RE FORTUNE KING TRADING LTD

HCCW 432/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 432 OF 2012

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DECISION

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1.  This is an application made by the joint and several liquidators of Fortune King Trading Limited (君裕貿易有限公司) (“Company”) on 14 October 2015 under section 200(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“Ordinance”) for determination of the following question:

“ Whether the net balance of the sale proceeds of House 18 Severn 8, No. 8 Severn Road, Hong Kong (‘Net Balance’) paid into Court pursuant to the Order of Deputy High Court Judge Lok on 21 September 2012 under HCA 1055/2012 is an asset (a) owned legally and beneficially by the Company or (b) held on trust by the Company for and on behalf of the bankruptcy estate of Mr Luu Hung Viet Derrick.”

2.  Mr Anson Wong SC (leading Mr Tom Ng), counsel for Construction Limited (“Construction”), objects to the summons issued by Mr Wong Tak Man Stephen and Mr Osman Mohammed Arab, the trustees of the estate of Mr Luu (together “Trustees”) to adduce his 5^th affirmation dated 10 March 2017 on the basis that it was filed without leave of the court and the Trustees have failed to demonstrate exceptional circumstances for admitting this additional evidence at this stage. I do not think the objection is well founded as the purpose of 5^th affirmation is to exhibit the contemporaneous documents obtained by the Trustees which relate to the matters already canvassed by the Trustees in their earlier affirmation. As will be seen further below, given the lack of any assistance from the liquidators of the Company, the court has to rely on the documents produced by the parties, in particular the Trustees, in ascertaining the fact relevant to the question raised in the liquidators’ Summons. 

Background

3.  The Company was incorporated in Hong Kong on 28 April 2007.  Until 20 March 2012, its sole shareholder was Alphred Group Limited (“Alphred”), holding one issued share. Alphred was the sole director of the Company.

4.  Alphred was incorporated in the BVI on 28 March 2007.  On 4 May 2007, Mr Luu Hung Viet Derrick (“Mr Luu”) became its sole shareholder (holding one share) and director.  Pursuant to a written resolution dated 26 September 2008 signed by Mr Luu, one share was allotted to his wife, Ms Liu Ke Mian Lorraine (“Mrs Luu”) for US$1.  On 20 January 2012, Mrs Luu was appointed as a director of Alphred.

5.  The Company purchased House 18 Severn 8, No 8 Severn Road, Hong Kong (“Property”) on 23 July 2007 for HK$109 million.  As stated in schedule 4 to the agreement for sale and purchase dated 27 August 2007 (“SPA”), the price was paid by the Company in 4 tranches, and the last payment was made on 30 November 2007, which was also the date for completion.  At the time of completion, Mr Luu was the sole beneficial owner of Alphred and the Company. 

6.  The Property was subject to a number of mortgages and legal charges as follows:

Date of creation	Date of release	Nature	In favour of	Amount secured
4/12/2007	--	Mortgage	Standard Chartered Bank (“SCB”)	All monies
4/12/2007	26/2/2008	Second legal charge	Freeway Finance Company Ltd (“Freeway Finance”)	All monies
18/7/2008	26/9/2008	Legal charge	Goldbest International Investment Ltd (“Goldbest”)	$15 million facility, all monies
23/6/2008	5/8/2009	Legal charge	Freeway Finance	All monies
4/9/2009	27/10/2009	Legal charge	Freeway Finance	All monies
27/10/2009	21/1/2010	Second legal charge	Hong Kong Finance Company Ltd (“HK Finance”)	All monies
21/1/2010	--	Second legal charge	Sparkle Well Finance Company Ltd (“Sparkle Well”)	All monies
16/8/2010	--	Third mortgage	HK Finance	All monies

7.  On 1 August 2011, a bankruptcy petition was presented against Mr Luu.  Following a contested hearing, a bankruptcy order was made on 8 February 2012 and the Official Receiver became the provisional trustee of Mr Luu’s estate.

8.  Without any notice or consent of the Official Receiver, Mrs Luu on behalf of Alphred signed a special resolution stated to have been passed on 30 March 2012 (“Special Resolution”) to approve the transfer of the one share held by Alphred to Satisfactory Kingdom Holdings Ltd (“Satisfactory”).  There is no evidence to suggest that any consideration was paid by Satisfactory to Alphred for the transfer of the share.  This was despite the fact that by transferring the only issued share held by Alphred in the Company to Satisfactory, Mrs Luu was in effect disposing of the Company and the Property to Satisfactory.  After the transfer of the share to Satisfactory, Mr Luu and Mrs Luu continued to reside in the Property, apparently without having to pay any rent to the Company.

9.  The Property was sold to Petrina Company Limited pursuant to a sale and purchase agreement dated 30 April 2012 (“2012 SPA”) for HK$168 million and the sale was completed on 22 June 2012.

10.  Shortly before completion of the sale, on 18 June 2012, the Trustees commenced HCA 1055/2012 against Mr Luu, Mrs Luu, Alphred, Satisfactory and the Company to claim, inter alia, declarations that (1) the transfer of the one share in the Company from Alphred to Satisfactory and the approval of the transfer by the Special Resolution were void, (2) Alphred remains the sole shareholder of the Company, and (3) 100% or 50% of the balance of the proceeds of sale, after discharging the amounts owed to the mortagees and chargees, is held by the Company on trust for the Trustees.  On the same day, the Trustees applied for and obtained an ex parte proprietary injunction to enjoin the defendants from disposing of or dealing with the balance of the proceeds of sale.

11.  Pursuant to a consent order dated 21 September 2012, HK$13.4 million, which was then thought to be the net balance of the proceeds of sale was paid into court.  

12.  On 3 July 2012, Construction commenced HCA 1140/2012 against the Company to claim repayment of a debt of HK$16.8 million.  According to the statement of claim filed by Construction, the debt arose in this way:

(1)   Pursuant to a loan agreement dated 24 July 2009 (“1^st Loan Agreement”), Mr Wong Tseng Hon agreed to advance a HK$12 million loan to the Company for a term of 2 years.

(2)   By an extension agreement dated 24 July 2011 (“1^st Extension Agreement”), the time for repayment was extended for 6 months and the amount payable became HK$15 million.

(3)   On 12 January 2012, the loan was assigned by Mr Wong to Construction.

(4)   Instead of repaying the loan, on 24 January 2012, the Company and Construction entered into a second extension agreement whereby the parties agreed to further extend the time for repayment to 24 May 2012 upon the Company agreeing to repay HK$15.5 million by the extended date (“2^nd Extension Agreement”).

(5)   By another loan agreement dated 26 April 2012 (“2^nd Loan Agreement”), Construction agreed to advance a further loan of HK$1.3 million to the Company, and the Company agreed to repay HK$16.8 million to Construction within 30 days thereof, i.e. by 25 May 2012.

13.  Except the 2^nd Loan Agreement which appears to have been signed by one “Sandy”, all the agreements were signed by Mr Luu on behalf of the Company and in his capacity as the guarantor of the loan. Only 2 cheques dated 26 April 2012 in the amounts of HK$800,000 and HK$500,000 paid by Construction to the Company have been produced. 

14.  Within 2 days of the issue of the writ in HCA 1140/2012, on 5 July 2012, one “Sandy”[1] on behalf of the Company filed an acknowledgement of service and admitted the claim, whereupon Construction obtained a default judgment against the Company on 12 July 2012 for HK$16.8 million together with interest at 8% per annum from 3 July 2012 and fixed costs of HK$11,045 (“Default Judgment”).

15.  On 27 July 2012, Construction was added as the 6^th defendant in HCA 1055/2012 and the only relief sought against Construction was an injunction to enjoin it from attaching or otherwise interfering with the balance of the sale proceeds in satisfaction of the Default Judgment.

16.  Relying on the Default Judgment, on 23 November 2012, Construction presented a winding up petition against the Company in these proceedings.  A winding up order was made against the Company on 30 January 2013.  Ms Tso Yin Yee and Mr Pang Yiu Kwong, both of Vantage Advisory Limited, were appointed on 4 November 2013 as liquidators of the Company (together “Liquidators”).  Construction is the only creditor which has filed a proof of debt in the liquidation of the Company.

17.  The Trustees subsequently discovered that a sum of HK$1,435,000 had been taken from the sale proceeds of the Property and used by Mr Luu to repay a debt he owed to HK Finance.  Upon the repeated requests of the Trustees, on 10 January 2017, HK Finance repaid HK$1,435,000 to the Liquidators, and the Liquidators paid the same into court on 6 March 2017.  Taking into account this additional payment, the “Net Balance”, as defined in the Liquidators’ Summons, was HK$14,835,000.

18.  In the meantime, the Trustees applied for an order to continue their claim in HCA 1055/2012 against the Company but the application was dismissed by Master Hui on 2 December 2013.  The Trustees’ appeal was dismissed by Recorder Jat SC on 29 May 2014, as the learned Recorder considered that the Trustees’ claim for the Net Balance was relatively straight forward and could be determined by the Liquidators and, if any party was aggrieved by the Liquidators’ decision on the Trustees’ claim, they could apply to the court under section 200(5) of the Ordinance or the Liquidators could apply for directions under section 200(3).

Liquidators

19.  Mr Sebastian Hughes, counsel for the Trustees, criticises the Liquidators for their delay in making the application and their decision in not filing any evidence on the application or taking part in the hearing.  I think the criticism is amply justified.  It is clear from the 2 affirmations filed by the Liquidators that they have not conducted any meaningful investigation on the merit of the Trustees’ claim or the contentions raised by Construction.  The only thing they did was to make written requests to Mr Luu, Mrs Luu, Alphred and the former solicitors of the Company for provision of information.  When no response was received from them, the Liquidators did not pursue the matter further.  Instead, they relied on the lack of information and the conflicting stance of the parties as the reasons for not making a decision on the Trustees’ claim and even excused themselves from the substantive hearing by dressing it up as a “costs saving approach”.  This was despite the fact that they have obtained a pre-emptive costs order from G Lam J on 20 May 2015 to ensure that their fees and costs incurred in investigating and ascertaining the beneficial ownership of the Net Balance could be paid out of it.

20.  As a result of the inaction of the Liquidators, which is surprising given that it was (and still is) their duty to investigate and decide the merit of the competing claims made by the Trustees and Construction, the court has to decide the question without the benefit of any assistance from the Liquidators.  Indeed, even the basic information and documents concerning the Company, such as the accounts of the Company, audited or otherwise, are not in the evidence.

Merit of application

21.  As stated above, the question for determination by the court is whether the Company is holding the Net Balance as its legal and beneficial owner or on trust for the estate of Mr Luu.

22.  In his skeleton, Mr Hughes makes clear that the Trustees rely on the presumption of resulting trust.  He summarises the Trustees’ case in this way:

“ ….[the evidence obtained by the Trustees] supports the overwhelming conclusion that the beneficial interest in the [Property] was, at the time of purchase, held by Luu and that, therefore, the Net Balance is held on trust by the Company for and on behalf of the bankruptcy estate of Luu.”

23.  The principles governing resulting trust are not in dispute and have been conveniently summarised in Re Superyield Holdings Ltd [2000] 2 HKC 90 at 106E – 108E, per Recorder Robert Kotewall SC:

“1. A useful starting point is article 31(1) of Underhill & Hayton, Law of Trusts and Trustees (15th Ed), p 317 as follows:

‘ When real or personal property is conveyed to a purchaser jointly with others, or to one or more persons other than the purchaser, a resulting trust will be presumed in favour of the person who is proved … to have paid the purchase‑money in the character of purchaser (as opposed to that of donor or lender).’

2. The better view is that this is a rebuttable presumption of law in that:

(a) it applies as soon as the fact of contribution to the purchase price is proved; and

(b) in the absence of other evidence, it is conclusive for the party in whose favour it operates and for the purpose for which it operates.

3. The fact being presumed is that of the intention of the parties (or more precisely, the providers of the purchase‑money) in the absence of evidence of their actual intention. That being the case, the presumption can be rebutted by:

(a) the application and non‑rebuttal of the presumption of advancement;

(b) evidence of an actual intention on the part of the purchaser to benefit the holder of the legal title.

4. The principle is applicable to different combinations of factual circumstances:

(a) Where one person pays the whole of the purchase price and title is taken in the name of another, it is presumed, unless the contrary is shown, that it was intended that the property be held in trust for him.

(b) …..

(c) …..

5. The material intention is that of the provider of the purchase money. See Calverley v. Green (1984) 155 CLR 242, per Gibbs CJ at 251 and per Mason & Brennan JJ at 261.

6. The implied trust arises at the time of the purchase so that the contributor acquires an equitable interest at the outset and such interest corresponds to the share he or she paid for at the time of purchase. See Underhill & Hayton at p.321.

7. The time to take stock of the respective interest taken by the parties is the time of acquisition.

8. It follows that the time at which the respective contributions are to be calculated for the purpose of fixing the parties’ respective interest is also the time of acquisition. See Crisp v Mullings [1976] 2 EGLR 103G‑K and Calverley v. Green at 252 and 262.

9. …..

10. Where some or all of the purchase price is borrowed, the acceptance of a personal liability as against the lender to repay, for instance, by the execution of a mortgage containing a personal covenant to repay, constitutes a contribution to the purchase. …

11. The better view is that post‑completion unequal contributions to mortgage repayments, whether by prior agreement or otherwise, cannot affect the quantum of interest taken by the respective parties at the date of acquisition under, I emphasise, a resulting trust. …

12. …..

13. The burden falls upon the party asserting, in I believe Miss Wong’s words, or perhaps not, that ‘the equitable right is not at home with the legal title’. See the similar sentiments in Crisp v Mullings at 103F‑G.

14. These principles are not restricted in their application to persons within any particular category of relationships.”

24.  Mr Hughes fairly draws the attention of the court to a number of authorities where the English court held that when the purchase was made in the name of a company, the starting premise should be that the purchaser intended both the legal and beneficial interest to vest in the company (Arab Monetary Fund v Hashim, unreported, 15 June 1994; Trade Credit Finance No (1) v Dinc Bilgin [2004] EWHC 2732 at 70(e); Nightingale Mayfair Ltd v Mehta, unreported, 1999 WL 1705970, 21 December 1999, at p 15). In Underhill and Hayton Law of Trusts and Trustees, 19^th edition, at §25.11, the learned author drew the distinction between an initial purchase made in the name of the company and a subsequent transfer to the company:

“ Where A purchases property in the name of a company or trust controlled by him the normal nature (but rebuttable) inference is that beneficial ownership was intended to pass to the company or trustee, but if A transfers property from his name into that of a company or trust controlled by him, the court is ready to infer that in the circumstances the transferee was to be a nominee of A.”

25.  Mr Wong submits that the presumption of resulting trust will be rebutted if the purchase price was paid by way of a shareholder’s loan, citing Re Hansby Company Ltd, unreported, HCMP 4610/2003, 12 May 2004, per Barma J (as he then was) at §22 and Good Profit Development v Leung Hoi [1993] 2 HKLR 176 at 181, per Woo J (as he then was). This must be right as by advancing a shareholder’s loan to the company to purchase a property, the shareholder was expressing an intention to seek repayment of the loan from the company, rather than acquiring a beneficial interest in the property.  Such intention is inconsistent with any presumed intention on the part of the shareholder to acquire a beneficial interest in the property.

26.  Mr Wong also relies on the well-established principle, as expounded in Salomon v Salomon [1897] AC 22 and Macaura v Northern Assurance [1925] AC 619, that a company has a separate existence and is a legal person separate from its shareholders, and the normal rule is that a company does not hold property as an agent or trustee for its shareholders. The principle has been consistently applied and followed by the Hong Kong court in Good Profit Development v Leung Hoi [1993] 2 HKLR 176 at 179(40) – 181(25), per Woo J (as he then was), Hui Yin San v Tsoi Ping Kwan [2010] 1 HKC 585 at §25(1), per Au J, Terrian Ltd v Oriental Peer Co Ltd [1988] 1 HKLR 246 at 254H-J, per Clough JA, Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1 at §34, per Ribeiro PJ, Re Hansby Company Ltd, unreported, HCMP 4610/2003, 12 May 2014, per Barma J (as he then was).

27.  Mr Hughes points to the following evidence which he submits shows that at the time of the purchase of the Property, Mr Luu intended to retain the beneficial interest in the Property and that the Company was used by Mr Luu “as a conduit for personal loans obtained using the security of the [Property]”:

(1)   Mr Luu was the sole shareholder and director of Alphred at the time of the purchase of the Property.

(2)   Mrs Luu only became a shareholder of Alphred on 26 September 2008 with the approval of Mr Luu, and she was appointed as a director of Alphred after the bankruptcy petition had been presented against Mr Luu.  As such, the prima facie position must be that Mrs Luu had no legal and beneficial interest in the Company.

(3)   The deposit of HK$21.8 million used to acquire the Property was paid by Mr Luu.

(4)   Mr Luu used his personal funds to repay the amounts owed to the mortagees which included:

(a)   issuing cheques of HK$435,000 and HK$280,000 on 29 January 2008 and 5 October 2009 respectively to Freeway Finance;

(b)   transferring HK$877,500 and HK$4,387,870.97 to Sparkle Well on 5 May 2011 and 24 August 2011 respectively; and

(c)   issuing a cashier order for HK$1,112,500 on 24 August 2011 to HK Finance.

(5)   Mr Luu provided personal guarantees to at least SCB and HK Finance.

(6)   Mr Luu issued personal cheques for HK$13,015,000 and HK$2,923,200 on 19 September 2008 and 26 September 2008 to pay off the loan owed to Goldbest.

(7)   Mr Luu and Mrs Luu continued to reside in the Property until at least May 2012 without having to pay any rent, notwithstanding the bankruptcy order and the transfer of the only issued share in the Company to Satisfactory.

(8)   The Company’s only asset was the Property.  It had no other asset or income.

28.  Mr Hughes submits that the above evidence gives rise to a presumption of resulting trust and, in any event, is sufficient to support a finding that the Property was held on resulting trust for its real purchaser, Mr Luu.

29.  Mr Wong submits that Mr Luu’s clear intention was to allow the Company to own the Property beneficially, and there is no room for the presumption of resulting trust to operate.  He relies on the following matters:

(1)   The Company was used for the specific purpose of acquiring the Property.  The likely intention of its shareholder, Mr Luu, was that the whole interest of the Property should be in the Company.  To impose a resulting trust would be perverse, and would defeat rather than promote the intention of the shareholder, citing Trade Credit Finance at §§70(e), 76 and Nightingale Mayfair at 15.

(2)   There must be a commercial reason why a BVI company (Alphred) and a Hong Kong company (the Company) were interposed, particularly when maintaining both companies involve costs.  To this end, the interposition is likely to serve a tax-saving purpose.  For this to work, the Property has to be beneficially owned by the Company.

(3)   The Company had been the registered owner of the Property all along and no step was taken by Mr Luu to alter this position.

(4)   At the time of the purchase, Mr Luu was only an “indirect shareholder” of the Company.  Subsequently, he became a 50% shareholder of Alphred.  To assert that Mr Luu was the beneficial owner of the Property is “to leapfrog Mr Luu, Alphred and the Company at the same time.”

(5)   The allotment of 50% share in Alphred to Mrs Luu would have been “completely pointless” had the Company been a mere trustee for Mr Luu.

(6)   The share in the Company has since been sold to Satisfactory, which is controlled by another person, Ms Wang Ying.  The transfer would have been “pointless” had the Company been a mere trustee for Mr Luu.

30.  The above matters relied on by Mr Wong are not supported by any evidence.  Nor can they be said to be matters which the court can infer from the other primary facts proved or found.  Even if (which is not the case here) the matters relied on by Mr Wong are established, they are equally consistent with Mr Luu’s intention that the Property was to be held by the Company on trust for him.  For example, the fact that neither Mrs Luu nor Satisfactory has paid any consideration for the share allotted or transferred to them is consistent with the fact that Mrs Luu and Satisfactory are holding their share as trustee or nominee of Mr Luu.

31.  In my view, the starting point is that upon Mr Luu using the Company to acquire the Property, the Company became its legal owner. There is a normal but rebuttable inference that the beneficial ownership of the Property was intended to pass to the Company.  The burden is on the Trustees to prove that the legal and equitable ownership of the Property is different, specifically the beneficial interest of the Property belonged to Mr Luu.

32.  The evidence relied upon by the Trustees (summarised in §27 above) shows that at the time of the purchase of the Property, Mr Luu provided the fund required by the Company to purchase the Property. This was apparently done without the assistance of any mortgage loan, as the first loan obtained by the Company was the one advanced by SCB 4 days after completion of the purchase of the Property (“SCB’s Loan”).

33.  The Company received the SCB’s Loan on or shortly after 4 December 2007.  There is no evidence on the amount of the SCB’s Loan.  In the completion account statement of the Property, by 22 June 2012, the redemption money payable to SCB was stated as HK$77,277,698.79.  It is therefore reasonable to infer that the amount of the SBC’s Loan was substantial.  The evidence does not deal with how the SCB’s Loan or the other loans obtained by the Company from the other financiers described in §6 above were used.  It is however clear from the summary in §6 above that prior to Mrs Luu becoming a shareholder of Alphred on 26 September 2008, the Company had already obtained 4 loans secured against the Property from SCB, Freeway Finance and Goldbest.  It is reasonable to infer that the proceeds of these loans were used by Mr Luu, as it is common ground that other than holding the Property, the Company did not have any other business or operation.  The issue is whether the proceeds of these loans (or any parts thereof) were used by Mr Luu to repay the fund he had provided to purchase the Property or were borrowed by him from the Company for his personal purposes.  If Mr Luu used the loans to repay the fund he had provided to purchase the Property, there would be no room for any presumption of resulting trust to operate.

34.  It seems to me that the evidence on this issue lies in Mr Luu’s statement of affairs dated 17 July 2012 (“SOA”).  In the SOA, Mr Luu did not state that he was indebted to the Company.  This is only consistent with Mr Luu having used the proceeds of the Loans (or part thereof) to repay the fund he had provided to purchase the Property.  Without such repayment, the Company would have substantial cash of at least HK$109 million (the purchase price of the Property) sitting in its bank account and would not have to use the proceeds of sale of the Property to discharge all the outstanding loans advanced by the financiers to the Company.  On the basis of this evidence, I find that although Mr Luu provided the fund to purchase the Property, he did so by way of a loan advanced to the Company, and he applied the proceeds of the loans (or part thereof) obtained by the Company to repay himself for the amount he had provided to purchase the Property.  This is sufficient to rebut any presumption of resulting trust in favour of Mr Luu.

35.  Even if I were wrong in finding that Mr Luu provided the fund to purchase the Property by way of a loan, I consider that the following statements emanated from Mr Luu shows that it was his intention that the Company was the beneficial owner of the Property:

(1)   In the SOA, under the section on assets, Mr Luu did not state that he was the beneficial owner of the Property.

(2)   In section F, clauses 6(a) – (b) and 8 of the mortgage made in favour of SCB, Mr Luu confirmed that the Company was the beneficial owner of all the interests in the Property and the sole owner of the Property.

(3)   In clause 3 of the second legal charge made in favour of Sparkle Well, Mr Luu confirmed that the Company was the beneficial owner of the Property.

(4)   In clauses 3.01(a), 7.01(b) and 20 of the third legal charge in favour of HK Finance, Mr Luu confirmed that the Company was the beneficial owner of the Property.

36.  Although these mortgage and legal charges were signed by Mr Luu on behalf of the Company in his capacity as the sole director (in respect of the mortgage) or authorised director of Alphred (in respect of the legal charges), it does not detract from the fact that they were statements made by Mr Luu as by signing the agreements on behalf of the Company, Mr Luu was confirming the truthfulness of these statements.

37.  I have also considered whether the fact that the statements summarised in §35 above were all post-acquisition of the Property, whereas the relevant time for determination of the beneficial interest of the Property was the time of the acquisition of the Property.  I do not consider that this would render Mr Luu’s statements to be irrelevant or inadmissible for the purpose of ascertaining his actual intention for 2 reasons. First, the statements were in effect declaration against  self-interest and, as such, are binding upon Mr Luu.  Secondly, there is nothing to suggest that between the acquisition and the time Mr Luu signed the mortgage, the legal charges and the SOA, the beneficial ownership of the Property has changed (which cannot be done without any instrument in writing and no such instrument has been produced). As such, it is immaterial that the statements were made by Mr Luu after the acquisition of the Property. 

38.  Mr Wong also points to the following statements in the other agreements entered into by the Company which, he submits, shows that the Company had consistently represented to the outside world including Construction, that the Company owned the Property beneficially:

(1)   The Company repeatedly confirmed to Construction in the 1^st Loan Agreement the 1^st and 2^nd Extension Agreements that the Company has “good and valid title to” or 100% beneficial interest in the Property.

(2)   In clause 5 of the 2012 SPA, the Company agreed to assign the Property in its capacity as the “beneficial owner”.  In clause 39, the Company “declares and confirms” to the purchaser that “no third party other than any existing mortgagee/chargee (whether related or otherwise) has any right or interest whatsoever whether legal or equitable in the Property.  The [Company] further ‘declares and confirms’ that the [Company] has the absolute right and interest in the Property”.

(3)   The assignment was executed by the Company as beneficial owner on 22 June 2012.

39.  I do not regard the above statements can be taken as evidence on the actual intention of Mr Luu as to the beneficial ownership of the Property for the following reasons:

(1)   Although Construction obtained a judgment against the Company, it was a default judgment.  It is well established that the liquidators and the court may re-open a default judgment if there is evidence to suggest that the claim made by the creditor may not be valid.  Mr Hughes has in §39(5) – (7) of his skeleton identified a number of matters which he submits renders the 1^st and 2^nd Loan Agreements and the 1^st and 2^nd Extension Agreements to be “suspicious and commercially unsound”.  I can see the force of his submissions.  However, as the present application is not concerned with the validity of Construction’s claim and the Liquidators have not conducted any investigation on such claim, I would not express any view on the validity of Construction’s claim. Nor would I assume that the 1^st and 2^nd Loan Agreements and the 1^st and 2^nd Extension Agreements were made on the dates stated or that they are binding upon the Company.

(2)   The 2012 SPA and the Assignment were both signed by “Sandy” on behalf of the Company in her capacity as the sole director of Satisfactory, which was then the sole director of the Company.  As such, the statements contained therein could not be regarded as the statements of Mr Luu.

Disposition and costs

40.  For the above reasons, the Trustees have failed to discharge the burden of proving that the Property was held by the Company on resulting trust for Mr Luu.  I find that the Company was the legal and beneficial owner of the Property and hence the Net Balance.

41.  I should add that although submissions have been made by both counsel on the validity of the transfer of the one share in the Company from Alphred to Satisfactory and the Special Resolution approving the transfer, which are the subject matters of the Trustees’ claim in HCA 1055/2012, I have not made any determination on these issues as they fall outside the question raised in the Summons.  That said, it appears that in the absence of the consent of the Official Receiver, who is the provisional trustee of the estate of Mr Luu, any purported disposal of the assets of Mr Luu would be invalid and not binding upon the Trustees.

42.  As for costs, I make a costs order nisi that:

(1)   The Liquidators are not entitled to recover their costs of and occasioned by the Summons out of the assets of the Company, as I consider that they have failed to discharge their duty in investigating the competing claims of the Trustees and Construction or providing the necessary evidence and assistance to the court on the application.

(2)   50% of the costs of and occasioned by Construction on the Summons are to be paid by the Trustees, to be taxed if not agreed and with certificate for one counsel as I do not consider that the Summons justifies the engagement of two counsel.  The other 50% of the costs incurred by Construction are to be paid out of the assets of the Company.

43.  I consider it appropriate to order 50% of the costs of Construction to be paid out of the assets of the Company, as the court derives considerable assistance from the evidence filed by the Trustees in particular the evidence those concerning the Company which should have been dealt with by the Liquidators.  Indeed, had the Liquidators performed their duty in investigating and making a decision on the competing claims, the Summons might not have been necessary.  Given that in the ordinary event, the costs incurred by the Liquidators in investigating and determining the competing claims would be paid out of the assets of the Company, it would be appropriate to order part of Construction’s costs to be paid out of the assets of the Company.