FHM v. KYM AND OTHERS

FCMC 13457 / 2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 13457 OF 2013

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DECISION

(Leave to appeal: refusal to order the validity of a deed of separation
be tried as a preliminary issue;
Application to transfer to the Court of First Instance)

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Introduction

1. The petitioner of this case is the wife (“wife”). The 1^st respondent is the husband (“husband”). The 2^nd respondent is a lady who has been cohabiting with the husband for over 30 years (“Madam N”). The 3^rd respondent is the natural and adult daughter of the 2^nd respondent from her previous relationship, but has long adopted the surname of the husband (“Miss K”) (the husband, Madam N and Miss K collectively the “respondents”).

2. There are 2 applications, both dated 29 January 2015, before me:

(1)  A summons from the husband for leave to appeal against my order of 16 January 2015 refusing that the validity of a deed of separation dated 12 September 1985 (“Deed” or “Deed of Separation”)  be tried as a preliminary issue (“Leave Application”); and

(2)  A summons from the respondents for the case to be transferred to the Court of First Instance (“Transfer Application”).

3. Before I expend on the arguments, I shall first of all set out the necessary background relevant to these applications.

Background

4. The husband and the wife were born in the 1930s and are now both in their mid or late 70s.  They were originated from the Hubei Province, China. Their marriage took place in 1962 in China. Their elder daughter was born in 1963 (now almost aged 52) and their younger son was born in 1967 (now aged 47). It is not in dispute that their son has been suffering from mental illness since the 1980s. He is now living in a convalescence home in Tuen Mun under the care of the wife.

5. In 1978, the husband came to Hong Kong.  In 1981, he set up his own business (“YS Industrial Company”) of manufacturing electronic products.

6. The wife came with the children of the family to join the husband in/about November 1983 on single permits for family reunion, but she soon returned to China in/about February 1984. The reason of her returning to China is in dispute, but of no direct relevance in this hearing.

7. It was also in/about 1984 or 1985 that the husband started a relationship with Madam N. They have been cohabiting ever since until now.

8. In/about 1985, the wife returned to Hong Kong. On 12 September 1985, the husband and the wife signed the Deed of Separation. More will be said on the Deed later in this decision.

9. In the subsequent years after the Deed of Separation was signed, the wife and the son lived in different parts of China and Hong Kong at different periods of time. They subsequently returned to settle in Hong Kong from China during the SARS epidemic in 2003.

10. Pausing here, it is pertinent for me to say that despite the Deed of Separation, it is the husband’s pleaded case in his Answer to the Petition and Cross Petition that he had been financially supporting the wife and the son until at least January 2012.

11. On the other hand, in the years after the Deed of Separation was signed, the husband was able to do very well in his business, specialising in the manufacture of heating conductor and electronic products for personal grooming. He was able to extend his business empire and production lines into China by riding the blooming tide of the Four Modernisation Movement unleashed by the renowned Chinese leader, Deng Xiaoping. 

12. In/about 1991, he set up a limited company in Hong Kong (“CIL”), which was later renamed a holding company (“CIHL”).

13. Sadly, he suffered a stroke in January 2012 and his health has deteriorated ever since. Since his stroke, he has stopped making any financial provision for the wife and the son.  Further, between 2012 and 2013, he has added Madam N and Miss K as the partners of YS Industrial Company, and transferred all his shares in CIHL to either Madam N or Miss K (collectively the “Transactions”).  

14. The wife issued her petition for divorce in September 2013 on the ground of “unreasonable behaviour”. In his Answer to the Petition and Cross Petition (on the ground of “2-year separation”), the husband runs an alternative case that the year of separation is 1984, or alternatively, 2005-2007.  There is dispute as to the date/year of separation. As such, decree nisi has not been granted up to this stage.

15. On the front of the ancillary relief matters, the wife has taken out applications to set aside the Transactions under section 17 of the Matrimonial Proceedings and Property Ordinance (“MPPO”), Cap 192 (“Section 17 Applications”), the pre-trial review of which will be returnable before me in coming May 2015.

The Deed of Separation

16. On 12 September 1985, the Deed of Separation, prepared by a firm of solicitors in English, was signed by the husband and the wife.  It is indisputable that at the time of the signing of the Deed,

(1)  the wife  was a housewife[1] who had spent, by then, most of her life in China and, at the most and according to the affidavit evidence of the husband, had been in Hong Kong for only 1 to 2 intermittent years;

(2)  she could not speak punti, but only Putonghua;

(3)  the son of the family was still a minor, with 2 months or so to reach his 18 years of age. Yet, he was diagnosed to have suffered mental illness and has been, in the words of the husband, “medically prognosticated to remain so for the rest of his life”. [2] 

17. The terms of the Deed of Separation provides, in brief, the following:

(1)  The parties agreed to separate from each other from the date of the Deed; 

(2)  The wife shall have the sole custody and upbringing of the son, with reasonable access to the husband;

(3)  The husband shall pay the wife a sum of $100,000 by 2 instalments of $50,000 each in 1985 and 1986 “in full and final payment for the maintenance of herself and the [son]”;

(4)  Upon full payment of the said sum of $100,000, the wife covenanted that she “shall not claim any maintenance for herself or the [son]”);

(5)  A proviso that “if the husband and the wife shall at any future time come together and cohabit, this Deed shall thereupon determine and all the foregoing stipulations and provisions shall henceforth be absolutely void.”

18. It seems there is no dispute that the husband had paid the said sum of $100,000 to the wife in accordance with the terms of the Deed.

The hearing of 16 January 2015

19. There is no doubt that this is a big money case. The husband estimates in his Form E dated 30 December 2013 that his total assets amount to nearly $23 million. This has not taken into account the value of business/shares of the Transactions, and the withdrawal/transfer of over $500 million from the husband’s bank account(s) to Madam N between 2012 and 2013. 

20. By a summons of 19 August 2014, the respondents collectively applied for an order that the validity of the Deed of Separation be tried as a preliminary issue.

21. According to the respondents, the Deed of Separation was prepared by solicitors jointly instructed by the husband and the wife, and has fulfilled all the requirements set out at paras 31 – 35 of the Court of Final Appeal judgment in SPH v SA [2014] 3 HKLRD 497. Further, the respondents argued that the extensive and substantial wealth now owned by the husband has been accumulated by him over the years after the Deed of Separation, to which, he insisted, was not contributed by the wife at all but with the joint effort of Madam N. In the premises, it would be unfair to him to allow the wife to share his extensive wealth.  In such circumstances, the respondents submitted that the Deed should be given full effect and the ancillary relief claim of the wife should be laid to rest upon the trial on the preliminary issue.

22. The wife, on her part, alleged that since she returned to Hong Kong in 1985, Madam N often harassed or threatened her to leave the husband, or else she would hurt her and the children of the family.  So, the husband suggested to her that they should sign a separation deed in order to put at rest the threat of Madam N, but not really to put their marriage to an end. It was her further case that after the Deed was signed, the husband continued to support her and the son until January 2012 (when he had a stroke) and visited/stayed with her from time to time when she lived in China or Hong Kong.

23. Upon hearing a brief submission from counsel for the respective parties in the call-over hearing of 16 January 2015, I refused to try the validity of the Deed as a preliminary issue and accordingly dismissed the respondents’ summons. In broad terms, I gave the following ex tempore oral reasons for decision:

(1)  It was a common ground that a deed of separation, even if found valid, could not oust the jurisdiction and power of the court under section 7 of the MPPO;

(2)  In any ancillary relief claim, this court had to consider and follow the 5 steps set out in the landmark case of LKW v DD [2010] 13 HKCFAR 537. Under step (2), the court had to consider that the financial needs of the respective parties, generously interpreted, are catered for;

(3)  The wife in this case was obviously running a “needs” case and was in the course of obtaining Duxbury calculations;

(4)  In the circumstances, even if the Deed satisfied the legal principles in relation to a separation deed set out in SPH v SA (supra), an ancillary relief trial was still unavoidable (if FDR [financial dispute resolution] was held but unsuccessful) because the court, in any event, was required to consider, inter alias,  the needs of the wife and the son (who is under disability and the care of the wife) and all the circumstances of the case in the exercise of its discretion under section 7 of the MPPO;

(5)  In the further circumstances, from the case management angle, costs and time could not be saved by holding a trial on the preliminary issue concerning the Deed of Separation.

24. The husband (but not the other respondents) is not satisfied with the said order and he now wishes to seek leave to appeal the said order.

The Leave Application

(i)    Applicable legal principles

25. Under Section 63A(2) of the District Court Ordinance,  leave to appeal shall not be granted unless the intended appeal has a reasonable prospect of success or that there is some other reason in the interests of justice that the appeal should be heard.

26. The relevant test of whether an appeal has a reasonable prospect of success is whether the applicant for leave can show that he has an arguable case with reasonable chances of success on appeal.  A reasonable prospect of success therefore means an appeal with prospects that are more than “fanciful” but which do not need to be shown to be “probable”: SMSE v KL [2009] 4 HKLRD 125; KNM v HTF, HCMP 288/2011.

27. The husband’s appeal is directed to an order made in the exercise of my discretion in case management. It is trite to say that where the court below exercised a discretion, the appellant court would only intervene when it considered that the judge below had exceeded the generous ambit within which the judicial disagreement was reasonably possible, and was in fact plainly wrong, and not merely because the appellant court preferred a solution which the judge had not chosen (See: G v G [1985] 2 All ER 225; RK v YS, HCMP 1969/2012 (date of judgment: 1 November 2012)).

28. On the law relating to whether a trial of preliminary issue should be ordered, both counsel have referred me to the case of Charles Tsu Yew Wong & Anor v HSBC Private Trustee (Hong Kong) Limited, HCA 10631/1998, Reasons for Decision dated 14 August 2008, where Chung J set out the legal principles at para 7 of his Reasons for Decision in the following:

“ (1) an order for the separate trial of separate issues is a departure from the general rule that all disputes should be tried together, and therefore generally speaking, such an order should only be made in exceptional circumstances or on special grounds;

(2) such an order will be made where it is just and convenient to do so …;

(3) where costs can be saved by obtaining a ruling on a point of law which requires serious argument and consideration being disposed of before trial, the point should be raised in the pleading and application should be made under Ord 33 rr 3 and 4(2) for the trial of this point as a preliminary issue;

(4) the order, as a rule, will only be made if the objection raises a serious question of law which, if decided in favour of the party objecting, would dispense with any further trial, or at any rate with the trial of some substantial issue in the action;

(5) the order should not be made in respect of matters to which, by reason of the obscurity either of the facts or the law, ought to be decided at the trial;

(6) the order for the trial of a preliminary point of law should not be made where there are facts in dispute, and if made may be set aside at the hearing;

(7) an “issue” which involves dealing with the whole subject matter of the action without any evidence is not a preliminary point and should not be ordered to be tried as such;

(8) where the issues of fact are interwoven with the legal issues raised, it will be undesirable for the court to split the legal and factual determination, for to do so would in effect be to give legal rulings in vacuo or on a hypothetical ruling, which the court will not do.

Lee Yiu Kwan v. Ting Yin Wah and Another [2004] HKEC 1222; Hong Kong Civil Procedure 2008, Vol. 1, para. 33/4/9A; Telford Development Ltd. v. Shui On Construction Co. Ltd.  [1999] 2 HKC 110.”

(ii)  Proposed grounds of appeal

29. In the draft notice to appeal, 3 proposed grounds of appeal are framed as follows:

(1)  I failed in law to consider the legal principle that an agreement would carry full weight if it satisfies the criteria set out in para 33 of SPH v SA (supra) unless occurrence of contingencies unforeseen at the time of the agreement or the circumstances prevailing at the time of separation would render it unfair to hold the parties to the agreement;

(2)  I failed in law and in fact to consider that there is no evidence of such unforeseen contingencies or such circumstances that would render it unfair to give full weight and effect to the Deed of Separation, and accordingly, the validity of the Deed of Separation constitutes a sufficiently distinct and self contained issue;

(3)  I failed in law to consider that it is just and convenient to order a trial of the said preliminary issue.

(iii)  Discussion

30. Mr Lam for the husband submits that the intended appeal is directed to both limbs of section 63A(2) of the District Court Ordinance. I shall thus deal with his arguments on both limbs one after one, starting with the 1^st limb of whether the intended appeal has any reasonable prospect of success.

31. To start with, one must bear in mind the ultimate argument of the husband on the Deed of Separation and the preliminary trial relating to it. According to him, the Deed should be given full weight, to the extent that even though the wife has her financial needs, she should be held strictly to the terms of Deed. Hence, her ancillary relief claim should be laid to rest and the ancillary relief matters be wholly disposed of without further trial.

32. As I have pointed out to Mr Lam for the husband in this hearing, the question to be determined at this stage is not whether the Deed should be given full force. The question to be answered is whether the validity of the Deed should be tried as a preliminary issue.  Therefore, my ex tempore decision of 16 January 2105 was given on the premise that the Deed was to be given full force (see para 23above); the merits of the Deed was not touched on because oral evidence has not been received.  In the circumstances, I fail to see where the error in law as alleged in ground (1) of the proposed appeal has lied. I reject the husband’s argument.

33. When determining whether the validity of the Deed should be tried as a preliminary issue at this stage, the factors set out in the case of Charles Tsu Yew Wong (supra), cited by both counsel, should be considered.  Upon considering the relevant factors, it is plain and obvious to me that the validity of the Deed does not constitute a sufficiently distinct and self-contained issue for the purpose of a preliminary trial.  As far as I can see it from the affidavit evidence of the parties at this initial stage, intermingled with this issue on the Deed is the dispute in facts as to the year of separation, which in turn will throw light on the duration of the marriage, a factor to be considered by the court under section 7(d) of the MPPO in the final ancillary relief trial.  

34. Mr Enzo Chow, counsel for the wife, adds that whether the Deed of Separation is valid, and if so, how much weight is to be given to it remains part of the section 7 exercise in the ancillary relief trial. He explains that even if the Deed is to be given full force, the Family Court still have to perform its quasi-inquisitorial role under section 7 of the MPPO, in particular to have regard to the income, earning capacity, property and other financial resources which each of the parties has or is likely to have in the foreseeable future (see section 7 (1) (a) of MPPO). He further submits that it is more appropriate to consider the Deed under step (4) set out by the Court of Final Appeal in LKW (supra) under “conduct of the parties” and “all the circumstances of the case”.

35. I fully agree with the submission of Mr Chow.

36. Again, I fail to see the husband will have any reasonable prospect of success in his proposed appeal ground (2).

37. Since the validity of the Deed does not constitute a sufficiently distinct and self-contained issue, it follows that it is not just and convenient to order a mini-trial on it. The husband’s proposed appeal ground (3) cannot stand, either.

38. I shall now turn to the 2^nd limb of section 63A(2) of the District Court Ordinance, ie there is some other reason in the interests of justice that the appeal should be heard.

39. Mr Lam for the husband, in broad terms, submits that there has never been a case decided in Hong Kong in such factual matrix, namely where the husband has accumulated very substantial wealth well after the Deed and the wife essentially bases her ancillary relief application on “needs” only. The complexity of this case lies in the mixed question of fact and law arising from the recent Court of Final Appeal’s judgment in SPH v SA (supra), and more specifically to the 3 questions set out in para 5 of his written submission as follows:

(1)  Whether the wife is still entitled to depart from the Deed (assumed to be valid) when the husband has since the execution of the Deed accumulated substantial wealth with no contribution from the wife, even if it is assumed that she has the needs as alleged;

(2)  More generally, whether a deed of separation, even assumed to be valid, would be disregarded as unfair when the main, if not the only, ground of the wife for ancillary relief would be her needs, as it happens that the husband has become wealthy over the years after the Deed;

(3)  As a broad question, what constitutes unfairness as a result of “[1] occurrence of contingencies unforeseen at the time of the agreement or [2] where, in the circumstances prevailing at the time of separation, one partner would be left in a predicament of real need while the other enjoyed a sufficiency” [3] in determining whether the Deed of Separation should be fully enforced.

40. Mr Lam argues that judicial guidance is warranted on how the Family Court should approach an application for preliminary trial after SPH v SA (supra).

41. With the greatest respect to Mr Lam, I do not find his above arguments tempting at all. The law on the determination on the validity of a nuptial agreement is already set out clearly in SPH v SA (supra), in which the English authority of Radmacher v Granantino [2011] 1 AC 534 is approved and which the Family Court, being composed of a panel of specialised judges dealing with matrimonial proceedings on a daily routine basis, would have no difficulty in applying the law into the facts of the case.

42. Although the facts and the development of this case may have spanned for over 5 decades, its factual matrix, in my view, does not give rise to particularly complicated questions of facts and law.

43. I cannot agree that leave to appeal should be granted in the interest of justice.

44. In conclusion, I reject the husband’s arguments in totality. I refuse to grant leave to him to appeal the order made on 16 January 2015.   

The Transfer Application

(i) Applicable legal principles

45. Section 32 (1) of the Matrimonial Causes Rules provides that the District Court may,

"order that a cause or application pending in the District Court be transferred to the Court of First Instance, where having regard to all the circumstances including the difficulty or importance of the cause or application or of any issue arising therein, the court thinks it desirable that the cause or application should be heard and determined in the Court of First Instance”

46. Reference should be made to PD 15.14 which relates to the transfers of proceedings from the Family Court to the Court of First Instance and useful cases such as Jack v Jack and Anor, DCCJ 3782/1995; B v B, FCMC 3105/1999, date of judgment: 11 July 2000; H v H,FCMC 7173/2000, date of judgment: 1 February 2002.

47. In this hearing, counsel for the respective parties do not have dispute on the applicable legal principles gleaned from the above cases in respect of transfer of a case to the Court of the First Instances. The relevant considerations are:

(1)  Whether there is a matter of public interest;

(2)  Where there are novel or difficult points of law to be resolved;

(3)  Where delay will work a clear injustice;

(4)  Where there is unduly complicated or conflicting evidence the resolution of which is likely to be so protracted that it will unduly prejudice the Family Court lists and this work against the interests of other litigants;

(5)  Whether the financial limits for the time being relating to the jurisdiction of the District Court in other matters (but this factor alone is not decisive);

(6)  In general, whether there is special complexity.

(ii) Discussion

48. In the course of their oral submission, both counsel agree that though this case is a big money case, this factor alone is not sufficient in the Transfer Application.

49. Mr Lam for the respondents argues that there is a complex mixed question of fact and law in the factual matrix of this case, ie where the husband has accumulated very substantial wealth well after the Deed of Separation and the wife essentially bases her ancillary relief claim on “needs” only.  He submits that proper judicial guidance from a higher court is required, in particularly as to what constitutes “unfairness” mentioned in para 33 of SPH v SA (supra) and more specifically the 3 questions set out in para 5 of his written submission (See also para 39 above).

50. In the 7th affirmation of the husband in support of the Transfer Application, he also refers to the complex issues of fact or law in respect of the Section 17 Applications.

51. Firstly, I can easily rule out the allegation of the complexity in respect of the Section 17 Applications.  The Family Court judges, being judges in this specialised field, have been determining, as a matter of daily routine, claims on third party beneficial interests and/or whether dispositions of property should be set aside under section 17 of the MPPO.  In my view, the affidavit evidence at this stage on the Section 17 Applications does not show that the law and/or facts to be argued and/or determined are complicated to the extent that is beyond the ambit of apprehension, whether in law and/or facts, of the Family Court judges. 

52. Secondly, I do not accept that the alleged facts relating to the Deed of Separation set out in the affidavit evidence so far is complex so that the case is warranted to be transferred to the Court of the First Instance.

53. Thirdly, in so far as the law is concerned, I agree with Mr Chow for the wife that the Court of Final Appeal has already and clearly stated in SPH v SA (supra) that the guidelines laid down in the English authority of Radmacher v Granantino (supra) on nuptial agreements are approved. I cannot see the Family Court judges, with experience in our daily routine in determining ancillary relief claims in which nuptial agreements would sometimes come into play, would have any difficulty in applying the relevant legal principles therein.

54. Fourthly, the Family Court judges can look into Radmacher v Granantino (supra), which has been approved by the Court of Final Appeal in Hong Kong, for guidance as to what constitutes “unfairness”.  In particular, Mr Chow for the wife refers me to para 80 - 83 of the judgment, where Lord Phillips expressed that of the three strands identified in White v White [2001] 1 AC 596 and McFarlane v McFarlane [2006] 2 AC 618,[4] it is the first two, needs and compensation, which can most readily render it “unfair” to hold the parties to an nuptial agreement.

55. Fifthly, I think it is fair for me to point out that during this hearing, Mr Lam for the respondents concedes that the waiting time in the High Court nowadays is very long.  Given the facts and law involved on the issue of the Deed of Separation is not, in my view, complicated, the proposed transfer to the Court of First Instance would cause clear delay, which in turn is not in the interest of all parties, especially to the husband whose health has been deteriorating since his stroke in 2012. 

56. In conclusion, I am not persuaded by Mr Lam that this case should be transferred to the Court of First Instance.  There is nothing complicated in facts and/or law at this stage that would warrant it to be so transferred. On the contrary, given the long waiting time in the Court of the First Instance, it is not in the interest of the parties to order such a transfer. The Transfer Application should be dismissed.

Conclusion

57. Both counsel have agreed at the end of this hearing that in the case that the husband’s application for leave to appeal is refused, costs should follow the event. Both counsel have further agreed that in the case that the Transfer Application is not allowed, costs should be in the cause of the ancillary relief proceedings. It is not disputed that attendance of counsel should be certified.

58. For the reasons set out above, I shall make the following order:

In respect of the 1^st Respondent’s summons filed on 29 January 2015

(1)  The 1^st Respondent’s summons for leave to appeal filed on 29 January 2015 be dismissed;

(2)  The costs of and incidental to this application be to the Petitioner to be taxed if not agreed, with certificate for counsel;

(3)  The Petitioner’s own costs be taxed in accordance with Legal Aid Regulations.

In respect of the Respondent’s summons filed on 29 January 2015

(4)  The Respondents’ summons for application to transfer the case to the Court of First Instances filed on 29 January 2015 be dismissed;

(5)  The costs of this application be in the cause of the ancillary relief matters, with certificate for counsel;

(6)  The Petitioner’s own costs be taxed in accordance with Legal Aid Regulations.

59. Since the husband/the respondents basically ran the same points of argument in their oral submission for these 2 applications in this hearing,  I shall direct that, for the purpose of taxation, the time of this hearing be split equally between the 2 applications.

[1] The wife was described as a “housewife” in the Deed of Separation

[2] §7 of the husband’s 1^st affirmation dated 27 January 2014

[3] See §33 of SPH v SA[2014] 3 HKLRD 497

[4] The three strands: needs, compensation and sharing