DARACH E. HAUGHEY AND ANOTHER v. LAM WAI PING STELLA AND OTHERS

HCB 276/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY NO. 276 OF 2002

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JUDGEMENT

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The undisputed facts:

1.  The Bankrupt, William Henry Woo, (Mr Woo), was a solicitor in practice in Hong Kong.  He practised in Hong Kong on his own account, under the style William H Woo & Co.  In 1998, his wife, the 1^st Respondent, (Ms Lam), to whom he had been married since June 1979, qualified as a solicitor, and was employed in that capacity in Mr Woo’s office.

2.  On 24 January 2000, Mr Woo entered into a loan agreement with Celestial (International) Securities & Investment Ltd, (Celestial), under which Celestial agreed to advance to Mr Woo the sum of HK$60 million.  The loan agreement provided that the purpose of the loan was to be:

“exclusively for financing (Mr Woo) for his general investment purpose.”

The document provided for interest in the usual way, and for the repayment of the loan “by one balloon payment on or before 24^th October 2000”.  By way of security for the loan Mr Woo entered into a share mortgage, in favour of Celestial, in which he mortgaged 100 shares held by him in a company called Yorkshire Development Ltd, (Yorkshire).

3.  On 27 January 2000, apparently on Mr Woo’s request, Celestial remitted the loan monies of HK$60 million, converted to Singapore dollars, (SGD$13,015,184.38), to Mr Woo’s account with the Hongkong and Shanghai Banking Corporation, (HSBC), in Singapore.

4.  Mr Woo was involved in a company, Plexus Multimedia (Pte) Ltd, (Plexus), based in Singapore.  Plexus was what has become known as a “dot com” company.  In the loan agreement Mr Woo gave a warranty that he was the sole and beneficial owner of the 100 shares he held in Yorkshire, the total issued share capital of Yorkshire, and that Yorkshire was a single purpose company, as shareholder of not less than 60% of the issued share capital of Plexus.

5.  No doubt Celestial were content to remit the funds to Singapore by reason of the association between Mr Woo, Yorkshire, and Plexus.  It is entirely understandable, having regard to those facts, that Celestial would expect Mr Woo to apply the loan advanced for the purposes of investment in Plexus.

6.  The next day, 28 January 2000, Mr Woo remitted SGD$12,500,000 from his Singapore HSBC account, back to Hong Kong,  to his Hong Kong HSBC account.  Consequent upon that remittance, there was SGD$12,519,082.00 in Mr Woo’s HSBC Hong Kong account.  On that same day Mr Woo converted that sum to US$7,351,193.70.

7.  Ms Lam is authorised to sign cheques or to give instructions to the bank on Mr Woo’s account at HSBC.  The signature of either Ms Lam or Mr Woo alone is sufficient on a cheque or an instruction.

8.  Four days later, on 1 February 2000, Mr Woo transferred US$2 million from that account to an HSBC account held by the 3^rd Respondent, Grainger Resources Ltd, (Grainger).  There is no evidence as to the directorship or shareholding in Grainger.  The evidence does however establish that Ms Lam is an authorised signatory to Grainger’s bank account at HSBC.  One signature only is required on cheques or instructions to the bank.

9.  Seven days later, on 8 February 2000, a sum of HK$7 million was transferred from Mr Woo’s HSBC account to an account held in Ms Lam’s name at HSBC.  On that day, prior to the deposit of the HK$7 million, there was only HK$83,263.72 in Ms Lam’s savings account and HK$3,309.91 in the current account.  Seven days after that, on 15 February 2000, a sum of US$4 million was transferred from Mr Woo’s account to the same account of Ms Lam.  The evidence does not establish precisely who authorised those transfers.  Just as Ms Lam had authority to sign on Mr Woo’s account, he had authority to sign on her account.  Again the signature of only one person was required.

10.  Upon the sum of US$4 million being received into Ms Lam’s account it was placed in an interest-bearing time deposit, on weekly rollover.

11.  On 24 February 2000, Ms Lam acquired one share in the 2^nd Respondent, Irving Developments Limited, (Irving).  She was the sole shareholder of the company, and the sole director.  Both Grainger and Irving are companies incorporated in the British Virgin Islands, (BVI).  There is no evidence that Mr Woo has any interest in Irving, either directly or by virtue of a trust.

12.  On 28 February 2000, Ms Lam, on behalf of Irving, entered into a provisional agreement for sale and purchase to acquire a flat at Park Place, Tai Tam Reservoir Road, Hong Kong, (Park Place), for the sum of HK$24.8 million.  On that day, a cheque was drawn on Ms Lam’s HSBC account, and signed by her, for the sum of HK$660,000 being the initial deposit on the purchase.

13.  On 7 March 2000, Ms Lam, as the sole director of Irving, opened a BusinessVantage account for the company with HSBC.  At the same time she withdrew from her own account at HSBC, the time deposit of US$4 million, which with interest stood at US$4,013,034.13.  She placed that sum on short-term time deposit again with HSBC, in the account of Irving.

14.  The effect of those transactions was that, within five weeks and four days of receiving the loan advance, Mr Woo had passed more than 80% of the loan sum from Hong Kong, to an account he held in Singapore, to an account he held in Hong Kong, and then to the accounts of his wife and two BVI companies, both companies of which he was neither a shareholder nor a director, although he had power to sign on the bank accounts of Irving, and his wife’s account, and his wife was a signatory, by herself, on Grainger’s bank account.

15.  On 10 March 2000, Irving entered into the formal agreement for sale and purchase to acquire Park Place.  That document was signed by Ms Lam.  On 10 March 2000, Ms Lam transferred HK$2,750,000 from her HSBC account to solicitors, Messrs Ng Lie Lai Chan, who were acting for Irving on the purchase of the Park Place flat.  It was not disputed that the source of those funds was the funds advanced by Celestial to Mr Woo, and transferred by him, from Singapore through his Hong Kong HSBC, account to Ms Lam’s HSBC account.  That sum was subsequently applied as part of the purchase price for the Park Place flat.

16.  On 25 April 2000, she converted part of the US$4 million on time deposit in Irving’s HSBC account to HK$8 million, keeping that sum in Irving’s account.  On 28 April 2004, she signed an authority, on behalf of Irving, directed to HSBC, instructing that HK$173,600 be transferred to Irving’s cheque account, and HK$7,470,600 to Irving’s solicitors bank account.  The first sum was paid to Ricacorp Properties, the estate agent involved in the sale of the Park Place flat.  That sum was agent's commission. The second sum was applied to the completion of the purchase.  The balance of the purchase price, HK$14,880,000, was provided by way of a mortgage loan to Irving from HSBC.

17.  In short, Irving, by the actions of its sole director Ms Lam, used HK$11,054,200, all of which moneys had their source in the Celestial loan, in the acquisition of the Park Place flat.   That sum comprised the initial deposit, HK$660,000, the balance deposit, HK$2,750,000, the commission, HK$173,600, and the balance cash contribution, HK$7,470,600.

18.  On 26 July 2000, Ms Lam signed a cashier’s order purchase form on Grainger’s account, to purchase a cashier order in favour of Celestial for the sum of HK$1,800,000, which was applied in payment of a monthly interest payment on Mr Woo’s loan from Celestial.  Prior to that, interest payments had been made by Mr Woo.  This was the only interest payment in which Ms Lam had a hand.

19.  The Celestial loan was due for repayment by Mr Woo on 24 October 2000.  He failed to pay on that day and on the following day Celestial issued a writ against Mr Woo.

20.  Summary judgment was entered against Mr Woo on 27 August 2001.  A subsequent application for a stay of execution was dismissed.  An appeal against the entry of summary judgment was heard on 21 and 22 November 2001.

21.  An application for a prohibition order, preventing Mr Woo from leaving Hong Kong, was made on 23 November 2001, a Friday, but adjourned for hearing on Monday the 26 November 2001.  The order was made on that day, but Mr Woo had left Hong Kong on Sunday 25 November 2001, before the order could be served on the Immigration Department.

22.  On 4 December 2001, the appeal against the entry of summary judgment was dismissed.

23.  On 7 December 2001, a warrant of arrest was issued against Mr Woo, and on 10 December 2001, a worldwide Mareva injunction was granted to Celestial.  Mr Woo has failed to return to Hong Kong and has not complied with the requirements of the Mareva injunction.

24.  On 5 January 2002, Celestial presented a petition for the bankruptcy of Mr Woo.  He was adjudged bankrupt on 27 May 2002.  The Applicants, (the Trustees), were appointed the joint and several trustees in bankruptcy of Mr Woo.

25.  On 16 January 2004, the Park Place flat, together with the two carpark spaces were sold for HK$17,900,000.  After repayment of loans to HSBC, and the payment of expenses, the net proceeds of sale amounted to HK$1,992,525.89.  That sum has been paid into Court.

The applications by the Trustees:

26.  The evidence described above establishes beyond any doubt that three particular payments were made from Mr Woo’s HSBC account:

(i)  On 1 February 2000, a payment of US$2 million to Grainger’s HSBC account;

(ii)  On 8 February 2000, a payment of HK$7 million to Ms Lam’s HSBC account;

(iii)  On 15th February 2000, a payment of US$4 million to Ms Lam’s HSBC account.

The Trustees now seek declarations that each of those three payments were transactions at an undervalue within the meaning of s 49 Bankruptcy Ordinance, and consequently void as against the Trustees.  As to the payment of HK$7 million, they say, in the alternative that, of that sum, the sum of HK$3,410,000 transferred from Ms Lam’s HSBC account to Irving’s account on 8 February 2000, was a transaction at an undervalue.  In the event that declarations are made that the transactions are caught by s 49 of the Ordinance the Trustees seek consequential orders for repayment of those sums against Ms Lam or Irving, as appropriate.  In addition the Trustees seek an order for the payment out of court to them of the net proceeds of sale of Park Place.

27.  Similar orders under s 49 are sought against Grainger in relation to the payment of US$2 million. 

The relevant statutory provisions:

28.  Under sections 49, 51, 51A and 51B of the Bankruptcy Ordinance a procedure is established for the retrospective avoidance of transactions at an undervalue entered into by a person who is subsequently adjudged bankrupt.  The sections are concerned with the depletion of a person’s assets at an undervalue and the restoration of the bankrupt’s estate for the benefit of his creditors, of money or other assets which ought not to have left him.  This part of the Bankruptcy Ordinance is modelled on the English Insolvency Act 1986, sections 339, 341, 342, and 345.

29.  The effect of s 51(2) is that if a transaction is entered into more than two years prior to the date of the presentation of a bankruptcy petition, it will be necessary for the recipient of the payment to establish that the bankrupt was neither insolvent at the time of the transaction, nor that he became insolvent in consequence of the transaction, if the transaction is to be caught.  There is no doubt however, that in this case the transactions with which the court is concerned all took place less than two years prior to the date of the presentation of the bankruptcy petition.  Mr Cooney sensibly accepts that the transactions occurred at a relevant time. Thus no issue of the insolvency of Mr Woo, at the time the payments were made, arises.

The answer to the claim by Ms Lam and Irving:

30.  The answer to the claim by both Ms Lam and Irving was contained in two affidavits filed by Ms Lam.  The essence of that answer was that the transactions at issue had nothing to do with Ms Lam, nor were they payments made to her.  She said that Mr Woo simply “utilised her bank account to facilitate the later transfer of funds”.  At the beginning of the trial Mr Cooney was happy to accept my description of that position as amounting to an assertion that the funds transferred from Mr Woo’s HSBC account through Ms Lam’s HSBC account were “contained in a box” with which Ms Lam had no contact or dealings.

31.  This answer reflects an assertion, heard so often in the courts, be it in criminal, civil, or matrimonial proceedings, that a person merely “let someone use their account” for some unknown purpose, and that consequently, that purpose is something for which no responsibility at all may lie at the door of the lender of the account.  In order to properly deal with this answer it is necessary to go to first principles to determine the legal character of funds in Ms Lam’s account, in circumstances where she merely permits another person to use her account.

The legal character of the funds, when in Ms. Lam’s account:

32.  In the course of final submissions Mr Cooney was obliged to accept that funds going into Ms Lam’s account could have only one of two legal status whilst in that account.  First, the funds may belong outright to Ms Lam, having been received by her for good consideration, or by way of gift.  Second, the funds, whilst in her account, may be held by her on trust for the person who deposited the funds in the account.  Mr Cooney was obliged to accept that there is no “third state”, whereby the funds could be in the account, with no form of legal title of any sort, and consequently no responsibility for the funds or their use, lying with Ms Lam.

33.  It is thus necessary to examine the circumstances of the transactions to determine, on the evidence and to the appropriate standard of proof, the balance of probabilities, Mr Woo’s intention in depositing funds into Ms Lam’s account.

The presumption of advancement:

34.  As a matter of law, when a husband acquires property in his wife’s name, the presumption of advancement arises, and prima facie the sum paid or the property acquired will be a gift to the wife: see Snell’s Equity, 31^st Ed., para 23-06.  The same presumption applies to a voluntary transfer of property, in other words, a simple payment of cash from a husband’s bank account to a wife’s bank account: supra, para 23-13, and Tinsley v Milligan [1994] 1 AC 340 at 371 E-G, per Lord Browne-Wilkinson.  In many cases it will be a simple matter to rebut the presumption.

35.  It must be remembered that a person may not rely on his own illegal act in order to rebut the presumption.  Thus where a husband put property into his wife’s name, he cannot be heard to say that he did so to defeat his creditors, and that it is not hers absolutely: see Gascoigne v Gascoigne [1918] 1 KB 223 and Tinker v Tinker [1970] P 136.

36.  Both of those decisions are decisions in the context of matrimonial proceedings, where a husband had put property into his wife's name, and sought to argue that the consequence was that the wife did not became the owner of that property.  Mr Cooney contended that those decisions should not apply in the present context.  The result reached in both cases were reached as a result of the application of first principles.  I see no reason why those principles should not apply across the board to any circumstance where one person puts property in the name of another.

37.  Mr Cooney further contended that the presumption of advancement had no place under the statutory scheme of the Bankruptcy Ordinance.  I do not accept that submission.  By s 49(3)(a) of the Ordinance a debtor enters into a transaction with a person at an undervalue if he makes a gift to that person.  It is right that the Ordinance does not specifically refer to the presumption of advancement, but in my view, as a matter of general law, the court must be able to look to the presumption of advancement when determining whether or not a gift has taken place in any circumstances where the issue arises.  The draughtsman of the legislation must have been aware of the relevance of the presumption of advancement in the determination of the existence of a gift.  In the absence of any legislative provision in the Bankruptcy Ordinance declaring that the presumption shall not apply, I see no reason why it should not be applied.

38.  It is thus necessary to examine the facts and circumstances surrounding the payments made to Ms Lam’s account to determine whether it was Mr Woo’s intention that the funds should be paid to her, to be held by her on trust for him, or whether they were an outright payment to her.  There is no evidence at all that Ms Lam gave any good consideration for the payments, and consequently if they were outright payments to her the inevitable conclusion will be that they were a gift to her.

39.  It was suggested by her in the evidence that in return for the receipt of the funds she made payments for her husband.  I understood this to be an assertion by her that if the funds were outright payments to her, that was good consideration for the payments to her.  Quite plainly that cannot be so, for if her actions in making payments on her husband’s behalf were found to be consideration for the payments to her, then they were clearly worth significantly less than the value of the consideration provided by Mr Woo and by s 49(3)(c) would constitute a transaction at an undervalue.

Were the payment of funds to Ms Lam used for Park Place a gift:

40.  From the payment of HK$7 million made from Mr Woo’s account to Ms Lam’s account on 8 February 2000, the sums of HK$660,000, HK$173,600 and HK$2,750,000 were applied to the purchase by Irving of Park Place.  From the payment of US$4 million made from Mr Woo’s account to Ms Lam’s account on 15 February 2000 the sum of HK$7,470,600 was applied in the same way.

41.  I have come to the conclusion that these payments, totalling HK$11,054,200, made from Mr Woo’s account to Ms Lam’s account were a consequence of actions by Mr Woo, in an attempt to put the funds absolutely out of his hands in order to defeat his creditors. In those circumstances I am satisfied that they were outright payments by way of gift to Ms Lam.  I have reached that conclusion for the following reasons.

42.  Ms Lam asserted that she did not wish to buy the Park Place flat, and did so reluctantly, preferring to stay where she had been in Repulse Bay where her children had been brought up.  She said that the decision to purchase Park Place was her husband’s decision and that she merely signed the documents he put in front of her because he asked her to do so.

43.  I did not find Ms Lam to be a believable witness.  When assessing her evidence it is necessary to bear in mind that she is an intelligent well-educated woman who graduated with a BA from York University, Toronto, Canada.  She is a qualified solicitor in Hong Kong, having been admitted in 1998.  At the time she gave evidence she was still in practice, by then with some seven years experience.  Her evidence was that she practised in the areas of debt, commercial law, and conveyancing for vendors.  All of those areas of practice impinge directly on the issues in this case.

44.  Her occasional protestations of lack of understanding of what had been taking place were, in those circumstances, simply unbelievable.  I simply do not accept that a qualified solicitor would merely sign documents put in front of her by her husband for the acquisition of a substantial home, in which she herself was going to live, the title to which would be taken in the name of a company of which she was the sole shareholder and director, and not be fully aware of what she was doing.

45.  Many of her answers in cross examination were highly evasive.  It became plain that she clearly understood the consequence of the inevitable answer to questions posed to her, and, in answering, contrived to give some other answer, that avoided that consequence.  That was particularly so when faced in re-examination with the inconsistency between her assertion that she did not hold funds on trust for her husband, and her assertion that the funds given to her for the acquisition of Park Place were not for her personally.

46.  On numerous occasions the best answer that she could give was that she could not recall.  It is simply unbelievable that a qualified solicitor practising in Hong Kong could sign documents involved in the movement of US$4 million through her bank account, or the acquisition, for HK$24.8 million, of a residential property in which she would live, in the circumstances of this case, and not recall anything about those transactions, was simply unbelievable.

47.  I placed no weight at all on Ms Lam’s assertions in relation to her attitude towards the acquisition of the Park Place flat.  Whatever her attitude was to its acquisition, she chose, knowing full well what she was involved in, to execute the necessary documents to complete the purchase.  Having purchased the property, using a BVI company, of which she was the sole director and shareholder, she moved into and lived in the flat for over two years.  She cannot now reject any involvement in the transaction by virtue of an assertion that she did not wish to buy it in the first place.  It was open to her at the time of acquisition to refuse to sign the necessary documents, but she did not choose that course.

48.  Next, it is clear from the evidence that Ms Lam regarded the payment of the sums of HK$7 million and of  US$4 million by Mr Woo to her to be payments to her personally and not to her by way of trust.  I reach that conclusion for the following reasons.

49.  On 29 July 2002, solicitors for the Trustees wrote to Ms Lam requiring that she provide to them:

“Passbook and bank statements of all accounts in the name of (Mr Woo) or any other person for the last three years in your possession, custody and control, which contained funds of (Mr Woo), whether solely or jointly held in trust for (Mr Woo) by any other person firm or company…”. (The emphasis is mine).

The letter went on to require:

“all ledgers, books of accounts and documents of every kind in your possession, custody and control relating wholly or partly to (Mr Woo), his affairs, dealings, property or effects, including but not limited to investments in sole proprietorships and partnerships, shares in private companies…..The aforesaid assets include all the assets legally and/or beneficially owned by (Mr Woo)….”.

It could not have been plainer that Ms Lam was required to disclose anything held on trust for Mr Woo by either herself, or a company such as Irving.

50.  Ms Lam did not respond immediately to that letter and on 2 August 2002, the solicitors threatened an application to the court if  answers were not provided by 6 August 2002.  On 3 August 2002, Ms Lam’s solicitors replied seeking time to obtain answers, and assuring that the demands would be dealt with “as expeditiously as possible and all relevant information” would be delivered.  By 15 August 2002, nothing had been supplied and the solicitors for the Trustees again threatened a court application.  On 16 August 2002, Ms Lam’s solicitors said the relevant information would be supplied:

“tomorrow or certainly Monday at the latest”.

51.  On 19 August 2002, Ms Lam, having previously instructed her solicitors to take exception to the fact that the Trustee’s solicitors corresponded directly with her, wrote directly herself to the solicitors for the Trustees in response to the demands for information.  She did not supply her own bank statements for the account through which the payments of HK$7 million and US$4 million had been made to her from Mr Woo’s account.  She did not suggest that either she or Irving held any property on trust for Mr Woo.

52.  This was a response given by a solicitor who practised in areas of debt and commercial law, after taking advice from experienced Hong Kong solicitors.  There was not the slightest suggestion by Ms Lam that the payments made from Mr Woo’s account to her account had been payments to her as a trustee.  She had been specifically asked to disclose bank statements which contained funds of Mr Woo held on trust for him.  The only conclusion that can be drawn from that response is that, having taken appropriate advice, Ms Lam did not consider that she held the funds, when they were in her account, on trust for Mr Woo.

53.  As to Irving, and the Park Place flat, the following statement  was made:

“It was a vehicle by which Apartment 2, 7^th Floor, Block C, Park Place, 7 Tai Tam Reservoir Road (the “Property”) was purchased.  I am the sole shareholder and director.”

In responding in respect of Irving, again there was not the slightest suggestion was made that Irving held the Park Place flat in trust for Mr Woo.  Specific reference was made to the fact that Ms Lam was the sole shareholder and director of Irving.  Specific reference was made to the fact that Irving was a “vehicle” so the question of the ultimate beneficiary of the property owned by Irving was clearly in the mind of Ms Lam and her advisors.  Again this was a response made by a solicitor after taking proper legal advice.  The only conclusion that can be drawn from that response was that at that time Ms Lam considered that Irving held the Park Place property for her and no one else.

54.  It is clear from her response that both she and Mr Woo must have intended that the payments made by Mr Woo from his bank account, to her bank account, were intended to benefit her personally.  That is so because the property at Park Place was to be acquired by a “vehicle” in which she was the sole shareholder.  If it did not hold the property on trust for her, she was the ultimate beneficiary anyway, as the sole owner of the company.  Both Mr Woo and Ms Lam are solicitors who well understand the consequences of the law of trusts and the ownership of shares in a company.  Had they wished there to be any result other than that which naturally flowed for the legal structures they adopted, I have no doubt that appropriate documentation, such as trust deeds would have been prepared and executed.

55.  In November 2002, Ms Lam was cross-examined by counsel for the Trustees, following orders made consequent upon Mr Woo’s bankruptcy.  Certain of her answers are relevant.  First, when asked whether she held any property on trust for her husband, she said that she did not.  In assessing this answer it must be remembered that Ms Lam is a solicitor who must plainly understand the concept of a trust.  If the money paid to her, and used by her to acquire Park Place, through the vehicle of Irving, was money given to her on trust, no doubt she would have said so.  Plainly, she did not regard the money as being given on trust, but given to her personally.  That is consistent with a later answer, when the question was put:

“Now you have told us already that part of the purchase price of what the property was from the loans obtained….” (sic);

“I did not say that.  It was from what my husband gave me…” (the emphasis is mine).

In correcting counsel, Ms Lam did not assert that the funds were on trust, but used an expression of personal acquisition: “gave me”.

56.  Next, as has been demonstrated, within five weeks and four days of receiving loan funds of HK$60 million from Celestial, apparently for investment in Plexus in Singapore, Mr Woo had moved all the funds back to Hong Kong.  By 28 April 2004, HK$11,054,200 of the sum had been used to acquire the Park Place flat in the name of a BVI company of which he was neither a director nor a shareholder.  I inquired of Mr Cooney what possible reason a resident of Hong Kong would have to acquire a residential property in Hong Kong, for their personal occupation, in the name of a BVI company.  Mr Cooney suggested that there may be management or accounting reasons for such an action.  He was unable to specify those reasons, neither did the evidence establish any reason at all for the acquisition in the name of a BVI company.

57.  There can be no doubt that the consequence of the acquisition of Park Place in the name of a BVI company, whose shares are held by some other person than Mr Woo, was to put the asset beyond Mr Woo’s creditors, save for the particular provisions of the Bankruptcy Ordinance now under consideration.  The manner in which Mr Woo moved the funds, first to Singapore, apparently for the legitimate purposes of the loan, then immediately back to Hong Kong, and then out of his account and into other accounts, not in his name, raises a strong inference of steps being taken by a man to move the funds beyond the reach of his creditors.

58.  When that inference is taken together with the use of the funds for the actual acquisition of property by a BVI company, in which Mr Woo had no interest at all, but was solely beneficially owned by his wife, I am left in no doubt at all that Mr Woo intended to acquire the property in such a way that his creditors would not have access to it.  In simple terms he intended to defeat any claim his creditors might have to the property.  Such an intention is entirely inconsistent with an assertion that payments to Ms Lam’s account were to her as a trustee.  If they were to her as a trustee, then the creditors could retrieve the funds.  If they were to her absolutely, they would go beyond the hands of the creditors.

59.  As I have held, there was either no consideration whatsoever for the payment of HK$7 million by Mr Woo to Ms Lam.  Of that sum, a sum of HK$3,583,600 was applied to the purchase of the Park Place flat and the payment of commission on the purchase. The only character the payment can have is that of a gift.  I accordingly hold that of the payment of $7 million by Mr Woo to Ms Lam on 8 February 2000, the sum of HK$3,583,600 was a gift to her, and consequently a transaction at an undervalue within the meaning of s 49(3)(a) Bankruptcy Ordinance.  If I am wrong in that conclusion, and if there was consideration, the consideration provided by Ms Lam was significantly less in money’s worth than the consideration provided by Mr Woo.  In that circumstance the transaction is a transaction at an undervalue within the meaning of s 49(3)(c) Bankruptcy Ordinance.

The balance of the funds to acquire Park Place:

60.  The total amount applied from the Celestial loan to the purchase of Park Place was HK$11,054,200.  On the evidence HK$3,583,600 came from the 8 February 2000, payment of HK$7 million.  The evidence establishes that the balance of $7,470,600 came from the US$4 million transferred from Mr Woo’s account to Ms Lam’s account on 15 February 2000.

61.  Again, for the same reasons, the only character that may be attributed to the sum of HK$7,470,600 is that it was a gift to Ms Lam, to be used by her for the acquisition of Park Place, which she did in the name of Irving.  I accordingly hold that of the payment of US$4 million by Mr Woo to Ms Lam, on 15 February 2000, the sum of HK$7,470,600 was a gift to her, and consequently a transaction at an undervalue within the meaning of s 49(3)(a) Bankruptcy Ordinance.  If I am wrong in that conclusion, and if there was consideration, the consideration provided by Ms Lam was again significantly less in money’s worth than the consideration provided by Mr Woo.  In that circumstance the transaction is a transaction at an undervalue within the meaning of s 49(3)(c) Bankruptcy Ordinance.

The balance of the HK$7million and the US$4 million:

62.  The evidence establishes that the balance of the funds were applied by Mr Woo to make various payments to persons or entities with which he was either personally involved, or had an association.  In respect of those funds it is clear that he did not intend to benefit Ms Lam personally, but to use her accounts as a conduit through which the funds were passed in their journey to their ultimate destination.  I have no doubt that in essence Mr Woo was “laundering” the money.

63.  But in that circumstance, it being clear that he did not intend to benefit Ms Lam personally, it must be held that in respect of the balance of the funds, while the funds were in her account, she held them on trust for her husband.  That is the only other legal estate for the funds there could be.  Ms Lam having received no benefit personally from those payments it is not open to the court to make orders against her in relation to those funds.  Equally, the evidence does not establish that Irving received any benefit from the balance of those funds, and thus no order can be made against it in relation to those funds.

The proceeds of sale of Park Place:

64.  It follows from the findings that I have made that the acquisition of Park Place using the vehicle Irving as trustee for Ms Lam, was for Ms Lam’s personal benefit.  Consequently, the net proceeds of sale thereof must be paid to the Trustees.  That is a sum to which Irving, as a trustee for Ms Lam is entitled, and she ultimately is beneficially entitled.  That is a sum that has accrued to her as a result of a payment at an undervalue contrary to s 49 of the Ordinance.  That sum amounts to $1,992,525.89, together with interest accrued.

65.  It also follows, inevitably, from my finding that the total sum of $11,054,200, received by Ms Lam from Mr Woo, and applied to the purchase of Park Place was a payment at an undervalue, and that the Trustees are entitled to orders pursuant to s 51A(1)(d) of the Ordinance that Ms Lam pay that sum to the Trustees.  It does not matter that she has used the funds to acquire Park Place.  That was her own decision, and if Park Place has been sold at a loss, that is a consequence she must bear.  That consequence cannot be visited upon the Trustees.  Ms Lam is of course entitled to a credit for the net proceeds of sale of Park Place.

The claim against Grainger:

66.  Grainger elected to take no part in the proceedings.  The onus to establish that it was entitled to the payment and that there was good consideration for the payment lies with the recipient of the payment: see Re Barton Manufacturing Ltd [1999] 1 BCLC 470.  There being no evidence at all of any consideration from Grainger for the payment of the sum of US$2 million, the Trustees are entitled to the orders they seek against Grainger.

Was there a “transaction”:

67.  An additional argument was made by Mr Cooney that the payments made by Mr Woo into Ms Lam’s bank account did not constitute a transaction as that expression is used in s 49 Bankruptcy Ordinance.  The submission relied upon the decision in Re Taylor Sinclair (Capital) Ltd [2002] BPIR 203.  That is a decision which turns on its own particular facts.

68.  In Taylor Sinclair, a Mr Stone, who was the chairman of a US company, owed a personal debt of £200,000 to a firm of stockbrokers, Ellis & Partners.  He arranged for a payment, from the US company, of £225,000 to Taylor Sinclair.  Taylor Sinclair made two payments of £100,000 each to Ellis & Partners.  Taylor Sinclair subsequently went into liquidation, and the liquidator sought repayment of the sum of £200,000 paid by Taylor Sinclair to Ellis & Partners, as payments at an undervalue.  The court held that while there had been a transaction between Mr Stone and Ellis & Partners, there had been no transaction between Taylor Sinclair and Ellis & Partners.  Ellis & Partners were merely the recipient of funds which satisfied a debt owed by Mr Stone.

69.  In the present case the situation is quite different.  I have found that Mr Woo intended to put the funds paid to his wife, and applied to the purchase of Park Place, out of reach of his creditors, and that he did so by making a gift of those funds to his wife.  The making of such a gift is plainly a “transaction” as contemplated by the Ordinance.

Conclusions:

70.  I accordingly make the following orders:

(i)	A declaration that the sum of HK$3,583,600 received by the 1st Respondent from the Bankrupt, William Henry Woo, as part of the payment of HK$7 million made to the 1st Respondent, on 8 February 2000, and applied by the 1st Respondent to the purchase of the property known as Apartment 2, 7th Floor, Block C, and Car Parking Space No. 52 on the Podium Upper Level, Park Place, 7 Tai Tam Reservoir Road, Hong Kong, was a payment which constituted a transaction at an undervalue within the meaning of s 49 Bankruptcy Ordinance, and as such is void against the Applicants as Joint and Several Trustees of the Bankrupt.
(ii)	A declaration that the sum of HK$7,470,600 received by the 1st Respondent from the Bankrupt, William Henry Woo, as part of the payment of US$4 million made to the 1st Respondent, on 15 February 2000, and applied by the 1st Respondent to the purchase of the property known as Apartment 2, 7th Floor, Block C, and Car Parking Space No. 52 on the Podium Upper Level, Park Place, 7 Tai Tam Reservoir Road, Hong Kong, was a payment which constituted a transaction at an undervalue within the meaning of s 49 Bankruptcy Ordinance, and as such is void against the Applicants as Joint and Several Trustees of the Bankrupt.
(iii)	A declaration that the payment of US$2 million made by the Bankrupt, William Henry Woo, on 1 February 2000, to Grainger Resources Ltd, constituted a transaction at an undervalue within the meaning of s 49 Bankruptcy Ordinance, and as such is void against the Applicants as Joint and Several Trustees of the Bankrupt.
(iv)	An order that the sum of HK$1,992,525.89, together with any interest in raising thereon, paid into Court pursuant to the Order of Deputy High court Judge Gill dated 23 December 2003, the paid off of court to the Applicant as the Joint and Several Trustees of the Bankrupt.
(v)	An order that the 1st Respondent do pay the sum of HK$11,054,200, less the sum received by the Applicants pursuing to paragraph (iv) hereof, to the Applicants as Joint and Several Trustees of the Bankrupt.
(vi)	An order that the 3rd Respondent do pay the sum of US$2 million to the Applicants as Joint and Several Trustees of the Bankrupt.

71.  There will be an order nisi, to be absolute in 14 days, that the Respondents must jointly and severally pay the Applicants costs, to be taxed on a party and party basis.