CHAN PUI SZE AND MAK HAU YIN (THE JOINT AND SEVERAL TRUSTEES OF THE PROPERTY OF THE BANKRUPT) v. WANG JUE

HCMP 1655/2017

[2019] HKCFI 2515

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1655 OF 2017

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D E C I S I O N

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I. INTRODUCTION

1.  On 6 May 2016, Win Wind Resources Limited (formerly known as Enerchine Resources Limited, “Win Wind”) presented a bankruptcy petition (“Petition”) in HCB3231/2016 (“Bankruptcy Proceedings”) against Qin Jun (“Qin” or “Bankrupt”) for an unpaid debt of HK$54,989,100. On 27 July 2016, Master Hui granted a bankruptcy order against Qin (“Bankruptcy Order”). Chan Pui Sze (“Chan”) and Mak Hau Yin were appointed the joint and several trustees (collectively, “Trustees” or “Ps”) of the property of the Bankrupt/Qin pursuant to resolution passed at the general meeting of creditors held on 26 August 2016. Wang Jue (“D”) was/is Qin’s wife.[1]

2.  On 25 July 2017, Ps commenced the present proceedings by originating summons (“OS”) for inter alia the following reliefs (“S49 Proceedings”):

In short, Ps applied under the avoidance provisions in section 49 of the Bankruptcy Ordinance Cap 6 (“BO”) to set aside 2 transfers of Qin’s interests in the RR Pty and PD Pty in California, United States (collectively, “US Properties”) to D by the 1^st/2^nd ITGDs (“1^st Transfer” for the RR Pty, “2^nd Transfer” for the PD Pty and collectively, “Transfers”).

3.  On 16 January 2018, Ps filed Notice of Appointment to Hear Originating Summons to seek final judgment for the reliefs in paragraph 2(a)-(c) above and for costs of the action (“Ps’ Notice”). In short, Ps sought summary disposal of the OS.

4.  On 29 January 2018, D filed a summons (“D’s Summons”) for the following reliefs:

5.  At the hearing of Ps’ Notice on 8 February 2018, Ng J adjourned Ps’ Notice and D’s Summons to be heard together at a “substantive hearing” “for argument” on a date to be fixed, and granted directions for filing of affidavit evidence for such applications.

6.  On 25 July 2017, Ps filed Chan’s 1^st affirmation to support Ps’ Notice (“Chan 1^st Aff”). On 29 August 2018, D filed her 1^st affirmation (“D 1^st Aff”) and the 1^st affirmation of Michael David Lee (D’s legal counsel in legal proceedings in the United States, “Lee”) (“Lee 1^st Aff”) to support D’s Summons and to oppose Ps’ Notice. On 21 March 2018, Ps filed the 1^st affidavit of Jessica G McKinlay (Ps’ legal counsel in legal proceedings in the United States, “McKinlay”) (“McKinlay Aff”) and Chan’s 2^nd affirmation (“Chan 2^nd Aff”) to support Ps’ Notice and to oppose D’s Summons. On 29 June 2018, D filed her 2^nd affirmation (“D 2^nd Aff”) and Lee’s 2^nd affirmation (“Lee 2^nd Aff”) to oppose Ps’ Notice and to support D’s Summons.

7.  Ps’ Notice and D’s Summons were heard by this court on 12 September 2018 (“Hearing”). At the outset, 4 matters were of note:

8.  In light of such clarifications, the main battleground concerned D’s Summons. I first turn to the parties’ respective case to highlight their differences over inter alia (a) acquisition of the US Properties, (b) the Transfers, and (c) Qin’s/D’s intention at the relevant times.

II.  PARTIES’ RESPECTIVE CASE

9.  Ps’ case in S49 Proceedings  As a result of the Bankruptcy Order and by sections 58(2) and 60(1)(aa) of the BO, the property of Qin passed to and was vested in Ps as joint and several trustees-in-bankruptcy, and Ps had power to take into their custody or under their control all the property to which Qin was or appeared to be entitled. Such property would include land whether situated in Hong Kong or elsewhere.[2] Chan claimed the 1^st/2^nd Grant Deeds and Quitclaim Deed (made contemporaneously with the 2^nd Grant Deed) as referred to in paragraphs 17 and 20 below showed Qin had interests in the US Properties, and D was personally involved as she signed the relevant deeds. Chan said such contemporaneous documents shouted Qin’s intention at the time of acquisition of the US Properties, and decried D’s present suggestion that Qin had no interests thereof. The US land search records then showed Qin effected Transfers of his interests in the US Properties to D (who as Qin’s spouse would be regarded his associate pursuant to section 51B(2) of BO)[3] in August 2013 (ie within 5 years prior to the date of presentation of the Petition) contrary to section 51(1)(a) of the BO.[4] Ps claimed their investigations also revealed the Transfers to D were at an undervalue (see sections 49(3)(a) and 49(3)(c) of the BO[5]). So Ps commenced the S49 Proceedings to avoid the Transfers pursuant to section 49 of the BO,[6] and to seek declaratory reliefs in relation to the 1^st/2^nd ITGDs concerning the US Properties.

10.  D’s headline response  D alleged the Transfers were not undervalue transactions because (a) D was the sole beneficial owner of the US Properties which legal title Qin returned to her by the 1^st/2^nd ITGDs upon their official separation on 2 August 2013, and (b) Qin was in fact solvent at the time of the Transfers. D claimed Ps were mistaken about the US Properties which actually belonged to her as they were acquired solely with funds from her father (and Qin’s father-in-law) Wang Mingquan (“Wang”) who gifted such funds to D with the understanding that she would use them for acquiring the US Properties, so Qin had no interest in such properties. D also claimed the HK Court was plainly/clearly not the appropriate forum to hear and determine disputes over the US Properties and the 1^st/2^nd lTGDs.

11.  P’s case: Bankrupt  Qin was the former chairman, CEO and executive director of Up Energy Development Group Limited, a company listed on the Main Board of the Hong Kong Stock Exchange (Stock Code: 307, “Up Energy”). Qin resigned from these positions on 6 August 2016 upon being adjudged bankrupt.[7] Wang was a substantial shareholder of Up Energy and the founder of the J&J Trust being a revocable and discretionary trust (as disclosed in Up Energy’s 2015 Annual Report, “J&J Trust”) of which Qin and D were the beneficiaries. As seen from the letter of wishes dated 18 August 2016 by Wang exhibited to the D 1^st Aff, the trustee of the J&J Trust was Credit Suisse Trust Limited with place of business / address in Singapore. By virtue of the J&J Trust, Qin had substantial indirect interest in at least 35% issued shares of Up Energy held through Up Energy Group Ltd (“UEGL”).[8]

12.  D’s case: her background  D was born in Mainland China and emigrated to Canada at/about end of 2000. She married Qin on 31 August 1992. Both of them were Canadian citizens.[9] D claimed that in the past decade or so their marriage deteriorated, and they officially separated since August 2013. D claimed she resided in the United States with her 4 children whilst Qin resided in Mainland China, and they only communicated when necessary and for the sake of their children.

13.  As seen from the E2 Investor Visas (see footnote 9 above) that were operative from November 2008 to November 2013, both Qin/D had residential status in the United States at the times of (a) purchase of the US Properties in January/March 2010, and (b) entry into the 1^st/2^nd lTGDs in August 2013. D claimed she and her children moved to reside at the RR Pty after its purchase.

14.  D claimed she was resident in Canada / United States, and was never ordinarily resident in Hong Kong. D said in any given year she would visit Hong Kong for a total length of stay of about a month or so. D claimed to have dealt with the US Properties as US-based assets with all related transactions handled by US lawyers (and none in Hong Kong) or made on standard-form documents. D further claimed her own personal records, papers and other documents were overseas and not in Hong Kong.

15.  I now turn to the acquisition of the US Properties, which Ms Lam submitted had significant impact on the issue of their ownership and on whether (a) there was any resulting trust in favour of D (as D alleged) or common intention of co-ownership by Qin/D for the RR Pty and of sole ownership by Qin for the PD Pty (as Ps alleged) and/or (b) the Transfers were transactions at an undervalue.

16.  D contended she beneficially owned the US Properties because Wang gifted her the funds for acquiring such properties. But Chan claimed the source of funds would not be conclusive, and the determining factor as to beneficial ownership would be the parties’ intention at the time of the acquisition.

17.  Acquisition of RR Pty  Qin/D became co-owners of the RR Pty by a Grant Deed dated 22 January 2010 and notarised on 25 January 2010 (“1^st Grant Deed”), which stated (a) Qin/D were husband and wife and joint tenants of such property, (b) the aggregate of the documentary transfer tax (“DT Tax”) (US$1,738) and city transfer tax (US$5,214) totalled US$6,952 and (c) the transfer tax was “computed on the consideration or full value of property conveyed”, but the 1^st Grant Deed did not state the amount of consideration. According to the county office of Santa Clara where the RR Pty was located, the county transfer tax and additional conveyance tax (for San Jose, Mountain View and Palo Alto only) were calculated on a county/city rate of US$0.55/US$1.65 (totalling US$2.20) for every US$500 of value of consideration. So Chan claimed the consideration for the 1^st Transfer was US$1,580,000 (US$6,952 ÷ US$2.20 x US$500). Thus, Chan claimed the 1^st Grant Deed showed that Qin/D purchased the RR Pty on 25 January 2010 for US$1,580,000 as joint tenants, and Qin was prima facie a joint co-owner of the RR Pty in equal share.

18.  On the other hand, D claimed the RR Pty was acquired with funds from Wang who gifted such funds to her with the understanding that she would use such funds for the purpose of acquiring the RR Pty. D claimed that:[10]

19.  In response, Chan claimed D’s allegations were bare and self-serving assertions:

20.  Acquisition of PD Pty  By a Grant Deed dated 29 March 2010 and notarised on 1 April 2010 (“2^nd Grant Deed”), Qin became sole owner of the PD Pty. Shortly before that, D executed a Quitclaim Deed dated 25 March 2010 and notarised on 31 March 2010 (“Quitclaim Deed”) to remise, release and forever quitclaim to Qin’s ownership as to the PD Pty:

“The undersigned grantor(s) declare(s):

[DT Tax] is $0.00

……

FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, [D], spouse of the Grantee [ie Qin] herein

Hereby REMISE(S), RELEASE(S) AND FOREEVER QUITCALIM(S) to [Qin], a married man as his sole and separate property, that property in [the PD Pty].

This Deed is given to establish of record that the Undersigned Grantor, spouse of the Grantee herein, acquired no interest to the said property by reason of the Deed to said Grantee recording concurrently herewith and the interest acquired by the said Grantee is his/her sole and separate property.”

The 2^nd Grant Deed noted DT Tax of US$8,580 was “computed on full value of property conveyed”, but it did not state the amount of the consideration. According to the county office of Marin where the PD Property was located, the county transfer tax was calculated on a county rate of US$0.55 for every US$500 of value of consideration, which translated into consideration for 2^nd Transfer at US$7,800,000 (US$8,580 ÷ US$0.55 x US$500). So P claimed Qin purchased the PD Pty at US$7,800,000 on 1 April 2010 as sole owner.[11]

21.  But D claimed the PD Pty was acquired with funds from Wang who gifted such funds to her with the understanding that she would use such funds for the purpose of acquiring the PD Pty. The D 1^st Aff further asserted as follows:

22.  The D 2^nd Aff exhibited further documents on the acquisition of the PD Pty:

23.  In respect of the PD Pty, D claimed she used her own funds to pay a US$500,000 deposit and Wang paid the balance of US$7,835,000 on her behalf. But there was no bank statement or other documentary evidence to show the source of funds for the “Deposit in Escrow” in paragraph 22(ii) above, and why it was said the deposit was paid by D when the “Deposit by [D]” of US$500,000 in paragraph 22(iii) above was refunded to D in paragraph 22(iv) above. More importantly, D did not produce evidence to show that the intention at the time of acquiring the PD Pty was for her to have sole beneficial interest. Although it was said Qin made no financial contribution to the consideration, the PD Pty was vested in his sole name. Chan found it absurd for D to suggest it was for convenience that D would have vested the PD Pty in Qin’s sole name merely because he assisted in handling logistics/administration matters.

24.  Source of funds D noted Ps did not deny the payments in paragraphs 18(b) and 21(b) above was for the purchase of the US Properties, and funds for acquiring the US Properties came from Wang and not from Qin. D further noted Ps had access to Qin’s financial information, but tellingly did not raise any countervailing evidence.

25.  But Chan claimed it wrong for D to ask Ps to prove the funds used to acquire the US Properties came from Qin when it was for D to show the funds were either her own or from Wang and/or to adduce documents to show Qin did not make any relevant payment. Chan reminded that so far Qin had been evasive/uncooperative in disclosing to Ps his financial assets/affairs, particularly those maintained overseas.

26.  Intention in acquiring the US Properties  D claimed it was clear Qin did not contribute to the acquisition of the US Properties, and it appeared Ps merely raised the issue of common intention of co-ownership and/or tried to cast various allegations/aspersions against her, eg there were no formal declarations of trust, but in reality Qin/D (given their familial relationship) dealt with these matters informally and not as commercial transactions. D claimed it would have been unreasonable to expect declarations of trust and/or other formal documentation between her and Qin and/or to draw adverse inferences against Qin’s/D’s intentions at the time.

27.  On the other hand, Chan claimed the determining factor was not the source of the funds but the parties’ intention at the time. It transpired the J&J Trust was established by a deed of settlement dated 22 February 2010, ie almost contemporaneously with the acquisition of the US Properties. Both Qin/D were beneficiaries of the J&J Trust, so Chan contended Wang’s intention at the time to benefit both of them. On such basis, Chan claimed that even if Wang provided the funds used to acquire the US Properties, that alone would not prove his intention was limited to making a gift to D solely.

28.  Further, Chan claimed D’s allegations (which Chan considered to be not genuine/believable) were undermined by the following:

29.  By reason of the above matters, Chan contended (but D disagreed) D had not shown by credible evidence she was always the sole beneficial owner of the US Properties, which suggested that when Qin made the Transfers he was transferring away to D his interests in the US Properties.

30.  1^st Transfer  Chan claimed that the 1^st ITGD dated 7 August 2013 and notarised on 26 August 2013 (ie within 5 years of the date of the Petition on 6 May 2016) described Qin as the “spouse of the grantee therein” and D as “a married woman”, and that Qin transferred his interests in the RR Pty to D who became sole owner thereof. The recording page of the 1^st ITGD stated DT Tax was nil, but did not give the amount of consideration for the 1^st Transfer of Qin’s interests in the RR Pty to D.

31.  2^nd Transfer  Chan claimed that by the 2^nd ITGD dated 8 August 2013 and notarised on 27 August 2013 (ie within 5 years of the date of the Petition on 6 May 2016) Qin transferred the whole of his interests in the PD Pty to D. The recording page of the 2^nd ITGD stated DT Tax was nil, but did not give the amount of consideration for the 2^nd Transfer of Qin’s interests in the PD Pty to D.

32.  Ps’ case: consideration for Transfers  There was no legal requirement to disclose the amount of the consideration for the Transfers in the public records, so unless Qin/D voluntarily disclosed the amount of the consideration paid (if any), Ps could not have ascertained from the public records whether any consideration was paid, or if so whether it was at market value.

33.  Chan claimed Ps had repeatedly requested Qin to provide a statement of affairs and to contact them for an appointment to discuss his affairs, but up to the time of the Chan 1^st Aff there was no response from Qin who did not contact/meet the Ps. Such lack of cooperation hampered Ps’ investigation into Qin’s affairs, and Ps had to rely on public information, information from third parties and/or circumstantial information to ascertain (a) the circumstances that potentially led to the Transfers and (b) whether the Transfers were potentially transactions at undervalue. Chan claimed Ps’ investigations caused them to believe the Transfers were transactions at an undervalue, especially in view of the circumstances (i) under which DT Taxes were exempted under the Transfers, and (ii) from which Qin’s true intention behind the Transfers could be inferred.

34.  The 1^st/2^nd ITGDs were addressed to D. They stated “[DT Tax] is $NONE” and the transactions were (a) “exempt from imposition of [DT Tax] pursuant to Revenue and Taxation Code Section 11927(a), on transferring community, quasi-community, or quasi-marital property, assets between spouses pursuant to a judgment, and order, or a written agreement between spouses in contemplation of any such judgment, and order, or a written agreement between spouses in contemplation of any such judgment or order” (“1^st Exemption”), and (b) “[a] creation, transfer, or termination, solely between spouses of any co-owner’s interest” (“2^nd Exemption”).

35.  1^st Exemption  Ps considered Qin/D were not divorced/ separated, so the tax exemption claimed was not genuine, which gave strong inference that the true intention of the Transfers was to put Qin’s interests in the US Properties out of reach of his creditors. On the other hand, D claimed the exemption was claimed pursuant to the Marital Settlement Agreement that D/Qin entered into on 2 August 2013 upon their official separation in August 2013 (“MS Agt”), and suggested the 1^st/2^nd ITGDs made sense when viewed in light of the MS Agt. D suggested the 1^st/2^nd Transfers were to formally recognise that the US Properties belonged to D and not Qin.

36.  The MS Agt as made and signed by Qin (as husband) and D (as wife) on 2 August 2013 provided as follows:

37.  D claimed that in the past decade or so her marriage to Qin deteriorated considerably. D said at first she attempted to keep up the relationship for the sake of their 4 children, but as time went by their marriage broke down irretrievably. D claimed she/Qin officially separated since August 2013 (but unofficially much longer than that). D said it was stressful for her to deal with these disruptions for her and her children, but on 2 August 2013 she/Qin entered into the MS Agt that set out their respective rights as to their children (including child support and custody arrangements), spousal support, community property, and other matters, which agreement was/is subject to and governed by US law as apparent from the terms themselves. D claimed she would not have to and did not pay any consideration for the Transfers because the 1^st/2^nd ITGDs were made on the basis of the MS Agt that recognised the US Properties were D’s separate properties and Qin had no interests/rights in them. D further said with Qin out of her / her children’s daily lives, she left such matters (which had minimal impact on their daily lives) alone, but with Qin’s bankruptcy and Ps’ erroneous stance as to the US Properties, she had no option but to take steps to protect her interests. D denied Qin’s/her separation was not genuine.

38.  On the other hand, Ps noted the alleged MS Agt purportedly signed on 2 August 2013 (ie less than a month after Baosteel’s Petition referred to in paragraph 44(f) below) did not appear to have been witnessed by any third party. Chan claimed (i) the signing of the MS Agt did not constitute any valid divorce, (ii) the D 1^st Aff admitted D was still legally married to Qin, and (iii) the contemporaneous evidence/ circumstances did not sit well with the alleged MS Agt:

39.  Chan therefore believed the alleged MS Agt would not support D’s assertions that she was always the sole beneficial owner of the US Properties, and that the Transfers were made pursuant to the alleged MS Agt to “regularize” her interests.

40.  Further, even though the recording pages of the 1^st/2^nd ITGDs showed Qin claimed DT Tax exemption pursuant to section 11927(a) of the California Revenue and Taxation Code (“CRTC”),[14] ie when spouses divided assets pursuant to a judgment or order related to divorce or legal separation (see footnote 14(g) above), Ps believed Qin/D were not divorced or separated:

Thus, Chan considered Qin/D were not divorced/separated, so the tax exemption claimed under section 11927(a) of the CRTC was not genuine.

41.  On the other hand, D said the 1^st/2^nd ITGDs were made pursuant to the MS Agt, and claimed Ps’ aforesaid reasoning in paragraph 40(a)-(b) above was highly speculative:

42.  2^nd Exemption  D claimed the MS Agt specifically recognised inter alia the US Properties were D’s separate property such that Qin had no interests/rights in them. Thereafter and on such basis, the 1^st/2^nd lTGDs were entered into to transfer the legal interests in the US Properties back to D, which explained why such deeds indicated exemption from DT Tax (as the MS Agt was/is “a written agreement between spouses” regarding the US Properties). D claimed the Transfers were simply to regularise her interests in the US Properties which existed from the beginning, and they were also part of the wider arrangement (via the MS Agt) to allow her to draw a line with Qin as regards her assets and to put in place arrangements for their separation going forward. The fact no money changed hands for the 1^st/2^nd ITGDs did not mean they were transactions at an undervalue because the agreements in the MS Agt provided valuable consideration. D disagreed the true intention of the Transfers was to place assets out of reach of Qin’s creditors, and claimed that in truth the US Properties never belonged to Qin.

43.  On the other hand, Ps noted Qin claimed DT Tax exemption by declaring the Transfers were made solely between spouses of any co-owner’s interest. In the 1^st/2^nd ITGDs, a check box for “[a] creation, transfer, or termination, solely between spouses, of any co-owner’s interest” was checked (see paragraph 34 above) without mention of any particular provision in the CRTC relied upon for such tax exemption. Chan claimed (a) the only other applicable provision for such tax exemption appeared to be section 11930 of the CRTC (see footnote 14(i) above), ie exemption of DT Tax “by reasons of such inter vivos gift or by reason of the death of any person”, and (b) assuming the tax exemption declarations in the 1^st/2^nd ITGDs were related to section 11930 of the CRTC, the Transfers would likely be inter vivos gifts from Qin to D with no consideration.

44.  Chan said this was readily understood when viewed in context of Qin’s and Up Energy’s financial affairs which were intertwined as a result of the undertakings/guarantees Qin provided for Up Energy’s obligations/borrowings. Based on the following chronicle of relevant events concerning Qin/UEGL up to the time of the Transfers in August 2013, Chan believed the true intention of such Transfers was to place Qin’s assets out of reach of (i) potential trustees-in-bankruptcy who might be appointed for the property of Qin and/or (ii) Qin’s creditors some of whom had initiated proceedings against Qin at/about the time of the Transfers:

45.  Chan noted the Transfers took place on 26-27 August 2013, ie just 2 weeks after CS initiated legal proceedings against UEGL/Qin in the UK Court and 7 weeks after Baosteel’s Petition was filed with the HK Court, so it appeared the Transfers were either Qin’s attempt to prevent his trustees-in-bankruptcy (if he were adjudged bankrupt pursuant to Baosteel’s Petition) from pursuing the US Properties or Qin’s effort to conceal his assets from his creditors.

46.  On the other hand,D claimed that:

47.  But Chan claimed neither the withdrawal of Baosteel’s Petition nor the UK Court’s dismissal of CS’ summary judgment application would lend any support to D’s contention that Qin was solvent at the time of the Transfers:

48.  Chan further claimed that since the documents D produced were not publicly available, she must have obtained them from Qin with whom she strenuously sought to distance herself, and in that case there was no reason why she stopped short of giving full details about the arbitration proceedings with Baosteel and how proceedings in the UK Court developed. Chan claimed such withholding of information suggested they would not have assisted D’s contentions. Thus, Chan claimed D failed to prove Qin was solvent at the time of the Transfers.

49.  D disagreed she withheld information about Qin’s affairs/ litigation in which he was involved. D claimed Ps as trustees clearly had the ability and legal status to approach/compel Qin and relevant agents who were involved in such litigation to seek information themselves. The D 1^st Aff explained D and Qin were separated, so D did not understand why Ps would consider she would be able to access and provide them such information when they could have obtained it if they so desired.

50.  Other transfers in 2016  Chan claimed the Transfers were not the only time Qin attempted to transfer his assets to D with a view to keep them out of reach of his potential trustees-in-bankruptcy. Chan noted Qin made the following share transfers (“Share Transfers”) to D between the dates of the Petition and Bankruptcy Order:

51.  Ps’ investigation revealed that on 13 July 2016 (ie after presentation of the Petition and 2 weeks before the Bankruptcy Order) Qin attempted unsuccessfully to transfer his sole shareholding in a BVI company SROL that was incorporated on 14 February 2013 to D at a consideration of US$1. A BVI company search revealed a register of members of SROL filed with the Registrar (“RoM”) that stated Qin was the sole shareholder since 14 February 2013. At a hearing on 7 February 2017 before the BVI Court, D’s BVI lawyer alleged Qin’s shareholding was transferred to her. The BVI court noted section 43A of the BVI Business Companies (Amendment) Act provides that a BVI company “may elect to file for registration by the Registrar a copy of its register of members”, but if a BVI company so elects then under section 43A(3) it will be bound by the contents of the RoM unless a notice to cease registration was filed with the Registrar. But since SROL did not file any such notice to cease registration with the Registrar, the BVI court granted an order to recognise the Bankruptcy Order and to amend the RoM to record Ps as the sole shareholder of SROL. Chan claimed such unsuccessful transfer of Qin’s sole shareholding in SROL to D appeared to be another attempt by Qin to either keep assets out of Ps’ reach or to conceal his assets.

52.  On 28 September 2017, Ps wrote to Qin to inquire as to the reasons for the Share Transfers. On 18 October 2017, Qin replied to admit the Share Transfers, but specifically alleged the Share Transfer of his shareholding in SROL was made due to an “agreement by separation”. Chan claimed Ps’ investigations revealed SROL held the SROL Assets. On 6 November 2017, Ps wrote to request Qin to provide a copy of the “agreement by separation”, and to explain the reason for such Share Transfer made just 2 weeks prior to making the Bankruptcy Order. On 8 February 2018, Qin replied to say he did not “have any information or documents related to [Ps’] questions”, and did not provide any further response/document. Chan claimed the Share Transfers supported Ps’ contention that Qin had intention to transfer his assets away to D at an undervalue in order to put them out of reach of his creditors.

53.  Qin’s financial status  D claimed Qin was solvent at the time of the 1^st/2^nd IGTDs in/about 2013 as demonstrated by (a) the withdrawal of the Baosteel Petition and striking out of the winding-up petition against UEGL and CS’ legal proceedings in the UK Court and in the United States (see paragraph 46 above), and (b) Qin’s tax return for the year of assessment 2012/2013. D further claimed at the material time Qin also had substantial shareholdings in UECL/UEGL that were of considerable worth, and urged Ps (whom D said should have information) to particularise the value of these shareholdings. D was of the view that Qin’s financial status after the date of the Transfers were not relevant for the present purposes.

54.  On the other hand, Chan claimed the burden was on D to prove her allegation that Qin was solvent at the time of the Transfers, but she failed to adduce credible evidence in that regard. Chan claimed the only documentary evidence D adduced was the employer’s return for Qin filed by Up Energy for the 2012/2013 tax year (ie from 1 April 2012 to 31 March 2013) which did not cover August 2013 when the Transfers took place. Anyway, all it showed was the amount of salary/wages Up Energy paid Qin during such period, but not Qin’s assets/liabilities which were necessary for meaningful assessment of his financial status at the time. As for D’s reliance on the withdrawal of Baosteel’s Petition and dismissal of CS’s summary judgment application by the UK Court, Chan reiterated the matters in paragraphs 47-48 above.

55.  Ps also claimed that on 29 September 2014 Qin borrowed HK$45,000,000 from Win Wind, and on 25 March 2015 he signed a supplemental agreement with Win Wind to extend the repayment deadline of such loan. Qin eventually failed to repay such loan. [21] The Chung Judgment referred to in footnote 21 above that rejected Qin’s application to annul the Bankruptcy Order and to dismiss the Petition noted Qin claimed such loan from Win Wind was purportedly for a company he was managing that was in need of money. Chan believed such company was UEGL and Qin personally guaranteed part of UEGL’s debts. Chan also noted Qin was found by the court to be of doubtful credibility.

56.  Chan further claimed Qin as then Chairman, CEO and executive director of Up Energy must have been fully aware of Up Energy’s dire financial condition, which led to need for debt restructuring that appeared to have been ongoing for some time without much success. In fact, at the time of the Chan 1^st Aff, Up Energy was under the 2^nd delisting stage.[22]

57.  Thus, Chan believed that by July 2013 there was at least a real risk Qin would be adjudged bankrupt pursuant to Baosteel’s Petition. At the material time, Qin was exposed to potential liability under personal guarantees given in favour of Cinda/CS. Chan said if, as appeared from the evidence, the purpose of the Transfers was to keep creditors and trustees-in-bankruptcy away from the US Properties, it would have been unlikely for D to have paid any consideration to Qin for the Transfers that would have been at risk of being pursued by trustees-in-bankruptcy who might be appointed. In the circumstances, Ps believed the Transfers were transactions at an undervalue, and there was lack of any explanation for Qin entering into the 1^st/2^nd ITGDs apart from the motive of putting the US Properties beyond reach of his creditors in the event he was adjudged bankrupt.

58.  But D complained that the Chan 2^nd Aff referred to a whole host of new evidence/documents that went beyond reply to the D 1^st Aff. D was conscious she did not have leave to reply to the same, but made the following points in the D 2^nd Aff:

59.  D further claimed that whilst Ps levelled various accusations against her for “omitting” material matters, until the D 1^st Aff brought up various applications in the US proceedings, Ps failed to update the Court on (a) their “unsuccessful” application to have the S49 Proceedings recognised as foreign non-main proceeding in the US, and (b) Qin made applications in the US Court in respect of the US Properties, so it lied ill in Ps’ mouths to accuse D of failing to bring up matters relevant to her stance/case when they as officers of the HK Court were not fully forthcoming. I will now turn to the proceedings in the United States.

60.  US Proceedings On/about 1 August 2017, McKinlay’s firm on Ps’ instructions filed a petition with the US Court pursuant to Chapter 15[23] (commonly referred to as the Bankruptcy Code, “Chapter 15”) (“Chapter 15 Petition”) in case number 17-51840 SLJ (“US Proceedings”) for recognition of (a) the Bankruptcy Proceedings as foreign main proceeding and (b) the S49 Proceedings as foreign non-main proceeding. Lee complained Ps did not at the same time file a corporate ownership statement and a list containing the names/addresses of all persons authorised to administer foreign proceedings of the debtor, all parties to litigation pending in the United States in which the debtor was a party, and all entities against whom provisional relief was being sought under §1519 of the Bankruptcy Code, Fed. R. Bankr. P. 1007-l(a )(4), so a hearing was not set on the Chapter 15 Petition and no action for recognition was taken.

61.  But on the basis of the Chapter 15 Petition, Ps recorded Notices of Lis Pendens in relation to the RR Pty and PD Pty on 2 August and 27 September 2017 respectively, which notices remained current on the register and were unreleased encumbrances against the US Properties in the Official Records of the County Recorders for the Counties of Santa Clara and Marin where the US Properties were located, the effect of which was to limit D’s ability to obtain secured financing or to sell the properties.

62.  On 27 October 2017, Qin filed the Adversary Complaint (which was a subsidiary lawsuit within a US main bankruptcy case) captioned Jun Qin v Hau Yin Mak Trustee (Hong Kong) & Pui Sze Chan Trustee (Hong Kong) against Ps in the US Proceedings for determining the impact/scope of the Chapter 15 Petition. Lee claimed Qin filed the Adversary Complaint because no hearing was set on the Chapter 15 Petition and no action on such petition occurred for almost 3 months between 1 August and 27 October 2017. The Adversary Complaint sought (a) declaratory relief about Ps’ rights with regard to the US Properties as to actions to avoid voidable transfers and application of California law versus Hong Kong law in the Bankruptcy Proceedings and US Proceedings, and (b) injunctive relief enjoining Ps and their representatives from continuing litigation in Hong Kong regarding the US Properties until the issue of application of avoidance law be settled (“Adversary Proceedings”). D knew Qin filed the Adversary Complaint, and said he did so because Ps wrongfully asserted interests in the US Properties and caused encumbrances to such properties.

63.  Lee further claimed that on 1 November 2017 the US Court issued a scheduling order in the form of an Order re Recognition of a Foreign Proceeding wherein the court outlined the initial petition’s deficiencies and ordered Ps to set an appropriate hearing. On 14 November 2017, Ps filed a Notice of Chapter 15 Petition for Recognition of Foreign Main Proceeding and Foreign Non-Main Proceeding and Notice of Hearing fixing 13 December 2017 for the hearing the Chapter 15 Petition.

64.  On 29 November 2017, Qin filed an opposition (“Opposition”). At the hearing on 13 December 2017 before Judge Stephen L Johnson of the US Court (“US Judge”), the US Judge rejected Qin’s opposition and entered an order recognising the Bankruptcy Proceedings, but Ps’ “…… request to recognize the related avoidance action filed by [Ps] against [D], pending in the [S49 Proceedings], as a foreign nonmain proceeding is denied”. On such basis, D alleged Ps were “not successful” in having the S49 Proceedings recognised as foreign non-main proceeding. The US Judge prepared/stated an opinion orally on record explaining his aforesaid decision on the Chapter 15 Petition (“Decision”).

65.  Lee said that on 14 December 2017 the US Court filed with the court clerk and on 15 December 2017 the US Court clerk entered the Order Recognising Foreign Proceeding whereby the US Court recognised the Bankruptcy Proceedings as foreign main proceeding but did not recognise the S49 Proceedings as foreign non-main proceeding (“Chapter 15 Order”).

66.  The US Judge in the Decision analysed/rejected Qin’s arguments to oppose recognition of the Bankruptcy Proceedings:

67.  Pages 15-20 of the Decision discussed whether the Chapter 15 Petition was seeking recognition of the Bankruptcy Proceeding as foreign main proceeding or foreign non-main proceeding, and explained the difference between these 2 types of proceedings which required assessment of the location of the bankrupt’s “center of main interest” (“COMI”). Page 15 of the Decision stated that “[section] 1502 defines a foreign main proceeding to mean a foreign proceeding pending in the country where the debtor has a [COMI]”, and at page 20 concluded as follows:

“Given the [HK Court’s] decision and the uncontroverted evidence presented by the foreign representatives [ie Ps], I conclude Hong Kong has the greatest interest in the outcome of the bankruptcy case. Hong Kong was the place where the foreign debtor [ie Qin] conducted his business and Hong Kong is where creditors likely ascertained to be the foreign debtor’s [COMI].”

The US Judge rejected Qin’s arguments that Hong Kong was not his COMI, and acknowledged the HK Court’s earlier ruling in the Chung Judgment that (a) Qin’s alleged residential address in Xinjiang, Mainland China was not a residence but a unit in a commercial building, and (b) Qin had substantial businesses in Hong Kong and his creditors were primarily located in Hong Kong (see pages 18-20 of the Decision). In conclusion, the US Judge ordered recognition of the Bankruptcy Proceedings as “the foreign debtor’s [Qin’s] foreign main proceeding pursuant to Section 1517” (see page 26 of the Decision).

68.  The US Judge held that Hong Kong was a proper forum for the Bankruptcy Proceedings and there was no public policy exception against Hong Kong as Hong Kong laws were fair and give adequate due process for Qin (see pages 22-25 of the Decision). Although Qin argued the HK Court did not provide any reasons for rejecting his arguments when he earlier sought to annul the Bankruptcy Order, “that is not supported by the record” (see pages 24-25 of the Decision). The US Judge found Qin “has not articulated a fundamental policy of the United States that is offended in recognizing the Hong Kong bankruptcy proceedings” (see page 25 of the Decision).

69.  Lee pointed out the Decision addressed issues raised by Qin’s Adversary Complaint. The US Judge said as follows at pages 25-26 of the Decision:

“Finally, I’d like to address the prohibition on avoidable transfers and the imposition of restrictions. The foreign debtor [ie Qin] argued that even if the Court recognizes the Hong Kong bankruptcy proceedings, the foreign representatives [ie Ps] are prohibited from commencing avoidance actions under Chapter 15. In a similar vein, the foreign debtor, without discussion, requests the Court to impose restrictions on the foreign representative from pursuing any action under United States or California law. Both of these requests I believe are premature and probably unnecessary.

What the foreign representatives may or may not do once recognition is granted is not one of the conditions under 1717. To be clear, the foreign representatives commenced an avoidance action in Hong Kong under Hong Kong law [ie the S49 Proceedings]. They have not requested any additional relief at this point. What the foreign debtor is asking is for this Court to prejudge or predetermine what the foreign representatives may or may not request under Section 1521, and that is simply not ripe for adjudication at this stage. Similarly, the foreign debtor provided no supporting legal authority for the Court to impose limitations on what the foreign representatives may do or may not do. Chapter 15 says what it says. For a court to issue an order telling a foreign representative what they cannot do seems to be superfluous and redundant.

In conclusion, I order the recognition of the Hong Kong bankruptcy proceeding as the foreign debtor’s foreign main proceeding pursuant to Section 1517. The request to recognize the related action in Hong Kong against [D] as a foreign non-main proceeding is denied. And the Court will prepare the order.”

70.  Consequently, the Lee 1^st Aff alleged Ps were “not successful” in their application to have the S49 Proceedings recognised as foreign non-main proceedings. But the Lee 2^nd Aff said Qin and his counsel believed that as a result of the Chapter 15 Order the issues raised by the Adversary Complaint were noted as premature and moot for the time being, and hence the request to recognise the S49 Proceedings as foreign non-main proceeding was rejected.

71.  McKinlay did not agree Ps’ application for recognition of the Transfers as undervalue transactions was “not successful”, and opined that the Chapter 15 Order provided for full recognition of all actions taken by the HK Court in the Bankruptcy Proceeding and also the S49 Proceedings (albeit not as a foreign non-main proceeding as defined in the Bankruptcy Code). Even though the wording of the Chapter 15 Order declined recognition of the S49 Proceedings against D as foreign non-main proceeding, the US Judge actually found such recognition unnecessary (see pages 20-22 of the Decision). It was said as the S49 Proceedings arose out of the Bankruptcy Proceedings, such “adversary proceeding has no independent jurisdictional basis outside of the bankruptcy proceeding” (see page 21 of the Decision). The US Judge reasoned the S49 Proceedings (which bore the main caption of and was part of the Bankruptcy Proceedings) were ancillary to the Bankruptcy Proceedings that were recognised as foreign main proceeding. The UNCITRAL model law treated foreign main proceeding as a single process, and there was no requirement that every related action in bankruptcy proceedings be recognised as foreign non-main proceedings (see page 22 of the Decision). So pages 21-22 of the Decision stated as follows:

“…… In this case, the foreign representatives request the avoidance action filed against [D] in Hong Kong [ie the S49 Proceedings] be recognized as a foreign non-main proceeding under Section 1517.

The foreign representatives did not, however, present any legal authority that a related action in a foreign bankruptcy proceeding can be separately recognized on its own as a foreign non-main proceeding. The avoidance action bears a main caption that is part of the bankruptcy proceeding of the foreign debtor [ie Qin] in Hong Kong [ie the Bankruptcy Proceedings]. And below that caption shows the foreign representatives as plaintiffs and [D] as defendant, much like a caption in an adversary proceeding in a bankruptcy case. In fact, the foreign representatives themselves describe the avoidance action as ‘similar to an adversary proceeding.’ Yet an adversary proceeding has no independent jurisdictional basis outside the bankruptcy proceeding. Contrary to the foreign representatives’ conclusory statement that the avoidance action is a foreign proceeding, the avoidance action in and of itself does not satisfy the definition of a foreign proceeding under 10123 and therefore does not satisfy the requirement under 1517(a).

Using the elements of a foreign proceeding identified earlier, the avoidance action standing alone is not collective in nature, is not a proceeding in which the debtor’s assets and affairs are subject to control of the court. It’s simply a lawsuit. In addition, there is no petition filed for the avoidance action, so the requirement of Section 1517(a)(3) has not been met and could not be met.  By the same token, if the foreign representatives are relying on the same Chapter 15 …… petition, then that petition would be recognized as both a foreign main and foreign non-main proceeding, a result that is not contemplated by Chapter 15.

A foreign bankruptcy proceeding may be recognized as a foreign main proceeding or a foreign non-main proceeding, but not both. And the latter category is not for a relation – not for litigation related to a foreign bankruptcy case. As indicated, the model law treats the foreign main proceeding as a single process. There is no requirement that very related action in a bankruptcy proceedings be recognized a foreign non-main proceeding. And therefore the request to recognize the related avoidance action as a foreign non-main proceeding will be denied.”

72.  Although Lee agreed that McKinlay’s characterisation of the Chapter 15 Order was generally correct in that the Decision held that separate proceedings to seek recognition of subsidiary proceedings were unnecessary, Lee referred to what the Decision said in addressing Qin’s opposition to the Chapter 15 Petition for recognition (see paragraph 69 above), and claimed McKinlay’s statement of “full recognition of all of the actions taken in the HK Court” was overly broad. Lee said such general proposition was subject to controversy in the United States and recognition of foreign avoidance actions was not fully settled law. He said no interpretive US Supreme Court case squarely addressed the issue, and no general consensus existed among the US Circuit Courts of Appeal on the position. The matter was still subject of significant academic debate,[24] and currently only 1 Circuit Court of Appeal squarely addressed the issue allowing such recognition.[25] The US Proceedings were located within the 9^th Circuit Court of Appeal which had not yet addressed recognition of foreign avoidance actions. Lee said the Decision crisply distilled the current status of the US Proceedings, ie “Chapter 15 says what it says” (see page 26 of the Decision), and likewise the Chapter 15 Order provided the reliefs it provided, so Ps had not obtained further specific relief other than recognition of the Bankruptcy Proceedings as foreign main proceeding. While further orders within the Bankruptcy Proceedings would receive recognition, treatment of any further orders within the non-main S49 Proceedings would depend on the nature/content of the orders.

73.  McKinlay said Ps brought a motion to dismiss the Adversary Complaint that was scheduled to be heard on 16 January 2018. But on 12 January 2018 (ie after the Decision was rendered on 13 December 2017), Qin voluntarily withdrew the Adversary Complaint by filing a Stipulation for Voluntary Dismissal of Adversary Proceeding (“Stipulation”). By filing the Stipulation, Qin no longer pursued the Adversary Proceedings which were then dismissed. McKinlay noted Qin’s Adversary Proceedings made the same arguments now made against Ps in the Lee 1^st Aff. Ps also complained that even though the D 1^st Aff was filed after filing of the Stipulation, D omitted to mention such material information. As a result of such development, Chan believed the Adversary Proceedings would not provide support for D’s contention that the US Court would be the more appropriate forum.

74.  On the other hand, Lee claimed the Stipulation was filed on 12 January 2018 whereby Ps and Qin agreed to voluntary dismissal of the Adversary Complaint without prejudice of Qin’s claims against Ps, which meant that although the Adversary Proceedings ended with the Stipulation, any and all claims Qin might have against Ps remained and might be raised by him under appropriate circumstances.

75.  Lee claimed there was no further activity under the Chapter 15 Petition in the US Proceedings, but the Lis Pendens remained registered/effective against the US Properties.

76.  Apart from the aforesaid chronicle of the US Proceedings, the Lee 1^st Aff claimed Ps’ application for recognition of the S49 Proceedings as foreign non-main proceeding was in fact a “second bite at the apple” since Ps previously filed (on 25 July 2017) and then withdrew (on 1 August 2017) a petition for such recognition, so the Chapter 15 Petition was in fact Ps’ 2^nd attempt which, according to D/Lee, ultimately failed as well. But McKinlay said it was not the case Ps asked for a previously decided case/controversy to be decided again because the Decision was the 1^st decision made on Ps’ Chapter 15 Petition. P did bring a petition several days earlier and voluntarily withdrew it before any decision was rendered by the US Court because Ps’ US lawyers decided a Chapter 15 Petition should be brought on a specific local form instead of counsel’s own format. Nothing of substance was changed when P brought the Chapter 15 Petition, and no decision was made by any court on the earlier petition.

77.  Still further, the Lee 1^st Aff stated as regards the concept of joint tenancy versus community property under California law, the ownership of property by several persons could be joint interests, partnership interests, interests in common or husband-wife community interests.[26] A “joint tenancy” was an interest owned by 2 or more persons in equal shares when expressly declared in the instrument conferring title[27] which was distinguished from a tenancy-in-common by its feature of survivorship, ie on the death of a joint tenant the surviving joint tenant becomes the sole owner of the entirety not by descent but by survivorship and by the original grant creating the tenancy.[28] Community property was property acquired by husband and wife or either of them during marriage when not acquired as the separate property of either of them.[29] Spouses might also hold title to property as “community property with right of survivorship”.[30] When real or personal property was held in this manner and 1 of the spouses died, the property would pass to the surviving spouse without estate administration pursuant to the terms of the instrument and subject to the same procedures as property held in joint tenancy.[31]

78.  Lee claimed it was a common occurrence within California real estate titles that title determination was made erroneously by the title/escrow company in facilitating real estate acquisition transfer. Parties who did not wish to own property as community property were often advised to select joint tenancy in lieu of tenancy-in-common for the benefit of survivorship without recognising that intent to clearly demarcate the property as separate might be obscured.

79.  But McKinlay was unaware of any basis for Lee’s observation that it was common for title companies to make erroneous determinations of ownership. McKinlay considered none of the arguments Lee presented about joint tenancies, tenancies-in-common or community property law supported the proposition that the US Properties belonged solely to D. McKinlay opined that they in fact supported the argument that Qin was also a joint owner with D in respect of the RR Pty, and when he transferred title to the US Properties away from himself, such transfers were avoidable acts as they conveyed away assets he owned that could have been used to partially repay his creditors.

80.  Subject-matter jurisdiction  D contested the “subject matter jurisdiction” of the HK Court. The D 1^st Aff claimed “…… the subject matter of this claim is real property located in California, United States”, so the HK Court had no jurisdiction over the US Properties which were foreign land. But Chan said such mere fact would not of itself deprive the HK Court of jurisdiction to hear the S49 Proceedings which were part of Ps’ administration of Qin’s bankruptcy estate.

81.  Forum non conveniens  D also argued that even if the HK Court had jurisdiction, it should not exercise jurisdiction in this case since the US Court was plainly a better forum for determining the present dispute, ie D sought to stay the S49 Proceedings on the ground of forum non conveniens. The D 1^st Aff alleged the following matters were relevant to such application:

The D 2^nd Aff also reminded that none of the relevant transactions and transfers occurred in Hong Kong, and the properties in question were US properties subject to US law and US legal documents/arrangements, including the MS Agt dated 2 August 2013.

82.  But Chan disputed these grounds, and claimed D’s Summons ought to be dismissed. First, Chan claimed Qin filed the Stipulation on 12 January 2018, so the Adversary Proceedings were dismissed and would not provide support for D’s contention that the US Court was the more appropriate forum.

83.  Secondly, Chan claimed non-recognition of the S49 Proceedings as foreign non-main proceeding would not assist D. Chan claimed D’s assertion that Ps’ application to have the S49 Proceedings recognised as foreign non-main proceeding was “unsuccessful” was only part of the truth. In fact, Ps applied to the US Court for recognition of (a) the Bankruptcy Proceeding as foreign main proceeding under Chapter 15 (which the US Court accepted) and (b) the S49 Proceedings as foreign non-main proceeding (which the US Court rejected), but Chan understood a main reason for (b) above was because the US Court had already recognised the Bankruptcy Proceedings as foreign main proceeding so it was not necessary for every related action (including the S49 Proceedings) to be recognised as foreign non-main proceedings.

84.  Thirdly, as regards the location of documents/witnesses, D claimed she resided in the US with her 4 children so she was fully occupied in taking care of them and rarely came to Hong Kong, and Qin resided in Mainland China as did Wang who gifted funds to D for the property acquisitions. D further claimed that since acquisition of the US Properties and related transactions were handled in the United States, all relevant witnesses who assisted in handling such transactions (eg Olivia Hsu who was the estate agent that advised her about estate planning and Retie Brown who was the conveyancing/escrow agent for the relevant transactions) were based there. Files/records they kept that pertained to the US Properties were also located in the United States. D claimed it was highly unlikely for such parties to be willing to come to Hong Kong to give evidence on what were to them run-of-the-mill transactions.

85.  On the other hand, Chan claimed D did not specify the precise nature of documents/evidence kept overseas, and did not explain why such original/copy documents could not be made available in the S49 Proceedings. Chan noted when D saw fit she was able to exhibit some documents (eg the alleged MS Agt) to her affirmations. Thus, Chan believed the location of where D kept relevant documents was not very significant. Similarly, D failed to particularly explain why potential witnesses could not come to Hong Kong to give evidence or why it would be more convenient for them to give evidence in the US Court. Further, although D claimed to reside in the United States, she admitted she visited or had visited Hong Kong for a total period of about 1 month in any given year. Chan also noted D apparently signed her affirmation before a notary public in Singapore and her Canadian passport was issued in Singapore. Chan believed D’s alleged ordinary residence in the United States was an immaterial/insignificant factor. Chan further reminded that Qin was also a key witnesses. In paragraphs 17-23 of the Chung Judgment, Chung J set out detailed reasons to support an inference that Qin had been ordinarily resident in Hong Kong, so there was no reason why Qin could not give evidence in Hong Kong. Chan therefore believed the location of potential witnesses did not support D’s contention that the US Court would be a better or more appropriate forum.

III.  SUBJECT-MATTER JURISDICTION

86.  There was no dispute D did submit to the jurisdiction of the HK Court. Thus, the burden was on D to satisfy the HK Court that it did not have subject-matter jurisdiction over the subject-matter of Ps’ claim or the relief/remedy sought in the S49 Proceedings. Ms Lam’s written submissions raised this contention as an alternative to the forum non conveniens arguments “for consideration”, and Mr Phang suggested such lack of firm conviction was a tacit acknowledgment that the objection based on subject-matter jurisdiction had no merit.

87.  D agreed with the general proposition that the property of the Bannkrupt/Qin vested in the Trustees/Ps, but claimed she was all along the sole beneficial owner of the US Properties, which raised the anterior question as to whether the US Properties belonged to Qin’s estate in the first place. On such basis, Ms Lam submitted that the question of jurisdiction could not be entirely answered by reference to provisions in the BO or to recognition of the Bankruptcy Proceedings by the US Court. Ms Lam noted Lee’s observation in paragraph 72 above that it remained unclear whether orders made in the S49 Proceedings (which McKinlay acknowledged were not bankruptcy proceedings in and of itself) would receive recognition by the US Court.

88.  Ms Lam submitted the US Properties were real property located in the United States, so the courts in the jurisdiction where such immoveable properties were located would have exclusive jurisdiction over proceedings concerning rights in rem over such immoveable properties. Dicey, Morris and Collinson on The Conflict of Laws stated as follows: [32]

“Rule 130 – (1) The court has jurisdiction to entertain a claim in personam in a civil or commercial matter falling within the scope of Council Regulation (EC) 44/2001 (‘the Brussels I Regulation’) where the proceedings have as their objects in rem in, or tenancies of, immovable property situate in England.

……

In a broad sense, the Rule is based on a general principle in most legal systems that, where the action concerns immoveable property, the courts of the country where the land is situated have exclusive jurisdiction. The Rule gives effect of the positive (jurisdiction-conferring) aspect of this principle …… There are various reasons for the principle. On the one hand, land still has a rather special position in most legal systems; on the other hand, there are practical considerations: proceedings concerning land may involve inspections of the property (or of local records) and these can be carried out only by the courts of the situs; moreover, any judgment that may be given will normally be enforceable only with the co-operation of the courts of the situs.”

89.  However, the learned authors explained that Rule 130(1) was based on the first sentence of Article 22(1) of the Brussels I Regulation which replaced Article 16(1)(a) of the Brussels Convention, but the substance of the 2 provisions was identical and provided that in proceedings which had as their object right in rem in, or tenancies of, immovable property, the courts of the Member State in which the property is situated have exclusive jurisdiction. More importantly, the learned authors explained as follows:

“…… the expression ‘proceedings which have as their object rights in rem in, or tenancies of, immovable property’ does not fit with any previously existing concept of property law in England. Its origin owes more to French law, which has a well-established notion of ‘actions reels immobiliers’, actions involving title to immovable (but not actions of a contractual nature which involve title to land)”.[33]

90.  I note neither the Brussels Convention nor Brussels I Regulation applied to Hong Kong, and in any event the relevant provisions of the Brussels Convention and/or Brussels I Regulation did not fit with any pre-existing concept of English property law (nor presumably any property law under the common law in Hong Kong). That being the case, I am unable to discern any jurisdiction-denying rule that prohibits the HK Court from exercising jurisdiction in the S49 Proceedings (albeit the involved properties were real property in the United States) and/or any rule that conferred exclusive jurisdiction to the US Court in respect of such proceedings.

91.  I agree with Mr Phang the starting point was the BO itself. I refer to the definition of “property” in section 2 of the BO (see footnote 2 above) which included land and every description of property whether situate in Hong Kong or elsewhere. Under section 58(1)-(2) of the BO, upon making the Bankruptcy Order, the property (as defined in section 2 of the BO) of Qin shall vest in the Official Receiver, and on the appointment of Ps as Trustees such property shall forthwith pass to and vest in Ps being so appointed. Thus, the property of Qin over which the HK Court had jurisdiction under the BO had no territorial limit.

92.  In this respect, Mr Phang referred me to In re Paramount Airways Ltd (in administration)[34] which concerned section 238 of the Insolvency Act 1986 (analogous to section 49 of the BO – see footnote 4-5 above). In that case, the administrators of a company issued an originating application against a bank registered in Jersey (that did not carry on business in England and Wales) seeking inter alia declarations that the transfer to the bank of considerable sums of money belonging to the company by one of its directors constituted transactions at an undervalue on the basis that the bank was liable to the company as constructive trustee for those sums. Sir Donald Nicholls VC at page 235 succinctly held as follows:

“It will have been seen from the above summary that, on its face, the legislation is of unlimited territorial scope. To be within the sections a transaction must possess certain features. For instance, it must be at an undervalue and made at a time when the company was unable to pay its debts, the company must be in the course of being wound up in England or subject to an administration order, and so on. If a transaction satisfies these requirements, the section applies, irrespective of the situation of the property, irrespective of the nationality or residence of the other party, and irrespective of the law which governs the transaction. In this respect the sections purport to be of universal application. The expression ‘with any person’ merely serves to underline this universality. It is, indeed, this generality which gives rise to the problem.” (my emphasis)

93.  Ms Lam sought to distinguish In re Paramount Airways Ltd (in administration) by saying it concerned the question as to whether leave to serve the originating application on the bank in Jersey and was not concerned about dispute over foreign immoveable property. But Ms Lam had no convincing answer to the crisp judicial interpretation of the English equivalent to section 49 of the BO that had extraterritorial effect to include overseas property (which under section 2 of the BO must include immoveable property).

94.  Ms Lam reminded that at pages 239-241 Sir David Nicolls VC looked at all the circumstances to consider whether there was sufficient connection with England (including amongst other factors “the nature and locality of the property involved”, the importance of which would vary from case to case). But the consideration of such factors for the exercise of discretion under forum non conveniens principles was a far cry from the dispute over subject-matter jurisdiction. In the end, Ms Lam in her oral submissions conceded it would be inappropriate to merely carve off what she described as the in rem aspects of the S49 Proceedings in relation to the US Properties (although Mr Phang took issue on this) for the “exclusive jurisdiction” of the US Court, and submitted that both the so-called in rem aspects and the in personam aspects of the S49 Proceedings should be considered together as a whole under the Spiliada[35] test to stay the entire S49 Proceedings in favour of the US Court. Hence, I am not persuaded the principles in The Conflict of Laws as summarised above would have assisted D’s contentions.

95.  It is useful to subject the nature/scope of the S49 Proceedings to more careful scrutiny. In those proceedings, the main issue was whether the Transfers under the 1^st/2^nd ITGDs constituted transactions at an undervalue under section 49 of the BO. Despite Ms Lam’s submissions in paragraph 87 above, I agree with Mr Phang that the question of title to the US Properties arose only incidentally as it was D who, contrary to express provisions in the 1^st/2^nd Grant Deeds and Quitclaim Deed, raised the defence contention that Qin did not have beneficial interest in the US Properties. But in my view, Ps’ claim and reliefs sought in the S49 Proceedings asked the HK Court to exercise in personam rather than in rem jurisdiction. This was explained (on the basis of the Brussels Convention and Brussels I Regulation) by the The Conflict of Laws in paragraph 88 above, which went on to say as follows:

“In Webb v Webb[36] the European Court rules that in an action for a declaration that a person holds immovable property as a trustee and for an order requiring the person to execute such documents as are required to vest legal ownership under the lex situs in the plaintiff does not involve rights in rem within the meaning of Art.16(1) of the Brussels Convention. It was held to be irrelevant that the ultimate purpose of the plaintiff was to obtain ownership of an immovable; what is important is whether rights in rem are the object of the proceedings. Since the plaintiff did not claim that he already enjoyed rights directly relating to the property which were enforceable against the whole world, but sought only to assert rights against the defendant, the action was not an action in rem within the meaning of Art.16(1) of the Brussels Convention, but an action in personam. This ruling suggests that, even if the object of the proceedings is to vindicate equitable rights against a third party (for example, where a claimant seeks to establish that a purchaser of trust property holds it as constructive trustee), the proceedings should not be regarded as involving rights in rem. ……”

96.  Further, it was held in Ashurst v Pollard & anor[37] on the basis of Webb that the effect of Article 16(1) of the Brussels Convention was not to deprive the English court of jurisdiction to make, on application of the trustee-in-bankruptcy, an order requiring a bankrupt to sell land situated in Portugal. In that case, a husband and wife, domiciled in England, jointly owned a villa in Portugal which was registered in the Portuguese register of titles in their joint names. A bankruptcy order was made in England against the husband, with the result that the husband’s interest in the villa became vested in his trustee-in-bankruptcy in England. The trustee-in-bankruptcy obtained from the county court an order for the sale of the villa with vacant possession and directions for the completion of sale to be conducted by the trustee.

97.  At pages 604-606, Jonathan Parker LJ noted the Court of Justice of the European Communities in Webb agreed that an action brought by a person against another for a declaration that the latter held immoveable property as trustee and for an order requiring the latter to execute such documents as should be required to vest the legal ownership did not constitute an action in rem within the meaning of Article 16(1) of the Brussels Convention (see paragraph 95 above), and said of the case before him at pages 606-607 as follows:

“52.  As noted earlier, Mr Prentis seeks to distinguish Webb v Webb, on the basis that in the instant case (and in contrast to the father in Webb v Webb) the trustee ‘already enjoys rights directly relating to the property which are enforceable against the whole world’ in that he has an indisputable beneficial interest in the property by virtue of the operation of the Act. In my judgment, however, the distinction which Mr Prentis seeks to draw is a false one. Reading the judgment of the court in Webb v Webb in context, I take the reference to a claim based on existing rights to be a reference to proceedings in which the claimant seeks to assets a proper right which is by its nature a right enforceable against third parties, in contrast to proceedings based on a personal relationship between claimant and defendant.

……

55.  In the second place, the proceedings do not seek to assert any property right against third parties/strangers: rather, they raise personal issues as between the trustee on the one hand and Mr and Mrs Pollard on the other. On that footing they are, in my judgment, on all fours with the proceedings in Webb v Webb”. (my emphasis)

98.  In my view, such conclusion would not assist D’s contention even if I were to consider the Brussels Convention and/or the Brussels I Regulation (which I disagree). But Ms Lam referred to The Conflict of Laws which said “a claim by a trustee in bankruptcy that he is entitled to a half share in a villa falls within Art.22(1) of the Brussels I Regulation”. This was drawn from In re Haywood, decd[38] that was decided on the basis of Article 16(1) of the Brussels Convention, which case was discussed in Ashurst as follows:[39]

“58.  In In re Hayward, decd, a villa in Minora was purchased by two individuals who contributed equally to the purchase price. They were registered in the Minora property register as owners of the property ‘in indivisible halves’. One of the joint owners was subsequently made bankrupt. On his death intestate, his widow purported to transfer his interest in the villa to the other registered owner in satisfaction of a debt she owed him for money which had spent on the villa. The trustee-in-bankruptcy of the deceased bankrupt applied to the county court for a declaration that the bankrupt’s interest in the villa formed part of his estate for bankruptcy purposes. The trustee also sought an order that the bankrupt’s widow and the remaining registered owner take steps to rectify the Minora property register so as to show the trustee as owner of the deceased bankrupt’s share, together with an order for sale of the villa and the division of the net proceeds of sale equally between the trustee and the other registered owner. The county court judge struck out the proceedings on the grounds (a) that they did not fall within the ‘bankruptcy’ exception in article 1 of the Convention, and (b) that they were ‘proceedings which have as their object rights in rem in immovable property’ for the purposes of article 16(1), so that the Spanish courts had exclusive jurisdiction. As noted earlier, in dismissing the trustee’s appeal Rattee J agreed with the county court judge that the proceedings fell within article 16(1). He also held that the claim for rectification of the Minora property register fell within article 16(3) (proceeding which have as their object the validity of entries in public registers).”

99.  More importantly, Jonathan Parker LJ had the following to say about In re Hayward, decd in the context of Ashhurst at page 208:

“59.  In my judgment, In re Hayward, decd is distinguishable from in the instant case in that the principal subject matter of the proceedings in In re Hayward, decd was the ownership of the Minora property. As Rattee J said, at p 48: ‘The essence of the present proceedings … was an attempt by the trustee to establish and protect, indeed perfect, what he alleged was his entitlement as trustee in the bankruptcy of Mr Hayward to what had been Mr Hayward’s half share in the villa.’

60.  On that basis, Rattee J was correct, in my judgment, to conclude that article 16(1) applied. By contrast, the proceedings in the instant case do not raise any issue as to title to land. The trustee in the instant case is not seeking to establish or protect, let alone perfect, his title to Mr Pollard’s interest in the Portugese property. I therefore conclude that Mr Prentis cannot gain any assistance from In re Hayward, decd in the instant case.”

100.  In my view, Ps’ claim in the S49 Proceedings asked the court to exercise in personam and rather than in rem jurisdiction. Although Ms Lam submitted that (a) Ps’ claim that sought to avoid the 1^st/2^nd ITGDs as transactions at an undervalue was equivalent to rectification of the property register, and (b) the dispute raised by D over beneficial ownership of the US Properties upon their acquisition was governed by US law, [40] I am not persuaded they detract from the conclusion that the S49 Proceedings were in fact an avoidance action with avoidance of voidable transactions as the main issue, and the properties in question being overseas real property was merely a subsidiary point within the proceedings.

101.  In respect of the contention in paragraph 100(a) above, Ps simply relied on the 1^st/2^nd Grant Deeds and Quitclaim Deed, and were not seeking to establish or perfect title to the US Properties. The effect of the declaratory orders sought in the S49 Proceedings to avoid the 1^st/2^nd ITGDs would be that D would hold certain immovable property in the United States on trust for Qin, and the effect of the mandatory order sought in the S49 Proceedings was to require D to execute requisite documents to vest legal ownership under the lex situs (ie United States law) in Ps. Like Jonathan Parker LJ, I do not find the S49 Proceedings distinguishable from Webb.

102.  In respect of the contention in paragraph 100(b) above, the fact D chose to oppose Ps’ claim in the S49 Proceedings by disputing Qin’s beneficial ownership based on US law was neither here nor there. As explained in paragraph 95 above, given the nature/context of the S49 Proceedings as explained above, it was (as in Webb) irrelevant that Ps’ ultimate purpose was to obtain an immoveable property when rights in rem were not the object of the proceedings (ie at best it was a point of dispute raised by D). In a nutshell, the S49 Proceedings were a Webb/Ashurst situation rather than a Hayward scenario. On the matter of US law, I refer to the discussion of Webb in The Conflict of Laws in paragraph 95 above which recognised that the relief sought, ie “…… an order requiring the person to execute such documents as are required to vest legal ownership under the lex situs in the plaintiff”, did not involve rights in rem within the meaning of Article 16(1) of the Brussels Convention (or presumably under common law). Further, in my view, the principles referred to in footnote 40 above explaining how the lex situs would apply the law of the situs also would not deny Hong Kong jurisdiction for the S49 Proceedings, but this might be a factor in the Spiliada considerations.

103.  Ms Lam then referred to Re Performance Investment Products Corporation Limited which stated that for a chose in action (which in that case was located in Hong Kong), the lex situs would apply when determining entitlement to the chose in action and how such entitlement was to be dealt with.[41] Mr Phang had no disagreement with such proposition since the question of entitlement to the chose in action would be an action in rem, but for reasons explained above, the S49 Proceedings were proceedings in personam.

104.  Ms Lam claimed there were no known authorities that showed the HK Court purported to exercise jurisdiction over immoveable property abroad in a bankruptcy context, but even if the HK Court had subject-matter jurisdiction (which proposition she said was questionable), there would limited value in proceeding to make any order in the S49 Proceedings if it was unclear whether it would be recognised in the United States. But in my view, whilst this would be a factor to be weighed in considering whether the S49 Proceedings should be stayed on forum non conveniens grounds, this did not detract from the view that the HK Court had subject-matter jurisdiction over the S49 Proceedings. In any event, it could not be said that any order made by the HK Court in the S49 Proceedings (if such proceedings were not stayed in favour of the US Court on forum non conveniens grounds) would be of limited value. It was enlightening to note the observations by DHCJ Peter Prescrott QC in R Griggs Group Ltd & ors v Evans & ors as follows:[42]

“66.  The equitable jurisdiction in personam touching land abroad has existed for at least 250 years. Notice the difference. In the Mozambique case the Portuguese company was saying, in so many words: ‘Please decide that under the local law we were already the owners of the Manica lands and minerals.’ In contrast, under the in personam jurisdiction of equity, the claimant would be saying:

‘I fully admit the defendant is the owner of this land. That’s my very complaint. You see, he has signed a contract to sell it to me. Please compel him to fulfil his bargain.’

Then the court of equity would ‘act upon the conscience’ of the recalcitrant party by ordering him to transfer the land to the claimant according to the forms of local law. The jurisdiction is not over the property, but over the person. The defendant signs the requisite documents for fear of being held in contempt of court, but the results is to alter the ownership of foreign land all the same.

67.  This equitable jurisdiction of our courts is both undoubted and long-standing.

……

69.  Thus when our courts of equity exercise their in personam jurisdiction they are not questioning local land laws. They are not setting up a rival title. There is in truth no conflict at all between English equity acting in personam and the foreign land laws, less if anything than there was between equity and the common law before the Judicature act 1973 (36 & 37 Vict 66). ……”

For all of the above reasons, I find the HK Court did have subject-matter jurisdiction.

IV.  FORUM NON CONVENIENS

(a)  Legal principles

105.  There was little disagreement between Mr Phang and Ms Lam on the relevant legal principles. The dispute was over their application.

106.  In Spiliada Maritime Corporation v Cansulex Ltd, Lord Goff of Chieveley said in cases where no particular forum can be described as the natural forum for the trial of the action, eg in commercial disputes where there can be pointers to a number of different jurisdictions or in admiralty cases where there are collisions on the high seas, “I can see no reason why the English court should not refuse to grant a stay in such a case, where jurisdiction has been founded as of right”.[43] Thus, where the defendant is served as of right within the jurisdiction, the burden rests on him to show there is a clearly or distinctly more appropriate forum other than Hong Kong.[44]

107.  Lord Collins NPJ in SPH v SA[45]gave further guidance on the principles of stay of proceedings by reason of forum non conveniens as follows:

“1.  The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action i.e. in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

2.  In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

3.  If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

4.  If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum.”

108.  “There is of course the final stage of the court being satisfied in the overall circumstances and justice of the case whether it would be right to stay the action. It is, at this stage, that the court will consider factors such as the conduct of the parties. For example, the applicant may have led the other party to believe that it was willing to litigate in Hong Kong or had taken steps to submit to the jurisdiction here so that it has waived the right to apply for a stay or that this would be unconscionable in the circumstances. ……”[46]

109.  Ms Lam reminded that in considering D’s Summons the court should not engage in a mini-trial on affidavit evidence. Although Ms Lam cited Venetian Macau Limited v Chen Mei Huan also known as Liu Chen Mei Huan also known as Liu Mei Huan Chen[47] in support of such proposition, DHCJ Leung’s observation was more concerned with a challenge to primary jurisdiction in the context of construction of statute (ie the Macau Code) and contractual document (ie the contractual jurisdiction clause) rather than application for stay due to forum non conveniens.

110.  Ms Lam went on to say that in any event such proposition appeared to be consistent with the court’s approach in other interlocutory matters which was to only form a provisional view as to the parties’ respective prospects based on the affirmation evidence. Ms Lam cited Maryo Development Limited v Tsang Yau May & ors[48] in support, but that case concerned the exercise of discretion to set aside a default judgment.

111.  Be that as it may, Mr Phang did not disagree with Ms Lam’s proposition. In any event, given Ps’ concession at the Hearing not to seek summary disposal of the OS and there was consensus that the S49 Proceedings should proceed to trial as a writ action if not stayed in favour of the US Court, it would be unnecessary to focus too much on the underlying merits. Indeed, both Mr Phang and Ms Lam focused more on the conveniens issues at the Hearing.

(b)  Stage I

112.  For stage 1 of the Spiliada test, ie whether there was some other available forum identified, having competent jurisdiction, which would be the appropriate forum for trial of the S49 Proceedings in the interests of all parties and for the ends of justice, Ps and D both referred to a number of factors which D claimed (but Ps disagreed) were connecting factors pointing to the appropriateness of the US Court over the HK Court.[49] But Mr Phang submitted (and I agree) it was insufficient to merely load up factors pointing to a particular jurisdiction for the question of clearly/distinctly appropriate forum required not just identification of the forum which the S49 Proceedings had the most real and substantial connection but also consideration of the question of conveniens, ie what were or what were likely to be the issues between the parties that would require determination at any trial and/or the overall shape of the trial.[50]

113.  D’s residence  Ms Lam submitted D was ordinarily resident in Canada and the United States. In my view, this would not be a significant factor as (a) D submitted to the jurisdiction of the HK Court, and (b) D frankly admitted she would visit Hong Kong and stay here for a total length of about a month or so in any given year. There would be no difficulty for her to attend trial. It was also evident from the present applications that D had no difficulty in adducing her own affirmations and instructing local lawyers to present her defence in this jurisdiction, and she could cause her US lawyer to adduce evidence in this jurisdiction.

114.  In any event, D’s assertion regarding ordinary residence was subject to doubt since the D 1^st/2^nd Affs were both affirmed in Singapore in January/June 2018 and her latest Canadian passport was issued there on 6 April 2016, but her E2 Investor Visa for the United States had expired long ago on 25 November 2013. Given the aforesaid connection to Singapore, it was interesting to note the trustee of the J&J Trust Credit Suisse Trust Limited was also in Singapore, and Wang’s letter of wishes dated 18 August 2016 to remove Qin as a beneficiary of the J&J Trust asked such trustee to arrange meetings with D at least once a year to review the operation of the Trust. In March to April 2017, D also made various miscellaneous payments to Qin in Singapore dollars (see paragraph 38(b) above). All these suggested D either lived in Singapore or at the very least she was well travelled and would have no difficulty in coming to Hong Kong. D offered no explanation for these matters. In light of the above, I find the matter of D’s residence would not be a significant factor that would favour the US Court.

115.  Location of US Properties  Ms Lam laid strong emphasis on the fact that the US Properties were located in the United States. But in the discussion in Part III above, I have found P’s claims and the reliefs sought in the S49 Proceedings invoked the in personam jurisdiction of the HK Court. After all, as Mr Phang submitted, by the S49 Proceedings the HK Court was required to determine whether or not the Transfers under the 1^st/2^nd ITGDs were void as transactions at an undervalue, which involved application of the BO in relation to Qin’s bankruptcy over which this court had jurisdiction (as evident not only from the Chung Judgment that dismissed Qin’s application to annul the Bankruptcy Order but also from recognition of the Bankruptcy Proceedings by the Chapter 15 Order granted by the US Court).

116.  Ms Lam argued orders requiring D to transfer Qin’s interests in the US Properties (if the 1^st/2^nd ITGDs were avoided) to Ps or their nominees would have to be made pursuant to the lex situs, ie United States law, and had to be effected/enforced in the United States via the US Court, which would bring into question whether any order made by the HK Court in favour of Ps in the S49 Proceedings would be recognised in the United States.

117.  On this issue, Ms Lam submitted even though the Chapter 15 Order recognised the Bankruptcy Proceedings as foreign main proceeding, the US Court declined to recognise the S49 Proceedings as foreign non-main proceeding (which meant the S49 Proceedings had no status in the United States at the moment), and noted Lee opined that “full recognition of all of the actions taken by the HK Court” was controversial and not settled (see paragraph 72 above). But Mr Phang reminded that McKinlay opined it would not be right to over-focus on the wording of the Chapter 15 that denied P’s application for recognition of the S49 Proceedings without addressing the detailed and material reasoning for such order in the Decision (the gravamen of which was that there was no requirement and it was unnecessary for every related action in bankruptcy proceedings (recognised as foreign main proceeding) to be recognised as foreign non-main proceeding), and there were no pending jurisdictional challenges by either Qin or D in the US Proceedings.

118.  In fact, Lee acknowledged the Decision made clear that upon recognition of the Bankruptcy Proceedings by the US Court separate proceedings to seek recognition of subsidiary proceedings was unnecessary. Further, Lee did not say in the context of such acknowledgment that orders made by the HK Court in the S49 Proceedings would not be recognised by the US Court, but rather it would depend on the nature/content of the order made (see paragraph 72 above). McKinlay had greater confidence in the US Court recognising orders made by the HK Court in the S49 Proceedings, especially as the Decision explained that the S49 Proceedings were “similar to an adversary proceeding” ancillary to the Bankruptcy Proceedings (already recognised as foreign main proceeding by the Chapter 15 Order) with no independent jurisdictional basis outside the Bankruptcy Proceedings which the UNCITRAL model law treated as a single process (see paragraph 71 above). In a nutshell, whilst it would be obvious (as in any case that would require foreign recognition) there would be no absolute certainty until a foreign court actually decides whether to recognise a Hong Kong court order, for the S49 Proceedings there was credible argument on the basis of the reasoning in the Decision that the S49 Proceeding would be recognised by the US Court under the umbrella of the recognised Bankrptcy Proceedings.

119.  But even assuming that whether or not any order made by the HK Court in the S49 Proceedings would be recognised by the US Court remained an open question, I agree with Mr Phang this would not necessarily point to the US Court as a clearly and/or distinctly more appropriate jurisdiction. Such open question was a facet of such litigation with international dimensions. And there were certainly factors favouring Ps’ stance that the HK Court was the appropriate forum. As alluded to in the above paragraph, the Decision helpfully dispelled mystery (if any) about the US Proceedings, and by now the US Court was well aware of the nature/scope of the S49 Proceedings. As to the likelihood of the US Court recognising/enforcing judgment/order of the HK Court made in the S49 Proceedings, the US Judge did not express any disapproval of such proceedings that touched on immovable property in the United States, and although he was well aware the S49 Proceedings were ancillary/“adversary” proceedings to the recognised Bankruptcy Proceedings, he relevantly observed as follows:

“Hong Kong is a sister common law jurisdiction who (sic) insolvency law for companies, the Companies Ordinance, is derived from the British Companies Act; and the insolvency law for individuals, the [BO], is derived from the British Bankruptcy Act.  A cursory review of Hong Kong’s [BO] shows it bears many similarities to US law.  Despite the handover from Britain to China, Hong Kong’s Constitution, the basic law, provides that the judicial system practiced under British rule shall be continued.  Thus, Hong Kong maintains an independent judiciary and adjudicates cases pursuant to English common law and local ordinances, many of which derive from English law.”

120.  In all the circumstances, I am not persuaded this factor pointed inexorably to the US Court as the appropriate forum.

121.  Purchase price for the US Properties  Ms Lam submitted the relevant purchase prices were paid to estate agents in the US and dealt with by US companies. I agree with Mr Phang this factor would not be significant. The mechanics by agents/recipients in relation to the payment of the purchase price would not shed light on the disputed issues (see paragraph 123 (a)-(b) below). Rather, the sources of funds for the purchase price would be a more pertinent consideration. Even on D’s case, the funds came from Wang who resided in Mainland China, and from his account with HSBC Private Bank having address / place of business in Hong Kong.

122.  Location of witnesses/documents  Ms Lam submitted most of the relevant witnesses/documents at trial were located in the United States.

123.  Turning first to the matter of witnesses, Ms Lam submitted the crucial issues at trial would be (a) the source of funds for acquisition of the US Properties and (b) Qin’s/Ds’ precise roles in such acquisition (eg D claimed Qin was named as owner of the PD Pty for convenience), so the key witnesses would be D as well as the estate agent Olivia Hsu and the conveyancing/escrow agent Retie Brown who were responsible for the transactions concerning the US Properties, all of whom were based in the United States. Ms Lam suggested it would be unlikely that Olivia Hsu and Retie Brown would give evidence in Hong Kong since the purchase of the US Properties were just 2 of many standard transactions they handled in their work/careers.

124.  I agree with Ms Lam that greater emphasis should be placed on those witnesses who were likely to give disputed evidence rather than those whose testimony were unlikely to cause controversy.[51] But on the issue of source of funds (and also the matter of J&J Trust which Ps said would reflect on the issue of beneficial ownership of the US Properties), the crucial witnesses other than D would be Wang and Qin, and neither of them were in the United States. Wang resided in Mainland China which fact did not give the US Court any edge over the HK Court as the more appropriate forum. Further, as alluded to in paragraphs 113-114 above, there was query as to whether (despite D’s assertion otherwise) D was ordinarily resident in the United States. As for Qin, it had been held that Hong Kong had been his place of domicile and/or his place of ordinary residence (see paragraph 23 of the Chung Judgment).

125.  Ms Lam suggested that even if Qin was ordinarily resident in Hong Kong, the S49 Proceedings were separate from the Bankruptcy Proceedings, so the key witnesses as to the ownership of the US Properties and transactions in the United States would be D and the 2 agents rather than Qin. I disagree. Qin would plainly be a key witness as he could speak to the source of the funds and also the intention at the time of acquisition of the US Properties, the purpose of setting up the J&J Trust, and the intention for the 1^st/2^nd Grant Deeds and Quitclaim Deed. Further, it could not be overlooked that the S49 Proceedings were not merely about acquisition of the US Properties and their beneficial ownership at that point in time (which were points raised by D in defence of or opposition to Ps’ claim). Rather, the essence of the S49 Proceedings concerned avoidance of transactions that arose out of Qin’s bankruptcy. Even if the court determined Qin had interests in the US Properties, it still had to go one to decide whether the 1^st/2^nd ITGDs were transactions at an undervalue at the relevant time that satisfied the requirements of section 49 of the BO. Clearly, Qin would be a relevant witness on these matters, including his solvency or otherwise at the relevant time.

126.  As for the 2 agents in the United States, D did not identify what relevant/controversial evidence they would give. If their evidence was to chronicle the mechanics of how the purchase of the US Properties was put through, I could not imagine it would have been of much controversy. If this was the nature/scope of their evidence, then modern technology and communication could facilitate gathering of their evidence and their giving evidence at trial. In my view, such factor posed little significance from a practical view.[52]

127.  As for documents, Ms Lam submitted the relevant files/records kept by the estate agent company were like the companies themselves located in the United States such that it would be less convenient to search for and produce documents kept in the United States for proceedings in Hong Kong. Ms Lam argued the degree of inconvenience would no doubt be exacerbated if the key witnesses were unwilling to testify in Hong Kong.

128.  But in my view (and as pointed out by Mr Phang), there was no indication as to what files/records that were relevant and needed to be adduced, and how they would shed light on the intention of the parties at the time of acquisition of the US Properties. If the files/records were merely to chronicle the transactions that was put through to acquire the US Properties, I am unable to see much controversy for (a) Ps’ case relied on the various deeds themselves that were the result of such transactions, and (b) D’s case rested on what was not apparent from such deeds. D did not suggest she received any formal advice in writing (in contra-distinction from oral advice) from her estate agent about estate planning that allegedly led to the 2^nd Grant Deed in Qin’s name. But even if there was such advice in writing, D herself as recipient of such written advice would have the original thereof. Further, it was D’s case that because of the marital/familial situation she could not expected to document matters, which explained why, she said, there was no written declaration of trust. Also, it must not be forgotten that up to the time of the Hearing, Ps’ Notice seeking summary disposal of the OS was still on foot. So one would have expected that relevant documents that would shed light on the disputed issues and on D’s defence contentions would have been exhibited to D’s affirmations in opposition, or at least one would have expected an explanation would be forthcoming as to what pertinent documents had yet to be retrieved that would have persuaded the court to continue the present proceedings as if it were a writ action with the benefit of discovery procedure.

129.  In any event, in this modern age of technology by email, fax and courier, speedy transport of documents should not pose too much logistical difficulty. But more importantly, the HSBC Private Bank where Wang had his US$ bank account had its address / place of business in Hong Kong, and if (according to D) the funds for acquisition of the US Properties came from Wang, relevant bank records including instructions, vouchers and remittance forms would be sited in Hong Kong and amenable to potential discovery application if required.

130.  Bearing in mind the question of ownership of the US Properties at the time of their acquisition was only a sub-issue in the S49 proceedings which concerned avoidance of undervalue transactions under section 49 of the BO, other pertinent documents concerned Qin’s solvency or otherwise at the material time, which might include documents pertaining to his bankruptcy that had been placed before and canvassed by the HK Court (eg evidence placed before Chung J that led to the Chung Judgment). It would add to cost/inconvenience if the US Court were asked to apply Hong Kong law and review such evidence.

131.  In all the circumstances, I am not persuaded the location of witnesses/documents amounted to any strong factor towards finding the US Court as the appropriate forum. It would at best be a neutral factor.

132.  Governing law  Ms Lam submitted that United States law was the governing law of the 1^st/2^nd Grant Deeds, MS Agt and 1^st/2^nd ITGDs, and there was no dispute that title/ownership of immovable property in the United States were governed by the lex situs, hence the most appropriate jurisdiction for the S49 Proceedings would be the United States. Mr Phang had 2 points in reply, which I find persuasive.

133.  First, although Mr Phang fairly accepted the governing law of the MS Agt and the 1^st/2^nd ITGDs was United States law, the HK Court was not unfamiliar with applying foreign law if necessary, especially the law in an English-based “sister common law jurisdiction” (see paragraph 119 above). In MGM Grand Paradise Limited v Wong Sing Wa,[53] DHCJ Lok (as he then was) said as follows:

“ 17.    …… It has been repeatedly emphasised in various judicial decisions that the Hong Kong courts are accustomed to deal with aspects of foreign law, and so the governing law of the Loan Agreement being Macau law is not an obstacle at all.  In Rambas Marketing Co LLC v Chow Kam Fai David [2001] 3 HKC 250, Mr Recorder Geoffrey Ma SC, as he then was, allowed a casino in Las Vegas to recover a debt under a gambling loan despite the governing law of the loan agreement being Nevada law.  In Wynn Resorts (Macau) SA v Mong Henry [2010] HKCU 379, Chu J, as she then was, analysed the Macau Credit Law in length and gave summary judgment to another Macau casino for the enforcement of a gambling loan agreement.”

134.  Recorder Geoffrey Ma SC (as he then was) in Rambas Marketing Co LLC v Chow Kam Fai David explained as follows:[54]

“In cases where substantial and difficult issues of foreign law are involved, the court may well be compelled to stay the proceedings where there is an appreciable risk that justice will not be done. This risk may in certain circumstances be attributable to factors such as expense, but in the usual case would arise where the court was somehow concerned with the possibility that it might reach a wrong conclusion on an important aspect of foreign law. …… The courts in Hong Kong (particularly the Commercial Court and the Admiralty Court), given the international identity and nature of the type of commercial litigation and litigants here, are often accustomed to dealing with aspects of foreign law. It does not therefore follow at all that once it is shown that issues of foreign law arise, that this will necessarily be a powerful, much less a decisive, factor in favour of a stay. On the other hand, however, it is unrealistic not to acknowledge the fact that complicated issues of foreign law may arise with which the Hong Kong courts will not feel itself confident to deal; it is all a question of degree: see Muduroglu Ltd v. TC Ziraat Bankasi [1986] QB 1225, 1246A-F (English Court of Appeal), per Mustill LJ.”

135.  However, on the issue of the appropriate forum, D did not place before this court expert evidence on United States law on substantive rights/issues (eg legal title, beneficial ownership, trust, separate property and/or marital/community property) in contra-distinction to procedural matters (eg recognition of foreign proceedings) to show they were relevantly different from Hong Kong law. Indeed, Ms Lam in her written submissions to oppose Ps’ Notice cited local/English legal principles/authorities on resulting trust while Mr Phang relied on local/English legal principles/authorities on common intention constructive trust. As to what was presently known of US property law explained by Lee, the concepts of joint tenancy and tenancy-in-common were quite similar to those under Hong Kong law (see paragraph 77 above).

136.  In fact, for the purpose of D’s Summons, neither Ps nor D contended the common law principles applied in Hong Kong were different from those applied in the United States. The Conflict of Laws stated as follows:[55]

“…… The general rule is that if a party wishes to rely on a foreign law he must plead it in the same way as any other fact. Unless it is done, the court will in principle decide a case containing foreign elements as though it were a purely domestic English case. ……”

Whilst DHCJ Le Pichon in Caspian Resources Development Pte Ltd v Fortune Oil Plc recognised there are cases in which neither the presumption of similarity nor the default application of the lex fori will be suitable for the disposition of the case,[56] such exceptions would not assist D since there was no evidence of the substantive property law of the lex situs before this court. At the Hearing, Ms Lam asked this court to assume the lex situs (ie United States law) was similar to the lex fori (ie Hong Kong law). Mr Phang did not accept such proposition, and I agree with him that if this were the case, the US Court would not have advantage over the HK Court as the appropriate forum.

137.  Secondly, as explained above, the beneficial ownership upon acquisition of the US Properties was not the sole issue in dispute in the S49 Proceedings. In fact, this was only a point raised in defence, and Ps’ case concerned avoidance of transactions that arose out of Qin’s bankruptcy, so if it were found that Qin had interests in the US Properties, the court had to go on to decide whether the 1^st/2^nd ITGDs were transactions at an undervalue at the relevant time that satisfied the requirements of section 49 of the BO. In my view, these matters would be governed by Hong Kong law under section 49 of the BO. So Qin’s insolvency and his financial circumstances/affairs already canvassed by the HK Court that was seized of such matters in the Bankruptcy Proceedings and that resulted in the Chung Judgment which was binding on Qin[57] posed a distinct advantage for the HK Court to try the S49 Proceedings.

138.  Summary  Ms Lam claimed Ps themselves recognised the significance of the aforesaid factors were persuasive of the US Court being the appropriate forum because they filed the Chapter 15 Petition for recognising the Bankruptcy Proceedings and S49 Proceedings as foreign main and non-main proceedings, and recorded Notices of Lis Pendens against the US Properties. But I disagree in view of the above discussion. In my view, D failed to discharge her burden to show the US Court was the natural and more appropriate forum. Since D failed the Stage I test, it is unnecessary for me to go on to consider the Stage II factors, but I do so briefly for the sake of completeness.

(c)  Stage II

139.  For Stage II of the Spiliada test, Ms Lam submitted there were no legitimate personal or juridical advantages that Ps would be deprived of if the S49 Proceedings were stayed in favour of the US Court. Ms Lam added that for completeness, any difference in the American-style costs rule or the quantum of costs of proceedings in the United States is now typically seen as a neutral factor on the question of forum.[58] As it were, Mr Phang did not rely on the issue of costs. However, he made 3 points to which I now turn.

140.  Proof of insolvency First, Mr Phang submitted that Ps as Trustees would not have personal knowledge of the acquisition and Transfers of the US Properties and they did not yet have Qin’s full cooperation on disclosure, so they would rely the juridical advantage of not having to prove his insolvency at the time of the Transfers by relying on the presumption of insolvency in section 51B(2) of the BO (see paragraph 9 above) if the S49 Proceedings were to proceed to trial in the HK Court. I agree, and D had no effective answer on this point.

141.  Limitation issue Mr Phang submitted P’s claim against D would be barred under the statute of limitations regarding recovery of voidable transfers under the United States Bankruptcy Code and California Code of Civil Procedure. This time-bar argument was raised by Qin in his Adversary Complaint dated 27 October 2017 (see paragraph 62 above) and in his Opposition filed on 29 November 2017 (see paragraph 64 above). Both the Adversary Complaint and Opposition were submitted to the US Court by Lee as Qin’s attorney. For D’s Summons, D filed 2 affirmations by Lee who made such affirmations inter alia “to provide evidence on various matters of US law as it pertains to the said US Properties” (see paragraph 4 of the Lee 1^st Aff).

142.  Qin’s Adversary Complaint averred as follows:

“34.     [Qin] has no United States situs property.

35.       based upon information and belief, [Qin] believes that [Ps] are seeking to obtain a judgment or order under the Law of Hong Kong regarding the [RR Pty] and the [PD Pty]. [Qin] believes that that [Ps] are seeking relief under the law of Hong Kong because the statute of limitations regarding the recovery of voidable of transfers has expired under the Unites States Bankruptcy Code and the California Code of Civil Procedure.

36.       [Qin] seeks a declaration of rights as to [Ps] with regard to [RR Pty] and [PD Pty] regarding actions to avoid voidable transfers and the application of the California law versus the Law of Hong Kong to these actions.”

143.  Qin’s Opposition averred as follows:

“Fraudulent transfer actions under California law where the public notice of the transfer occurred must be brought within four years from the date of the public notice. See California Civil Code §3439.09. If the action is not brought within that time, the action is barred. A defective action does not constitute ‘property in the United States’ as required by section 109. Under prevailing California and federal law, defective causes of action cannot constitute property in the US. Other bankruptcy courts have addressed the issue with regard to ‘potential’ or ‘future’ causes of action and found that such were not property ……

……

…… The properties referred to in [Ps’] Motion were transferred more than four years prior to any direct filing to recover the alleged fraudulent transfer. While the [Chapter 15 Petition] was filed just before four years after the transfers, no authority to act on such transfers was granted within the four-year statutory timeframe. Therefore, the ability of [Ps] to assert claims under California law, the law of the situs of the real estate, expired. Without assets to administer in the United States, the Petition does not satisfy the requirements of section 109(a).”

144.  Plainly, Lee opined that avoidance actions would be subject to a limitation period of 4 years under California law, and that any avoidance actions by Ps vis-à-vis the US Properties in the US Court would be time-barred under United States law. Given Lee’s role as attorney of Qin as well as D in the US Proceedings and his role in providing evidence on United States law on D’s behalf for the D’s Summons, his opinion could not be brushed aside merely by Ms Lam’s complaint that Ps themselves did not adduce legal expert evidence on United States law as to the time-bar issue.

145.  Ms Lam drew my attention to the following observations on the limitation issue in the Decision:

“While acknowledging that a cause of action in the US can constitute property for the purposes of 109(a), [Qin] argued that [Ps’] avoidance action against [D] is time-barred under California law and thus the action cannot constitute property of the debtor. This argument assumes without any supporting legal authority that California law controls such an action. It is also contrary t the fact that because [Ps] filed an avoidance action against [D] in Hong Kong under Hong Kong law, which has a longer statute of limitation. Outside of the Chapter 15 context, the Supreme Court has looked to section 541 of the Bankruptcy Code, which defines property of the estate to interpret property of the debtor. The Supreme Court has explained, and the case is Begier versus IRS, at 496 US 53. The Bankruptcy Code does not define property – property of the debtor, because the purpose of the avoidance provision is to preserve the property includable within the bankruptcy estate. The property available to distribution to creditors, property of the debtor, subject to the preferential transfer provision is best understood as that property that would have been part of the estate had it not been transferred before the commencement of the proceedings.

Pursuant to Section 541(a)(3), property of the estate includes any interest in property the trustee recovers from a transferee. So under the Bankruptcy Code at least property of the debtor includes property that was transferred but is avoidable by the trustee. However, this is not in the analysis. Under Chapter 15, the recognize of a foreign proceeding does not create a separate estate under 541(a). Instead, the bankruptcy estate is defined by the laws of the foreign jurisdiction. I would cite for this case In re Lee at 472 B.R. 156. That case involved a foreign proceeding in Hong Kong, and the [US Court] stated the provisions of Chapter 15 of the Bankruptcy Court [Code] support a determination that the [BO] governs what constitutes property of the foreign debtor’s bankruptcy estates and the foreign representative’s rights with respect of that property, subject to the protections in that statute and in the Bankruptcy Code.

Under [the BO] Section 5.1(a), the bankruptcy estate includes property recovered by the trustee as a result of an avoidable transfer or preferential transfer. Pursuant to the complaint filed by [Ps], the transfers occurred in August 2013, which is well within a five-year statute of limitations available under [the BO] Section 51. The inclusion of property transferred away by the debtor but avoidable by the trustee means that it is property of the debtor within 109(a), and that it is supported by case law. In the case of In re Metzeler at 78 BR 674, which involved a foreign bankruptcy proceeding under the former Sections 304, the [US Court] held that a 109(a) must be interpreted to include property recoverable by transfer – trustees as fraudulent or preferential transfers. And although Metzeler was decided under Section 304, which is the prior and superseded code, the case is still relevant. Many of the principles underlying Section 304 remain in effect under Chapter 15.

Since the enactment of Chapter 15, the 5^th Circuit has decided that the avoidance action is a proceeding recognized under Chapter 15 is determined under foreign law, and the cite for that is In re Condor Insurance Limited, 601 F.3d 319. That’s a 5^th Circuit case from 2010.

……

So for these reasons I find that [Qin] has property in the United States and is eligible to be a debtor pursuant to 109(a).” (my emphasis)

146.  Based on the above extract of the Decision, Ms Lam submitted that the US Judge did not deal with limitation issue, or at least he did not find the limitation period under the American statute of limitation had expired, so in the absence of any expert legal opinion adduced by Ps on this issue, there was no loss of juridical advantage on their part.

147.  I disagree. First, the Lee 2^nd Aff claimed Qin and his counsel believed that by the Chapter 15 Order the issues raised by the Adversary Complaint were premature and moot for the time being (see paragraph 70 above). Although McKinlay said the Adversary Complaint was voluntarily withdrawn and the Adversary Proceedings were dismissed upon filing the Stipulation, Lee opined that even though the Adversary Proceedings ended with the Stipulation, any and all claims that Qin might have against Ps remained and might be raised by him under appropriate circumstances (see paragraph 73 above). This meant Ps potentially would have to face the limitation argument by Qin if the avoidance actions were brought in the US Court, but the S49 Proceedings were well within the 5-year time limit under section 51(1)(a) of the BO (see paragraph 9 above and the Decision also recognised there was a “longer statute of limitations period” in Hong Kong than in the United States – see paragraph 145 above). In my view, this plainly would be a juridical disadvantage for Ps.

148.  Secondly, as regards the Decision, the fact the US Judge did not make any definitive decision on the limitation point could not be any useful answer in light of the above paragraph. But there was an interesting takeaway from the extract of the Decision in paragraph 145 above, ie Qin’s time-bar argument was on the premise that “California law controls such an action [ie avoidance action]”, but there was at the very least arguments/contentions that it was the law of the foreign jurisdiction (ie Hong Kong) that would govern the rights of the foreign representatives (ie Ps) with respect to property (which would include any interest in property the trustee sought to recover from a transferee, ie the US Properties). These considerations would suggest that the HK Court rather than the US Court would be the appropriate forum.

149.  Multiplicity of proceedings  The S49 Proceedings arose out of Qin’s bankruptcy over which the HK Court had jurisdiction (as recognised by the US Court), and the BO conferred jurisdiction on the HK Court to deal with proceedings to set aside undervalue transactions, which matters were governed by Hong Kong law (as alluded to in the Decision – see the above paragraph). Ms Lam’s submissions focused on the ownership of the US Properties at the time of acquisition, which was but one of the issues in the S49 Proceedings. If the US Court were asked to deal with this limited issue only, it would give rise to multiplicity of proceedings and (as Mr Phang put it) temporary suspension of the S49 Proceedings because any finding by the US Court that Qin had interests in the US Properties whether upon acquisition and/or in the course of marriage to D would mean the HK Court would have to revive the S49 Proceedings to hear and determine whether the Transfers ought to be set aside under section 49 of the BO. As discussed in Part III above, there was little reason why the HK Court could not determine the sub-issue of ownership of the US Properties.

150.  But if it was said that the entire S49 Proceedings should be stayed in favour of the US Court (as D suggested), there was scant affidavit evidence let alone expert evidence on US law as to the jurisdiction of the US Court to seize and adjudicate avoidance actions of undervalue transactions under the BO (in contra-distinction to recognition of an order made by the HK Court in S49 Proceedings). Even if it were said the extract of the Decision in paragraph 145 above suggested such possibility, such extract also alluded to applicability of the law of the foreign jurisdiction (ie Hong Kong law in this case) to such United States avoidance action. So the US Court would have little advantage over the HK Court to hear/determine the claims in the S49 Proceedings.

151.  In the circumstances, should it necessary for this court to consider Stage II of the Spiliada test, I am persuaded Ps would suffer juridical disadvantage if the S49 Proceedings were stayed in favour of the US Court.

(d)  Stage III

152.  In relation to Stage III of the Spiliada test, given the fullness of the various factors canvassed in Stages I and II, there was really nothing further to add. Even considering once again all the circumstances in the round, I disagree substantial justice would best be achieved by having the S49 Proceedings tried in the United States. Rather, the natural and most appropriate forum would be the HK Court.

V.  CONCLUSION

153.  In conclusion, D’s Summons is dismissed. There is no reason why costs should not follow event. I grant a costs order nisi that D shall pay Ps costs of and occasioned by D’s Summons (including all costs reserved if any) to be taxed if not agreed.

154.  In relation to Ps’ Notice, I grant the following orders:

155.  As for costs of Ps’ Notice, Mr Phang and Ms Lam agreed for such costs to be reserved. I therefore grant a cost order (which is an absolute order) for the costs of and occasioned by Ps’ Notice to be reserved.