A v. B

FCMC No. 10937 of 2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 10937 OF 2013

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JUDGEMENT
(Ancillary Relief)

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1.  This is the parties’ ancillary relief application upon the dissolution of their 14-odd years marriage, essentially over division of their marital assets with a total net value of no more than HK$15 million, the bulk of which is typically represented by the former matrimonial home consisting of 2 adjoining flats with one valued at HK$5.5 million held in the Petitioner Husband’s name, and the other at HK$5.3 million in the Respondent Wife’s, with the remaining balance made up of personal bank balances, insurance policies and pensions.

2.  There is of course also the relatively straightforward issue over the Husband’s maintenance by way of periodical payments for their 2 daughters both now in secondary school and whose custody has been granted to the Wife, but as will be apparent from the parties’ respective Open Proposal, at the heart of the dispute is whether the Husband’s prospects of advancements to his professional career as a practicing barrister in the foreseeable future should be taken into account, and if so how they can be quantified as part of the assets for consideration as to whether the entire former matrimonial home should be given to the Wife so as to achieve a clean-break situation, which according to the Husband would mean that she would exit the marriage with a net effect of almost all of the marital assets, which has thus become the major stumbling block to what could have been an early straightforward settlement of an otherwise uncomplicated divorce, as pointed out in the commencing paragraph of the Opening Submission of his counsel Mr Richard Todd QC & Mr Robert Pang SC leading Mr Jeffrey Chau:

“1. This is a case which should have been capable of early resolution but it has become mired in the intellectually interesting but financially disastrous (for these parties) debate about whether a work capacity is an asset which is capable of sharing...”

3.  Indeed financial disastrous would appear to be the result when that kind of seniority, calibre and expertise are involved as the Wife is no less well represented by Mr Bernard Man SC leading Mr Raymond Chu and with legal costs from both sides totalling more than HK$3.2 million, but she insists that early resolution could have been achieved by the Husband acknowledging and accepting her request for his flat of approximately HK$5.5 million as both fair and justified taking into account of her entitlement to share in his enhanced earning capacity and post-separation profits, his various cash gifts to his girlfriend including a sum of HK$1 million made right before he walked out of their marriage, as well as his long-term responsibility to provide appropriate accommodation for her and their daughters by allowing them to continue to reside in the former matrimonial home intact with the 2 adjoining units. But first some relevant factual background of both the marriage and the proceedings should shed some light on how the parties eventually arrived at their present entrenched position.   

Background

4.  Both the Husband, now aged 4 , and the Wife, now aged 4 , grew up in Hong Kong where they met while attending    University of Hong Kong (then known as            ) in 1991 with him for the Bachelor of Laws and her for Business Administration. Upon graduation the Wife in 1993 started her employment with   XY (Hong Kong) Ltd, a power and automation technology company where she now holds the position as a Contract and Risk Manager, while the Husband was called to the Hong Kong Bar in the same year, went on to obtain his LLM from the X        College in London before returning to Hong Kong where he commenced his practice in 199  .

5.  On         1997 the parties registered their marriage and made their home in Tsuen Wan, and on          1999 the Wife gave birth to the elder daughter, D1 now aged 17, and 3 years later the younger daughter D2, on          2002 who is now aged 14.

6.  In 2003 the parties purchased 2 adjoining flats in x    xx  Terrace, Tsuen Wan for their matrimonial home with as noted above Flat C registered in the Wife’s name and Flat D in the Husband’s, with which they knocked down the adjoining walls and turned into a single home with 3 bedrooms to accommodate their family of 4 plus a domestic helper.

7.  The parties continued to work to support the family and in 2008 the Wife obtained her master degree, but notwithstanding their relatively good income it is common ground that they had lived frugally during the marriage which sadly became unravel one day on 28^th June 2011 when the Wife learned from their banker that the Husband had just withdrawn HK$1 million from his account, of which he admitted gifting to a female friend C who was subsequently to become his present girlfriend. On the following day the Husband packed his belongings and moved out of the matrimonial home to some rented accommodation, and eventually to his present rented apartment in Bel-Air Residence, Pokfulam, Hong Kong in September 2012 where he has been cohabiting with C.   

8.  On 1^st August 2013 the Husband commenced these proceedings for divorce based on the ground of the parties’ separation for 2 years since 29^th June 2011 upon which the decree nisi was granted on 3^rd October 2013, and at the 1^st Appointment Hearing on 21^st October 2013, the parties were also able to agree for the custody care and control of both daughters to be granted to the Wife and reasonable access to the Husband, and for the parties to exchange their Form E.       

9.  In his Form E filed on 18^th November 2013 the Husband disclosed a total income from his practice for the year of 2012/2013 of just over HK$3.2 million but more than double the year before at only HK$1.35 million, and thus a monthly average of about HK$273,000 at the time of his Form E. He also worked as a part-time university lecturer but the total income from that source is negligible at about HK$4,000 for the whole year.

10.  Apart from his joint interests with the Wife in Flats C and D X    x Terrace that made up the former matrimonial home and which he gave a total net value at HK$6.8 million, the Husband also disclosed bank savings of just over HK$1 million, some insurance policies worth about HK$368,000, and a MPF accumulated at just over HK$180,000, but he also claimed to have substantial debts and liabilities of more than HK$2.5 million including the outstanding mortgage of the former matrimonial home, thus giving him a total net worth of just over HK$2.5 million.

11.  For his monthly expenditure, the Husband put the total amount at just over HK$340,000, of which HK$67,140 were for his general household including HK$11,200 for the mortgage payment of the former matrimonial home, HK$269,370 for his personal expenses including almost HK$100,000 for his legal practice and HK$64,000 for his profit tax liability, and HK$6,450 for the daughters’ expenses but of which as will be apparent later that he has not been paying since July 2011. It is not in dispute that his post-separation spending reflects a much higher standard of living than that during the marriage, including HK$32,000 for renting his apartment, HK$10,000 for meals out of home, HK$16,000 for clothing and shoes, HK$35,000 for entertainment/presents, HK$18,000 for holidays, as well as a regular payment of HK$20,000 - $30,000 as pocket money for C, an item which he somehow did not include in his Form E but admitted later in his evidence that he has been doing so since C became his girlfriend in late 2011.        

12.  As for her Form E filed on the same date, the Wife disclosed an average income of about HK54,000 per month including double pay and bonuses, and in addition to her interest in Flat C of      Terrace she also disclosed about HK$1.68 million in bank savings and HK$1.3 million in MPF, and with no declared debts or liabilities, she revealed a higher net worth in excess of HK$6.3 million.

13.  For her monthly expenditure, the Wife claimed just over HK$20,000 on general household mainly on food and domestic helper as the mortgage payments and utilities for the matrimonial home were being directly paid for by the Husband, about HK$24,300 on her personal expenses and HK$15,300 on the daughters including their school fees, making her total expenditure for herself and the daughters at just under HK$60,000 per month.

14.  After the usual rounds of questionnaires and further disclosure, and after an unsuccessful FDR hearing before Judge Melloy on 13^th March 2015, the matter eventually came before me for trial upon the parties filing their narrative affirmation and setting out their respective Open Proposal revealing those major issues first mentioned at the beginning of this judgment with the following details, starting with the Husband’s which came first in time.            

Husband’s Open Proposal

15.  The Husband’s Open Proposal was first made in his affidavit of 21^st January 2015 [B/133] as set out in the exhibited draft consent summons [C2/295] and his subsequent letter of 18^th February 2015 [C2/398] which can be summarised as follows:

(a)   the Wife and 2 daughters to reside in the former matrimonial home for free until the younger daughter reaches the age of 21;

(b)   the Husband to continue to pay the outstanding mortgages of both flats until their discharge;

(c)   the Husband to pay the Wife nominal maintenance of HK$1.00 per annum until she dies or remarries whichever is earlier; 

(d)   each party to retain their own assets investments and properties in their own name possession or control, including for the Wife to keep Flat C and he is to keep Flat D, and upon the younger daughter reaching 21, the internal wall adjoining the 2 units shall be restored so that he can sell Flat D to fund the purchase of his own accommodation;

(e)   the Husband to pay the daughters’ past maintenance at HK$8,000 per month from 1^st July 2011 to Decree Absolute;

(f)   the Husband to pay HK$10,000 per month for each daughter for their future maintenance with annual adjustment for inflation until the age of 21 or ceases full time education whichever is later;

(g)   the Husband to pay for the daughters’ secondary and tertiary school tuition fees subject to his consent for them to pursue any overseas education outside Hong Kong and two round-trip economy class airfares for each daughter for each academic year of such full time overseas tertiary education;

(h)   the Husband to continue to pay for the premium of each daughter’s insurance policy until maturity date on 20^th November 2019;

(i)   Upon compliance of these terms all other claims of the parties for ancillary relief shall be dismissed.       

16.  As will be apparent below, some of these terms would either be slightly modified or accepted by the Wife by the time of the trial, but not all of course, and in particularly as to the former matrimonial home.

Wife’s Open Proposal

17.  The Wife’s Open Proposal was made on 8^th May 2015 [C2/404] which can be summarised below, and it was apparent that the parties were in fact not far apart in most areas, but as noted above with Flat D as the major stumbling block to an overall settlement:

(a)   that she and the daughters to reside in the former matrimonial home for free until the younger daughter reaches 21 or ceases full time education whichever is later;

(b)   the Husband to pay all outstanding mortgages of both Flats C and D until their discharge;  

(c)   the Husband to transfer Flat D to daughters at nil consideration upon the younger daughter reaches 21;

(d)   the Husband to pay her a lump sum of HK$500,000 for the children’s past maintenance dating back to July 2011;

(e)   the Husband to pay her HK$5,000 per month for her maintenance from 1^st June 2015 to 1^st June 2020;

(f)   the Husband to pay HK$15,000 per month as maintenance for each daughter until each reaches 21 or completes full time education whichever is later;

(g)   the Husband to continue to make payments on insurance policy for each daughter until maturity date and to pay for all their secondary and tertiary education expenses.  

18.  According to the Husband, the net effect of the respective proposal of the parties is that the Wife would receive 73% of the assets while the Husband would receive only 27% on the basis of the Net Effect Table in Appendix 1 (a) of his Closing Submission, whilst on the Wife’s proposal she would receive more than 100% of the assets according to the Net Effect Table at Appendix 1 (b) which he argues cannot be a fair outcome. On the other hand, the Wife argues that the Husband’s “Net Effect Tables” are unreliable and unfair in that they are not accurate representations of the parties’ respective net value and do not delineate the proper scope of the sharing claim, of which no doubt I will have more to say later in this judgment, but the upshot is that the parties were unable to reach agreement at the FDR Hearing before Judge Melloy, hence the ancillary relief application proceeded to trial before this court.   

19.  By the commencement of the hearing the parties were able to however narrow down further their differences when the Husband offered to settle the daughters’ past maintenance in arrears accumulated since 1^st July 2011 to the trial by capitalising them at HK$500,000 payable within 4 months of Decree Absolute, and a lump sum of HK$300,000 for the Wife’s maintenance at HK$5,000 per month for 5 years payable within 2 months of Decree Absolute in lieu of the nominal maintenance as a clean break between them, leaving essentially the following issues for the court’s determination:

(a)   Should Flat D be in the circumstances of the case transferred to the Wife instead of the daughters as she subsequently confirmed at the trial as part of fair division of the marital assets?

(b)   What should be the Husband’s monthly maintenance for the daughters?    

20.  The dispute over Flat D has as noted raised further issues, both factual and legal, such as the Husband’s future earnings and prospects of enhancement, and whatever they may be whether they can or should be taken into account or subject to the sharing principle, and whether his spending on his girlfriend should be added back into the marital pot or to be regarded as such a conduct which the court should not disregard.

21.  For the purpose of the trial of these issues, which were mainly uncontroversial as far as their factual matrixes are concerned, or even as to their applicable law and principles according to the Husband’s legal term, but when the parties proceeded to file their narrative affidavit setting out their respective case and then gave their evidence at the trial, the difference in the attitude and approach adopted by them to make out their case cannot be more telling or even striking.

22.  The Husband’s affidavit, which came first on 22^nd January 2015 [B/133-190] and which seems unsurprisingly a product from his own hands and design in view of his profession, ran to some 57 pages with 212 paragraphs of narratives including detailed historical background and information which were mostly uncontroversial, but were sadly also punctuated by what seems to me self-centred, self-serving and blame-shifting accusatory attempts to justify, for example, his post-separation lifestyle and spending or the current state of his income and career, of which I will no doubt have much more to say when I come to consider them later in this judgment.

23.  In telling contrast the Wife’s main affidavit [B/191-201], which was filed some 5 months after the Husband’s on 25^th June 2015, and despite being presented with a golden opportunity to retaliate with an equally lengthy ‘tit-for-tat’ narrative with her own share of fault-finding accusations in particularly given the way how her marriage was ended, a tactic sadly all too often adopted in this jurisdiction, but instead produced a much briefer 11 pages with 39 paragraphs of straight-forward ‘tell-it-like-it-is’ statement focused mainly on her own resources and needs and those of her children, and almost devoid of any emotion except how she felt devastated by the abrupt way the Husband ended their relationship, which was nevertheless still remarkably understated under the circumstances.

24.  The same can also be said about her evidence in court, of which Mr Todd for the Husband commented in paragraph 3 of his Closing Submission: “ ... Given the freedom of talking on her own, the Wife adopted a reasonable and considered approach to her evidence. Where she has been in error, she has admitted it. Where there were weakness in her case, she accepted them ...”         

25.  Again, no doubt I will have more to say about this, but it would first be relevant to set out the general principles applicable to ancillary relief applications, of which there seems to be little controversy between the parties, but not for those relating to the particular issues raised above, of which I propose to do so separately later in this judgment.       

General Applicable Principles

26.  In deciding on ancillary relief claims between the parties to the marriage, the court is required by section 7(1) of Matrimonial Proceedings and Property Ordinance, Cap 192 (MPPO) to have regard to the conduct and all the circumstances of the case including the following matters:

(a)   the income, earning capacity. Property and other financial resources which each of the parties has or is likely to have in the foreseeable future;

(b)   the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c)   the standard of living enjoyed by the family before the breakdown of the marriage;

(d)   the age of the party to the marriage and the duration of the marriage;

(e)   any physical or mental disability of either of the parties to the marriage;

(f)   the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(g)   in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefits (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.         

27.  The Court of Final Appeal has provided guidance on how this section 7 discretionary exercise should be undertaken in LKW v DD [2010] 13 HKCFAR 537 which is now well known to all but it would still be helpful to remind ourselves of the process set out in the judgment of Riberio PJ as follows, starting first with the 4 principles to be borne in mind when embarking on the exercise:

-       Objective of Fairness

-       Rejection of Discrimination

-       Yardstick of Equal Division

-       Rejection of Minute Retrospective Investigation

28.  I do not propose to go into the reasoning enunciated in the judgment behind these principles in which there is no controversy between the parties, other than to refer to the following points made by Ribeiro J:

“[52] Accordingly, the first point to be made in the present context is that the principles enunciated in this judgment are in the nature of guidelines. Financial provision applications are highly fact-specific and judges dealing with them must ultimately be guided by section 7 and the implicit aim of arriving at a fair financial outcome as between the parties.

[53] Moreover, the guidance given in this judgment cannot be and does not purport to be comprehensive. Thus, in Charman v Charman (No 4), referring to the guidance given in Whiteand Miller Sir mark Potter P noted that “there is no doubt that, under that guidance, the House has left much for the courts to develop”. The recent Supreme Court decision in Granatino v Rachmacher, provides an example of the courts working out the status of pre- and post-nuptial agreements against the background of the scheme laid down by White and Miller/McFarlane.”

29.  With these principles in mind, the court is then to undertake the following steps outlined by Ribeiro PJ in the judgment, whose reasoning for which I propose to set out in particularly those which I believe are apt to the issues raised in the present case:

“E.2 Step 1: Identification of the assets

[71] The first step in the exercise is to ascertain the financial resources of each of the parties calculated as at the date of the hearing. In particular, under section 7(1)(a), the court must have regard to “the income, earning capacity, property and other financial resources” which each of the parties “has or is likely to have in the foreseeable future”. The object will of course be to compute the net financial resources, taking account of all material liabilities. At this stage, the court need not attempt to distinguish between matrimonial and non-matrimonial property, that being an exercise best undertaken (if necessary) when considering distribution of the assets.

[72] The court should, as Sir Mark Potter P stated, carry out this first stage exercise “with whatever degree is apt to the case”. In White v White, reflecting the fourth principle discussed above, Lord Nicholls cautioned against turning the clock back to the pre-1970 position when the courts “often had to attempt to unravel years of matrimonial finances and reach firm conclusions on who owned precisely what and in what shares”. No such attempt is called for and generally, a broad brush approach will be all that is required...

E.3 Step 2: Assessing the parties’ financial needs

[74] The next step is for the court to assess the parties’ financial needs. As has been noted, the section 7 exercise often stops at this point since the total resources may be insufficient to go beyond or even to meet both parties’ needs. If so, no room is left for the application of any sharing principle. Addressing the needs of say, the wife and children may immediately absorb more than half of the total assets. If so, “needs” are, for want of any alternative, determinative. Where the assets are meagre, a “clean break” may not be possible and it may be necessary to have recourse to an order for periodical payments.

[75] The position is neatly summarised by Sir Mark Potter P in Charman v Charman (No 4) as follows:

“... when the result suggested by the needs principle is an award of property greater than the result suggested by the sharing principle, the former result should in principle prevail: per Baroness Hale in Miller at [142] and [144]. ... It is also clear that, when the result suggested by the needs principle is an award of property less than the result suggested by the sharing principle, the latter result should in principle prevail: per Lord Nicholls in Miller at [28] and [29] and Baroness Hale at [139].”

[76] This is an approach which should dispel the fear expressed in Figgins v Figgins, that “rule equality” is likely to work injustice where the assets are meagre.

[77] As section 7(1)(b) indicates, the process of evaluating “needs” involves assessing the financial needs, obligations and responsibilities which each of the parties has or is likely to have in the foreseeable future in the light of present and foreseeable resources. The matters referred to section 7(1)(c) to (e), that is, standard of living, age and disability, will often be relevant. As Lord Nicholls put it in White:

“Financial needs are relative. Standards of living vary. In assessing financial needs, a court will have regard to a person’s age, health and accustomed standard of living.”

[78] And in Miller/McFarlane his Lordship stated in respect of “needs”:

“When the marriage ends fairness requires that the assets of the parties should be divided primarily so as to make provision for the parties’ housing and financial needs, taking into account a wide range of matters such as the parties’ ages, their earning capacity, the family’s standard of living, and any disability of either party. Most of these needs will have been generated by the marriage, but not all of them. Needs arising from age or disability are instances of the latter.”

[79] Baroness Hale stressed that the parties’ needs should be “generously interpreted”. Accordingly, in trying to ensure that each party and their children have enough to supply their needs set at a level that equates, in so far as resources allow, to the standard of living they enjoyed during the marriage, those needs should not be assessed according to some perceived lowest common denominator, but with flexibility in the light of all the relevant circumstances.

E.4 Step 3: Deciding to apply the sharing principle

[80] If surplus assets would remain after the parties’ needs have been catered for, the next step in the exercise should generally be for the court to apply the sharing principle to the parties’ total assets, leaving the ‘needs: question previously considered to be dealt with under that principle (as pointed out by Sir Mark Potter P in Charman v Charman (No 4) cited above. In other words, the court should not make an immediate allocation but should return to “needs” for them to be dealt with alongside all other material factors in the processes described below as Steps 4 and 5.

[81] In B v B (Ancillary Relief), Hughes LJ summarises the purpose of the sharing principle, with the yardstick of equal division seen as part of such principle:

“The sharing principle gives rise to the general proposition that no distinction is to be made, when considering the contributions of the spouses to the marriage (section 25(2)(f)), between monetary and non-monetary contributions. Thus there also follows the requirement to test the outcome of the exercise against the yardstick of equality, and to depart from it only if and to the extent that there is a good reason for doing so: see lord Nicholls in White at 605f. Lord Nicholls there expressly adverted to the fact that, more often than not, it is necessary to depart from it ... The importance of the ‘yardstick of equality’ is twofold. First it underlines the necessity not to treat financial contributions differently from those in non-monetary form. Second, it underlines the essential fairness of equal division in a large number of cases of shared matrimonial life.”

[82] The point reached at this third stage of the section 7 exercise therefore involves the court deciding that the sharing principle applies unless there is good reason, capable of articulation, for departing from an equal division. It is worth emphasising, however, that as pointed out by Lord Nicholls, the court will often ultimately not arrive at an equal division.

E.5 Step 4: considering whether there are good reasons for departing from equal division

[83] The fourth step therefore involves considering whether good reasons exist for departing from the principle of equal division. Any such departure means increasing or reducing one party’s share and correspondingly reducing or increasing the share of the other. the question for the court is whether the balance ought to be shifted from a point of equality to some other point in the circumstances of the case. This is necessarily a complex question which raises a range of separate issues.

[84] What then are potentially good reasons for such a departure? The answer is to be found in the terms of section 7 and the implicit objective of a fair distribution of the assets. Any of the matters listed in paragraphs (a) to (g) of section 7(1) may provide an appropriate reason, as may the “conduct of the parties” and “all the circumstances” referred to in section 7(1). The catch-all category of “all the circumstances” makes relevant any matter which bears on the fairness of the financial outcome in a matrimonial context.

[85] It is impossible to stress that while such factors, individually or cumulatively, are potentially capable of resulting in a departure from an equal division, a finding that one or more of those factors are engaged does not necessarily mean that a departure must occur. The weight to be given to such factors is in the court’s discretion to be exercised in Step 5 as described in Section E.6 below. It cannot be over-emphasised that the matter is fact-specific and discretionary. The sharing principle must not be mechanically applied.”     

30.  It is with these principles and guidance in mind, in particularly relevant to this case of those under Step 4 stated above, I now start the section 7 exercise by first identifying the matrimonial assets, from which as noted above arose the 1^st major issue between the parties over whether those cash payments by the Husband to his girlfriend should be added back.

Identification of Assets

31.  As noted above, the main asset is the former matrimonial home comprised of Flats C and D held separately and respectively by the Wife and Husband, and separately valued at HK$5,370,000 and HK$5,560,000 respectively but somewhat higher at HK$11,520,000 as a complete unit, and subject to any add-back of those cash given by the Husband to his girlfriend, and not putting any capitalised value on his earning capacity, the so-called matrimonial pot is in the main non-controversial on the basis of either the Wife’s Opening Submission [§20 p6] or the Husband’s Closing Submission [Appendix 1(a) & (b)], and which I set out below:

Assets	Husband (HK$)	Wife (HK$)
Matrimonial Home:	Flat D: $5,560,000	Flat C: $5,370,000
Cash in Bank:	$1,094,260	$1,515,524
Insurance Policies:	$368,024	$312,951
Personal Items:	$5,000	$20,000
Pensions/MPF:	$180,261	$1,622,484
Total Assets:	$7,207,546	$8,840,959

32.  Setting this off against the parties’ disclosed liabilities including the outstanding mortgages for the 2 flats and the parties’ income tax and other liabilities totalling just under HK$2 million would bring the total net value of the matrimonial pot down to about HK$14.6 million, which then brings me to the issue of whether the Husband’s cash gifts to his girlfriend C should be added back to the matrimonial pot for distribution.

Husband’s Cash Gifts to C

33.  The Husband has admitted to gifting the following sums to C, allegedly both before and after she became his girlfriend:

(a)   HK$1 million on 28^th June 2011 before he moved out of the matrimonial home on the next day;

(b)   HK$200,000 several months thereafter;

(c)   Monthly sums of HK$20,000 - $30,000 as pocket-money since their cohabitation.

34.  It is the Wife’s case that these amounts are significant and even extravagant especially when juxtaposed against the frugal lifestyle thitherto adopted by the family, and the HK$1 million gift which was made pre-separation and clearly matrimonial property must be accounted for. Insofar as the sum of HK$200,000 and monthly pocket-money are concerned, she submits that such spending of the Husband were most likely from matrimonial property as well, and is in any event conduct “so obvious and gross that it would be inequitable to disregard” and should be added back as they were “reckless and extravagant”.

35.  Mr Man for the Wife submits that there are two ways which the court may approach these gifts by the Husband either to depart from equal distribution of assets in the Wife’s favour, as per ARAV v VP [2011] 3 HKLRD 759; MKKWH v RKSH CACV 197/2012; Mimi Kar Kee Wong Hung v Raymond Kin Sang Hung [2014] 17 HKCFFAR 585; or by adding back these sums to the matrimonial pot for distribution as per Norris v Norris [2003] 1 FLR 1142, Vaughan v Vaughan [2008] 1 FLR 1108.

36.  In the case of ARAV v VP, where the parties set up a family business known as BT of which they were equal shareholder, drawing a monthly salary and sharing the declared dividends during the marriage, but unbeknownst to the wife the husband formed another company FC and when their family business collapsed, the wife alleged that was because the husband had secretly transferred HK$32.5 million in loans, trade debts and outstanding commissions from BT to FC, and in the ancillary relief proceedings pursuant to their divorce, the court found that the matrimonial assets totalled HK$65 million for distribution between the parties, but declined the wife’s request to add back the HK$32.5 million to the matrimonial pot to reflect the husband’s ‘underhand’ and “deliberate” misconduct, noting that his undertaking to account for any sums retrieved had dealt with any residual concerns the wife might have.

37.  In dismissing the wife’s appeal, the Court of Appeal held that where a spouse had frittered away assets by extravagance or reckless speculation, the court could take into account in ancillary relief proceedings by notionally adding back the value of such assets to that spouse’s matrimonial assets, and by doing so, the reckless spouse was deemed still to have those assets to be shared with the other spouse, but reckless financial conduct covered a wide spectrum of behaviour and would be highly fact sensitive, and that a finding of misconduct would not inevitably lead to the reattribution of assets to the pot, as Cheung JA commented on misconduct to be regarded as a factor in ancillary relief proceedings:

“[4] The wife argued that the division is incorrect because of the misconduct of the husband and HK$32.5 million frittered away by the husband should be added back to the total assets.

[5] Section 7(1) of the Matrimonial Proceedings and Property Ordinance (Cap 192) expressly provides that the exercise of the court’s power in relation to financial provisions, is to have regard to the conduct of the parties and the circumstances of the case.

[6] In LKW v DD [2010] 6 HKC 528 the Court of Final Appeal (per Ribeiro PJ) held that:

‘[104] Conduct, or more accurately negative conduct, is therefore only to be regarded as a material factor if it is “obvious and gross” in the sense explained in Wachtel v Wachtel or, which comes to the same thing, if it is such that it would in the opinion of the court be inequitable to disregard it.’

[7] The conduct may be in many forms. The wife relied on financial misconduct of the husband. If conduct (which must be obvious and gross or inequitable to disregard) is one of the factors to be taken into account, then obviously the Court is not hamstrung in the precise way in which it will recognise this factor. Where the misconduct involves the wastage of the matrimonial assets, one way is to order the wasted funds to be added back to the joint assets before the Court makes the distribution: Rayden & Jackson on Divorce and Family Matters (18^th ed., 2005) para.16.54 and Norris v Norris [2003] 1 FLR 1142. However, in my view, that is not the only way to give recognition to misconduct. Another approach which is consistent with the Court’s power to achieve what is fair to the parties is to depart from the yardstick of equal division and equal sharing principle as explained by Ribeiro PJ in LKw v DD at para.58-61.

38.  In the present case, whilst the Husband does not dispute his payments to C, it is his argument that they were part of his normal spending post-separation which are no different from those of the Wife and hence should not be taken into account in considering the ancillary relief application, hence it would be relevant to first consider how and why he came to make those payments in particularly the sum of HK$1 million, of which he explained in his narrative affidavit [B/156]:

“[92] In 2010, a good friend of mine C who was then a practising barrister in Hong Kong was accepted by the         School for Design in New York, U.S.A. (“          ”) into their Interior Design program. However, because of the lacks of funds for full-time tuition and living expenses, she deferred the enrolment to the following year. At the time, C was dating ... and I thought he would be helping her, but subsequently I found out that he did not. In the summer of 2011, I decided to help her out. I told C that she could pay me back in due course.

[93] On 28^th June 2011, I transferred HK$1 million to C from my STC Bank account in order to help her with her plans to study abroad at parsons. I then informed W, as my wife at the time, of the bank transfer transaction on the same day. I had not disclosed this confidential fact to anyone except to W and C prior to the mandatory disclosure requirement in Form E filed on 18^th November 2013 by me (“Petitioner’s Form E”). Furthermore, I had not authorized anyone and/or given consent to anyone to disclose this confidential fact of the transfer of HK$1 million to C by me to anyone and I had not waived my right to confidentiality. W and I had a big quarrel over my decision to help C and W and I separated on 29^th June 2011. The fact of the transfer of HK$1 million was not mentioned between W and me until the present proceedings in correspondence exchanged the parties and documents filed into Court. As a result of my predicament, C decided to stay in Hong Kong and to forego her plan to study at         . C and I started dating in about late 2011 and I told her to keep the HK$1 million.”

39.  The Husband then went on to admit that he did give C another sum of HK$200,000 after they started dating, and a monthly sum of HK$20,000 - $30,000 for her pocket money since their cohabitation. It is against these evidence of his that Mr Todd submits that the Husband making gifts or payments to his girlfriend and spending on the person he loves is no more egregious than the Wife’s spending on the church which she loves, and as they both kept their finances independent of one another, they both felt entitled to indulge their respective passions, and while it is profoundly upsetting for the Wife to know that the Husband is supporting his unemployed girlfriend, it is not an actionable conduct of which the Wife has failed to establish not only that it is unreasonable but that it is the sort of misbehaviour which fits into the vanishingly small category of misconduct cases, as there is nothing wrong for a party, post-separation to spend some of their resources on their new girlfriend, and Mr Todd asks rhetorically this question: Would an ordinary reasonable individual have a sharp intake of breath if they heard a man was spending money on his girlfriend or a woman was gifting a tenth of her income to the church? Of course not, he proffered his answer.

40.  With respect, and I say straight away, it is neither fair nor proper to take the Wife’s donations to her church of a few thousand dollars each month, a practice which she as a devout Christian (as described by the Husband) had been doing regularly throughout the marriage, and which was something well known to the Husband and most likely with his implicit understanding or approval, and to compare it with the Husband gifting of HK$1 million, which was almost half his entire savings at that time [C2/263] and without any prior discussion with his spouse, to a fellow practising barrister who later turned out to be his girlfriend. Even assuming what the Husband said about the circumstances of this payment is true, in my view these two spending of the parties simply cannot and should not be mentioned in the same breath, sharp intake or not.

41.  It is in fact worth noting that whilst the Husband in his affidavit never admitted that when he paid the HK$1 million to C, that it was a gift but only to help out a friend and that he did tell her that she could pay it back in due course, and that it was later when they started dating in late 2011 that he told her to keep the money as referred above, yet as pointed out by Mr Man for the Wife, this seems inconsistent with his earlier Answer to her Second Questionnaire dated 8^th April 2014 where he did refer to that payment as a gift, in fact not just once but twice when he stated: ”... the Petitioner wished to help out his friend and therefore gifted her the sum of HK$1,000,000 on about 28 June 2011. On the same day, the Petitioner told the Respondent about this gift. As a result, the Petitioner and Respondent separated on about 29 June 2011 ...” [B/66].     

42.  While the Wife might not have stated in so many words, it is clear to me that she did not believe the Husband’s evidence in his affidavit as to his payment of the HK$1 million to C or of their relationship at that time, of which she said this in her narrative affidavit [B/193-194]:

“[11] On 28 June 2011, a bank staff of Standard Chartered Bank telephoned me asking me to confirm whether the Petitioner actually wanted to transfer a large amount of money his bank account ... to a third-party. Upon my asking the Petitioner later that evening, he told me that he had transferred HK$1 million to his girlfriend. This was the first time that the petitioner had admitted to having an affair.

[12] The day after, on 29 June 2011, the Petitioner packed up his belongings and moved out of the FH deserting myself and his daughters. This put an abrupt end to our marriage of 14 years.

[13] I was utterly devastated at the cruel and abrupt way the Petitioner had put an end to our relationship and family. At the time, I was still in love with the Petitioner, and finding out about his extra-marital affair was a huge shock to me. What especially pains me is how he had gifted such a large amount of money to his paramour, whilst our family had to live in frugality all throughout the marriage.”   

43.  Under these circumstances I agree that the Wife had every right to feel not just upset but also betrayed, which according to the Husband led to a big quarrel between them, but if C was indeed not a girlfriend at that time and that the Husband was merely helping a good friend in need, why did he choose to move out the next day to live apart from the Wife and his daughters for good? In fact there are other questions about his evidence over this issue that should have been clarified during the trial when the Wife did make it clear, if not earlier but at least by the time of her Opening Submission, that this and other payments to C were to become the heated subject of add-back, hence it was pertinent for him to clarify the circumstances around these payments, such as why C who was then a practising barrister had not thought it through about her financial ability to study abroad before actually making her application for enrolment, or why he would later allow her to keep the HK$1 million when she decided to forego her plan as a result of “his predicament”, and what predicament was he referring to? The Husband never did clarify, or clarify adequately.

44.  If he was in fact referring to the alleged breach of confidentiality about this payment detailed in his same affidavit under a later topic of “WRONGFUL DISCLOSURE OF MY CONFIDENTIAL INFORMATION BY W AND/OR HER LEGAL REPRESENTATIVES TO OTHERS” in which he accused the Wife and/or her lawyers to have wrongfully disclosed to third parties various confidential information from his Form E and other documents filed in these proceedings including this payment to C that had caused damage to his career including the rejection of his earlier application for appointment to be a senior counsel in late 20      [B/182-188], then I fail completely to see how that could have caused C to forego her plan.       

45.  Whilst his counsel has refrained from raising such accusation at the trial, quite properly so if I may add, whether as a misconduct against the Wife or as justification of what he claims to be limitations to his future earnings or career prospects, of which I will no doubt have much more to say later in this judgment, but the point is that even if his allegation is true, which was as noted never dealt with in court during the trial, it could only take place after he had filed his Form E in November 2013, and I fail to see how that “predicament” of his could have caused C to come to such a decision 2 years earlier in 2011?

46.  Whatever the case may be in respect of the Husband’s payments to C, Mr Todd argues that it is not actionable conduct, as it is for the Wife to show conduct which is inequitable to disregard, i.e. to show an element of “wantonness” (Vaughan), “reckless frittering” and “extravagance”, or that it was conduct “so obvious and gross that it would be inequitable to disregard” (ARAV), and that where it was needed as C had no income, then it cannot be reckless (MKKWH). Is it legitimate, Mr Todd asks, for a party, post-separation to spend some of his resources on his new girlfriend? He submits that the Wife has to establish not only that it is unreasonable but that it is the sort of misbehaviour which fits into the vanishingly small category of misconduct cases.   

47.  Ultimately the question must be whether the Husband’s payments to and spending on C should be taken into account by the court in these proceedings, and if so, how? In Norris v Norris [2003] 1 FLR 1142, where the wife sought a lump sum from the husband on the basis of a clean break upon the dissolution of their 23 years marriage, by which time the husband was having an affair with another woman Q with whom he later cohabited and had 2 children. The wife’s current assets amounted to over £3,600,000 including significant inherited assets and the former matrimonial home which the husband had already transferred his half-share in the property to her, while his assets including pension fund were approximately £4,160,000. The wife argued that the husband’s recent habit of spending more than he had earned should be taken into account, and that his total overspend of about £350,000 should be added back to his assets, and that she was entitled to more than half the entire matrimonial assets. In ordering the husband to pay the wife a lump sum of £360,000, Bennett J held that while a spouse could spend his money as he chose, it was only fair to add back into the spouse’s assets the amount by which he recklessly depleted the assets and thus potentially disadvantaged the other spouse within ancillary relief proceedings, and as the scale and extent of the husband’s overspend since the separation had been reckless, £250,000 would be added back into his assets so that his reckless expenditure did not disadvantage the wife.

48.  Most of the husband’s overspend were found to be on Q including expensive jewellery, of which Bennett J said:

“[44] The husband has spent lavishly on jewellery for Q to the tune of £30,000, including a ring for £19,500. The husband has already accepted that Woodlands House jointly owned by him and Q should be treated as his, similarly to Q’s premium bonds. One might ask – and why not the jewellery? Why should that be put into a special category, bearing in mind that it was bought at a time after the marriage had broken down? Why give her such expensive jewellery when he could have spent far less and thus depleted his assets less? In my judgment, there is no answer to the argument that the jewellery at £30,000 should be put back into the husband’s assets.”

49.  As for the husband’s obligation to support Q and their 2 young children, Bennett J said this:

“[45] Of course, the husband does have these obligations. However, in this case, there is more than enough money on the husband’s side, even if he has to pay a lump sum to his wife, for him to comfortably support Q and their children. The husband chose to enter into that relationship and to have children. To say to the wife that after such a long marriage she must be at risk of taking less out of the marriage because the husband, a wealthy man, has chosen to incur the responsibility of living with and supporting another woman and their children is, put simply, unfair.”

50.  He then arrived at his conclusion over the husband’s overspend at §77:

“The overspend, ie the expenditure over income of £350,000 in a little over 2 years, at a time when he was about to and then did enter into protracted litigation with the wife, can only be classified as reckless, and particularly at a time later on when the dot.com and the stock market collapsed. A modest overspend in the context of a rich man would be understandable and could not be classified as reckless. But in the circumstances of this case, as I have set them out, in my judgment, the scale and extent of the overspend was reckless. I do not think it appropriate to add back the entire overspend, but I do not consider it unfair to add back into the husband’s assets the figure of £250,000. In my judgment, there is no answer that the husband can sensibly give to the question, ‘Why should the wife be disadvantaged in the split of the assets by the husband’s reckless expenditure?’ A spouse can, of course, spend his or her money as he or she chooses, but it is only fair to add back into that spouse’s assets the amount by which he or she recklessly depletes the assets and thus potentially disadvantages the other spouse within ancillary relief proceedings.”

51.  In Vaughan v Vaughan [2008] 1 FLR 1108, where the husband suffered a serious depressive illness following the breakdown of the marriage, leading to his suspension as a pilot and loss of his pilot’s licence. Between the separation and the ancillary relief proceedings he dissipated a large sum gambling away and wasted over £80,000. The district judge found his conduct ‘bizarre and inexplicable and, objectively, profoundly irresponsible’, but did not reattribute any sums to the husband, observing that there were apparently no legal principles to be applied. The judge went on to assess the matrimonial assets and awarded the wife 60% of the family capital but did not include the capital value of the parties’ adjusted pension rights. Both parties appealed the district judge’s order. In allowing the appeal, the Court of Appeal reaffirmed the principle of reattribution applied in Norris and held that it was appropriate to reattribute a sum to the husband in view of his dissipation, as Wilson LJ stated at §14 of his decision:

“Such was a rare legal error on the part of the district judge. Miss Ward tells us that it was curious that he should refer to an absence of legal principles in that she and counsel for the husband had referred him to a recent example of such reattribution, namely Norris v Norris [2002] EWHC 2996 (Fam), [2003] 1 FLR 1142. Although such was a decision at first instance, it is the last in a line of authority which stretches back to the decision of this court in Martin v Martin [1976] Fam 335 that, in the words of Cairns LJ, at 342H:

‘a spouse cannot be allowed to fritter away assets by extravagant living or reckless speculation and then to claim as great a share of what was left as he would have been entitled to if he had behaved reasonably.’

The only obvious caveats are that a notional reattribution has to be conducted very cautiously, by reference only to clear evidence of dissipation (in which there is a wanton element) and that the fiction does not extend to treatment of the sums reattributed to a spouse as cash which he can deploy in meeting his needs, for example in the purchase of accommodation...”   

52.  These 2 approaches of adding back of specific sums as in Norris and Vaughan, or departure from equal distribution as in ARAV, were considered by our Court of Appeal in MKKWH v RKSH [2013] HKFLR 540, where the parties had been married for 37 years and built up a successful business together which was listed in the Hong Kong Stock Exchange, and although the husband subsequently left the marital home in 1999 the parties remained involved in the business. In their divorce and ancillary relief proceedings in 2010 the judge of first instance ordered a general 50/50 split of the assets between the parties with value in excess of HK$1 billion, the wife appealed on a number of counts, including one that centred on the conduct of the husband and his substantial payments to his mistresses and their children over the years, and argued that there should be an add back of some HK$71 million for distribution.         

53.  In allowing the wife’s appeal in respect of the claw back provision but dismissing the one on adding back, Cheung JA stated the court’s approach to those payments of the husband to his mistresses and children which were described as non-marital expenditure and which formed the basis of the wife’s claim for unequal distribution as follows:

“[52] ... Counsel for the wife in both of his opening and closing submissions had identified the non-marital expenditure by the husband to his three other families as the basis of the wife’s claim for unequal distribution. The underlying ethos in ancillary relief is to achieve fairness. The position is made clear by Ribeiro PJ in LKW v DD [2010] 13 HKCFAR 537 at 551:

’24. Without the target provision it is natural to assume that a fair financial outcome must be the implicit statutory aim. As Lord Nicholls of Birkenhead pointed out in White v White :

“This tailpiece was later deleted from the legislation, and nothing inserted in its place. In consequence, the legislation does not state explicitly what is to be the aim of the courts when exercising these wide powers. Implicitly, the objective must be to achieve a fair outcome. The purpose of these powers is to enable the court to make fair financial arrangements on or after divorce in the absence of agreement between the former spouses ...”

25. In Cowan v Cowan, Thorpe LJ referred to Lord Nicholls’s view as “the almost inevitable judicial conclusion that the unexpressed objective of the exercise is to imagine that the legislature might have intended the courts to reach an outcome which is other than fair.”

[53] The non-marital expenditure clearly has an impact on the issue of fair distribution. Family practitioners (particularly of the calibre of the husband’s counsel) must be aware that, within the narrow confine of ancillary relief, conduct is relevant to the question of extra marital expenditure. Conduct is one of the express factors to be taken into account under section 7(1) of Matrimonial Proceedings and Property Ordinance (Cap. 192). It was open to the husband to canvas the issue at the trial.

[54] Further this Court held in ARAV v VP [2011] 3 HKLRD 750 at paragraph 7 that if conduct is one of the factors to be taken into account then the Court is not hamstrung in the precise way in which it will recognize this factor. Hence the Court can either add back the wasted fund to the joint assets before distribution or it can depart from equality in the distribution. ARAV is an example where there was departure from equality because of a spouse’s financial misconduct. Examples of adding back by reason of a spouse’s financial misconduct can be found in Norris v Norris [2003] 1 FLR 1142 and Vaughan v Vaughan [2007] 3 FCR 533. See also Rayden’s matrimonial Finance 9^th ED. Para 3.71. Although BJ v MJ [2012] 1 FLR 667 at paragraph 51 described re-attribution as a process of penalisation and should be applied cautiously and truly where the dissipation is demonstrably wanton, it is nonetheless a well recognized approach.

[55] In this case the Judge found that there was no ground for departure from equality. He held that:

’31. In closing, Mr Pang has quite properly abandoned the point about the wife not owning a home. He has now set out his stall on the basis that the husband has had far greater remuneration from the company and that this would therefore justify more going to the wife on a capital distribution. He has somewhat amended this heading by describing it as “Inequality of Post-Separation Spending”.

32. What the submission comes to is that since the separation in 1999 the husband has received more from the company which he has spent, to a significant extent, on his subsequent families. I have seen a figure of $28 million put forward as the amount that he has spent on maintenance and educating his two other families.

33. In relation to this, it should be remembered that whilst the husband may well have drawn more from the company this is justified by the fact that in the post-separation period, certainly till 2010 or even early 2011, he has played the far greater role in its operation, added to which, as Mr Yu correctly points out, he has put back a great deal of money into the company in subscribing to a rights issue by ADHL. Had he not done so the family’s controlling shareholding would have been diluted and control may well have been lost.

34. In respect of the new aspect to this justification, relating to post-separation spending, what Mr Pang says is that had the husband not spent these substantial amounts on funding his subsequent families, these amounts would now form part of the matrimonial assets.

35. It seems to me that the correct response to this is to be found in the fact that post-separation the husband was perfectly entitled to behave in a way that he did. Life goes on and, relative to the assets in this case, the amounts spent were not inordinately or recklessly high, nor were they spent on trivial matters. Looking at everything in the round, the husband more than did hid fair share in earning his way by taking all at the important and difficult decisions in the operation of ADHL.

36. Therefore, my conclusion is that Mr Pang must fail in this submission. There is simply no valid reason top depart from a 50:50 split. Notwithstanding the hitherto disastrous course of this litigation and the consequently massive costs incurred, there is still a very large asset pool to fund a secure, and indeed luxurious, way of life for these parties for the rest of their lives.’

[56] Clearly both the husband and the Judge were aware of the issue at stake and the husband had put forward arguments against this claim (which was in a different form but not in substance). In my view the wife is entitled to pursue this point on appeal.

[57] The law is clear that the relevant date of assessing the financial position of the parties for the purpose of ancillary relief is the date of trial or appeal (Cowan v Cowan [2002] Fam 97 at para 70). The wife’s reliance on the period between 1999 and 2012 is because the available evidence identified the expenditure from this period of time. The husband’s Form E (dated 3 March 2010 and 30 June 2011 respectively) and his oral evidence confirmed the expenditure from this period of time. I do not see any contradiction in term of principle.

54.  His Lordship however reminded himself of LKW’s disapproval of the court indulging parties in post mortem investigations as to their failed marriage or conducts in ancillary relief proceedings that tend to be costly and time-wasting but otherwise serve no useful purpose:

[58] LKW at paragraphs 62-69 disapproved a minute retrospective investigation of the failed marriage in order to laud a party’s contribution or denigrate that of the other party. The same sentiment must of course apply to the issue of misconduct where one party relies on misconduct to justify a departure from equality. As Coleridge J said in G v G (Financial Provision : Equal Division) [2002] 2 FLR 1143 at 1155 ‘What is “contribution” but a species of conduct? ...’ (adopted by Baronese Hale of Richmond in Miller v Miller [2006] 2 AC 618 at paragraph 146).

[59] In LKW, the Court of Final Appeal has stated that the relevant conduct must be obvious and gross or inequitable to disregard [paragraph 41]. The Court of Final Appeal then reminded us :

‘100. However, the courts have recoiled from permitting the parties to indulge in a post mortem of their marriage in order to find fault with each other or to air “their mutual recriminations and go into their petty squabbles for days on end.” As Sir George Baker P stated in Campbell v Campbell, “ ... everything should be done by the court to avoid costly, indecent and time-wasting investigations” regarding conduct in relation to ancillary relief proceedings. Otherwise the court will be faced with “ ... a lengthy, costly and , most likely, pointless investigation stretching over days, when allegations and counter-allegations are made by the ex-spouses or spouses, one against the other.” These sentiments are just as pertinent today and are reflected in the fourth underpinning principle referred to above.’

[60] And at paragraph 131 it is stated that the decision is fact-specific and discretionary :

‘E.6 Step 5: Deciding the outcome

131. It is worth reiterating that, having gone through the processes I have compendiously called “Step 4”, the court is not bound to depart from equality in the division of the parties’ assets even if one or more of the factors considered are engaged on the facts. The weight to be given to such considerations is a matter of discretion for the court. Stepping back and looking at the overall impact of the factors found to be relevant, the court may decide that certain factors carry such weight that a departure from equality is called for. The decision is fact-specific and discretionary. But where there is a departure, the court should explain its basis since the articulation of reasons provide a useful check on the fairness of the outcome.’   

55.  His Lordship went on to consider whether in principle non-marital expenditure should be added back, and if so how in each case justification for adding back is facts-specific and ultimately an issue of fairness for the court’s consideration:

“[61] The facts of each case are different. The wife in the Court below and here is not asking the Court to examine the history of the husband’s philandering as a cause of the breakdown of the marriage. She simply invited this Court to look at the husband’s own evidence which disclosed these expenditures. Hence it is not strictly a situation envisaged and disproved by LKW. The real issue is whether, first, as a matter of principle the non-marital expenditure should be added back and second, on the existing evidence an adding back of the non-marital expenditure is justified. In Norris the husband’s gift of jewellery to his mistress valued at £30,000 was ordered to be added back to the husband’s assets. The issue of fairness was considered. Bennett J held that ... (see above)

[62] In Norris the husband had moved in with the mistress and had two children. In respect of the husband’s obligations to her and the children, Bennett J held that ... (see above)

[63] Mr Yu submitted that Bennett J was referring to the future and not to the past expenditure already incurred by the husband. That may be so but the real point is that Bennett J considered the issue of fairness.

[64] In H-J v H-J (Financial Provision: Equality) [2002] 1 FLR 415, the parties were married for 25 years. The husband had association with another woman and a son Samuel was born of their relationship. Coleridge J refused to make allowance for the provision of Samuel in the financial provision of the wife. He also refused to add back the money spent by the husband on Samuel. He held at 428 that:

‘ In cases where every pound has to be considered and weighed in the division between the parties, of course, by necessity and in the real world, it is necessary to ensure that there is enough money to go around for all. But where, as here, there are sufficient resources whether you split them 45/55 or 50/50, it is not, in my judgment, necessary to make allowance in the calculation for the figures that the husband contends for in relation to Samuel. The assumption of this liability is entirely the husband’s choice, and , in my judgment, principally his sole responsibility. To ask the wife, in effect, to take less and/or share in the cost of supporting this further child cannot, I say straight away, in my judgment, be fair. In cases of this kind I think it would normally be wrong in principle to include in calculations liabilities to children from further relationships. I am not prepared to take those into account here.

However, by the same token, nor am I prepared to add back the costs that have already been expended by Mr H-J. I see the force of the argument, but at the same time they were incurred, in my judgment, they were reasonably and honestly incurred, and again, chaos will reign in these cases if adding back generally is allowed as part of the mechanism except in exceptional cases.’ (emphasis added)

[65] It is not necessary to come to a view on whether Coleridge J was correct or not on his refusal to add back. Cases like this depend very much on their facts. It is, after all, an exercise of discretion. The point to make is that Coleridge J recognised the issue of fairness and adding back in exceptional cases.

[66] The Court is of course not a court of morals. If the husband chose to be a philanderer and have mistresses and children born from these relationships, it is not for the Court to condemn his behaviour as being immoral. But when these activities caused funds (which should be in the matrimonial pot) to be depleted, then clearly the Court is entitled to ask whether unfairness has been caused to the other spouse because of the non-marital expenditure. If this matter is considered under the ambit of conduct, then one has to examine whether the financial misconduct by way of depletion of the matrimonial funds (and not the husband’s moral conduct in respect of his association with other women) is obvious and gross or inequitable to disregard. The amount, the duration and the number of non-marital relationships involved are some of the relevant considerations. The distinction may be a fine one but nonetheless a real one. The reliance by the husband of comments in Roberts v Roberts [1970] P1 that ‘... no hard and fast line can be drawn between “legal” and “moral” obligations ...’ is not helpful and does not advance his case. When the Court referred to ‘wanton’, ‘reckless’ or ‘extravagant’ financial conduct or ‘wastage’ of matrimonial assets, they are merely descriptions or illustrations of conduct which fulfilled the threshold requirement. These terms do not constitute separate categories of misconduct. This does not require elaboration.”

56.  In reaching the conclusion that there would not be adding back of the husband’s non-marital expenditure in the circumstances of this case, His Lordship explained:

“[67] In principle, I find Mr Fung’s submission that the wife should not subsidize the expenditure spent on the husband’s non-marital families from her share of the matrimonial pot to be indefensible. This non-marital expenditure is not compatible with the principle of fairness. A comparison with examples like the expensive hobbies of a spouse is simply not appropriate. As Lord Nicholls of Birkenhead said in Miller v Miller at paragraph 9:

‘9. The starting point is surely not controversial. In the search for a fair outcome it is pertinent to have in mind that fairness generates obligations as well as rights. The financial provision made on divorce by one party for the other, still typically the wife, is not in the nature of largesse. It is not a case of “taking away” from one party and “giving” to the other property which “belongs” to the former. The claimant is not a supplicant. Each party to a marriage is entitled to a fair share of the available property. The search is always for what are the requirements of fairness in the particular case.’

...

[69] A further difficulty is about the assessment of the evidence. The available evidence is extremely brief and the Judge had not made findings on the individual items. The individual items can be divided into two categories. The first not being related to the husband’s non-marital families and the second related to those families.

[70] In respect of the first category, there are the donation to the university and the graduation gift to M. On appeal, this Court is placed in an almost impossible position to find such expenditure amounts to financial misconduct on the part of the husband simply by its size and nature. One also has to bear in mind that M is the natural son of the husband and wife.

[71] In respect of the second category, the amount spent on the first family is about $7.9 million, the second family about $26.9 million and the third family about $28.8 million. In terms of the expenditure spent on these three non-marital families, a distinction has to be drawn between the first two families and the third (i.e. the current) family. In respect of the current family, the husband’s association with B began after the parties’ separation and the decree nisi. Other than the formal decree absolute, the husband and wife were by then leading separate lives. The husband’s expenditure is not strictly a financial misconduct during marriage situation.

[72] As to expenditure on the first two families, while I accept, in principle, that it is unfair to the wife and may amount to financial misconduct and is an appropriate case should be added back to the joint assets, however, I do not find the Judge’s decision to be plainly wrong when he refused to make adjustments in equal distribution. While the Judge was in error on the number of companions and children the husband has had outside the marriage, this is not something so fundamental as to vitiate his exercise of discretion. More importantly he had properly regarded the contribution of the husband in the post separation period. Despite the force of Mr Fung’s submission, with reluctance, I will not add back the expenses.”  

57.  Sitting in the same Court and whilst agreeing with Cheung JA’s conclusion, Lam VP found it necessary to examine the relationship between the two routes to achieve fairness in dealing with non-marital expenses at the beginning of the judgment:

“[1] Subject to what I shall say below, I respectfully agree with the judgment of Cheung JA which I have read in draft. In respect of the adding-back of non-marital expenditure, I would arrive at the same result by a different route. There are two alternative ways to achieve a fair result in dealing with non-marital expenses.

(a) Adding back of specific sums as in Norris and Vaughan;

(b) Departure from equal distribution as in ARAV.

No matter which route one pursues, the ultimate goal is to achieve fairness.

[2] In the context of ancillary relief, bearing in mind the stricture against costly, indecent and time-wasting post mortem, only conduct which is so obvious and gross that it would be inequitable to disregard may (but not must) require adjustment on account of fairness.

[3] No matter which route one is pursuing, fairness should lead to the same result in terms of whether any adjustment should be made.

[4] Thus, not every item of non-marital expense can be added back even though it could be said that such expense was a depletion of the matrimonial pot and as such it reduces the share of the spouse who was not benefited from such expenditure. By way of example, in the present case, the wife had spent substantial sum by way of legal costs in her litigation with the company concerning the ownership of the property. The husband did not derive any benefit from it. There is no suggestion that the expenses should be added back.

[5] Assessment of fairness depends on a global assessment. In this respect, the first instance judge is usually in a better position to make such assessment when an appeal is confined to the narrow limit of certain aspects of the case which the parties chose to appeal against.

...

[10] The relationship between these two routes has not been subject to much discussion in the authorities. In ARAV both Cheung JA and Fok JA considered the submissions of add-back under the umbrella of misconduct. In that case, it was held that it is a matter of the discretion of the judge to decide what would be the appropriate relief in light of a finding of such misconduct.

[11] Following that approach, whether the conduct is so obvious and gross that it would be inequitable to disregard must be the threshold. The Norris route can be regarded as a means to deal with such misconduct. But it suffers from the drawback that one may lose sight of the overall assessment on fairness in light of other factors since in adding-back one would usually focus on the nature of the expenditure. For this reason, a higher threshold is adopted for this approach in the English cases where the frittering away of assets was described as “wanton”, “reckless” or “extravagant”. Thus, the English cases suggested a cautious approach is to be adopted: Vaughan; H-J and BJ. The rationale was explained by Mostyn J in N v F (cited at para 50 of BJ) in terms of the separate ownership of property between husband and wife,

“In this country we have separate property. If a party disposes of assets with the intention of defeating the other party’s claim then such a transaction can be revered under s 37 of the MCA 1973. Similarly, where there is ‘clear evidence of dissipation in which there is a wanton element)’ then the dissipated sums can be added back or re-attributed ... But short of this a party can do what he wants with his money ...”

[12] In the present case, the wife conceded before the Judge that the spending in question was not reckless, see para 20 of Mr Pang’s closing submission.

[13] In light of that, the Judge can hardly be criticized for not granting any relief by way of adding-back.

[14] Before us, Mr Pang did not feel able to characterize these expenses as wanton, reckless or extravagant. Instead, he contended a wider doctrine of adding back of non-marital expenses. Whilst he accepted (as he had to) that not every item of expenditure of non-marital nature has to be added back, he tried to persuade the court to add back the expenditure in question because they stemmed from conducts which go to the destruction of marriage.

[15] With respect, such an approach is wrong in principle because it would necessitate the court to examine whether the conducts in question caused the destruction of marriage. This is precisely what the authorities said the court should not do.

[16] Nor can this objection be met by formulating it in terms of conduct which is so obvious and gross that it would be inequitable to disregard. For reasons set out above, if one were to restrict one’s consideration to the nature of spending as opposed to an overall assessment of fairness, a higher threshold and a more cautious approach should be adopted.

[17] For these reasons, I would reject Mr Fung’s submission for adding-back non-marital expenditure.”          

58.  In the present case, at least with the first 2 payments the Husband made to C in 2011 in the total sum of HK$1.2 million, I do not think there is any difficulty for the Wife to characterise them as “wanton”, “reckless” or “extravagant” in terms of their amount relative to the parties’ standard of living during the marriage and the overall size of their matrimonial pot, or the reasonableness of their payments in the circumstances, of which the Wife argues were simply extravagant gifts to his girlfriend. Even if the first payment of HK$1 million was indeed as alleged by the Husband just to help out a good friend in need, in my judgment it would still amount to “wanton” or “reckless” when he later let her keep the money after she decided to forego her plan to study abroad, and instead gave her a further sum of HK$200,000 without any good reason other than the fact that they had by then started dating, which are in my judgment no less “extravagant” than those non-marital spending in Norris or Vaughan. As a matter of fact, had the Wife, for example, donated the same amounts to her church during the same period of time, I have no doubt that the Husband would have insisted that they be added back to the matrimonial pot or re-attributed to her assets.

59.  The Wife further argues that the same approach should apply as well to the Husband’s monthly payments of HK$20,000t - $30,000 to C as her pocket money since November 2011, and at the average sum of HK$25,000 per month for the next 4 years up to the trial would amount to some HK$1.3 million which she submits as further extravagant spending so substantial that should be added back to the matrimonial pot or which the court should not disregard, given the fact that C has her own earning capacity and is a non-dependent.

60.  Whether or not it is right or fair for the Husband to spend this kind of money on his girlfriend after separation as part of his spending on his lifestyle without being accounted for in his assets or the marital pot, of which Mr Todd submits is not misconduct, or any more than if he had spent the money on shooting or yachting, it would be relevant for me to first consider such spending within the context of the standard of living and lifestyle which the parties used to enjoy as well as their respective financial resources and expenses, starting first with the Wife’s which are relatively less controversial.            

Wife’s Financial Situation

61.  As noted above the Wife has since 2014 been promoted to her present position in     XY as Contract and Risk Manager, and for the financial year 2014/2015 her monthly income was HK$57,586.50. She has since updated her current income to HK$66,922 per month on average [E/338].

62.  Much has been said of the Wife’s non-disclosure of her other rights and benefits under her employment terms with     XY, and while the Husband did not go so far to say that she was dishonest, she was nevertheless criticised for being careless and casual in her disclosure about her shares benefits and long service payment, and for her failing to produce her employment contract for his inspection.

63.  The Wife has denied any wrongdoing on disclosure, claiming that she has answered all the queries raised by the Husband of her employment terms and benefits by her subsequent affidavits. As far as her long service payment, which the Husband estimated at more than HK$338,000 which was never mentioned by her, but under the labour law in Hong Kong as I understand, long service payment is payable only when the employee is redundant by the employer. In the present case, there is no evidence or suggestion that that is going to happen to the Wife’s employment. I accept that she has made full and proper disclosure of all of her financial resources.   

64.  As for her monthly expenses and those of the daughters, the Wife put their total amount at just below HK$60,000, with the following breakdown in her Form E as follows:

General Household Expenses:
Food	HK$ 13,000
Household	HK$ 3,000
Insurance	HK$ 100
Domestic Helper	HK$ 3,740
Others	HK$ 400
	Sub-Total: HK$ 20,240
Personal Expenses:
Meals out of home	HK$ 4,800
Transport	HK$ 800
Clothing/Shoes	HK$ 1,000
Personal grooming	HK$ 1,500
Entertainment/presents	HK$ 600
Holiday	HK$ 900
Tax	HK$ 1,800
Insurance	HK$ 4,333
Contribution to parents	HK$ 4,500
Others including church donation	HK$ 4,100
	Sub-Total: HK$ 24,333
Children’s Expenses:
School fees	HK$ 1,300
Extra tuition fees	HK$ 1,240
School books and stationary	HK$ 800
Transport to school	HK$ 1,900
Medical/Dental	HK$ 300
Extra-curricular Activities	HK$ 1,000
Entertainment/presents	HK$ 4,000
Holidays	HK$ 1,800
Clothing/Shoes	HK$ 1,000
Lunch and pocket money	HK$ 1,000
Other Transport	HK$ 1,000
	Sub-Total: HK$ 15,340
	Total: HK$ 59,913

65.  These monthly expenses of the children at HK$15,340 have not of course included their share of the general household expenses of HK$20,240, and at their present age and needs it would be fair and proper in my view to apportion 2/3 thereof to them at HK$13,493 per month, thus bringing their total expenses to HK$28,833, or at HK$14,416 for each on average per month. Also as noted above, since he has not been paying for the daughters’ maintenance since separation in June 2011, the Husband has now agreed to capitalise such maintenance in arrears totalling HK$500,000 to be paid within 4 months of Decree Absolute.        

Husband’s Financial Situation

66.  The Husband is described as a senior junior barrister having been in practice for more than 20 years, and his earnings for the past 4 years, based on his tax returns and set out in both his narrative affidavit and his Closing Submission, are as follows:

67.  It is clear from these figures that his earnings have gone up quite substantially since separation, but it is also his evidence that such earnings have fluctuated greatly from month to month and cannot be guaranteed, with months when his gross income was less than HK$100,000, and for a senior barrister like him, his earnings would not escalate substantially unless appointed as a Senior Counsel, for which he made his application in 20    but it turned out unsuccessful, and according to him was due to damage caused by certain wrongful breach of confidentiality by the Wife and/or her lawyers as detailed in his narrative affidavit [B/182-188], of which I will have more to say later in this judgment, but the upshot is that he now intends to apply to be a judge which is something he has always aspired for and did sit as a deputy District Judge back in 20    , as he said in §160 of his affidavit [B/173]:

        ”For a senior junior barrister like me, the only plausible career change is to join the Judiciary and to become a District Court Judge. The monthly salary of a judge of the District Court is about HK$160,000.00. Yet, it is uncertain whether I would be appointed as one.”

68.  While certainly I cannot disagree with that last sentence of the Husband, he was in fact not quite up-to-date as to the monthly salary of a District Court Judge, which was pointed out to him at the trial, as according to the recent recruitment exercise information provided by the Judiciary Administrator in late May 2016 for that position, the pay scale is currently HK$180,650 as entry pay and up to $191,500 per month, plus fringe benefits including paid leave, leave passage allowance, medical and dental benefits, education allowances for children, and housing benefits in the form of a non-accountable cash allowance which is currently HK$38,560 per month, which would give him a total take-home pay of HK$219,210 per month if the Husband is to apply and be successfully appointed in this recruitment exercise, not to mention his entitlement to a substantive pension upon retirement.

69.  There was however no evidence from him at the hearing in April 2016 that he would make the application this year, and that at the time the recruitment exercise had not yet been announced by the judiciary. Be that as it may, on the basis of the Husband’s figures as reflected by his tax returns of his current practice, there does not seem to be much differences in earnings between him as a senior junior barrister and a District Court Judge, and that either way even a minimum average ballpark figure of HK$200,000 per month would still be about 3 - 4 times more than that of the Wife, which seems to be the crux of her argument for a sharing of that “enhanced earning capacity”. Before considering this argument of the Wife, and let me stress here that she does not in fact accept that that is all the Husband can earn, it would be relevant to first look at what was the standard of living of the parties during the marriage and what the Husband now claims to be his current needs and expenses, of which she believes should shed more light on the true picture of his earnings and/or earning capacity.   

Standard of Living

70.  There is no dispute that the family did have a frugal lifestyle throughout the marriage, as described by the Husband in his affirmation as follows [B/146]:

“[47] After getting married and up to the date of separation, W(the Wife) and I have lived together in the Tsuen Wan area in private housing. W, D1, D2 and one domestic helper continue to live in the Matrimonial Home...

[48] W is a devout Christian and she had always been frugal and had insisted that the family live in a simple manner and the benefits provided by AB to its employees supported her preferred lifestyle. By way of example,     XY provides free transportation to its office in Tai Po       and free meals are provided to employees therein. As for the family, the usual modes of transport were by MTR, public buses and minibuses. During the hot summer months, W did not allow the family to turn on the air-conditioners even when D2 and I suffered from outbreaks of eczema. Even though I obtained full membership to the Hong Kong Jockey Club ... in about 2001, our family seldom used the clubhouse or other facilities of the Jockey Club. Up until we separated on 29^th June 2011, I purchased necessary casual clothing from inexpensive chain stores. My suits were made by a budget tailor in Sai Wan. W herself usually only bought items of clothing during sale periods from inexpensive chain stores.

[49] On weeknights after work and school, W, our daughters and I usually had dinner at home prepared by the domestic helper. On Saturdays, we usually had dinner with my father, who is retired, and my sister in Pokka Café, an inexpensive chain restaurant in Tsuen Wan. When we did dine out on other occasions, we usually dined in similarly priced restaurants in the Tsuen Wan, Jordan or Yau Ma Tei area.

...

[52] W planned our family holidays abroad around once a year taken with our daughters. We usually travelled by budget airlines if available, stayed at three to four-star hotels (or upgraded hotels and/or motels), and took public transportation whenever possible.” 

71.  This frugal lifestyle was not just for the parties themselves but also for their daughters, as the Husband elaborated in his affidavit:

“[53] Likewise, W and I maintained a simple lifestyle for D1 and D2 prior to our separation in June 2011. We do not want them to develop materialistic outlook on life ...

[54] The main activities outside of school of D1 and D2 included visiting my parents’ home which is also in Tsuen Wan on weekdays, visiting the public library to borrow books and having one meal away from home with W and I on Saturdays, playing badminton with my father and my sister, attending church on Sundays and finishing the week off by dining out with my father and my sister at Pokka Café. Apart from weekly private piano lessons, D1 and D2 had no other extra-curricular activities which required additional payments by W or me ...

[58] W and I used to only buy presents for D1 and D2 for Christmas and for their birthdays and the value of each gift would usually not exceed HK$500.00 ...

[61] Up to the date of separation, W and I rarely had to purchase clothing (except for school uniforms) for D1 and D2 as our friends and my relatives would gift clothes for them. I routinely purchased one pair of athletic shoes for each daughter each year with their growing needs.”  

72.  On the basis of this indeed very frugal standard of living and according to his Form E, the Husband is currently meeting the following post-separation expenses of the Wife and the daughters:

(a) mortgage instalments of both Flats C & D	HK$ 11,200
(b) Rates of both flats	HK$ 520
(c) Utilities of both flats	HK$ 4,800
(d) Management fees of both flats	HK$ 2,020
(e) Insurance for Wife and daughters	HK$ 7,550
(f) Entertainment/pocket money for daughters	HK$ 3,500
	Total: HK$ 29,590

73.  It is however instructive to note that the Husband has substantially raised his own standard of living since he separated from the Wife in June 2011 for which he gave the following explanations and justifications [B/151]:

“[67] After separation from W, to establish my own personal belongings and to improve my image and/or appearance in support of my business, I began to purchasing clothing, shoes and accessories commensurate with expectations of the image of a barrister in a large and established set of chambers.

[68] In January 201   , upon assuming the post of      , my social circle substantially widened. I became acquainted with many more people within and outside of the legal profession. I began to spend more on socializing and entertaining. I believe that my greater exposure helped very greatly in developing my practice.

[69] In about September 2012, I moved into my current rented residence at ... Bel-Air on the Peak Island South, Residence Bel-Air ... Hong Kong (“My Current Residence”).

[70] My Current Residence has a saleable area of about 912 square feet and a net area of 723 square feet. Residence Bel-Air where My Current Residence is situated is a residential complex popular amongst lawyers and judges. In Tower     alone where I live, one senior counsel and two other junior counsel live here as well, albeit in the much larger flats. In about September 2014, I renewed the tenancy with the landlord at the same monthly rent of HK$32,000.00 for a term of two years.

...

[72] My main form of transportation ..., is by way of taxi when travelling on Hong Kong Island and by way of public transport when travelling to Kowloon or the New Territories.

[73] As my schedule is now more flexible without having to accommodate the school and work schedule of our daughters and W, I have been going on holidays overseas more often than prior to the separation for much needed relaxation from the highly stressful work of a barrister. On average, I went on long-distance vacations overseas about twice a year and on a few short-distance vacations when my diary allowed. I have also begun to travel by flying in business class for long distance flights so that I could return to work refreshed upon arriving in Hong Kong.

[74] I believe that after separating from W, the changes to and improvements to my lifestyle and the increased investments in my career in the form of time and money contributed to the substantial enhancement to my career prospects.”      

74.  It is with this changed and improved lifestyle of his since separation that the Husband put his current monthly expenditure in his said Form E at HK$342,960 as follows [B/20-22]:

General Expenses:
Rent	HK$ 32,000
Mortgage instalments for Flats C&D	HK$ 11,200
Utilities for both Wife and himself	HK$ 4,800
Management fees for Flats C&D	HK$ 2,020
Food & household expenses	HK$ 12,000
Insurance for Wife	HK$ 4,600
Rates for Flat C&D	HK$ 520
	Sub-Total: HK$ 67,140
Personal Expenses:
Meals out of home	HK$ 10,000
Transport	HK$ 6,000
Clothing/Shoes	HK$ 16,000
Personal grooming	HK$ 2,000
Entertainment/presents including for legal practice	HK$ 35,000
Holidays	HK$ 18,000
Medical/dental	HK$ 2,000
Tax (of both parties)	HK$ 64,170
Insurance	HK$ 19,200
Chambers rent and expenses	HK$ 74,000
Miscellaneous expenses of legal practice	HK$ 21,000
Hong Kong Jockey Club membership fees	HK$ 2,000
	Sub-Total: HK$ 269,370
Children’s Expenses:
Entertainment/present	HK$ 3,000
Insurance premia	HK$ 2,950
Lunches and pocket money	HK$ 500
	Sub-Total: HK$ 6,450
	Total: HK$ 342,960

75.  On this basis the Husband would need to earn more than HK$4 million for the year to meet these monthly expenses, but notwithstanding that they have already exceeded his stated current average income by some 50%, he now proposes to set aside a further substantial sum from his monthly income for his future needs including those of the family which he plans to set up with C after the divorce as follows.

Husband’s Future and Retirement Plan

76.  The Husband’s evidence on this is first set out in details in §121-132 of his affidavit [B/164-167] which can be summarised as follows:

(a)   he intends to retire by 20    at aged 65 but his MPF is wholly insufficient for his retirement protection;

(b)   he also plans to marry his girlfriend C after these proceedings to start a family with children of their own, for which he hopes to be able to purchase a flat for their home in Bel-Air Residence of about the same size of his current rented flat, but on his present earnings that would not be fulfilled in the near future;

(c)   he estimates that such a flat would cost between HK$12 - $13 million, and to purchase it at or around his age of 50 when he would still be able to obtain a mortgage for 15 years payable until his retirement at 65, he figures that if he is to make a down payment of 50% of the purchase price so that the monthly mortgage payments would be within his means, he would have to save up HK$7 million by then to meet that down payment and the purchase expenses including estate agent commission, legal costs and stamp duty etc over the next 5 years at the rate of just over HK$118,000 per month;

(d)   furthermore, he plans to save an additional sum of HK$33,400 per month for the daughters’ future overseas tertiary school fees and hopes to be able to have HK$1 million set aside by 2018 on top of the proceeds of 2 insurance policies purchased by him with AIA for that purpose;

(e)   lastly, he proposes to put aside HK$40,000 per month for his retirement fund which he hopes will provide him with HK$10 million in 20 years;

(f)   in summary, he plans to set aside a total sum of HK$173,400 per month from his income to meet those needs of his, and of which he insists has not taken into account of the future expenses of his new family with his girlfriend and the needs to save for their future and their children.      

77.  Mr Man for the Wife however submits that, taking into account of his current monthly expenditure at HK$342,960, if indeed the Husband needs to save a further sum of HK$173,000 per month for his future needs, realistically he would be expecting to earn at least HK$540,000 per month or close to HK$6.5 million per annum, and of which he agreed under cross-examination to be his best estimation and his hope to achieve.

78.  Mr Man therefore argues that it is clear that these figures, based on the Husband’s own sworn evidence, must have been regarded by himself to be realistic and achievable, as otherwise it would make no sense for him as an established barrister to put them forward as evidence, and to put this in context, this “best estimation” of his future income is almost 10 times of the Wife’s average income.

79.  Indeed, Mr Man submits, this expectation of earning high income by the Husband is indicated by the fact that at one point he had offered HK$130,000 monthly maintenance to the Wife plus Flats C and D, as he confirmed in §189 of his narrative affidavit [B/183]. To be fair to the Husband, that paragraph of his also clearly indicated that the offer was made on his belief that he could afford it should his SC application made in    20    be successful and that his income “would rise exponentially”. However, the fact is that his application, for whatever reason, has turned out unsuccessful.

80.  As noted above, he has in fact put the reason down to what he alleged to be wrongful disclosure by the Wife and her entire legal representatives, each and every one of them named and identified in his narrative affidavit, of his confidential information in his Form E and other documents filed in these proceedings but specifically his payment of the HK$1 million to C, to third parties including members of the Bar, thereby causing his application to be rejected by the Chief Justice.

81.  Whilst it is not necessary for me to deal with this allegation of the Husband, as it was never raised at the trial, quite rightly so on the part of his counsel given its sensitive and inflammatory nature, but it appears to have been based essentially on suspicions rather than any direct or solid evidence, and hence realistically incapable of being substantiated but seems to me for the purpose of putting all the blame of his unsuccessful SC application on the Wife, and at the same time, no doubt unintentionally, trivialising the whole evaluation process of such a solemn and important application of his profession if he truly believed that was the reason why his own application was rejected.

82.  There are other examples of such self-serving blame game of the Husband against the Wife in his narrative affidavit over the progress of his career, such as his allegation of having to pick her up every evening after work and to tend to her needs and those of the daughters thereby preventing him from carrying out other activities which would serve to benefit and advance his career:

“[44] As W was focused on building her own full-time career throughout the marriage, she had little positive contribution towards the building of my career throughout the years. For example, since I had to pick her up every evening after work and to tend to her needs, I could not stay beyond 5:30 pm to work in chambers except for extraordinary exceptions. Also, as socializing and entertainment with friends (apart from people from church) including with peers from the legal circle was discouraged by W, my professional contacts and contacts with instructing solicitors remained scarce up to the time of our separation on 29^th June 2011. As a result of my choice to put the needs of W and the two girls above my own, my career remained stagnant as compared with many of my peers for many years...

[46] In about           20    after separating from W, I assumed the post of ... of the Hong Kong Bar Association {“the Bar”} which substantially widened my social circle. If I were still living with W, I would not be able to discharge the heavy and time consuming duties and responsibilities of ... whilst practising full-time. Upon taking up the post, I became acquainted with many more people within and outside the legal profession. With these opportunities at my doorstep, I believed that I should invest more on building new relations and on my career in order for my career to improve. By adopting a new lifestyle as I will explain herein below, I was able to do so and as a result my career began to improve noticeably.”

83.  Concerning his such post-separation financial improvement, it is necessary to first note that in his Form E the Husband put his annual income in net amount after deductions for his legal practice expenses including rent and other Chambers expenses, for 2011/2012 he gave a net profit of HK$1,357,748 which would average HK$113,145 per month, and for 2012/2013 a net profit of HK$3,279,073 or a monthly average of HK$273,256 [B/19], but when he set out his monthly expenditure in the same Form E, he included the rent and miscellaneous expenses of his legal practice respectively at HK$74,000 and HK$21,000 as part of his personal expenses [B/20], which seems to me double-counting and gives the impression that his then monthly expenditure exceeded his monthly income.

84.  As pointed out by Mr Man for the Wife, there also appears to be inaccuracies in his financial statements and business expenses, or what seems to me double-counting of some of his expenses stated in his Form E when he in fact already in his Profit & Loss Account for 2014 [C2/418, 420] set off similar expenses from his gross income, such as HK$295,584 (HK$24,632 pm) for business entertainment, HK$4,577 for medical expenses, or HK$42,855 for local and HK$5,579 for overseas travelling.       

85.  Whatever the true position of his post-separation income, and I agree that the Wife does have valid reasons to suspect that he is capable of earning more than he has disclosed, there is no question that he has, as put by the Wife, been living in luxury since their separation as follows:

(a)   he now lives on the Peak while his former family lives in Tsuen Wan;

(b)   he spends HK$16,000 per month on clothing which is 16 times that of hers at HK$1,000;

(c)   he spends HK$18,000 per month on holidays which is 20 times that of hers at HK$900;

(d)   he takes taxi instead of MTR to work and flies business class for overseas trips;

(e)   he spends HK$35,000 per month on meals with solicitors and another HK$10,000 on meals out of home.    

86.  Mr Man submits that this claim of the Husband that his elevated spending is justified because he has adopted a new modus operandi for his business, and that he must spend more on himself for his clothes, meals and residence, etc in order to be able to earn more as a barrister, must be rejected as it is contrary to common sense, since a barrister’s earnings depends on his ability, his experience, his learning, his reputation and rapport with clients and courts, and not on how he dresses. I cannot disagree.

87.  Mr Man further submits that, even given the opportunity at the trial, the Husband was unable to explain how his elevated personal expenses could contribute to the success of his practice, and hence his attempts to say that his reputation and learning built throughout the marriage is now of no value to him must be rejected, which Mr Man argues only demonstrates his willingness to give evidence as favourable to him, regardless of what he believes to be the truth. Again I agree, which was in fact the impression that I had from reading his narrative affidavit and which seems to me, as I noted above, both self-serving and misleading.  

88.  Another example of such claim of the Husband, the Wife argues, is the need to save HK$33,400 per month for HK$1 million by 2018 for their daughters’ tertiary education which she says is unnecessary, as the AIA insurance policies purchased for them during the marriage were for that purpose and would be adequate for attending local universities in Hong Kong, and which has always been their plan according to the Husband’s own evidence in his narrative affidavit:

“[63] Regarding D1 and D2’s tertiary education, they had both always indicated to W and me that they wish to study medicine in Hong Kong for their tertiary education as they hope to practice as medical doctors in Hong Kong to help people and I had always planned that D1 and D2 would pursue their tertiary education in Hong Kong.

[64] In order to practice in Hong Kong as a medical doctor, all medical graduates must first register as medical practitioners with the Medical Council of Hong Kong ... with the exception of graduates of the University of Hong Kong and the Chinese University of Hong Kong. Hence, overseas medical graduates must study for and pass the MCHK’s Licensing Examination and successfully complete a period of pre-registration internship training and assessment in approved hospitals or institutions. The passing rate for this stringent process relating to overseas medical graduates has remained very low in the past years therefore in order to practice in Hong Kong, it is almost imperative that D1 and/or D2 pursue their tertiary education in Hong Kong.

[65] ... Since entering Secondary 4, D1 has told me during our weekly Saturday meetings that she has developed an interest in economics and that she wishes to study economic at university in Hong Kong instead. In fact she has consistently obtained high scores in the subject of Economic.

[66] D2 is consistently ranked top in her grade and she has told me that her plans to study medicine and to become a medical doctor in Hong Kong remains unchanged.”    

89.  It is on this basis that the Wife argues that the Husband’s claim to have to save up as much as HK$33,400 per month for the daughters’ tertiary education as if for the much more expensive ones in overseas is unconvincing. Whilst accepting that future education plan may change, the proposed savings of the Husband for that purpose seems to me unjustified, if not downright contradictory.

90.  In the premises the Wife believes that the Husband will have the following disposable income as a barrister or a judge according to her Closing Submission [88]:

(a)   as junior counsel at HK$5m gross p/a or HK$290,000 net per month; 

(b)   as senior junior counsel at HK$8.5m gross p/a or HK$390,000 per month net;

(c)   as District Judge at HK$210,000 per month;

(d)   as High Court Judge at HK$260,000 per month.

91.  As already noted above, while it is true that there is no evidence that the Husband has actually applied to join the Bench and at best it can be said to be just his ambition or hope in the future, there is no doubt that he can well earn more than HK$4 million gross per annum and averaging more than HK$200,000 per month as a senior junior counsel. Ultimately, Mr Man submits, whatever his future income or expenses, it would be wrong for him to be allowed to keep all the fruits of the matrimonial partnership, and not to share with the Wife any of his enhanced earnings and earnings capacity, of which I shall now come to examine the case law and principles, which can in some cases be far from clear and potentially confusing.

Sharing of “Enhanced Earning Capacity”

92.  The Wife’s case is that since the parties and their daughters had throughout the marriage lived frugally and accumulated limited capital, during which the Husband was able to build up his reputation and as a result his law practice has flourished, but when the parties were finally about to reap the fruits of his enhanced earning capacity, the Husband left the marriage with his paramour to start a new luxurious lifestyle whilst leaving behind his old family in parsimony.  

93.  The Wife therefore argues that by his proposal the Husband is effectively asking the court to approve his current high-spending lifestyle made possible by his enhanced earning capacity built during the marriage, and to reap all their benefits with his paramour without giving due recognition to his former wife’s efforts in helping to build it, which she says cannot be right and that the award should reflect some sharing of his enhanced earning capacity.

94.  In other words, Mr Man submits for the Wife, that this is a sharing case where the parties’ needs will be adequately met, and hence the surplus created by the Husband’s enhanced earning capacity should be shared as it is part of the fruits of the marriage partnership, and fairness dictates that the award to the Wife should give effect to that by accepting her proposal instead of the Husband’s.

95.  On the significance of a husband’s substantial earning capacity, it would be relevant to remind myself of what Baroness Hale said in Miller/McFarlane [2006] 2 AC 618 at 660:

“[140] A second rationale, which is closely related to need, is compensation for relationship-generated disadvantage. Indeed, some consider that provision for need is compensation for relationship-generated disadvantage. But the economic disadvantage generated by the relationship may go beyond need, however generously interpreted. The best example is a wife, like Mrs McFarlane, who has given up what would very probably have been a lucrative and successful career. If the other party, who has been the beneficiary of the choices made during the marriage, is a high earner with a substantial surplus over what is required to meet both parties’ needs, then a premium above needs can reflect that relationship-generated disadvantage.

[141] A third rationale is the sharing of the fruits of the matrimonial partnership ...

[142] Of course, an equal partnership does not necessarily dictate an equal sharing of the assets. In particular, it may have to give way to the needs of one party or the children. Too strict an adherence to equal sharing and the clean break can lead to a rapid decrease in the primary carer’s standard of living and a rapid increase in the breadwinner’s. The breadwinner’s unimpaired and unimpeded earning capacity is a powerful resource which can frequently repair any loss of capital after an unequal distribution: see, eg, the observations of Munby J in B v B (Mesher Order) [2002] EWHC 3106 (Fam); [2003] 2 FLR 285. Recognising this is one reason why English law has been so successful in retaining a home for the children ...

The ultimate objective?

[144] Thus far, in common with my noble and learned friend, Lord Nicholls of Birkenhead, I have identified three principles which might guide the court in making an award: need (generously interpreted), compensation, and sharing. I agree that there cannot be a hard and fast rule about whether one starts with equal sharing and departs if need or compensation supply a reason to do so, or whether one starts with need and compensation supply a reason to do so, or whether one starts with need and compensation and shares the balance. Much will depend upon how far future income is to be shared as well as current assets. In general, it can be assumed that the marital partnership does not stay alive for the purpose of sharing future resources unless this is justified by need or compensation. The ultimate objective is to give each party an equal start on the road to independent living ...

[149] The question, therefore, is whether in the very big money cases, it is fair to take some account of the source and nature of the assets, in the same way that some account is taken of the source of those assets in inherited or family wealth. Is the “matrimonial property” to consist of everything acquired during the marriage (which should probably include periods of pre-marital cohabitation and engagement) or might a distinction be drawn between “family” and other assets? Family assets were described by Lord Denning in the landmark case of Wachtel v Wachtel [1973] 1 All ER 829 at 836, [1973] Fam 72 at 90:

“It refers to those things which are acquired by one or other or both of the parties, with the intention that there should be continuing provision for them and their children during their joint lives, and used for the benefit of the family as a whole.”

Prime examples of family assets of a capital nature were the family home and its contents, while the parties’ earning capacities were assets of a revenue nature. But also included are other assets which were obviously acquired for the use and benefit of the whole family, such as holiday homes, caravans, furniture, insurance policies and other family savings. To this list should clearly be added family businesses or joint ventures in which they both work. It is easy to see such assets as the fruits of the marital partnership. It is also easy to see each party’s efforts as making a real contribution to the acquisition of such assets. Hence it is not at all surprising that Mr and Mrs McFarlane agreed upon the division of their capital assets, which were mostly of this nature, without prejudice to how Mrs McFarlane’s future income provision would be quantified ...

[154] There is obviously a relationship between capital sharing and future income provision. If capital has been equally shared and is enough to provide for need and compensate for disadvantage, then there should be no continuing financial provision. In the McFarlane case, there has been an equal division of property, but this largely consisted of homes which can be characterised family assets. This was not enough to provide for needs or compensate for disadvantage. The main family asset is the husband’s very substantial earning power, generated over a lengthy marriage in which the couple deliberately chose that the wife should devote herself to home and family and the husband to work and career. The wife is undoubtedly entitled to generous income provision for herself and for the sake of their children, including sums which will enable her to provide for her own old age and insure the husband’s life. She is also entitled to a share in the very large surplus, on the principles both of sharing the fruits of the matrimonial partnership and of compensation for the comparable position which she might have been in had she not compromised her own career for the sake of them all...”       

96.  However, the argument that a party’s earning capacity can be regarded as an asset and hence subject to the sharing principle was noted by the Court of Appeal in Charman v Charman (No 4) [2007] EWCA Civ 503 [2007] 1 FLR 1246, although not directly arising for its determination, as an area of complexity and potential confusion at para [67]:

“Irrespective of whether the assets are substantial, likely future income must always be appraised for, even in a clean break case, such appraisal may well be relevant to the division of property which best achieves the fair overall outcome. We appreciate that remarks of Baroness Hale in Miller, at [154] are also said to permit argument that a party’s earning capacity is itself an asset to which the other has contributed and which might to some extent be subject to the sharing principle; this seems to us an area of complexity and potential confusion which in this case it is unnecessary for us to visit.”

97.  The law on this issue was restated by Mostyn J in B v S [2012] EWHC 265 (Fam) at §75 – 79 where he referred to what Baroness Hale stated above and commented as follows:

“[75] ... This would, taken by itself, suggest that the sharing principle as well as the compensation principle justified an uplift over needs. But earlier in the same paragraph Lady Hale stated:

‘If capital has been equally shared and is enough to provide for need and compensate for disadvantage, then there should be no continuing financial provision. In McFarlane’s case, there has been an equal division of property, but this largely consisted of homes which can be characterised as family assets. This was not enough to provide for needs or compensate for disadvantage.’

This would suggest that the only factor that would ever justify an uplift over need would be compensation. This accords with the view of Lord Nicholls of Birkenhead who stated at [93]:

‘Clearly in this situation the wife is entitled to a periodical payments order in respect of her financial needs. She needed money to live in the former matrimonial home which was to be the continuing home for her and the children. But it would be manifestly unfair if her income award were confined to her needs. This is a paradigm case for an award of compensation in respect of the significant future economic disparity, sustained by the wife, arising from the way the parties conducted their marriage.’

[76] The reason that the sharing principle is sometimes advocated as being applicable to a periodical payments claim is to reflect the theory that post-separation earnings derive from an earning capacity built up during the marriage which is, in some intangible way, a piece of matrimonial property there to be equitably or fairly shared. The high point of that theory is the dictum of Lady hale which I have quoted above viz ‘the main family asset is the husband’s very substantial earning power, generated over a lengthy marriage’. As a theory it is problematic, because at the end of the day the only reason there is income after separation is because of work done after separation. A footballer who earns £100,000 per week earns that because he is on the pitch playing football. Certainly, the skills he was born with, and the development of those skills (which may well have happened during his marriage), are all reasons why he can command his salary, but he will not get paid it unless he plays football. The footballer has to fill the unforgiving minute with 60 seconds’ worth of distance run after the marriage.

[77] I turn to consider the decision of Hvorostovsky v Hvorostovsky [2009] EWCA Civ 791, [2009] 3 FCR 650, [2009] 2 FLR 1574. In that case Judge Horowitz QC varied an existing periodical payments order to £120,000 annually to the wife and £12,500 to each of two children. The wife relied on the sharing and compensation principles to seek an uplift above her assessed needs. In the Court of Appeal the reliance on the latter principle was described as a ‘departure from reality’ by Thorpe LJ in [38]. But the award was increased to £140,000 and £17,500 for each child. In his judgment Thorpe LJ at [37] specifically commended this dictum of Charles J in Cornick v Cornick (No 3) [2001] 2 FLR 1240 at [106]:

‘the court should not rely on the judicial concept of “reasonable requirements” as a determinative or limiting factor in cases where a payer has, or acquires, an ability to pay more than the payee’s financial needs even they are interpreted generously and called “reasonable requirements” ...’

But he went on in the same paragraph to commend equally this dictum from Sir Mark Potter P in VB v JP [2008] EWHC 112 (Fam) at [59], [2008] 2 FCR 682 at [59], [2008] 1 FLR 742:

“Second, on the exit from the marriage, the partnership ends and in ordinary circumstances a wife has no right or expectation of continuing economic parity (“sharing”) unless and to the extent that consideration of her needs, or compensation for relationship-generated disadvantage so require.”

[78] Moreover at para [33](iii), Thorpe LJ commended the utility of a percentage comparison between the original order and the order on variation, which would seem to suggest some kind of sharing approach. In this regard I note that the well-known and binding decision of Lewis v Lewis [1997] 3 All ER 992, [1997] 1 WLR 409 was not referred to in judgment, where Ormrod LJ specifically disapproved such an approach and stated that ‘the court should have as unfettered a discretion as possible to deal with the situation as it is where the matter comes before it’ ([1977] 3 All ER 992 at 994, [1977] 1 WLR 409 at 412).

[79]  In my judgment simplicity and clarity are just as much needed in this part of the filed as in the part designated ‘division of capital’. Simple and fair guidance is needed so that the majority of cases can be settled. Settlement is almost always better that adjudication for a divorcing couple. And the functioning of the family justice system depends on a high rate of settlement of these cases. Save in the exceptional kind of case exemplified by Miller v Miller, McFarlane v McFarlane [2006] 2 FCR 213, [2006] 3 All ER 1 a periodical payments claim (whether determined originally or on variation) should in my opinion be adjudged (or settled), generally speaking, by reference to the principle of need alone. Of course needs are elastic in concept and there is much room for the exercise of discretion in their assessment. But to allow consideration of the concept of sharing to intrude in the assessment of a periodical payments award seems to me to be based on a doubtful principle, and is replete with problems of quantification by any sure standard.”           

98.  Mostyn J went on to explain the rationale behind the dicta above in SS v NS [2014] EWHC 4183, [2015] 2 FLR 1124, where the husband and wife were married for 6 years and had three minor children together. During the marriage the husband was a banker and the wife a full-time mother. When the marriage came to an end, the wife applied for financial remedy. Following the husband’s battle with cancer, he moved to a less challenging role at a different bank. When he moved roles, the existing earned but deferred compensation with the first bank was relinquished and replaced by mirror arrangements by and in the second bank. There was a condition of continued employment for the receipt of the unvested compensation. If the husband were to quit the second bank or die, those unvested rights would be forfeited. On receipt they were taxed as income. The total matrimonial assets including property, bank accounts and shares amounted to £3,290,367. Since the separation, the husband had formed a relationship with another woman who was expecting his baby. The wife had obtained employment earning £26,500 pa and was training to be a pilates instructor.

99.  In awarding the wife a lump sum of £1,183,500, spousal maintenance of £30,000 pa and index-linked for an extended term until 2015, 20% of the husband’s net bonus capped at £26,500 pa and index-linked until 2021, and child support of £7,500 per child pa and index-linked, His lordship set out the relevant principles in play on an application for spousal maintenance as follows:

(i)    a spousal maintenance award was properly made where the evidence showed that choices made during the marriage had generated hard future needs on the part of the claimant. The duration of the marriage and the presence of children were pivotal factors;

(ii)   an award should only be made by reference to needs, save in a most exceptional case where it could be said that the sharing or compensation principle applied;

(iii)   where the needs in question were not causally connected to the marriage the award should generally be aimed at alleviating significant hardship;

(iv)   in every case, the court must consider a termination of spousal maintenance with a transition to independence as soon as it was just and reasonable. A term should be considered unless the payee would be unable to adjust without undue hardship to the ending of payments. A degree of (not undue) hardship in making the transition to independence was acceptable;

(v)   if the choice between an extendable term and a joint lives order was finely balance the statutory steer should militate in favour the former;

(vi)   the marital standard of living was relevant to the quantum of spousal maintenance but was not decisive. That standard should be carefully weighed against the desired objective of eventual independence;

(vii)   the essential task of the judge was not merely to examine the individual items in the claimant’s income budget but also to stand back and to look at the global total and to ask if it represented a fair proportion of the respondent’s available income that should go to the support of the claimant;

(viii)   where the respondent’s income comprised a base salary and a discretionary bonus the claimant’s award may be equivalently partitioned, with needs of strict necessity being met from the base salary and additional, discretionary, items being met from the bonus on a capped percentage basis;

(ix)   there was no criterion of exceptionality on an application to extend a term order. On such an application, an examination should be made of whether the implicit premise of the original order of the ability of the payee to achieve independence had been impossible to achieve and, if so, why;

(x)   on an application to discharge a joint lives order, an examination should be made of the original assumption that it was just too difficult to predict eventual independence;

(xi)   if the choice between an extendable and non-extendable term was finely balanced, the decision should normally be in favour of the economically weaker party.      

100.  While there is no such statutory requirement on our courts in Hong Kong to consider terminating spousal maintenance under (iv) above which remains only as one of the circumstances which the court shall have regard, it is true that in the present case both parties seem to opt for such a course to be adopted by capitalising the periodical payments for the Wife, of which Mr Todd for the Husband argues that the development of the jurisprudence in this area has been wholly against the treatment of work capacity as an asset available for sharing, an approach adopted by the English Court of Appeal in Lawrence v Gallagher [2012] EWCA Civ 394 in which the part of the award which consisted of 45% of the appellant‘s deferred bonuses were removed from the divisible pool which would constitute future earning, as Thorpe LJ explained:

“[52] ... These bonuses were not vested and, even on the view most favourable to the respondent half of them were acquired post-separation.

[53] Apart from the factual errors these were annual bonuses deferred in collection and conditional on performance. They were not capital assets but part of the appellant’s income stream upon which he is taxed at top rate. I can see no principled basis upon which the respondent should be awarded 45% of that as though it were a present capital asset. I would delete this element of the judge’s award entirely.”    

101.  However, since it can clearly be argued that a deferred or unvested bonus is an income which a party is likely to have in the foreseeable future (section 7(1)(a) of MPPO), how should the court approach such an income when an applicant seeks a joint-lives periodical payments order or its capitalisation, a problem also noted by Thorpe LJ but did not find it necessary to deal with on that occasion as he explained at §54:

“No doubt in those cases where the applicant seeks a joint lives periodical payments order the frequent replacement of cash bonuses by deferred bonuses presents a problem for practitioners and for judges. Should future projections be variable upwards if the bonus is paid at the end of the three year deferment or should the order be variable downward if the bonus does not become due for payment? No submissions were made as to what the general approach is or ought to be. We are not in the present appeal concerned with a continuing periodical payments order and the appellant’s hope or expectation of future receipt does not to my mind have much bearing in the present division of the available assets.”

102.  Mr Todd for the Husband however submits that there is an analogy with capitalisation of periodical payments in that in England this may be compelled by the court on a variation application, and the principles to be applied are that the court’s discretion is limited to capitalising needs and does not permit an enhanced award on the basis of sharing: Vaughan v Vaughan [2010] 2 FLR 242, where the husband applied for a termination of the wife’s periodical payments of £27,175 per annum, while the wife cross-applied for capitalisation, and the Court of Appeal held that when deciding whether a husband should be ordered to pay a lump sum to a wife by way of capitalisation of any obligation to continue to make periodical payments to her, applying Pearce v Pearce [2003] EWCA Civ 1054, [2004] 1 WLR 68, [2003] 2 FLR 1144, of which Wilson LJ said at §28:

“ ... It is a decision which has rightly received wide approbation, no doubt because, in the words of Thorpe LJ, at [39], it identifies ‘a relatively simple, certain and predicable method for the calculation of the capital sum’. So the first inquiry is to identify the level of periodical payments which should in principle continue to be made by the payer to the payee (including, in the present case, whether they should continue to be made at all and thus whether the payee can – within the meaning of s 31(7)(a) – adjust without undue hardship to their termination): per Thorpe LJ, at [37]. If the result of the first inquiry is a conclusion that periodical payments at a specified level should in principle continue to be made, the second (ignoring, for this purpose, the need to identify what would be the appropriate date for the start of periodical payments at any changed level) is to calculate their capital equivalent according to the Duxbury formula: per Thorpe LJ, again at [37]. For the sake of completeness, I would add that the court must finally survey whether it is fair to both parties to capitalise the periodical payments and, no doubt in particular, whether it is reasonably practicable for the payer to pay the capital sum rather than to make the periodical payments. At all events the court has, thank goodness, only a narrow discretion to arrive at a capital sum otherwise than by application of the Duxbury formula and it should exercise it in order only to reflect special factors: per Thorpe LJ, at [38].

103.  Mr Todd further submits that the development of the jurisprudence in this area has been wholly against the treatment of work capacity as an asset available for sharing, where the case law which began with Miller was considered and adopted in Jones v Jones [2011] EWCA Civ 41 where the wife applied for ancillary relief after 10 years of marriage, with the main asset being a company involved in the oil and gas service industry founded by the husband some 10 years before the marriage and which had been valued at about £2m at the time of the marriage. The husband had been employed in the oil and gas service industry for 19 years before he founded the company, and its success was in large measure reliant on his understanding of that industry. Before the hearing the husband sold the company for £25m net, and he subsequently accepted that the company had been worth about £12m at the date of separation. At the hearing, which took place about 4 years after the separation, the wife sought a clean break lump sum of £10m, on the basis that this represented 40% of the total assets. The husband was offering the wife one half of the net increase in the value of the company shares between the date of marriage and the date of separation, ie, about £5m. The husband emphasised that the wife had access to substantial wealth, in that she received large sums from her mother on request, and also that during the marriage the couple had, in the main, kept their finances separate, owing and running separate properties. On the basis that the total net assets were in the region of £25m, the judge awarded the wife £5.4m, concluding that, given the importance of the husband’s personal abilities and experience to the success of the company, 60% of the value of the company at the date of the separation, and also 60% of the net proceeds of the ultimate sale of the company (£15m), represented a non-matrimonial asset belonging to the husband, which should not be shared. In his judgment the judge expressed the view that if an application of the needs principle led to a result that was less than an equal division of the assets, this could in some cases inform or influence the extent of any principled departure from equality within the sharing principle. The wife was granted permission to appeal the approach taken by the judge to the company, but not his comments concerning the relationship between the sharing principle and the needs principle.

104.  In allowing the wife’s appeal and awarding her £8 million, the English Court of Appeal held that a spouse’s earning capacity at the date of the marriage was not an asset and was not to be capitalised, thus overruling GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611, and similarly a spouse’s earning capacity at the date of the hearing was not to be treated as an asset or capitalised. Even making allowance for the ‘springboard’ or latent potential within the company at the date of the marriage, when it was valued at only £2m, the judge’s finding that the husband’s non-matrimonial stake in the company was £15m at the hearing date placed a massive capital value on the personal capacity of the husband to make money in his chosen field. The judge had effectively, and wrongly, ascribed a capital value to the husband’s earning capacity at the date of the marriage, and then treated such capital as a non-matrimonial asset, as articulated by Wilson LJ in the following:

“[23] That for the purposes of the sharing principle it might be appropriate to capitalise the earning capacity brought by one spouse into the marriage was an approach first favoured by Mr Nicholas Mostyn QC, as he then was, when sitting as a deputy judge of the Division in GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 (Fam), [2003] 2 FLR 108. The husband was employed by an American bank in the City. At the date of the marriage he had assets of $500,000 and was earning $400,000 pa. Mr Mostyn said:

‘[50] H here brought into the marriage assets with a value in money today of $781,000 ...

[51] H also brought to the marriage a developed career, existing high earnings and an established earning capacity. I cannot see why this should not be treated as much as a non-matrimonial asset as the provision of hard cash. In argument I suggested that H here was terms of his career “fledged” at the time of the marriage, rather than being the fledgling, which is so often the case. [Counsel for the husband] stated that his client was far more than fledged: he was fully airborne. I tend to agree ...’

Thus, as a result of his choice of metaphor, Mr Mostyn’s approach became known as fledging: if at the date of the marriage the spouse was successfully launched in employment, or fledged, his earning capacity was somehow to be capitalised; then, like the husband’s actual capital in GW (which the deputy judge uprated from $500,000 to $781,000), the figure was, I presume, to be uprated for inflation, and then allowance was to be made for it, as a non-matrimonial asset justifying departure from equality, in the application of the sharing principle upon divorce. I am unclear how the earning were thus to be capitalised; still less how such allowance was thus to be made; and in particular whether, if at the date when the financial proceedings were heard, the spouse still enjoyed an established earning capacity, such also fell to be capitalised and also in some way to be taken into account.

[24] In the decision of the House of Lords in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24, [2006] 2 AC 618, [2006] 2 WLR 1283, [2006] 1 FLR 1186, Lord Manse commented on Mr Mostyn’s approach as follows:

‘[172] A possible difficulty about this approach is that it reintroduces, at the commencement of the marriage, a requirement to attempt to assess and compare the value of the contributions which each party is or would be likely to make during or apart from the marriage. I am not very confident that an established earning capacity or very valuable acquired expertise and acumen would, if viewed as “assets” brought into a marriage, be easily or reliably measurable or comparable with other qualities, or indeed how far would one carry the inquiry into expertise or acumen. The concept of “fledging” is probably anyway one which would diminish in relevance, the longer the marriage ...

[173] On the other hand, where at the beginning (or end) of the marriage an actual transaction is under way or in view which in due course yields a considerable new asset, there is no difficulty in principle (even if there may be some difficulty in valuation) in accepting that part of the asset may have to be excluded from any assessment of the matrimonial acquest or included in what the parties brought into the marriage.”

[25] In [172], quoted above, Lord Manse articulated three objections to the capitalisation of a spouse’s earning capacity at the date of the marriage. With respect, I agree with all of them.

(a) The capacity is not easily measurable in capital terms. The judgment of the judge in the present case is replete with objections to the adoption of arbitrary percentages in application of the sharing principle. In the end, however, without having canvassed such an percentage – or in this context any other – with counsel, the judge adopted 60% as the proportion of the company’s sale price in 2007 which was attributable to a mixture of its value in 1996 and the husband’s personal capacity to expand it (or earning capacity)  established by 1996. What could have been more arbitrary than that?

(b) The proper depth of any inquiry into a spouse’s expertise and acumen is unclear. What contributed to the substantial capacity of this husband to generate earnings (or profits) in his chosen field? The judge rightly laid stress on the knowledge which he had gained during employment in the field from 1967 to 1986. But, without his having other qualities, whether inherited or acquired as a child at home or at school or otherwise, he would not have been able to put his knowledge to profitable use. In truth the judge was placing a substantial capital value on the husband as a person; I am convinced that such is no function of the divorce court. I also consider that a dangerous degree of hindsight is likely to be deployed in analysing the extent of a person’s (say a husband’s) earning capacity at a date long past. If later (as in this case) he generated substantial earnings, the court would be likely to find that he had had a substantial earning capacity but, if later he failed to generate them, it would be likely to find that he had not had a substantial earning capacity. But neither of those obverse conclusions is necessarily valid.

(c) Above all, capitalisation of the earning capacity established by one spouse by the date of the marriage is likely to be unjustly discriminatory if the other had not by then established an earning capacity. In the present case the wife had no earning capacity at all in 1996. What had she been doing in 1967 when the husband was apprenticed to Brown Brothers? The answer is that she had been crawling around the floor aged one. She must have been at school until 1984; thereafter, as we know she became a wife to her first husband and, ultimately, a mother. Although the generosity of her parents made her early adulthood financially comfortable, was it not discriminatory for the judge to write off, without any real analysis, whatever the wife had achieved by his ascription to the husband of a substantial capitalisation of his earning capacity without making any countervailing ascription to her in other respects?

[26] In my view the adoption and development of the doubts expressed by Lord Manse in Miller/McFarlane at [172], quoted above, should lead this court today formally to overrule the decision of Mr Mostyn in GW that a spouse’s established earning capacity at the date of the marriage falls to be capitalised, or otherwise brought into account, for the purpose of the sharing principle.

[27] In [23] above I questioned whether Mr Mostyn’s approach also required capitalisation of any such established earning capacity as still subsisted at the date when the financial proceedings were heard. Were we to overrule his decision, my question would not need to be answered. There is, however, a separate, wider question whether it is ever necessary or appropriate for the court to capitalise the earning capacity which a party has at the date of the hearing. There is no denying the extreme importance of an inquiry into the earning capacity of each party at that date: indeed s 25(2)(a) of the Matrimonial Causes Act 1973 makes it mandatory. A spouse’s earning capacity will usually be a central foundation of an order for periodical payments, and thus of any order by way of capitalisation thereof, pursuant to the principles of need and/or of compensation. Even if, however, an earning capacity may also sometimes be relevant to a fair distribution of the assets pursuant to the sharing principle, it does not follow that the earning capacity should itself be treated as one of those assets, still less that an attempt should be made to capitalise it. Today I have as little appetite for such costly artificiality as when, in 2007, I subscribed to the judgment of this court in Charman v Charman (No 4) [2007] EWCA Civ 503, [2007] 1 FLR 1246, and thus to the reservations in this respect which the court expressed at the foot of [67] of it.

[28] It follows that in my view the judge’s decision is flawed in that it ascribed a capital value to the earning capacity of the husband at the date of the marriage.”

105.  Mr Todd therefore submits that in any event the assessment of matrimonial and non-matrimonial assets does not ever descend to a valuation of the Husband’s work capacity, for which accountants would need to be instructed but not done in the present case, and that since the time of Lambert v Lambert [2003] Fam 103 the courts have been concerned with marriages as partnerships, and when the partnership ended, and in the present case in 2011, the courts have expressly acknowledged the important distinction which needs to be drawn between matrimonial and non-matrimonial property, he therefore submits that any post-separation endeavours by the Wife over the Husband’s work capacity simply falls outside of the marital partnership.

106.  Mr Todd further argues that plainly work capacity is highly relevant to needs, but the Wife’s needs here are fully addressed, including by agreed capitalisation of periodical payments and provision of a home by Flat C whilst her other stated needs and expenses of HK$59,913 will be adequately met by her current income of HK$66,922 per month, hence it would be wrong to seek to add further value to her claim on the controversial basis that she is entitled to share the Husband’s future earnings.     

107.  Mr Man for the Wife however submits that this being a sharing case, although the parties’ needs will likely be adequately met, the question remains whether the surplus created by the Husband’s enhanced earning capacity should be shared, and that although Baroness Hale in that dicta of her referred to above in Miller/McFarlane supra where Her Ladyship was addressing the situation of a wife such as Mrs McFarlane who gave up her career to look after the family, it is noteworthy, he submits, that Her Ladyship expressly pointed out that the wife’s entitlement in such a case is based on both “sharing” and “compensation”.

108.  Similarly, he submits, although Lord Nicholls described Mrs McFarlane’s case as a “paradigm case for an award of compensation” [§93], His Lordship’s summary of the relevant circumstances of the case in an earlier passage emphasises the importance of awarding the wife a “fair share“ of husband’s rewards reaped through the “spadework” of marriage[§85]:

“ ... part of the overall circumstances was that the joint decision of the parties to concentrate on the husband’s career in order to fund the family’s lifestyle resulted in the greatest fruits of his endeavours being available towards the end of the marriage and after its breakdown. The spadework for these rewards was carried out over a long period, and it would be unfair to take the view that the wife had not contributed to the recent increases in the husband’s earnings after the separation. The wife’s contributions enabled the husband to create a working environment which had produced greater rewards, “of which she should have her fair share”. She had continued to make a contribution to the family in the nurturing of the children in a single parent household. That contribution had not come to an end when the parties separated.”

109.  These dicta of Baroness Hale and Lord Nicholls, in particular the concept of “spadework” of the marriage, Mr Man submits, formed the foundation of the decision in H v H [2008] 2 FCR 714, where Charles J explored at length the principles applicable to the sharing of a party’s “enhanced income” and “enhanced earning capacity”.

110.  That was one of ‘big money’ cases where the husband was a banker and the wife a teacher and had four children. They built up substantial wealth over the course of a long marriage as a result of the earnings of the husband while the wife was the primary caretaker of the children. In January 2005, the husband left the matrimonial home. There were attempts at reconciliation but the parties were finally divorced in December 2005. In the course of ancillary relief proceedings, the wife sought to claim a half-share in the bonuses the husband had or would receive for the years 2006 and 2007. She claimed that it constituted part of the matrimonial property, and that according to House of Lords authority, she was entitled to a half share of all matrimonial property. The husband denied that the 2007 bonus formed part of the matrimonial property. Both parties proceeded on the basis that the correct approach was to identify the matrimonial property and then divide it in half, to produce an unalterable part of the award.

111.  In finding that in January 2005 the underlying foundation of the marital partnership had been brought to an end and was not re-established, Charles J held that the bonuses for the years 2006 and 2007 did not therefore form part of the matrimonial property, however the principles of fairness, equality and non-discrimination required that the wife receive an additional award as well as one-half of the matrimonial property to reflect her contribution over the years of the marital partnership that had resulted in the husband’s enhanced or greater earning capacity, as the wife’s incalculable, but in purely economic terms small, contribution to the husband’s enhanced or greater earning capacity founded an award that eased her transition to independent living. The additional sum would be equivalent to the total of one-third of the income earned in 2005, a sixth of the income earned in 2006 and one-twelfth of the income earned in 2007.        

112.  Charles J at the very beginning readily noted that it was not a case in which the wife gave up a career that was likely to provide substantial income or monetary reward, as it was common ground that the choices made by both the husband and the wife were ones they both made willingly, and that until the breakdown of their marriage those choices were ones that led to a successful emotional and economic result. He also identified two central points raised in argument both related to the husband’s earnings and effectively to his bonuses, which were (i) what bonuses should be included within the matrimonial acquest or family assets or matrimonial property, and (ii) what award, if any, should be made in respect of future bonuses falling outside the matrimonial property.

113.  His Lordship then reminded himself of those relevant speeches of Lord Nicholls and Baroness Hale in Miller & McFarlane, and proceeded to articulate his approach towards those issues, starting by identifying what he perceived to be the central problem where a wife, as in the present case before me, did not give up her earning career and hence the argument that she may not rely on McFarlane being a paradigm case in her application, and a clean break was now possible as urged upon by both sides, but he recognised that the husband’s enhanced income was a product or fruit of the marital partnership and thus a value added by the common endeavours of the parties during the marital; partnership:           

“[74] ... In my view the reference by Lord Nicholls to a ‘loss in a share of the husband’s enhanced income (my emphasis) rather than to his income or earning capacity is a reference to a product or fruit of the marital partnership and thus a ‘value added’ by the common endeavours of the parties during the marital partnership. This is likely to be unquantifiable but it is at least arguably reflected by a part of the husband’s future earnings. This echoes what Lord Nicholls said in White [2000] 3 FCR 555 at 564 ...

[75] To my mind Lord Nicholls in para [13] of Miller & McFarlane is therefore identifying something created during the marital partnership that but for that partnership, and the common endeavours of the parties to it, would not have existed, or may not have existed. That product is, or may only be, realisable in the future, but in one sense it is not a future resource because it has been created during the partnership. It is something intangible that will continue over a period of time to produce an enhanced income for the husband, so long as he continues to be employed in equivalent work. It therefore fits within the heading ‘compensation’ together with other elements of the concept. If, as might be the case, with a royalty or the profits (after deduction of remuneration) of a company a capital value can be placed on such an asset I accept that the wife’s entitlement and award by reference to it might be classified as one based on sharing rather than compensation. Normally such a capital value would be based on a multiple of earnings or profits and is time limited in this way.

[76] In my view, a reasoning process that brought enhanced income or earning capacity into account by reference to the concept of sharing rather than compensation is permissible. The categorisation within the rationale and reasoning process are not so distinct and watertight. Indeed Lord Nicholls recognises the overlap between financial needs and compensation in para [15], and his description of sharing in para [16] is wide enough to cover an award in respect of an enhanced income or earning capacity and thus economic disparity flowing from it. Also he points out that double counting should be avoided, as does Baroness hale in para [137] where she also indicates that any or all of the elements of the rationale might provide the basis for an award.

[77] Thus it seems to me that a wife who was never on the road to becoming a high earner could have disadvantage by reference to (a) her potential level of income in the job market arising from her role in the marriage (which could extend to a practical inability to obtain any appropriate employment or an income that should be taken into account), and (b) her loss of a share in a fruit of the marital partnership namely the product of the husband’s enhanced income and earning capacity, covered under the headings needs and sharing rather than compensation. But they could also be included under the heading compensation.

[78] In para [154] Baroness Hale refers to the wife being entitled to a share in a large surplus, part of which will relate to this enhancement of income or earning capacity on the principles both of sharing the fruits of the matrimonial partnership and of compensation. Also in my view:

(i) the passage in para [144] relied on by the husband is qualified by the words ‘in general’ and is not directed to this point, but to the question whether the marital partnership should stay alive and therefore, for example, to the point whether a continuing commitment by the wife as the primary caretaker of the children should have this effect, and

(ii) the passage in para [154] relied on by the husband does not preclude the enhanced earning capacity or income of the husband being taken into account as compensation, or as part of the capital division.

[79] More generally if enhanced income or earning capacity was excluded from compensation and, as a result, from being taken into account at all in determining what the overall fair result should be under either needs or sharing, in my view this would fly in the face of an application of the principles of equality and non-discrimination in the assessment of the fruits of the marital partnership, and the point that fairness requires the court to address a disproportionate financial loss to the party who during the marriage has earned, and who will continue to earn, a lower or no income ...”          

114.  Charles J found it necessary to compare and distinguish between future income and earning capacity with an enhanced income and earning capacity as a fruit of marital partnership during its existence and when it ends, and explained how they should be approached after the end of such marital partnership:

“[80] I accept that there is at least the potential for overlap between future income and earning capacity and enhanced future income and earning capacity and the dividing line between them is not capable of precise definition. I use the descriptions primarily to distinguish between the part of the husband’s future income that can be said to be a fruit of the marital partnership and the part that cannot.

[81] All of the husband’s future income and earning capacity cannot be described as a fruit of the marital partnership. Indeed if a ‘but for’ test is applied it is easy to say that but for the talents and energy of the husband he would not have achieved the earnings and earning capacity he has, but this cannot be said of the contribution made by the wife to his home life and the ability it gave him to concentrate on and prioritise his work (see for example para [151] of the speech of Baroness Hale referring to the point that if the money maker had not had a wife to look after him no doubt he would have found others to do it for him).

[82] The acknowledged fact in this case that the wife’s role and contribution to the marital partnership was of great assistance to the husband in furthering his career is a consequence of the choices made by the parties to the marriage. Such a contribution as a supporter of the husband’s career, as a home maker and as a caretaker of the children by a wife is substantial. In general, depending on, and subject to, factors such as the position at the start of the marital partnership and its length, on a non-discrimination, equal and fair approach it founds the conclusion that pursuant to the yardstick there should be an equal division of the product of the husband’s income earned during the marital partnership.

[83] In my view the position changes when the marital partnership ends. This is because the joint venture and participation of the parties as equal partners in that marital partnership whose contributions to it are to be assessed in a non-discriminatory way ends. After that termination the focus is no longer on the effects of the contributions of the parties as equal partners in assessing the product of their partnership but with the effects of their separate contributions as the source of the husband’s income in the future.

[84] In considering the position after the termination of the marital partnership in my view it is the role and contribution of a wife during the marital partnership that forms the basis of the element of the husband’s earning capacity and future income (ie his enhanced income or earning capacity) that can be said to be a fruit of that partnership. As Lord Nicholls points out in para [85] in Miller & McFarlane the spade work for rewards received towards the end, and after the end, of the marital partnership has been done during it. The wife’s role and contributions have enabled the husband to create a working environment which has produced greater (enhanced) rewards of which she should have a fair share.

[85] However, in my view the balance of his future income and earning capacity is the product of the husband’s talents, energy and good fortune, notwithstanding that he has been supported by the wife, and they have been applied, expended and enjoyed during the marital partnership.

[86] I, of course, accept that a wife who continues to act as the primary caretaker of the children of a marriage in a separate household continues to make a contribution to the family (my emphasis), or the marriage, after the end of the marriage (see for example Lord Nicholls at para [85]). In my view so does the husband who continues to meet their financial needs. But as this is looking at the position after the marriage is over these contributions whether described as being to the family or the marriage are not, in my view, contributions to the marital partnership because that is over.

          [87] I do not accept that such contributions by a wife to the family after the end of the marital partnership can generally be said to warrant a conclusion that a proportion of the husband’s future income continues to be attributable to the wife’s domestic contribution and thus a fruit of the marital partnership.”         

115.  His Lordship however noted a key feature where the husband may be said to have given the wife a legitimate expectation that, for example, by adopting a frugal lifestyle during their marital partnership, as in the case before me, that in future she would be able to enjoy a much higher economic plane that is relevant to the treatment of both future income generally and the loss by the wife of a share of his enhanced future income and earning capacity, of which he agreed with the speech of Lord Nicholls in Miller that such statement went too far to be acceptable:

“[88] Lord Nicholls refers to this in paras [56] to [58] of his speech:

‘[58] ... No doubt both parties had high hopes for their future when they married. But hopes and expectations, as such, are not an appropriate basis on which to assess financial needs. Claims for expectation losses do not fit altogether comfortably with the notion that each party is free to end the marriage. Indeed, to make an award by reference to the parties’ future expectations would come close to restoring the “tailpiece” which was originally part of s 25. By that tailpiece the court was required to place the parties, so far as practical and, having regard to their conduct, just to do so, in the same financial position as they would have been had the marriage not broken down. It would be a mistake indirectly to re-introduce the effect of that discredited provision.’

116.  Charles J recognised that all this also brought out another point or argument that a wife who continues to care for children after the breakdown of a marriage has a continuing entitlement to a share of the future wealth of the husband, as it was so argued in McFarlane, of which he commented:

“Non discrimination and a wife’s contributions in looking after the home and family

[93] In this context counsel for the wife adopted and praised the arguments advanced in the house of Lords by counsel for Mrs McFarlane as reported in [2006] 2 AC at 626/7. That argument includes the following:

‘ ... A wife who continues to care for the children after the breakdown of a marriage has a continuing entitlement to a share of the future wealth of the bread-winning husband because that constitutes recognition that an ex-husband’s earning capacity is a resource to which the ex-wife may have contributed; an ex-wife may be making an ongoing contribution by looking after the children after separation; an ex-wife may have been economically disadvantaged by her domestic contributions; an ex-wife may have sacrificed a successful career during the marriage. The principles on entitlement and compensation can co-exist. In the context of giving up a career compensation is the more appropriate, It is important that ex-wives should not be regarded as supplicants merely because their contribution has been domestic rather than financial, for that would be to reintroduce the very discrimination which White v White sought to remove.’

...]

[95] What this argument advanced ... does not include is an assertion as to how in general terms the domestic contribution should be taken into account so as to avoid the discrimination removed by White.

[96] In the context it seems to me important to remember that a non-discriminatory, equal and fair approach is two-sided and an approach that has to be assessed and applied against the background and nature of a marital partnership. Therefore it seems to me important to ensure that the pendulum does not swing to far from:

(i) a discriminatory and unfair award based on ‘reasonable requirements’ and a Duxbury capital sum giving the ex-wife enough to meet those requirements until the date of her death assessed on an actuarial basis and nothing more, to

(ii) an award that is unfair and discriminates against the party that has made the main direct financial contribution ...

[99] Naturally the striking of a fair balance involves issues of degree and evaluation. The wife recognises this by capping her claim in respect of future earnings and thereby recognising that if, as is expected, the husband continues to earn at at least the present level, in a few years his capital wealth will on the award she seeks pass that of the wife and will continue to grow much faster. That cap is an acknowledged and inevitable value judgment and it is put by the wife at £1.5m, on the basis of there first being an equal share of the 2006 and 2007 bonuses.”

117.  Charles J proceeded to examine how the disparity of financial position between the parties after the end of the marriage by reason of the larger earnings or earning capacity usually of the husband should be addressed by reference to the speeches of the House of Lords, and for example through periodical payments, in funding the borrowing for a lump sum on a clean break, or as the reason to depart from equal sharing of the matrimonial property on the basis that the disparity of financial position between the parties can be made up:

“[102] Disparity of financial position after the end of the marriage by reason of the larger, or much larger, earning capacity of one party (generally still the husband) is mentioned in a number of places and contexts in the speeches in the House of Lords (see for example paras [39], and [142]-[143]).

[103] Whether classified as a family asset or as future income or as a powerful resource, it is clear that a husband’s future income is an asset that often falls to be utilised in achieving a fair result. This can be through periodical payments (not restricted to needs), in funding the borrowing for a lump sum on a clean break, or as the reason for an unequal distribution of capital on the basis that the disparity will be made up. There are other examples that could be given and which could be based on one or more of the concepts of needs, compensation or sharing.

[104] The wife advanced the following propositions by reference to the foreign cases but it was submitted and I agree that they accord with the guidance given by the House of Lords, namely:

1.1 An earning capacity developed and nurtured during a marital partnership is a thing of value which falls to be fairly or equitably shared at the end of the relationship.

1.2 A non-working party can validly claim by virtue of her domestic contributions to have contributed substantially to the creation and development of this earning capacity.

1.3 The sharing can be effected by means of augmenting the capital award or by means of a direct spousal periodical payments award.

1.4 In determining the extent of the sharing the court must not be falsely confined by ‘needs’, ‘reasonable requirements’ or ‘ marital standard of living’.

1.5 Rather the court should recognise that marriage is an ‘economic partnership’ or ‘an economic unit which generates financial benefits’ or ‘a joint endeavour’ where the ‘partners should expect and are entitled to share [its] financial benefits’.

1.6 In determining the extent of the sharing the court should have regard primarily to principles of compensation and in particular should have regard to the sacrifices and economic disadvantages suffered by the non-working spouse. The principle of non-discrimination requires this. This process ‘seeks to recognise and account for both the economic disadvantages incurred by the spouse who makes such sacrifices and the economic advantages conferred upon the other spouse.’

1.7 Furthermore, ‘great disparities in the standard of living that would be experienced by spouses in the absence of support are often a revealing indication of the economic disadvantages inherent in the role assumed by one party’.”

118.  Charles J then went on to consider the rationale for an award in respect of future income by first identifying those which do not justify such an award:

“[107] When, as here, a share of future income or earning capacity cannot be justified by:

(i) needs (generously applied),

(ii) compensation (in the sense of an award to meet the disadvantages and losses to the wife in earning an income arising from the choices made during the marriage whether that be the loss of a high earning career or difficulties in entering the job market, because of absence from it and/or the continuing care of children, or

(iii) by the sharing of the existing and marketable capital assets built up during the marital partnership as the product of the husband’s earnings or work and the lifestyle of the parties,

the question arises: What is the rationale for an award in respect of the husband’s future earnings?

119.  To answer that question, and in determining what a fair award should be, Charles J stated that the court should take into account the length of time that the wife has enjoyed the fruits of the spadework and joint endeavours of the parties, the likely future product of that spadework and endeavour, an evaluation of the effects of the respective past and future contributions of the parties on the ability of the husband to earn his future income and thus on his earning capacity in the future, and the overall effects of an award with and without a provision in respect of future income:               

“[109] To my mind the answer is not that a wife should receive a payment for her continued care of the children and thus an award for the performance of that role akin to a payment for service. In my view that aspect of an award is covered by needs or compensation in the sense set out in [107] (ii) above.

[110] In my view key factors in answering the general question as to the rationale for making an award in respect of future income that will as time passes create a disparity between the earning husband and the non-earning wife are the issue relating to enhanced income, legitimate expectation, non-discrimination, disparity and the underlying aim discussed earlier.

[111] To my mind it is in particular the concept of an award in respect of the loss of a share in the enhanced or greater income or earning capacity created by the contributions, lifestyle and spadework of the parties during the marital partnership, and thus an award in respect of that fruit or product of the joint endeavours of the parties during the marital partnership, that provides the answer to the general question. In my view that rationale could be classified as either compensation or sharing.

[112] In my view the quantification of any such additional award is fact sensitive and difficult to describe in general terms or by reference to a formula.

[113] Where, as here, an award is offered, or can be made, on a clean break basis that provides the wife with capital that will meet:

(i) her entitlement based on needs, and

(ii) all other aspect of compensation and sharing as described in para 107 (ii) and (iii) above, in that it enables her to live at a standard at least comparable to that enjoyed in the later years of the marriage and to make substantial savings,

In my view the focus should be on the added effects of the provision to address the ‘run off’ from the marital partnership, and thus the transition to independent living, considered in the context of the overall award.

[114] It is therefore in large measure part of the overview of fairness by reference to the reasoning process adopted. Factors to be taken account will include the length of time that the wife has enjoyed the fruits of the spadework and joint endeavours of the parties, the likely future product of that spadework and endeavours, an evaluation of the effects of the respective past and future contributions of the parties on the ability of the husband to earn his future income and thus on his earning capacity in the future (as opposed to an assessment of the effects of their contributions during the continuation of the marital partnership) and the overall effects of an award with and without a provision in respect of future income.”      

120.  While accepting earning and earning capacity can be regarded as part of the matrimonial property, Charles J was of the view that for the yardstick of equality to apply readily and with force for its fair division, it must be based on the concept of an equal and voluntary partnership providing mutual emotional, economic and general support and matching contribution, and hence a point or line for defining the matrimonial property should therefore be a date when that mutual support ends, and not thereafter in relation to future income, as otherwise it would be stretching the concept and identification of matrimonial property too far, although the application of the yardstick of equality should remain flexible, but where the main family asset of the marriage were the husband’s very substantial earning power and the properties and investments acquired as part of, and by the expenditure of, his income, and that his earning power increased during the marriage when very considerable financial benefits were derived from it and in, and by, the later years of the marriage it and the lifestyle of the parties had produced substantial capital assets, His Lordship stated the correct application of the guidance given by the House of Lords. and thus the correct process of reasoning in that case:

[116] In my view, the concept of the matrimonial property to which the yardstick of equality applies readily and with force is based on the concept of an equal and voluntary partnership providing mutual emotional, economic and general support and matching contributions to it of different kinds. A point, or line, for defining the matrimonial property is therefore a date when that mutual support ends see, for example, para [174] of the speech of Lord Mance where he says:

‘To the extent that the focus is on the matrimonial acquest, the period during which the parties were making their different mutual contributions to the marriage has obvious relevance ... it seems to me therefore natural in this case to look at the period until separation.’

...

[126] In my judgment the correct application of the guidance given by the House of Lords, and thus the correct process of reasoning, in this case is to:

(i) start with the common ground, namely that the assets of the parties as at January 2005 were matrimonial property to which the yardstick of equality applies readily and with such force that (subject to adjustment in an overview) they should be equally divided,

(ii) accept and acknowledge that the relevance of the argument over the identification of the matrimonial property and thus its extension beyond January 2005 relates to the application of the yardstick and that its application is flexible,

(iii) reject, or abandon consideration of, the arguments that whether by reason of proximity or otherwise the matrimonial property can be increased to include further bonuses, and proceed on the basis that the matrimonial property to which the yardstick of equality applies readily and with force comprises the assets of the parties as at 1 January 2005, and

(iv) consider the award that should be made in respect of further bonuses, including the wife’s loss of a share in the husband’s future income and the product of his enhanced or greater income and earning capacity to which she contributed, against that background.”

121.  In applying this guidance to his reasoning over the treatment of the husband’s bonuses, Charles J found that in January 2005 the underlying foundation of the marital partnership having been brought to an end and was not re-established, the bonuses for the years 2006 and 2007 did not therefore form part of the matrimonial property, but the principles of fairness, equality and non-discrimination required that the wife receive an additional award as well as one-half of the matrimonial property to reflect her contribution over the years of the marital partnership that had resulted in the husband’s enhanced or greater earning capacity, as the wife’s incalculable but in purely economic terms small, contribution to the husband’s enhanced or greater capacity founded an award that eased her transition to independent living, hence the additional sum would equivalent to the total one-third of the income earned in 2005, a sixth of the income earned in 2006 and one-twelfth of the income earned in 2007.

122.  Mr Todd who in fact represented the wife in H v H with Mr Nicholas Mostyn QC (as he then was) submits that the law on whether a work capacity is an asset capable of sharing was then still very much in flux, but a decade later it is now clear, as shown in B v S, Lawrence v Gallagher and in particularly Jones v Jones, all already cited above, that it is decisively against the submission made on behalf of the Wife, but even if H v H taken at the highest does not assist her, as there Charles J backdated the wife’s maintenance to the date of separation and then allowed a ‘run off’ to compensate her for her loss of a share in the husband’s future income by awarding her in diminishing scale 3 years of his bonuses, which would mean that the Wife’s claim in the present case on an H v H basis would have been fully disposed of in 2014, but H v H is both controversial and hugely different on its facts, and that in any event the Wife’s claim, he argues, is overly ambitious as the Husband is already giving her almost everything, with the result that she thus exits the marriage with all the parties’ capital and almost 100% of the matrimonial property.

123.  H v H was of course not the only case in which post-separation income was made a subject of a sharing claim. In CR v CR [2008] 1 FLR 323, where the marriage lasted for 24 years with 2 children and neither the husband nor the wife had brought any significant resources into the marriage, during which the wife had given up her job to join the husband in Hong Kong as his job required, and where she had for the most part concentrated on her domestic role. The husband was nearing the age at which he would be able to retire, but as a very senior figure in his industry he was likely to earn in the region of £1m a year net until he chose retirement. The assets at the date of separation were said by the husband to be a little over £8m; by the date of hearing the assets had grown to about £16m, the growth being due in large part to the significant increase in the husband’s shareholdings in the companies for which he worked, both in terms of value and size of holding. The husband offered the wife £6.843m as a clean break, justifying the departure from equality on the basis, inter alia, of the significant post-separation increase in the assets. The wife sought 50% of the assets, plus £350,000 pa over 5 years to compensate her for her inability to share in the husband’s prospective income and, in addition, a proportion of any gain in the value of the husband’s shareholdings at the time of sale after 3 years, whichever was earlier.

124.  In awarding the wife £9m, of which £1m was to be paid in instalments over 3 years, Bodey J held that whilst the matrimonial property might nowadays need to be identified, the court should still strive to take as broad a view as possible of the assets available at the hearing, and there was no good reason for the wife to leave the marriage with less than half of the total assets at the date of the hearing, including the post-separation accruals, as he explained:

“[40] ... the key point is that the assets accruing to the husband post-separation (and the mortgage reduction) were only able so to accrue to him by reason of the wife’s sustained commitment to the family and the domestic infrastructure, whilst he was making his way up the ladder of his chosen career. This applies particularly to his sizable interests under the two share investment schemes, whatever may be their formally stated objectives ...

[41] Without the wife’s support, the husband would not have had that important role and status within the group by virtue of which he came by those assets for which he seeks differential and favourable treatment. In other words this was a financial continuum, the groundwork for which was laid and the seeds sown during the parties’ married life together, through how they chose their respective marital roles. Attempted forensic distinction between the differing assets in the kitty creates issues which are in many (though not all) cases sterile. In my view, therefore, whilst the ‘matrimonial property’ may nowadays need to be identified, the court should still strive to take as broad a view as possible, especially in cases such as this, where the husband’s asset-accruing role has not changed in any way since the separation and where the accruals have not come from any new source of risk, endeavour, or luck.”   

125.  Bodey J proceeded to consider the most contentious issues between the parties as to whether the husband’s shares in the group investment schemes are likely to rise in value in the foreseeable future, and whether the wife should be ‘compensated’ for her inability to share in the ‘powerful resource’ which is the husband’s earning capacity:

“[68] It seems to me reasonable to conclude that in the future the value of the husband’s shares will probably increase, since from everything I have read the group seems to be large, in good fettle and competently managed. Quantification, however, is so unforeseeable as to be impossible. I have no idea and no way of telling how much more than at present his shares are likely to become worth...

...

[93] This leaves only the factor of the husband’s likely future income stream, estimated above at getting on for £1m per annum net, much more than that needed objectively for the requirements of a very comfortable lifestyle. Would it be fair to ignore this feature, bearing in mind first and foremost the wife’s ‘needs’ (generously interpreted) and also that she provided the domestic infrastructure and support which enabled the husband, through talent and hard work, to have that likely future income?

[94] This is an area of some difficulty which, although not arising directly for determination in Charman v Charman (No 4) [2007] EWCA Civ 503, [2007] 1 FLR 1246 led the Court of Appeal to say this at para [67]:

‘Irrespective of whether the assets are substantial, likely future income must always be appraised for, even in a clean break case, such appraisal may well be relevant to the division of property which best achieves the fair overall outcome. We appreciate that remarks of Baroness Hale in Miller, at [154], are also said to permit argument that a party’s earning capacity is itself an asset to which the other has contributed and which might to some extent be subject to the sharing principle; this seems to us an area of complexity and potential confusion which in this case it is unnecessary for us to visit.’

[95] Reluctant though I am to venture into any area of complexity or potential confusion, the financial ingredients of the instant case require a decision to be taken. My conclusion is that it would not be fair here to ignore the big income imbalance. Some recognition is required of the fact that the wife’s half share of the overall resources is ‘all’ she will have to provide for her reasonable needs in the context of the overall resources; whereas the husband will have the same share of the assets plus the likelihood of a very large ongoing income, much greater than his generously assessed reasonable requirements.

[96] How is that imbalance to be resolved, or mitigated, and by what quantification? The most straightforward and least controversial way is to link the required recognition, if the figures permit, to the degree of generosity of the assessment of the wife’s reasonable requirements – an approach which brings me back to the figures ...

126.  By adopting this approach Bodey J assessed the wife’s income requirements at about £160,000 pa and found that she would require a £5m investment fund, adding this to the matrimonial home and a holiday home, together worth £4m, he therefore held that the wife was entitled to about £9m, £1m more than on an equal division.

127.  Another case in which the court also awarded the wife a share in certain future income of the husband in addition to an equal division of the parties’ wealth is B v B [2010] 2 FLR 1214, where the parties had been married for over 10 years after a relationship lasting more than 15 years, there were 3 children with the husband working as a trader and the wife unemployed. By the date of the ancillary relief proceedings, more than 2 years after separation, the husband’s assets had increased considerably as a result of performance-related bonuses, although payment of an element of each of his annual bonuses, in both cash and shares, had been deferred over 3 years. The resources available at trial were £12.3m, but the husband was due to receive an additional £2.7m in deferred instalments within a few months. The husband was also due to be paid further deferred instalments in subsequent years, which might total as much as £3.5m, but it was also possible that that his entitlement to these would be affected by his plan to retire as a trader at the end of the year. The wife argued that she was entitled to half the assets at the date of trial including any deferred elements of bonuses already earned, ie about £9m, while the husband argued that her award should be restricted to £6.5m to reflect the fact that a substantial part of his assets had accrued post separation in the form of performance-related bonuses some of which had not yet been paid, but also to enable him to set aside a sum of for educating the children.

128.  In awarding the wife £7m plus 15% of certain additional sums subsequently received by the husband, Moylan J held that while there was no justification for the wife to receive any further share of wealth generated by the husband whatever his future employment path, and hence an equal division of the parties’ wealth as at the date of trial was not justified in this case due to the fact that a substantial part of the wealth had accrued directly as a result of the husband’s endeavours since separation, but if the husband was to receive additional capital from deferred instalments, the wife should also be entitled to a share thereof, as His Lordship explained in para [48]:

“ ... the sharing principle is not confined to ‘matrimonial property’ but applies to all the parties’ resources. The search for ‘ ... the division of property which best achieves the fair overall outcome’: para [67] Charman v Charman: ‘ ... the requirements of fairness in the particular case’ para [9] Miller/McFarlane.”

129.  In the more recent decision of the Court of Final Appeal in Kan Lai Kwan v Poon Lok To Otto [2014] 17 HKCFAR 415, it was held that the profits accruing to the husband’s company during the post-separation period were to be shared equally between the parties, as they arose out of the business which had been built up in the course of the marriage in respect of which the wife can legitimately assert an unascertained share on the principles accepted in LKW v DD supra., as Ribeiro PJ explained:  

“[128] When considering ancillary relief, the financial position is generally approached on the basis of the values existing at the date where the hearing takes place.

[129] Where, however, there has been a substantial period of separation prior to the hearing and where during that period, there has been a steep increase in the value of the matrimonial assets attributable to the independent business or professional efforts by one spouse, unmatched by any contribution from the other spouse, grounds may exist for departing from equality. In some such cases, fairness may dictate that the non-contributing spouse has no claim to share equally in the post-separation accrual to the matrimonial assets.

[130] there are opposing arguments as to whether a spouse should be excluded in such case. As Nicholas Mostyn QC explained in Rossi v Rossi:

... it can legitimately be argued that the party in question has traded with the other party’s undivided share and so should share with that party the profit that has been generated. On the other hand it can equally convincingly be said that the second party has not contributed to the industry or endeavour that gave rise to the profit or growth and so it is unfair that the second party should share to the same extent in that profit as the first who made all the effort...

[131] In Cowan v Cowan [2002] Fam 97, Thorpe LJ favoured the former approach and visualised only rare and exceptional departures from equality by reason of post-separation accruals:

The assessment of assets must be at the date of trial or appeal. The language of the statute requires that. Exceptions to that rule are rare and probably confined to cases where one party has deliberately or recklessly wasted assets in anticipation of trial. In this case the reality is that the husband traded his wife’s unascertained share as well as his own between separation and trial ... The wife’s share went on risk and she is plainly entitled to what in the event has proved to be a substantial profit. If this factor has any relevance it is within the evaluation of the husband’s exceptional contribution.

[132] His Lordship’s reference to “exceptional contribution” was a reference to cases where it can be established that the increase is only attributable to what has been called one spouse’s “stellar” contribution. As discussed in LKW v DD cases in that class are necessarily rare and exceptional. H makes no claim to “stellar contribution” in respect of the increased profits of the business in the present case.

[133] The summary of the principles provided in Rossi v Rossi is broader than Thorpe LJ’s stricter approach and is, in my view, preferable. It points to various factors relevant to deciding whether a post-separation accrual justifies departure from equality, including the length of the marriage and separation, the nature of the property accruing and the means or efforts by which it was acquired, and so forth. Of particular present relevance is the following passage:

Assets acquired or created by one party after (or during a period of) separation may qualify as non-matrimonial property if it can be said that the property in question was acquired or created by a party by virtue of his personal industry and not by use (other than incidental use) of an asset which has been created during the marriage and in respect of which the other party can validly assert an unascertained share. Obviously, passive economic growth on matrimonial property that arises after separation will not qualify as non-matrimonial property.

          [134] In my view, the increased Analogue Group profits do not provide a ground for departure from the equal sharing principle in the present case. The parties married in January 1968 and separated in mid-2008, over 40 years later. The period of separation prior to the hearing date was relatively insignificant. The profits accruing to the Analogue Group during the post-separation period arose out of the business which had been built up in the course of the marriage, in respect of which W can legitimately assert an unascertained share on the principles accepted in LKW v DD.”    

130.  Mr Man for the Wife concludes in his submission that these cases illustrate the court’s sensible and broad-brush approach towards sharing the fruits of the matrimonial partnership, and that the court does not blindly exclude assets coming into a party’s hands post separation or post decree and say that those assets must not be shared in any way, as such a rigid and unprincipled approach would be as surprising as it is wrong.

131.  On the contrary, he submits, the court will examine whether the post-separation earnings in question derive from an earning capacity built up during the marriage, or otherwise represent the fruits of a marital partnership. If so, the court would award the other spouse a fair share in these post-separation resources in a way that “best achieves the fair overall outcome”: per Charman v Charman supra.

132.  Mr Man further submits that the Husband’s argument that H v H should not be followed because subsequent cases are against the sharing of earning capacity whether by way of periodical payment out of future income stream, the capitalisation of earning capacity as an asset or the sharing of post-separation accruals, do not upon close scrutiny hold water.

133.  The most obvious problem with this argument, Mr Man submits, is that the Wife is not claiming periodical payments but rather a clean break capital award, which is also the common ground of the Husband, hence what Mostyn J stated in B v S supra above is not applicable, and that insofar as the Husband seeks to rely on the reasoning by Mostyn J by analogy, Mr Man submits that they would not assist either.

134.  He further argues, these reasons do not exclude an award giving recognition to the Wife’s fair share in the Husband’s earning capacity –

(a)   it is incorrect to presuppose, in all cases, that there is only one cause to the husband’s ability to earn his income after a marriage, as it ignores all other causative factors at play, such as the “groundwork” laid in the marriage, the wife’s emotional support, the existence of a “stress-free” environment, the accumulation of experience, reputation, goodwill over the years, and particularly so for a barrister’s practice;

(b)   the fact that a husband has to do the work to earn the money does not mean that he is not benefiting from the fruits of a marital partnership, as there are multiple “but for” causes for earning money, and there is no warrant to just focus on one “but for” cause to the exclusion of all others and say that all of the husband’s earnings are caused by his hard work, and hence the fact that post-separation income will not be earned “but for” the husband’s own hard work should not, and has never been, a reason for excluding such income from sharing, as such an argument ignores the relevance of a host of other “but for” causes, and is flatly inconsistent with the court’s recognition that the husband’s pre-separation and post-separation successes are often on a “financial continuum” which are not distinctly separate.  

135.  Mr Todd however argues that even if an earning capacity may sometimes be relevant to a fair distribution of the assets pursuant to the sharing principle, the assessment of matrimonial and non-matrimonial assets does not ever descend to a valuation of the Husband’s work capacity, and that even if the Wife’s contentions were correct, then it would be necessary to instruct accountants to undertake this but it is never done in any case, and to do so would be to conflate need with sharing, which was criticised by Wilson LJ (as he then was) in Jones v Jones supra:

“[31] ... I feel emboldened to suggest obiter that the proposition of Charles J is confusing and unhelpful; that, in applying the principles of need and of sharing, the court is engaged in two separate exercises, which require it to refer to different considerations (Charman, cited above, at [70] and [72]); and that the suggestion that the result of the assessment under the need principle can be introduced into the assessment under the sharing principle in order to identify the extent of departure from equality is inconsistent with the guidance given in Miller/McFarlane, as recognised in Charman at [73] and as noted by the judge himself at [410], that in principle the higher assessment should found the award.”

136.  This argument that the development of the jurisprudence “has been wholly against the treatment of work capacity as an asset available for sharing” cited in Jones is, according to Mr Man, incorrect in that Jones concerned the proper valuation of the husband’s pre-marital business for the purpose of excluding it from the matrimonial pot, where the Court of Appeal held that Charles J was wrong to have ascribed a capital value to the husband’s earning capacity at the date of the marriage and uprated the value of the business by the same.

137.  On a conceptual level, Mr Man submits, that this objection against the sharing of earning capacity as an asset, and the capitalisation thereof, stems from the oft-cited principles that there is in general no sharing of “future resources” upon the dissolution of marriage, and capitalisation of a spouse’s earning capacity obviously violates this principle as it treats all future earnings as a relevant asset to be shared, but the Wife’s claim here is miles from that extreme position, as her claim is confined to the sharing of pos-separation resources that can be “attributable to a fruit or product of the matrimonial partnership, as per Charles J in H v H, and that she is not seeking to share all of the Husband’s earnings post-separation, but only to share a part of his earnings which reflect his enhanced earning capacity.  

138.  Mr Todd however argues that at least since the time of Lambert v Lambert supra when the courts have been concerned with marriages as partnership, such partnership usually ended on separation, and thereafter there is an absence of spousal support (not to be confused with child support), the courts have expressly acknowledged the important distinction which needs to be drawn between matrimonial and non-matrimonial property, thus post-separation endeavours such as the Husband’s future income clearly falls outside the marital partnership, and while his work capacity is highly relevant to need, but those of the Wife here are fully addressed including agreed capitalisation of periodical payment and provision of a home which is met by Flat C, whilst all her other needs, either HK$59,913 (her Form E) or HK$57,713 (her answers) are fully met by her own income of HK$66,922, it would therefore be an error to seek to add further value to her claim on the controversial basis that she is entitled to share in the Husband’s future earnings.

139.  For the current state of the law in relation to post-separation accruals, given the divergence of the judicial approach referred to above being considered and analysed by different judges in both UK and Hong Kong from the standpoint of different factual matrices of each case over recent years, in my view the starting point for that analysis has always been the oft-cited passage from the decision of Deputy Judge Nicholas Mostyn QC, as he then was, in Rossi v Rossi [2006] EWHC 1482 (Fam), [2007] 1 FLR 790, where he provided the following guidance at [24], and as applicable to this case:

“24.1 The statute requires all the assets to be valued at the date of trial.

...

24.3 Assets acquired or created by one party after (or during a period of) separation may qualify as non-matrimonial property if it can be said that the property in question was acquired or created by a party by virtue of his personal industry and not by use (other than incidental use) of an asset which has been created during the marriage and in respect of which the other party can validly assert an unascertained share. Obviously, passive economic growth on matrimonial property that arises after separation will not qualify as non-matrimonial property.

24.4 If the post-separation asset is a bonus or other earned income then it is obvious that if the payment relates to a period when the parties were cohabiting then the earner cannot claim it to be non-matrimonial. Even if the payment relates to a period immediately following separation I would myself say that it is too close to the marriage to justify categorisation as non-matrimonial. Moreover, I entirely agree with Coleridge J when he points out that during the period of separation the domestic party carries on making her non-financial contribution but cannot attribute a value thereto which justifies adjustment in her favour. Although there is an element of arbitrariness here, I myself would not allow a post-separation bonus to be classed as non-matrimonial unless it related to a period which commenced at least 12 months after the separation.

24.5 By this process the court should, without great difficulty, be able to separate the matrimonial and non-matrimonial property. The matrimonial property will in all likelihood be divided equally although there may be deviation from equal division: (a) if the marriage is short; and (b) part of the matrimonial property is ‘non-business partnership, non-family assets’ (or if the matrimonial property is represented by autonomous funds accumulated by dual earners).

...

24.7 In deciding whether a non-matrimonial post-separation accrual should be shared and, if so, in what proportions, the court will consider, amongst other things, whether the applicant has proceeded diligently with her claim; whether the party who has the benefit of the accrual has treated the other party fairly during the period of separation; and whether the money-making party has the prospect of making further gains or earnings after the division of the assets and, if so, whether the other party will be sharing in such future income or gains and if so in what proportions, for what period, and by what means.”         

The Proper Approach

140.  I propose to adopt this approach, which as noted above was preferred by the Court of Final Appeal in Kan Lai Kwan as the broader one, to deal with the issue over the Husband’s enhanced future earnings and earning capacity which can neither be quantified, nor could there be attributed any direct contribution from the Wife after the divorce, and since she is not seeking any periodical payments as it is common ground that there be a clean break between the parties by applying the sharing principle on the matrimonial property.  

141.  Firstly, since all the assets are to be valued at the date of the trial, if the Husband’s post-separation accruals of earned are to be treated as matrimonial property on the basis that the payments related to the period when the parties were still cohabiting, their value should be reflected in the assets acquired by him post-separation, and in this case the only relevant asset would be his cash/bank balance disclosed in his Form E of just over HK$1 million, but that was then in November 2013 and was never updated at the trial.

142.  Whatever may be the true cash balance of the Husband in 2015, the Wife argues that it should be added back all his payments made to C, which thus brings me back to the remaining issue over the pocket money averaging HK$25,000 per month and totalling HK$1.3 million calculated to the trial, against which the Husband argues as part of his post-separation spending and hence should not do so.

143.  In [58] above I already found the Husband’s 2 earlier payments to C totalling HK$1.2 million as “wanton, reckless or extravagant” non-marital spending either pre-separation or so soon thereafter that they should in the circumstances of the parties be added back to the marital pot or re-attributed to his assets, but can the same be said about these payments of pocket money made regularly post-separation?

144.  In MKKWH v RKSH referred to above, the Court of Appeal refused the wife’s request to add back the husband’s non-marital expenditure of HK$71 million on his children born out of wedlock and their mothers as they were not “wanton, reckless or extravagant”, and that it was wrong in principle for the court to examine whether they amounted to such conducts that caused the destruction of marriage.

145.  Here whilst the Husband’s girlfriend C clearly has earning capacity and is not a proper or necessary dependent, it is not clear why she has not been earning or about her financial situation other than the fact that she has been cohabiting with him over the past 4 years, and that these pocket moneys were, as what they are called, for her daily use. Although it could be said that such expense was a depletion of the Husband’s resources and may thus reduce his ability to meet the Wife’s needs or those of the daughters and that they have not benefited from such expenditure, there is simply a lack of evidence or information to enable me to safely conclude that these payments amount to financial irresponsibility and dissipation of assets that is “wanton, reckless or extravagant”, or to such conduct which is so obvious and gross that it would be inequitable to disregard to justify their adding back through the Norris route, but rather as part of her arguments for departing from equal division of the matrimonial property as in ARAV to achieve a fair result.

146.  The next step would be for me to revisit the matrimonial property identified and valued at the trial together with the added-back cash to the Husband’s assets which reveals a very similar position between the parties:

Assets		Husband		Wife
Matrimonial Home:	Flat D	HK$ 5,560,000	Flat C	HK$ 5,370,000
Cash in Bank		HK$ 1,094,260		HK$ 1,515,524
Added Back Cash		HK$ 1,200,000
Insurance		HK$ 368,024		HK$ 312,951
Personal items		HK$ 5,000		HK$ 20,000
Pensions		HK$ 180,261		HK$ 1,622,484
	Total Assets:	HK$ 8,407,545		HK$ 8,840,959

147.  I shall now turn to consider the parties’ Open Proposal, starting first with the Husband’s by reference to his “Net Effect Table” at Appendix 1(b) where he has included the parties’ liabilities, being HK$3,653,504 for him and HK$784,837 for the Wife, from which he then set off against their respective assets and by adding his proposed lump sum of HK$300,000 for the Wife and HK$500,000 of capitalised maintenance for the daughters to arrive at what he claims to be the net effect of the Wife getting 73% of the total matrimonial property and him only 23%.  

148.  In fact, by adding back the HK$1.2 million to the Husband’s asset, as I have found above, the net effect of his proposal would be somewhat lower for the Wife getting instead 67% of the total assets while his share would accordingly go up to 33%. However, as noted above, Mr Man argues that either way the Husband’s “Net Effect Table” is not an accurate representation of the parties’ respective net value and does not delineate the proper scope of the sharing claim for the following reasons:

(a)   the value of Husband’s “cash in bank” is as of November 2013 only while that of the Wife is as of June 2015, hence with at least two years of his profits excluded from the table which is significant given that his annual gross income had been over HK$4 million in the past 3 years;

(b)   the inclusion of the outstanding mortgage of HK$1.4 million which is not proper as they represent his future instead of current liability which is being met on a monthly basis from his monthly income, and hence its inclusion understates his net asset position;

(c)   the inclusion of “Westone Notice-to-quit” of HK$666,000 as a liability is not justified as the payment would not be necessary if the Husband is to give 6 months’ notice to terminate his tenancy, and there is no indication of why he will not do so;

(d)   the inclusion of his outstanding legal fees as a liability when there is no equivalent deduction from the Wife’s assets.    

149.  I agree that the Husband’s cash in bank was not updated at the trial and may not accurately reflect the true position, but as it was never raised either before or during the trial, it is simply impossible to quantify it at this stage, but I agree with the Wife’s argument against the inclusion of the outstanding mortgage of the former matrimonial home of which the Husband has clearly proposed to discharge on a monthly basis from his future income rather than from his existing capital, while the “Westone payment” is just a possible liability which can and should be avoided. As for the Husband’s own outstanding legal costs as a liability, in the absence of the Wife’s equivalent figure which may possibly even out each other, plus the fact that it may well be an issue which needs to be dealt with after the delivery of this judgment, I agree that it should also not be included in the Husband’s Net Effect Tables for the present purpose.

150.  Henceforth, the exclusion of these sums would bring the Husband’s total liabilities down to only HK$1,134,204 which would put his total net assets at a much higher amount at HK$7,273,342, with the Wife getting about 57% and the Husband 43% of the matrimonial property instead of the respective 73% and 27% as stated in his Net Effect Table at Appendix 1(a).

151.  If accordingly the same adjustments of adding back of HK$1.2 million to his cash and the exclusion of those sums from his liabilities are to be applied to his other Net Effect Table based on the Wife’s case at Appendix 1(b) if she is to get Flat D as well, the Wife would end up with total assets of HK$15,185,796, representing 89.8% rather than 100% of the matrimonial property, which would still appear highly disproportionate to the Husband’s 10.2%.

152.  In applying the principles of equality and non-discrimination in the assessment of the fruits of the marital partnership so as to arrive at a fair result, fairness requires the court to also address what seems to be a highly disproportionate financial loss to the Husband who during the marriage has no doubt contributed his fair share to the acquisition of Flat D as part of the matrimonial property.

153.  Thus bring me back to the issue over the Husband’s future plan including primarily to purchase a flat in Bel-Air Residence of similar size of his current apartment of about 900 sq ft which he estimates would require HK$6 - 7 million for down payment. Whether he is going to save HK$100,000 per month for the next 5 or 6 years for that purpose as he proposed in his narrative affidavit, or to sell Flat D upon the younger daughter reaching 21 to fund his purchase, clearly he would then have his own property of similar size and value of both Flats C and D together which constituted the former matrimonial home, while the Wife would likewise have her own property but in Flat C only at half the size and value of the Husband’s property at Bel-Air Residence, not to mention the stark contrast in terms of location, standard and prestige in the Husband’s favour. That cannot in my view be said to be a fair result.

154.  No doubt the Husband would argue that the fact that he has offered to allow the Wife to continue to use Flat D until the younger daughter reaching 21 and to continue to pay for the mortgage of both flats until their discharge would form part of the fair result, it seems to me that they are more to do with his obligation to meet the daughters’ accommodation need until they become financially independent rather than to add more value to his proposal for the Wife on the division of the matrimonial property.

155.  What further underlining the unfairness inherent in this proposal of the Husband is the significant factor of the very frugal lifestyle adopted by the parties and the family throughout the marriage which had given the Wife a legitimate expectation that in future she would be able to enjoy a much higher economic plane, but under his proposal not only would she be denied of such, but that by the time the younger daughter reaches 21, her frugal lifestyle would suffer even further when her home would be reduced in size by half, while the Husband who has since separation in 2011 been able to enjoy a much more luxurious lifestyle would be able to reap the fruit or product of his enhanced earning capacity by being able to amass more capital and acquiring a bigger and much more luxurious home for himself. Whilst no doubt that such enhanced earning capacity of his is due mainly to his own talents and energy, but it must also be the product of the contributions, lifestyle and spadework of the parties during the marital partnership, which has however been denied not only to the Wife but also the daughters, for whom on his own admission he has not been paying his share of their living expenses since he left in June 2011, and for which he has only agreed to capitalise by way of a lump sum payable within 4 months after Decree Absolute.

156.  Furthermore, in applying the principles of non-discrimination and equality in the assessment of the fruits of the marital partnership, fairness requires the court to address such disproportionate financial loss to the Wife who not only during the marriage has earned, and who will continue to earn a much lower income than the Husband, but who has since 2011 when he left and when the daughters were merely 9 and 12 respectively, also become their primary carer in a separate household, and will continue to make such a contribution to the family after the end of the marriage. Whilst the Husband does so too by continuing to meet the daughters’ monthly expenses and their tertiary education fees, it is essentially a financial one only.

157.  Such disparity of financial position after the end of the marriage by reason of the much larger earning capacity of one party, generally still the husband, as is the case here, was recognised by the House of Lords in Miller/McFarlane as good reasons to depart from equality:

“[142] Of course, an equal partnership does not necessarily dictate an equal sharing of the assets. In particular, it may have to give way to the needs of one party or the children. Too strict an adherence to equal sharing and the clean break can lead to a rapid decrease in the primary carer’s standard of living and a rapid increase in the breadwinner’s. The breadwinner’s unrepaired and unimpeded earning capacity is a power resource which can frequently repair any loss of capital after an unequal distribution: see, eg, the observations of Munby J in B v B (Mesher Order) [2003] 2 FLR 285. Recognising this is one reason why English law has been so successful in retaining a home for the children.”

158.  In the premises it is my judgment that not only will it be fair but also necessary for the Wife to be allowed to continue to make her home at both Flats C & D, and also to enable her to provide a home for the daughters not just until D2 reaches 21 but until such time when they become financially independent including finding their own accommodation.

159.  To do so it would be in my view fair for Flat D to be transferred to the Wife, but not necessarily all on the terms of her Open Proposal, in which she also suggests that the Husband should continue to pay for the mortgage of both Flats C & D until their discharge before transferring Flat D to her, and to pay her a lump sum of HK$300,000 calculated at HK$5,000 per month for 5 years for her maintenance as a clean break between the parties. Whilst this payment is acceptable to the Husband, it is however not clear how that amount of maintenance was arrived at, and the figures seem to me somewhat arbitrary.

160.  Given the Husband’s proposal to pay HK$10,000 per month as maintenance for each daughter, and while the Wife is seeking a higher sum at HK$15,000 for each, as I have found above that the daughters’ expenses actually amount to more than HK$14,400 per month for each taking into account of their share in the general household expenses, and if the Husband is to pay the Wife’s requested sum for the daughters’ reasonable needs (generously interpreted), it seems to me in the circumstances that she would no longer justify any maintenance either by way of periodical payments or lump sum for herself if she is allowed to continue to make her home in both Flats C & D.

161.  The Wife’s current average income stands at HK$66,922 per month, and if the Husband is to pay HK$30,000 per month for the daughters, she would have almost HK$97,000 to meet the monthly expenditure of both herself and the daughters, of which she has stated at no more than HK$60,000 in her Form E, which means she would have some HK$37,000 per month to spare to enable her to take over the monthly mortgage payments of both Flats C & D at HK$11,200 as well as their rates, management fees and utilities of her household currently being met directly by the Husband at about HK$5,500 per month. It seems to me therefore both fair and financially feasible for the Wife to take upon all these expenses by herself as a clean break from the Husband.

162.  On the other hand, if Flat D is to be retained by the Husband, whether or not he needs to sell it to finance his purchase of his own bigger and better accommodation, it would in my view only be fair in the circumstances that the Wife be allowed to do the same for her own accommodation, in which case she may well require financial assistance from the Husband by way of substantial periodical payments, which would however appear to be contrary to the desire of both parties for a clean break situation.     

163.  It seems to me therefore a clean break can in the circumstances of this case be achieved for the Wife to keep the entire matrimonial home for herself without any further financial provisions from the Husband either for her future maintenance or for the mortgage payments. The question must however be asked whether this would also be a fair result to the Husband? As pointed out by Mr Man for the Wife, with such substantial earnings and earning capacity of his, the Husband should have no difficulty amassing sufficient funding to purchase the property of his choice without resorting to the sale proceeds of Flat D. In his affidavit he proposed to save HK$100,000 per month for the next 5 – 6 years for HK$7 million for the down payment of his future home. The Wife does not think it is necessary for him to do so, and I agree.

164.  Firstly, his estimation that he would require a down payment for 50% of the purchase price rather than the customary 30% is too conservative and not consistent with his current income and earning capacity.

165.  Secondly, he has not taken into account of the cash which he already has including the added back of HK$1.2 million, plus whatever additional savings which the Wife believes he has been able to accumulate since the balance disclosed in his Form E in 2013, and based on her argument referred to above, it could be substantial. Furthermore, there would be a saving of HK$300,000 if he needs not pay any lump sum to the Wife.

166.  Above all, even putting his net income at the lowest at only HK$200,000 per month, of which as noted above the Wife believes to be much higher, if the Husband is to be responsible, on a clean break basis, only for the daughters’ monthly maintenance and insurance for which he will need to set aside a monthly sum of no more than HK$33,000 at the rate proposed by the Wife, and hence there would be at least HK$170,000 per month, of which Mr Man for the Wife has put as much as HK$399,153 as a senior junior counsel, at the Husband’s disposal to meet that purpose as well as whatever his other needs and expenses.   

167.  Whilst it is correct for the Husband to argue that post divorce he is entitled to spend his future income in whatever way he wants, but as he has since paid HK$1.3 million as pocket money to his girlfriend who has substantial earning capacity and is perfectly capable of working to earn her own pocket money, and if he chooses to continue to do so at HK$20,000 - $30,000 per month, or to continue to spend, for example, on his meals, clothing, entertainment and holidays at a much higher rate than he used to during the marriage or is necessary, when some of the expenses as noted above have already been accounted for as part of the outgoings of his practice, then in my view he should not be allowed to cry poor or argue that he cannot afford to purchase his own property.

168.  Whilst it may appear that for Flat D to be transferred to the Wife on the terms referred to above, and I do not need a net effect table to tell me so, that the Wife is to exit the marriage with the bulk of the matrimonial property, but if that is be in lieu of any periodical payments or further financial provisions which the Wife would otherwise be entitled to and would likely be substantial for years to come if not for life in view of the great disparity of the parties’ financial position, and for all the reasons articulated above, in applying the principles of non-discrimination and equality, it is my judgment that this would be an appropriate case to depart from equal division, and that a fair result in the circumstances of the case would be achieved by the Husband transferring Flat D to the Wife subject to the outstanding mortgage and on a clean break basis, and on the basis that he is to be responsible only for the maintenance and support of the 2 daughters in arrears since June 2011 by way of the agreed capitalised lump sum of HK$500,000, and in future by periodical payments at HK$15,000 per month (generously interpreted) for each of them, and for their insurance premium as well as their tertiary education expenses.   

Conclusion

169.  Accordingly, and upon the Husband agreeing and undertaking to continue to be responsible for the daughters’ insurance premium and their tertiary education expenses, and on the basis that the Wife shall upon the transfer of Flat D to her be responsible for all the outstanding mortgage of both Flats C & D as well as their rates, management fees and utilities and her own insurance premium, my orders are:

(a)   The Husband shall upon Decree Absolute transfer all his interests in Flat D to the Wife absolutely subject to the existing mortgage, whereupon all claims the parties may have against each other do stand dismissed;

(b)   The Husband shall from 1^st September 2016 and thereafter on the 1^st day of each month pay the Wife for the 2 daughters periodical payments at the rate of HK$15,000 per month for each until the age of 18 or completion of full time education;

(c)   The Husband shall within 4 months of Decree Absolute pay to the Wife a lump sum of HK$500,000 being agreed maintenance for the daughters in arrears from 1^st July 2011.     

170.  As for the question of costs, if it remains at issue between the parties, I would prefer that it be argued and dealt with on paper without any attendance in court.

171.  Lastly, in echoing Mr Todd’s remarks in his Closing Submission, and my earlier criticisms of the Husband’s narrative affidavit aside, I agree that the parties here are decent hard working people who are both doing their best for their family and their children, but who have had the great misfortunate of not being able to resolve the difficulties on their divorce and the legal issues raised as a result which admittedly turned out somewhat more complicated than expected. Nevertheless, I hope that this will now enable them to close the last unhappy chapter of their marriage, and that they can find comfort from their faith to move on with their new live.   

172.  I must however not end my judgment without expressing my utmost gratitude to counsel for both sides, not only for their valuable assistance rendered throughout the trial, but also for their concerted efforts in adopting a most courteous, sensible and fair approach towards each other and the parties in particularly in cross-examination with appropriate restrain, and above all by steering clear of the many highly emotional allegations enmeshed in the evidence of otherwise little relevancy but no doubt embittered by the way their marriage ended, which are in my view truly exemplary but sadly too rarely adopted by practitioners in what are usually highly charged situations, and for which they deserve the highest praise from this court.