ME v. A-M G

FCMC 9947/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 9947 OF 2012

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R U L I N G
(Construction and enforcement of court order)

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1.  This application is concerned with the construction and enforcement of a court order dated 30 October 2013, entered into by consent, in which, inter alia, it was agreed that:

(1) four properties in Europe would be transferred to the petitioner husband and a fifth would be transferred to the respondent wife;

(2) each party retained assets otherwise held in their sole names;

In particular, it should be noted that the wife retained the net proceeds of sale from a property previously owned by the parties in Hong Kong. 

2.  I am told that the husband received just over 40 per cent of the assets available for distribution. The application by the husband was to originally extend the time of transfer from 30 April 2014 to 30 July 2014. However, by the time that the matter came before me in September, he was asking for an extension of time until today (ie the end of October) or until the transfers could be concluded. Today is exactly 12 months after the original order was made.  In addition, he sought payment of HK$850,000 in compliance with Order 7 of the court order. The husband has complained that the wife has not been cooperative and he says that she is intent on selling the properties in question and of reducing the lump sum due and owing to him. 

3.  The wife, for her part, asks that the properties be sold immediately, given the default option under the terms of the order.  She says that the husband has failed to comply with the condition precedent relating to the lump sum of HK$850,000 and that consequently she was not obliged to pay the lump sum owed until after that had been complied with.  She denies that she has been uncooperative.

4.  Turning first to the lump sum, this is governed by Order 7, which states as follows:

“The Respondent shall pay or cause to be paid to the Petitioner a lump sum of HK$850,000 to be paid within 28 days of the date of this order, provided that the Petitioner shall have paid in full all sums due by him pursuant to paragraph 12 below.”

   Now, paragraph 12 adds - and I will read this out for the record although it is rather convoluted:

“All costs and expenses associated with the mortgages and the maintenance of the properties, management fees, non-principal private residence charges, annual property tax, income tax and any other outgoings in respect of the properties outlined at paragraphs 1 to 5 above until the date hereof...”

i.e. 30 October 2013.

“...shall be borne by the Petitioner and the Respondent jointly, following which...”

i.e. after that date.

“...all mortgages, maintenance costs, management fees, annual property tax, principal private residence charges, income tax, charges and other costs in respect of the properties at paragraphs 1-4...”

i.e. the husband’s properties.

“...will be borne by the Petitioner and the mortgages and all maintenance costs, management fees, property tax, principal private residence charges, annual property tax, income tax, charges and other costs in respect of the property referred to in paragraph 5...

i.e. the wife’s property.

“...will be borne by the respondent.”

5.  It seems to me that, on a correct reading of these two clauses, it is clear that the intent was that both parties should be jointly responsible for the costs associated with all of the properties up until the date of the order (i.e. 30 October 2013) and, thereafter, responsibility fell according to who was ultimately going to own those properties. 

6.  There are now a number of difficulties arising out of the proper construction of this clause.

   Firstly, the husband says that the parties should be jointly responsible for all costs and expenses from the date of separation in 2011 to 30 October 2013.  He itemises these in his affidavit and claims half of 288,819 in this respect, or HK$144,409.50.  He relies on this clause to support his case on this point. Whereas the wife says that it is clear that what the order envisaged was that the parties should be jointly responsible for any outstanding costs as at the date of the order (i.e. 30 October 2013). What is also plain – and I raised this at the time of the original hearing – is that, on either party’s interpretation, there was no calculation at the time of the expenses that each party said were due and owing to them, according to their own interpretation.

7.  In this respect, Ms Irving has also referred me to the undertaking given by the parties in the order dated 24 September 2012, which reads as follows:

“AND UPON the undertaking of the Petitioner and the Respondent to the court and to each other that, from the date of this Order they will each continue to meet 50 per cent of the shortfall of expenses over rental income in respect of the European properties until settlement of the ancillary relief claim.”

8.  Now, I am told that the reason for this undertaking is that the wife had threatened to withhold payment of her share of the mortgage repayments and other expenses on the properties, and I have been referred, inter alia, to a without prejudice letter from the wife’s then-lawyers dated 4 June 2012, where this is explicitly stated. However, by 24 September 2012, this situation had been righted by virtue of the undertaking. The wife says in her affidavit that, to the best of her knowledge, she has paid her half-share of the expenses in accordance with this undertaking.

9.  On balance, I am inclined to accept Ms Rattigan’s submission that, had the intent been that there should be a full accounting exercise going back to 2011, then that is something that should have been explicitly agreed to and included in the order. On a normal reading of this clause, I accept that the intention was that the parties would split any outstanding sums due and owing as at the time of the order and that an accounting exercise should have been undertaken at the time to determine what that might be. Given that that was not done, I will therefore direct that both parties prepare a schedule, with documentary evidence in support, setting out what expenses each has paid in relation to all five properties, from 24 September 2012 (which is the date of the undertaking) until 30 October 2013.  These figures will then need to be reconciled. I accept that this had been done in part by the husband in the schedule attached to his latest affidavit.

10.  The second difficulty is that it is the wife’s case that she was not obliged to pay the husband the outstanding sum of HK$850,000 until he had settled the expenses due and owing to her under Order 12. The problem is that these costs were not properly identified until shortly before the hearing in September.  Once identified, the parties were able to reconcile the figures in part and this is set out in paragraph 22 of the husband’s affidavit dated 15 September 2014. The husband accepts that he owes the wife HK$19,265.  He does not accept that he owes the monies for the overdraft with the AIB Bank, 50 % of the Danske Bank deposit, income tax on the rental of Taney Manor or 50% from the rental of various of the properties. So I should now deal with each of those points in turn.

A. The AIB overdraft (this is the Irish bank)

11.  This account was dealt with separately under Order 13 of the order and which states as follows:

“Following the sale or transfer of properties referred to at paragraph 1-6 above, the Petitioner...”

i.e. the husband.

“...shall take all necessary steps to have the Respondent removed as soon as practicable as a signatory to the accounts maintained in the joint names of the Petitioner and the Respondent with the AIB, Danske Bankus and Swedbank and as a signatory to the account held with CitiBank by C Investments and to have such accounts transferred into his sole name.”

   The difficulty, of course, is that the AIB account has not been closed, as the transfer of the properties has not yet been completed.  The wife says that she was forced to pay off the overdraft on this account in the sum of €3,302.12, because the bank was threatening legal action.  She has attached a copy of the statement which shows that payment was made in April 2014.  The husband does not deny the fact of the payment, but queries why an overdraft existed in the first place.  The implication is that the wife may have drawn down on this account, as both parties were a signatory to it. I have to say that this seems a little farfetched, especially given the fact that this was a joint account and both parties were able to access information pertaining to it. However, pending clarification, I will not order that this sum be included in the payment to the wife. The parties are to obtain the necessary bank statements in order to clarify the payments made.  In the event that the account was in overdraft as at 30 October 2013, then each party should be responsible for 50% of the overdraft each as of that date.  On the premise that the wife did not utilise this account for herself between October 2013 and April 2014, which is when the account was closed, and the account was used solely to service the husband’s Irish property, then the husband should be responsible for any increase in the overdraft from that time on and should pay the wife whatever sum of money is due to her accordingly.  That will need to be worked out.

B. The Danske Bank deposit

12.  Now, this is also dealt with under separate order.  Order 14 states:

“The cash deposit of €6,300 held by the Petitioner and the Respondent at Danske Bank shall be divided equally between the Petitioner and the Respondent within 28 days of the date of this order.”

   The difficulty is that this has not been possible to do, because the deposit is required until the transfer of the property has been affected.  However, it is clear that this sum is due and owing and, under the terms of the order, this was not allowed for.  Thus, I will add it to the sum of money due to the wife.  It goes without saying that once that money has been paid, the husband should henceforth be entitled to the full sum of €6,300.

C. Income tax rental

13.  This was a little more difficult to determine, given the fact that the evidence in support of the wife’s case appears to be her own estimate and there are no actual tax demands or payments made to support her position on this, or at least none that I could find.  This will also need to be clarified further.

D. Rental of the properties

14.  Although there was no specific reference to the rental of the properties in the order, it was clearly anticipated that the properties could be rented out. In particular, reference is made to the undertaking given in the order dated 17 June 2013, which states that - and I will just refer to the second part of clause A:

“save that it is understood that this does not prohibit the Petitioner and the Respondent from letting the above properties by way of lease of no longer than 12 months”

and all five properties are referred to above. Further reference is made to clause M in the order, which makes it clear that the husband was perfectly entitled to rent out Taney and/or Tallinn, subject to the caveats contained in clause M. I accept that the intention was that the rental would be used in part to help make the mortgage repayments.  Thus I accept that the intention was that the husband would be entitled to retain those monies. Although not specifically stated, I do not accept that the wife was entitled to the 50-per-cent rental amounts claimed, which all relate to periods which are after the date of the order. In conclusion then, and at this stage, the husband owes the wife the sum of HK$50,150 (i.e. HK$19,265 plus €3,150, which at today’s exchange rate is $30,840).  The other sum shall be reconciled later.

15.  I will therefore make an order that:

(1)   the wife shall pay to the husband the sum of HK$700,000 less HK$50,150 (which equals HK$649,850) forthwith;

(2)   the remaining sum of HK$150,000 shall be paid into court pending  a final reconciliation of figures, such sum to also to be paid forthwith;

(3)   the balance of monies shall be released to the parties once there has been a final reconciliation.

16.  I have noted the husband’s assertion that he has been prevented from transferring the properties in part because of cash flow problems caused by the wife’s reluctance to pay him the lump sum in question.  Whether that is true or not, this obstacle has now been removed.

Other points

17.  It is clear from the order that, as from 30 October 2013, the husband was to be responsible for all costs related to the four properties to be transferred to him and the wife was responsible for all costs in relation to the property to be transferred to her. This, however, did not include the legal costs and related expenses of the actual transfer of the properties or the taxes arising out of those transfers.  Those costs were to be split 50-50. Again, there appears to be some dispute over this, with the wife suggesting that, given that the parties have each instructed their own lawyers, that they should each be responsible for the costs of their own lawyers. Unfortunately, this is not what the order says. Thus, for the avoidance of doubt, once all the transfers have been completed, each party shall prepare a schedule, with documentary evidence attached, setting out what each party has paid in terms of legal costs, tax and related expenses.  These amounts will then need to be reconciled.

18.  Under clause K, the husband has indemnified the wife against future liability for taxes, costs, expenses and other liabilities in relation to his four properties.  In other words, he is the de facto owner and he is responsible for all the costs arising out of those properties as from 30 October 2013 and not before.

19.  As at the time of the hearing in September, it seems that a further problem had arisen, in that the wife seemed to be asking that an indemnity be included in the transfer documents in respect of “all costs, taxes, etc arising in respect of the property before or after the date of transfer”, and I was referred to an e-mail dated 8 July 2014 in that respect.

20.  For the avoidance of doubt, clause K reads as follows:

“AND UPON the Petitioner undertaking to the Respondent and to the Court and agreeing to indemnify and keep indemnified the Respondent and her estate against any and all liability for taxes, costs, expenses and liabilities to any party whenever and howsoever arising following the date of this order, in connection with any of the properties (including from the sale of such properties) listed at paragraph 1-4 above.”

   Thus, on my reading, the parties need to be careful about drafting any clause to be included in the transfer so that it accurately reflects clause K.

21.  Insofar as the extension of time is concerned, the parties have now had one year in which to complete all of the necessary formalities.  I will give the husband a further short extension until 31 December 2014 to effect any outstanding transfers. I should add that both parties must also comply fully with the undertakings already given by them during these court proceedings.  I do not wish to be asked to determine a contempt of court action and all that that might entail.

22.  I shall also give you a callover hearing on 24 February 2015 at 9:30 a.m., when I will expect to be advised on all outstanding matters and to be provided with reconciliations as set out above.

23.  Both parties are to personally attend that hearing.

24.  I shall also give you liberty to apply.

25.  I will reserve costs for the time being, pending full compliance.