LCYP v. JEK

HCMC 3/2018

[2019] HKCFI 1588

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO. 3 OF 2018

________________________

BETWEEN
	LCYP	Petitioner
	and
	JEK	1st Respondent
	CTC	2nd Respondent

________________________

Before: Hon Anthony Chan J in Chambers (Not Open to Public)

Dates of Hearing: 15 – 17, 20 – 21 and 24 May 2019

Date of Judgment: 8 July 2019

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J U D G M E N T

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1.  This is the application of the Petitioner (“Wife”) for ancillary relief against the 1^st Respondent (“Husband”). There is also an application by her to set aside a number of dispositions by the Husband made in favour of a trust in his name (“Trust II”) pursuant to s.17 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“Ordinance”). The Trustee, a Delaware company, is the 2^nd Respondent (“R2”) in these proceedings. Although R2 had been served with these proceedings, it takes the position that this court has no jurisdiction over it and has not made an appearance.

2.  There is an interesting point of law involved in these matters, namely, the standard at which the Wife’s needs are to be assessed in the context of an unvitiated[1] Pre-Nuptial Agreement (“PNA”).

Background

3.  Save where indicated otherwise, the background facts are not in dispute.  The Husband is now aged 47.  He was born in New York.  The Wife was born in Hong Kong and is now 46 years old.  They met in Hong Kong in 1994 and were married in New Jersey, USA, in September 1997. They have 2 boys, X (now 18) and Y (14 years old).  Both the Husband and Wife are US citizen, the latter acquiring her citizenship in February 2004.

4.  When the couple met, the Husband, who had a degree in business administration, was working for the business of his family in the garment industry, ABC and its affiliates.  The business was started by his father (“Father”) and in which the Husband had a 10% shareholding.  The relationship of the Husband and Father in the business may be described as partners. 

5.  Just before the marriage, the Wife was working in Hong Kong as an executive secretary in an international investment bank earning between HK$18,000 to HK$20,000 per month.  She was serving 2 directors of the human resources department.  She had completed her Form 5 education and attended a 1-year course in secretarial training between 1990 and 1991.

6.  The Wife just turned 25 when she got married (the Husband was about 4 months older).  It was a first marriage for both of them.  They lived in New Jersey after marriage, and both continued to work – Husband for the family business and the Wife as an executive secretary for the same company (after she had obtained a work permit in late 1997).  They lived in a house acquired by the Husband in anticipation of the marriage. 

7.  According to the unchallenged evidence of the Wife, the couple had a joint bank account into which she paid her income.  It was the only account she had in the US, whilst the Husband maintained his personal bank account(s).  The Wife contributed to the family expenses, including the mortgage repayments, whilst she was employed.

8.  The financial situation of the family improved significantly after the marriage.  The family business was doing well and the Husband’s income increased.  In 1999, the couple enjoyed a comfortable life and wanted to expand the family.  They decided that the Wife should cease working to become a full-time housewife in preparation for the enlargement of their family.  X was born the next year, and Y was born in 2005. 

9.  Nine months after Y was born, the family moved into a large house in New Jersey (November 2005), which was financed partly with the proceeds of sale of the previous home, acquired in the joint names of the couple (“House”).  It stood on a plot of land 1.3 acres in size and had an area of about 10,000 sq ft.  There were 2 storeys and a furnished basement, 6 en suite bedrooms and 4 covered car parking space.  It was generously furnished as a dream home, eg, there was a custom designed theatre and an additional sitting room with a grand piano. 

10.  It is quite clear from the improvements in the quality of life enjoyed by the family that the financial position continued to improve.  The family went to cruises, ski trips, and holidays in Europe, North America, Central America, South America, Africa, India and South East Asia. They stayed at top hotels and enjoyed privileges on flights.  Money was not a concern and no budget was set for monthly expenses.  The Wife enjoyed the use of credit cards with no spending limit.  In addition to settling the card expenses, the Husband also replenished the funds in the joint account as and when needed.

11.  In December 2012, the assets of ABC and 5 of its affiliates (I shall refer to them as ABC and Company 2 to Company 6) were sold to a subsidiary, NN, of a listed conglomerate of Hong Kong at, according to the Husband, the total consideration of US$70,067,872 (“Proceeds”).  The amount of Proceeds received from the sale of the family business (“Sale”) is in dispute.  The Husband said that his shareholding in the family business was increased to 30% shortly before the completion of the Sale by way of gifts from his parents.  The amount of shares owned by the Husband, and consequently his share of the Proceeds are also in dispute.

12.  Shortly before the completion of the Sale, the Husband set up Trust II, and in which he later injected much of his share of the Proceeds.  These injections are the subject matters of the s.17 Application. 

13.  In June 2013, the House was transferred into a company.  Later, 99% of the shares in that company were also injected into Trust II.  The remainder 1% share was (and is) held by the Husband.

14.  In mid-2013, the Wife and the children moved to Hong Kong.  It is disputed whether such move was intended to be temporary or permanent.  However, it was a time when the marriage was at a low point. According to the Wife, her husband had to spend a substantial amount of time away from the family due to business commitments[2].  It is uncontroversial that the Husband started an extra-marital relationship not later than April 2012.  In any event, the Wife’s case is that although the move to Hong Kong was initially intended to last 1 to 2 years, she was determined to stay in Hong Kong permanently after the breakdown of her marriage.  She petitioned for divorce on 17 April 2014.

15.  The Husband was shocked by the Petition. Jurisdictional challenge was made by him against the Petition on the basis that the appropriate forum was New Jersey court.  The Husband also made an application to have the children returned to the US under the Hague Convention. These applications were decided against the Husband after 2 years’ of litigation, which resulted in delay in these proceedings, eg, the parties only exchanged their Forms E in August 2016.  The decree nisi was pronounced on 1 February 2018.

16.  Care and control of the children with the Wife was not disputed.  The children have been attending school in Hong Kong since the end of 2013.  X will commence his graduate study in the US this September. Y is in grade 8 at an international school.

17.  After the move to Hong Kong, the Wife and the children stayed at a development in Tai Kok Tsui for about 1 year.  They then moved to another place in Tai Tam (“OO”), which was very close to the school, to avoid the long travelling time.  They have been staying in OO ever since. 

Issues

18.  It is uncontroversial that having been entirely dependent on the Husband since 1999, at the end of a marriage lasting over 16 years the Wife’s financial needs have to be provided by the Husband.  The controversy concerns the amount of funds sufficient to meet the Wife’s needs.  There is no dispute that the Husband will have to continue to provide for the children, but there is also arguments over the quantum. 

19.  The appropriate financial provision for the children is fairly straightforward.  That cannot be said in the case of the Wife.  In fairness, although there is a significant gap between the Open Proposals of the Wife and the Husband, one cannot say that either one is entirely unreasonable.  However, to determine the appropriate financial provision for the Wife, there are a number of issues to be decided. 

20.  Firstly, the assets of the Husband, under that heading there are a number of sub-issues, namely, his non-disclosure, his share of the Proceeds, whether the assets in a number of Trusts should be regarded as his financial resources, the s.17 Application and whether certain sums should be added-back as part of the assets of the Husband.  It will be seen below that it is unnecessary to determine each of the disputes because the Husband clearly has sufficient assets to meet the appropriate award for the Wife.

21.  Secondly, the financial needs of the Wife, bearing in mind the existence of the PNA the validity of which is not in dispute.  In particular, the Husband takes issue with the Wife’s earning capacity and whether he should be funding a whole life order. 

General legal principles

22.  The general principles applied for ancillary relief are not in dispute: see WYSL v FHCBA[2018] HKCFI 1543, [34] to [39] and [42] to [45].  In trying to reach a fair result, the court will have to bear in mind the provisions of s.7 of the Ordinance and the guidance in the authorities. 

23.  Of the 5 steps exercise (WYSL, [37]): identification of assets, assessing financial needs, deciding to apply the sharing principle, consider whether there are good reasons for departing from equal division and deciding the outcome, steps 3 and 4 must be considered in light of an unvitiated nuptial agreement.  It may be said that such an agreement may justify the departure from equal division (WYSL, [41]). It is not seriously contended by Ms Yip SC[3] that the Wife is entitled to an equal division in this case (see Wife’s Open Proposal below), although it had been suggested at times that she should be so titled.

24.  In the context of this case, I shall consider needs after dealing with the PNA.

25.  In respect of the s.17 Application, there are 3 issues (WYSL, [50] to [52]), namely, disposition, intention and provision :

(i)  whether the Husband made any disposition of property within the meaning of s.17;

(ii)  if so, whether any of the disposition was made with the Husband’s intention of defeating the Wife’s claim for financial provision;

(iii)  whether, if the disposition(s) was/were set aside, different financial provision would be granted to the Wife.

Open Proposals

26.  In addition to maintenance for the children, the Wife is seeking an award of HK$70 million, which is significantly less than her capitalised needs of HK$200,000 per month (as claimed) according to the Duxbury Report (“Report”) of the Single Joint Expert (“SJE”), ie, HK$99 million.

27.  The Husband had made 2 Open Proposals[4].  The 2^nd Proposal was made in response to the suggestion of the court that it might be undesirable to uproot Y from Tai Tam where he studies and his friends are located. 

28.  The Husband’s Proposals are complex but essential they contained 2 funds to provide for housing and income.  Broadly speaking, under the 2^nd Proposal the Husband will have to provide about HK$50 million as capital provision for the Wife.  However, there will be a charge of about HK$12 million in the Husband’s favour to be executed on the property acquired for housing, which will be triggered upon the Wife’s remarriage or death.

Witnesses

29.  Both the Wife and the Husband gave evidence.  In addition, the Father was called as a witness for the Husband.

30.  There was limited challenge to the Wife’s credibility.  The most contentious part her evidence concerned, firstly, the move to OO.  I accept the Wife’s evidence that the move was preceded by viewing of the property with the Husband and approval by him.  Her evidence is inherently probable because: (i) the place at which the Wife and the children were staying at the time was very inconvenient due to the long travelling time required for school attendance; (ii) the Husband would have been concerned and no doubt the couple would have discussed alternative accommodations; (iii) quite likely, the Husband would have participated in the viewing of alternative accommodation(s); and (iv) it is unlikely for the Wife to have agreed to rent an expensive accommodation without the approval of the payer.

31.  Secondly, there is a dispute whether the Husband had ever agreed to a permanent move by the Wife and the children to Hong Kong. I am inclined to believe that he did not.  It is unlikely for him to have agreed to his family being permanently away from his base in US.  On the other hand, I see no reason to doubt the Wife’s evidence that she did tell the Husband about her wish to stay in Hong Kong permanently with the children. Such conversation is likely to have taken place at a time when the relationship was under much strain, and matters were in a state of uncertainty.   

32.  Taking all relevant matters into consideration, I have no reason to doubt the general credibility of the Wife.  She was a straightforward witness, ready to make concessions when calculation errors were identified to her.

33.  I also accept that the Father’s evidence is credible, apart from his evidence of refusal as the Distribution Advisor to approve distribution from Trust II to satisfy the Wife’s claims against his son.  It is clear from the evidence that he is a loving father and very generous to his only son.  Even on his evidence, he was quite willing to act in accordance with his son’s request.  I believe that, in maintain his refusal, the Father felt obliged to support his son’s case (see also the analysis of the evidence below).  It is unfortunate that he was dragged into these matters.  

Credibility of the Husband

34.  The Husband is clearly a highly intelligent man.  Regrettably, he was not a candid witness.  The lack of candour has an important bearing on the adjudication of this case, eg, it is quite impossible for the court to come to an accurate view on his assets.  

35.  As I shall explain below, the Husband had knowingly failed to fulfil his duty of full and frank disclosure of his assets.  Intentionally, he adopted a strategy of evasion, with an aim to cause maximum difficulty to the Wife and her legal team and to exhaust her limited resources for these proceedings.  When he gave evidence, he was determined not to give any quarter to the Wife’s case.  Even when he was confronted with obvious inconsistencies with his previous statements, he resorted to excuses, often blaming it on the professionals.  Another excuse he used a number of times was to hide behind his parents.  For instance, he said that he injected the House into Trust II at the direction of his father.  Whereas the latter’s evidence was that the injection was his son’s idea. 

36.  I start with the non-disclosure of the Husband. He confirmed that he had been advised of his duty to make full and frank disclosure.  In respect of the most important part of his assets, his share of the Proceeds, there can be no question that the discovery should have been a simple exercise of identifying the total sum received, when the various constituent parts were paid and providing the supporting documents, in particular, the Sale Agreement and the bank receipts.  Identify the present whereabouts of the Proceeds received should not be an unduly complicated matter either, because the lion share had apparently gone into Trust II.   

37.  Regrettably, the discovery given by the Husband on the Proceeds he received was nothing like this.  Ms Yip characterised such discovery as sketchy and shambolic.  I agree.  The Agreement was only produced on 31 August 2018, nearly 4½ years after the Petition was filed and more than 2 years after the filing of the Husband’s Form E.  The Agreement contradicted the Husband’s evidence about the nature and details of the Sale.  As regards the Proceeds he received, much reliance is placed on letters from Attorneys and Accountants, without the supply of source documents.  The contents of some of these letters were contradicted by the Husband in his evidence. 

38.  The state of the Husband’s discovery was repeatedly criticised by the Family Judge (see Decisions dated 16 August 2018 [2018 HKCFI 1907] and 18 December 2018 [2018 HKCFI 2738]), who was dealing with these matters until the 1^st PTR.  At that hearing, this court tried to impress on the Husband (represented by his team of lawyers) that he should pay heed to the views expressed by the court.  Such advice simply fell on deaf ears. 

39.  Quite rightly, Mr Nagpal[5] did not try to defend the state of the Husband’s discovery. 

40.  The dicta in L v L [2006] 1 HKFLR 121, §§197 to 200, are particularly apposite in this case and were reflected in the above Decisions of the Family Judge :

“197. … Given the level of professional advice the Wife could have obtained if she so wished, I find it hard to believe that she could not provide a more intelligible and meaningful answer in a timely and orderly manner. The party who gives disclosure also carries the obligation to present the information in a way that could be readily comprehensible to his opponent. Straightforward and direct answers could have been given by the Wife to questions like how much has been invested into a business and what were the sources of fund. A good litmus test for distinguishing a bona fide fulfilment of the duty to give disclosure form an attempt to obfuscate is to ask whether the answer or the material can on its own meaningfully assist in informing others as to the means of that party. I regret to say that having regard to the way in which the Wife had given disclosure of her means throughout the course of these proceedings, it is clear to me that she deliberately chosen not to give meaningful disclosure of her means.

198. It is high time that litigants in matrimonial proceedings and those advising them should appreciate that affirmation of means and answer to questionnaire are not a game of hide and seek. Too much legal costs and judicial time had been spent on such wasteful exercise. As stressed by Mr Mostyn, the onus falls squarely and fairly on a party to give full and frank disclosure of his or her own means. To adopt a wait and see approach with a hope that the opponent might fail to ask the right question is a tactic to be deplored. That by itself is a breach of the positive duty to give disclosure. As Coleridge J put it recently in J v V [2004] 1 FLR 1042, ‘all cards must be put on the table face up at the earliest stage if huge costs bills are to be avoided.’

199. Although the financial affairs of the Wife were complex involving accounts relating to a number of businesses, there is all the more reason for her to give clear and meaningful disclosure of her affairs as early as possible. Understandably, she needed to engage the services of professional advisers to assist her in the exercise. But she should appreciate that the primary duty rested on her to see to it that the exercise was done properly and satisfactorily in a timely fashion. She should have enlisted the necessary help from the professionals and supply them with all the necessary information soon after the commencement of ancillary relief proceedings. It is no excuse, as the Wife had tried to mitigate in the witness box, to say one had no idea as to how such an unsatisfactory state of disclosure has arisen because the job had been left to others.

200. If the court shall come to the conclusion that a litigant has been recalcitrant in failing to come clean in giving full and frank disclosure of his or her means, it should not hesitate to draw adverse inference against such a litigant, see Baker v Baker [1995] 2 FLR 829.”

41.  I shall revisit below the issue of drawing adverse inference.

42.  The Husband said that he had provided some 20,000 pages of discovery in these matters, but I see no genuine attempt to make discovery in an organised and easily intelligible manner.  Given the resources deployed by the Husband (his legal expenditure incurred to date (nearly HK$43 million) is just short of 4 times that of the Wife), it is difficult to resist the inference that there was a deliberate attempt to run down the Wife’s resources.  The difficulties in deciphering the Husband’s discovery is well-demonstrated by the many tables produced by the Wife’ team of counsel to assist the court (“W-Table”) for which hours must have been spent to try to piece together the information from various materials produced by the Husband (including his affirmations), much of which were inconsistent. 

43.  I need only give 2 further examples on the quality of the Husband’s evidence.  Under cross-examination, he insisted that once injected into Trust II, the assets no longer belonged to him.  This is contrary to the Father’s evidence that those assets belonged to his son.  When the Husband was asked to explain to whom those assets belonged, he said with visible discomfort that he would have to consult with New Jersey Attorney. Later, he also said that the assets were held on trust for the next generation. 

44.  I am unable to accept the evidence.  First and foremost, a man of the Husband’s sophistication would not have any difficulty answering question over the ownership of the most important asset he had generated.  Secondly, it is quite improbable that he would have divested himself of his largest asset at a time when his career and earning capacity were on the rise.  I have no doubt that he had in mind various profitable manners in which the asset might be deployed.  Thirdly, his children already had the benefit of 2 Trusts (see below).  If he was minded to put away further assets in their favour, he would likely have injected them to their Trusts. 

45.  The Husband was also cross-examined on the whereabouts of approximately US$1.51 million he had received as part of his share of the Proceeds[6]. He identified 3 expenses which purportedly accounted for the money, namely, outstanding debts of the companies which had to be cleared prior to the Sale, professional fees incurred for the Sale and expenses to wind down the ABC companies.  He said that the biggest chunk of the money went to professional fees.  When the answer was further explored, the Husband said that the total professional fees were a little over US$2 million, and he was required to shoulder less than US$700,000 of that sum as his share.

46.  The Husband then changed his story and said that a big chunk of the US$1.51 million (a little over US$1 million) had gone to bonuses he paid to the existing employees so that he could secure the future success of the business for which he would continue to work and on which the deferred portion of the Proceeds depended.  When he was asked why he had to bear the entire burden of the bonuses, he said that his Father was retiring and not involved in ABC’s future.  It was then pointed out to him that he was (on his case) not entitled to the entirety of the deferred Proceeds, and in purported answer to which he embarked upon a long and irrelevant speech about his relationship with the Purchaser to try to divert attention.

47.  As I have said, the Husband is a highly intelligent person.  The Sale must be one of the most important, if not the most important, transaction he had ever handled.  He came to court fully aware that he would be cross-examined about his assets.  He was asked about large sums of money.  I therefore must be careful not to simply attribute unsatisfactory evidence to faulty recollection. 

48.  Whilst it is true that the Husband had maintained that bonuses were paid to employees by him personally[7], if one adds up the 2 alleged payments of bonuses, they amounted to more than US$1.72 million, which contradicted the answer in para 46 above. Further, it does not answer the question why he had to shoulder the entirety of the bonuses when he was only entitled to 30% of the Proceeds. 

49.  Furthermore, according to the Husband’s tax returns for 2014 and 2016[8], those bonuses were allegedly booked under line 17 “Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E”.  In the Schedule E of the 2016 return[9], the alleged 2016 bonus was booked as “Self-employment earnings (loss)/Wages” under “Miscellaneous”.  I agree with Ms Yip that these documents are very difficult to understand and the Husband’s evidence cannot be taken at face value in light of the same.  However, as Ms Yip pointed out, there is no source documents produced against which the Husband’s evidence may be verified.

50.  Most importantly, it would have been a straightforward exercise for the Husband to give a full and accurate account of the Proceeds he received and the expenses which needed to be deducted.  There must be a reason or reasons for the Husband’s refusal to do so.  This court is not prepared to act on scraps of information which may be misleading.  The irresistible inference is that at least one of the reasons for the sorry state of the evidence is that the Husband is hiding the truth from the court. 

Earning Capacities

51.  There is a gulf of disparity here.  The Husband has a degree in business administration and graduated very recently from a well-known university with an Executive MBA.  After the Sale, the Husband was employed by the Purchaser to continue to manage ABC’s business.  There can be no dispute that the Husband commands a high earning capacity[10].  No doubt he can look to doing even better in the future.

52.  According to the Husband, his current total earned income per annum is US$811,460, which amount to US$438,432 (HK$3,419,768) after tax at 45.79%.

53.  The Husband had a consultancy business for 7 years prior to the Sale.  He was and is an expert in predicting consumer trend in his trade.  As part of the arrangements under the Sale, the Husband was paid handsomely by the Purchaser for discontinuing his consultancy business.  The business had a gross income of about US$250,000 during the few years prior to and including 2012.  Under the arrangement with the Purchaser, he was paid US$600,000 per year for 3 years (2013 to 2015) with a final payment of US$50,000 for 2016. 

54.  Despite the challenge by the Wife, I accept that the Husband did not continue with his consultancy business after the Sale. That would be inconsistent with his duties to ABC. 

55.  However, I believe that the Husband has every intention to rekindle that business if he ceases to work for the Purchaser. That is evident from the change of business activity for one of the ABC companies from “wholesaler” of “soft goods” to “consulting services” in 2015 as stated in its tax return.  The Husband had no proper explanation for the switch for this dormant company, and his answer that it was a question for the accountant is unconvincing.  More likely than not, he is keeping the company ready for the future. 

56.  Further, I do not accept his evidence that he would have to start from scratch if he rekindles the consultancy business. Whilst he might be right that the industry model had changed, I am sure that the experience he continued to gain since 2013 can only augment his expertise. He will also be able to take advantage of the network he had developed whilst working for the Purchaser. 

57.  Therefore, there is a significant additional earning capacity on the part of the Husband.  Although there is no evidence of the monetary value of that capacity, what the Husband used to generate from the consultancy business in 2012 when he was working part-time on it serves as a reference.

58.  As submitted by Ms Yip, in accordance with his 2016 tax return[11] the Husband also had passive incomes made up of qualified and ordinary dividends as well as interest income at US$350,983 (HK$2,737,667). 

59.  If the assets in Trust II are regarded as the Husband’s resources, the growth in those assets ought not be ignored. Regrettably, like so many aspects of the evidence on assets, the growth rate achieved is not clear and is subject to disagreement between the parties. However, even on the Husband’s case, those assets had growth about 12% over a 5 year period.

60.  It is disputed by the Wife that she has an earning capacity which should be valued at between HK$20,000 to HK$30,000 as suggested by the Husband.  In a general sense, any able-bodied person has an earning capacity.  However, the assessment here is made in the context of fairness.  For instance, it would not be fair to say that the Wife can get a job as a waitress (it is not so suggested).

61.  The evidence is that Wife’s secretarial skill had been rendered out of date by the advancement in technology.  Neither her training nor experience in her past employment involved the use of computer. Prior to giving up her career, apart from secretarial work, the Wife’s only experience was working at the trading office of a small garment business which belonged to her family.  The fact that she had ceased working since 1999 would only add to the difficulties in returning to the labour market.

62.  I am unable to accept the criticism that the Wife should get a part-time job now since Y is 14.  The Wife is in the best position to judge the amount of attention to be given to her children.  She will be approaching 51 years old when Y becomes 18.  I do not believe that it is realistic or reasonable to maintain that the she should return to the labour market at a lower position, say a receptionist.  Mr Nagpal accepted that the Wife would require a transitional period for retraining before re-entry into the labour market as a secretary. 

63.  Doing the best in the absence of a crystal ball, I accept that the Wife will be able to re-enter the labour market after Y became 18 and with a year of retraining.  I also accept that the suggested monthly earning of HK$20,000 is not unreasonable.  On the other hand, there will likely be difficulties faced by a 52 year old newly retrained secretary, eg, it will likely take longer for her to find a suitable position.

Identification of assets

64.  The total agreed net family assets are valued at HK$30,103,009 (consisted of only 1% of the House (the remainder is held in Trust II)) or HK$44,388,709 (including the House).  Of those assets, only a small part (HK$5,515,708[12]) is in the hands of the Wife[13].

65.  As regards the disputed assets of the Husband, it is already foreshowed that it is impossible for the court to come to an accurate view due to the non-disclosure of the Husband.  Before I deal with adverse inference, I shall consider some of the disputed assets of the Husband.

Proceeds

66.  I accept the evidence that the total Proceeds were a little over US$70 million.  That figure is consistent with clause 3.5 of the Sale Agreement which put a ceiling on the Proceeds at US$79 million.  The payments were structured in that about US$31 million was paid in 2 tranches in November 2012 and December 2013.  The remainder was performance related. 

67.  Ms Yip submitted that the Husband’s share of the Proceeds might have exceeded 30%.  The proposition was based on a reverse calculation based on the data contained in a Distribution Summary as at 31 December 2013 provided by the Husband[14]. Such calculation showed that the Husband was allotted between 30% to 40% of the distributions from ABC, Companies 2 to 5.  However, he received nearly 65% in respect of Company 6.  All the performance related Proceeds received from December 2014 to May 2018 were paid to Company 6.

68.  There is certainly force in Ms Yip’s submission that an increased interest of the Husband after the Sale would tally with the evidence of the Father that during the 5 years before the Sale he did not spend much time in the business, which was run by his son, and he retired after the Sale.  Further, the Husband’s evidence that he had paid substantial bonuses to key employees is also consistent with the picture that he had a larger stake in the performance related Proceeds. 

69.  In his final submissions, Mr Nagpal sought to demonstrate with his Appendices III and IV that: (a) the Husband’s tax records showed that his interest in the ABC Companies amounted to exactly 30% and he had been taxed on that basis; and (b) the reverse calculation exercise was forensically meaningless and flawed because of, eg, double counting. 

70.  On the other hand, Ms Yip took the court to the tax documents and showed that in the absence of adequate explanation it would be unfair for the court to simply accept the interpretation of the documents proffered on behalf of the Husband.  Similar submission was made in respect of Mr Nagpal’s analysis of the Distribution Summary set out in his Appendix IV.

71.  The upshot is that this court is left in the dark as to precisely the amount of Proceeds received by the Husband. 

Distributions from the ABC Companies

72.  In cross-examination, the Husband agreed that he had received distributions from the ABC Companies in respect of their pre-Sale business.  Valiantly, Mr Nagpal sought to establish the amount of such distributions by referring to various tax returns and suggested that the net receipt was US$1,211,260.  The explanation is not properly based on evidence. In any event, there is no explanation on where that significant sum of money had gone to.

Adverse inference

73.  Both sides had referred to the case of NG v SG(Appeal: Non-disclosure) [2012] 1 FLR 1211 citing the dicta of Mostyn J at [7] and [16] :

“[7] There must surely be a sound evidential basis for reaching a conclusion as to the scale of undisclosed assets. The court should not be led into a knee-jerk reaction that says simply because evasiveness and opacity is demonstrated there is some vast sum salted away. This is not to say that the court has to put a precise figure on the scale of the hidden assets, let alone to identify by reference to evidence where they are or what they comprise ...

[16] Pulling the threads together it seems to me that where the court is satisfied that the disclosure given by one party has been materially deficient then:

(i) The court is duty bound to consider by the process of drawing adverse inferences whether funds have been hidden.

(ii) But such inferences must be properly drawn and reasonable. It would be wrong to draw inferences that a party has assets which, on an assessment of the evidence, the court is satisfied he has not got.

(iii) If the court concludes that funds have been hidden then it should attempt a realistic and reasonable quantification of those funds, even in the broadest terms.

(iv) In making its judgment as to quantification the court will first look to direct evidence such as documentation and observations made by the other party.

(v) The court will then look to the scale of business activities and at lifestyle.

(vi) Vague evidence of reputation or the opinions or beliefs of third parties is inadmissible in the exercise.

(vii) The Al-Khatib v Masry technique of concluding that the non-discloser must have assets of at least twice what the claimant is seeking should not be used as the sole metric of quantification.

(viii) The court must be astute to ensure that a non-discloser should not be able to procure a result from his non-disclosure better than that which would be ordered if the truth were told.  If the result is an order that is unfair to the non-discloser it is better that the court should be drawn into making an order that is unfair to the claimant.”

74.  Whilst I am satisfied that the Husband had failed to properly disclose his receipts from the Proceeds and the pre-Sale distributions, there is no satisfactory manner in which the court can come to a figure for the unaccounted money.  I am not prepared to accept the sum of US$7,864,691 suggested by Ms Yip because of the possibility of, eg, double counting.  Further, I cannot say whether some of the money had already been expended on, eg, the payment of the Husband’s vast legal bills. On the other hand, it is unlikely that the Husband would have gone to such length to hide an insignificant sum from the Wife.  However, the non-disclosure will be taken into consideration for the present purpose.

Trust

75.  There are 2 Trusts in favour of the Husband, and 2 Trusts each in favour of the children.  I shall consider the latter first.

76.  There was a Trust established in favour of X in 2001 after he was born.  Similarly, a Trust was established in favour of Y in 2009.  The Husband is the Settlor under these Trusts.  The Husband, the Wife and the Father are the Trustees.  X and Y are respectively the only beneficiary under their Trusts and the trust funds are preserved for distribution to them.

77.  The Wife’s contention that these Trusts are the resources of the Husband is premised solely on the fact that he had borrowed US$150,000 from each of these Trusts to pay for a property (“RR”) which was acquired in the sole name of the Wife in November 2013.  The Husband maintains that the money has to be returned.  I see no reason to doubt the Husband’s case, nor is there any reason to believe that a loving father would treat the resources he had put away for his children as free for his own use.

78.  In 2012, 2 Trusts were set up in favour of respectively X and Y by the Father, with Husband as the Trustee.  The beneficiaries under these Trusts are confined to X and Y respectively, and not the Husband as contended by the Wife.  I agree with the Husband that this is clear when Clauses 1 and 2 of the Trust Deed are properly read together.  Despite the Wife’s submission that US$500,000 each was injected into these Trusts shortly after her Petition, I see no adequate reason to regard these Trusts as the Husband’s resources.

79.  In 1988, the Father set up a Trust in favour of the Husband and his sister (“Trust I”).  Husband’s mother was the Trustee[15].  In January 2018, the Husband emptied the balance of Trust I[16] and the balance of one of his accounts (respectively US$554,565 and the US$39,152) purportedly to repay an outstanding loan from the Father (“KK Loan”) by way of one transfer of US$593,716 on 5 January 2018. 

80.  The Father’s evidence was that he was not aware of this repayment.  He never requested for repayment of the KK Loan, which he granted to his son in 2001 for the purchase of a holiday home.  He said that his son would pay back the Loan when he wanted to.  

81.  When asked in cross-examination why he chose to repay the KK Loan when he was, according to his own evidence, in financial difficulty and without any request by the Father for repayment, the only reason given by the Husband was that interest was accumulating on the Loan.  According to the Father, interest was charged on the Loan because he was advised by lawyer and accountant that it would make the Loan legitimate. 

82.  On 12 January 2018, 7 days after the purported repayment, the Husband made his 7^th Affirmation which contained an assertion that he had “not been able to make ends meet without obtaining [certain loans] from my father”.

83.  In light of the evidence, I agree with Ms Yip’s submission that the KK Loan was a “soft loan” from the Father.  The Husband was free to choose whether and when to repay it.  The purported repayment of US$593,716 was driven by this litigation with the aim to bring down his side of the net assets.  The amount ought to be restored to the Husband’s side of the balance sheet.

Trust II

84.  This Trust had a value (as of 31 December 2018) of US$14,930,714.30 (approx. HK$116,459,569.43). 

85.  It was set up in late 2012 at about the time of the Sale.  The Husband is the Grantor.  R2 is the Trustee.  The Father is the Distribution Advisor as well as the Trust Protector.  The Husband’s case is that all distributions from Trust II can only be made with the written direction of the Father (Clause 5.1 of the Trust Agreement), who had indicated his disagreement to making any distribution in favour of the Wife. 

86.  In addition to the injection of 99% of the interest representing the House in July 2013 and a non-cash injection of US$618,470 in September 2013, between November 2013 and September 2015 the Husband injected a total of US$10,994,193 in cash into Trust II[17] on 6 occasions.  The cash came from part of the Husband’s share of the Proceeds.  The non-cash injection and the 6 cash injections are the subject matters of the s. 17 Application. 

87.  Insofar as arguments concerning the construction of the Trust Agreement are concerned, firstly, I agree with the Husband that any distribution to him would be subject to the agreement of his father as the Distribution Advisor. 

88.  The second argument is less clear cut.  The Wife contends that, as the Grantor of the Trust, the Husband has the power to substitute the Trust Protector under Clause 4.13, who in turn will have the power to amend or change the provisions of the Trust Agreement (Clause 4.12). Thus, Clause 5.1 can be removed or replaced as directed by the Husband. 

89.  The Husband disagrees.  It was argued that the Trust Protector’s powers under Clause 4.12 are not unbounded.  He does not have powers or authorities that are specifically denied by the Trust Agreement.  His power is for the “prompt and effective administration of the trusts”.  More significantly, the Trust Protector is bound to act in a manner consistent with the Grantor’s intent as expressed in the Agreement.  The Grantor’s expressed intention was to ensure that no distributions could be made without the Distribution Advisor’s consent.  A new Trust Protector cannot therefore violate that clear intention.

90.  There is force in the Husband’s argument, and given that the Trust Agreement is governed by the law of the State of Delaware, I am reluctant to express a firm view on the issue. 

91.  This brings me to the Wife’s case that the assets in Trust II are financial resources likely to be available to the Husband. 

The test

92.  To determine whether a discretionary trust forms part of a party’s resources, the court applies the “Charman test” (see WYSL, supra, [48] to [49]): whether “if the husband were to request it to advance the whole (or part) of the capital of the trust to him, the trustee would be likely to do so”.

Analysis

93.  The Husband’s case that the assets in Trust II should not be regarded as part of his resources is hinges on the evidence of his Father that he would not agree to any distribution through which assets would end up with the Wife (with the exception of 50% interest in the House). 

94.  I am unable to place any weight on the Father’s evidence in this regard.  Firstly, there was a significant shift in his evidence.  He was quite categorical in his affirmation that he would only agree to authorise the release of 50% of the net value of the House to the Wife as part of a divorce settlement.  However, shortly before he gave evidence, he was agreeable to authorise distribution of assets to satisfy the Husband’s Open Proposal (there was no other assets sufficient to meet the Open Proposal, according to the Husband’s case).  His evidence was that he was told the day before he gave evidence that his son had made a settlement offer.  He asked his son to confirm the position and he agreed to the release of assets afterwards. He said that the case had gone on for 4 years, and if it helped to settle it he would make the authorisation.  He also lamented about the costs expended in this case. 

95.  Secondly, the Father accepted that the assets in Trust II belonged to his son.  He agreed that if his son had asked for a distribution to meet a legitimate purpose, he would agree to it.  However, he frankly acknowledged that the PNA was the “sticking point”, and he was not happy with the Wife getting money from the Trust because he saw it as being inconsistent with the PNA.   

96.  Thirdly, it is quite clear from his evidence concerning the many loans he made to his son (which totalled some US$1 million), and the injection of the House into the Trust, that the Father was merely doing what he was asked by his son. 

97.  In fairness to the Father, I have considerable doubt whether the Wife’s claim had been properly explained to him.  In particular, unless the needs of the Wife are provided for, she would be left in a lurch for having given up her career for the sake of the family, and that such sacrifice had enabled his son to focus on his career which had blossomed. 

98.  I have no doubt that Father is a reasonable person.  Unfortunately, he had to support his son’s case when called upon to do so.  However, the compelling inference from the evidence is that the Father will not stand in the way of a distribution of assets to meet the obligations of his son in these matters.  He will be glad to see the end of this unfortunate and very expensive episode. 

99.  In the premises, I hold that the assets in Trust II are the resources of the Husband. 

S. 17 application

100.  As an alternative, the Wife says that the 7 injections of assets into Trust II (see para 86 above) should be added back to the Husband’s assets because they were done with the aim to defeat her financial claims.

101.  The Wife’s case is based solely on inference, which of course can be very powerful.  In particular, the court is asked to examination the injections against the events set out in W-Table K.  In respect of the first 3 injections between September and November 2013, the Wife is relying solely on the fact that the Husband was having an extra-marital affair. 

102.  I am unable to agree that it supports an inference that the dispositions were made with the Husband’s intention of defeating the Wife’s claim for financial provision (see para 25(ii) above). The Wife’s evidence was that the Husband was shocked by her petition for divorce.  The fact that she was a beneficiary under Trust II as the Husband’s spouse strongly militates against the suggested intention.  Further, it should not be overlooked that the Husband and his family seemed to favour the use of Trust to ring-fence their assets.  The injection of the House and the Husband’s non-cash assets into Trust II was consistent with that modus operandi. 

103.  As regards the 4^th injection of about US$4.69 million on 23 December 2013, it was made at the time when the marriage was in serious difficulty as a result of the confrontation between the couple on the extra-marital affair.  On the other hand, the timing coincided with the receipt of Proceeds.  I do not believe that the Husband wanted or was planning a divorce at time.  His children were quite young.  I see no sufficient evidence on which to infer the requisite intention. 

104.  In respect of the next large injection of US$4.1 million on 17 December 2014, I see nothing in the suggestion that it was connected to the hearing on 4 December 2014 of the Husband’s jurisdictional and forum challenge against the Wife’s Petition.  The judgment handed down on 16 January 2015 was in favour of the Husband.

105.  Finally, it was said that the 6^th injection of US$400,000 and 7^th injection of US$500,000 were made respectively shortly after the grant of leave to the Wife to appeal against the said judgment and after the appeal was allowed.  I am inclined to agree with the Husband that the connections are tenuous.  These injections should not be viewed in isolation but in the context of the other injections.  The evidence showed that Trust II was set up at a time when the Husband expected to receive substantial sums from the Sale and he wanted to ring-fence his assets.  My finding that he had failed to make proper disclosure so as to hide his assets from the Wife does not change that picture. 

106.  In the premises, the s. 17 Application must fail.

Husband’s litigation costs

107.  According to the latest Forms H, the Husband had spent HK$43.77 million on costs, whereas the Wife’s legal expenditure was HK$11.85 million.  Both the level of costs incurred by Husband and the disparity are staggering, especially when the Wife has the carriage of these proceedings and should have incurred higher costs.  

108.  The Wife contends that, based on well-established legal principles, the excess of the Husband’s costs over hers (about HK$31.92 million) ought to be added back onto the Husband’s side of the balance sheet when computing the family assets in order to achieve fairness.

109.  It is well-established that the court has the power to “add back” any non-marital expenses spent or squandered by a spouse in order to achieve fairness (see Norris v Norris [2003] 1 FLR 1142, [77] and MKKWH v RKSH, CACV 197/2012, unrep, 24 September 2013, [61], [62] and [66]).

110.  There was a summary of the legal principles relating to “adding back” which was referred to by Mostyn J in BP, KP and NI [2013] 1 FLR 1310 at 1319 :

“[31] In my decision of BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC 2708 (Fam), [2012] 1 FLR 667 I attempted to summarise the law concerning the technique of add-back at the final trial at paras [50] and [51]:

‘[50] On 1 July 2009 H gifted C £18,000 and this was followed by further gifts of £57,000 on 3 July 2009, £50,000 on 10 July 2009 and £15,010 on 12 August 2009; a total of £140,030. W seeks that these sums be added back to the pool of divisible assets as a wanton dissipation. I attempted to summarize the principles applicable to this technique in my decision of N v F (Financial Orders: Pre-Acquired Wealth) [2011] 2 FLR 533 where I stated at para 39:

“In this country we have separate property.  If a party disposes of assets with the intention of defeating the other party’s claim then such a transaction can be reversed under s 37 of the MCA 1973.  Similarly, where there is ‘clear evidence of dissipation (in which there is a wanton element)’ then the dissipated sums can be added back or re-attributed (see Vaughan v Vaughan [2007] EWCA Civ 1085, [2008] 1 FLR 1108 at para [14]).  But short of this a party can do what he wants with his money.  What is not acceptable is a faint criticism falling short of either of these standards.  If a party seeks a set aside or a re-attribution then she must nail her colours to the mast.”

[51] Although intellectually pure, the problem with this technique is that it does not re-create any actual money.  It is in truth a process of penalization.  In my judgment it should be applied very cautiously indeed and only where the dissipation is demonstrably wanton …”

111.  In RH v RH [2008] 2 FLR 2142, the legal costs incurred by the husband was almost double that on the wife’s side.  Singer J decided to compute the size of the family pot by adding back the disparity in costs between the parties.  The learned Judge explained :

“[8] In arriving at the capital award I had regard to the very considerable disparity in the costs each had run up in the course of the litigation to that date (£265,000 on W’s side, and £486,000 on H’s) and decided to adjust the assets subject to division by, in effect, writing back £225,000 of H’s costs. …

[16] The converse argument is that if one party profligately runs up for him or herself a grossly disproportionate costs liability, then, if it is fully taken into account, the effect (in a case resolved by equal or other proportional redistribution) is to saddle the party who has expended less with an automatic contribution of half the disparity.

…

[19]  Moreover, I have to say that I am now firm in my view that it was unreasonable for H to expend so much more on the case.  A number of arguments were advanced for why this might be, such as the higher charging rate of the solicitor dealing with his case.  Beyond that, says Mr Crayford, it is speculation arrived at without analysis, and one which bears unfairly on H.  I have listened to what has been said, and I have looked again at the scale of the disparity, and I have come to the conclusion after hearing the costs debate that I was right in the main judgment to suspect ‘that for some years he has regarded this litigation as his principal activity’, and indeed that his approach to it has verged on the obsessional.  He directed huge analysis to the bewildering detail of which party (on his case, W) and which party’s properties (on his case, those in W’s name) benefited more from monies released from the sale or refinancing of the other’s.  This was unfathomable, and should have been seen to be so from an early stage, given not least that the attempt at such a tracing exercise itself engendered myriad issues as to the accuracy of their assertions, and that there, for the most part, was no documentary or other satisfactory evidence to establish these issues one way or the other.  The considerations advanced (whether in isolation or in combination) do not explain the disparity, that his total costs to the end of the main hearing are almost double hers.  The ratio is 97:53.”

112.  Finally, I refer to the recent dicta of the Court of Appeal in LLC v LMWA & Anr[2019] HKCA 347 :

“30. A characteristic of matrimonial or family proceedings which all those involved in it (parties and those relatives who supported them, lawyers as well as judges) should always be mindful is that the resources (including both time, monies as well as energy) of the parties should not be disproportionately squandered away in litigation. This is particularly so in cases where there are children in the family. For each $10,000 spent on legal fees, the parties would eventually have $10,000 less to be distributed amongst themselves (in a sharing case) or for maintaining themselves and their children (in a need case). For each hour spent on preparation and attending hearing, the party would have one hour less for rebuilding their lives after divorce or for spending time with their children. Actually, it could probably be worse because in many instances the time and energy spent on litigation would generate ill-feelings and hostilities for which much more time is needed to restore the litigant’s peace of mind.

31. Like other places in the world, the divorce rate in Hong Kong is getting higher and higher.  The caseload for the Family Court is increasing every year and the cases are getting more complicated.  It is not uncommon that matrimonial or family proceedings lasted much longer than they should have and the legal costs incurred by the parties drained away an unreasonably large proportion of the family wealth.  Based on our experience on the bench in hearing family cases, there is an urgent need for those practising family law to embrace a more proactive mindset to resolve family disputes through effective and proportionate means.  There is also a need for the courts to adopt proactive case management to curtail excesses in litigation which ultimately do not do any good in resolving the matter for the parties.”

113.  In respect of the Husband’s arguments against the add-back, firstly, I am alive that this is a needs case and not one of sharing.  Nevertheless, for the purpose of evaluating the amount of available assets, I see nothing unfair in adding back on the Husband’s side the grossly excessive legal expenditure.

114.  Secondly, the Husband’s argument based on the need for a taxation exercise to judge whether the costs are excessive is addressed by the above dicta of Singer J.  I do not believe that the vast disparity can be explained by, eg, the fact that the Husband had to do some of the running in this litigation.  More likely than not, the way in which the Husband chose to present his discovery had added very significantly to the costs.

115.  However, I must bear in mind the Father’s evidence that the Husband had borrowed from him to pay the legal costs.  Taking a reasonably board-brush view, I believe that a sum of HK$22 million should be added back as the Husband’s assets.

Identified assets

116.  Adding together the Agreed Net Family Assets (HK$44,388,709), Trust II (HK$116,459,569.43), the KK Loan (HK$4,630,984.80) and the costs add-back (HK$22,000,000) yields a total of HK$187,479,263.23.

117.  In light of the finding on the Husband’s non-disclosure, the above figure is likely to be an underestimate.  On the other hand, given the Open Offer of the Wife, the precise amount of assets is unimportant. 

The PNA

118.  Under the terms of the PNA, in the event of a divorce the Wife’s entitlement to financial provision would be confined to: (a) on the condition that the marriage lasted for at least 5 years or there is a child of the parties living, alimony for a period capped at 5 years and the amount of which would be based on the Husband’s base weekly salary, exclusive of bonuses, income or profits from any business or investments, trusts, gifts and inheritances (clause 5.1); and (b) up to half of the matrimonial home (the House) depending on the length of the marriage (the 50% applied by the end of the 10^th year) (clause 7.9(b)).

119.  Although the PNA foresaw that the parties might have children, it contained no provision for the maintenance of children (clause 5.2).

120.  I agree with Mr Nagpal that the PNA covered the Husband’s wealth generated from his work and from the Sale (clauses 3.2(a) and 3.2(d)). The PNA had a “sunset clause” (clause 7.17) by which it would cease to have effect if the parties had been married for 40 years.

121.  Although there is no challenge to the validity of the PNA, it is not irrelevant to looks briefly at the circumstances pertaining to its creation.  In August 1997, shortly after she turned 25 the Wife went to the US to get married.  It was her 3^rd visit to that country.  About 1 week after her arrival, she was asked by the Husband to enter into a PNA.  It was the first time that she heard about such a document.  She was taken by the Husband to see a lawyer who would represent her in that exercise.  It appears that the lawyer was paid by the Husband.  After negotiations between the lawyers acting respectively for the parties, the PNA was entered into.  The Wife’s evidence was that she had difficulties understanding the language used in the PNA.

122.  The PNA provided for separation of the assets of the spouses.  At the time, they were young and had limited assets.  As identified in the PNA, the Husband had a modest income and assets of about US$570,000.  Whereas, it was stated that the Wife planned to work for a company as a secretary beginning in January 1998.  She only had assets worth about US$12,500. 

123.  I have already identified the material terms of the PNA.  Apart from the lack of provision for children, it did not provide for the situation where the Wife had given up her career to become a full-time home-maker, and from which the Husband would benefit.  In particular, the opening words of clause 5.1 should be noted :

“The parties do mutually warrant and represent to each other that each has sufficient earnings and the capacity in the future to support themselves adequately in the event of … divorce …”

[emphasis added]

Plainly, the present situation was not one envisaged by the parties back in 1997.

Legal principles

124.  The guiding authority in this jurisdiction on nuptial agreements is the CFA judgment in SPH v SA [2014] 3 HKLRD 497, in which the Court adopted[18] the principles enunciated in the English Supreme Court in the case of Granatino v Radmacher [2011] 1 AC 534.

125.  In SPH, in the course of referring to Radmacher, the CFA held at [33] :

“In particular, an agreement would carry full weight only if each party had entered into it of his or her own free will, without undue influence or pressure, having all the information material to his or her decision to enter into the agreement and intending that it should be effective to govern the financial consequences of the marriage coming to an end; and the court should give effect to an agreement which was freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement. Enforcement of the agreement could be rendered unfair by the occurrence of contingencies unforeseen at the time of the agreement or where, in the circumstances prevailing at the time of separation, one partner would be left in a predicament of real need while the other enjoyed a sufficiency.”

[emphasis added]

126.  Although there is no serous dispute on legal principles between the parties, they differ strongly on the standard which the Husband has to meet in order to provide for the Wife.  On one hand, the Wife says that the needs of herself and the children have to be generously interpreted (there is no dispute that a generous barometer should be used in respect of the needs of the children[19]). Whereas, the Husband maintains that he is only required to meet her real needs.  However, it was said that his Open Proposals had gone further such that the Wife’s reasonable needs can be met by it.

127.  It is thus important that the principles enunciated in Radmacher are carefully considered.  The Supreme Court held :

“2. A court when considering the grant of ancillary relief is not obliged to give effect to nuptial agreements … The parties cannot, by agreement, oust the jurisdiction of the court. The court must, however, give appropriate weight to such an agreement.

3. … Under English law it is the court that is the arbiter of financial arrangements between the parties when it brings a marriage to an end. A prior agreement between husband and wife is only one of the matters to which the court will have regard. …

7. There can be no question of this court altering the principle that it is the court, and not any prior agreement between the parties, that will determine the appropriate ancillary relief when a marriage comes to an end, for that principle is embodied in the legislation. …

(under “Factors detracting from the weight to be accorded to the agreement”)

68. If [a nuptial agreement] is to carry full weight, both the husband and wife must enter into it of their own free will, without undue influence or pressure, and informed of its implications. …

69. … the Court of Appeal was correct in principle to ask whether there was any material lack of disclosure, information or advice. Sound legal advice is obviously desirable, for this will ensure that a party understands the implications of the agreement, and full disclosure of any assets owned by the other party may be necessary to ensure this. …

71. In relation to the circumstances attending the making of the nuptial agreement, this comment of Ormrod LJ in Edgar v Edgar [1980] 1 WLR 1410, 1417, although made about a separation agreement, is pertinent:

‘It is not necessary in this connection to think in formal legal terms, such as misrepresentation or estoppel; all the circumstances as they affect each of two human beings must be considered in the complex relationship of marriage.’

The first question will be whether any of the standard vitiating factors: duress, fraud or misrepresentation, is present. Even if the agreement does not have contractual force, those factors will negate any effect the agreement might otherwise have. But unconscionable conduct such as undue pressure (falling short of duress) will also be likely to eliminate the weight to be attached to the agreement, and other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, would reduce or eliminate it.

72. The court may take into account a party’s emotional state, and what pressures he or she was under to agree. But that again cannot be considered in isolation from what would have happened had he or she not been under those pressures. The circumstances of the parties at the time of the agreement will be relevant. Those will include such matters as their age and maturity, whether either or both had been married or been in long-term relationship before. For such couples their experience of previous relationships may explain the terms of the agreement, and may also show what they foresaw when they entered into the agreement. What may not be easily foreseeable for less mature couples may well be in contemplation of more mature couples. Another important factor may be whether the marriage would have gone ahead without an agreement, or without the terms which had been agreed. This may cut either way.

73. If the terms of the agreement are unfair from the start, this will reduce its weight, although this question will be subsumed in practice in the question of whether the agreement operates unfairly having regard to the circumstances prevailing at the time of the breakdown of the marriage.

(under “Fairness”)

75. White v White [2001] 1 AC 596 and McFarlane v McFarlane [2006] 2 AC 618 establish that the overriding criterion to be applied in ancillary relief proceedings is that of fairness and identify the three strands of need, compensation and sharing that are relevant to the question of what is fair. If an ante-nuptial agreement deals with those matters in a way that the court might adopt absent such an agreement, there is no problem about giving effect to the agreement. The problem arises where the agreement makes provisions that conflict with what the court would otherwise consider to be the requirements of fairness. The fact of the agreement is capable of altering what is fair. It is an important factor to be weighed in the balance. We would advance the following proposition, to be applied in the case of both ante- and post-nuptial agreements, in preference to that suggested by the Board in MacLeod v MacLeod [2010] 1 AC 298:

‘The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.’

(“Autonomy”)

78. The reason why the court should give weight to a nuptial agreement is that there should be respect for individual autonomy. The court should accord respect to the decision of a married couple as to the manner in which their financial affairs should be regulated. …

(“Non-matrimonial property”)

79. Often parties to a marriage will be motivated in concluding a nuptial agreement by a wish to make provision for existing property owned by one or other, or property that one or other anticipates receiving from a third party. The House of Lords in White v White [2001] I AC 596 and McFarlane v McFarlane [2006] 2 AC 618 drew a distinction between such property and matrimonial property accumulated in the course of the marriage. That distinction is particularly significant where the parties make express agreement as to the disposal of such property in the event of the termination of the marriage. There is nothing inherently unfair in such an agreement and there may be good objective justification for it, such as obligations towards existing family members. …

(“Future circumstances”)

80. Where the ante-nuptial agreement attempts to address the contingencies, unknown and often unforeseen, of the couple’s future relationship there is more scope for what happens to them over the years to make it unfair to hold them to their agreement. The circumstances of the parties often change over time in ways or to an extent which either cannot be or simply was not envisaged. The longer the marriage has lasted, the more likely it is that this will be the case. Once again we quote from the judgment of Rix LJ, at para 73:

‘… I have in mind … that a pre-nuptial agreement is intended to look forward over the whole period of a marriage to the possibility of its ultimate failure and divorce: and thus it is potentially a longer lasting agreement than almost any other …. Over the potential many decades of a marriage it is impossible to cater for the myriad different circumstances which may await its parties. Thorpe LJ has mentioned the very relevant case of a second marriage between mature adults perhaps each with children of their own by their first marriages. However, equally or more typical will be the marriage of young persons, perhaps not yet adults, for whom the future is an entirely open book. If in such a case a pre-nuptial agreement should provide for no recovery by each spouse from the other in the event of divorce, and the marriage should see the formation of a fortune which each spouse had played an equal role in their different ways in creating, but the fortune was in the hands for the most part of one spouse rather than the other, would it be right to give the same weight to their early agreement as in another perhaps very different example?’ The answer to this question is, in the individual case, likely to be “no”.

81. Of the three strands identified in White v White [2001] I AC 596 and McFarlane v McFarlan [2006] 2 AC 618, it is the first two, needs and compensation, which can most readily render it unfair to hold the parties to an ante-nuptial agreement. The parties are unlikely to have intended that their ante-nuptial agreement should result, in the event of the marriage breaking up, in one partner being left in a predicament of real need, while the other enjoys a sufficiency or more, and such a result is likely to render it unfair to hold the parties to their agreement. Equally if the devotion of one partner to looking after the family and the home has left the other free to accumulate wealth, it is likely to be unfair to hold the parties to an agreement that entitles the latter to retain all that he or she has earned.

82. Where, however, these considerations do not apply and each party is in a position to meet his or her needs, fairness may well not require a departure from their agreement as to the regulation of their financial affairs in the circumstances that have come to pass.  Thus it is in relation to the third strand, sharing, that the court will be most likely to make an order in the terms of the nuptial agreement in place of the order that it would otherwise have made.”

[emphasis added]

128.  It should be noted that there was a variation in the formulation of the test proposed by the majority of the Court and the dissenting judgment of Baroness Hale JSC at [169] :

“It seems to me clear that the guiding principle in White v White … is indeed fairness: but it is fairness in the light of the actual and foreseeable circumstances at the time when the court comes to make its order. Those circumstances include any marital agreement made between the parties, the circumstances in which that agreement was made, and the events which have happened since then. The test to be applied to such an agreement, it seems to me, should be this: “Did each party freely enter into an agreement, intending it to have legal effect and with a full appreciation of its implications? If so, in the circumstances as they now are, would it be fair to hold them to their agreement?” That is very similar to the test proposed by the majority, but it seeks to avoid the “impermissible judicial gloss” of a presumption or starting point, while mitigating the rigours of the MacLeod v Macleod test in an appropriate case. … It may well be that Lord Mance is correct in his view that the difference between my formulation and that of the majority is unlikely to be important in practice. I would prefer not to take the risk.”

[emphasis added]

129.  At [129], Lord Mance JSC expressed the view that the difference between the tests was unlikely to be significant in practice :

“… The majority (para 75) and Baroness Hale JSC (para 169) both accept the overriding criterion or guiding principle for exercise of the statutory discretion as being one of fairness. But they suggest differently worded tests for approaching this exercise where there has been an ante-nuptial agreement. I cannot think the difference in wording likely to be important in practice. It appears to relate primarily to the starting point or onus, when feeding into the discretionary exercise the circumstances as they currently appear compared with those that existed or were contemplated at the date of the ante-nuptial agreement. ... My own inclination, in agreement with the majority, is that this is how the application of the overriding criterion should be approached. Given an ante-nuptial agreement, made freely and with full appreciation of the circumstances, it is natural in the first instance to ask whether there is anything in the circumstances as they now appear to make it unfair to give effect to the agreement. But this ultimate question remains on any view what is fair, and its starting point or onus is, as I have said, unlikely to matter once all the facts are before the court.”

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.

131.  This court is of course alive to the test adumbrated in [75] of Radmacher, which suggested a starting point or onus.  That is not a relevant consideration in this case because the Wife has been entirely dependent on the Husband for financial support since she became a full-time home-maker.  Further, as opined by Lord Mance JSC, there is little practical difference in the application of the 2 tests propounded in Radmacher.

The metric for needs

132.  This court had been taken by Mr Nagpal to a number of post Radmacher first instance English authorities[20] which suggested that in the context of an unvitiated nuptial agreement the court should only make an award to alleviate the payee from real need[21].

133.  The term “real need” can be traced to [81] of Radmacher (see above) under the heading “Future circumstances”[22].  In the sentence in which the term appeared, the Court was giving an example of future circumstances which were not intended by the parties at the time when they entered into the nuptial agreement.  With great respect, when the judgment is read as a whole, I do not see that it was intended to prescribe any particular metric with which to measure needs.  On the contrary, the task of the court is to arrive at a fair result after taking into account all the circumstances of the case.  In particular, the court is not to disregard the compensation strand (Radmacher, [81]).  I believe that the approach of the court is a nuanced one, depending on the facts presented before it.  I propose to approach the issue of needs with reasonableness as the guide. 

134.  I note that in WW, [53] (see footnote 20 above), the learned Deputy Judge agreed with a nuanced approach to the assessment of needs :

“The level at which a party’s needs should be assessed, if they are not met by an agreement which might otherwise be binding upon them, must surely depend upon all of the circumstances of the case, amongst which the fact of the agreement may feature prominently as a depressing factor. But each case will be different.”

135.  I find further support in a very recent judgment of Mostyn J, Anil Burak Ipekci v Morgan Alexandra Mcconnell [2019] EWFC 19 (4 April 2019), where the learned Judged held at [27] :

“I have no hesitation in deciding on the facts of the case before me that it would be wholly unfair to hold the husband to the agreement that he signed. This is for the following reasons:

…

iv) The agreement does not meet any needs of the husband. I do not take the language used by the Supreme Court, namely “predicament of read need” as signifying that needs when assessed in circumstances where there is a valid prenuptial agreement in play should be markedly less than needs assessed in ordinary circumstances. If you have reasonable needs which you cannot meet from your own resources, then you are in a predicament. Those needs are real needs.”

[emphasis added]

136.  Finally, I do not believe that it is particularly helpful to debate how needs ought to be assessed in this case when the task is to arrive at a fair distribution of assets taking into account the PNA, and needs is only 1 of the 3 strands which the court has to consider.

The weight of the PNA

137.  I do not believe that the law requires the court to quantify the amount of weight to be attached to an unvitiated nuptial agreement.  In this case, it would not be right to attach no weight to the PNA.  On the other hand, it would be wrong to place great weight on it because it would be unfair to do so. 

138.  The couple were young at the time of entering the PNA.  The circumstances had changed in a way which they did not anticipate.  In particular, the financial landscape at the time of breakdown of marriage was vastly different.  The advancement of the family’s standard of living had much to do with the sacrifice of the Wife.  She is now left in a much disadvantaged position having given up the opportunity to develop her career for the sake of the family.  It is simply wrong for her to be held to the terms of the PNA whilst the Husband got to keep the fruit of her sacrifice. 

139.  However, this court shall have regard to the PNA where it is not unfair to do so.  I bear in mind also the Husband’s position that the balance of probabilities is that the Wife would not have developed a career of a high flyer in light of her level of education and experience.

Standard of living

140.  S. 7(1)(c) of the Ordinance mandates the court to consider the standard of living of the family prior to the breakdown of marriage.  This issue presents a challenge in that the family was living in US until the middle of 2013.  The marital relationship was on the downhill since the move to Hong Kong culminating in the Wife’s Petition in April 2014.  The Husband did not agree to a permanent move by the Wife and children to Hong Kong.  The situation gives rise to the following questions: (a) how far the family’s standard of living in the US can realistically be taken into account for the present purpose, eg, the House had an area of 10,000 sq ft and the family had the use of a private airplane owned by one of the ABC companies; and (b) how far should the Husband be responsible for the cost of living in Hong Kong, one of the most expensive cities.

141.  In endeavouring to reach a fair result, this court shall be guided by reasonableness and these questions would be borne in mind. 

Non-matrimonial property

142.  The Husband seeks to rely on Radmacher, [79] and Luckwell (see footnote 20 above), [134]-[137] in support of the argument that the shares in the ABC companies were non-matrimonial properties.

143.  I do not believe that the argument can apply to the shares he obtained after marriage.  The Father acknowledged that he earned those shares.  I believe that the Husband must have shared that view strongly bearing in mind that the Sale was very much the fruit of his hard work. 

The Report

144.  The Husband disagrees with the rate of return adopted by the SJE (0.78% after inflation) as too conservative.  Mr Nagpal advocated the adoption of the rate used in England and Wales (3.75% after inflation).

145.  The SJE was invited by the Husband to consider the E&W rate.  He disagreed with it and had provided his reasons for doing so.  The SJE was not required to give evidence at the hearing.  There is no sufficient ground for the court to disagree with his reasons and adopt the E&W rate.

146.  In any case, I do believe that the Duxbury calculation is of great importance in this case because, as submitted by Ms Yip, it is only relied upon by the Wife as a scale to gauge the reasonableness or otherwise of her claim.

Assessing the children’s financial needs

147.  Mr Nagpal had helpfully produced 2 tables dealing with the expenses of children (“Children’s Expenses (Revised)”) and the Wife (“Wife Expenses”).  I shall work on those tables.

148.  I start with a few general points.  Firstly, this court shall adopt a reasonably board-brush approach on matters of expenses (see WYSL, [139]-[140]).  Secondly, it is fair to say that the expenses claimed are large.  Whilst there is no reason to believe that the Wife had inflated the figures for litigation purpose, it is right to say that with a large overall award there would be scope for adjustments of various expenditures to meet the circumstances encountered. 

149.  Thirdly, the Husband had offered an undertaking to meet various expenses of the children.  I am not inclined to accept such undertaking unless the Wife had indicated her agreement.  The reasons being: (a) the Husband had not been a diligent payer in the past; (b) as much as it is possible, the court should thrive to achieve a clean break between the parties; and (c) the relationship between them are strained (they had rarely spoken to each other after the Petition), thus keeping the undertaking to the minimum would avoid further straining the relationship.

150.  The children’s share of the General Expenses is agreed (the accommodation need would be separately addressed) at HK$21,121 each.

151.  Under Children’s Expenses (I need only deal with the contentious items), the Wife is agreeable to an undertaking by the Husband to pay their school fees.  The expenses for the school trips will be billed by the school.  I see no reason to treat them differently, and the undertaking should cover those trip expenses.

152.  As regards the extra tuition fees, transport to school and the medical expenses of HK$10,105 in total, I see no reason not to accept them in full. 

153.  In respect of the extra-curricular activities, entertainment/ presents, holidays and other transportation (taxi).  The sums claimed are not insubstantial, they are not basic necessities and therefore there must be room of adjustment.  I accept the position of the Husband with the exception that X’s guitar expenses should be part of the award instead of the subject matter of an undertaking.  Further, I note that it is not in dispute that the Husband should undertake to book and buy air-tickets for 4 round trips per year at economy class fares for each child, including escort service if necessary for Y before he attained 18, for their visits to the US.

154.  The total Children’s Expenses are HK$86,665, and HK$43,332.50 each.  The aggregate of Children’s Expenses and their share of the General Expenses are HK$64,453.50 each per month.  I shall round that up to HK$65,000.

155.  X will pursue his studies in the US this September, and the Wife is agreeable to an undertaking by the Husband to be fully responsible for paying X’s college fees and all living and education expenses in the US. 

156.  The payment to the Wife for X’s benefit until he finishes full-time education to cover the time when he will be in Hong Kong is agreed at 25% of the total expenses, ie, HK$16,250.

157.  In addition, the Husband had agreed to meet the cost of Y’s orthodontic treatment of HK$80,000, which I understand to be a one-off payment.  

Wife’s financial needs

158.  The Wife’s share of the General Expenses is agreed at HK$21,121. 

159.  As regards the 3 disputed items of personal expenses, I accept the Husband’s position for meals out of home, and those of the Wife in respect of medical/dental expenses as well as insurance premia. Her total Personal Expenses are HK$57,603.

160.  The Wife’s total expenses are HK$78,724 per month.  I round it up to HK$79,000.

Accommodation

161.  The Husband’s offer to pay the rent of OO until Y ceases full-time secondary education in Hong Kong, a total sum of HK$3.7 million if paid within 2 months of the order to be made by this court[23], is reasonable and should be approved.

162.  Thereafter, according to the Husband’s 2^nd Open Proposal, the Wife should have a housing fund of HK$26.613 million (made up of a lump sum payment of HK$7.215m representing 50% of the interest in the House; the value of RR, HK$5.819m; transfer to the Wife of a Hong Kong property in the name of the Husband (“MM”), HK$7.89m; and another lump sum of HK$5.689m), subject to a charge in favour of the Husband in the sum of HK$12.266m representing MM and the 2^nd lump sum payment.  I shall come back to the charge below.

163.  On the Wife’s part, it was said that she will require housing assessed at HK$35 million inclusive of all related tax and expenses. 

164.  I agree with Mr Nagpal that in this case the court should not lose sight of the fact that the House in which the Husband continues to reside is worth only HK$14.43 million.  In coming to a fair decision, the court should balance the interest of both the payer and the payee. 

165.  Unfortunately, the Wife did not adduce any evidence on the kind of properties which can be acquired at HK$35 million (inclusive) because of her position that it would be reasonable for her to stay at OO indefinitely.  A property there will cost no less than HK$40 million to buy.  I am unable to agree with the Wife that it would be fair to require the Husband to fund an indefinite stay by her at OO, which admittedly is located at one of the most expensive areas in Hong Kong. 

166.  There is evidence adduced by the Husband of properties in the HK$30 million region and HK$20 million region.  Mr Nagpal had asked the court to infer from such evidence that a property in the region of HK$25 million would be suitable for the Wife given that X will be leaving in September, and the likelihood is that Y will follow his brother’s footstep. Such a property can accommodate the children when they return on holiday.  I agree. 

167.  However, Ms Yip had pointed out that, judging by the evidence before the court, the available choice is likely to be an older property which will require higher renovation expenses.  I accept Ms Yip’s calculation that to acquire a HK$25 million property will require the payment of tax and expenses of HK$2.3125 million[24].  I round up the total to HK$27.5 million.

168.  In respect of the charge proposed by the Husband against the property to be acquired by the Wife, which will become exercisable upon the earlier of the Wife’s remarriage[25], death or voluntary vacation of the property for a continuous period in excess of 12 months, Mr Nagpal submitted that there is a consistent theme in the outcome of various English authorities, including and since Radmacher, of the payee having to return capital to the payer.  There is an obvious fairness in a payee having to return capital when it is not needed if that party has been provided capital to meet his or her needs, in circumstances where that capital is in excess of what was agreed in an unvitiated nuptial agreement.

169.  I am alive to the fact that the Wife had given up her career.  Had it not been the case, she might have accumulated same capital of her own (see also para 139 above).  On the other hand, she will be provided with an income fund (see below).  On balance, I agree with Mr Nagpal that there is nothing in the facts of this case which militates in favour of the Wife receiving capital outright over and above that which she is entitled to, in circumstances where it was agreed that she would not have claim to such capital. I therefore agree with the chargeback in favour of the Husband. 

170.  On the basis of a housing fund of HK$27.5 million, a charge in the sum of HK$13 million in favour of the Husband is, in my view, fair.  In the event that the Wife decides to live in the US, she will have HK$14.5 million at her disposal from the housing fund after paying off the charge.  She will be able to buy a property in the US which is comparable to the House (see para 164 above). 

Income fund for the Wife

171.  I have already covered the financial needs of the children and the accommodation needs of both the children and the Wife. The only remaining issue is the size of the income fund for the Wife.

172.  The Husband had offered an income fund of HK$20 million, whereas the Wife’s is asking for HK$35 million.

173.  I have assessed the Wife’s total monthly expenses at HK$79,000.  Viewed against the Duxbury calculation, it would require just over HK$35 million to fund a lifetime monthly income of HK$75,000, but just under HK$30 million with a step down of 25% when the Wife reaches age 65. 

174.  First of all, it is not unreasonable for older people to have fewer or lower expenses.  Secondly, it would not be fair to ignore the Wife’s earning capacity (see W v W [2005] 1 HKFLR 53, [39]). Thirdly, the court should not lose sight of the fact that under the PNA the Wife would only be entitled to 5 years of maintenance.  Fourthly, the maintenance for the children would indirectly provide a cushion for the Wife (see Radmacher, [119]). 

175.  Taking all relevant matters into consideration, the fair balance is to provide the Wife with an income fund of HK$30 million. I should make it clear that I disagree with the Husband that the Wife should not be provided with a whole life award because she is handicapped with a reduced earning capacity for the rest of her life.

176.  To effect a net balance of HK$57.5 million on the Wife’s side, an allocation from the Husband’s side should be: HK$57.5m – HK$1,532,152 (being the Wife’s net assets[26]) = HK$55,967,848.  In addition, there should be a payment of HK$3.7 million for the rent of OO (see para 161 above). 

177.  The Wife asks that the allocation be met by: (1) a transfer of MM from the Husband to her (HK$7.89m); and (2) a lump sum payment of the balance.  The transfer of MM is not controversial, but it is not clear whether the Wife will maintain this position in light of this judgment.  There is also a question of when the lump sum payment should be made.  Further, the terms of the charge will have to be agreed by the parties or resolved by the court.

Disposition

178.  I dismiss the s. 17 Application.

179.  As indicated at the trial, the parties should endeavour to agree the terms of the Order to be made herein.  They should do so within 21 days from today, failing which a succinct joint letter be sent to the court identifying the points of disagreement and the respective position of the parties.  Any unreasonableness may be penalised in costs.  If the scope of disagreement is limited, the matter may then be resolved on paper by the court.  Otherwise, a 30 minute hearing should be fixed, and for which skeleton arguments are to be restricted to no more than 3 pages.

180.  I expect the 3 outstanding matters raised by the Husband, namely, joint US tax returns, discharging him as a mortgage guarantor and resignation by the Wife as trustee of the children’s trust be resolved in a consensual manner as indicated by the parties.

181.  Once the liabilities of the Wife are discharged by the Husband as he had agreed, all her costs would have been paid by him.  I make no order as to costs (including all costs reserved) on that basis.

182.  I am grateful to counsel for their assistance.

	(Anthony Chan)
	Judge of the Court of First Instance
	High Court

Ms Anita Yip SC, Mr Eugene Yim and Ms Lily Yu, instructed by Chaine, Chow & Barbara Hung, for the Petitioner

Mr Deepak Nagpal, Ms Bonnie Y K Cheng and Ms Jennifer Fan of Bryan Cave Leighton Paisner LLP, for the 1^st Respondent

The 2^nd Respondent was not represented and did not appear

HCMC 3/2018

[2019] HKCFI 857

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO. 3 OF 2018

________________________

BETWEEN
	LCYP	Petitioner
	and
	JEK	1st Respondent
	CTC	2nd Respondent

_______________________

Before: Hon B Chu J in Chambers (Not Open to Public)

Date of Hearing: 21 January 2019

Date of Petitioner’s Written Submissions on Costs: 12 February 2019

Date of 1st Respondent’s Written Submissions on Costs: 12 February 2019

Date of Petitioner’s Reply Written Submissions: 14 February 2019

Date of 1st Respondent’s Reply Written Submissions: 14 February 2019

Date of Decision: 2 April 2019

______________________

D E C I S I O N
(On Costs)

______________________

1.  On 11 October 2018, W issued a summons for specific discovery (“Discovery Summons”).  By the Discovery Summons, W sought from H 6 categories of documents/information.  The Discovery Summons was fixed for a directions hearing on 19 November 2018.

2.  Upon being served with the Discovery Summons, H’s solicitors sent a letter dated 18 October 2018 to W’s solicitors complaining, amongst other things, that W’s requests were piecemeal, and that W was seeking financial information which H had already provided and that H’s solicitors would be letting W’s solicitors know which questions H was prepared to answer (and that he had not already answered) as soon as possible, and certainly well before the hearing fixed on 19 November 2018.

3.  No further letters or answers were sent by H’s solicitors.  At the hearing on 19 November 2018, this Court ordered, amongst other things, that H was to provide the agreed information and/or documents requested by W in the Schedule annexed to the Discovery Summons (“Schedule”) within 21 days, and for all those requests not agreed adjourned for argument, and H was to file and serve his affidavit in opposition within 14 days.

4.  Thereafter, there was no further communications from H’s solicitors, nor did H file any affirmation in opposition, pursuant to the above directions.  However, instead of filing a proper affirmation in opposition, H in his 9^th affirmation of 7 November 2018 had commented on the Discovery Summons and said he had already answered some of the questions, and further produced a letter exhibited JEK9-4 a copy of email from C Kwok dated 8 October 2018 showing allegedly all the payments, including all “earn-ups” for FRC (“08.10.18 Email”). 

5.  It was only on 18 January 2019, the Friday before the substantive hearing on 21 January 2019 that H’s solicitors sent a letter dated 18 January 2019 purportedly to reply to W’s request for information and documents in the Schedule.  H’s solicitor, Mr Dearle, also lodged his skeleton arguments, claiming again that H had already explained his position in response to those same questions in the Schedule in his 7^th, 8^th and 9^th affirmations. 

6.  It was quite clear from the letter of 18 January 2019 that H’s answers were not adequate.  At the hearing of the Discovery Summons on 21 January 2019, W was prepared to withdraw her request under paragraph 6 of the Schedule, the order made by this Court made was as follows:

(i)   H shall provide the information and/or documents requested in paragraphs 1, 2, 4 and 5 of the Schedule by way of an affirmation within 28 days of the order;

(ii)   the application in respect of paragraph 3 of the Schedule be adjourned to the PTR fixed on 31 January 2019 for further argument;

(iii)   costs reserved

7.  As seen from above, the only outstanding matter on 19 January 2019 was in relation to the paragraph 3 of the Schedule, in relation to the funds paid for FRC.  For reasons submitted by Mr Yim, the Court agreed that the 08.10.18 Email was not sufficient and the matter was adjourned for Mr Dearle to obtain further instructions.  Eventually, at the hearing on 31 January 2019, the matter was resolved by an undertaking from H to obtain a written confirmation by 11 February 2019, in relation to all funds paid for the acquisition of FRC.  The matter of costs was directed to be dealt with by paper.

W’s position on costs

8.  Mr Yim submitted that as W had succeeded in obtaining substantially the disclosure she requested, costs should follow the event, and there was no reason why she should not be entitled to costs of and incidental to the Discovery Summons, with certificate for counsel.

H’s position on costs

9.  Mr Dearle submitted H’s position was that there should be no order for costs in respect of paragraphs 1, 2, 3, 4 and 5 of the Schedule, and that for paragraph 6, as W was forced to withdraw this question after the Court’s indication, W should pay H’s costs in this regard.

Discussion

10.  H pointed out that W only eventually issued the Discovery Summons for further disclosure and had produced a very short list of 6 remaining questions, and that this reflected that W had inaccurately informed the Court at the hearings on 13 and 17 July 2018 that his disclosure was “woefully inadequate”.  Further, W continued to ask questions which H had already provided answers.

11.  The background of these proceedings had been set out in this Court’s previous judgments/decisions.  In particular, as seen in paragraph 154 of this Court’s Costs Provision Decision of 16 August 2018, this Court found that H failed to comply with his obligation to make a full, frank and clear disclosure of his financial position.  His disclosures had been piecemeal.  His lack of clear disclosure as to his financial position, in particular the source of the payments for his legal costs in the past and the source for payment of his future estimated costs of another HK$5m had led the Court to come to the view that he had undisclosed financial resources.

12.  As further seen in paragraph 19 of this Court’s Variation Decision of 18 December 2018, that the duty is on H to make clear, frank and full disclosure voluntarily and that W is not expected to trawl through his bank statements to find answers and/or to raise queries.  I reiterated in that decision that H’s financial disclosure had been piece-meal and that he only provided answers/information when W raised the queries.  

13.  The Discovery Summons had thus to be considered in the background of H’s piecemeal and lack of clear disclosure.  In fact, notwithstanding the large amount of paperwork generated by H or his legal team, his answers were neither direct nor clear.

14.  By way of example, although H had provided large quantity of papers, he had not provided a clear disclosure as to the total payments he had received from the sale of his interests/share in what was collectively known as the business of FRC which had necessitated the request in paragraph 3 of the Schedule.  The 08.10.18 Email had raised further issues/questions from W, since it only set out various payments and there was never a confirmation that what were set out consisted of all payments and there would be no further payments.  Just this matter alone had resulted in paragraph 3 being adjourned at the hearing on 19 January 2019 to the PTR for Mr Dearle to take further instructions.

15.  As to paragraphs 4 and 5, even as late as Mr Dearle’s skeleton submissions of 18 January 2019, Mr Dearle only said H had agreed to answer and H’s answers were to be produced that day. 

16.  As for paragraphs 1 and 2, these consist of audited financial statements in respect of various companies and also trust accounts of the trusts.  H’s position was that there were no audited financial statements for those companies as they were non-trading companies and further no trust accounts had been prepared.  As pointed out to Mr Dearle at the hearing of 19 January 2019, H should provide clear and sufficient evidence from an auditor or an accountant in support of his statement that no audited financial statements are required to be prepared for non trading companies and to explain on what basis US tax returns were filed for those companies. Further, H should also provide supporting evidence from the trustee that no trust accounts/statements had ever been prepared.  As I have indicated to Mr Dearle at the hearing, normally a trustee has a duty to keep accounts.

17.  Thus, notwithstanding H’s case that he had provided W information with respect to paragraphs 1 and 2 and that it was W and her legal team who did not bother to read his answers, it was H who had in fact not answered those requests properly.

Conclusion

18.  Costs are in the unfettered discretion of the Court and the Court may take into account the matters under Order 62 rule 5 of RHC.

19.  It is quite clear that W had to come to Court to obtain answers under paragraphs 1 to 5. 

20.  W withdrew paragraph 6 at the hearing on 19 January 2019 after indication by this Court.  This question was in relation to emails between H and his mistress, and the time spent on this question was insignificant. I am only prepared to allow it 2% of the total time.

21.  Having considered all the circumstances of this case, I am of the view that W should be entitled to 98% of the costs of and incidental to the Discovery Summons, with certificate for counsel.  Costs are to be summarily assessed and paid by H within 14 days of assessment.  W is to submit her statement of costs within 7 days, and H is to submit his list of objections within 7 days thereafter.

 
 

	(Bebe Pui Ying Chu)
	Judge of the Court of First Instance High Court

  

Mr Eugene Yim, instructed by Chaine Chow & Barbara Hung, for the petitioner

Mr Marcus Dearle of Bryan Cave Leighton Paisner LLP, for the 1^st respondent

  

HCMC 3/2018

[2019] HKCFI 237

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO. 3 OF 2018

________________________

BETWEEN
	LCYP	Petitioner
	and
	JEK	Respondent

________________________

Before:  Hon B Chu J in Chambers (Not Open to Public)

Date of Hearing:  21 January 2019

Date of Decision:  21 January 2019

Date of Handing Down of Reasons: 29 January 2019

_______________

R E A S O N S

(Joinder)

_______________

1.  The background of this matrimonial matter has been set out in this Court’s two earlier decisions, one on 16 August 2018 in relation to an application by the Wife for litigation funding/costs provision and one on 18 December 2018 in relation to the Husband’s applications for variation of the interim maintenance order and the costs provision order. I shall follow the definitions in those decisions, unless otherwise indicated.

2.  Presently, the Wife has issued a summons under section 17(1) of the Matrimonial Proceedings and Property Ordinance, Cap 179 (“s 17 Summons”) in which she is seeking (i) to set aside the Husband’s transfers of a total sum of US$ 10,165,308.90 to a trust referred to as JK Trust, of which the trustee is a trust company called Commonwealth Trust Company in Delaware, USA (“CTC”) (“ Setting Aside Application”) and (ii) for such purpose CTC be joined in these proceedings as a party[1] (“Joinder Application”).

3.  At the hearing on 21 January 2019, and as agreed by the parties, I directed that the trial of the Setting Aside Application to take place at the same time as the main trial of the Wife’s application for ancillary relief, and that directions for the further conduct of the Setting Aside Application will be made at the PTR which has now been fixed on 31 January 2019.  The only matter which the Court had to decide at the hearing on 21 January 2019 was the Joinder Application, namely whether the CTC should be joined as a party. 

4.  Having heard the submissions from the parties, I ordered that CTC be joined and named as 2^nd respondent.  The Husband should be renamed 1^st respondent.  My reasons are set out herein.

Service

5.  Service of the s 17 Summons and the Wife’s supporting affirmation was first sent to CTC by air-mail at its last known address in Delaware on 31 October 2018.  The s 17 Summons was first fixed for a call over direction hearing on 19 November 2018 before this Court when directions were given for, amongst other things, leave to the Wife to amend the s 17 Summons, leave to the Husband and CTC to file their affirmations in opposition to the Joinder Application within 21 days, and that the Joinder Application be fixed for argument at a two hour hearing.

6.  Thereafter, the amended s 17 Summons was sent again to CTC at its last known address on 21 November 2018, together with the Wife’s supporting affirmation and this Court’s order of 19 November 2018.  On 6 December 2018, the Wife’s solicitors received an email from a Cynthia DM Brown, President of CTC, attaching thereto a letter dated 5 December 2018 from CTC to the Wife’s solicitors[2].

7.  CTC stated in the their above letter that the attempted service of the amended 27 Summons was improper and not in compliance with the laws of the United States or the State of Delaware, and further, CTC is a Delaware company and, as such, is not subject to the jurisdiction of courts in Hong Kong and accordingly, CTC will not respond in the improperly served summons and will not appear in any court proceedings in Hong Kong.

8.  Due to CTC’s complaint that the service was improper, the Wife’s solicitors then instructed a process server in Deleware to serve again the s17 Summons and accompanying documents.  The Wife’s solicitor had filed an affirmation in relation to service on CTC and an affirmation of service by a process server was exhibited.  The process server had in his affirmation of service confirmed that service of the amended s17 Summons and all accompanying documents stated therein had been effected on CTC pursuant to the laws of Delaware on 13 December 2018 at the office of CTC.[3]

9.  Having considered the affirmations of service from the Wife’s solicitor and the Delaware process server, and there being no contradictory evidence, I was satisfied that service of the amended s 17 Summons (including the Joinder Application), the Wife’s supporting affirmation, the order of 19 November 2018 and/or other accompanying documents had been duly effected on CTC on 13 December 2018 in accordance with the laws of Delaware, USA.

10.  No affirmation had been filed by CTC in opposition to the Joinder Application, and CTC was absent at the hearing before this Court.

The Husband’s position

11.  The Husband also did not file any affirmation. His solicitor, Mr Dearle, who attended the hearing on behalf of the Husband, explained that this was because the Husband was not opposing the Joinder Application, for the reasons given in an affirmation dated 17 January 2019 filed by Mr Dearle one day before the hearing (“Dearle Affirmation”).

12.  First of all, no leave had been obtained for the Dearle Affirmation to be filed for the purpose of or in relation to the Joinder Application.  Secondly, the Dearle Affirmation was filed in support of another summons which was taken out on behalf of the Husband on 17 January 2019 in relation to the Husband’s application for directions to be given for the instruction of a single joint expert in respect of the enforceability in Delaware USA of any set aside order, if made by this Court.  Thirdly, that last minute summons was only filed on the Thursday prior to the Monday hearing, and was opposed by the Wife.

13.  At the outset of the hearing, I indicated that I would decline to deal with the Husband’s last minute summons due to short notice and non- compliance with the rules.  I subsequently adjourned it to the PTR for directions.

14.  In any event, Mr Dearle had made it clear throughout the hearing that the Husband would not oppose the Joinder Application.

The Joinder Application

15.  Mr Dearle had referred the Court to the English appeal case of Hamlin v Hamlin [1986] Fam 11 in his submissions. 

16.  In the Hamlin case, the wife obtained an order ex parte under section 37 (2)(a) of the Matrimonial Causes Act 1973 to restrain the husband from disposing of a villa which he owned in Spain which Judge Oddie refused to continue at the inter partes hearing on the ground that he court had no jurisdiction to make an order under section 37 in respect of foreign realty.  Section 37 of the MCA 1973 contained similar provisions as s 17 of our MPPO.  On appeal, Kerr LJ allowed the appeal and held that that “any property” in section 37 (2)(a) of MCA 1973 was not restricted to property in England and Wales but included real and personal property situated abroad and accordingly the court had jurisdiction to make an order under that subsection in respect of realty abroad; although the court would not exercise its discretion to make an order concerning foreign property which could not be enforced, and that in exercising its jurisdiction under section 37 the court was determining rights and obligations arising out of divorce proceedings and exercising jurisdiction in personam against a respondent amenable to the court’s jurisdiction. The matter was then remitted to the county court judge for the wife’s application to be heard on its merits.

17.  In the Hamlin case, the issue was whether the court had any jurisdiction to grant an injunction against the husband over overseas property.  It is not clear how the Hamlin case would assist the Husband in the present case.  The Setting Aside Application is against the Husband personally, and the Court will be exercising its jurisdiction under s 17 in personam against the Husband and any setting aside order, if made by this Court, will be an order made against the Husband personally.

18.  According to Mr Dearle’s submission, it seemed that although the Husband was not opposing the Joinder Application, it was stressed on behalf of the Husband that his was contention that even CTC were joined, that order could be enforced against it in Delaware.

19.  Mr Yim, the Wife’s Counsel, has referred this Court to T v T and Others (Joinder of Third Parties) [1996] 2 FLR 357. In that case, the husband transferred his interest in the business which he had built up to the trustees of a settlement which he had set up in Jersey. On the breakdown of the parties’ marriage, the wife sought a Mareva injunction prohibiting the husband from disposing of the assets of the trust.  The husband asserted that he had no effective control over the assets of the trust fund and the trustees of the fund were accordingly joined as respondents to the proceedings by Wilson J at the hearing of the Mareva injunction.

20.  The trustees then made an application to set aside the joinder order.  That application was opposed by both the wife and by the husband who repeated his assertion that he did not have overall control over the fund.

21.  Wilson J refused the trustees’ application to set aside the joinder order and held, amongst other things, that Order 15 r 6(2)(b) of the Rules of the Supreme Court in UK provided that the court could join as a party to the proceedings any other party whose presence before the court was necessary, or where it was just and convenient to determine an issue arising between either party to the proceedings and that other party as well as the substantive proceedings.  Wilson J had said that a crucial matter during the substantive proceedings would be the extent to which the husband had real control over the assets of the Jersey trust.  Furthermore, in the court’s view, the enforcement of any order which might ultimately be made would be greatly facilitated by the trustees remaining parties to the proceedings.  For these reasons Wilson J held that under both parts of the provision of Order 15 rule 6 (2)(b) of RSC the wife had established that the trustees should remain parties to the proceedings. 

22.  Order 15 rule 6 (2)(b) of our Rules of the High Court is similarly worded as Order 15 rule 2 (b) of RSC in England.  At the hearing, this Court had asked Mr Yim whether the Wife was relying on rule 2 (b) (i) or rules (b) (ii).  Mr Yim had at first indicated rule 2 (b) (i) but later indicated under both parts, following T v T.

23.  As stated in paragraph 15/6/1 of the Hong Kong Civil Procedure Vol 1 2019 Ed, a liberal application should be given to Order 15 rule 6, particularly in the aftermath of the Civil Justice Reform so as to ensure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of legal proceedings with respect to any of those matters is avoided. 

24.  In the present case, the JK Trust was set up by the Husband on 26 November 2012 and between September 2014 and September 2015, he made the following injections into the JK Trust:

8 September 2014	US$5,508,007.90
31 October 2014	US$50,000
17 December 2014	US$4,107,300
10 September 2015	US$500,000
Total	US$10,165,307.90

25.  This would be about HK$79,000,000.

26.  The Husband’s position was that the funds in the JK Trust were not financial resources available to him.  As I had said earlier in the Costs Provision Decision, since the Husband had admitted having an extra-marital affair with a woman called Anee prior to April 2012, the Wife was not unjustified to be suspicious of the Husband’s actions in relation transactions involving assets (of which the Wife is contending to be family assets) placed out of her reach.  Thus, whether the funds in the JK Trust are financial resources available to the Husband will be a seriously disputed issue.

27.  If the funds in the JK Trust were held to be financial resources available to the Husband, they could be subject to any enforcement proceedings the Wife may take in the United States, if the Husband should fail to comply with any orders made by this Court, and joining CTC could facilitate such enforcement proceedings.

28.  Having considered the above, and all the circumstance in this case, I was of the view that the Wife had satisfied the Court that CTC should be joined whether under Order 15 rule 6 (b) (i) or (ii).

29.  The above are my reasons for making the order for joining CTC as the 2^nd respondent in the s 17 Summons.  I had ordered that costs be in the cause of the s 17 Summons.

	(Bebe Pui Ying Chu)
	Judge of the Court of First Instance
	High Court

Mr Eugene Yim, instructed by Chaine Chow & Barbara Hung, for the petitioner

Mr Marcus Dearle of Bryan Cave Leighton Paisner LLP, for the respondent

HCMC 3/2018

[2018] HKCFI 2738

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO. 3 OF 2018

________________________

BETWEEN
	LCYP	Petitioner
and
	JEK	Respondent

_______________________

Before: Hon B Chu J in Chambers (Not Open to Public)

Date of Hearing: 11 December 2018

Date of Decision: 18 December 2018

_______________

D E C I S I O N
(Variation)

_______________

1.  There were three summonses fixed before this Court and chronologically they were:

(i)   a summons issued on 6 August 2018 by the Husband for variation (“1^st Variation Summons”) of an interim maintenance order made by Family Judge CK Chan (“Judge”) on 17 June 2016 (“MPS Order”);

(ii)   a summons issued on 11 October 2018 by the Wife for directions, including directions for the appointment of a single joint expert for the Duxbury calculations and a single joint valuer for 3 items of the Husband’s assets (“SJE Summons”);

(iii)   a recent summons issued on 5 December 2018 by the Husband for variation (“2^nd Variation Summons”) of an order made by this Court on 16 August 2018 for costs provision (“Costs Provision Order”).

2.  At the hearing, I reserved my decision on the 1^st Variation Summons, allowed the appointment for SJE for Duxbury calculations and dismissed the 2^nd Variation Summons.  My decision and reasons are set out hereinafter.

3.  The background of this matter has been set out in the Judge’s judgment handed down on 17 June 2016 (“MPS Judgment”) and also in this Court’s decision handed down on 16 August 2018 (“Costs ProvisionDecision”) and will not be repeated here.  Unless otherwise stated herein, I shall follow the definitions in the Costs Provision Decision.

4.  In the MPS Judgment, the Judge ordered, amongst other things and subject to the Husband’s undertakings to pay the children’s school fees and school bus fees and to procure the reimbursement of the Wife’s and the children’s medical and dental expenses covered by the family medical insurance plan as soon as practicable, the Husband to pay to the Wife a total sum of HK$210,000 per month, namely HK$70,000 per month for the maintenance pending suit of the Wife, and HK$70,000 per month for interim maintenance for each of the children, from 1 January 2016 until further order.

5.  In the Costs Provision Decision, it was my finding that the Husband had the ability to pay the amount of HK$3.5m towards the Wife’s costs, and I ordered him to pay the sum by monthly instalments of HK$500,000 each, to be added to the Wife’s maintenance over a period of 7 months commencing from September 2018 until March 2018.

6.  Counsel Mr Enzo Chow appeared for the Wife at the latest hearing and Mr Marcus Dearle appeared for the Husband.

7.  Due to the late filing of the Husband’s paginated bundles, they were rejected by this Court and the bundle references herein are those of the Wife’s core bundle.

1^st Variation Summons

8.  The Husband’s 1^st Variation Summons was supported by his 8^th affirmation, and the Wife had filed her 11^th affirmation in opposition, to which the Husband filed his 9^th affirmation.

9.  During the hearing, Mr Dearle complained that the Wife’s team had referred to the Husband’s “bonuses” and that they were confused, and that the correct expression should be “earn-uppayments” rather than “bonuses”.  In my view, if the Wife or her team were confused, it could only be caused by the Husband and his own legal team.  As seen in the letter dated 26 April 2016, a copy of which was exhibited in the Husband’s 8^th affirmation as “JEK8-4”, it was the Husband’s own lawyers who after attaching the Husband’s Income Summary from his 2014 Tax Return and his Earnings Statement for 16-29 February 2016, then stated:

“Our client’s total income has previously been made up of four parts- his base salary, consultancy payment, bonus and dividend income.”

10.  The Husband’s then solicitors proceeded to explain the 4 components, and had referred to the “Bonus” as “Bonus (or ‘earn out’) payments”.  Now according to the Husband or Mr Dearle, the correct expression should be “earn up” payments. 

11.  I pointed out the above only to demonstrate that firstly any confusion was caused by the Husband’s side and secondly, there were 4 components to the Husband’s income, and “basesalary” would only be part of the Husband’s income.

12.  The 26.04.16 Letter was in fact referred to by this Court in the Costs Provision Decision and that the Court had set out according to that letter, the Husband’s “base salary” was stated to be USD23,800 net of taxes per month, or about HKD184,000. 

13.  For the hearing for the costs provision on 13 and 17 July 2018, the Husband disclosed for the first time in his 7^th affirmation of 12 January 2018 that his “base salary” had become USD811,000 gross per annum, and that net was HKD290,000 per month and that he had stressed that this was inclusive and that he was no longer entitled to any bonus or any other emoluments[1].   

14.  Again, it was the Husband himself who used the expression “bonus”.  In his 8^th affirmation, he had attached a letter dated 17 July 2018 from his employers stating, amongst other things, that his annual salary was USD811,460.  I do not understand why this letter could not be obtained earlier and produced in his 7^th affirmation, and why the Husband chose to give an inaccurate figure (albeit a very small variance of only USD460) of his annual base salary.  In fact, all it said in his employer’s letter was that all payments under the “FRC acquisition contract” had been paid.  There was no confirmation nor clarification from his employers as whether the Husband is entitled to any other benefits under his current employment package.

15.  More importantly, the Husband filed his Form E, after the hearing for the costs provisions.  In his Form E filed on 30 August 2018, he disclosed his “gross earned income” of USD811,460 per annum, and claimed that this was his only earned income but he then disclosed that he had received part of his final 2017 “earn-up award” in paragraph 3.2 of his Form E[2], without disclosing exactly what he had received or when he received it, and instead referred to paragraph 24 (xxiv) of his 8^th affirmation[3].

16.  What he had disclosed in paragraph 24 (xxiv) was that his gross share of the earn-up payments for 2017 were paid to and held by Rinchy LLC pending the determination of his tax position and all business expenses, and that:

(i)   he received USD300,000 from Rinchy LLC as part of his 2017 “earn-up payments” on 21 May 2018;

(ii)   a sum of USD170,000 was paid by Rinchy LLC to the State of New Jersey and a sum of USD 425,000 to the IRS for federal taxes, all on his behalf on 31 May 2018;

(iii)   he estimated that he had a further tax and business expenses of USD250,000-USD300,000 to pay.

17.  Rinchy LLC was formerly called Kra Trading, which was incorporated on 12 May 2012 in New Jersey of which the Husband holds 30%.  According to him, this is a non-trading company and he had stated in his latest Form E that there is “0” value of his beneficial interest in this company.  It is not clear what “business expenses” the Husband was referring to.

18.  The Husband had claimed that one could see the credit of USD300,000 in his bank statements which he had disclosed. 

19.  The duty is on the Husband to make clear, frank and full disclosure voluntarily.  The Wife is not expected to trawl through his bank statements and to raise queries.  As I have said in the Costs Provision Decision, the Husband’s financial disclosure has been piece-meal. And I will add, he only provides answers/information when the Wife raises the queries.  

20.  What is clear to this Court is that the Husband did not make full and clear disclosure of the 2017 “earn-up payments” in his 7^th affirmation, nor the payment of his taxes by Rinchy LLC on his behalf of those payments.  In his 9^th affirmation, the Husband produced an email dated 8 October 2018 from the Listco purporting to show all the payments (including all earn-ups) made by the Listco to FRC totalled US$70,067,872[4].  No dates of payments were stated.  The payments were paid to FRC and other companies.  The list of payments only started with the a “closing date payment” and it is not clear whether any payments were made prior to closing.  As I have said at the hearing, the email raises further queries.

21.  In Mr Dearle’s skeleton submissions (filed late, and received by this Court only in the afternoon prior to the present hearing), he has attached an alleged updated schedule which purported to set out the Husband’s gross and net income and the shortfall from 2012 to 2018.  As I had pointed out during the hearing, I do not understand why Mr Dearle was producing evidence attached to his skeleton submissions and only at last minute.

22.  Even if I were to accept the updated schedule to be correct, the net income (including earn-up payments) the Husband has received since 2016 has been:

(i)   2016 – USD1,204,521, or @7.8, HKD9,395,263.80;

(ii)   2017 – USD1,866,496, or @ 7.8, HKD14,558,668.80;

(iii)   2018 – USD1,606,912, or @ 7.8, HKD12,611,913.60;

23.  At the time of the MPS Judgment, the Judge found that the Husband’s total income earned for 2015 was USD1.6m, equivalent to about HK$12,480,000, and even allowing half of it for US taxation, the Judge was of the view that the Husband still had HK$6,240,000 as his net income, averaging HK$520,000 per month[5].

24.  The updated Schedule produced by Mr Dearle showed that the Husband’s net income was substantially higher than the net income which the Judge had assumed at the time of the MPS Order.  In fact, for 2018, the net amount received/to be received by the Husband for this year was almost double the figure the Judge had assumed.

25.  In any event, due to the Husband’s unsatisfactory financial disclosure, there was no sufficient evidence that the Husband’s total income had decreased at the time when he issued his 1^st Variation Summons.

26.  The Husband’s annual “base salary” disclosed in his latest Form E was USD811,460 or HKD527,449.  Even if, as submitted by Mr Dearle, there will be no other benefits from his employment which is not accepted by the Wife, Husband’s new “base salary” will be HK$320,000 per month net.  In my view, he can still afford to continue to pay a total of HK$210,000 per month to the Wife, leaving some HK$110,000 for his own expenses, which in fact is much higher than HK$70,000 which the Wife is receiving for herself. 

27.  Mr Dearle has raised the issue of rental income the Wife is receiving and her earning capacity.  The rental income issue had been taken into account by the Judge at the time of the MPS hearing.  As for the Wife’s earning capacity, this should be a matter to be raised at the trial.  The present evidence shows that the Wife has been not worked or has been a homemaker since 1999.  In fact, the maintenance pending suit the Husband is paying the Wife is less than US$10,000 per month and much less than what the Husband has been paying his lawyers on average a month. 

28.  Mr Dearle had submitted that taking an average of the Husband’s income from 2012 to 2018 and deducting all his injections into the 3 of the 5 Trusts, and legal costs, there was a net shortfall of HK$12.72m as per a schedule set out by him[6]. As set out in the Costs Provision Decision, the last injection into the trusts disclosed by the Husband was in September 2015, prior to the MPS Judgment.  In any event, any alleged shortfall was created by the Husband himself and the injections into the trusts will be a hotly disputed issue at the trial.  In addition, the Husband claimed that he had spent about USD3.76m to date on legal costs, which contributed to his alleged shortfall.  This is almost double the amount of USD1.98m for the maintenance payments and legal fees he made to the Wife and the Children.

29.  In any event, an interim maintenance order is always on a broad brush approach, and the trial is coming up in about 5 months’ time, any overpayments or underpayments can be addressed at the trial.

30.  Having considered all the circumstances in this case, I do not see any ground for variation downward of the MPS Order at this stage.  I dismiss the 1^st Variation Summons and order the Wife’s costs to be summarily assessed and to be paid by the Husband within 7 days of summary assessment.  The Wife is to lodge her statement of costs within 7 days from today and the Husband to lodge his list of objections within 7 days thereafter.

2^nd Variation Summons

31.  I dismissed the 2^nd Variation Summons at the hearing.  There was no supporting affirmation filed by the Husband for his 2^nd Variation Summons, which appeared to be only a knee jerk reaction to the Wife threatening to issue a bankruptcy petition against the Husband.  The Wife is entitled to take whatever enforcement actions deemed appropriate if the Husband fails to comply with court orders.  I see no ground for variation based on the Wife’s threat.  In fact, the Husband in his 9^th affirmation of 7 November 2018 stated that he was not applying for variation of the Costs Provision Order.  Mr Dearle did not press on the matter and did not oppose the Wife’s proposed costs of HKD3,500.  I ordered the Husband to pay the Wife’s costs of HK$3,500 within 7 days.

The SJE Summons

32.  The valuations of 3 items of the Husband’s assets were agreed only at the commencement of the latest hearing, leaving only the issue of whether there should be single joint expert or parties to instruct their respective experts for the Duxbury calculations.

33.  The Wife had proposed to appoint a Mr Tupila. The Husband had initially replied to say that Mr Tupila was “conflicted” and subsequently, the Husband made clear his position was that he would like to instruct his own expert. 

34.  The Wife’s position that after the Civil Justice Reform, a single joint expert would normally be appointed unless with good reasons and that Duxbury calculation is rather simple and common in matrimonial proceedings.

35.  Mr Chow referred this court to Order 38 rule 4A(1)and rule 4A(5) of the Rules of the High Court and the commentary in paragraph 38/4A/2 of the Hong Kong Civil Procedure 2019.  In particular, Mr Chow pointed out that if parties were to instruct their own experts, additional costs would be incurred and further family assets would be depleted.

36.  Mr Dearle submitted in his skeleton that the position was not “simple” as asserted by the Wife, and that it would be highly likely that there would need to be 3 experts appointed if a SJE were appointed.  I have to say I do not understand his submissions as to why there would be 3 experts if a SJE were to be appointed.  At the hearing, he also submitted that that given there would be challenges to assumptions and rates of inflations adopted, there would be good reasons for the parties to each have their own expert.

37.  It appears from Mr Dearle’s submissions that the Husband is going to challenge any expert’s evidence without even knowing what assumptions or rates of inflations are going to be used by the expert.

38.  It is exactly to avoid unnecessary challenges and disputes, and to save costs, and indeed not to lengthen the trial, that one single expert should be appointed.  Duxbury calculations are common in matrimonial finance cases and in my view should not be complex.

39.  Having considered the circumstances in this case, and as Mr Chow had pointed out, any costs would have to come out of family assets, I am of the view that that it is in the interest of justice and the parties that one single joint expert is to be appointed for the preparation of the Duxbury calculations.  For these reasons, I have allowed the Wife’s application at the hearing.  The parties were then able to agree to directions for the appointment of the expert.  I have ordered the Wife’s costs to be paid by the Husband within 7 days of summary assessment, the Wife to lodge her statement of costs within 7 days from the date of the hearing and the Husband his list of objections within 7 days thereafter.  I also recorded that the time of hearing related to the SJE Summons to be not more than 30 minutes.

	(Bebe Pui Ying Chu)
	Judge of the Court of First Instance High Court

Mr Enzo WH Chow, instructed by Chaine Chow & Barbara Hung, for the petitioner

Mr Marcus Dearle of Bryan Cave Leighton Paisner LLP, for the respondent

HCMC 3/2018

[2018] HKCFI 1907

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO. 3 OF 2018

________________________

BETWEEN
	LCYP	Petitioner
	and
	JEK	Respondent

________________________

Before:  Hon B Chu J in Chambers (Not Open to Public)

Dates of Hearing:  13 and 17 July 2018

Date of Decision:  16 August 2018

__________________

D E C I S I O N

(Litigation Funding)

__________________

1.  This is the application of the petitioner (“Wife”) for the respondent husband (“Husband”) to provide litigation funding for her.

2.  As the 1^st Directions Hearing, trial dates have been fixed for 8 days from 15-24 May 2019.

Background

3.  The parties have been litigating for over 4 years since about April 2014.  For present purposes, I will highlight certain aspects of this case as set out hereunder.

4.  The parties are both aged 45.  The Husband was born and raised in the United States and the Wife was born and raised in Hong Kong.  They met in 1994 when the Husband was stationed in Hong Kong for work.  They married in the United States in September 1997 and after marriage, the Wife moved to live there with the Husband.

5.  On 5 September 1997 and 15 days prior to the marriage, the parties  entered into a pre-nuptial agreement (“PNA”)[1].  The essential provisions of the PNA will be set out later. Suffice to say at this stage, the validity of the PNA is no longer challenged by the Wife.  Instead, the Wife’s case is that no weight should be put on the PNA by the Hong Kong Court in view of the overall circumstances of this case.

6.  The parties have two sons during their marriage, the elder one was born in 2000 and will be 18 in October this year, and the younger one was born in 2005 and is now about 13 years old.

7.  The Wife initially worked as a secretary in the United States for about two years after marriage.  She then gave up work to become a full time housewife in 1999, and since then she has assumed the role as the homemaker and children carer while the Husband has worked full time throughout.

8.  Since his graduation from college, the Husband has worked in a clothing manufacturing business in partnership with his father (“Father”).  The business, which I shall refer to simply as “FRC”, which was found by the Father, took off and experienced significant growth during the marriage.  FRC was sold in 2012 to a Hong Kong listed company (“HK Listco”) for a substantial purchase price, which the Wife understood to be about USD60-80 million (or @7.8, HK $468m-$624m)[2].  As seen later in this decision, it is not really disputed by the Husband that he received 30% of the sale proceeds.  It was part of the terms of the sale agreement with the HK Listco that after sale, the Husband was to remain to be employed as a Co-President of FRC division pursuant to the terms of an employment agreement.

9.  The Wife and the children lived in the USA until about 6 July 2013 when they moved to Hong Kong.  The Husband said he only agreed to the Wife and the children moving here temporarily for one to two years. 

10.  In December 2013, the Wife said she discovered the Husband’s infidelity.  The Wife issued a divorce petition in April 2014 in Hong Kong based on the Husband’s unreasonable behavior.  This was followed by the Father issuing divorce proceedings in New Jersey in May 2014 and he further challenged the jurisdiction of the Hong Kong Court in the divorce proceedings and applied for a stay of the Hong Kong proceedings on forum non conveniens.  In January 2015, Judge Melloy handed down a decision that the Hong Kong court did not have jurisdiction over the Wife’s divorce proceedings.

11.  In the meantime, as the Wife had evinced an intention to retain the children in Hong Kong, the Husband issued an application in February 2015 for the return of the children to the United States under the Hague Convention (HCMP 468/2015).  This application was later dismissed by this Court in May 2015.

12.  The Husband’s appeal to the Court of Appeal on the Hague proceedings was subsequently dismissed ( CACV 125/2015)[3].  The Court of Appeal however allowed the Wife’s appeal on Judge Melloy’s decision on jurisdiction and held instead that there was jurisdiction in the Hong Kong Court to entertain the Wife’s divorce proceedings, and the matter of whether the Wife’s divorce proceedings should have been stayed on forum non conveniens was remitted to be dealt with by the Family Court (CACV 98/2014).

13.  The Husband’s application for stay on forum non conveniens was later dismissed by Judge CK Chan (“Judge”) in a judgment handed down on 29 March 2016 (“ForumJudgment”).

14.  It was only after the Husband failed in his jurisdictional and forum challenges that the Wife could proceed with her divorce proceedings in the Family Court. 

15.  At one time, the Husband had paid a monthly sum of HK$120,000 for interim maintenance for the Wife and the children and the amount was temporarily raised to HK$170,000 per month and a further sum of HK$120,000 per month was provided as interim provision for the Wife’s legal costs.  After December 2014, the interim maintenance was reduced by the Husband to HK$120,000 per month and the provision for legal costs was withdrawn.  This resulted in the Wife issuing a summons for maintenance pending suit (“MPS”). Pending the determination of the MPS summons, the Judge ordered the interim maintenance to be reverted to HK$170,000 per month together with a lump sum of HK$580,000 to cover the Wife’s legal costs at least up to the substantive arguments on the MPS.

16.  The Judge later handed down his judgement on MPS on 17 June 2016 (“MPS Judgment”) and ordered that, upon the Husband’s undertakings to (i) pay the children’s school fees and school bus fees; (ii) procure the reimbursement of the Wife’s and the children’s medical and dental expenses covered by the family medical insurance plan as soon as practicable, the Husband is to pay (1) MPS of a total of HK$210,000 per month (HK$70,000 per month for each of the Wife and the children) as from 1 January 2016 and (2) a lump sum of HK$1,500,000 as interim costs provision until the conclusion of the FDR hearing.  The Judge further ordered the Husband to pay costs of the MPS application with certificate for two counsel.

17.  As seen in the MPS Judgment, for the legal costs provision, the Judge applied the Currey test, following the English Court of Appeal case of Currey v Currey [2006] EWCA Civ 1338 and the Judge was satisfied that all in all the Wife had satisfied the Curry Test.  As for quantum, he was of the view that the Husband’s then open offer of HK$1,500,000 was sufficient to cover the Wife’s legal costs from then (June 2016) to the FDR hearing. 

18.  The Husband initially failed to comply with the MPS order, even though there had been no appeal therefrom. It was only after the Judge granted leave to the Wife to commence contempt proceedings in August 2016 that the Father eventually paid the Wife the MPS in arrears and the said sum of HK$1,500,000 as legal costs provision.

19.  The parties’ respective Form Es were exchanged on 17 August 2016.  It was then disclosed to the Wife for the first time that the Husband’s share of the sale proceeds of FRC was injected into and locked up in a trust set up around the same time in his name under the Delaware law which I shall simply refer to as the “JK Trust”.  The Wife’s case is that up until now she has no idea as to how much of the sale proceeds have been placed into the JK Trust and I will come back to this issue later.  Further, the parties’ matrimonial home in Warren, New Jersey, USA (“Warren Property”) which was originally held by the parties in joint names in equal shares but in June 2013 was arranged to be transferred to one of the Husband’s companies incorporated on 29 May 2013 under New Jersey law (“D Properties LLC”) in consideration of a nominal sum of USD10 and on 30 June 2013, under the arrangement by the Husband, 99% shareholding of D Properties LLC was acquired and transferred to JK Trust, with the remaining 1% to be continued to be held by the Husband. 

20.  It was against the above background that the Wife said in the hope that an early conclusion of the case could be achieved that the Wife agreed to proceed to FDR even though at that time discovery had not been completed and she said she had expressly reserved her rights to seek further discovery.  The FDR was eventually concluded on 11 September 2017.  Unfortunately, the parties were unable to settle their differences and the Wife’s application for ancillary relief was adjourned to a PTR hearing.

21.  The Wife issued a further summons for costs provision on 2 November 2017 (“Costs Provision Summons”).  The Wife had in her 7^th affirmation filed in support of the Costs Provision Summons set out her then estimated legal costs up to setting down of the ancillary relief trial to be HK$4,681,894. 

22.  At the PTR hearing on 17 November 2017, the Judge decided to transfer the ancillary relief proceedings to the Court of First Instance including the Costs Provision Summons.  Pending the substantive argument of the Costs Provision Summons, the Judge ordered the Husband to make an interim order for costs provision of HK$500,000 to the Wife.   He handed down a short written decision on the transfer and the interim provision on the same day (“Transfer Decision”).

23.  In the Transfer Decision, the Judge has said that it is quite clear that the Husband is in control of the majority of the family assets, if not all[4]. The Judge did not think that the Husband would argue on liability and that an order for further provision of legal costs by the Husband was inevitable.  The Judge then made an interim provision of HK$500,000 for the Wife’s costs.  There was no appeal against that interim provision.

24.  According to the Husband’s Form H dated 17 April 2018, his total costs up to the that time was about HK$23.5m and the estimated costs of the trial would be another HK$5.4m, totaling about HK$28.9m.

25.  As for the Wife’s Form H dated 12 July 2018, her costs up to 3^rd July 2018 was about HK$6.3m and further costs up to and including trial would be about another HK$7.1m.

The relevant legal principles

26.  The Court’s power to order MPS (including element for legal costs provision) is stated in section 3 of the Matrimonial Proceedings and Property Ordinance, Cap 192.  The sole criterion stipulated by that section is “reasonableness”, which has been said to be synonymous with “fairness”[5].

27.  Wilson LJ had said in Currey v Currey (No 2) [2007] 1 FLR 946[6]:-

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

28.  In short, the overarching inquiry is into whether the applicant for a costs allowance can demonstrate that she cannot reasonably procure legal advice and representation by any other means and that:

(i)  To the extent that she has assets, the applicant has to demonstrate that they cannot reasonably be deployed, whether directly or as the means of raising a loan, in funding legal services.

(ii)  She has also to demonstrate that she cannot reasonably procure legal services by the offer of a charge upon ultimate capital recovery;

(iii)  The court needs also to be satisfied that there is no such public funding available to the applicant as would furnish him/her with legal advice and representation at a level of expertise apt to the proceedings.

29.  What was said by Wilson LJ in Currey was endorsed by Cheung JA and Hartman JA in HJFG v KCY [2012] 1 HKLRD 95[7] who held that the Currey principles should in future be adopted as providing prudent guidance to both judges and practitioners in this jurisdiction.

30.  Mr Yim had also referred the Court to the English case of A v A (Maintenance Pending Suit: Payment of Legal Fees)[2001] 1 WLR 605, in which the wife who was dependent upon the husband applied for an order for maintenance which includes provision for legal costs.  Holman J had stated as follows[8]:-

“But Mr Singleton submits that the costs of the suit itself are in a different category. I do not agree. Just at the moment they are, after the provision of a roof over her head and food in her mouth, the wife’s most urgent and pressing need and expense. She could manage without holidays, though I have made some provision for them. She could no doubt manage for a while without buying new clothes. She could manage for a while without buying new clothes. She could manage without her manicures, pedicures and yoga and keep fit classes, for all of which I have, on the facts of this case, made provision. She could even manage without the provision for forms of private medical care (to which the family has been accustomed) for, if necessary, she could fall back on the NHS. But she simply cannot make any progress with the dominating issue in her life if she cannot pay her lawyers, and for this the state will not provide.”(emphasis added)

31.  As to why legal costs provision is particularly crucial in cases where there is a great disparity in wealth and earning capacity as a consequence of the marriage, Holman J had this to say:-

“This wife has always been dependent on her husband. She is locked into a bitter struggle with him, whose outcome is of intense importance to her. She has an acute need for good legal representation and in circumstances in which her lawyers do not lawyers have to be desperately economizing relative to the husband. He himself is spending huge sums on the litigation. He can, in my judgment, afford to pay the sums I have ordered and it is reasonable that I should require him to do so[9].”

He then went on to say:

“In my judgment, in an appropriate case, maintenance pending suit provides a partial answer and, for the reasons I have now given, I made the order in the present case. I add that, since I made the order, the House of Lords has given its judgment in White v White [2000] 3 WLR 1571. That did not, of course, impact at all on my decision which I had reached and announced several days earlier, not on my reasons for it. However, Lord Nicholls of Birkenhead stressed, in relation to the substantive outcome, that there is to be no place for discrimination between husband and wife and their respective roles. In my view, that substantive approach may be illusory if a wife is unable to vindicate it due to the difference in their roles, and its discriminatory effect upon their income and capital and upon a wife’s ability to match the legal representation of her husband. The changing climate for the outcome of matrimonial litigation, which the House of Lords has clearly heralded, further fortifies me in my view as to financing its interlocutory stages[10].”

32.  There was no dispute about the general legal principles.  I now turn to the facts of the present case.

The PNA and forum shopping

33.  First of all, there are two issues which have been repeatedly brought up by the Husband, namely (i) the PNA and (ii) the Wife had “forum shopped”.  These are two of the five issues on the agreed “List of Issues” placed before this Court at the 1^st Directions Hearing. 

34.  On the forum-shopping issue, as noted by the Judge in the Forum Judgment, there has been a constant theme in the Husband’s argument that the Wife has “forum shopped”.  The Husband repeats this in his 7^th affirmation and that the Wife had lied on oath regarding her move to Hong Kong and he exhibited a 25 page schedule prepared by his lawyers which is said to detail the “clear and obvious inconsistencies” in the Wife’s evidence regarding her move to Hong Kong.  The Husband alleged that the Wife “forum shopped” for what she perceived to be the most advantageous jurisdiction, and he said “Had she not deceived me in the first place I would never have agreed to her move to Hong Kong and the divorce would have had to proceed in New Jersey”[11].

35.  Even if the Wife did deceive the Husband into agreeing to her move to Hong Kong with the children for a temporary period, and after moving here decided not to return to USA with the children, this would not necessarily mean that she moved here with the intention of divorce and forum shopping.  There was no sufficient evidence that the Wife was aware of the Husband’s latest extra marital affair at the time of her move on 6 July 2013. According to the Wife, she only discovered the Father’s latest marital affair in about December 2013 after her move to Hong Kong.  Nor was there sufficient evidence before this Court that the Wife had already consulted lawyers in USA and in Hong Kong with a view to divorce at the time of her move in July 2013 and that the move was with this in mind.  

36.  As pointed out by the Judge in the Forum Judgment, the Court of Appeal had already ruled that the Wife was entitled to issue the divorce proceedings in Hong Kong as of right, given her domicile being in Hong Kong and her having a substantial connection to Hong Kong at the date of her petition.  The Judge was not prepared to speculate on the Wife’s motive as her choice of Hong Kong was not so unusual that one would question her motive.  There was no appeal against the Forum Judgment.

37.  So far as the PNA is concerned, this has been described by the Husband as a “magnetic factor”.  It is the Husband’s case that the PNA is a valid agreement and full weight should be given to it.  At the MPS hearing, the Husband had referred to the PNA.  The Judge noted in the MPS Judgment that at that time, it was the Husband’s case that no cost provision should be made as the whole purpose of entering into the PNA was to avoid litigation and substantial legal costs to be incurred and that it would be wrong in principle to compel the Husband to fund the Wife’s very substantial legal costs[12]. However, the Judge noted that notwithstanding those arguments, the Husband had at the time made an open offer to pay a lump sum of HK$1,500,000 to cover the Wife’s legal costs up to the FDR hearing.

38.  For the present application, notwithstanding what the Judge had said in the MPS Judgment and no doubt on the Husband’s instructions, Mr Chan devoted no less than 5½ out of his 16 page written submissions again on the PNA and the Wife’s “forum shopping”.

39.  Suffice to say, I agree with the Judge’s views that the Wife’s choice of Hong Kong for the issue of her divorce proceedings was not so unusual that one would question her motive.  Further, in my view, there is no sufficient evidence at this stage that would point to the Wife having forum shopped for the most advantageous jurisdiction namely Hong Kong for her divorce proceedings, but in any event, this will be an issue to be determined at trial.

40.  As for the PNA, I note that the agreement provides, amongst other things, that:

(i)  Joint or marital property shall be solely limited to property acquired in joint names of the parties, and any other property shall be deemed the sole and separate property of either the Husband or the Wife (clause 2.1);

(ii)  Should joint property be sold or disposed of, from the sale proceeds of the sale the parties shall each receive back their original investment and any increase in the value of the property, over and above their original investment, shall be split in proportion to the amount the parties originally invested in the joint property (clause 2.1);

(iii)  Each party shall keep and retain sole ownership of his/her separate property and that the Husband’s separate property will include his income both earned and unearned, interests in real estate, partnerships, corporations and other business and personal assets derived from his efforts prior to the marriage, as well as his employment during the marriage and his family relationship (clause 3.2);

(iv)  As for alimony for the Wife, if the parties have been married for at least 5 years or if there is a child of the parties living, then in the event of the marriage is terminated the Wife shall be entitled to alimony for a period of 5 years, and the amount of alimony shall be based upon the Husband’s base weekly salary exclusive of bonuses, income or profits from any businesses or investments, trusts, gifts and inheritances.

41.  Although the Warren Property appeared to be the parties’ “joint or marital property” under the PNA, being their matrimonial home and held in joint names, as said earlier, it has been transferred out, and 99% of the D Properties LLC which holds Warren Property is now held by and tied up in the JK Trust.  At this stage, it is not clear whether there are other properties held by the parties which are regarded as their “joint or marital properties” under the PNA.  If none, it would appear that the Wife would only be entitled to her own separate property under the PNA and in relation to her alimony, as seen in (iv) above, this will essentially be limited to a period of 5 years only notwithstanding the fact that she was married to the Husband 17 years by the time she issued the divorce proceedings.

42.  As held by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364 and seen in those passages quoted by Mr Chan in his submissions, the court should give effect to an agreement freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement[13].

43.  Thus, whether the court should give full weight to the PNA is a matter which can only be determined at the trial after consideration of all the circumstances of this case.

44.  Having considered the above, in my view, neither of those two matters assist the Husband in the present application.

The MPS Judgment

45.  At the time of the MPS hearing, the parties’ Form Es had not yet been filed.  There was no reference in the MPS Judgment to the Wife having any income.  She is the registered owner of a property called Park Metropolitan Property purchased in her name in 2013 with the financial assistance of the Husband as an investment property.  It is subject to a mortgage loan for which she has to pay a monthly instalment of about HK$20,000. It was said to be rented out at the time at a rent of about HK$20,000 per month.

46.  The orders sought by the Wife at the MPS hearing were (i) HK$250,000 per month as MPS for herself and the children on the basis of the Husband’s undertakings to pay the children’s school fees and school bus fees directly, which came to about HK$35,000 per month, and (ii) HK$120,000 per month for legal provision which the Husband used to pay[14].

47.  At the time, the Husband’s total income in 2015 was said to be USD 1.6m (USD500,000 as salary and USD 1.1m as bonus), equivalent to about HK$12.48m.  As said by the Judge, even allowing half of it for US taxes, he still had HK$6,240,000 as his net income, averaging at HK$520,000 per month.

48.  It was the Husband’s case at the time that the Park Metropolitan Property should be liquidated so as to alleviate the financial pressure claimed to be faced by the Wife at the time, or to cover her past or future legal costs.

49.  The Husband’s then stance was that he would continue to pay for the children’s school fees with an additional monthly sum of $120,000 as MPS.  As far as interim legal costs provision was concerned, the Husband made an open offer of a lump sum of $1,500,000 to last until the FDR hearing.

50.  Although the Judge accepted that the Park Metropolitan Property is an asset under the Wife’s name, he decided that the liquidation should not be required at that stage and he had set out his reasons, one of which was that after considering the available evidence on the Husband’s financial resources, he was convinced that he could afford to pay a reasonable amount of MPS and therefore, there was no need to resort to a quick sale of the property[15].

The parties’ respective Form Es and answers to questionnaires

51.  The parties’ Form Es were filed after the MPS Judgment.  The Wife confirmed in her Form E affirmed in August 2016 that she had no income apart from the rental income from Park Metropolitan Property.  Apart from the Park Metropolitan Property, which she placed a net value of about HK$2.4m at that time, the balances in her bank accounts totaled about HK$260,000 and her valuable personal items about HK$567,000.  Her total assets came to about HK$3.2m at the time, but her liabilities were about HK$3.85 m.

52.  As for the Husband, according to his Form E affirmed in August 2016, his income was USD44,000 gross (pre-tax) per month, but instead of setting out his total income in the Form E, he referred to a letter from his solicitors to the Wife’s solicitors of 26 April 2016 in relation to his income position (“26.04.16 Letter”)[16].  This letter states that his income consists of:

(i)  Base salary - USD23,800 net of taxes per month, or about HK$184,000;

(ii)  Consultancy payment - USD211,728 net of taxes in 2015 but the consultancy business ended in 2015 and from January 2016 onwards, he will not receive any further payments;

(iii)  Bonus/“Earn Out” payment - he received a bonus of USD1.1m in 2015, and after US taxes deducted, the net amount was paid directly by the Company[17] to JK Trust, and the majority of that was to be used to cover his employees’ bonuses;

(iv)  Dividend income – in 2014, this totaled USD173,389

53.  The Husband had stated the total value of his assets was about USD1.2m and his pension was about another USD1.2m, totaling USD2.4m, but stated his liabilities to be USD1.63m.

54.  Briefly, the Husband disclosed the following assets:

(1)  Landed properties

(i) his 1% interest in the Warren Property

(ii) a property held in his sole name in Tseung Kwan O, Hong Kong (“Tseung Kwan O Property”)

(2)  Cash at bank

(3)  Shares of his private companies in New Jersey, of value to be confirmed

(4)  Stocks, bonds and quoted securities and/or investments

(5)  valuable personal items

(6)  retirement funds

55.  The Tseung Kwan O property was purchased in the sole name of the Husband in 2002 since when according to the Wife there has been an arrangement pursuant to which the property has been occupied by the Mother’s maiden family members/relatives.  As mentioned earlier, it was only disclosed for the first time in the Husband’s Form E that his share of the sale proceeds of FRC was said to be injected into the JK Trust and that the trust also holds 99% of the Warren Property through D Properties LLC.

56.  The 5 Trusts disclosed by the Husband were (i) a New York trust settled by the Husband’s father (“Father”) on 13 April 1988 for the Husband and his sister as beneficiaries (“Father’s Trust”), (ii) the JK Trust, as mentioned earlier, which is a Delaware trust set up by the Husband on 26 November 2012, and 3 trusts (“Children’s Trusts”), one set up by the Husband for the elder son as beneficiary, one set up by the Husband for the younger son as beneficiary, and the third one set up by the Father for the parties two sons as beneficiaries.  The approximate values given by the Husband at the time were:

(i)	Father’s Trust	USD 488,000
(ii)	JK Trust	USD 14,000,000
(iii)	The elder son’s trust	USD 1,129,500
(iv)	The younger son’s trust	USD 1,129,500
(v)	The two sons’ trust	USD 1,000,000

57.  As for the Husband’s liabilities of a total of USD1.6m about USD743,322 was said to be owed to the Father, USD 600,000 was said to be loans from parents.  Then a sum of USD 792,500 was said to be the special bonuses for FRC employees due in December 2016.

58.  According to the Husband, the liabilities to the Father arose as follows:

(1)  The Father advanced a loan to the Husband in 2001 for USD374,705 at interest at 3% pa, ie USD11,241 pa for the purchase of a vacation home in Key Largo, Florida, which was sold in 2010, but the loan had not yet been repaid to the Father (“Key Largo Loan”), and the then outstanding amount was USD543,322;

(2)  Loans said to have been advanced by the Father at the time (“Father’s Other Loans”)-

(i) For the Husband’s holidays – USD37,000

(ii) For the Husband’s life insurance premia – USD23,266

(iii) For the Husband’s legal costs and outgoings – initial loan instalment of USD200,000

59.  The parties’ Form Es were followed by each other’s questionnaire.  The Wife’s questionnaire in respect of the Husband’s Form E and financial documents were filed and served on the Husband on 5 December 2016.  It was not until 14 March 2017 that the Husband provided his 1^st answers “1^st Answers”), and his outstanding answers were only provided on 24 August 2017 (“2^nd Answers”).  However, those answers were still not complete.  I will deal with to the Husband’s financial disclosures later.

60.  Up until the present hearing, there had been no further updated Form Es filed by the parties.

The Husband’s proposal for the present application

61.  On the 1^st day of hearing before this Court, namely 13 July 2018, the Husband’s solicitors sent a letter to the Wife’s solicitors making an open offer that the Park Metropolitan Property and the Tseung Kwan O Property both be sold and that upon their sale, the net proceeds to be divided equally between the parties to cover their respective legal costs, and that any net proceeds received by the Wife to be on account of any final ancillary relief award and without prejudice to any further costs orders made[18].

62.  The proposal was not accepted by the Wife.

The issues in the present application

63.  The issues in the present application are:

(i)  Whether the Wife meets the Currey ‘test’

(ii)  If so, the quantum required by the Wife

(iii)  Whether the Husband has the ability to pay

Whether the Wife meets the Currey ‘test’

The Wife’s means

64.  In her 7^th affirmation filed in support of her application, the Wife has stated that she has no other income save and except the MPS of HK$210,000 ordered by the Judge.  She disclosed that she had already borrowed HK$2,182,080 from her friend Ms Tse and another HK$97,500 from another friend Ms Chiu.  The Wife explained that the loan from Ms Tse was for her to settle the legal fees for the Hague proceedings and the subsequent appeal, and that she would have to repay those loans immediately upon recovery of the legal fees from the Husband, and there was a common understanding between them that Ms Tse would not advance any further loan to her if her appeal was allowed by the Court of Appeal because she would then be able to seek for costs provision against the Husband.

65.  The Wife said that she has commenced taxation proceedings against the Husband.  She also states that by the time of her 7^th affirmation, her outstanding legal fees have rolled up to HK$310,894.  She sets out that she seeks a sum of about HK$4.37m for costs provision until setting down.  She later filed her 8^th affirmation in response to the Husband’s 7^th affirmation and to deal with, amongst other things, his ability to pay, his income and other allegations.

66.  After the 1^st day of the hearing before this Court, the Wife sought leave to file her 9^th affirmation in which she disclosed her latest bank statements and credit card statements to show that she had run up unpaid amounts to HSBC on her credit cards amounting to about HK$930,000 as at 11 January 2018.  In light of this, she had applied for and obtained a personal loan from Prime Credit Limited in the amount of HK$600,000 at an interest rate of 18.84 % repayable with 5 years to cover her credit card debts for which she has to repay monthly a sum of HK$14,800 for part of principal and interest.  The Wife further disclosed that in March 2018, she had no other alternative but to ask Ms Tse again to lend her a further loan of HK$400,000.  The Wife also set out a table of how she had applied the personal loan from Prime Credit and Ms Tse’s loan towards the payment of outstanding credit card amounts due to HSBC.

67.  Under the agreement for the personal loan, the Wife has to pay to Prime Credit a monthly sum of HK$14,800.  

68.  The Wife has also said that the current market value of Park Metropolitan Property is HK$8m and less outstanding mortgage of about HK$3.79m, as at June 2018, the net equity of Park Metropolitan Property was about HK$4.2m.  The Husband does not accept this valuation and has alleged that the net equity in the property is at least HK$5.8m based on a recent transaction of an almost identical flat which was sold for HK$9.6m[19]. 

69.  Mr Chan pointed out that the Wife’s 9^th affirmation contradicts the Wife’s evidence in her 7^th and 8^th affirmation that she has no ability to borrow and further proves that she has managed to borrow a further HK$1m, including an amount from her friend Ms Tse again.  Mr Chan further submits that the Wife can place the Park Metropolitan Property on the market and raise at least HK$5.8m through sale.

70.  Park Metropolitan Property is the main asset held in the Wife’s name, and is subject to a tenancy.  Assuming that its market price with a sitting tenant is about HK$8.8m (the median of the Husband’s valuation and the Wife’s), the net equity would be about HK$5m.  However, according to the Wife, she has the following liabilities: -

(i)  Ms Tse – HK$2,182,080 + HK$400,000 = HK$2,582,080

(ii)  Ms Chiu – HK$ 97,500

(iii)  Prime Credit – outstanding principal of about HK$570,000 as at 2 July 2018 after 5 repayments

(iv)  Billed but unpaid legal costs – HK$359,411.19

71.  Even if the Wife were immediately able to liquidate and sell Park Metropolitan Property for HK$8.8m, it seems after deducting all sale expenses and all her liabilities, the most she would end up with would be about HK$1.3m.  There is no evidence as to whether she could raise a further loan with Park Metropolitan park as security, but even assuming she can refinance the property from a bank up to 50-60% of the present market value of HK$8.8m, the most she can raise is between about $600,000 to HK$1.5m or say, at the median figure, about $1.05m.  Having considered this and that the Wife did manage to borrow again from Ms Tse and Prime Credit, I am of the view that the Wife should be able to raise about another HK$1m.

The quantum required

72.  The Wife’s latest Form H updated to 12 July 2018 indicated that the total amount billed by the Wife’s former solicitors and present solicitors was about HK$6.3m of which up until 3 July 2018, as seen earlier, a sum of HK$359,411.19, or about HK$360,000 was outstanding.  Her estimated costs going forward up until and including trial amount to a total of approximately another HK$7.1m.

73.  On 6 July 2018, the Wife’s solicitors had sent a letter to the Husband’s solicitors setting out the breakdown of the costs going forward.  It appears from this letter that it is anticipated that leading and junior counsel will be instructed for the general conduct of the case until the conclusion of the trial. It is also anticipated that forensic accountants will be instructed, as well as a Hong Kong trust expert and a US trust expert and other experts for valuations of the Husband’s private companies and properties, and also there will be potential interlocutory proceedings for “discovery and other preliminary or ancillary issues”.

74.  As will be seen later in this decision, it is my view that the Husband’s disclosure so far has not been satisfactory.  I accept further discovery proceedings will be necessary and the Wife has been given 28 days after the handing down of this decision or after exchange of updated Form Es, whichever shall be later, to issue any necessary applications in this regard. 

75.  So far as forensic accountants are concerned, the Wife said she has already instructed a forensic accountant to assist in preparing her Questionnaire and that she wishes to continue to instruct her own forensic accountant to assist her in reviewing the Husband’s updated Form E and answers.  As for experts, there are no present applications by either party for appointment of experts yet.  If expert evidence is necessary, it is now the general practice in matrimonial proceedings to instruct single joint experts for which the costs are to be shared.  In relation to preliminary and ancillary issues, there has been no evidence in the Wife’s 7^th affirmation as to what other potential applications she has in mind. 

76.  Going forward, out of the Wife’s estimate of about HK$7.1m of total costs, HK$4.12m is for counsel fees (including both leading and junior). In my view, the costs estimate is on the high side and in particular I do not find it necessary to instruct a leading counsel for discovery or further interlocutory applications, since the Wife has instructed a well known firm of solicitors in this field and her junior counsel is also an experienced counsel. 

77.  Having considered her estimates, I find a sum of about HK$3.2m (including both leading and junior) for preparation for trial and attending the 8 day trial is reasonable.  However, the estimate of some HK$3.9m for further general conduct and interlocutory applications prior to the trial appears to be on the high side.  In my view a sum of about HK$1.8m (allowing one junior counsel’s fees) is reasonable for all pre-trial applications and expert fees.  Thus, in my view, going forward, the Wife will need a total of about HK$5m for her legal costs.

78.  In light of the above quantum, even if say, the Wife could raise HK$1m, there is still a shortfall of about HK$4m.  I understand that she is now proceeding to taxation of costs previously awarded to her.  Taking all this into account and the costs order I am going to make in this decision, going forward, I am of the view the Wife will need a cost provision of about HK$3.5m.

My Views on the Currey Test

79.  I am satisfied that the Wife has demonstrated that she cannot reasonably procure legal advice and representation or fund legal services until conclusion of trial with her own assets whether directly or as the means of raising a loan.  There is no evidence that she can reasonably procure legal services by the offer of a charge upon ultimate capital recovery.  With the level of MPS she is receiving, it is unlikely that she will meet the means test for legal aid. All in all, I find that the Wife has satisfied the Currey test.

Whether the Husband has the ability to pay

80.  The Husband says in his 7^th affidavit that he has minimal liquidity and limited resources.  This, he has in fact been saying since 2016[20].

The Husband’s income

81.  The Husband has said in his 7^th affirmation that his current income is USD 811,000 per annum but he is subject to US taxes of 45%, leaving about US$446,050 per annum, ie US$ 37,170 per month or about HK$290,000 per month. The Husband has also said he used to receive bonuses but that has now ended.  As under the MPS Order, he has to pay to the Wife HK$210,000 per month, that leaves only HK$80,000 per month and on top of that, the Husband says he has to meet his undertakings to pay the children’s school fees and their other related expenses, his own living expenses and his own legal fees.  However, the Husband has not really explained how he has been meeting the deficit.

82.  As mentioned earlier, after the sale of FRC, the Husband was employed as Co-President of the FRC division.  The Husband had produced a copy of his employment agreement dated 5 December 2012 in his 1^st affirmation (“Employment Agreement”), which was entered into between a subsidiary of the HK Listco (“Company”) and the Husband.

83.  The Employment Agreement provides for, amongst other things, the following:

(i)  The term of employment shall continue for the “Initial Term” provided that such Initial Term shall renew automatically for successive 12-month periods following such Initial Term, each a “Renewal Term”, unless at least 120 days prior to the scheduled expiration date either the Husband or the Company notifies the other party not to renew;

(ii)  The Husband’s “Base Salary” will be USD500,000 per annum, less applicable payroll deductions, paid semi-monthly, and subject to annual review by the Board;

(iii)  The Husband will be entitled to participate in all employee benefit plans or programs of the Company available to the senior level executives of a similar grade;

(iv)  The Husband will be entitled to participate in the HK Listco’s stock option plan made available to Grade 1 level executives;

(v)  The Husband will be reimbursed for reasonable and appropriate travel, entertainment and other business expenses incurred in connection with the performance of his duties;

(vi)  The Husband will be entitled to a monthly automobile allowance of US$ 2,048.

84.  The “Initial Term” is stated to be a period commencing effective as of the date of the Employment Agreement, ie 5 December 2012 and continue for a period ending on the later of (a) 21 December 2016 or (b) if Section 3.3(f) of the Asset Purchase Agreement applies, 31 December 2017.  The Employment Agreement also refers to a Deed of Guarantee of 5 November 2012 between [a subsidiary of the HK Listco and the “Sellers”, the Father and the Husband pursuant to which the payment obligations of the Company under the Employment Agreement are guaranteed.

85.  The Husband has up until now not produced a copy of the Asset Purchase Agreement.  From its definition in the Employment Agreement, this appears to be the agreement concerning the sale of FRC executed on 5 November 2012 among, what appears to be 6 companies under the FRC group, the Father, the Husband, the Husband’s sister on one side and on the other side, a company which appears to be a subsidiary/associated company of the HK Listco.  

86.  As the Husband has not produced a copy of the Asset Purchase Agreement, it is therefore not in fact clear when the Initial Term was supposed to expire, but for the time being, there appears to be no real dispute that the expiry of the Initial Term was 31 December 2017.

87.  The Husband disclosed for the first time in his 7^th affirmation of 12 January 2018 his “new employment package”.  What he said was that he continued to work for the Company on a “temporary extended basis” and that his original 5 year service contract which was part of the terms of the sale agreement expired in December 2017 and that as of 2 January 2017, he receives a new substantially reduced income of USD811,000 gross per annum, and that he is no longer entitled to any bonus or any other emoluments. The Husband has highlighted that the original 5 year contract gave him significantly more generous terms than the present interim terms as they were agreed as part of the terms for the sale of FRC.  He has also said that he remains subject to fierce non-compete terms for 2 yearsand consequently his negotiating hand in agreeing extended interim terms is substantially weakened.

88.  The Husband produced no supporting evidence to what he said above in his 7^th affirmation.  In particular, there was no explanation in his 7^th affirmation why the Initial Term was not automatically renewed for a 12 month period as provided in the Employment Agreement.

89.  There was no evidence that the Company had given the Husband 120 days prior notice or any prior notice of its decision not to automatically renew the Initial Term upon expiry, or to terminate the Employment Agreement.  The Husband did not disclose any negotiations between him and the Company leading to him being an “at-will employee”.  

90.  The lack of supporting documentary evidence by the Husband was pointed out by the Wife as early as 5 February 2018 when her 8^th affirmation was filed.  Yet, it was not until the Wife’s solicitors wrote to seek documentary evidence on 28 June 2018 that eventually that the Husband’s solicitors sent a letter dated 12 July 2018, the day prior to the hearing of the present application, enclosing 3 documents as follows:

(1)  A one page document signed by the Husband on 5 January 2018 acknowledging receipt of an “Employee Handbook” (“Acknowledgment”) and, amongst other things, indicating his understanding that he is “employed on an at-will basis”, meaning that either the Company or he may terminate employment at any time, for any reason, with or without cause or prior notice;

(2)  A short letter dated 10 July 2018 issued by the Company verifying that (“Verification Letter”):

(i) the Husband has been employed by FRC since 6 December 2012

(ii) as the Husband was part of an acquisition, the Company honours the original hire date of 1 August 1993 for seniority purposes

(iii) the acquisition contract ended effective 31 December 2017

(iv) thereafter the Husband is considered an at-will employee

(v) currently the Husband works as the Executive Vice President of the division of the Company and earns an annual salary of USD 811,460

(3)  a copy of the Husband’s Earnings Statement for the two week period 16 to 30 June 2018

91.  In the Verification Letter, the Company had referred to an “acquisition contract” which ended effective 31 December 2017.  It was not clear whether the Company was referring to the Asset Purchase Agreement or the Employment Agreement.  Assuming the Company was referring to the Employment Agreement, the Company appeared to be prepared to treat the Husband as being employed from 1 August 1993 for “seniority purposes”, namely employment for a 24 year period of employment.  It was also not clear what “seniority purposes” meant, or whether there was any compensation on termination or there will be.  This Verification Letter was only produced by the Husband at last minute and there was no chance for the Wife to raise any further queries on it.

92.  In the Acknowledgment, the Husband states he has reviewed the policies therein and that by signing the Acknowledgment he has agreed to follow those policies and procedures therein.  It can be seen from the Acknowledgment that the Handbook is said to supersede any and all prior understandings, policies and practices at [the holding company] on the subjects contained in the Acknowledgment and replaces all prior published or unpublished policies, practices or arrangements, except any agreements relation to confidential information, non-disclosure, solicitation of employees or current or prospective customers or competition.  Further, in the event of a conflict between the contents of this Handbook and a plan document or summary plan description, the terms of the plan document and summary plan description controls.

93.  The Husband has however not produced a copy of the Employee Handbook, or any plan document or summary plan description.

94.  In the letter of 12 July 2018, the Husband’s solicitors has also stated that the Husband is no longer entitled to any bonus. 

95.  However, the Verification Letter from the Company does not state that the Husband is no longer entitled to any bonus or any other emoluments as alleged by the Husband. 

96.  In the 26.04.16 Letter, the Husband’s solicitors had stated that it was possible for the Husband to receive bonus or ‘earn out’ payments following the sale of FRC in 2012, depending on how the business performed.  Further, when FRC was sold, as an incentive to retain employees, it was agreed that they would each be paid a special bonus, 50% was to be paid 2 years after the sale (2014) and the other 50% 4 years after the sale (2016).  The 26.04.16 Letter further states that the Husband did not receive any bonus or earn out payment in 2014, and the USD 1.1m, after tax was paid into the JK Trust but that he had to pay the employees the special bonuses, and that for 2016 the position would be similar.  Thus, what the Husband appeared to be saying was the bonus or ‘earn out’ payment for 2016 would be used to pay the special bonuses for the employees.

97.  Again, no supporting evidence was produced in the 26.04.16 Letter as to the basis for calculation of the bonuses or ‘earn out’ payments to the Husband.  Any provisions for “earn out” payments should normally be contained in the sale and purchase agreement of a business.  In any event, at the moment, there has not been any documentary evidence in relation to how those ‘earn out’ payments were calculated.

98.  As for the “special bonuses”, the Husband has produced two documents entitled “FRC Special Bonus Plan Concept” dated 17 July 2012[21]. The Wife has asked the Husband to produce documentary evidence to support his allegation that he is personally liable to pay USD792,500, in his 1^st Answers, he only referred to the two documents again and said this would be reflected in his 2016 tax return when available. The 2016 tax return has not yet been produced.  In any event, neither the two documents nor his 2016 tax return would explain why he was personally liable to pay those special bonuses.  In the 26.04.16 Letter, his solicitors said a sum of USD961,287 on the Husband’s 2014 tax return (only one sheet of this form was produced)[22] was for the special bonuses he had to pay his employees, and this was reflected under “17, Rental real estate, royalties, partnerships, S corporations, trusts etc Attach Schedule E” under Income (“Item 17”).  Again, no supporting evidence was produced.

99.  The Earnings Statement for 16-30 June 2018 indicates a gross pay of USD33,825.96 and a net pay of USD20,780,42.  As stated in the Husband’s solicitors’ letter of 12 July 2018, this is after all deductions including federal and other income tax.  This means the Husband’s monthly salary is a net of about USD 41,564.84, or, if @ 7.8, about HKD324,205.75 a month, and not HK$290,000 as the Husband stated in his 7^th affirmation. Further, as pointed out by Mr Yim, his present net base salary is actually substantially higher than the net base salary of HKD184,000 per month disclosed by the Husband in the 26.04.16 Letter or his Form E.

100.  In any event, as seen above, the Husband’s disclosure in relation to his income has so far been piecemeal and unsatisfactory. 

The Husband’s assets

101.  The Husband had produced a schedule of assets in his 7^th affirmation, setting out, according to him, the parties’ assets as at 15 November 2017 and that their net assets (ie after liabilities) liquid and non-liquid (excluding the trust assets) amounted to approximately HK$15.6m as at 15 November 2017 as follows:

(i)  The two properties in Hong Kong, his (Tseung Kwan O Property) had a then net value of HK$5.5m and the Wife’s (Park Metropolitan Property) had a then net value of about HK$2.4m;

(ii)  Balances in bank accounts of a net value of HK$1.7m but reduced to a mere HK$240,000 as of date of his 7^th affirmation;

(iii)  Investments with a face value of approximately HK$530,000 essentially with Mellon Securities but he had since 15 November 2017 used this amount as part of his repayment for the outstanding loans to the Father and the balance at Mellon Securities was zero at date of his 7^th affirmation;

(iv)  The Key Largo Loan of approximately HK$4.23m as at 15 November 2017 had been settled from the distributions owed to him from the Father’s Trust;

(v)  The Father’s Other Loans amounted to HK$4.5m as at 15 November 2017;

(vi)  4 pensions of aggregate value of approximately HK$10.25m which will be subject to significant tax liabilities if withdrawn prior to the Husband reaching 59 years of age.

102.  So far as the Key Largo Loan was concerned, the Husband had produced in his Form E a copy of a document signed on 8 September 2001[23] by him and the Father indicating that an amount of the closing balance of USD374,705 would be paid by the Father and that this would be a loan which the Husband would have to pay back at some time in the future and would have an interest rate of 3% per annum, ie USD 11,241 per year.  The outstanding amount at the time of the Form E was stated to be USD543,322 (ie the principal + 15 year interest), or about HK$4.24m.

103.  In the Husband’s Form E, the Husband attached a schedule of trusts as at 1 August 2016 with approximate value of each of the 5 Trusts but with no supporting documents (“Schedule of Trusts”)[24].  Then, when asked for the updated portfolio valuations as at 30 November 2016, in his 1^st Answers in March 2017 he produced a short one page letter from Windrose Advisors of valuations for 4 out of the 5 Trusts as at 30 November 2016 for (i) JK Trust – about USD 13m (ii) The Father’s Trust – USD512,730 (iii) and (iv) – each child’s trust of about USD1.7m[25]. There was no address or contact details of Windrose Advisors on the letter and there was no information as to the role of Windrose Advisors but more importantly, there were no supporting documents to show how those valuations were arrived at by Windrose Advisors.

104.  It was confirmed by the Husband in his 1^st Answers that his “portion” of the trust funds in the Father’s Trust had vested in him since he turned 35 (in 2007) but his portion had remained in the trust.  It was however not made clear what his portion was. 

105.  Anyway, according to the valuations, the value of the Father’s Trust as at 30 November 2016 was USD512,730, or just under HK$4m, which according to the Husband, this was a gross value and that his sister had previously received one capital distribution (of undisclosed amount).  As mentioned earlier, in his 7^th affirmation, the Husband referred to the Key Largo Loan being settled from the distribution owed to him from the trust and said that he had used all those funds to reduce the level of debt owed to the Father[26]. Again, no supporting documents were produced by him.

106.  According to the Husband’s 1^st Answers, his reply to the question as to why there was no immediate repayment to the Father out of the net sale proceeds of the Key Largo property (which was sold in 2011 at USD 310,000), the Husband said it had been agreed between him and the Father that it would be repaid at a later date.  There was thus no deadline stated for repayment.  The Husband had said that the sale proceeds were paid into his own account.  There was no explanation by the Husband in his 7^th affirmation as to why suddenly the Key Largo Loan had to be settled in January 2018.  There would have been further accrued interests since the date of the Husband’s Form E and if the Father’s Trust was only valued at about HK$4m gross, it was not clear how the shortfall, if any, was met.  It was not clear whether the funds from Mellon Securities were used for repayment of the Key Largo Loan or not.

107.  As for the Father’s Other Loans, the total outstanding amount in the Form E was stated to be USD260,266, or about HK$2m @7.8. 

108.  Since the Husband failed to comply with the MPS Order, the Wife issued contempt proceedings whereupon the Husband then paid up. According to a letter from the Husband’s solicitors dated 20 September 2016 (“20.09.16 Letter”), the Husband had to borrow from the Father the maintenance arrears of HK$430,000 and the sum of HK$1.5m for the provision of the Wife’s legal costs[27]. In the 20.09.16 Letter, it was stated that the Husband had entered into a formal arrangement regarding the loans with the Father.  It was not until his 1^st Answers that the Husband then provided a copy of a loan agreement dated 26 December 2016 signed by him and the Father(“Loan Agreement”)[28] .

109.  There was no mention by the Husband in his Form E that he had to pay interest on the Father’s Other Loans totaling USD 260,266 at 3% per annum at the time.  In fact, out of the USD 260,266, the amounts for holidays were said to be paid by the Father in April 2015, July 2015, and April 2016, the insurance premia paid in January 2016 and the USD200,000 paid in July 2016.  The Father signed another document dated 26 December 2016 (the same day of the Loan Agreement) that he had lent the Husband another USD300,000 in August 2016. The Loan Agreement was only created in December 2016 but for some reasons, the Father did not refer to the alleged loan amount of USD 300,000 therein, but signed another separate document in relation to this loan. Anyway, according to these documents, as at 26 December 2016, a total of USD560,266 was outstanding to the Father, or about HK$4.37m.

110.  In his 7^th affirmation, the Husband had said the outstanding balance as at 15 November 2017 was approximately HK$4.5m.

The 5 Trusts

111.  As to the 5 Trusts, at present, none of the trusts/trustees have been joined and there is no application for variation of nuptial settlement. The children are the sole beneficiaries under the Children’s Trusts and the Husband says they are not financial resources available to the Husband (or the Wife).  At present, no one has suggested that the Children’s Trusts are available for the parties’ themselves.

112.  The Husband had said in the “Notes” to the Schedule of Trusts  (“Notes”)[29] that the 5 Trusts were not resources likely to be available to him at the time “or in the foreseeable future”.  Contrary to what he said at that time, as mentioned earlier, the Father’s Trust was clearly a financial resource available to him since he now says he has used all the funds therein for repayment to the Father. 

113.  The Wife has in her 8^th affirmation set out a list of the Husband’s unsatisfactory disclosures.  For present purposes, I will concentrate on only the matters set out below.

114.  The Wife first mentioned the sale of FRC in 2012 in her 4^th affirmation filed on 23 December 2015 in support of her MPS application and she had also mentioned that the deal was worth about USD 50-80m.  As pointed out by Mr Yim, the Husband has not disputed nor denied the value placed by the Wife on the deal.  The Husband’s then position in his 4^th affirmation filed in the MPS application was that he had no means to pay the MPS requested by the Wife, but did not to produce any financial document in support of his allegations.  Further, notwithstanding the Wife had in her 5^th affirmation filed in April 2016 mentioned again that the Husband had received a substantive amount from the sale of his family business, he had continued to fail to make proper financial disclosure in relation to the same.

115.  About 8 days after the Wife’s 5^th affirmation, the Husband’s solicitors sent the 26.04.16 Letter.  Yet, all this letter did was to set out the Husband’s income, stating that the Husband’s savings had been drastically reduced and that the only remaining capital the Husband had left (excluding any potential trust interests) was approximately HK$6m in his bank accounts.  In the 26.04.16 Letter, although reference was made to the JK Trust of which it was stated that the Husband would be “providing full details” in due course, there was no information as to the whereabouts of the sale proceeds of FRC.

116.  Then there was another letter from his solicitors dated 21 July 2016 (“21.07.16 Letter”), and it appeared that after the MPS Judgement, the Husband was maintaining that his financial position was becoming increasing precarious and that he had virtually no liquid capital left.  However, he did not appeal against the MPS Judgment and notwithstanding his complaints about his precarious financial position, he later disclosed in his Form H dated 23 August 2016 his costs up until 31 July 2016 had already exceeded HK$10m.

117.  Finally, the Husband’s Form E was filed on 18 August 2016. As stated in the opening paragraphs of the standard Form E, the person filling the form has a duty to the court to give a full, frank and clear disclosure of all his financial and other relevant circumstances.  

118.  The documents attached by the Husband in his Form E can be  seen in the Husband’s “Master Index” to his Form E (“1^st Master Index”)[30]. The Husband had provided numerous copies of bank statements, securities/investment account statements, credit card statements, valuations or his retirement funds, Key Largo documents, PNA etc.

119.  Although he had produced numerous statements and documents, other than what was stated in the one paragraph Notes to the one page Schedule of Trusts he disclosed no information nor any supporting documentation on the sale of FRC.  On his income, under 3.1 of his Form E, he was supposed to give details of his income and to attach copies of proof of income for the last 3 months or contract of employment, if any and tax returns for the last 2 years.  He produced only the 26.04.16 Letter attaching a one page of his 2014 Form 1040 (income tax return) and one Earnings Statement for 16-29 February 2016.

120.  His Form E led to a long detailed questionnaire from the Wife’s side.  When asked to provide full particulars of the sale of FRC, in his 1^st Answers, the Husband replied that he had already provided all the information that he could about his share of the sale proceeds and claimed that he was not in a position to provide information disclosing confidential third party interests.  When asked to provide all the relevant legal documents in relation to the merger and acquisition of FRC by the HK Listco, including but not limited to the sale and purchase agreement, the Husband again said this was confidential information.

121.  Any documents produced in these proceedings are subject to an implied undertaking and they will not be used for any other purposes other than for these proceedings, which are held in chambers not open to public.  In any event, there appears to be no reason why the Husband could not produce redacted copies of these documents if necessary. 

122.  At the present hearing, the Husband’s side suddenly produced a letter dated 8 July 2016 from the Husband’s US lawyers Skoloff Wolfe to his HK solicitors (“08.07.16 Letter”)[31] purporting to explain the sale of the business of FRC and the creation of the JK Trust.  Although Mr Yim had initially objected to the lateness in producing this letter, he accepted that the letter was no more than a letter written on the instructions of the Husband by his US lawyers and as such, it would only be self serving and would not serve as independent evidence supporting the Husband’s allegation. 

123.  What the letter has stated is that upon the closing of the sale, the Father gifted an additional amount of monies to the Husband which led to the amount the Husband received from the sale of FRC equating to a 30% ownership.  According to the letter, the Husband then created the JK Trust, and along with a trust for each of the children, and approximately USD 1m was deposited into each child’s trust account and all remaining sale proceeds received by the Husband (of approximately USD12.4m) from the sale of FRC were immediately rolled into the JK Trust.

124.  It would appear from what was said above, the amount of sale proceeds were about USD14.5m.

125.  However, as said earlier, the amount of USD 60-80m for the sale of FRC given by the Wife in her 4^th affirmation was never disputed by the Husband.  This would mean his share should be in the region of about USD 20m-USD 24m.  It is not clear at this stage whether the figures given by the Wife were gross or net of taxes, and it is also not clear whether the USD 14.5m figures were gross or net of taxes. In any event, the burden is on the Husband to provide proof as to the taxes payable on his share of the sale proceeds and the actual net amounts received by him and the dates received.  He has a duty to make voluntary disclose and not wait until he is asked.

126.  In any event, it would appear from the 08.07.16 Letter that the amounts were first received by the Husband and then “immediately rolled into” the JK Trust.   It is not clear whether this means that the amounts were directly paid into the trust accounts, or they were first paid into the Husband’s bank accounts and then paid out, and if so, which accounts. 

127.  The Husband has been asked by the Wife in her questionnaire to provide particulars of all asset injections into the 5 Trusts for the last 5 years including the time and amount.  The Wife’s questionnaire was dated 5 December 2016 and last 5 years would be from 5 December 2011 and yet the injections into the JK Trust stated by the Husband in his 1^st Answers were from 8 September 2014 onwards whereas the USD 1m into each child’s trust was in December 2012.  It was not clear when the closing or the completion of the sale was, but according to the Notes, it appeared to be in December 2012.  The Husband disclosed no injections into JK Trust in 2012 or 2013 in his 1^st Answers, only 3 injections in 2014 totalling USD10,575,308 and then one injection in September 2015 of USD500,000.

128.  In fact, it is also not clear whether the last injection in 2015 was part of the Husband’s bonus/earn out payment or part of the price of the sale.  In the 26.04.16 Letter, as mentioned earlier, the Husband had said that when an ‘earn out payment’ was due to be paid to him, it was first taxed and then used to pay the employees’ bonuses, and any balance was then paid by the Company into the JK Trust. He then went on to say in 2015 he received a bonus of USD 1.1m and as no employees were paid special bonuses that year, the bonus was paid directly into the JK Trust after the US taxes had been deducted and paid by the Husband.  The Husband did not disclose when this was received by JK Trust nor the net amount received.   

129.  The Husband did in his 1^st Answers produce bundles of tax returns. Briefly, it would appear from his individual income tax returns (Form 1040) from 2012 -2015 as follows:

(all figures in USD)

	Income from various sources (gross)	Total taxes	Taxes paid	Taxes Overpaid	Tax Refund
2012	17,824,875	3,257,647	3,907,434	649,787	649,787
2013	773,926	197,138	326,332	129,194	59,155+70,000 applied to 2014 taxes
2014	Net 155,478 (total less 961,287 for Item 17, or special bonuses as alleged by the Husband)	211,953	216,307	211,953	111,953 +100,000 applied to 2015 taxes
2015	2,162,366	779,878	797,036	17,158	Applied to 2016 taxes

130.  First of all, income taxes are not really 45% of the gross income as portrayed by the Husband and in fact, as seen from the above table, can be much less since there are various deductions allowed.  Secondly, as seen in the 2012 Form 1040, out of the total income, USD2,500,880 was the Husband’s wages, and USD 13,261,589 was “capital gain”, and USD1,755,449 for Item 17.  It would appear this “capital gain” could be part of the sale proceeds from FRC and should have been received by the Husband in 2012.  It was not clear whether the Item 17 figure was part of the sale proceeds, or other payments.  All this should have been explained clearly by the Husband.

131.  Further, according to the Husband’s 1^st Answers, there were FRC distributions to pay off US taxes for the sale of the business which he deposited into his US HSBC Premier account, namely about USD1.5m in April 2013, about USD 94,00 in January and March 2014, and about USD426,236 in August and September 2015[32].  These appeared to be payments after the sale.

132.  The amounts of the injections into the JK Trust as disclosed by the Husband in his 1^st Answers did not match the amounts stated in the 08.07.16 Letter or the amounts in his tax returns. As the Husband has not disclosed any injections into the JK Trust for 2012 and 2013 in his 1^st Answers, it is not clear where he deposited the sale proceeds or “capital gain” in the 2012 Form 1040 upon receipt.  Also, as mentioned earlier, it is not clear whether the USD500,000 injected in the JK Trust on 10 September 2015 was part of the Husband’s bonus of USD 1.1m received in 2015 mentioned in the 26.04.16 Letter.  

133.  It is for the Husband to explain clearly all the above amounts.  Those letters from his lawyers have thrown up even more questions than answers. It would have been much simpler had the Husband provided explanations with reference to the supporting underlying documents.

134.  In any event, the Husband has up until today not yet disclosed the information/documents relation to the particulars of the sale of FRC.   Since the Husband had admitted in his 1^st Answers to having started an extra-marital affair with a woman called Anee prior to April 2012, the Wife is not unjustified to be suspicious of the Husband’s actions in relation to transactions involving assets (of which the Wife is contending to be family assets) placed out of her reach. Although the Wife, while she remains a spouse, is a beneficiary under the JK Trust, she is not a “named” beneficiary, and after the divorce, she will cease to be a beneficiary.

135.  The Husband’s case in the 08.07.16 Letter is that his interest in FRC was acquired as follows:

(i)  At the time of marriage – he already held 10%

(ii)  In September/October 2012 – the Husband’s parents each gifted him 6.67% totaling 13.33% making his interest 23.33%

(iii)  Upon the closing occurring – the Father gifted an additional amount of monies which led to the total amount received by the Husband equating to 30%

136.  Subject to documentary proof, and assuming what is stated above is correct, the Husband received 30% of the sale proceeds in total.  What is unclear is the exact amount received and how much of that went into the trusts.

137.  The JK Trust expressly provides that there shall be no distributions unless directed by the “Distribution Advisor”, namely the Father.  The Father has said that he will not be directing any distributions at all.  Mr Chan submitted that there is no evidence of any historical distributions and that the Husband confirms that there have never been any distributions whether of income or capital from the JK Trust.  Mr Chan has also submitted that although the Husband has previously been able to borrow funds from the Father, this is no longer possible.

138.  The Husband’s solicitors have written to the trustee of the JK Trust, Commonwealth Trust Company, to make enquiries as to whether the trustee would or could make distributions to the Husband should he request for the same and whether any distributions have been made from the trust in the past.  The trustee has in a letter dated 31 October 2016 explained that the trust is a “Delaware directed trust” and that the authority to make distributions is a power which the trustee may only exercise upon the direction of another party and the trust provides under section 5.1 that the trustee shall exercise the powers granted to it relating to making discretionary distributions from the trust fund to beneficiaries only upon receiving the written direction of the Distribution Advisor of the trust[33].

139.  The Father, in response to the Husband’s solicitors enquiry,  replied by email on 8 November 2016, confirmed that he would not be prepared to sign a written direction to the trustee were the Husband to make a request to the trustee for a distribution to him for all or part of the capital or income of the trust.[34]

140.  The Husband has also produced a letter dated 30 March 2018 from the Father (“Father’s Letter”)[35].  The Father has stated in the letter as follows:

(1)  Were the Husband to make a request to the trustees, the Father would not be prepared to sign a written direction authorizing the distribution of any capital or income from the JK Trust and that this remains the case;

(2)  Of the two hard loans that the Husband borrowed from the Father, the 1^st loan was settled in January 2018 with interest, and the 2^nd is still outstanding, and the Father says he wishes to make it clear he expects the Husband to repay the 2^nd loan in full with interest;

(3)  The Father says he also wishes to make it clear that while historically he has been prepared to help the Husband by way of the two loans referred above, he is not prepared under any circumstances to pay any monies by loan or otherwise to the Husband, the Wife or any other person which will be used for the payment of his daughter-in-law’s legal costs or any financial settlement for her;

(4)  The Father then goes on to ‘explain’ as to why he adopts this position, namely that the Wife had lied to the Husband and the Husband’s mother about moving temporarily to Hong Kong and that the Wife moved to Hong Kong for financial reasons in an attempt to dishonestly obtain a higher financial award than she would have obtained had the divorce proceeded in New York.

141.  Mr Chan submits that insofar as the law is concerned it matters not whether the Father is being “reasonable” or “unreasonable” and/or whether his explanations are “good ones” or not.  The reasons given by the Father in (4) clearly echoed the Father’s own case on the Wife’s forum shopping.

142.  Mr Chan has referred to the ‘test’ in Kan Lai Kwan v Poon Lok To Otto (2014) 17 HKCFAR 414 and also the ‘test’ in KEWS v NCHC (2013) 16 HKCFAR 1 and submits the answers to the following questions are :

The question under the Kan Lai Kwan test

(i)  If the Husband were to ask for it, would the Trustee distribute to him?

The answer is a “resounding No” or at least one cannot say “Yes” on the balance of probabilities

The two questions under the KEWS test

(i)  What is the extent of the financial assistance provided by the third party to the Husband or the Wife?

(ii)  What is the likelihood of such financial assistance continuing in the forseeable future?

         The answer is that JK Trust fails both limbs.  In so far as the loans from the Father, this fails limb (ii) above.

143.  However, what the Father’s Letter states is only that he will not loan any money to the Husband or anyone which will be used for the payment of his daughter-in-law’s legal costs or any financial settlement for her. The Father has not said that he will not continue to loan money to the Husband for the Husband’s own living expenses, his holiday costs, his insurance premia or his legal costs.

The Husband’s financial resources

144.  Notwithstanding the Husband’s repeated claims about his financial difficulties, he has continued to incur and seems able to meet a substantial amount of legal costs.  The Husband has not disclosed his US lawyer’s fees so far.  However, according to the Husband’s estimate of costs in his Form H dated 16 November 2017, his costs up until the then PTR was HK$23.6m[36].  He later said in his Form H dated 17 April 2018 that there was an error in his previous Form H and that his costs billed up to April 2018 should be about HK$23.5m[37].

145.  The Husband has up to the hearing provided no proper explanation with supporting evidence as to how his legal costs have been met. When the Wife’s solicitors asked the Husband by their letter of 28 June 2018 to provide with supporting documentary evidence the source of the sum of about HK$23.5m for his legal costs, the Husband’s solicitors replied on 12 July 2018 complaining that it was “far too late in the day to be raising these sorts of questions”.  This in my view a rather odd response since the Husband should have explained it in the first place with supporting documents without being asked. 

146.  Anyway, the Husband’s solicitors then claimed that they had told the Wife many times the sources of payments for the Husband’s legal fees in addition to payments of the Wife’s legal fees, MPS, school fees and his own personal expenses.  They then set out 3 sources namely (i) his liquid capital which was almost depleted and now very little cash remaining; (ii) loans from the Father and all loans had been disclosed; (iii) employment income and bonuses on his old employment package.  The Husband’s solicitors further said they were instructed that all legal fees were paid through the Husband’s Hong Kong HSBC account.   

147.  When confronted with a schedule of withdrawals from the Hong Kong HSBC account from May 2013 to September 2016 showing no indication of any withdrawals were for the Husband’s legal costs, the Husband’s solicitors then corrected what they said and that it was through the Husband’s USA HSBC account.

148.  In relation to his (i) source, as early as April 2016, in the 26.04.16 Letter, the Husband had said his savings had been drastically reduced in order to fund the MPS, the legal costs and his own expenditure and that he had approximately HK$6m in his bank accounts. Later in the 21.07.16 Letter, the Husband’s solicitors then clarified that the figure of HK$6m included his illiquid retirement and investment accounts, and that he had exhausted most of the cash and had virtually no liquid capital left[38].   In his Form E in August 2016, he disclosed only USD23,455 in all his bank accounts.  The amounts disclosed by him would not have been sufficient to pay his legal costs.

149.  In relation to his (ii) source, namely his loans from the Father, as seen earlier, apart from loans for his holidays and payment for his life insurance premia, there was only a loan of USD200,000 in July 2016 said to be for the Husband’s legal costs and outgoings plus another sum of USD300,000 in August 2016.  However, it is not clear whether any part of the loans of USD500,000 in July and August 2016, or HK$3.9m went towards the payments in September 2016 to the Wife for the MPS arrears of HK$430,000 and the HK$1,500,000 for her legal provision under the MPS Order, or whether there were further loans.   In any event, those amounts of the loans from the Father so far disclosed by the Husband would not have been sufficient to meet his legal costs.

150.  As for the (iii) source, according to the 26.04.16 Letter, the Husband had received no bonus for 2014, and a bonus of USD1.1m (HK$8.58m) for 2015.  It is not clear how much bonus the Husband in the end received for 2016, but according to the 26.04.16 Letter, the majority of the 2016 bonus, after tax, would be used to pay the ‘special bonuses’ to his employees.  According to his list of special bonus for 2016 , the amount was adjusted to USD766,000[39] or about HK$5,959,480 as opposed to USD792,500 as earlier disclosed.  Notwithstanding this adjustment, it does not look like his bonuses will be sufficient to meet his legal costs.

151.  His Form H in August 2016 indicated that the Husband had already incurred billed and unbilled costs of some HK$13.8m at that time.  Between then and April 2018 over a period of some 20 months, his billed costs had increased by HK$9.7m to about HK$23.5m.

152.  The fact is notwithstanding the Husband’s solicitors having told the Wife many times, the figures do not appear to add up at the moment, and there has been no sufficient evidence at present to support the Husband’s allegations that his legal costs of HK$23.5m came from those 3 sources as stated.

153.  Having considered the above, I agree with the Wife, the Husband has so far failed to comply with his obligation to make a full, frank and clear disclosure of his financial position.  His disclosures have been piecemeal and he provided information only when asked.  His lack of clear disclosure as to his financial position, in particular the source of the payments for his legal costs in the past of HK$23.5m and the source for payment of his future estimated costs of another HK$5m has led this Court to draw an inference against him that he has undisclosed financial resources of at least some $20m in the past.     

Conclusion

154.  In the above circumstances, I have come to the view that the Husband has the ability to pay the amount of HK$3.5m.  I thus order the Husband to pay a sum of HK$3.5m to the Wife’s solicitors to be applied towards the Wife’s legal costs up to conclusion of trial, payable by monthly instalments of HK$500,000 each, to be added to the Wife’s MPS over a period of 7 months commencing from September 2018 until March 2018.  Any amounts paid by the Husband towards provision of the Wife’s legal costs shall be taken into account by this Court in any final order for ancillary relief.

155.  The Wife has succeeded in her application. I order the Husband to pay her costs of and incidental to this application, such costs to be summarily assessed and paid within 14 days of assessment by this Court.  The Wife is to lodge her statement of costs within 14 days, and the Husband to file his list of objections within 7 days thereafter.

	(Bebe Pui Ying Chu)
	Judge of the Court of First Instance
	High Court

Mr Eugene Yim, instructed by Chaine Chow & Barbara Hung, for the petitioner

Mr Jeremy SK Chan, instructed by Haley Ho & Partners, for the respondent