Ywm v. Skb

FCDJ 680 of 1996

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 680 OF 1996

_________________

BETWEEN 

_________________

Coram : Her Honour Judge Chu in Chambers (Not Open to Public)

Date of Hearing : 1 & 2 August 2006

Date of Handing Down of Judgment : 18 August 2006

_________________

J U D G M E N T

_________________

1.This is the Petitioner’s application for leave to apply for ancillary relief against the Respondent, some 8 1/2 years after the parties’ divorce.

2.Although the parties have been divorced for some time, I will call the Petitioner “W” and the Respondent “H” in this judgment for easy reference.  I have also used abbreviations for the names of the various companies.

Brief History

3.H and W were married on 10^th May 1977.  They have 3 sons, who are now all over 18 years of age.

4.The parties started with humble background.  After their marriage, they lived in a rented flat in Tokwawan, and then moved to different places and eventually moving into the former matrimonial home, a house in Shatin, which they purchased in joint names in January 1990.  (former matrimonial home)

5.In 1983, the parties set up a toy motors business called STM, which later became a limited company SML and expanded into a group of companies (the Group).  According to H, the main business of STM was to sell toy motors with focus on outsourcing job, i.e. to buy all components from other small manufacturers for assembly at its own factory.  W quit her job as a saleswoman in a duty free shop, and formally joined the business not long after its commencement and handled clerical work and accounts management for the business.

6.In 1991, the parties and the three sons emigrated to Australia, but H returned and stayed mainly in Hong Kong while W stayed mainly in Australia with their sons.  W said she took care of the Group’s accounts in Australia.

7.Marital problems started in about 1993.  According to W’s divorce petition, the parties started to live apart in December 1993.

8.Sometime in 1994, W and the youngest son returned to reside in Hong Kong, while the older two sons remained in Australia for education.

9.On 10^th March 1994, H and W formed a limited company MIL each holding 1 share, and on 25^th May 1994, through MIL they purchased a workshop in an industrial building.

10.It appears that sometime in 1994, H and W further set up two BVI companies JT and M respectively.  W was at all material times the sole shareholder of JT, and H was at all material time the sole shareholder of M.

11.In 1994, the Group was almost 100% held by a BVI company called BDIL, with the exception of SML of which 10% was held by a third party, and another subsidiary company, of which 0.01% was held by another third party.  On 29^th June 1994, BDIL issued one share to its sole shareholder, i.e. another BVI company ET.

12.On 10^th October 1994, according to a resolution signed by the then only two directors of ET, namely H and W (B1:56), they decided to allot 5 shares in ET to JT and 5 shares to M.  Thus on 10^th October 1994, H and W were equal shareholders of BDIL through ET, and BDIL held almost 100% of the Group.

13.On 24^th January 1996, W petitioned for divorce based on the parties’ separation for over 2 years.  In the divorce petition, there was only a prayer for periodical payments for herself and the 3 children of the family.

14.One day after the petition was filed, a Consent Summons was signed by the parties (although filed only in March 1996), in relation to custody and periodical payments, which was made an order of the Court upon the granting of the Decree Nisi on 16^th April 1996 (“Consent Order”).  The Decree was made absolute on 31^st May 1996.  At all times, W was legally represented, and H was not.  The divorce proceedings went through quickly and smoothly.

15.Under the Consent Order, W was to have custody of the parties’ three sons, and H was to pay W periodical payments of HK$150,000 per month as follows :

(i)      HK$30,000 per month for W’s maintenance, and

(ii)      HK$40,000 per month for the maintenance of each of their 3 sons, totalling HK$120,000 per month, which was to be increased by 10% per annum.

16.At the time of the divorce and the Consent Order in 1996, and thereafter, the parties’ respective holding in BDIL through ET remained unchanged, so that in effect, after the divorce and the Consent Order, W continued to have an equal interest as H in BDIL.  W also continued to work for the Group in the accounts department as an accounts manager.

17.As appeared from documents produced as a result of W’s current applications, on 4^th February 1997, one share held by JT in ET was transferred by W to M (1^st Transfer), and subsequently on 15^th April 1998, the remaining 4 shares held by JT in ET was transferred by W to M (2^nd Transfer).  As a result of these two transfers, H became the sole owner of ET and thus BDIL.

18.W says that she signed over JT’s shares in ET to M “under false pretences”.  She said she recalled signing some documents only on one occasion in about March/April 1998.  She was then in a poor mental state, and was asked by H to give up her shares in favour of their eldest son, as H assured her that when the son finished his education, her shares would be transferred to him.

19.H’s version of events in relation to the two transfers is quite different.  H said when the marriage broke down, there were discussions between the parties as to the organization of their assets, as a result of which he offered W a choice, either she would take the Group of companies, and he would take all the properties, or vice versa.  According to H, W preferred to take the properties, and therefore, there was an agreement (Swap Agreement) whereby she ended up with the properties (with the exception of the former matrimonial home) and that he ended up with the companies.  This was why W transferred JT’s shares in ET to M.  W denies that there was a Swap Agreement.

20.Anyway, after these two transfers and having divested her shares, in May 1998, W left the Group and ceased working as its accounts manager.

21.From company registration documents produced, it appears that on 16^th April 2002, ET was allotted a further 99 shares in BDIL as a result of which ET held 100 shares in BDIL.  Then about one month later, on 17^th May 2002, ET reduced its shareholding in BDIL to 94 shares and 6 shares were transferred to another company SAOF no. 3 Ltd (SAOF), which was owned by a third party.

22.The parties’ eldest son started working for the Group in May 2001.  In about March 2004, he resigned and W was asked to assist in the Group’s accounting affairs again, but this was not for long.  W left the Group in about June/July 2004.  Not long thereafter, in August 2004 W applied for leave to issue a Judgment Summons alleging that H owed her arrears of maintenance under the Consent Order.  Then on 17^th September 2004, W issued a Notice of her intention to apply for ancillary relief (Form 8 Notice) and a summons for leave to apply for ancillary relief (the Summons).

23.In June 2005, W said she found out that BDIL and its shareholders ET and SAOF had entered a Securities Purchase Agreement and Plan of Reorganisation on 2^nd May 2005 with a company WYOI in the United States which common stock is quoted on the over-the-counter board in the United States.  As a result of these agreements, the shareholders of BDIL would sell all the share capital of 100 shares of BDIL to WYOI in exchange for the issue of 28 million shares of common stock of WYOI.  This was a “reverse acquisition” through which the BDIL would end up holding a listed company in the United States.  The reverse acquisition was completed on 15^th June 2005.

24.Before the completion of the above reverse acquisition, W had tried to stop this reverse acquisition transaction by applying for an ex-parte injunction restraining H to deal with the shares in BDIL which she said was an attempt to defeat her claims for ancillary relief.  After the receipt of the Form 8 Notice and the Summons, H at first did not indicate that he would oppose the Summons, and his former solicitors did not disclose any of these reverse acquisition transactions to the court during the several direction hearings which took place after W’s issue of the Summons.  I granted the injunction initially but shortly thereafter, H applied for a discharge alleging, inter alia, material non-disclosure and abuse of process on the part of W.  The ex-parte injunction was then discharged by consent.  Thereafter, W had attempted to issue another ex-parte application for injunction but was not successful.  Anyway, although Counsel for H, Mr. Clough, has brought up these applications in his submissions at this hearing, and strongly criticised W for her actions, these are not matters which this court needs to deal with at present.

25.After the completion of the reverse acquisition, WYOI has since been renamed Sun Motor International Inc (SMII).

W’s Applications

26.As mentioned above, on 17^th September 2004, W filed the Form 8 Notice and the Summons.  She initially sought ancillary relief, namely inter alia, that :

(i)      A transfer of property order in respect of the former matrimonial home where H now resides

(ii)      H do procure the transfer to her her shares in ET held by H on trust for her

(iii)     H do pay her an amount equivalent to the value of her shares in MIL

(iv)     H do pay her an amount of HK$3.15m representing half of the sale proceeds of a property at Unit B, 9^th floor of an industrial building (Unit B, 9^th floor)

(v)     H do pay to her the value of her share in a joint property at Unit E, G/F of the same industrial building (Unit E, G/F)

27.Subsequently, both the Form 8 Notice and the Summons were substantially amended.  By the amended summons filed on 11^th May 2006, W sought leave to apply for ancillary relief, namely as follows : -

(i)      H do procure the transfer to W her shares in SMII held by H on trust for W, i.e. H’s half interest in the company or “its fruits or proceeds or other income received or derived from the said half interest “and currently held by H on trust for her”

(ii)      H do pay to W an amount equivalent to the value of her shares in MIL

(iii)     H do pay to her the amount of HK$3.15m, being sale proceeds of the property situated at Unit B, 9/F

28.The reason as to why W was no longer proceeding with her claims regarding the former matrimonial home and also Unit E, G/F, was because H had bought out her half interest in both these properties on about 25^th May 2005, which was after the issue of the Form 8 Notice and the Summons.

29.During the first day of the hearing before me, it transpired that the only asset held by MIL was the workshop purchased in 1994 which was valued at HK$150,000, and therefore one half interest would only be about HK$75,000.  Quite sensibly, H through his Counsel Mr. Clough, offered to buy out W’s half interest in MIL, or alternatively, he would be willing to sell his half interest for the same amount.  This was accepted by W, and therefore W’s claim in relation to this company was settled.  For W’s claim in relation to the sum of HK$3.15m, it also transpired during the first day of the hearing that Unit B, 9/F was in fact transferred to a subsidiary company of SMII, and H said he did not receive any of the “ sale proceeds”.  Therefore, this part of W’s claim would in fact form part of her claim in respect of SMII.  This was accepted by Mrs Remedios, Counsel for W.  Thus, all W is left with is her claim in relation to SMII.

30.In summary, some 8 1/2 years after the Consent Order, and the Decree Absolute, W now seeks leave to apply for ancillary relief as set out in the Summons as amended.

Legal Principles

31.Section 6 or the Matrimonial Proceedings and Property Ordinance (MPPO) sets out the powers of this court to make orders for ancillary relief for a party to a marriage, on granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation or at any time thereafter (my underlining).

32.Rule 68(1) of the Matrimonial Causes Rules (MCR) states that, inter alia, any application by a petitioner for ancillary relief shall be made in the petition.  Rule 68(2) then goes on to state that :

“Notwithstanding anything in paragraph (1), an application for ancillary relief which should have been made in the petition or answer may be made subsequently –

(a) by leave of the court, either by notice in Form 8 or at the trial; or

(b) where the parties are agreed upon the terms of the proposed order, without leave by notice in Form 8”

33.As W’s present claim for ancillary relief was not made in her petition, she will have to apply for leave from this court before she can proceed with her application.

34.It is not disputed that such leave is not the applicant’s for the asking.  In Marsden v Marsden 1973 2 All ER 851, it was held that a reason or explanation must be given for the omission of the ancillary relief claim from a petition.

35.At the outset of this hearing, I have referred Mrs. Remedios and Mr. Clough to paragraphs 16.6 and 17.5 of Rayden And Jackson On Divorce And Family Matters (18^th Ed) (Rayden) and the case of Chaterjee v. Chaterjee 1976 Fam 199 in relation to the principles on which leave is granted.  As set out in Rayden, there is no statutory time limit on when an application for ancillary relief has to be made.  It is common practice for such an application to be made at the same time, or shortly after the petition has been issued.  However, the circumstances in some cases might justify a long delay between the determination of the suit and the issue of application for ancillary relief.

36.The parties do not dispute the legal principles set out in Chaterje v. Chaterjee.  On the question of delay, Ormrod LJ in Chaterjee v Chaterjee has said that :

“Delay, if it really is delay in the sense of prejudicing the other party, may have an important influence on the justice of the case.  So may conduct which can be described as “lulling” the other party into the belief that all claims have already been dealt with.  Similarly it may be unjust to interfere with property rights after a lapse of time during which the other party has ordered his or her affairs in a reasonable and proper manner in the belief that the financial consequences of the divorce have been settled”.

37.The court, however, ought not to refuse leave to apply in any case in which on the evidence the applicant has or appears to have reasonable prospects of obtaining the relief claimed, or, to put it another way, has a seriously arguable case.  (see Chaterjee v Chaterjee)

W’s Main Explanation for omission and delay

38.W’s reason or explanation for the omission of her present proposed claim from her petition, as submitted by her Counsel Mrs Remedios and I quote, is as follows :

“At the time of the divorce, the Group was not doing well, and the former matrimonial home was subject to a legal charge to support banking facilities, and one part of the guarantee was Unit B.  If she were to ask for the transfer of the properties then, the bank was likely to ask for repayment on change of name, and the Group would not be able to afford to repay.  Therefore, for the mutual benefit of H and W, she did not ask for such an order at the time”.

39.As to W’s reasons for the delay in applying, Mrs Remedios said W worked for the Group until 1998, and in 2004, she resumed working for the company.  From the time of the divorce until 2004, she was told by H that the business of the Group was not doing well, and that was why she did not apply earlier.  In 2004, W started to again work as an accounts manager for the Group and she discovered that contrary to what H was telling her, the Group was doing very well, and BDIL declared dividends of HK$30m, HK$15m, and HK$30m respectively for the years 1999, 2000, and 2001, and therefore W considered that it was an appropriate time to apply for ancillary relief, namely the claims set out in the Summons.

40.Mrs. Remedios submits that there are two issues, namely :

(i) whether there was a Swap Agreement

(ii) whether what W said was the reason for the two transfers of the shares of JT to M was the correct version.

41.Further, Mrs Remedios submits that the delay in applying from 1996 to 2004 did not catch H by surprise as H had said there were discussions between the parties culminating in the Swap Agreement.  This is not a case where H has been building a new life and “ambushed” by W’s sudden application.  She submits that it is common ground that H has not been taken by surprise, and there is no prejudice to him.

H’s Main Grounds for Opposing Leave

42.H’s Counsel, Mr. Clough, submits that what W is now seeking is in effect to set aside the two transfers by which her interest in BDIL was effectively transferred to H.  These transfers, whether they all happened in 1998 as W has alleged or not, took place after Decree Absolute, and when the parties were no longer husband and wife, and thus this court has no jurisdiction in these proceedings or any proceedings based on any provision of the Matrimonial Proceedings and Property Ordinance to set aside these transactions.

43.Mr Clough further submits that W’s explanations as to why and how the transfers took place were inherently unlikely, as firstly the February 1997 transfer, i.e. the 1^st Transfer, was witnessed by an accountant at Deloittes, and secondly, the eldest son was already in his majority at the time of the transfers, and the shares could have been transferred directly to the son.

44.The two transfers took place after Decree Absolute.  Mr Clough submits that W’s failure to make a claim in the petition was a deliberate plan and not an oversight and she wanted to retain her interest in the properties.  She was at the time the accounts manager in the Group.  Further, he submits that her case as to the “cash flow” problem and health of the Group does not bear “even casual scrutiny”, as can be seen from the summary analysis in the PricewaterhouseCoopers’ Draft Report.  (B2:771) (Summary Analysis)

45.Mr Clough says that the position is that if a person transfers property to another to be held on behalf of a third party, the person to whom the property is transferred holds it on trust for the third party.  In this case it is said there was an express agreement or understanding that the property would be transferred on the occurrence of a certain event, namely the eldest child completing full time education.  This transfer did not happen and therefore it could be said that there is either a resulting trust in favour of the donor or the recipient holds the property as trustee for the son.  Mr Clough submits that without prejudice to whatever might be raised in defence of such a claim it would seem on the authorities that either W or the eldest son has an arguable case should a court determines the facts as alleged by W.  If H holds the shares in trust for the eldest son or for W, such claim is outside the matrimonial proceedings, and therefore W should seek relief and remedy elsewhere and not in the matrimonial proceedings.

46.Mr Clough further submits that W has failed to give adequate explanation as to the delay.  She was, on her own case, a full participant in establishing and running the business from its inception.  She was working for the Group as an accounts manager, and she should know of the corporate changes.

The Issues

47.To summarise, in my view, there are mainly the following issues :

(i) whether this court has jurisdiction to re-open the question of the two transfers

(ii) whether W has given a reason or explanation for the omission of her present claim for ancillary relief in the petition

(iii) whether there has been unjustifiable delay

(iv) whether W has or appears to have reasonable prospects of obtaining the relief, namely whether she has a seriously arguable case

(v) whether W should have issued different proceedings

The Parties’ Disputed Non-Oral Evidence

48.Although directions were previously given for the parties to be present at the hearing and be available for cross examination, both Mrs Remedios and Mr. Clough have agreed at the outset that no oral evidence would be necessary and that they would make submissions based on the parties’ affirmations and exhibits.

49.I was reminded by Mr. Clough of Dame Butler-Sloss L.J.’s comments in her Judgment given on 31^st July 1991 in a Hague Convention matter in the Court of Appeal (Civil Division) in the United Kingdom in relation to disputed non-oral evident.  Dame Butler-Sloss has stated that : -

“If the issue has to be faced on disputed non-oral evidence, the judge has to look to see if there is independent extraneous evidence in support of one side.  That evidence has, in my judgment, to be compelling before the judge is entitled to reject the sworn testimony of a deponent.  Alternatively, the evidence contained within the affidavit may in itself be inherently improbable and therefore so unreliable that the judge is entitled to reject it.  If however, there are no grounds for rejecting the written evidence on either side, the applicant will have failed to establish his case”.

50.I now turn to deal with the parties’ evidence and the issues and the submissions made on their behalf.

I.  Whether this court has jurisdiction to re-open the two transfers

51.Mr. Clough has submitted that what W is now claiming as ancillary relief is in fact applying for the two transfers to be set aside, and that this court has no jurisdiction to make any order which is in effect to set aside the two transfers which took place after decree aboslute.

52.Although W is now left with a claim which is not a claim seeking general ancillary relief and is a specific relief for, inter alia, H to procure the transfer to her her shares in SMII held by H on trust for her, Mrs. Remedios has clarified at the outset of the hearing that what W is seeking is a transfer of property order of shares held by H in SMII.  Mrs. Remedios further accepts in her reply submissions that upon a s. 7 exercise, this court has the discretion to make whatever order it deems appropriate, which may not necessarily be returning to W the shares she claims are hers.

53.Where a transfer of property order is sought, the court may award a lump sum even though a lump sum is not claimed.  (see para 17.5 of Rayden)

54.Having considered Mrs. Remedios’s submissions, I accept that what W is now seeking is ancillary relief, namely a transfer of property order, and not a setting aside order as such.  I am satisfied that this court has the jurisdiction to deal with W’s claim for a transfer of property order, if leave is granted.

II.  Whether W has given a reason or explanation for the omission of her present claim for ancillary relief in the petition

55.In her 1^st affirmation, W said in 1996, i.e. at the time of the divorce, the Group obtained general banking facilities of around HK$17m from the Hongkong and Shanghai Bank (HSBC) on the strength of various securities, including a joint and several guarantee signed by both H and W and supported by a legal charge over the former matrimonial home.  She said that the provision of the general banking facilities by HSBC was very important to the operation of the businesses of the Group, and that both of them realized that if a property adjustment order were made by the court upon the divorce, HSBC might stop the facilities and recall the loan.  As one of the founders and a shareholder of the Group, she said she wished to keep the business running, without which the whole family’s financial situation would be in danger.  Thereafter, according to W, consensus had been reached by her and H that the former matrimonial home should be left for future disposal.  She said that she agreed with H that she would get back her share of the former matrimonial home when H could manage to substitute another security for the said facilities, and therefore she did not ask for the transfer of the former matrimonial home, and in fact both remained joint and several guarantors until sometime last year, which was after the Summons was issued.

56.Although W referred to the facilities to be HK$17m in her 1^st affirmation, later in her 8^th affirmation, she said in about June 1996, the joint and several guarantee from H and her was HK$51m.  In this affirmation, she said she was told by H at the time of the divorce proceedings that the Group was suffering from “cashflow problems”, and it occurred to both of them that if a property adjustment order were made by the court then, HSBC might stop or substantially reduce the facilities or recall the loan, and therefore the parties agreed that the matrimonial home should be dealt with when H could manage to substitute another security, in order to keep the business running.

57.Mr Clough has attacked W’s evidence as to the “cashflow problems” and health of the company BDIL which he says does not bear “even casual scrutiny”.  The reason why he says this is due to the certain parts of the Summary Analysis which is based on BDIL’s audited accounts from 1995 to 2004.  According to the Summary Analysis, the Fair Market Value of 100% of BDIL as at 4^th February 1997 (date of 1^st Transfer), 15^th April 1998 (date of 2^nd Transfer), and 31^st March 2004, using a “Market Approach”, appears to be approximately HK$220m, HK$212m, and HK$106m respectively.  Looking at the Balance Sheets, the Net Asset of BDIL appears to be approximately HK$67m and HK$69m in 1995 and 1996 respectively.  Thus, Mr Clough submits that BDIL and / or the Group had no health problems at the time of the divorce.

58.Mrs Remedios has referred the court to the actual audited accounts for the years 31^st March 1997 (Exhibit P-3), and 31^st March 1998 (P-4) and invited the court to look at the “Analysis of the Balances of Cash and Cash Equivalents”.

59.For the year ended 31^st March 1997, as stated in the audited accounts , the “cash” and “cash equivalents ” for 1996 and 1997 (page 18) were respectively a negative 41,915,027 (including Trust Receipt Loans of a negative 43,756,311) and a negative 311,430,573 (including Trust Receipt Loans of a negative 31,471,545).

60.Mrs Remedios has also referred the court to several facility letters issued by HSBC between August 1999 and September 2003 for the borrowers, which were 3 companies in the Group, including SML  (B1: 68).  From the letter dated 18^th September 1999, one could see that in addition to the former matrimonial home being mortgaged to HSBC as security, there were 3 joint and several guarantees each for HK$ 17m from H and W for the obligations and liabilities of the borrowers.  It would appear that the joint and several guarantee was dated 7^th June 1996, which was after the Decree Absolute.  As indicated in the facility letters, the 3 joint and several guarantees were supported by the Legal Charge over the former matrimonial home.

61.I also notice that the 3 borrowers further obtained a new leasing facility to a limit HK$10m on 18^th September 1999 for which again the 3 joint and several guarantees of H and W were part of the security.

62.Although W did not produce the facility letters for the years 1996 to 1998, it would appear that she and H were both bound by similar joint and several guarantees from 7^th June 1996 onwards, which was referred to in HSBC’s letter of 12^th August 1999.

63.One can see from the Summary Analysis that the growth rate in the year ended 31^st March 1996 of BDIL, the holding company of the Group, was a negative 91.3%, and the “Net Profit” for that year was only about HK$ 1.7m compared to about HK19.7 m for the previous year.  In addition, the parties signed a joint and several guarantee on 7^th June 1996, supported by an All Monies Charge over the former matrimonial home.  Although for the year ended 31^st March 1997, the “Net Profit” increased to about HK$10.6m, it was not as high as the year 1995 which was about HK$19.74m.  In the circumstances, I am of the view that there is some evidence to support W’s allegation as to the Group not doing well at the time of the divorce.

64.W said she issued the Form 8 Notice and the Summons after she discovered that BDIL was doing very well and distributed HK$30m, HK$15m, and HK$30 m respectively for the years ended 1999, 2000 and 2001 when she returned to work as an accounts manager in 2004.  There was some query at the hearing as to whether dividends were declared prior to 1998 and used to repay parties’ drawings from BDIL.  Anyway, in the facility letters from HSBC, among the securities provided was a restriction on dividends, in that the three companies of the Group which were the borrowers were not to declare any dividends to the shareholders without the prior consent in writing from HSBC, and also BDIL was to restrict dividend payments and additional loan advances to directors and related parties of not more than HK$9m per annum.  The fact that BDIL could distribute dividends of over HK$9m per annum during those three years would be an indication that the Group was doing better by then.

65.More importantly is W’s evidence that it was for the parties’ mutual benefit that she did not ask for a transfer of property and / or lump sum at the time of the divorce.  Although in his 5^th affirmation, H said he and W reached an amicable settlement, namely the Swap Agreement, he had also said in paragraph 16 of his 1^st affirmation that as some of the properties were subject to legal charges to secure general banking facilities to the Group, the parties agreed that transfer of these properties would be dealt with at a later date so as not to disrupt the financial arrangements of the Group.  W said in her 8^th affirmation that in order to keep the business running, the parties agreed that the former matrimonial home should be dealt with when H could manage to substitute another security for the banking facilities.  This was not denied by H, and in fact, the former matrimonial home was not dealt with until May last year, 8 months after W issued the Summons.

66.Thus, to me, it is clear that both parties agreed not to deal with the transfer of certain properties at the time of the petition and the Consent Order, in particular the former matrimonial home.

67.I have been referred by Mr. Clough to the case of Marsden v Marsden 1973 1 WLR 641 where the husband was refused leave to apply for a transfer of property order or a variation of settlement order, which was made about two months after Decree Absolute, since he had given no reasonable excuse or explanation for the absence of such applications in the petition, and there was no prospect that the order would be made.  Further, as the husband remained silent about his intention to ask for ancillary relief had caused the wife to put herself in a position whereby she remarried without seeking to make an application and had acted to her detriment by agreeing to pay costs when there was no claim against her and, in those circumstances, the husband was estopped from making the application for ancillary relief.  In Marsden,the husband’s decision to apply was said to be either an afterthought, and one which was in direct contradiction of what the wife had all along been led to believe by the husband and his legal advisers, or alternatively the husband was keeping the ace of trumps up his sleeve until all the other matters had been disposed of until after the wife had remarried.

68.In my view, the circumstances of the present case are different.  This is not a case where W had remained silent about her intention to ask for ancillary relief, namely an adjustment of property orders and had “lulled” H into the belief that all claims had already been dealt with as in the case of Marsden. As stated above, at the time of the divorce, it was clear to me that both parties’ intention for the Consent Order not to deal with the properties, and other assets including the companies and, in particular, the former matrimonial home.  Further, in paragraph 50 of Husband’s 1^st affirmation, he himself had said it was untrue that during the period (which I assume to be after the divorce until early 2004) W had never raised with him matters relating to matrimonial relief at all.

69.Having considered the above, I am satisfied that W has given a reason or explanation as to the omission of her claim for transfer of property order from the petition.

III.  Whether there has been unjustifiable delay

70.In the case of Hill v Hill 1998 1FLR 198, where the wife applied to re-open capital claims following a period of 25 years of post-divorce cohabitation with the husband, Ward LJ had said that the essential question for decision was whether the order made at time of divorce represented a comprehensive financial settlement of the wife’s capital and property claims and concluded in that case that there had been no adjudication of and no disposal of the claim for a lump sum, and held that the court had the jurisdiction to entertain it.  Further since the court had jurisdiction to allow a claim for a lump sum order, it was held that as the delay was caused by the fact that the husband and wife had resumed cohabitation, that gave the long delay a different quality, and as such the delay would not prevent the grant of leave.

71.As pointed out by Mrs. Remedios, it is not H’s case that he has suffered any prejudice by reason of W’s delay in applying.  H said in his 5^th affirmation that he still owns 100% of M, which owns 100% of ET.  At the hearing, H confirmed through Mr. Clough that M still owns 100% of ET.  Mr Clough says at the hearing that ET holds 94% of WYOI, although in paragraph 36 of H’s 5^th affirmation, it appears that H was saying as of 15^th June, ET held 89.4% of WYOI.  Anyway, whether 94% or 89.4%, H still holds 100% in ET.  Further, H has not remarried, although he has now formed a relationship with another lady.

72.The effect of delay was considered in D v W 1984 Fam Law 152, which Mr. Clough has referred me to and set out in his submissions.  However, in paragraph 16.87 of Rayden, it states that delay goes not to jurisdiction, but to the exercise of discretion and it is one of the circumstances this court would have to take into account under s.7 of MPPO.  No doubt, the effect of delay in this case can be considered during the hearing for ancillary relief, if leave is granted.

73.There is no evidence that circumstances have so changed as to make the relief claimed inappropriate, or that it would be oppressive to grant leave.

74.Further, although the parties did not cohabit again as husband and wife after the Decree Absolute, according to H, the parties kept a friendly relationship after the divorce and they kept on seeing each other in family gatherings.  They would go out to dinner with the children to celebrate important festivals and on two occasions, H said he invited W to go back to work for the Group, briefly in 2000 and in early 2004.  W continued to be one of the joint and several guarantors for three companies of the Group and she remained a joint tenant with H of the former matrimonial home, of Unit E, G/F, and a equal shareholder with H of MIL all those years since Decree Absolute, until after the issue of the Summons.  W was a shareholder with H in BDIL until 1998, and thereafter, continued to assist the business by at the least remaining as a joint guarantor.  All these, in my view, also gave the delay “a different quality”.

IV.  Whether W has or appears to have reasonable prospects of obtaining the relief claimed or, a seriously arguable case

75.I now need to consider whether W has or appears to have reasonable prospects of a transfer of property order/lump sum being made in her favour.

76.It is H’s case that by the Swap Agreement there was a settlement of the parties’ differences in reference to the parties’ family assets and business interests, with the exception of the former matrimonial home.

77.After W has issued the Form 8 Notice and the Summons, initially H did not oppose her leave application or her application for ancillary relief.

78.At the first call-over hearing for directions on 28^th October 2004, both parties were represented by counsel, and they agreed to certain directions, which, inter alia, included the filing of the parties’ respective Financial Statement (Form E) and valuations to be agreed before the next direction hearing.

79.At the second direction hearing on 23^rd February 2005, the parties were again represented by counsel.  One of the directions given at this hearing was for the parties to agree to the valuations of the properties and the companies in the Group and BDIL.  The matter was then further adjourned to another direction hearing.  On 23^rd March 2005, H’s former solicitors wrote to W’s solicitors to propose that valuation of 5 “family properties”, excluding the former matrimonial home and Unit E, G/F, be agreed.

80.At the third direction hearing on 11^th May 2005, both parties had by then agreed to jointly instruct PricewaterhouseCoopers to value the companies and American Appaisal China Ltd to value 4 properties held by companies including MIL.

81.At the above three direction hearings, H did not seek leave to file any affirmation to oppose W’s 1^st affirmation filed in support of the Summons.  The only affirmation he filed up until June 2005 was his Form E.  No Swap Agreement was mentioned in his Form E.  Further in his Form E, in answer to Question 5.5 in Part 5, the only details of any circumstances he gave which could significantly affect the extent of the financial provision to be made by him for W were his contingent liabilities.  In answer to Question 6.1, regarding the proposals for ancillary relief, he made a proposal to pay a one-off payment of HK12.1m to W and also for W to continue to keep her one share in the MIL.  At the direction hearings, H agreed through his counsel to jointly instruct PricewaterhouseCoopers to value the companies at 3 different dates, namely 4^th February 1997 (date of 1^st transfer), 15^th April 1998 (date of 2^nd transfer) and 31^st March 2004, which was the last financial year before the issue of the Summons.  It further appears that at that stage matters were progressing amiably with H agreeing to arrange to release W of her obligations under the guarantees and settling her claims in relation to the former matrimonial home and Unit E, G/F.

82.It was only after being served with the ex-parte injunction and after H changed his legal team that matters took a turn.  Apart from applying for the discharge of the injunction, H also then applied to “set aside” the proceedings for ancillary relief.  He explained in his 1^st affirmation, which was filed in support of his application to discharge, that he had wanted to give full details earlier but were advised by his former solicitors that it was not necessary for him to set out the history until a later state.  It was only in his 1^st affirmation that he first mentioned the Swap Agreement.  Only in his 5^th affirmation, he explained that he agreed to a valuation report being prepared based on advice from his previous solicitors and it was in this 5^th affirmation in which for the first time he said the valuation of BDIL and / or the Group for its worth in 1998 was irrelevant.  Even then, he did not seem to take any objection to a valuation of BDIL and / or the Group as at 4^th February 1997 or 31^st March 2004.

83.Mrs. Remedios has pointed out that there were discrepancies in H’s evidence in his 1^st affirmation and in his 5^th affirmation, in particular as to when the discussions about the Swap Agreement took place.  H had said in his 1^st affirmation that they started to discuss the settlement of W’s interest in the real property and the business after Decree Absolute, but this could not be correct since the transfer of one of the properties, which was part of the swap, took place before Decree Absolute, and some alleged “transfers” of the landed properties were not in fact transfers, nor were they held by H.  Mr. Clough explained that H’s 1^st affirmation was prepared overnight under urgent stressed circumstances as they were applying for the discharge the ex-parte injunction, and that the correct position about the Swap Agreement was in fact what was set out in H’s 5^th affirmation.

84.Turning to this affirmation, H set out what he said were the details of the Swap Agreement, which was that he offered to transfer to W either ownership of the entire business of all of the “landed properties” (apart from the former matrimonial home), and that he estimated at that time the total value of the “landed properties” (apart from the former matrimonial home) was about the same as a half interest in the family business.  He said preliminary negotiations started in 1993 and were ongoing for about 2 years (paragraph 11).  He said later in 1993, W decided that she would prefer to take the “landed properties”, and therefore he would have the business.  He further said that W insisted that he should first transfer to her all his interest in the “landed properties” to her full satisfaction before she would transfer to him her shares in the business (paragraph 13).  He then went on to say that pursuant to the agreement, he started to transfer to W his interests in the “landed properties”, and according to the summary table in paragraph 14 of his 5^th affirmation, the so-called transfers took place between August 1994 to about 1997/1998.  The transfers of the “landed properties” took various forms, including alleged waivers of repayment of W for monies she drew from BDIL/the Group as set out in the summary table in paragraph 14 of H’s 5^th affirmation.  In paragraph 27 of H’s 5^th affirmation, he sets out the summary, and in this summary he said W and he reached an agreement in late 1993 when W elected to keep the landed properties, leaving the company to him.

85.I must say at the outset that even in this 5^th affirmation which Mr. Clough says contained the correct version of the Swap Agreement, there was still an inconsistency, as firstly H said negotiations started in 1993 and went on for two years, which would take one to 1995, and later in the same affirmation he said the agreement was reached in late 1993.

86.W denies that there was any Swap Agreement and further she says that the half interest in the family business was not equivalent to the value of the “landed properties” transferred to her under the alleged Swap Agreement.

87.Mrs. Remedios has tried to rely on the Net Asset Value of the BDIL in 1995, which was about HK67m, to compare with some sale or purchase values of the “landed properties”, which she submits would come to only about HK$27m.  The “landed properties” consist of 5 properties respectively in Melbourne, Bangkok, Homantin, Shatin , and Kwun Tong, and W gave reasons as to why “the transfers” of these properties could not be part of the alleged swap.  In my view, there is no sufficient evidence as to what value H had in mind when he referred to “half interest” in the family business nor was there proper evidence as to the value of the “landed properties” at the time.

88.As mentioned earlier in this judgment, W said the two transfers took place because H had asked her to due to her mental state at the time, and that H had promised to transfer her shares to their eldest son when the son finished his education.  There was no independent evidence to support W’s alleged mental state, and Mr Clough has also submitted that the son was over 18 at the time of the transfers, and thus the transfers could be made direct to him.

89.Without oral evidence and cross examination, I am not able to tell at this stage as to why the two transfers took place.

90.What is clear to me is that the Consent Order was clearly not a comprehensive settlement of all the financial matters between the parties.  There was no reasonable explanation from H that if, as alleged by him, the Swap Agreement was indeed reached in late 1993 why it did not form part of the Consent order.  There was no dismissal of W’s claims for any property adjustment orders and/or lump sums/ orders in the Consent Order.  As stated earlier, I am of the view that it was both parties’ intention that the Consent Order was not to deal with any properties or companies, in other words, any capital claims. 

91.What is also clear to me is that the alleged Swap Agreement, if there was one, could not have been a comprehensive settlement either of all the financial matters between the parties.  Even on H’s case, it did not deal with the former matrimonial home.  It did not deal with the parties’ interest in MIL, or the property at Unit E, G/F.  It further did not deal with W’s contingent liability under the 3 joint and several guarantees, each for HK$17m.

92.More significantly, there was no explanation from H as to why, if the Swap Agreement were indeed reached in late 1993, 3 months later in March 1994, the parties would jointly incorporate MIL and invest in another property through MIL.  Further, the shares which W was supposed to transfer to H under the alleged Swap Agreement were in fact only acquired by W some 10 months AFTER the alleged Swap Agreement was reached, i.e. on 10^th October 1994, when ET allotted 5 shares each to JT and M.

93.There is no evidence at all from either H or W as to the parties’ respective financial means/resources in 1993 or at the time when the Consent Order was entered into, since apart from the “landed properties”, the former matrimonial home and the family businesses, the parties also appeared to have other assets, whether jointly or singly, including but not limited to MIL, and also Unit E, G/F.  It is thus not clear as to what W retained and / or received by way of family assets at the time of the divorce.  There is further no valuation of BDIL in 1993 when H said the Swap Agent was reached or in 1996 at the time of the divorce.

94.The marriage lasted about 19 years up until when the petition was issued.  It was not a short marriage.  It is not disputed that H and W both built up the business and shortly after business started in 1983, W started working in the Group until 1998, some two years after the divorce.  She thus worked in the family business for a long period, apart from perhaps periods when she was giving birth to the three sons, or in Australia, although she said even when living there, she continued to handle accounts for the Group.  In 2000 and 2004, according to H, she was invited back to work for the Group as an accounts manager.  She was a joint and several guarantor for three borrowes of the Group.  She was 50% of owner of BDIL until the two transfers.

95.Having considered all the above circumstances, based on the evidence presently before me, in my view, W has a seriously arguable case that she made significant contributions both towards the marriage and the business and that she should be entitled to a fair share of the family assets, in addition to periodical payments.

(V)  Whether W should have issued different proceedings

96.Finally, there is a further point which Mr. Clough has raised.  He has submitted that what W is claiming in effect either a resulting trust of the shares in favour of her or that H is holding the property as trustee for the eldest son and that such claims are outside the matrimonial proceedings, and therefore she should issue other civil proceedings.  Mrs Remedios accepts that W could indeed issue other civil proceedings in respect of her claims, but she says that does not mean that this court has no jurisdiction, nor does it mean that W could not choose to proceed with her claim under matrimonial proceedings.

97.W has clearly chosen to proceed with her claim in the matrimonial proceedings.  Any issues regarding a trust and/or whether there was a Swap Agreement could also be raised and dealt with in proceedings for ancillary relief.  The Summons was first issued in September 2004 and thus litigation has by now already gone on for almost two years in this court.  Further, as I have pointed out to Mr. Clough and Mrs. Remedios since the claim, if allowed to proceed, would be a claim to which the Financial Dispute Resolution Pilot Scheme will apply and the parties could avail themselves of the procedures under this scheme.  I therefore consider that it is not inappropriate for W to choose to proceed with her claim in the matrimonial proceedings.

Conclusion

98.For the reasons set out above and having considered all the circumstances, I am of the view that W has given a reasonable explanation as to why her claim was not made in the petition and that she has a seriously arguable case and I therefore grant her leave to apply for ancillary relief, namely for a transfer of property order.

99.As costs normally follow the event, I will order that H do pay W’s costs of and incidental to her application for leave, with a certificate for Counsel.  This is an order nisi, which will be made final in 28 days.

100.I will further direct that a 1^st Appointment hearing be fixed upon W filing a Form A.

Mrs L Remedios with Ms Kennis Tai , instructed by Messrs X J Wang & Co for the Petitioner

Mr N Clough, instructed by Messrs K C Ho & Fong for the Respondent