Y, JYW v. Y, SC

FCMC 31/2018

[2019] HKFC 322

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO 31 OF 2018

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R U L I N G
(Joinder and third party discovery)

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Introduction

1.  This matter was last before me on the 25 June 2018. In a Memo handed down by the court on the 28 June 2019, directions were given inter alia with respect to the Respondent husband’s s.17 application and in particular it was directed that he should formally plead his case. In addition to the filing of Points of Claim, Points of Defence and a Reply, the court further directed at paragraph 4 as follows:

4.  There shall be a further First Appointment hearing on the 30 October 2019 at 9:30 a.m. The Respondent’s summons dated the 23 May 2019 seeking to join inter alia the Respondent’s father, Mr. RY, as a party to these proceedings shall be adjourned to the same date.  Leave is also given for any other potential summonses e.g. for strike out to be adjourned to the same date.  For the avoidance of doubt the Respondent’s s. 17 summons dated the 9 November 2018 shall be adjourned to the same date for a callover.  Further the hearing of the discovery summons dated the 25 June 2019 shall also be adjourned to the same date and the hearing on the 27/8/2019 be vacated.      

2.  There has been no application to strike out and consequently this hearing is concerned primarily with a) the Respondent husband’s summons to join the Petitioner’s father, i.e. “the wife’s father” as a third party to these proceedings (i.e. ancillary relief proceedings) and b) the application by the husband for third party discovery against the wife’s father in any event.

3.  The summons for joinder is dated the 23 May 2019 and states as follows:

1.  The following persons and entities shall be joined to these proceedings:

…

b.  Y, RY, [the wife’s father] being the person who set up the unnamed offshore trust and instructed the transfer of assets formerly in the legal and/or beneficial ownership of the Petitioner, which transfers have been made the subject of an application to set aside under Section 17 of the Matrimonial Proceedings and Property Ordinance (Cap. 192)

4.  This summons followed the husband’s s.17 application dated the 9 November 2018 which further states that:

1.  The following dispositions in Schedule 1 made by the Petitioner whether by herself, her servants, agents or otherwise, be set aside.

2.  In the alternative, but without prejudice to paragraph 1 above, the total amount be “added back” and be treated as being with the Petitioner notionally.

3.  All such necessary consequential directions or orders for the purposes of giving effect to paragraphs 1 and 2 above.

5.  The dispositions in question primarily concern the transfer of shares from the Petitioner to a number of corporate entities. In addition, there is reference to the transfer of some shares from the wife to her brother, J and reference also to the sale proceeds of an Australian property known as the MP property. It is only in that instance that the husband seeks directly to set aside a disposition – here the transfer of the net sale proceeds from the MP property from the wife to the wife’s father. 

6.  The second application concerns third party disclosure against the wife’s father in the following terms:

1.  Y, RY [the wife’s father] as the Settlor of the NGF Trust, the Enforcer of the Y Family S Trust and as the father of the Petitioner, whom the Petitioner asserted in her Form E had in 2016 instructed the transfers to third parties of the Petitioner’s shareholdings and debts owed to her by family companies (stating that a major restructuring “was done pursuant to my father’s instructions, including many companies which were in my sole name previously do within 28 days answer the questions, provide information and supply copies of all relevant documents and evidence, in respect of or relating to the matters set out in the Schedule annexed hereto:

The schedule attached is a 12-page document seeking extensive discovery, in some instances going back to 2009, and is drafted in extraordinarily wide terms. To that end it is of note that technically this application is made prior to the Financial Dispute Resolution hearing (FDR).  

7.  The parties have both indicated that they wish to proceed to FDR and that they do not wish the s. 17 summons to be tried as a preliminary issue. However, although the wife is keen to proceed, possibly with the assistance of an experienced professional in a private FDR, the husband repeats that he is unable to proceed further until the issue of discovery has been satisfactorily resolved.  In addition, the husband originally asked that the joinder application also be adjourned until after the FDR hearing, but in the meantime he wishes to proceed with the discovery application. 

8.  In essence, and putting it as simply as possible, it is the husband’s case, inter alia, that the wife legally held a number of shares in a family business and that she then sought to dispose of those shares in order to defeat his claim for ancillary relief. He says that she is an integral part of the family corporate structure, that she held directorships in about 40 related family companies, that she worked for and was paid by this group, and that it also provided certain benefits to her and their family, including club memberships and a driver and other staff. He says she worked for the company and on occasions made decisions pertaining to its investments and that she was the legal and beneficial owner of the shares in question. There are also other issues related inter alia to the sale of the MP property and family trusts.

9.  The wife for her part says simply that these are her father’s companies, that she was not and never has been the beneficial owner of the shares in question and that all of the assets identified by the husband including the net proceeds of sale of the MP property belong to her father. Any dispositions were made at the request of him. At paragraph 12 of her Points of Defence she states that

12.  Paragraph 10 is denied. It is further averred that:

a.   W’s role in the various Relevant Companies has always been limited and she did not make any unilateral decisions of financial or strategic importance for any of the companies of which she was a shareholder or director.  The description of “critical” role whilst emotive is not particularised; if the Respondent is asserting that she had complete command authority or a power of veto then the same is expressly denied. Any negotiations or business decisions which the Petitioner was involved in were undertaken under the supervision of the whole Board of each relevant company.

b.  The employees within the Relevant Companies are not for W’s benefit.  W does not appoint, manage or control the employees’ time nor delegation of their tasks.  None of the employees report to W directly.

c.  As the Wife was not ultimately the financial beneficiary it is denied that the work in those companies was more than that of an employee for an employer or a daughter supporting her father’s business.

d.  W lived in Australia with H from the time of marriage until September 2013 and has been a full-time mother since 2012.  W could not have played a “critical role” in the Family Companies.

10.  She further adds that she knows nothing about the off shore trust. At paragraph 41 she adds that:

41.  On the Husband’s case as pleaded, the Husband is asking the Court to act in vain.  Taking his case at its very highest, he seeks that dispositions to third party international entities be set aside without any realistic prospect of any such order ever being complied with as the proper law of all those offshore entities would not permit recognition of the same. In any event, the Husband has failed to set out why he believes the Wife is the beneficial owner of the assets. The Petitioner notes that the Respondent has not even made the basic pleading that his case is “equity follows the law”; the Petitioner avers that that is because the Respondent has no good basis for asserting that the Wife is the beneficial owner of the disputed assets as alleged.

It is of note that the husband has since sought to correct some of the points raised by the wife in his Reply, which has given rise to a further request that leave be given for the wife to file a Rejoinder.

Background

11.  In so far as the background to the parties’ marriage is concerned a summary of this can be found in Mr Todd’s submission, which for completeness sake I have included here as follows:

2.  Background

The Husband is 40 (born XX September 1979).  He is in well paid employment as a partner at A.  The Wife is 38 (born 24 October 1981).  The parties married on the XX May 2010 and according to the Husband the marriage was over within 4 years. (W says 7 years). There are two children of the family: AKSYH (“A”), a girl, and CHHY (“C”), a boy both born on XX May 2012 (together, the “Children”).  The Wife’s Petition  for divorce was filed on 2 January 2018. Decree Nisi was pronounced on 25 October 2018.

3.  Both C and A are currently at X Academy. The Children reside with W at Unit A, Tower B, Kowloon Hong Kong (W moved out of the former matrimonial home in May 2019). The parties have joint custody of the Children, with care and control granted to W and defined reasonable access to H pursuant to the Order dated 23 July 2018 made by HHJ Melloy.

4.  As an interim arrangement, the parties agreed they shall share the costs for the children’s expenses equally, until further Order by this Court or agreement between the parties (even though W does not accept that this was the financial status quo during the marriage).

5.  The parties exchanged Forms E on 13 March 2018. H and W have filed their respective Questionnaires on 25 May 2018. Answers were exchanged on 20 July 2018. They were compendious documents. On 5 September 2018, H’s lawyers wrote to Jonathan Mok Legal (JML) requesting for JML to provide documents and information relating to W’s father’s companies. While there were reservations, as expressed by JML, in relation to the relevance and the proportionality of much of the information and documents requested, JML wrote on 31 October 2018 providing substantive responses (with documents in support) to some of the questions sought by H.

6.  Despite the Answer of W and JML’s response to the requests, on 12 November 2018, HW on behalf of H wrote to Withers requesting further financial disclosure from W (including information in relation to certain companies which are within the estate of an offshore trust to which W has no information about) by 30 November 2018. W does not have possession or control of the documents requested by H, nevertheless she used her best endeavours and tried to request for these information and documents from the trustee of the offshore trust, VC Trust Limited (“V”) but to which she received no favourable reply. Withers then responded to HWB in a letter dated 30 November 2018.

7.  Following unsatisfactory disclosure from H in his 1^st Answers, W filed a 2^nd Questionnaire on 2 November 2018 and H filed hi 2^nd Answers on 30 November 2018.

Joinder

12.  As indicated during the hearing it seems to me that the issue of joinder must be dealt with now and that it is not appropriate to adjourn this matter until after the FDR hearing. This is especially important given the nature of the discovery application.

The law

13.  An application for joinder is made pursuant to Order 15 rule 6 (2) (b) which states as follows:

6.  Order 15 rule 6 (2) provides:

Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on  application ––

(a)  …

(b)  order any of the following persons to be added as a party, 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.

14.  It is trite but worth repeating that it is not permissible for the husband to join the wife’s father to the ancillary relief proceedings, including presumably the s.17 application, simply because of concerns pertaining to discovery. Further, it is also accepted that it is not necessary to join a third party unless there is a request for a particular order to be made against him. This point is reiterated in the recent Court of Appeal decision in LLC v LMWA [2019] 2 HKLRD 529 where Lam ACJHC stated inter alia as follows:

[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.

In this instance it is of note that the husband is not seeking to set aside dispositions made directly by the wife to her father, as there are none. The only exception is the net proceeds of sale of the MP property, which can be dealt with by way of an add back in any event. Indeed, as pointed out by counsel, this was actually foreshadowed in the husband’s summons in any event (see paragraph 4 above).

15.  The husband is at pains to argue that he is not seeking to join the wife’s father simply because of discovery. In the husband’s submission he states as follows:

13. In W’s Father’s note for court it is stated that the only reason for Joinder is the discovery application. This is patently not the case - for the avoidance of any doubt:

(a)  s.17 proceedings were lodged because of the imminent expiry on 10 November 2015 of the 3-year period of presumption relating to thereafter escalating transfers of assets out of the NG Family Trust and onwards to the offshore trust:

(b)  W’s Father was named in that application because on the evidence in W’s own words and throughout W’s answers to questions she has repeatedly named her Father as the architect of the “re-structuring” and stated that it is on his instructions that her assets have been transferred and are now contained in the YFS Trust;

(c) the fact that W claims that her Father had the authority to cause assets to be transferred indicates that he is claiming ultimate beneficial interest and therefore he is the most important person to join for the purposes of enforcement; and

(d) joinder is a necessary step in s.17 proceedings.

16.  This is not accepted. Infact, it seems that the husband is only concerned with discovery. He wants to challenge what the wife has said by reference to her father’s evidence and seemingly almost endless further discovery. I question the relevance of this. I also do not accept that the father needs to be joined for that purpose in any event. He has also stated that he does not wish to be joined. The father will be a witness of fact in the husband’s s. 17 application. It will therefore be open to the husband to challenge both what the wife has said and what the father has said in the witness box.

17.  Ms Bonnie Cheng, counsel for the wife’s father adds as follows in her submission:

8.  One of the statutory requirements to be met before the Court will consider setting aside any disposition under s.l7( 1 )(b) is that, if the disposition were set aside, financial provision or different financial provision would be granted to the applicant. This effectively requires the s.l7 application to “bring about a difference”. This is consonant with the usual rule that the Court does not grant a discretionary relief if it serves no discernible purpose.

9.  In HKCB Finance LId v Yuen Yi Wan Sandy (DCMP 2017/2002, 29 November 2004) [FLoA#1], HHJ To (as he then was) said (at §56) in relation to s.17 applications that:

“The jurisdiction to set aside the dispositions is not mandatory but is a matter of discretion of the court. The court may not necessarily set aside the disposition, for example, if there are other assets available to the spouse applying for the order”.

10.  Hence, where it is possible to add a sum disposed of back to the “matrimonial balance sheet”, the Court may do so without exercising the discretion to set aside. This was so in W v H (CACV 127/2008, §§25, 27-28) [FLoA#2], despite the finding that the husband’s intention was to “ensure that his wife did not share in the assets that were the subject of the dispositions” (§22).

18.  With respect I agree with this analysis. In such circumstances the husband’s summons on joinder shall be dismissed.

Third party discovery

19.  The husband also applies for extensive discovery from the wife’s father in any event. I am told that this is limited for the purposes only of the FDR, but it is with respect, extremely detailed and broad in its scope, given the context.

20.  The application is made pursuant to O 24 rule 7A(2). Ms Cheng summarizes the legal position thus:

19.1  It must be shown that the non-party is likely to have the documents in his possession, custody or power which are relevant to an issue arising out of a claim.

19.2  The test of relevance is the Peruvian Guano test.

19.3  The applicant for discovery must show that the order is necessary either for disposing fairly of the matters or for saving costs.

19.4  The order sought must identify with precision the document, documents or categories of documents which are required to be disclosed. A class of documents must not be defined or described so widely so as to include documents which are not relevant to the issue. The class request must be adequately specific.

19.5  One cannot simply identify an issue and ask for all documents relating thereto, as opposed to the nature of the documents.

19.6  Even if satisfied with the above, the court still has to exercise its discretion, bearing in mind that disclosure orders against third parties are exceptional. It should not be used as a fishing exercise for documents nor speculative. It should not be oppressive to the witness, e.g. by the terms being too wide. It must identify the documents by means of a particular description and not a general description. Otherwise the person giving discovery may find himself in serious trouble for swearing to a false affidavit, even though doing his best to give honest disclosure.

19.7  It will be oppressive if the order requires the third party to make fine judgments regarding the relevance of the documents; or if it requires him to undertake a search of an excessively large amount of documents; or if it does not specify the documents with reasonable particularity.

19.8  The operation of O.24 r. 7A must now be seen through the prism of the underlying objectives of O.1A RHC, which include promoting “a sense of reasonable proportion and procedural economy in the conduct of proceedings”.

19.9  The Court may also in its discretion refuse to order the disclosure of documents which are confidential.

…

20.  In respect of the threshold requirements in §§19.1-19.5 above, O.24 r. 7A(3) [FLoA#6] provides that the summons for non-party discovery shall be supported by an affidavit which must –  

“(b) … specify or describe the documents in respect of which the order is sought and show, if practicable by reference to any pleading served or intended to be served in the proceedings, that the documents are relevant to an issue arising or likely to arise in the proceedings and that the person against whom the order is sought is likely to haνe or have had them in his possession, custody or power”.

21.  Again I also agree with this analysis. I further accept that the husband has failed to do this. Although Ms Heathfield for the husband pointed out that the questions were posed in the way that they are because they arise out of the wife’s answers, I query the necessity for a lot of the questions raised. I also agree that it is not sufficient to ask simply for “documentary evidence” or to ask the wife’s father to “explain”. Instead any question needs to be precisely drafted. Further the questions should not be a cross examination on paper. Ms Cheng also complains that

24.3  Some requests are plainly irrelevant and/or unnecessary.  For example, Questions 1(a)-(e) concern the purchase of the MP Property - even though the Husband pleads in his PoC (§21) that the property was “gifted” to the Wife [7] and, as such, the source of funding for the purchase is not even a contested issue.

24.4  There are also various requests for “documentary evidence” in respect of transfers to, or appointment of, the Wife’s brother J: see e.g. Questions 2(a)(ii), 2(b)(iii) and 2(c)(i) and 5. They are irrelevant, unnecessary and/or oppressive.

24.5  The Husband further seeks “all documents relating to the values” of certain shareholdings “between the current date and the date of transfers of the shares in NG by the Petitioner to W Group Ltd”: see Question 2(h). But valuation cannot be a relevant issue at this stage where the Husband’s complaints concern only the propriety of the alleged transfers. There is also no basis to any belief that there is in existence any valuation reports in respect of the shares in question.

22.  Again I agree. In such circumstances the husband’s second summons dated the 25 June 2019 shall also be dismissed.

Costs

23.  Consequently, there shall be an order nisi to be made absolute in 14 days’ time, that the Respondent husband shall pay the Petitioner wife and the wife’s fathers, the intended intervener, the costs of and arising out both summonses referred to above on a party and party basis to be taxed if not agreed.  There shall be certificate for counsel. 

Further directions

24.  It is further ordered and directed as follows:

1.  The wife shall have leave to file a Rejoinder on or before the 7 February 2020 in response to the husband’s Reply dated the 11 October 2019;

2.  Leave is given for the husband to file and serve a Surrejoinder (if so advised) on or before the 6 March 2020;

3.  The First Appointment hearing and the Respondent’s s. 17 summons dated the 9 November 2018 shall be adjourned to the 24 March 2020 at 11 a.m. with one hour reserved;

4.  Costs be reserved.