CLY formerly known as CHY v. CFM AND OTHERS

FCMC 2797/2017

[2020] HKFC 129

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 2797 OF 2017

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

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

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

J U D G M E N T

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

1.  By a Summons dated 2 August 2019, the Petitioner wife (“wife”) asked for two more matters to be determined by preliminary issues hearing, namely:

a. The beneficial ownership of the matrimonial home at Hang Tau, Tai Po Village, Sheung Shui, New Territories, Hong Kong (“former matrimonial home”); and

b. The beneficial ownership of Lot No. 8XX in DD 100.

2.  To that end, wife therefore asked that GPIL and USDL be added as the 5^th and 6^th Respondent respectively, for the determination of the above preliminary issues. 

3.  This matter was set down for hearing on 6 February 2020, but subsequently by an Order of Court made on 9 April 2020, the application for the joinder were directed to be dealt with by way of paper disposal.

Background

4.  The parties were married on 1 February 1996, the wife is age 51, she is now unemployed.  The 1^st Respondent husband (“husband”) works in the family business together with his two brothers, and runs a real estate and land development company called LFEA.  The wife had also worked at LFEA until September 2016.  There is one child of the family, who is now 22 years of age. 

5.  The wife petitioned for divorce on 8 March 2017, Decree Nisi was granted on 15 March 2018.

6.  The husband has not turned up for any court hearing to-date, there had been history of substituted services on the husband; and it was only on 21 November 2019 when the husband filed a Form A with the court, he appeared to be acting in person.  However, the wife has since discovered that husband has lodged the Form A on two properties owned by her with the land registry, which was done by the lawyers representing the intended 5^th Respondent.  It is the wife’s case that the husband has all along been aware of the proceedings but chose not to appear.

Previous preliminary issues and joinder applications

7.  The wife had previously initiated proceedings regarding another set of preliminary issues on 2 October 2018.  This involved the 2^nd Respondent, LCEL.  It was her contention that following an argument with the husband in round January 2017 (after which the husband left the former matrimonial home), the husband had diluted the shareholdings in LCEL and transferred 99% of it to his brother CFC, the 3^rd Respondent, on 23 January 2017.  Sometime between 23 January 2017 and 6 October 2017, the husband transferred his remaining 1% in LCEL to CFC, who then in November 2017, transferred all his shares in LCEL to CHS, the 4^th Respondent.  The 4^th Respondent resides in China and has, to date, not appeared at any court hearing either.

8.  By an Order dated 14 November 2018 from HHJ CK Chan, the 2^nd and 3^rd Respondents were joined in these proceedings to determine by way of preliminary issues, and inter alia, whether the shares in LCEL and the assets therein are the husband’s financial resources, and whether those shares and assets are matrimonial properties. The 4^th Respondent was likewise joined by an Order dated 3 April 2019.  Directions for the preliminary issues hearing were made on 12 April 2019.

The present preliminary issues and joinder application

About the former matrimonial home

9.  In her various affirmations relating to this application, the wife’s stated the following series of events:

a. The former matrimonial home had all along been owned by GPIL, the intended 5^th Respondent herein.

b. The sole shareholder and director of GPIL is another one of the husband’s brother CFW, the secretary of the company is his wife WWL.

c. In around 28 June 2017, 3 months after the wife petitioned for divorce, GPIL applied for sub-division of the Lot 3XX RP DD94 (“the Original Lot”) into three sections, one of which Lot 3XX I DD94 (“Lot 3XX I”) is the land upon which the former matrimonial home stands.

d. GPIL produced a tenancy agreement of Lot 398 I with the husband as tenant dated 1 September 2017, which tenancy period was stated to be from 1 January 2017 to 31 December 2018. 

e. On 8 September, GPIL signed a provisional sale and purchase agreement which sold Lot 3XX I, together with the tenancy, to USDL, the intended 6^th Respondent.

f. On or around 1 October 2017, USDL claimed to take back Lot 3XX I, and requested the wife and son to leave the former matrimonial home.  USDL formally took over Lot 3XX I with the tenancy on the completion of sale on 7 October 2017.

g. On 23 November 2017, USDL, represented by the abovementioned WWL, wife of the husband’s brother who owned GPIL, applied to the Lands Tribunal to recover unpaid rent, and to take possession of the former matrimonial home, on the basis of non-payment of rent in November 2017.  This proceeding was stayed on 22 August 2018 pending the determination of the beneficial ownership of the former matrimonial home.

About Lot 879 DD100

10.  In the Points of Defence of the 3^rd Respondent, it turned out that LCEL had sold Lot 8XX DD 100 (“Lot 8XX”) to USDL in June 2017, at $700,000. 

11.  The wife therefore took out the present Summons for determination of the abovementioned additional preliminary issues, and to join the intended 5^th and 6^th Respondent. 

12.  By their affirmations on 16 October 2019, the intended 5^th and 6^th Respondent disputed the wife’s joinder application.

The wife’s case

13.  The wife had produced a company search which showed the husband to be one of the shareholders of GPIL in 2006 together with his two brothers CFW (shareholder of GPIL) and CFC (3^rd Respondent, and shareholder of LCEL, the 2^nd Respondent).

14.  The wife contends that the husband’s family business deals in land development and real estate in the area, and he operated this business with his two brothers.  They held and invested in properties through corporate vehicles, and subsequently segregated shareholdings in the companies to diversify risks.

15.  It is her case that she, together with husband, has negotiated the purchase of the Original Lot and a wooden structure thereon; and thereafter applied for permit to renovate the wooden structure to become their former matrimonial home.  She claimed that they have paid for the renovation and all expenses relating to the property.

16.  It is therefore her case that GPIL was holding the former matrimonial home on behalf of the husband and herself.

17.  She challenged the authenticity of the rental agreement on many fronts, inter alia, why was this tenancy, purportedly commencing in January 2017, created over a piece of land which only came into existence after the subdivision in June 2017; and why would the husband enter into a rental agreement with GPIL in September 2017 when he had already left the matrimonial home in February 2017.

18.  She challenged that the sole shareholder of USDL, CCK is known to the husband and his brothers, as he had dealt with LFEA for a long time; that as an experienced land and property investor he could not have purchased the land subject to the tenancy without making enquiries on the property on the land; that the price of HK$1,000,000 was undervalue; that the whole transaction between GPIL and USDL was contrived, and CCK could not be a “bona fide purchase for value without notice”.

19.  Wife was surprised when she found out, only from the Statement of Defence of the 3^rd Respondent, that LCED has disposed of its underlying asset Lot 8XX to USDL; and she claimed that this sale was undervalued.

20.  The wife contends that the subdivision of the Original Lot, the subsequent rental agreement, and the sale of Lot 3XX I and Lot 8XX to USDL, driving herself and their son out of the former matrimonial home, were all actions taken by the husband to avoid her claim in this ancillary relief proceedings.  

The Intended 5^th Respondent’s case

21.  The 5^th Respondent USDL is represented by its sole shareholder and director CFW, who is one of the brothers of the husband.  According to his affirmation, from the time of the incorporation of GPIL to January 2006, the 3 brothers, namely the husband, the 3^rd Respondent and himself were the shareholders of the company.  Then in January 2006 the brothers decided to go separate ways, and the husband and 3^rd Respondent transferred out their shares at a nominal value, leaving CFW to be the sole shareholder and director of the company.  However, it was not until 2008 that the change of shareholding was reflected in the company registry.  It is his case that the husband had not been involved with GPIL since the share transfer.

22.  CFW claimed to have negotiated the purchase of the Original Lot himself, and GPIL paid for the land and the wooden structure thereon for a total of $180,000 in around May 2008. 

23.  He then claimed that the husband approached him to rent the wooden structure for storage, but later decided to convert the wooden structure to a squatter house and asked to rent it at a low price.  CFW claimed to have paid the husband $200,000 for renovating the wooden structure and then signed a tenancy agreement with him for a term of 8 years, which commenced from 1 January 2009, and received from the husband $192,000 being $2,000 monthly rental for 8 years.

24.  He clearly disputed the wife’s allegations that the husband had paid for the renovation and other expenses relating to the property.

25.  In or around end 2016, he claimed to have the intention to sell the whole of the Original Lot and have offered the husband to buy the land upon which the former matrimonial home stands, which was refused.  He then with a view to selling the land subject to the tenancy, revised the rental to market level at $14,000 with the husband’s consent; and thereafter proceeded to engage a surveyor to subdivide the Original Lot. 

26.  CFW claimed to have received a deposit and monthly rental payment from the husband from January 2017 up to October 2017, this arrangement was subsequently captured in the September 2017 rental agreement after the subdivision.

27.  CFW sold the Lot 3XX I subject to the tenancy to USDL in September 2017 at $1,000,000, he said that USDL was introduced to him by the 3^rd Respondent.

28.  Counsel for GPIL quoted cases which focused on supporting the need for “arguable” bona fide claims, that there need to be triable issues, and that allegations must be credible and believable.  Counsel had also gone extensively into various matters which were raised in disputes between the parties to attack the merits of the wife’s case, and to say that she does not have a bona fide arguable case against GPIL. 

The Intended 6^th Respondent’s case

29.  USDL is represented by its sole shareholder and director Chum.

30.  It purchased Lot No. 8XX DD 100 from LCED in July 2017 and Lot No.3XX I DD 94 from GPIL in October 2017.

31.  CCK stated that he commenced investing in land redevelopment and real properties since 1997; used to engage, inter alia, LFEA to source land and properties for him, and claimed to have more than 10 deals through them. 

32.  CCK claimed to be approached by LFEA to purchase Lot No. 8XX. He said he was interested in purchasing in the area which he believed would be resumed by the government and bring him profit.  He bought Lot 8XX from LCED for $700,000.

33.  Then two months after in September 2017, CCK claimed to be approached by LFEA again regarding Lot 3XX I, he said he was interested as it was in the same area with a potential for profit.  He claimed to have inspected the land, noticed the structure thereon and was conscious that the sale was subject to a tenancy agreement of the structure.  He purchased Lot 3XX I at $1,000,000 which sale was completed in October 2017.

34.  CCK denied he knew the husband.

35.  When no rent was paid by the husband in November 2017, WWL, the wife of CFW offered to assist CCK in recovery of rent and possession of the Lot 3XX I in the abovementioned Lands Tribunal matter.

36.  Counsel for USDL argued that on the authority of Y v Y [2019] HKFC 322, which case concerned a s.17 (Matrimonial Proceedings and Property Ordinance) application, it is not necessary to join a third party unless there is a request for a particular order to be made against the third party; and where it is possible to add back the sum disposed to the matrimonial balance sheet, then there is no need to set aside the disposition which is the subject of a s.17 application.  Counsel also argued that the wife’s case was tenuous, and that she has not discharged her “burden of proof regarding the joinder application”.

The Law regarding Joinder

37.  An application for joinder is made pursuant to Order 15 rule 6(2)(b) RHC which empowers the Court to add the following persons as a party at any stage of proceedings in any cause or matter on such terms as the Court thinks fit, namely:

“(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”(emphasis added)

38.  I turn to the case of TL v. ML & Ors (Ancillary relief: claim against assets of extended family) [2006] 1 FCR 465, which discussed how disputes between a spouse and a third party as to beneficial interests of property can be adjudicated in ancillary relief proceedings.  At paragraph 34 of the Judgment, Mostyn QC sitting as Deputy High Court Judge, had this to say about the task of a judge determining such a dispute and the procedure that should be followed.

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

……..

36. In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen : (i) the third party should be joined to the proceedings at the earliest opportunity; (ii) directions should be given for the issue to be fully pleaded by points of claim and points of defence; (iii) separate witness statements should be directed in relation to the dispute; and (iv) the dispute should be directed to be heard separately as a preliminary issue, before the Financial Dispute Resolution.’ (emphasis added)

37.      In this way, the parties will know at an early stage whether or not the property in question falls within the dispositive powers of the court …”

39.  Subsequently, in the case of Fisher Meredith v JH and PH [2012] EWHC 498 (Fam), Mostyn J quoted his own judgement in TL v ML, and further stated in paragraphs [42] and [43]:

“42. In my judgement there is a clear distinction to be drawn between the state of affairs where a claimant is saying that a property held in the name of a third party is the property of the respondent; and the situation (as here) where the respondent says that property to which he has legal title is beneficially owned by a third party.

43. In the former case I strongly endorse my discipline.  In such a case there is a clear obligation on the claimant to apply to join the third party at an early stage and to seek to invoke the discipline in TL v ML (Ancillary Relief: Claim Against Assets of Extended Family).  Only in this way can the pool of assets over which the dispositive powers of the court ranges be established …”

40.  This approach was endorsed and quoted in the Hong Kong cases of LWYA v. KYW & others (CACV No.151/2013) and LLP v. LWYA & others (CACV No.152/2013) which affirmed the procedures under TL v. ML; and subsequently in Leung Wing Yi Asther v. Kwok Yu Wah (2015) 18 HKCFAR 605, which case was about the lack of pleadings to identify the issues for the trial on beneficial ownership, Mr Justice Stock NPJ in the Court of Final Appeal at paragraph 29 of the Judgment, said this :-

“29. ……. In this regard, I endorse the practice commended by the Court of Appeal that in the context of matrimonial proceedings for ancillary relief, disputes between a spouse and a third party as to ownership of property should procedurally be approached as in standard claims for ownership of property : in other words, after a direction for trial of the dispute as a preliminary issue and the joinder of the claimant as intervener, by directions for the filing of pleadings on the preliminary issue and for witness statements and discovery relevant to that issue ...”

41.  Subsequently in the case of LLC v LMWA and LELP [2019] HKCA 347, the Court of Appeal quoted and acknowledged the approach in TL v ML and Leung Wing Yi Asther v Kwok Yu Wah.  And at paragraph [25], stated the following, echoing Mostyn J in the case of Fisher Meredith v JH and PH:

“25. Further, even in cases where a spouse seeks a proprietary order in respect of the disputed property, the third party must be involved only if he or she has a competing claim to that property. In this respect, there is a difference between cases where the third party is the legal owner or one of the legal owners of the disputed property and cases where a spouse claims that the third party has a beneficial interest in a property legally held under the name of that spouse. In the former case, the third party should be joined as a party since the legal title of the disputed property would have to be transferred or subject to encumbrance if the ownership issue is resolved by the making of a proprietary order. In the latter case, the third party should be notified of the claim and if he or she decides to contest the ownership issue, he or she should apply to be joined as party to the proceedings. If the third party does not apply to be joined, he or she shall be bound by the judgment: see Order 15 Rule 13A(4) of the Rules of the High Court, applicable by virtue of Rule 3 of the Matrimonial Causes Rules.”

42.  In a recent decision of KCMA v ABC [2019] HKCFI 2822, Hon B Chu J summarized the application of Order 15 rule 6 as follows:

“74. For Order 15 rule 6(2)(b)(i), the supporting evidence should identify clearly (1) the matter in dispute between a party and the proposed new party and (2) the connection to the main matter in dispute between the parties.

75. For Order 15 rule 6(2)(b)(ii), the supporting evidence should identify clearly (1) the existing question or issue between the proposed new party and any party in the matter and (2) the relief or remedy claimed in the matter out of which the existing question or issue is said to be related to or connected with.

…

76. Paragraph 15/6/1 of the Hong Kong Civil Procedure Volume 1 2020 sets out the effect of Order 15 rule 6. Paragraph 15/6/6 is in relation to adding or substituting defendants and paragraphs 15/6/7 – 15/6/11 are in relation to interveners. Suffice to say, it can be seen, amongst other things, as follows:

(i) On whether a new party should be joined, the test is whether there is a bona fide claim and a proper question to be tried between the plaintiff and the intended defendant that is necessary or just and convenient for resolution between them as well as between plaintiff and the defendant in the proceedings;

(ii) The court retains a discretionary power to refuse the order or to impose terms;

(iii) A court could review the position of joinder at any stage of the proceedings;

(iv) Prima facie, the plaintiff is entitled to choose the person against whom to proceed, and to leave out any person against whom he does not desire to proceed.  Under this rule, the court has power on the application to add or substitute a defendant, and the object is to ensure that (a) all issues in dispute be effectively adjudicated upon by the court and (b) all relevant parties are before the court.  The court can on such terms as it thinks just give leave for a person to be joined as a defendant and allow him to participate in the proceedings to the extent permitted by the court.”

43.  Armed with these legal principles, I turn to their application to this case.

Discussion

44.  Contrary to other civil litigation proceedings, this is a matrimonial proceeding in which the court will need to make a decision on the ancillary relief claim of the parties.  In order to decide on the issues in the ancillary relief claim, the identification of marital assets of the parties is the first step, LKW v DD (2010) 13 HKCFAR 537 referred. 

45.  What the wife here is claiming, is that the parties have beneficial interest in the former matrimonial home which was held by a company owned by the husband’s brother. The beneficial ownership of a matrimonial home, being the centre piece of any parties’ marital asset, is clearly an important question to be dealt with in the process of identifying the assets of the parties.

46.  Turning to the application of Order 15 rule 6(2)(b) for the former matrimonial home:

a. For (i), the “matter in dispute” between the wife and GPIL, is the identity of the beneficial owner of the former matrimonial home, and whether USDL as the current owner of the former matrimonial home, was a bona fide purchaser for value without notice.  The determination of the ownership of the former matrimonial home goes towards the identification of the assets of the parties so that, in Mostyn J’s words in Fisher Meredith v JH and PH : “Only in this way can the pool of assets over which the dispositive powers of the court ranges be established”;

b. For (ii), the answers are the same: the “existing question or issue” between the intended parties and the wife are as above mentioned; and the relief sought by the wife is her ancillary relief claim which is tied to the matrimonial assets pool, and it must be determined whether the former matrimonial home formed part thereof. 

47.  As for Lot 879, this was held by LCED previously, but was sold to USDL shortly after the husband diluted his shareholdings of LCED but while the husband was still a shareholder thereof.  As the beneficial ownership of LCED is already in issue in these proceedings, and yet to be determined in the previous defined preliminary issues, it follows that the disposition of assets held by LCED to a third party must also be examined.

48.  As to whether there is a “bona fide claim” and a “proper question to be tried”, I am of the view that the wife has satisfied the court with regard to the basis of her claim.  In arriving at this conclusion, I have considered the context of this case, and in particular considered this question against the background of the alleged facts which gave rise to her first two joinder applications.  There are clearly substantial factual disputes which could only be dealt with at a proper preliminary issue hearing. 

49.  I am not persuaded by the 5^th Respondent counsel’s submission that the wife’s case is without merits, I am of the view that the full assessment of her and the Respondents’ case can only be determined through a proper hearing, and not a paper examination of the available evidence to date.

50.  Counsel for the 6^th Respondent sought to rely on the case of Y v Y, to say that the joinder is not necessary as there is no request for an order to be made.  Y v Y involved a s.17 application, and HHJ Melloy in that case ruled against the joinder on other basis, that is, she felt the joinder application was made because of the applicant’s concerns pertaining to discovery, and she concluded that this was not the right basis for granting a joinder application; and that the party sought to be joined will be a witness of fact in the s.17 application in any event.  Y v Y was also distinguishable from the present case in which the former sought to set aside alleged dispositions, but this present summons concerns determination of beneficial ownership of assets key to defining the extent of the matrimonial pot.

51.  The 5^th and 6^th Respondents have argued that the wife’s case lacks merit, and is “tenuous”.  On the issue of merits, I would like to quote Deputy High Court Judge Kent Yee in the case of Wong Shan Shan and Ng Juen Leung v The Incorporated Owners of Yue Wah Mansion and Urban Renewal Authority HCA 1086/2013 [2015] HKEC 156, where it was held by him that there is no requirement for an applicant to show merit of his case under this rule; at paragraph [31] and [32]:

“31. To start with, I agree with Mr Li that under Order 15 r 6, there is no requirement for an applicant to show merit of his case. Nor am I provided with any authorities to convince me that merit is a relevant consideration in a joinder application.

32. In my judgment, a necessary party must be allowed to be joined as a party irrespective of the strength of his case. At the very least, he should be allowed to take part in the proceedings. It is a breach of natural justice if a necessary party is denied any participation altogether. It defies fairness and justice if a legal/ beneficial owner of a property is not allowed to contest an action whereby a squatter claims that his legal title/ beneficial interest has been extinguished.  Summary judgment and/ or striking out applications can be made if deemed appropriate further down the road so that a judgment can be entered against and made binding on the intervener.”

52.  I note here that none of the parties’ submissions dealt with analysis and application of the two limbs under Order 15 rule 6(2)(b), nor quoted authorities relating to disputes of beneficial ownership of assets between a spouse and third party in a matrimonial proceeding, save for the case of the above mentioned Y v Y.

53.  The purpose of a joinder is to bring all parties to a dispute relating to common subject matter before the court to avoid multiplicity of proceedings, delay and inconvenience, and waste of expenses and time; so that relevant issues can be heard and dealt with effectively and expeditiously.  The issue to be considered is whether it is “necessary” or “just and convenient” for the intended party to be joined, the court’s power in this respect is wide.  When the relevant issues are defined by proper pleadings, evidence need to be heard in court, tested and challenged, and the court must also have the chance to assess the credibility of the witnesses.

54.  Having considered the above, I am satisfied that the wife has brought herself within both limbs of Order 15 rule 6(2)(b), and that it would be necessary, and also just and convenient for the intended 5^th and 6^th Respondent to be joined to these proceedings.  In the circumstances, I grant the wife’s application for Joinder.

Costs

55.  Consequently, there shall be an order nisi to be made absolute in 14 days’ time, that the 5^th and 6^th intended respondents shall pay the Petitioner the costs of and arising out of her summons on a party to party basis, to be taxed if not agreed.

The Order and further Directions

56.  I therefore make the following Orders and Directions:

a. That the following parties be joined in these proceedings:

(i) GPIL as the 5^th Respondent herein; and

(ii) USDL as the 6^th Respondent herein.

b. 1^st Appointment and Preliminary Issue be fixed on 3 September 2020 3:00 p.m. at Court 2 with 30 minutes reserved.