SLA nee S v. HKL

FCMC 7500/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO 7500 OF 2010

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DECISION

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Application

1.  By a summons dated 16 June 2015, the petitioner applies for an order that the taxation of the petitioner’s bill of costs by the learned master on 12 May 2015, and reviewed on 29 May 2015 (“the Review Decision”), be reviewed.

2.  In the taxation, the learned master disallowed the charging rate of the petitioner’s fee earner, Ms Allison, at $2,300 per hour but only allowed the charging rate at $1,650 per hour.

3.  Mr Glynn, appearing for the petitioner, submits that the learned master has erred in failing to take into account the experience of Ms Allison in a foreign jurisdiction. Further, he submits that the guideline of fees issued by the Law Society in 1997 (“the Guideline”) is not binding. He submits that Ms Allison’s rate should be at least $2,000 per hour.

4.  Ms Lee, appearing for the Legal Aid Department, submits that the learned master’s decision should be upheld because even if the learned master took into account of the overseas experience of Ms Allison, the charging rate at $1,650 per hour is an appropriate rate. To ensure consistency, she submits that the learned master has not erred in not departing from the Guideline.

Discussion

5.  I agree that overseas experience of a solicitor could be taken into account for the purpose of assessing the appropriate hourly rate. Mr Glynn refers me to Kennedy v Cheng Kelly (No 2) (2011) 14 HKCFAR 713.  In that case, for the purpose of assessing the appropriate hourly rate of a solicitor who was qualified in Hong Kong in 2002 but was previously admitted in New Zealand in 1999, Registrar Kwang had this to say :-

“I do not accept the Respondents’ argument that the Court should only take into account his Hong Kong experience and ignore his overseas experience. His overseas experience is a relevant one and would contribute to his effective management and preparation of the appeal. The Respondents had no positive evidence to prove the otherwise. For this case, the Court is entitled to take into account of his overall seniority and experience in assessing his appropriate hourly rate.” (paragraph 44)

6.  In that case, Registrar Kwang further pointed out that the solicitor had a due role as the main case handler performing the role of the instructing solicitor and the supervising partner when work was delegated to his associates. In addition, the solicitor also acted as a “quasi junior counsel” to assist the Senior Counsel and later the London Silk.

7.  In the present case, I agree that the experience of Ms Allison in another jurisdiction should be taken into account. However, that is only one of the relevant matters for consideration. Further, I do not think that in counting the experience of Ms Allison, one can simply add her overseas years of experience to her years of experience after admission in Hong Kong.

8.  According to a “summary of Miss Allison’s years of experience” prepared by Mr Glynn, Ms Allison was admitted as a solicitor in the Supreme Court of Western Australia on 5 March 2003. She had a total of 1 year and 3 months experience in Australia as a solicitor. Then she came to Hong Kong. From January to November 2006, she worked as a foreign registered lawyer in a solicitors firm. Then she joined Hampton, Winter & Glynn (“HWG”) as a foreign registered lawyer for 1 year and 3 months. On 19 April 2008, she was admitted as a solicitor in Hong Kong. She resumed working in HWG as a paralegal from 2 August 2010 to 3 October 2010 and then started to practice as a solicitor on 4 October 2010. She handled this case from January 2012 to September 2013.

9.  After a close scrutiny of the working experience of Ms Allison, I find that after her admission in Hong Kong as a solicitor, she did not start her practice. It was not until 2 August 2010 that she joined HGW in the capacity of a paralegal. On 4 October 2010, her position in HGW became solicitor. In other words, after her admission in Hong Kong, she did not start to practice as a solicitor for over 2 years.

10.  In this case, the date of the legal aid certificate was awarded to the petitioner on 20 January 2012, ie when Ms Allison started handling this case for the legal aid. Therefore, at that juncture, if I count from 2 August 2010, Ms Allison had only 1 year and 6 months working experience since her admission in Hong Kong.

11.  Her total years of experience as a solicitor in Australia was 1 year and 3 months. Her total years of experience as a foreign registered lawyer in Hong Kong was 2 years and 2 months. This case was handled by Ms Allison from 20 January 2012 to 27 September 2013. After taking all her experience into account, I find that, for the purpose of taxation, it is appropriate to categorize her as having 2 to 4 years’ of practice. Although the learned master did not take into account of Ms Allison’s overseas experience, he did in fact say at paragraph 7 of the Review Decision that :-

“Ms Allison was admitted in Hong Kong in April 2008, that would be four years’ experience when she handled the case in 2012, and HK$1,650 is the upper ceiling of the category of two to four years’ experience.”

12.  On one hand, I think the learned master should have taken into account Ms Allison’s overseas experience. On the other hand, the learned master was too generous. He did not take into account the fact that Ms Allison did not start her practice for over 2 years after admission. In the circumstance, the end result is that the learned master was correct in categorizing Ms Allison as having 2 to 4 years’ experience.

13.  According to the Guideline, her hourly rate should be ranged from $1,350 to $1,650.

14.  Mr Glynn submits that the Guideline is not binding. Registrar Kwang in Kennedy v Cheng Kelly (No 2), (supra), had this to say :-

“Even though it is accepted that the 1997 rates do not bind the taxing masters as a strait-jacket, in my experience, they still form a useful guideline or as a starting point for the taxing masters to consider at taxations conducted at different levels of courts. In appropriate cases, the rates can be adjusted upwards or downwards according to the special circumstances of the case.” (paragraph 35)

15.  I agree that although the Guideline is not binding, it is a useful guideline. In the present case, I do not find any special circumstances justified for an upward or downward adjustment. At most, the complexity of the case is a matter to allow Ms Allison’s rate be set at the upper limit within the range of 2 to 4 years’ experience. I find that $1,650 is an appropriate rate.

16.  The learned master was correct in paragraph 8 of the Review Decision when he decided that unless there are good reasons, the court should not depart from the Guideline so as to ensure the consistency of the routine taxation case.

Conclusion

17.  After taking all the circumstance into account, I decide that an appropriate hourly rate of Ms Allison should be $1,650 per hour. The learned master’s decision was not wrong. This application is therefore dismissed.

18.  I make an order nisi that the petitioner do pay costs of this application to the Legal Aid Department. This order nisi for costs becomes absolute 14 days after the date hereof unless any party applies to the court for varying the order.

19.  Both parties ask me to assess the costs summarily. I agree. As Ms Lee has already given a copy of the statement of costs for summary assessment to this court and to Mr Glynn, the petitioner can file a list of objection within 21 days from today. Costs will then be assessed summarily.

FCMC 7500 / 2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 7500 OF 2010

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J U D G M E N T

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Introduction

1.  This is the wife Petitioner’s application for ancillary relief.  I will refer to the parties as the husband and the wife.  The wife is from Sweden and the husband from Finland and now, neither of them resides in Hong Kong although they spent many years living and working here.  The wife has since returned to Sweden with the parties son who is at university and the husband, as best as can be established lives between Taiwan and Mainland China and occasionally comes to Hong Kong for the purpose of his business.  Apart from a bank account there are no assets in Hong Kong. The link to this jurisdiction has now become tenuous and the wife, as I will explain in a moment, may well have considerable difficulty in enforcing this court’s judgment against the husband who has decided not to appear at the trial.  He wrote to the court on the eve of the hearing enclosing a medical report from a Hong Kong physician, the effect of which was that due to heart and blood pressure problems it was not advisable to subject himself to the stresses and strains of a trial.  He said he was not going to attend.  I had to decide whether I should adjourn the case for what would have been months, the court’s lists are crowded and that would have been the sort of delay.  I decided against that course.  The wife had spent money flying here from Sweden.  Her means are very limited and she has spent well over $1 million in legal costs.  Through my clerk I communicated by e-mail with the husband and told him that I would be going on without him if he decided not to appear.  I adjourned briefly to give him time to decide what he wanted to do.  I also told him that if he chose not to come I would not be having regard to his affidavit evidence.  The case would be decided on the wife’s affidavits, her oral evidence and the disclosed documents.  The husband had previously been represented by solicitors but subsequently discharged them because of lack of funds and was now in person.  There has been a history of the husband being very tardy and difficult about disclosure of documents.  It seems to me that the interests of justice required that I should press on with the trial even without the husband if he chose not to appear.  His medical condition was not so acutely serious.  Had he appeared I would have taken frequent breaks so as not to stress him and let him rest if he needed to.

2.  In the event he wrote back to say that he would not be appearing.  Through my clerk I kept him appraised of a ruling that I delivered on a preliminary S.17 MPPO application by the wife and ensured that the wife’s solicitors served him with their written closing submissions on that application and on the main hearing.  As it was, he decided not to participate.  At a previous directions hearing before me in January 2013 he had indicated that there was no money for the wife but he would do his best to pay something for their son’s maintenance.

3.  In the event the case has proceeded with Mr Hughes, counsel for the wife, doing his best to show where the assets are likely to be and then in his closing speech submitting what the wife’s needs were and inviting me to make an appropriate order.  In many years of sitting in this jurisdiction I have never before encountered a case where one party has decided not to appear at the final hearing.  Whilst it can be said that this has played into the wife’s favour because she is unopposed, the inquisitorial aspects of an application such as this have not relieved me of the obligation to ensure that I am satisfied, on a balance of probabilities, about the existence of assets that are said to be available for distribution between the parties and, in any event (even with an absent husband) S.7 MPPO needs to be gone through and applied by me in arriving at a just conclusion.  This has not been a case of just taking the wife’s case at face value.  If anything, my task has been made more difficult by the husband’s absence.

History of the Marriage

4.  The parties have had a 32-year relationship.  They started living together in 1976 and married on the 19^th September 1991.  The separation occurred on the 15^th June 2008.  On any view, the wife is able to point to a continuous 32-year relationship, 17 of which have been as man and wife.  The husband is 57 years old having been born in October 1955 and the wife has just become 55 having been born in July 1958.  Their son S was born on the 19^th May 1993.  So he is now 20 years of age and attending university close to his mother’s home at Sundsvall, where he also lives.  He has a few years to go yet before he graduates and hopefully, is able to find good employment and stand on his own feet.  Before he can do this he will be depend on his parents financial assistance and support as well as perforce, his own earnings from part-time work during the university holidays and at weekends.

5.  The husband is an engineer by training and for over 30 years he was worked as employee and now, it would be appear, on his own account as agent for manufacturers of handling equipment and heavy machinery for the steel industry.  By 1998 the husband was working in Sweden for a company called E in which he owned a significant shareholding.  He sold his shares in it for SEK 6,688,880.  From that amount, an equivalent of HKD 2.7 million was transferred by him into bank accounts with Nordea Bank SA in Luxembourg which was to provide for the parties eventual retirement.  I will need to consider what happened to those funds presently.

6.  Having sold his shares in E, this company persuaded the husband to enter into a contract of employment with it for 3 years.  This in order to prevent him from setting up on his own account in competition with it.  In late 1999 it transferred him to Hong Kong together with a Mr SL a friend and colleague of his.  In Hong Kong the husband and wife were able to enjoy a very comfortable existence on expatriate employment terms. They were accommodated in large flats at Stanley and then in Chung Hom Kok, the rents being paid for by E.  The wife, whilst looking after S, who was 6 when they are arrived here, also established a small business called SM which imported food, alcohol and other consummable products from Scandinavia which were distributed into Hong Kong to various retailers.  SM also sold this produce in Hampers.  She ran the business for about 5 years.  Whilst it made no great profits, a total of HKD 100,000, she drew no salary for herself and this profit was used for the benefit of the family.  In addition the wife also worked for F in Hong Kong on a part-time basis, which she did for several years.  Initially, she was paid $6,000 a month but this increased to $14,600 as her hours with F were increased.  She used these earnings for the benefit of the family. 

7.  The wife is in fact a trained economist/accountant which, if she had continued to pursue this career in Sweden, would almost certainly have earned her far better remuneration and a pension.  It is her case that she chose to give this up to follow the husband’s career in Asia and in doing so she was only able to obtain lesser paid jobs which she took up in order she might help out at home and also the husband in his work.  She says that during the marriage she was never given any access by the husband to the family bank accounts and used her income from F to pay for the family’s daily living expenses.  Additionally, she gave HKD 20,000 from SM’s profit to the husband to repay him for the money that he had put into SM as start-up capital.  Mr Hughes, on her behalf, has drawn attention to these matters in support her case, not only as forming part of her contributions during the marriage as working wife and mother but also, to support a case on the compensation principle on the basis and had to give up her career as economist/accountant to follow the husband initially to Taiwan in the mid 1990’s and subsequently to Hong Kong in 1999.  Although it remains to be seen, I suspect that the available identifiable capital will not get the court past an assessment of the parties needs, particularly the wife’s who is now living in circumstances of great modesty in Sweden, at a vulnerable age in terms of her employment prospects and given that she is going to have to be the primary carer for S during his studies at Sundvall University.  To this I will return presently.

8.  In conclusion, in describing the history of the marriage and of the parties relationship pre-marriage, whilst no doubt the husband has been in full employment, so has the wife in Sweden pursuing her profession as an accountant and after the arrival of S in 1993 as a working mother in Sweden and then in Taiwan and Hong Kong.  She comes to court therefore as a fully-entitled wife – if I can use that expression to explain that, as such, she must engage at least the 50% starting point in the distribution of the identified available assets.  In this case there must be every prospect that her needs, generously assessed, as Ribeiro PJ has described in LKW v DD[2008] 2 HKLRD 523, will almost certainly take up most of the available capital and income when one takes into account, as I must, the husband’s own needs.  In such circumstances, there will almost certainly be nothing to distribute under the sharing and compensation principles.

A computation of the assets

9.  In this regard I am very grateful to Mr Hughes for setting out what these are.  Whilst the most valuable of them is undoubtedly the husband’s beneficial ownership of L&H which I will come to very shortly, there are also a number of smaller assets which I will enummerate.

10.  On the 21^st March this year I started these proceedings by deciding on the wife’s S.17 MPPO application which was directed at the husband’s disposal of his 100% shareholding in L&H.  There were 10,000 shares.  He held 9,000 personally and the remaining 1,000 were held by his wholly-owned company CS.  It is through L&H that he carried out his business as a manufacturers agent in the steel industry.  Having heard the evidence on the 21^st March, I delivered judgment the following day in the wife’s favour.  That judgment must stand with this one as my reasons on the ancillary relief application.  I do not propose to repeat here my reasons for finding that the husband’s disposal of his shareholding in L&H to a Mr C and a Mr L was a sham.  On my finding, he remains the beneficial owner of L&H and the value of that shareholding will form part of the asset pool in this case.

11.  Since the UK Supreme Court’s judgment in Prest v Petrodel Resources Ltd and others [2013] UKSC 34 bears directly on this aspect of the assets I will have to analyse how this shareholding is to be treated, which I will now do.

12.  In Prest there were properties that belonged to companies that were said to be controlled by the husband in that case and that these companies were his alter ego.  On this basis, following the long established approach of the Family jurisdiction in England on applications for ancillary relief, the trial judge, Moylan J, ordered the husband to procure the conveyance to the wife of a valuable residential property belonging to one of those companies into the wife’s name.  On appeal to the Court of Appeal, by a majority, the court held that such an approach ran counter to the old-established Saloman principle (see Saloman v A. Saloman & Co Ltd [1897] AC 22) that a company is separate from its shareholders and is therefore not amenable to orders such as that made by the judge.  On appeal to the Supreme court, a bench of seven justices upheld that reasoning but, on the particular facts of this case, Lord Sumption, with whom the other justices were in agreement, decided that all the properties owned by the companies were held on trust for the husband and, as such, he was in a position, as beneficiary, to direct the companies to do as he required, or as in this case, he had been ordered.  Such a simplistic analysis by me does not do, and is not intended to do, justice to such an important decision but I believe it will suffice for the purposes of this case.  Also, I apprehend that although not binding in our courts in Hong Kong, this decision will be followed here.  It is persuasive authority of the highest order and insofar as it now becomes relevant to this case I respectfully propose to follow it.

13.  All of this said, L&H, as a company which acts as a commercial agent earning commissions on sale of heavy equipment does not own property which might be ordered to be transferred to the wife in part-satisfaction of her claim for ancillary relief, although it may well have liquid assets such as cash in bank accounts which could be transferred to the wife as part of a lump sum payment.

14.  My conclusion is that any assets held by L&H, it holds on trust for the husband who by virtue of my judgment of the 22^nd March 2013 I found to be the beneficial owner of all of its shares.  Mr C and Mr L and any subsequent corporate entity or individual will take any transfer of the shares by Messrs C and L to them impressed with that trust.  And so, the husband is the beneficial owner of the shares and through that beneficial ownership I find that the company itself (L&H) holds its assets on trust for the husband.  It is on this basis that he can call for the company to do what he wishes it to do by way of the transfer of its assets, in whatever form, either to himself or, to his order, to anyone else.  In this way I am satisfied that the assets of L&H are amenable to any order that I make against the husband in respect of his beneficial ownership of its assets, the company being the legal owner of those assets as his trustee. 

15.  As a result of my having found the husband to be the beneficial owner of L&H’s it became necessary to obtain an up-to-date valuation of L&H.  This has meant those representing the wife issuing subpoenas against its accountants who fortunately, have been forthcoming and done their duty to the court by providing all the available accounting documents to enable the court appointed experts BDO (through its director Mr W) to prepare a valuation of L&H.  Mr W’s report is dated the 15^th April 2013.  It is a very impressive, carefully prepared piece of evidence.  Mr W, for the reasons that he has provided and which I accept without reservation, has arrived at a valuation of $9,212,000 for L&H by taking the average of two values being the “Market Approach” of HKD 13,692,882 and the “Net Asset Approach” of HKD 4,731,492.

16.  Mr Hughes has carefully gone through the evidence and set out in table form the assets that are now before the court and available for distribution.  I propose to set these out here together with references to the bundles where this evidence can be found:

(i)	The up to date value of L&H (BDO/15.4.13)		HKD 9,212,000
(ii)	The wife’s disclosed assets [P10: 2225]		HKD 258,021
(iii)	The husband’s disclosed assets (July 2012) [P5: 984]		HKD 3,713,852
(iv)	2010 dividend paid by L&H		HKD 2,000,000
(v)	Husband quarter interest of home in Finland		HKD 301,000
(vi)	SEK 2,400,000 (HKD 2,895,000) withrawn from Husband’s account with Foreningssparbanken AB and partly paid into Nordea SA (Acct. 74241) [P3: 648].  Husband has failed to provide current balance therefore the entire amount withdrawn from Foreningssparbaken is included.		HKD 2,895,000
(vii)	Most recent known balances held by Husband in Sweden, Hong Kong and Taiwan as follows: (a)  HSBC No. 608078010888 [C4: 763]		HKD 81,576
	(b)SEB Acc No. 01003041167 [C4: 808] SEK 279,222		HKD 336,760
	(c)  HSBC Acc No. 00201xxxx388 [C4: 842] Taiwan dollars 335,400		HKD 86,952
(viii)	Money transfer to Mr P		HKD 371,180
(ix)	Withdrawn unexplain by husband from his HSBC Acc No. 60807801888 [C3:716-717]		HKD 1,297,915
(x)	Business related travel expenses recorded in husband’s AMEX credit card statements [2010 to 7th February 2013]		HKD 791,201
(xi)	Net value of family home in Sweden [C3: 717]		HKD 275,765
	TOTAL		HKD 21,625,222

17.  The bald submission made by Mr Hughes is that the wife should receive half of this amount less her own assets of HKD 258,021, in other words a lump sum of $10,683,600.  The Duxbury calculation prepared for this case has suggested a lump sum of HKD 11,661,255 [C3: 718] to provide an income to meet her reasonable foreseeable needs.

The problems

18.  Whilst what Mr Hughes suggests, based as it is on what is largely a “wish list” of assets, and I do not intend to be critical of what he is putting forward, may be clean and tidy but it is likely to be based on just that, “a wish list” of assets.  The simple fact is, largely due to the husband’s refusal to turn up for the trial and to assist himself and more importantly, for the purposes of achieving an order that is correct, fair and viable, the court itself, I am left with a number of figures that may well be seriously out of date and therefore inaccurate.  Also some of these figures can be readily eliminated as being inappropriate to be included as assets and I will indicate what these are shortly. 

19.  Despite his absence, I still need to be fair to both parties.  This cannot be an exercise in taking the wife’s figures and saying that because the husband has chosen to absent himself he must now bear the consequences by virtue of not having turned up for the trial.

20.  I need to approach my findings on what should be included as assets on a realistic basis and, as best I can, based on amounts that are reasonably likely to be accurate.  Provided the particular amount of an included asset is within a reasonable approximation likely to be accurate then I am afraid that the husband will have to bear the consequences of his non-appearance.  He cannot be heard to say that this is all wrong if he has chosen not to come along and say so, or putting it in another way, helping the court to carry out its task on as precise a basis as it would wish to. And, I must also have regard to the wife’s position.  She must not be seen to suffer because of the husband’s non-appearance.  If what is put forward on her behalf appears, in all the circumstances, to be reasonable then it ought to be acted upon.

What needs to be removed from the wife’s list of assets

21.  I will identify the item by its number in paragraph 16 above which is where the assets suggested by Mr Hughes are set out.

22.  (iv) is the dividend of $2,000,000 paid on the shares of L&H of which, on my finding, the husband has always been the beneficial owner.  I cannot for one moment say with any degree of confidence that this amount is still there nor, any lesser proportion of this amount.  Mr Hughes says that this does not matter so long as I am satisfied that the husband has had this sum then it should be added back into the asset column, which is a very understandable argument.  Nevertheless, I am of the view that in respect of this amount, where it is difficult to have any idea how the money was used by the husband, I do not consider that it ought to appear in the asset column.  It may, for instance, have been re-invested into L&H’s operations and in this way reflects itself in the value of L&H?  I simply cannot tell.

23.  The money paid to Mr P, which is item (viii) should also be removed.  It had formed part of the S.17 MPPO application and, as a matter of convenience and sensibly, Mr Hughes has added it back in as an asset.  I cannot be sufficiently certain this amount of $371,000was paid to Mr P in order to defeat the wife’s claim.  In such circumstances, it will need to come out of the asset list.  As will (x), the business travel expenses incurred by the husband and recorded it in his Amex account.  These amounts come to $795,201.  I take the view that these are nothing more than business expenditure and should not be treated as having to be added back into the asset column.

24.  Everything else should remain. The item at (vi), nearly $2.9 million, is substantial and should be taken into account now.  The husband removed it.  The wife has lost the opportunity of sharing in it.  Part of this amount was to fund their retirement.  The remaining items are clearly assets which should be available to both parties.  The precise figures may now be different, they almost certainly are in respect of what were bank balances but these were amounts that were correct when the balances were provided by the husband.  I will take these balances.  As he has chosen not to contest the evidence he must, I am afraid, expect such a conclusion.

25.  The total of the removed items at (iv) (viii) and (x) is $3,166,201, which means that the adjusted total for the assets is $18,459,021.

How should the assets be divided

26.  Mr Hughes has pointed to the Duxbury calculation which indicates that a lump sum of $11,661,255 would be required.  Whilst this calculation may provide a guide, it seems to me that this is not a “Duxbury” case which is much more suited to a situation where there are far greater assets.  Duxbury would then provide a reliable guide to cater for “needs” on a capitalised basis and anything left over might be subjected to the “sharing principle”.  But even then, all of this would still need to be tested against the “yardstick of equality”.

27.  This said I do find the Duxbury calculation in this case as a useful general guide as to the sort of amount required to cater for the wife’s needs.  If the wife were to receive HKD 11.66 million, as the calculation indicates, she would be receiving something like 66.16% of the assets.  Tested against the yardstick of equality it might be said that this wife, who does not enjoy the best of health and cannot expect to earn very much in the future will need all of that amount, less her own assets which are only HKD 258,021.

28.  Nevertheless, I still need to have regard to the husband’s position.  Most of this wealth, the vast majority of it, has been generated by him.  He too does not enjoy the best of health and he will need to preserve capital for his retirement.

29.  It strikes me that this should therefore be a 50 : 50 case.  Half of the joint assets is $9,229,510 from which the wife’s assets is $258,021 must be deducted.  The wife’s entitlement therefore is $8,971,489.  The wife must give the husband credit for half of the value of the family home in Sundvall therefore $137,882 will need to be deducted from $8,971,489 which is $8,833,607 which is the amount of the lump sum which the husband must pay the wife in this case. 

Consequential and ancillary orders

30.  (i) The wife will remain the sole owner of the family home at Sundvall, Sweden.

(ii) Upon full compliance by the husband with the orders herein all the parties claims against each other arising from their marriage shall stand dismissed and, for the avoidance of doubt this will include any right to periodical payments by the wife including nominal maintenance.

(iii) The husband will pay the wife periodical payments for S at the rate of $12,000 (in SEK) per month as from the 1^st August 2013 until he completes his full-time education or further order.  This amount to be paid into her nominated bank account.

(iv) The husband will settle the overdraft facility on the parties joint SEB bank account 54060004535 before it is closed and he will sign all necessary papers to close this account.

(v) The husband will re-sign all necessary documents for the closure of the parties joint safe deposit box held with SEB.

(vi) The wife and S will remain beneficiaries of the husband’s Gigna life insurance policy HMK 008872878.  For the avoidance of doubt – I make no orders in respect of the Skandia Pension nor the SEB Trygg but the existing arrangements on those policies will remain in place until full compliance with this order by the husband.

 (vii) The husband will re-imburse the wife HKD 282,000 for S’s maintenance (C3: 718).

 (viii) The Respondent will pay the Legal Aid Department for his half share of BDO’s fees in respect of its valuation of L&H.

 (ix) The current injunction will remain in place until full compliance by the husband.

 (x) Liberty to apply as to the terms and implementation of this order.

Costs

31.  The wife must have her costs of this ancillary relief application paid by the husband and taxed on party and party basis with Legal Aid Taxation of all of her costs.  This will be an order nisi for 14 days after which it will become an order absolute. 

Non-recoverability of the lump sum from L&H

32.  I very much regret having to say this in these circumstances but, since the English Supreme Court’s judgment in Prest supra, by which it upheld the Saloman principle I do not believe it is now open to me to say that L&H should have concurrent liability with the husband for the lump sum payment.  This is his personal liability, but the wife will know that the court will do all that it can lawfully do to see to it that its order against the husband are complied with by him. 

Time for compliance

33.  The husband will have 56 days from the date of this judgment to comply with each element of my orders. May I ask the wife’s solicitors to prepare a draft order no later than the 31^st July 2013 for my approval, after which I will be out of Hong Kong for 4 weeks.

( Ian Carlson )  Deputy District Judge

FCMC 7500/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO 7500 OF 2010

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R U L I N G

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Introduction

1. This is the wife petitioner’s application under section 17 of the Matrimonial Proceedings and Property Ordinance to set aside the disposition by the respondent husband of his 100 per cent shareholding in L&H.  This shareholding was held as to 9,000 shares by himself and the remaining 1,000 shares through his wholly-owned company CS.  I will refer to the parties as the husband the wife.

2. Before I come to the merits of the application I wish to say something about the procedure that I have adopted in hearing the application.

3. This is a hearing of the wife’s application for ancillary relief following the parties’ divorce.  The wife is from Sweden and the husband from Finland although they had lived in Hong Kong for many years.  The wife has now returned to Sweden where she resides in the family home together with their son S, who is now 20 and engaged in tertiary education and will be for the next 4 years or so. 

4. The husband appears to be largely based in Taiwan although his work requires him to travel frequently, mostly in Mainland China.  He also travels to Hong Kong.  The husband, who for most of this litigation has been represented by solicitors but is now representing himself, sent an e-mail to the court on the afternoon before the hearing started on Wednesday this week to say that on medical grounds he would not be attending.  It is unnecessary for me to go into this aspect at this time, but suffice it to say that I decided to proceed with the hearing in the husband’s absence. 

5. As a matter of case management I have decided to compartmentalise the hearing by first taking the wife’s evidence on this application, which I have, and upon which I am now ruling.  This is the best way to proceed; in fact, the only way to proceed because if I set aside the disposition of these shares the effect will be that the husband will be held to be the owner of L&H, a profitable company, which acts as agent for European manufacturers of handling equipment and heavy machinery for the steel industry.  The value of the company will then come into the asset pool which will fall to be distributed between the parties in the ancillary relief application. 

6. There is in existence a draft valuation of L&H prepared by BDO, the single joint expert, but BDO’s valuation cannot be completed until the 2010 accounts are made available to it.  There is an extant subpoena addressed to Mr P, L&H’s accountant/company secretary to release those accounts to BDO. 

7. If I set aside the disposition, which the wife says is a sham transaction, then I will need the valuation of L&H.  If I do not set it aside, then I would have thought that this may not be necessary, but at all events, it will be helpful to know at this relatively early stage in the trial whether this disposal of the husband’s shares in L&H is to be set aside.  In that way, come his final submission Mr Hughes, the wife’s learned counsel, will know the precise extent of the asset pool and can therefore make more effective submissions as to how the ancillary relief application should be disposed of.

8. So much for the procedure that I have adopted thus far. I will now turn to the facts which give rise to the section 17 application.

The Factual Background

9. L&H was, and it remains to be seen whether it is to be treated as still being the alter-ego of the husband through which he conducts his occupation as agent of various well-established machinery producers for the steel industry.  Through his representation these companies sell their products in this part of the world, mostly in Mainland China and Taiwan.  The husband is highly experienced in this industry having operated in this field for well over 25 years.

10. The wife, having been first co-habitee and subsequently wife of the husband for over 30 years, is very familiar with the husband’s business and his associates in it.  She herself is a trained economist and has worked for the F.  Given her knowledge of business in general and her close knowledge of the husband’s business in particular, her evidence in this application must carry considerable weight.

11. Some chronology is important.  In 2001, the husband and an associate of his, Mr ML, left their previous employment with a company called EAB and established L&H as equal partners, holding 5,000 shares each.  In August 2005, Mr ML sold 4,000 of his shares to the husband for HK$4 million, and on 19 October 2009 he sold his remaining 1,000 shares to CS, the husband’s wholly-owned company.  This was for HK$1,000. 

12. On 15 November 2008, five months after the parties had separated, the husband entered into a two paragraph agreement with a Mr C, an associate of his in this field, by which Mr C purportedly acquired 9,000 L&H shares for €1 per share with an option to acquire the remaining 1,000 shares at the end of 2009, also for €1 per share (see bundle P2/388).  These shares had not been valued and the transaction is said to have been in cash.  On the same date the husband is said to have entered into a contract of employment with L&H for 2 years.  Mr C signed on behalf of L&H although he was not a director of the company so it is not clear in what capacity he was signing and whether he had authority to sign.

13. On 15 November 2008 and on 20 November 2009 declarations of trust were signed by the husband and by CS, this done on its behalf by the husband, to hold the legal title of the shares in trust for Mr C.  None of this was disclosed by the husband in his first Form E but was subsequently revealed in correspondence by his then solicitors on 10 September 2010 (see bundle CC/11).  The agreements and the declarations of trust were drafted by the husband himself, so very much homemade documents and not, as was usually the case for company documents, by Mr P, L&H’s accountant/company secretary (see bundle P4/711).  The husband remained a director of L&H until 15 November 2011. 

14. The legal interest in the shares was transferred to Mr C by the husband in CS on 12 March 2010.  Then on 12 May 2012, Mr C disposed of all his shares to a Mr L. Mr L is the Taiwan representative of SB, a company that the husband has been involved with for many years, as is Mr C.  SB has been one of L&H’s main clients. 

15. In considering this matter it is very important to have regard to L&H’s performance up to the purported disposition of his shares by the husband at what was really a considerable undervalue.  Mr Hughes has prepared a Revenue account for L&H from 2001 to 2009, which I gratefully reproduce here.

	Turnover	Other Revenue	Total
2009	197,610	4,059,106	4,256,716
2008	2,586,007	1,859,711	4,445,718
2007	3,514,776	247,419	3,762,185
2006	1,576,240	610,148	2,189,288
2005	2,908,978		2,908,978
2004	2,092,516		2,092,516
2003	1,326,496	40,339	1,366,835
16.05.2001- 31.12.2002	2,356,570	20,558	2,386,128

16. What is to be observed is that there has been a steady increase in revenues since Mr ML and the husband established L&H in 2001.  In its draft valuation of L&H, BDO values it at $484,000 as at November 2008 .  At HK$10 to the Euro that comes to €48,400, and as at 12  November 2010 at HK$3,239,000 or €323,900.  Mr Hughes submits that when Mr P produces the accounts for the year ending 31 December 2010 this last figure will be considerably higher, or so he predicts. 

17. What is significant is that the L&H website and that of its client P, for whom it acts as agent, shows that in June 2008, at about the time the parties separated, L&H was acting for P in regard to the supply by P of a handling system which was to be sold to CSC in Taiwan for € 7,820,000 (see bundle P7/1569-1570).

18. In this regard the wife’s evidence is impressive.  The starting point is a document which she found in the changing room of the husband’s mother’s sauna in Sweden which set out all the workings out by P of the costings on this contract.  When one considers all the add-ons for the sale the price paid by CSC would come to about €13 million.  L&H’s agency fee would at 5 per cent of the selling price come to €650,000 or HK$6.5 million.

19. Whatever the actual figures may be, what I am satisfied about is that this contract has actually gone through and that on any view its effect will be that L&H’s revenues will have gone up and inevitably its share value will also have increased.

20. There is no doubting the closeness of the husband to Mr C and Mr L.  This substantial transaction now reported in P’s website was very much on the stocks in 2008. At this time the parties’ relationship was well and truly at its terminal stage.  The husband is very well-connected with all the significant players, not only Messrs C and L but also Mr LE, now the chief executive officer of P, and also Mr M, the chief executive officer of SB, who are represented in Taiwan and China by Mr C and Mr L.  

21. Notwithstanding the husband’s purported sale of his shares in L&H just when things were beginning to “hot up” commercially for L&H and at such a low price in exchange for modest short-term and badly paid employment with it and with no share of profits, the husband’s very close connection with it continued in a way more consistent with someone who was in control of the company rather than a modestly remunerated employee.  His extensive travel in China, staying in expensive hotels, his private credit card bills being sent to L&H’s offices and his use of its e‑mail address until March 2012 even though he claimed to have stopped working there in November 2010, all serve to undermine his version of events. 

22. When I say “his version of events”, it is right that I should observe that because he has chosen not to appear at this hearing I am not able to have regard to any of his explanations contained in his affidavit or Forms E.  This application under section 17 and the ancillary relief application itself is evidentially unopposed by him which will be of crucial significance, as is the fact that Mr C and Mr L, who have also been served with all the evidence and summonses in support of this section 17 application, they have chosen not to oppose it. They simply have not responded to any of the wife’s solicitors’ letters.

23. If I were to treat these purported share transfers as a sham, then what I would do is to proceed on the basis that the husband remains the true owner of the L&H shares, have those shares valued as they now are at the time of the hearing of the ancillary relief application or at least the most up-to-date valuation available based on the December 2010 accounts and find that these shares at this valuation form part of the husband’s assets and therefore liable to be taken into account in my assessment of what is the asset pool available for distribution, and this all in accordance with section 7 of the Matrimonial Proceedings and Property Ordinance and the principles set out by the Court of Final Appeal in LKW v DD [2008] 2 HKLRD 523.

Section 17 MPPO

24. By section 17(3), where an application is made with respect to a disposition which has taken place less than 3 years before the date of the application, as in this case, and the court is satisfied that the disposition has had the consequence of defeating the applicant’s claim for financial provision, then it shall be presumed unless the contrary is shown that the disposition was made with that intention.

25. In these circumstances the wife has the benefit of that presumption which, by not appearing, the husband has not been able to show otherwise, but even without the benefit of the statutory presumption, given the timing of these events, I am abundantly satisfied that the wife has demonstrated that the husband decided to create documentation which gave the impression that he had sold his shares in L&H, this just as the P transaction was beginning to become a reality, which in the event on my finding came to pass. He knew that the sale by P through the agency of L&H was going to be a profitable one and he was determined that in the divorce the wife was not going to profit from it or at least share in that profit. 

26. It is not necessary for me to reverse or set aside any documentation which purportedly effected the sale of these shares nor in the share register.  What I will say is that on my finding, which I am completely satisfied on the evidence, the husband is the beneficial owner of L&H’s shares, he always has been, and that the current value of these shares will be taken into account as part of the husband’s assets and will form part of the asset pool which will fall to be distributed between the parties. This when I come to resolve the wife’s ancillary relief application, and I so order.