Cc, Yl v. C, Csr

FCMC 15718/2018

[2019]HKFC329

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 15718 OF 2018

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J U D G M E N T
(MCR Rule 121)

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The Application

1.By Summons dated 11^th April 2019 (as Amended on 20 December 2019) the Petitioner (W) seeks leave of the Court for the release of three documents filed by the Respondent (H) in these proceedings, specifically his Form E and two sets of Answers to the Petitioner’s Financial Questionnaires, to the Court of First Instance, in bankruptcy proceedings filed in 2018 (“the Bankruptcy Proceedings), in which H is the petitioner.  W accepts that if leave is granted, those parts of the documents which are not relevant to H’s financial position and the issue of whether he is or is not capable of meeting his debts should be redacted to prevent disclosure of irrelevant personal information including those relating to the child of the marriage. 

2.The basis for W’s application is her contention that in the Bankruptcy Proceedings H has failed to come to the court with clean hands, and has, in fact, provided financial information to the CFI which is either incomplete or inconsistent with that supplied in his Form E and the two sets of Answers.  She submits, therefore, that permission should be granted for her to provide the documents in the Bankruptcy Proceedings so that the CFI is not “hoodwinked” into granting an order on the basis of an inaccurate picture of his financial circumstances.  She adds that, as a matter of general principle, a litigant should not be able to “say different things to different courts”, particularly as, in these proceedings and in the Bankruptcy Proceedings, H has the same duty of full and frank disclosure of his financial position. 

3.W points to the prejudice she will suffer if H is made bankrupt, namely that her prospect of obtaining or enforcing her application for ancillary relief, including relief for the child of the family, will be substantially diminished if not frustrated altogether.  In this regard it is generally accepted that a party seeking financial relief in matrimonial proceedings has a legitimate interest in the outcome of bankruptcy proceedings brought by or involving the other party including because the claims of the trustee in bankruptcy will prevail over an order made by the court.[1] 

4.H opposes the application. He denies that he has mislead or provided incomplete information to the Court of First Instance, and says that even if the financial information is inconsistent with that given to this Court, the discretion to permit the release of the requested documents should not be exercised as this would (a) be potentially detrimental to him and (b) is unnecessary, having regard to the heavy burden he inevitably will be required to discharge to obtain an order for his bankruptcy. 

5.On 24th October 2019, W’s solicitors wrote to H to propose that the matter be resolved by him giving an undertaking to

1.   Release and provide the following information together with all supporting documents to the officer at the Official Receiver’s Office in charge of Bankruptcy Proceedings (“Officer”) for the same to be provided to the Bankruptcy Court:

i.    all properties and assets disclosed in Your Form E of 8 February 2019;

ii.   all properties and assets disclosed in Your Financial Answers of 1 April 2019;

iii   all properties and assets disclosed in Your Financial Answers of 4 April 2019;

2.   Continue to provide the Officer with all properties and assets disclosed in further Financial Answers when and if they become available; and

3.   Copy our client into all correspondence with the Officer (including providing a copy of all correspondence received from the Officer to our client immediately after receipt).

6.At the hearing of the Summons, H’s counsel informed the Court that H would not provide such an undertaking, and that H’s firm position was that he would only supply further documents or information to the Official Receiver when specifically requested to do so. 

Background

7.The relevant background has been set out in a previous judgment of this Court on W’s application for maintenance pending suit, dated 10th October 2019.  It can briefly be summarised.

8.The parties, who are both 29 years of age, were married in June 2014.  In June 2016 they purchased a property in Robinson Road, Mid-levels, HK (“the Mid-levels Property).  Their child, a daughter, was born in February 2018.  They separated later that year, in August 2018.  H petitioned for self-bankruptcy in December 2018 and W filed her Petition for divorce on 12 December 2018. 

9.W is a senior teacher.

10.During the marriage H ran a textile/garment business through a Hong Kong company, H I Limited, which in turn owned 70% of the shares in TT Limited, a company incorporated in Bangladesh and the owner and operator of a garment factory in that country.  H stated in his MPS affirmation that since mid-2018 his business has been collapsing due to a series of events including the loss of a major US customer (which filed for Chapter 11 protection in early 2018) and the seizure and forced sale by the Bangladeshi authorities of TT Limited and their pursuit against H and W for repayment of outstanding debts relating to the business. 

The Law

11.Rule 121 of the Matrimonial Causes Rules (Cap. 179A) provides that no document filed in matrimonial proceedings, other than a decree or order made in open court, shall be open to inspection by the public without leave of the Court. 

12.Rule 121 underpins the general power of the Court to regulate access to documents filed or lodged by the parties or supplied by others pursuant to its direction.  Once received, whether and to whom access is granted to a document is not a matter for one or other party to dictate.  Indeed, the parties are each subject to an implied undertaking that they will not disclose documents received by them in the course of the proceedings.[2] Rather, whether or not a document can be released and used in other proceedings is a matter for the Court to decide in the exercise of its inherent jurisdiction.  The usually non-public manner in which family litigation is conducted does not detract from the discretion to grant release, although it may be a factor in its exercise: see Secretary for Justice v FTCW & Ors [2014] 1 HKLRD 849, at §§16, 18-19, 27. 

13.In considering whether or not to release a document or documents, the Court is to conduct a proportionality analysis, which is necessarily fact-specific.  In Secretary for Justice v FTCW, Lam V-P, giving judgment for the Court, adopted the approach suggested by Toulson LJ in R (Guardian News and Media Ltd) v Westminster Magistrates’ Court [2013] QB 618, namely:

In a case where documents have been placed before a judge and referred to in the course of proceedings, in my judgment the default position should be that access should be permitted on the open justice principle; and where access is sought for a proper journalistic purpose, the case for allowing it will be particularly strong.  However, there may be countervailing reasons. … I do not think that it is sensible or practical to look for a standard formula for determining how strong the grounds of opposition need to be in order to outweigh the merits of the application.  The court has to carry out a proportionality exercise which will be fact-specific. Central to the court’s evaluation will be the purpose of the open justice principle, the potential value of the material in advancing that purpose and, conversely, any risk of harm which access to the documents may cause to the legitimate interests of others.[3]

14.As noted above, W has an interest in the Bankruptcy Proceedings in that they may materially impact on her claim for ancillary relief.  This is so even though generally speaking a debt due as a result of an order of this Court in matrimonial proceedings is not a provable debt for the purposes of a bankruptcy petition.[4] 

15.Further, it is relevant to note that a petitioner in bankruptcy proceedings must come to the court with clean hands and provide full and frank disclosure of his financial position. If not, the petition stands to be dismissed: Re Yiu Yuen Kwok [2017] HKCFI 1603; HCB 2385/2015, at [21]-[23] (Hon. Anthony Chan J). 

H’s disclosure to this court and the CFI

16.A central aspect of W’s submissions is that the Court cannot be confident that H will comply with his duty of full and frank disclosure in the Bankruptcy Proceedings having regard to his failure to be full and frank in his financial disclosure to this court.

17.At the hearing on 19^th August 2019 on W’s application for maintenance pending suit, counsel for H acknowledged that his client had not provided satisfactory disclosure to the Court.  In his 10^th October 2019 judgment on the MPS application (“the MPS Judgment”), HH. Judge I Wong noted that acknowledgement and went on to say that, even had such a concession not been made, he would have held as much: MPS Judgment, at §56. 

18.W argues that the situation is worse in the Bankruptcy Proceedings, where H’s disclosure is “even less full and even less frank”: W’s Skeleton Submissions, at §3.

19.In her 2^nd Affidavit, W provided a table comparing H’s disclosure in his Form E and Answers to W’s first Questionnaire with his H’s Statement of Affairs and Amended Statement of Affairs in the Bankruptcy Proceedings.   

20.It is important to note the dates of the documents filed in each set of proceedings as this may be relevant to the question of whether one statement is indeed inconsistent with another:

6 December 2018	H’s Statement of Affairs in HCB (“SOA”)
2 February 2019	H’s Amended Statement of Affairs (“ASOA”)
19 February 2019	H’s Form E
1 April 2019	H’s Answers to W’s first Questionnaire (“April Answers”)

21.The following is W’s table, with initials used in place of the names of companies included therein.  

Items	Respondent’s Position in HCB	Respondent’s Position in FCMC15718/2018
Companies	The Respondent asserted in his SoA that he owns H I Limited and later conceded in his ASoA that he also owns CFC Limited (“CF”). The Official Receiver has doubts on this assertion, and questioned whether the Respondent also owns N A Limited and two other companies in the Mainland China.  The Respondent has not provided any answer in response.	In addition to (i) H I Limited and (ii) CF, the Respondent unequivocally admitted in his Answers that he also owns the following companies:- 1. NA Limited (answer 29) 2. GUT Company Limited (answer 25) 3. RU (answer 25)
Mid-Levels Property	The Respondent stated in a his SoA and ASoA that the estimated value of the mid-level property is only HK$31,000,000.  The Respondent also alleged, in his Affirmation dated 1 April 2019, that my estimated value of HK$38,000,000 is unsustainable.	The Respondent’s own estimated value of the mid-level property in his Form E is HK$38,000,000
Employment	The Respondent stated in his SoA and ASoA that he is currently “unemployed”.  The Official Receiver has doubts about this in view of the fact that the Respondent is a director of (i) CF, and (ii) YFS Limited and (iii) NA Limited	The Respondent also admitted in his Answers that he is working as a freelance consultant on commission basis for a company trading fabrics and garments (answer 4)
Salary	The Respondent stated in his SoA that his salary before income tax in the past 12 months is HK$240,000, and that he has no (i) income from investments or dividend or (ii) money from other allowances, benefits or sources	The Respondent admitted in his Answers that:- 1.  He was entitled to director’s housing allowance with electricity, water, and gas bills paid by H I Limited.  (answer 2(c) and 28); and 2. He has drawn at least HK$10,000 from H I Limited on 23 November 2018 for his “daily expenses for necessities”: (answer 12).  This claim is also contradictory to his assertion that H I Limited has lost all its distributable profits by October 2018 (answer 24)
Life Policies	The Respondent stated in his SoA that he has no life policies	The audited financial statement of H I Limited, as enclosed in the Respondent’s Form E, shows that the Respondent has a life insurance in the amount of HK$1,542,904.95 as at 30 June 2017.
Residence	The Respondent stated in his SoA and ASoA that he is residing at an address in Sham Shui Po, which is a sub-divided flat	The Respondent admitted in his Form E and Answers that he is now residing in an apartment at Grand Pacific Views on Castle Peak Road.  The apartment has 2400+ square feet, 4 bedroom with 2 parking spaces. (answer 6)
Accounts	The Respondent merely stated/disclosed his HSBC HKD account no. 828-xxxxxxx-292 and asserted that the account balance is zero.  He did not disclose any bank statement in his bankruptcy proceedings.	The Respondent’s Form E show that he also has a savings account with account no. 828-xxxxxx-292. The balances of those accounts are not zero.
H	The Respondent stated that the value of H I Limited is HK$1.  Without any financial statements provided by Respondent, the Official Receiver relied on circumstantial evidence and commented that “it looks like a substantial underestimation when H I Limited seems to have owned 70% of a factory in Bangladesh”	The audited financial statement of H I Limited, as enclosed in the Respondent’s Form E, will confirm this fact (at least as of July 2017), and will also assist the Bankruptcy Court in assessing the veracity of the Respondent’s assertion.

22.In addition to this, Mr. Chan for W pointed to other matters that the CFI had not been told about but have been disclosed in these proceedings, and which has been referred to in the MPS Judgment, namely:

a.     H’s directorships in and ownership of a number of companies

b.     A gift by H to his mother of HK$450,000 in the month of November 2018 prior to the December 2018 filing of the Bankruptcy Proceedings

c.     Undisclosed bank accounts into which H received HK$603,000 in November 2018

23.H’s response to W’s table is set out in an affirmation dated 10^th October 2019.  As I have set out W’s table in full, it is appropriate I also quote H’s response in full (again with appropriate abbreviations for the names of companies):

Companies

5.   I did disclose and clarify in my Bankruptcy Application and Letters to the Official Receiver my interests and directorships in the companies, in which the Petitioner’s father falsely accuses me of holding.  The Bankruptcy Application further clarifies that GU and RU do not hold any factor assets and are facing further litigation from owed wages and suppliers.  Till today I have not received any further questions from The Official Receiver and is fair to assume that I have clarified any doubts. (Please see attachment 1).

Mid-Levels Property

6.   At the time of my bankruptcy filing 6^th of December 2018, property agents from Centaline and Midland Realty had estimated the value of the property to be approximately HKD31million as the property was not yet completed and was on a downward trend (Please see attachment 2).

7.   When the property was near its completion date, and the property market in mid-levels was on an upward trend, various property agents including Centaline and Midland Realty had estimated that the market value had increased to HKD38million. (Please see attachment 2).

8.   Towards April 1^st, one of the factors regarding to my statement of “unsustainable” was that certain potential buyers and property agencies became aware of my bankruptcy filing and therefore expectations of the price had been lowered.

9.   Subsequently a letter from Zhong Lun Law Firm dated 29^th July 2019 (please see Correspondence Bundle C1 – Page 30), indicated that their client intended to sell and or market the property for HKD45-47Million. 

10. Today presently, the entire Hong Kong property market has dropped due to social and economic factors, which could not have been foreseen on 1^st April 2019 or at the time of my Form E filing.  The property market can be volatile, especially when there are uncontrollable factors involved.  (Please see attachment 2).

Employment

11. At the time of my bankruptcy filing on 6^th of December 2018 I was unemployed. However due to my maintenance, need to provide for A [the child] and as a responsible father I started freelance work as a consultant for trading fabrics and garments.

Salary

12. In regard to my annual tax return, this was filed personally by me and is a clerical error. I could not afford personal accountants to verify my tax income declaration, unlike the petitioner whereby a certified accountant is retained for her US tax returns, therefore I missed the declaration for housing allowance.

13. I had drawn HKD10,000 because since I had not drawn a full consecutive monthly salary for 11 months, this amount as necessities was essential for food, transportation and partially given to the Petitioner. (Please refer to the Answer to Question 5 in the 1^st Questionnaire.)

Life Policies

14. The life insurance policy does not belong to me as I am not the beneficiary, nor did I personally pay for the policy.  The life insurance policy beneficiary and purchaser are the company, H I Limited.  The insurance policy was collateralized against the HSBC SME Loan as stated in the HSBC Banking Facilities.  (Please refer to Answers to the 1^st Questionnaire – Annexure 4).

15. The policy is a K M Insurance Policy:  thus, in the event of my death, the company will collect all the monies from the insurance company.  (With best efforts I am locating the Policy document in which I request the court’s permission to accept the Policy if located before 1^st November 2019). 

Residence

16. At the time of my bankruptcy filing (6^th December 2019)[5] I had stayed at the sub-divided flat which belonged to a friend.  After consulting with my parents, I had moved back into my mother’s home in Grand Pacific Views on Castle Peak Road.  Therefore, at the time of my Form E filing I had already moved back into my mother’s residence.

Accounts

17. The HSBC Account No. ending 292 was a savings account that was under the primary account ending 833.  The balances had changed due to a few transactions from the time of my bankruptcy filing (6^th December 2019) to the filing of my Form E. (Please refer to the exhibits in Form E)

18. The bankruptcy filing application does not request for any bank statements. Therefore, I did not attach any of my bank statements.  Furthermore, nowhere has the Bankruptcy Court or Official receiver request for my bank statements. Therefore, I did not submit any of my bank statements.

H I Limited

19. The Official Receiver made this claim before receiving my Bankruptcy Affirmation with exhibits and my numerous letters. Till today I have not received any further questions from the Official Receiver’s Office pertaining to these suspicions which I assume has clarified any doubts.   

24.Counsel for W, Mr. Chan’s response to these answers was, in short, to refer back to the burden on a person petitioning for his or her bankruptcy to come to the court with clean hands and provide full and frank disclosure of their financial position.  It is not, so to speak, to sit on those hands and only supply information when requested.  He pointed to the fact that there was no indication by H that he had informed the Official Receiver of the “clerical error” in respect of his tax return, had updated either the Official Receiver or the CFI of his change of address or his employment status, or had disclosed the extent of his involvements in and holdings in the various companies.  He placed emphasis on the fact that H had not provided adequate disclosure in relating to H I Limited.

25.Mr. Cheung for H argued that the Court should bear in mind that for the most part H has not been represented here or in the CFI or had the assistance of solicitors to advise him on the correct approach to be taken.  He says that in substance, H has been consistent in both sets of proceedings: he is in major financial difficulty.  He says that even if, which is not admitted, there are inconsistencies between the two accounts provided to this court and the CFI, this is by itself not a good reason for materials obtained in family proceedings to be disclosed and for the privacy which would otherwise apply to them to be put aside.   

Decision

26.In my view, not all of the claimed inconsistencies are properly to be described as such or would amount, by themselves, to a valid basis for the Court to grant leave.  Taken in isolation, it is not particularly significant, in my view, for H to have given one estimation of the value of the Mid-levels Property in his original filing in the CFI and another in his Form E which was some months later.  It was a new property.  Although the difference between the two values is considerable – $7M – it is not so dramatic as to be unbelievable, given the level of volatility which is sometimes seen in the Hong Kong property market.

27.Nor am I persuaded that the representations made about where was living or from time to time are inconsistent, although I do accept that if he has changed address this is something he should inform the Official Receiver about. Again, and to be clear, taken in isolation this would not amount to proper basis for leave to be granted.

28.What is more telling is that H has yet to be clear to the Official Receiver and the CFI about the nature of his involvement in the various companies including providing in the Bankruptcy Proceedings any financial statements of such companies which may be available to him.  The failure of his business ventures is at the core of his claimed need to obtain protection and will likely form a central part of the Bankruptcy Proceedings. 

29.In Submissions for the hearing before Hon Mr. Justice Ng on 18 March 2019 (“the OR Submissions”), the Official Receiver included these comments concerning H’s employment status and interest in various companies (I have omitted the bracketed page references to the CFI Court Bundle):

6.  For the purpose of assisting His Lordship, the Official Receiver sets out below the matters which the Debtor may need to explain to the Court:

(1) Whilst the Debtor claims to be unemployed, he seems to be a director of CFC Limited, YFS Limited and NA Limited;

(2) The Debtor seems to be the sole shareholder of NA Limited and 2 companies in the Mainland but those interests were not disclosed in his Statement of Affairs; and

(3) The value of the Debtor’s 100% shareholding in H I Limited which the Debtor claimed to be HK$1 in the Statement of Affairs, looks like a substantial underestimation when [the company] seems to have owned 70% of a factory in Bangladesh.

30.In his affirmation in opposition to the Summons, quoted above, H said that he did disclose and clarify his interests and directorships in the companies with the Official Receiver: see paragraph 5 of H’s Affirmation in Opposition quoted in paragraph 23 above.  He referred to “attachment 1” to the affidavit in support of this.   

31.Attachment 1 consists of three letters to the Official Receiver. The relevant letter is dated 8^th March 2019, in which H spoke of his interest in companies:

In respect of YFS Limited, NA Limited and PV limited, first of all, I was a director of YFS Limited but I had resigned from the directorship of the aforementioned company in late 2018 although the Annual Return was filed late. However, I do not have an interest in the company, whether directly or indirectly.  Secondly I signed the agreements (i.e. items 2 and 3 of the documents annexed to Messrs. Withers’ letter dated 8^th February 2019) on behalf of NA Limited and PV Limited as their authorised signatory only.  These 2 companies are owned by my mother [name] and I do not have interest in any of them.

In relation to CFC Limited, I have already reported in my Statement of Affairs that I am a 100% shareholder of this company but my estimate of the current value of the company is HK$1 (based on its registered capital) and perhaps nil value. In essence, since the acquisition of the same by me, this company has never had any business operation at all.  Therefore, this company is essentially nothing. 

With regards to H I Limited, I have also reported in my Statement of Affairs that I am a 100% shareholder of the company and I have used this company as my vehicle for textile and garment trading.  In the meantime, due to its substantial business loss made in the past 2 years, my estimate of the current [value] of this company is HK$1.00 (based on its registered capital) and perhaps nil value (if not negative).  On appropriate occasion, I will provide the Financial Statement(s) and/or management account(s) of this company to show its financial position. 

Regarding TC Limited (a Bangladesh company), the company was closed down in 2017 due to substantial financial loss there.  As a result, the company’s assets were forced sold for settlement of outstanding wages under the labour law of Bangladesh.  Moreover, the shares of H I Limited was (sic) were also transferred to other persons in September 2017.  I annex to this letter as Annex 1 a copy of the documents relating to the shares in TC Limited for you reference.

Thank you for your kind attention. Please do not hesitate to let me know if you have any queries.

32.Mr. Chan submits that insofar as this letter suggests or implies that H’s interest in NA Limited is other than ownership i.e. his statement that he signed an agreement involving NA Limited as “authorised signatory only” is inconsistent with H’s statement in his First Answers that he owns NA Limited.  It is clear from the Official Receiver’s Submissions that this point has not gone unnoticed and needs to be clarified by H.  He has not done so. 

33.Further, and even though in his letter Attachment 1, H promised to supply the financial statement for H I Limited, he has inexplicably not done so, and as I have said, his stance is that he will not provide further information unless it is explicitly requested by either the Official Receiver or the Court in the Bankruptcy Proceedings.

34.I have considered the potential countervailing factors, including that the information provided to this Court was given in family proceedings and is subject to W’s implied undertaking.  I have also taken into account that there may potentially be consequences to H if his Form E and Answers are provided to the CFI on the Bankruptcy Proceedings, i.e. that he may be called upon to explain his failure to provide the information earlier, or to account for the omissions in his SoA and ASoA.  I have also taken into account, as H’s counsel submitted, that the burden he faces to obtain the protection of a bankruptcy order is a heavy one, and the Court of First Instance will not grant such an order without being satisfied that he is unable to pay his debts. 

35.H further submitted that W could provide evidence and information about H’s businesses and financial position which she gleaned during the marriage.  I do not consider that this to be a persuasive argument.  There is a difference between such general knowledge and the specificity she is now asking the Court to grant permission to disclose.

36.In my judgment the balance is in favour of granting leave to W enabling her to provide the documents requested to the Court of First Instance in the Bankruptcy Proceedings. 

The Order

37.I will therefore make the following Orders/Directions on the Summons, namely:

(1)     Subject to paragraph (2), leave be granted to the Petitioner to disclose the following documents in High Court Bankruptcy proceedings HCB [number]/2018:

(a)     The Respondent’s Form E Financial Statement dated 8^th February 2019 and filed on 19^th February 2019 and the attachments thereto;

(b)     The Respondent’s Answers to the Petitioner’s Questionnaire dated 1^st April 2019 and filed on 2^nd April 2019 and the Annexure thereto; and

(c)     The Respondent’s Answers to the Petitioner’s 2^nd Questionnaire dated 4^th October 2019 and the attachments thereto

(“The Documents”)

(2)     The Documents be appropriately redacted so as to limit the disclosure to information relevant to the financial disclosure including in respect of income, property and assets disclosed by the Respondent. 

(3)     The Petitioner do serve on the Respondent the proposed redacted version of the Documents within 14 days of this Order, and the Respondent do respond with any further proposed redactions within 14 days thereafter. 

(4)     In the event the parties are unable to reach agreement as to the redactions, the Court is to be informed of the extent of the disagreement and will decide on the final form of the redacted documents to be provided to the CFI under this Order. 

38.As to costs, they should follow the event.  I make an order nisi to be made absolute within 14 days that the Respondent do pay to the Petitioner her costs of the Summons.  There be a certificate for counsel. 

Mr. Jeremy Chan instructed by Messrs. Withers, for the Petitioner

Mr. Tommy Cheung instructed by Messrs. Li, Kwok and Law, for the Respondent