XCHRX CYNTHIA ANNE HONG YEE LEE SHIU v. KALEUNG NMN SHIU

HCMC 3/95

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO. 3 OF 1995

(transferred by F.C.M.C. No. 224 of 1995)

______________

______________

______________________

D E C I S I O N

______________________

1. This is an application by the Respondent husband to vary an order for ancillary relief made by consent by Mr. Justice Jerome Chan on 25 March 1996. By the application the Respondent seeks to reduce the periodical payments ordered to be made by him in respect of the maintenance of the two children of the marriage, Julian and Audrey, then aged 6 and 3, and his share of the costs of their education, and to vary the undertaking given by him in the order as to those payments.

2. There is before me also an application by the Petitioner for secured periodical payments for the children and a lump sum payment.

3. The relevant terms of the consent order were that the Respondent pay to the Petitioner a lump sum of $30,000,000, made up of the parties' matrimonial home in Mount Kellett Road, The Peak, and the balance, after the value of the property was appraised, in instalments spread over about 18 months, $1,800,000 towards the Petitioner's costs, monthly periodical payments for the two children of $18,500 each, to be adjusted annually in accordance with the Consumer Price Index, and their educational costs and those of their extra-curricular activities.

4. It is accepted that, at the time of the order the order, the Respondent was a comparatively wealthy man with total assets in the region of $124,000,000, although it was difficult then, as it is now, to assess accurately the precise value of all his assets.

5. The history of these applications are that since 1996 the Respondent has suffered from the decline in the property market, and has experienced a fall in the value of his assets, which consisted mainly of real property, and his income, the extent of which I shall consider shortly. He communicated his situation to the Petitioner, and in June 1998 asked her to forgo the inflation index increase in the children's maintenance due that year, and waive Julian's school bus fares. The Petitioner reluctantly agreed, but the Respondent continued thereafter to write to her complaining of his financial situation and mentioning the possibility of bankruptcy. In December 1998 he unilaterally reduced his payment of the children's maintenance by 35%, from $39,312.50, to which it had increased with the previous year's inflation, to $25,553.10. It has not been explained why the arbitrary figure of 35% was chosen rather than a round sum. In any event, he continued to pay the reduced sum until early this year when the Petitioner's solicitors wrote to demand the arrears. This prompted his application to the Court for a variation. The Petitioner responded with her application for security, something she had been asking him for as a result of his failure to pay under the order.

6. The Respondent was accordingly already in breach of the consent order and his undertakings made under it.

7. For the purpose of these proceedings the Respondent has filed two affidavits, and the Petitioner has filed two in reply. In addition there are reports from accountants, each party instructing one firm.

8. It is the Respondent's case that his wealth in 1996 has now been drastically reduced and that there has consequently been a material change in his circumstances so as to justify the Court varying the original order. In his 8th affidavit, filed on 15 May 1999 for the purpose of this application, he assessed his asset value at less than minus $6,000,000. Since then, the accountants instructed by him, and acting on information supplied by him, have arrived at a net asset value of about plus $7,000,000. He also says that his income has dropped accordingly.

9. The starting point must be to look at the current situation and see what a reasonable order should be now, given the current circumstances. What then are these circumstances? Although the Petitioner maintains that there has been a high degree of non-disclosure on the part of the Respondent, it cannot be denied that the evidence shows that his situation is very different from what it was in 1996. Then he had an asset value of over $120 million, and even after paying the Petitioner $30 million, and his legal costs, including his contribution to those of the Petitioner, of, he says, $8 million, he was still a comparatively wealthy man with an extensive portfolio of real property. It is this heavy involvement in the property market which has been the principal, if not the only cause of the Respondent's change in circumstances, as the severe decline in that market since 1997 has clearly made a dramatic difference to the value of his assets, while he was still paying large amounts of interest on mortgages secured by properties with declining values. His losses on transactions he puts at over $21 million over the three years from 1996, and his remaining properties in Hong Kong show dramatic decreases in value.

10. The accountants on both sides do not disagree that this is the situation, and, although his financial affairs are such that a complete and detailed analysis may well be extremely difficult, even if those conducting it were satisfied that full disclosure of all his interests had been made, the overall position on his assets on the available evidence is that his net worth is now about $7 million.

11. The Petitioner' s accountants have added to this a further amount, which they say puts his worth at about $10 million more. The two principal items which they say add to the figures are, firstly, half the capital loss on the sale of a property at Pacific View, Tai Tam, which he bought with his brother, Shiu Ka Mau, who paid two instalments of the mortgage and then no more, as a result of financial difficulties he was experiencing himself. The property was sold at a loss of some $14.4 million, but the Respondent's brother has never paid his half share of the loss. The second is the value they give to a property at Grand Garden, South Bay Road, of $26 million, while the Respondent's value is $23 million.

12. I am not satisfied on the evidence before me that I can safely take these two items as adding to his assets. The former consists of a debt which he says his brother cannot, and almost certainly will not, pay. It is accordingly an asset on paper only, and I have no evidence that there is a serious prospect of it being realised. As to the value of Grand Garden, although the Petitioner's accountants' figure is based on a transaction in 1999, when the sale price for that particular unit may have been influenced by other factors, I find that evidence of the Respondent, that he has been attempting to sell his unit at $23 million with no offers, convincing. Added to that is the figure at which these properties are now advertised, which is $22.5 million.

13. The figures from the accountants accordingly seem to support the evidence of the Respondent as to his financial situation.

14. However, it has been urged upon me by Mr Coleman for the Petitioner that there is evidence here of non-disclosure on a large scale by the Respondent, that there may well be further assets being concealed, and I am entitled to draw adverse inferences from such non-disclosure. In particular he points to the Respondent's statement of his assets and his losses in his first affidavit for this application in which he fails to mention that he owns the whole of a Thai company, putting his shareholding at 40%. He explains this by saying that it was a mistake, and that, in any event, it had been made clear in earlier affidavits that he was the beneficial owner of all the shares. Mr Coleman also asked the Respondent why he had not revealed ownership of another company in Hong Kong which had made a $3 million profit on a property in 1997. The explanation of this was that the profits had been distributed to himself an other shareholders and that the company, not having any present value, was not an asset he needed to disclose.

15. I accept that the former understatement of shares may have been unintentional, as he must have known that any attempt at concealment of his ownership of the shares would be revealed from earlier admissions, but the latter does appear to be an attempt to gloss over profits while emphasizing losses. Again though, it was readily revealed in his list of property transactions exhibited to his second affidavit for this application, when he allowed the whole of the profit against the losses, rather than the third which his shareholding in the company would seem to entitle him to.

16. The Respondent appears also to have made considerable profits in share dealings through his account at Wardley. At the same time I have had produced to me a list of the withdrawals from that account, amounting to some $28 million over a period of 12 months from April 1996, together with a list which purports to show that most, if not all, of that sum was spent on outgoings connected with his financial dealings and payments under the original order for ancillary relief. I have no evidence here that any sums were unexplained and transferred to accounts or companies which have not been disclosed.

17. In further support of his contention of non-disclosure, Mr Coleman has drawn my attention to several of the Respondent's property dealings which may not have been at arms length: sales to a friend of a commercial property and car park, with a suspicion of an undervalue; sale of a property at Ruby Court, South Bay Road by one of the Respondent's companies to a company with nominee ownership in the British Virgin Islands, and then a re-sale to another of the Respondent's companies; purchase by one of the Respondent's companies of the property at Pacific View which had been previously owned by two companies in turn which were incorporated on his and his son's birthday, but which to which no other connection with the Respondent can be shown. All these, I agree, give rise to suspicions as to whether these were genuine transactions. However, suspicion alone is not enough, and there is nothing here so blatant, and no coincidence so unlikely, that I am able to say that I am satisfied that these dealings were an attempt to divert or conceal assets to give a distorted picture of the Respondent's true position.

18. There may well be a number of inaccurate valuations, both in respect of properties and other of the Respondent's assets such as club debentures, motor vehicles, and his wine collection, but none of these in my view are likely to be such as to seriously alter the overall valuation arrived at by his accountants, and, taking his financial situation as a whole, I am satisfied that his asset value has fallen from the figure given in 1996 of about $120 million to about $7 million now.

19. Turning to the Respondent's income, this has for some years been inextricably linked to his property dealings, consisting of rental income from properties held by him and his companies, and profits from property sales. Now his rental income consists of $95,000 a month from the Grand Garden property, $22,000 from his property in Robinson Road, $25,000 from the flat in Singapore and $8,000 from renting his berth at the Clearwater Bay Golf and Country Club. He also owns a children's hair salon called Magic Mirror from which he now makes regular drawings of about $20,000 a month. He puts his regular outgoings at nearly $80,000 a month together with another $45,000 for payments for the children at the reduced amount he now pays, and I take into account that he is now remarried with a child by his new wife, and his regular expenses are bound to be affected by this. He is also liable for mortgage interest of over $300,000 a month which he says has not been paid for 4 months.

20. He is, however, a trained interior decorator in which profession he practised prior to becoming involved in property, and is able to return to this work. He has had one project in the last two years which earned a net figure of $160,000, and he plans to set up a company to return full time to this line of work. He says he is confident that he can do well in it and could earn over $70,000 a month. I propose to approach this matter on the basis that he will maximize his earning potential in this way, but I am bound to comment that I see no reason why, if his finances were so strained, he has not done so before now.

21. The position of the Respondent therefore is that the positive value of his assets is such that he could, with careful financial rearrangement, reduce or extinguish his liabilities in respect of the extensive borrowing for his properties, and thereby reduce his monthly outgoings considerably, even if this means disposing of properties at a loss. At the same time he is able to earn considerably more than he is at present. Having said that, I accept that his circumstances have changed for the worse since 1996, and I must take this into account now in deciding what is a proper order to make in respect of the children's maintenance today.

22. The Petitioner's present situation derives directly from what she received from the Respondent under the consent order, and what she is able to earn herself. The $30 million provided for by the order included the property in Mount Kellett Road transferred to her, which she has now sold, buying the flat in which she now resides with the children, and thoughtfully and carefully transferring that and the balance of the proceeds from the sale into a trust for the children's future needs, and in particular their tertiary education which was not provided for on the order. Of the rest, she has invested some $12.5 million to provide an income, which she gives as about $42,600 a month from time deposits, together with dividends from shares the amount of which she does not specify.

23. She also works part-time giving computer classes, earning another $10,000 a month, although she admits that she could earn more. At the time of the parties' divorce she was working full-time in her own software company, but says that she could not make it sufficiently profitable as her work was constantly copied as soon as it was published and pirated, and she gave it up. She is clearly, however, a very capable and intelligent lady, with the potential to earn far more than she does, which I have no doubt she will, once she no longer has the responsibilities of children still at school. Meanwhile, I accept that it is reasonable for her to be employed part-time to care for the children, although she could, in my view increase her earnings to some extent without prejudice to her duties to them.

24. The Petitioner's monthly expenses she puts at about $150,000. Of this she assesses the household and children's expenses at a little over $88,000, which includes a maid, driver and gardener. Her own expenses she puts at nearly $54,000 a month, some of which is essential expenses of running a car, medical and dental costs and legal fees, and over $30,000 spent on charge cards. Although it is obvious her expenses are greater than her income, which she says she has to supplement from savings, there is no evidence that she and her family have to go short, or cut corners with their expenses, and the impression is of someone who feels that she is able to, and can, spend freely. She and her children clearly lead a comfortable life. In this the evidence suggests that she is very much better off than the Respondent, who has moved into more modest accommodation with his new family to decrease his costs.

25. I accordingly find that the circumstances of the parties have changed since the order was made, and the situation of the Respondent is very much worse than it was then. It is equally apparent that, had this state of affairs existed at that time, the order in respect of the children's maintenance would not have been at the level ordered. Having said that, I am satisfied that the Respondent is able to, and should, not only pay a reasonable sum for the maintenance of his children, but be responsible for their reasonable costs of education. He has said that he feels that the Petitioner should share those costs. I do not agree, except to the extent that I consider that she can well afford to meet half the costs of the children's extra-curricular activities. Neither do I accept the view of the Respondent that their daughter, Audrey, should not be entitled to receive a similar education, at a similar school, to her brother.

26. As to the level of maintenance, I consider that there should be a reduction from the amount ordered in 1996. In all the circumstances of the parties' present financial positions I am of the view that a proper sum for each child is $13,500 a month, a reduction of $5,000.

27. I accordingly allow the application of the Respondent to that extent.

Security

28. The Petitioner seeks in her application to have the children's maintenance secured by payment of a sum her accountant has calculated, at the original rate, of some $7 million. If I were to order such security, clearly a new calculation would have to be made in the light of my findings above. Further, the Respondent has offered to place his Robinson Road property in a trust to secure the children's maintenance, to clear it of incumbrances, and the rent from it to pay the maintenance. However, in the circumstances of this case I am not inclined to make such an order on the basis suggested by either party.

29. On the Petitioner's proposal, were I to order the Respondent to make a lump sum available to cover the sum ordered, it would still be a considerable figure of at least $5 million and probably more. As I am satisfied on the evidence put before me that it is unlikely his total assets exceed $7 million, I would be putting him in a unreasonable position, and severely reducing his prospects of recovering from his financial situation of the last two or three years. Neither would he as readily be able to raise the capital necessary to re-establish himself in the interior decorating business to restore his income from this source.

30. His own proposal, to make the Robinson Road property available, is similarly undesirable. It is admitted to be an old property, requiring increasing amounts of money spent on it to maintain it, and with a history of difficulty letting it. I am not prepared to allow the Respondent to transfer his liabilities to his children to such an unreliable source of income. If he wishes to make some private financial arrangement to enable him to meet his obligations from this source then so be it, but it will not be under any order of the Court, nor will it remove his primary responsibility for payment.

31. The Petitioner's application is accordingly dismissed.

32. Subject to any agreement on the matter, I will hear the parties on the question of costs.