To Join or Not to Join – Navigating the Complexities of Beneficial Interests in Divorce Proceedings17Oct2023
Divorce, an intensely personal affair, extends its ramifications beyond the couple involved, touching the lives of family members and friends alike. This repercussion becomes even more profound when one spouse assumes the role of a trustee for assets or when matrimonial assets are held in trust by a third party. How does a spouse assert a rightful claim on assets held under someone else’s name? And, conversely, how can third parties safeguard their vested interests?
First Came Full and Frank Disclosure
Giving full and frank disclosure is a corner stone to any financial dispute in divorce proceedings. The purpose of this is to ensure that the Court has all the necessary information pertaining to the parties’ financial status before making a decision that will potentially impact both parties and the children for a significant portion of their lives. Parties undergoing divorce will no doubt be familiar with the pro forma Financial Statement (a.k.a. Form E). Each party will have to complete this 20-odd page document, requiring them to set out all assets that are under their respective sole names, in joint names with others and any asset held under a third party’s name but which the party has an interest in.
Then came the familiar story that the divorcing spouse claims to be holding an asset (e.g. landed property, shares or otherwise) on trust for someone else (say for tax or whatever reasons) OR that the spouse had transferred assets to a third party (say a friend or trustee) shortly before the commencement of the divorce proceedings.
In the latter scenario, a spouse can seek to join the title holder of an asset into the divorce proceedings, so that the Court may properly determine the ownership of the asset for the purposes of the ancillary relief proceedings.
Joinder – Legal Principles
Order 15, rules 6(2) and (3) of the Rules of the High Court (which is also applicable to divorce proceedings in the District Court – to which the Family Court belongs) provides that the Court may on its own motion or on application by a party order that a person be added as a party if:-
‘(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or
(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter’.
An application for joinder must be supported by affidavit evidence showing the applicant’s interests in the matters in dispute or the question or issue to be determined as between him and any party to the cause of the matter.
Who to join?
Either a party to the existing proceeding can seek to join a third party into the proceedings, or a third party having been served with the requisite Court documents can apply to join the proceedings.
In so far as the former, a party to the existing proceeding is entitled to choose who he/she wishes to be joined into the proceedings. However, there is no rule that a person is automatically joined into the proceedings merely because he is served with the requisite Court documents.
The Court retains the ultimate decision on whether a person is to be joined. In exercising its discretion, the Court will have to consider whether there is (1) a bona fide claim; and (2) a proper question to be tried as between the applicant and the intended party to be joined that is necessary or just and convenient for resolution between them as well as between the existing parties.
At this stage, the court will not scrutinize the applicant’s case, or adjudicate on the disputed facts. The burden of proof is on the party opposing the joinder. Once the Court is satisfied that the joinder has a legitimate interest in the outcome of the proceedings, the Court will decide whether an order should be made having regard to: the prejudice to the parties, the stage the action has reached when the order was sought, the delay in making the application and any delay that may be caused should an order be made.
Not all Parties Need to be Joined
Even when a party can be joined in the proceedings, it is not always necessary to have that party joined. Who the title holder of the asset is will to a great extent inform whether a third party should be joined.
In a case where the applicant claims that an asset held in the name of a third party is that of the respondent’s, the third party should be joined. This is because the legal title of the disputed asset would have to be transferred or subject to encumbrance if the Court holds that that asset is a matrimonial asset.
However, if the respondent is the legal title holder, but says that such asset is beneficially owned by a third party, then the third party should at the very least be notified of the claim so that he/she may decide whether to contest the ownership issue, and if so, apply to be joined as a party to the proceedings. If the third party does not apply to be joined, then he/she shall be bound by the Judgment of the Court.
When to Join?
In UK case of TL v ML  1 FLR 1263, Mostyn QC siting as Deputy High Court judge gave the following guidance:
‘36. …. It is essential in every instance 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 happen ordinarily: (i) the third party should be joined to the proceedings at the earliest opportunity; (ii) directions should be given for the issue to be fully pleaded by points of claim and points of defence; (iii) separate witness statements should be directed in relation to the dispute; and(iv) the dispute should be directed to be heard separately as a preliminary issue, before the Financial Dispute Resolution
37. in this way, the parties will know at an early stage whether or not the property in question falls within the dispositive powers of the Court’.
While the above trustee / beneficial owner dynamics happens frequently in domestic settings, it is also not uncommon that parties seek to join professional / institutional trustees to determine the true ownership of assets disposed of prior to divorce proceedings. In fact, it is also not uncommon that these trustees are located overseas / in offshore jurisdictions.
By way of example, in the case of KCMA v ABC  HKFLR 548 in Hong Kong High Court concerning 2 trusts (namely the Education Trust and the Family Trust), the Hon B Chu J. decided to join the overseas trustee to facilitate enforcement of any Order by the Hong Kong Court. If an overseas trustee fails to comply with a Hong Kong Court Order, a party can seek an order that ‘… the signing of the necessary documents to effect the transfer by some other person appointed by the Court’; or apply for a declaration that previous transfers were invalid and of no effect.
Notwithstanding such enforcement mechanisms available to the Hong Kong Court, the Hon B Chu J. acknowledged whether such order and/or declaration will be recognized by the overseas trustee remains a live issue.
5 Take Aways
- Parties must give full and frank financial disclosure in divorce proceedings.
- Even if a dispute over the beneficial ownership in an asset concerns a third party, it does not automatically mean that that party must be joined in the proceedings.
- If an asset is in the hands of a third party, then more likely than not that party should be joined in the proceedings.
- If the applicant seeks to join a third party to the proceedings, the application should be made at the earliest opportunity.
- The whereabouts of institutional trustees may at times have an impact on the recognition and enforcement of Orders by a Hong Kong Court.
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
For specific advice on your situation, please contact:
 KCMA v ABV  HKFLR 548 
 Hong Kong Civil Procedure 2023 Vol 1 [15/6/6]
 LLC v LMWA  2 HKLRD 529
 Order 15 Rule 13A(4) of the R.H.C.
 KCMA v ABC  HKFLR 548 para 122 – 123