BKGGB as known as NGGB v. BKND

FCMC 1410/2019

[2022] HKFC 137

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 1410 OF 2019

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JUDGMENT

(Uplift of an Undertaking)

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1.  By way of Summons dated 8 November 2021, the Respondent husband (“H”) asked for an Uplift of an Undertaking whereby he has undertaken not to dispose of or otherwise encumber assets, including landed properties in UK and the property management and letting business of K’s Lettings pending the determination of these proceedings (“this Summons”).  The Petitioner Wife (“W”) opposed.

2.  I made an Order that this Summons is to be dealt with by way of paper disposal.

Brief background

3.  The parties met in UK in 2011.  H was then divorced with two adult sons from his previous marriage and W was just in the process of divorcing her then husband. 

4.  They came to HK in November 2011.  H owned a real estate / property letting business in UK and he alleged that he had passed the business onto his son from his previous marriage in around May 2019 shortly after W’s Petition; and he also owns a real estate portfolio of his own.

5.  The parties got married in Hong Kong in June 2014 and two daughters were born in the wedlock.

6.  After the parties’ relationship deteriorated, W petitioned for divorce on the ground of unreasonable behaviour in February 2019. 

7.  On 20 December 2019, W applied for permanent removal for the relocation of the two daughters which were granted by Deputy District Judge T Kwan (as she then was) on 24 May 2021 after a 6-days trial.

This Summons

8.  In H’s 17th Affidavit, he asked for an Order that,

“2.1 His undertaking dated 6 May 2019 be discharged and substituted by his undertaking filed on 10 June 2020; (“the first application”)

2.2 Leave be granted for him to register charges on his UK properties listed below for the purpose of securing unpaid legal fees up to the amount of HK$11,579,500, being the sum due and owing to his former solicitors, Messrs. Oldham, Li & Nie (“OLN”), as at the date of 18 May 2021, less HK$1,386,430 (i.e. GBP 132,040.86):-

(1) Lavender House, Berkshire;

(2) 46 Prospect Street, Berkshire;

(3) 48 Prospect Street, Berkshire; and

(4) 103 High Street, Berkshire.

All of the above in UK. (“the second application”)

2.3.   Leave be granted for him to sell the following 3 properties:-

(1) 30 Windsor Road, UK;

(2) 184 Caversham Road, UK and

(3) 44 Rose Street UK,

where the net sale proceeds, after deducting all mortgages, conveyancing and legal expenses, tax, agency fees, and any other associated expenses, shall be applied in the following order of priority:-

(a)  Pursuant to the Order dated 12 November 2020, the first GBP 132,040.86 be paid towards OLN to pay for his outstanding legal fees;

(b)  The next HK$2,414,467 be released to him to pay his sons, O and B to discharge the loan due and owing which O and B, to discharge the loan due and owing which O and B had provided to him to cover his Counsel fees, legal fees and supervisor fees in these proceedings;

(c)  The remaining balance be paid into Court to be held for both parties upon further Court Order directing for the release. (“the third application”)

2.4.   The Petitioner do remove within 7 days the caution or notice registered at the UK Land Registry against the 3 properties at paragraph 2.3 above to facilitate their sale. (“the fourth application”)

2.5.   Costs of and incidental to this application be to him to be summarily assessed.

Applicable Legal Principles

9.  In Birch v Birch [2017] 1 WLR 2959, the UK Supreme Court held that:-

“An undertaking is a solemn promise which a litigant volunteers to the court. A court has no power to impose any variation of the terms of a voluntary promise. A litigant who wishes to cease to be bound by her (or his) undertaking should apply for “release” from it (or “discharge” of it); and often she will accompany her application for release with an offer of a further undertaking in different terms. The court may decide to accept the further undertaking and, in the light of it, to grant the application for release. Equally the court may indicate that it will grant the application for release only on condition that she is willing to give a further undertaking or one in terms different from those of a further undertaking currently on offer. In either event the court’s power is only to grant or refuse the application for release; and, although exercise of its power may result in something which looks like a variation of an undertaking, it is the product of a different process of reasoning.”

10.  In HMSE v JJS [2019] HKFC 55, Deputy Judge R So outlined the principles in relation to application for discharge of undertakings after considering the case L v C, in which Deputy District Judge Grace Chan, as she then was, also considered the English cases of Kensington Housing Trust v Oliver and Mid Suffolk District Council v John Edgar Clarke.

“93. The legal principles on discharge of an undertaking can be summarised as follows :-

(a) An undertaking can be discharged, but not varied.

(b) The Court has jurisdiction to discharge an undertaking given to the Court at any stage, even if it was given in an order made by consent.

(c) A party who has given an undertaking to the Court may seek an uplift of release himself/herself from an undertaking in any of the following situations :-

(i) When there has been a material change of circumstances since the undertaking was given which is not foreseeable at the time and which make compliance not feasible;

(ii) When the subject matter to which the undertaking relates no longer exists which renders compliance impossible;

(iii) The party to whom the undertaking was given releases the undertaker from complying with the undertaking;

(iv) When the undertaking was obtained though fraud, misrepresentation or mistake.

(d) Whether an undertaking given to the Court should be discharged is a matter of judicial discretion to be exercised if it is “just” to do so, in order to achieve a “fair” result.

94.  It is trite law that undertakings should not be given lightly.”

Evidence

1)     H’s 17^th Affidavit filed on 8 November 2021 in support of this Summons;

2)     W’s 19^th Affirmation dated 12 August 2021;

3)     H’s 24^th Affidavit dated 25 November 2021;

4)     H’s Written Submission dated 23 December 2021;

5)     W’s Skeleton Submission dated 24 December 2021.

Discussion

11.  Messrs Payne Clermont Velasco representing the Petitioner (“W’s solicitors “) drew my attention in their Skeleton Submission that Paragraph 1 of the Summons i.e. the first application is misconceived because the said Undertaking has already been discharged. W’s solicitors set out the sequence of events as follows:-

(1)  Both parties filed mutual undertakings dated 6 May 2019 not to dispose of their assets pending determination of the proceedings. This is a normal practice in order to preserve the assets of each party, and to prevent dissipation which might have a deleterious impact on the satisfaction of one or other party’s claim.

(2) H applied by Summons dated 27 May 2020 to be released from his 6 May 2019 undertaking and for this to be replaced by the undertaking he filed with his supporting (5th) affirmation on 11 June 2020.

(3)  On 12 November 2020 an Order (the “November 2020 Order”) was made permitting the parties to encumber/dispose of assets on a monetarily equal basis by W re-mortgaging a property (her only solely owned property) in the UK for the sum of GPB132,040.86 and for H to gain access to funds by withdrawing the sum of GPB62,000 from his pensions on condition that there were no tax consequences, with the remaining sum of GBP70,040.86 (i.e. GBP132,040.86 less GBP62,000) to be met by:-

“ (1) mortgaging one of his solely owned properties,

(2) selling one of his solely owned properties or

(3) putting a legal charge of one of his solely owned properties, save that if one property does not produce the sum of GBP132,040.86 or the balance of GBP70,040.86, H may be at liberty to sell other properties to ensure the total sum of GBP132,040.86 can be released.

(4) The November 2020 Order then recorded H’s replacement undertaking (“the Current Undertaking “) whereby, subject to this permitted dealing with his assets, he undertook to W and to the Court that he would not dispose of, encumber, or diminish any of his assets.

(5). The 6 May 2019 undertaking was therefore discharged on the basis of the further undertaking in Recital C to the November 2020 Order, and this Order only permitted the sum of GBP132,040.86 to be released to OLN. Any remaining funds were to be retained in an OLN escrow account, and released only upon further written agreement. ”

12.  For my part, I am grateful for W’s solicitors’ helpful summary which set out clearly the chronological background. However, since H is now acting in person, I would not hold that this part of his application is misleading.

13.  As to the second application, H said in his 17^th Affidavit,

“13. As a security to OLN, I have once offer to register charges over 4 of my properties in favour of OLN, namely (1) Lavender House, (2) 48 Prospect Street, (3) 46 Prospect Street, and (4) 103 High Street. However, upon a letter from Withers dated 3rd May 2021 protesting against the registration of these changes, I had no choice but to immediately withdraw the application for the registrations. Without any security over my outstanding legal fees, OLN unfortunately ceased to act for me on 18th May 2021.”

14.  W’s solicitors on the other hand in their Skeleton submission submitted,

“4. This limited release in November 2020 Order was clearly for the purposes of placing his then solicitors in funds in the lead-up to the hearing of the Relocation Trial…..

5. It is particularly concerning that the Respondent has apparently no difficulty in incurring what has been described by this Court in its Relocation Judgment as a “staggering” sum: Relocation Judgment, para 190 (T Kwan DDCJ) almost three times the costs incurred by the Petitioner. The amount reported to the learned Deputy Judge was “more than HK$10,000,000”. According to Respondent’s 17^th Affirmation, it is far in excess of this HK$12,965,920 to OLN and HK$2,424,467 to his sons “for the total Counsel’s fees, partial legal fees and supervisor fees” i.e. HK$15,390,387. R now wants to diminish the matrimonial assets to satisfy these debts.”

15.  I agree. In particular, H in his Written Submission said,

“4. As R was unable to pay his outstanding legal fees to OLN, OLN has since commenced legal action against R under the proceedings HCA 1595 of 2021, and Final Judgment was obtained on 17th November 2021, pursuant to which R was ordered to pay HK$11,169,236.14, with interest on the sum of HK$9,252,328.20 at a rate of 8% per annum from 21st October 2021 onwards with fixed cost of HK$1,645….”

16.  H annexed a copy of the Judgement which I can see that it was a default judgement with no notice of intention to defend. As W’s solicitors rightly pointed out in their Skeleton Submission,

“32. Regarding the legal fees which the Respondent claims he owes OLN, it is to be noted that the Respondent did not contest the proceedings, allowing default judgment to be against him for the full amount. No application was made by him to require OLN to tax costs, as he is entitled to do. Nor, apparently, did he even raise any question about these extraordinary high fees, or seek to negotiate a reduction.”

17.  I agree in its entirety. In any event, this application now appears unnecessary since OLN has been able to obtain Final Judgment.

18.  With regard to the third application to sell the 3 properties and the fourth application to order W to remove the caution or notice registered at the UK Land Registry against the 3 properties, H in his 17th Affidavit said,

“As an update to the Court, I have been advised by my UK pension provider and verily believe that the early release of my pension funds in a lump sum will attract onerous tax liability and is definitely not recommended way to realise the said sum of GBP132,040.86. I have therefore resorted to the sale of my UK properties, namely, (1) 30 Windsor Road, (2) 184 Caversham Road and (3) 44 and 44A Rose Street. The current status of the sale of these 3 properties are as follows:-

9.1. 30 Windsor Road – Contract exchanged for a sale price of GBP430,000 and the scheduled completion date was 25th June 2021. The net sale proceeds, after deducting any mortgages, conveyancing expenses, agency fees, tax liability, and any other associated expenses are at GBP103,555.49;

9.2. 184 Caversham Road - A Sales Memo have been agreed for a sale price of GBP490,000. The net sale proceeds, after deducting any mortgages, conveyancing expenses, agency fees, tax liability, and any other associated expenses are estimated at GBP273,000; and

9.3. 44 and 44A Rose Street - A heads of Terms have been agreed for a sale price of GBP300,000. The net sale proceeds, after deducting any conveyancing expenses, agency fees, tax liability, and any other associated expenses are estimated at GBP296,000.

10. However, I have been advised by my UK conveyancing lawyers and property agents and verily believe that the sale and/or completion of these properties have been put on halt due to the fact that the Petitioner has registered a caution/notice on the UK Land Registry against these 3 properties.”

19.  W’s solicitors on the other hand submitted in their Skeleton Submission,

“6. Instead of selling one property he has sold (or attempted to sell) three….The terms of the November 2020 Order was clear, he was only permitted to sell more than one property if he was unable to realise the sum of GBP70,040.86, with GBP62,000 coming from his pension. If, as he now says, there were adverse tax consequences, the November 2020 Order permitted him to mortgage or sell or place a legal charge on one property to realise the permitted maximum sum of GBP132,040.86 provided that if that property did not do so then he would be permitted to sell another, to make up the balance.”

20.  H in his Written Submission said,

“7. ….. the sale of 30 Windsor Road has now been completed, whereby GBP88,969.46 (i.e. HK$954,501.20) was paid to OLN pursuant to the Order dated 12th November 2020. This leaves a remaining GBP28,485.86 (i.e. around HK$294,830) under the 12th November 2020 Order to be utilised.

8. However, it is clear from the above that the modest sum of HK$294,830 is unable to cover the Judgment debt of HK$11.6 million above, which is attracting interest at judgment rate at this very moment. R must be able to settle the Judgment debt as soon as possible or else R might be faced with bankruptcy proceedings brought by OLN. 9. As a partial settlement of the above and to prevent incurring further interest on the Judgment debt and any bankruptcy proceedings, R is now therefore arranging for the sale of 184 Caversham Road and 44/44A Rose Street…..The estimated sale price of 184 Caversham Road is around GBP430,000 to GBP475,000 and the outstanding mortgage is around GBP280,000, i.e. the net sale proceeds is around GBP150,000 to GBP195,000. The estimated sale price of 44/44A Rose Street is around GBP300,000, with no outstanding mortgage. R seeks that the net sale proceeds of these two properties be paid to OLN and to be applied towards partially settling the Judgment debt.”

21.  For my part, I would not allow H’s application. In his letter to this Court dated 6 June 2022, H said that,

“I have provisionally reserved a very experienced Counsel to represent me at the FDR hearing on 7th September 2022 at 10:30am fixed for 1 day. However, I will need to have funds available to cover the brief fee by the end of this month, so that I could engage Counsel not less than 2 months prior to the said FDR hearing date.

I would therefore be most grateful if the Judge’s decision on the said uplift application could be granted as soon as possible so I can be represented by the Counsel I have reserved."

22.  In my view, the Windsor Road property has now been sold even though a caution was registered on it and proceeds paid to OLN. As W’s Skeleton Submission rightly recalled what I said at the hearing on 9 July 2020,

“20. The Respondent continues to prioritise spending for his own purposes, and he cannot be trusted to preserve funds for the Children’s future. As Deputy Judge S Wong stated at the 9th July hearing, the Respondent is “spending every single penny on litigation, not on the children.” Deputy Judge S Wong also disagreed with the Respondent’s priorities in his undertaking dated 10th June 2020 to pay his “living expenses, legal fees and the interim maintenance” and stated “This is the Order. Children should come first. Not the living expenses and legal fees.”

23.  For my part, I still maintain my view. In Family Court, children’s interest should come first.

24.  In light of the reasons which I have given, H’s Summons be dismissed.

Costs

25.  I fail to see why costs should not follow the event. I therefore make an order nisi that H do pay W costs of the summons and such costs order nisi be made absolute if no application is made by any party to vary the same within 14 days.