LCTD v. CKMC

FCMC 6340 / 2018

[2024] HKFC 156

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 6340 OF 2018

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J U D G M E N T
(Preliminary Issue: Beneficial Ownership)

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Introduction

1.  These Proceedings began with the Wife’s Petition filed on 24 May 2018. A Decree Nisi of Divorce was pronounced on 19 June 2019. The Husband and Wife have two children, both of whom are over 18 years old. An Order was made on 11 May 2021 as to Joint Custody of the younger child with Care and Control to the Wife and specified access to the Husband.

2.  The Wife has 4 siblings who are the Interveners in the Proceedings.

3.  The companies CL and CEC, the shares of which are the subject matter of this Trial, were established by the Wife’s Father. The Father and his first wife LHS (the Wife’s Mother)  divorced in 1984. The Mother, Wife and the Interveners moved to Canada whilst the Father remained in Hong Kong.

4.  The Father married Madam CF (his former secretary)  in about 1990. The Mother, Wife and 3 of the Interveners subsequently returned to Hong Kong; the fourth resides in the United States of America. The Father and the Mother now have a cordial relationship with each other.

5.  Both the Husband and Wife filed Form Es; the Husband on 16 July 2020, the Wife on 8 January 2021.

6.  Between July 2021 and April 2022, the Husband and Wife exchanged Answers to their respective Financial Questionnaires.

7.  Following their summons of 3 November 2021, the Interveners were joined as parties to the Proceedings by the Consent Order of 14 January 2022;

i)  On 7 April 2022 the Interveners filed their Points of Claim;

ii)  On 6 June 2022 the Husband filed his Points of Defence;

iii)  On 6 June 2022 the Wife filed her Points of Defence;

iv)  On 25 August 2022 an extension of time was granted for inspection of documents to 29 August 2022 and for interlocutory applications to 19 September 2022;

v)  On 17 October 2022 a M-FDR was listed for 13 June 2023;

vi)  On 4 September 2023 after the failed M-FDR, directions were given including the filing of affirmations;

vii)  On 13 December 2023 the Preliminary Issue was listed for June 2024 together with further directions including granting the Wife an extension of time to file an affirmation from the Father’s 2^nd Wife (Madam CF)  within 28 days, namely by 10 January 2024;

viii)  On 2 May 2024 the Interveners’ summons for leave to file Replies to the Husband and Wife’s pleadings and the Wife’s application for extension of time to file the affirmation of Madam CF were dismissed by the Decision of 7 May 2024 [2024] HKFC 98.

The issues to be determined

8.  The issues to be determined as identified in the “Agreed List of Disputed Issues” filed on 18 April 2024 are as follows:

i)  Whether the Wife was (and is)  holding 28% out of the 35% shareholding in CEC on trust for the Interveners, and if so, whether the Interveners are entitled to a declaration or determination that they were at all material times and remain the beneficial owners of the said 28% shareholding?

ii)  Whether the Wife was (and is)  holding 16% out of the 20% shareholding in CL on trust for the Interveners, and if so, whether the Interveners are entitled to a declaration or determination that they were at all material times and remain the beneficial owners of the said 16% shareholding?

Agreed Chronology of CL and CEC shares filed on 18 April 2024

9.  On 28 April 1987, the Father incorporated CEC with the following shareholding:

(1)	Father	80% (80,000 shares)
(2)	Madam CF (Father’s 2nd Wife)	5% (5,000 shares)
(3)	CC (Father’s Elder Sister)	5% (5,000 shares)
(4)	CWH (Father’s Second Elder Sister)	5% (5,000 shares)
(5)	CMC (Father’s Younger Sister)	5% (5,000 shares)
Total		100,000 shares

(i)  On 30 December 1996 the Father’s 3 sisters transferred their shares to the Father resulting in the following shareholding:

(1)	Father	95% (95,000 shares)
(2)	Madam CF	5% (5,000 shares)
Total		100,000 shares

(ii)  From 26 April 2014,CEC’s shareholding is recorded as follows:

(1)	Father	20% (95,000 shares)
(2)	Madam CF	12.5% (59,375 shares)
(3)	F (Father’s 2nd Wife’s 1st Son)	12.5% (59,375 shares)
(4)	LCM (Father’s Elder Sister’s 2nd Son)	20% (95,000 shares)
(5)	Wife	35% (166,250 shares)
Total		475,000 shares

10.  Since its incorporation on 15 February 1994, CL’s shareholding has been as follows:

(1)	Father	80% (8,000 shares)
(2)	Wife	20% (2,000 shares)
Total		10,000 shares

The value of the CEC and CL shares

11.  At the beginning of the Trial, the Court was helpfully informed by Counsel for the various Parties that in broad terms, the values could be considered as follows:

i)  As regards CEC, the shares are potentially of a significant and substantial value which, subject to further analysis and valuation, could be in the region of HK$200 million. For the avoidance of doubt, such figure should not be taken as any form of valuation but rather as an illustration of the potential value of the beneficial ownership of the shares.

ii)  As regards CL, its only asset of value was a property (“F Tower”)  which was sold in late 2023 for HK$41.88 million. The net proceeds of sale after the discharge of the outstanding mortgage, stamp duty and other expenses were distributed with the Interveners and Wife each receiving HK$1.3792 million.

The Form Es

12.  Form Es are standard documents filed in accordance with Practice Direction 15.11; they are invariably the key and pivotal documents in all applications for Ancillary Relief and on occasion, as in the present case, the precursor to Preliminary Issues.

13.  Section 5.5 is a particularly important section to be considered and appropriately completed by a deponent; it states as follows:

“Give details of any other circumstances which you consider could significantly affect the extent of the financial provision to be made by or for you or for any child of the family, including but not limited to earning capacity, disability, inheritance prospects, redundancy, cohabitation plans and any contingent liabilities.”

14.  In his Form E at section 5.5, the Husband referred to what he described as the Wife’s “family business” but he made no mention of shares held by the Wife in CL and or CEC. It was his oral evidence at Trial that he was not aware of the precise amount of shares held by the Wife until he had sight of the Wife’s Form E.

15.  In her Form E the Wife stated in section 2.4:

“(1)  C E C incorporated on 28-04-1987 in Hong Kong, legally owns 166,250 out of a total of 475,000 shares (beneficially owns 1/5 of 166,250 shares, i.e. 33,250 shares)

(2)  CL incorporated on 15-02-1994 in Hong Kong, legally owns 2,000 out of a total of 10,000 shares (beneficially owns 1/5 of 2,000 shares, i.e. 400 shares)

(For details: see paragraph 5.5)”

16.  And at section 5.5:

“2. …I hold the shares in the two (2)  family companies as contained in paragraph 2.4 for myself and my another four (4)  siblings. Therefore I only have one-fifth beneficial interests in the shares registered under my name in the said two (2)  companies.

3. My father is the founder of the family business and he is the “boss” of C’s family. Because I have 35% (4/5 is held for my four (4)  siblings)  of the shareholding CEC, all along, my father allows me to have drawings from CEC to pay for my expenses. In addition, my mother and siblings would also receive drawings from CEC (my mother: HK$50,000 per month; CCSC and CCLRE: each HK$70,000 per month; CCLRD: HK$120,000 per month; and my mother’s medical expenses and all her big items of expenses)  distributed through me.”

17.  In her Form E, the Wife did not further elaborate as to why she held the shares in CL and CEC for herself and her 4 siblings.

The Pleadings

18.  Paragraph 18 of the Interveners’ Points of Claim states as follows:

“The above trust arrangements in respect of both CEC and CL were instigated at the Father’s request to protect the interests of his first wife, the Wife, and each of the children from his first marriage, being the Interveners and the Respondent, against possible claims by Madam CF particularly as Father considers that making a Will is unlucky. The Respondent is designated to hold these shares on trust for the Interveners as she is the eldest in the family.”

19.  Paragraph 7 (a)  of the Husband’s Points of Defence states as follows:

“In particular, it is averred that the company (CEC)  was generally operated and managed by the Petitioner and Respondent since the Petitioner joined the company in around 2003 in the midst of a company crisis. 35% of the company’s shareholding was awarded to the Respondent in or around 2014 as an incentive/ reward to motivate the Respondent (and the Petitioner)  as a couple for handling another crisis on behalf of the company.”

20.  Paragraph 11 of the Wife’s Points of Defence states as follows:

“(5)  Insofar as Father’s first family is concerned, the Respondent was instructed by Father to hold on trust the above shareholding in CEC and CL also for the 1^st to 4^th Interveners.

(6)  As a result, since about 2014, there has been an agreement, understanding and/or common intention amongst the Father, the Respondent and the 1^st to 4^th Interveners that:

(i)The Respondent was (and is)  holding 28% out of the above 35% shareholding in CEC on trust for the Interveners (i.e. 7% for each of the 1^st to 4^th Interveners);

(ii)  The Respondent was (and is)  holding 16% out of the above 20% shareholding in CL on trust for the Interveners (i.e. 4% for each of the 1^st to 4^th Interveners); and

(iii)  The Respondent was (and is)  only holding the remaining 7% shareholding in CEC and 4% in CL for herself”

21.  Before turning to the evidence, I have in mind Ms. Chow’s Opening Submission wherein she helpfully referred to Kwok Chin Wing v 21 Holdings Ltd (2013)  16 HKCFAR 672 §21 per Ma CJ:

“It will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced”.

22.  From the Pleadings, the relevant positions of the Parties can be summarised as follows:

(i)  The Interveners stated that:

(a)  The Trusts were instigated at the Father’s request;

(b)  The purpose of such trusts was to protect the interests of the Mother, the Wife and the Interveners against a potential claim by Madam CF.

(ii)  The Wife stated that:

(a)  The Father had instructed the Wife to hold her shareholding in CEC and CL for herself and her siblings.

(iii)  The Husband stated that:

(a)  35% of the shares in CEC were awarded to the Wife in her name as an incentive/reward to the Wife and Husband;

(b)  The Wife holds 20% of the shares in CL; he did not elaborate further.

The Evidence

23.  It is of note that:

(i)  The Father and his first Wife filed no evidence;

(ii)  There was no evidence filed by Madam CF. The Wife failed to file such evidence within the timeframe prescribed by the Court and her application for an extension of time to file Madam CF’s evidence was dismissed for the reasons set out in the Decision of 7 May 2024.

24.  The Husband and Wife gave oral evidence, as did the four Interveners.

25.  The witnesses gave evidence in the following order:

(i)  The 2^nd Intervener, CKY;

(ii)  The 3^rd Intervener, CCLRD;

(iii)  The 1^st Intervener, CCSS;

(iv)  The 4^th Intervener, CCLRE;

(v)  The Wife, CKMC; and

(vi)  The Husband, LCTD.

26.  By reason of the fact that they are all Parties to the Proceedings, they were in Court when each gave their respective evidence.

2^nd Intervener CKY (K)

27.  In her affirmation, she inter alia referred to the following:

i)  “In 2014 around New Year’s Eve, my dad enthusiastically told 5 of us that he decided to allot shares to five of us in the TST office”;

ii)  The issue of potential tax on her holding shares as an American;

iii)  Having the 35% shareholding in CKMC’s name would enable easier management of CEC; and  

iv)  “He understands that my mother has no legal right as a wife to claim his assets, that’s why he has this trust arrangement for having CKMC as the sole holder. So, in case of any argument arising from Madam CF, our benefit can still be covered.”

28.  In her oral evidence, she said the meeting was held in the TST office on 3/4 January 2014; this had not been particularised in the Points of Claim or her affirmation.

29.  However, during cross examination she stated:

“…the reason for my Father giving us the shares was not because of the consideration of her (Madam CF)  filing a divorce petition”.

30.  She further stated in re-examination that it was correct that she and her siblings were given shares not because of Madam CF’s divorce; instead, they were given to her and her siblings because the Father was fond of and concerned about her and her siblings.

3^rd Intervener CCLRD (RD)

31.  His affirmation refers to the CEC share allocation “around the beginning of 2014”:

“Dad met us at Sun Plaza (T.S.T. office)  to discuss the share distribution. The reason of the incident was that Madam CF was divorcing my dad, which forced dad to seriously face the issue of equal distribution of shares.” and “The advantage is to avoid CKY’s large taxes, and at the same time it is convenient for CKMC to deal with affairs”.

32.  In his oral evidence he placed the meeting around 3/4 January 2014.

33.  He believes that the trust was set up to prevent a claim by Madam CF over assets owned by the Father.

34.  Whilst CKY was the only one potentially liable for American tax, CKMC held shares on behalf of the siblings because:

i)  At that time, they had not thought about holding their own shares individually; and

ii)  Having CKMC hold the entirety of the 35% of the shares would make her the major shareholder in CEC.

1^st Intervener CCSS (S)

35.  In his second affirmation he stated:

“Dad originally wanted us to distribute the shares equally, but then CKY pointed out that her American citizenship was not a good thing for tax purposes, so Dad decided to concentrate all management on the eldest sister. We all agreed.”

36.  In oral evidence he stated that he was not involved in formulating the contents of the Points of Claim, although he had taken a look at the document and signed it.

4^th Intervener CCLRE (RE)

37.  His affirmation provided no explanation for the distribution of shares in 2014 other than:

“Not only did he consult with us about our views on the equal distribution of shares, but we came across the matter of CKY being American and the taxation is relatively complicated, we decided to let our eldest sister stakehold all our shares and take care of it.”

38.  In oral evidence he claimed that he was “confused” as to why the Points of Claim stated that the trust arrangements were created to ward off potential claims by Madam CF. His understanding was that a document containing the trust arrangements had been “prepared” by the Father and Madam CF, handwritten by the Father with a table/list before the January 2014 meeting.

39.  He agreed that he was not certain about whether or not the Father had created a trust in his or his siblings’ favour over the shares held in CKMC’s name, nor did he confirm whether or not he had an interest in the CEC or CL shares held in CKMC’s name.

CKMC (Wife)

40.  In her 4^th affirmation, she stated:

i)  “Although I was a shareholder of CL at the time, I was (up until 2014 as further explained below)  holding the shares on trust for Father, who provided all the funds, and who directed me to be a named shareholder in the first place”;

ii)  Reasons for the trust:

“early 2014 became a tipping point in light of Madam CF’s threat of divorce (which was later withdrawn)”;

iii)  There was no reference to a meeting in January 2014 but rather:

“…in around March and April 2014, Father started making arrangements for the trusts concerning CEC and CL”

“On a day in around March or April 2014 (the exact date of which I can no longer recall due to the lapse of time), in the Tsim Sha Tsui Office, Father told me that he decided to redistribute the shareholding in CEC, such that I would become a shareholder of 35% of the shares – which should be held for me and my siblings (i.e. the Interveners)”

“Also on the same day in March or April 2014 at the Tsim Sha Tsui Office, Father told me that the CL shares held by me would also be held for me and my siblings”;

iv)  As to the date of the establishment of the Trusts, she stated that:

“The Interveners and Father also trust me and rely on me to manage the shares on their behalf, which I have done since the trusts were established in 2014” ;

v)  She made monthly withdrawals from CEC SZ (the subsidiary of CEC in Shenzhen), which would be distributed to family members. Generally, each month, she would transfer a sum of HK$260,000 to the Mother, of which HK$70,000 would go to each of CCSS, CCLRD and CCLRE. The Mother would then keep the remainder even though she was not a beneficiary. CKY would be given her share upon return to Hong Kong.

41.  In her 5^th affirmation, she referred to the following:

i)  LCTD had signed 2 Consent Summonses in May and November 2018 confirming that there would be no claim for Ancillary Relief against the other party;

ii)  The Sale and Purchase Agreement of F Tower was signed on 28 December 2023 whereby the property was sold for HK$41.88 million. She and her siblings each received HK$1,379,200 representing their respective shares in the net proceeds of the sale; and

iii)  A meeting took place in early January 2014 between the Father, her and her siblings in Tsim Sha Tsui to inform her and her siblings about the trust arrangements.

42.  In oral evidence, she claimed that there were three steps to the creation of the Trust over the CEC shares:

i)  Consensus among family members that all siblings should receive 7% of CEC’s shares;

ii)  Her meeting with the Father and siblings in January 2014; and

iii)  Her meeting with the Father in March/April 2014 dealing with documents.

43.  She agreed that she did not discuss or consult any of the Interveners when selling F Tower.

44.  She stated that the Trust over the CL shares was created when CL was incorporated in 1994.

LCTD (Husband)

45.  In his 11^th affirmation, the Husband put forward his case that the Father had caused the 35% of CEC shares to be allotted to the Wife as an incentive and or reward for the efforts of the Husband and Wife in respect of the crises at CEC in 2003 and 2013/2014.

46.  It is his case that the “share arrangement” had never been mentioned and “was simply something concocted for the purposes of these proceedings”.

47.  As regards the shares in CL, it is his case that they were allotted to the Wife as an incentive or gift for the Wife to return to Hong Kong.

48.  The Husband claimed that he had taken on “a managerial role” in CEC. In his Points of Defence he stated at paragraph 7 that “it is not admitted that the Father manages and makes all the key decisions”. However, in cross examination, he accepted that the word “not” was “inaccurate”.

49.  In his oral evidence, he stated that he did not know the exact percentage of the Wife’s shareholding in CEC until seeing the Wife’s Form E. Prior to that, he had believed that the Wife held around 30% of CEC shares.

50.  He stated that he had no idea as to the amount of CL shares in the Wife’s name or the reason as to why the Wife had CL shares registered under her name.

51.  He stated that he had signed the two Consent Summonses confirming that each party would forgo their claim against the other for Ancillary Relief, and that the circumstances under which they were signed were not unconscionable to the lay person. However, he disagreed that he had signed because he knew the Wife only had 7% of the shares in CEC or that he had signed because he had already embezzled substantial sums of money from CEC.  

Discussion

52.  It cannot be over emphasised that the purpose of this Trial is the determination of the Preliminary Issue as to the beneficial ownership of shares; a discrete matter which does not engage the wide discretion of Section 7(1)  of the Matrimonial Proceedings and Property Ordinance (“the MPPO”).

53.  The share ownership as recorded in the share registers of CEC and CL show that the legal ownership of the shares in question resides with the Wife. It is common ground that it is the Interveners’ case that the beneficial ownership differs from the legal ownership; that the Father created an express trust over the shares as settlor with the Wife and the Interveners as beneficiaries.

54.  It also common ground that the Interveners carry the burden of proof to show the existence of such a trust and their beneficial ownership of shares under such trust, notwithstanding the position recorded in the share registers.

55.  An immediate difficulty with the Interveners’ case is that the Father filed no evidence. The intention of a settlor is highly relevant, if not critical, in assessing the existence of a trust.

56.  The Father is in his 80s. In her oral evidence, CKY said that the Father’s condition had continued to deteriorate after he was diagnosed with COVID and had a stroke in May 2023, he now rarely goes out as he easily tires after walking, his hearing is not good and he has to take a considerable amount of medication. 

57.  CKMC said that although he was physically weak, “as to his mind, it is still in operation, it can still work”. CCSS said that the Father was hospitalised on the 3^rd day of the Trial. CCLRE said that he had returned home from the hospital the next day and was taking some rest.

58.  Other than the above information, there were no medical or other reasons of substance presented as to why the Father did not file evidence to corroborate the Interveners’ case as to the existence of the trusts relating to the shares of CEC and CL.

59.  The Interveners’ case therefore relies solely on their own evidence supported by that of the Wife; there is no evidence from any non-sibling, third party or expert in relation to the references to the potential impact of American tax on CKY holding shares in CEC.

60.  To state the obvious, the Interveners have a vested interest in a positive outcome to their application, as does the Wife. In the event it is held that part of the shares were held on trust for her siblings, the Wife’s resources would be significantly reduced, which in all probability, would reduce the assets available for distribution in the Ancillary Relief Proceedings.

61.  The Husband has a vested interest in opposing the Interveners’ application, as in the event the beneficial interest mirrors the legal title, the assets available for distribution in the Ancillary Relief Proceedings, would in all probability, be considerably larger.

62.  In summary, the evidence of all the witnesses in the main is self-serving in support of their own interests; the Court has not been assisted with any evidence from any disinterested third party. No contemporaneous evidence was provided as to the establishment of the Trusts and or the Husband’s case that the shares were awarded to the Wife as a reward and or incentive.

63.  The Court is therefore being asked to determine the issue on the basis of credibility of the witnesses. In this context, I have in mind the Judgment of Hon Harris J in Moorthy Selvaraj v Karupayee Amal & other [2024] HKCFI 403:

“As Coleman J observes in Yu Man Fung Alice v Chiau Sing Chi Stephen determining what was said or agreed orally at a meeting, which occurred many years before trial is inherently problematic. Not only do memories fade, but even honest witnesses are prone to construct their memory of events to confirm their beliefs, prejudices, or interests.”

CL

64.  The undisputed facts are as follows:

i)  The company was incorporated on 15 February 1994 in Hong Kong;

ii)  Since its incorporation 80% of its shares (8,000)  have been registered in the name of the Father and 20% (2,000)  in the name of the Wife;

iii)  It held F Tower in North Point, the purchase of which was funded by the Father in 1994; and

iv)  F Tower was sold in late 2023/early 2024 for HK$41.88 million with the net proceeds of sale being distributed, with the Interveners and the Wife each receiving HK$1,379,200.

65.  The Interveners’ Points of Claim do not differentiate between the trust arrangements for CEC and CL. In their affirmations and oral evidence they did not elaborate on the circumstances pertaining to the shareholding in CL. None of the Interveners suggested that CL was mentioned at the meeting in January 2014.

66.  The Interveners’ evidence therefore falls well short of proving on a balance of probability that the Wife held the CL shares on trust for them.

67.  In her Points of Defence [§9(4)] and her 4^th Affirmation [§41] the Wife stated that despite the registered shareholding, the Father was the sole and real owner of CL until 2014, and that she was holding the shares on trust for her Father.

68.  However during cross examination, the Wife stated as follows:

Q: “so are you unable to say when the trust over CL shares was created in your siblings’ favour?”

A: “At the time when my Father said 20% of the shares of CL would be given to me, that’s the time when there was the trust arrangements.”

Q: “Let’s not play with words, specific dates I can understand, 1990s around property purchased is when the trust was set up, according to the best of your recollection, correct?”

A: “…It was when CL company was incorporated. It reads very clearly here on the documents, that date was 1994.”

Q: “so what do you mean, trust for CEC is 2014 and trust for CL you want to amend to 1994?”

A: “Yes.”

69.  The Wife’s oral evidence is therefore inconsistent with her Defence to the Points of Claim and her Affirmation evidence, as in her oral evidence, she puts the establishment of the CL trust for herself and her siblings in 1994, the year of the purchase of the F Tower, whereas in her Defence and Affirmations she states the trust was established in 2014.

70.  In any event, as regards the rule against perpetuities, the Court has not been provided with sufficient particulars as to terms, purpose and powers of the Trust to demonstrate that it does not contravene the rule against perpetuities. As fairly recognised by Mr. Wong on behalf of the Interveners in his Closing, if the trust arrangements for CL shares were, as on the Interveners’ and or the Wife’s case, set up in 1994, such trust would have to comply with the rule against perpetuities to be valid and or enforceable at law.

71.  In the circumstances, in light of the Interveners’ paucity of evidence as to the establishment of a trust in relation to the CL shares, the inconsistent evidence of the Wife and the rule against perpetuities, I conclude that the Interveners have not sufficiently carried the burden of proof to establish their beneficial ownership in the CL shares.

CEC

72.  The company was incorporated by the Father on 28 April 1987. The history of its shareholding is as set out above in paragraph 9; in particular from 30 December 1996 until 26 April 2014, the Father and Madam CF were the only shareholders.

73.  This changed when on 26 April 2014, the Wife became the registered owner of 35% of the shares, thereby becoming the single largest shareholder in CEC.

74.  In his helpful submissions lodged on behalf of the Interveners, Mr. Wong framed the issue as follows:

“The core finding for the court to make regarding CEC shares is simply this: under what circumstances were the Wife given the 35% shares”

75.  The evidence as a whole describes the Father as a traditional patriarch who had a firm control of his commercial interests, in particular CEC and CL. This was accepted by the Husband in cross examination when he corrected paragraph 7 of his Points of Defence so as to read:

“…it is admitted that the Father manages and makes all the key decisions…”

76.  From the evidence, it is also common ground that the Father would speak at family gatherings and, on occasion, to a wider audience of relatives and colleagues as to the Wife’s possession of the shares.

77.  In this context, the Husband said in cross examination that he had heard the Father say:

“your eldest sister is in possession of the shares, let her deal with the matter, I am too old to deal with the matter, I’m not going to have my finger in the pie”.

78.  It is the Interveners’ and Wife’s case that since 2014 the Wife made payments to the Interveners; however, it is of note that:

i)  There was no formal accounting of such payments, either recorded in a ledger and or explained to the Interveners other than in informal social discussions;

ii)  Notwithstanding that it is asserted that the Interveners and the Wife each beneficially own 7% of the shares in CEC, they did not receive the same quantum of financial support each month; the payments were erratic and not apparently linked to their purported beneficial shareholdings; and

iii)  The Mother received payments although she was not a beneficiary of the trust.

79.  As regards a trustee’s duty to account, Ms. Chow for the Husband suggested in her Closing and Reply that it is “an irreducible core of obligations owed by the trustees to the beneficiaries”: Underhill & Hayton law of Trusts and Trustees (20^th ed.)  §59.2, and that “A trustee who was not liable to account to anyone for his dealings with the ownership of the trust assets would in substance be a beneficial owner of them”: Snell’s Equity (34^th ed.)  §§21-005, 22-028. On the other hand, Mr. Yim for the Wife suggested that the duty to keep accounts and produce such accounts was contingent on being required to do so: Snell’s Equity (34^th ed.)  §29-024.

80.  Cases of this nature are fact sensitive. I do not consider that the lack of formal accounting or reporting is fatal to the Interveners’ case. However, I consider it to be a relevant circumstance in the overall assessment of the case.

81.  The characteristics of the arrangements described by the Interveners and the Wife are consistent with an informal arrangement whereby family members are financially supported from a family business rather than a formal and specific trust arrangement which, by its nature, creates legal rights and obligations as between the trustee and the beneficiaries.

82.  The share register shows that in April 2014, the Father ceased to be the controlling shareholder of CEC. At the same time, the Wife became the major shareholder of CEC and gained importance and status within CEC as the owner of the largest single shareholding in the company.

83.  It is consistent with this change that the Wife became responsible for the distribution of financial support to the Interveners and indeed the Mother (who was not a purported beneficiary of any CEC shares).

84.  In view of the inconsistencies between the Points of Claim, the evidence of the Interveners and the Wife, and my overall consideration of the evidence as a whole, I find the above informal arrangement more probable than the Father having created an express Trust with the Wife as the Trustee and the Interveners and the Wife as beneficiaries.

85.  I therefore find that the Interveners have failed to carry their burden as to establishing a beneficial interest in the shares of CEC.

The Husband’s ‘positive case’

86.  For the purposes of the Preliminary Issue, the fact that the Interveners have been unsuccessful in establishing the existence of an express trust means that the Husband’s positive case is no longer directly relevant. However, by reason of the evidence and time incurred, I consider it appropriate that it should be addressed.

87.  In his Points of Defence, the Husband referred to two crises that he had had to deal with on behalf of CEC; namely a 2003 fatal accident in one of the properties owned by CEC in the Mainland and a 2013 issue of unauthorised building works in another property owned by CEC in the Mainland.

88.  The Husband claimed that the Father was grateful to him and the Wife for working in the company and resolving the above crises, which was the reason why the Father gave the 35% shareholding to the Wife in 2014 as a reward and or incentive for them both.

89.  In his 11^th affirmation in support, he stated:

“To me, the giving of 35% shares to the Respondent was a testament to the hard work and efforts that we had put into solving the crisis for CEC Industries.”

“From the above, I believe that shareholding of CL was allotted to the Respondent as an incentive (or a gift)  for her to return to Hong Kong in around the same time.”

90.  In his oral evidence, he stated:

Q: “Alright, so it was never one single encounter between you and Father and Father told you “hey, I want to reward you for what you have done for CEC by a transfer of shares, shares will be transferred to CKMC”, it was never like that?”

A: “To my recollection, there was none”

Q: “There was also never one single occasion where CKMC told you that “thank you very much for what you have done for the family over the years, my Father decided to transfer shares to reward the effort”, it was never like that, agree?”

A: “I could recall there was not a single incident in which CKMC made such direct utterance”

Q: “Alright, so quoting your evidence earlier, it was purely a perception you gained. In Punti, the word you used was 感覺”

A: “Looking back at things that happened throughout the years, to begin with, starting from 2003, I started working, all the way to some time in 2012 and 2013, there was a biggie and all the way to some time when the two of us really bent over backwards dedicated to the company. I would say I am not going to use such a vague word, I would rather use the word comprehend”

91.  It is also of note that in his Form E the Husband does not mention the Wife’s shareholding; nor did he suggest that the shares in CEC had been given to the Wife and himself as a reward and or incentive.

92.  The Wife on the other hand claimed that the Husband did not play a significant role in the 2003 fatal accident, as the matter was swiftly settled by agreeing a RMB200,000 payout.

93.  In relation to the 2013 incident, she claimed that the Father would not have rewarded the Husband because:

i)  It was the Husband’s fault that the unauthorised building works had been allowed;

ii)  The Husband had embezzled sums of money; and

iii)  The 2013 accident was not solved until March 2015 at the earliest, which is after the shares were given to her.

94.  Having considered the evidence, I do not accept the Husband’s contention that the Wife’s shareholding in CEC was by reason of any reward and or incentive to him and the Wife. However, for the avoidance of doubt, in the context of the forthcoming Ancillary Relief Proceedings, this is not a determination of any “contribution” the Husband may or may not have made.

Miscellaneous

Embezzlement

95.  The Wife and Interveners each gave their account of the Father confronting the Husband in relation to his alleged embezzlement of RMB45 million.

96.  I do not consider this allegation relevant to the issue to be decided in this Trial, and it is in any event post the re-arrangement of shares in 2014.

Consent Summonses

97.  It is said the Husband signed two Consent Summonses in May and November 2018 to the effect that each party would forgo their claim against the other for Ancillary Relief.

98.  There was no mention of the Consent Summonses in the Pleadings, nor were they produced in evidence.

99.  In reply to the Husband’s 11^th affirmation in which he stated that the Trusts were “an attempt to decrease the value of the assets of the Respondent available for distribution”, the Wife in her 5^th affirmation stated “the Petitioner knew the trust arrangements well and he signed the 2 Consent Summonses in May and November 2018, both confirming that there would be no claim for ancillary relief against the other party”.

100.  The Consent Summonses were not mentioned by any of the Parties in their respective Openings.

101.  The Husband was cross examined on the Consent Summonses and admitted signing them and he agreed that they were not unconscionable to a layman’s understanding of the term. However, he did not accept that he signed them because he knew the Wife only had a 7% interest in CEC or because he had already embezzled substantial sums of money.

102.  Only the Wife mentioned the Consent Summonses in her Closing in the context of:

i)  The Husband was previously aware of the Trusts, therefore he knew he could only claim against the Wife’s 7% interest, implying therefore he did not wish to pursue Ancillary Relief; and

ii)  He had embezzled monies from CEC up to RMB45 million, implying therefore he did not wish to pursue Ancillary Relief.

103.  The Parties’ positions as to the Consent Summonses were clear from their respective Form Es:

i)  The Husband stated:

“In preparing this Form E, the Petitioner has assumed that the Respondent will not be relying on the plainly unconscionable Consent Summons dated 23^rd May 2018”; and

ii)  The Wife stated she was seeking:

“An order in terms of the Consent Summons dated 14^th November 2018”.

104.  If the enforceability of the Consent Summonses was to be argued, it should have been well before the determination of the Preliminary Issue. In any event, I do not consider they assist the Court in determining the Preliminary Issue particularly when they were not pleaded either by the Interveners or the Wife.

Costs

105.  The Interveners have been unsuccessful. In the circumstances, subject to what is said below, I see no reason why they should not pay the Husband’s costs on a party and party basis with certificate for two counsel.

106.  In broad terms, the Parties’ respective costs arising from the Interveners’ summons filed on 3 November 2021, the orders and the M-FDR are as follows:

i)  Husband’s @HK$4.5 million;

ii)  Wife’s @HK$2.2 million; and

iii)  Interveners’ @HK$3 million.

107.  The Husband unsuccessfully put forward his own “positive” explanation for the Father granting 35% of the shares in CEC to the Wife resulting in significant time and costs being incurred.

108.  I therefore consider that it is only fair and reasonable that this aspect of the Trial should be reflected in the award of costs. In the circumstances, and on a broad brush basis, the order of costs shall be that the Husband recovers 75% only of his party and party costs, including costs reserved with certificate for two counsel.

109.  For the avoidance of doubt, there shall be no order as to costs so far as the Wife is concerned.

110.  The Order for costs nisi shall become absolute on 20 September 2024,which will provide an opportunity for the Parties to be heard on costs if they so wish.

Summary of Orders

111.  The Interveners’ Points of Claim filed on 7 April 2022 shall be dismissed.

112.  The Interveners shall pay 75% of the Husband’s party and party costs of and incidental to the Preliminary Issue including costs reserved with certificate for 2 counsel such costs to be taxed in default of agreement.

113.  The costs order shall become absolute on the 20 September 2024.

Way Forward

114.  The case be adjourned to 25 October 2024 at 2:30p.m. for a CMH (2 hours reserved)  at Court 53.

115.  The Husband and the Wife do lodge and exchange their written submissions (each limited to 5 pages)  on or before 14 October 2024 as to their respective proposals for the further conduct of the Ancillary Relief Proceedings.

116.  Last but not least, I thank Counsel for their considerable assistance at the Trial.