WSW v. YKK

CACV 388/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.388 OF 2007

(On Appeal from FCMC No.6197/2003)

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JUDGMENT

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Hon. Cheung JA:

1.  I agree with the judgment of Yuen JA.

Hon. Yuen JA:

2.  This is the Respondent’s appeal from a judgment of Deputy Judge Jenkins given on 24 February 2006 in the Family Court in respect of an application for ancillary relief. 

3.  The Petitioner (whom I shall refer to as “the Wife”) and the Respondent (“the Husband”) were married in China in 1970.  In 1971 the Wife gave birth to the couple’s first daughter.  In 1974 the Wife came to Hong Kong. 

4.  The Husband was then working as a salesman at an electrical goods shop.  The Wife purchased a sewing machine and started a business making dolls’ clothes. 

The business

5.  The business developed to the extent that the Husband gave up his job at the electrical goods shop to assist the Wife in the business.  The judge found that the Husband collected the fabric from suppliers, arranged sales and collected payment (para. 5 Judgment).  More sewing machines were acquired and the Wife outsourced some of the work to employees she trained, who worked from their own homes.  At the same time, the couple brought up three daughters (born in 1971, 1974 and 1982 respectively). 

6.  Six years after the business was started, in 1980 the business was registered in the Husband’s sole name as Wing Tat Garment Company.  However the judge found that it was the Wife who had made the larger contribution (para. 5 Judgment). 

7.  Also in 1980, the business expanded to the Wife’s home town in Fujian with the Wife setting up a small factory in her maiden home (Transcript p.243H-I).  The judge found that “as before the Wife was the central figure in the business whilst the Husband played a lesser role” (para. 6 Judgment). 

The Xiamen property

8.  In 1989, a property in Xiamen was bought in the Husband’s name for RMB120,000 with profits from Wing Tat (para.16 Judgment).  At the time of the hearing before the judge in late 2005 - early 2006, it was valued at RMB600,000 (Transcript p.154E)    

The Victoria Centre property

9.  In 1990, a property in Hong Kong (Victoria Centre) was bought in joint names for $1,208,000 as the matrimonial home. 

10.  The down payment was $400,000.  There were conflicting versions as to how this down payment was paid.  In the end the judge found that $150,000 came from Wing Tat and the balance of $250,000 came from the Husband’s sisters (para. 10 Judgment).  The judge said that he did “not know, since there was no evidence about it, whether there was any agreement to repay the sisters or even whether the sisters are expecting to be repaid”.  It is noted that the sisters have not taken any steps to recover the sum even though the parties separated in 1993 and divorce proceedings were commenced in 2003.  In fact at the hearing before the judge in December 2005, the Husband called his mother to testify about the loan from his family but he did not call his sisters as witnesses.  The mother’s evidence however was not believed by the judge (para.7 Judgment).

11.  The mortgage instalments were spread over 13 years (from 1990 to 2003).  For the period from 1990 to 1993, it is not disputed that the mortgage instalments were funded by Wing Tat.

Separation

12.  Three years after Victoria Centre was purchased, the parties separated in 1993.  On 30 November 1993, the parties signed a Separation Agreement.  It was agreed that the Wife should have custody of the middle daughter (then aged 19) and that the Husband should pay $4,000 a month for her maintenance.  It was also agreed that the Husband should pay a nominal sum of $1 ­p.a. to the Wife for her own maintenance.  As for the other two daughters (then aged 22 and 11 respectively), it was agreed that the Husband should have custody.      

13.  However the parties did not keep to the terms of the separation agreement.  The Wife continued to live at the matrimonial home with all three daughters and the Husband did not make any contribution to any of the children (para. 13 Judgment).

After separation

14.  The Judge found that after the separation, the Wife “continued with the sewing business without the Husband’s involvement” (para. 11 Judgment).  The judge found that “it was unclear exactly what his job was after the separation in 1993, apart from a short spell as a gardener" (para. 11 Judgment).  From that it may be inferred that the judge rejected the Husband’s evidence that even after the couple separated, he remained working in the business until 1995. 

15.  In 1995 Wing Tat ceased business and the Wife registered a business under the name of Wing Mau Company.  According to the Hong Kong business registration particulars, Wing Mau commenced business on 14 March 1995 and ceased business on 18 April 1995.  However the Wife testified at the hearing that she operated her business in China until 2002 when it closed down due to the poor economic situation after 1997.  This was obviously accepted by the Judge who found that the Wife ceased her business in February 2002 (para. 14 Judgment).

16.  As for the mortgage instalments for Victoria Centre, between 1993 and 2000 they were funded by the business operated by the Wife.

Dongguan property

17.  On 1 January 1995 the Wife bought a property in Dongguan for $186,930. 

Harbour Heights investment

18.  In 1997 the Wife acquired another property called Harbour Heights for $6,300,000 for investment purposes.  The mortgage payments for this property were funded by its rents.  However in 2002, this property was sold for only $2,750,000.

Subsequent use of the Victoria Centre property

19.  In 2000, the Wife moved out of the Victoria Centre property to live with the middle daughter and her husband so that it could be let to a tenant and the rents used to defray the mortgage instalments. 

20.  In 2003 the mortgage was fully paid up.  From that time until the judge’s order in February 2006, the net rents received have been divided between the Husband and Wife equally.

Hearing

21.  This case is unusual in that even though the parties separated in 1993, divorce proceedings were not started until 2003, some 10 years later. 

22.  At the date of the hearing before the judge in December 2005, the Wife (then aged 56) was living with her middle daughter and son-in-law. The daughter was mentally ill (Transcript p.160T).  The Husband (then aged 61) was living partly on the Mainland in his ancestral house (Transcript p.239I-L) and partly in Hong Kong where he lived with his sister in another unit in Victoria Centre. 

23.  The Wife’s income comprised her half of the rental from the Victoria Centre property (which was valued in August 2005 at $2,750,000).  As for the Dongguan property, the Wife assessed the value of the Dongguan property in 2004 at RMB70,000.  The Husband assessed the value in 2005 at RMB250,000 (aff. 23 February 2005).  The Wife testified that it was vacant and that even though she had put it up for sale, there was no interest as there were a number of vacant properties available at the location (Transcript p.197T- p.198B).

24.  The Husband’s income comprised his half of the rental from the Victoria Centre property as well as RMB1,200 rent from the Xiamen property.  The Husband’s evidence was that he had only one ancestral house, not two (Transcript p.239C) and since he stayed there when he was in China, he did not rent it out. 

25.  So as far as the Wife’s premises in Dongguan and the Husband’s ancestral house in Fujian are concerned, it has to be assumed for the purposes of this appeal that they are not readily marketable and produce no income.

Judgment

26.  The judge found that the only relevant assets were the Victoria Centre property and the Xiamen property.  Obviously the judge did not find any value in the business(es) which had by then been closed down for some years and he did not find that either party had any other substantial assets such as shares or bank deposits, holding that there was no evidence that either party had siphoned funds from Wing Tat (para. 17 Judgment).

27.  The judge concluded (para. 22 Judgment) that the profits earned by Wing Tat were mainly the result of the Wife’s efforts.  That business funded the household expenses, the Xiamen property purchase, and in respect of the Victoria Centre property, part of the down payment and the mortgage instalments from 1990 until the separation.  After the separation, the Husband contributed nothing, leaving the Wife to pay the mortgage and support the middle and youngest daughters who were still at school, the latter being only 13.

28.  The judge held: “It is clear that the Wife’s contribution to the family both financially and otherwise is far greater than the Husband’s.  It is right that this greater contribution is reflected in the order that I make”.  This fact was prominent in the judge’s view (para.23 Judgment).  To reflect that, the judge ordered that the Husband retain the Xiamen property but transfer his half of the Victoria Centre property to the Wife. 

Application for leave to appeal

29.  It is from that order that the Husband sought leave to appeal.  The hearing for leave to appeal was adjourned on 26 June 2007 as the Husband’s case was not properly prepared.  Leave was given at a second hearing on 8 November 2007.  

Summons to adduce fresh evidence

30.  Before I consider the grounds of appeal, I should first deal with the Husband’s summons for leave to adduce fresh evidence which we dismissed.  My reasons are as follows. 

31.  The “fresh” evidence comprised three groups of documents:

(a)     the Wife’s bank statements and passbook, Wing Tat’s statement and Wing Tat’s invoices: these were intended to show that the Wife had misappropriated Wing Tat’s accounts receivables (pp.32-92 of the new evidence bundle);

(b)     contracts entered into by Wing Tat on 17 August 1995 and 17 September 1996: these were intended to show that Wing Tat carried on business after it had ceased to operate (pp.96-103);

(c)     banking documents purporting to show “the true amount of contribution by the Husband and third parties” to the down payment of the Victoria Centre property (pp.105-118).  

- Guidelines

32.  It is well-established that whilst the Court of Appeal has power to allow fresh evidence to be adduced on appeal in the exercise of its discretion, this is not often or lightly done.  Where there has been a hearing on the merits, fresh evidence will generally not be admitted on appeal unless the three conditions set out in Ladd v Marshall [1954] 1 WLR 1489 are satisfied:

(1)     it must be shown that the evidence could not have been obtained with reasonable diligence for use at the hearing;

(2)     the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive;

(3)     the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible though it need not be incontrovertible.

However, if the evidence relates to matters which have occurred only after the hearing, the court has a discretion to admit such evidence, although the power is used sparingly with due regard to the need for finality in litigation (Hong Kong Civil Procedure 2008, §59/10/15).

- First group of documents

33.  As far as the first group of documents is concerned, it is not disputed that in fact the Husband had these documents at the time of the hearing but had not disclosed them previously.  When the Husband attempted to refer to them at the hearing, the judge refused to let him do so as they had not been disclosed (Transcript p.228 H-p.229JH).   Subsequently when the Husband sought to refer to them again, the judge reminded his lawyer that if he insisted on using them, even if the judge were to give him permission, that would lead to an adjournment as the other side would need to go into the new documents.  The Husband’s lawyer then withdrew his attempt to adduce the evidence.  This is made clear in the Transcript (p.230 H-M):

“COURT:  Well, you see, do you really want this in?  Because if so, I have no doubt the petitioner would want an adjournment which I would have to grant for all this to go in, for it to be gone into.

MR FUNG: No, I’m not pursuing this, no.  I am not pursuing this anyway because there are other evidence showing that, yes.

COURT: All right.  Evidence which has been disclosed ...

MR FUNG: Yes.

COURT: ... I hope.  All right”. 

34.  Counsel for the Husband here (who did not appear below) repeatedly referred us to parts of the Transcript which showed that at the hearing the Husband in the course of giving evidence had kept trying to refer to the first group of documents, but he was not permitted by the judge to do so.  In view of the stand taken and articulated by the Husband’s lawyer at the hearing, the judge was clearly correct in refusing to permit the Husband to refer to those documents.  There is no justification whatsoever for the present application for leave to adduce fresh evidence. 

- Second group of documents  

35.  As for the second group of documents, even if we assume (without deciding) in the Husband’s favour that that evidence could not have been obtained with reasonable diligence for use at the hearing because he was allegedly not aware of his Wife’s case, it is simply inadequate for him to refer to the source of the documents as  “certain inquiring officers and/or Chinese officials” and expect the court to accept them as credible.  Without giving any particulars as to the source of those documents, the Husband could not start to persuade this court that the third condition in Ladd v Marshall has been satisfied.   

- Third group of documents

36.  As for the third group of documents, again the Husband had them at the hearing but his lawyer had taken a stand in deciding not to pursue the attempt to adduce them in evidence. 

37.  For these reasons the summons to adduce fresh evidence on appeal was dismissed.  I will deal with the costs of this summons later.

Appeal

38.  Coming then to the substance of the appeal, the main contention is that the judge had failed to apply the “fairness” approach and the principle of “equal sharing” which constitutes one of the three elements under the “fairness” approach: DD v LKW [2008] 2 HKLRD 523.

39.  Of course at the time of the hearing before the judge, DD had not been decided by this court so the Family Court was bound by C v C [1990] 2 HKLR 183 to apply the “reasonable requirements” approach.  Although the judge did not apply the “reasonable requirements” test explicitly, saying:  “I bear in mind the factors that s.7 Matrimonial Proceedings and Property Ordinance requires me to consider”, he would no doubt have been aware that the test set out in C v C was binding on him.

40.  Since neither party has applied to us to send the case back to the Family Court for a decision on the DD approach, which would not have been appropriate in this case given the extra costs and time that would have to be expended, this court has to resolve the following question: approaching the appeal in the light of the principles in DD, would the judge have made a different order? 

41.  I will not repeat in detail here the principles which make up the “fairness” approach.  Put briefly, the three elements are (1) financial needs including housing needs; (2) compensation; and (3) sharing.

(1) Needs principle

42.  I deal first with the “financial needs” principle which includes taking into account the parties’ immediate housing needs. 

43.  At the time of the hearing before the judge, both parties were staying in temporary accommodation.  The Wife was staying with the middle daughter  and son-in-law in a property in which the judge found the Wife has no interest (para. 15 Judgment).  There was evidence that the daughter has been mentally ill and the Wife was helping to care for the household.  The judge accepted the Wife’s evidence that the daughter and son-in-law have indicated that they would prefer that she did not stay with them (para. 14 Judgment).  It was for that reason that the Wife had asked for an order that the Husband transfer his half of the Victoria Centre property to her, so that she and her youngest daughter could stay there after the daughter returned to Hong Kong at the end of 2006 after her graduation. 

44.  However there is no reason why the Wife cannot be accommodated in a smaller unit.  Although her wish to provide accommodation for the youngest daughter is understandable, the youngest daughter is now an adult and has graduated from university, and the law does not regard the Wife as still being obliged to provide accommodation for her.

45.  At the hearing before us Counsel for the Wife said that she is now staying in rented accommodation with the youngest daughter.  We have no information of the rental she has to pay or to what extent that is contributed to by the youngest daughter.  I would like to take this opportunity to remind practitioners that where there has been a change in circumstances such as these, the court should be informed about the parties’ up-to-date situation by means of affidavit evidence.  This is not “fresh evidence” in the Ladd v Marshall sense but evidence of a change in circumstances after trial. 

46.  As for the Husband, at the time of the hearing before the judge, he was living partly on the Mainland and partly with his sister in Hong Kong.  As he had filed some recent affirmations (17 April 2008 and 16 June 2008), we referred to them to look for his present residential address.  However neither affirmation contained a residential address at all.  Order 41 rule 1(4) of the Rules of the High Court stipulates that every affidavit must state, amongst other things, the place of residence of the deponent.  An affidavit giving no address should generally be rejected (Hong Kong Civil Procedure 2008 vol. 1 §41/1/5).  This is a fundamental failing on the part of the Husband’s solicitors and it is surprising and regrettable that such an omission has been made. 

47.  Be that as it may, there is no reason why the Husband cannot stay in a smaller unit even if he were to live permanently in Hong Kong.   

48.  Accordingly, there is no immediate need for either the Husband or the Wife to stay in the Victoria Centre property. 

(2) Compensation principle

49.  This opens the way to the other principles under the “fairness” approach.  On the facts of the present case, the “compensation” principle has no part to play. 

(3) Sharing principle

- Identification of marital assets

50.  I then come to the “sharing” principle in the division of marital assets.  Before that can be applied, it is necessary first to identify what were the marital assets.  This is particularly important in the present case because there was a long period of 10 years between the Separation Agreement and the divorce.

- Marital assets identified at time of separation

51.  Counsel for the Wife has submitted that for the purposes of identifying marital assets, we should adopt as a cut-off point the time of the parties’ separation in 1993.    This would generally be correct.  However counsel for the Husband submitted that Wing Tat was a “partnership” or “quasi-partnership” and so whatever the Wife made with the assets of the business after the Husband left should also be included.

52.  I do not think it would be realistic to treat the business as a “partnership” or “quasi-partnership” in the legal sense (cf the facts in Dunbar, In marriage of; Dunbar (Intervener) [1991] 102 FLR 166 where the trial judge found that there was a partnership between the husband and wife between 30 June 1972 and 30 June 1986 followed by a tripartite partnership with the intervener commencing 1 July 1986).  In the present case the business was started by the Wife.  When her business expanded and the Husband began assisting her, there was no evidence that they agreed on what share he would get in the firm, nor what he would have to pay her to acquire that share, nor was there evidence as to any agreement on the proportion of their respective drawings from the business.  Although the Wife started the business and was actively involved throughout, her name did not even appear in Wing Tat’s business registration particulars.  These are all indications that the parties did not intend to establish a “partnership” or “quasi-partnership” in the legal sense. 

53.  The judge found that it was a family business, run by the couple but with the Wife being the driving force and making the greater contribution (para. 6 Judgment).  When the Husband left the family and the business in 1993 (as the judge found), the Wife reverted to operating on her own. 

54.  Of course by then the Wife was able to build on a firmer business foundation which had been partly contributed to by the Husband’s assistance, but she had started the business, she had the know-how in designing and sewing the merchandise, and she had the clientele, a fact the Husband did not deny (Transcript p.266I-K).  In any event, even if the Husband had played some part when he assisted her in the business, there is no means of quantifying this.  And in so far as the Husband can be given any credit for it, there must be put on the other side of the balance the fact that after the Husband left in 1993 (when the middle child was still at university and the youngest child was only 13 years old), he took away the stock of fabrics (Transcript p.235F-J, p.250Q) and he made no contribution whatsoever to the middle and youngest daughters’ maintenance – despite the fact that at times he had sizeable sums in his accounts for which the judge found he had no satisfactory explanation (para. 21 Judgment).

55.  In the circumstances of the present case, there was a “clean break” of the marital assets at the time of the separation in 1993 and it is correct to take that date as the cut-off date.

- Marital assets at time of separation

56.  So the marital assets at the time of separation comprised:

(1)    the business (to which the Husband had previously contributed and which thereafter was the Wife’s solely),

(2)    the Xiamen property and

(3)   part of the equity in the Victoria Centre property.

57.  (1) As far as the business was concerned, what value did it have at the time of separation?  The profits had gone towards the purchase of the Xiamen property, the down payment and mortgage instalments for the Victoria Centre property from 1990 - 1993, and the upkeep of the family.  The Husband had taken the stock of fabrics away.  There is no evidence that the business had any other stock or assets of any substantial value.  The judge had rejected both parties’ allegations that each had misappropriated money (para.17 Judgment).  Accordingly the business as a marital asset can be disregarded for the purposes of valuation and division.   

58.  (2) The Xiamen property had been completely paid for at the time of the separation and was obviously a marital asset.

59.  (3) As for the Victoria Centre property, a 30% down payment had been made but only 3 years out of the 13 years mortgage instalments (equal to about 23%) of the mortgage instalments had been paid for at the time of separation.  On a rough and ready calculation for present purposes, the equity the parties had in the property would have been about 53% (30%+23%) of the property. 

- Division

60.  The marital assets available for division at the time of separation were therefore the Xiamen property and 53% of the Victoria Centre property. 

61.  By the time of the hearing in late 2005 - early 2006, the Xiamen property was worth RMB600,000 and there was also a valuation report indicating that the Victoria Centre property was worth $2,750,000 in August 2005.  Fifty-three per cent of that sum comes up to $1,457,500.  So (assuming RMB1=HKD1) the total value of the marital assets available for division amounted to $2,057,500 ($600,000 + $1,457,500).

62.  Assuming an equal division, each party would have been entitled to $1,028,750.  The judge ordered the Husband to transfer his half of the Victoria Centre property to the Wife keeping the Xiamen property to himself.  Taking the above valuations into account, the Husband would be receiving slightly less than 30% of the marital assets ($600,000 ÷ $2,057,500).

63.  The judge took the view that “the Wife’s contribution to the family both financially and otherwise is far greater than the husband’s” (para. 22 Judgment).  I would with respect agree as far as the post-separation period is concerned.  However in my view, it would be difficult to attempt to quantify the parties’ contributions for the pre-separation period.  The couple was running a business together (even though the Wife had a far more important role) and the profits went towards acquiring the Xiamen property and the matrimonial home where the couple brought up their children.  Bringing the curtain down on the marriage at that point, I think it is clear that under the “fairness” approach, the court would order an equal sharing of the family assets.

64.  To what extent should that be affected by the fact that the Husband had virtually deserted the middle and youngest daughters after the separation in 1993?  The judge was clearly impressed by the fact that during the long period between separation and divorce, the Wife had single-handedly provided for the girls.  However one must also bear in mind that at least she and the children had the use of the matrimonial property in which half the equity had been paid for as a marital product, and I have earlier referred to the fact that by 1993 the Wife was able to build on a firmer business foundation which had been partly contributed to by the Husband’s assistance.  Accordingly with respect to the judge, I think a further reduction of 10% would be adequate to reflect the Wife’s contribution to the family after separation.

65.  In the circumstances, taking into account the parties’ needs, the fact that they are both nearing retirement age and have minimal future earning capacity, the period of marriage (even up to separation only) and the need for a clean break, I would make an order as follows.

Order

66.  I do not think it appropriate in the circumstances of this case to order that the Wife regurgitate half of the rent that she has been receiving pursuant to the judge’s order.  A stay of execution was not sought.  No order for repayment of rents received has been sought specifically in the Amended Notice of Appeal and we were informed that the Wife has utilized the rents received on living expenses.  

Costs

67.  As the Husband has succeeded on this appeal only on the DD ground, I would make an order nisi that there be no order as to costs of the appeal as well as the application for leave to appeal.

68.  As to the costs of the summons to adduce fresh evidence, we have heard the parties’ submissions on this issue.  I would order that the Husband should bear the Wife’s costs of the summons, to be taxed if not agreed.  For the assistance of the taxing master, I would indicate that about 1/3 of the time taken for the hearing of the appeal was taken up for the summons.

Hon Yam J:

69.  I also agree.