TWC v. LSC

FCMC 11594/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11594 OF 2012

----------------------------

__________________

R U L I N G
(Joinder of Parties)

__________________

Application

1.  Before this court is an application by the respondent wife to join their children as parties to the present ancillary proceedings.

2.  The marriage in question is undoubtedly a very long one.  The parties married in November, 1972 in the Mainland, hence nearly 42 years.

3.  This union bore 2 children.  The elder is a daughter, now aged 38 and married.  The younger is a son, now 36 years old.

4.  On 8 August, 2012, the husband petitioned for divorce on the ground of the wife’s unreasonable behaviour.  This petition however met with an Answer by the wife filed on 19 September, 2012 but so far, nothing has been done to have the main suit set down for trial. 

5.  As far as the ancillary relief proceedings are concerned, the parties so far have not reached the FDR stage.  On 19 July, 2013, the respondent wife applied to have their children joined as parties to the proceedings.  This application is supported by the children but hotly contested by the husband.

6.  For convenience, I will refer the petitioner husband as “H”, the respondent wife as “W”, the daughter, ie the 1^st Intended Intervening Party as “Hung” and the son, the 2^nd Intended Intervening Party, as “Yiu”.

Background

7.  I believe the following facts are not in dispute.

8.  The family was originally from Dongguan of the Mainland.  It was H who first came to Hong Kong for a living, then followed by W and the 2 children in about 1990.  At that time, Hung and Yiu were aged 16 and 14 respectively.

9.  H was then already running a garment wholesale business at Sham Shui Po, Kowloon, it was undoubtedly at a very small scale. 

10.  As time went by the business grew, H formed a partnership with one Mr NC in the name of T&N in about October 1995. However, this partnership was short lived due to differences arose between the partners resulting in the departure of Mr NC in February, 1996.  Despite this disturbance, the business continued to prosper; and in order to cater for its expansion, a piece of land was purchased in Dongguan for building a factory and in Hong Kong, a limited company T&N L was established as the vehicle to carry on the business.  Upon its incorporation, W and Hung became the 2 shareholders of T&N L, each owned 50% of the shareholdings.

11.  On 18 August, 2003, Hung’s shareholdings in T&N L were transferred to H, so that H and W became the shareholders of the company, each owned 50%.  This situation remains unchanged up to now.

12.  It is clear that the business has been a very successful one, as evident from the landed properties acquired by the parties throughout these years.  I do not think I need to refer to the particulars of these properties, suffice for me to say is that there are in total 11 of them, 6 are registered in the joint names of H and W, one in H’s sole name, 3 in W’s sole name and the remaining one is registered in the names of W and Yiu as joint tenants.  As can be seen below, this last property is relevant to the present application, and I will refer this property as “the Property”.

13.  Naturally, the main issue in the ancillary relief proceedings will be on how the business interest and the landed properties are to be divided between the parties.

W and the Children’s Case

14.  W and the 2 children are on the same front.  Their case is essentially that the children have an interest in the family assets. 

15.  As regards W, she said that after settling in Hong Kong, she and Hung started a small scale garment wholesale operation but at the beginning the business was not very good, they therefore had to make their ends met by selling clothes as illegal hawkers.  Then in the course of 6 to 7 years time, they finally earned sufficient money to establish T&N L in January, 1997.  W said that the initial capital was contributed by her and Hung; that was the reason why she and Hung each owned 50% shareholders of the company.  She accepted that on 18 August, 2003, Hung transferred her entire shareholdings in the company in favour of H.

16.  W said that throughout all these years Hung has been working in the business up to now, handling all the daily financial, shipping and operational matters.  As for Yiu, he also has been working in the business overseeing the merchandising operation ever since the completion of his college education in Canada in 2001.  W emphasised that all along Hung and Yiu only received low salary.  She also affirmed the following in para. 9 of her affirmation,

“9. Further, (H) has promised on several occasions verbally to (Hung) and (Yiu) that all interests in T&N L and other assets of the family would be passed to them when he passes away.

10.  By the reasons of matters aforesaid, (Hung) and (Yiu) do have interest in T&N L and the landed properties acquired by the funds of T&N L…”  (emphasis added)

17.  As for Hung, her version is more or less the same as that of W, except that she conceded that when she came to Hong Kong, H was already running a garment wholesale business.  Hung said that both she and Yiu were required to help their parents out in the business.

18.  In her affirmation, she narrated what she did to contribute to the growth of the business and how they were able to establish T&N L and purchase a piece of land in Dongguan to build a factory there to meet their production needs.

19.  On how the shares in T&N L were transferred to H in 2003, the best I should do is to quote what she said in her affirmation,

“9. In 2003, my father asked me to transfer my shareholding in (T&N L) to him.  Our family is a traditional Chinese family.  My father always has a dominant role in the family and since childhood, I dared not to quarrel with him.  I therefore transferred the shares in (T&N L) to him reluctantly as requested.  However, I am the true beneficial owner of the said shareholding in (T&N L). (emphasis added)

20.  Hung also mentioned that in the past she did not want to work in the family business.  On 2 occasions in early or mid 1990s, she left and worked as a factory worker and packaging worker.  On each occasion, H requested her to return and promised her that “the family business and assets would go to (Yiu and her) at the end of the day”.  Relying on these promises, she returned and continued to work in the family business. She also said that in the subsequent years, on various occasions, H repeated the same promises.

21.  Yiu repeated more or less the same story.  He affirmed that in the early years, he was required to assist in the business after school.  Even during the years in Canada, he was required to help his parents out upon return to Hong Kong during the summer vacations.  He also mentioned that upon completion of his education, he did not want to join the family business because he was not interested in garment trade.  It was only at the request of H that he reluctantly joined.  At the beginning he only received some pocket money.  It was only until one or two years later that he started to receive salaries but they were very low.  He also said that in subsequent years on many occasions he had raised the issue that he did not want to work in the family business any more but H asked him to stay and “promised that the business and the assets would pass to (him) at the end”.  In reliance of the promises, he stayed in the family business until today : Para 7 of Yiu’s Affirmation.

22.  Finally, referring to the Property that was purchased in the joint names of W and Yiu in 1997, he said it was W who paid all the purchase monies and she intended to purchase the Property as a gift to him.  As at the time of the purchase he was still in Canada, W gave her name as one of the registered owners so that she could deal with the Property for him.

H’s Case

23.  In his affirmations, H denied W and the children’s allegations of promises.  Whilst accepting that W and Hung had offered assistance regarding daily routine and odd jobs, he denied that W and Hung were handling most of the operation in Hong Kong.  He maintained that he and W are the true beneficial owners of the business and their children are merely employees.  He also denied that the children received no or low salaries.

24.  On why the shares of T&N L were originally registered in Hung’s name, H has his own version.  He explained that at the material time due to his disagreement with Mr NC, he planned to set up another company so that he would still be able to carry on the business if any unexpected events happened.  He thought that there would be tax problem if he was the owner of 2 companies with similar names at the same time, hence, the shares were registered in Hung’s name.

Arguments

25.  Mr Chan, for W, submitted that for the reason that the children have contribution to the assets and also because of the promises of H and their reliance on the promises, the children should be allowed to join in these proceedings so that they may be heard on the determination of the ownership of various assets in question.

26.  Mr Clough, for the Intended Intervening Parties, submitted that in issue is the ownership of the assets.  The court is not concerned with the evaluation of the evidence but with whether both or either of them have a prima facie claim; and in this context “prima facie” means a claim to having a beneficial interest in property.   The test as to whether Hung should be joined is whether if the evidence relating to her ownership is believed she will be found to have a beneficial interest in any of the property in which the parties or either of them claim to be matrimonial assets.  Similarly, Yiu does not have to show that he is bound to succeed but only that if the evidence upon which he relies is believed he will be found to have a beneficial interest in any of the property.   In other words, the test as to whether they may be joined is whether based on the facts they present they have an arguable case.

27.  Mr Clough also cited the often-quoted paragraphs by Mr Mostyn QC (as he then was sitting as a deputy High Court judge) in TL v ML [2006] 1 FLR 1263,

“[34]  It is to be emphasised, however, that the task of the judge determining a dispute as to ownership between a spouse and a third party is of course completely different in nature to the familiar discretionary exercise between spouses. A dispute with a third party must be approached on exactly the same legal basis as if it were being determined in the Chancery Division.

…

[36]  In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen:

(i)  The third party should be joined to the proceedings at the earliest opportunity;

(ii)  Directions should be given for the issue to be fully pleaded by points of claim and points of defence;

(iii)  Separate witness statements should be directed in relation to the dispute; and

(iv)  The dispute should be directed to be heard separately as a preliminary issue, before the financial dispute resolution (FDR)”

28.  Mr Clough also relied on Article 10 of the Hong Kong Bill of Rights Ordinance, Cap 383 to say that the children have the right to be heard. 

29.  Further, he also submitted that Hung and Yiu are relevant and compellable witnesses in the ancillary relief proceedings at the instance of either H or W.  This fact alone makes it abundantly clear they have a right to be joined to assert their claim not simply to be witnesses at the suit of one of the parties. 

30.  Mr Tang, for H, argued that the children fail to show that they have an existing interest in the assets in question.  He carried out a lengthy analysis on the merits of the children’s case according to the affirmation evidence and argued that their allegations are totally unfounded and plainly untrue.

31.  Mr Tang also argued that if the intervention is approved, the present proceedings will be delayed and can only be settled, if the parties succeed, at a later stage.  It is therefore not just and convenient for the court to exercise its discretion.

The Legal Principles

32.  Notwithstanding that the Summons cited Order 15, rule 4, RHC, both Mr Clough and Mr Tang referred me to Order 15, rule 6, RHC.  Clearly, this is the more appropriate provision.  Order 15, rule 6(2)(b), RHC empowers the court to add the following persons to be a party at any stage of proceedings in any cause or matter on such terms the court deems fit, namely,

(i) any person who ought to have been joined as a party or  whose presence before the Court is necessary to ensure 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 party 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.

33.  The person making the application must show his interest in the matters in dispute in the cause or matter, or the question or issue to be determined as between him and any party to the cause or matter: Order 15, rule 6(3), RHC.

34.  In Man Whi Chung v Man Ping Nam & Anor [2003] 1 HKC 549, it was held by Deputy High Court Judge Andrew Cheung (as he then was) that under the RHC rules for the joinder of parties, it was essential for an intending defendant to show that he was sufficiently interested in the proceedings to be joined as an additional party: O 15 r 6(2)(i), RHC.  As regards the alternative basis under r 6(2)(b)(ii), the court had a wider jurisdiction to allow joinder.  There must exist as between the person seeking to intervene and any party to the cause or matter ‘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’.  However, a distinction should be drawn between an intervenor who had a legal interest in the subject matter of the litigation and one who merely had an indirect and commercial interest in the litigation.  On the other hand, the court may allow a person with a doubtful interest in the subject matter of the litigation to be joined so that the doubt over his interest could be resolved at trial, together with the relevant issues between the original parties (at 554F-558B).

Discussion

35.  I now turn to the present application.

36.  In my view, the crucial question is whether or not the children have a claim on the family assets so that they are sufficiently interested in the present proceedings to be joined as a party under sub-paragraph (i) of the rule.

37.  In my judgment, they do not.

38.  To start with, it seems clear to me that if the children say they have a claim or an interest in the family assets, such claim or interest must be capable of being framed in legal terms, or put it simply, they must have a cause of action.  However, it is to be noted that neither Mr Chan nor Mr Clough have informed the court of the relevant cause of action that the children may have regarding the family assets in general and the business in particular.  Both of the children and W affirmed that H had repeatedly promised that all the interests in T&N L and other assets of the family would be passed to the children upon his death.  Mr Clough submitted that the test as to whether they may be joined is whether based on the facts they present they have an arguable case.  Assuming for one moment what they said are truth, in the absence of a cause of action, I fail to see how they could have an arguable case.  The children, and also W, are certainly not putting forward an assertion that the children now have an interest in the family assets.  If it is their case that they have an interest in the family assets now, it is incumbent upon them to let the court know what causes of action they have and the extent of their beneficial interests.  Their affirmations simply do not say so.  H is apparently well and alive.  The children would not have an interest unless and until his demise and of course it would further depend on whether he dies intestate or leaving a will.  I do not think the parties and the children need to be reminded that H may execute a will to deal with his estate before his death.  If the children are not satisfied with the provision or the arrangement under the will or pursuant to the Intestates’ Estates Ordinance, Cap 73, they may then consider making an application under the Inheritance (Provision for Family and Dependants) Ordinance, Cap 481.  Mr Tang suggested that the children’s interest is at most a contingent interest.  For my part, I do not see it anywhere near to a contingent interest.  Their claim as such, whether in law or in equity, must be capable of being enforced.  As far as I can see, it is at most a moral claim on the part of the children.

39.  Further, clearly the children have not gone so far as to say that H is now holding the family assets or any part of them upon trust for them and hence, he should be accountable to them as to how the family assets are to be dealt with or disposed of before his demise. 

40.  Though a small point, I need to mention that Mr Tang conceded that the children may rely on the doctrine of proprietary estoppel.  I do not agree; for the reason that estoppel can only be a shield but not a sword.

41.  Finally, in any event I fail to see the relevancy of their “claim” to the present proceedings.  The children’s case is that H promised that the family assets and the business would pass to them ‘at the end’.  As W sides with the children, on the evidence before me, it can be presumed that there would not be any problem in this regard between her and the children.  As for H, whatever portion of the family assets that he may get out of the present proceedings, they would still be subject to the “promises” that can only be materialized ‘at the end’, ie upon the demise of H.

42.  As regards the transfer in 2003, what she said was, though reluctantly, she did transfer the shares.  She however maintained that she is the beneficial owner of the said shareholding.  There are no explanations or particulars on why she remains to be the beneficial owner.  To me, the transfer is apparently an outright transfer.  The ownership has passed to and vested with H.  Further, the assertion that she is already or always the beneficial owner of the shares clearly does not sit very well with her another assertion that the family business and assets would go to her and her brother in the future. 

43.  Equally, Yiu’s claim on the Property is, in my view, unmeritorious.

44.  Yiu said that all the purchase monies and the incidental costs were from W and the Property was intended to be a gift to him. Thus, he was a volunteer.  Since the Property was in the joint names of W and him, he must be saying that W is holding her share in the Property upon trust for him.  However, this position is faulty as it is not evidenced in writing as required by section 5(1) of the Conveyancing and Property Ordinance, Cap 219.  The section provides that,

“(a) no equitable interest in land can be created or disposed of except by writing signed by the person creating or disposing of the same, or by his agent thereunto lawfully authorized in writing, or by will, or by operation of law;

(b) a declaration of trust respecting land or any interest therein shall be manifested and proved in writing signed by the person who is able to declare such trust or by his will.

45.  What is before the court is the mere say so of Yiu, this assertion is not even mentioned by W.  It is clear that the said section 5(1) has not been complied with. 

46.  I am of course conscious of the exceptions in subsection (2) of the provision which provides that “This Section does not affect the creation or operation of resulting, implied or constructive trusts”.

47.  I have no doubt that the exceptions do not apply here.  I think I only need to quote what Lord Diplock said in Gissing v. Gissing [1971] AC 886, 905B :

“A resulting, implied or constructive trust – and it is unnecessary for the present purpose to distinguish between these three classes of trust – is crested by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny to the cestui que trust a beneficial interest in the land acquired.  And he will be held so to have conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land.”

48.  In the present case, H is not the owner of the legal estate.  The issue of resulting, implied or constructive trusts simply does not arise.

49.  Further, Mr Chan submitted that the Property was originally free from mortgage but in 2011 a mortgage was taken out as security for a loan for the purchase of another property in the sole name of H.  This is not in any evidence before me.  Mr Chan is not entitled to give evidence from the bar.  In any event, this is disputed by Mr Tang.  Be that as it may, my view is that this fact would not assist Yiu as it is incumbent upon him to explain, if he was and is the sole beneficial owner, why he would have allowed this to happen but his affirmation is absolutely silent on this.

50.  Finally, it is to be noted that there is nothing to suggest that H has notice, whether actual or constructive, of Yiu’s alleged unwritten equities in the Property.

51.  On the above analysis, there also does not exist between the children and any of H and W any question or issue arising out of or relating to or connected with the relief or remedy claimed in the present proceedings in order to invoke sub-paragraph (ii) of the rule.

52.  With the conclusion that I have come to, I do not need to consider whether this application is one that is just and convenient for the court to exercise its discretion.

Order

53.  For the reasons aforesaid, the application is wholly unmeritorious.  The application serves no purpose but to muddy the water and must be dismissed.

Costs

54.  I see no reason why costs should not follow the event.  The costs of this application should be the petitioner’s costs, with counsel certificate.  I order that the petitioner’s costs be taxed and paid forthwith by the respondent and the two Intended Intervening Parties.