CYYC v. TVKT
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FCMC 14649 / 2014
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
MATRIMONIAL CAUSES
NUMBER 14649 OF 2014
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| BETWEEN | ||
| CYYC | Petitioner | |
| and | ||
| TVKT | Respondent | |
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| Coram: His Honour Judge I Wong in chambers (Not Open to Public) |
| Date of Hearing: 10 January 2017 |
| Date of Judgment: 23 January 2017 |
____________________
JUDGMENT
(Injunction)
____________________
1. This is the petitioner wife’s application of 27 September 2016 for an injunction to restrain the respondent husband from:
(1) dealing with his securities accounts held in his name as well as any new securities account he may open other than by way of usual trading and due to market fluctuation. A total of 17 accounts are listed on the summons; and
(2) withdrawing funds more than $75,000 per month from his bank and securities accounts as his living expenses.
2. Further, the respondent is to be restrained from giving donations to charity. All donations must be to a properly licensed Hong Kong charity or to the school that the parties’ son is attending and agreed between the parties.
3. In the mention hearing of 4 October 2016 I gave an ‘interim interim’ order in terms of the petitioner’s application (with the threshold of living expenses being adjusted to $100,000) pending determination of the application.
4. For convenience, I shall continue to refer the petitioner wife as “P” and the respondent husband “R” in this Judgment.
Background to the Present Application
5. I need to mention that this is in fact the 3rd application of P for an injunction.
6. The first was taken out on 20 May 2015. This summons (“the 1st Injunction Summons”) dealt mainly with the landed properties and fixed assets under R’s name. In brief, P sought an order to restrain R from dealing with the proceeds of sale of 3 properties, namely (1) the Wan Wah property, (2) the Pacific Heights property and (3) the Camel Paint property. She also sought to restrain R from dealing with the remaining landed properties and assets already came to light and remained unsold. These assets included but not limited to 4 landed properties in Hong Kong and in the Mainland, 2 Hong Kong/PRC dual vehicle licenses, 2 golf club memberships and an interest in a sand mining business in the Mainland.
7. The second summons (“the 2nd Injunction Summons”) was taken out on 11 August 2015 and was in part a follow-up on the proceeds of sale and the remaining part for further restraining R’s investment activities. The relevant part of the summons, insofar as it related to R’s investment activities, was to restrain R:
(1) From engaging in further stock, margin borrowing and lending, futures, options and unit trust related investments, whether out of his personal bank or securities accounts or out of any joint accounts with third parties, and whether in Hong Kong or overseas, pending further Order of the court; and
(2) From purchasing any further investment linked insurance policies, as well as engaging in the redemption of such policies, and any kind of investment purchase, sale or switching under existing insurance policies, without P’s express consent or an order of the court.
8. The 1st Injunction Summons and the 2nd Injunction Summons were heard on 27 October 2015. At that point, R had already agreed to pay the proceeds of sale into court. By a Judgment handed down on 21 December 2015 (“the 2015 Injunction Judgment”), insofar as it related to the 1st Injunction Summons, I gave an order restraining R from further dealing with the landed properties and assets pending the resolution of these proceedings and without an order of the court.
9. As regards the 2nd Injunction Summons, R offered the following undertakings (“the Undertaking”):
“1. To provide the Petitioner with documentary evidence including bank and security accounts statements (for example, investment advices and investment confirmations) for each month on the 1st day of the next calendar month or as soon as the same are available in respect of any stock, margin borrowing and lending, as the same are available in respect of any stock, margin borrowing and lending, futures, options and unit trust related investments whether out of his personal bank or securities account or out of any joint accounts with third parties, and whether in Hong Kong or overseas;
2. Pending resolution of these proceedings and without P’s consent or further order of the court, he shall refrain from purchasing any further investment linked insurance policies or the redemption thereof save and except for the necessary purchase, sale or switching of investments when required under his existing individual policies.”
10. With the Undertaking and for the reasons set out in the 2015 Injunction Judgment I dismissed P’s 2nd Injunction Summons. There was no appeal against that decision.
11. To summarise, the state of the matter since the 2015 Injunction Judgment is:
(1) The proceeds of sale of R’s landed properties are being retained in court;
(2) R is restrained from dealing with the landed properties and other tangible assets until further order of the court; and
(3) Pursuant to the Undertaking R is to provide documentary evidence including statements of his investments in a timeous manner and, to put it broadly, not to purchase any further investment linked insurance policies or their redemption.
12. It was against the above background that about 9 months later P took out the present application. It can readily been seen that the scope of the injunction now being sought is very similar to her 2nd Injunction Summons.
13. It is pertinent for me to recap what I said in the 2015 Injunction Judgment about the background of the parties and their stance in the ancillary relief proceeding:
Background
4. The parties were married in August 2001, with a son born in February 2004, now nearly 12 years old. In November 2014, P petitioned for divorce on the ground of 2 years separation. She claimed that the parties had separated since about 2004.
5. Both parties are 50 years old. P, who retired in 2014, used to have a very successful practice as a solicitor. Probably due to this reason R ceased work in about 2004 and took up the role of a homemaker; the major source of income for the family therefore had been P’s income from her legal practice. R’s another role was to manage the family assets in various forms of investments. In doing so, he has been using some companies as vehicles including two in the names of TAH Limited and NP Limited that feature in the present specific discovery exercise. Probably this is for this reason that he described himself as self-employed in his Form E. This triggered some queries from P. Be that as it may, it seems to me clear that this was the division of labour that the parties agreed upon during the subsistence of the relationship: P was the income earner and R was the homemaker cum ‘family funds’ manager.
6. R accepts this is a ‘big money’ case. He also accepts that the principal source of funds for the investments he has made on behalf of the family during the marriage, and particularly since the birth of the son, has been the joint account of the parties, which has been primarily funded from P’s legal practice, he, however, rejects that such income has been the sole contributor to the family fortunes for the reason that he had savings or assets prior to ceasing employment. He has since done his best to enhance the family wealth through his management to the same. P doubts very much whether this was the case.
7. There is also an issue as to the date of separation. P pleaded that the parties separated in about 2004 but R claimed it happened at a much later time. Yet whatever date it is, it is common ground that the parties have continued to live in the matrimonial home until this day. It is also significant to note that even on P’s own version, notwithstanding that she had long separated with R, she continued to ‘allow’ R to manage her assets to the extent that the father of her son had the authority to manage all the accounts including her own HSBC account into which her earnings from legal practice were deposited. R was even able to operate the accounts online to the exclusion of P in that only he had the password and the security fob.
8. P has one main theme running through her application for discovery: she is suspicious that R may have further assets yet undisclosed to her.
9. P complains that a great deal of money has gone missing or is unaccounted for. She says that before her retirement, she was bringing in income as partner of a law firm of almost $30 million a year. From 2010 to 2014, she earned $146.6 million in salary and dividends. P says that in 2010 the combined assets of the parties were about $63.3 million and in 2014, they stood at about $153.3 million, hence an increase of $90 million only. However, during the same period of time, there were receipts of $209.9 million, with about $146.6 million from P’s practice. Thus, the figures show that a great deal of money has gone missing or is unaccounted for. I do not think I need to go into the details. Suffice for me to say is that during the same period, according to P’s forensic accountant, there were receipts of $47.6 million in respect of which no information or supporting documentation is available and over $216 million was transferred or paid out, of which $125 million were without information or documents provided. There is a ‘black hole’ of as much as $100 million.
10. P says since 2010 R had deliberately kept her in the dark and she therefore did not ‘complain’ because she simply had no idea as to what was going on. R failed and refused to properly account and give full and frank financial disclosure. She has the right to know what happened to the money that she earned. This is on this basis that P seeks financial disclosure back to at least from 2010.
11. It is therefore submitted by her counsel Mr Coleman SC that P is essentially asking for discovery of her own properties and assets or what they became, and for interlocutory injunctions to protect her own properties and assets albeit in the hands of R.
12. By and large R admitted, in his Answers dated 16 March 2015, that he did not discuss with P regarding the acquisition of the investments because P had become unreasonable and difficult to discuss with in the past several years whenever investment proposals were suggested by him. He therefore carried out the investments without information to P. He said it had proved to have reduced unnecessary arguments and quarrel over the matters in relation to investments.
13. In response to the allegation that there are missing funds and assets of as much as $100 million, Mr Pilbrow SC, on behalf of R, fairly accepts that there is a duty on the part of R to give a full and frank financial disclosure. R is confident that there is no ‘black hole’ as such but whether this is the case remains to be seen. For this purpose, he is prepared to demonstrate his case by tracing the assets and investments all the way back to the very beginning and not just up to 2010 that P is now asking for.
Legal Principles
14. As regards the applicable legal principles, I repeat what I said in the 2015 Injunction Judgment,
100. Mr Pilbrow refers me to a recent decision by Mr Justice Mostyn in ND v KP (exp. Application)[2011] EWHC 457 (Fam); [2011] 2 F.L.R. 662; [2011] Fam. Law 677; (2011) 161 N.L.J. 702 in which the applicable legal principles have been succinctly set out:
“4. I want to begin this judgment, which is being given ex tempore and which I hope will be comparatively short, with some statements of principle. In ancillary relief proceedings there are two routes available to obtain a freezing order. An application can either be made under section 37 of the Matrimonial Causes Act 1973 or it can be made under the inherent jurisdiction. It was submitted by Mr Turner QC in a case called Khreino v. Khreino [2000] FCR 80, CA that the effect of the decision of the House of Lords in Richards v. Richards [1984] AC 174, HL was that the only permissible route was the statutory one, but that submission was rejected.
5. That said, it would be a strange state of affairs if either the procedure or the test applicable under the statutory mechanism differed materially from that which applies under the inherent jurisdiction. Under the statutory test the court can restrain the transaction if it is satisfied that the other party to the proceedings is, with the intention of defeating the claim for financial relief, about to make any disposition, or to transfer out of the jurisdiction, or otherwise deal with, any property. So under the statutory test there has to be identified by evidence an impending transaction, or at least the risk of an impending transaction taking place.
6. It is really not very different from the test that applies under the inherent jurisdiction. I quote from Civil Procedure otherwise known as the White Book at paragraph 25.1.25.5 which states, citing a decision of Sir Peter Pain of O'Regan & Ors v Iambic Productions Ltd (1989) 139 NLJ 1378, that the applicant should depose to objective facts from which it may be inferred that the respondent is likely to move assets or to dissipate them; unsupported statements or expressions of fear have little weight. The notes go on to say that great care should be taken in the presentation of evidence to the court so that the court can see not only whether the applicant has a good arguable case but also whether there is a real risk of dissipation of assets. A freezing order should not be granted unless the applicant has established an appropriately strong case showing, amongst other things, that the respondent owns the assets concerned or has some interest in them. It is for the applicant to make out his case, and orders should not be granted simply because the respondent cannot show an immediate and obvious prejudice. That formulation is really not very different from the formulation in section 37 which I have recited above.
7. Indeed, it is mirrored by the comments in more vivid language of Thorpe LJ in the case of Khreino where he says this:
“Family Division judges day in day out exercise the inherent jurisdiction to grant injunctions to ensure that one spouse does not selfishly or irresponsibly salt away, squirrel away or spirit away family assets which may be in his name but which must be carefully preserved pending the ultimate judicial determination as to what proportion of that asset must be either transferred to or made available for the benefit of the applicant spouse.”
8. So whilst the words used are different the language all points in the same direction, namely that there must be a good case put before the court, supported by objective facts, that there is a likelihood of the movement, or the dissipation, or the spiriting away, or the salting away, or the squirreling away, or the making of a disposition, or the transfer, of assets, with the intention of defeating a claim. It all comes to the same thing.
9. What is to be emphasised is that in this country, unlike some other countries on the continent, we do not have a system of general saisie conservatoire whereby assets are automatically frozen pending the determination of a divorce claim. Indeed, one must remind oneself that the basic rule in this country is of separate property, and that is bolstered by Article 1 of Protocol 1 of the European Convention on Human Rights which says that every natural person is entitled to the peaceful enjoyment of his possessions. So, in order to obtain a freezing order there must be before the court a demonstration of objective facts that evidence the likelihood of the movement or dissipation of assets with the intention of defeating the applicant's claim. That is the first principle.
101. And in para 32, the learned judge said the following regarding the applicant in that particular case,
“32. Those submissions, in my view, expose the real motive behind the wife's application which was to obtain a freeze over the husband's assets for no reason other than it would be desirable to keep them preserved until trial. But that, as I have explained, is not the law in this country…”
102. In brief, there are two basic points.
103. The first is that the procedure or the test applicable under the statutory mechanism (ie Section 17 of the Matrimonial Proceedings and Property Ordinance, Cap 192) does not differ from that under the inherent jurisdiction, in the present case Section 52B of the District Court Ordinance, Cap 336. The same point was made by Mr Justice Mostyn in L v K (Freezing Orders: Principles and Safeguards) [2013] EWHC 1735 (Fam); [2014] Fam 35.
104. The second is that there must be evidence showing the likelihood of the movement or dissipation of assets with the intention of defeating the applicant's claim.
15. The basic points set out in §§103 & 104 of the 2015 Injunction Judgment are still valid. For the purpose of the present application, it would be useful for me to set out the relevant principles and safeguards summarised by Mostyn J in L v K (Freezing Orders: Principles and Safeguards) [2013] EWHC 1735 (Fam); [2014] Fam 35, at [51]:
(1) The court has a general power to preserve specific tangible assets in specie where they are the subject matter of the claim. Such an order does not necessarily require application of all the freezing order principles and safeguards, although it is open to the court to impose them.
(2) For a freezing order in a sum of money which is capable of embracing all of the respondent's assets up to the specified figure it is essential that all the principles and safeguards are scrupulously applied.
(3) Whether the application is made under the 1981 Act or the 1973 Act (the Hong Kong equivalent in the District Court is section 52B of the District Court Ordinance (Cap 336) and section 17(1) of the Matrimonial Proceedings and Property Ordinance (Cap 192)) the applicant must show, by reference to clear evidence, an unjustified dealing with assets (which would include threats) by the respondent giving rise to the conclusion that there is a solid risk of dissipation of assets to the applicant's prejudice. Such an unjustified dealing will normally give rise to the inference that it is done with the intention to defeat the applicant's claim (and such an intention is presumed in the case of an application under the 1973 Act). (emphasis underlined)
(4) The evidence in support of the application must depose to clear facts. The sources of information and belief must be clearly set out.
P’s case
16. Mr Todd, on behalf of P, argued that the court should consider this application from what P’s case at its highest might be at the final hearing. The court should have regard to the factors:
(1) that according to P’s version, the parties have been separated for over 12 years; and
(2) that R in reality was P’s trustee of her post-marital assets. The provenance of virtually all the capital is with P; it is the product of her labour. In so far as the assets are in R’s name, they are only so for form’s sake. It is the source which is important.
17. Mr Todd submitted that as a trustee R should have acted as a prudent man of business. Instead he has indulged in reckless investment which is almost tantamount to the bizarre. On that footing, he argued that this application is very akin to a case where a party is seeking the removal of a trustee because of that trustee’s reckless disposal of assets. R should not be allowed to continue with wanton dissipation of assets pending a proper determination of this case.
R’s Case
18. Mr Pilbrow SC emphasized the draconian nature of the order being sought. The order is not to cover only certain assets as is usually the case. The order is to cover all the assets under R’s name. Essentially, it is an inter partes Mareva injunction with an allowance for living expenses. Thus, the court should exercise its utmost caution in determining the present application.
19. Mr Pilbrow stressed that after her 2nd Injunction Summons was dismissed P is trying to have a second bit of the cherry; and that R must have the right to deal with his investments.
Discussion
20. P is essentially repeating her story that she was kept in the dark and that she is extremely distressed that so much of her hard-earned money has been lost or gone missing without her knowledge nor authorisation. It is important to preserve the wealth that still exists in light of her retirement since November 2014. After having lived with this case for nearly 2 years and having read voluminous affirmations, I can certainly understand her sentiment. Yet, I cannot lose sight of what have been in place since the 2015 Injunction Judgment. It must be right for Mr Pilbrow to point out that the court has already rejected P’s 2nd Injunction Summons and he urged the court to look for what changes of circumstances, if any, there have been for P’s draconian application.
21. I now turn to P’s grounds.
Any Solid Risk of Dissipation of Assets to P’s Prejudice?
(1) Cash
22. In the last call-over hearing, in response to court’s inquiry on whether there were any changes in the circumstances, Mr Coleman SC, who appeared for P on that occasion, referred to R’s Form E which disclosed cash of over $22 million at his disposal as at December 2014. Despite his declared “Current Monthly Expenses” per Part 4 of his Form E being relatively modest, by August or September 2016, there was only about $4.9 million left. As far as arithmetic goes, there was a missing of $17 million. He also highlighted the fact that R’s securities accounts had also dropped from $14 million in December 2014 to only about $10.4 million in August 2016. He submitted that this evidence showed dissipation of assets on the part of R. Another example was R’s failure to disclose in his 2014 Form E the jade investment of about $340,000 that he made in 2011.
23. R said he did not have $22 million cash; the accurate figure should be $20 million. I have checked the Form E. The total value of R’s interest in all bank accounts was not stated in one single figure. There was not “one” total value as such. Instead, 9 figures on different currencies were stated under that column. It is fair to say that neither party has shown how their respective figures were arrived at.
24. R’s explanation, as set out in his affirmation, is that he spent the following sums during the period:
1. According to P, R spent $1,703,000 on cash and credit cards in 2015, and $1,261,000 for the first 6 months in 2016, these total at $2,964,000;
2. Legal costs of $9,185,000;
3. Expert’s costs $539,000; and
4. Purchased a car parking space on 8 April 2016 for his use at Island Lodge for $1,800,000.
25. The total of all these items is $14,488,000 ($2,964,000 + $9,185,000 + $539,000 + $1,800,000). Adding this to the remaining sum of $4,900,000 is $19,388,000 ($14,488,000 + $4,900,000). If $22,000,000 is taken as the starting point, the shortfall is $2,612,000 whereas if $20,000,000 is taken, the difference is merely $612,000. R explained that he needed to spend additional household and decoration items for $149,000 on the Island Lodge property in 2016. I believe these were necessitated by his moving out of the matrimonial home. He also explained that some of the money in the shortfall would have been spent on deposits in various securities accounts and the costs on the acquisition of the car parking space, though he could not specify in detail at this stage. During the hearing, I was told that according to the parties’ Form H, P’s legal expenses have incurred up to about $15 million whilst R’s are about $13 million. It is therefore not surprising that R spent $9,185,000 on legal costs. Further, though not so pointed out by the parties, it appears to me that R’s monthly expenditure after the first 6 months of 2016 have not been included. If these sums are included, the shortfall, whichever base figure is taken, should be smaller. R’s updated Form E of 7 December 2016 shows he had about $8 million cash at that time, so it appears that the shortfall should be even smaller.
(2) Litigation Driven Excess
26. P said that according to R’s Form E dated 22 December 2014, his monthly expenses were only about $75,000 per month. She then conducted a microscopic analysis of R’s monthly expenditure by looking at his cash withdrawals and credit card payments, by looking at, where available, whether R was or was not in Hong Kong on a particular date, by looking at his cigar consumption, where he dined and things he purchased. She said that in 2010, R’s average monthly expenditure was $108,117 (excluding withdrawals in RMB) but in 2014 inclusive of withdrawals in RMB, it went up to $108,450 and the figure for 2016, inclusive of RMB, was $190,113. There is no reason for these increases since as from March 2014 R was paying solely for himself while before then he was paying for a household of 3 persons. These drastic increases are likely to be litigation driven excesses with a view to artificially bolstering R’s needs. She referred to R’s purchases of expensive gifts, jewellery and watches for unknown or unidentified person. She also said that some of the expenditure had been recorded in TAL (a company under R’s control)’s account, so R has double counted the same items. After a close scrutiny, P came up with a figure of $74,264 and claimed this should be sufficient for R’s monthly expenditure. I believe that is why in her summons she seeks to limit R’s withdrawal of monthly expenses to $75,000.
27. R said there was in fact no substantial increase in 2015. For 2015, there were unusual items such as surgery fee of $187,027, rentals for his temporary accommodation after moving out from the matrimonial home was $92,000, decoration of his Island Lodge residence was $123,648 and the holiday trip to the United States with the son was $195,000. According to his calculation, the total of these unusual items amounts to $694,000.
28. Mr Pilbrow highlighted the fact that when P was criticising R’s lifestyle, she had substantially increased her own expenditure. My attention was drawn to P’s Form E of December 2016 where she stated she is spending $719,000 per month. As far as her personal expenditure is concerned, she is spending $302,500 per month on meals ($34,000), clothing ($150,000), personal grooming ($65,000), entertainment ($25,000), holiday ($20,000) and medical expenses ($8,500); whereas back in 2014, the figure was $240,479. In effect, she is demanding that R should spend less than 1/3 of what she is spending; and she raises some eyebrows when R is spending at about 60% of what she is spending. To me, given the magnitude of the matrimonial assets involved, minuscule examination of R’s monthly expenditure is inappropriate for the purpose of this application. On the evidence before me, I am not persuaded that it is fair to limit R’s spending to a specified sum prayed for by P, be it $75,000 or $100,000. I also fail to see how this complaint could justify an injunction on all of R’s accounts.
(3) Transactions with R’s sister “D”
29. One of the transactions that P asked of in Question 73 of her 2nd Questionnaire dated 23 February 2016 was the purpose of a payment of $3,000,000 by R from his account on 14 May 2015. R did not provide any answer in his Answer filed on 31 August 2016. P’s concern over this transaction was raised again in §16 of her supporting affirmation of 28 September 2016. Yet, R did not give a reply in his subsequent affirmation of 20 October 2016. P raised this again in her affirmation of 23 December 2016. She specifically mentioned that with the availability of R’s expert report, it was revealed, probably inadvertently that, the money was in fact transferred to R’s sister D. There was still no explanation in his latest affirmation of 5 January 2017.
30. It has to be recalled that the date of 14 May 2015 has some significance. On that day R said in his Answer filed on 20 October 2015 that he caused his NP Limited to pay him $5,500,000, being the proceeds of sale of his landed property, as repayment of directors’ loan owed to him and then from his account a sum of $5,000,000 was paid out to his solicitors on 27 August 2015. I was well aware of this transaction because the same was specifically dealt with in the 2015 Injunction Judgment. In §118 of the said Judgment, I found that R misled the other side as to the whereabouts of the proceeds of sale. I warned R that the court took a very serious view on this and he had to be reprimanded for this. Now, with R’s expert report (“MDD Report”), it seems clear to me that R gave a false statement in his Answer. Before I give my reason on this, I need to deal with R’s dealings with his younger sister “D” first.
31. It transpired from the MDD Report that on 14 May 2015, a total of $8.5 million was transferred to D. The breakdown is made up as follows:
Account Amount NP Limited’ s HSBC Account $5,500,000 R’s HSBC Account $3,000,000 Total $8,500,000
32. Subsequently, D deposited or returned $500,000, $1,000,000, $6,500,000, and $499,913.15 on 11 June 2015, 14 July 2015, 27 August 2015 and 2 September 2015 respectively. All these add up to $8,499,913.15.
33. On the same day, ie 14 May 2015, R also made the following transfers, totalling $4,385,156.91 in favour of D:
Account Amount and Currency Amount in HK$ R’s HSBC Account RMB950,000 $1,208,459.21 R’s HSBC Account GBP260,000 $3,176,697.70 Total: $4,385,156.91
34. Again, the MDD Report shows that the RMB withdrawals were returned on 18 June 2015 and 2 September 2015 in the respective sums of RMB100,000 and RMB850,175.37; and the GBP withdrawal was returned on 2 September 2015.
35. Thus, the picture one can gather is that on 14 May 2015, R transferred a total of about $12,885,000 to D; and up to now there was not any explanation from him why he did so.
36. Mr Todd submitted that 14 May 2015 is a significant date because it was the date when R discovered that P had registered a lis pendis against his Pacific Height property. It is obvious that R intended to ‘park’ his monies with D so as to keep them out of the reach of P. It was only subsequently when P was chasing after him on the proceeds of sale that arrangement was made for monies to be returned, with the last few lots on 2 September 2015. At that time P had already taken out her 1st Injunction Summons and 2nd Injunction Summons.
37. Mr Todd placed heavy reliance on this incident. He referred it as the most obvious example and described it as P’s best point. He urged the court to work on the cautious route. This incident should be sufficient for the court to adopt such an approach and impose a degree of control in order to preserve P’s assets.
38. Turning back to what I said about R giving a false statement in his Answer. As mentioned in §30 above, R claimed he caused a sum of $5,500,000 to have been paid to him on 14 May 2015; a substantial part of it, being $5,000,000, was paid over to his solicitors as costs on account. I have checked NP Limited’s HSBC statement dated 19 May 2015 annexed to R’s Answer of 20 October 2015. The statement shows on that day there was only one $5,500,000 withdrawn. The statement only states “Debit as advised” and does not state the name of the recipient. If there was only one withdrawal of $5,500,000 on that day, the implication is that either R was telling lie or the MDD Report is wrong. The MDD Report says the entry was supported by D’s bank statement. I prefer to accept what is stated on the report. It is glaringly apparent that R tried to conceal the fact that $5,500,000 was paid to D. I agree with Mr Todd that at that time R obviously tried to hide his monies away from P.
39. Plainly, R failed to give a full and frank disclosure of this transaction. Yet, the question is how this incident is to be read in terms of risk of dissipation of assets? The sequences of events, as I read them, shows that R at the beginning tried to hide his assets away but importantly very soon he did not have the audacity to continue with the scheme and had the monies returned to him. He did so after P had taken out the 1st Injunction Summons and the 2nd Injunction Summons but before the substantive hearing of 27 October 2015. Viewed in this light, this incident cannot be interpreted as auguring dissipation of assets.
(4) Loss on Investment
40. Mr Todd referred me to R’s up-dated Form E where it is shown that his securities accounts have dropped from $14 million in December 2014 to only about $10.4 million in August 2016. As at December 2016, the amount was about $8.2 million. R should not be allowed to have the funds parked with third parties and/or recklessly gambled on the markets with consequential loss.
41. Mr Todd placed reliance on what Mostyn J said on proof of “risk of dissipation” in [18] of L v K (Freezing Orders: Principles and Safeguards):
18. It seems to me that prima facie proof of a risk of dissipation requires, at least in general and broad terms, proof of an intention to dissipate—dissipation in this context surely means a deliberate or reckless dealing with assets rather than some random event unconnected to the motives of the respondent. I acknowledge that in Alternative Investment Solutions (General) Ltd v Valle de Uco Resort and Spa SA [2013] EWHC 333 (QB) at [8] Cranston J stated:
“There is no need for a claimant to show an intention to dissipate assets, nor dishonesty or fraud. Where there is a good arguable case of dishonesty or fraud the risk of dissipation may speak for itself. The conduct giving rise to a real risk of dissipation must not be capable of justification: …”
This would suggest that proof of a nefarious intent is not needed, but that proof of unjustified conduct will suffice. I consider that there is no real difference between the two. It may be that Cranston J was drawing a distinction between express and inferred intentions. In my opinion if someone is doing something unjustified with his assets then it surely follows as night follows day that he must, in a non-innocent way, be intending to do so. (emphasis underlined)
42. Mr Todd submitted it is clear that R has been making reckless dealings with the family assets. This is unjustified conduct and should be sufficient to warrant an injunction.
43. In response, Mr Pilbrow submitted that moral culpability or irresponsibility is insufficient to constitute financial conduct which would have material impact on the way of distribution of assets. The claimant has to take his/her spouse as he/she found her/him of personality flaw. Thus, even spending on cocaine per se is insufficient to constitute misconduct: MAP v MFP (Financial Remedies: Add-Back) [2015] Fam Law 522 at §91 per Moor J. In the present case, P was content to leave R to do the investment and it was only after their relationship turned sour that P stopped R from investing. Further, R has provided bank statements to P regularly for check.
44. R said after the 2015 Injunction Judgment, he had, according to the Undertaking, refrained from purchasing any further investment linked insurance policies or their redemption. He did not make any significant dealings in the insurance policies and the securities accounts. The reality is securities/stocks/units trusts do go up and down due to market fluctuation. It would not be logical to use the prices of a definite date to conclude that the investments are making loss. In this regard, it is to be noted that there is no allegation from P that R had been in breach of paragraph 2 of the Undertaking.
45. It is also to be noted that P has had most, if not all, of R’s statements since the 2015 Injunction Judgment but significantly I was not referred to any particular transaction in which there was “suspected” unjustified conduct on the part of R.
46. P also complained that R lost over $1 million during a 12 month period on a margin account. This complaint was apparently an old one and was already dealt with in the 2015 Injunction Judgment: see §93. Anyway, P said that “margin trading” is not usual trading. The family has sufficient resources not to require leverage for securities trading. Mr Todd submitted that margin trading is inherently speculative and dangerous, and not a form of “investment”. To this, R’s answer is that this is not the whole truth. With margin trading, he purchased stocks, so he acquired assets; so cash was invested in stocks. This does not mean that he dissipated the cash.
47. In my view, there is room for argument as to whether trading in this ‘margin account’ is usual trading or not. As Mr Todd remarked that “context is everything” when he was referring to this family’s background, if this account has been in operation for trading throughout the period, I can see on the one hand it would be open for R to argue that margin trading is usual trading and that the loss was due to vagaries of the market but on the other, there would certainly be argument that this sort of trading is unnecessarily risky and was imprudent for R to have engaged in it when the parties were litigating over the family assets. It calls for an explanation in trial as to why R engaged in this trading and how the loss was suffered. Anyhow, this complaint has already been dealt with in the 2015 Injunction Judgment.
R’s Continual Failure to Give Full and Frank Disclosure
48. P has the following complaints.
(1) Disclosure of Statements
49. P claimed that while the Undertaking has acted as a tool in the ongoing discovery process against R, it has not assisted her in keeping his continued, unauthorized dissipation of her assets in check. R is still playing “catch-me-if-you-can”. Therefore, the Undertaking, as it stands, is inadequate to act as a deterrent to R from continuing on his path of financial misconduct. The bank statements were sent to her in haphazard fashion and she had to repeatedly chase R for missing statements. Consequently, it has been impossible for her to obtain a complete and clear procure of R’s finances at any point in time, which made it extremely difficult for her and her advisers to trace the movements of funds. One particular incident she relied on is the closing of R’s “i Fast Accounts” and the transfer of funds from these accounts in the tune of $7,735,000 into some other accounts. It turned out that this was done due to a change of the investment platform occasioned by the transfer of ownership of his investment adviser and nothing was lost.
50. There is some dispute over the length of delay in informing P regarding the “i Fast Accounts”. R said it merely took him 8 days to give the reply. P however said R well knew about it since mid August 2016 but did not tell her about it at all; waiting for P to look through statements herself to discover the surprising transactions. This was a breach of the Undertaking.
51. Mr Pilbrow referred me to a bundle of schedule showing the dates of statements and the dates when the same were provided to P’s solicitors. He conceded that there was a significant delay in July and August 2016 when R was travelling in the United States with the son. Other than that, bearing in mind that the obligation under the Undertaking is burdensome, R has been in compliance of the Undertaking.
52. I agree that R could have done better by giving a more detailed or an earlier reply, but on any view, this per se does not necessarily lead to the imposition of an injunction.
(2) Jade Investment
53. The jade investment only came to light after the 2015 Injunction Judgment. R purchased a jade for $340,000 for investment purpose in 2011 but he failed to disclose this in his Form E of 2014. P managed to find it out upon her analysis of documents and asked questions on this. Following this is the dispute over whether there is a 60% guaranteed profit. R admitted it was his omission and he agreed the investment of $340,000 be added back. In my view, regardless of whether there is a guaranteed profit of 60%, the total invested sum was $340,000 only. I agree with Mr Pilbrow that this alone could not have supported an application for injunction. In any case, I believe this $340,000, together with numerous insubstantial sums that are said to have been siphoned away by R (but adding them together would be enormous) would in any event be part of the “black hole” that P contends should be accounted for in its entirety by R.
Should an Injunction be granted?
54. I cannot accept P’s repeated insistence that all the monies are hers because she was the wealth creator. With respect, I consider it is more appropriate to refer these assets as family assets. Mr Todd put forward a new argument that since according to P’s case, the parties have been separated for over 12 years R became the trustee of P’s post-marital assets. As a trustee he should have acted as a prudent man of business. Yet, R is found to have indulged in reckless investments. Mr Todd even went so far as to say that this is very akin to a case where a party is seeking the removal of a trustee because of that trustee’s reckless disposal of assets. With respect, I cannot agree with this analysis. The bottom line is the parties are married couple and what we have here are ancillary relief proceedings upon the parties’ divorce.
55. The effect of P’s application is to freeze everything without an upper limit. I cannot agree with Mr Todd’s contention that since R has hidden assets the value of which is unknown, everything on the table could be P’s. As I commented in the 2015 Injunction Judgment, P has one main theme running through the proceedings: R has further assets yet undisclosed to her. Now nearly two years down the road, I am afraid that even with the assistance of her forensic accountant, P has made little progress in her claim.
56. Mr Pilbrow made the point that the complaint that R is facing can also be said against P. According to the MDD Report, from January 2010 to December 2014 the unknown deposits and withdrawals in her accounts were $20 million and $37 million respectively. P lost $5 million in her investment and spent $8 million on renovating her home.
57. Mr Pilbrow, relying on what Peter Gibson LJ said in Thane Investments Ltd v Tomlinson [2003] EWCA Civ 1272, [2003] All ER (D) 496 (Jul), emphasized what the court must be satisfied about before making an injunction is that the applicant for an injunction order must have a good, arguable case, that there is a real risk that judgment would go unsatisfied by reason of the disposal by the respondent of his assets, unless he is restrained by the court from disposing of them, and that it would be just and convenient in all the circumstances to grant the injunction (emphasis underlined): [21]; see also Jackson’s Matrimonial Finance (9th Edn) at §16.32.
58. According to P’s Schedule of Assets, the parties have $223 million with $126 million in P’s name and the remaining $97 million under R’s control. R’s picture is somewhat different. According to him, the parties have a total of $386 million, with $293 million under P’s name and the remaining $93 million in his hands. I believe R’s estimate is probably closer to the reality because P has not included the substantial retirement funds that she has received and is going to receive in the 4 years following her retirement. On any view, P has more assets in her pocket than that of R’s.
59. I bear in mind that it is P’s case that the parties have separated since 2004 but R said it only happened in 2014. Be that as it may, even if the parties have separated for over 12 years, it seems clear to me that R would have an argument of post-separation contribution. It is fair to say that so far neither party has had the opportunity to address the court on whether there should be a departure from equal division of the assets.
60. P’s expert said there were unknown withdrawals from the parties’ account up to $101 million. According to the MDD Report, R’s expert was able to identify the nature of $74.7 million, or approximately 73% of the withdrawal amount. I have yet to hear what P would have to say since Mr Todd did not address me on this aspect in the hearing. At the very least, there is some evidence that the “black-hole”, if it ever exists, may not be as large as P asserted.
61. Assuming that, according to P’s highest case, there is a “black-hole” of, say, $120 million. This sum should have included all the losses that R incurred, unwittingly or recklessly, from trading in stocks and unit trusts, excessive commissions arising from “high frequency trading”, the jade investment, the sand mining business, the loans or monies to his family members and friends including his girlfriend and one Mr Ip (if the loan to Mr Ip is found unpaid yet), etc. Assuming for one moment that the full sum of $120 million is added back to the matrimonial pot; and also assuming that P’s figure is taken instead of R’s and that the parties are going to have an equal division of the assets and that R’s challenges as mentioned in paras 28 and 56 above are unfound, the matrimonial pot would have $343 million ($223 million + $120 million) and each would have $171.50 million ($343 million ÷ 2). It means that R would have to pay equalization money in the sum of $45.50 million out of his $97 million. An injunction is preventive in its nature; it is to prevent further dissipation of assets. On that analysis, I do not see how any judgment in P’s favour would go unsatisfied by reason of the disposal by R of his assets from now on up to the conclusion of the proceedings. In this regard, I was not informed of the value of assets already retained as a consequence of the 1st Injunction Summons and the 2nd Injunction Summons. If the value is already $45.50 million, I wonder why P would still have taken out the application. I also bear in mind the fact that R did not dare to continue to “park” his monies with his sister D. In any event, the “black-hole” notion is not something new; it was ‘created’ from 2010 to 2014 and was raised as a concern from the very beginning of the litigation. As I observed above, at the very least, there is some evidence that the “black-hole” may not be as large as P asserted.
62. For the reasons aforesaid, I do not think I need to deal with the issue of whether the total return on properties and investment was 1.3% as assessed by R’s expert or in fact it is in the negative.
“Add-Back”
63. Mr Todd also made the point that “add-back” on a Norris basis is not a substitute for preservation. First, assets which are lost are not easily added back, especially where there might be some impressive needs based argument from R. Second, whilst preservation is easily obtained – R simply needs to stop his reckless course of “investment” – add-back is altogether much harder to justify. A party’s conduct is only to be regarded as a material factor if it is obvious and gross such that it would in the opinion of the court be inequitable to disregard it. For “add-back” to succeed, P would have the heavy burden to show that the dissipation is demonstrably wanton. He referred to what Mostyn J said in BJ v MJ [2012] 1 FLR 667 at [50] – [51] that re-attribution is “in truth a process of penalization”, and should be “applied very cautiously indeed and only where the dissipation is demonstrably wanton”. In the present case, he could readily anticipate that R would argue that it was just lost in usual trading.
64. Mr Todd is certainly correct on this point of law. As I see it, the ultimate objective of the proceedings is to achieve fairness. As Lam VP has said in MKKWH (also known as MKGWH) v RKSH (unreported, CACV 197/2012, 24 September 2013), the court may either “add-back” on a Norris basis or depart from equal division. No matter which route one is pursuing, fairness should lead to the same result in terms of whether any adjustment should be made; and assessment of fairness depends on a global assessment: [1] to [7].
Preservation of Family Assets
65. In L v K (Freezing Orders: Principles and Safeguards) Mostyn J took the view that Shipman v Shipman [1991] 1 FLR 250 and Roche v Roche (1981) 11 Fam Law 243 were decided per incuriam and doubted the correctness of these cases inasmuch as they suggest that there exist general powers of the court to preserve specific assets (other than tangible assets such as chattels) which are the subject matter of proceedings pending the determination of those proceedings, which powers may be exercised in disregard to the principles and safeguards governing injunction orders: [27], [29] & [34].
66. In support of his contention that the family assets in R’s name should be preserved, Mr Todd submitted that the cases of Shipman v Shipman and the English Court of Appeal decision in Roche v Roche remain good law. Roche v Roche was not followed in L v K but it was binding on Mostyn J.
67. I can see the force of Mr Todd’s argument but at the same time, I note it has been pointed out in Rayden and Jackson on Relationship Breakdown, Finances and Children (1st Issue September 2016) that subsequent to L v K, in C v C [2015] EWHC 2795 (Fam) Roberts J expressly agreed with Mostyn J’s reasoning and it is commented by the learned authors that some judges of the High Court in England and Wales are currently reluctant to make orders under the inherent jurisdiction and are questioning the validity of the earlier case law, even when emanating from higher courts. The learned authors suggested that caution is required in making an application to freeze money in particulars unless the conditions under section 37 of the Matrimonial Causes Act 1973 or section 37 of the Senior Courts Act 1981 are met: §§22.351 & 22.352.
68. Thus, apparently the matter, as it stands, is quite unsettled. Thankfully, I do not think it is necessary to deal with this point of law for the following reasons.
69. P’s application is for an injunction without a specified limit. This is very unusual and as such, the court must exercise caution. Mr Pilbrow pointed out that P seeks to freeze every single account. Even if the court is minded to impose an injunction, R’s personal accounts should not be restrained. P has not made it clear whether all the 17 accounts set out in her summons are securities accounts or not. Apparently, accounts (vi), (x) and (xiii) on the list are not investment/securities accounts. I also noticed P has even included R’s MPF account. Since there have not been any allegations against R in respect of this account, I wonder why this account would also have to be frozen.
70. It has to be borne in mind that R has already paid the proceeds of sale of his landed properties into court and has been restrained from further dealing with the landed properties and assets pending the resolution of these proceedings and without an order of the court, the order, if granted, would have the effect of freezing all of R’s assets.
71. Mr Pilbrow referred to Jackson’s Matrimonial Finance (9th Ed) at §16.36 where it says that:
“In matrimonial proceedings, an injunction should not be made freezing all the assets of the other party. The purpose of a freezing injunction is to safeguard the applicant from being unable to enforce a judgment because the opposite party has disposed of assets. In matrimonial proceedings, a party is unlikely to be awarded the whole of the available assets and consequently it would be wrong for there to be an injunction covering the entirety of the assets.”
The learned authors cited Ghoth v Ghoth [1992] 2 All ER 920, [1992] 2 FLR 300, CA as the authority.
72. Butterworths Family Law Service, Vol 4(1) also made the point that Mareva injunction should be limited to the maximum amount that the applicant could realistically obtain from the divorce proceedings. Mareva injunctions will not normally be extended to the entire assets of the parties: §3035.
73. Hence, even if Shipman v Shipman and Roche v Roche remain good law, on the basis of my analysis in para 61 above, there is still no justification to have all of R’s assets preserved in terms of her application.
Undertaking in Damages
74. Mr Justice Mostyn, again, in L v K (Freezing Orders: Principles and Safeguards) cautioned that it is essential that all the principles and safeguards are scrupulously applied: see para 15 above. Yet, P’s application was not accompanied by the usual undertaking in damages. It was only upon the enquiry of the court during the hearing that P agreed to provide the undertaking in damages as per Practice Direction 11.2. With the conclusion that I have come to, it is not necessary for me to consider the sufficiency of the undertaking.
Conclusion
75. In the final analysis, for the reasons aforesaid, I am not satisfied that there is a real risk that any judgment in favour of P would go unsatisfied by reason of the disposal by R of his assets. P’s application under paragraphs 1 and 2 must fail.
76. As for paragraph 3 regarding charitable donations, both parties have agreed to be restrained in the same manner, so I do not have to deal with it.
Orders
77. For the reasons aforesaid, I give the following orders:
1. The interim injunction of 4 October 2016 is discharged forthwith;
2. Paragraphs 1 and 2 of the Summons are dismissed; and
3. By consent, an order in terms of Paragraph 3 of the Summons.
Costs
78. P fails in her application. It seems to me there is no reason why costs should not follow the event. I give an order nisi that P do pay R the costs of her application, including all costs reserved, to be taxed if not agreed, with certificate for two counsel.
| (I. Wong) District Judge |
Mr Richard Todd and Mr Jeremy S K Chan, instructed by Howse Williams Bowers, Solicitors for the Petitioner
Mr David Pilbrow SC and Mr Gary Lam, instructed by Edwin Yun & Co, Solicitors for the Respondent