WKK also known as KKW v. LMY also known as MYL

FCMC 13874 / 2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 13874 OF 2013

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JUDGMENT
(Binding agreements)

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Introduction

1.  This is a hearing to determine whether or not the parties entered into a binding separation agreement in or about June 2011. It is the respondent’s wife’s case that she and the petitioner husband entered into such an agreement which was subsequently varied twice, once in October 2011 and then again in October 2012. The husband disagrees and contends that the parties were essentially negotiating terms during this period. He denies that that there was a binding agreement. In the alternative he argues that if there was a binding agreement, then that should be vitiated because of duress. The wife in turn argues that the terms of the agreement should be upheld in its entirety.

2.  I should say at the outset, and for reasons which I hope will become clear, that I intend to find in favour of the husband in this instance. Since the Court of Final Appeals recent decision in SPH v SA FACV 22 of 2013, the issue of both ante-nuptial (or pre nuptial) and separation (or post nuptial) agreements and the weight to be attached to them has become a matter of considerable importance. Consequently what constitutes an agreement capable of enforcement is similarly of interest. That is the issue that I am being asked to determine in this case.

3.  In determining whether there is a valid agreement and the weight to be attached to it, paragraphs 34 and 35 of SPH v SA are relevant and bear some repetition. These paragraphs also cite with approval paragraphs 68 – 73 of England’s landmark decision Radmacher v Granatino:    

34.  The particular matters which were stressed by the Supreme Court were these.  The court when considering the grant of ancillary relief was not obliged to give effect to nuptial agreements―whether they were ante-nuptial or post-nuptial. The parties could not, by agreement, oust the jurisdiction of the court.  The court must, however, give appropriate weight to such an agreement.  But it was the court, and not any prior agreement between the parties, that would determine the appropriate ancillary relief when a marriage came to an end, for that principle was embodied in the legislation. [2], [7].

35.  The Supreme Court said:

“68 If an ante-nuptial agreement, or indeed a post-nuptial agreement, is to carry full weight, both the husband and wife must enter into it of their own free will, without undue influence or pressure, and informed of its implications. …

69 … the Court of Appeal was correct in principle to ask whether there was any material lack of disclosure, information or advice. Sound legal advice is obviously desirable, for this will ensure that a party understands the implications of the agreement, and full disclosure of any assets owned by the other party may be necessary to ensure this. But if it is clear that a party is fully aware of the implications of an ante-nuptial agreement and indifferent to detailed particulars of the other party’s assets, there is no need to accord the agreement reduced weight because he or she is unaware of those particulars. What is important is that each party should have all the information that is material to his or her decision, and that each party should intend that the agreement should govern the financial consequences of the marriage coming to an end.

…

71 … The first question will be whether any of the standard vitiating factors: duress, fraud or misrepresentation, is present. Even if the agreement does not have contractual force, those factors will negate any effect the agreement might otherwise have. But unconscionable conduct such as undue pressure (falling short of duress) will also be likely to eliminate the weight to be attached to the agreement, and other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, would reduce or eliminate it.

72 The court may take into account a party’s emotional state, and what pressures he or she was under to agree. But that again cannot be considered in isolation from what would have happened had he or she not been under those pressures. The circumstances of the parties at the time of the agreement will be relevant. Those will include such matters as their age and maturity, whether either or both had been married or been in long-term relationships before. For such couples their experience of previous relationships may explain the terms of the agreement, and may also show what they foresaw when they entered into the agreement. What may not be easily foreseeable for less mature couples may well be in contemplation of more mature couples. Another important factor may be whether the marriage would have gone ahead without an agreement, or without the terms which had been agreed. This may cut either way.

73 If the terms of the agreement are unfair from the start, this will reduce its weight, although this question will be subsumed in practice in the question of whether the agreement operates unfairly having regard to the circumstances prevailing at the time of the breakdown of the marriage.”

4.  The Court of Final Appeal added at paragraph 39 and 40

The application of Radmacher v Granatino in Hong Kong

39.  There have been signs of approval of Radmacher v Granatino in this court in LKW v DD [2010] HKEC 1727, (2010) 13 HKCFAR 537 (per Ribero PJ at [53], [105], obiter since the appeal did not concern an ante-nuptial agreement).  In the view of this court, the principles enunciated in Radmacher v Granatino should also be regarded as the law in Hong Kong.  In common with the UK Supreme Court, we see no reason for distinguishing between ante-nuptial agreements and separation agreements.

40.  As we have said, the Hong Kong Court of Appeal has already accepted in L v C [2007] 3 HKLRD 819 that the old rule that agreements providing for future separation are contrary to public policy is obsolete, and we endorse its judgment.  We agree with the UK Supreme Court that this should not be restricted to separation agreements.  None of the supposed distinctions between them can any longer be supported, although we accept that there may be circumstances where it is appropriate to distinguish between an ante-nuptial and a separation agreement.  As the UK Supreme Court said (at [61]) the circumstances surrounding the agreement may be very different dependent on the stage of the couple’s life together at which it is concluded, but it is not right to proceed on the premise that there will always be a significant difference between an ante-nuptial agreement and a separation agreement.

Other legal points to be taken into account

5.  Given the context of this dispute counsel for the husband has also taken me to the basic tenets of contract law and in particular she has made reference to Chitty on Contracts. I should add that there is no dispute that there was no written Separation agreement, nor was there a Deed or any other formal agreement of any type.

6.  Paragraphs 2-028 of Chitty states as follows:

2-028 Continuing negotiations.  When parties carry on lengthy negotiations, it may be hard to say exactly when an offer has been made and accepted.  As negotiations progress, each party may make concessions or new demands and the parties may in the end disagree as to whether they had ever agreed at all.  The court must then look at the whole correspondence and decide whether, on its true construction, the parties had agreed to the same terms.  If so, there is a contract even though both parties, or one of them, had reservations not expressed in the correspondence.  ¹²⁸ …

7.  In her closing counsel for the husband also took me to the section on duress and undue influence. The wife’s lawyer for his part concentrated on the law relating to separation agreements and the weight to be attached to them. Extensive reference was made by him to the Court of Appeal’s decision in L v C, CACV169 of 2006.

The central issue

8.  The central substantive issue concerns maintenance. The wife says that the husband agreed to pay her maintenance, certainly in the sum of HK$16,000 per month if not more during the joint lives of the parties or until her remarriage. The husband says that his intention was only ever to pay the wife maintenance during the course of their separation and not beyond. In the context of that argument the court needs to determine whether or not the parties entered into an agreement which is capable of enforcement.   

Background to the marriage

9.  The parties met at university and married in August 1999 in the United States. The husband works for the X Authority and the wife is a civil servant. There are no children of the family. As is often the case in situations like this the parties give differing accounts of the breakdown of the marriage – the wife placing the blame on the fact that the husband had formed a relationship with a third party and the husband maintaining that the marriage was in trouble well before he had ever entered into that new relationship. In any event the parties eventually separated in or about July 2011 when the husband moved out of the former matrimonial home.

Background to the dispute

10.  Following their separation the parties discussed the practicalities that arose as a result – almost exclusively by SMS messages. There are 254 messages that have been produced by the wife, the first of which is dated the 15 June 2011 and the last the 22 September 2012. Many of the messages from the wife are extremely emotional – some relate exclusively to the breakdown of the marriage and others are concerned with the financial arrangements between the parties. On occasion the wife threatens to harm either her or the husband. She also threatens to go to his office – presumably to make a scene. It is of note that the husband’s new partner works in the same office as him. The husband’s responses tend to be very measured. It is these messages that the wife relies upon in support of her argument that a valid and binding agreement exists between the parties.           

Discussion

11.  The SMS messages show clearly that the parties entered into discussions concerning the financial implications of their separation. In particular there were discussions in June 2011 about the husband moving out. He eventually agreed that he would do so. He also said that he would continue to pay the mortgage for about a year and that he would then transfer the property to the wife free of mortgage. There was also some discussion about whether it was the right time to sell the property. The husband explained in the witness box that he felt guilty about the situation and that he wanted to ensure that the wife had a roof over her head which is why he made this proposal. Subsequently the wife asked that the property be transferred to her immediately and the husband did so, notwithstanding the fact that this meant that he had to liquidate other assets. He said that the wife was very emotional at the time and that he did not wish to upset her. It seems that he went to considerable lengths to appease her. When asked, the husband said that he felt that this was a one off arrangement as opposed to a temporary one. The wife subsequently confirmed in the witness box that she sold the property last year.

12.  There was also some discussion about how much maintenance the husband should pay. The wife said that the first agreement was entered into by the parties on the 23 June 2011 and that this was a binding agreement. She argues that in addition to the former matrimonial home being transferred to her that it was also agreed that the husband would pay her maintenance of HK$10,000 per month despite the fact that she originally asked for HK$20,000 per month. The wife maintains that this was a binding agreement because the so called agreement was “executed” in that the husband paid her HK$10,000 per month as allegedly agreed.

13.  The husband for his part explained in the witness box that his understanding was always that he would pay the wife her living expenses whilst they were separated and not beyond that. He said that he thought that this was a temporary arrangement. However he also accepted that this was not communicated to the wife. Likewise the wife reluctantly agreed that she had not made it clear that she had expected the maintenance to be paid on a longer term basis. In other words there was a lack of communication on this point, with each party making certain assumptions about the situation which were seemingly not discussed with the other.    

14.  Having reviewed the SMS messages it seems to me that the initial messages amounted to little more than very sensible discussions about the way forward following the breakdown of the parties’ relationship. The parties were negotiating between themselves. I accept that the husband felt that he had a moral obligation towards the wife and that he wanted to do the “right thing”. In his mind this meant providing her with an unencumbered home and maintenance during the period of the separation pending a divorce. He says that he had never intended to provide her with maintenance ad infinitum as he knew that the wife would be able to support herself financially as she had her own income. I do not accept as has been suggested by the solicitor for the wife that it was always accepted that the husband would be responsible for the wife’s living expenses. Again this was not something that was discussed or clearly communicated between the parties. It was also clear that the husband would need to buy a property for himself going forward and that provision would need to be made by him for that. I accept that to be the case.

15.  In any event the husband was good to his word – he moved out of the matrimonial home on the 1 July 2011 and he redeemed the mortgage on the property and transferred it to the wife. In October 2011 the husband began paying the wife HK$15,000 per month pursuant to her further request. The wife says that this amounts to a variation of the original agreement. The husband says that he agreed to pay this increased sum because he did not wish to argue with her any more. I also accept the husband’s stance on this point.

16.  The wife then says that the agreement was further varied on or about October 2012 when she requested that the husband pay her HK$16,000 per month as maintenance. The husband says that he reluctantly agreed to this as it was only an additional HK$1,000 per month. It seems to me that this also formed part of the ongoing discussions and negotiations between the parties at that time.

17.  Finally there were negotiations between the parties prior to the husband issuing divorce proceedings. On the 9 July 2013 the wife wrote to the husband attaching a short draft agreement in Chinese which she asked the husband to sign. The agreement stated as follows:

.

I, WKK, who have caused the breakdown of marriage by having adultery with a female colleague surnamed C, now agree to pay LMY (ID Card no. XXX) HK$20,000.00, being her living and medical expense, as maintenance every month, with an increase of 7% in every July of each year, until the re-marriage of the other party.

Signature:

Name:

ID no.:

Date:

18.  The husband responded suggesting that he pay HK$17,000 per month with a 3% increment and that the maintenance continues to be paid until the wife remarries or he ceases working full time. He also refused to admit to adultery. However this counter proposal was not accepted by the wife. Instead she wrote to him again on the 6 August 2013 as follows:

.

I, WKK, who have caused the breakdown of marriage by having adultery with a female colleague surnamed C, now agree to pay LMY (ID Card no. XXX) HK$18,000.00, being her living and medical expense, as maintenance every month, with an increase of 6% in every July of each year, until the re-marriage of the other party.

Signature:

Name:

ID no.:

Date

19.  The husband refused this proposal outright. He says that it was simply unaffordable. Further it was only at this stage that he finally sought legal advice. He says that he was subsequently told that he may not need to follow this arrangement and consequently he stopped paying any maintenance to the wife.  

20.  The wife for her part says that the husband should be bound by his original counter proposal – which she had not accepted. It is hard to see on any analysis how that can be correct. Put simply there had been no offer and acceptance. Further I am conscious of the assistance provided by Chitty on Contracts in the passage referred to at paragraph 6 above. Looking at the SMS messages as a whole it is clear that on a true construction of the same the husband had not agreed to pay the wife maintenance on an ongoing basis. I agree that the two draft agreements referred to above were sent to the husband by the wife in contemplation of divorce and that they formed part of the ongoing negotiations between them. It is equally clear that no agreement was reached. Divorce proceedings were subsequently issued on the 30 September 2013.

Conclusion on the separation agreement

21.  In summary and with respect to the guidance provided by the Court of Final Appeal in SPH v SA in paragraph 3 above, it is clear from the evidence that the following points are relevant and are worth repeating:

a)  I accept the husband’s case that there was undue influence surrounding the issue of maintenance and that he did feel pressured at times to give into the wife’s demands. I accept that he originally gave into that pressure because a) he felt guilty; b) he was concerned that the wife might harm either herself or him and c) he did not wish to argue with her. It seems to me that this is material. Likewise I also accept that the wife was greatly affected by the separation and that she was suffering from depression. She was still receiving treatment at the time of the hearing.

b)  It is clear that the parties had not received any legal advice at the beginning of the separation. The husband says that he sought legal advice immediately before he issued divorce proceedings. It is not clear when the wife first received legal advice. The husband did not intend that he should pay maintenance to the wife in the longer term. This was never fully discussed between the parties. I accept that the husband did intend that the wife should retain the matrimonial home and that he had no difficulty with her selling the same, although initially he had some concerns about when it might be the right time to sell.

c)  I accept that there was undue pressure and that this in turn might affect the weight to be attached to the agreement in the event that such an agreement existed. It seems to me that there was no such agreement.

22.  In this instance I should add that there was no written agreement and nothing was witnessed. Further there was no formality to the discussions. The legal ramifications of their discussions were not discussed – for example there was no suggestion that there should be a clean break or a dismissal of claims. Infact initially there was no reference to a divorce either. All in all it seems to me that there was no separation agreement as such. Instead the parties were negotiating terms. Given that there was no agreement there can be no suggestion that the husband should be bound in any way.   

23.  Given these findings it seems to me that it is not necessary for the court to consider whether or not the so called agreement should be set aside because of duress. I would add that it is clear that this was a highly charged situation and that the wife’ emotional stability was a matter of some concern. As indicated above I accept that the husband may at times have been concerned to appease the wife and that this may have influenced his approach to the negotiations.

Conclusion

24.  In conclusion then, in answer to the question posed as a preliminary issue, i.e. whether or not the parties entered into a binding agreement in or about June 2011, the answer to that must be no. The court finds that there was no such agreement and for the avoidance of doubt that the husband is not bound.

Costs

25.  The wife was warned on several occasions of the cost consequences of proceeding with her claim. However she insisted. In such circumstances I will make an order nisi to be made absolute in 28 days time that the wife do pay the husband the costs of and occasioned by this preliminary issue application, to be taxed on a party and party basis if not agreed. Further the Respondent shall pay the wasted costs arising out of difficulties with the provision of the SMS messages. 1 hour and 10 minutes was wasted. The wife shall pay the costs of that on an indemnity basis. There shall be certificate for counsel.