LCTD v. CKMC

FCMC 6340 / 2018

[2024] HKFC 156

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 6340 OF 2018

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

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Introduction

1.  These Proceedings began with the Wife’s Petition filed on 24 May 2018. A Decree Nisi of Divorce was pronounced on 19 June 2019. The Husband and Wife have two children, both of whom are over 18 years old. An Order was made on 11 May 2021 as to Joint Custody of the younger child with Care and Control to the Wife and specified access to the Husband.

2.  The Wife has 4 siblings who are the Interveners in the Proceedings.

3.  The companies CL and CEC, the shares of which are the subject matter of this Trial, were established by the Wife’s Father. The Father and his first wife LHS (the Wife’s Mother)  divorced in 1984. The Mother, Wife and the Interveners moved to Canada whilst the Father remained in Hong Kong.

4.  The Father married Madam CF (his former secretary)  in about 1990. The Mother, Wife and 3 of the Interveners subsequently returned to Hong Kong; the fourth resides in the United States of America. The Father and the Mother now have a cordial relationship with each other.

5.  Both the Husband and Wife filed Form Es; the Husband on 16 July 2020, the Wife on 8 January 2021.

6.  Between July 2021 and April 2022, the Husband and Wife exchanged Answers to their respective Financial Questionnaires.

7.  Following their summons of 3 November 2021, the Interveners were joined as parties to the Proceedings by the Consent Order of 14 January 2022;

i)  On 7 April 2022 the Interveners filed their Points of Claim;

ii)  On 6 June 2022 the Husband filed his Points of Defence;

iii)  On 6 June 2022 the Wife filed her Points of Defence;

iv)  On 25 August 2022 an extension of time was granted for inspection of documents to 29 August 2022 and for interlocutory applications to 19 September 2022;

v)  On 17 October 2022 a M-FDR was listed for 13 June 2023;

vi)  On 4 September 2023 after the failed M-FDR, directions were given including the filing of affirmations;

vii)  On 13 December 2023 the Preliminary Issue was listed for June 2024 together with further directions including granting the Wife an extension of time to file an affirmation from the Father’s 2^nd Wife (Madam CF)  within 28 days, namely by 10 January 2024;

viii)  On 2 May 2024 the Interveners’ summons for leave to file Replies to the Husband and Wife’s pleadings and the Wife’s application for extension of time to file the affirmation of Madam CF were dismissed by the Decision of 7 May 2024 [2024] HKFC 98.

The issues to be determined

8.  The issues to be determined as identified in the “Agreed List of Disputed Issues” filed on 18 April 2024 are as follows:

i)  Whether the Wife was (and is)  holding 28% out of the 35% shareholding in CEC on trust for the Interveners, and if so, whether the Interveners are entitled to a declaration or determination that they were at all material times and remain the beneficial owners of the said 28% shareholding?

ii)  Whether the Wife was (and is)  holding 16% out of the 20% shareholding in CL on trust for the Interveners, and if so, whether the Interveners are entitled to a declaration or determination that they were at all material times and remain the beneficial owners of the said 16% shareholding?

Agreed Chronology of CL and CEC shares filed on 18 April 2024

9.  On 28 April 1987, the Father incorporated CEC with the following shareholding:

(1)	Father	80% (80,000 shares)
(2)	Madam CF (Father’s 2nd Wife)	5% (5,000 shares)
(3)	CC (Father’s Elder Sister)	5% (5,000 shares)
(4)	CWH (Father’s Second Elder Sister)	5% (5,000 shares)
(5)	CMC (Father’s Younger Sister)	5% (5,000 shares)
Total		100,000 shares

(i)  On 30 December 1996 the Father’s 3 sisters transferred their shares to the Father resulting in the following shareholding:

(1)	Father	95% (95,000 shares)
(2)	Madam CF	5% (5,000 shares)
Total		100,000 shares

(ii)  From 26 April 2014,CEC’s shareholding is recorded as follows:

(1)	Father	20% (95,000 shares)
(2)	Madam CF	12.5% (59,375 shares)
(3)	F (Father’s 2nd Wife’s 1st Son)	12.5% (59,375 shares)
(4)	LCM (Father’s Elder Sister’s 2nd Son)	20% (95,000 shares)
(5)	Wife	35% (166,250 shares)
Total		475,000 shares

10.  Since its incorporation on 15 February 1994, CL’s shareholding has been as follows:

(1)	Father	80% (8,000 shares)
(2)	Wife	20% (2,000 shares)
Total		10,000 shares

The value of the CEC and CL shares

11.  At the beginning of the Trial, the Court was helpfully informed by Counsel for the various Parties that in broad terms, the values could be considered as follows:

i)  As regards CEC, the shares are potentially of a significant and substantial value which, subject to further analysis and valuation, could be in the region of HK$200 million. For the avoidance of doubt, such figure should not be taken as any form of valuation but rather as an illustration of the potential value of the beneficial ownership of the shares.

ii)  As regards CL, its only asset of value was a property (“F Tower”)  which was sold in late 2023 for HK$41.88 million. The net proceeds of sale after the discharge of the outstanding mortgage, stamp duty and other expenses were distributed with the Interveners and Wife each receiving HK$1.3792 million.

The Form Es

12.  Form Es are standard documents filed in accordance with Practice Direction 15.11; they are invariably the key and pivotal documents in all applications for Ancillary Relief and on occasion, as in the present case, the precursor to Preliminary Issues.

13.  Section 5.5 is a particularly important section to be considered and appropriately completed by a deponent; it states as follows:

“Give details of any other circumstances which you consider could significantly affect the extent of the financial provision to be made by or for you or for any child of the family, including but not limited to earning capacity, disability, inheritance prospects, redundancy, cohabitation plans and any contingent liabilities.”

14.  In his Form E at section 5.5, the Husband referred to what he described as the Wife’s “family business” but he made no mention of shares held by the Wife in CL and or CEC. It was his oral evidence at Trial that he was not aware of the precise amount of shares held by the Wife until he had sight of the Wife’s Form E.

15.  In her Form E the Wife stated in section 2.4:

“(1)  C E C incorporated on 28-04-1987 in Hong Kong, legally owns 166,250 out of a total of 475,000 shares (beneficially owns 1/5 of 166,250 shares, i.e. 33,250 shares)

(2)  CL incorporated on 15-02-1994 in Hong Kong, legally owns 2,000 out of a total of 10,000 shares (beneficially owns 1/5 of 2,000 shares, i.e. 400 shares)

(For details: see paragraph 5.5)”

16.  And at section 5.5:

“2. …I hold the shares in the two (2)  family companies as contained in paragraph 2.4 for myself and my another four (4)  siblings. Therefore I only have one-fifth beneficial interests in the shares registered under my name in the said two (2)  companies.

3. My father is the founder of the family business and he is the “boss” of C’s family. Because I have 35% (4/5 is held for my four (4)  siblings)  of the shareholding CEC, all along, my father allows me to have drawings from CEC to pay for my expenses. In addition, my mother and siblings would also receive drawings from CEC (my mother: HK$50,000 per month; CCSC and CCLRE: each HK$70,000 per month; CCLRD: HK$120,000 per month; and my mother’s medical expenses and all her big items of expenses)  distributed through me.”

17.  In her Form E, the Wife did not further elaborate as to why she held the shares in CL and CEC for herself and her 4 siblings.

The Pleadings

18.  Paragraph 18 of the Interveners’ Points of Claim states as follows:

“The above trust arrangements in respect of both CEC and CL were instigated at the Father’s request to protect the interests of his first wife, the Wife, and each of the children from his first marriage, being the Interveners and the Respondent, against possible claims by Madam CF particularly as Father considers that making a Will is unlucky. The Respondent is designated to hold these shares on trust for the Interveners as she is the eldest in the family.”

19.  Paragraph 7 (a)  of the Husband’s Points of Defence states as follows:

“In particular, it is averred that the company (CEC)  was generally operated and managed by the Petitioner and Respondent since the Petitioner joined the company in around 2003 in the midst of a company crisis. 35% of the company’s shareholding was awarded to the Respondent in or around 2014 as an incentive/ reward to motivate the Respondent (and the Petitioner)  as a couple for handling another crisis on behalf of the company.”

20.  Paragraph 11 of the Wife’s Points of Defence states as follows:

“(5)  Insofar as Father’s first family is concerned, the Respondent was instructed by Father to hold on trust the above shareholding in CEC and CL also for the 1^st to 4^th Interveners.

(6)  As a result, since about 2014, there has been an agreement, understanding and/or common intention amongst the Father, the Respondent and the 1^st to 4^th Interveners that:

(i)The Respondent was (and is)  holding 28% out of the above 35% shareholding in CEC on trust for the Interveners (i.e. 7% for each of the 1^st to 4^th Interveners);

(ii)  The Respondent was (and is)  holding 16% out of the above 20% shareholding in CL on trust for the Interveners (i.e. 4% for each of the 1^st to 4^th Interveners); and

(iii)  The Respondent was (and is)  only holding the remaining 7% shareholding in CEC and 4% in CL for herself”

21.  Before turning to the evidence, I have in mind Ms. Chow’s Opening Submission wherein she helpfully referred to Kwok Chin Wing v 21 Holdings Ltd (2013)  16 HKCFAR 672 §21 per Ma CJ:

“It will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced”.

22.  From the Pleadings, the relevant positions of the Parties can be summarised as follows:

(i)  The Interveners stated that:

(a)  The Trusts were instigated at the Father’s request;

(b)  The purpose of such trusts was to protect the interests of the Mother, the Wife and the Interveners against a potential claim by Madam CF.

(ii)  The Wife stated that:

(a)  The Father had instructed the Wife to hold her shareholding in CEC and CL for herself and her siblings.

(iii)  The Husband stated that:

(a)  35% of the shares in CEC were awarded to the Wife in her name as an incentive/reward to the Wife and Husband;

(b)  The Wife holds 20% of the shares in CL; he did not elaborate further.

The Evidence

23.  It is of note that:

(i)  The Father and his first Wife filed no evidence;

(ii)  There was no evidence filed by Madam CF. The Wife failed to file such evidence within the timeframe prescribed by the Court and her application for an extension of time to file Madam CF’s evidence was dismissed for the reasons set out in the Decision of 7 May 2024.

24.  The Husband and Wife gave oral evidence, as did the four Interveners.

25.  The witnesses gave evidence in the following order:

(i)  The 2^nd Intervener, CKY;

(ii)  The 3^rd Intervener, CCLRD;

(iii)  The 1^st Intervener, CCSS;

(iv)  The 4^th Intervener, CCLRE;

(v)  The Wife, CKMC; and

(vi)  The Husband, LCTD.

26.  By reason of the fact that they are all Parties to the Proceedings, they were in Court when each gave their respective evidence.

2^nd Intervener CKY (K)

27.  In her affirmation, she inter alia referred to the following:

i)  “In 2014 around New Year’s Eve, my dad enthusiastically told 5 of us that he decided to allot shares to five of us in the TST office”;

ii)  The issue of potential tax on her holding shares as an American;

iii)  Having the 35% shareholding in CKMC’s name would enable easier management of CEC; and  

iv)  “He understands that my mother has no legal right as a wife to claim his assets, that’s why he has this trust arrangement for having CKMC as the sole holder. So, in case of any argument arising from Madam CF, our benefit can still be covered.”

28.  In her oral evidence, she said the meeting was held in the TST office on 3/4 January 2014; this had not been particularised in the Points of Claim or her affirmation.

29.  However, during cross examination she stated:

“…the reason for my Father giving us the shares was not because of the consideration of her (Madam CF)  filing a divorce petition”.

30.  She further stated in re-examination that it was correct that she and her siblings were given shares not because of Madam CF’s divorce; instead, they were given to her and her siblings because the Father was fond of and concerned about her and her siblings.

3^rd Intervener CCLRD (RD)

31.  His affirmation refers to the CEC share allocation “around the beginning of 2014”:

“Dad met us at Sun Plaza (T.S.T. office)  to discuss the share distribution. The reason of the incident was that Madam CF was divorcing my dad, which forced dad to seriously face the issue of equal distribution of shares.” and “The advantage is to avoid CKY’s large taxes, and at the same time it is convenient for CKMC to deal with affairs”.

32.  In his oral evidence he placed the meeting around 3/4 January 2014.

33.  He believes that the trust was set up to prevent a claim by Madam CF over assets owned by the Father.

34.  Whilst CKY was the only one potentially liable for American tax, CKMC held shares on behalf of the siblings because:

i)  At that time, they had not thought about holding their own shares individually; and

ii)  Having CKMC hold the entirety of the 35% of the shares would make her the major shareholder in CEC.

1^st Intervener CCSS (S)

35.  In his second affirmation he stated:

“Dad originally wanted us to distribute the shares equally, but then CKY pointed out that her American citizenship was not a good thing for tax purposes, so Dad decided to concentrate all management on the eldest sister. We all agreed.”

36.  In oral evidence he stated that he was not involved in formulating the contents of the Points of Claim, although he had taken a look at the document and signed it.

4^th Intervener CCLRE (RE)

37.  His affirmation provided no explanation for the distribution of shares in 2014 other than:

“Not only did he consult with us about our views on the equal distribution of shares, but we came across the matter of CKY being American and the taxation is relatively complicated, we decided to let our eldest sister stakehold all our shares and take care of it.”

38.  In oral evidence he claimed that he was “confused” as to why the Points of Claim stated that the trust arrangements were created to ward off potential claims by Madam CF. His understanding was that a document containing the trust arrangements had been “prepared” by the Father and Madam CF, handwritten by the Father with a table/list before the January 2014 meeting.

39.  He agreed that he was not certain about whether or not the Father had created a trust in his or his siblings’ favour over the shares held in CKMC’s name, nor did he confirm whether or not he had an interest in the CEC or CL shares held in CKMC’s name.

CKMC (Wife)

40.  In her 4^th affirmation, she stated:

i)  “Although I was a shareholder of CL at the time, I was (up until 2014 as further explained below)  holding the shares on trust for Father, who provided all the funds, and who directed me to be a named shareholder in the first place”;

ii)  Reasons for the trust:

“early 2014 became a tipping point in light of Madam CF’s threat of divorce (which was later withdrawn)”;

iii)  There was no reference to a meeting in January 2014 but rather:

“…in around March and April 2014, Father started making arrangements for the trusts concerning CEC and CL”

“On a day in around March or April 2014 (the exact date of which I can no longer recall due to the lapse of time), in the Tsim Sha Tsui Office, Father told me that he decided to redistribute the shareholding in CEC, such that I would become a shareholder of 35% of the shares – which should be held for me and my siblings (i.e. the Interveners)”

“Also on the same day in March or April 2014 at the Tsim Sha Tsui Office, Father told me that the CL shares held by me would also be held for me and my siblings”;

iv)  As to the date of the establishment of the Trusts, she stated that:

“The Interveners and Father also trust me and rely on me to manage the shares on their behalf, which I have done since the trusts were established in 2014” ;

v)  She made monthly withdrawals from CEC SZ (the subsidiary of CEC in Shenzhen), which would be distributed to family members. Generally, each month, she would transfer a sum of HK$260,000 to the Mother, of which HK$70,000 would go to each of CCSS, CCLRD and CCLRE. The Mother would then keep the remainder even though she was not a beneficiary. CKY would be given her share upon return to Hong Kong.

41.  In her 5^th affirmation, she referred to the following:

i)  LCTD had signed 2 Consent Summonses in May and November 2018 confirming that there would be no claim for Ancillary Relief against the other party;

ii)  The Sale and Purchase Agreement of F Tower was signed on 28 December 2023 whereby the property was sold for HK$41.88 million. She and her siblings each received HK$1,379,200 representing their respective shares in the net proceeds of the sale; and

iii)  A meeting took place in early January 2014 between the Father, her and her siblings in Tsim Sha Tsui to inform her and her siblings about the trust arrangements.

42.  In oral evidence, she claimed that there were three steps to the creation of the Trust over the CEC shares:

i)  Consensus among family members that all siblings should receive 7% of CEC’s shares;

ii)  Her meeting with the Father and siblings in January 2014; and

iii)  Her meeting with the Father in March/April 2014 dealing with documents.

43.  She agreed that she did not discuss or consult any of the Interveners when selling F Tower.

44.  She stated that the Trust over the CL shares was created when CL was incorporated in 1994.

LCTD (Husband)

45.  In his 11^th affirmation, the Husband put forward his case that the Father had caused the 35% of CEC shares to be allotted to the Wife as an incentive and or reward for the efforts of the Husband and Wife in respect of the crises at CEC in 2003 and 2013/2014.

46.  It is his case that the “share arrangement” had never been mentioned and “was simply something concocted for the purposes of these proceedings”.

47.  As regards the shares in CL, it is his case that they were allotted to the Wife as an incentive or gift for the Wife to return to Hong Kong.

48.  The Husband claimed that he had taken on “a managerial role” in CEC. In his Points of Defence he stated at paragraph 7 that “it is not admitted that the Father manages and makes all the key decisions”. However, in cross examination, he accepted that the word “not” was “inaccurate”.

49.  In his oral evidence, he stated that he did not know the exact percentage of the Wife’s shareholding in CEC until seeing the Wife’s Form E. Prior to that, he had believed that the Wife held around 30% of CEC shares.

50.  He stated that he had no idea as to the amount of CL shares in the Wife’s name or the reason as to why the Wife had CL shares registered under her name.

51.  He stated that he had signed the two Consent Summonses confirming that each party would forgo their claim against the other for Ancillary Relief, and that the circumstances under which they were signed were not unconscionable to the lay person. However, he disagreed that he had signed because he knew the Wife only had 7% of the shares in CEC or that he had signed because he had already embezzled substantial sums of money from CEC.  

Discussion

52.  It cannot be over emphasised that the purpose of this Trial is the determination of the Preliminary Issue as to the beneficial ownership of shares; a discrete matter which does not engage the wide discretion of Section 7(1)  of the Matrimonial Proceedings and Property Ordinance (“the MPPO”).

53.  The share ownership as recorded in the share registers of CEC and CL show that the legal ownership of the shares in question resides with the Wife. It is common ground that it is the Interveners’ case that the beneficial ownership differs from the legal ownership; that the Father created an express trust over the shares as settlor with the Wife and the Interveners as beneficiaries.

54.  It also common ground that the Interveners carry the burden of proof to show the existence of such a trust and their beneficial ownership of shares under such trust, notwithstanding the position recorded in the share registers.

55.  An immediate difficulty with the Interveners’ case is that the Father filed no evidence. The intention of a settlor is highly relevant, if not critical, in assessing the existence of a trust.

56.  The Father is in his 80s. In her oral evidence, CKY said that the Father’s condition had continued to deteriorate after he was diagnosed with COVID and had a stroke in May 2023, he now rarely goes out as he easily tires after walking, his hearing is not good and he has to take a considerable amount of medication. 

57.  CKMC said that although he was physically weak, “as to his mind, it is still in operation, it can still work”. CCSS said that the Father was hospitalised on the 3^rd day of the Trial. CCLRE said that he had returned home from the hospital the next day and was taking some rest.

58.  Other than the above information, there were no medical or other reasons of substance presented as to why the Father did not file evidence to corroborate the Interveners’ case as to the existence of the trusts relating to the shares of CEC and CL.

59.  The Interveners’ case therefore relies solely on their own evidence supported by that of the Wife; there is no evidence from any non-sibling, third party or expert in relation to the references to the potential impact of American tax on CKY holding shares in CEC.

60.  To state the obvious, the Interveners have a vested interest in a positive outcome to their application, as does the Wife. In the event it is held that part of the shares were held on trust for her siblings, the Wife’s resources would be significantly reduced, which in all probability, would reduce the assets available for distribution in the Ancillary Relief Proceedings.

61.  The Husband has a vested interest in opposing the Interveners’ application, as in the event the beneficial interest mirrors the legal title, the assets available for distribution in the Ancillary Relief Proceedings, would in all probability, be considerably larger.

62.  In summary, the evidence of all the witnesses in the main is self-serving in support of their own interests; the Court has not been assisted with any evidence from any disinterested third party. No contemporaneous evidence was provided as to the establishment of the Trusts and or the Husband’s case that the shares were awarded to the Wife as a reward and or incentive.

63.  The Court is therefore being asked to determine the issue on the basis of credibility of the witnesses. In this context, I have in mind the Judgment of Hon Harris J in Moorthy Selvaraj v Karupayee Amal & other[2024] HKCFI 403:

“As Coleman J observes in Yu Man Fung Alice v Chiau Sing Chi Stephen determining what was said or agreed orally at a meeting, which occurred many years before trial is inherently problematic. Not only do memories fade, but even honest witnesses are prone to construct their memory of events to confirm their beliefs, prejudices, or interests.”

CL

64.  The undisputed facts are as follows:

i)  The company was incorporated on 15 February 1994 in Hong Kong;

ii)  Since its incorporation 80% of its shares (8,000)  have been registered in the name of the Father and 20% (2,000)  in the name of the Wife;

iii)  It held F Tower in North Point, the purchase of which was funded by the Father in 1994; and

iv)  F Tower was sold in late 2023/early 2024 for HK$41.88 million with the net proceeds of sale being distributed, with the Interveners and the Wife each receiving HK$1,379,200.

65.  The Interveners’ Points of Claim do not differentiate between the trust arrangements for CEC and CL. In their affirmations and oral evidence they did not elaborate on the circumstances pertaining to the shareholding in CL. None of the Interveners suggested that CL was mentioned at the meeting in January 2014.

66.  The Interveners’ evidence therefore falls well short of proving on a balance of probability that the Wife held the CL shares on trust for them.

67.  In her Points of Defence [§9(4)] and her 4^th Affirmation [§41] the Wife stated that despite the registered shareholding, the Father was the sole and real owner of CL until 2014, and that she was holding the shares on trust for her Father.

68.  However during cross examination, the Wife stated as follows:

Q: “so are you unable to say when the trust over CL shares was created in your siblings’ favour?”

A: “At the time when my Father said 20% of the shares of CL would be given to me, that’s the time when there was the trust arrangements.”

Q: “Let’s not play with words, specific dates I can understand, 1990s around property purchased is when the trust was set up, according to the best of your recollection, correct?”

A: “…It was when CL company was incorporated. It reads very clearly here on the documents, that date was 1994.”

Q: “so what do you mean, trust for CEC is 2014 and trust for CL you want to amend to 1994?”

A: “Yes.”

69.  The Wife’s oral evidence is therefore inconsistent with her Defence to the Points of Claim and her Affirmation evidence, as in her oral evidence, she puts the establishment of the CL trust for herself and her siblings in 1994, the year of the purchase of the F Tower, whereas in her Defence and Affirmations she states the trust was established in 2014.

70.  In any event, as regards the rule against perpetuities, the Court has not been provided with sufficient particulars as to terms, purpose and powers of the Trust to demonstrate that it does not contravene the rule against perpetuities. As fairly recognised by Mr. Wong on behalf of the Interveners in his Closing, if the trust arrangements for CL shares were, as on the Interveners’ and or the Wife’s case, set up in 1994, such trust would have to comply with the rule against perpetuities to be valid and or enforceable at law.

71.  In the circumstances, in light of the Interveners’ paucity of evidence as to the establishment of a trust in relation to the CL shares, the inconsistent evidence of the Wife and the rule against perpetuities, I conclude that the Interveners have not sufficiently carried the burden of proof to establish their beneficial ownership in the CL shares.

CEC

72.  The company was incorporated by the Father on 28 April 1987. The history of its shareholding is as set out above in paragraph 9; in particular from 30 December 1996 until 26 April 2014, the Father and Madam CF were the only shareholders.

73.  This changed when on 26 April 2014, the Wife became the registered owner of 35% of the shares, thereby becoming the single largest shareholder in CEC.

74.  In his helpful submissions lodged on behalf of the Interveners, Mr. Wong framed the issue as follows:

“The core finding for the court to make regarding CEC shares is simply this: under what circumstances were the Wife given the 35% shares”

75.  The evidence as a whole describes the Father as a traditional patriarch who had a firm control of his commercial interests, in particular CEC and CL. This was accepted by the Husband in cross examination when he corrected paragraph 7 of his Points of Defence so as to read:

“…it is admitted that the Father manages and makes all the key decisions…”

76.  From the evidence, it is also common ground that the Father would speak at family gatherings and, on occasion, to a wider audience of relatives and colleagues as to the Wife’s possession of the shares.

77.  In this context, the Husband said in cross examination that he had heard the Father say:

“your eldest sister is in possession of the shares, let her deal with the matter, I am too old to deal with the matter, I’m not going to have my finger in the pie”.

78.  It is the Interveners’ and Wife’s case that since 2014 the Wife made payments to the Interveners; however, it is of note that:

i)  There was no formal accounting of such payments, either recorded in a ledger and or explained to the Interveners other than in informal social discussions;

ii)  Notwithstanding that it is asserted that the Interveners and the Wife each beneficially own 7% of the shares in CEC, they did not receive the same quantum of financial support each month; the payments were erratic and not apparently linked to their purported beneficial shareholdings; and

iii)  The Mother received payments although she was not a beneficiary of the trust.

79.  As regards a trustee’s duty to account, Ms. Chow for the Husband suggested in her Closing and Reply that it is “an irreducible core of obligations owed by the trustees to the beneficiaries”: Underhill & Hayton law of Trusts and Trustees (20^th ed.)  §59.2, and that “A trustee who was not liable to account to anyone for his dealings with the ownership of the trust assets would in substance be a beneficial owner of them”: Snell’s Equity (34^th ed.)  §§21-005, 22-028. On the other hand, Mr. Yim for the Wife suggested that the duty to keep accounts and produce such accounts was contingent on being required to do so: Snell’s Equity (34^th ed.)  §29-024.

80.  Cases of this nature are fact sensitive. I do not consider that the lack of formal accounting or reporting is fatal to the Interveners’ case. However, I consider it to be a relevant circumstance in the overall assessment of the case.

81.  The characteristics of the arrangements described by the Interveners and the Wife are consistent with an informal arrangement whereby family members are financially supported from a family business rather than a formal and specific trust arrangement which, by its nature, creates legal rights and obligations as between the trustee and the beneficiaries.

82.  The share register shows that in April 2014, the Father ceased to be the controlling shareholder of CEC. At the same time, the Wife became the major shareholder of CEC and gained importance and status within CEC as the owner of the largest single shareholding in the company.

83.  It is consistent with this change that the Wife became responsible for the distribution of financial support to the Interveners and indeed the Mother (who was not a purported beneficiary of any CEC shares).

84.  In view of the inconsistencies between the Points of Claim, the evidence of the Interveners and the Wife, and my overall consideration of the evidence as a whole, I find the above informal arrangement more probable than the Father having created an express Trust with the Wife as the Trustee and the Interveners and the Wife as beneficiaries.

85.  I therefore find that the Interveners have failed to carry their burden as to establishing a beneficial interest in the shares of CEC.

The Husband’s ‘positive case’

86.  For the purposes of the Preliminary Issue, the fact that the Interveners have been unsuccessful in establishing the existence of an express trust means that the Husband’s positive case is no longer directly relevant. However, by reason of the evidence and time incurred, I consider it appropriate that it should be addressed.

87.  In his Points of Defence, the Husband referred to two crises that he had had to deal with on behalf of CEC; namely a 2003 fatal accident in one of the properties owned by CEC in the Mainland and a 2013 issue of unauthorised building works in another property owned by CEC in the Mainland.

88.  The Husband claimed that the Father was grateful to him and the Wife for working in the company and resolving the above crises, which was the reason why the Father gave the 35% shareholding to the Wife in 2014 as a reward and or incentive for them both.

89.  In his 11^th affirmation in support, he stated:

“To me, the giving of 35% shares to the Respondent was a testament to the hard work and efforts that we had put into solving the crisis for CEC Industries.”

“From the above, I believe that shareholding of CL was allotted to the Respondent as an incentive (or a gift)  for her to return to Hong Kong in around the same time.”

90.  In his oral evidence, he stated:

Q: “Alright, so it was never one single encounter between you and Father and Father told you “hey, I want to reward you for what you have done for CEC by a transfer of shares, shares will be transferred to CKMC”, it was never like that?”

A: “To my recollection, there was none”

Q: “There was also never one single occasion where CKMC told you that “thank you very much for what you have done for the family over the years, my Father decided to transfer shares to reward the effort”, it was never like that, agree?”

A: “I could recall there was not a single incident in which CKMC made such direct utterance”

Q: “Alright, so quoting your evidence earlier, it was purely a perception you gained. In Punti, the word you used was 感覺”

A: “Looking back at things that happened throughout the years, to begin with, starting from 2003, I started working, all the way to some time in 2012 and 2013, there was a biggie and all the way to some time when the two of us really bent over backwards dedicated to the company. I would say I am not going to use such a vague word, I would rather use the word comprehend”

91.  It is also of note that in his Form E the Husband does not mention the Wife’s shareholding; nor did he suggest that the shares in CEC had been given to the Wife and himself as a reward and or incentive.

92.  The Wife on the other hand claimed that the Husband did not play a significant role in the 2003 fatal accident, as the matter was swiftly settled by agreeing a RMB200,000 payout.

93.  In relation to the 2013 incident, she claimed that the Father would not have rewarded the Husband because:

i)  It was the Husband’s fault that the unauthorised building works had been allowed;

ii)  The Husband had embezzled sums of money; and

iii)  The 2013 accident was not solved until March 2015 at the earliest, which is after the shares were given to her.

94.  Having considered the evidence, I do not accept the Husband’s contention that the Wife’s shareholding in CEC was by reason of any reward and or incentive to him and the Wife. However, for the avoidance of doubt, in the context of the forthcoming Ancillary Relief Proceedings, this is not a determination of any “contribution” the Husband may or may not have made.

Miscellaneous

Embezzlement

95.  The Wife and Interveners each gave their account of the Father confronting the Husband in relation to his alleged embezzlement of RMB45 million.

96.  I do not consider this allegation relevant to the issue to be decided in this Trial, and it is in any event post the re-arrangement of shares in 2014.

Consent Summonses

97.  It is said the Husband signed two Consent Summonses in May and November 2018 to the effect that each party would forgo their claim against the other for Ancillary Relief.

98.  There was no mention of the Consent Summonses in the Pleadings, nor were they produced in evidence.

99.  In reply to the Husband’s 11^th affirmation in which he stated that the Trusts were “an attempt to decrease the value of the assets of the Respondent available for distribution”, the Wife in her 5^th affirmation stated “the Petitioner knew the trust arrangements well and he signed the 2 Consent Summonses in May and November 2018, both confirming that there would be no claim for ancillary relief against the other party”.

100.  The Consent Summonses were not mentioned by any of the Parties in their respective Openings.

101.  The Husband was cross examined on the Consent Summonses and admitted signing them and he agreed that they were not unconscionable to a layman’s understanding of the term. However, he did not accept that he signed them because he knew the Wife only had a 7% interest in CEC or because he had already embezzled substantial sums of money.

102.  Only the Wife mentioned the Consent Summonses in her Closing in the context of:

i)  The Husband was previously aware of the Trusts, therefore he knew he could only claim against the Wife’s 7% interest, implying therefore he did not wish to pursue Ancillary Relief; and

ii)  He had embezzled monies from CEC up to RMB45 million, implying therefore he did not wish to pursue Ancillary Relief.

103.  The Parties’ positions as to the Consent Summonses were clear from their respective Form Es:

i)  The Husband stated:

“In preparing this Form E, the Petitioner has assumed that the Respondent will not be relying on the plainly unconscionable Consent Summons dated 23^rd May 2018”; and

ii)  The Wife stated she was seeking:

“An order in terms of the Consent Summons dated 14^th November 2018”.

104.  If the enforceability of the Consent Summonses was to be argued, it should have been well before the determination of the Preliminary Issue. In any event, I do not consider they assist the Court in determining the Preliminary Issue particularly when they were not pleaded either by the Interveners or the Wife.

Costs

105.  The Interveners have been unsuccessful. In the circumstances, subject to what is said below, I see no reason why they should not pay the Husband’s costs on a party and party basis with certificate for two counsel.

106.  In broad terms, the Parties’ respective costs arising from the Interveners’ summons filed on 3 November 2021, the orders and the M-FDR are as follows:

i)  Husband’s @HK$4.5 million;

ii)  Wife’s @HK$2.2 million; and

iii)  Interveners’ @HK$3 million.

107.  The Husband unsuccessfully put forward his own “positive” explanation for the Father granting 35% of the shares in CEC to the Wife resulting in significant time and costs being incurred.

108.  I therefore consider that it is only fair and reasonable that this aspect of the Trial should be reflected in the award of costs. In the circumstances, and on a broad brush basis, the order of costs shall be that the Husband recovers 75% only of his party and party costs, including costs reserved with certificate for two counsel.

109.  For the avoidance of doubt, there shall be no order as to costs so far as the Wife is concerned.

110.  The Order for costs nisi shall become absolute on 20 September 2024,which will provide an opportunity for the Parties to be heard on costs if they so wish.

Summary of Orders

111.  The Interveners’ Points of Claim filed on 7 April 2022 shall be dismissed.

112.  The Interveners shall pay 75% of the Husband’s party and party costs of and incidental to the Preliminary Issue including costs reserved with certificate for 2 counsel such costs to be taxed in default of agreement.

113.  The costs order shall become absolute on the 20 September 2024.

Way Forward

114.  The case be adjourned to 25 October 2024 at 2:30p.m. for a CMH (2 hours reserved)  at Court 53.

115.  The Husband and the Wife do lodge and exchange their written submissions (each limited to 5 pages)  on or before 14 October 2024 as to their respective proposals for the further conduct of the Ancillary Relief Proceedings.

116.  Last but not least, I thank Counsel for their considerable assistance at the Trial.

Ms Theresa Chow and Mr Ian Yu instructed by Ip & Heathfield for the Petitioner

Mr Eugene Yim instructed by K.L. Chan & Co. for the Respondent

Mr Martin Wong and Miss Kelly Cheng instructed by Hart Giles for 1^st-4^th Interveners

FCMC 6340/2018

[2024] HKFC 129

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 6340 OF 2018

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D E C I S I O N
(Summary Assessment of Costs)

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1.  On 7 May 2024, I dismissed the Interveners’ summons to file and serve Reply out of time. I awarded costs to the Petitioner payable by the Interveners to be summarily assessed with certificate for one counsel.

2.  On the same day, I also dismissed The Respondent’s summons to file and serve her witness’ affirmation out of time. I awarded costs to the Petitioner payable by the Respondent to be summarily assessed with certificate for one counsel.

3.  The Petitioner lodged his statements of costs as directed. No objections were received from the Interveners and Respondent. However, I note that the Petitioner is now claiming costs for two counsel instead of one. I would deduct that part of counsel fees therefrom.

4.  The costs of the Interveners’ summons are now summarily assessed at HK$65,000 payable by the Interveners jointly and severally forthwith.

5.  The costs of the Respondent’s summons are now summarily assessed at HK$21,000 payable by the Respondent forthwith.

Representation:

FCMC 6340/2018

[2024] HKFC 98

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 6340 OF 2018

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D E C I S I O N
(Leave to file Reply and Witness’ Affirmation)

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1.  Today is supposed to be a PTR of the preliminary issue (on beneficial ownership) trial to take place from 3-13 June 2024. However, shortly before hearing, this court has received 2 summonses which need to be dealt with this morning:

(1)  The Interveners’ summons dated 17 April 2024 asking for leave to file and serve their Replies to the Petitioner Husband (“H”)’s Points of Defence dated 3 May 2022 and the Respondent Wife (“W”)’s Points of Defence dated 6 June 2022 in substantially the form of the draft Interveners’ Replies annexed to the summons.

(2)  W’s summons dated 29 April 2024 asking for leave to file and serve her witness (Madam CF)’s 1^st Affirmation within 3 days.

2.  H opposed both summonses.

3.  After hearing counsel submissions, I have decided to dismiss both summonses with costs. I have also given further directions for trial as per paragraph 28 below.

4.  These are my brief reasons.

Brief Background

5.  The core issue to be determined in these matrimonial proceedings is the ancillary relief (“AR”) application of H against W. But before the court could proceed with the AR proceeding, the Interveners, who are the siblings of W joined in and claimed to be joint beneficial owners in 2 family companies, namely CEC and CL. In their Points of Claim dated 28 March 2022, they claimed that W, being a 35% legal owner of CEC’s shares and 20% legal owner of CL’s shares, is in fact holding those shares on behalf of all 5 siblings, including W herself. In other words, W is holding on trust for each of the four Interveners 7% in CEC and 4% in CL.

6.  W in her Points of Defence dated 6 June 2022 accepted that she was holding 7% in CEC and 4% in CL on trust for each of the 4 Interveners. She accepted that her beneficial interest in CEC was 7% and in CL was 4% only.

7.  H in his Points of Defence dated 3 May 2022 denied the trust arrangement.

8.  A MFDR was conducted but not successful. The case came before this court for 1^st PTR on 4 September 2023, which was adjourned to 13 December 2023, with directions that all interlocutory applications were to be taken out in 28 days and all witnesses to file and serve their affirmations within 42 days. At the return PTR hearing on 13 December 2023, this court fixed the trial of the preliminary issue (on beneficial ownership of W’s 35% holdings in CEC and 20% holdings in CL) for a period of 8 days from 3-13 June 2024. Apart from giving the usual directions for trial, this court granted leave to W again for her witness Madam CF to file and serve witness affirmation within 28 days, which expired on 10 January 2024. No such witness affirmation was filed and no attempt was made to ask for time extension, until 3 days ago, when W issued her summons on 29 April 2024 (returnable today) to ask for further time to file and serve Madam CF’s affirmation.

9.  Also on 25 April 2024, i.e. less than 2 months before trial, the Interveners, after instructing a new team of counsel, issued their summons for leave to file and serve their Replies out of time with a return date also this morning.

The Interveners’ Summons

10.  I shall deal with the Interveners’ summons to file and serve their Replies out of time (“the Reply Summons”) first.

11.  The Interveners were represented by Mr. Martin Wong of counsel. It was admitted that the Reply Summons was late. But it was submitted that the ultimate determinative question to be asked is whether the trial will be disrupted and whether H will have a fair chance to respond before trial. It was submitted that there are no new factual circumstances being raised in the proposed Reply and H should not be allowed to shut out the Interveners’ evidence through a technical objection on pleadings. In his oral submissions, Mr. Wong reminded the court that H’s case is simply that there was no such trust arrangement as alleged and so it will purely be a matter for cross examination on the veracity of the Interveners and W’s evidence at trial. There is nothing for H to respond to and therefore, the trial on 3 June 2024 will not be delayed.

12.  W was represented by Mr. Yim of counsel and he adopted a neutral stance on the Interveners’ Reply Summons.

Discussion

13.  The first observation to be made is that the Reply Summons is very late. According to Ms. Chow, counsel for H, the deadline for the Interveners’ to file and serve their Replies expired on 31 May 2022, which was 2 years ago. H’s solicitors by their letter dated 25 July 2022 has made it clear that all parties would proceed on the assumption that no Reply would be filed. Two years have lapsed and we are now only 1 month away from trial. Worse still, judging from the wordings of the Reply Summons that the Interveners are now asking for leave to file and serve their Replies “in substantially the form of the draft Interveners’ Replies” indicating that the draft Replies were still not finalized. They asked for them to be filed within 14 days. If allowed, that will take us to the latter half of May with about 2 weeks before trial. Although Mr. Wong submitted at today’s hearing that the Replies could be filed within 3 days, but there was no indication whether they will be in the draft as annexed or in a from to be finalized. This I must say is highly unsatisfactory. I agree with Ms. Chow’s submission that extreme delay, on its own, may already justify a dismissal.

14.  In view of such late application for filing of further pleading, the interveners are expected to give a full and accurate account of the reasons why the application has not been made earlier. However, the only supporting affirmation was filed by their solicitor (Mr. Hart). In that 2.5 page affirmation, the only reason given was:

“5. Mr. Martin Wong and Ms. Kelly Cheng of Counsel were instructed at the beginning of last month to advise and appear at the PTR and the Trial on behalf of the Interveners. Following advice by counsel, it was recommended that a Reply be filed on behalf of the Interveners in order to better identify and delineate the issues in dispute in this Trial...”

15.  If the proposed Replies is simply to “better identify and delineate issues”, it does not sit well with Mr. Wong’s submission that proper evidence from the interveners will be shut out if H’s technical objection on pleadings is upheld. Moreover, it is well established that reasons such as change of lawyers or last minute engagement of legal assistance are no longer acceptable as good reasons for late applications: CMW v WTY & LCL (unrep., FCMC 8759/2010. 5/10/2015) per Deputy Judge Own (as HH Judge Own then was) at §35.

16.  If one should look at the draft Replies, it seems that the interveners are pleading a marked different factual basis to support their claim of trust as compared to their Points of Claim. As pointed out by Ms. Chow for H, the factual basis as pleaded in the Points of Claim was that the trust was instigated by the father of W who wanted to protect the interests of his first wife, LHS, and each of the children from the first marriage, against possible claims by his second wife, Madam CF, and also due to the fact that he viewed the making of a will for such purpose as unlucky.

17.  However, completely new factual circumstances are now put forward as to how or why the trust was created. The new factual circumstances include:

(1)  A meeting around January 2014 was summoned at the office of CEC by the father;

(2)  Due to the 2^nd Intervener’s US resident status, there may be tax implications if she was to hold the shares directly under her name;

(3)  It would be more convenient for W to continue managing and dealing with the affairs of CEC and in turn CEC Shenzhen as its legal representative (法定代表人);

(4)  W was told by Madam CF that the 20% in CL was given to W because a sum of Canadian dollars, equivalent to about HK$2,000,000, out of the funds used for purchasing Fortress Tower office came from W’s mother (LHS), as such the benefit of such interest was not W’s alone but that of all children of LHS.

18.  I agree with Ms. Chow’s submissions that these marked different factual circumstances would constitute a new ground of claim that is inconsistent with the Points of Claim. In that case, the interveners should amend their Points of Claim, instead of introducing this new ground of claim by disguising it as part of their Replies.

19.  Furthermore, if this new ground of claim is allowed to be pleaded at this very late stage, the inevitable outcome is for the trial to be aborted because without affording H proper opportunity to consider the new ground and to follow up on the questions of foreign law would be highly prejudicial to H’s case. I am afraid that an adjournment of this milestone date will not be allowed.

20.  The interveners’ summons dated 17 April 2024 is dismissed. As I have indicated during the hearing that the direction for the filing of the interveners’ Replies previously given on paper was a slip and so it was being set aside without objections from the parties. Therefore, I would hereby order that the Replies already filed by the interveners to be expunged from the court files.

W’s Summons

21.  W is asking for extension of time to file Madam CF’s witness affirmation.

22.  Again, the application is very late in the sense that it is out of time for 6 months and we are now less than 1 month before trial. The previous discussion on delay of course also applies to W’s summons to file witness affirmation out of time.

23.  In order to explain the late application, W filed her 6^th Affirmation saying that Madam CF has been busy in looking after W’s father who has contracted Covid in January 2023 and suffered a stroke in May 2023. I find the explanation unconvincing. Despite the father’s health issues in 2023, his conditions generally remain stable (§6 of W’s 6^th Affirmation) and there is no good reason why Madam CF could not file her witness affirmation earlier.

24.  Moreover, W’s late application to file and serve Madam CF’s witness affirmation seems to be an attempt to support the new ground of claim in the Interveners’ draft Replies. She tried to testify on LHS (mother of W) giving HK$2,000,000 to W to purchase the Fortress Tower office and the establishment of CL resulting in the father holding 80% of CL, and W holding 20% of CL but on behalf of LHS. This is in fact inconsistent with §11(6)(i) of W’s Points of Defence in which W said the trust arrangement on CL was “an agreement, understanding and/or common intention among the Father, [W] and the 1^st to 4^th Interveners”. There was nothing mentioned about the HK$2,000,000 from LHS being used to purchase the Fortress Tower office or the establishment of CL.

25.  Based on the above discussion, I am not satisfied that it is a proper exercise of my discretion to allow W to file Madam CF’s witness affirmation at such a late stage of the proceeding. W’s application to file and serve Madam CF’s witness affirmation out of time is dismissed.

Interveners’ Supplemental List of Documents

26.  On 12 April 2024, the Interveners have filed and served an Supplemental List of Documents disclosing 135 pages of bank documents, purportedly linked to the Interveners’ draft Replies. Ms. Chow asked this court to direct that the materials disclosed in the Supplemental List of Documents to be inadmissible.

27.  In my view, discovery is a continuous process and there is no formal application before me to rule on the admissibility of the materials disclosed in the Supplemental List of Documents. If needed, the issue has to be argued at trial and I would make no determination on the Supplemental List of Documents at this stage.

Further Directions for Trial

28.  In addition to the determination on the 2 summonses, I hereby give the following directions for trial:

(1)  The witnesses’ affidavits/affirmations do stand as evidence in chief;

(2)  All witnesses to attend court for cross examination;

(3)  The trial to be conducted in English and an English/Punti interpreter to be arranged by the court if any party decides to give evidence in Punti;

(4)  No further affidavit/affirmation to be filed without leave of court;

(5)  No further interlocutory application to be made without leave of court; and

(6)  All parties to lodge and exchange their Opening Submissions 14 days before trial, i.e. on or before 20 May 2024.

Summary of Orders and Directions

29.  By way of summary, I hereby make the following orders and directions:

(1)  The Interveners’ summons dated 17 April 2024 is dismissed.

(2)  The Interveners’ Replies that were filed are to be expunged from the court files.

(3)  W’s summons dated 29 April 2024 is dismissed.

(4)  Further directions for trial as per paragraph 28 above.

Costs

30.  Both the Interveners’ summons and W’s summons were dismissed. Costs of both summonses be to H on a party and party basis with certificate for one counsel. This order will be in the form of costs order nisi to be made absolute upon the expiry of 14 days from the handing down of this Decision. Upon order being made absolute, I direct H to lodge and serve a 1-page statement of costs for each summons within 7 days for summary assessment and the Interveners and W be at liberty to lodge and serve their list of objections also restricted to 1-page within 7 days thereafter for the court’s consideration.

31.  Costs of PTR to be in the cause of preliminary issue, with certificate for one counsel. Again, this will be in the form of costs order nisi to be made absolute upon the expiry of 14 days from the handing down of decision.

32.  Last but not least, I thank counsel for their assistance.

Representation:

FCMC 6340/2018

[2024] HKFC 89

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 6340 OF 2018

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D E C I S I O N

(Summary Assessment of Costs)

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1.  On 16 February 2024, I have made costs orders against the Respondent Wife (“W”) after a determination of the Petitioner Husband (“H”)’s application for MPS, including legal costs provision (“LCP”). I also directed that the costs order is to be summarily assessed which I now do.

2.  I accept that there may be some duplication of work between the 3 solicitors of H and I would assess the solicitors’ costs at HK$150,000. Counsel fee of HK$100,000 is allowed in full. Therefore, the total costs of H are now summarily assessed at HK$250,000, payable by W forthwith.

Representation:

FCMC 6340/2018

[2024] HKFC 31

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 6340 OF 2018

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J U D G M E N T
(Maintenance Pending Suit)

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1.  This is a hearing of the Petitioner husband (“H”)’s application for maintenance pending suit (“MPS”), including legal costs provision (“LCP”) against the Respondent wife (“W”).

2.  In his summons for MPS, H asked for:

(1)  W do pay HK$100,000 per month as MPS from the date of summons to the final ancillary relief judgment;

(2)  W do pay the sum of HK$10,719,300, or alternatively HK$535,965 per month as LCP; and

(3)  Pending the determination of the summons, paragraph 1 of the Order of HH Judge Ivan Wong dated 22 July 2022 (“1^st MPS Order”) do continue, namely W do continue to pay H LCP in the sum of HK$202,500 per month.

3.  W opposed the said application. She made no offer and asked for H’s application to be dismissed.

4.  After due consideration being given to counsel submissions and all the circumstances of the case, this court makes the following orders on MPS and LCP:

(1)  W shall pay a monthly sum of HK$100,000 as MPS to H on the 1^st day of every month starting 1 March 2024 until the AR Judgment or further order of the court; and

(2)  W shall pay a monthly sum of HK$500,000 as LCP to H on the 1^st day of every month starting 1 March 2024 for a period of 4 months up to 1 June 2024. For the avoidance of doubt, this LCP order is to replace the LCP at the monthly rate of HK$202,500 being ordered on 4 September 2023.

5.  My reasons are as follows.

Brief Background

6.  H is now aged 54, and W is aged 55.

7.  They were married in 2001 and within wedlock, 2 children were born. The elder son is aged 21 and the younger son aged 17. Both of them are now studying in the UK.

8.  The parties separated in March 2017. On 23 May 2018, H issued the present petition for divorce based in 1-year separation with consent. A decree nisi of divorce was granted on 19 June 2019. By an order dated 11 May 2021, the court granted a joint custody order in respect of the younger son, with care and control to W and reasonable access to H, including staying access.

9.  On 29 December 2021, H issued an inter-parte summons asking for MPS, including LCP (“the 1^st MPS Application”) asking for MPS in the sum of HK$132,500 per month, with LCP in the sum of HK$2,581,900, or alternatively HK$215,200 per month. After a contested hearing, His Honour Judge Ivan Wong assessed the reasonable needs of H at HK$130,000 per month (§64 of Judge Wong’s Judgment dated 22 July 2022 (“1^st MPS Judgment”)). But the court was also satisfied that at the time he was holding liquid assets of at least HK$2.674 million, which would be enough to cover his needs for about 20 months and for this reason alone, H’s application for MPS for his daily needs was refused (§67 of the 1^st MPS Judgment). Despite such ruling, Judge Wong has also put in a caveat (at §69 of the 1^st MPS Judgment) that:

“69. The MPS issue may have to be re-visited as and when appropriate if there is a change in the circumstances, especially if he husband’s financial situation deteriorates.”

10.  On LCP, Judge Wong was satisfied that H would incur a sum of HK$2,156,600 for his legal costs up to FDR. Taking into account his remaining assets, the Judge was satisfied that H would need a sum of HK$1,822,600 to cover his legal costs up to FDR. Assuming that the FDR would take place in 9 months’ time, this sum was divided by 9 and so the monthly payment of LCP was set at HK$202,500.

11.  A Mediator-assisted FDR was held on 13 June 2023 but was unsuccessful.

12.  On 28 August 2023, H issued his second summons for MPS. As the parties failed to reach any agreement at call-over, this application was adjourned to today for argument.

The Law on MPS

13.  The Court’s power to grant a MPS order in favour of a spouse is governed by s.3 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“MPPO”):

“3. Maintenance pending suit in case of divorce, etc.

…..

the court may order either party to the marriage to make to the other such periodical payments for his or her maintenance and for such term, being a term beginning not earlier than the date of the presentation of the petition or making of the application and ending on the date of the determination of the suit, as the court may think reasonable.”

14.  In HJFG v KCY[1], Hartmann JA (as he then was), at paragraphs 37 and 38 of the judgment, gave a succinct summary of the law in this area by referring to the judgment of Mostyn QC, sitting then as a Deputy Judge of the High Court in England, in TL v ML [2006] 1 FLR 1263, 1289:

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

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

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

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

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

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

15.  Therefore, the overriding considerations for such applications are reasonableness and fairness. In order to achieve these objectives, the Court has to balance the reasonable needs of the applicant and the ability to pay of the respondent on an interim basis: LJ v LWHH [2003] 3 HKC 455 at 461D.

16.  In undertaking this balancing exercise, the Court will adopt a broad brush approach, and not a detailed investigation of the financial positions of the parties.

LCP

17.  There is no dispute that under appropriate circumstances, the court could granted LCP as part of the MPS Order, provided that the test in Currey v Currey[2] are met (see R, ER v H, IF[3] at §11 ):

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

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

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

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

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

18.  I do not think that the above general principles are in dispute.

H’s case

19.  In H’s supporting affirmation (10^th Affirmation), he was basically saying that since the decision of Judge Wong in the 1^st MPS Order on 22 July 2022, his financial circumstances have deteriorated significantly. He said his monthly expenses still stood at around HK$130,000 which was found to be reasonable by Judge Wong. He is an engineer and currently earning a monthly income of HK$30,000 and so his monthly deficit is about HK$100,000 per month. The deficit has eaten into his capital and he now only has liquid assets of HK$811,186.79. That is why he asked for a monthly MPS at the rate of HK$100,000.

20.  As far as LCP is concerned, H’s position is that since the failure of the MFDR held in June 2023, a full-blown trial on ancillary relief, including the determination of the beneficial ownership of certain companies has become necessary. In order to have equality of arms, he needs to instruct another legal team with Mr. Bernard Man SC leading Ms. Theresa Chow as his junior to represent him. He set out the costs estimation at HK$10,719,300 (1/17-20, §§33-35). Assuming that the trial could take place in 20 months’ time, the average monthly LCP would be in the sum of HK$535,965. He said that his instruction of a legal team including SC has already been considered by Judge Wong, who accepted that such instruction was reasonable.

Objections by W

21.  W was represented by Mr. Eugene Yim of counsel, who submitted that a MPS application is an exercise of discretion taking into account all relevant factors at the time of the application. These factors might change over time. In other words, the court is not bound by the decision of Judge Wong in His Honour’s 1^st MPS Judgment. Instead, this court should exercise its own discretion according to the prevailing financial situation of the parties.

22.  Mr. Yim also submitted that there are 2 salient features in the case that need the court’s careful consideration. First, one of the most contentious issue is the beneficial ownership of CIL (which in turn holds 100% ownership of CI(SZ)L) (“CEC”) and CL (“CL”), which has already been set down for a preliminary issue trial in June this year. It is very clear that W’s interest therein (whether 35% interest in CEC as contended by H or just 7% interest as contended by W) came from a source outside the marriage viz W’s father and therefore bear a strong element of non-matrimonial nature. Looking at the total value of the parties’ assets, it is fair to say that a big portion of them are non-matrimonial, which will likely result in a significant departure from equal sharing.

23.  Second, there are 2 consent summonses dated 23 May 2018 and 14 November 2018, whereby parties agreed not to claim against each other for ancillary relief. I was referred to BN v MA[4] in which Mostyn J said at §33 that in a MPS application, a prenuptial agreement should be applied as closely and as practically as possible, unless party can demonstrate to a convincing standard that it would not be upheld. It was submitted that the 2 consent summonses represented, in essence, a post-nuptial agreement between the parties and should be applied as closely as possible.

24.  As submitted by Mr. Yim, this is not a case that H will surely get one half of the assets, and the ancillary relief that he would get at the end of the day may not be sufficient to offset against any overprovision of MPS. Therefore, the court should adopt an ultra-cautious approach in dealing with this MPS application.

Discussion

Reasonable needs of H

25.  I agree with Mr. Yim’s submission that this court is not necessarily bound by Judge Wong’s previous decision on MPS and has a duty to exercise its own independent judgment on the available evidence. But that does not mean that reference could not be made to decisions made in previous hearings, if relevant.

26.  In explaining the reasonableness of his claims, H repeated the breakdown of expenses he put forward in his 7^th Affirmation (1/98-99):

General Expenses

Item	Amount
Rent	HK$29,000
Utilities	HK$4,000
Food	HK$9,000
Household expenses	HK$5,000
Car expenses	HK$13,000
Domestic helper	HK$6,000
Other (specify)	-----
Total monthly household expenses	HK$66,000

Personal Expenses

Item	Amount
Meals out of home	HK$15,000
Clothing / Shoes	HK$4,000
Personal grooming	HK$1,000
Entertainment / presents	HK$11,500
Holiday	HK$29,000
Medical / Dental	HK$800
Insurance premia (AIA healthcare)	HK$350
Contribution to parents (cash)	HK$3,000
Education (incl. continuous education in construction industry and license exam fees)	HK$1,800
Total monthly personal expenses	HK$66,450

27.  The 2 sums add up to HK$132,450 (HK$66,000 + HK$66,450 = HK$132,450). It is noted that the monthly sum of HK$130,000 was accepted by Judge Wong as the reasonable needs of H in his 1^st MPS Judgment at §64 (1/205). As H is currently earning a monthly income of HK$30,000 and so he made his claim for MPS at HK$100,000.

28.  H’s claim was challenged on the ground that the bank statements of the 3 bank accounts only showed a total monthly withdrawal of HK$63,210.71 in July 2023, which was only half of what H was now claiming. But I accept H’s explanation that it was only a snapshot of 1 month’s bank statement. According to him, his total assets dropped from HK$2,470,000 to about HK$ 811,000 over a period of 15 months, indicating his monthly outgoings were at a monthly rate of HK$138,200.

29.  In my view, whether H’s current expenses of HK$130,000 are reasonable depends very much on the family’s past living standard. In this regard, Judge Wong had this to say at §50-51 of his 1^st MPS Judgment (1/ 201-2):

“50. While the parties agree that the family enjoyed a very comfortable standard of living, each has his/her own interpretation as to what that means. I agree with Ms Remedios that this is largely a matter of semantics. On the materials before me, I am satisfied that the wife tried to tone down the standard of living during the marriage. The objective fact is the family had the use of 3 cars including a Ferrari. This is telling as to the standard of living enjoyed by the family during the relationship. The wife’s “current monthly expenses” as reported in her Form E of January 2021 are as much as $861,520. She is driving a Lamborghini, claimed to be a gift from her father, and a Mercedes Benz.

51. On the materials before me, I have no doubt that the husband’s version of the parties’ standard of living is closer to the truth.”

30.  I am satisfied that by reference to the family’s past living standard, H’s monthly expenses at HK$130,000 cannot be regarded as unreasonable.

31.  The next issue to be discussed is H’s earning capacity. It is W’s claim that H must have a higher earning capacity, probably in the region of about HK$100,000 to HK$150,000 per month, and therefore, he should not be allowed any MPS.

32.  According to H, he is now working for a construction company with a monthly income of HK$30,000 only. I think it is indisputable that H had worked for the W’s family companies for decades and he only resumed his employment in the construction industry quite recently. There is simply no evidence to suggest that he is having a monthly earning capacity of HK$100,000 – HK$150,000. I accept that he is only earning HK$30,000 per month. Therefore, the short fall in his monthly budget is about HK$100,000.

33.  As to Mr. Yim’s submissions on the 2 consent summonses, I note that they were prepared by a firm of solicitors allegedly instructed by H. This was of course disputed by him. At this interlocutory stage, I would say that the circumstances of the 2 consent summonses are rather dubious and I would not place much emphasis on them at this MPS application.

34.  As far as H’s remaining assets are concerned, I accept that they are in the region of about HK$811,186.79.

Legal Costs Provision

35.  H’s claim for LCP is more controversial.

36.  In his 1^st MPS Judgment, Judge Wong was satisfied that H’s reasonable legal costs budget from the 1^st MPS hearing to FDR was HK$2,156,600. After deducting HK$334,000 from his own resources, H would need another HK$1,822,600 to cover his legal costs up to FDR, which was expected to be conducted in about 9 months’ time. That was why His Honour granted a monthly sum of LCP at HK$202,500 (HK1,822,600/9 = HK$202,511).

37.  At his 2^nd MPS application, H is now claiming LCP in the sum of HK$10,719,300, or HK$535,965 per month based on the assumption that the AR trial would take place in 20 months’ time. Ms. Chow submitted that in view of the complexity of the case and the fact that H had to face 5 opponents, he was entitled to engage the service of a Senior Counsel. As a matter of fact, Judge Wong had already ruled that H’s engagement of a Senior Counsel was reasonable. Therefore, H is now proposing to engage Mr. Bernard Man SC to act for him for the rest of the case.

38.  In justifying the quantum of HK$10,719,300 in LCP, H has set out his calculation in a table at §§33-35 of his 10^th Affirmation (1/17-20). From the said table, the estimated counsel fee was HK$5,360,000 (with Mr. Bernard Man SC leading Ms. Theresa Chow) and solicitors’ costs at HK$4,855,600. I note that the calculation was done up to the end of the AR trial.

39.  In my view, 2 of the most important issues are the beneficial ownership and the value of W’s shareholdings in 2 private companies, namely CEC and CL. W is a registered shareholder of 35% in CEC and 20% in CL. However, she said that she only held those shareholdings on behalf of herself and 4 other siblings, i.e. Interveners 1 to 4. In other words, her beneficial ownership in those 2 companies are only 7% and 4% respectively. According to the latest SJE report, her shareholdings (7% and 4%) only have a combined value of HK$18,078,310.30, and not the HK$90,931,551.50 as contended by H. I note that the trial on the beneficial ownership of the 2 companies has already been fixed in June for 8 days (3-7 & 11-13 June 2024) and upon its determination, there will be a clearer picture on the probable size of the family pot. Therefore, I am minded to continue with the LCP to cover at least the June hearing.

40.  Unfortunately, there was no separate calculation of H’s estimated legal costs up to the June hearing only. Doing the best as I could, I will allow H 30% of the amount he asked for, i.e. HK$3,000,000 to cover all costs from the failed MFDR up to the June hearing. On 4 September 2023, W has already been ordered to continue the LCP payment at the rate of HK$202,500 per month from 1 October 2023. In other words, up to February 2024, W should have paid another HK$1,012,500 as LCP. I would deduct that sum from HK$3,000,000 and so the balance would be HK$1,987,500 (HK$3,000,000 – HK$1,012,500 = HK$1,987,500). From now to June, there are only 4 months to go and so the LCP will be payable by 4 equal monthly instalments of HK$496,875 each, to be rounded up to HK$500,000 payable on 1^st day of each month starting from 1 March 2024 to 1 June 2024. With this amount, I am not sure if it is sufficient to engage a counsel (whether Senior Counsel or not) of H’s choice, but if it is not, then I am afraid he has to look for other counsel who is willing to take up the June hearing within that budget. After all, when Judge Wong expressed his view on H’s engagement of Senior Counsel, the SJE report was not yet available. We now have the benefit of the SJE report giving a valuation much lower than what H anticipated. I think it is high time for him to exercise more restraints in budgeting his legal costs.

W’s ability to pay

41.  According to Mr. Yim, W‘s financial positions have also deteriorated. She has very limited liquid assets, which are definitely insufficient to pay the staggering amount of LCP at HK$10,719,300 as claimed by H.

42.  Despite those submissions, I note that W is still a person of substantial means. The combined worth of her 35% shareholdings in CEC and 20% in CL is HK$90,391,551.50. I note that it is her and the other Interveners’ case that W only holds 7% and 4% beneficially, but whether this is really the case is yet to be determined at the June 2024 hearing. Even if her case is accepted at the end of the day, the value of her shareholdings is still HK$18,078,310.30, which is not a small amount.

43.  W also owns 2 other properties in Hong Kong with a total value of HK11,910,666.66 and other liquid assets at HK$2,782,509.47. In other words, if she holds 35% in CEC and 20% in CL beneficially, her total assets are HK$105,084,727.63. But if she only holds 7% in CEC and 4% in CL beneficially, her total assets are still HK$32,771,486.43, which cannot be regarded as insubstantial.

44.  Mr. Yim submitted that W’s liquid assets are limited resulting in her cash flow problem. But as pointed out by Ms. Chow, it is indisputable that during the marriage, the family relied substantially upon drawings from the family companies in supporting W’s monthly expenses of HK$861,520 and H’s monthly expenses of HK$154,490. Plainly, W’s ability to draw funds from the companies are a resource that this court could take into account. As to W’s claim that the companies are not doing well, there are no up-dated audited accounts to prove the same and such claim is not be accepted by this court for the purpose of this MPS hearing.

45.  W also claims that she has to take out loans from her brother-in-law in the sum of HK$2.34 million, but there is no written evidence to support such a loan arrangement. There is no evidence on the interest charged, nor on the repayment date. There is also no evidence that the brother-in-law has chased for its repayment. I agree that these are features of a typical soft loan without any serious expectation of repayment.

46.  W says that she has to reduce her monthly expenses to HK$277,300 in view of the deterioration of her financial circumstances. But she still see fit to retain her Lamborghini and spends HK$90,000 per month on its related expenses. She says she has already moved out from the rented Harmony apartment and has to stay at Shenzhen most of the time. But the fact is: the lease of the Harmony apartment was just taken over by her father and the children continue to reside there when they stay in Hong Kong. I agree that W has merely shifted her housing expenses to her father and this is a clear example of financial assistance rendered by her maiden family.

47.  After considering the above facts, I have come to the conclusion that W has the ability to pay the immediate reasonable needs of H at the rate of HK$100,000 per month as MPS and HK$500,000 per month for 4 months up to June 2024 as LCP.

Conclusions and Orders

48.  Based on the above discussion, I hereby order that:

(1)  W shall pay a monthly sum of HK$100,000 as MPS to H on the 1^st day of every month starting 1 March 2024 until the AR Judgment or further order of the court; and

(2)  W shall pay a monthly sum of HK$500,000 as LCP to H on the 1^st day of every month starting 1 March 2024 for a period of 4 months up to 1 June 2024. For the avoidance of doubt, this LCP order is to replace the LCP at the monthly rate of HK$202,500 being ordered on 4 September 2023.

Costs

49.  As to costs, H has to come to court before he could get the above orders and therefore, prima facie, he should also get the costs of this application. Although the final MPS orders are not in exact terms as he has requested, I am of the view that he should still be regarded as the winner of the application. Therefore, H should be given the costs of the MPS application, including all costs reserved with certificate for counsel. This will be in the form of a costs order nisi to be made absolute after the expiry of 14 days from the handing down of this judgment. After the costs order being made absolute, H should lodge and serve a statement of costs (restricted to 2 pages of A4 size paper, double line spacing, and in font 14) within 7 days for the court’s summary assessment. W is entitled to lodge and serve a list of objections, if any (restricted to 2 pages of A4 size paper, double line spacing, and in font 14) within 7 days thereafter for the court’s consideration.

Representation:

FCMC 6340/2018

[2022] HKFC 150

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 6340 OF 2018

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

BETWEEN

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

__________________

R U L I N G

(Maintenance Pending Suit and Legal Costs Provision)

__________________

1.  The marriage in question is approximately 17 years long, with 2 sons. They are aged 20 and 16 respectively and are receiving education in the United Kingdom.

2.  The Petitioner husband (“the husband”) applies for (1) maintenance pending suit (“MPS”) in the sum of $132,500 and (2) legal costs provision in the sum of $2,581,900, or alternatively, $215,200 per month to be paid by the Respondent wife (“the wife”).

3.  This is an interlocutory application for interim relief. It has been said by the Court of Appeal that reasons for the decision can be brief: Tsang Wing Kwai v Tsang Wing Fai [2018] 5 HKLRD 350, [2018] HKCA 759, at [31].

4.  It is not necessary to state the legal principles here. The principles have been set out by Hartmann JA (as he then was) in the leading case of HJFG v KCY (Maintenance Pending Suit) [2012] HKFLR 27.

5.  The overriding principle is one of “reasonableness” which is to be considered objectively by the court having regard to all the circumstances of the case in question: see CWK v YCHS & CKY, FCMC 6082/2014 (date of judgment: 10 December 2015), at [26].

6.  It is trite that, in application of this kind, a broad brush approach should be taken. It is unnecessary to conduct a minute examination of the evidence.

The Husband’s Case

7.  The husband’s case is that:

(1) The family enjoyed a very comfortable standard of living throughout the marriage. The annual family spending was about $10 million.

(2) The family relied mainly upon the drawings from the companies of the wife’s family (“the Companies”) which enjoyed enormous rental income from their landed properties in the Mainland.

(3) Both the husband and the wife worked for the Companies. Upon the breakdown of the relationship in 2018, the husband was sacked on 31 May 2018. Since then the husband lost his only source of income and has been relying on his savings to make ends meet.

(4) The husband liquidated his Kwun Tong apartment on 14 May 2020 for $4.74 million and his Ferrari on 29 December 2021 for $1.52 million for fuelling his living expenses and legal costs. Meanwhile, the husband has downsized his leased accommodation to a 500 ft² flat.

(5) The husband’s assets are insufficient to fuel his living expenses and legal costs. He requires $132,500 per month for his living.

The Wife’s Grounds of Opposition

8.  The wife opposes the application. Mr Yim, who appeared together with Ms Yu, relied upon the following grounds:

(1) Wealth of non-Matrimonial Nature;

(2) The husband’s post-separation “wanton” or “extravagant” spending of $10 million;

(3) The husband’s failure of full and frank disclosure; and

(4) The parties have already had a post-nuptial agreement dealing with the ancillary reliefs in the form of 2 consent summonses.

9.  I shall deal with the grounds of opposition in turns.

(1) Wealth of Non-Matrimonial Nature

10.  The wife said a big chunk of the parties’ assets, being the wife’s shareholdings in the Companies, are non-matrimonial and illiquid. I do not think this is relevant to the present application, being an application for MPS, before me.

(2) The Husband’s Post-Separation “Wanton” Spending of About $10 million

11.  The husband said, after separation, he tried to be on his own feet and invested about $10 million in two businesses (each about $5 million): (1) The Influencer Limited in Hong Kong and (2) the beauty salon in the Mainland. These two start-up businesses ended up not being successful and made a loss.

12.  Mr Yim submitted it was the husband’s own choice to have injected $10 million into the businesses which, as of now, have no prospect of return. This is “wanton” or “extravagant” spending; as such, it is liable to be added back pursuant to Norris v Norris [2013] 1 FLR 1142. Further, having suffered loss of his own choice and still with about $4 million worth of assets in his pocket, it is entirely unreasonable for him to come to court for MPS.

13.  The husband is already at the age of 53. Considering that he had worked for the Companies for 14 years (from 2004 to 2018) (on the husband’s version) or, with the blessing of the wife, he had been indolent (on the wife’s version) for so many years, it would take some time for him to get onto his own feet. It seems to me that, at a glance, the husband’s options in the labour market are rather limited. I shall return to this point when I deal with the husband’s earning capacity below. Suffice for me to say at this point is that, for the purpose of the present application, it cannot be said to be unreasonable on the part of the husband to try to establish his business/careers after having left the Companies.

14.  As far as the loss in the Influencer Limited is concerned, at this stage there is an audited statement of the company in support of the husband’s contention. As for the loss in the beauty salon in the mainland, Ms Remedios fairly accepted that there is no documentary proof before me. This is a factor I should take into consideration. On the other hand, I do need to consider the scale of the wealth potentially involved. I come to the view that whether the husband suffered loss as alleged or not and, even if that was the case, whether the loss in the 2 businesses amounts to “wanton” or “extravagant” spending is fact-sensitive and has to be determined at trial.

(3) The Husband’s Failure of Full and Frank Disclosure

15.  The wife has 3 grounds here:

(1) Failure to Disclose the Mainland Accounts

16.  The wife said save for one account with the China Merchants Bank (“CMB-0508 account”), the husband failed to disclose his mainland bank accounts.

17.  The husband accepted that he had failed to disclose some mainland accounts due to inadvertence; these accounts being inactive for some time. Be that as it may, it seemed these accounts only had a balance of RMB66,729 in total. The amount was not challenged by the wife.

(2) The CMB-7551 Account Security Account

18.  The husband failed to disclose his security investment account with the China Merchants Bank (“CMB-7551 Account”). It was found that, said the wife, from January 2017 to 31 May 2018, there was a net outflow of RMB 4.114 million from the husband’s CMB-0508 account to this security account. Hence, there is at least RMB 4.114 million that the husband failed to disclose. In support, the wife prepared a schedule showing the flows of money between the CMB-0508 account and the CMB-7551 account between 16 February 2017 and 1 June 2018. Mr Yim made the point that it is unknown as to how much investments are there.

19.  The husband said the CMB-7551 account is a sub-account of RMB-0508, which has already been disclosed in the husband’s Form E. There are no separate or independent statements for this account. All the transactions of the CMB-7551 account were reflected in the statements of CMB-0508 account. As I indicated at the hearing, I do not know whether this was the practice of the banking business in the mainland, or for that matter, the CMB, not to have separate statements for security accounts/sub-accounts to be issued. This issue has to be clarified at trial.

20.  Further, more importantly, Ms Remedios pointed out that the net position of RMB 4.114 million was up to 1 June 2018 only when the husband left the Companies. The wife did not explain why that date was adopted as the cut-off date. Ms Remedios said the bank statements of CMB-0508 account produced by the husband were from 5 January 2015 to 21 December 2021, there is no reason why the wife did not go to the entries after that date and up to the end of December 2021 to show the latest net position. I agree.

21.  For the above reasons, I am not able to come to any conclusion against the husband on this issue. This has to be dealt with at trial.

(3) The Updates of the Husband’s Financial Situation in Reply Affirmation was done in a piecemeal and incomplete fashion.

22.  The wife said the husband’s reply affirmation where he updated his financial situation was done in a piecemeal and incomplete fashion.

23.  Briefly stated, the wife is inviting the court to have a close examination on the documentary evidence produced by the husband and from there, arguing that the husband’s disclosure was woefully inadequate and deliberately piecemeal and incomplete. For instance, the husband produced a bank-in slip showing a deposit of $1,523,000 into his HSBC-888 account on 29 December 2021 as proof of sale of his Ferrari. The wife criticised that the slip did not show (a) whom the cheque was from, (b) whether that cheque indeed represented the sale proceeds of the car and (c) the fund flow of this sum – in particular – how much sum was paid out of the said HSBC account and where to after that.

24.  In my view, one can always put things under a microscope and launch challenges from all directions. That appeared to be the approach that the court is invited to take. I decline to conduct a minute examination on the husband’s finances on the basis of these arguments. The husband had already paid around $3 million as legal costs from June 2019 up to the MPS hearing. From the husband’s Form E of 6 July 2020 up to his updated position as at 6 May 2022, it seems over these 23 months, his assets went down from $9,078,060 to $4,061,000. This represents about $218,000 per month for his living expenses and legal costs; and over the last 10 months, his assets have depleted by $2.8 million, ie on average $287,000 per month for his living expenses and legal costs.

25.  In my view, this cannot be said to be unreasonable.

(4) The Consent Summonses

26.  In my view, this is the wife’s strongest ground.

27.  Mr Yim placed much emphasis on the fact there have been 2 consent summonses dated 23 May 2018 and 14 November 2018 respectively for the disposal of the ancillary relief in the present proceeding, the second one being in replacement of the first one.

28.  The 2 summonses are the same expect Recital “J”. In the first one the parties agreed at Recital “J” to share their sons’ expenses equally while in the second one, the wife agreed to pay for all the sons’ expenses. Both summonses provide that the parties’ claims against each other are to be dismissed (save and expect the financial provision for the sons). In other words, the wife does not have to pay anything to the husband upon their divorce and vice versa for the husband.

29.  Mr Yim relied upon Mostyn J’s judgment in BN v MA [2013] EWHC 4250 where the learned judge said at [33]

33. In my judgment, when adjudicating a question of interim maintenance, where there has been a prenuptial agreement, the court should seek to apply the terms of the prenuptial agreement as closely and as practically as it can, unless the evidence of the wife in support of her application demonstrates, to a convincing standard, that she has a likely prospect of satisfying the court that this agreement should not be upheld. In the absence of any evidence of that nature from the wife, it is my judgment that it is appropriate for me to seek to apply the agreement to this case as closely as I can, provided that the wife is not left in any real predicament of need. In these circumstances, I am satisfied that the proposal advanced by Mr. Molyneux in paragraph 8 of his skeleton argument is reasonable and should be adopted. The fact that the parties may have agreed further things is no concern of mine. If the parties wish to make a voluntary agreement in relation to further aspects, that is a matter for them, but it is not something I am going to impose on the husband. It will be a matter for him. (emphasis added)

30.  Locally, HH Judge Melloy was referred to BN v Ma, supra, in the similar case of B, L v L, WS [2015] 1 HKFLR 255, FCMC 17190/2014 where she said at [14] that the appropriate approach in the circumstances is that the terms of the court’s MPS order should be as close to the pre-nuptial agreement as fairness dictates in the circumstances. The learned judge held, at [28], that the wife in that case should have appropriate level of interim support regardless of the Crossly application.

31.  Mr Yim relied upon these two judgments to say that the husband should be bound by the consent summonses and so his application for MPS should be refused.

32.  Both consent summonses were apparently prepared by T & Co., which, on record, were the husband’s solicitors in the present proceedings and the wife at that time was acting in person. The consent summonses were apparently lodged into court for approval by T & Co.

33.  After the consent summonses had been lodged and before the court’s endorsement, the husband sought leave from the court to withdraw from the consent summonses and to file his application for ancillary relief (“the Withdrawal Application”). The husband’s case, as can be gathered from his home-made affirmation when he chose to act for himself in replacement of T & Co, is that the solicitors’ firm was arranged by the wife and he did not enter into the consent summonses voluntarily.

34.  Ms Remedios submitted that in the present case there is a dispute of facts as to whether or not T & Co was arranged by the wife and/or whether there are any factors vitiating the consent summonses. Her instructing solicitors had raised requisitions on these but there was no reply.

35.  In response, Mr Yim submitted that almost in every case concerning pre-nuptial agreement, there is bound to be some factual dispute. The fact that there is a factual dispute does not mean the court can ignore the terms of the nuptial agreement. Mr Yim referred to a previous affirmation of the wife stating that it was the husband who instructed T & Co. It must have been wrong for the husband to say he did not enter into the consent summonses voluntarily. Mr Yim emphasized the fact that the husband, being a Chartered Engineer, is a highly educated person.

36.  As I mentioned above, the husband’s affirmation was a home-made one. It did not contain much particulars on the course of events and the facts in support of any vitiating factors. At the same time, I do take note that, the wife’s affirmation relied upon by Mr Yim, however, was not referred to by the wife in her affirmation in opposition nor the circumstances under which the consent summonses had been made were explained. A fair reading of the wife’s affirmation in opposition is that she did not rely upon the consent summonses as a ground.

37.  The wife said the husband embezzled $45 million from one of the Companies (“the C Shenzhen”), apparently by virtue of his positon but at the same time she said the husband did not carry out any substantial task in the company. From 2003 to 2014, said the wife, the husband went to the office once or twice per week and he only stayed in the office or worked for the company, like on part-time basis, for 1-2 hours on each visit. As I see it, one wonders how such a casual figure without any substantial task could have surreptitiously amassed such a huge sum of money right before the wife’s eyes. In any event, Mr Yim accepted this is a bare allegation on the part of the wife.

38.  The wife also said there were various transactions between the husband’s CMB 0508-account and a gentleman in the name of Cheung who is a director of a construction company in Shenzhen, being the main-contractor employed by the C Shenzhen for the fire service improvement project during 2015 and 2017. She said between October 2015 and November 2017, there was a net deposit of RMB 47,558,800 from Cheung to the CMB 0508-account. Mr Yim conceded he does not know whether there is any overlapping between the $4.114 million referred to in [18] above and the $4.5 million here.

39.  In response, the husband said the personal bank accounts of the wife and his were sometimes used to handle company-related dealings on the company’s behalf. This was very common and was the company/family practice, and there would be a certain degree of intermingling of funds within their bank accounts.

40.  Ms Remedios rightly pointed out that there were no similar transactions after the husband had left the Companies on 31 May 2018. She contended this supports the husband’s assertion that the account was part and partial of a business account.

41.  It is significantly to note that the wife said in her Form E that it was upon her discovery of the fraud on the part of the husband that led to the divorce and their agreement to divorce on the terms of the consent summonses. More than 4 years have lapsed since November 2017, there should be more than sufficient time for her to unearth what happened. Yet as at 8 April 2022 when the wife made her affirmation in opposition, she was only able to say the situation is “highly suspicious and wholly inappropriate” as to why there was such a substantial deposit. The wife’s allegation is of a serious criminal nature. Again, this has to be seen in light of the wife’s assertion about the husband’s insignificant role in the Companies.

42.  At this stage, in light of the above observations, I consider what the husband said is not unbelievable.

43.  Most importantly, it should not be forgotten that the wife initially opposed the Withdrawal Application. She later withdrew her objection and consented to leave being granted for the husband to file his application for ancillary relief and a consent order was made on 5 November 2020 accordingly. There is thus no Crossley Application before me.

44.  As commented by Rayden and Jackson on Relationship Breakdown, Finances and Children at [12.163], in the context of the matters listed under section 7, Matrimonial Proceedings and Property Ordinance (Cap 192), “the existence of an agreement is a very important piece of conduct and a very important factor in considering what is the just outcome of the proceedings”; see also Edgar v Edgar [1980] 3 All ER 887, (1981) 2 FLR 19.

45.  Thus, the consent summonses would be one of the factors that the court may need to take into consideration at trial.

46.   LYCP v JEK & Anor[2019] HKCFI 1588, HCMC 3/2018 is a case that does not involve factual dispute over a pre-nuptial agreement. Anthony Chan J described the agreement in that case as “unvitiated”, ie the agreement not being tainted by any vitiating factor, eg, lack of full disclosure of assets prior to the agreement being made. As regards the place of an unvitiated nuptial agreement in a Section 7 exercise. The learned judge said, at [130] that,

130. I pause here to summarise in very simple terms the task for the court where there exists an unvitiated nuptial agreement the application of which may conflict with the court’s decision in its absence. The overriding consideration remains that of fairness. An unvitiated nuptial agreement is one of the circumstances to be considered in arriving at a fair distribution of assets. The court will have to assess its weight. In that assessment, needs and compensation would be important, whilst sharing less so. (emphasis added)

47.  BN v MA, supra, is no doubt of persuasive authority. I agree with Mostyn J’s views as quoted at [29] above. It is important to note that the learned judge did not say the court should apply the terms of the pre-nuptial agreement as if it were a straitjacket. He merely said the court should apply the terms “as closely as practically as it can” and “provided that (the applicant) is not left in any real predicament of need”. It is also important to note that in that case (and also in the case of B, L v L, WS, supra) there was proposal from the husband offering interim relief. Needless to say, at the end of the day, it is a matter of discretion to be exercised by the court in terms of fairness to both parties.

48.  Therefore, on the above analysis and given the circumstances of this case, I am not convinced that the husband should be deprived of MPS merely because of the consent summonses.

49.  I now turn to other considerations relevant to the application.

The Family’s Standard of Living

50.  While the parties agree that the family enjoyed a very comfortable standard of living, each has his/her own interpretation as to what that means. I agree with Ms Remedios that this is largely a matter of semantics. On the materials before me, I am satisfied that the wife tried to tone down the standard of living during the marriage. The objective fact is the family had the use of 3 cars including a Ferrari. This is telling as to the standard of living enjoyed by the family during the relationship. The wife’s “current monthly expenses” as reported in her Form E of January 2021 are as much as $861,520. She is driving a Lamborghini, claimed to be a gift from her father, and a Mercedes Benz.

51.  On the materials before me, I have no doubt that the husband’s version of the parties’ standard of living is closer to the truth.

The Wife’s Financial Ability

52.  In the case of C v. F (FCMC 1701 of 2000), HH Judge Bruno Chan said:

“14. Although the sole statutory guideline in considering maintenance pending suit is that the award shall be “reasonable”, the Court will nevertheless bear in mind all the factors drawn to its attention relating to the marriage and the parties to it (my emphasis), and perhaps the 2 most outstanding matters in every case, as in this one, are the standard of living of the parties, and the ability of the husband to pay.” (emphasis added)

53.  In the present case, the focus is on the wife’ ability to pay.

54.  The wife said she has an income of around $200,000 per month.

55.  I think it is not in dispute that during the marriage the family relied substantially upon the drawings from the Companies. The couple’s salaries, from whatever position they had occupied, were insignificant. The drawings are what the husband does not have now.

56.  The wife reported in her Form E that she has been spending $860,000 per month. Despite the wife’s claims to be spending $860,000 a month, in opposing to the husband’s present application, she gave the explanation that after deducting the sons’ expense and the expenses relating to her residence, the entertainment/presents/family and business meals’ and the costs of her Lamborghini, her monthly expenses are merely about $188,000. In other words, the wife is saying these and those are not her own consumptions. With respect, I fail to follow her logic. The wife has been legally represented. The Form E is exactly for the purpose of reporting a party’s expenses and the maker has to give a “Statement of Truth”.

57.  The wife also said the rental income of the Companies dropped drastically since early 2020. She therefore had the plan of selling her Lamborghini and not to continue to lease the present residence and would move to reside with her younger brother. There was however no update on the position at the MPS hearing. In my view, this is a mere “say-so” of the wife.

58.  The husband said the rental income of the Companies are about RMB 6 to 7 million per month, while the wife said it was about RMB 2 million only. Be that as it may, I accept the husband’s submission that the wife’s cash position maintained largely the same (at about $7.5 million) between the time when she filed her Form E in January 2021 and when she filed her Answer in October 2021.

59.  I do not accept the wife’s assertion that the global pandemic has affected her ability to pay. I have no doubt that she has the ability to pay.

The Husband’s Financial Ability

60.  The husband holds a masters’ degree and is a Chartered Engineer. I am aware that the husband used to teach at the City University of Hong Kong but that was at least 18 years ago. At the same time, I am also aware that the husband was not in the labour market for a substantial period of time.

61.  I accept that, same as the wife, the husband must have some earning capacity. Yet, I need to bear in mind that the husband is already 53 years old. By the time he left the Companies, he had been out of the labour market for 14 years. That was the period when he was at his prime age. At a glance, it appears that the husband’s options are rather limited. The earning capacity of the husband is less obvious in the circumstance of this case.

The Husband’s Monthly Needs

62.  The husband gave the breakdown of his monthly needs in his supporting affirmation; the total is $132,450, $66,000 being his General Expenses and $66,450 being Personal Expenses. This includes the cost of access trips to visit the sons in the UK and the incidental expenses. The Wife said, in her affirmation, that she is prepared to assume the husband needs $97,450 only. Mr Yim, on her behalf, submitted that the husband actually needs no more than about $80,000. Significantly, this sum is even less than what the wife claimed to have been spending on Clothing and Shoes and Entertainment/Presents, totalling $100,000.

63.  I am aware, as pointed out by Mr Yim, that after having sold the Kwun Tong apartment, the husband does not have to pay mortgage payments now; and he is paying rental at a reduced rate for a smaller flat, etc.

64.  Financial needs have to be generously interpreted. Considering the marital standard of living and taking a board brush approach, I assess the husband’s needs at $130,000 per month. This is well below what the wife is enjoying.

Should MPS be Payable?

65.  For the above reasons, I am against the wife’s grounds. However, but for one reason that I will come to in the following paragraph, I would have granted a MPS Order in favour of the husband at this stage. In so saying, I am fully aware that there is no “pre-condition” as such that an applicant has to be penniless before he or she is entitled to MPS. It is all a matter of fairness in the circumstances of the case. An example can be found in CWK v YCHS & CKY, supra.

66.  The husband’s current liquid assets are worth about $3.174 million, comprised of bank balance of $120,000 and RMB 45,329 and stock investments of about $3 million. The husband said out of these $3 million, $1 million are “penny stock” that cannot be easily liquidated without huge discount. The other assets of about $887,000 are his insurance policy, pension and a 2^nd hand Porsche car.

67.  I am prepared to accept the husband’s assertion that there are penny stocks. I assume, for the purpose of the present exercise, that the husband has to give, say, a 50% discount for the liquidation of these stocks. This would mean the husband would still have about $2.674 million’s worth of liquid assets for his living expenses ($3.174 million - $0.5 million). This would be sufficient for 20 months or so. For this reason, I decline the husband’s application.

68.  With the conclusion that I have come to, I do not have to deal with the husband’s ground that the wife has been delaying the proceedings as much as she can. All I wish to say is that the progress of these divorce proceedings has been very slow; and they have become more complicated because of the intervention from the wife’s siblings, and needless to say, more costly than expected when it started.

69.  The MPS issue may have to be re-visited as and when appropriate if there is a change in the circumstances, especially if the husband’s financial situation deteriorates.

Legal Costs Provision

70.  Counsel agreed the relevant authority is Currey v Currey [2007] 1 FLR 946.

71.  It is worthy to note that in BN v MA, supra, the fact that there was a pre-nuptial agreement was not relied upon in considering whether or not legal costs provisions order should be granted.

72.  The wife’s ground of objection is that the husband is still in possession of assets of $4 million. This has to be examined as follows.

The Husband’s Estimate of Costs

73.  The wife’s Form H stated that her estimated costs incurred up to and including the MPS hearing are $2,376,000 and the estimated costs after the MPS hearing up to and including the FDR are $1,020,000.

74.  As for the husband, substantial costs were spent on the children’s matter. The husband’s estimated costs incurred from June 2019 up to and including the MPS hearing are $3,319,900 of which about $307,600 was “billed but unpaid”. The estimated costs after the MPS hearing up to and including an anticipated Tri-parte FDR are $1,849,000.

75.  The wife said she does not own the entire 35% shareholdings that are registered under her name. She owns 7% only; the other belonged to her 4 siblings. They have been joined as Interveners in the present proceedings. It means the husband has to face up to 5 opponents. The issues have not been agreed and have been fought at every stage. I also need to take the potential size of the assets involved into account. As of now, there is still no sight of any report on the valuation of the Companies. The husband has the carriage of these proceedings; because of these he would have to incur higher costs.

76.  For the above reasons, I consider the husband’s estimate is realistic. Indeed, I tend to agree with Ms Remedios that the estimated costs stand on the conservative side.

77.  Therefore, the husband would need $1,849,000 for his legal costs up to FDR, on the top of that, there is some “billed and unpaid work” of $307,600, totalling $2,156,600.

78.  I share Ms Remedios’ doubt as to whether the parties would be in a position to have a FDR by the end of this year.

79.  I have assessed the husband’s needs at $130,000 per month. I consider it is fair that the husband is to retain, say, $2,340,000 for his living expenses. Effectively this would mean a period of about 18 months ($130,000 X 18 months). Probably, this should last until the conclusion of the proceedings and would leave $334,000 ($2,674,000 - $2,340,000) for his legal costs.

80.  On that basis, there would be a shortfall of $1,822,600 for his legal costs up to and including FDR. I round it down to $1,822,500. On the evidence before me, I agree that the husband satisfied the requirements under the Currey test, ie, the husband has no assets, or none that can reasonably be deployed. This would have to be met by the legal costs provision payable by the wife. As of now, when the FDR would happen remains an open question. Assuming that the FDR is to take place in 9 months’ time, this would mean a sum of $1,822,500 payable by 9 equal monthly instalments of $202,500 each.

81.  I shall revisit the schedule when the situation becomes clearer.

Backdating

82.  Ms Remedios seeks backdating of the legal costs provision. It is not in dispute that the court has the power to do so. It may backdate the MPS to the date of the petition or the date of the MPS application. As I have already taken the “billed but unpaid work” into account, I do not think this is appropriate.

Orders

83.  For the above reasons, I make an order that the wife pays the husband a legal costs provision by way of interim maintenance in the sum of $202,500 per month; the 1^st payment to be made on 1^st August 2022 and thereafter on the 1^st day of each and every month up to an including the month when the FDR concludes.

Costs

84.  The husband is half-success in his application. It seems to me that, taking a board brush approach, he should be entitled to half of the costs of the application, including costs reserved and with counsel certificate. The costs are to be assessed summarily. The husband’s solicitors are to lodge and serve a Statement of Costs within 14 days and the wife’s solicitors may lodge and serve a written reply within the next 14 days. Such written reply should not be more than 2 pages (printed on A4 size paper, 1 ½ line spacing and at font 14). I make an order nisi accordingly.

Ms Corinne Remedios, instructed by Ip & Heathfield, appeared for the petitioner

Mr Eugene Yim and Ms Lily Yu, instructed by KL Chan & Co, appeared for the respondent