TSC v. LYK

FCMC 2359 /2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 2359 OF 2013

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BETWEEN
	TSC	Petitioner
and
	LYK	Respondent

----------------------------

Coram : Deputy District Judge Grace Chan in Chambers (not open to public)

Date of hearing : 18 December 2013

Date of handing down decision : 22 January 2014

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DECISION
(Leave to appeal; variation of costs order nisi)

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Introduction

1.  On 6 September 2013, I handed down my decision (“Decision”) in respect of the petitioner wife’s 2 summonses on inspection and taking copies of the books of accounts and underlying records of 14 family companies (“inspection summonses”), whereby I rejected her argument that the Family Court has the jurisdiction to grant an order for inspection of companies’ books of accounts pursuant to section 121 of the Companies Ordinance (”Section 121”) or under the common law. However, I allowed inspection of some documents requested by her upon exercise of my discretion under Order 24 rule 13 Rules of the High Court and on concession made by the respondent husband during the hearing (see §78 and Schedule 1 of the Decision).

2.  In the same Decision, I made a costs order nisi that the husband should bear half of the wife’s costs of her application.

3.  By way of her summons filed on 19 September 2013, the wife now applies for:

(1)leave to appeal against my Decision;

(2)variation of the costs order nisi.

4.  The facts relevant to the wife’s inspection summonses were already set out at §§4-8, 12-26 of the Decision and I do not propose to repeat them at length here. For convenience, I would adopt herein the abbreviations used in the Decision.

5.  It may, however, be helpful to note by way of background that before separation of the parties, the wife was an equal director with the husband in the family companies, in that she was in charge of the accounts and management of these family companies. The parties are now in the stage of discovery leading to FDR (yet to be fixed). It is apparent that one of the issues to be examined is the value of these family companies which by itself would throw light on the size of the matrimonial pot.

6.  It is under such circumstances that I once indicated to the legal representatives of both parties at the call-over hearing of the wife’s inspection summonses that in order to ascertain the value of the family companies, it might be more appropriate and time-and-costs-effective for parties to try to agree on the value of the family companies, in lieu of which they should seek expert directions from this court on the appointment of a (single) joint expert. I still maintain the same view up to now.

Applicable Legal Principles on leave to appeal

7.  Section 63A(2) of the District Court Ordinance provides that leave to appeal shall not be granted unless the intended appeal has a reasonable prospect of success or that there is some other reason in the interests of justice that the appeal should be heard.

8.  The wife’s application for leave to appeal is premised on the limb of “reasonable prospect of success”.

9.  The relevant test of whether an appeal has a reasonable prospect of success is whether the applicant for leave can show that he has an arguable case with reasonable chances of success on appeal.  A reasonable prospect of success therefore means an appeal with prospects that are more than “fanciful” but which do not need to be shown to be “probable”: SMSE v KL [2009] 4 HKLRD 125; KNM v HTF, HCMP 288/2011.

The wife’s Proposed Grounds of Appeal

10.  In her draft notice of appeal, the wife seems to seek to appeal against the Decision relating to the jurisdictional point that the Family Court does not have the jurisdiction to make an order under Section 121 (see §1/ on p3 of draft notice of appeal). However, upon clarification by me with Ms Anita Yip, counsel for the wife, in this hearing, it becomes apparent that she is not appealing against the jurisdictional point of the Decision.

11.  Ms Yip now confirms that the appeal is directed only to the wrongly exercise of my discretion under Order 24 rule 13 RHC, which essentially boil down to the following:

(1) I failed to take into full account the effect of Section 121 and her right as a director under the common law;

(2) Because of (1), I erred in finding that it was not necessary to consider and rule on ulterior motive of the wife as alleged by the husband;

(3) I have misconstrued and misunderstood H v M [2000] 2 HKLRD 306, the most direct authority on the issue;

(4) I went wrong in finding that the wife had not explained how inspection of each item of company document was necessary;

(5) I went wrong in finding that the “reminder” documents (as defined in the draft notice of appeal) were too wide and petty.

The starting point

12.  The wife’s appeal is directed to my ruling made in the exercise of my discretion. It is trite to say that where the court below exercised a discretion, the appellant court would only intervene when it considered that the judge below had exceeded the generous ambit within which the judicial disagreement was reasonably possible, and was in fact plainly wrong, and not merely because the appellant court preferred a solution which the judge had not chosen (See: G v G [1985] 2 All ER 225; RK v YS, HCMP 1969/2012 (date of judgment: 1 November 2012)).

13.  Mr Robert Pang SC, counsel for the husband, goes one step further to submit that the wife’s appeal is against a “case management decision” of this court, which are only subject to appeal “in rare circumstances”. He refers me to Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887, where Kwan JA says at §31 of her judgment that,

“Case management decisions are only subject to appeal in rare circumstances. The appellant faces a ‘very high hurdle’ and must show that the Judge ‘has gone clearly wrong and made orders which will clearly involve an injustice or inability for the trial court to carry out its task’, or if the Judge ‘erred in principle or the order was irrational having regard to the issues that had to be resolved’.”

14.  Ms Yip does not agree and attempts to argue that the Mimi Wong’s case is not relevant to our case because it relates to the issue of the ownership of the matrimonial home, whereas our case concerns the value of the family companies. She reminds me that the Judge in Mimi Wong’s case was exercising his case management power whereas in our case, I am to exercise the inquisitorial power as a family judge.

15.  In my view, through the facts in Mimi Wong’s case is not exactly the same as ours, the general legal principles propounded by Kwan JA are applicable to our case, to which I humbly beg to agree.

16.  I shall now turn to the wife’s grounds of appeal.

Grounds (1) & (2)

17.  Since grounds (1) and (2) relate to the director’s right to inspect the books of accounts of a company, I shall deal with them together.

18.  Under these 2 grounds, Ms Yip submits that the wife did not seek to invite this court to assume the jurisdiction of the Companies Court under Section 121.[1] But she argues that I failed to take into full account of her right (as a director of the family companies) under Section 121 and/or under the common law in the exercise of my discretion.

19.  As rightly pointed out by Mr Robert Pang SC, this was not the argument put forward by the wife in the hearing of 12 August 2013. In that hearing, the wife ran a 2-limbs argument and grouped Section 121 and/or the common law position under the umbrella of the “jurisdictional” argument.[2]

20.  I have explained at §§35-38 and 43-46 of the Decision why I concluded that the Family Court do not have power to make an order under Section 121 and/or under the common law.

21.  Having decided not to challenge, or, in the words of Ms Yip, not to pursue on the jurisdictional point, the wife is, in my view, effectually conceding that the Family Court do not have the jurisdiction to make an order under Section 121. On this basis, I cannot see why and how I can and should take this section into account in the exercise of my discretion under Order 24 rule 13 RHC. If to do so, this court would be assuming the jurisdiction of the Companies Court in disguise.

22.  Ms Yip refers me to further cases (not cited in the hearing of 12 August 2013) to support her argument that it is desirable for all matters arising out of the divorce and ancillary relief proceedings to be dealt with in one court. They are:

(1) Poon v Poon [1994] 2 FLR 857;

(2) Wan Wai Hei v Golden Lake Development Ltd, CACV 247/2008 (date of judgment: 12 November 2008); and

(3) Park Young Sook v Chu Dean Yuan Frankin, HCA 2353/2009 (date of judgment: 15 July 2010).

23.  In Poon v Poon, the husband and wife were directors and shareholders of a private family company. The wife called an emergency general meeting to resolve to remove the husband as a director. The husband sought an injunction restraining the wife from putting the resolution forward. Thorpe J (as he then was) rejected the argument that the matter should go before the Companies Court holding that the company was a family business. An injunction was granted in favour of the husband.

24.  In Wan Wai Hei v Golden Lake Development Ltd, D1 (a company) was the owner of the matrimonial home of P1 (husband) and D2 (wife). D3 was the wife’s mother. The matrimonial home was transferred from D1 to D4 (another company in control by the wife). The husband sued on his own behalf and as a shareholder of D1. Roger VP (as he then was) commented that this was not a company case, but a case about the matrimonial home which should be dealt with by the Family Court.

25.  In Park Young Sook v Chu Dean Yuan Frankin, the ex-wife, after final ancillary relief trial, made claims against her ex-husband. On the application by the ex-husband, her claim was struck out by To J, ruling that as a matter of legal principles, the court required the parties to put forward their whole case in one go and the family Court had the jurisdiction to adjudicate on all civil disputes arising out of family assets between the parties to a marriage as well as non-parties.

26.  I take note, and Ms Yip has conceded in this hearing, that all the above authorities are from the level of Court of First Instance or above. These courts clearly fall within the definition of “court” in the Companies Ordinance[3] and hence have the requisite jurisdiction to make an order under Section 121 and/or to consider it in the exercise of discretion. In my view, these cases cannot serve to advance the wife’s case any further.

27.  In the circumstances, the wife’s argument has to be rejected. 

Ground (3)

28.  In the hearing of 12 August 2013, Ms Yip relied on H v M (supra) to support her proposition that this court had the jurisdiction to make a Section 121 order.[4] Now she changes and seeks to argue that I should consider H v M (supra) in the exercise of my discretion.

29.  I have already explained at §§39-42 of my Decision why H v M (supra) is of no assistance to the wife. I have not been persuaded the otherwise by her in this hearing. I would add that according to Ms Yip (who coincidentally represented the husband in H v M (supra)), Godfrey JA (as he then was) decided to let the wife inspect some of the books of accounts of the company on the concession of the husband that the wife would be entitled to such inspection had she made an application to the Companies Court. No such concession was made by the husband in our case, at least not in relation to the Contested Items.

Ground (4) & (5)

30.  Ms Yip has not explained in details why and how I went wrong in ruling that the wife had not explained how inspection of each item of company document was necessary, or, in finding that the “reminder” documents were too wide and petty. It is telling to note that in her submission on the wife’s application to vary the costs order nisi, she agrees with the observation of this court that the wife had not deposed/explained by way of affidavit item by item why each item was necessary for the fair disposal of the matter or for saving costs.

31.  As such, I cannot see there is any reasonable prospect of success of these 2 grounds.

No reasonable prospect of success

32.  Due to the matters set out above, I am not satisfied that the wife’s proposed grounds of appeal show any realistic prospect of success. Her leave to appeal must be refused.

The wife’s argument to vary costs order nisi

33.  I shall now turn to deal with the wife’s application to vary the costs order nisi that she is awarded 50% of her costs of the inspection summonses. She now seeks an order that the husband do bear 100% of her costs.

34.  The gist of Ms Yip’s argument is like this. The wife was pre-dominantly successful and thus the real winner in her application. Even though she did not succeed in obtaining an inspection order on the “reminder” documents, she had not caused a significant increase in the length or costs of the proceedings by raising issues on which she did not succeed. Therefore, costs should follow the event and should not be determined by dividing litigation into quantifiable subjects and figures: EJB v CJB [2011] 5 HKLRD 508 per Hartmann JA (as he then was) at §133; F v F (No 2) [2003]3 HKLRD 976 per Hartmann J (as he then was) at §22; Commissioner of Inland Revenue v Hit Finance Ltd (Judgment on Costs), FACV Nos 8 and 16 of 2007 (date of judgment: 26 June 2008). 

35.  Besides, this court should take into account the litigation conduct of the husband, including continual conduct of non-disclosure, and make a costs order which would reflect the court’s disapproval to his wait-and-see approach (See: L v L, HCMC 1/2003 (date of judgement: 18 November 2005) per Lam J (as he then was) at §198; L v C [2007] 3 HKLRD 819, per Stock JA at §69; ML v YJ (no 2) [2008] 6 HKC 313, per Lam J (as he then was) at §§19-21).

The husband’s contention

36.  Mr Pang SC, on behalf of the husband, opposes to the wife’s application to vary the costs order nisi. He draws my attention to the fact that this is an interlocutory application, to which a different approach for costs order is to be adopted in the post-CJR era under the new Order 62 rule 3(2A) of the RHC. Nowadays, “costs to follow the event” is simply one of the options available to the court, but is no longer a general rule which must be applied: Melvin Waxman & Another v Li Fei Yu & Another, HCA 1972/2012 (date of judgment: 11 September 2013).

37.  He submits that the wife was not pre-dominantly successful in her application. For example, out of the 14 items in her 1^st Summons, she was allowed to inspect only 6 of them, 3 out of which were conceded by the husband at the outset of the hearing of 12 August 2013. Her argument on Section 121, taken up a substantial portion of time in the hearing, was rejected by this court.

38.  He rejects the allegation that there is no non-disclosure conduct on the part of the husband.

Costs of interlocutory applications

39.  As a starting point, no one can argue the otherwise that the wife’s inspection summonses are interlocutory applications, to which the new Order 62 rule 3(2A) of the RHC applies. And Mr Pang SC must be right in drawing my attention to the difference in the new rule 3(2) and rule 3(2A) under Order 62, which read as follows:

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

(2A) If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.” (my emphasis)

40.  In Melvin Waxman’s case (supra), To J analysed succinctly  the difference in the court’s approach under the new Order 62 rule 3 of the RHC at §11 of his judgment:

“… the introduction of rule 3(2A) specifically applicable to costs in interlocutory proceedings makes it clear that the legislative intent was to distinguish between costs in interlocutory proceedings and costs in other proceedings. Under the new rule 3(2), the general rule of costs to follow the event is preserved for costs in proceedings other interlocutory proceedings. But a different approach is provided under the new rule 3(2A) for costs in interlocutory proceedings. Under this new rule, the court may order costs to follow the event or make such other order as it sees fit. The court is no longer required to apply the general rule of costs following the event except in special circumstances, though that principle remains as one of the options. The court may make such other order as it sees fit. Rule 3(2A) gives the court even wider discretion than that under rule 3(2) in respect of costs in other proceedings.” (my emaphasis)

41.  I humbly beg to agree entirely with To J and share His Lordship’s view that the principle that costs normally follow the event is no longer the prescribed usual order in an interlocutory application but is instead just an option.

42.  Further, in the exercise of its wider discretion of costs under Order 62 rule 3(2A), the court is empowered under Order 62 rule 5 to take into account special matters set out therein. This rule is of general application and applies to costs in interlocutory proceedings as well as to other proceedings.  Of relevance in this application, in my view, is rule 5(1) (e) and (f), which read as follows:

“5(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account-

…

(e) the conduct of all the parties;

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

…

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

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

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

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

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

The exercise of discretion

43.  It has been argued by Ms Yip for the wife that she has pre-dominantly won on the issue of entitlement in her inspection summonses and thus should not be penalised by way of depriving her of the costs of the parts in which she failed to obtain an order for inspection. Ms Yip relies heavily on the case of Hit Finance Ltd (supra) where Bokhary PJ (as he then was) stated that:

“6. So the Commissioner is the real winner. The general rule is that costs follow the event – in other words, go to the real winner – except if and when it appears to the court that in all the circumstances some other order as to costs should be made. We heard argument on sections 16, 17, 61 and 61A of the Inland Revenue Ordinance, Cap.112. Having done so, we decided in the Commissioner’s favour under s.61A. We rejected her arguments under sections 16 and 17, and did not rule on s.61. Not every point taken by the Commissioner proved to be a winning one. But there is nothing exceptional about a case being won on only some of the winner’s points.

7. There is a discretion in the court to deprive a successful party of the whole or part of his costs because he had caused a significant increase in the length or costs of the proceedings by raising issues on which he did not succeed. That can be done even if it was not unreasonable to have raised those issues. Whether or not it should be done depends on all the circumstances. This discretion exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event. It is to be approached with due circumspection so as not to undermine the utility of that general rule. In the circumstances of the present case, after weighing the rival arguments on costs, we do not consider it appropriate to deprive the Commissioner of any of her costs. We have set out, in paragraph 4 above, the order as to costs for which the Commissioner asks. In our view, it is appropriate to make that order as to costs, and we do so.” (Ms Yip’s emphasis)

44.  First of all, I agree with Mr Pang SC that all the cases cited by Ms Yip in her written submission, including Hit Finance Ltd (supra), deal with “final” costs instead of costs of interlocutory applications. They are, prima facie, of limited application to the present application of the wife. It is also quite clear that Hit Finance Ltd (supra) is decided before the advent of the CJR.

45.  Further, as discussed above, the new Order 62 rule 3(2A) gives the court a much wider discretion on costs matters. Order 62 rule 5(1)(e) and (f) expressly empowers this court to consider, when exercising my discretionary power of costs, the conduct of the parties and if a party is partly successful in his/her application.

46.  On my part, I do not agree that the wife was pre-dominantly successful in her application. Her 2 inspection summonses seek altogether disclosure/inspection of 14 items of books of accounts and underlying records of the family companies. In my opinion, though contained in 2 summonses, each item of these 14 documents should be viewed, and in fact was considered and analysed by this court in the Decision, as a separate and individual application for disclosure/inspection. Out of the 14 separate and individual applications, the wife succeeded in 6 applications only, either as a result of the concession made by the husband or upon discretion exercised in her favour by this court. Arguably, if the rule of “costs to follow the event” was to apply, the wife should have been ordered to bear the husband’s costs of those 8 applications in which she has failed.

47.  On the allegation of litigation conduct of the husband, I am not prepared to conclude at this preliminary stage that the husband has committed the conduct of non-disclosure. Nevertheless, I do not commend him in his disclosure of the audited accounts of the family companies, in that the wife had to take out a summons in order to get the same. I also take the view that he made a belated concession to disclose some of the documents sought by the wife. I have considered his conduct and reflected this in the costs order nisi that even if the wife lost in 8 of her 14 separate and individual applications, she was not made to bear his costs.

48.  Having considered the matters set out in Order 62 rule 5, I accept Mr Pang SC’s submission and come to the conclusion that the costs order nisi made on 6 September 2013 is fair and just in the circumstances of the case, in that the wife is not being deprived of her costs, nor is she being asked to pay any of the husband’s costs. I refuse to vary this costs order nisi.

Conclusion

49.  Since the wife fails in both parts of her application, I see no reason why costs should not follow the event. Accordingly, the wife should pay the husband’s costs of this application.

50.  I will thus make the following order:

(1) the petitioner’s (wife) summons for leave to appeal and to vary the costs order nisi filed on 19 September 2013 is dismissed;

(2) the costs order nisi of 6 September 2013 is made absolute;

(3) There be a costs nisi to the effect that the respondent (husband) do have the costs of this application to be taxed if not agreed. For avoidance of doubt, I certify the attendance of Counsel in this hearing. If neither party applies to vary the costs order nisi within 14 days from today, the said costs order nisi will be made absolute.

	Grace Chan
	Deputy District Judge

Ms Anita Yip instructed by Messrs Chaine Chow & Barbara Hung for the Petitioner (Wife)

Mr Robert Pang, SC and Ms Fiona Nam instructed by Messrs Johnny K K Leung & Co for the Respondent (Husband)

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[1] §19 of Ms Yip’s written submission

[2]  §§8-10 of Ms Yip’s written submission of the inspection summonses

[3]Poon v Poon is an English case. Since both counsel have not submitted the otherwise, I have assumed that the English Companies Act contains similar definition on “court” per the Companies Ordinance of Hong Kong

[4] §8 of her written submission of the inspection summonses

FCMC 2359 /2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 2359 OF 2013

----------------------------

BETWEEN
	TSC	Petitioner
and
	LYK	Respondent
------------------------

Coram : Deputy District Judge Grace Chan in Chambers (not open to public)

Date of hearing : 22 November 2013

Date of handing down decision : 3 January 2014

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DECISION

(Maintenance pending suit: wife and children)

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1. This is an application of the petitioner (“wife”) by way of her summons filed on 6 August 2013 for maintenance pending suit (“MPS”) for herself and the 3 children of the family, to be backdated to May 2013. The initial sum sought by her is $636,450 per month, which is increased by $16,000 to $652,450 per month in her subsequent affirmation[1]. The respondent (“husband”) opposes to her application.

2. The wife has not sought any litigation funding from the husband in this application.

Brief Background

3. In an earlier decision handed down by this court on 6 September 2013 relating to the wife’s application for inspection of underlying accounts documents of the family companies, I have set out the background of the parties and the web of family companies owned/run by them (see §§7-8, 12-22 of the decision).

4. For the purpose of this MPS application, I would briefly repeat their background as follows.

5. The husband is now 55. The wife is now 40. They got married in March 2003 and have 3 children (2 daughters and 1 son) born in their wedlock, now aged 10, 9 and 7 respectively.

6. The parties own a web of family companies whose businesses are mainly provision of logistic services in China and Hong Kong. Through their joint efforts over the years, businesses of the family companies developed fast and they were able to acquire substantial assets. According to the husband’s valuation, the current total assets amount to some $230 million. 

7. However, divergence between the parties grew since 2009. On 17 February 2012, the husband moved out of the matrimonial home, and the parties separated since then. At the same time, the wife stopped further involvement in the businesses of the family companies.

8. In October 2012, the wife filed a petition to divorce the husband[2]. On 14 January 2013, this court ordered by consent that joint custody of the children be granted, with sole care and control to the wife and reasonable access to the husband.

9. It is a common ground that before the separation, the personal expenses of the wife and the children, household and car expenses were either settled by the family companies, by cash from the husband or by the wife’s own income[3].

10. After separation since July 2012, the director’s fees of the wife in the sum of $58,000 were cut. Instead, the husband paid her $150,000 a month. He also caused to settle the 5 loans of UC Ltd in the sum of $350,000 a month.

11. A company solely owned by the wife, UC Ltd is mainly a property holding company that holds 8 properties including the matrimonial home. There are 5 loans under UC Ltd, 2 being mortgage loans of the matrimonial home and Fu Hing Street property (“2 mortgage loans”); the other 3 loans are used to secure the banking facilities to 3 family companies (“3 companies loans”) which are currently under the direct control of the husband. Details of these 5 loans are:

Loans	Monthly repayment
Mortgage loan of matrimonial home	$ 80,000
Mortgage loan of Fu Hing Street property	$ 35,000
Loan for 3 family companies	$235,000
Total:	$350,000

12. It is suggested by the wife that even after separation, the husband has, on top of the said $150,000, continued to arrange for settlement of the utilities and household expenses, eg gardening, of the matrimonial home.[4] Despite the denial of the husband by saying that these payments were paid by mistake made by his staff, it is sufficiently clear that he himself endorsed the payments by signing on the relevant invoices/receipts.[5] His contention is not accepted.

13. Things took a sharp turn in May 2013. The wife withdrew $1.17 million from UC Ltd (being refund of tax payment from the Inland Revenue Department) into her own personal bank account on 16 May 2013. The tax money was said to be funded by one of the major family companies. Not satisfied with the wife’s act, the husband stopped the monthly repayment of the 5 loans of UC Ltd. He also stopped settlement for the utilities and household expenses.

14. The wife withdrew further sums of $177,000 ($27,000 + $150,000) from UC Ltd in July 2013. The total sum she withdrew from UC Ltd is thus $1,347,000.

15. Due to the default of monthly repayment of the 5 loans, the bank called a meeting in June 2013 with the parties and demanded repayment of the loans. However, no positive solution was achieved, as each party accused the other of refusing to inject or return, as the case may be, funds into UC Ltd to satisfy the monthly loan repayments.

16. This caused the bank to issue a formal demand letter in July 2013 to call for full repayment of all 5 loans (over $33 million). In the end, the husband has resumed arranging payment of the 3 companies loans, leaving the 2 mortgage loans to be settled by the wife. Up to October 2013, she has utilized $658,000 out of the said sum of $1,347,000 to cover the 2 mortgage loans of May to October 2013.

Applicable Legal Principles

17. The power for this court to make a maintenance pending suit for a spouse and interim maintenance order for the children of the family is set out in sections 3 and 5 of the Matrimonial Proceedings and Property Ordinance (“MPPO”) respectively.

18. Ms Anita Yip, counsel for the wife, and Mr Robert Pang SC, counsel for the husband, have each helpfully supplied to this court with abundant authorities on the general legal principles in an application for MPS.

19. In my view, the relevant legal principles are succinctly set out by Hartmann JA (as he then was) in HJFG v KCY [2012] 1HKLRD 95 at §§33-38, where His Lordship quoted Nicholas Mostyn QC, sitting then as a deputy High Court judge, in TL v ML and Others (Ancillary Relief: Claim against Assets of Extended Family) [2006] 1 FLR 1263:

“33. Jurisdiction to award maintenance pending suit to a spouse is statutory, being governed by the provisions of s.3 of the Matrimonial Proceedings and Property Ordinance, Cap. 192. By that section the court is given a discretion to make an order requiring either party to the marriage to make to the other such periodical payments for his or her ‘maintenance’ as the court thinks ‘reasonable’, subject to the condition that the duration of any such order is limited to the period of what may broadly be called the divorce litigation.

34. By definition, therefore, maintenance pending suit is restricted to payments which constitute ‘maintenance’, which are reasonable in the circumstances and which will endure for no longer than it takes to determine the divorce litigation. ‘Maintenance’ is a broad concept. I do not seek to define its exact meaning but it seems to me that it must be restricted to those payments necessary to meet the recurring costs of living at whatever standard of living is appropriate. That being the case, no matter how great the wealth of the parties and how unevenly distributed that wealth may be at the time an application for interim maintenance is made, the court has no jurisdiction to make orders which for all practical purposes result in a form of pre-trial capital re-balancing. In the present case, the judge recognised the long-established approach of looking to the “immediate and reasonable needs” of the wife and son.

35. As to the amount of maintenance pending suit that may be paid, the Ordinance provides only that it must be ‘reasonable’, that is, having regard to the circumstances of the case, that it must be fair.

36. An important factor in determining fairness is a consideration of the marital standard of living. In this regard, each case must be considered according to its own circumstances. It is not simply to be assumed that great wealth equates to great extravagance. Some married couples who enjoy great wealth spend with comparative modesty and with a discipline born of discretion, others enjoy consumption on a grand scale.

37. The principles that have emerged over time to guide judges in matters of interim maintenance have been fashioned in the main to ensure fairness. This is well illustrated in the judgment of Nicholas Mostyn QC, sitting then as a deputy High Court judge, in TL v ML and Others (Ancillary Relief: Claim against Assets of Extended Family) [2006] 1 FLR 1263, at 1289, in which, having looked at earlier authorities, he derived the following principles that speak specifically to fairness or are based on the need to ensure it. For present purposes, it is sufficient to cite the relevant principles without citing the judge’s reference to the source of those principles:

i. The sole criterion to be applied in determining the application is ‘reasonableness’, whichis synonymous with ‘fairness’.

ii. A very important factor in determining fairness is the marital standard of living. This is not to say that the exercise is merely to replicate that standard.

iii. 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.

iv. 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.

38. Finally, it is to be noted that in applications for interim maintenance, when the amount to be paid is for a limited period only and not all of the evidence is necessarily before the court, it is not appropriate, nor indeed in most cases possible, for the court to conduct a detailed investigation into the finances of the parties. While, in order to determine what is or is not reasonable, some analysis is always required, that analysis can be conducted on a ‘broad brush’ basis.” (my emphasis)

20. The governing principles, if simply put, require the court to balance the reasonable needs of the applicant spouse (and the children where applicable) against the paying spouse’s ability to pay by using a broad brush approach.

The wife’s case

21. According to the wife, the parties enjoyed a very good standard of living during the marriage funded by the husband’s sizeable financial means through the family companies. During the marriage, she received a director’s fee of $58,000 and cash of $100,000 arranged by the husband to be paid out from the family companies to her each month. Besides, the husband paid for the bills when the family dined out and shopped as well as all the holiday expenses. Other household items, eg utilities, management fees, club house expenses, government rates and rent and house maintenance, car expenses and insurances (“other family expenses”), were paid by the husband with funds from the family companies. On the top of that, the husband would cause money to be transferred to UC Ltd to settle the monthly repayment of 5 loans ($350,000).

22. It is her wish to maintain the status quo of living standard pending final resolution of the ancillary relief matters. To do so, she needs:

(1) an interim maintenance of $286,450 per month (excluding the monthly mortgage repayment of the matrimonial home)[6];

(2) $16,000 per month to employ a driver; and

(3) a sum of $350,000 per month for monthly repayment of 5 loans of UC Ltd.

23. For the said sum of $1,347,000 transferred out of UC Ltd into her own bank account, the wife explains that she has already used up $658,000 for settling outstanding loans of UC Ltd. The balance is/will be used for the purchase of a new 7-seater family car in place of the Mercedes Benz Jeep that the husband unilaterally took away on 21 April 2013.

24. The rental income received by UC Ltd (ie $110,570 since August 2013) will soon drop by $2,800.  Further, she has set up a new office and hired a staff to handle the tenancy matters. The set up costs was $100,000 and on-going operation expenses would be $27,650 per month.[7] The rental income is insufficient to cover the 2 mortgage loans.

25. The wife maintains that the husband has overly exaggerated his expenses and that he has the ability to pay the amount of maintenance demanded by her. Not only does he receive director’s fees of $300,000 per month, but he also has the free use of all funds in the bank accounts of the family companies. His assertion that the family companies are facing a change in PRC policy of “green fence” operation (aiming at reducing importation of waste and scrap materials into the PRC), causing a drastic drop in the turnover of the businesses of family companies, is greatly exaggerated.

The husband’s case

26. The husband does not dispute that the following arrangement was in place before the separation:

(1) The wife received a director’s fees of $58,000 per month;

(2) The husband/family companies took care of all the bills of the matrimonial home;

(3) The husband paid for the expenses when the family dined out or shopped in Hong Kong, and all expenses for holidays; and

(4) The husband would cause funds to be remitted each month to UC Ltd to settle the 5 loan repayment of $350,000 per month.

27. However, Mr Pang SC, counsel for the husband, submits that no MPS order should be made by this court at this stage because there are serious disputes as to facts, such as the standard of living before separation. Further, the wife has more than sufficient means to cover her immediate and reasonable needs. Her means include:

(1) a monthly sum of $150,000 paid by the husband to her since separation for her and the children’s maintenance;

(2) an asset of $13 million cash/shares/valuables in her pot;

(3) interest earned on cash savings in the sum about $37,000 per month; and

(4) rental income earned by UC Ltd in the sum of $110,570 per month.

28. The husband also argues that the 5 loan repayments of UC Ltd, being a legal entity separate and distinct from the wife, does not fall within the perimeter of a spouse’s maintenance, and thus this court does not have the jurisdiction to make an order in respect of the loans.

29. On his financial resources, the husband says that he has to constantly remitting funds to the family companies to support their operation and that the PRC policy of “green fence” operation which has caused the businesses of the family companies to nose-dive. For 2012 and 2013 alone, he has transferred no less than $3.8 million to the family companies and paid $5 million to settle payments on behalf of HYH Enterprises Ltd.[8]

No MPS order at this stage?

30. To start with, I have to say, with respect to Mr Pang SC, that I am not persuaded by his argument that no MPS order should be made at this stage solely because there are serious disputes as to facts. It seems to me clear that there bound to be disputes as to facts, one way or the other, in many of the MPS applications. The court can always take a preliminary view or form an overall impression on those factual disputes, upon considering the Form Es and affirmations of the parties and without prejudice to each party’s right to challenge the factual disputes in the final ancillary relief trial.

31. After all, the court is only required to approach a MPS application in a broad brush manner. Any over-provision or under-provision can be adjusted at the final hearing of the ancillary relief (See: F v F(Ancillary Relief: Substantial Assets) [1996] 2 FCR 397).

32. I am also of the view that the wife’s current wealth alone should not be a stumbling block to her MPS application. As rightly pointed out by Ms Yip, the wife has not taken out any application for legal costs contribution. Hence, she should be entitled to keep her current assets and interest income as reserve, in words of Thorpe J (as he then was) in F v F (supra),

“to secure the costs of the litigation or to meet disbursements or to meet costs in part between now and the substantive hearing.”

Standard of living during marriage

33. It is of no dispute that during the marriage, the parties lived in a house of about 3,200 sq feet with a garden of about 4,000 sq feet in Hong Lok Yuen, Tai Po. They enjoyed the service of 1 or 2 domestic helper(s). They owned 4 cars, all of which are of European brands and one of which is worth over $1.4 million (according to the husband’s estimation).

34. However, without any disrespect to the parties, they have only joined the club house of Hong Lok Yuen but not the more renowned and prestigious clubs. Their children study in ordinary primary school(s), but not the more expensive international school(s). Most of the overseas trips taken by them during the marriage were to Asian countries. There is no suggestion that when they went abroad, they took business class flight.

35. Upon considering the Form Es and supporting affidavits filed by the parties for this MPS application, I take the view that this family, despite their great wealth, enjoyed a very comfortable, but not lavish, standard of living during the marriage.

Needs of the wife and the children

36. In essence, the husband is not running a case that due to the wife’s current wealth, he needs not pay any interim financial support for her and the children. Rather, his case is that $150,000 a month (excluding the mortgage loan of the matrimonial home) is more than sufficient to cover their reasonable needs, which according to him, should be $138,216.[9]

37. The issue to be determined is whether $150,000 is sufficient to cover the needs of the wife and the children according to their living standard during marriage.

38. As a starting point, I note that since Mr Pang SC has helpfully trimmed down the disputed items of expenses,[10] the total reasonable needs of the wife and the children would be increased to $156,260 per month. There is a still shortfall of $6,260 per month, if compared with what the husband is now voluntarily paying the wife.

39. It also needs to be noted that the husband did pay for the utilities and other household items, on top of the monthly voluntary financial support of $150,000 a month, to the wife (see §12 above). For half month in May 2013, he endorsed total payment of over $16,000.[11]

40. I shall now turn to the disputed items, bearing in mind their marital living standard.

Household expenses

41. I do not accept the husband’s argument that the household expenses (of 4 persons) should be as little as $4,000 a month, when he claims his (1 person alone) to be $5,000. However, I note that tree maintenance and window cleaning may not be required every month, but, may be say each every 3 - 6 months. On a broad brush approach, I will allow $8,000 under this item.

Car expenses & salary of a driver

42. The items of car expenses and salary to driver are the most disputed items between the parties.

43. The wife alleges that the husband took away the 7-seater Mercedes Benz Jeep used mainly for taking the children out for outings, on 21 April 2013. As a result, she has to buy a new 7-seater family car and thus needs expenses for 2 cars instead of one. She further alleges that during the marriage and even after separation up to October 2013, she enjoyed the service of the company driver, Mr Fu, in picking up the children and sending them lunches at school.

44. The husband, on the other hand, seems to say only 1 car is sufficient. He also claims that Mr Fu is not a driver of the family companies, but is employed by his PRC counterparts. It was just out of goodwill that Mr Fu occasionally assisted the wife to pick up or send lunch boxes to the children when he was not otherwise carrying out the duties of the PRC counterparts.

45. In my view, whether Mr Fu is (or is not) the driver employed by the family companies is irrelevant to this application. What is more important is that even on the wife’s own case, she enlisted the service of Mr Fu on an average of 2 to 3 times a week only during the marriage. The frequency, in my view, does not probably warrant the employment of a full time driver, and thus I am not inclined to allow the driver’s salary in this interim period. However, I will allow the car expenses for 2 cars ($21,000), because the husband has, to a certain extent, acknowledged the use of this new family car of the wife in his affirmation.[12]  

46. However, in passing, I would urge the husband to use his best endeavours to make himself available or to make all possible arrangements of Mr Fu’s assistance if required by the wife. No one would like to see the children’s daily routine, however remote or slight the chance may be, affected.

House maintenance

47. Pest control ($10,700 for 2011/2012) and cleaning of air-conditioners ($5,700 for 2013), though may not be required monthly, needs to be done at least once a year. And the wife has produced receipts to support her claim. I also accept that in each household, there bound to be small scale works such as replacement of water pipes or light bulbs from time to time. On a broad brush approach, I will allow $2,500 per month for house maintenance.

48. Apart from the above, I am not prepared to allow other renovation expenses, such as repaint of the external wall, for the purpose of MPS. I do not regard these other renovation expenses as recurring expenses as such. Besides, the matrimonial home had an extensive renovation just in 2011[13] and the garden was re-decorated just last year.

Clothes/shoes/bags/jewelleries, personal grooming & entertainment

49. The wife claims that during the marriage, the husband bought her luxury handbags each year. On average, a sum of $200,000-$300,000 was spent on buying jewelleries/watches every year and another $200,000 was spent on handbags[14]. She also claims that she needs $10,000 each per month for personal grooming and entertainment.

50. I am inclined to think that the wife may have inflated her claims on these items. A closer look into the husband’s Hang Seng Bank credit card account from January 2011 to February 2012 (the month of separation)[15], which Ms Yip has taken me through during the hearing, shows that during these 14 months, only $33,250 was spent on brand-named handbags[16]. The wife’s Form E does not show that she owns very substantial or very expensive jewelleries and watches. Her Hang Seng Bank credit card statements for the same period show that her average spending was about $15,000 per month only. Even if her Bank of East Asia credit card is to be taken into account, her monthly spending prior to separation would only be increased by no more than $10,000.

51. In broad terms, I will allow $30,000 per month for these items. 

Holiday (wife and children)

52. The wife has prepared a table of all the trips taken by the parties before separation.[17] The table shows that the family went abroad for holidays 4 times a year in 2010 and 2011, but most of them are short-haul trips to Asia. Since the children are still studying, they are not expected to go abroad on long-haul in every school holidays. They may do so during the longer summer holiday. According to the wife, short-haul trips cost about $30,000-$40,000 per trip.[18]

53. It is clear that the husband has tried to tone down the holiday arrangement in his 2^nd affirmation.[19] Besides, it is very unreasonable for the husband to suggest $7,000 per month to cover the wife and the children’s holiday expenses, while he himself alone claims to need $20,000 each month on the same. However, I do take the view that the husband should not be made to cover the holiday expenses of the wife’s extended family in this MPS application.

54. Without further detailed examination, I will say each child needs $5,000 per year and the wife $10,000 per month on holiday expenses.

Contribution to parents

55. It is not the case of the husband that he rejects the wife’s claim on contribution to her parents; he just says that the amount should be $1,500 rather than $10,000 per month. Given the extensive wealth of the parties, it would be against any common sense that the wife would contribute merely $1,500 to her parents each month.  I am prepared to accept this sum in full in the interim period.

Further Study

56. Though the wife stated in her Form E that she intended to commence her master study in September 2013, she has not done so up to now. She has elaborated in her supporting affirmation when she is going to resume the course. As such, this sum will not be allowed in this application.

Summary of expenses

57. For easy reference, I set out below the expenses assessed and allowed by me for the purpose of this MPS application:

General
Utilities	$7,100
Management fees and club house membership	$4,000
Food	$ 20,000
Household expenses	$8,000
Car expenses	$21,000
Insurance premia	$1,000
Domestic helper	$5,000
House maintenance	$2,500
Sub-total:	$68,600

Personal
Meals out of home	$10,000
Transport	$500
Clothing/shoes }
Personal grooming    }	$30,000
Entertainment/presents }
Holiday	$10,000
Medical/dental	$2,000
Tax	$3,000
Insurance premia	$5,000
Contribution to parents	$10,000
Sub-total:	$70,500
Children
Extra tuition fees	$17,400
School books & stationery	$2,500
Medical/dental	$8,000
Extra curricular activities	$12,650
Entertainment/presents	$3,000
Holidays	$15,000
Clothing/shoes	$4,500
Insurance premia	$3,000
Uniform	$900
Others	$900
Sub-total:	$67,850
GRAND TOTAL $68,600+$70,500+$67,850	$206,950 (say $207,000)

The 5 loans & rental income of UC Ltd

58. On the loans of the UC Ltd, Mr Pang SC runs a 2-fold argument like this. He relies on the English case of Prest v Petrodel [2013] 3 WLR 1 to support his contention that this court is not empowered to order the husband to cause to pay loan repayment of UC Ltd to the wife, since UC Ltd is a legal entity separate and distinct from the wife. If, however, this court is not with him on the jurisdictional point, he says that the husband is prepared to give his undertaking to cause to pay for the 3 companies loans until the same are discharged, but maintains that the wife has ample funds available for the regular payment of the 2 mortgage loans.

59. Mr Pang SC has not drawn my attention to any specific paragraphs in the Prest v Petrodel (supra) that the husband would rely on. On a cursory reading of the case, it does not occur to me that it is directly relevant to this application. Its facts are quite different from our case.  Besides, Mr Pang SC has fairly agreed in his oral submission that the matrimonial home should be treated differently, in that even if this court found itself lack of jurisdiction to make a MPS order in respect of the loans of UC Ltd, this court can, nevertheless, order that a certain sum be paid to the wife, for example, as rental expenses of the matrimonial home. More importantly, I think the “jurisdictional” argument does not echo with the husband’s act that he has all along been paying or has caused to pay for the monthly repayment of the 3 companies loans.

60. In the premises, I am not persuaded by Mr Pang SC on his jurisdictional argument.

61. The wife does not deny that at present, UC Ltd earns rental income of about $110,570 per month. She says that she has set up and rented a new office, and employed a staff for running UC Ltd. She needs $27,650 each month as operation expenses.[20] The problem with the wife’s affirmation evidence is that there is no further particular provided, such as when and where the office was set up. There also lacks supporting proof, eg the tenancy agreement or receipts, to substantiate her allegation. I am not prepared to accept the wife’s allegation on the new office expenses in this MPS application.

62. I will accept the husband’s undertaking to cause to pay for the 3 companies loans currently in the total sum of $235,000. I will order him to pay an amount which is equal to the 2 mortgage loans of $115,000 to the wife, but will give credit to the rental income ($110,570) received by the wife through UC Ltd.

63. However, when the rental income of UC Ltd is to be reduced, I expect the husband to make the necessary arrangement to make up for the difference without the wife’s taking out an application to vary the MPS sum.

Husband’s ability to pay

64. On the face of it, the husband receives director’s fees of $300,000 per month. Ms Yip, however, refers me to a schedule of deposits prepared by her[21], which shows that more than $3.9 million (or over $240,000 per month) was transferred from the family companies into the husband’s Hang Seng Bank personal account between January 2012 and April 2013 (about 16 months) under such descriptions as “director’s current account”, “entertainment expenses”, “reimbursement of rental”, “repayment from companies”.[22]

65. By simple calculation, the husband has received more than $540,000 per month over the relevant period, which is more than sufficient to cover the monthly expenses of the wife and the children.

66. On a closer reading of the husband’s 2^nd affirmation, it does not seem to me that the husband is seriously denying that he has free access and free use of the funds of the family company.[23] What he essentially says is that it is unfair for the wife to disregard his contribution from his own personal purse to the operating funds of the family companies. For 2012 and 2013 alone, he has transferred no less than $3.8 million to the family companies and paid $5 million to settle payments on behalf of HYH Enterprises Ltd.[24] The wife has also disregarded the impact of PRC policy of “green fence operation” on the family businesses.

67. In my view, the argument on his remitting funds into the family companies out of his own pocket is a non-pointer to his ability to pay interim maintenance. Quite on the contrary, it shows that he does have financial means to pay the maintenance. I accept Ms Yip’s submission on the policy of “green fence” operation that the policy, which is not a new one but has been in place for over a decade, is directed to curtail illegal import of waste into the PRC. Since the family companies have been established in the trade for many years, I doubt, unless more cogent evidence is shown, if there would be any substantial negative effect on the businesses of the family companies.

68. Looking at the picture from a different prospective, the husband purportedly earned $54,000 prior to October 2012, which was later increased to $300,000 per month. According to his Form E, he needs over $434,000 per month to cover all expenses, including the voluntary maintenance of $150,000 and financial support of $80,000 to his 2 adult daughters (from his 1^st marriage). On this rate, he yet can still make available almost $8.8 million ($3.8m + $5m) to inject into the family companies. He has failed to disclose by affirmation(s) the source of these moneys. I am thus entitled to take a robust view that he is earning more than he claims and that he has the ability to pay the maintenance to be ordered by this court.

69. Last but not least, the wife maintains that the husband has overly exaggerated his expenses to be $203,787 for himself only (excluding (i) rental of unknown amount; (ii) $150,000 currently paid to the wife per month; and (iii) $80,000 monthly expenses for his 2 adult daughters born during his first marriage), but is mean enough to allege that the reasonable expenses of the wife and 3 children (for 4 persons) should be $138,216.  I agree with the wife to some extent. At a glance, I think the husband has at the least overstated his expenses on food including meals out of home ($40,000), entertainment/presents ($15,000), and holidays ($20,000).  However, for the purpose of this MPS application, I do not intend to give a figure on the reasonable expenses of the husband. I do not have to do so because it is my conclusion upon considering all Form Es and affirmations that the husband has sufficient, if not abundant, financial means to pay MPS to the wife.

Back-dating of the order

70. Out of the said $1,347,000 withdrawn by the wife from UC Ltd back in May 2013, she has applied part of it to pay for the monthly loan repayment of the 2 mortgage loans, so that she does not need to utilize her own resources in order to settle the monthly loan repayment of the 2 mortgage loans up to October 2013. Further, she has used (or will use) the balance sum to purchase a new family car, which is a capital asset added to her pot.

71. Under such circumstances, I do not intend to backdate the MPS sums.

Conclusion

72. Due to the matters aforesaid, and more particularly at paragraph 62 above, the total interim maintenance to be ordered for the wife and the 3 children will be $211,430 ($207,000+$115,000-$110,570). I shall round it down to $211,000.

73. On the undertaking of the husband that he will cause or arrange sufficient fund to be paid into the account of UC Ltd for settlement the monthly repayment of the 3 companies loans currently in the total sum of $235,000 until the same are discharged or further directions/orders from this court, I shall make the following order:

(1) the Husband shall pay to the Wife maintenance pending suit for her and the Children in the sum of $211,000 per month from 6 January 2014 and thereafter on the 6^th day of each and every succeeding calendar month until further order of the court;

(2) There be a cost order nisi that costs of and occasional by this application be reserved and be determined at the final ancillary relief proceedings, which will be made absolute within 14 days from the date of this decision unless either party applies to vary the same.

	Grace Chan
	Deputy District Judge

Ms Anita Yip and Mr Eric Leung instructed by Messrs Chaine Chow & Barbara Hung for the Petitioner (Wife)

Mr Robert Pang, SC and Ms Fiona Nam instructed by Messrs Johnny K K Leung & Co for the Respondent (Husband)  

[1] Wife’s 4^th affirmation [A8/2590]

[2] The first petition filed by the wife was on the fact of “unreasonable behaviour” (FCMC 15140/2012). By the consent of the parties, a fresh petition on “1 year separation” (this suit) was issued.

[3] Hsband’s 2^nd affirmation at §8 [A7/2137]

[4] Wife’s 4^th affirmation at §§71-74 [A8/2610-2612]

[5] Exhibit “TSC4-17” [A8/2678-2707]

[6] Wife’s schedule of current monthly expenses attached to her 3^rd affirmation [A6/2112-2116].  In that schedule and her MPS summons, the mortgage loan of the matrimonial home is included in the monthly expenses. But for easy discussion, I have extracted it out to be considered together with the other 4 loans owed by UC Ltd

[7] Wife’s 4^th affirmation [A8/2617]

[8] Husband’s 2^nd affirmation [A7/2148-2149]

[9] Exhibit “LYK2-2” attached to the husband’s 2^nd affirmation [A7/2165]

[10] pp5-6 of Mr Pang SC’s written submission. For those items with divergence of less than $1,000 between the parties, the husband is prepared to adopt a higher figure

[11] [A8/2612]

[12] Husband’s 3^rd affirmation at §13 [A8/2820]

[13] Invoice dated 2 April 2011 [A8/2643-2644]

[14] Wife’s answer to questionnaire [A5/1341]

[15] [A4/1250-1272]

[16] [A4/1267 & 1269]

[17] Exhibit “TSC4-12” of the wife’s 4^th affirmation [A8/2665]

[18] Wife’s answer to questionnaire [A5/1341]

[19] Husband’s 2^nd affirmation at §15 [A7/2134]

[20] Wife’s 4^th affirmation at §§88-89 [A8/2616-2617]

[21] Annexure 4 of Ms Yip’s written submission

[22] Husband’s answer to the wife’s 2^nd questionnaire [A7/2498-2499]

[23] Husband’s 2^nd affirmation at §§48 & 54 [A7/2148 & 2152]

[24] Husband’s 2^nd affirmation [A7/2148-2149]

FCMC 2359 /2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 2359 OF 2013

----------------------------

BETWEEN
	TSC	Petitioner
and
	LYK	Respondent
------------------------

Coram : Deputy District Judge Grace Chan in Chambers

Date of hearing : 12 August 2013

Date of handing down decision : 6 September 2013

-------------------------------------

DECISION

(Inspection of company’s books of accounts)

-------------------------------------

Introduction

1.  By her summons dated 9 May 2013 (“1^st Summons”), the petitioner (wife) applies for an order to allow her to appoint an accountant and to enter into the office of 3 companies, namely (i) HY Logistics Ltd; (ii) HY Enterprises Ltd; and (iii) FC Ltd (collectively “3 Major Companies”) for the purpose of carrying out an inspection and taking copies of their books of accounts and underlying records set out more particularly in the Schedule 1 attached hereto.

2.  On 29 July 2013, the wife takes out another summons dated 29 July 2013 (“2^nd Summons”) whereby she extends her request for inspection to the books of accounts and the underlying records of 11 other companies.

3.  There is no objection from the respondent (husband) that both summonses be dealt with and argued in the same hearing.

4.  The period of documents sought is from 1 April 2011 up to date. They primarily cover the underlying records necessary for the preparation of the 2011-2012 audited financial statements of the 14 companies.

5.  These 14 companies are part of a web of family companies which businesses are mainly provision of logistic services in China and Hong Kong. They are owned by the husband solely or jointly with the wife. The wife is an equal director with the husband, as she was in charge of the accounts and management of the family companies until at least February 2012 when the parties separated.

6.  The 3 Major Companies account for the lion share in the family businesses and income. Their businesses are structured in such a way so that HY Enterprises Ltd and HY Logistics Ltd are the major clients of FC Ltd. Details of the division of work among the family companies is set out in the wife’s 1^st affirmation at §31 (p293-294/bundle P1).

7.  It is necessary to point out at this early stage that although the wife purports to seek, inter alias, leave to appoint an accountant to carry out the inspection, it has become apparent from the submission of Ms Anita Yip, counsel for the wife, that what the wife essentially wants at this stage is an order for inspection of the underlying/primary records of the 14 companies. Ms Yip confirms during the hearing that if an order for inspection is allowed and the wife finds abnormality in the accounts or records of the companies, she would take out necessary application for expert directions for valuation of the companies.

8.  In the premises, I would, in this decision, treat the wife’s application as one for inspection only. I would, however, urge both parties to take careful note of the new CJR rules of Order 38 rule 4A (evidence on single joint expert) and Order 38 Part IV (expert evidence) of the Rules of High Court (“RHC”), both of which are applicable to matrimonial proceedings (See PD 15.12 at part G).    

The issues

9.  The wife makes it clear in her affidavit evidence and the written submission of her counsel that her application is premised on 2 limbs:

(i)   section 121, Companies Ordinance (“Ordinance”) and the common law in that the wife, as the director of these family companies, is entitled to inspect the books of accounts as of right; and/or

(ii)   Order 24 rule 13 of the RHC.

10.  At the outset of his oral submission, Mr Robert Pang SC for the husband confirms that the husband is now agreeable to provide copies (but not inspection at office) of the profit and loss accounts, balance sheets, general ledgers and bank statements of all 14 family companies within 28 days. The husband would, however, object to let the wife inspect the rest of the underlying documents on the major grounds of wrong forum, lack of necessity and ulterior intent on the part of the wife.  

11.  In the premises, the major issues that require my determination are:

(i)   whether the Family court has the jurisdiction to grant the wife’s right (as a director) to inspect the companies’ books of accounts under common law and/or pursuant to section 121 of the Ordinance;

(ii)   If no, whether discretion should be exercised in favour of the wife to allow her to inspect the books of accounts and underlying records pursuant to Order 24 rule 13 of the RHC.  

The marriage and relevant background

12.  The husband is now 55. The wife is now 40. They got married in March 2003. They have 3 children (2 daughters and 1 son) born in their wedlock, now aged 9, 8 and 7 respectively.

13.  After they first met in 2002, the wife joined and was made in charge of the accounts department of FC Ltd. Gradually, she took over the management and accounts of the other family companies. The husband, on the other hand, focused on business development.

14.  The family companies did very well in business between 2006 and 2009 so that the parties were able to acquire substantial assets, including landed properties.  Subject to valuation, it is quite fair to say that the total family assets are likely to worth over $100 million.

15.  However, since about 2009 when the husband started to spend more time at the office and get more involved in the management and sales of the family companies, argument between the couple began more frequent.  

16.  On the other hand, the wife, in order to spend more time with the children (then aged 6, 5 and 3), gradually reduced her working hours in the office from the end of 2009 onwards. But she still continued to be in charge of the accounts of the family companies and signed all the office cheques up to February 2012.

17.  The husband moved out of the matrimonial home on 17 February 2012 and sadly the parties separated since then.

18.  In October 2012, the wife filed a petition to divorce the husband by relying on the fact of “unreasonable behaviour”. By the consent of the parties, a fresh petition on “1 year separation” was filed by the wife (this suit). Decree Nisi was granted on 17 June 2013.

19.  Both parties are able to agree on the children matters. An order has already been made by this court to the effect that joint custody is granted to both parties with sole care and control to the wife and reasonable access to the husband.

20.  In other words, what remain unsolved are the ancillary relief matters. The parties are still at the discovery stage. FDR (financial dispute resolution) hearings are yet to be fixed.

The discovery history leading to the wife’s application

21.  After the parties have separated, the husband sent out the audited accounts for 2010-2011 of some of the family companies to the wife on 28 August 2012 for her signature. The wife did not accede to the request for want of books of accounts to verify the accuracy of the audited accounts.

22.  Later, Form E of respective parties was filed on 9 January 2013. To the surprise of the wife, the husband gave a different version of 2010-2011 audited accounts of at least 2 family companies in his Form E (p305-309/bundle P1). Of most concern to the wife, I would say, is the inconsistent audited accounts of FC Ltd (ie one of the 3 Major Companies) as follows:

FC Ltd	8/2012 Version	1/2013 Version
Operating expenses	($68,240,187)	($66,244,651)
Profit for the year	$2,745,077	$4,740,613
Due from director from [the wife]	NIL	$  960,049

23.  By her solicitors’ letter of 8 February 2013, the wife requested the husband to provide copies of general ledgers, management accounts and outstanding audited accounts of the family companies (p12/bundle P1). She made her same request again on 26 February 2013 (p18/bundle P1) and by way of her questionnaire of 12 April 2013.

24.  On 29 April 2013, the wife formally made her request to inspect the books of accounts and underlying records of the 3 Major Companies.

25.  Unfortunately, the husband chose not to give any or any substantive reply to the wife’s request. As a result, the wife issued her 1^st Summons in May 2013.

26.  On 17 July 2013, the husband disclosed the management accounts and audited accounts ended 31 March 2012 of the 14 family companies. Yet, it turns out that neither the auditor nor the husband have apprehended their signature in the so-called audited accounts ended 31 March 2012 of the 3 Major Companies.

The Wife’s Argument

27.  In her submission, Ms Yip for the wife is very adamant in saying that the wife, as the director of the family companies, has an almost “absolute” right under section 121 of the Ordinance as well as under common law to inspect the underlying records and books of accounts of the family companies, and she is not obliged to provide a reason for the inspection. Such right cannot be interfered with and is not subject to the discretion of the court, unless it is shown with clear proof by the opposing party (ie the husband) that the wife intends to abuse the confidence in relation to the company’s affairs and injury the company in a material way.

28.  Ms Yip relies on cases such as H v M [2000] 2 HKLRD 306 (CA judgment dated 19 May 2000), Re Boldwin Construction Co Ltd & Another [2001] 3 HKLRD 430 (CA judgment dated 7/9/2001); Ng Yee Wah v Lam Chun Wah [2012] 4 HKLRD 40 (decision dated 28/6/2005); Re Alvarez & Marsal Asia Ltd [2009] 4 HKLRD 727 (CA judgment dated 24/3/2009). In particular, Ms Yip draws my attention to §29 of the decision of Kwan J (as she then was) in Ng Yee Wah (supra) which set out succinctly the relevant legal principles.

29.  Ms Yip goes on to submit that the affidavit evidence of the husband and his witness (Mr Chow) is unable to provide “clear proof” that the wife has an ulterior intent of taking over FC Ltd or setting up similar business in competition with the family companies at this stage.

30.  As a fall-back argument in case the “as of right” argument is not accepted by this court, Ms Yip submits that the wife has passed the threshold required under Order 24 rule 13 of the RHC. In particular, she takes me through the discrepancies in the audited financial statements of FC Ltd. She pinpoints that it is the wife’s intention to seek an order for transfer of the shares of FC Ltd to her in the ancillary relief proceedings. In order to fairly dispose of this matter, the court should be supplied with “a clear and accurate picture of the financial health of the family companies.”

The Husband’s Argument

31.  It is pertinent to point out that Mr Pang SC’s written submission was lodged with this court 2 days after Ms Yip has filed hers. In his written submission, Mr Pang SC does not seem to touch on Ms Yip’s argument of a director’s “as of right” to inspect under the common law and/or section 121 of the Ordinance.

32.  This prompts me to ascertain from Mr Pang SC in the hearing if the husband is conceding on this point. Rather vague in reply (without disrespect), Mr Pang SC at first concedes that the Family Court is not precluded from considering section 121 of the Ordinance, but later adds that the wife should have exercised her right as a director to inspect company’s documents in the Companies Court only with the relevant company/companies joining as a party to the proceedings.

33.  Mr Pang SC then goes on to submit that even if the Family Court is not precluded from considering section 121 of the Ordinance, I should take into account of (i) the wife’s meeting with other operators of the logistics industry (including the husband’s witness, Mr Chau) in May 2013; (ii) her express indication that she would like to take over FC Ltd or to engage in logistics business on her own; and (iii) the documents requested in respect of the 3 Major Companies are more extensive and specific than those relating to the rest of the 11 family companies. All these, Mr Pang SC says, constitute a clear pointer that the wife’s request is not made for the purpose of carrying out her duties as a director, but for the improper purpose such as in preparation of carrying on businesses in competition with one or more of these family companies (See: Oxford Legal Group Ltd v Sibbasbridge Services Ltd [2008] Bus LR 1244).

34.  Further, Mr Pang SC argues that disclosure of these documents at this interlocutory stage is pre-mature, over extensive and unnecessary. The wife should have referred to the audited accounts disclosed so far and raised her requisitions in a more focused manner by way of questionnaires. 

“Absolute” right of a director to inspect in the Family Court

35.  Having heard and considered the submission made by counsel for respective parties, I think that the primary underlying issue here is whether the Family Court has the jurisdiction to grant the wife such “absolute” right to inspect under the common law and/or section 121 of the Ordinance. If so, according to the established legal principles, I do not have the discretion to interfere with or disallow such right of the wife, subject to any ulterior intent that can be proven by the husband.

36.  Ms Yip submits that the wording of section 121 of the Ordinance poses no restriction that the section must be within the exclusive jurisdiction of the Companies Court. Further or in the alternatively, the Family Court can recognise and enforce the director’s right of the wife under the common law. She says that in matrimonial proceedings, the Family Court has very wide power and, very often, may exercise the power enjoyed by the Court of First Instance.

37.  To begin with, I reiterate what I have pointed to Ms Yip in this hearing. Section 2 of the Ordinance defines “Court” in the Ordinance to mean “the Court of the First Instance”; Family Court is not included in the definition section. In my view, it is quite clear that only the Court of First Instance can give an order under section 121 of the Ordinance.

38.  Support is lent to my above proposition from Ng Yee Wah (supra) and Re Boldwin (supra), both quoted by Ms Yip herself. Though set in a matrimonial background, the application for inspection of company’s books of accounts under section 121 of the Ordinance in both cases was made to the Court of the First Instance. In Ng Yee Wah, there is a concurrent ancillary relief proceedings pending at the time when the application under section 121 of the Ordinance was made.

39.  There is, of course, the case of H v M (supra) which Ms Yip submits is the authority (being an appeal from the Family Court) to show that the Family Court have the jurisdiction to make the order sought. 

40.  In H v M, the husband appealed against the decision of the Family Court ordering him to produce, inter alias, copies of all invoices, accounts, receipts and vouchers of his company. On appeal, the order was set aside by Godfrey JA (as he then was) on the basis that the requests were oppressive and unnecessary; but the husband (coincidentally represented by Ms Yip on appeal) was ordered to make the books of accounts of the company available for the wife’s inspection, because the wife in her capacity as a director of the company, was entitled to inspection under section 121 of the Ordinance. Godfrey JA (as he then was) commented that,

“The Court does not favour unnecessary technicality and formalism. To send the wife away to make a formal application against Hip Wall for that purpose (which Hip Wall would be unable to resist) would, in our view, be pointless…”

41.  Ms Yip adds that being the counsel involved in H v M, she is in a position to add that the husband in that case eventually produced the company documents for the wife’s inspection in the ancillary relief proceedings, pursuant to the order of the Court of Appeal.

42.  The case of H v M, in my opinion, does not come to the assistance of the wife in so far as the jurisdictional point is concerned. The comment expressed by Godfrey JA (as he then was) when he made an order for inspection is obiter only. The order so made, in my view, is the result of His Lordship’s exercise of his discretionary power.  It is a non-pointer that the production/inspection of the company documents took place subsequently within the ancillary relief proceedings in the Family Court. It is plain and clear that in this context, the Family Court just provided a venue for carrying out the order made by the Court of Appeal. It is too far-fetched to conclude that H v M is the authority to show that the Family Court per se has the jurisdiction to make an order under section 121 of the Ordinance.

43.  Further, the District Court (of which the Family Court is a part) is a court created by statute, which jurisdiction is set out clearly in and thus limited by the District Court Ordinance. It exercises no inherent jurisdiction that may be comparable to the Court of First Instance.

44.  In John Arthur Wright v Hampton Winter & Glynn (a firm) & Another, DCMP 3233/2007, Lok DJ (as he then was) explained the jurisdiction of the District Court at §3 of his ruling as follows (which I humbly beg to agree):

“In the case of Wong Kam Chi v Lee Tik Ying [2002] 1 HKLRD at 420, I have already made the following points about the jurisdiction of the District Court:

(i)   the District Court is a court created by statute, its jurisdiction and power are limited by the provisions in the District Court Ordinance, Cap 336, and the Court has no inherent jurisdiction to hear all kinds of claims;

(ii)   the main provisions in the District Court Ordinance which confer jurisdiction on the District Court are ss 32, 33, 35 and 37;

(iii)   ss 48(1) and 52 of the District Court Ordinance, which deal with the power of the Court to grant various relief, redress and remedy, only provide ancillary jurisdiction to the District Court to make various kinds of orders once the jurisdiction to hear a particular case has been established, and the wordings of those provisions are not to extend the primary jurisdiction of the District Court. “

45.  Having perused the aforesaid sections set out by the learnt judge, I cannot find any section that would give the District Court (and thus the Family Court) the power to make an order under section 121 of the Ordinance and/or under the common law.

46.  Of a peripheral point, I note that in her 2^nd affirmation dated 29 July 2013, the wife admits that she is the director of 3 Major Companies and 10 out of 11 of the other family companies; she is not a director of LS Transportation Ltd. She is thus not entitled to rely on section 121 or the common law in seeking inspection of the books of accounts of LS Transportation Ltd.  

47.  To conclude this part of the discussion, I have to say that despite her eloquent submission, I am not persuaded by Ms Yip’s “as of right” argument. I am bound to conclude that the Family Court does not have the jurisdiction to grant an order for inspection pursuant to section 121 of the Ordinance and/or under the common law.

48.  I would also beg to say, with the greatest respect to Mr Pang SC, that given the above analysis, his concession (that the Family Court is not precluded from considering section 121 of the Ordinance) does not seem to me to be a correct concession in law, and thus will be disregarded.  

49.  In view of the above conclusion, I do not find it necessary to elaborate or make any ruling on the alleged ulterior motive of the wife, albeit both counsel have expanded much on this topic in their written submission.

50.  I will now come to the 2^nd limb of the wife’s argument on Order 24 rule 13 of the RHC.

Order 24 rule 13 & other applicable legal principles

51.  Order 24 rule 13(1) of RHC provides that no order for the production of any documents for inspection shall be made

“…unless the Court is of the opinion that the order is necessary either for the disposing fairly of the cause or matter or for saving costs.”

52.  Also relevant for consideration is the English authority of B v B (Matrimonial Proceedings: Discovery) [1979] 1 All ER 801, to which both counsel have referred me. In B v B, Dunn J set out succinctly the law relating to discovery of documents, in particular company’s documents, in ancillary relief applications at 811c-g:

“I will conclude the part of my judgment by summarizing my conclusion as to law.

(1) A party to a suit must disclose all the documents in his possession, custody or power which are relevant to the matters in issue. The court has discretion whether or not to order him to make such disclosure, and also has discretion whether or not to order him to produce the documents for inspection by the other party or the court.

(2) The documents of a company are in the legal possession of the company. If they are or have been in the actual physical possession of a director who is a party to litigation they must be disclosed by that director, if relevant to the litigation, even though he holds them as servant or agent of the company in his capacity as an officer of the company.

(3) Whether or not documents of a company are in the power of a director who is a party to the litigation is a question of fact in each case. “Power” in this context means “the enforceable right to inspect or obtain possession or control of the document”. If the company is the alter ego of such a director so that he has unfettered control of the company’s affairs, he must disclose and produce all relevant documents in the possession of the company.

(4) Where relevant documents in the possession of a company are disclosed by a director as being in his custody or power, the court has a discretion whether or not to order production of them.

(5) The discretion is a judicial discretion, and in exercising it the court will have regard to all the circumstances. The court will balance the relevance and importance of the documents and the hardship likely to be caused to the wife by non-production against any prejudice to the husband and third parties likely to be caused by production. It has not hitherto been the practice of the court to order production of company documents to which the board of directors objects on affidavit, provided that the court is satisfied that the objection is not contrived for the purpose of frustrating the powers of the court. The court will not in exercise of its discretion order parties to do that which they have no power to do. The court will not order production unless it is satisfied that production is necessary either for disposing fairly of the issues between the parties or for saving costs.”    

53.  In so far as the disclosure of company books and documents is concerned, Dunn J made the following comment at 810 c-e:

“In many, perhaps most, cases audited accounts of companies of which the husband is a shareholder will be sufficient, together with full disclosure of all the husband’s personal financial records. But there are cases when the court will go behind company accounts and order discovery of company books and documents, if it has the power within the law and within the rules to do so. It is not usual, however, for the court to take this course unless there is evidence before it from the accountants or other experts that the published accounts of the company cannot be relied on.” (my emphasis)

Possession, Custody and Control

54.  During the hearing, Mr Pang SC concedes, rightly and fairly so in my view, that the documents sought after by the wife are within the control of the husband.

55.  I take note that the husband alleges in his affirmation (p37-38/bundle P1) that the underlying documents are not within his possession now, because the companies do not keep such records, or the documents have been destroyed after 3 months, or are now stored in a godown in China.

56.  However, I agree with Ms Yip that the above explanation offered by the husband is so against common and business sense that it cannot possibly be capable of believing. Further, in stark contradiction to what he has deposed in his affirmation that the family companies in question do not keep the profit and loss accounts, the husband has now conceded in this hearing that copies of the same can be provided to the wife; the existence of such profit and loss accounts are thus indirectly confirmed.      

57.  On balance, I will conclude that the documents sought after by the wife are within the possession, custody and control of the husband.

Relevancy

58.  No point is taken on the irrelevancy of the documents by Mr Pang SC in his submission. I therefore do not see it as an issue that requires any ruling.

Necessity for fairly disposal of the matter or for saving costs

59.  Since the husband has conceded in this hearing that copies of profit and loss accounts, balance sheets, general ledgers and bank statements of the 14 family companies will be provided to the wife, what remains to be determined is whether inspection of the following remaining underlying documents (collectively “Contested Items”) is necessary for fairly disposal of the matter or for saving costs:

(i)   items (1) – (10) and item (13) of Schedule 1 in relation to the 3 Major Companies; and

(ii)   unspecified underlying records of the other 11 family companies.

(i) items (1) – (10) and item (13) of Schedule 1 in relation to the 3 Major Companies

60.  It is pertinent to note, as I have also pointed out to Ms Yip in the hearing, that the period of inspection sought by the wife is from 1 April 2011 up to date. This covers primarily the period leading to the 2011-2012 audited accounts. Yet, all the wife can point out in her affidavits is the discrepancies in some of the 2010-2011 audited accounts; she is not able to tell this court if, and if so, why the 2011-2012 audited accounts cannot be relied on (see B v B (supra)).

61.  In reply, Ms Yip submits that the wife is not able to tell if the 2011-2012 audited accounts must be wrong, because the husband has not provided such audited accounts to the wife. Here, Ms Yip must be referring to the un-signed 2011-2012 audited accounts of the 3 Major Companies.

62.  Mr Pang SC is basically silent to my above observation and to Mr Yip’s above submission.

63.  In my view, Ms Yip’s above submission does bear some truth and logic. It is hard to understand why the husband and the auditors have appended their signatures in the 2011-2012 audited accounts of the 11 other family companies, but not the 3 Major Companies which account for major family income.  It is also worrying to note the obvious and unexplained discrepancies of audited accounts of FC Ltd from “no debt from the wife” to “a debt of $960,049 due from the wife”. Given the quasi-inquisitorial role of the Family Court in ancillary proceedings guided by the 4 legal principles propounded by the Court of Final Appeal in its landmark case of LKD v DD (2010) 13 HKCFAR 537, I do not think that it would be fair to deny the wife’s request simply because she is unable to pinpoint why the 2011-2012 audited accounts of the 3 Major Companies cannot be relied on.

64.  The authorities are clear that the wife (not the husband) bears the burden of proof in showing, by way of affidavit evidence, that inspection of the Contested Items are necessary for fairly disposal of the matter or for saving costs (See Hong Kong Civil Procedures 2013, Vol One, p568 at §24/13/1). 

65.  However, in my view, the wife has not explained in her affirmation why and how inspection of each of the Contested Items is necessary for the purpose(s) required by the law. Lack of such evidence at this stage, I can only say, in a broad brush manner, that documents such as items (1) – (7) of Schedule 1 seem to cover daily operational records of the 3 Major Companies which, in my view, are too wide and petty. Moreover, from the wife’s limited explanation by way of affidavit, it seems that some of the information contained in items (1) – (7) may be part and parcel of item (8) (to be discussed below). If these items (1) – (7) are allowed, the husband would have to dig out every single invoice or debit note which is likely to be voluminous. The wife has not persuaded me by way of affidavit evidence that such documents may help to shed any direct light on the value of the family companies. The balancing exercise does not favour the wife’s request for these items.

66.  As to the item (10) of Schedule 1, I agree with Mr Pang SC that the same can be gleaned from the bank statements to be made available by the husband to the wife in due course and are thus unnecessary.

67.  I shall consider items (8), (9) and (13) of Schedule 1 together, as the wife has given more details in her affirmation as to their nature and/or importance (p300-301/bundle P1):

(i)   Item (8) (客戶對賬表) is a monthly statement of each customer who may be asked to make payment to the companies’ staff in China who would receive payment on behalf of the relevant companies.

(ii)   Item (9) (數簿) is a record book made contemporaneously of the daily transactions of HY Enterprises Ltd and HY Logistics Ltd and payments received in China.

(iii)   Item (13) is a monthly summary of accounts payable to and receivable from the customers of HY Enterprises Ltd and HY Logistics Ltd.

68.  I have no reason not to accept the wife’s explanation on the importance of these documents. Her explanation shows that a lot of the transactions of and payments received by HY Enterprises Ltd and HY Logistics Ltd take place in China (not in Hong Kong); and that such payments are not directly received by the companies, but rather by the companies’ staff in China. It is not moonshine to say that such payments are vulnerable to be manipulated. Disclosure of these underlying documents, in my opinion, will more likely than not assist in showing a direct and true picture of the businesses and payments of the 3 Major Companies, or any one of it, in China, which in turn will shed light on the value of them. Besides, since these documents are mainly monthly records or simply contain in a booklet, the disclosure cannot be said as oppressive and disproportionate. Having considered all the circumstances, I am of the view that inspection of items (8), (9) and (13) of Schedule is necessary for fair disposal of the matter.

(ii) unspecified underlying records of 11 family companies

69.  Although the wife is entitled to go “fishing” for information in the family division within the limits of the law and practice (B v B (supra) at 810b), her request for unspecific underlying records is simply too wide in the circumstances. Further, it has to be noted that among these 11 family companies, it is the wife’s own affidavit evidence (p294/bundle P1) that at least 3 of them are either merely landed property holding companies or dormant companies. Since the audited accounts for the year of 2011-2012 (already signed by the auditor and the husband) were already disclosed to the wife, she needs to pass the hurdle of showing to me why such audited accounts cannot be relied on. I do not find she has overcome that hurdle.

70.  Having regard to all the circumstances and balancing the relevance and importance of the documents and the hardship likely to be caused to the wife by non-production against any prejudice to the husband, I come to the conclusion that to allow inspection by the wife on the underlying records of the 11 family companies at this stage will not help to dispose the matter fairly or save costs. I will thus dismiss the wife’s 2^nd Summons (save and except the concession made by the husband).

Giving copies or inspection?

71.  There remains necessary for me to say a few words on whether I should allow the husband to simply provide copies of the conceded documents (ie profit and loss accounts, balance sheets, general ledgers and bank statements of the 14 family companies) instead of letting the wife enter the office premises for inspection.

72.  The husband’s contention is that he does not want the inspection to interrupt the office operation.

73.  In my view, there is simply no basis for such fear of the husband. In any event, the husband can arrange to set aside a room for inspection to take place during office or non-office hours.

Time Frame

74.  Both counsel have addressed me in the hearing as to the time frame to comply with the order to be given by me should inspection be allowed. Mr Pang SC says that in case inspection of all the documents sought by the wife is to be allowed by me, he asks for 42 days to make the arrangement. Ms Yip, on the other hand, objects on the ground that the husband has been put on notice of the wife’s (intended) application as early as February 2013. She thus insists that only 14 days should be allowed.

75.  I think the correspondences between the solicitors of the respective parties show that the wife’s first and formal written request for the underlying and primary documents of the family companies was made on 29 April 2013. It is thus not quite true that the husband has been put on notice since February 2013. Given the extent of the documents that need to be arranged for inspection, and allowing leeway for communication and logistics to set up, I think 35 days would be reasonable and sufficient in the circumstances.

Costs

76.  In view of the husband’s belated concession and the wife’s partially succeeding in getting what she wants, I opine that the husband should pay 50% of the wife’s costs of this application.

Conclusion

77.  Due to the matters set out above, I will allow the wife’s summonses to the extent as conceded by the husband and as set out above in this decision.

78.  I will thus make an order as follows:

(1) The husband (respondent) do within 35 days from the date of this decision allow the wife (petitioner) and/or her representative to enter the office of the companies (set out in the 1^st Summons) for the purpose of carrying out an inspection of the items (8), (9), (11) – (14) of Schedule 1 of the 1^st Summons covering the period from 1 April 2011 up to date;

(2) The husband (respondent) do within 35 days from the date of this decision allow the wife (petitioner) and/or her representative to enter the office of the companies (set out in the 2^nd Summons) the purpose of carrying out an inspection of the profit and loss accounts, balance sheets, general ledgers and bank statements of the 11 companies only;

(3) There be a costs order nisi that the husband (respondent) do bear 50% of the wife’s (petitioner) costs of the said 2 summonses, together with certificate for counsel, to be taxed if not agreed; such costs order nisi shall be made absolute 14 days from the date of this decision.

(4) The next first appointment be fixed for 7 November 2013 at 2.30 pm in Court 1.

       

	Grace Chan
	Deputy District Judge

Ms Anita Yip instructed by Messrs Chaine Chow & Barbara Hung for the Petitioner (Wife)

Mr Robert Pang, SC and Ms Fiona Nam instructed by Messrs Johnny K K Leung & Co for the Respondent (Husband)

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Schedule 1

List of supporting documents to be made available for inspection

1.   Order Book

·      which is the faxes from customers filed in chronological order

·      for HY Enterprises Ltd and HY Logistics Ltd

·      both hard and soft copy

2.   司機功課表

·      daily record of orders prepared by drivers

·      for FC Ltd

·      both hard and soft copy

3.   拚櫃資料

·      filed in chronological order

·      for FC Ltd

·      both hard and soft copy

4.   落船發票

·      record of containers transported to China by ship through agents in China filed in chronological order

·      for HY Enterprises Ltd and HY Logistics Ltd

·      both hard and soft copy

5.   Invoices (per container)

·      each container has one invoice to debit the customers

·      for HY Enterprises Ltd and HY Logistics Ltd

·      both hard and soft copy

6.   Invoices from FC Ltd debit to HY Enterprises Ltd and HY Logistics Ltd

7.   Debit notes from various agents in China

·      there are records per container and in chronological order

·      for HY Enterprises Ltd and HY Logistics Ltd.

·      Hard copy only

8.   Statements for each customers

·      i.e. Account Receivable

·      for All three companies

·      both hard and soft copy

9.   數簿 (record of payments received from customers in China)

·      filed in chronological order

·      for HY Enterprises Ltd and HY Logistics Ltd

·      Hard copy only

10.     Daily Cash Flow record

·      record of cash flow of all the three companies’ bank accounts in Hong Kong

·      both hard and soft copy

11.     Bank statements (sent by the banks)

·      record of all bank-in and bank-out of all the three companies’ bank accounts in Hong Kong

·      Hard copy only

12.     Voucher and Ledger

·      supporting documents of all transactions of all the three companies

·      both hard and soft copy

·      Note (the companies use [xxx] as Accounting Software)

13.     Summary of account payable and account receivable

·      this is required to prepare each month

·      for HY Enterprises Ltd and HY Logistics Ltd

14.     P/L account (profit and loss accounts)

·      which would be printed out from [xxx accounting software] each month

·      for all three companies

·      both hard and soft copy