SWE LTD v. CHONG LAI FUN

HCA 1064/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1064 OF 2004

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J U D G M E N T

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I.       Introduction

1.  SWE, as registered owner, wants Ms. Chong to vacate House 3, Bougainvillea Gardens, Sai Kung.  It applies for summary judgment against Ms. Chong. 

2.  Ms. Chong says that SWE's action should be stayed pending the outcome of her claims for ancillary relief in divorce proceedings against her husband Mr. Chau Lai Him.

3.  The issue before me was originally whether to order a stay or, if a stay was refused, whether to order vacant possession of the premises.

4.  At the start of the hearing, Mr. Shieh SC (appearing for SWE) asked for an adjournment of his application for summary judgment.  He requested this in order to have the chance to adduce evidence on a new point introduced by Ms. Lau (appearing for Ms. Chong) in a supplementary skeleton.  I granted the adjournment, reserving costs on the summons.

5.  As a result the question before me was simplified to whether or not a stay should be granted.  Of course, if there is to be a stay, the summons for summary judgment would itself be stayed.

II.      Background

6.  SWE purchased House 3 in February 1995 for $22.5 million.  The money for the purchase was provided by Mr. Chau, Chau's Electrical Co. Ltd. (CEL) and a mortgage from National Commercial Bank.  SWE says that House 3 was purchased to provide accommodation for Mr. Chau and his family and to secure banking facilities for CEL.  At the time of purchase Mr. Chau was a director of CEL and its majority shareholder.

7.  In June 1995 SWE granted a lease or licence to CEL to occupy House 3 at a fee to be determined by CEL from time to time.  CEL then allowed Mr. Chau and Ms. Chong to occupy the premises.

8.  In September 1996 all but one of SWE's shares were transferred by Mr. Chau and Mr. Zhou Fu Xin (Mr. Chau's elder brother) to Foram Assets (HK) Ltd. (Foram).  Foram is a BVI company.  Mr. Zhou subsequently declared that the 1 SWE share which remained under his name was held on trust for Foram.  That 1 share was later transferred to Umpart International Ltd. 

9.  In November 1996 the Chau's Family Trust (the Trust) was set up as a discretionary trust.  The beneficiaries of the Trust are (among others) Mr. Chau; Mr. Chau's 2 children by Ms. Chong (Chau Chi Ho (born 18 October 1981) and Chau Yee Man (born 20 December 1982)); and Mr. Chau's child by a Ms. Jiang Xin (Zhou Zhixin (born 6 February 1992)).   The present trustee of the Trust is Trustcorp Ltd.

10.  All shares in Foram are held by Chau's Family 1996 Ltd. (CFL), also a BVI company.  CFL's shares are in turn held by the trustee of the Trust.  Thus, at least on paper, Mr. Chau has no interest whatsoever in House 3.

11.  In May 2002 SWE appointed Midland Realty to sell House 3.  Dorshare Ltd. offered to buy the property for $18 million in mid-2002.  Ms. Chong was aware of the sale and did not object to it at the time.  But the sale did not go through.

12.  At the end of 2003 SWE instructed Centaline to sell House 3.

13.  Ms. Chong commenced matrimonial proceedings in the District Court in February 2004.

14.  On 15 March 2004 Mr. Liu Jin Rong, the son-in-law of Mr. Chau's elder sister, became a director of SWE.  Prior to Mr. Liu's appointment, Mr. Chau and Ms. Chong were (and since May 2001 had been) SWE's only directors.

15.  On 17 March 2004 SWE's board resolved that House 3 be sold and that the licence given to Mr. Chau and Ms. Chong to occupy the premises be terminated.  Although notified of the board meeting, Ms. Chong did not attend.

16.  On 19 March 2004 SWE wrote to Ms. Chong demanding that she vacate House 3 within 1 month.

17.  On 24 March 2004 Ms. Chong petitioned for divorce against Mr. Chau in FCMC No. 2929/2004.

18.  In March or April 2004 Midland Realty informed SWE that a Japanese client was interested in buying House 3 for $30 million, provided the premises could be inspected before an offer was made.  However, Ms. Chong refused to leave the property and an inspection could not be arranged.

19.  At around the same period Dorshare made a renewed offer to buy House 3, now for $23 million with vacant possession.

20.  On 20 March 2004 Mr. Chau proposed to provide Ms. Chong with a monthly rental allowance of $20,000 to enable her to move to alternative accommodation.  Mr. Chau increased his offer to $25,000 per month on 16 April 2004.  Ms. Chong rejected both proposals.

21.  On 30 April 2004, Foram and Umpart passed a resolution at an EGM of SWE, removing Ms. Chong as director and appointing 3 additional directors in her place.

22.  On the same day Ms. Chong applied ex parte in FCMC 2929/2004 for an injunction restraining Mr. Chau from disposing of his beneficial interests in Foram and SWE (among other companies) and from causing the sale of House 3. 

23.  By Order dated 3 May 2004 Deputy Judge Kot recorded Mr. Chau's undertaking, pending resolution of the injunction application, not to dispose of any beneficial interest in Foram and SWE, and not to cause House 3's sale or instruct SWE to evict Ms. Chong.

24.  On 5 May 2004 SWE served a writ and statement of claim in the present proceedings.

25.  On 27 July 2004 Centaline valued House 3 at $18.8 million.

III.     Discussion

26.  Mr. Shieh SC (appearing for SWE) argues that a stay should be refused for the following reasons:-

(1)    The Court should not grant a stay because there has been no abuse of process by SWE.  On the contrary, it would be a serious encroachment to SWE's property right now to deny it vacant possession.

(2)     Ms. Chong has no equitable interest in House 3.  At best she has a contingent entitlement to a transfer of the property.  That entitlement would only mature if the District Court judge finds that Mr. Chau has some beneficial interest in House 3 and that such interest should be transferred to Ms. Chong by way of ancillary relief.  The Court should not concern itself over what may or may not happen in the future.

(3)     It is not an invariable rule that, where a third party (like SWE) claims matrimonial assets after a spouse petitions for divorce, the Court normally stays the claims to the court seised of divorce proceedings.

A.      No abuse of process warranting a stay

27.  The Court has an inherent jurisdiction to regulate its own procedures.  Where the Court thinks appropriate, it may as a matter of discretion grant a temporary stay to ensure that its procedures are used in a logical, fair and cost-efficient manner.  As Recorder Liao SC stated in Clinton Engineering Ltd. v. B-Tech (Holdings) Ltd. HCA 3608/1998 (28 September 2001), "[w]here a temporary stay is sought, ... the correct approach should be ... to consider the balance of convenience and fairness as between the parties".

28.  Mr. Shieh argues that "an ostensibly 'temporary' stay could well turn out to have long-lasting effect".  I do not understand the submission. 

29.  In deciding whether to grant a temporary stay, the Court takes account of any "long-lasting" detriment alleged by one or other litigant. 

30.  If Mr. Shieh is concerned that "temporary" stays may become "permanent" in effect due to delay in prosecuting other proceedings, it is open to apply to lift the stay on the basis of later events, including inordinate delay.  I shall return to the question of delay below.

31.  Mr. Shieh notes that Recorder Liao based his dictum on a remark in Alfred McAlpine Construction Ltd. v. Unex Corporation [1994] 70 BLR 26.  Glidewell LJ (at 45D) said:-

"But unless and until Unex is willing to accept this effect of the arbitrator's decision, and continues to wish to raise in the action possible issues which do not arise in the arbitration, then in my judgment the court should not stay the action.  I reach this conclusion on the balance of convenience, in which of course I include what I consider fairness as between the parties."

Glidewell LJ (Mr. Shieh says) was there only explaining why he came to a particular conclusion in a specific instance.  Mr. Shieh criticises Recorder Liao for elevating Glidewell LJ's one-off remark into a principle of law.

32.  I do not think that Mr. Shieh's comment is justified.  Glidewell LJ expressed a commonsense approach to temporary stays.  In referring to a "correct approach" Recorder Liao was merely echoing the reasonableness of considering "fairness" and "convenience" as guides to the granting of temporary stays.

33.  Accordingly, I propose to follow Recorder Liao's approach in determining Ms. Chong's stay application.

B.      No equitable or other interest warranting a stay

34.  Ms. Chong has said on affirmation that "it is not disputed that I have not made any financial contribution towards the purchase of the Property".  Mr. Shieh submits that the concession must mean Ms. Chong has no equitable interest in House 3.

35.  I am not so certain that Mr. Shieh's conclusion follows.  Ms. Chong refers specifically to "financial" contribution.  It is also possible to make a "non-financial" contribution towards the acquisition of a property.  In other words, Ms. Chong may still have contributed in kind to the acquisition of the matrimonial home.

36.  For example, presumably Ms. Chong was a housewife who looked after the care of her 2 children while her husband worked in the office.  But for such care it might be said that Mr. Chau would have had to take time off work or hire additional domestic help to cater for his children's needs.  If so, that Mr. Chau could work due to Ms. Chong's looking after the children, would have enabled Mr. Chau and his companies to earn income and discharge the mortgage on House 3. 

37.  Without an examination of the couple's domestic arrangements following their marriage, I am unable to conclude that Ms. Chong has no equitable interest whatsoever in the premises, merely because she made no "financial" contribution.  I would add that it is doubtful that such an examination can be conducted in summary proceedings such as these on affidavit evidence alone.  Indeed, such an examination is something which the District Court may well have to engage in as part of the ancillary relief proceedings.

38.  But, for the purposes of argument, let me assume that Mr. Shieh is right.  Even on that hypothesis, Ms. Chong says that the result of SWE's action must hinge on the outcome of her application for the transfer of House 3.  Her forced departure from House 3 would mean that SWE would be able to sell the property now before the ancillary relief claim is heard.  That she argues would seriously prejudice her claim to a transfer.

39.  Mr. Shieh is dismissive of Ms. Chong's argument.  He suggests that Ms. Chong's allegation of prejudice is vague in the extreme.  On the assumption that Ms. Chong has no equitable interest in the property, why (Mr. Shieh asks) should I second guess what the District Court may or may not do in the ancillary relief proceedings? 

40.  If worse comes to worse, nothing (Mr. Shieh adds) is lost by the sale of House 3.  The property would be converted to cash.  If Mr. Chau retained a beneficial interest in House 3 as Ms. Chong alleges, the District Court could order Mr. Chau to account for all or part of the cash into which House 3 was converted.  Ms. Chau might then (Mr. Shieh reasons) use such cash as she obtained to purchase whatever property she saw fit.

41.  It is Ms. Chong's case that, whatever the position on paper, Mr. Chau remains in de facto ownership or control of Foram and SWE.  Not surprisingly, SWE denies this.  It has adduced affidavits to the effect that its decision to evict Ms. Chong from House 3 was reached independently of Mr. Chau.  This, however, is a question which I cannot determine on the basis of affidavits.

42.  Nonetheless, possibly mindful of the difficulty which his application for final judgment might face if control over SWE and Foram were a sticking point, Mr. Shieh argues that it should make no difference even if Mr. Chau retained some beneficial interest in SWE and Foram.  Given that Ms. Chong has no equitable interest in House 3, then Mr. Shieh says that an expectation of a future transfer can confer no present proprietary right.  There can then be no defence to SWE's claim as at this time and there can be no basis for a stay.

43.  I do not accept Mr. Shieh's arguments.

44.  Matrimonial Proceedings and Property Ordinance (Cap.192) (MPPO), s.6(1)(a) and (b) allows the Court to order one party to a marriage (Party A) to transfer property to the other party (Party B).

45.  MPPO s.17(1) further provides that where the Court is satisfied that Party A has dealt or is about to deal with property in order to defeat Party B's claim for the transfer of such property, the Court may "make such order as it thinks fit for restraining the other party from so doing or otherwise for protecting the claim".

46.  The undertakings mentioned in Deputy Judge Kot's order reflect the Court's vigilance to prevent attempts to avoid the consequences of MPPO s.6(1).

47.  If Ms. Chong is right and SWE is effectively acting under Mr. Chau's control in seeking to evict her and sell House 3, the Court cannot countenance such conduct in light of MPPO s.17. 

48.  The Court would consequently have to decide the validity of Ms. Chong's allegation before it could determine finally in SWE's favour.

49.  But I do not think that I am the appropriate forum in which to determine the degree of Mr. Chau's control (if any) over Foram and SWE.  The proper venue for that is surely the District Court which is currently seised of the proceedings for ancillary relief. 

50.  Were I to embark on the investigation for the purposes of this action there would be the danger of limping judgments, 2 different courts coming to 2 different judgments on the same issue.  That is the classic situation where a stay of one set of proceedings is called for, not just in logic, but for the purposes of avoiding unnecessary duplication in time and cost.

51.  I am not persuaded by Mr. Shieh's contention that in any event Ms. Chong will have a claim (if she is right) to some or all of any sale proceeds from House 3.  The argument pre-supposes that the value of the matrimonial home to Ms. Chong can simply be equated in money terms.  That may or may not be the case.

52.  Land is not a fungible.  In principle each piece of land is unique.  For all I know, House 3 may hold a special value for Ms. Chong.  For instance, the property may have a special value to her because of its location or some other intrinsic characteristic.  The inconvenience of finding and moving to a similar property may or may not be great.  It may not be possible to find an equivalent property in Hong Kong today.

53.  The foregoing are matters which the District Court might deem appropriate to consider when determining Ms. Chong's application for a transfer order.  I do not think that it is for me to preempt any such deliberation by the District Court in these proceedings. 

54.  The point is, however, that I cannot take it for granted that Ms. Chong's transfer claim would be equally satisfied by a cash payment as by the actual transfer of House 3.

55.  In assessing the correctness of Ms. Chong's case, I have been helped by the English Court of Appeal's decision in Harman v. Glencross [1986] Fam 81. 

56.  In Harman a creditor obtained a charging order absolute against the debtor's interest in the matrimonial home.  The debtor's wife applied to vary the order absolute.  Prior to that order, she had presented a divorce petition and had sought the transfer of the debtor's interest in the home.  The registrar varied the order absolute by making it subject to the wife's application for transfer.  The registrar later the debtor to transfer his interest to his wife.  The creditor appealed unsuccessfully.

57.  At the end of his judgment Balcombe LJ gave some guidance on how the Court should deal with similar situations as that in Harman.  One of those principles was as follows (at 99E):-

"Unless it appears to the court hearing the application for the charging order absolute that the circumstances are so clear that it is proper to make the order there and then, the usual practice should be to transfer the application to the Family Division so that it may come on with the wife's application for ancillary relied, and one court can then be in a position to consider all the circumstances of the case."

58.  That suggests to me that, unless it is now clear to me that there is nothing in Ms. Chong's allegations that Mr. Chau is actually in control of Foram and SWE or that Ms. Chong has an interest in House 3, I should grant a stay pending determination of those very issues by the District Court.  I note that Ms. Lau has made it clear that her client would not oppose SWE applying to intervene in the ancillary relief proceedings to put forward such submissions as SWE sees fit in support of its claims to House 3.

59.  Mr. Shieh queries the relevance of Harman.  He says that the case should be confined to charging orders, for which specific legislation such as Charging Orders Act 1979 s.1 in England and High Court Ordinance (Cap.4) s.20(3) in Hong Kong are applicable.

60.  I do not accept that Harman is so limited in scope.  If anything, MPPO ss.6 and 17 indicate that the law is anxious to preserve the subject matter of ancillary relief proceedings prior to any determination by the District Court.  Here given the allegation and supporting evidence adduced by Ms. Chong to the effect that Mr. Chau is the real mind behind SWE and Foram, I believe that Balcombe LJ's guideline is apposite.

61.  Mr. Shieh submitted that there could be no general rule that the mere taking out of a claim or a transfer order for a property freezes all dealings in that property.  I would accept that there is no automatic rule to such effect.  I do not understand Ms. Lau to be so contending.  What Ms. Lau is instead saying is that in the circumstances of this case, where there is more than a bare allegation that Mr. Chau is the controlling mind behind SWE and Foram, the Court should be circumspect.

62.  It will be apparent from the above that in my view a stay is called for here.  I believe, however, that any stay should be on 2 conditions.

63.  First, I referred earlier to possible delay.  It seems to me that a stay should be predicated on Ms. Chong prosecuting the ancillary relief proceedings with reasonable despatch.  Ms. Lau has indicated that her client is prepared to provide an undertaking to that effect.

64.  Second, Ms. Chong may be wrong in her allegation that Chau is the mind behind SWE's proceedings.  The District Court may conclude that House 3 is not available for transfer to Ms. Chong because Mr. Chau has no interest in it whether through SWE or otherwise.  In that event, Ms. Chong should undertake to compensate SWE for such damages as the Court might find SWE to have sustained in consequence of a stay.  Ms. Lau has indicated that her client is also prepared to give an undertaking along such lines.

65.  Mr. Shieh has argued that, if there are to be undertakings, they should be fortified with security. 

66.  In my judgment, Ms. Lau is right when she points out that, on evidence adduced by Mr. Chau in the District Court, Ms. Chong is "a lady of means".  In the course of her marriage, she has received over $20 million from Mr. Chau or his companies.  In addition, she has a reasonable prospect of receiving a significant amount in the ancillary proceedings.  She should personally have the means to make good any undertaking as to damages.  In contrast, on the evidence before me, the amount of damages which SWE might suffer is purely speculative at this point.

67.  Looking at matters in the round, I do not believe that it is appropriate to order fortification in this case.

C.      No invariable rule for a stay in this situation

68.  I have in effect dealt with this submission of Mr. Shieh in the previous section.

69.  I merely point out here that a series of Hong Kong cases (namely, Chan Ting Wai, William v. Lam Sai Pak and Fung Ling HCA 2587/1997 (8 December 1998), Chan Kin Yuen v. Chan Kin Yip HCA 17878/1990 (1 August 2000) and Goldmen Electronic Co. Ltd. v. Shum Wai Man [2002] 2 HKC 324) supports the approach outlined in Section III.B of this Judgment.

70.  In Chan Ting Wai Sakhrani J acted on Balcombe LJ's guidance in Harman.  He set aside a charging order absolute.  He then stayed the resultant charging order nisi over the husband's share in a matrimonial home to be dealt with by the Court seised of the wife's application for ancillary relief, including the transfer of the home.

71.  Sakhrani J noted that the charging order nisi had been made after the wife's petition for divorce.  He thought that it was a "sensible course" for one court to consider all the circumstances of the case.

72.  In Chan Kin Yuen P obtained a default judgment against the husband.  Deputy High Court Judge S. Kwan thought that the wife's claim for a transfer order in ancillary relief proceedings would be "injuriously affected" if the judgment were allowed to stand.  She set aside the judgment on the wife's application.  She also stayed P's proceedings. 

73.  She thought it was a "sensible suggestion" that P should intervene in the Family Court proceedings for ancillary relief.  She reasoned that this was because the Family Court in hearing the ancillary relief proceedings "does have jurisdiction to determine the rights and interests of any third parties who are interveners in the proceedings".  It was right for the disputes between P, the husband and the wife to be "dealt with by the same court and that should be the court hearing the application for ancillary relief".

74.  The facts of Goldmen are similar to those in the present case.  But there was no application in Goldmen for a stay in favour of ancillary proceedings.  There was simply a summons for summary possession against the wife under RHC Order 113. 

75.  Deputy Judge Poon refused summary judgment.  As here, the husband claimed to have no interest in the company seeking vacant possession of the matrimonial home from the wife.  Nonetheless, the judge thought that there was an issue as to the extent of the husband's control over the company.

76.  The judge did not articulate his reasoning.  Implicit in his ratio must have been the view that the extent of the husband's control over the company had first to be ascertained, if the company's claim was to succeed.  Although the judge did not expressly say this, the question of control would presumably have to be determined as part of the ongoing matrimonial proceedings between husband and wife.

77.  Thus, contrary to Mr. Shieh's submission, it seems that in the absence of compelling reason the Hong Kong Court is likely in practice to grant a stay in situations similar to that here.

IV.     Conclusion

78.  Ms. Chong succeeds in her application.

79.  All further proceedings in this action will be stayed until determination of the ancillary relief proceedings in FCMC No. 2929/2004 in the District Court. 

80.  But the stay will be conditional on Ms. Chong undertaking:-

(1)     to progress the ancillary relief proceedings with reasonable despatch; and,

(2)     in the event that Ms. Chong is wrong as to Mr. Chau's interest in House 3, to compensate SWE for any damages that the Court might find SWE has suffered as a result of the stay.

81.  The parties are to try to agree the precise terms of the 2 undertakings in the first instance.  Failing agreement, they have liberty to apply to the Court.

82.  I shall now hear counsel on costs and any consequential orders.