HSYC v. CLTK

FCMC 11141/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11141 OF 2013

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RULING
(Costs)

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Introduction

1.  I am now asked to determine the issue of costs following a preliminary issues hearing where ultimately I came down in favour of the Interveners. In my preliminary issue judgment of the 9 February 2017 I said as follows when it came to the issue of costs:

Costs 

34. As stated above I have expressed my concern about costs on several occasions and in particular the potential effect that a costs order might have on the eventual outcome of this case. There have also been issues with respect to the late production of documents etc. In such circumstances I will in the first instance reserve the issue of costs for argument. Both sides are invited to file and exchange a written submission on costs within the next 28 days. It is the court’s intention to then try to deal with this matter on paper only without the need for a further hearing on the issue. In addition, there shall be a further First Appointment hearing on the 13 April 2017 at 10:30 am. Both parties do personally attend that hearing. Any further applications, restored or otherwise shall also be fixed in the first instance for directions on that date.

2.  Both the Petitioner and Interveners’ filed substantive submissions on costs on the 8 and 9 March respectively. In addition, the Interveners sought to file a written submission in Reply under cover of a letter dated the 10 March 2017, without in the first instance seeking leave or alternatively issuing a summons in relation to the same. In addition, the husband filed a short submission on costs in Chinese. There was then a short delay whilst that document was translated.

3.  On the 22 March 2017 the matter returned to court as the wife had issued a summons for a further legal costs contribution from the husband. The lawyers for the Interveners did not attend that hearing. However, at that hearing the wife’s lawyers sought to make submissions with respect to the issue of costs and in particular to the Interveners Reply submission. They said as follows in their written note:

8.   The Reply should be disallowed for the following reasons:-

i. There was no leave from the Court;

ii. Nothing raised in the reply submissions was of substantial importance to the Interveners’ arguments on costs;

iii. The Reply incurred further unnecessary costs for all parties, and most importantly for W, who already does not receive any legal costs contribution from the non-paying H despite having being Ordered to pay such contribution in multiple Court Orders and repeated reminders from W, her lawyers and even the Court itself; and

iv. The Reply yet again demonstrates the Interveners’ attitude and conduct throughout the case – they did and will keep filing documents without leave from the Court.

4.  Consequently, the issue of costs was then adjourned until the 2 June 2017 in order to allow the Interveners to be properly represented and to make whatever representations they deemed appropriate with respect to the Reply submission and generally.

5.  On the 9 May 2017 the court received a further letter from the Intervener’s solicitors which stated inter alia as follows:

Recently, there has been discussion between Counsel for the Petitioner and the Interveners with regard to the upcoming hearing.  The Interveners and the Petitioner agreed that their positions on costs have already been set out in their respective written submissions.  So unless there is further assistance to the Court, the parties agreed to invite the Court to hand down her judgment and the hearing on 2 June 2017 be vacated so as to save time and costs.

I was not addressed further, either in writing or otherwise on the issue of the Reply submission. It is of note that it was very short and written it seems to me with a view to simply assisting the court. For the avoidance of doubt therefore leave is given retrospectively for that document to be filed.   

The issue

6.  At the end of the day the Intervener’s were entirely successful. My findings can be found at paragraph 32 where I said as follows:

32.   On a balance of probabilities therefore I accept that the husband and F [the 2^nd Intervener] are holding the entire beneficial interest of Factory 5B on trust for F. For the avoidance of doubt I accept that Factory 5B is not beneficially owned by the husband and that it is not available for distribution between husband and wife in the current matrimonial proceedings.  

33.   Given that I am able to come to this conclusion by examining the whole history of the ownership of the property holistically since its purchase to date and by reference in particular to F’s and the husband’s conduct in relation to it, there is no need for me to look to presumptions or to consider whether or not that this is indicative of a resulting trust or a common intention constructive trust.

7.  Consequently, the Intervener’s now seek their costs of the entire proceedings, including their summons of the 24 October 2016 when they sought retrospective leave to file a further affidavit which dealt with issue pertaining to discovery and the late production of documents.

8.  In contrast, notwithstanding the fact that she has been entirely unsuccessful the wife seeks her costs on an indemnity basis. She does so because in the words of counsel in her written submission on costs:

5. This circumstances which lead to these proceedings has been most unfortunate for W, as the entire preliminary issue trial may have been avoided from the outset if Interveners had given proper, full and frank disclosure; and if W was given the chance to fully assess the evidence.

6. To put it more simply, W says that but for:

(1) H’s and the Intervener’s poor conduct in discovery, she would not have to take discovery actions;

(2) H’s and the Interveners’ vigorous resistance to discovery, the trial would not have been unnecessarily and unreasonably prolonged.

Such conduct has caused a significant increase in the length and costs of the proceedings and costs should be awarded to W on an indemnity basis.

9.  In answer to this complaint it is both the husband and interveners’ case that their position has been consistent throughout in that they have continually stated that Factory 5B belongs to the 2^nd Intervener i.e. the husband’s sister. The husband says that this was done from the beginning. In his closing submission dated the 10 March 2017 he stated as follows:

1. In relation to the dispute about the title to the 5B factory, I have stated early on in the Form E dated November 2013 that the down payment for the 5B factory was made by my elder sister.

2. In the Answer to the Petitioner’s Questionnaire on Respondent’s Form E dated January 2014, I have declared that I have no beneficial interest in the 5B factory.  I have also clearly stated in the same Answer that the mortgage payments of the 5B factory were debited from a joint account of me and my elder sister, and the money in the said joint account came from X.  The passbook(s) of the said joint account was/were disclosed to the other party along with my Answer to the Petitioner’s 2^nd Questionnaire on the Respondent’s Answers back in April 2014.  Anyway, I have stated early on that I only held the title to the 5B factory on behalf of (the owner).

3. Since I am not the actual owner of the 5B factory nor a director or shareholder of X, I do not have any audit report or accounts (one homophone) of X.  As to the passbook(s) of the joint account from which the 5B factory mortgage payments were made, I provided what I had to the petitioner as per her request in the stage of answering the petitioner’s Questionnaire.

4. I have stated to the court and the other party early on that I have no interest in the 5B factory and said the same when (I) testified in court.

10.  Similarly the Interveners state that they set out their position early on and have not reneged on that. I have been taken to a without prejudice later dated the 26 March 2015 in which the interveners set out their case inter alia with respect to Factory 5B. It seems that documentary evidence in support was attached. It is not clear to me why this letter was written on a without prejudice basis, but it any event is true that at the end of the day I accepted what was said in that letter.

Background

11.  I have set out the background to this case in my first judgment of the 2 April 2014, which I then repeated in the judgement of the 9 February 2017. I do not intend to repeat the same here. Reference can be made to those judgments as necessary.

The court’s criticisms

12.  It is of note that at various stages of the proceedings I have been critical of all of the parties involved in these proceedings. I was critical of the husband early on, for what appeared to be his de minimalist approach to discovery. However, as the case progressed and given his answers to further rounds of questionnaires, this initial criticism abated. I then became concerned at what appeared to be the stance of the wife and her requests for further discovery and her inability to define exactly what it was that she sought to further discover. I was also at times critical of the Interveners and their failure to provide additional documents in a timely manner. Consequently, I urged the parties on several occasions to try to settle matters. It seems that my entreaties fell on deaf ears. I should also add that whereas I was critical of the Interveners and to the way in which they initially conducted the preliminary issues trial and by their attempts to introduce evidence late, I also accept that some criticism must lay at the wife’s door. I agree as pointed out by counsel for the Interveners, that she did try to broaden the scope of the trial and to introduce issues that had not been pleaded by her and which were ultimately found to be irrelevant to the only issue that I had to determine namely who were the beneficial owners of factory 5B.

Discovery

13.  Counsel for the wife sets out a chronology of events in their written submission with respect to discovery and the trial which highlights the difficulties from their perspective. It is of note that the without prejudice letter from the interveners was received about 6 months before this chronology begins. 

Chronology of Events

	Event	Note
5 Nov 2015	1st PTR & Contribution to Legal Costs hearing	·   W’s counsel notified the Court that the Interveners refused to disclose relevant audited reports of X ·   H & Interveners’ counsel said that no request was made for such documents ·   Judge made comment that such documents could be produced seeing that it was a family company and H & Interveners’ should produce them[1] ·   W’s counsel made position clear that documents were required especially regarding G[2]
9 Nov 2015	Letter from W’s lawyers to H & Interveners’ lawyers	·   W’s lawyers requested for relevant audited reports and bank statements
23 Nov 2015	Letter from W’s lawyers to H & Interveners’ lawyers	·   To follow up on the documents requested by letter dated 5 Nov 2015
9 Dec 2015	Letter from H & Interveners’ lawyers to W’s lawyers	·   H & Interveners’ lawyers stated that they did not see the need to disclose the documents W’s lawyers requested ·   Ms CCC (“I2”) was making enquiries with G Ltd, the L Company, for relevant information ·   No reference was made to any bearer shares in X
27 Jan 2016	2nd PTR
19 April 2016	Day 1 of Preliminary Issue Trial	AM: ·   Late application of supplemental witness statement from I2 ·   Interveners’ Opening & discussion between Counsels and the Court on potential conflict(s) of interest[3] ·   H was now acting in person for the trial and only Interveners were left with legal representation PM: ·   Court adjourned for Interveners to obtain bearer shares of G Ltd and for X to pass a special board resolution to prevent it from launching potential separate claim(s) as against Factory 5B
20 April 2016	Day 2 of Preliminary Issue Trial	·   Judge unwell and Court adjourned
21 April 2016	Day 3 of Preliminary Issue Trial	AM: ·   Examination in Chief (“EIC”) of I2 in her personal capacity and also as representative of X ·   Judge requested for originals of the “journal adjustments” from X as I2 did not produce them PM: ·   Cross-examination (“XXN”) of I2 ·   First time I2 mentioned a re-mortgage of Factory 5B in 2007 ·   W’s counsel raised the issue of not being able to cross reference the journal adjustments with audited reports from X because the relevant audited reports were not provided to W
22 April 2016	Day 4 of Preliminary Issue Trial	AM: ·   Cont’d XXN of I2 ·   Judge commented on lack of evidence from Interveners to substantiate their claim[4] ·   Interveners’ Counsel attempted to introduce X’s Audited Reports for the years 2004 – 2010 as new evidence right before lunch[5] PM: ·   Discussion of whether X’s Audited Reports and Journal Adjustments should be allowed[6] ·   Interveners’ Counsel requested special leave to obtain instructions from I2 who was still in witness box ·   XXN of I2 continued ·   Interveners’ counsel confirmed in open court that they had the audited reports long before the trial started and did not provide them to W’s legal team despite repeated requests[7] ·   Case went part-heard until 1-3 Nov 2016
29 April 2016	Letter from W’s lawyers to H & Interveners’ lawyers	·   W’s lawyers requested that the further disclosure by Interveners be made clear and as soon as possible
13 June 2016	First Appointment & return date for Inter-Partes Summonses	·   W had taken out several summonses, one of which was for specific discovery of Interveners’ production of relevant documents ·   Summonses were adjourned sine die with liberty to restore, whilst Interveners’ counsel said they will disclose further documents ·   W’s counsel yet again clearly stated the position that W will invite the court to draw adverse inference due to lack of documents
27 June 2016	W’s lawyers received X’s Audited Reports for the years 2004 – 2013 and director’s loans slips	·   Again, there was no complete set of journal adjustments for W’s cross-reference nor the help of forensic accountants
19 October 2016	W’s lawyers received I2’s bank account statements for Dec 2002 to Mar 2003	·   Shortly before the preliminary trial resumed, I2 produced these bank statements and claimed that she “suddenly found” these bank statements as she was cleaning her apartment
25 October 2016	W’s lawyers received H’s bank statements and photographs of X’s office
1 Nov 2016	Day 5 of Preliminary Issue Trial (part heard)	AM: ·   Housekeeping matters and late application of I2’s 2nd and 3rd Affirmations PM: ·   Re-opened EIC and then XXN of I2 on new evidence
2 Nov 2016	Day 6 of Preliminary Issue Trial (part heard)	AM: ·   Re-XN of I 2 ·   EIC and XXN of H PM: ·   EIC and XXN of Wife

14.  In answer to this criticism counsel for the interveners says this in his Reply submission of the 10 March:

8.   Seventh, as to the discovery of X’s audited reports from 2004 onwards, C [the wife] never provided a legitimate ground for their production.  The relevance of these documents is not known.  The learned Judge also did not specifically refer to these audited reports in her Judgment.

The issues 

Is this a case where indemnity costs principles are engaged?

And should an indemnity costs order be made in the circumstances of this case?

Should costs follow the event? Or should an alternative costs order be made?   

Legal Principles

15.  Reference is made by both sides to Order 62 and to the leading case In re Eligindata Ltd (No 2) [1992] 1 WLR 1207 which states 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 a 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.”

16.  Given that the wife seeks costs on an indemnity basis (which I accept is an extreme position to take given the circumstances) reference can also be made to an unreported family case namely LYE and CWW and HWL, FCMC 14787 of 2002, 6 May 2005, which has been relied upon by this court in the past. In that case HH Judge Bebe Chu (as she then was) sets out the legal principles relating to indemnity costs as follows:

LEGAL PRINCIPLES

3. According to Rule 3 of the Matrimonial Causes Rules, the Rules of the High Court (RHC) shall apply with the necessary modifications to the commencement of matrimonial proceedings in, and to the practice and procedure in matrimonial proceedings pending in the Court of First Instance or in the District Court.

4. Rule 91A of the Matrimonial Causes Rules provides that where the costs of an incidental to any matrimonial proceedings are directed to be taxed, R.H.C. Order 62 shall have effect in relation to the costs of proceedings in the Court of First Instance, and R.D.C. Order 62 shall have effect in relation to the costs of proceedings in the District Court.

5. Order 62 Rule 28(3) in both R.D.C. and in R.H.C. provides that the Court in awarding costs payable to one party by another may in any case in which it thinks fit to do so order or direct that the costs shall be taxed on the common fund basis or on the indemnity basis.

6. Any order for costs is in the discretion of the Court.  (see Headnote of Re Engindata Ltd (No. 2) 1993 1 All ER 232).

7. Section 53 of District Court Ordinance Cap. 336 (equivalent to Section 52A of High Court Ordinance Cap. 4) provides that the Court shall have full power to determine by whom and to what extent the costs are to be paid.  See also Hong Kong Civil Procedure, 62/2/5:-

“The Court of Appeal in Choy Yee Chun (The Representative of the state of Chan Pui Yiu) v. Bond Star Development Ltd [1997] H.K.L.R.D. 1327, CA reviewed the cases and summarised the law as follows. A taxation of the successful party’s costs on an indemnity basis could properly be ordered where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner. Any proceedings instituted or prosecuted in such circumstances as to constitute an affront to the court could properly be the subject of a direction for the taxation of the successful party’s cost on the indemnity basis. However, the circumstances in which an indemnity award might properly be made were not restricted to circumstances beyond the requirement that taxation on an indemnity basis must be “appropriate”. The principle for the award of an order of costs on an indemnity basis applied equally to those who not only instituted proceedings but who defended them. If a plaintiff had been forced to institute proceedings by the defendant whose conduct had been not only hostile in the normal litigious sense, but oppressive and with base ulterior motive, and if the pursuit of a defence constituted conduct which was part of an oppressive game plan, then invocation of the power to award costs on an indemnity basis might well be justified”.

HH Judge Chu continued

8. I have been referred by the Petitioner’s solicitor, Mr. Ko, to the case of Re Tang Hong Yeun Andy HCB 19585 OF 2003 (at paragraph 18) quoting Choy Yee Chun (The Representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd. [1997] H.K.L.R.D. 1327 CA, where it was held that the discretion was not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”.  See also Hong Kong Civil Procedure, 62/App/12.

9. I have also been referred to the Judgment of the Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Limited.  FACV No. 14A of 2003, at paragraphs 12, 14, 15, 18 and 23 where the Court of Final Appeal has made the following comments:-

(a) The Court has a broad discretion to determine how costs shall be paid and whether indemnity costs should be ordered (paragraph 12).

(b) The successive party should show, in order to obtain an order for costs on an indemnity basis, that the case has some “special or unusual feature” (paragraph 15).

(c) In relation to the award of costs generally, it has been accepted, as Chu J pointed out, that while
“the ground [upon which costs are awarded] must be connected with the case. This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further”.

There is no reason why this statement does not apply with equal force to the exercise of the discretion to award indemnity costs (paragraph 18).

(d) Other factors, such as the reasonableness of the conduct of the parties, may need to be taken into account (paragraph 23).

Discussion

Is this a case where indemnity costs principles are engaged?

And should an indemnity costs order be made in the circumstances of this case?

17.  For the avoidance of doubt it seems to me that this is not a case where indemnity cost principles can properly be engaged. It is true that there was an issue concerning discovery. But there were also other issues as have been identified in paragraph 11 above. Not one party can be said to be blameless for the way in which this case has developed. Certainly, in my view, it cannot be said that the stance taken by the Interveners was:

“scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or [was conducted] in an oppressive manner”.

18.  Nor was there any special or unusual feature here which would lead one to consider making an order for indemnity costs against a successful party – of itself a highly unusual stance to take in any event.

Should costs follow the event? Or should an alternative costs order be made?   

19.  It seems to me that the issue of costs can be divided into two halves, costs up to and including the first tranche of trial and costs thereafter.

Costs up to and including the first tranche of trial

20.  There was an issue concerning discovery that had subsisted prior to the trial and became an issue during the first tranche of trial. I was certainly of the view that the Interveners needed to produce sufficient evidence to substantiate their claim. Counsel for the Interveners points out, with the benefit of hindsight, that the information initially disclosed should have been sufficient and that I did not rely on the subsequent documents disclosed after the first tranche of trial, in my judgment. Whilst that may be correct it does not alter my initial view that the Interveners needed to produce sufficient evidence to substantiate their claim and that at the time I agreed with wife’s counsel that the Interveners needed to provide a full set of audited reports in order to cross reference the journal adjustments. I remain of the view that the wife was entitled to see those documents. It subsequently became clear that the Interveners did infact have those documents but had decided that the wife was not entitled to see them. Counsel for the Interveners then attempted to introduce audited reports from the company (i.e. the 1^st Intervener) for the period from 2004 – 10, as new evidence on day four of the trial. This was far from satisfactory and led in part to the matter going part heard. (Although by that stage it was clear that the original estimate of four days was not going to be sufficient in any event especially given the fact that I was unwell and absent from work for one day – which was completely unforeseen and the fault of no one).

21.  In such circumstances it seems to me that notwithstanding the fact that the Interveners are the winning party overall that it would be more appropriate to make an order that there be no order as to costs up to and including the first tranche of the trial from the 19 – 22 April 2016. I accept that by not producing the audited accounts in a timely manner that there was a significant increase in the length of the trial and the costs associated with that.

22.  Thereafter I accept that the more appropriate order is that costs should follow the event in the normal way and that this should include the Interveners’ summons of the 24 October 2016.

Order

23.  Thus I shall make an order as follows – there shall be no order as to costs with respect to the preliminary issues trial concerning the ownership of Factory 5B up to and including the first tranche of trial from the 19 – 22 April 2016. Thereafter the Petitioner wife shall pay the Intervener’s costs on a party and party basis to be taxed if not agreed. There shall be certificate for both counsel. 

FCMC 11141/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11141 OF 2013

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J U D G M E N T
(Preliminary Issue)

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Introduction

1.  This is a hearing of a preliminary issue to determine whether or not the Respondent husband has any beneficial interest in a factory premises known as Factory 5B. If so, the court needs to consider the extent of that beneficial interest and how it should be treated when considering the distribution of the assets post divorce.

2.  This trial has thrown up some interesting issues with respect to the onus of proof and the approach to be taken generally in cases of this nature. As with all preliminary issues the Family Court follows the protocol first identified in TL v ML [2006] 1 FLR 465. This case is no exception. Consequently, the 1^st and 2^nd Interveners being the family company (that I will call X) and the husband’s elder sister, (F), filed Points of Claim on the 26 March 2015. In it they set out their case, namely that the family jewellery business was originally set up by the parents of the husband and F, back in the 1970’s. It is F’s case that she took over the running of the business although both the husband and their younger sister also work for it. In or about January 2003 F and the husband purchased Factory 5B as joint tenants. It is F’s case that although the property and mortgage is held jointly, that she alone purchased the property and that it is wholly and beneficially owned by her. It was understood, she says, that the property was purchased in order to be used as the main office and factory workshop for the jewellery business. Thus it was rented out to X. In the Points of Claim X and F state as follows:

6. The purchase price of Factory 5B in the sum of HK$1,750,000 was paid in the following manner:-

(a) HK$52,500 as initial deposit prior to the execution of the Agreement (“Initial Deposit”);

(b) HK$122,500 as further deposit upon the signing of the formal agreement on or before 28 January 2003 (“Further Deposit”); and

(c) The balance of the purchase price in the sum of HK$1,575,000 upon completion on 20 February 2003 (“Final Payment”).

7. The said Initial Deposit, the Further Deposit and part of the Final Payment in the sum of HK$525,000, the stamp duty payable on the formal agreement and the assignment of Factory 5B, the agency fee and all legal fees in respect of the purchase were all paid by the 2^nd Intervener [F] solely.

8. The balance of the Final Payment being HK$1,050,000 was financed by a mortgage loan provided by Bank of America (Asia) Ltd. on 20 February 2003 (“the Mortgage Loan”).

9. The instalments of interest and capital falling due under the Mortgage Loan have at all times been settled by the payments from the 1^st Intervener [X] as repayment of director’s loans advanced by the 2^nd Intervener [F] to the 1^st Intervener [X].

10. Ever since the purchase, Factory 5B has been exclusively possessed by the 1^st Intervener [X] and used as its main office and factory workshop.  All the management fees, the rates and the government rents and all charges related thereto have at all times been paid by the 1^st Intervener [X].

11. Apart from holding the Property on behalf of the 2^nd Intervener [F] for the sole use of the 1^st Intervener [X], the Respondent [the husband] did not contribute any money to the purchase of Factory 5B.

12. In the circumstances and by reason of the aforesaid, the Respondent holds Factory 5B as nominee and on resulting trust for the 2^nd Intervener [F] subject to the 1^st Intervener’s [X] right to occupy and use at all material times.

AND THE 1^ST AND 2^ND INTERENERS CLAIM AGAINST THE PETITIONER FOR:

(1) A declaration that Factory 5B is not beneficially owned by the Respondent and therefore not available for distribution between the Petitioner and the Respondent upon the dissolution of their marriage

(2) Further and/or other relief

(3) Costs

3.  Although F has expressed sympathy for the wife she says that she has no option but to fight this action given the effect that it may have on X.

4.  The position of the petitioner wife is simple – she says that it is for the husband to prove that he does not own a half share in Factory 5B. She does not advance any form of positive case. Her Points of Defence are one page long and state as follows:

1. Unless otherwise stated, in this pleading:-

a. The Petitioner [the wife] will adopt the abbreviations as used in the Points of Claim (“Points of Claim”) filed by the 1^st and 2^nd Interveners on 26^th March 2015.

b. References herein to paragraph numbers are to paragraphs in the Points of Claim.

2. Paragraph 1 is not admitted.

3. Paragraph 2 is not admitted.  The Petitioner further avers that the Respondent is also the managing director of the 1^st Intervener.

4. Paragraphs 3 to 12 are not admitted.  The 1^st and 2^nd Interveners are put to strict proof for each and every allegation raised thereof.

5. Save as expressly admitted or not admitted hereinabove, the Petitioner denies each and every allegation in the Points of Claim as though the same were set forth in full and traversed seriatim.

5.  Counsel for X and F has pointed out, and this must be right, that in such circumstances it is not possible for the wife to now advance a different case from that pleaded. What I have to determine is infact very narrow in scope. Attempts were made to widen the perimeters of the hearing after the first tranche of the trial. The wife issued additional summonses on the 16 May 2016 with respect to a further property and another related family company. It seemed to me that it was not appropriate to do so half way through a trial and those summonses were either subsequently withdrawn or adjourned.

6.  It would be fair to say that Counsel are not of one accord with respect to who has the onus of proof in these circumstances. Mr Surman for the wife, following what he says are established family law principles, argues that it is for the husband to prove that he does not beneficially own a property in which he has a legal interest. Mr Harry for the interveners says that in a situation as here where the real issue of ownership of Factory 5B lies between brother and sister and not between husband and wife or cohabitants, then normal trust principles must apply. He makes a number of points – but perhaps most importantly he states as follows in his closing:

48. There are 2 points here.  1^st, this is not a situation where a legal co-owner is saying that he or she has the whole beneficial interest, and the other co-owner is resisting that contention.  Here L [the husband] accepts that the F [2^nd Intervener] is entitled to the whole beneficial interest, and that her version of events is correct.  It is a third party, C [the wife], who is trying to disturb that accepted position.  So the overall onus of controverting that position should be on C [the wife].

53. So C [the wife] cannot rely on what was said in relation to the onus of proof in Stack in the present context.  Here F provided the initial purchase price, and the overarching burden must be on C to show why F is not entitled to the whole beneficial interest.

7.  In any event he says that the outcome is the same, whichever way this matter is approached - if F can show that she has paid for Factory 5B then the property should be hers.

Background

8.  The parties have been in and out of court on a number of occasions, mainly with respect to maintenance pending suit/interim maintenance and litigation funding applications made by the wife. In addition, there have been ongoing concerns with respect to disclosure and there have also been very frequent appearances at First Appointment hearings. In my first judgment dated the 2 April 2014 I set out the background to the marriage as follows:

3. The parties married on the XX April 2000 and separated on the 8 December 2011 when the husband left the former matrimonial home following allegations by the wife of infidelity on his part. The wife issued a divorce petition on the 1 August 2013 and the decree nisi was pronounced on the 9 October 2013. The parties sensibly came to terms in relation to the boys and they subsequently agreed joint custody with care and control to the wife and reasonable access to the husband.

4. The wife has been a housewife since marriage. The husband is a Managing Director of a family jewellery business.

Each party’s case

The wife’s case

5. The wife’s case is that the husband works for the family business – which was established by his parents many years ago. It has now developed into what appears to be a substantial jewellery company with X retail shops in Hong Kong dealing in all kinds of jewellery and precious stones including diamonds. It seems that this business has evolved over time and that originally the company sold more traditional gold items and jewellery. The wife also says that the family business holds a number of properties through various corporate structures. Although the wife accepts that the husband’s actual income is fairly minimal, it is her case that a significant portion of the family’s regular monthly expenses were paid for by the husband’s family company/ies and that this is a financial resource that is currently available to the husband. 

6. The wife points out that she is totally reliant on the husband financially. The parties married when she was only 24 and they had their first child within the year. She says that she became a housewife by agreement. Although she has a degree in Hotel and Catering Management she has not worked since marriage and even prior to marriage her work experience was fairly minimal. She also suffers from rheumatoid arthritis, which may make an immediate return to the workforce problematic.

The husband’s case   

7. In contrast it is the husband’s case that he has had an easy life and that he is not actively involved in the running of the family business. Although he accepts that additional monies have been made available to him and his wife and children, he says that these monies are gifts from his parents and that this money is not something that he is entitled to as of right. In his affirmation of the 25 February 2014 he said at paragraph 8 that

8. Being the youngest son of my parents, I am not expected by the family to take an active role in the family business nor to make any contribution to the business.  I am not very interested in running business or working.  All along, I have been leading a relatively unambitious and relaxing life.  I only spend a few hours or less on work every day and do not need to attend work at the company on the daily basis.

8. It is the husband’s case that his parents have cut down on their financial support because a) the wife’s maintenance claims have increased significantly, b) the wife refused to let his parents see the grandchildren and c) the wife has made a claim against the property in which she is presently living, which is a property owned by a family company. He says that this has angered his parents.

9.  In my second judgment on litigation funding dated the 1 December 2015 I added as follows:

3. It would be fair to say that I was fairly critical of the husband and the approach taken by his legal team in the maintenance pending suit judgment. In particular I found that the husband had taken a de minimalist approach to disclosure and that there was a catch me if you can element to it. I added at paragraph 30 that:

   c) Alleged drop in income

   30. The husband’s main point is that in any event, regardless of the financial resources that were made available to him previously, that this has now changed. As indicated above it is not possible for me to make any definitive findings of fact in relation to this at the current stage of the proceedings. I would however accept the point made by counsel for the wife that if indeed that is the husband’s case then the onus is on him to provide clear and unequivocal evidence in support of what he says. To date such evidence has not been forthcoming.

4. Since then there have been three further rounds of discovery. It is the husband’s case that he has provided a great deal of additional information to the wife at her request. It is of note that she has not set out her case on further disclosure in correspondence or otherwise. Indeed, there have been no further requests for additional information for about a year or so. Infact even in this hearing her position was only explained in very general terms. It was said on her behalf by Mr Surman that:

22. Given the complex and opaque corporate structure of H’s family business included but not limited to X and X D with X adopting trade names such as “X” and “Y”; it has been an almost impossible task for W and her legal team to understand the true financial position of H as he had offered little to no assistance coupled with bare denials and patchy information in this regard throughout these proceedings.

23. W has a pressing need to obtain specific discovery on H’s family companies in order to fully understand H’s financial position by obtaining assistance from forensic accountants, property/ business valuers and experienced lawyers. However, she is unable to given the lack of funds to obtain proper legal and expert assistance.

5. However it is still not clear exactly what it is that the wife wishes to further discover and what her case is precisely other than as set out above. The rather unfortunate impression is that she is set to embark on a fishing expedition. Mr Surman pointed to a number of small points in his submission, but unfortunately this does not really take the matter very much further forward. Counsel for the husband suggested that:

15. The Wife seems determined to run her case by blaming it on the Husband’s non-disclosure.  But increasingly such an argument does not seem to hold water after rounds of discovery (see Appendix A).  Other than two US investment accounts that the Husband is jointly holding with and for the benefit of the Children and life insurance policies having the Children as beneficiaries, the only valuable asset of the Husband that was found to have been omitted to include in his Form E is a second handed Alfa Romeo Spider vehicle with a market value of $70,000.  Apart from the above, there is no evidence supporting the Wife’s allegation that the Husband still holds assets that have not been fully disclosed in the action.

6. Time will tell if this is right or not. However given the way in which this case has evolved since the maintenance pending suit hearing I have to say that I now have some sympathy with the husband on this aspect of the case.

7. The husband’s case continues to be that he is a laid back individual who supported his wife and children by relying in part on the financial assistance of his parents. This assistance is no longer forthcoming – for reasons which I will not go into here. Consequently he has turned to his sister, the 2nd intervener for financial support. She has filed an affidavit in which she has set out the difficulties that she is now facing plus the present financial status of the family companies. Although it is of course correct that I can take into account what the husband’s current financial resources are, including his ability to borrow, that does not mean that I should ignore completely what now appears to be the reality of the situation. Certainly there is no reason for me to disbelieve the sister’s evidence.

8. The preliminary issue has now been set down for trial for four days in April 2016. This hearing is concerned with establishing whether or not the husband has any beneficial interest in a factory premises. If so what is the extent of that beneficial interest and how should it be treated when considering the distribution of assets between the parties on the breakdown of their marriage. I think it is important at this stage to put that dispute into its proper context. The value of the factory premises is put at HK$7 million. There is very little otherwise that is arguably held in the husband’s name. The wife owns very little. Thus

18. In the event that the Wife is unsuccessful in the Preliminary Issue, the total asset left in the family pool will be reduced to about $1M to $1.4M.  Both the Wife and the Husband claim that they are borrowing moneys from their own family to maintain this action, if these “soft” loans are to be further deducted from their assets, each of Husband and Wife has only net debt.

10.  I then concluded as follows:

24. Finally – a word of warning. It seems to me that the parties should seriously take steps to try to settle this case. The alternative is likely to be huge and unrecoverable costs for all concerned. This is something that needs to be avoided if at all possible.  

I do not know if there have been any serious attempts to settle this case. However, even though I have been informed during this hearing that the value of factory 5B has likely increased, the concern about costs remains.

11.  The wife then sought further assistance with her legal costs following the preliminary issues trial going part heard. In the third Ruling dated the 30 August 2016 I further commented as follows:

2. Unfortunately the preliminary issues hearing went part heard. It is due to come back before the court on the 1 November 2016 for a further three days. Some of the difficulty arose because of the very late disclosure of documents by the husband and the interveners. They sought leave to file additional documents on the last day of trial. I am told that it was not until the 27 June 2016 that audited reports and other financial documents relating to the 1^st Intervener Company were actually produced. It seems to me that this approach is also indicative of the litigation tactics employed by the husband and the interveners to date. For example, I have referred previously to the de minimalist approach taken by the husband to disclosure and the “catch me if you can” element to it.

3. In addition I have also been critical of the wife’s rather dogged approach to disclosure. The concern of course is that ultimately the legal costs may outstrip the value of any assets held by the couple and that this will render any final award nugatory.  

4. The wife’s legal team complain, and with some justification that it is proving increasingly impossible to understand the financial arrangements surrounding the 1^st Intervener company and other related companies. They wish to employ a forensic accountant to assist them. However given the stated financial circumstances of the parties it is hard to see how that will be possible.

5. The husband for his part says that his position is now untenable. He says that he is not avoiding his responsibilities but that he simply does not have the means to pay the maintenance ordered – either for litigation funding or generally. He says that the business has suffered of late and that his elder sister (the 2^nd Intervener) is no longer in a position to advance him funds. Likewise lending institutions are no longer willing to loan him money. He says that he has borrowed HK$150,000 from a friend and that this will hopefully be sufficient for the next six months. As I said in the previous judgment on litigation funding

7.   … Although it is of course correct that I can take into account what the husband’s current financial resources are, including his ability to borrow, that does not mean that I should ignore completely what now appears to be the reality of the situation. ...

6. I am though concerned that the preliminary issues trial should conclude with the same legal teams in place. I accept that it would not be in the interests of justice for that to be altered in any way now. 

I concluded:

11. Previously I reluctantly made an order with the intent of taking this matter up to a Financial Dispute Resolution hearing. That did not happen. The fault for this lies entirely at the door of the interveners and the husband; the wife is entirely blameless for this rather unfortunate turn of events.  

12. In such circumstances I will at this stage make an order with a view of taking this matter up to the preliminary issues hearing only. Thereafter it may be that the wife will need to give some thought to making a further application for legal aid.

This was then the position prior to the second tranche of the trial taking place.

The issue

12.  As indicated above therefore there is only one issue to be determined namely who is the legal and beneficial owner of Factory 5B.

Background to the issue

13.  On the 13 January 2003, about three years after the husband and wife married and before there were any problems in their relationship, a provisional sale and purchase agreement was entered into for Factory 5B. At that stage X was identified as the purchaser. On the 28 January 2003 F and the husband entered into a formal sale and purchase agreement as joint tenants of Factory 5B. A down payment of 40% was paid and a joint mortgage in the names of F and the husband was also obtained. A bank account for that purpose was also set up. The property was subsequently re mortgaged on the 28 August 2007. Since the date of purchase Factory 5B has been used as X’s main office and jewellery work shop and X have rented it for that purpose.

The law

14.  Generally speaking when faced with a preliminary issue concerning the ownership of a property, the Family Court will begin by reference to the very useful analysis contained in Bhura v Bhura & Others [2014] EWHC 727 which states as follows:

8. The applicable legal principles concerning a property dispute such as this are tolerably clear and have most recently been re-stated by the Supreme Court in Jones v Kernott [2011] UKSC 53, [2012] 1 AC 776.  In summary I think they are as follows:-

i)If there is an express declaration of beneficial interests then that is, almost invariably, the end of the matter.  Such an express declaration can only be displaced if it has been procured by fraudulent conduct.  In this case it is said by the wife that the signed TR1 for Mayfield Avenue is a sham.  A sham is of course a species of fraud.  It involves the parties entering into a dishonest compact, i.e. a conspiracy, to express the true state of affairs falsely in the written agreement.  I will analyse the law relating to sham transactions a little later.

ii)If there is no express agreement about the beneficial interests then there is likely to be (at least) a tacit understanding.  This is hardly surprising as one would expect that when people enter into what may very well be the most important economic transaction in their lives – buying a home – they would have a pretty clear understanding of who owned what share of it.  In determining whether there was such a tacit understanding, and if so what it was, the court will look at all the evidence holistically and will examine the whole course of the parties’ conduct in relation to the property.

iii)In the rare case where the evidence does not reveal a tacit understanding about ownership the court can reach for the presumptions.  An obvious presumption is that beneficial ownership is the same as legal title (see Jones v Kernott at paras 17 and 51(1)).

iv) Another is the presumption of the resulting trust.  In Pettitt v Pettitt [1970] AC 777 at 824 Lord Diplock doubted that it was of much relevance in the modern era.  In his view it would be “an abuse of the legal technique for ascertaining or imputing intention to apply to transactions between the post-war generation of married couples ‘presumptions’ which are based upon inferences of fact which an earlier generation of judges drew as to the most likely intentions of earlier generations of spouses belonging to the propertied classes of a different social era.”  Some commentators believe that the doctrine has a medieval origin.  The principal problem with it is that that is allows the “solid tug of money” (as Woodhouse J evocatively put it (echoing George Eliot) in Hofman v Hofman [1965] NZLR 795 at 800) “to submerge any faint suggestion that other [non-financial] contributions play a valuable part in the acquisition of family assets”.

v) A further presumption is the presumption of advancement but this can be regarded as being on its death-bed given that it is abolished by s199 Equality Act 2010, which is awaiting implementation.

vi) But presumptions are only presumptions.  In a memorable dictum Lamm J in Mackowick v Kansas City St. J. & C.B. Ry., 196 Mo. 550, 571, 94 S.W. 256, 262 (1906) stated that “presumptions may be looked on as the bats of the law, flitting in the twilight, but disappearing in the sunshine of actual facts”.

vii)“Actual facts” are those which suggest that a result steered by a presumption is unfair.  Although there are different degrees of emphasis and nuance all of the Justices in Jones v Kernott accepted that where a tacit agreement could not be found by a process of inference the court could impute to the parties a fair agreement which they never in fact made but which they should “be taken” as having made (see paras 45, 60, 72, 85(2)).  Of course, as Woodhouse J pointed out, this involves a “fictional attribution of intention”, but the process has a long pedigree.  One only needs to remind oneself of Lord Denning MR’s statement in Appleton v Appleton [1965] 1 WLR 25 at 28 to see how the wheel has turned full circle.  There he said “A judge can only do what is fair and reasonable in the circumstances.  Sometimes this test has been put in the cases:  What term is to be implied?  What would the parties have stipulated had they thought about it?  That is one way of putting it. But, as they never did think about it at all, I prefer to take the simple test:  What is reasonable and fair in the circumstances as they have developed, seeing that they are circumstances which no one contemplated before?”  I cannot see any difference between that statement and that of Lord Wilson in para 87 where he rhetorically asked “where equity is driven to impute the common intention, how can it do so other than by search for the result which the court itself considers fair?”

15.  In doing so however I accept that this analysis generally refers to litigation between married couples. Counsel for the wife has also referred to Jones v Kernott [2012] 1 AC 776 and to my sister judge’s decision in TSC v KWH 7 Anor (FCMC 2755/2014) where Deputy Judge Grace Chan, as she was then, says as follows:

39.   The burden of proof is on the party who seeks to show that the beneficial title does not follow its legal title (See: Lewin on Trusts (19^th ed) at §9-07; Snell’s Equity (3^rd ed) at §24-049; TL v ML (supra) at §§38-39; Rossi v Rossi [2007] 1 FLR 790 at §§39-40; Fisher Meredith v JH [2012] 2 FLR 536 §§42-44).

16.  In the latter case there was a similar disagreement between what might be described as matrimonial and non matrimonial counsel. In his retort, Mr Harry for the interveners says that Mr Surman is simply wrong and in doing so he relies on Mr Mostyn’s well known dictum in TL v ML [2006] 1 FLR 465:

[34] It is to be emphasised, however, that the task of the judge determining a dispute as to ownership between a spouse and a third party is of course completely different in nature to the familiar discretionary exercise between spouses. A dispute with a third party must be approached on exactly the same legal basis as if it were being determined in the Chancery Division.

17.  Nevertheless it seems to me that the two approaches need not necessarily be mutually exclusive. I also note Mr Harry’s concluding paragraph in his submission in reply dated the 16 November 2016:

73. Whether the Court approaches the matter with the burden of proof being squarely on C [the wife] (F’s contention), or whether the Court takes the “holistic” approach to which reference is made by Mr Mostyn J, or whether the Court (contrary to F’s contention) regards the burden of proof as being on F, the results should be the same i.e. that L [the husband] and F are holding the entire beneficial interest in Factory 5B on trust for F.

18.  I agree. I will then in the first instance follow the guidance provided in Bhura v Bhura and if necessary I will consider the issue of trusts when I come to that part of the protocol. In such circumstances I do not intend to enter into a debate about what is or is not the correct approach. Nor do I intend to discuss whether this might be a resulting trust scenario or a common intention constructive trust scenario.     

19.  Thus it seems to me that in the first instance the court is asked to ascertain whether or not there is an express statement of beneficial interest with respect to Factory 5B. In the event that there is not, as is the case here, then the court is required to determine whether or not there was a “tacit understanding” with respect to that ownership. In doing so I am asked to view the whole history of the ownership of the property holistically and over time. In particular, I am asked to examine the parties conduct with respect to the property. I also accept that it is important to guard against the benefit of hind sight when going through this exercise.

20.  In the event that it is not possible to ascertain a “tacit understanding” then the court will look to presumptions to assist in reaching a decision. Even then a presumption – is just that – a presumption that can be displaced depending on the available facts. It is probably at this stage of the protocol, if indeed we get to that stage, that a number of potential trust issues may arise.

Discussion  

Was there a ‘tacit understanding’ with respect to the ownership of Factory 5B?  

21.  Although there is no written agreement, both F and the husband have consistently stated that it was always understood that F was the sole beneficial owner of Factory 5B. To that extent I accept that this was not so much a “tacit understanding” but an explicit one.

22.  F maintains that she purchased the property in order to provide an office and a workshop for the business. I accept that her explanation is entirely credible. She says that although originally the main office and workshops had been located in the back of retail shops, this model became less satisfactory as the shops moved into shopping malls. She was particularly concerned about the smell coming from some of the chemical solutions used and the fact that they often needed to work late into the night. She said that originally she had thought about renting a premises, but over time the prospect of owning a property became more appealing. Initially she had considered purchasing the property in the name of the company, but she decided against that as she was concerned that she may not get a mortgage as the business was not doing particularly well at the time. She was also concerned that she might need to pay a very large down payment if the property was purchased in the name of X. The evidence produced by F supports what she says in this respect. In particular, the audited accounts for X for the years 2002/03 and 2003/04 show the business making a loss.

23.  Consequently, F decided to purchase Factory 5B herself. Mr Harry says, and I would accept this to be the case, that this is entirely consistent with her being the driving force behind X. F says that she asked the husband to put his name on the documents in order to bolster her chances of obtaining a mortgage. She added, and again she has produced evidence of this, that she decided to ask the husband as opposed to other family members, as everyone else already had mortgage liabilities of their own. Again F’s explanation on this point comes up to proof and is a credible explanation in the circumstances.

24.  The husband for his part says he had absolutely no qualms about helping his sister out – he trusted her completely and knew that she had the ability to make the mortgage repayments. He says that he was not asked to contribute towards the down payment or to the mortgage repayments and that he has never made a contribution of any kind towards the purchase of the property.  

25.  Consequently, F was able to obtain a mortgage for 60% of the asking price, which meant that she only had to put down 40%. Although this has been challenged by the lawyers for the wife, I accept that F has been able to show that she paid for the initial deposit and further deposit as follows:

85. The documentary evidence clearly indicates that the 40% down-payment and all conveyancing expenses were paid out of F’s own money.  The documentary evidence produced by F includes:

a. Two cashier’s order application receipts dated 13 January 2003 and 25 January 2003 for the payments of the Initial Deposit and Further Deposit (in respective sums of $52,500 and $122,500) from her account at Hang Seng Bank in favor of the vendor Bank of China (HK) Limited [B/380-1 & 380/2];

b. A further cashier’s order and cashier’s order application receipt dated 18 February 2003 for a sum of $543,125 paid in favor of her conveyancing solicitors Fan Wong & Tso Solicitors & Notaries [B/382] as part payment of the Final Payment and full conveyancing costs and disbursements.  See also a Statement of Account prepared by Fan Wong & Tso Solicitors & Notaries dated 18 February 2003 [B/384]; and

c. F’s bank statement at Hang Seng Bank dated 14 January 2003, 14 February 2003 and 14 March 2003 [E/38, E/40, E/43] confirming that the above payments were made out of her account.

(See Mr Harry’s closing submission)

26.  Both F and the husband have consistently stated that the husband did not contribute in any way to the purchase of the property. Despite valiant attempts by Mr Surman in cross examination it does not seem to me that the wife has been able to show otherwise. Further I accept that it was never the wife’s pleaded case that the husband had made payments into F’s bank account in order to assist with the purchase.

27.  After the purchase, F set up an account with the mortgagee bank in order to facilitate the payment of the mortgage. I accept that this would be entirely normal in the circumstances and that given that the property was legally held by the husband and F the bank account was also held in both of their names.

28.  It is F’s case that as the Chairman, Director and shareholder of X, that she effectively ran X. She was in charge. Her parents, as the original founders of the company were also directors. However, since in or around 1996 when her father became ill, she has become more and more involved in the running of the business. It is the wife’s case that the husband was the Managing Director of X and founder of X Ltd and that he opened new stores and ran that side of the business. She says in her witness statement that Factory 5B was purchased as an office for X Ltd. However, F was able to show that infact X Ltd was a dormant company and that the new stores that were opened did so under the auspices of X. In other words, the wife’s understanding was incorrect. Further although the husband was the Managing Director of X he was not a director or shareholder. F says that he was involved in product design and held the title of Managing Director so that he could sign cheques when she was out of town – that was all. It is also of note that F was able to show that she was the ultimate beneficial owner of X in that she holds 299,999 of the original bearer stock certificates of an off shore company called G Ltd. She also holds the remaining one share in her own name. Although much was made of this during the trial – I accept that this simply reaffirms what appears to be the position from the other evidence produced – namely that X was effectively F’s company.

29.  In keeping with this it is F’s case that she would transfer money to X when cash was tight and that on other occasions she would not seek reimbursement when she purchased items for or on behalf of the company. Thus she always had a significant Director’s loan with X. Although, when the company was doing well, some of this would be clawed back, it was F’s evidence that generally the company always owed her more than she was able to take out. Thus she arranged for the mortgage to be paid by X. It is F’s case that X would then off set this sum against the significant sums owed to her.

30.  Although F was not able to produce evidence going all the way back to 2003, she was able to produce more recent evidence which supported her version of events. For example, the joint named passbook was produced to show ongoing payment of the mortgage and it was also possible to see payments being made into that account, sometimes in cash. Further I accept that F was able to show that X owed her money by way of a Director’s loan. I accept that ultimately F came up to proof on a great deal of this, despite the long passage of time and the fact that there was no hint at the time that Factory 5B was purchased that she would ever be required to do so. Although the evidence was sometimes produced in a fairly haphazard way and some of it was produced very late in the day, nevertheless she was able to support her case by cogent evidence. Perhaps more importantly there is no evidence to suggest that the husband made any of these payments. Further it seems to be accepted that X paid for all of the other outgoings on the property including the management fee and government rates, consistent with them renting the property from F.

31.  The alternative of course is that in truth Factory 5B is beneficially held by X. However, I accept that this has never been pleaded by anyone and that on the evidence presently before me is rather unlikely.

32.  On a balance of probabilities therefore I accept that the husband and F are holding the entire beneficial interest of Factory 5B on trust for F. For the avoidance of doubt I accept that Factory 5B is not beneficially owned by the husband and that it is not available for distribution between husband and wife in the current matrimonial proceedings.   

33.  Given that I am able to come to this conclusion by examining the whole history of the ownership of the property holistically since its purchase to date and by reference in particular to F’s and the husband’s conduct in relation to it, there is no need for me to look to presumptions or to consider whether or not that this is indicative of a resulting trust or a common intention constructive trust.

Costs 

34.  As stated above I have expressed my concern about costs on several occasions and in particular the potential effect that a costs order might have on the eventual outcome of this case. There have also been issues with respect to the late production of documents etc. In such circumstances I will in the first instance reserve the issue of costs for argument. Both sides are invited to file and exchange a written submission on costs within the next 28 days. It is the court’s intention to then try to deal with this matter on paper only without the need for a further hearing on the issue. In addition, there shall be a further First Appointment hearing on the 13 April 2017 at 10:30 am. Both parties do personally attend that hearing. Any further applications, restored or otherwise shall also be fixed in the first instance for directions on that date.  

FCMC 11141/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11141 OF 2013

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J U D G M E N T
(Litigation funding)

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Introduction

1.  This is the second application by the Petitioner wife for litigation funding, pursuant to s 3 Matrimonial Proceedings and Property Ordinance, Cap 192 (MPPO). In the first judgment dated the 1 December 2015 I concluded as follows:

22.   Having considered the above arguments I will therefore rather reluctantly make an order that the husband do contribute HK$350,000 towards the wife’s legal costs – i.e. HK$50,000 per month with effect from the 1 December 2015 until the 1 June 2016. The preliminary issue hearing is scheduled to take place in late April 2016. In addition I will set the Financial Dispute Resolution hearing down for hearing on the 13 June 2016 at 2:30 pm with 2 hours reserved. Both parties do personally attend that hearing. This order is made on the premise that the wife will undertake to apply those funds only to the payment of her legal costs and that this sum shall be paid directly to her legal representatives. There shall also be liberty to apply.

The wife now seeks HK$100,000 per month from the date of the summons i.e. the 16 May 2016.

2.  Unfortunately the preliminary issues hearing went part heard. It is due to come back before the court on the 1 November 2016 for a further three days. Some of the difficulty arose because of the very late disclosure of documents by the husband and the interveners. They sought leave to file additional documents on the last day of trial. I am told that it was not until the 27 June 2016 that audited reports and other financial documents relating to the 1^st Intervener Company were actually produced. It seems to me that this approach is also indicative of the litigation tactics employed by the husband and the interveners to date. For example I have referred previously to the de minimalist approach taken by the husband to disclosure and the “catch me if you can” element to it.

3.  In addition I have also been critical of the wife’s rather dogged approach to disclosure. The concern of course is that ultimately the legal costs may outstrip the value of any assets held by the couple and that this will render any final award nugatory.        

4.  The wife’s legal team complain, and with some justification that it is proving increasingly impossible to understand the financial arrangements surrounding the 1^st Intervener company and other related companies. They wish to employ a forensic accountant to assist them. However given the stated financial circumstances of the parties it is hard to see how that will be possible.  

5.  The husband for his part says that his position is now untenable. He says that he is not avoiding his responsibilities but that he simply does not have the means to pay the maintenance ordered – either for litigation funding or generally. He says that the business has suffered of late and that his elder sister (the 2^nd Intervener) is no longer in a position to advance him funds. Likewise lending institutions are no longer willing to loan him money. He says that he has borrowed HK$150,000 from a friend and that this will hopefully be sufficient for the next six months. As I said in the previous judgment on litigation funding

7.  ….Although it is of course correct that I can take into account what the husband’s current financial resources are, including his ability to borrow, that does not mean that I should ignore completely what now appears to be the reality of the situation. ...

6.   I am though concerned that the preliminary issues trial should conclude with the same legal teams in place. I accept that it would not be in the interests of justice for that to be altered in any way now.

The central issue

7.   The only issue to be determined then is whether or not there should be a further order for litigation funding, and if so, in what amount and for what period?

Litigation costs

8.  As indicated previously in so far as the law on the funding of litigation costs is concerned, Currey v Currey [2006] EWCA Civ 1338 continues to be routinely applied in Hong Kong. This states inter alia that:

“the conditions for a ‘costs allowance’ are as follows:

(1) That the applicant spouse has no assets, or none that can reasonably be deployed (at para [19], [20]).

(2) That she can provide no security for borrowing, or none which can reasonably be offered (at paras [19], [20]).

(3) That she cannot reasonably obtain legal services by offering a charge on the outcome of the litigation (at para [20] and see Sears Tooth, per Wilson J).

(4) That she cannot secure publicly funded legal help ‘at a level of expertise apt to the proceedings’ (at para [20])”

There is also a requirement to undertake an overarching enquiry

At para [20], Wilson J held that the initial, overarching enquiry should be into whether the applicant for a costs allowance could demonstrate that she cannot reasonably procure legal advice and representation by any other means. Therefore, to the extent that an applicant has assets (as in C v C), she has to demonstrate that they cannot reasonably be deployed (whether directly or as the means of raising a loan) in funding legal services …… Other factors may well come into play.  The subject matter of the proceedings would always be relevant, as would the reasonableness of the applicant’s stance in the proceedings.

9.  In addition reference can be made to the English case TL v ML [2006] 1 FLR 1263 and in particular to paragraph 124 (v):

[124] (v) Where the paying party has historically been supported through the bounty of an outsider, and where the payer is asserting that the bounty had been curtailed, but where the position of the outsider is ambiguous or unclear, then the court is justified in assuming that the third party will continue to supply the bounty, at least until final trial (M v M).

Is this an appropriate case to award litigation funding, and if so, in what amount and for what period?

10.  As before I continue to have concerns about this application and the litigation generally. I accept that the wife satisfies the four conditions referred to above in Currey and Currey, namely she has no assets of her own and there are none that can be deployed for litigation funding. I accept that it follows that she can provide no security for borrowings. She cannot offer a charge on the outcome of the litigation and previously she has applied for and been refused legal aid – although it seems to me that this is something that may need to be revisited post the preliminary issues hearing. Thus on the face of it she has no ability to raise funds for her own litigation. The husband maintains that he is in a similar position. He is currently representing himself. 

11.  Previously I reluctantly made an order with the intent of taking this matter up to a Financial Dispute Resolution hearing. That did not happen. The fault for this lies entirely at the door of the interveners and the husband; the wife is entirely blameless for this rather unfortunate turn of events.    

12.  In such circumstances I will at this stage make an order with a view of taking this matter up to the preliminary issues hearing only. Thereafter it may be that the wife will need to give some thought to making a further application for legal aid.

Conclusion

13.  I will therefore make an order that the husband do continue to contribute HK$50,000 per month towards the Petitioner’s litigation costs with effect from the 1 July 2016 until the 1 November 2016 inclusive. I accept that it will not be possible for the husband to pay HK$100,000 per month but I am reasonably confident that he should be able to continue to borrow as he has in the past to meet this lower amount. 

Costs

14.  Costs shall be reserved.

FCMC 11141 / 2013

NUMBER 11141 OF 2013

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J U D G M E N T
(Litigation funding)

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Introduction

1.  This is an application by a Petitioner wife for litigation funding, pursuant to s 3 Matrimonial Proceedings and Property Ordinance, Cap 192 (MPPO).

2.  This litigation has been ongoing for some time. I am told that the parties have been before the court on no less than eight separate occasions for First Appointments and other callovers. In addition there was a maintenance pending suit hearing in March 2014. In the maintenance pending suit judgment dated the 2 April 2014 I ordered inter alia as follows:

UPON the Respondent husband undertaking to continue to provide for the Petitioner’s housing at the “C road property” and to undertake to pay for the management fees and utility expenses on the said property by auto pay.

AND UPON the Respondent undertaking to continue to make available to the wife the supplemental credit card up to a limit of at least HK$4,000 per month.

AND UPON the Respondent undertaking to continue to pay for the children’s school fees directly.

IT IS ORDERED THAT:

1) The Respondent shall pay maintenance pending suit to the Petitioner for herself in the sum of HK$20,000 per month and interim maintenance to the Petitioner for the two children of the family in the sum of HK$15,000 per month per child the first payment to be made on the 1 April 2014 and thereafter to be paid on the 1^st day of each succeeding month until further order.

There was no provision in that judgment for litigation funding.

The litigation

3.  It would be fair to say that I was fairly critical of the husband and the approach taken by his legal team in the maintenance pending suit judgment. In particular I found that the husband had taken a de minimalist approach to disclosure and that there was a catch me if you can element to it. I added at paragraph 30 that:

c) Alleged drop in income

30. The husband’s main point is that in any event, regardless of the financial resources that were made available to him previously, that this has now changed. As indicated above it is not possible for me to make any definitive findings of fact in relation to this at the current stage of the proceedings. I would however accept the point made by counsel for the wife that if indeed that is the husband’s case then the onus is on him to provide clear and unequivocal evidence in support of what he says. To date such evidence has not been forthcoming.

4.  Since then there have been three further rounds of discovery. It is the husband’s case that he has provided a great deal of additional information to the wife at her request. It is of note that she has not set out her case on further disclosure in correspondence or otherwise. Indeed there have been no further requests for additional information for about a year or so. Infact even in this hearing her position was only explained in very general terms. It was said on her behalf by Mr Surman that:

22. Given the complex and opaque corporate structure of H’s family business included but not limited to X and X D with X adopting trade names such as “X” and “Y”; it has been an almost impossible task for W and her legal team to understand the true financial position of H as he had offered little to no assistance coupled with bare denials and patchy information in this regard throughout these proceedings.

23. W has a pressing need to obtain specific discovery on H’s family companies in order to fully understand H’s financial position by obtaining assistance from forensic accountants, property/ business valuers and experienced lawyers.  However, she is unable to given the lack of funds to obtain proper legal and expert assistance.

5.  However it is still not clear exactly what it is that the wife wishes to further discover and what her case is precisely other than as set out above. The rather unfortunate impression is that she is set to embark on a fishing expedition. Mr Surman pointed to a number of small points in his submission, but unfortunately this does not really take the matter very much further forward. Counsel for the husband suggested that:

15. The Wife seems determined to run her case by blaming it on the Husband’s non-disclosure.  But increasingly such an argument does not seem to hold water after rounds of discovery (see Appendix A).  Other than two US investment accounts that the Husband is jointly holding with and for the benefit of the Children and life insurance policies having the Children as beneficiaries, the only valuable asset of the Husband that was found to have been omitted to include in his Form E is a second handed Alfa Romeo Spider vehicle with a market value of $70,000.  Apart from the above, there is no evidence supporting the Wife’s allegation that the Husband still holds assets that have not been fully disclosed in the action.

6.  Time will tell if this is right or not. However given the way in which this case has evolved since the maintenance pending suit hearing I have to say that I now have some sympathy with the husband on this aspect of the case.

7.  The husband’s case continues to be that he is a laid back individual who supported his wife and children by relying in part on the financial assistance of his parents. This assistance is no longer forthcoming – for reasons which I will not go into here. Consequently he has turned to his sister, the 2^nd intervener for financial support. She has filed an affidavit in which she has set out the difficulties that she is now facing plus the present financial status of the family companies. Although it is of course correct that I can take into account what the husband’s current financial resources are, including his ability to borrow, that does not mean that I should ignore completely what now appears to be the reality of the situation. Certainly there is no reason for me to disbelieve the sister’s evidence.

8.  The preliminary issue has now been set down for trial for four days in April 2016. This hearing is concerned with establishing whether or not the husband has any beneficial interest in a factory premises. If so what is the extent of that beneficial interest and how should it be treated when considering the distribution of assets between the parties on the breakdown of their marriage. I think it is important at this stage to put that dispute into its proper context. The value of the factory premises is put at HK$7 million. There is very little otherwise that is arguably held in the husband’s name. The wife owns very little. Thus

18. In the event that the Wife is unsuccessful in the Preliminary Issue, the total asset left in the family pool will be reduced to about $1M to $1.4M.  Both the Wife and the Husband claim that they are borrowing moneys from their own family to maintain this action, if these “soft” loans are to be further deducted from their assets, each of Husband and Wife has only net debt.

9.  It is in this context that the wife seeks litigation funding of HK$85,000 per month. She estimates her costs up to and including the FDR hearing at just over HK$1 million.

The central issue

10.  The only issue to be determined then is whether or not in this context, this is an appropriate case to award litigation funding, and if so, in what amount?

Litigation costs

11.  In so far as the law on the funding of litigation costs is concerned, Currey v Currey [2006] EWCA Civ 1338 continues to be routinely applied in Hong Kong. This states inter alia that:

“the conditions for a ‘costs allowance’ are as follows:

(1) That the applicant spouse has no assets, or none that can reasonably be deployed (at para [19], [20]).

(2) That she can provide no security for borrowing, or none which can reasonably be offered (at paras [19], [20]).

(3) That she cannot reasonably obtain legal services by offering a charge on the outcome of the litigation (at para [20] and see Sears Tooth, per Wilson J).

(4) That she cannot secure publicly funded legal help ‘at a level of expertise apt to the proceedings’ (at para [20])”

There is also a requirement to undertake an overarching enquiry

At para [20], Wilson J held that the initial, overarching enquiry should be into whether the applicant for a costs allowance could demonstrate that she cannot reasonably procure legal advice and representation by any other means. Therefore, to the extent that an applicant has assets (as in C v C), she has to demonstrate that they cannot reasonably be deployed (whether directly or as the means of raising a loan) in funding legal services …… Other factors may well come into play.  The subject matter of the proceedings would always be relevant, as would the reasonableness of the applicant’s stance in the proceedings.

12.  In addition reference can be made to the English case TL v ML [2006] 1 FLR 1263 and in particular to paragraph 124 (v):

[124] (v) Where the paying party has historically been supported through the bounty of an outsider, and where the payer is asserting that the bounty had been curtailed, but where the position of the outsider is ambiguous or unclear, then the court is justified in assuming that the third party will continue to supply the bounty, at least until final trial (M v M).

13.  In this case the position of the outsider is not ambiguous or unclear. On the face of it the husband’s parents are no longer willing to provide the husband with additional financial support for the wife and two children of the family. Further the 2^nd intervener has clearly set out her own financial difficulties and those of the companies.

14.  Reference was also made by both sides to the leading Court of Appeal decision on the issue of maintenance pending suit and litigation funding namely HJFG v KCY [2012] 1 HKLRD 95, 28 October 2011. In that judgment The Honourable Mr Justice Hartmann (as he then was) said inter alia as follows:

78. Section 3 of the Ordinance, of course, still required the Judge to be satisfied that any contribution towards the wife’s ongoing legal costs was reasonable.  That meant that he had to be able to conduct some analysis of the nature and extent and purpose of the contributions sought.  On the part of the wife, that required some breakdown of her anticipated costs.

79. Aside from the fundamental requirement of supplying a sufficiently detailed breakdown of anticipated costs, I am of the view that the following principles articulated by Wilson LJ in Currey v Currey should in future be adopted as providing prudent guidance to both judges and practitioners in this jurisdiction.

15.  It is therefore essential, in any application for litigation funding, that the applicant is able to supply the court with “a sufficiently detailed breakdown of anticipated costs”.

16.  In addition Mr Justice Hartmann said:

82. The period over which an allowance for legal costs was to be paid was also considered by Wilson LJ to be a factor of considerable relevance.  Applications should not therefore expect that an order that the allowance be paid until the final determination of all proceedings will be the inevitable order.  It was observed that if the application for an allowance for legal costs was made before the FDR hearing, it may well be wise to order that the costs allowance should fund the applicant only up to that hearing:

17.  In that case the Court of Appeal ordered that the wife should receive HK$500,000 per month by way of a contribution towards her litigation funding, such sum to be paid until the FDR hearing or until further order.  

Is this an appropriate case to award litigation funding, and if so, in what amount?

18.  I have a number of difficulties with this application. I accept that the wife satisfies the four conditions referred to above at paragraph 11 in Currey and Currey, namely she has no assets of her own and there are none that could be deployed for litigation funding. I accept that it follows that she can provide no security for borrowings. She cannot offer a charge on the outcome of the litigation and she has applied for and been refused legal aid. Thus on the face of it she has no ability to raise funds for her own litigation. The husband argues that he is in a similar position. When considering the matter overall then – as part of the requirement for an overriding enquiry, can it be said that the wife’s stance is a reasonable one? My difficulty is that it seems to me that the wife’s stance is not entirely reasonable. I am particularly concerned that she seems intent on proceeding with further discovery but she has not been able to identify in precise terms what the outstanding issues are.

19.  Further any application should include a breakdown of the anticipated expenditure. Although the wife did provide the court with a breakdown of such costs, the content of that document was a matter of some concern. It was suggested for example in that schedule that there would be four more First Appointment hearings and that both a senior junior and a more junior counsel were necessary in order to properly represent the wife’s interests. With respect this cannot possibly be right. Certainly I can see no need for a further four First Appointment hearings prior to the preliminary issues trial, nor do I necessarily accept at this stage that it will cost an extra HK$155,000 to launch an additional request for discovery, although I accept that some expenditure in this regard is probably inevitable. In the first instance if the wife has any further concerns about discovery it should be dealt with in correspondence. I do accept that the wife will need proper legal representation for the preliminary issues hearing. One counsel should suffice. All the pleadings have been completed thus there is no need for there to be further summonses and affidavits settled. Thus it should be possible to ensure that the costs are reasonably contained.

20.  Counsel for the husband argues that in this case the outcome of the preliminary issues hearing is likely to be a definitive moment in the litigation. I would accept that. However I am also concerned to move this litigation along. Consequently as part of my case management function I intend at this stage to provide the parties with a Financial Dispute Resolution hearing date, the idea being that the litigation funding should continue up until that point. The situation may be further reviewed in the event that an agreement is not reached and the matter proceeds to trial.

21.  Counsel for the husband and the interveners also argues that it is manifestly unfair to make an order when it is clear that the onus for paying will fall on the 2^nd intervener – when she says that she can ill afford to pay any further sums. Again I accept that there is merit in that argument. Counsel says that the husband may seek to take out a mortgage presumably on the factory premises in order to pay for both sides’ litigation costs. I accept that he may have no option but to do so.

Conclusion

22.  Having considered the above arguments I will therefore rather reluctantly make an order that the husband do contribute HK$350,000 towards the wife’s legal costs – i.e. HK$50,000 per month with effect from the 1 December 2015 until the 1 June 2016. The preliminary issue hearing is scheduled to take place in late April 2016. In addition I will set the Financial Dispute Resolution hearing down for hearing on the 13 June 2016 at 2:30 pm with 2 hours reserved. Both parties do personally attend that hearing. This order is made on the premise that the wife will undertake to apply those funds only to the payment of her legal costs and that this sum shall be paid directly to her legal representatives. There shall also be liberty to apply.

Costs

23.  Costs shall be reserved.

24.  Finally – a word of warning. It seems to me that the parties should seriously take steps to try to settle this case. The alternative is likely to be huge and unrecoverable costs for all concerned. This is something that needs to be avoided if at all possible.

FCMC 11141 / 2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11141 OF 2013

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J U D G M E N T
(Maintenance pending suit/Interim maintenance)

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Introduction

1. This is an application by a Petitioner wife for maintenance pending suit for herself pursuant to s.3 Matrimonial Proceedings and Property Ordinance Cap 192 (MPPO) and interim maintenance for the two children of the family; boys aged 13 and 10 years, pursuant to s.5 of the same ordinance.

The main issues

2. In broad terms there is only one issue to be determined namely how much maintenance should the husband pay to the wife for herself and the two children of the family on an interim basis.

Background 

3. The parties married in April 2000 and separated on the 8 December 2011 when the husband left the former matrimonial home following allegations by the wife of infidelity on his part. The wife issued a divorce petition on the 1 August 2013 and the decree nisi was pronounced on the 9 October 2013. The parties sensibly came to terms in relation to the boys and they subsequently agreed joint custody with care and control to the wife and reasonable access to the husband.

4. The wife has been a housewife since marriage. The husband is a Managing Director of a family jewellery business.

Each party’s case

The wife’s case

5. The wife’s case is that the husband works for the family business – which was established by his parents many years ago. It has now developed into what appears to be a substantial jewellery company with X retail shops in Hong Kong dealing in all kinds of jewellery and precious stones including diamonds. It seems that this business has evolved over time and that originally the company sold more traditional gold items and jewellery. The wife also says that the family business holds a number of properties through various corporate structures. Although the wife accepts that the husband’s actual income is fairly minimal, it is her case that a significant portion of the family’s regular monthly expenses were paid for by the husband’s family company/ies and that this is a financial resource that is currently available to the husband. 

6. The wife points out that she is totally reliant on the husband financially. The parties married when she was only 24 and they had their first child within the year. She says that she became a housewife by agreement. Although she has a degree in Hotel and Catering Management she has not worked since marriage and even prior to marriage her work experience was fairly minimal. She also suffers from rheumatoid arthritis, which may make an immediate return to the workforce problematic.

The husband’s case 

7. In contrast it is the husband’s case that he has had an easy life and that he is not actively involved in the running of the family business. Although he accepts that additional monies have been made available to him and his wife and children, he says that these monies are gifts from his parents and that this money is not something that he is entitled to as of right. In his affirmation of the 25 February 2014 he said at paragraph 8 that

8.  Being the youngest son of my parents, I am not expected by the family to take an active role in the family business nor to make any contribution to the business.  I am not very interested in running business or working.  All along, I have been leading a relatively unambitious and relaxing life.  I only spend a few hours or less on work every day and do not need to attend work at the company on the daily basis.

8. It is the husband’s case that his parents have cut down on their financial support because a) the wife’s maintenance claims have increased significantly, b) the wife refused to let his parents see the grandchildren and c) the wife has made a claim against the property in which she is presently living, which is a property owned by a family company. He says that this has angered his parents.

9. Thus it is the husband’s case that he does not have the financial resources to pay the wife as requested. The husband says that prior to separation he paid the wife HK$37,000 per month, but that recently the wife’s requests for payment have increased significantly. It is still not clear to me, even following the hearing what expenses were historically covered by the sum of HK$37,000 per month and what expenses were paid directly, on the husband’s case, by the family business and/or his parents. 

Each party’s respective proposals

10. The wife seeks an undertaking from the husband that she be permitted to continue to reside with the children in the property in which she is currently living – “the C Road property”. In addition she seeks either a monthly payment of HK$80,000 or a monthly payment of HK$58,197 plus an undertaking by the husband that he continue to pay the utilities (electricity, gas, water, telephone, management fees, rates and government rent (if any) on the “C Road property”, plus the children’s school fees and other associated expenses. In addition the wife seeks an immediate payment of HK$50,416.54 being a reimbursement of monies spent by her for the family.

11. The husband for his part offers to pay the wife maintenance of HK$37,000 per month with a possible 5 – 10% uplift – i.e. HK$40,500 maximum. In addition he says that he will undertake to provide for the wife’s housing at the “C Road property”. Thus the maintenance payment proposed is to cover all of the other expenses, including it would seem the children’s school fees.   

The law

Maintenance pending suit and interim maintenance

12. The law is well known and not in dispute. Section 3 Matrimonial Proceedings and Property Ordinance Cap 192 states that the only governing principle is that the court shall make such order as it considers reasonable in all of the circumstances of the case. Consequently applications such as these are approached on a broad-brush basis. A detailed examination of the parties’ means may be examined at a later date at a full ancillary relief hearing if there is no agreement in the meantime, when there is then every opportunity to achieve fairness by means of a set off. In other words, if there is any overpayment or underpayment that can normally be rectified at a final ancillary relief hearing. Applications for interim maintenance under section 5 of the same ordinance are approached in the same way. As Rayden points out

…what really matters is the immediate and reasonable requirements of the wife balanced against the ability of the husband to pay for them, assessed using a broad-brush approach. (See paragraph 16.17 of Rayden, 18^th edition).

13. Further

In practice, as oral evidence is rarely given, it will be unusual for the court on an application for maintenance pending suit to be in a position to make findings of fact on issues in dispute sufficient, for example, to deal with conduct or allegations of non disclosure.  However, if it is demonstrated that the paying party has not performed his duty to make full and frank disclosure of his financial resources, then the court can take a broad and robust view of his means, and it does not have to accept and proceed on the basis of the assertions of the paying party as to his means and an inability to pay.  The court can look at the reality of the situation …… Any under provision or over provision in the order for maintenance pending suit can always be corrected when the account comes to be taken at the substantive hearing when there are every opportunity to do fairness by set off ……” (See paragraphs 16.18 of Rayden, 18^th edition).

14. Likewise the court may look to the assertions made by the payee and take a similar approach when looking at her means and alleged reasonable requirements.  The court should look to the reality of the situation, in so far as it can, in relation to bare assertions made by either the husband or the wife.

15. Although I was not specifically referred to further authority by either side it seems to me that the following section from Jackson’s Matrimonial Finance 9^th edition (paragraph 3.92) may also be of some assistance:

“When a party applies for an order for maintenance pending suit or for periodical payments, it is not a complete answer to the claim for the potential payer to say: ‘I have no income and no assets’. In one case, a husband with a very small income (in three successive years it was £42, £69, £60) who asserted that he was ‘living on borrowed money and staving off a number of creditors while he [was] developing certain properties’, was nevertheless shown to have maintained by means of bank loans a consistent standard of living over a substantial period: the court in effect held that if he could borrow for himself he must likewise borrow for his wife. The principle was that he was able to touch resources from which payments could be made; he had the ability to obtain the necessary money, albeit bank loans, and it was assumed that his ventures were such as not only to justify the loans but also reasonably to contemplate their repayment in due course ….”

16. Counsel for each side has also referred me to a number of cases. Mr Barnes for the wife has referred me in particular to the Court of Appeal decision HJFG v KCY [2012] 1 HKLRD 95 where it was held that:

“(a) The sole criterion to be applied in determining the application is ‘reasonableness’, which is synonymous with ‘fairness’.

(b) A very important factor in determining fairness is the marital standard of living. That is not to say that the exercise is merely to replicate that standard.

(c) In every maintenance pending suit application there should be a specific maintenance pending suit budget which excludes capital or long-term expenditure, more aptly to be considered on a final hearing. That budget should be examined critically in every case to exclude forensic exaggeration.

  (d)  Where the affidavit or Form E disclosure by the payer is obviously deficient, the court should not hesitate to make robust assumptions about his ability to pay. The court is not confined to the mere say-so of the payer as to the extent of his income or resources.  In such a situation the court should err in favour of the payee.”

17. Ms Li for the husband has also referred me in particular to the Court of Final Appeal’s decision in KEWS v NCHC [2013] 2 HKLRD 314 and argues that the same principles should be applied to the present case. Although I would accept that in the final analysis KEWS v NCHC may be of some relevance on final ancillary relief, it is hard to apply these same principles to a maintenance pending suit/interim maintenance application, given that there can be no findings of fact made in relation to the financial resources of the husband and the financial relationship between him, his parents and the family business.

The husband’s ability to pay 

18. Counsel for the wife makes a number of points in support of the wife’s basic contention that the husband does have the capacity to pay. He says that a) the husband has failed to make full and frank disclosure of his means, b) his portrayal of himself as being underemployed in the family business is a litigation tactic, c) his alleged drop in income is not supported by the evidence, d) his level of income and other financial resources are greater than he is willing to disclose and e) he is also in a position to meet the wife’s reasonable needs in the short term – by borrowing against assets if need be. 

a) Failure to make full and frank disclosure

19. It is alleged that the husband has taken a de minimalist approach to disclosure. As will be seen I would accept that to be the case. In his Form E dated the 13 November 2013 the husband states that he has an income of HK$33,000 per month. There is no reference even to a year end bonus. He does not provide information in relation to any other income nor to any other financial resources. He says that he is a 50% beneficial owner of a factory unit in Kwun Tong. He does not admit to owning any cars. He offers the wife HK$5,000 per month as maintenance for herself, HK$18,000 as maintenance for the two boys and a further lump sum for the wife of HK$500,000.K$18,000   

20. This pattern continued in his Answers to the Wife’s request for Further and Better Particulars dated the 30 January 2014. When he was asked about the source and purpose of the following deposits he responded as follows:

Transaction Date	Amt (HK$)	ANSWER
30th August 2011	30,487.00	Salary (August 2011)
3rd October 2011	31,517.00	Salary (September 2011)
1st November 2011	29,000.00	Salary (October 2011)
10th November 2011	13,900.00	Can’t recall
28th November 2011	29,000.00	Salary (November 2011)
19th December 2011	28,000.00	Can’t recall
4th January 2012	30,464.00	Salary (December 2011)
9th January 2012	59,000.00	Salary (January 2012) and year-end bonus
12th January 2012	19,618.10	Can’t recall
19th January 2012	29,000.00	Can’t recall
12th March 2012	59,609.00	Salary (February 2012) and year-end bonus
29th March 2012	34,838.00	Salary (March 2012)
12th April 2012	63,710.00	Can’t recall
7th May 2012	33,158.00	Salary (April 2012)
6th June 2012	32,000.00	Salary (May 2012)
10th July 2012	31,750.00	Salary (June 2012)
14th August 2012	54,000.00	Can’t recall
17th August 2012	33,655.00	Salary (July 2012)
27th August 2012	15,400.00	Can’t recall
3rd September 2012	32,620.00	Salary (August 2012)
3rd October 2012	32,188.00	Salary (September 2012)
10th October 2012	16,604.46	Can’t recall
31st October 2012	31,750.00	Salary (October 2012)
9th November 2012	71,491.00	Can’t recall
4th December 2012	31,750.00	Salary (November 2012)
19th December 2012	25,000.00	Can’t recall
3rd January 2013	32,599.00	Salary (December 2012)
18th January 2013	15,000.00	Can’t recall
1st February 2013	32,743.00	Salary (January 2013)
11th March 2013	56,500.00	Salary (February 2013) and year-end bonus
8th April 2013	57,739.00	Salary (March 2013) and year-end bonus
2nd May 2013	32,707.00	Salary (April 2013)
3rd June 2013	31,750.00	Salary (May 2013)
2nd July 2013	31,750.00	Salary (June 2013)
17th July 2013	19,000.00	Can’t recall
7th August 2013	33,535.00	Salary (July 2013)
2nd September 2013	33,097.00	Salary (August 2013)

21. This general approach continued in paragraph 22 as follows:

22.  Please state the sources and purposes of the following deposits and provide documentary evidence to support the Respondent’s answers:-

Transaction Date	Description	Amount (HK$)	ANSWER
9th January 2012	CA CASH DEPOSIT	54,000.00	Cash deposit Cannot recall purposes
12th January 2012	XFR FROM 00000XXXXXXX	59,000.00	Transfer from XXXXXXX Cannot recall purposes
24th February 2012	Sell-01211	64,188.97	Sold shares
14th March 2012	Sell-00735	35,861.12	Sold shares
14th March 2012	Sell-01203	13,923.88	Sold shares
26th March 2012	XFR FROM 00000XXXXXXX	50,000.00	Transfer from XXXXXXX Cannot recall purposes
24th September 2012	CA CASH DEPOSIT	68,000.00	Cash deposit for credit card payment
10th October 2012	CA CASH DEPOSIT	160,000.00	Cash deposit for renovation of the C property
12th October 2012	CA CASH DEPOSIT	13,500.00	Cash deposit for P’s CM
26th October 2012	CA CASH DEPOSIT	13,500.00	Cash deposit for P’s CM
26th November 2012	XFR FROM 00000XXXXXXX	13,500.00	Transfer from XXXXXXX for P’s CM
29th November 2012	CA CASH DEPOSIT	13,500.00	Cash deposit for P’s CM
18th February 2013	XFR FROM 00000XXXXXXX	25,674.84	Transfer from XXXXXXX Cannot recall purposes
15th March 2013	CA CASH DEPOSIT	13,500.00	Cash deposit for P’s CM
18th April 2013	XFR FROM 00000XXXXXXX	46,200.00	Transfer from XXXXXXX for credit card payment
3rd May 2013	CA CASH DEPOSIT	10,400.00	Cannot recall purposes
21st May 2013	XFR FROM 00000XXXXXXX	23,648.24	Transfer from XXXXXXX for credit card payment
7th June 2013	CA CASH DEPOSIT	13,000.00	Cash deposit for P’s CM
21st June 2013	CA CASH DEPOSIT	12,500.00	Cash deposit for P’s CM
12th July 2013	XFR FROM 00000XXXXXXX	23,452.00	Transfer from XXXXXXX Cannot recall purposes
19th July 2013	CA CHECK DEPOSIT	25,839.00	Check deposit but Cannot recall purposes
22nd July 2013	XFR FROM 00000XXXXXXX	17,000.00	Transfer from XXXXXXX Cannot recall purposes
9th August 2013	CA CASH DEPOSIT	12,500.00	Cash deposit for P’s CM
19th August 2013	XFR FROM 00000XXXXXXX	19,604.00	Transfer from XXXXXXX for credit card payment
2nd September 2013	CA CASH DEPOSIT	13,000.00	Cash deposit for P’s CM
19th September 2013	XFR FROM 00000XXXXXXX	31,626.29	Transfer from XXXXXXX for credit card payment

In general he said that

“The Respondent cannot recall exactly the source of each transaction but some of the cash deposits were gifts of moneys from the Respondent’s parents”.

22. It was therefore noted with some surprise that the husband’s counsel said as a matter of fact in her written submission that

16.  As shown in the said bank statements, the Husband also receives additional sources of moneys in particular financial support from his family by way of deposits into his saving and checking banking accounts: no..XXXXXXX and no. YYYYYYY.

23. She then went on to analyse the bank accounts and stated that on average an additional HK$15,800 per month had been deposited into the husband’s bank accounts in addition to his salary from August 2011 to March 2014. She referred to those items in Annex 1 of her submission. The schedule in Annex 1 was exactly the same as that set out in paragraph 20 above save that references to “can’t recall” had been deleted. Likewise she said that from September 2011 to February 2014 additional cash deposits were made into the husband’s bank account which averaged out at HK$8,440 per month. This is set out in Annex 2, which again is exactly the same as paragraph 21 above save that where the husband had previously said inter alia that he could not recall the purpose of some items. In Annex 2 those words have likewise been deleted. In summary she said that:

17.  In brief, for the said period as disclosed (from August/September 2011 to February/March 2014), the Husband had:-

a.  Take-home salary (inclusive of bonus) = HK$34,631 per month;

b.  Other deposits into saving account no.XXXXXXX = HK$15,800 per month;

c.  Other deposits into checking account no. YYYYYYY = HK$8,440 per month;

d.  Special gifts from the family for the Wife’s medical expenses = approximately HK$12,500 (also see paragraph 36 hereinbelow).

e.  In other words, apart from the special payments from the family for the Wife’s medical expenses, the average monthly financial resources of the Husband was approximately HK$58,800 (HK$34,631 + HK$15,800 + HK$8,440).

24. This had not been the husband’s case either on affidavit or in Answer to Requests for Further and Better particulars. Counsel goes on to argue that the husband’s financial resources have reduced over the last 6 months and that this can likewise be gleaned from the bank statements. She concludes 

a.  In other words, the present monthly financial resources of the Husband is about HK$40,360 (HK$34,631 + HK$5,731).

25. Thus it seems that the husband’s barrister was saying something quite different in her submissions as compared to the husband’s written evidence on oath. When challenged on this she said that she was acting on her client’s instructions. She also offered to put the husband in the witness box to give evidence presumably to make good the deficiencies of his written evidence. No notice had been given to the other side of her intention to do this. It goes without saying that this was a completely inappropriate way to proceed especially given the fact that hearings of this nature are generally dealt with on a submission only basis. Her application in that respect was denied.  

26. In such circumstances it is clear that the husband had taken a de minimalist approach to the discovery process. There was a “catch me if you can” element to it. He has failed to make full and frank disclosure of his means both in his original Form E and in his subsequent Answers to the wife’s questionnaire. His present financial situation is still far from clear. By way of example the wife says that the husband currently owns a Porsche Turbo and an Alfa Romeo. No cars have been disclosed by the husband to date. It is not clear how those cars are held. In his Answer to the Wife’s questionnaire the husband said at paragraph 39 that he paid HK$25,000 to “A Motors Ltd” for car repair of the Respondent’s [i.e. the husband’s] own car”. As things stand the information provided by the husband is still patchy and far from complete.

27. Mr Barnes also points out that this is not congruent with the husband’s spending patterns as identified in his credit card statements in any event. According to his counsel the husband has spent on average HK$37,230 per month from September 2011 to September 2013 on credit card expenditure. Although the husband’s counsel argued that this included expenditure for the whole family, it should be noted that the parties separated in December 2011, just two months after this record began. Put simply none of this adds up.   

b) The husband’s portrayal of himself

28. It is of note that it is the husband and not the wife who first described himself as a “play boy” although interestingly counsel for the husband made the point that his credit card spending was not reminiscent of a play boy life style. In any event although the wife acknowledges that the husband is not a director of the family companies and that any shareholding held by him is minimal nonetheless she makes the point that

8.  It is not correct that L only takes a “minor role” in the management and conduct of the family business.  F [the wife’s sister] runs the day to day management and controls the finances of the company while L is mainly involved in the design work from end products to interior decoration of the chain stores.  For many years L has been involved in selection of diamonds/stones, division of diamonds/stones, design of products, liaison with suppliers, attendance of exhibitions, purchase of raw materials, determination of product sale prices and design of interior decorations of the various shops.  Even though he does not hold any formal qualification in jewellery or interior design, L is very talented.  Many of the X jewellery products and all the store interior decoration are personally designed or created by him.  Since the opening of the first “X Diamond” store in 2001, the business has grown from one shop to 7-8 shops in prominent locations such as Causeway Bay, Tsim Sha Tsui, Mongkok and Kowloon Bay.  To put it simply, L is responsible for the frontline operations whereas his sister is responsible for internal management and the financial affairs of the company.

29. Time will tell which version is correct. On the face of it however the husband’s involvement in the family companies seems to be more extensive than he was originally prepared to admit.

c) Alleged drop in income

30. The husband’s main point is that in any event, regardless of the financial resources that were made available to him previously, that this has now changed. As indicated above it is not possible for me to make any definitive findings of fact in relation to this at the current stage of the proceedings. I would however accept the point made by counsel for the wife that if indeed that is the husband’s case then the onus is on him to provide clear and unequivocal evidence in support of what he says. To date such evidence has not been forthcoming.

d) Level of income and financial resources greater than he is willing to disclose

31. The husband says that he is willing to pay up to HK$40,500 per month as maintenance pending suit/interim maintenance, whilst at the same time he only admits, according to his counsel to having financial resources of HK$40,360 per month. In addition he offers other various undertakings. Thus even on the husband’s own case he is seemingly prepared to pay more than his income or his other financial resources permit. The only logical conclusion that one can reach in such circumstances is that it is extremely likely that the husband has an income and/or he has financial resources at his disposal that are greater than he is willing to disclose.

e) the husband is in a position to meet the wife’s reasonable needs in the short term – by borrowing against assets if need be. 

32. The husband admits to having a share in a factory premises. Thus there is a possibility that he could borrow against this property in the short term in order to fund the wife’s reasonable needs. There is also the suggestion that he owns two significant cars – which if shown to be true, could likewise be utilized for a similar purpose.   

What are the wife’s reasonable needs?

33. The wife produced the following schedule setting out her reasonable needs and those items that she believed were agreed as follows:

Item	W		H		Order sought
General/Household expenses
Housing	Agreed		Agreed		H undertaking *
Management fee	Agreed		Agreed		H undertaking +  autopay *
Utilities	2,000		Agreed		H undertaking + autopay *
Food	5,000		Not stated		$5,000
Household expenses	2,000		Not stated		$2,000
Car expenses	4,000		3,000		$4,000
Domestic helper	5,000		4,410		$5,000
Sub-total					$16,000
W personal expenses
Meals out of home	500		Nil		$500
Clothing/shoes	1,500		Nil		$1,500
Personal grooming	2,000		Nil		$2,000
Entertainment/presents	2,000		Nil		$2,000
Holidays	2,000		Nil (because MPS only for short period)		$2,000
Medical/dental	13,000		Agreed (gift from parents)		$13,000
Sub-total					$21,000
Children’s expenses
School fees	16,549		Agreed		H undertaking
Tuition	10,500		6,000 (gift from parents)		$10,500
·  Piano	2,500		--		--
·  Mathematics	1,400		--		--
·  Mandarin	1,700		--		--
·  English	4,800		--		--
School books and stationery	500		160-180		$500
Medical/dental	2,000		350-400		$2,000
Entertainment/presents	1,000		Nil (included in household expenses)		$1,000
Holidays	4,000		Nil (because MPS only for short period)		$4,000
Clothing/shoes	1,500		800 (gift from parents)		$1,500
Lunches and pocket money	1,600		Nil (included in household expenses)		$1,600
Other transport	500		Nil (included in household expenses)		$500
Uniform	600		250-270		$600
Sub-total					$22,200
Total					$59,200

34. I have marked with an * those items which appear to have been agreed. The husband said in court that he would undertake to pay or to provide for the wife’s housing at the “C Road property” and to undertake to pay for the management fees and utility costs. He did not dispute the food costs and was willing to agree the domestic helper costs at HK$4,500 per month. In so far as the wife’s medical expenses were concerned (injections for her arthritis) this was agreed at HK$12,500 per month – being the actual historical cost of the injections. In so far as the extra tuition fees were concerned the husband said that he thought that the sum of HK$6,000 per month was more appropriate although he added that he would be willing to go up to HK$8,000 per month. Historically the husband alleged that the parties had paid HK$5,000 – HK$6,000 per month for the children’s extra tuition. He challenged the medical/dental expenses and countered with HK$900 – HK$1,000 per month. He said that the children did not take lunch at school and did not need pocket money. The husband did not comment on the wife’s own expenses and merely reiterated that he did not have the means to pay.

35. Having heard both parties counsel I will allow the following expenses for the wife and the two children of the family:

Item					Order sought
General/Household expenses
Housing					H undertaking *
Management fee					H undertaking +  autopay *
Utilities					H undertaking + autopay *
Food					$5,000
Household expenses					$2,000
Car expenses					($4,000 #)
Domestic helper					$4,500
Sub-total					$11,500
W personal expenses
Meals out of home	500				$500
Clothing/shoes	1,500				$1,500
Personal grooming	2,000				$2,000
Entertainment/presents	2,000				$2,000
Holidays	2,000				$2,000
Medical/dental					$12,500
Sub-total					$20,500
Children’s expenses
School fees	16,549				H undertaking ?
Tuition	10,500				$8,000
·Piano	2,500		--		--
·Mathematics	1,400		--		--
·Mandarin	1,700		--		--
·English	4,800		--		--
School books and stationery	500				$500
Medical/dental	2,000				$1,000
Entertainment/presents	1,000				$1,000
Holidays	4,000				$3,000
Clothing/shoes	1,500				$1,500
Lunches and pocket money	1,600				$1,600
Other transport	500				$500
Uniform	600				$600
Sub-total					$17,700
Total					$49,700

36. At present the wife still has the use of a supplementary credit card with a limit of up to HK$10,000 per month – which she tends to use for car related expenditure i.e. petrol and car parking etc. I have therefore not included the care expenses in the calculation above. This order is however made on the premise that the husband will continue to undertake to make the supplemental credit card available to the wife and that she will be able to use it up to a limit of at least HK$4,000 per month. There was also some ambiguity in relation to the children’s school expenses. When I queried this with counsel she said that the husband’s offer of HK$40,500 per month was inclusive of school fees. However there seemed to be some suggestion that the husband would undertake to continue to pay the school fees directly. I am therefore proceeding on that premise. If the husband refuses to pay the school fees directly then that amount will likewise need to be added to the monthly maintenance figure.

37. Although the husband has repeatedly said that he does not have the financial resources available to pay the wife more than HK$40,500 per month plus the additional undertakings agreed to, I am satisfied that he should be able to pay the sum ordered.

Back payment of HK$58,197   

38. In addition the wife seeks a further sum of HK$58,197 which she says represents monies spent by her which should have been reimbursed by the husband for things like the domestic helpers salary, clothes for the children, balance of tuition fees etc. This is disputed by the husband – who claims that the wife has already been reimbursed for many of those items. He also says that the wife sought and he paid on her request far more than the HK$37,000 per month originally paid following the separation. On his case the following sums were paid following the separation:

Month/Year	Monthly Payment to the Petitioner (HK$)
January 2012	36,000
February 2012	36,000
March 2012	36,000
April 2012	36,000
May 2012	36,000
June 2012	38,000
July 2012	55,000
August 2012	56,000
September 2012	56,500
October 2012	73,000
November 2012	61,000
December 2012	71,500
January 2013	87,500
February 2013	77,500
March 2013	82,000
April 2013	68,000
May 2013	56,000 (plus HK$10,000 from use of credit card)
June 2013	58,000
July 2013	58,500
August 2013	58,500
September 2013	66,500
October 2013	80,000
November 2013	61,000
December 2013	41,000
January 2014	37,000
February 2014	37,000

39. Although the wife has produced copies of some receipts in support of what she says it is hard to determine at this stage what the reality of the situation might be. I will not therefore accede to the wife’s request at this stage. This is however something that may be addressed further at a later stage if no agreement is reached in the meantime.

Conclusion

40. In conclusion then I will make an order that in total the husband pay the wife HK$50,000 per month plus he will undertake to continue to provide for her housing and to pay for the management fees and utility expenses direct, together with the children’s school fees. On a very broad brush basis this also seems to be in keeping with what the husband says was the standard of living enjoyed by the parties prior to the separation. The only difference is that the wife now needs funds to pay for her arthritis injections of HK$12,500 per month. (HK$37,000 + HK$12,500 = HK$49,500 per month).

Costs

41. Although neither party can be said to have entirely won nor entirely lost, given the husband’s general approach to the discovery process and the fact that the wife really had no alternative but to seek the assistance of the court I will make an order nisi to be made absolute in 14 days time that the Respondent do pay the wife’s costs of this application on a party and party basis to be taxed if not agreed, such costs to be paid forthwith.

Order

42. Consequently I shall make an order as follows:

UPON the Respondent husband undertaking to continue to provide for the Petitioner’s housing at the “C Road property” and to undertake to pay for the management fees and utility expenses on the said property by auto pay.

AND UPON the Respondent undertaking to continue to make available to the wife the supplemental credit card up to a limit of at least HK$4,000 per month.

AND UPON the Respondent undertaking to continue to pay for the children’s school fees directly.

IT IS ORDERED THAT: 

1)  The Respondent shall pay maintenance pending suit to the Petitioner for herself in the sum of HK$20,000 per month and interim maintenance to the Petitioner for the two children of the family in the sum of HK$15,000 per month per child the first payment to be made on the 1 April 2014 and thereafter to be paid on the 1^st day of each succeeding month until further order.

2)  The First Appointment hearing shall be adjourned to the 20 June 2014 at 9:30 am. The Financial Dispute Resolution hearing on the same day shall be vacated.

3)  Both parties do personally attend that hearing.

4)  There shall be an order nisi to be made absolute in 14 days time that the Respondent shall pay the Petitioner’s costs of and occasioned by this application on a party and party basis to be taxed if not agreed, such costs to be paid forthwith.