Division of Hong Kong Divorce Estates: Trustee Actions involving Third Party Interests in Matrimonial Assets
Common Types of Trusts for Matrimonial Assets
A common type of dispute in divorce proceedings in Hong Kong is where a party to a matrimonial action claim that the nominal holder of the matrimonial assets is not the same as the holder of the actual interest, thereby requesting the court to determine the actual holder of those assets and to distribute the matrimonial property on that basis. There are generally two types of matrimonial asset trusts in this type of action:
- certain assets are held in the name of a party to the matrimonial proceedings but he or she claims that he or she is holding them only as a nominal right holder for the benefit of others (e.g., his or her parents) and is not the actual right holder, and therefore such property should be excluded from the matrimonial estate;
- certain assets are in the name of a third party (e.g., a parent of a party to the litigation), but the other party to the matrimonial action claims that the actual rightful owner of those assets is a party to the matrimonial action and those third parties are holding them only as nominal rights holders, and therefore those assets should be added to the matrimonial estate for distribution.
Trust in lieu actions: issues as antecedents to matrimonial property division actions
In Leung Wing Yi Asther v Kwok Yu Wah & others (2015) 18 HKCFAR 605, at paras 28-29, the Hong Kong Court of Final Appeal confirmed that the procedure established in the UK case of TL v ML & Other (Ancillary Relief: Claim Against Assets of the Extended Family) [2006] 1 FLR 1263, i.e. where an action for the division of matrimonial property involves a third party, the action should be brought as a preliminary to the action. Extended Family) [2006] 1 FLR 1263, i.e. where an action for division of matrimonial property involves a third party’s interest in the property, an action for property interests between a party to the matrimonial proceedings and the third party should be dealt with as an antecedent issue of the matrimonial proceedings, to be resolved by way of filing of pleadings, depositions and hearing of the case by both parties.
Addition of third parties to matrimonial trusts in nominee actions
In Hong Kong divorce proceedings in trust for matrimonial assets, it is often necessary to join a third party (e.g. as the holder of a substantive interest, or as a parent of a nominee) as a party to the proceedings because of the property interests of third parties other than the parties to the matrimonial proceedings.
- The legal basis for joining a third party to a matrimonial trust action: Order 15, rules 6(2) and (3) on third party joinder, and the case law above.
- Procedure for joinder: An application for the joinder of a third party may be made to the court by any party to the matrimonial proceedings, or the third party who receives the court papers may apply to the court for joinder himself.
- Third party joinder is not mandatory in all similar proceedings. For example, where a party claims that he or she is merely acting as a nominal right holder for the benefit of another person (e.g. his or her parents), the third party should at least be notified of the proceedings so as to be bound by the court’s judgement. It is up to the third party to decide whether or not to apply for joinder.
However, it is not always necessary to join a third party as an intervenor in divorce proceedings where the assets of the proceedings involve the interests of a third party. According to LLC v LMWA (CAMP 143/2018), the Court of Appeal held that where the assets in dispute are held in the name of a third party in which one of the parties to the marriage claims to have a material interest or a vicarious relationship, the third party must be joined as an intervener in the divorce proceedings. Conversely, where the assets in dispute are held by a party to the marriage who claims to hold them for the benefit of the third party (nominee relationship), the third party should be notified of the proceedings, and the third party may choose to apply to join as an intervener, or the third party may choose not to do so, but if the third party chooses not to join the proceedings as an intervener, the third party will be subject to the order or judgment of the court made in the divorce proceedings. This principle has been applied in subsequent cases. This principle has been recognized in subsequent cases: FCMC 11521/2015; [2023] HKFC 34.
Escrow or trust: the question of application of law
When matrimonial litigation involves assets held in trust outside Hong Kong (e.g. real property in Mainland China), a question that needs to be resolved is whether the law of the trust in Hong Kong or the law of the place where the assets are situated should apply in determining the validity of the legal relationship of the purported holding or trust. If the asset in dispute is a real estate property in the Mainland, the application of the Mainland law involves a legal relationship of entrustment under the civil law of the Mainland, whereas the application of the Hong Kong law involves a constructive trust or resultant trust under the trust law of Hong Kong, the principles of which are similar to those of the legal relationship of entrustment on behalf of a trust in the Mainland, although there are similarities. Although there are similarities, they are not exactly the same.
According to Johnston, The Conflicts of Laws in Hong Kong (3rd Ed.) at §6.010, actions in rem are governed by the law of the place where the property is situated, whereas trust actions relating to substantive interests in property follow the law of the place where the property is situated. Accordingly, if the asset in dispute is a real estate in the Mainland, the legal relationship of entrustment under the law of the Mainland should apply. In SL v. CPYD (FCMC 12136/2011), the court pointed out that if any claim is that a law other than the law of Hong Kong should be used, for example, the law of the Mainland, the claimant must set out in his pleadings what the applicable foreign law is (Dicey & Morris, The Conflict of Laws, Volume 1 (15th Edition, 2012) Rule 25 pp. Edition, 2012) Rule 25 p. 318) and provide evidence of it (usually by way of a legal affidavit from a foreign lawyer). If no evidence is provided of the contents of the foreign law, Hong Kong law is entitled to presume that it is the same as Hong Kong law (Koninklijke Philips Electronics N.V. v Laser Media International Ltd [2001] HKEC 1134; Igal Dafni v CMA CGM SA [2013] 2 HKLRD 73)
On the other hand, in SL v. CPYD (FCMC 12136/2011), the court, on the basis of analyzing the English case of Lightning & Anor v. Lightning Electrical Contractors limited & Others 97/1055 CMS3 , held that although the assets in dispute were located On the basis of an analysis of the English case Lightning & Anor v. Lightning Electrical Contractors limited & Others 97/1055 CMS3, the court held that although the assets in dispute were outside Hong Kong, Hong Kong trust law could be applied if the Hong Kong court had jurisdiction.
Constructive Trust: Legal Principles
Under the application of Hong Kong law, the core of resolving disputes over the trust holding of matrimonial assets often ultimately comes down to the issue of constructive trust, and the following legal principles were summarized in the case of LLC v LMWA (FCMC 4683 /2014) in relation to the determination of the existence of a constructive trust:
- According to WML v LCK (CA), CACV 82/2014, date of judgment 27/2/2015, the legal principles have evolved in recent years, and in family law relationships, the starting point for discussion is no longer the traditional resultant trust (i.e. whoever contributes the funds, whoever has a material interest), but rather, the point of departure is the common intention which has already been reached. Instead, the starting point is the common intention that has been reached, i.e. the common intention of the parties concerned is who has a material interest and how much. In Primecredit Ltd v Yeung Chun Pang Barry (unreported, CACV 246/2016, 21.7.2017) at §1.3 (per Lam VP) it was re-affirmed that if the issue has been resolved by a common intention judgment, there is no There is no room for the use of a resulting trust.
- In the absence of proof to the contrary, there is a presumption that the beneficial interest is the same as the registered interest (and not the percentage of capital contribution). The burden of proof is on the party claiming inconsistency between the beneficial interest and the registered interest (Chan Hin v Chen Bai Dyi (unreported, HCA 680/2014, 25.7.2017, Anthony Chan J) at §21; Stack v Dowden [2007] 2 AC 432 at §§56, 68).
- In relation to assets held jointly, under Jones v Kernott [2012] 1 AC 776, Lord Kerr, there is a presumption, in the absence of proof to the contrary, that the joint names have an equal substantial interest in the assets, and this presumption may be replaced by a common intention in relation to the shares which they had reached prior to the acquisition of the assets (or a common intention to change the shares subsequently) This presumption may be displaced by their common intention in relation to the shares prior to the acquisition of the assets (or a common intention to change the shares subsequently). If it is established that there was a common intention as to shares but the contents cannot be ascertained, it is for the court to determine their respective shares on the basis of common principles as the case may be.
- The essentials of proof of a constructive trust are set out in Lam J in Liu Wai Keung v. Liu Wai Man [2013] 5 HKLRD 9, which was confirmed by the Court of Appeal in WML v LCK.
For more information on Hong Kong divorce procedures, Hong Kong divorce child custody, Hong Kong divorce maintenance and property division, Hong Kong prenuptial property agreements, Hong Kong marriages registration and other related legal issues, please refer to our Hong Kong Matrimonial and Family Law Services page.
(Bob Yan, principal solicitor of Yan Lawyers, solicitors. Email: [email protected], Tel: +852 31881995, +86 15018939249, WhatsApp: +852 5103 9249)