K v. F

FCMC 1881/2008 & FCMC 2099/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 1881 OF 2008

AND

MATRIMONIAL CAUSES NO. 2099 OF 2007

(Consolidated pursuant to the Order of His Honour Judge Bruno Chan dated 21 December 2007)

------------------------

----------------------

------------------------------------

J U D G M E N T

------------------------------------

1.  This is a hearing on the petitioner husband (“the husband”)’s application for variation of a maintenance pending suit order granted by HH Judge Bruno Chan for the benefit of the respondent wife (“the wife”) and the child of the family (“the child”) dated 21 August 2007 (“the MPS Order”).

Brief History

2.  The husband is now aged 39, a dealer in securities by occupation.

3.  The wife is now also aged 39, a housewife.

4.  The parties married in 1999. They have one child born out of the marriage who is now aged 7, a primary school student and is now residing with the wife.

5.  On 21 February 2007, the husband petitioned for divorce claiming that the wife had behaved in such a way that he could not reasonably be expected to live with her (FCMC2099/2007).  The parties later reached a settlement on the main suit resulting in an order by HH Judge Bruno Chan that a new petition be issued on the fact of one year separation with consent (FCMC 1881/2008). A Decree Nisi on this fact was granted on 29 August 2008.

6.  Although a final order on custody has not yet been made, it seems that there is no dispute for the custody of the child be granted to the wife.

7.  As to the issue of ancillary relief, the parties have gone through the Financial Dispute Resolution procedures, which were not successful, and so the case was transferred to my court for the preparation of a final hearing.

8.  But before we could proceed with the trial on ancillary relief, an issue arose as to the MPS Order, the relevant terms of which are recited as follows:

“…

UPON the parties acknowledging that :

1.  the Order herein is without prejudice to any final ancillary relief that may be granted herein;

2.  the Petitioner and Respondent are not to be taken to admit that the sum of HK$40,000, which the Petitioner is ordered to pay to the Respondent each month as maintenance pending suit for the Respondent and the child of the family,…, reflects the reasonable needs of the Respondent and the said child; and

3.  in the event of any change of circumstances of the Petitioner , the Petitioner may apply to vary the Order herein, and in doing so, is not barred from claiming that the said sum of HK$40,000 per month exceeds the reasonable needs of the Respondent and the child;

UPON the Petitioner maintaining his position that the sum of HK$22,000 is sufficient to cover the reasonable needs of the Respondent and the said child

……

IT IS ORDERED BY CONSENT THAT:

1.  the petitioner shall pay to the Respondent HK$40,000 per month on the 1^st day of each month commencing on 1^st September 2007, as maintenance pending suit for both the Respondent and the said child, and the Petitioner shall make the payment of the said maintenance pending suit into the Bank of China (Hong Kong) Ltd. Savings account no. held by the Respondent.

……”

9.  As to the background of this MPS Order, it was the wife who took out a summons asking for maintenance pending suit (“MPS”). She asked for a monthly sum of $50,000 to cover both her and the child’s interim maintenance ($35,000 for herself and $15,000 for the child). As can be seen from the recitals of the MPS Order, the stance of the husband at that time was that the reasonable needs of the wife and the child did not exceed $22,000, while the wife was of the view that their then immediate needs were above that amount. But for the sake of settlement, both parties agreed to fix the MPS at $40,000 per month, with an express proviso that the husband is entitled to ask for variation in the event of any change of circumstances.

10.  By an application (Form 8) dated 4 July 2008, the husband now asks for a variation of the MPS Order. He initially asked for a downward adjustment from $40,000 to $20,000, but at the beginning of the hearing, he asked for a further adjustment to $4,000 per month.

11.  The wife opposes the application.

The Law on Interim Maintenance

12.  The Court’s power to grant a maintenance pending suit order in favour of a spouse is governed by s.3 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“MPPO”):

“3.  Maintenance pending suit in case of divorce, etc.

   …

the court may order either party to the marriage to make to the other such periodical payments for his or her maintenance and for such term, being a term beginning not earlier than the date of the presentation of the petition or making of the application and ending on the date of the determination of the suit, as the court may think reasonable.”

13.  As for the interim maintenance of the child, the governing section is s.5 of the MPPO (which provides for the maintenance of a minor), to be read together with r.78 of the Matrimonial Causes Rules, Cap.179A (which empowers the Court to grant an interim order upon the application for ancillary relief). 

14.  The overriding consideration for such applications is reasonableness. The Court has to balance the reasonable needs of the applicant and the ability to pay of the respondent on an interim basis (LJ v LWHH  [2003] 3 HKC 455 at 461D).

15.  In undertaking this balancing exercise, the Court will adopt a broad brush approach, and not a detailed investigation of the financial positions of the parties (per Cheung JA in LAML v TCCY CACV75/2004, 13/9/2004 at pp.7-8).

16.  I do not think the above general principles are in serious dispute.

Application for Variation

17.  The Court’s power to grant an order for variation is governed by s.11 (1) and (7) of the MPPO which provide as follows:

  “11  Variation, discharge, etc. of orders for financial provisions

  (1)  Where the court has made an order to which this section applies, then, subject to the provisions of this section, the court shall have power to vary or discharge the order or to suspend any provision thereof temporarily and to revive the operation of any provision so suspended.

   ….

  (7)  In exercising the powers conferred by this section the court shall have regard to all the circumstances of the case, including any change in any of the matters to which the court was required to have regard when making the order to which the application relates and, where the party against whom that order was made has died, the changed circumstances resulting from his or her death.”

18.  In this case, there is some dispute on under what circumstances should this court exercise its power of variation. The wife argues that such power should only be exercised when there is a material change of circumstances, citing the case of HCTT v TYYC (unreported, CACV 380/2007, 2 July 2008) in support.

19.  The husband’s position is that according to the express agreement between the parties as embodied in the MPS Order, the change of circumstances need not be material. But even if we adopt the higher standard that a material change of circumstances is required, it is his case that there has been such a material change of circumstances that would justify a downward adjustment of the MPS Order.

The Husband’s Case

20.  According to the submissions of Miss Tsui, counsel for the husband, the financial position of the husband has deteriorated substantially since the making of the MPS Order on 21 August 2007, at which time when both the Hong Kong economy and especially the stock market were almost at their peak.

21.  It is not in dispute that the husband has been a professional investor in the stock market for the past few years, earning a rather comfortable income. He was a professional investor in the sense that he traded heavily in the stock market almost daily and the profits generated from those trading activities were the sole source of his income. From the securities account statements of the husband, one can see that in a typical trading day, the husband would buy in large quantities of shares or warrants, usually in the number of millions and then sell them on the same day. This kind of day trade in large volume was possible because the husband was trading on margin with credit facilities provided by the securities company.

22.  However, with the onset of the financial crisis since the beginning of 2008, the husband has lost around $2,600,000 depleting almost all of his liquid capital. As a result, the husband has now ceased all his trading activities since July 2008 because he no longer has any capital to invest and the prospect of the financial market is extremely bleak.

23.  As far as the capital assets of the husband are concerned, when the MPS Order was made (i.e. in August 2007), he had liquid assets, including cash in bank and stocks, in the region of about $4,100,000. However, by August 2008, he only had $88,217.74 in all his bank accounts. He no longer has any stocks. 

24.  In order to earn a living, the husband has now secured a job as a dealer in a securities company with a monthly salary of $9,200.

25.  As to his monthly outgoings, they include:

Items	Amount
Food out of home	$5,000
Travelling expenses	$1,500
Clothing	$2,000
Personal grooming	$500
Entertainment	$3,000
Holidays	$2,000
Medical	$300
Insurance premium	$65
Mortgage payment	$10,000
Management fee and utilities	$1,870
Total:	$26,235

26.  During her final submission in reply, counsel told me that those spending are now being further reduced to about $6,135, with the monthly mortgage repayment at $10,000 being borne by the husband’s mother.

27.  As the husband can not balance his income and expenses, he has borrowed a sum of $100,000 from his younger sister to cover his day to day expenses and legal costs.

28.  In view of his dire financial situation, the husband said he can no longer afford the MPS at $40,000. Although when he issued the application for variation in August 2008, he was of the view that he could afford $20,000 MPS, now he says he can only afford $4,000.

The Wife’s Case

29.  The wife opposes the application for downward variation. It is her case that the husband’s total assets have not been reduced as from August 2007. Her counsel, Miss Tong submitted that if one looks at the Form E of the husband dated 8 May 2007, the husband then reported he had about $5,500,000 cash deposits and stocks under his name, not $4,100,000 as alleged by the husband. However, I must point out here that Miss Tong’s calculation has not taken into account the husband’s then outstanding liabilities towards a securities company in the sum of $1,468,054.59. Therefore, I do not think that is a fair assessment of the husband’s then available assets. I accept that the net worth of the husband’s assets as on 8 May 2007 was $4,100,000.

30.  Be that as it may, Miss Tong went on to carry out a rather detailed analysis of the husband’s various bank accounts to come to the conclusion that various substantial amounts of money have been withdrawn as from June 2007 to August 2008. Even taking into account of the husband’s subsequent explanations of the destination of those sums, Miss Tong submitted that there was still an amount of $4,448,333 unaccounted for.

31. Miss Tong then went on to list out some questionable entries in 2 of the husband’s bank accounts for the period between July 2005 and March 2006. There were a total of 10 unexplained deposits amounting to a total sum of about $2,700,000. When the husband was being questioned about these deposits, his answer was that he has no recollection. Counsel submitted that these are clear evidence that the husband has dissipated substantial amount of funds from his accounts which he has failed to account for, and also he may well have other sources of funds and/or bank accounts which have not been disclosed.

32.  Counsel also questioned why the husband can not find a decent job as an engineer as he used to work in that field. She said the husband is allegedly working in Ewarton, which is a securities company with which the husband had been trading in the past few years. She said there is no reason why the husband can not carry on his stock trading and market volatility does not mean that the husband can not make any gain out of it.

33.  As to the husband’s monthly expenses, counsel for the wife has listed out the credit card spending of the husband as from January to May 2008. She said the husband has on average spent a monthly sum of about $34,000 with his credit card. If one takes into account his general monthly expenses as listed in paragraph 25 above, even if one allows that there may be some overlapping between the generally monthly expenses and the credit card spending, the total monthly expenses of the husband would be well over $50,000. This is totally inconsistent with the husband’s claim that he is in financial difficulty and that he could only afford to pay $4,000 as MPS.

34.  Counsel also reminded the Court that despite the husband’s claim for financial difficulty, he had purchased a new flat at Island Harbourview, the net value of which is about $4,500,000. Therefore, even if the Court accepts that the husband may not have much liquid assets at the moment, that is only because the husband has converted all his liquid capital into fixed capital. The total assets of the husband has not been lowered at all.

35.  Finally, as to the needs of the wife and the child, the wife in her 5^th Affirmation, set out a comparison between her then outgoings in August 2007 and the present outgoings as follows:

General Expenses
Items	Previous amount	Present Amount
Utilities	$1,820	$1,820
Management fees	$1,300	$1,300
Food	$1,500	$1,500
Household expenses	$500	$600
Others	$3,000	$3,600
Sub-total:	$8,120	$9,270
Personal Expenses
Meals out of home	$4,200	$5,040
Transport	$1,000	$1,100
Clothing/shoes	$850	$960
Personal grooming	$1,870	$2,057
Entertainment/presents	$800	$960
Holidays	$1,670	$2,171
Medical/Dental	$1,630	$1,793
Contribution to parents	$3,000	N/A
Others	$1,450	$1,740
Sub-total:	$16,470	$15,881
Child Expenses
School fees	$2,200	$5,700
School musical Instrument lesson	N/A	$1,760
School bag	N/A	$33
School miscellaneous	N/A	$37
School trips	N/A	$184
Extra Chinese lesson	N/A	$2,200
Parents and Teacher’s Association fees	N/A	$19
Donation	N/A	$600
Extra tuition fees	$6,590	$9,024
School books and Stationery	$200	$220
Transport to school	$1,000	$1,400
Medical/Dental	$700	$770
Entertainment	$1,330	$1,500
Holidays	$1,590	$1,590
Clothing/shoes	$750	$850
Lunches/pocket money	$220	1,000
Other transport	$500	$550
Uniform	$210	$350
Others	$350	$450
Sub-total:	$15,640	$28237
TOTAL	$40,230	$53,388

36.  As can be seen from the above comparison tables, it is the case of the wife that her expenses have actually increased and therefore, there is no justification at all for the husband to reduce his contribution to the wife’s MPS and the child’s interim maintenance.

Discussion

37.  It is quite clear from the evidence of the case that for the past few years, the sole source of this family’s income derived from the speculative trading of the husband in the stock market. As a matter of fact, the husband managed quite well in his trade that not only he could maintain the family with a comfortable lifestyle, but also managed to accumulate certain level of fixed capital, including the acquisition of the former matrimonial home and the Island Harbourview property.

38.  But it is clear that the tide has changed. The world financial tsunami means that the once enviable fortunes of a lot of speculators/investors have now been greatly reduced, if not being totally depleted. I have no doubt in my mind that the husband is one of those unfortunate speculators/investors. It is clear from the husband’s trading record that he was once an active trader but has now ceased trading completely. I accept that his income from stock trading profits has become zero.

39.  As to his present income, there is criticism from the wife that the husband has not used his best endeavour to find an engineering job or an employment that would yield a more decent income. But to be fair to the husband, he has not been working in the engineering field for quite a number of years and I do not suppose that an engineering position is so handy as one might have thought. I do not rule out the possibility that by giving the husband some time, he may be able to return to the engineering field. But for the present purposes, I am prepared to accept that he can only manage to earn a rather meagre income of $9,200 per month.

40.  There is also criticism from the wife that the husband’s total capital has not been reduced and so there is no reason for the MPS Order to be varied. In August 2007, the husband had total liquid capital of about $4,100,000. As at today, he has at least the Island Harbourview property which should have a net worth of about $4,500,000. The capital at his disposal has in fact increased. What has really changed is that the husband has just converted his then liquid capital, which comprises cash and stocks into fixed capital, i.e. landed property, the Island Harbourview. The wife suspects that this is a deliberate act by the husband in order to avoid his liability in paying interim maintenance.

41.  In approaching this issue, I think one has to bear in mind that the Island Harbourview property was purchased in about October 2007, which was shortly after the granting of the MPS Order. Both the stock and property markets were booming at that time and it was against this background that the husband decided to invest in a landed property for his own occupation. I do not think the husband has any sinister motive in buying this property. As a matter of fact, the acquisition of this property has at least locked up some of the profits gained in the stock market which may turn out not to be a bad thing for the family as a whole.

42.  Having said so much about the husband’s finances, I think I should also say a little bit about the immediate needs of the wife and the child. The wife said she used to have the monthly needs of about $40,000 but now the needs have increased to $53,000. I do not propose to go into each and every item of her expenses as set out in paragraph 35 above except to say that in view of the diminished income of the husband, it is time for the wife to exercise some economy in family spending. Spending on the child’s interest or tuition classes are certainly areas where some savings can be made in view of the fact that he is only 7 years old. I am not saying for a moment that child grooming should not be encouraged but that has to be balanced against the financial wellbeing of the family as a whole.

43.  By adopting a broad brush approach, I would say for a family of two and without the need to pay rent, the reasonable needs of the wife and the child should not be more than $30,000 per month.

44.   I understand that even for $30,000 per month, it is still well beyond the means of the husband if we should only take his salary into account. I think it is high time for the husband to seriously consider liquidating his Island Harbourview property as soon as possible. The sale is inevitable because with the present income level of the husband, he would have difficulty in even keeping up with the monthly mortgage repayment, not to mention about his own expenses or the MPS. Why not sell it before accruing any further arrears of mortgage instalments and when the property market is still relatively stable.

45.  I think it is reasonable to allow the husband 3 months to liquidate the Island Harbourview property and within these 3 months, I would allow the MPS be temporarily reduced to $6,000 per month. This will be an equal sharing of the husband’s present available income. After these 3 months, the MPS will be restored to $30,000 per month until the conclusion of the ancillary relief trial or further order of the Court.

Orders

46.  Based on the above reasons, I would vary the MPS Order as follows:

(1)  The husband shall pay maintenance pending suit to the wife at the rate of $6,000 per month on the first day of every month as from 1 November 2008 to 1 January 2009, which amount shall be increased to $30,000 per month as from 1 February 2009 until the conclusion of the ancillary relief application or further order of the Court; and

(2)  The above payments shall be made into the wife’s Bank of China (Hong Kong) Ltd. Savings account 03055010377392.      

Costs

47.  It seems that both parties’ respective positions were not accepted by the Court entirely and it would be very difficult to say who is the winning party in this application. Under these circumstances, the appropriate costs order would be no order as to costs, including all costs previously reserved. The costs order will be in the form of an order nisi which shall become absolute after the expiry of 14 days from the handing down of this Judgment.