FEI TAI CHUNG v. GLORIA FEI then GLORIA YUN GEE

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J U D G M E N T

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Mortimer, J.A.: This is a husband's appeal against the order of His Honour Judge Surman on an application by the wife for ancillary relief in which he awarded a lump sum against the husband of HK$6.57m in full and final settlement of her claims.

1. The judgment below should be read for a full appreciation of the circumstances of the case. It is in the District Court Divorce Jurisdiction No. 4305 of 1992.

2. So far as the background is concerned, I am content to take that also from the judgment. Briefly, the parties were married in January 1980 in the United States. The husband was born in Hong Kong and now lives in Hong Kong. The wife was brought up in the USA and is an American citizen. After their marriage the parties set up home in Hong Kong. The marriage was dissolved in February 1993, when the wife was granted a decree nisi on the grounds that the marriage had irretrievably broken down. At the time of the hearing, the decree had not been made absolute. There are no children of the marriage.

3. The husband and wife are in their forties, or were at the time of the hearing. They met in Geneva where they both worked for the United Nations. Both of them are highly educated and academically well qualified. The husband has degrees in Electrical Engineering and Computer Science, and is an accomplished linguist. The wife has a degree in Economics. Both of them in the past have commanded substantial salaries, but at the time of the hearing, neither of them had a formal occupation. The husband had given up work in early 1987 and the wife in 1989. Since then, until these proceedings, they have not worked.

4. After their wedding, they both returned to Hong Kong and set up home here. They first lived in a flat which belonged to the husband's parents, but later they purchased a flat in Ming Wai Gardens in Repulse Bay - these proceedings particularly concern that flat. There is brief description of the real properties as held by the parties, both here and in the United States; and of their bank accounts and other assets in the judgment below and I do not repeat those details.

5. There were two matters, however, which were not dealt with by the judge or not dealt with extensively. The husband contended that he had contributed to two properties now held by the wife in her own name in the United States. The first of those is a flat at Buchanan Street, San Francisco in California which is now the wife's home. The second are commercial premises in Mill Valley, California. The only way that I am able to read the judgment is that the judge rejected the husband's evidence that he had contributed to those properties. The second matter is this. The husband made an investment of US$500,000 in a joint venture in China in November 1992. This was only four months after the wife's application for ancillary relief and at first sight the timing could lead to the inference that he was seeking to remove assets out of the reach of the wife. When examined, the circumstances show that this was not so. The joint venture contract - which is before us - can only have been reached after lengthy negotiations and preparations. Rightly, therefore, there was no application under s.17 to set that transaction aside.

6. The judge does not refer to this investment. But it must have been in his mind. The husband gave evidence that the money could not be touched for ten years, but the contract indicates that he will not recover the capital for 15 years. The judge left this sum completely out of account - no doubt on the basis that it was illiquid and not available to satisfy any lump sum order. I will return to this investment to consider whether it should be left out of account altogether.

7. The general picture is that both husband and wife are well qualified and are able to earn salaries to keep themselves if they so wish. The judge so found and he has been proved right by events. We have been told from the Bar that the husband now has employment in Hong Kong, earning about $100,000 per month and the wife is shortly to accept employment in the United States which will pay her US$3,000 per month The difference may well be the result of varying employment opportunities and wages in the United States and in Hong Kong. They both have prospect of substantial inheritances and they both have reasonably substantial assets of their own. They have no children.

8. At the hearing, the wife claimed a 40% share in the former matrimonial home at Ming Wai Gardens which was agreed to be worth HK$14m at the time of the hearing. She also claimed 70% of balances in certain bank accounts into which her earnings had been paid. The husband simply asked that the claim should be rejected and that things should be left as they were. The judge acceded to the substance of the wife's claim and granted it. As for the bank accounts, he awarded HK$970,000 as part of the lump sum I have mentioned. There is no issue before us that that part of the lump sum should be varied.

9. Since the hearing, the husband has modified his stance. He now recognises the validity of the award relating to the bank balances. He also recognises that at the least the wife should be in the position of having a roof over her head which is unencumbered. To take account of her claims and to her share in Ming Wai Gardens, he suggests that an appropriate order would be for a total lump sum of HK$21/2m.

10. The issue before this Court is limited. It is simply whether in awarding the wife, as part of the lump sum, HK$5.6m for her interest in the former matrimonial home, the judge placed too great a burden on the husband so as to effectively deprive him of the real benefit of having a roof over his head. This issue, therefore, relates only to Ming Wai Gardens. It is accepted that the wife made considerable contributions to the purchase of this and the parties agreed at the time to share it through a company in the proportion of 60:40 per cent.

11. It is useful to take the history of this property from the judgment. This is their principal property and was purchased in November 1987 for HK$2.47m. It is now worth an agreed HK$14m. The property was put in the name of a company in which the husband and wife have 60% and 40% shares respectively. The initial funding for the property was by way of a bank loan and the initial deposit was from funds to which the wife had made a substantial contribution. In fact, the mortgage was finally discharged in 1989 by monies provided by the husband. But the mortgage repayments up to that date had almost exclusively been paid by the wife and she had made other financial contributions to the management and upkeep of that property. The husband is at present living in that flat and he wishes to remain there. It is accepted that it is proper for him to do so.

12. The judge recognised therefore that one of the most important decisions for his consideration was how the value of this asset was to be divided. He also recognised that if the wife's claim was to be met it would mean that either the property would have to be sold and the proceeds divided, or the husband would have to buy the wife's share out.

13. The judge considered the husband's financial position. He appreciated on the evidence before him that the husband had no liquid assets out of which he could pay the wife her 40% share of the flat. Dealing with this, he said about the Ming Wai property:

"This is the most valuable single asset in the hands of the Parties. It would not, in my view, be fair or just to deprive the Wife of a share in this Flat. Why should the Wife, who has contributed both in Cash and kind to this expensive piece of real estate which has increased substantially in value over the few years that they have both owned it, be told that she can no longer have any share in it?

The more I have thought about the Wife's position in this matter, and the Husband's too, the more certain I am that the Wife is entitled to the 40% share for which asks. The realistic scenario is that the Husband is perfectly capable of getting a job and then procuring a Mortgage or Loan against the security of the Property itself (if nothing else) ... bearing in mind that there is no encumbrance on it and he will already own 60% of it ...

One of the aims of this Judgment is to make sure that each Party has a roof over his/her head. The Husband will probably stay on in Ming Wai Gardens. The Wife will live in Buchanan Street in San Francisco ..."

The task before the judge, therefore, was to properly balance the needs of the husband to have a roof over his head and at the same time seek to do justice to the wife who had a legitimate interest to 40% of the flat.

14. Mr Rodway, Q.C., who appears for the wife, says that the order was too burdensome on the husband. It provides him with a roof over his head with one hand but removes much of that benefit with the other because of the burden which would be imposed upon him in repaying the mortgage or loan such as was envisaged by the judge. If this is so, then it seems to me that the judge's order ought to be reviewed because his correct intention of providing each party with a reasonable home in which they live would not have been achieved.

15. The problem has arisen because the circumstances have changed so dramatically since the matrimonial home was purchased; and indeed, since the husband paid off the mortgage in 1989. What was a modest asset now is by far the most valuable asset owned by the parties. But it is not one that can be usefully realised for if it were realised, it would deprive the husband of a reasonable home. Even a smaller dwelling in Hong Kong would be massively expensive. It is not realistic to suggest therefore, nor has it been suggested, that the husband should or could sell and with advantage move. The cost of accommodation in Hong Kong is so high.

16. The judge's findings that the husband was capable of earning a living has been proved by events. He now earns a substantial salary. It is generally recognised that it is reasonable for a person to spend about a third of his or her income towards paying for a dwelling - perhaps in certain circumstances more than one-third.

17. What is the effect therefore of the judge's order? He did not consider this matter in detail, but it would not be reasonable to require the husband to take out a simple loan of $5.6m on an interest only basis, even if such a transaction is available to him. It may not be. At his age - he is about 50 years of age - a mortgage of about 10 years, however, would be an acceptable way of satisfying the wife's claim to her interest in the property. Therein, there is a difficulty. A 10-year mortgage of $5.6m repaying interest and capital would involve a monthly repayment of the order of $75,000 in round figures at the present rate of interest. It seems to me that any figure near that would place an unacceptable burden upon the husband. The judge could not have intended this. I find myself driven to conclude that he was to that extent in error and, in my judgment, it is necessary to review his order. At the same time, justice to the wife requires that everything which reasonably can be done is done to satisfy her legitimate claim. A balance must be struck in the enormously changed circumstances since the flat was purchased. She should receive, it seems to me, such benefit as it is reasonable for the husband to provide in all the circumstances so as to reflect in part the increase in the value of her property.

18. Of course, the court must take into account the circumstances as they now can be foreseen. For my part, I accept part of Miss Leong, Q.C.'s submission that the judge should not have entirely ignored the husband's US$500,000 investment in China - on the evidence this is illiquid and will remain so for many years - but that does not mean to say that he cannot reasonably expect some return from that investment in the relatively near future. I think it is reasonably foreseeable that he will have a return from that investment, perhaps a substantial one, in the not too distant future which will have the effect of reducing the burden upon him.

19. Miss Leong submitted that the husband has resources out of which he could meet any order for a lump sum such as was made by the judge. Although he heard all the evidence, and took an adverse view of some of the husband's behaviour, he was unable to find that the husband had liquid assets available to him. Of course, if he had such assets, the whole situation would be different. As I see it, this Court cannot on the evidence before the judge make a finding other than that made by him. The liquid assets are so limited as not to be able to satisfy the lump sum awarded.

20. It is significant that Miss Leong found it difficult to argue that a serious burden would not be placed on the husband in the circumstances envisaged by the judge. The difficulty therefore arises solely from the amount in value and money which has to be tied up in simply providing the husband with reasonable accommodation. This cannot be realised and divided between the parties because alternative accommodation for the husband would again absorb those assets.

21. Doing the best I can to achieve what is required by s.7(1) of the Ordinance and the balance to which I have referred, I would allow the appeal and reduce the sum to one of $4m; this sum I believe takes into account the proper interests of both parties and the provisions of the Ordinance. It will not impose in the circumstance an unjust burden upon the husband. It satisfies in part only the legitimate interest of the wife in the former matrimonial home.

Godfrey, J.A.: I agree.

22. Both parties approached this case before the judge and before this court on the basis that the proper order for the judge to make would be an order which ensured a clean break.

23. The problem is that two of the family assets (if I may so describe them) are illiquid, one the former matrimonial home, the flat in Ming Wai Gardens and the other, the husband's investment in the joint venture in China. If there is to be a clean break, the court must take into account all the family assets, including these illiquid assets. The Ming Wai Gardens flat is illiquid, not because it cannot be sold, but because it is proposed, and in my judgment, reasonably proposed, that the husband should continue to live in it. The judge, in fashioning his judgment, said this:

"With inevitable readjustments both in financial planning and personal work arrangements, I am confident that both parties can maintain, or regain, a sensible standard of living."

In relation to the Ming Wai Gardens flat, he said this:

"The realistic scenario is that the Husband is perfectly capable of getting a job and then procuring a mortgage or a loan against the security of the Property itself."

24. The desire of the husband to continue living in the Ming Wai Gardens flat is reasonable. The judge was right to take his needs into account by assuming, as he did assume, that the husband would want to go on living there.

25. Had the judge applied his mind to the question what it would cost the husband to procure the mortgage or loan to which the judge referred, he would, I think, have found that his order would frustrate his assumption, because the burden imposed on the husband in servicing the mortgage (while not, I think, properly to be described as crippling) would be unmanageable without a significant reduction in the husband's standard of living. We therefore have to choose between, on the one hand, avoiding this result and on the other hand, reducing the wife's entitlement by a significant figure. Taking into consideration that both parties' needs ought properly to be provided for , I have come to the conclusion, not without reluctance, that the right course is the one proposed by my Lord, although it gives the husband, as I think, something of a windfall which he would not otherwise have achieved had the assets been in a more liquid form. But there it is. Both the husband and the wife are entitled to an order which provides reasonably for their needs, and indeed the judge accepted that. The order that my Lord proposes achieves this object better than the order made by the judge, which seems to me to produce the difficulties to which I have referred which do in my judgment justify this court in interfering with the judge's order.

26. For these reasons, I agree with the order proposed by my Lord.

Rogers, J.: I, too, agree. Although there are matters of some suspicion about the way the parties', and in particular the husband's, assets have been revealed, on the findings of fact made by the learned judge below relating to the husband's assets and his means, I, too, reluctantly, come to the conclusion that this order must be varied.