Z v. X

CACV 166/2011
CACV 251/2011
CACV 252/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 166, 251 & 252 OF 2011)

(On Appeal from HCMC No. 1 of 2007)

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J U D G M E N T

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Hon Cheung JA :

The background

1.   The petitioner Wife (‘the Wife’) and respondent Husband (‘the Husband’) were married in Harbin in the Mainland on 22 April 1982.  The Wife was born in May 1955 and the Husband, July 1957.  They met while they were students at the Beijing University in 1977.  They have an adult son born in March 1983.  The Wife petitioned for divorce on 30 May 2006 and applied for ancillary relief for herself.  

2.   The intervener is the cohabitee of the Husband.  They met in Zhuhai in 1987.  They developed a close relationship at the end of 1990 or early 1991.  They have two children, a daughter born in April 1995 (now 17) and a son born in August 1998 (now 14).

Judge Carlson’s order

3.   In respect of the ancillary relief application, Deputy High Court Judge Carlson on 9 April 2009 first determined a preliminary issue concerning the beneficial ownership of 87.5% of the shares in a BVI company, New Asia International (Group) Ltd (‘NAIGL’).  He found that the Husband is the beneficial owner.  On appeal the decision was set aside with the consent of the parties.  A re-trial was ordered.

Saunders J’s orders

4.1)   On retrial, Saunders J determined both the preliminary issue and the ancillary relief application of the Wife.  The Judge determined that the Husband is the beneficial owner of 83.1% of the shares in NAIGL.  He assessed the Husband’s assets at HK$358 million. This comprises of the Husband’s 83.1% interest in NAIGL in the sum of HK$286 million; the Husband’s interest in New Universe International Group Ltd (‘NUIGL’) a public company listed on the Growth Enterprise Market Board (‘GEM’) of the Stock Exchange of Hong Kong (‘SEHK’) at HK$65 million; two Beijing properties at HK$5.6 million and MPF at HK$400,000.  From this the Judge deducted the Husband’s liability at HK$11 million, leaving a balance of HK$347 million.

4.2)   The Judge assessed the Wife’s net assets at HK$15 million.

4.3)   The total assets of the Husband and Wife available for distribution is HK$362 million (HK$347 million + HK$15 million).

4.4)   The Judge held that the Husband is entitled to 55% and the Wife 45% of the total assets. The Wife’s share is HK$162 million of which she has to give credit for HK$15 million, reaching a sum of HK$147 million.  The Judge refused to deduct from this sum HK$12,400,000 which the Husband had been paying the Wife since 2004 by way of maintenance pending suit.

4.5)   The parties now appeal against the judgment (Wife : CACV 166/2011; Husband : CACV 251/2011; Intervener : CACV 252/2011).

4.6)   The Wife’s appeal is that the Judge undervalued the Husband’s assets; failed to draw adverse inferences from his own findings of the Husband’s non-disclosure; and was wrong to depart from the yardstick of equality.

4.7)   The Husband and Intervener cross-appeal.  They asked for the judgment to be set aside.  They argued the Judge was wrong to find that the Husband beneficially owns a large majority stake in NAIGL.  They contended that the shares belong to the Intervener.  The Husband further asked for the dismissal of the Wife’s application for ancillary relief.  He argued that the Judge overvalued his assets; was wrong to find that this was a long marriage; and was wrong on the question of division of assets.  He further submitted that he could not afford to pay the lump sum ordered by the Judge and the Wife should also give credit for the sum of HK$12,400,000 that she received by way of maintenance pending suit.

The issues

5.1)   Saunders J identified four issues for determination :

1)   The duration of the marriage;

2)   The ownership of the 83.1% shares in NAIGL;

3)   (i)  The valuation of the Husband’s interest, if any, in NAIGL; and

(ii)   The valuation of the Husband’s interest in NUIGL.

4)   The valuation of the Wife’s assets.

5.2)   In this appeal, the focus is on the first three issues.  I will address these issues and also

(1)   what are the matrimonial assets that are available for distribution;

(2)   whether there should be departure from the principle of equality on the distribution of the assets; and

(3)   the various issues raised by the Husband.

1)  Duration of the marriage

(I)  The evidence

6.   After the Husband and Wife married in Harbin in 1982, they spent very little time physically together.  In 1984, the Husband worked in Beijing and in 1985 he began his work with China Chemicals Import/Export Corp (‘Sino Chem’).  In 1987, the Husband in the course of his employment was introduced to the Intervener who was living in Zhuhai.  In June 1988, the Husband was assigned to work in Hong Kong with a window company of Sino Chem, namely, Sino Chem Hong Kong (‘Sino Chem (HK)’).  The window company was set up in Hong Kong in order to trade with Taiwan.  It obtained plastic products from a Taiwan company called Chi Mei.  In 1990, the Wife went to Australia on a student visa.  In 1993, the Husband and Wife emigrated to New Zealand and bought a property there, although the Husband was still working in Hong Kong for the majority of the time.  In 1994 the Husband and the Intervener began cohabitation.  In November 1994, when the Husband was notified that he would be transferred back to Beijing, he resigned from Sino Chem (HK) and remained in Hong Kong.  In March 1995, the Intervener came to Hong Kong.  In early 2000, the Husband and Wife emigrated to the USA where their son was to attend school.  On 17 November 2003, the Wife discovered that the Husband had a secret second family with the Intervener.  On 17 December 2003, the Husband sent an email to the Wife in which he made proposals on financial arrangements for the Wife.

(II)  The parties’ position

7.   The Husband (represented by Mr. Coleman SC and Mr. Robin Egerton) argued that the Husband and the Wife had only been physically together for four years since their marriage in 1982 as contrasted with the position of the Husband and the Intervener who have cohabited for 18 years.  The Wife (represented by Mr. Sussex SC, Mr. Neal Clough and Mr. Timothy Parker), on the other hand, argued that despite the physical separation until 2003, they treated their marriage as subsisting and they maintained a sexual relationship whenever they met. 

(III)  My view on duration of marriage

8.   Saunders J found that the marriage lasted 21½ years.  In my view this is a finding that he was clearly entitled to reach on the evidence.  The parties had by choice decided how their marriage was to be conducted.  In terms of contemporaneous evidence of the Husband’s view of the marriage, the Judge referred to a letter written by the Husband to the Wife in July 1989 in which the Husband stated that he believed that he and the Wife ‘can walk happily throughout our life’.  Further by the Husband’s email dated 17 December 2003 he had admitted that the marriage had been in existence until that time.  The Husband might well have cohabited with the Intervener for a long period during the marriage but the Husband had never indicated that the marriage was long dead.  In the circumstances, the Judge’s finding on the duration of the marriage must be correct.

2)  Ownership of the NAIGL shares

(I)  The evidence

9.1)   NAIGL was incorporated in BVI on 20 September 1994.  80% (i.e. 40,000 shares) of its 50,000 shares was registered in the name of the Husband (share certificate No. 2) while the remaining 20% was registered in the name of Chu Yuk Ngai, the elder brother of the Intervener and his wife Candy Cheung.

9.2)   On 15 November 1999, NAIGL opened a bank account in Hong Kong.  The Husband was the contact person and the only person authorised to operate the account.

9.3)   On 10 March 2000, one bearer share certificate (Certificate No. 6) for 43,750 shares was issued.  The Intervener contended that she was the beneficial owner of these shares.  On 6 March 2002, two bearer share certificates (Certificates Nos. 7 and 8) were issued to Chu Yuk Ngai and Candy Cheung respectively, each representing a 6.25% (3,125 shares) holding in NAIGL. 

9.4)   On 5 January 2006 a share certificate (Certificate No. 10) representing 2,200 shares was issued in the name of the Intervener.  This came out of the 43,750 bearer shares issued on 10 March 2000.  The 2,200 shares were transferred to the Intervener as asset proof when she arranged for her children to attend schools overseas.  At the same time, a new bearer share certificate (Certificate No. 9) was issued in respect of the remaining 41,550 shares or 83.1% of NAIGL.  The Intervener contended that this bearer share certificate was issued to and kept by her.

9.5)   On 10 November 2009 after Deputy Judge Carlson’s judgment, 41,550 shares (i.e. 43,750 less 2,200 shares) were issued in the name of the Intervener (share certificate No. 13). 

9.6)   Saunders J held that the Husband is the beneficial owner of 83.1% or 41,550 shares in NAIGL.  There is a dispute between the parties whether Saunders J should have considered 87.5% or 43,750 shares instead of 83.1% or 41,550 shares in his determination.  I will come back to this later on.

(II)  The parties’ position

9.7)   The Intervener (represented by Mr. Pilbrow SC and Mr. Jeremy Chan) claimed that NAIGL is her company from the beginning.  The Intervener, whose concern in this appeal is only on the NAIGL shares, argued that the Judge was wrong in his approach.  Instead of beginning the analysis of the beneficial ownership from the position of NAIGL, the Judge should have started the analysis from the various companies owned by the Intervener and her family which came into existence from 1988 onwards and which eventually came under the control of NAIGL.  NAIGL by itself has no assets, its assets are held by companies under its control. These companies have been beneficially owned by the Intervener and her family (‘the Chu family’).  The Chu family set up companies in Zhuhai, Hong Kong and Macau to complement each other’s business.  It would be most odd that their interest in these companies would have eventually ended up as a minority interest in NAIGL, as represented by the 12.50% interest of Chu Yuk Ngai and Candy Cheung.

9.8)   The Husband supports the Intervener’s case on the beneficial ownership of the NAIGL shares.

9.9)   The Wife’s case is that the Husband had been secretly trading on his own account behind the back of his former employer, Sino Chem.  The means by which the Husband did this is through the facade of the companies set up by the Intervener or her family.  She maintained that the NAIGL shares beneficially belong to the Husband.

(III)  The relevant companies

10.   Saunders J has referred to many companies in his judgment.  But the relevant ones for the purpose of this issue are the following :

1.   Sinly (Z-H) Co. Ltd (‘Sinly’);

2.   Sun Ngai International Trading Co. Ltd (‘SNITCL’);

3.   China (HK) Chemical & Plastics Co. Ltd (‘China (HK) Chemical’);

4.   Sun Ngai International Investment Ltd (‘SN Investment’); and

5.    New Universe Holdings Ltd (“NUHL’).

IV)  The Intervener’s Case on the history of the companies

1)  Sinly

11.1)   The Intervener was born in 1961.  In 1986, she joined Zhuhai Petroleum Corporation (‘ZPC’) after working in another factory responsible for, among other things, the costing aspect of its operation.  She was a very capable person, responsible for the accounts of all wholesale and retail business of ZPC’s operation.  She also attended the Zhuhai Radio and TV University during her free time.  She graduated in July 1989.

11.2)   In August 1988 she decided to set up Sinly in Zhuhai which traded in plastics supplied by Chi Mei.

11.3)   The initial capital of Sinly was RMB 200,000 of which RMB 100,000 was paid up by the Intervener and the remaining RMB 100,000 by Xing Jing Quan (‘Xing’) and Wang Bao Feng (‘Wang’).

11.4)   In 1990, the paid up capital of Sinly was increased to RMB 500,000.  She also bought out the interest of Xing and Wang.

11.5)   The funding of Sinly came from the Intervener’s eldest brother Chu Iok Fan.

2)  SNITCL

12.1)   SNITCL began life as an unincorporated business called Sun Ngai Trading Company set up by Chu Yuk Ngai.

12.2)   In May 1991 SNITCL was incorporated.  The original subscribers were Candy Cheung (8 shares) and the mother of Candy Cheung (not Chu Iok Fan as stated in error at paragraph 155 of the judgment).

12.3)   In March 1992, the mother transferred her two shares to Chu Yuk Ngai.  Despite this, the Intervener’s case (supported by Chu Yuk Ngai) is that the beneficial owners of SNITCL included the Intervener and Chu Iok Fan as well.  SNITCL purchased land properties which were transferred to Sun Ngai Investment when the latter was set up in 1993.

12.4)   In September 1999, SNITCL was liquidated.  By then the shareholders were the Husband and NUHL.  The capital of SNITCL was returned to them (95% to NUHL and 5% to the Husband).  The Husband and NUHL became shareholders in SNITCL in May 1996 when there was an increase in capital to HK$1 million.  5% or 50,000 shares were allotted to the Husband.  NUHL had 95% or 950,000 shares (this included the shares previously held by Candy Cheung and Chu Yuk Ngai which they transferred to NUHL).

3)  China (HK) Chemical

13.1)   It is the Intervener’s case that SNITCL funded China (HK) Chemical which was incorporated in December 1991.  The subscribers were the Husband (using his Honduran passport name of Hurley Xi) with 69% or 6,999 shares (eventually increased to 70% or 7,000 shares in December 1992) and SNITCL with 29% or 2,999 shares, (later increased to 30% or 3,000 shares).  According to the Intervener, the Husband was a mere nominee for her in respect of the shares registered in the Husband’s name.

13.2)   In August 1994, China (HK) Chemical increased its share capital to HK$1 million.  Apart from the existing shareholders, Plymouth Ltd (a subsidiary of China Resource) now became a shareholder with 20% or 200,000 shares.  SNITCL was allotted 79% or 790,000 shares bringing its total shareholding to 79.3% or 793,000 shares.

13.3)   In December 1994, the Husband transferred his 7% (7,000 shares) to SNITCL, bringing its shareholding to 80% or (800,000 shares).

13.4)   China (HK) Chemical managed to obtain the Chi Mei distributorship in 1994.  It commenced trading in 1995.  It became very successful.

4)  Sun Ngai Investment

14.   Sun Ngai Investment was incorporated in May 1993 with a share capital of HK$10,000.  Candy Cheung held 87.5% (7 shares) while Chu Yuk Ngai held 12.5% (1 share). Eventually in December 1995 the shareholders were NUHL (95%) and the Husband (5%) holding the 5% on trust for NUHL.  Sun Ngai Investment was the property holding arm of the Chu family.  It was funded by SNITCL.  When China (HK) Chemical commenced trading, Sun Ngai Investment also provided securities for its borrowings.

5)  NUHL

15.1)   NUHL is the intermediate company between NAIGL and its subsidiaries which included SNITCL and China (HK) Chemical.

15.2)   NUHL was incorporated in July 1995.  Candy Cheung had 80% or 1,599,999 shares and Chu Yuk Ngai 20% or 399,999 shares.

15.3)   They eventually transferred all their shares in 1996 and 1997 resulting in NAIGL holding 99.6% of the shares and the Husband holding 0.4% of the shares on trust for NAIGL.

15.4)   As pointed out earlier, NUHL acquired a 100% interest in Sun Ngai Investment in December 1995.  It acquired a 95% interest in SNITCL in May 1996.  It also acquired an 80% in China (HK) Chemical in December 1997 which eventually was increased in December 1998 to 97%.  The other shareholder holding the remaining 3% is Well Land Associates Ltd (controlled by Mr. Suen Ki, a long term minority partner of the Husband).

15.5)   The Intervener illustrated the interest of the various companies by this chart:

V)  The Judge’s approach

16.1)   The Judge considered the following matters when he decided that the Husband was the beneficial owner of the 83.1% of the shares in NAIGL :

(1)   The share register of NAIGL;

(2)   The Husband’s contemporaneous statements on the issue;

(3)   Independent contemporaneous evidence; and

(4)   The parties’ evidence.

(1)  The Share Register

16.2)   The Judge attached great weight to the fact that when NAIGL was first incorporated, 80% of the shares were registered in the name of the Husband.

16.3)   He rejected the Intervener’s explanation for not being a registered shareholder of NAIGL when it was incorporated because of her citizenship and residential status.  He held that these factors were not impediments to her being a registered owner.  The Judge observed that while there was no declaration of trust by the Husband of the 80% shares in favour of the Intervener, the Husband had made declarations of trust in respect of the following :

(1) 1998 : 0.4% shares held by him in NUHL for NAIGL;

(2) 1995 (not 1996 as stated in the judgment) : 5% shareholding in Sun Ngai Investment for NUHL; and

(3) 1999 : 0.0002% shareholding in New Universe Corp Ltd for NUHL.

16.4)   The Judge held that in respect of the bearer share certificate of 43,750 shares issued on 10 March 2000 there was no direct evidence collaborating the Husband and the Intervener’s evidence that it was kept by the Intervener in a safe, in a property where they both lived and to which she only had the key.  The Judge also referred to the document in the Register of members of NAIGL which showed that in relation to the bearer certificate of 43,750 shares, the address was stated to be care of the Husband at his residential address.  At that time the Intervener admitted that she was living at another address.  The Husband’s name and address was only cancelled from the Register in March 2008, after the commencement of the proceedings.  The new address was the business address of the Husband’s companies.

16.5)   The Judge further rejected the Intervener’s explanation that the shares were converted to bearer shares in 2000 in order to protect her in the light of the Husband’s immigration to the USA.  The Judge held that the shares could have been transferred into her name.

16.6)   The Judge stated that the shares were only registered in the Intervener’s name after Deputy Judge Carlson’s judgment.

(2) The Husband’s contemporaneous statements regarding the Husband’s ownership of NAIGL

16.7)   The Judge referred to the bank documents which showed, amongst other things, that the Husband had provided personal guarantees for the NAIGL group of companies, whereas the Intervener had never provided any guarantees.  The Husband was also consistently described as the principal owner of his group of companies, particularly China (HK) Chemical.  The Judge further rejected the Husband’s explanation that the banks were not interested in knowing who was the ultimate beneficial owner.

16.8)   The Husband acquired NUIGL by way of a ‘backdoor listing’ in 2002.  The previously listed entity was SmarTech Digital Manufacturing Holdings Ltd (‘SmarTech’) which the Husband acquired through loans to the previous majority shareholder of SmarTech.  On 17 May 2002, SmarTech had in a public announcement concerning sale of a 29% interest to New Universe Enterprises (‘NUE’) (a company in which the Husband has interest) stated that the Husband was the beneficial owner of 87.5% in NAIGL.   SmarTech later became NUIGL.

16.9)   NUIGL only issued an announcement on 21 April 2009 (shortly after Deputy Judge Carlson’s determination that the Husband was the beneficial owner of 87.5% in NAIGL) stating that the Intervener was the beneficial owner of the 87.5% shares in NAIGL and not the Husband.

16.10)   The Judge rejected the Husband’s explanation that he was not personally responsible for the announcement by SmarTech.  The Judge held that he was an integral part of the transaction and he knew of the announcement.

16.11)   The Husband and Intervener could not properly explain why the correction announcement was totally contradictory to what Deputy Judge Carlson had determined.

16.12)   The Husband in his email of 17 December 2003 to the Wife proposed, in respect of distribution of assets to her, to use the net assets of NAIGL as a base figure.  The Judge held that unless the Husband was indeed the beneficial owner of NAIGL shares it would not be sensible for him to use NAIGL’s valuation as the basis for settlement.

16.13)   In the Husband’s Form E dated 21 August 2006, he asserted that the Intervener with whom he was cohabiting has a monthly salary of HK$17,200 and that she has no assets.  The Husband was unable to explain satisfactorily why he should so state, if the Intervener is the beneficial owner of 87.5% in NAIGL.

(3)and (4) Independent contemporaneous evidence and the parties’ evidence

16.14)   The Judge also considered the following :

(1)   The Intervener is only featured in one of the companies under consideration, namely, Sinly.

(2)   The Intervener’s only contribution was the insertion of the remnants of business from Sinly; this would not justify the Intervener acquiring an 87.5% interest in NAIGL.

(3)   On the contrary the Husband being the beneficial owner of 83.1% of the shares is consistent with the fact that he was a successful businessman, he has been dealing extensively in plastics and he had originally been allotted 80% shares in NAIGL.

(4)   If Chu Yuk Ngai and Candy Cheung had made substantial financial contributions, then it is remarkable that they should only be allotted 20% of the shares in NAIGL on incorporation.

(5)   The Intervener had not satisfactorily explained why Sinly was allowed the free use of an office in Zhuhai by an agent of Chi Mei.  The Husband had dealt with Chi Mei for many years.  This is consistent with the fact that the agent was trying to curry favour with the Husband.

(6)   A witness, Mr. Galen Chen was offered a job with Sinly by the Husband in September 1989.  During the two months of his employment in Sinly, he said that it was obvious to him Sinly was the Husband’s business.

(7)   Notwithstanding the Intervener’s case that the business of Sinly was taken over by China (HK) Chemical, there was a lack of evidence on this takeover.

(8)   There was no real need for the Intervener to use the Husband as a nominee when China (HK) Chemical was incorporated.  She could have used her brothers or Candy Cheung to hold the shares.

(9)   There were differences within the Intervener’s camp as to who owned SNITCL.

(10)   The Intervener was not in Hong Kong between 1991 and 1994.  It cannot sensibly be suggested that she had contributed towards the profitability of SNITCL.  On the contrary, the Husband was an expert in plastics with key industry contacts and was perfectly placed in Sino Chem that controlled import quotas for plastics into the Mainland.  The inference is that the success of SNITCL was due to the Husband and without any involvement of Sinly.

(11)   The evidence concerning the funding by the eldest brother towards Sinly is unsatisfactory.  Further China (HK) Chemical was profitable and would not need the help from the eldest brother.

(12)   There were serious doubts on the credibility of the Husband, Intervener and her two brothers.

VI)  The Judge’s finding

17.1)   The Judge held that the Husband, after having been assigned to Hong Kong in 1988 and already knowing the Intervener, took the opportunity to establish Sinly, through which he traded in plastics to his own advantage.  This was likewise with SNITCL. 

17.2)   Later, in 1991, having developed his relationship with Chi Mei, he began to set up China (HK) Chemical, with a view in the future to that company becoming a plastics trader.  In 1994, with the Husband having further developed his relationship with Chi Mei, China (HK) Chemical was able to secure a distributorship on behalf of Chi Mei.  The Husband, faced with the prospect of a transfer back to Beijing, then took the opportunity to resign from Sino Chem (HK) and to activate China (HK) Chemical and begin distributing plastics himself through that company.

17.3)   The Judge further rejected the Intervener’s case that the corporate structure as it now stands, with NAIGL at the head, is the result of a carefully orchestrated restructuring plan undertaken on behalf of the Chu family.

17.4)   The Judge held that the Husband beneficially owns 83.1% of the NAIGL shares.

VII)  My view on beneficial ownership of NAIGL

18.1)   As the Judge made plain in his judgment (and this is accepted by the parties) the issue of beneficial ownership of NAIGL is a question of finding of fact. The Judge, apart from having the transcript of the evidence of Deputy Judge Carlson’s hearing before him, also heard oral evidence including that of the Wife, Husband and the Intervener. Unless the Judge had erred on the well established grounds where a finding of fact may be vitiated, such as, for example, he had ignored some relevant evidence or considered some irrelevant evidence which rendered the finding plainly wrong, this Court is unlikely to interfere. This is to give recognition to the fact that the trial judge had the benefit of directly seeing and hearing the witnesses giving evidence and the danger of an appellate court forming a view which is based on a reading of parts of the evidence referred to by the parties without the benefit of having a complete picture of the evidence as it unfolded at the trial.

18.2)   In this case I have some doubt as to the Judge’s view that the Chu family might not have the means to fund the setting of Sinly, especially when the Judge had stated that there was ‘no evidence to demonstrate that the Husband had available to him capital to establish Sinly in 1988’. However that apart, the Judge had fully considered all the circumstances in arriving at his view. I cannot say that the finding of fact is plainly wrong. In my view it does not really matter whether the Judge began the analysis with NAIGL on the one hand or with the various companies under NAIGL’s control beginning with Sinly on the other hand. The Judge clearly had analysed the relationship of these companies with NAIGL. Whatever interest the Chu family might have in these companies, by September 1994, the Husband had become the registered owner of the majority shares in NAIGL. The Judge rejected the Husband and Intervener’s case that the Husband was a mere nominee for the Intervener of these shares. Having regard to the factors considered by the Judge, he was clearly entitled to come to this view.

18.3)   The Judge had correctly pointed out that by 2009, bearer shares were no longer permitted to be issued by BVI companies. His criticism that the Intervener became the registered owner of 41,550 shares in November 2009 was directed to the fact that this change only occurred after Deputy Judge Carlson had determined that the shares belonged to the Husband beneficially. Further no proper explanation was offered for this change of name.

18.4)   The Intervener pointed out that the Judge at paragraph 75 of the judgment mistakenly stated that there was no explanation why Chu Yuk Ngai’s shareholding in NAIGL was reduced, when the evidence was that Chu Yuk Ngai’s disposal was because of his need for liquid assets. I do not regard this is something that would vitiate the finding having regard to the circumstances of the case.

18.5)   A further difficulty faced by the Intervener is that even proceeding on the basis that the Chu family had interest in the companies before they came under the control of NAIGL, it is not possible to ascertain how this interest would become, in percentage terms, an interest in NAIGL. The Intervener sought reliance on Stack v. Dowden [2007] 2 AC 432 where the House of Lords held that where a domestic property was conveyed into the joint names of cohabitants without any declaration of trust there was a prima facie case that both the legal and beneficial interests in the property were joint and equal. However, as Baroness Hale of Richmond who delivered the lead judgment held, ‘In law “context is everything” and the domestic context is very different from the commercial world.’ The present case, unlike Stack v. Dowden, is not concerned with the domestic dwelling of cohabitees who lived as man and wife (a point further emphasised in Laskar v. Laskar [2008] 1 WLR 2695 at paragraph 15), but a commercial setting where, apart from the Husband and Intervener, other parties are involved as well. It is simply not possible in the circumstances to hold that because of their long term relationship, the Intervener and the Husband are joint beneficial owners of the Husband’s shares. In any event this was not a point relied upon by the Intervener below.

18.6)   The Intervener referred to the principle summarised in TL v ML and others (ancillary relief: claim against assets of extended family) [2006] 1 FLR 1263 that :

‘[38] A transfer of the legal title carries with it, prima facie, the absolute beneficial interest in the property conveyed. Any person other than the legal owner, who asserts that he is the beneficial owner, will need to establish a basis on which equity will intervene on his behalf. The only recognised basis is by way of a trust of land under which the legal owner holds his legal interest on trust for the beneficial owner.

[39] The burden of proof lies on the person asserting the existence of a trust of land.’

18.7)   The burden of proof on the issue of beneficial ownership of NAIGL shares is on the Wife as the Judge recognized. For the reasons identified by the Judge, the Wife has discharged this burden. I agree with the Judge.

VIII)  87.5% or 83.1%

19.1)   The Wife argued that the issue that the Judge was required to determine was the beneficial ownership of 87.5% of the NAIGL shares and not merely 83.1%. The difference of these two figures is the 2,200 shares transferred to the name of the Intervener in 2006 when she required proof of her assets when arranging for the children to be educated overseas. The Wife said that she had never made any concession that the 2,200 shares belongs to the Intervener. Her case has always been the Husband is the beneficial owner of 87.5% shares.

19.2)   This point can be shortly dealt with. While it is true that it was not the Husband or Intervener’s case that the transfer involved a movement in the beneficial interest because their case was that the Intervener has always been the beneficial owner, once the Court decided that the Husband has always been the beneficial owner of the majority of the NAIGL shares, then the Court had to decide the effect of the transfer of the 2,200 shares to the Intervener in 2006. Based on the reasoning of the Judge, by 2000, he was the beneficial owner of 43,750 shares (87.5%). If the Husband chose to transfer 2,200 shares to the Intervener in 2006 who remained to be the registered owner of these shares at the time of the hearing before Saunders J, in my view, the Judge must have concluded by reason of the nature of the relationship, that the 2,200 shares beneficially belong to the Intervener although he has not expressly said so in his judgment. His intention is apparent. It was never put by the Wife to the Intervener or suggested that these shares are not beneficially owned by her or that she holds them on trust for the Husband. Hence the Judge was correct to decide only 83.1% of the NAIGL shares belong to the Husband beneficially.

3)(I)  Valuation of NAIGL shares

I)  Non-disclosure : the evidence

20.1)   The Wife argued that the valuation by the Judge of the NAIGL shares is wrong because the Judge had not taken into account the non-disclosure by the Husband of the commission received by NAIGL from Chi Mei. At the trial, the Wife subpoenaed Hang Seng Bank to produce its internal reports in respect of China (HK) Chemical which is the trading arm of NAIGL. Using the 2000 report as an example it stated that :

‘ According to Client, the very slim Net profit ratio is arranged for tax drive reason and understated. Furthermore, they have about 2% rebate commission received from Taiwan Chi Mei Corp yearly (about HKD20Mper year ), but this kind of profits had not been booked into Borrower’s Hong Kong’s accounts. Therefore the actual profit of subject company is satisfactory and much better. The adjusted Net profit ratio will be improved to 1.83% and consistent to the industry’s norm.

As told, majority of these rebate have been placed in form of deposits in some offshore countries (such as Swiss or BVI).’  

20.2)   The 2006 report also stated that:

‘ As one of the 5 designated authorized agents of Chi Mei Taiwan, plastic sales for 2005 remained stable with thin profit margin. However, profit disclosed in their financial statements actually excluded commission rebate booked under a BVI holding controlled by (the Husband).’

20.3)   However the officer who produced the reports stated that he did not prepare the reports himself.  In his oral evidence he also said that the money was ‘not exactly a rebate but a protection’.

20.4)   The Husband in his evidence denied that Chi Mei had ever made rebate commission to his company.  He also denied that the company had offshore bank accounts.  He explained the nature of the money :

‘ Well, the – as far as Chi Mei is concerned, that sum is not called a rebate but a compensation. When the business was not good Chi Mei will give a compensation. It was not a fixed incident. This would only happen when the business was not good. If that happened the calculation were done on a monthly basis. That calculation, if there was, it would be me who handle it. If that really happened, Chi Mei would give us a detailed information concerning what the compensation would be. And the verification process was conducted by me. And Sun Qi did not bother himself about it. And that’s why he did not know anything about it. He only learnt that there would be such a thing called a “rebate” or a “compensation” at the end of the month when the financial statement had been prepared.’

20.5)   Sun Qi was the employee in China (HK) Chemical who provided information on the rebate to Hang Seng Bank.

20.6)   Mr. Sussex submitted that his team had since analysed the bank records and the value of NAIGL was understated by HK$238 million.  He asked for this sum to be added back to the valuation of NAIGL.

II)  PRINCIPLES

21.   The effect of non-disclosure in financial relief applications has been extensively discussed.  A useful summary of the principles found in cases beginning from J v J [1955] P 215 per Sachs, to Jenkins v. Livesey (Formerly Jenkins) [1985] AC 424 (per Lord Brandon) and more recently in Lykiardopulo v. Lykiardopulo [2011] 1 FLR 1427 (per Thorpe LJ) is contained in NG v. SG (Appeal : Non-Disclosure) [2012] 1 FLR 1211 (per Mostyn J) at paragraph 16:

‘ (i) The court is duty bound to consider by the process of drawing adverse inferences whether funds have been hidden.

(ii) But such inferences must be properly drawn and reasonable.  It would be wrong to draw inferences that a party has assets which, on an assessment of the evidence, the court is satisfied he has not got.

(iii) If the court concludes that funds have been hidden then it should attempt a realistic and reasonable quantification of those funds, even in the broadest terms.

(iv) In making its judgment as to quantification the court will first look to direct evidence such as documentation and observations made by the other party.

(v) The court will then look to the scale of business activities and at lifestyle.

(vi) Vague evidence of reputation or the opinions or beliefs of third parties is inadmissible in the exercise.

(vii) The Al-Khatib v Masry[[2002] 1 FLR 1053] technique of concluding that the non-discloser must have assets of at least twice what the claimant is seeking should not be used as the sole metric of quantification.

(viii) The court must be astute to ensure that a non-discloser should not be able to procure a result from his non-disclosure better than that which would be ordered if the truth were told.  If the result is an order that is unfair to the non-discloser it is better than that the court should be drawn into making an order that is unfair to the claimant.’

III)  MY VIEW ON NON-DISCLOSURE

22.1)   The approach now advanced by the Wife was not the approach adopted by her before the Judge.  While the Wife had relied upon non-disclosure, she had not asked the Judge to add back any amount to the value of the NAIGL shares.  Instead, she asked the Judge to depart from equal distribution of the matrimonial assets and instead award her with a higher percentage of the assets, namely, 55%.

22.2)   Although the Judge had criticised the Husband for non-disclosure, he had not specifically addressed the issue whether there was non-disclosure in terms of the rebate from Chi Mei.  Under section 20(1) of the Evidence Ordinance (Cap. 8) the banker records are ‘prima facie evidence of the matters, transactions and accounts therein recorded’.  The Husband who obviously had personal knowledge of the nature of the sums had given evidence and disputed that they were rebates.  The Judge did not reject his evidence.  In the absence of specific finding by the Judge on this issue, it is not possible for this Court to come to a view that there were indeed rebates and that they had been hidden in offshore accounts and that this Court should bring them back in the valuation of the NAIGL shares.

3)(II)  VALUATION OF NUIGL

I)  THE JUDGE’S VALUATION

23.1)   The Wife also challenged the valuation by the Judge of NUIGL.  As stated in paragraph 4.1 of this judgment, NUIGL is a public company listed in GEM.  His 61.83% interest in NUIGL is held through his controlling interest in NUEL.  NUIGL in turn holds 100% of a company called SmarTech International Group Ltd, which in turn holds varying percentages of shares in about 20 other companies which are variously involved in environmental technology, solid waste disposal, chemicals, and investment.

23.2)   The valuation of NUIGL was carried out by an expert called by the Wife, namely, Mr. Jeffrey Nedas.  The Husband did not call any expert witness.

23.3)   The Judge adopted the valuation put forward by Mr. Nedas in the sum of HK$105 million.  As the Husband’s interest in NUIGL is 61.83%, the Judge reduced the figure to HK$64,921,500 and for convenience, rounded to HK$65 million.

II)  The Wife’s challenge

24.   Mr. Sussex argued that the Judge misunderstood the evidence of Mr. Nedas.  The Judge had first correctly accepted his evidence that for a publicly traded company the valuation method is to take the quoted price of the shares as at the time of valuation as the starting point and then apply certain recognized adjustments (such as adding a premium for control) (‘market price valuation’). The Judge further correctly rejected the contention put forward by the Husband that the valuation should adopt the EBITDA approach (i.e. Earnings Before Interest, Taxes, Depreciation and Amortization).

25.   What went wrong in this case is that the Judge purportedly adopted Mr. Nedas’s figure of HK$105 million that in fact came from a hypothetical EBITDA and NAV (net asset value) valuations, which was produced by him in the course of his evidence as a thought experiment to assist the Court.  Further the Judge compounded the error by taking HK$105 million to be the valuation of NUIGL as a whole, whereas it only represents the Husband’s interest in NUIGL.  Hence a further discount is wrong.

III)  The Judge’s use of methodology

26.   The Judge first of all accepted in respect of NAIGL, which is a private company, the EBITDA approach should be adopted.  He went on to say that:

‘ 244. The valuation of the Husband’s interest in NUIGL must necessarily proceed on a different footing, because that company is a public company listed on the GEM Board and so the day to day share price, ostensibly indicating the value at any one time of shares held by a person in that company, is a matter of public record.

245. Mr Coleman’s criticisms of the approach adopted by Mr Nedas in this respect, particularly Mr Nedas’s selection of a single day’s trading upon which the valuation was based, had more merit.  That is principally because the shares were not widely traded.  To an extent, Mr Nedas accept that those criticisms and adjusted his figures appropriately.  As a result of the cross-examination Mr Nedas accepted that an appropriate value for NUIGL, as a whole, was on the order of $105 million.  There is no dispute that the Husband’s interest in that company stands at 61.83%.  That share is accordingly worth a sum of $64,921,500, which for convenience, I round to $65 million.’

IV)  Mr. Nedas’s valuation

27.1)   Mr. Nedas first prepared a report dated 27 August 2008 and used an agreed valuation date for NUIGL as at 15 August 2008.  He updated the report by another report dated 13 April 2010 and the valuation date was 31 March 2010.

27.2)   Mr. Nedas valued the shareholding of NUEL in NUIGL and the Husband’s interests therein on 31 March 2010 to be about HK$298 million. The closing price of the shares of NUIGL on that date was HK$0.179.

27.3)   In his Addendum dated 25 April 2010 to the 13 April 2010 Report, Mr. Nedas valued the Husband’s interest at HK$233,535,000 which is 21.8% less than the figure of HK$298 million.

V.  The Husband’s response

28.1)   Mr. Coleman accepted the second criticism of the Wife, namely, there should not be a further discount on the valuation to reflect the Husband’s interest but he maintained that the Judge was correct in his valuation of HK$105 million.

28.2)   Mr. Coleman had demonstrated in the cross-examination of Mr. Nedas that there was huge price fluctuation in NUIGL.  The price on 11 August 2008 was HK$0.10 per share but by 15 August 2008 (which was first chosen by the parties as the agreed valuation date) the price was HK$0.164.  This is a 60% increase.  The difference in the value of the Husband’s interest is HK$95 million between these two valuations.  Although Mr. Nedas accepted that the valuation would require updating, he maintained that the market value of the shares is the best evidence of the value of that share.  The only adjustment (which is by way of addition i.e. premium and not deduction) is the control by the Husband of NUIGL.  The following exchange in Court is relevant :

‘ Q. I can see that if you’re talking about a share on a main board such as, in Hong Kong, HSBC or Cheung Kong Holdings, that the price at which shares trade each and every day in large volume on the market may well be indicative of the actual value that one might attribute to that company. But that’s just not right, is it, for a company which has extraordinarily thin trading, frequently; two days out of five, on average, no trading at all.

A. It is the best evidence of value for those shares.

Court: Can you apply the EBITDA principle to this listed company?

A. You could, but my Lord, I think that would be wrong because if you came out with a figure that was either higher or lower -- I mean, that is what analysts do; they do precisely that.  What they do is they look at a company, they do their own EBIT and various other calculations and that’s the benefit -- that sometimes is the fact that guides them to say buy or sell.  But for valuation purposes, I believe the first figure in any calculation should be the quoted price and that is what I wanted to discuss with Mr Yuen who completely -- who did his own -- he did a net asset approach on a listed company that was trading, made provisions and adjustments that the directors hadn’t even made, and then when I sat down to discuss it with him, to understand the reason, he wouldn’t discuss it.’

28.3)   On the next day Mr. Nedas produced further valuations based on EBITDA and NAV.  He informed the Court that

‘ these are simply two alternative basis or two alternative methodologies for calculating a value for NUIGL. They’re very top line because the only documentation that I’ve had access to is the published report for 2009 of NUIGL, and whilst I’m not resiling from my opinion in my report, I thought I would write them out because they are maybe helpful to the court.’

28.4) This was followed by further cross-examination of Mr. Nedas by Mr. Coleman:

‘ Q. Perhaps I can summarise the points I was making yesterday by putting it in this way. In the context of a GEM company where there is not constant trading and very thin trading, the market capitalisation is not an objective or adequate means to determine or support the value of the company, is it?

A. I disagree, my Lord.  Whatever the nature of a market, a listed market, whether it’s a full board in Hong Kong, the UK or anywhere else, or whether it’s a junior market in Hong Kong, the UK or anywhere else, all the factors that relate to the stocks on the relative market, liquidity, volatility, risk, reward, all those factors are intrinsic to the price of the stock.  That’s the purpose of the market. And its investors’ perceptions, from whatever -- whether they’re an institutional investor or a private investor, that determines the market price.  I agree with Mr Coleman’s fundamental point; there are characteristics of a small market that are not the same characteristics of a junior market, and that's why you get different ratios in list -- stock listings.  But at the end of the day, the fundamental point is that the characteristics of that market and that stock on that market are reflected in that stock's price.’

28.5)   In the Husband’s closing submissions before the Judge, there was reference to apparent share price manipulations which I will repeat :

‘ 54. Unusual stock movements were detected from Exhibit “R-4” whenever there were substantive court hearings or significant events in these proceedings as set out below:

Date	Activities	Coincides with Events in Legal Proceedings
17 Mar. 2009	significant increase in the price and turnover of NUIGL stocks (by 3% and 2,200% respectively).	the preliminary issue was fixed for trial from 2 March to 13 March 2009.
19 to 27 Oct. 2009	significant increase in the price and turnover of NUIGL stocks throughout this period (with the stock price ranges from HK$0.10 to HK$0.14).	Husband’s MPS variation application and Wife’s judgment summons were fixed for hearing on 29 and 30 October 2009.
30 to 31 March 2010	unusually high trading volume at 2,346,000 and 800,000 shares respectively when compared with 0 share on 29 Mar. 2010.	31 March 2010 was the date chosen by the Wife’s forensic expert in assessing the up-to-date valuation of NUIGL for preparing his 2nd report dated 13 April 2010 [A8/2052].
19 Apr. 2010	turnover was of nearly 12.5 m. shares and the share price reached as high as HK$0.28 whereas that of the previous day was only one-tenth of such trading volume.	the 4th day of the ancillary relief trial.

55. As the Chairman of the board, the Husband told the Court that on average, the turnover was merely 300,000 to 500,000 shares a day and sometimes even less [H3/259].  The unusually high trading volume for NUIGL stocks on 19 April 2010 (when the Hang Seng index lost 460 points on the same day) had in fact attracted questions from the Stock Exchange of Hong Kong.  On 20 April 2010, NUIGL’s share price dropped drastically by 30% and so did the volume.  See Annex 2 for the information sheet of NUIGL shares, for its share price and trading volume etc., between 15 April and 23 April 2010 obtained from yahoo finance webpage.

56. The clear inference to be drawn from this trading activity is that someone was seeking to inflate values on dates material to this Court’s assessment of values.  Not only is this reprehensible, but it simply emphasizes the pointlessness of simply taking a share price on any single date and multiplying it by number of shares so as to give a “valuation”.’

VI)  My view on NUIGL valuation

29.1)   In my view, the Judge was acutely aware of the difference between the market price valuation on the one hand and EBITDA valuation on the other hand.  But he was equally aware of the danger of adopting the market price valuation approach when there was huge fluctuation in the price of the NUIGL shares, particularly when there was evidence that the fluctuation coincided with significant events in these proceedings.  The 31 March 2010 valuation date has to be viewed in the context of the unusually high trading volume at 2,346,000 shares and 800,000 shares respectively on 30 and 31 March 2010 as compared with nil transaction on 29 March 2010.  The Husband could not possibly be the person who would benefit from a high valuation of the NUIGL in the ancillary relief application.  Hence the Judge recognised the validity of the Husband’s criticism of the valuation based on a single day trading and asked for an alternative valuation.

29.2)   The HK$105 million valuation was clearly based on the EBITDA method and this was apparent from the document submitted by Mr. Nedas to the Court which contained the calculation.  The Judge must be aware of this.

29.3)   In my view, in the light of the evidence adduced in this case, the only proper conclusion to be drawn is that although the Judge did not elaborate on it in his judgment, he must have rejected the market price valuation and adopted the alternative EBITDA approach put forward by Mr. Nedas.  I do not consider that the Judge had erred in this regard.

4)  What are the matrimonial assets?

I)  Should NUIGL be excluded from the matrimonial assets

30.   Mr. Coleman, however, went one step further and submitted that the Husband’s interest in NUIGL should not even be considered as part of the matrimonial assets.  The value of NUIGL was attributable to the period after the parties’ separation.  In other words, by the time the Husband embarked on NUIGL, there was no suggestion that the Wife was providing any matching or equivalent contribution.

II)  Non-matrimonial assets : the principles

31.1)   In LKW v. DD (2010) 13 HKCFAR 537, the Court of Final Appeal, per Ribeiro PJ, held that:

‘ E.5.a Source of assets as a material factor

87. The source of an asset may provide a reason for excluding it from the sharing principle on the basis that it is not an item of matrimonial property.  Of course, in many cases, no question of any distinction between matrimonial and non-matrimonial property will arise.  But where there are assets which may be capable of being so differentiated, s.7(1)(a) implicitly requires the court to consider whether any part of such assets ought in fairness to be excluded from the sharing principle.  Differentiation might also be seen as a requirement of s.7(1)(f) if the source of a particular asset suggests that it is an independent and unmatched contribution by one of the parties.’

31.2)   Ribeiro PJ at paragraph 89 identified the two classes of assets which may be excluded on the basis of source.  The first involves property acquired during the marriage by one of the parties from a source wholly external to the marriage, such as by gift or inheritance.  The second involves assets derived from a business or an investment conducted solely by one party (sometimes called ‘unilateral assets’).

31.3)   In respect of the first category, namely, assets independently acquired, Ribeiro PJ held that

‘ 94. Where one of the parties acquires certain assets after separation without any help or contribution from the other, the court may well exercise its discretion to exclude such property from an equal division.’

31.4)   As to the second category, namely, unilateral assets, Ribeiro PJ at paragraph 95 referred to the difference in views of the judges in Miller v. Miller and McFarlane v McFarlane [2006] 2 AC 618.  Baroness Hale held the view that they should be excluded from an equal division and Lord Nicholls of Birkenhead held that in all cases the nature and source of the parties’ property are matters to be taken into account when determining the requirement of fairness.  Ribeiro PJ then stated that,

‘ 97. The difference of opinion is relatively narrow as it only relates to cases where the marriage is of short duration. The merits of the competing views are open to debate and it is not necessary to reach a firm conclusion in this judgment. I will content myself with saying that I am tentatively inclined to prefer Lord Nicholls’s approach as being simpler to operate and as avoiding the possible re-introduction of a discriminatory element into the exercise.’

31.5)   To the last observation, Wilson LJ (as he then was) in K v L [2011] 2 FLR 980 also stated that,

‘ [18] Thus, with respect to Baroness Hale of Richmond, I believe that the true proposition is that the importance of the source of the assets may diminish over time.’

31.6)   Wilson LJ at paragraph 21 further stated that,

‘ [21]   ……It is therefore no accident that this court’s reference, at [90] [of Charman v. Charman (No. 4) [2007] 1 FLR 1246 (CA)], to the unlikelihood of departure from equality further than to 66.6%-33.3% was of ‘division of matrimonial property’.  By contrast, although non-matrimonial property also falls within the sharing principle, equal division is not the ordinary consequence of its application.  The consequences of the application to non-matrimonial property of the two other principles of need and of compensation are likely to be very different; but the ordinary consequence of the application to it of the sharing principle is extensive departure from equal division, often (so it would appear) to 100%-0%.’

31.7)   In Rossi v. Rossi [2007] 1 FLR 790, N Mostyn QC (now Mostyn J) dealt with post-separation accrual issues arising from Miller and McFarlane.  He summaraised the principles as follows:

‘ 24.1 The statute requires all the assets to be valued at the date of trial.

24.2   For the purposes of establishing the matrimonial property in respect of which the yardstick of equality will ‘forcefully’ apply the value of assets brought into the marriage by gift and inheritance (other than the former matrimonial home), together with passive economic growth on those assets, should be excluded as non-matrimonial property.

24.3   Assets acquired or created by one party after (or during a period of) separation may qualify as non-matrimonial property if it can be said that the property in question was acquired or created by a party by virtue of his personal industry and not by use (other than incidental use) of an asset which has been created during the marriage and in respect of which the other party can validly assert an unascertained share.  Obviously, passive economic growth on matrimonial property that arises after separation will not qualify as non-matrimonial property.

24.4   If the post-separation asset is a bonus or other earned income then it is obvious that if the payment relates to a period when the parties were cohabiting then the earner cannot claim it to be non-matrimonial.  Even if the payment relates to a period immediately following separation I would myself say that it is too close to the marriage to justify categorisation as non-matrimonial. Moreover, I entirely agree with Coleridge J when he points out that during the period of separation the domestic party carries on making her non-financial contribution but cannot attribute a value thereto which justifies adjustment in her favour.  Although there is an element of arbitrariness here, I myself would not allow a post-separation bonus to be classed as non-matrimonial unless it related to a period which commenced at least 12 months after the separation.

24.5   By this process the court should, without great difficulty, be able to separate the matrimonial and non-matrimonial property. The matrimonial property will in all likelihood be divided equally although there may be deviation from equal division: (a) if the marriage is short; and (b) part of the matrimonial property is ‘non-business partnership, non-family assets’ (or if the matrimonial property is represented by autonomous funds accumulated by dual earners).

24.6   The non-matrimonial property is not quarantined and excluded from the court’s dispositive powers.  It represents an unmatched contribution by the party who brings it to the marriage.  The court will decide whether it should be shared and, if so, in what proportions.  In so deciding it will have regard to the reality that the longer the marriage the more likely non-matrimonial property will become merged or entangled with matrimonial property.  By contrast, in a short marriage case non-matrimonial assets are not likely to be shared unless needs require this.

24.7   In deciding whether a non-matrimonial post-separation accrual should be shared and, if so, in what proportions, the court will consider, among other things, whether the applicant has proceeded diligently with her claim; whether the party who has the benefit of the accrual has treated the other party fairly during the period of separation; and whether the money-making party has the prospect of making further gains or earnings after the division of the assets and, if so, whether the other party will be sharing in such future income or gains and if so in what proportions, for what period, and by what means.’

31.8)   Rossi was adopted in S v. S. (ancillary relief after lengthy separation) [2007] 2 FCR 762 at paragraph 110.

III)  My view on exclusion

32.1)   I am unable to accede to Mr. Coleman’s submission.  Although the Husband and Wife had lived separately for a long time during which the Husband formed another family unit, they continued to regard themselves as husband and wife.  The Judge found that the marriage lasted to the very end in 2003.  Hence there is no issue of the NUIGL shares being an asset acquired after separation.  On the contrary it was an asset acquired during the marriage and any increase in its value does not detract from this starting position.

32.2)   Further the source of funds for the acquisition of NUIGL must be by way of the use of assets, such as NAIGL, created during the marriage and in respect of which the Wife can validly assert a share.

32.3)   Even if, for the purpose of argument, which I do not accept, NUIGL is unilateral property, i.e. assets sourced from the business or investment activities solely of the Husband, the significance of this factor is diminished by reason of the long duration of the marriage.

32.4)   The Husband has not relied on ‘special contribution’ in support of his argument that NUIGL should not be considered as a matrimonial asset.  As pointed out by Wilson LJ in K v. L at paragraph 20:

‘ [20]   But the phrase ‘a special contribution’ is now a term of art in the law of ancillary relief which is used to describe a contribution entirely different from that of non-matrimonial property. As this court said in Charman, at [80]:

‘ The notion of a special contribution to the welfare of the family will not successfully have been purged of inherent gender discrimination unless it is accepted that such a contribution can, in principle, take a number of forms; that it can be non-financial as well as financial; and that it can thus be made by a party whose role has been exclusively that of a home-maker. Nevertheless in practice ... the claim to have made a special contribution seems so far to have arisen only in cases of substantial wealth generated by a party’s success in business during the marriage.’

[21] Thus a special contribution arises in circumstances in which a spouse’s contribution, direct or indirect, to the creation of matrimonial property has been so extraordinary as to dictate a departure within the sharing principle from the ordinary consequence of its equal division…..’

32.5)   This is unlikely to be a special contribution situation.

5)  Departure from equality

I)  The principles

33.1)   Finally the Wife argued that the Judge was wrong to depart from equality and gave the Husband 55% of the matrimonial assets.

33.2)   Proceeding from the fundamental approach that there should be no discrimination by reason of gender and role and also there should be no distinction between contribution in monetary and non-monetary terms, the now recognized approach is that the division of matrimonial assets on divorce is based on the principle of equality.  Ribeiro PJ in LKW v. DD offered the following guidelines:

‘ 82. The point reached at this third stage of the s.7 exercise therefore involves the court deciding that the sharing principle applies and taking the view that the total assets should be divided equally between the parties unless there is good reason, capable of articulation, for departing from an equal division. It is worth emphasising, however, that as pointed out by Lord Nicholls, the court will often ultimately not arrive at an equal division.

83. The fourth step therefore involves considering whether good reasons exist for departing from the principle of equal division.  Any such departure means increasing or reducing one party’s share and correspondingly reducing or increasing the share of the other.  The question for the court is whether the balance ought to be shifted from a point of equality to some other point in the circumstances of the case.  This is necessarily a complex question which raises a range of separate issues.’

33.3)   ‘All the circumstances’ must be considered in deciding whether there are good reasons for departure from equality.

II)  The Judge’s reasons for departure

34.   I will set out in full the Judge’s reasons for his departure from equality in awarding the Husband 55% of the assets :

‘ 263. I must consider whether there are good reasons to depart from the equal sharing.

264.  It is right that the very substantial sum that is available for consideration between this Husband and this Wife has come essentially from the efforts of the Husband.  While there has, for 21½ years, been a marriage in existence, it has not been a usual marriage where the Husband has had the support of the Wife in his home.  However, it is clear that throughout that period the Wife has carried the burden of bringing up her son.  That was not a matter about which she complained, but it is clear that the assets are assets which might well fall within the category of unilateral assets.

265.  In the whole of the circumstances in this case I am of the view that the source of the assets, from the companies formed and operated by the Husband with the assistance of the Chu family, constitutes a basis upon which there may be a departure from equal sharing.

266.  It is not difficult to criticise the Husband for his conduct towards the Wife in respect of his secret second family.  But there is no suggestion at all that that conduct has in any way impacted upon the value of the assets.  I do not consider that it would be inequitable to disregard that conduct in the division of the assets.

267.  The financial needs of the Wife will be adequately met by an appropriate award, as there are no special needs demonstrated.  She is of an age, and will have sufficient assets, not to need to enter a job market, and she does not say that there are any special responsibilities that she has.

268.  I have already found that this is a marriage of 21½ years.  It cannot in any way be described as a short marriage and the fact that the Husband is generated the bulk of the assets by way of them being unilateral assets is not a basis upon which they might be just regarded or exclude [excluded].

269.  The next factor is the contributions made by each of the parties to the welfare of the family, including the contribution made by looking after the home or caring for the family.  The Husband has been absent from the family for the greater part of the marriage leaving the Wife to look after the home, to which she expected him ultimately to return, and to look after their only child.  While it is right that the Husband’s efforts have resulted in substantial property, the extent of that property is not such as to bring this case within the rare class of cases where there may be departure from equality on the basis of special or stellar contribution.

270.  The final factor to be considered is that of compensation.  There is every reason to believe that the Husband will continue in business and that his business will prosper.  Because of the end of the marriage, and the drawing of a line after which the Wife will no longer benefit in that prosperity, she will necessarily suffer a loss which will not be made up for properly by any income she might earn on funds invested as a result of an award made by the court.  However that loss is not a loss which requires compensation in the sense that an award to the Wife should be increased beyond equal sharing.

271.  However, the peculiar circumstances of this case, involving as it does a marriage which although a long period, was one in which the parties spent not a great time together makes a case different from the usual run of cases.  I cannot disregard the way in which the couple have chosen to run their lives.  The source of the assets is also an important factor.  In this case, very substantial assets have been generated by the Husband without any direct or indirect assistance for the Wife, other than her contribution in looking after their child.  All of these are circumstances which, in my view, justify a modest departure from equal sharing.’

III)  My view on departure

35.1)   I do not find this to be an easy topic.  The Judge had, after all, exercised discretion on the percentage to be used for distribution.  However, it is not easy to understand some of the reasons relied upon by the Judge.  For example, it is difficult to ascertain the real meaning of the sentence at paragraph 268 that ‘the fact that the Husband (is) generated the bulk of the assets by way of them being unilateral assets is not a basis upon which they might be just regarded or excluded’.  It may be the Judge was saying that while the bulk of assets should not be excluded as being matrimonial assets, there is room for departure from the equality approach.  However this begs the fundamental question whether the assets referred to by the Judge are ‘unilateral assets’ in the first place.  But as pointed out earlier, the significance of unilateral assets is reduced in a long marriage.  Another example is the view of the Judge at paragraph 271 when he said that ‘very substantial assets have been generated by the Husband without any direct or indirect assistance for the Wife, other than her contribution in looking after their child’.  This view contradicts the fundamental ethos in the new approach that there should be no distinction between monetary and non-monetary contribution by a married couple.

35.2)    Initially I was attracted to the view that there is a distinction between a long marriage on the one hand and the ‘uniqueness’ of this marriage on the other hand which may justify a departure from equality.  The latter is based on the fact that the parties had lived separately for a substantial period of time despite their long marriage.  On reflection this distinction is difficult to maintain.  How is a marriage to be appraised by its uniqueness when this mode of life was chosen by the parties themselves?  How lengthy should the period of living apart be considered relevant?

35.3)   Based on the Judge’s approach, my view is that his justification for departure is vitiated on principle by the two matters I have just discussed, namely, a failure to determine whether there are unilateral assets and even if so, their relevance in the present case, which is one of a long marriage, and a failure to recognize that there is no distinction between monetary and non-monetary contribution.  In my view, the proper approach is that there should be equal distribution of the matrimonial assets. 

35.4)   The Husband argued that recognition should be given to his ‘positive conduct’ in respect of his family relationship with the Chu family which enhanced the value of the assets.  This gave rise to a contribution from or on behalf of the Husband which was wholly unmatched by the Wife.

35.5)   In LKW v. DD Ribeiro PJ stated that :

‘ 104. Conduct, or more accurately, negative conduct, is therefore only to be regarded as a material factor if it is “obvious and gross” in the sense explained in Wachtel v Wachtel or, which comes to the same thing, if it is such that it would in the opinion of the court be inequitable to disregard it.

105.  The “conduct” heading is sometimes used in the case-law to refer to “positive conduct” which I prefer to discuss under the heading of “contribution”.  It has also been suggested that prenuptial and post-nuptial agreements might be classified as instances of “conduct”.  I would be more inclined to regard them as relevant matters brought in under the general rubric of “all the circumstances”.  They do not in any event call for any detailed discussion in the present case.’  

35.6)   In the present case even if this is a factor to be taken into account, in the light of ‘all the circumstances’ of the case, I do not regard this to be a factor which will give rise to a departure from the equality principle.

6)  Lump sum payment

36.1)   The Judge ordered the Husband to pay the Wife a lump sum of HK$147,900,000.  The Husband argued that even based on the Wife’s case, the business of NAIGL and NUIGL, in particular the latter, were entities that had been built up during the relatively recent past.  Both businesses were reliant on banking facilities, that is to say they are not self-financing.

36.2)   The Husband argued that it is simply impossible for him to pay a lump sum of HK$147,900,000 as to do so would be to ‘kill the goose that lays the golden egg’.  This is exactly what is to be avoided in ancillary relief orders: see Wachtel v. Wachtel [1973] 1 All ER 829; Cowan v. Cowan [2000] 2 FLR 981.

36.3)   The Judge did not make any such assessment and did not consider the question of affordability, and as such the judgment is unfair to the Husband (and, of course, the Intervener).

II)  My view on lump sum payment

37.   I disagree with the Husband’s submission.  The Judge had clearly found that the Husband had been guilty of non-disclosure (other than the rebate).  The wife had identified the area of non-disclosure in her written submission.  Even now when the Husband complains that he cannot afford the lump sum payment order he has not provided details of his current financial position.  In my view it is not open to the Husband to complain about this point.

38.   The Judge refused to give credit to the maintenance pending suit provided by the Husband in the sum of HK$12,400,000.

40.1)   Mr. Coleman argued that a fundamental principle of any maintenance pending suit award is that it can be ‘adjusted’ at the final determination of ancillary relief after the trial judge has had the opportunity of hearing the parties and previewing the evidence.

40.2)   In this case:

(1)   it was the Wife’s own evidence that she did not use the sums for her own expenses or support;

(2)   it was the Wife’s own evidence that she had used part of this sum to invest in her businesses;

(3)   in cross-examination it was established that the Wife’s expenses as claimed in her form E were overstated;

(4)   in any event, even the claimed expenses were far below the amounts paid by the Husband over the period.

40.3)   In the circumstances, it was wrong for the Judge not to give the Husband any credit for the significant and substantial sums (in effect capital sums) he had already paid the Wife.

40.4)   Further the Judge had later given the Wife 50% of her costs of the ancillary relief proceedings.

41.   Mr. Sussex did not argue that the HK$12,400,000 should not be taken into account in the final order.  In the light of the Husband’s submission, I will order that this sum should be deducted from the lump sum order.

42.1)   The Wife’s appeal is allowed to the extent I have indicated, namely, first the valuation of the Husband’s interest in NUIGL should be HK$105 million and not HK$65 million and second, there should be equal distribution of the matrimonial assets.

42.2)   The Husband’s appeal is allowed only to the extent that the sum of HK$12,400,000 for maintenance pending suit should be given credit in the final lump sum award.

42.3)   The Intervener’s appeal is dismissed.

42.4)   The parties are required to submit a draft order setting out the exact amount to be distributed to the Husband and Wife within 14 days.

42.5)   I would like to thank counsel for their assistance.

43.   The parties are required to submit written submission on the costs of the appeal and below within 14 days.

Hon Yuen JA :

44.   I agree with the judgment of Cheung JA.

Hon Chu JA :

45.   I agree and have nothing to add.