GF v. CR AND OTHERS

FCMC 11732/2020

[2023] HKFC 97

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 11732 OF 2020

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D E C I S I O N

(Joinder)

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Introduction

1.  The Petitioner is the Wife (“W”)[1] and the Respondent is the Husband (“H”)[2]. They married in June 2005 in mainland China and have a daughter[3] and a son[4]. The proposed joining parties are:

a.  Intended 2^nd Respondent: The son of H in his previous marriage (“R2”) who had moved to the United Stated in 1996 when he was 10 years old;

b.  Intended 3^rd Respondent: DWDL (“R3”), which is a company incorporated in Hong Kong. R2 is the sole shareholder (holding 10,000 ordinary shares of the company) and is sole director of the company;

c.  Intended 4^th Respondent: GPHGCL (“R4”) which is also a company incorporated in Hong Kong on 17 November 1989. R2 is basically the sole shareholder R4 by virtue of his personal shareholding and which held through R3[5].

2.  On 11 December 2020, W filed the Petition for divorce in Hong Kong relying on the ground of unreasonable behaviours including H hiding his finances from W[6]. In fact, H, previously on 26 June 2019, had petitioned for divorce in the People's Court of Shanghai Pudong New Area. On 5 June 2020, W did attend the court hearing in Shanghai and opposed the petition. The Shanghai court dismissed the Husband’s petition[7]. On 5 January 2021, H sought to petition again in another People’s Court of PRC in Fujian Province[8]. That court, on 29 September 2021, granted the divorce and gave ruling on the custody of children and ancillary relief due to W’s absence. W lodged an appeal against the same decision on 13 October 2021 and the appellant court[9] directed a retrial. The trial court[10], on 6 December 2022, granted the divorce and ordered similar terms as those in September 2021.

3.  On the other hand, H did challenge the Hong Kong court’s jurisdiction on the 22 February 2021. W responded with explanations on her domicile and substantial connection and Deputy District Judge S. Wong, on 14 September 2021, dismissed H’s application on jurisdiction.

4.  Decree Nisi was granted on 23 December 2021 and Decree Absolute was pronounced on the 29 December 2022.

5.  On the 25 May 2022, W issued this summons for the joinder of R2 to R4[11]. H’s solicitor acted for R2 to R4 as well as H. W’s joinder application is supported by her affirmations of 20 May 2022[12] and 28 October 2022[13] respectively. H’s affirmation in response is dated 27 October 2022[14]. There are no statements filed by R2 to R4. Instead, H offered evidence on their behalf in his affirmation.

Background of the family

6.  W and H married on 6^th June 2005 in Jilin, China and they had a daughter (aged 17) and a son (aged 15), who have all along been living with W. The parties originally lived in mainland China, but the whole family obtained Hong Kong identity cards on 6 December 2014 and secured residency in Hong Kong via the Capital Investor Immigration Plan in 2014.

7.  In July 2019, W moved to Hong Kong with the two children. She rented an apartment with a lease of 2 years from October 2019 to September 2021. The two children have been studying in an international school in Hong Kong since September 2019[15].

The Law

8.  The law on joinder application is generally not disputed. However, there may have some special features in the context of matrimonial proceedings which will be discussed later.

9.  The law on joinder application is governed by Order 15 rules 6(2)(b) and (3), Rule of High Court, Cap 4A which provides that:-

“6(2) Subject to the provisions of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application -

(b) order any of the following persons to be added as a party, namely-

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any person to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.

(3) An application by any person for an order under paragraph (2) adding him as a party must, except with the leave of the Court, be supported by an affidavit showing his interest in the matters in dispute in the cause or matter or, as the case may be, the question or issue to be determined as between him and any party to the cause or matter.”

10.  The parties have referred me to a number of authorities on joinder applications. Most of them are actually facts sensitive. To sum up, the court retains a discretionary power to order joinder.

W’s case

11.  W contended that H is the controller and ultimate beneficial owner of real estate development companies in mainland China, held by R3 and R4 despite his denial. The holding company of the real estate development companies is registered in Hong Kong and therefore susceptible to Hong Kong orders. Therefore, the companies are actually controlled by the husband[16]. As far as W is aware, H has been managing the daily business of R3 and R4 and attending various meetings of the same even after R2 became the sole director on paper.

12.  Is it said that the placement of R2 as H’s nominee was intended to be secret[17], particularly after the insider dealing investigation against H in mainland China in 2009[18]. It is therefore very difficult for W to get hold of the evidence of H’s beneficial interest of R3 and R4.

13.  Furthermore, it is W’s submission that it is inherently improbable that R2 being a student of 22 years old would be controlling a company holding multi-billion dollars property developments in a jurisdiction which he had only last visited as a child. R3 and R4 are investment holding companies for a vast portfolio of high value property investments in Mainland China through its shareholdings in a chain of companies incorporated in the PRC[19].

14.  It is also W’s contention that the pre-nuptial agreement signed between H and her in mainland before marriage is a nullity under Hong Kong law. It is said to have been procured by oppression. W said she had suffered two terminations of pregnancy and a fragile third was coming when she signed the agreement. She was vulnerable and was reposing trust and confidence in H. Additionally, W had no financial disclosure and therefore could not have been able to make a decision with an understanding of the consequences. Neither did she had the chance to seek independent legal advice. She was not given the time required for careful reflection. She was only provided with the agreement on the 4 June 2005 and the marriage was on the 6 June 2005. W submitted that the prenuptial agreement is manifestly unfair.

H’s case

15.  H maintained the view that the prenuptial agreement signed in mainland is still valid and he complained that W had not raised any issue with it until recently when this joinder application was made. Despite the prenuptial agreement, W now seeks to bring in three additional parties R2 to R4 in these matrimonial proceedings, which in his submission, is not cost effective at all in view of case management.

16.  R2 has been holding the shares of R3 and R4 for more than 10 years since 2008/2009 and that H has planned the overtaking by R2 for a lengthy period of time for the sake of asset management of H and R2’s family. This is not a case where H could anticipate the divorce proceedings and seek to dispose of his assets unreasonably[20].

17.  Further, Mr Yim on behalf of H submitted that the net asset value of Goldland Property is and Dragon Wing is negative and “actually worthless”[21], therefore the joining of them in the proceedings is basically meaningless and time consuming.

Discussion

18.  This application simply hinges on the question as to whether, on the strength of the background and circumstances of the case, it would be necessary or just and convenient to add R2-R4 in these proceedings.

19.  In the case of KCMA v. ABC [2019] HKFLR 548 where Hon B Chu J on the topic of ‘Joinder’ made it plain that[22] :

“To join or not to join – the legal principles

77. As said above, upon being served with the Form 25 and the Form F, the non-party may decide to intervene or to join as a party in the application, or the applicant in the application may decide to apply to join that non-party as a party.

78. Paragraph 15/6/1 of the Hong Kong Civil Procedure Volume 1 2020 sets out the effect of Order 15 rule 6. Paragraph 15/6/6 is in relation to adding or substituting defendants and paragraphs 15/6/7 – 15/6/11 are in relation to interveners. Suffice to say, it can be seen, amongst other things, as follow :

(i) On whether a new party should be joined, the test is whether there is a bona fide claim and a proper question to be tried between the plaintiff and the intended defendant that is necessary or just and convenient for resolution between them as well as between plaintiff and the defendant in the proceedings;

(ii) The court retains a discretionary power to refuse the order or to impose terms;

(iii) A court could review the position of joinder at any stage of the proceedings;

(iv) Prima facie, the plaintiff is entitled to choose the person against whom to proceed, and to leave out any person against whom he does not desire to proceed. Under this rule, the court has power on the application to add or substitute a defendant, and the object is to ensure that (a) all issues in dispute be effectively adjudicated upon by the court and (b) all relevant parties are before the court. The court can on such terms as it thinks just give leave for a person to be joined as a defendant and allow him to participate in the proceedings to the extent permitted by the court.” [emphasis added]

20.  In the case of LLC v. LMWA [2019] 2 HKLRD 529 where Hon Lam, ACJHC (as he then was) observed the distinction between a property held under the name of a third party and where the third party merely asserted a beneficial interest in the property without himself or herself holding the legal title of it. It was said: -

“25. In the former case, the third party should be joined as a party since the legal title of the disputed property would have to be transferred or subject to encumbrance if the ownership issue is resolved by the making of a proprietary order. In the latter case, the third party should be notified of the claim and if he or she decides to contest the ownership issue, he or she should apply to be joined as party to the proceedings….”

21.  In an English case cited by Mr Todd, KC on behalf of W in the present case T v T and Others (Joinder of Third Parties) [1996] 2 FLR 357 where the husband transferred his interest in the business which he had built up, to the trustees of a settlement which he had set up in Jersey. On the breakdown of the parties’ marriage, the wife sought a Mareva injunction prohibiting the husband from disposing of the assets of the trust. The husband asserted that he had no effective control over the assets of the trust fund. Wilson J (as he then was) finally ordered the trustees of the fund to join as respondents in the Mareva injunction application. The trustees then made an application to set aside the joinder order. That application was opposed by both the wife and the husband reiterated his assertion that he did not have overall control over the fund.

22.  Wilson J, in T v T (supra), refused the trustees’ application to set aside the joinder order and held, amongst other things, that Order 15 r 6(2)(b) of the Rules of the Supreme Court in England (same terms as the HK equivalent provision) provided that the court could join as a party to the proceedings any other party whose presence before the court was necessary, or where it was just and convenient to determine an issue arising between either party to the proceedings and that other party as well as the substantive proceedings. Wilson J further said that a crucial matter during the substantive proceedings would be the extent to which the husband had real control over the assets of the Jersey trust.

23.  From the court’s perspective, the enforcement of any order which might ultimately be made would be greatly facilitated by the trustees of relevant parties to the proceedings. This is particularly applicable in respect of the R2-R4 in the present case where issues of transfer of shares and investigating where assets have been moved to, might apply.

24.  As plainly stated in the Hong Kong Civil Procedure Vol 1 2023 Edition[23], a liberal application should be given to Order 15 rule 6, especially after the Civil Justice Reform. I agree the interpretation should be to ensure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of legal proceedings with respect to any of those matters is avoided.

25.  It was undisputed that R2 was only 22 years old and yet graduated from the university in the United States when R3 was incorporated and when H acquired Goldland Property in 2008[24]. R2 only started to manage the business in 2009 and in merely four months’ time, H said that R2 was recognised as a suitable successor of his business followed by H transferring his 63% shares in R4 to predecessor (BVC) of R3 on 3 April 2009. As a matter of fact, as early as 23 July 2008 before R2 taking charge of the family business, H had already transferred 37% shares in R4 to R2. The urgent transfer of shares and control from H to R2 before and after R2’s graduation from the university required to be explored in the course of these proceedings. The allegation against H in respect of the insider dealing investigation in the mainland around the same time also worth exploring by the court in the later proceedings.

26.  The assertion of the estimated value of the two companies (R3 and R4) involved also vastly differed. The validity of the prenuptial agreed signed between W and H in Mainland on the very day before their marriage will also be a significant issue to be considered by the court as preliminary issue or in the trial proper.

27.  Whilst I have reminded myself that all the above circumstances are historic events which should not be the Court’s primary consideration when determining W’s Joinder application, I however do take note of the fact that had the transfer of shared by H to R2 & R3 and the prenuptial agreement been successfully set aside by W (which should not be considered as any indication or decision of this court), the amount at stake in the ancillary relief proceedings could be substantially increased as compared to the present situation.

Conclusion

28.  Analysed as the above, I am of the view that it is “necessary or just and convenient” to join R2 to R4 in these proceedings in line with the principles set out in the KCMA v. ABC (supra) so that all issues can be effectively adjudicated upon by the court in due course. Such move may also facilitate conducting a more meaningful multi-parties FDR[25].

29.  As such, I decided that R2 to R4 should be joined as parties in these proceedings in respect of ancillary reliefs.

Orders

30.  For all the above reasons, I now grant the following Orders:-

(a)  R2 – R4 be joined as 2^nd, 3^rd and 4^th Respondent in these proceedings; and

(b)  H be named as the 1^st Respondent.

Costs

31.  On the question of costs, I decided that H and R2 to R4 should pay the costs of W’s Joinder application (with certificate for Counsel), including all costs reserved, to be taxed if not agreed.

53.  This is a costs order nisi which would become absolute if no application to vary the same is made within 14 days from the date of this Decision.

54.  Last but not least, I wish to thank Counsel from both parties for their valuable assistance to this Court.