MKKWH v. RKSH

CACV 197/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 197 OF 2012

(ON APPEAL FROM HCMC NO. 9 OF 2010)

________________________

________________________

________________________

J U D G M E N T

________________________

Hon Lam VP :

1.  Subject to what I shall say below, I respectfully agree with the judgment of Cheung JA which I have read in draft. In respect of the adding-back of non-marital expenditure, I would arrive at the same result by a different route. There are two alternative ways to achieve a fair result in dealing with non-marital expenses,

(a)  Adding back of specific sums as in Norris and Vaughan;

(b)  Departure from equal distribution as in ARAV.

No matter which route one pursues, the ultimate goal is to achieve fairness.

2.  In the context of ancillary relief, bearing in mind the stricture against costly, indecent and time-wasting post mortem, only conduct which is so obvious and gross that it would be inequitable to disregard may (but not must) require adjustment on account of fairness.

3.  No matter which route one is pursuing, fairness should lead to the same result in terms of whether any adjustment should be made.

4.  Thus, not every item of non-marital expense can be added back even though it could be said that such expense was a depletion of the matrimonial pot and as such it reduces the share of the spouse who was not benefited from such expenditure.  By way of example, in the present case, the wife had spent substantial sum by way of legal costs in her litigation with the company concerning the ownership of the property.  The husband did not derive any benefit from it.  There is no suggestion that the expenses should be added back.

5.  Assessment of fairness depends on a global assessment.  In this respect, the first instance judge is usually in a better position to make such assessment when an appeal is confined to the narrow limit of certain aspects of the case which the parties chose to appeal against.

6.  In the present case, both in the opening and closing submissions, the wife sought departure from equal distribution.  She did not seek the adding-back of specific items.  The wife had not identified the non-marital expenditure specifically in her opening as she should have done if she were asking for add-back.  The items were not gone into during the course of evidence and it was only at the closing that Appendix 2 was produced which itemized those non-marital expenditure.  Even then, at paras 22 to 23 of closing, she was still asking for departure from equality. The husband did not have any meaningful opportunity to deal with these specific items by way of evidence as if specific adding-backs were asked for.

7.  Since there was no request for specific adding-backs as opposed to departure from equality, the judge did not have to address these specific items in his judgment and he was entitled to assess the overall fairness in the context of departure from equality.

8.  In his overall assessment on fairness, the Judge took into account of matters like the husband’s contribution to the family fortune during the post-separation stage, see para 33 of judgment.  It should also be noted that even in the closing submissions, the case of the wife arguing unfairness focused on “inequality of post-separation spending”.  She did not argue it on the basis of unfairness stemming from spending incurred on non-marital members as such (because that, as submitted by Daniel Fung SC, could, as a matter of principle, extend to spending incurred prior to separation).  Thus the Judge only concentrated on the post-separation position at para 35 of the judgment.

9.  In my judgment, we cannot say the Judge erred in his overall assessment on fairness, thus refusing to depart from equal distribution.  In such circumstances, I doubt if there could be room for considering adding-back specific sums through the Norris route which was not argued below.

10.  The relationship between these two routes has not been subject to much discussion in the authorities.  In ARAV both Cheung JA and Fok JA considered the submissions of add-back under the umbrella of misconduct.  In that case, it was held that it is a matter of the discretion of the judge to decide what would be the appropriate relief in light of a finding of such misconduct.

11.  Following that approach, whether the conduct is so obvious and gross that it would be inequitable to disregard must be the threshold.  The Norris route can be regarded as a means to deal with such misconduct.  But it suffers from the drawback that one may lose sight of the overall assessment on fairness in light of other factors since in adding-back one would usually focus on the nature of the expenditure.  For this reason, a higher threshold is adopted for this approach in the English cases where the frittering away of assets was described as “wanton”, “reckless” or “extravagant”.  Thus, the English cases suggested a cautious approach is to be adopted: Vaughan; H-J and BJ.  The rationale was explained by Mostyn J in N v F (cited at para 50 of BJ) in terms of the separate ownership of property between husband and wife,

“ In this country we have separate property. If a party disposes of assets with the intention of defeating the other party’s claim then such a transaction can be reversed under s 37 of the MCA 1973. Similarly, where there is ‘clear evidence of dissipation in which there is a wanton element)’ then the dissipated sums can be added back or re-attributed … But short of this a party can do what he wants with his money. …”

12.  In the present case, the wife conceded before the Judge that the spending in question was not reckless, see para 20 of Mr Pang’s closing submissions.

13.  In light of that, the Judge can hardly be criticized for not granting any relief by way of adding-back.

14.  Before us, Mr Fung did not feel able to characterize these expenses as wanton, reckless or extravagant.  Instead, he contended a wider doctrine of adding back of non-marital expenses.  Whilst he accepted (as he had to) that not every item of expenditure of non-marital nature has to be added back, he tried to persuade the court to add back the expenditure in question because they stemmed from conducts which goes to the destruction of marriage.  

15.  With respect, such an approach is wrong in principle because it would necessitate the court to examine whether the conducts in question caused the destruction of marriage.  This is precisely what the authorities said the court should not do.

16.  Nor can this objection be met by formulating it in terms of conduct which is so obvious and gross that it would be inequitable to disregard.  For reasons set out above, if one were to restrict one’s consideration to the nature of spending as opposed to an overall assessment of fairness, a higher threshold and a more cautious approach should be adopted.

17.  For these reasons, I would reject Mr Fung’s submissions for adding-back non-marital expenditure.

18.  In other respects, I am in agreement with Cheung JA’s judgment and there is nothing I can usefully add.

Hon Cheung JA :

I.  The appeal

19.  This is the petitioner’s (‘wife’) appeal against the judgment of Deputy High Court Judge Carlson on her ancillary relief application against the respondent (‘husband’).

II.   Background of the case

II.1   The parties

20.  The parties were both born in 1948. The wife came from a wealthy family, the husband a more modest one.  The two met while they were studying in the USA and later married there on 22 April 1973.  Shortly afterwards they returned to Hong Kong and three children (two daughters and a son) were born of the marriage.  The children are now all grown up.

21.  In 1975, the parties founded a company, Applied Electronic Ltd, manufacturing electronic products. In 1976 the wife’s aunt and uncle invested in the company and held a majority interest there.  In 1976 the wife transferred her shares to the husband to be held on trust for her.  The wife’s aunt and uncle later sold their shares to the parties.  In 1986 the company went public and was listed on the Hong Kong Stock Exchange as Applied Development Holdings Ltd (‘ADHL’).  The parties retained about 50% of the issued capital.  The business of ADHL gradually changed from an electronic manufacturer to a property investment company.

22.  Their son, M, is now the executive chairman of ADHL.

23.  The parties’ relationship deteriorated. The parties separated in 1999 when the husband was required to leave the matrimonial home which was then at Kennedy Heights. 

24.  The wife petitioned for divorce on 25 February 1999 and the decree nisi was granted on 23 June 1999.  The decree absolute, however, was only granted on 15 March 2010.  The husband remarried on 29 April 2010.  The present application was heard by the Judge in June and July 2012.

25.  Notwithstanding the decree nisi, the parties continued to be involved in the management of ADHL.  The wife was appointed chairman and executive director on 31 May 2005.  In March 2010, after the decree absolute was granted, the wife was removed from her posts and ceased to be the chairman and executive director.  She became a non-executive director on 10 June 2010.  She was removed from the board on 9 July 2010. 

26.  During the time when the wife was the chairman and executive director her pay package allowed her to live in a property of ADHL in Severn Road on the Peak.  She was required to move out from the Severn Road home on 28 June 2012.

27.  During the marriage, the husband had relationships with three other women and four children were born out of the wedlock.

28.  In respect of the first relationship, it was not known when the relationship began.  The name of the lady he associated with was unknown.  A son, R, was born in January 1987 out of this relationship. The lady died in the same year.

29.  The second relationship began in 1990 and was with E.  Two children, a son and a daughter, were born in September 1996 and April 1997 respectively out of this relationship.

30.  In January 2002 (after the decree nisi) the husband began a third relationship.  This time with B.  A child, K, was born in September 2006.  The husband married B on 29 April 2010.

II.2   The assets

31.  The assets of the couple consist mainly of a collection of high value antique Chinese furniture (‘the Hung Collection’), a collection of jewellery (‘the Jewellery Collection’), a collection of paintings, artefacts and antique items (‘the Art Collection’) together with their interests in ADHL.

32.  In respect of the Hung Collection, in 1985 the wife began her interest in antique Chinese furniture and started to collect them.  She was self taught in this field.  She built up a world renowned collection of furniture.  The funds for this collection came from ADHL.  The collection was curated by Robert Ellsworth, a specialist in Chinese furniture and published in a two volume book. 

II.3    Valuation of the assets

33.  The Judge described the assets to be worth in excess of $1 billion although he did not particularise their value. The principal component being the Hung Collection which constitutes about 70% of the total value.

34.  At the direction of this Court, the parties provided a valuation of the individual assets :

1.     The Hung Collection

Description	Value ($)
Hung Collection	749,124,100
Less 27 missing items	78,997,702
Less furniture selected by husband	71,216,516
Less furniture selected by wife	71,114,816
Balance: remaining furniture	527,795,064

2.  The Jewellery Collection

$1,261,900 - $1,302,400 (As agreed by the parties)

3.  The Art Collection

$36,369,900 (Wife’s valuation)

$48,456,000 (Husband’s valuation)

The parties agreed that the value of the Art Collection should be the average of these sums: $42,412,950

II.4    ADHL shares

35.  The husband has 408,935,584 shares with ADHL (or 48.81% of the total 837,773,826 shares (ordinary) of ADHL).

36.  The judgment said the wife has 9,310,056 (or 1.11% of total shares of ADHL).  It is now accepted that the wife has 10,010,056 shares.

Agreed share value

NAV of ADHL shares	$410,568,000
ealue per share	$0.49
NAV of ADHL shares (including $250 million shell value )	$660,568,000
Value per share	$0.788

37.  Total value of shares of both husband and wife :

418,945,640 (408,935,584 + 10,010,056) x $0.788

= $330,129,164.3

II.5   The missing items

38.  The husband said the wife had misappropriated items in the Hung Collection, the Jewellery and Art Collections.

II.5(1)  The Hung Collection

39.  The bulk of the judgment was directed to the issue of whether the wife had misappropriated 27 items of the Hung Collection to the value of at least HK$78 million. The Judge found that she had.

II.5(2)  The Jewellery Collection

40.  The Judge found that the wife had not given full disclosure of the following jewellery in her collection, namely,

1) a jade ring valued at HK$2 million;

2) a diamond necklace auctioned by the wife for HK$5.1 million.

II.5(3)  The Art Collection

41.  The Art Collection is referred to in the judgment below as the Schedule 2 Assets.

42.  The Judge found that the wife had removed items from this collection (including a painting by Chang Dai Chien (張大千), paintings by Wang I-ting and Sun Yat-sen gold coins).  The Judge valued the removed items at HK$30 million.

II.6   The order

43.  The Judge ordered equal distribution of the items in the three collections and transfer of the ADHL shares.  He granted the following relief :

1) The Hung Collection be divided between the parties on the basis of the average valuations of Sotheby’s, Christie’s and Beijing Poly International Limited as follows :

(1) The husband do have first pick of the remaining items in the Hung Collection up to the value of HK$78,997,702.50;

(2) Thereafter each party will in turn select 3 items from the remaining pieces in the Hung Collection until the Collection is exhausted.  The wife will have the first pick of 3 items after the husband has selected up to the value of HK$78,997,702.50;

2) In respect of the parties’ jewellery collection :

(1) The husband be given credit in the sum of HK$2 million for the missing jade ring;

(2) The wife do give credit in the sum of HK$5,014,000 being the net proceeds of sale of the diamond necklace auctioned by Christies to be divided, the wife having already received from Christie’s HK$1.2 million by way of loan;

(3) The remaining jewellery collection be divided equally between the parties either by each of the parties picking items in turn failing which the collection will be sold and the proceeds of sale divided equally between them;

3) The Schedule 2 paintings, artefacts and other antique items be divided between the parties as follows :

(1) The husband be given credit in the sum of HK$30 million;

(2) The remaining items in the Schedule be valued by China Guardian who will divide the items into two batches of equal value and the wife and the husband will try to agree who will take which batch.  Failing agreement lots will be drawn;

4) In respect of the shares in ADHL :

(1) The wife’s 50% interest in the shares of ADHL jointly owned by the wife and the husband be retained by the husband for a consideration of HK$161,120,620.09.

(2) The husband do pay the sum of HK$161,120,620.09 within 8 months from the date hereof;

(3) The wife do transfer the remaining 10,010,056 shares which stand in her name upon payment of this lump sum;

5) Upon full compliance with paragraphs 1 to 4 herein above, any claims which the parties may have against each other or their estates for capital, income, or other property adjustment including periodical payments, secured periodical payments, lump sum or sums, transfer and/or settlement of property and order for sale whether under the Matrimonial Causes Ordinance, Matrimonial Persons Status Ordinance, Inheritance (Provisions of Family and Dependents) Ordinance or any other relevant Ordinance be dismissed.

44.  The method of selection and sale of the Hung Collection and the Art Collection had since been modified by an order dated 21 December 2012.  The payment to the wife of $161,120,620.09 which was originally to be made within 8 months is by this new order extended indefinitely.

III.   Grounds of Appeal

45.  The wife relied on the following six grounds of appeal :

1) The Judge had failed to consider the overarching principles of fairness.  The wife asked for :

(1) an uplift in her award on any sale or redevelopment of Severn Road deriving a market value in excess of the current value of $230 million.  The redevelopment value is $665 million.

(2) immediate payment by the husband in respect of her interest in ADHL or if the husband is unable to make immediate payment:

i) for the wife to take her interest in furniture from the Hung Collection; or

ii) for her to continue to receive an income from $161,120,620.09 until its payment.

2) The Judge failed to take into account the husband’s expenditure for the support of the husband’s children born out of wedlock and their mothers (‘the non-marital expenditure’). The wife asked for the expenditure of $71 million to be added back for distribution between the parties.

3) The Judge erred in the process of payment for share transfer.  The wife asked for orders contained in paragraph 1(2) above. Further the Judge erred in valuing the shell value of the ADHL at $250 million instead of $258 million.

4) The Judge erred in finding that the wife had misappropriated 27 items of the Hung Collection and he had placed an erroneous value on these items.

5) The Judge erred in the selection process of the 27 items.  The wife asked that she ought to have allowed the first pick of all items she wishes to retain or at least in relation to the $78 million selection by the husband, the husband should only be able to choose a similar number of items of similar value to the missing items.

6) The Judge erred in the valuation of the jade ring at $2 million and the paintings and others at $30 million.       

IV.   Non-marital expenditure

46.  I will address this issue first as it constituted the bulk of the arguments in the appeal.

IV.1  The wife’s approach  

47.  Mr Daniel Fung SC (together with Mr Adrian Leung and Mr David Chen) for the wife accepted that each party should have equal distribution of the matrimonial assets but  they asked the Court to add back $71,117,741 being the non-marital expenditure incurred by the husband during the marriage up to trial.  Apart from one item that was incurred in 1990, the rest of the items were incurred after the parties’ separation in 1999.  The non-marital expenditure was, in the main, incurred by the husband for his three other families outside the marriage.  Other than these expenses, there is an item of $800,000 donation to University of Chicago where the husband formerly studied.  There is also a gift of $5 million to M on his MBA graduation.

IV.2  The objection

48.  Mr Benjamin Yu SC (together with Mr Victor Dawes and Ms Bonnie Cheng) for the husband took a number of objections to adding back the expenditure.  They said the wife through her then counsel (not her current team of counsel) did not ask for the money to be added back at the trial.  Mr Yu submitted that the wife’s approach is unprincipled and unfair.  In respect of the former it is said that the wife’s valuation on post-separation expenditure is inconsistent with the established approach of assessing the assets at the time of the trial.  This approach is unfair because if the husband knew about the stand of the wife, he could have called evidence, for example, in regard to the wife’s acquiescence in the husband’s other relationships.  He asked why did the wife not apply for relief earlier.  He submitted that the husband also brought in assets (40 pieces of furniture) after separation which he was content to be treated as the joint assets.  He also submitted that the husband was not cross-examined on the expenditure.  The Flywin principle preludes this issue to be taken on appeal.

IV.3  Approach at the trial

49.  At the trial, counsel for the wife in his opening asked for a departure from equality (60:40) on account of a number of factors.  One of which is under the heading of ‘Inequality of Remuneration from the Company’.  At paragraphs 41-43 of his written opening submission, counsel said :

‘ 41. The Husband has had relationships with (at least) 3 other women, the last woman now his present wife. He has fathered 4 other children apart from the children of the marriage, all of whom he supported/supports.

42. The added expense of supporting 4 children and 3 other women had surely diminished the available assets for distribution.

43. Bearing in mind that the objective of the s. 7 exercise was to arrive at a distribution of assets which was fair between the parties, it is only fair in the particular circumstances of this case that this factor be taken into account to depart from the yardstick of equal division.’

50.  Then in his written closing submission counsel said :

‘10. However, it is respectfully submitted that the remaining reason is quite capable, on its own, to justify a departure from equality. It was expressed as “inequality of remuneration from the Company”. A more accurate expression would be “inequality of post-separation spending”.

11. The starting point in the exercise is to identify the assets.  In the present case, the assets comprise mainly furniture and shares in the Company.  The matrimonial acquest was in place at the time of separation in 1999.

12. There has not been any addition to the matrimonial acquest since separation.  Whatever is left at the present date for distribution represents assets which were in existence at the date of separation or were derived from those assets.  In other words, there is no new acquest attributable to the singular efforts of one of the parties.

13. The time from separation to trial of the ancillary relief application is extraordinarily long, some 13 years.

14. For all of those years, the Husband has received significantly more than the Wife from the Company, which was the fruit of the joint efforts of the Husband and Wife.

15. More importantly, the Husband has spent a significant amount on his other families, spending which was admitted by the Husband, and expressed to be as much as 50 percent of the Husband’s recurrent income plus shortfall of some $28 million over 15 years which the Husband said he paid for out of other investments/savings.

16. These sums would have been available for distribution as part of the matrimonial acquest had they not been spent on the Husband’s other dependents.

17. The Husband is entitled to arrange his life and support dependents in the way he sees fit.  However, his support for other dependents should not be at the expense of Wife.

18. Had the parties divided the assets at the date of separation on an equal sharing basis, the sums which the Husband has subsequently spent on his other dependents would have been available to the Wife.  The Husband has been able to support his other families using funds which otherwise might be available for distribution.

19. An analogy can be drawn with cases concerning reckless expenditure.  See, eg Norris v. Norris where Bennett J. added back £250,000 to the assets available for distribution on account of the husband’s reckless depletion of the matrimonial assets.

20. The Wife is not saying that the Husband was reckless in spending money to support his other families.  However, the fact of the matter is that had such sums not been spent, they would have been available for distribution.

21. This situation is simply the other side of the coin to cases like Rossi v. Rossi, where the Court considered that assets acquired post-separation by virtue of one spouse’s personal industry could be a reason for departure from equality being an unmatched contribution.  If an unmatched contribution would justify a departure from equality, so would an unmatched expense.

22. Whilst the issue of reckless expenditure is usually dealt with by notionally adding back the whole or a portion of such expenditure to the matrimonial assets available for division, it may also justify departure from equality.

23. Bearing in mind the guidance in LKW v. DD the existence of such assets should not be the subject of minute retrospective investigations, the Court is invited to use a “broad brush” approach and make appropriate adjustments to the ratio of division of assets.  To do otherwise over such a long period of separation before trial would be to attempt to engage in costly and often futile retrospective investigations of the parties’ spending which tends to deplete the parties’ (and the courts’) resources and to increase antagonism.  At the end of the day, it has clearly been demonstrated that the Husband has taken from the Company (a matrimonial asset founded and developed by the efforts of both parties to the marriage) significantly more than the wife, and it has also clearly been admitted that he has spent a significant amount of that on his other families.’  (emphasis added)

51.  In Appendix 2 of his closing submission, counsel identified the 13 items of non-marital expenditure of $71,117,741 now sought by the wife by way of adding back.

IV.4  My view

52.  I do not consider Mr Yu’s first objection has merits. Counsel for the wife in both of his opening and closing submissions had identified the non-marital expenditure by the husband to his three other families as the basis of the wife’s claim for unequal distribution.  The underlining ethos in ancillary relief is to achieve fairness.  The position is made clear by Ribeiro PJ in LKW v DD (2010) 13 HKCFAR 537 at 551 :

‘24. Without the target provision it is natural to assume that a fair financial outcome must be the implicit statutory aim. As Lord Nicholls of Birkenhead pointed out in White v White :

“This tailpiece was later deleted from the legislation, and nothing inserted in its place. In consequence, the legislation does not state explicitly what is to be the aim of the courts when exercising these wide powers. Implicitly, the objective must be to achieve a fair outcome. The purpose of these powers is to enable the court to make fair financial arrangements on or after divorce in the absence of agreement between the former spouses ...”

25. In Cowan v Cowan, Thorpe LJ referred to Lord Nicholls’s view as “the almost inevitable judicial conclusion that the unexpressed objective of the exercise is to arrive at a fair solution”.  It is indeed hard to imagine that the legislature might have intended the courts to reach an outcome which is other than fair.’

53.  The non-marital expenditure clearly has an impact on the issue of fair distribution.  Family practitioners (particularly of the caliber of the husband’s counsel) must be aware that, within the narrow confine of ancillary relief, conduct is relevant to the question of extra marital expenditure.  Conduct is one of the express factors to be taken into account under section 7(1) of Matrimonial Proceedings and Property Ordinance (Cap. 192).  It was open to the husband to canvass the issue at the trial.

54.  Further this Court held in ARAV v VP [2011] 3 HKLRD 759 at paragraph 7 that if conduct is one of the factors to be taken into account then the Court is not hamstrung in the precise way in which it will recognize this factor.  Hence the Court can either add back the wasted fund to the joint assets before distribution or it can depart from equality in the distribution.  ARAV is an example where there was departure from equality because of a spouse’s financial misconduct.  Examples of adding back by reason of a spouse’s financial misconduct can be found in Norris v Norris [2003] 1 FLR 1142 and Vaughan v Vaughan [2007] 3 FCR 533.  See also Jackson’s Matrimonial Finance 9^th Ed. Para 3.71.  Although BJ v. MJ [2012] 1 FLR 667 at paragraph 51 described re-attribution as a process of penalisation and should be applied cautiously and truly where the dissipation is demonstrably wanton, it is nonetheless a well recognized approach.

55.  In this case the Judge found that there was no ground for departure from equality.  He held that :

‘31. In closing, Mr Pang has quite properly abandoned the point about the wife not owning a home. He has now set out his stall on the basis that the husband has had far greater remuneration from the company and that this would therefore justify more going to the wife on a capital distribution. He has somewhat amended this heading by describing it as “Inequality of Post-Separation Spending”.

32. What the submission comes to is that since the separation in 1999 the husband has received more from the company which he has spent, to a significant extent, on his subsequent families.  I have seen a figure of $28 million put forward as the amount that he has spent on maintaining and educating his two other families.

33. In relation to this, it should be remembered that whilst the husband may well have drawn more from the company this is justified by the fact that in the post-separation period, certainly till 2010 or even early 2011, he has played the far greater role in its operation, added to which, as Mr Yu correctly points out, he has put back a great deal of money into the company in subscribing to a rights issue by ADHL.  Had he not done so the family’s controlling shareholding would have been diluted and control may well have been lost.

34. In respect of the new aspect to this justification, relating to post-separation spending, what Mr Pang says is that had the husband not spent these substantial amounts on funding his subsequent families, these amounts would now form part of the matrimonial assets.

35. It seems to me that the correct response to this is to be found in the fact that post-separation the husband was perfectly entitled to behave in a way that he did.  Life goes on and, relative to the assets in this case, the amounts spent were not inordinately or recklessly high, nor were they spent on trivial matters. Looking at everything in the round, the husband more than did his fair share in earning his way by taking all at the important and difficult decisions in the operation of ADHL.

36. Therefore, my conclusion is that Mr Pang must fail in this submission. There is simply no valid reason to depart from a 50:50 split.  Notwithstanding the hitherto disastrous course of this litigation and the consequently massive costs incurred, there is still a very large asset pool to fund a secure, and indeed luxurious, way of life for these parties for the rest of their lives.’

56.  Clearly both the husband and the Judge were aware of the issue at stake and the husband had put forward arguments against this claim (which was in a different form but not in substance).  In my view the wife is entitled to pursue this point on appeal. 

57.  The law is clear that the relevant date for assessing the financial position of the parties for the purpose of ancillary relief is the date of trial or appeal (Cowan v Cowan [2002] Fam 97 at para 70).  The wife’s reliance on the period between 1999 and 2012 is because the available evidence identified the expenditure from this period of time.  The husband’s Form E (dated 3 March 2010 and 30 June 2011 respectively) and his oral evidence confirmed the expenditure from this period of time.  I do not see any contradiction in terms of principle.  

58.  LKW at paragraphs 62-69 disapproved a minute retrospective investigation of the failed marriage in order to laud a party’s contribution or denigrate that of the other party.  The same sentiment must of course apply to the issue of misconduct where one party relies on misconduct to justify a departure from equality. As Coleridge J said in G v G (Financial Provision : Equal Division) [2002] 2 FLR 1143 at 1155 ‘What is “contribution” but a species of conduct? …’ (adopted by Baronese Hale of Richmond in Miller v Miller [2006] 2 AC 618 at paragraph 146.)  

59.  In LKW, the Court of Final Appeal has stated that the relevant conduct must be obvious and gross or inequitable for the court to disregard [paragraph 41]. The Court of Final Appeal then reminded us :

‘100. However, the courts have recoiled from permitting the parties to indulge in a post mortem of their marriage in order to find fault with each other or to air “their mutual recriminations and go into their petty squabbles for days on end”. As Sir George Baker P stated in Campbell v Campbell, “...everything should be done by the court to avoid costly, indecent and time-wasting investigations” regarding conduct in relation to ancillary relief proceedings. Otherwise the court will be faced with “... a lengthy, costly and, most likely, profitless investigation stretching over days, when allegations and counter-allegations are made by the ex-spouses or spouses, one against the other.” These sentiments are just as pertinent today and are reflected in the fourth underpinning principle referred to above.’

60.  And at paragraph 131 it is stated that the decision is fact-specific and discretionary :

‘E.6 Step 5: Decidingthe outcome

131.   It is worth reiterating that, having gone through the processes I have compendiously called “Step 4”, the court is not bound to depart from equality in the division of the parties’ assets even if one or more of the factors considered are engaged on the facts.  The weight to be given to such considerations is a matter of discretion for the court.  Stepping back and looking at the overall impact of the factors found to be relevant, the court may decide that certain factors carry such weight that a departure from equality is called for.  The decision is fact-specific and discretionary.  But where there is a departure, the court should explain its basis since the articulation of reasons provides a useful check on the fairness of the outcome.’

61.  The facts of each case are different. The wife in the Court below and here is not asking the Court to examine the history of the husband’s philandering as a cause of the breakdown of the marriage.  She simply invited this Court to look at the husband’s own evidence which disclosed these expenditures.  Hence this is not strictly a situation envisaged and disapproved by LKW.  The real issue is whether, first, as a matter of principle the non-marital expenditure should be added back and second, on the existing evidence an adding back of the non-marital expenditure is justified.  In Norris the husband’s gift of jewellery to his mistress valued at £30,000 was ordered to be added back to the husband’s assets.  The issue of fairness was considered.  Bennett J held that :

‘[44] The husband has spent lavishly on jewellery for Juliet Quartermain to the tune of £30,000, including a ring for £19,500. The husband has already accepted that Woodlands House jointly owned by him and Juliet Quartermain should be treated as his, similarly to Juliet Quartermain’s premium bonds. One might ask – and why not the jewellery? Why should that be put into a special category, bearing in mind that it was bought at a time after the marriage had broken down? Why give her such expensive jewellery when he could have spent far less and thus depleted his assets less? In my judgment there is no answer to the argument that the jewellery at £30,000 should be put back into the husband’s assets.’ (emphasis added)

62.  In Norris the husband had moved in with the mistress and had two children. In respect of the husband’s obligations to her and the children, Bennett J held that :

‘[45] Of course, the husband does have these obligations. However, in this case there is more than enough money on the husband’s side, even if he has to pay a lump sum to his wife, for him to comfortably support Miss Quartermain and their children. The husband chose to enter into that relationship and to have children. To say to the wife that after such a long marriage she must be at risk of taking less out of the marriage because the husband, a wealthy man, has chosen to incur the responsibility of living with and supporting another woman and their children is, put simply, unfair.’ (emphasis added)

63.  Mr Yu submitted that Bennett J was referring to the future and not to the past expenditure already incurred by the husband.  That may be so but the real point is that Bennett J considered the issue of fairness.

64.  In H-J v H-J (Financial Provision : Equality) [2002] 1 FLR 415, the parties were married for 25 years.  The husband had association with another woman and a son Samuel was born of that relationship.  Coleridge J refused to make allowance for the provision of Samuel in the financial provision of the wife.  He also refused to add back the money spent by the husband on Samuel.  He held at 428 that :

‘ In cases where every pound has to be considered and weighed in the division between the parties, of course, by necessity and in the real world, it is necessary to ensure that there is enough money to go round for all. But where, as here, there are sufficient resources whether you split them 45/55 or 50/50, it is not, in my judgment, necessary to make allowance in the calculation for the figures that the husband contends for in relation to Samuel. The assumption of this liability is entirely the husband’s choice, and, in my judgment, principally his sole responsibility. To ask the wife, in effect, to take less and/or share in the cost of supporting this further child cannot, I say straight away, in my judgment, be fair. In cases of this kind I think it would normally be wrong in principle to include in calculations liabilities to children from further relationships. I am not prepared to take those into account here.

 However, by the same token, nor am I prepared to add back the costs that have already been expended by Mr H-J.  I see the force of the argument, but at the time they were incurred, in my judgment, they were reasonably and honestly incurred; and again, chaos will reign in these cases if adding back generally is allowed as part of the mechanism except in exceptional cases.’  (emphasis added)

65.  It is not necessary to come to a view on whether Coleridge J was correct or not on his refusal to add back.  Cases like this depend very much on their facts. It is, after all, an exercise of discretion.  The point to make is that Coleridge J recognized the issue of fairness and adding back in exceptional cases.

66.  The Court is of course not a court of morals.  If the husband chose to be a philanderer and have mistresses and children born from these relationships, it is not for the Court to condemn his behaviour as being immoral.  But when these activities caused funds (which should be in the matrimonial pot) to be depleted, then clearly the Court is entitled to ask whether unfairness has been caused to the other spouse because of the non-marital expenditure.  If this matter is considered under the ambit of conduct, then one has to examine whether the financial misconduct by way of depletion of the matrimonial funds (and not the husband’s moral conduct in respect of his association with other women) is obvious and gross or inequitable to disregard.  The amount, the duration and the number of non-marital relationships involved are some of the relevant considerations.  The distinction may be a fine one but nonetheless a real one.  The reliance by the husband of comments in Roberts v Roberts [1970] P1 that ‘…. no hard and fast line can be drawn between “legal” and “moral” obligations …’ is not helpful and does not advance his case.  When the Court referred to ‘wanton’, ‘reckless’ or ‘extravagant’ financial conduct or ‘wastage’ of matrimonial assets, they are merely descriptions or illustrations of conduct which fulfilled the threshold requirement.  These terms do not constitute separate categories of misconduct. This does not require elaboration.  

67.  In principle, I find Mr Fung’s submission that the wife should not subsidize the expenditure spent on the husband’s non-marital families from her share of the matrimonial pot to be indefensible.  This non-marital expenditure is not compatible with the principle of fairness.  A comparison with examples like the expensive hobbies of a spouse is simply not appropriate.  As Lord Nicholls of Birkenhead said in Miller v Miller at paragraph 9 :

‘ 9. The starting point is surely not controversial. In the search for a fair outcome it is pertinent to have in mind that fairness generates obligations as well as rights. The financial provision made on divorce by one party for the other, still typically the wife, is not in the nature of largesse. It is not a case of “taking away” from one party and “giving” to the other property which “belongs” to the former. The claimant is not a supplicant. Each party to a marriage is entitled to a fair share of the available property. The search is always for what are the requirements of fairness in the particular case.’

68.  Nor do I find to be prejudicial to the wife the fact that she did not apply for the decree absolute for a substantial period of time.  After all the husband could have applied for it himself earlier as well.  However, a more difficult aspect of this issue is whether the Judge having considered and refused the wife’s claim (in the then form of departure from equality) was plainly wrong in his exercise of discretion.  It has to be borne in mind that the Judge had considered, in respect of this specific issue, the greater role played by the husband in the operation of ADHL in the post-separation period and relied on this as one of the bases on which he refused the wife’s claim.  It is, of course, true that the parties’ contributions are generally factored in as intrinsic part of the sharing principle (LKW paragraph 111).  However, while the Judge was apprised of the fact that the wife was the chairman and executive director of ADHL for a lengthy period of time after separation, he nonetheless still found that the husband had played a far greater role in the operation of the business.  It is difficult to challenge this finding and none has been advanced.

69.  A further difficulty is about the assessment of the evidence.  The available evidence is extremely brief and the Judge had not made findings on the individual items.  The individual items can be divided into two categories.  The first not being related to the husband’s non-marital families and the second related to those families.  

70.  In respect of the first category, there are the donation to the university and the graduation gift to M.  On appeal, this Court is placed in an almost impossible position to find such expenditure amounts to financial misconduct on the part of the husband simply by its size and nature.  One also has to bear in mind that M is the natural son of the husband and wife.

71.  In respect of the second category, the amount spent on the first family is about $7.9 million, the second family about $26.9 million and the third family about $28.8 million.  In terms of the expenditure spent on these three non-marital families, a distinction has to be drawn between the first two families and the third (i.e. the current) family. In respect of the current family, the husband’s association with B began after the parties’ separation and the decree nisi.  Other than the formal decree absolute, the husband and wife were by then leading separate lives.  The husband’s expenditure is not strictly a financial misconduct during marriage situation.

72.  As to expenditure on the first two families, while I accept, in principle, that it is unfair to the wife and may amount to financial misconduct and in an appropriate case should be added back to the joint assets, however, I do not find the Judge’s decision to be plainly wrong when he refused to make adjustments in equal distribution.  While the Judge was in error on the number of companions and children the husband has had outside the marriage, this is not something so fundamental as to vitiate his exercise of discretion.  More importantly he had properly regarded the contribution of the husband in the post separation period.  Despite the force of Mr Fung’s submissions, with reluctance, I will not add back the expenses.  

V.  Redevelopment of Severn Villa – Claw Back

V.1  The arguments

73.  ADHL bought four units in Severn Villa in 2002.  There are a total of six units in this development.  ADHL also owns two properties in the British Virgin Islands and Panama which are not issues in this appeal.  The valuation of the ADHL shares does not include the redevelopment value of Severn Villa.  Counsel for the wife at the trial had expressly asked the Judge to take the redevelopment value into account.  The wife now asked for a claw back provision to be included so that she could have the benefit of the redevelopment of Severn Villa in the future.  The husband objected, saying that this is contrary to the Flywin principle.

V.2  My view

74.  In considering this issue, it is again important to bear in mind that, first, the goal of the Court in ancillary relief application is to achieve fairness between the parties.  Second, the family judge is vested with a quasi-inquisitorial role which obliges him to investigate issues which he considers relevant to the outcome even if not advanced by either party.  He is also not bound to adopt a conclusion upon which the parties have agreed (Parra v Parra [2003] 1 FLR 942 at paragraph 22).

75.  In this case ADHL was established by the joint efforts of both parties.  This was a marriage which lasted 37 years. It is clear that the agreed valuation of the ADHL shares did not take into account the redevelopment value of Severn Villa.  The shares were valued on the Net Asset-Based Value (‘NAV’).  This was agreed at $410,568,000.  Added to that was the shell value of $250 million of the shares.  As the report prepared by John Lees dated 14 June 2012 showed :

‘ Net Asset-Based Approach

4.1.7  The basic theory underlying the net asset-based approach to business valuation is based on the principle of substitution.  More specifically, that no rational investor will pay more for the purchase of a company’s assets than the cost of procuring the same assets of similar economic utility.

4.1.8.  This approach measures the value of a business as the difference between its assets and its liabilities, subject to appropriate adjustments.  The resulting net realisable value of the company’s assets is determined on the basis of what value would be achievable in an orderly realisation of those net assets.  By primarily utilising book values of assets, this method may ignore the ability of the company’s asset base to generate future earnings in excess of the value of its assets in an orderly realisation.’  (emphasis added)

76.  Evidence was adduced that the redevelopment value was about $665 million.  The husband in his Eighth Affirmation dated 25 August 2010 showed a clear intention to sell Severn Villa in order to reap its potential value.  The husband said :

‘ 8. … The book value of the 4 apartments as at 31 December 2009 was $170 million. There have been ongoing discussions among the owners of the other 2 apartments in Severn Villa, ADHL and a developer for the sale of the 6 flats which comprise Severn Villa. If all 3 owners sell, we estimate the total sale price to be HK$600 million. ADHL would therefore receive HK$400 million by way of gross proceeds of sale. At the moment, one of the 2 other owners is holding out. If that owner agrees, it would be in ADHL’s best interests to sell the 4 apartments. The proceeds would be an enormous help to ADHL, not only to help it out of its financial difficulties but also to develop its existing projects and look into further investment opportunities. The proposed sale of these 4 apartments is not about depriving the Petitioner of her home.’

77.  The husband’s evidence in Court was also that it was his intention to sell Severn Villa if the other two owners agree to do so.  The current value of ADHL’s interest in Severn Villa is $230 million.  This constituted about 47% of ADHL’s net asset value.  If there is a future sale of $665 million, ADHL’s interest is $418 million which is $188 million above the current value of $230 million.  Even if the value is $600 million, the increase in value is still substantial.  In all the circumstances, fairness requires the redevelopment value to be considered.  The mechanism to be used to cater for this is by way of a claw back provision as illustrated by Parra.  There, the husband owned a property which had a redevelopment potential.  A claw back provision which granted the wife half of the net gain resulting from redevelopment was imposed by the trial judge.  This was affirmed by the Court of Appeal.  Thorpe LJ recognized the problems associated with such a provision, namely, it is inconsistent with a clean break in ancillary relief andthe negotiation of the mechanism is laborious and expensive.  He, however, upheld the claw back provision but confined it to the duration of the joint life of the parties for two reasons. First, the large scale of the windfall and second, the husband’s acceptance that it would be unfair to the wife if he was to receive all the windfall.

78.  Sedley LJ also affirmed the provision on the basis that it was ‘defensible on the ground that it preserves parity, albeit at the expense of a clean break’.

79.  Parra has withstood the test of time.  It was considered by the English Court of Appeal again in B v B (ancillary relief) [2008] 1 FCR 613 where there was evidence of the redevelopment value of a piece of land (the carwash premises).  The Court accepted the development value.  Hughes J held at page 618 that :

‘ If and when these premises are sold, they have a clear development value which exceeds their value in their existing form. It is not a mere hope value, as was the case in Parra v Parra [2002] EWCA Civ 1886, [2003] 1 FCR 97. In that case, there was a jointly owned brownfield site which the parties had acquired for future business use. Its valuation was agreed without any allowance for a remote possibility that the site might get permission for residential development, because the experts agreed that this was a very unlikely eventuality. If, however, such unlikely permission were ever to be granted, the windfall profits would be enormous. In that situation, both Charles J and this court (and for that matter the husband) accepted the propriety of a charge-back in favour of the wife, to secure a sum payable if the highly improbable should come to pass. This case, by contrast, is one of an identifiable development value. If and when this land is disposed of, there will be available as one option its sale for development. In those circumstances, the appropriate value to take is what the land would then sell for, less of course costs and taxes. However, on the outcome which seems to me to be the correct one, the question of exact valuation does not, as will be seen, arise.’

80.  In my view, the approach in Parra is firmly based on principles.  Section 7(1)(a) and (b) of the Matrimonial Proceedings and Property Ordinance (Cap. 192) require the Court to have regard not only to the financial resources and financial needs, obligations and responsibilities which the parties have at present, but also those which each of them ‘is likely to have in the foreseeable future’.  Hence in this case the potential huge windfall from the redevelopment should be properly taken into account by way of a claw back provision having regard to the undesirability of valuing, at this stage, Severn Villa on its redevelopment value when it has not yet been developed and, at the same time, to give effect to the evidence which shows that the redevelopment is not an unlikely eventuality.  If anything the probability of redevelopment in the present case is even stronger than Parra.  Further there is no alternative means of adjustment after the wife rejected the offer to be provided with the shares of ADHL (see paragraph 85 below).  While this provision is inconsistent with a clean break, the facts of this case justify this provision.

81.  I do not regard the objections raised by the husband as sufficient for this Court not to adopt a similar approach :

1) While there was a concession by the husband in Parra, this was not the only basis that the provision was imposed by the trial judge and upheld on appeal.

2) While Severn Villa is held by a listed company and not the husband personally, one must not forget that under the existing order, the husband is the majority shareholder of ADHL.  The enhanced value of Severn Villa on its redevelopment will be reflected in the value of his shares.

3) The wife is not seeking to get the upside but not the downside of the shares at all.  She is only asking for an uplift in the event of redevelopment of this property only and not for other purposes.

4) The suggestion that the chance of redevelopment is remote must be considered in the proper perspective.  The property is located on the Peak which is the choicest real estate in Hong Kong.  Further, even in Parra, notwithstanding that the chance of redevelopment was remote, a claw back was nonetheless imposed, no doubt because of the Court’s wish to achieve fairness between the properties.

5) The husband’s reliance on Kwok Lee Sau-sang & Siu Kit-ho v Director of Lands & Survey [1977] HKLTR 105 is misplaced.  There the applicants sought compensation from the government of the resumption of their land on the basis of its redevelopment potential.  In that situation clearly the burden to establish the redevelopment potential lay with them.  Here the wife is seeking an uplift in the event of redevelopment.  She is not asking for immediate compensation.  Although she has put forward a valuation of the ADHL shares by reference to the redevelopment value, this was not pressed upon us by Mr Fung in his closing.

6) The evidence that ADHL would need a rights issue of about $100-$150 million which may entail injection of capital by the shareholders must be considered in the proper context.  The rights issue is intended for future business development of ADHL.  At the moment, as conceded by the husband, ADHL is ‘stagnant’.  In any event, the rights issue does not concern Severn Villa.  Further, the claw back will be confined to one half of the increase in value attributable to the parties’ existing shareholdings in ADHL.

7) A comparison with a future increase in the price of the furniture is not appropriate.  The value of the furniture is the average of the values provided by the experts.  The potential increase is more or less reflected in the assessed value.  More importantly the probability of redevelopment of Severn Villa is a matter of fact and is contextual in nature.  As observed in Parra, a claw back provision is exceptional and not appropriate in most ancillary relief application.

82.  In my view, in order to preserve the interest of the wife, a claw back provision in the following form should be imposed, namely,

‘Contingent upon the commencement of the redevelopment of Severn Villa by ADHL within the lifetime of the wife, the husband do pay the wife a further sum representing one half of the notional increase in the value of the 418,945,640 ADHL shares attributable to the redevelopment (less HK$230 million and all costs and expenses or relating to the redevelopment), such value to be agreed, failing which the same to be assessed by an independent court expert to be appointed by the Court and such payment to be paid within one month of the final determination of such valuation.’

83.  This is slightly different from the order suggested by Mr Fung, namely,

‘Contingent upon the commencement of the redevelopment of Severn Villa within the lifetime of the wife, the husband do pay the wife such further sum as shall represent one half of the value of the interest of 418,945,640 ADHL shares in the property (less HK$230 million and all costs and expenses of or relating to the redevelopment), such value to be agreed, failing which the same to be assessed upon the commencement of such redevelopment as aforesaid by an independent court expert to be appointed by the Court and such payment to be paid within one month of the aforesaid valuation.’

84.  In order to cater for contingencies raised by Mr Yu such as : under the existing term the husband will still be liable even if he had disposed of his shares, what if ADHL is delisted and should the husband be allowed to claw back the pro rata of the $250 million shell value, the husband is given liberty to apply to discharge the claw back provision in the event of a sale of his shares or the delisting of ADHL.  It has to be emphasised this is not intended to give the husband a further opportunity to reargue the imposition of the claw back provision and the husband has to show that there is a bona fide sale or there are legitimate reasons for the delisting of ADHL for this matter to be considered.

85.  It is to be noted that there was discussion whether the wife would agree to take half of the parties’ shares in ADHL.  This apparently was offered by the husband at the trial and Mr Yu informed the Court that the offer was still open for acceptance.  The Court asked if the wife was willing to accept this since this would preserve her right to any windfall from the redevelopment of the property.  The offer was not taken up.  Mr Fung informed the Court that unlike the division of furniture, the division of shares will not be a clean break and the Judge had outlined the problems of the wife’s continuous involvement with ADHL.

VI.   ADHL shares

VI.1  Wife’s shares

86.  It is clear that there is an error in the judgment in that the amount of payment to the wife for the transfer of the shares has not taken into account the shares held by her.  The order below has to be amended accordingly.  Under the judgment, the wife is to relinquish her 50% interest in the shares held by the husband and to transfer shares held by her to the husband of which she also has a 50% interest.  The husband is ordered to pay her $161,120,620.09.  This sum is plainly wrong because it represents only the wife’s entitlement for her 50% interest in the 408,935,584 shares and has not taken into account her 50% interest in her own shares which she is ordered to transfer to the husband :

$0.788 x 408,935,584 shares x 50% =	$161,120,620
$0.788 x 10,010,056 shares x 50% =	$3,943,962
	$165,064,582

VI.2  Valuation of the shell value

87.  Mr Fung submitted that the shell value of the shares should be $258 million and not $250 million.  It is clear that the valuation of $258 million is supported by the evidence of the husband’s expert, Mrs Lauren Lau.

VI.3  Time for payment

88.  Mr Fung argued that the wife is deprived of income from the shares after their transfer initially for a period of 8 months and now indefinitely under the amended order.  He asked for either immediate payment or at least that interest should be paid.

89.  The intention of the Judge’s order is that the funds for the payment of the shares will come from the disposal of the furniture to be shared between the parties. I will not change the method of payment.  In the meantime, the wife had received $14 million in 2012 shortly before the trial and she has $70 million worth of furniture which she could sell.  This is money she can use for her living expenses.  I will also not order interest to be paid.  Dividends have not been declared on the shares since 1999 and when the Judge imposed the order he was aware that there was no possibility that dividends could be declared within the eight months’ period. 

VII.  Missing Items

90.  The wife challenged the Judge’s finding that she had misappropriated items in these three collections.

VII.1  The Hung Collection

VII.1(1)   Basis of the finding

91.  The 27 missing items are shown in the two books curated by Mr Ellsworth.  The Judge found that all the missing items that appeared in Book 1 and many of the missing items that appeared in Book 2 were shown in a booklet produced by the wife in her Third Affirmation in 1999.  This booklet showed 21 of the missing items were listed as being at Kennedy Heights.  All the furniture at Kennedy Heights was then moved to Severn Villa where they remained until they have gone missing.  The Judge found the other six missing items were also at the wife’s home at Severn Villa after the move from Kennedy Heights.  Four of these items appeared in a photo album.  One other item was evidenced by a memo dated 17 March 2001 which showed that item was also delivered to Kennedy Heights on 19 March 2001.

VII.1(2)    The wife’s argument

92.  Mr Fung submitted that although the Judge referred to the correct civil standard of proof on a balance of probability as affirmed in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at para 625, he had actually not applied this test when the husband’s allegation was that the wife had stolen 27 pieces of furniture.  The relevant test encompasses :

‘ … the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability …

… The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established.’

Mr Fung submitted that the cogency of the evidence does not support the Judge’s finding of theft of the 27 pieces of furniture.  He criticized the documentary evidence upon which the Judge based his decision to be faulted.

VII.1(3)  My View

93.  My view is that the Judge had not failed to observe the test at all.  He devoted 13 pages of his 39-page judgment on the missing furniture.  This issue took up the majority of the time at the trial.  The wife is challenging a finding a fact by the Judge when there is clearly evidence to support his finding.  The booklet was produced by the wife herself.  The Judge did not rely on the schedule prepared by the secretary which he recognized was not adequate.  He accepted the husband’s evidence that he had not removed any of the furniture from Kennedy Heights when he was asked to move out in 1999.  There was evidence that the Book 2 items were transported to ADHL’s office to be photographed for that book (which was published in 2005).  The items were in the wife’s possession when photographs were taken.  There was other evidence from witnesses such as Mr Ko who did odd jobs for the family and saw one of the pieces in Severn Villa.  Ms Chin, the husband’s solicitors had attended Severn Villa for inspection and saw one of the items that subsequently went missing.  The wife had also not proffered a proper explanation for the missing items and inferences can be drawn against her for failing to make full and frank disclosure (Baker v Baker [1995] 2 FLR 829 at 831).

VII.2  The Jewellery Collection and the Art Collection

94.  Again in respect of the challenge against the Judge’s finding on the missing items in the Jewellery and Art Collections, my view is that such findings are not plainly wrong for this Court to interfere.

VII.3  Valuation of the missing items

95.  The wife criticized the Judge for having ‘plucked a figure out of thin air’ when he valued the missing items in the Jewellery and Art Collections.   

96.  In my view the criticism is not justified. The Judge had the evidence of the husband on his estimate of the value of the missing items.  Further the wife can hardly complain when she herself had not made full and frank disclosure of the missing items.

VIII.  Selection process

97.  I had previously expressed concern on the selection process adopted by the Judge.  The concern was that the $78 million benchmark may be achieved by the husband selecting many high value pieces and then have the total value substantially averaged down by the inclusion of a few pieces of low value items.  The result will be the husband will have pieces whose actual total value far exceeds $78 million.  But as it turned out, eventually each of the parties were able to select their pieces up to the value of $70 million.  This being the case, I see no reason to cause any change to the selection process.  Tribute must be paid to the wife for preserving an invaluable part of the cultural heritage.  But while she had obviously put a lot of her time and effort in collecting the furniture and has a sentimental value attached to it, I do not consider this to be a proper basis for changing the selection process.

IX.  Further submissions

98.  At the conclusion of the appeal, the Court invited the parties to lodge written submissions on the impact of the recent UK Supreme Court judgment of Prest v Petrodel Resources Ltd & others [2013] 3 WLR 1 which the parties subsequently did.

99.  In view of the rather limited discussion of this case, I will refrain from commenting on it.  It is sufficient to record that the wife is not asking the Court to pierce the corporate veil and find that the husband beneficially owns Severn Villa, nor is she saying that the legal owner of Severn Villa holds it on trust for the husband and therefore should form part of the matrimonial assets.  The wife continues to rely on the principle of fairness in respect of her case.  Prest further affirms the inquisitorial role of the family judge (paragraphs 45 and 85).

X.  Conclusion

100.  The appeal is allowed to the extent as I have indicated in the judgment.

XI.  Costs

101.  The parties are to lodge written submissions on costs within 7 days.

Hon Fok JA:

102.  I have had the benefit of reading in draft the judgment of Cheung JA.  In agreement with Cheung JA, I would concur in allowing the appeal in part as regards the redevelopment value of Severn Villa but otherwise dismissing the appeal.

103.  I add a few words of my own simply because of the difference in approach between Lam VP, whose judgment I have also read in draft, and Cheung JA on the question of whether the non-marital expenses should be added back into the pool of matrimonial assets for division.

104.  As Lam VP has observed, in the present case, the wife did not seek the adding back of specific items of non-marital expenditure.  Instead, she relied on that expenditure in support of a departure from equal distribution.

105.  That was an acceptable stance for the wife to take, as supported by this court’s judgment in ARAV.  However, whether there should be a departure from equal distribution (as the wife sought at trial) or an adding back of the non-marital expenditure (as she now seeks on appeal), one must identify the principle on which the court can act to do either.

106.  In the present case, the non-marital expenditure was conceded by the wife’s counsel at trial (not Mr Fung SC) not to be reckless and therefore it was not necessary for the judge to analyse the individual items of expenditure.  Given the concession that the expenditure was not reckless, I do not see how, in the light of ARAV (which Mr Fung did not suggest was not binding on us), the judge can be faulted for not departing from equality or we can now add back the expenditure in question.  As was held in ARAV, which examined various English authorities on the type of expenditure that would result in an add back or departure from equality, to qualify as relevant financial misconduct, there would need to be financial irresponsibility and clear evidence of “dissipation of assets” that is “reckless” or “wanton” or “extravagant”.

107.  Like Lam VP, I agree that Mr Fung’s invitation to add back the non-marital expenditure here on the grounds of fairness because they arose out of conduct which went to the destruction of the marriage is one which requires the court to examine the conduct of the parties as regards the causes of the breakdown of the marriage and this is an exercise which the court should not embark upon in ancillary relief proceedings: see, in this context, LKW v DD (2010) 13 HKCFAR 537 at §100.

108.  I therefore agree with Cheung JA’s conclusion that the non-marital expenditure should not be added back but I do so on the basis that, on the facts of this case, the expenditure does not constitute evidence of “dissipation of assets” that is “reckless” or “wanton” or “extravagant”.  Like Lam VP, I reject the wider doctrine of adding back urged on the court on behalf of the wife.

109.  In all other respects, I am in respectful agreement with the judgment of Cheung JA.