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Poon Lok To Otto Formerly Known As Pun Lok To Otto v Kan Lai Kwan Also Known As Kan Lai Kwan Kay And Another

Judgment Cited authorities 22 Cited in Precedent Map Related
Vincent
Judgment Date17 July 2014
Year2014
Citation(2014) 17 HKCFAR 414
Judgement NumberFACV21/2013
Subject MatterFinal Appeal (Civil)
CourtCourt of Final Appeal (Hong Kong)
FACV20/2013 KAN LAI KWAN also known as KAN LAI KWAN KAY v. POON LOK TO OTTO formerly known as PUN LOK TO OTTO AND ANOTHER

FACV Nos 20 & 21 of 2013

FACV No. 20 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 20 OF 2013 (CIVIL)

(ON APPEAL FROM CACV NO. 48 OF 2012)

_______________________

Between

KAN LAI KWAN also known as
KAN LAI KWAN KAY		 Appellant
and
POON LOK TO OTTO formerly known as
PUN LOK TO OTTO 		1st Respondent
(Petitioner)
HSBC INTERNATIONAL TRUSTEE LIMITED 2nd Respondent

_______________________

FACV No. 21 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 21 OF 2013 (CIVIL)

(ON APPEAL FROM CACV NO. 48 OF 2012)

Between :

POON LOK TO OTTO formerly known as
PUN LOK TO OTTO		 Appellant
(Petitioner)
and
KAN LAI KWAN also known as
KAN LAI KWAN KAY		 1st Respondent
HSBC INTERNATIONAL TRUSTEE LIMITED 2nd Respondent

_______________________

Before:

Chief Justice Ma, Mr Justice Ribeiro PJ,Mr Justice Tang PJ, Mr Justice Bokhary NPJ and Mr Justice Gummow NPJ

Dates of Hearing: 23-24 June 2014

Date of Judgment: 17 July 2014

_______________________

J U D G M E N T

_______________________

Chief Justice Ma:

1. I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Ribeiro PJ:

2. This appeal arises out of an application for financial provision in matrimonial proceedings. It raises questions concerning the proper approach to a discretionary trust set up by the husband and issues concerning separation and estoppel in the context of ancillary relief where profits earned by the husband’s business substantially increased during the final years of the marriage.

A. The course of events

3. Kay Kan Lai Kwan (“W”) was born in 1939 and Otto Poon Lok To (“H”) in 1940. They married on 6 January 1968 in England where they were each working and pursuing further qualifications, W as a nurse and H as an engineer. After returning to Hong Kong in 1969, they found employment and had three children, Karen,[1] Richard[2] and Heather.[3] In 1977, H started his own engineering business while W continued to work as a nurse.

4. After a slow start, H’s business enjoyed some success but then had a major setback in the mid-1980s when it almost failed. It was a very difficult time for them since most of their savings were lost in a stock market crash. They decided to emigrate to Canada in 1988. W remained in Canada with the children for several years while H returned to Hong Kong and started rebuilding the business. They became Canadian citizens in 1992.

5. H’s engineering business began to prosper and in 1994 it consisted of a number of operating companies based in Hong Kong. H decided to restructure the group and obtained advice from Messrs Deacons, a firm of Hong Kong solicitors. The plan adopted was to set up an off-shore corporation which would act as the holding company for the operating companies and to settle the shares of the holding company on the trustee of an off-shore discretionary trust. In a letter dated 21 March 1995 covering a draft of the trust deed, the solicitors recorded H’s purpose in the following terms:

“As previously discussed, the principal purpose of establishing the trust is to provide for continuity in the ownership of the Analogue group of companies for the benefit of you and your family, to avoid a requirement for probate in respect of your interests in the Analogue group following your death and to relieve your estate of the liability to estate duty that would arise in respect of your shareholdings in the Analogue group.”

6. On 18 July 1995, Analogue Holdings Ltd (“Analogue”) was incorporated in Bermuda. H was its Chairman and Analogue became the holder of all the shares in the operating companies.

7. The trustee selected was HSBC International Trustee Limited (“the trustee”) and by a deed dated 25 July 1995 entered into between H as settlor and the trustee, “The Otto Poon Family Trust” (“the trust”) was established under the laws of Jersey. The property settled on trust consisted solely of shares in two private companies, Analogue and Realty Limited. The latter company initially owned a flat in Fulham Gardens, Pokfulam, which was later replaced by a house at Twin Bay Villas in Sai Kung, being residences where the parties lived.

8. Unfortunately, two tragedies befell the family. On 7 October 1995, the younger daughter Heather was killed in a road accident in the United States. Karen’s boyfriend, who was driving, was also killed and Karen was injured. H stated in evidence that he and W were devastated by their loss. W described herself as “totally heart-broken”.[4] According to H:

“... Kay and I found it impossible to talk to each other or to turn to each other in our moment of grief. We both somehow bottled it up and I again threw myself completely and with renewed energy in my work and my projects.”[5]

9. Five years later, in September 2000, they suffered the second tragedy when Richard took his own life, leaping from the balcony of the family home in Fulham Gardens. H described the consequences of this event affecting the parties’ relationship as follows:

“After Richard’s death, the rift between the parties simply became too wide to be bridged. Still we did not talk about our pain, our anger, our grief or our overwhelming and irreplaceable loss. Still we were unable to turn to each other in our darkest moments and by then we probably both had changed into virtual strangers to each other. There was simply nothing that we could say to each other anymore.”[6]

10. Reflecting this sad situation, the trial Judge, Deputy High Court Judge Carlson, stated:

“As I have already indicated, Richard died in September 2000. The husband says, and I am satisfied that he is right, that this tragic event really marked the end of the marital relationship. There was no more warmth or connection between the parties notwithstanding which they continued to live together.”[7]

11. The Fulham Gardens flat, with its unhappy associations, was sold and on 22 January 2001, the parties purchased and moved into the house at Twin Bay Villas. H’s case is that while he and W lived there under the same roof, their marriage was (as the Judge found[8]) “a bare shell and nothing more”. As discussed below,[9] W successfully contested this finding in the Court of Appeal.

12. The Analogue Group’s development is reflected in its annual net profits which were as follows:

Year Net profits
2000 $12,463,425
2001 $25,865,899
2002 $27,741,544
2003 $9,330,983
2004 $8,583,115
2005 ($32,066,322)
2006 $17,031,022
2007 $55,526,026
2008 $78,049,582
2009 $161,760,278
2010 $293,077,695

13. After strong initial results, profits fell during 2003 and 2004 (according to H due to the SARS epidemic) followed by 2005 when the Group made a significant loss. Thereafter, especially as from 2007, there was a steep increase in its profits.

14. In 2008, matters came to a head in the parties’ relationship. W discovered and confronted H about a long-term relationship he had maintained with Queenie Law, a younger woman employed in the Group. On 3 July 2008, H moved out of the Twin Bay Villas property. On 6 November 2008, W petitioned for divorce on the basis of one-year separation and consent.[10] And on 23 December 2008, the Trustee, at H’s request, transferred to W the shares which it held in Realty Limited, thereby transferring to her ownership of the Twin Bay Villas house.

B. The proceedings and awards in the Courts below

15. W did not proceed with her petition. It was dismissed by consent and, on 6 February 2009, H issued his petition based on two years’ separation.[11] He affirmed that the parties had lived apart since February 2001.[12] W did not defend the proceedings and on 26 May 2009 and 1 September 2010 respectively, the decree nisi and the decree absolute were pronounced by the Court on the basis of H’s petition. The February 2001 separation date was also deposed to by both parties in their Form E financial statements filed in the ancillary relief proceedings. However, shortly before the start of the hearing, W made an affirmation[13] stating that the February 2001 date was incorrect and that separation had in fact occurred “some time in 2008”. The date of the parties’ separation and the extent to which W should be awarded a share of the profits of the business accruing after 2001 therefore became contentious issues.

16. Also controversial was the prior question of how the trust ought to be approached. H contended that the Court ought to treat Karen as if she had a “one-third interest” in the trust estate which should be protected from W’s claims. His case was that only two-thirds of the value of the shares should be treated as matrimonial assets. The trustee was joined as a party to the proceedings and adopted a position which was consistent with H’s contentions.

B.1 The award of Deputy High Court Judge Carlson

17. The hearing before DHCJ Carlson took place on dates in October and December 2011.[14] The Judge accepted a valuation of $1,560,686,000 for the shares held by the trust, representing 84.63% of the issued shares in Analogue.[15] His Lordship found that additionally, H had assets to the value of $46,052,707 and W, assets worth $58,259,660.[16] He also found that they jointly owned a flat in Westland Gardens (H agreeing to transfer his 50% share valued at $7,500,000 to W). Those figures are not in dispute. It was agreed that each party would retain other properties held in their respective names without bringing such properties into account.

18. The Judge held that the trust assets...

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