LWH also known as WHHL v. NKWS also known as KWSN

FCMC 2953 / 2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 2953 OF 2015

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JUDGMENT
(Preliminary issues)

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Introduction

1.   This is a preliminary issues trial. To put it as simply as possible the court is being asked to determine whether or not five “Family Companies” are beneficially owned by the wife’s sister (the 1^st Intervener) who I will call Ip, and her husband (the 2^nd Intervener), who I will call J, or whether they are held by the Petitioner wife and Respondent husband. Further the court is asked to determine whether or not these Family Companies forms part of the “matrimonial pot”, either in whole or in part. The Family Companies own a number of valuable properties. It follows that the court is also asked to determine whether or not these properties are beneficially held by the interveners as claimed or by the husband and wife.  

2.   As will be seen it is rare indeed for a case to come before the Family Court where so much hinges on the credibility or otherwise of the parties and to factual situations which arose in some instances more than 25 years ago. Facts appear to have been interpreted and reinterpreted as the case has developed. Difficulties have then arisen with the way in which the case has been pleaded and how it has then developed over time.  

The law     

3.   Both parties have referred me to the helpful analysis re stated by the Supreme Court in the United Kingdom in Jones v Kernott [2011] UKSC 53 as summarized by Mr Justice Mostyn in Bhura v Bhura & Others [2014] EWHC 727. This states as follows:

“8. The applicable legal principles concerning a property dispute such as this are tolerably clear and have most recently been re-stated by the Supreme Court in Jones v Kernott [2011] UKSC 53, [2012] 1 AC 776. In summary I think they are as follows:-

i) If there is an express declaration of beneficial interests then that is, almost invariably, the end of the matter. Such an express declaration can only be displaced if it has been procured by fraudulent conduct. In this case it is said by the wife that the signed TR1 for Mayfield Avenue is a sham. A sham is of course a species of fraud. It involves the parties entering into a dishonest compact, i.e. a conspiracy, to express the true state of affairs falsely in the written agreement. I will analyse the law relating to sham transactions a little later.

ii) If there is no express agreement about the beneficial interests then there is likely to be (at least) a tacit understanding. This is hardly surprising as one would expect that when people enter into what may very well be the most important economic transaction in their lives - buying a home - they would have a pretty clear understanding of who owned what share of it. In determining whether there was such a tacit understanding, and if so what it was, the court will look at all the evidence holistically and will examine the whole course of the parties’ conduct in relation to the property.

iii) In the rare case where the evidence does not reveal a tacit understanding about ownership the court can reach for the presumptions. An obvious presumption is that beneficial ownership is the same as legal title (see Jones v Kernott at paras 17 and 51(1)).

iv) Another is the presumption of the resulting trust. In Pettitt v Pettitt [1970] AC 777 at 824 Lord Diplock doubted that it was of much relevance in the modern era. In his view it would be “an abuse of the legal technique for ascertaining or imputing intention to apply to transactions between the post-war generation of married couples ‘presumptions’ which are based upon inferences of fact which an earlier generation of judges drew as to the most likely intentions of earlier generations of spouses belonging to the propertied classes of a different social era.” Some commentators believe that the doctrine has a medieval origin. The principal problem with it is that that is allows the “solid tug of money” (as Woodhouse J evocatively put it (echoing George Eliot) in Hofman v Hofman [1965] NZLR 795 at 800) “to submerge any faint suggestion that other [non-financial] contributions play a valuable part in the acquisition of family assets”.

v) A further presumption is the presumption of advancement but this can be regarded as being on its death-bed given that it is abolished by s199 Equality Act 2010, which is awaiting implementation.

vi) But presumptions are only presumptions. In a memorable dictum Lamm J in Mackowick v Kansas City St. J. & C.B. Ry., 196 Mo. 550, 571, 94 S.W. 256, 262 (1906) stated that “presumptions may be looked on as the bats of the law, flitting in the twilight, but disappearing in the sunshine of actual facts”.

vii) “Actual facts” are those which suggest that a result steered by a presumption is unfair. Although there are different degrees of emphasis and nuance all of the Justices in Jones v Kernott accepted that where a tacit agreement could not be found by a process of inference the court could impute to the parties a fair agreement which they never in fact made but which they should “be taken” as having made (see paras 45, 60, 72, 85(2)). Of course, as Woodhouse J pointed out, this involves a “fictional attribution of intention”, but the process has a long pedigree. One only needs to remind oneself of Lord Denning MR’s statement in Appleton v Appleton [1965] 1 WLR 25 at 28 to see how the wheel has turned full circle. There he said “A judge can only do what is fair and reasonable in the circumstances. Sometimes this test has been put in the cases: What term is to be implied? What would the parties have stipulated had they thought about it? That is one way of putting it. But, as they never did think about it at all, I prefer to take the simple test: What is reasonable and fair in the circumstances as they have developed, seeing that they are circumstances which no one contemplated before?” I cannot see any difference between that statement and that of Lord Wilson in para 87 where he rhetorically asked “where equity is driven to impute the common intention, how can it do so other than by search for the result which the court itself considers fair?””

In this case the husband and wife now own the shares in all five companies (with one exception where there is an old declaration of trust going back to before the marriage which states that the husband is holding his share on trust for the wife). Therefore, it is for the interveners to show that this express declaration should be displaced. It is of note that rather late in the day the wife and interveners sought to introduce an argument on fraud which was not allowed. The burden of proof therefore lies with them. As will be seen I am of the view that they have failed to discharge that burden.

4. There is a great deal of circumstantial evidence in this case and the credibility of the parties is also very much in issue. With that in mind reference should also be made to Lee Fu Wing v Yan Po Ting Paul [2009] 5 HKLRD 513 where Deputy High Court Judge Thomas Au (as he then was) said that when assessing the credibility of each party’s case the court should consider:

6. (1) Whether the party’s case is inherently plausible or implausible;

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

(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

(4) The demeanour of the witness.

Reference shall be made to this very useful guide when assessing the evidence of the parties and each side’s case.

5. I have also been referred to Kwok Chin Wing v 21 Holdings Ltd, (2013) 16 HKCFAR 663 and Sinoearn International Limited v Hyundai-CCECC joint Venture (2013) 16 HKCFAR 632 which states the approach to be taken to a “pleaded” case. It is trite, but worth repeating that a case must be properly pleaded. The pleadings must or should define the issues and this should then dictate the permissible scope of the evidence. Attempts to reformulate one’s case after the event should not be permitted. This was a particular problem in this case.

Background to the marriage

6. The parties met in 1990 and married on the XX April 1992 in Vancouver, British Columbia. They also registered their marriage in Hong Kong. Both are from Hong Kong originally. Their only child a daughter J was born on the XX September 1993 and is now 23 years of age. The divorce petition was issued on the 13 March 2015 based on the husband’s unreasonable behaviour. This was originally defended but fortunately the parties were able to reach consensus on this issue at least and a decree nisi was pronounced on the 17 November 2015 based on a watered down version of the wife’s original unreasonable behaviour particulars. There has only been one First Appointment hearing previously and the emphasise to date has been on the preliminary issue currently before the court.

7. It does not appear to be disputed that at the time of marriage the wife was working for a company called C & S as a merchandizing manager, whereas the husband originally worked as a property consultant, later owning his own small company with others doing investment and property management called CPC Ltd. He also owned a company called S Ltd that bought and sold properties for profit.

8. Little is known about the background of the interveners save that it is said that they got married on the XX April 1980 in Canada and had two children – both girls called L and N. It does not appear to be disputed that J had invested in an amusement park project in Hainan China and that the husband worked with or for him, depending on which version is to be believed, from about 1995 - 1997. It seems that J is suing the authorities in China with respect to the amusement park project, which was later confiscated. Ip meanwhile is a religious superior within the Tibetan Buddhist tradition. Although the reasons for the intervener’s absence does not appear to be agreed, there does not appear to be any dispute that they were not in Hong Kong permanently from about 2000 – 2007. During that period their children were cared for by the husband and wife and the maternal Grandmother.

9. The dispute between the parties’ centres on the formation of two companies in or about 1997 called PCHK and PCH. It is the husband’s case that these companies were set up by him and the wife. They are garment trading businesses. It is not disputed that the shares in PCHK were held by the interveners for a short while and that they were then transferred to the husband and wife. The husband’s case is that this was done for strategic reasons. It is the wife and intervener’s case that the intervener’s set up these companies and that they have always been the ultimate beneficial owners. The three other companies are of less import, in that one was originally held by the wife and the other by the husband, prior to marriage. However most of these companies also hold real estate and that is where a lot of the tangible value in this case lies. It is the husband’s case that he and the wife are the ultimate beneficial owners of all of the real estate in question.

10. It is also of note that the interveners and the husband and wife have lived very closely with each other. It is the husband’s case that he and the wife supported the interveners financially when they fell on hard times. It also seems that the three children were affectively brought up together. This dispute has therefore torn both families apart. I am told that there has also been a report made to the ICAC and there were also proceedings in the Magistrate’s Court, which were ultimately dismissed.

The Family Companies

11. There are five Family Companies in total, namely:

(1) PCHK Limited (“PCHK”);

(2) OB Company Limited (“OB”);

(3) PCH Limited (“PCH”);

(4) PCA Limited (“PCA”);

(5) B Limited (“B”).

The litigation to date

12. On the 24 June 2015 the solicitors for the wife issued the following summons:

2. The following party be added as Respondent to these proceedings for the purpose of determining whether PCHK Limited (…) forms part of the matrimonial assets:-

(a) PCHK Limited (…) as the 2^nd Respondent;

3. The following parties be added as Respondents to these proceedings for the purpose of determining whether they are the beneficial owners of PCHK Limited (…):-

(a) LIWY (Ip) (…) as the 3^rd Respondent ; and

(b) FKK (J) (…) as the 4^th Respondent.

1. This was followed by a second summons on the 25 August 2015 in the following terms:

1. The following parties be added as Respondents to these proceedings for the purpose of determining whether they should form part of the matrimonial assets:-

(a) OB Company Limited;

(b) PCH Limited;

(c) PCA Limited; and

(d) B Limited.

2. LIWY (Ip) (…) & FKK (J) (…) be added as Respondents of this action for the purpose of determining whether they have beneficial interests in the following assets:-

(a) OB Company Limited;

(b) PCH Limited;

(c) PCA Limited; and

(d) B Limited.

14. On the 11 September 2015 the court made an order by consent as follows:

1. Leave be granted to Ip (“Intended 1^st Intervener”) & J (“Intended 2^nd Intervener”) to be added as 1^st and 2^nd Interveners to these proceedings in the Preliminary Issue for the purpose of determining:-

(a) whether the 1^st and 2^nd Interveners are the beneficial owners in the following companies:-

(i) PCHK Limited (…)；

(ii) OB Company Limited;

(iii) PCH Limited;

(iv) PCA Limited; and

(v) B Limited.

(b) whether the following companies in whole or in part form part of the matrimonial assets of the Petitioner and the Respondent:-

(i) PCHK Limited (…);

(ii) OB Company Limited

(iii) PCH Limited;

(iv) PCA Limited; and

(v) B Limited.

15. There then followed the normal directions inter alia for the filing of the Points of Claim and Points of Defence etc. On the 13 April 2016 I ordered amongst other things that:

All parties do prepare, file and serve an agreed list of issues in dispute duly signed by all parties 14 days thereafter i.e. 8 June 2016.

This same order was made on the 3 June 2016. It seems that no such document was ever filed with the court.

16. The Petitioner’s already Amended Points of Claim became subject to further argument on the second day of trial because of the inclusion by the wife and the Interveners of what appeared to be an argument on fraud. Consequently, the final Re-Amended Points of Claim is dated the 13 January 2017. All references to fraud were removed from the document. I do not intend to comment on this further in this judgment, but if necessary reference can be made to my oral Ruling of the 11 January 2017 in that regard.

17. In the Re-amended Points of Claim the wife and intervener’s seek the following:

AND THE 1^ST INTERVENER AND THE 2^ND INTERVENER CLAIM FOR A DECLARATION THAT:-

(1) PCHK and OB are beneficially owned by the 1^st Intervener and the 2^nd Intervener only, and that PCHK and OB should not form part of the matrimonial assets to be distributed between the Petitioner and the Respondent in the present proceedings; and

(2) PCH, PCA and B are in part beneficially owned by the 1^st Intervener and the 2^nd Intervener only, and that PCH, PCA and B should only form part of the matrimonial assets to be distributed between the Petitioner and the Respondent in the present proceedings.

This is their pleaded case. It is of note that although the court queried this on several occasions the wife and interveners did not elaborate on what they meant by “in part beneficially owned”. This was also put to them in cross examination and they were not able to clarify their case on this point. Infact J said that this was a matter for the lawyers to sort out!!

An over view of each party’s case

The Husband’s case

18. It is the husband’s case that he and the wife established a garment trading business in or about 1997 and that they set this up together and worked in it together. It is the husband’s case that all five companies are jointly and beneficially owned by him and the wife and that all assets held by these companies are likewise jointly and beneficially owned by them. He denies absolutely that the interveners are beneficial owners of any of the five Family Companies or that they hold any ownership interest of any kind in any of them. In the event that the court finds that any of the Family Companies or any of the assets held by the companies are infact legally held by the interveners then the husband maintains that they do so on trust for him and the wife.

The wife and the intervener’s case

19. In essence it is the wife and intervener’s case that the interveners, Ip and J own the Family Companies and that J is the “boss”. It is further alleged that they provided all of the original seed money for the family businesses and that they then employed the husband and wife to work in them. Thus all of the companies either in whole or in part belong to them. As I have said it was never determined during the trial in what way they were claiming a part only of PCH, PCA and B. However, in the alternative they also advanced an argument in their closing submission, (not originally pleaded), that all of the Family Companies are infact wholly and beneficially owned by the interveners. I will come to this point again later.

The issues to be determined

20. In the absence of an agreed list of issues to be determined, the list provided by the husband’s team in their opening submission is of some assistance. This states as follows:

48. Issue 1: B

(a) Who had the beneficial ownership of B, and if more than one person in what proportions was the beneficial ownership held;

(b) Is B, or any part of it, a matrimonial asset;

(2) Issue 2: OB

(a) Who is the beneficial owner of OB, in circumstances where each of H and W have held 1 of the 2 issued shares since the date of incorporation of OB on 5/6/1991 to date;

(b) Is OB, or any part of it, a matrimonial asset;

(c) Is the K Villa Property held by OB on resulting trust for H and/or W;

(d) Is the 3^rd Floor Property held by OB on resulting trust for H and/or W;

(3) Issue 3: PCH

(a) Who is the beneficial owner of PCH, in circumstances where each of H and W have held 1 of the 2 issued shares since the date of incorporation of PCH on 23/5/1997 to date;

(b) Is PCH, or any part of it, a matrimonial asset;

(c) Is the Workshop held by PCH on trust for another person or entity, and if so is it held for H and/or W;

(4) Issue 4: PCHK

(a) Who had the beneficial ownership of PCHK, and if more than one person in what proportions was the beneficial ownership held;

(b) Is PCHK, or any part of it, a matrimonial asset;

(c) Is the 36^th Floor Property held by PCHK on trust for another person or entity, and if so is it held for H and/or W;

(5) Issue 5: PCA

(a) Who is the beneficial owner of PCA, in circumstances where each of H and W have held 5,000 of the 10,000 issued shares since the date of incorporation of PCA on 8 July 2009 to date;

(b) Is PCA, or any part of it, a matrimonial asset.

21. In addition, it seems to me that the court is charged with determining the following:

On a balance of probabilities is it more likely than not that the wife purchased the Cornwall Avenue property with her own funds or with the financial assistance of Ip (and possibly J through Ip)?

Should any of the other arguments advanced by the wife and the interveners in their closing submissions be considered e.g. the so called

a)   Circular argument;

b)   The sham business argument; and

c)   The defacto ownership argument?

22.   I will try to address all of these alleged issues in the order that they were referred to in the Re Amended Points of Claim. As will be seen I have on occasions reproduced parts of the Re Amended Points of Claim so that there can be no doubt as to the wife’s and intervener’s original pleaded case. However, where that has become too unwieldly I have simply referenced the appropriate sections of the Re Amended Points of Claim. Reference should therefore be made to the pleadings as appropriate throughout this judgment.  

Discussion

On a balance of probabilities is it more likely than not that the wife purchased the Cornwall Avenue property with her own funds or with the financial assistance of I (and possibly J through I)?

23.   In the Re amended Points of Claim the wife and interveners plead as follows:

9.   Even before the marriage of the Petitioner [the wife] and the Respondent, in fact even before the Petitioner met the Respondent, the 1^st Intervener (Ip) would often give money from the savings of the 1^st Intervener (Ip) and the 2^nd Intervener (J) to the Petitioner to make investments for the 1^st Intervener (Ip).

10.   On XX October 1990, the Petitioner, using the 1^st Intervener’s money, purchased the … (“the Cornwall Avenue property”) for HK$470,000 in the name of the Petitioner.  The purchase money (there being no mortgage) was from the 1^st and the 2^nd Interveners.  The 1^st Intervener (Ip) was not a named owner of the Cornwall Avenue property as she did not want the 2^nd Intervener (J) to know at the time that she (the 1^st Intervener) was using their (the 1^st and the 2^nd Interveners’) savings to make investments.

11.   The Cornwall Avenue property was sold to the 2^nd Intervener (who bought it for future development) in 1991.  On XX March 1991, the 2^nd Intervener paid HK$600,000.00 (as purchase price) to the Petitioner.

24.   In many respects everything hangs on this first point. It is Ip’s case that she would give money to the wife, even prior to the parties’ marriage and that the wife would then invest this on her behalf. Ip said that she did this without her husband, J knowing. It is not disputed that the wife purchased a property prior to marriage called Cornwall Avenue. She says that she was not earning very much at the time and that she did so with the financial assistance of Ip and that the property therefore belonged to Ip. Bizarrely it is then said that Cornwall Avenue was sold to J and that Ip therefore made a profit from buying a property and then reselling it to her own husband. With respect on the face of it this seems inherently implausible.

25.   The evidence given by the parties in their witness statements does not assist. For example, the wife says as follows:

Cornwall Avenue property

4.   On XX August 1990, I entered into an agreement for the purchase of … (“the Cornwall Avenue property”) at a consideration of HK$470,000.00 in my name. The completion date of the purchase was on 30 October 1990.  The Cornwall Avenue property was purchased outright with purchase money from Ip.  I made no contributions to the purchase money as I was only earning a salary at the time and had very little savings.  Later, we sold the Cornwall Avenue property to J on 11 June 1991 as he was of the view that the area has a potential for development.  J paid on behalf of Ip HK$600,000.00 to me, and made a profit of HK$130,000.00 from this purchase.  There is now produced and shown to me exhibit marked “3-LWH-2” being the Land Search Record of the Cornwall Avenue property dated 15 June 2015.  Before the Cornwall Avenue property was sold, I paid all its miscellaneous expenses with money from Ip.  There is now produced and shown to me exhibit marked “3-LWH-3” some of the cheque counterfoils showing the miscellaneous paid by me using Ip’s money.

5.   As I have said, I barely contributed to the purchase of the Cornwall Avenue property as I did not have the resources to do so at the time.  Despite making substantial contributions, Ip was not made a named joint owner of the Cornwall Avenue property as she did not want J and his family to know at the time that she was using their savings to make investments.

26.   To put it simply the wife’s evidence does not come up to proof. Although she did produce some deposit slips and bank statements there was nothing to show that the funds that had actually been deposited into her bank account had actually come from Ip. Given this was their case, the onus was on the wife and the interveners to provide the documentary evidence in support or as Mr Coleman pointed out, to at least show that they had used their best endeavours to find the information necessary to support their case, by contacting banks and other professional bodies etc. It is of note that there was nothing at all produced from Ip to support her case that the money in the wife’s possession originated from her. Some of the amounts of money in question were also quite odd sums – for example HK$7,546.12 deposited into the wife’s account on the 13 December 1997. On the face of it this is a strange sum to be given by one family member to another for investment purposes. The wife tried to explain this by saying that sometimes this was because the original sums were in foreign currencies. All in all, I did not find either the wife or Ip or J credible in this respect. I tend to agree with Mr Coleman that this had all of the hall marks of the wife going through her accounts and stating after the event that deposits in that account, which were not obviously her salary, came from Ip. The fact that Ip repeated the same story in the witness box is neither here nor there. Ip said that as she travelled a lot she would often give foreign currency to the wife which would on occasion explain the rather strange sums in dispute. She also maintained that she gave the wife cheques. When Ip was asked why, if she shared her husband’s wealth she also had to hide things from him, she replied that:

We also had our own little secrets.

27.   With respect this story makes no sense at all. It is not supported by any collaborating evidence and has all of the hallmarks of being made up after the event for the purposes of this litigation. Thus on the balance of probabilities I find that the wife purchased Cornwall Avenue with her own funds. The husband says that neither the wife nor the interveners had ever mentioned that Ip had contributed towards the purchase of Cornwall Avenue during the course of the marriage. I accept what he says in that respect.  

28.   It is also of note that originally the wife and Ip said that Ip gave funds to the wife between 1991 – 98, although Cornwall Avenue was actually purchased in 1990. Perhaps in an attempt to correct this obvious difficulty, the wife and Ip then changed their evidence in chief in the witness box and said that Ip had given the wife funds for investment purposes from 1990. With respect this seemed like a clumsy attempt to amend an obvious discrepancy in their timeline after the event.

29.   Finally, Mr Coleman says this in his written closing submission:

61.   Ultimately, this part of W’s Family’s case also rests on the theory that J was a person of wealth in the late 80’s and 90’s which enabled Ip to “inject” funds for investment with W.  But this theory simply does not square with contemporaneous documents:

(1)   The 1989 and 1990 financial records of B, a joint venture between J and with his father as 50-50 shareholders, revealed it had capital deficiency and long term liabilities which was more than its net current asset56 from day 1.  The company was incorporated upon his father’s injection of $17.9 million, whereas J owed it $42,000 in the first financial year.57

(2)   For 9 months in 1998, B was not even able to settle an invoice from the auditor WH Lam in respect of a mere $40,000-odd58.  The invoice showed that a tax rebate of over $400k was made to B, indicating that it did not make as much money as the IRD thought it would have.

(3)   J placed much emphasis on his father’s purported wealth59 up to 1999.  However, he conveniently avoided mentioning the fact that his father was declared bankrupt on 23/2/200060 – perhaps not coincidentally the timeframe when Ip and J effectively left Hong Kong (and their children) for China.

62.   In the end, the only inference that can be made is that W alone purchased the property with her own savings from her significant prior income (both salary and bonus) as merchandising director of M.  W3 §562 is telling, stating W “barely contributed to the purchase”.  Even W accepted, at least then, that she did contribute to the purchase.

I accept his analysis of the evidence.    

30.   This is important given that it is the wife and interveners case that part of the proceeds of sale from Cornwall Avenue was then used to purchase OB. For the avoidance of doubt please note that I do not accept that to be the case.   

Who then is the beneficial owner of OB, in circumstances where each of H and W have held 1 of the 2 issued shares since the date of incorporation of OB on XX/6/1991 to date? Is OB, or any part of it a matrimonial asset? Was the K Villa Property held by OB on resulting trust for the husband and/or wife? Is the 3/F property held by OB on resulting trust for the husband and/or wife?

31.   In the Re Amended Points of Claim the wife and interveners state as follows:

12.   On XX June 1991, the Petitioner purchased OB[2]. This was before the marriage of the Petitioner and the Respondent.  Part of the proceeds from the sale of the Cornwall Avenue property was used to purchase OB from its then vendors and as set up costs of OB.  The Petitioner and the Respondent were the only two shareholders in OB.  Date of the instrument of transfer of the shares to the Petitioner and the Respondent from the vendors was XX June 1991.  On the same day, the Respondent signed a Declaration of Trust in relation to his one share in OB stating that he held his share in OB on trust for the Petitioner.  The two directors of OB were the Petitioner and the Respondent as the law at the time required a minimum of 2 directors.  The Declaration of Trust was made by the Respondent to the Petitioner as OB already had assets which included the Cornwall Avenue property proceeds and the Respondent had not contributed anything towards the building up of assets in OB.  The 1^st Intervener did not become a shareholder of OB as the 1^st Intervener did not want the 2^nd Intervener to know at the time that she was using their (the 1^st and the 2^nd Interveners’) savings to make investments.

32.   It is accepted that OB is a limited company that was originally purchased by the wife prior to marriage. It is the wife and intervener’s case that Ip instructed the wife to set up OB as a vehicle for Ip’s investments and that the funds for this (which must have been minimal in any event – given that it was purchased as an off the shelf company) came from the sale of Cornwall Avenue. Thus the wife says that she was holding OB on trust for Ip. The wife also says that it was only after the purchase of OB that it was also decided that she should receive her income from C & S, through OB, as this was beneficial from a tax perspective at that time. It is the husband’s case that this was the only reason why OB was established. It is not disputed that the husband and wife were and always have been the only directors and shareholders of OB, with each holding one share each. However, it is also now accepted by the husband that at the time he also signed a declaration of trust confirming that he held his one share on trust for the wife.

33.   It was put to the wife during her cross examination that if Ernst & Young, who were advising her at the time, had known that infact she was holding OB on trust for Ip, then they would have advised both her and the husband to enter into a Deed of Trust with Ip. The wife’s answer namely that “We Chinese act like that”, i.e. that they do not require formal documentation between family members, was not very convincing.

34.   In summary there is nothing at all on the face of the documentation produced to support the wife and intervener’s case that the wife was holding and continues to hold OB on trust for the interveners. Indeed, the letter from Ernst Young dated the 17 December 1991 to the wife makes it clear that OB was set up as a service company in order for the wife to receive her income from C & S in a more tax efficient manner. I accept that this was the real reason why OB was originally established. Although OB was the wife’s company and the husband signed a declaration of trust to that effect, I also accept that the situation changed over time. In particular, it is of note that in September 1997 the wife authorized the husband to be a signatory of OB’s HSBC account. I do not accept, as was later alleged, that the wife needed J’s authorization to do this.   

K Villa    

35.   It is the wife and intervener’s case that K Villa was then purchased through OB with monies from OB and Ip. The wife said that she had expected to pay rent to Ip. It is the husband’s case that K Villa was purchased as the parties’ first matrimonial home and that it was purchased in the name of OB in order to gain some tax advantages. He says that he and the wife contributed equally to the down payment and that they borrowed HK$1,350,000 on mortgage. Both he and the wife were guarantors of that mortgage and it is the husband’s case that they both contributed towards the mortgage repayments.

36.   During the cross examination Mr Coleman put it to the wife, as stated by her in her 3^rd affirmation, that a cheque for HK$100,000 for the initial deposit had infact come from her personal account and another cheque had come from the husband. In addition, fees for the solicitors in the sum of HK$93,000 came from OB’s account, as did the agency fees in the sum of HK$19,355. The balance of the down payment in the sum of HK$458,086 also came from the wife. I accept that to be the case. There was no evidence at all that any monies had come from the interveners. It was simply the wife’s assertion that the money came from Ip and from the proceeds of sale from Cornwall Avenue (HK$130,000). It is also of note that neither of the interveners were asked to be guarantors of the mortgage nor is there any evidence that they contributed towards the mortgage repayments. Nor do I accept that there has been any hard evidence to support the wife’s case that Ip had paid for other expenses associated with the purchase by injecting money into OB. This appears to be pure fabrication. It is also of note that on the XX June 1991 the husband signed the Preliminary Sale and Purchase Agreement, as one might expect of a husband purchasing his first home for himself and his wife.

37.   Consequently, I accept that K Villa was the first matrimonial home of the parties, that it was held in the name of OB and that the husband and wife were the beneficial owners of that property. I also accept that the mortgage repayments came either from the wife’s sole name account or from OB’s account. Further OB also took out life insurance on the husband’s life to cover the mortgage repayments. This is again indicative of the husband being one of the beneficial owners of the property. It is also of note that dividends from OB were paid to the husband and wife and not to the interveners.

The 3/F Property

38.   The Re amended Points of Claim states as follows:

14.   On XX January 1994, the K Villa property was sold.  Proceeds from the K Villa property were deposited into OB.  The Petitioner used funds from OB and further funds from the 1^st Intervener (given by the 1^st Intervener to the Petitioner) and purchased … (the 3^rd Floor property”) in the name of OB.  Funds from OB and further funds from the 1^st Intervener (Ip) (given by the 1^st Intervener to the Petitioner) paid for the down payment, mortgage payments and miscellaneous payments for the purchase of the 3^rd Floor property.  Up to the time the 3^rd Floor property was purchased, OB had not generated any income or profit to date, other than OB receiving the Petitioner’s salary from C & S Productions Limited.  C & S Productions Limited was a business concern that the Petitioner was working for at the time.  This was done for tax purposes.  This was the case from 1991 to 1995. 

39.   This statement is reiterated in the affirmations filed. Whilst it seems to be accepted that funds for the deposit came from OB’s account, it is also the wife and intervener’s case that Ip paid for the mortgage by directly paying money into the wife’s account for that purpose. Again there is no hard evidence from Ip showing that any funds actually came from her. The wife also denied in the witness box that monies received from C & S as a rental allowance were used to fund the mortgage repayments. Instead the wife’s case is that the rental component paid into OB from C & S was rental paid by her via C & S to Ip. Again this seems convoluted and hard to believe. Instead I agree with the husband that the rental component of the wife’s salary was used in part to fund the mortgage repayments.   

40.   It is also of note that again the husband signed the Preliminary Sales and Purchase Agreement on behalf of OB and that as before both he and the wife were the guarantors of the mortgage, which had again been taken out in the name of OB. When it was put to the wife that the mortgage repayments infact came either from her or OB’s account, she simply reiterated that she was only able to make these payments with the assistance of Ip. Again the wife’s reply was far from convincing and as I have said was not corroborated with any evidence from Ip herself apart from her own assertions to that effect.     

41.   In summary then I accept that the husband and wife are the beneficial owners of OB. Although there is the declaration of trust that subsists, there can be no doubt that the intention was that OB was to be treated as one of the five Family Companies. Thus although the wife is the legal owner, the intention was that the husband and wife would both hold that company equally. However, even if I am wrong in this it is of little import. It matters not if OB is solely and beneficially owned by the wife only or by the husband and the wife together, in either event the company forms part of the matrimonial pot. Further the 3/F property currently held by OB, also form part of the matrimonial pot. There is no evidence to support the wife and intervener’s case that OB is beneficially held by the interveners. I accept that the 3/F became the husband and wife’s second matrimonial home and that in effect they “traded up”.

Who had the beneficial ownership of B and if more than one person in what proportions was the beneficial ownership held; Is B or any part of B a matrimonial asset?

42.   Just as OB was originally the wife’s company, B was originally the husband’s company.

43.   In a very convoluted part of the Re Amended Points of Claim which reads more like an affidavit than a pleading, the wife and interveners make out their case on B. Reference should be made to paragraphs 22 – 27 in that respect. In essence they try to make a case that some funds were misappropriated by the husband going back over many years and for relatively small amounts of money. With respect a lot of this is highly speculative and almost impossible decipher. I have also had difficulty determining its relevance to the preliminary issue in any event.

44.   On the face of it, it seems to be accepted that B was originally incorporated by the husband and that B was his company. Initially the H’s friend, Mr TYM held one share on trust for the husband, until he was replaced by the husband’s sister G. G also held one share as the husband’s nominee. In 2003 the husband arranged for shares to be transferred to the wife (49 from himself and 1 from G) and since then the company has been held by the husband and wife jointly. The reason for the change is that the husband and wife wished to take advantage of a new business opportunity and it made sense for B to be made a vehicle for that business. The wife and interveners have made wild accusations against the husband with respect to cars (the husband purchased a car through B back in 1993) and the alleged misappropriation of funds. Much of this appears to be premised on the fact that the interveners were the beneficial owners of OB, which is not accepted in any event.   

45.   In answer to the wife’s 3^rd affirmation the husband states as follows:

86.   Paragraphs 70-83: I do not see the relevance of the sources of B’s funding to the Preliminary Issue.  The Family Companies are beneficially owned by the Petitioner and I only, and the intra-company transfers are done with the Petitioner’s knowledge and consent. The booking of sums has also been approved by the auditors of the companies in consultation with us as directors.  The Petitioner has approved the audited report of these companies throughout the years and is aware of their finances. While I address these sums in the paragraphs below, it is not to say that I concede on their irrelevance.

With respect I agree with this assessment of the situation.

46.   In conclusion then I accept that B is a Family Company and that it is legally and beneficially owned by the husband and wife and that it forms part of the matrimonial pot. I do not accept that the interveners hold any beneficial interest in B.

Who had the beneficial ownership of PCHK and if more than one person in what proportions was the beneficial ownership held; Is PCHK, or any part of it a matrimonial asset? Is the 36/F property held by PCHK on trust for another person or entity and if so is it held for H and/or W?

Who is the beneficial owner of PCH in circumstances where each of the H and W have held 1 of the 2 issued shares since the date of incorporation of PCH on the 23 May 1997 to date; Is PCH or any part of it a matrimonial asset? Is the workshop held by PCH on trust for another person or entity and if so is it held for the H and/or W?

47.   PCHK is the main family business and the one that was originally the focus of the wife’s first summons dated the 24 June 2015. Thus the wife and intervener’s filed affirmations in support of that summons in almost identical terms. These are also dated the 24 June 2015. In these affirmations they allege that Ip and J set up PCHK as a general trading business and that they were originally the only directors and shareholders of that company. They maintain that the shares and directorship was only transferred to the husband and wife prior to them leaving for China in 2000 so that the husband and wife could run it for them in their absence. They state that it was always understood that the husband and wife were holding the shares as nominee shareholders. Both the shares and directorships were transferred on the 7 December 2000. The wife maintains that she then ran PCHK in their absence. It is of note that in the witness box the wife said that she was responsible for the operational side of the business, J was responsible for formulating policy (whatever that may mean), Ip was responsible for upgrading certain items and the husband was responsible for the running of the company. On their case it follows that when PCHK purchased the 36/F of the same block as the 3/F property, that this was a decision made by the interveners with the wife and that this is a property that is beneficially owned by them. Consequently, Ip and J have lived in the 36/F and 3/F properties because on their case these are company quarters belonging to them.  

48.   Their stance is reiterated in the Re Amended Points of Claim, which again reads more like an affidavit than a pleading and once again is incredibly detailed and difficult to follow. Reference should be made in particular to paragraphs 5 and 15 – 21 D in that respect. I will not repeat those sections here given that it runs to over 5 pages. Doing the best that I can I will however attempt to break down what is pleaded into more manageable parts as follows:

The establishment of PCHK

The management of the company 

The allotment of the 4,999 shares

The cheques

The 2.5 million debt in OB’s audited accounts

The debts of HK$850,000 and HK$150,000

The establishment of PCHK

49.   In contrast to the wife and intervener’s pleaded case the husband’s position is that the he and the wife decided to set up their own company following an argument between the wife and her boss and another shareholder concerning profit sharing in or round March 1997. He said that this was the reason he left Hainan and returned to Hong Kong. Consequently, the wife resigned from C & S in July 1997 and just prior to that on the 7 June 1997 they purchased PCH. They had originally thought that PCH would be the vehicle for their new business venture. The husband and wife are the only directors and shareholders of PCH. However, the husband and wife were concerned that they might be sued by C & S given that they were setting up in direct competition with them. The husband explains what happens next in his affirmation:    

33.   We therefore decided to ask the 1^st and 2^nd Interveners to help us and be the registered shareholders and directors of another newly incorporated company, PCHK, as we thought they would not turn us down given I had just assisted the 2^nd Intervener [J] with managing his amusement park for one year.  I then went to the same secretarial company of B to set up PCHK.  I was the one who picked the name PCHK.  I also appointed my sister as secretary of PCHK when it was first incorporated so that it does not point directly to us.  This explains why the 1^st and 2^nd Interveners became the shareholders and directors of PCHK at its incorporation.  At that time, the 1^st and 2^nd Interveners had no knowledge and experience in running the garment trading business.  There is no reason why they would suddenly decide to open a company to do this garment trading business.

50.   In the witness box the wife claimed that she was not unhappy at C & S and that there was no litigation risk associated with her setting up a new business. However, this was clearly not bourne out by the evidence. Infact, the wife did issue proceedings against C & S in relation to unpaid bonuses (i.e. arrears of performance fees) and C & S did infact counterclaim for breach of fiduciary duties. I was also taken to a pre action letter by JSM where they sought assurances from the wife that she would not solicit either staff or customers. It cannot be seriously disputed that the wife did just that – she solicited staff from C & S and at least two staff members followed her – CK and SC. I also accept that she also looked to leverage her experience in the garment trade which included building up a client base for the new business from the contacts that she had established whilst working at C & S.

The management of the company

51.   I do not accept the assertion that J was the boss, running the PCHK remotely from China. There is nothing to really support this assertion. For example, I do not accept the argument that J handled the business crises when a major customer claimed compensation for colour bleeding in 2009. The actual evidence shows that the negotiations were conducted by the wife and she was thanked personally for her efforts. J appears to have introduced the husband and wife to a firm of solicitors and to have arranged for his daughter to help with drafting an e-mail because her English skills were good. He does not appear to have been involved otherwise. The suggestion in the witness box that he had been involved in the negotiations directly was new, had not been included in any affirmations previously and had all the hallmarks of having been made up on the spot.

52.   I also agree that reliance cannot be placed on some of the other evidence produced. For example, the wife produced a so called employment letter dated the 10 November 1997 allegedly signed by J, together with employment letters for the employees CK and SC and an Employer’s Return for PCHK dated the 31 March 1999 also allegedly signed by J, in support of her case that J was the “real boss”. Mr Coleman says this of those documents in his closing submissions:

107.   Taking these in turn, firstly, W’s allegation that the PCHK letter was her employment contract is yet another example of how W tries to manipulate evidence in hope of bolstering her case when it is plainly contradicted by contemporaneous records:

(1)   W’s own 2^nd affirmation dated 30/7/1999139 in the C&S Action stated that there was no written employment contract with PCHK.  W has shown herself to be the kind of person willing to say whatever, even on oath, so long as it fits her cause of the day.

(2)   The letter does not contain any term on salary / bonus.  The obvious reason for this otherwise odd feature is that W owns the business and takes whatever she wants.

(3)   Indeed, when W left C&S in 1997, she was earning $55,000/month, plus bonus140. However, the PCHK employer’s return IRD in respect of W’s employment for year ended 31/3/1998141 recorded salary of $10,000/month only.  It makes no sense for W to change jobs in return for such a significant pay cut (which H does not accept was paid), if not for reason that she in fact owned the business.

108.   Secondly, as stated above, both CK and SC met “a couple of weeks” before trial to discuss their evidence142, only to fundamentally revise their affirmations in-chief.  They now say that their “employment letters” were signed at the C Plaza office after and not at the dinner with J143.  The letters do not identify which company was to be the employer, since it was dated before PCHK was incorporated but after H and W decided PCH cannot be used for fear of the litigation risk.  Plainly, irrespective of where the letters were signed, their “new” evidence has to be rejected.

109.   There evidence was carefully crafted to give the impression that J had the power to and did actively “negotiate” the terms of engagement with S and C, and that their employment letters were finalised after a process of to-ing and fro-ing144. The point did not survive much cross-examination – C accepted that she was simply offered the terms which she accepted since she was determined to follow W to wherever she went regardless of pay145.

110.   The reality is the H and W were the ones responsible for all aspects of PCHK’s affairs as true owners would be, and this included setting staff remuneration. S confirmed that H (not J) was the one writing to inform her of salary increase146. H also signed as “manager” of PCHK on C and S’s IRD employer’s return of remuneration for the year ended 31/3/1998147.

111.   Thirdly, it will not pass the Court’s notice that PCHK’s employer return form in respect of W for the year ended 31/3/1998 was belatedly signed by J on 20/4/1999.  The 1-year delay suggests it was not a contemporaneous records, and its content could not have been included in W’s tax assessment for that year, which would have been due around June 1998148.  Its content is also contradicted by PCHK’s internal records which show that neither H nor W was paid any salary in 1997-1998, as it was early days149.

With respect I agree with his analysis of the evidence. I do not accept that any of the assertions made by the wife and the interveners with respect to the formation and management of PCHK really stood up to detailed cross examination.  

53.   It is also of note that the interveners contradicted themselves in their fourth affirmation dated the 17 June 2016 when they said that they treated PCHK as an investment project only and that they were not involved in its day to day management. This was not satisfactorily explained by either Ip or J in their cross examination.

The allotment of the 4,999 shares

54.   It is of note that a constant refrain throughout the trial was that the wife and interveners had not known what documents they were signing and that they had not read them in any event. The allotment of the 4,999 shares is a case in point. As indicated in the Re amended Points of Claim they simply denied that there had been an allotment of the shares in dispute.

55.   The husband’s case was as follows:

42.   After the civil action was settled between the Petitioner and C&S in November 1999, we ran the companies formally by ourselves.  The Petitioner wanted to wait for half a year for the dust to settle.  Thereafter, I have frequently urged the Petitioner to tell the 1^st and 2^nd Interveners to transfer the shares in PCHK back to me and the Petitioner, and to resign as directors so that the Petitioner and I could become the only directors of PCHK.  However, the 1^st and 2^nd Interveners were always busy flying back and forth to Hainan because their amusement park was in the process of being confiscated by the PRC Government.  The 2^nd Intervener tried to sell the amusement park but was not successful.  As the 1^st and 2^nd Interveners did not transfer the shares to us immediately, I was a bit worried as I know how the 2^nd Intervener did business when I was in Hainan.  I therefore discussed with the Petitioner and we met our accountant Mr. LWH (“Mr. L”) at a restaurant called X in Central together with the 1^st and 2^nd Interveners.  Mr. L advised us to cause PCHK to allot 9998 shares to me and the Petitioner equally before the transfer of the 2 shares from the 1^st and 2^nd Interveners so that the Petitioner and I would have control of PCHK even if they suddenly refused to transfer their 2 shares to us.  We thought it was a good suggestion and we then asked Mr. L to prepare the necessary documents and asked the 1^st and 2^nd Interveners to sign on 4^th December 2000 which they did as they were only our nominees.

43.   After completion of the allotment of new shares and transfer of existing shares from 1^st and 2^nd Interveners, the Petitioner and I each held 5000 shares which was recorded in the Annual Return dated 25^th August 2001 filed by BE Ltd.  Mr. L charged us HK$1,650.00 for the filing of the 2001 Annual Return and it was settled by cheque no.379507 dated 12^th September 2001 from PCHK’s Bank of China Account.  The 1^st and 2^nd Interveners then also resigned as directors of PCHK by letters dated 7^th December 2000 and both confirmed that they had “no claim whatsoever against [PCHK] in respect of fees, remuneration or compensation or loss of office”.  There are now produced and shown to me and marked “NKWS1-14” copies of the relevant documents of the allotment of the new 9998 shares to me and the Petitioner in PCHK.

44.   Eventually on 7^th December 2000, after innumerous reminders from me since the Consent Order was made, the 1^st and 2^nd Interveners finally assigned their 2 shares to me and the Petitioner and resigned as directors of PCHK.  Before the 1^st and 2^nd Interveners transferred their shares to us, they had borrowed money from PCHK as loan and received money as directors’ fees and expenses.

I accept what he says in this respect.  

The cheques

56.   There is little to this point given that I am firmly of the view that PCHK is beneficially owned by the husband and wife and it is a matter for them how they ran their business and what cheques should be paid to whom and when. 

The 2.5 million debt in OB’s audited accounts

The debts of HK$850,000 and HK$150,000

57.   In his written closing submission Mr Coleman says this of the so called booking of the HK$2.5 million debt in OB’s audited report and the debts of HK$850,000 and HK$150,000. Again I agree that this seemed to be of little relevance to the preliminary issue in any event

156.   For completeness, W’s accounting complaints were explored in oral evidence and can be dealt with, though it is not clear how this is relevant to the preliminary issue of beneficial ownership at all:

(1)   W took issue with the booking of (i) a $2.5m debt in OB’s 1999 audited reports said to be owed to H230, and (ii) a $5.55 million debt in OB’s 2014 and 2015 audited reports said to be owed to “the directors”231.  She said they were owed to her solely.  However, she cannot deny that she did sign the accounts, approving the content.  H also accepts that the 1999 debt should be owed to H and W in equal shares232.

(2)   W’s Family says that 2 audit confirmations regarding debts of $850,000 and $150,000 owed by Ip and J to PCHK respectively in 2003 do not in fact bear their signatures and there was in fact no such debt233.  When they concocted their evidence, W’s Family failed to note that in fact the debts were evidenced in similar audit confirmations and board minutes in 2000234, which W’s Family accepted did bear the Interveners’ signatures235.  The 2000 documents were marked with a fax header dated of 26/7/2001, consistent with their nature as contemporaneous audit evidence.  It is H’s evidence that the Interveners signed similar confirmations for 2001 and 2002 as well at w’s request236, and the audited accounts certainly show this, and W signed them too.  The $1m debt was eventually written off by H and W, as further financial support towards the Interveners237.

58.   I agree that as with a lot in this case, it is not clear how or why these two points are relevant to the preliminary issue. But in any event and for the avoidance of doubt, I agree with Mr Coleman’s analysis of the situation as set out above.

36/F Property

59.   As with the other properties the Preliminary Sales and Purchase agreement for this property was signed by the husband, but the property was purchased in the name of PCHK. The purchase was funded by the husband and wife either directly or through PCHK. For example, it is accepted that the initial deposit of HK$500,000 came from the wife’s personal account and I accept that the other monies came from PCHK. The mortgage was guaranteed by the husband and wife in their personal capacities and by PCH.

60.   In conclusion then it seems to me that there can be no doubt that PCHK is legally and beneficially owned by the husband and the wife. Further it seems to me that there can be no doubt that the 36/F is also beneficially owned by the husband and wife.

PCH  

61.   Whereas PCHK became the main vehicle for the Family Business, PCH was still retained and used for trading certain fabrics and clothing. A workshop was also purchased in the name of PCH in July 2003.  

The Re Amended Points of Claim says this of PCH:

6.   PCH Limited (“PCH”) is a company incorporated in Hong Kong on XX May 1997, with its registered office now at ABC, Hong Kong.  The Petitioner and the Respondent are the two directors and shareholders.

   …

28.   At the end of year 1996, when the Respondent was still working for the 2^nd Intervener in China, the 1^st Intervener wanted to transfer the Respondent back to Hong Kong, as the 1^st Intervener suspected that the Respondent was having extra-marital affair in China.  In order to lure the Respondent back to Hong Kong, the 1^st Intervener forced the 2^nd Intervener to tell that the Respondent was to return to Hong Kong to set up a company for the family.

29.   When the Respondent returned to Hong Kong, he set up PCH.

30.   On 13 July 2003, Workshop A to G on ABC, Hong Kong (“the Workshop”) was purchased in the name of PCH.

31.   PCH’s income and assets came from the following sources:

(1)   PCH owned one car JVXXXX which PCH rented out to PCHK between January 2001 to June 2013 at HK$15,000 per month, then rental between July 2013 to December 2013 became HK$5,000 per month, then rental from January 2014 to December 2014 was HK$1,250 per month;

(2)   In 1998, general banking facilities of HK$9,882,276.86 were obtained from First Pacific Bank, with 3/F … (3/F’s property …  registered owner is OB).  Named borrowers were PCH and PCHK; guarantors were the Petitioner, the Respondent, the 1^st Intervener and the 2^nd Intervener.  On 2 April 2002, the general banking facilities were transferred from First Pacific Bank to Bank of East Asia as First Pacific Bank was by then acquired by Bank of East Asia.  The terms were amended to OB being the mortgagor, the borrower being PCH and the guarantor being PCHK;

(3)   At the time the general banking facilities were obtained from First Pacific Bank using OB’s 3/F Beverly Hill property as security, this 3/F Beverly Hill property still had HK$4,400,000.00 mortgage outstanding with Dao Heng Bank.  First Pacific Bank paid this HK$4,400,000.00 for OB to Dao Heng Bank.  Therefore, OB had to repay mortgage of HK$4,400,000.00 to First Pacific Bank.  Instead of OB paying the mortgage payments for the HK$4,400,000.00 to be paid directly to First Pacific Bank, the Respondent arranged for OB to pay the mortgage payment amount to PCH, thereafter for PCH to pay it for First Pacific Bank.  However, the Respondent fraudulently caused to be recorded in PCH’s books as a “loan” from PCH to OB of the mortgage payments;

(4)   The Respondent also fraudulently caused to be recorded in PCH’s accounts for year ended 31 December 1998 a sum “due from a Director” of HK$218,716 as being due from the Petitioner when in fact the Petitioner had never borrowed any money from PCH;

(5)   The Respondent also fraudulently caused to be recorded in PCH’s accounts for year ended 31 December 1998 a sum “due to a Director” of HK$695,766 as being due to the Respondent.  This is untrue and was never approved nor recorded by any company general meeting.

(5)   There were several instances where the Respondent arranged for US dollars to be withdrawn from PCHK’s bank account, and such monies was deposited into PCH’s bank account in 1998 totalling around HK$701,661.96, without the 1^st and the 2^nd Interveners’ knowledge.  The Respondent then fraudulently caused to be recorded in PCH’s accounts for year ended 31 December 1998 a sum “due to a Director” of HK$695,766 as being due to the Respondent, which is roughly the amount withdrawn by the Respondent from PCHK.  This is untrue as the money belonged to PCHK and not the Respondent.  The Respondent could do so because the 1^st and the 2^nd Interveners had put the Petitioner and the Respondent as authorised signatories for convenience since 1997 with some banks.

62.   Once again this is difficult to follow. Generally speaking, it seems to me that the husband’s version of events is credible and comes up to proof. As indicated above I also accept that there is an intrinsic difficulty with the wife and intervener’s case as pleaded i.e. that part of PCH is beneficially owned by the interveners. It was never explained to me which part, or alternatively what percentage was claimed by them. I accept that this part of their case was also poorly pleaded and was in many respects unanswerable as a result.

The workshop   

63.   Again the husband was responsible for sourcing the property, which was purchased during the SARS outbreak. He says this of the purchase:

45. Our business has been doing very well and we were able to make quite a lot of money and to live a very stable and comfortable life.  I continued to look for suitable investment opportunity.  In July 2003 during SARS, I found the listing of the sale of The Workshop.  There are total 7 units and the total areas is about 14,000 sq. feet and the asking price was only HK$4.2m.  I immediately told the Petitioner that we must buy that as our office and she agreed.  I then signed the provisional agreement using my personal name first as I was worried that the vendor might withdraw the offer.  We later decided to change the owner to PCH.  We paid a total sum of HK$2,400,000.00 as down payment and obtained a mortgage of HK$1,800,000.00 from Bank of China.  The Petitioner, myself and PCHK were the joint and several guarantors of the mortgage but not the 1^st and 2^nd Interveners.  The down payment had been paid from our own money and the monthly mortgage instalments of The Workshop had been paid from the money we made from the business.

64.   Once again monies for the deposit came from the husband and wife’s joint account and the mortgage was jointly and severally guaranteed by both the husband and wife and PCHK. It is of note that the interveners do not appear to be involved in this transaction at all. The wife’s assertion that the workshop was purchased with J, simply does not come up to proof.

65.   In these circumstances I accept entirely that PCH is legally and beneficially owned by the husband and wife and that the workshop is similarly beneficially owned by them. As such PCH should be included in the matrimonial pot.

Who is the beneficial owner of PCA, in circumstances where each of H and W have held 5000 of the 10,000 issued shares since the date of incorporation of PCA on 8 July 2009 to date; Is PCA, or any part of it a matrimonial asset?

66.   Little is said of PCA in the Re Amended Points of Claim. Mr Coleman comments thus in his closing submission:

I.   Issue 5 - PCA

146.   Each of H and W held 5,000 of the 10,000 issued shares since the date of incorporation of PCA on 8/7/2009 to date.  They were at all times, and still are, also the only directors and bank account signatories.

147.   W’s Family has failed to plead and substantiate a proper case of how shares in PCA are said to be held “partly on trust” for the Interveners.  Their case falls to be dismissed.

148.   In any event, PCA was incorporated to trade with new clients (e.g. O’Neill USA) in order to isolate business risks.224  H paid the incorporation fees, and injected $100,000 from his joint account with W.225

149.   W’s Family does not appear seriously to contest the fact that PCA is owned legally and beneficially by H and W.  W simply said that PCA’s business was “transferred” from PCHK, but even if this were true, it can have no effect on beneficial ownership226.

150.   In any event, by the time PCA was incorporated, the Interveners were back in Hong Kong after the 7-year ‘seclusion’.  They could have been named as the legal shareholders had they been the true owners.  Ip’s evidence that because they were not in Hong Kong on the date of incorporation, they were somehow precluded from being the registered shareholders, is nonsensical227.

I agree. It seems to me that there can be no doubt that PCA is legally and beneficially held by the husband and wife and that it is a matrimonial asset and should also be included in the matrimonial pot.  

Closing submissions

67.   I had significant difficulty with the wife and intervener’s closing submission. I accept, as explained by Mr Coleman, that this is because it was produced as if the trial had not taken place and the evidence had not been tested. As a document it was singularly unhelpful. In particular, it had a tendency to make statements as if they were findings of fact when that was far from the case. The other major difficulty was that it sought to introduce an entirely new and un pleaded case after the event. It sought to do this on the premise that all material facts were before the court and that the newly argued case was no more than a “variation, modification or development” of the pleadings. This is clearly not so. Indeed, it seems to me the wife and interveners have attempted after the event to put forward an entirely new case and one that is not based on the evidence and which has failed come up to proof in any event.  

Should any of the other arguments advanced by the wife and the interveners in their closing submissions be considered e.g. the so called

a)   Circular argument;

b)   The sham business argument; and

c)    The de facto ownership argument?

68.   I think not. I do not accept the so called circular argument put forward by the wife and interveners to the effect that, as Mr Coleman put it on the 12 April, the

… husband was moving money from company to company because he knew that one company or he thought one company belonged to him but the others didn’t, and that proves the circular point.  That’s not pleaded. …

I also do not accept that there was any sham business operated by the husband through PCH and PCHK or otherwise. These were his companies – it was for him to operate them as he saw fit. Nor do I accept the arguments re de facto ownership. None of these points are pleaded and it ill becomes the wife and interveners to introduce them through the back door and after the event.    

I further do not accept the

… new idea also that the businesses of some companies are held on trust for PCHK/OB and therefore for Ip/J which is again not pleaded, …

Credibility

69.   Overall it seems to me that the wife and interveners failed repeatedly to come up to proof and that their version of events was inherently implausible from the start. Mr Coleman put it to the wife that she had gone into the husband’s office without his consent and that she had taken documents from locked drawers in his office without his agreement. The wife categorically denied this in the witness box. A video later produced however showed her doing just that and over a period of time. This is perhaps an indication of the lengths that the wife has been prepared to go. She certainly lied to the court on this occasion and appears to have done so repeatedly throughout this trial. The same can be said of the 1^st and 2^nd interveners.

Conclusion

70.   In conclusion then I accept that all five Family Companies belong beneficially to the husband and wife. I further accept that whereas OB is held legally by the wife, that all of the other four remaining companies are held legally in the names of the husband and wife. For the avoidance of doubt it follows that all of the Family Companies shall be regarded as family assets, to be included in the matrimonial pot for distribution upon divorce. The properties held in the names of the Family Companies are also held beneficially by the husband and wife and they will also form part of the matrimonial pot. The declaration sought by the wife and the interveners in the Re Amended Points of Claim is therefore dismissed.      

Costs

71.   It seems to me that this is a case where costs may quite rightly be ordered on a higher basis than normal. I will therefore reserve costs for argument.

Further directions

72.   The First Appointment hearing shall be adjourned to the 12 September 2017 at 9:30 am. Both parties do personally attend that hearing.