RK formerly known as RO v. PJK

   FCMC 14165 / 2007

   IN THE DISTRICT COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   MATRIMONIAL CAUSES NO. 14165 OF 2007

----------------------------

BETWEEN

------------------------

-----------------------

J U D G M E N T

-----------------------

Introduction

1.  This is an application by a wife for ancillary relief generally and for an order to set aside a disposition made by the husband to his business partner, the intervener in these proceedings.

2.  At its heart this case concerns the ultimate breakdown of an ailing marriage of some 23 years, against the backdrop of the economic financial crises and the effect that has had on the husband’s toy business in China.

The issues

3.  It seems to me that the following issues need to be determined by this court:

Was the sale of shares by the husband to Mr C, the intervener, made with the intention of defeating the wife’s claim for ancillary relief?

Having made a determination on that issue, what then can be said to be the matrimonial assets and other financial resources owned legally and/or beneficially by the parties?

How should the assets, if any, be divided, bearing in mind the principles of need, compensation and sharing and the s.7 factors?

How much maintenance should the husband pay the wife going forward?

How should the issue of costs be determined?

The applications

4.  There are two substantive applications before the court as follows:

(a)  an application by the wife dated the 18 May 2009 that the following disposition be set aside: The disposition by the Respondent of his 50% interest in The M Co. Ltd (“MCL”) for HK$4,000,000 on 1^st April 2009 to CHSA, such disposition being effected by selling 500 shares of MCL held on trust for The S Trust by TACl in K Limited to G International Inc., a company beneficially owned by CHSA.

(b)  an application by the wife for ancillary relief in general terms, contained in her divorce petition dated the 19 November 2007.

Background

5.  The parties married on the X December 1984. Prior to that the parties cohabited for a couple of years. On the 19 November 2007 the wife issued divorce proceedings based on mild unreasonable behaviour. This is then a long relationship; it is a marriage of some 23 years duration. The wife is now 48 years old and the husband 55. Throughout the marriage the husband worked in a family business originally established by his own Father. I will refer to the business as M Company Limited, or MCL for short. Through a trust structure the husband became the 50% joint owner of MCL with Mr C, the intervener, approximately 10 years ago. It does not appear to be disputed that MCL has always provided the family with its major source of income. Originally the company made religious artefacts. Under the stewardship of the husband and Mr C it later developed into the toy manufacturing business - mainly involved in the production of hard toys (i.e. plastic toys) for companies such as C, MT and CCCI.

6.  The wife was a homemaker. The parties had two children shortly after getting married. The wife has never worked in a paid capacity. The two children of the family are now almost grown up. T, their daughter is now 23 years of age. She has finished her tertiary education in the States and is now living and working in Hong Kong – although not always in a paid capacity. R is 19 years old and has just embarked on his second year of undergraduate study in the United States.

7.  Following the breakdown of the marriage the wife relocated to Santa Barbara, to live close to her family and friends. She has lived there since the summer of 2008. The husband continues to live in Hong Kong with his second wife, who he has recently remarried. His second wife has a severely disable daughter, who now lives with them. T also bases herself at the husband’s home although she spends time with her boyfriend and is said to have plans to move out.

Background to the litigation

8.  Unfortunately the proceedings have become litigious and correspondingly expensive.

9.  The main issue from the wife’s perspective appears to have been one of disclosure. Put simply the wife did not originally believe that the husband had made full and frank disclosure of his assets. In particular she was concerned that there had been no reference to MCL in the original disclosure. There have been four requests for further and better particulars by the wife and two requests by the husband.

10.  From the husband’s side, his main complaint is that even once substantial disclosure had been made the wife still refused to negotiate. Quite rightly the husband attempted to settle matters early on by negotiation both directly with the wife and via solicitors. At trial an e-mail was produced dated the 27 August 2007 sent by the wife to her brother in law, Mr F. The body of the e-mail from the husband to Mr F states as follows:

Dear F

I have had several discussions with R about the financial settlement of our divorce. She has told me that she wants you to be the person making sure that her interests are protected and I have no problem being transparent those matters with you.

Please see my proposal below. I try to give comments or reasons for each but I realize that all the points may not be explained totally because I may assume something is simple and straight forward when it may not be to you. ISO please ask me if there is any question or need for clarification and let’s talk so that all points are clear.

Stage 1 Now to August 1, 2008

1.  HK$20,000 per month for R to spend

2.  Flat on Robinson road with all utilities, necessary upkeep car park paid by me

3.  Park N Shop and Wellcome (this is food) paid by me

4.  Use of car including gas, insurance, maintenance auto pass

5.  Blue Cross Insurance same plan as she has now

6.  Dental expenses – Cleaning, cavities but not cosmetic surgery.

7.  Value of 50% Macau Gold and Sand River Gold Debentures which is approximately HK$400,000.  I can provide documents for the agency which sells and rents these kinds of debentures as reference if necessary.  Of course the price does vary and this is based on current information.

8.  50%of any horse dividend – there is no value for the horses as probably all will be retired except one during next season.  I would be happy to explain the complexity of this matter on the phone.

9.  50% of my Provident Fund which is approximately HK$2,400,000 again this is a fund which is not controlled by me and invests the money in stocks and bonds, etc. so the price fluctuates depending on the market – I am assuming that I can resign receive these funds and then return as Chairman or a consultant earning the same salary as currently (see below).

10.  Credit cards – currently R has AE Gold, HSBC master charge and a Standard Chartered Bank Visa card.  All are secondary cards from me.  The latter is used exclusively by R.  I would like to cancel the first two and leave her the last.  The bills can either be settled by her or deducted for the monthly payments I make to her.  I think having this card would be helpful for her to establish her credit in the US but honestly speaking having never lived there I am not sure if that is the case.

Stage 2 August 1, 2008 till July 31, 2019

1.  HK$52,000 per month (50% of salary of my salary)

2.  HK$30,000 per month (50% of Housing allowance)

3.  Blue Cross insurance as it is now however this would stop should she get remarried

4.  50% of any horse dividend

Both Stages

Life insurance coverage on my life for US$1,000,000 with R as the beneficiary.

Sheko membership is not a debenture so it has no value.

R has expressed to me that her only concern was that I was that there were other funds I am not disclosing however I swore on my children to her as I will swear on my children to you this a complete disclosure and I have no other funds or assets.

Please review this and let me know if you have any questions or points to clarify.  I am happy to speak on the phone with you anytime that time wise is convenience for both of us.

Sincerely

P

11.  Mr F’s advice to the wife in response was to see a lawyer. In evidence the husband said that he simply couldn’t believe it when he saw that response.

12.  On the 18 September 2007 the husband’s solicitors wrote inter alia to the wife in essentially the same terms. Reference is made to MCL as follows::

Stage 2 from August 1, 2008 until July 31, 2019 (11 years)

1.  Our client will pay to your client the sum of HK$82,000.00 per month – which is one-half of his salary and his housing allowance.  This sum represents a payment of 25% of the value of our client’s company, M;

Reference was made to mediators. On the 29 January 2008 this offer was formerly withdrawn. There had been no detailed response to it.

13.  Understandably perhaps the wife initially sought disclosure and asked that Form E’s be filed. The wife eventually issued proceedings, but on the basis of unreasonable behaviour as opposed to one-year separation with consent, which the husband had originally suggested. Initial requests were made for further and better particulars. The husband paid maintenance on a voluntary basis until the wife applied for maintenance pending suit on the 24 June 2008. It was then agreed that the husband would pay the wife the sum of HK$150,000 forthwith in order that she might have funds to relocate to the States. It was also agreed that he would pay her maintenance pending suit of HK$50,000 per month.

14.  Shortly thereafter in his affidavit of the 28 July 2008 the husband made another attempt to settle. He made particular reference to MCL when he said as follows:

I want to do all that I can to settle matters with the Petitioner as quickly and as amicably as is possible. The only income I have comes from my salary. There is no pot of gold.

In any event, in my view there is little prospect of finding a buyer for M, and thus realising capital for me or anyone else, since it is a small company in a declining industry and its only value is in the people working in the business. I propose that, for what it is worth, and if the Petitioner wants to pursue a valuation of the company, that the Court values M based on the last three years audited accounts. If the Court determines the Petitioner is entitled to a share of the company, then I could only pay this on a monthly basis, and in any event, I cannot afford any more than the HK$50,000.00 per month I have now agreed to pay. The Petitioner and I have never been able to afford to acquire assets during our marriage and there are none now. I can do no more than provide the financial provision that I agreed to on the 26^th June 2008.

I will do all that I can to ensure that my children’s needs are met for the future. Both children are presently living with me and my girlfriend, C. T has a job with the Hong Kong Ballet until the end of August 2008 – promoting the company rather than performing in it. She is now 22 years of age, and although she is now earning money, it is pretty minimal so I provide room and board for her. After August she has been accepted for a C’s Internship. She will work for them for four months, without a salary, so I will, of course, continue to provide a home and board for her. R will soon be going to a university, he is already making plans to come back here for holidays. I will be paying R an allowance of HK$4,000.00 per month by providing him with a credit card with a maximum limit of HK$4,000.00 per month. The Petitioner and I both love our children very much, and I am sure she accepts I will do all I can for the children to enhance their future prospects. I understand that I will need to provide financial support for the Petitioner for the foreseeable future. That financial support can only be limited to what I can reasonable afford and it would certainly help if the Petitioner was willing to work herself to contribute towards her own expenses.

I urge the Petitioner to be realistic, and not to be carried away by her brother-in-law, L, or her lawyers or anyone else. We have never had assets or appreciable capital during our marriage, and there is precious little to divide now we are divorcing.

15.  During the trial it became clear that the wife had had concerns about the husband’s disclosure. She said that she had originally wanted to go further to find out more – that “it wasn’t ok for me”. When it was put to her that she should perhaps have accepted the original offer given the way in which things have developed – even with the benefit of hindsight she said that she could not agree. She said that at that time she could not accept the offer.

16.  In any event, what is clear from the correspondence and pleadings filed is that the wife did not at any stage attempt to set out her needs or to negotiate with the husband. At no point did she put forward a financial proposal of any kind. As will be seen below this approach continued right up to and throughout the trial. It was further compounded by the fact that the wife did not attend the Financial Dispute Resolution hearing scheduled for the 23 September 2008. On the 29 July 2008 I set the matter down for a FDR hearing. One day was reserved. I ordered both parties to attend that hearing personally. Both parties were present on the 29 July. Each was represented – the wife by counsel and the husband by his solicitor. At that hearing I made the following comments:

I think in the circumstances of this case that it would be sensible to proceed to FDR as quickly as possible. There is already an interim order in place. It is important for both parties to hear how a trial Judge might approach this matter, otherwise costs are likely to get completely out of control, to the extent that the only issue becomes one of costs.

17.  Prophetic words. The day before the FDR hearing the wife’s then solicitors applied to come off the record. The wife did not appear at the FDR hearing and was not represented. During cross-examination she said that it had all been a “tremendous misunderstanding” and that it was “very unfortunate how that happened”. She said that she was not aware that she should have been in court until a few days after the hearing. I have to say that I do not accept that. The wife was in Court on the 29 July when I made the orders referred to above. She was aware that the FDR hearing had been set down for the 23 September. She was also aware that her personal attendance was required. The fact that the wife chose to change lawyers does not absolve her from her own responsibility in this respect. She did not inform the husband, who appeared in court with counsel, although her former solicitors wrote to them as a matter of courtesy on the 18 September 2008 seeking an adjournment.

18.  On the 23 September, given the wife’s non-attendance, I agreed with counsel for the husband that there was no alternative but to proceed to trial. I made a costs order against the wife. The wife’s new solicitors did not come on the record until the 8 October 2008.

19.  The wife’s other issue centred on the husband’s sale of the shares. On the 1 April 2009 the husband transferred his shares in MCL to Mr C. He did not inform the wife of this.

20.  On the 7 May 2009 the wife issued a summons for an increase in interim maintenance by HK$20,000 per month to cover in part her increased legal costs caused by the husband’s actions and to injunct what was left from the proceeds of sale from the shares. I made an order in those terms. On the 18 May 2009 the wife issued a s 17 application to set aside the transfer of shares. The original trial dates were vacated and a second trial was set down for November and December.

21.  This is in essence where the matter still stood at the time of the trial.

The open proposals

22.  By court order dated the 8 April 2009 both sides were to file open proposals before the trial (then scheduled for the end of April/beginning of May). The wife was to file her open proposals 14 days before the trial and the husband 7 days thereafter. The wife did not put in any open proposals. She filed Notice of Acting in Person on the 24 November 2009. When pressed at the first day of trial she said that she had spent many years with the husband and that she had left Hong Kong with nothing, whereas the husband continued to spend a lot of money. She said that she felt that she should be treated fairly and that she just wanted the settlement to be “fair”. She also said that wanted a fair share of the value of MCL and that depending on how much she obtained she would then seek a periodical payments order.

The husband’s open proposals

23.  The husband’s counsel said in her opening note that

8.  The financial reality is that there are very limited resources.  As part of the consideration negotiated between Mr C and the Respondent for the sale of the shares, the Respondent is to receive a “consultancy fee” until January 2010 of HK$75,000 a month, thereafter at the rate of HK$50,000 until January 2013, to be reviewed at that time.  He has been receiving housing and utilities but this will cease in January 2010.  The only resource available to the Respondent to pay maintenance is the consultancy fee.  He proposes that he pay to the Petitioner HK$15,000 per month until remarriage or further order.

9.  The proceeds of sale of the shares were used largely to pay off debts, in the same way as other resources had been used in the past.  A schedule pf payments is on page 5/2206.  A sum of HK$311,843 remains of the proceeds.  The Respondent proposes that this sum be given to the Petitioner.

Discussion

24.  I must now turn to consider the issues, the law and the parties evidence as set out in their affirmations and as given orally by them during the hearing. I have also considered the evidence of Mr C and the evidence of the two expert accountants – Mr B for the wife and Mr A for Mr C. For the avoidance of doubt, in so far as the matters set out in this judgment differ from the evidence of the husband or wife, or of the intervener or indeed any of the witnesses, that is because I have preferred the evidence of one or other of the parties’ or it is because I do not find the evidence given credible, or because I consider that the documents produced confirmed my findings of fact.

Setting aside dispositions

The law - generally

25.  The wife has issued an application pursuant to s.17(1)(b) Matrimonial Proceedings and Property Ordinance, Cap 192. This section states as follows:

(1) Where proceedings for relief under any of the relevant provisions of this Ordinance (hereafter in this section referred to as "financial provision") are brought by a person (hereafter in this section referred to as "the applicant") against any other person (hereafter in this section referred to as "the other party"), the court may, on an application by the applicant-

…

(b) it is satisfied that the other party has, with the intention aforesaid, made a disposition to which this paragraph applies and that if the disposition were set aside financial provision or different financial provision would be granted to the applicant, make an order setting aside the disposition and give such consequential directions as it thinks fit for giving effect to the order (including directions requiring the making of any payment or the disposal of any property);

(c) if it is satisfied, in a case where an order under the relevant provisions of this Ordinance has been obtained by the applicant against the other party, that the other party has, with the intention aforesaid, made a disposition to which this paragraph applies, make such an order and give such directions as are mentioned in paragraph (b);and an application for the purposes of paragraph (b) shall be made in the proceedings for the financial provision in question.

(2) Paragraphs (b) and (c) of subsection (1) apply respectively to any disposition made by the other party (whether before or after the commencement of the proceedings for financial provision), not being a disposition made for valuable consideration (other than marriage) to a person who, at the time of the disposition, acted in relation to it in good faith and without notice of any such intention as aforesaid on the part of the other party.

(3) Where an application is made under this section with respect to a disposition which took place less than three years before the date of the application or to a disposition or other dealing with property which is about to take place and the court is satisfied-

(a) in a case falling within subsection (1)(a) or (b), that thedisposition or other dealing would (apart from this section) have the consequence, or

(b) in a case falling within subsection (1)(c), that the disposition has had the consequence,of defeating the applicant's claim for financial provision, it shall be presumed, unless the contrary is shown, that the other party disposed of the property with the intention aforesaid or, as the case may be, is, with that intention, about to dispose of or deal with the property.

26.  Therefore, if I am satisfied that the husband transferred the shares in MCL to Mr C with the intention of defeating the wife’s claim for ancillary relief, then I may set that disposition aside. I accept that I need to look at the actual intention of the disponor at the time that the disposition was made. I also accept that it must be clear that there was an intention to defeat the other side’s claim for ancillary relief, although it may not be the only or even the dominant intention of the disponor.

27.  In so far as the appropriate standard of proof to be applied, I agree that I need to be “satisfied”. In other words I must have made up my mind that, the husband transferred the shares to Mr C with the intent of defeating the wife’s claim for ancillary relief.

“The only general rule that can be laid down upon the subject is that the circumstances must be such as would lead the guarded discretion of a reasonable and just man to the conclusion. ”

(See Loveden v Loveden (1810) 2 Hagg Con 1)

And in the words of Rayden,

Standard of proof

27.15  As to the standard of proof, the question to be asked by the judge after reviewing the evidence is: ‘Am I satisfied that the disposition was made with the intention of defeating the wife’s claim for ancillary relief?  The standard of proof remains the balance of probabilities, although it has been said that since what has to be proved is not merely a dishonourable intention but a dishonest and fraudulent one, the evidence which is required to tip the balance, has to be correspondingly more convincing. ‘Satisfied’ in this context means no more than that the judge has to make up his mind

28.  I agree that in considering the intention of the husband that I must look at his conduct at the time that the shares were transferred. Consequently I accept that the circumstances surrounding the transfer are highly relevant.

29.  Reference has been made to the rebuttable presumption found in s 17(3) Matrimonial Proceedings and Property Ordinance, Cap 192. In other words if the disposition was made less than three years before the s.17 application was made, then there is a presumption that it was done with the intention of defeating the other’s claim for ancillary relief. In this case the transfer took place on the 1 April 2009. Consequently Ms Irving for the husband accepts that the burden of proof lies on the husband’s shoulders. It is for him to rebut the presumption that the transfer of shares was made with the intention of defeating the wife’s claim for ancillary relief.

Was the sale of shares by the husband to Mr C, made with the intention of defeating the wife’s claim for ancillary relief?

30.  The wife’s case is that the transfer of shares was highly suspicious and that it was done without her knowing about it. She said that she did not feel that it was a fair deal. She did not think that it was “kosher”. She accepted that MCL was the only asset that the parties had. However she said that she could not leave Hong Kong after 28 years with nothing. She said that she thought that she was entitled to 50% of the husband’s half share in MCL. She referred to her expert’s valuation of HK$37 million. She said that the actual sale was at an under value, but she did not wish to accuse Mr C of being dishonest. When pushed she said that she was not saying that the sale was not genuine – just that it was not fair. She accepted that the husband had no ability to borrow and said that she thought he might go into bankruptcy soon.

31.  With respect there are many difficulties with the wife’s position. Certainly she did not appear to have thought the ramifications of her application.

Was the transfer of shares made for valuable consideration?

32.  Mr C has set out the circumstances surrounding the sale of the shares in his affirmations of the 17 April 2009 and the 19 November 2009. This version of events has been confirmed in the husband’s affidavit of the 1 December 2009. Generally speaking I found Mr C’s evidence to be entirely credible. I accept the evidence of both the husband and Mr C in this respect.

33.  It was agreed in a series of e-mails exchanged between the husband and Mr C in March 2009 that Mr C would pay

1) HK$4 million for the purchase of the husband’s shares

In addition

2) MCL would pay the husband a HK$75,000 consultation fee for the period from 1 March 2009 – 31 January 2010

3) From the 1 February 2010 this would be reduced to HK$50,000. This sum would be paid until 31 January 2103. Thereafter it was to be reviewed on a yearly basis.

4) MCL would continue to pay the rental on the husband’s accommodation of HK$53,000 per month plus the gas and electricity bills until the lease expired in January 2010

5) The husband would buy the cars that he presently uses i.e. the BMW and the Mazda for HK$1 each

6) The husband would be removed from the HK Bank “all monies debenture”.

34.  Mr C concluded in his affirmation that

On the 30^th March 2009, I paid the Respondent the agreed purchase price of HK$4,000,000 and sent the cheque (Standard Chartered Bank, Cheque no. XXXXXX) to the company secretary of MCL. On the 31^st March 2009, MCL’s company secretary confirmed with me that all the relevant documents have been signed and the cheque was received by the Respondent. With effect from 1^st April 2009, the Respondent resigned as a director of the company. His signatory arrangement with the company was also revoked and he was and is no longer a signatory of the company’s account…

35.  The wife seems to suggest that the transfer of shares was not made for valuable consideration and in support of her case on this she has referred to the report provided by her expert – Mr B.

36.  There are however difficulties with the reports provided by the two experts. In essence they were asked to do different things and the result is rather like trying to compare apples with oranges.Although attempts were made to narrow the outstanding issues between them, it is clear from their joint statement that significant differences in approach and substance existed as at the date of the trial. Ms Lisa Jane Cruden, counsel for Mr C summarized the situation very succinctly in her closing written submission. In particular

6.      Mr. A was instructed to provide his expert opinion on:

“whether valuable consideration was paid for the purchase of the Respondent’s 50% interest in the Company by AC on 1^st April 2009”

…

8.      Whereas Mr. B was only instructed to give his opinion “as to the value of MCL”.

She added

9.      The distinction is fundamental.  Only Mr. A has provided his considered expert opinion upon whether the sale of the shares to Mr. C was made for valuable consideration.

10.      The very issue upon which the parties were permitted to adduce expert evidence and upon which the experts opinions are relevant is the section 17(2), MPP question of whether the sale was “a disposition made for valuable consideration”.  Mr. B was not instructed to and his Report has not provided the honourable Court with his opinion on whether or not the sale was for valuable consideration.

37.  I agree.

38.  Some time was spent during the trial cross-examining both experts with a view to establishing whether or not the sale was for valuable consideration. Reference was made to the different approach taken by them. Ultimately though it seems to me that the fundamental question is that posed by Ms Irving who asked in her closing – “Where in all of this was the “willing buyer?”

39.  MCL is a limited company. In the words of Mr C

M’s business has experienced the worst period in its history since 2008.

40.  Sales had dropped significantly. In part this was due to a shift in the toy market from hard toys to plush (or soft) toys. But there were also other difficulties. For example a fault in one product (FP, LPP) had led to a voluntary recall of that product – a product produced by MCL. In addition MCL owed the Dongguan Government over RMB 20 million in arrears of rent. Changes in China’s labour laws had also placed further obligations on the shoulders of MCL directors including the payment of a severance fee for workers who were laid off.

41.  It seems to be accepted by all involved that Mr C was the person responsible for running the business. In October 2008 he approached the husband in order to discuss MCL’s problems. A meeting was held. It seems that the situation was dire. Sale revenue’s were predicted to drop 40 – 50% in 2009. Consequently Mr C and the husband agreed a course of action. In the words of Mr C:

(i)    We agreed to lay off half of the employees in the Hong Kong office of MCL at the end of February 2009.

(ii)    We have also agreed to lay off about 500 indirect staff in the Dongguan PRC factory.

(iii)    We agreed to lay off about 3,000 workers in the Dongguan factory.

(iv)    We agreed to reduce 50% of the directors’ remuneration and benefits commencing from 1^st March 2009.

(v)    We agreed to reduce most of the staff’s salary by 5 to 10% generally.

(vi)    We agreed that there would be no payment for year-end bonus / 13^th month’s salary to all the MCL staff for the year 2009.

The husband also told Mr C in that meeting that he could not afford to reduce the amount that he took from the company. Neither did he have other funds to invest. Both sides were concerned about the all monies debenture. Mr C was clearly at risk if the husband was unable to pay in the event that the loan was called in. It seems that it was at this meeting that the stark reality of the situation became clear. It was then that the parties began to discuss the possibility of Mr C buying the husband out.

42.  Initially the husband proposed that Mr C buy his interest in MCL for HK$18,540,000, plus a consultancy fee of HK$50,000 as long as the business was in operation. He agreed to resign as a director and for his name to be removed from the all monies debenture at HSBC.

43.  Ultimately a deal was agreed as set out above. This was the most that Mr C could afford

… I then counter-proposed that I would buy out his interest for the consideration of HK$4 million based on the money that I had in my Hong Kong Bank Provident Fund (HKB ORSO) and a monthly salary of HK$50,000, along with the other terms that he initially offered. The said sum of HK$4 million was the best price I was able to offer taking into account the realistic situation of the dramatic decrease in MCL’s business, the estimated loss in the years to come and the problems it was having with its major customers, and many other various factors that have a direct or indirect impact on the business…. If I was looking at M’s situation I would say that HK$4 million was an overly generous offer.

44.  It seems to me that the only willing buyer was Mr C and that he paid what he was able to pay. In such circumstances it seems to me that prima facie the shares were sold for valuable consideration – the valuable consideration was one that was agreed between the parties at that time.

Does the value of the shares also stand up to professional scrutiny?

45.  The parties have referred me to the professional valuations provided by the experts. Mr B originally valued MCL at HK$37 million. After a joint meeting both Mr B and Mr A agreed that the net asset value of MCL as at the 31 March 2009 stood at just over HK$29 million. They further agreed that approximately HK$2.5 million should be deducted as Director and related company expenses. Differences arose in that Mr B did not agree that projected losses or a contingent liability should also be deducted. Thus his revised net asset value of MCL stood at c HK$26,880,000, whereas Mr A’s stood at c HK$16,460,000, once the projected losses and contingent liability has been taken into account. Mr B therefore assessed the husband’s interest in MCL at c HK$13,440,000 whereas Mr A assessed it at c HK$8,300,000.

46.  Mr A then went on to assess whether valuable consideration had been paid for the shares. He concluded as follows:

6.5   the sale consideration to be received by the Respondent for his 50% interest in the Company includes deferred consideration in the form of consultant’s fees and other benefits payable by the Company post completion of the share sale transaction.

6.6   My calculation reveal that the total consideration to be received by the Respondent was at least HK$7.1 mil before discounting back to present value in respect of deferred consideration.  The sale consideration may potentially be higher in the event the Company continues to pay a consultant’s fee to the Respondent beyond 31 January 2013.

6.7   There appears to be a logical and reasonable basis for the determination of the sale consideration by the parties and there is no indication that the same was not negotiated in good faith.

6.8   I consider that the discount of 13% to the adjusted net asset value of the Respondent’s interest in the Company, accepted by the Respondent, is a reasonable reflection of the value of intangible factors summarised in 6.1(i) to (iv) above.

I also accept this to be the case.

Did Mr C act in good faith in relation to the purchase of the shares?

47.  I accept that Mr C acted in good faith when he purchased the shares. He did what he thought was best for the company and he sought to protect his own interest as best he could in the circumstances. There is no doubt that he considers himself to be a close friend of both the wife and the husband. There was no evidence of collusion between him and the husband. I accept that he paid a fair price for the shares from his own funds and that he had no intention at all of ever attempting to defeat the wife’s claim for ancillary relief.

Did Mr C have notice that the husband intended to dispose of the shares with the intention of defeating the wife’s claim?

48.  I accept that Mr C had no such notice, because none existed.

What was the husband’s intention? Did he intend to transfer the shares with a view to defeating the wife’s claim for ancillary relief?

49.  I accept that the husband sold the shares because he did not have any other alternative. He explained that he did not inform the wife of this because she had never been involved in the business and he considered this to be a business decision. He reiterates that he did not do so in order to defeat her claim. I accept that to be the case. However he should have kept the wife fully informed, given the ongoing ancillary relief proceedings and the duty to provide full and frank disclosure on an ongoing basis. He chose not to do so.

Conclusion

50.  As I said above I am also concerned that the wife has not thought through the ramifications of her application to set aside the transfer. This was pointed out to her during cross-examination. The wife seeks to set aside the transfer of shares, so that they return to the husband and re-vest in him. This would mean, in turn, that the husband would presumably be required to repay Mr C the HK$4 million originally paid to him as consideration for the shares; money that has since been spent. He has no means of raising that sum. Further the subsequent agreement whereby the husband is paid an income would be rendered null and void. Thus neither party would have access to any income at all in the short term. The agreement with HSBC means that MCL is unable to pay its shareholders any dividends – thus no income would be forthcoming from that avenue either. The husband’s case is that the consultancy fee that he receives is part of the remuneration for the company shares. As he no longer works for MCL he would not be entitled to receive any income from the company otherwise. Further the husband would then be liable under the “all monies debenture” at HSBC. If the company failed then HSBC would pursue both Mr C and the husband. In the event that the husband was without funds Mr C would be solely liable for the debt. Thus it seems to me that all parties would be potentially worse off if the wife succeeded in her application.

51.  Having considered all the relevant circumstances the wife’s application to set aside the transfer of shares is dismissed.

The law

Ancillary relief

52.  It is generally accepted that prior to determining the issue of ancillary relief, the court is charged with establishing what the matrimonial assets are and the value of those assets. This is clearly set out in DD v LKW (CACV no 91 of 2007). There the Hon Mr. Justice Cheung JA said at para 69 (3) as follows:

(2)      The inquiry should be conducted in two stages:

1)   First, computation of the available assets of the parties such as property, income (including earning capacity) and other financial resources which the parties have and are likely to have in the foreseeable future (Charman [67]).

2)    Second, distribution of the assets by reference to the three principles of need (generously interpreted), compensation and sharing. These principles can be gleaned from section 7(1) and each of the matters set out in section 7(1)(a)-(g) can be assigned to one or another of the three principles (Charman [68]).

53.  As referred to above, the Hon Mr Justice Cheung JA identifies the relevant section 7 factors under the headings of need, compensation and sharing. The court shall take into account the s.7 factors when determining an application for ancillary relief. For ease of reference I have set them out again here.

(7)(1)  It shall be the duty of the court in deciding whether to exercise its powers under section 4, 6 or 6A in relation to a party to the marriage and, if so, in what manner, to have regard to the conduct of the parties and all the circumstances of the case including the following matters, that is to say-

(a)    the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

(b)    the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c)    the standard of living enjoyed by the family before the breakdown of the marriage;

(d)   the age of each party to the marriage and the duration of the marriage;

(e)    any physical or mental disability of either of the parties to the marriage;

(f)    the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(a)        in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

What then are the matrimonial assets and other financial resources owned legally and/or beneficially by the parties?  

Background to the parties’ finances

54.  The difficulty with this case is that once the issue of MCL and the value of the shares falls out of the equation there is very little left to identify and ultimately divide.

55.  It is the husband’s case that the parties’ always lived beyond their means and that the only source of income was MCL. He has been able to demonstrate that historically in the parties more recent past, they have lived off credit, accumulated significant debt and then repaid it by some means or other. The parties enjoyed a comfortable ex patriate lifestyle including a large apartment of 2,700 square feet, 2 domestic helpers, club memberships, frequent holidays over seas and part ownership of a number of race horses. The husband has in recent years managed to stay afloat by a variety of means including borrowing and gifts from friends (Mr C gave him HK$2 million), by cashing in his mpf fund, by selling shares and ultimately by selling his 50% interest in MCL.

56.  The wife owns nothing in her own name or jointly with the husband or any other third parties apart from a few pieces of jewellery and other items of a personal nature. It is clear though that both sides have had the benefit of this lifestyle and that they have both enjoyed it.

57.  As at the 15 April 2009 the husband had just over HK$600,000 in savings. I accept that those funds have now been largely depleted. He holds no stock or any other assets of any value. The sum of HK$311,843 still exists having been injuncted previously.

58.  The only other financial resource available to the parties at present is the PK Trust. This is a trust set up by the husband’s father in his will for the children’s education. There was some dispute over the value of this trust during the hearing. The wife was concerned that there were insufficient funds to cover R’s fees and other expenses. The husband said during his examination-in-chief that he understood that there was US$84,000 left in the trust. He added that the figure was not written in stone. He thought there was enough left to pay for R’s education. He estimated that that would cost between US$23,000 – US$24,000 per annum.

How then should those assets be divided, bearing in mind the principles of need, compensation and sharing and the s.7 factors?

How much maintenance should the husband pay the wife?

a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

59.  As from 1 February 2010 the husband will receive HK$50,000 per month from MCL. All other benefits including payment of his rental and utilities will cease. He will continue to receive this amount until 2013 when the situation will be reviewed. He will need to pay tax on this sum. Ms Irving estimated that he would be required to pay in the region of HK$53,280 for tax next year – or HK$4,440 per month. In round figures his net income will be in the region of HK$45,500 per month.

60.  It seems to have been acknowledged during the trial that the husband has not played a significant role in the running of MCL for quite some time. It is not clear exactly how he spends his days, given that he is not working and can no longer afford to play golf or indulge his other hobbies. What is clear is that he will need to find some form of gainful employment – and fast. He said during his cross-examination that he was applying for jobs. It is not clear what earning capacity he realistically has given that he has only ever worked for MCL.

61.  The wife likewise said that she was looking for a job. She has never worked outside the home. She did not go to college. She has no qualifications. Just as with the husband it seems to me that the wife will also need to find some form of gainful employment – and again she will need to do so quickly.

62.  Little was said of the husband’s new wife during the trial or of her own earning capacity. In the husband’s first affidavit he said that when he met C she was working as a hair stylist and that she was opening a salon of her own. Later he said that she had applied for an investment visa in Hong Kong and that she intended to be involved with a business selling beauty products. He confirmed that C would have her own income. In his last affidavit of the 27 November 2009 he said that C had started an e-commerce business selling fresh cut fruit bouquets and that she draws HK$14,000 per month. Apparently C is involved in her own litigation concerning financial support for her daughter from the daughter’s natural Father. Likewise it seems to me that C will need to do all that she can to maximize her own earning capacity and that she will need to do so quickly.

Need

(b)             the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

63.  Both parties have significant financial needs based in part on their previous lifestyle. It is clear that those needs in their present form cannot be maintained and that both sides will need to cut their expenses considerably. Both have an obligation towards R who is in his second year of college. Fortunately R is assisted by the PK trust. The wife said that he was also working part time. It seems to me that it may continue to be necessary for R to also work to pay for his own pocket money and to support himself as far as he is able over and above the financial support that is provided by the trust.

(c)     the standard of living enjoyed by the family before the breakdown of the marriage;

64.  One of the difficulties with this case is that the parties have maintained a high standard of living throughout the marriage. Given the financial circumstances here it will no longer be possible for the parties to maintain that standard of living – or indeed anything close to that standard of living going forward. To an extent this would have happened even if the parties had not separated. It has however been made worse by the litigation process itself and the need to support two households with a dwindling amount of money available to provide for those households. Initially the husband paid the wife interim maintenance of HK$50,000 per month. This was increased to HK$70,000 per month as at 1 June 2009. Ms Irving has calculated that the wife has received the sum of just under HK$2 million since relocating to California in July 2008.

(d)     the age of each party to the marriage;

65.  The wife is 48 years old and the husband 55.

(e) any physical or mental disability of either of the parties to the marriage;

66.  The husband produced a psychiatrist report. He is said to be suffering from an adjustment disorder with anxiety and depression.

Compensation

67.  This was not argued.

Sharing

(f)      the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

68.  I accept that both parties contributed fully to the welfare of the family, in their respective roles – the wife as Mother and homemaker and the husband as the financial provider.

(e)     the duration of the marriage;

69.  This was a fairly long marriage of some 23 years.

Orders

70.  Given the circumstances here what would be the appropriate order to make for capital and maintenance? The husband offers the wife HK$311,843 plus HK$15,000 per month on the basis that it is all that he can afford. In the words of Ms Irving

… The harsh reality exists for them both, that the future is going to be extremely difficult and both will need to use all of their resources to provide for themselves.

71.  That is true – given though that both are in an equally difficult situation I can see no basis for not awarding the wife anything less than 50% of the husband’s current net income. Thus the husband will pay the wife periodical payments of HK$22,750 per month commencing on the 1 February 2010 until further order.

72.  In so far as a lump sum is concerned the husband offers the wife what he now has – i.e. HK$311,843. An order will be made that the husband pays the wife a lump sum of HK$311,843 in full and final settlement of her claims for capital ancillary relief.

How should the issue of costs be determined?

73.  The litigation conduct of both sides has been called into question in these proceedings. On the wife’s side her refusal or inability to negotiate or to attend the FDR hearing and on the husband’s his non-disclosure of the sale of the shares until after the event. I accept what Ms Irving says

49.   “A petitioner who brings a claim for ancillary relief assumes the burden of proving that there are resources to meet the claim; however, the respondent has a duty to give full and frank disclosure and if he does not the judge is entitled to draw inferences adverse to him.”

Rayden & Jackson, Eighteenth Edition : 16:34.

50.   The Petitioner did not allege hidden assets or non-disclosure.  She said the Respondent has no assets.  He had answered numerous questionnaires, his financial position was scrutinised in detail.  It was clear there was no “pot of gold”.  It was said as long ago as 11^th April 2008 “Our client believes he has made full and frank financial disclosure and he is concerned that much time, and money, is going to be spent by your client trying to prove otherwise.” [C/46] Prophetic but true, with three extremely lengthy questionnaires filed by the Petitioner, even before the sale of the shares.  The Petitioner lost all sense of proportion.  She, but, regrettably, also the Respondent, who tried every means to settle the matter, has to bear the consequences.

I agree.

74.  Similarly I am also of the view that the husband did have a duty to make full and frank disclosure on a continual basis. He must have known that the sale of the shares, although understandable from his perspective, was likely to arouse suspicion and concern. His behaviour in this respect is also regrettable.

75.  When asked the wife said that her legal costs were paid up to date. She said that she had paid US$130,492.74 – or HK$1,017,843. The husband’s costs stood at approximately HK$1,350,000. Of that approximately HK$800,000 has already been paid. In the circumstances, given the litigation conduct of both sides I intend to make an order nisi that there be no order as to costs to be made absolute at the expiration of 14 days.