Cheung Ying Lun v Legal Way Ltd
Court of First Instance
High Court Action No 1554 of 2012
Godfrey Lam J
Land
5, 14 November 2013

Voidable disposition—whether inference of intent to defraud creditors to be drawn from facts

This was an action by the Ps under s.60 of the Conveyancing and Property Ordinance (Cap. 219) to set aside the sale of a property by D1 to D2 as a disposition of property with intent to defraud creditors. A notice of appointment of liquidator or provisional liquidator was filed for D1, but there was no ongoing compulsory liquidation. On the eve of the trial, D1 and D2 stated in letters to the Court that they agreed to a declaration that the transfer of the Property was voidable and an order that the Agreement and Assignment be set aside. D1 and D2 did not appear at the present hearing.

Held, granting the relief sought, that:

Declarations were not readily granted by the court by consent or merely because there was no opposition, such as in default of pleading and defence.

On the facts, the inference properly to be drawn was that D1 had transferred the Property to D2 with intent to defraud D1’s creditors, in particular Ps. First, there were strong indications that the sale was not a genuine arm’s length transaction. In May 2012, the market value of the Property was $4.2 million and Ds had neither disputed nor explained why the sale was at a substantial undervalue. In addition, the same solicitors’ firm, namely the firm of the liquidators, acted for both the vendor and purchaser in relation to the Agreement in breach of r.5C(1) of the Solicitors’ Practice Rules (Cap. 159H, Sub. Leg.).

Further, D1 must have been aware of the Judgment since it had informed Ps that it had no objection to their application therefor. The proximity in time between the Judgment and the Agreement supported an inference that the sale was influenced by D1’s intention to defeat any enforcement measures. Moreover, it was unusual for a purchaser to have an agreement stamped and registered so late, as it could prejudice the purchaser, for example, by enabling earlier transactions to be completed in the intervening period without notice of his agreement. It was more likely than not that this course was adopted so that the existence of the Agreement would remain unknown until after the Assignment had been executed, rendering it impossible for Ps to obtain an injunction to prevent completion of the sale.

Finally, the fact that both D1 and D2 were aware of these proceedings but neither had put forward any evidence or explanation was also significant.

Jurisdictions: 

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