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FCMC 4193/2010
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
MATRIMONIAL CAUSES NO. 4193 OF 2010
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| BETWEEN |
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LYK |
Petitioner |
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and |
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AKSP |
Respondent |
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| Before : HH Judge Bruno Chan in Chambers. |
| Date of Hearing : 23 – 24 June 2015, 19 – 21 July, 11 – 13, 25 October 2016, 1-3 February & 6 June 2017. |
| Date of Judgment : 17 July 2017. |
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JUDGMENT
(Ancillary Relief)
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1. This is the Petitioner Wife’s application for ancillary relief against the Respondent Husband upon the dissolution of their some 16 years marriage, essentially for monthly maintenance for their 2 children and a lump sum for herself being her equal share of their matrimonial assets consisting according to her essentially of cash in the bank which she put at about HK$10 million between them and various trading companies including some which she has accused the Husband of concealing and/or disposing of in China with the intention of defeating or obstructing her financial claims.
2. The Husband of course denies these allegations and instead accuses the Wife of doing exactly the same about her own financial disclosure including concealing her savings in particularly her half share of the sale proceeds of their former matrimonial home which they sold shortly before their separation and split equally its proceeds of about HK$6.3 million, and of failing to truly disclose or account for the profits or income of her business or interests in some other companies which she is said to have subsequently dissipated or disposed of so as to hide from him and the court, and for those he had had an interest or shareholding he initially intended to claim for a lump sum representing their equitable values and/or compensation for being forced out by the Wife, but appears to have since abandoned such claim.
3. Whilst such financial disputes are all too common in this jurisdiction, the facts that both parties in this case, who are clearly not without financial means, had chosen to conduct their litigation without legal representation or assistance throughout almost the entire ancillary relief proceedings and sadly went about blindly with their financial enquiry and discovery process in each their own way thereby further compromising and compounding the many issues existed between them and the necessary disclosure and discovery process, in particularly as to those relating to their various companies and businesses, until the middle of the trial when it was his turn to cross-examine the Wife that the Husband realised that he needed legal representation after being overwhelmed by the litigation resulting in bouts of panic-attacks and insomnia, which inevitably led to further interruptions and adjournments of the trial and further compromising its progress, whilst the Wife decided also to obtain her own legal representation later when it came to the stage of her cross-examination of the Husband, all of which conspired to prolong the proceedings for more than 3 years after an unsuccessful FDR and resulting in more than 10 hearings for pre-trial review/case-management and a trial spanning some 12 days punctuated and interrupted over a period of more than 2 years which is not only wholly unsatisfactory to both parties but also hugely disproportionate to the court’s time and resources expended on this case, not to mention the problems of the inevitable erosion and loss of memory over the evidence heard during the early part of the trial to all parties concerned.
4. I should also note here that the trial bundles totalling 7, with the first four being prepared by the Wife whilst acting in person which are somehow in reverse chronological order with the most recent document at the top of the list/index of Bundle One rather than in the more conventional ascending or chronological order with the oldest document at the top. The remaining 3 bundles were prepared by those representing the Husband after they got on board of the proceedings comprising essentially additional materials in the easier to follow chronological order.
Background
5. The Wife, now aged 54, and the Husband, aged 57, were both born and raised in Hong Kong and with schooling up to tertiary education, with the Husband obtained his university degree in business in the US while the Wife received her marketing degree in Hong Kong.
6. At the time of their marriage on 19th November 1993 in Hong Kong, the Wife was working as a marketing manager while the Husband an international sales manager. After the marriage they continued to be so employed, and in 1995 they purchased a property at South Horizon, Apleichau, Hong Kong in joint names as their matrimonial home, while their 2 children were born thereafter respectively in October 1997 and August 1999, with the elder child, a son soon to be 20, and the younger child a daughter who is now almost 18.
7. In 1996 the parties formed a company known as TL International (“TL International”) with both as the only directors and with equal shareholdings held by a BVI company known as LT Pacific Ltd (“LT Pacific”), for importing certain brands of headsets products from overseas for sale in Hong Kong as distributor. The Wife then resigned from her previous job to work full time in TL International, while the Husband kept his own job until about 2003 when he also resigned to work in TL International. By then the company was expending its business into Mainland PRC, where a company known as GK Electronic Technology Ltd (“GK Electronic”) was set up in Guangzhou in about 2002 with a cousin of the Wife being a local resident appointed as the local legal representative of GK Electronic for the marketing and sales of its products, and for which the Husband would undertake frequent business trips into the Mainland over the years.
8. Sadly and perhaps for the fact that the parties had spent more time away from each other that they started to drift apart, in particularly after the Wife became suspicious that the Husband was having an affair in PRC, of which he has always denied. In 2008 the parties sold their matrimonial home in South Horizon and shared the net proceeds of about HK$6.3 million equally between them with each pocketing about HK$3.1 million. They then rented an apartment in the same estate of South Horizon for their home albeit occupying different bedrooms. It is as noted above this half share of the Wife of the sale proceeds of HK$3 million or rather their whereabouts that was to later become one of the major issues between the parties at the trial.
9. It was around this time that the Wife became suspicious that the Husband had been diverting the business of TL International to some company secretly set up by him in China and was also trying to sell GK Electronic in the Mainland without her knowledge or consent, to both of which the Husband denied but led to huge arguments between them and eventually the Wife on 13th April 2010 filed for divorce in these proceedings through her then solicitors against the Husband based on his unreasonable behaviour including living a separate life from her since about 2001 and moving to separate bedroom towards end of 2008, and for custody of both children and general ancillary relief.
10. The petition was unopposed by the Husband and the decree nisi was granted by the court on 17th June 2010. On the same day the Wife caused TL International to issue a letter to the Husband to terminate his directorship in that company for allegedly breaching various duties to the company including diverting its business away to his own company secretly set up by him in the Mainland, all of which were denied by the Husband but he did subsequently leave TL International to avoid any further confrontation with the Wife.
11. By then he had in fact already moved out of the South Horizon apartment to his own rented accommodation at Sai Wan Ho, and while he did not oppose the divorce, he instructed his own solicitors to contest custody, care and control of their 2 children which led to not only the inevitable social investigation report but also the involvement of the Official Solicitor to ascertain the true views of the children. Eventually the parties were able to resolve their dispute through mediation when they finally agreed on 12th April 2011 to share custody of the children with care and control to the Wife and reasonable access to the Husband, which were then made an order of the court by Judge Melloy on the same day.
12. However, when the parties were unable to resolve their more complicated and difficult issues over the division of their marital assets, they dispensed with legal representation and for the next 5 years became embroiled in a bitter campaign against each other with allegations of financial misconducts including concealing and dissipating assets and misleading the court of their true financial situation and by embarking on the seemingly never-ending applications for discovery and disclosure over their respective Form E, of which there had been totally 3 filed over the years.
13. Their first one was filed in July 2010, in which the Wife who was then still legally represented stated that she had since April 2010 ceased to receive the monthly basic salary of HK$45,000 or the housing allowance of HK$10,000 from TL International due to “insufficient cash flow in the company”, that she had some HK$2.56 million in bank savings, HK$176,000 worth of stocks and shares, HK$180,000 in MPF, and about HK$2.23 million in director’s loan owed to her by TL International which she did not expect to be repaid unless the company could make substantial profits, and that she had a monthly expenditure of HK$64,800 for herself and the 2 children [B4/1313].
14. In the Form E she also accused the Husband of having “seriously breached his director’s duties, including but not limited to misappropriation of the company’s funds and assets, suspected bribery and diverging company’s business to another company.” Presumably for which she went on to state that the Husband’s directorship was terminated on 17th June 2010 and annexed a copy of the letter of termination of the same date [B4/1329].
15. It is also worth noting that in providing details of her shareholding or beneficial interest in private companies under Item 2.4 in her Form E, apart from disclosing her interest in TL International and AA (HK) Ltd, the Wife stated that GK Ltd was “set up by the Respondent on the instructions of TL International, therefore, the shares of the company are beneficially owned by TL International.” [B1/1321].
16. As for the Husband’s 1st Form E, he claimed that he used to receive HK$41,000 per month including bonus from TL International prior to his dismissal from the company by the Wife, and that he had since been relying on his bank savings then totalling just over HK$6.1 million to meet his monthly expenses of about HK$42,000 including HK$8,400 on the children. He disclosed no other assets save for shareholdings in 3 companies including TL International, the same AA (HK) Ltd mentioned in the Wife’s Form E, and LT Pacific Ltd in equal shareholding with the Wife against which he sought an order for their transfer on top of the usual general ancillary relief [B4/1503].
17. As noted above for the next year or so the parties became embroiled in their battle for the care and control of their 2 children which was eventually resolved in April 2011 in favour of the Wife, who then proceeded to launch an application for maintenance pending suit and on 17th June 2011 the parties were directed to update their Form E, which they did in September 2011 with revelation by both of deteriorating financial situation for them, or so they claimed.
18. In this second Form E of hers the Wife disclosed that she was still not receiving any income from TL International, that her bank savings had gone down to just under HK$1.5 million, and that the monthly expenditure for herself and the children had gone up somewhat to almost HK$67,000 [B3/1011].
19. In his 2nd Form E the Husband disclosed to have formed a new company known as FW Creation Ltd in early 2011 which had yet to produce any profit or income, that his savings had also gone down to about HK$3.5 million as he had invested some of the monies in the stock market with a portfolio then worth just below HK$500,000, whilst his spending had also gone up to just over HK$48,000 per month.
20. On 2nd February 2012 upon hearing the parties’ argument Judge Melloy awarded the Wife HK$12,500 per month maintenance pending suit for the 2 children (“MPS Order”), and ordered the parties to attend a FDR hearing on 13th June 2012, which was not surprisingly unsuccessful in view of the many factual issues between the parties over their respective assets and resources, and hence the ancillary relief application landed before me on 15th August 2012 for what turned out to be the first of many PTR and direction hearings to come.
21. By mid-2014 and in the belief that they were finally ready to proceed to trial, the parties were directed to again update for one last time their Form E, which the Husband did on 30th May 2014 and in which he confirmed to be the director and shareholder AA Hong Kong Ltd, FW Creation Ltd and EB Asia Pacific Ltd, with the latter 2 companies both formed after the divorce in 2011, but again he claimed to have received no income from any of these companies and had been relying on his savings which had gone down further to only about HK$1.73 million, although he still maintained his equity account with stocks and shares then said to be worth HK$525,510, with a monthly expenditure at HK$48,355 including his interim maintenance of HK$12,500 for the 2 children, and that he maintained his claims against the Wife for his shares in LT Pacific and TL International and general ancillary relief as before [B2/388].
22. The Wife’s 3rd Form E was filed on 27th July 2014 in which she confirmed still holding her directorship and shareholding in TL International but had incorporated a new company known as LS Ltd in 2013 selling health products, but that her bank savings had further dwindled down to less than HK$200,000, that she had since March 2014 ceased to receive her salary of HK$15,000, and that her monthly expenditure remained about HK$66,500, with additional projected orthodontics treatment for the son at HK$40,000 [B1/211].
23. It would be helpful for me to now go to the parties’ open proposal which have surprisingly remained constant from almost the very beginning of the proceedings up to the trial, notwithstanding that their respective financial position have obviously undertaken various significant changes over the years.
Wife’s Open Proposal
24. The Wife’s open proposal is for there to be equal division of the parties’ matrimonial assets but of which she believes the Husband to have concealed from her and the court in particularly those of his companies and/or business in China which would required full-scale investigation, and so as a compromise she was prepared to simply divide equally their cash and bank savings after the sale of their former matrimonial home when she claims to have only HK$3 million while she believes that the Husband would have as much as HK$7 million, hence her half share of their combined capital of HK$10 million would be for the Husband to pay her a lump sum of HK$2 million to bring her half share to HK$5 million as a clean break settlement between them, thereby avoiding implicating their other assets including their respective companies and businesses as well as further discovery process and forensic investigation as to their income, profitability and value.
25. As for the maintenance for their children, her proposal was essentially for the Husband to pay for his half share of the son’s Orthodontic fee of HK$40,000 as well as their rental expenses from December 2010 to January 2012 before the MPS Order at HK$11,500 per month for 14 months, and for their future maintenance at the rate of HK$52,000 per month until they complete full-time education.
Husband’s Open Proposal
26. The Husband has not filed or submitted any open proposal, but it seems clear from his narrative affirmation that he believes that the Wife has already taken and/or kept more of their marital assets including TL International and that she has still not fully or frankly disclosed all her business interests, hence he did not think that she is entitled to any claim against him and that such claim should be dismissed as a clean break between them.
27. As for the children he proposes to continue with his current interim maintenance for them which he has voluntarily increased to HK$20,000 per month, and which he agrees should be made a final order.Not surprisingly, their respective proposal was totally rejected by the other, and hence the Wife’s ancillary relief application proceeded to trial when the issues were no longer confined just to an equalization of the parties’ cash and capital position under the sharing principle, but instead the entire spectrum of their financial resources and all other relevant factors underlined by the relevant statutes and principles for the identification of the matrimonial assets for the purpose of a fair distribution between the parties, as well as their respective earnings and earning capacity for the determination of the Husband’s maintenance for the 2 children.
28. To proceed to trial on these issues there must of course be the obligatory narrative affidavit of the parties setting out their respective cases on those issues, with the Wife filing hers first on 15th December 2014 which was in fact her 11th in these proceedings [B1/158] in which she repeated her claim for 50:50 sharing of the matrimonial assets apparently on the basis on the parties’ respective assets as disclosed by the Husband of his at about HK$6.5 million and by her of hers at about HK$2.8 million [B1/162], hence it seems to me that she as before was still seeking an equalization thereof by way of a lump sum of about HK$2 million to be paid to her by the Husband.
29. In the same affidavit the Wife also repeated her earlier accusations against the Husband of hiding assets from the court including the profits of GK Electronic, diverting business from TL International to those under his control, failing to disclose proper financial information of his other companies/business, and transferring or dissipating his bank savings.
30. In his narrative affidavit filed on 28th January 2015 [B1/64], the Husband made similar allegations against the Wife for failing to disclose all her assets including her interest in a property in China purchased together with her siblings, failing to disclose all her bank accounts and to account for all her savings and capital, and concealing her true interests in various companies and business by transferring and disposing of them to third parties including GK Ltd, all of which he insisted would put her total worth in excess of HK$12 million instead of the meagre sums as disclosed in her various Form E, and hence her claim for equalisation of their cash position should simply be rejected with all the costs incurred be to him.
The Trial
31. As noted above the trial started on 23rd June 2015 with the next 2 days also reserved when both parties were acting in person. By 25th June 2015 when the Husband was to continue with his cross-examination of the Wife, he suffered a bout of panic attacks which he claimed to have already started the night before and as a result he was unable to have any sleep, and was therefore not feeling and sought an adjournment, to which the Wife did not dispute or oppose, and given the fact that it was unlikely that the parties’ evidence could be concluded on that day, hence I acceded to the Husband’s request and adjourned the trial to 13th – 15th October 2015 when he decided to instruct his present solicitor Mr Cheng to represent him.
32. However, on the 1st day of the resumed trial the Husband sought further adjournment as he on legal advice believed that there were still outstanding financial documents which the Wife should disclose and produce which were crucial to the determination of the extent of her financial means and assets, which was however opposed by the Wife but upon hearing argument I allowed the Husband’s application and the Wife was ordered to make further discovery and disclosure.
33. Eventually the trial resumed for another 3 days starting on 19th July 2016 but overran to 11th October 2016 for a further 4 days, and when that overran again, it was fixed for a further 3 days on 1st February 2017 primarily on the cross-examination of the Husband when the Wife decided to bring on board her legal team with Mr Chow as her counsel with the part on evidence finally completed on the last day of the scheduled trial.
34. Before proceeding to consider those evidence adduced through the trial spanning almost 2 years, it would be relevant to first set out the legal principles to be applied to this case.
Applicable Legal Principles
35. Firstly, section 7 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (”MPPO”) lays down what the court must have regard to when making orders for ancillary relief:
(1) It shall be the duty of the court in deciding whether to exercise its powers under section 4, 6 or 6A in relationship 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;
(g) 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.
36. The principles of how this section 7 exercise should be approached have been set out by the Court of Final Appeal in LKW v DD [2010] 13 HKCFAR 537 when Ribeiro PJ stated as follows:
“E.1.a Objective of fairness
56. ... The first is that the implicit objective of a section 7 exercise is to arrive at a distribution of assets which is fair as between the parties ...
E.1.b Rejection of discrimination
57. The second is that the concept of fairness requires the refutation of any gender or role discrimination. Lord Nicholls reiterated this at the start of his speech in Miller/McFarlane when, referring to White v White, he stated:
“... the House emphasised that in seeking a fair outcome there is no place for discrimination between a husband and wife and their respective roles. Discrimination is the antithesis of fairness. In assessing the parties’ contributions to the family there should be no bias in favour of the money-earner and against the home-maker and the child-carer. This is a principle of universal application. It is applicable to all marriages.”
E.1.c Yardstick of equal division
58. The third principle is that, with a view to eliminating insidious discrimination and promoting fairness, judges should check their tentative views on distribution against a “yardstick of equal division” which should be departed from only for good, articulated reasons. Lord Nicholls put it thus:
“ ... a judge would always be well advised to check his tentative views against the yardstick of equality of division. As a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so. The need to consider and articulate reasons for departing from equality would help the parties and the court to focus on the need to ensure the absence of discrimination.”
59. In Miller/McFarlane, the “yardstick” concept was elaborated into the “equal sharing principle” as further discussed below. However, it is worth emphasising that according an equal status to the role played by each of the parties during the marriage does not necessarily or even usually mean that their assets should be equally divided. Thus, in White Lord Nicholls stated:
“Sometimes, having carried out the statutory exercise, the judge’s conclusion involves a more or less equal division of the available assets. More often, this is not so. More often, having looked at all the circumstances, the judge’s decision means that one party will receive a bigger share than the other.”
60. And in Miller/McFarlane, he referred to the equal sharing principle as follows:
“When their partnership ends each is entitled to an equal share of the assets of the partnership, unless there is good reason in the contrary. Fairness requires no less. But I emphasise the qualifying phase: ‘unless there is good reason to the contrary’. The yardstick of equality is to be applied as an aid, not a rule.”
...
E.1.d Rejection of minute retrospective investigation
62. The fourth principle is that the court should not countenance any attempt to engage in costly and often futile retrospective investigations of the failed marriage which tend to deplete the parties’ (and the court’s) resources and to increase antagonism and discourage settlement.
63. Such attempts have been encountered in various contexts, including disputes over the extent of a party’s assets; over the contribution made to the welfare of the family; over the parties’ conduct; over claims to be compensated for having suffered some disadvantage, and so forth.
64. The English court’s response to allegations of “special contributions” by parties seeking to justify departure from an equal division is instructive. Referring in 2002 to the then growing practice of examining minutely the respective contributions of the parties, Coleridge J stated:
“The effect is not at all dissimilar to the ‘conduct’ debates of the 1070s. In those days ‘conduct’ was similarly raised against wives to try and limit their claims. However, the court, recognising the undesirable consequences inherent in those arguments and further the impossibility of fairly adjudicating upon them introduced the concept of ‘obvious and gross’ very effectively to limit their application. It is suggested by some that these current ‘special contribution’ debates are reintroducing conduct by the backdoor. I would say by the front door.”
His Lordship added:
“... the parties are not assisted to achieve compromise when they are encouraged by the law to indulge in a detailed and lengthy retrospective involving a general rummage through the attic of their marriage to discover relics from the past to enhance their role or diminish their spouse.”
65. The court’s disquiet was noted by Lord Nicholls in Miller/McFarlane:
“Apparently, in this post-White era there is a growing tendency for parties and their advisers to enter into minute detail of the parties’ married life, with a view to lauding their own contribution and denigrating that of the other party. In the words of Thorpe LJ, the excesses formerly seen in the litigation concerning the claimant’s reasonable requirements have now been ‘transposed into disputed, and often futile, evaluation of the contributions of both of the parties’ : Lambert v Lambert [2003] Fam 103, 117, para 27.”
66. Heeding Coleridge J’s “powerful observations” in G v G, Lord Nicholls held that:
“Parties should not seek to promote a case of ‘special contribution’ unless the contribution is so marked that to disregard it would be inequitable. A good reason for departing from equality is not to be found in the minutiae of married life.”
67. Adopting the dictum of Bodey J in Lambert v Lambert, his Lordship explained that disregarding the contribution would not be inequitable unless the circumstances are “of a wholly exceptional nature, such that it would very obviously be inconsistent with the objective of achieving fairness (ie, it would create an unfair outcome for them to be ignored.”
68. Baroness Hale took the same view, holding that this question should be approached by deploying a standard equivalent to the “obvious and gross” standard applicable in “conduct” cases.
69. The essence of the fourth principle is reflected in Thorpe LJ’s illuminating comment in Parra v Parra:
“... the outcome of ancillary relief cases depends upon the exercise of a singularly broad judgment that obviates the need for the investigation of minute detail and equally the need to make findings on minor issues in dispute. The judicial task is very different from the task of the judge in the civil justice system whose obligation is to make findings on all issues in dispute relevant to income. The quasi-inquisitorial role of the judge in ancillary relief litigation obliges him to investigate issues which he considers relevant to outcome even if not advanced by either party. Equally he is not bound to adopt a conclusion upon which the parties have agreed. But this independence must be matched by an obligation to eschew over-elaboration and to endeavour to paint the canvas of his judgment with a broad brush rather than with a fine sable. Judgments in this field need to be simple in structure and simply explained.”
70. The four principles discussed above should be borne in mind when embarking on the section 7 exercise to which I now turn.”
37. His Lordship then proceeded to state the steps to be taken in the section 7 exercise which may be summarised as follows:
Step 1: Identification of the assets
Step 2: Assessing the parties’ financial needs
Step 3: Deciding to apply the sharing principle
Step 4: Considering whether there are good reasons for departing from equal division
Step 5: Deciding the outcome
38. It is with these principles and guidance that I shall embark on the section 7 exercise, starting with Step 1 as stated above to identify the assets of the parties, which is really at the heart of their disputes including the whereabouts of the Wife’s share of the sale proceeds of the former matrimonial home of HK$3 million and the true interests of the parties in the various companies/business in which they have been involved from the time of their separation and divorce up to the presence, as both have accused each other of failing to make full or frank disclosure of their means, starting with the Wife’s.
Wife’s Assets
39. The assets which the Husband takes issue with the Wife either as to whether she has any beneficial interest in them or the extent and/or true value of such interest can be broadly summarised as follows:
(a) Her savings and capital situation including in particularly her half share in the sale proceeds of the former matrimonial home;
(b) Her interest if any in a China property purchased with her siblings;
(c) Her inheritance from her father’s estate;
(d) Whether she is still running TL International and if so what are its profits and worth, and if not what has happened to her shareholding in that company;
(e) What has happened to GK Electronic;
(f) What are the value and income of her shareholding in LS Ltd;
(g) Does she have any interest in TG Creation Ltd?
(h) What are her income from those companies if in fact she is found to be so interested in?
Bank Savings
40. As already noted the main issue over the extent of the Wife’s capital is what happens to her half share of the sale proceeds of the former matrimonial home of some HK$3.1 million received in 2008, all of which she claims to have since spent on maintaining the children and herself due to lack of income from her business and insufficient maintenance from the Husband, which claim was of course rejected by him as she had all along been receiving substantial income from her business and with his regular interim maintenance for the children, he fails to see how she could have spent most if not all of the HK$3 million and suspects that she has hidden or concealed it elsewhere.
41. It seems therefore to me be a straightforward accounting exercise of that HK$3 million but given the fact that it would go back some 9 years ago, and bearing in mind of the 4th principle mentioned in LKW above to reject minute retrospective investigation, and given the nature of the spending of that sum allegedly by the Wife on living expenses on herself and the children, I propose to adopt a broad brush approach to deal with this issue.
42. Regarding the sale of the former matrimonial home in 2008, it is common ground that the sale proceeds of HK$6.3 million were made to the parties by 2 payments, being first the down payment of HK$630,000 followed by the net balance, and that the Wife’s share were paid into her HSBC Premier Account # 497-168526-888, as evidenced from her disclosed bank statements by the deposit of HK$2.7 million on 13th September 2008 which brought the balance then to almost HK$3.6 million [B5/499].
43. By the time of the Wife’s 1st Form E filed in July 2010, that balance of HK$3.6 million in her HSBC Premier Account had come down to about HK$2.2 million, a decrease of HK$1.2 million over about 2 years [B4/1320], which is at an average rate of only HK$50,000 per month, whilst an examination of the disclosed bank statements for that period from September 2008 to July 2010 reveals nothing unusual or the sort of large unexplained or suspicious withdrawals which may resemble the kind of dispositions to conceal assets as suspected by the Husband, nor could he during the trial convincingly point to any particular transactions in those statements in support of his case.
44. In the premises I am satisfied that the Wife has properly accounted for her half share of the sale proceeds of the former matrimonial home, but according to the Husband that does not necessarily follow that the Wife has fully and frankly disclosed all her bank accounts or capital position, as he suspects that she is still running her business in headsets and health products either through TL International or other companies with substantial income or profits which she no longer deposits into her said HSBC Premier Account or other disclosed accounts, of which it is my view that it can only be considered properly when I come to examine later the evidence about her business and companies.
China Property
45. It is the Husband’s case that during the marriage in the early 2000s that the Wife had once brought the family to view a unit at “Tung Fung Plaza” in Guangzhou which she claimed to have been purchased together with her 3 siblings back in the 1990s for investment, and that in his narrative affidavit he found that its market value at about RMB3 million or the equivalent of HK$3,860,000, and hence the Wife’s ¼ share would amount to HK$965,000 but which she has never disclosed in any of her Form E.
46. The Wife denies to have any interest in the property which she claims was purchased by her 2 brothers as their investment and registered in their names only which has nothing to do with her, and that whilst she might have brought the Husband to view it during the marriage, she insists that she only told him that it belonged to her brothers.
47. The Wife’s evidence that the property is registered in her brothers’ names only without hers appears not to have been challenged by the Husband, which then raises the obvious question of why it is not also held in the Wife’s name if she is one of the owners?
48. There could of course be all sorts of reasons or arrangements for the Wife to still have a beneficial interest in the property without being registered as a legal owner, with the most common one being the brothers holding her share on trust for her, but there is simply no evidence or even argument being put forward by the Husband of such an arrangement during the trial other than some bare allegation that he had been told by the Wife during the marriage that it was her joint investment with her siblings.
49. In fact it is not even clear whether this property is still held by the brothers, and if so who is using it or whether it has been let out and what happens to the rental income, and if it has been sold, what happens to its sale proceeds? There is simply no evidence on these matters concerning the property before me, and the burden to adduce them is clearly on the Husband. In the premises, and although when it comes to other much more controversial issues over the Wife’s other assets when it will become apparent later in this judgment that her credibility will be called seriously into question, as regard this property, I am unable to say with any certainty that she may have any interest therein.
Inheritance from Father’s Estate
50. Whilst it was never disclosed in any of her Form E or affidavits, the Wife conceded under cross-examination that she was one of the beneficiaries under her deceased father’s will and entitled to 20% of his estate which consisted essentially a property in Shatin with a net market value of HK$3 million according to her, but which the Husband believes to be worth at least HK$3.8 million, Mr Cheng argues that even on the Wife’s estimation, her share would be worth at least HK$600,000 which he submits should be included as part of her assets.
51. The reason why there was never disclosure by the Wife in any of her Form E of such interest is that her father only passed away in early 2015, and that under his will, the Shatin property was to be jointly enjoyed by all the siblings with the right to either sell it or occupy it for their own enjoyment, and that in the event of its sale, a sum of HK$100,000 should be reserved for the premium payment for a columbarium cell, presumably for his remains [B5/436-444].
52. Mr Chow submits for the Wife that there is no other evidence to suggest that she has received anything else from the estate, and therefore her share of the Shatin property should be treated as non-matrimonial asset for the purpose of division in these proceedings given its source and the time of her accrual, nor should it be a factor to deprive her of her entitlement to a equal sharing of the matrimonial assets.
53. In any event, Mr Chow argues, as the property was purchased by the father under the Government’s Home Ownership Scheme and therefore a premium will have to be paid to the Government before it can be sold. In any event, the Wife argues that since her elder brother and his family is now occupying the property, and with her share at only 20% under the father’s will, she will have no say as to its sale and hence her interest therein is insignificant.
54. I agree that the Wife’s share in the property is in the circumstances insignificant and uncertain as to when and how it will be vested with her, and given the fact that her inheritance only came into effect long after the parties’ separation and divorce, whatever she stands to receive in the uncertain future can at best be said to be quite remote. I shall next turn to the most controversial disputes between the parties, which are over the Wife’s true interests in various companies, starting with the one which was indisputably their main financial resource during the marriage but which the Wife now claims to have ceased business due to heavy losses after the divorce and which the Husband takes serious issue with.
TL International
55. It is the Wife’s case that this company had been making heavy losses the past few years and therefore she decided to give up its business in about 2013 and has since formed LS Ltd to provide agency and consultancy services only, hence TL International is no longer her business and with no capital or assets, it has literally no value and hence not anything worth considering.
56. Whilst it was at one time the Husband’s intention to claim for the value of his shareholding in the company after being terminated as to his directorship by the Wife and/or for compensation for unfair dismissal, it now seems that he has abandoned that claim and that his case now is that the Wife is still running her business as before but through another company not disclosed, and hence the value of TL International as at 2013 including the director’s loan of more than HK$2 million owed to the Wife would amount to HK$5.8 million and should therefore be included as either part of her assets or of their matrimonial assets.
57. There is no question that the Wife was the controlling director of TL International with 72% shareholding as disclosed in her 1st Form E in 2010 with sole signatory right to its accounts to the exclusion even the Husband and that she was receiving HK$55,000 per month in director fees and housing allowance up to April 2010, and then after the Husband’s departure and by the time of her 2nd Form E in 2011 her shareholding went up to 90% but as noted above she claimed in that Form E of still not receiving any income from the company, although this time she stated that it was from April 1, 2011 and that due to the financial situation of TL International there was no assurance that she would resume her previous earning power [B3/1011-1034].
58. Hence the obvious question to ask is if what the Wife claims is true: What has happened to the business and finance of TL International since 2010 that caused it unable to pay her any income and eventually to cease business in 2013?
59. In her 1st Form E the Wife blamed it on “insufficient cash flow in the company” under Part 3 where she disclosed and explained about her income or rather the lack thereof [B4/1325].
60. She then went on to state in Part 5 the following conduct of the Husband which she claimed should be taken into account in the ancillary relief proceedings which may explain her alleged cash flow problem in the company [B4/1329]:
“The Respondent was a director of TL International. The Respondent has seriously breached his director’s duties, including but not limited to misappropriation of the company’s funds and assets, suspected bribery and diverging company’s business to another company...”
61. In that Form E the Wife also attached the company’s audited reports and financial statements for 2007 and 2008 showing an annual sales in excess of HK$10 million and HK$11 million respectively, with a net profit of some HK$473,000 recorded for 2008 after deducting for its general and administrative expenses including directors’ fees and emoluments totalling over HK$1 million for the parties which appear to dovetail well with their income disclosed in their first Form E [B4/1429].
62. However, the audited accounts for the 2 years to follow, 2008 and 2009 annexed to the Wife’s 2nd Form E in 2011 show a significant drop in its annual sale for 2009 at HK$8.91 million and for 2010 further down to HK$5.84 million with a net loss of HK$140,000 for that year which may explain why the Wife’s director’s fees ceased in April 2010 as the company’s general and administrative expenses recorded that the total amount of director’s fees paid for that year amounted to only HK$290,000 [B3/1091-1209].
63. That was of course the year when the Husband left the company, and he questions whether the audited account shows an accurate picture of the company’s financial state in particularly of a new item of expenditure namely “Counter Management Charges” created only after his departure for HK$688,436.70 [B3/1116] of which the Wife explained under cross-examination were the same commissions payable as before but merely under a different terminology used by her accountant in the audited reports as from 2010, but which the Husband suspects were in fact disguised payments to the Wife as either her drawings or part of her director’s fees so as to paint a false picture of the financial state of the company or of her true income position in these proceedings.
64. In support of his argument the Husband has produced a schedule of the normal item of commissions paid over the years going back to 2008 compared with the new item of Counter Management Charges starting from 2010 after his departure from the company to 2014 [Annexure C to Husband’s Closing Submission] to demonstrate that the commissions paid before 2010 were normally between 8.75% and just over 10% of the Annual Sales, but the new item of Counter Management Charges after 2010 amounted to 25.8% in 2010, 44.7% in 2011, 44% in 2012, 49.8% in 2013 and 39% in 2014 of the Annual Sales which he argues as ridiculously high and wholly disproportionate for commissions payment, let alone for doing the company’s account, and that for whatever reason to have such an item of expense simply defies business sense, which is why he argues that these so-called charges were in fact the Wife’s own drawings from the company for her own use disguised as something else paid to others so as to mislead the court as to her true income position in these proceedings. This seems to me some convincing argument from the Husband.
65. Furthermore, Mr Cheng argues for the Husband that prior to April 2010 when the Wife was still regularly receiving her director’s fees and housing allowances from the company which she agreed were paid into her HSBC account, but that she failed to explain why the last 2 payments leading up to April 2010 did not appear in the bank statements, whereas her subsequent bank statements show substantial payments in such as HK$105,000 in 2012, HK$180,000 in 2013 and HK$45,000 in 2014 when she claims that the company had stopped paying her any income, hence he suspects that she has still been running its business with regular income but has painted a false picture about its business because she did not want the court to know her true income position.
66. The Husband also takes issue with the amount for the item of “Legal and Professional Fees” which the Wife explained under cross-examination as payments to her brother-in-law for doing the company’s accounting work after the Husband’s departure in 2010, of which he argues as suspiciously high at HK$143,000 in 2010, HK$218,000 in 2011, HK$240,300 in 2012, and HK$161,355 in 2013 when compared with the much lower figures before he left, such as HK$20,000 in 2007, HK$58,585 in 2008, and HK$22,500 in 2009, hence he suspects that those higher amounts after he left were in fact also part of the drawings for the Wife but disguised under this item.
67. Another controversy over the accounts of TL International is the Director’s Loan of HK$2,216,511.56 owed to the Wife which he argues should be treated as part of her assets. The Wife does not dispute the existence of this loan which she did disclose in her first two Form E, in which she also stated that she would not expect to be repaid given the company’s cash flow and financial problems. Her case is that when TL International ceased business, she was never repaid this loan as the company had no cash left hence it should just be written off.
68. Mr Cheng however argues for the Husband that the account should be taken at the time of the divorce in 2010 when the company’s audited report stated its Current Assets at HK$3,130,357.89 whilst its Current Liabilities were only HK$2,937,911.50, while the Cash Flow Statement showed cash and cash equivalents at end of the year of HK$915,463.05 which was slightly less than the year before at HK$1.1 million, and hence he submits that there should be sufficient means to pay off the Director’s Loan of HK$2.2 million to the Wife at that time [B3/1118-1205]. In any event the Husband simply does not accept what the Wife said about the cash flow problem of TL International.
69. Equally significant is the controversy over whatever happens to what appears to be an even more valuable asset of TL International, i.e. GK Electronic which the Husband believed to be worth RMB1.5 million in 2010 but even more valuable according to the Wife as much as RMB3 million, which is what I propose to discuss next given its close connection/relationship with TL International.
GK Electronic
70. As already noted above this company was formed by the parties in 2002 primarily for distributing and selling the products of TL International in the Mainland, with the Wife’s cousin CSF and a friend ZK both residents of Guangzhou registered as the company’s legal representatives as required by the local regulations, and the Husband being authorised to deal with its business together with the two legal representatives, but with TL International as the true owner at least according to the Wife, as evidenced by the said June 17th Letter (“Termination Letter”) issued by her through TL International to the Husband terminating his directorship and service in the company when she stated the following about GK Electronic [B4/1478]:
“This company [is beneficially owned by our company] and it was your duty to set it up and supervise the running. The purpose of [GK Electronic] is trading our company’s headset products in Mainland China. There are branch offices set up by you at Beijing, Shanghai and Chengdu ...”
71. The Termination Letter went on to set out a whole series of wrong-doing and breaches of duties which the Husband was said to have committed in running GK Electronic for which he was asked to give his full explanation on the following matters [B4/1479]:
“(1) You have caused the goods of our company being sold to (GK Electronic) through three different channels ... please explain this arrangement.
(2) We have recently discovered that a number of goods sold to (GK Electronic) direct were arranged by you to deliver them by a courier company ... Upon enquiry with this courier it comes to light that there is no proper custom clearance for the goods delivered to (GK Electronic). You are well aware that our company would not authorize any illegal and improper trading and any such conduct is strictly forbidden by our company. Therefore we demand you to give a full explanation if custom clearances for all goods delivered by this courier are cleared. If so, please provide all custom clearance documents. If this is not done, please explain why. You as an experienced importer of goods into Mainland China, you are well aware that failure to go for custom clearance is illegal and is considered as a very serious offence. If this is not done, we demand you for immediate report to the Chinese Custom and put the matters right as once. We hereby reserve all our rights on your wrongdoings in this respect unless a full and satisfactory explanation is given by you.
(3) Since (GK Electronic)’s formation in or about 2002, [for the goods selling to (GK Electronic) direct] our company provided all the finance for the purchase of the goods solely for the operation of (GK Electronic) in Mainland China which in turn purchased the goods from our company on credit term. However we have discovered recently that you have, without our knowledge and at the detriment of the interest and benefit of our company, allowed and provided the most unusual long credit term for (GK Electronic) extending from 2003 to 2010. Please explain this arrangement when (GK Electronic) is making profits from the past years.
(4) Payments for the goods [selling to (GK Electronic) direct] were only made by (GK Electronic) since about August 2009 and yet a large sum of money remains due t and payable by (GK Electronic) to our company ... in a report prepared by our account department ... it shows a record of amount due from (GK Electronic) for the period from march 2003 to Jan 2010, the amount due from (GK Electronic) to our company amounts to HK$1,313,395.80. Please explain the above and produce your supporting documents.
(5) It is noted that there were no standard of pricing for the sale of the headsets to (GK Electronic), please explain ...
(6) In the Chinese Table, there is a record of expenditure of RMB207,030.00 as advertisement expenses ... please explain and produce supporting record and document for this advertisement including its invoices from the agent.
(7) From our record, it shows the products under model ... were sold by our company to (GK Electronic at HKD140.00 each. Subsequently, you claimed there were overseas orders for our company and required these models to be returned to our company by (GK Electronic). However, these products were sold back to our company at costs at RMB180.00 (equivalent to HK$210.00) which gave (GK Electronic) a profit of HK$60.00 each, please explain.
(8) Change of invoices after delivery of goods to (GK Electronic) ... please explain.
(9) A contract was signed between (GK Electronic) and our company with KJ Electronic ... concerning the sale of the headsets products dated 27th September 2006 ... Prior to the 2006 Agreement, our company sold products bought from KJ to (GK Electronic) at a profit, but after the 2006 Agreement, products were sold direct from KJ to (GK Electronic) and yet (GK Electronic) is using the credit terms of our company and our company is kicked out of the picture. Please explain and provide records of profits earned by (GK Electronic) in this sale.
(10) On the ownership of the logo of “Kontact”, our company has used the logo of Kontact ... in our headset products on or before 2003. The ownership of the logo belongs to our company ... However the 2006 Agreement signed by you implied that the ownership of the logo belongs to KJ ... Please explain. It was also agreed that you would arrange the logo of “Kontact” to be registered under the name of our company in Hong Kong, please explain why it is registered in your name. You are hereby demand for immediate rectification of the ownership of this logo at your cost.
(11) Likewise, the registration of the logo of (Kontact) in the Mainland China should be our company but instead it is under the name of Cheng Ching. Please explain and we demand you to rectify this situation at once.
(12) Goods manufactured by Addcom for Kontact model ... were purchased by our company before its sale to (GK Electronic for a profit since 2004. You informed our company that these two models have been stopped selling to (GK Electronic) since 2008. However, it is found out that these two models are still on sale by (GK Electronic), please explain.
(13) We are informed that you are receiving deposit of a sum of RMB5,000.00 on a monthly basis into your China bank account from Cheng Ching and occasionally a sum of RMB50,000, and RMB80,000 from (GK Electronic). Please explain what are these money for and provide all supporting documents to such documents.
(14) Since the formation of (GK Electronic) in about 2002, despite its substantial sale of headset at a high profit margin there is no report of profits from (GK Electronic), please explain. You are also required to produce all documentary records of (GK Electronic) covering all three branch offices for these three years (we reserve our right to demand for records going back to its formation) including but not limited to ... books of accounts, sale invoices, all bank statements, staff records, and stock records.”
72. Perhaps more significantly the Termination Letter also referred to the Husband’s suggestion to sell GK Electronic for RMB1,500,000 (in the Letter it was stated in HK$ but actually in RMB) allegedly without TL International’s approval and he was therefore told to immediately cease any negotiation of such sale [B1/368]:
“Despite (GK Electronic) was set up by you being a company in China beneficially owned by our company, you have once informed our company that due to technical problem, (GK Electronic)’s shares could not be held by our company direct and you have found a local staff(s) in mainland to hold the shares of (GK Electronic) on trust for our company, but you have never report to our company the exact shareholding of (GK Electronic). Please provide us details of the directorship and shareholdings of (GK Electronic) since its establishment.
You have recently informed our company that you proposed to sell the whole (GK Electronic) at a value of around HK$1,500,000 when there is a turnover of over RMB10,000,000 per year. There is no such proposal put before to the Board of Directors and you have no authority to proceed with any of such sale. In this regard, we hereby demand you to immediate cease any negotiation of such sale. We reserve all our loss and damage in this regard.”
73. There were of course still other allegations of misconducts set out in that 8-pages Termination Letter against the Husband but which are not relevant to GK Electronic, and suffice it for the present purpose to note that it concluded with a demand to him to “give a full and satisfactory answer and/or explanation to the matters set out in the above within 7 days from the date of this letter and we reserve our rights to raise further questions and enquiry in relation to your operation and management in our company. If we do not hear from you with the proper answer, we shall proceed with legal action without further notice.”
74. Obviously there were already disputes between the parties over GK Electronic earlier in 2010 which eventually led to their open confrontation and the said Termination Letter, as evidenced by the various letters and emails produced by the Wife as Exhibits P14 - P16 in which the Wife raised concerns that GK Electronic was approaching the manufacturer of certain headsets products of TL International directly for their supply by-passing TL International, and demanded the Husband to stop GK Electronic from doing so as otherwise he would be held liable for all the losses of TL International.
75. It is the Husband’s unchallenged evidence that upon receipt of the letter he decided to leave TL International to avoid any further confrontation with the Wife but also without complying with any of those demands set out in that letter, as when he subsequently sought advice from counsel as to his right over the termination of his directorship by the Wife, he was advised to let it be dealt with at the ancillary relief proceedings in their divorce case.
76. The upshot however from this dispute over GK Electronic is that neither the Wife nor TL International had taken any further action against the Husband notwithstanding his admittedly failure to comply with any of their demands, which begs the obvious question: Why has the Wife not taken any further action against the Husband and what has actually happened to GK Electronic which was clearly regarded as a valuable asset of TL International and therefore to the Wife?
77. I should pause here before going on to try to look for an answer to that question to point out that the Wife has impressed throughout the proceedings as a clever, demanding, aggressive and tenacious person and clearly to me the dominant party in these proceedings and quite possibly throughout the marriage, whilst on the contrary the Husband appeared to me a much more laid back, indecisive and submissive person prone to run away from confrontation and panic attacks. Such contrast in character between the parties cannot be more demonstrative by the way the Husband’s position in TL International was terminated by the Wife.
78. Whilst he does not dispute that he did in 2010 suggest to the Wife to sell GK Electronic for RMB1.5 million which was the equivalence of about HK$1.72 million at that time, Mr Cheng submits that it is obvious from the Termination Letter that the Wife believed it was worth much more given what she alleged to be its an annual turnover of over RMB10 million which was the reason why she objected to its sale at his proposed price.
79. However Mr Chow argues for the Wife that that was not the proper interpretation of what she had stated in the letter, and argues instead that she was merely repeating what the Husband had told her about the annual turnover of GK Electronic as she had no idea of how much it was worth at that time, and that she objected to its sale because it had never been put before the Broad of Directors of TL International as stated in the Termination Letter.
80. With respect I find this argument of the Wife difficult to accept. Firstly, on her own admission the Termination Letter was prepared by the same solicitors who earlier issued her divorce petition in April 2010 and represented her during the early stage of the proceedings. Given the many information and materials referred to in great details in that Letter it is obvious that the Wife took it very seriously of her complaints and accusations against the Husband for those breaches of his director’s duties which caused TL International to terminate his service with immediate effect.
81. Secondly, with the only directors in TL International being just the parties and it is clear from the said Letter of the many misconducts and dealings accused of the Husband in the company going back for some years for which he was demanded by the Wife to explain, it seems incredulous to me that she objected to the sale of GK Electronic not because she found the Husband’s proposed price too low but because it was never put before the Board of Directors which constituted essentially just the parties, when such strict compliance of company’s rules and formality is in reality rarely undertaken in typical family business run by married couples, and given the historical background of this case when according to the Wife the Husband appeared to have been given free rein to run their business during the marriage, I must admit to have great difficulty accepting the Wife’s reason for objecting to the sale simply because the Husband’s proposal was never brought before the Board of Directors.
82. In fact, this is what the Wife stated in her narrative affidavit of why she believed that GK Electronic may even be worth RMB3 million at that time [B1/164-165]:
“(2.3) (GK Electronic) for 3 million
...
(b) As found ... The Respondent failed to give us an explanation and refused to disclose the potential profits of this company. According to the verbal confirmation from (Petitioner’s cousin), this company was making a net profit of 3 million in RMB for the year of 2009 with the sales turnover over RMB10 million. In early 2010, the Respondent proposed to the Petitioner to sell around 50% of shares at HKD1.5 million. The Petitioner talked to the potential buyer before. It is estimated that the Respondent may take this amount for his own sake.”
83. She further elaborated in her evidence at the trial as to why she thought that GK Electronic was worth RMB3 million [B5/347]:
“官：係。係，咁妳喺嗰個164頁嗰度講呢間康製，關於提到一個咩嘢3,000,000人民幣？
答：係，我--我㨴番嗰度。Okay，咁呢度提到點解會有$3,000,000呢，第一件事就係當日區生已經將康製有限公司嘅百份之五十以上嘅股權已經係賣走咗㗎喇，剩番落嚟嘅係百分之四十幾 -- 49定唔知47，我唔係好記得。咁然後但係當日秀風--陳秀風就話畀我聽，佢透過另外--區生就話剩下呢五十--即係四十幾至五十個per cent，有人作價係$1,500,000去買入，而當時想買嗰個叫鄭青（譯音）。咁鄭青就係一路係幫區生做嘢嘅同事嚟嘅，咁佢就話凈係餘下嗰個都有$1,500,000資產嘅--唔係，即係佢用$1,500,000嚟買呢間公司。咁如果你係100個per cent嘅，呢一間公咪市值$3,000,000囉。咁嗰日我亦都打過畀秀風囉，我話呀，而家作價$1,500,000，其實值唔值呀咁樣。咁當日秀風佢--佢話其實間公司真係值呢個數，因為點解呢？佢睇過佢嘅現金流喇，同埋即係間公司嘅現金同佢嘅貨存已經超過$1,500,000。咁即係...”
84. In fact as already noted above, as evidenced from the Wife’s own Exhibit P15, a letter dated 18th May 2010 from her to one of the legal representatives of GK Electronic namely ZK in which she referred to their earlier telephone conversation over the offer to purchase GK Electronic from TL International, and requested that such proposal be made formally in writing to her with the purchase terms and conditions.
85. It therefore seems clear to me that the Wife was at that time well aware of the proposed purchase of GK Electronic and that she was prepared to enter negotiations and consider selling it at the right price, but that she obviously did not want the Husband to deal with it as she found the proposed sale price of RMB1.5 million too low and she believed that it could be worth twice as much at RMB3 million at that time.
86. In the premises, the fact that GK Electronic was such a valuable asset to both the Wife and TL International at that time, coupled with what she claimed to be the Husband’s numerous alleged breaches of duties and misconduct which if true, as she pointed out in the Termination Letter, would indeed be detrimental to TL International and likely to have caused financial losses to the company including the HK$1.3 million owed by GK Electronic for goods sold but unpaid, and which allegedly led her to state both in her many affidavits and her testimony that the company could no longer pay her any income since April 2010 due to its cash flow problems as a result of the Husband’s breaches of his director’s duties and misconduct, that eventually the company had to cease its business by end of 2014 with a total net loss for more than HK$600,000 for that year, and that she has instead turned to promoting health products for other companies such as TG Creation with little income, all of which just make it all the more illogical and implausible that the Wife has taken no further action against the Husband after firing him from TL International, and more significantly nothing further has been disclosed about whatever happened to GK Electronic and its assets, or for that matter its proposed sale.
87. All these according to the Husband can of course be easily explained in that he believes that she is still running her business in headsets and health products as before but disguised by another company which he suspects to be TG Creation, and that she must have through her cousin either already sold GK Electronic for RMB1.5 million or more, or is still running its business in the Mainland through her cousin without proper disclosure.
88. For the reasons given above I agree that there are strong and valid points in the Husband’s arguments, but before I am able to arrive at any firmed conclusion about indeed what have happened to TL International and GK Electronic, it would be relevant for me to now proceed to consider the evidence of the two other companies in dispute, first LS Ltd which the Wife set up in 2013, and TG Creation which she claims to have no interest at all save for occasionally assisting in renting proper stall and space for it at trade and exhibition shows, but all of which the Husband suspects as just a facade to cover up the true state of her companies and businesses.
LS Ltd.
89. This company was set up by the Wife in July 2013 allegedly to provide agency and consultancy services after she allegedly ceased the business of TL International, and with its registered office at Room 507, 5/F, Opulent Building, 402 Hennessy Road, Wanchai right next to the former registered address of TL International’s registered office at Room 505 - 506, and with herself as the sole director and shareholder but is said to be not making any profit. According to its audited report for the year ended 31st December 2014, the company had a turnover of some HK$810,000 but after deducting for costs and expenses it had a net loss for almost HK$8,000, with assets consisted only of accounts receivable in HK$220,000 and cash and bank balances of some HK$33,000 [B5/426 – 435].
90. It appears that this company is not profitable and does not appear to have much capital or assets, and with administrative expenses as little as HK$66,787 for the entire accounting period of almost 1 ½ years and according to the Wife without having even to pay any rent as her friend who happens to be also trading in health products has kindly allowed her to use her office which she claims to have very infrequently attended.
91. Indeed the accounting figures recorded in this audited report of LS Ltd appear a far cry from those much more substantial ones shown of TL International, but the Husband believes that it is just a false front of the Wife’s business which he as noted above suspects has been moved from TL International to TG Creation, all of which were designed by the Wife to avoid his investigations, since he would certainly not be entitled to access or investigate the accounts of TG Creation as she is neither registered as a director nor shareholder, while LS Ltd obviously would not show much sales or profits by providing merely agency or consultancy services, and hence just a façade of her true income position.
92. Whether this is indeed the case, it would be relevant for me to now turn to consider TG Creation, the company suspected by the Husband as the reincarnation of TL International in the name of a third party but is actually owned by the Wife.
TG Creation Ltd.
93. This is according to the Husband the final destination where the Wife has moved all her business from TL International together with its stocks and many of its staff with the sole purpose of hiding her true income and assets position from him and the court in these proceedings. Whilst it is not disputed that according to the Company Registry records, the Wife is neither stated as the director nor shareholder of this company, the Husband claims that there are strong evidence to support his case that she is in fact the person running the company.
94. These evidence relied on by the Husband have been summarised by Mr Cheng in his Closing Submission as follows:
- that TG Creation’s working office is at the same address of both TL International and LS Ltd at Room 505-6 Opulent Building, Wanchai [B7/899K-902Q, B5/433, & Exhibit R6];
- that TG Creation is selling the same health product known as Aculife as TL International and LS Ltd [Exhibits R6 and R9];
- that TG Creation is using the same secretarial service company known as Profi Airo (Business Solution) Ltd used by the Wife in both TL International and LS Ltd [B7/897L-R];
- that TG Creation is using the same office telephone number of TL International [Exhibit R6];
- that during cross-examination the Wife stated that she would ask the Taiwan supplier of the health products Aculife to provide verification in writing that she is not the owner of TG Creation but it was never done;
- that the Wife has actively participated in TG Creation’s trade shows including giving sales and promotion talks on behalf of the company as well as introducing and promoting the company’s products together with her sister and other staff of TL International and LS Ltd to potential clients and customers at some of the trade shows [Exhibit R9 - 12].
95. The Wife denies to have any interest in TG Creation at all, and her evidence essentially is that when she decided to cease business of TL International, her former suppliers of its products such as Aculife from Taiwan therefore turned to supply the same products to TG Creation which happened to be in the same business, and when she learnt about this company, and with the old telephone number and office address of TL International no longer of use to her, she decided to let TG Creation take over them, and for convenience purpose she also referred the same secretarial company to TG Creation, and as the company found her experienced in selling the same health products, they decided to hire her to rent exhibition stalls for promoting their products at various trade shows and exhibitions, as submitted by Mr Chow that she acknowledged to have provided consultancy services to TG Creation only.
96. Mr Chow further submits that all the evidence produced and relied on by the Husband such as those photographs in Exhibits R-10 & R-12 are merely circumstantial, while the fact that TG Creation used the same office as the one used by TL International is neither here nor there, and that it is difficult to see any appropriate inference adverse to the Wife, as in fact the photographs show that at the material time LS Ltd was also doing its business and participating in exhibitions on its own.
97. Whilst I agree that there may be no direct evidence that the Wife is beneficially interested in TG Creation, and that each of those Exhibits relied on by the Husband is indeed no better than circumstantial evidence when each is considered in isolation, but when they are considered together with all the other facts and undisputed evidence before the court, I am satisfied that the Husband has able to convincingly demonstrate that the Wife’s evidence of how she came to have only provided consultancy services to TG Creation is in fact too much of a coincidence to be realistically credible.
98. Firstly, according to the Annual Return of TG Creation dated 10th October 2014 under Exhibit R-8, it was first incorporated as a shelf company with one share held by what appears to be a secretarial company namely Company Kit Secretarial Services Ltd, which was then purchased by a BVI company known as LV Ltd on 23rd October 2013 when that one share was transferred to it by the secretarial company. Hence it was set up at about the same time when the Wife allegedly ceased the business of TL International and formed LS Ltd, and as pointed out by the Husband, it also happened to use the same Company Secretary Profil Airo (Business Solution) Ltd as in the case of TL International and LS Ltd, of which the Wife claims to have conveniently introduced to TG Creation.
99. Secondly, of all office spaces available for renting in Hong Kong, the fact that TG Creation had chosen to rent the same working office of TL International at Room 505 – 506 Opulent Building right after the latter ceased business and that the former happened to be in similar business is simply too much of a co-incidence to be taken without any suspicion.
100. Furthermore, according to the Husband, the fact that LS Ltd is also selling the same health products as TG Creation which makes the two companies business competitors and it therefore makes no business sense for the Wife to sell the telephone system of TL International to TG Creation and to offer consultancy services to it including renting exhibition booths at trade shows and exhibitions to be attended also by LS Ltd.
101. The Wife of course denies that LS Ltd is a competitor of TG Creation, insisting that LS Ltd only provides agency and consultancy services, but according to the Husband’s Exhibit R-9 which includes an introduction of LS Ltd as one of the participating exhibitors of a trade show known as COSMOPROF ASIA 2013 in which LS Ltd was stated under ‘Product Category and Products’ as follows: “Aromatherapy Products and Treatments, Equipment for Professional Beauty Salons, Aromatherapy Products, Skincare Products for Retail and Mass Market Distribution, Alternative and Asian Traditional Medicine, Dietary Supplements (e.g. Herbal, Vitamin and Mineral), Products and Services Conducive to Healthy Living”.
102. Amongst Exhibit R-9 is also a description of LS Ltd by The Chinese Manufacturers’ Association of Hong Kong (CMA) as a company trading in health and beauty products, while TG Creation which participated in the trade show at International Conference & Exhibition of the Modernization of Chinese Medicine & Health Products from 13th – 15th August 2015 organised by HKTDC was stated as a company dealing in health products including the same brands of ‘Aculife’ and ‘Hebe’ which the Wife used to import through TL International.
103. Furthermore, the photographs produced by the Husband under Exhibit R-10 show the exhibition booth of LS Ltd at one of the trade shows with its staff promoting various health products to clients and customers including those of the brands of ‘Aculife’ and ‘Hebe’ which he submits will go to contradict the Wife’s evidence that LS Ltd only provided agency and consultancy services.
104. More significantly according to the Husband, Exhibit R-12 are photographs showing the Wife and some of her staff from TL International and LS Ltd actually working in the exhibition booth of TG Creation at another trade show of COSMOPROF 2015 held on 11th – 13th November 2015 promoting what appeared to be the same or similar health products of LS Ltd.
105. Whilst the Wife did explain that she was merely there helping out TG Creation which she emphasised was for free without pay, that some of her former staff of TL International have since joined TG Creation, and that the nature of their line of employment is invariably on part-time basis which means they could just come and go and hence it is not uncommon to see the same group of people working for different companies in similar trade, I still find the facts that TG Creation was set up at the same time when TL International ceased business and using the same working office, the same telephone number, the same secretarial company, and above all trading in the same or similar business as TL International and LS Ltd simply too much of a coincidence to be realistically credible.
106. Above all, if indeed it is true that the Wife did in 2013 cease the business of TL International and thus ending her dealership of various brands of headsets and health products including ‘Aculife’ from Taiwan, the proposition that TG Creation which was set up shortly thereafter and on record with only one ordinary share at the nominal value of HK$1.00 held by a BVI company without any financial information, business reputation or good will, and with not even its own business office or telephone system which was only later acquired from the Wife when she claimed it was no longer used by TL International, that TG Creation was able to acquire these dealerships within such a short time and apparently without any track record within the business community, and that even if TL International had never signed any exclusive dealership agreement for those products as alleged by the Wife, that these suppliers and manufacturers would award such dealership to TG Creation in the circumstances just defies common business sense and sounds too far-fetched to me and in reality simply incredible.
107. Equally far-fetched to me is the Wife’s evidence at the trial when she explained that in 2013 she decided to change her work to consultancy services instead of continuing with trading business which she had been doing for some 20 years because she wanted to spend more time studying and taking care of the children [B7/904]:
“答：咁因為而家--其實我而家呢段時間，我咪同你講我唔係好active做我嘅生意，我係鑽研，我--反而用咗嚟讀書同埋照顧小朋友呀，我過咗兩年去讀--喺香港同埋大陸我都讀緊唔同嘅書，係諗住愛嚟教書呀，我係做consultant，同埋真係做緊一啲諮詢嘅嘢，過去嗰兩年我真係做緊地下工作preparation呀，我已經係轉晒營，我冇再做TL International，所以完全唔同做法。
官：妳轉晒營呢啲嘢，有冇喺妳嘅誓章度講出嚟㗎？
答：我其實誓章裡面講，我大部分時間我照顧小朋友呀。
官：即係唔再經營任何生意㗎喇，而家？
答：好少，所以而家我就--我keep番LS Ltd，但我都有繼續讀自己嘅書呀，咁而係做consultant嘅工作。我而家租場嗰啲，因為只不過--因為我而家--以前我攞一啲關係，我去租訂一啲場地，我唔租嘅話，其實我最主要我租--租嗰啲場地...
官：咁如果係咁嘅話，咁我就想問妳喇，個LS Ltd唔係妳㗎喇，已經？
答：係我。
官：係妳嘅，咁妳租嗰個單位要幾多錢一個月？
答：我冇交到租呀，所以你喺LS Ltd嗰邊...
官：妳唔使交租嘅添㗎？
答：我冇交到租㗎，我都話而家507係我朋友，我愛嚟做掛單個名，同埋你去到嗰度睇，咁我今日影相喇，人哋根本賣天然保健食品嘅，我根本冇地方可以坐喺嗰度㗎，我而家最主要係consultant，所以點解我一開始去嗰度講座係提高自己知名度，咁第時人哋可以搵我講talk，同埋我讀咗一啲--好多手診師、讀咗自然療法、醫師，我有晒牌㗎，而家我可以--我可以返去補充番啲牌，咁我係咪可以用--行緊另外一門嘅工作囉。加上其實我都--我喺誓章裡面可以搵番出嚟，我根本就身體唔好。”
108. As pointed out by Mr Cheng for the Husband, both children were then already aged 14 and 16 full-time secondary school students and by now almost 18 and 20, and given the fact that the Wife had always worked on full-time basis even when the children were much younger, and that she has repeatedly complained of insufficient income and financial difficulties at that time, I find it indeed incredible that she would in that situation see fit to make such an important and drastic career change when her case is that notwithstanding the change her financial situation has not improved.
109. Again the timing of her decision for this career changes including ceasing the business of TL International is suspicious to the Husband who believes that it was prompted by the fact that by late 2012 when he filed his List of Issues [B5/1-7] for the ancillary relief dispute, it must have become clear to the Wife that their financial dispute was no longer confined to just over the equalization of their cash and capital position, but also all aspects of their financial resources, and for the Wife it meant her most valuable asset in TL International which the Husband had put at the top of his issues together with the whereabouts of her share of the sale proceeds of HK$3 million, and that in his 1st Affirmation he already set out his suspicious over her dealings of TL International by drawing money from the company any time she wanted, and by trying to transferring its shares to her friend at paragraph 2.5 [B5/10]:
“In order to hide the extent of her assets in the financial assessment, in 2010 the petitioner transferred the shares of the company to her friend. Upon query and pressure from my solicitors then, that it was illegal for her to do so without the agreement of the other shareholders, she subsequently told us that she had transferred the shares back to the company.”
110. Another suspicious part of the Wife’s evidence according to the Husband is that of her alleged financial problems including her lack of funds to hire lawyers for these proceedings, for which she claims to have to borrow HK$315,000 from a Madam Tam with whom she has been acquainted for more than 30 years, as evidenced by a IOU dated 10th January 2017 shortly before she instructed her present lawyers and produced by her Exhibit P-19, but as pointed out by the Husband that Madam Tam was in fact one of the Wife’s staff at TL International and was also seen working in the exhibit booth of LS Ltd or TG Creation at various trade shows, and whom he argues could not have the means to lend the Wife that kind of money and that it was in fact part of the Wife’s scheme to mislead the court of her true financial situation.
111. Furthermore, also pointed out by the Husband, that clearly by the time of her 3rd Form E in 2014 she disclosed of no income and with only HK$200,000 left of her capital but with substantial expenses for herself and the children every month, yet the only evidence of debt that she had at the trial was the HK$315,000 owed to Madam Tam for paying for her lawyers, which prompts the obvious question of how she has been able to manage to meet her monthly expenses other than the Husband’s interim maintenance without resorting to further borrowings? As the same for all other questions raised above, there is no logical answer from the Wife.
112. Similarly suspicious is her evidence as quoted above about the office of LS Ltd at Room 507 Opulent Building which she claims to in fact belong to a friend who happens also to be selling health products and that she was allowed to use it as the office of LS Ltd free of rent, whilst her evidence under cross-examination by Mr Cheng for the Husband that notwithstanding that TG Creation’s office was right next door at Room 505 – 6, which she claimed to be unaware of until she was confronted with photos of the office of both companies is indeed incredulous [Exhibit R-11].
113. In the premises and for all the reasons given, whilst there is no direct evidence that the Wife has moved the business of TL International to TG Creation or that she is beneficially interested in the latter, all the evidence before the court, albeit as pointed out by Mr Chow circumstantial, have convinced me that the Wife has not fully or frankly disclosed her true financial situation in particularly as to her interests in those companies mentioned above, a duty clearly and explicitly imposed on both parties involved in ancillary relief proceedings.
114. One cannot over emphasise this duty to make full and frank disclosure of the parties’ financial means and assets which implicitly underlines Step 1 of the section 7 exercise to be taken by the court to identify the parties’ assets as detailed above by the Court of Final Appeal in LKW supra, the importance of which has also been stated in Rayden and Jackson on Divorce and Family Matters, 18th edition at Chap 17.28:
“The importance of the duty of both husband and wife to make disclosure of their assets which is full, frank and clear cannot be over emphasised. Unless a court is provided with correct, complete and up-to-date information on the matters to which, under s 25 of the MCA 1973, it is required to have regard, it cannot lawfully or properly exercise its discretion in the matter ordained by that section. The duty of each party is absolute, and it must be discharged regardless of whether the application for ancillary relief is adjudicated upon by the court after full evidence has been heard, or settled after an exchange of financial information between the parties leading to a consent order. The duty is also a continuing one; a party must not mislead the other party and the court into assuming that his financial situation is unchanged if it in fact has changed. Any material change in the financial situation of either party occurring between the filing of their Form Es and the final dispatch of the claims by the court must be brought to the notice of the other party and the court at the earliest opportunity. A party who seeks to negotiate and secure a settlement without informing the other party about a material change in his or her financial circumstances runs the risk that, if a settlement is reached and a consent order is made, the consent order will be set aside by the failure to provide full, frank and timely disclosure. Shortcomings in disclosure will be visited by orders for costs against the offending party, often on the indemnity basis. Furthermore, deviation from the standard of disclosure required may be visited by the court drawing adverse inferences against the party in default.”
115. This principle has been emphasised in the authorities and particularly succinctly in J-P C v J-A F [1955] P215, [1955] 2 All ER 617, CA when the English Court of Appeal stated:
“The obligation of the husband in maintenance proceedings is to be full, frank and clear in his disclosure of his means to they court, and any shortcomings in this respect can and normally should be visited at least by the court drawing inference against him on matters the subject of shortcomings.”
116. In Baker v Baker [1995] 2 FLR 829, where the Court of Appeal held that the trial judge was entitled to draw adverse inference against the husband and the standard of proof in a case where material non-disclosure was alleged was the ordinary balance of probabilities, Otton LJ emphasised that failure of such duty to make full and frank disclosure would severely undermine the integrity of the legal process at 837B:
“ ... I wish to add a passage only by way of emphasis. Under statute and from authority ... there is a duty upon a party in proceedings such as these to make a full and frank disclosure of all matters relevant to the assessment of the financial position of the parties and the relief to which a spouse is entitled. The integrity of the legal process would be severely undermined if a party were permitted (and seen to be permitted) to evade that duty by a deliberate and stubborn refusal to make such disclosure to the other party and, more important, to the court.”
117. Such approach is wholly supported by authorities, starting with the classic case of J-P C v J-A F supra when Sach J stated the classic passage at p227:
“In cases of this kind, where the duty of disclosure comes to lie on a husband; where a husband has – and his wife has not – detailed knowledge of his complex affairs; where a husband is fully capable of explaining and has had opportunity to explain, those affairs, and where he seeks to minimize the wife’s claim, that husband can hardly complain if, when he leaves gaps in the court’s knowledge, the court does not draw inference in his favour. On the contrary, when he leaves a gap in such a state that two alternative inferences may be drawn, the court will normally draw the less favourable inference – especially where it seems likely that his able legal advisers would have hastened to put forward affirmatively any facts, had they existed, establishing the more favourable alternative.”
118. A case in point is F v F [1994] 1 FLR 359 where the wife petitioned for divorce following a 5-year marriage, but before her application for ancillary relief was heard, the husband was declared bankrupt. The wife then sought an annulment of the bankruptcy order on the basis that the husband had presented his financial position in a fraudulent manner and had deliberately failed to disclose assets including those located abroad. In holding that the husband’s explanation of his financial position was fundamentally implausible and that the bankruptcy order was an abuse of the process of bankruptcy and must be set aside, Thorpe J (as he then was) ordered him to pay a lump sum of £150,000 to the wife, and gave his reasons at 367C:
“So if he has conducted his affairs throughout the marriage in such a covert fashion as to relieve him of the ordinary obligations of citizenship to support the State through tax contribution, if he has conducted these proceedings in a vain endeavour to maintain that camouflage, if in consequence the obscurity of my final vision results in an order that is unfair to him it is better that than that I should be drawn into making an order that is unfair to the wife. If at the end of this case he feels that the lump sum that I order is unfair in reflection of his present retrenchment then he should remember that he has brought that consequence upon himself by the fashion in which he has chosen to arrange his affairs over the course of the last decade, coupled with the fashion in which he has chosen to conduct these proceedings.”
119. These principles have been endorsed by the Court of Appeal in Baker v Baker supra, when Butler-Sloss LJ (as she then was) stated at p835D:
“Mr Posnansky pointed to an utterly false case and asked us to consider why the husband was lying and what did he have to hide. If the cupboard was bare, it was in his interests to open it and display its meagre contents. But on the contrary, the husband, despite his protestations to the contrary, continued to live a life of an affluent man. I agree with the submissions from Mr Posnansky that if a court finds that the husband has lied about his means, lied about other material issues, withheld documents, and failed to give full and frank disclosure, it is open to the court to find that beneath the false presentation, and the reasons for it, are undisclosed assets. Willmer LJ said in Payne v Payne [1968] 1 WLR 390, at 396:
‘In such circumstances it is well established that the court is entitled to draw inference adverse to a husband who has not made a proper disclosure of his available resources.’
The judge carefully considered the relevant criteria set out in s 25(2) of the Matrimonial Causes Act 1973, including the shortness of the marriage. In my judgment, there was ample evidence upon which the judge was entitled to draw inference adverse to the husband and to make findings that there were assets available to meet the order he made. To accept Mr Holman’s alternative proposition that, unless the assets can be shown positively to be available an order cannot be made, flies in the face of the principles enunciated in the judgment of Sach J and would send a clear message to spouses unwilling to make full and frank disclosure. It would indeed, as Mr Posnansky said, be a cheat’s charter ...”
120. At 837E, Otton LJ also said:
“the husband cannot complain if the judge following authority explored what was before him and drew inference which may turn out less fortunate than they might have been had he been more frank and disclosed his affairs more fully. Such inferences must be properly drawn and reasonable.”
121. This point was emphasised in the more recent case of Al-Khatib v Masry [2002] 1 FLR 1053, where it was held that there was a compelling case for drawing adverse inference against the husband in the light of his utterly misrepresentative and untruthful disclosure of his means even at trial, the very substantial scale of his concealment and deceit, the court’s inability in the absence of corroboration to accept as the truth anything that the husband said unless it was either an admission or otherwise contrary to his interests, and his evident determination that the wife should receive no ancillary relief beyond that embodied in an earlier interim order, that the court would draw the inference that the husband had sufficient assets to satisfy the wife’s claim; and whilst the court was only entitled to draw inference from the evidence before the court, which was limited, but did include evidence from the husband’s friends and business acquaintances, documentary evidence as to the scale of commissions earned by the husband, evidence as to the value of certain properties and investments held by the husband, and the scale and determination of the husband’s attempts to divest himself of his assets and to remove his assets from the reach of the court, inferences properly to be drawn were that the husband’s business activities had been and continued to be on the kind of grandiose scale indicated by the evidence of his business associates, and that the extent of his earnings and his wealth derived from the business activities had been and continued to be vastly greater than he had ever been prepared to admit.
122. While the materials before the court did not justify a finding that the husband was worth as much as £200 million as the wife claimed, Mumby J held that it did justify a finding that the full extent of the family assets was very comfortably in excess of £50 million, and probably more, and it was held that if the conclusion reached, having regard to the probable size of the family fortune and the husband’s conduct, was in fact unfair or unjust to the husband, then the husband had only himself to blame, as His Lordship explained at para 89:
“I accept, of course, that part of Mr Deacon’s submission, based on the passage from Butler-Sloss LJ’s judgment (in Baker v Baker above), to the effect that I can properly draw adverse inferences only if there is some proper basis for them in findings of fact correctly arrived at in the light of admissible evidence. I reject, however, Mr Deacon’s further submission that, even if there is proven non-disclosure, inference as to the existence of assets ‘must be based on credible evidence as to the existence of such assets.’ That submission, if I have correctly understood it, seems to be in reality but a repetition of the submission from Mr Holman (as he then was) which Butler-Sloss LJ was at such pains to reject. Indeed, put in these terms Mr Deacon’s submission seems to me, with all due respect to him, to fly in the face of the Lady Justice’s acceptance in the passage quoted that ‘it is open to the court to find that beneath the false presentation, and the reasons for it, are undisclosed assets’.”
123. In this case and for the reasons already noted, given the highly suspicious circumstances in which the Wife had dealt with her various companies and business as well as her dealings and involvements in TG Creation, and in the absence of any financial disclosure of the latter, I agree with the Husband that adverse inference adverse to her should be drawn to the effect that she had been and continues to be earning the kind of income she used to receive from TL International prior to 2010, that she is in fact the beneficial owner of TG Creation which had been and continues to be making the kind of sales and profits which TL International used to make, and that she has either sold GK Electronic for at least RMB1.5 million and probably more, or that she had been and continues to be running its business in the Mainland through her cousin and/or other trusted persons and hence in receipt of additional income from that source, of which of course she would not have deposited into any of her disclosed accounts, hence she must have other bank accounts created since these proceedings but not disclosed.
124. If this conclusion is in fact unfair or unjust to the Wife, she has only herself to blame for her failure to make frank and proper disclosure of her true financial means including those business and companies discussed above. I shall next turn to consider the Husband’s assets, of which the Wife has complained that he has also failed his duty to make full and frank disclosure.
Husband’s Assets
125. The Wife essentially takes issue with the profits, income and value of the Husband’s 2 main companies FW Ltd and EB Ltd as she finds his financial disclosure of both wholly inadequate and therefore doubts very much about what he claims to be either making little income or profits of the former and the lack of business or trading activities at all with the latter.
FW Ltd
126. This company as noted above is 100% owned by the Husband formed in February 2011 the value of which he put at only HK$10,000 but disclosed no income or profit in his last Form E [B2/394]. His evidence is that after leaving TL International and GK Electronic, he was looking into the market in Japan for headsets products and therefore formed this company for that purpose, but so far he has been unable to establish any business there and claims to be still exploring various options and opportunities, which explains why the company has not been able to produce much profit or income.
127. The Wife however believes that the Husband has not told the true picture about the business of this company, as according to his answers to her questionnaires, it seems that from between October 2010 and August 2011 he had withdrawn substantial sums from his DBS bank account which he said in his evidence were for tooling and other business expenses but without producing any receipts or documents evidencing the same, and that he had continued to make substantial withdrawals from this account while these proceedings were raging on without any justification, hence Mr Chow argues that if indeed all these withdrawals were related to the business of FW Ltd, then the company must be doing much better than as alleged by the Husband, otherwise all these monies must have gone somewhere or for other purposes not disclosed by him.
128. Mr Chow submits that in 2009 the Husband had maintained a bank balance of at least HK$5 million in his DBS account, but between October 2010 and August 2011, he had made substantial withdrawals from that account allegedly for tooling charges and other business expenses but never produced any receipts or documentary proof for those expenses, and then when the Wife raised the matters in her request for particulars, Mr Chow submits that he made changes to his answer which were only perfunctory and broad brush with no substance or details, let alone any documentary evidence, hence it is doubtful as to whether those sums have been hidden elsewhere.
129. The same situation, Mr Chow argues, is also with the Husband’s HSBC Premier Account in which he used to maintain a balance of around HK$2 million regularly up to mid-2009, but that since then he had constantly withdrawn RMB20,000 each time leading to a significant decline to the total balance in that account.
130. In the premises I accept the Husband has made proper disclosure about this company.
EB Ltd
131. This company was also set up by the Husband after the divorce in which he claims to have 40% shareholding but that there is basically no business activity which was not challenged at all by the Wife during the trial, or for that matter any submission made by Mr Chow on her behalf. As such I see no reason to doubt the Husband that this company has no activity and hence no value.
AA Hong Kong Ltd
132. Similarly there seems to be little controversy over this company in which the Wife used to hold 20% shares on trust for the Husband and which she had since the commencement of these proceedings transferred back to the Husband, and according to its audited report for the year ended 31st March 2015 produced by the Husband [B5/206], there was a net profit of about HK$190,000 from the company and of which the Wife appears to have taken little interest or challenge during the trial, presumably she does not dispute that it is of little value or profitability.
Bank Savings and Capital
133. It is with this item of the Husband’s assets that the Wife has raised the biggest issue, as in his First Form E he disclosed more than HK$6 million in bank savings and equity, yet by the time of his 3rd Form E in 2014 this item had gone down to less than HK$2 million, hence she disputes the whereabouts of the HK$4 million which she argues should be included as part of his current assets unless he is able to account for them.
134. The Husband’s evidence is that since his was driven out of TL International without any compensation or income, he had had to use his savings to meet his living expenses and his interim maintenance for the children for the next several years which would account for about half of the HK$4 million, while the rest were spend in setting up his new companies including for tooling for products which he hopes to export to the Japanese market but which has so far turned out to be more difficult than expected.
135. It seems clear to me from the evidence that the Husband had had to start fresh after leaving TL International and that in the absence of any other resources or income it is only natural and normal for him to rely on his savings to meet his needs and obligations while exploring other business which will obviously need time and capital to start up and to grow before one can see any meaningful result, and it seems to me that the Husband is at present in that position.
136. The Wife of course suspects that he has deliberately divested his savings elsewhere to keep them away from her claims, but after a close examination of his bank records and statements in the circumstances of his situation I am unable to see anything suspicious which may appear to me disposition to defeat ancillary relief claims. After all, he had clearly disclosed his capital position at the time when the Wife made out her claim for equalization of capital which would otherwise make any disposition futile.
Total Matrimonial Assets
137. Before arriving at my conclusion as to the total matrimonial assets of the parties, it is necessary to make one obvious and important distinction of some of the Husband’s assets which, unlike the case with the Wife’s interest in TL International which was indisputably a matrimonial asset and which, as found above, likely to have been moved to and concealed in TG Creation, his 2 companies FW Ltd and EB Ltd were formed from scratch in 2011 after the parties’ separation and are therefore his post-separation accruals, and for whatever they are worth, were created solely by his personal efforts unmatched by any contribution from the Wife, and hence the question must be asked whether the sharing principle should apply to them, and if so whether there are grounds for departing from equality?
138. In Miller v Miller/McFarlane v McFarlane [2006] 1 FLR 1186 the House of Lords set out the principle that endeavour by one party after separation which is productive of money or property and independent of any contribution of the other party should be reflected in the division of assets, as Lord Mance explained at 1230
“[174] ... if account is taken of the increase in the value of the parties’ assets during the marriage (the matrimonial acquest), a question may arise about the date up to which one should measure it. Should this be up to date when the parties ceased effectively to live as married partners (here April 2003), as Mr Mostyn considered in his judicial capacity in GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 (Fam), [2003] 2 FLR 108 at para 34? Or should it be up to a later date such as the date of trial, or even, in a case where an appellate court thinks it right the to re-exercise the discretion, up to the date of the appellate decision? Reference was made by Mr Mostyn to my remarks in Cowan v Cowan [2002] Fam 97, [2001] 2 FLR 192, paras 130-135. The matters to which the court must have regard under s 25 include several which exist or appear likely as at the date the court has regard to them (cf s 25(2)(a), (b), (f) and (h)). Others of the listed matters require the court to look back at the past (eg s 25(2)(c), (f) and (g)). To the extent that the focus is on the matrimonial acquest, the period during the parties were making their different mutual contributions to the marriage has obvious relevance. The present may be viewed as a case (paralleling the then unreported decision of Coleridge J in N v N (Financial Provision: Sale of Company) [2001] 2 FLR 69 to which I referred in Cowan v Cowan where the increase in value of the New Star shares between separation in April 2003 and trial in October 2004 or judgment in April 2005 was contributed to by the husband’s further investment of time and effort, independently on its face of any contribution by the wife. Further, Mrs Miller had here no right to, and could not have been given, any part of Mr Miller’s New Star shareholding in relation to which Mr Miller carried the risk. Mrs Miller ha sat all times been living in the house, which has now been formally transferred to her. Her only further claim was to a sum of money, assessed by the judge at £2.7m (which Mr Miller paid in two instalments in May and June 2005). Mr Miller cannot easily be said in this case to have been holding on to any asset which should have been Mrs Miller’s, or to owe anything other than money. Assuming that the focus is on assets acquired during the marriage, rather than on the husband’s overall means, it seems to me therefore natural in this case to look at the period until separation.”
139. These principles on assessment of values of matrimonial assets and in relation to post-separation accruals were usefully summarised by Deputy Judge Mostyn QC (as he then was) in Rossi v Rossi [2007] 1 FLR 790 at para24:
“24.1 The statute requires all the assets to be valued at the date of trial.
24.2 For the purpose of establishing the matrimonial property in respect of which the yardstick of equality will ‘forcefully’ apply the value of assets brought into the marriage by gift and inheritance (other than the former matrimonial home), together with passive economic growth on those assets, should be excluded as non-matrimonial property.
24.3 assets acquired or created by one party after (or during a period of) separation may qualify as non-matrimonial property if it can be said that the property in question was acquired or created by a party by virtue of his personal industry and not by use (other than incidental use) of an asset which has been created during the marriage and in respect of which the other party can validly assert an unascertained share. Obviously, passive economic growth on matrimonial property that arises after separation will not qualify as non-matrimonial property.
24.5 By this process the court should, without great difficulty, be able to separate the matrimonial and non-matrimonial property. The matrimonial property will in all likelihood be divided equally although there may be deviation from equal division: (a) if the marriage is short; and (b) part of the matrimonial property is ‘non-business partnership, non-family assets’ (or if the matrimonial property is represented by autonomous funds accumulated by dual earners).
24.6 The non-matrimonial property is not quarantined and excluded from the court’s dispositive powers. It represents an unmatched contribution by the party who brings it to the marriage. The court will decide whether it should be shared and, if so, in what proportions. In so deciding it will have regard to the realty that the longer the marriage the more likely non-matrimonial property will become merged or entangled with matrimonial property. By contrast, in a short marriage case non-matrimonial assets are not likely to be shared unless needs require this.
24.7 In deciding whether a non-matrimonial post-separation accrual should be shared and, if so, in what proportions, the court will consider, amongst other things, whether the party who has the benefit of the accrual has treated the other party fairly during the period of separation; and whether the money-making party has the prospect of making further gains or earnings after the division of the assets and, if so, whether the other party will be sharing in such future income or gains and if so in what proportions, for what period, and by what means.”
140. These principles as summarised were adopted and applied by the Court of Final Appeal in Kan Lai Kwan v Poon Lok To Otto [2014] 17 HKCFAR 415, where it held that the profits accruing to the husband’s company during the post-separation period were to be shared equally between the parties as they arose out of the business which had been built up in the course of the marriage in respect of which the wife can legitimately assert an unascertained share on the principles laid down by LKW v DD supra, as Ribeiro PJ explained why the approach summarised in Rossi is preferred at p459:
“128. When considering ancillary relief, the financial position is generally approached on the basis of the values existing at the date when the hearing takes place.
129. Where, however, there has been a substantial period of separation prior to the hearing and where during that period, there has been a steep increase in the value of the matrimonial assets attributable to the independent business or professional efforts by one spouse, unmatched by any contribution from the other spouse, grounds may exist for departing from equality. In some such case, fairness may dictate that the non-contributing spouse has no claim to share equally in the post-separation accrual to the matrimonial assets.
130. There are opposing arguments as to whether a spouse should be excluded in such cases. As Nicholas Mostyn QC explained in Rossi v Rossi ...
131. In Cowan v Cowan, Thorpe LJ favoured the former approach and visualised only rare and exceptional departure from equality by reason of post-separation accruals:
The assessment of assets be at the date of trial or appeal. The language of the statute requires that. Exceptions to that rule are rare and probably confined to cases where one party has deliberately or recklessly wasted assets in anticipation of trial. In this case the reality is that the husband traded his wife’s unascertained share as well as his own between separation and trial ... the wife’s share went on risk and she is plainly entitled to what in the event has proved to be a substantial profit. If this factor has any relevance it is within the evaluation of the husband’s exceptional contribution.
132. His Lordship’s reference to “exceptional contribution” was a reference to cases where it can be established that the increase is only attributable to what has been called one spouse’s “stellar” contribution. As discussed in LKW v DD cases in that class are necessarily rare and exceptional. H makes no claim to “stellar contribution” in respect of the increased profits of the business in the present case.
133. The summary of the principles provided in Rossi v Rossi is broader than Thorpe LJ’s stricter approach and is, in my view, preferable. It points to various factors relevant to deciding whether a post-separation accrual justifies departure from equality, including the length of the marriage and separation, the nature of the property accruing and the means or efforts by which it was accrued, and so forth. Of particular present relevance is the following passage:
Assets acquired or created by one party after (or during a period of) separation may qualify as non-matrimonial property if it can be said that the property in question was acquired or created by a party by virtue of his personal industry and not by use (other than incidental use) of an asset which has been created during the marriage and in respect of which the other party can validly assert an unascertained share. Obviously, passive economic growth on matrimonial property that arises after separation will not qualify as non-matrimonial property.”
141. In my judgment the same principles should apply to the Husband’s companies FW Ltd and EB Ltd as non-matrimonial post-separation accruals created by him by virtue solely of his personal industry unmatched by any contribution from the Wife and not by use of any asset created during the marriage, and in fact as a result of the termination of his directorship in TL International brought by the Wife without any payment for his shares therein. Whether the termination was justified or not is in my view not relevant to the issue over whether or not these 2 companies as non-matrimonial post-separation accruals should be shared between the parties.
142. According to her Closing Submission where the Wife stated at paragraph 67 “It has always been the Wife’s position that the parties’ assets should be assessed as in 2010 and W proposes that the liquid assets of the parties should be split by the parties ...”, by still taking that position it seems clear to me that the Wife will not argue that these 2 companies of the Husband should be shared, nor has she made any argument that if they should be shared, in what proportions.
143. Accordingly if I am therefore to adopt the Wife’s proposal that the parties’ assets should be assessed as in 2010, and on the basis of my findings above and on a broad brush, the matrimonial assets would then be as follows:
|
Wife’s Assets |
|
|
Cash |
HK$2.56 million |
|
TL International |
Unknown but Significant |
|
GK Electronic |
RMB1.5 – 3 million |
|
Shares & Equity |
HK$170,000 |
|
Director’s Loan Owed |
HK$2.23 million |
|
MPF |
HK$180,000 |
|
Total: Likely More Than HK$6.84 million |
|
Husband’s Assets |
|
| Cash & Equity |
HK$6.14 million |
| TL International
|
Unknown but Insignificant |
| AA Ltd
|
HK$200,000 |
|
MPF |
HK$180,000 |
|
Total: Between HK$6.5 – 7 million |
144. Hence it seems clear to me that the parties are just about similar as far as the value of their respective assets were concerned in 2010, but even if I am to use the value of the matrimonial assets as at the trial, I would arrive at similar conclusion albeit for different reasons due to the lack of proper disclosure by the Wife of those companies discussed above or the insignificant value of the Husband’s post-separation accruals. I now turn to the parties’ earnings and the children’s needs.
Wife’s Earnings/Earning Capacity
145. For the reasons given above, and in the absence of full and frank disclosure by the Wife, it is not possible to ascertain her current income, but as pointed out by the Husband, there is no question of her earning capacity prior to the breakdown of the marriage as represented by the income she was then able to derive from TL International at not less than HK$55,000 per month as disclosed in her 1st Form E, and could well be with additional income if she has not sold but is instead still running the business of GK Electronic in the Mainland as before or under another name or entity.
Husband’s Earnings/Earning Capacity
146. The same can be said about the Husband’s earnings which are at present unclear due to the current stage of the business of his companies but given his earning capacity similar to the Wife, I am convinced that he has been able to support himself which explains why he has never made any claim against the Wife in these proceedings.
Children’s Needs
147. The Wife’s latest position as to her request for the Husband to make proper financial provisions for the children can be seen from her summons issued on 12th October 2015 [B5/101] in which she sought from him reimbursement of the children’s maintenance in the sum of HK$377,850 going back to about 2010 and for their interim maintenance be increased from HK$12,500 to HK$48,000 per month with details set out in her supportive affirmation [B5/102-110].
148. The Husband does not dispute that if both children are still full time students he should be equally responsible for their reasonable needs and expenses which he has proposed at HK$10,000 per month being his half share for each, but questions whether the son who is almost 20 is still in full-time education, and in any event he takes issue with the amount claimed by the Wife whose evidence on which is however confusing and Mr Cheng for the Husband has helpfully summarised from her supportive affirmation [B5/102] in his Closing Submission.
149. The Wife’s evidence in respect of the son is that his DSE result was unsatisfactory and had been doing a part-time course to prepare for another DSE this year, but that at the time of the trial the result was not out yet and hence it is not known whether the son will go on to university or to work, and if for the former the Husband accepts that he should be responsible for his reasonable expenses equally with the Wife.
150. As for the daughter, it is not disputed that she is still a secondary school student and the Wife’s figures relevant to her current monthly needs are as follows:
|
Rent & General Household Expenses |
HK$30,600 |
|
Daughter’s 1/3 share: |
HK$10,200 |
|
Daughter’s Personal Expenses |
HK$8,200 |
|
Total: HK$18,500 |
151. On this basis the Husband agrees that his half share for the daughter’s expenses should therefore be HK$9,250 per month, of which I agree as reasonable but propose to round it up to HK$10,000 per month. As for the son, if he is to go on to university, I am sure the Husband will agree to make similar financial provision for him but which may obviously be more but there was simply no evidence during the trial as to, for instance, what sort of school fees it will be, hence the matter may have to be looked at again if and when he indeed goes on to university.
152. As for the Wife’s claim for reimbursement of the children’s expenses which she claims that the Husband had failed to pay or pay sufficiently intermittently from May 2010 to June 2015 as set out in her said supportive affirmation, the Husband does not dispute that he did not pay for his half-share of the children’s expenses from June 2010 until February 2012 when the 1st interim maintenance order was made against him, for which he explained that after being driven out of TL International in June 2010 and without any income or compensation he argues that it would not be fair for him to do so, in particularly when he had not taken any action against the Wife or TL International for compensation for unfair dismissal or his shareholding in the company.
153. I do not agree. His right of any legal action against the Wife or TL International should not in the circumstances be relevant to his obligation to support the children, and while his income from TL International may have ceased since June 2010, that cannot in my judgment justify not paying for the children as he clearly still had the means to do so with more than HK$6 million in cash and equity available at that time.
154. After February 2012 it is true that the Husband had been regularly paying the interim maintenance order of HK$12,500 per month until October 2015 when he voluntarily increased his maintenance for the children to HK$26,000 per month. The question therefore must be whether that interim sum of HK$12,500 per month up to September 2015 was a reasonable amount for his half share of the children’s maintenance, and if not, what should it be.
155. Given the scant evidence from the Wife at the trial on this issue, and again reminding myself of the 4th principle cited above that the court should not countenance costly and futile minute retrospective investigations, I propose to adopt a broad brush approach towards those information as to the children’s needs and expenses gleaned from the Wife’s 3 Form Es filed between 2010 and 2014 but also bearing in mind of the Husband’s justified suspicions, as I have found above, of her various attempts to conceal her true financial position, and hence with the necessary reservation of what she claimed to be the children’s expenses during those periods.
156. Whilst the Husband does not challenge most of the Wife’s figures for her general household expenses including the children’s fair share in them, he does complain about her renting more expensively at South Horizon after having agreed in separation to move to the east side of Hong Kong to facilitate the children’s schooling and his access, but given the fact that it was obviously necessary for her to rent a bigger accommodation for the children and in the absence of any evidence that rental expenses on the eastside would necessarily be cheaper, I do not find any merits in the Husband’s complain on this particular issue.
157. In his Closing Submission the Husband has summarised the respective case of the parties on this issue of reimbursement of the children’s expenses as follows:
|
Period |
The Wife |
The Husband |
|
1/5/2010 – 31/12/2010 |
HK$173,200 |
HK$141,200 |
|
1/1/2011 – 31/1/2012 |
HK$209,124 |
HK$166,617 |
|
1/2/2012 – 31/12/2012 |
HK$353,903 |
HK$140,784 |
|
1/1/2013 – 30/6/2015 |
HK$378,000 |
HK$273,100 |
|
1/7/2015 – 31/3/2017 |
HK$378,000 |
HK$286,000 |
|
Total: HK$1,681,227 |
HK$1,007,701 |
158. The difference between the parties is therefore HK$673,526 over what they claims to be reasonable expenses of the children during those periods, for which the Husband has as noted above already paid HK$537,000 from February 2012 to September 2015 at HK$12,500 per month, and HK$468,000 from October 2015 to March 2017 at HK$26,000 per month, and by adopting the approach as stated above, I propose to take the average of the parties’ total figures and arrive at HK$1,344,464 (HK$1,681,227 + HK$1,007,701 = HK$2,688,928 ÷ 2), of which the Husband has already paid HK$1,005,000 and hence there is a short fall on his part at HK$339,464.
159. However, given my finding above of the daughter’s current monthly reasonable expenses at HK$18,500 for which the Husband’s half share would be HK$9,250 but which I have proposed to round up to HK$10,000 per month in paragraph 152 above, it could be argued on behalf of the Husband that he has been over paying by HK$6,000 per month for the children from October 2015 to march 2017 and hence a total overpayment of HK$108,000 (HK$6,000 x 18 months) which should be set off against the total shortfall of HK$339,464 to give a sum of HK$231,464 due from the Husband.
160. There is also the relatively insignificant claim of the Wife for half of the son’s orthodontic expenses of HK$40,000 objected to by the Husband on the basis of the Wife’s failure to make full and frank disclosure of her assets and income, and that he believes it had probably been paid out of the assets or income of TL International after he was kicked out of that company.
161. For the same reasons I have to reject this argument and agree that the husband should bear half of the sum at HK$20,000 and to be added to the above shortfall to bring the total amount to HK$251,464 which I propose to round down to HK$250,000.
Conclusion
162. In the premises I have come to the conclusion that the parties’ assets position at the time of their separation in 2010 should be more or less about the same and hence the Wife’s claim for equalization of their cash/capital position must be rejected, and if one were to adopt the time of the trial instead for equal sharing of their assets, I would have arrived at the same conclusion given my finding that the Wife has failed to make full or frank disclosure of her means in particularly those of her business and companies resulting in the court’s inability to ascertain or assess her income or worth, and for which adverse inference has been drawn against her.
163. Given the obvious earning capacity of both parties to independently support themselves all these years since separation, and will no doubt be able to continue to do so, and that a final closure to their litigation has been long overdue, I am convinced that a clean break between the parties would be a fair result and therefore I would not consider any claim for nominal maintenance and accordingly dismiss all the parties’ financial claims against each other.
164. As for the children, I order that the Husband shall from 1st August 2017 pay HK$10,000 per month for his half share of the daughter’s maintenance, with any overpayment which he may have made before to be taken into account or set off against his future payment, and also the said sum of HK$250,000 as reimbursement for the shortfall of his maintenance for the children.
165. If the son is to go on to university, the Husband should also bear half of his reasonable expenses for which I hope that the parties will use their common sense approach to try to reach consensus to avoid another battle in court.
166. Lastly on the question of costs, given my findings against the Wife as detailed above and the outcome of her application, I fail to see why she should not have to bear the Husband’s costs in the ancillary relief proceedings starting from the time when he became legally represented, to be taxed if not agreed on party and party basis and to be set off against the Husband’s reimbursement for the children’s maintenance.
167. Of course it remains my gratitude to both Mr Cheng and Mr Chow for their valuable assistance rendered to this court during the trial.
|
( Bruno Chan ) |
|
District Judge
|
Mr Enzo Chow instructed by M/S Au Yeung, Cheng, Ho & Tin appeared for the Petitioner.
Mr Alvin Cheng of M/S Alvin Cheng & Rosaline Choy appeared for the Respondent.
|