CH v. MEH
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IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
MATRIMONIAL CAUSES NO. 1969 OF 2007
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BETWEEN
| CH | Petitioner | |
| and | ||
| MEH | Respondent | |
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(Application for Variation of Lump Sum Order by Instalments)
Coram : H.H. Judge Bruno Chan in Chambers
Date of Hearing : 28TH – 30TH September, 4th November 2010.
Date of Judgment : 10th December 2010.
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J U D G M E N T
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1. This is the Respondent Husband‘s application under s.11 of Matrimonial Proceedings and Property Ordinance, Cap 192 (MPPO) to vary downward the quantum of the 2nd lump sum instalment and the timing of its payment to the Petitioner Wife as well as his monthly maintenance for her under a consent order made on 2nd February 2009 upon the dissolution of their 8 years marriage, and pending the determination of the application, that there be a stay of the 2nd lump sum instalment payment.
2. That order was made following a successful FDR hearing during which the parties agreed, inter alia, that the Wife was to receive 50% of the total assets calculated as a lump sum of HK$16,886,077 payable by the Husband by 3 instalments, as well as monthly maintenance for her and the 2 children of the family.
3. The Husband has paid the 1st instalment but not the 2nd instalment as he claims that due to the 2008 global financial crisis, his financial position both as to the capital and income has altered to such an extent that he can no longer afford to pay the 2nd instalment, hence the application now before me.
4. His application is of course not acceptable to the Wife, who contends that his financial situation is not as dire as alleged by him, that his total income and benefit package from his employer has remained essentially the same, that he has other resources including borrowing ability to meet the 2nd instalment, that he has not cut down on his own standard of living and lifestyle since their divorce, and that if he indeed
has difficulty making the 2nd instalment, the court should only allow him further time to make payment.
5. Mr Pilbrow on behalf of the Wife also questions the court’s jurisdiction under the section to vary the quantum of the lump sum instalments, as it has always been the understanding of practitioners in family law that the jurisdiction is only confined to vary the timing of the instalments and the manner in which they are paid, or to discharge a particular instalment, but not the quantum of the principle sum.
6. Ms Irving for the Husband however contends that recent authorities from England certainly indicate that their courts do have the jurisdiction under their Section 31(2)(d) of the Matrimonial Causes Act 1973, upon which our Section 11 is based, to re-open the overall quantum of lump sum orders by instalments, and hence our courts should accordingly also have similar power.
7. This thus constitutes a major dispute on an important point of law between the parties which no doubt requires detailed examination of the relevant authorities, of which however according to both parties that there is none from our courts, hence the focus will mainly be on the English ones, but before that, and while I have already set out the background of the parties in my earlier judgment dated 3rd October 2007 on the question of maintenance pending suit (PB6 : 1859 – 1882), it would be helpful to revisit some of them for the purpose of this judgment.
Background
8. The Husband, who was born in Canada and now aged 50, is the President and CEO Asia of a well-established German family business known as HWL Ltd. owned by his 2 cousins in Germany. He was sent by the company to Hong Kong in 1983 where he has since been responsible for the Asian side of the operation in particularly China and Hong Kong.
9. The Wife was born in Switzerland and is now aged 43. After marrying the Husband in 1989 she joined him in Hong Kong to be a full-time housewife and mother to their 3 children, namely J, a son, and A and C the 2 daughters aforesaid in a property in Clear Water Bay owned by the Husband’s employer.
10. In addition to free accommodation of a spacious garden house with 4-5 domestic staff and driver as well as company cars provided by his employer, the Husband also received a substantial basic monthly salary but his main income actually came from his annual bonus but normally referred to by his company as a distribution of the profit share fixed at 5% of specified profit earned in Hong Kong and China usually paid at the end of each summer for the preceding year ranging between HK$3 – 6 million per year based on the preceding several years record going back to 2005, which enable the family to enjoy a generally high standard of lifestyle, fine dining and luxurious shopping, weekend spent boating on the family junk and the Husband’s speed boat, substantial overseas holidays, membership in private clubs such as Clear Water Bay Golf and Country Club, the Aberdeen Boat Club and the China Club, and sending their children to expensive international school.
11. Sadly the marriage was severely affected in 2002 by the development of a rare and incurable metabolic disease by son J which had caused such emotional stress and pressure on the parties over the next several years that, together with other reasons that are no longer relevant, drove the parties apart and in early 2006 the Husband moved out of their Clear Water Bay home to a rented apartment in the Mid-Levels. The parties had by then each had another relationship.
12. Finally, after an unsuccessful mediation, the Wife filed for divorce in February 2007 in these proceedings and on 3rd October 2007 I granted the Wife maintenance pending suit at HK$75,000 per month on the basis that the Husband or his employer was to continue to be responsible for all her household expenses in the Clear Water Bay property, her car expenses and the children’s education and medical expenses.
13. Tragically shortly thereafter their son J succumbed to his illness and died on 28th October 2007, whereupon the Wife applied for an increase to her maintenance pending suit to enable her to move out of the Clear Water Bay property with the daughters to rent on the Peak to be closer to their German Swiss International School, and on 26th February 2008 I allowed the increase to HK$215,000 per month, as offered by the Husband, to include provision of the Wife’s rental expenses of HK$105,000, her household expenses of HK$35,000 and HK$75,000 for her living expenses and the children’s, while his undertaking to be separately responsible for the children’s medical and education expenses was to continue.
14. After the Wife and the daughters moved to the Peak, the Husband returned to the Clear Water Bay property where he has since been cohabiting with his colleague Ms S. Eventually the parties were able to agree to have joint custody of the daughters with care and control to the Wife.
15. As aforesaid, the parties subsequently also reached agreement on the question of ancillary relief at the FDR hearing on 25th September 2008 during which they were represented by counsel. The assets upon which they agreed to an equal division were set out in the Husband’s schedule and valued at HK$33,716,716.72, of which HK$897,755.58 were the parties’ joint assets consisting mainly of an Australian property and the Country Club debentures, HK$3,099,924 were the Wife’s assets, with the balance of about HK$30,000,000 being the Husband’s assets comprising mainly of his bank accounts (HKS6.74M), stocks and shares (HK$9.59M), pension funds (HK$5.67M) and moneys owed to him (HK$7.55M) (PB9 : 2788 – 2790).
16. The agreement was later set out in details in a 5 - page draft consent order subsequently endorsed by this court on 2nd February 2009 (“the said order”) (PB8 : 2341 – 2346), of which the lump sum of HK$16,886,077 payable by the Husband to the Wife was by the following instalments :
(a) HK$6,943,038 within 42 days of decree absolute;
(b) HK$6,943,039 no later than 26th September 2009 provided that should he be able to pay earlier, he should do so;
(c) HK$3,000,000 upon maturity of J's Lifesaver Insurance Policy in 2013.
17. The said order also required the Husband to pay the Wife HK$148,000 per month for her maintenance, reducing to HK$120,000 after the 2nd lump sum instalment, and to HK$110,000 after the 3rd instalment, as well as HK$15,000 per month for each of the 2 daughters in addition to his undertaking to continue to pay for their school fees, tuition, medical, insurance and education policy expenses.
18. The Husband has paid the 1st instalment albeit late, by realising his Tracker Fund and UBS Portfolio for just under HK$3 million, a substantial drop in value due to the global financial crisis, and had to make up the balance from his HSBC account.
19. The 2nd instalment was as noted above not paid and on 24th September 2008, 2 days before it was due, the Husband took out the application now before me seeking variation thereof, claiming that he no longer has the liquidity to pay it due to the 2008 financial crisis which has also severely affected his company’s business and hence his profit share, and proposing instead to pay the Wife the entire proceeds of J’s Lifesaver Policy upon its maturity in 2013 which is anticipated to have a maturity value of US$699,542, or the equivalence of HK$5,456,427.
20. He also proposed, if the court should accede to his application, to continue to pay the Wife the monthly maintenance of HK$120,000 for her until payment of the maturity money from the lifesaver policy, HK$30,000 for the children, and a further sum of HK$28,000 per month until that instalment payment to compensate her for the interest she would otherwise be receiving on the full lump sum payment, making his current total payment to the Wife at HK$178,000 per month. He has in fact been paying the said compensation of HK$28,000 per month to her in addition to the current periodical payment since the application.
21. This proposal as to the lump sum instalment is of course not acceptable to the Wife, who contends that the Husband’s financial situation is not as dire as he claims, that his total income and benefit package from his employer has remained essentially the same as before, that he has other resources including borrowing ability to meet the 2nd instalment, that he has not cut down on his standard of living and lifestyle since the divorce, and that if he indeed has difficulty making the 2nd instalment, the court should only allow him further time to make payment.
22. Mr Pilbrow on behalf of the Wife also questions the court’s jurisdiction to vary the quantum of the lump sum instalment, as it has always been the understanding of family law practitioners that the court’s jurisdiction under the section is only restricted to vary the timing of the instalments and the manner in which they are paid, or to discharge a particular instalment, but not the quantum of the principal sum.
23. Ms Irving for the Husband however contends that recent authorities from England clearly show that their courts do have jurisdiction under their s. 31 of Matrimonial Causes Act 1973, upon which our s. 11 of MPPO is based, to re-open the overall quantum of lump sum orders by instalments.
24. Before considering those matters required by s. 11(7) of MPPO of the Husband’s application, it would be relevant to first deal with the parties’ dispute over an important point of law on the jurisdiction of the court to vary a lump sum order by instalments, which will necessarily entail a detailed examination of the law in England upon which our s. 11 is based, and of which the parties have admitted not being able to find any authorities or guidance from our courts.
The Law
25. The power of the court to make a lump sum order between the 2 parties to a marriage is contained in s. 4(1)(c) of MPPO, which is the English equivalent of their s. 23(1)(c) of Matrimonial Causes Act 1973, and while it specifically allows the court to make only one lump sum order, it can, within that order, also provide for a series of lump sums, or lump sum by instalments of such amount as may be specified under s. 4(2)(b) of MPPO, the equivalent of s. 23(3)(c) of MCA 1973.
26. This power to make an instalment order may be of use in cases where the parties are of modest means, and need time to pay; but it may also be of use in cases where a spouse has sufficient assets such as shareholding in a company which it would be difficult, impracticable or undesirable to realise quickly. It has in fact become a valuable tool where parties are seeking to achieve a clean break situation by allowing them to overcome liquidity problems and to commit themselves to a clean break so that the paying party knows the total cost to him or her and the receiving party to plan her or his life knowing the size of their settlement and when it will be received. In other words, it enables the parties to achieve certainty and finality.
27. The aim to achieve certainty and finality is reflected by the fact that this power does not permit a succession of applications for lump sum order, on the principles that it is in the general public interest that there should be an end to litigation, which has been put beyond doubt by the decision of the English House of Lords in Minton v Minton [1979] AC 593, [1979] All ER 79, HL, where the wife unsuccessfully sought to re-open her application for periodical payments for herself, there having been a consent order which included a provision for nominal maintenance for a limited period which had expired.
28. Minton was then applied in the case of de Lasala v de Lasala [1980] AC 546, [1979] 2 All ER 1146, at the Privy Council, which was an appeal from the Hong Kong Court of Appeal where the wife’s applications for financial provision orders including a lump sum order had already been dismissed by consent on various terms, it was held that she could not renew such applications.
29. Furthermore, the fact that section 23(1)(c) of the 1973 Act empowers the court to grant a ‘lump sum or sums’ does not create any exception to the rule that only one application can be made : Coleman v Coleman [1973] Fam 10, [1972] 3 All ER 886, as per Sir George Baker P. Those words simply give the court the power to award one or more sums within the ambit of a single application for an immediate sum and another payable by instalments, or on the happening of a future event, or perhaps an order requiring the payment of an immediate sum and adjourning the question of a further one. The court cannot make an order for a single lump sum on the basis that that sum may subsequently be increased : Bolsom v Bolsom [1982] 4 FLR 21, CA..
30. That the court has no jurisdiction to vary a lump sum order was made clear in Masefield v Alexander (Lump Sum :Extension of Time) [1995] 1 FLR 100, CA, although it also held that the it can in some circumstances make a further order to the original lump sum order, albeit quite limited in its scope and mostly confined to extending the time fixed in that order for payment of the lump sum, unless such extension would strike at the heart of the lump sum order, or in other words unless time is held to be of the essence of the order in which case the extension would amount to a prohibited variation.
31. In that case the husband was ordered in 1993 to pay the wife a lump sum of £100,000 on or before 1 January 1994 to enable her to buy a new property, in default the matrimonial home was to be sold and the proceeds divided in certain proportions. On 31 December 1993 the husband applied for an extension of time. On 12 January 1994 that application was dismissed. On 3rd February 1994 the husband tendered to the wife £100,000 plus interest. The Court of Appeal allowed the husband’s appeal and held that the extension sought did not strike at the heart of the lump sum order, nor did it amount to a prohibited variation and was therefore allowed.
32. On the other hand, in Knibb v Knibb [1987] 2 FLR 396, CA, where the transfer of the matrimonial home to the wife was subject to a 40% charge in favour of the husband realisable on the wife’s death, remarriage, cohabitation or voluntary removal from the property but redeemable within 4 months of 5 August 1985 by payment by the wife of £3,500. On the wife’s application for an extension of the period it was held that there was no jurisdiction to extend the time as to do so would amount to a prohibited variation.
33. Accordingly, and with the exceptions mentioned above which are mainly restricted to exercise of discretion in extending time for payment, the court has no power to vary or discharge an order for a lump sum or to suspend any provision thereof temporarily and to revive the operation of any provision so suspended. As pointed out by Butler-Sloss LJ in Masefield, “…Parliament has decided that a lump sum order is to be excluded from those orders which are capable of variation.”
34. A court however does retain the power to set aside a lump sum order by way of appeal which may have been obtained by fraud, mistake or following material non-disclosure : Liversy v Jenkins [1985] AC 424, [1985] 1 All ER 106, HL, or where, following the order, unforeseen events have happened, which have invalidated the basis upon which the order was made : Barder v Caluori [1988] AC 20, [1987] 2 All ER 440, [1987] 2 WLR 1350, [1987] 2 FLR 480.
35. In Barder an order was made by consent that the husband transfer to the wife his interest in the matrimonial home. The wife was awarded care and control of the 2 children. Soon afterwards the wife killed the children and committed suicide. Lord Brandon of Oakbrook said on p 495C :
“A Court may properly exercise its discretion to grant leave to appeal out of time from an order for financial provision or property transfer made after a divorce on the ground of new events, provided that certain conditions are satisfied. The first condition is that new events have occurred since the making of the order which invalidate the basis, or fundamental assumption, upon which the order was made, so that, if leave to appeal out of time were to be given, the appeal would be certain, or very likely, to succeed. The second condition is that the new events should have occurred within a relatively short time of the order having been made. While the length of time cannot be laid down precisely, I should regard it as extremely unlikely that it could be as much as a year, and that in most cases it will be no more than a few months. The third condition is that the application for leave to appeal out of time should be made reasonably promptly in the circumstances of the case. To these three conditions which can be seen from the authorities as requiring to be satisfied, I would add a fourth, which it does not appear has needed to be considered so far, but which it may be necessary to consider in future cases. That fourth condition in that the grant of leave to appeal out of time should not prejudice third parties who have acquired in good faith and for valuable condition, interests in property which is the subject matter of the relevant order.”
36. Ms Irving has repeatedly emphasized that the Husband’s present application is not a Barder application, but instead one that involves one of those orders capable of variation mentioned by Butler-Sloss LJ in Masefield above and which are contained in section 31(1) of MCA 1973 which provides :
‘(1) Where the court has made an order in which this section applies, then, subject to the provisions of this section [and of section 28(1A) above], the court shall have power to vary or discharge the order or to suspend any provision thereof temporarily and to revive the operation of any provision so suspended.’
Section 31(2) (d) provides :
‘(2) This section applies to the following orders, that is to say –
(d) any order made by virtue of section 23(3)(c) or 27(7)(b) above (provision for payment of a lump sum by instalments)…’
37. While many of the provisions contained in section 31 are not replicated in our section 11 of MPPO, for the purpose of variation of lump sum order by instalments, s. 31(1) MCA and s. 11(1) MPPO are to all intents the same :
‘11(1) Where the court has made an order to which this section applies, then, subject to the provisions of the section, the court shall have power to vary or discharge the order or suspend any provision thereof temporarily and to revive the operation of any provision so suspended.’
38. While Mr Pilbrow does not dispute that both statutes retain to the court the power to vary a lump sum order where payment of the same is required to be by instalments, he submits that in what appears to be somewhat of a contradiction to the intent of the English Parliament that lump sum orders should not be varied save as to time of payment, their courts have interpreted the terms of s. 31(2)(d) MCA to enable them to vary not only the timing but also the quantum of a lump sum payable by instalments.
39. This is clearly stated to be the case in Rayden, 18th edition, Chapter 18.14 :
“The consequence of the wording of s. 31(2)(d) of the MCA 1973 in relation to an order for a lump sum payable by instalments is that the court has the jurisdiction not only to vary the timing of the instalments and the manner in which they are paid, but also to discharge a particular instalment, or the balance of the lump sum unpaid as at the date of the application to vary.”
40. However, as pointed out by Mr Pilbrow, it seems that other textbook writers prior to 1979 were of the view that the power to vary a lump sum by instalments was limited to timetable rather than quantum, such as Passingham’s Law and Practice inMatrimonial causes, 3rd Edition, where it stated in Chapter 11, page 152, (b) :
“Once payment of a lump sum has been ordered, the amount of that sum can never be increased or reduced; it is made on the basis that the payee is entitled to it, even though actual payment is spread over a number of years. If the full amount has been paid, there can be no order for repayment. If the order was for payment by instalments, whether secured or not, there can be no order for repayment of any instalment, though variation will be possible by, for example, increasing or reducing the number of instalments, or reducing the amount of the securityafter some payments have been made.”
41. Similarly, in Bromley’s Family Law, 5th edition, it is also stated in Chapter 15, page 558 on variation of orders :
“On the other hand, once a lump sum has been paid, it cannot be cancelled or varied; it would, therefore, be grossly unfair to the payee if her right to a sum yet paid could be prejudiced on the ground that the court had softened the blow to the payer by providing that he could pay the sum in question over a period of time. The same objection cannot be raised, however, to a change in the period or manner in which the instalments are paid, and consequently these can be varied by an alteration of their size or frequency . “
42. In 1979 in Tilley v Tilley [1979] 10 Fam Law 89, a case which concerned a consent order whereby 2 properties were vested in the wife and she was to make instalment payments to the husband. The wife paid the 1st instalment but defaulted on the balance and applied to the court for a variation of the consent order providing that she should not have to pay the balance on the basis that she could not pay without selling the property in which she and the children resided. Her application was refused and on appeal, Donaldson LJ held that section 31(7) of the MCA gave jurisdiction to vary such an order, but that it could only be varied where a party had consented under mistake or where there had been a change of circumstances so drastic and unforeseen as to make it only fair to vary; where it happened that by good business or bad fortune, there were ups and downs in financial situation, that did not allow the court to upset an order made by consent.
43. Ormord LJ, agreeing with Donaldson LJ, also said :
“…it was very undesirable to create the impression that orders for lump sum payments by instalments could be readily, or were likely to be easily, varied on change of circumstances. Parliament had given the court full jurisdiction to do it but it was to be borne in mind that people relied on these things being carried out. It should be plainly borne in mind that the husband had a continue obligation to the children which offset the consent order and, had there not been that continuing liability for these children, and had the execution of the agreement not inevitably been going to lead to the dispossession of the children from their home, the result of the case might have been very different. That was the right approach of the court in this case.”
44. That there was jurisdiction under s. 31 of MCA to vary a lump sum order by instalments including suspending the remaining instalments due was held in the case of Penrose v Penrose [1994] 2 FLR 621 as one of the reasons by the Court of Appeal to refuse to grant leave to a husband to appeal out of time on the grounds essentially that had occurred after the order was made which made it fair that the order be set aside.
45. Those events were that, since the order, it had become clear that the husband had greatly underestimated his liability to tax and an anticipated award from litigation in India had failed to materialize. The Court of Appeal observed that the requirements necessary for leave to appeal out of time were to be found in the case of Barder v Caluori, but that the husband’s tax liability could have been foreseen, if he had been diligent in his enquires, and stressed that it is in the general public interest that a decision once reached should be final and that the grounds for upsetting it, certainly on new facts that come into existence after the dates of hearing must be limited, as Balcombe LJ said on p 632H :
“It seems to me an issue of policy does arise here. The reason for the conditions laid down by the House of Lords in Barder v Caluori, restricting very narrowly the grounds upon which this court should give leave to appeal because of new events after the dates of the hearing, is that policy requires that there must be an end to litigation. Indeed it seems to me that there is a close analogy with the principles with which this court when there is an appeal in existence admits new evidence. They are commonly called the principles of Ladd v Marshall [1954] 1 WLR 1489. I think for present purposes it is sufficient if I refer to the summary of that case in the Current Annual Practice at p 992 :
‘When a litigant has obtained a judgment in a court of justice…he is by law entitled not to be deprived of that judgment without very solid grounds.’
That is a citation from Brown v Dean [1910] AC 33373. If it is sought to deprive him of his judgment by further evidence, three conditions must be satisfied before it can be received :
‘First, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case though it need not be decisive; thirdly, the evidence must be such as is presumably to be believed, or, in other words it must be apparently credible though it need not be incontrovertible.’
It seems to me the same principles underlie that as do Barder, namely that it is in general public interest that a decision once reached should be final, and that the grounds for upsetting it, certainly on new facts that come into existence after the dates of the hearing, must be limited.”
46. On refusing leave to the husband, His Lordship then said this about the court’s jurisdiction under s. 31(1) to vary the lump sum order by instalments on p 634C :
“...the way the order is framed makes it an instalment order and the decision of this court in Tilley v Tilley [1979] 10 Fam Law 89 makes it clear that there is jurisdiction to suspend the remaining instalments due under a lump sum instalment order. So the jurisdiction to vary does exist. Whether the husband could make out a case which would satisfy the judge at first instance that there is a case for exercising that jurisdiction, I express no opinion. Clearly itis a jurisdiction to be exercised with caution.
But the existence of that jurisdiction does seem to me to be relevant to our discretion to grant leave to appeal. If we were minded to grant leave to appeal, and then the appeal were allowed, it seems to meabsolutely inevitable on the facts of this case that we would have to remit it to the court at first instance for a rehearing.
Save for the ability to disturb the payment of £188,000 already made to the wife (and no one was seriously suggesting to us thatthat should happen) the court of first instance under s. 31(1) would have all the necessary powers that a court to which the case was remitted by us would have…So even if I had been of the view that there were prima facie grounds of appeal, which I am not, I would have hesitated to grant leave where another more effective and simpler remedy exists.”
47. Section 31 was not considered again until 2001 when the Court of Appeal found it to be at the heart of an appeal in a solicitors’ negligence case : Westbury v Sampson [2001] EWCA Civ 407, [2002] 1 FLR 166. It involved a consent order whereby the wife was to pay a lump sum by instalments to the husband whose interest in the matrimonial home was to be transferred to her. The wife failed to pay the 2nd instalment and the court subsequently varied the order under section 31(1) of MCA to the detriment of the husband, hence his suit against his former solicitors for negligence for failing to advise him of the section.
48. In his judgment for the Court of Appeal Bodey J made it clear that there was power under the section to vary the overall quantum of such a lump sum order notwithstanding some doubt from the text books when he said :
“[18] Judging by the text books, the propriety of such an order varying the overall quantum of such an order would appear to be in some doubt; but in my judgment, the cases of Tilley v Tilley [1980] 10 Fam Law 89 and Penrose vPenrose [1994] 2 FLR 621 make it clear that the jurisdiction created by s. 31(1) of the Matrimonial Causes Act 1973 (below) not only empowers the court to re-timetable/adjust the amounts of individual instalments, but also to vary, suspend or discharge the principal sum itself, provided always that this latter power is used particularly sparingly, given the importance of finality in matters of capital provision.”
49. His Lordship did note that there have been many applications before the court involving the resolution between (a) the need for finality as regards capital provision and (b) the need for review in those exceptional cases where justice so demand, and that as to variation applications under s. 31, while there are no preconditions required as those under the Barder’s situation, he felt that similar considerations ought to be applied as regard varying the overall quantum of a lump sum order by instalments when he said :
“[55] As to variation applications under s. 31, on the other hand, there are no such preconditions. The only guidance as to the exercise of the power contained in s. 31(1) is to be found in s. 31(7) whereby :
‘… in exercising the powers conferred by this section the court shall have regard to all the circumstances of the case, first consideration being given to the welfare [of any child of the family], and the circumstances of the case shall include any change in any of the matters to which the court was required to have regard when making the order to which the application relates…’
[56] So far as counsel have been able to find, there are no decided cases stating any principles on which the court should act when applying s. 31(1) and (7) to orders for a lump sum payable by instalments.
57] Nevertheless, given the constant emphasis in the authorities generally on the need to uphold the finality of orders intended to be final, including orders as to capital, it seems to me that very similar considerations ought in practice to be applied under s. 31 as those laid down in Barder v Caluori [1988] AC 20, sub nom Barder v Barder (Caluori Intervening) [1987] 2 FLR 480, at any rate as regards varying the overall quantum of a lump sum order by instalments (as distinct from re-timing or ‘re-calibrating’ the instalments).
[58] The re-opening under s. 31 of the overall quantum of lump sum orders by instalments, especially when made as part of a package intended to be final (and all the more so when ordered by consent following an agreement) should only be countenanced when the anticipated circumstances have changed very significantly, and/or for cogent reasons rendering it quite unjust or impracticable to hold the payer to the overall quantum of the order originally made.
[59] This formulation gives a little more latitude as regards s. 31 of the Matrimonial Causes Act 1973 than do the Barder conditions for the grant of leave to appeal out of time; but that must I think follow from the statutory requirement under s. 31(7) that the court is to consider all the circumstances.”
50. This approach was endorsed by another Court of Appeal in a later case of Shaw v Shaw [2002] 2 FLR 1204 when Thorpe LJ, having quoted the said judgment of Bodey J, said :
“[44](vi) I am in complete agreement with that approach. It is frequently the case that the wife’s entitlement is expressed as a lump sum payable by two instalments where the husband’s ability to pay cash is dependent upon realisations whether of land, shares or chattels. That fortuitous circumstances reflected in an order drawn to accommodate the payer should not in my judgment in any way widen the payer’s opportunity to reopen the quantum issue whether in reliance upon Barder v Caluori or Liversey v Jenkins.”
51. From these authorities it is clear to me that the English courts do indeed have the power to vary a lump sum order by instalments under s. 31(2)(d) MCA not only as to the timing of the instalments or the manners in which they are paid, but also to discharge a particular instalment or the remaining instalments which must have the effect of varying the quantum of the original lump sum, and if there is power to discharge the remaining instalments, I see no reason why the quantum of a particular instalment or of the remaining instalments cannot be varied as well, as the Husband has proposed in the present case, in appropriate circumstances.
52. Given the identical wording of our s. 11(2)(b), I agree with Ms Irving that our courts similarly have the same power to vary a lump sum order by instalments, as I believe that it must be the legislative intention to provide a remedy to the payer as to the remaining instalments in exceptional circumstances so as to relieve hardship having regard to all the circumstances of the case, rather than to allow the parties to revisit the terms of the original lump sum order or the entire settlement thereby opening the floodgates to the ancillary relief order, and that in the exercise of such power, s. 11(7) provides that the court in having regard to all the circumstances of the case it shall include any change in any of the matters to which the court was required to have regard when making the order to which the application relates.
53. Mr Pilbrow however submits for the Wife that from the authorities it also seems that the English courts, when faced with an application to vary the quantum under s. 31(2)(d) MCA, have concluded that the burden on the application is the same or at least similar to that imposed upon applicants seeking leave to appeal under the principles laid down in Barder v Caluori, which should accordingly also apply here to the Husband’s application in line with the more recent decisions of Myerson v Myerson [2009] 2 FLR 147 and others.
54. Myerson was the first of the so-called ‘credit crunch’ cases that came before the English Court of Appeal to set aside a lump sum order arrived at by consent following the FDR, on the basis that the dramatic depreciation in his assets caused by the 2008 global financial crisis amounted to a Barder event such that it rendered the order both unfair and unworkable.
55. In that case the order which the husband sought to set aside was drawn up on 19th March 2008, perfecting the agreement reached at the FDR on 21st February 2008, and required him to pay a lump sum of £9.5m to the wife over a period of time, with the 1st instalment of £7m due 3rd April 2008 and by 4 further equal instalments of £625,000 due on 3rd April of the 4 succeeding years, as well as a transfer to her of a property which had a net value of £1.5m. The asset basis at the time of the agreement was valued at £25.8m and the wife was therefore to receive 43% of the total with the husband retaining 57% consisting largely of a very substantial shareholding in the company through which he operated.
56. The husband paid the first lump sum instalment of £7m on time, but when the global economic crisis led to the collapse of his company’s share price, he sought to revisit the agreement. At this point his share of the matrimonial assets under the agreement had dropped to only 14%, while the wife’s share was 86%. The husband applied for an extension of time for the transfer of the property, for a variation of the lump sums to be paid in the future, and for permission to appeal the terms of the consent order.
57. By the time the appeal was heard the share price had deteriorated still further, and the agreement, if enforced in full, would have left the husband with less than nothing. On appeal he argued that the drop in share prices had rendered the consent order both unfair and unworkable, and that the relevant events were sufficiently dramatic to constitute new events within the principles set out in Barder.
58. In granting the husband permission to appeal but dismissing his appeal, Thorpe LJ examined the principles governing an application to set aside an ancillary relief order on the ground of some dramatic subsequent event and said :
“[26]Although the present appeal has its dramatic features, its resolution is not, in my judgment, difficult. The principles governing an application to set aside an ancillary relief order on the grounds of some dramatic subsequent event have been clearly established and consistently applied over the course of the last 20 years. The starting point is, of course, the speech of lord Brandon of Oakbrook in the invariably cited passage at [43] of the report (Barder)…
[27] Since that pronouncement there have been more than a dozen reported cases in which the principles have been applied to the facts and circumstances of particular cases. Counsel agreed that the only decided case in which the circumstances relied upon were a dramatic change in the price of quoted shares in Cornck v Cornick, where the fluctuation had been upward rather than downward and accordingly the application was brought by the wife.
[28] The judgment of Hale J is of particular value since she analyses what circumstances will satisfy Lord Brandon of Oakbrook’s test and equally what circumstances will not satisfy his test. Her judgment then advances three possible categories, the first of which does not qualify for relief, the second and third of which may qualify. In the commentary that precedes the categorisation there is this paragraph at 531 :
‘Where such a dramatic change in the comparative wealth of the parties takes place very shortly after a capital settlement in divorce proceedings, it is not surprising that the disadvantaged party should want the settlement set aside in some way. But it is only possible to do this in very limited circumstances and it is important not to allow one’s natural sympathy for the position in which the wife finds herself to colour the application of those principles to the facts of the particular case.’
[29] Again on the following page I cite this paragraph :
‘There are three possible interpretations of a situation such as this. The first is that it is simply a change in the parties circumstances which has taken place since the order. This would not normally give rise to any case for reopening matters. The Matrimonial causes Act 1973 does not allow for variation of capital settlements, including lump sum orders save as to instalments. Capital settlements are by their nature intended to be final. They have to be based upon a snapshot taken at the time of trial. The court has to do its best with the evidence available to apply the considerations which the court has, under section 25 of the 1973 Act to take into account at the time. Under section 25(2)(a), these include the assets which each party has or is likely to have in the foreseeable future.’
[30] I come now to her analytical categorisation which appears at 536 :
‘On analysis, therefore, there are three possible causes of a difference in the value of assets taken into account at the hearing, each coinciding with one of the three situations mentioned earlier :
(1) An asset which was taken into account and correctly valued at the date of the hearing changes value within a relatively short time owing to natural processes of price fluctuation. The court should not then manipulate the power to grant leave to appeal out of time to provide a disguised power of variation which parliament has quite obviously and deliberately declined to enact.
(2) A wrong value was put upon that asset at the hearing, which had it been known about at the time would have led to a different order. Provided that it is not the fault of the person alleging the mistake, it is open to the court to give leave for the matter to be reopened. Although falling within the Barder principle it is more akin to the misrepresentation or non-disclosure cases than to Barder itself.
(3) Something unforeseen and unforeseeable had happened since the date of the hearing which has altered the value of the assets so dramatically as to bring about a substantial change in the balance of assets brought about by the order. Then, provided that the other three conditions are fulfilled, the Barderprinciple may apply. However, the circumstances in which this can happen are very few and far between. The case-law, taken as a whole, does not suggest that the natural processes of price fluctuation, whether in houses, shares or any other property, and however dramatic, fall within this principle.
In my judgment this case clearly falls within the first category. There was no misevaluation or mistake at the trial. Nothing has happened since then other than a natural albeit dramatic change in the value of the husband’s shareholding. The wife’s case amounts in effect to saying that it is all terribly unfair.”
59. His Lordship then went on to explain why the husband’s appeal failed :
“[32] In my judgment, the appeal fails not just on the application of these general principles. There are a number of additional grounds for refusing him relief.
[33] First, the order was not imposed but was the product of the will of the parties. The husband, with all knowledge both public and private, agreed to an asset division which left him captain of the ship certain to keep for himself whatever profits or gains his enterprise and experience would achieve in the years ahead.
[34] Second, when Mr Pointer was asked what would be the husband’s target if the appeal were allowed, he replied that the husband would probably seek the repayment of all or part of the first instalment of the lump sum in exchange for transferring to the wife an unspecified number of his shares in (the company). That response casts a clear light on the merits of this appeal. When a businessman takes a speculative position in compromising his wife’s claims, why should the court subsequently relieve him of the consequences of his speculation by re-writing the bargain at his behest?
[35] Third, he continues to enjoy control of the opportunities that go with it. The market place may take a pessimistic view of his future prospects. He may not share the market place view. Unusual opportunities are created for the most astute in a bear market.
[36] Fourth, because the payment of the lump sum was spread over five instalments there exists, and he has invoked, the statutory power of variation. If the circumstances justify the reopening of the consent order then Bennett J has the jurisdiction to rewrite that part of the consent order. Given that the outstanding instalments amount to L2.5m much more than token relief is there, albeit subject to the exercise of the judicial discretion. On this ground alone I would hold that the appellant fails to satisfy the second limb of Lord Brandon of Oakbrook’s first condition, namely that the appeal would be certain, or likely, to succeed. Given the width of the discretion given to the judge deciding the application for variation in the exercise of statutory powers, an appeal directed to the majority of the lump sum already paid and/or transfer of property order would seem to me to have most uncertain prospects of success.
60. His Lordship also expressed his concern over opening the floodgates to revisit existing ancillary relief orders and warned that settlements are to be adhered to if at all possible :
“[39] Equally I am wary of the floodgates submission. There may be many who are contemplating an attempt to reopen an existing ancillary relief order on the grounds of subsequently encountered financial eclipse. All in that situation should ponder Hale J’s analytical characterisation and ask themselves whether the events upon which they intend to rely can be brought within either the second or the third category. Even then they would be well advised to heed the warning that very few successful applications have been reported. I echo the words of Hale J that the natural processes of price fluctuation, whether in houses, shares, or any other property, and however dramatic, do not satisfy the Barder test.”
61. This ‘floodgates’ problem was in fact first raised by Hale J in Cornick v Cornick(No.1) [1994] 2 FLR 530, where in 1992 lump sum and periodical payment orders were made in financial relief proceedings, the effect of which was to give to the wife some 51% of the total value of the couple’s net assets. The district judge had concluded that a clean break could not be achieved as there were insufficient funds to provide an adequate lump sum. Subsequently, the price of shares in the husband’s company rose dramatically to the extent that by the hearing date the net effect of the 1992 orders gave the wife only 20% of the total value. The wife sought leave to appeal out of time against the 1992 orders on the basis that the increase in the share value of the husband’s company was a new event which would entitle the court to reopen the 1992 settlement.
62. In finding that the increase in the share value was not a new event within theBarder principles and hence dismissing the application, Hale J said this about her concern over opening the floodgates at p537G :
“There is also a ‘floodgates’ problem here, for although there are few couples with this sort of wealth, there are many couples whose wealth is bound up in assets which may well change value sharply within a relatively short period of time. It is a perennial problem and the court inevitably has to do the best it can on the material, including such prognostications as are relevant and available, at the time. Once the couple are divorced and their capital divided, they cannot normally expect to profit from, any more than they should expect to lose by, later changes in the other’s fortune.”
63. Mr Pilbrow hasthus summarised from theseauthorities the following principles which he submits should apply to applications for variation of lump sum order by instalments:
(a) The new event must have occurred since the making of the order and must have invalidate the basis or fundamental assumption upon which the order was made : Barder v Caluori;
(b) The new event must have occurred within a relatively short time of the order having been made : Barder v Caluori;
(c) The application to vary should be made promptly in the circumstances of the case : Barder v Caluori;
(d) Ordinary and natural developments in circumstances known about or foreseeable at the time of the order cannot fall within the Barder principle even if the scale of the development had not been anticipated : Cornick, Myerson;
(e) Although some events may not have been known or foreseen when the order was made, they may have been foreseeable if reasonable diligence had been exercised : Cornick, Myerson.
(f) As far as a change in the value of assets is concerned, the 3 possible causes of difference as identified in Cornick.
64. I agree that some of these principles would be helpful to serve as guidelines for variation application of lump sum order by instalments, or to be regarded as part of the circumstances of the case which the court is to have regard under s. 11(7) of MPPO, but the purpose of the powers under s. 11 for variation application is, as noted above, to look into the outstanding sums or instalments as a remedy or relief to the paying party in exceptional cases, rather than to reopen or revisit the overall agreement as in most applications for leave to appeal out of time where the Barder conditions would have to be met, hence the requirement, for instance, that the new event must have occurred within a relatively short time of the order would not be relevant in cases where the instalments were spread over a long period of time. Bearing all these in mind, I shall next consider the relevant circumstances under s. 11(7) of MPPO in respect of the Husband’s application, starting with his financial situation since the agreement.
The Husband’s Financial Circumstances
65. His evidence was mainly set out in his 3rd Affidavit of 2nd November 2009 (PB9 : 2351) to which he attached inter alia a copy of the said schedule of assets and liabilities which was used for the FDR hearing on 26th September 2008 upon which the parties arrived at the lump sum for the Wife by instalments, and which he re-listed in paragraph 25 of his affidavit.
66. According to the schedule, and as noted above, the Husband’s assets were then basically made up of the following :
Bank accounts a. HSBC Premier Investment HK$ 5,723,729.00 b. Commerzbank HK$ 1,022,827.75 Sub-Total HK$ 6,746,556.75 Stocks a. GC (31.5% shareholding) HK$ 2,942,485.00 b. VW HK$ 20,309.00 c. Hong Kong Tracker Fund HK$ 1,712,632.00 d. UBS Portfolio HK$ 4,921,286.34 Sub-Total HK$ 9,596,712.34 Pension a. MPF ING Fund HK$ 4,913,673.76 b. Gerling Life Pension/Retirement Policy HK$ 764,792.26 Sub-Total HK$ 5,678,466.02 Properties 3 properties in Quebec, Canada HK$ 1,142,363.10 Monies owed to him a. Loan to his mother HK$ 221,947.00 b. Loan to the Wife’s brother HK$ 384,772.00 c. Loan to his brother HK$ 2,238,798.84 d. Loan to his brother HK$ 443,200.00 e. Shareholder’s loan to GC HK$ 2,721,985.00 f. Shareholder’s loan to VW HK$ 581,550.09 g. Balance of profit share/bonus for 2007 HK$ 967,192.00 Sub-Total HK$ 7,5559,394.93 Personal belongings HK$ 226,700.00 Grand Total HK$30,950,193.14
67. The Husband then explained in paragraph 28 of his affidavit how he made the 1st lump sum instalment of HK$6,943,038 by realising some of his assets under the impact of the global financial crisis :
“…i. I sold the 88,480 units I held in the Hong Kong Tracker Fund and realised this asset as at 24th March 2009 for the sum of HK$1,213,508.89 on 27th March 2009 I paid the Petitioner the sum of HK$1,200,000. The value of this asset for the purpose of the FDR hearing on 26th September 2008 was HK$1,712,632. There is now shown to me marked as exhibit “MEH-14” a copy of the document which evidence the sale. I was extremely reluctant to realise this asset as at that point in time as its value had dropped dramatically as a result of the GFC. However, I was obliged to make payment to the Petitioner and I had no other option.
ii. I realised my interest in the UBS Portfolio and received proceeds of sale of HK$1,271,453.82, HK$505,489.55 and HK$2,658.50 as per the deposits in my HSBC bank account on 5th May 2009 being approximately US$228,154. As at the date of the FDR hearing the UBS Portfolio was valued at US$633,561 and the decrease in the value is solely related to the impact of the GFC as I made no withdrawals until realising this asset. Again, I had no option other than to realise this asset even though I was reluctant to do so given its huge loss in value as a result of the GFC.
iii. I paid the balance of the 1st instalment from my HSBC ban account 588-004788-888.”
68. By the time when the 2nd instalment became due on 26th September 2009, the Husband claimed that his entire net assets at HK$6,172,049.84 were not even sufficient to meet that payment, the particulars of which he set out in paragraph 29 of the affidavit as follows :
“ My current assets are now worth : HSBC 588-044788-001 HK$ 1,238,703 Commerzbank HK$ 205,791 31.5% GC HK$ 2,909,294 VW HK$ (97,449) MPF ING HK$ 4,267,947 Gerling Life Insurance (C66,912.47) HK$ 773,264 Canadian properties HK$ 1,028,126 Monies owned to me - My mother Nil - My brother HK$ 2,681,998 Interest in the Hyatt Coolum HK$ 202,894 Clearwater Bay Marina Club debenture Owned by Q Limited HK$ 550,000 Total assets : HK$13,760,568 My liabilities are : American Express 3763-999101-1400 HK$ 89,734.60 HSBC Premier Master Ccard 5411-8001- 8955-2875 HK$ 33,270.22 Standard Chartered credit card 5520- 8380-2034-8762 HK$ 169.34 Liability being amount borrowed against 2008 profit HK$ 2,423,383 Total liabilities : HK$ 2,547,307.16 Net Assets HK$11,213,260.84 Less : retirement assets as not accessible until retirement HK$ 5,041,211 Net Current Assets : HK$6,172,049.84
69. He then went on to explain how some of these assets could not be realised, such as his shareholdings in GC which held a property in Hong Kong but the other shareholders were not willing to sell it or to buy out his shareholding, whereas the others such as his VW shareholdings or his Canadian properties would still fall far short from meeting the 2nd instalment even if he were able to sell them, while the retirement pensions for obvious reason were not realizable at this stage.
70. As for those loans owed to him by his mother and brother, his evidence is that the former would have to be written off as his mother, who is now in her 70s and without employment, would not be able to make repayment, while for the latter, his brother has a family with small children to raise and is in no position to make repayment anytime soon either.
71. Under the circumstances, he claimed that to come up with money for the 2nd instalment under the said order, he would have to resort to borrowing which, even if possible, would put him in even worse financial position than the Wife’s due to interest payment :
“[31]…It is likely I will need to obtain commercial borrowings for the whole amount. This would mean my financial position (including MPF and Gerling Life Insurance) was reduced to $4,270,222.84 taking into account the new liability and I would have interest expense ($11,213,260.84 - $6,943,038) whilst the Petitioner’s financial position was $13,886,076. In 2013 when the Lifesaver insurance policy no.20336291 matures I will receive HK$2,456,427 and the Petitioner will receive HK$$3,000,000.
[32] As for whether I can obtain a loan and the terms of the loan I am meeting with my personal banker to obtain information as to what is available to me from any bank both in relation to immediate cashflow given I have considerable cashflow difficulties at present and in relation to borrowing for the 2nd payment if I am ordered to p[ay. I also intend to raise the issue directly with my boss who will be in Hong Kong in early November as to whether the company will advance me moneys and on what terms.”
72. He however confirmed at the trial that he has not been able to obtain any loan from banks or institutions due to his inability to provide any asset or sufficient asset as security, nor is it possible to obtain any loan from his employer as he has been told that it would be against the company’s policy to do so. He also claimed that as the global financial crisis has impacted on his company’s business and his profit share, the only financial relief which he could foresee to be certain forthcoming is the payout of the Lifesaver insurance policy in 2013, hence his proposal to give the Wife that entire payment in lieu of the remaining instalments under the said order.
73. While there seems to be no serious dispute that the Husband at present may not have sufficient funds to pay the 2nd instalment, the Wife however does not believe that he was unable to obtain any loan from his employer given his good relationship with his cousins, and that failing which he could always borrow from the company against his future profit, something which he has been doing for years.
74. The Husband has put his current basic salary at HK$94,800 per month plus a 13th month salary as year’s end bonus as well as a discretionary bonus set at a maximum 3 months’ salary, giving him a maximum total salary of HK$1,516,800 for the year, or an average sum of HK$126,400 per month before his profit share. He however claims to have a monthly expenditure averaging more than HK$358,000 for himself and his household before his current monthly maintenance payment for the Wife of HK$178,000, putting his total expenditure at HK$536,852 per month, which is more than 4 times of his salary, and the shortfall of which he says he has been using his profit share distribution to meet since the parties’ separation, but his profit share since 2008 has come down by more than half of what it was before.
75. By way of comparison he set out his profit share payments since 2004 in paragraph 20 of his said affidavit as follows :
2004 (paid in 2005) HK$4,605,613
2005 (paid in 2006) HK$3,173,257
2006 (paid in 2007) HK$4,777,159
2007 (paid in 2008) HK$6,371,921
2008 (paid in 2009) HK$2,426,805
76. He went on to explain in the affidavit of his reduced profit share has impacted on his financial situation and its outlook :
“[21] In 2008, before the global financial crisis, I borrowed an amount of HK$4,679,204 from my employer against the Profit Share amount that I was to be paid for the 2008 year (and paid to me in 2009). My total profit share for the 2008 year was only HK$2,426,805 as the Global Financial Crisis (“GFC”) has had a massive impact on the business. I am now in debt to my employer in the amount of $2,423,383. I have discussed this with my employer and I am told that before financial year end I am required to repay this loan. My only means of doing so will be to take some commercial borrowings which I then hope to discharge with future profit share distributions if and when received. This juggling act will only be successful if I do actually receive a profit share in the future., and if my monthly expenses, including maintenance, do not exceed my income.”
[22] As for the profit share component that I may earn during the 2009 year which will be paid in 2010, I do not anticipate that this will be an amount of significance given the effects the GFC has had on HWL. The company had taken measures to reduce staff expenses by offering staff voluntary no pay leave whereby the employees are requested to take no pay leave equivalent to 10% salary reduction. I am participating in this program as per “MEH-11”.
[23] The other aspects of my employment package include a 13 month contractual bonus which will continue to be paid and a discretionary bonus equivalent to a maximum of 3 months’ salary, however given the circumstances I do not think it is likely that this amount will be paid to me for the 2009 year.”
At the hearing he claimed to have just been informed that his 2009 profit share distribution would be in the region of HK$3.6 million.
77. The Wife again does not seem to dispute that the Husband has to rely on his profit share distribution to meet his monthly deficits, but argues that if he was indeed concerned about his future income, he should have come down from his high standard of living and cut down on his monthly deficits so as to save up on his future profit share to meet the remaining instalments, of which as noted above she has said she would be prepared to consider extending the time for their payments.
78. As noted above, the Husband has since the divorce been cohabiting with Ms S, and her son born to her previous relationship in the said Clear Water Bay property and hence they are clearly sharing his household, the total expenses of which he has put at just over HK$40,000 per month, but of which the Husband claims that Ms S would meet her own living expenses including paying for her own holidays, her food expenses, car expenses and all other outgoings for herself and her son, as well as paying for his 2 daughters’ riding lessons and related expenses such as riding clothes, helmets, boots and so on.
79. Must issue was taken at the trial on how much contribution Ms S, who earns in excess of HK$100,000 per month at the Husband’s company, should have contributed towards her share and that of her son in the Husband’s household expenses which indeed appear on the high side compared with the Wife’s also of a household of 3, even though the 2 daughters do spend times with the Husband over weekends and holidays, and I agree with her that it would be fair that Ms S should shoulder part of the Husband’s household expenses. How much of that would have impacted on the Husband’s ability to come up with almost HK$7 million for the 2nd instalment is of course another matter.
80. Similarly great issues were taken over the Husband’s personal monthly expenses such as HK$44,000 on entertainment, HK$23,000 on holidays, HK$105,000 on insurance premia, and so on, but again even if he were to cut down on some of these expenses substantially, clearly it would not have much immediate effect on his ability to meet the 2nd instalment, although I agree that the Wife does seem to have a strong case to argue that it would not be fair for him to speak of financial hardship while maintaining that kind of lifestyle or, as will be apparent, to criticise her standard of living.
81. The Wife has also suggested in her opposing affidavit that the Husband in fact has access to finances through his family company on the basis of loans he sought previously, and the fact that he freely spends his own money on the company property and treats it as his own. She suggests that he can also look at other means to raise the funds for the 2nd instalment by selling his Clear Water Club debenture or his boat, or to recover the debts from his brother, as well as borrowing against the security of his various insurance policies, and of course the payout of J’s Lifesaver policy.
82. Given the comparatively limited value of the club debenture or the boat, and the evidence over his brother’s current situation, realistically and baring the Husband being able to borrow HK$6 - 7 million either from his employer or financial institutions, either of which he claims not feasible at this stage, or a dramatic increase to his profit share distribution within the next few years, there does not seem to me to be any other means or resources from which he can come up with sufficient funding to meet the 2nd instalment until, as he has suggested, the payout of the Lifesaver insurance policy in 2013, but even that would not be sufficient.
83. On the other hand, as suggested by the Wife, by giving her that entire sum as part payment, it seems that the remaining HK$4.4 million may no longer appear unattainable if they are to be spread over a longer period of time, to which the Husband however argues that it would not be fair that the Wife would end up having all their capital and liquid assets while still enjoying substantial periodical payments from him, whereas he would be burdened with numerous debts and long term liabilities. It seems appropriate then to consider the Wife’s financial situation after the divorce.
The Wife’s Financial Circumstances
84. The Wife has remained as a housewife residing with the 2 daughters in a rented apartment on the Peak wholly dependent on the monthly maintenance from the Husband and the 1st lump sum instalment of HK$6.9 million which she has put in her Pictet account as effectively her only valuable asset together with less than half a million dollars in her MPF account. She claims to have spent HK$434,000 purchasing a car mainly for transporting the daughters and HK$450,000 on 2 pieces of artwork from the 1st lump sum instalment, with the balance of her Pictet account now stands at around US$800,000. She had a lived-in partner at one time after the divorce but it is accepted that that relationship has recently ended.
85. In her affidavit filed in this application on 9th December 2009 she put her current monthly expenditure at just over HK$180,000 with the largest item being the rental of her present apartment at HK$105,000, hence her concern that she would have to dip into her savings to meet her monthly deficits if the Husband were to reduce the current maintenance under the said order or to do away with the compensation payment of HK$28,000, while at the same time the remaining balance of the lump sum is also to be reduced and deferred as proposed in his application.
86. Much has been said about the necessity of the Wife’s current high rental expenses for her present apartment which has swallowed up the bulk of her monthly maintenance, and the Husband has suggested that she should consider moving elsewhere at half of her current rental expenses which should leave her monthly budget in a much more manageable state.
87. The Wife however argues that not only did she need to rent close to the daughters’ school on the Peak, but it was also appropriate for her to provide a home to them at or near the same standard of living to which they used to enjoy prior to the breakdown of the marriage. As noted above the former matrimonial home at Clear Water Bay was a spacious and elegant garden house with a guest house and swimming pool, and was considered to be worth more than HK$100 million for sale and HK$200,000 per month for rent at the time of the divorce proceedings.
88. By comparison her present apartment would indeed appear modest, and that it is not disputed that at the time of the FDR hearing when the parties reached overall settlement which led to the said order, she was already renting that apartment at the same rent, hence the agreed terms of her maintenance must have been made on that basis and the expectation that she would continue to rent the same or similar level of accommodation after the divorce, it would therefore be in my view unfair to now criticize her for that.
89. Furthermore, it has been held that it would not be equitable for one party to be housed in substantially inferior accommodation where there are children involved in particularly if there is staying access, as in the present case where the 2 daughters would spend a considerable amount of time every week with their father at the Clear Water Bay property, the court would not in the circumstances wish their mother to appear in their eyes to be in a much inferior condition, as Hartmann J said in the case of F v F [2006] HKFLR 159 at 181:
“Of importance is the fact that any home will not only be for the wife but will be for J too. While J will spend time with his father, his day to day base will be his mother’s home and, pursuant to Section 7(2) of the MPPO, I am obliged, having regard to what is practicable, to ensure that, in respect of his accommodation, J is placed in the position in which he would have been if the marriage had not broken down. Consequently, taking J’s legitimate interests into account, the award will be materially higher than it would otherwise have been.
J has grown up in spacious, elegant homes and, insofar as possible, should be able to continue living in a home of character. It cannot be ignored that J’s father himself lives in a residence of some distinction on the Peak.”
90. Clearly the Husband has a continue obligation to his 2 daughters not just with his monthly maintenance to meet their living expenses or his undertaking to meet their education and medical needs, but also to provide such suitable accommodation for them so as to place them, so far as it is practicable under the circumstances, in the financial position in which they would have been if the marriage had not broken down by virtue of s. 7(2) of MPPO), and in my judgement it is not only appropriate for the Wife to rent the present accommodation for herself but also necessarily for the children.
91. As for her other alleged expenses, the Husband does not have any serious dispute over them, nor do I find them in any way excessive, unreasonable or unnecessary given the high standard of living that she and the children were able to enjoy in the past, and when compared with those of the Husband. I agree with Mr Pilbrow that there does not seem to be any room for reduction,
Post-Agreement Events
92. I accept without doubt that the 2008 global financial crisis was the catalytic event which has caused significant changes to the Husband’s financial situation and underlined the basis of his present application : The drop in value of his equities to the extent that he was forced to sell most of them to meet the 1st instalment, followed by the substantial reduction in his profit share distribution in the following 2 years that have left him with almost no liquid assets or capital to meet the 2nd instalment.
93. Of the latter Ms Irving has submitted that it was his annual profit share distribution that laid the foundation on which the lump sum order by instalments was agreed, but which has since been hard hit in 2008 and 2009 by a reduction of almost HK$4 million and HK$3 million respectively compared with the immediate year before, the total difference of which would have been just about sufficient to meet the 2nd instalment.
94. There is no question in my mind that had there been no global financial crisis in 2008, the Husband would have used the funds then available in either his bank accounts of HK$6.7 millions or his UBS Portfolio/Tracker Fund of HK$6.6 million to meet the 1st instalment, and would still have sufficient funds or liquid assets left to meet the 2nd instalment some 6 months later without resorting to his profit share distribution for that year or the year after. As a matter of fact, there were almost sufficient funds and equities from those bank and investment accounts to pay the entire amount of the first 2 instalments in one payment at the time of the agreement.
95. However, while there is no dispute that he no longer has these funds or equities available or sufficient to meet the 2nd instalment because of the 2008 global financial crisis, it seems that such changes brought on to his financial situation, no doubt dramatic as it was, was not enough for the Court of Appeal to allow the re-opening of the quantum issue in both the cases of Westbury v Sampson and Shaw v Shaw referred to above, and as pointed out by Hale J in Cornick and echoed by Thorpe LJ in Myerson, that the natural processes of price fluctuation, whether in houses, shares, or any other properties, and however dramatic, do not fall within the principles to allow the re-opening of the quantum issue.
96. At the time of the FDR when the agreement was reached, the Husband had enough capital and equities of at least HK$13 million to pay the bulk of the agreed lump sum forthwith in one go, hence the fact that that part of the lump sum payment was spread over 6 months by 2 instalments instead must in my view be to accommodate the Husband’s wish, as will be apparent from the parties’ correspondence at that time under exhibit “P-1”, to allow him time to re-organise his investments and for his shares equities to hopefully go up in price in the meantime.
97. As noted by Thorpe LJ in Myerson, the global financial crisis became apparent in August 2007 with the global collapse of banking credit, and that the nationalization of Northern Rock in England was announced in February 2008. It is submitted by Mr Pilbrow that it may be clearly seen from the Husband’s statement of his HSBC Premium Account (PB9 : 2417 – 2457) that the value of his Unit Trusts dropped from HK$14,298,161 in May 2008 to HK$9,119,348 in September 2008 the time of the FDR at which the basic terms of agreement were reached.
98. By November 2008, as pointed out by Mr Pilbrow, the Unit Trusts had dropped further in value to HK$6,360,758, and in December 2008 HSBC required him to settle his overdraft and a payment of HK$2,583,436 was made to his current account from the sale of the Unit Trusts. At the time of the consent order in February 2009, his Unit Trusts had a value of HK$3,514,992 which shows that in the light of the sale undertaken in December 2008, the Unit Trusts had not seriously dropped in value since November 2008.
99. In the light of these, Mr Pilbrow argues, it is not feasible for the Husband to claim that the drop to the value of this asset was not foreseeable. In fact, in his oral evidence, the Husband stated that at the time of the agreement, he hoped that the value of his shares would go back up, and from the parties’ without prejudice correspondence produced to the court (“P-1”), it is clear that he was fully aware of the drop in the value of his equities by the time the consent order was made in February 2009 despite the fact that the order required payment of the 1st instalment within 42 days of decree absolute, which was a date over which the Wife had control and was in fact made on 11th February 2009, just a few days later.
100. The correspondence (“P-1”) indeed show that there were continuing discussions and negotiations between the parties during that period over the Husband’s means to pay the lump sum by instalments as a result of the fall in value of his shares and equities due to the financial crisis, during which he was clearly looking for ways in which he could make payments without being forced to sell his equities, yet the final terms of the agreement were eventually agreed and submitted to the court in January 2009 resulted in the said order, hence it cannot be said that the Husband could not have foreseen the impact on his financial situation.
101. Furthermore, as submitted by Mr Pilbrow, the Husband did in his evidence concede that he was well aware at that time that the last quarter of his company’s financial year from September to December 2008 was disastrous, as he had been furnished the monthly management accounts by his account department, hence with a minimum of diligence, by the end of January 2009 it would have been possible for him as managing director to have an accurate assessment of the bonus and profit share distribution due to him for the preceding year.
102. Above all, unlike in the case of Westbury where the house had been sold for such a low amount which made it impossible for the wife to pay the husband the instalment due under their agreement, or in Myerson where the shareholding of the husband had dropped to the level that he ended up next with nothing, it is not the case with the Husband here when he still has other assets albeit illiquid or not immediately realisable, and that there is every likelihood that his profit share distribution in the forthcoming years may go back up to the 2007 level or even better, given his evidence that the China and Hong Kong side of his business, for which he is responsible and upon which his profit share is based, has not been hit hard by the financial crisis and is in fact flourishing.
103. There is no question that until the 2008 financial crisis, his profit share had been on the rise maxing out in 2007 at more than HK$6.3 million, and while HK$3.6 million for 2009 was indeed still significantly lower by comparison, it had in fact already jumped by 50% from that of 2008, and it may very well go higher this year to the 2006 level of HK$4.7 million or better in view of the continuing growth in the economy in particularly in China. The point is, given the Husband’s current yearly expenses of HK$4.4 million excluding the maintenance for the Wife and daughters, a return of his profit share to the pre-2008 level and with some proper adjustment to the level of his lifestyle and expenses, and with a fair contribution by Ms S to his household expenses, it will no doubt go a long way improving his liquidity and make the Wife’s proposal of deferring the remaining instalments more attainable or feasible.
104. Ms Irving has sought to argue that if the Wife had accepted the Husband’s proposal to delay the 1st lump sum payment after the fall in share price of his equities, not only would he have been given the chance to recover financially, she would also have been better off when she would still be entitled to the capital sum, and would meantime have had the benefit of full maintenance. In hind sight this may well be correct, but it cannot be fair in my view to lay the blame on the Wife when the Husband himself subsequently consented to the terms of the instalments when he, as pointed out by Mr Pilbrow, could have declined to sign the consent summons and instead sought a review of the terms.
105. Nor would it be right in my view for Ms Irving to argue that if the Husband’s application is not allowed, the Husband having borne the brunt of the financial crisis would end up with nil liquid assets but substantial debts and liabilities, whereas the Wife would have all the available capital between the parties while still enjoying substantial monthly maintenance from him for years to come.
106. I do not doubt that the 2008 financial crisis is indeed striking even to those experts who might have foreseen it, but as noted above this lump sum payment by instalments was a voluntary settlement between the parties right in the middle of it, during which the Husband clearly took on the risk of a catastrophic drop in the value of his equities, and as pointed out by Thorpe LJ in Myerson above, however much sympathy I have for him, I am not persuaded in the circumstances to relieve of his bargain a ‘businessman taking a speculative position’ by reducing the quantum of the remaining lump sum instalments as proposed by the Husband in his application.
107. While he may have been pondering about early retirement, at his present age he should be able to work for his company for another 5 – 10 years in view in particularly of his long term obligation to his daughters, and I have no doubt that given time he will be able to rebuild his assets as before if not more given his position in his company and the continue growth and development of his business in both Hong Kong and China. I do accept that at present he does not have the means to pay the 2nd instalment, nor is he able to borrow from his employer or his cousins, and I do not agree that he should have to even if he could, as after all, HK$6.9 million is a large sum of money by any standard the repayment of which together with interests no doubt will further impact on him as well as his other obligations towards the Wife and the children.
108. Much emphasis has also been placed by Ms Irving on the fact that, unlike all those cases referred to above, this lump sum order was not a clean break of the Wife’s claims, as she is receiving and will continue to receive in future significant periodical payments from the Husband, so as to perhaps play down whatever unfairness one may perceive on her if the remaining lump sum instalments are to be reduced substantially. However it is clear that at the time of the settlement there were simply not sufficient assets to allow a clean break between the parties, and the Husband must have recognised and accepted the high standard of their lifestyle and accommodation needs when he agreed to pay substantial periodical payments for the Wife and the children to enable them to meet those needs after the divorce, hence that cannot be in my view a reason or sufficient reason to justify his application.
Conclusion
109. It is therefore my judgment that it would not be fair or just in the circumstances to discharge or vary the remaining instalments that would have the effect of reducing the principle quantum of the lump sum order, but given the significant changes to the Husband’s financial situation since the said order and the consequences, and in the absence of any capital or liquid assets available to him, the remaining instalments should be deferred and adjusted accordingly as below.
110. The evidence before me reveal that his future profit share should continue to be in the upward trend, and with some proper adjustment to his own expenses and given time, he should be able to pay the remaining lump sum of HK$9,943,039 by the following instalments without causing undue hardship to him, and I so order accordingly:
(a) upon the Lifesaver Insurance Payout in 2013 HK$5,456,427 (b) on or before 31st December 2014 HK$2,000,000 (c) on or before 31st December 2015 HK$2,486,612
111. I also agree that the Husband should continue to pay the monthly maintenance of HK$148,000 for the Wife and HK$30,000 for the 2 children under the said order totalling HK$178,000 per month, which I find as necessary and reasonable to meet their needs and should not be varied. As to the additional sum of HK$28,000 agreed between the parties to compensate the Wife for her loss of interest on the 2nd instalment, it is not part of the order and hence not subject to variation, but if I were to adjudicate on it, I would be disinclined to allow it given the Husband’s present predicament.
112. On the question of costs, I propose that it be dealt with by way of written submission to be submitted by the parties within 28 days of this judgment in the absence of any agreement.
113. Last by not least, I am grateful for the assistance from Counsel especially for taking me through the many authorities on the laws at issue.
| (Bruno Chan) District Judge |
Mr David Pilbrow SC instructed by Messrs Boase Cohen & Collins for the Petitioner.
Ms Francis Irving instructed by Messrs Hampton Winter & Glynn for the Respondent.
Please refer to CACV92/2011 for the relevant appeal(s) to the Court of Appeal.