LCKLM nee CKLM v. LWK

FCMC 11425 / 2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11425 OF 2011

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RULING
(Hadkinson Order and Leave to Appeal)

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The Applications

1.  There are two applications before me. 

2.  The first is the respondent husband’s application for leave to appeal against my Judgment dated 26 February 2016 (“the Judgment”) in which I dismissed his application to amend §§ J and K of his undertakings (‘the Undertakings”) contained in a Consent Order dated 18 February 2016. 

3.  The second summons is the petitioner wife’s application for a Hadkinson order for staying the respondent’s leave application until such time after he has purged his contempt of court by compliance with the Undertakings.  It is common ground that the Undertakings have the same force and effect as a court order.

4.  For convenience, I shall continue to refer the petitioner wife as “P” and the respondent husband “R”.  I shall also adopt the same nomenclature and abbreviations used in the Judgment.  As I have already set out the background to R’s application to amend, the parties’ arguments and my reasoning in the Judgment, I am not going to repeat the same here.  This Ruling has to be read together with the Judgment. 

5.  Since the Judgment, the parties have performed §§ L to N of the undertakings which deal with the Tung Chung property and the transfer of shares of the 10 relating companies. Both are pointing their finger against each other for the delay in the implementation of these other undertakings.  I think it is fair to say that due to the complete loss of trust on each other, both parties were putting forward proposals best suited their interests only and hence resulting in deadlock. Anyway, the only matter now remained is the performance of the Undertakings in respect of the Matrimonial Home, the very subject matter on which amendment is sought by R.

6.  In response to P’s Hadkinson application, R agrees to arrange payment into court $6,465,127.55, being the sum required for redemption of the mortgage of the Matrimonial Home and to undertake to comply with the final judgment in resolution of the disputes in connection with the Matrimonial Home (“the New Undertaking”).  This has been rejected by P.

7.  For obvious reasons, counsel agree to deal with the Hadkinson summons before the leave summons, I would therefore deal with the Hadkinson order first.

The Hadkinson Order

8.  Briefly stated, the court has the discretion to refuse to hear, or to impose conditions on, a person who is in contempt and who has not purged his contempt: Hadkinson v Hadkinson [1952] P 285.

9.  The Court of Appeal, adopting MA v MI [2004] 2 FLR 932 at [59], set out the questions a court should ask itself in Hadkinison applications in CWG v MH [2014] 4 HKLRD 141 at § 12.  They are: 

1.   Is R in contempt?

2.   Is there an impediment to the course of justice?

3.   Is there any other effective means of securing compliance with the Court’s orders (in the present case, the Undertakings)? 

4.   Should the court exercise its discretion to impose conditions having regard to the questions?

5.   Is the contempt wilful (is it contumacious and continuing)?

6.   If so, what conditions would be proportionate?

Discussion

Is R in contempt?

10.  There is no requirement that the non-compliance should be shown to have been culpable.  The question of culpability, ie the non-paying party had the means to pay, comes into play as regards the court’s exercising its discretion as to whether and how to act on the contempt so established.  At that stage all the circumstances are considered.  The standard of proof of ability to pay is the civil standard: Mubarak v Mubarik (No 2) [2006] EWHC 1260 (Fam), [2007] 1 WLR 271, §§ 65 – 66 & 71.

11.  Question (1) therefore cannot be disputed.  Ms Yip SC, on behalf of R, accepts there is non-compliance of the Undertakings.  Ms Eu SC, for P, emphasizes that the Undertakings have been outstanding for over 1 ½ years and there is no stay of execution.  There is no reason for R not to have complied with the Undertakings in the meantime.  R can still appeal against the Judgment after his compliance with the Undertakings and such appeal will not be rendered nugatory in the event that he succeeds on appeal.  In the circumstance, R’s constitutional right is not infringed: CWG v MH, supra, at §18.2.

Is there an impediment to the course of justice?

12.  Ms Eu argues that there is an impediment to the course of justice in that the Undertakings should be complied with.  R should not be permitted to delay the due administration of justice.  This is contrary to the golden rule that court orders should be obeyed.

13.  Ms Eu also stresses that the delay has caused prejudice to P.  For the reason that R is still holding half of the shares in the company holding the Matrimonial Home, P cannot let out the property in the meantime.  She has been kept out of rental for almost one and a half year and suffered a loss of at least $544,000.  Further, she received notification from the Buildings Department on 29 June 2016 that certain remedial work for an unauthorized building work had to be carried out, failing which she might be liable to a fine and imprisonment.  On the other hand, there is no prejudice to R to comply with the Undertakings.  Both parties are persons of means.  There is no reason why P would not be able to repay the over-payment should R succeed in his appeal.  Ms Eu also makes reference to a recent incident where R unilaterally withdrew money of USD34,525.61 and $13,243.25 from the parties’ joint account without P’s consent and to the fact that R did not provide his new address to P.

14.  With respect, the alleged prejudice per se is quite different from an impediment to the course of justice.  As has been said by Ryder J in MA v MI [2004] 2 FLR 932:

[48] The emphasis is on the impediment to the course of justice, the wilful and continuing nature of the disobedience that makes it more difficult for the court to ascertain the truth or enforce its orders and there being no other method of securing compliance with the court’s order.

15.  R is the applicant in the leave application.  He is seeking to advance his case subsequent to the adverse ruling in the Judgment.  I do not think R’s conduct amounts to such an abuse of the process of the court as to render further proceedings unsatisfactory and to prevent the court from doing justice.  His appeal would not make the court more difficult to ascertain the truth or make the court’s function more difficult to perform.  Quite to the contrary, if leave is granted, the issue in dispute would have the opportunity to be clarified and resolved by the Court of Appeal.

16.  I agree with Ms Yip that the renting out of the Matrimonial Home and the Building Order can be sorted out between the parties or their legal representatives.  I do not find any substance in P’s complaint regarding the withdrawals of funds in so far as it relates to the Hadkinson application.  P also made complaint in her affirmation that there was further encumbrance over the Matrimonial Home but apparently the matter was not pursued in the hearing.  In any event, I do not find any substance in the complaint.

Is there any other effective means of securing compliance with the Court’s orders (in the present case, the Undertakings)? 

17.  Ms Eu submits that there is no other effective means to secure R’s performance of the Undertakings; in particular, she contends that the New Undertaking offered by R is useless.  The New Undertaking is just a unilateral variation of the Consent Order through the backdoor.  Ms Eu also submits that enforcement of court order is an aspect of administration of justice.  P should not be bothered to take out expensive satellite litigation for enforcement of the Undertakings.

18.  With respect, I do not agree that there are no other effective means to secure R’s performance.  There is a variety of enforcement measures in the Rules of the High Court and under the common law for securing compliance in order to remedy P’s alleged prejudice, none of which however has been engaged.  R is a well-established businessman firmly rooted in Hong Kong with substantial assets and respectable status in his trade.  There is not a hint that any methods of enforcement would be futile. 

Is the contempt wilful?

19.  Ms Yip argues that there is no contumacious disobedience on the part of R.  He has completed with the Consent Order in every way he could, except the Undertakings which are the subject matter of the dispute. 

20.  It seems clear to me that the contempt is wilful, at least as from the Judgment, which is more than 6 months ago.  R is certainly a man of substantial means. There is nothing to suggest that he is not able to pay. 

Should the court exercise its discretion?

21.  Ultimately, the crucial question is whether in the exercise of its discretion, the court should stay R’s application for leave to appeal by reason of his non-compliance. 

22.  In Hadkinson v Hadkinson, it was said that there are two exceptions from the general rule.  One of such exceptions is that a person can apply for the purpose of purging his contempt and another is he can appeal with a view to setting aside the order upon which his alleged contempt is founded: per Romer LJ, at 289.

23.  Ms Yip argues that R’s case falls within one of the two exceptions.  

24.  In response, it is argued by Ms Eu that the exception does not apply at all.  R is not appealing against the Consent Order upon which he is found to be in contempt.  He is only seeking leave to appeal against the Judgment, the subject matter being whether he can amend the Undertakings as contained in the Consent Order under the inherent jurisdiction or the slip rule.  There is no bar to R to appeal against the Consent Order or to seek rectification of it.  In the circumstances, it cannot be said that there is any infringement of the maxim “audi alteram partem” or related constitutional rights: CWG v MH [2014] 4 HKLRD 141, § 18.2; also X Ltd v Morgan-Grampian Ltd, [1991] 1 AC 1, at 50E.

25.  I agree with Ms. Yip’s criticism that the distinction made by Ms Eu is an attempt to draw a distinction between the wind and the breeze.  In my view, the distinction is semantic and artificial; one has to look at the substance of R’s application. If R succeeds in his appeal, he would be exonerated from his contempt. 

26.  Again, in Hadkinson v Hadkinson, Denning LJ (as he then was) formulated what he described as “the modern rule”.  Essentially, he said it is a strong thing for a court to refuse to hear a party to a cause and it is only to be justified by grave considerations of public policy.  It is a step which a court will only take when the contempt itself impedes the course of justice and there is no other effective means of securing his compliance: at 298.

27.  The House of Lords confirmed that the question should be approached on the basis of a discretion to be exercised flexibly, according to the circumstances, rather than on the basis of a rule : X Ltd v Morgan-Grampian Ltd [1991] 1 AC 1, at 46B. 

28.  Thus, “the modern rule” formulated by Denning LJ is generally seen as a better approach.  The court has a wide power to do what is just: ASM Shipping Ltd of India v TTMIU Ltd of England (No 2) [2007] EWHC 927 (Comm), § 49.  Our Court of Appeal also confirmed it is a matter of discretion of the court: TCWF v LKKS and Ors (unrep.; CACV 166/2012, 24 December 2012) § 3.

29.  As for the two exceptions mentioned by Romer LJ, it has been said in Arlidge, Eady & Smith on Contempt (4^th Ed) that it would be more appropriate to categorize the so-called exceptions simply as being situations in which the discretion will generally be exercised in favour of hearing the litigant in default: at §§ 12-69 & 12-72.  Hence, while whether R falls within one of the two exceptions or not is not determinative, it would be wrong for me not to give due weight to it.

30.  Ms Yip also emphasizes the importance of the right of appeal and the right to be heard.  She refers me to what Denning LJ said, again, in Hadkinson v Hadkinson at p 295:

“I need hardly say that it is very rare for this court to refuse to hear counsel for an appellant. No matter how badly a litigant has behaved, nevertheless, generally speaking, if he has a right of appeal, he has a right to be heard; for the simple reason that, if he is not heard, his right of appeal is valueless…”

31.  A Hadkinson Order is prima facie restrictive of a party’s constitutional right of access to court.  It has however been held that the guaranteed rights under Article 35 of the Basic Law (rights of access to the courts) and under Article 10 of the Bill of Rights (equality before courts and right to fair and public hearing) are not absolute but may be subject to limitations.  Such limitations are valid if they pursue a legitimate aim, are proportionate to that aim and are not such as to impair the very essence of the right: Ng Yat Chi v Max Share Limited & Others [2005] 1 HKLRD 473, (2005) 8 HKCFAR 1, at § 73; see also MA v MI [2004] EWHC 1158 (Fam), [2004] 2 FLR 932, [2005] Fam. Law 355, [51].

32.  Finally, it has to be borne in mind that as per Ryder J in Mubarak v Mubarik [2004] 2 FLR 932, § 57 the Hadkinson sanction is a remedy of last resort. The power to make such an order should be exercised judicially, sparingly and proportionately: C v C (Appeal: Hadkinson order) [2010] EWHC 1656 (Fam), [2011] 1 FLR 434 § 42.

33.  As the docket judge of this case, I am well aware of the history of the present proceedings.  I have made some adverse comments on R’s “pick and choose” attitude in compliance with the Consent Order in another Ruling of 18 March 2016 when I dealt with the costs of P’s injunction. I am also sure that what little trust the parties might have on each other has long lost.  Nevertheless, the bright side of the matter is that the parties have finally come to a stage where the Matrimonial Home is the final and only dispute between them.  All the others are matters in the past.

34.  In the final analysis, considering that R is appealing against the very subject matter of his non-compliance and although it is axiomatic that the facts of every case are different, this case is definitely not such an “exceptional and unusual” one for an applicant for leave to appeal to have to comply with conditions before he would be heard:  Mubarak v Mubarik (No 2) [2007] 1 WLR 271 at § 88, taking all the above factors into consideration, I am driven to the conclusion that the discretion should be exercised in favour of R.  I also consider that it is not an appropriate case to impose any conditions. 

35.  I now turn to R’s leave to appeal.

The Legal Principles on Leave to Appeal

36.  The parties have no dispute over the applicable legal principles. The relevant test governing applications for leave to appeal from the District Court is provided in section 63A(2) of the District Court Ordinance (Cap 336) (“the DCO”):

“Leave to appeal shall not be granted unless the judge, the master or the Court of Appeal hearing the application for leave is satisfied that –

(a) The appeal has a reasonable prospect of success; or

(b) There is some other reason in the interests of justice why the appeal should be heard.” [emphasis added]

37.  The Court of Appeal discussed the application of s 63A(2) of the DCO in Sunny Tadjudin v Bank of America, National Association, HCMP No 691 of 2012, unreported, 29 June 2012 at paragraph 9:

“9. Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (SMSE v KL [2009] 4 HKLRD 125 para 17). Furthermore, it is pertinent to bear in mind that even if there is a reasonable prospect of success on appeal, the court still retains a discretion whether to grant leave to appeal, although the fact that there is, ex hypothesi, a reasonable prospect of success would heavily influence the court’s exercise of discretion (Ho Yuen Ki Winnie & Ors v Ho Hung Sun Stanley & Anr. HCA 391/2006, 25 May 2009, A Cheung J para 3; and HCMP 1009/2009, 24 August 2009, para 22).”

R’s Leave to Appeal

38.  R has 3 Grounds of Appeal. 

1^st Ground – Wrong to conclude that the Consent Order makes no reference to an equal division – manifest intention was equal division

39.  Ms Yip emphasizes on the “double counting” of the mortgage and the ELI Loan and refers me to various undisputed facts or findings of facts to support her argument that there is an abundance of evidence on equal division.  For instance, she relies on the equal shareholding of the corporate vehicle that owns the Matrimonial Home, the fact that initially 50/50 split was P’s bottom line and the position of the parties on the 1^st FDR hearing which was essentially one of 50/50 split.  It is not necessary for me to set out the undisputed facts here for the reason that Ms Yip is essentially repeating what she said in the original application in support her contention that the parties’ agreement is both in principle and in substance the kind of Charman arrangement: § 28 of the Judgment.

40.  In response, Ms Eu submits that all the points raised in the draft Grounds of Appeal and the underlying basis on which they raise are repetition of points already ventilated and discussed in the Judgment.  R has not raised any new points for appeal. 

41.  To start with, I need to clarify that it was not my conclusion that the Consent Order makes no reference to equal division.  What I said was I accepted that Ms Yip’s criticisms over the way in which the undertakings were drafted are relevant but the question is whether they are sufficient: §41 of the Judgment.  My conclusion was, as can be seen in § 51, I was not able to agree with Ms Yip that ‘… when objectively construed, the manifest intention of the parties as contended by R is clearly shown on the order was drawn” (emphasis added). 

42.  That said, I am attracted to 2 of the points raised by Ms Yip.

43.  The first is that there was no evidence at all that R decided to be generous to P by being fully responsible to pay off the mortgage and the ELI Loan plus giving P the entire Matrimonial Home for free and the second is that P has not provided any specific reason why in the event that the Matrimonial Home is sold within 3 years at a price exceeding $49 million, the amount of sale proceeds in excess of $49 million shall be divided equally between the parties.  There has not been any evidence adduced by P as to what was the reason for such provision for equal division in the Consent Order.

44.  I consider these arguments are valid and for this reason, R has a reasonable prospect of success on this ground.

2^nd Ground – Wrong in concluding that there was no mistake in the Consent Order in adopting the manifest intention of the parties with regard to the Matrimonial Home

45.  Ms Yip submits that while I accurately pointed out that there would be ‘double counting’ of the mortgage and the ELI Loan in P’s version, I failed to recognize such ‘double counting’ was a result of an inadvertent mistake by putting “Net Value” instead of “current market value” in § K(i) of the Undertakings, which defeated the overarching intention of the parties of an equal split of the assets: § 29 of the Judgment.  She argues that the “accidental mistake (that) was caused by the mutual oversights of the parties’ legal representatives” is the only irresistible inference that I should have drawn: § 2.6 of Grounds of Appeal.

46.  Ms Eu submits that R has not advanced any new arguments under this ground. 

47.  I never said that the Undertakings are without problem.  Quite to the contrary, I expressly said in § 35 of the Judgment that the Undertakings are pregnant with problems, arising mainly from the use of the terms “current market value” and “the sale price”. If the ordinary and natural meaning of the word is to be used, § J(v) (ie the calculation of “the Net Value”) is not workable because there would never be a “sale price”: § 37 of the Judgment.  It was only with the consensus of the parties that “the sale price” would also be the same as “the current market value” of $49 million that the Undertakings became workable.  As this is also relevant to the 3^rd Ground, it would be useful for me to set out § 38 of the Judgment,

38.  With the consensus that the figure of $49 million is to be adopted, §§ J and K are not merely literally intelligible but also workable as evident from the fact that the parties are able to work out their own calculations, only with the ramification that it would work against R.  This is exactly what R is complaining about.  His complaint is that taking the wordings of §§ J and K at their face value, or put it another way, if §§ J and K are implemented according to their natural and ordinary meaning of the word, it would defeat the overarching intention of the parties behind the consent order.  (emphasis added)

48.  As can be seen, it was only with an extrinsic aid that made the Consent Order workable. With this in mind, the 2 points raised by Ms Yip in the 1^st Ground are also relevant here.  I agree that the “double counting”, coupled with the said 2 points, makes the irresistible inference argument more than a fanciful one.  I would also grant leave to appeal on this ground.

3^rd Ground - Wrong to find that the Consent Order is workable

49.  Ms Yip submits that I erred in finding that the Consent Order is workable by applying the ordinary and natural meaning of the words.  My acceptance that if the ordinary and natural meaning of the word is to be used, undertaking § J(v) (ie the calculation of the Net Value) is not workable because there would never be a “sale price” where the Matrimonial Home is to be acquired by P but not to be sold: § 37 of the Judgment.  This is plainly inconsistent with my finding that the Consent Order is workable by applying the ordinary and natural meaning of the words.  In consequence, I ought to have found that the Undertakings are not workable if the natural and ordinary meaning of the word is to be applied.

50.  I have to agree with Ms Eu that this submission is plainly unarguable. As I said in § 38 of the Judgment (and reproduced in para 47 above), it was only with the agreement that the figure of $49 million was to be adopted that made the Consent Order workable.  Further, the fact that R accepts he is in non-compliance plainly demonstrates that the Consent Order is workable.  I do not find any reasonable prospect on this ground.

Orders

The Petitioner’s Summons

51.  For the above reasons, I dismiss the petitioner’s summons dated 9 May 2016 with an order nisi that the costs of the summons be to the respondent, with certificate for two counsel.

The Respondent’s Summons

52.  As for the respondent’s application for leave, I give leave to appeal on his 1^st and 2^nd grounds of appeal.  The costs of the application be in the cause of the appeal with certificate for two counsel.  This is also by way of an order nisi.