CMK (formerly known as CSY) v. CPK

FCMC 7235 / 2015

[2023] HKFC 100

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 7235 OF 2015

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JUDGMENT
( Variation of Children Maintenance )

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1.  After a five-day trial in December 2018/January 2019 on the ancillary relief claim made by the Petitioner (“W”) for herself and 3 daughters (“the Children”), DDJ Doris To (as she then was) handed down a decision on 16 May 2019 (“AR Decision”) and ordered, inter alia, that the Respondent (“H”) do pay W a monthly periodical payment of HK$67,000 for the maintenance of the Children to be settled by part of H’s share of sale proceeds of the former matrimonial home (which H was ordered to place into the Court) and by H’s personal fund after the money in Court was exhausted (“Children Maintenance Order”).

2.  Two years later and shortly after the money placed in the Court for the Children’s maintenance was exhausted in April 2021, H took out a Summons dated 30 August 2021 (“Summons”) seeking a substantial downward adjustment from HK$67,000 to HK$10,000 to take effect from 1 September 2021. Specifically, H asked for the following reductions:

(1)  for A, the eldest daughter, aged 12: from HK$26,000 to HK$3,881;

(2)  for B, the second daughter, aged 10: from HK$22,000 to HK$3,283;

(3)  for C, the youngest daughter, aged 9: from HK$19,000 to HK$2,836.

3.  The terms of the Children Maintenance Order and the related orders are as follows:

“2. The Former Matrimonial Home be sold within 3 months upon the grant of Decree Absolute at a price not less than HK$13,250,000. Deposit payment(s) received from the purchaser be shared equally between the Petitioner and the Respondent forthwith. Upon completion, the net sale proceeds (after deducting the outstanding mortgage loan as well as conveyancing and related expenses) be shared equally between the Petitioner and the Respondent, with the Respondent’s half share paid into court within 7 days of completion (“the Respondent’s Fund”).

3. The Respondent do pay to the Petitioner a lump sum of HK$1,750,000 out of the Respondent’s Fund.

4. The Respondent do pay back to the Petitioner the arrears of maintenance accrued up to May 2019 inclusive, out of the Respondent’s Fund.

……

6. Commencing 1^st June 2019 and on the 1^st working day of each subsequent month, the Respondent do pay the Petitioner HK$67,000 per month as periodical maintenance payment for the 3 daughters (HK$26,000 for [A], HK$22,000 for [B] and HK$19,000 for [C] until each child attains the age of 18 or complete full time education, whichever is the later. Payment should be made in the following manner:

(a) from 1^st June 2019 until the Respondent’s Fund is paid into Court, the Respondent do pay the Petitioner on the 1^st working day of each month into the Petitioner’s designated bank account;

(b) upon payment of the Respondent’s Fund into Court, a monthly sum of HK$67,000 would be paid out from the Respondent’s Fund to the Petitioner by the Court on the 1^st working day of each month, until the Respondent’s Fund in Court is exhausted; and

(c) upon exhaustion of the Respondent’s Fund in Court, the Respondent do resume making monthly payment of HK$67,000 to the Petitioner on the 1^st working day of each month into the Petitioner’s designated bank account.”

4.  Immediately after H took out the Summons, he unilaterally paid only HK$10,000 for the Children’s maintenance since September 2021.

5.  H is 43 years old and W aged 39. They got married in May 2010. A was born in September 2010, now aged 12. B was born in August 2012, now aged 10, and C was born in February 2014, now aged 9. The Children were at the respective ages of 8, 6 and almost 5 at the trial on ancillary relief matters (“AR Trial”).

6.  The following background facts were found by DDJ To[1]:

(1)  W was a kindergarten teacher until she became a full time mother in 2011 after the birth of A. During 2013 and 2015 she worked again from time to time on a part time basis. She was an insurance agent at the time of the AR Trial.

(2)  In 2004, H started to work in A Ltd, a family business that import and export plastic flowers, when he was at his mid-20’s. In June 2005, he became a 50% shareholder of A Ltd and the other 50% shares was owned by his mother. He was appointed a director until he resigned in around December 2015 (after the Petition was presented). At the time of the AR Trial, he was A Ltd’s Director of Sales. In addition to his employment income of around $59,000 net of MPF per month, he received dividends and directors renumeration.

(3)  The valuation of H’s shares in A Ltd is $4,390,000 with reference to the single joint expert report (“AR SJE Report”).

(4)  The marital standard of living is average middle class but not luxurious or lavish.

7.  In June 2015, W petitioned for a divorce on the ground of unreasonable behaviour. The Petition was undefended. The decree nisi was pronounced on 1 April 2016.

8.  By the order of HHJ Grace Chan in August 2016 (“MPS Order”), W was granted maintenance pending suit for herself (HK$18,000 per month) and for the Children (HK$42,000 per month). In addition, H provided undertakings to continue to pay for (a) the school fees, school bus and school books of the Children, and (b) the mortgage, management fees, rates and government rent of the former matrimonial home.

9.  In June 2017, joint custody of the Children was granted to H and W, with sole care and control to W and defined access to H.

Relevant legal principles

10.  The legal principles on variation of maintenance order are not in dispute. The Court is empowered by Section 11(1) of the Matrimonial Proceedings and Property Ordinance, Cap. 192 (“MPPO”) to vary or discharge an order for financial provisions:

“(1) Where the court has made an order to which this section applies, then, subject to the provisions of this section, the court shall have power to vary or discharge the order or to suspend any provision thereof temporarily and to revive the operation of any provision so suspended.”

11.  Section 11(7) of MPPO requires the Court to have regard to all the circumstances of the case when exercising the powers conferred by section 11. These include any change in any of the matters to which the Court was required to have regard when making the order to which the application relates.

“(7) In exercising the powers conferred by this section the court shall have regard to all the circumstances of the case, including any change in any of the matters to which the court was required to have regard when making the order to which the application relates and, where the party against whom that order was made has died, the changed circumstances resulting from his or her death.”

12.  This is a fact sensitive matter. Each case must be determined with regard to its own facts. The Court has an unfettered discretion in determining a variation application by having regard to all the circumstances of the case. It is not required to proceed from the starting point of the original order. The Court looks at the matter afresh. This does not mean that the Court can give no regard to the original order for maintenance, nor that the original order carries no weight. The basis and intended effect of the original order are relevant factors for consideration and proper weight should be given to it. The proper approach was explained by Cheung JA in AEM v VFM [2][14]:

“4. The modern approach, as required by section 11(7), is for the Court to consider all the circumstances of the cases. The Court is not required to proceed from the starting point of the original order but look at the matter afresh : Flavell v. Flavell [1997] 1 FLR 353 at 357B following Lewis v. Lewis [1977] 1 WLR 409 and Garner v. Garner [1992] 1 FLR 573.

5. Any change in any of the matters to which the Court was required to consider when making the original order was one of the circumstances to be considered.

6. Almost invariably, an application to vary an earlier periodical payment order will be brought on the basis that there has been some changes in the circumstances since the original order was made, for example, continuing inflation; the increased costs in supporting a growing child and that one party may be more adversely affected than another by the increase in the costs of living : Garner v. Garner.

7. An increase in the wealth of the husband was a relevant factor to be taken into account : Primavera v. Primavera [1991] 1 FLR 16 and Cornick v. Cornick (No. 2)[1995] 2 FLR 490.

8. At the same time the basis and intended effect of the original order are relevant factors to which the Court on variation should pay regard and there should not be a radical departure from the approach taken by the parties themselves when they had entered into an agreement embodied in a consent order : Boylan v. Boylan [1988] FLR 282.”

13.  It was acknowledged that in practice, applications for variation were brought almost invariably on the basis that there has been some change in circumstances since the original order. Normally, the earlier order would not be varied unless there has been a material change in circumstances: HCTT v TYYC[3] [15] and [16],

“15. But as Garner v Garner [1992] 1 FLR 573 shows that does not mean that the earlier order, whether made by consent or not, carries no weight. How much weight should be given to the earlier order must depend on the circumstances. Cazalet J said in the English Court of Appeal:

“Almost invariably, an application to vary an earlier periodical payments order will be brought on the basis that there has been some change in the circumstances since the original order was made; otherwise, except in exceptional circumstances, the application will, in effect, be an appeal. If an order is not appealed against, or is made by consent, then the presumption must be that the order was correct when made. If it was correct when made, then there will usually be no justification for varying it unless there has been a material change in the circumstances. However, because of the impact of continuing inflation, because children grow older and cost more to support and because, for example, the cost of living in its increase may hit one party harder than another, it will usually follow that, if time has passed, there will inevitably have been some changes in the circumstances, and in particular in the financial circumstances, of the parties concerned.

Following Lewis v Lewis, by which decision this court is bound, a court on the hearing of an application to vary is fully entitled to look at all the relevant matters set out in s. 25 of the Matrimonial Causes Act 1973. On occasions, the court may be slow to accede to an application to vary a consent order; not least because the parties’ solicitors might otherwise be deterred from either seeking to negotiate such a provision or to achieve finality. Another factor which may influence a court will be the time that has passed since the original order was made. If an application consequent on an order is brought very soon after that order has been made, the court, in normal circumstances, is likely to attach more weight to the earlier order than if it had been made some years previously. Likewise, the court would expect to pay full regard to any special terms agreed between the parties at the time the original order was made - as, for example, when endorsements on briefs or contemporaneous correspondence show that an agreed order has, for some particular reason, been set at an artificially low figure. Shortly stated, the court must decide what weight it should attach to the original order and all the surrounding circumstances. However, once an application to vary is before it, the court is fully entitled to make an order considering all the circumstances afresh, paying such regard to the old order as may be thought appropriate.”

16. Thus, although the jurisdiction to vary is untrammelled, normally the earlier order would not be varied unless there has been a material change in circumstances.”

(emphasis in bold added)

14.  It is an error not to take into account the original agreement, a fortiori, the original order, as to how the maintenance should be dealt with. The Court of Appeal in WNWG v PBF[4] held that:

“16. Then the Judge referred to the means of the Petitioner and said that she would be able to provide for the children even if the maintenance payment were to be reduced. At para 47 he jumped straight to the question of how the needs of the children should be reasonably apportioned between the parties. It does not appear that he gave any weight to original agreement as to how the maintenance for the children should be dealt with. Nor did he give any consideration as to whether there should be a variation despite the ability of the Respondent to afford the payment of maintenance on the same level and the earning capacity of the Respondent (notwithstanding his cessation of his employment).

17. With respect, we are of the view that in so doing the Judge fell into error. Under the Mediation Agreement, the financial burden of providing for the maintenance of the children was placed primarily upon the Respondent. This is not surprising in light of the great disparity in the earning capacities of the Petitioner and the Respondent and the different roles played by the Respondent and the Petitioner in the upbringing of the children.”

15.  The Court has the power to backdate the effect of the variation of the order. Cheung JA held in AEM v VFM [15] that:

“1. The court has an almost unrestricted power to vary its own order retrospectively and to backdate any variation which it makes in a pre-existing order beyond the date of the application for variation.

2. In practice, orders are not usually backdated to a date prior to the notice of application to vary unless the justice of the case so requires.

See Rayden and Jackson on Divorce and Family Matters (18^th ed., 2005) Vol. 1 para. 18.25 and the cases cited.”

H’s Grounds for Variation

16.  H’s case is that there were the following material changes of circumstances which caused a reduction of his income and an increase of his financial obligations:

(1)  He sold his shares in A Ltd to his mother for HK$3,000,000 on 13 July 2020. He ceased to be a shareholder of A Ltd and would have no dividends income.

(2)  He ceased to work in A Ltd following his resignation and started to become an estate agent from October 2020 with a substantially reduced income.

(3)  He got engaged with his fiancée on 14 April 2019. They have a daughter, X, born on 2 December 2019. His financial obligations are increased.

H’s Credibility

17.  Counsel for W, Mr Eric Leung, submitted that H is not a reliable witness and had a history of non-compliance of court orders. He has a habit of retracting or changing his own case once he realised that it has become untenable or does not benefit him.[5] He drew the Court’s attention to the following findings in the AR Decision and H’s testimony:

(1)  He did not abide by the MPS Order. He unilaterally reduced the monthly payment of $60,000 to $15,000, and has persistently been late in paying the Children’s school fees, school bus and school book fees. W had taken out garnishee proceedings, application for income attachment order and committal proceedings in 2017.[6]

(2)  He was found to have made “blatant lie” by stating in affirmation that he only has one bank account in Hong Kong.[7] Both HHJ Grace Chan in the MPS Judgment and DDJ To in the AR Decision found that H failed to make full and frank disclosure.

(3)  By reason of H’s non-disclosure at the AR Trial, the Court has drawn adverse inference that H has other financial resources, his income and earning capacity was much higher than what he claimed.[8]

(4)  H had said at the AR Trial that he had no intention to sell his shares in A Ltd, which is a small family business. On this basis, DDJ To has not placed his equity interest in the matrimonial pot for division purpose.[9]

(5)  It was found in the AR Decision that “it is important for H to continue with his business to generate profit, since there is a long-term obligation on him to maintain the 3 daughters financially.”[10]

(6)  Shortly after the AR Decision, he sold the shares in 2020 and resigned from A Ltd on his own volition. He told this Court that after he ceased to be a shareholder and an employee of A Ltd, he had no money to pay the Children’s maintenance.

(7)  H had taken the stance at the AR Trial that the family business was a “sunset” or “dying” business. This was rejected by DDJ To who found that A Ltd had been generating profits and declaring dividends. H and his father were still willing to inject millions of loans into A Ltd. The increasing entertainment expenses suggested that A Ltd continued to be actively marketing for business.[11]

(8)  H has been the director of A Ltd until he resigned in around December 2015 (shortly after W presented the Petition). The Court found that the resignation is highly artificial and more likely than not that H was still in de facto control of A Ltd. There was evidence that H was treating the business as his own.[12] W submitted that the sale of shares and career change subsequent to the AR Decision were similar tricks pulled by H to avoid meeting the financial obligations to maintain the Children.

(9)  One of H’s main reasons for the career change was that his true interest and passion are in digital marketing and he wanted to work in the estate agency industry. However, he had never mentioned these at the AR Trial.

18.  Mr Eric Leung further submitted that H was not straightforward nor forthcoming when he gave evidence before this Court. He made up excuses or became evasive. His evidence was contrary to his prior testimony or contemporaneous documents. He dodged the questions when he was shown the inconsistencies, take for example, when he was directed to his own bank statements showing his spendings since April 2021.

19.  The Court evaluates the evidence as an overall process, assesses the credibility of a party’s case by taking into account the inherent probabilities, the documentary evidence or the lack of it, the observation of the demeanour of the witnesses before reaching the conclusion on the findings of fact: Lee Fu Wing v Yan Po Ting Paul[13], Ageas Insurance Company (Asia) Limited (formerly known as Fortis Insurance Company (Asia) Limited) v Lam Hau Wah Inneo[14].

20.  Having considered H’s evidence in the present trial, I come to the view that H is not a reliable witness. He was evasive and defensive. When the inconsistencies of his evidence were pointed to him, he often simply ignored the inconsistencies, either repeated his own view or mounted his challenge by asking questions. When it was suggested that he had other financial resources, such as working in A Ltd, to meet the shortfall from his expenses, he answered by asking “Do you want me to go back and work for A Ltd?”. He tended to shift his stance to suit his own case. I reject his evidence which was not corroborated by documentary or other credible evidence.

Sale of Shares in A Ltd and Career Change

21.  On 13 July 2020 (about one year after the AR Decision), H sold all his shares to his mother for HK$3,000,000. After the sale, he remained employed by A Ltd and earned a monthly salary of HK$56,000 until 30 September 2020. He was paid a lump sum amount of HK$240,000 as long service payment.

22.  He then became a licenced estate agent and was employed by an estate agent company with the basic salary of HK$5,500 plus commission.

23.  H said in his affirmation that he sold the shares of A Ltd and made the career change for the following reasons[15]:

(1)  The environment of the import-export business was deteriorating as impacted by the trade war, the US/China relationship and the city shutdowns during the early stages of the COVID-19 pandemic (“External Factors”).

(2)  He was nudged into the family business, and it was understood between him and his mother that if he does not attempt to build up his own career, he will live forever with regret.

(3)  His true interest, passion and skills are in the field of digital marketing and he was “bullish” on the long term prospects of Hong Kong real estate.

24.  H has not adduced any valuation report to support the consideration for the sale of his shares. He asserted that the true value of his shares was less than $3,000,000 because the valuation in the AR SJE Report was made on the assumptions that (a) A Ltd is a going concern and (b) there are no significant changes in the political and economic conditions of Hong Kong. He suggested that these two assumptions no longer stand. Further, he said that there was no market for his 50% shares except for his parents. The consideration of $3,000,000 was in line with the value under the adjusted net asset approach in the AR SJE Report.[16]

25.  Firstly, I find that H has exaggerated the impact of the External Factors on the business of A Ltd.

(1)  H produced the financial statements of A Ltd for the years ended 2019 and 2020. A review of these financial statements showed that despite the External Factors,

(a)  A Ltd was generating profits during the year of 2020.

(b)  A Ltd’s profit before tax was $1,368,900 in 2018. It was increased to $2,529,816 in 2019 and then decreased to $802,156 in 2020. The gross profit in 2020 was over $6 million. H contended that the profits in 2018 and 2019 were due to the non-recurring exchange gains.

(c)  Despite the drop in profits for the year 2020, the profits made was still higher than those in 2015 and 2017 when the External Factors did not exist.

(d)  Although there was a drop in the profits and turnover, dividends paid were increased from $800,000 in 2018 to $1,000,000 in each of 2019 and 2020.

(2)  The turnover has been dropping during the period of 2018 and 2020 ($61,719,846 in 2018, $56,778,967 in 2019 and $38,623,914 in 2020). H admitted in cross examination that A Ltd’s sales would go back up once the Hong Kong-Mainland border opens.

26.  Secondly, H admitted that it is his personal choice to sell and quit A Ltd. He was not forced to leave and he could remain to work in A Ltd if he wishes to.

27.  Thirdly, there is no convincing reason to justify his making this personal choice in 2020 at the expenses of his 3 daughters.

(1)  H told this Court that he was “bored of selling flowers” and did not want to continue working at A Ltd. He said in cross examination that he has already felt bored in around 2013 and 2014.

(2)  Nonetheless, he positively stated at the AR Trial in 2019 that he had no intention to sell the shares of A Ltd. He had never mentioned in the AR Trial that his true interest, passion and skills are in the field of digital marketing, nor his interest to join the estate agency works.

(3)  H was fully aware of the findings in the AR Decision that it was “within reasonable expectation that H would one day succeed his mother’s interest and own the entire business”[17] and “[i]t is important for H to continue with his business to generate profit, since there is a long term obligation on him to maintain the 3 daughters financially.”[18]

(4)  In 2020, he took steps to leave A Ltd. When he was asked why he did not leave in 2013/2014, he said that he had the obligations to make provisions for his 2 children at that time. He must be fully aware of his obligations to make provisions for his children when he chose to start a new career.

(5)  When it was suggested to him that his decision of career change was not financially prudent and was irresponsible when he has 4 children and a fiancée to take care, H said that he wanted to start a new career and he has the right to choose his career path. That may well be his choice and his right, but such choice cannot be allowed to impinge upon the welfare of the Children. He has to bear the consequences for his personal choice. I respectfully refer to the following remarks in WNWG v PBF:

“31. … Ms Irving submitted that given the accumulated wealth of the family, the Respondent could afford to retire at this age and he should not be penalised for making such a choice. That may be correct. On the other hand, the exercise by him of this choice cannot be allowed to impinge upon the welfare of the children and the long term security that the Petitioner needs in respect of the lump sum payment made to her. As found by the Judge, the Respondent has sufficient means to keep up with the existing level of maintenance for the children. There is no reason why he should not be required to take the financial consequences for his own choice.”

(emphasis in bold added)

28.  Fourthly, H has not cut his ties with A Ltd after he ceased to be its shareholder and employee. He admitted that after his resignation from A Ltd, he was still using A Ltd’s two cars (a Lexis and a Land Rover) freely for his personal purpose. He has followed up on business matters of A Ltd after his resignation, and occasionally forwarded messages from A Ltd’s clients to the company’s staff.

29.  Fifthly, I reject H’s bare assertion that his parents were winding down the business of A Ltd.

(1)  H asserted that his parents were winding down the business as they are old and do not want to continue the business.

(2)  H produced no document to support his assertion. He has not produced any financial statements of A Ltd after 2020. He has not called any of his parents to testify.

(3)  When he was asked why his parents did not close down the business when he sold the shares, his answer was that A Ltd needed time to collect the receivables.

(4)  It is now more than 2 years from the sale of shares. H admitted that A Ltd is still in operation.[19]

(5)  The shares in A Ltd were gifted to H by his parents. If it was the intention to wind down the business after H sold his shares to his mother, it begs the questions of why his mother paid $3,000,000 for the shares.

30.  Sixthly, contrary to H’s contention that there was “no chance” his monthly salary would still be $59,000 if he had remained working at A Ltd, the financial statements for 2020 showed that the directors’ remuneration had increased from $1,153,945 in 2019 to $1,438,000 in 2020.

31.  Seventhly, the sum of $3,000,000 is a 30% discount of the valuation held by DDJ To with reference to the AR SJE Report. H failed to prove that it is a fair market value of his shares at the time of sale.

(1)  There was no valuation report in support of the market value of the shares at the time of sale, nor evidence that a 30% discount is justified.

(2)  I do not accept H’s assertion that the two assumptions under the AR SJE Report no longer stand. I have rejected H’s assertion on the seriousness of the External Factors on the operation or profitability of A Ltd. H admitted that A Ltd is in operation. There is no evidence to suggest that it is not a going concern.

(3)  I agree with Counsel for W that it is more likely than not that the sum of $3,000,000 is a form of financial support from the parents.

H’s earning capacity

32.  H graduated from a university in Canada. Prior to joining the family business, he worked as a financial analyst at HSBC. He has 16 years of experience in trading business. He was found to have earned $59,000 net of MPF per month in addition to dividends and directors’ renumeration. Inference was drawn by DDJ To that he has financial resources other than those disclosed by him.[20]

33.  H claimed that his income was substantially reduced. In his 7^th Affirmation filed on 30 August 2021 and Form E filed on 25 February 2022, he said that he earned a basic salary of $5,500/$6,000 plus commission. His average monthly income stated in Form E was $22,838.

34.  At trial, H updated his average monthly income from the estate agency works in the past 9 months to be $34,000. H said that he expected to have an annual income of $500,000 in a few years’ time, and he targeted to earn an annual income of $1 million as an estate agent.

35.  Notwithstanding the substantial drop in his salary to $20,000 or $30,000, H continued to live beyond his means. He stated in his 7^th affirmation made in August 2021 that his total monthly expenses were $173,384, breakdown as follows:

(1)  $25,200 for rent and utilities.

(2)  $20,500 for food and meals out of home (for H, his fiancée and X).

(3)  $5,000 for household expenses.

(4)  $7,000 for transport.

(5)  $3,500 for car park fee.

(6)  $4,520 for domestic helper.

(7)  $800 for MPF contribution.

(8)  $6,000 for clothings/shoes, H said there was a lot of walking in his work as an estate agent and he needed good quality shoes.

(9)  $3,500 for personal grooming, H said he had allergy and needed to use special cream.

(10)  $6,000 for entertainment.

(11)  $5,000 for holiday; H said that he spent $60,000 for a family trip.

(12)  $5,000 for medical/dental.

(13)  $2,000 for tax.

(14)  $1,157 for insurance premia.

(15)  $67,000 for the Children’s maintenance.

(16)  $500 for contribution to parents.

(17)  $5,000 for payment to his fiancée.

(18)  $1,000 for X’s expenses.

(19)  $4,707 for loan repayments.

36.  Accordingly, when his reported monthly income was only around $20,000 on average in August 2021, his own expenses net of the Children maintenance was $106,384[21], in addition, he had made a loan to his fiancée in the sum of $112,835[22].

37.  The expenses disclosed in his February 2022 Form E was reduced to $63,426 net of the sum of $67,000 for Children maintenance when his average monthly income was $22,838.

38.  The bank balance in his HSBC integrated account showed that he had depleted $1,655,144 in one year from February 2021 (at a net balance of $2,817,374) to February 2022 (at a net balance of $1,162,230). On average, he used $115,595 per month after deducting the four months maintenance paid for the Children during this period. On H’s own calculation, he used $225,663 (inclusive of $67,000 maintenance to the Children) each month on average between April and August 2021[23], that is an average monthly expenses of $158,663 net of the Children maintenance.

39.  Although H’s fiancée is in the workforce, H did not know her income. He contended that he was bearing the full costs of maintaining this new household.

40.  When H left A Ltd, he received a total of $3,240,000. If we assume that he spent around $100,000 a month, the above sum would be exhausted in around 2 years and 8 months. If he spent around $160,000 a month, the above sum would be exhausted in around 1 year and 8 months.

41.  H is a mature and educated man. He confirmed at cross examination that before he decided to change job, he knew his financial obligations. He said “I know the bills. I know the numbers”. The logical inference must be that when he decided to exit from A Ltd and become an estate agent, he had some assurances or comfort that he has or would have financial resources other than his own savings and earnings as an estate agent to cover his spendings and financial obligations. This is in line with the finding at the AR Trial that his parents have been providing financial support to H.

42.  The Court should consider a party’s earning capacity including the potential earning capacity. It was held in WNWG v PBF that:

“27. The Judge found specifically that, despite the cessation of his employment, the Respondent could afford to continue with the current level of maintenance. He was able to come to that conclusion even though he discounted the potential income from the Koh Samui project. We do not think such potential income should be left out of the picture. It should form part of the earning capacity of the Respondent. After all, the Respondent himself testified that in 2009 he considered himself to spend his time and energy more effectively by finishing that project than looking around for a job. Subsequently, he accepted that (perhaps in respect of a different point in time when the job market for solicitor was more favourable) he would be better off working as a lawyer. Since the Respondent had not looked for another job, there is no evidence as to how much worse off he would be in terms of income (comparing with his previous earnings) if he had done so. In any event, the fact remains that there is a great disparity between the earning capacity of the Respondent and that of the Petitioner.”

(emphasis in bold added)

43.  A party has the duty to maximise his earning capacity. In S, PJ v S, CE nee D, CE [2022] HKFC 152, HHJ Melloy held that:

“30. …. In so far as income is concerned, it seems to me that both parties have a duty to maximise their earning capacity. In so far as the wife is concerned she has done this by returning to her previous role as a kindergarten teacher. The husband’s income has however, significantly reduced. He may need to rethink his options in this respect and/or consider further freelance work.”

(emphasis in bold added)

44.  In BX v BMPE [2019] HKFC 72, HHJ Melloy held that if the father’s business and unstable freelance activities are not going well, he may have to look for other alternatives including other paid employment.

“31. … Although I accept that his present financial situation is somewhat precarious I nevertheless have some sympathy with the wife on this. The father has an earning capacity and if his business and freelance activities are not going well, then he may have to look at other alternatives including other paid employment.”

45.  I find that H has a higher earning capacity than his actual disclosed income. He admitted that he could continue working in A Ltd. Alternatively, given his education, background and work experience, he could find another job earning a much higher income than the average of $30,000 per month. H has the same or substantially the same earning capacity and financial resources as at the time of AR Trial, which would be sufficient to cover the reasonable needs of the Children under the Children Maintenance Order.

New Family

46.  H started the new relationship with full knowledge of his financial obligations to the Children. It is well established that a new family or second marriage does not terminate a husband’s financial obligations to his first marriage.

47.  In N v C[24], which is a decision on ancillary relief claim, HHJ Bruno Chan (as he then was) summarised the principles as follows:

“39. It is well established in law that remarriage by a person against whom an order for periodical payments has been made does not terminate the order or of itself entitle that parties to a reduction in the amount ordered, and as regard the position of the after-taken wife, she must, on general principle, be presumed to take the other spouse subject to all existing encumbrances, whether known or not, including an obligation to support the wife or child of a former dissolved marriage, as per Hodson LJ in Cockburn v Cockburn [1957] 1 WLR 1020, CA when he said:-

“The law being as it is, it is quite impossible for the courts to ignore the just claims of the first wife because the man has taken on himself other obligations, although the courts have to take into account these obligations, as involving a reduction in the capacity of the man to pay for the upkeep of his first wife and child”.

40. So in the case of Cowie v Cowie (1983) 13 Fam Law 250 where the husband had remarried, had a child, and obtained increased mortgage, but his former wife was still able to obtain increase in periodical payments. On appeal by the husband, it was held that he had increased his obligations with his eyes open: and in Moon v Moon (1980) 1 FLR 115 where the husband has remarried and his second wife was pregnant, it was held that he must cut his coat according to his responsibilities to his first family.”

(emphasis in bold added)

48.  Although H’s financial obligations would prima facie increase with a second relationship, the former spouse and children shall be given such order that will protect their standard of living, without being subject to the possible decrease of available resources due to the second relationship: Jackson’s Matrimonial Finance, (10^th Edn), [3.127],

“3.127 Remarriage means that the payer spouse has assumed new financial burdens and responsibilities, and pro tanto his or her means may decrease; prima facie there is a decrease in the available resources out of which he or she can make provision for his former spouse and family; but, bearing in mind this consideration the court will try to give the former spouse and the children such orders as will protect their standard of living: it is ‘bearing in mind this consideration’, not ‘subject to it’.

In some cases the payer’s income may increase after his remarriage, and he may attribute this increase to the domestic, social or business gifts of his new spouse: that might well be a matter to be taken into account. It may be that the new spouse has an income of her own, and this likewise must to some extent be taken into account. The second spouse’s (or cohabitant’s) income cannot be taken into account as part of the payer’s income available for distribution to the former spouse and children. It can and should be taken into account when undertaking the ‘net-effect’ calculation so to determine the residual incomes of the respective households after payment of a hypothetical order by the payer. The court will assume that the second spouse will make a proper contribution from his income to the outgoings of the payer’s household.”

49.  A party entered into a new relationship with increased financial obligation does not, by itself, mandate a downward variation of the previous maintenance order. Each case must be considered against its own facts.

50.  H came into this new relationship with full knowledge of his obligations to maintain the 3 daughters of his own.

51.  Although H said that he was responsible for all the expenses of the new household, it was accepted in H’s closing submission that it was fair if the fiancée also contributes to the expenses of the new household[25].

52.  I have found that with H’s earning capacity, he could meet the obligations to pay the Children’s maintenance. The new relationship and the subsequent financial obligations assumed by H with eyes open is not a reason for varying the Children Maintenance Order.

Reasonable needs of the Children

53.  The Children’s expenses as disclosed in W’s Form E filed on 22 April 2022 are as follows:

Item	Amount for  A (HK$)	Amount for  B (HK$)	Amount for  C (HK$)
School fees	6,000	6,000	6,000
School books and stationery	1,000	1,000	1,000
Transport to school	400	400	400
Medical / Dental	1,000	500	500
Extra curricular activities	2,250	1,600	2,000
Entertainment / presents	1,200	1,200	1,200
Holidays	800	800	800
Clothings /shoes / bags / accessories /skin care	1,200	1,000	1,000
Insurance premia     1.  Critical illness     2.  Medical insurance     3.  Education fund	900 306 2,200	680 306 2,050	650 306 2,400
Lunches and pocket money	1,100	1,100	1,100
Uniform	500	500	500
Others – creams, essential oil, supplements, mask, disinfected products	3,000	2,200	2,200
Total:	21,856	19,336	20,056

54.  In addition, there are a total of $51,900 monthly general expenses for the Children and W, comprising rent ($25,000[26]), utilities ($3,000), food ($14,400[27]), household expenses ($4,000) and domestic helper costs ($5,500). On average, the general expenses for each of the Children was about $12,975[28]. Accordingly, the Children’s total expenses are $100,173 ($34,831 for A, $32,311 for B and $33,031 for C), which is $33,173[29] more than the maintenance payable by H.

55.  The following expenses of the Children were challenged by H who contended that:

(1)  The previous rent of $38,000 is excessive.

(2)  The expenses for cream and essential oil used by the Children (included in the item under “Others”) are excessive. H suggested that part of the expenses claimed were in fact incurred by W herself.

(3)  The extra-curricular activities expenses are excessive.

(4)  The total expenses of the Children are higher than the expenses found to be reasonable by DDJ To.

56.  W paid a rent of $38,000 at around the time of her Form E filed on 22 April 2022. W explained that the apartment rented was 1,400 square feet saleable area. They have 5 people in the household including the domestic helper. Due to the COVID-19 pandemic, the Children needed more space at home. She also held meetings with her colleagues and clients in the insurance industry at home. W contended that since the birth of the second daughter, the parties have lived in a 1,000 square feet, 3-bedroom apartment in the prime location in Lai Chi Kok. She is entitled to maintain the same standard of living.

57.  In any event, they have moved to a smaller flat of around 1,000 square feet saleable area for a monthly rent of $25,000, which H accepted as reasonable.

58.  The expenses under the item “Others” include not only the cream and essential oil, but also products necessary in times of COVID-19, such as facial mask, sanitisers and rapid antigen test kits.

59.  It is not in dispute that A has suffered from a serious eczema problem and dust allergy since birth. C has suffered from neonatal respiratory distress which causes choanal atresia. They need special creams and other supplements. H, who has skin allergy, had used similar lotions cost $3,500 a month. The expenses for each of the Children under this item ($3,000 for A, $2,200 for B, and $2,200 for C) are lower than H’s expenses for his special lotion. I am satisfied that the expenses under the item “Others” are not excessive.

60.  H suggested that some health supplements under the Children’s expenses such as “DNA Collagen” were beauty products used by W. He referred to the receipts which were addressed to W, as well as W’s admission that these products are also useful for her and she had used this kind of products.

61.  There is nothing unusual for W, a mother, to purchase supplements for her minor Children and hence the receipts were addressed to her.

62.  It appeared from the questions asked at cross examination that H linked the word “collagen” with advertisements seen at the MTR for beauty products of a different brand for woman. It appeared that the criticism arose from the misconception that “collagen” products are for woman only.

63.  Although “DNA Collagen” products are also useful for woman and W had used this kind of products, it does not mean that the products were not consumed by the Children.

64.  I reject H’s contention that the expenses for health supplements are not the Children’s expenses.

65.  H further complained that the extra-curricular activities expenses are excessive. He suggested that it is not healthy for the Children if their schedules were packed with extra-curricular activities. W contended that the Children were in fact happy attending these activities and had achieved good academic results.

66.  I agree that the expenses under this item are on the high side. Nonetheless, if we discount this item, the other expenses of the Children are within the budget of $67,000 payable by H. Hence, this item would not affect the overall reasonableness of the Children’s maintenance payable by H. W does not seek to claim for an increase of maintenance for the Children.

67.  Turning to H’s fourth point on the increased expenses of the Children as compared to the individual items approved by DDJ To. H accepted that as the Children grow, they have different needs. It is thus normal that their expenses would not be the same as those at the time of the AR Trial. Therefore, it is not a correct approach to restrict the current expenses of the Children under an individual item to the amount allowed at the AR Trial for that item. To reach the conclusion of reasonableness, the Court shall consider the overall picture and take heed to the different needs as a child grows. In the present case, the proper question is whether the reasonable needs of the Children (which was held to be almost 100% borne by H) should be less than the sums granted in the Children Maintenance Order, i.e. $26,000 for A, $22,000 for B, $19,000 for C. The answer is no.

68.  The reasonableness of the above expenses is further supported by the needs claimed by H for X. H claimed that X’s expenses are over $26,380 ($12,693 child expenses plus $13,687 shared general expenses). This is higher than the maintenance payable by H for each of the Children.

W’s earning capacity and expenses

69.  According to the Form E, W earned an average monthly income of $33,000. W claimed that her net income should be $5,000 only as there was a business expenses of $28,000. H opposed.

70.  The final outcome of this application would not be affected even if we take the sum of $33,000 as W’s monthly income, which was slightly higher than her average earning capacity of around $30,000 as assessed at the AR Trial[30].

71.  Counsel for H, Mr Michael MH Leung, had rightly pointed out in [17] of his written closing submission that the AR Decision has essentially held that “H is to be nearly 100% responsible for the 3 daughters’ expenses (needs of $67,318 compared with children’s maintenance of $67,000).” [31]

72.  In view of the above findings on the parties’ earning capacity and the reasonableness of the Children’s expenses, and having considered the evidence as a whole, there is no reason to disturb this ruling.

73.  Mr Michael MH Leung further submitted that:

“129. W is free to spend as much as she wants. But the Court in the AR Trial laid down reasonable spending guidelines in 2019 in accordance with the parties’ pre-divorce lifestyle. While children’s expenses can grow to meet their growing needs, it is unfair and unreasonable for W to have growing needs or to put her personal expenses ahead of that of her children.”[32]

74.  He was correct to state that W is free to spend her money and the Children’s expenses can increase to meet their growing needs. However, with respect, his allegation of unfairness and unreasonableness was misconceived. He failed to take regard to the following:

(1)  It was H who is seeking to pay less to meet the Children’s needs, not W.

(2)  It was held in the AR Decision that H is to be nearly 100% responsible for the Children’s expenses.[33] I have found that there is no reason to disturb this ruling.

(3)  The lump sum maintenance payment was awarded to W for her own benefit but not for the Children. How W spent her money is irrelevant. I refer to the following views of the Court of Appeal in WNWG v PBF [20]:

“20. … In our view, Clause E of the Mediation Agreement clearly provided that the $30 million lump sum payment was paid to the Petitioner by way of “spousal maintenance” as a clean break division of the assets. There is no suggestion whatsoever in the agreement that the Petitioner would be expected to utilize the part of such payments to maintain the children.”

(emphasis in bold added)

75.  Contrary to his allegations, it appears to me that on evidence, it was H who was putting his personal expenses and personal “wishes to fulfil his dream” ahead of the expenses of her own daughters. He unilaterally paid only 15% of the Children maintenance while he continued to have a comfortable life with his fiancée and X. He shut his eyes from his irresponsible acts and laid blames on the others. He claimed that he was entitled to pursue his dream and attained “joy” and “sense of achievement” in the estate agency works. By seeking to cut the Children’s maintenance substantially, he was doing this at the expenses of the Children, ignored the consequences of his own act and his obligations to take care of his own children.

Decision

76.  As it was found above, there was no material change of circumstances justifying a variation of the Children Maintenance Order. The reduction in H’s actual income was self-created. He has a duty to maximise his own earning capacity. There is no change in his earning capacity and he has the financial resources and capacity to meet the Children’s reasonable needs under the Children Maintenance Order. His personal choice to pursue a new career and to have a new family should not do away his responsibilities to maintain his own daughters by paying the monthly maintenance of $67,000. The Summons is dismissed.

77.  There is no reason to depart from the general principle of costs follow the event. H was not successful in this application. On a nisi basis, H is ordered to pay the costs of W at an amount to be taxed if not agreed, with certificate for counsel. This costs order will become absolute if no variation application is lodged within 14 days.