WMC v. STW

CACV 162/2009

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 162 of 2009

(on appeal from FCMC NO. 5382 of 2006)

________________________

________________________

J U D G M E N T

________________________

Hon Cheung JA:

1.  One of the issues raised in this appeal is the conduct of the husband which was relied upon by the Court below to increase the financial provision for the wife beyond the equal sharing principle.

Conduct which is inequitable to disregard

2.  In DD v. LKW [2008] 2 HKLRD 523 this Court (Cheung, Yuen JJA and Lam J) applying the White v White [2001] 1 AC 596 line of cases held that the conduct of a party becomes relevant in the assessment of financial provisions if the conduct is such that it would in the opinion of the Court to be inequitable to disregard.  It was not drawn to the Court’s attention in DD that this test is in fact based on the wording of section 25 of the English Matrimonial Causes Act 1973 as amended by the Matrimonial Family and Proceedings Act 1984.

Gross and obvious conduct

3.  The wording of the applicable section 7(1) of the Hong Kong Matrimonial Proceedings and Property Ordinance (Cap. 192) (‘MPPO’) is different:

‘  It should be the duty of the court in deciding whether to exercise its powers …… to have regard to the conduct of the parties and all the circumstances of the case including the following matters….’

4.  Both parties in this appeal accepted that the relevant test for Hong Kong is still based on the Wachtel v. Wachtel [1973] Fam 72 test of ‘gross and obvious’ where Ormrod J observed at page 80 that

‘   As section [25] stands, conduct is to be taken into account as a factor which may modify the result which is arrived at after consideration of all the other factors specified in the section.  The court can only approach this issue in a broad way.  It should bear in mind the new basis of divorce which recognises that, generally speaking, the causes of breakdown are complex and rarely to be found wholly or mainly on one side, and that the forensic process is not well-adopted to fine assessments or evaluations of behaviour, and that it is not only conduct in relation to the breakdown which may have to be considered.  Conduct subsequent to the separation by either spouse may affect the discretion of the court in many ways, eg the appearance of signs of financial recklessness in the husband or of some form of socially unacceptable behaviour by the wife which would suggest to a reasonable person that in justice some modification to the order ought to be made.  In my experience, however, conduct in these cases usually proves to be a marginal issue which exerts little effect on the ultimate result unless it is both obvious and gross.’ (emphasis added)

5.  Rayden & Jackson on Divorce and Family Matters 18^th Ed Vol 1 at paragraph 16.77 gives a summary of the ‘gross and obvious’ requirement:

‘   The word “gross” in this context does not carry any sort of moral judgment: it means “of the greatest importance”.  It has been said that the test is whether or not it would “offend a reasonable man’s sense of justice” to leave the conduct in question out of account.  It has also been said that, in assessing the gravity of a party’s conduct in the context of financial provision, a party’s conduct is of sufficient gravity to affect the issue if the facts are such that, after making all allowances for his disabilities and for the temperament of both parties, the character and gravity of this behaviour are of such a nature that it would be repugnant to anyone’s sense of justice to ignore it in deciding the provision to be made by one for the other or what should be their appropriate share in the family assets.  A finding that one party has significantly contributed to the breakdown of the marriage may be relevant on the issue of financial provision: but that does not mean that the party whose conduct is so described loses his or her right to provision, or indeed even loses his or her right to ample provision: that must depend upon all the circumstances of the case.  If there is misconduct of an obvious and gross character, the conclusion is pretty clear; if it is less than that, then a difficult value judgment is required of the court, but that, of course, is the sort of judgment that the courts exist to make.’  (emphasis added) 

6.  The editors of Rayden at paragraph 16.76 further observed that it has been said that the words in the amended section 25 ‘may give a broader discretion to the court than that envisaged hitherto under the authorities’.  Nevertheless, as a matter of both language and logic, it would seem inequitable to disregard conduct which is ‘both obvious and gross’.  Accordingly, the cases in which that was the test are still relevant. 

My view

7.  Since the MPPO is differently worded, on reflection it was not necessary in DD to adopt the words of the English legislation as if they are part of our legislation.  Consistent with the interpretation on conduct based on the Hong Kong legislation, it would be more appropriate to say that conduct will be taken into account if it is ‘gross and obvious’.  However in terms of substance, my view is that there is no difference in whether one adopts the ‘inequitable to disregard’ test or the ‘gross and obvious’ test.  As a matter of principle if the financial provision is to start from the premises of equal distribution, then the misconduct must be an extremely serious one in order to justify a departure from the equality starting point.  In the majority of matrimonial cases such misconduct must be rare.  It has been repeatedly said that it is difficult for judges to unravel mutual recrimination about the events in a marriage and it is undesirable for them to do so.  In Miller v. Miller [2006] 2 AC 618, Baroness Hale at [145] addressed the distinction between the old and new approaches on financial distribution.  In respect of the old approach, since all the assets were assumed to be the breadwinner’s and he was making an allowance to enable his wife to live separately from him, the wife’s conduct might reduce the allowance she would otherwise have needed or even extinguish it altogether.  But in respect of the new approach,

‘   …. once the assets are seen as a pool, and the couple as equal partners, then it is only equitable to take their conduct into account if one has been very much more to blame than the other: in the famous words of Ormrod J in Wachtel v Wachtel [1973] Fam 72, 80, the conduct had been “both obvious and gross”.  This approach is not only just, it is also the only practicable one.  It is simply not possible for any outsider to pick over the events of a marriage and decide who was the more to blame for what went wrong, save in the most obvious and gross cases.’

8.  The approach I have indicated was also adopted by H H Judge Bruno Chan in KWLK v. DC also known as DTMC (FCMC 5508 of 2005).  On appeal where the case was named as WLK v. TMC (CACV 339 of 2008), this issue was not specifically discussed.

The present case

9.  In this case, in terms of the husband’s conducts relied upon by Deputy Judge Tracy Chan, details of which are set out in Yuen JA’s judgment, I am of the view that it does not come within the ‘gross and obvious’ requirement and it was plainly wrong for the Judge to have taken conduct into account in the exercise of her discretion.  The misconduct was said to be the breach of an undertaking in the Consent Order by the husband to sell Bowen Road within 6 months.  However, there is no evidence that there was any offer by purchasers to buy at $10 million during this period which expired on 27 October 2007.  On the contrary the offer to buy at $15.5 million was only first made in early 2008 by which time the husband had decided to use this property as the residence for his new family unit.  In the circumstances to give an additional $1.5 million (about 7.7% of the joint assets of $15.6 million) was not justified.

10.  I agree with the judgment of Yuen JA and the order she makes.

Hon Yuen JA:

11. This is an appeal from a decision on ancillary relief made by Deputy Judge T. Chan on 6 February 2009.  Leave to appeal was refused by the judge but granted by Rogers VP on 7 July 2009.  As Cheung JA has said in his judgment, the main issue on the appeal was whether the judge was right to take into account the Husband’s conduct in relation to a Consent Order dated 27 April 2007 (“the Consent Order”) when considering distribution of the matrimonial assets.  That issue arose in the following context. 

Background

12. The parties were married in November 2001.  The petition for divorce was presented in May 2006.  Both parties were in their 30's.  The Husband is a successful doctor with 2 clinics in Kowloon.  The Wife had returned to Hong Kong after living and working in Canada.  Her family was in the building material business in Hong Kong.  They had no children.

Income

13.  The judge found that the Husband and his nurses who gave evidence at the hearing were not credible witnesses.  She found that the Husband made more than $170,000 a month but an accurate estimate of his income was not possible due to payments made in cash and the absence of reliable records.  As for the Wife, she was a director of a family business which was unsuccessful and ultimately de-registered, but the judge found that she was capable of earning $15,000 to $20,000 a month 

Properties

14.  The parties were involved with a number of properties.  I shall first list out those with which this court is not concerned.  The judge found that the parties were trustees for their respective parents in respect of certain properties (Laurels and Wong King for the Husband and Tropicana for the Wife), so we are not concerned with these.  Further, the judge found that two properties which the Husband had acquired with a colleague in his medical practice before the marriage (Merlin and Parc Oasis) should not be regarded as matrimonial assets. 

15.  As for properties acquired during the marriage,

(1)     the Husband first acquired a small property called Fortune without the Wife’s knowledge; this was bought at $326,000 in 2002 and sold (after the petition) in 2007 at $610,000;

(2)    the parties acquired their 1^st matrimonial home, Beacon Heights, which they bought at $3.1m in 2003 and sold at $4.5m in 2004;

(3)    they then acquired their 2^nd matrimonial home, Fa Po St, which they bought at $6.12m in 2004 and sold at $13.08m in 2005;

(4)    they then acquired their intended 3^rd matrimonial home, Bowen Road, which they bought at $8.3m in 2005 and still held at the time of the hearing; (all the above matrimonial homes were acquired in the names of the Husband and Wife);

(5)    also in 2005, 3 other properties were acquired in the name of a company “AT”, held as to 99% by the Husband and as to 1% by the Wife.  These 3 properties were:

(a)     Hoi Tan, bought at $600,000 and still held at the time of the hearing;

(b)    Kam Yee, bought at $520,000 and sold in 2007 (pursuant to the Consent Order which I will refer to in detail later) at $660,000;

(c)    Begonia, bought at $7.28m and still held at the time of the hearing.

16.  Accordingly, the properties still held at the time of the hearing before the judge were:

(1)   Bowen, valued at market at $12.5m (net equity value $9m), held by the Husband and Wife as Joint Tenants;

(2)   Hoi Tan, valued at market at $600,000 (free of mortgage), held by AT;

(3)   Begonia, valued at market at $9m (net equity value $6.6m), held by AT.

At the time of the hearing, the Husband lived in Bowen and the Wife lived in Begonia.    

Proceeds of other properties

17.  The Husband had received the proceeds of Fortune in the sum of about $580,000 which he used to service the mortgages of Bowen and Begonia, and the Wife’s solicitors stakeheld the proceeds of Kam Yee of about $450,000 from which maintenance was deducted.

Other assets

18.  There were also some bank accounts and shares found by the judge to belong to each of the parties which amounted in total to more than $2m.

Husband’s circumstances

19.  At the time of the hearing, the Husband was living with his fiancé and their child.  A second child was on its way.

Parties’ positions

20.  The Husband was less than frank about his income and assets, and for those assets which were disclosed, his case was that he had provided all the money for their acquisition.  He rejected the Wife’s claim to any of the properties, even though certain properties had been held in both their names, either as Tenants in Common or as Joint Tenants.  He argued that he had made a “special contribution” as that term is understood in matrimonial cases, so that he should have more than an equal share of the assets.  

21.  The Wife’s position was that their success in “trading up” from one matrimonial home to another was due to her efforts as well, as she decorated the homes, obtaining discounts from building material suppliers by reason of her family’s connections, and made them attractive to purchasers, with the result that they were able to reap handsome profits from them.

Judgment

22.  The judge held that the Husband did not make a “special contribution” as that term is understood in matrimonial cases, and that the principle of equal sharing should apply.   However, she found that there was conduct on the part of the Husband which it was “inequitable to disregard”, i.e. his refusal to sell Bowen and Hoi Tan which were the subject of the Consent Order, and for that reason, she ordered the Husband to pay an extra $1.5m to the Wife in respect of Bowen and she also ordered that the Wife should receive $400,000 or half the sale proceeds of Hoi Tan, whichever was more.

Consent Order

23.  Under the Consent Order made on 27 April 2007 the parties agreed and undertook that they would sell the 3 properties known as Bowen, Hoi Tan and Kam Yee, and to sell Bowen “at a price not less than HK$10,000,000 within 6 months from the date hereof”, and to procure AT to sell Hoi Tan “at a price not less than HK$600,000 within 6 months from the date thereof”.

Appeal

24.  The Husband’s argument on appeal was that the Consent Order lapsed by effluxion of time on 27 October 2007.  There was no evidence of an offer for Bowen at the stated minimum price within the period 27 April to 27 October 2007, and the same point applied to Hoi Tan.  Accordingly the judge should not have regarded the Husband’s refusal to sell these properties after 27 October 2007 as conduct which it would be inequitable to disregard, or as gross and obvious conduct.   

Discussion

25.  I shall first deal with Bowen.  In the judgment given on 6 February 2009, the judge had said that for Bowen, an offer of $15.5m was “first made in early 2008 and was still open during the trial” (paragraph 178).  The Husband did not wish to sell Bowen as he wished to continue to live there with his new family, and the judge considered that his refusal to sell Bowen reflected “only his selfishness and his arrogance even when faced with a court order”.  For that reason, the judge ordered the Husband to pay to the Wife an extra sum of $1.5m, being half of the difference between the offer of $15.5m and the agreed value of $12.5m. 

26.  In the judge’s reasons for refusing leave to appeal, she held that even though the Consent Order referred to a time limit for selling Bowen, the parties had undertaken to sell the property in a “stand-alone” clause and the time frame of 6 months was put in to ensure performance without undue delay.  The judge took the view that the parties had an obligation to sell at not less than $10m even after 27 October 2007.  She further held that even if there was no breach of the Consent Order, as the Wife was a joint owner of Bowen, the Husband should not be allowed to acquire it at a lower price than the one he refused. 

27.  In my view, first the evidence is clear that the offer of $15.5m only came after 27 October 2007, so the Husband was not in breach of the explicit terms of the Consent Order.  Although there was in the evidence a letter asking the Husband to permit Bowen to be viewed before the time frame expired, that could not possibly be evidence that an offer of $10m would have been made had there been such a view.  Secondly, it is noted that the Consent Order contained only a specific time frame for selling the property at a particular minimum price.  The parties could have inserted words as to what was to happen after the expiry of the time frame, such as “or so soon thereafter as an offer of not less than $10m is received”, but they chose not to do so.  Thirdly, an obligation to sell Bowen after 27 October 2007 as soon as $10m is reached cannot be so lightly implied into the Consent Order.  A Consent Order is similar to a contract between the parties.  They may have had different considerations as to what should happen if a particular event fails to occur.  For instance, it could have been that the parties (or one of them) thought that after 6 months, a different minimum price should be adopted.  For all those reasons, as the evidence was that the offer of $15.5m was received only after 27 October 2007, I do not think the Husband was obliged to sell Bowen under the Consent Order.   

28.  I also cannot see the justification for the judge’s alternative holding (in her judgment refusing leave to appeal) that the Husband should have agreed to sell the property at $15.5m even if there was no breach of the Consent Order.  If the Consent Order did not take effect, then Bowen’s disposition fell to be dealt with at the ancillary relief hearing, in the same way as Begonia was to be dealt with then.  Although the judge said that there was an extant offer to buy Bowen at $15.5m even at the time of the hearing, the fact was that the parties agreed the value of Bowen at $12.5m, not $15.5m. There was no ground for using a different value.

29.  For the reasons set out above, I consider that the judge erred in principle in her interpretation of the Consent Order and also in her alternative basis for the order, and there was no ground for the order that the Husband should pay an extra $1.5m to the Wife.  That order should accordingly be set aside.

30.  As for Hoi Tan, the judge did not refer to the evidence which caused her to arrive at her decision, but it would appear that the evidence was that the first offer for Hoi Tan was in mid- 2008, again after the expiry of the time frame under the Consent Order.  For the same reasons as I have given for Bowen, this order should also be set aside.

31.  As a matter of completeness, I should mention an argument raised by junior counsel for the Husband which related to post-separation contribution.  His argument was that only the Husband had made contributions to the mortgages post-separation, and so that should be reflected in the distribution of assets.  However this argument was not substantially raised below or dealt with by the judge, and it would not be appropriate for us to deal with it on appeal, as there may be disputes on the evidence (it being noted that the judge found that the Husband had hidden some of his assets).   In any event, the judge was aware that the mortgages had been serviced by the proceeds of sale of Fortune, and for that reason, those proceeds had not been counted in the matrimonial assets available for distribution.  In any event, it would not be appropriate in this case to make any adjustments on the basis of post-separation contribution.  Unlike a case such as WSW v YKK [2009] HKFLR 37, the period between separation and the proceedings in the present case was not lengthy.  The Husband was simply maintaining the status quo by continuing to pay the mortgages.  I do not see anything in this ground of appeal.

Order

32.  For the reasons set out above, the appeal should be allowed, and the judge’s order amended as follows: the payment under paragraph (2) of the Order dated 6 February 2009 should be reduced from “$2.7m” to “$1.2m”, and the words “$0.4million or whichever is higher” should be deleted from paragraph (4).  I would make an order nisi that the Wife pay the costs of the appeal to the Husband, and that the costs wasted by the Husband’s amendment of his grounds of appeal to be paid by him to the Wife, all costs to be taxed if not agreed.  As there has been more than one counsel for each of the parties, there will be a certificate for two counsel.

Hon Kwan JA:

33. I agree with the judgments of Cheung JA and Yuen JA.