I L L v. E J AND ANOTHER

FCMC 13315 / 2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 13315 OF 2006

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J U D G M E N T

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Introduction

1.  This is an application by a Petitioner wife for maintenance pending suit pursuant to s. 3 Matrimonial Proceedings and Property Ordinance Cap 192 (MPPO).  The wife seeks provision for her reasonable living expenses and a contribution towards her litigation costs.

2.  This case involves a broken marriage and ostensibly a broken business relationship.

3.  The husband and wife had a business, which manufactured and sold watches.

4.  Sadly the relationship broke down amid allegations of infidelity on both sides. Further allegations were made in relation to the running of the business, the misuse of corporate funds, the transfer of money and shares and the establishment of a rival business. The companies collapsed which led to further accusations being made by each party against the other.    

The main issues

5.  There are a number of issues to be determined by this court namely

1)  Should the husband be ordered to pay the wife maintenance pending suit?

2)  If so, what amount should the court order the husband to pay to the wife for her general living expenses?

3)  Should the husband also be ordered to make a contribution towards the wife’s litigation costs?

Background

6.  The parties married on the 1 May 1991 and separated on the 27 March 2006. They cohabited for five years prior to marriage. This was then a 20-year relationship. It was the second marriage for both parties. The wife is now aged 54 and the husband 58. It is fair to say that the breakdown of the marriage was acrimonious, and necessitated police intervention twice. The couple do not have children. The wife issued divorce proceedings on the

25. October 2006 based on the husband’s adultery and unreasonable behaviour. The husband filed an Answer on the 3 April 2007. At the hearing before me on the 12 February 2008 the parties sensibly compromised this aspect of the case. The parties will now proceed on the basis of two years separation. It is agreed that a fresh petition will be filed in April of this year.

7.  The husband and wife were both directors and shareholders of two private limited companies in Hong Kong, which I will call B Ltd and T Ltd. These companies were both established during the course of the marriage. As at the date of the separation these companies provided the parties with their only source of income. The husband maintains that he was the driving force behind these companies, which manufactured and sold watches. The wife disputes this and claims to have been actively involved in the running of both. Neither company is now in operation.

8.  Running concurrently with the divorce proceedings are two sets of proceedings in the High Court arising out of the same facts. In HCA XXX/200X the wife claimed inter alia, breach of fiduciary duty by the husband. The husband applied to strike the action out and the wife’s statement of claim has now been substantially amended. Perhaps more importantly, in the context of this application, the wife has been ordered to pay the husband’s cost, which prior to taxation stood at HK$230,000. In addition the husband has issued proceedings against the wife for defamation.

9.  Each party accuses the other of material non-disclosure.

10.  The husband claims that the B Ltd and T Ltd are no longer operational as a direct result of action taken by the wife. The wife denies this.

11.  In so far as this application is concerned, although the wife admits to having received family funds, she says that she is now running out of money and consequently that she needs immediate financial support from the husband. The husband says that she has plenty of money at her disposal. The husband stopped maintaining the wife in July 2006. The wife issued a summons for maintenance pending suit on the 4 May 2007. The application then lay dormant for a while.    

12.  The husband is now living and working in Shenzhen. He is living in rented accommodation. He has bought a property, which is not yet ready to move into. He says he has no interest in the company for which he now works. The wife remains in Hong Kong. She is also living in rented accommodation. She is not working.   

The law

Maintenance pending suit

13.  The ordinance states that the only governing principle is that the court shall make such order, as it considers reasonable in the circumstances.  (See s. 3 MPPO Cap 192). Consequently applications such as these are approached on a broad-brush basis.  A detailed examination of the parties’ means may be examined at a later date at a full ancillary relief hearing if there is no agreement in the meantime.

14.  As counsel for the wife pointed out in her opening submission

what really matters is the immediate and reasonable requirements of the wife balanced against the ability of the husband to pay for them, assessed using a broad-brush approach. (See also paragraphs 16.17 of Rayden, 18^th edition).

15.  She also made the point that the court is not bound by the assertions made by either party. 

In practice, as oral evidence is rarely given, it will be unusual for the court on an application for maintenance pending suit to be in a position to make findings of fact on issues in dispute sufficient, for example, to deal with conduct or allegations of non disclosure.  However, if it is demonstrated that the paying party has not performed his duty to make full and frank disclosure of his financial resources, then the court can take a broad and robust view of his means, and it does not have to accept and proceed on the basis of the assertions of the paying party as to his means and an inability to pay.  The court can look at the reality of the situation …… Any under provision or over provision in the order for maintenance pending suit can always be corrected when the account comes to be taken at the substantive hearing when there are every opportunity to do fairness by set off ……”

(Ref paragraphs 16.18 of Rayden, 18^th edition).

16.  Likewise the court may look to the assertions made by the payee and take a similar approach when looking at her means and alleged reasonable requirements. The court should look to the reality of the situation, in so far as it can, in relation to bare assertions made by either the husband or the wife.    

Litigation costs

17.  In so far as the law on the funding of litigation costs is concerned the recently reported case in England, Currey v Currey [2006] EWCA Civ 1338, is of some assistance.

18.  In Currey v Currey [2006] EWCA Civ 1338,

“the conditions for a ‘costs allowance’ are as follows:

(1)  That the applicant spouse has no assets, or none that can reasonably be deployed (at para [19], [20]).

(2)  That she can provide no security for borrowing, or none which can reasonably be offered (at paras [19], [20]).

(3)  That she cannot reasonably obtain legal services by offering a charge on the outcome of the litigation (at para [20] and see Sears Tooth, per Wilson J).

(4)  That she cannot secure publicly funded legal help ‘at a level of expertise apt to the proceedings’ (at para [20])”

(See Family Law, May 2007, Interim Costs Provision out of Costs Allowance, by David Burrows. p.427).

19.  There is also a requirement to undertake an overarching enquiry

At para [20], Wilson J held that the initial, overarching enquiry should be into whether the applicant for a costs allowance could demonstrate that she cannot reasonably procure legal advice and representation by any other means. Therefore, to the extent that an applicant has assets (as in C v C), she has to demonstrate that they cannot reasonably be deployed (whether directly or as the means of raising a loan) in funding legal services …… Other factors may well come into play.  The subject matter of the proceedings would always be relevant, as would the reasonableness of the applicant’s stance in the proceedings.

(See K v C (FCMC 5508/2005, 7 August 2007 and HRT v RHT (FCMC 5488/2006, 21 June 2007 unreported))

The Evidence

20.  I must now turn to consider the issues, the law, and the parties’ evidence as set out in the affirmations filed together with the submissions made by counsel.

Should the husband be ordered to pay the wife maintenance pending suit?

Discussion

21.  It is not disputed that the wife received the following sums:

14 November 2005 – HK$1.6 million

30 March 2006 – HK$390,000

4 July 2006 -  HK$191,821

She says that initially the interest on this money was used to supplement her living expenses. The wife also claims that she then took approximately HK$1.8 million in cash out of her bank accounts in which these funds were kept and placed it in a safe at home. She says that i) HK$700,0000 was used to conduct an investigation into whether or not her husband was having an affair. ii) Further money was used to pay for legal fees and iii) others funds were used to cover her increased living expenditure from July 2006 to the date that she filed her Form E (7 November 2007). She also claims that she was the victim of a burglary.  She says in her Form E

I have now used up all money kept in my home safe.

22.  However the wife provided very little evidence in support of this statement. For example, there are no invoices or reports from investigators to back her claim that she has paid HK$700,000 for their services. The evidence produced by the wife in support of her expenditure was also very limited, and did not particularly support her case for an increased level of expenditure over this 18-month period. Thus I find that the wife has not substantiated her claim in this respect. I do not accept that she has spent the HK$1.8 million in its entirety or at all.        

23.  As at the 7 November 2007 the wife also had the following sums at her disposal:

Bank accounts – approximately HK$165,000

Stocks and shares – approximately HK$175,000

Life insurances and endowment policies – approximately HK$157,000

Of that the wife accepts the first two figures, but says that she owes her father HK$100,000, as he had given her that sum for trading purposes.

24.  Thus even on the wife’s own evidence she had HK$397,000 at her disposal four months ago, although some of those funds are tied up in life insurance or endowment policies. 

25.  The husband’s case is that he should not be required to pay maintenance pending suit, given that the wife has had access to HK$2.2 million from their joint funds.

26.  In the alternative he argues that i) the wife’s estimate of HK$48,000 per month is inflated and/or includes unnecessary expenses and ii) he cannot afford to pay her any maintenance in any event.

27.  Finally the husband’s counsel argues that the application is premature, given the circumstances and that it should be dismissed.   

How much does the wife need?

28.  The wife says that she needs HK$48,000 per month. She bases this on the life style enjoyed by the parties previously. On the wife’s own evidence she currently spends HK$31,252 per month. 

29.  Counsel for the husband took me to wife’s consolidated bank  with the Hang Seng Bank. From an analysis of the deposits and withdrawals counsel was able to show that the wife spent on average approximately HK$9,700 per month from this account, if one simply takes the monthly balances for the period from October 2006 – October 2007. This was at a time when the wife also says that she was relying on cash savings at home to pay her increased monthly expenditure.

30.  I accept on the evidence before me that the estimate of HK$48,000 per month for the wife’s expenses is too high. The husband’s counsel also argues that the wife does not need to spend HK$8,000 per month on a car or HK$4,000 per month on a maid. I accept both of these arguments. Consequently I also accept on a broad-brush analysis that the wife needs approximately HK$20,000 per month on which to live.

31.  The husband says that he previously paid the wife housekeeping of HK$13,000 per month, which for tax purposes she received as a salary from B Ltd. In addition he was responsible for their housing costs and he paid the domestic helpers salary direct. The wife accepts this and says that she spent approximately HK$8,000 per month on herself, which came from her own savings. I was not directed to any evidence to support the wife’s claim. Again I am of the view that the wife is unable to substantiate her case on this point.

32.  It is sometimes useful to look at the situation before the breakdown of the marriage and to use that as a guide when assessing maintenance pending suit going forward. In so far as this case is concerned it is useful simply because it is an indication of the standard of living enjoyed by the parties prior to the breakdown of the marriage.

Where should the maintenance money come from?

33.  I accept that the wife is in a position to partly maintain herself. She has immediate access to some funds. I have also made some initial findings in relation to the HK$1.8 million. However I do not accept that this application should simply be dismissed. It seems to me that the husband should contribute in part towards the wife’s living expenses.

34.  The husband says that he is now employed and that he works for a company called LSE Ltd. He claims to be earning HK$19,500 per month (including overtime). He lives and works in Shenzhen. He has bought an apartment but is not living there at present. He says that his outgoings presently amount to approximately HK$30,000 per month, of which HK$8,000 per month is in relation to a mortgage on an apartment in which he is not living. He also pays rent on another property. Payment of the mortgage seems to me to be an extravagant and unnecessary expense at this time.  He says that he is utilizing an insurance policy in order to raise funds to pay the deficit in his monthly expenditure.

Disclosure

35.  Both parties make allegations against the other with respect to disclosure. The wife alleges that the husband has other bank accounts and that he holds properties jointly with the 2^nd Respondent.

36.  In so far as the bank accounts are concerned, the husband accepts that he did not list his mortgage account with the Bank of Communications, although he did exhibit copies of receipts for mortgage payments received in which that account is referred. More importantly however, the receipts do not indicate from which account the mortgage payments are made. It simply states that payment is made by card. I accept the wife’s point in this respect namely that there may be an undisclosed bank account from which the mortgage is paid.

37.  The wife also alleges that the husband has an undisclosed account with the China Merchant bank. I accept the husband’s explanation namely that he had overlooked this account. It has a minimal balance in it. I also accept the explanations given by the husband in relation to two other accounts with HSBC, namely that one is a consolidated account with HSBC and the other is in reality a Bank of China account.

38.  The wife also alleges that the husband is the beneficial owner of 14 other properties in China. She produced copies of land searches, which show that they are held in the name of the 2^nd Respondent. For the present purposes I attach no weight to the wife’s claim in this respect. 

39.  Of greater concern is the fact that the husband says in his Form E that he resigned as director of LSE Ltd on the 7 April 2007. The husband’s case is that that company now employs him and that he holds no beneficial interest in it. I will need to hear from the husband further on this point in due course.

40.  The wife says that as the husband has failed to make full and frank disclose of his means, I can therefore be robust in my approach to maintenance pending suit. Similarly the husband claims that the wife has not made full disclosure of her means.  I am of the view that both sides are equally to blame in this respect. Both will need to make further disclosure and/or clarify disclosure already given. I have no doubt that this will be both a costly and time-consuming exercise for both of them. 

Misappropriation of funds

41.  Again each party makes allegations against the other. The most important allegation by the wife is that the husband wrongfully withdrew US$738,000 from B Ltd and paid that sum into his personal account. The husband has not adequately explained the circumstances surrounding this withdrawal or where those funds are now. I have already made findings in relation to the monies held by the wife.

Earning capacity

42.  I was not addressed on this point in detail. It seems likely that each party’s earning capacity will be a source of contention going forward. 

What amount should the court order the husband to pay to the wife for her general living expenses?

43.  I accept for the time being that the husband has access to funds of at least HK$30,000 per month (including both his salary and access to the monies pledged against the life insurance policy). I also accept that the wife has other funds at her disposal. It is unclear how much that might be. In these circumstances and on a broad-brush basis, I will order that the husband pay HK$8,000 per month as a contribution only towards the wife’s living expenses. In doing so I have taken into account the standard of living enjoyed by the parties during the marriage, the payment of housekeeping and the wife’s actual expenses at present. It seems to me that the husband should be able to economize or make other suitable arrangements or make provision from the monies pledged against the life insurance policy in order to meet this sum. Likewise I am confident that the wife has other funds at her disposal to make up the shortfall.

Should the husband also be ordered to make a contribution towards the wife’s litigation costs?

44.  The wife also asks for HK$25,000 per month to cover her litigation costs.

45.  The law in England and Wales is developing quickly in this area and I intend to rely on the guidance provided by Currey v Currey in this respect.  I will therefore adopt to the two-stage approach identified by Wilson LJ.

That the applicant spouse has no assets, or none that can reasonably be deployed (at para [19], [20]).

(2)  That she can provide no security for borrowing, or none which can reasonably be offered (at paras [19], [20]).

(3)  That she cannot reasonably obtain legal services by offering a charge on the outcome of the litigation (at para [20] and see Sears Tooth, per Wilson J).

(4)  That she cannot secure publicly funded legal help ‘at a level of expertise apt to the proceedings’ (at para [20])”

46.  On the wife’s evidence it seems to me that she does have other assets at her disposal, which may be reasonably deployed by her to pay for legal costs. In so far as 2) is concerned, I was not addressed on whether it would be possible for the wife to borrow against the life insurance/endowment policies held by her. I accept though that it is unlikely that she could obtain legal services on the basis suggested by 3) above or that she would be eligible for legal aid.

Overarching enquiry

47.  I am also conscious of the way in which these proceedings have been conducted to date. I would, in the interests of reducing costs, urge the parties to be sensible in the way in which they choose to conduct these proceedings going forward.

48.  In the meantime I am not of the view that this is a case, which warrants the granting of litigation costs as part of a maintenance pending suit order. It seems to me that the wife should be in a position to continue to avail herself of suitable legal representation going forward.

Costs

49.  As neither party has been wholly successful I will make an order nisi that there shall be no order as to costs, such order to be made absolute in 14 days time.

50.  Consequently having read the wife’s Form E dated the 7 November 2007, the husband’s Form E dated the 4December 2007, the affirmations of the husband dated the 17 July 2007 and the 18 December 2007 and the affirmation of the wife dated the 14 December and having read and heard submissions from both party’s counsel, I will make an order in the following terms:

  1) The 1^st Respondent husband shall pay the Petitioner wife  maintenance pending suit in the sum of HK$8,000 per month until further order, the first payment to be made on the 1^st April 2008 and thereafter on the first day of each succeeding month by direct credit into one of the wife’s bank accounts.