OSMAN MOHAMMED ARAB AND ANOTHER v. LAM YING LUNG, ALAN

HCA 653/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 653 of 2011

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J U D G M E N T

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The proceedings

1.  In these proceedings, the case for the plaintiffs (“the Trustees”) is that a residential property, Flat B2, 24/F, Rhine Court, 80 Bonham Road, Hong Kong, (“the property”), purchased in October 1996, in the name of Lam Ying Ho, (“the Bankrupt”), by late Mr Lam Sai Ching, (“the Father”), was intended by the Father to be a gift to the Bankrupt.

2.  Sadly, the Father passed away in the course of these proceedings.  By order of the Court the proceedings are continued against his personal representative.

3.  On 29 May 2009, the Bankrupt made a Declaration of Trust in favour of the Father, whereby the Bankrupt declared that he had all along held the property as a trustee for the Father.  On 1 December 2009, the Bankrupt executed a Vesting Assignment in favour of the Father, and assigned all the legal and beneficial interest in the property to the Father.

4.  On 11 March 2010, The Hongkong and Shanghai Banking Corporation (“HSBC”) filed a bankruptcy petition against the Bankrupt. He was declared bankrupt on that petition on 26 May 2010.

5.  The case for the Trustees is that the transactions referred to in §4 above should be avoided because they were either transactions at an undervalue pursuant to section 49 of the Bankruptcy Ordinance, Cap 6 (“BO”); or an unfair preference pursuant to section 50 of the BO; or transactions to defraud creditors under section 60 of the Conveyancing and Property Ordinance, Cap 219 (“CPO”).

6.  The case for the Father is that at the time of the acquisition of the property he intended the Bankrupt to hold the property on trust for the Father, and that the Father was at all times the true beneficial owner of the property.

Family circumstances

7.  The Father is the second of three brothers who, in the 1970s, co‑founded a construction materials company, Hopewell Plastics Ltd (“the company”).  The company has been very successful.

8.  The Father has three children, the Bankrupt, a daughter, Lam Suk Siu, (“S S Lam”), and another son, Lam Ying Lun, Alan, (“Alan”).

9.  The Father’s elder brother, Lam Sai Yuen (“S Y Lam”), has two children, a daughter, Lam Suk On, Annie, (“Annie”), and a son, Lam Ying Wai, Patrick (“Patrick”).

10.  The third brother, Lam Sai Ping, Stephen, (“Stephen”), has no children.

11.  The success of the company was such that the children of the two brothers appears to have been nominally employed by the company, enabling the company to pay an income to them, notwithstanding the fact that it appears that, with the exception of Annie, the Bankrupt and Patrick Lam, they did little in the way of real work for the company.  As will be seen, whilst the Bankrupt and Patrick did appear to work in Hong Kong in the family company, they subsequently became involved in other ventures on the mainland.

12.  There is no direct evidence that the mainland ventures that the Bankrupt and Patrick were engaged in were related to the company.  The evidence does however establish that throughout the time that he was engaged in the mainland, the Bankrupt was receiving salary and other payments from the company.  In the absence of any suggestion to the contrary I have drawn the inference that the mainland ventures that Patrick and the Bankrupt were engaged were a part of the general business of the company.

13.  The three brothers maintained a joint account in their names, with the Hang Seng Bank Ltd, (the “joint account”), of which the eldest brother, S Y Lam and his daughter Annie, were the authorised signatories.  This account was used as the principal account to hold funds transferred, presumably from profits, from the company, and from which irregular distributions were made to the three brothers and various members of their families.

14.  Annie said that each month she deposited the sum of $100,000 into the joint account, from which sums would be drawn when requested by the three brothers.  It seems that each brother was apparently free to draw whatever he wished from the joint account.  The evidence as to steps taken towards equalisation of the drawings was contradictory.  The Father’s evidence was that Annie kept a record of the payments out of the joint account, and at the end of each year an equalisation exercise would be carried out to make up those payments.  Annie herself denied that she maintained any ledger or record of the money paid out of the joint account or another account called the trust account.  In the absence of a ledger or record, an equalisation exercise would have been extremely difficult.

15.  The picture presented of the administration of the company’s accounts, and the distribution of profits, was of a somewhat informal, irregular, entirely family‑centric exercise.  It does not appear to have been a company in which the distribution of profits was strictly formalised between the three shareholders.  Instead the company was regarded, in a somewhat relaxed way, as a general source of family funds, to be distributed, apparently broadly equally between the three families, irrespective of the extent to which particular members of the family were engaged on company business.

The purchase of the property

16.  In October 1996, the property was purchased in the name of the Bankrupt.  At that time the Father was already the owner of a residential property, Flat B1, 24/F, Rhine Court.  The property, as the address indicates, was immediately adjacent to the Father’s property.

17.  The purchase was made with the assistance of a mortgage from Sin Hua Bank Ltd (“Sin Hua Bank”).  There is no dispute that the funds required to meet the deposit on the purchase, the cash contribution, and payments under the mortgages over the property from time to time, all ultimately came from the Father.

18.  The provisional sale and purchase agreement, although in the name of the Bankrupt, was signed by the Father’s brother Stephen, simply because at that time the Bankrupt was not physically present in Hong Kong, but was completing his education in California.  The Bankrupt subsequently executed a general power of attorney in favour of Stephen, who, in the exercise of the power granted, entered into the formal sale and purchase agreement.

19.  The purchase price of $4.58 million was paid in the following way:

(i) On 15 October 1996, $300,030 was withdrawn from the joint account.  A cashier’s order in the sum of $300,000 was purchased, made payable to the vendor, as the initial deposit.

(ii) On 15 October 1996, a cashier’s order in the sum of $158,000, made payable to the vendor, was purchased by Annie, using funds from the joint account.

(iii) On 1 November 1996, Annie purchased a further cashier’s order using funds from the joint account, made payable to Messrs Woo & Woo, solicitors for the vendor.

(iv) On 12 November 1996, Annie transferred $1 million from the joint account to the Bankrupt’s savings account at Sin Hua Bank (“the savings account”).

(v) On 3 January 1997, a sum of $1,007,000 was transferred from the savings account to the client account of Messrs Alfred Lam & Co, solicitors for the purchaser.

(vi) On 14 January 1997, the Bankrupt paid $29,460 conveyancing costs to Messrs Alfred Lam & Co.  The source of those funds have not been identified.

(vii) On 17 January 1997, on completion of the sale and purchase of the flat, the Bankrupt drew a cheque on a joint account with his wife at Sin Hua Bank for $45,800 being the estate agent’s commission.

20.  The balance of the purchase price of $3,115,000 was borrowed from Sin Hua Bank.  That sum was secured by way of a first legal mortgage on the property securing the repayment of principal and interest and general banking facilities granted by Sin Hua Bank.  At the same time as the mortgage was signed, a current account was opened in the name of the Bankrupt (“the Bankrupt’s Sin Hua current account”).

21.  Although the sum stated in the “Undertaking for Repayment of Overdraft” signed by the Bankrupt was for the sum of $890,000, a separate letter, headed “Confirmation of facility limit(s)” described the overdraft facility as $650,000.  Nothing turns on the difference.

22.  The Father was an authorised signatory to the Bankrupt’s current account, and the cheque books and all bank statements were sent to the Father’s residential address.  It is accepted by the Father that he was at all material times, the sole operator of the Bankrupt’s Sin Hua current account.

23.  On the same day as the Bankrupt signed the mortgage security documents, the Father gave a guarantee to Sin Hua Bank, for the principal sum advanced under the mortgage (a specified amount of $4,005,000) and “in respect of any or all sum or sums due or owing and/or payable to the Bank by [the Bankrupt] under any General Banking Facilities”.

24.  Mr Chong says that between January 1997 and January 2005, the Father and his two brothers made periodical deposits into the Bankrupt’s Sin Hua current account, usually not less than $50,000 a month, from which a monthly deduction of between $30,000 and $40,000 was withdrawn by Sin Hua Bank, and applied to mortgage repayments.

25.  In February 2005, the Father arranged a transfer of the mortgage from Sin Hua Bank to DBS (Hong Kong) Ltd (“DBS”), at which bank the Bankrupt opened a current account, from which an instalment loan was obtained to discharge the Sin Hua Bank loan.

26.  The evidence establishes that between May 2004 and March 2005, regular cheque deposits of $18,000 were paid on a monthly basis from the joint account, to the Bankrupt’s account at HSBC.  From 25 April 2005, until January 2009, regular cheque deposits of $30,000 per month were paid to HSBC, in the same manner.  As well, from March 2005 until June 2009, regular cheque deposits of $70,000 per month were paid from the joint account, to an account held by the Bankrupt at DBS Bank.

27.  The evidence establishes that between March 2004 and October 2005, mortgage repayments were made from a bank account held by the Bankrupt at the Bank of China.  The evidence further establishes that between March 2005 and November 2009, monthly mortgage instalments of approximately $20,000 per month were paid to Sin Hua bank, from the bank account maintained by the Bankrupt at DBS Bank.

28.  The evidence also establishes that between November 2004 and April 2006, substantial payments, one in excess of $185,000, two in excess of $300,000, and one in excess of $445,000 were made from the Bankrupt’s joint account with his wife at HSBC, to an account maintained by the Bankrupt’s sister, S S Lam at HSBC.  These funds were applied in respect of the purchase of residential properties, in the name of the Bankrupt and S S Lam, at Bel‑Air on the Peak.  Notwithstanding these payments, the Bankrupt asserted in a declaration of trust, made on 29 May 2009, that he held a 50% interest in those properties on trust for his sister, S S Lam.

29.  A further property at The Belcher’s had been purchased using funds from the Father, in the name of the Bankrupt.  That property was sold in December 2005, and three sums, $850,000, $3,269,074, and $1,693,800 being the proceeds of sale were paid into an HSBC joint account maintained by the Bankrupt and his wife.  In September 2006, two further sums, $72,310 and $923,820 were paid into the same account, being the proceeds of the sale of a car park at The Belcher’s.

30.  The Bankrupt occupied the property with his wife and family from the time of purchase until April 2003.  Between 5 April 2003 and 4 April 2005, the property was let to tenants.  During that period the rental was received by the Father’s wife.  Notwithstanding her receipt of those funds, the Bankrupt declared those sums as his income in his tax return.

31.  I understand that the Bankrupt and his family have occupied the property since April 2005.

Rockway Group

32.  In May 2007, the Bankrupt and his cousin Patrick both provided unlimited personal guarantees to HSBC to secure loans and facilities granted by that bank to a company called Rockway Technology Ltd (“Rockway Technology”).  In December 2007, the Bankrupt and Patrick gave unlimited personal guarantees to Standard Chartered Bank to secure loans and facilities granted by that bank to China Rockway Ltd.  The two Rockway companies may collectively be conveniently called the Rockway Group.

33.  In April 2008, Rockway Technology failed to pay its employees’ monthly salaries on time and, on admission, judgment was entered in the Labour Tribunal against the company in favour of eight employees for unpaid wages.  The position of the Rockway Group further deteriorated and in May 2008, Rockway Technology failed to settle rental due on its office premises.  In mid‑2008, the Group’s major customer, Thomson Telecom, failed to pay invoices that had fallen due.

34.  On 29 May 2009, with the Rockway Group plainly failing, the Bankrupt signed the Declaration of Trust in respect of the property in favour of the Father.  That was the same date on which the Bankrupt signed the declaration of trust in respect of his interest in the Bel‑Air property.

35.  On 4 June 2009, Standard Chartered Bank served a notice to Rockway Technology demanding repayment of $47.4 million.  Payment was not made and on 8 July 2009, Standard Chartered Bank filed a winding up petition against Rockway Technology.  A winding up order was granted on 9 September 2009.

Redemption of the mortgage on the property

36.  On 9 November 2009, solicitors for the Bankrupt wrote to DBS Bank informing them that the Bankrupt wished to repay the mortgage and redeem the premises.  On 27 November 2009, the Father paid to those solicitors the sum of $1,148,438.13, being the outstanding amount owing by way of principal and interest.  That sum was duly paid to clear the mortgage debt. The source of the funds was the joint account.

37.  On 1 December 2009, a Vesting Assignment pursuant to the Declaration of Trust was signed by the Bankrupt transferring the property, now debt free, to the Father.  The Declaration of Trust was registered with the Land Registry on 3 December 2009, and the Vesting Assignment on 11 December 2009.

38.  On 11 March 2010, HSBC filed a Bankruptcy petition against the Bankrupt and a Bankruptcy Order was granted on that petition on 26 May 2010.  HSBC had filed a Bankruptcy petition against Patrick on 5 November 2009, and a Bankruptcy order was granted on that petition on 11 March 2010.

The claim by the Trustees

39.  Now, the Trustees seek an order setting aside the Declaration of Trust and the Vesting Assignment in order to restore the property to the Bankrupt’s estate and thus make it available for realisation and distribution to his creditors.

40.  The Trustees rely first upon section 60, Conveyancing and Property Ordinance, Cap 219 (“CPO”), which provides:

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

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

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

41.  Next, the Trustees rely upon section 49, Bankruptcy Ordinance, Cap 6 (“BO”), which provides:

“(1) Subject to this section and sections 51 and 51A, where a debtor is adjudged Bankrupt and he has at a relevant time (defined in section 51) entered into a transaction with any person at an undervalue, the trustee may apply to the court for an order under this section.

...

(3) For the purposes of this section and sections 51 and 51A, a debtor enters into a transaction with a person at an undervalue if–

(a)   he makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide for him to receive no consideration; ... ”

42.  Finally, the Trustees rely upon section 50 of the BO, which provides:

“(1) Subject to this section and sections 51 and 51A, where a debtor is adjudged bankrupt and he has at a relevant time (defined in section 51) given an unfair preference to any person, the trustee may apply to the court for an order under this section.

...

(3) For the purposes of this section and sections 51 and 51A, a debtor gives an unfair preference to a person if-

(a) that person is one of the debtor’s creditors or a surety or guarantor for any of his debts or other liabilities; and

(b) the debtor does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the debtor’s bankruptcy, will be better than the position he would have been in if that thing had not been done.”

The central issue

43.  Mr Chong sensibly acknowledges that the central issue to be decided is whether, at the time of the acquisition of the property, the Father intended the Bankrupt to be the true owner of the property.  Mr Chong acknowledges that the disposition to the Father may be set aside as voidable under either section 60 of the CPO, section 49 or section 50 of the BO if the Bankrupt was the true owner of the property.

44.  An argument made by Mr Chong in opening that the Trustees were not a “person thereby prejudiced” as that expression is used in section 60 of the CPO was not pursued.

The case for the Trustees

45.  The case for the Trustees is simple.  Their contention is that the Father purchased the property as a gift for the Bankrupt, and that at the time of the acquisition it was the intention of the Father that the Bankrupt should be the true owner of the property.

46.  Consequently, the Trustees say, that in mid 2009, when the Bankrupt realised that there was a risk of him becoming insolvent, and the Trustees say that it was then quite clear that he would become insolvent, the Bankrupt made the Declaration of Trust and subsequently the Vesting Assignment in favour of the Father with the intention of keeping that asset, the property, out of reach of his creditors.

The case for the Father

47.  The case for the Father is equally simple.  It is that at all material times he intended that the property was acquired by the Bankrupt as a trustee for the Father.  The Father says that at the time of the purchase of the property, in 1996, the Father was aged 52, and due to his age, was not qualified as a preferred borrower in obtaining a mortgage loan for the purchase of the property.  Consequently, he asked the Bankrupt to act as the purchaser of the property in order to obtain a mortgage loan with more preferential terms from the bank.

48.  It is not disputed that the Bankrupt was then aged 24, jobless, and had no employment or income history, having recently graduated from university in the United States, and had not yet returned to Hong Kong to live.

49.  There is no dispute between the parties that the crucial point in time at which the true ownership of the property is to be assessed is the time of purchase, that is, in October 1996.

The relevant law

50.  Ms Lam, for the Trustees, put the law in this way.

51.  A rebuttable presumption of a resulting trust arises where a person voluntarily transfers property to another for no consideration.  In particular, where A pays (wholly or in part) for the purchase of a property which is vested in B alone or in the joint names of A and B, there is a rebuttable presumption that the property is held in trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B, in shares proportionate to their contributions: Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 at 708A–B per Lord Browne‑Wilkinson.

52.  The presumption may be rebutted in two ways. First, it may be rebutted by extraneous and/or direct evidence of A’s intention to make a gift or outright transfer.  The burden of proving a gift is on the party claiming that there is a gift.  Second, it may be rebutted by the counter presumption of advancement.  There is a presumption of advancement if the transferor is the father of the transferee.  The presumption of advancement may itself be rebutted by extraneous evidence that the transferor did not intend a gift.  The burden is on the transferor to prove that he did not intend a gift: see Westdeutsche Landesbank 708B; Lewin on Trusts (19^th Edn) §9–003; Antoni v Antoni [2007] UKPC 10 at §21, per Lord Scott.

53.  The proper approach is for the court to put itself in the position of the jury and consider objectively all the circumstances of the case, in particular the parties’ true intentions at the time of the acquisition of the property.  It is only where there is no contradictory evidence that the presumption of the resulting trust or advancement will prevail: see Personal Representative of Lee Cheun Kin v Lee Chak Sam (unreported, 18 March 1999, HCA 2684/1995) at §8, per Burrell J; Lui Kam Lau v Leung Ming Fai [1994] 3 HKC 477 at 485F–I per DHCJ R Tong QC; Ko Sha Lam v Kei Fong (unreported, 20 June 2007, HCA 3971/2000), at §17 per DHCJ To; Lavelle v Lavelle [2004] EWCA Civ 223 at §§13 – 14; and Lee Tso Fong v Kwok Wai Sun [2008] 4 HKC 36.

54.  I accept those propositions as being the present state of the law and apply those principles in my assessment of the evidence.

55.  Mr Chong submitted in closing that a presumption of gift could not operate if there is evidence of an intention on the part of the purchaser.  In the present case, Mr Chong said that evidence of his intention to own the flat himself came directly from the Father in his evidence, and indirectly, first by his payment of the Sin Hua Bank mortgage repayments and the use of the overdraft for his own benefit.  Second, it was said the evidence came from the Father’s payment of instalments of the DBS mortgage and the use of the overdraft facilities for his own benefit.

56.  Third, it was argued that by letting the flat in return for rental income which was paid to his wife the Father demonstrated ownership of the property.  Finally, it was said that by repaying and discharging the DBS mortgage the Father showed that he was the owner of the property.

57.  Again, with respect to Mr Chong, I accept Ms Lam’s submission that that is an oversimplification of the law.  The modern approach is that the presumptions of resulting trust and advancement represent the default position, and it is only when there is no contradictory evidence that either presumption will prevail.

58.  The central question is the subjective intention of the transferor at the time of the transfer.  That is to be determined objectively, by the Court, from the parties’ words and conduct.

59.  Mr Chong contended, in reliance upon Shephard v Cartwright [1955] AC 431, that in my assessment of the evidence I could not have regard to acts that did not form part of the actual transaction of the acquisition of the property, as such evidence was not admissible of the Father’s intention at the time of the transaction.  I accept Ms Lam’s submission that the proposition, stated in the way Mr Chong did, does not properly express the principles to be applied.

60.  I accept Ms Lam’s submission that Shephard is authority for two propositions:

(i)   that acts and declarations antecedent to or contemporaneous with the purchase, or so immediately after it as to constitute part of the same transaction, are admissible either for or against the party who did the act or made the declaration; but

(ii)  subsequent acts and declarations are admissible as evidence against the person who made them, but not in his favour.  (my emphasis)

Ms Lam correctly cites Shephard, at 445, Lavelle at §16, Lee Tso Fong at §116 and Lewin, at §§9–036 – 9–037 as authority for this explanation of principle in Shephard.

61.  The following passage from Lord Phillips at §19 in Lavelle demonstrates that the modern approach in relation to subsequent conduct is not rigid:

“In these cases equity searches for the subjective intention of the transferor. It seems to me that it is not satisfactory to apply rigid rules of law to the evidence that is admissible to rebut the presumption of advancement. Plainly, self‑serving statements or conduct of a transferor, who may long after the transaction be regretting earlier generosity, carry little or no weight. But words or conduct more proximate to the transaction itself should be given the significance that they naturally bear as part of the overall picture. Where the transferee is an adult, the words or conduct of the transferor will carry more weight if the transferee is aware of them and makes no protest or challenge to them.”

62.  A similar approach was adopted by the Court of Final Appeal in Leung Lun Ping v Kwok Yu Wah [2015] HKCFAR 90.  There a pattern of behaviour, involving previous and subsequent conduct was held to have been correctly admitted as admissible evidence in respect of the father’s intention, see §§57 – 58.

63.  Ms Lam relies upon patterns of behaviour that will be described below in order to buttress her contention that the intention of the Father at the time of the acquisition of the property was to make a gift of the property to the Bankrupt.

The pleading points

64.  Mr Chong first submitted that it was not open to the Trustees to assert there was a gift, because the pleading was that the property was purchased by the Father.

65.  I reject the point.  The Trustees’ case, as pleaded, and on which it opened, was based upon the legal documentation, according to which the Bankrupt was the purchaser and legal and beneficial owner of the property.  The issue of a gift arose in the Defence when the Father put forward the case that the property was purchased by him and that the Bankrupt held the property on trust for him.  The acquisition of the property was thus put in issue and the pleading of a gift/presumption of advancement in the Reply was in response to the Father’s case of trust.  It was a proper reply.  The submission simply does not take into account properly the Father’s own case.

66.  Mr Chong then submitted that a case of fraud could not be run as it had not been sufficiently pleaded.  The point disappears upon Ms Lam’s statement that the pleaded case of a “wider scheme of fraud” (see §§98 – 100 below) was abandoned.

67.  The Trustee’s case was simple as I have said above.  Ms Lam says that the property belonged to the Bankrupt beneficially, either as a gift or as part of his remuneration, and it is open to the Trustees to make such submission as they would wish as to the legal consequences of that circumstance.

68.  There was nothing in the pleading points.

The Bankrupt was not called

69.  Ms Lam was entitled to remind me that the key person who could give evidence as to the intention at the time, and as to contemporaneous words and conduct of the Father from which an inference as to intention might be drawn was the Bankrupt himself.  The Father, in cross‑examination, was unable to give a satisfactory explanation for the absence of his son’s evidence.  None of the other witnesses called for the defence gave any explanation for the absence of the Bankrupt.

70.  The consequences of a failure to call a witness is well described in the following passage from Ip Man Shan Henry v Ching Hing Construction Co Ltd (No 2) [2003] 1 HKC 256 at 307, per Lam DJHC (as he then was):

“... In my judgment, the relevant principles applicable to civil proceedings can be summarized as follows,

(a) if a prima facie case is made out, and if there is evidence available to the party against whom the case is established which could displace the prima facie case, and he omits to call such evidence, an inference could be drawn;

(b) however, the inference could be rebutted by a plausible explanation by the party who elected not to call the evidence;

(c) if an inference is to be drawn, it would be an inference that such available evidence, even if adduced, would not displace the prima facie case;

(d) it is also open to a tribunal of fact, upon the drawing of such an inference, to take it into account in respect of a matter with respect to which the person not called as a witness could have spoken,

i.  in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party;

ii. in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given.”

71.  I note too, that the Father’s wife has not been called to give evidence, notwithstanding her direct involvement in the property, and the family’s general financial dealings, and referred to in the evidence.  The same principle applies.

The evidence of family members

72.  I was unable to place any weight on the evidence of Annie.  She conceded in cross‑examination that her witness statement was written by her solicitors and that it was reconstructed from documents.  She had no direct involvement in the matters relating to the actual events surrounding the acquisition of the property, or the documentation, from which the statement was reconstructed, other than arranging mechanical financial steps on instructions from the Father.

73.  S S Lam claimed that the Bankrupt told her about the reasons for the purchase of the property, the use of the Bankrupt’s name and the redemption of mortgages.  I am unable to place any weight on this assertion.

74.  First, on her own evidence she was closer to her mother and talked less with her Father, who was not a man of many words.  I accept Ms Lam’s submission that the general tenor of the evidence was that the family was traditional in which the principal emphasis was placed on the male offspring, with the daughters having little or no real involvement in family business or finance.  It is right that Annie was a signatory to the joint account, but it was clear from her evidence that she was merely a functionary who signed whenever directed by one of the three brothers, and who had no knowledge of matters other than the mechanical steps in which she was involved.

75.  In the application for mortgage facilities to support the purchase of the Bel‑air property, Annie signed a bank mortgage application form asserting that she was an accountant earning $116,000 per month.  In cross‑examination she said that the form was completed by a bank staff member and signed by her without reading the details.

76.  The statement on the mortgage application form was plainly false.  I reject the proposition that a bank staff member would simply make up figures in that manner, particularly regarding information relating to position and salary, factors which are crucial to a bank in considering whether or not a mortgage should be granted.

77.  Annie accepted that she was well educated and understood the importance of a legal document, that she had previously obtained mortgage loans for the purchase of property, and that she understood that by signing the form, she was confirming the contents of the form to be true and correct.  It is simply unbelievable that she would have signed this relatively short and clear form without first knowing and approving of the details.  In so doing she was making a false declaration.

78.  Her response to enquiries made by the Trustees that the Bel‑Air declaration represented the true legal position, namely that she held the whole beneficial ownership of the property, was equally false. The documentation plainly established that the Bankrupt and his wife had provided a very substantial amount towards the purchase.

79.  It is more likely than not that the true position was that the Bel‑Air property was beneficially owned by the Bankrupt and his wife and Annie.  Her assertion during the trial, for the first time, that it was a joint investment between herself, S S Lam, the Bankrupt’s wife Ana, and her sister Elena, was patently false, and entirely inconsistent with the Bankrupt’s declaration of trust.  She was quite unable to explain the difference between the information she had given to the Trustees, and the position she now gave to the court.

80.  I reject her evidence entirely as being unbelievable.

81.  Ms Lam submitted that the evidence of Stephen bore all the hallmarks of an untruthful and unreliable witness, whose evidence should be rejected.  I agree.

82.  In cross‑examination he would not even answer the most simple question in a straightforward manner.  I noted his evasiveness in relation to the relationship between a company, Free True Marble, and a group of companies known as the Free True Group.  I carefully explained to him the consequence of not answering questions directly, and that a witness who was evasive may not be believed by the judge.  Notwithstanding that, he remained evasive.

83.  His evidence was inconsistent with other defence witnesses and documentary evidence.

84.  Notwithstanding the documentary evidence such as the Bankrupt’s tax returns, and evidence from the Father that payments were made to the Bankrupt because of his employment with the company, Stephen testified that the Bankrupt was only “formally employed” by the company in 2006.  By this I understood Stephen to say that the Bankrupt, like other members of the family, were recorded in the company’s books as an employee, and paid a salary, notwithstanding the fact that they did little real work at all. When it was pointed out to him that in 2004, in a mortgage loan application form addressed to DBS Bank, the Bankrupt said that he had been working for the company as a sales representative for two years, his response was that his earlier answer was only “roughly so”.

85.  Stephen endeavoured in cross‑examination to present the Bankrupt’s position with the company as purely nominal or, as he described it, “an ordinary staff”.  But it was the evidence of the Father, Annie, and S S Lam that the Bankrupt had been working for the family business as a director.

86.  There was a direct conflict between Stephen and Annie as to who deposited the monthly payments into the Bankrupt’s account. Stephen asserted that the Father gave instructions to him to make the transfers.  Annie said the Father gave an instruction to her to make a monthly payment, and that there was no need to repeat the instruction thereafter.

87.  The evidence was that a sum described as “pocket money” was given to the second‑generation members of the family.  That sum was paid irrespective of the amount of work undertaken for the company.  The Father said in his evidence that it was usually Stephen who arranged the payment of the pocket money.  Stephen said that the sum was determined by his two elder brothers.  Although nothing turns on how this decision was made, I accept Ms Lam’s submission that the failure of the defence witnesses to give consistent evidence emphasises the incredibility of their evidence, and how they simply changed their evidence to suit their own purposes.

88.  The witness statements of Stephen, Annie, and S S Lam, each contained a crucial paragraph in which it was asserted that the Father was the beneficial owner of the property, and that he/she had never heard from the Father that the property was purchased as a gift to the bankrupt.  In each witness statement that paragraph was in precisely identical terms.

89.  The witness statements of Annie and S S Lam each contained two further paragraphs, to all intents and purposes, in identical terms.

90.  In S S Lam’s statement, the following statement was made:

“In or about early 2009, I learned from the [Father], that the Bankrupt got into trouble. In order to protect the [Father’s] interest in the property a declaration of trust dated 29 May 2009 was made and executed by the Bankrupt to reflect the true and correct legal relationship between the Bankrupt, as the bare trustee, and the [Father] as the beneficiary of the property.”

91.  In Annie’s statement the following appears:

“In or about early 2009, I learnt from the [Father] that the Bankrupt got trouble. In order to protect the [Father’s] interest in the property, the [Father] engaged his solicitors, Jesse H Y Kwok & Co (‘the St solicitors’), to prepare the relevant documents. A declaration of trust dated 29 May 2009 was then made and executed by the Bankrupt to reflect the true and correct legal relationship between the Bankrupt, as the bare trustee, and the [Father] as the beneficiary of the property (‘the said declaration of trust’) ... ”

92.  Neither witness asserts as to the source of their knowledge that the Bankrupt held the property on trust for the Father.  In both cases the remainder of the witness statements merely record factual matters that were not in dispute.

93.  In each of the three witness statements, the paragraph following the paragraphs cited above contained wording that was precisely identical.  Each contained an assertion that a vesting assignment was executed by the Bankrupt in favour of the Father:

“... to correctly vest the bare legal title of the Bankrupt of and in the property, upon the [Father]”

94.  Again, none of the three witnesses made any assertion as to the source of their knowledge of the statement made.

95.  In circumstances where witnesses make statements that are either precisely identical, or are to all intents and purposes identical, without stating the basis for their knowledge, it is difficult to place any weight on those assertions.  It is simply unbelievable that lay witnesses would use precisely identical technical legal expressions to describe situations that would not have been described to them by anyone else in those terms.

96.  The remainder of the witness statements of each of the three family witnesses contained little more than recitations of the making of various payments in respect of the acquisition of property, the payment of mortgage instalments and the like, which were not in dispute.  The three witness statements do not assist the case for the Father.

A wider scheme of fraud

97.  It was apparent from the opening of Mr Chong that he was concerned with a plea on the part of the Trustees of a case described as a “wider scheme to defraud the Bankrupt’s creditors”, particularly having regard to the Bel‑Air properties and the Belchers property referred to above.

98.  Ms Lam made it clear that she did not now rely upon the plea of a wider scheme of fraud, to establish a fraud.  However, she did rely upon the evidence in relation to the Bel‑Air properties and the Belchers property as part of a pattern of similar fact conduct on the part of the Lam family generally, pointing to a gift.

99.  I received the evidence on the basis that it was offered for that purpose, and I did not consider at all whether or not the family was engaged in a wider scheme to defraud the Bankrupt’s creditors.  I confined my consideration of dealings in those other properties to whether or not they constituted acts or declarations available as evidence against the Father and the Bankrupt in the manner explained in Shephard, see §§50 – 53 above.

The Father’s second supplemental witness statement

100.  Because of his illness, the Father gave evidence on deposition prior to the trial.  The deposition was not completed and in the interim a second supplemental witness statement was signed by the Father and filed.  Unfortunately, the Father passed away before the deposition could be completed, and before he could adopt the second supplemental witness statement as part of his evidence.  Accordingly he was not cross‑examined on that statement.

101.  Ms Lam objected to the admissibility of the statement in those circumstances.

102.  Strictly, it is not admissible.  But in any event the statements contained in it, particularly concerning the Belcher’s properly, are entirely self‑serving.  Even if admitted, I would not be able to attribute any weight to it.  I have disregarded that statement.

The acquisition of the property was a gift to the Bankrupt

103.  For the following reasons I am satisfied that the true intention of the Father at the time of the acquisition of the property was to make a gift of the property to the Bankrupt.  I am equally satisfied that the payments made by the company to the Bankrupt’s accounts from which mortgage instalments were met, up until the time the Father made a payment sufficient that the DBS mortgage was discharged, were also intended by the Father to be benefit the Bankrupt.

104.  In those circumstances, the evidence being sufficient to establish the intention of the Father, I have not had recourse to either the presumption of advancement, or the presumption of a resulting trust.

The evidence of Mr Lai

105.  Mr Lai Wing Lun, a director of RSM Wheeler Corporate Advisory Limited, was instructed by the Trustees to handle the day‑to‑day administration of the bankruptcy.  Mr Lai is an experienced certified practising accountant and chartered financial analyst.

106.  Mr Chong challenged the admissibility of his statement first, because the statement purported to set out Mr Lai’s perception or interpretation of the documents disclosed in the proceedings. Second, Mr Chong challenged the admissibility of the statement because it contained non‑expert opinion which was inadmissible.  Third, while accepting that Mr Lai’s hearsay evidence on the practice of banks is “arguably” admissible, Mr Chong challenged the statement on the basis that it did not address an issue in dispute between the parties.

107.  When considering the admissibility of Mr Lai’s evidence the following three points must be taken into account.  First, Mr Chong conceded that he did not require a hearsay notice in respect of this evidence. Second, he agreed that he did not contest the physical transactions referred to in the witness statement, upon which Mr Lai had given evidence.  Third, he had conceded that he did not object to the admissibility of the banking policy evidence given by Mr Lai.

108.  I accept Ms Lam’s submission that in so far as Mr Lai has dealt with the transactions, he has complied with the words used in Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887 CA[1], at §41:

“... [the affirmations] are factual; they are just a guide and a page‑turner through the numerous pages of financial documents and records that are referred to. What the deponent did was to distil the facts as they appeared from those documents and records and then described them in a way which may be useful and helpful to the Court.”

109.  Having regard to Mr Lai’s qualifications and experience, I am satisfied that he is well fitted to give opinion evidence. In any event, as the Trustees do not pursue the case of a wider scheme of fraud, it is not difficult to exclude any opinions expressed by Mr Lai on what might be described as the “ultimate issue”.

110.  As far as the banking policy is concerned, it was the Father himself who put the policy in issue by asserting that he was too old to borrow money from the bank on preferred terms.  In those circumstances I am perfectly entitled to accept evidence from an experienced accountant who would have been familiar with such matters.  It was always open to the Father to call a banker, indeed from the very bank that he had borrowed from, to establish his contention.  There was no such evidence.  In the circumstances I accept the evidence of the general banking policy as described by Mr Lai, and infer that that policy was in existence in 1996.

111.  I accept Mr Lai’s evidence that the primary concern of banks in making lending decisions is the income generation capability of the mortgagor or borrower.  A bank’s principal concern in advancing money is to ensure that the borrower will have the income and assets to ensure that interest is paid on time, and that the principal will be paid in due course.

112.  Having regard to the very successful nature of the Father’s business, I have no doubt at all that in 1996, there would have been no restrictions on the Father obtaining mortgage assistance from the bank.  In fact, it is more likely than not that any bank would be willing to lend, in the hope that the company might transfer its business to that bank. In 1996 the father was 52.  That would not have been any restriction at all upon him borrowing money.

113.  I note that at the time the property was purchased, the Bankrupt apparently had no other assets of his own, and only a modest income.  He had freshly completed his education and had no working experience.  It is quite unlikely that a bank would have been willing to advance such large sums of money to the Bankrupt, he not being a wealthy person in the position of the Father.

114.  I accept the evidence of Mr Lai, and reject the proposition that in 1996, the Father had to put the property in the name of the Bankrupt because the Father himself could not borrow in his own right.

The contemporaneous documents

115.  The existence of contemporaneous documents is always an important element in the determination of the truth in a trial.  In Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439 at §135, Stock JA (as he then was) said:

“... Comparison with contemporaneous documentation is always an aid to the reliability of oral testimony, unless there is reason to believe that the documentation is contrived or materially incomplete; ... the truth, in so far as one is able to reach it or, ... can best be tested by reference to contemporaneous documentation where it exists, or to its absence where one would expect it to have been created, as well as to inherent probabilities (though bearing in mind that there may be occasions where the truth may run against that particular grain) having regard to all the facts that are known.”

116.  In the present case, Ms Lam relies upon a number of contemporaneous documents which are consistent with the Bankrupt being consistently identified as the legal and beneficial owner of the property.  These documents are: the Provisional Sale and Purchase Agreement, the Formal Sale and Purchase Agreement, the Assignment, the Sin Hua Bank Mortgage, and the DBS mortgage.

117.  Ms Lam also relied upon certain receipts which although they were in the name of the Bankrupt as the payer, did not identify him as the legal and beneficial owner of the property.  Those receipts do not assist Ms Lam’s case.

118.  The sale and purchase agreements, and the assignment, described the Bankrupt as “the purchaser”, and made no reference to any beneficial interest on the part of any other person.  The statement to any person reading those documents is that the Bankrupt was the sole beneficial owner of the property.

119.  Most significantly, the bank mortgages specifically contained a warranty that the Bankrupt was the sole beneficial owner of the property.  By signing those documents the Bankrupt was making a deliberate and clear statement to the bank that he was the sole beneficial owner of the property.  This statement was a complete denial of a trust.

120.  If, as is now asserted on behalf of the Father, he intended that the Bankrupt should hold the property on trust for him, the Father would be expected to have said so to his solicitor at the time, in order that a deed of trust might be prepared.  There was no evidence of any such assertion.

121.  It is important too, that the Bankrupt claimed home loan interest deductions in relation to the property in his annual tax returns, at least for the years of assessment, 1998/99 to 2005/2006.  If, as is now asserted, the Bankrupt held the property on trust for his father, he was not entitled to make those deductions.  His statement, in the course of making the returns to the Inland Revenue Department, to be entitled to the deductions, (and indeed to give rise to the obligation to report rental income, see §§123 – 124 below) arises from the statement that the property was a “wholly owned property”.

122.  The claim of the interest deduction and the return of the rental on the property by the Bankrupt are clear statements that he was the beneficial owner of the property.

The letting of the property to tenants

123.  Between April 2003, and April 2005, the property was let to tenants at a monthly rental of $13,500.  The Father asserted that that money was his, and was paid to his wife.  There was, as I have said, no evidence from the wife.

124.  The tax returns filed by the Bankrupt demonstrated that he had declared that monthly rental as income received by him.  If, as is now asserted, the Bankrupt held the property on trust for his father, there would have been no obligation upon him to return the rental as income.  The return of the rental income is quite inconsistent with the constructive trust said to be in existence.

The practice of gifting

125.  The Father himself gave evidence that the Belchers property was purchased “for” the Bankrupt by the Father’s wife.  The expression implies a gift.  The inference could have been displaced by the wife if she had been called to give evidence.  She was not called.  In those circumstances I am satisfied that it is more likely than not that the Belchers property was a gift to the Bankrupt.

126.  That the mother would make a gift of a property to a son is perfectly consistent with a father making a gift of a property to a son.

127.  The Father gave evidence, initially supported by S S Lam, that the flat that he occupied (Flat B1), the property adjacent to the property (Flat B2), was later gifted to his younger son Alan as a prize or reward on admission to medical school.  Although S S Lam later maintained that this was not a gift, but a transfer at an undervalue, no weight can be placed on that assertion because she was not involved in the transfer, and had not seen any of the relevant documents.  She later acknowledged that she had not even been informed of the transaction until after it was completed.

128.  Alan was not called to contradict the evidence of the Father.

129.  At the time of the acquisition of the property by the Bankrupt he had just successfully completed his education to university level in California, and was to return home, apparently to work in the family business.

130.  The circumstances of a gift of a flat to Alan is entirely consistent with a gift of the property to the Bankrupt.

131.  In the course of his deposition, the Father spontaneously and voluntarily gave evidence that a property at Elegant Garden had been a gift by the Father to Stephen, because Stephen wanted to live there.  The father described himself as having “a generous mind”.

132.  In re‑examination, (after there had been an adjournment), the Father attempted to backtrack on this evidence and to assert that the Elegant Garden property was part of an equalisation exercise between the three brothers.  I accept Ms Lam’s submission that little weight can be placed on this attempt by the Father to resile from his former evidence.

133.  I am satisfied that the inference may be drawn that this was a family that had a practice of gifting or rewarding sons with property upon the occurrence of significant life events.

The mortgage payments

134.  It is right that through the whole of the duration of the Sin Hua Bank mortgage and the DBS mortgage, (until repayment by the Father), the mortgage instalments were made through the Bankrupt’s bank accounts, by the Father using funds from the company.  Three inferences arise from these facts.

135.  First, there is an inference that the Father intended the payments to be a gift to his son.  Second, there is an inference that the payments were part of the Bankrupt’s remuneration with the company. Third, there is an inference that the Father was simply repaying the mortgage on the property he owned by way of a trust in which the Bankrupt was a trustee.

136.  For the following reasons I am satisfied that it is more likely than not that the payments were part of the Bankrupt’s remuneration with the company.

137.  First, as demonstrated by his tax returns, his official income between 1998 and 2006 was between $20,000 and $30,000 per month.  That is a paltry sum and quite disproportionate to his position as a family member who is a director of a family business in a leading construction materials company.  Second, he was married with children and his wife did not work.  A sum of $20,000 – $30,000 would have been quite insufficient for him to provide for his family, particularly in the light of children’s educational requirements.

138.  Third, on the evidence it would appear that the tax returns were quite false.  In addition to his declared income both Stephen and Annie said that a sum of $70,000 monthly “pocket money” was paid into his accounts.  If that sum was part of his income, as it plainly was, and the payments were being made to reduce the mortgage, then he himself was paying off the mortgage.

139.  If on the other hand, the payments by the Father to reduce the mortgage and meet the interest were a gift to his son, such gifts are entirely consistent with the family practices.

140.  There is nothing in the evidence to support the inference that the Father was reducing the mortgage for his own benefit.

141.  Whether the payments by way of reduction of the mortgage were part of the Bankrupt’s remuneration, or a gift from the Father does not matter.  In both cases the increase in the equity in the property is an increase in the beneficial interest held by the Bankrupt in the property. In both cases the reduction of the mortgage is to his advantage.

142.  On the whole of the evidence I am satisfied that it is more likely than not that sums paid from the company to the Bankrupt’s bank account, and subsequently applied in the payment of interest or principal mortgage instalments were sums that were part of his remuneration.  He was the owner of the property, and from his income he was meeting his obligations under the mortgage.  It was as simple as that.

The transfer of property by the Bankrupt prior to bankruptcy

143.  Ms Lam invites me to draw an inference from the conduct of the Bankrupt prior to his bankruptcy that, in anticipation of the bankruptcy, he was a person who was, at least on paper, a wealthy individual, who was assigning away his property so that he was left with almost no realisable assets.  If, as is now asserted, the properties were held by the Bankrupt on trust for others, there was no need to make such assignments.

144.  First, shortly before the bankruptcy, the Bel‑Air properties, which had been demonstrably purchased in part with funds provided by the Bankrupt and were held in the name of the Bankrupt and S S Lam, became the subject of a declaration of trust by the Bankrupt in favour of S S Lam. That declaration of trust is entirely inconsistent with the evidence of Annie and S S Lam that the Bel‑Air properties were a joint investment of Annie, S S Lam, the Bankrupt’s wife Ana and her sister Elena.  Neither Annie nor S S Lam were able to offer any explanation for that inconsistency.

Conclusion

145.  For the foregoing reasons I am satisfied that in October 1996, the Father intended that the acquisition of the property in the name of the Bankrupt, should be a gift to the Bankrupt.

146.  I am satisfied that any increase in the equity in the property arising from the reduction of the Sin Hua bank mortgage, and the DBS mortgage, until repayment by the Father, was a result of payments by the Bankrupt from his remuneration and that consequently the mortgage was reduced for the benefit of the Bankrupt.

147.  It necessarily follows from those conclusions that the following transactions:

(i) the declaration of trust made by the Bankrupt in favour of the Father, on 29 May 2009; and

(ii) the vesting assignment made by the Bankrupt in favour of the Father on 1 December 2009;

constitute transactions at an undervalue contrary to section 49 of the BO, and/or unfair preferences contrary to section 50 of the BO, and/or transactions to defraud creditors, contrary to section 60 of the CPO.

The repayment of the DBS mortgage

148.  On 27 November 2009, after a bankruptcy petition had been filed against Patrick by HSBC, the Father paid the sum of $1,148,438.13 through his solicitors, Jesse H Y Kwok & Co to discharge the DBS mortgage.  The property then became debt free.

149.  The vesting assignment, made on 1 December 2009, pursuant to the declaration of trust that had been made by the Bankrupt in favour of the Father on 29 May 2009, and was registered with the Land Registry, on 11 December 2009.

150.  These facts potentially give rise to an issue of subrogation, and the application of the equitable concept of merger.  This was recognised in the Statement of Defence in which it was said that by:

“Further, or alternative to Paragraph 29 above, by paying off the first legal charge in favour of the DBS (Hong Kong) Ltd on 27.11.2009 and discharging the said encumbrance on the property, [the Father] has stepped into the shoe of the DBS (Hong Kong) Ltd but, as the legal charge, and he is entitled to a lien upon the property to the extent of the following sums incurred in such discharge and/or he is entitled to be indemnified of:­

[the pleading then set out the payment of principal and interest made of $1,148,438.13, and legal costs of $5855.]” (sic)

151.  The pleading implies that if the court should find that the property has belonged to the Bankrupt since October 1996, it would be unfair to the Father, and a windfall to the Bankrupt’s creditors, if the fact of the repayment of the DBS mortgage were not taken into account.

152.  The issue of subrogation or merger had not been given full consideration by counsel prior to the closing submissions, and consequently was the subject of subsequent written submissions.  Mr Chong sought to redress the unfairness to the Father that might exist, but had not considered the impact of the doctrine of merger on the factual circumstances.

153.  Ms Lam, in a tightly argued and clear submission, has satisfied me that it is simply unnecessary to have regard to questions of subrogation or merger, and that the legislative framework of bankruptcy provides a complete mechanism by which the party’s rights and entitlements are to be determined and assessed.

154.  Ms Lam submits, if a finding is made in favour of the Trustees under either section 49 or 50 of the BO, there is no need to have recourse to section 60 of the CPO.  I agree, and propose to consider the consequences of the repayment by the Father of the DBS mortgage under the bankruptcy legislation.

155.  Both sections 49 and 50 of the BO make provision for the court to have regard to the type of circumstances that have arisen in the present case.  Both section 49(2) and section 50(2) of the BO provides:

“The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that debtor had not entered into that transaction.”

156.  Next, provision is made in section 51A of the BO in the following terms:

“(1) Without prejudice to the generality of section 49(2) or 50(2), an order under either of those sections with respect to a transaction or unfair preference entered into or given by a debtor who is subsequently adjudged bankrupt may (subject as follows) –

(a) require any property transferred as part of the transaction, or in connection with the giving of the unfair preference, to be vested in the trustee as part of the estate;

...

(c) release or discharge (in whole or in part) any security given by the debtor;

...

(e) provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or in part) under the transaction or by the giving of the unfair preference to be under such new or revived obligations to the person as the court thinks appropriate;

(f) provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be charged on any property and for the security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction or by the giving of the unfair preference; and

(g) provide for the extent to which any person whose property is vested by the order in the trustee, or on whom obligations are imposed by the order, is to be able to prove in the bankruptcy for debts or other liabilities which arose from, or were released or discharged (in whole or in part) under or by, the transaction or the giving of the unfair preference.”

157.  Ms Lam submits, and I accept, that reading these provisions together, the court has a very wide discretion to make an order to “set right” the position between the parties.  It must be noted that the examples given in section 51A(1)(a) – (g) are without prejudice to the generality of sections 49(2) and 50(2).  Ms Lam says, correctly, that the circumstances of each case may differ, and court must be free to tailor its response accordingly through a wide discretion to do as it thinks just and appropriate.

158.  I am satisfied that in the circumstances of this case it would constitute an unfair windfall to the creditors of the Bankrupt if the Father’s repayment of the amount owing under the DBS mortgage were not properly recognised.

159.  Under the provisions of the BO that I have described above, I am satisfied that the position may restored to that prior to the making of the declaration of trust, and the Bankrupt’s conduct following the declaration, as though the repayment of the mortgage, had not taken place.

160.  To do so would be a fair result.  Such an order would prevent there being a windfall for the creditors of the Bankrupt to the extent of the sums paid by the Father to clear the DBS mortgage.  It would at the same time restore the property to the bankruptcy estate for the benefit of the creditors.

161.  Such a course would be consistent with the course adopted by L Chan J in Osman Mohammed Arab and Wong Kwok Keung, the Joint and Several Trustees in Bankruptcy of Leung Moon Chuen v Leung Wai Han & Anor (unreported, HCA 605/2014, 5 June 2015) at §§86 – 88.

162.  The order I propose, subject to comment by counsel, is in the following terms:

“It is hereby ordered that (the property) be vested in (the Trustees) as part of the estate of the Bankrupt pursuant to ss 49(2), 50(2) and 51A(1), subject to an obligation upon (the Trustees) upon the sale of (property) to first pay to the Father, in priority to the creditors, the sum of $1,148,438.13, constituting the sum paid by the Father to discharge the mortgage on the property to DBS (Hong Kong) Ltd on 27 November 2009.”

163.  I accept Ms Lam’s submission that an order under section 51A(1)(f) that security be provided to the Father and charged on the property is not appropriate.

164.  To do so would give a windfall to the Father, who was never entitled to the property in the first place.  Having never been entitled to the property in the first place, by resisting the proceedings brought by the Trustees, the Father has kept the Trustees and consequently the creditors out of the advantage of the realisation of the property, and a partial settlement of their debts.

165.  Further, it is not appropriate to make an order under section 51A(1)(g), requiring the Father to prove in the bankruptcy the amount he has paid to discharge the mortgage.

166.  To do so would not be fair or reasonable because instead of being restored to the sum that he has paid out, the Father would be required to share pari passu in the distribution to the creditors to the extent debt was proved.  It is unlikely that he would be properly or completely restored to his former position.

167.  It will be noted that I have not made provision for the repayment of legal fees or the loss of use of money by the Father between the time he discharged the mortgage and the present time.  I am satisfied that that is balanced by the fact that the Bankrupt has had the use of the property throughout that time on the one hand, and that the creditors have been deprived of the benefit of the property during that time.

Disposal

168.  There will be orders in terms of §§148 and 163 above.

169.  There will be an order nisi that the Father must pay the costs of the proceedings, to be taxed on a party and party basis, and to be deducted from the sum to be paid to the Father pursuant to the draft order set out in §162 above.

170.  I invite counsel to discuss the form of the orders and to submit a draft to me for approval.  Any submissions on the draft order or in respect of the order nisi as to costs submitted to me in electronic form.

171.  Leave is reserved to both parties to apply.