VE v. VRJ

FCMC 7676 / 2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 7676 OF 2011

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J U D G M E N T

(Injunction)

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The Applications

1.  I have two summonses before me, one taken out by the petitioner wife (“P”) and the other by the respondent husband (“R”).  The two summonses are essentially the two faces of the same coin.  By her summons, P seeks to restrain the husband from disposing of his retirement funds and R, in response, applies for court’s sanction for the use of the funds.

Background

2.  P is Japanese and is now aged 35; and R, an American, is 53 years old.  They met each other in about 2000 in Japan when R was working there.  They cohabited shortly after meeting and married in February, 2002.

3.  Two children were born from this marriage.  The elder is a girl, now aged 11 and the younger is a boy, aged 9.  They are now studying in an international school in Hong Kong.

4.  R is a professional accountant and auditor.  The couples moved to Hong Kong in 2005 when R had to work for his employer “XX” here.

5.  In June, 2011, P petitioned for divorce on the ground of R’s unreasonable behaviour. 

6.  Notwithstanding that the decree nisi was issued as early as on 3 January, 2012, the parties have not been able to resolve the remaining matters but have since been engaging in a series of legal battles regarding their children and financial matters.  

7.  As far as the children are concerned, the matter was originally set down for a 5-day trial, but fortunately the parties finally were able to come to an agreement on the day before trial.  Thus by a consent order, the sole custody of the children was given to R and their care and control was given to P and R jointly, such that the children are to spend their time equally with the parents.

8.  As for the ancillary relief, it took another 6 months for them to come to the FDR hearing on 17 April, 2013 but regrettably it failed.  This court was then seized of the jurisdiction to deal with the present proceedings.

9.  In the PTR hearing of 26 June, 2013, the trial on ancillary relief was set down to be heard commencing from 6 December, 2013, with 5 days reserved.

10.  In the meantime, R was laid off by MS.  His last day of service was 15 April, 2013 and he was due to receive certain sums including severance payment in the sum of $1,250,000 from XX upon the termination of his employment.

The said Consent Order

11.  During the FDR hearing of 17 April, 2013, despite the failure to come to a final settlement, the parties however were able to agree on how the funds of the family, in particular the funds that R was due to receive upon termination of his employment, were to be dealt with pending trial.  For the sake of completeness, I set out the relevant part of the consent order dated 17 April, 2013 (“the said Consent Order”),

“AND UPON the undertaking of the Respondent and the Petitioner to each other and to the Court that:

A. They both acknowledge that the sum of HK$500,000 currently held by the Petitioner’s solicitors, Messrs Howse Williams Bowers, was removed from the joint account by the Petitioner and placed in the names of children and has subsequently been held by the Petitioner’s solicitors pending resolution of ancillary relief matters.

B. They will continue to utilise the sum of HK$500,000 on an emergency basis in the following way:-

(a) HK$250,000 has been released to the Respondent’s solicitors, Messrs. Hampton, Winter & Glynn, and the Respondent’s use of such sums shall be accounted for with documentary evidence provided to the petitioner’s solicitors on or before the PTR hearing.
(b) HK$250,000 has been released from escrow to the Petitioner’s solicitors, Messrs. Howse Williams Bowers, and be solely utilised for honouring the Respondent’s undertaking under Recital B(2) of the Order dated 15 May 2012 to make available HK$44,000 per month from the joint account for February, March and April 2013.[1]The remaining balance shall be accounted for in writing within 7 days and remain in escrow with Messrs. Howse Williams Bowers.

C. The Respondent undertakes, if he has not already done so, to notify and irrevocably instruct his former employer, (XX), forthwith of the restriction herein as to his dealing with any stock or options presently held in his name until further order:-

(a) 50% of the 2011 Deferred Bonus Award (HKG) (grant date 20 January 2012), amounting to USD18,227
(b) 2010 year end award (HKG) (grant date 21 January 2011), amounting to USD6,541.56
(c) 2011 year end award (HKG) (grant date 20 January 2012) amounting to USD23,512.20
(d) (XX) Private Wealth Management Account 016xxxxxx

D. In the unlikely and unanticipated event that the Respondent seeks to release the severance payments from the escrow account as defined in Paragraph 2 below, he shall seek consent from the Petitioner in writing or an Order of the court.

E. The sum referred to in Paragraph 2 below shall be utilised as follows:-

(a) HK$200,000 to Messrs. Hampton, Winter & Glynn for partial settlement of the Respondent’s outstanding legal fees;
(b) HK$44,000 pursuant to Recital A(1) of the Order of Deputy District Judge Own dated 15 May 2012 with effect from 16 May 2013;
(c) HK$100,000 to the Respondent per month with effect from 16 May 2013 to provide for his undertakings contained in Recital B(1) in the Order of Deputy District Judge Own dated 15 May 2012[2]and for the payment of inter alia mortgages, management fees, rates & rent, living expenses and HK$20,000 per month towards his legal fees.

BY CONSENT IT IS HEREBY ORDERED THAT:-

1. …
2. The Respondent do forthwith, if not already done so, irrevocably instruct his employer XX to pay his entire severance payments including but not limited to HK$1.25 million or whatever sums ultimately paid out by his employer in satisfaction of termination payments (“severance payments”) which shall include Recital C(a), (b) and (c) and (d) abovedirectly to his solicitors, Messrs Hampton, Winter & Glynn, and all such sums shall be held by the Respondent’s solicitors, Messrs. Hampton, Winter & Glynn in an escrow account until further Order.
3. …
4. The Pre-trial Review Hearing be set down to be heard on 26 June 2013 at 9:30am in Court No.9.
5. …” (emphasis added)

12.  As a matter of fact, earlier on there was already a consent order dated 25 March, 2013 (“the 1^st Consent Order”) dealing with the same subject matter on more or less the same terms.  I gather that by the time when the parties came to the FDR hearing, since R’s position in relation to his termination had become clearer, they saw it fit to enter into the said Consent Order in place of the earlier one.

13.  As can be seen from Recital A of the said Consent Order, there was already a sum of $500,000 deposited with P’s solicitors and the said sum was agreed to be utilized in the following manner:

1.	$250,000 for the use of R;
2.	$250,000 was released to P’s solicitors for her living expenses in the sum of $44,000 per month for the months of February, March and April, 2013.  Hence, a total of $132,000 (ie $44,000 X 3 months).

14.  As for the stocks and options referred to in Recital C,  I am told during the hearing that $121,071 has been vested and is available for use, the second batch of $142,638 will be vested this month and a final batch of $160,000 will be vested in February, 2014.  In his affirmation, R said he has placed the same with a broker with restrictions as to dealings according to the said Consent Order.

15.  As regards the $1,250,000 that R was due to receive at that time, the parties agreed that out of this $1,250,000, a sum of $200,000 was to be paid to R’s solicitors to settle their legal costs.  The balance would then be utilized to cover the monthly expenses of the parties.  P would get $44,000 per month and R would get a total of $120,000 as from 16 May, 2013, of which $100,000 was for living expenses and $20,000 for his legal costs.

The Retirement Fund

16.  With the said Consent Order the parties should have settled down in the interim while preparing for the final battle on ancillary relief.  Unfortunately, it did not so happen. What subsequently happened was that according to R, unbeknown to him, a sum of $1,149,204.64 (“the Retirement Fund”), being a substantial part of his retirement funds with XX, was deposited into his bank account on 21 June, 2013.  This sum was paid out from M, the fund administrator upon his termination and there was still a balance of $222,333.46 remained with M.

P’s Ex-parte Application

17.  When this first came to P’s attention on 19 July, 2013, R had already utilized $223,317 for his expenses without letting her know.  P took the view that the Retirement Fund falls within the ambit of “severance payments” in paragraph 2 of the said Consent Order and should be held by R’s solicitors in escrow.  R, for that reason, has been in breach of the said Consent Order.

18.  Consequently, P took out an Ex-parte Summons on Notice on 22 July, 2013 restraining R from further disposing of the proceeds of the Retirement Fund without further order of the order.  After having heard the legal representatives of both parties, on the same day I gave an interim injunction restraining R from further disposing of half of the Retirement Fund, ie $574,602.32 without further order of the court.  I also gave directions that the Ex-parte Summons be treated as an Inter-Parte Summons and be adjourned for argument. 

R’s Application

19.  Meanwhile on 11 October, 2013, R took out a summons seeking variation of Paragraph (ie Recital) E (c) of the Order so that he may be allowed to pay all his legal fees from the escrow funds currently held by his solicitors.  It has become clear during the hearing that R in fact wants to make use of the remaining of the Retirement Fund to cover his expenses and legal costs that he said are not “anticipated items” meant to be covered under the said Paragraph E(c).

20.  At the same time, he also sought the following orders:

“2.	All the bank statements for the sum of HK$500,000 previously held in escrow by Messrs. Ip & Healthfield (note:  P’s former solicitors) and Messrs. Howse Williams Bowers be produced and unredacted copies thereof be supplied to the Respondent;
3.	The Petitioner do refrain from making false allegations against the Respondent;
4	The Petitioner do produce and handover to the Respondent the Children’s original vaccination records.”

P’s Case

21.  P’s case is that the Retirement Fund falls within the ambit of “severance payments”.   She takes the view that all sums arising out of R’s termination of employment including the Retirement Fund should be held by his solicitors in escrow.  She sees R’s act as a continuation of multiple efforts to dispose of the family assets with the aim to defeat her claim for ancillary relief.

22.  Mr Clough, for P, submitted that the wife wants to preserve what remain of the family assets.  Given that R is unemployed and that it is unclear whether or not he is going to return to the United States, the family’s future is precarious but at the same time they are already running out of funds.  He also argued that R failed to give full and frank disclosure of the Retirement Fund; in particular, he failed to disclose it in the PTR hearing of 26 June, 2013.  It was not until 18 July, 2013 that P was informed of this but by then R had already spent $223,317, leaving $925,887.64 only.  In the circumstances, the court should retain what can be retained and there should be complete disclosure before monies are released.  He asked for the Retirement Fund be paid into court and that the monies shall not be paid out until further order of the court.  That said, P agreed to take into account the increase in school fees for the children in the new semester and the school trip and the same can be deducted from escrow.

R’s Case

23.  Ms Campbell-Moffat SC, on behalf of R, conceded that the husband’s application is unattractive but argued that apart from the legal costs, all the items such as the school fee increase, US tax payment, tax loan repayment and family medical insurance are all pre-existing commitments which cannot be avoided. 

24.  Further, she argued that there is no prejudice to P. 

25.  First, her capital claims and maintenance until the ancillary relief hearing in December, 2013 are fully covered by the said Consent Order.  Secondly, the value of the matrimonial home represents 51% to 59% of the total pool of family assets. Even if the Retirement Fund is depleted, P’s share of the family assets is not at risk.

26.  On the other hand, if the restriction is not removed, R will be prejudiced as he will be unable to satisfy pre-existing commitments and other family expenses not covered by $100,000 per month.  His legal costs have increased because of the unanticipated multitude of legal correspondence exchanges, for example, the correspondence exchanged regarding seeking approval to pay family expenses and approval to take the children out of the jurisdiction for holiday.  R needs a level-playing field.   Since P is legally aided and does not have to worry about legal costs, he should have access to sufficient funds to finance his litigation.  

Breach of the said Consent Order?

27.  P’s case is premised on R’s breach of the 1^st Consent Order and the said Consent Order.  As the parties agreed that the said Consent Order is to replace the 1^st Consent Order, it is therefore not necessary for me to deal with whether there is a breach of the 1^st Consent Order. 

28.  To start with, to say that one has breached a court order is a serious allegation since the contemnor could be liable to committal proceedings.  Any ambiguity in the order or undertaking will be resolved in favour of the alleged contemnor:  Hong Kong Civil Procedure 2014, at para 52/1/16. 

29.  Paragraph 2 of the said Consent Order stipulates that “severance payments” include but not limited to the said $1,250,000 or whatever sums ultimately paid out by XX in satisfaction of termination payments including those referred to in Recital C(a), (b), (c) and (d) and the same shall be held by R’s solicitors in escrow.

30.  I agree with Ms Campbell-Moffat SC that Paragraph 2 refers to those payments made by XX in satisfaction of termination only.  Here, the payment of the Retirement Fund was made by M, the scheme administrator for the ORSO/MPF plan and not by XX.  I also accept that the Retirement Fund was accrued during R’s employment and is independent of the severance payments.  

31.  In any event, it is clear that when the said Consent Order was made the Retirement Fund was not envisaged to be included as part of the termination payment because P simply was not aware that it would be paid out upon termination.  The reason being that according to R’s Form E, it was stated that the Retirement Fund would not be realisable until January, 2026.  Hence, it is not a surprise that P virtually had no idea that the fund would be paid out.

32.  For the above reason, I hold that R is not in breach of the said Consent Order.

33.  However, this is not the end of the matter.  I need to consider whether there are any good reasons to restrain the monies or conversely, any good reasons to allow its use as prayed for by R.

Preservation of Family Assets

34.  Clearly, P wants to preserve the family assets.

35.  The following facts are not in dispute:-

1.	The $250,000 referred to in Paragraph B(a) of the said Consent Order is now depleted;
2.	The $250,000 referred to in Paragraph B(b) of the said Consent Order still has a remaining balance of $118,000;
3.	As for the stocks referred to in Paragraph C of the said Consent Order, $121,071 is available for use now, the second sum of $142,638 will be available this month and a final sum of $160,000 will be vested in February, 2014;
4.	The $1,250,000 referred to in Paragraph E and Paragraph 2 of the said Consent Order will be depleted by the time of trial in December, 2013; and
5.	R has already exhausted half of the Retirement Fund, now leaving $574,602.32. This is the sum being restrained by the interim injunction dated 20 July, 2013.

36.  Based on the above, the liquid assets available for the use of the family by December, 2013 will be $956,311.32 (ie $118,000 + $121,071 + $142,638 + $574,602.32).

37.  Ms Campbell-Moffat SC submitted that if R is allowed to use the said $574,602.32, there will still remain stocks worth of $263,709 ($121,071 + $142,638) as buffer and the matrimonial home should be sold as soon as possible. 

38.  I agree that as far as arithmetic goes it may well be the case.  However, I must not lose sight of the fact that R is now unemployed and P is working as a part-time waitress earning a meagre of $5,000 only.   In the past few months, R attended job interviews in the United States but so far the prospect is unknown.    What is more, R now has a new partner and is expecting a baby.  The children are studying in an international school and their school fees are expensive.  I agree with Mr Clough that they both seemingly want to remain in Hong Kong and want the children to continue with their education but so far there are no financial proposals to enable this to happen, even in the short term.  If ready funds are not available, their education would be at risk.  I must consider not only the interest of the parties but also that of the children.

39.  Given that the parties need $144,000 as monthly expenses, even if the February, 2014 vested stocks and the $118,000 now being held by P’s Solicitors are included, it would mean a total of $541,709 only ($118,000 + $121,071 + $142,638 + $160,000).  This would merely be sufficient for the family to last for a bit more than 3 months. Unless the matrimonial home is liquidated by then, the family would be left without any funds.  In my view, given that the proposal for sale was only put forward by R one day before the hearing of the present application and the trial is yet to come in a few weeks’ time, there is no guarantee that this could be done.

40.  On this analysis, I agree with Mr Clough that the family assets need to be protected.

Full and Frank Disclosure

41.  P complained that R failed to give full and frank disclosure of the Retirement Fund.  In reply, Ms Campbell-Moffat SC submitted that the release of the fund was unexpected.  It was triggered by the termination of the employment and the money was paid into R’s account by default.  It took him some time to clear the picture.

42.  Without having heard the oral evidence of the parties, it would be difficult for me to come to a definite conclusion as to whether or not R failed in his duty.  This would have to be dealt with in trial. 

43.  That said, on the materials before me, I have to agree with Mr Clough that by the time the parties came to the PTR hearing on 26 June, 2013, R had already known of the receipt but he told no one about it.  Furthermore, R is an experienced professional accountant and auditor and had been with XX for nearly 12 years, for this reason and also for another reason that I am going to elaborate in paragraph 52 below, it is hard to believe that he was not aware of the circumstances under which the Retirement Fund would be released. 

Prejudice to R

44.  R said he needs the money for settling the pre-existing commitments and his legal costs.   By the time of the hearing of the present application on 28 October, 2013, he has already exhausted half of the Retirement Fund, he is now asking for the use of the remaining half.  During the hearing, R produced a Schedule setting out (1) the items that he had already paid out from the fund, and (2) the forthcoming items.  According to the Schedule, he is still $580,000 short; incidentally this is about the same amount restrained.

45.  Ms Campell-Moffat SC submitted that all monies were consumed properly and for legitimate purposes and their liabilities cannot be avoided.  She ensured that each and every payment have been and will be properly accounted for.

46.  On the evidence before me, I have not been able to carry out a minute examination of each and every item that is said needed to be paid.  I reckon that $30,000 was paid as R’s legal costs for the present application and a further sum of $390,000 will be paid for the trial of the ancillary relief.  I note many of these items are for tax loan repayment, US tax payment, the children’s school levies, the monthly increase in school fees and the insurance payment.  There are also items that R incurred for his job interviews in the United States and the deposit paid to the Hong Kong Adventist Hospital, probably for the maternity care of his new partner.

47.  To me, it seems there are far too many items that are not “anticipated”, to use the term employed by R.  Clearly, the said Consent Order is meant to be an interim financial arrangement for the family up to at least the trial.  R agreed that $100,000 and $20,000 per month are adequate provisions to settle his monthly family expenses and legal costs.  As an accountant and auditor, he should have carefully assessed his needs before agreeing to the said Consent Order. Pursuant to the said Consent Order, up to November, 2013, R has already received a total of $1,290,000, the breakdown of which is as follows,

	Amount	Relevant Recital of the said Consent Order
1.	$250,000	B(a)
2.	$200,000	E(a)
3.	$140,000 ($20,000 X 7 months)	E(c)
4.	$700,000 ($100,000 X 7 months)	E(c)
	Total: $1,290,000

48.  With half of the Retirement Fund $574,602.32 already spent, R has already received 44.50% more. Another half would mean getting nearly double.  For what I can see is that there are far too many exceptions.  I fail to see why those items such as tax loan repayments and school levies could be “unanticipated items”.  

49.  The objective fact is, apart from the negligible income of the wife, the parties essentially have no income at all.  In my view, what the parties should have done is to tighten up their budgets and restrain themselves in spending.  The previous mode or standard of living is, at least for the time being, a matter in the past.  On this, I consider there are some merits in P’s complaint that R incurred substantially in flying to the United States 3 times between July and September, 2013.

50.  Turning to R’s claim that he needs the money for his legal costs, he put the blame on P’s uncompromising attitude that led to the escalation in costs.  I think it is fair to say that both have been difficult to the other throughout.  As mentioned above, there have already been a series of legal battles since 2011. It is clear that both have long completely lost what little trust they might have on the other.  I am afraid this is a not very good reason.

51.  As for the legal costs for the ancillary relief, when the said Consent Order was made on 17 April, 2013, R knew well that the FDR had failed and the dispute would have to proceed to trial.  When the Retirement Fund was received, the ancillary relief had already been listed for PTR, it meant that even without this money, R was prepared to fight and apparently he was contented with the $20,000 legal costs per month.

52.  R’s Form H (Estimate of Costs) dated 16 April, 2013 for the FDR hearing stated that the estimated costs of the trial were $285,000.  This figure remained unchanged in his Form H dated 25 June, 2013 for the PTR hearing.  However, in his Form H dated 25 October, 2013 for the present application, the estimated costs for trial rocketed to $395,000, representing a 39% increase.  Since I am not presented with a budget or the particulars, I do not know why this happened.  Further, it is interesting to note that even assuming that as at 17 April, 2013 there were no outstanding legal fees payable by R, with $20,000 per month, counting from May, 2013 and up to the time of trial in December, 2013, he would be able to get a sum of $160,000 only, which on the face of it would barely be sufficient for his purpose.   Again, as a professional accountant who should have higher sensitivity when it comes to figures than a layman, for my part it is hard to believe that this all too obvious shortage would have failed to catch his eyes.  This is another reason why I say it is hard to believe that R was not aware of the conditions of payment of the Retirement Fund.

Conclusion

53.  That said, in the final analysis, I believe that a balance must be struck.  On the one hand, for the reasons that I have set out above, I have no doubt that the family’s needs in the coming months ought to be catered for but on the other, I accept that there are some commitments or contingencies that R may need to deal with.  Though it appears that with the proposal that the matrimonial home is to be sold as soon as possible, one can finally see light at the end of the tunnel, there must be some lapse of time before this could be materialized and funds be available for use.

54.  I believe there should be a buffer of say 6 months in order to ensure that the parties and their children could receive the minimum living expenses as agreed.  On the basis of $164,000 per month (ie $44,000 for P and $120,000 for R), this would mean $984,000.

55.  The $1,250,000 will be depleted by December, 2013.  Given that up to February, 2014, there will be funds totalling $1,116,311.32 (ie $956,311.32 referred to in Para. 36 above plus $160,000 being stocks to be vested in February, 2014), this would leave a balance of $132,311.32 ($1,116,311.32 - $984,000).  I round it down to $132,000.

56.  Taking a board brush approach, I would allow R to use half of $132,000, ie $66,000 as his legal costs on the top of $20,000 that he is now withdrawing.  As for the remaining $66,000, R is allowed to use it for the children’s school fees increase, unforeseen education expenses and family insurance.  By “family”, I mean P, R and their children. Use of the money for any other purpose should only be allowed with the consent of the parties or the sanction of the court.  

57.  Mr Clough asked for the balance to be paid into court.  I agree with Ms Campbell-Moffat SC that this would entail further costs and is a detriment to the wife.

Orders

58.  For the above reasons, I give an order that:

1.	Paragraph 1 of the Order dated 22 July, 2013 be varied to the extent that the Respondent be restrained from further disposing of the proceeds of the Retirement Fund in the sum of $442,602.32 without further Order of the Court;
2.	The Respondent do forthwith deposit the said sum of $442,602.32 into his solicitors’ account, Messrs. Hampton, Winter & Glynn (“HWG”) in an escrow account until further Order;
3.	The Respondent is allowed to use $132,000 from the proceeds of the Retirement Fund for the following purpose: (1)  $66,000 for his legal costs; and (2)  $66,000 for the children’s school fees increase, unforeseen education expenses and family insurance;
4.	The Respondent be restrained from using any of the joint family assets, save and except as provided for in paragraph 3 above and the monthly sum of $120,000 from the sums held in escrow with HWG without an order of the court or the written consent of the Petitioner; and
5.	The Respondent do account for and provide all documentary evidence regarding the payment of such proceeds of the Retirement Fund forthwith.

59.  With the consent of the parties, I leave the remaining paragraphs of R’s summons (ie paragraphs 2 to 4) to be dealt with in trial.

60.  Finally, I reserve the issue of costs.