Jurisdiction - Hong Kong
Hong Kong – Court of Appeal Ascertains Intent In The Transfer Of Shares.

16 April, 2015


Legal News & Analysis – Asia Pacific – Hong Kong – Capital Markets

In the recent case of LWYA v KYW (CACV 151/2013); LLP v LWYA (152/2013), the Court of Appeal dismissed an appeal against the determination of a preliminary issue in an application for ancillary relief. The Court of Appeal agreed with the Court of First Instance and ruled that certain shares transferred to a wife by her father should be taken into account as part of the matrimonial estate.  The decision is also a useful reminder that an appellate court cannot overturn the findings of a trial judge unless the trial judge had made a significant error, such as ignoring some relevant evidence or taking into account irrelevant evidence.




A husband and wife divorced.  As part of the proceedings regarding the split of their matrimonial property, the Court had to decide the preliminary issue of whether the wife held the beneficial interest in 13.2m shares in a private company.  She was the legal owner, but claimed that she held the shares for her father.  The husband claimed that she was the beneficial owner, and so the shares were matrimonial property.  This would have increased the pool available for division between the husband and wife.


Since 1995, the wife’s father had used the company to hold his property investments.  All of his children (and the husband) received shares in the company for participating in the family business.  In 2004, the father and one of his other children executed a deed of trust by which the child declared a trust in respect of his shares, which he had held since 1995, in favour of the father.  Those shares were later transferred to the wife and again a declaration of trust was executed confirming the father as the beneficial owner. In January 2005, the wife transferred the shares back to the father. In March 2005, the father again transferred 13.2m shares to the wife.  The father and wife executed an instrument of transfer and bought and sold notes in respect of the shares.  Those documents recorded that the wife paid $13.2m for the shares.  Stamp duty on the transfer was also paid. In 2006, the father increased the authorised share capital of the company.  The wife received another 6.8m shares, taking her total legal holding to 20m shares.


The dispute focused on the ownership of the 13.2m shares which were transferred to the wife in 2005. The wife and her father (who was ordered to be joined as an intervening party in the trial of the preliminary issue) contended that she held the shares on trust for her father.  This contention was made even though no declaration of trust was executed by the wife on this occasion and the documents in fact recorded that the father had been paid for the shares.  Neither the wife nor her father explained why they had not executed a declaration of trust as they had previously, nor why the documents recorded that consideration had been given if in fact none was received.


The trial judge followed Lavelle v Lavelle [2004] 2 FCR 418.  He noted that his task was to discover the father’s intention when he transferred the shares to the wife – had he intended to relinquish beneficial ownership of the shares?


The trial judge analysed the evidence and concluded that the shares held in the wife’s name had been given to her as a gift by her father.  They were thus beneficially owned by her.


Appeal Judgment


The wife and father appealed this finding.


They argued that the trial judge’s finding of the father’s intention was not a finding of primary fact, but rather was a finding of fact made by a process of inference.  If this were correct, then the Appeal Court could substitute its own view as to the inference to be drawn.  However, the Court of Appeal disagreed.  It found that the trial judge’s finding was based on his findings on the oral evidence given by the wife and her father.  These earlier findings were reliant on his ability to see and hear the witnesses, which the Court of Appeal could not do. The Court of Appeal noted that it could not overturn those findings unless the trial judge had made a significant error, such as ignoring some relevant evidence or taking into account irrelevant evidence.  The Court of Appeal found there was no basis to overturn the trial judge’s finding that the father had intended to give the shares to the wife.


The father and the wife also argued that the trial judge had made mutually inconsistent findings of fact.  They argued that those findings were his conclusions that the transfer of shares was both a gift and an arm’s length sale for value.  This argument was also rejected by the Court of Appeal. The Court of Appeal held that on a fair and proper reading of the judgment, the only finding the trial judge made of the father’s intention was one of gift.


herbert smith Freehills


For further information, please contact:


Richard Norridge, Herbert Smith Freehills

[email protected]


Herbert Smith Freehills Capital Markets Practice Profile in Hong Kong



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