VE (nee KE) v. VRJ

FCMC 7676/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 7676 OF 2011

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J U D G M E N T
(Leave to Appeal)

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Introduction

1. This is an application for leave to appeal by the respondent husband against some of my decisions on the ancillary reliefs of the parties upon their divorce as set out in a Judgment handed down on 5 October 2015 (“the Judgment”).

2. For convenience, I continue to adopt the same abbreviations of the persons involved.  Thus, the petitioner wife is referred to as “P”, the respondent husband “R”, their daughter “J” and their son “A”.

3. In trial, what I had to deal with were essentially two issues.  The first was the disposal of the balance of proceeds of sale of the matrimonial home being held in court and the second was on the maintenance of P and the children of the family.  I decided that out of the $3.8 million being held in court, $1 million should be applied for the benefit of the 2 children and the balance should go to P.  In coming to the award as I did, I considered the needs of the parties were determinative and that the assets available were insufficient to cater for the needs of both parties: §§ 64 and 91 of the Judgment.  I gave priority to the needs of the children of the family (§§ 75 – 80 of the Judgment) and I considered that since R had already got the US Colorado Home and the US retirement funds, it was fair for P to have the balance of the sale proceeds after the needs of the children had been catered for (§§ 82 – 84 & 92 of the Judgment).  Thus, I gave the following orders:

1.    A lump sum of $1,000,000 be released and paid out to R from the monies now being held in court for the benefit of the two children of the family, namely, J and A, with $500,000 for each of them;

2.    R shall place the monies into two joint accounts, with $500,000 each.  One account is to be in the joint names of R and J and another account in the joint names of R and A.  R shall only use the monies exclusively for the education expenses including university tuition of J and A;

3.    R do pay P a periodical payment of $7,000 per month for the maintenance of P.  The first payment to be made on or before 1 November 2015 and thereafter on the 1^st day of each and every month during the joint lives of the parties or until the remarriage of the petitioner, which is the shorter;

4.    After the payment out of $1,000,000 according to paragraph 1 above and subject to the First Charge of the Director of Legal Aid the balance of the money held in court be released and paid out to the petitioner’s solicitors or the Director of Legal Aid;

5.    Subject to the First Charge of the Director of Legal Aid the balance of the escrow money now being held by P’s solicitors be released and paid out to P or the Director of Legal Aid;

6.    The respondent is to return the children to Hong Kong on school Christmas holidays, summer holidays and school holidays with not less than 14 days, if any, for the petitioner to exercise care and control on the children.  The respondent is to be responsible for the children’s cost of flights; and

7.    The Order dated 27 February 2015 allowing for withdrawals is set aside.

8.    There be an order nisi of no order as to costs of the ancillary relief proceedings, including all costs reserved. The petitioner’s own costs to be taxed in accordance with Legal Aid Regulations, with counsel certificate.

4. By his summons dated 2 November 2015, R applied for leave to appeal against paragraphs 3, 4 and 8 of the Order.  Subsequently, by a letter dated 23 February 2016, R abandoned his appeal against paragraph 3.  I was told in the substantive hearing that, in compliance with the order, R has been making periodical payments to P.  Thus, what remain are R’s challenge against my decisions (1) to award P the remaining sum being held in court in the region of $2.86 million and (2) to give no order as to costs of the ancillary relief.

5. Apart from leave to appeal, R also seeks a stay of execution pending the determination of his leave application.  There is also a minor issue that R asks to have his living expenses for September and October 2015 paid out according to the order dated 27 February 2015.  These are the monies that he was entitled to prior to the Judgment.

6. As I have already set out the parties’ case and the finding of facts in the Judgment, I do not propose to repeat them here.  References to the relevant parts of the Judgment will be made as and when necessary. 

The Legal Principles

7. The parties have no dispute over the applicable legal principles.

8. The threshold for granting leave is provided in section 63A(2) of the District Court Ordinance (Cap 336) (“the DCO”):

“Leave to appeal shall not be granted unless the judge, the master or the Court of Appeal hearing the application for leave 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.” [emphasis added]

9. The Court of Appeal discussed the application of s 63A(2) of the DCO in Sunny Tadjudin v Bank of America, National Association (unrep.,  HCMP No 691 of 2012, 29 June 2012) at §§ 8 – 9:

“8. Under section 63A(2) of the District Court Ordinance, Cap 336, leave to appeal to the Court of Appeal shall not be granted unless the Court of Appeal is satisfied that the appeal has a reasonable prospect of success, or that there is some other reason in the interests of justice why the appeal should be heard. Counsel relies on both limbs in section 63A(2) in seeking leave to appeal.

9. Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (SMSE v KL [2009] 4 HKLRD 125 para 17). Furthermore, it is pertinent to bear in mind that even if there is a reasonable prospect of success on appeal, the court still retains a discretion whether to grant leave to appeal, although the fact that there is, ex hypothesi, a reasonable prospect of success would heavily influence the court’s exercise of discretion (Ho Yuen Ki Winnie & Ors v Ho Hung Sun Stanley & Anr. HCA 391/2006, 25 May 2009, A Cheung J para 3; and HCMP 1009/2009, 24 August 2009, para 22).”

10. R has two grounds of appeal.

Ground 1:  Legal Cost and First Charge of the Director of Legal Aid (“DLA”)

R’s Case

11. Mr Cooney SC, who appears in this application but not in trial, submits that I erred in finding that, subject to taxation, P had a liability of $5,778,893, being “legal costs owed by P to DLA” (§ 18 of the Judgment).  In fact, these monies were not liabilities of P prior to the Judgment.  Further, I also erred in treating DLA’s first charge as a liability of P.

12. The only liability P had prior to the judgment, as far as legal costs were concerned, was the total contribution payable by P to DLA pursuant to section 18(1)(b) of the Legal Aid Ordinance, Cap 91. P was and is under the Ordinary Legal Aid Scheme.  The amount of contribution that an aided person is required to make under this Scheme ranges from nil up to 25% of his financial resources as assessed by DLA, with a ceiling of $72,595: Regulation 13 and Part 1 of Schedule 3 of the Legal Aid (Assessment of Resources and Contributions) Regulations, Cap 91B.  Thus, the amount of contribution that P was required to make was at most $72,595.  It could never have been as high as $5,778,893.  That was the money spent by DLA but certainly that was not P’s liability.

13. DLA’s first charge was also not a liability prior to the award of the balance of the sale proceeds.  Section 18A(1) of the Legal Aid Ordinance, Cap 91 provides that,

(1)  Subject to this section-

(a) the amount of a contribution to the extent that it is unpaid; and

(b) except where legal aid has been granted under the Supplementary Legal Aid Scheme, if the total contribution is less than the net liability of the Director on the aided person's account, a sum equal to the deficiency,

shall be a first charge for the benefit of the Director on any property, whether situated in Hong Kong or otherwise, which is recovered or preserved for the aided person in the proceedings or in any other proceedings in respect of which the person was aided and which, in the opinion of the Director, were substantially related to or connected with the proceedings in which property was recovered or preserved.

(2)…

(emphasis added)

14. Thus, the charge would spring into existence only when and if an aided person is successful in recovering or preserving property in the legally aided proceedings. If P is successful in recovering or preserving property, she would be required to repay DLA all sums paid or payable on her behalf out of the property recovered or preserved.  Accordingly, where no money or property was recovered or preserved, P would not be required to pay any costs and expenses incurred on her behalf, save and except the contribution payable under the said section 18(1)(b).

15. In the premises, I should not have taken DLA’s first charge or DLA’s legal costs incurred into consideration when rendering my decision or found that they were liabilities of P.  It follows that I also erred in finding that since R already has the Colorado Home and the retirement funds, “it is fair that P should be given the remaining sum in court for her maintenance, inclusive payment of her legal costs”: § 83 of the Judgment.

16. In contrast, the legal costs incurred by R were in every sense his personal liability.  Any monies that go into paying R’s legal costs would detract from the matrimonial pot that he can spend on raising and meeting the future need of J and A.  In view of the court’s finding that the family is effectively bankrupt, R’s significant net liability of $2,236,417 and P’s insignificant liability (ie without legal costs liability), it is only fair that R be given the remaining balance in court.  On the other hand, awarding the funds to P would have the result of having DLA’s first charge springing into existence and the end result would be to divert what little resources the parties have left away from the children and into the coffers of DLA.

P’s Case

17. In response, Ms Tsui submits that though it was not expressly spelt out in the Judgment, it was understood by all during trial that P’s legal costs was a contingent liability. Every time when the parties came to court, the court’s attention was drawn to their estimates of costs by way of Form H. The court should take into consideration any liabilities even contingent liabilities in the calculation of the family’s assets and liabilities in order to have an overall picture and then come to a fair conclusion.  It is unrealistic for the court to disregard this contingent liability of P in the computation of the total family assets subject to distribution or in the consideration of the financial needs of the parties. She refers me to the case of Luk Mok Ngan Cheung v Luk Hoi Chuen (unrep., CACV 23/1990, 4 December 1990) where both parties were legally aided and the Court of Appeal confirmed that the wife’s liability for costs as a relevant consideration in determining the appropriate distribution of assets: § 10. There is also Murphy v Murphy [2005] HKFLR 280, another Court of Appeal case, where it was opined that the judge should consider the likely amount of the legal aid first charge and its possible impact in coming to the final conclusion: § 56.

18. She stresses that from the very beginning R insisted that P should get nothing and he was to have all the monies for his legal costs.  If R had raised that all the proceeds should be given for the maintenance of the children, P probably would have agreed but it is now too late for R to say that the proceeds could have been better spent on the children.  The fact was at the time of trial both wanted the money for their legal costs.  In allowing P to have the balance, the court has determined that P should not leave the marriage empty-handed and has considered all the factors under section 7 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“MPPO”).

19. Ms Tsui informs the court that P was required to make a contribution of $8,580 when she was granted legal aid.  This was based on the assessment of DLA on her means under the said section 18(1)(b).  When P was in receipt of $44,000 each month from the escrow funds as her living expenses, the money was subject to DLA’s first charge of $6,021 per month pursuant to the said section 18A(1)(b).  That was the $6,000 referred to in trial and in paragraph 62 of the Judgment.  When P started to receive maintenance of $7,000 per month according to the Judgment, DLA’s first charge was reduced to $2,200.  It is still unknown as to how much the DLA’s first charge would be at the end of the day. 

Discussion

20. Mr Cooney accepts that DLA’s first charge is a contingent liability.  As a matter of fact, in her Answers to R’s Questionnaire dated 28 March 2013, when being asked about the Legal Aid first charge, P’s reply in this regard is clear: “The Legal Aid charge does not materialize until Legal Aid has finalized the amount subject to the outcome of ancillary relief matter”.

21. The question thus is, as I see it, whether a party’s contingent liability should be a factor that the court needs to consider in the exercise of its discretion under section 7 of MPPO.

22.    Jackson’s Matrimonial Finance (9^th Ed), Butterworths, has this to say on contingent liabilities at § 5.144,

“… The manner in which the court does so and the impact on the court’s order will depend on all the relevant circumstances of the particular case.  In Charman v Charman (No 2) the husband claimed that he had a potential UK tax charge of a little under £11m relating to certain of his interests which the wife disputed.  In his order Coleridge J dealt with this by providing a mechanism to enable the husband to recoup a sum equivalent to a portion of any tax actually paid.  Coleridge J’s approach was endorsed by the Court of Appeal in Charman v Charman (No 4)…”

23. What Coleridge J did was to impose an order which he described as a reverse contingent lump sum, namely that if the husband was required to make specified tax payments, estimated by the husband at £11 million, the wife should contribute thereto by way of repayment to him of 36% of all such payments: Charman v Charman (No 2), [2006] EWHC 1879 (Fam), 9 ITELR 173, [2007] 1 FLR 593, at § 94 & § 130.

24. In Marano v Marano [2010] EWCA Civ 119, [2010] 2 FCR 140, [2010] 1 FLR 1903, King J took a different approach.  Instead of imposing a contingent lump sum order, the learned judge ordered the wife to pay the husband a lump sum of £5 million, which, argued by the wife, would have the effect of requiring her to pay half of the potential US tax liability should the husband’s property development go to liquidation.  On appeal by the wife, it was argued on her behalf that the approach taken by the trial judge was unprincipled since the latent tax liability was not only nebulous but also unquantifiable since it ultimately depended upon a number of factors including the value of the husband’s property development at the date of disposal: § 34.  It was held by Thorpe LJ of the English Court of Appeal that the judge could have imposed a contingent rather an immediate liability on wife, but had certainly not been bound by authority to do so.  It was also held that the judge had been exercising a broad and general discretion to achieve fairness. The apparent correlation between the quantum of the lump sum and the latent tax liability was fortuitous and approximate: §§ 41 & 45.

25. Two points flow from these authorities.  The first is that the court should take contingent liability into account and the second is the court should exercise its broad and general discretion to achieve fairness.

26. As far as the impact of DLA’s first charge on the distribution of family’s assets is concerned, there appear to have no direct authorities on the issue. The two local authorities cited by Ms Tsui are not directly on DLA’s first charge but in my view, at least they support the contention that the court should properly take a party’s contingent liabilities under the legal aid scheme into consideration

27. R’s stance is that the court should have ignored the liability, whether actual or contingent, in its entirety in the section 7 exercise.  His position is essentially that the court should not have made any award to P at all so that DLA’s first charge would not have sprung into existence and P does not have to pay her costs at all.  I agree with Ms Tsui that R’s intention is obvious:  P’s legal costs liability should be met by public purse whereas his own legal costs should be met by the last bucket of cash kept in court.  In my view, this could not be a tenable argument.

28. It would be wrong for me not to consider the contingent liabilities.  This is a factor that the court needed to take into account under section 7(1)(b) of MPPO: “the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future”.  That was what I did in trial.  The children’s needs have been taken care of by the $1 million. R never advances any complaint, whether in trial or in this leave application, that this money is insufficient. I am not persuaded that I exercised my discretion upon a wrong principle, or that, my decision being so plainly wrong, I must have exercised my discretion wrongly. 

29. For the above reason, I do not find any reasonable prospect of success on this ground.  

Ground 2: Unreasonable Conducts of the Wife

30. Mr Cooney argues that while I was right to have observed that some of P’s allegations are unproven or groundless, I erred in finding that such unproven or groundless allegations are not relevant to the present proceedings. These conducts are relevant as section 7(1) of MPPO makes it a duty of the court to have regard to the conduct of the parties in exercising its discretionary jurisdiction.  Such conducts were inequitable to disregard and repugnant to anyone’s sense of justice; they were thus “obvious and gross”.

31. To this, Ms Tsui responds by saying that the court has noted that R has spent much time during trial to exonerate his name: § 67 of the Judgment.  The court has already given R much tolerance during trial for R to go back to matters irrelevant to ancillary relief but past events following the breakdown of the marital relationship. The court has come to a correct conclusion that none of the conduct complaint of by either party could amount to “obvious and gross” misconduct such that it would be inequitable to disregard.

Discussion

32. Mr Cooney confirms that the conducts complained of are litigation conducts on the part of P.  These are in relation to R’s allegation that P has made numerous false claims including spousal and child abuse in her application for an ouster order back in the early stage of the divorce proceedings.  It was also my view that these are litigation conducts: § 68 of the Judgment.

33. In LSY v HTF [2013] 2 HKLRD 1233 the Court of Appeal agreed with the English authorities in Tavoulareas v Tavoulareas [1998] 2 FLR 418 and M v M (Financial Provision: Party Incurring Excessive Costs) [1995] 3 FCR 321 and held that a distinction should be drawn between marital misconduct and litigation misconduct.  Only the former could justify a departure from equal division of the total assets between the parties, unless there were exceptional circumstances where the litigation misconduct was so extreme that it would be inequitable to disregard it.  Litigation misconduct would usually be sanctioned by orders for costs.

34. R’s complaints were without any particulars even up to the date of the substantive hearing. It has not been demonstrated to me whether there were any exceptional circumstances.  It also has not been demonstrated to me why the litigation misconducts complained of could not have been dealt with by way of an appropriate costs order. 

35. Lastly, even if R’s complaints were on marital misconduct, the same have been dealt with in the Judgment, specifically in § 69,

69.   I have heard all the evidence on these issues in the relocation trial.  I do not find any of the misconducts, whether those of P or R, or taken in totality, could amount to “obvious and gross” conduct such that it would in the opinion of the court be inequitable to disregard it.  In particular, it may be that P was violent as claimed but according to R, it was due to her mental illness, suffering from depression and maladaptive personality.  If that is the case, I fail to see how this could be “obvious and gross” misconduct.

36. For the above reasons, I also conclude that R has no reasonable prospect of success on this ground.

37. R’s leave application in respect of the costs order is contingent upon his success on appeal.  Given the conclusion I have come to, this application fails too.

38. There is also no other reason in the interests of justice why the appeal should be heard.

Interim Stay of Execution

39. Ms Tsui is agreeable that the payment out of the balance of $2.8 million be stayed pending the outcome of the leave application; there is no urgency for the money to be paid out forthwith.  As for R, he may take the matter further.  I give an order that there be a stay of execution of paragraph 4 of the order dated 5 October 2015 until 14 April 2016 or further order of the court, so as to allow R to make a further application for leave to the Court of Appeal within 14 days from the date of refusal: Order 58, rule 2(4A), RDC.

Payment Out pursuant to previous orders

40. In the course of the ancillary relief proceedings there were orders providing for interim maintenance of the parties, to be paid out from monies held in court.

41. The first was an order dated 17 April 2013 whereby R was entitled to have a total of $120,000 paid to him, of which $100,000 included the payment of mortgages, management fees, rates and rent and living expenses and $20,000 for his legal fees.  This order was superseded by another order dated 10 December 2014 pursuant to which the sum was reduced to $30,000 due to the fact that R was in receipt of an income.  Paragraph 3.4 of the said order states as follows,

3.4  HK$30,000 per month for the Respondent (HK$120,000 per month less HK$90,000) subject to his income, from December 2014 until the final determination of the ancillary relief matter in respect of these proceedings or further order, whichever is the earlier.

42. It is not in dispute that R did not apply for payment out for the months of September and October 2015.  R now wants to have him paid.

43. Notwithstanding that there was no formal application in this regard, the parties agreed to have the matter dealt with together with the leave application.

44. Mr Cooney informs the court that since his relocation to Colorado in August 2015, R had no earnings in the months of September and October 2015 so he is entitled to $240,000. 

45. Ms Tsui in principle has no objection to this but rightly points out that there is virtually no evidence in this regard. 

46. R has been properly represented since October 2015.  There were ample opportunities for him to adduce evidence up-dating his financial situation but he failed to do so. It seems clear to me that the order of 10 December 2014 had superseded the order of 17 April 2013, so plainly R was not entitled to $120,000 at the relevant time, not to mention that at all events the basis of allowing $120,000 had gone; for instance, he did not have to pay mortgage payments for the former matrimonial home anymore.  In fact, the costs structure of his living must have changed drastically since his relocation in August 2015.  There is simply no basis for him to set his eyes on $120,000.  It also seems clear that the order of 10 December 2014 remained valid until it was set aside by my order dated 5 October 2015.  For this reason, I would allow $60,000 ($30,000 for each month) to be paid out to R from the monies now held in court.  This would mean the balance of sale proceeds to be released to P would be reduced by this amount.

Orders

47. With the conclusion that I have reached, I give the following orders,

1.   The respondent’s application for leave to appeal be dismissed;

2.   There be a stay of execution of paragraph 4 of the order dated 5 October 2015 until 14 April 2016 or further order of the court;

3.   Notwithstanding the order dated 5 October 2015, the respondent be at liberty to have $60,000 paid out to him from the monies now being held in court.

Costs

48. R failed in his application.  I consider that “costs to follow the event” is appropriate.  I cannot think of any other form of order that is more appropriate in the circumstances: Order 62, rule 3(2A), RHC.  I am conscious that except the $60,000 that will be paid out to him, R has no substantial asset from which any cost order may be satisfied.  This, however, is not a reason why I should not give an order against him.  I give an order that the costs of the application be paid by the respondent with counsel certificate, to be taxed if not agreed.  The petitioner’s own legal costs to be taxed in accordance with the Legal Aid Regulations.