MIMI KAR KEE WONG HUNG v. RAYMOND KIN SANG HUNG

FAMV Nos. 23 & 24 of 2014

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NOS. 23 & 24 OF 2014 (CIVIL)

(ON APPLICATIONS FOR LEAVE TO APPEAL FROM CACV NO. 197 OF 2012)

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DETERMINATION

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Mr Justice Ribeiro PJ:

1. The parties applied for leave to bring cross-appeals following ancillary relief proceedings involving a wealthy couple with very substantial matrimonial assets.  We granted leave both to the wife (W) and the husband (H) on what has been referred to as the “clawback” issue, as set out below. We dismissed the other applications with brief reasons to be provided later.  Our reasons are in this Determination. 

Background

2. The parties married in 1973.  After some 26 years, they separated in 1999 and W petitioned for divorce on 25 February 1999, obtaining a decree nisi on 23 June 1999.  Remarkably, it was not until 18 March 2010, some 11 years later, that a decree absolute was granted.  And it was not until 10 August 2012, some 13 years later, that Deputy High Court Judge Carlson[1] dealt with ancillary relief.  The parties’ appeal to the Court of Appeal[2] was disposed of on 24 September 2013.

3. There were three children born of the parties’ union in 1974, 1977 and 1982 respectively.  However, H also fathered four children out of wedlock with three other women.  The first of these children was born in 1987, his mother dying in the same year.  The next two children were born in 1996 and 1997, of a woman who had a relationship with H which began in 1990.  H then entered into a new relationship with Betsy Chan in 2002 and the fourth additional child, Kristen, was born of that union in 2006. After obtaining the decree absolute in March 2010, H married Ms Chan in April 2010.

4. The parties’ assets were found to consist of a valuable collection of antique Chinese furniture, a jewellery collection, an art collection and a controlling interest comprising 418,945,640 shares in a listed Hong Kong company (“ADHL”).  Among other things, ADHL owned, through a wholly owned subsidiary (“SVL”), four units in a development on the Peak known as Severn Villa.

Leave granted on the “clawback” issue

5. At first instance, the Judge treated the value of the ADHL shares as agreed.[3]  However, in the Court of Appeal, W submitted that that valuation did not take account of the redevelopment value of the Severn Villa property which was put at between $600 million and $665 million.  W argued that in the event that such redevelopment should occur in the future, W ought to be entitled to share in any consequent uplift in value.  The Court of Appeal accepted that submission and made the “clawback” order in the following terms:

“Contingent upon the commencement of the redevelopment of Severn Villa by ADHL within the lifetime of the wife, the husband do pay the wife a further sum representing one half of the notional increase in the value of the 418,945,640 ADHL shares attributable to the redevelopment (less HK$230 million and all costs and expenses or relating to the redevelopment), such value to be agreed, failing which the same to be assessed by an independent court expert to be appointed by the Court and such payment to be paid within one month of the final determination of such valuation.”

6. As Cheung JA pointed out,[4] the order made by the Court of Appeal differed in some respects from that sought on W’s behalf.  Mr Daniel Fung SC,[5] sought leave to appeal on the “or otherwise” basis on the ground that the Court of Appeal’s insertion of the words “by ADHL” after “redevelopment of Severn Villa” in the order renders it nugatory in practical terms, asking the Court to delete that insertion.  Mr Benjamin Yu SC,[6] on the other hand, argued that the clawback order ought in principle never to have been made, putting forward the following questions which are submitted to be of the requisite importance:

“(1)  Whether it is wrong in principle to grant the “clawback” order in a case where the property in question is not owned by the parties but by a company which is a subsidiary of a publicly listed company in which the parties are majority shareholders, especially in circumstances where the company would require further injection of capital;

(2)  Whether it is open to the Court of Appeal to impose a clawback provision when the same was not sought at the trial and where the parties agreed the valuation of the matrimonial asset in question;

(3)  Whether a clawback provision is contrary to the clean break principle and/or the principle of fairness which is fundamental in ancillary relief, and, if so, what are the circumstances and/or conditions in which it should be invoked and applied.”

7. We granted leave to appeal to both W and H as we were satisfied that the issues raised questions of great general or public importance.

Refusal of W’s application to add back non-marital family expenditure of $65.2 million

8. H’s position throughout was that W should have 50% of the matrimonial assets.  At first instance, W argued that there should be a departure from equality so that she should have 60%.  Her contention was that there was “inequality of remuneration” from ADHL and “inequality of post-separation spending” of that unequal remuneration, a significant amount having been spent “on his other families”.[7] It was only in that context that reference was made to H’s expenditure in support of his extra-marital families.  Counsel then instructed[8] submitted that W was “not saying that the Husband was reckless in spending money to support his other families.  However, the fact of the matter is that had such sums not been spent, they would have been available for distribution.”[9]

9. The Judge refused to depart from the equality. He pointed out that

“... whilst the husband may well have drawn more from the company this is justified by the fact that in the post-separation period, certainly till 2010 or even early 2011, he has played the far greater role in its operation, added to which, as Mr Yu correctly points out, he has put back a great deal of money into the company in subscribing to a rights issue by ADHL. Had he not done so the family’s controlling shareholding would have been diluted and control may well have been lost.”[10]

10. While the Judge made certain factual errors,[11] he held that, “Looking at everything in the round, the husband more than did his fair share in earning his way by taking all at the important and difficult decisions in the operation of ADHL.” [12]  On that footing, he held that the equal sharing principle should be adhered to.

11. The Court of Appeal was informed of the Judge’s factual mistakes and attention was drawn in the course of W’s closing submissions[13] to 13 items of extra-marital family expenditure listed by H, indicating that the sums spent on each of his three other families were $7.9 million, $26.9 million and $28.8 million respectively.[14]  The Court of Appeal nevertheless unanimously refused to interfere with the Judge’s adherence to equality without adding back the expenditure complained of.

12. In the Court of Appeal, Mr Fung SC, then appearing, did not pursue the approach adopted by his predecessor in the Court below.  He recognized that on settled authority, there were two routes by which such expenditure might be notionally re‑attributed to the matrimonial pot to increase the distribution to W.  First, the Court might agree to depart from equality in favour of W on the basis that maintaining H’s extra-marital families amounted to “obvious and gross conduct” which it would be inequitable to ignore, as explained in the authorities examined and adopted in LKW v DD.[15] Mr Fung did not seek to rely on this ground. 

13. Secondly, the Court might be asked to “add back” to the matrimonial pool before division the expenditure complained of, but such a course required the Court to be satisfied that such expenditure was “wanton”, “reckless” or “extravagant”.[16] In the light of the concession made at first instance, Mr Fung did not feel able to characterize the relevant expenses in such terms.[17] Instead, he submitted that there ought to be added to those categories of cases, a further category covering expenditure stemming from “[conduct] which goes to the destruction of marriage”.[18]  That suggestion was rejected for the very good reason given by Lam VP that “it would necessitate the court to examine whether the [conduct] in question caused the destruction of marriage” which “is precisely what the authorities said the court should not do”.[19] 

14. Mr Fung put his case much more broadly before this Court, advancing an argument that had found some favour with Cheung JA in the Court of Appeal.  He submitted that it was a sufficient justification for adding back to show that there had been “non-marital expenditure which diminishes the matrimonial pot” even if such expenditure could not be said to be reckless, wanton or extravagant, since this is what fairness to W required.

15. We were unable to accept that submission, first because it is unworkably broad and vague.  Mr Fung accepted that obviously not every expenditure incurred by H which diminished the corpus of matrimonial assets would justify adding back the amount spent, but he had the greatest difficulty in identifying any principled criteria for ascertaining which heads of expenditure which would have that result.

16. Moreover, as the Court in LKW v DD[20] stated:

“It is worth reiterating that, having gone through the processes I have compendiously called ‘Step 4’, the court is not bound to depart from equality in the division of the parties’ assets even if one or more of the factors considered are engaged on the facts. The weight to be given to such considerations is a matter of discretion for the court. Stepping back and looking at the overall impact of the factors found to be relevant, the court may decide that certain factors carry such weight that a departure from equality is called for. The decision is fact-specific and discretionary. But where there is a departure, the court should explain its basis since the articulation of reasons provides a useful check on the fairness of the outcome.”

17. Mr Fung’s argument as to unfairness focussed inadequately on a single element – the expenditure complained of – rather than on the fairness of the overall outcome of the ancillary relief application.  As we have seen, the Judge plainly arrived at his decision to maintain equality in the distribution having considered the weight that should be given to H’s extra-marital family expenditure, in the context of all the circumstances taken in the round.  The Court of Appeal declined to interfere with his exercise of discretion and it was appropriate for the Court of Final Appeal to do likewise.  It is not for this Court to re-balance the relevant factors afresh.  We did not consider W’s application to raise any question of law having the necessary public importance.  We therefore refused leave on the extra-marital family expenditure point.

18. None of the other points raised by either party – concerning an arguable valuation of the “shell value” of ADHL and complaints about a costs order – involved points of law of the requisite importance or otherwise justified a full hearing before the full Court and those applications for leave were accordingly dismissed.

19. One matter which ought to be mentioned involves findings made by the Judge on the then available evidence which imputed to W the deliberate misappropriation of certain paintings forming part of the matrimonial estate.  In accordance with the direction of the Appeal Committee, the parties have jointly identified two Chinese paintings[21] and six Modern Paintings,[22] which were initially believed to have been removed by W.  It is now accepted that that was not the case.  H has undertaken that he accepts a reduction of the $30 million sum credited to him by $463,000 reflecting the value of those paintings and Mr Yu SC acknowledged that a correction should be made regarding criticisms of W in relation to the paintings now identified.