SSC (formerly known as SSF) v. TGC

HCMP 315/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 315 OF 2014

(ON AN INTENDED APPEAL FROM FCMC NO. 14676 OF 2012)

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JUDGMENT
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Hon Chu JA (giving the judgment of the Court):

1.  This is the petitioner’s renewed application for leave to appeal to the Court of Appeal arising out of her ancillary relief application.

2.  Having considered the papers and written arguments, we are of the view that it is appropriate to determine the applications without a hearing on the basis of written submissions pursuant to Order 59 rule 2A(5) of The Rules of the High Court, Cap. 4A.

FCMC 14676/2012

3.  The petitioner and respondent were married for 21 years with no children by the time the Decree Nisi was granted on 6 September 2013. They were aged 58 and 56 respectively at the time of the ancillary relief hearing.

4.  They both worked full time throughout the marriage. The petitioner is the partner of a New York-based mergers and acquisitions broker, responsible primarily for conducting research work. She works from home. The respondent is employed by an international insurance broker and has since 2008 been posted to work in Hong Kong.  Before moving to Hong Kong in 2008, they lived in New Jersey, USA in a jointly purchased property (“NJ property”).  The petitioner had after the commencement of the proceedings returned to live in the USA.

5.  After a three-day contested hearing followed by written closing submissions, Deputy District Court Judge S Lo (as he then was) handed down his judgment on 20 December 2013 and made the following order:

(1) The respondent shall transfer US$148,234 (equivalent to HK$1.15 million) from his defined contribution Marsh 401k pension to the petitioner’s pension in accordance with the laws of the USA;

(2) The respondent shall transfer 20% of his interest (valued as at the date of judgment) in the following defined benefit plans to the petitioner’s pension in accordance with the laws of the USA:

(i) Wills N America pension plan,

(ii) Marsh and Mclean pension plan;

(3) The respondent shall sign all necessary documents to effect the above transfer within 28 days upon the grant of Decree Absolute; and the costs of the transfer shall be shared by the parties equally;

(4) The NJ property shall be sold in the open market not later than 1 May 2014 and if not sold by 1 August 2014, shall be sold by auction. The petitioner shall retain the net proceeds of sale after deduction of all reasonable expenses and the respondent shall continue to pay the monthly mortgage instalments thereof until the completion of the sale;

(5) The petitioner shall have the conduct of the sale of the NJ property and the respondent shall sign all necessary documents including, but not limited to a power of attorney granting the petitioner power to take all necessary steps in relation to the sale, within 28 days upon Decree Absolute;

(6) The respondent shall pay the petitioner a lump sum of HK$1,000,000, HK$180,000 of which is payable upon the grant of Decree Absolute, and the remaining HK$820,000 is payable upon completion of the sale of the NJ property;

(7) The respondent shall pay the petitioner HK$20,000 per month as maintenance pending suit as from 1 January 2014 until the grant of Decree Absolute, and thereafter as periodical payment until death of either party or re-marriage of the petitioner, whichever is earlier;

(8) The respondent’s undertakings in recitals B,D,F in the order dated 20 February 2013 be discharged; and

(9) The respondent shall pay the petitioner one-third of the costs of the ancillary relief proceedings including all costs reserved, to be taxed if not agreed, with certificate for counsel.

6.  The petitioner applied to the Judge for leave to appeal against the ancillary relief order. It was refused on 29 January 2014. No reasons had been given by the Judge.

The petitioner’s intended appeal

7.  The petitioner renews her application to this Court on substantially the same grounds.

8.  The petitioner’s intended appeal is directed at paragraphs (2), (6), (7) and (9) of the order (as set out in paragraph 4 above), which provide for division of the respondent’s interest in his income stream pensions, a lump sum payment and periodical payment for the petitioner and costs. The petitioner also seeks an order staying paragraphs (1) to (3) and (6) to (8) of the order pending determination of her appeal. The respondent opposes both applications.  

9.  The petitioner’s draft Notice of Appeal raises a variety of grounds. In general, the petitioner says that the Judge’s order is unfair and puts her in an unfairly disadvantaged position.  The keys grounds, as set out in her counsel’s skeleton argument are:

(1) The respondent’s income stream pensions: The award of only 20% of the respondent’s interest leaves the petitioner with significant insecurity on retirement and considerably worse off than the respondent.

(2) US tax liability and periodical payment: The Judge erred in ignoring the effect of US tax liability on the parties with regard to the periodical payment.

(3) Sale of the NJ property: The order for sale unfairly places the entire financial risk on the petitioner, who is more vulnerable in terms of income, health and imminent accommodation needs.

(4) Costs: In ordering the respondent to pay one-third of the petitioner’s costs, the Judge failed to take into account the respondent’s litigation conduct in delaying the valuation of the NJ property and his misconduct by way of significant overspending.    

10.  The petitioner seeks an order that gives her: (1) 30% and 50% respectively of the respondent’s interest in his two income stream pensions; (2) a lump sum payment of US$320,000 which is inclusive of the net proceeds of sale of the NJ property; and (3) monthly maintenance pending suit/ periodical payment of HK$40,000 until 90 days after the completion of the sale of the NJ property and thereafter at HK$80,000 until death of either party or re-marriage of the petitioner.

Test for granting leave to appeal

11.  As provided in section 63A(2) of the District Court Ordinance, Cap. 336, leave to appeal shall not granted unless the court is satisfied that (a) the appeal has a reasonable prospect of success, or (b) there is some other reason in the interests of justice why the appeal should be heard.  It is well established that reasonable prospect of success means an appeal with prospects that are more than fanciful, without having to be shown to be probable.

The relevant facts and findings

12.  The principal capital assets of the parties are the NJ property and their respective pensions. The joint appraisal of the NJ property gives a value of US$523,000 as at the time of the ancillary relief hearing, and the capital value of the parties’ pensions (excluding the respondent’s income stream pensions) was about HK$5.13 million.[1] Excluding the parties’ pensions and their own personal possessions, the net family assets came to approximately HK$2.17 million.[2] The total value of the family assets (excluding the respondents’ income stream pensions) was therefore about HK$7.3 million (i.e. HK$5.13 million + HK$2.17 million).  In addition, the Judge found that the respondent had after the parties’ separation overspent at least HK$1 million.

13.  Before the Judge, the parties agreed to a sale of the NJ property with the net sale proceeds, in the agreed sum of about US$138,176 (or HK$1,070,864), to be retained by the petitioner, and that the respondent shall continue to discharge the mortgage payment of US$3,903.86 (or HK$30,450) until the property is sold.  It was also agreed that the petitioner will live in the NJ property until it is sold.  The parties also agreed on equal division of their pensions of capital nature, and on this basis the respondent agreed to effect a division of his Marsh 401k pension (valued at HK$3,712,270.15) to the petitioner in the sum of approximately HK$1.15 million while the petitioner will retain her own pension which is valued at about HK$1,422,246.42.

14.  The Judge’s order is premised on his finding that: (1) as the parties’ capital resources are insufficient to meet their needs, a clean break is not possible and it is necessary to resort to an order for periodical payment[3]; (2) after the NJ property is sold, the petitioner will require alternative accommodation at a price in the region of US$270,000 (or HK$2,106,000)[4]; (3) after taking into account the net sale proceeds of the NJ property and her savings, the petitioner will need about HK$841,402 to purchase her alternative accommodation, and this is to be met by a lump sum payment from the respondent[5]; (4) compared to the petitioner, the respondent’s accommodation need is less imminent as he is currently receiving a housing allowance from his employer and he will be able to build up some savings after the proceedings and will receive pension payments after his retirement[6]; (5) the petitioner’s reasonable monthly expenses are HK$69,803[7]; (6) the petitioner has a monthly earning capacity of US$6,500 (or HK$50,700)[8]; (7) the respondent’s reasonably monthly expenses are HK$51,635[9]; and (8) the respondent is paid an annual salary of US$225,000 and a discretionary bonus and, because of his temporary secondment to Hong Kong, a Goods and Services Differential and a monthly housing allowance[10].    

Reasons for decision on application for leave to appeal

15.  An exercise of discretion

15.1  It should be noted at the outset that the ancillary relief order made by the Judge is an exercise of discretion.  It is well established that in challenging the exercise of discretion, it is not enough to establish that the appeal court might have made a different order.   As Asquith LJ stated in Bellenden (Formerly Satterthwaite) v Satterthwaite [1948] 1 All ER 343 at 345, a case concerning a maintenance order for a divorced wife, “it is of the essence of such a discretion that on the same evidence two different minds might reach widely different decisions without either being appealable.  It is only where the decision exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong, that an appellate body is entitled to interfere.”

15.2  As observed in Piglowska v. Piglowski [1999] 2 FLR 763 at 784C to H,[11] section 7 of the Matrimonial Proceedings and Property Ordinance, Cap. 192, while listing the various matters to which particular regard should be had in making an ancillary order, does not rank them in any kind of hierarchy.  The exercise of the discretion in accordance with the section requires the court to weigh up a large number of different considerations.  Which of them will carry most weight will depend upon the facts of the particular case.  An appellate court should not substitute its discretion for that of the trial judge.  It would only interfere if the judge’s exercise of discretion was based upon a misunderstanding of the law or of the evidence before him or if his decision was plainly wrong.

16.   The Judge’s order

16.1  Further, in considering the merits of the petitioner’s intended appeal, it is necessary to view the ancillary relief order as a whole.  Under the Judge’s order, the petitioner will receive HK$3.22 million (i.e. $1.15 million + $1 million + $1,070,864), in addition to retaining her pension (valued at about HK$1.42 million) and personal assets and also receiving a monthly sum of HK$20,000 and 20% of the respondent’s income stream pensions.  Leaving aside the income stream pensions, the petitioner’s share (i.e. HK$3.22 million + HK$1.42 million) of the family assets (HK$7.3 million + HK$1 million overspent by the respondent) is about 56%. 

16.2  The overall effect of the Judge’s order is firstly, to enable the petitioner to purchase and set up a home, secondly, to provide her with monthly payments which, together with her earnings, will meet her monthly needs and thirdly, to give to her half of the parties’ capital pensions and 20% in the respondent’s pension income in future.  On the other hand, the order allows the respondent to build up some savings, which together with his future pension income, will go to meet his accommodation and other needs when he retires.  

17.   Division of the income stream pensions

17.1  In respect of the division of the respondent’s income stream pensions, the complaint is that the Judge did not decide this on the basis of the length of the pension plan and the marriage. The Judge’s reason for rejecting the petitioner’s proposal to capitalise the value of the income stream pensions by a broad brush approach based on the duration of the pension plans and proportion of the married years was that it would amount to arbitrarily attributing a value to the pensions when it should have been properly done with the aid of a relevant expert.[12] In our view, the Judge did not err.

17.2  It is also argued that the award of only 20% of the respondent’s interest in the income stream pensions is unfair and leaves the petitioner with significant insecurity on retirement and considerably worse off than the respondent. We do not agree this is the case having regard to the overall effect of the Judge’s order as analysed above. It should also be noted that the monthly payment to the petitioner does not cease upon the respondent’s retirement, but will continue until the death of either party or the petitioner’s remarriage.

17.3  Nor do we agree that the Judge erred in principle when he, after coming to the view that the respondent should transfer some of his interest in the income stream pensions to the petitioner, said he had to balance the amount of the lump sum that the respondent had to pay to the petitioner (Judgment, §68). Significant to the Judge’s approach and considerations is the fact that there are insufficient family assets to meet the needs of both parties. While both parties have earning capacity, the respondent has a higher earning capacity. On the other hand, they will reach retirement age in less than ten years. Balancing these factors, the Judge concluded that the petitioner’s needs should be looked after first while the respondent will in the years to come build up some capital and savings that will provide for his needs on retirement.[13] Thus viewed, the Judge was entitled, when determining the division of the respondent’s future pension, to have regard to the amount of the lump sum that he had to pay the petitioner. In deciding on the ancillary relief order, he had to give due regard to both parties’ needs and do justice to both of them.  Although from the petitioner’s point of view, the lump sum order and the division of the income stream pensions relate to different purposes, the former to meet the petitioner’s immediate accommodation need the latter was to provide for her future needs, they are, from the respondent’s position, interrelated as they impact upon his resources from which his future accommodation and other needs are to be met.      

17.4  In our view, the Judge had weighed the relevant factors and struck a balance of fairness.  The decision he made in the exercise of his discretion is well within the generous ambit within which reasonable disagreement is possible. There is no basis to disturb his order on the division of the respondent’s interest in his income stream pensions.

18.   US tax position

18.1  The petitioner’s next key aspect of appeal relates to the issue of US tax liability. It is said that the Judge erred in law in ignoring the effect of US tax on the parties with regard to the periodical payments, and that it resulted in injustice to the petitioner. The Judge dealt with the issue on US tax in §§ 40 to 46 of the Judgment.

18.2  During the hearing, no expert evidence on US tax law was led by either party. In his written closing submission, however, counsel for the petitioner, contended that the petitioner’s income and the periodical payment to her are taxable under US law and made use of an online tax calculator to demonstrate the petitioner’s after tax position. Thereafter, the respondent’s solicitors wrote to the Judge giving a US tax attorney’s opinion that challenged the submission and calculation presented by the petitioner’s counsel. The petitioner’s solicitors then wrote to the Judge to provide a US tax accountant’s opinion on US tax. It also transpired that in fact prior to the hearing, the petitioner’s solicitors had provided to the respondent’s solicitors a US tax advice given by a US attorney.

18.3  The Judge refused to admit the expert opinions into evidence or to act on the petitioner’s counsel’s submission on tax liability and calculation and the respondent’s solicitors’ letter disputing the submission, holding that the parties had acted in breach of Order 38 rule 36 of The Rules of the District Court, Cap. 336H and paragraph 20 of Practice Direction 5.2. The Judge was also critical of the parties’ legal representatives’ approach to and handling of the tax issue, pointing out that they should have sought directions from the court before the hearing if they thought US tax liability and calculation were relevant and in dispute.     

18.4  The Judge was therefore not prepared to accept that the periodical payment to the petitioner would attract tax liability. However, given that it is common ground that during the marriage, the parties made joint filing of the US tax return for their income and the respondent had been solely responsible for paying the tax levied, the Judge accepted that, after divorce, the petitioner would have to be responsible to pay US tax on her income and noted that this had already been included in her summary of expenses.

18.5  In the present application, Mr Clough argues that it had been agreed by the parties that the respondent’s tax liability will be reduced by the alimony payments while the petitioner will be taxed on the payments, this is not a matter of foreign law and the Judge was wrong to ignore this aspect of the case on the basis that expert evidence on foreign law was required. 

18.6  In our view, it cannot be seriously disputed that US tax law is foreign law and has to be proved by expert evidence. The transcript references relied on by Mr Clough consist of counsel’s submissions or exchange with the court[14], which is not evidence, and the respondent’s answers in cross-examinations[15] to counsel’s suggestions that a person may deduct from his income or claim tax relief on alimony payments to a spouse and periodical payment received by the petitioner is taxable. The respondent stated that he believed or understood this was the case. At the most, one can say that the respondent accepts that the periodical payment order may result in some tax liability to the petitioner and some tax benefit to the respondent. There is neither agreement nor evidence as to the details and extent of the tax liability or tax benefit to the parties and how they will ultimately impact on the parties’ tax position. These are facts will have to be proved by expert evidence on US law in order that there can be a proper consideration of the issue of US tax position.

18.7  We also share the Judge’s observation that if the parties, especially the petitioner, had wished the court to take into account their US tax position, they ought to have followed the procedure and requirement in the Rules and the Practice Direction and put forward the relevant expert opinions in a proper way. In our view, the Judge was entitled to reject the expert opinions and to disregard the submissions on US tax law with regard to periodical payment.

18.8  In our view, the Judge did not err in law or principle.

19.   Sale of the NJ property

19.1  On the order for the sale of the NJ property, the petitioner says that the Judge erred in law in leaving the petitioner with the entire risk of not being able to sell the property at the price of the joint appraisal. The relevant part of the Judgment is §26, where the Judge, after recording the parties’ agreement to sell the NJ property, that the respondent will continue to pay the monthly mortgage payment until the sale is completed and for the net sale proceed to be retained by the petitioner, said: “I have to remind the parties that they have to take their own risk no matter the NJ property is sold at a higher or lower price than the agreed value of US$523,000, they will not be allowed to come back to the court to ask the other side to pay the difference.”

19.2  We are unable to see how the Judge can be said to have erred in law when he was doing no more than reminding the parties of the effect of their agreement on the disposal of the NJ property. It is trite law that the natural processes of price fluctuation in an asset that had been correctly valued at the date of the hearing, however dramatic, would not normally give rise to a case for reopening a capital settlement order, which is by its nature intended to be final and has to be based upon a snapshot taken at the time of trial. Financial: see PW v. PPTW (unreported) CACV224/2013, 16 December 2014, at §20. Contrary to Mr Clough’s submission, the Judge was not ordering the petitioner to bear the risk of the NJ property being sold at a price lower than the valuation produced by the joint appraisal.

20.   Costs

20.1  Finally, the petitioner says the Judge’s costs order should be disturbed because he had failed to take into account the respondent’s litigation conduct in delaying the valuation of the NJ property costs order and also his misconduct of overspending after their separation.

21.  Costs are a matter of the Judge’s discretion. Although costs should normally follow event, the court retains a discretion to deprive a successful party of all or part of the costs: see for example TL v. SN (unreported) CACV196/2009, 19 October 2010 at §123, referred to in §71 of the Judge’s Judgment.

22.  The issue on delay in obtaining the valuation of the NJ property had been considered by the Judge (Judgment, §§72 and 73). He did not accept there had been any prejudice to the petitioner and was at the same time of the view that both parties had unreasonably delayed in submitting a joint valuation of the NJ property.

23.  In exercising his discretion to order the respondent to pay one-third of the petitioner’s costs, the Judge had also paid regard to the way in which the petitioner conducted her case. He was further of the view that both parties had caused significant increase in the length and costs of the proceedings. Although when discussing costs, the Judge did not make specific reference to the respondent’s overspending, he had in other parts of the Judgment dealt with it. We do not believe he had forgotten about this. In any event, it has not been shown to us how the respondent’s overspending had resulted in increase in the costs of the proceedings, which must be the primary consideration in exercising the discretion on costs. We see no proper basis to disturb the Judge’s costs order.

Disposition

24.  For the above reasons, we dismiss the application for leave to appeal. It follows that the application for stay is also dismissed. We make an order nisi that the petitioner pays the respondent the costs of the applications to be taxed if not agreed.

25.  We also consider the application are without merits and that it is appropriate to make an order under Order 59 rule 2A(8) of The Rules of the High Court. We therefore further order that no party may request the determination to be reconsidered at an oral hearing inter partes.

[1] Judgment,§12.

[2] Judgment,§13.

[3] Judgment,§25.

[4] Judgment,§28.

[5] Judgment,§§ 33 & 34.

[6] Judgment,§§31 & 32.

[7] Judgment,§39.

[8] Judgment,§§35 & 36.

[9] Judgment,§63.

[10] Judgment,§51.

[11] The observations were made in respect of section 25 of Matrimonial Causes Act 1973, which though not identical in terms, are similar to the wordings of section 7 of the Matrimonial Proceedings and Property Ordinance.

[12] Judgment, §§22 &68.

[13] Judgment, §69.

[14] Transcript 16L, 17S, 27T & 130A.

[15] Transcript 126L, 131T & 133H.