CHENG CHUNG SHAN v. LI SIU MAN

HCMP 440/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 440 OF 2004

(ON AN INTENDED APPEAL FROM FCMC NO. 12462 OF 1999)

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D E C I S I O N

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Hon Le Pichon JA:

1. This is a renewed application by the respondent ("the wife") for leave to appeal the judgment of Deputy Judge S D'Almada Remedios dated 11 December 2003 which varied a maintenance order made on 31 October 2000 ("the maintenance order") on an application for variation by the petitioner ("the husband"). The wife appeared in person. Her original application for leave had been refused by Rogers VP on 19 February 2004.

Background

2. The maintenance order was made in proceedings for ancillary relief by the wife for herself and her son. It was, in part, a consent order which included provisions for (1) the matrimonial home at Sceneway Garden and the property at Axeford Villa to be sold, any loss arising from the sales to be borne by the husband; (2) the husband to pay the wife $16,500 maintenance per month (inclusive of $8,000 for rent); (3) the husband to continue with payments of educational fees of the son until he reaches 18 or completes his first university or high education whichever shall be the later; and (4) the husband to pay $6,000 maintenance per month to the wife for the son during the same period. It was then further ordered (which part was not by consent) that the maintenance payment to the wife be made from 1 November 2000 at $10,000 (including the maintenance for the son) until January 2001 when maintenance payment to the wife and the son should increase to $12,500 per month and such amount to continue until March 2001 when maintenance payment should be paid in the full amount of $22,500 per month. The wife felt aggrieved by that part of the order. She was granted leave to appeal by the judge but that leave was set aside by Stock JA and confirmed on review by Mayo VP and Keith JA.

3. In August 2002, the wife applied for a variation of the maintenance seeking additional monthly maintenance for the son and, for treatment, for herself. This application was refused on the basis of insufficient evidence.

4. On 6 May 2003, the husband applied to vary the maintenance order to the following extent:

(a) to reduce the maintenance payment to the wife from $16,500 per month to $13,500 per month (inclusive of $8,000 for rent) from 1 December 2003 to April 2004 i.e. a reduction of $3,000 per month for that period; and

(b) from May 2004, the maintenance payment to be at the rate of $15,000 per month (inclusive of $8,000 for rent) until further order. This meant a reduction of $1,500 per month from the agreed amount of $16,500 per month.

The judge below acceded to the husband's application and varied the maintenance order. It is from the variation order that the wife seeks leave to appeal.

The judgment below

5. The judge noted that there was a first charge in favour of the Director of Legal Aid ("the Director") on the wife's periodical payments exceeding $4,800 per month. Since the date of the maintenance order, out of the agreed maintenance of $16,500 per month, the first charge has been $3,700 per month, and the wife has been receiving the balance i.e. $4,800 plus $8,000 (rent) amounting to $12,800 per month for her own maintenance. The judge noted that the husband's position was that he was not seeking and would not seek to apply for the reduction of maintenance if it would have the effect of reducing the actual sum receivable by the wife from the Director.

6. Before the judge was a letter from the Legal Aid Department ("the Department") dated 27 November 2003, responding to a letter dated 18 November 2003 from the court to the Department, to the effect that if maintenance were reduced to $13,500 per month, the amount receivable by the wife would remain at $12,800 per month. The effect of the variation would be that the sum imposed by the Director equivalent to $3,700 per month as a first charge would be reduced to $700 per month. The wife opposed the application on the basis that the reduction would still affect her as it would take her longer to pay off the amount owed to the Director by way of legal fees and therefore deferring the date by which she would otherwise be receiving the full amount of maintenance.

7. As the judge explained, the husband's application was based principally on three matters:(i) reductions in his pay, (ii) cessation of his housing allowance of $18,406 in December 2003, and (iii) the fact that he has large outstanding debts due. In order to maintain his living and to repay those debts, the husband contended that needed to have the maintenance to the wife reduced.

8. Turning to the husband's debts, the husband said that he had suffered an accumulated loss of about $900,000 in the sale of the two properties referred to in the maintenance order both of which had negative equity. The evidence showed that the Axeford Villa property was sold in February 2001 and the mortgage on that property discharged on 21 February 2001 with the assistance of the $500,000 loan obtained by the husband from his girlfriend on 7 February 2001. The matrimonial home was sold to a relative on 27 March 2001 and the mortgage loan repaid with the assistance of the $400,000 loan from the husband's sister.

9. The sale of the two properties meant an end to the husband's housing allowance from Government. In order to preserve this benefit and to continue to receive that allowance, the husband apparently purchased 44% of his girlfriend's property at a price of $1 million. He obtained a government loan of $245,000 which was applied as down payment. But taking into account the $500,000 he had borrowed from his girlfriend, it was said that he remained indebted to her in a sum of $1.255 million. Further he was unable to repay his sister because, between April 2001 and February 2003, his brother was taken ill and as a result, he had to increase his contribution towards the support of his parents. His evidence was that his sister's loan would be partly repaid by December 2003 with an outstanding balance at that date of about $177,000.

10. The wife challenged the amount of mortgage repayment for the purchase of the 44% interest. The husband was making repayments of $21,415 p.m., the mortgage term being a period of 8 years. The husband explained that any refinancing during the first 3 years of the mortgage would attract a charge but as from April 2004 it was his intention to refinance the mortgage and he would enter into a new mortgage for a further 12 years from April 2004 which will result in a lower monthly mortgage repayment of $12,230, in effect a reduction of $9,185 from his current payments. The husband filed evidence to the effect that he had plans to marry his present girlfriend and start a new family. The judge considered that he had every right to start afresh but not at the expense of the son or the wife.

11. The judge noted the wife's contention that the cessation of housing allowance in December 2003 was nothing new: such allowances are only for a period of 10 years and not longer. As to whether or not the husband has had a continuous cut of salary since October 2000, the judge set out the parties' contentions but made no express findings.

12. At paragraph 24 of the judgment, the judge said:

"I accept that the husband has suffered the deficit in the properties of $847,000. I also accept that the girlfriend and sister have loaned him money and he has to repay them. The girlfriend he will repay as he says, in the long-term through the mortgage repayments. In respect of his sister, he is going to be raising that sum for repayment through the rearrangement of his present mortgage. I also do not query or doubt Mr Cheng's reasonable expenses and income that he has very carefully detailed and put down in his affirmations. I have no doubt that Mr Cheng is making a genuine application to reduce the maintenance, as he has openly stated that if the wife was to receive less than she is presently receiving he would not be making this application."

Then at the concluding paragraph, the judge expressed herself to be satisfied that from December 2003 to April 2004, the husband "will have a significant drop in his income and will be required to reduce the maintenance payable to the wife" and made the variation sought.

Should leave be granted?

13. There are a number of matters material to the judge's exercise of her discretion that did not appear to have been considered.

Financing for the purchase of the 44% interest

14. By 22 March 2001, the girlfriend's property had already been transferred into the joint names of the husband and his girlfriend. This appears from the offer letter from Standard Chartered dated 22 March 2001 which named the husband as the borrower and the husband and his girlfriend the mortgagors. But the financing of the acquisition by the husband of a 44% interest in the property was not dealt with at all save that the government loan of $245,000 was applied towards it as down payment. In fact, as appears from the mortgage statement exhibited to the husband's third affidavit, the mortgage loan amount was $1.645 million. Nowhere in the judgment is there a reference to this amount. In addition to the mortgage loan there was also the government loan of $245,000 applied as down payment for this purchase. Thus, the capital obtained by the husband in March/April 2001 totalled $1.9 million. But the 44% interest was acquired for only $1 million. Even if (as would appear to be logical) the $1 million was paid to the girlfriend for the purchase, and $500,000 as repayment of the loan, $400,000 remained unaccounted for. It is to be noted that the impression one gets from paragraphs 15 and 24 of the judgment is that the husband remained indebted to his girlfriend in respect of $0.755 million of the purchase price as well as the loan notwithstanding the mortgage loan. That does not appear to be correct.

15. This transaction (relating to the husband's acquisition of the 44% interest and how it was financed) raises questions, not least as to how it was that although the purchase price was only $1 million, he was able to raise $1.645 million from the bank for the purchase of that interest. Further, it is to be noted that he was living at the property with his girlfriend to whom, upon the drawdown of the mortgage loan in April 2001, a sum of $1.5 million would have been paid.

16. There was no evidence that had the husband not entered into the transaction, he would not have had a roof over his head. The ostensible reason for the purchase was that the husband would otherwise lose the housing allowance. But as he must have known at the date of the maintenance order, that allowance would cease upon the sale of Sceneway Garden and Axeford Villa and, in any event, would not be available after December 2003. Further, in order to qualify for this allowance, the amount of the monthly mortgage repayment had to exceed the amount of the monthly housing allowance. In other words, given that the housing allowance was $18,450 a month, the loan had to be structured such that the monthly repayment had to exceed the sum of $18,450. The main determinants would have been the capital sum, the repayment period and the interest rate. Thus the level of mortgage repayment which the husband maintained was so burdensome was 'tailormade' to take advantage of an allowance that, on any view, had no more than 32 months to run from the date of the transaction. The financial burden on the husband was in that sense self-induced. Moreover, the depletion of his income stream was counter-balanced by the acquisition of a capital asset, a fact that was nowhere mentioned.

Effect of the variation order on the wife

17. The full impact of the variation on the wife would not appear to have been assessed. Whilst the reductions do not affect the amount actually receivable by the wife, the point had been made that it would defer the date on which she would be able to receive the full amount of agreed maintenance. At the leave application, the wife informed the court that the amount of legal costs recoverable by the Director is about $220,000. At the date of the variation order, a sum of $80,000 was still outstanding. In the normal course, this balance would have been paid off in say 22 months from the date of the variation order, i.e. by October 2005. It is true that the variation does not affect the actual sum receivable by the wife so long as the first charge was subsisting. But its effect in terms of prolonging the repayment period was never considered. In my reckoning, that period would be an additional 18 months. In the first year after the variation order, the amount deductible by the Director would be (5 x 700) + (7 x 2200) = $18,900. That would leave a balance of $61,100 which at $2,200 per month would take a further 27.7 months from December 2004. In other words, under the variation order, the wife cannot realistically expect to receive the full amount of maintenance payment until April 2007. The judge did not consider this aspect in her judgment. In my view, that is a relevant matter and has to be viewed in the context of the limited resources available to the wife.

Financial hardship

18. At the hearing, the court was shown a letter from the Department dated 11 June 2001 suspending the monthly deductions commencing June 2001 for a period of 6 months because of financial hardship. The wife maintained that this was raised orally by her at the hearing below. This court was also provided with another letter from the Department dated 6 February 2002 referring to a further request by the wife for suspension of the deduction. It was her case that this application was still pending at the date of the variation order. Whilst evidence should have been filed concerning those matters before the hearing of the variation order, it has to be borne in mind that the wife was a litigant in person.

Conclusion

19. In my view, it is at least arguable that the matters referred to above constitute legitimate grounds for an appeal. I would therefore grant leave but upon condition that the wife files and serves on the husband an affidavit within 28 days limited to (1) the total amount of legal costs as at the date of the maintenance order which is subject to the first charge, (2) the amount of such costs outstanding at the date of variation order, (3) evidence of suspension of the monthly deductions by the Director including the Department's letters of 11 June 2001 and 6 February 2002 and the status of the application to which the letter of 6 February 2002 referred.

Hon Sakhrani J

20. I agree.