MGB also known as MAG v. GCB

FCMC 5376/2015

[2019] HKFC 277

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 5376 OF 2015

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D E C I S I O N
(Setting Aside Garnishee Order to Show Cause)

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Hearing

1.  This is supposed to be a hearing of the Respondent’s summons dated 8 August 2018 for setting aside 2 Garnishee Orders to Show Cause both dated 6 July 2018 (to be referred as the “Garnishee Orders Nisi” or simply “GONs” hereinafter) granted in favour of the Petitioner.   But since the parties have already agreed for the GONs to be discharged upon the payment into court a sum of HK$267,347.88 by one of the Garnishees (as security), the setting aside application is no longer a live issue, except to the extent of how to deal with the moneys now in court and also the issue of costs.

2.  Despite the fact that a Decree Absolute (“DA”) has already been granted in respect of the Petition for Divorce, I shall continue to refer to the Petitioner as “the Wife” and the Respondent as “the Husband” in this Decision for the sake of convenience and consistency.

The Main Issue

3.  The main issue of this application arises out of a different interpretation of the Maintenance Pending Suit Order (“MPS Order”) made by Deputy District Judge A.N. Tse Ching (now HH Judge A.N. Tse Ching) on 3 August 2015, in which the Husband was ordered (by consent) to pay the Wife, inter alia, maintenance pending suit (“MPS”) at a monthly rate of HK$80,000. 

4.  The Wife contends that the MPS should be paid up to Decree Absolute (“DA”) which was granted on 20 September 2017.  If this contention is correct, the Husband would be in default of about 3 months’ MPS payment and thus the Wife was justified in taking out enforcement application by way of Garnishee proceedings.  

5.  On the other hand, the Husband contends that the MPS payment should end when the final judgment on the Wife’s ancillary relief application was made by HH Judge Bruno Chan (as he then was) on 19 June 2017 (“the AR Judgment”).  If this contention is correct, he was not in default of any MPS payment and the GONs should be set aside with costs.

Brief History

6.  The parties were married in 1989.  The Wife issued her Petition for Divorce in 2015 and the DA was granted on 20 September 2017.

7.  As far as MPS was concerned, the parties entered into an agreement and the MPS Order was made on 3 August 2015.    One of the important terms was recorded at paragraph 2 of the said order:

“2. [The Husband] shall pay to the [the Wife] maintenance pending suit in the sum of HK$80,000 per month on the 1^st day of each month payable in advance from the 1^st day of the month following the date of this Order until further order or until a final settlement of this matter either by way of agreement or judgment.” (underline added)

8.  Despite this initial agreement, the parties failed to settle on the main ancillary relief claim and thus necessitated a full trial before HH Judge Bruno Chan (as he then was).   The AR Judgment was handed down on 19 June 2017 in which the learned Judge ordered a clean break between the parties with the Husband paying a lump sum of HK$12,360,000 to be payable by the following instalments:

(1)  The sum of HK$7,800,000 to be paid within 3 months of pronouncement of DA; and

(2)  The sum of HK$4,560,000 to be paid by 5 equal instalments of HK$912,000 payable annually commencing from 19 June 2018 to 19 June 2022 inclusive and to be secured by a life insurance to be taken out by the Husband.

9.  It is to be noted that the first sum of HK$7,800,000 to the Wife was ordered on the basis of equal sharing of the then matrimonial assets found to be about HK$65,800,000 (with HK$40,700,000 under the name of the Husband and HK$25,100,000 under the name of the Wife).   The second lump sum of HK$4,560,000 was ordered based on the parties’ agreement that the Husband shall pay capitalized maintenance calculated at HK$76,000 per month for 5 years payable by 5 equal annual instalments of HK$912,000 each commencing from 19 June 2018 to 19 June 2022.

10.  Subsequent to the AR Judgment, a sealed copy order (“the AR Order”) was filed recording the results of the trial.   It was provided in paragraph 6 of the AR Order that upon the payment of the lump sums by the Husband and the fulfilment of some other undertakings, the Wife’s claim for all forms of financial relief (including but not limited to MPS and other forms of ancillary relief) will stand dismissed.

11.  The DA was granted on 20 September 2017.   The first lump sum of HK$7,800,000 was paid within time and so was the first instalment of HK$912,000 of the second lump sum in June 2018.  Since there is no complaint that the second instalment of the second lump sum was not paid (by June 2019), I assume that the second instalment of HK$912,000 has also been paid by now.   Therefore, what remain outstanding are the third to fifth instalments in the total sum of HK$2,736,000 which are not yet due.

12.  Despite the AR Judgment and the subsequent AR Order, the parties’ disputes continued mainly on the issues of costs and the Wife’s application for leave to appeal.  I do not intend to go into details of those proceedings except to say that as far as the Wife’s appeal against the clean break order was concerned, the Husband conceded on the appeal and he was ordered to pay nominal maintenance of HK$1.00 per annum pursuant to the Court of Appeal’s order dated 9 April 2018.

13.  However, that was not the end of the matter.   There seems to be a divergence of views on when the MPS payment should end.  The Wife contends that the MPS should end on DA, i.e. 20 September 2017, whilst the Husband contends that it should end on the date of the AR Judgment, i.e. 19 June 2017.  This has resulted in the Husband stopping the MPS payment on 19 June 2017.   Despite an attempt to clarify the matter before Deputy District Judge Bruno Chan (as His Honour has retired by that time), the learned Deputy Judge was of the view that the dispute should better be dealt with in the enforcement proceeding. 

14.  As the parties failed to settle their dispute by correspondence, the Wife finally filed her 8^th Affidavit on 25 June 2018 in support of her application for Garnishee Orders against the Husband (in respect of his bank accounts with the Citibank and HSBC) in the sum of HK$ 262,347.88 being the arrears of MPS from 19 June 2017 to 20 September 2017 together with interests.   

15.  On 6 July 2018, I granted 2 GONs (one for Citibank and one for HSBC) with a return date fixed on 6 September 2018.

16.  On 8 August 2018, the Husband issued his present summons asking for the GONs to be set aside.

17.  On 17 August 2018, the parties agreed to adjourn the Husband’s setting aside application for argument with the sum of HK$267,347.88 from the Husband’s Citibank account being paid into court as security pending the result of the application.  Upon such payment into court, the GONs were discharged.

The Arguments of the Husband

18.  The Husband was represented by Ms. Rattigan of counsel.  As I see it, Ms. Rattigan’s arguments are mainly on 2 bases.   

19.  The first argument raised is that a GON was granted on an ex-parte basis in which the Wife has a strict duty to provide full and frank disclosures.  It is the Husband’s case that the Wife has failed in that duty by not providing the Court with the material background for it to make a fully informed decision.  It was further argued that the Wife’s supporting affidavit was grossly misleading by not disclosing some important information (“the non-disclosure argument”).

20.  The second and more important argument is that there has never been any judgment debt (“the no debt argument”) and therefore, the Garnishee applications are bound to fail.

No Debt Argument

21.  I shall consider the no debt argument first as it goes to the merits and therefore the heart of the application.

22.  In consideration of the Husband’s no debt argument, it is necessary to revisit the MPS Order which was made in the following term:

“2. [The Husband] shall pay to the [the Wife] maintenance pending suit in the sum of HK$80,000 per month on the 1^st day of each month payable in advance from the 1^st day of the month following the date of this Order until further order or until a final settlement of this matter either by way of agreement or judgment.” (underline added)

23.  By a fair reading of the said term, it is my view that the MPS will continue until the happening of one of the following 2 conditions:

(1)  There being an order of the court varying or terminating the said MPS Order (i.e. a further order); or

(2)  There being a final settlement of the matter by way of agreement or judgment.

24.  There is no dispute that there has never been any further order made in respect of MPS and therefore, the first condition simply does not apply.

25.  As to the second condition which mentions about “a final settlement of this matter”, in my judgment, it has to be referring to the final settlement of the issue of maintenance as the order was concerned with the maintenance of the Wife.

26.  In this regard, it has to be borne in mind that when the learned Judge made his order on the second lump sum of HK$ 4,560,000 as capitalized maintenance for the Wife, His Honour was simply giving effect to the parties’ agreement for the Husband to pay 5 years’ capitalized maintenance at the rate of HK$76,000 per month.  The whole purpose of the capitalization was for the avoidance of US taxation.  Therefore, I have no doubt in my mind that the parties have already reached a final settlement on the Wife’s maintenance which was given effect by the learned Judge’s AR Judgment.  The second condition has been fulfilled and the MPS should therefore cease.

27.  Furthermore, the parties have already agreed on a monthly maintenance for the Wife at the rate of HK$76,000 per month, which agreement was accepted and given effect by the learned Judge, I see no reason why a MPS at a different rate of HK$80,000 should continue.

28.  I fully appreciate the Wife’s argument that the capitalized maintenance would be paid in arrears, meaning that the maintenance would only start to be paid in a year’s time from the date of the AR Judgment, and that the first lump sum of HK$7,800,000 would only be paid after the pronouncement of DA.   Therefore, there would be a time gap between the date of AR Judgment and the receipt of the first lump sum or the capitalized maintenance during which the Wife would receive nothing.  But that was the parties’ agreement which was accepted by the learned Judge.  Moreover, it is quite apparent from paragraph 29 of the AR Judgment (P1/39) that the Wife had at least HK$22,467,383 under her name in which HK$11,341,567 was in the form of moneys in various bank accounts.  There is no question that she would be in any financial predicament during that short period of time after the cessation of the MPS payment.

29.  It is also the Wife’s argument that the MPS payment only ceased upon DA because her claims for MPS and other forms of financial relief would only be dismissed upon the receipt of the lump sums and the fulfilment of the other undertakings (according to paragraph 6 of the AR Order).   However, I am not convinced that paragraph 6 of the AR Order would have the effect of prolonging the MPS payment up to DA.  In my judgment, one should look at the actual terms of the MPS Order and if there is already a term governing the period of payment, whether the MPS or final maintenance application would be dismissed at a later time is neither here nor there.

30.  All in all, I am satisfied that the MPS has ceased to be payable by the time of the AR Judgment and after which, the Husband is not liable to pay any further MPS.   There is no judgment debt owed by the Husband and therefore, the Garnishee applications of the Wife must fail.

Non-disclosure Argument

31.  The second argument raised by the Husband is that there was no full and frank disclosure by the Wife in obtaining the GONs which were made on an ex-parte basis.  As I have already ruled that there was no judgment debt owing to the Wife, that should be enough to dispose of the present application.  However, for completeness sake, I would give some comments on the non-disclosure argument as well.

The Law

32.  It is trite that an applicant for an ex-parte order does have a duty to make full and frank disclosure.  There is a very helpful description of this duty in Velatel Global Communications Inc & Anor v Chinacomm Ltd & Ors [2012] HKCU 2178 in which Deputy High Court Judge Au-yeung (as Her Ladyship then was) summarised the legal principles at §§25-31 as follows:

“The legal principles

[25] There is no dispute on principles. An applicant must make full and frank disclosure in an ex parte application.

"On any ex parte application, the applicant must proceed with the highest good faith. The fact that the court is asked to grant relief without the person against whom the relief is sought having the opportunity to be heard makes it imperative that the applicant should make full and frank disclosure of all material facts …" Hong Kong Civil Procedure 2012, Vol 1, para 29/1/39.

[26] What is material is for the judge to decide. Suppression of material facts will cause the court to discharge an ex parte order without going into the merits.

"(1) The duty of the applicant is to make "a full and fair disclosure of all the material facts:" sec Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac  [1917] 1 K.B. 486, 514, per Scrutton L.J.
(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v. Kensington Income Tax Commissioners, per Lord Cozens-Hardy M.R., at p. 504, citing Dalglish v. Jarvie (1850) 2 Mac. & G. 231, 238, and Browne-Wilkinson J. in Thermax Ltd. v. Schott Industrial Glass Ltd. [1981] F.S.R. 289, 295.

(3) The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour [1985] F.S.R. 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.

(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J. of the possible effect of an Anton Piller order in Columbia Picture Industries Inc. v. Robinson [1987] Ch. 38; and (c) the degree of legitimate urgency and the time available for the making of inquiries: see per Slade L.J. in Bank Mellat v. Nikpour [1985] F.S.R. 87, 92-93.

(5) If material non-disclosure is established the court will be "astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure ... is deprived of any advantage he may have derived by that breach of duty:" see per Donaldson L.J. in Bank Mellat v. Nikpour, at p. 91, citing Warrington L.J. in the Kensington Income Tax Commissioners’ case  [1917] 1 K.B. 486, 509.

(6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.

(7) Finally, it ‘is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded’: per Lord Denning M.R. in Bank Mellat v. Nikpour [1985] F.S.R. 87, 90. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms

‘when the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant … a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed:’ per Glidewell L.J. in Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc."

In Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350, at 1356F-1357F, per Gibson LJ. See also Gee on Commercial Injunctions, 5^th ed, at p 241.

[27] In considering what matters should be disclosed to the court, the test is whether the facts are relevant to the exercise of the discretion, regardless of whether they are relevant to the merits of the claim, and irrespective of whether the matters, if disclosed, would have caused the court to refuse to grant the ex parte application. The court was not concerned with whether the matters not disclosed would, if they had been disclosed, have caused it to refuse to grant the ex parte order. The test was whether the court should have these matters in the weighing scales: Standard Chartered Securities Ltd v Lai Arthur & ors [1993] 1 HKC 375, at 380-381.

[28] The test of materiality is objective.

"The duty extends to placing before the court all matters which are relevant to the court’s assessment of the application, and it is no answer to a complaint of non-disclosure that if the relevant matters had been placed before the court, the decision would have been the same. The test as to materiality is an objective one, and it is not for the applicant or his advisers to decide the question; hence it is no excuse of the applicant subsequently to say that he was genuinely unaware, or did not believe, that the facts were relevant or important. All matters which are relevant to the ‘weighing operation’ that the court has to make in deciding whether or not to grant the order must be disclosed." (Gee on Commercial Injunctions,5^th ed at para 9.002)

[29] The materiality of matters undisclosed or misstated, if relevant, will depend on the importance of the facts to the issues which were to be decided by the judge on the ex parte application: Pacific Base Services Ltd & Anor v Silver Gain Development Ltd & ors [1996] 1 HKC 610at 617I-618A.

[30] The duty to disclose cannot be fulfilled by simply exhibiting voluminous documents mentioned in the supporting affidavit without making any distinct reference to the points in the body of the affidavit itself or when addressing the judge at the hearing: Standard Chartered Securities Ltd v Lai Arthur, page 388Gfollowed in Rever (AMA) Salon Ltd v Kung Wai For Danny & others [2001] 1 HKC 241, 246E-F.

[31] Where there has been material non-disclosure in an ex parte application, the practice of the court is to discharge the order without going into the merits: R v Kensington Income Tax Commissioners, ex parte de Poliganc [1917] 1 KB 486, 514-515; Manor Electronics Ltd & Anor v Dickson & ors [1988] RPC 618at 624.”

Discussion

33.  The issue here is whether the Wife has failed in that duty.

34.  Despite the fact that there are 9 complaints by counsel on material non-disclosure (paragraph 46 of counsel’s skeleton submissions), I think the more important points can be boiled down to 3 main areas, namely:

(1)  The Wife had made an application to amend the AR Order by adding that the duration of the MPS payment should be up to DA but that application was refused.

(2)  That the parties had already agreed on the payment of 5 years’ capitalized maintenance.  In other words, the final maintenance of the Wife had already been agreed and there is no reason why MPS (which is a form of maintenance) should continue to be paid.

(3)  The amount of capitalized maintenance had already been agreed at a lesser rate of HK$76,000 per month.  There is no reason why a higher rate of MPS at HK$80,000 should continue to be paid.

35.  By reading the Wife’s supporting Affidavit (8^th Affidavit of the Wife) (A1/ 1-6) based on which the GONs were granted, it is quite apparent that the above facts were not referred to.  In paragraphs 21-30 above, I have already considered the terms of the MPS Order in some details and came to the conclusion that the MPS payments would only continue up to the AR Judgment and therefore, no judgment debt was actually incurred for the period between the AR Judgment and the DA.  In coming to such conclusion, the facts of the parties’ agreement on the Wife’s capitalized maintenance for a period of 5 years and at the monthly rate of HK$76,000 (instead of HK$80,000) are important considerations.  If those information was disclosed at the ex-parte stage, it would have disclosed a genuine case of the Husband disputing against the existence of a judgment debt.  Under such circumstances, I have much reservation on whether the GONs would have been granted in the first place. 

36.  It is my further view that what the Wife should have done was to seek a court order for payment of the so called “judgment debt” by a certain date relying on O.45 r.6 of RHC, instead of issuing a GON resulting in an outright freezing of the Husband’s bank accounts.  This is what being suggested in the judgment of Lam JA (as Lam VP then was) in CYM v YML (Judgment Summons) [2012] HKFLR 486 at § 51:

“51…. In my view, like committal proceedings in other types of civil litigation, judgment summons should be a last resort. In cases where the parties have genuine bona fide disagreement on the interpretation of an order instead of a recalcitrant judgment debtor, or where the parties have bona fide dispute about the quantum of an item under an order for payment, such disputes should be resolved by a summons taken out under Order 45 Rule 6 instead of a judgment summons…”

It is abundantly clear from this judgment that O.45 r.6 RHC is a very useful provision and should therefore be adopted in all cases where there is a genuine dispute on liability or quantum payable under a judgment. 

Conclusions and Order

37.  Based on the above discussion, it is my conclusions that there is no judgment debt in existence and also the Wife should not have applied for the GONs in view of such a genuine dispute on the Husband’s liability to pay MPS after the AR Judgment. Since the GONs have already been discharged by consent, what remains for me to do is to deal with the moneys paid into court.

38.  I hereby make an order that the sum of HK$267,347.88 which was paid into court pursuant to the order dated 17 August 2019 together with interest, if any, is to be released to the Husband within 14 days from the handing down of this Decision.

Costs

39.  Costs to follow event. The Husband shall the costs of his summons including all costs reserved and any costs incurred in the Garnishee proceedings, if any, such costs to be taxed if not agreed, with certificate for counsel.  This will be in the form of an order nisi to be made absolute after the expiry of 14 days from the handing down of this Decision. 

Representation: