CYYC v. TVKT

FCMC 14649 / 2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 14649 OF 2014

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RULING
(Discovery and Interlocutory Injunction)

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1. There are 3 summonses before me, all taken out by the petitioner wife. 

2. The 1^st summons is on specific discovery.  The 2^nd and 3^rd summonses are to restraint the respondent husband from dealing with the proceeds of sale of some landed properties and from further investment activities.  I shall come to the contents of these applications in due course.

3. For convenience, I shall refer the petitioner wife as “P” and the respondent husband “R” in this Ruling.

Background

4. The parties were married in August 2001, with a son born in (month deleted)2004, now nearly 12 years old.  In November 2014, P petitioned for divorce on the ground of 2 years separation.  She claimed that the parties had separated since about 2004.

5. Both parties are 50 years old.  P, who retired in 2014, used to have a very successful practice as a solicitor.  Probably due to this reason R ceased work in about 2004 and took up the role of a homemaker; the major source of income for the family therefore had been P’s income from her legal practice.  R’s another role was to manage the family assets in various forms of investments. In doing so, he has been using some companies as vehicles including two in the names of Company Q and Company R that feature in the present specific discovery exercise.  Probably this is for this reason that he described himself as self-employed in his Form E.  This triggered some queries from P.  Be that as it may, it seems to me clear that this was the division of labour that the parties agreed upon during the subsistence of the relationship:  P was the income earner and R was the homemaker cum ‘family funds’ manager.

6. R accepts this is a ‘big money’ case.  He also accepts that the principal source of funds for the investments he has made on behalf of the family during the marriage, and particularly since the birth of the son, has been the joint account of the parties, which has been primarily funded from P’s legal practice, he, however, rejects that such income has been the sole contributor to the family fortunes for the reason that he had savings or assets prior to ceasing employment.  He has since done his best to enhance the family wealth through his management to the same.  P doubts very much whether this was the case.

7. There is also an issue as to the date of separation.  P pleaded that the parties separated in about 2004 but R claimed it happened at a much later time.  Yet whatever date it is, it is common ground that the parties have continued to live in the matrimonial home until this day.  It is also significant to note that even on P’s own version, notwithstanding that she had long separated with R, she continued to ‘allow’ R to manage her assets to the extent that the father of her son had the authority to manage all the accounts including her own HSBC account into which her earnings from legal practice were deposited.  R was even able to operate the accounts online to the exclusion of P in that only he had the password and the security fob. 

8. P has one main theme running through her application for discovery: she is suspicious that R may have further assets yet undisclosed to her.

9. P complains that a great deal of money has gone missing or is unaccounted for. She says that before her retirement, she was bringing in income as partner of a law firm of almost $30 million a year.  From 2010 to 2014, she earned $146.6 million in salary and dividends.  P says that in 2010 the combined assets of the parties were about $63.3 million and in 2014, they stood at about $153.3 million, hence an increase of $90 million only. However, during the same period of time, there were receipts of $209.9 million, with about $146.6 million from P’s practice.  Thus, the figures show that a great deal of money has gone missing or is unaccounted for.  I do not think I need to go into the details.  Suffice for me to say is that during the same period, according to P’s forensic accountant, there were receipts of $47.6 million in respect of which no information or supporting documentation is available and over $216 million was transferred or paid out, of which $125 million were without information or documents provided.  There is a ‘black hole’ of as much as $100 million.

10. P says since 2010 R had deliberately kept her in the dark and she therefore did not ‘complain’ because she simply had no idea as to what was going on.  R failed and refused to properly account and give full and frank financial disclosure. She has the right to know what happened to the money that she earned.  This is on this basis that P seeks financial disclosure back to at least from 2010.

11. It is therefore submitted by her counsel Mr Coleman SC that P is essentially asking for discovery of her own properties and assets or what they became, and for interlocutory injunctions to protect her own properties and assets albeit in the hands of R.

12. By and large R admitted, in his Answers dated 16 March 2015, that he did not discuss with P regarding the acquisition of the investments because P had become unreasonable and difficult to discuss with in the past several years whenever investment proposals were suggested by him.  He therefore carried out the investments without information to P.  He said it had proved to have reduced unnecessary arguments and quarrel over the matters in relation to investments. 

13. In response to the allegation that there are missing funds and assets of as much as $100 million, Mr Pilbrow SC, on behalf of R, fairly accepts that there is a duty on the part of R to give a full and frank financial disclosure.  R is confident that there is no ‘black hole’ as such but whether this is the case remains to be seen.  For this purpose, he is prepared to demonstrate his case by tracing the assets and investments all the way back to the very beginning and not just up to 2010 that P is now asking for.

14. It is clear that P is determined to conduct a ‘strip search’ on R’s affairs. Her 1st Questionnaire dated 2 February 2015 contains 33 pages with 115 questions.  This was responded with an Answer together with documents on 16 March 2015 extending to 1,030 pages.  Yet P was not satisfied and hence the present summons for specific discovery - a total of 93 questions which either are questions unanswered or follow-up questions.  It is also pertinent to point out that so far at this stage before the FDR hearing, there are already a staggering volume of 15 bundles of pleadings and 6 bundles of correspondences with nearly 7,700 pages.

15. It is fair to say that due to the eleventh-hour change of stance on the part of R, when it comes to the argument hearing, the scope of the dispute has much been reduced.  I will deal with P’s application for specific discovery first.

Specific Discovery

16. By her summons dated 20 May 2015, P seeks:

(1) various authorisation letters to be signed by R so that she may obtain the relevant statements and information as from 2010 on R’s accounts maintained with various financial institutions, securities companies and other bodies; and

(2) R’s answers to her Questionnaire, a total of 93 questions.

17. At the time of the hearing, R agreed to sign the authorization letters in favour of P in so far as they relate to his accounts maintained with financial institutions and securities companies subject to P’s agreement to pay for the cost of obtaining the documents.  However, he objected to the signing of authorisation letters for the disclosure of his credit card and golf clubs accounts.  Those authorisations under objection extend to 4 financial institutions covering 25 credit cards accounts and 3 golf club memberships. 

18. As far as the discovery exercise is concerned, R gave his answers to many of the questions raised by P a few days before the hearing (on 20 October 2015) as a result of which there remain some 41 questions. All these have been set out in an “Outstanding Questions Table” (“the Table”) submitted to court in the hearing.  The outstanding questions were further reduced due to the concessions made by Mr Pilbrow. Mr Pilbrow informs the court that the documents requested under Q 29 (ie the rental agreement for Property A, etc) are now available and R undertakes to provide the same.  R also agrees to provide a copy of the tenancy agreement for Property H under Q 96.  I see no reason why I should not make an order that R is to give his answers as requested within 14 days. 

19. As for Q 34, R agrees to provide the requested documents and information within 28 days of the order rather than 14 days as applied for by P.  He also agrees to give an answer to Q 41.  However, given the lapse of time since the date of the hearing, I consider that 14 days should be appropriate. 

20. There are also questions not pursued.  They are Q 64(ii), (iii), (v), Q 91, Q 110 and Q 112.

21. As a general defence, Mr Pilbrow’s main argument is that P’s discovery should be put into proper context.  Discovery before the FDR hearing is limited to ascertaining the assets of the parties, be they matrimonial or non-matrimonial.  Further, given that the family assets exceed over $300 million, minute sums of money are not relevant in any event.  The court should not at this pre-FDR stage concentrate on any ancillary arguments of financial misconduct or contribution.  What needs to be established is what the assets are for the purpose of FDR.  Information concerning monies already spent by R on credit cards (as may, in any event, be seen from the bank statements) and his golf clubs are irrelevant and will not achieve the goal the court needs at this stage.

22. Mr Pilbrow refers me to FCP v CJLY, FCMC 6202/2012 (date of judgment: 3 January 2014) in which HH Judge Bruno Chan said as follows：

21. As noted above the parties are at the stage of discovery in order to ascertain the size of the pool of assets for the purpose of FDR hearing, and it is clear that the major issue between them is over the financial state and account of the Husband’s main business of JHL, which Mr Parker has described as the primary target of this discovery application, but certainly the court does not require minute details or accounts of the business, at least not at the stage of FDR hearing, and should instead use a relatively broad brush approach to inter alia assess its profits/income and value. I should also note that this case has so far already generated 9 bundles of pleadings and 7 bundles of solicitors correspondence with more than 6,000 pages in total, the bulk of which no doubt relates to the parties’ financial disclosure, thereby risks giving weight to the Husband’s argument that the Wife’s present action is simply not proportional to proper or normal disclosure exercise. 

…

29. I agree that for those requests which the Husband has already answered, even if the Wife may not be happy with their contents, any question over their truthfulness should only be dealt with at the trial by way of cross-examination, and that the Wife is not entitled to another round of the same questions or requests for the purpose of specific discovery. Accordingly I refuse this request. 

23. It seems to me that Mr Coleman is not disputing the approach suggested by Mr Pilbrow but he submits that it is not a matter of whether the answers already given by R are right or wrong but it is that R has not given his responsive answers.

24. I will deal with the Requests in the order of parties’ arguments during the hearing; where necessary I would set out the entire Request.

Q 5(iv)

25. The Request

“Please confirm whether R has arranged further re-financing using the property (ie Property H). Please state the date on which such re-financing took place, the amount involved (including any cash bonus received from HSBC or taking out a new mortgage) and the final destination of the funds received from such re-financing. Please provided copies of all the relevant bank mortgage statements from no later than 1 January 2010 to date, save for December 2014 and February 2015.”

26. P repeats the same request in Q 10(iv) in respect of Property B. 

27. In response, Mr Pilbrow submits that R is not able to say whether there was any re-financing, what sums were involved and where they went.  R has to obtain the documents before he can give the answers.  Mr Coleman rightly points out that it was not R’s answer given on 20 October 2015.  His answer was that he would sign the authorization letter as requested by P.  I agree it was not a responsive answer and this shows the kind of unaccommodating attitude that R had been exhibiting up to the hearing.  I allow P’s requests.

Q 10(iii)

28. The Request

“Please provide all and full particulars together with all relevant documents and evidence in support of R’s allegation that the funds which were used by R to purchase (Property B) came from R personally, and not from monies earned by or sourced from P.”

29. Mr Pilbrow refers me to R’s Answer to the question regarding his source(s) of capital, funds and income or profit to show that he is self-employed:

“(1) There is no dispute that since the Respondent ceased employment and took on the role of a house-husband, the major source of income for the family has been the Petitioner’s income from her legal practice. The Respondent, however, rejects that such income has been the sole contributor to the family fortunes; he had savings/assets prior to ceasing employment and has since done his best to enhance the family’s wealth through his management of the same. Clearly, the Respondent does not have an “employer”. As such, in his capacity as a director and shareholder of various companies and in his role as the investment manager for the family, he considers himself to have been and to be “self-employed”.

(2) The Respondent concedes that the principal source of funds for the investments he has made on behalf of the family during the marriage, and particularly since the birth of C, has been the “joint account”, which has been primarily funded by the Petitioner’s income from her legal practice.

(3) It is both irrelevant and unnecessary, if not impractical and costly, further to particularize the source of funds for the Respondent’s investments as repeatedly requested by the Petitioner.”

30. Mr Pilbrow’s reference to the above statements may well be a sensible answer but the point is it was not R’s answer.  Mr Coleman points out that when R answered an earlier question (being Q 9) regarding the source of funds for the purchase of Property B, R relied on the above statements but in respect of this particular question, he did not.  His answer was merely that he was going to sign an authorization letter in favour of P.  The origin of this question is P’s Questionnaire dated 2 February 2015 where R was asked to disclose the source of funds from which the mortgage instalments were paid, so it was different from that of Property B.  The implication is that R deliberately chose not to adopt the same answer.  I allow this Request.

Q 36(ii)

31. This is a request for copies of all the relevant bank statements of Company Q of which R is a director.  I consider there should not be any difficulty for R to obtain the bank statements because the Companies Ordinance empowers all directors to access all documents and information in relation to their company.  R should provide copies of the bank statements as requested within 14 days.

Q 50, Q 54(iv) – (viii), Q 55(1)(i) – (iii) and Q 56

32. Q 50 is on R’s allegation that the funds standing in his bank accounts were not from P and for this reason P seeks particulars of R’s alleged sources, income and earnings.  The remaining requests relate to certain transactions in two HSBC accounts, one in the joint names of the parties and the other in R’s sole name.  R’s Answer dated 20 October 2015, in his usual uncooperative fashion, remained to be that he shall sign the authorization letters requested by P which will answer these questions.  Clearly this is not a responsive or constructive answer.  In any event, the statements obtained under authorization in all likelihood may not be self-evident.

33. R’s latest position, as confirmed by Mr Pilbrow, is that first, R has no other source of income apart from those earned from his investments and secondly, he is willing to give his answers once the parties are provided with the documents and statements from the bank.  Mr Coleman accepts this concession provided that R is to give his answers within 14 days of receipt.  I regard it as reasonable and I so order save for Q 54(vi) and part of Q 54(viii).  These are in respect of relatively insubstantial sums of $12,000 and $19,000 (both on 10 January 2014), $20,000 (on 4 December 2013), USD 2,000 (12 December 2013) and SGD 2,922.50 (3 January 2014) and are disproportional to the assets involved here.

Q 60

34. This request is about the current whereabouts of RMB200,000 cash found in his golf bag and on whether R is keeping any cash, particularly RMB of amounts of more than RMB200,000.  Strangely enough, to this R again in his Answers dated 20 October 2015 referred to his panacea that he shall sign an authorization in favour of P.  With respect, I cannot fathom how this could be an answer.  During the hearing Mr Pilbrow concedes that R is willing to give his answers.  I give an order that R is to give his answers within 14 days.

Q 61 and Q 63

35. Q 61 read as follows:

“Please provide a full and complete list, together with all relevant documents and evidence (including bank accounts/bank statements), of all properties, assets, investments, funds and income, including but not limited to, landed properties, bank accounts, golf club memberships, vehicle licence plates and rental or licence income, held or received by each of the companies referred to in R’s Form E since their respective dates of incorporation.”

36. Q 63 is the same as Q 61 but in respect of the subsidiaries of the companies under Q 61. 

37. Mr Pilbrow submits that what is relevant is the value of these companies.  R has provided the details of the properties, the membership of golf clubs and the vehicle licenses and in any event an order has already been made for a single joint expert to value these companies for the purpose of FDR.

38. In response, Mr Coleman argues that the valuation reports will not contain a list of specific properties and assets and it is likely that the values there are the book values rather than the actual values. 

39. In my view, if the companies are going to be valued by a single joint expert, I see no reason why P’s concerns cannot be dealt with in the valuation process by the expert.  Further, if there are any assets shown on the valuation reports that, in P’s view, are not in their actual or market values then she may just focus on the particular assets in question.  I would not allow this item.

Q 64(iv)

40. This is a request for a copy of the audited accounts of Company Q in respect of the year ended 2013, if any, or the unaudited financial statements.  To this, R’s answer was to provide the same upon receipt from his accountant.  I agree with Mr Coleman that it is not good enough.  R has not provided any time-frame or informed P of the progress.  R should provide the requested documents within 14 days because 2013 is long past and there is no excuse why the 2013 accounts have not been prepared, when the 2014 accounts have already been made available.  I give an order accordingly.

Q 72

41. This is a request for R to identify the financial institutions that R has accounts with nos 8250-3452 and 8151118-2000 and to produce copies of the relevant statements.  R’s ‘standard’ answer is he shall sign the authorization letter.  Again, I fail to understand how this could be an answer.  It must be a matter of commonsense that R has to identify the financial institutions otherwise to whom P would be able to seek information?  I see no reason why R can resist the request. 

Q 93

42. By this request, R is asked to provide copy statements of all credit cards from 1 January 2010 or the date of activation if later, to date or to sign an authorization in favour of P.

43. Mr Coleman stresses that all P wants is the statements and not the details of R’s expenditure at this stage.  If R has been spending on some particular items or at some particular places it may mean he has an interest there; or if he had considerable spending on someone other than P, he may be liable to have these items added back. In a nutshell, P wants to obtain a ‘big picture’ of R’s spending pattern; and all P wants is just an authorization from R. 

44. R, in his Answers dated 20 October 2015, said that the expenditure of his credit card is reflected in the statements of the “joint account” and he has also provided copies of his main credit card statements over the last year, which confirms that such expenditure has been modest and relatively insignificant. 

45. Mr Pilbrow draws my attention to P’s forensic accountant’s analysis that between 2010 and 2014 R’s credit card payments were merely at a modest sum of about $400,000.  Given that this is a ‘big money’ case, credit card spending is totally immaterial.  P’s request is totally unwarranted and disproportional and is a sheer waste of money. 

46. I must say I have to agree with Mr Pilbrow. 

Q 7, Q 12, Q 19, Q 26 and Q 38

47. Request of Q 7

“Please provide a breakdown of any regular or one off expenses in maintaining (Property H) and identify the bank account from which such payments were/are being made.”

48. P raised the same requests in respect of Property B (Q 12), Property G (Q 19), Property F, Property A (Q 26), Property C, Property D and Property E (Q 38).

49. In his Answers dated 20 October 2015, R has already informed P that the expenses of Property H consist of management fees, rates and maintenance expenses.  They were mainly paid from the joint account of the parties and sometimes by Company R, such payments being treated as repayment of director’s loan to R.  He gave a similar answer in respect of Property B and as regards Property G, he said the expenses consist of management fees, rates and maintenance expenses and were paid in cash.

50. P is not satisfied with the answers and insists that R should provide a breakdown of expense, and identify the respective amount of management fees, rates and maintenance paid. 

51. Again, I must say I agree with Mr Pilbrow that the breakdown of the expenses, presumably including the mortgage payments, management fees and electricity etc are totally disproportional to the assets at stake.  These requests could not benefit the FDR.  Indeed, Mr Coleman has not informed the court why P needs these particulars.

Q 35(i) and Q 85

52. These requests are about R’s partner Mr I’s financial contribution to Company Q which, according to R’s Form E, is holding assets worth $14 million and also according to R, Mr I was able to obtain 50% of the shareholding from a loan by R and the loan has since been repaid.  Mr Pilbrow fairly accepts that R should give an answer upon receipt of the bank statements.  I give an order that R do give an answer to this request within 14 days of receipt of the bank statements.

Q 39 and Q 42

53. Q 39 is a request for the provision of mortgage documents in respect of Property D and Property E and Q 42 is on the particulars of rental incomes in respect of Property D.  For the reason that R has agreed to undertake to provide the same, I give an order accordingly.

Q 62

54. By this request, R is asked to provide details of the full corporate structure of Company S and Company X showing subsidiaries held. 

55. As early as in March 2015, R’s answer was that these 2 companies hold PRC vehicle licences through 2 respective nominee companies in the Mainland, of which R has no interest.  In his latest Answers dated 20 October 2015, he also provided the annual returns of these 2 companies and further said that as far as he is aware, these two companies have no interest in the equity whatsoever in the Mainland companies.  Further, in his answer to Q 63, he explained that these 2 companies were used by his agent for applying for cross-border car licences.  He has no idea of what the Mainland companies are doing, and such arrangement was made merely for the application of cross-border licences, neither Company S nor Company X has any true rights and interests in these companies. 

56. Mr Pilbrow submits that these are the best that R can provide.  Clearly, for what R has said he has no knowledge of these nominee companies.  I do not see how P could go any further.  Needless to say, whether what he said is true or not is another matter and has to be determined in trial if that is disputed.

Q 66

57. This is a request for the provision of further details of “general and administration expenses” set out in each set of financial statements for Company R and Company Q and for explanation in wider terms why both companies are running at a loss.

58. R gave his answer on 20 October 2015 on which Mr Coleman has not made further submission during the hearing.  R said that “general and administration expenses”, a common term used in audited financial statements, speak for themselves and need no further elaboration.  Both companies are real property holding companies.  Real properties are booked at their purchase price without taking into account the appreciation of the property value, until the properties are sold and the capital gain would then be booked as profit.  To me this is a sufficient answer.  I dismiss this request.

Q 69

59. This is a request for R to explain the nature of the business of Company Y of which R is a secretary and his friend Mr I is the owner.  R’s answer in March 2015 was that he has no interest in the company and he only acts as the company secretary without emolument, as a gesture of friendship.  On that basis, it is submitted by Mr Pilbrow that the request is irrelevant.

60. Mr Coleman argues that it is not up to R to say whether a request is relevant or not.  The answer to this question will be able to show Mr I’s involvement in R’s business. 

61. I agree with Mr Pilbrow that if R confirms that he does not have any interest in the company the nature of its business is irrelevant for the present purpose.

Q 70

62. This is a request for provision of documentary evidence to confirm that R is an authorized representative of “a PRC company” representing Company Z.  R’s reply is essentially that he has no idea of what the PRC company is doing and this is also Mr Pilbrow’s submission.  I agree with Mr Coleman that R is not answering the request which is for the production of a document.  R has no idea of the business does not necessarily mean he does not have the document.  I would allow this request.

Q 71(i), (ii) and (iii)

63. These requests relate to R’s investment in a sand mining business in the Mainland. 

64. Q 71(i) is for the production of the confidentiality agreement, Q 71(ii) is for evidence of payment of the investment and Q 71(iii) is for documents to confirm the basis on which R comes to the conclusion that the investment “had turned into a complete loss”.

65. Mr Pilbrow concedes that R has to answer Q 71(i) and (ii).  As a matter of fact, I see no reason why R should not.  I have to make it clear that R also has to produce the term sheets which show the amounts of his investment.

66. As for Q 71(iii), R’s answer is that there are no such documents in existence as far as he knows.  I accept this is his answer but again whether it is true or not remains to be seen at trial if the matter cannot be resolved by other means.

Q 82

67. P asks for the breakdowns of the outstanding balance of $13,484,128.73 and $3,028,480 respectively said to be owed to R by his companies R and Q. 

68. Mr Coleman submits that P wants to know how the balances came about, what and when the monies were paid in and from where they were from, for instance whether they were from any account so far not disclosed by R.

69. It would appear that what P wants is not merely a breakdown but a tracing of the sources of the monies that have gone into the companies.  I have to agree with Mr Pilbrow that the figures are obtained from the audited reports and these are part of the assets available for division in the ancillary relief.  Whilst I can understand that P is highly suspicious of R having hidden assets, in my view, her request is too farfetched and speculative.  The breakdowns requested would not assist the purpose.

Q 94

70. P requests R to provide a full breakdown of all rental (sic) and/or license and/or any other income received from properties, companies or from other assets, whether directly or indirectly since their respective acquisition dates.

71. R’s answer of 20 October 2015 is that there is no other income than those already stated.  I consider it is a sufficient answer; in particular I have already ordered R to give a reply regarding Q 29.

Q 99

72. By this request, R is asked why he has had to pay for the utilities of the 2 investments property purchased in his own name, ie Property H and Property B.

73. In my view, the answers may become readily apparent when the relevant tenancy agreements are available.  In any event, these items are presumably of insubstantial amounts.  I cannot see how they are relevant to the ancillary relief exercise.

Q 104

74. The Request

“Please produce a schedule of all trips out of Hong Kong (including day trips), holidays and weekend breaks made by R in the absence of P between 1 January 2010 and the date of this application, stating in respect of each trip, the dates, the destination, by whom R was accompanied, the expenditure incurred by R on himself, the expenditure incurred by R on his companions and the source of funds so expended.”

75. Mr Coleman submits that if R is spending a lot of time in a particular place it may be an indication that he has some interest in the place.  P is simply asking for an “in-and-out records” issued by the Immigration Department.

76. While I can understand that P is anxious to trace ‘her’ assets, I have no doubt that this request is too farfetched and speculative.  There must be a limit to the extensiveness of her ‘probing’, at least at this stage.  I incline to agree with Mr Pilbrow that this is a fishing expedition.  There is simply no basis for the request.

77. Finally, Mr Coleman also asks for R’s written authorization so that P may obtain the bills that R incurred in the golf clubs.  Again for the same reason I have given regarding the credit card payments, I must agree with Mr Pilbrow that the request is entirely irrelevant to the ancillary relief proceedings, in particular to the identification of the family assets.

Interlocutory Injunctions

78. I now turn to the 2 applications for interlocutory injunctions.

The 1^st Injunction Summons

79. The first was taken out on 20 May 2015, the same day when P also took out her summons for specific discovery.  This summons (“the 1^st Injunction Summons”) deals mainly with the landed properties and fixed assets of the parties.

80. In brief, P seeks an order to restrain R from dealing with the proceeds of sale of 3 properties, namely (1) Property F, (2) Property B and (3) Property A.

81. She also seeks to restrain R from dealing with the remaining landed properties and assets already come to light and remain unsold.  These assets include but not limited to 4 landed properties in Hong Kong and in the Mainland, 2 Hong Kong/PRC dual vehicle licenses, 2 golf club memberships and an interest in a sand mining business in the Mainland.

82. In addition, she seeks discovery on the documents and information in relation to the sale of the said 3 properties, the whereabouts of the proceeds of sale and the payment into court of the proceeds of sale pending the resolution of the ancillary relief proceedings.

83. During the call-over hearing of 26 May 2015, R’s solicitors gave an undertaking that they shall withhold the net proceeds of sale of Property B in the sum of $4,019,672.60 and shall not take nor release the same to any parties and for any purpose without an order of the court.  At the same time, I gave an order that R should provide within 21 days the documents and information in relation to the sale of the said 3 properties.  I also gave an interim order restraining R from further dealing with the landed properties and assets until further order of the court.

84. The second summons (“the 2^nd Injunction Summons”) was taken out on 11 August 2015 and is in part a follow-up on the proceeds of sale and the remaining part for further restraining R’s investment activities.  Thus, P seeks an order for R to account for and provide documentary evidence of the payments that he received from the sale of the 3 landed properties and for R to pay the funds into court within 7 days.  The remaining part of the summons is to restrain R:

(1) From engaging in further stock, margin borrowing and lending, futures, options and unit trust related investments, whether out of his personal bank or securities accounts or out of any joint accounts with third parties, and whether in Hong Kong or overseas, pending further Order of the court (Para 2 of the summons); and

(2) From purchasing any further investment linked insurance policies, as well (sic) engaging in the redemption of such policies, and any kind of investment purchase, sale or switching under existing insurance policies, without P’s express consent or an order of the court (Para 3 of the Summons).

85. In the call-over hearing of 24 August 2015, R agreed to give the following undertakings:

“(1) To provide P with documentary evidence including bank and security accounts statements (for example, investment advices and investment confirmations) for each month on the 1^st day of the next calendar month or as soon as the same are available in respect of any stock, margin borrowing and lending, futures, options and unit trust related investments whether out of his personal bank or securities account or out of any joint accounts with third parties, and whether in Hong Kong or overseas;

(2) Not to

(a) Purchase any further investment linked insurance policies;

(b) Engage in the redemption of such policies;

(c) Purchase any kind of investment purchase, sale or switching under existing insurance policies

until further order of the court or the disposal of the summons.”

86. I also gave an order that R do within 7 days account for the payments that he received from the sale, namely $3,951,642.09 for Property F, $850,000 for Poperty B and $988,000 for Property A.  In the event that any of these funds have been disposed of, R should give an explanation for them and if he is still in possession (except Property F which has already been dealt with), he should pay the funds into court with 7 days.

87. Shortly before the full hearing, R agreed to give the following undertakings. 

88. First, he agreed that the funds already paid into court should continue to remain there. 

89. Secondly, he agreed that, without the consent of P or leave of the court, not to deal with the 4 landed properties in Hong Kong and the Mainland, 2 Hong Kong/PRC dual vehicle licenses, 2 golf club memberships and the interest in a sand mining business in the Mainland.  It is true that all these assets are specifically mentioned in the 1st Injunction Summons but it should be noted that the ambit of the summons and the interim order granted by me on 26 May 2015 is wider in that it refers to all the landed properties and fixed assets and not just these specifically mentioned assets. 

90. Thirdly, and this is in respect of the 2^nd Injunction Summons, R agreed that pending resolution of these proceedings and without P’s consent or further order of the court, he shall refrain from purchasing any further investment linked insurance policies or the redemption thereof save and except for the necessary purchase, sale or switching of investments when required under his existing individual policies (“the 2^nd Injunction Summons Undertaking”). It can be seen that this undertaking is somewhat narrower than the undertaking he gave on 24 August 2015. 

91. As at the date of the hearing, the proceeds of sale of Property B were already paid into court.  With the belated concession from Mr Pilbrow during the hearing, I gave an order, by consent, that R and his solicitors shall within 7 days pay into court the net proceeds of sale of Property F and the balance of net proceeds of sale of Property A.  I gather this would be about $4.9 million.  This finally disposed of all the issues relating to the proceeds of sale; and also for this reason, P’s request under Q 30 becomes unnecessary. 

92. Consequently, as far as the injunction applications are concerned, the real bone of contention is on the restraint against R’s investment activities.

P’s Case

93. P’s main concern is to contain the loss that the family assets have been suffering arising from R’s investment decisions. She says that, on the evidence available, R appears to have lost over $1 million during a 12 month period on a margin account with BOCI.  In addition, her expert finds that in HSBC accounts alone, R incurred losses (including transaction costs) of about $4.5 million. These losses came about from a number of questionable and at least imprudent factors.  The most significant one being that R engaged in ‘high frequency trading’ including ‘switching’ of his unit trusts which are meant to be mid to long-term investments due to the relatively high commission for each purchase or sale including ‘switching’ as compared to stock trading and ‘administration fees’ are charged for early redemption.  R’s ‘average holding period’ is found on one HSBC account to be only about 63 days, and on another to be about 83 days. 

94. P also refers to a drop in value in an investment account from over $7 million in November 2013 down to under $1 million in December 2013.  R’s answer in March 2015 was simply that “There is really nothing to be explained of as requested, because increase or reduction in value of investments is the norm of a security account”.  During the hearing, Mr Pilbrow draws my attention to the bank statement which apparently shows that the money was withdrawn from the account rather than suffering a loss.  Mr Coleman does not challenge the point but complains that this was not what R said.

95. That said, P maintains that given that a huge amount of money has gone ‘missing’, amongst other possible explanations such as R’s siphoning and hiding assets, part of that will or may have been caused by losses arising from R’s loss-making, speculative and dangerous activities, all incurred without her consent.  These should not be allowed to continue in the interim.

96. P also complains that there has been a high level of purchases involving ‘insurance’ products.  The figure rose from merely $700,000 in 2010 to $27.5 million in 2014.  ‘Insurance’ products are notoriously difficult to unwind and early redemption will involve penalties or discounts.  It makes distribution of assets much more difficult.  Thus, P wants an injunction to maintain the status quo so as not to worsen the situation further. 

97. Mr Coleman submits that he is not asking the court to judge whether R has been running the ‘business’ good or badly.  It remains to be seen whether there was any financial misconduct on the part of R.  Yet, if R is right to say that he had been successful in his investments and thereby family’s wealth was built up, the size of the ‘black hole’ would have been exacerbated.

98. Mr Coleman’s accepts that the injunction is for the purpose of preservation of assets.  He contends that all the money was generated by P out of her income; R no longer has authority from her to manage the money now regardless of what the previous arrangement was.  R does not need to make his ‘living’ out of these investments, there is no need for these activities to be continued.  If there are new ventures or investment opportunities, R can always discuss with P and seek her consent.

99. Mr Pilbrow’s ground of opposition is simple and straight forward.  There is simply no objective or satisfactory evidence that R intends to deal with any assets or wantonly dissipate the same with the intention of defeating P’s claim.  Indeed, any such suggestion would make no sense in the circumstances that prevail as by this R would be depleting his own assets to his detriment.  Furthermore, the findings or alleged conclusions drawn by P’s forensic accountant are purely speculative at this stage.  Financial misconduct will only be established at such time when the parties’ forensic accountants have gone through the documents.

100. Mr Pilbrow refers me to a recent decision by Mr Justice Mostyn in ND v KP (exp Application)[2011] EWHC 457 (Fam); [2011] 2 FLR 662; [2011] Fam. Law 677; (2011) 161 NLJ 702 in which the applicable legal principles have been succinctly set out:

“4. I want to begin this judgment, which is being given ex tempore and which I hope will be comparatively short, with some statements of principle. In ancillary relief proceedings there are two routes available to obtain a freezing order. An application can either be made under section 37 of the Matrimonial Causes Act 1973 or it can be made under the inherent jurisdiction. It was submitted by Mr Turner QC in a case called Khreino v. Khreino [2000] FCR 80, CA that the effect of the decision of the House of Lords in Richards v. Richards [1984] AC 174, HL was that the only permissible route was the statutory one, but that submission was rejected.

5. That said, it would be a strange state of affairs if either the procedure or the test applicable under the statutory mechanism differed materially from that which applies under the inherent jurisdiction. Under the statutory test the court can restrain the transaction if it is satisfied that the other party to the proceedings is, with the intention of defeating the claim for financial relief, about to make any disposition, or to transfer out of the jurisdiction, or otherwise deal with, any property. So under the statutory test there has to be identified by evidence an impending transaction, or at least the risk of an impending transaction taking place.

6. It is really not very different from the test that applies under the inherent jurisdiction. I quote from Civil Procedure otherwise known as the White Book at paragraph 25.1.25.5 which states, citing a decision of Sir Peter Pain of O'Regan & Ors v Iambic Productions Ltd (1989) 139 NLJ 1378 , that the applicant should depose to objective facts from which it may be inferred that the respondent is likely to move assets or to dissipate them; unsupported statements or expressions of fear have little weight. The notes go on to say that great care should be taken in the presentation of evidence to the court so that the court can see not only whether the applicant has a good arguable case but also whether there is a real risk of dissipation of assets. A freezing order should not be granted unless the applicant has established an appropriately strong case showing, amongst other things, that the respondent owns the assets concerned or has some interest in them. It is for the applicant to make out his case, and orders should not be granted simply because the respondent cannot show an immediate and obvious prejudice. That formulation is really not very different from the formulation in section 37 which I have recited above.

7. Indeed, it is mirrored by the comments in more vivid language of Thorpe LJ in the case of Khreino where he says this:

“Family Division judges day in day out exercise the inherent jurisdiction to grant injunctions to ensure that one spouse does not selfishly or irresponsibly salt away, squirrel away or spirit away family assets which may be in his name but which must be carefully preserved pending the ultimate judicial determination as to what proportion of that asset must be either transferred to or made available for the benefit of the applicant spouse.”

8. So whilst the words used are different the language all points in the same direction, namely that there must be a good case put before the court, supported by objective facts, that there is a likelihood of the movement, or the dissipation, or the spiriting away, or the salting away, or the squirreling away, or the making of a disposition, or the transfer, of assets, with the intention of defeating a claim. It all comes to the same thing.

9. What is to be emphasised is that in this country, unlike some other countries on the continent, we do not have a system of general saisie conservatoire whereby assets are automatically frozen pending the determination of a divorce claim. Indeed, one must remind oneself that the basic rule in this country is of separate property, and that is bolstered by Article 1 of Protocol 1 of the European Convention on Human Rights which says that every natural person is entitled to the peaceful enjoyment of his possessions. So, in order to obtain a freezing order there must be before the court a demonstration of objective facts that evidence the likelihood of the movement or dissipation of assets with the intention of defeating the applicant's claim. That is the first principle.

101. And in para 32, the learned judge said the following regarding the applicant in that particular case,

“32. Those submissions, in my view, expose the real motive behind the wife's application which was to obtain a freeze over the husband's assets for no reason other than it would be desirable to keep them preserved until trial. But that, as I have explained, is not the law in this country…”

102. In brief, there are two basic points.

103. The first is that the procedure or the test applicable under the statutory mechanism (ie Section 17 of the Matrimonial Proceedings and Property Ordinance, Cap 192) does not differ from that under the inherent jurisdiction, in the present case Section 52B of the District Court Ordinance, Cap 336.  The same point was made by Mr Justice Mostyn in L v K (Freezing Orders:  Principles and Safeguards) [2013] EWHC 1735 (Fam); [2014] Fam 35.

104. The second is that there must be evidence showing the likelihood of the movement or dissipation of assets with the intention of defeating the applicant's claim.

105. Mr Coleman tries to distinguish ND v KP by saying that ND v KP dealt with R’s own assets whereas in this case, even on R’s case, these are family’s assets or at least only partly his.  With respect, I do not read the principles expounded in the judgment are limited to assets demonstratively owned and enjoyed by one of the parties only.

106. The relationship of the parties, as depicted by P, is one of a kind. Notwithstanding that she had separated with R as husband and wife in about 2004, they had been living under the same roof.  Apparently, R continued to perform his role as a ‘house-husband” and she continued to ‘allow’ the father of her son to manage essentially all her monies; and not only that, R had been able to maintain a comfortable lifestyle rather uninhibitedly out of ‘her’ wealth throughout these years.  She now realizes that she had been kept in the dark and would like to unearth everything and freeze everything.  Mr Pilbrow concedes that there might have been unintentional losses but there is no evidence of dissipation of assets with the intention of defeating P’s claim.  I agree.  In my view, the losses, if any, might have been the result of financial misconduct, misjudgement, his stupidity or simply some other reasons but this is yet to be established.  In any event, where appropriate, these sums can be added back against R at the end of the day.  There is also another rather insignificant but relevant consideration.  As Mr Pilbrow has pointed out, it is known to everyone that securities would go up and down especially in the present extremely volatile market and decisions may have to be taken quickly in order to cut loss or secure profit.  It is simply not appropriate or possible to manage securities back and forth through communications between solicitors.  In my judgment, even taking the undisputed fact that in the past R did not discuss with P and just carried out his investment decisions into consideration, the balance of convenience is not in P’s favour.  

Orders

Summons for Specific Discovery

107. For the reasons aforesaid, I give the following orders:

(1)  The respondent do within 14 days file and serve his answers, and provide copies of documents to the following questions set out in the Outstanding Questions Table:

(1) Q 29;

(2) Q 96;

(3) Q 34;

(4) Q 41;

(5) Q 5(iv);

(6) Q 10(iv);

(7) Q 10 (iii);

(8) Q 36(ii);

(9) Q 60;

(10) Q 64(iv);

(11) Q 72;

(12) Q 39;

(13) Q 42;

(14) Q 70;

(15) Q 71(i); and

(16) Q 71(ii).

(2)  The respondent do within 14 days upon receipt of the relevant documents and statements file and serve his answers to the following questions set out in the Outstanding Questions Table:

(1) Q 50;

(2) Q 54(iv) to (viii) (save and except the sums of $12,000 and $19,000 (both on 10 January 2014), $20,000 (on 4 December 2013), USD 2,000 (12 December 2013) and SGD 2,922.50 (3 January 2014);

(3) Q 55(1)(i) to (iii);

(4) Q 56;

(5) Q 35(i); and

(6) Q 85.

The 1^st Injunction Summons dated 20 May 2015

108. As I said in para 89 above, the ambit of the interim order dated 26 May 2015 is wider than R’s undertaking set out in his solicitors’ letter dated 15 October 2015.  I consider it is appropriate for an order to be made in terms of the interim order.  Thus, I give an order in terms of paragraph 2 of the summons.

The 2^nd Injunction Summons dated 11 August 2015

109. I will hold R onto his undertaking to the court and to P that he shall provide P with monthly statements provided by his securities or investment institutions as and when the same are available:  Para 1 of the Undertaking in the Order dated 24 August 2015. Likewise, there is also the 2^nd Injunction Summons Undertaking contained in his solicitors’ letter dated 15 October 2015.

110. For the reasons aforesaid, I dismiss P’s application to restraint R from engaging in further stock, margin borrowing and lending, etc:  Para 2 of the summons. 

Costs

111. I have the following general observations on costs.

112. R’s previous responses to many of P’s Questionnaires were unhelpful, inviting further requests and finally the present application for specific discovery.  It is clear that R made no genuine or serious effort in the exercise.  Examples are all over the place and Mr Pilbrow had no reply to the examples raised by Mr Coleman.  By way of an example, I am referred to R’s Answer when he was being asked about the source of capital and/or the source of funds with which “investments” were made and/or with which each of R’s company was funded or capitalized.  R’s answer essentially was to ask P to look at the relevant audited accounts and profit tax returns.  Obviously, the audited account could not have shown the source of the money.  It was probably due to the involvement of counsels at the later stage that R inclined to adopt a more sensible approach in the matter.

113. As said above, there are various requests that Mr Pilbrow readily accepts that R is to give his answers once he is given the documents and statements.  Clearly many of these transactions are in respect of the joint account or his own account, he could have obtained the relevant information on his own and give his answers without the need of an application from P.

114. Further, by an order dated 24 August 2015, which was made as an interim order arising out of P’s 2^nd Injunction summons, R was enjoined to account for and provide documentary evidence of, inter alia, the payments that he received from the sale of Property F and Property A in the respective sums of $3,951,642.09 and $988,000.

115. In a purported compliance of the order, R, via his solicitors by way of a letter dated 1 September 2015, informed P that R did not receive these 2 sums of money because the recipient of these monies were Company R, the registered owner of these properties. 

116. As to the whereabouts of the monies, R produced a copy of bank statement dated 19 December 2014 showing the receipts of deposit and further deposit for $200,000 and a copy of bank statement dated 18 February 2015 showing the receipt of the balance of purchase price $3,551,642.09 upon completion, and provided evidence of payment of estate agent’s commission in the sum of $40,000.  R also produced a copy of bank statement dated 18 April 2015 showing receipts of $988,000 in respect of Property A.  I reckon this amount to about $4,699,642.09 ($200,000 + $3,551,642.09 - $40,000 + $988,000).

117. Apparently, R was suggesting that the monies were not in his pocket at the relevant time.

118. However, in reply to P’s repeated queries regarding the whereabouts of the proceeds, it transpired from his belated Answers filed on 20 October 2015 that in fact R caused his Company R to pay him (apparently on 14 May 2015) $5,500,000 as repayment of director’s loan owed to him and then from R’s account a sum of $5,000,000 was paid out to R’s solicitors on 27 August, 2015 for his legal costs of the present proceedings.  R was and is the sole director and shareholder of Company R.  Essentially, it means he caused his company to pay the proceeds to him so that he could pay his legal costs.  All were done prior to his reply of 1^st September 2015.  The implication is that the letter of 1 September 2015 was misleading if not a falsehood. Whether it is misleading or a falsehood is beside the point, it is no doubt a breach of the order.  The rhetoric that his solicitors tried to paint in the letter of 26 October 2015 would not have altered the fact.  I would not speculate whether R’s solicitors knew about the truth at the time.  I would like R to know that the court takes a very serious view on this and he has to be reprimanded for this. If necessary the court will take the matter further. 

119. Finally, P has already engaged a forensic accountant and has exhibited part of his report in her affirmations.  It is obvious that P sets great store by her expert.  No application, however, was ever made to court for leave to adduce expert evidence.  Though Mr Pilbrow does not take issue on this, I have to remind the parties that they have to comply with O 38, r 36, Rules of the High Court.  The parties should also consider whether the appointment of a single joint expert is appropriate.

120. I now deal with the summonses.

121. As regards the specific discovery summons, P has been successful in many of her items.  With the above observations in mind, I consider it is fair that P is to have 2/3 of the costs of her application. 

122. As for the 2 injunction summonses, P has obtained what she asked for in the 1^st Injunction Summons.  I see no reason why R should not pay her costs.  P failed in her major item in the 2^nd Injunction Summons but has been successful on those relating to proceeds of sale.  I consider that, as far as the 2^nd Injunction Summons is concerned, the proper order is no order as to costs. 

123. I also give certificate for two counsels.  All the costs are to be taxed, if not agreed.