T, L v. S, N

CACV 196/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 196 OF 2009

(ON APPEAL FROM FCMC NO. 14325 OF 2006)

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JUDGMENT

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Hon Cheung JA:

1.  I agree with the judgment of Kwan JA.

Hon Hartmann JA:

2.  I agree with the judgment of Kwan JA.

Hon Kwan JA:

3.  This is an appeal by the petitioner against an order made by HH Judge Melloy on 9 July 2008 in her application for ancillary relief and the order on the costs of the proceedings made on 10 March 2009. For convenience, I shall refer to the petitioner as the wife and the respondent as the husband. Leave to appeal was refused by the Judge but was granted by the Court of Appeal (Rogers V-P and Le Pichon JA) on 24 July 2009. There is also before this court a summons issued by the husband on 27 May 2010 for leave to adduce fresh evidence on the current state of his finances and other matters.

4.  The wife was represented by counsel in the nine-day hearing of the application for ancillary relief. She acted in person in the costs hearing and in this appeal. Miss Mairéad Rattigan appeared for the husband in this court and below.

The marriage

5.  The husband and wife are Israeli. They were married in Hong Kong on 12 July 2001. The wife was 40 at the time and the husband was aged 32. She has two sons by a previous marriage. The sons are now in their early twenties. A daughter (“R”) was born to the parties on 24 February 2002. Differences arose between the parties in 2005 and the wife had an abortion. Marriage counselling in 2006 was to no avail. In November 2006, the wife presented a divorce petition. In December 2006, the parties reached agreement on the divorce proceedings. The petition was amended to delete the detailed allegations against the behaviour of the husband and the particulars were substituted by allegations of a more general nature. The husband filed an answer and cross petition making identical general allegations against the wife’s behaviour. A decree nisi dissolving the marriage was made on 12 February 2007 and it was pronounced absolute on 15 August 2008.

6.  Thus, the marriage was a relatively short one of five years up to the time the petition was presented, with one child of the family. The wife has care and control of R with reasonable access to the husband. Both adult sons have been living in Israel since August 2006.

The wife

7.  The wife was born in 1961 and was aged 46 at the time of trial. She came to Hong Kong in 1999 and met the husband in 2000. At the time of the marriage in 2001, she held a senior management position in the information technology industry. She went back to full-time work after her maternity leave. In August 2002, she was laid off when her employer underwent a restructuring. She had an offer two months later from another employer in the same industry and was employed as the regional administration and technical director at a monthly salary of HK$97,000, with an expatriate package including housing and education allowance. She ceased working in August 2004 to take care of her children and the household. In May 2006, she took up the position of manager at a recruitment agency at a salary of HK$40,000 per month. She took frequent time off work as a result of the divorce proceedings, so in January 2007 her employer gave her a part-time position and reduced her salary to HK$20,000 a month. She was eventually made redundant in March 2007. Since then, she was unemployed and remained so at the time of trial.          

The husband

8.  The husband was born in 1969 and was aged 39 at the time of trial. He came to Hong Kong in 1995, working initially for one Mr. S. Later, he was in business with Mr. S in a trading company called O Ltd. incorporated by Mr. S in Hong Kong in 1997. O Ltd. traded in garments, fabrics and shoes, with an office in Hong Kong and two offices in mainland China. Due to the tax position of Mr. S in Israel at that time, the shares in the company were initially held by the husband and the husband’s brother. Later, Mr. S became a registered shareholder. Mr. S and the husband each owned 50% of the issued shares and they were the only directors.

9.  Many of the issues in dispute revolved around the husband’s interest in O Ltd. and the income and benefits he derived from it. The husband had been using his financial resources or those of O Ltd. to pay for some of the expenses of the family. O Ltd. was the only source of income of the husband. The parties enjoyed a comfortable standard of living in the past, even when the wife was not working from August 2004 to May 2006. The wife and R moved out of the former matrimonial home in April 2007. In September 2007, a company wholly owned by Mr. S purchased a residential property at the Mid Levels for HK$8.24 million with a mortgage and signed a tenancy agreement in January 2008 letting the premises to O Ltd. The husband has since been residing in the premises.

The issues in the court below

10.  As the Judge had remarked, this case was “bitterly fought and highly emotional … where feelings were clearly running high throughout, both as between the parties themselves and their legal advisers”. In view of the hostility and deep distrust that existed between the parties, their legal advisers should have taken a more dispassionate stance so as to focus on the real issues in a realistic way. And instead of each putting his or her case at the highest, the interest of clients would be better served if legal advisers had firmly advised them what was sought to be established in litigation might be achieved at wholly disproportionate costs, and might not overall be in the family’s best interests. The information provided to the Judge was that the parties had spent HK$5 million between them on legal costs within two years, a substantial drain of their assets by any standards, and, as the Judge had remarked, left R with virtually no financial security.

11.  It is necessary to set out the issues in dispute in the court below and the findings of the Judge in some detail, as the wife has challenged all the findings against her in this appeal.

12.  The issues for determination, as stated in paragraph 12 of the judgment, were as follows:

(1)         Was the agreement contained in a document signed by Mr. S (“the 1998 agreement”) for the transfer of 50% of the issued shares in O Ltd. to the husband at US$850,000 a genuine agreement? How does the answer to that question impact on the application for ancillary relief?

(2)         How much is O Ltd. worth? To what extent is its value a relevant consideration for the court?

(3)         Was O Ltd. used to meet family expenditure in the past? To what extent can it be used to meet family expenses in the future? Reference would need to be made to:

(i)      the director’s loan account;

(ii)     company dividends;

(iii)    corporate deposits; and

(iv)    profit margins.

(4)         What is the earning capacity of each party going forward?

(5)         What contribution has each side made to the family assets available for distribution?

(6)         What is the computation of those remaining family assets?

(7)         How should those remaining assets be divided, bearing in mind the principles of need, compensation and sharing and the factors in section 7(1) of the Matrimonial Proceedings and Property Ordinance, Cap. 192 (“the MPPO”)?

(8)         Should there be a clean break or should there be an order for periodical payments to the wife? If so, how much should be paid and over what length of time?

(9)         How much maintenance should the husband pay for R?

The findings by the Judge

13.  On the issues in (1), the Judge found the 1998 agreement was not a genuine agreement, having considered the document which contained the agreement, the evidence of the husband, Mr. S, and the husband’s brother who drafted the agreement. The agreement purported to state that Mr. S agreed to transfer 50% interest in O Ltd. to the husband at US$850,000 and the purchase price was deemed a loan granted to the husband repayable solely from dividends payable to the husband by O Ltd. as mutually agreed. Having rejected the husband’s main contention, the Judge did not accept the wife’s contention either, namely, that the shares were given to the husband for nothing in return and the sum of US$300,000 paid to Mr. S in January 2006 purportedly in part payment of the purchase price should be clawed back to the family asset pool. The Judge found on the balance of probabilities there was an agreement of some kind between the husband and Mr. S concerning the purchase of the shares in O Ltd. by the husband, albeit it was unlikely that the purchase price was US$850,000 as alleged. The wife did not take out any application against Mr. S under section 17 of the MPPO to recover the US$300,000 paid to him and the court could not order Mr. S to make a transfer of the funds unless he was joined as a party in the proceedings.

14.  In respect of the value of O Ltd. being the issue in (2), the Judge pointed out it was accepted by both parties that the shares of the husband in this company were not to be transferred or sold. The accounting expert of the wife valued the husband’s interest at HK$15 million, whereas the expert of the husband put the value at HK$2.75 million. The Judge preferred the evidence of the husband’s expert.

15.  For the issues in (3), in respect of the director’s loan of the husband, the Judge did not accept he always repaid what was owed in his account personally. The husband did not answer satisfactorily the source from which he was repaying his director’s loans. It is likely that funds were rolled over from time to time and some sums were written off on occasion, though the extent to which this occurred is impossible to determine on the evidence. Inclusive of the director’s loan and housing allowance, the husband received approximately HK$81,000 per month in 2004, HK$91,000 per month in 2005 and HK$78,000 per month in 2006. The husband’s salary at the time of the hearing in 2008 was HK$32,000 per month with a housing allowance of HK$35,064 per month.

16.  As for dividends paid by O Ltd., the Judge found there were only two dividend payments, they were in 2002 and 2005 and as a result the husband received US$100,000 and US$300,000 respectively. The latter sum was paid to Mr. S in consideration for the acquisition of the husband’s shares. As for other sums received by the husband, the Judge accepted his explanation and held that they were not dividends. These sums were: US$95,000 in July 2001 (this represented repayment of expenses by the husband for O Ltd.); US$105,000 in May 2002 (this was a gift from Mr. S as an incentive payment to the husband); US$110,000 in May 2003 (this was payment made to the husband by his parents).

17.  For corporate deposits, the Judge found that the husband pledged US$200,000 from a fixed deposit account with ICBC (Asia) Bank held in his sole name and US$200,000 from a joint Credit Suisse account with the wife, to secure banking facilities for O Ltd. As for other sums in the bank accounts, the Judge accepted the husband’s evidence that he had no beneficial interest in those sums, being US$113,064.94 (this belonged to Mr. S); US$127,980.06 and US$162,177.35 (they belonged to O Ltd.).

18.  For the profits of O Ltd., the Judge saw no reason to question the audited accounts, which showed an operating loss for the year ended 31 December 2007 of HK$1.9 million.

19.  For the earning capacity of the parties in issue (4), the Judge noted the husband’s salary, housing allowance and other funds received via the director’s loan account, which were then written off by agreement between the directors. The Judge was cognizant of the fact that O Ltd. was operating at a loss and no dividends would be paid in the short term. As for the wife, the Judge accepted it was not possible for her to rejoin the information technology industry at the same level, as she had not worked in the industry since September 2004. The Judge also accepted it was not feasible to expect her to immediately re-enter the work force at the same level as before, as she has R to consider. Notwithstanding that the wife did not have the ability to immediately earn at the level suggested by the husband, the Judge considered she did have a reasonable earning capacity of HK$20,000 per month, and this was likely to increase over time.

20.  For the contribution each side made to family assets available for distribution being issue (5), the Judge found that both had contributed about the same and both had contributed significantly and substantially, financially and otherwise.

21.  For the issue in (6), being the computation of the remaining available assets, the Judge’s findings may be set out in a table as follows:

Assets held in the name of the wife

Property in Tel Aviv		HK$2.2 million (net of mortgage)
Other assets being bank accounts, 2 MPF pension funds, Mazda car		HK$508,300
Less Liabilities of approximately HK$500,000
Total:		HK$2.2 million

Assets held in the name of the husband

Bank accounts		Approximately HK$2.8 million (not including funds found by the Judge that were held beneficially for Mr. S or O Ltd., but including HK$1.56 million [equivalent to US$200,000] which belonged to the husband and was pledged to secure banking facilities for O Ltd.)
Shares		HK$222,500
Insurance policies		Approximately HK$500,000
MPF fund		HK$330,000
Interest in O Ltd.		HK$2.75 million
Less Credit card debts of approximately HK$20,000 Money belonging to his parents of approximately HK$360,000
Total:		HK$6,222,500

Joint assets

Joint bank account	HK$2.73 million [equivalent to US$350,000] (of which US$200,000 was pledged by the husband for banking facilities of O Ltd.)
Grand Total:	HK$11,152,500

22.  The Judge noted that the parties had spent HK$5 million between them on legal costs. In terms of the remaining assets as found by the Judge, their legal costs amounted to 44.8% of the total assets.

23.  On the division of the remaining assets in issue (7), the Judge considered each of the factors in section 7(1) of the MPPO and the principles of need, compensation and sharing in DD v. LKW [2008] 2 HKLRD 523, paragraphs 69 to 70. Both parties put their monthly expenses at about HK$70,000. The Judge did not think it possible to make an order for ancillary relief that would ensure a continuation of the previous standard of living of the family. She did not find the wife should be compensated for the choice she made in good faith in 2002 in giving up her career opportunity which would have required her to relocate to Israel.

24.  The division of available assets as ordered by the Judge may be set out as follows:

To the wife

(1)     Property in Tel Aviv [HK$2.2 million]

(2)     The balance of the funds in the joint bank account after deducting HK$1.56 million to be transferred to the husband [HK$915,000 was paid to the wife in September and October 2008 as a result]

(3)     Lump sum payment to be made by the husband to the wife of HK$1 million

Total: HK$4,115,000

To the husband

(1)     HK$1.56 million [US$200,000] held in his sole name and pledged for banking facilities of O Ltd.

(2)     Insurance policies [approximately HK$500,000], shares [HK$222,500], and MPF fund [HK$330,000]

(3)     HK$1.56 million [US$200,000] held in joint names and pledged for banking facilities of O Ltd.

Total: HK$4,172,500

25.  The Judge did not include the husband’s interest in O Ltd. in her computation for the division of available assets but included the Tel Aviv property which is the wife’s property. On that basis, the division made was that each would receive roughly 50% of the available assets. In broad terms the division of the Judge was similar to that proposed by the husband in his open offer mentioned in paragraph 14 of the judgment. The husband would retain his company and sufficient liquid assets to pledge for ongoing banking facilities. In essence, the Judge preferred the evidence of the husband on most of the matters in dispute and on that basis divided the assets as she did.

26.  On issue (8) which is whether there should be a clean break, the Judge held that the wife should retain the means to seek further support from the husband for herself and ordered the husband to pay periodical payments of HK$30,000 per month from 1 August 2008 until 31 July 2010 whereupon a nominal maintenance order will come into effect.

27.  On issue (9) which relates to the maintenance for R, the Judge ordered the husband to pay HK$22,500 per month.

The order for ancillary relief

28.  Thus the order made by the Judge on ancillary relief on 9 July 2008 was as follows:

(1)     The husband do pay a lump sum of HK$1 million to the wife upon the pronouncement of the decree absolute.

(2)     The husband do pay a monthly maintenance to the wife of HK$30,000 per month, the first payment to be made on 1 August 2008 and thereafter to be paid on the first day of each month until 31 July 2010 whereupon a nominal maintenance order will come into effect.

(3)     The husband do pay the wife a monthly maintenance of HK$22,500 per month for the benefit of R, the first payment to be made on 1 August 2008 and thereafter to be paid on the first day of each month until such time as R attains the age of 18 or ceases full time education, whichever is the later, or until further order.

(4)     The wife shall retain the assets in her name include the Tel Aviv property and her own MPF fund.

(5)     The husband shall retain US$200,000 (HK$1.56 million) from the funds that he held in his sole name (to pledge for ongoing banking facilities), together with the insurance policies valued at HK$500,000, the shares valued at HK$222,500 and his own MPF fund valued at HK$330,000.

(6)     The husband shall retain US$200,000 (HK$1.56 million) from the parties’ Credit Suisse joint account (to pledge for ongoing banking facilities) and such funds to be transferred to him upon the pronouncement of the decree absolute.

(7)     The remaining funds in the Credit Suisse joint account shall be transferred to the wife upon the pronouncement of the decree absolute, whereupon the order of 29 June 2007 for maintenance pending suit shall cease to have effect.

(8)     The payment of the lump sum of HK$1 million by the husband to the wife in compliance with (1) above and the transfer of the remaining funds to the wife in (7) above shall be in full and final settlement of the wife’s claim for capital ancillary relief.

The costs order

29.  The Judge reserved costs of the application for argument and the ruling on costs was made on 10 March 2009. She considered the litigation conduct of the parties, the findings in the judgment of 9 July 2008 and the lack of negotiation undertaken by the parties. Pertinent to her decision were these matters: the fact that the wife had “all along held an over-inflated view of the merits of her case and the assets that she should be awarded”; the finding that it was the wife and not the husband who had failed to make full and frank disclosure of means; the wife’s approach to the valuation of O Ltd. had only served to increase costs and for no useful purpose; the wife lost on nearly all of the substantive issues and where she did not lose, the Judge did not find wholly in her favour; the wife did not respond to the husband’s initial open offer for a year and when her solicitors did so, the contents of the letter were “unprofessional and unnecessary”. Having referred to Gojkovic v. Gojkovic [1992] Fam 40, A v. A (No. 2) (Ancillary Relief: Costs) [2007] EWHC 1810 (Fam), and W v. W [2005] 1 HKFLR 78, the Judge ordered the wife to pay one-third of the husband’s costs of and up to the date of the husband’s open offer prior to trial (which was 5 April 2008) and all of the husband’s costs of the trial and of the hearing on costs.

30.  The husband had issued a summons on 19 August 2008 seeking to stay the Judge’s order on 9 July 2008 in relation to the lump sum payment of HK$1 million, pending the outcome of the costs hearing. On 15 October 2008, the Judge extended the time for payment of the lump sum until after the issue of costs of the ancillary relief application had been determined. On 10 March 2009, and after the costs issue was determined, the Judge further extended the time for payment of the lump sum and ordered time to be extended until after the amount of costs to be paid by the wife to the husband has been determined, having considered Bradley v. Bradley [2008] EWCA, Civ 629, paragraph 9.

The appeal

31.  The wife filed an amended notice of appeal on 5 October 2009 in which she set out the orders she sought in the event her appeal was to be allowed and they included the following:

(1)     the order on ancillary relief be set aside save for the monthly maintenance for R;

(2)     the costs order on 10 March 2009 be set aside;

(3)     the husband was to pay R’s school expenses including school fees and school bus fees;

(4)     the husband was to pay the wife a reasonable lump sum “based on the assets that were available for distribution before the trial date”, to be paid to the wife within 14 days from the judgment;

(5)     the husband was to pay the wife “for her share in [O Ltd.] and her contribution to the success of [O Ltd.]”: (i) a lump sum of at least US$200,000 from the joint family assets pledged for banking facilities of O Ltd., within 14 days from the judgment; (ii) periodic payments, whether monthly or annual, in addition to the order for periodical payments for the maintenance of the wife;

(6)     the husband was to pay the wife periodical payments for her maintenance in an appropriate amount until she remarries or further order; and

(7)     the husband was to pay the wife a reasonable amount towards her costs.

32.  The grounds of appeal in the amended notice are prolix, running to 22 pages. As mentioned earlier, the wife challenged every single finding against her. In addition, she served a skeleton argument dated 25 May 2010 of 19 pages, and “outline submissions” dated 6 June 2010 in reply to the skeleton submission of the husband of 14 pages. The written arguments were supplemented by her oral submissions in the course of a two-day hearing. The issues raised by her may be grouped under the following heads:

(1)     the Tel Aviv property;

(2)     the valuation of O Ltd.;

(3)     the treatment of O Ltd. in the distribution of assets;

(4)     the US$400,000 pledged for O Ltd.;

(5)     the US$300,000 paid to Mr. S;

(6)     the director’s accounts and the husband’s income;

(7)     the size of the available assets for distribution;

(8)     compensation to the wife;

(9)     miscellaneous matters; and

(10)   costs.

33.  In addition to the above, there is the issue raised in the husband’s summons being new evidence he sought to produce in the appeal.

34.  Miss Rattigan submitted that in respect of a number of issues, the wife should not be allowed to put forward a case that was not raised or relied upon in the court below, particularly in respect of new factual allegations to which the husband had no opportunity to respond. Further, some of the matters set out in the wife’s submissions were not covered in the evidence adduced before the Judge.

The approach of the appellate court

35.  This appeal is concerned with challenges on findings of fact and the exercise of judicial discretion.

36.  On the exercise of judicial discretion, it is well established that it is not enough for the appellant to establish that the appeal court might, or would have made a different order. As stated by Asquith LJ in Bellenden (Formerly Satterwaite) v. Satterwaite [1948] 1 All ER 343 at 345, which concerned an order for maintenance for a divorced wife, “it is of the essence of such a discretion that on the same evidence two different minds might reach widely different decisions without either being appealable. It is only where the decision exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong, that an appellate body is entitled to interfere.”

37.  And in Piglowska v. Piglowski [1999] 2 FLR 763 at 784C to H, Lord Hoffmann has this to say regarding the above passage, which has been approved many times:

“First, the appellate court must bear in mind the advantage which the first instance judge had in seeing the parties and the other witnesses. This is well understood on questions of credibility and findings of primary fact. But it goes further than that. It applies also to the judge’s evaluation of those facts. If I may quote what I said in Biogen Inc v Medeva plc [1997] RPC 1:

‘The need for appellate caution in reversing the trial judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance … of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation.’

The second point follows from the first. The exigencies of daily courtroom life are such that reasons for judgment will always be capable of having been better expressed. This is particularly true of an unreserved judgment such as the judge gave in this case but also of a reserved judgment based upon notes, such as was given by the district judge. These reasons should be read on the assumption that, unless he has demonstrated the contrary, the judge knew how he should perform his functions and which matters he should take into account. This is particularly true when the matters in question are so well known as those specified in s 25(2) [of the Matrimonial Causes Act 1973, equivalent to s 7(1) of the MPPO]. An appellate court should resist the temptation to subvert the principle that they should not substitute their own discretion for that of the judge by a narrow textual analysis which enables them to claim that he misdirected himself. …

Thirdly, the exercise of the discretion under s 24 in accordance with s 25 [equivalent to s 6 and s 7 of the MPPO] requires the court to weigh up a large number of different considerations. The Act does not, as I have said, lay down any hierarchy. It is one of the functions of the Court of Appeal, in appropriate cases, to lay down general guidelines on the relative weights to be given to various factors in different circumstances. … These guidelines, not expressly stated by Parliament, are derived by the courts from values about family life which it considers would be widely accepted in the community. But there are many cases which involve value judgments on which there are no such generally held views. … These are value judgments on which reasonable people may differ. Since judges are also people, this means that some degree of diversity in their application of values is inevitable and, within limits, an acceptable price to pay for the flexibility of the discretion conferred by the 1973 Act. The appellate court must be willing to permit a degree of pluralism in these matters. …

Fourthly, there is the principle of proportionality between the amount at stake and the legal resources of the parties and the community which it is appropriate to spend on resolving the dispute. … To allow successive appeals in the hope of producing an answer which accords with perfect justice is to kill the parties with kindness.”

38.  This will be the approach adopted by this court in this appeal.

39.  There are a few general matters I would like to mention about the wife’s submissions.

40.  Firstly, she made repeated reference to the transcript of the hearing on 24 August 2009 when her application for leave to appeal was heard by another division of the Court of Appeal. As it would not be necessary to give detailed reasons where leave to appeal was granted, the court gave succinct reasons for granting leave. She relied on comments made by members of the court in the course of the hearing that appeared favourable to her case. The comments and succinct reasons of the court were made in the context of an application in which a different test was applied, namely, whether it could be shown that the appeal had a reasonable prospect of success. They could not be of much assistance in the appeal proper.

41.  Secondly, the wife placed great reliance on the decision of the Court of Appeal in WLK v. TMC, CACV 339/2008, 22 July 2009, in which the court interfered with a number of important primary findings made by the trial judge in allowing the appeal. The wife emphasised various passages in the judgment that were critical of the evaluation and analysis of evidence of the trial judge. But to cite this case as if it had laid down general guidance on how primary findings of fact could and should be overturned is a misuse of authority. How and why findings of fact were overturned in that case must be considered with regard to the particular fact situation of that case, and cannot be transplanted mechanically to an entirely different factual situation.

42.  Thirdly, regarding the wife’s challenge to the findings of fact made by the Judge, there are a number of difficulties. First and foremost, there is the principle mentioned earlier that an appeal court will not lightly interfere with the finding of fact of a trial judge who had the advantage of seeing and observing the witnesses who gave evidence before him. Further, the wife has not obtained the transcript of any part of the proceedings below. We were given to understand that was because of the expenses involved. This court was only provided with the trial bundles before the Judge, the evidence we could look at was confined to the affidavits, exhibits, and expert reports. We did not have the oral evidence given by the parties and other witnesses. Unless it could be demonstrated the oral evidence was wholly irrelevant to a particular finding of fact, it would be very difficult to hold that the Judge had erred merely by looking at the trial bundles as the wife had invited this court to do.

43.  I turn to consider the specific issues in this appeal under the various headings mentioned earlier.

The Tel Aviv property

44.  There was no dispute the wife should retain the Tel Aviv property. Her contention was that the value of this property should have been excluded in the computation of available assets for division.

45.  The Judge stated in paragraph 95 of the judgment that she included the Tel Aviv property in the computation of assets available for distribution, notwithstanding it was brought into the marriage by the wife and was clearly a pre-marital asset. Her reason for doing so is that otherwise “there are simply insufficient assets.” She returned to this matter in paragraph 101. Reading these two paragraphs together, the Judge would appear to be saying that if this property were not included in the computation of available assets, it would not have been possible to make a division such that each would receive roughly 50%, excluding the husband’s interest in O Ltd.

46.  The Judge would seem to have approached the matter back to front. She included the property in the computation as otherwise there could be no equal sharing.

47.  Miss Rattigan submitted to us no issue was raised before the Judge of not including the Tel Aviv property in the asset pool, so the wife should not be allowed to raise this on appeal. This is factually incorrect. We have looked at the written closing submission of the wife’s counsel at the trial. He had submitted that the property was acquired by the wife in 1994 well in advance of her marriage to the husband, so it was a pre-marital asset and it was therefore a matter of discretion to what extent this should be taken into account as a resource for the purposes of the present proceedings.

48.  Lord Nicholls gave this guidance on the treatment of matrimonial and non-matrimonial properties in Miller v. Miller [2006] 2 AC 618 at 634F to 635C, paragraphs 24 to 27:

“24. In the case of a short marriage fairness may well require that the claimant should not be entitled to a share of the other’s non-matrimonial property. The source of the asset may be a good reason for departing from equality. This reflects the instinctive feeling that parties will generally have less call upon each other on the breakdown of a short marriage.

25. With longer marriages the position is not so straightforward. Non-matrimonial property represents a contribution made to the marriage by one of the parties. Sometimes, as the years pass, the weight fairly to be attributed to this contribution will diminish, sometimes it will not. …

26. This difference in treatment of matrimonial property and non-matrimonial property might suggest that in every case a clear and precise boundary should be drawn between these two categories of property. This is not so. Fairness has a broad horizon. Sometimes, in the case of a business, it can be artificial to attempt to draw a sharp dividing line as at the parties’ wedding day. Similarly the ‘equal sharing’ principle might suggest that each of the party’s assets should be separately and exactly valued. …

27.       Accordingly, where it becomes necessary to distinguish matrimonial property from non-matrimonial property the court may do so with the degree of particularity or generality appropriate in the case. The judge will then give to the contribution made by one party’s non-matrimonial property the weight he considers just. He will do so with such generality or particularity as he considers appropriate in the circumstances of the case.”

49.  Miss Rattigan also referred to the following passage in the speech of Lord Nicholls in White v. White [2001] 1 AC 596 at 610 on the position of property acquired by one spouse before marriage:

“Plainly, when present, this factor is one of the circumstances of the case. It represents a contribution made to the welfare of the family by one of the parties to the marriage. The judge should take it into account. He should decide how important it is in the particular case. The nature and value of the property, and the time when and circumstances in which the property was acquired, are among the relevant matters to be considered. However, in the ordinary course, this factor can be expected to carry little weight, if any, in a case where the claimant’s financial needs cannot be met without recourse to this property.”

50.  Miss Rattigan submitted from the various statements of Lord Nicholls cited above, there are no hard and fast rules how a non-matrimonial property should be treated and the Judge had properly exercised her discretion to include it in the asset pool.

51.  This is not a case where “the claimant’s financial needs cannot be met without recourse to this property”, having regard to the remaining available assets as found by the Judge.

52.  We are here concerned with a relatively short marriage of five years. The purchase of the Tel Aviv property was seven years before her marriage to the husband.

53.  The wife entered into her first marriage in 1983. Her two sons of the first marriage were born in 1985 and 1988. That marriage was dissolved on 19 January 1994. The Tel Aviv property was purchased on 27 January 1994, shortly after her divorce. According to her Form E filed in these proceedings, she paid the down payment of US$22,000, she took out a mortgage and also borrowed from her father, and she paid the instalment payments. The mortgage payments have not been paid off at the time of the hearing in 2008. For ten years after the property was acquired, the wife had been working and earning substantial income, so there is no reason to think she did not have the means to pay mortgage instalments.

54.  The wife asserted before us the property was purchased with the help of her first husband for their two sons who were minors and was held in her name for their benefit. This was not mentioned expressly in any affidavit of the wife, although she said in her 8^th affidavit she had “all along intended to give it to her two sons”, and claimed she had testified in court that the property was purchased for her sons. Looking at the proximity of the dates of her divorce and the purchase of the property, at the very least one could infer in her favour the acquisition of the property would have something to do with the financial arrangements made as a result of her divorce.

55.  Miss Rattigan drew the attention of the court to the husband’s 8^th affidavit, in which he deposed that “one single increase in our fortunes has come about from the increase in value of the apartment in Israel, which is registered in [the wife’s] name” and that “we have the apartment in Israel, worth another US$300,000”, which statements have apparently not been refuted by the wife, as showing that the Tel Aviv property had been treated as their joint asset. I consider these statements of the husband somewhat disingenuous, for the reasons given below.

56.  In the husband’s 2^nd affidavit, he explained why he served a questionnaire on the wife seeking copies of the court orders or settlement documents in relation to her divorce with her first husband, “so the Court can see what capital was made available to [the wife] at the time of her divorce, … so that the Court can see the financial provision made for [the wife’s] children … by their own father.” The wife’s reply was in her 4^th affidavit and her 2^nd answers to the request for particulars. One of the documents she exhibited was the divorce agreement approved by Tel Aviv Jaffa District Court on 13 May 1993, this provided inter alia for child support to be paid by the first husband on a periodic basis for the specified duration; the equal division between the wife and the first husband on sale of the net equity of a property jointly owned by them in Tel Aviv; that US$23,500 from the first husband’s share of the proceeds of sale was to be transferred  to the wife to “cover all of the children’s dwelling needs that apply to [the first husband]” and upon receipt of the same, the wife would be “responsible for the children’s dwelling”.    

57.  From the above documents, it could reasonably be inferred that part of the purchase price of the Tel Aviv property was provided by the capital sum made available to the wife at the time of her divorce, and part of it had come from the first husband’s financial provision for the dwelling needs of the sons. It is tolerably clear that the property was acquired partly, even if not entirely, for the benefit of the two sons. The husband could not have made the aforesaid statements in his 8^th affidavit in good faith in the light of the above documents.

58.  The Judge was in error in failing to have regard to the special circumstances in which this property was purchased and that it was acquired at least in part for the benefit of the sons of the former marriage. There was a good reason to depart from equality. On a broad view of the fairness of the situation, I do not think the Judge’s decision of including the property in the computation of available assets could be supported. Making allowance for a degree of pluralism in these matters and bearing in mind there is no single answer that accords with perfect justice, I would include half of the net value of this property in the computation and deduct HK$1.1 million from the value of the assets held in the name of the wife.

The valuation of O Ltd.

59.  The Judge had queried at paragraph 42 of the judgment the usefulness of the valuation reports of O Ltd. obtained by the parties at considerable time and expense. The company was the goose that laid the golden eggs in the form of income and benefits for the family, there was no ready market for the shares, and even competent valuers might well reach widely different valuations using similar methods. In the end, the Judge preferred the valuation of the husband’s expert.

60.  On appeal, the wife contended that the valuation of the husband’s interest found by the Judge at HK$2.75 million was “unreal” and did not “reflect the real value of the Company based on its performances and shareholders total income”. I do not propose to go into each of the arguments she advanced and would only mention the main ones, as I do not think her challenge of the Judge’s finding in this aspect could get off ground.

61.  For the reasons set out in paragraph 47 of the judgment, the Judge declined to accept the evidence of the wife’s expert and preferred the evidence of the husband’s expert. For the wife’s attack on the evidence of the husband’s expert given under cross-examination, this court is in no position to deal with it as we were not provided with a transcript of the relevant part of the oral evidence.

62.  The wife pointed to the value of the husband’s interest at US$850,000 [equivalent to about HK$6.63 million] according to the 1998 agreement, which was just one year after the formation of the company, to show that the valuation of HK$2.75 million after the successful operation of the company for ten years was far too low. The Judge had found that the 1998 agreement was not a genuine agreement and stated clearly in paragraph 48 of the judgment she did not accept the value of US$850,000 purportedly given to the husband’s shares by that agreement.

63.  In her submissions to this court, the wife put forward a valuation of her own, which was based on the average gross profits of the company during 2005 to 2007 (at HK$16 million) multiplied by 5 to arrive at HK$80 million as the value of the company in 2007. She then used this figure of HK$80 million as a benchmark for testing the valuation given by the two experts, so the valuation of the husband’s expert (at HK$5.5 million) at 7% of the benchmark figure was “ludicrous” and the valuation of her expert (at HK$30 million) at 37% of the benchmark was more appropriate. She also put forward another method of valuation by using a multiplier of 0.75 against the average of three years’ annual gross sales, arriving at an even higher figure of HK$92.7 million for the value of the company. I see no valid basis for using the wife’s methods in arriving at a benchmark figure whether at HK$80 million or HK$92.7 million.

The treatment of O Ltd. in the distribution of assets

64.  Having found that the husband’s interest in O Ltd. amounted to HK$2.75 million, the Judge did not include this amount when she came to make the division of assets, noting that O Ltd. was not an asset capable of being sold and it provided the only income for the family. The wife’s complaint was that the value of the husband’s interest in the company should have been included in the division of assets.

65.  Before the Judge, it was contended by the wife’s counsel as mentioned in paragraph 42 of the judgment that the relevance of the valuation of the company was “in the context of what O Ltd. can generate by way of an income, accommodation and expenses for the husband and significantly dividends”. Both sides accepted that the husband’s interest in the company was not to be sold or transferred by any order of the court, nor was any claim made by the wife in the proceedings below that she should have any beneficial interest in the company.

66.  The wife argued on appeal the husband’s interest in O Ltd. was a matrimonial asset, especially when she had contributed towards the US$400,000 pledged for banking facilities of the company, so the value of the husband’s shares should have been included in the asset pool when the assets were divided. Even though the husband’s interest in the company was not readily realisable, she contended that the Judge should have considered other alternatives, such as creating a trust of the husband’s interest for her benefit; making an order for periodical payments from the income produced in the business, in addition to a maintenance order for her; making an order for an annual lump sum payment derived from dividends so that she could receive 50% of the profits of the company in future. She cited A v. A [2006] 2 FLR 115 and D v. D & B Ltd. [2007] 2 FLR 653, in which Charles J opined (at paragraphs 59 and 97 respectively) that the court must be creative and sensitive to achieve an orderly redistribution of wealth, in view of difficulties concerning holdings in private companies that may make the achievement of the objective in White v. White, supra. sometimes impossible, or only achievable at a cost which may not overall be in the family’s best interests.

67.  In excluding the value of the husband’s interest in O Ltd. in the overall division of assets, the Judge had apparently taken the view there should not be a lump sum payment by direct reference to a ‘snap shot’ valuation of the husband’s shares, owing to the very special nature of this asset. This does not mean the Judge had not taken into account the interest of the husband in the company in any way in an assessment of a fair division of assets. By the order for ancillary relief, the husband was permitted to retain his interest in O Ltd. and sufficient liquid assets in his name to pledge for ongoing banking facilities of the company. In ordering the husband to pay a lump sum of HK$1 million and to transfer to the wife, after deducting the US$200,000 pledged for banking facilities of O Ltd., the balance in the joint bank account in full and final settlement of the wife’s claim for capital ancillary relief, the Judge would have taken into account the husband’s interest in O Ltd. as a resource out of which capital provision could reasonably be made. I reject the wife’s contention that the lump sum payment of HK$1 million was not linked in any way to the Judge’s finding on the valuation of the husband’s interest in the company.

68.  The Judge’s solution to do broad justice did not fall outside the generous ambit within which reasonable disagreement is possible; there is no scope for interference with the exercise of the Judge’s discretion in this respect.

The US$400,000 pledged for O Ltd.

69.  The US$400,000 pledged for O Ltd. was included in the asset pool when the Judge came to divide up the assets, but the sums pledged were awarded to the husband. The wife contended that the Judge should have awarded at least US$200,000 to her, being 50% of the amount.

70.  Of the US$200,000 held in the husband’s bank account and pledged to secure banking facilities of O Ltd., the Judge found in paragraph 84 of the judgment that the husband would need to continue to pledge this amount. Although she did not make a similar finding expressly for the US$200,000 held in the parties’ joint names and pledged for the same purpose, it is implicit in paragraph 101 that the reason for allowing the husband to retain the US$400,000 was to have “sufficient liquid assets in his name to pledge for ongoing banking facilities” of the company.

71.  In considering what appropriate provision should be made in respect of the US$400,000, the Judge had acted correctly in having regard to the effect on the business of the company as a going concern and the commercial reality. She came to the conclusion that the husband should be allowed to continue to pledge the said sum so that he may operate the business without disruptive interference or undue burdens, and that ultimately the wife may enjoy the benefits indirectly by way of lump sum and periodical payments. There are no sufficient grounds to interfere with the exercise of discretion of the Judge.

The US$300,000 paid to Mr. S

72.  The wife contended that the US$300,000 paid to Mr. S should have been returned to the family asset pool and she should be awarded 50% of this amount. She advanced a number of arguments.

73.  Firstly, she argued that the payment of US$300,000 to Mr. S in January 2006 was dubious, as it was made shortly after she indicated to the husband her wish to divorce as the marriage faltered. The Judge should have found that the amount was transferred to Mr. S with the sole purpose of appearing to reduce the marital assets available for distribution. To bolster her argument, the wife pointed to what appeared to be a circular transfer of HK$2.5 million from the company to the husband and back to the company in December 2005 and January 2006, and the fact that two out of the four payments to Mr. S for the dividends declared had pre-dated the board resolutions in 2006.

74.  The Judge disbelieved the husband’s evidence on the 1998 agreement but did not accept the wife’s allegation that the shares in O Ltd. were given to him for nothing in return. The finding in paragraph 40 of the judgment was that there was probably an agreement between the husband and Mr. S for the purchase of the shares but the price was unlikely to be US$850,000. In paragraph 37, the Judge declined to accept the wife’s case that the US$300,000 paid to Mr. S in January 2006 should be clawed back to the family asset pool.

75.  As for the transfer of HK$2.5 million from O Ltd. to the husband and back to the company in late 2005 and early 2006, it was explained by Mr. S in his 2^nd affidavit that the initial transfer to the husband was done on the instructions of Mr. S in anticipation of making a distribution from profits in 2006, and the subsequent transfer from the husband back to the company was due to the decision of Mr. S that the husband should not retain his portion of the dividends distributed. Even though the evidence of Mr. S on the 1998 agreement was rejected, it does not follow his evidence in this respect should also be rejected.

76.  As for the fact that the payment to Mr. S of the first two tranches of the dividends declared had pre-dated the board resolutions, this was mentioned in the closing submission of the wife’s counsel. In weighing the evidence, the Judge was entitled not to take this into account. This could be due to the fact that there were only two directors and shareholders in the company, and the affairs of the company could have been conducted with less formality. In any event, the Judge was satisfied dividends of HK$4.65 million were declared in 2006.

77.  It does not appear to me the findings of fact could be impugned. The Judge’s view that no order could be made against Mr. S for payment or transfer of the US$300,000 as the wife had made no application under section 17 of the MPPO must be correct. Given the factual findings of the Judge, it would not have made much difference even if such an application had been made.

78.  Secondly, the wife argued that the US$300,000 was not paid to Mr. S for the purchase of the husband’s shares, the Judge should have found instead that the US$400,000 pledged for banking facilities for O Ltd. in 2004 was paid by the husband to acquire the bulk of his shares. She sought to derive support for that contention from a letter of the husband’s solicitors dated 6 March 2007 in which the solicitors stated that the effect of a directors’ resolution dated 15 September 2004 was to provide that Mr. S and the husband each held 50% of the shares of the company. This is a new allegation not raised by the wife in the court below and was not put to the husband. She is not allowed to raise this on appeal.

79.  Thirdly, the wife alleged there would appear to be a connection between the transfer of US$300,000 to Mr. S and the subsequent purchase by a company owned by Mr. S of a residential property which was occupied by the husband as his new residence. Again, this allegation was not raised at the trial, so it is not open to the wife to raise this on appeal. 

The director’s accounts and the husband’s income

80.  The wife maintained her case in the court below that the director’s loans were never repaid. Furthermore, she argued that entries in the director’s accounts were concocted by the husband to reduce the value of the company and his income and to create more liabilities for him. She relied on an email from the husband’s solicitor to his accounting expert dated 11 May 2007 in support of her contention that the directors’ accounts did not exist before and were prepared specially for this litigation.

81.  I am unable to read the email in that light. Besides, in paragraph 51 of the judgment, the wife’s counsel had conceded during the hearing that the director’s accounts themselves were not false. What appeared to be in issue was just whether the money drawn from the director’s loan account had to be repaid. The Judge did not find that the husband had never repaid the director’s loans. She stated that she did not accept the husband had always repaid what was owed in the director’s account personally and it is not possible to determine the extent to which loans were written off or rolled over. It does not appear to me there is sufficient basis to attack the Judge’s finding. I reject the wife’s argument the Judge failed to calculate the real monthly income of the husband including salary, benefits, expenses and dividends.

The size of the available assets for distribution

82.  The wife submitted that on the evidence, O Ltd. had generated “millions of dollars and serves as a resourceful foundation for funds, in many forms such as dividend, bonuses, gifts and reimbursement payments in addition to the Husband’s salary and benefits” and the Judge has failed to understand “the size of the pot” resulting in injustice to her. In support of her contention, she pointed to various substantial sums deposited in the husband’s bank accounts or their joint accounts over the years. The Judge had found against the wife on this, holding that there were only two dividend payments to the husband and a gift of US$105,000 from Mr. S as an incentive payment; the other sums were repayment of expenses, money held on behalf of O Ltd., Mr. S or the husband’s parents. The wife raised various matters seeking to overturn these findings of fact. I do not intend to deal with each of them.

83.  She pointed to the fact that dividends of US$450,000 were paid in 2006 through the bank account of Elite Asset Ltd., a company alleged by the husband to be dormant. This showed that quite apart from O Ltd., Elite Asset Ltd. also owned assets and the Judge should have taken this into account.

84.  According to a letter of the auditors of O Ltd. to the husband’s solicitors dated 25 July 2007, O Ltd. controlled the operations of three companies, one of them being Elite Asset Ltd. The auditors further stated that the bank receipts and payments relating to the activities of such companies belonged to and were under the control of O Ltd., and were reflected in the books of O Ltd. I do not think there is any substance in the wife’s argument. Besides, she did not pursue any further request for information after the above matters were disclosed to her in the husband’s answers to her questionnaires.

85.  Regarding the amount of US$110,000 paid into the parties’ joint bank account by O Ltd. in May 2003, the wife submitted this was apparently inconsistent with the husband’s oral evidence that it was a payment by his parents. The Judge was entitled to accept the husband’s oral evidence. Besides, this court has no information of what questions were pursued in cross-examination or the oral evidence given.

86.  For the sum of US$95,000 paid to the husband in July 2001, this was dealt with in paragraphs 62 and 63 of the judgment. Despite some initial reservation, the Judge accepted the husband’s explanation in the closing submission of Miss Rattigan and found in his favour this was a repayment of expenses, not a dividend payment as alleged. The entries in the audited accounts of O Ltd. for 1999, 2000 and 2001 were relied on, they showed a credit balance in the director’s current account after the husband had paid the company US$95,000 in November 2000 and a debit balance was again recorded after the company had paid the husband US$95,000 in July 2001. The wife’s submission that the credit and debit entries do not add up to the exact figure of US$95,000 is missing the point.

87.  Next, the wife pointed to two amounts of US$33,588 held in the account of the husband at ICBC (Asia) Bank and US$153,216 in his account at Wing Hang Bank, disclosed in the husband’s Form E in January 2007. She contended that even if these amounts belonged to O Ltd., 50% of these amounts should be included in the computation of assets as the husband owned half of the company. In the schedule of assets prepared by the husband’s solicitors dated 30 May 2008, the balances in these bank accounts had been updated and they included the sums aforesaid. The Judge found at paragraph 70 of the judgment that these sums of US$127,980.06 and US$162,177.35 belonged to O Ltd., so did not include them in the assets held in the name of the husband at paragraph 83 of the judgment. There is no merit in the wife’s argument.

88.  As for the amount equivalent to HK$234,874.60 held by the husband in the account of Prismafinance in Israel, the wife submitted the husband had earlier asserted that the funds represented a loan from his relatives named Hirshbein and later claimed the money belonged to his parents instead and he did not provide any documentary proof to substantiate his assertion. The Judge accepted the husband’s evidence in paragraph 83 of the judgment. There is insufficient ground to disturb the Judge’s finding of fact.

Compensation to the wife

89.  The wife contended that she should have compensation for “relationship-generated disadvantage” in that the “prospective economic disparity” between her and the husband began when she agreed to stay at home and take care of the family. She argued that while her doing so “greatly advantaged” the husband in terms of his earning capacity, it left her “severely handicapped” as far as her own earning capacity is concerned. She relied on Miller v. Miller, supra., paragraphs 13 to 15 and 90 to 93, in which Lord Nicholls considered a “paradigm case for an award of compensation, in respect of the significant future economic disparity, sustained by the wife, arising from the way the parties conducted their marriage.” She submitted that the Judge was in error in limiting her periodical payments to HK$30,000 per month for two years and thereafter at a nominal sum. She also argued the level of maintenance awarded did not take into consideration her needs.

90.  The wife’s case for compensation over and above her needs appeared to be premised on two incidents: when she gave up her career opportunity in 2002 which would have required her to return to Israel, and when she gave up her well-paid job in 2004 to look after the family. The first incident did not find favour with the Judge. The wife had no difficulty in finding an equally well paid job in the same field within a couple of months. I agree with the Judge the wife should not be compensated for a choice she made then in good faith.

91.  The wife was not working for a period of less than two years, between August 2004 and April 2006. She was employed in a managerial position in a different field when she returned to the work force in May 2006, albeit at a lower salary than what she had enjoyed in the information technology industry, in which she had accumulated 28 years of working experience. She was made redundant in her last job in 2007 because of the frequent occasions she took time off work to handle her divorce proceedings.

92.  It was asserted by the wife’s solicitors in a letter dated 11 June 2007 that her earning capacity “is not an issue in dispute” and such capacity “is well demonstrated by her historical income”. The Judge did not find that the wife had suffered a severe handicap in her earning capacity in the relatively short period in which she had ceased to work. On the contrary, the Judge found the wife does have a “reasonable earning capacity and one that is likely to increase over time”, and estimated she should be able to earn HK$20,000 per month. In making the order for periodical payments for the wife, the Judge had taken into account it would not be possible for her to rejoin the information technology industry “at the same level as before”, and that she would have R to consider in pursuing her employment opportunities. The nominal maintenance order after two years was made to preserve the means for the wife to seek further support from the husband if some unforeseen event should arise and as a result she is unable to support herself adequately.

93.  The wife argued it was wrong for the Judge to “assume” she would secure “immediate employment” in the region of HK$20,000 per month, there being no evidence a suitable job was available and she had refused it. She relied on LJ v. LWHH (Maintenance Pending Suit) [2003] 3 HKC 455 to support her contention it was wrong for the Judge to find an earning capacity of HK$20,000 in her case. The Court of Appeal in that case was concerned with an application for maintenance pending suit, and by the nature of the application would not consider the long term prospects of the parties or the earning capacity in circumstances which were “less obvious”. The wife in that case was a new immigrant from Shanghai with little skills and had not been working for six to seven years since she started living with the husband. In those circumstances, and with the state of unemployment in Hong Kong in 2003, it was by no means clear she could easily find suitable employment. It was in the above context that Yuen JA said at paragraph 26 that the deputy judge fell into error in taking the wife’s earning capacity into account when “there was no evidence that a suitable job was available for the wife and she had refused it”. Yuen JA went on to say “different considerations would of course apply at an application for ancillary relief”. 

94.  I see no basis to interfere with the finding of the Judge that the wife does have a reasonable earning capacity, which the Judge put at HK$20,000 a month. Nor do I think the Judge was in error, on the findings she made, in not making an additional award to provide compensation to the wife, apart from providing her with maintenance at HK$30,000 a month. Further, as the Judge had found, the husband’s earnings were not such as to yield a substantial surplus over what was required to meet both parties’ needs, so that it would be appropriate to require him to pay a premium above needs to compensate the wife for any “relationship-generated disadvantage”.

95.  The wife argued it was wrong in principle to order periodical payments at HK$30,000 a month for two years on account this was a “short marriage”. That was not the Judge’s reason in making this order. The reason for restricting the payments to two years was due to the Judge’s finding that the wife does have a reasonable earning capacity of HK$20,000 a month and the Judge’s assessment of the time that the wife would take to maximise her earning potential. I see no basis for attacking that finding and assessment.

Miscellaneous matters raised by the wife

96.  In the amended Notice of Appeal, whilst the wife did not seek to set aside the order made for the maintenance of R at HK$22,500 a month, she sought an order that the husband should pay the school expenses of R including school fees and school bus fees. The Judge mentioned in the judgment that the husband was prepared to pay HK$20,000 per month for R’s maintenance, and the wife was seeking HK$25,000. She ordered maintenance for R in the sum of HK$22,500. In seeking monthly maintenance of HK$25,000 for R, presumably the wife would have included her school expenses. I see no reason to alter the amount of R’s maintenance. If there is change of circumstances affecting R’s maintenance since the order was made, the wife could apply for a variation of the order to the Judge.

97.  In paragraph 71 of the wife’s skeleton argument in this appeal, she sought a number of reliefs not sought in the court below and not mentioned in the amended Notice of Appeal. I do not propose to deal with them as they are not matters properly within the scope of the appeal.

98.  The wife sought to set aside the order made by the Judge on 10 March 2009 upholding the order nisi made on 15 October 2008 there be no order as to costs in respect of the husband’s summons issued on 19 August 2008 to stay the Judge’s order for lump sum payment of HK$1 million pending the determination of liability for the costs of the trial. I see no reason to interfere with the exercise of the Judge’s discretion in making no order as to costs.

The husband’s application to adduce new evidence

99.  The husband issued a summons in this appeal on 27 May 2010, seeking to produce evidence as to his updated financial situation as per his affidavit attached to the summons.

100.  This court has read his affidavit de bene esse. In short, he deposed that O Ltd. ceased business on 13 May 2010, that the China representative office of the company had shut down in February 2010 and all employees were laid off, and that the other shareholder Mr. S had indicated he was no longer interested to carry on the business. He said he would not take steps to wind up O Ltd. but would keep it dormant to save expenses.  He also mentioned that after closing down the business of O Ltd., he opened a bank account for a company that was wholly owned by him but had remained dormant for five years, to “provide a base for business activities in case [he] was able to bring in any business.” This company, Dragon Sight Corporation Limited, has three part-time employees. He borrowed US$140,000 from his parents in Israel to pay for his studies in an executive master degree in business administration, to pay maintenance for the wife and R, and to pay his legal costs. He has also withdrawn US$122, 279.86 from his life insurance. He has current liabilities of HK$2 million. He referred to his affidavit in support of his summons filed in the court below in March 2009 seeking a downward variation of maintenance to be paid to the wife and R, due to the decline in the volume of sales of O Ltd. His application for downward variation and the wife’s application for upward variation of maintenance have been adjourned to be heard after the determination of this appeal. He claimed he has no assets left so there is no point to continue with the present appeal.

101.  Miss Rattigan said the application was made pursuant to Order 59 rule 10(2) of the Rules of the High Court, which provides as follows: “The Court of Appeal shall have power to receive further evidence on questions of fact, either by oral examination in court, by affidavit, or by deposition taken before an examiner, but no such further evidence (other than evidence as to matters which have occurred after the date of the trial or hearing) shall be admitted except on special grounds.” She submitted that the evidence the husband sought to adduce is not fresh evidence in the sense of Ladd v. Marshall [1954] 1 WLR 1489 but is evidence of a change in circumstances after trial. There being no respondent’s notice, the purpose of the new evidence is probably not to impugn the order of the Judge for lump sum payment but to support the husband’s contention that no order should be made on appeal for a greater lump sum given his present financial circumstances.

102.  The wife opposed the application. She does not accept the contents of the husband’s affidavit. As in all other aspects in this litigation, the husband’s present financial circumstances would be a hotly contested issue. This is not an affidavit that this court could accept at face value.

103.  The Court of Appeal has a wide discretion in relation to admission of fresh evidence of matters which occurred after trial, but it should always be exercised sparingly with due regard to the need for finality in litigation. In W v. H & Anr., CACV 127/2008, 12 May 2009, the Court of Appeal rejected an application by the husband to serve a respondent’s notice out of time for the court to re-assess the value of joint assets which would require the wife to repay part of the sum awarded to her because of the diminution in the husband’s investments consequent upon the global financial crisis. Leave was refused by the court, applying the principles in the similar situation of seeking leave to appeal out of time from an order for financial provision in Barder v. Calouri [1988] AC 20 and Myerson v. Myerson [2009] EWCA Civ 282.

104.  The present application is not for leave to appeal out of time or to serve a respondent’s notice out of time, but I consider it helpful to have regard to the approach in the above cases, in particular Myerson at paragraphs [28] to [30], citing the judgment of Hale J (as she then was) in Cornick v. Cornick [1994] 2 FLR 530 at 531, 532 and 536. I have also considered Hughes v. Singh & Anr., The Times, 13 April 1989, cited in Hong Kong Civil Procedure 2010, vol. 1, paragraph 59/10/15, in which the English Court of Appeal exercised the discretion to admit fresh evidence of a matter after trial in a negligence claim and ordered a re-trial on the issue of damages.

105.  I would decline to exercise the discretion to admit the new evidence of the husband, for the following reasons.

106.  It is important to have regard to the need for finality in litigation. If this is not rigorously applied, the floodgates would be opened with a vengeance. In an application for financial relief, the court makes an assessment of the assets available for distribution based upon a snapshot taken at the time of trial. In applying the factors under section 7(1) of the MPPO, the court would have to do the best it can with the available evidence to take into account those factors at the time. Those factors include the income, earning capacity, property and other financial resources which each party has or is likely to have in the foreseeable future, and the financial needs, obligations and responsibilities which each party has or is likely to have in the foreseeable future. The MPPO does not allow for the variation of capital settlements, including lump sum payments, save as to instalments. Orders for capital ancillary relief are, by their nature, intended to be final.

107.  Here, the husband would like to adduce evidence on his financial position as in May 2010, nearly two years after the trial. The cessation of business of O Ltd. did not occur within a relatively short time of the order being made. In Barder v. Calouri and Hughes v. Singh, the time element for the admission of fresh evidence of events after trial was no more than a few months from the trial.

108.  The husband is seeking to move the time of the snapshot assessment to two years after trial when this court is to apply the factors in section 7(1) in making an order for capital financial relief. If his request is acceded to, the court would need to receive evidence, not merely of his present financial circumstances and of his financial arrangements over the two-year period, but the same exercise would have to be done for the wife. She would need to file fresh evidence and the parties would have to be cross-examined on their evidence, as fresh evidence from each party is likely to be disputed. The matter would have to be remitted to the court below for a re-trial on the issue of the respective financial position of the parties over the past two years. This is a far cry from the situation when fresh evidence is admitted on appeal on a non-controversial matter that occurred after trial, such as the amount of rental paid in the case relied on by Miss Rattigan (WSW v. YKK, CACV388/2007, 30 June 2008, paragraph 45). I note that the husband is not seeking a re-trial.

109.  In the evidence given at the trial in June 2008, the accounts for O Ltd. for 2007 were placed before the Judge, who noted that the accounts showed an operating loss of HK$1.9 million and that no dividends would be paid. The Judge had taken this into account in making the order for lump sum payment. The vicissitude in the business operated by the husband is not an event of such nature to justify a re-opening of the snapshot evaluation that was taken at the trial for the purpose of making capital financial provision intended by the legislature to be final. 

Disposition of the appeal

110.  Regarding the order for ancillary relief, the only matter I would differ from the Judge is the treatment of the Tel Aviv property. As mentioned earlier, I would include half of the net value of this property in the computation of the remaining available assets and deduct HK$1.1 million from the value of the assets held in the wife’s name.

111.  On this basis, the total amount of the remaining available assets on the Judge’s findings would stand at HK$10,052,500, with HK$1.1 million being the net assets in the name of the wife, HK$6,222,500 being the net assets in the name of the husband, and HK$2,730,000 being the assets held in joint names. On the Judge’s approach, the value of O Ltd. at HK$2,750,000 would not be included in the division of available assets. With the reduction of HK$1.1 million from the assets that would go to the wife, the division of assets made by the Judge would appear as follows:

To the wife

(1)     Property in Tel Aviv [HK$1.1 million]

(2)     The balance of the funds in the joint bank account [HK$915,000]

(3)     Lump sum payment by the husband [HK$1 million]

Total: HK$3,015,000

To the husband

(1)     HK$1.56 million held in his sole name and pledged for banking facilities of O Ltd.

(2)     Insurance policies, shares and MPF fund [HK$1,052,500]

(3)     HK$1.56 million held in joint names and pledged for banking facilities of O Ltd.

Total: HK$4,172,500

112.  I would increase the lump sum payment to the wife by HK$500,000, to bring the division of available assets as found by the Judge to roughly 50% to each party. I recognise the court may need to consider whether to order payment by instalments of the additional lump sum of HK$500,000. It would be more appropriate for the court below to deal with this, in conjunction with the existing applications made by each party for variation of the order for periodical payments. I would remit to the Judge the question of payment by instalments of the additional lump sum.

The challenge on the ruling on costs

113.  The Judge awarded the husband one-third of his costs up to the date of his open offer made on 5 April 2008 close to trial and all of his costs of the trial and of the subsequent hearing on costs. The order made for ancillary relief was in broad terms similar to the husband’s proposal in his open offer prior to trial, although the Judge declined to order a clean break as urged by him. The Judge had ruled against the wife on many of the issues and was critical of her conduct in litigation.

114.  The wife argued on appeal not only should she not be liable for any part of the husband’s costs but that he should pay her costs. She contended that she should not be regarded as acting unreasonably in rejecting the husband’s offer for settlement in circumstances where he had not made full and frank disclosure of his asset position. However, as the Judge found at the end of the day, it was the wife and not the husband who had failed to make full and frank disclosure of means in that the wife had not adequately disclosed her Israeli bank accounts.

115.  The wife submitted that the husband’s settlement offers should influence, but not govern, the exercise of discretion on costs. She further urged this court not to give the same weight to Calderbank offers or open offers as in ordinary civil litigation, and to adopt the starting point there should be no order as to costs, citing the comments of Mostyn QC sitting as a Deputy High Court Judge in GW v. RW [2003] EWHC 611 (Fam) at paragraph 91, that the orthodox Calderbank theory is “utterly inapt for the resolution of what may be a substantial financial liability at the sad end of a marriage”. She referred to the decision of Saunders J in W v. K & Anr. (Costs) [2008] HKFLR 378 at paragraphs 11 and 12, in which the judge took a similar approach as in GW v. RW.

116.  The opinion expressed by the judge in GW v. RW was confined to a big-money case (paragraphs 92 and 96 of the judgment). W v. K & Anr. was a big matrimonial case where the available assets exceeded the parties’ needs. That is not the position here. The approach in GW v. RW in declaring the relevant provisions on offers to settle in the Family Proceedings Rules as unworkable was disapproved by the English Court of Appeal in Norris v. Norris [2003] 2 FLR 1124 at paragraphs 18 to 23.

117.  I will first consider the pre-trial costs up to the date of the husband’s open offer on 5 April 2008.

118.  On the same day the petition for divorce was presented by the wife, the husband’s solicitors wrote to her solicitors on 14 November 2006 making an open offer of settlement to divide equally the sums in various bank accounts of the parties so that each would receive cash of US$685,307 (approximately HK$5.3 million), and that the wife was to retain the Tel Aviv property. This letter was accompanied by a box file containing financial information of the husband and O Ltd., and the 1998 agreement. The wife responded to this offer with a without prejudice counter proposal a year later, the details of which I do not need to go into save to say it was simply unrealistic. In the open offer made by the husband close to trial, the cash capital he offered the wife was reduced to about half of the initial offer. By then, the parties had between them incurred very substantial costs of HK$5 million.

119.  Had the wife accepted the initial offer of settlement, she would have been much better off. She had ample time and opportunity to consider this offer. She refused to accept the husband had made proper disclosure of his means. She sought to negotiate a financial settlement that was unrealistic, and pursued this litigation in an over-zealous way. In the light of this litigation conduct, the wife should not have her costs for the pre-trial period. The question is apart from depriving her costs, whether she should pay one-third of the husband’s costs for this period as ordered by the Judge.

120.  It does not appear to me the wife’s culpability in the conduct of the litigation was at the top end of the scale to merit such a harsh order. As remarked by the Judge, the central issue was that the wife simply did not or does not believe the husband. That accounted for her behaviour in refusing to negotiate at the beginning and later rejecting his offer of settlement on an “over-inflated view of the merits of her case and the assets she should be awarded”. A material factor for the wife’s mistrust was the 1998 agreement which was put forward by the husband from the start, in the letter of 14 November 2006, alleging that he was indebted to Mr. S for the acquisition of his 50% interest in O Ltd. in the sum of US$850,000 and that he still had outstanding liabilities of US$550,000. The wife’s view that the document containing the alleged agreement was fabricated caused her to have doubts of the annual profits of O Ltd. and the dividend payments, which were linked to the husband’s stated intention to discharge his outstanding liabilities from the company profits. This led to considerable expenses being incurred to obtain valuations of O Ltd.  

121.  The husband persisted in his allegation and the Judge found against him at the trial holding that the 1998 agreement was not a genuine agreement. In ordering the wife to pay one-third of the husband’s costs up to the date of the open offer before trial, the Judge had failed to take into consideration a material factor, namely, that the litigation misconduct of the husband had contributed significantly to the wife’s mistrust of the husband and her rejection of his various open offers. The husband had himself to blame in that offers which appeared reasonable were not accepted by the wife due to the mistrust generated by his wrongful behaviour. Justice would be served adequately by depriving the wife of her costs for the entire pre-trial period. She should not have to pay any part of the husband’s costs for this period.

122.  I turn to the costs of the trial. This would need to be considered in the light of the division of assets I propose to make in this appeal, with an additional lump sum payment of HK$500,000 to the wife. The open offer of the husband on 5 April 2008 was to pay her a lump sum of US$256,000 (about HK$1.99 million), HK$30,000 a month for two years (which was in effect the order for periodical payments made by the Judge), plus whatever was left of the amount drawn down for costs. This offer fell short of the order for financial relief I propose to make by about HK$500,000. Looked at in that light, the wife, not the husband, should be regarded as the overall successful party at the trial.

123.  In matrimonial cases, as in other cases, costs should normally follow the event. The court also retains a discretion to deprive successful litigants of costs under the principles in In re Elgindata Ltd. (No. 2) [1992] 1 WLR 1207 (L v C, CACV 169/2006, 19 March 2008, paragraph 23, per Yuen JA). The general rule that costs follow the event does not cease to apply simply because the successful party raised allegations on which he failed, but where that has caused a significant increase in the length or costs of the proceedings, he may be deprived of the whole or a part of his costs. As the Judge had remarked, the wife had taken an over-inflated view of the merits of her case and the assets she should be awarded. The approach she took in relation to the valuation of O Ltd. and the accounts caused a significant increase in the length and costs of the proceedings. It is not fair she should be awarded all of her costs at trial. I would exercise the discretion to reduce the award of the costs of the trial to the wife by half.

124.  The Judge awarded the costs of the hearing to determine the question of costs to the husband. It seems to me an appropriate order for that hearing is no order as to costs, as neither side was wholly successful on costs.

125.  To recap, in respect of the order for costs in the application for ancillary relief, I would set aside the order of the Judge and substitute this with an order that there be no order as to costs up to the date of the husband’s statement of opening proposals filed on 5 April 2008, that the husband is to pay one half of the wife’s costs thereafter including the costs of the hearing of the trial, and that there be no order as to costs of the hearing to determine the liability for costs.

126.  For the costs of this appeal and of the wife’s application for leave to appeal, I see no reason to depart from the general rule that costs should follow the event. I would make an order nisi that the wife is to have the costs of the appeal and her application for leave to appeal before the Judge and the Court of Appeal.

Hon Cheung JA:

127.  We allow the appeal of the wife and vary the order made by the Judge on ancillary relief on 9 July 2008 in the manner as stated in paragraph 112 above. We set aside the costs order made on 10 March 2009 and substitute this with an order in terms as stated in paragraph 125 above. The husband’s summons to adduce new evidence in the appeal is dismissed.  We make an order nisi awarding the costs of the wife’s applications for leave to appeal, the husband’s summons to adduce new evidence, and the appeal to the wife.