WNWG v. PBF

CACV 130/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 130 OF 2011

(ON APPEAL FROM FCMC NO 809 OF 2004)

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J U D G M E N T

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Hon Lam J (giving the judgment of the court):

1.  This is an appeal against the decision of Judge CK Chan of the Family Court to vary a maintenance order in respect of children. The parties divorced in 2006. The maintenance order was originally made in 2006 by consent pursuant to an agreement reached between the Petitioner and the Respondent through mediation. The relevant part of the order was that the Respondent would pay $27,500 per month for each child (there are altogether 3 children, thus the total was $82,500). Upon variation on the application of the Respondent, the Judge revised the monthly maintenance to $16,000 for the eldest child (aged 12), $13,000 for the second child (aged 10) and $11,000 for the youngest child (aged 8). In other words, the total has, after variation, become $40,000. The Petitioner appealed against the decision.

Background

2.  The relevant background facts are as follows.  The parties married in 1996 and 3 children were born during the marriage.  The Respondent was a solicitor by profession and the Petitioner has, at least since the birth of the children, been a full time mother and homemaker.  After the Petitioner issued a petition for divorce in 2004, parties entered into mediation and reached a settlement by agreement.  The terms of the agreement were set out in a Mediation Agreement of 18 April 2006.  The parties agreed to have joint custody of the children whilst the Petitioner would have sole care and control of them.  There were detail provisions for access giving the Respondent liberal access, including staying access.

3.  With regard to the maintenance for the children, in view of the importance placed upon the terms of the agreement by Ms Irving, we will set out Clause D in its entirety,

“D. Child Maintenance:

a. The Parties have agreed for Mr. F to pay HK$27,500 per month per child for the children’s maintenance. This amount is to be paid directly into an account nominated by Mrs. W and this payment will commence from the 19 April 2006. The parties agree that this maintenance amount will be subject to annual Hong Kong Consumer price Index increases.

b. Mr. F will continue to provide for the children’s medical and dental cover under his current employment package. Mrs W is to pay for these costs at the time and to send the receipts to Mr F. Mr F agrees to reimburse these costs with the next monthly child maintenance payment.

c. In addition to the costs in D.a. & D.b. Mr. F will be responsible for the following costs for the children not already covered: any reasonable dental or orthodontic work including the children’s regular check ups and cleaning; any eye check ups and optical equipment; any corrective surgery if necessary for [the second child]; any flu shots and inoculations and the appointments to obtain health reports at the beginning of each school year. Mrs. W is to pay for these costs at the time and to send the receipts to Mr. F. Mr. F agrees to reimburse these costs with the next monthly child maintenance payment.

d. Mr. F will be responsible to pay for all school fees for the children until such time as they complete secondary education and then he will provide for each child to complete an undergraduate degree or equivalent at a recognized tertiary institution.

e. Mrs. W will be responsible to pay for any homeopathic and counselling costs incurred on behalf of the children.

f. The Parties agree that Mrs. W can continue to use Mr. F’s Football Club membership for the use of the children subject to the Club’s rules (if any) on the entitlement of the divorced spouse of a member. Mrs. W agrees to reimburse Mr. F for these costs at the end of each month.

g.     The Parties acknowledge that the monthly child maintenance amounts are calculated taking into account Mr. F’s full time employment and current salary package.  They acknowledge that Mr. F may cease to work at the same level or for the same employer after 1-3 years.  In the event of any significant change to Mr. F’s salary package, the Parties agree to review the monthly child maintenance provisions as contained in Clauses D.a. to D.f. inclusive.”

4.  As for maintenance for the Petitioner, the parties agreed to have a clean break.  That is to be achieved by the Respondent making a lump sum payment of $30 million to the Petitioner.  In addition, it was agreed that she would keep one of the paintings from family collection of arts and antiques.

5.  The agreement of the parties was implemented by an order of the Family Court on 8 June 2006.  In particular, in respect of maintenance for the children, the following undertakings and orders are relevant for present purposes,

(a)     Recital E regarding the Respondent’s undertaking as to the medical and dental expenses of the children;

(b)    Recital F regarding his undertaking as to the education expenses of the children up to completion of one undergraduate degree;

(c)     Recital I in these terms, “And UPON the Petitioner and the Respondent agreeing to review both access arrangements and child maintenance as set out below in the event of any significant change to the Respondent’s employment …”;

(d)    Para 4 of the order in these terms, “The Respondent do pay periodical payments to the Petitioner for the benefit of the said children in the sum of $27,500 per month per child, such amount to be paid … until such time as each of the respective said children reaches the age of 18 or completes his/her first undergraduate degree or equivalent whichever is the later or until further Order, such payments to be subject to the annual increase of the Hong Kong Consumer Price Index.”

6.  In 2006, the Respondent was a partner in an international law firm.  He had been working as a solicitor for about 25 years when his employment was terminated in 2009.  His monthly salary, as at 2009, was $404,166.  Despite his experience and qualification and age (he was 49 in 2009), the Respondent did not find another employment after 2009, whether as a solicitor or otherwise. He explained at para 5 of his affirmation of 26 January 2010 that he enjoyed spending more time with the children and became more involved in his private business interests, especially a real estate development project in Thailand.  The project is a holiday resort at Koh Samui into which the Respondent had invested more than $20 million.  According to the evidence given by the Respondent at the hearing below, the project had been opened in July 2010. He gave an estimate that it would generate about US$100,000 a year though he did not expect that to be achieved in the first year of its business.

7.  The Respondent issued a summons on 6 January 2010 seeking a variation of the maintenance for the children.  In an up-dated Form E dated 24 February 2010, the Respondent stated that he was self-employed on a part time basis since 31 March 2009 and his referred to the Thailand project as the details of his self-employment.

8.  The Judge accepted the figures stated in the Respondent’s Form E as the expenses on the children paid by him directly on top of the monthly maintenance paid to the Petitioner.  Those figures add up to $59,358. As for the Petitioner, the Judge found her total expenses on the children to be $72,185.

The Judgment

9.  We have already referred to the outcome of the hearing before the Judge.  According to his judgment of 15 February 2011, he came to this conclusion based on his assessment as to how the reasonable needs of the children are to be reasonably apportioned between the parties under the circumstances (see para 47 of the judgment).  Based on the evidence of the parties, the Judge found the total expenses and needs of the children add up to $131,543 and this level of maintenance is affordable (paras 43 and 45).  The crux of the Judge’s reasoning can be found at paras 48 to 51 of the judgment,

“48. Of course, I am not saying that the cessation of the husband’s legal practice is totally irrelevant. I am aware that the husband’s retirement has caused him a loss of about $5,000,000 annual revenue. But I also have to bear in mind that he is still relatively young and he is now pursuing investment projects in Thailand and Europe which are expected to bring in future revenue. On the other hand, the wife has ceased employment long ago, devoting all her time to the care of the 3 children with the youngest one being 8 years old. In the circumstances, I am satisfied that as far as future earning capacity is concerned, the husband is definitely in a much better position than the wife.

49. Furthermore, I am also aware of the fact that the present level of maintenance at the rate of $82,500 was agreed to by the husband in 2006 with an additional term that such maintenance to be adjusted according to the increase in the Hong Kong Consumer Price Index. The husband agreed that if that agreement was given its effect, the present maintenance level should be about $91,000, instead of $82,500 per month. In other words, there would still be underpayment even if the husband should continue to honour his original agreement to pay the $82,500 maintenance.

50. After considering all the circumstances of this case, I have come to the view that the reasonable expenses of the children should be shared between the husband and the wife at a 75/25 ratio. I adopt this instead of a 59/41 ratio which may be more representative of the comparative strength in their capital positions mainly because I consider the husband is having a much better future earning capacity; the parties had previously agreed to a monthly maintenance of $82,500; and there had never been any adjustment of the maintenance in accordance with the Consumer Price Index as originally agreed.

51.    As the total monthly needs of the children amount to $131,543, 75% of that sum would be $98,657.  As the husband is already paying $59,358 of those expenses, I have come to the conclusion that the husband has to pay the balance of $39,299 per month to the wife.  For the sake of convenience, I would round that figure up to $40,000.  As to the apportionment between the 3 children, they should be distributed as $16,000 for the eldest child, $13,000 for the second child and $11,000 for the youngest child.”

10.  The Judge referred to section 11(1) and (7) of the Matrimonial Proceedings and Property Ordinance Cap 192.  In addition, counsel cited several authorities on the topic.  We do not think it is necessary to review the relevant authorities at length in this judgment.  The relevant principles are well established.  The question is how they should be applied on the facts of the present case.

The proper approach

11.  We bear in mind that this is an appeal against the exercise of discretion by the judge.  As such, this court should not interfere unless the discretion has been exercised contrary to established principles or where the judge has failed to take relevant matters into account.

12.  As regards the approach that the court should adopt in considering an application for variation and the weight to be attached to the original order, Tang V-P said in HCTT v TYYC [2008] 5 HKC 86 at paras 15 to 16,

“15. But as Garner v Garner [1992] 1 FLR 573 shows that does not mean that the earlier order, whether made by consent or not, carries no weight. How much weight should be given to the earlier order must depend on the circumstances. Cazalet J said in the English Court of Appeal:

“Almost invariably, an application to vary an earlier periodical payments order will be brought on the basis that there has been some change in the circumstances since the original order was made; otherwise, except in exceptional circumstances, the application will, in effect, be an appeal. If an order is not appealed against, or is made by consent, then the presumption must be that the order was correct when made. If it was correct when made, then there will usually be no justification for varying it unless there has been a material change in the circumstances. However, because of the impact of continuing inflation, because children grow older and cost more to support and because, for example, the cost of living in its increase may hit one party harder than another, it will usually follow that, if time has passed, there will inevitably have been some changes in the circumstances, and in particular in the financial circumstances, of the parties concerned.

Following Lewis v Lewis, by which decision this court is bound, a court on the hearing of an application to vary is fully entitled to look at all the relevant matters set out in s. 25 of the Matrimonial Causes Act 1973.  On occasions, the court may be slow to accede to an application to vary a consent order; not least because the parties’ solicitors might otherwise be deterred from either seeking to negotiate such a provision or to achieve finality.  Another factor which may influence a court will be the time that has passed since the original order was made.  If an application consequent on an order is brought very soon after that order has been made, the court, in normal circumstances, is likely to attach more weight to the earlier order than if it had been made some years previously.  Likewise, the court would expect to pay full regard to any special terms agreed between the parties at the time the original order was made – as, for example, when endorsements on briefs or contemporaneous correspondence show that an agreed order has, for some particular reason, been set at an artificially low figure.  Shortly stated, the court must decide what weight it should attach to the original order and all the surrounding circumstances.  However, once an application to vary is before it, the court is fully entitled to make an order considering all the circumstances afresh, paying such regard to the old order as may be thought appropriate.”

16.    Thus, although the jurisdiction to vary is untrammelled, normally the earlier order would not be varied unless there has been a material change in circumstances.”

13.  And further at para 37, His Lordship said,

“Justice requires that proper weight should be given to the consent order.”

14.  Though the emphasis may be slightly different, Cheung JA was of the same view in AEM v VFM  [2008] 3 HKLRD 36, at para 14, in particular at sub-paras 6 and 8,

“6. Almost invariably, an application to vary an earlier periodical payment order will be brought on the basis that there has been some changes in the circumstances since the original order was made, for example, continuing inflation; the increased costs in supporting a growing child and that one party may be more adversely affected than another by the increase in the costs of living: Garner v Garner.

8.  At the same time the basis and intended effect of the original order are relevant factors to which the court on variation should pay regard and there should not be a radical departure from the approach taken by the parties themselves when they had entered into an agreement embodied in a consent order: Boylan v Boylan [1988] 1 FLR 282.”

What went wrong?

15.  In the present case, the learned Judge alluded to the change that caused him to exercise his power to vary at para 45 of the judgment.

“45. I understand that the husband is now asking for a cancellation of the monthly maintenance of $82,500 towards the 3 children based on the material change of his financial circumstances, namely the cessation of his legal practice. But one thing is clear from the above discussion and that is no matter from what angle one looks at the matter, one cannot ignore the fact that the husband is, even after the cessation of his practice, in a position to pay the maintenance as previously agreed. He is in possession of assets at a value of $65,000,000. Of course, he is able to afford the maintenance payment. This fact becomes even more apparent when one looks at the husband’s earlier request to send the elder children to England for further education. That request was no longer pursued mainly because it was not the wish of the eldest child to study overseas at this stage. But if the husband’s original plan were to be adopted, that would certainly increase his liability towards the children’s educational expenses substantially, which he gladly accepted. Therefore, I have no doubt in my mind that affordability is never a real issue in this case.”

16.  Then the Judge referred to the means of the Petitioner and said that she would be able to provide for the children even if the maintenance payment were to be reduced.  At para 47 he jumped straight to the question of how the needs of the children should be reasonably apportioned between the parties.  It does not appear that he gave any weight to original agreement as to how the maintenance for the children should be dealt with.  Nor did he give any consideration as to whether there should be a variation despite the ability of the Respondent to afford the payment of maintenance on the same level and the earning capacity of the Respondent (notwithstanding his cessation of his employment).

17.  With respect, we are of the view that in so doing the Judge fell into error.  Under the Mediation Agreement, the financial burden of providing for the maintenance of the children was placed primarily upon the Respondent.  This is not surprising in light of the great disparity in the earning capacities of the Petitioner and the Respondent and the different roles played by the Respondent and the Petitioner in the upbringing of the children.

18.  Ms Irving submitted that by Clause D(g) parties contemplated potential changes to maintenance payments when the Respondent ceased his employment.  Her case is that by necessary implication from such clause parties agreed that when the Respondent ceased work maintenance for the children would have to be paid out of the accumulated family wealth.  Given that a substantial part of such family wealth had been distributed to the Petitioner, she would have to share in the responsibility for maintaining the children out of the lump sum payment given to her.

19.  On the other hand, Mr Clough took the court to some emails, in particular an email of 4 May 2005 which counsel said demonstrated the common intention that the assets distributed to the Petitioner would not be subject to the liability of the children’s maintenance and the Respondent would continue to bear such responsibility on his own.

20.  We do not think it is necessary to refer to the emails (even assuming, without deciding, that they would be admissible for present purposes).  In our view, Clause E of the Mediation Agreement clearly provided that the $30 million lump sum payment was paid to the Petitioner by way of “spousal maintenance” as a clean break division of the assets.  There is no suggestion whatsoever in the agreement that the Petitioner would be expected to utilize part of such payments to maintain the children.

21.  Further, though the Petitioner does hold substantial assets, it is necessary to bear in mind that a substantial part of those assets[1] is the property used as the home she is now living with the children.  It is common ground that this property is not an asset intended to be sold or to be utilized for rental income.  The balance is about $20 million[2].  Though that is still substantial, given that the Petitioner is and will remain in the foreseeable future a full time mother and her age and the standard of living of this family, her complaint that the reduction in maintenance would represent an unreasonable drain of her resources is by no means unreasonable.

22.  Coming back to Clause D(g), Mr Clough emphasized that it refers to the possibility of the Respondent ceasing “to work at the same level or for the same employer after 1-3 years”.  Counsel said it is not a reference to retirement altogether.

23.  Ms Irving asked this court to have regard to the Petitioner’s evidence when she was cross-examined at the trial in respect of this clause and the Judge’s findings at paras 14 to 16 of the judgment.  We have duly considered these materials.  The effect of the Judge’s findings (and we do not see any basis for going behind the same) is summed up at para 14,

“I accept it was within the parties’ contemplation that the husband would retire in the near future. By saying this, I do not mean I accept the wife has agreed to the husband’s retirement when they signed the mediation agreement, but I accept that the wife was well aware of the husband’s then intention of retiring in the near future.”

24.  This finding should be read together with the evidence of the Petitioner under cross-examination[3]. She was asked about how the high level of maintenance of the children could be kept after the Respondent ceased his employment as a solicitor.  She said,

“… I then was looking at the rental that he gets and then he also sent me an email before saying that with the Thai property, what the expected returns and how it was going to be a good investment for the future, and so I had assumed that he had made plans to be able to meet these costs.”

Later on, she said,

“I think it was more the fact that I wasn’t really sure what you were going to be doing because you’ve always, even during the time that we were married, you had all sorts of different plans and you kept saying that you were going to quit work and then you would say then you were going to move to something else, or then you said you were going to move to this law firm. I really wasn’t sure what you were going to do.”

25.  Thus, it was more a matter of the Petitioner being told at some stage that the Respondent might change firms or cease working as a solicitor at some point in time in the future than her agreement to such move.  Further, she had reasons to believe that he had other means of generating income even if he were to quit practising as a solicitor.  We do not accept the submission that the necessary implication of Clause D(g) is an agreement to the effect that upon cessation of practice on the part of the Respondent resort must be made to the assets of the parties to keep up with the maintenance of the children.

26.  Ms Irving emphasized the express reference in that clause to review the monthly maintenance for the children and suggested it could only mean that the Petitioner would have to share the responsibility out of her financial resources.  We do not agree.  A review can lead to various options.  It could mean the parties had to accept that the means of the parties could not afford the same level of maintenance of the children and there has to be a reduction of the total amount spent on them.  It could also mean that the Respondent shall continue with the same level of maintenance because he could still afford to keep up with it out of his financial resources despite the cessation of his employment.  It is not a necessary conclusion from such review that the Petitioner should be required to utilize her capital resources to pay part of the maintenance for the children.

27.  The Judge found specifically that, despite the cessation of his employment, the Respondent could afford to continue with the current level of maintenance.  He was able to come to that conclusion even though he discounted the potential income from the Koh Samui project.  We do not think such potential income should be left out of the picture.  It should form part of the earning capacity of the Respondent.  After all, the Respondent himself testified that in 2009 he considered himself to spend his time and energy more effectively by finishing that project than looking around for a job.  Subsequently, he accepted that (perhaps in respect of a different point in time when the job market for solicitor was more favourable) he would be better off working as a lawyer[4]. Since the Respondent had not looked for another job, there is no evidence as to how much worse off he would be in terms of income (comparing with his previous earnings) if he had done so.  In any event, the fact remains that there is a great disparity between the earning capacity of the Respondent and that of the Petitioner.

28.  The Judge also found that that level of maintenance was roughly in line with the amount spent by the Petitioner on the reasonable needs of the children.  Thus, apart from the question whether the Petitioner should be required to contribute out of her lump sum payment, there is no justification for reduction.

29.  Should the cessation of employment alone be a sufficient justification for the exercise of the court’s power of variation despite the underlying the approach taken by the parties when they had entered into the agreement for maintenance of the children in light of the wide disparity in earning capacity? With respect to the learned Judge, this is the central issue in the present case which he had failed to consider.  Had the Judge directed his mind to this question before embarking straight onto the question of reasonable apportionment at para 47 of the judgment, he would have appreciated that despite the cessation of the employment the Respondent (given his age, qualification and experience) remains a person of high earning capacity whilst the Petitioner would continue to be a full-time mother depending on the lump sum payment for her maintenance in the years to come.  He would have also appreciated that notwithstanding that his employment was terminated by his employer, it was the Respondent’s personal choice not to enter into the employment market again[5] and, according to his finding, such choice had not been endorsed by the Petitioner.

30.  As Ms Irving recognized at the hearing, the only argument that the Respondent could bring forth to support his case for variation in these circumstances is what he perceived to be an agreement derived from Clause D(g) that the Petitioner agreed that upon his termination of employment she would have to contribute to the maintenance of the children.  For reasons already canvassed, we do not accept this contention.

31.  We are of the view that had the proper question been addressed, there was simply insufficient justification for the exercise of the power of variation in the present case.  Ms Irving submitted that given the accumulated wealth of the family, the Respondent could afford to retire at this age and he should not be penalized for making such a choice.  That may be correct.  On the other hand, the exercise by him of this choice cannot be allowed to impinge upon the welfare of the children and the long term security that the Petitioner needs in respect of the lump sum payment made to her.  As found by the Judge, the Respondent has sufficient means to keep up with the existing level of maintenance for the children.  There is no reason why he should not be required to take the financial consequence for his own choice.

Result

32.  Therefore, we allow the appeal and set aside the order the Judge. In its place, we order the application for variation be dismissed.  Further, we order the Respondent to pay back to the Petitioner the sum of $552,500 (paid to the Respondent pursuant to the order dated 18 March 2011) within 14 days of this judgment.  There will also be a costs order nisi that the Respondent shall pay the Petitioner’s costs, both here and below, such costs to be taxed if not agreed.