CH v. MEH

CACV 92/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 92 OF 2011

(ON APPEAL FROM FCMC No. 1969 OF 2007)

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BETWEEN

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J U D G M E N T

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Hon Cheung JA :

Financial provisions

1.  Following a successful Family Dispute Resolution (‘FDR’) hearing held on 26 September 2008, the parties reached terms on the financial arrangements for themselves and the two daughters of the family upon their divorce.  The terms eventually became a consent order of the Court dated 2 February 2009 (order sealed on 10 February 2009). 

Lump sum payable by instalments

2.  Under the consent order, the husband (respondent) agreed to pay the wife (petitioner) $16,886,077 by three instalments

(1) HK$6,943,038 within 42 days of the decree absolute;

(2) HK$6,943,039 no later than 26September 2009 provided that should he be able to pay earlier, he should do so;

(3) HK$3,000,000 upon maturity of a Lifesaver Insurance Policy in 2013.

3.  The lump sum of $16,886,077 was based on 50% of the parties’ total assets which were agreed at HK$33,716,716.72 of which the bulk of $30,950,193.14 belonged to the husband.

Periodical payment

4.  The order also required the husband to pay the wife HK$148,000 per month for her maintenance, reducing to HK$120,000 after the second lump sum instalment, and to HK$110,000 after the third instalment, as well as HK$15,000 per month for each of the two daughters in addition to his undertaking to continue to pay for their school fees, tuition, medical, insurance and education policy expenses.

Application to vary

5.  The husband paid the first instalment (although with a slight delay) leaving a balance of HK$9,943,039.00.  He then applied by summons dated 24 September 2009 to vary the terms of the consent order both in respect of the instalment payment and the periodical payment.  He asked for the discharge of the second instalment thereby reducing the amount of the lump sum he is required to pay to the wife.

6.  H H Judge Bruno Chan refused to reduce the amount of the lump sum order.  Instead he ordered the remaining HK$9,943.039 to be paid in the following manner :

(1)	upon maturity of the Lifesaver Insurance Policy in 2013	HK$5,456,427.00
(2)	on or before 31 December 2014	HK$2,000,000.00
(3)	on or before 31 December 2015	HK$2,486,612.00

7.  The Judge further refused to vary the periodical payment order.

8.  The husband now appeals against the judgment.

Family background

9.  Very briefly, the parties were married in 1989.  They separated in 2006 and the wife petitioned for divorce in February 2007.  The husband was born in Canada.  He came to Hong Kong in 1983.  He is the President and CEO Asia of a well-established German family business known as HWL Ltd. owned by his 2 cousins in Germany.  He was sent by the company to Hong Kong in 1983 where he has since been responsible for the Asian side of the operation particularly in China and Hong Kong.

10.  The wife was born in Switzerland.  After marrying the husband she joined him in Hong Kong.  The husband was aged 50 and the wife 43 when they appeared before the Judge in September 2010.  Of the three children born, a son had unfortunately contracted a fatal illness in 2002 and died in 2007.  The other two daughters are now looked after by the wife who is a full time housewife. 

11.  The parties enjoyed a high standard of living in Hong Kong.  They used to live in a spacious garden house in Clear Water Bay (provided free by the husband’s employer) with 4 to 5 domestic staff and driver as well as company cars also provided by the husband’s employer.  The husband received a substantial basic monthly salary, but his main income actually came from his annual bonus normally referred to by his company as a distribution of the profit share fixed at 5% of specified profit earned in Hong Kong and China, usually paid at the end of each summer for the preceding year.  The amount ranged from HK$3 to 6 million per year on the basis of the preceding several years record going back to 2005.

12.  As described by the Judge the family enjoyed fine dining and luxurious shopping, weekends spent boating on the family junk and the husband’s speed boat, substantial overseas holidays, membership in private clubs such as Clear Water Bay Golf and Country Club, the Aberdeen Boat Club and the China Club, and sending their children to expensive international school.

13.  After the death of the son, the wife moved out of the Clear Water Bay House and lived with the two daughters in a rented apartment on the Peak so that they could be closer to the daughters’ school on the Peak. 

14.  The husband and wife have since formed separate relationship.  The husband now lives with his partner and her son in the Clear Water Bay House.  The wife’s relationship had ended by the time of the hearing before the Judge.

Husband’s financial position

15.  The husband’s assets at the time of FDR hearing were as follows :

Bank accounts
1.	HSBC Premier Investment	HK$5,723,729.00
2.	Commerzbank	HK$1,022,827.75
	Sub-Total	HK$6,746,556.75
Stocks
1.	GC (31.5% shareholding) (a private company)	HK$2,942,485.00
2.	VW	HK$ 20,309.00
3.	Hong Kong Tracker Fund (‘HKTF’)	HK$1,712,632.00
4.	UBS Portfolio	HK$4,921,286.34
	Sub-Total	HK$9,596,712.34
Pension Fund
1.	MPF ING Fund	HK$4,913,673.76
2.	Gerling Life Pension/Retirement Policy	HK$764,792.26
	Sub-Total	HK$5,678,466.02

Properties
3 properties in Quebec, Canada		HK$1,142,363.10
Monies owed to him
1.	Loan to his mother	HK$221,947.00
2.	Loan to the wife’s brother	HK$384,772.00
3.	Loan to his brother	HK$2,238,798.84
4.	Loan to his brother	HK$443,200.00
5.	Shareholder’s loan to GC	HK$2,721,985.00
6.	Shareholder’s loan to VW	HK$581,550.09
7.	Balance of profit share/bonus for 2007	HK$967,192.00
	Sub-Total	HK$7,559,394.93
Personal belongings		HK$226,700.00
	Grand Total	HK$30,950,193.14

16.  The husband claimed that as a result of the global financial crisis that occurred in 2008, the value of his assets had substantially dropped.  He paid the first instalment by realizing the HKTF and UBS Portfolio.  The amount he realised was HK$1,213,508.89 for HKTF in March 2009 (the value was $1,712,632 at FDR), US$228,154 (about HK$1,779,601) for the UBS portfolio in May 2009 (the value at FDR was about US$633,561 or about HK$4,941,775.80).  The balance used for the payment of the first instalment came from the money in his HSBC Bank account.

17.  In support of his application the husband claimed that his assets (after deduction of liabilities) was HK$6,172,049.84 made up as follows :

Current assets :
Bank accounts
1.	HSBC	HK$1,238,703.00
2.	Commerzbank	HK$205,791.00
Stocks
1.	31.5% GC	HK$2,909,294.00
2.	VW	HK$(97,449.00)
Pension Fund
1.	MPF ING Fund	HK$4,267,947.00
2.	Gerling Life Pension/Retirement Policy (C66,912.47)	HK$773,264.00
Properties
Canadian properties		HK$1,028,126.00
Monies owed to him :
1.	His mother	Nil
2.	His brother	HK$2,681,998.00
3.	Interest in the Hyatt Coolum	HK$202,894.00
4.	Clearwater Bay Marina Club debenture Owned by Q Limited	HK$550,000.00
	Total assets :	HK$13,760,568.00
Liabilities :
1.	American Express	HK$89,734.60
2.	HSBC Premier Master Card	HK$33,270.22
3.	Standard Chartered credit card	HK$169.34
4.	Liability being amount borrowed against 2008 profit	HK$2,423,383.00
	Total liabilities :	HK$2,547,307.16
	Net Assets	HK$11,213,260.84
	Less : retirement assets not accessible until retirement	HK$5,041,211.00
	Net Current Assets :	HK$6,172,049.84

18.  The husband claimed that he was unable to obtain either a loan from his employer or commercial loans to meet the further instalment payment.

19.  The husband’s yearly income is about HK$1.5 million.  This is made up of a basic salary $94,800 per month, an extra one month bonus salary plus a discretionary bonus at a maximum three months’ salary.  His profit share payments since 2004 are :

2004 (paid in 2005) HK$4,605,613

2005 (paid in 2006) HK$3,173,257

2006 (paid in 2007) HK$4,777,159

2007 (paid in 2008) HK$6,371,921

2008 (paid in 2009) HK$2,426,805

2009 HK$3,600,000

20.  His average monthly expenditure is HK$536,852 which is made up of $358,000 for himself and his household and HK$178,000 for the wife and the two daughters. This is more than four times of his average monthly salary of HK$126,400.  The shortfall is met by the profit share payment.  The husband’s new partner who works in his company earns $100,000 per month.

Wife

21.  The wife’s current expenditure is HK$180,000, of which $105,000 goes towards the payment of rent.

The Judge’s decision

22. 1) The Judge accepted that the global financial crisis caused a drop in the value of the husband’s assets.  If not for the depreciation in value of the stocks, the husband would have enough money to meet the first two instalments.  However, having regard to the authorities the Judge did not consider this to be a sufficient reason to reduce his liability for the lump sum payment.

2) The Judge accepted that the husband did not have the means to pay the second instalment. The husband was unable and should not be expected to borrow to fund the payment. However the Judge was of the view that :

‘ I have no doubt that given time the husband will be able to rebuild his assets as before if not more given his position in his company and the continue growth and development of his business in both Hong Kong and China.’

3) The Judge took into account the upward trend of his profit payment. The Judge further considered that the husband will improve his liquidity with some proper adjustment to the level of his lifestyle and expenses and with a fair contribution by his new partner towards his household expenses.

4) The Lifesaver Insurance Policy was taken out in respect of the son. The maturity date is 2013. The expected payment is $5,456,427. Under the consent order, $3 million of this sum will be used to pay for the third instalment. The Judge now ordered the whole of this sum to be used in replacement of the original second instalment.

5) The Judge also found that there was no room for any downward adjustment of the wife’s maintenance. The Judge took into account the past lifestyle of the parties and also of the fact that if the mother is to be housed in substantially inferior accommodation, this will put her in an unfavourable light in the eyes of her daughters who have staying access in the husband’s spacious house in Clear Water Bay.

The law

A) Lump sum order

23. 1) The Court’s power to order a lump sum (including lump sum payable by instalments) can only be exercised once: de Lasala v. de Lasala [1980] AC 546 at 559-660.

2) For the purpose of this appeal, there are two ways to seek a change to a lump sum order payable by instalments. The first is to apply for a variation of the order under section 11 of the Matrimonial Proceedings and Property Ordinance (‘MPPO’) (Cap. 192). The second is to appeal against the consent order. This usually requires leave to appeal out of time.

3) The husband’s application is brought under section 11 of MPPO which is based upon section 31 of the United Kingdom Matrimonial Causes Act 1973 (‘MCA’) (replacing the Matrimonial Proceedings and Property Act 1970 section 25). The relevant parts of MPPO are :

‘ (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.

(2) This section applies to the following orders, that is to say

(a) –

(b) any order made by virtue of section 4(1)(a) [periodical payment] or (b) or 4(2)(b) [lump sum by instalment]

(c) –

(d) –

(da) –

(e) –

(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.’

4) Section 11 does not impose any restriction on variation of consent orders. It is clear from G v G [2001] 1 HKLRD 580 that the Courts have jurisdiction to vary orders made by consent.

24.  It is further accepted by the parties that the jurisdiction to vary goes beyond merely adjusting the time for payment or ‘recalibrating’ the instalments.  However (again this is accepted) the jurisdiction to vary must be exercised with caution.  In Tilley v. Tilley [1979] 10 Fam Law 89, the wife was required to pay a lump sum by instalments to her husband under a consent order. She successfully applied for variation to waive the payment of one of the instalments on the basis that she could not afford to meet the requirement without selling the home she and the children were then living.  Ormrod LJ held that,

‘ …it was very undesirable to create the impression that orders for lump sum payments by instalments could be readily, or were likely to be easily, varied on change of circumstances. Parliament had given the court full jurisdiction to do it but it was to be borne in mind that people relied on these things being carried out. It should be plainly borne in mind that the husband had a continuing obligation to the children which offset the consent order and, had there not been that continuing liability for these children, and had the execution of this agreement not inevitably been going to lead to the dispossession of the children from their home, the result of the case might have been very different. That was the right approach of the court in this case.’ (emphasis added)

6) This strict approach was affirmed 32 years later in Westbury v. Sampson [2002] 1 FLR 166 which was a negligence claim against a solicitor who had not advised the husband that a consent order for lump sum payable by instalments was liable to be varied. The wife had successfully varied the consent order. The judgment of Bodey J in the Court of Appeal is instructive :

‘ [56] So far as counsel have been able to find, there are no decided cases stating any principles on which the court should act when applying s 31(1) and (7) to orders for a lump sum payable by instalments.

[57] Nevertheless, given the constant emphasis in the authorities generally on the need to uphold the finality of orders intended to be final, including orders as to capital, it seems to me that very similar considerations ought in practice to be applied under s 31 as those laid down in Barder v Caluori [1988] AC 20, sub nom Barder v Barder (Caluori Intervening) [1987] 2 FLR 480, at any rate as regards varying the overall quantum of a lump sum order by instalments (as distinct from re-timing or ‘re-calibrating’ the instalments).

[58] The re-opening under s 31 of the overall quantum of lump sum orders by instalments, especially when made as part of a package intended to be final (and all the more so when ordered by consent following an agreement) should only be countenanced when the anticipated circumstances have changed very significantly, and/or for cogent reasons rendering it quite unjust or impracticable to hold the payer to the overall quantum of the order originally made.’ (emphasis added)

8) The same approach was adopted in Shaw v. Shaw [2002] 2 FLR 1204 where Thorpe LJ held at 1218 that,

‘ I am in complete agreement with that approach [i.e. paragraph 57 of Westbury]. It is frequently the case that the wife’s entitlement is expressed as a lump sum payable by two instalments where the husband’s ability to pay cash is dependent upon realisations whether of land, shares or chattels. That fortuitous circumstance reflected in an order drawn to accommodate the payer should not in my judgment in any way widen the payer’s opportunity to reopen the quantum issue whether in reliance upon Barder v Caluori or Livesey v Jenkins.’

9) The Barder approach referred to in these cases is in respect of the second way to change a lump sum order payable by instalments, namely, an application for leave to appeal out of time against such an order. Lord Brandon of Oakbrook at page 43 listed four requirements, the first of which is relevant for the purpose of this appeal.

‘ A court may properly exercise its discretion to grant leave to appeal out of time from an order for financial provision or property transfer made after a divorce on the ground of new events, provided that certain conditions are satisfied. The first condition is that new events have occurred since the making of the order which invalidate the basis, or fundamental assumption, upon which the order was made, so that, if leave to appeal out of time were to be given, the appeal would be certain, or very likely, to succeed. (emphasis added)

10) The latest authority is Myerson v. Myerson [2009] 2 FLR 147 where there was an application for variation of a lump sum order payable by instalments and also for permission to appeal on the ground that the global economic collapse in 2008 led to a substantial drop in the share price of the husband’s holding. The background of the case as contained in the headnote of the judgment showed that the wife’s ancillary relief application against the husband was compromised at an FDR appointment, the parties agreeing that the wife was to receive £11m (43% of the total assets) and the husband £14.5m (57% of the total assets). Under the consent order the husband was to pay the wife a lump sum of £9.5m in cash, in five instalments over about 4 years; the balance of the payment was to be by transfer of a property valued at £l.5m. The assets to be retained by the husband were largely a very substantial shareholding in the company through which the husband operated, plus various properties. The husband paid the first lump sum instalment of £7m on time, but when the global economic collapse led to the collapse of his company’s share price, the husband sought to revisit the agreement. At this point the husband’s share of the former matrimonial assets under the agreement had dropped to only 14%, while the wife’s share was 86%. The husband applied for an extension of time for the transfer of the property, for a variation of the sums to be paid in the future, and for permission to appeal against the terms of the consent order. By the time the appeal was heard the share price had deteriorated still further, and the agreement, if enforced in full, would have left the husband with less than nothing. On appeal the husband argued that the drop in share prices had rendered the consent order both unfair and unworkable, and that the relevant events were sufficiently dramatic to constitute new events, within the principles set out in Barder. The English Court of Appeal granted permission to appeal but dismissed the appeal. Thorpe LJ at 151 expressly held that the approach to a variation application is the one referred to in Westbury and Shaw.

B. Periodical payment

25.  1)         There is no similar stricture in respect of a variation of a periodical payment order.  The Court is to consider whether in all the circumstances, and having regard to any such changes, it would be appropriate to vary the order.  An increase in the wealth of the husband was a relevant factor to be taken into account, see AEM v. VFM (Variation of Maintenance) [2008] HKFLR 106.

2) In Cornick v. Cornick (No. 3) [2001] 2 FLR 1240 Charles J held that

‘ [105] In my judgment White v White[2000] 2 FLR 981 and Cowan v Cowan [2001] EWCA Civ 679, [2001] 2 FLR 192 confirm and support the approach taken in Cornick (No 2) that the court should consider the whole picture. The earlier cases andCornick (No 2) show that the court can take into account an increase in the wealth of the payor and that s 25(2)(c) namely the standard of living enjoyed by the family before the breakdown of the marriage is by itself not a determinative factor. In my judgment this approach to s 25(2)(c) accords with the language of the statute and the underlying purpose of s 31. For example if the payor’s available resources decreased dramatically the payee would not be able to argue successfully against a downward variation because the payee’s standard of living would then fall below the standard enjoyed by the family before the breakdown of the marriage. In my judgment in those circumstances the payee would be likely to have to suffer the consequences of the inability of the payor to pay as much. It is therefore logical that a payee is not precluded from deriving benefit from an increase in the payor’s fortunes even if this results in the payee enjoying a higher standard of living than she or he did during the marriage.’

3) In respect of Charles J’s reference to the earlier Cornick case, the history is that Hale J first refused leave to appeal against a lump sum order in Cornick v. Cornick [1994] 2 FLR 530. Later the wife successfully applied before Hale J to vary the periodical payment order on account of the husband’s dramatic increase in wealth. The Court of Appeal affirmed Hale J’s decision in Cornick v Cornick (No. 2) [1996] 1 FCR 179. The wife in Cornick (No. 3) applied to Charles J to capitalise the periodical payment based on a new statutory provision.

My view

26. 1) The husband argued that the Judge had wrongly taken the Barder principle into account in the husband’s variation application.  I do not find that the Judge had erred in that regard.  He clearly recognised the two lines of authorities.

2) However, in practice similar considerations ought to be applied under a variation application as those in Barder. This is so recognised in Westbury and confirmed in Shaw and more recently in Myerson. The underlining principle that supports this view is the public policy of finality in litigation, so that orders, and especially consent orders, providing for a clean break, are not set aside unless there is a compelling reason to do so. This is a point emphasised in both lines of authorities. It is worth repeating the words of Lord Wilberforce in Ampthill Peerage Case [1977] AC 547 at 569

‘ English law, and it is safe to say, all comparable legal systems, place high in the category of essential principles that which requires that limits be placed upon the right of citizens to open or reopen disputes…Any determination of disputable fact may, the law recognises, be imperfect : the law aims at providing the best and safest solution compatible with human fallibility and having reached that solution it closes the book...For a policy of closure to be compatible with justice, it must be attended with safeguards: so the law allows appeals; so the law, exceptionally, allows appeals out of time; so the law still more exceptionally allows judgments to be attacked on the ground of fraud…But these are exceptions to a general rule of high public importance, and as all the cases show, they are reserved for rare and limited cases, where the facts justifying them can be strictly proved.’

See also Rayden and Jackson on Divorce and Family Matters 18^th Ed. Vol 1(1) paragraph 18.30.

3) In order to give effect to this principle, the Barder approach requires a new event to strike at the heart of the order so as to invalidate the basis, or the fundamental assumption, upon which it was made. Similarly under the application for variation route, the anticipated circumstances must have changed very significantly or when it is unjust or impracticable to hold to the original order.

4) Although the words used in the two approaches were different, once it is recognized that both routes are required to observe the principle of finality of litigation, then in reality the application of these two approaches does not make any practical difference. In my view the recognition of this important public policy provides the key to the solution of the problem.

5) It is recognized that in the present case the parties have not yet achieved a clean break, but the fact that the consent order encompasses both the lump sum payable by instalments order and also the periodical payment order does not in any way detract from the observance of the principle of finality of litigation. The lump sum order, although payable by instalments was an order made once and for all. Obviously that was the foundation upon which the parties had chosen to regulate their financial positions. As observed by the authorities, the fortuitous circumstances of allowing the payer to pay the lump sum by instalments should not widen his opportunity to reopen the quantum issue.

6) The husband here relied upon the substantial drop in the value of his assets as the basis of his variation application. There are two responses to this. First, the global collapse of banking credit commenced in August 2007. England began nationalising one of the financial institutions, Northern Rock in February 2008. The Lehman Brothers filed for bankruptcy on 15 September 2008. Hong Kong being a leading financial centre bore the brunt of these events as well. In other words the financial environment when the parties conducted their FDR on 26 September 2008 was already in a state of turmoil. Any further erosion of the value of the husband’s assets was by then a distinct possibility. Hence it cannot be said that the drop in the value of the assets was unforeseen and unforeseeable. Second, and this is more important, fluctuation in the value of assets, be they shares, houses or other properties will by their nature occur one way or the other. At the same time financial crisis will also occur at one time or the other in any economy. How is the Court to say at what level of the depreciation of the value it wouldintervene and make an order for variation? Just as the appreciation in the value of the assets does not provide for a legitimate basis for intervention, the reverse is also true. The authorities have as a whole assiduously held that the natural process of price fluctuation in assets, however, dramatic, does not fall within the situation of an unforeseen and unforeseeable situation which justifies granting leave to appeal out of time, see Hale J in Cornick at 536. While this was said in the context of Barder, in my view this applies with force to a variation application as well.

7) Mr. Coleman S.C. (with him Ms Frances Irving) argued most persuasively that it is unjust to require the husband to honour his bargain while at the same time he is unable to receive his share of what the parties had agreed upon. He was supposed to receive a share of the insurance payment upon its maturity in 2013 and now the whole amount will be used to pay the wife. This together with the disposal of the shares means that there is no capital for the husband to build up his future assets. Further, whatever profit share he will receive from his company, it will also be used to discharge the periodical payments. These are legitimate concerns. However, it is important to recognize the reality of the situation. The husband has been a successful businessman. The Judge has clearly taken into account his earning capacity when he refused his application. By the new order, the husband no longer needs to borrow money to fund the payment of the new second instalment. He is further given a lengthy period of three to four years from now to pay the last two new instalments. The Judge has further considered that the husband may need to adjust his expenditure and lifestyle to meet his obligation. The structure of the consent order after taking into account the periodical payment provides the wife with more than 50% of the parties’ total assets. The husband had been generous but this was how the parties had chosen to regulate their affairs. In my view the Judge had not erred in the exercise of his discretion and I am unable to accept that there is anything unjust in the current situation which requires the Court to intervene on the lump sum order.

8) In respect of the periodical payment, Cornick (No. 3) does not assist the husband because the Judge, having considered all the circumstances, held that there was no room for downward adjustment of the periodical payment order. Again he had not erred in his discretion.

Conclusion

27.  In the circumstances I will dismiss the husband’s appeal.

Costs

28.  I will make a provisional order against the husband in respect of the costs of the appeal.

Hon Kwan JA :

29.  I have the benefit of reading in draft the judgment of Cheung JA and agree entirely with it.

Hon Yam J :

30.  I also agree.