Mpy v. Wyc

FCMC 3297 / 2022

[2024] HKFC 26

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER FCMC 3297 OF 2022

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DECISION
(Joinder of Parties)

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Introduction

1.This is the respondent’s (“the Wife’s”) application to join two companies, namely Super Matrix Limited (“Super Matrix”) and Grand Goal International Limited (“Grand Goal”) as the 2^nd and 3^rd respondents of the Petition for the purpose of her section 17 application pursuant to the Matrimonial Proceedings and Properties Ordinance, Cap 192 (“MPPO”). Both Super Matrix and Grand Goal are companies registered in Samoa.

Background

2.The respondent (“the Husband”) and Wife have had a long marriage, their children are all over 18 years old. Briefly, in or about 1983, they set up their family business carrying on trading fabric materials, the business went well and had reached out to landed properties developments. This is a big money case where both parties claimed the value of matrimonial assets are over millions of RMB, amongst them, the assets involved companies and properties all over mainland China. I am given to understand the matrimonial pot is over RMB 500 million.

3.Decree absolute was pronounced On 3 March 2023, the outstanding matter is ancillary relief.

4.The Wife says, one of the matrimonial asset, Fuyong Plot was a was sold in late 2016 for some RMB 535 million. The sale proceeds went to Merida Limited (“Merida”), a company set up by the Husband. The Husband is the sole director and shareholder of Merida.

5.Other than Merida, the Husband acquired two other companies, namely Strength Power Group Limited (“Strength Power”) and Elite Wide Corporation Limited (“Elite Wide”). Strength Power and Elite Wide were subsidiary companies and fully owned by Merida.

6.The Husband, on his own evidence, confirmed Strength Power is also holding a piece of land in Hong Kong, namely, section A and B of the Remaining Portion of Lot 11XX in DD1XX whereas Elite Wide is holding another piece of land, namely, Lot 72X in DD 1XX. Apart from the above, the Wife said both companies are holding other pieces of land in Hong Kong.

7.The Husband disclosed the value of the aggregate asset of Merida, Strength Power and Elite Wide is about RMB 357 million.

8.The Wife took out her section 17 application because the Husband disposed the shareholdings of both Strength Power and Elite Wide to Super Matrix and Grand Goal respectively. In other words, a substantive part of the matrimonial asset was disposed away from Merida.

The Dispositions

9.Precisely, the 1^st disposition took place on 3 July 2019, the Husband parted his ownership by causing Merida to transfer 100% shareholdings of Strength Power to Super Matrix (“the 1^st Disposition”). One day later, on 4 July 2019, the 2^nd disposition took place in the same way where the Husband caused Merida to transfer 100% shareholding of Elite Wide to Grand Goal (“the 2^nd Disposition”).

10.Two years later, the Husband petitioned for divorce on ground of 2-year separation.

11.On 30 June 2022[1], the wife applied for an order to set aside the 1^st and 2^nd Dispositions pursuant to section 17 of the MPPO. This decision is solely on issue of joining Super Matrix and Grand Goal as the 2^nd and 3^rd respondents in the ancillary relief proceedings.

The Husband’s opposition

12.The Husband opposed joining Super Matrix and Grand Goal because Merida has been deregistered in November 2019, it is legally incapable of holding Strength Power and Elite Wide’s shares.

13.Secondly, the Husband argued he did not effect the 1^st and 2^nd Dispositions, the Wife is wrong to ignore Merida’s separate corporate personality and somehow proceed on the premise that the Husband was the one who had made the 1^st and 2^nd Dispositions.

14.The Husband further claimed he was not the beneficial owner of Merida by introducing one Mr Fong (“Mr Fong”) into the scene. Pursuant to an agreement between the Husband and Mr Fong dated 2 June 2016, Mr Fong agreed to inject funds to Merida for assets acquisition. They had also agreed the Husband to retain 10% shareholding where the remaining 90% shareholding was held for and on behalf of Mr Fong. In other words, Mr Fong is the beneficial owner of Merida.

15.Thirdly, the Husband said it is neither necessary nor just and convenient to join Super Matrix and Grand Goal because the Wife is capable to seek an order to add back the value of the 1^st and 2^nd Dispositions to the matrimonial pot.

The legal principles

16.Order 15 rule 6(2)(b) of the Rules of High Court states the requirement of a joinder application:

“Misjoinder and nonjoinder of parties (O. 15, r. 6)

…..

(2) Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application—

(a) order any person who has been improperly or unnecessarily made a party or who has for any reason ceased to be a proper or necessary party, to cease to be a party;

(b) order any of the following persons to be added as a party, namely—

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon,

or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

17.While it remains a discretionary power with Court, it is understood that the test of joining a party, being Super Matrix and Grand Goal, is whether there is a bona fide claim and a proper question to be tried between them, the joinder must be necessary or just and convenient to reach a resolution. HHJ Melloy in NLT v. LYKJ (FCMC 8680/2012; [2020] HKFC 75) in light of a Court of Appeal case, LLC v. LMWA [2019] 2 HKLRD 529 as follows:

“8. In addition, it is accepted by both sides that the correct approach to matters of this nature was originally set out by Mostyn J in Fisher Meredith v JH and PH (Financial Remedy: Appeal: Wasted Costs) [2010] 2 FLR 536. This approach has also been recently approved by our own Court of Appeal in LLC v LMWA [2019] 2 HKLRD 529, where Lam J said that generally speaking it was not necessary to join a third party unless there was a request for a particular order to be made against him or her. In that judgment Lam J stated inter alia as follows:

[25] Further, even in cases where a spouse seeks a proprietary order in respect of the disputed property, the third party must be involved only if he or she has a competing claim to that property. In this respect, there is a difference between cases where the third party is the legal owner or one of the legal owners of the disputed property and cases where a spouse claims that the third party has a beneficial interest in a property legally held under the name of that spouse. In the former case, the third party should be joined as a party since the legal title of the disputed property would have to be transferred or subject to encumbrance if the ownership issue is resolved by the making of a proprietary order. In the latter case, the third party should be notified of the claim and if he or she decides to contest the ownership issue, he or she should apply to be joined as party to the proceedings. If the third party does not apply to be joined, he or she shall be bound by the judgment: see Order 15 Rule 13A (4) of the Rules of the High Court, applicable by virtue of Rule 3 of the Matrimonial Causes Rules.

Discussions

18.First and foremost, I remind myself this decision concerns the issue of joinder only, it is unnecessary for the Husband to articulate his argument on the substantive section 17 application because it shall be determined at trial. The said application simply focus on whether the Wife has a bona fide claim and whether it would be necessary or just and convenient to join Super Matrix and Grand Goal as the 2^nd and 3^rd respondents in the ancillary relief proceedings.

19.Prior to the 1^st and 2^nd Dispositions, Strength Power and Elite Wide held substantive assets including cash, insurance policies, fixed deposits and landed properties. The prima facie fact that the transfer of shareholdings of Strength Power and Elite Wide (held by Merida of whom the Husband is the sole director and shareholder) to Super Matrix and Grand Goal will certainly defeat the Wife’s ancillary relief claim. I am satisfied the Wife has demonstrated a bona fide claim in the ancillary proceedings.

20.That said, the Court has to consider the 2^nd limb – whether it is necessary or just and convenient to join Super Matrix and Grand Goal.

Deregistration of Merida

21.On the Husband’s admission, Merida was deregistered because of his failure to pay the prescribed registration fees. However, I am not persuaded that for this sole reason, being an administrative consequence, would affect Merida’s ability to hold assets. The Husband has failed to give evidence on this part to justify a de-registered company is unable to hold assets should an order of setting aside is made.

22.In fact, the Husband has submitted general ledgers of Merida after the de-registration until 31 December 2021[2]. After Merida being deregistered, substantive properties are still vested with Merida.

23.Moreover, the Wife has deposed in her affirmation on Merida’s activities after de-registration: (i) Merida bank accounts are still operation since November 2019; (ii) Merida paid the annual fees and miscellaneous expenses for Elite Wide, Super Matrix and Grand Goal; (iii) up till the end of 2021, Merida was still holding insurance polices worth HK$40,999,980 with the Husband as sole beneficiary; and (iv) at the same time, Merida was reported to have accumulated amounts due from other related companies[3].

24.I accept, on these evidence, the status of Merida, even being deregistered, has no impact on the Wife’s section 17 application should an order of setting aside the 1^st and 2^nd Dispositions is made after the substantive trial.

Separate legal entities

25.The Husband went on to argue Merida and himself are separate entities and that the 1^st and 2^nd Dispositions shall not be caught by section 17 of the MPPO.

26.Both parties cited Kemmis v. Kemmis [1988] 1 WLR 1037. The wife in Kemmis applied for an order pursuant to section 37(2)(b) of the Matrimonial Causes Act 1973 (equivalent to section 17 of MPPO) to set aside a mortgage on a property that had been executed by a company which the husband controlled. Nourse LJ decided at paragraph 1331F-H,

“In the present case the property was vested in the company as such a nominee or trustee for the husband. That gave him an absolute and uncontrolled power to procure the company to dispose of the property for such purpose and in such manner as he might direct. He did procure the company to create the mortgage. In these circumstances, and while it is true that the company is not the other party to the proceedings. I baulk at construing section 37(2)(b) so as to allow and encourage its avoidance by the simple devise of vesting assets in a mere nominee or bare trustee. That was the approach of Wood J. and I entirely agree with him. I think that the most satisfactory basis for a decision of this may to hold that section 37(2)(b) looks to the effective disposition, which, in the circumstances of this and similar cases, is made when the other party to the proceedings at one and the same time procures the nominee or trustee to make the actual disposition; and see section 37(6), which provides that the expression “disposition” includes any assurance of property of any description, whether made by an instrument or otherwise. Alternatively, it could be said that “the other party to the proceedings” must include a mere nominee or bare trustee for that party.”

27.I see a clear case that the Husband has absolute and uncontrolled power to procure disposition of shareholding of companies. By disposing the entire shareholdings of Strength Power and Elite Wide to Super Matrix and Grand Goal, being nominees or receptacles to receive sale proceeds of the sale of landed properties (and also vehicle to hold other family assets). I accept the Wife’s case falls squarely within the Kemmis scenario.

28.The Husband, on the other hand, put forward an argument that he has never admitted to be the beneficial owner of Strength Power and Elite Wide, because of this, no section 17 order can be ordered against him. The Husband further introduced one Mr Fong as the beneficial owner of Merida, Strength Power and Elite Wide.

29.The Husband’s argument is flawed. I am aware the Husband relied on the 2 June 2016 agreement to demonstrate he has no beneficial interest in Merida. However, in the said agreement, the Husband alleged he is holding 90% beneficial interest of Merida for and on behalf of Mr Fong only, he kept the remaining 10%. It could not be said he has no interest in Merida at all. In any event, I expect this issue on beneficial interest of Merida will be disputed and shall be canvassed at trial.

30.Moreover, I see from Merida’s general ledgers furnished by the Husband has recorded only entries from 30 November 2016[4], I failed to see there is evidence on how Mr Fong has injected funds to Merida pursuant to the 2 June 2016 agreement. I expect evidence on whether Mr Fong is the beneficial owner shall be elicited from the Husband at the substantive trial.

31.Furthermore, the Husband submitted it is unnecessary for the Court to lift Merida’s corporate veil[5] (See: Prest v. Petrodel [2013] 2 AC 415).

32.In the Family Law context, I shall rely on the judgment of SLA nee S v. HKL [2013] HKFLR 445, DDJ Carlson summarised Prest in paragraph 12 of his judgment and decided Prest should be followed here.

“12. In Prest there were properties that belonged to companies that were said to be controlled by the husband in that case and that these companies were his alter ego. On this basis, following the long established approach of the Family jurisdiction in England on applications for ancillary relief, the trial judge, Moylan J, ordered the husband to procure the conveyance to the wife of a valuable residential property belonging to one of those companies into the wife’s name. On appeal to the Court of Appeal, by a majority, the court held that such an approach ran counter to the old-established Saloman principle (see Saloman v A. Saloman & Co Ltd [1897] AC 22) that a company is separate from its shareholders and is therefore not amenable to orders such as that made by the judge. On appeal to the Supreme court, a bench of seven justices upheld that reasoning but, on the particular facts of this case, Lord Sumption, with whom the other justices were in agreement, decided that all the properties owned by the companies were held on trust for the husband and, as such, he was in a position, as beneficiary, to direct the companies to do as he required, or as in this case, he had been ordered. Such a simplistic analysis by me does not do, and is not intended to do, justice to such an important decision but I believe it will suffice for the purposes of this case. Also, I apprehend that although not binding in our courts in Hong Kong, this decision will be followed here. It is persuasive authority of the highest order and insofar as it now becomes relevant to this case I respectfully propose to follow it.”

33.Then, DDJ Carlson in SLA nee S v. HKL ruled that the husband was the beneficial owner of a company named L&H, the disposition of 100% shares of L&H to one Mr C and one Mr L was a sham. L&H was found to be a family asset of the parties and directions of valuation of L&H were given.

34.I am of the view the same situation happens here.

35.The Husband, on the other hand, put forward the following arguments in his written submissions:

“20. Applying the test in Prest, Merida’s separate corporate personality is fatal to the W’s S17 Application. There is no cause to pierce the corporate veil:

20.1. H has plainly not under an existing legal obligation to share Strength Power and Elite Wide with W when Merida was incorporated on 11 October 2016:

(i) Strength Power and Elite Wide were not yet incorporated when Merida was incorporated.

(ii) There was (and still is) no financial provision order against H requiring him to share the value of Strength Power and Elite Wide with W whom Merida was incorporated; nor when the Alleged Dispositions took place on 3 and 4 July 2017.

20.2. In any event, it is clear that H did not have Merida incorporated to evade his obligations against W. There is no dispute that Merida was set up to carry out a land investment project.”

36.In fact, I find the Husband’s argument has diverted tangentially away from the Wife’s case of joinder of parties. The Wife has submitted her case does not go so far to touch upon the issue of lifting corporate veil, the Wife has repeatedly formulating her case in the section 17 application that Merida is the husband’s nominee only. The Husband’s argument of lifting corporate veil is irrelevant. As the sole owner of Merida, when two of its wholly owned companies were parted to Super Matrix and Grand Goal, this fact is already sufficient to make an order to join them as parties.

37.Whether the Husband has intended to share Strength Power and Elite Wide with the Wife is also irrelevant. This issue, should the Husband chose to put forward, shall be decided at trial of the ancillary relief proceedings.

Add back

38.Finally, the Husband submitted the Wife could seek an order to add back the amount transferred out as alleged to the matrimonial pot. I agree with the Wife that this technique is only deployable when the value of relevant dispositions are much less than the available assets. At this stage, the values of assets of Strength Power and Elite Wide are still unknown, it is premature to say the add back is workable.

Conclusion

39.With reasons of the foregoing, I am satisfied it is necessary to join Super Matrix and Grand Goal to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon in the ancillary relief proceedings. It is also just and convenient to do so. I therefore exercise my discretionary power to grant an order that both Super Matrix and Grand Goal be joined as the 2^nd and 3^rd respondents of the ancillary relief proceedings.

Costs

40.The outcome of this application warrants costs to follow event, I make an order nisi that the Husband to pay the Wife’s costs of her summons, with certificate for counsel, to be taxed if not agreed. Both Super Matrix and Grand Goal did not file their affirmation(s), nor did they lodge written submission(s) to oppose, I shall reserve their costs. This costs order nisi shall be made absolute in absence of application to vary by way of inter parte summons within 14 days from the date of this decision.

Orders

41.With reasons of the foregoing, I make the following orders:

(i)  Super Matrix and Grand Goal be joined as parties in the ancillary relief proceedings and be named as the 2^nd Respondent and 3^rd Respondent, limited to the issue of ancillary relief.

(ii)  The Wife be named as the 1^st Respondent.

(iii)  A costs order nisi that the Husband (the Petitioner) do pay the Wife’s (the Respondent’s) costs of this summons, with certificate for counsel, to be taxed if not agreed; the costs of both Super Matrix and Grand Goal be reserved.

(iv)  This costs order nisi shall be made absolute in absence of application to vary by way of inter parte summons within 14 days from the date of this decision.

Mr Bernard Man SC and Mr Cristian Tsang instructed by Messrs Haldanes for the petitioner  

Ms Anita Yip SC and Ms Lily Yu instructed by Messrs Withers for the respondent

The intended 2^nd and 3^rd respondents, did not appear