against K and B.  It was an unfair and oppressive way of litigation.

422.  Apart from the issue of conspiracy, there were also other serious allegations which have not been referred to in W’s affidavits, documents served on K or W’s opening submission.  For example:

(i) That H had funded the costs of K and B;

(ii) Those in respect of the B Ltd bonuses, documents of which have never been served on K;

(iii) That K knew of improprieties in respect of WS Ltd;

(iv) That the instrument of transfer of C Finance had been redacted.

423.  Mr Howard QC submits that he was at liberty to put questions to K, who was a witness.  That may well be true.  However, asserting conspiracy went much beyond questions that could fairly be put to K on a subject framed by Lam J.  These allegations had a prejudicial effect on credibility of K.  It must not be forgotten that in a civil trial, there should be no surprises, both in terms of pleadings and discovery.  In the light of my order dated 12/7/2011, the allegations of conspiracy should all the more have been set out in W-17^th and F1 or F4. 

424.  Even if I am at liberty to “infer” the existence of a conspiracy, I am not satisfied that a proper case of conspiracy between H and K/B has been made out

D11.18.  “Other financial resources” of H

425.  Mr Howard QC argues that SECAHL and SECHK should be treated as “other financial resources” described in section 7(1)(a) MPPO.  H submits that those 2 Groups could be compared to assets in a discretionary trust which could not be subject to a property transfer order: Charman v Charman [2006] 2 FLR 422  involving discretionary trust.

426.  Firstly, this issue has never been raised in F1, F4 or W-17^th.

427.  Secondly, W’s stance conflates the issues between “property” and “other financial resources” under section 7(1)(a) MPPO. Clearly these 2 terms are different, otherwise why would the section repeat itself?  In Whaley v Whaley [2011] EWCA Civ 617, at para 107:

“Before considering how to exercise [the court’s powers under the Matrimonial Causes Act 1973] the court must identify what are the ‘property’ and ‘other financial resources’ in relation to which its orders can be made. ‘Property’ is property: its nature and extent do not differ according to the Division of the High Court in which the proceedings are heard. ‘Financial resources’ is a more flexible concept. But even there it is necessary to consider the legal structure of those resources, and the mechanisms by which such financial resources can be made available to one or other party before considering the likelihood of that happening.”

428.  The judge can only make an order for transfer to the wife of property which is the husband’s but not someone else’s:  Tebbutt v Haynes [1981] 2 All ER 238.

429.  Likewise, in Goldstone v Goldstone [2011] 1 FLR 1926, Hughes LJ has this to say,

“66. … On the ancillary relief claim, as between wife and husband, the court is required to perform an essentially inquisitorial and then discretionary exercise, pursuant to ss 23-26 of the Matrimonial Causes Act 1973. When determining the issue between the Jeeves respondents and the wife as to who owns what and what if any control the husband retains over the assets in question, the court is not performing a discretionary exercise but is determining issues of property law and associated fact. …”

430.  Thirdly, Charman v Charman is distinguishable:

(i) There, the question was whether a beneficial interest under a discretionary trust should be treated as financial resource.  Here, the question is whether there was a trust at all and whether the beneficial interest lies with H. 

(ii) In a discretionary trust, the legal title and beneficial interest are divided.  In the present case they are united under the name of K or B (or, in the case of the minority shareholding in NM Ltd, under the name of Lo and Tsang).

(iii) A finding that something is a financial resource can only give rise to “judicious encouragement” to the third party holding the asset to provide the maintaining spouse with the means to comply with the court’s view of the justice of the case [23].  The court cannot usurp the discretion of the third party.  A finding that the beneficial ownership lies with a spouse may end in a transfer of property order.

(iv) The trustee in a discretionary trust has a duty to consider the beneficiary’s interest.  The trustee/nominee who holds on trust, if established in the present case, has to abide by H’s directions.

431.  There is no room for finding that K or B was under any trust to consider H’s interest or exercise any discretion to distribute assets in his favour.

D11.19.  Summary under Section 11

432.  W has failed to discharge her burden of proof that K and B were nominees of H, or that the Downstream Sales were sham transactions.  She was not permitted to assert the extensive conspiracy against K and B as she did since that was not her case set out in W-17^th or F1 or F4.  The legal and beneficial ownership of NM Ltd and RG Ltd remained with K and B.  They do not form part of the property or “other financial resources” of H under section 7(1)(a) MPPO.

D12.  CS’S DISPOSAL OF THE SEC GROUP TO C FINANCE

D12.1.  Acquisition of SEC Group by CSE

433.  I have alluded to E and SI’ disposal of their respective 49% interests in SEC to CSE, for disclosed considerations of HK$17.6m in cash and HK$81m in promissory note (the “Promissory Note”) respectively.  Completion took place on 8 and 9 April 2008 respectively.  These deals took place in the period covered by the truce.  H had substantial shareholding in E (28.83%) but not in SI.  H owned another 2% of SEC Group through CSE. 

434.  On 8/4/2010, CSE defaulted on the Promissory Note and thus no payment was ever received by SI in relation to its disposal of 49% interest in SEC (which had total cash balance of over HK$130m as at 31/12/2007).  Yu’s son, then CEO of SI, was removed on 14 May 2010 for allegedly failing to exercise his duties as director causing substantial loss to the company as a result of the default on the Promissory Note. 

435.  Mr Howard QC submits that the stated consideration of HK$17.6 m was far below the market value of 49% interest in SEC at the time.  This was said in reliance upon the report of Mr Bancroft (Mr Lees’ predecessor) which was not supported by Mr Lees or Mr Borrelli.  Mr Bancroft’s valuation should be disregarded.

436.  There were, however, peculiar features to this acquisition:

(i) There was no proof of payment of HK$17.6m by SS/CSE. 

(ii) Just 2 weeks after CSE’s payment of the consideration, CSE would have been entitled to receive a dividend of around HK$29.4m from SEC (on the basis of its 98% shareholding[24]), well over the consideration paid by CSE.

(iii) Despite H’s strong influence in the board of the Listcos, and his unspecified interest in CSE at the time, H made no disclosure of his personal interest in CSE to the HKSE or the SFC in accordance with the relevant regulations.

(iv) The difference in the consideration for the sale of 49% by E and SI was incomprehensible as the completion was only one day apart. H’s explanation that different boards had negotiated different prices was incredible, given that H was himself the only common executive director of the two boards and had a very strong influence in both. 

437.  Mr Todd QC submits that at HK$17.6m for 49%, 100% would be worth HK$35.9m.  That was not the case of H, nor was it backed up by evidence.

438.  Mr Todd QC also submits that a promissory note carried with it ‘credit risk’.  The taker of the promissory note would demand a ‘premium’ depending upon the risk of default.  CSE was a purpose built shell vehicle and SI would have demanded a very high enhanced premium.  Again, there was no evidentiary basis.

439.  It should also be noted that even after the acquisition of the SEC Group by CSE, H continued to be involved in holding minority stakes in various companies within the Group for some time. On 24 April 2008, he disposed of his personally held 2% interest in SEC. 

D12.2.  Disposal of SEC Group by CSE to C Finance

440.  SEC was eventually transferred by CSE to C Finance for no consideration, on an unknown date between April and December 2008.  Pursuant to a subpoena, it was discovered that up to 31 December 2008, the registered sole director and shareholder of C Finance was Beh. 

441.  We have come across C Finance under Section D10 on redaction of the 2 internal transfer vouchers.  There was nothing to connect SS with C Finance except a copy of that Beh PA which (i) bore a different signature of Beh altogether; and (ii) stated on its face that Beh was a director and shareholder of C Finance.  The original of the Beh PA was never produced.  SS clearly had an opportunity to do so when he returned to the States and sent back the Swiss account documents.  The fact that he had produced a copy of Beh’s old passport did not carry his evidence further.

442.  It was peculiar that the instrument of transfer was not signed by Beh who had allegedly given the Beh PA to SS on the same day.  It was also peculiar that SS shredded all documents but, purely by accident or misfiling, kept a copy of the Beh PA.  The clear inference was that those 2 documents were not prepared on the same day.  The Beh PA appeared to have been prepared to create a link between SS and C Finance.

443.  SS said that he caused 2 of his staff to sign the signatures of Beh and instructed them to sign “BCW”.  That was based on the English transliteration of Beh’s full name.  Instead, all the simulated signatures were “BCh”, based on Putonghua transliteration of Beh’s full name.  SS could not explain why his staff did not simulate BCW.  He suggested that they could have been referring to BChina, but that was not possible because Beh’s name appeared with the simulated signatures. 

444.  In this respect, one recalls that H simulated Madam Sioh’s name under authority of the alleged Sioh PA.  The probabilities were that H simulated Beh’s signature.  It was unlikely to be the idea of SS to sign BCh.

445.  Beh was an antique dealer.  SS’ evidence was that Beh was introduced by H to serve as a nominee for his US investments.  Beh was an investor who invested together with him in a number of US publicly traded companies.

446.  H maintained that Beh was SS’ nominee.  SS’ affirmation stated that C Finance was a company that he “controlled” (not owned) and Beh was the beneficial owner.  Nothing was said about ownership of C Finance being transferred to SS.  In his oral evidence, SS claimed that he himself was in fact the beneficial owner of C Finance.

447.  As the alleged owner, SS did not seem to know the value of C Finance when Beh/SS acquired it.  He believed C Finance had a brokerage account and some cash.  He only paid Lee a dollar for C Finance.  He later said that Lee retained the securities account.  He confirmed that no one else paid Lee any further consideration for the transfer of C Finance.  This contradicted H’s version that he paid US$945,024.96 (item (i) payment in the CSE home-made schedule); that SS intended to use C Finance as a partnership account and acquired C Finance with its cash and securities trading account with SECS.

448.  Beh transferred the shares and directorship to Wang (a nominee of Yang) on 1/3/2010.  On the instrument of transfer, “BCh” was signed by SS’ staff; the name and address of the witness for Beh were left blank.

449.  SS said that Yang was the ultimate controlling shareholder of ChinaR.  The Promissory Note was secured by the assets in C Finance. Yang failed to honour his promise and pursued CSE and SS to recover HK$81m for the Promissory Note.  As a settlement deal, SS agreed to transfer C Finance (which held SEC) to Yang’s nominee, Wang.

450.  SI has not, to date, taken any positive action against CSE to enforce its rights under the Promissory Note.  Mr Lees pointed out that SI has not made any public announcement regarding transfer of ownership of C Finance from Beh to Wang or the settlement of the Promissory Note.

451.  Similarly, H or Beh was not stated to be the beneficial owner of C Finance on the client information statement of SECS.

452.  When asked whether CSE ever owned SEC, and whether CSE had transferred SEC to C Finance, SS was not able to give a straight answer.  He requested to see documents, which of course did not exist.  He could only say that the transfer was for tax reasons. 

453.  Not only did SS get the full name of his alleged nominee Wang wrong, but he even denied knowing Wang in SS-2^nd.

454.  Further, SS misstated that Yang was the ultimate controlling shareholder of ChinaR.  In fact, Yang had no apparent connection with ChinaR, whether as shareholder or director in March 2010 when C Finance was transferred to Wang/Yang. SS then said that he was led to believe that Yang had acquired the Promissory Note from ChinaR.  There was allegedly a note which showed Yang’s title but such document was never produced. There was no document evidencing the “settlement”.

455.  It appeared from the public announcement of ChinaR dated 14/5/2010 (after SEC was transferred to WYG), Yu’s son was removed as executive director and CEO of the company for non-collection of the Promissory Note.  There was nothing to show that ChinaR had got any value at all from the transfer of SEC to Yang/Wang.  In ChinaR’s 2011 annual report there was no mention of the transfer of C Finance/SEC to Wang nor settlement of the Promissory Note, nor any deal with Yang in relation to the Promissory Note.

456.  It was noteworthy that despite the very persuasive closing submission of Mr Todd QC on how to compute H’s interest in E, SI and SEC, he has not shown by evidence that the 49% x 2 held by the Listcos were just worth HK$17.6m and the HK$81m was just a smokescreen.

457.  The alleged transfer of C Finance for forgiving such a big amount was wholly devoid of credibility.  The sum total of the evidence was that SI never got a penny out of the sale of its 49% share.  The whole SEC deal (from acquisition to disposal) lacked commercial sense and documentary proof.  I agree with Mr Howard QC that there was never any intention that CSE would make payment under the Promissory Note, which was merely a device to get SEC out of the Listcos to CSE and then to Beh and then to Wang.

458.  Further, notwithstanding that H was not a director of SEC nor of any its Hong Kong subsidiaries shown in Note 13 on page 30 of the financial statements of SEC as at 31/12/2008, he was the sole director and majority shareholder of FH Ltd.  FH Ltd was described as a “related company” of SEC.  Such description strongly pointed to H being either a shareholder of or held a beneficial interest in SEC and/or C Finance as at 31/12/2008, which interest has never been disclosed. 

459.  On the basis of the aforesaid highly dubious circumstances surrounding the SEC deals, my finding that H had not exited CSE, and the fact that H has not called Beh as a witness, I draw the inference that H himself has beneficial interest in the SEC Group now held through C Finance.

460.  Mr Howard QC invites me to draw the inference that it was H who all along owned and controlled C Finance, and Beh and Wang were his nominees.  I find this to be an irresistible inference.  H was the beneficial owner of SEC Group and C Finance.

D13.  H’S INTEREST IN THE COR GROUP

D13.1.  Background

461.  This Group comprises various companies whose last known holding company was CBVI. It has fashion business with 500 chain stores.

462.  CJu Ltd was incorporated in 1996 and wholly owned by Chen. CSZ Ltd was incorporated on 17/12/2007.  On 15/1/2008, CJu Ltd was transferred to CSZ Ltd. 

463.  Prior to 26/3/2008, SECAM No.1 was a subsidiary of SECAM.  SECAM was in turn owned by SECAS, which was acquired by CSE in September 2007.  SECAM No.1 was the immediate holding company of a cluster of companies known as the Cor Group (including, amongst others, CBVI, CSZ Ltd, CMacau Ltd, CJu Ltd and A Ltd).

464.  It was not in dispute that on 26/3/2008, FH Ltd (a company wholly owned and controlled by H), Yu, SAMSA and MS acquired SECAM No.1 for HK$1 and was allotted 2,223,451 shares for a consideration of about US$2.22m. 

465.  On the same day SECAM No. 1 issued new shares to other parties including MS, SAMSA and Yu, as a result of which FH Ltd’s shareholding in SECAM No. 1 was diluted to 26.1%.

466.  Five days later, on 31/3/2008, FH Ltd transferred its entire interest in the SECAM No.1 to WAM Ltd (a company owned by WS Ltd which I have found to be controlled by H).  WAM Ltd held the interest for some 20 months until November 2009 when SECAM No.1 repurchased all the shares for US$2.22 (not million).  Chen was issued with 1 share in SECAM No.1 and thus effectively became the sole owner of the Cor Group for US$2.22. SECAM No. 1 was renamed Chen Ltd.

D13.2.  The parties’ case

467.  It was W’s case that H has invested, through FH Ltd, US$2.22m to acquire 26.1% interest in SECAM No. 1, which in turn held the Cor Group.  Chen was H’s nominee. 

468.  H accepted that what was set out in the background was the position on the face of the records but he claimed that he held on trust for Chen; that the US$2.22m was never paid by FH Ltd and the transaction was a “charade” to assist Chen to convert CJu Ltd into a wholly foreign owned enterprise (WFOE) to gain tax benefit (“the restructuring”).  The other companies involved helped to provide a free exercise in the hope of receiving commission on any future listing, which did not materialize.

469.  According to H, it was Chen who organized the restructuring with assistance from “individuals” within SECAS, in particular one Jin and K.  It was K and others within SECAS who provided companies and names of individuals to be named as shareholders in order to facilitate the restructuring.  Between 13/9/2007 and 1/12/2010, various individuals, including H, Ling, Nancy and Jin have served as directors and K as supervisor in the Cor Group.  After all the shares had been repurchased and the obligations of Chen were fulfilled, all the individuals had resigned from the board (save that Nancy had given an undated resignation letter).

470.  Chen’s firm evidence was that: (i) he was the owner and there had been no investment into the Cor Group; (ii) SECAM No.1 and all its shareholders from 13/9/2007 to 9/11/2009 were holding shares on trust for him; (iii) the restructuring achieved its purpose.

471.  The evidence of H, Chen, SS, B and K was relevant.

D13.3.  Analyses of H’s evidence

472.  The version put forth by H was in lack of candour, in lack of documentary proof, and illogical.

473.  There was lack of candour as the alleged trust and share movements have never been disclosed in H’s Form Es.  The companies involved (FH Ltd, WS Ltd and WAM Ltd) were H’s companies and yet he distanced himself by asserting that he was not consulted as to which company to use. 

474.  There was lack of documentary proof of H’s version:

(i) Neither H nor Chen had produced any proof of the trust.  Chen could not even say with whom he entered into the trust.  All he knew was that his companies were placed in the hands of foreign nominees. 

(ii) There were no documents from the PRC government to show the requirements for acquiring a WFOE status, the investment required or how much in fact was invested. 

(iii) No documents evidencing the alleged restructuring have been produced, not even by H’s companies.

(iv) There was a copy of the purported written resolution of SECAM No.1 dated 9 November 2009 whereby it was resolved that all the shares in the company be repurchased and 1 share be allotted to Chen.   In that document was a reference to the company having received a “consent letter dated 30 October 2009” in respect of the repurchase from each of Yu, WAM Ltd, MS and SAM.  The consent letter has never been produced to prove the genuineness of the alleged repurchase.  Chen did not even remember any such document.  

(v) There was no document evidencing the date when the WOFE status was obtained.  H did not have particulars of the repurchase of shares by Chen from the investors except information in the Register of Members supplied by Chen.

475.  H’s case was illogical.

(i) If it were to be believed, there had been a false scheme to deceive the PRC authorities entirely for the benefit of Chen, but H (and in fact other people or companies involved) apparently got nothing out of it. 

(ii) The exercise involved the use of false identity (Chen being described as a Filipino with a false passport number) to give an impression that the Cor Group was wholly foreign owned.  It was unbelievable that H would have gone to such extent to assist Chen who was not a long standing client[25]. 

476.  H stated that the consideration for allotment of shares was not paid but he believed that MS and Yu had “lent” monies to Cor Group.  Chen was also adamant that the consideration stated to have been paid by various people on the share register was not paid.  No explanation was given as to why false consideration was stated and how the PRC authorities would have accepted such false information in the restructuring exercise.

477.  Ling had been a director of CSZ and CJu for about 2 years from 1 February 2009, replacing Ong. Even after Chen regained ownership of the Cor Group in November 2009, she has remained a director for another year until 1/12/2010.  H said it was due to “administrative delay”.  According to H, Ling together with other individuals were appointed directors to ensure that the loans made to Chen could be recovered and to stop Chen from “transferring J Fashion back to himself before repayment was made”.  This explanation did not make sense given that H had never made a loan to Chen and was not even sure if MS or Yu had done so.  In any event, Chen could not have transferred the shares of any companies within the Cor Group as he had no legal title at the time. 

478.  Nancy (previously H’s subordinate in E and now an employee of SECAM) was appointed a director of CBVI and SECAM No.1 on 13/9/2007 (ie just before CSE acquired SECAS from the Listcos) and still remains a director up to now.  Chen was not even aware of this, and could not explain it. Chen considered that to be normal; his companies had even forgotten the date of annual audit or payment of tax.  (Mr Howard QC submitted that in H-25^th, H falsely stated that Nancy resigned from directorship in the Cor Group, but Chen did not seek to correct that when the extract was sent to him by H’s solicitors for his confirmation by e-mail dated 23/6/2011.  I do not place much weight on this piece of evidence.  Read in context, what Chen had read and confirmed was the trust between 13/9/2007 and 9/11/2009, not the rest of the contents.)

479.  H did not deny telling Wen Wei Po (published on 23/6/2008, at which time he held 26.1% in Cor Group through WAM Ltd and WS Ltd) that he had made substantial investments in the Cor Group.  His explanation under cross-examination was that this was because MS, SAM and Yu had in fact lent money to Cor Group.  H apologized for making a “slightly misleading newspaper article”.  I find his explanation incredible.  The interview was entirely about H’s own investment and there was no point mentioning loans made by his friends.  In any case, “loans” could not be equated with “investment”. 

D13.4.  Analyses of Chen’s evidence

480.  Chen was not conversant with English and would not have understood the contents of his English emails and affirmations which were drafted by his assistant.  He had not heard some of the names mentioned therein such as WS Ltd, FH Ltd, SECAM.  He had not disclosed the primary source of information.  Mr Howard QC asks me to draw the inference that it was H who drafted these for Chen and asked him to issue it.  I decline to draw that inference without proper basis.

481.  In any case, Chen’s case was full of illogicality.  The timing of alleged tax policy did not match the restructuring. The alleged tax policy, which lasted till 30/12/2007, was that if a foreign enterprise made investments in China, it would be entitled to tax exemption in the first 2 years and 50% tax reduction for another 3 years, and such tax advantages would continue even if the company was transferred to a Chinese national.  Chen enlisted the assistance of H and K in September 2007 to do the restructuring.  However, before 15/1/2008, Chen still held 90% of CJu.  The restructuring only took place from January 2008, beyond the deadline of the tax policy.

482.  Chen did not know English and owned a lot of BVI companies, so it was not surprising that he could not remember names of companies.  However, he appeared to have a complete lack of knowledge of the persons/entities and process involved.  In his affirmation he said that he enlisted the assistance of H and K.  In his oral evidence, he said it was Jin (the same person who did the E share trading for him) who was his main contact and he was not sure of the role played by K.  It was most incredible that he would have entrusted entities nominated at the entire discretion of SECAS to hold his valuable business empire for 2 years with nothing in writing to protect himself. 

483.  Chen stated that because MS was introduced by Yu, and because of Yu’s status in Hong Kong, he trusted them.  This averment was incredible as, according to Chen, the only business dealings between himself and Yu and MS were their loans to him personally.

484.  Chen confirmed that Yu and MS had each lent him personally US$1m in around March/April 2008, “coincidentally” at the time shares in SECAM No.1 were allotted to Yu and MS.  The loans had nothing to do with the restructuring and had been repaid but there was no documentary proof. These loans were strange as being premised on Chen’s lack of foreign currency in US and HK dollar.  Yu therefore wanted somebody in the company to look after these loans.

485.  Chen’s explanation for Ling’s directorship was as follows:

“Yu would like to find someone to be in the company in order to have a better understanding of the company….so that they can be rest assured in relation to the loan…..and to see about the future operation of the company, and if the prospect of the company is good then they might introduce clients to invest in the companies or they themselves might inject money into our side”.

This explanation was equally unbelievable.  Ling was only appointed a director on 1/2/2009, almost a year after the alleged loans were advanced.  Further, there was no apparent reason why Ling should look after Yu’s interests, when it had never been suggested that Ling was Yu’s nominee.  Yet further, according to Chen, Ling was not a functioning director, so how would she be able to gain any understanding of the Cor Group?

486.  Chen and H had been co-directors of A Limited in the Group between April 2008 and 31/12/2008.  However, Chen did not remember the co-directorship, although Chen tried to explain H’s directorship in A Ltd as part of the restructuring.

487.  There was evidence of at least intention, if not actual investment, of H, Yu and MS into Cor Group:

(i) H himself stated H-25^th (at para 215) that Ling, K and Nancy were all appointed as directors of the Cor Group “in order to ensure that Mr. Chen would honour his obligation to repay the investors”. Chen denied  that there were any investors and did not understand what obligation H was referring to, but could not explain why he did not raise this inaccuracy in H’s statement before, when this extract was sent to him by H’s solicitors for his confirmation (by e-mail dated 23/6/2011).  Similarly, H stated in H-25^th (at para 213) that “SECAS arranged certain clients to invest into SECAM No.1 to acquire the Cor Group from Chen” Again, Chen had been sent this extract but he never denied this statement. 

(ii) Under cross-examination, Chen revealed for the first time, that H had in fact talked to him about injecting capital into Cor Group but that was not done in the end as Chen’s companies had enough money. 

(iii) To K’s knowledge, MS and H made actual investments in Cor Group through SECAM but he did not know how much was invested.   K later said that it was his guess as SECAM was jointly owned by H and MS; H had never told him that H had invested in Cor Group. 

(iv) SS stated that H was thinking of investing in the Cor Group at the same time but allegedly H told him he decided not to.   SS was in some meetings with Chen and H.  SS also testified that MS had made an investment in the Cor Group. 

488.  These went to support that it was not just a restructuring exercise in which H tried hard to dissociate himself from.

D13.5.  Analyses of other evidence

489.  K says he had no role in the restructuring and his name was used as a supervisor only at the request of Nancy.  He was looking for the chance of listing the Cor Group.

490.  B’s evidence was that (despite being a director of CSE and SECAM) he had absolutely no idea of the restructuring although CSE held the entire Cor Group through SECAM at one point. 

491.  SS seemed not to be aware of the restructuring at all.  SS confirmed that he never owned the Cor Group, did not remember any company called SECAM No. 1, and did not remember SECAM disposing of one share in SECAM NO. 1 to FH Ltd for US$1.

D13.6.  Drawing of inference

492.  I have not overlooked the fact that CJu Ltd was incorporated and Chen has been running the Cor Group, not as an employee but CEO, about 12 years before the alleged restructuring exercise.  Shares started off in the hands of Chen and ended up with him, although with a false identity.  Five days after the shares were allotted to H, they were reduced to 1 share. If Chen were holding as H’s nominees, there was no need to have this change, especially since H was said to have the intention to defeat W’s claims.  Similarly, the shares could have remained in the hands of MS, SAM and Yu (closer to H) as H’s nominees instead of going into the hands of Chen alone.

493.  Chen had kept the company chop and seals (which were very important in the Mainland) and share certificates of SECAM No. 1, A Ltd and CBVI.

494.  Chen very naturally described in his evidence how his enterprise started up with RMB2,200 and selling his company would be like selling his child.  He commented that H’s representation of ownership of the Cor Group in the Wen Wei Po was “bluffing”.  The comment was natural and spontaneous. 

495.  The restructuring was completed in 2009 and it would not be surprising that such a deceptive exercise would not have left a document trail.  Chen was honest in stating that he had to use foreign investors to get round the Mainland tax law.  I do not think it was likely that he would have gone all the way from Shenzhen to Hong Kong to testify under oath about a conspiracy to deceive the Mainland government if he had not been the owner/major owner of the Cor Group. 

496.  Chen, intent on making money for personal gain, was not bothered about abiding by the law.  He was ready to trust Jin with a huge sum for investment, bypassing exchange controls. He went about restructuring to the extent of using false identity and false consideration. He may not know a lot of the details that happened but he surely tried to tell the truth even though the truth was not pleasant.  The truth spoke of his low commercial integrity and his collusion with H and others to deceive the PRC authorities. 

497.  I reject the suggestion that Chen was H’s nominee.  I find that the restructuring had probably taken place.  Chen clearly owned at least the major part if not the whole of the Cor Group.  In fact, if Chen had been H’s nominee, H should have been content to maintain the status quo of Cor Group before the petition instead of meddling it with his own companies whilst the ancillary relief proceedings are on foot. 

498.  The next question was whether H had interest in the Cor Group.  W suggested that the HK$10m and HK$15.5m relating to Chen were tied with H having a substantial interest in Cor Group.

499.  Mr Todd QC points out that the timing did not make sense.  The HK$15.5m was repaid to Chen in November 2007 but the issuance of shares only took place in late March 2008.  I place little reliance on timing.  (Compare this to the purchase of SC shares where money was paid in September 2007 but the transfer was effected and HKSE notified only on 6/3/2008). What I find difficult to accept, rather, was why Chen mentioned about paying HK$10m in the first place if he was selling (part of) his own company?  The numbers did not match up either – Chen was paid only HK$15.5m when the shares were said to be worth US$2.2m (HK$17.16m). 

500.  The HK$10m and HK$15.5m might have been related to share investments.

501.  Mr Todd QC reminds this court not to reverse the burden of proof; W cannot argue that everything belongs to H unless and until he disproves it.  With respect, I do not think W is reversing the burden of proof here.  Records did show H’s apparent shareholding in the Cor Group in the post-petition period.  The shareholding went out of H’s hands.  It was up to him to give a satisfactory explanation of such movement. 

502.  The terms by which H held shares on behalf of Chen were not clear but H could not have done the restructuring for free.  Whilst I am not satisfied that H did own the shares beneficially, I am unable to determine the value of benefits received by him. It must be remembered that H and Chen were used to transact in large amounts of cash.

D14.  OTHER UNDISCLOSED ASSETS HELD BY H

D14.1.  B Ltd

503.  B Ltd has been referred to in the discussion about the Yu home-made schedule.  B Ltd was a subsidiary of E (now CM).  The directors of B Ltd were Fung, B and Ong. 

504.  H said that he only found out in the course of these proceedings that B Ltd was a subsidiary of E.  B Ltd was not an operating subsidiary and there were hundreds of subsidiaries of E which H was not familiar with it.  H said he had no knowledge of B Ltd being used to pay him a bonus.

505.  In para 310 of his closing speech, Mr Todd QC submits that,

“B Ltd was obviously a company used to facilitate payments. Historically it was thought to be tax efficient –see H’s email re Macau. Somebody (we know not whom) has erroneously entitled the payment to Mr Chen which goes via [H] as an ‘interim bonus’. ”

506.  With respect to Mr Todd QC, the objective evidence did not show there to be an error.  H himself was not in error when the HK$10m first came and he instructed UOB by email on 18/9/2007 to re-direct it from one account (not the SECS account referred to in the Yu home-made schedule) to another account.  In cross-examination, he could only say that he did not remember this letter to UOB at the time he prepared the Yu home-made schedule.

507.  It was firmly established that B Ltd was a company used for reduction of tax purposes and, to the knowledge of H, there had been a standing arrangement for bonuses to be paid through B Ltd. This was evidenced by his email dated 15/2/2007 to 2 persons of E Inc stating,

“Please use B Ltd to pay my bonus. … If it is for the purpose of saving income tax, then we should revert to the arrangement of B Ltd.”

508.  It was also firmly established (from answer to a subpoena served on SECS, SECS) that the HK$10m was a “2007 interim bonus payment” made to H from the house account of SECS.  It was K, the CFO, who approved the document. 

509.  Even when confronted with documents, H maintained that he had never received any bonus from E.  He claimed that he had asked K about CM’s letter, to which K replied that he was just basing it on accounting records. 

510.  In the outward local payment customer advice produced by CM, H’s name and address was redacted, thereby concealing his receipt of the bonus.  Redaction was, according to CM, done before the new owners of CM group took over, ie at a time when H was still co-chairman of E.  On SECS’ record, the name of H did appear and K denied the redaction.[26] So somebody had redacted H’s name on the outward local payment customer advice issued by the Standard Chartered Bank to B Ltd, before the new owners of CM took over.  The inference I draw is that there could have been no one but H, the very person who stood to gain from tax reduction, who did the redaction.

511.  What’s more, H had not only received one bonus from B Ltd.  In response to W’s subpoena and enquires, CM disclosed that there was also an under-reported bonus of approximately HK$4m paid to H by B Ltd in 2004, although that was 3 years before the Petition. 

512.  Further, in both the posted vouchers of CM (formerly E) and B Ltd, the payment out of HK$10m on 14/9/2007 was stated as “2007 – 2^nd interim discretionary bonus from SGROUP” and “2007 interim discretionary bonus” respectively.  The implication was that there might have been a final bonus for 2007.

513.  H had shamelessly concealed the existence of B Ltd, concealed the fact that he had received bonuses and redacted the outward local payment customer advice for the purpose of tax reduction.  Even when confronted with contemporaneous documents, he still replied through his then solicitors that the payment of HK$10m from B Ltd was not a bonus and accordingly not declared to the IRD.  The value of B Ltd and the final bonus for 2007 should be added back to the matrimonial pool of assets.

D14.2.  The Swiss Bank Account with ABN Amro Bank

514.  I have found that H has/had an account with the ABN Amro Bank.  The funds in it are unknown. 

D14.3.  C Finance

515.  As found above, C Finance was clearly a company in which H had interest.

D14.4.  E Trust (Missing Page 28)

516.  H’s case was that he was the sole settlor of the trust that owned E (“the E Trust”).  In his first Form E, H has purportedly attributed the full value of the trust as part of the matrimonial assets for division in the ancillary relief proceedings.  The Trust was created in 2003 but was revoked on 9/12/2009.  H had sometime in 2010 destroyed all records relating to the E Trust.

517.  Page 28 of the E Trust Deed which should contain the list of beneficiaries was produced by H as a blank page.  H has given different versions as to who the beneficiaries were:

(i) W, himself and the Children in a letter dated 25/3/2008;

(ii) H was the sole beneficiary in answer to W-5^th Questionnaire, and as stated in the prospectus of W Travel Ltd;

(iii) H was the “Designated Beneficiary” according to clause 5 of the Trust Deed.  There was a distinction between designated beneficiary (appointed from time to time by or pursuant to clause 5) and beneficiary (persons described in the 2^nd Schedule to the E Trust Deed).  H could not have missed the difference and he was just trying to mislead.

(iv) His parents and 7 siblings in Malaysia were added to the beneficiaries list in 2004 in H-17^th.

518.  Eventually, after 11 months and in answer to W’s summons, H asserted for the first time in H-17^th on 25/11/2010 that page 28 was already missing when he produced the E trust deed.  H also stated for the very first time that the E Trust was dissolved and all documents relating to it were destroyed accordingly. This was plainly another example of destruction of material non-disclosure on the part of H.  H has not explained why he could not have obtained documents from the trustees direct even if the documents were not in his possession.

519.  Further, in H-18^th, H came up with a new version.  He suddenly recalled why there was a change in the beneficiaries and was able to produce some emails on his instructions to the trustee.  He said that the revocation of the E Trust was undated and it was only later when he received the Deed of Revocation that he realized it was dated to have been dissolved on 9/12/2009.  However, neither H nor his former assistant, received the executed Deed of Revocation back from the Trustee until 25/11/2010.  25/11/2010 was the date H swore H-17^th, although the hearing did not take place until four days later.  Even so, H had not produced the Deed of Revocation and the email communication with his trustee at that hearing or informed W and the court of the position. 

520.  The E Trust has long since been wound up and the money attributed to the matrimonial pool.  H’s evidence over it was but another example of his lack of candidness in disclosure.

D14.5.  SBJ

521.  H has not been entirely forthcoming in relation to his involvement in SBBJ, in which Ling was the sole shareholder, legal representative and manager since 20/11/2009.  The former shareholder (until 27 January 2010) was SBICH Ltd, which was previously owned by SEC, which in turn was owned by C Finance.  SBJ was put into liquidation on 17 March 2011 and has no value.

D14.6.  CPAC

522.  In his narrative affidavit, H stated that he did own such a company, registered in Delaware, USA.  (Note: the prospectus was dated 28/12/2007.)  H claimed that all the initial equity capital of US$25,000 was contributed by the other shareholder MM, his business acquaintance.  H’s valued added was to provide credentials and deal sourcing upon completion.  The liabilities of the company were about US$18,000.  The application for listing in the US was withdrawn on 7/3/2008 (within the truce).  H understood from MM that the company was put into liquidation immediately thereafter, all costs being borne by MM.  The entire exercise had no impact on H’s net worth.  All the above was public information and H was “perturbed” as to why W’s accountant was even minded to include such information in the forensic report except to pad the report and charge professional fees for the worthless exercise.

523.  H said it was an oversight of his and the company secretarial department of E Inc.  He had 110 former directorships and he hoped he could be excused for failing to report one of his.  He could not produce relevant documentation despite having made enquiries with the former partner.

524.  The fact is that H failed to disclose both the extent of his involvement and his interest and directorship in his Form E or underlying documents.  Given H’s past misleading public announcements (eg in respect of CSE), the fact that something was “public information” cannot be conclusive in deciding the veracity of H’s version. 

525.  Although this company has to be added back to the matrimonial pool, it did not appear to be worth anything.

D14.7.  SCayman

526.  H did not disclose his interest in SCayman (50%) in his first 4 Form Es, and only stated that the company has come to his attention during the course of preparing this answer to W’s 9^th Questionnaire.

527.  According to H, SCayman was the investment manager of PAYCO since 3/8/2007.  H has not provided any financial statement, prospectus or other supporting documentation of SCayman, and claimed that SCayman has never received any management or performance fees and had no assets.  Such claims appeared questionable given that SCayman has been the investment manager of PAYCO since 3/8/2007.

528.  On 30/3/2012, H sold his interest in SCayman (which he only disclosed when W enquired) to MS at only USD0.01.

529.  SCayman should be added back to the matrimonial pool but its true worth is unknown.

D14.8.  sCV

530.  Acording to an “Issuing Document” issued in February 2011, H was a board member of sCV, a Luxembourg specialized investment fund.  HS was a partner of this fund and the founder of SAMSA which was the investment manager of sCV.

531.  H did not disclose his Board membership in his 5^th Form E, which he later said on affidavit was “inadvertently omitted”.

532.  sCV should be added back to the matrimonial pool but it is not clear what benefits H has/had obtained from this company.

E.  EXAMINATION OF THE LIST OF ASSETS IN EXHIBIT SCHEDULE A1

E1.  Introduction

533.  With the historical transactions in Section D in mind, Schedule A1 drawn up by counsel as containing the disclosed and non-disclosed assets with their growth rate and valuation will be analyzed in this Section. A summary of my findings can be found in Annex B to this judgment.

E2.  Extent of dispute over disclosed assets

534.  The disclosed assets comprise landed properties, bank accounts, beneficial interest in private companies (excluding the Trust), interests in stocks, bonds and other investments, share options, monies owed to H/W, valuable personal items, pension/MPF. 

535.  The disclosed liabilities are bank loans/credit cards/tax indemnity, legal and professional fees.

536.  The net worth of disclosed assets is HK$293m (Mr Borrelli’s estimate) or HK$309m (Mr Lees’ estimate).  The small difference of about HK$10m (about 3%) is in respect of the valuation of private companies.  There is another difference of HK$6.5m which concerns a tax indemnity.

E2.1.  The difference of HK$10m in respect of valuation of private companies

537.  The difference concerned 27 companies, 8 of which have agreed valuations[27] and 19 can be categorized into 4 groups [28]:

Category	Description of companies	No. of companies
A	no annual financial statements (“AFS”) or management accounts	8
B	in liquidation or dissolved with no available AFS or management accounts;	5
C	sold prior to valuation date of 31/3/2012 with no available AFS or management accounts	3
D	accountants cannot agree on value	3
	Total	19

538.  Categories A to C are all BVI companies with zero value and what the experts disagree on was just the reasons therefor. 

539.  As a matter of principle, H could not rely on his own failure to meet the legal requirements to prepare accounts (in respect of BVI companies or otherwise) to escape from his duty to make full and frank disclosure in matrimonial litigation.  Such duty existed despite the fact that the company has been wound up or is in the course of liquidation. 

540.  In J v V (disclosure: offshore corporations)[2004] 1 FLR 1042, Coleridge J commented that where assets were held in offshore corporations there was an obligation to provide fuller disclosure than in a conventional case to avoid suspicion of assets being hidden.  A party who used such offshore structures to disguise assets could expect to bear the costs of the ensuing enquiries,  whatever the outcome of the case.

Category A companies

541.  In this Category are GH Ltd, ST Ltd, GL Ltd, FH Ltd, CT Ltd, DSJIH Ltd (formerly WS Ltd), DSJI (No.1), DSJI (No.3). 

542.  Only 3 companies in this category have management accounts and balance sheet for the years 2007 and 2008.  Mr Lees was unable to assign a value for lack of information[29]. 

543.  Mr Borrelli accepted that there was no sufficient information to value H’s interest.  However, some companies were either wound up (eg GH Ltd); or used to hold assets which are now with another company which was valued separately (eg GL Ltd whose assets are in KM Ltd which holds the Parkview Property, AMC debenture and cash at bank)[30] .  Note that Mr Lees agrees that ST Ltd has shares held by E Inc which was valued elsewhere.

544.  Despite H’s concealment of his interests in eg WS Ltd, CT Ltd, CorGroup held through FN Ltd, there was nothing to show that the Category A companies have any assets other than those disclosed by H.  The court cannot speculate on the value to any of the companies without evidential basis.   I place nil value on these companies.

Category B companies

545.  Category B companies have all been liquidated or dissolved with no financial accounts.

546.  Two of the companies were in the Singapore securities group.  The liquidator has made a final distribution.  Mr Lees drew to the court’s attention that it was the result of a members’ voluntary liquidation.  The assets of the company were disposed of well before the liquidators even got involved.  All that the liquidators would have got was a bank account which had in it $11.9m Singapore dollars and they would ensure that there were no other creditors before distributing the proceeds to the shareholders.  The only records they would probably get were their own records created in liquidation.  H claimed that all accounting records have been destroyed by the liquidator and all former staff had been laid off.  He was unable to produce detailed breakdown. 

547.  Mr Borrelli states that liquidators have a primary obligation to collect in all books and records; and that liquidators are required to have a primary understanding of the assets and liabilities. They need to know, even in a member’s voluntary liquidation, whether there are creditors that need to be paid.  Mr Borrelli agrees that Liquidators can destroy books and records of the company with consent of the stakeholders.  Had they done so, the consent would have come from H.  However, Mr Borrelli claims that he was not aware of this.  He agrees, though, that it is rare for liquidators not to get consent.

548.  Of the other 3 companies, SBILT Ltd held only JSHL and JPIDL.  SBILT is about to be struck off.  JSHL and JPIDL have ceased operation on 30/11/2011 and their audited financial statements showed zero balance. The liquidators have confirmed that there was no realization in respect of these companies. 

549.  There was no evidence, obtained in cross-examination or otherwise, to enable the court to hold that these companies have undisclosed assets.  I place nil value on these companies. 

Category C companies

550.  As for Category C companies (except BRaC Ltd):

(i) SECAM Cayman (which was not disclosed until H’s 5^th Form E) was an investment manager of one PAYCO.  The disclosed documents included an email from the administrator of PAYCO confirming that no management or performance fees have ever been paid to SECAM Cayman.    SECAM Cayman has been sold to MS at US$0.01.

(ii) BV Ltd, which owned SECAM, was sold to MS on 30/3/2012 at HK$252,356.50; BV Ltd could be assessed on the basis of the net asset value of SECAM as at 31/12/2011;

(iii) SECAM was a licensed corporation under the Hong Kong Securities and Futures Ordinance.  It provided asset management services to professional investors.  It had been trading at a loss in the years 2010 and 2011.

551.  Mr Lees has not assigned a value as it was impossible to know if there had been any transfers or dissipation of assets from these companies prior to the sale or whether the sales were at arms length[31]. 

552.  I agree, but there was nothing established in cross-examination or otherwise to enable me to find any alternative value for these companies.  I agree with Mr Borrelli in placing a nil value on the Category C companies.

Category D companies

553.  As for Category D companies[32], outdated financial statements were provided to the accountants. 

(i) DSJI No.2 Ltd had 1.7% interest in one Recyler company and was placed into creditors’ voluntary liquidation on 17/4/2012.  Mr Lees assessed the former’s value based on the net asset value of the latter.  He considered Mr Borrelli’s valuation as not being based on a liquidation scenario.  Mr Borrelli, however, pointed out that the Recycler company had preference shares; that it was not a listed company and had suffered loss for at least the past 6 years with heavy reliance on issuing new shares with higher ranking.  On balance, I accept Mr Borrelli’s valuation, based on the mid-point between the 1.7% net asset value and H’s costs of investment.

(ii) SHL had significant increase in shareholders’ loans for 4 years ending 2008 to 2011 when the company was wound up.  This company also incurred substantial salary expense of 4-5 times the total revenue during 2008 to 2010.  Winding-up had been completed and the liquidators confirmed that there were no other receipts or payments.  Mr Lees commented that H did not provide any information as to the source of funds for the liquidators’ payments.  He was unable to confirm if assets had been dissipated before the company was wound up.  He valued H’s interest at about HK$8.17m, being 50% of the shareholders’ loan as at 30/11/2011, the date of cessation of business.  Without disrespect, this valuation was unrealistic as there was obviously no prospect of recovery of the shareholders’ loan when the company had liabilities of HK$16.4m.   I place no value on this company.

(iii) BRaC Ltd:  Mr Lees valued H’s interest based on his shareholders’ loan to BRaC Ltd.  I agree with Mr Borrelli that this was inappropriate because as at the valuation date, H’s interest has been disposed of and the consideration has been accounted for elsewhere.  BRaC Ltd did not even have the means to discharge the guarantee for bank loans; it had negative asset value.  There was no prospect of recovery of the shareholder’s loan.  I place no value on this company.

554.  I accept Mr Borrelli’s valuation for the Category D companies.

555.  It is important not to lose sight of the big picture. A difference of HK$10 million between the experts’ valuation on private companies was small in a matrimonial estate worth over HK$537 million.  Of the 27 companies, E Inc was H’s main investment holding company holding shares in W Travel Ltd.  Eight companies already accounted for HK$251.8 million out of a total value of about HK$300 million.  There was no evidence that the disclosed companies had other assets.  I favour Mr Borrelli’s views.

Disputed liability over tax

556.  H estimated a contingent liability of about HK$14.44m due to the CM group under a tax indemnity as a condition for his disposal of his interest in E in 2008.  W disputed this.

557.  In the relevant Share Purchase Agreement,  it was stated that the transactions must not “result in any liability (tax or otherwise) being imposed on … any member of the Group (save for the liability for payment of stamp duty involved) …” and “each of the Vendor will undertake for the benefit of the Purchaser and each of the Company … (each an (“Indemnified Perspon”) to indemnify each of the Indemnified Persons for all … liabilities, … claims and demands … as a result or in connection with any Disposal”.[33] There was also some, though  limited, correspondence between H, the CM Group and the tax advisers PWC and IRD’s tax demands to the subsidiaries of the CM Group. 

558.  I find that it is more likely than not that there is this tax indemnity that H has to make provision for.  Further, since the transaction was completed several years ago, IRD may impose a penalty up to 3 times the underpayment of corporate tax. 

559.  Instead of adopting H’s assessment of the amount of potential tax indemnity, Mr Borrelli has made his own assessment and substantially cut down the quantum to about HK$6.5m  I accept his independent analyses and include the tax indemnity as H’s potential liability. 

560.  Since tax was built up during the subsistence of the marriage, W should be liable for 50%.  A fund should be set aside for this purpose.

Summary of disclosed assets

561.  In summary, I accept Mr Borrelli’s valuation of the 4 Categories of companies.  I value the disclosed assets at HK$293m. I also order that there be provision for tax indemnity in the sum of HK$6.5m. This sum should be set aside in an interest-bearing account, which shall be applied towards settlement of the tax indemnity and the balance paid out to H and W equally.  

E3.  The undisclosed assets

562.  The following was what W said that H has failed to disclose or were unsubstantiated by documentary evidence and thus should form part of the matrimonial pool:

E3.1  Unsubstantiated payments each over HK$1m (principal);

E3.2. Unsubstantiated payments each below HK$1m principal;

E3.3. Unidentified payments totally almost HK$12.97m;

E3.4. The SECAHL, SEC, SECHK and C Group;

E3.5  Other undisclosed assets revealed in the course of the evidence.

(E3.1 to E3.4 appear in Schedule A1 prepared by counsel.)

E3.1.  Unsubstantiated payments over HK$1m (principal)

563.  There were 25 alleged unsubstantiated payments (identified one by one by the prefix “UP-” below)[34] set out in the Joint Table in chronological order.   Mr Lees assessed them at a total value of HK$108.6m.  His view was that there was no or insufficient contemporaneous documentary proof of the payments.

564.  There was no single banking transaction of HK$5.9 million but this figure was made up of 3 figures of HK$3 million, HK$1.5 million and HK$1.4 million.  I accept Mr Borrelli’s evidence that UP-5 and UP-8 formed part of UP-9 and hence HK$4.5 million has been double-counted.  The total Ups were therefore HK$104.1m.

565.  Mr Borelli  classified the 25 items into 3 categories[35]:

(A) 16 payments totalling HK$65,277,612 (60%) where H has either identified bank statements recording the returns from the transactions associated with those payments or the resultant investment which formed part of the matrimonial assets (including ST Ltd, SH Ltd, WS Ltd and PAYCO).

(B) 3 payments[36] totalling HK$20,334,725 (19%) where third parties have confirmed the purposes of the payments in writing.

(C) 6 payments totalling HK$22,992,455 (21%) which H has explained but without reference to supporting documents; and Mr Lees has not contradicted H’s version.

566.  Category A payments were mostly taken out from the 4 home-made schedules except UP-1, 10, 12, 17, 18, 19, 20 and 21.  Those excepted Ups amounted to HK$33.32m.

567.  However, Mr Borrelli was correct in pointing out that these Category A payments have been purportedly matched to receipts (being entries in bank statements recording the returns or the resultant investments) which formed part of the matrimonial assets.  Whether that was mismatching, it would not be fair to treat the payments has unsubstantiated on the one hand but regard the returns as matrimonial assets on the other. 

568.  In fact, Mr Lees applied the same approach of matching payments with receipts[37]. He identified HK$285m paid out and HK$449m received, hence a profit of 57% over the years.

569.  What remained unsatisfactory was, of course, that there was nothing to verify whether a payment had gone somewhere before ending up with the matched receipt, or whether the alleged receipt was the final destination of a particular payment.  The court was simply left with the unenviable position of being unable to decide the extent of the real returns from the funds.

570.  With regard to Category B payments, the third parties who have confirmed the purposes of the payments were Yu, SS and Chen, but no supporting documents have been produced.  Of these 3 payments, only UP-10 for HK$1.94m for Milten conference was not in the home-made schedule.

571.  For Category C payments there were only the bare assertions of H for them.  They could be regarded as being substantiated despite the fact that Mr Lees could not contradict H’s version.

572.  In his closing submission, Mr Todd QC draws to my attention that, according to the 4 home-made schedules, H had paid HK$73.25m, which formed the bulk of the unsubstantiated payments (HK$104.1m). He submits that if the unsubstantiated payments were to be added back to H’s balance sheet, so should the deposits (HK$82m) and SC shares (HK$21.4m), amounting to HK$103.4m.

573.  As part of his submission, Mr Todd QC also attempts to give a reconciliation of usage of funds of H.  The estimated value of H’s major payments/investments was HK$501.34m.  The resultant assets as per his 5^th Form E were HK$454.19m.  There was a difference of HK$47m.

574.  I agree that the matching (or unmatching) receipts and SC shares should be added back.  Even Mr Lees did the same in identifying HK$285m paid out and HK$449m received to calculate the returns of 57%[38].

575.  However, even on Mr Todd QC’s account, there was still an amount of about HK$30.85m (ie HK$104.1 – HK$73.25) not accounted for.  Be it HK$30.85m or HK$47m, the amount was small in the context of a matrimonial estate worth over HK$500m.  However, given the misleading and unreliable nature of the home-made schedules in the first place, I am unable to ignore the difference.

576.  I find the total unsubstantiated payments under all 3 categories to be HK$39,220,630 (ie HK$33.32m  + HK$5,900,000).

E3.2.  Unsubstantiated payments below HK$1m (principal)

577.  Mr Lees assessed this category of assets at about HK$1.25m.  I agree with Mr Todd QC that this item could be dismissed outright because the parties were bound by their agreement that HK$1m was “the right level of materiality for H to explain the relevant transactions in the statements” pursuant to Lam J’s order dated 11/5/2010.

E3.3.  Alleged unidentified payments totalling about HK$12.97m

578.  This term came from Mr Lees and was used as a matter of convenience, as all payments have been identified in bank accounts.

579.  I will describe this item as creative accounting of Mr Lees who “prepared a reconciliation to identify significant unexplained changes in cash balances”[39]. He used 2 periods:

(i) Period 1 ran from 1/8/2007 to 30/11/2010;

(ii) Period 2 ran from 1/8/2008 to 30/11/2010.

Period 2 was thus a sub-set of Period 1, neither of which commenced from the day of separation.  Both Periods had the same actual closing balance of HK$96.66m.

580.  For Period 1, the opening balance on 1/8/2007 was about HK$73.38m.  Mr Lees identified receipts and payments, both of which were for over HK$100,000 only.  He made an “estimated closing balance” of HK$97.47m.  Compared to the actual closing balance, there was said to be HK$811,000 “missing”.

581.  For Period 2, the opening balance a year after Period 1was said to be HK$162.75m.  Mr Lees used the same approach as for Period 1 and made an estimated closing balance of HK$84.47m.  Compared to the actual closing balance, there was said to be HK$12.18m “too much”.

582.  The methodology of identifying unidentified payments was, in my view, unprincipled and contrived.  If W/Mr Lees were to allege that some payments needed explanation, they should have asked H to do so.  If Period 1 has been considered, there was no reason for preparing figures for Period 2. The apparent intention was clear – the “missing” amount for Period 1 was so low.  The alleged “missing” amount might just have been the cumulative difference of items which Mr Lees had not included in his calculation.  So another amount for Period 2 was created.  However, one could hardly see how there could be complaint when there was “too much” in the matrimonial pool for Period 2. 

583.  In its present form, it was not clear if the unidentified payments have double counted the 25 unsubstantiated payments, unsubstantiated payments below HK$1m, and H’s disclosed income.  The unidentified payments included all payments above HK$100,000, attempting to get round, through the backdoor, Lam J’s order dated 11/5/2010.  No supporting documentation had been made available to Mr Borelli to verify the extent to which transactions of about HK$100,000 have been included in the calculation. Changes in market value of securities have been ignored by Mr Lees whilst bank statements would have reflected them.

584.  Mr Borelli has commented on these in his own report.  But Mr Lees had not withdrawn or updated his in the Joint Report in R4.  During cross-examination, Mr Lees stressed that strong qualifications had been placed in his own report.  He pointed out that there could have been a lot of transactions below HK$100,000.  Moreover, a lot of bank statements were missing too.

585.  The inclusion of unidentified payments was a partisan and inherently risky approach to bolster W’s case of H having undisclosed assets.  I dismiss this head of undisclosed asset altogether.

E3.4. Four groups of companies

586.  In the analyses in Section D, I have found that SECAHL and SECHK Group were not sham transactions but H would have interest in them through CSE.  H has interest in SECHK (including C Finance) and Cor Group. 

E3.5.  Other assets disclosed in the course of the evidence

587.  To this category should be added back B Ltd and the final bonuses for 2007, the ABNO Amro bank account with H as reference name, the closing balance of CT Ltd at SECS.

588.  Mr Howard QC submits that K and B’s legal costs in these proceedings (or at least part thereof) were being paid by SECAHL and SECHK and these sums should be added back to the “matrimonial kitty”. There was no proof to this effect and I decline to do so.

E4.  Valuation of undisclosed assets

589.  In this section, I shall deal with the valuation of all undisclosed assets, including (for completeness’ sake) those which I have found as not belonging to H.

E4.1  Bases of valuation based on court order

590.  The directions on valuation have been set out in my order dated 15/6/2012.  They included a direction to the experts to find a reasonable rate of growth of the undisclosed assets.

E4.2  Reasonable rate growth

591.  Apart from the value of each company, the experts were also in disagreement on how to assess a reasonable rate of growth.  Three schedules (schedules A1-A3) have been put forth, with different rates ranging from about 7% to 85.54%.

592.  Schedule A2 (containing the Past Investment Approach), which showed an “average rate of return” of about 85.84% was deceptive in my view.  Thirteen items of investment were selected by Mr Lees, which did not represent all the investments made since 2004.  85.54% was the gross return for the period from 2004 and not per annum.  Even taking Mr Lees’ 13 items of investment, there had been payments of about HK$285 million and receipts of HK$449 million, a profit of HK$164 million (or 57%).  It was nothing “average” but a partisan approach to exaggerate H’s performance.  H had twice during marriage hit the jackpot – in 2000 and 2008 before the Lehman Brothers collapse.  He did very well on the Peak property and various other investments.  However, he also suffered losses in 6 out of the 13 selected investments.  It was, in my view, totally unrealistic to adopt Schedule A2 for present purposes.  Mr Howard QC has not pressed on with Schedule A2. 

593.  Schedule A3 suggested a return rate of 15%. As Mr Borelli pointed out, even Warren Buffet (a recognized successful investor in history so far) was earning only 19.8% compounded annual gain with the scale of his investments.  Without disrespect to H, the bulk of whose gain was from sale of E shares and purchase of the Peak property, to expect 15% return was unrealistic. Similarly, the suggestion of Mr Lees of a 20‑30% growth rate also fell into this category.  These percentages were simply arbitrary.

594.  Plainly the right schedule of assets to adopt was Schedule A1 (the Market Research Approach), which broadly adopted a return rate of slightly over 7%.  It was based on market data by reference to annual return on 3 types of investment (equity, property and bonds) in the major markets where H has made his investments.  The research period covered 2005 to 2012 with different annualized rates of return for each year.  In those 7 years, the average rate of return greatly fluctuated from -15.45% (lowest, 2008) to 21.58% (highest, 2009).  This approach was based on objective data over a period.  I adopt Schedule A1 for the growth rate.

E4.3.  Valuation of each company group (Annex C to this just)

E4.3.1.  SECAHL (owned by NML Ltd)

595.  I have found this not to be H’s assets.  Mr Lees valued it at HK$109.9m, whereas Mr Borrelli valued it at HK$60.9m, a difference of HK$49m.

596.  The experts were agreed that the net asset value of SECAHL was HK$46.1m and that HK$14.8m in dividend has been paid to SS (and his company NCI) and ChinaR Ltd.  However, there were 2 disputed matters that made up the difference of HK$49m:

(i) An alleged premium for SFC licenses at HK$10m; and

(ii) An item of management fees paid to related entities at about HK$33m.

597.  In respect of disputed item (i), Mr Lees agreed in cross-examination that the purchase price that was then deployed in respect of SECAHL at the time of its acquisition appeared to have used a net asset value which he had no difficulty with.   His suggestion of having a premium for SFC licenses above book value made reference to “the old days” and he could not find an example for “recent days”.  His view was not backed up by any evidence.  I reject disputed item (i) as an asset of H.

598.  In respect of disputed item (ii), K has explained that management fees were all internal sharing of profit and expenses to related companies with no actual cash flow.  Mr Lees considered that as H had not provided documentation to demonstrate that the payments were not made to his nominees, it was appropriate to include these expenses as “monies extracted by the nominees since the assets were transferred to them” within the meaning of my order.  However, he agreed under cross-examination that if there was any actual cash flow, then one could see money coming out of one company and money going into another company; none of it would be “extracted” and certainly none would end up in the hands of H. 

599.  Overall, the flimsy evidence fell far below satisfying this court that disputed item (ii) should be counted as an item of asset.  It was another partisan approach to bolster W’s case.

600.  The net asset value approach was appropriate and once that was accepted, the experts were in agreement over quantum, ie HK$60.9m as suggested by Mr Borrell.  I find that to be the value of SECAHL. 

E4.3.2.  SECHK (owned by RG Ltd)

601.  I have found this not to be H’s asset.  Again, for completeness’ sake, I find the value of this asset to be HK$10.44 million, as agreed by the experts.

E4.3.3.  SEC Group

602.  I have found that H had interest in SEC Group and C Finance.  Mr Lees valued SEC Group at HK$96m; Mr Borrelli at HK$42.23m. 

603.  This court has ordered valuation as at 31/3/2012, alternatively as at the date on which the assets were dissipated by H, as may be appropriate.  Mr Borrelli used the net asset value approach which took into account losses in 2008 to 2010, conceded by Mr Lees as correct.

604.  Mr Lees noted in the Joint Report that a significant number of subsidiaries and their assets have been sold by SEC from 2007 to 2010.  There were disposals of only 2 loss making subsidiaries from the SEC Group during the years 2009 and 2010, which resulted in gains on disposal of HK$93,000 and HK$494,000 shown in the annual financial statements. 

605.  In oral evidence, as Mr Lees himself has stated, the earnings multiple approach was generally appropriate where the company in question had a track record of profitability and such profits were sufficient to justify a value in excess of the value of the underlying assets which helped generate those earnings.  He conceded that an earnings multiple approach as at 9/4/2010 for valuation would be wrong.

606.  Given the significant operating loss of the SEC Group, I agree with Mr Borrelli that the net asset value approach was more appropriate.

607.  Once that was accepted, the experts were in agreement over the value of the SEC Group, ie HK$42.23m as suggested by Mr Borrell.  H owned at least 16.28% as a partner, ie HK$6.88m.

608.  Given the track record in the annual financial statement as reflecting loss, I decline to apply the growth rate to the net asset value.

E4.3.4  Valuation of Cor Group

609.  H’s benefit received and hence value were unidentified.

E4.3.5.  Valuation of other undisclosed assets

610.  I am unable to place any value on B Ltd, the final bonus for 2007 and the ABN Amro Bank account for lack of information.

611.  There was the closing balance of HK$356,771 of CT Ltd’s SECS account.  By virtue of the market research approach, this has become HK$463,852.

F.  THE TRUSTASSETS

F1.  Issues between the parties

612.  The issues were who should exit the Trust and to what extent it should be treated as a “financial resource” under S. 7(1)(a) MPPO.

F2.  Assets in the trust

613.  The assets currently settled in the Trust are held through various companies.  The Peak Property (purchased in 2001) is held via JC Ltd, a Hong Kong company.  A portfolio of securities and cash maintained with RBS Coutts Bank in Singapore are held under a Cayman company known as “B Holdings”. 

614.  The London Property used to be in the Trust but has been transferred out and distributed to a company controlled by H in 2005.  The London Property is occupied by the eldest son and N who are studying in university in England.  J joins them during school breaks.

615.  The accountants agree that the value of the assets in the Trust, are HK$237,649,805 as at 30 September 2012 (Exhibit schedule A1).   This represents approximately 43% of the disclosed matrimonial assets of about $547m.

F3.  The trust was set up for the benefit of the family

616.  The Trust was set up by H and W on 3 September 2002, at a time when the family wealth was starting to accumulate and H was involved in a risky business.  The Trust was to ensure that the family would have a residence and sufficient assets to live off that would be protected from the claims of creditors.

617.  The Trust is governed by the laws of the Cayman Islands.  The settlors were H and W. The beneficiaries are H, W and the Children. RBS Coutts (Cayman) Limited is the trustee (the “Trustee”). 

F4.  before breakdown of the marriage, H and W have not strictly adhered to the terms of the trust

618.  Given that the assets in the Trust represented only a small fraction of the family wealth at the time of set up, I accept that H and W did not then intend to resort to the Trust funds for their own use but that the same would be kept for the benefit of the Children. 

619.  Whilst relationship between H and W was good, the Trustee had always acted in accordance with their directions, although W had to purportedly explain to the Trustee the specific purpose for which the money was required. That was (as I find) to give the appearance that the Trustee would not always adhere to instructions given by H and W.   There had been distributions from the Trust from 1/9/2002 to 31/8/2009 to the tune of over US$4 million, of which US$1.28 million was used in 2004 for supporting and securing the family’s UK immigration application.

620.  There was not the least suggestion that the Children should be consulted, eg when the London Property was taken out from the Trust.  In fact, in her 1^st Form E, W asked for transfer of the London Property to her without the least suggestion that it should be put back into the Trust for the Children’s benefit.

621.  Now that relationship has turned sour, the starting point is to interpret the terms of the Trust Deed, which should bind the Trustee and beneficiaries.

622.  Little reliance should be placed on H and W’s views of the “intention” of the Trust.  Quite apart from the fact that their views of the nature of the Trust were not consistent with the legal principles set out below, W has not been entirely truthful.  For example,

(i) W clearly exaggerated the “intention” to set up a trust for the benefit of the Children. She stated on affidavit that the Trust came about after an incident of domestic violence in May 2002 (which I have fund to be a fight in paragraph 5 above) and hence her concern for the welfare of the Children. This could not be true because the discussion of setting up the Trust took place a year before that. 

(ii) W has been pretentious enough to even say that she was not sure in what capacity she signed the sale and purchase agreement for the purchase of the Peak Property when she was then clearly a director.

(iii) Under cross-examination W denied having a discussion with the Trustee that if both H and W requested, the trust could be dissolved.  This contradicted her averment in Form E that “I have been advised by the Trustee that this Trust should not be dissolved as it is set up for the benefit of the Children, unless both the Petitioner and I (being the settlor) consented to the dissolution.”

(iv) She tried to distance herself from the transfer of the London Property out of the Trust and even claimed that H cheated her.  I do accept that H was instrumental in communicating with the Trustee over the transfer (as all relevant emails were between the Trustee and H).  However, the transfer document was not complicated.  H never concealed his interests in the London Property.  I am not convinced that he had a selfish interest to serve in such transfer or that he had cheated W as she alleged.  It was probable that the reason for the transfer was as H stated – that W told him her worry about capital duties in case she was to become a UK citizen; hence the transfer to H to allay that concern.

F5.  Nature of the Trust

623.  According to the Trust Deed, the Trust is irrevocable and the settlors may only amend the administrative provisions therein but not the dispositive provisions.  Nor are they permitted to amend or vary the Trustees’ duties and rights without their consent: Clauses 14(i) and (ii).  The settlors and Trustee are required to submit to the exclusive jurisdiction of the courts of the Cayman Islands.  In fact, in a judgment of the Cayman Court dated 24/12/2010, the Trustee was directed to refrain from submitting to the jurisdiction of Hong Kong.

624.  Mr Chow SC, counsel for the Children, has summarized the features of the Trust referred to by Henderson J of the Grand Court of the Cayman Islands in Cause No.FSD 186/2010 dated 26.11.2010 (“the Cayman Judgment”), which I gratefully adopt: 

(1) There are 5 beneficiaries of the trust, namely, H, W and the 3 Children (Cayman Judgment, para 4).

(2) The “Designated Beneficiary” (being one of the beneficiaries appointed under Clause 5 of the Trust Deed, and currently is W) has the privilege of controlling the investment business of the “Controlled Companies”.  The “Distribution Fund” consists of “Trust Property” which has been transferred or credited to it (clause 7(i)) but in relation to which the privileges of the Designated Beneficiary do not extend.  On the other hand, the Trustee is solely responsible for the management and investment of the Distribution Fund (clause 8[40], Cayman Judgment, paras 5 and 7).

(3) The objects of the Trust are: (i) to give the Designated Beneficiary the privilege of controlling the investment business of all Controlled Companies; and (ii) to apply the capital and income of the Distribution Fund for the benefit of the beneficiaries (Clause 4, Cayman Judgment, para 6).

(4) The Trust owns all the shares of B Holdings, which in turn owns all the shares of another Cayman Islands company, both having the status of “Controlled Companies”.  The latter company owns all but one of the outstanding shares in JC Ltd, which in turn owns the Peak Property.  The remaining share in JC Ltd is held by the Trustee in the Distribution Fund (Cayman Judgment, §8).  For this reason, JC Ltd is not a Controlled Company (Cayman Judgment, §11).

(5) At present, there are no assets in the Distribution Fund apart from the single share in JC Ltd (Cayman Judgment, §9).  In other words, there is practically nothing which can be distributed by the Trustee to the beneficiaries.

(6) The Trust is a discretionary trust only with respect to the Distribution Fund.  The Trustee has no dispositive powers over the Controlled Companies or assets owned by them save for a limited power exercisable at the request of the Designated Beneficiary (Clause 6(xv)(c)). The Designated Beneficiary has power to give investment directions in relation to the Controlled Companies but has no dispositive power over such companies or the assets owned by them (Cayman Judgment, §10).

(7) JC Ltd is under the ultimate control of B Holdings. The Trustee has no present ability to deal with or dispose of the assets of J JC Ltd.  Its powers are limited effectively to the single share in JC Ltd which is in the Distribution Fund (Cayman Judgment, §11).

(8) The Trustee does not have control over transfers from the Controlled Fund to the Distribution Fund unless these are to meet the Trustee’s charges or expenses.  There are a number of exceptions but all of them require the agreement or consent of the Designated Beneficiary (ie W) or the settlors (ie H and W) (Cayman Judgment, §12).

(9) To sum up, as things stand, the Trust is not a discretionary trust.  H and W can determine whether the Trustee is to be given dispositive powers (which it does not have at present) over the underlying trust assets.  If they do, the Trust can become a discretionary trust with the Trustee empowered to make substantive distributions (Cayman Judgment, §13).

625.  In other words, although H and W (as settlors, or W as Designated Beneficiary) have powers under the Trust to procure assets to go into the Distribution Fund, they have no legal entitlement to demand or insist on anything to be done by the Trustee thereafter.  The Trustee is entitled, in its absolute discretion, to make any distribution to any one of the Beneficiaries, at such time, in such amounts, and in such manner as the Trustee thinks fit.  Even if the Trust should become a discretionary trust as mentioned in (9) above, H, W or the Children are not entitled to any fixed or vested share or interest in the Trust assets. The interests of the 5 beneficiaries in relation to the income or capital of the Trust assets are exactly the same and no one of them has a better or higher right than the others to receive distributions of income or capital.

626.  In Gartside v IRC [1968] AC 553, 616, Lord Wilberforce held that beneficiaries under a discretionary trust do not have an interest in possession in a trust fund, but only the right to require the trustees to consider from time to time as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity.

627.  Therefore, having regard both to legal principles and the intention of H and W at the time the Trust was set up, the Trust was not the alter ego of H and W, or a “dear me” trust”[41].  The court cannot ignore the trust structure: BJ v MJ [2011] EWHC 2708, Mostyn J, at para 5.  In fact, H held a similar view in (i) H-7^th, when he applied for an early decree absolute, that the Children were beneficiaries; (ii) H-13^th, when he made the points that the Children had no determined “shares” or vested interests in the Trust,and that the Trust was “discretionary” in nature. 

F6.  The Letter of Wishes dated 17/7/2002

628.  The Letter of Wishes recorded the manner in which H and W wished the Trustee to exercise its discretion in distributing the trust assets.  During their lifetimes, they would like to be treated as Prime Beneficiaries of the Trust and would like the Trustee to pay so much of the capital and income as either one directs to themselves, their Children or to any other person falling within the class of Beneficiaries.  The Letter of Wishes further provides that:

(1) Upon either one of the settlor’s death, it is their wish that the capital and income of the Trust Fund be held for the survivor and that the Trustees take into account his/her wishes as to any distributions which he/she may wish the Trustee to make for themselves or their Children.

(2) Upon both settlors’ deaths, they wish the Trustee to consider making appropriate maintenance allowances to the Children until each child reaches the age of 23 at which time such payments should cease; and upon each child reaching the age of 35, a lump sum of HK$3 million should be distributed to that child.

629.  Further, upon both settlors’ death, their residential home should be rented out and the income rental is to be accrued in the trust.  The intention of H and W was clearly not to provide a residence for the Children indefinitely.

630.  The contents of the Letter of Wishes are not binding on the Trustee as expressly stated therein: 

“…the Trustees will use their discretion in distributing the trust assets to the named beneficiaries and in so doing may take note of their wishes as laid out in this file note but need not necessarily do so”.

631.  A trustee may take into account the views of the settlor and of other beneficiaries as to the exercise of discretionary powers: Hartigan Nominees Property Ltd v. Rydge (1992) 29 NSWLR 405, at 429C per Mahoney JA, at 431B. But this does not make the views so expressed binding on them.  Hui Chi Ming v. Koon Wing Yee and others [2010] 4 HKC 86, Fok J (as he then was).

632.  Re N (a child) [2009] 1 WLR 1621, and MT v OT [2007] EWHC 838 (Fam) relied on by H do not assist him.  Those cases hold that a settlement shall continue until a child reaches his 21^st birthday.  They do not involve a trust, still less a situation where the parents and children are all beneficiaries named in a trust deed each with exactly the same “interest” in the assets held by the trust. 

633.  During cross-examination, H repeatedly advocated that the E Trust was identical to the Trust in that both could be regarded as “dear me” trusts.  In fact, the two trusts were very different:

(1) The E Trust (before its dissolution) was a revocable trust and H (as sole settlor) was given express power to direct the Trustee to distribute assets/income from the distribution fund to himself: Clause 14 and Third Schedule.  The Trust, on the other hand, is an irrevocable trust which gives the Designated Beneficiary power to make investment decisions in respect of assets not yet in the Distribution Fund, but gives unfettered discretion to the Trustees in relation to the distribution of the assets which are transferred to the Distribution Fund.

(2) H was the sole settlor and claimed, at one time, to be the sole designated beneficiary of the E Trust: Clause 5.  This is in contrast to the Trust where there are 5 beneficiaries.

(3) The Letters of Wishes of the E Trust stated H to be the primary beneficiary and had full power to direct income distributions to himself.  This can be contrasted with the Letters of Wishes for the Trust which expressly mentions provisions for the Children and further states that the Trustee is not bound by the wishes stated therein.

634.  The contrast in the terms of the E Trust and those of the Trust is strong evidence that the parties intended the assets in the Trust to, at least partly, be for the Children’s benefit. Otherwise, the terms of the Trust (managed by the same Trustee as the E Trust) would have been worded differently, without including the Children as named beneficiaries.

635.  H argues, correctly, thatthe Children made no contribution to the Trust fund.  However, that was the result of the voluntary decision of H and W to make the settlement, thereby relinquishing absolutely and forever any beneficial entitlement to the Trust assets. 

636.  H cannot be heard to complain about W’s refusal to sign a new letter of wishes disbanding the Trust.  It was certainly regrettable that millions of dollars have been spent on prior litigation on this trust issue.  It was also regrettable that W’s Proposals at the trial were not made earlier, thereby saving the costs of attempted joinder of the Trustee and adjourning the trial for the first time.  However, H’s premise that this was a dear me trust was erroneous.  W’s conduct is only a matter for costs.

F7. Legal principles in relation to variation of settlements

637.  Section 6(1)(c) MPPO empowers the court to make an order “varying for the benefit of the parties to the marriage and of the children of the family” any post-nuptial settlement, of which the Trust is indisputably one.

638.  The court’s discretion to vary a nuptial settlement is unfettered and theoretically unlimited, but a settlement ought not be interfered with more than is necessary to do justice between the parties, and the court ought to be very slow to deprive innocent third parties (including children) of their rights under the settlement.  In Ben Hashem v Al Shayif [2009] 1 FLR 115, at para 290, Munby J summarized the applicable principles as follows:

“(i) The court's discretion under s 24(1)(c) is both unfettered and, in theory, unlimited. As Miss Parker put it, no limit on the extent of the power to vary or on the form any variation can take is specified, so it is within the court's powers to vary (at one end of the scale) by wholly excluding a beneficiary from a settlement, to (at the other end) transferring some asset or other to a non-beneficiary free from all trusts…

(ii) That said, the starting point is s 25 of the 1973 Act, so the court must, in the usual way, have regard to all the circumstances of the case and, in particular, to the matters listed in s 25(2)(a)-(h).

(iii) The objective to be achieved is a result which, as far as it is possible to make it, is one fair to both sides, looking to the effect of the order considered as a whole.

(iv) The settlement ought not to be interfered with further than is necessary to achieve that purpose, in other words to do justice between the parties.

(v) Specifically, the court ought to be very slow to deprive innocent third parties of their rights under the settlement. If their interests are to be adversely affected then the court, looking at the wider picture, will normally seek to ensure that they receive some benefit which, even if not pecuniary, is approximately equivalent, so that they do not suffer substantial injury. As Sheldon J put it in the passage in Cartwright which I have already quoted: ‘if and in so far as [the variation] would affect the interests of the child, it should be permitted only if, after taking into account all the terms of the intended order, all monetary considerations and any other relevant factors, however intangible, it can be said, on the while, to be for their benefit or, at least, not to their disadvantage.’ ”

639.  For settlements involving children of the family, any variation should not affect their interests except when it is found to be practically necessary or expedient that this should be done: Blood v Blood [1902] P 78, at 83, Gorell Barnes J.

F8.  The various proposals on variation of the trust

640.  W’s proposals have changed over time. In her Notice of Application for Ancillary Relief filed in June 2010 to vary the Trust, W proposed that the Trust be varied so that 40% of its value be transferred out of the Trust for distribution between her and H, and the remaining 60% be settled in favour of the Children and remain in the Trust (“W’s 2010 Proposal”).  

641.  In her latest proposal put forth at the 2^nd pre-trial review on 27/9/2012, W proposed that the Trust do continue under the terms of the Trust Deed save that H should be removed as a beneficiary and all his interests, rights and powers under the Trust shall cease, leaving W as the sole Designated Beneficiary (as defined in the Trust Deed) and the Children as beneficiaries; and that H shall take all necessary steps to facilitate and effect the variation (“W’s 2012 Proposal”).

642.  H has made 5 proposals summarized as follows:

(1) The value of the Trust be treated as falling within W’s distribution of the matrimonial assets, and H would forego all his rights and interests under the Trust (“1^st Proposal”).

(2) W should forgo all her rights and interests under the Trust, and H would treat the value of the Trust as falling within his distribution of the matrimonial assets.  If W were to elect this option but wished to retain the Peak Property, H was agreeable to procure the sale of the Peak Property to W at open market value (“2^nd Proposal”).

(3) H and W “fully exit” the Trust and distributions would be made to them out of the Trust.  The Trust would then be left to continue with the Children as remaining beneficiaries (“3^rd Proposal”).

(4) Dissolution of the Trust and immediate distribution made as between H and W equally (“4^th Proposal”).

(5) A new trust be settled for the benefit of the Children out of some assets in the Trust and the rest of the assets be distributed to H and W together with other matrimonial assets (“5^th Proposal”).

643.  The Official Solicitor for the Children initially supported W’s proposal in 2010 but changed alongside with W’s 2012 Proposal.

644.  The eldest son and N have come of age.  They stated on affirmation that there should be reimbursement of monies taken out from the Trust.  They expressed distrust in H, having regard to what they considered to be his unresponsive attitude and failure to pay for their expenses. They preferred maintenance to be paid out of the Trust.

645.  Mr Chow SC submits that the Children’s position was that none of the 5 beneficiaries have any better interest in the Trust assets.  If the Trust was to be varied, the only fair and just solution would be to treat them equally.

F9.  Justifications for variation

646.  Varying the Trust is justified as leaving it in its current structure is not conducive to a clean break as between H and W. The reasons underlying that structure (eg choice of beneficiaries, the “hierarchy” indicated in the Letter of Wishes) will no longer be applicable. 

647.  H has not ignored the Children’s interests in the sense of acknowledging the need to provide for them under section 5(2) MPPO.  However, all his proposals were on the wrong premise that the Trust was a “dear me trust”.  As brought out in cross-examination, H is likely to sell the Peak property were W to exit from the Trust.  The Children’s accommodation will then be affected.  Accordingly H’s 1^st, 2^nd and 4^th Proposals ought to be rejected. 

648.  As regards the 3^rd and 5^th Proposals, although the Children would obtain some interest, H has not proposed its extent and how such proposals were to be implemented in practice.  H suggested that if W should quit, he would settle into the Trust assets of equivalent value and W could purchase the Peak Property.  However, H was unable to state how W could fund the purchase and what he would put back into the Trust equivalent in value to the Peak Property to ensure that the Children are placed in the same position as they are now. 

649.  H refused to answer the question from Mr Howard QC as to whether his intention was to put HK$226m into the Trust and immediately instruct the Trustee to transfer the sum out to himself, on the basis that it was a “hypothetical question”.  It was only when the court expressed the need to know the viability of his proposal that H changed his position, stating that the Trust should be dissolved and a new trust be created in favour of the Children into which would be settled the London Property (worth about HK$30m) and an additional HK$20m; and that he would contribute half, ie HK$25m.  This would mean that the Children would be prejudiced, with access to less than 1/5^th of the current value of the Trust assets.  It would also be a recipe for disaster, given the strained relationship between H and the Children. I reject all his Proposals.

650.  W’s 2010 Proposal would change the nature of the Trust and might necessitate the sale of the Trust assets.  Her 2012 Proposal would cause the least disruption to the status quo, given W’s avowed intention to retain the Peak property as a home if H were to exit.

651.  The only basis on which H regarded W’s 2012 Proposal as “impractical” was that the Trustee of this Cayman trust was not going to obey a Hong Kong court order.  H need not worry, in my view, as any order of this court will be for him to renounce all his interests whether as settlor or beneficiary whilst the Trust will continue intact. 

652.  In summary, W’s 2012 Proposal meant one beneficiary less and will cause the least disturbance to the Children.  H’s proposal will cause the Trust to be disbanded and affect the interests to the Children. I accept W’s 2012 Proposal.

F10.  The Trust as a “financial resource” under section 7(1)(a) MPPO

653.  Upon adoption of W’s 2012 Proposal, to what extent should the Trust be regarded as W’s financial resource for the purpose of section 7(1)(a) MPPO?

654.  The court is concerned with resources and not proprietary interest in the trust fund.  The essential question should be whether the spouse has immediate access to the trust funds (rather than whether he/she has effective control over the trust). In light of section 7(1)(a) MPPO, the question is whether the trustee would be likely to advance the capital or income immediately or in the foreseeable future: Browne v Browne [1989] 1 FLR 291, per Butler-Sloss LJ at p 293d-e; Charman v. Charman [2006] 2 FLR 422, per Wilson LJ, at paras 12-13; Whaley v Whaley [2011] EWCA Civ 617, per Lewison J at paras 113-114.

655.  W does not have any definitive entitlement to income from the Trust, nor the sale proceeds in the event the Peak Property is sold.  Therefore, even being the sole Designated Beneficiary, she does not have “immediate access” to the trust funds.  It would be unfair to treat the Trust assets as beneficially owned by her solely, or as fully liquid assets available as a financial resource at her disposal. 

656.  On any view, W’s interest in the Trust cannot be equated with liquid resources when applying the sharing principle.  A fair distribution of the assets implies that each party has assets of equivalent quality: Martin-Dye v Martin-Dye [2006] 2 FLR 901 at para 65.  It is therefore necessary to have regard to the extent to which an asset is freely available or whether it is attended by a particular handicap or risk.  Mr Howard QC draws on the analogy of a pension (being illiquid asset):

“A pension in payment is no more than a whole life income-stream akin to an annuity. It cannot be sold, commuted for cash or offered as security for borrowings. It has no capacity for capital appreciation. The benefit does not survive the death of the scheme member and thus cannot form part of his estate. Thus there are obvious distinctions between a technical value ascribed to a pension in payment and a market value ascribed to a realisable asset such as a freehold, a portfolio of shares or a work of art.” Thorpe LJ (at para 48)

“In my judgment, it is artificial to say that pensions are capital assets valued at £940,000 (husband) and £100,000 (wife). The reality is that the sole value of their pensions to the parties is that they produce gross incomes of £37,840 and £5,818 respectively.” Dyson LJ at §88

657.  In Maskell v Maskell [2003] 1 FLR 1138 at para 6, also in relation to pensions, Thorpe LJ said of the judgment at first instance:

“… the judge is making the seemingly somewhat elementary mistake of confusing present capital with a right to financial benefits on retirement, only 25% of which maximum could be taken in capital terms, the other 75% being taken as an annuity stream. He simply failed to compare like with like. …”

658.  A pension is of course out of the control of the employee.  The varied Trust is in the hands of the Trustee who may take into account a letter of wishes from W and/or the beneficiaries.

659.  I agree with Mr Todd QC that the Trust poses the single biggest threat to a fair determination of the parties’ respective ancillary relief claim when the Peak Property is the single most valuable asset acquired during the subsistence of the marriage.  Therefore, I place more emphasis on the practical reality than legal niceties.  The court in exercise of its family jurisdiction has to bring in “a judicious mixture of worldly realism and of respect for the legal effects of trusts, the legal duties of trustees and, in the case of off-shore trusts, the jurisdictions of off-shore courts”: Charman v Charman [2007] 2 FLR 217, para 57, per Sir Mark Potter P. 

660.  In the present case, as a matter of practical reality, W’s interest in the Trust may be seen as provision with a home for the rest of her life subject to a possible eventual sale when the Children are financially independent and live away from home.  There is of course no guarantee that the Trustee will provide her with the yield on the capital realized.  However, the possibility that W may join hands with the Children (on good terms with her) to seek distribution of the assets among themselves or even dissolve the Trust is something that cannot be totally ignored.  Even so, it would not be fair to attribute the entire value of the Trust as W’s financial resource. 

661.  H will losethe occupation of the Peak Property, which is clearly more valuable, larger in area than his current accommodation and has a higher potential for appreciation in value owing to its scarcity in the property market.  His exit from the Trust will cause him to lose the opportunity of being considered by the Trustee for distribution, notwithstanding that he has been the contributor to the Trust funds. 

662.  Having considered all the circumstances, I attribute 50% of the value of the Trust as W’s financial resource under section 7(1)(a) MPPO.

663.  The order I make is against H personally, that he be removed as a beneficiary of the Trust and relinquish all rights thereunder as settlor or beneficiary.  He shall execute all necessary documents to effect this variation.  There will be an order in terms of the Re-Amended Notice of Application for Ancillary Relief.

G.  DUXBURY NEEDS OF THE PARTIES

G1.  W’s Needs and Duxbury Calculations

664.  The experts are agreed that the calculation period for the Duxbury calculations will commence on 1/1/2013.  The life expectancy of W, who is 46 years old is approximately 88 years.  It was agreed that the renovation expenses of the Peak Property were excluded as they were capital in nature.  Expenses for the Children were also excluded from the Duxbury calculations.

665.  Based on monthly alleged expenses of HK$949,748, Mr Lees calculated the capital sum required by W to maintain her expenses as HK$422.7m.  On the other hand, H’s case was that W has contrived and inflated her expenses.  Based on monthly expenses of HK$494,000, Mr Borrelli’s calculation of the Duxbury sum was HK$189.8m.  The differences between the experts lied in:

G1.1. The bases upon which monthly expenses of W were calculated;

G1.2. The manner in which the inflation rate was determined;

G1.3. The selection of the investment products and the manner in which their average rate of return was calculated.

G1.4. The basis upon which the recurrent expenses of the 3 Properties were treated for Duxbury calculations

G1.1.  The bases upon which monthly expenses of W are calculated

666.  No limit was ever placed on W’s spending at all.  Subsequent to the separation, W was left with only one out of 3 credit cards and reduced her spending limit on the remaining HSBC visa card.  H closed the joint account in 2008.  He limited her spending to HK$200,000 per month. He placed restrictions on various heads of expenses.  He relinquished the AMC membership to W when in the past it was he who paid for all expenses thereunder.

667.  According to W’s latest Form E, the current level of monthly expenses of W and the Children and the level of monthly expenses which they would require going forward to maintain a standard of living comparable to that prior to the breakdown of the marriage were as follows:

	Current level (HK$/month) (2011)	Comparable level (HK$/month)
General expenses	HK$148,066	HK$269,582
W’s Personal expenses	HK$486,833	HK$680,166
Total	HK$634,899	HK$949,748
W’s Expenses related to Children	HK$145,000	HK$203,333
Nicoleen’s expenses	HK$37,100	HK$51,000
Justin’s expenses	HK$19,000	HK$37,550

668.  The eldest son’s expenses were not included as H has been paying him direct: see order dated 13/4/2011 amended on 6/5/2011[42]. 

669.  The expenses for supporting Madam Sioh have been included as H did not dispute the need to house her and maintain her. 

670.  The figure of HK$949,748 was, in turn, based on W’s actual current spending (with full supporting documents), with adjustments reflecting what W would want to spend had the pre-marital standard been maintained.  It would become HK$991,572 if the expenses relating to the Singapore Property were included.

671.  On the other hand, Mr Borrelli relied on the Howarth report dated 14/11/2008 for W’s pre-separation spending from April 2005 to August 2007 (29 months). He adjusted it by reference to previous orders for mps, adding expenses for holidays, domestic helpers and drivers and recurrent expenses for maintenance of the Peak Property to arrive at a monthly figure HK$494,000 for W.

672.  With respect to Mr Borrelli, even on the face of the Howarth report, W’s personal spending was already HK$500,000 per month in 2007/2008, ending on 31/3/2008 (about the same time as the end of the truce).  At that time, W was intense on reconciliation. It could not be suggested that she had been inflating her expenses then. 

673.  Further, the figures adopted in the Howarth Report were unreliable for the following reasons:

(1) Howarth based his assessment on the parties’ Form E, bank statements of only one of H’s bank account with HSBC, the parties’ joint account with Standard Chartered Bank, certain schedules prepared by H and instructions from him without verification against source documents.  Such an approach was obviously inadequate.  Even Mr Borrelli accepted that the Howarth report had not included a lot of items of W’s expenses, eg the cash withdrawals.

(2) The Howarth Report was not based on a complete set of credit card statements (all of which were in H’s possession).

(3) The Report of Bankcroft (Mr Lee’s predecessor) dated 14/5/2009 highlighted the flaws in the Howarth Report, which had never been addressed by H.  Mr Bancroft assessed W’s expenses (excluding legal costs) to be about HK$600,000 per month.

(4) Mr Borrelli wrongly relied on the judgments of Saunders J’s dated 25/5/2009 and of mine dated 26/8/2011 on mps.  Mps was a rough and ready estimate made at a time when the evidence was incomplete and not tested in cross-examination. It could hardly be used as a yardstick for reflecting actual needs.

674.  As H’s alleged pre-separation figures were entirely unreliable and not backed up by documents, his allegation that W has inflated her expenses after separation was flawed. 

675.  It was also very telling that back in 2008, H offered to give W one credit card with a limit of HK$400,000, with a promise to pay the household expenses, and Children’s school fees and expenses.  That limit at least represented his view of her then personal spending alone. 

676.  W was unable to produce evidence of her pre-separation expenses.  In any case, over 5 years have elapsed since the separation.  The then level of expenses was no longer a useful reference, given the changes in circumstances and the effect of inflation.

677.  At the trial, H and W has each put forth his/her own table of W’s monthly expenses.  Exhibits P2, P3 and P4 produced by H were prepared by his assistant who was not called as a witness.  These exhibits had glaring omissions, eg expenses re the 3 Properties, salaries of maids and drivers, car expenses, cash taken out of the safe, holiday expenses, and expenses (like meals) paid for by H when the family stayed together.  In addition, H has not identified expenses paid for by his corporate cards (eg the card in the name of Madam Sioh).  The Exhibits only showed what H paid for W and the Children, but not what W paid for herself and the Children.  H’s main focus was on her personal expenses and not what was needed to keep her household with the Children going.

678.  The only comprehensive table of W’s current and anticipated expenses was produced by W, based on the record kept by Ms Lai.  It was a weighty piece of evidence.

679.  W has explained the difference between the current and comparable level of monthly spending[43], prepared with the assistance of Ms Lai.  I will not analyze the heads of claim and the quantum one by one but will only deal with some matters of principle.

680.  Under general expenses, all heads of claim will be allowed, as they were used to be borne by Him direct, subject to the following:  

(i) I will take into account the need to buy a car in London as the family used to have a car there.

(ii) The replacement costs of capital items, eg a car and electrical items shall be borne by W after the clean break.

(iii) By the time of trial, there was no mention of any great change in employment terms of the driver.

(iv) I accept that expenses on utilities of the London and Singapore properties were estimates only, as the relevant documents were in the possession of H.

(v) I do not consider it appropriate to allow expenses for a full time helper in London.  The eldest son has not decided on whether to stay in UK or USA.  N is in Nottingham.  J will be at the London Property during exeats.  There was no suggestion that the current arrangements of having a part-time helper is insufficient.

681.  As for W’s personal expenses, all heads of claim will be allowed subject to the following:

(i) There was no breakdown of HK$350,000 per month for eg clothing, shoes, expensive handbags and jewellery.  (I accept that Ms Lai was not asked to prepare one.)  Were H to present his spending on this item in this manner, it would certainly have been heavily criticized as contrived. 

(ii) The comparable level of HK$450,000 per month for clothing/shoes was about 28% above the current level and was a wild guess, even accepting that price increase of high-end fashion was beyond the normal inflation rate and that W might has been restrictive in her expenses due to the mps orders.

(iii) Similarly, there was no reason why there should be an increase by 25% for grooming, compared to the current level.

(iv) W wanted to join the Hurlington Club in London as the Children have been spending more time in London.  This was not an item of expense during the marriage.  It was the result of Ms Lai’s research.  W has not begun to demonstrate a need for this.  It was an example of her inflation of expenses.

(v) As regards holiday expenses, there was a dispute as to whether there was only one big holiday in the summer or 2 per year.  H claims that the holiday pattern for W and the Children have been elevated after separation and through interim maintenance orders. When assessing the holiday expenses, I note that even Mr Borelli was prepared to make an allowance of HK$70,000 per month for W.  H’s assertion on the pre-separation level of holiday expenses was not backed up by documents.  I accept that there used to be trips for 4 times a year although W had clearly been stretching limits in spending.

(vi) W suggested that there was a boat available for use of the family.  However, the boat has only been used 1-2 times by W and by J.  It could hardly be said that boating has been part of the spending pattern before separation.  Besides the value of the boat would have been reflected in the accounts of the company owning it. This was an example of W’s exaggeration of living standard.

682.  From the table prepared by Ms Lai for August 2008 to March 2012 (44 months) (Mini Bundle/77), the average monthly spending was but HK$675,227, including trip expenses of HK$87,652.  In the last 6 months of the fable, by 2012, the monthly expenses in her table were about $860,000.

683.  Compare these to her figures in paragraph 667 above.  The current level was similar to that in the Howarth Report (HK$134,000 + HK$500,000) though the Howarth Report did not cover all expenses.  The comparable level was a quantum leap from the current level by almost 50%; and 10% leap from $860,000.  Even considering that she has been adhering to her usual spending pattern and had to take over more expenses after the separation, the comparable level was contrived.

684.  Taking into account the adjustments needed (paras 680-681 above) and inflation rate of 3.5%[44], by the time of trial 2012, I find W’s comparable level of monthly expenses to be HK$800,000. 

685.  I do not propose to go into the history of what W has sought for mps, what H had promised, how he had allegedly failed to live up to his promises and what difficulties W faced in terms of seeking payment for H even for the Children.  I respect H’s wish to discipline the Children to become financially responsible, and to ensure that W did not inflate her expenses after the separation.  I understand his sentiments that the Children have not been respectful to him as a father, took maintenance as for granted as demonstrated by the emails to him and ignored the voice of a father desperately seeking to work things out.  However, financially, I find that H has understated the level of W’s expenses. He required W to justify her and the Children’s expenses, which generated communication problems among him, the Children and the personal assistants. Whilst W might have made many applications for mps and included unwarranted claims for expenses of a capital nature (eg renovation for the London Property,) it was undeniable that all orders for mps (except for trips) were grossly below her needs.

G1.2  The manner in which the inflation rate was determined

686.  Mr Lees used the average of the historical inflation in Hong Kong publicly available from the Census and Statistics Department of Hong Kong covering 22.5 years from November 1989 to 31/6/2012 to calculate the average inflation rate at 3.5% per annum.

687.  Mr Borelli used both the historical average inflation rates in Hong Kong for the last 10 years and projected average inflation rates for the next 5 years from 2012 to 2017 as estimated by the International Monetary Fund and adopted the mid-point of 2.14% per annum between the 2 figures.

688.  The Duxbury calculation was based on a life expectancy of 42 years for a marriage of 19 years, it is best to take a corresponding period (say, at least 19 years) of inflation into account rather than look at short term future estimates.  I therefore adopt Mr Lees’ suggestion of 3.5% per annum.

G1.3.  Selection of the investment products and the manner in which their average rate of return is calculated

689.  Mr Lees has selected 5 investment products, basing the average rate of return on different periods (some starting from 1990, others from 1993 or 1999) for different products according to public data.

690.  Mr Borelli used the same 12 year period when comparing the average rates of return of the 5 selected investment products.

691.  I agree with Mr Borelli’s approach.  The time period for comparison must be the same so as to assess the performance of the 5 investment products when they were exposed to the same historical economic factors.  A more recent trend was useful for investment products.

692.  Adopting Mr Borelli’s calculated average rate of return, one could see that 3 out of the 5 investment products have return rates lower than the inflation rate of 3.5% which I have adopted.

693.  I will not proceed as if W has a risk-averse investment attitude. I find that she has invested in accumulators through W.com Ltd independent of the advice of H and suffered great loss.  That experience might have caused her to be more careful but not necessarily risk-adverse. However, I do accept that W may wish to keep some fluid capital even though it might mean a return lower than the inflation rate. 

694.  I therefore adopt Mr Borelli’s average rate of return:

Investment product	Average rate of return       (1999 to 2011)
Tracker fund of Hong Kong	3.06%
HK dollar fixed deposit (1 year)	1.84%
HKMA Exchange Fund notes (3 years)	3.17%
US Treasury Notes (10 year)	4.11%
US Treasury Bonds (30 year)	4.58%

G1.4.  Summary of W’s Duxbury calculations

695.  Overall, I allow the following sum as reflecting W’s Duxbury needs, calculated from 1/1/2013: to be

HK$413,377,235

G1.5  HK$4m claimed by W for potential legal costs

696.  This item was strictly not part of the Duxbury needs but I have considered it for completeness’ sake.  W claimed for HK$4m to defend any action SS might have against her, orchestrated by H.  There was no bases because:

(i) SS has not shown W or this court what the action might be.

(ii) There was nothing to connect H with that alleged action, especially since I have declined to find that K and B were his nominees in the Downstream Sales.

(iii) The sum of HK$4m is clearly plucked from thin air.

G2.    H’s Duxbury needs

G2.1.  H’s case on current income and expenses

697.  H claimed that his current income was far below his current expenses.  The outgoings were at an unsustainable level which rapidly reduced the available cash for matrimonial division, leaving H and W in a far worse position than at the commencement of the ancillary relief proceedings.  The matrimonial pool has shrunk by about 26%.  His net cash position has reduced from HK$112m in 2008 to HK$16m in 2012.  Funding for legal costs was challenging.

698.  H claimed to have retired at the commencement of these proceedings.  He still has no job.  His income has, according to his latest Form E, dropped from about HK$1,039,000 per month to about HK$44,122 per month from director’s fees.  His investment income in the last 12 months (1/4/2011 to 31/3/2012) before that Form E was about HK$4.4m or HK$366,000 per month.  His earning capacity has reduced.

699.  H’s monthly expenses are about HK$1,125,000 in total:

(i) W’s household (inclusive of interim maintenance), HK$467,000;

(ii) His current household about HK$80,000. 

(iii) His personal expenses are about HK$129,000;

(iv) The Children’s expenses HK$408,000 (inclusive of the maintenance by court order);

(v) The 2 sons borne by Ling, HK$42,000.

700.  Ling was said to earn HK$40,000 per month from employment.  Her only asset was a diamond wedding ring worth about HK$1.5m.  She has to return to work after giving birth to the 2^nd child.  The family has to defer the hiring of a second helper and the driver has to double up as family driver and work driver.  H had to lease out club membership for income.  H described himself as in a “parlous financial situation”.

701.  In his latest Form E[45], H asks for (on a clean break basis):

(i) “Normalization” of the maintenance expenses for the 3 Children to the former matrimonial standard of HK$135,320 per month, a reduction of HK$272,680 per month.  If W was awarded a capital sum, the maintenance responsibilities should be shared between H and W.

(ii) There be a reversion to the “former matrimonial standard” to a monthly spending of HK$203,409 for H and the 2 sons of Ling be supported at a monthly budget of HK$90,213, being 2/3 of the budget of the 3 Children.

(iii) There be an increase in the spending for general household maintenance of HK$146,330 as in the former matrimonial residence.

(iv) There be a separate provision for an equivalent standard of accommodation if W were allowed to use the former matrimonial standard for self-occupation as part of her needs.  A similar property at the Peak would cost about HK$238m.  A 20-year mortgage at 50% of the purchase price would command interest of about HK$630,584 per month.

G2.2. H’s earning capacity

702.  During subsistence of the marriage, among directorship in over 100 private and publicly listed companies since 2005, H had been director and shareholder of 3 HK-listed companies, namely, E, SI and SC. There had been HK$45.5m earned within the CSE year, (salary of HK$15.5m, HK$10m interim bonus and CSE profits of HK$20m). 

703.  H has never lived on employment income save for the very early stage of his career.  H has been an entrepreneur and investor who, as accepted by Mr Borrelli, has made over HK$500m in 10 years. Such enormous earning capacity would have been sufficient to support the 2 families. 

704.  Having cashed out of E, naturally H thereafter ceased to be a director and ceased to receive dividends and director’s fees which made up effectively all of his previous ‘income’. In the place of the good income was the capital of HK$257m. 

705.  H said he aimed at wealth preservation instead of wealth creation.  He had no more confidence or any remaining capital to start any new business venture.  He was told by head-hunters that employers in the financial industry were not hiring.  He found it humiliating to turn to head hunters when in the past he was head-hunted.  He was told that he would expect a salary of no more than HK$167,000, quite unlike the past employment with European investment banks.  He expected both families to live off the same capital. H expected to liquidate several high yielding bonds and securities to meet the legal and professional costs for these proceedings, and so the current total investment income was expected to fall sharply. 

706.  In my view, although H has great earning capacity, one has to take into account his age (late 40’s).  Moreover, the hard fact is that after payment of a lump sum upon clean break and leaving aside his own residential property, H will be left with substantially less than 50% of the liquid capital than before to invest. 

707.  H also said that all the past partners (such as Yu, Fung, SS, Ong, Wong, K and B) have also been so harassed and intimidated by W in her aggressive tactics that they have all told H in confidence that they did not wish to continue in new business dealings with H.  Judging from the evidence which e.g. disclosed possible insider trading and attempts to mislead in public announcements involving these business partners, there was a ring of truth in what H said.

708.  I find that H’s earning capacity will be substantially reduced.

G2.3. H’s assertion of retirement

709.  In Geneva II, H said he would never stop working and talked to PP about long term investment.  Yet, about 7 months later, after the start of these proceedings, he said he would retire.  H has asserted that he has “retired” from all executive positions in the corporate world so as to focus on this litigation and to spend more time with his new family.  He claimed that he had made a good deal of money over a 20-year period by working very hard, at a cost to family and personal life.  He would like to dedicate time towards a charity he has helped set up.

710.  I disbelieve H.  Whilst I accept that in view of his experience in this marriage he might have wanted to work less hard and spend more time on his new young family, I find it most incredible that H had given up on earning substantial income, sat on his enormous capital, watched it dwindle for the past 4 years and did nothing remunerative but charity work. How did he expect to get out of his parlous financial situation?  How did he expect to maintain 5 children, 2 being infants?  H was not suggesting that the monthly “income” of Ling could lend any meaningful financial support to his new family.

711.  Further, H described himself as an “investment guy” in one of the emails to W in 2008:

“You probably know that I am an investment guy so I would always want to put money to work, be it in bear or bull markets.

I would also put the money I get from the sale of E-Capital to work when I do complete.

Again I would use it to buy back more operation (such as the Singapore securities operation, the travel agency and other investments etc) [note: H confirms in oral evidence that he meant E] so I would not keep a lot of cash as I believe I can make more with the money I have.”

712.  H explained that the term “investment guy” was a general statement in the context of a separated husband and wife and he did not think beyond that. He confirmed that he did have the intention to invest with the E proceeds then but claimed to have stopped being an investment guy because of the Lehman Brother crisis in September 2008, a bear market that he had never seen before. 

713.  I disbelieve him. The bear market in 2008 gave an average rate of return of minus 15.45%, but the returns for 2009 and 2010 had bounced back to 21.58% and 12.78% respectively[46].  H might have become more cautious but I do not believe he would have been deterred by the 2008 downturn.

714.  Further, H has continued to be an investment guy.  He was not entirely successful though, having to dispose of one business (SECAM) to his partners and liquidate on 2 (SECSPL and SHL).  His latest From E and company searches disclosed that H remained a director of 24 companies (10 of which were executive directorships).  He has omitted to mention his directorships in WC Ltd and JKTT Ltd in his Form E.  He caused himself to be replaced by Ling as director of many companies recently, including JKTT Ltd, WA Ltd and WCT Ltd.

715.  I accept that some of the trips (eg day trips to Shenzhen) could have been for leisure.  Given H and Ling have extended families in Malaysia and the Mainland, some trips could have been for visiting families.  However, the business travel done by H as shown in D11.13 did not suggest that H has retired.

716.  In addition, in a letter dated 30/11/2011 from H’s solicitors, as a reason to ask for extension of time to file his Answers to W’s 8^th Questionnaire, H claimed that he was busy attending “various ongoing business commitments” including “exploring two acquisition opportunities of W Travel Ltd, helping on due diligence, and attending constant conference calls and emails with the management team”.  Clearly, H remained involved in the business of W Travel Ltd (a Singapore listed company of which he, through E Inc, is a majority shareholder).  He is a non-executive Chairman of the company, receiving a nominal income of S$3,500, whereas Ling is the executive director earning HK$40,000 per month. His claim that Ling was “head-hunted”, that the board members “found her to be useful for her knowledge of the travel market in China”, and appointed her as an executive director was incredible.  The arrangement was clearly in line with H’s usual mode of using nominees to keep assets protected from creditors (including W). 

717.  In the same letter, it was also stated that H had “made several trips to Shanghai to explore business opportunities with private equity group and to help them to set up their Hong Kong operation”.  It was also admitted that as result of his (undisclosed) business commitments, H was only in Hong Kong half of the time. W, however, has not been able to establish what those business opportunities or commitments were in cross-examination.

718.  At the trial, H revealed for the first time that he engaged a Malaysian lawyer at a monthly salary of £5,000 per month, even more than Ling’s.  There could be no reason for engaging him when this case did not involve issues on Malaysian law and H was in a “parlous financial state”.  The irresistible inference was that H has business interest at least in Malaysia which he has failed to disclose.

719.  I find that H has not “retired” in 2008 as he alleged, but continued to earn income from investments and other business activities. In any case, pursuant to section 7(1)(a) MPPO the court can have regard to, among others, the earning capacity which H has or is likely to have in the foreseeable future.   I have no doubt that H continues to have earning capacity although it will be much reduced because of the reduction of capital at hand after the clean break. 

G2.4  Expenses of H

720.  He claimed that he and W worked hard to keep the Children on fairly tight budget and modest standard of life.  He expressed concern in his updated narrative attached to his updated Form E filed on 29/6/2012[47] that H used to spend HK$135,320 per month on the 3 Children, but currently, they were burning cash at a rate of about HK$408,000 per month.

721.  I find H’s comparison to the quantum of Children’s expenses before separation not to be realistic.  In the last 5 years, 2 Children have entered university; J has moved to secondary school. The pattern of expenses would have naturally changed.  When considering their expenses comparable to a standard to what they used to enjoy before the breakdown of the marriage, I remind myself of W’s exaggeration over her personal expenses.  There should be some reduction in the Children’s expenses to reflect their real needs and standard of living.

722.  H’s comparison of the Children’s expenses to the HK$42,000 pm spent on Ling’s sons was wrong in principle.  Ling’s sons were born after the start of these ancillary relief proceedings.  One has just started schooling and the other has not.  To align the standard of living of Ling’s sons to those of the Children was to lift the former’s to a standard to which they have never enjoyed, although I do accept H’s legitimate wish that his 2 younger sons should have the same opportunities and life chances as the Children.

723.  Under the sharing principle, giving W the responsibility of 50% of the Children’s expenses is a theory which is only tenable (and fair) where there are no external earnings; or where the equal division of assets is coupled with the parties’ comparable earning capacity: Parra v Parra [2003] 1 FLR 94.

724.  Here, W has no earning capacity as it is impractical to expect her to start working again in her mid-40s, but H has reduced earning capacity.  The holiday expenses reflect an item that H has expressed much grievance about.  This is a flexible item. Since the trips were mostly spent with W, I consider it fair for W to bear the holiday expenses of the Children.  The spending may have to be adjusted downwards, H will continue to bear all education and other necessary expenses of the Children.

G2.5.  Duxbury calculation for H

725.  The accountants are agreed that the Duxbury calculations will commence on 1/1/2013.  The life expectancy of H, who is 46 years old, is 82 years.  Their respective calculations of the estimated capital sum required by H under their respective assumptions are mathematically correct.  The expenses of the 3 Children (apart from holidays) should be included in H’s Duxbury calculations.

726.  Mr Lees estimated the Duxbury sum at HK$9,534,133 based on H’s past investment performance at 85.85% per annum (ie HK$1,983,771).  Mr Borelli estimated it at HK$284,090,577.

727.  The reasons for the great difference were similar to those in respect of W’s Duxbury sum, ie (i) calculation of the net monthly expenses of H; and (ii) selected investment products and their average rate of return.  As for inflation rate, the same 3.5% that applied to W would equally apply to H.

G2.6.  Calculation of the net monthly expenses of H

728.  The past investment approach at 85.84% per annum relied on by Mr Lees was plainly inappropriate as I have explained when I considered the growth rate for undisclosed assets.

729.  Mr Lees’ calculation was based on H’s disclosure in his 5^th Form E.  The expenses, rightly, included expenses of all 5 children of his.  Mr Lees assumed that H would retire from his current directorships in 3 companies and withdraws his MPF benefits at the age of 65.  The net monthly deficit (based on income of about HK$400,000) would gradually drop from HK$164,848 per month to HK$29,527 by the time J graduates from university.  Thereafter, it would rise again to about HK$73,649 and gradually drop to HK$28,542 by the time the younger child of Ling graduates.

730.  Mr Borelli, on the other hand, based his adjusted calculation on H’s 5^th Form E for expenses (presumably HK$1,125,000 per month), his current income and likely estimated investment income from W Travel Ltd.  He allowed for withdrawal of MPF by H at the age of 65.  There were a few points of principle to note:

(i) The assumptions that H is never going to work, will never be employed again, buy a house and engage in low risk investment is fallacious.

(ii) H’s estimated monthly income of HK$359,414 for the year 2013 was entirely unrealistic even allowing for reduced earning capacity. 

(iii) Neither Mr Lees nor Mr Borrelli have factored in inflation which would cause H’s income to rise.

(iv) After the clean break, H no longer need to be responsible for W’s household expenses of $467,000 per month.

(v) I have explained that it was wrong to align the standard of living of the Children and Ling’s children. 

(vi) The mortgage expenses for a property at the peak was capital in nature and should not form part of H’s Duxbury calculations.  All the more so when H has already settled in his current property with his new family.

(vii) The holiday expenses for the children will be reduced.

(viii) H’s personal expenses could be revised upwards to the pre-separation level.

731.  Given that Ling has 2 infant sons and less domestic helpers, that H has fully supported W in the past, I accept Mr Borelli’s assumption that Ling would not work but would be totally dependent on H for the rest of her life, as in the case of W in the past.  Her expenses should thus be considered as part of the needs of H in the circumstances of this case.

732.  Taking a broad brush approach the monthly expenses of H after the clean break should be about $625,000.

G2.7.  Selection of investment products and the manner in which their average rate of return was calculated

733.  As regards the period of comparison, I will adopt the same principles as I did for W’s Duxbury calculation.

734.  I do not accept, however, that H would invest in low risk investment products given the history of his behaviour in using nominees and insider trading.  A substantial portion of his current investment was in the equity market (eg listed shares at W Travel Ltd worth at least HK$104m and investments held by his wholly-owned private companies) and in the property market (his residence).  The investment products found to be suitable for W were not suitable for H.  I accept Mr Lee’s suggestion that 3 main types of investment where H has engaged in the past should be adopted: equity, bond and property.  I do not consider it appropriate to take into account H’s investment in the Cor Group as suggested by Mr Lees, as I have found that it did not belong to H. There was no evidence of H’s investment in the Mainland equity market.  Nor do I think the age of Ling’s sons would have any impact on H’s investment behaviour.  Anyhow, H invested heavily whilst the Children were young.

735.  For the same reasons given when I considered the various approaches of the experts on estimating returns from investment, I find it appropriate to adopt the investment return rate of 7%.

G2.8.  Summary on H’s Duxbury needs

736.  Without disrespect, I am not satisfied that either expert has approached the issue entirely correctly.  Neither capital sum proposed by them was correct.  Mr Lees’ Duxbury sum of HK$9.5m was totally realistic for the new family with a non-working wife, 2 young sons and the 3 Children whom H has to support. 

737.  On the other hand, H’s Duxbury sum should be: HK$158m (HK$284m ÷ $1,125 x HK$625,000).

H.  FINDINGS OF FACTS AND INFERENCES TO BE DRAWN

738.  Clearly H was aware of his duty of full and frank disclosure.  Notwithstanding that, he had destroyed material documents in the course of the ancillary relief proceedings.  His lack of full and frank disclosure, in my view, was not only to preserve confidentiality of his deals and the people involved in them, conceal illicit acts but to ensure that W could not trace the real movements of his money.   Without disrespect, Mr Todd QC’s submission that there was no “dirty rotten secrets” in H’s case was far from the truth. 

739.  W could not be blamed for resorting to subpoenas or enquiries with third parties to get to the bottom of things, when H could have provided the documents to her at much lower cost.  Even after H was caught lying, he still adamantly refused to come clean.  It was no exaggeration to say that W had to pierce the financial stonewall. The exercise thereby wasted much costs, energy and judicial time.

740.  H’ breach of this duty was extensive and serious:

(i) By omission: non-disclosure of assets in Form E (eg the CSE deals); non-disclosure of bank/securities accounts held in the names of nominees (eg CT Ltd, WS Ltd); non-disclosure of documents (eg the supporting documents of the home-made schedules); and giving opaque, evasive, deliberately false and misleading answers (eg the CSE deals).

(ii) By commission: throwing away underlying documents concerning the home-made schedules; colluding with K to redact prejudicial information on documents (the HSBC inward remittance advice, the 2 internal transfer); telling lies (eg the HK$10m and bonuses to B Ltd, CT Ltd being dormant save as to the USB account); giving misleading information in relation to the home-made schedules.

741.  H’s non-disclosure covered personal accounts (eg the ABN Amro Bank account), companies with W and her mother as nominees (eg WS Ltd and CT Ltd), companies he was involved in with other persons (eg CSE, and SEC) and unsubstantiated payments and bonuses.

742.  The evidence also disclosed H’s illicit conduct in assisting others to deceive the Mainland authorities (eg Chen), covering up insider trading (eg re E), simulation of other people’s signatures (eg Madam Sioh and Beh’s), and acts of tax evasion (eg in failing to report the bonuses of B Ltd to IRD). 

743.  Beneath all these omission and commission were undisclosed assets: Baker v Baker.  As Mr Howard QC submits, there is a black hole of assets which remains hidden.  The court is unable to state with precision H’s wealth. 

744.  I find the following facts as proved.

745.  The truce was false in that H, among others, bought time to concentrate on significant financial deals.  He offered early settlement with a view to avoid what turned out to be costly, convoluted and embarrassing discovery for him and his business partners.  The white lie was not really a white lie at the time it was made.

746.  Madam Sioh was H’s nominee.  So were Ong, Wong, Yap and Loo.  The Sioh PA did not exist.  Even if one had been given by Madam Sioh, it was without her knowledge or consent.  H simulated her signature in various companies. 

747.  H was the person in control of WS Ltd and CT Ltd (which he failed to disclose in his 1^st Form E), which he had operated with the non-existent Sioh PA and without the knowledge of W and Madam Sioh.  He permitted Chen and Yu to trade through WS Ltd.  The profits made by WS Ltd and CT Ltd were unknown.  The painstaking approach in which H tried to conceal his involvement in these 2 companies led to the inference that H might be hiding other assets and funds held by these nominee companies and there were likely to be other nominee companies which he has not disclosed.

748.  The home-made schedules were misleading and unreliable. 

749.  H did have interest in CSE which he failed to disclose in his 1^st Form E and he had not fully exited from the same.  He had at least 16.28% interest before CSE ceased to exist.

750.  H had and has an interest in C Finance/SEC Group which he failed to disclose in his 1^st Form E. 

751.  A restructuring of the Cor Group did take place. Chen owned the major part if not the whole Cor Group.  H had received unspecified benefits from taking part in the restructuring.

752.  I reject the suggestion that Chen, Yu and SS were nominees of H.  They traded in their own right.

753.  I decline to draw the inference that the Downstream Sales to K and B were sham transactions or that an unparticularized conspiracy involving K and B has been proved.  K and B remained the beneficial owners of SECAHL Group and SECHK Group.  These 2 Groups do not form “other financial resources” of H under section 7(1)(a) MPPO.

754.  H colluded with K.  The purpose of redaction of the HSBC’s inward remittance advice and the 2 internal transfer vouchers of C Finance was to cover up the extent of involvement of H in CSE and C Finance.

755.  H also redacted the outward local payment customer advice showing a bonus to him before documents were transferred to the new owners of CM.  He also concealed bonuses received.

756.  Annex B contains the assets which I find belong to the matrimonial estate and their worth, based on a growth rate of 7%.  The disclosed assets are worth about HK$293m.  There should be provision for tax indemnity to CM in the sum of HK$6.5m (inclusive of potential penalty).   The undisclosed assets are worth at least HK$105.01m. The Trust is worth HK$237.65m of which 50% will be treated as on W’s balance sheet.  The whole matrimonial estate is worth over HK$516.84m.

757.  The Trust was not a dear me trust but a discretionary one.  H should exit, leaving W and the Children as beneficiaries.  None of the 5 beneficiaries have better right over one another.

758.  W had inflated her expenses.  Her Duxbury needs up to her age of 88, apart from her accommodation needs, are in a lump sum of HK$413,377,235.  It is based on monthly expenses of HK$800,000 and inflation rate of 3.5% per annum.

759.  H has not retired but his earning capacity will be reduced.  His Duxbury needs are HK$158m, based on inflation rate of 3.5%, investment return of 7% per annum.

I.  APPLICATION OF THE PRINCIPLES IN LKW V DD

760.  Step 1- identification of the parties’ assets: The parties’ assets, as I have found, together with their values are set out in Annex B to this judgment.  50% of the value of the Trust will be treated as on W’s balance sheet.  The matrimonial estate is worth about HK$516.84m.

761.  Step 2 - assessment of the parties’ financial needs: The Duxbury sum for W is HK$413,377,235; that of H is HK$158m.  The total needs, apart from housing, will be HK$554m.

762.  H’s earning capacity will be reduced upon clean break.

763.  Step 3 – whether to apply the sharing principle: This is a long marriage which lasted 19 years.  The parties are agreed that the sharing principle should apply.

764.  Step 4 – whether there are good reasons for departing from equal division:  Neither party has advanced a case for relationship-generated disadvantage or stellar contribution.  Nevertheless, the way H makes disclosure makes it difficult to fathom his assets and place a value.  In this respect, the words of Thorpe J (as he then was) in F v F (Divorce: Insolvency: Annulment of Bankruptcy Order) [1994] 1 FLR 359, 366H to 367D, are most applicable:

“The fact is that the husband has, in my judgment, so obfuscated his financial position and services that it is quite impossible for this court to be sure as to what he has now in residue. There may well be reality in the fact that he has sustained setbacks in trade and business which are coincidental if contemporaneous with the development of these proceedings. There may well be a genuine ingredient of recessionary setback that has had the effect of eroding his declared UK capital base. But as has been emphasized in the authorities and particularly succinctly in the case of J v J [1955] P 215:

‘The obligation of the husband in the maintenance proceedings is to be full, frank and clear in his disclosure of his means to the court, and any shortcomings in this respect can and normally should be visited at least by the court drawing inferences against him on matters the subject of shortcomings.’ (Emphasis added)

So if he has conducted his affairs throughout the marriage in such a covert fashion as to relieve him of the ordinary obligations of citizenship to support the State through tax contribution, if he has conducted these proceedings in a vain endeavour to maintain that camouflage, if in consequence the obscurity of my final vision result in an order that is unfair to him it is better that than that I should be drawn into making an order that is unfair to the wife.  If at the end of this case he feels that the lump sum that I order is unfair in reflection of his present retrenchment then he should remember that he has brought that consequence upon himself by the fashion in which he has chosen to arrange his affairs over the course of the last decade, coupled with the fashion in which he has chosen to conduct these proceedings.”

(followed in L v C [2007] 3 HKLRD 819, Stock JA)

765.  H’s non-disclosure made a fair pre-trial resolution of financial dispute impossible and prevented meaningful offers of settlement from being made.  After trial, the court is left with uncertainty as to his real worth.  He should have come clean but he has chosen to obfuscate the issues.  He has only himself to blame.

766.  Although the needs + housing is very close to the amount W will get under the sharing principle, I have decided that W should get more in view of H’s evasive disclosure on means.  She would have got HK$258.42m plus her interest in the Trust under the sharing principle. However, under the Duxbury calculations, she should get the full sum plus what I estimate to be for the Children’s holiday expenses.  Given the assets concealed by H, it is clearly within his means to pay.

767.  Step 5 - Determination of the outcome: The Trust should be varied so that H should exit the Trust whilst the Trust should continue intact.  50% of the value of the Trust should be taken as distribution to W’s estate.

768.  I order H to pay W a lump sum calculated as follows:

	HK$296.00m
Less: value of Singapore Property	(HK$26.85m)
London Property	(HK$33.20m)
50% value of the Trust	(HK$118.83m)
	HK$117.12m

769.  This sum will be rounded up to HK$125m to cater for the need to pay for the Children’s holiday expenses, having regard to their respective age and a monthly sum of about $110,000 currently spent by H.

770.  The Duxbury sum was calculated on the bases of a commencement date of 1/1/2013.  Nine months have lapsed.  On a broad brush basis, there shall be deducted from the Duxbury sum all interim maintenance at a rate of HK$400,000 per month from 1/1/2013, ie there should not be deduction for eg holiday expenses for W. 

J.  ORDER

771.  I order as follows:

(1) That the Trust be varied so that:

(i) H be removed as a beneficiary of the Trust;

(ii) any interests which H may have in the Trust (whether as beneficiary, settlor or otherwise) shall cease; and

(iii) save as aforesaid, the Trust shall continue in accordance with the terms of the Deed, and with the 1^st Respondent and the 3 Children of the family (namely, the eldest son, N and J) as beneficiaries therein and the 1^st Respondent as sole Designated Beneficiary (as defined in the Deed).

(2) The Petitioner do take all necessary steps and sign all necessary documents to facilitate and effect the variation of the Trust as set out in paragraph (1) above, and to divest himself of all interests, rights and powers under the Trust and the Deed (whether as beneficiary, settlor or otherwise), such steps shall include, but not limited to:

(a) sending the Trustees a written notice to the effect that the Petitioner relinquishes his status of a Designated Beneficiary pursuant to Clause 5(iii)(c) of the Deed; and

(b) giving written notice to the Trustee relinquishing and renouncing any and all his interests, rights and powers under the Trust and the Deed (whether as beneficiary, settlor or otherwise). 

(3) H’s share in JIL which holds the Peak Property be transferred to W.

(4) H’s share in the Singapore Property be transferred to W.

(5) H shall pay a lump sum of HK$125m to W.

(6) There shall be provision for tax indemnity in the sum of HK$6.5m to be set aside in an interest bearing account for [7 years from the date of this judgment] which shall be applied towards setting of the tax indemnity and balance paid to H and W equally.

(7) W’s application for a lump sum to fend her potential claim against SS is dismissed.

(8) There shall be deducted from the lump sum all mps received since 1/1/2013 to the date of payment of the lump sum in full in the sum of HK$400,000 per month.

(9) I declare that the beneficial ownership of the shares in NM Ltd, SECAHL and their named subsidiaries to remain with K; and the beneficial ownership of the shares in RG Ltd, SECHK and their named subsidiaries to remain with B.

K.  COSTS AND OTHER MATTERS

772.  In considering the appropriate costs order to make, I have to take into account the conduct of the parties pursuant to Order 62, rule 5 of the Rules of the High Court.  The litigation conduct of H was very poor.  His whole attitude towards financial discovery was “catch-me-if-you-can”. 

773.  For failure to make full and frank disclosure, the court may make orders for costs on indemnity basis against the offending party: L v C [2007] 3 HKLRD 819, Stock JA at §§68-70; ML v YJ unrep., HCMC 13/2006, 6 November 2008, Lam J (as he then was).

774.  I find H’s lack of full and frank disclosure to be of such an unreasonable degree as should be visited with indemnity costs and I so order.

775.  A note on taxation:  costs of F1 to F4 should be disallowed.  To the extent that it was counsel’s input, it duplicated the lengthy written opening submission.  H’s side was forced to answer it in the rush of a few days before 2 sets of trial dates.  As transpired, most of Mr Borrelli’s response were on points of fact which should have been the job of counsel.  To the extent F4 were accountant’s input, any leave given to adduce expert evidence previously was not to the extent that accountant could have put in such wholesale opinion apart from the valuation reports and Joint Reports.

776.  On the distinct issue of the Trust, W had a moving goalpost, as evidenced from the way she framed her case even up to a few weeks before trial.  Time and costs were wasted.  I am tentatively of the view that only 2/3 of her costs on the Trust issue should be borne by H.

777.  I make an order nisi accordingly for H to pay W’s costs, including certificates for 2 counsel and 2 solicitors, on indemnity basis. 

778.  K and B were joined at the suggestion of H and despite W’s objection but W was the real attacker.  As it turns out, W could not establish a case of conspiracy against K and B as nominees of H.

779.  K and B sat through the trial for a long time as Mr Howard QC submitted at the PTR on 13/6/2012[48] that it was difficult to truncate the evidence into a portion that concerned K and B only because there were many related companies.  He would rely on the credibility generally of H and SS.  He said that K and B’s proposed absence during the trial would be at their own peril.

780.  As between W and K and B, the costs should, on a nisi basis, be borne by W.  There should be certificates for 2 counsel in relation to K and B’s costs.  However, it was H’s poor conduct in discovery which led to W’s reasonable suspicions and discovery action against K and B and their companies.  Considering the broad picture, I order nisi that such costs should be paid by H.

781.  Any party who wants to vary the costs order nisi shall apply by summons within 21 days of this judgment.  All costs reserved orders will be treated as no order as to costs unless expressly ordered otherwise.

782.  This case contains, to borrow counsel’s term, a Himalaya of papers.  It takes the form of what is called “running bundles”, ie every document filed and correspondence between parties are copied for the court regardless of whether they are relevant to the issues.

783.  For some bundles only a few documents were referred to.  In the correspondence bundles, for example, less than 100 pages were referred to among the 24 bundles.  For the 4 Financial Analysis bundles, F4 was purportedly an update from the last hearing and yet there had not been identification of the updates to lighten reading.

784.  For affidavits and Form Es, some exhibits were wholly unnecessary eg bank statements of past years which have been the subject of investigation and overtaken by events.

785.  It is true that the parties have jointly submitted a reading list for the court.  There was sorting out by topics: eg affidavits by W, affidavits by H, affidavits concerning the Trust.  However, the relevant affidavits or orders were scattered among the 107 bundles. 

786.  The system of running bundles is, without disrespect, a hindrance rather than help in big money cases.  It is passing the duty of sorting out documents for a trial bundle to the court.  It takes great effort to just collate the relevant bundles on one topic for consideration.  It also delays the judgment writing process.

787.  Bundles should be prepared in line with PD 5.6 which specifically states that “bundles must not include documents which are unlikely to be referred to at the trial.  If documents unexpectedly become relevant during the trial they can be added.”  It is wholly inappropriate to put all documents filed into the running bundles in the expectation that by chance the court itself might find something relevant that parties have not referred to in its decision making.

788.  I thank counsel and solicitors for their thorough preparation and able assistance.

(Queeny Au-Yeung) Judge of the Court of First Instance High Court

Annex A
(Section A8, G1)

Schedule of Wife’s needs

Such a lump sum should be payable within a reasonable time and the status quo/current MPT orders should remain until then.

Annex B
(Section E1, E4.3)

Summary of the Assets and Liabilities of the Petitioner and the 1^st Respondent as at 30 September 2012 (With Principal and Alleged Growth Using Market Research Approach)