BT v. YHK FORMERLY KNOWN AS CBY

FCMC 943/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 943 OF 2011

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JUDGMENT
(Judgment Summons and claim for interest and surcharge)

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Introduction

1.  The respondent wife has filed three judgment summonses: the first dated 21 September 2012, the second dated 16 May 2013 and the third dated 22 November 2013. In summary, the wife is now seeking to enforce the outstanding sum of $24,170,410.67 as at 5 May 2015 plus interest thereafter at a daily rate of $5,297.62. 

2.  As will be seen, the main issue in this case concerns the husband’s ability to pay when he has continually made assertions to the effect that he can and will be able to pay but has nevertheless failed to do so, despite being given ample time and opportunity both by the court and the respondent to effect such payment. In such circumstances, the court is asked to consider whether or not the husband is deliberately choosing not to pay and, if so, whether it would be more appropriate to make an order for committal, either suspended or otherwise, and/or to make an order setting out a new timetable for payment.

Background

3.  Counsel for the wife sets out a brief background to the marriage in his opening submission which I have taken the liberty of adopting as follows:

The husband was born in October 1966.   He is presently aged 47 years. 

The husband and wife were married in October 2002 in Vancouver, Canada.  They cohabited in Tai Tam during the subsistence of the marriage and they separated in May 2007 when the husband began residing in Quarry Bay whilst the wife resided in Tai Hang Road.

During the marriage, the husband worked as a businessman.  The wife who had previously worked in the entertainment industry stopped and began helping the husband do his business, handling paperwork, socialising and networking with his clients and chauffeuring him to attend various meetings, etc. 

There were no children born to the marriage.

The husband petitioned for divorce on the grounds of two-year separation, ie since March 2007, on 21 January 2011.   Subsequently, the petition was amended on 31 March 2011 to change the date of separation from March to May 2007.

On 1 August 2011 the parties came to an agreement on the division of matrimonial assets.  This was embodied into a consent order granted by myself on 9 August 2011 (“the consent order”). The relevant and material terms of the consent order was that the husband would pay the wife $26 million by seven instalments beginning on 1 September 2011. It is important to note that when the parties agreed to the consent order, both were legally represented.

The decree absolute was granted on 25 November 2011.

The consent order

4.  As indicated above, the husband undertook to pay a lump sum of $26 million by seven instalments of either $3.8 or $3.7 million, all payments to be effected within 36 months, ie on or before 1 September 2014.  These payments were to be made on a clean break basis. 

5.  In fact, the husband did not make any payments until 1 March 2013 following the issuing of the first judgment summons.  Although according to him, the parties initially remained on good terms and there was little pressure to pay.  It is his case that the parties met from time to time and that he gave the wife a Porsche to compensate her for the delay. 

6.  Following the first tranche of the trial, on 12 February 2014, upon the husband’s agreement to place two properties on the market for sale at the best price obtainable and for the net proceeds of sale to be paid into court, it was ordered that the husband do make interim payments of $300,000 per month; payment to commence on 1 March 2014 and thereafter to be paid on the 1st day of each succeeding month pending further order. I was told at the return hearing that the properties have not been sold.  I will come to that again later.  The husband has also been late on occasion in paying the wife the sum of $300,000 per month.  These interim payments have been offset against the accrued interests in the first instance as is normal in a case like this.

The law on Judgment Summonses

7.  Turning next to the law on judgment summonses.  The judgment debtor is required to show cause.  He has to show the court why he should not be committed to prison for contempt.  The court is to ascertain whether he had the ability to make the payments ordered and whether he has wilfully failed to do so (reference Ellis v Ellis [2005] EWCA Civ 853).  The judgment creditor needs to prove this beyond reasonable doubt.  Mubarak v Mubarik [2007] 1 WLR 271 is the case in question. Further, it is accepted that a judgment summons like all proceedings for contempt is a remedy of last resort and, particularly so, in the Family Court, reference CYM v YML [2013] 1 HKLRD 701, the Court of Appeal decision.

8.  The court has the power to commit a judgment debtor to prison certainly for up to 3 months and, arguably, for longer, or to commit suspended upon payment of the outstanding debt, either in its entirety or by instalments, or to adjourn sine die with liberty to restore.

9.  When considering the possibility of imprisonment, the court is bound by the claims made in the original judgment summonses.  In other words, the court looks at the amount that the judgment creditor says it is owed at that date and the judgment debtor is put to strict proof in relation to those amounts.  If the court is considering the possibility of making a new order in which the judgment debtor is, for example, asked to pay by instalments, then it is possible to calculate the outstanding amount due up-to-date or to remit or suspend or in some other way to vary the amount owed.

10.  In this case the amount outstanding is not in dispute, and I accept the up-to-date calculation as set out in the schedule attached to Mr Leung’s submission in reply.  As indicated above, as at 5 May 2015, the sum of $24,170,410.67 remained outstanding.  This includes interest payable on the sum owed as of that date.

Case law

11.  Both parties have taken me to a number of cases on point and I would like to refer in particular to the Court of Final Appeal decision in G v S [2001] 3 HKLRD 842 (CFA) where it was held that, obiter:

“Part of the order dealing with committal provided that a warrant of committal would be automatically issued upon the filing of an affidavit of non-compliance. However, a judgment debtor in default should not be automatically deprived of his liberty and subjected to a term of imprisonment simply upon the filing of an affidavit of non-compliance. There might, by that time, be good reason why he should not be imprisoned. The proper course would be at least for a judge of the Family Court to assess the propriety of and to sanction the warrant. This could be obtained by requiring the warrant to be obtained by judgment summons. Furthermore, those concerned with prescribing and carrying into effect procedures which might result in the deprivation of liberty in such circumstances should carefully examine the considerations touched upon in Mubarak v Mubarak.”

12.  I raised that simply because it was suggested by the wife that in the event that the husband did not make payment within 14 days that imprisonment should be immediately forthcoming. 

13.  In addition, reference was made to the English case, KW v AW, when Mrs Justice Baron found that the husband had made a calculated decision not to comply with the court order for the payment of maintenance and that he had played it “fast and loose” with the judges of the High Court in England and Wales.  She added:

“All the way through, by his glib presentation, he has secured adjournments or orders which he thought he could simply ignore. Well, the time has come to put an end to his disrespectful approach to a court of law. Courts are not toothless bodies. They make orders to regulate positions between human beings so that society may work in a proper fashion.”

14.  With respect, I agree with that assertion. 

The law on the surcharge

15.  Insofar as the surcharge is concerned, reference has been made,   to section 28AB of the Matrimonial Proceedings and Property Ordinance (Cap. 192).   Again reference is made to this in Mr Leung’s submissions.  I think it would be sensible if I just repeated those sections.  Under subsection (1):

“Where a maintenance order has been made against a judgment debtor, and the judgment debtor, without reasonable excuse, repeatedly fails to make full and punctual payment in compliance with the maintenance order, the court may, on application made by the judgment creditor, make an order requiring the judgment to pay to the judgment creditor a surcharge in respect of the total arrears of maintenance which accrue on or after the commencement date.”

16.  Further under Subsections (11) and (12):

“The amount of surcharge payable by the judgment debtor under subsection (1) shall not exceed 100 per cent of the total arrears of maintenance calculated from the date on which the arrears first accrued to the date of payment of the surcharge.

If the court makes an order requiring the judgment debtor to pay a surcharge, it shall specify in the order the amount of the surcharge payable by the judgment debtor and the date of payment.”

17.  The wife asks for a surcharge in view of the exceptional nature of the default and what she says is the inexcusable delay of the husband.  She asks for a 15 per cent surcharge as against the outstanding arrears.  On my calculation, that is for the amount of an additional sum of approximately $3,625,560.

The issues

18.  The issues are as follows:

Did the husband have the means and the ability to pay the lump sum instalments as and when they became due? 

If the husband had that ability, did he wilfully choose not to make the payments due and owing to the wife under the terms of the court order? 

Should the court commit the husband for his failure to make the payments as ordered? Or should the committal be suspended pending payment? 

In addition, or in the alternative, should there be a new timetable for the payment of the outstanding sum due and owing?   If so, what should that be? 

Should the court award a surcharge pursuant to section 28AB of the MPPO in addition to the interest at the judgment rate of 8 per cent? and if so, in what amount?

Proposals going forward

The wife’s proposals

19.  I do not believe that the wife necessarily wishes to imprison the husband but she does wish to be paid.  She asks that the husband pay her the outstanding sum in full within the next 14 days, failing which she asks that he be imprisoned for 6 months.  In the alternative, she argues that - and this is paragraph 14 of the reply by Mr Leung - if the court is minded to vary the lump sum instalment by allowing the husband to make payments by monthly instalments, the wife would request that the monthly instalments be raised significantly higher to at least $600,000 per month which is reasonably affordable by the husband and that any failure or lateness to pay the monthly instalment would immediately trigger the revocation of the suspended sentence so that the husband would then have to serve out his custodial sentence without further delay or excuse.

The husband’s proposal

20.  The husband for his part asks for a continuation of the status quo.  His counsel argues - and again I am referring to the submissions, paragraph 39 and 40-

“As the petitioner can only offer what he has some realistic prospect to pay, he repeats his offer to pay monthly instalments of $300,000. He would continue to abide by his undertaking to place Flat 43B and Flat 43C on the market for sale and to pay the net proceeds into court, alternatively, directly to the petitioner. He offers to pay the China funds when received. On this basis, he is capable of making and, if it became an order of the court, performing the following offer: to pay consecutive monthly instalments of $300,000; to pay the net proceeds of sale of Flat 43B and Flat 43C; to pay the China funds upon receipt in repayment of the then remaining debt.”

Did the husband have the means and the ability to pay the lump sum instalments as and when they became due? 

21.  The difficulty is that the husband clearly did have the ability at certain times both before and during the course of this litigation to pay the wife some, if not all, of the instalment payments due and owing to her, but he chose, for reasons best known to himself, to do other things with his money. As stated above, the parties entered into the consent summons on 1 August 2011 which then became an order of the court eight days later.  The first payment of $3.8 million was due on 1 September 2011.  Three days prior to entering into the consent summons, ie on 27 July 2011, the husband completed on the purchase of two adjoining properties in a prestigious block in Robinson Road.  Mortgages were obtained for each property.  The purchase price for the first property was $27,888,000 and the purchase price of the second was $25,112,000.  The net result of these transactions was: (a) to increase substantially the husband’s outgoings each month; and (b) to require significant cash input.  According to the completion statement, the balance required without payment of the other costs and disbursements relating to the purchases amounted to $13,944,000 for the first property and $12,556,000 for the second, ie $26.5 million in total. This is slightly more than the total amount due and owing to the wife.  Today, these properties have not been sold.  The husband says that they are on the market.  The suggestion is that he has put them on the market for too high a price. 

22.  In addition, the husband took out loans using the properties as security which he then allegedly used to repay his sister. I refer to her as B.  B had on his case lent him money to invest in the so-called China fund.  The explanations given for these transactions were convoluted and difficult to follow.  B did not give evidence, and the husband’s version of events was largely put forward with little in the way of corroboration.  In any event, what is clear is that the husband did not use any of these funds to pay the wife.  Further, these transactions also had the effect of significantly reducing the amount of cash available to him to pay the wife on a monthly basis.  The husband said he has an income of $950,000 per month, nearly all of which is accounted for, including approximately $360,000 per month to repay his loan. 

23.  The husband’s case throughout has been that he will pay the wife once his investment in the “China fund” comes through.  I do not intend to go through the husband’s numerous explanations in this judgment in any detail.  Suffice it to say that despite the husband’s hopes and assertions, to the contrary, payment from the China fund had seemingly not been effected.  He was given the benefit of the doubt on 12 February 2014 and again on 24 February 2015.  The rather distinct impression is that the husband will do and say whatever is necessary in order to buy himself a bit more time.  He has allegedly invested renminbi 20 million into the fund.  He expects to be rewarded handsomely from it.  Time will tell if this is right or not.

24.  Thus I am of the view that the husband certainly originally had the means to pay the wife.  The question then becomes: does he have the ability to pay the wife now?  On a conservative view, and putting to one side any arguments about the China fund and/or his lifestyle, the husband certainly has the ability to pay the sum from the anticipated net proceeds of sale from the two Robinson Road properties.  Consequently, it seems to me that there may be no alternative but for these properties to now be sold and without further delay. I will give the husband some time to do so.  In the event that monies are received from the China fund, then that is an added bonus, but not one that I intend to place any great reliance on for the purposes of this judgment. 

If the husband had the ability to pay, did he wilfully choose not to make the payments due and owing to the wife under the terms of the court order?

25.  I am asked to believe that the husband’s “wrongful actions were a combination of foolish financial optimism and poor judgment, they were not deliberate defiance.”  With respect, it seems to me that the husband has taken a number of steps to make enforcement of this order very difficult for the wife.  Putting it at its lowest, there can be no doubt that he made financial decisions which in turn meant the compliance with the court order seemly became his lowest priority.  Further, he does not appear to have taken these proceedings very seriously even complaining of gastroenteritis leading to an adjournment on 1 April 2014 and then being photographed having lunch at a well-known hotel on the same day.  He has also purchased a number of high-end cars although on his case, only one was for his use which also required a significant down payment and monthly repayment. Thus I accept that the husband did wilfully choose not to make the payments due and owing to the wife and he did choose to invest the monies elsewhere.  This was a deliberate act on his part.  The fact that the properties have not sold since he undertook to place them on the market on 14 February 2014 is also a matter of some concern.  It is suggested that this has been deliberately contrived.  I am inclined to agree.

Should then the court commit the husband for his failure to make the payments as ordered or should the committal be suspended pending payment? 

26.  Notwithstanding the gravity of the situation, it does not seem to me that it would serve any useful purpose for the husband to be immediately imprisoned for his contempt. I do, however, accept that the committal should be suspended given the circumstances pending payment and also given the amount of money involved and the seriousness of the situation.

Should there therefore be a new timetable for the payment of the outstanding sum due and owing, and if so, what should that be?  

27.  The husband will have one year to make full payment to the wife.  This should give him sufficient time to sell the properties and/or to raise the funds by other means.  In the meantime he shall continue to pay the wife $300,000 per month on the first day of each month. 

Should the court award the surcharge pursuant to section 28AB of the MPPO in addition to the interest at the judgment rate of 8 per cent? 

28.  I have thought long and hard about this.  The wife asks for a 15 per cent surcharge.  I will allow a surcharge of 5 per cent or $1,208,520. 

The husband has deliberately flouted the court order and I have not ordered his immediate imprisonment.  In such circumstances I accept that some form of additional financial penalty is suitable. 

Conclusion

29.  I will therefore make an order as follows.

1. Upon the examination on oath of the judgment debtor in open court, this court finds that:

· pursuant to an order dated 9 August 2011, the judgment debtor was ordered to pay the judgment creditor a lump sum of 26 million by seven instalments, all payments to be made by 1 September 2014, he has failed to make such payments and there is due and owing under the said order the sum of $24,170,410.67 as at 5 May 2015.  Interest thereafter shall accrue at a daily rate.  In addition, he shall pay a surcharge of $1,208,520. Pending payment the Petitioner shall continue to pay the Respondent the sum of $300,000 per month.

· The judgment debtor has not shown cause why he should not be committed to prison as he had the ability to make the payments ordered but has wilfully failed to do so and he is in contempt of this court’s order of 9 August 2011.

· The judgment debtor be committed to prison for the period of 3 months, suspended, provided that the judgment debtor pays the judgment debt and surcharge in the total sum of $25,378,930 plus daily interest; such sum to be calculated on or before 1 June 2016. 

· For the avoidance of doubt, the costs of these enforcement proceedings be to the judgment creditor, to be taxed if not agreed on an indemnity basis.

· A warrant of arrest shall be issued upon the solicitor for the Judgment Creditor filing an affidavit of non-compliance.

· It goes without saying that in that event in accordance with the Court of Appeal’s decision referred to above, the matter should come back before me in the first instance.  I will therefore also give liberty to apply.