黄旭輝 v. CHAN KIM WAH AND ANOTHER

DCCJ 2277 / 2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 2277 OF 2012

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JUDGMENT

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Introduction

1. The plaintiff Huang Xuhui (“Huang”) commenced these proceedings to set aside an assignment dated 26 April 2012 registered in the Land Registry by Memorial No. 12051800920082 (“the Assignment”) executed by the 1^st Defendant (“Chan”) and the 2^nd Defendant (“Chio”) on the one part as assignors and Chio on the other part as assignee pursuant to section 60 of the Conveyancing and Property Ordinance, Cap. 219 (“the Ordinance”).

2. Chan and Chio are husband and wife. The subject matter of the Assignment is a residential property situated at Flat B, 14/F, Block 4, Glorious Garden, No.45 Lung Mun Road, Tuen Mun, New Territories (“the Property”) which Chan and Chio acquired in May 1999 as joint tenants under the Home Ownership Scheme administered by the Hong Kong Housing Authority (“HKHA”).

3. Both Chan and Chio have been unrepresented throughout and are absent this morning. Indeed they have never taken part in these proceedings and they did not even file any notice of intention to defend. By a Notice of Trial dated 14 January 2013, the parties were informed of the trial date. Further, as deposed to in the 4^th Affirmation of Tang Yee Hung Andrew dated 15 February 2103, a sealed copy of Registrar Lui dated 18 December 2012 stipulating the trial date were served on both Chan and Chio. Being satisfied that both Chan and Chio were aware of the trial date, I proceeded with the trial in their absence.

Plaintiff’s Case and Evidence

4. Huang alone testified in support of his claim. He fully adopted the contents of his witness statement dated 1February 2013. His evidence, mostly supported by documentary proof, was not contested and I find it to be credible and reliable. The following evidence is pertinent to Huang’s claim:

(1) Huang and Chan entered into a joint venture agreement dated 4 March 2009 whereby they agreed to jointly invest in a Hong Kong – Nan Hai shipping business in equal shares. Accordingly each of Huang and Chan held 50% stake of the joint venture business.

(2) Huang and Chan entered into a termination agreement dated 20 July 2009 whereby they agreed to terminate the said joint venture agreement. Under the said termination agreement, Huang should vest his 50% stake in Chan and Chan should in return pay Huang a sum of HK$500,000 on before 30 September 2009.

(3) Huang performed his obligations under the said termination agreement on the very day it was executed whereas Chan defaulted payment. From October 2009 to August 2011, Huang continuously chased after Chan for payment of the said sum of HK$500,000 and Chan repeatedly asked for indulgence. Having tried unsuccessfully to contact Chan since September 2011 and not knowing the whereabouts of Chan, Huang commenced the proceedings under DCCJ 4571/2011 on 30 November 2011 (“the 2011 Action”) to sue Chan for the outstanding sum of HK$500,000.

(4) Chan filed his defence and counterclaim in the 2011 Action on 5 January 2012. Thereafter, Chan did not take any further step in the proceedings.

(5) As can be seen in a letter of HKHA dated 10 January 2012, Chan and Chio had prior to 22 December 2011 applied for the consent of HKHA for Chan’s proposed assignment of his interest in the Property to Chio. By the said letter, HKHA gave its consent to the proposed assignment.

(6) On 24 April 2012, the Assignment was executed whereby Chan and Chio assigned all their beneficial interest in the Property to Chio at nil monetary consideration. Thus, Chio has become the sole legal and beneficial owner of the Property.

(7) On 6 June 2012, judgment eventually was entered against Chan for the sum of HK$500,000 (with interest thereon) with his counterclaim being struck out in default of the order of Registrar C. Lee dated 24 April 2012. The judgment debt of HK$500,000 remains unpaid up till now.

(8) On or about 28 September 2012, Huang commissioned Total Credit Management Services Hong Kong to conduct a business and asset search in respect of Chan. It was found out that the Property was the only asset of Chan.

5. Huang’s case is that the Assignment was a fraudulent conveyance with a view to defrauding the creditors of Chan including Huang himself. Chan created the Assignment at the time when Chan was insolvent or that he would become insolvent as a result of the Assignment. Therefore, Huang prays in aid section 60 of the Ordinance to set aside the Assignment.

Relevant Legal Principles

6. Section 60 provides as follows:-

(a) Subject to sub-ss.(2) and (3), every disposition of property made, whether before or after the commencement of this section, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.

(b)  This section does not affect the law of bankruptcy for the time being in force.

(c)  This section does not extend to any estate or interest in property disposed of for valuable consideration and in good faith or upon good consideration and in good faith to any person not having at the time of the disposition, notice of the intent to defraud creditors.

7. Mr Ko, counsel for the plaintiff, helpfully referred me to Tradepower (Holdings) Ltd v Tradepower (HK) Ltd (2009) 12 HKCFAR 417. There, Ribeiro PJ made a thorough review of the law relating to section 60 of the Ordinance and in particular the approach adopted in Freeman v Pope (1869-70) LR 5 Ch App 538 (commonly known as “the rule in Freeman v Pope”). The formulation of the rule in Freeman v Pope made by Ribeiro PJ (at §88) is as follows:

“Where it is objectively shown that a disposition of property unsupported by consideration is made by a disponor when insolvent (or who thereby renders himself insolvent) with the result that his creditors (including his future creditors) are clearly subjected at least to a significant risk of being unable to recover their debts in full, such facts ought in virtually every case to be sufficient to justify the inference of an intent to defraud creditors in the disponor’s part.”

8. The following observation of Litton NPJ in Tradepower (Holdings) Ltd v Tradepower (HK) Ltd, supra (at §134), is also apposite:

“As a matter of commonsense, when a disponor is insolvent and gives away a valuable asset to an entity controlled by himself, or to a close associate or relative, the inference would seem irresistible that the intent was to put the asset out of the reach of his creditors. Protestations of benevolence would carry no weight. This result is reached, not by applying any policy of the law, but by the use of simple commonsense.”

Discussion

9. Guided by the foregoing authority, I am satisfied that Huang’s claim under section 60 of the Ordinance is sufficiently borne out by the evidence. Firstly, the disposition of the Property was unsupported by consideration. Secondly, the factual backdrop of the Assignment was that Chan had acknowledged his liability to pay Huang before the 2011 Action. As regards the 2011 Action, despite the initial resistance, Chan subsequently opted to abandon his defence and counterclaim in those proceedings and instead executed the Assignment to give away his beneficial interest in the Property for no apparent legitimate reasons. The investigation showed that the Property was his only asset. He has failed to pay the judgment debt of HK$500,000. The irresistible inference is that Chan was insolvent when the disposition was made and/or the disposition would render him insolvent. As a result, Huang being his creditor is clearly subjected to a significant risk of being unable to recover his debt or any part of it. The inference of an intent to defraud creditors on the part of Chan is amply justified, particularly in the absence of any explanation proferred by Chan and Chio.

Conclusion

10. In the result, I find the rule in Freeman v Pope applicable to the present case. Section 60 is engaged and I have no doubt that the Assignment should be declared to be void and be set aside forthwith. I would grant a declaration to this effect. I would also make an order that costs of this action be to Huang, summarily assessed by me at HK$75,000.