Chan Pui Sze and Mak Hau Yin (The Joint and Several Trustees of the Property of the Bankrupt) v. Wang Jue
|
CACV 438/2024, [2026] HKCA 1776 On Appeal From [2024] HKCFI 2491 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 438 OF 2024 (ON APPEAL FROM HCMP NO 1655 OF 2017) ____________
____________
____________
_________________ J U D G M E N T _________________ Hon G Lam JA (giving the Judgment of the Court): Introduction 1.The plaintiffs are trustees in bankruptcy (“Trustees”) of the property of Mr Qin Jun (“Qin”), a bankrupt. They brought proceedings in the Court of First Instance against Qin’s wife, Ms Wang Jue (“Wang”), seeking to set aside the transfer by Qin of his interest in two properties located in the United States to Wang prior to his bankruptcy. The Trustees allege that both transfers (“Transfers”), which were executed in August 2013, were transactions at an undervalue invalidated by s 49 of the Bankruptcy Ordinance (Cap 6) (“Ordinance”). Wang opposed the claim on various grounds, including that the Transfers were made pursuant to a written settlement agreement she had entered into with Qin for their separation shortly before the Transfers, and were therefore made for consideration and not at an undervalue. In her judgment dated 20 September 2024 (“Judgment”), the trial judge, Cheng J, accepted this defence, rejecting the Trustees’ contention that the agreement was a sham, and dismissed their claim. From that decision the Trustees now appeal to this court. Factual background 2.Qin was formerly the Chairman, Chief Executive Officer and an executive director of Up Energy Development Group Ltd (“Up Energy”), a company formerly listed on the Main Board of the Stock Exchange of Hong Kong. He married Wang in 1992 and, by around 2010, they had four children. The family emigrated to North America in around 2002. 3.Wang’s father, Mr Wang Mingquan, was the settlor of a discretionary trust called the J&J Trust, set up in February 2010. The trust held through a corporate chain 32.44% of the issued shares of Up Energy. Wang’s father, Qin, Wang, and the issue of Qin and Wang were listed as beneficiaries. Wang’s father had the power to terminate the trust at any time and revest in himself title to the capital or income of the trust fund. He passed away in February 2021. 4.The first property concerned in these proceedings is located on Ross Road, Palo Alto, California, to which we shall refer as the “Ross Road property”. Qin and Wang became owners of it, as joint tenants, by a Grant Deed dated 22 January 2010 executed by the vendors. The purchase price of about US$1.54 million was paid by Wang, using funds remitted by her father a few days earlier. 5.The second property is located on Paradise Drive, Tiburon, California, which we shall call the “Paradise Drive property”. It was purchased in March 2010 at the price of US$7.8 million. The funds also came from Wang, who had in turn again received them from her father. Wang executed a “Quitclaim Deed” dated 25 March 2010 to “remise(s), release(s) and forever quitclaim(s)” to Qin the Paradise Drive property as “his sole and separate property”. Qin became sole owner of this property by a Grant Deed dated 29 March 2010 executed by the vendors. 6.At trial there was some inquiry into the source of the funds used for purchasing the two properties, but it was not seriously in controversy that both tranches of money came from Wang’s father. At least part of the money apparently originated from distributions by Up Energy to the J&J Trust and then by the trust to Wang’s father. The judge accepted that the father owned the funds and gave them to Wang.[1] 7.In 2011, in connection with fundraising exercises of the listed company, Qin gave certain personal guarantees in favour of Credit Suisse. On 30 May 2013, Credit Suisse commenced proceedings in England against Qin and a group company for the sum of $234m. On 9 July 2013, a company called “Baosteel” presented a bankruptcy petition against Qin. Whilst Credit Suisse’s suit was compromised in April 2015 pursuant to which Qin’s liability as guarantor was discharged, and Baosteel’s petition was dismissed by consent in November 2013 because of the existence of an arbitration agreement, the Trustees rely on these claims as part of the circumstances in 2013 when the Transfers were executed. 8.According to Wang, her relationship with Qin had begun to deteriorate in the years prior to 2013, and they formally separated in August 2013. In her oral evidence she said that in the latter half of March 2013, her daughter discovered that Qin was having an affair, and that although Qin tried to save the marriage, Wang discovered in June 2013 that he was continuing his extra-marital affair. Wang therefore enlisted a friend of hers to help draft an agreement to present to Qin to sign, under threat of legal proceedings. The agreement was eventually signed in August 2013. This agreement, dated 2 August 2013 with the title “Marital Settlement Agreement” (“Agreement”), contained provisions on the parties’ rights and obligations with regard to children, financial support, community property and other matters arising from their separation. The issues in this appeal revolve around this agreement. 9.The relevant provisions of the Agreement include:
10.The Transfers were made shortly after the Agreement, by way of two Interspousal Transfer Grant Deeds executed by Qin dated 7 and 8 August 2013, whereby he transferred any interest he had in the Ross Road property and the Paradise Drive property respectively to Wang “as her sole and separate property”. Each grant was stated to be “for a valuable consideration”, which was not specified. In each deed, one of the template boxes was ticked to claim exemption from documentary transfer tax
11.The two deeds were notarised in August 2013, and there is no dispute that they were executed on their dates. 12.Almost three years later, on 6 May 2016, another creditor presented a bankruptcy petition against Qin based on a loan agreement. This petition resulted in a bankruptcy order made against Qin on 27 July 2016. The Trustees were appointed his joint and several trustees in bankruptcy at the meeting of creditors held on 26 August 2016. The proceedings under section 49 13.The Trustees commenced proceedings by originating summons in July 2017 against Wang for a declaration that the Transfers were void as transactions at an undervalue by virtue of s 49 of the Ordinance and for orders requiring Wang to transfer the two properties to the Trustees. It was alleged that both Transfers were made for no consideration and were gifts. Directions were given in May 2019 for the proceedings to continue as if begun by writ and for pleadings to be filed. 14.Section 49(1) of the Ordinance relevantly provides that where a bankrupt “has at a relevant time … entered into a transaction with any person at an undervalue, the trustee may apply to the court for an order” under the section. Under sub-section (2), the court may make “such order as it thinks fit for restoring the position to what it would have been if that debtor had not entered into that transaction.” Sub-section (3) provides that a debtor enters into a transaction with a person at an undervalue if “(a) he makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide for him to receive no consideration; (b) he enters into a transaction with that person in consideration of marriage; or (c) he enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the debtor.” In the present case the Trustees rely on (a) but not (b) or (c). 15.The concept of “relevant time” is dealt with in s 51. The effect of the provisions there is that since the Transfers were executed within 5 years before the bankruptcy petition, they were entered into at a “relevant time” (s 51(1)(a)), subject to this: because they were entered into not less than 2 years before the petition, that time would not be a “relevant time” unless the debtor was insolvent at the time or became insolvent in consequence of the transaction (s 51(2)). However, since the Transfers were made to the debtor’s wife – an “associate”, that requirement is presumed to be satisfied unless the contrary is shown (s 51(2), s 51B(2)). 16.In defence, three main points were taken by Wang. First, she contended that the two properties, albeit one registered in joint names and the other in Qin’s sole name, both belonged entirely to her even before the Transfers. In essence she said they were properties provided by her father for her. She relied on the doctrines of common intention constructive trust and resulting trust. In terms of evidence she relied in particular on two letters dated 2 December 2009 and 8 February 2010 respectively, said to have been written by her father to herself and Qin, in which her father stated that the two properties were to belong to her only. The Agreement and the Transfers therefore, on her case, simply confirmed her ownership of the properties without effecting any change in beneficial interest. 17.Cheng J rejected this defence. She concluded that Wang had failed to prove any express agreement or even discussions with Qin that the properties were to belong solely to her.[2] She also concluded that no common intention that the two properties were to be beneficially owned solely by Wang could be inferred from the couple’s conduct. She reasoned that even if Wang and her father shared such an intention, it was not proved that Qin was privy to that understanding. In any event, the judge found that Wang had failed to prove the authenticity of the two letters from her father, which the Trustees had challenged.[3] The judge held that it was not open to Wang to advance a case of resulting trust, not having pleaded it.[4] Wang has not sought to revive this defence before us. 18.As another defence, Wang argued that Qin was not insolvent and did not become insolvent in consequence of the Transfers. The burden of proof lay on Wang and the judge held that she had failed to rebut the presumption that Qin was insolvent at the time of the Transfers.[5] Wang has not sought to raise this issue in this appeal. 19.The defence that prevailed at trial and forms the crux of this appeal is this. Wang said that she had given consideration for the Transfers by entering into the Agreement, which regulated the parties’ post-separation affairs and entailed her forbearance from petitioning for divorce or suing for ancillary relief. As the Transfers were supported by consideration, they were not transactions at an undervalue within the meaning of s 49(3)(a). 20.The Trustees did not dispute that a genuine marital settlement between a debtor and his spouse could as a matter of law provide consideration for a transfer of assets by the debtor to the spouse.[6] Nor did they contend that the value of the consideration provided by Wang under the Agreement, if it was genuine, was significantly less than the value of that provided by Qin within the meaning of s 49(3)(c). Their pleaded response to the defence was that there was no genuine separation between the couple and that “the alleged Marital Settlement Agreement (the authenticity, existence and genuineness of which is denied) was and is a sham”. Some particulars were then pleaded, including that the material terms of the Agreement were not performed and that there was no clean break in financial affairs between Wang and Qin. Wang has revived the argument by her respondent’s notice that the Trustees’ pleading was deficient since they failed to plead that Wang and Qin shared any dishonest common intention. The judge did not deal with this pleading objection and neither do we find it necessary to rule on it. 21.In the outcome of the trial, the judge accepted that the Agreement was genuine and not a sham, and that the Transfers were made pursuant to it. The judge also rejected the Trustees’ argument that even if it was not a sham, no consideration was provided because Wang did not actually forbear from petitioning for divorce.[7] Relevant legal principles on sham 22.Before turning to the arguments raised on appeal, we set out some of the relevant legal principles on sham transactions. The classic exposition of the concept of a sham transaction as employed in the present case is found in the judgment of Diplock LJ in Snook v London and West Riding Investments Ltd [1967] 2 QB 786, 802. The explanation has been applied in numerous cases in Hong Kong, including at the highest level.[8] The passage read as follows:
23.A similar explanation was given in Australian law by Windeyer J in Scott v Commissioner of Taxation (Cth) (No 2) (1966) 40 ALJR 265, 279:
24.In Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2005) 218 CLR 471, §46, the High Court of Australia said:
25.More recently, in Rossendale Borough Council v Hurstwood Properties (A) Ltd [2022] AC 690, Lord Briggs and Lord Leggatt JJSC, with whom other members of the court agreed, said (obiter):
26.From the nature of a sham transaction as thus explained, several points may be made. First, the parties must have intended to give to others an impression that their rights and obligations are those appearing from the acts or documents, when in fact they had no intention of creating such rights and obligations or intended to create some different ones. They were “doing one thing and saying another”,[11] or “say[ing] one thing while really intending another”.[12] Second, the requisite inquiry is of the subjective intention of the parties. This is distinct from both their ostensible intention manifested objectively by the acts or documents, and their underlying motivations for entering into the transaction, which may differ one from the other. Third, that subjective intention must be a common intention; this appears from the passage in Snook, and is also clear from Yorkshire Railway Wagon Co v MacLure (a case referred to in Snook) at p 314.[13] Fourth, whilst a common intention is required, it is sufficient if one party has that intention with the other being prepared to go along with it with reckless indifference: A v A [2007] 2 FLR 467 at §52. Fifth, it follows from its meaning that a sham transaction “involves a degree of dishonesty on the part of the parties involved”: National Westminster Bank plc v Jones [2001] 1 BCLC 98, §§39-40 per Neuberger J. Whilst it has been said in Taylor v Savik [2024] EWCC 7 at §§100-108 that a finding of sham does not always involve a finding of dishonesty, it seems to us that it does when used in the sense relevant to the present case. The contentions on appeal 27.On behalf of the Trustees, Mr Bernard Man SC (who did not appear below) and, with him, Mr Roger Phang and Mr Jeff Chan, advanced a number of contentions to attack the Judgment. We shall deal with them in turn below. Wang has filed a respondent’s notice but the relevant points raised, as advanced by her counsel,[14] are interwoven with the Trustees’ arguments and may, where necessary, be discussed together. Authenticity of the Agreement 28.If the Agreement was not genuine, in the sense that it was a document created many years after the date on which it was purportedly signed, obviously it could not be relied upon by Wang as constituting the consideration she gave for the Transfers, leaving aside whether it was otherwise a sham. It would be a “false” document, in the sense that it tells a lie about itself.[15] Sham documents are not necessarily false documents in this sense. We therefore take the authenticity issue first as the logically prior point. 29.The Trustees submit that the judge erred in placing the burden on them to prove that the Agreement was not signed in August 2013, and was also wrong in stating that “it was not suggested that the agreement was not in fact executed in August 2013”. The criticism is directed at §112 of the Judgment, which reads as follows:
30.The first sentence in the passage quoted above seems to suggest that it was for the Trustees to show that the Agreement was not signed in August 2013. That suggestion would be incorrect because it was for Wang, who propounded the document, to establish its authenticity, which had been put in issue: Club Deluxe Ltd v Club Metropolitan Ltd [1995] 2 HKLR 69, 82, 88. In respect of the two letters said to have been written by Wang’s father, the judge had in an earlier part of the Judgment correctly applied that principle and held that Wang had failed to prove their authenticity. The first sentence quoted above was therefore perplexing. The judge was perhaps influenced by the way in which the Trustees framed their closing arguments, in which submissions casting doubt on authenticity were advanced as one of the matters showing the agreement was a sham, on which the Trustees admittedly bore the burden of proof. The judge discussed those matters in §107 to §113, leading to her conclusion at §114 that on the balance of probabilities, the Trustees had not established that the Agreement was a sham. There is reason to suspect that the first sentence of §112 is merely an inadvertent slip in expression rather than an error in the understanding of principle. 31.But even assuming there was an error in the judge’s understanding of the burden of proof, in our view it did not vitiate her reasoning or conclusions. This is not a case where there was no evidence on the issue or where the parties’ conflicting evidence was all rejected and the judge came to a conclusion relying on the burden of proof. Trial judges are expected to make findings based on evidence and inferences, and it is only in very special cases that they may properly resort to deciding a case on the basis that the party on whom the burden of proof lies in relation to a particular averment has not discharged that burden: Yau Lai Wah v Wong Kan Yu [2021] 3 HKC 237, §4.1. There was nothing in this case that should drive Cheng J to take that unusual course and nothing to indicate that she took it. 32.Wang gave evidence that the Agreement was entered into at the time. The judge considered that evidence to be supported by the fact that the Interspousal Transfer Grant Deeds indicated on their face that they transferred property “pursuant to a judgment, [an] order, or a written agreement between spouses”. On behalf of the Trustees, Mr Man complained that there was no evidential basis for the judge to think that the “written agreement” referred to the Agreement. But there was no investigation into Californian law at trial, and no suggestion there was any other relevant “judgment”, “order” or “written agreement” that existed. In these circumstances it was in our view open to the judge to take into account those words and place such weight on them as seemed to her appropriate. 33.For their part the Trustees did not run any positive case that the Agreement was backdated. Nor was it put to Wang in cross-examination that it was not signed on or around the date it bore, namely, 2 August 2013. She was not even asked about the date when it was signed. This is in stark contrast to the two letters of Wang’s father, where the Trustees’ counsel put to Wang that they were created subsequently in order to bolster her defence. This explains why the judge said in §112 of the Judgment: “There was no real challenge to the timeline given by Ms Wang, and it was not suggested that the agreement was not in fact executed in August 2013.” Mr Man submits that this was not accurate and refers us to parts of the Trustees’ closing that sought to undermine Wang’s credibility in respect of her evidence on the Agreement. But in our view the judge was correct that Wang was not really challenged during her evidence on those matters. The judge did not take this as an admission by the Trustees or as conduct barring the Trustees (whether by virtue of the rule in Browne v Dunn[16] or otherwise) from making any submission against authenticity, but it was something she could take into account in evaluating Wang’s evidence. 34.The burden of a party to prove a document in the absence of evidence to the contrary was described by Norris J in Redstone Mortgages Ltd v B Legal Ltd [2014] EWHC 3398 (Ch) at §57 (applied by this court in Hu Lan v David Golden [2024] 1 HKLRD 1252 at §58) as follows:
35.In the end of that section of the Judgment, the judge stated she accepted that the Transfers were made “pursuant to” the Agreement and that given the mutual promises under that agreement, Wang had “established that consideration was given for the transfers.”[17] It is not the case that the judge rejected Wang’s evidence and yet held against the Trustees on the ground that they failed to prove the Agreement was not authentic. Reading the Judgment as a whole, it seems to us plain that the judge accepted Wang’s evidence and found that the Agreement was authentic and signed contemporaneously. Alleged errors in §106 of the Judgment 36.The Trustees’ next cluster of points all allege errors in §106 of the Judgment. That paragraph reads as follows:
The pretence 37.First, focussing on the words in §106 that “the pretence would have lain in the representation to the world that the US Properties had always belonged to Ms Wang”, the Trustees submit that the judge misunderstood their case regarding the false appearance to which the Agreement gave rise. On their case, the false appearance was that the couple were separating and entered into an agreement to regulate their affairs in that context, when in truth they were not separating and did not need such an agreement. The real purpose of the Agreement was to create an appearance of there being consideration for the Transfers when in fact there was none. 38.We do not think the judge lost sight of the Trustees’ case. The judge correctly summarised the Trustees’ case[18] to be that there was no genuine separation and that the Agreement was a sham (Judgment, §37). In §106 itself, the judge recorded the Trustees’ case that the purpose of the Agreement was to create a false appearance that consideration had been given for the Transfers. The Judgment went on to deal with the case of sham in several further paragraphs beyond §106. After referring to the Trustees’ points that various terms of the Agreement were not performed (§107) and that there was no clean break between the couple (§108), the judge continued in §109:
39.Clearly the judge had correctly apprised herself of the thrust of the Trustees’ case and dealt with it. That case faced a number of difficulties including, as the judge noted, that despite their pleading, at trial the Trustees “stopped short of suggesting that Ms Wang and Mr Qin … are not truly separated.”[19] The Trustees never put to Wang during her testimony that she had continued to live with Qin or to have intimate relations with him after August 2013, or that there was no genuine separation. 40.The reference in §106 to the pretence being the representation that the US properties had all along belonged to Wang should be read together with the two preceding paragraphs. There the judge was dealing with an argument of Wang’s counsel that because the parties did in truth intend that Qin should confer sole ownership of the two properties on Wang and that was also what clause 5.01(B) of the Agreement provided, it could not in law have been a sham. The judge rejected this argument on the ground that the Agreement on its face suggested that the properties had always belonged to Wang, when in truth (as contended by the Trustees and as held by the judge) half of the Ross Road property and the whole of the Paradise Drive property had belonged to Qin. As the judge put it in §105: “The former would have implied that the Interspousal Transfer Grant Deeds merely transferred the bare legal title held by Mr Qin to Ms Wang, whereas the latter would have meant that the Interspousal Transfer Grant Deeds transferred Mr Qin’s beneficial interest in the US Properties to Ms Wang.” Hence, the judge observed, there would still be a “pretence”. 41.With respect, this seems to us to be an unnecessarily complicated analysis. Wang’s argument could be rejected for the simple reason that it is a fallacy to say that a transaction conveying property cannot be a sham if there is a real intention to convey property. The conveyance is only part of the transaction. There could still be a sham if the parties in truth intended a gift of the property in question but framed the instrument as a sale, or an exchange, or a transfer for valuable consideration, even though both the reality and the appearance involved a conveyance of the property. There was simply no intention to provide anything in return, contrary to the appearance from the document. 42.The pretence based on the distinction between transfer of legal title and transfer of beneficial interest was not the Trustees’ case. However, whilst that unnecessary formulation was carried over to §106, the judge did not take it to be the sole pretence alleged. As shown above, the judge went on to deal with the pretence alleged by the Trustees. We consider therefore that there is no substance in the complaint that the judge misunderstood their case. Wang’s state of mind as regards ownership of the properties 43.The Trustees submit that it was not open to the judge to hold (in §106) that Wang’s state of mind in August 2013 was that “she thought that [she] really owned the US Properties and that Mr Qin was simply confirming this in executing the Interspousal Transfer Grant Deeds”. They submit that this holding is inconsistent with the finding at §92, which reads:
Given this finding on the parties’ intention in 2010, it is submitted that, there being no suggestion that their intention had changed between 2010 and 2013, the judge could not properly hold that in 2013 Wang thought that she solely owned the two properties. 44.We do not accept this argument. The second sentence in §92 of the Judgment is simply another way of putting the conclusion in the first. In other words, the objective intention is that the beneficial entitlements of the parties follow the legal title. This is clear if one examines the previous paragraphs, from which one can see that the judge was focussing on the objective intention for the purpose of the alleged common intention constructive trust. She first found there was no express discussion or agreement, and then found there was no inferred common intention for a trust. As shown by the authorities considered by the judge in §52 of the Judgment,[20] all this concerns the objective intentions of the parties as manifested by their words and conduct. As summarised by DHCJ A Stock SC in Leung Hang Lin & Anor v Lam Mei Yung [2019] HKCFI 2819 at §8(3):
45.In contrast, the finding in §106 of the Judgment concerns Wang’s subjective belief, her state of mind. Footnote 27 does not imply that the judge found there was a difference between Wang’s state of mind in 2010 and 2013. On the contrary, it shows that the judge had not dealt with Wang’s subjective state of mind in 2010. There is nothing inherently inconsistent for a court to find that a person subjectively believed that she solely owned a property, but at the same time that there was no shared objective common intention with the registered owner that the property was held on trust for her. 46.The Trustees also submit that the judge misunderstood or misstated the Trustees’ case on Wang’s state of mind. In particular, they criticise these words in §106: “it was also then put to her that her understanding in signing the Marital Settlement Agreement was that Mr Qin was not giving the US Properties to her, but merely confirming that they had always belonged to her”. It is submitted that what was put to Wang was not the Trustees’ own case, but a question intended to expose the absurdity of Wang’s case. 47.The relevant questions and answers in cross-examination went as follows:
48.We are prepared to accept that the second question above did not represent the Trustees’ own case. Rather, the Trustees’ argument was that since on Wang’s own case the US properties had always belonged to her, Qin did not really transfer to her anything of substance by the Agreement, and therefore Wang could not have believed that she was providing consideration for the Transfers. 49.Even so, we do not think that the judge mistook that question as the Trustees’ primary case. The judge was there dealing with the pretence she formulated, i.e. that the two US properties had always belonged to Wang. Even though it was not part of their own case, the Trustees did put that question to Wang, and never challenged Wang’s evidence of her subjective belief at the time. This would obviously be a difficulty to any case of sham based on that pretence. Wang’s knowledge of Qin’s financial status 50.The Trustees’ next target of attack is the statement in §106 that Wang “agreed that she did not have information as to the state of Mr Qin’s spending, assets and liabilities as at August 2013”. This was based on a question and answer arising from the averment in Wang’s defence that Qin was able to pay his debt as they fell due and his assets exceeded his liabilities at around the time when the Transfers were executed. In cross-examination, counsel for the Trustees challenged that plea by putting to Wang: “you cannot know that because you are not Mr Qin and you do not have all the information about his spending, assets and liabilities as at August 2013”, to which Wang said: “I agree.” Mr Man submits that this exchange concerns Qin’s insolvency, not the question of consideration, and it concerns Wang’s knowledge as at the time of the pleading (i.e. May 2020) and not August 2013, and that the judge’s reliance on it was therefore misplaced. 51.We do not accept the argument. The fact that the question was directed at the issue of insolvency does not mean the answer is irrelevant in any other respect. Even assuming that the question and answer were directed at Wang’s knowledge as at the time of her pleading, they could also be relevant to her earlier knowledge in 2013, there being no suggestion that in 2013 Wang had all the information asked about but had forgotten it all by 2020. The Trustees made no suggestion to Wang that she knew about Qin’s financial status as at August 2013. In these circumstances there is in our view no basis to impugn the judge’s finding that Wang “did not really know about Mr Qin’s financial status” as at August 2013. 52.Mr Man further criticises the judge’s statement that it “was not suggested that [Wang] knew that Mr Qin was unable to pay his debts or that his liabilities exceeded his assets, or that the purpose of the transfer of the US Properties was to avoid Mr Qin’s creditors”. He says that the judge was plainly wrong because the Trustees did submit in closing that the Agreement “is merely a ploy for Qin to transfer his assets away to Wang at an undervalue in order to put them out of the reach of his creditors.”[21] 53.We do not think the judge erred here. What she recorded was that there was no suggestion that Wang knew any of the three matters set out. The submission that the document was a ploy for Qin to defraud his creditors did not necessarily implicate Wang. In fact the Trustees never suggested to Wang during her examination that she knew at the time that (1) Qin was unable to pay his debts, (2) his liabilities exceeded his assets, or (3) the purpose of the Transfers was to put those properties out of the reach of his creditors.[22] Adverse inference 54.The Trustees’ next main contention is that the judge erred in not drawing any adverse inference in relation to the defence based on the Agreement, from Wang’s failure to call Qin to testify at trial. The Trustees asked the judge to infer in this regard that (1) Wang did not threaten to divorce Qin; (2) Qin did not sign the Agreement because he wanted to avoid a divorce petition; (3) it was not a real option for Wang to petition for divorce; (4) there was no negotiation between Qin and Wang of the terms of the Agreement; (5) Qin did not sign the Agreement on 2 August 2013; (6) Qin’s payments to Wang after the Agreement were not referable to his performance of it; and (7) Qin and Wang maintained a close financial and personal tie despite the Agreement. 55.Mr Man points out that the judge did draw adverse inferences from Qin’s absence on other issues against Wang. In particular, on the issue of constructive trust, the judge inferred that Qin had no evidence to give of any express agreement with Wang regarding the beneficial interest in the two US properties.[23] On the issue of Qin’s insolvency, she inferred that Qin had no evidence to rebut the Trustees’ claim that he was liable to Credit Suisse for $234m as at 20 May 2013.[24] Mr Man submits that the differential treatment of the consideration issue was unexplained and wrong. 56.We do not think the judge fell into error. There is no suggestion that the judge did not correctly inform herself of the relevant principles on the drawing of adverse inferences. She discussed them in the Judgment at §§46-50. Mr Man refers to Telings International Hong Kong Ltd v John Ho & others (CACV 10/2010, 22 October 2010), §§79-81, and submits that applying the approach in that case, the judge ought to have drawn “every reasonable inference” adverse to Wang “in determining each and every disputed fact.” We do not understand him to be saying that Telings established some legal principle different from those explained in the authorities discussed by the judge, requiring adverse inferences to be drawn on all possible issues whenever a relevant witness is not called. Telings was, in the words of Le Pichon JA who gave the main judgment in that case, a “highly unusual” case in which the plaintiff adduced no oral evidence at all “notwithstanding the highly complex and at times wholly unexplained factual backdrop”, when there were unanswered questions raised by the documentation and unexplained drafting deficiencies.[25] 57.In the present case, applying established principles and based on the available facts, the judge decided to draw some of the adverse inferences sought but not others. In these circumstances what the UK Supreme Court stated in Efobi v Royal Mail Group Ltd [2021] UKSC 33 at §42 is apposite:
58.The Trustees have wholly failed to make out any basis for impugning the judge’s decision as one that no reasonable tribunal could reach. Wang was herself a party to the Agreement. She signed it. She testified at trial. On the critical part of the case of sham, the Trustees did not put to Wang that there was in fact no separation. All that was put was that she continued to have personal and financial ties with Qin. Nor did the Trustees put to Wang that she knew about Qin’s financial problems; in fact their case was that she knew little. She was not seriously challenged on her evidence about her knowledge and belief at the time. Whilst for her case of common intention constructive trust it was for Wang to prove the requisite common intention, and the burden was on Wang to rebut the presumption of Qin’s insolvency, on their case of sham it was for the Trustees to prove that Qin and Wang had a common intention (or at least an intention on the part of one and reckless indifference on the other) to give an impression of their rights and obligations by the Agreement different from what they really intended to create. There are obvious differences in the contexts of the various issues in relation to which the question of adverse inference arose, including the nature and weight of the other relevant evidence, the burden of proof, and the extent to which the Trustees challenged Wang’s case. In our judgment it was perfectly open to the judge not to draw the adverse inferences sought in relation to the Trustees’ case of sham. Non-performance of the Agreement 59.The next area of complaint relates to the subsequent conduct of Wang and Qin. In the Judgment at §109, the judge held:
60.The Trustees contend that the judge erred and ought instead to have held, based on the non-performance of the Agreement and the fact that there was no clean break between the couple, that the Agreement was a sham. 61.A number of arguments have been advanced in support of this contention. To start with, it is said that the judge made two errors of law. First, it is submitted that in saying there was no “sufficiently cogent evidence” of a dishonest intention showing a sham, the judge fell into error because there is no rule of law that a more serious allegation always requires more cogent evidence to establish. Reliance is placed on Birmingham City Council v Jones [2024] AC 168, §51(3); Broxfield Ltd v Sheffield City Council [2019] EWHC 1946 (Admin), §25; and Real Estate and Finance Fund (in liquidation) v Sun Cheuk Pak Alan [2025] HKCFI 2478, §§120-134. 62.It is unnecessary for us to deal with Mr Maurellet SC’s riposte on behalf of Wang that Solicitor (24/07) v Law Society of Hong Kong (2008) 11 HKCFAR 117 laid down as a matter of binding law in Hong Kong that the more serious the allegation, the less likely it is to be true, so the more cogent the evidence must be to prove it. The judge did not say that because a sham is a serious allegation, therefore it is inherently unlikely. It seems to us that her Ladyship simply considered that given the facts of this case, cogent evidence was required to prove the dishonest common intention for the case of sham. We are not satisfied that there was any material legal error in this regard. 63.Nor did the judge commit the error, as alleged, of thinking that the subsequent conduct of Wang and Qin was, as a matter of law, irrelevant to the question whether the Agreement was a sham. On the contrary, her Ladyship expressly stated (at §101) that in considering whether a transaction is a sham, “it is perfectly proper to consider how the parties subsequently acted.” It is not in dispute that whilst the parties’ subsequent conduct is as a matter of law generally inadmissible as an aid to construction of their written agreement, it is admissible on the question whether the document represents their genuine agreement: A G Securities Ltd v Vaughan [1990] 1 AC 417, 466, 475. On the other hand, the fact that the parties’ subsequent conduct departed from the agreement may be explicable by other reasons including a subsequent change of mind or an agreement to vary it, and does not necessarily mean that they never intended it to have effect in the first place: Stone v Hitch [2001] STC 214, §68. 64.Taking into account the particular circumstances of this case, including but not limited to the fact that they had four children with the youngest two being six years old at the time, the judge did not consider that the subsequent interaction between Wang and Qin was such as to show that their separation agreement was a sham. This is a decision the judge was entitled to reach on the facts, and there is no valid ground to impugn it, especially bearing in mind that a trial judge’s finding exonerating a party of want of probity is not to be lightly displaced: Pang Siu Wing v Chungshan Commercial Association Hong Kong [2024] 1 HKLRD 1031, §40. 65.Separately, the Trustees have raised a number of criticisms of the judge’s analysis of the evidence, none of which is in our view valid. They are at bottom no more than a complaint that the judge should have inferred from the parties’ subsequent conduct regarding the performance or enforcement of the Agreement that it was a sham. But the weight to be placed on the matters relied on by the Trustees was a matter for the judge. The judge was entitled to accept Wang’s oral explanation of the performance of the Agreement, even though she rejected her evidence in some other respects as incredible. As Kwan VP said in Dongguan City Zhiji Market Investment Management Co Ltd v Yip Kwok Chi [2018] HKCA 26, §9: “The judge in a civil trial is perfectly entitled to accept parts of witness’ evidence and to reject other parts. The mere fact that a witness was held not to be credible in one aspect does not mean his evidence should be rejected in total. It must depend on the particular circumstances and the extent to which the evidence rejected may impact on other parts of the evidence.” In our view the judge adequately explained in §109 why she did not draw the inference contended for by the Trustees. 66.The judge dealt with two other subsequent matters relied on by the Trustees. In §110, she duly considered the fact that three years after the Agreement, Wang accepted certain gifts of shares from Qin in July 2016, but the judge did not think that this pointed to the Agreement being a sham. There is nothing to fault her reasoning. In §111, the judge duly considered the fact that Qin remained a beneficiary of the J&J Trust until August 2016 when Wang’s father took steps to have him removed, but noted that it was explicable by Wang’s unchallenged evidence that it was her father’s business decision to enable Qin to continue to have indirect control of Up Energy so as to project a united front for the company. Again, the judge’s reasoning is unassailable. 67.Nor do we think that the judge was plainly wrong, as alleged, in stating (in §113) that the Trustees “stopped short of suggesting” that Wang and Qin were not truly separated. Mr Man says the Trustees had pleaded “there was no genuine separation” between them. But what the judge said in §113 was that whilst the Trustees pointed out that Wang and Qin had not divorced each other despite their purported separation, the Trustees “stopped short of suggesting that Ms Wang and Mr Qin continued to live together or are not truly separated.” Clearly the judge was referring to the marital relationship between them. It was not the Trustees’ case that Wang and Qin were still intimate or lived together after the Agreement, but merely that they maintained financial and personal ties. The judge did not misunderstand the Trustees’ case. No forbearance by Wang 68.Finally, the Trustees contend that the judge should have held that even if the Agreement was not a sham, there was no forbearance by Wang from petitioning for divorce or bringing contentious proceedings against Qin and that there was therefore no consideration provided for the Transfers. Wang admitted in her testimony that she petitioned for divorce after the COVID-19 pandemic, though the marriage was still legally subsisting as at the trial in March 2024. 69.At §115 the judge rejected the submission that it was sufficient for the Trustees to show that Wang did not forbear from suing Qin for divorce. Her Ladyship reasoned that given the mutual promises under the Agreement and mutual release of claims to each other’s properties, there was consideration based on the Agreement itself. 70.There is no dispute that as a matter of law, promises of performance can amount to consideration giving rise to a binding contract, even if the promisor subsequently fails to perform. But the Trustees submit that Wang’s pleading confined her case on consideration to actual forbearance as opposed to a promise to forbear. We do not share the Trustees’ view of the pleading. Wang’s defence pleaded that the Agreement was entered into to settle the parties’ rights and obligations with respect to, inter alia, their property, and that accordingly Wang “would forbear” from petitioning for divorce and bringing contentious proceedings against Qin. We do not think that by pleading “[t]he above” constituted due consideration and value,[26] Wang should be taken to have confined her case on consideration to actual forbearance from petitioning for divorce and disavowed any case of consideration based on her obligations under the Agreement. 71.Irrespective of whether Wang threatened Qin with a divorce at the time, there was evidence from Wang that if Qin did not sign the Agreement and execute the Transfers, she would sue for divorce and Qin knew this. As a matter of fact, Wang did forbear from petitioning for divorce for many years after the Agreement, until after the COVID-19 pandemic. 72.Accordingly, this ground of appeal also fails. Conclusion 73.For the above reasons, we hold that no valid ground of appeal has been made out. The Trustees’ appeal is therefore dismissed. We make an order nisi that the Trustees do pay Wang’s costs of the appeal, with a certificate for two counsel.
Mr Bernard Man, SC, Mr Roger Phang and Mr Jeff Chan, instructed by Messrs. Lee Law Firm, for the Plaintiffs Mr José-Antonio Maurellet, SC, Mr Jason Yu and Mr Charlie Liu, instructed by Messrs. LCP, for the Defendant [1] Judgment, §§15 & 17. [2] Judgment, §57. [3] Judgment, §§58-81. [4] Judgment, §94. [5] Judgment, §§117-169. [6] As to this, see e.g. Hill v Haines [2008] Ch 412. [7] Judgment, §§104-115. [8] See e.g. Secretary for Justice v Global Merchant Funding Ltd (2016) 19 HKCFAR 192. [9] (1882) 21 Ch D 309. [10] [1965] 2 QB 537. [11] Belvedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858, 876 per Sir Thomas Bingham MR. [12] Donald v Baldwyn [1953] NZLR 313, 321, per F. B. Adams J. [13] Observations similar to the first three points were made by Arden LJ in Stone v Hitch [2001] STC 214 at §§66 and 69. [14] A discrete point in the respondent’s notice, namely that even if s 49 applied, relief should be refused because, inter alia, the purchase monies for the properties came from Wang, was abandoned by counsel. [15] See HKSAR v Chan Kam Ching (2022) 25 HKCFAR 48 in relation to ss 73 & 74 of the Crimes Ordinance (Cap 200). [16] (1894) 6 R 67. [17] Judgment, §§114 & 115. [18] as pleaded in their Amended Reply at §3. [19] Judgment, §113. [20] Liu Wai Keung v Liu Wai Man [2013] 5 HKLRD 9, §47; Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985, §5.16. [21] The Trustees’ Closing Submissions, §73. [22] A point made in §10.1 of Wang’s Closing Submissions. [23] Judgment, §57.4. [24] Judgment, §131. [25] §§74 & 81. [26] §20(4) of the Defence. | |||||||||||||||||||||||||||
Summaries and metadata are generated from the judgment. Report an error
Cases cited in this judgment