VE (nee KE) v. VRJ

FCMC 7676/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 7676 OF 2011

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J U D G M E N T
(Ancillary Relief)

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1.  This is a trial on the ancillary relief of a high conflict case.

2.  For convenience, I continue to adopt the same abbreviations of the persons involved.  Thus, the petitioner wife is referred to as “P”, the respondent husband “R”, their daughter “J”, their son “A” and R’s fiancée “IY”.

3.  I am well familiar with this family, if I may still describe it by this term.  The parties have come before me on numerous occasions dealing with all sorts of disputes arising from these protracted proceedings.  In the last two years or so since this case has been docketed to me I have handed down two judgments on injunctions and one judgment on the relocation of the 2 children of the family.  Prior to all these for another 2 years they had already fought bitterly over a non-molestation order and the custody of the children.  The corollary is that the legal costs incurred are enormous; so enormous that they are exceeding $10,000,000 and are way out of proportion of the assets owned by the family.  It is not an exaggeration to say that the majority of the liquid assets have been evaporated, or in actuality transformed to become the revenues of their solicitors.  The horrible thing is that all along the parties have been fully aware of the situation and have been consciously and willingly to allow this to happen.  They paid no heed to the figures set out in their Form Hs (Estimate of Costs) filed on each and every hearing.  When it comes to the ancillary relief dispute, the parties are scrambling for the last bucket of cash now being kept in court in order to gratify their needs for their legal expense. Seen in this light, the real victims of this matrimonial warfare, if put in monetary terms, are J and A.

4.  R was at all time the breadwinner and P the homemaker.  This was the division of their role throughout.  A prominent feature is that the family’s finance has been in the red since April, 2013 when R was laid off by his employer MS.  R was then unemployed for about a year before he got a temporary consultancy contract at $90,000 per month since April 2014.  During this year, $164,000 per month, with $44,000 for P and $120,000 for R, had been withdrawn from savings to maintain the family pursuant to a consent order dated 17 April 2013.  With this temporary job, the parties withdrew less from savings but they were still in deficit.  Ms Tsui, for P, reckons that from April 2013 up to June 2015, a total of $3,078,000 was withdrawn.

5.  The only meaningful asset within the jurisdiction was the former matrimonial home in the Discovery Bay.  Again, it was after much hostility and only with the court’s intervention that the home was liquidated in December 2014 and the proceeds of sale were paid into court.

6.  By a Ruling dated 27 February 2015, I granted leave for R to withdraw from the monies paid into court for payment of (1) USD32,504 being his overdue US taxes and (2) $1,000,000 for his legal costs.  The remaining proceeds (“the Net Proceeds”) have been utilized for the maintenance of the parties according to the said consent order dated 17 April 2013, less whatever income they are able to earn, until the determination of the ancillary relief matter. 

7.  Further, by an order dated 4 June 2015, I gave leave for R to relocate the children back to his hometown in Colorado, United States of America, with care and control remains to be shared between the parents.  The arrangements are that the children are taken care of by their father during the school terms and by their mother during their holidays such as Christmas and summer break. 

8.  The background of the parties has already been detailed in my judgment dated 4 June 2015 (“the Relocation Judgment”) when I dealt with the relocation issue; it is not necessary for me to repeat the same here.  Suffice for me to say is that P is now 37 years old and is living alone.  R, now 54, has returned to his hometown with the 2 children of the family after the conclusion of this trial.  Also with him are his fiancée IY and their baby daughter.  They should now be settling in Colorado. 

Parties’ Open Proposals

9.  The parties, in their usual fashion, are poles apart when it comes to their open proposals.

10.  Initially, P sought the whole of the Net Proceeds principally for the purpose of paying her legal costs owed to the Director of Legal Aid.  According to Ms Tsui, if P gets anything less than $4,000,000, it is quite certain that all the money would go to the public purse.  If P is able to get a bit more than that, she may still have a small buffer.  This would provide her with some cash in times of need.  On the top of the Net Proceeds, she is seeking a periodical payment of $20,000 per month from R.

11.  As for R, his proposal is simple and also to me, somewhat distressing.  He does not think P deserves anything so the whole of the Net Proceeds should be paid over to him for the settlement of his liabilities, mainly his legal costs.  P should walk out of the marriage with nothing.

12.  Upon the court’s query why both parties seemed to have forgotten their children’s needs, P revised her open proposal the next day.  She is now willing to keep $1,000,000 for J and A’s university education and will negotiate with the Director of Legal Aid on the repayment terms of her legal costs.  The $1,000,000 will be held by her, either in her own name or in the joint names with the children, exclusively for their university education.  She is still seeking periodical payments of $20,000 per month against R.

Issues to be Determined

13.  As will be seen, there are not too many factual disputes between the parties. The only main issues are the size of the matrimonial pot and the entitlement of the Net Proceeds.

The Law and Legal Principles on Ancillary Relief

14.  The jurisdiction of the court in granting financial provision for a party and for a child of the family is governed by sections 4 and 5 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“MPPO”).  Pursuant to sections 6 and 6A of the same legislation, the court also has the power to grant orders for transfer, settlement or sale of properties.  In deciding on how to exercise its power in this regard, the court is bound to consider the principles set out in section 7 of MPPO.  These principles are to be interpreted in the light of the Court of Final Appeal judgment in LKW v DD (2010) 13 HKCFAR 537.  I will follow the steps set out by Mr Justice Ribeiro PJ in that judgment in the consideration of the application before me, namely, (1) identification of the assets, (2) assessing the parties’ financial needs, (3) deciding to apply the sharing principle, (4) considering whether there are good reasons for departing from equal division and (5) deciding the outcome.  As the parties have no dispute over the principles and the 5 steps to be applied, it is not necessary for me to set them out here.

Identification of the Assets

15.  For the present purpose, I adopt an exchange rate of USD$1 = HK$7.75. 

Financial Resources of the Petitioner

16.  P says she only has a Rolex watch now that is worth $23,000.  Previously, she disclosed in her Form E dated 17 August 2011 that she had valuables of about $95,000.  Her explanation that she has lost the other valuables during moving home is hard to believe.  Be that as it may, either figure is not a substantial sum.  I consider it is fair that P should continue to keep whatever she has.  Apart from this, she has a bank balance of about $107,000.

17.  According to her Form H dated 29 June 2015, her legal costs up to the conclusion of the trial on ancillary relief are estimated to be $5,778,893. 

18.  P’s assets and liabilities can be summarized as follows.

Schedule of Assets and Liabilities

Item no	Assets	Amount (HK$)
1.	Bank balance	107,000
2.	Valuables	95,000
	Total:	202,000
	Liabilities
3.	Legal costs owed to Director of	(5,778,893)
	Legal Aid (subject to taxation)
	Net:	(5,576,893)
		========

19.  Thus, P has a deficit of $5,576,893.

Financial Resources of the Respondent

Assets

20.  The Colorado Home, in R’s sole name, was purchased pre-marital in 1998.  According to the appraiser, it is worth USD350,000 ($2,712,500) as at 21 November 2013 but R assesses it at $2,730,000.  I would take the higher figure.  I accept that there is presently an outstanding mortgage of about $503,000; hence, its net value should be around $2,227,000.  I also accept that notwithstanding it was purchased pre-marital, income of R during the marriage was used to pay the monthly mortgage payments.

21.  R says there is an outstanding repair to the Colorado Home that he should have done back in 2014 and for this, he requires $93,600.  I would consider this as part of his liabilities.

22.  There are bank accounts maintained in the joint names with either J or A.  R confirms that he is able to operate all these accounts.  The deposits in the College Invest account and Coverdell ESA accounts are about $164,396 for each of J and A. This is sufficient for one year’s university tuition fees. That said, R says the deposits are not so much for savings.  Rather they are for tax planning.  The US taxation rules are that as long as the children do not have gifts of deposit more than USD10,000 a year, the deposit would be tax free.  Hence, this is a way to keep family money.  If in need, the money would have to be withdrawn.  It is not in dispute that as at the date of trial, the amount of money now being held in the joint accounts of R and his children is in the region of $546,676.  I see no reason why this sum is not included as part of the family assets.  I reckon that the total bank balance that R is able to operate is about $663,700. 

23.  The current value of his retirement funds stands at $1,153,900, of which $933,952 is pre-martial. 

Liabilities

24.  R’s claim that he owes J and A $500,000, the money that he withdrew from the joint accounts with the children for expenses, is groundless.  Equally groundless is that he treats his obligation to save $7,100,000 for his retirement as a liability.  Clearly, these are not legal liabilities; he is not going to sue himself if he is not able to save sufficient for his retirement.

25.  In strict legal sense, R’s fiancée IY was his domestic helper.  R paid a monthly wages of $3,920, food expenses of $875 and tuition fees in the total of $54,250 ($7,750 x 7 times) in order to help her to get back to part-time college.  This is no small sum of money.  On top of that, he also transferred from time to time $1,000 to $2,000 as family’s living or shopping expenses.  Ms Tsui argues that R’s expenses on his partner IY and the new baby daughter are unreasonable expenses and should be added back to the matrimonial pot.  Therefore, half of the bank and credit card liabilities, which stand at $715,420, should be deducted from the pot.  I agree that some of the expenses such as the tuition fees could have been avoided when R was managing a very tight budget but I am not convinced that all the expenses that go to the maintenance of IY and the baby daughter should be excluded.  Apart from the few thousand dollars that P earned monthly from her part-time job and the withdrawals from the escrow funds, R’s income had always been the main source of revenue for everyone.  I do not consider that the maintenance of IY and the baby daughter are unreasonable expenses that warrant exclusion. Adopting a broad brush approach, I would allow 80% of the liabilities as family’s liabilities, ie $572,336 ($715,420 X 80%).

26.  R also states A and J’s tuition fees in the sum of $35,120 as his liabilities but these should have been already covered by the $120,000 that R was entitled to utilize every month.  This sum would not be included.

27.  Parties’ failure to compromise has led to loss of family assets.  For instance, due to their failure to agree on the sale of the former matrimonial home, R had to liquate his pre-marriage retirement funds for maintaining the family.  For this R had to pay US tax at the rate of 24% but if he liquidates it by the age of 65, the tax rate will only be 10%.  Again, it was also because of the failure of the parties to compromise, or seen from R’s perspective, P’s groundless refusal to the use of the family assets, that R failed to pay his US taxes for 2013 and 2014 and thereby fees and penalties are levied; and as of now they are still going up every single day.  Leaving who is to blame aside, I can see why R harbours immense negative feelings towards P.  There is no challenge from Ms Tsui on the tax figures provided by R.  I see no reason why these tax liabilities should not be included in the matrimonial pot.

28.  Ms Tsui urges the court to look at the litigation conduct of R who instigated huge spending of legal costs on both sides.  She argues that the legal costs that R has already spent, which are in the region of $3,400,000, should also be added back for the reason that P also has her own legal cost liabilities.

29.  With respect, I do not see it this way.  As I observed in para 44 of my Judgment dated 27 February 2015 when I dealt with the proceeds of sale of the former matrimonial home, “… It is fair to say that the financial predicament that the parties are facing and will be facing in the years to come cannot be attributed to the wrongdoings of one side, after all, to use a well-worn cliché, ‘it takes two to tango’…”.  In my view, if P’s legal costs liabilities are to be included there is no reason why R’s legal costs should be excluded, subject to reasonableness in terms of the amount and the manner in which the same were incurred.  Also, it should not be forgotten that R was successful in his major application, ie the relocation issue.

30.  According to R, he still has legal costs of some $4,728,012 unpaid. 

31.  Based on the above adjustments, R’s assets and liabilities can be set out as follows:

R’s Schedule of Assets and Liabilities

Item no.	Assets	Amount (HK$)
1.	Colorado Home (net of mortgage)	2,227,000
2.	Bank balance under R’s control	663,700
3.	Valuables	2,738
4.	Retirement Funds ($933,952 is	1,153,900
	pre-martial)
	Total:	4,047,338
		========
	Liabilities
5.	US tax for 2013, 2014 and 2015	(843,723)
6.	Hong Kong tax	(46,684)
7.	Repair cost for Colorado Home	(93,000)
8.	Credit cards and HSBC personal loan	(572,336)
9.	Legal costs	(4,728,012)
	Total:	(6,283,755)
	Net:	(2,236,417)
		=========

32.  R therefore has a deficit of $2,236,417. Inclusive P’s net figure, the total deficit is $7,813,310 ($2,236,417 + $5,576,893).

33.  I have not forgotten the Net Proceeds that are now deposited in court.  As of now, the amount stands at $3,860,674. Inclusive of this sum, the family still has a deficit of $3,952,636 (-$7,813,310 - $3,860,674).  The family is effectively bankrupt.

Earning Capacity of the Petitioner

34.  P became a fulltime homemaker since she was pregnant with J in about November 2001.  Apart from being a licensed tour-leader in Japan, she does not have any particular skill or training.

35.  P has now been in Hong Kong for 10 years. She obtained her permanent residency in 2013 and she regards herself as having settled in Hong Kong.  She accepts her retiring age is 65, so she still has 28 years to go; much longer than that of R.

36.  P accepts that she should be able to earn about $18,000 a month.   This has not been challenged by R.  I accept this is what probably P should be able to obtain.  There is evidence that P was able to secure an employment in March 2011 with a salary of $18,000 per month.  I have heard P’s evidence on this matter in the relocation trial.  I have great reservation over her explanation that the “intended” employment was in fact not real and was just an attempt on the part of her friend to help her to obtain a visa to remain in Hong Kong.

Earning Capacity of the Respondent

37.  In contrast, R is an accountant qualified in the United States.  Being a qualified accountant and with ample experience, there is little doubt that he will be able to secure a decent job.  It is accepted by all that he is going to get a position that is commensurate with his qualifications and experience.

38.  R, now 54 years old, has about 10 years to go before retirement.  He expects to earn about $76,650 (or USD9,890) after tax per month upon return to the United States.  This figure has not been subject to challenge.  I would take this figure as R’s earning capacity.  His expected salary should be considered as an entry point with reasonable possibility of upward adjustments in times.  

Financial Needs of the Parties

39.  Before R was laid off the family used to enjoy middle class standard of living.  It was made possible only when R was paid about $205,000 as an expatriate by his former employer.  It is recognised by all that the previousstandard of living in Hong Kong cannot be maintained.  It is all a matter in the past.

40.  Both parties’ lifestyles have now been reduced to rather basic.  That said, I accept that as far as accommodation is concerned, with the Colorado Home, R is able to live in a larger accommodation but given the different geographical situation between the two places it is hard to make a sensible comparison. 

Financial Needs of the Petitioner

41.  P has made it clear that she will stay in Hong Kong.  R does not believe in it.  He still believes that she will go to the United States to join J and A.

42.  Wherever she is going to stay she needs a roof over her head.  For the purpose of the present proceedings, I proceed on the basis that she is staying in Hong Kong.  In evidence, she said she will try to terminate her existing tenancy in the Discovery Bay and move to a cheaper flat capable of accommodating J and A when they return for holidays.  The Sheung Wan area should be an appropriate location; it is closer to her place of work and convenient for J and A.  I consider this is reasonable.

43.  Taking into account the provision for travelling expenses for trips between Hong Kong and the United States for herself and the children, she estimates that she will need around $57,000 per month in total.  On the basis that she earns $18,000 per month, her shortfall is $39,000.

44.  She explains that in the past she used to have 2 return trips to Japan.  She now asks for 1 return flight to Japan at $7,000 per year only.  She also asks for $8,000 for her part of flight and accommodation for holiday with children in some places in South East Asia.  She considers it is good to have a trip every year with the children because they are not living together; she wants the children to have some happy memories with their mother.  R is to pay the children’s share of about $16,000 as well.

45.  She also expects to visit the children twice a year.  She rates it at $18,000 per trip for the air-ticket only.  At the same time, the children will return to Hong Kong 3 times a year.  All these are budgeted into her monthly need of $57,000.

46.  I will deal with holidays and seeing the children later.  In the meantime, suffice for me to say is that some of her items appeared to be on the high side. For instance, she says she needs clothing/shoes $2,000, personal grooming $2,200, entertainment $2,000 and medical/dental $1,500 per month.  In my view, these figures are unrealistic.  I doubt very much she is spending at these figures now. Furthermore, she would certainly spend much less on transportation, now stated to be $2,300, after she has moved away from Discovery Bay.

47.  Apart from the unpaid legal fees that are subject to the Legal Aid first charge, she has no other liabilities.  She has been paying the Director of Legal Aid her contribution $6,000 per month since June 2014. 

48.  P has been withdrawing $44,000 per month as her living expenses.  This also includes the living expenses of J and A when they were with her.  I consider that now living alone she would need about $13,000 as rentals and another $8,000 as other expenses.  On the top of this, I will add another sum of $500 for her return trip to Japan.  Thus, she requires $21,500 on a monthly basis.  She would need to spend more when the children return to Hong Kong or when she goes to the Unites States to see them.  I would factor in an additional sum of $25,000 for her trip to the United States and another sum of $5,000 per month, for 3 months, as the children’s additional expenses.  This would be a total sum of $40,000, or on average another sum of $3,333.  This means that she requires $24,833.  I round it up to $25,000.  The shortfall is therefore $7,000 per month.

Financial Needs of the Respondent and the Children

49.  Ms Tsui accepts that R has the obligation to support IY and the baby daughter but that does not rank above the needs of providing for P and the children.

50.  R agrees that he is moving to a lower cost area.  He did not give an estimate in his Form E of his costs of living in the United States.  In trial, R gave an estimate on the basis of his Hong Kong expenditure with 20% less to reflect the lower cost of living in Colorado.  At the end, he gave a total of $108,047, of which $34,000 being general expenses, $43,380 being his and IY’s personal expenses and the balance $30,667 being the children’s expenses.  I do not think these figures are realistic.  There is simply no evidence or basis for him to say that the cost of living in Colorado is 20% less.  What is more important is that the lifestyle or the mode of living and hence the costs structure would also be different between the two places.  One simply cannot compare an apple with an orange.  In any event, his figures are substantially much higher than what he expects to be able to earn.

51.  R says J and A need psychologist counselling to deal with their transition from Hong Kong to Colorado and he rates it at $6,000 per month.  I consider that this sum would not be required when the children leave.

52.  I accept that R has the onerous responsibility of supporting his household.  Leaving IY aside, he has 3 children to take care of.  In time when J and A becomes adolescents and the baby daughter grows older, their needs would increase.

53.  It is fortunate that the children will go to public schools which are free.  However, this would not be the case when they go to university.  P’s unchallenged evidence is that as of now the annual tuition fee for state university is about $171,000, so on that footing 4 years for both J and A will give a figure of $1,368,000.  

54.  I doubt very much that R’s father is earning any meaningful income.  However, R has not been supporting his father’s daily maintenance.  I would not consider giving contribution to the grandfather as part of R’s financial needs.

55.  R maintains that he has the need to save especially for his retirement.  I agree but it would only be possible if there is extra cash to go by.  

56.  As for P’s retirement, R relies upon a document that he found on the web issued by the Japan Pension Service of the Government of Japan to say that P is legible for pension payments upon her retirement at the age of 65.  He insists that this is the case even when P has never made any contribution and is always away from Japan.  As long as she enrols to the scheme and remains a Japanese citizen, she will get her pension paid.  To this, P accepts that she can enrol but she does not know whether she will get anything.  With respect, I am not able to be as optimistic as R.  I have read through the document carefully.  It is true that according to the document, Japanese citizens who are residing outside Japan are legible for enrolment on voluntary basis but enrolled members are required to make monthly contributions unless exemptions are granted. It is unclear as to whether someone who is residing outside Japan is legible for applying for exemption. Thus, the picture is not entirely clear.  It seems to me to be rather contrary to commonsense that one would still be entitled to receive benefits even if he or she is always away from home and has never made any contributions.  As R has the burden of proof in relation to his contention, I find he failed to prove on the balance of probability that P is entitled to a pension in Japan upon her retirement.

57.  One of his main reasons for relocation is that he is returning to his hometown where he should be able to manage with greater ease.  As said, he expects that he is able to earn $76,650 net of tax. I am entitled to take this as the baseline. 

58.  I consider that, though realistic figures are not available, the amount that R needs to provide for himself and the family in Colorado should be much less than that in Hong Kong.  There will be no need for expensive school fees and there will not be any rental expenses. The medical would be covered by R’s employer.  Their needs should be rather basic, so to speak - mainly food, household, utilities, car, some entertainment and also $15,000 monthly mortgage payment for the Colorado Home.  After deducting the monthly mortgage, R would still have a disposable income of about $61,650.  I have no doubt that R should be able to make his ends meet and should able to achieve a positive cash position.  As far as earning capacity goes, R has always been in a much better position.  This will also be the case in the years to come.  

Deciding to Apply the Sharing Principle

59.  Inclusive of the period of cohabitation since 2000 up to P’s divorce petition in June 2011, it is in reality a relationship lasting for 11 years.  This is not a short period of time by today’s standard and what is more, the parties have raised two children. Apparently, equal division should apply.

Whether are Good Reasons for Departing from Equal Division?

60.  Ms Tsui submits that the family assets are simply not sufficient for meeting their needs.  The parties may not need to go to the sharing principles.   There is no room for the application of any sharing principle:  see LKW v DD (2010) 13 HKCFAR 537, at para 74.

61.  It is on this basis that Ms Tsui argues that P should be allowed to keep whatever is left in the escrow money.  This is to meet her needs in the future and her legal costs obligations.  R has spent at least $3,400,000 from the matrimonial pot to pay his legal costs.  There is no reason why P could not get money to a similar extent to pay her legal costs.

62.  Ms Tsui emphasizes that P’s legal costs are estimated to be around $5,700,000 and assuming that some of the costs would be taxed off, she may still need to pay not less than $4,100,000 to the Director of Legal Aid.  P is now paying $6,000 per month as her contribution. When the matter is finalized, it is expected that she is going to foot the whole of the costs. 

63.  The Colorado Home was purchased pre-marital. Though mortgage payments were paid out of R’s income during the marriage, in my view, it is to a great extent non-matrimonial.  That said, P agrees to keep the Colorado Home intact for R and the children so that their housing need is taken care of.  This is a sensible approach.

64.  I agree that the parties’ needs are determinative.  This is the single most material factor affecting division of the family assets.  It is glaringly apparent that the assets available are insufficient to cater for the needs of both parties and given the long duration of the marriage, I see little point in differentiating assets into matrimonial and non-matrimonial.  There is also the implication that a ‘clean break’ would not be possible. 

65.  Also, I have not lost sight of the fact that with their liquid assets being stripped off, what are most readily available now are their respective earning capacities; and there is a huge disparity here.  R would have to provide P with periodical payments for her maintenance.

Alleged Misconducts

66.  Clearly R harbours a lot of bitterness from these proceedings.  He alleges that P has made numerous false claims including spousal and child abuse.  He was ousted by an injunction for no reason back in the early stage of the divorce proceedings. I agree that some of the allegations are unproven or groundless but they are not relevant to the present proceedings.  I have already dealt with those that are relevant to the relocation issue.

67.  Much time was spent by R during trial on exonerating his name: that he was not financially irresponsible and that it was P’s uncompromising conduct that led to the escalation of legal costs, thereby evaporating the family assets.

68.  R accuses P of being violent to him and to the children during the marriage, having an affair with her boy friend in 2010 and being responsible for destroying the marriage.  In contrast, he was totally committed to the family and even took care of the children when P was out with her boy friend.  In terms of contributions, he says they are not equal as regards the parties.  He has fulfilled 100% of his part but as for P, she has caused much damage to the family.  In addition to this, she has wasted a lot of family assets for nothing by taking out unnecessary applications to court, the most notable one being the said ouster order.  In brief, it was P’s unreasonable litigation conduct that has drained all the family assets.

69.  I have heard all the evidence on these issues in the relocation trial.  I do not find any of the misconducts, whether those of P or R, or taken in totality, could amount to “obvious and gross” conduct such that it would in the opinion of the court be inequitable to disregard it.  In particular, it may be that P was violent as claimed but according to R, it was due to her mental illness, suffering from depression and maladaptive personality.  If that is the case, I fail to see how this could be “obvious and gross” misconduct.

70.  R also makes the point that P did not understand the real financial situation of the family.  Further, in fact, there was and is no acrimony between the parties.  Due to the vulnerability of P because of her mental illness, she had the weakness of being easily exploited by people who would take advantage of her.  Before the involvement of her solicitors, the parties in fact had or nearly had an agreement on how to end the marriage.  It was only because of the involvement of P’s solicitors or since P had been granted legal aid that unfounded issues were created and dealt with in court.  Monies were spent on unnecessary correspondences and issues created by the solicitors who then solved them and charged the family assets.

71.  It is not necessary to express my view on these matters.  They are not relevant to the issues before me. 

72.  It seems to me clear that, for the time being, neither party would have the ability to save for their future retirement.  I however accept that R should be in a better position to save when he is on the right track again.  He should be able to have career advancement.  At the same time, of course, he has a much shorter time to save for the future but he already has retirement funds of about $1,153,900

73.  R has the Colorado Home.  This is a valuable asset.  It is safe to assume that its value will appreciate in the long run.  This is something that P does not have.  In evidence, R agreed that given that the outstanding mortgage is merely about $500,000 it is possible for him to obtain a re-finance for some extra cash but the term of the mortgage would depend on his expected productive life so he would only be able to get 10 years at the best but then the monthly payment would be huge.  To me, at least, he has something to lay his hand on in times of need.  R also has some positive cash in banks from which he can settle his credit cards and bank loan.

74.  As said, the crucial issue is on the division of the Net Proceeds. 

75.  I have no doubt that what I should do is to give regard to the welfare and the needs of J and A first.  R has the onerous responsibility of maintaining them and also the baby daughter.  He also has to save for their university education.  As said, Ms Tsui suggests to have a fund of $1,000,000 set aside for J and A’s university education. 

76.  Both parties are in agreement that J and A are expected to go to university.  Whilst agreeing to have a fund set up for the children, R considers that due to the conflicts and arguments the parties have it will be difficult to obtain a release of the funds.  I accept that on the evidence before me, it is indubitably that the parties are not able to work out any solution sensibly.  However, for the reason that J and A are staying with R in Colorado for most of the time, I do not think it is appropriate for the money to be held by P as proposed by Ms Tsui.

77.  I also agree that the children’s education needs should be catered for.  However, J and A are aged 13 and 11 respectively.  There are still roughly 5 years to go before J enters university.  Given the parties’ dire financial situation, I do not think it is prudent to have $1,000,000 locked-up for another 5 years.  Though J and A are going to public schools, I foresee that some expenses such as those for extra-curricular activities would still need to be paid.  The preferred way is to have the money available for J and A now to pay for their education expenses including their university tuition fees.  With this fund, R will be relieved of some of his saving obligations.  This in turn will allow him to pay periodical payments to P, to pay for J and A’s air-tickets for returning to Hong Kong and possibly to save for his retirement.

78.  As I have observed in para 176 of the Relocation Judgment, R impressed me as a loving and caring father.  However, as admitted by him in evidence, R utilized some of the monies held in the joint accounts with J or A for family expenses.  There is a risk that R may do the same with this $1,000,000.  I believe this can be safeguarded by way of a mirror order to be obtained by R from the relevant court of law in Colorado to which R has agreed.

79.  I will therefore give an order that a lump sum of $500,000 each (ie a total of $1,000,000) be paid out and released to R for the benefit of J and A solely.  The money shall be placed in a joint account with J or A (as the case may be) and I wish to stress that the money shall be used exclusively for their education expenses including university tuition fees.

80.  With $1,000,000 gone as education fund, the next question is how to deal with the balance of about $2,860,674.

81.  There is some force in Ms Tsui’s criticism over the lack of particularities on R’s outstanding legal costs.  In any event, R has already paid $3,400,000 out of the family assets.

82.  I agree with Ms Tsui that P should not walk out of the marriage with empty hands.  It is unfair to her.  She should be entitled to maintenance and be able to have some of her costs paid. 

83.  Since R already has the Colorado Home and the retirement funds, I consider it is fair that P should be given the remaining sum in court for her maintenance, inclusive payment of her legal costs.  The $5,700,000 is an estimate only.  It remains unknown as to what the actual amount would be after taxation, though it is highly likely that she may not be able to get anything. 

84.  I am conscious that the remaining sum is far from sufficient but this is the same for R.  It is a fact that they will never get sufficient money for their legal costs and livings and they knew this fact months ago.  Both should have thought twice before incurring the costs at the time.  I do not believe the court has an obligation to ensure that the Director of Legal Aid has his costs paid nor do I believe it is the best way to spend public money.   This case will certainly cause the Director of Legal Aid to go deep into his pocket.

85.  In J v J [2014] EWHC 3654 (Fam), [2015] 1 Costs LO 31, an English case where the legal costs went up to almost 1/3 of the family assets, Mostyn J said when learning this he was ‘almost lost for words’ and described the situation as ‘madness’ (para 9). He gave heavy criticism on excess litigation cost and called for reform.

86.  What we have here is even a more extreme case where as far as arithmetic goes, all the assets, whether matrimonial or non-matrimonial, have been eaten up by litigation costs.

87.  As I have analysed, R should be able to make his ends meet and achieve positive cash flow.  In time, he should also be able to save.  In contrast, P is in much worse position.  According to my assessment, P has a shortfall of $7,000 per month.  This shall be made up of by way of a periodical payment from R.

88.  At the very beginning of the divorce P took $500,000 from their joint account and put it in separate accounts for J and A. The money was later deposited in escrow with P’s solicitors in August 2012.  R complains that there is a total lack of information as to the whereabouts of the money from January 2011 to August 2012.  There is also a serious allegation against a partner of P’s solicitors in this respect.  I do not think I need to say any on this except that there is no basis in support of the allegation.  Be that as it may, the said $500,000 was left intact up to August 2012.  By June 2015 it was reduced to $53,688.  The money now being held by P’s solicitors on escrow should be of minimal amount if it has not been entirely depleted.  I consider it is fair that the balance, if any, be released and paid to P absolutely.

89.  P should also be able to keep her bank balance of $107,000 for rainy days.

Deciding the Outcome

90.  I need to step back and look at the overall impact of the factors found to be relevant.

91.  I have found that ‘needs’ of the parties are determinative.  I consider that I shall give regard to J and A’s needs first.  Their housing needs are to be ensured by the Colorado Home and their education needs are to be covered by the education fund.  R has a much higher earning capacity and better career prospect.  There should be a constant stream of income for his family and for the maintenance of P.

92.  As for P, she is in a less advantageous position.  Not only that there is a disparity in their earning capacity but also that R already has $3,400,000 for his legal costs and is keeping the Colorado Home and the retirement funds; so it is fair that P is to get a lump sum.  I am fully aware that this would not be sufficient for her needs.  As said, it is highly likely that she will get nothing at the end of the day.  It is also clear that P’s prospective income of $18,000 would not be sufficient for her maintenance and thus R should continue to provide her with a periodical payment. 

93.  This outcome may please neither party but, in my view, this is the best that can be devised in order to allow both parties to move on.

Further Care and Control Arrangement

94.  As A is approaching the age of 12, during trial the question of whether A should apply for his Hong Kong Identity Card was raised.  In order to provide A with an option, R agrees to give an undertaking to the court and to P that he will arrange and facilitate the application of A’s Hong Kong Identity Card at the earliest opportunity.  I will hold R onto this undertaking and this undertaking will form part of the order made in this judgment.

95.  The parties also agree that the court should give further directions regarding the care and control of the children during their holidays.

96.  According to my order dated 5 June 2015, the care and control of the children remains to be shared between P and R.  The children are to be under the care and control of their father during their school terms and under the care and control of the mother during their school holidays.  This arrangement is in accordance with R’s open proposal for the relocation trial.  R now clarifies that there is no Easter holiday in the United States and holidays longer than 2 weeks would be the Christmas break and the summer break only.  Given their young age, it would be too much for the children if they are to travel back and forth in a short period of time.  At the end, the parties agree that the children are to return to Hong Kong on holidays with not less than 14 days. Effectively, it would mean during the Christmas and the summer time. Of course, there is nothing to prevent P from having the care and control of the children during other holidays whether in Hong Kong or the United States and the children may be able to travel more when they become older.  In case of doubt, I wish to clarify that the petitioner’s care and control is not subject to approval by psychologist or psychiatrist and that R is to be responsible for J and A’s round-trip air-tickets for returning to Hong Kong.

97.  Finally, R has also agreed to obtain a mirror order from a court of law in Colorado on the same terms as the orders made regarding ancillary relief and the above care and control arrangement given in this Judgment.  Again, I will hold R onto his agreement by way of an undertaking to the petitioner and to the court; and this should be done within 6 months of the order.

Orders

98.  For the above reasons and upon the undertakings of the respondent set out above, I give the following orders:

1. A lump sum of $1,000,000 be released and paid out to R from the monies now being held in court for the benefit of the two children of the family, namely, J and A, with $500,000 for each of them;

2. R shall place the monies into two joint accounts, with $500,000 each.  One account is to be in the joint names of R and J and another account in the joint names of R and A. R shall only use the monies exclusively for the education expenses including university tuition of J and A;

3. R do pay P a periodical payment of $7,000 per month for the maintenance of P.  The first payment to be made on or before 1 November 2015 and thereafter on the 1^st day of each and every month during the joint lives of the parties or until the remarriage of the petitioner, which is the shorter;

4. After the payment out of $1,000,000 according to paragraph 1 above and subject to the First Charge of the Director of Legal Aid the balance of the money held in court be released and paid out to the petitioner’s solicitors or the Director of Legal Aid;

5. Subject to the First Charge of the Director of Legal Aid the balance of the escrow money now being held by P’s solicitors be released and paid out to P or the Director of Legal Aid;

6. The respondent is to return the children to Hong Kong on school Christmas holidays, summer holidays and school holidays with not less than 14 days, if any, for the petitioner to exercise care and control on the children. The respondent is to be responsible for the children’s cost of flights; and

7. The Order dated 27 February 2015 allowing for withdrawals is set aside.

Costs

99.  In Hong Kong, in general terms, apart from children’s cases, the starting point on costs in matrimonial and family proceedings, as they are in civil litigations, remain to be “costs follow the event”: Re Elgindata Ltd (No. 2) [1992] 1 WLR 1207; see also O. 62, r. 3(2) RHC.  This is different from the position in England and Wales where the “costs follow the event” principle has been removed in matrimonial and family proceedings as early as in 1999. 

100.  Recently in Z v. X & C, CACV 166/2011 (date of judgment:  8 March, 2013), Hon Cheung JA reaffirmed that costs should follow the event although because of the special dynamics of family litigation, the discretion may be broader than in civil matters generally: para 10 of the judgment.  The learned judge also commented that the changes in England were carried out by prescribed rules (which we do not have here) and the position in Hong Kong has remained unchanged.

101.  As regards the costs in ancillary relief cases, Hon Yuen JA sets out the principles in L v. C, CACV No. 169/2006 (date of judgment:  19 March, 2008): 

[23]As a matter of law, it is clear that costs are in the court’s discretion. Pointers as to how that discretion should be exercised include the following:

(1) in family cases, as in others, costs should normally follow the event;

(2) however because of the special dynamics of family litigation (e.g. where the case involved children, or where financial resources were inadequate to meet the needs of both parties, etc.), the discretion may be broader than in civil matters generally (Gojkovic v. Gojkovic [1991] 2 FLR 233, F v. F (No. 2) [2003] 3 HKLRD 977); …;

(3) the court also retains a discretion to deprive successful litigants of costs under the Elgindata principles (In re Elgindata Ltd (No. 2) [1992] 1 WLR 1207);

(4) where a litigant succeeds on appeal but only on a new point, the court can deprive him of the costs below (Farquharson v. Morgan [1894] 1 QB 552) or even order him to pay those costs (Yip Lai Fong v. Sin Tung Hing [2004] 3 HKLRD 230), and the court can deprive him of the costs of appeal (Chard v. Jervis (1882) 9 QBD 178). (emphasis added)

102.  Notwithstanding the starting point remains to be “costs follow the event”, it is important not to forget that the basic principle is that costs are in the court’s discretion. 

103.  In the present case, P has been successful in getting the balance of the money now held in court and in getting a periodical payment order, though the sum awarded is less than what she asked for.  Viewed from this perspective, P is more a winner than R.  However, for the reason that the family has essentially bankrupted and the financial resources are simply inadequate to meet the needs of the parties, in my view, the question of costs has become somewhat academic.  It is true that R will be working and thus there should be income available for payment of P’s costs, at least in part, but I also bear in mind that R has the onerous financial responsibility of raising J and A and maintaining P.  Considering all the factors in a round, I am prepared to exercise my discretion to give an order nisi that there be no order as to costs of the ancillary relief proceedings, including all costs reserved. P’s own costs to be taxed in accordance with the Legal Aid Regulations, with counsel certificate.  

104.  Lastly, I would also give the section 18 Declaration.