How to approach matrimonial assets held in the name of third parties in a divorce
Introduction
In divorce proceedings, before making any ancillary order for division
of matrimonial assets, the Family Court has to first ascertain the matrimonial
assets. However, in some situations, the matrimonial assets may be held under
the name of third parties such as the husband’s or wife’s relatives. In such
case, the ancillary order may affect the title of properties under the name of
those third parties.
In such cases, how should parties approach
such assets that are held by third parties?
What are the procedures involved? A recent case PMCL v AKK [2023] HKFC 34 provides practical guidance in
this area.
Background
of the case
This is a case with a long procedural
history. The wife (“W”) presented
the divorce petition in 2015 to end her marital relationship with the husband
(“H”) of about 24 years. Both
parties have exchanged their affirmations in support of their respective claims
for ancillary relief in about April 2021.
In H’s claim for ancillary relief, he
alleged that 13 landed properties (collectively, “Disputed Properties”) held under the name of W’s relatives were in
fact matrimonial assets because the funds for the acquisition of the Disputed Properties
were sourced from 3 companies owned by H and W (collectively, “Companies”) and/or from the joint bank
accounts of H and W (“Joint Bank
Accounts”). It is H’s case that the Disputed Properties and the monetary returns
derived therefrom are beneficially owned by H and W.
Joinder Summons taken out by H
By
a summons dated 8 October 2021 (“Joinder
Summons”), H applied for joinder of 6 intended respondents for the
determination of beneficial ownership of the Disputed Properties or their sales
proceeds. The 6 intended respondents are W’s parents and siblings and also
legal owners of part of the Disputed Properties. Three of them had passed away
when the Joinder Summons was issued.
Legal
principles relevant to the Joinder Summons
The relevant rule on joinder of parties is
Order 15 rule 6 of the Rules of High Court (Cap. 4A), which applies to
matrimonial proceedings. The objects of Order 15 rule 6 are to ensure that:
1. all issues in the dispute be effectively adjudicated upon by the Court;
2. all relevant parties are before the Court;
3. there is a need for preventing the same related or connected issues
being tried again with possibly different results; and
4.
multiplicity of actions is
prevented.
On joinder of a new party, the relevant approach to be adopted by the Court
is to determine whether (i) there is a bona fide claim and a proper question to
be tried as between the plaintiff and the intended defendant and (ii) that is necessary
or just and convenient for resolution between them as well as between the
plaintiff and the defendant in the proceedings.
If there is a bona fide claim, the Court will not engage itself in a scrutiny of
the claim or an adjudication of disputed facts. As long as the third party is a
necessary party, that party ought to be joined irrespective of the strength of
the case.
However, even if an applicant meets the
minimum requirement to show there is a legitimate interest in the outcome of
the proceedings, the Court still retain discretion to decide whether an order
should be made, having regard to:
1.
the prejudice to the parties;
2.
the stage the action has reached when the
order was sought;
3.
the delay in making the application; and
4.
any delay that may be caused should the
joinder order be made.
In the context of matrimonial proceedings,
the Court referred to TL v ML
[2006] 1 FLR 1263, where it was held that:
“where a dispute arises about the ownership
of property in ancillary relief proceedings between a spouse and a third party,
that the following things should ordinarily happen: (i) the third party should
be joined to the proceedings at the earliest opportunity…”
The Court went on to refer to the Court of
Appeal’s judgment in LLC v LMWA
[2019] HKCA 347 which acknowledged this approach and set out the following guidance:
“In this respect, there is a difference
between cases where the third party is
the legal owner or one of the legal owners of the disputed property and
cases where a spouse claims that the third party has a beneficial interest in a
property legally held under the name of that spouse. In the former case, the third party should be joined as a party
since the legal title of the disputed property would have to be transferred or
subject to encumbrance if the ownership issue is resolved by the making of a
proprietary order…” (emphasis added)
Does
H have a bona fide claim?
Applying the above legal principles, the 1st
question to consider was whether H has a bona
fide claim on the Disputed Properties. There are mainly 2 categories of
Disputed Properties in the present case. The first is in relation to properties
allegedly bought with the Companies’ funds and the second is in relation to properties
of which funds of the Joint Bank Accounts were allegedly involved.
Properties
allegedly bought with the Companies’ funds
The Court held that H did not have a bona fide claim in this category because
of the general rule that a shareholder does not have a legal or equitable
interest in the property of the company because of the distinct legal
personality of a company. This general rule applies equally in matrimonial
proceedings.
In this case, H and W are shareholders of SEL and former shareholders of
SSEL/NPEL. The funds of these companies are the assets of those companies, not
the assets of H and W. Even if the Disputed Properties were in fact bought with
the companies’ funds, it did not make the Disputed Properties matrimonial
assets owned by H and W.
Properties of
which funds of the Joint Bank Accounts were allegedly involved
For this category, the Court is of the view that even if the Disputed
Facts are taken in favour of H at this stage, discretion should not be
exercised in favour of a joinder because:
1. Two of the 4 Disputed Properties in this category were sold to third
parties, so no proprietary order could be sought against these Disputed
Properties;
2. there was substantial delay in taking out the Joinder Summons and
will cause prejudice to W and the intended respondents, in particular as some
of the intended respondents had already passed away and could not give evidence
on the issue of beneficial ownership;
3. there was a long procedural history and the parties have already exchanged
affirmations on ancillary relief matters; and
4. disproportionality.
Just and convenient
The 2nd question for the Court
to consider is whether it is just and convenient to join the intended
respondents to the proceedings. By way of background, the Companies had
commenced High Court action in 2020 against W and the intended respondents for
fraud, breach of director’s duties and proprietary restitution.
H contended here that it is just and
convenient to join the intended respondents so that all relevant issues and
evidence can be fully fleshed out, and H can seek discovery from the intended
respondents. H also submitted that there is a substantial overlap of issues in
these proceedings and the High Court action. If the joinder is allowed, he may
consider revisiting application for a transfer of these proceedings to the High
Court to avoid multiplicity of proceedings.
The
Court rejected H’s contention based on the following reasons:
1.
The Companies are not parties to this
action.
2.
The legal questions to be determined in
this dispute on ancillary relief are different from questions to be determined
in the High Court action.
3.
There was substantial delay on the part of
H to take out the Joinder Summons.
4.
H is the director of the Companies and he
should have access and control of the records and documents of the Companies
and the Joint Bank Accounts.
On
the basis of all the above reasons, the Court dismissed the Joinder Summons.
Conclusion
From
PMCL v AKK, we have more
insight into the Court’s requirements to successfully join third parties into matrimonial
proceedings if there are issues of beneficial interest in properties held by
third parties.
A potential applicant for joinder should
make sure that he/she has a bona fide
claim with proper a legal basis of why he/she and/or the wife/husband has
beneficial interests on the properties in dispute. In addition, the potential applicant for a joinder should make such
application as soon as practicable to avoid the joinder application being
dismissed by the Court’s discretion on the ground of delay.
Where there are matrimonial assets held by
third parties and a joinder application may be required, the legal procedures and
considerations to take into account can be complicated and multi-faceted. Professional
advice should be sought to better understand your rights and the procedures
required.
For enquiries,
please feel free to contact us at: |
E: family@onc.hk T:
(852) 2810 1212 19th Floor, Three Exchange Square, 8 Connaught
Place, Central, Hong Kong |
Important: The law and procedure on
this subject are very specialised and
complicated. This article is just a very general outline for reference and
cannot be relied upon as legal advice in any individual case. If any advice
or assistance is needed, please contact our solicitors. |
Published by ONC Lawyers © 2023 |