FOK HEI YU and CHOW WAI SHING DANIEL, Joint and Several Trustees in bankruptcy of the Property of CHEN YEN FEI, a bankrupt v. CHEN YEN FEI AND OTHERS

HCMP 701/2023

[2024] HKCFI 914

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 701 OF 2022

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J U D G M E N T

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Introduction and Parties

1.  Mr Chen Yen Fei (“Mr Chen”) and Mdm Lee Yuk Suet (“Mdm Lee”), the 1^st and 2^nd Respondent respectively in these proceedings, were married to each other in Mainland China in 1967.  They were divorced in Hong Kong on 3 December 2020 when a Divorce Decree Absolute was granted in FCJA 895/2016.  Pursuant to an order made by HH Judge KK Pang dated 31 July 2020 (“Ancillary Relief Order”), Mr Chen’s “legal and beneficial interests” (法律及實益擁有權) in the following properties were to be transferred to Mdm Lee upon making of the Decree Absolute:

1.1.  Flat D (together with the balcony and utility platform thereof) on 29^th Floor of Tower 2, Serenade, No. 11 Tai Hang Road, Hong Kong (“Serenade Flat”);

1.2.  Car Parking Space No. 37 on L3 Floor, Serenade, No. 11 Tai Hang Road, Hong Kong (“Serenade CP”);

1.3.  Unit B on 17^th Floor, Fok Ying Building, Nos. 379 & 381 King’s Road, Hong Kong (“Fok Ying Flat”);

1.4.  50% shares of and in Hopecorns Industrial Limited (“Hopecorns”), the 3^rd Respondent; and

1.5.  55% shares of and in No. 1 Printing Factory Limited (“No.1 Printing”), the 4^th Respondent.

(For convenience, unless the context indicates otherwise, the three landed properties will be collectively referred to as “Properties”, while all the properties will be collectively referred to as “Subject Assets”.)

2.  Both Hopecorns and No. 1 Printing (collectively “Companies”)　are Hong Kong incorporated companies.  Mr Chen and Mdm Lee are the only registered shareholders of the Companies, with Mdm Lee holding 50% of the shares of Hopecorns and 45% of the shares of No.1 Printing.  Based on the records of the Land Registry, Hopecorns owns the following landed properties in Hong Kong:

2.1.  4^th Floor including Portion of the Flat Roof thereof, Hong Kong Chinese Bank Causeway Bay Centre, 42-44 Yee Wo Street, Hong Kong; and

2.2.  Flat A on 12^th Floor & Portion of Roof, Luen Wo Apartments, No 308 Electric Road, Nos. 9, 11, 13, 13A, 13B & 15 Tin Chong Street, Hong Kong.

3.  On 18 June 2020, a Bankruptcy Order was made against Mr Chen in HCB 6092/2019.  The Applicants are Mr Chen’s Trustees in Bankruptcy.

4.  As will be immediately seen from the brief chronology set out above, the Bankruptcy Order was made (18 June 2020) prior to the grant of the Ancillary Relief Order (31 July 2020) and the Decree Absolute (3 December 2020).

5.  By the Originating Summons issued herein on 8 May 2023, the Applicants apply for various relief, the principal ones being:

5.1.  An order setting aside the Ancillary Relief Order and vacating the registration of the Ancillary Relief Order against the Properties at the Land Registry;

5.2.  Declarations that Mr Chen’s interest in the Properties and the Companies have vested in the Applicant pursuant to s.58 of the Bankruptcy Ordinance (Cap. 6) and that Mdm Lee is not entitled to Mr Chen’s interest in the Properties or shareholding of and in the Companies;

5.3.  An account of all and any rental proceeds received from the Properties since the Bankruptcy Order made on 18 June 2020;

5.4.  An order for sale of the Properties pursuant to s.6 of the Partition Ordinance (Cap. 352) and consequential directions; and

5.5.  An order that the Applicants be registered as the shareholder of the Companies in respect of Mr Chen’s shareholding.

6.  Mdm Lee served a Counter Notice, seeking inter alia, a declaration that Mr Chen’s interest in the Subject Assets have been held on trust for Mdm Lee and that the Applicants are not entitled to them, and for the Bankruptcy Order registered at the Land Registry against the Properties be vacated.

Procedural Irregularities

7.  A number of procedural irregularities need to be addressed before I turn to consider the substantive issues in this case.

8.  First, Mr Chen did not file any Acknowledgment of Service. According to him, he resides on the Mainland and seldom returns to Hong Kong unless there are specific matters he has to deal with here.  It is not clear whether he had received the Originating Summons, but he has made an affirmation on behalf of Mdm Lee in which he described himself as the 1^st Respondent.  He was present at the hearing, apparently for the purpose of being cross-examined on his affirmation.  What he was asked whether he was only attending as a witness of Mdm Lee, he appeared not to appreciate that he was a party to the proceedings.  After having been explained the difference between participating as a party, or only as a witness, he elected to participate as a party.  Mr. Nicholas Oh, counsel for the Applicants, sensibly did not object to Mr Chen participating in that capacity.

9.  Another procedural irregularity is that the Companies have no legal representation, and no leave has been applied for or obtained to allow the Companies to be represented by one of its directors.  Mdm Lee, who filed Acknowledgment of Service on behalf of the Companies, is legal represented but Mr Ivan Cheung, counsel for Mdm Lee, informed me that he and his instructing solicitors have no instructions to act for the Companies.  Accordingly, the Companies are acting in person and absent at the hearing.

10.  As will be explained presently, these irregularities did not create any insurmountable difficulties to the hearing.  However, it is nonetheless regrettable that the parties’ legal advisers failed to address these “loose ends” prior to the hearing (in this connection, I pause to observe that the main responsibility would lie with the Applicants, being the main party prosecuting the case, to have attended to these).

11.  Thirdly, the Applicants made an application to amend the Originating Summons on the second day of the hearing.  This was prompted by questions from the Court as to whether this Court has jurisdiction to set aside the Ancillary Relief Order made by the Family Court, and whether the Applicants had locus to set aside the Ancillary Relief Order.  The amendment sought was to change Relief (1) from an order setting aside the Ancillary Relief Order to declaratory relief that certain paragraphs of that Order are null and void. This is unsatisfactory because Mr Chen understandably had difficulty in appreciating how the amendment might affect him, and that the Companies are absent.  I will return to the application to amend later in this Judgment.

Issues for Determination

12.  Turning to the substantive issues that arise for determination,  the Applicants’ case is simple:

12.1.  As from 18 June 2020 when the Bankruptcy Order was made, Mr Chen’s properties became vested in his bankruptcy estate: Bankruptcy Ordinance (Cap. 6), ss. 43 and 58. 

12.2.  On the other hand, the Ancillary Relief Order, being what is known as “property adjustment orders”, does not take effect until the Decree Absolute is granted: Matrimonial Proceedings and Properties Ordinance (Cap.192), ss. 6, 25(1)(b), which did not take place until 3 December 2020. 

12.3.  Accordingly, this is a straight forward case of the Applicants taking priority over the purported transfer of the Subject Assets.

13.  In support of his main submissions, Mr Oh relies on Re Flint [1993] Ch 319 and McGladdery v McGladdery [1999] 2 FLR 1102.

14.  In McGladdery, Thorpe LJ observed that a section in the then 17^th edition of Rayden and Jackson on Divorce and Family Matter was erroneous: 

“The section [in Rayden and Jackson] is expressed thus:

‘The effect of an adjudication that a spouse is bankrupt is to vest his assets in his trustee [in] bankruptcy. Despite this, the court in family proceedings has jurisdiction to make an order for a lump sum or a property adjustment order against the husband whilst he remains bankrupt. Such an order also cannot be made against the trustee in bankruptcy.’

The authorities on the point seem to me to be quite clear.  The case of re Holliday [1981] 1 Ch 405 establishes that the property adjustment order cannot be made against a bankrupt former spouse because the property of the bankrupt vests in the trustee in bankruptcy against whom an order under section 24 [of the Matrimonial Causes Act 1973] cannot be made.”

15.  In Re Flint at 325C-E, Deputy High Court Judge Nicholas Stewart QC accepted that in what is called a “phase 3” case, the transfer of properties in the matrimonial proceedings is void against the trustee in bankruptcy:

“The new law in relation to personal insolvency, governed mainly by the Insolvency Act 1986, involved three phases: (1) up to presentation of a petition; (2) from presentation up to the making of a bankruptcy order; and (3) after the bankruptcy order, when the trustee acquires title to the bankrupt’s estate, but not so as to relate back to the period before the order.

… during phase 3 it was no longer possible to make effective transfer of property orders because the bankrupt’s estate was no longer vested in him but in the trustee.”

16.  Mr Oh submits that the present case is a “phase 3” case, hence the purported transfers of the Subject Assets are void and invalid.

17.  Mr Cheung, on behalf of Mdm Lee, does not dispute the legal principles relied on by Mr Oh.  His case is that since around October 2005, Mr Chen held the Subject Assets on trust for Mdm Lee, so that those assets do not fall within Mr Chen’s estate: Bankruptcy Ordinance (Cap 6), s.43(3).  Mr Cheung relies on what is commonly called “common intention constructive trust”.  In this connection, Mdm Lee claims that on 7 October 2003, she and Mr Chen entered into an oral agreement that their marital relationship was terminated and agreed on the financial arrangements.  Essentially, Mr Chen was to own all the assets and trademarks in Mainland China (except for a Chinese enterprise jointly owned by a wholly-owned subsidiary of Hopecorns), whereas Mdm Lee would own all the assets in Hong Kong, including the Properties and the Companies. Thus, it is said that Mr Chen held the beneficial interest in the Subject Assets on trust for Mdm Lee so that those assets did not vest in his trustees in bankruptcy.

18.  In support of his case on common intention constructive trust, Mr Cheung refers to the summary of principles set out by Deputy High Court Judge Alexander Stock SC in Leung Hang Lin & Li Kwai Fuk v Lam Mei Yung [2019] HKCFI 2819 at [8]:

“In summary:

(1) The starting point is that equity follows the law. There is a presumption that the beneficial interest follows the legal interest. Where the property is registered in a defendant’s name, the plaintiff bears the burden of showing, on the balance of probabilities, that the defendant held the property on trust for him or her such that the beneficial ownership differs to the legal ownership. See: Liu Wai Keung v Liu Wai Man [2013] 5 HKLRD 9, §44; Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985, §5.16; Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327, §17.

(2) The burden may be discharged by showing that: (i) there was a common intention held by the plaintiff and the property owner at the time of the purchase (or exceptionally, thereafter) that the beneficial ownership was to be different to the legal ownership; (ii) the plaintiff altered his or her position in detrimental reliance upon the common intention; and (iii) it is unconscionable for the property owner to assert ownership in reliance on the legal title. The constructive trust is constituted by the plaintiff’s detrimental reliance on the common intention and the unconscionability of the legal owner departing therefrom. See: Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1, §38; Liu Wai Keung, §46.

(3) The approach to ascertaining common intention is objective. One looks to the intention of each party which was reasonably understood by the other party to be manifested by the first party’s words and conduct. See: Liu Wai Keung, §47; Mo Ying, §5.16.

(4) The doctrine is sometimes described as having two limbs. First, where at any time prior to the acquisition (or exceptionally, at a later date), there is an agreement, arrangement or understanding reached between the parties as to how the property is to be held beneficially, based on evidence of express discussions. Second, where there is no evidence to support such a finding but the court relies on the parties’ conduct as a basis from which to infer a common intention. There is some authority that under the second limb, direct contributions to the purchase price by a party who is not a legal owner will readily justify the inference. See: Mo Ying, §5.8; Primecredit, §§2.3 and 2.4.

(5) However, the modern approach is to assess the parties’ common intention by a holistic approach having regard to the context and the particular facts. The court is not constrained to consider only pure direct monetary contributions to the purchase price. In a Chinese setting, especially for the older generations, where explicit discussions on property rights within the family are not that common, the court has to pay more regard to circumstantial matters. See: Mo Ying, §§5.14 and 5.15; Primecredit, §1.6.”

19.  Although I have doubt as to whether this type of constructive trust applies to the present case, both counsel are agreed that the principles apply.  I will therefore proceed on the basis of counsel’s common ground.

20.  As to the basis on which such trust is said to arise, Mr Cheung in his written Opening Submissions submits that:

“the issue for the court to determine is whether there is an agreement, arrangement or understanding reached between … Mdm Lee and [Mr Chen] as to the [Subject Assets] to be held beneficially by [Mr Chen] for her.”

21.  That statement is somewhat vague but at the hearing, Mr Cheung confirms that the only basis on which it is said that a common intentional constructive trust arises is the alleged oral agreement.

22.  In the light of the position taken by the parties, the only substantive issue that requires determination is whether the oral agreement as alleged by Mdm Lee and Mr Chen existed.  For convenience, I will refer to it as “Oral Agreement”.  It is accepted that the burden is on Mdm Lee to establish that the Oral Agreement was reached.

Approach to Evidence

23.  Both counsel are agreed that the correct approach to the evidence applicable to this case are as follows.

24.  First, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility.^[1]

25.  Second, in assessing the credibility of a party’s case on a particular issue, the Court should take intoconsideration:

25.1.  Whether the party’s case is inherently plausible or implausible;

25.2.  Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable;

25.3.  Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility; and

25.4.  The demeanour of the witnesses.^[2]

26.  I accept and agree with these statements of principles. 

The Evidence in More Detail

27.  Mdm Lee is now 77 years of age.  She and Mr Chen were married in Mainland China on 23 August 1967. They came to live in Hong Kong in around 1981.  They started doing business together and established their first company in 1989, engaging in pharmaceutical business with the trade name “Pa Shun” (百信).  In 2015, Mr Chen successfully listed Pa Shun International Holdings Co., Ltd. in Hong Kong (stock code 574) (“Pashun”).

28.  During their marriage, the couple acquired various properties in their joint or respective names; usually on 50:50 basis except for No.1 Printing, which was 55:45.  There is no dispute that they intended to own the properties beneficially in accordance with their legal ownership.

29.  In 1995, their marriage went into difficulties after Mdm Lee discovered that Mr Chen had an extramarital affair with another woman. Mdm Lee said she then decided that she would terminate their marriage.

30.  On 10 March 1995, Mdm Lee wrote on a sheet of paper her proposed terms for ending their marriage and dealing with the properties they had accumulated during their marriage.  The document, referred to as “Draft Agreement” in the hearing, was drafted by Mdm Lee and in these terms:

“協議書

自95 年3 月10 日起陳燕飛和李玉雪終止夫妻關係﹒男婚女嫁各不相干，公司名稱，原來標標[商標]歸陳燕飛使用，大陸的產業李玉雪及公可名義購買 歸陳燕飛所有。

大陸境外（香港、加拿大）產業及陳燕飛名下的存款歸李玉雪所有，還清香港透支後，大陸資金陳燕飛應撥出壹仟萬人民幣給李玉雪作終至[止]經營的利潤分成。

分成3 期付款：

95 年6 月前3 百萬

95 年9 月前3 百萬

95 年11 月前4 百萬

協議確認人簽字

[李玉雪簽名]”

31.  However, Mr Chen did not agree with the terms proposed by Mdm Lee.  He wrote on the Draft Agreement these words:

“此協議只是單方面的意思，本人需經過詳細審思後，才能作出有利於雙方及兒女的事，我已懇求給我一星期時間，希望你能理解。

[陳燕飛簽名]”

32.  Mdm Lee said that Mr Chen later orally informed her that he did not agree with the terms in respect of payment of RMB 10 million demanded by Mdm Lee.  Mr Chen agreed that that was the case, because he simply did not have the money to pay her.

33.  It is pertinent to note that Mdm Lee and Mr Chen do not claim that they had reached an agreement on the terms stated in the Draft Agreement save for the payment of RMB 10 million.

34.  Mdm Lee and Mr Chen did not apply for divorce or take any step to carry out the proposed terms of the Draft Agreement.  According to Mdm Lee, at that time (1995), they did not apply for divorce because their sons were still young and the mortgage loans in respect of the landed properties had not been fully repaid, as well as other reasons.  They did sell a jointly owned property in Canada in 1999, and the net proceeds were given to their second son, Mr Chen Chung Ming (“Geanbert”).

35.  Both Mdm Lee and Mr Chen said that thereafter their relationship became very bad.  They lived separately: he lived and worked in Mainland China, while Mdm Lee and their children lived in Hong Kong.  In oral evidence, Mr Chen said since their separation, they rarely talked to each other; most of the time they communicated through their sons, usually Geanbert.

36.  Things turned from bad to worse in around 2000 when Mdm Lee came to know that Mr Chen and his partner on the Mainland had a son.  Worse still, in around 2003, their elder son was diagnosed with cancer, which led to the complete breakdown of their relationship.

37.  It was against the above background that Mdm Lee and Mr Chen claim that on 7 October 2003, they orally agreed (Mr Chen said it was over the phone) that their marital relationship was terminated, and agreed on the financial arrangements which essentially was a split of the jointly owned assets into those in Mainland China and those in Hong Kong.  Mdm Lee puts the Oral Agreement in these terms in her affirmation:

“10. 過了數年，我們最終達成口頭協議，自2003年10日7日起本人與第一答辯人終止夫妻關係，之後男婚女嫁各不相關， 2人的原本公司名稱和商標使用，除合強實業有限公司（即本案第三答辯人）以全資分公司與國企合資的中國企業海南百信藥業有限公司外，大陸的產業歸第一答辯人所有。以下香港產業歸本人所有。

i. 本人與第一答辯人聯名持有的香港大坑道15 號麗星樓B 座的19樓D 室（這物業在1986 年購買，後經重建，在[2010] 年重建完成後，發展商按原業權形式﹒分發單位香港大坑道11號上林2座29樓D 室及L3層37 號停車位 …

ii. 本人與第一答辯人聯名持有的香港北角英皇道379-38號、福英大廈17樓B室

iii. 第一答辯人所持HOPECORNS INDUSTRIAL LIMITED （本案第三答辯人）的50%股份

iv. 第一答辯人所持NO. l PRINTING FACTORY LIMITED （本案第四答辯人）的55%股份”

38.  Again, Mdm Lee and Mr Chen did not apply for divorce at the time.  Mdm Lee claims that at that time, because of their elder son’s health issues (he eventually passed away in March 2005), she was very sad and was not prepared to go through with the divorce procedures.

39.  Despite the Oral Agreement, no transfer of legal title in the Subject Assets was carried out.  Mdm Lee explained that she considered that Mr Chen should bear the legal fees and stamp duties for transferring the Subject Assets to her but Mr Chen refused to bear those expenses, hence the registered ownership of the Subject Assets remain unchanged.

40.  Mdm Lee said that after Pashun was listed in 2015, she and Mr Chen thought that it was time their separation and financial arrangements should be formalised.  Eventually, on 8 March 2016, they made the Joint Application for Divorce to the Family Court in FCJA 895/2016 (“Joint Application”).  It was Geanbert who liaised with the solicitors and who handled the matter for Mdm Lee. 

41.  Mr Chen said in oral evidence that since their elder son’s passing in 2005, he had not seen or spoken to Mdm Lee, until he came to Hong Kong to sign the Joint Application in March 2016.  During this time, even when he came back to Hong Kong on a few occasions, he would only stay in hotels.   Geanbert acted as the liaison between him and Mdm Lee if there were anything that needed him to do, such as signing documents.  

42.  One matter which is of importance is in respect of the Serenade Flat and Serenade CP.  Mdm Lee said that the couple used to live in the Fok Ying Flat since they bought that property in their joint names in 1983.  In 1986, the couple bought a unit in Lai Sing Building on Tai Hang Road, the building which was then erected on the site of Serenade, in their joint names and moved there.  Lai Sing Building was re-developed under an arrangement with a developer that involved the owners transferring their interest in the existing building to the developer in exchange for units in the redevelopment. The redeveloped building, completed in 2010, is Serenade.  Mr Chen testifies that at the request of Mdm Lee (through Geanbert), he signed documents as joint owner to facilitate the redevelopment project, and to be assigned the Serenade Flat and Serenade CP in their joint names.  He accepts in evidence that he did read the documents he was asked to sign, and understood that the documents were required for the redevelopment project.  He knew that unless he signed the documents as joint owner, the arrangement with the developer would not proceed.  There is no evidence from either Mr Chen or Mdm Lee explaining why nothing was done to implement the Oral Agreement at that time so that the Serenade Flat and Serenade CP would be assigned to Mdm Lee solely, or at least to try to do so.

43.  Mdm Lee now resides in the Serenade Flat.  It is not disputed that the Serenade CP and the Fok Ying Flat have been rented out.  There is also no dispute that the properties owned by Hopecorns were also leased out.

44.  As stated above, Mdm Lee and Mr Chen applied to the Family Court in FCJA FCJA 895/2016 on 8 March 2016.  The Joint Application was amended on 26 March 2019, apparently upon Mdm Lee changing solicitors, but without any substantive amendments to the application. There is no clear evidence of what happened between those three years.

45.  The material parts of the Joint Application were in these terms:

“(7) 雙方曾作出或建議作出下列關於供養李玉雪的協議或安排、即：

(a) 陳燕飛把其所持有 Flat D (Together with the Balcony, Utility Platform Thereof) on 29^th Floor of Tower 2 Serenade, No. 11 Tai Hang Road, Hong Kong 物業的法律及實益擁有權轉讓於李玉雪, 則李玉雪將會全數擁有 Flat D (Together with the Balcony, Utility Platform Thereof) on 29^th Floor of Tower 2 Serenade, No. 11 Tai Hang Road, Hong Kong 物業的法律及實益擁有權;

(b) 陳燕飛把其所持有Car Parking Space No. 37 of L3 Floor, Serenade, No. 11 Tai Hang Road, Hong Kong物業的法律及實益擁有權轉讓於李玉雪、則李玉雪將會全數擁有 Car Parking Space No. 37 of L3 Floor, Serenade, No. 11 Tai Hang Road, Hong Kong物業的法律及實益擁有權;

(c) 陳燕飛把其所持有Unit B on 17^th Floor, Fok Ying Building, Nos. 379 & 381 King’s Road, Hong Kong 物業的法律及實益擁有權轉讓予李玉雪,則李玉雪將會全數擁有Unit B on 17^th Floor, Fok Ying Building, Nos. 379 & 381 King’s Road, Hong Kong物業的法律及實益擁有權;

(d) 陳燕飛把其所持有第一印刷廠有限公司（一間根據香港法律設立的有限責任公司, 公司編號為0240909）所有股份的法律及實益擁有權轉讓於李玉雪, 則李玉雪將會全數擁有第一印刷廠有限公司的所有股份的法律及實益擁有權;

(e) 陳燕飛把其所持有合強實業有限公司（一間根據香港法律設立的有限責任公司，公司編號為0182092）所有股份的法律及實益擁有權轉讓於李玉雪，則李玉雪將會全數擁有合強實業有限公司的所有股份的法律及實益擁有權;

(f) 除以上 (a) 至 (e) 項外，陳燕飛現在或將來擁有的在香港或外國包括中華人民共和國的物業、 公司、股權、及資產的法律及實益擁有權全額屬於陳燕飛擁有，李玉雪不予干涉，也無權擁有;

(g) 以上（a) 至（e) 項有關的物業、公司股份的法律及實益擁有權之轉讓在絕對判令頒布後須予以執行。

(8) 上述婚姻已破裂至無可挽救。

申請人故此請求：

(a) 解除上述婚姻;

(b) 命令申請人均等支付本申請的費用;

(c) 批予李玉雪下列附屬濟助，即

(i) 陳燕飛把其所持有Flat D (Together with the Balcony, Utility Platform Thereof) on 29^th Floor of Tower 2 Serenade, No. 11 Tai Hang Road, Hong Kong物業的法律及實益擁有權轉讓予李玉雪, 則李玉雪將會全數擁有Flat D (Together with the Balcony, Utility Platform Thereof) on 29^th Floor of Tower 2 Serenade, No. 11 Tai Hang Road, Hong Kong物業的法律及實益擁有權;

(ii) 陳燕飛把其所持有Car Parking Space No. 37 of L3 Floor, Serenade, No. 11 Tai Hang Road, Hong Kong 物業的法律及實益擁有權轉讓於李玉雪, 則李玉雪將會全數擁有Car Parking Space No. 37 of L3 Floor, Serenade, No. 11 Tai Hang Road, Hong Kong物業的法律及實益擁有權;

(iii) 陳燕飛把其所持有Unit B on 17^th Floor, Fok Ying Building, Nos. 379 & 381 King’s Road, Hong Kong 物業的法律及實益擁有權轉讓於李玉雪, 則李玉雪將會全數擁有Unit B on 17^th Floor, Fok Ying Building, Nos. 379 & 381 King’s Road, Hong Kong物業的法律及實益擁有權;

(iv) 陳燕飛把其所持有第一印刷廠有限公司（一間根據香港法律設立的有限責任公司, 公司編號為0240909）所有股份的法律及實益擁有權轉讓於李玉雪, 則李玉雪將會全數擁有第一印刷廠有限公司的所有股份的法律及實益擁有權;

(v) 陳燕飛把其所持有合強實業有限公司（一間根據香港法律設立的有限責任公司, 公司編號為0182092）所有股份的法律及實益擁有權轉讓於李玉雪, 則李玉雪將會全數擁有合強實業有限公司的所有股份的法律及實益擁有權;

(vi) 除以上 (i) 至 (v) 項外，陳燕飛現在或將來擁有的在香港或外國包括中華人民共和國的物業、公司、股權、及資產的法律及實益擁有權全額屬於陳燕飛擁有, 李玉雪不於干涉, 也無權擁有;

(vii) 以上 (i) 至 (v) 項有關的物業、公司股份的法律及實益擁有權之轉讓在絕對判令頒布後須予以執行。”

46.  Eventually, the Decree Nisi and Ancillary Relief Order were made on 31 July 2020.  The material parts of the Ancillary Relief Order provide as follows:

“(1) 第二申請人陳燕飛把其所持有Flat D (Together with the Balcony, Utility Platform Thereof) on 29^th Floor of Tower 2 Serenade, No. 11 Tai Hang Road, Hong Kong物業的法律及實益擁有權轉讓於第一申請人李玉雪, 則第一申請人李玉雪將會全數擁有Flat D (Together with the Balcony, Utility Platform Thereof) on 29^th Floor of Tower 2 Serenade, No. 11 Tai Hang Road, Hong Kong物業的法律及實益擁有權;

(2) 第二申請人陳燕飛把其所持有Car Parking Space No. 37 on L3 Floor, Serenade No. 11 Tai Hang Road, Hong Kong物業的法律及實益擁有權轉讓於第一申請人李玉雪, 則第一申請人李玉雪將會全數擁有Car Parking Space No. 37 on L3 Floor, Serenade No. 11 Tai Hang Road, Hong Kong 物業的法律及實益擁有權;

(3) 第二申請人陳燕飛把其所持有Unit B on 17^th Floor, Fok Ying Building, Nos. 379 & 381 King’s Road, Hong Kong物業的法律及實益擁有權轉讓於第一申請人李玉雪, 則第一申請人李玉雪將會全數擁有Unit B on 17^th Floor, Fok Ying Building, Nos. 379 & 381 King’s Road, Hong Kong 物業的法律及實益擁有權;

(4) 第二申請人陳燕飛把其所持有第一印刷廠有限公司（一間根據香港法律設立的有限責任公司, 公司編號為0240909）所有股份的法律及實益擁有權轉讓予第一申請人李玉雪, 則第一申請人李玉雪將會全數擁有第一印刷廠有限公司的所有股份的法律及實益擁有權;

(5) 第二申請人陳燕飛把其所持有合強實業有限公司（一間根據香港法律設立的有限責任公司, 公司編號為0182092）所有股份的法律及實益擁有權轉讓予第一申請人李玉雪, 則第一申請人李玉雪將會全數擁有合強實業有限公司的所有股份的法律及實益擁有權;

(6) 除以上 (1) 至 (5) 項外, 第二申請人陳燕飛現在或將來擁有的在香港或外國包括中華人民共和國的物業、公司、股權、及資產的法律及實益擁有權全額屬於第二申請人陳燕飛擁有, 第一申請人李玉雪不予干涉，也無權擁有;

(7) 以上 (1) 至 (5) 項有關的物業、公司股份的法律及實益擁有權之轉讓在絕對判令頒布後須予以執行。”

47.  The Decree Absolute was made on 3 December 2020.

48.  In the meantime, on 9 October 2019 a Bankruptcy Petition was presented against Mr Chen in HCB 6092/2019. The Bankruptcy Order was made on 18 June 2020.

49.  It is unnecessary to refer to the communication between the Applicants on the one hand and Mdm Lee and Mr Chen on the other after their appointment.

Parties’ Contentions

50.  Mr Cheung argues that in the circumstances set out above, Mr Chen held the Subject Assets as trustee on behalf of Mdm Lee pending her further directions.

51.  Mr Cheung also points out that consistent with Mdm Lee’s and Mr Chen's claim that Mdm Lee beneficially owned the Subject Assets pursuant to the Oral Agreement, Mr Chen did not include the Subject Assets as his properties under a draft IVA proposal under Rule 122C of the Bankruptcy Rules (Cap. 6A) for his creditor to consider withdrawing the bankruptcy petition on 10 December 2019.  Similarly he did not include the Subject Assets in his disclosure of assets to the Applicants.

52.  On behalf of the Applicants, Mr Oh contends that Mdm Lee has failed to prove the Oral Agreement.  In particular, he points out that Mdm Lee was careful enough in 1995 to set out the Draft Agreement in writing for Mr Chen to acknowledge, whereas in 2003 when their relationship was even worse she relied only on an oral agreement.  He criticises the evidence as illogical and incredible.

53.  Mr Oh also attacks the sufficiency of evidence disclosed by Mdm Lee.  It is said that despite express invitation to provide evidence in support of the Oral Agreement, such as how the rent of the Properties were handled since 2003, and how the affairs of the Companies have been handled over the years, Mdm Lee provided over 500 pages of documents which are not particularly illuminating.  However, I reminded Mr Oh that the Applicants could have asked for specific discovery or further particulars if they had wished to.  In any case, since the burden is on Mdm Lee to establish her case on the Oral Agreement, she might have to live with whatever inferences the Court may legitimately draw from the lack of discovery.

54.  In the end, the available evidence, albeit far from complete, suggests that Mdm Lee and Geanbert have been receiving the rent of the Fok Ying Flat and the Serenade CP for many years.  The audited financial statements of the Companies were prepared by accountants and appear to be consistent with the Companies having no active business apart from property holding. Although Mr Oh took considerable time going through the documents with Mr Chen and Mdm Lee, there is nothing to show that Mr Chen remained an active participant in the Companies’ affairs or received any payment from the Companies.  The same is the case in relation to other companies in which Mdm Lee and Mr Chen are registered shareholders.  Mr Chen says that these companies had no active business so nothing was done about their shares.  There is nothing to contradict that evidence which I accept.

55.  I am satisfied on the evidence that Mr Chen had no involvement in the Properties since 2003 other than the redevelopment of Serenade as described above, and did not receive any rent from the Properties.  I am also satisfied that Mr Chen had no active participation in the Companies and did not receive any dividends or other payment from the Companies since 2003.

Oral Agreement Not Established

56.  Having considered the evidence in the round, I am not satisfied that the Oral Agreement as claimed by Mdm Lee and Mr Chen is proved.

57.  This is not a case of family members or persons living together acquiring property in their individual or joint names but intending the beneficial ownership to be different from the legal ownership. Nor is this a case of inferring from the parties’ conduct an intention to change the beneficial ownership notwithstanding the legal ownership.  In those types of cases, it would be understandable that there might be no clear agreement on what is to be the beneficial ownership if that ownership share is intended to be different from the legal ownership. Hence the task of the Court is to determine or infer from objective conduct what was the parties’ common intention.

58.  In contrast, here is a case where a married couple carried on business together for many years and acquired properties in joint names with the intention that they owned the properties beneficially in accordance with their legal ownership, but in acrimonious circumstances trying to end that relationship and divide their jointly accumulated assets.  It is natural that Mdm Lee, a businesswoman, would write down her terms in the Draft Agreement, and for Mr Chen to record his disagreement to those terms on that document.

59.  However, when their relationship have worsened, they claim to accept an oral agreement reached over the phone, without any attempt in almost 20 years to record in any form what had been agreed.  That is in my judgment inherently incredible.

60.  Neither Mdm Lee nor Mr Chen could provide any sensible explanation to that anomaly. In his affirmation, Mr Chen only said that due to the illness of their son, he and Mdm Lee did not handle the divorce procedure.  He said that since 2003 he had no dealings with the Subject Assets which he considered to belong to Mdm Lee. In cross-examination, he gave as the reason why the Oral Agreement had not been reduced into writing that Mdm Lee had joined Fa Lun Gong and was prohibited from entering Mainland China, that the Mainland Public Securities had tried to get him to persuade Mdm Lee to do various unspecified things, to which Mr Chen replied he could not do so because he was not on speaking terms with her.  I fail to see how that answer addresses the question.

61.  Mdm Lee’s evidence in cross-examination similarly lacks credibility.  She said that since 1995 (ie. the Draft Agreement) she had wanted to chase Mr Chen to implement the 1995 arrangements but her Re-Entry Permit was confiscated so that she could not go to the Mainland.  She had not seen Mr Chen since 1995.  She was very angry when their elder son was diagnosed with cancer in 2003 and she blamed Mr Chen for their son’s illness.  She said she was lost upon knowing her elder son’s illness and she didn’t know what to do.  These are hardly convincing reasons for not even making a record of what she had allegedly agreed with Mr Chen orally over the past 20 years.

62.  Another unsatisfactory aspect is that Mdm Lee and Mr Chen both fail to give any explanation why they could remember specifically that the Oral Agreement was reached on 7 October 2003.  I note that in the Joint Application, the date of separation was stated to be “about 7 October 2003”.  In their letter dated 24 August 2020 to the Applicants, Mdm Lee’s former solicitors (who handled the divorce proceedings) stated that:

“On 7 October 2003, Ms Lee and the Bankrupt began living separately until they made a joint application for divorce on 8 March 2016.”

63.  These statements are not consistent with Mdm Lee and Mr Chen’s evidence that they have separated since 1995, and that the Oral Agreement was reached on 7 October 2003.  It would also indicate that those solicitors were unaware of the Oral Agreement now alleged.  No evidence from the solicitors have been offered.

64.  The statements made and the relief sought in the Joint Application, which became the Ancillary Relief Order, are also inconsistent with the Oral Agreement. 

65.  The statements in paragraph (7) of the Joint Application (see [45] above) were Mdm Lee and Mr Chen’s representation to the Family Court that Mr Chen was still owning his share of the Subject Assets, and that he would transfer his interest in the Subject Assets to Mdm Lee upon their divorce.  The relief sought, and the Ancillary Relief Order made on that basis, were consistent with Mr Chen being the beneficial owner of the assets under his name. That is hardly consistent with the Oral Agreement.  There is no evidence from the solicitors who handled the divorce proceedings to explain why the Joint Application was couched in those terms and why the Joint Application asked for the transfer of Mr Chen’s interest in the Subject Assets to Mdm Lee upon the grant of the Decree Absolute.

66.  The same could be said in respect of Mr Chen signing documents as joint owner of the Lai Sing Building unit for the redevelopment of Serenade.  He accepts in evidence that he knew he was signing those documents as joint owner, and that the redeveloped property would be assigned to Mdm Lee and him as joint owners.  The documents were, objectively, representations made to the developer that he and Mdm Lee were the legal and beneficial owners of the property to be demolished, and would enjoy the same ownership interest in the redeveloped property.

67.  It seems to me much more likely that what had happened was something that Mdm Lee says almost in passing in cross-examination ie. after their separation in 1995, the two of them lived separate lives essentially in accordance with what Mdm Lee had proposed in the Draft Agreement except for the payment of RMB10 million. However, I make no finding in this respect since it is Mdm Lee’s case that the common intention constructive trust only arises from the Oral Agreement, and this possible scenario (I put it no higher than that) was not explored at the hearing.

68.  Mr Oh made other submissions as to why the Court should reject the Oral Agreement and Mdm Lee’s case on common intention constructive trust.  I need not burden this judgment with them which in my view do not add anything of substance to the reasons I have set out above.

Amendment to Originating Summons and Relief

69.  Finally I come to the question of what relief ought to be granted in the light of my finding.  In this connection, I need to revisit the Applicants’ application to amend the Originating Summons. 

70.  The Originating Summons seeks a number of relief.  Relief (1) is for an order setting aside the Ancillary Relief Order.  When Mr Oh opened the case, I asked for assistance on whether this Court has jurisdiction to set aside an order made by the Family Court, and whether the Applicants have locus to make that application.

71.  Mr Oh submitted that the Court has jurisdiction, and it is appropriate to commence an action to set aside a consent judgment which has been obtained by mistake, material non-disclosure, misrepresentation, collusion or fraud.  Mr Oh relied on Sharland v Sharland [2016] AC 871 and GM-SA v DPPJ [2020] HKCA 488.  However, in those cases, a former spouse sought to set aside a consent order made in matrimonial proceedings on the ground of the other spouse’s misrepresentation which had led to the consent order being made.  In the present case, the Applicants are not parties to the Family Court proceedings.  Although the Applicants claim that the Ancillary Relief Order was tainted by collusion or misrepresentation as to Mr Chen’s bankruptcy, such claims have not been pursued with vigour and in my view are not substantiated.  Mr Oh did not refer me to any authority supporting the proposition that a trustee in bankruptcy has locus to commence an action to set aside the Ancillary Relief Order.

72.  I also mentioned to Mr Oh that in Re Flint, the order made in the bankruptcy court was that the order made in the divorce proceedings was void against the trustee, and a declaration that the bankrupt’s share of property was held on trust for the trustee.  I asked for assistance why such an order would not suffice in this case.

73.  Instead of addressing the Court on the reasons for seeking to set aside the Ancillary Relief Order, the Applicants took out the summons to amend the Originating Summons, seeking to amend Relief (1) to:

“A declaration that paragraphs (1) to (5) and (7) of the Order made by His Honour Judge K.K. Pang dated 31 July 2022 made in FCJA 895/2016 (“the Ancillary Relief Order”) is null and void.”

74.  Mr Oh explains that the declaration sought is not only limited to against the trustee in bankruptcy as in Re Flint in case there may be complications, without explaining what complications he had in mind.

75.  Interestingly, Mr Cheung on behalf of Mdm Lee opposes the amendment application on the ground that amendment is not necessary, because the Court has power to set aside an ancillary relief order made by consent.  He referred me to Practice Direction SL 10.3 “Guidance on Setting Aside a Consent Order on Ancillary Relief”.  However, that Practice Direction does not explain why a third party such as the trustee in bankruptcy of a spouse has locus to commence an action to set aside the Ancillary Relief Order, particularly where the order might contain provisions which do not concern the third party.

76.  Mr Chen did not make any submissions or representations in respect of the amendment application.

77.  In the end, bearing in mind that Mr Chen chose to participate in the hearting as a party and not merely as a witness, and that the amendment to Relief (1) does not directly affect the Companies, I would allow the amendment to Relief (1) but would add the words “as against the Applicant” after “null and void”, with no order as to costs.  Service of the Amended Originating Summons is dispensed with.  I make no order on the proposed amendments to Relief (9) but will consider these or other amendments if necessary when I consider the terms of the order to be made in the light of this Judgment.

78.  I am prepared to make the declaration sought in Relief (1) of the Originating Summons as amended, ie:

“A declaration that paragraphs (1) to (5) and (7) of the Order made by His Honour Judge K.K. Pang dated 31 July 2022 made in FCJA 895/2016 (“the Ancillary Relief Order”) is null and void as against the Applicant”.

79.  As to the other relief sought, as I have indicated to the parties during the hearing, I would prefer to hear further submissions on what other orders ought to be made, including costs.  I have particularly in mind whether an order for sale of the Properties ought to be made.  I am mindful that Mr Cheung has made no submissions on why an order for sale should not be made in respect of any of the Properties.  Nevertheless, I do not think the Court has before it all relevant circumstances, especially when Mdm Lee is residing in the Serenade Flat, to enable an informed decision to be made.

80.  I therefore direct that:

80.1.  The parties do submit an agreed terms of order to be made within 28 days of the handing down of this Judgment.

80.2.  If the parties are unable to agree on the terms of order to be made, they shall within 28 days of the handing down of this Judgment exchange and file with the Court their respective proposed terms of orders and grounds of opposition in bullet form.  Reply submissions in writing, also in bullet form, are to be exchanged and filed with the Court within 14 days thereafter.

80.3.  There be liberty to apply.