AEM v. VFM

CACV 216/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 216 OF 2011

(ON APPEAL FROM FCMC 4070 OF 1990)

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BETWEEN

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J U D G M E N T

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Hon Cheung JA :

Variation of periodical payment

1.  On 8 July 2011, H H Judge Bruno Chan, acceded to the respondent’s (husband) application and varied an earlier order on periodical payment payable by the husband to the Petitioner wife.  The earlier order was made by the Judge on 12 May 2006 (‘the 2006 Order’), with a small modification on inflation increase by the Court of Appeal on 10 January 2008, in which the husband was required to pay periodical payment at £50,000 per annum to the wife.  The Judge varied the periodical payment substantially downwards to £24,000 per annum which was to be backdated to the date of the husband’s application on 1 March 2009.  The hearing of the husband’s application was only held two years later in May 2011.  The wife now appeals against the judgment.

History

2.  I will repeat the history of the dispute between the parties and their financial positions as set out in the judgment of this Court dated 10 January 2008 :

‘ The background

1.  The parties are former husband and wife.  For ease of reference and following the approach in the Court below I will refer to them as husband and wife.  The parties were married in England in August 1970.  Two children were born of the marriage.  The first was a son born in 1975.  The second was a daughter born in February 1979.  The parties moved to Hong Kong in May 1987.  In January 1991 the parties were divorced. 

The 1991 Order

2.  Upon their divorce the parties reached a settlement on their financial arrangements and the settlement was made an order of the Court dated 27 August 1991 (‘the 1991 Order’) under which the husband was to pay the wife

(1)  a lump sum of HK$2 million by instalments within two years;

(2)  periodical payments of HK$1,250 per month for the wife’s maintenance;

(3)  periodical payments of HK$16,250 per month for each of the two children until they reach the age of 18 or complete full-time education.

3.  The daughter was born with congenital defects and she was mentally and physically handicapped.  The specific agreement concerning the daughter was that she was to receive her maintenance until she was able to support herself and live independently.  The husband further undertook to pay for the school fees of the children and their educational and school expenses in boarding school in UK. 

4.  The parties further agreed that their joint property in the United Kingdom known as Bury Farm was to be maintained for use by either of them while they were living outside UK and upon the wife’s decision to return to live in UK she was to have the option of the exclusive use of Bury Farm as her principal place of residence with the children.  In the event the wife returned to the UK but did not take up occupation at Bury Farm as the principal place of residence the husband agreed to provide and pay for an accommodation for her.

5.  The periodical payments to the wife and two children were index-linked.  They were to be automatically increased annually by the lower of the Retail Price Index in whichever country the wife resided or the husband’s increase in salary.

The 1994 Order

6.  In 1994 the wife decided to return to UK and a Court order dated 6 August 1994 (‘the 1994 Order’) incorporating new agreements reached by the parties was made.  By this new Court order the wife was to be paid a monthly sum of £2,335 for herself, £110 for the son and £180 for the daughter with the same annual increment as before. 

7.  Upon returning to England the wife instead of taking up residence in Bury Farm in UK sold her interest in that property to the husband for the sum of £173,577 and purchased a house at Farrer Top, St. Albans, England as her home.  She also purchased a property in Scotland which she ran as a bed and breakfast guesthouse during the tourist season. 

The 1998 Order

8.  In April 1997 the wife applied to increase the monthly maintenance for herself and the daughter who was then already 18 but still undergoing schooling.  The son was by then 23 and had finished his education and was not involved in the application. 

9.  By an order dated 30 July 1998 (‘the 1998 Order’) H H Judge Bruno Chan varied the periodical payments for the wife and the daughter as follows :

1)   £3,000 per month for the wife,

2)    £300 per month for the daughter,

3)    £2,000 per annum by way of reimbursement of home help services expenses for the daughter commencing 1999.

10.  The new rate of payment was to commence on 1 May 1997.    

The 1998 summons

11.  The 1998 Order did not provide for index link of the periodical payments as before.  The wife on 15 September 1998 issued a summons asking for the periodical payments contained in the 1998 Order to be index-linked.  A hearing date for this application was initially set down for 11 June 1999. However the parties by consent vacated this hearing date on 9 June 1999 and the matter was not further pursued by the wife.

The 2006 Order

12.  On 22 August 2005 the wife applied to vary the 1998 Order.  On 12 May 2006 (‘the 2006 Order’) Judge Chan varied the maintenance payment as follows :

‘ (a) The periodical payments under the Order of 30th July 1998 for the Petitioner be increased and backdated as follows, with credit to be given for amounts already paid:­

1999	£40,880
2000	£41,780
2001	£42,700
2002	£43,720
2003	£44,680
2004	£45,663
2005	£46,668
2006	£50,000

(b)  The said periodical payments of £50,000 per annum, payable be equal monthly instalments, shall be increased by 5% annually starting 1^st January 2007 until further order.

(c)  The Respondent shall pay a further sum of £2000 per annum to the Petitioner for the benefit of their daughter (name), which sum shall also be increased by 5% annually.’

13.  The husband appealed against the 2006 order.  This Court affirmed the periodical payment but reduced the annual increase to 3.59%.

……

Financial position of the wife when the 2006 Order was made

16.  The wife was 56 years of age when the 2006 Order was made.  She did not work and had to spend more time looking after the daughter.  The wife had since 2003 sold her property in Scotland and also her bed and breakfast business.  This was due to the drop in the profit of the operation and the poor health of her father who had terminal illness.  Her father died in 2004.  Her mother has been unwell and requires her constantly keeping up her company and spending more time with her. This would make it difficult for the wife to maintain a regular job.  The wife had also disposed of her property in Farrer Top.

17.  The Judge found that the wife has a total capital of slightly over £565,000.  It was the wife’s intention to acquire a larger property to live in.  The Judge found that Ferrer Top was never purchased or intended to be the final home for the wife and children because it was purchased while she was still living in Hong Kong as one of the investments of her lump sum; it was always her intention that she should reside at the much bigger and more expensive Bury Farm should she return to live in the UK. 

18.  The wife’s case for variation of the 1998 Order was that there was no index link in the order so that the periodical payments for her and the daughter have not been properly adjusted all these years to meet their rising needs and the increase in the costs of living.  Her income from interest earned from bank accounts amounted to an average of only slightly over £4,000 per year instead of £6,000 as originally anticipated in the 1998 Order.  This was due to less savings after payment of her legal costs as well as UK income tax increase on her earned interest.

19.  The husband had ceased payment to the daughter since 2003.  The daughter now receives government assistance from the UK which covers her general living expenses.  The daughter has moved to semi independent living in 2005 but has had difficulties in adjusting to living in a flat on her own.  This requires the wife to visit her more frequently.  The wife said the government assistance actually received by the daughter was insufficient to cover her other expenses such as clothing, holidays, presents, hygiene and other personal items.  

Financial position of the husband

20.  The husband is now 60 years of age.  During the marriage and until recently he was the Chief Financial Officer of a major publicly listed company (‘the company’) in Hong Kong.  According to the judgment on the 1998 Order, for the tax year 1996 to 1997 the husband received a salary of HK$2.02 million, director’s fee of HK$520,000 and a bonus of HK$10 million.  He also received additional benefits of the use of a car, medical coverage, life insurance and air-tickets to London for his family once each year.  In 1997 to 1998 his salary was HK2.08 million, director’s fee of HK$514,000 and a bonus of HK$12 million.

21.  In April 2005 the husband ceased to be the Chief Financial Officer but remains as an executive director with a basic salary of HK$150,000 per month.  He could no longer expect to receive the same level of bonuses as in the past.  The husband has since the parties divorced remarried and has now a daughter aged seven years old.  He is living with his new family in Hong Kong.

22.  According to the wife’s estimate the husband’s worth was more than HK$110 million.  This estimate was not challenged by the husband and the Judge found that this estimate was consistent with the evidence before the court.  The husband’s assets include :

(1)  his shares in the company;

(2)  his interest in a property in Hong Kong which he resides with his new family;

(3)  the proceeds of sale of Bury Farm;

(4)  his half share in the proceeds of sale of an overseas property;

(5)  other investments and cash at bank. 

23.  It is not in dispute that the settlement received by the wife when the parties divorced was about two thirds of the husband’s assets at that time.  It cannot be disputed that the husband’s wealth has increased since.’ 

Basis of the variation

3.  The basis of the husband’s application is two-fold.  First, the wife has since the 2006 Order received an inheritance from her mother with a value in excess of £610,000.  Second, the wife has entered into cohabitation with a male companion K M in her home.

4.  In respect of the wife’s inheritance, the Judge rejected the husband’s argument that the £610,000 should be amortized so as to require the wife to use the capital as her living expenses.  But at the same time the Judge made the downward adjustment partly because of the increase in the wife’s income derived from her investments as a result of her inheritance.  The wife’s stated monthly expenses were £4,600.  This included £1,500 as provision for future legal costs.  The Judge deducted this from the £4,600.  He further deducted £600 being contribution that he regarded K M ought to have made to the wife, £1,600 being income from investments and £400 state pension.  The net figure is £2,000 per month or £24,000 per annum which the Judge ordered the husband to pay.

The husband’s financial position

5.  The special feature in this case is that while the wife has received a substantial inheritance and contribution from K M towards the expenses of the wife’s household should be taken into account, the husband’s wealth has in fact been greatly increased since the time when his application was first lodged in 2009.  He stated in Form E filed in May 2009 in support of the application that,

‘ I guaranteed the payment of interest and principal on a loan taken out by my family trust to buy shares in CITIC Pacific which were financed by borrowings. Due to the decline in the stock market, and an unfortunate FX loss incurred by the company, the value of the shares involved has declined from HK$100 million to approximately HK$38 million compared with a current loan of approximately HK$34 million. As dividends have been suspended, the cash flow to meet these guarantee obligations has to come from my personal resources.’

6.  However, by the time of the hearing before the Judge, his financial position is stated by the Judge as follows :

‘ 26. At that time [i.e. May 2009 when Form E was filed] his income was stated at slightly over HK$280,000 per month while his gross capital assets, represented mainly by the VM 1995 Trust of which he is the settler and a beneficiary, were put at about HK$85.6 million but with a loan guarantee of HK$34 million. That was then but the annual report of his employer for 2010 showed that his income for the year ended 31^st December 2009 amounted to HK$14.88 million, giving an average of more than HK$1.2 million per month, while in cross-examination he also conceded his gross capital assets to have risen to at least HK$130 million. Mr Pilbrow therefore submits that the court should be entitled to draw the inference that the Husband is indeed a man of very substantial wealth and able to live a commensurate life-style.’

7.  The wife accepted that there has been no change in the husband’s income but only in respect of his capital position.  The husband’s capital position is now even higher than the position when the 2006 Order was made, an increase from $110 million to $130 million.

The wife’s case

8.  The gist of Mr. Pilbrow S.C.’s (counsel for the wife) complaint is that the Judge had erred in principle in ordering a downward adjustment because, while the wife’s position has no doubt been improved, the husband’s position has the same time been greatly improved and fairness demands that no downward adjustment should be made.

Principles

9.  The power to vary a periodical payment is provided by section 11 of Matrimonial Proceedings and Property Ordinance, Cap. 192 (‘MPPO’).  It is specifically stipulated in section 11(7) that ‘the court shall have regard to all the circumstances of the case, including any change in any of the matters to which the court is was required to have regard when making the order to which the application relates….’.  This has been construed to mean that ‘reasonable requirement’ on the part of the payee by reference to budgetary standard is not the determinative factor in a variation application where the payor has the ability to pay more than the payee’s financial needs.

25.           The approach of the Courts on an application for variation is succinctly summarised in Jackson’s Matrimonial Finance and Taxation, 8^th Edition, Chapter 3.147 – 3.159 :

‘ The modern approach is that the court has to consider all the circumstances of the case, and the court is not hide-bound by the existence of a previous order: the court must look at the matter de novo and make an order that is reasonable in the current circumstances. The usual basis on which a variation of an order for periodical payments is founded is that there has been a material change in the circumstances of one or both the parties. On application for revision, the court, as it was put in one case, has “regard to all the circumstances of the case in the same manner as if those circumstances had existed at the date of the original order”. Even before White and Miller v Miller; McFarlane v McFarlane the court could increase an order for periodical payments beyond the payee’s strict budgeting requirements if the payer’s circumstances justified it. Now, as a result of those cases, it is clearly established that a payee’s “reasonable requirements” are “no more a determinate or limiting factor on an application for a periodical payments order than they are on an application for payment of a lump sum”, and those words apply just as much on an application to vary a periodical payments order.’

10.  The pre-White position is found in Primavera v Primavera [1992] 1 FLR 16 (Court of Appeal) where at first instance Booth J (see judgment of Glidewell LJ at page 21) held that,

‘ ….But there are certain other matters which I consider it right to take into account in assessing what figure the wife should now have for her periodical payments. There is, as I have already made clear, a marked disparity in wealth and financial security between the husband, on the one hand, and the wife on the other. In the circumstances of this case, it would not be right for the order for periodical payments to tie the wife down to her budget and to give her no financial flexibility. Further, if the order gives the wife only such sum as she calculates she presently needs, there is a real risk that she will find it necessary to make a further application to the court within a relatively short period of time. This is undesirable from every point of view. It is also material that there has been a very marked change in the husband’s financial circumstances. From a disclosed income of £30,000 net in 1980, he has achieved the remarkable position which is apparent from the company accounts and from his concession. While I have regard to the fact that the parties have been divorced for 12 years, and that much is undoubtedly due to the husband’s unremitting hard work and effort, it is right that after 18 years of marriage the wife should also enjoy some part of this success and should have a standard of living commensurate with the situation as it now is.’

11.  The Court of Appeal affirmed Booth J’s approach.  In that case the wife received an inheritance and the issue was whether that should have the effect of reducing the husband’s liability towards her.

12.  Another example is Cornick v Cornick (No.2) [1995] 2 FLR 490 where the Court of Appeal rejected the submission that Primavera was wrongly decided and that there was a delimiting factor which should have the effect of restricting a judge on a variation application to budgetary or marital standard (per Sir Stephen Brown P at 495).  The issue in that case is whether the power to vary vested in the court by s 31 of the Matrimonial Causes Act 1973 is limited in the sense that the court should not have regard, in the wife’s as opposed to children’s case, to an increase, however substantial, in the husband’s financial resources, capital or income, which has accrued since the date of the original order for periodical payments.

13.  In respect of post-White decision, in Cornick v Cornick (No.3) [2001] 2 FLR 1240, it was held by Charles J at 1262 that,

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

14.  Lord Nicholls of Brikenhead agreed with Charles J’s approach in Miller v. Miller; McFarlane v. McFarlane [2006] 2 AC 618 at paragraph 34.

My view

15.  In my view the approach of the Court of Final Appeal in DD v. LKW (2010) 13 HKCFAR 537 which applies the White line of cases is to ensure fairness between the parties.  This is not a case where the wife seeks an increase of her maintenance on account of the husband’s increased wealth.  While the inheritance and contribution from K M may have improved the wife’s financial position, to reduce the wife’s maintenance on that basis is to hark back to the budgetary or reasonable needs approach which has been expressly disavowed by the Courts.  I am keenly conscious that the Judge was exercising a discretion but in my view the Judge has erred on principle.  Had the issue of fairness, in the light of the overall circumstances, specifically the huge disparity of the parties’ financial position by reason of the husband’s capital increase, been properly taken into account by the Judge, it would be plain that there would be no room for any downward adjustment of the wife’s maintenance.  It is said by the husband that the parties have now been divorced longer than they were married and maintenance has now been paid for longer than the parties were married.  This may be so, but in order to justify a substantial downward adjustment of the periodical payment on account of change of circumstances, the Court should look not only at the wife’s position but also at the husband’s position as well.

Contribution from K M

16.  The Judge held that K M ought to contribute £600 per month.  In my view, Mr. Pilbrow was also correct when he said that the Judge, was mistaken when he held that K M only contributed £102 towards utilities.  It is apparent from K M’s affirmation that he had made contribution towards the common living expenses.  While it is accepted that he has not paid rent, he had contributed in kind by carrying out maintenance and repairs of the house.  Mr. Coleman S.C., counsel for the husband, submitted that the test is what amount K M ought to be contributing.  In Grey v Grey [2010] 1 FLR 1764, Wall LJ at paragraph 51 stated that,

‘ … Post-separation cohabitation with a third party is a relevant factor for the court to take into account when considering the level of maintenance pending suit and/or periodical payments which the cohabiting spouse or former spouse should receive from his or her spouse or former spouse. In some cases, the fact of cohabitation will weigh heavily in the scales: in others, it will not. As Thorpe LJ rightly states in para [28] of his judgment, the real question for the court is usually not what the third party is contributing but ‒ as here ‒ what ought he to be contributing?’

17.  In my view before one can properly decide what K M ought to be contributing, there must be a determination of K M’s financial position first.  According to K M’s calculation, his yearly income is £32,627 and yearly expenditure is £30,284 which leaves a balance of about £2,343 per year or about £200 per month.  To hold that K M ought to have contributed £600 exceeded what he could afford.

Backdating

18.  There was disagreement between the parties on the actual amount that the wife has to pay back to the husband as a result of the backdating of the order.  I need not go into this in the light of my decision.

Conclusion

19.  The appeal is allowed.  The Judge’s order is discharged and the husband is required to pay periodical payment according to the 2006 Order as modified.

Costs

20.  The parties are required to lodge written submission within 14 days on costs.

Hon Lam JA :

21.  I agree with the judgment of Cheung JA and the order proposed at paragraph 19.  I wish to emphasize, as my Lord did in paragraph 15 of the judgment, that this is not a case where the wife is seeking a variation by way of an increase on her maintenance due to the improvement in the financial position of the husband. This judgment focused on the fairness of making a downward adjustment (on the application of the husband) on account of the two grounds identified at paragraph 3 above. Different considerations will come into play had it been an application the other way.  As my Lord observed during the course of the hearing, in the context of an application for upward adjustment, the lapse of time since the divorce and the increase in the husband’s wealth not attributable to the marital product would be weighty factors to be taken into account in the overall equation of fairness.  Thus, this judgment should not be read as an encouragement to applications for variation in the other direction, whether in the context of this case or other cases.

Hon Barma JA :

22.  I agree with the Judgment of Cheung JA and the order he proposes at paragraph 19 above.  I also agree with the views expressed by Lam JA in paragraph 21 above.