W, LT v. GWH also known as HGW

FCMC 12735/2015

[2021] HKFC 142

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO 12735 OF 2015

----------------------------

------------------------

-----------------------

J U D G M E N T

(Section 17 application)

-----------------------

Introduction

1.  This judgment arises out of a summons initially filed by the Petitioner wife on the 31 January 2018 in the following terms:

1. A single joint expert be appointed to value the painting by XXXXXXXX entitled “XXXXXXXXXXXXXX”;

2.   The alleged disposition of the said painting to SH, the Respondent’s Father, by the Respondent be set aside; and

3.   SH be joined as a third party, to these proceedings for the determination of the beneficial ownership of the said painting;

4.   Leave be granted for the Order made herein to be served on SH as a third party; and

5.   The costs of and incidental to this application be to the Petitioner.

2.  The issue of joinder was dealt with first and on the 7 December 2018 a short ruling was handed down in that respect. The court declined the wife’s request to join the husband’s father, namely SH as a third party in these proceedings. Reference should be made to that Ruling as necessary. It is of note, however, that SH resides in XXXXX and that the painting in question is also located in XXXXXXXXXXX. SH also told the court that he had no wish to be joined in the proceedings or to participate in them in any way.  

3.  The court is therefore currently only concerned with paragraph 2 of the wife’s summons i.e. an application to set aside a transfer of ownership of the painting, from the Respondent husband to his father SH, in May 2011. As indicated above, the painting in question is known as the “XXXXXXXXXXXXXXXXX” and was painted by the celebrated artist, XXXXXXXXXX.

4.  In essence the court is asked to consider the issue of the transfer of the painting back to SH, in circumstances, where, it is acknowledged that the parties had both a tumultuous and an unconventional relationship. Further it is clear that there can be no question that the painting in question is an heirloom, in the traditional sense of that term, that has been owned by the husband’s family for over 120 years.

5.  It is the wife’s case that the painting was purchased by the husband from SH during the course of the parties’ relationship (although not marriage) and that the purchase was partly made from joint funds. She says that it was understood that this painting was owned by them, although it was always kept at XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX. She says that the husband transferred the painting back to the father, when the marriage was in crises and that this could only have been done in part, in order to defeat any potential claim that she might have against him for ancillary relief. The wife only came to learn of the transfer of the painting after these proceedings were instigated.

6.  The husband disputes this. In essence he says that these arrangements had nothing to do with the wife, but were essentially family agreements entered into by him and his father SH (and brother E) in order to ensure that the painting remained in the family and was not sold, whilst at the same time providing both his father and mother, and indeed his brother, with much needed financial assistance. In summary he said in his witness statement dated the 28 September 2018 that:

23.     While the agreements in 2005 amount to a fairly complex arrangement involving transfer of title of the Painting, the true substance and purpose of the transactions were always to provide financial assistance for my parents to buy a more suitable home without having to sell the Painting, and in such a manner that preserved fairness of inheritance between myself and my brother.

Background to the litigation

7.  In the Maintenance pending suit/Interim maintenance and litigation funding judgment dated the 14 May 2019 it was stated inter alia as follows:

1.   The parties married in XXXXXXXXX on the XX August 2005 and on the 5 October 2015 the wife issued a divorce petition based on the husband’s unreasonable behaviour. This was the wife’s second divorce petition, the first having been issued on the 27 August 2010. This was withdrawn by consent on the 8 April 2011.

4.   It is the husband’s case that the parties have effectively lived separate and apart from about 2010. It is of note that he relocated to Singapore in June 2010 in order to take up a new job opportunity there. He says that the parties’ marital relationship had come to an end prior to that and that the wife remained living in Hong Kong after he left for Singapore. Notwithstanding that they decided to have a child together and C was subsequently conceived seemingly with medical assistance.

5.   On the 18 December 2015 the parties agreed to have joint custody of C, with care and control to the wife and reasonable access to the husband.

…

General background

9.   Both parties originally worked in the financial field and are well educated. The wife, who is Hong Kong Chinese, studied at an Ivy League College in the United States and subsequently worked for a well-known Investment Bank and as the CFO of another local company. She moved away from the financial sector prior to the party’s marriage and in 2002/03 she began to work in what has been described as an educational start up, although it seems that the company in question is now about 17 years old. It is the wife’s case that this company – G Ltd, is loss making. It is not clear to me why she has not taken a salary from this company or why she would remain working in it if it is truly a loss making venture. The wife is now 49 years old and she is also primarily responsible for the care of C. Longer term however, she will need to maximize her own earning capacity and to consider the various career options now open to her.   

10. The husband, who is XXXXXX, was also employed in the financial field as a banker and he has held a number of senior positions in both Hong Kong and Singapore mainly in the commodities field. During the period of time that he was employed he was handsomely remunerated and the parties enjoyed a high standard of living as a result, with the husband supporting the wife who remained based in Hong Kong throughout. Unfortunately, the husband was made redundant in January 2016 and it is his case that he has been unable to find a similar position in the banking field since, although he has actively sought alternative employment. Consequently, he says that he has had no option but to look at other ways to earn a living. He subsequently set up his own metals trading business known as GXR. The husband is 46 years old and he is currently cohabiting with a new partner. He says that he intends to remarry and to have a family with her.  

The Painting

8.  In the husband’s witness statement dated the 28 September 2018, he sets out the background to the painting itself as follows:

The history of the Painting and its value as a family heirloom

10.  The Painting is a unique and irreplaceable family heirloom and has been in my family for more than 120 years. It was acquired directly from XXXXXXXXXX by my great grandfather, who was a personal friend, sales agent, advisor and advocate of the artist. It was passed to my grand aunt by inheritance and then to my father by inheritance.

11.  Since the Painting was passed to my father, it had never left XXXXX. Even after the agreement made between my father and I in 2005 (to be further discussed below), I never took actual physical possession of the Painting.

12.  As the Painting is a family heirloom, I previously thought I would one day inherit the Painting. However, due to these proceedings, the relationship between my father and I became increasingly strained and I now believe it is increasingly unlikely that I will ultimately inherit the Painting.

9.  During the trial, the husband elaborated on this and the stories that have been passed down over the years which explained how the painting came to be in his family’s possession. He also explained that his family were from well educated, but lower middle class stock, his mother being a XXXX and his father a XXXXXX. The painting however, was something unique within their family. He said that his father took great pride in the fact that it had not been sold previously and that he was the custodian of the painting for future generations. In summary Mr. S Marwah, for the husband, explained it thus in his closing submission:

26. It was clear from the Husband’s evidence the profound importance his family, and his Father in particular placed on the Painting – as a central element of his family’s heritage. Those recollections are consistent with the cares and concerns expressed by his parents in the letters leading up to the 2005 agreements.

I tend to accept both what the husband said about this in the witness box and the summary provided by Mr. Marwah in that respect.

Further relevant background

10.  The parties met in London in July 2002 and commenced a long distance relationship. They became engaged in August 2004 and, as indicated above, they married in XXX on the 20 August 2005. It is the wife’s case that prior to the wedding they set up a joint bank account. During this period, the existing evidence shows that the there was some discussion between the husband and his family concerning the transfer of the painting, which had been valued by Sotheby’s in October 2003 for between GBP1 – 1.5 million, but was subsequently valued by Christie’s in February 2004 for a much reduced sum of approximately GBP400,000 – 600,000. In any event these discussions, eventually culminated in two agreements both dated the 2 May 2005, the first between the husband and his father SH and the second supplemental agreement between the husband, the husband’s brother, E, and SH. It is of note that these agreements were drawn up by the family lawyer in XXXXX.

The agreements

11.  The first agreement states as follows:

XXX, 2 May 2005

Agreement on the sale of XXXXXXXXXX painting XXXXXXXXXXXXXXXXX

This agreement concerns the sale of XXXXXXXXX painting XXXXXXXXXXXXXX, and takes effect immediately.

Summary

Seller: SH, born on XXXXXXXXXXX

Buyer: GH, born on XXXXXXXXXXX

The- painting: XXXXXXXXXXXXXX by XXXXXXX. SH has Inherited the painting from VH, deceased on XXXXXXXXX. 

Selling price: XXX 5,000,000

Date of sale: 2 May 2005

SH and GH hereby agree on the following transaction:

SH hereby transfers the painting XXXXXXXXXXXXXX by XXXXXXXXX to GH with immediate effect against the payment of the selling price, which amounts to XXX 5,000,000. The selling price shall be paid according to the following schedule:

10 May 2005:	XXX 4,000,000
1 May 2008:	XXX 200,000
1 May 2010:	XXX 200,000
1 May 2012:	XXX 200,000
1 May 2014:	XXX 200,000
1 May 2016:	XXX 200,000

The schedule may be changed provided that both parties agree on a new schedule.

12.  The second agreement added as follows:

XXX. 2 May 2005

Supplementary Agreement, Sale of XXXXXXXXXXX Painting XXXXXXXXXXXXXXX

GH has purchased the painting XXXXXXXXXXXXX from SH for XXX 5,000,000. The acquisition date is 2 May 2005, The payment shall be made as described In the sales agreement dated 2 May 2005 with XXX 4,000,000 on 10 May 2005 and XXX 1,000,000 distributed over the period 2006-2016.

After the acquisition. GH shall be responsible for ensuring that the painting is adequately Insured.

GH agrees not to resell the painting before 1 May 2012 unless he has obtained SH and EH’s consent. If the selling price is higher than XXX 7,000,000 as per the XXX value at 1 May 2005, GH, SH and EH shall also agree on an allocation of the amount that exceeds XXX 7,000,000. This clause shall cease to apply after 1 May 2012.

13.  It is not disputed that the husband paid the sum of XXX4,000,000 on or about the 10 May 2005 and that he arranged for the painting to be insured at a much increased figure. This was prior to the marriage in August 2005. The first instalment payment of XXX200,000 was paid after the marriage. The husband did not pay the second instalment due on the 1 May 2010 and on the 15/18 May 2011 the painting was allegedly transferred back to the father under the terms of the following third agreement:

AGREEMENT

- 。0 。-

The undersigned GH, born on XXXXXXXXXX. And SH, born on born on XXXXXXXXXXX, hereby enter into an agreement concerning the painting XXXXXXXXXXXXXX by XXXXXXXXX.

1.  G [the husband] has breached our agreement of 2005 concerning the purchase of the above painting. He has not paid the remaining amount of XXX 800,000 in accordance with the agreement

We have then agreed that the acquisition of the painting is to be reversed so that ownership is restored to SH effective from 15 May 2011.

2.  The termination settlement. i.e. the settlement to G for the return of the painting, is as follows:

a.  SH waives the claim on the remaining amount of XXX 800,000.

b.  SH transfers his claim for 2 million XXXXXXXXXXXX, which E (the brother) owes him, to G effective from 15 May 2011.

c.  G gives SH a gift of XXX 450,000.

d.  The amount that remains after deducting what G has already paid for the painting, XXX 4,200,000 minus XXX 2,000,000 (cf. Item b above) and minus XXX 450,000 (cf. Item c above), namely XXX 1,750,000, shall be settled as a loan from G to SH. (should read from S to G) The loan will be interest-free. SH can settle the loan at any time. G may claim the redemption of the loan with a 3 months’·written notice.

3.  SH shall be responsible for the Insurance of the painting from and including 15 May 2011 when he takes over the ownership of the painting.

Place: Singapore  Date: 15 May 2011	Place: XXXX Date: 18 May 2011
_____________________________	__________________________
GH	SH

Although this agreement states that the original agreement had been breached, it is of note that at this stage, the husband only owed XXX 200,000 (i.e. the payment that had been due on the 1 May 2010) as the remainder of the purchase price was not due and owing at this stage. To state that the husband had breached the agreement and that XXX800,000 was outstanding is therefore not an accurate statement.

14.  In any event, it seems that the husband stopped insuring the painting from that time onwards and to all intents and purposes the painting was regarded by him as belonging to SH. It is of note that under the terms of this third agreement the husband did not physically receive back any of the funds (i.e. the XXX 4,200,000) that he had originally paid for the painting, but that the consideration was by way of a transfer of a debt that was owed by the husband’s brother E to his father and a gift of money to his father. In addition, SH entered into an interest free loan arrangement with the husband for the remainder of the money. It is of note that payment of the outstanding XXX800,000 was also formally forgiven.  

Negotiations prior to the agreements

15.  The husband has produced three documents, one e-mail from his mother dated the 11 January 2004, a letter from his father dated the 1 February 2004 and a further letter from his mother dated the 25 October 2004. These documents are approximately 17 years old and all relate to the original agreement and the supplemental agreement. The husband has been unable to produce any documents leading up to the third agreement. The wife complains about this and accuses the husband of only producing documents that will assist his case. However, with respect, it seems to me that he has done well to produce what he has, given the fact that this all happened a very long time ago. I also tend to accept his evidence that the parties spoke over the phone in the run up to the signing of the third agreement and that this was then formally drawn up by the family lawyer as before.

16.  The letters show that the mother did not accept the husband’s original offer to purchase the painting, which was then simply a straightforward commercial transaction. She was also clearly concerned about the relationships within the family. In her e-mail dated the 11 January 2004 she states as follows:

Dear G,

We have looked at the agreement and do not think it is good enough. The entire transaction is characterized by the fact that you are both a kind of family custodian (discount, interest-free) and a private investor.  The result is a distribution that is too skewed, especially between you and E.

The most important thing is to preserve the family peace. We will cancel the agreement.  So far, I have only paid H [the family lawyer] 2,000-3,000 XXX. I can survive that.

I understand that you are concerned that you are finally making money and therefore want a great return on your money. Therefore, I think you should invest freely with that in mind.

I’ve talked to you about E, but I realise that E [the brother] should learn to manage on his own. Today I have arranged with the bank so that I support him for a period (the loan to F) so that he gets something to live on.  I/Dad did that too when you needed money.

Then we have to take one day at a time.  If it gets too difficult at S, we can rent out the house and rent a simple apartment near the school.  Then, as the markets pick up again, we will plan to sell S or G.  We must also be allowed to use our hard-earned assets so that we survive.

No sour grapes about this! The decision is certainly a relief for you. I just did not quite understand how you feel/how you think.

Mum

17.  In other words, the mother had considered her son’s offer to purchase the painting and had decided that, from her perspective, his offer was not satisfactory. I accept that she was concerned about both preserving the painting as a family heirloom and of ensuring fairness by way of inheritance between her two sons in due course. These themes are reiterated in SH’s letter dated the 1 February 2004, which was also concerned with the husband’s original offer:

Dear G,

Sorry it took so long before you got any proper feedback.

As you have probably realized, we (I) are not happy with the draft agreement that you have made.  This is because, I think, you have not taken enough account of the fact that the painting is significant in two ways: it is the family tradition and it is the family fortune.

When you said you wanted to take over the painting, and when we tried to find a solution (price, discount, payment scheme) so that you could take it over, it was to preserve the family tradition. The painting would then still belong to the family and at best, be passed on to your descendants as well. The solution we proposed was also part of the transfer of the inheritance after us. But it also means a clear favour to you - you get the ability to have the painting well below market price because you are the only one who has the ability to hold on to it in the future.

The prerequisite for this to be a good solution is that the future will be as you and we hope today.  However, all experience indicates that the future will not always be what we believe or want.  You can change your mind and come to the conclusion that selling the painting is still the best solution, or something could happen that makes it difficult or impossible for you to keep it.

The plan you have drawn up means that the painting, after a short while, becomes your property that you can freely dispose of.  This is what we cannot accept.  For us, it is crucial that you and E, and in fact also your and E’s possible heirs, are treated equally.

What we want is an arrangement that on one hand ensures that you can take over the painting so it remains in the family’s possession, and on the other, ensures that you and E are treated equally in the event of a sale. That then means that you must be paid real compensation for the expenses you have had between the takeover and the possible sale (incl. index-adjusted return on what you have invested), but not so that you have more to gain than E.

I personally think that an agreement according to these principles will be most useful to you as well.  The question of what you might do with the painting in the future (three years, five years, fifteen years) will then not be a question of family loyalty, but of a choice between two different roles: the role of bearer of a family tradition and the role of steward of the family (i.e. the previous generations) fortune.

Hope this clearly shows how we think. At this point, I find it difficult to say anything more before I hear what you think. Perhaps the best thing is that you call me after you have thought about what I have said …

Dad

18.  In the last letter from the mother dated the 25 October 2004, it seems that an agreement had been reached in principle and there is a discussion about a payment plan for the painting – XXX5.5 million in total, paid in three instalments. She adds as a P.S – that it might be too much to expect the husband to take over the painting given that he had worked hard for his money.

19.  All in all, I accept that this correspondence, which is contemporaneous, should be given significant weight. I further accept that it is clear from these letters that this was not a normal straightforward commercial transaction for money or monies worth. Rather it was a family arrangement that was entered into so that the child who was seemingly the more financially secure (i.e. the husband) could step up and assist the family by buying what was a significant family heirloom, which was also seen as a form of an advanced inheritance to the husband and which, in turn, enabled his parents to move on and buy a home for their retirement, whilst at the same time ensuring that the painting remained within the family. In doing so the husband was taking on the role of the custodian of the painting. It was also understood that there should, as far as possible, be equality between the brothers with respect to their inheritance of all items in due course. (This included the painting and XXXXXXXXXXXXXXXXXXXXXXXXXXXX).     

The marital situation at the time of the transfer     

20.  It would be fair to state that the transfer of the painting back to SH took place at a time of increasing difficulty within the marriage. In the husband’s Form E dated the 13 April 2016 he states inter alia as follows:           

(1) My marriage with the Petitioner was tumultuous from a very early stage and we have had a lot of rough patches through the years. Although we have been married for 10 years, we in truth began living separate lives much earlier on and we stopped having a sexual relationship around 2006 to 2007. I was unhappy in our marriage and in 2008, I started a relationship with another woman in Singapore which was on and off for a couple of years. In or around early 2010, the Petitioner discovered my affair and we had another huge fallout. At the same time, my job was not going well and so I was made redundant. The only similar job I could find was in Singapore so I moved there in June 2010.

21.  On the 22 August 2010, 9 months before the transfer, the wife issued her first divorce petition in Hong Kong. On the 8 April 2011, just over one month before the transfer, the parties agreed to a 6-month divorce moratorium.

22.  In the husband’s Form E, he added as follows:

(2) The Petitioner was adamant that she would not follow me anywhere and so I moved to Singapore myself. She also filed for divorce in 2010 but later withdrew the proceedings. We tried to resume our relationship by attending various counseling sessions and groups but it was clear to me that the problems in our relationship and our differences were deep-rooted. I continued to live in Singapore.

(3) The Petitioner then started trying to conceive a baby through intrauterine insemination (IUI) and through in vitro fertilization (IVF). She suffered miscarriages in 2011, 2012 and again in 2014 and there were also some unsuccessful attempts using surrogates in the US.

(4) Even though we were living miles apart and had been leading separate lives and social circles for many years by the early 2010s and our marriage had in reality broken down even prior to 2010, I wanted to help fulfill the Petitioner’s dream of becoming a mother. I knew it would complicate matters in a future divorce, which was likely inevitable, but I was committed to her decision to have a baby.  Despite the early breakdown of our relationship, I still respected and cared for the Petitioner (in a platonic manner) and wanted to complete her dream of having a baby.

23.  The parties continued to live apart for most of the time, but in April 2012 they purchased a property together in Hong Kong, held under a corporate name. The husband also purchased a property for one of his mistresses in Manila in May 2013 and another with his current partner in June 2015.

24.  The wife for her part says that she wanted to have a baby, that her biological clock was ticking and that she could only receive medical assistance in Hong Kong, if she was married. She filed her second petition on the 5 October 2015, when C was just over three months old. By that time, it is the husband’s case that he had decided that he wanted to end the marriage.

25.  A constant theme throughout the marriage and indeed the proceedings, seems to have been the husband’s constant infidelity. The wife says that he is a sex addict and that he is in need of treatment. Not so says the husband, whilst acknowledging at the same time that he let the wife believe this rather than own up to his behaviours. The communication between them seems to range from the overtly affectionate, with pet names and in-jokes, to open hostility within relatively short periods of time. This is a pattern that is repeated, even during periods of obvious difficulty. They also met up and went on trips together and for a long while the husband continued to commute between Singapore and Hong Kong.

The transfer of the painting back to SH in 2011

26.  According to the husband he transferred the painting back to his father, not because of anything to do with his marriage, but because the time frame in the supplemental agreement was about to expire. The husband was not allowed to sell the painting, save with the consent of his father and brother up until May 2012. After that date he had free reign to deal with it as he saw fit. However, the husband says, as set out in the original correspondence from his parents, that that had never been the original intention. There was no desire to sell the painting. Rather the underlying agreement was to try to retain the painting and to keep it within the family and to prevent it from being sold to third parties. Time had also moved on and the husband’s parents had moved into a new home and they no longer needed the remaining instalments due and owing under the terms of the original agreement. The husband’s position had also changed and he says that he no longer wished to retain the painting. He was by that stage living in Singapore on a permanent basis and it no longer held the appeal for him that it once had. It was therefore agreed that the painting would be returned to the father. Following the signing of the agreement SH took over the responsibility of insuring the painting and informed the authorities in XXXX that the ownership of the painting had been returned to him.

27.  It is the wife’s case that the husband was not in financial difficulty in 2011 and that he could have paid the instalment of XXX200,000 in May 2010 without difficulty. She further states that there was no credible explanation for the transfer and that given that it must have been done with the intention of defeating any claim that she might make in the future for ancillary relief.         

The issues

28.  It is then in these circumstances that the court is asked to consider the following issues:        

Should the disposition of the painting by the husband back to his father SH in May 2011, be set aside?

In considering this matter, could it be said that:

a)  the husband transferred the painting to his father, in order to defeat the wife’s potential claim for ancillary relief?

b)  financial provision, or different financial provision, would be made by the court for the wife (and possibly the child of the family) if the disposition was set aside?

Setting aside dispositions

The law - generally

29.  Section 17 of the Matrimonial Proceedings and Property Ordinance, Cap 192 states as follows:

(1) Where proceedings for relief under any of the relevant provisions of this Ordinance (hereafter in this section referred to as "financial provision") are brought by a person (hereafter in this section referred to as "the applicant") against any other person (hereafter in this section referred to as "the other party"), the court may, on an application by the applicant-

(a) if it is satisfied that the other party is, with the intention of defeating the claim for financial provision, about to make any disposition or to transfer out of the jurisdiction or otherwise deal with any property, make such order as it thinks fit for restraining the other party from so doing or otherwise for protecting the claim;

(b) if it is satisfied that the other party has, with the intention aforesaid, made a disposition to which this paragraph applies and that if the disposition were set aside financial provision or different financial provision would be granted to the applicant, make an order setting aside the disposition and give such consequential directions as it thinks fit for giving effect to the order (including directions requiring the making of any payment or the disposal of any property);

(c) if it is satisfied, in a case where an order under the relevant provisions of this Ordinance has been obtained by the applicant against the other party, that the other party has, with the intention aforesaid, made a disposition to which this paragraph applies, make such an order and give such directions as are mentioned in paragraph (b);and an application for the purposes of paragraph (b) shall be made in the proceedings for the financial provision in question.

(2) Paragraphs (b) and (c) of subsection (1) apply respectively to any disposition made by the other party (whether before or after the commencement of the proceedings for financial provision), not being a disposition made for valuable consideration (other than marriage) to a person who, at the time of the disposition, acted in relation to it in good faith and without notice of any such intention as aforesaid on the part of the other party.

(3) Where an application is made under this section with respect to a disposition which took place less than three years before the date of the application or to a disposition or other dealing with property which is about to take place and the court is satisfied-

(a) in a case falling within subsection (1)(a) or (b), that thedisposition or other dealing would (apart from this section) have the consequence, or

(b) in a case falling within subsection (1)(c), that the disposition has had the consequence,of defeating the applicant's claim for financial provision, it shall be presumed, unless the contrary is shown, that the other party disposed of the property with the intention aforesaid or, as the case may be, is, with that intention, about to dispose of or deal with the property.

(4) In this section-

“disposition” (財產處置) does not include any provision contained in a will or codicil but, with that exception, includes any conveyance, assurance or gift of property of any description, whether made by an instrument or otherwise;

“the relevant provisions of this Ordinance” (本條例的有關條文) means any of the provisions of sections 3, 4, 5, 6, 6A, 8, 11 (except subsection (6) ) and 15; (Amended 69 of 1997 s. 33)

and any reference to defeating an applicant's claim for financial provision is a reference to preventing financial provision from being granted to the applicant, or to the applicant for the benefit of a child of the family, or reducing the amount of any financial provision which might be so granted, or frustrating or impeding the enforcement of anyorder which might be or has been made at the instance of the applicant under the relevant provisions of this Ordinance.

(5) The provisions of this section shall not apply to a disposition made more than three years before the commencement of this Ordinance.[cf. 1970 c. 45 s. 16 U.K.]

30. In this instance it is accepted that the presumption referred to in paragraph (3) above does not apply given that the wife’s application was made over three years after the alleged transfer of the painting took place. Thus the burden is on her to show that the husband transferred the painting with the intent of defeating her claim for ancillary relief. This is so, notwithstanding the fact that the wife only became aware of this transfer after the event and once these current proceedings were issued. It is also accepted that the court should try to look at the actual intention of the husband at the time that the disposition was made. It is further accepted that it must be clear that there was an actual intention to defeat the wife’s claim for ancillary relief, although it may not be the only or even the dominant intention of the husband given that “It is enough if it played a substantial part in his intentions as a whole”. (See Kemmis v Kemmis [1998] 1 WLR 1307).

31. In addition, Ms Rattigan for the wife refers to the appropriate standard of proof to be applied in her opening submission where she states as follows:

27. In determining “intention”, the standard of proof that the Court needs to apply under the Ordinance is that it must be “satisfied”. See Rayden & Jackson 27.15

“As to the standard of proof, the question to be asked by the judge after reviewing the evidence is “Am I satisfied that the disposition was made with the intention of defeating the wife’s claim for ancillary relief? The standard of proof remains the balance of probabilities, although it has been said that since what has to be proved is not merely a dishonourable intention but a dishonest and fraudulent one, the evidence which is required to tip the balance, has to be more convincing. ‘Satisfied’ in this context means no more than the Judge has to make up his mind”

28. See also K v. K (Avoidance of Reviewable Disposition)(1983) 4 FLR 31, C v T & Ors (Supra) @ para 39-41. In the latter case the Court stated

“I agree that in considering the intention of the parties it is necessary, to look at each disponor’s conduct. In other words, can each side’s intention to defeat the other’s claim, be gleaned from their conduct at the time in question? Consequently, I accept that the circumstances surrounding the making of the dispositions are highly relevant”

Discussion

32. I must now turn to consider the issues, the law and the parties evidence as set out in their pleadings, witness statements and Form E’s and as given orally by them during the hearing. For the avoidance of doubt, in so far as the matters set out in this judgment differ from the evidence of the husband or wife, that is because I have preferred the evidence of one of the party’sover the other or it is because I do not find the evidence given credible, or because I consider that the documents produced confirmed my findings of fact.

Should the disposition of the painting by the husband back to his father in May 2011, be set aside?

Introduction

33. I should say at the outset that I have found this a very difficult matter to determine. However, in the final analysis, and for reasons that I shall elaborate upon below, I have decided not to set aside the transfer of the painting from the husband to his father, SH in May 2011. As indicated above the burden is on the wife to show that on the balance of probabilities the husband transferred the painting because he intended, certainly in part, to try to defeat her claim for ancillary relief. As will be seen ultimately I do not accept that she has been able to discharge her burden in that respect.

In considering this matter, could it be said that:

a) that the husband transferred the painting to his father, in order to defeat the wife’s potential claim for ancillary relief?

34. It seems to me that although the wife clearly has an arguable case and that there is a “coincidence of dates”, in that the husband transferred the painting back to his father at one of the many crises points in the parties’ marriage, I also accept that this was not done with a view to defeating her claim for ancillary relief.

35. In coming to that decision I largely accept his case as set out above with respect to the painting, its special nature within his family, the reason for the 2005 agreements and the basis upon which it was transferred back to his father in 2011. I further accept, as suggested, that it didn’t really cross his mind that this might be an issue in any event as inherited properties are not included in any division of assets upon divorce in XXXXX and he had not taken full legal advice in Hong Kong prior to 2011, notwithstanding the wife’s first divorce petition.

36. Further and as suggested by Ms Rattigan, the husband did come across in the witness box as being somewhat arrogant. I accept that he genuinely believed that a divorce would not happen until he decided that he was ready to move on. It is also of note that this is infact what happened. The parties remained married, notwithstanding the wife’s obvious distress and anger surrounding the husband’s ongoing infidelities; she did not go ahead with the original divorce and remained within the marriage even after the discovery of a more significant extra marital affair. I accept that she had a number of reasons for doing so including the fact that she obviously cared for the husband very deeply and was not prepared to walk away from the marriage despite its many difficulties. She also wanted to have a baby. However, once the husband had formed a more significant relationship with a third party and once C was born, it seems that the husband was then ready to move on. He then contemplated issuing proceedings in Singapore and began discussing the possibility of issuing a divorce petition in Hong Kong. It seems that the wife issued her second petition once she became aware of this. Thus the current proceedings were instigated to an extent, by the husband’s actions. Although the painting was transferred back to the father in May 2011, after the wife had issued her first divorce petition and following the parties’ agreement to a six-month divorce moratorium, I tend to accept that in the husband’s mind the two things were not inter connected. It is also of note that C had not been conceived at that stage, but nevertheless he did not shy away from the financial commitment that having a child would bring. Further he continued to support the wife financially and paid for the rather costly medical interventions (IUI’s and IVF treatments plus a couple of attempts via surrogacy arrangements). He also purchased a property with the wife in Hong Kong in May 2012. It is unlikely that he would have done any of these things if even part of his motivation had been to defeat the wife’s claim for ancillary relief in a potential divorce suit. The husband puts it thus in his witness statement:

53. At all times, I had no motivation to defeat L’s [the wife’s] claims for ancillary relief by way of returning ownership of the Painting to my father. While I have no claim to having been a perfect husband, I can truthfully say that I have always cared about L; and through my various actions over the years I have been more than fair and generous towards her. I have a strong underlying sense of responsibility and fairness and wanting to protect the people and things I care about, including L and now C, but also my family back home in XXXX and my partner in Singapore. It is this same sense of responsibility that led me to want to help my parents buy a home AND keep the Painting in the family in the first place. Moreover, if I were so determined to reduce or defeat L’s financial claims in the event of a future divorce, I would not have supported (and paid for) her 5 year long and extremely expensive quest to have a child, which I was obviously aware would give rise to a claim for child maintenance in the event of a divorce, or paid HK$5,375,000 as the down payment for the purchase of a property in Hong Kong in January 2012 which was held in L and my joint names through a corporate entity.

54. In light of the above, I deny that L is entitled to any of the relief prayed for or sought.

With respect I tend to agree.

Would financial provision, or different financial provision, be made by the court for the wife (and possibly the child of the family) if the disposition was set aside?

37. Further, it is not accepted that different financial provision would necessarily be made by the court for the wife, if the transfer of the painting was set aside. It is clear that this is “inherited property” in the classic sense of that term. It does not follow that the wife would be entitled to half of its value or indeed to any of its value in any event. To that end reference should be made to LKW v DD (FACV No 16 of 2008) where Mr Justice Ribeiro PJ said inter alia as follows:

E.5.a Source of assets as a material factor

87. The source of an asset may provide a reason for excluding it from the sharing principle on the basis that it is not an item of matrimonial property. Of course, in many cases, no question of any distinction between matrimonial and non-matrimonial property will arise. But where there are assets which may be capable of being so differentiated, section 7(1)(a) implicitly requires the court to consider whether any part of such assets ought in fairness to be excluded from the sharing principle. Differentiation might also be seen as a requirement of section 7(1)(f) if the source of a particular asset suggests that it is an independent and unmatched contribution by one of the parties.

88. …

89. The existing case-law identifies two classes of assets as possible candidates for exclusion on the basis of source. The first involves property acquired during the marriage by one of the parties from a source wholly external to the marriage, such as by gift or inheritance. The second involves assets derived from a business or an investment conducted solely by one party (sometimes called “unilateral assets”).

Conclusion

38. Whilst it is accepted that there are no hard and fast rules, it is clear that the painting in question is originally inherited property. It was initially acquired by the husband’s family by way of inheritance and from a source wholly external to the marriage. The original 2005 agreement and the supplemental agreement were both entered into with very specific issues in mind, the central one being that the painting should be preserved and, if at all possible be retained by the family for future generations. I do not accept that this was a straightforward financial transaction or that the painting then became marital property by virtue of this agreement. It is also of note that the purchase took place prior to the party’s marriage and that there would, in any event, be a further argument about this painting being pre-marital.

39. In such circumstances it follows that paragraphs 1 and 2 of the wife’s summons dated the 31 January 2018 shall be dismissed. Costs shall follow the event in the normal way i.e. there shall be an order nisi to be made absolute in 28 days time that the Petitioner shall pay the Respondent’s costs on a party and party basis to be taxed if not agreed.

40. It is further ordered that the First Appointment hearing shall be adjourned to the 2 December 2021 at 9:30 am. Both parties do personally attend that hearing.