LHK v. CLH

FCMC 15231 / 2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 15231 OF 2006

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J U D G M E N T

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Introduction

1. This is a cross application by a husband and wife for ancillary relief.

2. The Respondent wife also seeks to set aside a Deed of Family Arrangement entered into by the Petitioner husband and his two siblings in June 2003.

3. In addition the husband has also applied to vary an order for interim maintenance.  Further the wife issued a judgment summons to enforce payment of that interim order. On the pmise that any overpayment or underpayment of interim maintenance can be adjusted at a final ancillary relief hearing, the husband rightly accepted that this application should now be dealt with as part and parcel of the general one before me for ancillary relief.  Consequently he did not proceed with this application.  The wife also withdrew her application for a judgement summons.  Therefore the matters left for me to determine are the wife’s s.17 application and each parties’ respective applications for ancillary relief.  

Overview

4. There are two main issues, which dominate this case, firstly whether or not the husband’s initial share of his late father’s estate should be included in the asset pool available for distribution between the parties.  Secondly whether money given to the parties to pay for the deposit on what was intended to be their matrimonial home, was a gift or a loan.

5. The over all asset pool is not large, but the answer to these two questions alters significantly the funds available for distribution.  The parties have been unable to reach any consensus and therefore this trial and the costs occasioned with it have become an inevitable reality. 

Background

6. The parties married on the 6 October 1990.  They have two children, a 17 year-old girl and a 12 year-old boy.  They are both 40 years old.  The husband is psently employed as an assistant operations manager in a factory in China.  The wife is psently a homemaker.  She worked for much of the marriage as a clerk. 

7. Unhappy differences arose between the parties and in December 2006 the husband issued proceedings based on two years separation.  It is stated in the petition that the parties had been separated since December 2002. 

8. For most of the marriage the parties resided with the husband’s family in a flat in Homantin.  The husband has generally been employed as a factory manager, or something similar, and has been based on the Mainland on and off since 1996.  The wife worked as a clerk until 30 September 2007 when she became unemployed.  She has also historically invested very successfully in stocks and shares.  On the 16 September 2007 the wife moved out of the Homantin property into a property held in the joint names of the parties – i.e. the Nam Fung Property (NF property).  This property was originally meant to be the parties matrimonial home. Infact it was rented out almost continuously and the rental payments were used to cover the mortgage repayments. The wife psently resides there with the son.  The daughter continues to live in Homantin with her paternal Grandmother, Mdm T, the intervener.  The husband now lives on the mainland with his cohabitee and their new baby.

9. In September 2000 the husband’s father died intestate.  In April 2003 the intervener took out letters of administration.  In June 2003 the husband and his two sisters entered into a Deed of Family Arrangement, whereby they renounced their share of their late father’s estate.   

10. On the 4 July 2007 the court made an order by consent that the husband pay the wife interim periodical payments of HK$6,000 per month i.e. HK$3,000 for each of the parties two children, until further order.  In October 2007 the parties attended a FDR hearing, which failed.  The case was then transferred to me for trial. 

11. In January 2008 the husband applied to vary the maintenance downwards as he had also lost his job.  He has continued to pay HK$1,500 per month for the son and pays other monies to his mother direct for the daughter.  He found another job in March 2008.  However he did not alter the reduced maintenance payments.  In June 2008 the wife took out a judgment summons to enforce the difference between payments due under the court order and the amount she has received.

12. The decree nisi was pronounced on the 26 August 2008.  Custody of the two children was granted to the wife. 

The issues

13. It seems to me that the following issues need to be determined by this court: 

1)   Did the husband and his siblings enter into the Deed of Family Arrangement, in part to defeat the wife’s claim for ancillary relief? If so should that disposition be set aside?

2)   Should the HK$1.52 million advanced to the parties by the husband’s father and/or mother be treated as a loan or a gift?

3)  Bearing in mind the answers to 1) and 2) above what is the computation of available assets?

4)  How should those assets be divided bearing in mind the principles of need, compensation and sharing and the s.7 factors?

5)  Should the husband pay the wife any maintenance for herself? If so how much?

6)  How much maintenance should the husband now pay for the children and to whom?  

The law

Setting aside dispositions

14.The wife has issued an application pursuant to s.17 Matrimonial Proceedings and Property Ordinance, Cap 192.  This section states as follows:

(1) Where proceedings for relief under any of the relevant provisions of this Ordinance (hereafter in this section referred to as "financial provision") are brought by a person (hereafter in this section referred to as "the applicant") against any other person (hereafter in this section referred to as "the other party"), the court may, on an application by the applicant-

… …

(b) if it is satisfied that the other party has, with the intention aforesaid, made a disposition to which this paragraph applies and that if the disposition were set aside financial provision or different financial provision would be granted to the applicant, make an order setting aside the disposition and give such consequential directions as it thinks fit for giving effect to the order (including directions requiring the making of any payment or the disposal of any property);

(2) Paragraphs (b) and (c) of subsection (1) apply respectively to any disposition made by the other party (whether before or after the commencement of the proceedings for financial provision), not being a disposition made for valuable consideration (other than marriage) to a person who, at the time of the disposition, acted in relation to it in good faith and without notice of any such intention as aforesaid on the part of the other party.

(3) Where an application is made under this section with respect to a disposition which took place less than three years before the date of the application or to a disposition or other dealing with property which is about to take place and the court is satisfied-

(a) in a case falling within subsection (1)(a) or (b), that the disposition or other dealing would (apart from this section) have the consequence, or

(b) in a case falling within subsection (1)(c), that the disposition has had the consequence, of defeating the applicant's claim for financial provision, it shall be psumed, unless the contrary is shown, that the other party disposed of the property with the intention aforesaid or, as the case may be, is, with that intention, about to dispose of or deal with the property.

(4) In this section-

"disposition" (財產處置) does not include any provision contained in a will or codicil but, with that exception, includes any conveyance, assurance or gift of property of any description, whether made by an instrument or otherwise;

"the relevant provisions of this Ordinance" (本條例的有關條文) means any of the provisions of sections 3, 4, 5, 6, 6A, 8, 11 (except subsection (6) ) and 15; (Amended 69 of 1997 s. 33)

and any reference to defeating an applicant's claim for financial provision is a reference to pventing financial provision from being granted to the applicant, or to the applicant for the benefit of a child of the family, or reducing the amount of any financial provision which might be so granted, or frustrating or impeding the enforcement of any order which might be or has been made at the instance of the applicant under the relevant provisions of this Ordinance.

15. Therefore, if I am satisfied that the husband has made the disposition i.e. entered into the Deed of Family arrangement referred to above, with the intention of defeating the wife’s claim for ancillary relief, then I may set that disposition aside.

16. It should also be noted that where an alleged disposition is made less than 3 years before the application under s.17 Matrimonial Proceedings and Property Ordinance, it is psumed, unless the contrary can be shown, that the disposition was entered into in order to defeat the wife’s claim. In this case however the husband entered into the Deed of Family Arrangement in June 2003. The wife made the application on the 10 March 2008, nearly five years after the deed was entered into. Consequently the burden shifts and the wife now needs to prove that the husband entered into the deed with the intention of defeating her claim – at least in part. Reference to the appropriate standard of proof can be found in Rayden, 18^th edition, where it states as follows:

“Standard of proof

27.15 As to the standard of proof, the question to be asked by the judge after reviewing the evidence is: ‘Am I satisfied that the disposition was made with the intention of defeating the wife’s claim for ancillary relief? The standard of proof remains the balance of probabilities, although it has been said that since what has to be proved is not merely a dishonourable intention but a dishonest and fraudulent one, the evidence which is required to tip the balance has to be correspondingly more convincing. ‘Satisfied’ in this context means no more than that the judge has to make up his mind.”

Case law

17. Both parties referred me to the appropriate case law on the subject – namely Kemmis v Kemmis [1988] 1 WLR 1307and the Hong Kong Court of Appeal case, Yuen Tam Wan v Ho Chan Yuet [1993] 2 HKC 66 CA where the same principles were adopted. In particular the husband solicitor has referred me to the following passage in Kemmis v Kemmis where Purchas LJ said as follows:

“The intention must be subjective to the party against whom the order is sought and limited to defeating the application’s claim for financial relief or reducing the amount of that relief. Frequently, the beneficiary of the disposition is that party himself, but this is not always the case, and persons in whose favour the disposition is made are often third parties, e.g., the husband’s mistress or her children. In these circumstances it would be open to the court in cases not involving the psumption in section 37(5) to conclude that in making the disposition either in favour of a third party – or to himself in order to support a lifestyle which could not otherwise be sustained --- that the party making the disposition knew and intended the inevitable result of his action. If this caused the diminution or loss of an asset which otherwise would be available to the court in an existing or anticipate application for financial relief it would be open to the judge to infer that the party concerned had the intention necessary to justify an application under section 37”.

18. Once a determination has been made in relation to the wife’s application to set aside the deed, I will then turn to the issue of ancillary relief generally.

Ancillary relief

19. The law in Hong Kong has been clarified since the recent decision in DD v DKW (CACV no 91 of 2007). Reference can be made in particular to para’s 69 and 70 of that judgment. I do not intend to repeat them in full here. In so far as this case is concerned however, the following paragraphs are of particular importance:

The applicable principles

69. …

(1) In the majority of the cases where the parties only have limited financial resources, the focus of the inquiry on fairness is to divide the assets of the parties so as to make provision for their housing and financial needs. It may be necessary to augment the available assets by making orders for periodical payments (Miller [11][12]).

20. In addition, it should be noted that overall the court is charged with dividing the assets fairly. Where the principle of need means that one party may receive more than 50% of the available assets, needs trump sharing. Where the principle of need means that one party may receive less than 50% of the available assets, sharing will trump needs.

21. Reference must also be made to the Matrimonial and Proceedings Ordinance, Cap 192 under which applications for ancillary relief are made. The court has wide powers, including the power to make orders for sale (and consequential directions upon any such sale, as required (see section 6A)).

22. The Hon Mr Justice Cheung JA identifies the relevant section 7 factors under the headings of need, compensation and sharing. The s.7 factors are as follows:

(7)(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.

Each party’s case

The wife’s case

23. In essence the wife’s case is that the husband entered into the Deed of Family Arrangement in order, in part, to defeat her claim for ancillary relief. Further that the money advanced to the parties by her parents in law was a gift. Thus on the wife’s case there is approximately HK$3,320,000 available for distribution. Although in her opening she argued that this figure should be increased to reflect the psent day value of her late father’s estate. The wife seeks a transfer of the NF property, subject to mortgage, to herself (although there was no discussion of how this might be effected given that the wife is not working) plus HK$3,000 per month as maintenance for the son, and HK$3,000 per month as maintenance for herself for a 12 month period. She asks that due cognizance be taken of the fact that although the husband now offers to pay maintenance for the son in the sum of HK$3,000 per month, he has paid the reduced amount since January 2008. The wife has spent approximately HK$500,000 on legal fees.

The husband’s case

24. The husband’s case is that he did not enter into the Deed of Family arrangement in order to defeat the wife’s claim and that the HK$1.52 million was a loan by his parents to be repaid to his mother upon the sale of the NF property. The husband’s case initially was that he wished to sell the matrimonial home, repay Mdm T the sum of HK$1.52 million and divide the proceeds of sale and other assets on a 50:50 basis. However, in his closing, the husband conceded that the wife and son could remain in the NF property until the son reaches the age of 18 years or ceases full time education. This is subject to the wife continuing to pay the mortgage and other utility payments. On the husband’s case there is approximately HK$720,000 available for distribution. The husband has spent approximately HK$250,000 on legal fees.

The Evidence

25. I must now turn to consider the issues, the law and the parties evidence as set out in their affirmations and as given orally by them during the hearing. I have also considered the evidence of Mdm T, the intervener and the other witnesses who have filed affidavit evidence, but have not given oral evidence, by agreement. For the avoidance of doubt, in so far as the matters set out in this judgment differ from the evidence of the husband or wife, or of the intervener, that is because I have pferred the evidence of the other party or because I do not find the evidence given credible, or because I consider that the documents produced confirmed my findings of fact.

Discussion

Did the husband and his siblings enter into the Deed of Family Arrangement, in part to defeat the wife’s claim for ancillary relief? If so should that disposition be set aside?

26. The wife says that although she continued to live in the Homantin property until 2007, that relations between her and the husband soured from about 2001 when she confronted him about his alleged adultery. It is accepted that the husband had been spending increasing amounts of time on the Mainland since about 1996, because of work commitments. It is also accepted that their sexual relationship deteriorated, although the husband says that this was simply because they no longer wished to have any further children. The wife says that given the deteriorating relationship that the husband must have been contemplating the prospect of a divorce much earlier than in 2006, which is when the divorce petition was issued. Given that, she says that the husband must have had this is mind when he entered into the Deed of Family Arrangement and that the deed was executed partly in order to defeat her claim.

27. In support of her case i.e. that this is a sham arrangement, she points to a) the fact that the husband has been financially supported in part by the intervener, b) that the husband’s two sisters purchased a flat near the interveners after the Deed of Family arrangement was entered into, although they did not have the financial means themselves to do so and c) that the husband was in bad financial shape in 2003.

28. Given the above and the husband’s acceptance that the marriage had been an unhappy one for quite some time, the wife says that it belies belief that the husband did not intend to divorce in 2003 or at least have the possibility of divorce in mind when executing the Deed of Family Arrangement.

29. I accept on the evidence much of what the wife says. Has she done enough though to prove that the husband entered into the deed with the intention of defeating her claim? Am I satisfied that the husband signed the deed knowing that by doing so he was dishonestly and intentionally acting in a way designed to ensure that the wife could not claim against those assets in the future? On the balance of probabilities, am I satisfied having heard the evidence and after seeing the parties give their evidence that this is in fact the case?

30. I am afraid that the answer to that question is no. Although the intervener’s evidence was on occasion contradictory I accept entirely her version of events on this particular point, namely that it was her husband’s intention that his estate should in the first instance be left to her. The wife says that had that been the late Mr L’s intention that he would have made a will to that effect. Although I accept in theory that that seems a logical conclusion, after having heard from the intervener I accept that all involved may have assumed that the estate would be left to her in the first instance in any event. Mdm T is 72/74-year-old illiterate housewife. She and her husband worked hard and were successful. They invested wisely. I accept that she probably told her three children that this is what Mr L senior would have wished and that “they dare not do otherwise”. The husband said that he and his siblings knew in any event that eventually the estate would come to them. He also said that it was a joint idea of him and his two sisters. I do not find those two versions of events contradictory, but rather complementary to each other. I accept that back in 2003 the husband entered into the Deed of Family Arrangement not because he intended to apply for a divorce, but rather because that was what his father would have wished. I accept that both he and his sisters also agreed that this was an appropriate course of action.

Should the HK$1.52 million advanced to the parties by the husband’s father and/or mother be treated as a loan or a gift?

31. The husband says that the HK$1.52 million was a loan from the intervener to be repaid upon the sale of the NF property. There was no loan agreement or other documentary evidence to support his contention.

32. In support of the husband’s case the intervener has filed evidence trying to establish that the money was first given to her and then passed to the parties and that consequently the money should be repaid to her. She also said that the monies were “mixed” or jointly held.

33. In general I found the intervener’s evidence on this point rather less convincing. I accept the wife’s evidence that the down payment for the NF property was given to her and the husband by the late Mr L as a gift. I accept that the late Mr L wished to provide in part for his only Grandson. In support of the wife’s case I accept the evidence of CKW, who said in his affirmation that

…his father would give them $1,500,000 to subsidize their purchase of a flat with the balance thereof be met themselves.

34. I note that the husband’s lawyer in the witness box did not challenge the evidence of Mr C.

35. I accept the wife’s contention that given that as a matter of fact I have found that the money came from the late Mr L I do not need to consider any issues relating to resulting trusts or the like.

What is the computation of available assets?

36. Given my findings above it follows that the parties have the following available assets:

Husband’ assets:
H’s ? share of NF Property subject to mortgage	968,887
+ Personal assets (savings in the bank, insurance, MPF)	136,874
	1,105,761
- Credit Card Liability	5,717
	HKD1,100,044
Wife’s assets:
W’s ? share of NF Property subject to mortgage	968,887
Securities	105,870
+ Other Personal assets (savings in the bank, insurance, MPF)	66,514
	1,141,271
- Credit Card Liability	3,213
	HKD1,138,058
Husband and Wife total assets:	HKD2,238,102

37. The wife has also alleged that the husband has other undisclosed assets. I have found no evidence to support that contention, which bearing in mind the relative financial means of the parties, seemed to me to be wildly speculative and wholly unnecessary.

The Section 7 factors

Need

(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;

38. The wife needs to provide for both herself and her son until he reaches the age of 18 years or ceases full time education. Her most immediate need is housing. Likewise the husband will need to make provision for himself, the daughter and his new family.

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

39. The parties enjoyed the standard of living common to many working class families in Hong Kong. Three generations lived communally in a small apartment owned by Mr and Mrs L.

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

40. Both parties are 40 years of age.

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

41. Thankfully there is no mental or physical incapacity on the part of either of the parties of the marriage – or of the children of the family.

Compensation

42. The issue of compensation does not arise.

Sharing

(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;

43. I accept that both parties have contributed equally both in terms of their financial contribution and in terms of their wider contribution to the welfare of the family. Both parties worked throughout most of the marriage and made a financial contribution to the household. Although allegations and counter allegations have been made about each side’s relative contribution, generally speaking I accept that both contributed what they could, when they could. I have also noted that the husband spent a lot of time in China because of his work commitments and the wife therefore bore the brunt of the domestic responsibilities. She was helped in this however by the husband’s family, with whom she lived until 2007. The children were brought up within the three generational family unit. The daughter chooses to live with the intervener at psent.

(e) the duration of the marriage;

44. The parties married in 1990 and proceedings were issued in 2006 based on two years separation. This is then a marriage of some 14 years.

Conduct of the parties

45.This is not a relevant consideration here.

(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;

46.The husband psently continues to work as assistant operations manager in China. He earns in the region of HK$20,000 per month. I accept that the intervener assists him financially from time to time.

47.The wife worked until September 2007. She was a clerk earning approximately HK$7,000 per month. The wife also successfully invested in stocks and shares from time to time. I do not accept the notion that the wife can no longer work because of her domestic responsibilities. The son is 12 years old. He is in full time school. He travels to and from school on his own. The elder daughter lives with the intervener – and in any event is nearly of age. In the circumstances it seems to me that the wife has an earning capacity and that she should avail herself of it.

Division of Assets

How should the assets be divided bearing in mind the principles of need, compensation and sharing and the s.7 factors?

48. As things stand the wife holds HK$1,138,058 in her own name and the husband holds HK$1,100,044 in his name. Therefore the wife holds HK$38,000 more than the husband i.e. a little over 50% of the available assets. In the circumstances I will not upset this notional division.

49. The real issue though is whether or not the NF property should be sold now or later. The husband says in his closing that he is ppared to forego an immediate sale until the son reaches the age of 18 years or ceases full time education. Subject to the wife undertaking to pay the mortgage and the other outgoings I will make an order in those terms, save that the parties may choose to sell the property earlier by agreement.

Should the husband pay the wife any maintenance? If so, how much?

50. I accept that the wife has an earning capacity and I can see no reason going forward why she should not be able to earn somewhere in the region of HK$7,000 per month, which is what she has earned in the past. I also accept however, given the current financial climate that she may not be able to supplement her income as before by investing in stocks and shares. She seeks HK$3,000 per month for the next 12 months. I have reviewed her current monthly expenditure, which without the mortgage installment of HK$4,846 and expenses for the children amounts to HK$7,394 per month. She seeks HK$4,730 for the children. Given that she only has the younger son at home and that the husband contributes towards the daughter’s upkeep directly, I accept that HK$3,000 should be sufficient to cover the son’s expenditure. In addition it seems to me that with some economizing that she should be able to largely support the general and current monthly expenses. She will though need some assistance with the mortgage repayments. I will allow her HK$2,400 per month until the son reaches the age of 18 years or ceases full time education or the NF property is sold. This is more than she originally sought and repsents half of the mortgage repayment. Given that the husband will eventually receive half of the net proceeds of sale this seems to me to be fair and reasonable in all the circumstances of this particular case. I have noted that the wife has been paying the mortgage repayments since she moved into the property. She has been able to do so by relying on her savings. This is not sustainable longer term.

How much maintenance should the husband now pay for the children and to whom?

51. The husband now offers to pay HK$3,000 per month for the son. As I have said I will make an order to that effect as a final order. To my mind the husband should have increased the payment to HK$3,000 per month once he found a new job in March 2008. The wife should be paid the balance in so far as it relates to the son. The husband pays maintenance for the daughter to the intervener directly. Given that she is no longer living with the wife this seems to me to be a perfectly sensible arrangement. On the basis that the husband has only paid HK$1,500 per month for the son since February 2008 I will order that he pay the wife the sum of HK$18,000 being the back payment of maintenance for the last 12 months (12 x 1,500 = 18,000). According to the husband’s latest Form E he has some limited savings. Consequently I do not expect there to be any difficulty in the husband paying this sum. In the alternative I am satisfied that he has other financial resources that he should be able to avail himself of. In any event he only has himself to blame. Proper financial provision for the son should have been made. Tactical manoeuvring of this kind is not to be encouraged. The husband is to pay HK$18,000 on or before the 1 February 2009.

52. Generally speaking the husband says in his latest Form E that he has an income of HK$20,000 per month and outgoings of HK$19,278 per month. This is inclusive of HK$4,000 as a contribution to his parents and HK$1,500 for each of the parties children. The remaining outgoings are largely unremarkable. Having heard from the intervener and given my findings above in relation to the late Mr L’s estate, it seems to me that the husband’s legal obligations to his wife must take pcedence over any moral obligations that he may have towards his mother, to whom he already pays HK$1,500 for the daughter’s upkeep in any event. The intervener is already well taken care of and has no need of the additional HK$4,000 per month. Consequently I am satisfied that the husband is able to pay the total sum of HK$5,400 as periodical payments for the wife and son.

Costs

53. Given that neither party has entirely won nor entirely lost I will make an order that there be no order as to costs. Costs have largely been paid up to date in any event and the assets available for distribution have been reduced accordingly. I have taken this into account when making this costs order.