HONOUR FINANCE CO LTD v. POON TING CHAU AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. In this action the plaintiff is a money-lender; the defendants are husband and wife and I shall refer to them as such).

2. The plaintiff has obtained judgment against the husband for some $1.9m. The wife appeared before me in person; the plaintiff was represented by Counsel. The plaintiff's claim against the wife is a claim under Section 60 of the Conveyancing and Property Ordinance, Cap.219. Section 60 provides as follows:-

3. The disposition which the plaintiff attacks is an assignment made on 24th December 1987 by the husband to the wife of Flat 22, 10/F, Bell House, 525-543, Block A, Nathan Road, Kowloon, Hong Kong ("the property").

4. This assignment was an assignment made in consideration of payment of the sum of HK$320,000.00 by the wife to the husband, the receipt of which was acknowledged in the assignment. The transaction was one in which the parties instructed a firm of solicitors, Messrs Ho and Wong, who acted in the matter and who issued to the wife a receipt for a deposit of $120,000.00. The wife paid some other sums as well, including the solicitors' fees; and the balance of the purchase money was provided by Hang Seng Finance Limited ("HSF").

5. So far as HSF is concerned, the plaintiff has come to an arrangement with it under which the plaintiff will pay to HSF the amount due to it (upon the sale of the property, if the plaintiff is successful in these proceedings). On 30th July 1988, a sum of $174,495.81 was due to HSF; and no doubt that sum has since increased. I was told from the bar that the property is now worth something in the region of HK$340,00.00 to HK$360,000.00. The value of $320,000.00 as at December 1987 is not disputed. The result of this action, if the plaintiff is successful, will be that the wife will lose what she contributed out of her own monies towards the purchase of the property. However, there is no doubt that, if the wife took the property with notice of an intention on the part of the husband to defraud his creditors, this result must follow.

6. In order to succeed in this action, the plaintiff has to satisfy the court that the disposition was made by the husband with "intent to defraud creditors"; and that the wife had notice of his intention to defraud. As is said in Snell's Principles of Equity, 28th Edn. at p.132 (under the sub-head (f) "Proof of fraud") :-

"The burden of proving the intent to defraud is on the creditors seeking to set aside the settlement, though the intent may be inferred from evidence of the circumstances in which the settlement was made."

 

7. If the court is of the opinion, at the end of the day, that the wife had notice of the husband's intent to defraud his creditors then this action must succeed (for as will be seen, there is no doubt that the husband did have such an intention). If, however, the plaintiff cannot succeed in establishing that the wife knew of that intention, then the action must fail. Certainly, in most such cases the court will readily infer that a wife must have been perfectly well aware of her husband's intentions. With these considerations in mind, I turn to the facts of the present case.

8. The husband and the wife were married in 1974. He was an office manager; but after a time he entered into partnership with a friend in the general export business and he appears to have continued in that business until the events of 1987 to which I shall come. The wife was working as a midwife and, as I understand it, still does so.

9. The marriage does not appear to have been successful. The relationship between the wife and the husband was not particularly cordial. The evidence of the wife, if it is to be accepted, clearly demonstrated a marriage in which the husband, to use a colloquialism, played all his cards very close to his chest. He told her virtually nothing about his financial affairs and she does not appear to have been the sort who would inquire. She did, however, know in 1987 that her husband had dealt on the stock exchange and she did know that from time to time he found himself in need of money. She did not know that his needs were connected with the dealings that he had on' the stock exchange. Her evidence was that he told her he needed money from time to time for what he called "cash flow" purposes; that is to say, as I understand it, to assist him in the conduct of his export business.

10. In the summer of 1987, the husband asked the wife to lend him a substantial sum of money, some $3-400,000.00, which she was relucant to do, and indeed refused to do. There then emerged the suggestion that the husband should raise some money by selling the property, to the wife. She had some savings of her own, consisting largely of monies held on time deposits in Hong Kong and Australian currency at the Banque Nationale de Paris, maturing later int he year. The arrangement, she told me, was that the flat would be sold by the husband to herself for a price of $320,000.00. She would put up something in the order of $140,000.00; and the balance would be provided by a bank facility.

11. On 22nd August 1987, the husband and the wife appear to have signed a letter of intent brought into existence by the husband and headed "private and confidential-retained by seller and buyer only". This document was not disclosed on discovery, although at that time the wife was being represented by solicitors and it seems that she never disclosed this document to her own solicitors. It reads as follows:-

"We, the undersigned, husband and wife, intend to make a deal later in the year 1987 re Flat 1022, Bell House, Block A, 525-543, Nathan Road, Kowloon, Hong Kong (the said property) upon these terms and conditions -

 

12. As Mr Cheung, in his very able argument for the plaintiff, pointed out, this is a very strange document; and it is one of which the court ought to be suspicious. It is written in a formal, semi-legal, English, yet brought into existence for the private use of two Chinese parties, neither of whom (presumably) would naturally use the English language, although both of them are apparently capable of speaking it. Nevertheless, it does evince, if it is to be accepted at its face value, an intention on the part of the husband and the wife to enter into this transaction sometime before the stock exchange crash of October 1987, and I cannot, I think, just dismiss it from the picture as a sham.

13. When the crash came, the husband must have realised that he was in serious financial difficulties. He proceeded, as I conclude, to realise what he could by carrying into effect the transaction adumbrated by the letter of intent of 22nd August 1987. He got the wife to withdraw her money from BNP; and indeed she withdrew on 4th November 1987 the sum of $186,737.51. As I have already said, the parties went to solicitors; and those solicitors brought into existence an agreement for sale and purchase dated 17th December 1987 which led eventually to the assignment dated 24th December 1987 which I have already mentioned.

14. The husband gave as his address, in both the agreement and the assignment, an address in the Philippines. The wife's evidence was that when she and the husband attended at the solicitors for the execution of the documents, she thought the husband was going to live in Australia. She knew he did not intend to stay here in Hong Kong. She was, by this time, in even less close contact with him than she had been previously; because in May 1987 she had gone off to live with her mother. She does not know (she says) where he is now.

15. The evidence of the wife, coupled with the evidence of the husband's dealings on the stock exchange and the difficulties into which he must have got by November 1987, and last, but by no means least, his decampment to the Philippines - (if that is where he is), and his unwillingness to tell the wife where he is now, whether it be in the Philippines or elsewhere, all combine to convince me that he must be taken, in the latter part of 1987, to have entered into this disposition with a view to defrauding his creditors. That intent may be formed without any deceit or dishonesty in the most strict sense, although some element of sharp practice or unconscionalbe behaviour must be shown; in so far as authority for this proposition is required, it may be found in Lloyds Bank Ltd. v. Marcan [1973] 1 W.L.R. 1387. Whatever needs to be proved to establish the intent, the plaintiff, in my judgment, has succeeded in establishing it here.

16. The next question presents the plaintiff, in the present case with a much greater difficulty. The wife, as I have said, has demonstrated that the marriage between the husband and the wife here was not by any means the most close or warm of relationships. Although she was hesitant in giving her evidence (and although such hesitancy is sometimes an indication of a lack of desire to tell the truth) I did not form an unfavourable view of the wife in the present case. I am satisfied that she was endeavouring to tell the court the truth; and that she did so when she said that she was not aware that the husband's intention in entering into the transaction of December 1987 was to defraud his creditors. She knew, it is clear, that from time to time he needed money; and no doubt from time to time needed it urgently; and that certainly, is one factor which supports the plaintiff's case. She knew, also, that the disposition of the property was designed to provide financial assistance to the husband. The difficult question in the case is whether, having that  knowledge, she did know further that his intention was to defraud his creditors (something which she has denied in evidence) or that even if she did not know, she was wilfully shutting her eyes to the obvious. I have not found this an altogether easy question of fact to decide; but in the end, I come down in favour of the wife. This was not, I find, an ordinary happy marriage; and it seems to me that there is no sufficient reason to reject her evidence that she did not in fact know of the husband's intention to defraud his creditors. It appears to me further that there is no sufficient reason why I should come to the conclusion that she wilfully shut her eyes to that fact. I do not think it was obvious, having regard to the way in which the husband treated her, that he was intending to defraud his creditors as distinct from simply intending to raise as much money as he could. The two things are not the same. Nor do I think that she wilfully shut her eyes to the obvious in the hope that she would not see it. I think that she entered into this transaction, using her own money in good faith, with a view to assisting her husband in his financial difficulties but, in this exceptional case, without notice of the intention on his part to defraud his creditors.

17. For those reasons, I conclude that the plaintiff has failed in an essential element of its case and that its claim against the wife must accordingly be dismissed. I wish, however, to pay tribute to the careful and responsible way in which counsel for the plaintiff presented its case, representing, as he was, a substantial litigant against a litigant in person without means. And I also wish to express my appreciation of the attitude of the plaintiff in making it clear to the court that, had the court come to a different conclusion, it would have accomodated the wife in the difficulties in which she found herself. But, in the end, I am not satisfied, in this particular and unusual case, that, on the balance of probabilities, the wife here did know of the husband's intent to defraud his creditors. In fact, having heard the sorry story of the relationship between this husband and this wife, I think the balance of probabilities lies the other way. The claim against the wife must be dismissed with costs.