TJCJ v. HDCK AND OTHERS

FCMC 7332/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

SUIT NO. 7332 OF 2013

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JUDGMENT
(Preliminary Issue on 3^rd Party’s Interest in Property)
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1. This is a dispute arising from a summons of the Petitioner Wife as to the beneficial ownership of the 1^st Respondent Husband’s 25% shareholding in a company known as HPE, the 2^nd Respondent herein incorporated by his parents years ago prior to the parties’ marriage and which now holds inter alia their former matrimonial home, which shareholding the Husband claims were held on trust for his parents from the time of its allotment and now for his mother the 3^rd Respondent herein having inherited the father’s estate upon his death, but which is disputed by the Wife as she believes that they are beneficially owned by the Husband as gifts from his parents, hence the dispute was tried as a preliminary issue before the parties proceed to the FDR hearing upon the dissolution of their 15 years childless marriage.   

2. In her said summons the Wife also sought the court’s determination of the ownership of the former matrimonial home held by HPE, of which she claimed to have been purchased for her and the Husband as a gift during the marriage, but which claim was abandoned by her by the time of the commencement of the trial.

Background

3. Both of the Husband’s parents came from China in the 50s to settle in Hong Kong where they married and raised 4 children including the Husband as the only son, and where the Father together with Grandfather ran a fabric manufacturing business.

4. In around 1965 the Grandfather purchased a residential unit and a shop premises in Mercantile House, Nathan Road, Kowloon to run the fabric retail business, while later in the same year the Father also purchased a shop premises in the same building (collectively called “Nathan Road Properties”).

5. The Grandfather died in 1978, and the Father subsequently became the administrator of his estate compromising the Nathan Road Properties.

6. In 1983 the Husband’s parents became landed immigrants in Canada. In the following year on 27^th January 1984 HPE was incorporated with the parents being subscribed 1 share each and appointed permanent directors of the company.

7. On 1^st February 1984 further shares were allotted to the family as follows:

Members	Shares Allotted	Total Shareholding	%
(a) Father	5,999 shares	6,000	30
(b) Mother	2,999 shares	3,000	15
(c) Son(Husband)	5,000 shares	5,000	25
(d) Daughter	2,000 shares	2,000	10
(e) Daughter	2,000 shares	2,000	10
(f) Daughter	2,000 shares	2,000	10
	Total :	20,000	100%

8. On 7^th February 1984 the Nathan Road Properties were assigned to HPE as well as other properties of the parents in Hong Kong, and it is the Mother’s case that HPE was incorporated to hold their properties after they had landed in Canada, and that the children were merely holding their shares in HPE on trust for them. The Husband was then a 30 year old medical practitioner married to his first wife (“Rose”) with 2 children in Canada.

9. All these properties held by HPE except the Nathan Road Properties were later sold by the parents who then used the proceeds to purchase properties in Canada in their joint names, and there had never been any distribution of these proceeds to the other shareholders by way of dividends.

10. In 1996 the Husband formed a relationship with the Wife and soon started cohabiting with her in Canada. In 1998 he divorced Rose in Vancouver during which the couple went through what can be described as a contentious and acrimonious application by Rose for financial provisions for herself and their 2 children, and that eventually Rose was awarded 60% of their marital assets which did not include the Husband’s shares in HPE or any of the assets then held by the company.

11. After his divorce the Husband married the Wife on 5^th June 1998 in California, USA, and in the following year in 1999 they relocated to Hong Kong where they have since made their home. In 2000 they purchased an office unit at Queen’s Road Central (“Queen’s Road Office”) for HK$4.25 million via a BVI company known as EF Limited (“EF Ltd”) for the Husband to carry out his medical practice under the name of another company known as HC Ltd, and in both companies the parties were appointed the only directors and shareholders holding 1 share each.  

12. In October 2000 the Father passed away and by his will his entire estate was given to the Mother, including his 30% shares in HPE thereby making her the major shareholder with 45% shareholding.

13. In July 2001 the parties through HC Ltd purchased their first matrimonial home at Rich View Terrace, Square Street, Hong Kong (“the Square Street Property”).

14. In about August 2004, the son of the Husband from his previous marriage with Rose namely DH moved from Canada to Hong Kong to study law and stayed with the parties at their Square Street Property. 

15. In September 2004 HPE purchased a flat in Fulham Garden, Pokfulam Road, Hong Kong (“the Fulham Garden Property”) for HK$5,999,990 with the assistance of a bank mortgage and the parties together with DH then moved in to reside there until 2012 when DH got married and moved away. It is not in dispute that as a result that property had become the parties’ matrimonial home, and as is apparent below it is the Wife’s case that HPE had gifted the property to the parties but which was however disputed by both the Mother and the Husband.

16. On 19^th November 2012 the Husband made a declaration that the 5000 shares under his name in HPE were beneficially owned by his mother and that he was merely holding them on trust for her. Several months later in March 2013 the parties then moved to a service apartment so that renovation works could be carried out for the Fulham Garden Property. It is the Wife’s case that they were then experiencing marital problems due to the Husband’s affair with a woman from Mainland China referred herein as Ms A who earlier gave birth to his child in January 2013, and that upon the advice of a Feng Shui master and with a view to save their marriage, renovation works were to be carried out to the Fulham Garden Property so as to improve the atmosphere at home.

17. However, when the Wife subsequently suspected that the Husband had been cohabiting with Ms A at the Square Street Property, she on 7^th March 2013 withdrew HK$4.3 million from HC Ltd’s account and HK$150,000 from the Husband’s account, which prompted the Husband to immediately apply to the High Court under HCA No.439 of 2013 on 9^th March 2013 for an injunction against her for the return of the money, and eventually she was ordered to return half of the said sums, which she did, to the Husband.

18. Soon more legal proceedings were to follow fast and furious from both sides, with the Husband launching another application under FCMP No.108 of 2013 on 20^th May 2013 under the Domestic and Cohabitation Relationships Violence Ordinance for further injunctions against the Wife, this time to restrain her from inter alia harassing him and from entering the office of HC Ltd or the Square Street Property, of which the parties were eventually able to resolve between themselves upon certain terms and the Husband’s application was subsequently abandoned.   

19. That of course did not mean that it was to be the end of their disputes, as a week later the Wife instituted these proceedings on 27^th May 2013 for divorce against the Husband based on his unreasonable behaviour and for general ancillary relief.

20. Shortly thereafter the Wife received a notice from HPE purportedly to revoke the license for the parties to occupy the Fulham Garden Property, and that the front door lock to that property was subsequently changed by HPE. This triggered the Wife’s decision to issue a writ on 20^th June 2013 in the High Court under HCA No.1108 of 2013 against the Husband and HPE for a declaration that HPE was holding the Fulham Garden Property on trust for her and the Husband, or in the alternative that they have an equitable interest in the property having made substantial improvements thereto.

21. HPE in turn made an application on 11^th September 2013 to strike out that High Court Action of the Wife when not only the Mother and the Husband but also all 3 of his sisters had filed affirmations asserting that the 25% shareholdings of the Husband, as well as those of the sisters, were all held on trust for the Mother.

22. This assertion of course was not acceptable to the Wife who in her affirmation in reply averred inter alia that it was just an example of the Husband ganging up with his family to exclude his assets from her financial claims, claiming that he did that once before when he transferred his shares in HPE to his mother in 2001 with the intention to hide his assets from his first wife Rose when she was then pursuing after him for maintenance payments under their divorce settlement granted by the Canadian Court, and that when that matter was eventually resolved, those shares were then returned by the Mother to the Husband in 2003.

23. To this affirmation the Wife exhibited the divorce judgment between Rose and the Husband by the British Columbia Supreme Court and sought inter alia to rely on its following findings at §12:

“There is no dispute between the parties that from the outset of their marriage, the respondent’s (the Husband) parents made substantial financial contributions to them to assist in establishing the respondent’s career and then housing and other material needs as the family began to expand. In relation to all of these gifts I find them gifts to both the parties, i.e. gifts to them as a family.”

24. The Wife further alleged in her affirmation that upon finding that the Husband held 25% interest in certain landed properties at West 47^th Street in Vancouver, Canada, the British Columbia Supreme Court awarded half of his interest to Rose in 1998, but 2 months later the Husband transferred his such interest to his father at an undervalue, of which the Wife believed to be a fraudulent disposition of his assets with the intention to avoid Rose’s claims, and which caused Rose to issue a writ against both the Husband and his father in respect of that disposition.

25. The Wife therefore concluded in her affirmation that as the Husband had a history of making dispositions to avoid claims in divorce proceedings from being made against his assets, his purported trust arrangement made between him and his mother in November 2012 in respect of his shares in HPE was a sham and just another attempt by him to put his assets beyond the reach of these proceedings.

26. These allegations were of course disputed by both the Husband and the Mother and had resulted in a flurry of affirmations in response, but the upshot of all these was that it also brought Rose from Canada into these proceedings when she subsequently filed 2 affirmations to purport to clarify certain issues of her own divorce case with the Husband but more significantly to dispute the Wife’s allegation over the Husband’s shareholding in HPE.   

27. In any event, as it has by now been established that such dispute between a spouse and a third party as to beneficial ownership of property in ancillary relief proceedings should be dealt with by way of preliminary issue before FDR and in accordance with the procedure outlined by Mostyn QC sitting as a Deputy High Judge in TL v ML & Ors (Ancillary Relief: Claim Against Assets Of Extended Family) [2006] 1 FLR 1236, and which has since been endorsed by the Court of Appeal in LWYA v KYW & Or, CACV 151/2013, where it was emphasised in his judgment as follows:

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

…

[36] In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen:

i) The third party should be joined to the proceedings at the earliest opportunity;

ii) Directions should be given for the issue to be fully pleaded by points of claim and points of defence;

iii) Separate witness statements should be directed in relation to the dispute; and

iv) The dispute should be directed to be heard separately as a preliminary issue before the FDR.”

28. Accordingly on 10^th October 2013 the Wife issued the subject summons to join HPE as a party to the proceedings and for the said issues as to ownership of the Matrimonial Home and of the Husband’s 25% shareholdings in HPE to be dealt with by way of preliminary issues in the Family Court before the FDR hearing.

29. At the hearing of that summons on 17^th December 2013 I acceded to the Wife’s request for those 2 issues to be tried as preliminary issues with directions inter alia for her to file and serve her points of claim within 28 days, and for the Husband and HPE to file their points of defence within 28 thereafter in accordance with the procedure outlined in TL v ML above, and for those preliminary issues to be set down for trial. Perhaps as a result the Wife on 14^th January 2014 issued a notice of application pursuant to Section 17 of Matrimonial Proceedings and Property Ordinance, Cap. 192 (“S.17 Application”) to set aside the Husband’s Declaration of Trust of 12^th November 2012 pending the outcome of this trial.    

30. In addition the parties and their witnesses have also filed further affirmations in support of their respective pleaded case and which have all been included in the trial bundles, and as noted above the Wife subsequently abandoned her pleaded case in respect of the ownership of the Fulham Garden Property at the commencement of the trial, as a result her claim against HPE was therefore dismissed with costs, and hence the only preliminary issue left to be determined is the beneficial ownership of the 25% shareholding in HPE held in the Husband’s name, with the Mother remains a party for the determination of that issue, of which I shall now do by first setting out the parties’ respective case, starting with the Wife’s.

The Wife’s Case

31. The Wife’s case as set out in her Points of Claims dated 13^th January 2014 [C/184 – 203] and elaborated in her several affirmations is that the 25% shares in the Husband’s name were always held by him beneficially as a gift from his parents, as he was their only son and it was his family tradition to always favour him with various benefits and financial assistance including 25% of the family assets, and that his allegation that he was merely holding those shares in trust for his parents and now for his mother was merely an attempt to avoid her claims in their divorce, as he had done before in his divorce with his first wife, as pleaded in §40 to 45 [C/196 – 198]:

[40]. As a matter of tradition, and historically, the 1^st Respondent has always been given 25% of the family assets within (the family). This is/was so with the following landed properties situated in Canada:

i. West 47^th Street, Vancouver, British Columbia, Canada;

ii. 6292 East Boulevard, Vancouver, British Columbia, Canada;

iii. 6292 East Boulevard, Vancouver, British Columbia, Canada.

[41]. There has never been any suggestion or evidence of trust arrangement whereby the 1^st Respondent is said to hold the above interests in landed properties in Canada on trust for his mother (or late father).

[42]. On 28 January 2013, the 1^st Respondent and one (Ms A) gave birth to an illegitimate child in Hong Kong SAR. The Petitioner was informed by the 1^st Respondent of the conceiving of this child in around June 2012.

[43]. On 19 November 2012, the 1^st Respondent (and together with his three sisters in separate instruments on diver dates) purportedly executed a declaration of trust declaring that he holds the 25% of shareholdings in HPE (#5000 shares) on trust for (the Mother) absolutely (the Declaration of Trust). The Declaration of Trust was made after the matrimonial relationship between the Petitioner and the 1^st respondent began to substantially deteriorate.

[44]. The Declaration of Trust was only first disclosed by the 1^st Respondent when he filed in affirmation in HCA 1108 of 2013 in September 2013.

[45]. During the divorce proceedings between the 1^st Respondent and Madam Rose, the 1^st respondent made the following disposition, inter alia, with the intention to avoid matrimonial, maintenance and/or damages claims from being made against his own assets.

 Particulars

i. The 1^st Respondent transferred the 25% shareholdings in HPE registered under his name to (the Mother) on 2^nd may 2001 and resigned his directorship in HPE on about 31^st March 2001;

ii. At around Jan/Feb 2001, Madam Rose commenced proceedings against the 1^st respondent in the District Court of Hong Kong SAR in FCMP 193 of 2001 in respect of outstanding maintenance payments due to Madam Rose;

iii. In about July 2002, Madam Rose and the 1^st respondent entered into a deed of settlement in respect of FCMP 193 of 2001;

iv. On 20 December 2003, the 1^st Respondent’s mother transferred the 25% shareholdings in HPE back to the 1^st Respondent, and on about 20^th December 2003, the 1^st Respondent resumed his directorship in HPE.

In the premises, it can be inferred that the 25% shareholdings in HPE registered in the name of the 1^st respondent is at all material times legally and beneficially owned by the 1^st Respondent.    

32. Her evidence in support of her pleaded case can be found in her affirmations in the trial bundles, of which she had made totally 12 but given that the ownership of the Fulham Garden Property is no longer an issue for determination here, the ones more relevant to the issue are her 9^th [B/214] and 12^th [B/307].   

The Husband’s Case

33. The Husband’s case as pleaded in his Points of Defence [C/204 – 216] is essentially that HPE was beneficially owned by his parents only and now by his mother upon his father’s death and with all his estate passed to his mother, and that he together with his 3 sisters were merely holding those shares as trustees, as he so pleaded from §33:

“33. … It is admitted that the 1^st Respondent has in his name a 25% shareholding in the 2^nd Respondent. It is averred that the 1^st Respondent has no beneficial interest in these shares which are and have always been held by him in Trust for (the Mother) and prior to his father’s death for (the Mother) and his Father jointly.

34.... It is averred that:

a. The Nathan Road shop was owned by the 1^st Respondent’s Grand Father and inherited by the 1^st Respondent’s Father on his Grandfather’s death in 1978 who placed the property into the ownership of the 2^nd respondent, his holding Company, prior to emigration to Canada decades prior to the marriage between the Petitioner and the 1^st respondent.

b. The 1^st Respondent and the siblings all understood and shared a common intention with his parents that they were nominal Directors and shareholders only, and that all shares are held on Trust for (the Mother) who solely retains the beneficial interest.

35. Paragraph 40 is denied. It is averred that:

a. The 1^st Respondent held 25% of the West 47^th Avenue (incorrectly referred to by the Petitioner West 47^th Street) property as he had made equitable contributions to the purchase price and mortgage repayments of this property. This was not given to the 1^st respondent by way of gift or Trust and is therefore not reflective of any tradition within the family, and gives rise to no logical comparison with the shares in the 2^nd respondent.

b. The property referred to as East Boulevard is not separate and distinct from the property referred to as West 47^th Avenue above. The property comprised of a block with two shops on the ground floor facing East boulevard whilst the residential units had their entrance on West 47rth Street.

36. Paragraph 41 is admitted. Paragraph 35 (a) above is repeated. There was no formal/written Trust arrangement because the 1^st respondent had made equitable contributions to the property giving rise to an agreed 25% interest by way of financial investment.

…

38. As to paragraph 43 and 44:

a. It is admitted that on 19 November 2013 the 1^st respondent signed a Declaration of Trust with regard to the 5000 shares held by the 1^st Respondent for (the Mother).

b. It is denied that this Declaration of Trust amounted to a disposal of assets either to avoid the petitioner’s claim for ancillary relief or at all.

c. It is averred that:

i. The 1^st Respondent had never held any beneficial title to the share sin the 2^nd Respondent as since nomination of shares on 1^st February 1084 he has held them at all times on Trust for the benefit of his Mother and Father, and solely for his Mother after his Father’s death.

ii. The Declaration of Trust did no more than document the pre-existing Trust arrangement within the family.

iii. The Trust arrangement was known to the Petitioner throughout the marriage and at all material times the 1^st respondent made known to the Petitioner that the 2^nd Respondent is the Company of and owned by (the Mother).

iv. The Trust arrangement was further disclosed in the 1^st Respondent’s Form E dated 3 July 2013. The Trust deed was disclosed on request in answer to the Petitioner’s questionnaire of the 1^st respondent’s Form E.

39. As to paragraph 45:

…

c. It is averred that:

i. The Petitioner seeks to draw unsustainable, untrue and unfair conclusions and inferences from circumstances surrounding the 1^st respondent’s separation and divorce from his first wife in an effort to smear the 1^st respondent’s reputation and advance her own claims.

ii. The transfer of the shares referred to in sub paragraph (i) occurred at the order of the 1^st respondent’s Mother. Her request arose from concern that the 1^st respondent had appointed the petitioner as Director and shareholder in EF Ltd and HC Ltd without contribution or investment from the petitioner and at a time when the 2^nd Respondent had made a loan of HK$1.45 million to EF Ltd. At this time the 1^st Respondent’s father had also passed away and in 2001 when visiting Hong Kong the 1^st respondent was told to transfer the shareholding in his name (of which the Mother was beneficial owner) to her own name.”   

34. The Husband has filed 6 affirmations in total but the most comprehensive and relevant one is his 6^th affirmation of 5^th December 2014 [B/319 – 361].

The Mother’s Case

35. The Mother’s case is essentially the same as the Husband’s and outlined in her 3 affirmations of 20^th June 2014 [B/204 – 213], 1^st December 2014 [B/255 – 290] and 15^th December 2014 [B/362 – 365] in that it was the Father who decided to incorporate HPE to hold all their landed properties in Hong Kong after they had emigrated to Canada which had nothing to do with their children, that shares were allotted to them only as nominees and trustees, and that when those properties were sold all their proceeds were kept and used by the parents in Canada for their living expenses and for purchasing their own properties there without sharing with the children either by way of dividends or otherwise.

36. Before proceeding to consider all these affirmations of the parties as well as their testimonies in details, it would be helpful to first spell out the law and principles applicable to the determination of the issue now before me, of which I understand there is no serious disputes amongst the parties.

The Applicable Law

37. The applicable principles concerning a dispute such as this have been recently re-stated by the Supreme Court in Jones v Kernott [2011] UKSC 53, [2012] 1 AC 776, and very helpfully summarised by Mostyn J in Bhura v Bhura & Others [2014] EWHC 727 at §8 of his judgement:

“The applicable legal principles concerning a property dispute such as this are tolerably clear and have most recently been re-stated by the Supreme Court in Jones v Kernott [2011] UKSC 53, [2012] 1 AC 776. In summary I think they are as follows:-

i) If there is an express declaration of beneficial interests then that is, almost invariably, the end of the matter. Such an express declaration can only be displaced if it has been procured by fraudulent conduct…

ii) If there is no express agreement about the beneficial interests then there is likely to be (at least) a tacit understanding. This is hardly surprising as one would expect that when people enter into what may very well be the most important economic transaction in their lives – buying a home – they would have a pretty clear understanding of who owned what share of it. In determining whether there was such a tacit understanding, and if so what it was, the court will look at all the evidence holistically and will examine the whole course of the parties’ conduct in relation to the property.

iii) In the rare case where the evidence does not reveal a tacit understanding about ownership the court can reach for the presumptions. An obvious presumption is that beneficial ownership is the same as legal title (see Jones v Kernott as paras 17 and 51(1)).

iv) Another is the presumption of resulting trust. In Pettitt v Pettitt [1970] AC 777 at 824 Lord Diplock doubted that it was of much relevance in the modern era …

v) A further presumption is the presumption of advancement but this can be regarded as being on its death-bed …

vi) But presumptions are only presumptions …

vii) “Actual facts” are those which suggest that a result steered by a presumption is unfair. Although there are different degrees of emphasis and nuance all of the Justices in Jones v Kernott accepted that where a tacit agreement could not be found by a process of inference the court could impute to the parties a fair agreement which they never in fact made but which they should “be taken” as having made (see paras 45, 60, 72, 85(2)). Of course, as Woodhouse J pointed out, this involves a “fictional attribution of intention”, but the process has a long pedigree. One only needs to remind oneself of Lord Denning MR’s statement in Appleton v Appleton [1965] 1 WLR 25 at 28 to see how the wheel has turned full circle. There he said “A judge can only do what is fair and reasonable in the circumstances. Sometimes this test has been put in the cases: What term is to be implied? What would the parties have stipulated had they thought about it? That is one way of putting it. But, as they never did think about it at all, I prefer to take the simple test: What is reasonable and fair in the circumstances as they have developed, seeing that they are circumstances which no one contemplated before?” I cannot see any difference between that statement and that of Lord Wilson in para 87 where he rhetorically asked “where equity is driven to impute the common intention, how can it do so other than by search for the result which the court itself considers fair?”

38. In the present case it is not in dispute that there was no express declaration in the form of declaration of trust of the beneficial interests of the Husband’s 25% shareholdings in HPE, or for that matter of any of the shareholdings of his sisters either, at the time when those shares were allotted to them in 1984, and hence the issue first must turn on the question of the true intention of the transferor.

Intention of Transferor

39. Mr Coleman (with Ms Chan) for the Mother submits that the only relevant intention in relation to the determination of the preliminary issue is indeed the intention of the Father, and since it is the Wife’s case that the shares in the Husband’s name were always held by him beneficially, no issue can arise from what other parties may have intended or thought later than the events of original transfer in 1984, and that contrary to suggestion by the Wife, the issue does not run on the credibility of the Husband. He relies on the House of Lords’ case of Vandervell v Commissioners of Inland Revenue [1967] 2 AC 291, at 312 where Lord Upjohn set out the principles as follows:

“ … Where A transfers, or directs a trustee for him to transfer, the legal estate in property to B otherwise than for valuable consideration it is a question of intention of A in making the transfer whether B was to take beneficially or on trust and, if the latter, on what trusts. If, as a matter of construction of the document transferring the legal estate, it is possible to discern A’s intentions, that is an end of the matter and no extraneous evidence is admissible to correct and qualify his intentions so ascertained.

But if, as in this case (a common form share transfer), the document is silent, then there is said to arise a resulting trust in favour of A. But this is only a presumption and is easily rebutted. All the relevant facts and circumstances can be considered in order to ascertain A’s intentions with a view to rebutting this presumption.”

The Mother’s Evidence

40. The Mother’s evidence on the Father’s intention can be found in her 2^nd Affirmation where she stated as follows [B/258 – 261]:

“10. … we got used to living in Canada and we decided to settle down in Canada. For tax reduction purposes in light of our immigration to Canada, my late husband intended to set up a Hong Kong company to hold the Nathan Road Properties and our own assets for the two of ourselves.

11. On 27 January 1984, the Company was incorporated in Hong Kong …

12. When my late husband arranged for the initial setup of the Company, he told me that each of us would share half of the beneficial interest of the Company. Therefore, as shown in the Memorandum of Association of the Company dated 22 December 1983, my late husband and I were the only subscribers and each of us subscribed for 1 share of the Company. Further, according to Article 10(a) of the Articles of Association of the Company, my late husband and I would be the permanent directors of the Company …

13. Despite that the Company was intended to be beneficially owned and controlled by my late husband and myself, my late husband told me that he intended to appoint our children as the directors as well, and also to allot some shares to them for tax reduction purposes in light of our immigration to Canada at that time. Our intention all along was that our children’s shares were to be held on trust for us.

14. Since I did not handle much in relation to the affairs of the Company at that time, I deferred to my late husband’s decision. As such, since the incorporation of the Company, my late husband, our children and I were all directors and shareholders of the Company.

…

17. After the incorporation of the Company, my late husband and I transferred our assets into the Company …

18. Subsequently, as my late husband and I wanted to have more cash with us for the initial set up of our family in Canada, we decided to sell all our assets in Hong Kong. We sold all our assets except for the Nathan Road Properties. It was because when we tried to sell the Nathan Road Properties, our solicitors at that time advised us that we could not sell them. I could not recall the details of the advice from the then solicitors. The Nathan Road Properties continue to be held by the Company to date.

19. As my late husband and I were the only beneficial owners of the Company, after we sold all our assets held by the Company at that time (except for the Nathan Road Properties as explained above), we transferred the money to Canada for our living. We did not distribute any money to our children (which should have been the case if our children had beneficial interest in the shares).

20. Since the incorporation of the Company, it had all along been the common understanding among my late husband, myself and our children that the shares held by our children were on trust for both of my late husband and myself. My children were well aware that the Company belonged to my late husband and me. They also understood and agreed that their shares were not to be sold or transferred since my late husband and I were the beneficial owners of the shares. They were already grown-up by then and they understood the situation well.

21. Before my late husband passed away in October 2000, he was the mastermind of the Company. He basically made all the decisions and had full control of the Company. Since our children were only holding the shares on trust for my late husband and me, my late husband never distributed any dividends. At times, directors’ fees were paid according to the own wishes of my late husband. The amounts were not determined according to the different shareholdings. My late husband alone decided when and how much to pay. The directors’ fees were merely paid to our children for their living expenses and my late husband felt like to do so.”     

41. Her case was supported by all 3 of her daughters in their affirmation filed in the said HCA No.1108 of 2013 that they were only holding their shareholdings in HPE on trust for their parents, and upon the passing of their father, for their mother, and subsequently each made a declaration as such accordingly [D4/398, 430], as well as the Husband in his 6^th Affirmation [B/355 – 360].

42. Mr Coleman submits that the evidence show that when the shares in HPE were allotted in the names of the Husband and his siblings, there was no need for the parents to seek their approval, when in fact 2 of the sisters were still yet to complete their university studies, nor were there ever any discussions with them in relation to the shares allotment, or any evidence that the children ever thought they would benefit from such allotment.

43. He further submits that to the contrary, it was common knowledge that upon the Father’s death, all of the family assets would be left to the Mother, which was confirmed by the Father’s will [C3/797] and by the sisters’ affirmation referred to above.

44. It was also the Mother’s oral testimony at the trial that both she and the Father were mindful of their assets and their finances in general, as this was the money that they were going to grow old on in Canada, and though the Father inherited some assets from the Grandfather, his approach to investments was always conservative, and hence Mr Coleman submits that at the time of the original shares allotment, as there was still an issue between the Father and his sister as to inheritance, it makes no sense that the Father would have allotted shares beneficially to his children when HPE held assets subject to a potential dispute.

45. According to the Mother, when he was alive the Father was in control of their family assets, and that no one including herself would ask questions, and that the overall sentiment was one of protectiveness, that they could only count on themselves and would not rely on their children, as she said at the trial: “The Father always told me, in this generation we could not rely on our offspring, we had to hold on to our own money, and work it out ourselves.”

46. Mr Coleman submits that against this backdrop it is simply not plausible that the Father or Mother would give away 55% of the shares and their majority control in HPE as a gift to their children, and that indeed subsequent events show clearly that the children held the shares on trust for them, such as shortly before his death the Father made his will leaving all his assets to the Mother, and when he passed away the Mother took over all the assets including HPE, with the children assisting only if and when needed on her instructions and at her convenience, such as the purchase of the Fulham Garden Property which was her own decision.

47. Ms Mok (with Mr Ko) for the Wife however argues that the reasons given by the Mother and the Husband for those shares allotments to the children for (a) tax reason and (b) inability to sell the Nathan Road Properties inherited from the Grandfather were in fact both recent fabrications to try to convince the court that they were not gifts.

48. Her arguments against those reasons are these: For the former reason, neither the Mother nor the Husband were able to explain what tax benefits there were by the allotment of shares to the children, in particularly with the Husband’s knowledge and ability, hence the only reasonable conclusion one can draw is that this must be a fabrication.

49. As for the latter reason, Ms Mok submits that if there were indeed problems with the sale of the Nathan Road properties, which the Wife does not accept, it is difficult to see how that could have been the reason for the allotments of shares to the children, and hence it must again be a recent fabrication to provide bogus reason for alleging that the children are holding the shares as trustees.

50. This is however not how I read the Mother’s evidence, as while it is true that she did give tax reduction as the reason for the Father to allot shares to the children as she was told by him, and that was the only reason given by her in both paragraphs 10 and 13 of her said affirmation, as clearly the inability to sell the Nathan Road properties occurred only subsequent to the shares allotments to the children, an event after the fact that could not have formed the reason for the shares allotments.

51. For the only given reason of tax reduction, both the Mother and the Husband have been criticised for unable to explain what tax benefits would the shares allotments supposed to bring, with the Wife therefore concluding that it must be a fabrication, of which I do not agree, as the Mother’s evidence was clearly that it was being told to her by the Father, and given her role or position in the circumstances I am unable to say that it must be a fabrication on her part, in particularly when there is no evidence that there could not be any tax benefits at all at the time in Canada. In fact despite her advance age I find her evidence generally spontaneous and straight forward. As for the Husband’s inability to explain, as pointed out by Mr Clough, it is clearly irrelevant to the question about the Father’s intention.

52. The Wife further points to certain conducts of the Husband in respect of his 25% shareholdings in HPE which she argues would go to show that he is in fact the beneficial owner of such shares, such as his transfer of them to his mother in 2001 which she believes was to avoid his first wife’s enforcement proceedings against him and the subsequent re-transfer back to him after that proceedings were resolved, of which Ms Mok submits were conduct consistent with him being the beneficial owner, and that he is such an untrustworthy, deceitful and calculating person that his evidence cannot be relied upon.

53. As noted above in support of her case the Wife has exhibited a copy of the judgment of Rose’s financial claims against the Husband by the Canadian Court which dealt with their divorce proceedings, and which were what she believes the Husband was then trying to avoid.

54. The Husband does not dispute the fact of the transfer and re-transfer of his shares, but explained in his 6^th Affirmation that essentially his mother was not happy at that time about him having secretly married the Wife, whom she did not like nor trust, and became concerned about his involvement in HPE, and hence he decided to transfer those shares to her, as they were beneficially hers anyway, and that in 2003 when she wanted to take advantage of the SARS affected property market in Hong Kong by looking to invest in a property, she wanted him to deal with the matter for her as she was then residing in Canada, hence she transferred the shares back to him to enable him to do so.

55. While the Wife’s argument that the Husband did not need 5,000 shares in HPE in order to invest in a property when in fact a director with 1 share would do, as submitted by Mr Clough on his behalf, there is nothing improbable in this proposition either given the historical arrangements of his shareholding in HPE. There is of course the evidence of Rose who was the one who caused these enforcement proceedings in the first place.   

Rose’s Evidence

56. There is no question that the timing of the transfer and re-transfer did coincide with Rose’s enforcement proceedings and which explains the Wife’s suspicion as she no doubt finds it too much of a coincidence, but this allegation of the Husband attempting to avoid Rose’s enforcement proceedings seems not agreeable to Rose herself, whose evidence is in my view clearly of significance as she had no apparent personal interest in helping either her former husband or former mother-in-law in this litigation, and that her evidence on the whole supports their case.

57. In her 1^st Affirmation [B/32 – 41] Rose set out the relevant background of her marriage to the Husband and their subsequent divorce proceedings in Canada before explaining why she believed that the Husband had no beneficial interest in HPE and hence did not pursue any claim against its properties in her divorce proceedings:

“6. Having seen the Petitioner’s affirmations, I know that she is relying on documents which arose from my divorce from (the Husband) back in 1998 and alleging that (the Husband)’s conduct during and following our divorce shows that he was then trying to hide or move assets and is doing so now. I am happy to make this affirmation to set out my understanding of the position at that time and now so far as I am aware. I confirm that I have had the opportunity to take independent legal advice.

7. By way of background (the Husband) and I married in 1978 and have two children, both now grown up. During our marriage we lived in Canada and the US. We divorced in 1998. I remain living in Canada still. There were court proceedings regarding the division of assets and the maintenance for me and the children. Unfortunately there were also court proceedings following an incident of violence in which I was hurt by (the Husband). I deal with (the Wife)’s allegations about these below.

8. I knew (the Husband)’s family well of course, as (the Husband) and I were married for some 20 years and had two children. We all lived either in Canada or the US during this time. I was surprised and saddened that my divorce proceedings were being brought up by the Petitioner in support of her claims. I deal now with her allegations and conclusions, and my own knowledge of those times and events.

HPE

9. I am happy to affirm that I knew when I was married to (the Husband) that when his Grandfather died he passed his assets to (the Husband)’s Father. I also knew that when (the Husband)’s family moved to Canada from Hong Kong, his parents placed the inherited property from the Grandfather’s estate (including a shop in Nathan Road, Hong Kong) into a Company. I now know that the Company which (the Husband)’s parents formed is HPE (the 1^st Respondent in the High Court). I had this understanding because I was married to (the Husband), and we discussed these things. It was always well known.

10. I was also aware during our marriage that (the Husband) and his Sisters held shares in HPE. I was aware that (the Husband) had a 25% share. I knew that the shares held by (the Husband) and his sisters were held on Trust for their parents. My understanding was that when (the Husband)’s Father was alive, he was the only beneficiary of the property held by the Company. The Grandchildren (the Husband and his sisters) never had a share in that inheritance.

11. HPE was also controlled by (the Husband)’s Father. I was aware at the time that dividends were not issued like they would be in a situation with genuine shareholders. If (the Husband)’s father wanted to help his children he would release Director’s Fees, but he would decide how much and when.

12. For this reason, when (the Husband) and I divorced, and I pursued a claim against him (for a share of the marital assets and maintenance for me and the children) I did not ask for a share of these assets. I knew they were not (the Husband)’s and that the property and company was owned by his parents. I limited my claims to what (the Husband) and I had accumulated during our marriage. This included our matrimonial home, (the Husband)’s practice and office, and the property known as the West 47^th Avenue property.

13. As I mentioned the West 47^th Avenue property I would like to clarify something arising from the Petitioner’s 2^nd affirmation. At paragraph 23 she refers to three properties – West 47^th and two at east Boulevard. These are all in fact effectively the same property. It was one investment property with 3 shops on the bottom floor, with rental apartments upstairs. There were entrances on both West 47^th Avenue and East Boulevard.

58. Rose then explained in her affirmation why she does not agree that the Husband’s transfer of his shares in HPE to his mother in 2001 was to avoid her claims as suspected by the Wife:

“19. … (the Petitioner) alleges that (the Husband) transferred his shares in HPE to his Mother in 2001 so as to avoid my claims for children’s maintenance.

20. It is correct that I brought a claim for maintenance for myself and our two children. There was an order for spousal maintenance but I did not pursue enforcement of this because I had a job and so had my own income and (the Husband) knew this. I never pursued HPE property and so there was no need to ‘avoid’ my claims by transferring these shares.

21. When (the Husband) moved back to Hong Kong he did not pay children’s maintenance, and I had to report this to the family Maintenance Enforcement Agency (FMEA). Because of the arrears in children’s maintenance payments, the FMEA pursued proceedings in Hong Kong in 2001. I was not actively involved in these proceedings.

22. When (the Husband) became aware of the proceedings in Hong Kong I heard from him and from his attorney at the time. In the end I settled my claims for children’s maintenance for CD$30,000 payable in a lump sum. This was paid by (the Husband)’s mother in 2002.

23. I don’t believe that any share transfer between (the Husband) and his Mother would have been directly related to my maintenance claim or an attempt to avoid my claims. As I have said above, I never felt that I had any claim against the property held by HPE and I never pursued any such claim.”

59. As for the Wife’s allegation that the Husband’s sale of his 25% share in another property in West 47^th Avenue to his father at undervalue was another example of his attempts to avoid Rose’s claims, Rose again did not agree and gave her following explanations:

“25. I would like to state that (the Husband)’s interest in the West 47^th Avenue property was totally different to the alleged interest in HPE. We (the Husband and I) really had an interest in the West 47^th Avenue property. (The Husband) had a 25% interest because we had made a personal financial investment, and (the Husband) paid the mortgage on the property. It was our property. All I was interested in as regards my claim was for half of (the Husband)’s share (so 12.5%) to be included or reflected in my settlement as we had developed this during our marriage. This was included in my award. This I presume is why his father paid him when he transferred his 25% share to his Father.

26. My understanding was that (the Husband) had paid partly for the West 47^th Avenue property and so did have an interest whereas he never had an interest in the assets held by HPE which were his parents’ assets.”   

60. Essentially Rose’s evidence is that she knew that HPE belonged to the Husband’s parents and that he and his sisters were merely holding their shares as trustees for them, which explains why she never made any claim against the Husband’s shares when she divorced him, and hence his subsequent transfer and re-transfer of his shares to his mother could not have been to avoid her enforcement proceedings.

61. Rose’s evidence clearly has one significant advantage over the Wife on these issues: she was there all along before during and after HPE was formed by the Husband’s parents and shares were allotted to their children, and hence it can be said that she was up-close and personal about the Husband’s interest in his shareholding in HPE, something which clearly cannot be said of the Wife, and I find this argument of Rose that she did not make any claim against the Husband’s shareholding in HPE because she knew he was not the beneficial owner both powerful and convincing, as it was such a substantial asset that she like any wife in similar circumstances would otherwise have gone after without hesitation, in particularly when her divorce proceedings with the Husband were not at all amicable but instead rather contentious, and that according to the Wife the Husband had used violence on Rose, which made it all the more unlikely that Rose would let his shareholding in HPE slipped through her claims had she had any suspicion that it might belong to him.    

62. One may of course argue for the Wife that notwithstanding her first-hand knowledge Rose could still be mistaken about the true intention of the Husband’s parents in respect of their shares allotments to the children, as after all, Rose’s evidence is not that she was told to be so directly by his parents, but rather that it was based on her own observations and understanding of the his family during her marriage to him.

63. This possibility of Rose being mistaken of the Father’s intention however does not bode well at all with his subsequent actions in respect of HPE when he sold all its assets namely the landed properties in Hong Kong except the Nathan Road Properties and used all their sale proceeds on themselves in Canada including purchasing properties there in their own names without sharing any with any of their children or declaring any dividends amongst them all these years. In other words, if the Husband were indeed the beneficial owner of 25% shareholding in HPE, why did he not receive his 25% share of the sale proceeds of any of those landed properties in Hong Kong sold by his parents or to any of those landed properties purchased in Canada with those sale proceeds?

64. Rose’s motive for giving evidence for the Husband and the Mother was also called into question by the Wife who suspects that she wanted to assist the Mother in the hope that her son DH would get further favours from the Mother given their good relationship and had assisted DH’s university fees in the past. This is again pure speculation on the part of the Wife, as not only was this issue as to motive never put to Rose during cross-examination, the suggestion that Rose would come all the way from Canada to give false evidence for her former mother-in-law in the hope that it would somehow benefit her son who is already in his 30s with his own professional career, and has admittedly been enjoying a close relationship with his grandmother, indeed appears to me another wild speculation on the part of the Wife. Having seen and heard Rose in evidence, I have no doubt that that she came to this court to give evidence because she was not happy with the Wife using her case to “bolster” her own and that she just wanted to clarify the truth and set the record straight.    

Tradition of Husband’s Share in Family Assets?

65. It is in fact the Wife’s argument that the Husband’s 25% interest in his parents’ property at West 47^th Avenue in Canada reflects exactly that position and his family tradition of giving him 25% of all their assets, but that was also disputed by Rose as nothing to do with his shareholding in HPE but rather his own financial contributions towards its down payment and subsequent mortgage payments, which was also part of the findings of the Canadian Court in its judgement on her financial claims and of which she was awarded her fair share of their marital assets.

66. Furthermore, if it was indeed a matter of tradition and historically for the Husband to be given 25% of the family assets within the family, then where were the 10% share of each of his 3 sisters reflected in this property, as they were in HPE? The fact is that the sisters never had any share in the West 47^th Avenue Property, and that says as much about the tradition of this family.

67. In fact, the Wife’s case that it is a tradition that the Husband would be given 25% of all assets within his family and hence he must hold the 25% of the HPE shares beneficially for himself was all but destroyed by the revelation of the Father’s will giving his entire estate to the Mother only and that none of their children including the Husband was to inherit anything.

68. The Wife in her attempt to get around this contradiction tried to argue that having already given the children 55% OF HPE, it would be reasonable to infer that the Father did not find it necessary to make any specific provision for them in his will, but this argument is in my view simply unsustainable when faced with the fact that whatever assets that may have remained in HPE since the passing of the Father in 2000 have never been distributed amongst the children or benefitted them save for the Husband being allowed to reside in the Fulham Garden Property, and for that the Mother has explained that it was also to accommodate her grandson DH but certainly not for the reason as suggested by the Wife, not to mention the evidence of the 3 sisters of the Husband which all confirm never having received any distribution of assets or dividends from HPE. Given the fact that it has been 15 years since the passing of their father, it is unthinkable that they would still have not taken any steps to realize their shares in HPE if they were indeed their beneficial owner. This argument that such inference can be drawn of the Father’s intention is in my judgment simply untenable.

Husband’s Conducts and Credibility

69. Much criticisms have been levelled at the Husband’s credibility that he was untrustworthy, deceitful and calculating, and hence his evidence cannot be relied upon, and that the timing of his transfer of his shares to his mother in 2001 with Rose’s enforcement proceedings against him was too much of a coincidence that the court should infer that he must be trying to avoid the latter, of which Ms Mok submits for the Wife that it clearly shows that the Husband had treated the 25% shareholding as his own.

70. Such attacks of the Husband’s credibility were essentially based on his conducts in his divorce with Rose in Canada and his subsequent failure to keep up with their children’s maintenance under their divorce order with the resultant enforcement proceedings in Hong Kong, including his various letters to the Registrar of the District Court and the Legal Aid Department et al [D5/821 – 827, D6/1644 – 1646] in which he was said to have provided false or misleading information, of which the Husband did make certain concession at the trial but nevertheless insisted that they had nothing to do with his transferring of the shares back to his mother who was all along the beneficial owner.

71. Whatever conducts the Husband may have been guilty of in his divorce proceedings with Rose, in which Mr Coleman submits that the Wife was equally and fully complicit, I agree that they matter little to the ultimate question about the Father’s intention when the 25% shares were allotted to the Husband way back in 1984. As submitted by Mr Clough, since the Father who was responsible for all these arrangements has died, to objectively deduce the actual subjective intention of the Father and the Mother, it does not depend on the Husband’s credibility over matters which happened years later.

72. It is however the Wife’s argument that if the parents’ intention was indeed merely for their children to hold their assets as nominees on trust after they had landed in Canada, there was no reason for them to allot different percentage of the shares to them with 25% to the son and 10% to the daughters, and that even the parents themselves were allotted different percentage of shares, hence if the children were merely trustees, there is no reason why they could not be allotted equal percentage of shares, or for that matter just a nominal share.

73. While there seems to be a point in this argument of the Wife, it is in my view not uncommon for parents in those days with assets especially landed properties, to point to those assets and say to their children that one day these would belong to them upon their death, and to make arrangements accordingly such as, for instance, sons may get a bigger share than daughters in some traditional Chinese families as in this case, but that until then there would be clear understanding that those assets would still remain the parents’ assets. As submitted by Mr Clough for the Husband, there is simply nothing improbable in this proposition under the circumstances of this family at that time.

74. It does not therefore necessarily follow in my view that the Husband’s transfer of those 25% shares to his mother in 2001 must be because he was the owner, as it would be equally valid to argue that it shows that he was merely returning to his mother what was rightfully and beneficially hers, and not as alleged by the Wife to avoid Rose’s claims but so as to avoid those shares being wrongly caught by her enforcement proceedings which were, as confessed by Rose, conducted by the Registrar of the District Court in Hong Kong while she was in Canada and hence had had no control of what assets of the Husband were to or not to seize in the enforcement proceedings.

75. The same can also be said of the Husband’s Declaration of Trust dated 19^th November 2012 with regard his shares in HPE in trust for the Mother, of which he says he just wanted to formally confirm that true position after his mother became concerned about his relationship with the Wife at that time and did not want her own assets to get involved in any dispute between them, which if true surely should not be confused with any attempt on his part to avoid the Wife’s claims against his own assets, when as a matter of fact there was as yet any legal proceedings between them at that time.

Conclusion

76. In conclusion, having heard all the parties as well as Rose in evidence, and having looked at all such evidence holistically and having examined the whole course of the parties’ conduct in relation to HPE, and for all the reasons referred to above, I am convinced that when the shares in HPE were allotted to the Husband and his sisters in 1984, the Father intended that they were to be held on trust for him and the Mother and were not gifts to them, that their subsequent conduct were consistent with that intention, and in the absence of any evidence to suggest that those shares have since been turned into gifts, the Husband has since the passing of the Father been holding them on trust for the Mother, and so I declare accordingly, with the result that the Wife’s S.17 Application is dismissed.

77. As pointed out by both Mr Coleman and Mr Clough, the Wife launched this litigation with no real knowledge of events in 1984 well before her marriage to the Husband, a situation which is in fact quite common involving disputes over third party’s interest in property when marital relationship break down and with marriage coming to an end, sadly very often also along with any trust or common sense between the parties.    

78. Under such circumstances while the Wife may be said to be entitled to challenge the Husband’s case and to demand him to prove that he was in fact holding his shares in HPE on trust for his mother at the initial stage of the proceedings, for those reasons referred to above she was rightly criticised for the ways she had sought to plead and build a case based rather on suspicion, imagination and supposition and by launching multiple proceedings in both the High Court and the Family Court, which has turned out to be untenable in light of the independent facts and evidence to the extent that those relating to the Fulham Garden Property as a gift had to be abandoned altogether.

79. In her Form E the Wife put the gross value of the Fulham Garden Property at HK$18 million, and hence even if the Husband were indeed the beneficial owner of 25% shares in HPE, her claim would still be only for about HK$4.5 million, and even if HPE still holds other properties of which there is no evidence of their current value, but for the Wife to incur more than HK$5.6 million in total legal costs in multiple proceedings seems to me wholly disproportionate and unrealistic, as unlike ancillary relief disputes between divorcing parties when costs are very often and ultimately paid out of their marital assets, when the interests or assets of third parties as well as their costs are also involved as in the present case, it is encumbent on the Wife in particularly those advising her to exercise proper caution with her application, and that by the time all the evidence were in place including those from Rose and the Mother, to properly reassess and reconsider her case instead of stubbornly and foolishly pursuing it without any regard for any costs consequences.. In the premises and as a result I fail to see why costs should not follow the event to both the Husband and the Mother to be paid by the Wife, with certificate for 2 counsel for the latter.

80. Last but not least, it remains my gratitude to counsel for all 3 parties for their most valuable assistance rendered to this court throughout the trial.