KEWS v. NCHC

CACV 75/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 75 OF 2011

(ON APPEAL FROM FCMC NO 13087 OF 2008)

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BETWEEN

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J U D G M E N T

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Hon Cheung CJHC:

The appeal

1.  This is an appeal by the respondent in the matrimonial proceedings below (“the Wife”) from the judgment and order of His Honour Judge C K Chan given on 19 October 2010.  The Judge ordered the petitioner (“the Husband”) to pay periodical payments to the Wife on the first day of every month at the initial rate of HK$14,000 per month for the months of November and December 2010, and thereafter at the increased rate of HK$21,000 per month, until the death of either party or the re‑marriage of the Wife (whichever is earlier), or until the further order of the court.  The Judge dismissed all other forms of ancillary relief applied for by the Wife.  In particular, the Judge refused to adjourn the Wife’s claim for capital provision and dismissed the claim instead.  The Judge’s order also stated that for the purpose of the Wife’s application under section 17A of the Matrimonial Causes Ordinance (Cap 179) (“the MCO”), the Court was satisfied that the financial provision made by the Husband for the Wife is reasonable and fair or the best that can be made in the circumstances of the case.  The Judge also made an order nisi that there be no order as to costs including all costs previously reserved.  After a further hearing, the Judge made absolute his costs order nisi.

2.  Mr David Pilbrow SC, appearing for the Wife, contends that the periodical payments for maintenance awarded by the Judge are plainly too low in view of the Husband’s earning capacity and his family background.  As regards the Judge’s dismissal of all other forms of ancillary relief, senior counsel argues that the Judge ought to have acceded to his application to adjourn the claim for capital provision, and he ought not to have made any order in relation to the claim for secured periodical payment. As a fallback position to his argument that the capital claim should have been adjourned, Mr Pilbrow argues, without any objection from the opposite side even though the point was not mentioned in the Supplementary Notice of Appeal, that in any event, the Judge was wrong to dismiss his client’s capital claim after rejecting his application for an adjournment.  In this regard, counsel contends that the Judge failed to take into account sufficiently his client’s case on conduct.

Facts

3.  Before turning to these contentions, it is necessary to give a brief account of the facts.

4.  All sides agree that this is a particularly sad case.  The parties are a relatively young couple without any children.  The Husband is now aged 35 and the Wife aged 33.  They met in the early 90s when both were still in their teens.  The Husband comes from a prominent and wealthy family.  He is one of four children.  His father, now in his early seventies, is the grandson of the founder of a business empire.  His mother is also in her early seventies.  She is the daughter of one of the founders of a well known institution in Hong Kong, of which her brother is still the Chairman.

5.  The Wife is one of two siblings.  Her father is a medical doctor and has provided comfortably for his family.  In the summer of 1996, the Wife, then a top student in an ESF school, intended to go to summer school at Harvard University to study English.  The Husband, who was then an undergraduate student at that University, invited the Wife to share an apartment with him.  She agreed.  It is the Wife’s case, strongly denied by the Husband though, that he molested her and left her alone in the apartment for three days without any food.  It is alleged that this incident caused her dramatic psychological trauma, which was, in turn, to have severe repercussions on both her psychiatric and physical well‑being.

6.  Yet, despite this alleged incident, which the Wife’s parents only learnt about after the commencement of the present proceedings, the parties continued their friendship which later even developed into a romantic relationship.  The Wife failed to meet a conditional offer made by Oxford for admission to study at that University, and went to London for her tertiary education.  But she failed to sit for her final examinations, having been diagnosed with anxiety or depression.  In the meantime, the Husband, having graduated from Harvard with a degree in economics, returned to Hong Kong and worked for a consulting firm for a short period of time at the salary of $24,000 per month.  He left the company in 1999 to care for the Wife who falsely told him that she had got cancer.

7.  In any event, in December 2000, the parties were married in London without the presence of their respective parents.  Upon their return, their families accepted the fait accompli and formal celebrations of marriage – a blessing at St John’s Cathedral and a lavish reception at the Island Shangri‑la Ballroom ‑ were arranged on 18 August 2001.  According to the evidence, the wedding reception was paid for by the Husband’s family.  The Husband worked for another company in February 2001 but only for a short while.  He left upon the request of the Wife as she did not like being alone. In November of the same year, the Wife became pregnant, but as she was undergoing a course of electro‑convulsive therapy, she was advised to abort the pregnancy.  Indeed, starting with binge eating back in mid 90s, the Wife had sought treatments from various psychiatrists for panic attacks, insomnia and depression.

8.  However, in October 2002, she was diagnosed to be suffering from a very rare gut disorder called “superior mesenteric artery syndrome”. This is a most uncommon disease where the artery coming out from the aorta supplying most parts of the gut impinges on the second part of the duodenum thus causing blockage to the normal passage of food from the stomach to the small bowel.  This was to be the beginning of long years of nightmare, not only for the Wife but also for her family.  In November 2002, the Wife underwent the first of what has to‑date been 10 operations during which a large part of her digestive system had to be removed, including the whole of her stomach.  For a considerable period of time, she could not eat properly and had to rely on intravenous fluid and nutrient solutions.  She also had constant severe abdominal pain and experienced great difficulties in passing stool. According to the trial judge, the Wife only weighed 70 pounds as at the time of trial.  She was on heavy medication.  She was homebound and a full time maid was employed to look after her.  As at the time of trial, she was under the joint care of 2 experts in gastrointestinal diseases for her gut problem and another expert for her genital prolapse.  All this was on top of her depression and other psychiatric problems.  And needless to say, the ongoing matrimonial proceedings did not help her condition at all.

9.  As the Judge noted, it is not in dispute that despite the deterioration of the Wife’s health during the marriage, the parties remained attached to each other.  He was by her side most of the time whether she was seeking treatment in Hong Kong or overseas.  However, in the latter part of 2006, the Husband told the Wife and her family that he needed a break and to re‑establish his career.  He left the couple’s rented matrimonial home in Causeway Bay and returned to stay with his parents.  The parties have remained separated ever since.

10.  The Husband issued a petition for divorce on 3 November 2008 based on 2 years separation.  A decree nisi was granted on 24 March 2009.  On 19 February 2009, the Wife filed both the Form A (Notice of an Application for Ancillary Relief) and Form B (Notice of an Application Under Rule 56B).

11.  It is plain from the evidence that whether before or after the separation in 2006, the Husband had only been engaged in gainful employment sporadically. As the Judge found, the couple received financial assistance from their respective families during the subsistence of the marriage, so much so that they were able to enjoy a reasonably high standard of living during marriage. The Judge also found that after the separation, the Husband continued to receive substantial support from his parents financially.  Hence, he was in a position to give his entire income (of $15,000 per month) which he earned from a job he got since 24 February 2009 to the Wife as interim maintenance payment.  The Judge observed that “there is no reason to believe that such support will not be continued” (para 86 of the judgment below).

12.  As for the mounting medical and caring expenses of the Wife, again there is no dispute that before the separation in 2006, they had been funded by the respective families.  However, after the separation, they were wholly borne by the Wife’s family, despite earlier promises by the Husband to the Wife and to her parents that he and his family would be responsible for the same.  Such promises are, however, denied by the Husband.

13.  As at the time of trial, a total sum of over $2.4 million has been incurred by the Wife’s parents on the medical treatment and maintenance of the Wife.  That figure has not been seriously contested.

14.  There is no serious controversy that after the separation, the Husband continued to enjoy a reasonably high standard of living.  There is evidence to suggest that he has got a new girlfriend working in the entertainment business.  But the Judge made no express finding on this.  In any event, according to the documents disclosed, between 2005 and 2010 (4 years 9 months), the Husband had a total of over $7 million deposited into his bank accounts, even though his total salary was slightly more than $0.4 million only during that period of time.  That gave an “income” of nearly $1.5 million per year.  During the same period of time, withdrawals from his bank accounts amounted to over $8.28 million or over $1.74 million per year on average.

15.  In 2007, the Husband studied for the Securities and Futures Commission Paper I Examination.  He obtained a licence for dealing in securities, advising in securities and asset management in March 2008, but apparently he never practised as such.

16.  Apart from the job he got as a senior control officer in a Swiss private bank since February 2009 earning $15,000 per month, the Husband also did a part‑time EMBA course with Kellogg/HK UST Business School since January 2009.  He obtained his Kellogg EMBA degree in May 2010.  It is not disputed that the EMBA course is one of the most prestigious courses of its kind.  According to an extract of the Financial Times EMBA ranking 2009, Kellogg graduates commanded the highest starting salaries.  The cost of the course – HK$755,000 – was again funded by the Husband’s parents.

17.  As mentioned, as at the time of trial, the Husband was still earning $15,000 per month.  His evidence in court was that by the end of the year, he was expecting to get a pay rise, thereby bringing his salary to $30,000 to $40,000 per month.

18.  On the other hand, there is no dispute that the Husband otherwise has no significant assets at all.  There is no evidence of his being a beneficiary under any will of his parents or under any discretionary trust set up by his parents or their respective families.  The Judge found on the evidence that the Husband’s parents, who are in their early seventies and are not suffering from bad health, are not “extremely wealthy people” as the Wife would like to believe.  He found that it is unlikely that the Husband would receive a substantial legacy from his parents’ estates even if they should pass away in the near future.

19.  On that basis, the Judge refused the Wife’s application to adjourn her capital claim either generally or for a limited period of time.  Furthermore, the Judge noted that the Wife accepted that there were at present no assets standing under the name of the Husband.  It therefore followed, according to the Judge, “that upon the refusal of her application for adjournment, and upon the consideration of the s 7 factors, a natural consequence would be for the Wife’s application for capital provision to be dismissed” (para 72).  The Judge went on to consider the notion of judicious encouragement in the present case.  He took the view that as the Husband’s parents were not extremely rich people as believed by the Wife, therefore the notion of judicious encouragement had “no place in this judgment” (para 73).

20.  As for periodical payments, the Judge explained his decision in paragraph 96 of his judgment :

“ After considering all the circumstances of this case and in particular, the Wife’s future needs and the Husband’s present and future earning capacity, I am minded to grant a periodical payment order in favour of the Wife. As to quantum, I am satisfied that a reasonable figure would be a monthly sum of $14,000 until the end of this year and thereafter to be increased to a monthly sum of $21,000. I came to these figures because from now on to the end of year, $14,000 per month is already the whole of the Husband’s monthly income. As from 2011, I expect the Husband’s salary to be increased to $30,000 to $40,000 per month. The sum of $21,000, catering for about half of the Wife’s needs, will still be within the Husband’s ability to pay. I am also aware that by ordering these sums for maintenance against the Husband, he may still have to seek some form of financial assistance from his parents, but there is no reason to believe that such assistance will not be forthcoming under the circumstances of this case.”

Appeal against discretionary decisions

21.  The court does not lightly disturb an exercise of discretion.  It is only where the decision exceeds the “generous ambit” within which reasonable disagreement is possible, and is, in fact, “plainly wrong”, that an appellate body is entitled to interfere : Bellenden (formerly Satterthwaite) v Satterthwaite [1948] 1 All ER 343, 345; G v G [1985] 1 WLR 647, 651‑653.  With that in mind, I turn to the various contentions of Mr Pilbrow.

Adjournment of the capital claim

22.  First, the question of adjournment of the capital claim.  In gist, Mr Pilbrow argues that in the present case, justice cannot be done to the Wife’s capital claim at this time.  There is no way that a division of the Husband’s present capital assets can in any way afford the Wife’s security for her future, recognize any claim for compensation she may rightfully have, or recognize her contribution to the 6‑year marriage. In the light of their support given to the Husband, there is little uncertainty that the Husband will, in due course, benefit by inheriting a portion of his parents’ substantial wealth.  Counsel puts his client’s case for an adjournment under both sections 4 and 6 of the Matrimonial Proceedings and Property Ordinance (Cap 192) (“ the MPPO”) as well as section 17A of the MCO.

23.  That there is jurisdiction to, exceptionally, adjourn a wife’s capital claim cannot be seriously disputed : Hardy v Hardy [1981] 2 FLR 321; Davies v Davies [1986] 1 FLR 497; MT v MT (Financial Provision: Lump Sum) [1992] 1 FLR 362; Re G (Financial Provision: Liberty to Restore Application for Lump Sum) [2004] 1 FLR 997.

24.  As the Court of Appeal held in Davies, although lump sum applications should generally be disposed of once and for all, nevertheless, where there is a real possibility of capital from a specific source becoming available in the near future, then it is within the court’s jurisdiction to order an adjournment, in particular where an order for an adjournment is the only means whereby justice can be done to the parties.  In that case, the Court of Appeal expressly approved adjournment of a lump sum application where there was a real prospect of a farming partnership of the husband being dissolved thereby releasing capital, the adjournment being to safeguard the wife’s interests.

25.  In Michael v Michael [1986] 2 FLR 389, the Court of Appeal explained how the jurisdiction to adjourn should be exercised in practice (at p 396C to E) :

“ I have already expressed the view that s 25(2)(a) of the Act of 1973 as amended could in certain circumstances extend to an interest which might be taken under the will of a living person. Suppose, for example, a case where there was clear evidence, first, that the respondent’s father was suffering from a terminal illness, secondly, that his will left property of substantial but uncertain value to the respondent and, thirdly, that it was highly improbable that he could or would revoke it. In such a case it could hardly be doubted either that the property was property which the respondent was likely to have in the foreseeable future or that the application should be adjourned to abide the death of the father. However, those facts, being extremely special, demonstrate that the occasions on which such an interest will fall within s 25(2)(a) of the Act of 1973 as amended are likely to be rare. In the normal case uncertainties both as to the fact of inheritance and as to the time at which it will occur will make it impossible to hold that the property is property which is likely to be had in the foreseeable future.”

26.  Quite plainly, the present case is not one where an adjournment should be ordered.  As the Judge found, the parents of the Husband are in their early seventies and there is no suggestion that either of them are in bad health.  There is no evidence of any will already made by the parents in favour of the Husband.  The contents of any future will, if ever made, are unknown.  There are uncertainties both as to the fact of inheritance and as to the time at which it will occur.  It is impossible to hold that the possible inheritance is property which the Husband “is likely to have in the foreseeable future” (section 7(1)(a) of the MPPO).  The facts of the present case are far removed from those to be found in a typical case where an adjournment would be justified : for instance, in MT, the husband was expecting to inherit substantial capital from the estate of his father, a man of considerable wealth and was 83 years old at the time, on his prospective demise within a few years time, as, under German law, the husband could not be excluded from benefiting from the father’s death and would automatically be entitled to claim one‑eighth of the estate.  The facts of the present case are very different.

27.  Mr Pilbrow argues that in considering how his discretion should be exercised, the Judge ought to have taken into account conduct and the fact that given her present state, the Wife could not give evidence at trial to substantiate her claim on conduct.  In fact, she has been defending the proceedings by her mother as her guardian ad litem.  Mr Pilbrow criticizes the Judge for focusing only on the so‑called 1996 incident in Boston described in the earlier part of his judgment.

28.  I do not accept Mr Pilbrow’s argument. I note that up to the stage of the PTR, the Wife’s case had been that conduct was irrelevant.  The evidence filed subsequently by her parents did raise the question of conduct as a potential issue, but the main focus was on the 1996 incident as the ultimate cause of the Wife’s subsequent suffering and ordeal.  Even Mr Pilbrow’s own opening before the Judge concentrated on the 1996 incident.  On the materials before him, the Judge was entitled to his view that the evidence in support of the allegations was “flimsy”.  The Judge was also correct to note that that incident happened four years before marriage.  Furthermore, even the Wife accepted that until his departure in 2006, the Husband had been taking care of her reasonably well, despite some (alleged) incidents of drunkenness and abuse. In any event, as counsel accepts, conduct is just one of the many matters that the Judge took into account in deciding whether there should be an adjournment.

29.  Looking at the matter globally, it is impossible to say that the Judge’s refusal of the Wife’s application for an adjournment was “plainly wrong”.  In fact, I think he has reached the right decision.

30.  That leaves section 17A of the MCO.  Section 17A(3) requires the court not to make absolute the decree of divorce if an application has been made under the one year or two year separation ground unless it is satisfied that the financial provision made by the petitioner for the respondent is “reasonable and fair or the best that can be made in the circumstances”.  At the hearing below, Mr Pilbrow also relied on this provision in support of his application for an adjournment.  The Judge rejected the argument and in the Order he made, the Judge specifically stated that the Court was satisfied with the financial provision made thereunder in terms of section 17A(3).

31.  The distinction between an application under section 17A of the MCO and a claim for ancillary relief under sections 4 and 6 of the MPPO has been explained in Hardy.  In short, section 17A(3) of the MCO (section 10(3) of the Matrimonial Causes Act 1973) is there for the protection of the wife to meet the sort of situation where a divorce based on separation is sought against a wife at a time highly convenient to the husband financially, and potentially highly prejudicial to the wife in the future.

32.  Mr Pilbrow’s submission turns on whether in the court’s view, the financial provision made by the Husband for the Wife is reasonable and fair or the best that can be made in the circumstances.

33.  For reasons that will become apparent when I turn to the question of periodical payments and capital provision, I do not think section 17A(3) adds anything to Mr Pilbrow’s case.

Periodical payments

34.  I turn first to the question of periodical payments.

35.  In my view, the amounts ordered by the Judge are plainly too low.

36.  First, the Husband has obviously failed to fully utilize his “earning capacity”, a matter specifically required by section 7(1)(a) of the MPPO to be taken into account.  As Judge Bruno Chan pointed out in W v W, FCMC 2348/2002 (5 November 2003) :

“49. It is true that the Court must have regard to not only the income of each of the parties but also their earning capacity. This is clear in the authorities, and is specifically so provided in s 7(1)(a) of the Ordinance. As submitted by the Wife, this reflects the serious burden which a Court imposes upon the bread winner to use his or her best endeavours to meet his or her obligations in this regard. The fact that a husband has no immediate income is no sufficient answer to a claim by a wife for periodical payments, as in the case Munt v Munt [1983] Fam Law 81 in which the husband, who had been unemployed for 12 months and was receiving supplementary benefit, was found to be physically capable of undertaking unskilled employment, and was therefore ordered to pay maintenance to the wife for the child of the family. Similarly, in the case of Fowler v Fowler [1981] 2 FLR p 141, an unemployed husband was ordered by the Court to pay periodical payments for his wife and children when he was found to be able to deal in motor cars if he saw it fit to do so and that he was able to make a profit from such activity.”

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

38.  Yet the odd thing in the present case is that despite his superficially low income, the Husband has been able to hand over his entire income of $14,000 (after deduction of MPF) to his Wife as interim maintenance.  This brings me to the second reason why I think the Judge erred on the question of periodical payments.  The Husband was able to pay the Wife his entire income as interim maintenance because throughout his life, he has been well supported by his family.  Whether before or after the separation in 2006, the Husband has been maintaining a reasonably high standard of living. During the marriage, contributions from both families were forthcoming.  But even after the separation, the Husband continued to receive substantial financial support from his own family.  I have already referred to the amount of money the Husband has received from his family for the period of 4 years 9 months since 2005.  The money did not include gifts, benefits and support in kind from his parents.

39.  In his evidence, the Husband accepted that before the separation, there were trips to London, Boston, Japan and a trip by the Wife to New York, all funded by contributions from the two families.  He was a member of the Hong Kong Country Club and the Wife enjoyed the use of four supplementary credit cards.  The Husband’s father had funded the setting up of a health food business (which eventually ended in a failure).  After separation, the Husband’s affluent lifestyle suffered little change.  He has lived with his parents and until recently that was in one of the penthouse flats in Repulse Bay.  As mentioned, the evidence suggests that he has got a girlfriend working in the entertainment business.  He accepts that he has made recent trips to South Africa, Cebu (with his girlfriend), Chicago and Seoul.

40.  Furthermore, according to the Husband’s oral evidence, his father is responsible for payment of his supplementary credit card.  In the past few years, his father has discharged just under $1 million in credit card charges.  Between 2006 and 2008, the Husband has received gifts from his mother amounting to almost $1.6 million.  As mentioned, his Kellogg entrance fee, in the sum of $755,000, has been paid for by his father.  Moreover, the legal bills of the present proceedings have been footed by his parents.

41.  As the Judge found (paragraph 86), obviously, the Husband’s parents are still supporting him financially or otherwise he would not be in a position to contribute all his income for the Wife’s interim maintenance.  “There is no reason to believe that such support will not be continued”, the Judge found.  On the other hand, the needs of the Wife, quantified at the total sum of $42,500, is not seriously challenged.

42.  In those circumstances, even on the Husband’s own case of an expected pay rise to $30,000 to $40,000 per month, the monthly periodical payments should have at least been fixed at that range, in which event the Husband would still have been able to maintain himself at the same living standard by relying on support from his parents, just as before.

43.  However, when the matter is viewed globally, I would go one step further.  In my view, combining the earning capacity of the Husband with his parents’ support which is not expected to be discontinued (as per the Judge’s finding), there is no reason why periodical payments should not be fixed at the amount reasonably required by the Wife, that is $42,500 per month.

44.  As to the starting period, I am not prepared to order any backdating, in view of, amongst other things, what I am going to say about capital provision.

Capital provision

45.  In relation to capital provision, what I have said about the financial support the Husband has been receiving from his family is equally pertinent.  In the leading case of Thomas v Thomas [1995] 2 FLR 668, Waite LJ explained the law as follows (at pp 670F to 671A/B) :

“But certain principles emerge from the authorities. One is that the court is not obliged to limit its orders exclusively to resources of capital or income which are shown actually to exist. The availability of unidentified resources may, for example, be inferred from a spouse’s expenditure or style of living, or from his inability or unwillingness to allow the complexity of his affairs to be penetrated with the precision necessary to ascertain his actual wealth or the degree of liquidity of his assets. Another is that where a spouse enjoys access to wealth but no absolute entitlement to it (as in the case, for example, of a beneficiary under a discretionary trust or someone who is dependent on the generosity of a relative), the court will not act in direct invasion of the rights of, or usurp the discretion exercisable by, a third party. Nor will it put upon a third party undue pressure to act in a way which will enhance the means of the maintaining spouse. This does not, however, mean that the court acts in total disregard of the potential availability of wealth from sources owned or administered by others. There will be occasions when it becomes permissible for a judge deliberately to frame his orders in a form which affords judicious encouragement to third parties to provide the maintaining spouse with the means to comply with the court’s view of the justice of the case. There are bound to be instances where the boundary between improper pressure and judicious encouragement proves to be a fine one, and it will require attention to the particular circumstances of each case to see whether it has been crossed.”

46.  Gildewell LJ added (at pp 677H to 678B) :

“(a) Where a husband can only raise further capital, or additional income, as the result of a decision made at the discretion of trustees, the court should not put improper pressure on the trustees to exercise that discretion for the benefit of the wife.

(b) The court should not, however, be ‘misled by appearances’; it should ‘look at the reality of the situation’.

…..”

47.  Thomas has been followed in many subsequent cases.  It is true that it was a case where the husband was a beneficiary under a discretionary trust.  It is also true that a distinction has been drawn by Deputy High Court Judge Nicholas Mostyn QC (as he then was) in TL v ML [2006] 1 FLR 1263, para 86, between that situation and the one where the paying spouse is just a member of a wealthy family.  In paragraph 101, the Deputy Judge expressed the following view : 

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

48.  In this jurisdiction, the doctrine of judicious encouragement has clearly been applied to a non‑trust situation by this court in FMFT v HKWE [2001] 1 HKC 134.  In that case, the trial judge accepted that the husband, who came from an “extremely wealthy family”, had no real possibility of receiving any capital nor would there be any change in his financial situation in the foreseeable future.  He found that the wife would not be able to take up any employment.  He concluded that both of them led a comfortable way of life despite having little visible income.  He also found that the husband had been bailed out financially by his family and that he could obtain loans from his father’s companies or relatives.  There was little trouble if they were not repaid.  He lived rent‑free in a family property and the outgoings were paid by family companies.  The judge therefore ordered a lump sum of $5 million to effect a clean break to provide a new home for the wife and the child.  On appeal, the Court of Appeal reaffirmed the application of the notion of judicious encouragement in appropriate cases.  After examining the evidence, the Court of Appeal refused to interfere with the judge’s order.  On p 146E to H/I, Woo JA (as he then was) observed :

“Although there does not appear to have been any specific evidence to support the ability of the husband to pay the sum of $5 million, we are not disposed to hold that the Judge erred in adopting the figure. We accept that the rough estimation based on the parties’ standard of living during marriage, the benefit enjoyed by the husband and his ability to raise loans as the Judge described, as well as the husband’s various expenses having been paid whenever the need arose, can justify the Judge’s drawing the inference that the award of the lump sum of $5 million in favour of the wife was not beyond the resources of the husband based on a practicable point of view. While the Judge found that $17,500 per month was sufficient to cover the wife’s personal expenses when varying the periodic payment, that figure has not included expenses to provide a lodging for her commensurate with her standard of living before the break‑up of the marriage. What the Judge did was to take into account all the evidence before him and draw inferences from the unusual facts of this case where neither the husband nor the wife seems to have any appreciable tangible assets but both have been enjoying a very comfortable way of life. That is well justified on the basis of the judgment of Waite LJ cited above. Needless to say, the award is not plainly wrong. We do not think we should interfere.”

49.  In my view, even though the present case does not involve any discretionary trust or the giving of any judicious encouragement to a trustee as such, this is no obstacle in itself to the application of the notion of judicious encouragement.  On the other hand, I do accept that one must exercise great caution before applying the notion to any set of facts.  Amongst other things, the court should not engage in a futile exercise.  This was, rather sadly, illustrated by what happened subsequently to the lump sum order of $5 million in FMFT.  The husband eventually failed to raise the money to satisfy the court order.  The wife brought the husband to court under a judgment summons which came before Judge Gill : X v Y,FCDJ 536/1997 (21 June 2002).  According to the judgment, the husband’s family refused to help.  In paragraph 28, the Judge observed: “The only practical way in which the husband might feasibly have satisfied the judgment debt remained steadfastly behind a closed and locked door, that which would lead to an audience with his father.”  He therefore concluded that there was really nothing further the husband could do to satisfy the lump sum order.  He made no order under the judgment summons but awarded costs against the wife.

50.  Each case must be decided on its own facts.  I am satisfied that, when viewed in the round, this is an appropriate case for the application of the notion of judicious encouragement.  The Husband’s family has clearly been supporting him throughout, including funding the present legal proceedings.  The Judge has made an express finding that the financial support will continue in future.  Furthermore, unlike many other cases, the Husband clearly has under‑utilized earning capacity.  Hence, when one refers to judicious encouragement here, one does not only have in mind the family of the Husband, but also the Husband himself in terms of full utilization of his earning capacity.  Furthermore, one also bears in mind the amount to be ordered as well as the time of payment.

51.  As regards the amount, having looked at the entire circumstances, including in particular the Wife’s needs, the amount that her parents have expended on her whether before or after the 2006 separation, the length of the marriage and the fact that no children are involved, I take the view that a lump sum of $1.5 million would be a fair and reasonable amount.

52.  As for the time of payment, given the peculiar facts, I would allow the Husband a period of one year from the date of judgment to make payment.

Secured periodical payments

53.  Finally, I agree with Mr Pilbrow that the Judge should simply have made no order regarding the Wife’s application for secured periodical payment.  Circumstances could arise in future which might lead the Wife to make an application for secured periodical payment.  A dismissal now would shut the door forever to that possibility.

Outcome

54.  In the circumstances, I would allow the appeal to the extent indicated above, that is :

(1)   the Husband shall pay periodical payments to the Wife at the rate of $42,500 per month on the first day of every month starting from 1 November 2010 until the death of either party or the re‑marriage of the Wife (whichever is earlier), or until the further order of the court;

(2)   the Husband shall make capital provision for the Wife in the lump sum of $1.5 million payable within 1 year from the date hereof;

(3)   no order be made on the Wife’s application for secured periodical payment.

55.  As for costs, I would make a costs order nisi that the Wife shall have the costs of the appeal as well as the costs below, to be taxed if not agreed.

Hon Cheung JA :

56.  I agree with the judgment of the Chief Judge.  As we differ from Judge C K Chan, I would like to add the following views of my own.

Earning capacity and resources of a spouse

57.  The Court in making financial provisions for a spouse under the Matrimonial Proceedings and Property Ordinance (Cap. 192) is to ensure a fair distribution having regard to all the circumstances of the case : LKW v. DD (2010) 13 HKCFAR 537, 559.  Section 7(1)(a) expressly identifies, among other things, the earning capacity and financial resources that that each of the parties has or is likely to have in the foreseeable future, as one of the relevant factors.

Reality versus appearance

58.  The burden is, of course, on the spouse who seeks the financial relief (in this case the wife) to show that there are resources from the paying spouse to meet the claim.  However, the Court in its fact-finding mission is to look at the reality of situation and to draw inference from the available evidence.  The Court is to look at a spouse’s ability and qualification in order to assess his earning capacity rather than to confine the evaluation to his current earning.  Likewise the Court is to look at a spouse’s current expenditure and the actual standard of living as indications of his real resources rather than take notice only of his current assets : see Hardy v. Hardy (1981) 2 FLR 32 per Ormrod LJ at 328, W v. W (No. 3) [1962] P 124 and J-PC v. J-AF [1955] P 215.  As Jackson’s Matrimonial Finance and Taxation (8^th Ed) Paragraph 3.116 summarised the position : it is no sufficient answer to a claim by a potential payee for periodical payments for a potential payer to assert that he/she has no immediate income and no assets.  The lack of means may be purely temporary, not affecting their own standard of living, or it may not in fact reflect the true situation at all and be an unreal picture of the true state of affairs.

Judicious encouragement to third parties

59.  Where the available resources are currently under the control of third parties, such as trustees or wider family members, the Court will not usurp the rights of the third parties or apply improper pressure on the third parties.  But the Court has developed the concept of ‘judicious encouragement to third parties’ which permits the judge to frame the order in a form which affords judicious encouragement to third parties to provide the maintaining spouse with the courts’ view of the justice of the case, see FMFT v. HKWE [2001] 1 HKC and W v. W (FCMC 2348/2002) both applying Thomas v. Thomas [1996] 2 FCR 544, 546 per Waite LJ. See also H v. H (financial report : conduct) [1998] 1 FLR 911; X v. X (Y and Z intervening) [2002] 1 FLR 508; M v. M (Maintenance pending suit) [2002] 2 FLR 123.

The facts of the case

60.  The husband who is aged 35 is a Harvard graduate with an EMBA degree from Kellogg/HKUST.  He is also a qualified stockbroker. At the time of trial he was earning only $15,000 per month.  The evidence showed that graduates of Kellogg Business School (which is currently ranked number one among business schools) command monthly salary of about HK$225,000. Even taken into account the time off taken by the husband to look after the wife, his current earning obviously is well below his earning capacity.

61.  The evidence clearly shows that the lifestyle of the husband has been funded by his parents.  Irrespective of the parents’ own way of living, they have been extremely generous to the husband, providing him with entrance fees to prestigious clubs (HK$250,000 for Jockey Club, HK$75,000 for HK Country Club), credit card expenditure ($1 million in a 4¾ year period), medical expenditure and fees of $755,000 for the EMBA programme.  They paid for the wedding banquet and repaid loans that the husband borrowed from his friends.  They paid for the rental of one of the parties’ homes when they were living together.  The evidence showed that between 2005 and 2009 (4¾ years) the total sum deposited into the husband’s account was about $7.1 million.  His expenditure over the same period was about $8.3 million.

62.  The husband is currently living with his parents.  His personal expenditure is $45,900 per month.  If his earning of $14,000 (after deduction of MPF) goes towards the periodical payment order for the wife, then the rest of his expenditure of $31,900 must have been funded by his parents or from some undisclosed sources.

Exercise of discretion

63.  I recognized that this is an appeal on the exercise of discretion by the Judge.  However, in my view the order of the Judge is plainly wrong in two respects.  First, the periodical payment of $14,000 which was increased to $21,000 from the beginning of this year under the Judge’s order is not sufficient to cover the needs of the wife.  Second, the Judge is wrong to dismiss the wife’s capital claim.

64.  The wife’s needs are $42,550 per month.  Apart from the amount of $14,000 paid by the husband she depends on her parents for financial support.  That support should not have come from her parents, but from the husband who clearly has the earning capacity to meet her needs. 

65.  It is plain from the evidence that after the husband paid his salary to the wife for maintenance, his own expenses were met by his parents.  Further, the husband’s evidence was that his salary would be increased from $30,000 to $40,000.  Even if the matter is to be judged solely on the basis of the husband’s earning or earning capacity, he is able to meet the wife’s needs of $42,550 per month.

66.  The evidence showed that the wife’s father had paid for the living and medical expenses of the wife after the parties’ separation in 2006.  This amounted to slightly below $1.7 million up to the end of 2009.  The Judge did not make a finding whether the husband had made a promise to repay the money advanced by the wife’s father.  This is clearly a relevant matter to be taken into account in assessing the capital claim of the wife.  If the Court is to ensure a fair distribution for the parties, the husband ought to provide a capital sum to the wife so that the money could be repaid to her father.  Both the earning capacity and the resources that have been available to him are able to meet this capital claim.  Bearing in mind the circumstances of this case and the fact that the marriage is a relatively short one of six years, the lump sum of $1.5 million to be payable within a year is an appropriate one.

67.  It is important to emphasise that when it is said that the lifestyle of the husband has been funded by his parents, it was not meant to be in a critical sense.  Out of goodwill the husband’s parents had provided generous support to this young couple during their marriage.  Likewise the wife’s parents had supported them as well.  But it is clear that it was the husband’s parents who had provided for them more substantially.  When it is said that the husband has resources to resort to, it is not an attempt to force an order upon the husband’s parents.  Rather it is an appeal to their good sense so that they may step in and help out this couple who had been together from a very young age and who had gone through great difficulties.  The wife in particular, has really serious physical and psychiatric health problems.  A final resolution of their financial disputes will enable them to start afresh and get on with their lives.

Hon Kwan JA :

68.  I have had the benefit of reading in draft the judgments of the Chief Judge and Cheung JA.  I agree with both judgments.