MCYP v. CWYW

FCMC 11432 / 2018

[2024] HKFC 187

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 11432 OF 2018

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______________________________________

DECISION

( Case Management Hearing, Costs,
Legal practitioners’ duty to comply with
court orders and case management directions )

_______________________________________

1.  This is the case management hearing (“CMH”) of the parties’ ancillary relief dispute. Today’s hearing was fixed about 7 months ago by an order of Master J Chow dated 8 March 2024 (“the Order”), whereby it was also ordered that:

1.1.  The Petitioner (“P”) shall lodge and serve the CMH bundles, two joint tables, agreed chronology and agreed list of disputed issues not later than 21 days prior to the CMH, that is on or before 12 September 2024; and

1.2.  Both parties shall lodge and serve submissions with proposed directions and certificate of time estimate for trial on ancillary relief dispute not later than 14 days prior to the CMH, that is on or before 19 September 2024.

2.  Both parties failed to comply with the above orders.

2.1.  The Respondent (“R”) only lodged a submission dated 30 September 2024 (two working days[1] before the CMH) without a certificate of time estimate for trial.

2.2.  P only lodged a submission yesterday (2 October 2024), also without a certificate of time estimate for trial.

2.3.  The CMH bundles (7 lever arch files of 1,555 pages), two joint tables, agreed chronology and agreed list of disputed issues were also lodged very late and were only received by this court yesterday afternoon.

3.  On 30 September 2024, seeing that no documents for the CMH were lodged by either party despite reminder from this court the week before, I directed the parties to lodge a written explanation for their non-compliance of the Order.

4.  The parties’ solicitors lodged a joint letter yesterday stating that:

“The parties have attended a Private FDR with … on 13 and 15 August 2024, and some agreements in principle have been reached. Since then, the parties have spent considerable time and efforts in sorting out the details and preparing relevant documents including the Consent Summons for a full and final settlement, in the hope that the CMH and subsequent litigation could be avoided. Unfortunately, a Consent Summons for a global settlement has not yet been agreed and finalized. The parties sincerely apologize for the delay in complying with paragraphs 3 and 4 of the said Order.”

5.  The above is not a reason for non-compliance of court order. Solicitors acting for the parties, being officers of the court, ought to know that the Order stipulated time for compliance, failure to comply within the stipulated time is a breach of court order.

6.  Legal practitioners ought to know the elementary principles that engagement in settlement discussion does not operate as a stay of the legal proceedings, nor a reason to ignore court orders and case management directions.

7.  Legal practitioners should not erroneously treat the court’s encouragement to reach an amicable settlement as a permit to allow non-compliance of court orders or case management directions. The court encourages parties to engage in settlement discussion because in most situations, both parties will stand to gain by reaching a settlement instead of pursuing their matrimonial dispute in court that intensifies the acrimony of the parties and contributes to the depletion of matrimonial assets by payment of legal costs. This does not override the court’s duty to actively manage the case including giving directions to advance certain steps in the litigation while the parties are negotiating for settlement so that adjudication of the dispute will not be unduly delayed.

8.  The provisions in the Rules of the High Court (“RHC”) apply to matrimonial proceedings with necessary modifications: Matrimonial Causes Rule, Rule 3; Practice Direction 15.12 §§3, 6. Among the underlying objectives set out in Order 1A rule 1 of RHC are to ensure that a case is dealt with expeditiously as is reasonably practicable, and the resources of the court are distributed fairly. The parties and their legal representatives shall assist the court to further these underlying objectives: Order 1A rule 3 of RHC.

9.  The Order was made in March 2024 requiring the parties to lodge documents in mid-September for the CMH today. According to the parties, the Private FDR was concluded in mid-August with agreements in principle. There is sufficient time for the parties to prepare for the case, either to finalise the settlement agreement before mid-September or to comply with the Order in time. I do not see any hurdle stands in their way if they truly wish to comply.

10.  The parties’ extreme lateness at lodging the documents in breach of the Order inevitably affects the proper conduct of the CMH and causes delay in the timely resolution of the dispute. It is interesting to note that both parties had previously complained against the other party in this case for delay.

11.  The parties extended apologies to the court in the joint letter. Expression of apologies may indicate their regret but the parties and their legal representatives should not assume that there will be no consequence because an apology is extended.

12.  The two firms of solicitors before this court, being solicitors on record, owe duty to the court under Order 1A rule 3 of RHC to timely and expeditiously comply with case management directions and orders, and are accountable for any defaults. Lack of instructions is not a cause for non-compliance. If the parties truly require time to finalise a settlement, they shall make appropriate and timely application to the court. If it transpires that there are difficulties in complying with court directions due to unforeseen developments, a solicitor should make application to the court as soon as practicable so that the court can consider making appropriate orders including time extension, unless order or dismissal of a claim: China Metal Recycling (Holdings) Limited (in compulsory liquidation and others v Chun Chi Wai and others, CACV 109/2016 and CACV 155/2016, 27 January 2017.

13.  The parties and their legal representatives are not entitled to ignore court orders and take the matter in their own hands simply because the parties are engaging in or finalising settlement negotiation. A breach of case management directions or orders may result in costs sanction, orders mandating or prohibiting certain conduct of the case, wasted costs orders and/or referral to the appropriate disciplinary body for investigation.

14.  It is with much regret that both parties and their legal representatives chose to ignore the Order. Worse still, this is not an isolated incident insofar as the two firms of solicitors before this court are concerned. Similar breaches have been recently committed by them in another case before me. Despite serious warning has been given in that case, they, as officers of the court, committed the same breach again. This could be a matter for referral to the Law Society for investigation.

15.  To move the case forward, I make case management directions today having regard to the practical situations of the parties. This petition was commenced 6 years ago. There shall be active case management to avoid further delay. I urge the parties to move on expeditiously to close the settlement which they have agreed at the Private FDR if they so wish. They are given some time to finalise their settlement agreement (if they wish to) and further stipulated time to move forward the preparation of the trial.

16.  It bears stating the obvious that legal practitioners shall come to court with full preparation for the hearing.

17.  P asks this court to adjourn the CMH to the court’s next available date so as to allow the parties to conclude the settlement negotiation. However, P has not told this court how long is the intended adjournment, what efforts have been made since mid-August to finalise the agreement, whether there is any real basis to say that the agreement can be finalised within the intended adjournment, and what is the plan and intended timeline for concluding the settlement agreement. All these are basic information for the court’s consideration of his adjournment application. It appears that P and his legal representatives have not thought through these matters. The request to adjourn the CMH to the court’s next available date is another ill-thought-out application, as illustrated by P’s immediate retraction when the court told them that it so happens this court is available to hear a CMH next week.

18.  R seeks to set the case down for trial. A party seeks to set the case down for trial should come with necessary information, including evidence showing the readiness of the case for trial, a realistic estimate of the trial duration, a certificate of time estimate for trial and proposed directions to deal with matters up to the trial. None of these information is before the court.

19.  I also reject P’s submission to reserve costs of today’s hearing. P submits that it is common to reserve costs and hence should be followed. Reserving costs order is certainly not commonly made by this court. In my view, it is wrong to simply reserve costs of a hearing without good reason. The court is tasked with the making of costs order. This should be done at the end of the hearing (including interlocutory and case management hearing) having regard to the matters set out in Order 62 rule 5(1) and (2) of RHC instead of having it reserved unless there is good reason to do so. The judge who conducts the hearing is best apprised of the details and is most suited to determine the costs of that hearing. To reserve costs of a hearing without good reason may create problems because memory will fade as time passes, or the matter will fall to be determined by another judge who has no direct knowledge of the conduct of the previous hearing.

20.  I shall determine the costs of today’s hearing. Both parties are in default as set out above. If there is evidence showing that any of the legal representatives has caused wasted costs, this court will proceed to consider whether a wasted costs order under Order 62 rule 8 of RHC shall be made. There is no such evidence before me today. I make no order as to the costs of today’s hearing.

Ms. Sindy Wong of Rita Ku & Ser for the Petitioner.

Ms. Lily Yu instructed by Chaine Chow & Barbara Hung for the Respondent.

FCMC 11432 / 2018

[2024] HKFC 165

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 11432 OF 2018

________________________

________________________

________________________

DECISION
( Committal: Mitigation, Sentencing and Costs )

________________________

1.  On 24 November 2023, H was committed for contempt of court in breach of paragraphs 1 to 3 of the LCA Order after trial (“Committal Trial”). This is the hearing on sentencing and costs. The background and reasons for the committal order were set out in the Judgment (“Judgment”)[1] which shall be read together with this Decision.  The same abbreviations are adopted for ease of reference.

A.  H’s mitigation

2.  One development after the Committal Trial is H’s payment of the outstanding LCA.

3.  After the close of evidence on 5 October 2023, H made a “without prejudice save as to costs” offer on 10 October 2023.  He sent (through solicitors)  2 cheques (“Post-dated Cheques”)  for the outstanding amounts post-dated to dates after the oral closing submissions on 16 October 2023 and indicated his agreement to pay W’s costs on indemnity basis on term that W withdraws her application for committal. One of the Post-dated Cheques is in the sum of $2,017,000 post-dated 19 October 2023. The other cheque of $6,701,330.40 post-dated 2 November 2023 is for the remaining outstanding LCA up to 2 November 2023.

4.  W responded by asking if H agreed to the amount of her costs. No reply was received from H. The parties proceeded to make the oral closing submissions on 16 October 2023.

5.  On around 3 November 2023, with the consent of H, W presented the Post-dated Cheques by which the payment under the LCA Order was settled up to 2 November 2023.

6.  The Judgment was handed down on 24 November 2023.

7.  H advanced the following matters for mitigation[2]:

7.1.  He purged the contempt by payment before the Judgment. After evidence in the Committal Trial was closed, he took steps to liquidate his assets and raise funds, including liquidation of the available Pledged Shares, drawing the available loan facilities, procurement of a loan from his sister and a bridging loan from moneylender for payment of the outstanding LCA.

7.2.  He had previously endeavoured to perform the LCA Order.  These endeavours include his proposal to sell the UK Property, the sale of Wu Guanzhong painting, the attempt to obtain loans from KC and his extended family members, the attempt to sell other paintings and to seek additional mortgage on the UK Property.

7.3.  There is no irremediable prejudice suffered by W. W was not deprived of legal representation by reason of H’s breach of the LCA Order.

8.  Mr Li (together with Ms Lee)  acting for H submitted that the appropriate sanction is to order H to pay a “humble” fine and W’s costs on party and party basis with certificate for one counsel. Despite enquiry from the court, Mr Li has not given a figure that he or H considered to be “humble”.

B.  Applicable legal principles

9.  Contempt of court orders is a serious matter. Court orders are made to be obeyed. Civil contempt serves dual function: coercive and punitive. The sentence shall reflect this duality. Successful litigant is entitled to have the “fruits” of the order. A sentence on contempt for disobedience of court orders often serves as an incentive for belated compliance. In the public interest of maintaining an effective administration of justice, the sentence shall carry the message to the public that wilful disobedience of court orders will be punished.

10.  The court has a wide discretion under common law to determine the sanction for contempt of court.  Order 52 of the Rules of the High Court and Rules of the District Court empower the court to punish contempt by sentences ranging from a fine to a term of imprisonment, including suspended sentence.  It is acknowledged that imprisonment should be a sanction of last resort in civil contempt. In cases of wilful failure to observe court order, intentional flouting of the court’s authority or hindrance to due administration of justice, a sentence of imprisonment is often appropriate. The public shall not be given a wrong perception that a civil comtempt of court order can be paid off by a fine with no real consequence: Arboit v Koo Siu Ying (No 2)[3]per Au-Yeung J; Willwin Development (Asia)  Company Limited v Wei Xing[4], per B Chu J; Arlidge, Eady & Smith on Contempt 5^th edition §3-89.

11.  The factors that may be considered on sentencing include the following[5]:

11.1.  nature of the order and severity of the breach;

11.2.  whether the contempt was contumacious;

11.3.  whether the claimant has been prejudiced by the contempt and the extent of harm caused;

11.4.  whether the contemnor has cooperated;

11.5.  any remorse;

11.6.  any act to purge the contempt;

11.7.  any mitigating factor;

11.8.  any aggravating factor.

C.  Deliberation

Severity of the breach

12.  The LCA Order was made on 12 August 2022.  H did not make any payment pursuant to the LCA Order in the first 10 months. He only made a partial payment on 23 June 2023 (about 5 months after service of penal notice)  by applying the sale proceeds of the Wu Guanzhong painting which W said was belonged to her.

13.  The total amount outstanding is large. As at 16 October 2023, the unpaid amount inclusive of interest was $7,992,804.

14.  The long period of delay and the huge amount outstanding are indicative of the severity of the breach.

15.  In the context of a matrimonial dispute, non payment of LCA should not be taken as less culpable than non payment of maintenance for daily expenses.

Contumacious intent and lack of remorse

16.  Mr Li submitted that:

16.1.  the timing of the payment offer is a strong mitigating factor; and

16.2.  H explored various options “suggested” by W at the Committal Trial immediately after the close of evidence “speaks volumes of [H’s] lack of contumacious intent” and his remorse. [6]

17.  Payment of the outstanding sums by the Post-dated Cheques before the Judgment is a mitigating factor. However, I do not agree to the assertions of lack of contumacious intent and remorse, nor that the timing is a strong mitigating factor for the following reasons:  

17.1.  H appealed to the Court of Appeal against the LCA Order on the ground of inability to pay, and failed. Yet, he continued his breach, used his failed assertion of inability to pay as the only defence in the Committal Trial which was proved to be without merits.

17.2.  At the Committal Trial, he admitted that he prioritised his other creditor to complying with the LCA Order[7]; and he could have terminated the TSB OD Lines and realised the remaining value of the Pledged Shares to pay the LCA[8], but he had not done so. The above admissions negated the assertion of lack of resources to comply with the LCA Order.

17.3.  Having made the above admissions at the Committal Trial and after the Judgment, H still “stressed” in his affirmation on mitigation as the “first and foremost” point that “[t]he reality is that [he] simply [does] not have the available resource nor liquidity to comply with the LCA Order”. [9]

17.4.  H is an educated businessman. He does not need “suggestions” from W (a housewife)  or W’s counsel (a lawyer)  on financing and fund raising to discharge his obligations under the LCA Order.

17.5.  As a matter of fact, W had already suggested in her 11^th and 12^th Affirmations filed before the Committal Trial some options, for example H should have realised the Pledged Shares instead of paying a monthly interest of $60,000 for the overdraft facilities.[10] Notwithstanding these suggestions, H chose to take no action to purge his contempt, but insisted in putting W at the witness box to prove her case and be cross examined in open court.

17.6.  H’s “achievement” after the Committal Trial is an evidence showing that contrary to his assertion, he has the resources to comply with the LCA Order.

17.7.  H might have attempted to contain the severity of consequences that may flow from his breach. His action after the close of evidence was, in my view, a calculated move with the hope to fend off a possible finding of guilt, but can hardly be considered to be illustrative of remorse or lack of contumacious intent.

Endeavours before the Committal Trial

18.  With respect to H’s attempts prior to the Committal Trial to obtain funds for payment of the LCA,

18.1.  Mr Li submitted that “though noting the Court’s Judgment on point, H’s proposal for the sale of the UK [Property] must still carry some weight for mitigation” as had W agreed to the sale, H’s share of the proceeds would have enabled him to fully comply with the LCA Order.[11]

18.2.  With respect, H’s proposal to sell the UK Property when he has other available resources to pay is an aggravating (not mitigating)  factor. I have held in §46 of the Judgment that Mr Li failed to support his argument with any legal basis that H could force W to sell her interests in the UK Property in order to fund the LCA, nor that H would be exonerated from punishment for his contempt because he has made the proposal to sell.

18.3.  H’s conscious decision to utilise the UK Property (which W has an interest)  to satisfy his payment obligations instead of deploying his other resources and implicitly criticised W for her objection to sell, are aggravating.  The reiteration of this point after the Judgment indicated a lack of remorse.

18.4.  It was also submitted as a mitigating factor that after H was served with the penal notice on 13 January 2023, he “immediately” explored the options by seeking to sell the UK Property. Mr Li described this as a “prompt action” and “best attempt at full and early satisfaction of the LCA Payment”[12]. Such submissions must be met with grave disapproval. It ignored the fact that a court order is to be obeyed when made, but not when it was served with a penal notice.

18.5.  The other attempts referred were either attempts to realise properties owned or partly owned by W, or attempts done half-heartedly when H had other financial resources to deploy. I do not see much credits can be placed on these attempts in mitigation.

H’s personal circumstances

19.  On H’s personal circumstances, Mr Li highlighted H’s philanthropy, his being a member of a wealthy family, he was the chairman of the TW Group and was recently awarded a XXXXXXXXXXXX[13].

20.  It was H’s testimony at the Committal Trial that he was chosen by his wider family to be a representative to become the chairman of the TW Group. He only donated $3,099.37 with his own funds in the year 2022/2023.[14] The evidence in support of H’s philanthropy is in fact scanty.

21.  As H has portrayed, he is a person with status and influence in the society.  Coleman J had said in Secretary for Justice v Cheng Lai King that “The greater the reach of a person’s actions, the greater that person’s responsibility is likely to be.”[15] A person who disobey court order should not be absolved from punishment because of his wealth and influence in the society.  The public should not be given a wrong message that a person can use his wealth to test the limit of the court, and would face no real consequence of his wilful disobedience of court order by paying and performing his obligations after completion of the entire Committal Trial.

Prejudice against W

22.  H contended that W suffered no prejudice because she continued to have legal representation despite the non-payment. This is misconceived.

22.1.  The non-payment of LCA would affect W’s ability to get legal representation.

22.2.  It is not suggested that W has any resources of her own to pay her legal fees. There is no guarantee that W will continue to have legal representation if non-payment is persistent. 

22.3.  It is H’s obligation to perform the LCA Order. He disobeyed the order and strenuously defended each and every step in the committal proceedings, persistently required W to prove her case and testify in open court. But for H’s flouting of court order and the manner he conducted this litigation, W did not need to go through all these.

D.  The Sentence

23.  I have carefully considered H’s mitigation and submission.  A fine is not an appropriate sanction in this case for the following reasons:

23.1.  It does not reflect the seriousness of the continuing and persistent breach, the contumacious intent and the lack of remorse.

23.2.  The imposition of a fine will deplete the matrimonial assets, and thus creates further prejudice against W.  W should not be punished by H’s contempt.

23.3.  The public should not be given a wrong signal that a wealthy person can get away from punishment for disobeying court order by making a monetary payment.

24.  Mr Li cited YKL v YCF[16] in support of his submissions that a committal or suspended committal order should not be made when a party has remedied the breach before the hearing.  In this case, the breach was not remedied before the hearing. H only offered payment with condition after all the parties have testified in the Committal Trial. The contempt was only purged when H consented to the presentation of the Post-dated Cheques after completion of the entire trial. 

25.  This is a deliberate breach with contumacious intent. The delay and extent of breach (even counting from the date of personal service of penal notice[17])  was severe. H’s attempts to deploy assets in which W has an interest instead of utilising his own resources are aggravating.  H’s conduct before and during the Committal Trial demonstrated a lack of remorse. He was found to have been evasive at the Committal Trial[18]. Imprisonment is the appropriate sentence. Taking into account the payment of the outstanding LCA before the Judgment, which is the only mitigating factor, H is committed to an imprisonment of 3 weeks suspended for 12 months on condition of H’s compliance of the LCA Order during the suspended period.

E.  Costs

26.  H accepted that he is liable to pay W’s costs. He disputed the basis for taxation and the appropriateness of a certificate for two counsel.

27.  It is well established that a successful claimant in contempt proceedings will usually be awarded costs on an indemnity basis.

28.  Rogers VP (as he then was)  has said in Lau Yee Ching v. Wong Tak Kwong & Ors[19] that:

“I have to say that it is, in my experience at any rate, a normal order on contempt proceedings that costs are ordered on an indemnity basis. It has to be borne in mind that the complainant in committal proceedings stands to gain very little other than the enforcement of the order which is the subject of the committal proceedings; he stands to gain no damages because of the breach of that order or any material benefit. Hence, the bringing of a contempt proceedings is, in itself, an expensive exercise but it is for the benefit of the court because the court's orders are enforced and adhered to. This is a matter which the courts naturally bear in mind when coming to a conclusion as to what penalty to impose and the courts are alive to the fact that an order for indemnity costs is, in itself, a penalty.”

29.  Mr Li argued that the payment at issue is LCA, there is a possibility of overlap and double-jeopardy if H is to pay both the LCA and costs of the committal proceedings.  He asked the court to focus on the little progress of the ancillary relief suit and that there has been months in which the sum of $350,000 for LCA was of no conceivable purpose.

30.  Mr Li has not cited any authorities nor specific sceanario showing a case of double recovery. It appears that the above argument confused the nature of LCA with the costs of committal proceedings. LCA is a part of maintenance pending suit, of which account could be taken at the final award of ancillary relief. At issue is W’s costs in the committal proceedings. But for H’s contempt, it is not necessary to incur any of these costs. Taking a broader picture, all these legal costs and expenses of the parties may ultimately affect the matrimonial pot.  There is no real prejudice to H if he is ordered to pay indemnity costs of these proceedings in line with the well established principles.

31.  This is a big money case. H was represented by two junior counsel. The way in which H has conducted himself added certain level of complexity to the assessment of H’s financial resources and liquidity. W may lose legal representation if this application is unsuccessful, hence this application bears some importance. W’s counsel, Ms Yip SC and Ms Yu, have provided valuable assistance to this court. It is apt to grant a certificate for two counsel. The amount of costs shall be taxed if not agreed.

32.  I order H to pay forthwith W’s costs of and incidental to this committal application on an indemnity basis, to be taxed if not agreed, with certificate for two counsel.

Mr. Jeffrey Li and Ms. Elizabeth Lee instructed by Rita Ku & Ser for the Petitioner.

Ms. Anita Yip S.C. and Ms. Lily Yu instructed by Chaine Chow & Barbara Hung for the Respondent.

FCMC 11432 / 2018

[2023] HKFC 198

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 11432 OF 2018

________________________

________________________

________________________

J U D G M E N T

( Committal / Breach of LCA Order /
Ability to Pay / Penal Notice)

________________________

A.  THE APPLICATION

1.  This is the Respondent’s (“W”)  application for an order of committal of the Petitioner (“H”)  for civil contempt of court pursuant to Order 52, Rules of the High Court.

2.  The allegation made by W is that H has failed to pay her the litigation costs allowance (“LCA”)  in breach of paragraphs 1, 2 and 3 of the order made by DDJ R. Chow (as he then was)  dated 12 August 2022 (“LCA Order”).

3.  The undisputed terms of paragraphs 1 to 3 of the LCA Order are as follows:

“1. The Petitioner do pay the Respondent a monthly sum of HK$350,000 as litigation costs allowance to cover the Respondent’s legal costs from 20^th August 2021 until the end of the FDR hearing or further order;

2. The first aforesaid monthly payment shall be paid by the Petitioner to the Respondent on or before 20^th August 2022 and thereafter on or before the 20^th day of each month;

3.   The Petitioner shall pay the Respondent the sum of HK$4,200,000 as the aforesaid monthly payments between 20^th August 2021 and 19^th August 2022 within 28 days from the date of this Order;”

4.  A sealed copy of the LCA Order endorsed with a Penal Notice has been personally served on H on 13 January 2023.

5.  The parties admitted[1] that up to 7 July 2023, the outstanding sum of LCA (excluding interest)  is HK$6,717,500[2].

6.  In this connection, I have referred the parties at the beginning of the trial to the following observations of the Court of Appeal in H’s Renewed Application for leave to appeal against the LCA Order[3]:

“Having found the sum of HK$5.89 million to be reasonable, and having taken the view it could take a longer time for the case to reach the FDR hearing, he reduced the monthly sum sought by the Wife from HK$420,000 to HK$350,000. There is no reason for reading the order as an open-ended order for the Husband to pay HK$350,000 per month to the Wife as litigation funding (until the end of the FDR hearing)  in excess of HK$5.89 million.”

7.  After an opportunity to take instruction, Mr Jeffery Li (together with Ms Elizabeth Lee[4])  for H, confirmed that H did not seek to amend the Admitted Facts. In other words, H admitted that the LCA Order was not subject to a ceiling of HK$5.89 million.

8.  It was agreed by the parties at their closing submissions that as at 16 October 2023, the outstanding balance of H’s payment obligations under the LCA Order was HK$7,992,804.60 which includes outstanding principal balance of HK$7,417,500.00 and outstanding interest of HK$575,304.60. The breakdown is set out in the Schedule to this Judgment.

9.  H further admitted that:

(1)  he is fully aware that he has to comply with the LCA Order, and

(2)  he has not complied with the LCA Order in whole.[5]

10.  The broad issue in dispute is whether H’s non-compliance was “accompanied by a state of mind necessary to establish punishable contempt”, that is stage three of the process[6] summarised in Kao Lee & Yip v Koo Hoi Yan[7].

11.  After W’s oral testimony and having heard both parties’ submissions, I ruled that W established a prima facie case for H to answer.  H elected to give evidence. This court then received the evidence in H’s 9^th Affirmation and his oral testimony at court.

B.  RELEVANT BACKGROUND

12.  The parties have a long marriage of about 23 years.  They have 3 adult children who are studying or living abroard.

13.  H was born into a very wealthy family. His father had established a successful business in land development and banking. Upon the death of his father in 1980s, substantial wealth passed on to H and his siblings. The family wealth is held in various private companies, including KC.

14.  H declared in his Form E filed on 14 May 2019 that he had asset worth over HK$370 million, of which HK$304 million was attributable to his 25% shareholding in KC. H also holds share in TSLD, a listed land development company of which he is a Deputy Chairman and Executive Director.

15.  Since marriage, W has been a housewife and was financially dependent on H.

16.  Shortly after the petition, the parties agreed the terms of W’s maintenance pending suit (“MPS”)  and the Children’s interim maintenance (“Interim Maintenance”).  A consent order was made on 30 November 2018 (“Consent Order”)  under which H shall pay W the MPS in a monthly sum of HK$120,000. It was recorded in the Consent Order that H undertook to settle, among others, the credit card expenses of W and the Children up to a maximum limit of HK$300,000 and HK$60,000 respectively per month.

17.  On 12 August 2022, W successfully obtained the LCA Order. Dissatisfied with the LCA Order, H sought leave to appeal against it (“Leave Application”)  on 25 August 2022. His application was dismissed on 13 October 2022.

18.  H then made a renewed application to the Court of Appeal on 26 October 2022 for leave to appeal against the LCA Order and for an order  to stay the execution of the LCA Order (“Renewed Application”). These applications were also dismissed on 19 December 2022.

19.  In the Leave Application and the Renewed Application, H had advanced the argument that he was not able to pay the LCA Order.  His argument was rejected by both courts.

20.  H failed to pay under the LCA Order save a sum of HK$1,332,500 on 23 June 2023 from the sale proceeds of a painting.

21.  W took out the application for leave for committal against H in January 2023 to enforce the LCA Order.

C.  W’S CASE

22.  W’s case is that H has or has had the ability to pay the LCA Order, but wilfully refused to do so. The Leave Application and the Renewed Application were his delaying tactics. Since the LCA Order, H has enjoyed the use of a brand new Porsche 911 GT4.0 in early 2023 which cost at least HK$3.6 million, and has continued to enjoy the exclusive use of a Porsche GT3, a Porsche GT3R, two Bentleys, a Tesla and two 7-seated vans.  Further, H donated or caused his resources to donate to TWGH in his personal name and as one of its board members.

23.  In the closing submissions, Ms Anita Yip SC (together with Ms Lily Yu)  for W submitted that H could have deployed the following resources to meet the obligations under the LCA Order:

(1)  the stocks pledged to TSB (“Pledged Shares”);

(2)  the 48 pieces of watches[8] listed in his 2019 Form E (“Watches”);

(3)  HK$1.5 million received from KC on 11 October 2022 (“HK$1.5 million”)

(4)  the TSB overdraft facilities made available to H and ML (H’s wholly owned company)  (“TSB OD Lines”);

(5)  borrowings from KC (“KC Loan”).

D.  H’S CASE

24.  H’s primary case is that W bears the burden of proving her case to the standard of beyond reasonable doubt, but she failed to prove that H had or has had the ability to meet the payment obligations under the LCA Order. As a secondary or fall-back position, H raised the defence of “impossibility of performance”.[9]

25.  H contended that the bulk of his income was utilised to pay the substantial amounts of MPS and Interim Maintenance. He has been living beyond his means since the Consent Order was in place. He has resorted to loans to cover the shortfall.

26.  He had also used his maximum borrowing ability. His request for a further loan from KC was refused.  He does not have the ability to borrow.

27.  He does not own the Cars. Most of his assets including the Watches and the Pledged Shares are illiquid and/or subject to pledge.

28.  His 25% shares in KC was subject to transfer restriction under his late father’s Will and the articles of association of the company. He had written to the members of KC and eligible members of his extended family, inviting them to purchase his shares, but received no positive response.  

29.  He only donated to TWGH a sum of HK$3,099.37 out of his own funds.  The other donations were made as the representative or agent of the donors.

E.  RELEVANT LEGAL PRINCIPLES

30.  It is trite that[10]:

(1)  In an allegation of civil contempt, an applicant is required to strictly prove both the conduct and the state of mind of the respondent to the criminal standard, that is, beyond reasonable doubt. It is sufficient if the body of evidence relied on, viewed as a whole, satisfies the burden. An applicant is not required to prove every single aspect of a case to the required standard.

(2)  It is sufficient to prove that the conduct was intentional and that the respondent knew of all the facts which made it a breach of the order.

(3)  It is not necessary to prove that the respondent intended to disobey the order (i.e. contumacious).

(4)  Disobedience that are causal, accidental and unintentional will not amount to a contempt. The plea that one has “done his best” does not show that the failure was “causal or unintentional or accidental”.

(5)  In the case of non-payment of a monetary sum under an order, the court will consider whether the respondent to the committal application “has, or has had” the means to pay.

(6)  The relevant time to consider whether a party was in contempt is the period from the judge’s order to pay until the stipulated deadline (and a reasonable short period thereafter which may be needed to prepare for the committal application).

31.  The evidentiary principles applicable to a contempt proceedings were summarised by G Lam J (as the learned JA then was)  in Jeanny Helena Franslay v Fung Ariel Mei Shan[11] as follows:

“37. The evidentiary principles applicable in these proceedings are not in dispute:

(1)  The burden lies on the plaintiff to prove the alleged contempt beyond reasonable doubt: Kao, Lee & Yip v Donald Koo Hoi Yan (2009)  12 HKCFAR 830, §30.

(2)  Whilst the defendant may bear an evidential burden in relation to particular matters he has raised to exculpate himself, there is no legal burden on him to prove anything affirmatively: Concorde Construction Co Ltd v Colgan Co Ltd (No 2) [1984] HKC 253, 257; Ip Pui Lam Arthur & another v Alan Chung Wah Tang & another (CACV 214/2016, 16 February 2017), §4.3.

(3)  No adverse inference against the defendant may be drawn from his failure to call one or more witnesses or adduce certain evidence: China Metal Recycling (Holdings)  Ltd v Chun Hei Han [2018] 1 HKLRD 455, §§36-37; Kissel v HKSAR (2010)  13 HKCFAR 7, §82.

(4)  If by cross-examination to credit a plaintiff proves that the defendant’s evidence cannot be relied on, and he has testified that he did not do a certain act, the plaintiff does not thereby prove that he did it: Hobbs v Tinling (CT)  and Co Ltd [1929] 2 KB 1, 21. The plaintiff has to prove affirmatively, though this may be done by inference.

(5)  For an inference of fact properly to be made: (a)  it must be grounded on clear findings of primary fact; (b)  the inference must be a logical consequence of those facts; (c)  beyond being logical, the inference must be “irresistible”, that is, it must be the only inference that can reasonably be drawn on the basis of those facts: Winnie Lo v HKSAR (2010)  15 HKCFAR 16, §115. The third requirement has also been expressed in other ways, such as that “the inference must be compelling – one (and the only one)  that no reasonable man could fail to draw from the direct facts proved”: Kwan Ping-bong v R [1979] HKLR 1 at 5, or that the facts must be such as to exclude reasonable hypotheses consistent with innocence: Nina Kung v Wang Din Shin (2005)  8 HKCFAR 387, §185.

(6)  In other words, if the court concludes from the evidence that there is more than one reasobable inference to be drawn and at least one of them is inconsistent with a finding of contempt, the plaintiff fails: Daltel Europe Ltd v Makki [2005] EWHC 749 (Ch), §30.

(7)  The standard of proof beyond reasonable doubt does not mean that every piece of evidence that does not by itself establish a fact beyond reasonable doubt should be disregarded. It is sufficient if the body of evidence relied on, viewed as a whole, satisfies the burden: Myers v R [2015] UKPC 40, §46; HKSAR v Lo Hung Kwong [2000] 3 HKC 474, 480.

(8)  In appropriate cases, proof of a fact by inference to the requisite standard may be achieved by taking various pieces of circumstantial evidence together, like cords comprised in a rope, or strands in a cable, or conveying rays of light producing a body of illumination, such that “there may be a combination of circumstances, no one of which would raise a reasonable conviction, or more than a mere suspicion, but the whole, taken together, may create a strong conclusion of guilt, that is, with as much certainty as human affairs can require or admit of.”

32.  The well established principle that an applicant is not required to prove every single piece of evidence in an allegation of civil contempt was also explained in the following English Court of Appeal cases.

33.  In Gulf Azov Shipping Company Limited v Chief Humphrey & Anor[12], it was held that:

“[18] … It is not right to consider individual heads of contempt in isolation. They are details on a broad canvas. An important question when that canvas is considered is whether it portrays the picture of a Defendant seeking to comply with the orders of the Court or a Defendant bent on flouting them. It is right that the individual details of the canvas should be informed by the overall picture. But, having said that, each head of contempt that has been held proved must be established beyond reasonable doubt.”

34.  In JSC BTA Bank v Ablyazov[13], Rix LJ has said that:

“[51] … it is not true that every single aspect of a criminal case has to be proved to the criminal standard, although of course the elements of the offence must be.

[52] It is, however, the essence of a successful case of circumstantial evidence that the whole is stronger than individual parts. It becomes a net from which there is no escape. That is why a jury is often directed to avoid piecemeal consideration of a circumstantial case … The matter is well put in Shepherd v R (1990)  170 CLR 573 … :

‘… the prosecution bears the burden of proving all elements of the crime beyond reasonable doubt. That means that the essential ingredients of each element must be so proved. It does not mean that every fact – each piece of evidence – relied upon to prove an element by inference must itself be proved beyond reasonable doubt. Intent, for example, is, save for statutory exceptions, an element of every crime. It is something which, apart from admission, must be proved by inference. But the jury may quite properly draw the necessary inference having regard to the whole of the evidence, whether or not each individual piece of evidence relied upon is proved beyond reasonable doubt, provided they reach their conclusion upon the criminal standard of proof. Indeed, the probative force of a mass of evidence may be cumulative, making it pointless to consider the degree of probablitiy of each item of evidence separately.’”

35.  The learned author of Arlidge, Eady & Smith on Contempt (5^th edition)  summarised in [12-52] as follows:

“In JSC BTA Bank v Ablyazov, the Court of Appeal stressed that, although the criminal standard of proof would apply on an application for committal, that did not require every single aspect of a case to be proved to that standard, but only the necessary elements of the offence were so established. This was particularly so in a case based on circumstantial evidence, where the whole was stronger than the individual parts. In criminal case, proof of intent to the criminal standard could be established having regard to the whole of the evidence, whether or not each individual fact which comprised that evidence could itself be proved beyond reasonable doubt.”

36.  The above approach was applied in the matrimonial context in Re A (Abduction: Contempt)[14]:

“[7] … I do not, however, accept the additional submissions … that the only way contempt can be proved in a case such as this is by the applicant mother adducing positive evidence to demonstrate a particular step which is available to the father. It would, as it seems to me, be sufficient for her to make the judge sure that the father could achieve the return of the child, for example, through the siblings if not through the grandfather, and she might be able to do that without calling specific evidence to refute each obstacle successively raised by the father. Nor do I think that the only way contempt could be proved is by adducing evidence that the family in Syria is ready, willing and able to assist in bringing about the return. All those facts which it might be open to the judge in an appropriate case to find proved from the surrounding evidence so that he is sure.”

37.  On the defence of impossibility of compliance, it is relevant to note that the Court of Final Appeal in Kao Lee & Yip[15] drew a distinction between a case where compliance is impossible and a case where the respondent has “done his best” to comply with the order.The latter does not show that the failure was “causal or unintentional or accidental” and the respondent could be found guilty of contempt[16]. With respect to the former, Sir Brennan NPJ (as he then was)  cited Concorde Construction Co Ltd v Colgan Co Ltd (No 2)[17] and held that there can be no penal liability for a failure to perform an impossible task. 

38.  Mr Li also cited Sectorguard plc v Dienne plc[18] as follows:

“33. .. even a mental element of that modest quality assumes that the alleged contemnor had some choice whether to commit the relevant act or omission. An omission to do that which is in truth impossible involves no choice at all. Failure to comply with an order to do something, where the doing of it is impossible, may therefore be a breach of the order, but not, in my judgment, a contempt of court.”

39.  The respondent who raises a defence of “impossibility of compliance” shall satisfy the evidential burden.  If evidence is adduced to show that it is impossible to comply with the order, the burden is on the applicant to prove that compliance was possible in the sense that the respondent has the choice about what to do.  The following passage in Perkier Foods v Halo Foods[19] was quoted in Barclay v Barclay[20]:

“14. … In Sectorguard, Briggs J reasoned that a person who has no choice, because compliance with the order is impossible, does not have even the modest mens rea required for contempt. It is for the applicant to prove to the criminal standard that the respondent had the necessary mens rea. In a case where the respondent says that compliance was impossible, and there is some evidence to that effect, mens rea is in issue and it should be for the applicant to prove to the criminal standard that compliance was possible, in the sense that the respondent had a choice about what to do. That result is consistent with the general rule in criminal law. (emphasis added)”

40.  I consider the present application in accordance with the above principles and approaches.

F.  FINDINGS IN THE LEAVE APPLICATION AND THE RENEWED APPLICATION ON H’S ABILITY TO PAY

41.  H’s ability to pay the LCA is a key issue in this contempt proceeding. It was also an issue found against H in the Leave Application and the Renewed Application. These findings per se is not sufficient to discharge W’s burden of proof in the contempt proceedings because these findings were made by the civil standard of balance of probabilities, whereas W has to prove to the standard of beyond reasonable doubt in a contempt proceedings: YBL v LWC [97] and [134].

G.  H’S ABILITY TO PAY

42.  The following properties and/or financial resources are in issue:

(1)  The UK Property jointly owned by H and W. It is common ground that the UK Property is occupied by their eldest son[21].

(2)  The remaining value of the Pledged Shares, i.e. 71,893 HSBC shares and 16,000 Tencent shares held in H’s name, and 113,200 HSBC shares and 20,000 Tencent shares held in the name of ML.

(3)  The Watches.

(4)  The HK$1.5 million.

(5)  The undrawn facilities in the TSB OD Lines.

(6)  The undrawn borrowings from the KC Loan.

(7)  The Cars.

(8)  The TWGH donations.

G1.  The UK Property

43.  H admitted that he has the ability to pay the LCA by selling the UK Property, a property jointly owned by him and W, and had offered to do so.

44.  W refused to sell the UK Property because it is the residence of the Children when they are in the UK. W said that the Children disagreed to the sale.

45.  Mr Li argued that H had the intention to pay by selling the UK Property but was prevented by W from doing so.  He submitted that H’s conduct is therefore “unintentional”, he had “no choice at all” and “lacks the requisite culpable mental state of mind to be found guilty”.[22] Mr Li went further to argue that in the circumstances, this Court does not need to consider H’s ability to pay through his Pledged Shares or the Watches.  His argument was set out in paragraph 10 of his written closing submissions as follows:

“In other words, the Court need not even go into a consideration of H’s ability to pay through his Pledged Shares / Watches. His admitted ability to pay stems from the UK Property. He attempted to sell this to fund the LCA. The proceeds will pay off the entire LCA. Such attempt was obstructed by W. Therefore, it could not be said that H’s breach of the LCA Order has been “intentional” on H’s part.”

46.  No authority was cited in support of the above argument.  If Mr Li’s argument is correct, it would mean that because W rejected H’s proposal to satisfy the LCA Order by deploying a property jointly owned with her, this court does not need to consider the other resources of H, and H would be exonerated from the payment obligations under the LCA Order or punishment for his contempt although he could deploy other assets to pay the LCA.  I do not see any basis in this argument and am unable to accept it. Further, Mr Li has not put forward any legal basis to explain why H could force W to sell her interest in the UK Property for the purpose of funding the LCA.

47.  This court ought to consider all the other financial resources available to H.

G2.  The Pledged Shares

48.  H disclosed in paragraph 25 of his 9^th Affirmation that,

(1)  the Pledged Shares are pledged with TSB as securities for the TSB OD Lines;

(2)  as of 5 July 2023, the value of the Pledged Shares is HK$19,042,856.70[23];

(3)  as at 10 July 2023, the total outstanding balance of overdraft balance owed to TSB was HK$11,350,580.47[24];

(4)  the remaining balance in the value of the Pledged Shares was therefore HK$7,692,276.23[25];

(5)  the limit of the two facilities was HK$11,400,000 (i.e. HK$5,700,000 each);

(6)  in July 2023, there was a total of HK$49,419.53 credit remaining in aggregate for the two overdraft facilities.[26]

49.  H said in the affirmation that the amount of facilities available to him was limited to 80% of the market value of the Pledged Shares.  He also said that in July 2023, the value of the Pledged Shares was HK$19,042,856.70. If so, the facilities’ limit should be in the region of HK$15.2 million but not HK$11.4 million as stated in H’s affirmation. In either case, the value of the Pledged Shares is higher than the outstanding loan.

50.  H further said that he was paying a monthly interest of HK$60,000 for the two overdraft facilities. He needs to keep the facilities active because he does not have the means to repay the loan in full, and he can continue to use the available facilities for payment of MPS and Interim Maintenance as well as his daily expenses. He was aware of the risk that TSB would terminate the overdraft facilities if he does not pay the interest. His affirmation evidence is as follows:

“25g. … both overdraft facilities currently require a monthly interest payment of around HK$60,000 per month, or otherwise I run a risk of the bank terminating the overdraft facilities and calling the entire outstanding balance. I need to keep the facilities active because I do not have the means to pay if off in full any time soon, and I can continue to exploit any available facilities towards payments of interim maintenance for [W] and the Children, as well as our daily expenses.”

51.  H admitted that he made no mention of the pledge at all in his opposition to W’s LCA application.  He only disclosed the pledge in this committal proceedings. His explanation in the 9^th Affirmation was as follows:

“I had overlooked the importance of informing my solicitors and the Court that in or around October 2019 before the LCA Hearing, I was required by the bank to provide more collateral to the overdraft facility in my personal name, and I did so by pledging my remaining HSBC shares (which was worth around HK$3.92 million at the time of my Form E).”[27]

52.  Apart from the pledge, H also disclosed for the first time an oral agreement with TSB that he would not sell the Pledged Shares (“No Sale Condition”). H said that he could not sell the Pledged Shares before repaying the TSB loan and he has no funds to make the repayment. He also said that TSB does not have the licence to trade the Pledged Shares and could not sell them.

53.  Ms Yip submitted that H’s assertion of inability to sell the Pledged Shares before repaying the TSB loan is incredible for the following reasons:

(1)  At law, a pledger retains the legal ownership of the property. He has the right to sell and transfer the good title to buyer subject to the pledgee’s right of redemption: Wong Man Hon Frederick v China Times Securities Ltd[28].

(2)  The value of the Pledged Shares is higher than the outstanding loans. H admitted that he had never attempted to sell the Pledged Shares. Thus, he has no basis to assert his inability to sell before repayment.

(3)  H agreed that the No Sale Condition is an information important to his financial condition. If there was such a condition, he ought to have mentioned it in Form E, and his previous affirmations, including the affirmations filed in W’s application for LCA.  However, he had not.

(4)  H had not produced the pledge agreement. During cross examination, he initially claimed that he was told about the No Sale Condition “2 to 3 months ago”, which was “about July this year”. He never sought legal advice on the viability of the No Sale Condition. Later on, he changed and said he was aware of this condition when he made the pledge.

(5)  In his oral testimony, H said that selling the Pledged Shares is one of the options to pay the LCA when he was asked why he did not sell the Watches for the payment.

54.  Ms Yip further pointed out that even if it is assumed that H could not initiate the sale of the Pledged Shares, he could terminate the TSB OD Lines or stop paying the hefty monthly interest of HK$60,000, let TSB call the loan, sell the Pledged Shares, use the sale proceeds to repay the TSB loan, and release the remaining balance to H for the LCA payment.

55.  H admitted that although he has never tried to terminate the TSB OD Lines or let TSB to call the loan by stop paying the interest, he could have done so if this is the last option.

56.  Turning to H’s need to keep the two facilities for payment of MPS and Interim Maintenance[29], Ms Yip pointed out that H’s asserted need is contradicted by documentary evidence[30].

(1)  For about a year from 30 June 2022 to 9 May 2023, H did not use his personal OD line at all.[31]

(2)  From 9 May 2023 to 30 June 2023, a consistent pattern was observed in which precise sums of cash were first deposited into H’s personal passbook account[32] and the exact amounts were almost immediately transferred from the said passbook account to his TSB personal OD account. The exact amounts were then paid out from his TSB personal account.[33]

(3)  From 31 July 2022 to 30 June 2023, there has been a consistent pattern of receiving deposits in exact sums to ML’s TSB OD account, and immediately after, such exact sums were paid out the ML’s TSB OD account.[34]

57.  I agree with Ms Yip that H could pay the LCA by deploying the unencumbered value of the Pledged Shares but he did not do so.

(1)  The value of the Pledged Shares exceeds the amount of outstanding facilities.

(2)  H’s assertion that he needs the overdraft facilities to pay the MPS and the Interim Maintenance was contradicted by documentary evidence on the flow of funds in the overdraft accounts.

(3)  Even if H’s assertion of No Sale Condition is true, it does not prevent him from realising the remaining value of the Pledged Shares by stopping to pay the hefty interest and terminating the facilities.

(4)  H accepted that it is an option to sell the Pledged Shares for payment of the LCA.

G3.  The Watches

58.  According to Part 2.10 of H’s Form E dated 10 May 2019, the Watches accumulated by H since 1982 has an estimated value of HK$32.24 million.  The total purchase price was HK$19,317,938.

59.  In the affirmation[35] filed in opposition to this committal application, H said that:

(1)  Since 30 March 2020, his family companies (including KC)  raised concerns regarding his longstanding and escalating loans owed to them. KC requested H for repayment solutions.

(2)  H had no alternative but to pledge on 30 September 2021 all his Watches to KC as security for the loan. KC accepted HK$19.32 million as the total value of the Watches.

(3)  A KC Loan Agreement was made on 30 September 2021[36].

(4)  The loan was matured by 31 March 2023. H could not repay the outstanding loan of HK$17,983,000. KC had taken possession of the Watches and has the full power to sell the Watches and use the sale proceeds to offset the outstanding loans owed by H.

(5)  He does not know whether the Watches or its sale proceeds is sufficient to offset the outstanding loans as no independent valuation of the Watches has been conducted.

(6)  He was making enquiries with KC about the intended logistics for the valuation and/or disposal of the Watches.

(7)  He offered to undertake that in the event the Watches are valued or disposed of for value higher than the loan of HK$17,983,000, he will pay W all the remaining proceeds to be received by him to discharge the LCA Order. Yet he added that the Watches are not with him, and he is not in control of the process. (“Offer of Undertaking”)

60.  W submitted that the pledge of Watches is a sham for the following reasons:

(1)  The directors of KC are H’s siblings.

(2)  Before the KC Loan Agreement, H had an unsecured outstanding loan of HK$11.343 million.

(3)  H executed the KC Loan Agreement to pledge the Watches for an increased credit line of less than HK$9 million.

(4)  It does not make commercial sense for H to pledge the Watches worth HK$32.24 million for an increase of HK$9 million facility.

(5)  It does not make commercial sense for H to agree to take HK$19.32 million as the value of the Watches without an independent valuation when he estimated in 2019 that the Watches worth a total of HK$32.24 million.

(6)  The pledge was made in September 2021, shortly after the LCA Summons in August 2021.

61.  While there are suspicious features in the pledge of the Watches, there is no compelling evidence to prove that the pledge of the Watches is a sham.

62.  By reasons of the following, I find that H could use the unencumbered value of the Watches to discharge his payment obligations under the LCA Order but he chose not to do so:

(1)  The KC Loan was matured on 31 March 2023 with a total outstanding loan of HK$17,983,000.

(2)  The value of the Watches exceeds the outstanding loan by HK$1.337 million when compared to the purchase value of HK$19.32 million.  Compared to H’s estimated value of HK$32.24 million in 2019, there is an excess of HK$14.257 million.

(3)  I do not accept H’s bare assertion that the value of the Watches may not be sufficient to settle the outstanding loan[37].  In particular, H had stated on oath in 2019 that the estimated value of the Watches was appreciated by HK$12.92 million (an increase of over 65% of the purchase price).  There is no evidence to suggest a drastic depreciation of value between 2019 and now, nor evidence to suggest that the current value of the Watches would be lower than the purchase price.

(4)  Under cross examination, H accepted that the KC Loan Agreement did not prohibit him from selling the Watches.

(5)  Under cross examination, H said that it is an option to pay the LCA by selling the Watches. He did not do so because he has other options, including selling the UK Property, the Pledged Shares and the painting; and also it takes longer to sell the Watches. Later on, H retracted and said that the option to sell the Watches was only in his mind. 

(6)  For more than 6 months since KC has taken possession of the Watches on 31 March 2023, H had not taken constructive step to redeem the balance of the value of the Watches. 

(7)  He only wrote a letter to KC on 14 July 2023 (about 4 months after the taking of possession)  requesting for a valuation of the Watches and then set off the outstanding loan against the value of the Watches.  It is of note that this letter was written after the call over hearing of this committal proceedings in June 2023.

(8)  KC remained silent for more than 3 months from the letter. H took no follow up action.

(9)  I do not accept H’s assertion that he is not in control of the process. He is legally entitled to require KC to release the remaining value but he had not actively pursued this right. The letter to KC is merely a half-hearted gesture.

(10)  H’s Offer of Undertaking is half-hearted and subject to uncertainties. I do not accept that it can absolve him from being punished for a contempt of court.

63.  At cross examination, H was put several times that he could have sold the Watches, repaid the outstanding loan of HK$17.98 million to KC, and had a huge surplus of about HK$14.3 million[38] to pay the LCA.  H answered “arithematically, yes” or “with that arithematic, yes”.

64.  Mr Li argued that H only agreed to the statement in the context of an arithematic calculation, but not accepted that it is practically possible. I do not accept this argument.  H himself had accepted this is an option to fund the LCA. I listed the evidence and reasons above to show that H was able to realise, or enforce his right to realise, the unencumbered value of the Watches for the LCA payment but he chose not to. 

65.  The above answers of H is, in my view, an example showing that he was evasive when giving evidence. Another obvious example of his evasiveness is when he was asked about the non-disclosure of loans in his Form E:

“Q: You confirmed that these are your loans. They are your liablities. Did you record them in your Form E dated 10 May 2019?

A: It is not on the page.

Q: Why not?

A: The thing is D and ML are my companies. I used the loans to pay all my wife’s expenses.

Q: You said in your answers that they were loans. You confirmed that they were loans. Why were they not here in your Form E dated 10 May 2019?

A: I have no answer.

Q: Are you saying that your Form E is not correct?

A: I did not say that.

Q: It is obvious. If these are loans in 2018, then in 2019, you must have recorded them in your Form E, do you agree?

A: Yes.

Q: Why not?

 A:  I did not record it.”

G4.  The HK$1.5 million

66.  On 11 October 2022, there was a cash of HK$1.5 million deposited into the bank account of ML[39]. H did not use this sum to pay the LCA.

67.  H’s evidence at cross examination was as follows:

“Q: There was a cash deposit of $1.5 million, where did you get the money?

A: I cannot remember, may be from KC.

Q: Could you turn up to C1/216? You have said many times this morning that KC refused to lend you further since October 2022, so your money must not be from KC?

A: I think it is dividend from KC.

Q: Why didn’t you pay W?

A: I can’t remember, I think this is dividend from KC. I did not pay W because I got demand from the bank.

Q: So you prioritized paying TSB than W?

 A:  The priority is to pay the bank over W.”

68.  H received HK$1.5 million cash deposit about 2 months after the LCA Order. This is a source of funds for the LCA payment.  H proritised his other creditor to discharging his obligations under the LCA Order.  This is an evidence of his deliberate intention not to pay the LCA.

69.  In BT v CBY (formerly known as YHK and also known as YCB)[40], the Court of Appeal found that the husband used the loans purely for his own benefit instead of paying the judgment debt is an evidence of his deliberate intention not to pay.  The husband has had the means to pay the wife but he has refused to do so because he chose not to use the available funds to satisfy the debt he owes to the wife. The Court of Appeal found that there was sufficient evidence to find the husband to be guilty of contempt.

G5.  The TSB OD Lines

70.  Upon the aforesaid cash deposit of HK$1.5 million and between 11 October 2022 and 6 March 2023[41], ML had HK$7.2 million overdraft facilities with TSB, while the outstanding loan was about HK$5.68 million. There was thus an available overdraft facilities of about HK$1.52 million.

71.  H confirmed at cross examination that there was the above available balance of HK$1.52 million overdraft facilities and it could be used to fund the LCA. He did not so because he preferred paying the other creditor.  H’s preference to other creditor is an evidence of his deliberate intention not to pay the LCA: BT v CBY[42].

72.  H’s allegation of the bank’s right to reduce the overdraft facilities limit or require the placing of further collateral if the limit falls below 80% of the market value of the Pledged Shares is not relevant in the present context. A majority of the Pledged Shares is HSBC shares. As admitted by H, HSBC share price was on the rise during this period. 

G6.  The KC Loan

73.  Under the KC Loan Agreement, KC agreed to make available to H loan financings in an aggregate amount of not more than HK$20 million interest free without a fixed term of repayment before the maturity date on 31 March 2023.

74.  H accepted the following in his evidence:

(1)  As at the maturity date on 31 March 2023, he still had a balance of unused facility of about HK$2,107,000. He could pay the LCA if he borrows to the maximam limit of this loan.

(2)  This loan was secured by a pledge of the Watches.

(3)  KC’s refusal to lend him any more money since August 2022 was a breach of KC Loan Agreement.  

(4)  He was entitled to enforce his right under the KC Loan Agreement but he only made some verbal demands, and nothing further.

75.  H was legally entitled to borrow, and enforce his right to borrow, the unused facility under the KC Loan Agreement. H could have used this unused facility to meet his payment obligations under the LCA Order but he did not do so.

G7.  The Cars

76.  H did not deny that he has the use of eight cars, including a recently purchased Porsche 911 GT3 4.0[43].  The Cars are registered in the name of companies in which H is either a minority shareholder and/or one of the directors. Seven of the eight cars mentioned by W were purchased pre-LCA Order.  

77.  There is no evidence that H has the right to sell any of the Cars for the LCA payment.  

G8.  TWGH Donation

78.  According to the annual report of TW Group, H made a donation of over HK$9 million in the year 2022 – 2023.

79.  H said that he was chosen by his wider family to be a representative to take up the chairmanship of the TW Group. Most of the donations were funded by MEL or TSLD or other members of his wider family. He had only donated a total of HK$3,099.37 with his own funds. He was a representative of the donors. He produced receipts issued to MEL or TSLD for their donations in 2020 and 2021. He also produced a breakdown of the donation for 2022/2023, which recorded that the receipts of a majority of the donation were issued to MEL or TSLD.

80.  No irresitiable inference could be drawn from the TWGH Donation that H has had the means to pay the LCA but chose not to.

G9.  Summary

81.  In summary, I find that at the relevant time, H has or has had the ability to pay the LCA or part of it as follows:

(1)  He could have terminated the TSB OD Lines (instead of paying a monthly interest of HK$60,000)  and used the remaining balance of the value of the Pledged Shares to pay or partially pay the LCA.

(2)  He could have sold the Watches or some of them before the pledge.  After maturity of the KC Loan Agreement, he could demand the prompt release of the remaining sale proceeds of the Watches but he had not done so. His letter in July is an half-hearted gesture.

(3)  He could have used the HK$1.5 million received in October 2022, but he chose to prioritise other creditor to W.

(4)  He could have utilised the available balance of facility under the KC Loan Agreement. He is entitled to enforce his right to request for the borrowing of the available balance, but he did not do so.

82.  I am satisfied that there is sufficient evidence to establish that H has the requisite state of mind and he has committed a contempt of court in breach of the LCA Order.

H.  SERVICE OF PENAL NOTICE – PUNISHMENT

83.  Mr Li submitted that H should not be punished if he was found to have an ability to pay the LCA before 13 January 2023 because the endorsed penal notice had not been served on H before that date.

84.  There is a recognised distinction between the ability to make a finding of contempt and the ability to punish the contemnor so as to enforce the order.  In Hong Kong Civil Procdure 2023 para 52/2/9:

“A distinction must be made between an ability to make a finding of contempt, and the ability to punish so as to enforce the order, and it is only the latter case that O 45 applies requiring a penal notice.”

85.  In Yeung Lin Mui v Chu Kwok Wai[44], Peter Ng J explained how service of a penal notice is relevant to enforcement:

“Fifth, as a pre-requisite to enforcement, the relevant order must contain a penal notice and must have been served personally, although where there has been a failure in this regard, the court nevertheless has the power, in the exercise of its discretion, to enforce it … Where the relevant order is not endorsed with a penal notice, it is essential that the alleged contemnor shall have been told, whether by being present in court or by being notified by telephone or otherwise, that the consequences of breaching any order made is to be held in contempt of court. Whether the penal notice is made in writing or given orally, the alleged contemnor must be made aware of the consequence of a breach of the relevant order.”

86.  In LPK v HSH[45], HHJ G Own held that:

“27. … Where the order alleged to have been breached is not endorsed with a penal notice, and the alleged contemnor is not otherwise aware of the consequences of a breach of order, the court can still make a finding of contempt and to make appropriate orders in enforcement, and to award indemnity costs, but it should not impose any punishment. A distinction must be made between an ability to make a finding of contempt, and the ability to punish so as to enforce the order, and it is only in the latter case that Order 45 applies requiring a penal notice. …”

87.  In the present case, a penal notice was endorsed on the LCA Order and personally served on 13 January 2023.  To exercise the discretion to punish H for his acts or omissions committed in contempt of court before the penal notice was served, the court shall be satisfied that H was otherwise told or aware of the consequence of the breach before the service of penal notice.  There is no evidence for the court to make this finding.

88.  I will not exercise my discretion to punish H for his receipt and use of HK$1.5 million which was before the service of penal notice.

89.  The other acts or omissions summarised in paragraph 81 above were either committed or continued after the penal notice was served.  The court may impose a punishment on H for these acts or omissions in contempt of court.

I.  CONCLUSION

90.  W established to the requisite standard that H had or has had the ability to meet the obligations under the LCA Order but he chose not to do so. I make an order of committal for H’s contempt of court in breach of paragraphs 1 to 3 of the LCA Order. A date will be fixed to hear H’s mitigation and submission on sentencing and costs. 

91.  I thank counsel for their assistance.

Mr. Jeffrey Li and Ms. Elizabeth Lee instructed by Rita Ku & Ser for the Petitioner.

Ms. Anita Yip S.C. and Ms. Lily Yu instructed by Chaine Chow & Barbara Hung for the Respondent.

Schedule

Outstanding principal and interest as at 16 October 2023

(see paragraph 24 of W’s closing submissions)

FCMC 11432/2018

[2022] HKFC 262

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER FCMC 11432 OF 2018

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JUDGMENT

(Discharge of Undertaking)

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Introduction

1.  This is an application taken out by the petitioner (“the husband”) by way of a summons filed on 23 November 2021 for discharge of an undertaking made by consent and to replace it by a different one. The respondent (“the wife”) opposed and asked for the original undertaking to remain in place.

The application

2.  The subject undertaking was ordered in Recital J of the consent order made by DDJ Rita So dated 30 November 2018 (“the Consent Order”), the exact undertaking was reproduced as follows:

“(J) Credit card spending for the Respondent

AND UPON the Petitioner undertaking confirming and acknowledging to the Court and to the Respondent that further to the Order made herein and the Undertaking (D) and (K) herein, the Petitioner do continue to provide the Respondent with the usage of the following credit cards:-

(i) Citi Bank credit card No.4028 XXXX XXXX XX04;

(ii) Citi Bank credit card No. 4028 XXXX XXXX XX26;

(iii) HSBC credit card No. 5431 XXXX XXXX XX28; and

(iv) Hang Seng Bank MasterCard (The Hong Kong Jockey Club) No. 5520 XXXX XXXX XX21.

and/or credit cards upon expiry or cancellation of either one or all of the cards (“Other Credit Cards”) for the Respondent’s own purchases and expenditure up to a maximum limit of HK$300,000 per month (1^st day of each month until the end of the month”) and to settle such expenses incurred under the above credit cards or Other Credit Cards referred to herein in full directly and promptly by the due date of each month to ensure the credit limit of HK$300,000 is not affected.”

(“the Undertaking”)

3.  The husband now seeks an order to discharge it with a replacement as follows:

  “Upon Petitioner’s undertaking, confirming and acknowledging to the Court and to the Respondent that the Petitioner do continue to provide the Respondent with the usage of the following credit cards:

(i) HSBC Red credit card no. 5289 XXXX XXXX XX97;

(ii) Hang Seng Bank Mastercard (The Hong Kong Jockey Club) No. 5520 XXXX XXXX XX21

And/or other credit cards upon the expiry or cancellation of either one of all of the cards (“Other Credit Cards”) for the Respondent’s own purchases and expenditure up to a maximum limit of HK$100,000 (1^st day of each month until the end of the month) and to settle such expenses incurred under the above credit cards or Other Credit Cards referred to herein in full directly and promptly by the due date of each month to ensure the credit limit of HK$100,000 is not affected.”

(“The New Undertaking”)

4.  The wife did not take issue on the situation that the number of credit cards from 4 to 2, the dispute here is that the wife is resisting, the husband to reduce the monthly spending limit from HK$300,000 to HK$100,000.

5.  This concerned her because the husband had already failed to pay the amount ordered by DDJ R. Chow in his judgment dated 17 January 2022 regarding an upwards elevation of maintenance pending suit from HK$120,000 to HK$180,000 coupled with a backdated amount of HK$1.173 million. As at the date of the wife’s affirmation filed on 21 April 2022, the husband has only paid up HK$351,900 to the wife.

Legal principles

6.  Prior looking into the parties’ background and the reasons of application, I shall visit the law on discharging or varying undertakings. HHJ Melloy summarized the principle in FHP v. YPY (formally known as YSL) FCMC 15966 of 2010 / [2019] HKFC 296 at paragraphs 15 – 16:

“The law

Discharge of undertakings

15. In so far as the undertaking is concerned, it is not disputed that the court cannot impose an undertaking on a party nor can it vary an undertaking of its own motion. The court may accept an undertaking; it may discharge an undertaking and it may, in some circumstances refuse either to accept an undertaking or to discharge it.

16. This issue was recently reviewed by the UK’s Supreme Court in the case of Birch v Birch [2017] WLR 2959. Lord Wilson, who gave the lead judgment, essentially reiterated what has been said in the above paragraph, namely that the court has no power to vary an undertaking. It may however release a party from an undertaking upon the offer of a new one, which may look like a variation – but it is not. At paragraph 5 he said as follows:

“A court has no power to impose any variation of the terms of a voluntary promise. A litigant who wishes to cease to be bound by her (or his) undertaking should apply for “release” from it (or “discharge” of it); and often she will accompany her application for release with an offer of a further undertaking in different terms. The court may decide to accept the further undertaking and, in the light of it, to grant the application for release. Equally the court may indicate that it will grant the application for release only on condition that she is willing to give a further undertaking or one in terms different from those of a further undertaking or one in terms different from those of a further undertaking currently on offer. In either event the court’s power is only to grant or refuse the application for release; and, although exercise of its power may result in something which looks like a variation of an undertaking, it is the product of a different process of reasoning.”

7.  In an unreported case HMSE v JJS[2019] HKFC 55, FCMP 70 of 2008 where my sister judge, DDJ Rita So summarized the same issue and said as follows, without limiting the situation identified below, the court may always accept an undertaking or discharge it, if it is just and reasonable to do so.

“93. The legal principles on discharge of an undertaking can be summarized as follows :-

(a) An undertaking can be discharged, but not varied.

(b) The Court has jurisdiction to discharge an undertaking given to the Court at any stage, even if it was given in an order made by consent.

(c) A party who has given an undertaking to the Court may seek an uplift or release himself/herself from an undertaking in any of the following situations:-

(i) When there has been a material change of circumstances since the undertaking was given which is not foreseeable at the time and which make compliance not feasible;

(ii) When the subject matter to which the undertaking relates no longer exists which renders compliance impossible;

(iii) The party to whom the undertaking was given releases the undertaker from complying with the undertaking;

(iv) When the undertaking was obtained though fraud, misrepresentation or mistake.

(d) Whether an undertaking given to the Court should be discharged is a matter of judicial discretion to be exercised if it is “just” to do so, in order to achieve a “fair” result.

94. It is trite law that undertakings should not be given lightly.”

8.  In addition, HHJ Melloy stated in paragraph 22 in D, M v. D, R (also known as R, R) (FCMC 1968 of 2009; [2021] HKFC 48) which concluded the whole idea of the above principles:

“22. That remains my view now. It seems to me that the court has a very wide discretion when considering whether or not to discharge an undertaking or to accept a different undertaking in its stead. As with an application to vary under s. 11 (7) of the Matrimonial Proceedings and Property Ordinance, Cap 192, the overall intention is to achieve a fair outcome, by reference inter alia to all of the relevant circumstances of the case, including the basis upon which the parties originally entered into the consent order and whether or not there has been any material change of circumstance. Overall, I am charged with considering whether the husband’s request is just and reasonable. To that end, and by analogy, reference may also be made to the often-quoted section from the Hong Kong Court of Appeal decision, AEM v VFM [2008] HKFLR 106, where the Hon Cheung JA made the following point when referring in particular to agreements reached by consent, as here:

8. At the same time the basis and intended effect of the original order are relevant factors to which the Court on variation should pay regard and there should not be a radical departure from the approach taken by the parties themselves when they had entered into an agreement embodied in a consent order: Boylan v. Boylan [1988] FLR 282.”

Overview

9.  This is a highly conflicted case, the husband petitioned for a divorce after 23 years of marriage. The husband’s family has been running a business in the financial industry which also involved substantive land developments. The founder of the family business, i.e. the father of the husband, passed away in the 1980s, the family wealth was inherited by the husband and his siblings. It is beyond question that the husband and wife have enjoyed a very high standard of living, both during marriage and after separation, and that has been exclusively provided for by the husband or his family. The wife had become a housewife after marriage. They have 3 children, namely 2 sons and 1 daughter and all are now above 18 year of age.

The husband’s reasons to vary

Delay in fixing an FDR

10.  The husband says this application was instigated by the wife’s excessive expenditures, particularly on jewelries since the Consent Order, he has to put a halt to the wife’s lavish spending pattern. The Consent Order was sought after a successful mediation and the husband sees the content therein was concluded on an interim basis with very generous maintenance (which has exceeded the living standard) to the wife. With a view to settle the ancillary relief expeditiously, the husband anticipated a financial dispute resolution (“FDR”) will be fixed soon after the Consent Order. However, it turned out to have been delayed by the wife’s two interlocutory applications. The husband put an effort to oppose the said two applications and as at the date of handing down this judgment, the said two interlocutory applications are still on foot.

11.  The wife argued by saying firstly, the Consent Order did not conclude lightly, both the husband and herself had gone through various sessions of mediation. Not to mention both parties were represented, it took almost one month to settle on an interim basis.

12.  On this point, it is irrelevant here to consider how the Consent Order was granted, be it as it is undesirable that the petition as not yet reach FDR stage, I should say it is expected such interim order shall be continued until further order.

The husband’s difficult financial position

13.  The husband put forward his change of circumstance since the Consent Order by saying his financial position has been deteriorated. To name it, the husband’s overdraft facilities have increased from –HK$1,878,926.17 as at 28 September 2018 to –HK$5.65 million as at the date of filing this summons, i.e. 23 November 2021; debts owed to his family company have also increased from HK$963,000 in early 2019 to over HK$11,343,000 now. To meet the wife’s maintenance pending suit payments, he sold a property in Kennedy Town. Albeit the husband’s total assets amounted to HK$370.5 million, he said it is nevertheless a minority interest in the family company and of which he is unable to liquidate most of it.

14.  On the other hand, the wife sees there is no material change of circumstance on the part of the husband. The wife rebutted by saying firstly, the family company was the husband’s financial resources, his overdraft facility with the family company has not been exhausted. Secondly, when the husband has incurred a monthly expenses as high as HK$1.182 million, the family company has been paying the husband HK$413,166 plus HK$50,000 director’s fee monthly to the husband. The husband’s financial means was grossly underestimated because the so-called loan from the family company was not genuine liability.

15.  I should say in the outset I accept the wife’s argument that the husband was nowhere in financial difficulty. The husband came from a wealthy family and that the family company / business will finance his expenses by advancing loan(s) to him. The wife has rightly pointed out that the indebtedness or borrowings only show his financial ability to attain continuous flow of financial support from his family. Although the husband may not be able to liquidate his share in the family company at this stage, it has no bearing on his financial ability to settle credit card bills at interim stage.

16.  I find the husband has ability to pay, be it the loans advanced by his family company / business might have been elevated, it does not affect his true financial position.

The wife’s spending on jewelries and lavish items

17.  The husband complained the credit card bills have reflected the wife has spent mostly on jewelries, in particular, in an attempt to use the Hang Seng Bank credit to purchase a Cartier diamond bangle in February 2019; Citibank Premier Miles credit card to purchase a diamond bracelet in March 2019 and 2 purchases in sum of HK$40,000 and HK$30,000 on 19 March 2019. Moreover, the husband was frustrated to learn the wife’s spending habits which were beyond her needs but mostly and disproportionately on lavish items. The husband recalled there were occasional purchases on high end items from auction house but he did not recall regular purchase of jewelries does not form part of the lifestyle during marriage. He was particularly dissatisfied to learn the wife had purchased 5 Rolex Daytona for the children in sum of HK$204,000 between March 2020 to July 2020.

18.  The wife has once complained the transaction of the credit cards cannot be put through, the husband says it was the wife herself who has breached the Undertaking by spending over HK$300,000 per month and that rendered her subsequent transactions been rejected. To ease the wife’s complaint, the husband gave her a new HSBC Red credit card with a limit of HK$360,000, having done so, the wife had continued to complain her difficulty in using them.

19.  The husband believes the wife’s spending on credit cards during marriage was mostly below HK$200,000 or sometimes as low as HK$10,000. The husband sees the wife’s conduct in light of using the credit card was done purposefully to maximize her needs in this suit. From this, the husband seriously reconsidered the wife’s needs and had come to a figure of HK$71,000 per month on her needs (excluding accommodation, jewelry and Chinese herbal medicine), jewelry items should be excluded to be part of the wife’s needs.

20.  The wife denied the husband’s allegation and had explained her use of credit cards was to replace direct or indirect payment by the husband during marriage. To name a few, dinner out and expenses on vacations were mostly paid by the husband. She mentioned it was a usual practice that the husband will supply cash to her mostly around HK$50,000 upon demand. Apart from this, the wife was allowed to have access to the safe at home for cash. The wife’s spending, including extinguished art pieces, were paid or arranged by the husband’s secretary, the husband will arrange reimbursement according to her request.

21.  The wife had a chance to analyze her credit card spending from January 2013 – November 2018 (prior to the petition) was HK$278,246 per month excluding children’s clothing, entertainment and grooming. When the above payment arrangements by the husband are no longer available to her after separation. She can only spend with the credit cards provided by the husband. After the petition, she had been deprived with sponsorship of luxury clothing, jewelry and evening gowns from luxury brands such as Dior, YSL, Gucci and Louis Vuitton for maintaining a positive image as a celebrity wife. She lost such benefits after separation with the husband and has to pay for the items herself, for instance, an evening gown from Dior costs more than HK$100,000.

22.  A step forward, the wife rebutted the spending on jewelry for both herself and the husband was regular and recurring during marriage. The husband did not dispute on this point by agreeing, by February 2017, he has spent on jewelry for the wife as high as HK$69,067,395. The luxury items / personal valuables disclosed for the purpose of this divorce suit is more than 90 items, half of them were valued more than HK$300,000 per piece. The wife emphasized these items are not exceptional pieces but purchased on a regular basis which reflects their lifestyle and standard of living.

23.  The wife further compared her “interest” in purchasing jewelries to the husband’s purchase of expensive cars and Patek Phillip watches. She emphasized on the lifestyle prior to separation by referring to “a basket of car keys” at the matrimonial home, mostly Porsche GTS, Astor Martin, where the husband could choose any car to drive for the day the same way as the wife could choose to anything to wear from her wardrobe.

24.  The wife also recalled she has taken part in jewelry design courses towards a gemologist. She was not aware of the husband’s objection in doing so, when he had been supporting her financially during marriage with free rein spending.

25.  For now, when the wife is only allowed to have a credit limit of HK$300,000 per month, she has to purchase jewelry cautiously from various shops. She could not get extinguish pieces from Christie’s or Sotheby’s as before. The wife explained the purchases of Rolex watches was meant to be graduation gifts for the elder son.

26.  The wife complained the husband is making her difficult and embarrassing in using the credit cards. She denied overspending with the credit cards because she had kept a good record of expenditures because she was required to submit the receipts to the husband’s solicitors from time to time. There are occasional slight overspendings but she has tackled it by reducing the excess amount in following months.

27.  The wife concluded by saying the husband has formally become the chairman of the board of directors of an established charitable organization. He is expected to make handsome donations which is likely more than HK$1 million. The wife believes the husband has no financial difficulty in continuing the 2018 Consent Order, in particular, providing her with a credit limit of HK$300,000 per month.

28.  On this point, I am with the wife that the spending pattern has not changed but the mode of spending has been altered after the petition. I pay special attention to the parties’ lifestyle and the background of the husband’s family business, it certainly stands out from family that are difficult with necessities, the wife is entitled to be maintained at a very high standard of living. I agree with wife that purchase of luxuries are part of her lifestyle prior to separation, they are regular and recurring expenditures. The above is in line with HJFG v. KCY which thereby decided in big money cases, the maintenance is to enable a spouse to be maintained in highest standards and in addition to funds for other forms of expenditures which may not properly classified as “maintenance”. In this respect, as compared to the wealth of the husband, HK$370 million stated in Form E, some purchase of jewelries or capital spending are within their norm.

Outcome

29.  In the premises, I am not satisfied the husband has demonstrated a material change justified a discharge of the Undertaking. With no change of financial ability on his part, it is fair for the husband to maintain the same credit card limit of HK$300,000 as agreed in the Consent Order.

30.  The Undertaking shall be discharged and replaced by the following:

“Upon Petitioner’s undertaking, confirming and acknowledging to the Court and to the Respondent that the Petitioner do continue to provide the Respondent with the usage of the following credit cards:

(i) HSBC Red credit card no. 5289 XXXX XXXX XX97;

(ii) Hang Seng Bank Mastercard (The Hong Kong Jockey Club) No. 5520 XXXX XXXX XX21

And/or other credit cards upon the expiry or cancellation of either one of all of the cards (“Other Credit Cards”) for the Respondent’s own purchases and expenditure up to a maximum limit of HK$300,000 (1^st day of each month until the end of the month) and to settle such expenses incurred under the above credit cards or Other Credit Cards referred to herein in full directly and promptly by the due date of each month to ensure the credit limit of HK$300,000 is not affected.”

Costs

31.  Costs should follow the event, I make an order on costs on a nisi on costs that the husband to pay the wife’s costs of his summons, with certificate of counsel, to be taxed if not agreed. This costs order nisi be made absolute within 28 days from the date of this judgment in absence of party to vary by summons.

Orders

32.  With reasons of the foregoing, I make the following orders:

(i)  The petitioner’s (the husband’s) summons filed on 23 November 2021 be dismissed.

(ii)  There be an order of costs on a nisi basis that the husband to pay the wife’s costs of his summons, with certificate of counsel, to be taxed if not agreed. Such costs order nisi shall be made absolute within 14 days from the date of this judgment in absence of party to vary by summons.

Mr Jeremy Chan instructed by Messrs. Rita Ku & Ser for the petitioner

Ms Anita Yip S.C and Ms Lily Yu instructed by Messrs. Chaine Chow & Barbara Hung for the respondent

FCMC 11432/2018

[2022] HKFC 225

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 11432 OF 2018

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DECISION

( Leave to Appeal )

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Introduction

1.  This is an application by the Petitioner Husband (“H”) to apply for leave to appeal against my decision (“the Decision”) made on 12 August 2022 on the application by the Respondent Wife (“W”) for litigation funding.

2.  H and W are both in their fifties and were married in 1995. H filed a petition for divorce on 5 September 2018, a Decree Nisi was granted on 23 April 2019. The marriage lasted 23 years. H and W have three children during marriage (“the Children”).

3.  H was born into a wealthy family, his father passed away in 1980s and substantial wealth passed on to him and his siblings. H admittedly had asset worth over HK$370 million according to his Form E filed on 14 May 2019.

4.  From H’s Form E, he holds shareholdings in 18 private companies including [KC] & Co Ltd (“KCC”) and 1 publicly listed company.

5.  W filed on 20 August 2021 a summons for litigation funding for H to pay her a monthly sum of HK$420,000 as litigation costs allowance to cover her legal costs until the end of the FDR or further order.

3.  In my Decision, I ordered the Husband to pay HK$350,000 per month to the Wife from 20 August 2021 until the end of the FDR hearing or further order.

4.  By summons filed on 25 August 2022, the Husband applies for leave to appeal against the Decision.

Grounds of Appeal

5.  There are 6 grounds of appeal in H’s draft Notice of Appeal.

6.  Ground 1 is that the Decision wrongly found that H had financial resources to such extent that he could afford and should be ordered to pay HK$350,000 per month for legal costs provision.

7.  Ground 2 is that the evidence did not suggest that H had income and financial resources of substantially more than HK$890,000 per month.

8.  Ground 3 is that the Decision treated the Husband’s financial resources from KCC as being limitless or in effect infinite.

9.  Ground 4 is that the Decision should have estimated the amount required to take the case to FDR.

10.  Ground 5 is the Decision should not have linked monthly legal costs provision to the unknown date of FDR even if the amount of HK$5.89 million is a correct estimate.

11.  Ground 6 is the quantum of HK$5.89 million as the additional costs to costs already incurred is too high.

12.  In essence, Grounds 1, 2 and 3 are challenges to my findings of H’s financial resources. Grounds 4, 5 and 6 are challenges to my findings on the quantum and period of legal costs provision.

The Husband’s Financial Resources

13.  In the Decision, I found that H had financial assistance from KCC.

14.  Mr. Chan for H submitted that H had no sufficient resources after the divorce proceedings to sustain the family’s standard of living. H previously had only limited and manageable debts, there had been a drastic increase in his indebtedness leading to liquidity crisis. The Decision should not have treated H’s financial resources from KCC as limitless.

15.  Mr. Chan relied on HSYC v CLTK (FCMC 11141/2013) in which District Judge Melloy stated in paragraph 17 that “Although I would accept that in the final analysis KEWS v NCHC may be of some relevance on final ancillary relief, it is hard to apply these same principles to a maintenance pending suit/interim maintenance application, given that there can be no findings of fact made in relation to the financial resources of the husband and the financial relationship between him, his parents and the family business”.

16.  Mr. Chan argued that the findings in the Decision were not supported that all the express concerns from KCC about H’s ongoing financial liabilities was just a gesture, KCC being a family company of H, was closely connected to the extent that it would keep financing H despite all the express concerns about H’s inability to pay and even assuming KCC gave H were loans, KCC would still keep providing such loans.

17.  Mr. Chan argued that was no evidential basis to find that the Husband had total monthly amounts available to him of substantially more than HK$890,000 so that he could afford to pay for the family expenses and W’s legal costs.

18.  According to Rule 2(2)(c) of the Matrimonial Causes Rules (Cap. 179A), an order for maintenance pending suit is an ancillary relief. The decision of the Court of Final Appeal in KEWS v NCHC (2013) 16 HKCCFA 1 should apply to applications for maintenance pending suit and legal costs provision.

19.  There have been cases where third party assistance in dispute have been considered in applications for maintenance pending suit or legal costs provision like FCMC 747/2018, FCMC 7870A/2014, FCMC 7875/2020, FCMC 13891/2017 and HCMC 3/2018.

20.  I do not think what District Judge Melloy stated in HSYC v CLTK should be interpreted as a rule that third party assistance in dispute could never be taken into account of in applications for maintenance pending suit or legal costs provision. In my view, District Judge Melloy merely highlighted the difficulties in interlocutory applications to make a ruling on third party assistance in cases where no finding of facts could be properly made. In that case, there was no need for District Judge Melloy to make a ruling on the question of third party assistance, she was able to find that the husband had financial resources beyond his disclosure by adverse inference.

21.  In the present case, there can be no dispute that KCC is a family company closely connected to H. H holds 25% of shares in KCC and any transfer of KCC’s shares is subject to restrictions and non-transferable to non-family members and has to be approved by the board of directors.

22.  There is no dispute that KCC’s monthly expenses have been exceeding his monthly income. It was admitted by H that KCC had been giving financial assistance to him.

23.  According to H’s Answer to the 1^st Questionnaire, the financial assistance from KCC was said to be fringe benefits but not as loan. It was only afterwards that H changed the label to refer to the financial assistance from KCC as loans.

24.  As discussed in the Decision, despite all the alleged express concerns from KCC of H’s financial status, KCC nevertheless kept giving H financing assistance whether in the form of loans or otherwise. I was satisfied that KCC would keep providing financial assistance even assuming that what KCC gave H were loans.

25.  This is a case where there was enough evidence for me to make a finding on third party assistance even at the interlocutory stage.

26.  Apart from financial assistance from KCC, H admitted to have HK$15 million of securities subject to a pledge for an overdraft facility with the bank, even considering H owed the bank HK$5.65 million in the overdraft facility, H would still be accessible to over HK$9.35 million worth of liquid asset from overdraft facility.

27.  Adding the above HK$9.35 million worth of overdraft facility to H’s HK$5 million worth of securities, H had HK$14.35 million liquid assets at his disposal, that alone should be enough to cover W’s claim for litigation funding without the need to resort to KCC’s financial assistance.

28.  It is trite that financial assistance and ability to borrow could be considered as financial resources for maintenance pending suit and legal costs provision. (Jackson’s Matrimonial Finance (9^th edn.) at paragraph 3.92 and DX v LN (FCMC 7870/2014) at paras. 73-75).

29.  It is quite unrealistic for H who admittedly has assets worth of over HK$370 million to say that he does not have the ability to borrow whether from KCC or other sources.

30.  I find H’s challenges of my findings on his financial resources in Grounds 1, 2 and 3 to be unmeritorious.

Quantum and Period of Legal Costs Provision

31.  Mr. Chan submitted that legal costs should be based upon one properly estimated lump sum catered for up to FDR, the order should be payment of the lump sum in one go or by instalments and once the estimated amount is reached, the monthly payments would cease and would not continue.

32.  Mr. Chan argued that H’s estimates to be more reasonable when the parties had already spent HK$3.89 million by W and HK$3.6 million by H and it should take each party about HK$800,000 only to take the case to the FDR hearing.

33.  This is a claim of ancillary relief involving H’s assets worth at least HK$307 million. Considering the costs already incurred and costs expected to be incurred in future applications, Mr. Chan’s estimate of further costs to be incurred is over optimistic or simply unrealistic.

34.  I have already considered and accepted the estimated budget and breakdown on costs put forward by W in the Decision, what H now submitted on the question of quantum is just an attempt to re-argue the submissions made in W’s application.

35.  Mr. Chan submitted that it turned out that W was ordered to pay indemnity costs to the Third Party and there was no order as to costs between W and H in W’s specific discovery application referred to in W’s estimated budget on costs.

36.  This point could not assist H because W had applied and been granted leave to appeal against my decision in her said specific discovery application. Naturally, more costs could be expected to be incurred by W.

37.  Mr. Chan submitted that there would be little incentive for W now to have the FDR hearing promptly as the farther the FDR hearing is reached the more she would be paid.

38.  Mr. Chan was unable to refer to any evidence that W had caused delay. The little incentive allegation is no more than pure speculation.

39.  W had made it clear that she considered the assets of H to be worth over 3 times of his admitted assets of HK$370 million. It would be hard to imagine that W would want to delay the conclusion of the ancillary relief that could entitle her to a very substantial amount worth of award in return for a few more months of litigation funding.

40.  On the other hand, Ms. Yip, SC and Ms. Yu for W made a good point which I accept that every dollar paid by H for W’s litigation funding is going to W’s solicitors directly. Every dollar would be accounted for at the end of the ancillary relief. Even if there is overpayment, W’s solicitors would have to book that in the schedule of assets and liabilities as W’s costs on account.

41.  I adopted a broad brush approach in the Decision in making the order for litigation funding, adjustments for overpayment would be made at the end of the ancillary relief.

42.  I fail to see what merits H has in his challenges to the Decision on quantum and period of the order in Grounds 4, 5 and 6.

Legal Principles on Leave to Appeal

43.  According to section 63A(2) of the District Court Ordinance (Cap. 336), leave should not be given unless the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.

44.  A reasonable prospect of success means an appeal with prospects that are more than “fanciful” but which do not need to be shown to be “probable”. (KNM v HTF, HCMP 288/2011)

45.  Hon G Lam JA said in the Court of Appeal case in S v C [2021] HKCCA 1372, CAMP 243/2021 in paragraphs 6 and 7:

“6. ….The proper approach of the appellate court in an appeal from an order for MPS is well established by the authorities, as summarised by Judge A Tse in ALDL v FTFC [2020] HKFC 180 as follows:

“5. The granting of maintenance pending suit is a discretionary remedy. On appeal, the Court of Appeal will not exercise the discretion afresh. Instead, it will only interfere with the decision when the discretion was wrongly exercised, such as being contrary to the principle or the primary judge had wrongly taken into account irrelevant matters or ignored relevant matters [see MWY v HWM HCMP 120/2017, 16 May 2017; WW v LLN [2019] HKCCA 1278 at §§ 15-17.]

6. In CHWA v LNLAI [2019] HKCCA 1017 at § 3.1, the Court of Appeal, in refusing leave to appeal, stressed ‘the interim nature of [maintenance pending suit] which generally requires the Court to adopt a broad brush approach in deciding the amount to be awarded. It is also for a limited duration until the final resolution of the issue of financial relief of the parties. Inevitably there will be adjustment to the final order to be made in the event of overpayment or underpayment of [maintenance pending suit].’

7. The threshold for appealing against an order for maintenance pending suit is a high one. The court is inclined to leave factual questions of expenses and income for determination at the ancillary relief hearing. The Court of Appeal also stated that appeals against maintenance pending suit orders are ‘rare’ and the ‘powers of interference [of an appeal court] are strictly limited’: K v K [2011] 1 HKCC 66 at §§ 1, 3; Hewitt, Family Law and Practice in Hong Kong (3^rd ed. 2018), § 6.076.”

7. It is important to note that MPS is an interim measure, intended to be temporary, and subject to adjustments in the final orders to be made in the determination of ancillary relief. Overall fairness can be achieved at that point by giving credit and set-off if there is found to have been any overpayment or underpayment in the interim. In other words, an order for MPS does not finally determine the rights and obligations of the parties, and since it involves simply the payment of money, its effects may in general be redressed by monetary relief at the end. This explains why in relation to MPS the courts “take a broad view” of the parties’ finances rather than engage in any detailed investigation, adopt a “broad brush” approach, and seek to arrive at “rough and ready” conclusions (see Rayden and Jackson on Relationship Breakdown, Finances and Children at §11.78; HJFG v KCCY [2012] 1 HKLRD 95, §§32-38). Appeals should be rare and the parties should be encouraged instead to focus on, and bring about as early as practicable, the final resolution of their dispute. As has been said in Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887 at §30 (albeit not specifically with regard to MPS), even if the threshold of reasonable prospects is met, the court may nonetheless in its discretion refuse leave to appeal in the interests of procedural economy and proportionality. For my part, I consider that leave to appeal from MPS orders should generally not be granted unless there is some special reason why the matter cannot or should not be left to the ancillary relief stage such as serious hardship caused by the order to a party. I can see none here based on the admissible materials, and on this ground alone I would dismiss the application.”

Conclusion

46.  As discussed, I find that H’s 6 Grounds of Appeal to be unmeritorious. In my decision, H has no prospect of success in appeal.

47.  Even if the threshold of reasonable prospects is met, leave to appeal should still be refused in the interests of procedural economy and proportionality.

48.  I do not find that there is any special reason why the matter cannot or should not be left to the ancillary stage.

49.  In light of the foregoing, I dismiss H’s application for leave to appeal against the Decision.

50.  I hereby make the order that H’s summons filed on 25 August 2022 be dismissed.

51.  Costs should follow the event. I further make an order nisi that H do pay W costs of H’s Summons filed on 25 August 2022, with Certificate for 2 Counsel, to be taxed if not agreed.

Mr. Jeremy SK Chan instructed by Withers, Solicitors, for the Petitioner (H)

Ms. Anita Yip, SC and Ms. Lily Yu instructed by Chaine, Chow & Barbara Hung, Solicitors, for the Respondent (W)

FCMC 11432/2018

[2022] HKFC 221

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 11432 OF 2018

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DECISION

( Leave to Appeal )

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Background

1.  The Respondent (“the Wife”) sought leave to appeal against my decision (“the Decision”) made on 26 July 2022 dismissing her application for third-party discovery by the companies (“the Third Party”) that the Petitioner (“the Husband”) has interests in.

2.  In the Decision, I refused to accept the notes prepared by the expert of the Wife (“the Expert”) for non-compliance of O.38 r.37C of the Rules of High Court and found that the Wife had failed to demonstrate the necessity for seeking third-party discovery on most of the documents sought.

Draft Grounds of Appeal

3.  The Wife has 4 draft grounds of appeal.

4.  Ground 1 is that I erred in refusing to accept the Expert’s notes exhibited to the Wife’s affirmation by reason of non-compliance of O.38 r.37C of the Rules of High Court and argued that the evidence of the expert could have been admissible by reason of O.38 r.2(3) and r.36 and s.47(1) of Evidence Ordinance (Cap. 8). Alternatively, even if there was procedural irregularity, the proper approach was to nevertheless admit the expert’s evidence for the purpose of the interlocutory application.

5.  Ground 2 is that I erred in adopting an overly restrictive approach to assess “necessity” of the third-party discovery and the Husband and the Third Party should not be permitted to deny the necessity or what the expert deemed were necessary documents for the purpose of compiling his expert report for the Wife unless they could show that the specific discovery was clearly and plainly irrelevant or oppressive.

6.  Ground 3 is that I erred in misunderstanding and misreading the Expert’s evidence.

7.  Ground 4 concerns costs, the Wife argued that the Third Party should not be awarded costs when they acted unreasonably and strenuously argued against the third-party discovery application. As far as the Husband was concerned, the Wife argued that he failed to discharge his on-going full and frank disclosure obligation, costs should have been awarded against him.

Discussion

8.  S.63A(2) of District Court Ordinance (Cap. 336) provides that leave should not be given unless the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.

9.  It is trite that a reasonable prospect of success means an appeal with prospects that are more than “fanciful” but which do not need to be shown to be “probable”. (KNM v HTF, HCMP 288/2011)

10.  As I am unable to say the prospect of success of the Wife’s appeal is no more than fanciful, I will grant the Wife leave to appeal.

11.  By reason of the foregoing, I make the following orders:

(i)  Leave be granted to the Respondent to appeal against the Decision of Deputy District Judge R. Chow made on 26 July 2022 per the draft Notice of Appeal annexed to the Respondent’s Summons filed on 9 August 2022;

(ii)  Costs of the Respondent’s Summons filed on 9 August 2022 be in the cause of the appeal.

Withers, Solicitors, for the Petitioner (Husband)

Ms Anita Yip, SC and Ms Lily Yu instructed by Chaine, Chow & Barbara Hung, Solicitors, for the Respondent (Wife)

Deacons, Solicitors, for the Third Party

FCMC 11432/2018

[2022] HKFC 169

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 11432 OF 2018

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DECISION

( Litigation Funding )

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Introduction

1.  This is an application by the Respondent wife (“W”) to apply for litigation funding.

2.  The Petitioner husband (“H”) and W are both in their fifties and were married in 1995. H filed a petition for divorce on 5 September 2018, a Decree Nisi was granted on 11 July 2019. The marriage lasted 23 years. H and W have three children aged 23, 20 and 17 (“the Children”).

3.  An Order by consent with H’s undertakings was made on 30 November 2018 (“the Consent Order”), the main terms are essentially (1) H shall pay W her MPS at HK$120,000 per month; (2) H shall provide W (i) usage of credit cards for the expenses of W and the Children up to HK$30,000 per month and HK$60,000 per month respectively; (ii) the matrimonial home for W to live; (iii) travelling and overseas accommodation for W and the Children; (iv) the use of the current domestic helpers and driver; (v) the club facilities and (vi) Chinese medicine and consultation fees up to HK$90,000 per month for 12 months; and (3) H undertakes to pay school fees, tuition fees, school related expenses, living expenses (including pocket money) for the Children.

4.  The Husband was born into a wealthy family, his father passed away in 1980s and substantial wealth passed on to him and his siblings. The Husband admittedly had asset worth over $370 million according to his Form E filed on 14 May 2019.

5.  From the Husband’s Form E, he holds shareholdings in 18 private companies and 1 publicly listed company.

6.  W filed on 20 August 2021 a summons for litigation funding for H to pay her a monthly sum of HK$420,000 as litigation cost allowance to cover her legal costs until the end of the FDR or further order.

W’s Case

7.  It is an ultra-big money case, W has engaged Ms. Anita Yip, SC and Ms. Lily Yu as her counsel and Mr. Yuen as her forensic accountant.

8.  It is W’s case that she had about HK$3.2 million as costs incurred and billed up to the end of March 2021 for the matrimonial proceedings herein since H’s filing of the Petition on 5 September 2018. As of 29 September 2021, legal costs incurred already billed and paid amounted to HK$2,998,175 including costs for solicitors, counsel and accountants. W had not settled the outstanding legal fees in the sum of about $900,000 of which HK$240,000 had been billed and over HK$650,000 costs had not yet been billed.

9.  It is estimated that another HK$5.89 million would be incurred up to and the end of the FDR.

10.  Assuming it would take 14 months to the FDR, the monthly provision W would need should be about HK$420,000 per month.

11.  Most of the W’s cash funds were saved in her bank accounts, although there was a credit balance of HK$700,000 odd in her bank accounts, out of which over $200,00 were foreign currency which she would need to keep for use when she has to travel to the UK or USA to visit the Children.

12.  W has always been financial dependent on H even after the Petitioner, she would be unable to afford the legal costs.

13.  On the other hand, H’s ability to pay should not be an issue as he had nearly HK$20 million worth of stocks in his securities account as shown in his Form E filed on 14 May 2019.

14.  In order to save costs of this application, W instructed her solicitors to request H to pay her a sum of HK$5 million or alternatively HK$420,000 per monthly but was declined.

15.  So far, apart from the present application, there had been 3 summons taken out including W’s Summons for variation of MPS, W’s application for discovery and third party discovery and H’s application for discharge of undertaking.

16.  Further to the outstanding costs due to solicitors and forensic accountant in the sum of approximately HK$600,000, the brief breakdown of the estimated costs up to FDR by W’s solicitors is as follows:

Work	Estimate of Costs
General Handling
Solicitors	500,000
Counsel fees	300,000
Duxbury-calculation related costs
Solicitors	500,000
Counsel fees	300,000
Forensic Accountant’s Fees	200,000
Companies’ Valuation Summons, Discovery and Third Party Discovery applications
Solicitors	250,000
Counsel Fees	400,000
Forensic Accountant	1,000,000
Litigation Funding
Solicitors	300,000
Counsel Fees	540,000
FDR Hearing
Solicitors	500,000
Counsel Fees	500,000

H’s Case

17.  H’s financial circumstances had been deteriorating to the extent of not being able to sustain in the long run.

18.  H was paying HK$480,000 per month to W and the Children as per the Consent Order. When H filed his Form E on 14 May 2019, he had assets of about HK$370 million of which he had liquid assets of about HK$1.96 million (comprising of cash of HK$2.2 million and non-pledged stocks of HK$4.16 million).

19.  H’s monthly income was about HK$413,000 with reimbursement of director’s expenses of about HK$50,000 per month.

20.  His net assets are about HK$358 million with the bulk of his assets being company shares which are not tradeable due to the restrictions against transfer to non-family members.

21.  H had been relying on overdrafts from his family company [KC] & Co Ltd (“KC”).

22.  In order to deal with W’s ever increasing expenses and applications in court, H had to increase his overdrafts and borrow further from KC. The overdraft in his bank account as at 28 September 2018 was -HK$1,878,926.17. But his current overdraft had gone beyond HK$5,65 million by 31 August 2021.

23.  H’s debts owed to KC was HK$633,000 as at 28 September 2018 and HK$330,000 as at 23 February 2019 according to his Form E filed on 14 May 2019. His debts owed to KC was HK$633,000 as at 3 September 2021 amounted to more than HK$11,343,000.

24.  KC had expressed concern as early as on 30 March 2020 that his accumulative and increasing loans. KC by a letter informed H that he owned them HK$1,363,000 on 30 March 2020.

25.  On 21 December 2020, KC informed H that his outstanding loans amounted to HK$6,493,000 and he was requested to settle his loan.

26.  On 10 September 2021, KC by letter expressed concerns on the long outstanding loans amounting to HK$11.34 million, and asked him to provide repayment solutions.

27.  The loans owed to KC had almost been increased by 10 times in the preceding 18 months as of 29 September 2021.

28.  KC had been exerting enormous pressure on H to repay and/or reduce the existing loans. H was not optimistic that further loans be advanced to him.

29.  While H had HK$307 million, they are not cash readily available to H.

30.  H would have difficulties to sell all his shares as they are family holding meant to be passed on the next generation. H could not sell his shares in the 2 private companies KC and [H] Limited (“HL”) as any transfer of shares are subject to restrictions and non-transferable to non-family members and had to be approved by the board of directors.

31.  H had to sell his personal assets to help fund W’s lavish spendings. H sold a property on Pokfield Road for HK$8.3 million in March 2017 to help pay off the huge debts incurred by W in October 2016.

32.  Further, the costs estimated by W are unreasonably high and excessive.

Legal Principles

33.  The Court has power to order MPS including or legal costs provision in accordance with section 3 of the Matrimonial Proceedings and Property Ordinance, Cap 192.

34.  It should be noted that Wilson LJ stated the following in Currey v Currey (No 2) [2007] 1 FLR 946:-

“In my view the initial, overarching inquiry is into whether the applicant for a costs allowance can demonstrate that she cannot reasonably procure legal advice and representation by any other means. Thus, to the extent that she has assets, the applicant has to demonstrate that they cannot reasonably be deployed, whether directly or as the means of raising a loan, in funding legal services. Furthermore, not to forget the third of Thorpe LJ’s three features, she has also to demonstrate that she cannot reasonably procure legal services by the offer of a charge upon ultimate capital recovery. I would add, fourthly, that the court needs also to be satisfied that there is no such public funding available to the applicant as would furnish her with legal advice and representation at a level of expertise apt to the proceedings, ie that the applicant does indeed in that regard fall within the unserved constituency…”

35.  Currey was endorsed by Cheung JA and Hartman JA in HJFG v KCY [2012] 1 HKLRD 95.

Issues

36.  As an applicant, W would have to demonstrate that she cannot reasonably procure legal advice and representation by any other means and her asset cannot reasonably be deployed, whether directly or as the means of raising a loan, in funding legal services.

37.  W had already incurred close to HK$4 million in legal costs. While W has HK$700,000 cash in bank accounts, it is quite apparent that that fund would not have been sufficient to support this level of legal costs in the future up to the FDR hearing.

38.  Although W had been receiving MPS from H, her monthly expenses amounted to about HK$480,000 per month without taking into account of legal costs. There is no allegation from H that the MPS by consent was agreed to cover her legal costs.

39.  I am of the view that there is no obligation that W should cut down on her expenses to save for legal costs. I do not think it would assist much in financing her legal costs even if she could still have some savings left from her MPS in any event.

40.  Mr. Chan for H made submissions by reference to the Husband’s ability to pay and reasonableness of the amount of litigation funding claimed, it was not argued that W could afford her legal costs.

41.  In my view, the 2 issues in this hearing are H’s ability to pay and the reasonable amount to be ordered.

H’s Ability to Pay

42.  Mr. Chan submitted that the family was living far far beyond their means. The level of spending, including legal fees, was simply disproportionate and unsustainable and H was desperately staying afloat by incurring massive liabilities. H’s borrowing ability was not infinite and there were few avenues left for him. H’s creditors (in particular KCC) was expressing concern. H’s assets were mostly in the shareholdings in private companies with restrictive covenants against transfer to non-family members, these were not liquid assets for the purposes of MPS or this application.

43.  H updated his financial positions since his Form E filed on 14 September 2019 that his bank overdraft position was –HK$1.878 million in September 2018, –HK$2.2 million in May 2019 and –HK$5.65 million as at 31 August 2021.

44.  Ms. Yip for W submitted that H’s asset was substantially understated in his Form E.

45.  H reported to have over HK$370 million worth of assets. According to H’s Form E, he directly owns 0.0444% shareholding in [TSLD] Limited (“TSL”) which was worth HK$3,475,553.

46.  Ms. Yip said H actually beneficially owned 13.26% of TSL directly and indirectly via his shareholding in KCC and HL. By calculation, when 0.0444% was admittedly worth HK$3,475,533, 13.26% of the shareholding should become HK$1,037,969,207. In other words, simply looking at the value of H’s total beneficial interest in the shareholding in TSL, H’s total asset should be over 3 times as he stated in his Form E.

47.  There were other instances of material non-disclosure by H in relation to Children’s accommodation expenses abroad, charitable donations, monthly spending and undisclosed director’s emoluments, there were further loans not reported in H’s Form E but in his Answer to 2^nd Questionnaire and undisclosed loan owed to H in his Answer to 1^st Questionnaire.

48.  In my view, these allegations of non-disclosure have not been relied upon in W’s affidavits in support of this application. It would not be fair for this Court to rule on these allegations without affording H an opportunity to respond.

49.  Ms. Yip drew to this Court’s attention that H reported to have a close to HK$20 million security portfolio placed in various securities accounts.

50.  H claimed that HK$15 million of such securities were subject to a pledge for an overdraft facility with the bank, that would mean H would be accessible to HK$15 million liquid asset from the overdraft facility. As H claimed that he owed the bank only HK$5.65 million in the overdraft facility by 31 August 2021, that would still leave H with over HK$9.35 million worth of overdraft facility.

51.  Ms. Yip stated that therefore H had ready cash of HK$9.35 million and HK$5 million worth of securities. H had HK$14.35 million liquid assets at his disposal which should be enough to cover W’s claim for litigation funding herein.

52.  Further, Ms. Yip disagreed that the loans from KCC were really loans.

53.  H’s reported income was HK$413,166 plus HK$50,000 director’s fee or household allowance from KCC, totaling HK$463,166 per month. However, H’s expenses were close to HK$1.2 million per month HK$570,000 out of which were for W and the Children.

54.  According to H’s Answer to the Answer to the 1^st Questionnaire, the exceeded amount of about HK$720,000 per month was said to be covered by TSL and KCC as fringe benefits in his Answer to the 1^st Questionnaire. No loan had been mentioned. It was only afterwards that H changed the label to say that he owed KCC loans.

55.  In any event, ability to raise loan is considered financial resources. (Jackson’s Matrimonial Finance (9^th edn.) at para. 3.92).

56.  Whether the funding from KCC ought to be regarded as loans ought to be dealt with only when parties have been afforded opportunities to address the matter by way of evidence.

57.  However, even if I consider the funding from KCC to be loans, I am of the view that despite all the express concerns from KCC about H’s ongoing financial liabilities, all was just a gesture.  

58.  In my view, KCC is a family company of H, it is so closely connected to H to the extent that it would keep financing H despite all the express concerns about H’s inability to repay.

59.  It is clear that despite all the express concerns, KCC nevertheless kept giving H financing assistance in the form of loans or otherwise. Even assuming that what KCC gave H were loans, I am still satisfied that KCC would keep providing such loans.

60.  I find that H has the ability to give W litigation funding without the need to tap into his asset, H’s liquid assets worth HK$14.35 million as mentioned and his ability to borrow from KCC are enough already.

Reasonable Amount to be Ordered

61.  Mr. Chan submitted that the estimated costs by W was disproportionate and unreasonably high. Being rich or having money does not mean that costs would become not an issue, applications would still have to be proportionate and reasonably necessary to take the case to the FDR.

62.  Mr. Chan argued that W’s budget was ludicrous and should not be allowed without the Court’s sanction.

63.  Ms. Yip submitted that the Court should not be functioning as a taxing master and it was not a court’s function to sanction a party’s budget.

64.  Ms. Yip submitted that HJFG v KCY [2012] 1 HKLRD 95 encouraged, in a big money case, parties should consider making a capital pre-advancement to the payee so that the costs and time for interlocutory applications for interim maintenance could be saved. It was H who refused to accept W’s proposal.

65.  Ms. Yip further argued that it would be unfair for W’s budget to be sanctioned because in these circumstances, only W’s budget would be sanctioned but not H’s budget when W was dependent on H’s financial aid.

66.  I agree with Ms. Yip. Looking at the authorities, litigation funding allowance is an item of maintenance pending suit. (KGL v CKY & Anotr [2003] 2 HKC 512, para 12). The sole criterion to be applied in determining the application is reasonableness or fairness.

67.  Mr. Chan submitted that it was W’s litigation strategy that had caused the effect of inflating expenses and legal costs.

68.  Ms. Yip disagreed and submitted that it was H who did not behave reasonably in the litigation to avoid unnecessary costs.

69.  H’s case is that general handling should not cost as much. As for work related to Duxbury calculation and H’s asset valuation, no heavy work should be involved by counsel and solicitors.

70.  However, I accept W’s case that both Form Es are out of date and require updating and solicitors and counsel have to understand the figures before they could prepare their arguments.

71.  As for interlocutory applications that may be made by parties, my view is that it would not always be easy to pre-assess the need and merits of such applications.

72.  H admitted to have assets of over HK$370 million. The family spent over HK$1.2 million per month including allowance to W and the Children. I am satisfied that this is a big money case.

73.  In big money cases, it is quite often that higher costs would be incurred. Not only because parties can afford higher legal costs, very often any difference in parties’ view over a matter or an item could mean a significant difference in value of the matter or item perceived by the parties and that could make litigation worth the costs.

74.  Ms. Yip referred to HJFC that although no breakdown was provided by W, the court still granted HK$500,000 per month to W as legal costs provision because it was a big money case.

75.  In the present case, I accept that W had given sufficiently detailed budget and breakdown of the legal costs.

76.  In this case, H had incurred costs of HK$3.6 million up to 25 August 2021 since the filing of the Petitioner. W’s costs were about HK$3.89 million up to 20 August 2021.

77.  Parties had incurred substantial legal costs at comparable level. It could be difficult for H to say that W’s legal costs should not be maintained at a consistently high level.

78.  I am of the view that substantial costs would be inevitable before approaching the FDR as parties apparently have very strong differences in their views over the value of H’s assets to say the least.

79.  I have considered the budget and estimate of W’s legal costs, by taking a broad brush approach, I accept the figures put forward by W to be reasonable.

80.  In assessing the ancillary relief, the court will have to follow the approach laid down in LKW v DD (2010) HKCFAR 537 by the Court of Final Appeal.

81.  Any over payments in legal costs provisions could be adjusted from W’s award at the final ancillary relief.

82.  W revised her request of litigation funding by letter dated 20 December 2021 to H to a total of HK$6.54 million in light of H’s application for discharge of his undertaking filed on 23 November 2021.

83.  I am not convinced that this is the proper way to seek a higher amount without amending the present Summons. I therefore would not consider the revised amount requested by W by the said letter.

84.  While I generally find the W’s budget of HK$5.89 million to be reasonable, I reckon it could take longer time for this case to reach the FDR hearing, I therefore would allow the sum of HK$350,000 per month.

Conclusion

85.  Costs should follow the event, W is considered the successful party and she should be entitled to costs of this application.

86.  In light of the foregoing, I make the order as follows:

1.  H do pay W a monthly sum of HK$350,000 as litigation costs allowance to cover W’s legal costs from 20 August 2021 until the end of the FDR hearing or further order;

2.  The first aforesaid monthly payment shall be paid by H to W on or before 20 August 2022 and thereafter on or before the 20^th day of each month;

3.  H shall pay W the sum of HK$4,200,000 as the aforesaid monthly payments between 20 August 2021 and 19 August 2022 within 28 days from the date of this Decision;

4.  There be an order nisi that H do pay W costs of W’s Summons filed on 20 August 2021, with Certificate for 2 Counsel, to be taxed if not agreed.

Mr. Jeremy SK Chan instructed by Withers, Solicitors, for the Petitioner (H)

Ms. Anita Yip, SC and Ms. Lily Yu instructed by Chaine, Chow & Barbara Hung, Solicitors, for the Respondent (W)

FCMC 11432/2018

[2022] HKFC 147

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 11432 OF 2018

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DECISION

( Third-Party Discovery )

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INTRODUCTION

1.  This is an application by the Respondent (“the Wife”) for third-party discovery by the companies that the Petitioner (“the Husband”) has interests in.

2.  An expert (“the Expert”) has been appointed for the Wife for evaluation of the Husband’s assets.

3.  In order for the Expert to prepare his report, the Husband was requested to disclose financial documents from 2 private companies, namely [KC] & Company Limited (“KC”) and [H] Limited (“H”) and 1 publicly listed company, [TSLD] Limited (“TSLD”) in which he holds interests (collectively “the Companies”).

4.  The Husband claimed that the Companies had refused to release all such documents to him for reason of confidentiality and necessity.

5.  The Wife therefore took out an application for an order for the Husband and the Companies’ production of such documents.

6.  After the Husband has produced part of the documents requested, the Wife now seeks disclosure against only the Companies for the remaining requested documents.

BACKGROUND

7.  The Husband and the Wife were married in 1995 and they gave birth to 3 children.

8.  In 2018, the Husband petitioned for divorce, a Decree Nisi was granted on 11 July 2019.  The marriage lasted 23 years.

9.  The Husband was born into a wealthy family, his father passed away in 1980s and substantial wealth passed on to him and his siblings. The Husband admittedly had asset worth over $370 million according to his Form E filed on 14 May 2019.

10.  From the Husband’s Form E, he holds shareholdings in 18 private companies and 1 publicly listed company.

11.  The Husband holds 25% of shares in KC and 26.28% of shares in H. His shareholdings in KC and H were worth $304,071,121.18 and $21,777,754.81 as at 31 March 2018.

12.  The Husband is only a minority shareholder of KC and H. He is one of 13 and 12 shareholders of KC and H respectively and one of 7 and 6 directors on their respective boards.

13.  In addition, the Husband holds 0.0444% shares of TSLD value of which was reported to be worth $3,475,553 in his Form E.

14.  The shareholdings in KC, H and TSLD constitute the most valuable assets of the Husband.

15.  The Wife considered the asset of the Husband in the Companies to be undervalued.

16.  The Wife invited the Husband to consider appointing a single joint expert for an expert report on valuation of the Husband’s assets, he had no objection to the valuation by an expert appointed by the Wife but rejected the proposal of appointing a single joint expert.

17.  The Husband later changed his stance and claimed that there was no need for valuation as the shares in KC and H could not be sold to third parties and value of TSLD could refer to its closing price on the stock exchange.

18.  By Summons filed on 14 December 2020, the Wife applied for an appointment of the Expert for preparation of expert reports on value of the Husband’s interests in the Companies and for the Husband to provide certain documents.

19.  Without objection, the Expert was appointed by the Order made on 23 December 2020 to prepare expert reports on the fair market value of the Husband’s beneficial interests (including direct and indirect shareholdings) in respect of KC, H and TSLD as at 31 December 2020.

20.  On 23 December 2020, parties agreed that the Expert be appointed and valuation reports be prepared by him. The question of whether the documents requested by the Experts ought to be produced remained in dispute.

21.  After the Husband had filed evidence stating that the Companies rejected his requests for financial information to be produced to him as requested by the Wife.

22.  The Wife applied on 31 March 2021 to amend her Summons filed on 14 December 2020 to additionally seek third party discovery against the Companies.

23.  By consent, leave was given on 26 April 2021 for the Wife’s said Summons to be amended and leave be granted for the Amended Summons to be served on the Companies. The Wife’s Summons was amended on 5 May 2021.

24.  Directions were given on 23 September 2021 for the Wife’s Amended Summons to be dealt with by way of paper disposal and the Wife, the Husband and the Companies were directed to file their evidence and lodge their submissions accordingly.

25.  By Consent Summons filed on 16 December 2021, leave was granted for the Wife to re-amend her Summons on 23 December 2021. The Wife’s re-amended her Summons on 24 December 2021.

26.  The Husband had since the Wife’ Summons further produced documents except those objected by the Companies.

27.  So far, the Husband has produced Organisation Charts of Companies as of 31 March 2021, the audited financial statements of KC and H for the year ended 31 March 2021 and annual reports of TSLD for the year ended 31 December 2020 covered by the Wife’s Re-Amended Summons.

28.  Ms Yip, SC leading Ms Yu for the Wife had confirmed in their written submissions that there is no outstanding issue between the Husband and the Wife as regards the Re-Amended Summons.

29.  As the matter now stands, dispute remains only between the Companies and the Wife for those documents not yet produced under the Re-Amended Summons as follows (“the Requested Documents”):

(a)  Detailed breakdown of liabilities and detailed breakdown of outstanding borrowings of KC, H and TSLD respectively as at 31 March 2021 as well as documents to support the existence of each of the aforesaid liabilities and borrowings;

(b)  Detailed breakdown of non-current assets including but not limited to property, plant and equipment, leasehold land, investment properties, overseas freehold land and building and available-for-sale financial assets of each of the Companies as at 31 March 2021 and, if any, valuation report(s) on fair market value basis of each item that falls within any of the aforesaid non-current assets owned by the Companies as at 31 March 2021;

(c)  List of inventories of KC as at 31 March 2021;

(d)  The management accounts and/or audited financial statements for the last three consecutive fiscal years of each and every associated companies of KC, and each and every companies that KC has less than 20% voting powers therein for a period of three fiscal years before 31 March 2021, including but not limited to [CCICL] and [KHCL];

(e)  The management accounts and/or audited financial statements for the last three consecutive fiscal years of each and every associate companies of H, and each and every companies that H has less than 20% voting powers therein for a period of three fiscal years before 31 March 2021;

(f)  The management accounts and/or audited financial statements for the last three consecutive fiscal years of each and every associate companies of TSLD and each and every companies that TSLD has less than 20% voting powers therein during a period of three fiscal years before 31 March 2021, including but not limited to [TYVL], [TYVIIL] and [YCIL].

30.  Despite directions allowing the Husband to lodge written submissions in respect of the Wife’s application against the Companies, the Husband has not done so.

31.  The Wife relied on the 2 notes prepared by the Expert and was so advised that the estimated value of the Husband’s asset in his Form E did not truly reflect the true value of his beneficial interests in the Companies and it was highly likely that the Husband’s estimates were substantially lower than the fair market value.

32.  The Wife believed that the Requested Documents were necessary to ascertain the total matrimonial pot for a fair disposal of the disputes between the Husband and herself.

33.  The Companies are represented by Ms Lam, SC. It is the Companies’ case that the third party discovery are not necessary. The Companies do not argue that the discovery is not necessary, it is production of the Requested Documents that is not necessary. Further, the Requested Documents are their confidential information.

LEGAL PRINCIPLES

34.  Rule 3 of Matrimonial Causes Rules (Cap.179A) provides that the Rules of the High Court (Cap. 4A) shall apply to the practice and procedure in matrimonial proceedings with the necessary modifications.

35.  Non-party discovery is governed by Order 24 Rules 7A and 8 of the Rules of High Court.

36.  In essence, an applicant must show that that the documents are relevant to an issue arising or likely to arise in the proceedings and that the person against whom the order is sought is likely to have or have had them in his possession, custody or power. (O.24 r.7A(3))

37.  No order for the disclosure of documents shall be made unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

38.  Ms Yip, SC helpfully summarised the applicable legal principles which I accept:

(1)  It is trite that a party seeking an order for discovery must make out a prima facie case that:-

(a)  a specified document or class of documents exists;

(b)  the party against whom the order is sought has or had the documents in his possession, custody or power

(c)  the documents relate to a matter in question in the action; and

(d)  discovery is necessary either for disposing fairly of the cause or matter or for saving costs.

(2)  For the purpose of discovery, a prima facie case may be based on the probability arising from the surrounding Circumstances are you part on the specific facts deposed to.

(3)   The burden is on the party seeking discovery to prove existence of the document, the other party's possession, custody or power over the document and relevance.

(4)   On the issue of relevance the Peruvian Guano test is the law - a document is relevant if “…it is reasonable to suppose, contains information which may - not which must - either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary…if it is a document which may fairly lead him to a train of inquiry, which may have either of these two consequences.”

(5)   Once a prima facie case is made out, the court has discretion to order disclosure. It is for the party resisting discovery to satisfy the court that discovery is not necessary for disposing fairly of the cause or matter or for saving costs.

See Hong Kong Civil Procedure 2021 (Vol.1)

§24/7/1 to §24/7/3; §24/7A/1 to §24/7/8

EXISTENCE OF TSLD DOCUMENTS

39.  Ms Lam, SC made a preliminary point that the Requested Documents related to TSLD did not exist as TSLD’s financial year cut-off date was 31 December 2020 and not 31 March 2021. Hence, any such documents referable to 31 March 2021 were not in existence.

40.  If the Wife were to ask for TSLD’s audited financial statements as at 31 March 2021, TSLD naturally could not produce it due to the financial year cut-off date but she is not.

41.  The Requested Documents concerning TSLD that the Wife is seeking relate to breakdown of liabilities and non-current assets as well as management accounts and/or audited financial statements of TSLD’s associate companies for the last three fiscal years before 31 March 2021.

42.  The Companies did not in evidence deny being in possession of the Requested Documents related to TSLD, the evidence of the Companies was that such documents were not readily available as they were all related to the specific cut-off date of 31 March 2021.

43.  I agree with Ms Yip, SC that the Requested Documents related to TSLD are obviously available but just require a proper compilation. Consequently, an order could be made for the production thereof.

COMPANIES’ OBJECTION TO DISCLOSE

44.  Ms Lam, SC relied on B v B (Matrimonial Proceedings: Discovery) [1978] 3 WLR 624 for the law on discovery and production of company documents in ancillary relief applications and made the following points:

(1)  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.

(2)  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.

(3)  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.

(4)  In exercising its discretion, the court will have regard to all the circumstances. Specifically, the court will balance the relevance and importance of the documents and the hardship likely to be caused to the party seeking production by non-production against nay prejudice to the party against whom production is sought and third parties likely to be caused by production.

(5)  Crucially, it has not 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 power of the court. The court will not in exercise of its discretion order parties to do that which they have no power to do. Nor will the court order production unless it is satisfied that production is necessary either for disposing fairly of the issues between the parties or for saving costs.

45.  Ms Lam, SC submitted that given the objections by affirmations of the directors of the Companies, this Court should not order production of the Companies’ documents and there was no evidence that the Companies contrived with the Husband in making the objection.

46.  Ms Yip, SC pointed out B v B (supra) was a case where a husband opposed to the production of company’s documents that were not in his possession, custody or power because the company refused to allow disclosure. Hence, it was a case concerning the discovery by a party but not a non-party and is therefore not applicable in the present case.

47.  I agree with Ms Yip, SC.

48.  Now the present application is against the Companies, the objection by the Companies of the Husband’s production of documents has become a non-issue, the test that applies now should be the usual test of existence, relevance, and necessity for third party discovery.

CONFIDIENTIALITY

49.  It is the Companies’ case that the discovery sought by the Wife would necessitate the divulgence of confidential and price-sensitive information privy to the Companies, the disclosure of which has potentially far-reaching and detrimental ramifications, further titles the balance against order disclosure.

50.  Ms Lam, SC submitted that the court may in its discretion refuse to order the disclosure of confidential documents although confidentiality alone affords no ground for refusing production.

51.  Ms Lam, SC further submitted that the concern over disclosure of confidential and price-sensitive information has particular salience as regards production sought against TSLD, not least because TSLD is a listed company which is subject to stringent rules on disclosure. Disclose of information could lead to prosecution against TSLD of insider dealing offence.

52.  Ms Yip, SC replied that there was no factual basis or evidence that TSLD could be considered leaking insider information when the disclosure is made pursuant to a court order.

53.  Ms Yip argued that the matrimonial proceedings are held in camera and confidential in nature and the Wife would be subject to an implied undertaking to confidentiality. In any event, the Wife has offered an express undertaking to confidentiality.

54.  Ms Lam, SC argued that even if the Wife has offered to give an express undertaking as to confidentiality, there remains an unquantifiable risk that any such information, once disclosed, could leak to a non-party who is not subject to any undertaking.

55.  Further, Ms Yip, SC relied on the case of Distillers Co v Times Newspapers [1975] QB 613 at 621D per Tablot J. that the protection of implied undertaking as to confidentiality and not to collateral use documents extend to “anyone into whose hands the documents may come”.

56.  I accept Ms Yip, SC’s submissions. The express and/or implied undertaking by the Wife and anyone who would be in touch with the information ought to be enough to address the Companies’ concern of confidentiality. I therefore am not with the Companies on the question of confidentiality.

NECESSITY

57.  Ms Yip, SC submitted that both relevance and necessity of the Requested Documents should not be an issue anymore. As the appointment of the Expert has been ordered, it would not be open for the Companies as non-parties to dispute whether the Requested Documents sought by the Expert are relevant and necessary. If the outcome or process of valuation by the Expert is to be disputed, it would have to be challenged by the Husband later by evidence or otherwise.

58.  Ms Yip, SC further submitted that the Companies have no standing to comment on the issue in the family proceedings. The Companies should just behave like most of the third parties who remain neutral without actively participating in disputing such application.

59.  While the Companies are not parties to the matrimonial proceedings, my view is that they already have all the necessary information to resist this application. The Companies certainly have the standing to oppose this application when the application is made against them.

60.  I share Ms Lam, SC’s view that the necessity of valuing the Husband’s interest in the Companies should not be conflated with the necessity of producing the Requested Documents to enable the valuation to be carried out.

61.  Given the quasi-inquisitorial role of the Family Court, even though the Husband has dropped out of the picture, the evidence already put in by the Husband would still have to be considered by this Court.

62.  In Global Gaming Philippines LLC v Deutsche Bank AG, Hong Kong Branch & Anor [2019] HKCFI 405, Hon Lisa Wong J stated the following:

“39. Non-party discovery is granted by the discretionary exercise of the power vested in the court by s 42 of the HCO and Order 24 rule 7A(2) of the RHC and there is no existing ‘right’ or ‘entitlement’ to such discovery vested in a plaintiff: per Bharwaney J in Chan Yim Wah Wallace v New World First Ferry Services Limited [2015] 3 HKC 382 at [18].

40. Such exercise of discretion involves the conventional considerations of ‘existence, relevance and necessity’ under Order 24 rules 7A and 8(2) as well as a balancing exercise of the need for disclosure in the interest of the administration of justice to ensure a fair trial on full evidence and applicable countervailing factors: see again Chan Yim Wah Wallace[5] at [19].

41. So at the first stage, the usual criteria of existence, possession custody or power, relevance and necessity apply equally to discovery from a non-party.

42. The Peruvian Guano test[6] applies to determine whether the documents sought from the non-party are relevant to an issue arising out of the claim that has been made: per To J in Tullett Prebon (Hong Kong) Limited v Chan Yeung Fong Nick, HCA 219/2009, unreported, 9 June 2011 at [74] and [76].

43. Nevertheless, the need to ensure reasonable proportionality and procedural economy in the conduct of proceedings under Order 1A may inhibit the court from granting non-party discovery under s 42 and Order 24 rule 7A(2) for background or ‘chain of inquiry’ documents: Chan Yim Wah Wallace at [20] and [53].

44. When what is sought is a class of documents, each document of the class must be relevant in the Peruvian Guano sense. The court has power to order a non-party to disclose relevant documents which meet the Peruvian Guano test but has no power to order disclosure of documents that do not. This principle cannot be circumvented by including the relevant documents in a class which also includes documents which do not meet the Peruvian Guano test. See Tullett Prebon (Hong Kong) Limited at [81]-[84], where To J adopted what Chadwick LJ said in Three Rivers District Council v Bank of England (No 4) [2003] 1 WLR 210 (CA) at [34]-[38].

45. Fishing expedition with a view to hunting around the documents in the hope that they will reveal some improprieties on the part of the opposite party or will provide information for the applicant to pursue more inquires is not permitted. See Ngan In Leng v Chu Yuet Wah (No 1) [2013] 1 HKLRD 717, per Deputy Judge Queeny Au-Yeung (as her Ladyship then was) at [26] and [62(5)].

46. The court must also consider whether disclosure is necessary in order to dispose fairly of the claim or to save costs. The following considerations are relevant: (1) how important is the information to the issues; (2) has the applicant taken appropriate steps to obtain the information within the proceedings before seeking discovery from the third party; (3) would it be sufficient to draw adverse inferences on the basis that the party from whom the information was sought within the proceedings has failed to supply the information; (4) what is the nature of the relationship, if any, between the parties to the proceedings and the third party; and (5) if disclosure is necessary and proportionate, will the editing of documents protect private information? See Tullett Prebon (Hong Kong) Limited at [85] at which To J adopted, for the purposes of considering whether to exercise his discretion to order non-party disclosure, Hartmann JA’s approach in SMSE v KL (No 2), HCMC 2/2006, unreported, at [63] in the context of an application to set aside a subpoena duces tecum.

47. The condition of necessity requires the court to focus on the necessity of the third party being required to make discovery. A third party should not be ordered to make discovery if it is not necessary to do so, e.g. where the information can be obtained from within the proceedings or other sources: Chan Yim Wah Wallace v New World First Ferry Services Limited at [55].

48. If there is no other route to obtain the relevant and necessary information, the court must in the third and final stage proceed to balance the different interests: Chan Yim Wah Wallace v New World First Ferry Services Limited at [60].

49. The third party’s right to privilege is preserved by Order 24 rule 7A(6).”

63.  In particular, I refer to paragraph 46 of Global Gaming Philippines LLC v Deutsche Bank AG. When dealing with the question of necessity, the first thing to consider is the importance of the information sought. It follows that the consideration of necessity should not confine to just the need for an application for non-party discovery but also the need for the discovery of the information requested.

64.  Ms Lam, SC should be entitled to argue that production of the Requested Documents was wholly unnecessary for the fair disposal of the proceedings or saving costs.

65.  Ms Lam, SC commented that Ms Yip, SC had failed to demonstrate to the Court with reference to each category of documents why there were necessary and ought to be disclosed.

66.  Ms Yip, SC disagreed and argued it was for the Expert to comment on what documents were considered necessary to complete the task of valuing the Companies. The Wife already produced the notes prepared by the Expert on the documents required, she just did not repeat what the Expert had stated in submissions.

67.  This application is for specific discovery, I agree with Ms Lam, SC that the Wife has to be specific about the class of documents requested and demonstrate why each category of documents is necessary.

68.  For that, the Wife relies on the notes of the Expert.

69.  I consider it a matter of style of submissions as to whether further elaboration based on the Expert’s comments is to be made.

70.  Ms Lam, SC submitted that the Requested Documents are not necessary and relied on B v B (supra) at 633H-634A that “In many, perhaps most cases, audited accounts of companies of which the party against whom discovery is sought is a shareholder will be sufficient, together with full disclosure of that party’s personal financial records. Whilst there are cases where the court will behind company accounts and order discovery of company books and documents if it has the power within the law and the rules to do so, it is not usual for the court to take this course unless there is evidence before it from accountants or other experts that the published accounts of the company cannot be relied upon;”

71.  Ms Lam, SC submitted that the audited financial statements of the Companies already disclosed to the Wife should be sufficient and the Court should be realistic with broad assessment without precise valuation.

72.  As for TSLD, Ms Lam, SC argued that as a listed company, all its audited financial statements as contained in its annual reports are publicly available information, the price of TSLD’s shares that reflect the market value of TSLD is also easily ascertainable from the latest closing price of TSLD quoted on the Hong Kong Stock Exchange.

73.  Further, the audited financial statements of the Companies had all been audited by independent qualified accountants who had issued unqualified opinions confirming that these statements gave a true and fair view of the financial position of KC and H in accordance with professional accounting standards and statutory requirements.

74.  As a listed company, TSLD would be subject to stringent audit and accounting requirements as set out under the Listing Rules and relevant legislation.

75.  There should be no reason why the Wife cannot rely on the audited financial statements of the Companies for valuation of the Husband’s interest in the Companies.

76.  Further, KC and H are closely-held private companies with significant restrictions on transferability. There should be no ready market for the sale of the shares in KC and H and shares could not be transferred to outsiders. Accordingly, their marketability of their respective shares would be restricted and minute valuation exercises would be academic and costs-wasting. A broad-brush approach should best accord with the O.1A underlying objectives and the broad justice of the case.

77.  Given the extremely small direct shareholding by the Husband of TSDL, a complex valuation exercise of the market value of TSLD would be disproportionate and antithetical to the underlying objectives under O.1A. The far more obvious and commercial realistic conclusion is that his shareholding value must be referable to the latest closing price, a figure which is readily obtainable in public.

78.  Further, the fair market value of the Companies could be straightforwardly assessed or approximated on the basis of their net asset value as reflected in the Companies’ audited financial statements already provided.

79.  Ms Lam’s arguments are essentially in line with the evidence of the Husband’s accountant who was of the view that there should be no need for valuation of the Companies.

80.  Ms Yip, SC’s short answer to Ms Lam, SC’s reference to B v B (supra) is that there is evidence that from the Expert that the audited financial reports could not be relied upon.

81.  The Expert and the Husband’s accountant held opposite opinions on the question of necessity for valuation.

82.  It is not in dispute that there are restrictions over KC and H for the sale and transfer of shares thereof to anyone outside the Husband’s family.

83.  It was the contention of the Husband’s accountant that since KC and H could not be sold to outsiders, there should be existing market for valuation purposes.

84.  The Expert disagreed with the Husband’s accountant’s suggestion that there was no market for KC and H for valuation, he considered the family members of the Husband to be available market.

85.  The Expert and the Husband’s accountant also had different opinions as to whether the closing price of TSLD ought to be used for valuation thereof.

86.  I am of the view that this is not the time for the court to make a finding as to who is correct which is a matter ought to be dealt with at trial. Bearing that in mind, I proceed to consider the comments made by the Expert.

THE EXPERT’S NOTES

87.  The Expert has prepared 2 notes to comment on the fair market value of the Companies. He was instructed to answer 3 questions as follows:-

“A. If you are asked to value the Companies for the purpose of ancillary relief, what would be the basis of your valuation?

B. Whether the proposed valuation figures for the Companies in the Petitioner's Form E are the appropriate valuations for the Companies? If no, why?

C. What documents and information you need to prepare the valuations for the Companies”

88.  In answer to question A, the Expert set out 6 bases of value and concluded that fair market value should be used as a basis of value for the valuation of KC and H.

89.  For question B, the Expert came to the conclusion that it is inappropriate to adopt the proposed values as stated in the Form E of the Husband for KC and H and the closing price of H on the stock exchange.

90.  In the Husbands Form E, the estimated values of the Husband’s beneficial interest in the Companies are as follows:

(a)  KC-25% worth HK$304,071,121.18 (as at 31 March 2018)

(b)  H-26.28% worth HK$21,777,754.81 (as at 31 March 2018)

(c)  TSLD - 0.0444% in the Husband's name worth HK$3,475,553 (as at 31 December 2018)

KC

91.  The Expert noted from the Husband’s Form E that the estimated value of the Husband’s shareholding or beneficial interest in KC of HK$304,071,121.18 was calculated by multiplying the net assets value as at 31 March 2018 of HK$1,216,284,484 as stated in KC’s Audited Financial Statement ended 31 March 2018 (“KC AFS 2018”)

92.  The Expert gave reasons for not adopting the estimated value.

(i)  Company Level NAV

93.  The company level net asset value (“NAV”) only included the financial position of KC at the company level, it had not consolidated the financial positions of all subsidiary and associate companies of KC. The company level NAV does not reflect the fair market value of all subsidiaries of KC and its investments in associates.

94.  However, the Expert was able calculate the consolidated NAV of KC as at 31 March 2018 as HK$1,286,991,908, which was HK$70,707,424 greater than the company level NAV without the need of further documents.

95.  For this, it is apparent that the Expert does not need any of the Requested Documents to make the valuation.

96.  However, by the Expert’s review of KC AFS 2018, the following items of asset were considered not reported at their fair value:

(i)  Property, plant and equipment

(ii)  Leasehold land

(iii)  Overseas freehold land and building

(iv)  Interests in subsidiaries

(v)  Interests in associates

(vi)  Available-for-sale financial assets

97.  The Property, plant and equipment, leasehold land and overseas freehold land were recorded at costs, ie. historical value only.

98.  As for the investment of KC in its associates, TSLD, [CC] (“CC”) and [TSB] (“TSB”) was, the Expert considered the values of TSLD, CC and TSB so reported in KC’s AFS 2018 did not reflect their fair market value stated at costs less impairment losses.

99.  In particular, TSB holds a licence for banking business, it is a valuable asset of TSB.

100.  In respect of investment properties, although KC’s AFS 2018 claimed that they were measured at their fair value, the revaluation was assessed by the directors of KC instead of independent property valuer.

101.  These assets represented 97% of KC’s total assets, the company level NAV did not reflect the fair market value of all issued shares in KC.

102.  In my view, the Expert has demonstrated why he considered that the non-current assets of KC have to be assessed.

(ii)  Assets held by the estate of the Husband’s Father on trust for KC

103.  The Expert noted that the Will of the Husband’s father that the estate included shares in private companies, lands and motor vehicles held on trust for KC, it is not known if the said assets were still held in the estate on trust for KC and whether the said assets held on trust for KC are not accounted for in KC AFS 2018.

104.  In my view, the Expert has not demonstrated that the information in the AFS 2018 was wrong or could not be relied upon. There is not enough material for the Expert to assume that KC AFS 2018 was wrong or could not be relied upon.

(iii)  The Husband’s shareholding as stated in Form E

105.  It is stated in Form E that the Husband’s shareholding in KC is 25%. However, the said percentage only took into account the total 240,000,000,000 issued A shares and has not taken into account of the 10,000 issued B shares in KC; and has not taken into account of the Husband’s indirect interest in KC through his shareholding interest in H, which directly held 3,500,000 A shares in KC representing approximately 1.458% of issued shares in KC and his interest in the Husband’s father’s estate which held 12,280,000 A shares and 5,000 B shares in KC representing approximately 5.116% of issued shares in KC.

106.  Accordingly, the Expert was of the view that the Husband’s estimate of the value of his interest in KC in the amount of HK$304,047,121.18 is incorrect.

107.  However, I do not consider that there are further documents required because the Expert apparent have all the information required to work out the Husband’s interest in KC.

108.  While the husband’s beneficial interest in KC can be more than what he stated in the Form E, I could understand why the Husband merely stated the direct shareholding that he held instead of all the direct and indirect interest in KC.

109.  In filling out the Form E, the Husband was required to put a value to the all his shareholdings in all the companies that he had interests in including 18 private companies. If the Husband were to state all his direct and indirect interests in each of the companies, since he held the indirect interests through other companies, it could cause confusion or difficulties in filling out the estimated value of each company and the aggregate value.

110.  For example, in this case, the Husband holds KC directly and indirectly through H.  Estimated value of H supposedly already included that value of its shares in KC, if the Husband has to put a value to reflect all his shares held in KC both directly and indirectly, the stated estimated value of KC might overlap between the entry of KC and H.

111.  In the present case, the Expert is clear how much interest the Husband is holding in each company from the information already disclosed, that is in my view enough.

H

112.  The Expert noted that the Form E that the estimated value of the Husband’s shareholding or beneficial interest in H in the sum of HK$21,777,754.81 was calculated by multiplying the net assets value of H as at 31 March 2018 of Hk$82,868,169 by 26.28% being the percentage of 63,080 A shares in H directly held by the Husband out of the total 240,000 issued A shares in H. The Expert considered that it is wrong for the Husband to adopt the said proposed valuation due the following reasons:

(i)  H NAV

113.  In H’s Audited Financial Statement ended 31 March 2018 (“H AFS 2018”). The available-for-sale financial assets in the sum of HK$117,772,138 were major assets of H which was stated at fair value in H AFS 2018 which included both listed securities in the sum of HK$108,650,538 and unlisted securities in the sum of HK$9,071,600. Based on the information currently available to the Expert, the details of the said unlisted shares held by H are unknown.

114.  It is stated in H AFS 2018 that the available-for-sale financial assets of H in the sum of HK$117,722,138, HK$108,650,538 of which was stated as fair value which was measured was defined for financial/accounting report purposes only and such measurement of value may not be suitable and appropriate for valuation purposes, the remaining HK$9,071,600 was recognized at cost less impairment losses.

115.  I accept that the Expert has demonstrated why he considered the value of the financial assets could be wrong or could not be relied upon.

116.  The Expert was further uncertain if the said financial assets included the value of investment of H in the following companies:

117.  KC of which H directly holds 3,500,000 A shares representing appropriately 1.458% of shareholding interest in KC.

118.  TSLD of which H holds approximately 6.021% of shareholding interest in TSLD.

119.  However, such alleged uncertainty is not enough for the Expert to say that information in the H AFS 2018 was wrong or could not be relied upon.

(ii)  The Husband’s shareholding as stated in Form E

120.  It is stated in Form E that the shareholding in H is 26.23%, the said percentage does not take into account of the Husband’s indirect beneficial interest in H through his shareholding interest in KC, which holds 2,700 A shares representing approximately 1.125% in H.

121.  I repeat my view in the case of KC. No further disclosure of documents would be required for this.

TSLD

122.  The Expert noted that the estimated value of the Husband’s shareholding or beneficial interest in TSLD of HK$3,475,553 was calculated by multiplying the net assets value of TSLD as at 31 December 2018 in the sum of HK$7,827,821,274 (TSLD NAV) per its annual report ended 31 December 2018 by 0.0444%, being the percentage of 127,741 shares in TSLD directly held by the Husband out of the total 287,669,676 issued shares in TSLD.

123.  The Husband suggested that his interest in TSLD in respect of his 0.044% held in his personal name can be valued by the stock price on the Hong Kong Stock Exchange. Their value amounted to HK$535,234.79 as at 27 July 2020.

124.  The Expert did not agree to use its closing price on the stock exchange and gave his explanation.

(i)  TSLD NAV and Share Price

Very low PE

125.  According to Bloomberg, the average daily PE ratio of TSLD for the last 12, 24 and 36 months ended on 11 November 2020 were 6.03, 4.99 and 4.28 which were much lower than the 135 comparable companies listed in Hong Kong that had the average PE ratio of 18.66, 18.56 and 17.811 respectively for the last 12, 24 and 36 months.

Substantial Discount to NAV

126.  As at 31 December 2018, the share price of TSLD was HK$4.55 having a substantial discount of the share price to the net assets value per TSLD share at approximately 84% on 31 December 2018. The net assets value per TSLD share as at 31 December 2013 to 31 December 2017 were between HK$3.80 and HK$5.31 representing discounts ranged from 79% to 84% to net assets value per share of TSLD.

Thin Trading Volume

127.  The historical trading volume of TSLD was thin throughout the period from November 2015 to October 2020. The average daily trading volume to the total number of issued TSLD shares ranged from 0.0036% to 0.0247% during the period from January to September 2020, the substantial discount of the share prices to the net assets value per share of TSLD may have caused by the thin trading volume of TSLD shares.

128.  Given majority of the shareholding interest of TSLD was tightly held by an individual and/or his related parties, the Expert claimed it was possible that the share price could be easily affected by a small change of the forces of demand and/or supply of the shares of TSLD. This factor should be considered in analyzing the share price of TSLD.

Goodwill

129.  The share price of TSLD may not reflect and/or include the value of the goodwill including the listing status of TSLD.

130.  The Expert considered that the share price of TSLD might not necessarily reflect the fair market value of TSLD shares.

131.  However, the factors mentioned by the Expert are public information that ought to have been taken into account of by the investors in the stock market.

132.  From what the Expert said, there is nothing to suggest that the information contained in TSLD’s annual report was wrong or could not be relied upon.

133.  The Expert may still make adjustment to the value based on either the NAV in the audited financial statement of TSLD or stock price but my view is that the Expert has failed to demonstrate why the information in TSLD’s annual report was wrong or could not be relied upon. There is therefore no need for disclosure of further documents for valuation.

(ii)  Assets held by the estate of the Husband’s father on trust for TSLD

134.  The Expert noted that the will of the Husband’s father that the estate included shares in private companies held on trust for TSLD. It was stated in the Report of the Directors in the annual report of TSLD for the years ended in 31 December 2018 and 2019 that certain directors of TSLD held non-beneficial interests in subsidiaries of TSLD in trust to the absolute benefit of TSLD without stating any detail.

135.  In my view that is no enough to suggest that the information in the audited financial statements and annual reports of the TSLD to be wrong or could not be relied upon.

136.  In any event, the value of the total equity of TSLD was over $10 billion as shown in its audited financial statement ended 21 December 2018, I am not convinced that my discretion should be exercised in favour of a complex valuation of TSLD when both the audited financial statement and stock price are available which is disproportionate to the underlying objectives under O.1A.

137.  In light of the foregoing, the Expert has in my view only demonstrated why further information would be required for the valuation of the non-current assets of KC and H. It follows that only documents relating thereto in principle should be considered to be allowed.

138.  However, for the following reasons, I will reject all claims by the Wife for discovery by the Companies.

ADMISSIBILITY OF EXPERT’S EVIDENCE

139.  Under O.38 r. 37C of the Rules of High Court (Cap 4A), an expert report disclosed under these rules is not admissible in evidence unless the report contains a declaration by the expert witness that—

(a)  he has read the code of conduct set out in Appendix D and agrees to be bound by it;

(b)  he understands his duty to the Court; and

(c)  he has complied with and will continue to comply with that duty.

140.  The Expert did not prepare any affidavit for this application. Only the first note of the Expert referred to the declaration as to code of conduct and then it was stated that “If so required, I am willing to produce the above content in a form of an expert report pursuant to O.38 rr.35, 37B and 37C of the Rules of the High Court (Cap.4 sub leg A) and verify it by a statement of truth in accordance with Order 41A of the Rules of High Court (Cap. 4 sub leg A)”.

141.  Both notes of the Expert remain unsigned.

142.  It is true that the Expert expressly stated in his notes that it was not his expert opinion on the value of the Companies.

143.  However, the Expert was asked to address on why the proposed valuation figures by the Husband were appropriate. The Expert did so expressing his opinions in a way that not a layman could. In my view, that qualified as expert opinion.

144.  When Ms Lam referred to B v B (supra) to say that the audited reports of the Companies could be relied on. Ms Yip’s answer was that the audited reports could be challenged when there was evidence from an accountant or an expert, and the Expert did give the evidence.

145.  While neither the Husband nor the Companies have raised this point, I do not consider it right for me to ignore it by reason of the quasi-inquisitorial role of the Family Court. I find the evidence of the Expert to be inadmissible.

146.  The Wife’s case is founded upon the opinion given by the Expert, now that his evidence is inadmissible, the Wife must fail to demonstrate why the documents are necessary for disposing of the cause or the matter or for saving costs.

147.  In light of the foregoing, I dismiss the Wife’s Re-Amended Summons.

148.  For the sake of completeness, I shall mention paragraph 6 of the Re-Amended Summons that the Husband is asked to initially bear the fees of the Expert until determination of the ancillary relief.

149.  It was not argued by either the Husband and the Wife.

150.  In Ms Yip, SC’s written submissions, it was said that there is no issue left between the Husband and the Wife, it is taken that the relief in paragraph 6 of the Re-Amended Summons has been abandoned.

COSTS

151.  Given the results of the Wife’s application, I see no reason why the Wife should not bear costs of the Companies on an indemnity basis as it usually should be. Irrespective of the results, I accept that the Companies were entitled to protect their interest in relation to their documents and have acted reasonably in defending the Wife’s application.

152.  As between the Wife and the Husband, my view is that the fair order should be no order as to costs.

ORDERS

153.  I hereby make the following orders that:

(1)  The Wife’s Re-Amended Summons filed on 5 May 2021 be dismissed.

(2)  The Wife do pay the costs of the Companies with Certificate for Counsel on an indemnity basis to be taxed if not agreed and there be no order as to costs between the Wife and the Husband.

Withers, Solicitors, for the Petitioner (Husband)

Ms Anita Yip, SC and Ms Lily Yu instructed by Chaine, Chow & Barbara Hung, Solicitors, for the Respondent (Wife)

Ms Rachel Lam, SC instructed by Deacons, Solicitors, for the Third Party (Companies)

FCMC 11432/2018

[2022] HKFC 19

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 11432 OF 2018

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DECISION

( Variation of Maintenance Pending Suit )

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Introduction

1.  This is an application by the Respondent wife (“W”) to apply for upward adjustment of her maintenance pending suit (“MPS”).

2.  The Petitioner (“H”) and W are both in their fifties and were married in 1995.  H filed a petition for divorce on 5 September 2018, it was a long marriage of 23 years.  H and W have three children aged 23, 20 and 17 (“the Children”).

3.  An Order by consent with H’s undertakings was made on 30 November 2018 (“the Consent Order”), the main terms are essentially (1) H shall pay W her MPS at HK$120,000 per month; (2) H shall provide W (i) usage of credit cards for the expenses of W and the Children up to HK$30,000 per month and HK$60,000 per month respectively; (ii) the matrimonial home for W to live; (iii) travelling and overseas accommodation for W and the Children; (iv) the use of the current domestic helpers and driver; (v) the club facilities and (vi) Chinese medicine and consultation fees up to HK$90,000 per month for 12 months; and (3) H undertakes to pay school fees, tuition fees, school related expenses, living expenses (including pocket money) for the Children.

4.  H’s undertaking to pay for W’s Chinese medicine and consultation fees (“the Undertaking”) expired after November 2019.  Parties reached an agreement (“the Agreement”) for an extension of 12 months for this item but for a lesser amount capped at HK$60,000 per month.  H refused to continue paying for this item since June 2020. 

5.  W now applies for a variation of her MPS from HK$120,000 to HK$180,000 from September 2020 and H to reimburse W her Chinese medicine and consultation fees between HK$153,000 June and August 2020.

H’s Undertaking

6.  The term of the Undertaking for payment of Chinese medicine is as follows:

“AND UPON the Petitioner undertaking to the Court and to the Respondent that he will directly settle all Chinese medicine and consultation fees of the Respondent’s Chinese medicine doctor(s) within 2 days after an invoice by the Chinese medicine doctor is issued for the next 12 months from the date of the Order provided that the total costs of which is capped in the sum of HK$90,000.00 per month”.

H’s Refusal to Pay for Chinese Medicine

7.  In the letter dated 2 June 2020 from H’s solicitors herein, H considered himself no longer under an obligation to continue to settle the invoices.  H asserted that it continued to be unclear what health issues W had and why she needed such amount of Chinese medicine.  W disregarded his concern that W’s purchase at the medicine company she mostly visited (“SM”) for high mark-up prices and were more expensive than other sellers.  W was considered not acting in good faith and intentionally deceiving H and taking advantage of his good intentions. 

H’s Case

8.  H’s case that it is not reasonable for W to consume Chinese medicine and the amount of her consumption is not reasonable.   Moreover, the Chinese medicine W purchased was over-priced.

9.  Mr. Chan, Counsel for H, further submits there is no change of circumstances that justifies the variation of MPS.  

H’s Letter dated 9 December 2020

10.  In his written submissions, Mr. Chan attached a letter from H’s solicitors to W dated 9 December 2020 as part of his submissions which he said contained a succinct summary of H’s case and position.

11.  It was claimed in the said letter that H all along understood that W had real medical needs and he was misled into believing that the Chinese herbs purchased by W were properly prescribed by lawfully licensed Traditional Chinese Medicine professionals.

12.  It was asserted that H would be willing to continue to pay for and reimburse W’s expenses upon presentation of proper medical diagnosis and prescription from a lawfully qualified doctor.

13.  There was an allegation that W had artificially inflated the expenses on Chinese medicine in 2017 by reference to invoices from August 2016.

14.  Undoubtedly, Ms. Yip, senior counsel for W, complains about Mr. Chan’s reliance on this letter for it clearly intended to introduce new evidence and allegations when it was sent after parties had already filed affidavit evidence pursuant to the Court’s directions. 

15.  I agree with Ms. Yip.  Matters referred to in this letter would be disregarded.

W’s Case

16.  Ms. Yip stresses that this is an ultra-big money case, the amount now in dispute is a minor amount, no resources should be wasted on interlocutory applications as such and the determination of this should be left to trial.

17.  Mr. Chan does not agree that this is automatically an ultra-big money case, H’s wider family wealth is not relevant.  W must show merits in her case.

18.  While I largely concur with Ms. Yip’s proposed approach, I do not consider it right to totally ignore merits of parties’ respective cases before making a decision.

Change of Circumstances

19.  Mr. Chan submits that this Court has to pay regard to the old order as may be thought appropriate and should consider whether there has been a change of circumstances.

20.  Mr. Chan relies on HCTT v TYYC [2008] HKFLR 286  citing the following paragraphs:

“Almost invariably, an application to vary an earlier periodical payments order will be brought on the basis that there has been some change in the circumstances since the original order was made; otherwise, except in exceptional circumstances, the application will, in effect, be an appeal. If an order is not appealed against, or is made by consent, then the presumption must be that the order was correct when made. If it was correct when made, then there will usually be no justification for varying it unless there has been a material change in the circumstances” (§15 citing Garner v Garner [1992] 1 FLR 573)

“Thus, although the jurisdiction to vary is untrammelled, normally the earlier order would not be varied unless there has been a material change in circumstances” (per Tang VP (as he then was) §16).

21.  Ms. Yip points out that the modern approach in dealing with an application for variation is for the Court to look at the matter de novo and highlighted the following paragraph:

“The modern approach, as required by section 11(7), is for the Court to consider all the circumstances of the cases. The Court is not required to proceed with the starting point of the original order but look at the matter afresh: Flavell v. Flavell [1997] 1 FLR 353 at 357B following Lewis v. Lewis [1977] 1 WLR 409 and Garner v. Garner [1992] 1 FLR 573”

22.  Ms. Yip further refers to Jackson’s Matrimonial Finances and Taxation, 9th edn., at §3.154 that reads:

“The modern approach is that the court has to consider all the circumstances of the case, and the court is not hide-bound by the existence of a previous order; the court must look at the matter de novo and make an order that is reasonable in the current circumstances.”

23.  Ms. Yip submits that change of circumstances or radical departure from the parties’ previous stance is but one of the circumstances which the Court will consider and not the sole guiding criterion. 

24.  For completeness, it would be useful to look at the remaining paragraph 15 [HCTT v. TYYC [2008] HKFLR 286 at 290 §15 citing Garner v Garner [1992] 1 FLR 573 :

“But as Garner v Garner [1992] 1 FLR 573 shows that does not mean that the earlier order, whether made by consent or not, carries no weight. How much weight should be given to the earlier order must depend on the circumstances.

Cazalet J said in the English Court of Appeal:

…

Following Lewis v Lewis, by which decision this court is bound, a court on the hearing of an application to vary is fully entitled to look at all the relevant matters set out in s. 25 of the Matrimonial Causes Act 1973. On occasions, the court may be slow to accede to an application to vary a consent order; not least because the parties’ solicitors might otherwise be deterred from either seeking to negotiate such a provision or to achieve finality. Another factor which may influence a court will be the time that has passed since the original order was made. If an application consequent on an order is brought very soon after that order has been made, the court, in normal circumstances, is likely to attach more weight to the earlier order than if it had been made some years previously. Likewise, the court would expect to pay full regard to any special terms agreed between the parties at the time the original order was made - as, for example, when endorsements on briefs or contemporaneous correspondence show that an agreed order has, for some particular reason, been set at an artificially low figure. Shortly stated, the court must decide what weight it should attach to the original order and all the surrounding circumstances. However, once an application to vary is before it, the court is fully entitled to make an order considering all the circumstances afresh, paying such regard to the old order as may be thought appropriate.”

25.  I consider both Ms. Yip and Mr. Chan are correct on the law, the only difference is where they put their emphases.  I accept that the Court must take into account of the Consent Order but what weight to be attached must depend on the circumstances.

26.  The present application for variation was taken about 20 months after the Consent Order had been made on 30 November 2018.  The Undertaking had long expired.  There was no consent order governing the payment of Chinese medicine at the time of the application for variation.  The Agreement was no longer in place as H reneged on it from June 2020. 

27.  Mr. Chan suggests that there was a built-in time limit of 12 months in the Undertaking contemplated and agreed by the parties that W’s medical needs would end and would not last indefinitely.

28.  There is no evidence about the negotiation that led to the Consent Order, in particular, the Undertaking.  In my view, the setting of a time limit in the Undertaking can only be viewed as there being no agreement having been reached between parties beyond the agreed 12 months bearing in mind that it was a consent order for MPS but not a final order.  It does not mean the payment term could not be further negotiated or extended.  Indeed, parties subsequently agreed without court order for an extension of 12 months.

29.  As the item on Chinese medicine was previously covered by the Undertaking and the Agreement, after the refusal to be bound by the Agreement, this item is no longer covered by any order or agreement between parties.  Accordingly, I accept that there is a change of circumstances or at least these are exceptional circumstances. 

Marital Standard of Living

30.  H was born in a wealthy family, he and his siblings, inherited the family wealth and have always been living in a luxurious lifestyle.

31.  H has reportedly owned over HK$370,000,000 in total assets including shareholdings in family related companies as seen from his Form E filed on 14 May 2019.  It is noted that H has only minor shareholdings and no control in these companies that hold substantial amount of asset and he has limited involvement in his family business.  H’s real interest and involvement is reportedly in charitable and social work.  It is noted that H’s case is there should not be a clean break between W and him by reason of W’s spending pattern.

32.  Under the Consent Order, W is paid HK$120,000 per month in cash.  By H’s undertaking, W has a credit limit by use of credit cards up to HK$300,000 per month for her own purchases and expenditure and HK$60,000 for the 3 Children’s expenses.  W can continue living at the matrimonial home of about 8,000 square feet, and enjoying service of domestic helpers and driver free of rent and expenses.  W can stay free of costs and payment at the London apartment.  W can have continuous use of facilities of several clubs with reasonable expenses.   H will continue to settle all school fees and living expenses for the 3 Children.  H will continue to pay for travelling expenses of W and the 3 Children for first class flight tickets and 5-star hotel accommodation for 3 US trips, 5 UK trips and 3 Asia trips per year.  And finally, W could have up to HK$90,000 per month for Chinese medicine for 12 months.

33.  In my view, the above consent agreement should sufficiently reflect that W enjoyed a very high standard of living of W during the marriage.  Reasonableness of W’s needs should be assessed accordingly taking into account F v F (Ancillary Relief Substantial Assets) [1995] 2 FLR 45 in which Thorpe J gave guidance on the exercise of the court’s discretion in big money cases as follows: 

“...I think that it is necessary to establish a yardstick that more nearly reflects the standard of living which has been the norm for the wife ever since marriage and for the husband for considerably longer.”

H’s Expert Opinion

34.  H obtained an opinion (“the Opinion”) from a Chinese medicine practitioner, Dr. Wong who prepared a report dated 1 November 2020. 

35.  Based on the Opinion, H attacked the purported diagnosis made by W’s doctors that they failed to comply with the professional rules of the Chinese practitioners and that SM could be in breach of the authorized protocol and/or regulations.

36.  Dr. Wong also commented on the price of the Chinese medicine that W purchased and that W’s bulk purchase was seemingly for commercial purpose but not for medical purpose. 

37.  W expressed disagreement to the Opinion.  Dr. Wong did not examine W or going through her medical records, it would be unfair and unprofessional to make any comment according to his observation.  Dr. Wong also drew the conclusion that the purchase was bulk based only on quantity. 

38.  I consider W’s complaints justified.  The Opinion was unilaterally obtained by H.  The Opinion was not prepared by a single joint expert pursuant to directions given by the Court, W was not properly given an opportunity to respond.  I also do not consider it right to embark on a mini-trial of these matters that ought to be dealt with at trial.  I will accordingly put very little weight on the Opinion.

Reasonable Needs for Chinese Medicine of such Consumption

39.  W said she started regularly buying and taking Chinese medicine since 2015 or 2016.  

40.  It is not in dispute that W had been taking Chinese medicine before the divorce proceedings.  Based on H’s records of W’s Chinese medicines paid by him since January 2017, H had paid over $1.3 million for the year of 2017 and close to over $2.2 million from January to November 2018.

41.  W said she had a sport accident in 2014, apart from chiropractor, she began to attend and consult the resident Chinese doctors at SM for follow-up treatment, referred to by a friend of H, since June 2016 for treatment.  As a result, her health improved and H was well aware of it.  W was advised by the Chinese doctors at SM for her long-term problem and the injury, recommending long-term treatment and consumption of Chinese medicinal products.  Such recommendations were endorsed by W’s another Chinese doctor, Dr. Law who had treated her for years.

42.  W provided confirmations from Dr. Law dated 19 September 2020, SM dated 8 September 2020 and her chiropractor dated 18 November 2020 in relation to her health conditions.

43.  H alleged in evidence that SM was only a shop for selling Chinese medicine but without a Chinese doctor.  However, this allegation clearly contradicts H’s private investigator’s report that SM indeed had a Chinese doctor.

44.  H questions W’s needs to consume Chinese medicine and complains that she has provided only limited medical proof for her needs, the invoices provided by W from SM were for Chinese medicine only without prescription.  Mr. Chan argues that there has been no prescription from any doctors for W’s ongoing and huge consumption of a variety of extremely expensive Chinese medicine and/or supplements.  There was no suggestion and evidence to show how W’s health would be adversely affected if she does not continue to consume the same level of Chinese medicine.

45.  Mr. Chan also argues that according to the Undertaking that required the production of invoices from Chinese medicine doctor for Chinese medicine and consultation fees, there should be medical diagnosis and medical prescription by a registered Chinese medical practitioner.

46.  Ms. Yip disagrees with H’s interpretation of the Undertaking and submits that the term Chinese medicine is wide enough to cover therapeutic medication, medicinal products and even supplements.   

47.  Ms. Yip further points out that the Undertaking refers to Chinese medicine doctor but not Chinese medical doctor or registered Chinese medical practitioner, there was no requirement that there should be a diagnosis and prescription.

48.  There is no evidence adduced by parties in support of their respective interpretations, my view is that the question of interpretation should be resolved at trial.

49.  H had been paying substantial amount for W’s Chinese medicine even before the Undertaking in 2017 and 2018.  Before the current dispute, H never questioned the invoices provided by W to say that the invoices were without proper medical proof. 

50.  In H’s Form E filed on 25 January 2019, he said “Her mental instability also extends to her lack of judgment and too much wanton spending.  For instance, she buys large quantities of very expensive Chinese medicine, spending some HK$90,000 per month for imagined health issues, when there is no apparent indication of ill health, apart from her mental state.”

51.  It is indeed quite clear that H never really considered that W had a medical condition that required Chinese medicine, yet H agreed to give the Undertaking and agreed to an extension of 12 months after the expiry of the Undertaking, albeit for a lower amount.

52.  Having accepted W enjoyed very high marital living standard and she had been consuming Chinese medicine and H had been paying for this well before the present divorce proceedings, I am satisfied that W has the reasonable needs for Chinese medicine and this item should continue to be allowed as part of the expenses to be covered by maintenance pending suit.

53.  H questions that the products W had been purchasing and consuming were supplements only, and that W changed her case in her affirmation in reply by saying that she bought the supplements as her lifestyle.

54.  I do not agree with H’s interpretation of W’s evidence.  When W explained her needs for Chinese medicine or Chinese medicinal products, she just said it was her accustomed style and standard of living to visit SM and not her accustomed style to hunt around for cheap supply.

55.  W clearly said “I am in need of taking the Chinese medicinal products to maintain and improve my health.  It is also our standard of living and lifestyles”. 

Whether the Products are Over-Priced?

56.  H compared the purchases at another Chinese supplier.  However, the invoices cannot show the quality of the Chinese medicine, it would be difficult to make a direct comparison to say that SM must have over-priced.

57.  H engaged a private investigator who prepared a report dated 27 October 2020 to suggest SM as dishonest, I do not think that this matter in dispute should be resolved at this stage. 

58.  Even H’s own expert, Dr. Wong opined that there would be a huge difference in prices of products like ginseng (Korean, American), Cordyceps, antler, Ah Gau and etc, depending on the grades, categories and origins, not to mention counterfeit.   Dr. Wong admitted he did not have a chance to have examined the actual products bought by W, it would be difficult for him to make an objective determination.He even explained that a lot of Chinese medicine like those bought by W can be both therapeutic medication and supplements.

59.  Overpayment of any item under the MPS can be dealt with at trial and proper adjustment would be made then, I really do not consider it appropriate for this to be argued in this application.

H’s ability to Pay

60.  H does not dispute his ability to pay and it therefore is not an issue in this application.

Conclusion

61.  Adopting a broad-brush approach, I would allow the MPS be varied upward by HK$60,000.

62.  Mr. Chan submits that the correct approach is like the case of SPMK v WCC [2020] HKFC 186 (FCMP No. 250 of 2017; 14 September 2020) in which the court allowed an increase of interim maintenance upon production of receipts for physiotherapy sessions.  The above term was made as a result of the undertaking given by the claimant.  This is not the case here.

63.  I have found that there is a reasonable need for Chinese medicine by W, I do not see why there is a need for imposing any condition. 

64.  The court has an almost unrestricted power to vary its own order retrospectively and to backdate any variation.

65.  I would allow the MPS to take effect from 1 June 2020 as the justice of this case requires.  As W is claiming the sum of HK$153,000 for the months of June, July and August 2020 only.  I would make an order for H to pay this amount separately.

66.  Accordingly, I make the following orders:

1.  Leave be granted for Paragraph 1 the Order made on 30 November 2020 be varied to the extent that the Petitioner do pay the Respondent a sum of HK$180,000 per calendar month as interim maintenance for the Respondent by way of cheque to be addressed to the Respondent commencing from 1 September 2020 and thereafter on the 1^st day of each and every succeeding calendar month until further order;

2.  Credit be given to any sums that the Respondent has paid to the Petitioner from 1 September 2020 onwards; the difference (if any) shall be paid within 14 days from the day of this Order;

3.  The Petitioner do pay the Respondent a sum of HK$153,000 within 14 days from the day of this Order;

Costs

67.  Although I allow W’s application for variation of MPS, whether H would be successful eventually obtaining adjustment in favour of him over the Chinese medicine is yet to be decided after trial.  I consider the proper costs to be costs in the cause.

68.  I further order that that there be an order nisi that costs of the Respondent’s Summons filed on 20 August 2020 shall be costs be in the cause of the Ancillary Relief.