WMY v. CSK

FCMC 17011 / 2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 17011 OF 2011

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

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

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

J U D G M E N T
(Ancillary Reliefs)

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

Introduction

1.  The Petitioner is the Wife (“Wife”) and the Respondent is the Husband (“Husband”).

2.  This is the ancillary reliefs trial of the parties where, apart from the parties themselves, there are other persons whose evidence are of relevance and importance to the Court for resolving a number of factual issues in dispute but are however not forthcoming. Throughout the 5-day trial only the parties themselves testified and subject to cross examination.  There is also a single joint expert Mr. Frank Yuen who prepared a valuation report on the net worth of the company “SGFL” owned by the Husband (20%) and his elder sister (80%), a factory in Dongguan PRC and the company “M&M” owned by the Wife solely. 

3.  I will be using the following abbreviations for those persons and companies which I will come across in this Judgment :-

(a)  “JW” – the sister of the Petitioner Wife;

(b) “CC” – the sister of the Respondent Husband;

(c) “AM” – the company accountant of the company AMG;

(d)“AMG” – the company owned by the Husband and the Wife during their marriage;

(e) “SGFL” – the company incorporated by the Husband and CC in 18 May 2009;

(f) “M&M” – the company incorporated by the Wife alone in 22 June 2009;

(g)“DG Factory” – the factory in Mainland China receiving orders from the Husband’s company SGFL;

(h)“MH Factory” – the factory owned by the younger brother of the Wife in Mainland China.

Background

4.  The parties were married in July 2005 in Hong Kong.  There are two children born out of the marriage, a girl who was at the age of 8 and a boy who was at the age of 7 at the time of this trial.  Divorce proceedings were commenced by the Wife relying upon the fact of “Two Years Separation” in December 2011.

5.  Decree Nisi was granted on 25 January 2013. 

6.  By an Order dated 2 April 2013 which was granted by consent of the parties, the custody, care and control of the girl was granted to the Wife and that of the boy was granted to the Husband.  There are comprehensive provisions for access including staying access and long school holiday access over the two children incorporated in the terms of the custody order.  Parties are also able to resolve finances over the children of the family by way of undertakings E, F, G and H embodied in the said Order.  Section 18 Declaration was accordingly granted by the Court leaving behind the parties’ respective ancillary reliefs against each other to be resolved.

7.  At one stage there was a dispute over the beneficial interests of the matrimonial home whereby the Husband’s mother intervened.  Such issue was also resolved prior to this ancillary reliefs trial.

8.  On 26 June 2013 the Decree Nisi was made absolute by the Court.  The Certificate of making the Decree Nisi absolute was dated 27 June 2013.

9.  At the time of this trial, the Husband was aged 50 and the Wife was aged 40.    

The Joint List of Issues

10.  On 5 June 2014, this Court directed parties to submit their respective lists of issues in the case.  The Husband filed his list on 8 August 2014.  The Wife filed her list on 12 August 2014.

11.  On the first day of trial on 22 April 2015, the parties through their respective lawyers are able to come down to a Joint List of Issues as follows :-

“(1) The HK$1.6 million allegedly owed by the Petitioner to the Respondent pursuant to an alleged loan agreement dated 13 December 2008 (which is disputed)(§ §3 to 8 of Petitioner’s List and §1 of the Respondent’s List)[A4/852-854; A4/850-851];

(2) The conduct of the Respondent in relation to AMG Garment Factory Limited (“AMG”) (which was owned by the Petitioner and Respondent jointly);

(a) The misappropriation of assets from AMG to SGFL (“SGFL”) held by the Respondent and his sister, jointly;

(b) Alternatively, the refusal to account for the sum of HK$367,103.20 out of account receivables of AMG;

(§ §1 and 2 of the Petitioner’s List)

 (3)  Whether the parties’ ongoing businesses, namely, SGFL and M&M (owned by the Petitioner) are family assets, and if so, the valuation of the same (§2 and §3 of the Respondent’s List).

 (4)  Whether there had been non-disclosure of business interests by W, and the effect, if any, thereof.

 (5)  The effect, if any, of W’s taking away of items allegedly gifted to her and the children by her parents.

 (6)  Whether the alleged liability of W for legal fees should be taken into account in assessing the value of the matrimonial pot.”

The Wife’s Open Proposals

12.  The Wife’s Open Proposals dated 9 April 2015 are as follows :-

“UPON the Petitioner’s undertaking to be responsible for the maintenance of the child of the family, namely, CV until she attains the age of 18 years or completes full-time education, whichever is later;

UPON the Respondent’s undertaking to be responsible for the maintenance of the child of the family, namely, CK until he attains the age of 18 years or completes full-time education, whichever is later;

1. The Respondent’s claim for the loan of HK$1.6 million allegedly owed and payable by the Petitioner to him be dismissed;

2. The costs of and incidental to the Respondent’s claim for the loan of HK$1.6 million be to the Petitioner to be taxed, if not agreed;

3. There be no Order made as to the division of the assets of the parties;

4. The Respondent do pay nominal maintenance of HK$1.00 per annum to the Petitioner;

5. Subject to paragraph 2 above, there be no Order as to costs relating to the application for ancillary relief.”

The Husband’s Statement in Answer

13.  The Husband provided his Statement in Answer on 16 April 2015 to the Wife’s Open Proposals.

14.  In essence, the Husband is seeking the alleged indebtedness of HK$1.6 million acknowledged and signed by the Wife as per a Loan Agreement dated 13/12/2008 to be repaid after equalisation of the family assets. 

15.  For the assessment process of the family assets, the Husband submitted that before taking into account the Wife’s non-disclosure of her business interests and the loan of HK$1.6 million, her total net assets worth would be HK$2,205,403.52. His total net assets would be HK$681,155.92 plus RMB 32,788.24 (x 1.18 exchange rate = HK$38,690.13) minus HK$100,000 worth of personal items taken away by the Wife, thus making his total assets to be HK$619,846.05.

16.  The Wife’s non-disclosure of assets include her Bank of China (China) account with balance of RMB 76,743.19 (x 1.18 exchange rate = HK$90,556.96) as at 29 April 2009 and also the value of her pensions of HK$88,705.32, both of which should be taken into account of in the computation exercise before equalisation.

17.  Further, there has to be adjustment to the Wife’s assets and liabilities in her latest Form E by :-

(a)  The sum of HK$600,000 claimed by her as liabilities for legal costs to be removed as anticipated liability for costs yet to be incurred, thus, the Wife’s assets should then be increased by such sum of HK$600,000;

(b)The value of M&M assessed by the single joint expert to be adopted thus increasing the Wife’s assets by HK$1,130,374;

(c)  The personal items of the Husband worth HK$100,000 which was taken away by the Wife should be added back to her assets worth (and removed from the Husband’s assets worth).

18.  As for the loan of HK$1.6 million, it should be taken out of the Husband’s assets and to be repaid by the Wife out of her share after equalisation of the family assets.

19.  The Husband is also seeking costs of these proceedings against the Wife.

The Law on Ancillary Relief

20.  Both parties are represented by experienced Counsel and there is not much dispute as to the law on ancillary reliefs in family cases.  Rather the dispute relate to factual issues.  For the sake of completeness, I only set forth very briefly the statutory provisions on matrimonial finances.

21.  The jurisdiction of the Court in granting financial reliefs for a party is governed by section 4 of the Matrimonial Proceedings and Property Ordinance, Cap 192(“MPPO”) which provides:

“4. Financial provision for party to a marriage in cases of divorce, etc.

(1) On granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation or at any time thereafter (whether, in the case of a decree of divorce or of nullity of marriage, before or after the decree is made absolute), the court may, subject to the provisions of section 25(1), make any one or more of the following orders, that is to say-

(a) an order that either party to the marriage shall make to the other such periodical payments and for   such term as may be specified in the order;

(b)  an order that either party to the marriage shall secure to the other to the satisfaction of the court, such   periodical payments and for such term as may be so specified; (c) an order that either party to the marriage shall pay to  the other such lump sum or sums as may be so specified.

(2) Without prejudice to the generality of subsection (1)(c), an order under this section that a party to a marriage shall pay a lump sum to the other party- (a) may be made for the purpose of enabling that other party to  meet any liabilities or expenses reasonably incurred by him or her in maintaining himself or herself or any child of the family before making an application for an order under this section; (b) may provide for the payment of that sum by instalments of such amount as may be specified in the order and may require the payment of the instalments to be secured to the satisfaction of the court.“

22.  The governing principles in relation to the distribution of the family assets in dissolution of marriage are set out in section 7 of the Matrimonial Proceedings and Property Ordinance, Cap. 192, (“section 7 factors”) which states as follows:

(1) It shall be the duty of the court in deciding whether to exercise its powers under section 4, 6 or 6A in relation to a party to the marriage and, if so, in what manner, to have regard to the conduct of the parties and all the circumstances of the case including the following matters, that is to say-

(a)  the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

(b)  the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c)  the standard of living enjoyed by the family before the breakdown of the marriage;

(d)  the age of each party to the marriage and the duration of the marriage;

(e)  any physical or mental disability of either of the parties to the marriage;

(f)  the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(g)  in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

23.  In the leading case of LKW v DD[1] the Court of Final Appeal sets out 4 principles as to how section 7 shall be approached, which are stated as follows:

a.   The first is that the implicit objective of a section 7 exercise is to arrive at a distribution of assets which is fair as between the parties[2];

b.   The second is that the concept of fairness requires the refutation of any gender or role discrimination[3];

c.   The third principle is that, with a view to eliminating insidious discrimination and promoting fairness, judges should check their tentative views on distribution against a “yardstick of equal division” which should be departed from only for good, articulated reasons[4];

d.   The fourth principle is that the court should not countenance any attempt to engage in costly and often futile retrospective investigations of the failed marriage which tend to deplete the parties’ (and the courts’) resources and to increase antagonism and discourage settlement[5]. 

24.  The Court of Final Appeal went further to lay down 5 steps as to how the Court should do when exercising section 7 as follows:

a.   The first step in the exercise is to ascertain the financial resources of each of the parties calculated as at the date of the hearing[6];

b.   The next step is for the court to assess the parties’ financial needs[7];

c.   If surplus assets would remain after the parties’ needs have been catered for, the next step in the exercise should generally be for the court to apply the sharing principle to the parties’ total assets, leaving the “needs” question previously considered to be dealt with under that principle[8];

d.   The fourth step therefore involves considering whether good reasons exist for departing from the principle of equal division[9];

e.   When deciding the outcome, the court is not bound to depart from equality in the division of the parties’ assets even if one or more of the factors considered are engaged on the facts.  The weight to be given to such considerations is a matter of discretion for the court[10]

The Court’s Views and Findings on the Joint Issues

The written “Loan Agreement” dated 13 December 2008

25.  There has been heated dispute between the parties, both on the legal aspect and the factual matrix, as to this hand-written so-called “Loan Agreement” of HK$1.6 million with interest at the rate of 10% per annum calculated 1 year retrospectively from the date of the Loan Agreement.  Undisputedly this document was hand-written by the Husband and signed by the Wife on the date of the document, that is, 13/12/2008.

26.  The Husband in his oral testimonies and Affirmation gave an account on the background as to why he found it necessary to draw up this Loan Agreement for the Wife to sign and acknowledge a sum of HK$1.6 million.  It is the Husband’s case that the Wife had withdrawn monies between 2007 and 2008 from the parties’ jointly owned company AMG (which was the matrimonial enterprise) and giving out to her maiden family, that is, the Wife’s mother and her sister JW.  The Wife’s maiden family including her mother and sister JW are business persons all along engaged in the garment industry in Mainland China.  The Husband maintained that at all times those monies were loans made by AMG to the Wife’s maiden family which need to be repaid.  There is no issue that when those monies were remitted to the Wife’s maiden family, no schedule of repayment or interest had ever been discussed at any time whether between the Husband and the Wife or her maiden family.

27.  It is the Husband’s case that the Wife, by signing the Loan Agreement, had acknowledged and agreed to bear 50% of the loans made to her maiden family in 2007 and 2008 which were owed to AMG.  The amount of HK$1.6 million under the Loan Agreement represented the Husband’s 50% share and interest in AMG thus the total indebtedness owed to AMG was in the region of around HK$3.2 million.  It is also the Husband’s case that when he produced to the Wife the Loan Agreement, he also produced to her a spreadsheet prepared by AMG’s accountant AM.  Before signing the Loan Agreement, the Wife had made a telephone call to AM to check and verify the total amount of monies that had been withdrawn and given to her maiden family.  After making the enquiry, the Wife signed the Loan Agreement.  There is no issue that the monies allegedly forming the loans were withdrawn and remitted either by the Husband himself or the accountant AM but had never been withdrawn by the Wife.

28.  To support the Husband’s case that loans had been made to the Wife’s maiden family which was eventually acknowledged and agreed to by the Wife as per the Loan Agreement, reference was made by the Husband to the entries in a spreadsheet prepared by AM with the date 23/12/2008 (hereinafter referred to as “AM’s Spreadsheet”) (A:13A).  The Husband agreed that this AM Spreadsheet was not the exact one that he produced to the Wife 10 days earlier when he presented the Wife with the Loan Agreement because he had not kept a copy of it.  This AM Spreadsheet was also prepared by AM based on the earlier one.  This AM Spreadsheet was constructed in a way where different descriptions in Chinese characters were used by AM.  On the left hand side of the AM’s Spreadsheet it was marked at the top “福建對帳單”.  On the right hand side it was marked at the top “香港加工費” 、“香港工資” and “代墊香港款”.  At the right hand bottom it was marked “備注 : 07年08年福建欠x 2539594”  At the left hand bottom it was marked “備注 : 07年阿君欠x 款641325.5”  There is also the date in Chinese at the bottom right hand corner : “制表日期 : 2008年/12月/23日”. 

29.  The Husband submitted that the figure of 2539594 represented the loan amount which was due and outstanding from the Wife’s mother and the figure of 641325.5 represented the loan amount which was due and outstanding from the Wife’s sister JW.  Without the oral evidence of AM, he was in no position to confirm the reason why AM described these 2 sums as money owed to “x” and not directly saying those were monies owed to AMG.  He confirmed “x” is him.  The summation of these 2 figures is close to 3.2 million.  

30.  Under the column “福建對帳單” in the AM’s Spreadsheet, it contained the description “阿x 滙款福建” which the Husband conceded at cross examination that the “阿x” was him and that he himself had made those withdrawals from AMG’s accounts and those remittances.  For other remittances under “美金” or “港幣”, it was him also who made the withdrawals and remittances.  The Husband also agreed that the Wife had never made any of the withdrawals and remittances recorded in the AM’s Spreadsheet.

31.  The Husband agreed those entries at the right hand side of the AM’s Spreadsheet were remittance made by AM where he would either be consulted by AM beforehand or informed by AM immediately after each remittance was made. 

32.  The Husband in his evidence in Court sought to explain that all the remittances made by him or AM were arranged reluctantly.  Every time before making a remittance, there would be heated argument with the Wife.  He would, however, eventually yield up each time and make or approve the remittance as he had “no choice” but to do it in order to avoid argument with the Wife.   

33.  Since it is the Husband who intends to rely on the Loan Agreement to substantiate his case that the Wife’s maiden family owed monies to AMG in respect of which, and for all purposes of the present ancillary reliefs trial, has either to be accounted for out of the Wife’s share after equalisation of the family assets or, as a factor to be considered by the Court for departure from equal division of the family assets, it is for the Husband first of all to substantiate by way of evidence the existence of such loans which formed part of the family assets. 

34.  Oddly enough, the key witness AM, who had made a statement earlier on 28/5/2013 and arranged by the Wife to testify at the trial, all of a sudden at the eve of the trial decided not to attend this trial to give testimony.  AM sent a letter dated 21 April 2015 (which is the day before the 1^st day of trial) (Exhibit P-1) by fax to the Wife’s company M&M where she said as follows :

“M& M :

你好 !

我今天下午接到歐xx電話, 他說Cxx先生前幾天打電話給他, 問到 我是不是要出庭作証. 歐xx先生說 “沒有, 她回老家去了.” Cxx先 生說 “知道阿 AM 回鄉下辦証, 到時來香港作証.” 然後他還說 “香港法律很嚴, 出庭作証說話要小心，不能說謊話, 不然會觸犯到 香港刑法, 警察是會抓人的, 而且香港的律師也不是吃閑飯的.

W小姐, 對不起, 接電話后, 我非常緊張和焦慮. 雖然我從來未講過 假話, 但是我還是担心. 現在我決定不去香港作証了. 這是你夫婦 倆的事, 與我無關. 我不想介入其中. 非常對不起, 我不去香港作証 了.

         AM”

35.  The Husband admitted in cross examination that he had the telephone conversation with the person Mr. Au whom AM referred to in her letter faxed to the Wife.  The Husband sought to explain that the telephone call was made merely for a casual conversation.  Given careful consideration to the contents of AM’s letter and the Husband’s explanation provided for making the telephone call to Mr. Au against the surrounding circumstances, I find the Husband’s explanation for making such call to Mr. Au untenable if not a lie. 

36.  First, I do not believe this is any kind of coincidence of a casual conversation between the Husband and Mr. Au during which AM and her intention to testify in Hong Kong was mentioned.  In the letter, AM said on the day of the letter, she used the term “今天”, that is 21/4/2015 (which is just one day before trial), she received the telephone call from Mr. Au who told her that he had received the Husband’s telephone call a few days ago (“我今天下午接到歐xx電話, 他說Cxx先生前幾天打電話給他”).  Mr. Au said the Husband called in and at first asked him whether AM had gone to Hong Kong to give evidence.  After Mr. Au gave an answer that AM had returned to her home town but without further saying why AM had to return, the Husband then said to Mr. Au that he knew AM was going to get permit for coming to Hong Kong to give evidence.  The flow and context of the dialogue is supportive of my belief that the Husband did it for a purpose.

37.  At the moment when Mr. Au said AM had returned to home town without saying further the reason for the return, the Husband at once took up the chance to open the dialogue of the importance of giving truthful testimonies in Hong Kong and the severe consequences of telling lies.  Mr. Au is the friend of the Husband and worked in the DG Factory receiving orders from the Husband’s SGFL for manufacturing garment products.  I believe, had the Husband wanted to, he could easily arrange Mr. Au to testify at the latter part of the trial when he came to know AM’s letter was before the Court on the 1^st day of trial.  Why the Husband, with the benefit of legal advice, did not arrange Mr. Au to come along to give evidence to confirm whether he had said to AM those contents which AM now stated in her letter so as to verify whether AM was telling the truth ?  It is odd to see that the Husband not being bothered to bring in Mr. Au to confirm his conversation with AM before he himself sought to explain the purpose of his calling Mr. Au.  As a matter of common humanities, had the Husband called Mr. Au not for a specific purpose, he would be greatly surprised by the contents of AM’s letter and would, for the sake of clarification and as a common course of action, arrange Mr. Au to come along and explain the situation rather than he himself explaining his reason for calling Mr. Au was for casual conversation.  This is somewhat akin to the situation where we have the Chinese colloquial saying “此地無銀三佰兩”.  Although there is no such evidence, it could always happen that the Husband did arrange Mr. Au to come along but Mr. Au himself was also too worried by what the Husband had said.  In any event, the Husband had not done so.

38.  As I see it, there are no compelling reasons for the Husband to have to “remind” the Wife’s key witness AM, indirectly through the words of Mr. Au, of the need for her to tell the truth in her testimony in Hong Kong, or alternatively, the consequences for not telling the truth.  I agree with Counsel Mr. Lam for the Wife that the Husband’s motives were clear beyond any pre-adventure.  With respect, I am not convinced by Counsel Mr. Man for the Husband that this should not be taken as any kind of objectionable conduct or unjustified interference since the Husband was merely persuading (my emphasis) a witness to tell the truth. But the real question is : “Does he really have to do such persuasion ?”

39.  I have reminded myself that the contents of AM’s letter are hearsay by nature, however, since it comes from a ‘withdrawing’ witness with reasons for backing out at the eve of the trial, I believe this is something which the trial Court is entitled to consider.  As said, there is no evidence from Mr. Au to tell the Court at least whether AM was telling the truth in her letter.  Given careful consideration, I find it more probable than not that AM was being put off from testifying in these proceedings.  This is also the reasons given by AM in the letter.

40.  In the absence of AM testifying in Court and subject to cross examination, I decided that no weight should be attached to the contents of her Witness Statement dated 28/5/2013 (C:120 to 122).  I do not venture nor am I obliged to go into the contents of AM’s Witness Statement and make findings of fact therein one way or the other based upon the parties’ submissions through their respective lawyers without being able to assess the witness’s credentials through cross examination.  Without any weight being attached to such Written Statement, there is no basis either for this Court to draw any inference there from for determining the parties’ case.

41.  Likewise, I decided that no weight should be attached to the contents of the AM’s Spreadsheet without AM’s testimonies in Court.  Nonetheless, I was referred by the Counsel for the Husband to other documents including an email from one Mr. F Leung to AM dated 23/12/2008 allegedly was received in response to AM’s requests for information to prepare the AM’s Spreadsheet.  Such reference was to confirm the accuracy of the AM’s Spreadsheet dated 23/12/2008 which is 10 days after the Wife had seen an earlier spreadsheet and then signed the Loan Agreement on 13/12/2008.  Since this Mr. F Leung had not been arranged to testify in Court, I am not prepared to take the contents of such email in isolation at its face value and make findings of fact to accept the Husband’s explanation as to how the AM’s Spreadsheet come in existence.  In particular, as rightly pointed out by Counsel Mr. Lam for the Wife, the Husband had not deposed anywhere in his Affirmation that there exists an earlier spreadsheet of which he had not kept a copy but only came up with such evidence when he was being cross examined in Court.

42.  Given the importance of those entries in the AM’s Spreadsheet in so far as the Husband’s case of proving various loans allegedly having been made by AMG to the Wife’s maiden family in 2007 and 2008 and was so recorded by AM, it is wrong for this Court to simply take and rely upon the Husband’s own testimonies or his interpretation of the AM’s Spreadsheet, both of which are essentially self-serving, to bethe truth without the benefit of hearing any of the evidence of the author, namely, AM whom I have found to have been put off to give evidence in this trial.  What then follows next is whether the Husband is able to produce other evidence, documentary or otherwise, which might be supportive or would corroborate his own testimonies so much so that his case of there being loans made by AMG to the Wife’s maiden family could be proved to the requisite standard of balance of probabilities. 

43.  As rightly pointed out by Counsel Mr. Lam for the Wife, the alleged indebtedness or underlying loans so to speak is unsustainable by other evidence.  First, the balance sheets and audited accounts of AMG for 2007 and 2008 did not support the situation that AMG was financially capable for advancing a loan of HK$3.2 million or AMG ever had business profits enough for making such loan of HK$3.2 million.  Further, in countenance to the submission by Counsel Mr. Man that the loan could have been made from AMG’s working cash flow rather than from AMG’s business profits, Mr. Lam correctly pointed out that if that was the case (which the Wife denies), there ought to be an inevitable deficiency somewhere and somehow reflected in AMG’s balance sheets and audited accounts.  The income statement of AMG since its incorporation up to 31/12/2007 recorded only a net profit of HK$368,241; and a net profit of HK$83,930 for the year ended 31/12/2008. 

44.  The Husband had fairly conceded that he was cognisant of his director’s duties.  When signing AMG’s audited accounts and the balance sheets for those 2 years of 2007 and 2008, he had accepted the company’s financial statements are true and accurate.  The Husband, however, had chosen not to arrange AMG auditors Messrs. Henry Law & Co., to explain why the underlying loans allegedly due and owing to AMG was nowhere reflected in those financial statements or audited accounts sent to his approval as one of AMG’s director. 

45.  Moreover, the Husband under cross examination conceded that he had never asked or even attempted to ask the Wife’s maiden family to repay the monies remitted throughout the years.  He also conceded that he would have the chance to do so had he wanted to since he had assisted in collecting receivables for the Wife’s mother from their overseas clients and then sending over to her in Mainland China.  One would then ask the simple question : “Why he did not do so ?”

46.  The reason purportedly given by the Husband was that he had treated the loans to be responsible by the one who had asked for it, namely, the Wife.  In my decision, such reason is not tenable at all.  The Husband is an educated and sophisticated person, having a Degree in Mathematics for Commerce at a reputable Canadian University along with years of experience in the business field, it is difficult to believe that he does not understand what a company’s loan is, no matter the loans were made to directors or third parties.  The fact that personal drawings of expenses of himself and the Wife from AMG’s accounts and recorded as ‘Director’s withdrawals’ in the general ledgers or books and accounts would not, and as a matter of fact should not, intermingled with those records in the company’s books and accounts for withdrawals made by directors for making loans to third parties.  In my decision, the Husband could not now (my emphasis) make use of the AM’s Spreadsheet and sought to interpret and explain the records therein by his own testimonies to supplement, if not replacing, what should have been recorded in AMG’s financial statements and audited accounts in order to prove his own case of there existed repayable loans made to the Wife’s maiden family which remain outstanding and unpaid. 

47.  Going into the depth of those ledgers of AMG and dig into hundreds of entries of transactions could not help the Husband’s case either as to the alleged indebtedness or underlying loans.  Counsel Mr. Lam in his written Closing Submissions referred to the Husband having selected some 93 entries amongst the 379 remittances or withdrawals recorded in the 2008 ledgers under Directors’ C/A and then cross referenced to AM’s Spreadsheet to support his case of the underlying loans allegedly made to the Wife’s maiden family.  The Husband also referred to 3 telegraphic transfers made on 15/3/2008, 28/3/2008 and 3/4/2008.

48.  I agree with Counsel Mr. Lam that those entries referred to by the Husband in the ledgers by themselves do not spell out the purpose of the remittances.  Some of the entries there show that funds had been remitted to the Wife’s mother which the Husband also conceded were receivables from overseas clients which he had assisted in the collection process.  The Husband sought to explain that for this kind of receivables, it could easily be seen and distinguished because there was an “established pattern” that the same amount would be remitted out within a very short time and usually within the same day after it was received.  For other remittances which did not fall within such “established pattern”, they were not receivables collected on behalf of the Wife’s mother and were ‘loans’.  In my view, any such “established pattern” or “non established pattern” of remittances would still require to be proved by cogent evidence as to their nature and purpose.  The Court would not be satisfied with the Husband’s own interpretation of the ledgers in a way which suits his own case or by any mix and match or singling out of figures on papers and then to find that those “non established pattern” of remittances were loans made by AMG.  For this reason, I find those entries in the ledgers referred to by the Husband bear very little or no evidential value in proving the Husband’s case of the alleged underlying loans.  

49.  Moreover, I noted that these divorce proceedings were commenced on 5 December 2011.  The Husband through his then lawyers Messrs. Li, Wong, Lam & W.I. Cheung filed his acknowledgment of service (Form 4) on 22 December 2011 with intention to contest custody and ancillary reliefs.  At that point in time, I believe the Husband would have the benefit of legal advice on the Loan Agreement and the alleged underlying loans.  In 2011, the time for bringing legal proceedings for recovery had not been statute barred.  Had the Husband’s case been that he had all along been reluctant to make those withdrawals and loans during the subsistence of the marriage but had done so in order to maintain the relationship with the Wife or her maiden family, there is simply no reason why he did not seek recovery of those so called ‘reluctantly made’ loans of HK$3.2 million when he was served with a divorce petition by the Wife to terminate the marriage.  Moreover, it is also out of logic and any dimension that he would rather obtain loans from banks and his family members to assist AMG’s finances whilst there was a loan of some HK$3.2 million due and owing to AMG which remain unpaid of which no repayment had ever been asked by him.  Why there was not a single letter of demand or any legal proceedings taken or contemplated by AMG or him as a Director of AMG for recovery of the alleged loan of HK$3.2 million ?  The absence of any step by the Husband to recover or attempt to recover the underlying loans, in my view, implicated either that there was insufficient evidence to substantiate the existence of a loan of HK$3.2 million so alleged or simply that there was no such loan at all.  

50.  For all the above reasons, I find the Husband completely fails in proving his case to the requisite standard of balance of probabilities that there was an unpaid loan of HK$3.2 million owed to AMG by the Wife’s maiden family.  Needless to say, this follows that his case of the 50% (that is, HK$1.6 million) indebtedness based upon the alleged loan of HK$3.2 million acknowledged by the Wife as per the Loan Agreement falls miles apart, let alone the legal aspect of the contention over the Loan Agreement as to total failure of consideration; statute barred for bringing proceedings or the Wife’s signing of it under any threat or duress.

The conduct of the Husband

51.  It is common ground that the Husband and his sister CC set up SGFL in May 2009 and took over the account receivables of AMG.  A month later in June 2009 the Wife set up M&M as a sole directorship business also in the garment industry.

52.  The conduct complained of consists of the Husband’s arranging the biggest client of AMG to pay receivables of AMG to his newly formed company SGFL in the sum of some HK$2.3 million.  Such diversion of AMG receivables amount to a breach of fiduciary duty as one of the 2 directors of AMG of which conduct this Court should take note of insofar as it relates to the Husband’s conduct to the Wife and their marriage.  This also hinges upon the Court’s exercise of discretion when it comes to consider those factors under Section 7 of the Matrimonial Proceedings and Property Ordinance, Cap.192. 

53.  The Husband’s sought to justify such conduct of diversion by saying that if such receivables were paid into AMG’s account, it would be frozen in AMG’s account forever due to the Wife’s instructions to the bank not to permit further withdrawals.  Moreover, there was the risk of the Wife unilaterally withdrawing the moneys.  He also came up with the justification that it was to offset the loans made by him and his sister CC in May 2009 to AMG. 

54.  Since the Husband conceded in cross examination that withdrawal from AMG’s account could still be arranged with the authorisation of both his and the Wife’s signatories, it is incorrect to say the money would be frozen forever simply because he himself could not withdraw moneys freely and unilaterally in the same way as he could previously. I find such explanation untenable.

55.  On the undisputed evidence or rather it was the Husband’s own evidence that the Petitioner had never withdrawn any moneys from AMG’s accounts for making those alleged underlying loans to her maiden family in the past save and except once for HK$110,000 which, according to the Wife’s case, was for her 4 months’ director’s remuneration. This withdrawal only occurred in July 2009 after she discovered the Husband had diverted AMG’s receivables payable by AMG’s client to his newly formed company SGFL.

56.  Given careful consideration and on balance of probabilities, I find the Husband’s explanation that there was the risk that the Wife would withdraw whatever receivables paid into AMG’s account is also untenable if not an excuse.

57.  As to the explanation of ‘offsetting AMG’s loans” due to him and his sister CC through the company SGFL, the Husband would have to first establish his case of there were loans due to him and his sister from AMG. The Husband referred to a total sum of CAD170,000 (approximately HK$1 million) through telegraphic transfer made by his sister CC to his personal account between November 2008 and February 2009.  There is, however, no evidence directly from the sister CC as to the reason and purpose for her to make those transfers.  The Husband’s explanation that he felt guilty towards his sister CC because his divorce had caused CC not be able to return to Canada with her son and that his siblings relationship with CC had deteriorated, in my view, could not be accepted as a valid reason for not arranging CC to testify or to the very least swear an affidavit; in particular, she ought to explain whether she knew the transfers she made to her brother’s (that is, the Husband’s) personal bank account would be used as “loans” to AMG ?  She should also confirm the reason for not transferring to AMG’s account if that was intended to be “loans” to AMG and not any kind of personal loans to her brother (that is, the Husband) ?  Did she ever know how her monies transferred would be used by her brother (that is, the Husband) ? 

58.  In the absence of CC’s evidence or any other corroborative evidence, I find the Husband could not simply rely upon his own words to justify the act of conduct of diversion of AMG receivables by now claiming that it was for repaying “loans” due from AMG.  The mere fact that moneys to some HK$220,000 paid by the Husband out of the funds he received from CC as set out in the Cash Flow Analysis Chart is neither here nor there.  For the same reason, it could not be taken as supportive evidence that the CAD170,000 (or equivalent of HK$1 million or so) was “loans” made out to AMG.  It could always happen that those are personal loans made out to the Husband by his sister CC rather than “loans” made out to AMG.  It is always for the Husband to prove his own assertion.  To the very least, CC’s evidence as to whether there are any terms of agreement or arrangement with the Husband before making those transfers would have to be put before the Court to consider the Husband’s case.  The Husband’s other allegation that he had withdrawn further sums of HK$485,500 and CAD54,988.58 and converted part of it to RMB for paying AMG’s account payables and employees’ salaries in Mainland China could hardly be accepted as evidence of loans made to AMG.  There was no record either in AMG’s books and accounts of such payables being made out from loans obtained by AMG.  I find the Husband unable to prove, on balance of probabilities, that the transfers of CAD170,000 by CC to his personal bank account was “loans” made out to AMG. 

59.  For the fact that the Court does not accept the Husband’s case that there were loans made to AMG by CC and any of his explanation as to why such alleged loans were credited into his personal account, I find the Husband’s reasons for diverting the receivables of AMG short of merits and justification. 

60.  The Husband’s other contention is that the Wife, when being demanded by CC and him for repayment in about March 2009, had agreed that the Husband and CC could take over the business of AMG by saying to the Husband: “I have no money.  You can take over the business instead ”.  At paragraph 31 and 32 of the Husband’s 3^rd Affirmation, he deposed to the Wife saying those words very bluntly to him and his sister CC.  It was then decided between him and his sister that a new company would be set up, which is the SGFL, to take over AMG’s clients and receivables of which the Wife had no objection.

61.  The Husband at paragraph 36 of his 3^rd Affirmation referred to his instructions to one Mr. Yiu, the General Manager of AMG at the time, to send a letter to the Wife which was dated 29 July 2009.  This letter complained the Wife for withdrawing HK$110,000 without AMG’s approval purportedly to be for her directors’ remuneration for April, May, June and July.  The letter also complained the Wife was rarely at work since mid April and not attending work at all since 24 May 2009.  On behalf of AMG, the letter served as an acceptance of the Wife’s conduct of repudiation of her director’s duties and reserving all AMG’s legal rights on the monies withdrawn by her and any damages arising there from.

62.  First, there was no reference in this letter dated 29 July 2009 that AMG had been taken over by SGFL (which was formed in May 2009 and allegedly for such purpose).  The Husband had stated that SGFL was set up to take over AMG account and receivables.  The letter was issued under the company name AMG with the company chop affixed and signed by Mr. Yiu, without any faintest tint that AMG had been taken over by SGFL.  Secondly, had the purpose for incorporating SGFL was to take over AMG, it is difficult to understand why the Husband would instruct Mr. Yiu to issue such letter under the name of AMG, a company which was supposed to have been taken over already in May 2009.  On balance, it is my finding that it is more probable than not that SGFL was incorporated not for taking over but it was rather for diverting AMG’s business and receivables. 

63.  I find the Husband’s conduct, in so far as diverting AMG’s receivables are concerned, objectionable if not gross and obvious.

64.  For these reasons, I am satisfied on balance of probabilities that the assets and account receivables of AMG had been diverted as opposed to legitimately taken over by the Husband through his company SFGL. This finding also embraces Joint Issue (2)(b) as to the sum of HK$367,102.20 not being accounted for by the Husband.

Are SGFL and M&M part of ‘family assets’ ?

65.  It is common ground that the parties separated in May 2009.  The company SGFL was incorporated on 18 May 2009 by the Husband (20%) and his sister CC (80%).  The company M&M was incorporated a month later on 22 June 2009 by the Wife solely.  It is also common ground that the company AMG became dormant around May 2009 soon after the parties’ setting up their own respective companies.

66.  Counsel Mr. Man for the Husband rightly submitted on the law that assets acquired after separation arose by the use of an asset which was created during the marriage should be treated as matrimonial assets (Rossi v. Rossi [2007] 1 FLR 790). Husband submitted that both companies subsequently formed are a continuation of AMG in that they made use of the experience, contacts and goodwill acquired by the Husband and Wife through the business of AMG.  However, the Wife disagreed. If there was any continuation of AMG, the Wife said it would be SGFL rather than M&M.

67.  It is the Husband’s case that SGFL was set up to take over the business of AMG.  On the evidence, there was a letter signed by one Miss Tam with the chop of the biggest Saudi Arabia client of AMG, namely AL M Fashion Company Limited, to answer the Wife’s enquiry of 2 Purchase Orders placed by this client with AMG.  Miss Tam said in the letter :-

“……………

(1) The above-mentioned purchase orders were place by us to, and accepted by, AMG Garment Factory Ltd. (“AMG”).

(2) The respective deposit (20%) for these purchase orders were made to the bank account of AMG in the same manner as we trade with AMG in the past.

(3) Upon the written request from (the Husband) (Director of AMG) who claimed that he made such request on behalf of AMG, the mentioned purchase orders should be transferred to a company known as SGFL (in Chinese)(“S”).

(4) The reasons provided by the said (the Husband) was that the new company (my emphasis) S, will obtain better financial arrangement.

(5) Goods were delivered by S and thereby invoiced. Payment of the balance of purchase price (80%) were made to S as requested by the said (the Husband)”.

68.  Although this Miss Tam had not been arranged to testify on this letter, the Husband raised no issue as to the business relationship between SGFL and AL M Fashion Company Limited stated in the letter. 

69.  In the Husband’s Answers to Questionnaires dated 16/10/2013 under the sub-heading DG Factory, he said :

“4. The DG Factory was set up in 2008 and used by AMG. When AMG ceased business, the Respondent and his sister took over this factory…….

5. The Respondent and his sister paid for most of the set up costs of the DG Factory. A very small part of the set up costs was paid by AMG out of the capital. The Respondent paid into the company to keep it afloat after the Respondent abandoned AMG in March 2009 (my emphasis).”

70.  I have 2 observations on the above.  First, the letter of Miss Tam clearly supported the Wife’s case that the Husband had diverted the receivables of AMG since the Husband made the assertion to AMG’s clients that the uncompleted purchase orders were to be transferred to a new company (my emphasis), which is SGFL.  The 80% balance of AMG’s receivables would then be paid over to SFGL.  Secondly, the Husband in his Answers to the Wife’s Questionnaires said that he had abandoned AMG in March 2009 (my emphasis) which is clearly inconsistent with his instructions to Mr. Yiu to send the letter to the Wife under the name of AMG 4 months later on 29/7/2009.  More importantly this is inconsistent with his case of SGFL being set up to take over AMG.  Putting these 2 inconsistencies into 1 and also noting the letter of Miss Tam, it is not difficult to see and I also making the finding that SGFL was formed not for taking over AMG but in parallel to AMG.  At the time of trial, there was still no evidence that AMG had been wound up.  I do not accept that SGFL is a continuation of AMG nor is there any coercive evidence to show that M& M could be considered as family assets.

71.  Given the fact and, as a matter of law, AMG, SGFL and M&M are three separate legal entities with independent existence, to attribute their corporate assets and liabilities to the shareholders and directors require cogent evidence rather than any mere ‘say so’.  Moreover, SGFL and M&M were incorporated separately by the parties (the Husband having only 20% and his sister CC 80% in SGFL) back in May and June 2009 respectively, which is around 6 years before the date of trial, with revenues generated over the years without the other party’s effort or contribution.  Given careful consideration to the factual circumstances including those submissions from Counsel Mr. Man for the Husband, I find the companies SGFL and M&M are not family assets for these ancillary reliefs proceedings. Accordingly, no consideration would need to be given to the values of these companies in the single joint expert’s report.

72.  For the finding above that SGFL was not incorporated for taking over AMG, the Husband’s submission that SGFL was an asset acquired by the use of AMG created during the marriage and therefore should be treated as matrimonial assets simply does not stand. 

Is there any non-disclosure of business interests by the Wife?

73.  The Husband’s contention rests with the Wife having beneficial interests in the MH Factory in Mainland China but chose not to disclose it earlier. 

74.  It is undisputed that the Wife only filed her Answers on 2 April 2015 to the Husband’s Questionnaires of which Answers were supposed to be given by 6 October 2014.  The Answers were signed by the Wife as early as 27 January 2015. The Wife said in cross examination that she did not finalise the Answers until January 2015 but did not know why it was only filed and served in April.  It was conceded by the Wife’s lawyers that there was an unintentional mistake by the clerk for the lateness in filing and service.  The Husband considered that the Wife only disclosed such Answers when it had become obvious that she could no longer hide it.

75.  The Wife filed her 12^th Affirmation to give an explanation in reply to the Husband’s allegation that she had an interest in MH Factory.  She deposed that she had no legal or beneficial interest in MH Factory which was owned by his younger brother.  Given the close relationship with her younger brother, she was allowed by her younger brother to use the name of MH Factory in invoices, orders, receipts of payments and almost all dealings with regard to purchase orders as well as the address of MH Factory on business cards as contact address.  Reasons are to assure buyers from M&M that their orders had been placed with a company with factory base and not a mere trading company.  She also produced tenancy agreements of MH Factory where his younger brother could be seen was the tenant.

76.  Given the fact that M&M has no employees based in either Hong Kong or in Mainland China and that the Wife works from her home and does not rent an office (C:192), also noting the intimate relationship with his younger brother, I accept the Wife’s explanation.

77.  In Counsel Mr. Man’s Closing Submissions, the Husband referred to the assistance given to the younger brother by the Wife’s parents in setting up MH Factory being untenable since the parents themselves were in financial problems in 2011.  The Husband also referred to the decrease of gross profit margin of M&M from 5.87% in 2010 to 2.5% in 2011 being “too much of a coincidence” because the Wife attempted to hive off her interest in MH Factory to her brother to artificially depress M&M’s value in contemplation of divorce.

78.  Given careful consideration, I agree with Counsel Mr. Lam that there was no reference in the Wife’s Affirmation as to her parents’ assistance to her younger brother was anything ‘financial’ by nature.  The Wife had in the same Affirmation deposed that his younger brother set up MH Factory from his own resources which can fairly be taken to mean ‘financial resources’.  Also given the undisputed fact that the Wife’s maiden family had engaged in the garment industry for a number of years, it is not unusual for the parents’ assistance to take any form of ‘non financial assistance’, say for instance, referral of clients or business contacts to MH Factory.

79.  I also agree with Counsel Mr. Lam that a pure decrease in values of gross profit margin is neither here nor there.  This could not be supportive of the Husband’s contention that the Wife has any beneficial interest in the MH Factory or shifting over her finances from M&M.

80.  As to the advertisement on the Hong Kong Trade Development Council (HKTDC) website (C2:417), I find it not sufficient to support any finding that the Wife has had any beneficial interests in the MH Factory. 

81.  For these reasons, I find against the Husband on Joint Issue (4) that there was non-disclosure by the Wife of business interests in the MH Factory.

The ‘take away’ of items by the Wife

82.  On such issue, the Wife provided the answer (A:494) :

“The gifts of gold jewellery includes wedding bangles (龍鳳鈪), gold bangles from the children’s one-month baby shower, two gold dog ornaments, two gold rats ornaments, several gold bangles, and several    jade bangles.”

83.  Given the fact that the Wife during cross examination agreed that those items are family assets, I do not agree with Counsel Mr. Lam’s written Closing Submissions that those items are personal items acquired during the course of marriage and could be excludable under the principles enunciated under LKW v. DD (supra) (see paragraphs 90 to 93 of the Judgment).

84.  There is, however, a fall back argument that even if the items are matrimonial assets, since the Wife’s case is that the items have already been disposed of, the proceeds would have already been accounted for in her Updated Form E, and absorbed in the balance of the Wife’s bank accounts which had been duly disclosed.  Further, had those items not been disposed of, there is no evidence from the Husband as to the value of HK$100,000 which is purely his own assertion.  The Husband who claimed for those items to be accounted for should bear the burden of proof as to the value. 

85.  I agree with Counsel Mr. Lam’s fall back argument that whatever values those items worth and need to be accounted for, it would be merged with or absorbed into the Wife’s monies disclosed if not already spent with the passage of time. Hence, although I find such items are family assets, I accept that whatever value was their worth it would have been duly accounted for by the Wife in her latest financial disclosure.

The Wife’s liability on her legal costs

86.  The Wife’s case is that she had borrowed HK$600,000 from her maiden family to finance her legal costs in these proceedings.  The Husband’s argument is that this is either a ‘soft’ loan which does not require immediate repayment or is a kind of anticipated legal costs.

87.  I do not agree this is any kind of anticipated legal costs at this late stage of the trial.  As fairly submitted by Counsel Mr. Lam, the question as to whether this is any kind of ‘soft’ loan was not put to the Wife in cross examination for her to respond.  Hence, it is not fair to draw any such inference merely from the fact that the loan came from the Wife’s maiden family.

88.  On such Joint Issue (6), I find the sum of HK$600,000 to be a kind of financial liability on the part of the Wife.

The Court’s Decision on Ancillary Reliefs

89.  At one stage the parties respective lawyers had signed and produced a List of Agreed Assets and Liabilities dated 12 December 2013 (B:845 to 849), the contents of which had to be cross referenced and updated according to the latest Form Es of the parties and subject to this Court’s findings on the Joint Issues.  

90.  I have in mind the Court of Final Appeal decision in LKW v. DD (supra) setting out the steps and approach to be adopted when deciding ancillary reliefs in matrimonial cases.  However, given the peculiar circumstances of this case (as set out below) and this Court’s findings on each of the Joint Issues set forth by the parties, I find it is fair and reasonable for a so called ‘walk away’ outcome for the parties’ ancillary reliefs.  Also given the parties’ ages and earning capacity, I also believe there ought to be finality in terms of the parties’ respective rights on ancillary reliefs in that neither party would be granted any nominal maintenance.  

91.  The peculiar circumstances are :

(a)  The parties separated in May 2009, this is only a short marriage of 3 years and 10 months.  The marriage took place in July 2005;

(b)During the marriage the parties owned and operated the matrimonial enterprise AMG where their livelihood depended upon AMG’s revenues until their separation in May 2009 and AMG right after then became dormant;

(c)  Soon after separation, the parties set up their own companies also engaged in the garment industry akin to that of AMG whereby each party make their own living up until present and continuing;

(d)The Husband diverted the account receivables from AMG to the company SGFL owned by him and his sister CC (see paragraph 64 above);

(e) The Wife withdrawn HK$110,000 from AMG’s bank account purported to be 4 months’ of her director’s remuneration (see paragraph 55 above);

(f) The parties’ income and assets as at date of trial are earned and accumulated from their respective businesses for the past 6 years without any contribution from the other party;

(g) Both parties are fully capable of looking after their own financial needs from income earned out of their own businesses since separation in 2009 without the need of any maintenance pending suit orders in these proceedings since 2011;

(h) Both parties are fully capable of looking after the financial needs of the 2 children of the family as per the Consent Order dated 2 April 2013 (see paragraph 6 above);

(i) The Husband is at the age of 50 and has earning capacity;

(j) The Wife is at the age of 40 and has earning capacity.

Orders

92.  For all the above reasons, I decided that it is fair and reasonable for the parties’ respective rights for ancillary reliefs be dismissed.

93.  What left behind is the question of costs of these proceedings.  The Wife’s Open Proposals are identical to the outcome of this case save and except she had asked for nominal maintenance.  Given the fact that she only sought costs of and incidental to the Husband’s claim for the alleged loan of HK$1.6 million, I will accordingly grant such costs order in respect of which would have to be taxed if not agreed on party and party basis. 

94.  Although the issue of the alleged loan of HK$1.6 million is one amongst the six items listed in the Joint Issues, a substantial part of the time for trial was spent on the evidence upon such issue.  On all fairness, I will also apportion the costs for such issue to form 30% of the entire costs of the ancillary reliefs trial.  As for the remaining 70% of the costs, there will be no Order as to costs. 

95.  I also grant Certificate for Counsel.

96.  This is a costs order nisi which will become absolute if no application is made to vary the same within 14 days from the date of this Judgment.

97.  Last but not least, I wish to express my gratitude to all Counsel and the parties’ legal representatives for their valuable assistance to the Court.