WMY v. CSK

FCMC 17011 / 2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 17011 OF 2011

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J U D G M E N T
(Variation of Costs Order Nisi)

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Introduction

1.  This is the application for variation of the Costs Order Nisi by the Petitioner (Wife) under the Judgment dated 30 June 2016 (“Judgment”) on Ancillary Reliefs after a 5-day trial.

2.  At paragraphs 93 to 95 of the Judgment where this Court, when deciding the issue of costs, had said :

“93. What left behind is the question of costs of these proceedings. The Wife’s Open Proposals are identical to the outcome of this case save and except she had asked for nominal maintenance. Given the fact that she only sought costs of and incidental to the Husband’s claim for the alleged loan of HK$1.6 million, I will accordingly grant such costs order in respect of which would have to be taxed if not agreed on party and party basis.

94. Although the issue of the alleged loan of HK$1.6 million is one amongst the six items listed in the Joint Issues, a substantial part of the time for trial was spent on the evidence upon such issue. On all fairness, I will also apportion the costs for such issue to form 30% of the entire costs of the ancillary reliefs trial. As for the remaining 70% of the costs, there will be no Order as to costs.     95.  I also grant Certificate for Counsel.”

The Wife’s Application

3.  In the Summons dated 14 July 2016 filed by the Wife, she seeks variation of the Costs Order Nisi to the extent that the costs of and incidental to the ancillary reliefs proceedings starting from the commencement of this suit up to and including the trial be paid by the Husband to the Wife to be taxed, if not agreed on party and party basis, with Certificate for two Counsel.

4.  The Grounds in support of the variation can be summarised as follows :

(a) The Wife is the successful party on all the 6 contested issues at trial (including the alleged loan issue of HK$1.6 million).  There is no good reason to depart from the starting point in family proceedings that costs should follow the event (see Gojkovic v. Gojkovic [1992] Fam40, L v.C, CACV 169/2006 (unrep 19 March 2008 and TL v.SN (Ancillary Relief) [2010] HKFLR 506) (“Ground One”);

(b) There were Calderbank Offers made prior to and at the early stage of the ancillary reliefs which the Husband consistently refused and/or failed to show efforts to explore settlement (“Ground Two”);

(c) The Wife had not been unreasonable in the course of the proceedings and there was no litigation conduct which would deprive the Wife having full costs of the ancillary reliefs trial (“Ground Three”). 

The Husband’s Opposition

5.  The Husband raised 3 Grounds of Opposition which can be summarised as follows :-

(a)  The Costs Order Nisi was based on the orders sought by the Wife in her Open Proposals.  The Wife should not be allowed to resile from her open position;

(b)The Husband could not be said ought reasonably to have accepted the Wife’s Calderbank Offers;

(c)  The Wife’s conduct before and after the trial provided sufficient basis for the Court to deprive her part of her costs.

The applicable legal principles

6.  The Court has a wide discretion in deciding costs.  There is no difference between civil litigation and family court cases.  The rules on costs are contained in Order 62, rules 3 and 5 of the Rules of the High Court (“RHC”).

7.  Order 62 rule 3(2) of the RHC provides : “(2) If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other   order should be made as to the whole or any part of the costs.”

8.  Order 62 rule 5(1) of the RHC provides :

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

(aa) the underlying objectives set out in Order 1A, rule 1;

(a) any such offer of contribution as is mentioned in Order 16, rule 10, which is brought to its attention in pursuance of a reserved right to do so;

(b) any payment of money into court and the amount of such payment;

(c) any written offer made under Order 33, rule 4A(2);

(d) any written offer which is expressed to be ‘without prejudice save as to costs’ and which relate to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful;

(g) any admissible offer to settle made by a party, which is drawn to the Court’s attention.

 (2) For the purpose of paragraph 1(e), the conduct of the parties includes –

(a) whether it was reasonable for a party to raise, pursue or   contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his   case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in   whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.”

The case law

9.  In civil proceedings, the general principles on costs can be found in the English case of In re Elgindata Ltd (No. 2) [1992] 1 WLR 1207, where Nourse LJ said at page 1214 as follows:-

“The principles are these. (i) Costs are in the discretion of the court. (ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made. (iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or part of his costs. (iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs. Of these principles the first, second and fourth are expressly recognised or provided for by rules 2(4), 3(3) and 10 respectively. The third depends on well established practice. Moreover, the fourth implies that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs.”

10.  For family proceedings, the principles on costs can be found in the leading case of Gojkovic v Gojkovic[1992] 1 All ER at page 271 where Butler-Sloss LJ said :- “That starting point, in my judgment, is that costs prima facie follow the event (see per Cumming-Bruce L.J. in Singer (formerly Sharegin) v. Sharegin [1984] FLR 114 at 119) but may be displaced much more easily than, and in circumstances which would not apply, in other divisions of the High Court. One important example is, as the judge pointed out, that it is unusual to order costs in children cases. In applications for financial relief the applicant (usually the wife) has to make the application in order to obtain an order by consent; and if money is available and in the absence of special circumstances, such an agreement would usually include the applicant’s costs of the application. If the application is contested and the applicant succeeds, in practice in the divorce registries around the country where most ancillary relief applications are tried, if there is money available and no special factors, the applicant spouse is prima facie entitled to, and likely to obtain, an order for costs against the respondent. The behaviour of one party, such as in material non-disclosure of documents, will be a material factor in the exercise of discretion in making a decision as to who pays the costs.

11.  Further down the Judgment, Butler-Sloss LJ went on to say :-

“There is however a minority of case, of which the present appeal is an example, where the assets are substantial and an order for costs can (if appropriate) be made. In such cases the parties are likely to negotiate, and such negotiation, which may lead to a settlement, is much encouraged by the courts. The Calderbank offer – a letter containing an offer only revealed after the order is made – bears some resemblance to, but is not identical with, a payment into court. It takes its name from Calderbank v Calderbank [1975] 3 All ER 333, [1976] Fam 93 (a claim by a husband) in which Cairns L.J. referred to an apportionment offer in Admiralty proceedings, and said ([1973] 3 All ER 333 at 342, [1976] Fam 93 at 106): -

‘If that is not accepted no reference is made to that offer in thecourse of the hearing until it comes to costs, and then if thecourt’s apportionment is as favourable to the party who madethe offer as what was offered, or more favourable to him, thencosts will be awarded on the same basis as if there had been apayment in. I see no reason why some similar practice shouldnot be adopted in relation to such matrimonial proceedings inrelation to finances as we have been concerned with.’

12.  At page 272 g to 272 j, Butler-Sloss LJ went on and said :

“It is therefore clear that Calderbank offers require to have teeth in order for them to be effective. This is recognised by the requirement in Ord.62, r 9 (and the equivalent CCR Ord 11, r10) for the court to take account of Calderbank offers, and by analogy open offers, in exercising its discretion as to costs. There are certain preconditions. Both parties must make full and frank disclosure of all relevant assets, and put their cards on the table. Thereafter the respondent to an application must make a serious offer worthy of consideration. If he does so, then it is incumbent on the applicant to accept or reject the offer and, if the latter, to make her/his position clear and indicate in figures what she/he is asking for (a counter-offer). It is incumbent on both parties to negotiate if possible and at least to make an attempt to settle the case. This can be done either by open offers or by Calderbank offers, both adopted by the husband in this case. It is a matter for the parties which procedure they prefer. There is a very wide discretion in the court in awarding costs, and as Ormrod LJ said in McDonnell v. McDonnell [1977] 1 All ER 766 at 770, [1977] 1 WLR 34 at 38, the Calderbank offer should influence but not govern the exercise of discretion.

There are many reasons which may affect the court in considering costs, such as culpability in the conduct of the litigation: for instance (as I have already indicated earlier) material non-disclosure of documents. Delay or excessive zeal in seeking disclosure are other examples. The absence of an offer or of a counter-offer may well be reflected in costs, or an offer made too late to be effective. The need to use all the available money to house the spouse and children of the family may also affect the exercise of the court’s discretion.  It would, however, be inappropriate, and indeed unhelpful, to seek to enumerate and possibly be thought to constrain in any way, that wide exercise of discretion.  But the starting point in a case where there has been an offer is that, prima facie, if the applicant receives no more or less than the offer made, she/he is at risk not only of not being awarded costs, but also of paying the costs of the other party after communication of the offer and a reasonable time to consider it. That seems clear from the decided cases and is in accord with the Supreme Court and County Court Rules requiring the court to have regard to the offer.  I cannot, for my part, see why there is any difference in principle between the position of a party who fails to obtain an order equal to the offer made and pays the costs, and a party who fails by the offer to meet the award made by the court.  In the latter case prima facie costs should follow the event, as they would do in a payment into court, with the proviso that other factors in the Family Division may alter that prima facie position.”

13.  In Hong Kong, starting with the case of F v. F [2003] HKLRD 976 where Hartmann J (as he then was) after setting out the founding principles as to award of costs in civil proceedings propounded in In re Elgindata (No.2) (supra), said :

“12. Contested family proceedings, being civil in nature, are subject to the founding principles that I have outlined. However, it has long been accepted that, because of the special dynamics of family litigation, the discretion is broader than it may be in civil matters generally. The seminal case on this point, long followed in this jurisdiction, is Gojkovic v. Gojkovic [1991] 2 FLR (CA) 233in which Butler-Sloss LJ said :

‘….there still remains the necessity for some starting-point.That starting-point, in my judgment, is that costs prima faciefollow the event (see Cumming-Bruce LJ in Singer vSharegin [1984] FLR 114 at p.119), but may be displacedmuch more easily than, and in circumstances which would notapply, in other Divisions of the High Court. One importantexample is, as the judge pointed out, that it is unusual to ordercosts in children cases.’

13. Butler-Sloss LJ spoke of the great majority of cases in which assets were not substantial, observing that –

‘The incidence of legal aid, the inadequacy of the financialassets available, for instance, to house both parties or evenone spouse and the children, are major circumstances whichmay affect or even distort an order for costs that wouldotherwise have been expected to be made.’

However, in respect of cases where the assets are substantial and an order for costs can be made, emphasis was laid on the requirement that the parties attempt to settle their differences by negotiation. In so doing, a tool of importance is the use of Calderbank offers. In looking to the nature of the policy on which Calderbank offers have assumed such importance, reference was made to the judgment of Oliver LJ in Cutts v. Head [1984] CH 290 :

‘As a practical matter, a consciousness of a risk as to costs ifreasonable offers are refused can only encourage settlementwhilst, on the other hand, it is hard to imagine anything morecalculated to encourage obstinacy and unreasonableness thanthe comfortable knowledge that a litigant can refuse withimpunity whatever may be offered to him, even if it is as muchor more than everything to which he is entitled in the action.’

Butler-Sloss LJ said that it was clear that “Calderbank offers require to have teeth in order for them to be effective.” Accordingly –

‘….the starting-point in a case where there has been an offeris that, prima facie, if the applicant receives no more orless than the offer made, she/he is at risk not only of notbeing awarded costs, but also of paying the costs of theother party after communication of the offer and areasonable time to consider it.’

14.  But that being said, while Calderbank offers should be a material influence in the exercise of discretion in costs, they should not govern it entirely.  Butler-Sloss LJ emphasised that a broad range of matters may have to be taken into account :

‘There are many reasons which may affect the court in considering costs, such as culpability in the conduct of the litigation; for instance…...material non-disclosure of documents.  Delay or excessive zeal in seeking disclosure are other examples. The absence of an offer or of a counter-offer may well be reflected in costs, or an offer made too late to be effective. The need to use all the available money to house the spouse and children of the family may also affect the exercise of the court’s discretion. It would,however, be inappropriate, and indeed unhelpful, to seek to enumerate, and possibly be thought to constrain in any way, that wide exercise of discretion.’

14.  At paragraph 22 of the same Judgment, His Lordship said :

“22. Leaving aside what I consider to be the long-established principle that costs are determined not by dividing litigation into quantifiable subjects and figures, like a profit and loss account, but rather by way of overall impression……”

15.  In the case of W v. K and Anor (Costs) [2008] HKFLR 378 where Saunders J at page 383 said :

“13. In the course of exercising the discretion as to costs the court will also take into account Calderbank offers: see O22 r 12 and O62 r 5 RHC. Such offers influence, but do not govern, the exercise of discretion. The proper question to be asked is whether the party to whom offer was made ought reasonably to have accepted the proposal made. In addition, litigation misconduct or neglect may be taken into account in deciding the incidence of cost: see O62 r 7.

16.  Her Ladyship Hon Yuen JA in the case of L v C, CACV No. 169/2006 (Date of judgment: 19 March 2008) sets out the principles in costs in family court cases said at paragraph 23 :

“23 . As a matter of law, it is clear that costs are in the court’s discretion. Pointers as to how that discretion should be exercised include the following :

(1) in family cases, as in others, costs should normally follow the event;

(2) however, because of the special dynamics of family litigation (eg where the cased involved children, or where financial resources were inadequate to meet the needs of both parties, etc.), the discretion may be broader than in civil matters generally (Gojkovic v. Gojkovic [1991] 2 FLR 233, F v. F (No.2) [2003] 3 HKLRD 977……;

(3)  the court also retains a discretion to deprive successful litigants of costs under the Elgindata principles (In re Elgindata Ltd(No.2) [1992] 1 WLR 1207];

(4)  where a litigant succeeds on appeal but only on a new point, the court can deprive him of the costs below (Farquharson v Morgan [1894] 1 QB 552) or even order him to pay those costs (Yip Lai Fong v Sin Tung Hing [2004] 3 HKLRD 230), and the court can deprive him of the costs of appeal (Chard v. Jervis (1882) 9 QBD 178).

17.  In the later case of T, L v. S, N, CACV No.196/2009 (Date of Judgment : 19 October 2010) where Hon Kwan JA said :

“123. In matrimonial cases, as in other cases, costs should normally follow the event. The court also retains a discretion to deprive successful litigants of costs under the principles in In re Elgindata Ltd (No.2) [1992] 1 WLR 1207 (L v.C, CACV 169/2006, 19 March 2008, paragraph 23, per Yuen JA). The general rule that costs follow the event does not cease to apply simply because the successful party raised allegations on which he failed, but where that has caused a significant increase in the length or costs of the proceedings, he may be deprived of the whole or a part of his costs….”

18.  Further, in the case of Z v. X & C, CACV No.166/2011 (Date of Judgment : 8 March 2013) where Hon Cheung JA said :

“10. Although Saunders J in W v.K & Anor (Costs) [2008] HKFLR 378 stated that in ‘big money case’ each party should bear its own costs, this Court’s approach on costs in ancillary relief application is that costs should follow the event although because of the special dynamics of family litigation (e.g. where the case involved children, or where financial resources were inadequate) the discretion may be broader than in civil matters generally : L v.C (CACV 169/2006, Judgment 19 March 2008) applying Gojkovic v.Gojkovic (No.2) [1991] 2 FLR 233; TL v. SN (AncillaryRelief) [2010] HKFLR 506.

11. In England the approach has now been changed where the general rule is that the Court will not make an order requiring one party to pay the costs of another. However, costs orders may be made because of the litigation conduct of another party. The factors to be considered include, for example, whether an open offer to settle has been made, whether it was responsible to raise, pursue or contest a particular allegation or issue and the financial effects on the parties of any costs order. (See Raydenand Jackson onDivorce and Family Matters, 18^th Ed, Noter up to Col 1(2) [52.17] – [52.20] and see further the Noter up on Family Procedure Rules 2010).

12. The changes in England were carried out by prescribed rules. The position in Hong Kong has remained unchanged since L v.C and TL v. SN).

19.  Guided with the above principles, I now consider the Wife’s application. DiscussionGround One – Normal Rule of Costs should be applied ?

20.  As set out in paragraph 11 of the Judgment, the ancillary reliefs trial focused upon 6 Issues jointly agreed by the parties to be determined by this Court.  The Husband does not dispute that the Wife is the winner of all the 6 Issues.  He contended that the normal rule of “coststo follow the event” not applicable because the Costs Order Nisi was exactly what the Wife had asked for in her Open Proposals.  Submission was made by Husband’s Counsel to the nature of Open Proposals made pursuant to Practice Direction 15.11 at §11 to be the best-case scenario which the Wife adopted openly to the Court.  The Wife should not be permitted to resile from her open position (Husband’s Ground No.1).

21.  As the winner of all the 6 agreed Joint Issues, I accept that the normal rule of costs should apply (In re Elgindata Ltd (No. 2).  The issue to be decided is whether the Wife, by complying with the Practice Directions and stating her position on costs openly and proposing settlement terms before trial, would then be barred (my emphasis) from having her full costs after trial when her proposals are being rejected ? 

22.  Practice Directions (“PD”) for all purposes are aimed at providing guidance on practice and procedure to facilitate the legal process or litigation in Court.  It does not carry the force of law or the compliance of which would result in any waiver of rights which a party would acquire under any established rule or procedure or operates as a ‘bar’ to such right.  The Open Proposals regime under PD 15.11 is, in my view, to facilitate settlement before trial on ancillary reliefs solely for costs saving which, if accepted, would bring the matter to an end without the parties having to spend their days in Court.  Needless to say, the costs for the trial could then have been saved by both parties rather than spent on legal fees.  Thus, I do not accept that this is a scenario of the Wife ‘resiling’ from her position as to costs so submitted by Husband’s Counsel. 

23.  There is the contention by the Husband’s Counsel that the Wife could have, but had not, reserved the right to address the Court on the costs issue in her Open Proposals.  Failing such reservation, it is the Wife’s clearest expression that she would seek no order as to costs (save for costs on the alleged loan issue) to those other issues regardless of the outcome of trial, and even if she turned out to be the winner of the other issues.

24.  With respect, I do not agree.  The rationale behind attempting a pre-trial settlement is to avoid the costs of the trial.  It always happen that the party proposing settlement was, by so doing, more than happy to take a smaller amount than what he or she was claiming for if settlement could be reached at that stage.  The reason behind is obvious.  This applies not only to the subject matter of the claim.  It equally applies to costs which may even be the more pre-dominate reason since costs frequently are not proportionate to the amount in dispute.  From a legal perspective, there is no consideration for, if I may use the word, ‘abandonment’ of the right to seek full costs by the party whose proposals were rejected and then have to go through a full blown trial.

25.  Husband’s Counsel also referred to the case of TL v. YSW aka WSY, FCMC No.13455/2011 where a party’s Open Proposal had been used by the Court to define the upper limit of what may be awarded after trial.  With respect, this case is distinguishable on 2 aspects.  First, it relates to a party’s benevolent offer to the other spouse for only taking HK$16 million for his claim instead of HK$22 million as calculated by the Court.  The present application is to review the liability for costs incurred in the litigation, which is of a different nature and, as I said above, could be out of proportion to the value of the claim in dispute.  Secondly, the other 5 Joint Issues which the Husband had lost related mainly to matters of conduct such as misappropriation of assets (Agreed Joint Issue (2)(a)), refusal to account (Agreed Joint Issue 2 (b)), identification of businesses as family assets (Agreed Joint Issue (3)), non-disclosure (Agreed Joint Issue (4)), the effect of taking away of items (Agreed Joint Issue (5)) and accountability of legal fees in assessing the pool of family assets (Agreed Joint Issue (6)), where the quantification of all of which only had to be done when liability was established against the Wife after trial.  This is not just a choice between a quantified sum of HK$22 million and a benevolent offer of HK$16 million as in that case.   

26.  Given careful consideration, I agreed with Wife’s Counsel that there are no good reasons to depart from the normal rule of costs to follow the event. 

27.  I accept Wife’s Ground One.

Ground Two - The Calderbank Offers

28.  There are altogether 4 Calderbank Offers (under 5 letters) made by the Wife since September 2011. These divorce proceedings were commenced by the Wife in December 2011, which is 3 months after the 1^st Calderbank Offer was made. 

29.  I will deal with each of the offers separately and by chronological order, reciting those paragraphs on finances between the parties and costs proposals (if any), as follows :

(a) Letter dated 9/9/2011

30.  This can be said to be a pre-action letter.  The Wife proposed to have sole custody, care and control of the 2 children of the family.  On the parties’ finances, the following was what she proposed :

“2. Each party shall retain the assets in her/his own name. There shall be no financial or monetary claim whatsoever against each other; and

3. Each party shall maintain and support herself/himself. Neither will make any claim against the other for ancillary relief; such as periodical payments, secured periodical payments, lump sum   payment, or any other financial relief whatsoever.”

31.  On 4 October 2011, the Husband replied inter alia as follows :

“We have been further instructed that our respective clients are financially fit to support themselves and there is no claim for periodical maintenance or lump sum against each other. Presently, the only family asset capable for distribution is the matrimonial home known as xxxxxxxxx (the “Matrimonial Home”). Our client would like to retain the Matrimonial Home to accommodate the Children until they finish fulltime education. With respect of your client’s loan of HK$1.6 Million owed to our client, our client would like to know how your client intends to repay the said loan after the dissolution of the marriage. A copy of the loan   agreement dated 13^th December 2008 is enclosed herewith.”

(b) Letter dated 12/9/2012

32.  The Wife proposed, inter alia, as follows :

“5. The Petitioner and the Respondent, agreed not to seek any maintenance or ancillary relief against each other.

6. There shall be no distribution of family assets, if any.

7. All assets now held by or in the name of the Petitioner shall remain with the Petitioner who shall also withdraw and/or waive all her claims against the matrimonial home.

8. All assets now held by or in the name of the Respondent shall remain with the Respondent who shall also withdraw and/or waive all his claims against the Petitioner for the repayment of the alleged loan of HK$1,600,000.     

9.  There shall be no order as to costs.”

33.  In the 2^nd paragraph of this letter, the Wife said :

“Having received from your client’s latest costs estimate of over HK$486,144, the total costs so far incurred by the parties are over HK$800,000. Given the assets of the parties involved in this suit, we believe you would agree that the costs incurred are disproportionate to   the claims of the parties.”

(c) Letter dated 6/2/2013

34.  There was no reply to the 2^nd letter for 5 months until a reminder letter was sent by the Wife on 6 February 2013.  The following was said by the Wife :

“Solely for the purpose of avoiding spending substantial amount of costs and time, we believe that it is in the interest of our respective clients to engage in negotiation for settlement in the first place. Therefore, we strongly urge you to pass our previous letter of 12 September 2012 as well as this letter to your client and advise him of the costs implications balanced against what he can achieve at the end and to come up with a reasonable and rational proposal to resolve the present proceedings in an amicable manner. To this end, we are instructed that our client’s offer as stated in our previous letter dated 12 September 2012 will re-open for your client’s    considertation”

35.  On 8 February 2013, the Husband replied :

“Your client’s offers made in September 2012 is not acceptable to our client as they remain the same as those which she put forth in 2009 when the parties first separated. We are instructed that unless your client is prepared to change her stance, her current proposals seem to be unrealistic in encouraging our client to reach any possible settlement given that our client has already spent considerable legal costs up to date. We are instructed that unless your client is willing to make a constructive proposal as to hoe the repayment of the loan owed by her to ours is to be dealt with, our client is of the view that it would be a waste of time to make any attempt to reach a global settlement in the interest of    all parties.”

(d) Letter dated 7/12/2013

36.  The Wife wrote :

“Our client is deeply disappointed that the despite her repeated attempts and efforts of trying to reach an amicable settlement with our client during the past 15 months, that has been no progress in narrowing the gap between the parties. As your client should be well aware, any further proceeding in this suit will incur more time and costs which will in turn lower the family assets of the parties. This will certainly take away/diminish the funds available for the future use of the children, in particular their education expenses.

We have been instructed by our client to appeal to yours, this is in no one’s interest for this suit to be continued. The legal costs incurred by our respective clients have been significant. Just take the latest valuation of the companies of our respective clients as an example. The parties have spent a total sum of HK$180,000 for the valuation of our respective clients’ companies of which the profits before tax for even the “more profitable one (our client’s company) was less than HK$60,000. It is the belief of our client, as repeated by us on many occasions, that the parties should have saved all their time and legal costs for the use and benefits of the two children. They are still of very young age and money should be spent on their future education instead of the present litigation.

Our client understands that your client would NOT withdraw, even partly, his claim for the alleged “loan” of HK$1,600,000 against her, despite our client’s willingness to withdraw all her claims against yours. Against such position of your client, we were instructed to propose to your client before the 1^st Appointment Hearing outside the Court in October, 2013 that instead of spending further legal costs, the parties should consider using the same to set up an education fund for the two children with each party contributing HK$800,000 to such fund (“Last Proposal”). Unfortunately, this was rejected promptly by your client.”

37.  On 13 December 2013, the Husband replied :

“Your client’s proposed offer of setting up an education fund in favour of the children and asking our client to contribute HK$800,000 towards the fund is not acceptable to our client at all. Our client appreciates that the children’s future are important and he will continue to work hard to discharge his obligation as a caring and supportive father.

As you have repeatedly mentioned to us that your client is very adamant in spending her available resources to dispute over the loan, our client is doubtful whether your client is in fact sincere in wanting to reach an amicable settlement for the sale of preserving the family assets in the interests of the children.

However, if your client do change her mind and is prepared to settle the sum of HK$2,834,497.60 owed to our client, our client is more than happy to negotiate further on the terms of the repayment. Below is a table showing how the said sum was calculated on the loan agreement dated 13 December 2008 :-

[ Table of Calculation ]”

(e) Letter dated 5/11/2014

38.  The Wife wrote :

“We understand that the most disputed issue is your client’s claim against our client for the loan of HK$1.6 million allegedly due to him by ours. As you know, it has all along been our client’s stance that each party shall not pursue the claim for ancillary relief against each other including but not limited to the value of the three companies and the Court shall be invited to determine the issue regarding the alleged loan of $1.6 million only so as to save unnecessary costs.

Solely with a view to save the parties’ costs which would greatly deplete the value of their respective assets, we propose that the parties should consider withdrawing their respective claim for ancillary relief against each other including but not limited to the value of the three companies and the Court shall be asked to deal with issue of the alleged loan only.

39.  The Husband made no reply to this letter.

Husband’s explanation of his responses to the Calderbank Offers

40.  The Husband’s explanation of his responses to the Wife’s Calderbank Offers was contained in his 11^th Affirmation dated 1 September 2016.

41.  At the time of the letter dated 9/9/2011 (1^st Offer), the children issue was in serious dispute.  There had been no disclosure of assets of the parties at all.  It is premature to consider any settlement proposal on ancillary reliefs.

42.  At the time of the letter dated 12/9/2012 (2^nd Offer), the children issue had not yet been resolved.  There were several issues in the ancillary relief proceedings hotly disputed which precluded possibility of settlement.  This includes the 3^rd party’s, namely his mother’s interest, in the former matrimonial home and that he had undertaken to join his mother as an intervening party.  Nonetheless, he had narrated down the differences and issues by waiving his claim over the Wife’s landed property in Mainland China and, as a result thereof, the intervening party issue was also resolved.

43.  At that time, there was also an issue unresolved as to the Wife’s suspected non disclosure of her interest in a factory in Mainland China.  His questionnaire on such issue was faced with the Wife’s evasive answer which did nothing but to alleviate his suspicions.  Since discovery had yet to complete, he considered it premature to accept the Wife’s settlement proposals.

44.  At the time of the letter dated 6/2/2013 (3^rd Offer), the children and ancillary relief issues were still outstanding.  Discovery had not yet completed and both parties were still assessing the strength and credibility of each other’s cases.  Thus, he again considered premature to accept any settlement proposals.

45.  At the time of the letter dated 7/12/2013 (4^th Offer), the setting up of an education fund ran counter to the idea of a clean break which was desired by both of them.  He strongly believed such arrangement would only provide opportunity for troubles and arguments.  He considered not unreasonable to refuse such proposal.

46.  At the time of the letter dated 5/11/2014, some events had occurred which led him to consider Wife was being obstructive and deployed an unreasonable attitude in these proceedings. 

47.  I have been referred by Wife’s Counsel to paragraph 91 of the Judgment where I found that there are peculiar circumstances in this case.  Set out below are few of them relied upon by Wife’s Counsel :-

“(a) The marriage was for a short period of 3 years and 10 months only;

(b) Soon after the separation, the parties set up their own companies to engage in garment business akin to their matrimonial enterprise. Each of them had made their own living since then.

(c) The income and assets were earned and accumulated from their respective businesses for the past 6 years without any contribution from the other party. They were fully capable of looking after their own financial    needs of themselves and their children.” 

48.  From reading the contents of the letters exchanged between the parties’ lawyers; in particular, those of the Husband’s, I am not satisfied that the Husband ever had any slightest desire to avoid a trial, if not pushing for it.

49.  It can clearly be seen in the pre-action letter (1^st Offer), the Wife was conscientious about their respective assets being drained out unnecessarily through contentious litigation.  Given the peculiar circumstances of this case that children’s maintenance was never an issue between the parties, and that there had never been any claim by the custodian parent for periodical payments for the children, I agree with Wife’s Counsel that issues as to custody of children could be dealt with separately and would not hinder negotiations of the parties’ respective ancillary reliefs against each other.  Children custody and caring issues could, on the peculiar facts of this case that there is no claim for child’s finances against the non-custodian parents and both parents are fully financially capable and independent, be separately negotiated in parallel to parents’ finances if the Husband is really minded to do so. 

50.  Ever since the 1^st Offer was made in 2011 when the Wife was seeking for custody of the two children, there was no claim for financial support of the children from the Husband.  Such stance of the Wife continued throughout the entire period of negotiation since 2011 up until trial and even after such issue was later resolved by the parties’ consent on 2 April 2013.  It can easily be seen that the Husband’s reply to the 1^st Offer and all his subsequent replies just focused upon finance issues between himself and the Wife; in particular, the alleged loan of HK$1.6 million with no indication or suggestion whatsoever that settlement would be explored or negotiated after (my emphasis) the children custody and caring issues were resolved.  An indicia is that he just gave an outright refusal to the Wife’s proposal of setting up an educational fund of HK$1.6 million for the children without any reasons but only stating the obvious that he would continue to work hard to discharge his obligation as a caring and supportive father.  It is my firm belief that the Husband’s stance throughout was that settlement could only be explored after the alleged loan issue was admitted by the Wife.  It can easily be seen that he even ran out of patience and work out a table in his letter of reply on 13 December 2013 urging for repayment of the alleged loan together with interest adding up to HK$2,834,497.60 without any other options for settlement.  The words “owed to our client” appeared after the sum of HK$2,834,497.60 clearly show how assertive the Husband was at the time.  

51.  The Husband’s explanation at present for not exploring settlement because of children custody and caring issues was outstanding only appeared in his 11^th Affirmation but not in any of his letters of reply to the Calderbank Offers.

52.  In the case of EJB v. CJB [2011] 5 HKLRD 508 where Hon Hartmann JA (as he then was) said :

“As I understand it, the approach today is that, unless the parties are of the reasonable view that they do not have sufficient information available to them to enter into negotiations, they are under an obligation to explore settlement (my emphasis) and to do so in a constructive manner. Unless attempts are made to settle, potentially avoidable litigation becomes inevitable. In family litigation there are two almost inevitable results. First, ill will between the parties is heightened. If there are children of the marriage this can have profoundly deleterious consequences. Second, except in big money cases – and this was not a big money case – there will be a significant drain on the joint    matrimonial estate, both parties, directly or indirectly, being the losers.” 

53.  Given the peculiar circumstances as found by this Court (and undisputed by the parties) that both parties’ finances are independent, with income earned and assets accumulated separately and independently for some 6 years after separation, I believe there is no issue at any stage of theproceedings (my emphasis) as to whether they would have sufficient information available for them to enter into negotiations.  The Husband all along was legally represented would have been properly advised that assets acquired and liabilities incurred (if any) post-separation would fall outside the pool of family assets.  Having said, the proper question then to be asked is, whether the Husband would be prevented from exploring settlement because the alleged discovery or children custody and caring issues, which he now asserted as his explanation, not being completed or finalised ?  In my view, the answer must be “No”.  From a careful reading of the contents of the Husband’s letters of reply and considered objectively, I do not see he had ever explored or, to the very least, attempted to explore settlement without getting the Wife’s admission of the alleged loan of HK$1.60 million with interest.  At the end, the Husband completely lost on such issue.

54.  I find in favour of the Wife on Ground Two that the Calderbank Offers, which turn out matched with the “walk away” result in the Judgment but had not been accepted by the Husband, entitled the Wife to receive full costs of the ancillary reliefs. Since the Wife triggered the negotiation well before the filing of her Petition for divorce, I also find such costs to start from the commencement of the proceedings to the date of trial, subject to any finding of litigation conduct against the Wife for causing delay or increasing costs (see Z v. X & C, supra).  Although the Husband was entitled not to accept any of the Calderbank Offers by the Wife, the fact that can be clearly seen from the correspondence is that he had not made any genuine efforts to explore or attempted to explore settlement that was required of him (see EJB v. CJB, supra). 

Ground Three – The Wife’s litigation conduct

55.  Now I will deal with the alleged litigation conduct against the Wife, which was raised by the Husband that the Court should deprive the Wife for part of the costs.  

56.  The Husband’s contentions are categorised in paragraph 51 of his Counsel’s written submissions as :-

(a) Refusal to cooperate with the Single Joint Expert (“SJE”);

(b) Abandoned Challenges of the Report and the SJE;

(c) Over-zealous Pursuit of AMG’s Documents.  

57.  There was disagreement of the Wife as to the methodology adopted by the SJE for the valuation of the companies.  The Wife had also been unable to provide business forecast of her company to the SJE due to the small scale of her business.  However, in the absence of oral testimony from the SJE, it is not at all possible to make any finding that the Wife had been so determinative and uncooperative that it could be said to amount to litigation conduct.

58.  On 23 October 2014, the Wife issued a Summons for leave to obtain another valuation report notwithstanding that the SJE had already provided his Report.  The Husband now submitted that this was an attempt to challenge the SJE Report.  Such Summons was later abandoned for not being able to list it for a substantive hearing before the trial started.  The Wife’s another Summons for adjourning the trial was also dismissed by the Court but without any mention of the costs of the 23 October 2014 Summons.  

59.  In my view, there is no concession by the Wife that the 23 October 2014 Summons was abandoned because it was wrongly issued. The reason for abandonment was correctly stated by the Husband.  Having said, before the Summons was fully argued in Court, it is premature for the Husband to say such Summons was issued to stir things up or cause delay and increase costs.  There is always the possibility that another valuation report might be needed after the Summons was fully argued.  Moreover, to accept the evidence of the SJE without cross examining him or insisting to challenge the SJE Report would have served the purpose of savings time and costs.  The Wife should not be criticised for or penalised on costs for agreeing to the SJE’s evidence and Report even though this only came in at the later stage of the trial or could the Court then make any adverse inference that there was litigation conduct on the part of the Wife and to deprive part of her costs.

60.  The Wife was said to be oppressive in seeking voluminous amount of documents of AMG since 2009 who also sought a kind of ‘special audit’ upon the information produced by the Husband. The Husband believes she had tried to engage in an extensive fishing expedition regarding AMG’s documents.  In my view, in the absence of any finding that the Wife’s conduct being unwarranted or manifested with any ulterior motive, it is wrong to accept Husband’s perception and then to find there was litigation conduct on the part of the Wife and to deprive part of her costs.

61.  Given all the above, I find the Husband’s contention as to the Wife’s litigation conduct for depriving part of the costs not substantiated.

Other Observation

62.  I wish to add that with each of those “WithoutPrejudice Save as to Costs” letters between the parties now being revealed to this Court, I am minded to say that the position is quite to the contrary to what the Husband had said.  I believe there exists litigation conduct on the part of the Husband rather than of the Wife which had taken the entire ancillary reliefs to nowhere except a full blown trial.  As a losing party at the end, the Husband who had been legally advised throughout should only have himself to blame and should bear the costs consequences thereof.

63.  For all the above reasons, I now come to the conclusion that the Wife should receive the costs of the ancillary reliefs to start from commencement of these proceedings, including all costs reserved, to be taxed if not agreed.

64.  Given such a conclusion, I also decided that the Wife should have the costs of this application for review of the Costs Order Nisi, also to be taxed if not agreed, with Certificate for Counsel.

65.  The Costs Order Nisi dated 30 July 2016 is varied accordingly.

Certificate for Two Counsel

66.  Order 62/App/48 of the Hong Kong Civil Procedure 2016 sets out the different factors for the Court to consider whether to grant Certificate for two Counsel.

67.  Given further and detailed consideration to the entire case and the Wife’s submissions, I do not find there are sufficient grounds to justify the assistance of 2 Counsel.  

68.  Thus, I do not grant Certificate for Two Counsel for the ancillary reliefs trial.

FCMC 17011 / 2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 17011 OF 2011

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J U D G M E N T
(Ancillary Reliefs)

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Introduction

1.  The Petitioner is the Wife (“Wife”) and the Respondent is the Husband (“Husband”).

2.  This is the ancillary reliefs trial of the parties where, apart from the parties themselves, there are other persons whose evidence are of relevance and importance to the Court for resolving a number of factual issues in dispute but are however not forthcoming. Throughout the 5-day trial only the parties themselves testified and subject to cross examination.  There is also a single joint expert Mr. Frank Yuen who prepared a valuation report on the net worth of the company “SGFL” owned by the Husband (20%) and his elder sister (80%), a factory in Dongguan PRC and the company “M&M” owned by the Wife solely. 

3.  I will be using the following abbreviations for those persons and companies which I will come across in this Judgment :-

(a)  “JW” – the sister of the Petitioner Wife;

(b) “CC” – the sister of the Respondent Husband;

(c) “AM” – the company accountant of the company AMG;

(d)“AMG” – the company owned by the Husband and the Wife during their marriage;

(e) “SGFL” – the company incorporated by the Husband and CC in 18 May 2009;

(f) “M&M” – the company incorporated by the Wife alone in 22 June 2009;

(g)“DG Factory” – the factory in Mainland China receiving orders from the Husband’s company SGFL;

(h)“MH Factory” – the factory owned by the younger brother of the Wife in Mainland China.

Background

4.  The parties were married in July 2005 in Hong Kong.  There are two children born out of the marriage, a girl who was at the age of 8 and a boy who was at the age of 7 at the time of this trial.  Divorce proceedings were commenced by the Wife relying upon the fact of “Two Years Separation” in December 2011.

5.  Decree Nisi was granted on 25 January 2013. 

6.  By an Order dated 2 April 2013 which was granted by consent of the parties, the custody, care and control of the girl was granted to the Wife and that of the boy was granted to the Husband.  There are comprehensive provisions for access including staying access and long school holiday access over the two children incorporated in the terms of the custody order.  Parties are also able to resolve finances over the children of the family by way of undertakings E, F, G and H embodied in the said Order.  Section 18 Declaration was accordingly granted by the Court leaving behind the parties’ respective ancillary reliefs against each other to be resolved.

7.  At one stage there was a dispute over the beneficial interests of the matrimonial home whereby the Husband’s mother intervened.  Such issue was also resolved prior to this ancillary reliefs trial.

8.  On 26 June 2013 the Decree Nisi was made absolute by the Court.  The Certificate of making the Decree Nisi absolute was dated 27 June 2013.

9.  At the time of this trial, the Husband was aged 50 and the Wife was aged 40.    

The Joint List of Issues

10.  On 5 June 2014, this Court directed parties to submit their respective lists of issues in the case.  The Husband filed his list on 8 August 2014.  The Wife filed her list on 12 August 2014.

11.  On the first day of trial on 22 April 2015, the parties through their respective lawyers are able to come down to a Joint List of Issues as follows :-

“(1) The HK$1.6 million allegedly owed by the Petitioner to the Respondent pursuant to an alleged loan agreement dated 13 December 2008 (which is disputed)(§ §3 to 8 of Petitioner’s List and §1 of the Respondent’s List)[A4/852-854; A4/850-851];

(2) The conduct of the Respondent in relation to AMG Garment Factory Limited (“AMG”) (which was owned by the Petitioner and Respondent jointly);

(a) The misappropriation of assets from AMG to SGFL (“SGFL”) held by the Respondent and his sister, jointly;

(b) Alternatively, the refusal to account for the sum of HK$367,103.20 out of account receivables of AMG;

(§ §1 and 2 of the Petitioner’s List)

 (3)  Whether the parties’ ongoing businesses, namely, SGFL and M&M (owned by the Petitioner) are family assets, and if so, the valuation of the same (§2 and §3 of the Respondent’s List).

 (4)  Whether there had been non-disclosure of business interests by W, and the effect, if any, thereof.

 (5)  The effect, if any, of W’s taking away of items allegedly gifted to her and the children by her parents.

 (6)  Whether the alleged liability of W for legal fees should be taken into account in assessing the value of the matrimonial pot.”

The Wife’s Open Proposals

12.  The Wife’s Open Proposals dated 9 April 2015 are as follows :-

“UPON the Petitioner’s undertaking to be responsible for the maintenance of the child of the family, namely, CV until she attains the age of 18 years or completes full-time education, whichever is later;

UPON the Respondent’s undertaking to be responsible for the maintenance of the child of the family, namely, CK until he attains the age of 18 years or completes full-time education, whichever is later;

1. The Respondent’s claim for the loan of HK$1.6 million allegedly owed and payable by the Petitioner to him be dismissed;

2. The costs of and incidental to the Respondent’s claim for the loan of HK$1.6 million be to the Petitioner to be taxed, if not agreed;

3. There be no Order made as to the division of the assets of the parties;

4. The Respondent do pay nominal maintenance of HK$1.00 per annum to the Petitioner;

5. Subject to paragraph 2 above, there be no Order as to costs relating to the application for ancillary relief.”

The Husband’s Statement in Answer

13.  The Husband provided his Statement in Answer on 16 April 2015 to the Wife’s Open Proposals.

14.  In essence, the Husband is seeking the alleged indebtedness of HK$1.6 million acknowledged and signed by the Wife as per a Loan Agreement dated 13/12/2008 to be repaid after equalisation of the family assets. 

15.  For the assessment process of the family assets, the Husband submitted that before taking into account the Wife’s non-disclosure of her business interests and the loan of HK$1.6 million, her total net assets worth would be HK$2,205,403.52. His total net assets would be HK$681,155.92 plus RMB 32,788.24 (x 1.18 exchange rate = HK$38,690.13) minus HK$100,000 worth of personal items taken away by the Wife, thus making his total assets to be HK$619,846.05.

16.  The Wife’s non-disclosure of assets include her Bank of China (China) account with balance of RMB 76,743.19 (x 1.18 exchange rate = HK$90,556.96) as at 29 April 2009 and also the value of her pensions of HK$88,705.32, both of which should be taken into account of in the computation exercise before equalisation.

17.  Further, there has to be adjustment to the Wife’s assets and liabilities in her latest Form E by :-

(a)  The sum of HK$600,000 claimed by her as liabilities for legal costs to be removed as anticipated liability for costs yet to be incurred, thus, the Wife’s assets should then be increased by such sum of HK$600,000;

(b)The value of M&M assessed by the single joint expert to be adopted thus increasing the Wife’s assets by HK$1,130,374;

(c)  The personal items of the Husband worth HK$100,000 which was taken away by the Wife should be added back to her assets worth (and removed from the Husband’s assets worth).

18.  As for the loan of HK$1.6 million, it should be taken out of the Husband’s assets and to be repaid by the Wife out of her share after equalisation of the family assets.

19.  The Husband is also seeking costs of these proceedings against the Wife.

The Law on Ancillary Relief

20.  Both parties are represented by experienced Counsel and there is not much dispute as to the law on ancillary reliefs in family cases.  Rather the dispute relate to factual issues.  For the sake of completeness, I only set forth very briefly the statutory provisions on matrimonial finances.

21.  The jurisdiction of the Court in granting financial reliefs for a party is governed by section 4 of the Matrimonial Proceedings and Property Ordinance, Cap 192(“MPPO”) which provides:

“4. Financial provision for party to a marriage in cases of divorce, etc.

(1) On granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation or at any time thereafter (whether, in the case of a decree of divorce or of nullity of marriage, before or after the decree is made absolute), the court may, subject to the provisions of section 25(1), make any one or more of the following orders, that is to say-

(a) an order that either party to the marriage shall make to the other such periodical payments and for  such term as may be specified in the order;

(b)  an order that either party to the marriage shall secure to the other to the satisfaction of the court, such  periodical payments and for such term as may be so specified; (c) an order that either party to the marriage shall pay to the other such lump sum or sums as may be so specified.

(2) Without prejudice to the generality of subsection (1)(c), an order under this section that a party to a marriage shall pay a lump sum to the other party- (a) may be made for the purpose of enabling that other party to  meet any liabilities or expenses reasonably incurred by him or her in maintaining himself or herself or any child of the family before making an application for an order under this section;(b) may provide for the payment of that sum by instalments of such amount as may be specified in the order and may require the payment of the instalments to be secured to the satisfaction of the court.“

22.  The governing principles in relation to the distribution of the family assets in dissolution of marriage are set out in section 7 of the Matrimonial Proceedings and Property Ordinance, Cap. 192, (“section 7 factors”) which states as follows:

(1) It shall be the duty of the court in deciding whether to exercise its powers under section 4, 6 or 6A in relation to a party to the marriage and, if so, in what manner, to have regard to the conduct of the parties and all the circumstances of the case including the following matters, that is to say-

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c) the standard of living enjoyed by the family before the breakdown of the marriage;

(d) the age of each party to the marriage and the duration of the marriage;

(e) any physical or mental disability of either of the parties to the marriage;

(f) the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(g) in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

23.  In the leading case of LKW v DD[1] the Court of Final Appeal sets out 4 principles as to how section 7 shall be approached, which are stated as follows:

a.   The first is that the implicit objective of a section 7 exercise is to arrive at a distribution of assets which is fair as between the parties[2];

b.   The second is that the concept of fairness requires the refutation of any gender or role discrimination[3];

c.   The third principle is that, with a view to eliminating insidious discrimination and promoting fairness, judges should check their tentative views on distribution against a “yardstick of equal division” which should be departed from only for good, articulated reasons[4];

d.   The fourth principle is that the court should not countenance any attempt to engage in costly and often futile retrospective investigations of the failed marriage which tend to deplete the parties’ (and the courts’) resources and to increase antagonism and discourage settlement[5]. 

24.  The Court of Final Appeal went further to lay down 5 steps as to how the Court should do when exercising section 7 as follows:

a.   The first step in the exercise is to ascertain the financial resources of each of the parties calculated as at the date of the hearing[6];

b.   The next step is for the court to assess the parties’ financial needs[7];

c.   If surplus assets would remain after the parties’ needs have been catered for, the next step in the exercise should generally be for the court to apply the sharing principle to the parties’ total assets, leaving the “needs” question previously considered to be dealt with under that principle[8];

d.   The fourth step therefore involves considering whether good reasons exist for departing from the principle of equal division[9];

e.   When deciding the outcome, the court is not bound to depart from equality in the division of the parties’ assets even if one or more of the factors considered are engaged on the facts.  The weight to be given to such considerations is a matter of discretion for the court[10]

The Court’s Views and Findings on the Joint Issues

The written “Loan Agreement” dated 13 December 2008

25.  There has been heated dispute between the parties, both on the legal aspect and the factual matrix, as to this hand-written so-called “Loan Agreement” of HK$1.6 million with interest at the rate of 10% per annum calculated 1 year retrospectively from the date of the Loan Agreement.  Undisputedly this document was hand-written by the Husband and signed by the Wife on the date of the document, that is, 13/12/2008.

26.  The Husband in his oral testimonies and Affirmation gave an account on the background as to why he found it necessary to draw up this LoanAgreement for the Wife to sign and acknowledge a sum of HK$1.6 million.  It is the Husband’s case that the Wife had withdrawn monies between 2007 and 2008 from the parties’ jointly owned company AMG (which was the matrimonial enterprise) and giving out to her maiden family, that is, the Wife’s mother and her sister JW.  The Wife’s maiden family including her mother and sister JW are business persons all along engaged in the garment industry in Mainland China.  The Husband maintained that at all times those monies were loans made by AMG to the Wife’s maiden family which need to be repaid.  There is no issue that when those monies were remitted to the Wife’s maiden family, no schedule of repayment or interest had ever been discussed at any time whether between the Husband and the Wife or her maiden family.

27.  It is the Husband’s case that the Wife, by signing the Loan Agreement, had acknowledged and agreed to bear 50% of the loans made to her maiden family in 2007 and 2008 which were owed to AMG.  The amount of HK$1.6 million under the Loan Agreement represented the Husband’s 50% share and interest in AMG thus the total indebtedness owed to AMG was in the region of around HK$3.2 million.  It is also the Husband’s case that when he produced to the Wife the Loan Agreement, he also produced to her a spreadsheet prepared by AMG’s accountant AM.  Before signing the Loan Agreement, the Wife had made a telephone call to AM to check and verify the total amount of monies that had been withdrawn and given to her maiden family.  After making the enquiry, the Wife signed the Loan Agreement.  There is no issue that the monies allegedly forming the loans were withdrawn and remitted either by the Husband himself or the accountant AM but had never been withdrawn by the Wife.

28.  To support the Husband’s case that loans had been made to the Wife’s maiden family which was eventually acknowledged and agreed to by the Wife as per the Loan Agreement, reference was made by the Husband to the entries in a spreadsheet prepared by AM with the date 23/12/2008 (hereinafter referred to as “AM’s Spreadsheet”) (A:13A).  The Husband agreed that this AM Spreadsheet was not the exact one that he produced to the Wife 10 days earlier when he presented the Wife with the LoanAgreement because he had not kept a copy of it.  This AM Spreadsheet was also prepared by AM based on the earlier one.  This AM Spreadsheet was constructed in a way where different descriptions in Chinese characters were used by AM.  On the left hand side of the AM’s Spreadsheet it was marked at the top “福建對帳單”.  On the right hand side it was marked at the top “香港加工費” 、“香港工資” and “代墊香港款”.  At the right hand bottom it was marked “備注 : 07年08年福建欠x 2539594”  At the left hand bottom it was marked “備注 : 07年阿君欠x 款641325.5”  There is also the date in Chinese at the bottom right hand corner : “制表日期 : 2008年/12月/23日”. 

29.  The Husband submitted that the figure of 2539594 represented the loan amount which was due and outstanding from the Wife’s mother and the figure of 641325.5 represented the loan amount which was due and outstanding from the Wife’s sister JW.  Without the oral evidence of AM, he was in no position to confirm the reason why AM described these 2 sums as money owed to “x” and not directly saying those were monies owed to AMG.  He confirmed “x” is him.  The summation of these 2 figures is close to 3.2 million.  

30.  Under the column “福建對帳單” in the AM’s Spreadsheet, it contained the description “阿x 滙款福建” which the Husband conceded at cross examination that the “阿x” was him and that he himself had made those withdrawals from AMG’s accounts and those remittances.  For other remittances under “美金” or “港幣”, it was him also who made the withdrawals and remittances.  The Husband also agreed that the Wife had never made any of the withdrawals and remittances recorded in the AM’s Spreadsheet.

31.  The Husband agreed those entries at the right hand side of the AM’s Spreadsheet were remittance made by AM where he would either be consulted by AM beforehand or informed by AM immediately after each remittance was made. 

32.  The Husband in his evidence in Court sought to explain that all the remittances made by him or AM were arranged reluctantly.  Every time before making a remittance, there would be heated argument with the Wife.  He would, however, eventually yield up each time and make or approve the remittance as he had “no choice” but to do it in order to avoid argument with the Wife.   

33.  Since it is the Husband who intends to rely on the LoanAgreement to substantiate his case that the Wife’s maiden family owed monies to AMG in respect of which, and for all purposes of the present ancillary reliefs trial, has either to be accounted for out of the Wife’s share after equalisation of the family assets or, as a factor to be considered by the Court for departure from equal division of the family assets, it is for the Husband first of all to substantiate by way of evidence the existence of such loans which formed part of the family assets. 

34.  Oddly enough, the key witness AM, who had made a statement earlier on 28/5/2013 and arranged by the Wife to testify at the trial, all of a sudden at the eve of the trial decided not to attend this trial to give testimony.  AM sent a letter dated 21 April 2015 (which is the day before the 1^st day of trial) (Exhibit P-1) by fax to the Wife’s company M&M where she said as follows :

“M& M :

你好 !

我今天下午接到歐xx電話, 他說Cxx先生前幾天打電話給他, 問到 我是不是要出庭作証. 歐xx先生說 “沒有, 她回老家去了.” Cxx先 生說 “知道阿 AM 回鄉下辦証, 到時來香港作証.” 然後他還說 “香港法律很嚴, 出庭作証說話要小心，不能說謊話, 不然會觸犯到 香港刑法, 警察是會抓人的, 而且香港的律師也不是吃閑飯的.

W小姐, 對不起, 接電話后, 我非常緊張和焦慮. 雖然我從來未講過 假話, 但是我還是担心. 現在我決定不去香港作証了. 這是你夫婦 倆的事, 與我無關. 我不想介入其中. 非常對不起, 我不去香港作証 了.

         AM”

35.  The Husband admitted in cross examination that he had the telephone conversation with the person Mr. Au whom AM referred to in her letter faxed to the Wife.  The Husband sought to explain that the telephone call was made merely for a casual conversation.  Given careful consideration to the contents of AM’s letter and the Husband’s explanation provided for making the telephone call to Mr. Au against the surrounding circumstances, I find the Husband’s explanation for making such call to Mr. Au untenable if not a lie. 

36.  First, I do not believe this is any kind of coincidence of a casual conversation between the Husband and Mr. Au during which AM and her intention to testify in Hong Kong was mentioned.  In the letter, AM said on the day of the letter, she used the term “今天”, that is 21/4/2015 (which is just one day before trial), she received the telephone call from Mr. Au who told her that he had received the Husband’s telephone call a few days ago (“我今天下午接到歐xx電話, 他說Cxx先生前幾天打電話給他”).  Mr. Au said the Husband called in and at first asked him whether AM had gone to Hong Kong to give evidence.  After Mr. Au gave an answer that AM had returned to her home town but without further saying why AM had to return, the Husband then said to Mr. Au that he knew AM was going to get permit for coming to Hong Kong to give evidence.  The flow and context of the dialogue is supportive of my belief that the Husband did it for a purpose.

37.  At the moment when Mr. Au said AM had returned to home town without saying further the reason for the return, the Husband at once took up the chance to open the dialogue of the importance of giving truthful testimonies in Hong Kong and the severe consequences of telling lies.  Mr. Au is the friend of the Husband and worked in the DG Factory receiving orders from the Husband’s SGFL for manufacturing garment products.  I believe, had the Husband wanted to, he could easily arrange Mr. Au to testify at the latter part of the trial when he came to know AM’s letter was before the Court on the 1^st day of trial.  Why the Husband, with the benefit of legal advice, did not arrange Mr. Au to come along to give evidence to confirm whether he had said to AM those contents which AM now stated in her letter so as to verify whether AM was telling the truth ?  It is odd to see that the Husband not being bothered to bring in Mr. Au to confirm his conversation with AM before he himself sought to explain the purpose of his calling Mr. Au.  As a matter of common humanities, had the Husband called Mr. Au not for a specific purpose, he would be greatly surprised by the contents of AM’s letter and would, for the sake of clarification and as a common course of action, arrange Mr. Au to come along and explain the situation rather than he himself explaining his reason for calling Mr. Au was for casual conversation.  This is somewhat akin to the situation where we have the Chinese colloquial saying “此地無銀三佰兩”.  Although there is no such evidence, it could always happen that the Husband did arrange Mr. Au to come along but Mr. Au himself was also too worried by what the Husband had said.  In any event, the Husband had not done so.

38.  As I see it, there are no compelling reasons for the Husband to have to “remind” the Wife’s key witness AM, indirectly through the words of Mr. Au, of the need for her to tell the truth in her testimony in Hong Kong, or alternatively, the consequences for not telling the truth.  I agree with Counsel Mr. Lam for the Wife that the Husband’s motives were clear beyond any pre-adventure.  With respect, I am not convinced by Counsel Mr. Man for the Husband that this should not be taken as any kind of objectionable conduct or unjustified interference since the Husband was merely persuading (my emphasis) a witness to tell the truth. But the real question is : “Does he really have to do such persuasion ?”

39.  I have reminded myself that the contents of AM’s letter are hearsay by nature, however, since it comes from a ‘withdrawing’ witness with reasons for backing out at the eve of the trial, I believe this is something which the trial Court is entitled to consider.  As said, there is no evidence from Mr. Au to tell the Court at least whether AM was telling the truth in her letter.  Given careful consideration, I find it more probable than not that AM was being put off from testifying in these proceedings.  This is also the reasons given by AM in the letter.

40.  In the absence of AM testifying in Court and subject to cross examination, I decided that no weight should be attached to the contents of her Witness Statement dated 28/5/2013 (C:120 to 122).  I do not venture nor am I obliged to go into the contents of AM’s Witness Statement and make findings of fact therein one way or the other based upon the parties’ submissions through their respective lawyers without being able to assess the witness’s credentials through cross examination.  Without any weight being attached to such Written Statement, there is no basis either for this Court to draw any inference there from for determining the parties’ case.

41.  Likewise, I decided that no weight should be attached to the contents of the AM’s Spreadsheet without AM’s testimonies in Court.  Nonetheless, I was referred by the Counsel for the Husband to other documents including an email from one Mr. F Leung to AM dated 23/12/2008 allegedly was received in response to AM’s requests for information to prepare the AM’s Spreadsheet.  Such reference was to confirm the accuracy of the AM’s Spreadsheet dated 23/12/2008 which is 10 days after the Wife had seen an earlier spreadsheet and then signed the LoanAgreement on 13/12/2008.  Since this Mr. F Leung had not been arranged to testify in Court, I am not prepared to take the contents of such email in isolation at its face value and make findings of fact to accept the Husband’s explanation as to how the AM’s Spreadsheet come in existence.  In particular, as rightly pointed out by Counsel Mr. Lam for the Wife, the Husband had not deposed anywhere in his Affirmation that there exists an earlier spreadsheet of which he had not kept a copy but only came up with such evidence when he was being cross examined in Court.

42.  Given the importance of those entries in the AM’s Spreadsheet in so far as the Husband’s case of proving various loans allegedly having been made by AMG to the Wife’s maiden family in 2007 and 2008 and was so recorded by AM, it is wrong for this Court to simply take and rely upon the Husband’s own testimonies or his interpretation of the AM’s Spreadsheet, both of which are essentially self-serving, to bethe truth without the benefit of hearing any of the evidence of the author, namely, AM whom I have found to have been put off to give evidence in this trial.  What then follows next is whether the Husband is able to produce other evidence, documentary or otherwise, which might be supportive or would corroborate his own testimonies so much so that his case of there being loans made by AMG to the Wife’s maiden family could be proved to the requisite standard of balance of probabilities. 

43.  As rightly pointed out by Counsel Mr. Lam for the Wife, the alleged indebtedness or underlying loans so to speak is unsustainable by other evidence.  First, the balance sheets and audited accounts of AMG for 2007 and 2008 did not support the situation that AMG was financially capable for advancing a loan of HK$3.2 million or AMG ever had business profits enough for making such loan of HK$3.2 million.  Further, in countenance to the submission by Counsel Mr. Man that the loan could have been made from AMG’s working cash flow rather than from AMG’s business profits, Mr. Lam correctly pointed out that if that was the case (which the Wife denies), there ought to be an inevitable deficiency somewhere and somehow reflected in AMG’s balance sheets and audited accounts.  The income statement of AMG since its incorporation up to 31/12/2007 recorded only a net profit of HK$368,241; and a net profit of HK$83,930 for the year ended 31/12/2008. 

44.  The Husband had fairly conceded that he was cognisant of his director’s duties.  When signing AMG’s audited accounts and the balance sheets for those 2 years of 2007 and 2008, he had accepted the company’s financial statements are true and accurate.  The Husband, however, had chosen not to arrange AMG auditors Messrs. Henry Law & Co., to explain why the underlying loans allegedly due and owing to AMG was nowhere reflected in those financial statements or audited accounts sent to his approval as one of AMG’s director. 

45.  Moreover, the Husband under cross examination conceded that he had never asked or even attempted to ask the Wife’s maiden family to repay the monies remitted throughout the years.  He also conceded that he would have the chance to do so had he wanted to since he had assisted in collecting receivables for the Wife’s mother from their overseas clients and then sending over to her in Mainland China.  One would then ask the simple question : “Why he did not do so ?”

46.  The reason purportedly given by the Husband was that he had treated the loans to be responsible by the one who had asked for it, namely, the Wife.  In my decision, such reason is not tenable at all.  The Husband is an educated and sophisticated person, having a Degree in Mathematics for Commerce at a reputable Canadian University along with years of experience in the business field, it is difficult to believe that he does not understand what a company’s loan is, no matter the loans were made to directors or third parties.  The fact that personal drawings of expenses of himself and the Wife from AMG’s accounts and recorded as ‘Director’s withdrawals’ in the general ledgers or books and accounts would not, and as a matter of fact should not, intermingled with those records in the company’s books and accounts for withdrawals made by directors for making loans to third parties.  In my decision, the Husband could not now (my emphasis) make use of the AM’s Spreadsheet and sought to interpret and explain the records therein by his own testimonies to supplement, if not replacing, what should have been recorded in AMG’s financial statements and audited accounts in order to prove his own case of there existed repayable loans made to the Wife’s maiden family which remain outstanding and unpaid. 

47.  Going into the depth of those ledgers of AMG and dig into hundreds of entries of transactions could not help the Husband’s case either as to the alleged indebtedness or underlying loans.  Counsel Mr. Lam in his written Closing Submissions referred to the Husband having selected some 93 entries amongst the 379 remittances or withdrawals recorded in the 2008 ledgers under Directors’ C/A and then cross referenced to AM’s Spreadsheet to support his case of the underlying loans allegedly made to the Wife’s maiden family.  The Husband also referred to 3 telegraphic transfers made on 15/3/2008, 28/3/2008 and 3/4/2008.

48.  I agree with Counsel Mr. Lam that those entries referred to by the Husband in the ledgers by themselves do not spell out the purpose of the remittances.  Some of the entries there show that funds had been remitted to the Wife’s mother which the Husband also conceded were receivables from overseas clients which he had assisted in the collection process.  The Husband sought to explain that for this kind of receivables, it could easily be seen and distinguished because there was an “established pattern” that the same amount would be remitted out within a very short time and usually within the same day after it was received.  For other remittances which did not fall within such “established pattern”, they were not receivables collected on behalf of the Wife’s mother and were ‘loans’.  In my view, any such “established pattern” or “non established pattern” of remittances would still require to be proved by cogent evidence as to their nature and purpose.  The Court would not be satisfied with the Husband’s own interpretation of the ledgers in a way which suits his own case or by any mix and match or singling out of figures on papers and then to find that those “non established pattern” of remittances were loans made by AMG.  For this reason, I find those entries in the ledgers referred to by the Husband bear very little or no evidential value in proving the Husband’s case of the alleged underlying loans.  

49.  Moreover, I noted that these divorce proceedings were commenced on 5 December 2011.  The Husband through his then lawyers Messrs. Li, Wong, Lam & W.I. Cheung filed his acknowledgment of service (Form 4) on 22 December 2011 with intention to contest custody and ancillary reliefs.  At that point in time, I believe the Husband would have the benefit of legal advice on the Loan Agreement and the alleged underlying loans.  In 2011, the time for bringing legal proceedings for recovery had not been statute barred.  Had the Husband’s case been that he had all along been reluctant to make those withdrawals and loans during the subsistence of the marriage but had done so in order to maintain the relationship with the Wife or her maiden family, there is simply no reason why he did not seek recovery of those so called ‘reluctantly made’ loans of HK$3.2 million when he was served with a divorce petition by the Wife to terminate the marriage.  Moreover, it is also out of logic and any dimension that he would rather obtain loans from banks and his family members to assist AMG’s finances whilst there was a loan of some HK$3.2 million due and owing to AMG which remain unpaid of which no repayment had ever been asked by him.  Why there was not a single letter of demand or any legal proceedings taken or contemplated by AMG or him as a Director of AMG for recovery of the alleged loan of HK$3.2 million ?  The absence of any step by the Husband to recover or attempt to recover the underlying loans, in my view, implicated either that there was insufficient evidence to substantiate the existence of a loan of HK$3.2 million so alleged or simply that there was no such loan at all.  

50.  For all the above reasons, I find the Husband completely fails in proving his case to the requisite standard of balance of probabilities that there was an unpaid loan of HK$3.2 million owed to AMG by the Wife’s maiden family.  Needless to say, this follows that his case of the 50% (that is, HK$1.6 million) indebtedness based upon the alleged loan of HK$3.2 million acknowledged by the Wife as per the Loan Agreement falls miles apart, let alone the legal aspect of the contention over the Loan Agreement as to total failure of consideration; statute barred for bringing proceedings or the Wife’s signing of it under any threat or duress.

The conduct of the Husband

51.  It is common ground that the Husband and his sister CC set up SGFL in May 2009 and took over the account receivables of AMG.  A month later in June 2009 the Wife set up M&M as a sole directorship business also in the garment industry.

52.  The conduct complained of consists of the Husband’s arranging the biggest client of AMG to pay receivables of AMG to his newly formed company SGFL in the sum of some HK$2.3 million.  Such diversion of AMG receivables amount to a breach of fiduciary duty as one of the 2 directors of AMG of which conduct this Court should take note of insofar as it relates to the Husband’s conduct to the Wife and their marriage.  This also hinges upon the Court’s exercise of discretion when it comes to consider those factors under Section 7 of the Matrimonial Proceedings and Property Ordinance, Cap.192. 

53.  The Husband’s sought to justify such conduct of diversion by saying that if such receivables were paid into AMG’s account, it would be frozen in AMG’s account forever due to the Wife’s instructions to the bank not to permit further withdrawals.  Moreover, there was the risk of the Wife unilaterally withdrawing the moneys.  He also came up with the justification that it was to offset the loans made by him and his sister CC in May 2009 to AMG. 

54.  Since the Husband conceded in cross examination that withdrawal from AMG’s account could still be arranged with the authorisation of both his and the Wife’s signatories, it is incorrect to say the money would be frozen forever simply because he himself could not withdraw moneys freely and unilaterally in the same way as he could previously. I find such explanation untenable.

55.  On the undisputed evidence or rather it was the Husband’s own evidence that the Petitioner had never withdrawn any moneys from AMG’s accounts for making those alleged underlying loans to her maiden family in the past save and except once for HK$110,000 which, according to the Wife’s case, was for her 4 months’ director’s remuneration. This withdrawal only occurred in July 2009 after she discovered the Husband had diverted AMG’s receivables payable by AMG’s client to his newly formed company SGFL.

56.  Given careful consideration and on balance of probabilities, I find the Husband’s explanation that there was the risk that the Wife would withdraw whatever receivables paid into AMG’s account is also untenable if not an excuse.

57.  As to the explanation of ‘offsetting AMG’s loans” due to him and his sister CC through the company SGFL, the Husband would have to first establish his case of there were loans due to him and his sister from AMG. The Husband referred to a total sum of CAD170,000 (approximately HK$1 million) through telegraphic transfer made by his sister CC to his personal account between November 2008 and February 2009.  There is, however, no evidence directly from the sister CC as to the reason and purpose for her to make those transfers.  The Husband’s explanation that he felt guilty towards his sister CC because his divorce had caused CC not be able to return to Canada with her son and that his siblings relationship with CC had deteriorated, in my view, could not be accepted as a valid reason for not arranging CC to testify or to the very least swear an affidavit; in particular, she ought to explain whether she knew the transfers she made to her brother’s (that is, the Husband’s) personal bank account would be used as “loans” to AMG ?  She should also confirm the reason for not transferring to AMG’s account if that was intended to be “loans” to AMG and not any kind of personal loans to her brother (that is, the Husband) ?  Did she ever know how her monies transferred would be used by her brother (that is, the Husband) ? 

58.  In the absence of CC’s evidence or any other corroborative evidence, I find the Husband could not simply rely upon his own words to justify the act of conduct of diversion of AMG receivables by now claiming that it was for repaying “loans” due from AMG.  The mere fact that moneys to some HK$220,000 paid by the Husband out of the funds he received from CC as set out in the Cash Flow Analysis Chart is neither here nor there.  For the same reason, it could not be taken as supportive evidence that the CAD170,000 (or equivalent of HK$1 million or so) was “loans” made out to AMG.  It could always happen that those are personal loans made out to the Husband by his sister CC rather than “loans” made out to AMG.  It is always for the Husband to prove his own assertion.  To the very least, CC’s evidence as to whether there are any terms of agreement or arrangement with the Husband before making those transfers would have to be put before the Court to consider the Husband’s case.  The Husband’s other allegation that he had withdrawn further sums of HK$485,500 and CAD54,988.58 and converted part of it to RMB for paying AMG’s account payables and employees’ salaries in Mainland China could hardly be accepted as evidence of loans made to AMG.  There was no record either in AMG’s books and accounts of such payables being made out from loans obtained by AMG.  I find the Husband unable to prove, on balance of probabilities, that the transfers of CAD170,000 by CC to his personal bank account was “loans” made out to AMG. 

59.  For the fact that the Court does not accept the Husband’s case that there were loans made to AMG by CC and any of his explanation as to why such alleged loans were credited into his personal account, I find the Husband’s reasons for diverting the receivables of AMG short of merits and justification. 

60.  The Husband’s other contention is that the Wife, when being demanded by CC and him for repayment in about March 2009, had agreed that the Husband and CC could take over the business of AMG by saying to the Husband: “I haveno money.  You can take over the business instead ”.  At paragraph 31 and 32 of the Husband’s 3^rd Affirmation, he deposed to the Wife saying those words very bluntly to him and his sister CC.  It was then decided between him and his sister that a new company would be set up, which is the SGFL, to take over AMG’s clients and receivables of which the Wife had no objection.

61.  The Husband at paragraph 36 of his 3^rd Affirmation referred to his instructions to one Mr. Yiu, the General Manager of AMG at the time, to send a letter to the Wife which was dated 29 July 2009.  This letter complained the Wife for withdrawing HK$110,000 without AMG’s approval purportedly to be for her directors’ remuneration for April, May, June and July.  The letter also complained the Wife was rarely at work since mid April and not attending work at all since 24 May 2009.  On behalf of AMG, the letter served as an acceptance of the Wife’s conduct of repudiation of her director’s duties and reserving all AMG’s legal rights on the monies withdrawn by her and any damages arising there from.

62.  First, there was no reference in this letter dated 29 July 2009 that AMG had been taken over by SGFL (which was formed in May 2009 and allegedly for such purpose).  The Husband had stated that SGFL was set up to take over AMG account and receivables.  The letter was issued under the company name AMG with the company chop affixed and signed by Mr. Yiu, without any faintest tint that AMG had been taken over by SGFL.  Secondly, had the purpose for incorporating SGFL was to take over AMG, it is difficult to understand why the Husband would instruct Mr. Yiu to issue such letter under the name of AMG, a company which was supposed to have been taken over already in May 2009.  On balance, it is my finding that it is more probable than not that SGFL was incorporated not for taking over but it was rather for diverting AMG’s business and receivables. 

63.  I find the Husband’s conduct, in so far as diverting AMG’s receivables are concerned, objectionable if not gross and obvious.

64.  For these reasons, I am satisfied on balance of probabilities that the assets and account receivables of AMG had been diverted as opposed to legitimately taken over by the Husband through his company SFGL. This finding also embraces Joint Issue (2)(b) as to the sum of HK$367,102.20 not being accounted for by the Husband.

Are SGFL and M&M part of ‘family assets’ ?

65.  It is common ground that the parties separated in May 2009.  The company SGFL was incorporated on 18 May 2009 by the Husband (20%) and his sister CC (80%).  The company M&M was incorporated a month later on 22 June 2009 by the Wife solely.  It is also common ground that the company AMG became dormant around May 2009 soon after the parties’ setting up their own respective companies.

66.  Counsel Mr. Man for the Husband rightly submitted on the law that assets acquired after separation arose by the use of an asset which was created during the marriage should be treated as matrimonial assets (Rossi v. Rossi[2007] 1 FLR 790). Husband submitted that both companies subsequently formed are a continuation of AMG in that they made use of the experience, contacts and goodwill acquired by the Husband and Wife through the business of AMG.  However, the Wife disagreed. If there was any continuation of AMG, the Wife said it would be SGFL rather than M&M.

67.  It is the Husband’s case that SGFL was set up to take over the business of AMG.  On the evidence, there was a letter signed by one Miss Tam with the chop of the biggest Saudi Arabia client of AMG, namely AL M Fashion Company Limited, to answer the Wife’s enquiry of 2 Purchase Orders placed by this client with AMG.  Miss Tam said in the letter :-

“……………

(1) The above-mentioned purchase orders were place by us to, and accepted by, AMG Garment Factory Ltd. (“AMG”).

(2) The respective deposit (20%) for these purchase orders were made to the bank account of AMG in the same manner as we trade with AMG in the past.

(3) Upon the written request from (the Husband) (Director of AMG) who claimed that he made such request on behalf of AMG, the mentioned purchase orders should be transferred to a company known as SGFL (in Chinese)(“S”).

(4) The reasons provided by the said (the Husband) was that the new company (my emphasis) S, will obtain better financial arrangement.

(5) Goods were delivered by S and thereby invoiced. Payment of the balance of purchase price (80%) were made to S as requested by the said (the Husband)”.

68.  Although this Miss Tam had not been arranged to testify on this letter, the Husband raised no issue as to the business relationship between SGFL and AL M Fashion Company Limited stated in the letter. 

69.  In the Husband’s Answers to Questionnaires dated 16/10/2013 under the sub-heading DG Factory, he said :

“4. The DG Factory was set up in 2008 and used by AMG. When AMG ceased business, the Respondent and his sister took over this factory…….

5. The Respondent and his sister paid for most of the set up costs of the DG Factory. A very small part of the set up costs was paid by AMG out of the capital. The Respondent paid into the company to keep it afloat after the Respondent abandoned AMG in March 2009 (my emphasis).”

70.  I have 2 observations on the above.  First, the letter of Miss Tam clearly supported the Wife’s case that the Husband had diverted the receivables of AMG since the Husband made the assertion to AMG’s clients that the uncompleted purchase orders were to be transferred to a new company (my emphasis), which is SGFL.  The 80% balance of AMG’s receivables would then be paid over to SFGL.  Secondly, the Husband in his Answers to the Wife’s Questionnaires said that he had abandoned AMG in March 2009 (my emphasis) which is clearly inconsistent with his instructions to Mr. Yiu to send the letter to the Wife under the name of AMG 4 months later on 29/7/2009.  More importantly this is inconsistent with his case of SGFL being set up to take over AMG.  Putting these 2 inconsistencies into 1 and also noting the letter of Miss Tam, it is not difficult to see and I also making the finding that SGFL was formed not for taking over AMG but in parallel to AMG.  At the time of trial, there was still no evidence that AMG had been wound up.  I do not accept that SGFL is a continuation of AMG nor is there any coercive evidence to show that M& M could be considered as family assets.

71.  Given the fact and, as a matter of law, AMG, SGFL and M&M are three separate legal entities with independent existence, to attribute their corporate assets and liabilities to the shareholders and directors require cogent evidence rather than any mere ‘say so’.  Moreover, SGFL and M&M were incorporated separately by the parties (the Husband having only 20% and his sister CC 80% in SGFL) back in May and June 2009 respectively, which is around 6 years before the date of trial, with revenues generated over the years without the other party’s effort or contribution.  Given careful consideration to the factual circumstances including those submissions from Counsel Mr. Man for the Husband, I find the companies SGFL and M&M are not family assets for these ancillary reliefs proceedings. Accordingly, no consideration would need to be given to the values of these companies in the single joint expert’s report.

72.  For the finding above that SGFL was not incorporated for taking over AMG, the Husband’s submission that SGFL was an asset acquired by the use of AMG created during the marriage and therefore should be treated as matrimonial assets simply does not stand. 

Is there any non-disclosure of business interests by the Wife?

73.  The Husband’s contention rests with the Wife having beneficial interests in the MH Factory in Mainland China but chose not to disclose it earlier. 

74.  It is undisputed that the Wife only filed her Answers on 2 April 2015 to the Husband’s Questionnaires of which Answers were supposed to be given by 6 October 2014.  The Answers were signed by the Wife as early as 27 January 2015. The Wife said in cross examination that she did not finalise the Answers until January 2015 but did not know why it was only filed and served in April.  It was conceded by the Wife’s lawyers that there was an unintentional mistake by the clerk for the lateness in filing and service.  The Husband considered that the Wife only disclosed such Answers when it had become obvious that she could no longer hide it.

75.  The Wife filed her 12^th Affirmation to give an explanation in reply to the Husband’s allegation that she had an interest in MH Factory.  She deposed that she had no legal or beneficial interest in MH Factory which was owned by his younger brother.  Given the close relationship with her younger brother, she was allowed by her younger brother to use the name of MH Factory in invoices, orders, receipts of payments and almost all dealings with regard to purchase orders as well as the address of MH Factory on business cards as contact address.  Reasons are to assure buyers from M&M that their orders had been placed with a company with factory base and not a mere trading company.  She also produced tenancy agreements of MH Factory where his younger brother could be seen was the tenant.

76.  Given the fact that M&M has no employees based in either Hong Kong or in Mainland China and that the Wife works from her home and does not rent an office (C:192), also noting the intimate relationship with his younger brother, I accept the Wife’s explanation.

77.  In Counsel Mr. Man’s Closing Submissions, the Husband referred to the assistance given to the younger brother by the Wife’s parents in setting up MH Factory being untenable since the parents themselves were in financial problems in 2011.  The Husband also referred to the decrease of gross profit margin of M&M from 5.87% in 2010 to 2.5% in 2011 being “too much of a coincidence” because the Wife attempted to hive off her interest in MH Factory to her brother to artificially depress M&M’s value in contemplation of divorce.

78.  Given careful consideration, I agree with Counsel Mr. Lam that there was no reference in the Wife’s Affirmation as to her parents’ assistance to her younger brother was anything ‘financial’ by nature.  The Wife had in the same Affirmation deposed that his younger brother set up MH Factory from his own resources which can fairly be taken to mean ‘financial resources’.  Also given the undisputed fact that the Wife’s maiden family had engaged in the garment industry for a number of years, it is not unusual for the parents’ assistance to take any form of ‘non financial assistance’, say for instance, referral of clients or business contacts to MH Factory.

79.  I also agree with Counsel Mr. Lam that a pure decrease in values of gross profit margin is neither here nor there.  This could not be supportive of the Husband’s contention that the Wife has any beneficial interest in the MH Factory or shifting over her finances from M&M.

80.  As to the advertisement on the Hong Kong Trade Development Council (HKTDC) website (C2:417), I find it not sufficient to support any finding that the Wife has had any beneficial interests in the MH Factory. 

81.  For these reasons, I find against the Husband on Joint Issue (4) that there was non-disclosure by the Wife of business interests in the MH Factory.

The ‘take away’ of items by the Wife

82.  On such issue, the Wife provided the answer (A:494) :

“The gifts of gold jewellery includes wedding bangles (龍鳳鈪), gold bangles from the children’s one-month baby shower, two gold dog ornaments, two gold rats ornaments, several gold bangles, and several    jade bangles.”

83.  Given the fact that the Wife during cross examination agreed that those items are family assets, I do not agree with Counsel Mr. Lam’s written Closing Submissions that those items are personal items acquired during the course of marriage and could be excludable under the principles enunciated under LKW v. DD (supra) (see paragraphs 90 to 93 of the Judgment).

84.  There is, however, a fall back argument that even if the items are matrimonial assets, since the Wife’s case is that the items have already been disposed of, the proceeds would have already been accounted for in her Updated Form E, and absorbed in the balance of the Wife’s bank accounts which had been duly disclosed.  Further, had those items not been disposed of, there is no evidence from the Husband as to the value of HK$100,000 which is purely his own assertion.  The Husband who claimed for those items to be accounted for should bear the burden of proof as to the value. 

85.  I agree with Counsel Mr. Lam’s fall back argument that whatever values those items worth and need to be accounted for, it would be merged with or absorbed into the Wife’s monies disclosed if not already spent with the passage of time. Hence, although I find such items are family assets, I accept that whatever value was their worth it would have been duly accounted for by the Wife in her latest financial disclosure.

The Wife’s liability on her legal costs

86.  The Wife’s case is that she had borrowed HK$600,000 from her maiden family to finance her legal costs in these proceedings.  The Husband’s argument is that this is either a ‘soft’ loan which does not require immediate repayment or is a kind of anticipated legal costs.

87.  I do not agree this is any kind of anticipated legal costs at this late stage of the trial.  As fairly submitted by Counsel Mr. Lam, the question as to whether this is any kind of ‘soft’ loan was not put to the Wife in cross examination for her to respond.  Hence, it is not fair to draw any such inference merely from the fact that the loan came from the Wife’s maiden family.

88.  On such Joint Issue (6), I find the sum of HK$600,000 to be a kind of financial liability on the part of the Wife.

The Court’s Decision on Ancillary Reliefs

89.  At one stage the parties respective lawyers had signed and produced a List of Agreed Assets and Liabilities dated 12 December 2013 (B:845 to 849), the contents of which had to be cross referenced and updated according to the latest Form Es of the parties and subject to this Court’s findings on the Joint Issues.  

90.  I have in mind the Court of Final Appeal decision in LKW v. DD (supra) setting out the steps and approach to be adopted when deciding ancillary reliefs in matrimonial cases.  However, given the peculiar circumstances of this case (as set out below) and this Court’s findings on each of the Joint Issues set forth by the parties, I find it is fair and reasonable for a so called ‘walk away’ outcome for the parties’ ancillary reliefs.  Also given the parties’ ages and earning capacity, I also believe there ought to be finality in terms of the parties’ respective rights on ancillary reliefs in that neither party would be granted any nominal maintenance.  

91.  The peculiar circumstances are :

(a)  The parties separated in May 2009, this is only a short marriage of 3 years and 10 months.  The marriage took place in July 2005;

(b)During the marriage the parties owned and operated the matrimonial enterprise AMG where their livelihood depended upon AMG’s revenues until their separation in May 2009 and AMG right after then became dormant;

(c)  Soon after separation, the parties set up their own companies also engaged in the garment industry akin to that of AMG whereby each party make their own living up until present and continuing;

(d)The Husband diverted the account receivables from AMG to the company SGFL owned by him and his sister CC (see paragraph 64 above);

(e) The Wife withdrawn HK$110,000 from AMG’s bank account purported to be 4 months’ of her director’s remuneration (see paragraph 55 above);

(f) The parties’ income and assets as at date of trial are earned and accumulated from their respective businesses for the past 6 years without any contribution from the other party;

(g) Both parties are fully capable of looking after their own financial needs from income earned out of their own businesses since separation in 2009 without the need of any maintenance pending suit orders in these proceedings since 2011;

(h) Both parties are fully capable of looking after the financial needs of the 2 children of the family as per the Consent Order dated 2 April 2013 (see paragraph 6 above);

(i) The Husband is at the age of 50 and has earning capacity;

(j) The Wife is at the age of 40 and has earning capacity.

Orders

92.  For all the above reasons, I decided that it is fair and reasonable for the parties’ respective rights for ancillary reliefs be dismissed.

93.  What left behind is the question of costs of these proceedings.  The Wife’s Open Proposals are identical to the outcome of this case save and except she had asked for nominal maintenance.  Given the fact that she only sought costs of and incidental to the Husband’s claim for the alleged loan of HK$1.6 million, I will accordingly grant such costs order in respect of which would have to be taxed if not agreed on party and party basis. 

94.  Although the issue of the alleged loan of HK$1.6 million is one amongst the six items listed in the Joint Issues, a substantial part of the time for trial was spent on the evidence upon such issue.  On all fairness, I will also apportion the costs for such issue to form 30% of the entire costs of the ancillary reliefs trial.  As for the remaining 70% of the costs, there will be no Order as to costs. 

95.  I also grant Certificate for Counsel.

96.  This is a costs order nisi which will become absolute if no application is made to vary the same within 14 days from the date of this Judgment.

97.  Last but not least, I wish to express my gratitude to all Counsel and the parties’ legal representatives for their valuable assistance to the Court.