SLA NEE S v. HKL

FCMC 7500 / 2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 7500 OF 2010

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J U D G M E N T

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Introduction

1.  This is the wife Petitioner’s application for ancillary relief.  I will refer to the parties as the husband and the wife.  The wife is from Sweden and the husband from Finland and now, neither of them resides in Hong Kong although they spent many years living and working here.  The wife has since returned to Sweden with the parties son who is at university and the husband, as best as can be established lives between Taiwan and Mainland China and occasionally comes to Hong Kong for the purpose of his business.  Apart from a bank account there are no assets in Hong Kong. The link to this jurisdiction has now become tenuous and the wife, as I will explain in a moment, may well have considerable difficulty in enforcing this court’s judgment against the husband who has decided not to appear at the trial.  He wrote to the court on the eve of the hearing enclosing a medical report from a Hong Kong physician, the effect of which was that due to heart and blood pressure problems it was not advisable to subject himself to the stresses and strains of a trial.  He said he was not going to attend.  I had to decide whether I should adjourn the case for what would have been months, the court’s lists are crowded and that would have been the sort of delay.  I decided against that course.  The wife had spent money flying here from Sweden.  Her means are very limited and she has spent well over $1 million in legal costs.  Through my clerk I communicated by e-mail with the husband and told him that I would be going on without him if he decided not to appear.  I adjourned briefly to give him time to decide what he wanted to do.  I also told him that if he chose not to come I would not be having regard to his affidavit evidence.  The case would be decided on the wife’s affidavits, her oral evidence and the disclosed documents.  The husband had previously been represented by solicitors but subsequently discharged them because of lack of funds and was now in person.  There has been a history of the husband being very tardy and difficult about disclosure of documents.  It seems to me that the interests of justice required that I should press on with the trial even without the husband if he chose not to appear.  His medical condition was not so acutely serious.  Had he appeared I would have taken frequent breaks so as not to stress him and let him rest if he needed to.

2.  In the event he wrote back to say that he would not be appearing.  Through my clerk I kept him appraised of a ruling that I delivered on a preliminary S.17 MPPO application by the wife and ensured that the wife’s solicitors served him with their written closing submissions on that application and on the main hearing.  As it was, he decided not to participate.  At a previous directions hearing before me in January 2013 he had indicated that there was no money for the wife but he would do his best to pay something for their son’s maintenance.

3.  In the event the case has proceeded with Mr Hughes, counsel for the wife, doing his best to show where the assets are likely to be and then in his closing speech submitting what the wife’s needs were and inviting me to make an appropriate order.  In many years of sitting in this jurisdiction I have never before encountered a case where one party has decided not to appear at the final hearing.  Whilst it can be said that this has played into the wife’s favour because she is unopposed, the inquisitorial aspects of an application such as this have not relieved me of the obligation to ensure that I am satisfied, on a balance of probabilities, about the existence of assets that are said to be available for distribution between the parties and, in any event (even with an absent husband) S.7 MPPO needs to be gone through and applied by me in arriving at a just conclusion.  This has not been a case of just taking the wife’s case at face value.  If anything, my task has been made more difficult by the husband’s absence.

History of the Marriage

4.  The parties have had a 32-year relationship.  They started living together in 1976 and married on the 19^th September 1991.  The separation occurred on the 15^th June 2008.  On any view, the wife is able to point to a continuous 32-year relationship, 17 of which have been as man and wife.  The husband is 57 years old having been born in October 1955 and the wife has just become 55 having been born in July 1958.  Their son S was born on the 19^th May 1993.  So he is now 20 years of age and attending university close to his mother’s home at Sundsvall, where he also lives.  He has a few years to go yet before he graduates and hopefully, is able to find good employment and stand on his own feet.  Before he can do this he will be depend on his parents financial assistance and support as well as perforce, his own earnings from part-time work during the university holidays and at weekends.

5.  The husband is an engineer by training and for over 30 years he was worked as employee and now, it would be appear, on his own account as agent for manufacturers of handling equipment and heavy machinery for the steel industry.  By 1998 the husband was working in Sweden for a company called E in which he owned a significant shareholding.  He sold his shares in it for SEK 6,688,880.  From that amount, an equivalent of HKD 2.7 million was transferred by him into bank accounts with Nordea Bank SA in Luxembourg which was to provide for the parties eventual retirement.  I will need to consider what happened to those funds presently.

6.  Having sold his shares in E, this company persuaded the husband to enter into a contract of employment with it for 3 years.  This in order to prevent him from setting up on his own account in competition with it.  In late 1999 it transferred him to Hong Kong together with a Mr SL a friend and colleague of his.  In Hong Kong the husband and wife were able to enjoy a very comfortable existence on expatriate employment terms. They were accommodated in large flats at Stanley and then in Chung Hom Kok, the rents being paid for by E.  The wife, whilst looking after S, who was 6 when they are arrived here, also established a small business called SM which imported food, alcohol and other consummable products from Scandinavia which were distributed into Hong Kong to various retailers.  SM also sold this produce in Hampers.  She ran the business for about 5 years.  Whilst it made no great profits, a total of HKD 100,000, she drew no salary for herself and this profit was used for the benefit of the family.  In addition the wife also worked for F in Hong Kong on a part-time basis, which she did for several years.  Initially, she was paid $6,000 a month but this increased to $14,600 as her hours with F were increased.  She used these earnings for the benefit of the family. 

7.  The wife is in fact a trained economist/accountant which, if she had continued to pursue this career in Sweden, would almost certainly have earned her far better remuneration and a pension.  It is her case that she chose to give this up to follow the husband’s career in Asia and in doing so she was only able to obtain lesser paid jobs which she took up in order she might help out at home and also the husband in his work.  She says that during the marriage she was never given any access by the husband to the family bank accounts and used her income from F to pay for the family’s daily living expenses.  Additionally, she gave HKD 20,000 from SM’s profit to the husband to repay him for the money that he had put into SM as start-up capital.  Mr Hughes, on her behalf, has drawn attention to these matters in support her case, not only as forming part of her contributions during the marriage as working wife and mother but also, to support a case on the compensation principle on the basis and had to give up her career as economist/accountant to follow the husband initially to Taiwan in the mid 1990’s and subsequently to Hong Kong in 1999.  Although it remains to be seen, I suspect that the available identifiable capital will not get the court past an assessment of the parties needs, particularly the wife’s who is now living in circumstances of great modesty in Sweden, at a vulnerable age in terms of her employment prospects and given that she is going to have to be the primary carer for S during his studies at Sundvall University.  To this I will return presently.

8.  In conclusion, in describing the history of the marriage and of the parties relationship pre-marriage, whilst no doubt the husband has been in full employment, so has the wife in Sweden pursuing her profession as an accountant and after the arrival of S in 1993 as a working mother in Sweden and then in Taiwan and Hong Kong.  She comes to court therefore as a fully-entitled wife – if I can use that expression to explain that, as such, she must engage at least the 50% starting point in the distribution of the identified available assets.  In this case there must be every prospect that her needs, generously assessed, as Ribeiro PJ has described in LKW v DD [2008] 2 HKLRD 523, will almost certainly take up most of the available capital and income when one takes into account, as I must, the husband’s own needs.  In such circumstances, there will almost certainly be nothing to distribute under the sharing and compensation principles.

A computation of the assets

9.  In this regard I am very grateful to Mr Hughes for setting out what these are.  Whilst the most valuable of them is undoubtedly the husband’s beneficial ownership of L&H which I will come to very shortly, there are also a number of smaller assets which I will enummerate.

10.  On the 21^st March this year I started these proceedings by deciding on the wife’s S.17 MPPO application which was directed at the husband’s disposal of his 100% shareholding in L&H.  There were 10,000 shares.  He held 9,000 personally and the remaining 1,000 were held by his wholly-owned company CS.  It is through L&H that he carried out his business as a manufacturers agent in the steel industry.  Having heard the evidence on the 21^st March, I delivered judgment the following day in the wife’s favour.  That judgment must stand with this one as my reasons on the ancillary relief application.  I do not propose to repeat here my reasons for finding that the husband’s disposal of his shareholding in L&H to a Mr C and a Mr L was a sham.  On my finding, he remains the beneficial owner of L&H and the value of that shareholding will form part of the asset pool in this case.

11.  Since the UK Supreme Court’s judgment in Prest v Petrodel Resources Ltd and others [2013] UKSC 34 bears directly on this aspect of the assets I will have to analyse how this shareholding is to be treated, which I will now do.

12.  In Prest there were properties that belonged to companies that were said to be controlled by the husband in that case and that these companies were his alter ego.  On this basis, following the long established approach of the Family jurisdiction in England on applications for ancillary relief, the trial judge, Moylan J, ordered the husband to procure the conveyance to the wife of a valuable residential property belonging to one of those companies into the wife’s name.  On appeal to the Court of Appeal, by a majority, the court held that such an approach ran counter to the old-established Saloman principle (see Saloman v A. Saloman & Co Ltd [1897] AC 22) that a company is separate from its shareholders and is therefore not amenable to orders such as that made by the judge.  On appeal to the Supreme court, a bench of seven justices upheld that reasoning but, on the particular facts of this case, Lord Sumption, with whom the other justices were in agreement, decided that all the properties owned by the companies were held on trust for the husband and, as such, he was in a position, as beneficiary, to direct the companies to do as he required, or as in this case, he had been ordered.  Such a simplistic analysis by me does not do, and is not intended to do, justice to such an important decision but I believe it will suffice for the purposes of this case.  Also, I apprehend that although not binding in our courts in Hong Kong, this decision will be followed here.  It is persuasive authority of the highest order and insofar as it now becomes relevant to this case I respectfully propose to follow it.

13.  All of this said, L&H, as a company which acts as a commercial agent earning commissions on sale of heavy equipment does not own property which might be ordered to be transferred to the wife in part-satisfaction of her claim for ancillary relief, although it may well have liquid assets such as cash in bank accounts which could be transferred to the wife as part of a lump sum payment.

14.  My conclusion is that any assets held by L&H, it holds on trust for the husband who by virtue of my judgment of the 22^nd March 2013 I found to be the beneficial owner of all of its shares.  Mr C and Mr L and any subsequent corporate entity or individual will take any transfer of the shares by Messrs C and L to them impressed with that trust.  And so, the husband is the beneficial owner of the shares and through that beneficial ownership I find that the company itself (L&H) holds its assets on trust for the husband.  It is on this basis that he can call for the company to do what he wishes it to do by way of the transfer of its assets, in whatever form, either to himself or, to his order, to anyone else.  In this way I am satisfied that the assets of L&H are amenable to any order that I make against the husband in respect of his beneficial ownership of its assets, the company being the legal owner of those assets as his trustee. 

15.  As a result of my having found the husband to be the beneficial owner of L&H’s it became necessary to obtain an up-to-date valuation of L&H.  This has meant those representing the wife issuing subpoenas against its accountants who fortunately, have been forthcoming and done their duty to the court by providing all the available accounting documents to enable the court appointed experts BDO (through its director Mr W) to prepare a valuation of L&H.  Mr W’s report is dated the 15^th April 2013.  It is a very impressive, carefully prepared piece of evidence.  Mr W, for the reasons that he has provided and which I accept without reservation, has arrived at a valuation of $9,212,000 for L&H by taking the average of two values being the “Market Approach” of HKD 13,692,882 and the “Net Asset Approach” of HKD 4,731,492.

16.  Mr Hughes has carefully gone through the evidence and set out in table form the assets that are now before the court and available for distribution.  I propose to set these out here together with references to the bundles where this evidence can be found:

(i)	The up to date value of L&H (BDO/15.4.13)		HKD 9,212,000
(ii)	The wife’s disclosed assets [P10: 2225]		HKD 258,021
(iii)	The husband’s disclosed assets (July 2012) [P5: 984]		HKD 3,713,852
(iv)	2010 dividend paid by L&H		HKD 2,000,000
(v)	Husband quarter interest of home in Finland		HKD 301,000
(vi)	SEK 2,400,000 (HKD 2,895,000) withrawn from Husband’s account with Foreningssparbanken AB and partly paid into Nordea SA (Acct. 74241) [P3: 648].  Husband has failed to provide current balance therefore the entire amount withdrawn from Foreningssparbaken is included.		HKD 2,895,000
(vii)	Most recent known balances held by Husband in Sweden, Hong Kong and Taiwan as follows: (a)  HSBC No. 608078010888 [C4: 763]		HKD 81,576
	(b)SEB Acc No. 01003041167 [C4: 808] SEK 279,222		HKD 336,760
	(c)  HSBC Acc No. 00201xxxx388 [C4: 842] Taiwan dollars 335,400		HKD 86,952
(viii)	Money transfer to Mr P		HKD 371,180
(ix)	Withdrawn unexplain by husband from his HSBC Acc No. 60807801888 [C3:716-717]		HKD 1,297,915
(x)	Business related travel expenses recorded in husband’s AMEX credit card statements [2010 to 7th February 2013]		HKD 791,201
(xi)	Net value of family home in Sweden [C3: 717]		HKD 275,765
	TOTAL		HKD 21,625,222

17.  The bald submission made by Mr Hughes is that the wife should receive half of this amount less her own assets of HKD 258,021, in other words a lump sum of $10,683,600.  The Duxbury calculation prepared for this case has suggested a lump sum of HKD 11,661,255 [C3: 718] to provide an income to meet her reasonable foreseeable needs.

The problems

18.  Whilst what Mr Hughes suggests, based as it is on what is largely a “wish list” of assets, and I do not intend to be critical of what he is putting forward, may be clean and tidy but it is likely to be based on just that, “a wish list” of assets.  The simple fact is, largely due to the husband’s refusal to turn up for the trial and to assist himself and more importantly, for the purposes of achieving an order that is correct, fair and viable, the court itself, I am left with a number of figures that may well be seriously out of date and therefore inaccurate.  Also some of these figures can be readily eliminated as being inappropriate to be included as assets and I will indicate what these are shortly. 

19.  Despite his absence, I still need to be fair to both parties.  This cannot be an exercise in taking the wife’s figures and saying that because the husband has chosen to absent himself he must now bear the consequences by virtue of not having turned up for the trial.

20.  I need to approach my findings on what should be included as assets on a realistic basis and, as best I can, based on amounts that are reasonably likely to be accurate.  Provided the particular amount of an included asset is within a reasonable approximation likely to be accurate then I am afraid that the husband will have to bear the consequences of his non-appearance.  He cannot be heard to say that this is all wrong if he has chosen not to come along and say so, or putting it in another way, helping the court to carry out its task on as precise a basis as it would wish to. And, I must also have regard to the wife’s position.  She must not be seen to suffer because of the husband’s non-appearance.  If what is put forward on her behalf appears, in all the circumstances, to be reasonable then it ought to be acted upon.

What needs to be removed from the wife’s list of assets

21.  I will identify the item by its number in paragraph 16 above which is where the assets suggested by Mr Hughes are set out.

22.  (iv) is the dividend of $2,000,000 paid on the shares of L&H of which, on my finding, the husband has always been the beneficial owner.  I cannot for one moment say with any degree of confidence that this amount is still there nor, any lesser proportion of this amount.  Mr Hughes says that this does not matter so long as I am satisfied that the husband has had this sum then it should be added back into the asset column, which is a very understandable argument.  Nevertheless, I am of the view that in respect of this amount, where it is difficult to have any idea how the money was used by the husband, I do not consider that it ought to appear in the asset column.  It may, for instance, have been re-invested into L&H’s operations and in this way reflects itself in the value of L&H?  I simply cannot tell.

23.  The money paid to Mr P, which is item (viii) should also be removed.  It had formed part of the S.17 MPPO application and, as a matter of convenience and sensibly, Mr Hughes has added it back in as an asset.  I cannot be sufficiently certain this amount of $371,000was paid to Mr P in order to defeat the wife’s claim.  In such circumstances, it will need to come out of the asset list.  As will (x), the business travel expenses incurred by the husband and recorded it in his Amex account.  These amounts come to $795,201.  I take the view that these are nothing more than business expenditure and should not be treated as having to be added back into the asset column.

24.  Everything else should remain. The item at (vi), nearly $2.9 million, is substantial and should be taken into account now.  The husband removed it.  The wife has lost the opportunity of sharing in it.  Part of this amount was to fund their retirement.  The remaining items are clearly assets which should be available to both parties.  The precise figures may now be different, they almost certainly are in respect of what were bank balances but these were amounts that were correct when the balances were provided by the husband.  I will take these balances.  As he has chosen not to contest the evidence he must, I am afraid, expect such a conclusion.

25.  The total of the removed items at (iv) (viii) and (x) is $3,166,201, which means that the adjusted total for the assets is $18,459,021.

How should the assets be divided

26.  Mr Hughes has pointed to the Duxbury calculation which indicates that a lump sum of $11,661,255 would be required.  Whilst this calculation may provide a guide, it seems to me that this is not a “Duxbury” case which is much more suited to a situation where there are far greater assets.  Duxbury would then provide a reliable guide to cater for “needs” on a capitalised basis and anything left over might be subjected to the “sharing principle”.  But even then, all of this would still need to be tested against the “yardstick of equality”.

27.  This said I do find the Duxbury calculation in this case as a useful general guide as to the sort of amount required to cater for the wife’s needs.  If the wife were to receive HKD 11.66 million, as the calculation indicates, she would be receiving something like 66.16% of the assets.  Tested against the yardstick of equality it might be said that this wife, who does not enjoy the best of health and cannot expect to earn very much in the future will need all of that amount, less her own assets which are only HKD 258,021.

28.  Nevertheless, I still need to have regard to the husband’s position.  Most of this wealth, the vast majority of it, has been generated by him.  He too does not enjoy the best of health and he will need to preserve capital for his retirement.

29.  It strikes me that this should therefore be a 50 : 50 case.  Half of the joint assets is $9,229,510 from which the wife’s assets is $258,021 must be deducted.  The wife’s entitlement therefore is $8,971,489.  The wife must give the husband credit for half of the value of the family home in Sundvall therefore $137,882 will need to be deducted from $8,971,489 which is $8,833,607 which is the amount of the lump sum which the husband must pay the wife in this case. 

Consequential and ancillary orders

30.  (i) The wife will remain the sole owner of the family home at Sundvall, Sweden.

(ii) Upon full compliance by the husband with the orders herein all the parties claims against each other arising from their marriage shall stand dismissed and, for the avoidance of doubt this will include any right to periodical payments by the wife including nominal maintenance.

(iii) The husband will pay the wife periodical payments for S at the rate of $12,000 (in SEK) per month as from the 1^st August 2013 until he completes his full-time education or further order.  This amount to be paid into her nominated bank account.

(iv) The husband will settle the overdraft facility on the parties joint SEB bank account 54060004535 before it is closed and he will sign all necessary papers to close this account.

(v) The husband will re-sign all necessary documents for the closure of the parties joint safe deposit box held with SEB.

(vi) The wife and S will remain beneficiaries of the husband’s Gigna life insurance policy HMK 008872878.  For the avoidance of doubt – I make no orders in respect of the Skandia Pension nor the SEB Trygg but the existing arrangements on those policies will remain in place until full compliance with this order by the husband.

 (vii) The husband will re-imburse the wife HKD 282,000 for S’s maintenance (C3: 718).

 (viii) The Respondent will pay the Legal Aid Department for his half share of BDO’s fees in respect of its valuation of L&H.

 (ix) The current injunction will remain in place until full compliance by the husband.

 (x) Liberty to apply as to the terms and implementation of this order.

Costs

31.  The wife must have her costs of this ancillary relief application paid by the husband and taxed on party and party basis with Legal Aid Taxation of all of her costs.  This will be an order nisi for 14 days after which it will become an order absolute. 

Non-recoverability of the lump sum from L&H

32.  I very much regret having to say this in these circumstances but, since the English Supreme Court’s judgment in Prest supra, by which it upheld the Saloman principle I do not believe it is now open to me to say that L&H should have concurrent liability with the husband for the lump sum payment.  This is his personal liability, but the wife will know that the court will do all that it can lawfully do to see to it that its order against the husband are complied with by him. 

Time for compliance

33.  The husband will have 56 days from the date of this judgment to comply with each element of my orders. May I ask the wife’s solicitors to prepare a draft order no later than the 31^st July 2013 for my approval, after which I will be out of Hong Kong for 4 weeks.

( Ian Carlson )  Deputy District Judge