KYDW v. EJK Respondent

FCMC 664/2016

[2020] HKFC 20

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 664 OF 2016

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J U D G M E N T

(Variation of maintenance)

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1.  I refer to the Petitioner wife as ‘the Mother’ and the Respondent husband as ‘the Father’ respectively.

Background

2.  This is the trial of the Father’s summons dated 4 July 2019 for variation down of maintenance payment for the Mother and the twin daughters of the family, now aged 7 (‘the children of the family’).

3.  The Father, businessman, now aged 58, was born and brought up in the Netherlands. The Mother, housewife, now aged 48, was born and brought up in Hong Kong. In 2010, the parties were married in the Netherlands. In 2011, the Father moved to HK and set up a local company here. In August 2012, the Mother gave birth to the children of the family in the Netherlands. Unhappy differences arose between the parties and they were separated in 2014. After having made significant losses and lost the full investments, the Father closed down his local business and moved back to the Netherlands in 2015. The Mother filed the Petition for divorce on the ground of unreasonable behaviour in January 2016. On 8 April 2016, the Decree Nisi was pronounced.

4.  On 27 October 2016, upon the Father’s undertaking:

(i)  To purchase and maintain a life insurance policy with an insured sum of €1,000,000 payable upon his death to each of the children of the family in equal shares;

(ii)  To make necessary arrangements to ensure that in the event of his death, the children of the family shall each have €20,000 each year payable by monthly instalments before they reach the age of 23 in the form of a Will; and

(iii)  To review the present level of maintenance to the Mother and the children if he is able to earn more money,

BY CONSENT an order was made as follows:

(a)  The Father shall pay the monthly sum of HKD5,000 as maintenance pending suit for the Mother and such maintenance pending suit becomes final upon pronouncement of the Decree Absolute;

(b)  The Father shall pay the monthly sum of HKD20,000 as interim maintenance for each of the children and such interim maintenance becomes final upon pronouncement of the Decree Absolute.

5.  On 9 August 2017, by consent it was further ordered that joint custody of the children of the family be granted to the parties, with care and control to the Mother and access including stay access to the Father. On 14 February 2018, the Decree Absolute was pronounced. The Father made full payments of maintenance pursuant to the consent order dated 27 October 2016 until December 2018. Whereas default has been made in respect of the maintenance payments payable under the said order since January 2019, on 12 April 2019 the Mother issued judgment summons against the Father. On 4 July 2019, the Father took out the present application.

The law 

6.  The Father’s application to vary down is made pursuant to section 11 (7) of the Matrimonial Proceedings and Property Ordinance Cap. 192, which provides that:

“(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 ……”

7.  The correct approach was summarized by the Court of Appeal in AEM v VFM [2008] 3 HKLRD 36. In that case, the Hon Cheung JA made the following points when setting out the law:

(1)   The exercise of the power under s.11(1) of the Matrimonial Proceedings and Property Ordinance (Cap.192) to vary a periodical payment order required that all the circumstances of the case be considered, including any change in circumstance since the original order was made, such as continuing inflation, increased costs of raising a growing child, the greater adverse effect of increased costs of living on one of the parties and the husband’s increased wealth. The court was not required to proceed from the starting point of the original order but could look at the matter afresh. The basis and intended effect of the original order were also relevant factors and the court should not depart radically from the parties’ agreement embodied in a consent order (Lewis v Lewis [1977] 1 WLR 409, Boylan v Boylan [1988] FLR 282, Primavera v Primavera [1991] 1 FLR 16, Garner v Garner[1992] 1 FLR 573, Cornick v Cornick (No 2) [1995] 2 FLR490, Flavell v Flavell [1997] 1 FLR 353 applied; Foster v Foster [1964] 3 All ER 541 not followed). (See para.14)   

(2)   The court had an almost unrestricted power to vary its own order retrospectively and to backdate any variation to a pre-existing order beyond the date of the application for variation. In practice, orders were not usually backdated to a date prior to the notice of application to vary, unless the justice of the case so required. (See para.15)

8.  Therefore, in considering a change of circumstances, I may look at the case de novo. In other words, the court is not necessarily fettered by the existence of a previous order and, although the basis and intended effect of the original order are relevant, I may look at the situation afresh and make an order based on the parties’ existing financial circumstances.

9.  The court has a very wide power, including a power to terminate payments and to backdate the variation ordered. The overall objective is to achieve a fair outcome.

The Father’s case

10.  The Father used to work for banks. In 1998, the Father started his own business as an advisor in mergers and acquisitions together with other shareholders and partners. He was the managing partner and founder of a small advisory Dutch limited company (‘SCD’) that was the operational company. The Father and his partners pooled their income in SCD. They then charged management fees based on their contributions from their personal companies to SCD. In the Father’s case, he charged management fees from a Dutch company (‘EJKM’) 100% owned by him. In 2011, the Father moved to Hong Kong to develop an advisory business in relation to China. The Father and other investors have put in the business about 3 million euro over the years from 2011 to 2013. Unfortunately, the business did not work out. After the loss of all investments, the Hong Kong company was terminated. The Father went back to the Netherlands to work in SCD in 2015. Yet he could not contribute enough clients and projects to SCD. In 2017 and 2018 he was not successful and could only effectively close 1 deal. The vast majority of revenues came from his partner. By 2017 and 2018, only he and one partner left behind working on most business. By the end of 2018, they concluded that they could not continue like they did and decided to separate business. The Father stepped down as a director in 2018 and they agreed to run down the business. For that reason, a new company (‘SV’) was incorporated under a new management holding company (‘ZACK’) that in turn is owned by a foundation consisting of the Father’s friends and business partners. The Father is not a shareholder or director of SV or ZACK. The new business is focused on ‘Impact Funding’. The Father will manage and develop the business based on his experience and will be paid a salary if revenues and cash are available. In the Father’s opinion, the outlook for that business is uncertain as it is new with a new concept. The Father anticipates that revenues will be less than half of what he realised in the years before. In November 2018, the Father and his new girlfriend gave birth to a new baby girl in the Netherlands. In the circumstance, it is the Father’s case that there has been a significant change of circumstance that necessitates a variation down in the maintenance. It is of note that he is not seeking for the discharge of the undertakings given by way of the previous order.

The Mother’s case

11.  The Mother for her part maintains that there is no proper basis for the Father’s application, and that the Father was hiding the truth about his income. She believes that the Father is more than capable to make the current maintenance payment so much so that the maintenance payment not only should not go down but should go up to an amount commensurate with the current needs of the children of the family.

The issues

12.  The issues to be determined include:

(a)  What are the income, earning capacity, property and other financial resources that each of the parties has or is likely to have in the foreseeable future?

(b)  What are the financial needs, obligation and responsibilities that each of the parties has or is likely to have in the foreseeable future?

(c)  Is there any change of circumstance?

(d)  What is the appropriate level of maintenance to be paid by the Father going forward?

My views

13.  As per the Father’s Form E filed on 15 August 2019, apart from having €577 in bank accounts, he has no assets. He has the following liabilities:

(1)   The Father was divorced from his first wife in 2008. Under the Divorce Agreement, the Father was required to pay his first wife for her share of the value of his firm i.e. around €440,000. It was agreed that he would pay the said sum of €440,000 over time. The current outstanding is around €175,000. Moreover, he would pay the monthly maintenance of €2,500 per month until his first wife’s retirement in around 5 years from now. Due to his financial difficulty, they have agreed to have the repayment of the residual loan suspended and the monthly maintenance payment temporarily reduced by about 50%;

(2)   Lability to pay the deficit of an insurance-mortgage on the former matrimonial home of his first marriage that was already transferred to his first wife in divorce. The current outstanding mortgage debt is around €75,000;

(3)   Liability under the current loan account with EJKM in €386,000 as per the end of 2018;

(4)   A loan of €50,000 from a friend (‘Mr. BK’);

(5)   Unspecified informal and undocumented debts from friends and personal liabilities.

14.  According to his Form E dated 15 August 2019, his taxable gross income in 2019 up to December is €105,000. The net income is €52,379 i.e. around HKD454,000 or HKD38,000 per month. His current monthly expenses are as follows: 

General

	€
Rent	1,192
Utilities	253
Food	400
Household expenses	100
Insurance premia	650
Internet, window cleaning, misc.	200
	2,795

Personal

Clothing/ shoes	75
Personal grooming	45
Entertainment/ presents	40
Medical/ dental	100
	260

Children

Insurance premia

50

Total:

3,105

15.  About the Father’s financial situations, the Mother has the following queries:

(i)  The Father has failed to disclose that he is the owner of the former matrimonial home of his first marriage;

(ii)  The Father has failed to disclose that he purchased a new Audi A4 for €56,220 in June 2017;

(iii)  The Father has failed to give an account of the whereabouts of the proceeds of the sale of the house that the parties lived in when she was in the Netherlands.  She said that he sold the house for €325,000 in February 2018;

(iv)  The Mother did not accept the various liabilities as set out in the Father’s Form E;

(v)  The Father could not possibly support his expenses with the alleged income, for example:

- He has provided financial support to a Filipino lady and her children for over 10 years;

- He still pays salary to his staff in Hong Kong;

- In 2016 to 2018, he travelled all over the world and took private jet;

- In May 2017, he paid legal costs of at least HKD100,000;

- In June 2017, he purchased a new Audi A4;

- In February 2019, he paid legal costs of at least HKD100,000;

- In July 2019, he paid legal costs of HKD300,000;

- In July 2019, he and his new girlfriend travelled to Hong Kong for more than 10 days;

- In August 2019, he travelled to Hong Kong for 6 days;

- In November 2019, he travelled to Hong Kong for 4 days;

- In November 2019, he purchased a new model Apple 12.9 inch ipad pro;

- In December 2019, he travelled to Hong Kong for at least 4 days;

(vi)  The Mother does not accept that the Dutch tax payable on his income is up to 50% of income;

(vii)  The Father has hidden his income from her in his undisclosed bank accounts.

16.  After having carefully considered the Divorce Agreement made between the Father and his first wife dated 23 December 2008, I accept that the former matrimonial home of his first marriage was already transferred by the Father to his first wife in divorce in 2008.

17.  I am also prepared to accept the Father’s testimony that in fact the Audi A4 was leased by ZACK with an operational leasing at the costs of €1,300 per month for the term of 36 months, that no initial costs for the operational lease was paid, that ZACK is responsible for the said monthly payments and the car expenses and that the vehicle will be returned to the leasing company upon the expiration of the leasing term.

18.  The house that the parties lived in was bought under the name of EJKM at €485,000. That was sold for €312,000 (not €325,000) at a significant loss in August 2017. After mortgage loan repayment there was around €164,000 left in EJKM. The Father said that his income in 2017, 2018 and 2019 was not enough to meet his expenses including the maintenance payments, so he sold the said house to meet the obligations and that the net proceeds of the sale were already used up on divers tax payments and private payments to him. The Father gave the example that, as his current loan account with EJKM was becoming too high, he needed to declare a dividend of €300,000 to himself on paper for which dividend tax of €75,000 was paid. After having carefully considered all evidence, I accept the Father’s explanation in the above.

19.  The Mother gave many examples to show that the Father could not possibly support his expenses with the income that the Father said he had. To that, the Father replied:

(a)  He has stopped supporting the said Filipino lady or her children due to his financial difficulties. In the past, what he gave was small in amount;

(b)  He does not have staff and does not pay any salary to any staff in Hong Kong;

(c)  He is working internationally and therefore he travels. Usually his clients pay for the travelling expenses. At one time, he travelled on a client’s private jet. He did not pay for the private jet trip.

(d)  His client paid for his trips to Hong Kong in 2019;

(e)  He did not purchase a new Audi A4;

(f)  He used the loan from Mr. BJ to pay the legal costs of HKD300,000 in July 2019 and to meet his living expenses;

(g)  He gave the Apple ipad to the children of the family as a gift.

After having carefully considered all circumstances, I accept the Father’s clarifications and do not accept the Mother’s case in the above.

20.  The Mother does not accept that the Dutch tax payable on the Father’s income is up to 50% of income. The Netherlands income taxes rate can be seen in the Exhibit ‘15’ shown to the Father’s Form E. It appears that operating in 2019 income tax falls into three brackets as follows: (i) Up to €20,384: 36.65%; (ii) €20,384 to €68,507: 38.1% and (iii) €68,507+: 51.75%. In the premises, I accept that the tax rate applicable to the Father’s income below €68,507 is less than 50%.

21.  According to the Father, over the 2016 to 2018 his management fees (in €) from EJKM were as follows:

	2016	2017	2018
Revenues	151,000	362,145	263,500
Gross salary	36,498	36,000	107,794
Cash reserves	7,367	95,959	162,636
Loans to private	405,372	435,108	386,175
Net cash	398,005	339,149	223,539
Taxes payable	11,825	74,166	106,543

22.  In terms of revenue, in 2018 he charged management fees of €263,500 through EJKM to SCD. He said that the revenue of €263,500 was possible because in the first half of 2018 he and his partner closed a deal. In the second half of the year he did not close any deal. By the end of 2018, the cash balance in the management company was €162,636. He used the cash reserve to pay taxes and to pay him privately. In 2019 between January and June EJKM paid around €110,000 in taxes (corporate income tax 2017 predominately, around €66,000) and he could pay €42,200 to him from the cash to cover costs of living. The company had around €16,000 left as at 4 July 2019. Corporate tax of around €25,000 was needed to pay in July. There was a deficit and EJKM will be terminated in due course. It will need around €125,000 to service tax requirements before it can be closed. The parties went to great length to argue the Father’s true income. The Mother said the Father hid his income from her in his undisclosed bank accounts, but she was unable to adduce any credible evidence supporting such bare allegation. On the other hand, the Father produced the Annual Report 2018 of EJKM as well as other accounting papers in support of his case. After having carefully considered all circumstances, I do not accept that the Father has hidden income.

23.  Together with his partners, the Father founded ZACK. ZACK does not have business or income to date, nor even a bank account until recently. During 2019, EJKM lent money to pay for his salaries from ZACK. His objective is to have income going forward. As the Father sees it, the outlook for that business is uncertain as it is new with a new concept. The Father expects future revenues to be less than half of what he had the years before.

24.  In his Affirmation dated 27 June 2019, the Father said that the maximum amount he would be able to pay is HKD20,550 per month. His calculation is as follows:

	HKD
Maximum gross income expected	132,600
Dutch income tax payable after credit	56,557
Net income available	70,207
Reduced maintenance to his first wife	22,100
Life insurance premia	2,947
Expenses to travel to HK for access at least once per quarter	4,061
Remaining income	41,100
50% of remaining income as maintenance payment	20,550

25.  In his Form E dated 15 August 2019, he reduced the open offer to HKD15,000 per month. At trial, he further reduced his open offer to HKD10,000 per month.

26.  The Father is a well-connected businessman having tremendous experience in the M & A business. It is his own case that based on his long term experience, under normal circumstances, he should be able to have a reasonable income. While I take the view that it is clearly too pessimistic to assume that he will not earn high income in the future, for the time being I am prepared to accept that the Father can make a net income of around HKD56,557 as set out in the table above. The Father is obliged to pay his first wife €2,500 per month under the Divorce Agreement. In his calculation above, the Father has taken into account the payment of HKD22,100 per month to his first wife. At trial, the Father accepted that it was reduced to €1,700 per month in the last months and in December 2019 was further reduced to €1,000 per month. For the above reason, I take the view that probably the Father is able to pay more than HKD20,550 per month as maintenance to the Mother. What is more, the Father’s first wife is working and is living in self owned house and all of the children of the Father’s first marriage are self-supporting. It is obvious that the financial needs of the Mother and the children of the family are much greater than those of the Father’s first wife. I do not accept his argument that his duty to pay maintenance to his first wife should be ranked in priority to that to the Mother and the children of the family. On the contrary, I regard that the Father ought to seek further variation down of the maintenance payment to his first wife either by trying to reach a new agreement with his first wife or, if it is necessary, by making an application to the court in the Netherlands.

27.  It is of note that the Father’s new girlfriend has her own income and is contributing around HKD15,000 to their joint living expenses, including half of the rental payment.

28.  As stated in the Mother’s Form E filed on 6 August 2019, she has no assets and has liabilities valued at HKD162,000. At trial, she updated her debts to totally around HKD280,000. She has no income and her monthly expenses are as follows: -

General

	HKD
Rent	20,000
Utilities	1,600
Food	9,200
Household expenses	600
Misc.	400
	31,800

Personal

	HKD
Meals out of home	2,000
Transport	1,500
Clothing/ shoes	500
Personal grooming	600
Entertainment/ presents	1,200
Medical/ dental	800
	6,600

Children

	HKD
School fees	25,200
School books and stationery	3,000
Transport to school	400
Medical/ dental	1,600
Extra curricular activities	1,800
Entertainment/ presents	1,800
Holidays	500
Clothing/ shoes	1,200
Insurance premia	400
Lunches and pocket money	2,600
Other transport	300
Child minding	500
Uniform	300
Snacks, fruits & drinks	600
	40,200

Total:

78,600

29.  The Father contended that the Mother bloated the calculation of her monthly expenses. The Mother said the alleged monthly expenses are reasonably based on the comfortable living standard enjoyed by the parties during the marriage. Despite that it seems indisputable to me that the parties have lived at a middle class living standard, I take the view that she might have to face the reality that once the divorce process has started, her standard of living could drop. Many factors combine to lower the parties’ living standard after their divorce. Expenses will begin to mushroom as soon as the divorce process starts. Legal fees, new living expenses and myriads of other costs will drain their financial resources. Money previously used to support one household must now stretch to support two. In the present case, the drop in the Father’s income over the recent years only exacerbated the problem. I take the view that the Mother must consider cutting down on expenses. With the fact that housing is expensive in Hong Kong, I accept that it could be difficult for the Mother to cut down on rental payments. However, I consider that it is not unreasonable to require her to save as much as 50% of other monthly general and personal expenses. I take the view that her general and personal expenses can be reduced to about HKD29,200 per month. The twin daughters are now attending an ESF school. The Mother accepts that the children of the family will go to a local school in the longer term. When that is done the Mother will save a lot of the children’s expenses. I take the view that the children’s expenses can be reduced to between HKD5,000 and HKD6,000 in future. In the premises, the Mother’s monthly expenses are around HKD35,000.

30.  The Mother is aged 48. She worked as a project co-ordinator in around 2008 and her last salary was around HKD25,000 per month.  While her age works against her employability and she is also disadvantaged by the fact that she has been out of the job market for some years, she has a B.A. degree and some solid working experience. The Mother accepts that she should go to work and she can make around HKD15,000 to HKD18,000 per month. When she works, she will need a home helper that costs around HKD7,000 per month. After taking into consideration the extra expenses on items such as home helper, additional meals out of home, clothing and shoes and transport, she can take home around HKD10,000 net per month.

31.  Taking the matters in the round, I accept that there has been significant change of circumstances since the making of the consent order dated 27 October 2016. After having carefully considered, I shall reduce the Father’s maintenance payment to the Mother to HKD25,000 per month for the purpose of the present application. After having carefully considered all circumstances, I shall also make the order that such reduction is to take effect as from February 2019.

32.  Taking the following into consideration:

(i)  It is the Father’s own case that the outstanding liability to his first wife is manageable as a going concern;

(ii)  The equity of the former matrimonial home of his first marriage is more than enough to cover his potential liability to the insurance-mortgage;

(iii)  His liability to EJKM under the current loan account is actually a ‘debt’ owing to himself;

(iv)  It appears that the Father’s debt to Mr. BJ is ‘soft loan’ that can provide concessions to him such as long repayment periods and interest holidays

I take the view that the Father is capable of making the monthly maintenance payment of HKD25,000 despite his said liabilities.

33.  I expect that the Mother will immediately take steps to look for employment and make the necessary arrangements to enrol the children of the family in local school. At the same time, the Father shall endeavour to reach a new agreement with his first wife for variation down of his maintenance to her and, if they cannot reach an agreement, to take out an application for the same to the court in the Netherlands.

34.  Pursuant to his undertaking to the Mother and the court and as promised in his Opening Submissions, the Father shall update the Mother on an annual basis on his income. The parties can have a review in 2 years.

35.  Taking into consideration the backdating of the variation down, the Father is in default of maintenance payments as follows:

	Outstanding amount (HKD)
February 2019	5,000
March 2019	4,500
April 2019	4,500
May 2019	10,000
June 2019	10,000
July 2019	8,000
August 2019	10,065
September 2019	10,000
October 2019	10,000
November 2019	15,000
December 2019	25,000
	112,065

The Father should forthwith propose a plan for the repayment of the above outstanding amount, failing which the Mother may restore the hearing of the Judgment Summons for call over as soon as possible.

36.  Despite the Father’s suggestion that, taken into consideration his financial situation, the best solution would be for the children of the family to live with him in the Netherlands, as then their schooling, healthcare and costs of living would be significantly less than those in Hong Kong, he does not take out any application for the removal of the children from Hong Kong to the Netherlands. Naturally, the parties have not adduced evidence in this regard. As such, I shall not give a view on the matter. Nevertheless, it is of note that the Mother, who has been the main carer of the children of the family since their birth, does not accept that, even if the Father is unable to support the children’s living in Hong Kong, they should be hastily uprooted from her care in Hong Kong and go to live with the Father and his family in the Netherlands.

37.  A children hearing regarding the Father’s access is scheduled to take place on 14 April 2020 for call over. The update Social Investigation Report will be made available on or before 31 March 2020. It is directed that the parties shall lodge with the court their proposal on access on or before 7 April 2020. It is hoped that the parties can resolve the dispute on children without going for a full trial.

38.  In conclusion, it is ordered that the paragraph 1 (ii) of the consent order dated 27 October 2016 be varied to that the Father shall pay to the Mother the sum of HKD10,000 per month as maintenance for each of the children of the family i.e. totally HKD20,000 per month commencing from February 2019. The Father shall continue paying the Mother the sum of HKD5,000 per month as her maintenance.

39.  It appears that neither party can be regarded as wholly successful in the present application. It is ordered nisi that there shall be no order as to costs, including all reserved costs.  The order nisi becomes absolute 14 days after the order is made unless a party has applied to the court for varying the order.