ZJW v. SY

CACV 10/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 10 OF 2017

(ON APPEAL FROM FCMC NO 7824 OF 2015)

________________________

________________________

________________________

J U D G M E N T

________________________

Hon Kwan JA (giving the judgment of the Court):

1.  This is an application for security for costs of an appeal against the judgment of HH Judge Bruno Chan on 21 September 2016 (“the Judgment”), in which he dismissed a petition for divorce brought by the wife on the ground that the Hong Kong court has no jurisdiction to entertain the petition as none of the bases for assuming jurisdiction under section 3 of the Matrimonial Causes Ordinance, Cap 179 was made out. The wife has lodged an appeal with the leave of the judge, and the appeal is to be heard on 27 July 2017.

2.  On 1 March 2017, the husband issued a summons seeking an order that the wife should pay into court $871,005[1] or such sum as may be ordered by the court as security for his costs of the appeal.

3.  The parties have filed evidence and lodged submissions pursuant to the automatic directions in §36 of the revised Practice Direction 4.1 (which came into operation on 1 March 2017) and the further directions of the Registrar of Civil Appeals for extension of time.  We note the husband seeks an oral hearing to assist the court in case the court is “hesitant” in granting his application.  Notwithstanding his request, and we have come to the view that his application should be dismissed, we decline to hold an oral hearing.

4.  It is stipulated in §36 of Practice Direction 4.1 that where an interlocutory application is made to the Court of Appeal, an oral hearing will be fixed only if the court so directs. Representation in support of any request for an oral hearing, if not already made in writing to the court after the summons was served, must be made in the written submissions (§36(10)). Upon consideration of the documents lodged as directed in §36, the court will decide whether to determine the application on paper or fix an oral hearing (§36(12)).

5.  The husband has by his counsel, Ms Anita Yip, SC and Ms Lily Yu, made very detailed and comprehensive submissions[2] in support of his application and in reply to the wife’s submissions.  It does not appear to us we would require clarification or further assistance on the submissions made.  We do not think any useful purpose would be served by holding an oral hearing.

6.  The legal principles that apply to an application for security for costs of an appeal are well established, see Chung Kau v Hong Kong Housing Authority & Ors [2004] 2 HKLRD 650 at §14.  As a matter of practice, once an applicant can demonstrate special (not exceptional) circumstances making it just to order security (such as the impecuniosity of the appellant, the difficulty or expense in enforcing a costs order), while the court retains an overall discretion whether or not to order security, it would generally be up to the party resisting the application to demonstrate countervailing factors which would militate against such an order being made.

7.  In the very special circumstances of this case, we are satisfied that a sufficient countervailing factor has been made out and we should exercise our discretion to refuse the application.

Relevant background

8.  The husband and the wife were born, raised and educated in Mainland China[3].  They were married in Fuzhou City, Fujian Province and made their home in Shenzhen.  In 2001, the husband purchased a property of over 3,000 sq ft in Luohu District, Shenzhen and they occupied the property as their matrimonial home.  The only child of the family is a son who has reached majority and is studying abroad.  The parties were married for 22 years at the time of separation.

9.  In the Judgment, it was found that the husband did not have a sufficient connection with Hong Kong at the date of the divorce petition on 22 June 2015 and hence the petition was dismissed for lack of jurisdiction.  The wife seeks to challenge this finding on appeal.

10.  There is no dispute that the wife is not ordinarily resident in Hong Kong.  It is also not in dispute that she is all along a full-time housewife and was financially supported by the husband until she left the matrimonial home in the circumstances mentioned below.

11.  On 12 May 2014, the husband brought an action in the High Court of Hong Kong (HCA 813/2014; “the High Court Action”) for proprietary claims against a company known as Superb Jade Limited (“SJL”) and the wife’s younger brother[4].  The husband alleged that SJL (of which the younger brother is the sole director and shareholder) was incorporated to hold assets for him and the younger brother acted as his fiduciary agent in handling the assets held by SJL.  He claimed declarations, orders for payment and delivery of assets to him and injunctions to restrain the disposal of assets.  Very substantial assets were held by SJL.  Based on the evidence disclosed in the High Court Action, the wife believes the husband’s assets and investments in Hong Kong to be worth at least $400 million in April 2014, of which the bulk ($346 million) was held in the bank and securities accounts of SJL[5].  Apart from the Hong Kong assets, the husband has assets on the Mainland (including bank accounts, 3 cars, a Shenzhen company 成倉投資管理有限公司 (“the Shenzhen Company”), club memberships[6]), of which the matrimonial home alone was said by him to be worth RMB 20 million[7].

12.  SJL and the younger brother have filed a counterclaim in the High Court Action against the husband, a securities company and a licensed representative of the securities company, claiming, inter alia, damages for the loss of use of funds of some $66.5 million.

13.  The day after the husband issued the writ in the High Court Action in May 2014, the wife moved out of the matrimonial home and has since lived apart from the husband.  The husband ceased to pay her living expenses from then onwards.  She presented the petition for divorce in Hong Kong on 22 June 2015 based on the husband’s unreasonable behaviour.  According to her Form E dated 28 July 2015 and the address given in her affirmation in March 2017, she has been residing with her elder brother and his family in Shenzhen.

14.  The key issue in the divorce proceedings, whether in Hong Kong or in the Shenzhen courts, would relate to ancillary relief and property distribution, there being little doubt that the marriage has irretrievably broken down.

Special circumstances

15.  The husband seeks security for costs of the appeal asserting that special circumstances are made out.  The wife is not ordinarily resident in Hong Kong.  The husband claims she “may well be impecunious” and in any event as she is resident abroad, there would be undue delay and expenses in enforcing any costs order against her.

16.  The wife does not accept she is impecunious, even though she had insignificant funds in her bank accounts disclosed in her Form E.  She pointed to the Shenzhen Company held by her and the husband in the ratio of 10 to 90%.  It has a paid up capital of RMB 5 million and is properly carrying on business in Shenzhen.  But she has not disclosed the source of the funds she incurred in this litigation, in which she retained senior and junior counsel to argue her case before the judge, and she has not received financial support from the husband since May 2014.

17.  It is not necessary to find if special circumstances are made out on the ground of the wife’s alleged impecuniosity.  We are satisfied there would be additional delay and expense for the husband to enforce a costs order against the wife in Shenzhen.

18.  The husband has obtained expert opinion on PRC law for this purpose.  Mr Clark Wang submitted on the wife’s behalf that the husband’s expert did not say that a costs order of the Hong Kong court cannot be directly enforced in the Mainland.  He contended that the expert had opined that a Hong Kong costs order “may be directly enforced though there are not many precedents” and it may “also be enforced by way of a fresh action.”

19.  This is not a proper reading of the expert opinion.  We agree with Ms Yip that the expert opinion is clearly to the contrary, particularly when read in the light of the expert’s discussion of the 2008 Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region, which has no application to matrimonial proceedings.  The only option available to the husband to enforce a costs order of the Hong Kong court in matrimonial proceedings is to bring a fresh action against the wife in the Shenzhen courts.

20.  The husband having made out special circumstances, it is for the wife to establish a sufficient countervailing factor why the court should not exercise its discretion to order her to provide security.

Countervailing factor

21.  The wife does not rely on the merits of her appeal as a countervailing factor.  There is no need to say anything about the merits.  Her position is a simple one.  Most of the family assets are under the control of the husband, there would not be any difficulty or problem with enforcing a costs order against her[8].  She adduced expert evidence on PRC law that pursuant to articles 17 to 19 of the Marriage Laws[9] and the opinion of the Supreme People’s Court on the allocation of assets in divorce cases[10], the assets acquired by a couple during the course of their marriage are jointly owned by them, where there is no agreement in writing or no clear agreement on the division of the assets; and on divorce the assets would be divided equally between them in principle, although the principle of equality may be departed from according to productivity, the practical needs of livelihood, the source of assets and the like.  In the event her appeal is unsuccessful and she is to bring divorce proceedings in Shenzhen, the wife asserted she is entitled to seek an equal division of the family assets, her share of which would be more than sufficient to satisfy any costs order against her.

22.  Ms Yip submitted that the wife’s position she would get half of the family assets is “presumptuous” and based on “multiple wishful assumptions”.  Counsel made these points:

(1)   It is premature for this court to find or express any view on the wife’s alleged entitlement to half of the family assets.  There is no evidence at this stage and no argument in respect of the merits of the parties’ case on how the assets should be distributed.

(2)   At present, there is uncertainty of the assets and liabilities of both parties.  So it is simply unknown who should pay whom anything at the end of the day, even assuming there is to be equal division.  The husband would only need to pay the wife when the net assets (after deducting his liabilities) under his name are greater than the net assets under the wife’s name, so as to equalise the assets of each.  Ms Yip pointed out there is no or little evidence on the husband’s liabilities.  The husband has not filed a Form E as he is challenging the jurisdiction of the court.  He has no obligation to disclose his net asset position.  What is known is that he is still engaged in litigation with the wife’s brothers in the High Court Action, and the younger brother has made a substantial claim for damages against him.  Further, the wife has not been forthcoming about her net asset position, and being a housewife does not mean she has no money.  She has to demonstrate that the equalisation payment that would be made by the husband would be greater than the amount of the costs ordered against her with interest.

(3)   The wife’s argument assumed that it is legally feasible to offset the costs order of the Hong Kong court with interest against any equalisation payment that the husband would be ordered to pay in the Mainland divorce proceedings.  But there is no evidence from her expert that this could be done under PRC law.  Pertinently, the husband’s expert has opined that the husband would have to bring a fresh suit in the Mainland to enforce the Hong Kong costs order.  On the assets disclosed by the wife, she does not have sufficient cash to meet her costs liability, and there would be undue delay and expense if enforcement is sought to be made against her shareholding in the Shenzhen Company.

(4)   The husband has adduced evidence from his expert that in the event divorce proceedings are brought in the Mainland, it could take more than 3 years for the proceedings to be finalised, allowing for all appeals.  Even though conceptually the family assets are jointly owned by the parties during the marriage, it is practically impossible for the husband to enforce a costs order against assets now registered in his name before the court orders an allocation of assets in the divorce proceedings.  It is only on the final resolution of the dispute over the distribution of family assets and liabilities that the costs order of the Hong Kong court could be enforced, assuming it is possible to offset the costs order against any sum the husband might be ordered to pay to the wife.

23.  We do not accept the husband’s submissions.

24.  First, we note the size of the family assets.  Mr Wang submitted that given the size of the family assets, costs of less than $1 million that the wife might have to bear are just a drop in the ocean.  Even on the available limited information of the assets in Hong Kong and the Mainland, we do not think this is an exaggeration.

25.  Second, most of the family assets are under the control of the husband.  The husband has not refuted the wife’s allegation to this effect, nor has he alleged there are any or any substantial family assets held by the wife.  There is clearly a very significant imbalance in the assets held by each of them.

26.  Third, there is no suggestion by the husband of any agreement by the parties on the division of assets acquired in the course of the marriage.  The prima facie position under PRC law is that there would be equal division of the assets upon a divorce.

27.  Fourth, even though we do not know the liabilities of the husband (it was submitted on his behalf he is not obliged to inform this court about this), and as a result there is uncertainty about his net assets, it would be fanciful to think that at the conclusion of the divorce proceedings the husband would not be ordered to pay an equalisation amount to the wife that would substantially exceed $1 million, or that the wife would be ordered to pay him anything as equalisation payment.  The wife’s expectation that she would receive a substantial payment from the husband in the division of assets is far from presumptuous, it is real.

28.  Fifth, the fact that it may take more than 3 years for divorce proceedings in the Mainland to be finally concluded or that there is no evidence if it is feasible under PRC law for the wife’s liability under a Hong Kong costs order to be offset against her entitlement in the division of family assets is irrelevant.  What is indisputable is that until an order has been made by the Mainland court for the division of assets, the husband would have the full use of the family assets under his control.  He is fully protected on the costs that he may be entitled to recover from the wife which is not expected to exceed $1 million.  His position is just as secure, if not more secure, than if a payment into court is made. The money is already held by him.

29.  In these very special circumstances, the wife has demonstrated to our satisfaction there is a sufficient countervailing factor why security for costs should not be ordered against her.  We decline to exercise our discretion in the husband’s favour.

30.  We dismiss the husband’s application for security for costs of the appeal.  There is no reason why costs should not follow the event.  We order him to pay the wife’s costs of this application, which we assess on a summary basis at $131,500.