El v. Cfl
Read the full judgment text of FCMC 4685/2012 on BabelCite. This Family Court judgment was delivered on 16 April 2014 before HH Judge Bruno Chan.
Matrimonial causes – Ancillary relief – Beneficial ownership – Declaration of Trust – BVI company – Costs – Validity of Declaration of Trust – Timing error clerical mistake – Beneficial ownership – Mother funded purchase – Mother beneficial owner – Wife claim dismissed – Costs against Wife
Legal issues: Validity of Declaration of Trust · Beneficial Ownership of A Energy and Mountain Lodge
Outcome: Mother found to be beneficial owner of A Energy and Mountain Lodge; Wife's claim dismissed.
Cites 2 cases
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FCMC 4685/2012 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MATRIMONIAL CAUSES SUIT NO. 4685 OF 2012 ----------------------------
------------------------ J U D G M E N T (Preliminary Issue on Ownership of Properties ) ------------------------ 1.The Respondent Husband is the registered sole director and shareholder of a BVI company known as A Energy International Ltd (“A Energy”) which holds a property at Mountain Lodge on the Peak, Hong Kong (“Mountain Lodge”) purchased in 2007 for HK$29.05 million and at one time occupied by him and the Petitioner Wife during their marriage, and in which he claims to have no beneficial interests and is holding its share in trust for his mother Madam L (“The Mother”) under a Declaration of Trust made contemporaneously of the allocation of the company’s share to him. 2.The Wife however disputes this and insists that A Energy in fact belongs to the Husband and should therefore together with Mountain Lodge which she believes to be now worth HK$68 million be included as part of his assets or their marital assets for the purpose of her ancillary relief application, and hence A Energy and the Mother were joined as the 1st and 2nd Interveners to this hearing for the court’s determination of the beneficial ownership and interest in the share of A Energy presently held by the Husband as a preliminary issue in accordance with the guidance laid down in TL v ML & Ors (Ancillary Relief: Claims against Assets of Extended Family [2006] 1 FLR 1236, before the divorced couple proceed to FDR hearing or ancillary relief trial. 3.This has in fact been one of those high conflict cases that when I dealt with one of the parties’ many hotly contested applications in July 2013, which was the Wife’s application for specific discovery against the Husband, I mentioned with great alarm that the parties had by then incurred in excess of HK$9 million in combined legal costs, which by now no doubt must have exceeded well over HK$10 million, and that there were then 13 bundles of pleadings and documents in excess of 4,000 pages generated in just slightly more than a year of litigations, mainly over their only child then not even 3 years old. 4.To keep a check on the proliferation of pleadings and affirmations and for the purpose of the application now before me, I gave specific directions on 30th September 2013 that the filing of evidence by the parties be strictly confined to the preliminary issue and be self-contained. Still the resultant trial bundles have grown to 6 in total, apparently certain allegations seemingly irrelevant or at best peripheral to the issues somehow managed to find their way into the parties’ affirmations, of which no doubt I will have more to say later in this judgment. The Background 5.Some of the relevant background of the marriage can in fact be found in my earlier decision dated 9th August 2013 on that application for specific discovery, and I do not propose to repeat them here other than those relevant to the application now before me. 6.In that decision I stated that the Husband was born on 6th October 1977 in Canada but as will be apparent below that the year he was born has become an issue in this application, or so it seems as far as the Wife is concerned, as she claims to have been told by him that he was in fact born in 1971, hence for the time being I will just state that he claims to be now aged 36. 7.Upon graduating from university in Canada with a degree in economics, the Husband returned to Hong Kong in 1999 to work in his family business in financial consultancy and wealth management consisting of a group of companies which I will for present purpose collectively refer to REL, with his mother being the major shareholder. 8.On 24th December 2001 the Husband was allotted one share in a company known as A Express Holdings Ltd (“A Express”) incorporated earlier on 8th October 2001 in BVI and was also appointed its sole director. On 23rd April 2002 he made a declaration that he was holding the said share in trust for his mother. 9.On 7th January 2005 A Energy was incorporated in BVI, and on 24th February 2005 the Husband was allotted one share in that company and was appointed its sole director. He also made a similar declaration dated 24th January 2005 that he was holding this share in trust for his mother. In both declarations his father (“The Father”) signed as a witness. 10.In July 2005 A Energy acquired a flat in Paris Court, Mid-Level (“Paris Court”) for HK$7.8 million which was later sold in January 2007 for HK$8.8 million. In the same month of January 2007 A Energy purchased Mountain Lodge for HK$29.05 million. It is the case of both the Husband and the Intervening Parties that both properties were all funded by the Mother. 11.As for the Wife, she was also born in Canada on 1st May 1980 and is now almost 34. In 2002 she came to Hong Kong where she met the Husband and started also to work for REL. They became engaged in late 2005, got married on 24th November 2006, and had thereafter at some stage stayed at both Paris Court and Mountain Lodge. 12.After the marriage the parties continued to work at REL and on 22nd October 2010 the Wife gave birth to their daughter. Unfortunately the parties started to experience various marital conflicts which eventually led to their separation in late February 2012, and less than 2 months later on 2nd April 2012 the Wife filed for divorce in these proceedings followed by almost incessant court battles for the next 2 years, and in June 2012 the Wife left REL to join another company in similar business. 13.Eventually on 8th May 2013 the parties resolved their differences over their daughter by sharing her custody with care and control to the Wife and certain defined access to the Husband. As noted above before the parties could proceed to FDR, the Mother and A Energy took out a summons on 27th September 2013 for leave to be joined as intervening parties when it became apparent that the Wife is alleging that the shares of A Energy beneficially belong to the Husband notwithstanding the said Declaration of Trust in favour of the Mother. 14.At the hearing of the Intervening Parties’ summons on 30th September 2013 I ordered, with the consent of all parties, that the Mother and A Energy be joined as intervening parties to these proceedings “for the purpose of determining the issue of and declarations as to the beneficial ownership and interest in the shares of and in A Energy presently held by the Husband”. 15.Accordingly both parties and the Mother with the Father as her witness have filed their respective affirmations confined only to that issue and can be found in the self-contained trial bundles including one labelled “Court Documents” [CD] mainly for the affirmations and the rest labelled “A” to “E” for the exhibits and correspondence. All the parties had also given evidence at the trial, during which Mr Jeremy Chan appeared for both Intervening Parties, Mr John Brewer with Ms Bonnie Cheng for the Wife, and Mr Russell Coleman SC as before for the Husband. Applicable Principles 16.This case does not really turn on any serious dispute on the law or principles, but as submitted by Mr Chan for the Mother, since it is the Wife’s challenge of the Mother’s beneficial ownership of A Energy, it is for her to prove that the Declaration of Trust is not in truth what it appears to be, which essentially boils down to what was the Mother’s intention at the time of the declaration that is relevant, and that it is not even necessary for the Husband as the transferee to have also shared that intention: see Lewin on Trusts, 18th edition, 2008, paragraphs 9-07 and 9-08, followed by the Court of Appeal in Au Yuk Lin v Wong Wang Hin Eddy [2013] 4 HKLRD 373, and that the issue should be approached in the way as suggested by Deputy Judge Mostyn QC (as he then was) in TL v ML supra at 1268 §35:
17.Given the determination of the issues before me is essentially a fact-finding exercise, it is with that passage in mind that I shall next proceed to consider the parties’ respective case, starting with the Mother’s. The Mother’ Case 18.The Mother’s case is first set out in her 2 affirmations of 27th September 2013 [CD/12] and 24th February 2014 [CD/48], and supplemented by her testimony in court, which can be summarised as follows:
19.As her witness the Father had also filed an affirmation [CD/75] confirming his presence when the 2 declarations of trust were made and his signature on them as witness. It should be noted that while his court’s attendance was required by the Wife, he was never cross-examined by her at the trial. The Husband’s Case 20.The Husband’s evidence, which are found in his 14th and 16th Affirmations [CD/22 & 80], essentially supported his mother’s but also provided further details of his financial means and ability, or rather inability to afford Mountain Lodge as follows: (a) In 1999 he started to work for RELI Services Ltd (“RELI”), a subsidiary of REL, as an Associate with a starting salary of US$2,500 (HK$19,500) per month. In 2003 he was appointed the managing director and CEO of some of the subsidiaries, and began to invest in landed properties starting with a flat at Camelot Heights in 2003 assisted by a loan from his mother, but by 2005 his salary was still only HK$26,500 per month plus discretionary bonus, while his annual income for the next 2 years during which Paris Court and Mountain Lodge were bought amounted to only HK$2,592,579 and HK$1,503,894 respectively; (b) In early 2005 he also invested in a property at Island Resort, but more significantly he bought a property in Juniper at Ardmore, Singapore (“Juniper Ardmore”) in April 2005 and had incurred HK$775,000 for its down payment, and while he was entitled to a housing allowance from his employer, it was far from sufficient to cover the mortgage payment for that property and had had to meet the shortfall with his monthly income. With these financial commitments at that time, he simply could not have afforded Mountain Lodge; (c) When he and the Wife had to move out of Paris Court upon its sale in January 2007, his mother allowed them to stay at Mountain Lodge for the time being after making it clear to both of them that it would just be a temporary arrangement, they therefore decided to just put many of their belongings in storage until they could afford to have their own property, and hence the Wife was well aware that Mountain Lodge does not belong him; (d) Shortly after they moved into Mountain Lodge, they discovered that mould had formed on the ceiling as water had leaked from the roof, and had to wait for his mother to make her decision to cause A Energy to demand the building management to deal with the problem and to handle the ongoing dispute over the matter; (e) Knowing that Mountain Lodge does not belong to him, the Wife therefore kept pressing him to purchase their own property, and eventually in 2008 she decided on a property at Martin Road, Singapore (“Martin Property”) which was a heavy burden to him given the fact that his income had then come down from more than HK$2.5 million in the previous year to only HK$1.5 million as a result of the 2008 Global Financial Crisis. Eventually they had to sell this property in 2011 to pay off their debts; (f) As for the A Energy Declaration of Trust, he admits that given its situation and arrangements were similar to those of A Express, he just copied the wordings of that earlier declaration of trust when he was asked by the Mother to prepare one for A Energy, but as to why it was dated 24th January 2005 which was one month before the actual allotment of the company’s share to him on 24th February 2005, he cannot recall the exact reason but believes that it was just a clerical mistake when he inserted the wrong month, and that he should have written in the 24th February date instead. 21.He insists that the Wife was all along well aware that he has no beneficial interest in Mountain Lodge which wholly belongs to his mother, but that in order to make her groundless claim that it should be included as part of their marital assets for distribution, she was prepared to go to the extreme of twisting the facts, fabricating lies and resorting to frivolous, vexatious and scandalous accusations such as the year of his birth or his university degrees all of which are wholly irrelevant to the issues in question, and should be deplored by the court. The Wife’s Case 22.The Wife’s case can be found in her 13th and 14th Affirmations [CD/32 & 44] in which she firstly confirmed that she would challenge the A Energy Declaration of Trust as to timing and validity, that she would require disclosure of documentary evidence showing the amounts transferred from REL International LLC to the Husband from 2004 to 2011, and that she would also challenge the Declaration of Trust for A Express. 23.She then set out the reasons why she does not accept that the Mother is the beneficial owner of A Energy, and that Mountain Lodge was in fact purchased by the Husband as their matrimonial home, which I summarise only those relevant to her case as follows: (a) In early 2005, with marriage in mind, she and the Husband went house hunting in Singapore as he wanted to give his assurance and commitment and as they would be splitting their time between Hong Kong and Singapore, and eventually purchased Jupiter Ardmore which they then proceeded to renovate and furnish it lavishly at close to SG$2 million as being told by the Husband; (b) As for Mountain Lodge, it was the property agent of the Husband’s family who showed it to her and the Husband when he told her that he could afford up to HK$30 million for their home, that it was their joint decision to purchase it without ever involving the Mother who did not even view it herself, and that she had only visited it once after its purchase when she was invited over for dinner; (c) After they moved out of Mountain Lodge due to the water leakage problem on the ceiling, and up to 2 months before their separation in February 2012, they were still consulting interior designers with a view for substantial renovation estimated at HK$2.1 million, of which the Mother again was never involved; (d) She has grave doubts and misgiving about the Husband’s credibility, as he has shown to be a habitual liar and a cheat, including his family background, his working experience and his age. 24.She concluded that she would not accept that the Husband is not the beneficial owner of A Express or A Energy, that in the absence of documentary proof nor would she accept that his mother had paid for Mountain Lodge, and that if she did pay for it, it makes perfect sense that she has gifted it to the Husband being her only son. Discussions 25.I propose to first deal with that last point of the Wife’s case that Mountain Lodge could have been gifted by the Mother to the Husband, which can be easily disposed of as it was never made out by her in her evidence at the trial, nor was it ever put to either the Mother or the Husband during cross-examination, and by the time of closing submission it was all but abandoned by Mr Brewer on her behalf. 26.The same can also be said about her challenge against A Express Declaration of Trust, which was not raised at all throughout the trial, probably due to the fact that that declaration was made before she had even met the Husband, and that there was absolutely no basis at all to do so in the first place, which is significant as has been seen above, many of the funding for A Energy’s purchases of Paris Court and Mountain Lodge were sourced from A Express. 27.Thus brings me to the first of the Wife’s real challenge: the timing and validity of the A Energy Declaration of Trust (“DT”), which seems to base entirely on the fact that it was dated 24th January 2005, one month before the actual allotment of the shareholding to the Husband on 24th February 2005, of which Mr Brewer submitted at the beginning of the trial would render the subject of the trust uncertain, and hence the DT would consequently be void for uncertainty, as he stated in his opening note of 21st March 2014:
28.Since the Wife does not dispute the authenticity of the DT, the subject of which is plainly the share allotment made to the Husband on 24th February 2005, the only basis which the Wife relies on is clearly over the date of the DT which was stated as 24th January 2005, of which the Husband has put down as probably a mistake on his part. One needs to look at the relevant wordings of the DT [A/154] as follows to see why that was apparent:
29.The date of 24 day of January 2005 was handwritten in and the evidence is that it was written by the Husband when the DT was made, whereas the date of the actual transfer of share to him of 24th February 2005 was pre-typed on the DT. The fact that the declaration was stated to be “supplemental” to the transfer of share which could not have been known in advance, shows that the most likely and the only logical explanation for the 24 January date written in is that it was a mistake of the Husband, and that it should have been 24 February. Accordingly the only basis of the Wife’s challenge against the DT as to timing and validity simply evaporated. 30.That should, as submitted by both Mr Chan for the Mother and Mr Coleman for the Husband, effectively put an end to the Wife’s case that the Husband is the beneficial owner of A Energy. Mr Brewer however argues that notwithstanding the DT, it is still the Wife’s belief that it was the Husband who had funded the purchase of Mountain Lodge as their matrimonial home which would thus make him the beneficial owner. While she may not have said in so many words, but even assuming that she were to argue that there would therefore be a resulting trust in favour of the Husband notwithstanding that it was held by A Energy, such argument is simply not borne out by the evidence before the court. 31.Firstly, it should be noted that there is no challenge by the Wife to the Mother’s financial ability to fund the purchase of Mountain Lodge, or for that matter Paris Court. In fact this is what she said about the Husband’s parents in §5.5 of her Form E (Exhibit “R-12”):
32.Hence there cannot be any doubt over the Mother’s financial ability to purchase Mountain Lodge, and that if the Husband had not purchased it, then the Mother must have. Nevertheless Mr Brewer for the Wife submits that the documentary evidence produced by her is unsatisfactory, selective and tells a quite different story, such as the fact that between December 2005 and December 2006 the US$1.5 million allegedly from her was paid into the Husband’s account and not into A Energy’s account, that there is no documents showing that the funds came from the Mother’s personal accounts, that the initial deposit of HK$1.45 million were drawn on the Husband’s personal HSBC account, and that all such payments are consistent with the Husband treating A Energy as his corporate alter ego. 33.These arguments however ignore the now indisputable evidence that A Energy was formed for the Mother’s investment purpose and with the Husband being its sole director, it is only normal and in fact necessary that all payments for the purchases of properties be dealt with through the Husband, and the issue must obviously be the source of these funds, and given that they were made years ago, there is nothing suspicious in my judgment that the documentary evidence such as bank records is incomplete. The fact is that, as far as both the Mother and the Husband are concerned, they could not have come from the Husband, as he simply did not have the income to do so, there being no suggestion that he has other means or financial resources, or that the Mother has gifted Mountain Lodge to him. 34.The unchallenged evidence before the court is that he started working at REL in 1999 at the age of 21 and a starting salary of less than HK$20,000 per month, and by 2005 his salary was only in the region of HK$26,500. He was of course also entitled to bonuses, but his tax assessments issued by Inland revenue Department [A/355 - 359, E/1251 – 1257] from 2002 to 2008 clearly show that his gross income accumulated during those years and set out below could not have enabled him to purchase Mountain Lodge:
35.This gross income calculated up to the time of the purchase of Mountain Lodge is of course before taken into account of what the Mother has said about his lavish personal spending, and more particularly of his financial obligations towards his own purchases of properties during the same period including Camelot Heights in 2003, Island Resort in early 2005, Juniper Ardmore in 2005, Martin Road Property in 2008 as well as his assisting in the Wife’s purchase of the Tai Koo Shing Property in 2010, and that in the case of Camelot Heights he in fact needed a substantial loan from his mother, all of which just make it all the more obvious of the inherent improbabilities in the funding of Mountain Lodge having come from him. 36.On the other hand, according to the Cash Flow Analysis very helpfully prepared by Mr Chan based on bank records with JP Morgan (D/1134 – 1087, E/1156 – 1181), the Mother had from December 2005 to December 2006 injected in excess of HK$12 million (US$1,507,692) into the Husband’s bank account to forward on to A Express and A Energy, which together with the monies previously injected by her put the net portfolio value in the 2 companies in excess of US$3.16 million at the material time, or the equivalence of HK$24.5 million, it is clear that it was these funds from the Mother that enabled A Energy to purchase both Paris Court and Mountain Lodge, and as noted above there can be no suggestion that the Husband was somehow having any other means to fund these purchases. 37.Furthermore, even her own evidence on the sharp contrasting manners in which the parties treated their Juniper Ardmore Property and Mountain Lodge does not assist her case that the latter was purchased as their matrimonial home, when she described their lavish renovations of their Juniper Ardmore Property in Singapore in her 13th Affirmation from §14[CD/34 – 35]:
38.She then went on to produce photos of the interior of the Singapore Property as evidence of those indeed extravagant decorations [B/361–364]. If that is what they had done to their place in Singapore in which they planned to spend only part of their time, one can only imagine what they would have done with Mountain Lodge if it were indeed their own matrimonial home in Hong Kong. Yet what she herself said in the same affirmation about their move into Mountain Lodge is indeed most telling about the true intention of their use of that property:
39.The facts that Mountain Lodge was never redecorated after its purchase during their marriage, let alone in the fashion as with Juniper Ardmore, and was merely furnished with old furniture and temporarily from Ikea which was certainly nowhere close to what they had in their Singapore Property, simply put the final nail in the coffin of the Wife’s case that it was purchased as their matrimonial home, and go to support the Mother’s case that it was her own property which she only allowed the parties to stay temporarily until they could afford their own property. 40.Above all, when contrast these evidence of the Wife with those of the Mother in which she described at the trial how she instructed the Husband to invest on her behalf in the various landed properties and arranged for funds to be made for their purchases, and confirmed unequivocally under cross-examination that A Energy is her company and that Mountain Lodge is her property in such clear and precise demeanour and with such determination and conviction as if they were the most obvious and unchallengeable truths that as a matter of fact no further explanation was necessary, I have no difficulty deciding whose evidence should be preferred. Conclusion 41.For all the reasons referred to above, I am convinced that the Mother is the beneficial owner of both A Express and A Energy and hence also of Mountain Lodge which was all funded by her with monies from A Express and/or REL, and that the Husband has all along been her trustee and nominee only. As pointed out by both Mr Chan and Mr Coleman, the Wife should never have made her claim against A Energy or Mountain Lodge in the first place, or at least not after she has seen the 2 Declarations of Trust. 42.Even if one were to put her case at the highest, that she had all along been misled by the Husband that it was he who bought Mountain Lodge as their matrimonial home, of which he has repeatedly denied, but by the time the 2 DTs were produced and with the other overwhelming documentary evidence referred to above, the Wife should have accepted the reality and abandoned her stance on Mountain Lodge without going to trial instead of insisting in beating the dead horse by her apparent intransigence in shifting to other internally inconsistent or peripheral evidence such as the age of the Husband or his degree certificates or business cards. 43.Internally inconsistent because while accusing the Husband of lying about everything in her 13th affirmation when she said he has shown himself to be a habitual liar and a cheat and has lied about his own family background, his working experience and age [CD/38], yet at the same time stubbornly clinging on to what he had told her about his purchase of Mountain Lodge for their matrimonial home for HK$30 million without the need of a mortgage which is just pure contradiction. 44.As pointed out by Mr Coleman, her stance as to his age is particularly telling when she insisted under cross-examination that he was born in 1971 because he had told her so despite being shown his original identity card and passport that he was in fact born in 1977, while her outright denial of authorship of the posting on her Facebook page [E/1298] in which she acknowledged that the Husband was “sad and broke” appears to me simply a desperate attempt to cling on to her by then plainly hopeless case. 45.Despite overwhelming evidence against her case, the Wife has blindly, stubbornly and foolishly pursued a blatantly false hope that can only lead to one inevitable consequence: That costs will follow the event and she is to bear both the costs of the Intervening Parties and the Husband of and incidental to the Intervening Parties’ application to be taxed if not agreed, with certificate for Counsel, but with those of the Husband not to be enforced until after the ancillary relief application. This is an order nisi to be made absolute at the expiration of 14 days. 46.Last but not least, there remains my wish to express my gratitude to Counsel for all sides for their most valuable assistance rendered to the court throughout the trial.
Mr. John Brewer with Ms Bonnie Cheng instructed by M/S Stevenson Wong & Co for the Petitioner. Mr. Russell Coleman SC instructed by M/S Hampton Winter & Glynn for the Respondent. Mr Jeremy Chan instructed by M/S Cheung Chan Chung for the Intervening Parties. | |||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under FCMC 4685/2012