ALDL v. FTFC AND ANOTHER

FCMC 13698/2013

[2022] HKFC 22

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 13698 OF 2013

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J U D G M E N T

( Variation of maintenance pending suit )

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Introduction

1.  This is the hearing of the 1^st respondent’s (“Husband”) Summons dated 10 December 2020 amended on 30 March 2021 (“Variation Summons”) for downward variation of the existing maintenance pending suit (“MPS”) and legal costs provision (“LCP”) payable by him to the petitioner (“Wife”) pursuant the Order of Deputy District Judge A Tse (as she then was) dated 22 November 2019 (“MPS Order”), namely:

(1)     Downward variation of MPS from the existing level of HK$220,000 per month to HK$50,000 per month to be backdated to March 2020 (ie less than 4 months after the MPS Order was granted) until determination of the Wife’s application for ancillary relief or further order of the Court; and

(2)     Downward variation of LCP from HK$300,000 per month to HK$50,000 per month for a period of 12 months to be backdated to March 2020.

2.  The central issues on this application are:

(1)     The change in the Husband’s earning capacity; and

(2)     The change in the Wife’s needs since the MPS Order.

Background

3.  The background of the marriage can be found in the MPS Judgment[1], which is unnecessary to be repeated here. The Husband took out an application for leave to appeal against the MPS Order which was dismissed and he did not renew his application for leave to the Court of Appeal.

4.  In brief, the parties are in their late 50s, married in 1987, and the marriage broke down between 2006 and 2012.  The Husband is a doctor, practicing as a private anaesthetist, formerly employed by the Hospitals Authority. The Wife was an academic working at universities in Hong Kong. 

5.  The Wife claimed that the Husband had admitted to having an extra-marital affair with the 2^nd respondent[2] (“R2”) which was later revealed to have started as early as in 2001. She also said that the Husband had been giving R2 substantial amounts of money over the years for inter alia the purchase of various properties[3]. The Husband currently cohabits with R2 at a residence at Parc Oasis, Hong Kong.

6.  In 2008, the Wife was diagnosed with “Myalgic Encephalomyelitis”, more commonly known as the “Chronic Fatigue Syndrome”.  In June 2009, she resigned from her university position due to her medical conditions and became financially dependent on the Husband.

7.  In 2013, the Wife petitioned for divorce. On 11 February 2015, the parties filed a consent summons agreeing the maintenance pending suit for the Husband to pay the Wife at HK$125,000 per month.

8.  In 2015, the Wife was diagnosed with cancer. The proceedings were paused whilst her receiving medical treatment.

9.  By a summons dated 20 December 2017, the Wife asked for an upward adjustment of the maintenance pending suit from HK$125,000 to HK$230,000 per month and for legal costs contribution in the sum of HK$3.6 million or alternatively a monthly sum of HK$300,000 for 12 months for the period leading up to the FDR.

10.  On 22 November 2019, by the MPS Order, the Wife received a slightly lower upward variation of HK$220,000 per month (and legal costs provision of HK$300,000 for 12 months).

11.  At the hearing on 1 December 2021, I ordered to dispense with FDR and set down the preliminary issue and ancillary relief for trials before me in October and December 2022 respectively.

Alleged Changes since the MPS Order

12.  Mr Marwah for the Husband submitted that there have been 2 significant changes of circumstances since the MPS Order:

(1)     The Wife’s move to Australia; and

(2)     The Husband’s decline in income following the Pandemic outbreak in Hong Kong.

13.  Shortly after the MPS Judgment, in February 2020, the Wife moved to Australia prompted by the Pandemic, where she has remained up to the date of the hearing. She resides with her mother.  The Husband contended that her reasonable expenses have, accordingly, dramatically reduced.

14.  At that time, due to the Pandemic and the ongoing issues arising from the Anti-ELAB protests, the Husband also attempted to relocate his business to Australia in March 2020.  However, after an outbreak in Australia he returned to Hong Kong.  He claims his business was directly and severely affected by the Pandemic in both Hong Kong and Australia.

15.  By the time of this hearing (ie 1 December 2021), a total sum of HK$2,870,000 (including HK$2,470,000[4] in MPS and HK$400,000 in LCP) have been in arrears.

Legal Principles

16.  The parties do not dispute the governing section 11 of the Matrimonial Proceedings and Property Ordinance (Cap. 192) (“MPPO”) and the legal principles under AEM v VFM [2008] 3 HKLRD 36 per Cheung JA at §14, in particular sub-paragraphs (4) - (8).

17.  The jurisdiction to vary is untrammelled, but normally the Court would take into account if there has been any material change in the circumstances since the earlier order (see HCTT v TYYC [2008] 5 HKC 86 per Tang VP (as he then was) at §§ 15-16).  As cautioned by Lam J (as he then was) in the same case at §45:

“Application for variation should not be pursued when in substance the grounds advanced for variation tantamount to re-argument of the same issues that have been argued before the court before making the original order. If a party is aggrieved by the terms of the original order, the proper course is to appeal against that order.”

18.  As regards the principles on MPS, they are clearly set out in HJFG v KCY [2012] 1 HKLRD 95 at §§37-38 per Hartmann JA (as he then was).

Husband’s Ability to Pay

19.  To start with, the Husband had a very high earning capacity as stated in the MPS Judgment which I entirely agree. 

20.  He is a well-established senior specialist anaesthetist with a successful private practice in Hong Kong. This has not changed since the MPS Order.

21.  Before his move to Australia in March 2020, TF Company Limited (“TF Co. Ltd.”), the corporate vehicle (bearing exactly the same name as the Husband) which he has been using to operate his medical practice, had an average monthly turnover of HK$946,744.89 as follows:

Month and Year	Gross Turnover of TF Co. Ltd. (HK$)
September and 2019	1,090,283.05
October and 2019	1,093,507.65
November and 2019	1,026,626.90
December and 2019	838,064.72
January and 2020	816,279.20
February and 2020	815,641.80
	Average: 946,733.89

22.  The Husband was absent from Hong Kong for just over one month, from 10 March 2020 to late April 2020 (and, even for that period, he received a total of AUD43,815 or HK$232,219 as salary from the hospital in Australia). However, he has not provided sufficient evidence to show that clinics remain closed and potential patients remain reluctant to undergo surgeries.

23.  In any event, based on the more updated figures provided by the Husband, TF Co. Ltd. achieves a gross turnover of HK$857,139.65 in December 2020 and continues to have a very high turnover, averaging HK$628,279.31 as follows:

Month and Year	Gross Turnover of TF Co. Ltd. (HK$)
September 2020	614,423.02
October 2020	563,050.75
November 2020	547,662.30
December 2020	857,139.65
January 2021	705,749.83
February 2021	604,218.93
March 2021	483,611.51
April 2021	650,378.50
	Average: HK$628,279.31

24.  He claims that he only has a monthly “available income (salary plus net profits)” of HK$257,613, or HK$90,337 (after deducting expenses).  According to the table compiled by him, net profit is equal to TF Co. Ltd.’s gross turnover minus operating costs.  In my view, he has not explained or produced sufficient evidence of what the company’s operating costs comprise of.

25.  Ms Cheng for the Wife submitted that the “Administrative Expenses” of TF Co. Ltd. under the audited financial statement clearly shows a number of instances of double counting in the Husband’s budget.  She took the following from TF Co. Ltd.’s “Administrative Expenses” for 2020 as examples:

Administrative expenses	HK$	Doubting counting issues
Director’s emolument	2,400,000	This would have been paid to the Husband and/or R2
Entertainment	500,703	He is claiming entertainment /presents expenses of $2,000 per month or $24,000 per year, and meals out of home at $5,000 per month or $60,000 per year, as part of his personal expenses
Insurance	78,266	He is claiming professional insurance and fellowship at $8,769 per month or $105,228 per year as part of his personal expenses
Legal and professional fee	1,712,428	He is already claiming legal fees of $50,000 per month or $600,000 per year as part of his personal expenses
Local travelling	5,477	He is already claiming transport expenses of $2,000 per month or $24,000 per year as part of his personal expenses
Medical expense	10,937	He is claiming medical/dental expenses $500 per month or $6,000 per year as part of his personal expenses
Motor vehicle expenses	123,965	He is claiming car expenses of $4,650 per month or $55,800 per year as part of his personal expenses
Rent and rates	533,200	He claims TF Co. Ltd. is paying R2 $28,000 per month on the basis that Parc Oasis is TF Co. Ltd.’s registered address.  At the same time, he is claiming rent of $28,000 per month or $336,000 per year as part of his personal expenses.  It is undisputed that he cohabits with R2 at Parc Oasis
Salaries and allowances	2,493,500	This would have been paid to him and/or R2

26.  I accept that it is very suspicious for the Husband to book various expenses as TF Co. Ltd.’s expenses, but at the same time claim for these items as part of his personal expenses, which gives rise to the problems of double counting.  I also agree with Ms Cheng’s submission that, if one takes away the director’s emolument, salaries and allowances (which would have gone to the Husband and/or R2 themselves), TF Co. Ltd.’s costs/expenses would be considerably less. By way of illustration, if one removes the items above, TF Co. Ltd.’s Administrative Expenses for 2020 would just be HK$729,282 for the year or HK$60,773 per month. Applying the average gross monthly turnover of HK$628,279 in above, the TF Co. Ltd. would have a net profit of around HK$567,505 per month.  In my view, he can readily afford the Wife’s existing level of MPS payment with this amount of monthly income, even after his claimed personal expenses at HK$162,276.

27.  It is also noteworthy that TF Co. Ltd. declared substantial dividends of HK$5,000,000 in 2019 and HK$4,000,000 in 2020.  The Husband has not provided this Court with the turnover of TF Co. Ltd. from May 2021 onwards. Given the fact that he has resumed his practice in Hong Kong for over a year, it is reasonably expected that the business would have performed even better in the last 6 months. 

28.  Another main dispute is whether the Husband has transferred large portions of his wealth to R2, his cohabitee, over the years as her purported salary and dividends from TF Co. Ltd., and has continued the practice even after the alleged decline in his income.  Ms Cheng for the Wife submitted and argued that:

(1)     TF Co. Ltd. was incorporated on 5 January 2012 by him.  He was the 100% shareholder and sole director at incorporation. Prior to TF Co. Ltd.’s incorporation, he conducted his anaesthetist practice as a sole proprietor under almost the same business name starting in or around 2009.

(2)     TF Co. Ltd. is and has always been a bare-shell corporate vehicle used by the Husband to receive income in his medical practice. It is fair to say TF Co. Ltd. has been his alter ego.

(3)     His case on TF Co. Ltd.’s ownership has been contrived and incredible.  After these proceedings started, he alleged that they caused him great stress and he had therefore resigned as director of TF Co. Ltd. and transferred the shares in the company to his “business partner”, R2.  On 27 November 2013, R2 re-assigned the 9,999 shares in TF Co. Ltd. to him but remained as a director.  He nevertheless maintained that R2 was a 50% beneficial owner of TF Co. Ltd., necessitating the Wife’s application for determination of TF Co. Ltd.’s beneficial ownership as a preliminary issue. Then, in March 2021, the Husband suddenly informed the Wife that R2 had assigned all of her alleged interests in the shares of TF Co. Ltd. to the Husband by a deed dated 3 February 2021.

(4)     Whether R2 had, until 3 February 2021, ever truly been a beneficial owner of any shares in TF Co. Ltd. remains to be a preliminary issue that will be determined at trial.  The burden is squarely on the Husband to demonstrate that that was the case. Until then, the Court should proceed on the basis that he is and has been the owner of TF Co. Ltd. and all dividends declared by TF Co. Ltd. in favour of the Husband are properly his income. 

(5)     As regards the payment of “salary” from TF Co. Ltd., he has given no proper explanation for why R2 should be paid such a high “salary” (i.e. HK$200,000 from January 2019 to March 2020, HK$100,000 in May and June 2020, HK$150,000 from July 2020 to December 2020 and HK$175,000 from January 2021 onwards). Such “salary” payments have clearly been a disguise by the Husband of his true income and a means for him to dispose of his assets that would otherwise be in the matrimonial pot available for distribution as ancillary relief.  R2’s purported salary has been on top of the dividend payments from TF Co. Ltd., which the Husband alleges that she was entitled to half.

(6)     It is the Wife’s case that the Husband beneficially owns at least 5 properties which are registered in R2’s name. According to the Husband’s updated Form E filed on 26 January 2021, those properties add up to a total of HK$37,860,000 in value and yield a total monthly rental income of HK$150,000.

(7)     In March 2020, the Husband purchased a property in Brisbane, Australia just so that he and R2 “could spend [their] holidays at a vibrant city”, having paid the deposit for the purchase on 18 March 2020. 

29.  On the other hand, the Husband contended that he had to take loans from the TF Co. Ltd., which reduced the cash at bank in the company to only about HK$3.8 million in November 2020 down from HK$7 million in 2016.  Further, pursuant to the undertaking of the Husband and R2 recorded in the Order of Court dated 24 March 2014, he and R2 cannot in any way dispose of or deal with HK$1.8 million in the bank account of TF Co. Ltd..  Therefore, he claims little capacity for him to use these funds to meet the Wife’s MPS.

30.  In my view, it may not be proper to make any determination regarding the beneficial owner of any shares in TF Co. Ltd. at this stage, which is a very serious dispute.  Having said that, it does not follow that I shall not make robust assumptions about the Husband’s ability to pay as the Court is not confined to the mere say-so of the payer as to the extent of his income or resources.  According to the Husband’s updated Form E, he has at least HK$1,998,896.52 in assets (not counting pensions), including HK$1,006,256.53 in bank savings, HK$458,701 in value of stocks and HK533,939 in value of sharing in TF Co. Ltd..  For the purpose of this application, I should err in favour of the Wife and find that even if the Husband’s income did decline, which I disagree, he still has the ability to pay.

Wife’s reasonable needs

31.  Based on §§53 and 54 of the MPS Judgment, the living standard of the parties during marriage was very high, which I entirely agree.  At that time, the Wife lived in Hong Kong and travelled from time to time to Australia. Her reasonable expenses were assessed at HK$220,000 per month.  Her current expenses HK$215,593 as claimed are set out in her Form E and updated in her 15^th Affidavit.

32.  Mr Marwah for the Husband argued that the Wife’s present expenses such as travel expenses, utilities, car expenses, insurance premia and medical expenses remain problematic.

33.  In my view, the Husband’s approach is fundamentally misconceived given that MPS is a broad-brush assessment.  I accept Ms Cheng’s submission that the objective of MPS payment is to hold the ring for the parties pending trial of the ancillary relief, and if the Wife’s case is vindicated at trial, her need for treatments must be recognised as part of her immediate, ongoing and reasonable needs.  Depriving her of such treatments or forcing her to cut down on these expenses in the interim period could cause her irreparable harm.  On the other hand, the issue at stake for the Husband is only money, and he can be compensated for any overpayment of MPS should the trial judge finds in his favour.

34.  For the sake of completeness, I now briefly go through some items of the Wife’s expenses disputed by the Husband below:

(1)     I do not consider that travel expenses of HK$19,306 are unreasonable and unnecessary for the Wife who has to travel domestically between Melbourne and Brisbane, since Brisbane is where her elderly mother (who has serious medical conditions) resides, and Melbourne is where her primary medical, dental and health-related service providers whom she has to regularly visit and consult are based. I accept that her monthly expenses shall also take into account, importantly, the air ticket for her eventual return to Hong Kong when the quarantine requirements are lifted, and temporary accommodation.

(2)     For utilities and insurance, the Wife has produced her bank statements and receipts or other documentary proof.  For the interim purpose, I accept her explanation at §48 of her 15^th Affidavit: “It is possible there are more expenditures which could have been missed, due to pressuring time constraints with the required review of my expenses and preparation of the submitted Form E. There is also some financial record currently left in Hong Kong, which I am unable to access to enable me to more fully verify against the documented expenses and withdrawals in my bank statements or I had paid in Cash”. I note that the Husband himself has not provided receipts for all his purported spending. For instance, he claims to be paying HK$28,000 to R2 in “rent” each month for staying at Parc Oasis where they cohabit, no rental receipt or proof of the same has been provided: see the last item of part 7 in his latest Form E.

(3)     Car expenses: As the Wife has already explained in §73 of her 15^th Affidavit, the car expenses of HK$7,357 consist of expenses in both Hong Kong and Australia, including fixed expenses of registration fee, insurance and servicing for her car in Hong Kong, and costs of her car hire in Australia which includes cost of petrol and toll charges. On a broad-brush approach, I accept.

35.  As to her medical, dental, health and wellness expenses, it was stated in the Wife’s updated Form E,

(1)     she suffers from the chronic and debilitating medical condition of ME/CFS, which is a neurological and immune system compromising condition, and also suffers from a wide range of symptoms including a persisting deep fatigue, reduced energy levels and low functioning capacity.

(2)     The ME/CFS condition has been aggravated by the post-surgery complications arising from a major surgery for endometrial cancer in October 2015 which removed her entire reproductive organs, all lymph nodes in her pelvis and wall lining of her cervix. She also suffers from various gynaecological and lymphedema symptoms including pain and physical discomfort.

(3)     She requires extensive treatments and management measures to address her health problems and constant management so that it would not worsen or so as to reduce the speed of any deterioration.

36.  In the MPS Judgment, Judge A Tse had already carefully examined the parties’ respective cases and expert evidence on the Wife’s medical conditions and the treatment, management and therapeutic measures she requires.  I can see no good reason to depart from her findings for the purpose of the Variation Summons.

37.  On an interim basis, I accept that the Wife’s budget is reasonable and that there is no material change in her reasonable needs.

Litigation Funding

38.  HK$400,000 in LCP currently remains outstanding.  The Wife does not agree that it should be paid at HK$50,000 a month for 8 months as the Husband asked.  In my view, the Husband clearly has the ability to make a one-off payment and his request is thus rejected.

Conclusion

39.  For all the reasons above, the Variation Summons be dismissed.  I see no reason to depart from the general rule that costs shall follow event.  I now make an order nisi the Husband to pay costs with certificate for counsel to the Wife, which becomes absolute unless any party applies to vary by summons with supporting affirmation within 14 days.

40.  Such costs shall be summarily assessed on paper without oral hearing, if not agreed by the parties, with the following directions:

1.     The Wife do lodge and serve her statement of costs (not more than 2 pages, font size 14 and double line spacing) within 7 days;

2.     The Husband do lodge and serve his statement of objection (not more than 3 pages, font size 14 and double line spacing) within 7 days thereafter.