Civil procedure — striking-out — action pursuant to Conveyancing and Property Ordinance (Cap. 219) s. 60 for order setting aside assignment of real property — whether claim should be struck out — whether adequately pleaded — whether plaintiff time-barred from bringing action
D1–2 were formerly husband and wife and joint owners of the matrimonial home (the “Property”). D1 commenced divorce proceedings in 1997 and, pursuant to an order of the Family Court dated 15 July 1998, transferred his half interest in the Property to D2 free from encumbrance (the “Order”) by an assignment dated 27 August 1999 (the “Assignment”). On 18 August 2003, P obtained final judgment for approximately $366,000 with interest against D1 based on a debt (“Debt”) (the “Judgment Sum”) which remained unpaid. P claimed that shortly afterwards, he discovered that D1 had been transferring or dissipating his assets to frustrate any recovery action. Over 16 years after the Assignment, on 15 August 2015, P issued a writ in the present action against D1–2 seeking a declaration that the Assignment was void as a disposition contrary to s. 60 of the Conveyancing and Property Ordinance (Cap. 219) (“CPO”); further or alternatively, an order that the Assignment be set aside; and an order charging D1’s interest in the Property and that such interest be sold. P alleged that D1–2’s divorce was a sham, initiated by D1 knowing that he was substantially indebted to P; the Property was D1’s most significant asset and the Assignment was executed by D1 with intent to defraud creditors by making himself judgment-proof. D2 applied, inter alia, to strike out P’s statement of claim (the “S/C”) under O. 18 r. 19 of Rules of the District Court (Cap. 336H, Sub.Leg.) arguing inter alia that: (a) the S/C only sought to set aside the Assignment but not the Order which remained valid so that the Court had no power to set it aside (“Ground One”); (b) P had not pleaded that D2 had conspired with D1 to deprive P of the Judgment Sum, so that P could at most only claim against D2 for “knowing receipt” of the Property, to which D2 had a complete defence by virtue of the six-year limitation period under s. 20(2) of the Limitation Ordinance (Cap. 347) (the “LO”) (“Ground Two”); (c) P had not sufficiently pleaded the requisite intent to defraud creditors or dishonesty on D1’s part (“Ground Three”); and (d) P’s claim was stale given that the Assignment was executed in 1999 and D2 received the writ over 16 years later in 2016 (“Ground Five”). First, at issue, was whether the District Court had jurisdiction to hear and determine a claim under s. 60 of the CPO.
Held, dismissing the striking-out application, that:
1) Section 36 of the District Court Ordinance (Cap. 336) conferred jurisdiction on the District Court to hear this action, as the title to an interest in land was in question and the value of the land was within the current prescribed monetary limit (Ng Cho Chu v Chan Wing Hung  4 HKLRD 396 applied). (See paras. 16–17.)
2) Ground One was rejected. As a matter of logic, the Order would necessarily have to be set aside if the Assignment was to be declared void under s. 60. The facts P would rely on to set aside the Order had already been pleaded in respect of the Assignment. Thus, there would be no new cause of action and no time bar issue even if he sought leave to amend the S/C. There was no compelling need for P to expressly seek to set aside the Order in his pleadings. (See paras. 45, 48–51.)
3) Ground Two also failed. P was invoking his rights exercisable as a creditor under s. 60 of the CPO to enforce the Judgment Sum. D2 was joined as a necessary party, since the subject matter of the claim, ie the half interest in the Property, was transferred to her. P was not asserting any proprietary or beneficial interest in the Property as such. A creditor could apply under s. 60 to set aside a disposal of property so long as the underlying debt subsisted and was not itself time-barred. There was no separate time bar for the s. 60 application. Here, when the writ was issued, the Judgment Sum remained subsisting and the action was within time (Re Maddever (1884) 27 Ch D 523 applied). (See paras. 53–56.)
4) Ground Three was legally unsustainable. The facts as pleaded gave rise to an arguable case of insolvency when the Order was made and also an arguable case that there was no consideration for the transfer such that P had an arguable case of inferring the requisite intent to defraud by relying on the rule in Freeman v Pope. These were matters to be resolved at trial (Freeman v Pope (1869-70) LR 5 Ch App 538, Tradepower (Holdings) Ltd v Tradepower (HK) Ltd (2009) 12 HKCFAR 417 applied). (See paras. 67–74, 93.)
5) In any event, the requisite intent under s. 60 was sufficiently pleaded even if the claim under s. 60 fell outside the rule in Freeman v Pope. In such case, it was necessary to infer from the evidence an actual intent to defraud on the disponor’s part in a “broader sense”. This required a dishonest intention on the disponor’s part in the context of the relationship of debtor and creditor, with actual deceit not being essential. Motive was irrelevant and the court was concerned with the objective consequence of the disposal and its effect on creditors. Here, D2’s focus on D1’s motive was flawed. P had expressly pleaded the objective effect of the disposal of the Property on creditors and D1’s knowledge that it would hinder or delay P in his recourse to his assets to satisfy the Debt (Lloyds Bank Ltd v Marcan  1 WLR 339, Skink Ltd v Comtowell Ltd  2 HKC 286, Tradepower (Holdings) Ltd v Tradepower (HK) Ltd (2009) 12 HKCFAR 417, Regal Castings Ltd v Lightbody  2 NZLR 433, New China Hong Kong Group Ltd v Ng Kwai Kai Kenneth (HCA 519/2010,  HKEC 210) applied). (See paras. 75–95.)
6) Ground Five was also rejected. As the Order and the Assignment should be set aside at the same time, at issue was whether s. 4(4) of the LO applied so as to impose a 12-year limitation period on the setting aside of the Order. However, it was not necessary to make a ruling on this issue at this stage. Even if, contrary to P’s submission, s. 4(4) did bar him from setting aside the Order, there was an arguable case that the limitation period should be extended under s. 26(1), because P’s evidence was that he only discovered D1’s fraud in late August 2003. If true, time would only have begun to run from then and had not yet expired when the writ was issued on 15 August 2015. The material question was whether between July 1998 (when the Order was made) and August 2003, P could with reasonable diligence have found out about the Order. This involved a fact-sensitive inquiry and could only be resolved at trial not on affirmation evidence alone at this interlocutory stage. (See paras. 102–113.)
This was an application by the second defendant to strike out the plaintiff’s statement of claim under O. 18 r. 19 of Rules of the District Court (Cap. 336H, Sub.Leg.). The facts are set out in the judgment.