Osman Mohammed Arab and Another v. Ng Shui Ching, Irene and Another

CACV 5/2018

[2020] HKCA 818

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 5 OF 2018

(ON APPEAL FROM HCA 311/2014)

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BETWEEN

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J U D G M E N T

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Hon Lam VP (giving the Judgment of the Court):

INTRODUCTION

1.This is an appeal by the Plaintiff against the judgment of Au-Yeung J (“the Judge”) on 5 December 2017 (“the Judgment”) dismissing the Plaintiff’s claim to set aside the transfer of two assets from Mr Ng Shiu Kwan (“Bankrupt”) to the 1^st Defendant, wife of the Bankrupt.  A bankruptcy petition was presented against the Bankrupt on 9 May 2013 (“the Petition”).  The Plaintiff are the trustees in bankruptcy in respect of the estate of the Bankrupt.  The transactions took place on 8 October 2012 and 23 January 2013 respectively.

BACKGROUND

2.The Plaintiff sought to side aside the transfer of the following 2 assets from the Bankrupt to the 1^st Defendant:

(1)  55% shares of in the 2^nd Defendant (“Gain Whole”) transferred around 7 months prior to the Petition; and

(2)  A vehicle (“the Vehicle”) transferred around 3.5 months prior to the Petition.

3.Gain Whole has been the sole registered owner of a unit in Begonia Mansion (the “Property”) since 27 May 1985.  The Property has been used as the matrimonial home of the 1^st Defendant and Bankrupt ever since their acquisition of the shares in Gain Whole in August 1987.  Immediately prior to 8 October 2012, the Bankrupt and the 1^st Defendant held 54,999 and 45,001 shares in Gain Whole, respectively.

4.On 1 November 2009, when the Bankrupt was solvent, he executed a declaration of trust (“the Declaration of Trust”) in respect of his 54,999 shares in Gain Whole (“the Shares”) in favour of the 1^st Defendant.

5.The Bankrupt executed the Instrument of Transfer and Bought and Sold Notes, all dated 8 October 2012, in respect of the transfer of the Shares at face value of HK$1.00 each to the 1^st Defendant (“the Transfer Documents”).

6.The Vehicle was purchased in February 2011 by the 1^st Defendant and put under the name of the Bankrupt.  In a memo dated 18 February 2011, the Bankrupt and the 1^st Defendant stated that the Vehicle was registered under the name of the Bankrupt to be held on trust for the 1^st Defendant.  The purpose was to maximize the no claim bonus rebate on insurance.   

7.In the Re-amended Statement of Claim, the Plaintiff alleged that the transfer of the Shares and the Vehicle in 2012 and 2013 were at an undervalue, constituted an unfair preference of creditors and was made with intent to defraud creditors.  There was no reference in the Re-amended Statement of Claim to the position regarding the Shares in 2009 and the Vehicle in 2011.

8.The Defendants’ case was that the beneficial ownership of the Shares had been transferred in 2009 by the Declaration of Trust and the Transfer Documents only effected the transfer of bare legal title.  The transfer in 2009 was made to settle outstanding loans advanced by the 1^st Defendant to the Bankrupt between 2004 to 2007:

(1)  Between 2004 and 2007, the 1^st Defendant advanced personal loans to the Bankrupt. 

(2)  Back in 2004, it was agreed that if the Bankrupt was unable to repay the 1^st Defendant, he would transfer the Shares to her to set-off his debts (“the 2004 Agreement”).

(3)  As at October 2007, the Bankrupt owed the 1^st Defendant in the total sum of HK$4,404,644.70 (“the Loans”).

(4)  In around October 2009, the Bankrupt and the 1^st Defendant agreed to settle the Loans by the transfer of the Shares from the Bankrupt to the 1^st Defendant (“the 2009 Agreement”).

(5)  The Declaration of Trust was executed on 1 November 2009, witnessed by Madam Yeung Yin Ling (“Madam Yeung”) to implement the 2009 Agreement.

(6)  The transfer of the Shares was therefore supported by valuable consideration.

9.The Defendants also said that all along the 1^st Defendant was the beneficial owner of the Vehicle.  The Bankrupt agreed to transfer the registered ownership of the Vehicle back to her in 2013 upon her request. 

10.By way of Reply, the Plaintiff’s pleaded case was that there was no loan advanced by the 1^st Defendant as the transactions between them were domestic arrangement which could not give rise to any legal obligations or consequences.  It was further pleaded that the main source of funds for the purported loans came from the Bankrupt, not the 1^st Defendant.  There was an alternative plea that the cheques issued to Precision Investments Management Limited were not loans to the Bankrupt, but to the company instead.

11.With regard to the Declaration of Trust and the 2009 Agreement (which was pleaded in para 7 of the Re-amended Defence), the Plaintiff’s plea in para 7 of the Reply averred that there was no outstanding loan as the 1^st Defendant received the proceeds of sale of another property (“Kensington Court”) on or about 1 September 2009 which discharged and repaid all the outstanding loans.  Other than that, the Plaintiff only pleaded a joinder of issue as to the matters pleaded in para 7 of the Re-amended Defence including the execution of the Declaration of Trust and the making of the 2009 Agreement.

THE JUDGMENT

12.At the trial, the then counsel for the Plaintiff (not Ms Eu SC or Ms Cheung who appeared only in this appeal) challenged the genuineness of the Declaration of Trust and other documentary evidence produced by the Defendants to support the Loans and the Declaration of Trust, and the credibility of the testimonies of the Bankrupt and the 1^st Defendant regarding the same.

13.The Plaintiff did not adduce positive evidence to prove that the source of funds for the Loans came from the Bankrupt.  Nor did the Plaintiff produce positive evidence to show that the receipt of the proceeds for Kensington Court was a repayment of the Loans.    

14.After referring to her assessment of the credibility of the witnesses and the bigger picture in the financial affairs between the Bankrupt and the 1^st Defendant, the Judge turned to the issues raised by the parties at the trial.

15.Regarding the Loans, the Judge found that after the outbreak of SARS in 2003, the Bankrupt ran into cash flow problem and he needed to borrow money for his business, mortgage repayments, investment and general use[1].  The Judge further found that the couple maintained separate finance[2] and the 1^st Defendant had the financial capability to make the Loans personally.  She found that the Loans, including those cheques issued to the company, were made by the 1^st Defendant to the Bankrupt personally[3] with the common intention that they would be repaid by the Bankrupt[4].  The Judge was satisfied that Exhibit PA, the loan records produced by the Defendants, were contemporaneous records[5].

16.The Judge did not accept that there was agreement on the transfer of the Shares way back in 2004 when the 1^st Defendant started advancing the Loans to the Bankrupt[6].

17.The Judge however accepted that the 1^st Defendant and the Bankrupt did reach the 2009 Agreement[7].  She found that the couple did intend to define their beneficial interests in the Property and in October 2009 they intended to have the beneficial interest in the Shares transferred to the 1^st Defendant on 1 November 2009.  In this connection, she accepted the Statement of Debt of 30 October 2009 (“the Statement of Debt”) and the Declaration of Trust to be genuine contemporaneous documents.  She further found that there was intention to create binding legal obligation under the 2009 Agreement. 

18.The Judge held that the Transfer Documents were executed merely to effect the transfer of legal title formally and the Bankrupt’s unsatisfactory explanation for the delay in such process did not invalidate the trust.  In other words, the Judge held that beneficial interest passed under the Declaration of Trust when it was executed in 2009.

19.Thus, the Judge found that the 1^st Defendant had provided consideration for the transfer of the Shares in the form of settlement of the Loans and her assumption of the responsibility of making the mortgage repayments for the Property[8].  Having regard to the net valuation of the Shares by reference to the underlying asset (viz the net equity of the Property), the transfer of beneficial ownership in 2009 was not at an undervalue[9].

20.There was also no unfair preference as the 1^st Defendant had provided full consideration for the Shares and she was the only creditor of the Bankrupt when the Declaration of Trust was executed.

21.The Judge also concluded that the couple did not have an intent to defraud creditors under section 60 of Conveyancing and Property Ordinance, Cap.219 (“CPO”) when the Bankrupt executed the Declaration of Trust in 2009 as there were no other creditors[10].

22.Regarding the Vehicle, the Judge found that at the time of purchase the common intention of the couple was that the 1^st Defendant should retain full beneficial interest in the Vehicle.  This was supported by a memo signed by them showing that the Bankrupt was to hold the Vehicle on trust for the 1^st Defendant. Hence, the Vehicle did not fall into the Bankrupt’s estate and the claim over the Vehicle failed[11].

23.Therefore, all the Plaintiff’s claims were dismissed by the Judge. 

THE APPEAL

24.In this appeal, Ms Eu relied on the following grounds to challenge the Judgment:

(1)  The Judge erred in finding the 2009 Agreement was legally enforceable.  Instead, the Judge should have found that the 1^st Defendant and the Bankrupt had no intention to create binding legal obligations under the 2009 Agreement (“Ground 1”);

(2)  In respect of the Declaration of Trust, the Judge should have found that the Bankrupt had no intention to create a trust over the Shares as he did not have the intention to immediately dispose of the beneficial ownership of the Shares on 1 November 2009.  Instead, his intention was to transfer the Shares only if and when he became insolvent.  Such a trust was against the policy under Section 60 of the CPO and the bankruptcy regime (“Ground 2”).

(3)  The Judge erred in finding that the Bankrupt and the 1^st Defendant maintained separate finances (“Ground 3”).

(4)  The 2009 Agreement and Declaration of Trust were made with the intention to defraud creditors and against public policy (“Ground 4”).

DISCUSSION

25.Though Ms Eu put Ground 1 in the forefront of her written submissions, we are of the view that on proper analysis the real issue is Ground 2.

26.As accepted by Ms Eu, the Plaintiff in this appeal did not challenge the finding of primary facts by the Judge as to the making of the Loans and the authenticity of the loan records and the contemporaneous documents in 2009 leading to the execution of the Declaration of Trust.  Nor did the Plaintiff challenge the finding of the Judge that the Statement of Debt and the Declaration of Trust was executed in 2009 when the Bankrupt was solvent.

27.Hence, the relevant question is not whether the 2009 Agreement was legally enforceable.  Given the execution of the Declaration of Trust, which on its face provided that the Bankrupt held the Shares on trust for the 1^st Defendant, it was not necessary for the 2^nd Defendant to enforce the 2009 Agreement by way of contract.

28.Instead, the crucial question is whether the Declaration of Trust operated effectively in accordance with its own terms in the transfer of beneficial ownership of the Shares to the 1^st Defendant on 1 November 2009.  In this connection, as stated above, the Judge’s findings were in favour of the 1^st Defendant.

29.Under Ground 2, Ms Eu submitted in her oral submissions that the Judge’s findings in this respect were plainly wrong because one should read the Declaration of Trust together with the Statement of Debt.  Counsel submitted that the following features in the Statement of Debt indicated that the parties did not intend immediate transfer of beneficial ownership of the Shares:

(a)  The undertaking by the Bankrupt to sell the Property to repay the Loans as soon as possible;

(b)  The agreement of the Bankrupt to pledge the Shares.

30.Further, counsel submitted that the context of the transaction in 2009 should be taken into account, including the evidence of the Bankrupt as to his own intention at that time (suggesting that he intended to have the flexibility of retaining a right to redeem the Shares) and his conduct afterwards in delaying the preparation for the actual transfer of the Shares until 2012.  Counsel also referred to the evidence of the 1^st Defendant about the possibility of repayments of the Loans by the Bankrupt after the execution of the Declaration of Trust.

31.In her written submissions, Ms Eu contended that if it was intended that the Property was to be transferred to set-off the Loans, there was no need to have a trust.  She submitted that the trust was a sham because the Bankrupt had no intention to divest himself of the interest in the Shares until he was unable to repay and in 2009 he had enough cash to repay the Loans.  Counsel also alluded to the subsequent advances by the 1^st Defendant to the Bankrupt in 2012 and 2013 in the total sum of $715,000 when the Bankrupt had yet to effect the transfer of the Shares.

32.With respect, despite the submissions of Ms Eu, we do not accept that the Judge was plainly wrong in her finding that the Bankrupt intended to effect the immediate transfer of his beneficial interest in the Shares by the Declaration of Trust.  There was ample evidence before the Judge to support her finding and contrary to Ms Eu’s contention, there was evidence from the Bankrupt and the 1^st Defendant to such effect.

33.As submitted by Ms Gwilt for the Defendants, there is no longer any issue on the making of the Loans between 2004 and 2007 and the common intention that they were to be repaid by the Bankrupt. 

34.The material evidence was the evidence concerning the intention of the 1^st Defendant and the Bankrupt in 2009.  By that time, the Loans had been outstanding for some time.  At [74] to [104] of the Judgment, the Judge recounted the relevant evidence.  Though she apparently did not place much weight on the 1^st Statement of Debt of 5 October 2009, the other documents (the Loans/Advance Summary, the 2 Emails, the Statement of Debt) and the oral evidence of the 1^st Defendant and the Bankrupt showed that from June to October 2009, the Bankrupt and the 1^st Defendant had several discussions concerning the repayment of the Loans and the values of the Property and the Shares.  They made calculations on the outstanding Loans and considered the adequacy of the value of the Shares to settle the Loans by reference to the market value of the Property.  It is obvious that they referred to the Property and the Shares interchangeably since Gain Whole was only a property holding company without carrying on any business and the value of the Shares depended on the Property as its only asset. 

35.We do not find any inconsistency between the terms of the Statement of Debt and the immediate transfer of beneficial interest of the Shares by the Declaration of Trust.  In the Statement of Debt, the Bankrupt acknowledged the Loans being advanced between 2004 and 2007 in the total amount of $4,404,643.  The Bankrupt undertook to repay as soon as possible by selling the Property.  Such undertaking does not, in our view, negate the possibility of the transfer of beneficial interest of the Shares immediately.  Since the Bankrupt had been handling the sale of other properties of the couple, it was not surprising that the 1^st Defendant entrusted to him the sale of the Property as well.

36.As it happened, the Property was not sold.  As the reason behind the apparent change of plan was not explored at the trial and no suggestion had been put to the witnesses by Plaintiff’s counsel that the change demonstrated that the 2009 Agreement was a sham, it would not be right for this Court to speculate. 

37.Likewise, the reference to pledge is not necessarily inconsistent with the immediate transfer of beneficial ownership of the Shares.  The Statement of Debt itself referred to the execute of declaration of trust “for such period prior to the actual transfer of the shares in Gain Whole”.  Hence, it is plain that the parties intended to give immediate protection to the 1^st Defendant by way of trust pending the completion of formality for the transfer of shares.

38.Whilst the Judge did not address the point about the use of the word “pledge” in the Statement of Debt, this was again hardly surprising since the former counsel for the Plaintiff did not run a case at the trial that even assuming that the 2009 Agreement was legally valid, by virtue of the reference to “pledge” in the Statement of Debt the beneficial interest was not immediately transferred to the 1^st Defendant.  Nor did he cross-examine the Bankrupt and the 1^st Defendant in relation to the reference to “pledge” in the Statement of Debt.  Neither did he advance any argument based on such reference to pledge in his closing submissions.

39.As we have seen, in the Plaintiff’s pleadings, there was no plea that the Declaration of Trust was a sham.  The only plea in the Reply concerning the Declaration of Trust was that the Loans had been repaid and a general joinder of issue.  The pleas under section 60 of CPO and unfair preference in the Re-amended Statement of Claim were directed towards the Transfer Documents in 2012 on the basis that they were undervalued.

40.Hence, the only pleaded case of the Plaintiff was the absence of effective Loans to support the Transfer.  There was no alternative plea that even assuming there had been Loans advanced between 2004 and 2007 and the execution of the Declaration of Trust in 2009, the whole arrangement was ineffective for transferring the beneficial interest over the Shares to the 1^st Defendant in 2009 because of the reservation of beneficial interest over the Shares by the Bankrupt or an intention to prefer the 1^st Defendant or to defraud creditors.

41.This not an arid pleading point because it is common ground that in 2009 the Bankrupt was solvent.  Hence, if such a plea had been advanced, the parties would have to explore at the trial whether the business and overall finance of the Bankrupt was in such a precarious state to require a scheme to be put in place way back in 2009 and the reason for the 1^st Defendant to accept such strange arrangement when the Loan had been outstanding and she had demanded for the transfer of the Property in the 2 emails on 1 June 2009 and 5 October 2009[12].

42.As the trial proceeded only on the basis of the pleaded case, these issues were not canvassed nor explored in the evidence.  As shown in the trial transcript, the former counsel for the Plaintiff cross-examined the Bankrupt and the 1^st Defendant on the basis that there was no loan and the loan records and these transactions in 2009 were only created subsequently[13]. 

43.In this connection, the Judge found that the loan records and documents in 2009 were authentic contemporaneous documents.  She also made findings at [81], [90] and [98] of the Judgment which contradicted Ms Eu’s suggestion that the Declaration of Trust was not meant to effect an immediate transfer of beneficial interest. 

44.There was ample evidence, including oral evidence under cross-examination from the Bankrupt and the 1^st Defendant[14] to support such findings.  The documentary evidence (the loan records produced as exhibit PA, the Loan/Advances Summary, the 2 emails, the printout information on comparable property prices in 2009, the Statement of Debt and the Declaration of Trust) also provided adequate evidential support for these findings.  Based on the sequence of events and the steps taken by the Bankrupt and the 1^st Defendant as found by the Judge at [75] to [80] leading up to the signing of the Statement of Debt and the execution of the Declaration of Trust, we are not satisfied that Ms Eu could successfully challenge the Judge’s findings at [81], [90] and [98] as plainly wrong. 

45.In our judgment, in light of how the case was pleaded and how it was conducted at the trial, it is now too late for the Plaintiff to run a case based on the unpleaded argument (which was not run in the court below) that the only intention of the Bankrupt was to give a security interest to the 1^st Defendant instead of the transfer of absolute beneficial interest over the Shares under the Declaration of Trust.  This would offend the established principles discussed in Flywin Co Ltd v Strong & Associates (2002) 5 HKCFAR 356 and Lehmanbrown Ltd v Union Trade Holdings Inc HCMP 977/2015, 17 June 2015.  See also Chan Chi Wai v Chan Sau Wah [2019] HKCA 584; Mui So Bing v Wan Chi Shing [2019] HKCA 1341 as qualified by the judgment of the Appeal Committee in Lo Yuk Sui v Fubon Bank (2020) 23 HKCFAR 138.  As explained in Re Qin Jun [2018] HKCA 527, it is not simply a matter of whether the party advancing the new point was able to pinpoint some evidence in his favour to support the argument. The Court must have regard to the impact of the new point on the conduct of the case by the opposite side.

46.In any event, even assuming that it is open to the Plaintiff to contend at this stage (notwithstanding the failure to do so at the court below and such a claim had not been put to the witnesses in cross-examination and no submission along such line had been pursued in the Plaintiff’s closing submission at the trial) that the Declaration of Trust was only intended to confer a security interest upon the 1^st Defendant, and even assuming that the Bankrupt intended to reserve a right to redeem in the future (which is not the only possible finding in light of the evidence to the contrary highlighted above), it does not follow that the beneficial interest did not pass upon the execution of the Declaration of Trust.  At the highest, such argument only implies that the beneficial interest held by the 2^nd Defendant had been subject to an equity of redemption.  As there was no suggestion that the Bankrupt had attempted to redeem prior to the Transfer in 2012, the new point would not impinge upon the Judge’s holding that the Transfer was not unfair preference and there was no intention to defraud creditors.

47.As regards the delay in the execution of the Transfer Document until 2012, the Judge had taken account of the same at [99] to [104] of the Judgment.  On the evidence, it was open to the Judge to take such view.

48.For the above reasons, we do not accept that the appeal should be allowed on Ground 2.

49.Coming back to Ground 1, Ms Eu relied on the recent authority of Ho Lai King v Kwok Fung Ying [2020] HKCA 657 and submitted that the Judge erred in holding that the 2009 Agreement was legally enforceable.  Counsel submitted that the Judge should have held that the Bankrupt and the 1^st Defendant had no intention to create a binding legal obligation under the 2009 Agreement.

50.She submitted that in light of the uncertainty as to the terms of the 2009 Agreement, the absence of intention for the agreement to take immediate effect, the relationship between the Bankrupt and the 1^st Defendant and their subsequent conduct, and the lack of reliance by the parties on the 2009 Agreement, the Judge ought to have held that the presumption against an intention of creating any legal relationship in dealings between husband and wife was not rebutted.

51.In our judgment, Ground 1 is of no avail to the Plaintiff because:

(a)  The Judge had given due regard to the presumption before coming to her conclusion that the 2009 Agreement was intended to be legally binding, see [105] to [119] of the Judgment;

(b)  The presumption, as held in Ho Lai King v Kwok Fung Ying, supra, was only a presumption of fact and its strength depends on the factual context in which the issue arises;

(c)  Even as between spouses, the presumption can operate with different strength in respect of different subject matters: see Granatino v Radmacher [2011] 1 AC 534 at [142];

(d)  The relevant factors listed in Ho Lai King v Kwok Fung Ying, supra, are not exhaustive and their applicability in each case must depends on the facts of the case.  It is ultimately an assessment of the intention of the parties which is a question of fact;

(e)  In the present case, given the Loan records exhibited as PA and the documentary evidence leading to the execution of the Declaration of Trust (which was found by the Judge to be genuine and contemporaneous), there is ample evidence to support the Judge’s conclusion;

(f)  In this appeal, as pointed out by Ms Gwilt for the Defendants, Ms Eu did not challenge that the Loans were made.  We agree that this must informed the court in assessing if the presumption was rebutted.  With the clear language of the Declaration of Trust, even if it is to be read together with the Statement of Debt, we cannot find any uncertainty in the terms of the 2009 Agreement in respect of the transfer of beneficial interest of the Shares on 1 November 2009;

(g)  We do not agree that there was no reliance on the 2009 Agreement and the Declaration of Trust or that it was not acted upon.  The 1^st Defendant made the mortgage payment for the Property and the Shares were transferred in 2012.  Actually, the Declaration of Trust was executed on 1 November 2009 pursuant to the 2009 Agreement.  Thus, the subsequent conducts of the parties showed that there was intention to create binding legal obligation.  As the Judge held at [119], the execution of the Statement of Debt and the Declaration of Trust (and doing so in front of a witness) were clearly conducts of a creditor and debtor;

(h)  The other reasons alluded to by the Judge at [115] to [119] are cogent and valid reasons supporting her conclusion;

(i)  We are not satisfied that the Judge was plainly wrong or that this Court has any basis to reverse the Judge’s conclusion in this respect.  

52.In the overall context of the matter, in light of our conclusions on Grounds 1 and 2, Ground 3 is only of subsidiary importance.  Ms Eu referred to other instances in which the 1^st Defendant benefited from gifts from the Bankrupt and vice versa.  Counsel also referred to the shareholdings in Precision Investment Management Limited to illustrate her point.  She said it was arbitrary for the Judge to carve out a debtor-creditor relationship concerning dealings over the Loans.

53.With respect, there is no merit in the argument.  As held by Baroness Hale in Granatino v Radmacher, supra, the law recognizes that husband and wife could have different arrangements in respect of different aspects of their financial dealings with each other.  There is no rule of law prescribing that the mixing of finance in some dealings would necessarily lead to the conclusion that all aspects of finance between a couple are mixed up.

54.One must therefore examine the evidence surrounding the particular transaction in question and assess the same in light of the overall position of the couple.  This seems to be what the Judge had done.

55.On proper analysis, the separation of finance is only a subsidiary point in the overall consideration of the intention to create legally binding obligation.  In light of the overwhelming evidence in respect of the Loans and the Declaration of Trust as discussed under Ground 2, and the reasons given by the Judge to support her finding on separate finance, we are not satisfied the Judge was plainly wrong. The Judge had examined the relationship between the 1^st Defendant and the Bankrupt in the bigger picture.  In light of how the case was run below, it cannot be said that she had failed to take account of relevant matters.

56.Ground 4 must be premised upon Ms Eu successfully persuading us in respect of Grounds 1 and 2.  Without such foundation, there is simply no factual and evidential basis to support any allegation of the requisite intents since the Bankrupt was solvent in 2009 when the Declaration of Trust was executed with the transfer of the beneficial interest.

57.Ms Eu did not advance any effective arguments in her written as well as oral submissions for reversing the Judge’s findings over the Vehicle.

DISPOSITION

58.For the above reasons, we dismiss the appeal and make an order nisi that the Plaintiff shall pay the costs of the Defendants in the appeal, with certificate for 2 counsel. Such costs are to be taxed if not agreed. 

Ms Audrey Eu SC and Ms Prisca Cheung, instructed by Munros, for the plaintiff

Ms Angela Gwilt and Ms Melinda Chiang, instructed by Huen & Partners, for the 1st and 2nd defendants