CWG v. MH AND OTHERS

HCMP 643/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 643 OF 2012

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R U L I N G

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Introduction

1.  This is the husband’s application for a stay of execution of my order of 26 March 2013 (“Final Order”) pending the result of his appeal in CACV 80 of 2013, which has been fixed for hearing on 19 to 26 May 2014.

2.  On 26 March 2013, I handed down my judgment in the wife’s application for financial relief under Part IIA of the Matrimonial Proceedings and Property Ordinance (“Main Judgment”).

3.  I will adopt in this ruling the same abbreviations as in the Main Judgment.

4.  The Final Order was made upon the husband undertaking, until each child is 18 or competes full time education (“Maximum Term”) :

(i) to pay all school/university fees for full time education of the children ; and

(ii) to pay for lunch fees, travelling, private tuition fee on academic subjects or other education expenses for the children not exceeding HK$15,000 per month

(collectively referred to herein as the “Undertakings”)

5.  Subject to the Undertakings, under the Final Order, among other things, the husband was to pay to the wife:

(i) Periodical payments of HK$50,000 per month for the benefit of each child, totalling HK$100,000 per month, until the Maximum Term;

(ii) All arrears until the MPS Order/Interim Order within 3 months from the date of the Final Order;

(iii) Lump sum of HK$120 m within 3 months from the date of the Final Order.

6.  As mentioned in paragraph 33 of the Main Judgment, the husband unilaterally stopped complying with the MPS Order and reduced the monthly payments to HK$40,000, which he was paying since December 2011, in addition to the Undertakings.

7.  The husband and R2 lodged notices of appeal against the Main Judgment and the Final Order on 23 April 2013.

8.  The deadline for all the payments under the Final Order expired on about 26 June 2013.

9.  On 18 June 2013, the husband issued a summons for stay pending appeal (“Stay Application”), but only in respect of the payment of the arrears under the MPS/Interim Order and the payment of the lump sum[1].  He had offered to continue with the Undertakings, and to comply with the periodical payments for the children of HK$100,000 per month[2]. He had also since agreed to undertake to continue to procure the free accommodation at the Grand Panorama Flat for the occupation of the wife and the children.    

10.  At the first hearing fixed for the Stay Application, 4 July 2013, I made a Hadkinson Order against the husband, ordering him not to be heard until he had met the conditions in that order[3].

11.  After that, the husband did comply with the conditions in the Hadkinson Order, and paid up all arrears under the MPS Order until March 2012 and all arrears under the periodical payments for the children under the Final Order.  As a result, the amount of arrears due under the MPS/Interim Order up until and including March 2013 had been reduced to HK$3,396,000[4].

12.   As the wife had also objected to R2 being heard on the Stay Application, the 2^nd hearing fixed for the husband’s Stay Application had to be again adjourned, and this court eventually handed down a judgment on 2 August 2013 to the effect that R2 had no right to be heard on the Stay Application.  This court later dismissed R2’s application for leave to appeal and I understand that R2’s application to the Court of Appeal for leave is still pending determination.

13.  Due to the above various applications, the husband’s Stay Application was eventually only heard on 28 November 2013.

The Legal Principles

14.  Under Rule 3 of the Matrimonial Causes Rules, the Rules of the High Court (“RHC”) apply with necessary modifications to the practice and procedure in matrimonial proceedings.  The husband’s stay application, although originally stated to be made under O 45 r 11of RHC, was later to be clarified to be made under O 59 r 13 of the RHC.

15.  There is no dispute that for applications brought under O59 r 13, the principles have been set out in the well known case of Star Play Development Ltd v Bess Fashion Management Co Ltd[5].

16.  As stated by Ma J (as he then was) in Star Play, the existence of an arguable appeal (ie an appeal with reasonable prospects of success) is the minimum requirement before a court would even consider granting a stay, and conversely, the existence of a strong appeal or a strong likelihood that the appeal would succeed, would usually by itself enable a stay to be granted because this would constitute a good reason for a stay[6].

Merits of the husband’s appeal

17.  According to the submissions of Mr Pilbrow, Senior Counsel for the husband, the husband has “very strong” grounds and that there is a strong likelihood of success, and in this regard, his grounds and R2’s grounds of appeal should be considered together as some of their grounds are common to both their appeals.  Further, because of such “very strong” grounds, the husband should be granted a stay without any conditions.

18.  In the husband’s notice of appeal (“H’s Notice”), he had adopted R2’s grounds of appeal, in particular in relation to the court’s finding that he had “not less than 50% beneficial interest” in the 3 Offshore Companies and Mr Pilbrow had also referred to and relied on R2’s notice of appeal (“R2’Notice”) at the hearing before this court.

19.  The grounds of the husband’s appeal relate to 8 broad areas:

(i) Duration of marriage;

(ii) His “not less than 50% beneficial interest” in the shares of the 3 Offshore Companies, namely WS (BVI), AC Overseas (BVI), and SBI (Bahamas) ;

(iii) The net asset value of WS (HK), the AC Group, and the Offshore Companies;

(iv) The husband’s Car Collection;

(v) The husband’s Collection of Valuable Timepieces;

(vi) The husband’s 50% beneficial interest in the Trust Accounts;

(vii) The wife’s financial needs

20.  Mr Pilbrow’s submissions on the merits were mainly focused on the following:

(1) The husband’s 50% beneficial ownership in Offshore Companies

(i) Non-joinder: no proper procedure for determination of beneficial ownership of shares in Offshore Companies

(ii) Wrong evidential burden on the husband/R2 for explanation

(iii) Court’s finding contrary to the wife’s case that the husband held direct interest

(iv) No finding on trust/nominee arrangements

(v) No basis to infer missing documents to show “ultimate beneficial ownership”

(vi) Evidence clearly showed the husband never a shareholder

(2) The valuations of companies

(3) The vacant possession of Grand Panorama Flat

(4) The Car Collection

(5) The “Surplus” and Trust Accounts

(6) The husband’s source of income

21.  It has been said in Star Pay that it is impractical and undesirable for this court in dealing with a stay application to go deeply into the merits and strengths of any appeal, but this court must however form a preliminary view of these aspects[7].  My preliminary comments are set out hereafter.

(1) The husband’s 50% beneficial ownership in Offshore Companies

On Non-Joinder

22.  Mr Pilbrow relied on the case of TL v ML[8] and submitted that the court had failed to engage in the proper procedure in joining the Offshore Companies.  It was held in that case that a dispute with a third party must be approached on exactly the same legal basis as if it were being determined in the Chancery Division[9].

23.  In the present case, the issue throughout the trial in relation to the Offshore Companies was whether the shares/beneficial interest thereof belonged to the husband or his mother R2.  There were no other persons which had been alleged by the husband or R2 to be the ultimate beneficial owner, and R2 had been duly joined.

24.  2 out of 3 of the Offshore Companies, namely WS (BVI) and AC Overseas (BVI), were the transferees of the husband’s shares which were subject of the Setting Aside Applications.  The two companies were ultimately served by the wife with the Setting Aside Applications, and neither of them had applied to intervene.

25.  The wife did not seek any orders against the 3 Offshore Companies in her Part IIA originating summons.  The matter of non-joinder now complained of seems more of procedural nature which, if applicable, should have been raised by the husband and/or R2 prior to the trial.  In any event, no orders have been made by this court against the Offshore Companies or any of the companies.

Evidential Burden

26.  Mr Pilbrow had quoted to this court a passage from the TL and ML case[10] to support his submission that this court had applied a wrong evidential burden.  This passage states:

“... Any person other than the legal owner, who asserts that he is the beneficial owner, will need to establish a basis on which equity will intervene on his behalf. ...”

27.  The above passage, however, seems only to be stating that the burden is on the person making the assertion that he is the beneficial owner.  It was not the wife’s assertion that she was the beneficial owner of the 3 Offshore Companies.

Findings on trust/nominee arrangements

28.  I have found that the husband adopted a “catch me if you can” attitude and he was evasive.  In paragraph 418 of the Judgment, I found that the documents ordered to be produced were produced on a selective basis, and they did not represent all the documents filed with the registered agents since the establishment of the 3 Offshore Companies.  I also found that the husband had not provided full and frank disclosure of the ultimate beneficial ownership of those companies, which he was under a duty to do.  I then drew adverse inference against the husband and R2 and found that they both held/hold beneficial interest in the 3 Offshore Companies, and that the husband’s beneficial interest was no less than 50%.

29.  As said by Lord Sumption of the Supreme Court in England,  in the recent case of Prest v Petrodel Resources Limited and others[11], on the important distinctive features of financial relief in matrimonial proceedings:

“There is a public interest in the proper maintenance of the wife by her former husband, especially (but not only) where the interests of the children are engaged. Partly for that reason, the proceedings although in form adversarial have a substantial inquisitorial element. The family finances will commonly have been the responsibility of the husband, so that although technically a claimant, the wife is in reality dependent on the disclosure and evidence of the husband to ascertain the extent of her proper claim. The concept of the burden of proof, which has always been one of the main factors inhibiting the drawing of adverse inferences from the absence of evidence or disclosure, cannot be applied in the same way to proceedings of this kind as it is in ordinary civil litigation. These considerations are not a licence to engage in pure speculation. But judges exercising family jurisdiction are entitled to draw on their experience and to take notice of the inherent probabilities when deciding what uncommunicative husband is likely to be concealing. ...”

30.  The above comments were also supported by Lady Hale in the same case[12].

Valuation of Companies

31.  My only comment on this ground is that neither the husband nor R2 ever provided the court with any evidence of any capital liabilities of the companies, nor was there any sufficient evidence of the same, except the mortgage/ loans in connection with the properties.

Vacant Possession of Grand Panorama Flat

32.  According to the husband, he was the tenant, or so he claimed, of the Grand Panorama Flat, although at this hearing, it transpired that he had not in fact been paying the rent.  If he was indeed the tenant, this court took the view that the wife should deliver possession to him.  Even in the husband’s own Revised Open Offer, he had stated that the vacant possession of the Grand Panorama Flat was to be delivered either to him or to ACE.  It is not clear why he now wishes to complain about this part of the Order.

Car Collection

33.  There seems to be no sufficient evidence provided by R2 during the trial to support her allegation in her Notice of Appeal that the ‘net sale proceeds were dispersed as expenses by her over years and no longer existed at the time of the trial[13].  If this was based on what Mr Seeger’s evidence, I have already found him an evasive witness and did not accept his evidence on the ownership of the Car Collection.  Further, R2 had income of her own, and as stated in the Judgment, she received an amount of HK$112.8 m as dividends from the Macau Corporation in 2005.

“Surplus” & Trust Accounts

34.  One of the grounds of appeal was that this court was plainly wrong on the “Surplus” of US $18m.  According to R2’s Notice, all the gross sale proceeds of about US$ 68.6m went to Christie’s as their “profits”, and there was no “Surplus” which went to the consignor/s, namely the husband and/or AC International and/or AC Overseas (BVI).

35.  There was no evidence during the trial to say that Christie’s was entitled to any “profits” under the Consignment Agreements, other than their sale commissions for the sale of the Timepieces received by them under the Consignment Agreements.

36.  If the Surplus was indeed received by Christie’s, as “profits”, or that there was no Surplus, then there may be a strong ground of appeal on this issue, which could result in the award to the wife being reduced, but this does not mean that the wife would be entitled to no award at all.

The husband’s source of income

37.  It is the husband’s ground of appeal that I have erred in relying on the Wocom Judgment and the Patrizzi Judgment to conclude that the husband still had/has the ability to trade, and that I have erred in finding that that the husband would derive income from GKCC Ltd.

38.  The husband had in his 34^th affirmation filed in support of the Stay Application pointed out that I had made mistakes in paragraph 532 - 534 of the Judgment as to his “non-disclosure” of his occupation of “marketing consultant” with AC Overseas (BVI) in his 1^st Form E.

39.  I accept there were factual ambiguities and errors in what was stated in paragraphs 532 to 534 in the Judgment.  The “sudden”  revelation referred to in paragraph 532 was the husband informing the court only during the trial that the alleged employment contract he entered into with AC Overseas (BVI) as a “marketing consultant” was in July 2009 or around middle of 2009, and not 1997, as stated in his answer to the wife’s 1^st questionnaire[14].  What the husband did not disclose was this employment/job was less than 2 years prior to his 1^st Form E, and he should have disclosed under Part 1 of his 1^st Form E, and according to my recollection, this was what he said was an oversight on his part of both him and his lawyers.

40.  Anyway, the husband was asked to produce the employment contract in the wife’s questionnaire/s and during the trial.  He said he did not produce it after all even though he had referred to the terms thereof during the trial.  If so, then there was an error on my part.

41.  However, since the husband himself had admitted during the trial that the posts of “marketing consultant” and “project director”, were “fictitious” titles, any of the above factual errors would not have affected the conclusion in paragraph 538 that the posts were simply created to give the husband some sort of title and there was no real work involved.

Factual Error in relation to AC Overseas Nominee

42.  I accept that there was a clear error in the shareholding of this company in that the husband had held the only 1 share in this company until he transferred it to AC Overseas (BVI) on 8 March 2010.  Thus, he held the entire shareholding, instead of 50%, and thus his interest in this company would increase to HK$2,170, 965, which was the loan he said he owed this company.  If the amount was accepted as the husband’s “personal” liability, then it would become an asset of the company.

Preliminary View on Merit

43.  To summarise, I am unable to come to a preliminary view that the husband has “very strong” grounds of appeal which would result in the wife receiving no award.

Other Reasons

44.  It has been stated in Star Play that in most cases, the court  will be faced with simply the existence of an arguable appeal, where it becomes necessary for the appellant to provide additional reasons as to why a stay is justified, and the demonstration of an appeal being rendered nugatory is one example, albeit a common one[15].

45.  As stated earlier, I am of the preliminary view that the husband is unlikely to succeed to the extent that the wife’s award will be reduced to zero, particularly in light of the husband’s obligations to provide for the reasonable needs of the wife and the children.

46.  In this respect, I accept Ms Eu’s submission that there is no sufficient evidence from the husband as to why there is an appreciable risk that the wife would not be able to repay any amount in the event of a successful appeal by the husband.

47.  Apart from merits, the husband’s main reason for the Stay Application was that he would be in financial ruins.

48.  The husband had filed his 34^th affirmation in support of his Stay Application.  In his 34^th affirmation, the husband claimed that after the Judgment, as from 1 June 2013, he obtained new employment, with Pyrenee and MVI (Panama) earning a total of US$20,000 per month, or HK$156,000 per month.  Thus, his now declared income has suddenly more than doubled since his declared income during the trial was only HK$65,000 per month.

49.  Anyway, notwithstanding his new “employment”, in his 34^th affirmation, he had said his “financial position had no material changes since the trial”[16].  He also said therein he had no income other than to borrow from friends for payments of the monthly maintenance and undertakings for the benefit of the children.  He said he had been living on the generosity of borrowed sums from close friends, such as Ms Lo[17].

50.  Anyway, according to him, he had no immediately realizable assets, and there was lack of immediately available funds.  He then said “I have even asked my mother, who has outright refused to assist me, and she stated and I verily believe that in any case she did not have such a large amount of cash at hand”[18].

51.  In support of the Stay Application, Ms Lo filed a 9^th affirmation on behalf of R2 which was also relied on by the husband.  This was the same Ms Lo who gave evidence during the trial and said to have held Trust Accounts on behalf of R2 and/or one of her companies.  Anyway, Ms Lo’s Trust Accounts were according to the husband all closed after she had given evidence[19].  Ms Lo’s 9^th affirmation was filed on 3 July 2013, and she had said R2 was not given adequate time to consider the wife’s 52^nd affirmation filed in response to the husband’s 34^th affirmation and that she asked for time.  She never in the end filed any further affirmation or sought leave to do so, notwithstanding over 5 months had elapsed since her said 9^th affirmation.

52.  What Ms Lo was trying to say in her 9^th affirmation was that R2 had made her intentions clear that she was not willing to support the husband and would not pay anything to the husband to sponsor his living expenses and/or maintenance obligations to the wife as ordered by the court, and she was reiterating that R2 did not financially support the husband at all before and after the trial. What Ms Lo did not state was that she had been lending sums to the husband.

53.  Ms Eu had described Ms Lo as R2’s “ventriloquist”, and in any event, in the Judgment I had not found Ms Lo a reliable witness.

54.  The husband had filed an updated Form E on 24 October 2013 in connection with the wife’s Judgment Summons proceedings.  In latest Form E, he suddenly declared liabilities of about HK$50.5m.  There was no mention of the amount of such liabilities in his 34^th affirmation.

55.  The husband declared liabilities in his 1^st Form E filed in April 2010 of about HK$3.7m, and then in his 2^nd Form E in September 2012, he declared liabilities of about HK$28.9m.  By November 2013, the husband declared his liabilities had gone up to HK$36.3m.  Now about a year later, his declared liabilities had gone up by HK$14.2m, namely a total of HK$50.5m, a large portion of which was claimed by him to be litigation expenses advanced by R2 through R3 or other companies.

56.  As in the trial, the husband had produced a whole stack of promissory notes in support of his alleged liabilities.  As Ms Eu had pointed out, the amounts on those promissory notes did not even tally with the amount stated by the husband.

57.  I am therefore not surprised when Ms Eu described what the husband said in his 34^th affirmation and his latest Form E about his financial situation was a “cock and bull story”, and a “pack of lies”.

58.  In any event, I am of the view that the husband clearly has continued to have financial resources after the trial.

59.  The wife, unlike the husband, does not have unlimited litigation funds, and she is contemplating making another application for legal aid.

60.  As stated in the wife’s 52^nd affirmation, she is in dire financial straits as a result of the husband’s failing to pay any part of the lump sum award.

Conclusion on Stay

61.  The normal rule is that a successful party should not be deprived of his/her award.  Having considered the above and all the circumstances of this case, I am only prepared to grant a stay on conditions.

Conditions

62.  Ms Eu sought the following conditions to be imposed:

(i) A lump sum of HK$25m to be paid; and

(ii) All arrears under the MPS /Interim Order up to and including March 2013 totalling HK$3,396,000 to be paid, plus interest;

(iii) The husband to continue to pay to the wife for her interim maintenance, the same amount of HK$323,000 per month less maintenance for the children (HK$30,000 per month as ordered under the MPS/Interim Order), until the full lump sum is paid, subject to credits being made for such payments.

63.  A sum of HK$25m was offered in the husband’s “Revised Open Offer” on 8 November 2012[20].  This was offered on the basis that if the Grand Panorama Flat could not be sold in the open market for the value above HK$25m within the stated period, the husband was to pay her within 120 days from the date of delivery of vacant possession of the property to the husband or to ACE.

64.  Mr Pilbrow seemed to be submitting that because that offer was jointly put forward by the R2 and R3, it was R2 who had agreed to pay.  I find the terms of that above proposal to be quite clear, it was the husband who was to pay, and I accept what was submitted by Ms Eu, this indicated the husband was able to pay this sum and he obviously had and still has financial resources to do so.  I see no reason why he should not pay at least this sum to the wife now.

65.  As for the arrears, I have dismissed the husband’s Variation Summons.  The husband did not proceed with his application for leave to appeal against the MPS Order made over 3 years ago in September 2010.  The husband’s grounds for appeal against the dismissal of his Variation Summons was said to be based on alleged error in law.  The order of 14 March 2012 for the continuation of the MPS Order was made by Poon J.  The husband did not appeal against that order, and in this respect, I am of the preliminary view that the husband’s appeal is unlikely to succeed.  The arrears have been outstanding for some time now, and I am of the view that they should be paid up.  The wife had in fact sought interest on the arrears in her Judgment Summonses, and I am therefore not inclined to order interest at this stage.

66.  As to the final condition sought by the wife, namely for the continuation of the monthly sum for her under the MPS Order/Interim Order, less those payments for the children, until the payment in full of any lump sum award.  As I will be imposing the other two conditions, and if met, she should have a sufficient capital sum to meet her reasonable financial needs until at least the determination of the appeal in 6 months’ time.  I will therefore not impose this further condition.

67.  The conditions should be met by the husband within 14 days.

Order

68.  There will be a stay of execution of paragraphs 5 and 6 of the Final Order on the following conditions:

(i) The husband shall pay to the wife HK$25m within 14 days hereof; and

(ii) The husband shall pay to the wife all arrears under the MPS Order/Interim Order of HK$3,396,000 within 14 days hereof.

Costs

69.  Costs of this application be costs in the appeal, with certificate for two Counsel.