HO MAN KIT and KONG SAU WAI as the joint and several trustees of the Property of LI BAO TIAN (a bankrupt) v. LO SIU CHU JUDY AND ANOTHER

HCA 2016/2017

[2022] HKCFI 133

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2016 OF 2017

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BETWEEN

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J U D G M E N T

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This Case and the Parties

1.  This case concerns certain money transfers made to/for the 1^st Defendant (“D1”) by Li Bao Tian (“B”), who has been adjudged bankrupt, and 2 properties respectively in the name of the D1 and the 2^nd Defendant (“D2”) (collectively, “Ds”).

2.  D1 and D2 are mother and son. B is the father of D2. He was in an intimate relationship with D1, albeit whilst legally married to another woman.

3.  The Plaintiffs (“Ps”) are the joint and several trustees of B.

4.  Ps claim that the money transfers were gifts and also funded the acquisition of the properties as gifts. They should be reversed or voided under s.49 of the Bankruptcy Ordinance (Cap. 6) (the “BO”) or s.60 of the Conveyancing and Property Ordinance (Cap. 219) (the “CPO”).

5.  Ds’ defence is that D1 had substantial income from her own business activities in the Mainland. She had an arrangement with B where she transferred her funds to B mostly in the Mainland, and B transferred to or made payments for her in equivalent sums in Hong Kong.

6.  Ds accept that D2 had no beneficial interest in the property in his name. They say he was and is a bare trustee holding it for D1.

7.  As the parties present their respective case, the main question for this Court is whether to accept Ds’ explanation of the money transfers. After this, I will also consider the other elements under s.49 of the BO and s.60 of the CPO.

The Objective Facts

8.  I begin with the objective facts, which are all documented and cannot be disputed. The parties have also helpfully set them out in a set of Agreed Facts and an Agreed Chronology.

9.  On the 22th of each month from July 2013 to March 2014, on 24 April 2014, and on 22 May 2014, B issued a cheque for HK$120,000 to D1. This tallied to HK$1,320,000.

10.  On 1 April 2014, B issued a cheque for HK$1,300,000 to a firm of solicitors Messrs Robert Siu & Co (“RSC”). This sum would later go to the acquisition of the properties.

11.  On 25 April 2014, D1 and D2 entered into 2 Preliminary Sale and Purchase Agreements (“PSPAs”) with the same vendor to acquire:

(1) “No. 381 Kam Tsin Kwu Yung North New Territories” being “the Remaining Portion of Lot No. 1301 in D.D. 92” (“Property 1”) at a consideration of HK$9,500,000 including a deposit of HK$3,000,000;

(2) “North New Territories” being “Section C of Lot No. 1301 in D.D. 92” (“Property 2”) at a consideration of HK$2,000,000 including a deposit of HK$600,000.

12.  The properties are adjacent to each other and formed a whole parcel of land. On Property 1 is a village-type house. In simple terms, the properties comprise a house and its surrounding garden/patio.

13.  As Ds admit, the deposits for the properties were paid by B.[1]

14.  Both PSPAs were on the standard form of the real estate agent Shine Properties Consultants Co. Ltd (“Shine”). In both cases, the parties to the acquisition filled in the solicitors for the vendor to be Messrs Leung Kin & Co. and the solicitors for the purchasers, i.e., D1 and D2, to be RSC. The purchasers’ commissions to Shine were HK$95,000 and HK$20,000.

15.  On 12 May 2014, D1 and D2 entered into 2 Agreements for Sale and Purchase (“ASPs”) respective for Property 1 and Property 2. The stamp duties payable were HK$356,250 and HK$30,000.

16.  On 5 June 2014, RSC issued 2 bills to D1 for the 2 properties. The bill for Property 1 anticipates a mortgage from Public Bank of HK$5 million and separate payment of the stamp duty. The bill shows a balance due for the balance of purchase price, legal fees, and disbursement (but not stamp duty) of HK$1,509,500. The bill for Property 2 shows a balance due for the balance of purchase price, legal fees, and disbursement (including stamp duty) of HK$1,435,000.

17.  On 10 June 2014, B issued 2 cheques for HK$244,500 and for HK$2,700,000 to RSC in full settlement of the 2 bills.

18.  According to RSC[2] and as D1 later admitted[3], B also paid the stamp duty for Property 1.

19.  On 16 June 2014, Property 1 was assigned to D1. D1 entered into a mortgage with Public Bank for a mortgage loan of $5,000,000, which was drawn down as part payment for Property 1.

20.  On 25 June 2014, B issued another cheque for HK$26,000 to D1.

21.  On 30 June 2014, SB (Asia) Limited trading as SB Planning Design (“SB”) sent a detailed quotation to B for the renovation, decoration, and refurbishment of Property 1 (the “Project”).

22.  On 7 July 2014, Property 2 was assigned to D2. There was no mortgage.

23.  On 8 July 2014, B issued a cheque for HK$500,000 to SB as payment of its fees for the Project.

24.  From 16 July 2014 to 18 January 2016, B paid the mortgage instalments for Property 1 in the sum of HK$26,495.14 each month.

25.  On 18 August 2014, B issued a cheque for HK$115,000 to Shine as payment of the commissions for the 2 properties.

26.  On 28 August 2014, B issued another cheque for HK$289,000 to SB as payment of its fees for the Project.

27.  On 20 November 2014, B issued a cheque for HK$115,160 to SB as payment of its fees for the Project.

28.  On 18 December 2014, B issued a cheque for HK$1,052,000 to SB as payment of its fees for the Project.

29.  On 21 December 2014, B issued a cheque for HK$50,000 to D1.

30.  On 2 February and 26 May 2015, B issued 2 cheques to SB for HK$444,550 and HK$101,060 as payment of its fees for the Project.

31.  On 30 May 2015, B issued 2 cheques to SB for HK$21,140 and HK$116,000 as payment of its fees for the Project.

32.  On 6 and 10 June 2015, B issued 2 cheques respectively for HK$70,054 and HK$526,000 to SB as payment of its fees for the Project.

33.  On 15 June 2015, a creditor issued a statutory demand on B.

34.  On 18 June 2015, B issued a cheque for HK$300,000 to D1.

35.  On 30 June and 2 July 2015, B transferred HK$2,000,000 and HK$265,000 to D1.

36.  On 13 July 2015, B applied to set aside the statutory demand on him.

37.  On 14 and 20 July 2015, B issued 2 cheques for HK$92,800 and HK$66,330 as payment of its fees for the Project.

38.  On 28 August 2015, D1 chased Mr Lee Wai Choy (“Mr Lee”) of SB for some final stage works, and suggested to “transfer my money to you tomorrow for you to solve the problem first” but asked “If my husband issues cheque to you, can you pay back the money I paid you?” To this Mr Lee replied, “Of course!”[4]

39.  On 29 August 2015, D1 deposited HK$137,638 in cash into SB’s bank account in cash as payment of its fees for the Project. This was the last payment to SB. A dispute later arose; an amount of HK$424,055 was said to be due but was not paid.[5]

40.  On 17 December 2015, the Court dismissed B’s application to set aside the statutory demand on him.

41.  On 12 January 2016, B issued a cheque for HK$160,000 to D1. On the same day, B was removed as an authorized signor of D1’s account at Public Bank (“Account A”), and D1 also opened a new account at Public Bank (“Account B”).

42.  On 18 January 2016, D1 transferred HK$2,000,000 out of her Account A to a Cheung Sze Hung.

43.  On 28 January and 4 February 2016, D1 made 2 transfers of HK$10,000,000 and HK$2,300,000 from Account A to Account B.

44.  After the above transfers out of Account A, the balance there stood at HK$280,000.

45.  From February 2016 onwards, the monthly instalments for the mortgage for Property 1 were paid from Account A (rather than, as before, by B directly).

46.  From July 2016 onwards, regular sums in cash were deposited into Account A every month, in amounts just enough to cover the monthly instalment payment for the mortgage for Property 1.

47.  On 7 December 2016, B was adjudged bankrupt. On 31 March 2017, Ps were appointed the joint and several trustees of his property.

The Property Acquisitions

48.  As the above facts show, B paid the deposits, the balances of the purchase price (after mortgage for Property 1), stamp duties, real estate agent’s commissions, legal fees, and all other expenses for the acquisitions of Property 1 and Property 2.

49.  B also paid nearly all (96%) the fees which were paid for the Project. D1 paid a small amount, which in any event she was expecting B would pay SB later and SB would repay.

50.  Further, B paid the monthly instalments on the mortgage for Property 1 from inception in up to at least January 2016 (shortly after the Court dismissed his application to set aside a statutory demand on him).

The Money Transfers

51.  As the above facts also show, the identified direct transfers by B to D1 (as set out in paragraphs 9, 20, 29, 32, 35, and 41 above) tallied to HK$4,121,000 (“Direct Transfers”).

52.  Additionally, there were identified transfers by B to RSC (see paragraphs 10 and 17 above; subtotal HK$4,244,500), to Shine (paragraph 25; subtotal HK$115,000), to SB (paragraphs 23, 26, 27, 28, 30, 31, 32, and 37; subtotal HK$3,394,094), and to Public Bank in monthly mortgage instalments (see paragraph 24; subtotal HK$503,407.66). On Ds’ own case, these payments were for D1’s benefit (“Indirect Transfers”). They add up to HK$8,141,841.66.

53.  The Direct Transfers and Indirect Transfers (collectively, the “Money Transfers”) totaled HK$12,262,841.66.

The Parties’ Respective Case

54.  Ps’ case is that the acquisitions of Property 1 and Property 2 and the Money Transfers were gifts by B to Ds. (Ps’ pleaded claim for the Money Transfers refer only to the Direct Transfers. But since Ps claim the properties, they in effect claim the Indirect Transfers too.)

55.  Ds’ case, on the other hand, is that D1 had substantial income from her own business activities in the Mainland. She had an arrangement with B, whereby she would transfer funds to him, mostly in RMB and the Mainland, for him to transfer corresponding funds to her or make payments for her, in HK$ and in Hong Kong (the “Alleged Arrangement”).

The Evidence

56.  Ps called one of themselves (“Mr Ho”) and Mr Lee to give evidence. The other one of Ps (“Mr Poon”) filed a witness statement but was not called. His statement was expunged.

57.  Counsel for Ds argues that adverse inference should be drawn from Ps’ failure to call Mr Poon. I disagree. Ps are professional and joint trustees. Their knowledge comes from their collective work. There is no reason for both to give evidence.

58.  Ps also produced documentary evidence which they gathered in the course of their work as bankruptcy trustees. There is no challenge to this evidence. As I have set out some earlier, the objective facts can be readily gleaned from this evidence.

59.  Ds called themselves and a Huang Guangli (“Mr Huang”) to give evidence of an alleged business deal between his company and D1.

60.  Ds produced some documentary evidence. As I will discuss, however, what Ds have not produced is far more significant than what they have produced.

61.  Neither side called B as a witness. I accept Ps’ explanation that bankruptcy trustees often would not call the bankrupt as witness when they already know him to be evasive, uncooperative, and likely untruthful. See: Re Fowlds [2020] EWHC 1200 (Ch), per HH Judge Jones at §71.

62.  On Ds’ own case, they and B remain on good terms. B could have corroborated Ds’ story in many important respects. As I will discuss below, I draw adverse inferences against Ds from their failure to call B as a witness.

The Agreed Issues

63.  The parties initially submitted a somewhat long list of agreed issues. At the Court’s invitation, Counsel parred down the dispute into 4 main issues.

(1) Did the Alleged Arrangement exist?

(2) If the answer to (1) is no, does s.49 of the BO apply?

(3) If the answer to (1) is no, and independent of the answer to (2), does s.60 of the CPO apply?

(4) If the answer to (1) is no, and the answer to either (2) or (3) is yes, what are the appropriate remedies?

64.  I will address these issues in turn.

Issue 1: the Alleged Arrangement

65.  I find that Ds’ case of the Alleged Arrangement is a complete fabrication. No such arrangement ever existed. The reasons for my finding are numerous. Suffice to mention the main ones below.

(1) Ds have failed to give any meaningful picture, let alone any supporting evidence, of D1 having serious business activities in the Mainland sufficient to generate for herself a substantial income. D1’s own description is devoid of particulars, which rather suggests it to be made-up. There is no paper trial usual for substantial business activities, e.g., contracts, invoices, receipts, correspondence, text messages etc. The scant documents which Ds produce are insufficient and in any event unreliable.

(2) Ds have even attempted to show that D1 had substantial assets, especially banking and investment assets, which would be commiserate with having substantial income from running substantial business activities.

(3) Mr Huang’s story of working with and paying D1 was incredulous. He said his company clinched a lucrative property project because of D1’s introduction to local villagers so it agreed to and did pay her RMB 17 million. He cited a purported contract between his company and D1. But there is no ledger, no invoices, no deposit slips. He claimed D1 refused to sign any receipts. This does not explain why he had not produced any records from his company. His story boils down to a mere “I say so”.

(4) D1’s own declaration on bank account opening forms was that she was a housewife.

(5) Ds produced a redacted bank statement for an account in D1’s name in the Mainland, and cited some transfers to an account in B’s name in the Mainland as preceding B’s transfers to/for her in Hong Kong per the Alleged Arrangement. Ps obtained a court order to obtain B’s bank statements and records. It transpired that Ds had been entirely selective in showing transfers from D1 to B, when there were in fact transfers from B to D1 which had put her account in funds. This destroys the basis of the Alleged Arrangement.

(6) The transfers from D1 to B do not match, even roughly, with the Money Transfers from B to D1.

(7) D1 during cross examination referred to her transfers to B as loans. This is inconsistent with her case that those transfers were the first leg in the Mainland to the second leg of transfers by B to her in Hong Kong.

(8) Taking an overall view of D1’s account in the Mainland, one gets a distinct impression that it was in fact funded by B.

(9) There were also transfers from D1 to B in HK$ in Hong Kong. Ds’ case that these were also for the purpose of B then making transfers to/for her makes little sense.

(10) The chronology and the pattern of the Money Transfers clearly reflect that B was the income earner and that he was paying for the acquisition and renovation of his and D1’s family home, whilst gifting the properties to under D1’s and D2’s name. B paid the deposits and balances of the purchase prices for the properties. He paid the real estate agent’s commissions, which were not large sums. He picked SB for the Project and paid SB from time to time, in divers sums. He also paid the monthly instalments on the mortgage, again in not large sums.

(11) If B were helping D1 to exchange and transmit funds in RMB from the Mainland into/to HK$ in Hong Kong, one would have expected the sums to be relatively large and in or near round figures, for ease of accounting and handling. This was not the pattern at all.

(12) Ds have not produced a shred of evidence on how D1 kept track of how much she had transferred to B in the Mainland and B had transferred to her in Hong Kong. This makes the Alleged Arrangement unworkable and unbelievable.

(13) Ds failed to call B to give evidence. I draw an adverse inference that B could not have truthfully validated the Alleged Arrangement.

66.  In sum, I reject Ds’ case of the Alleged Arrangement. On the evidence, I find that D1 had no significant income of her own. It follows that the Money Transfers as well as the acquisition of the properties were all funded by B and were gifted by him to Ds.

Issue 2: s.49 of the BO

67.  Section 49 of the BO gives the court the power to, in effect, reverse a transaction by a debtor at an undervalue where the debtor is later adjudged bankrupt. Section 49(3) states that a gift or a transaction where the debtor receives no consideration is a transaction at an undervalue.

68.  Pursuant to s.51, s.49 applies to a transaction at an undervalue:

(1) If it was entered into less than 2 years before the date of the debtor’s bankruptcy, i.e., the date of the petition on which the debtor is adjudged bankrupt; or

(2) If it was entered into more than 2 years but less than 5 years before the date of the debtor’s bankruptcy, and if the debtor was already insolvent at the time or became insolvent in consequence of the transaction.

69.  Section 51(2) further provides that, if the transaction was with an associate, the debtor is presumed to have been insolvent at the time or to have become insolvent in consequence of the transaction. The parties are in agreement that D2 as B’s son is an associate of B as D2’s father. Ps argues that D1 was “de facto” wife to B, but stops short of contending that this would make her an associate of B.

70.  The date of B’s bankruptcy was 20 July 2016. Those Money Transfers after 20 July 2014 (see paragraphs 25 to 41 above) were gifts and transactions at an undervalue to/with D1 to which s.49 applies.

71.  D2 being an associate, the acquisition of Property 2 as a gift and transaction at an undervalue to/with him is presumed to be at a time when B was insolvent or became insolvent in consequence of it, and thus to which s.49 applies.

72.  Incidentally, Ps direct a lot of efforts to showing that D1 was “de facto” wife to B. To the extent that Ps means D1 has been co-habiting with B and the two held themselves out to be a couple, I agree the evidence well establishes so.

(1) Both had stated the same residential address before the acquisitions of the properties and stated Property 1 as their residential address after the acquisitions.

(2) Both had held out, in events in the Mainland and to Mr Lee, to be a couple.

(3) B was present and appeared to be the head of the family at the roast-pig-cutting ceremony to mark the beginning of the renovation Project.

(4) Both appeared in numerous family photos, clearly as a couple. They did not in any way appear to be estranged or even separated.

(5) In his 2^nd Affirmation dated 14 October 2015 in support of his application to set aside the statutory demand, B said, “my wife 盧小珠 [i.e., D1] does own a residential flat in Shenzhen … which has since the purchase been used by us as our home when we visited Shenzhen.”

(6) B stated on other occasions including to Ps that D1 was his wife. He even named D1 in the capacity of “spouse” as the beneficiary of an insurance policy.

(7) D1 herself declared on bank forms that she was married.

73.  It is not clear, however, why Ps are so keen on showing D1 to be “de facto” wife to B. Ps contends that this invokes the presumption of advancement, such that the transfers and acquisitions should be presumed to be gifts. I agree. But it adds little. Had the Alleged Arrangement been accepted, the transfers and acquisitions would necessarily not be gifts. On the other hand, since the arrangement is disbelieved, given that Ds offer no other reasons for the transfers and acquisitions, they must be gifts or at least transactions where B received no consideration.

74.  More material is the question whether B was insolvent as long as 5 years before the date when he was adjudged bankrupt, or at least since 22 July 2013, i.e., the time of the first of the Money Transfers.

75.  As one would expect and is understandable, Ps have not been able to restructure a complete picture of B’s finances over the years. The known episodes, including a number of relatively substantial loans, suggest a person who was living beyond his means, and using successive loans to cover past debt and ongoing expenses – and financing the Money Transfers and the acquisitions of the properties subject matter of this case.

76.  Counsel for Ds cleverly argue that, if B was the source of the Money Transfers (without the Alleged Arrangement), then he could not be insolvent. This ignores the debt that B was running up. It also ignores that insolvency can mean liabilities exceeding assets or inability to pay his debt. The possibility of that B had assets, but which he substantially gifted away, exactly increases the likelihood of the latter.

77.  The evidence shows B to be insolvent in both senses.

(1) According to B’s Statement of Affairs and some proofs of debt filed with Ps, B owed debts in 6 figures due to several banks and a finance company and a credit card company as early as in August 2009, September 2009, and May 2010.

(2) According to other proofs of debt and also the petition leading to his bankruptcy, he borrowed in the millions from several individuals in 2013 and 2014.

(3) B himself declared that he had no assets since 2013.

(4) B had a insurance policy with HSBC Life for which he last paid premium in around July 2014. The policy was worth around half a million. This was far less than his then liabilities.

(5) The 2 companies in which B may have a shareholding are, according to B, dormant or defunct companies. Ds have not adduced any evidence otherwise.

(6) Indeed, I draw an adverse inference against Ds for not calling B to give evidence as to his solvency/insolvency.

78.  In the premises, I find that s.49 of the BO applies to the Money Transfers and the acquisitions of Property 1 and Property 2.

Issue 3: s.60 of the CPO

79.  Section 60 of the CPO renders every disposition of property made with intent to defraud creditors voidable.

80.  Ps urge an inference that B intended the defraud creditors by borrowing from creditors and, in practice simultaneously, turning the same into assets and transfers/gifts of assets until Ds’ name.

81.  Given the timing of borrowings and Money Transfers, I agree that Ps must have known and intended the transfers/gifts to Ds to have the effect of making it more difficult for the creditors to reach those assets.

82.  Even though Ds did not explicit contend so, I bear in mind the possibility that Ps meant the transfers/gifts as providing for his family. But this does not exclude a motive to put the assets out of reach of the creditors. The 2 intentions are in reality intertwined. Given his debts, if B wanted to provide for his family, he had to put assets out of reach of his creditors.

83.  I find that s.60 of the CPO applies to the Money Transfers and the acquisitions of Property 1 and Property 2.

Issue 4: Remedies

84.  As I indicated to the parties at the trial, the issue of remedies may encounter some complication.

(1) There is overlap between the Money Transfers and the acquisitions of properties. Most of the transfers were for and were applied to the acquisition of and mortgage payments for the properties.

(2) As far as the available evidence goes, there is no basis to find that later mortgage payments were also sourced from B and subject to reversal or voiding. Ds may have some interest in the properties or at least in the value of the properties.

(3) Counsel for Ds argues that one should see B as having transferred the money to Ds and it was Ds who acquired the properties. What is to be reversed or voided should be the Money Transfers and not the acquisitions of the properties. Counsel cites Leung Hang Lin v Lam Mei Yung [2019] HKCFI 2819 per DHCJ A Stock at §6; Re William Henry Woo, HCB No. 276 of 2002, 11 May 2005, per DHCJ Saunders at §65; and Yeung Lui Ming v Tang Mo Lin Irene [2019] HKCFI 1848, per DHCJ To at §208.

85.  I will deal with the argument by Counsel for Ds first. I have read the cases he cites carefully. They do not assist Ds.

86.  Leung Hang Lin concerns a couple who paid for the wife’s mother’s purchase of a property. The couple alleged the mother held the property on trust for them. The mother alleged that the purchase moneys were gifts. The issue was gift vs no gift. This turned on the findings in the particular case, of what the parties intended. There was no issue of whether the gift should be a gift of money or a gift of the property.

87.  If anything, the case undermines Ds’ argument. After finding no intention of gift, the Court held that the mother held the property in trust for the couple. This illustrates that a transfer of money can result in a trust of property.

88.  Re William Henry Woo also does not assist Ds. There, the Court found that a person received money from a bankrupt at an undervalue must pay the money back to the bankruptcy estate. That she had used the money to purchase a flat “was her own decision”: see §65. The flat had already been sold; the Court ordered that any surplus (after return of money due to the bankruptcy estate) be paid to her.

89.  Key was the finding that it was the person’s own decision to use the money to acquire a property. This is not what happened in our case. Here, it was B in the driving seat of the acquisitions. There was no dispute that B was handling the whole process: liaising with and paying RSC, the real estate agent, and SB. Ds’ case is only that B was doing it on behalf of D1. Once this is rejected, one is left with the conclusion that B was buying the properties as a home for his family.

90.  Indeed, according to Mr Lee, D1 readily referred to the whole transaction as the first time B bought a home for her. This way of putting it is entirely natural and believable, and well describes the reality.

91.  Yeung Lui Ming concerns a disposition by a company owned and controlled by the bankrupt. The Court held that, heeding the principle of corporate personality, the disposition was not one by the bankrupt and s.60 of the CPO was not engaged.

92.  This is a different issue from the one I have to address. Here, the disposition was clearly by B. At most it may be said that the disposition was of money. Section 60 is engaged. The issue is what follows thereafter, i.e., the issue is one of remedy.

93.  In the overall circumstances of the case, in particular that the acquisitions were driven and funded by B, and in the absence of valuation of the properties for their value now, I think the fairest way is to approach the matter as follows.

(1) As I have said already, I find s.49 of the BO and s.60 of the CPO to apply to both the Money Transfers and the acquisitions of Property 1 and Property 2.

(2) The earliest Money Transfers, up to and in March 2014, are to be revered and voided. D1 is liable to return/pay the sums to Ps for B’s bankruptcy estate.

(3) I would count the transfers from April 2014 onwards as having gone towards the acquisitions of Property 1 and Property 2.

(4) The acquisitions were themselves gifts, transfers, and dispositions for purposes of s.49 of the BO and s.60 of the CPO. It is just common sense that a person can gift something to another by paying for the latter’s purchase. Equally, a person can transfer and/or dispose of assets through intermediate steps. That technically it involves multiple steps does not detract from the reality that it is one overall transfer and/or disposition.

(5) One arrives at the same conclusion even if, alternative to seeing acquisitions as gifts, transfers or dispositions, one treats the Money Transfers as the gifts, transfers or dispositions, and then see the properties as the traceable proceeds thereof. The Money Transfers being vitiated, it follows that Ds hold the properties in trust.

(6) Either way, the remedy would be (and I make) an order that Property 1 and Property 2 shall be transferred to Ps for B’s bankruptcy estate.

(7) I further note that s.40 of the BO gives the Court the power to “make such order as it thinks fit for restoring the position to what it would have been if that debtor had not entered into the that transaction”. If B had not made the Money Transfers, Ds could not have acquired the properties. It is a simple way to restore the position and not unfair to Ds that the properties be transferred to Ps so that Ps may realize the same and get back some money for B’s bankruptcy estate.

(8) Ps and the estate shall account to D1 or D2 for any mortgage and other payments which she or he has made and which are now reflected in the net value of the properties.

94.  For the avoidance of doubt, since I have found that it was B’s and not Ds’ decision to acquire the properties, any appreciation in the value of the properties shall accrue to B’s bankruptcy estate. I have deliberately chosen the words in paragraph 93(8) above to limit Ds’ entitlement to what they have paid and which are presently in the value of the properties.

95.  To reduce room for further tussle, I will clarify 3 more points which might arise in the implementation of paragraph 93(8) above.

(1) The burden is not on Ds to show that a payment (other than the Money Transfers) was sourced from their own income. As long as D1 or D2 show a payment to be from her and him, that would suffice. Ps have brought these proceedings to impugn the Money Transfers and no other transfers. It would be unfair if Ps can then use the implementation of paragraph 93(8) for a second bite of the cherry.

(2) A payment which Ds have made to maintain, and which is not reflected in any increase in the net value of, the properties is not accountable back to them. For instance, gardening costs may have been incurred. Minor works likely have been done over the years. Those arose from and were for the use of the properties. After all, Ds have enjoyed the properties as a home for many years. They cannot now seek reimbursement of such expenses.

(3) In the unlikely event that payments to be accounted back to Ds exceed the net realized value of the properties, Ps and the estate are not liable to Ds for any such excess.

96.  I thought briefly about the theoretical possibility that the value of the properties had declined so much that Ps might prefer a reversal of all the Money Transfers and abandon any claim to the properties. But this was not how the facts were presented, nor how relief was sought. I do not think it fair or safe for me to anticipate too many possibilities, or to grant reliefs upon theoretical contingencies. Better to provide as much finality as I can.

97.  I do hope that, with or without these clarifications, the parties will not need to engage in further prolonged dispute over the effectuation of the remedies.

Form of the Order

98.  Ps seek declarations voiding the transfers and acquisitions, as well as declarations that the monies and properties are being held in trust, plus orders for vesting the properties in Ps and for payments and transfers to Ps for the bankruptcy estate.

99.  I have already made and stated my findings about voiding the transfers and acquisitions and about trust. Counsel for Ps have not insisted that formal declarations would serve an additional purpose. I am not mined to make them.

100.  I make orders that Ds shall delivery up vacant possession of the properties to and vest the properties in Ps as Joint and Several Trustees of B. The order for Property 2 shall be against both D1 and D2, since their own case is that D1 asserts beneficial ownership thereof against D2.

101.  I also make an order that D1 shall repay the sum of the Money Transfers up to and in March 2014 to Ps as Joint and Several Trustee of B.

102.  Ps seek interest under s.48 of the High Court Ordinance (Cap. 4), which I grant.

103.  As for costs, I see no reason why it should not follow the event. I make an order nisi that Ds should pay Ps their costs, on the normal basis. There were substantial volumes of materials to canvass, not least in order to distill into a set of key objective facts. Counsel for Ps produced several very helpful tables and summaries. I give a certificate for 2 counsel.

104.  The parties are directed to draw up and agree on a draft order within 14 days, failing which Ps shall submit their draft, copying the same to Ds.

105.  I thank counsel and solicitors on both sides for their assistance.