D,AS then known as R,JP v. D,SKR

FCMC 11559/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11559 OF 2010

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J U D G M E N T

(Ancillary Relief)

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Introduction

1. This is an application by a Petitioner wife for ancillary relief for both herself and the child of the family, a little girl now aged 5 years old, who suffers from a congenital eye disease.

2. This case reopens the debate concerning “judicious encouragement” to third parties. In this instance the wife is asking the court to “judiciously encourage” the husband’s family to pay her a lump sum for the support of both herself and her daughter. She says that the husband’s family have provided financial support for the husband in the past and that they continue to do so now; she also points to the fact that the husband has openly stated that his open offer is made on the premise that his mother has offered him a loan. In these circumstances she says that it is only right and proper for the court to make an order in the terms that she seeks. It should be noted that in this instance the husband’s parents have not been joined in the proceedings nor have they gone on oath to clarify their own position.   

Background to the marriage

3. The parties are of Indian descent. The husband’s family are from Hong Kong and the wife’s family from India. The wife was originally engaged to be married to the husband’s brother. It seems that she and the husband initially met following her first engagement. The husband was still married to his first wife at the time. Over approximately a six week period the wife formed an attachment to the husband, broke off the engagement with his brother and became engaged to him. In February 2004 – 8 months after they had first met the couple married according to Hindu marriage rites in India. In October 2004 the husband divorced his first wife and in April 2005 the parties were formally married in Hong Kong. In July 2005 the parties’ only daughter was born. Unfortunately she suffers from a very rare eye condition called achromatopsia. She has very poor sight and is very sensitive to the light. She is also colour blind. Consequently she needs a great deal of care.

4. The husband was initially involved in his own families’ import and export business. Later he set up a number of his own business ventures – none of which seem to have been successful. During the course of the marriage the parties also moved to Shanghai – with a view to establishing a new life together away from Hong Kong.

5. In January 2008 the parties separated. This was then a relationship of just under 5 year’s duration.   

Background to the litigation

6. On the 6 September 2010 the wife issued proceedings based on the husband’s unreasonable behaviour. Prior to that the husband had also issued divorce proceedings in India. It seems that these proceedings are still in existence, although the wife says that they have not progressed because the husband has attended very few hearings. In any event matters have proceeded here, albeit somewhat slowly.

7. On the 29 November 2010 there was an order that sole custody of the child vest in the wife with reasonable access to the husband. The husband was also ordered to pay interim interim maintenance for the child of HK$4,000 per month.

8. On the 23 February 2011 the decree nisi was pronounced. The wife also applied for maintenance pending suit/interim maintenance. On the 14 March 2011 I ordered that the husband pay the wife maintenance pending suit for herself at the rate of HK$10,000 per month and HK$4,000 per month for the child. The husband paid maintenance to the wife twice only but has continued to pay for the child through the good offices of his mother. His mother is also responsible for the child’s private school fees.

9. The wife is now residing in India with her father. She says that she has no option but to rely on him for financial support. Her evidence was that her father is not a wealthy man and that he earns a living from his ¼ share in a hard ware business.

10. The husband is now living in China. He has formed a new relationship with a model with whom he lives. Originally he said that he was working as her agent earning only HK$6,000 per month. Then he said that he set up an Events business. This has also failed. He is now working for a company in China called W Holdings Ltd allegedly earning HK$15,000 per month. He says that he hopes in due course to start earning some commission. The four privately listed companies that the husband owned in part or in whole – namely M Manufacturing Industries (HK) Limited, MG Limited, R Ltd and S Ltd are either dormant or had been wound up.   

Issues

11. The following issues now fall to be determined by this court:

Are there any assets capable of being divided?

To what extent if at all, should the concept of “judicious encouragement” be employed in this case?

The law on judicious encouragement and ancillary relief generally

12. The Court of Appeal recently considered the issue of “judicious encouragement” in KEWS v NCHC [2010] 1 HKC 254. It was held in that case inter alia as follows:

  (5)  The Husband was a highly educated person with a first degree from Harvard and a Kellogg EMBA degree.  It was true that development of his career in the earlier years was interrupted by the condition of the Wife and the care and attention that he had provided her.  After the couple’s separation in 2006, there really was no further excuse for the Husband not to ‘re-establish’ his career, a reason he gave to the Wife and to her family for needing a break.  This was particularly more so after the completion of his Kellogg EMBA degree course. The fact that he only managed to earn $15,000 per month at the time of trial, even though he had been working in the Swiss private bank since February 2009, was a puzzle that had never been satisfactorily answered.  This was certainly a case where the Husband could not hide behind his unacceptably low income at the time of hearing to avoid his obligation to make periodical payments for maintenance.  If a higher amount of periodical payment should act as a sort of judicious encouragement to him to work harder and fully develop and realise his earning capacity sooner, all the better (para 37).

  (6)  Combining the earning capacity of the Husband with his parents’ support which was not expected to be discontinued, there was no reason why periodical payments should not be fixed at the amount reasonably required by the Wife, that was $42,500 per month.  No back dating should be permitted (paras 43-44).

  (7)  Where the available resources were currently under the control of third parties, such as trustees or wider family members, the court would not usurp the rights of the third parties or apply improper pressure on the third parties.  The court had developed the concept of ‘judicious encouragement to third parties’ which permitted the judge to frame the order in a form which afforded judicious encouragement to third parties to provide the maintaining spouse with the courts’ view of the justice of the case.  FMFT v HKWE [2001] 1 HKC 134 and W v W (FCMC 2348/2002) considered (para 59).

  (8)  Even though the present case did not involve any discretionary trust or the giving of any judicious encouragement to a trustee as such, this was no obstacle in itself to the application of the notion of judicious encouragement.  It was accepted that one had to exercise great caution before applying the notion to any set of facts.  The court should not engage in a futile exercise.  Each case must be decided on its own facts.  This was an appropriate case for the application of the notion of judicious encouragement.  The Husband’s family had clearly been supporting him throughout, including funding the present legal proceedings.  The Judge had made an express finding that the financial support would continue in future.  Unlike many other cases, the Husband clearly had under-utilised his earning capacity.  When one referred to judicious encouragement here, one did not only have in mind the family of the Husband, but also the Husband himself in terms of full utilisation of his earning capacity.  One also bore in mind the amount to be ordered as well as the time of payment.  Having looked at the entire circumstances, including in particular the Wife’s needs, the amount that her parents had expended on her whether before or after the 2006 separation, the length of the marriage and the fact that no children were involved, a lump sum of $1.5 million would be a fair and reasonable amount.

13. The Court of Appeal referred in part to the English case Thomas v Thomas [1996] 2 FLR 357, where “judicious encouragement” is referred to for the first time.   This same theme was explored by Nicholas Mostyn QC, as he then was in TL v ML [2006] 1 FLR 1263 where he analysed a number of cases which dealt with this or related issues, beginning with Thomas. He said inter alia as follows:

[84]  It is important to bear in mind, when considering the width of the words used, what the Court of Appeal was in fact endorsing. [in Thomas].  As I have mentioned, it was an award of capital and income that did not exceed in either respect what was Mr Thomas’ as of right.  There is, in my view, a big difference between that state of affairs and what is urged on me here – an award that very substantially exceeds what is H’s, in the hope and expectations that CL (the husband’s father) will make up the difference.

[85] If it is said that the width of the words in Thomas clearly permit what is sought here, then that gives rise to a conundrum that I find myself unable to resolve. What happens if the person being encouraged says very politely ‘Thank you for your encouragement, but I have decided not to assist’? Or, as here, ‘I am only prepared to assist to such and such an extent’. Is the court supposed to ignore that stance and simply make an award on the basis that the assistance will be given? What happens if and when it is not? How is the court supposed to enforce its order? It could hardly be said that the payer is in wilful default justifying a penalty under the Debtors Act 1869. It is for this reason that I expressed the view during argument that often the so called ‘judicious encouragement’ can turn out to be no more than mere empty rhetoric.

[86] I think that a clear distinction is to be drawn between, on the one hand, the position where the person encouraged is a member of the payer’s family and, on the other hand, where he is at trustee in a fiduciary relationship with the payer. In the former case, the payee has no more than a mere spes of bounty which may, at the election of the provider, reasonably or unreasonably, be withheld. In the latter case, the provider, has a legal obligation to consider the beneficiary’s interests. The very reason for the existence of the trust is to provide benefit for the beneficiary.

88]  This exposition (as set out in Re The Esteem Settlement [2004] WTLR at 60) sets out with clarity the very different nature of, on the one hand, the relationship between a fiduciary and his beneficiary; and, on the other, that of mere donor and donee. If the court makes a reasonable request of trustees to make funds available to meet an ancillary relief award, then it assume that ordinarily the trustees will accede to such a request.  The same cannot be assumed of a request of a mere donor, for it is his prerogative to be unreasonable, if that is his inclination.

[91] It is important to recognize that, just as in Thomas, the award did not range outside assets in the wife’s absolute ownership. (See reference to B v B (Financial Provision) (1982) 3 FLR 298).

[92]  In Browne v Browne [1989] 1 FLR 291, …

[94] What is important to deduce from this decision is that it was found as a matter of fact that the wife had effective control over the trusts in that the trustees had historically always been responsive to her wishes. It can, therefore, be seen that this was not, in reality, a case of judicious encouragement at all, but rather a case of determining the true extent of the wife’s resources. When that is understood, it can be seen that the award was modest in its scope and entirely unassailable. But even absent the finding of control the award was justified, as the provision of money to meet it represented a proper discharge of the trustees’ fiduciary obligations towards their beneficiary.

[101] The correct view must be this. If the court is satisfied on the balance of probabilities that an outsider will provide money to meet an award that a party cannot meet from his absolute property, then the court can, if it is fair to do so, make an award on that footing. But if it is clear that the outsider, being a person who has only historically supplied bounty, will not, reasonably or unreasonably, come to the aid of the payer, then there is precious little the court can do about it.

14. With respect I agree with this analysis of the law. Leave is presently being sought by the husband for leave to appeal to the Court of Final Appeal in KEWS v NCHC [2010] 1 HKC 254. It is hoped that further clarity is obtained in this very important area, where the exercise of the judge’s discretion is key. Reference should also be made to the difficulties surrounding enforcement as highlighted by HH Judge Gill in X v Y, FCDJ 536 of 1997 unreported dated the 21 June 2002.

15. In so far as ancillary relief generally is concerned – the court is of course also bound by the Court of Final Appeal’s decision in LKW v DD (FACV no 16 of 2008). This reiterates inter alia that in all ancillary cases the court is charged with trying to achieve a fair result. In doing so the court is normally required to identify the assets, assess the parties’ financial needs and then proceed to the sharing principle and whether or not there are any reasons to depart from an equal division of the assets. The s.7 factors are largely dealt with within this general framework.

The parties open proposals

The wife’s open offer

16. Going into trial the wife made the following open proposal:

1.  Capital:

(a.)  The Respondent [husband] do pay the Petitioner [wife] a lump sum of HK$2 million; and

(b.)  The Respondent do return to the Petitioner all her jewellery as listed in Part 2.10 of her Form E.

2.  Maintenance

(a.)  The Respondent do undertake to continue to pay M’s school fees, school books and stationery and all education related expenses including, all expenses on her extra-curricular activities; and:-

(b.)  The Respondent do pay all maintenance in arrears up to date.

3.  The Respondent do pay the Petitioner and to Legal Aid Department all costs incurred in these proceedings.

17. Prior to the beginning of the trial the parties made one last attempt to settle matters. I was told that the wife was seeking a lump sum of approximately HK$2.6 million made up of a lump sum of HK$2 million, costs as at that date in the sum of HK$450,000 and arrears of maintenance in the sum of HK$110,000. 

The husband’s open offer

18. In his letter of the 9 April 2012 the husband made the following open proposal:

1.  Capital:

(a.)  I am not in a position to make settlement for such amount of HK$2 million lump sum to the Petitioner, I have asked my parents to grant me a loan of Indian Rupees 5 million and that will be full and final settlement. (This equates to c HK$690,000)

(b.)  Apart from this, I am ready to return the jewellery (listed in Part 2.10 of her Form E) to the Petitioner but some of the jewellery is with the Petitioner, therefore I have to check and confirm which jewellery is with me, as they are lying in India.

2.  Maintenance:

(a.)  I will undertake to continue to pay M’s School fees which should be reasonable, school books and stationery and all education related expenses.  As I mentioned before that I cannot afford to pay for her school fees for International School as I am drawing a salary of only HK$15,000.00 but I would also like the best education for M, for the next semester at least she should change her school and when my financial situation gets better, we can put her into a better school and education.

(b.)  I will not be able to pay all maintenance in arrears up to date as I cannot afford it.

3.  Legal fees: I do not know how much are the cost incurred in these proceedings for which I would like to have an account for.

19. Prior to trial the husband confirmed that his mother was willing to lend him HK$1.6 million as a one off all inclusive figure to be paid to the wife i.e. inclusive of legal costs and arrears in maintenance. He undertook to pay for the child’s school fees, school books, stationery and all education related expenses. He also agreed to return the wife’s jewellery to her.

History of offers  

20. The wife’s evidence was that she had been negotiating with the husband’s mother for a considerable period of time and that she had thought settlement had been reached on a number of occasions. The mother has continued to pay for the child’s school fees of approximately HK$30,000 per annum. The wife confirmed that the school invoices the husband’s mother directly and that she forwards the receipt to her in Hong Kong.

The Evidence

21. I must now turn to consider the issues, the law and the parties’ evidence as set out in their Form E’s, their affirmations and the submissions made by the wife’s lawyer and the husband, who is now acting in person.

Discussion

Are there any assets capable of being divided?

22. The wife’s case originally on affirmation (see her affirmation dated the 6 September 2010) was that:

The Respondent is very rich and enjoys a very high living standard.  He has at least 4 properties in Hong Kong and 3 properties in India under his sole name or in which he has beneficial interest, namely:-

(i)  Flat X, 4 Park Road, Parkway Court, Hong Kong;

(ii)  Property at Bel Air;

(iii)  Property at Imperial Court;

(iv)  Property in Sheung Wan;

(v)  3 bedrooms apartment at Carter Road Mumbai;

(vi)  3 bedrooms Duplex flat at Ambedkar Road;

(vii)  3 bedrooms flat in Lok Nirman.

23. However during the examination in chief it became clear that the wife accepted that the majority of these assets had been sold – some of them prior to or shortly after the marriage. For example Bel Air was purchased in April 2005 and sold in August 2005. Imperial Court was purchased in October 2003 and sold in December 2003. The Sheung Wan property was purchased in October 2005 and sold in November 2007. When I asked why the wife was presenting her case as if these assets were still in existence the wife simply said that she had misunderstood the process. With all due respect to the wife I did not find her at all credible on this point. Certainly the maintenance pending suit/interim maintenance hearing had proceeded on the premise that she had been truthful and an order was made accordingly with some of those factors in mind.

24. In addition the wife’s has also said that the husband’s family are very wealthy and that he holds a beneficial interest in assets held in the names of his parents and/or his parents and brother. In her second affirmation dated the 6 March 2012 she said as follows:

28.  Despite his denial, I believe the Respondent has beneficial interest in the following family assets which I am aware of:-

(i)  former matrimonial home in Flat X, Parkway Court, 5 Park Road, Hong Kong held under his mother’s and brother’s names;

(ii)  Flat X, 21 Crown Terrace, Pok Fu Lam, Hong Kong;

(iii)  Indian property namely Duplex Apartment at X Building Ambedkar Road, Mumbai, India held under the Respondent’s brother’s and mother’s names;

(iv)  Indian property namely K, Carter Road, India which are all held under his mother’s name; and

(v)  V Limited held under his father’s name;

29.  The Respondent also has investment with the Bank of India in the amount of US$500,000 held by his father and his brother.  He disclosed in his 2^nd Replies that the proceeds have been paid back to him and they are now held under the names of the father and the brother.  He has also sold a few pieces of my jewelleries for about USD20,000 and still keeps the rest of my jewelleries in the safe deposit box.  He also has an insurance policy with the guaranteed cash value of HSD102,848.

30.  The Respondent has also invested in L Builders which he denies.  I have his hand-written note which shows that he has once invested Rps 8,265,000 which is equivalent to about HK$1,322,400 in L Builders.  There is now produced and shown to me marked “DAS-3” copy of the Respondent’s handwritten note.

25. First and foremost there is little evidence to support the notion that the husband’s parents are very wealthy. On the face of it they seem to be comfortably well off. They own a number of properties both in Hong Kong and India and there is a family run business. This does not in my view put them in the category of the “very wealthy”. There is also nothing to suggest that the assets held by them were not wholly generated by their own endeavours. The wife points out that there are a number of properties held by one of the parents with the husband’s brother. This is not disputed by the husband. He says that his parents have held various assets in his brother’s name and prior to his first divorce in his name also. But these assets do not belong to him or his brother. They are beneficially owned by his parents. Prima facie I accept this. It is entirely a matter for the husband’s parents to decide how to structure their own financial affairs.

26. In so far as the wife’s claims with respect to an alleged bank account in India I accept the husband’s evidence in this respect namely that the monies concerned belong to the husband’s family. I also accept that he has no interest in L Builders.

27. The wife further argues that the husband had been financially supported by his family in the past and that this is a financial resource that can be taken into account going forward. When pressed it appears that the husband was previously involved in some illicit dealings and that his family came to his rescue when he was found out. The wife produced an analysis of bank accounts which showed that in 2004, during the first year of their relationship, that very large sums of money were passing through the husband’s bank account. The wife also says that they also enjoyed a very high standard of living during that period – travelling first class, staying in 5 and 7 star hotels etc etc. Both parties gave evidence to the effect that the husband had been employed during this time in the family business earning HK$48,000 per month. This was in the import and export trade. The wife gave evidence to the effect that the husband’s father had a business partner in Africa, Mr G. She said that the husband was involved in shipping approximately 30 containers a month out of China to Mr G and was allegedly taking kick backs in cash. The wife said in her evidence that this supported his “grand lifestyle”. Once Mr G discovered this, he demanded that the husband repay him in full. It was at this point that the husband’s family intervened and lent him money to repay Mr G.

28. There are a number of points worth making here. First and foremost it seems that the wife benefitted from the husband’s illegal activities in that this also supported her own very comfortable lifestyle during the marriage. This life style was clearly not sustainable. Although the husband has an earning capacity in excess of the HK$15,000 per month claimed, it goes without saying that the court will not use his illegal activities as a base for determining his earning capacity in the future. Secondly it is accepted that the husband’s family have assisted him from time to time – in what can only be described as very extreme circumstances. To what extent though they will continue to support him in the future is a very much a moot point. This is not a case where the husband is a beneficiary of a trust fund or where he receives regular and generous cash injections from his family on a continuing basis. It is true that his family have assisted him at various times in the past in other ways. For example they have paid some of his tax liability (c HK$740,000 is still outstanding) and historically have helped out with his credit card bills. The wife’s solicitors undertook an analysis of the husband’s bank accounts from 21 August 2008 – 16 March 2009, which shows that historically he does appear to have had some other form of financial support in that there were injections of cash going into his accounts apart from his salary. Of course these amounts could also have come from other sources e.g. from his girlfriend. It is simply not clear. In my view it cannot be assumed that these amounts come from his family. This was also three years ago. The amounts are also not very large. The husband for his part says that his family now expect him to stand on his own two feet.

29. Thus it seems that the husband’s family have assisted him in the past and that they have offered to do so again. They are prepared to lend the husband HK$1.6 million in order to satisfy the wife’s claim in a situation where he has no assets of his own.  

To what extent if at all, should the concept of “judicious encouragement” be employed in this case?

30. In the circumstances I am very loath to order that the husband pay more than his mother has kindly offered to lend him. But I am also very uncomfortable in making an order on a clean break basis. In the circumstances of this particular case that would seem to me to be wholly inappropriate.  

31. I am also conscious of the fact that that the wife has not entirely come up to proof herself. The wife lists her expenses in her affidavits. In her first affirmations dated the 6 September 2010 she said that she needed HK$45,000 per month. In her latest affirmation she said that she needed the equivalent of HK$55,000 per month. In the witness box she confirmed that this was her wish list and that she could not presently afford most of what she was claiming. The husband for his part says that majority of the wife’s expenses are exaggerated.

32. My difficulty is that even on the wife’s own case I am unsure how she is going to survive longer term. A lump sum of HK$2 million would last approximately 3 years if the wife was spending at a rate of HK$55,000 per month. I accept that the wife has a very limited earning capacity and that in any event it would be difficult for her to work at present given the child’s very particular needs. When I put this to the wife she said that she intended to put the HK$2 million on deposit and to live off the interest. This would not generate anything like the HK$55,000 per month suggested in her wish list. I am therefore unsure of her precise needs going forward but would accept that they are a lot less than claimed – although I would also accept that there is also a sense here of cutting ones cloth according to what is available.

33. The husband’s offer was on the premise that the HK$1.6 million was in full and final settlement of all claims. As I have said this is a little more difficult. Clearly the husband has an earning capacity greater than the HK$15,000 per month that he claims to be presently earning. As in KEWS v NCHC the husband should be “judiciously encouraged” to maximize his earning potential. He accepted this during the cross examination. In these circumstances it seems to me that the wife should have the ability to claim against him in the future for maintenance for both herself and her daughter. This is especially so given the child’s own health issues. Consequently I will make an order for nominal maintenance in favour of the wife, regardless of the fact that she has not claimed this in her open proposals.

34. In so far as costs are concerned given the fact that the husband only made a more realistic proposal outside the door of the court and the fact that the wife really had no alternative but to litigate this matter I will make an order nisi to be made absolute in 14 days time that the husband do pay the wife’s costs on a party and party basis to be taxed if not agreed. The wife’s own costs to be taxed in accordance with legal aid regulations.   

Conclusion

35. Given all of the circumstances in this rather difficult case I will make an order as follows:

1)  I will hold the husband to his promise with respect to the child’s school fees namely that he will undertake to continue to pay for her school fees, school books and stationery and all education related expenses.

2)  Further I will hold the husband to his undertaking to return all of the wife’s jewellery to her. This is to be done within 2 months after the pronouncement of the decree absolute.

3)  In addition the husband shall pay the wife a lump sum of HK$1.6 million in full and final settlement of all of her claims for capital ancillary relief such sum to be paid within 2 months after the pronouncement of the decree absolute.

4)  Nominal periodical payments to the wife to be paid by the husband in the sum of HK$1 per annum for her maintenance during the joint lives of the parties or until the wife’s remarriage, whichever is the shorter; first payment to be made upon decree absolute.

5)  There shall be an order nisi to be made absolute in 14 days time that the husband shall pay the wife’s costs on a party and party basis to be taxed if not agreed. Legal Aid taxation of the wife’s own costs.

6)  A s.18 declaration to issue.