YEUNG WONG FUNG HING v. YEUNG TIM TUNG

HEADNOTE

(1) Where the primary order which a judge is making on a claim for ancillary relief in matrimonial proceedings is an order for the sale of matrimonial property, that order should be made under section 6(1)(e) of the Matrimonial Proceedings and Property Ordinance (Cap. 192), even if other orders are being made under sections 4, 5 or 6. Where the primary order which the judge is making is an order under sections 4, 5 or 6, and the order for sale is ancillary to that order, the order for sale should be made under section 6A.

(2) When orders for the sale of property and the distribution of the proceeds of sale are made in matrimonial proceedings, the statutory provisions under which those orders are made should be identified.

(3) The volatility of the property market in Hong Kong makes it necessary for judges, when they make an order for the sale of property and the distribution of the proceeds of sale, to consider and allow for the possibility that there may be a significant change in the value of the property before the sale actually takes place.

1998 CACV No. 224

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

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J U D G M E N T

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Keith J. (giving the judgment of the Court):

The judge's order

1. This is an appeal from an order made in matrimonial proceedings. The order related to a flat in Chai Wan, which had been the parties' matrimonial home. The judge ordered that the flat be sold. This appeal relates only to the order which the judge made relating to the net proceeds of sale. He ordered that, after the sums secured by a mortgage on the flat had been repaid and the costs of the sale had been deducted, the wife should be paid the sum of $1m., and the balance of the net proceeds of sale should be paid to the husband.

2. In order to explain what order the husband contends should be substituted for the order made by the judge, it is necessary to understand the route which the judge took to make the order which he did. That route was mapped out by the judge in his clear and concise judgment. At the time of the hearing before him in March 1998, the flat was worth $1.65m. according to a valuation placed before the court, and the parties' net equity in the flat was $1.5m. The judge would have preferred to give the husband a sufficient amount to clear his accumulated debts of about $200,000.00, to give the wife the balance which would have enabled an acceptable property on Hong Kong Island to be purchased for her and the children of the family, and to give the husband a charge over the property, deferred until the children had ceased full-time education. That proposal was acceptable to the husband, but not to the wife. Since the wife rejected outright the idea of the husband having any interest, deferred or otherwise, in a property which she might acquire, the judge reluctantly did not proceed along the lines of this proposal.

3. In the circumstances, the course which the judge chose to take was to order that the wife should receive $1m. from the proceeds of sale. That would have enabled her to purchase a more modest flat in Kowloon. The balance of the proceeds of sale would go to the husband. The judge recognised that the costs of the litigation would have to be paid for. They were estimated to be $140,000.00 in all. He thought that the husband should bear those costs. That would leave the husband with about $360,000.00, from which he could pay off his accumulated debts, and would leave him about $160,000.00 with which to do as he wanted.

The husband's appeal

4. Against that background, we turn to the order which the husband wants substituted for that made by the judge. It is said that the value of the flat has fallen substantially since the date of the hearing before the judge. If the wife is to receive $1m. out of the net proceeds of sale, it may be that the husband will get far less than that which the judge thought he would receive. In those circumstances, the husband asks that the wife's share of the proceeds of sale should be expressed, not as a fixed sum, but as a fraction of the proceeds of sale. Since the value of the flat was $1.65m. at the date of the hearing, the wife's share of the proceeds of sale should be the same proportion as the $1m. which the judge thought the wife should receive bears to the sum of $1.65m. On that basis, the wife should receive three-fifths of the net proceeds of sale. Alternatively, since the flat had a net equity of $1.5m. at the time, the wife's share of the proceeds of sale should be the same proportion as $1m. bears to the sum of $1.5m. On that basis, the wife should receive two-thirds of the net proceeds of sale.

The problem for the court

5. The difficulty for an appellate court is that it is primarily a court of review. Its function is to review the evidence which was before the judge, and to decide whether, in the light of that evidence, the judge erred in either fact or law. In normal circumstances, its function is not to decide what the judge would or should have done if the circumstances which are said to exist at the time of the appeal had existed at the time when the hearing before the judge took place.

6. But even if that were the function of an appellate court, it may be difficult for the court to identify what the judge would have done if the circumstances which are said to exist at the time of the appeal had existed at the time when the hearing before him took place. This case is an example of that. Would the judge in the present case have wanted the wife to receive $1m., even if that would have resulted in the husband receiving far less than $360,000.00? Or would the judge have wanted the husband to receive $360,000.00, even if that would have resulted in the wife receiving significantly less than $1m.? Or would the judge have made an order which had the effect of reducing the sums which both of them would receive? And if he had decided on the latter, would he have reduced the sums which he originally wanted them to receive by the same amount or by different amounts? And if by different amounts, would the judge have calculated such amounts by reference to the proportions which the original sums he had in mind bore to what he then thought the net proceeds of sale would be (which is the fraction approach contended for by the husband)?

7. The problem does not even end there. We have used the phrase "the circumstances which are said to exist at the time of the appeal" advisedly. The court can take judicial notice of the decline in the market for residential properties in Hong Kong, but there is no evidence as to what the value of the flat now is. An application to adduce evidence along such lines for the purpose of this appeal failed a few months ago - not surprisingly, since (a) the evidence related to the value of the flat in July 1998 (and an up-to-date valuation would have been required for the purpose of the appeal), and (b) the valuation was disputed, and an appellate court is not the proper forum for the determination of disputed issues of fact.

8. These difficulties caused us to consider whether the husband should really be applying to the judge for a variation of his order rather than appealing to the Court of Appeal. Such an application would not be subject to any of these difficulties. The judge would be entitled to hear the evidence which was said to amount to a change in circumstance since he made his order, and he could then decide whether to vary his order based on the view of the priorities which he had formed at the time of his original order: was it more important for the wife to receive $1m. (with the husband receiving far less than $360,000.00), or was it more important for the husband to receive $360,000.00 (with the wife receiving far less than $1m.), or should some other solution altogether be adopted? The judge would be free to do what he thought was just in the changed circumstances.

9. We were aware that the parties had taken the view that the order which the judge had made was not one which the judge had had power to vary. However, we took the view that it was arguable that

(i) the orders which the judge made for the sale of the flat and for the distribution of the proceeds of sale were made under sections 6A(1) and 6A(2)(a) of the Matrimonial Proceedings and Property Ordinance (Cap. 192), and

(ii) the combined effect of sections 11(1) and 11(2)(da) is to give the court which makes such orders the power to vary or discharge them.

When this appeal was first listed on 4th May, we raised all these matters with counsel. They were reluctant to be drawn into a debate on which they presented a united front, and in any event they were not in a position to address us on an issue which they regarded as settled. For our part, we were reluctant to adjourn the hearing of the appeal, because we were very conscious of the need to minimize costs. We did not want this to be another case in which the parties' assets (the distribution of which the case was all about) would in fact be spent on legal fees. We were aware that the parties were legally aided, and we were conscious of the charge which the Director of Legal Aid had over the net proceeds of sale. However, since an application to vary was arguably the better route for the resolution of the underlying problem caused by any decline in the value of the flat, and since neither counsel took issue with that, we thought that we should not continue to hear the appeal before the possibility of using that route had been explored. Accordingly, the hearing of the appeal was adjourned for further argument on the issue of the judge's power to vary the order he had made. That hearing took place on 17th May, and this is the court's judgment in the light of the excellent skeleton arguments prepared for that hearing. All references from now on to sections of an Ordinance are references to sections of the Matrimonial Proceedings and Property Ordinance.

The judge's power to vary his order

10. Whether the judge had power to vary his order, and if so, to what extent, depends on the answers to three questions:

(i) What was the nature of the judge's order? Was it an order for the sale of the flat, coupled with an order for the distribution of the proceeds of sale? Or was it in fact an order for the payment by the husband to the wife of a lump sum of $1m., coupled with an order to sell the flat in order to raise that sum? If the order is construed as an order for the payment of a lump sum, it is not one which can be varied. That is because it would have been made pursuant to section 4(1)(c), and orders under section 4(1)(c) cannot be varied: see sections 11(1) and 11(2).

(ii) If the order was an order for the sale of the flat, was the order made under section 6(1)(e) or under section 6A? Those are the two sections in the Ordinance which confer on the court the power to order the sale of the flat. If the order was made under section 6(1)(e), the order is not one which can be varied: see, again, sections 11(1) and 11(2).

(iii) If the order was an order for the sale of the flat, and if it had been made under section 6A, the order can be varied: see sections 11(1) and 11(2)(da). However, it is argued that the power to vary an order for sale under section 6A is a limited one: it is limited to subsidiary matters such as enforcement, implementation and procedures. The change in the order made in the present case which the husband is asking for goes well beyond matters of that kind. Accordingly, if the power to vary an order made under section 6A is limited in this way, the order made by the judge cannot be varied in the way suggested.

We shall consider each of these questions in turn.

(i) The nature of the judge's order. In order to determine the nature of the order made, it is necessary to look at the terms of the order itself. In his judgment, the judge said that he would leave it to the solicitors to draw up the order for the approval of the court. However, he added that the elements of the order should be that

"the former matrimonial home is to be put up for sale forthwith and out of the net proceeds of sale the Wife shall receive the sum of $1m. and ... the balance thereof shall go to the Husband."

The order as drawn up (presumably with the judge's approval) reads, so far as is material:

"IT IS ORDERED THAT:

1. The [flat] be offered for sale forthwith and the proceeds of sale be applied first in discharge of all moneys and costs due to [the mortgagee] in respect of [the mortgage] and in discharge of any other prior encumbrances, and ... the balance of the purchase price be applied as follows:

i. in discharge of the expenses of the sale of the [flat] and estate [agent's] commission thereon and the costs of such sale;

ii. payment to [the wife] [of] a sum of $1m. and such sum shall be subject to a first charge in favour of the Director of Legal Aid pursuant to section 18A of the Legal Aid Ordinance;

iii. after making the aforesaid payments, the balance shall be paid to [the husband]."

11. The language of the passage in the judgment which we have cited, and the language in which the judge's order was expressed, do not lie easily with the suggestion that the primary order which the judge was making was an order for the payment of a lump sum of $1m. by the husband, with an ancillary order for the sale of the flat to enable that sum to be raised. The language is far more consistent with the primary order being an order for the sale of the flat, such order including an order relating to the distribution of the proceeds of sale. Moreover, an examination of the judge's judgment reveals that everyone was agreed that the flat had to be sold. Only in that way would a sufficient sum be generated to reflect the fact that two households had to be provided for financially rather than one. The issue was how the sum which the sale of the flat would generate should be distributed. That again suggests that the order for the payment of the $1m. was ancillary to the order for the sale of the flat.

12. Mr. Johnson Lam for the husband referred to the judge's acknowledgement that both parties wanted "a clean break". That showed that what the judge had in mind was

"a final and conclusive once-for-all financial settlement ... in relation to [the flat], ... that precludes any further claim to relief in relation to [the flat]": Lord Oliver of Aylmerton in Dinch v. Dinch [1987] 2 FLR 162 at p.173 B-C, cited by Thorpe L.J. in Omielan v. Omielan [1996] 2 FLR 306 at p.310D.

That suggested, said Mr. Lam, that the payment of a lump sum, which could not be varied, was the primary, and not the ancillary, relief awarded by the judge. But a clean break - in the sense of making an order which could not be varied - could equally be achieved by making orders for the sale of the flat and the use to which its proceeds could be put under section 6(1)(e).

13. We therefore conclude that the judge's order was an order for the sale of the flat, and not an order for the payment of a lump sum under section 4(1)(c). In reaching this conclusion, we have not overlooked two English cases on the topic which were cited to us. However, those cases did not help us. In the first, Burton v. Burton [1986] 2 FLR 419, Butler-Sloss J. (as she then was) set aside the order which had been made in that case without deciding what the true nature of the order was. In the second, Harper v. O'Reilly and Harper [1997] 2 FLR 816, Mr. Michael Hart Q.C. (as he then was) held that the order in that case had been an order for the sale of the property - though the crucial difference between that case and the present is that the sum payable to the wife from the proceeds of sale in that case was not expressed as a finite sum (as it is in the present). It was therefore not possible to say that the sum payable to the wife was "specified" in the order, "specified" being the word used in both section 4(1)(c) and its English equivalent, namely section 23(1)(c) of the Matrimonial Causes Act 1973.

(ii) The power which the judge exercised. There are two sets of provisions in the Ordinance which empowered the judge to order the sale of the flat and the distribution of the net proceeds of sale. First, section 6 enables the court to make various orders for the transfer and settlement of matrimonial property, and for the variation of settlements relating to matrimonial property. In 1997, section 6 was amended to add a new section 6(1)(e), which enabled the court to make

"an order for the sale of such property as may be specified in the order, being property in which or in the proceeds of sale of which either or both of the parties to the marriage has or have a beneficial interest, either in possession or reversion, and for the use of the proceeds of such sale."

An order made under section 6(1)(e) cannot be varied. Secondly, a new section 6A was added by amendment at the same time in 1997. Sections 6A(1) and 6A(2) provide as follows:

"(1) Where the court makes an order under sections 4, 5 or 6 then, on making that order or at any time after the making of that order, the court may make a further order for the sale of such property as may be specified in the order, being property in which or in the proceeds of sale of which either or both of the parties to the marriage has or have a beneficial interest, either in possession or reversion.

(2) Any order made under subsection (1) may contain such consequential or supplementary provisions as the court thinks fit and, without affecting the generality of the preceding words of this provision, may include -

(a) provision requiring the making of a payment out of the proceeds of sale of the property to which the order relates; and

(b) provision requiring any such property to be offered for sale to a person, or class of persons, specified in the order."

14. It will be seen that the court's power to order the sale of property under section 6A only arises when the court is making or has made an order under sections 4, 5 or 6. We have already referred to sections 4(1)(c) and 6. Section 4 enables the court, in addition to ordering the payment of a lump sum, to order periodical payments, whether secured or otherwise. Section 5 relates to financial provision for children of the family. Thus, one of the differences between orders for the sale of property under section 6(1)(e) and section 6A is that the former can be made whether other orders are made or not, whereas the latter can only be made when an order under sections 4, 5 or 6 is or has been made.

15. In the present case, the judge made orders under sections 4 and 5 at the same time as he made the order for the sale of the flat. Under section 4(1)(a), he made an order for periodical payments, though this order was admittedly a nominal one: the order was for the payment of $1.00 a year for the wife. Under section 5(2)(a), he made an order for periodical payments of $3,300.00 a month for each of the three children of the family. The judge therefore had the power to make the order for the sale of the property and for the distribution of the proceeds of sale under both section 6(1)(e) and section 6A. The question is: what power should he be treated as having exercised?

16. The answer seems to us to lie in the limitation on the circumstances in which an order may be made under section 6A. The fact that it can only be made when the court makes an order under sections 4, 5 or 6 suggests that it is ancillary to orders made under those sections. Accordingly, where the primary order which the judge is making is an order for sale, the judge should make it under section 6(1)(e), even if he is making other orders under sections 4, 5 or 6 at the same time. However, if the primary order which the judge is making is an order under sections 4, 5 or 6, and if the order for sale is ancillary to that order, the order for sale should be made under section 6A.

17. In the present case, when one looks at the orders which the judge made as a whole, the order for sale which the judge made was plainly the primary order he made. It could not sensibly be said to be ancillary to the nominal order for periodical payments which he made in favour of the wife, or ancillary to the more substantial order for periodical payments which he made in favour of the children. Undoubtedly, the part of the order which had by far the greatest impact upon the parties' future was the order for sale, and the order, ancillary to it, for the distribution of the proceeds of sale.

18. Our conclusion, therefore, is that the order for sale should be treated as having been made under section 6(1)(e), and that the order for the distribution of the proceeds of sale was therefore an order for "the use of the proceeds of such sale" under section 6(1)(e) as well. We therefore conclude that there was no power to vary the order for the distribution of the proceeds of sale made by the judge. In those circumstances, we do not have to consider the third question which we posed, though in that connection it should be noted that the English cases relied upon to show that the power to vary orders under section 6A is limited to subsidiary matters may be of only marginal assistance. That is because there is no equivalent in the English legislation of section 6(1)(e). However, that is not an issue which we need to address.

The merits of the appeal

19. The property market in Hong Kong is well known to be a volatile one. The value of residential properties can fluctuate quite rapidly. The validity of an order for the sale of property made on the basis of an estimate of the prevailing value of the property may be undermined if the order is not put into effect quickly, because the value of the property could have increased or deceased substantially by the time the property is in fact sold. The volatility of the market, therefore, is something which judges should allow for when determining how the proceeds of sale of the property which is to be sold should be divided.

20. The most obvious way of doing that in the present case was by making the order in favour of the wife in the form of a stated proportion of the net proceeds of sale rather than in the form of a specific sum. No injustice would have been done if the judge had done that in the present case. On the contrary: it would have had the effect of ensuring that his overall intention survived any fluctuations in the market. Let us suppose that he had ordered that the wife should receive two-thirds of the net proceeds of sale (because that is the proportion which $1m. bears to what was then thought to be the net value of the flat), with the balance of the proceeds being paid to the husband. If the flat had maintained its value by the time it was sold, the sum which the wife would have received would still have been $1m. If the value of the flat had declined, the wife would have received less, but she would have had to pay less for the new flat which her share of the net proceeds of sale was intended to enable her to buy. If the value of the flat had increased, the wife would have received more, but she would have had to pay more for any new flat which she bought.

21. For these reasons, we think that it would have been better for the order which the judge made for what the wife should receive from the net proceeds of sale to have been expressed in terms of a stated proportion of the net proceeds of sale rather than a specific sum. As to what the proportion should be, we reject the suggestion that it should be three-fifths of the net proceeds of sale (on the footing that that is the proportion that $1m. bears to what was then thought to be the value of the flat). Since it is the distribution of the net proceeds of sale with which the court was concerned, it is the proportion that $1m. bears to the net proceeds of sale, rather than to the current estimate of the value of the flat, which should be substituted for the judge's order.

22. For the sake of completeness, we should record that we were referred to a number of authorities which considered the extent to which an appellate court in matrimonial proceedings can take account of changed circumstances. Those cases included Barder v. Caluori [1988] AC 20 and Thompson v. Thompson [1991] 2 FLR 530. However, we are not allowing this appeal on the basis that there has been a change of circumstances which invalidated a fundamental assumption upon which the judge's order was made. The absence of any evidence that there has in fact been a significant change in the value of the flat prevents us from doing that. We are allowing the appeal solely on the footing that the judge did not apply his mind to, and his order did not allow for, the possibility that that might well occur in a volatile and fluctuating market.

Conclusion

23. For these reasons, this appeal must be allowed, the order which the judge made for the payment to the wife of $1m. must be set aside, and for that order must be substituted an order that a sum amounting to two-thirds of the balance of the net proceeds of sale be paid to the wife. At present, we see no reason why costs should not follow the event, and the order nisi we make as to costs is that the wife should pay to the husband his costs of the appeal, and that both parties' costs be taxed in accordance with the Legal Aid Regulations.

24. We exempt one set of costs from that order. Those are the costs incurred by reason of the court's wish for the parties to argue whether the judge's order was capable of being varied. Those costs are the costs of the additional hearing on 17th May, which would not otherwise have been necessary. The order nisi which we propose to make in respect of those costs is that there be no order as to those costs. Since those costs were incurred because of the court's wish for further argument on an issue which was of importance to other litigants, we hope that the Director of Legal Aid will not exercise the charge he has over the proceeds of sale of the flat in relation to those costs.

25. Finally, we think that it would be helpful if judges in future identify the statutory provisions under which they are making their orders when they order the sale of property and the distribution of the proceeds of sale. In particular, we should like them to identify

(a) whether the order for the distribution of the proceeds of sale is an order for the payment of a lump sum under section 4(1)(c) or whether it is ancillary to an order for the sale of the property, and

(b) whether an order for the sale of the property, if it is not simply the mechanism by which a lump sum is to be raised, is being made under section 6(1)(e) or section 6A.