LIT WING YEE v. TANG CHEUK LUN

[English Translation –英譯本]

HCA 850/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 850 OF 2016

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J U D G M E N T

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1.  This is an appeal lodged by the defendant against the order made by Master C Chow on 21 February 2017. The plaintiff and the defendant are husband and wife. The plaintiff has petitioned for divorce in the Family Court under FCMC 13870/2015. She has also applied for ancillary relief in that case.

2.  The plaintiff also commenced the present action on 1 April 2016, seeking to recover from the defendant a debt of HK$2,684,360 with interest. The details of the debt were annexed to the Statement of Claim. The plaintiff later reduced the amount of debt to HK$1,844,891 in an amended statement dated 1 November 2016.

3.  On 6 July 2016 the defendant made an application to stay this action pending the determination of the ancillary relief application under FCMC 13870 of 2015. Master C Chow refused the application on 2 December 2016. The defendant appealed against Master C Chow’s decision on 16 December 2016.

4.  This appeal was dealt with by way of rehearing (Hong Kong Civil Procedure 2017 §58/1/2).

The claim

5.  The plaintiff alleged in the Amended Statement of Claim that she lent the defendant a total of HK$1,844,891 from 5 April 2007 to 11 November 2015. The defendant signed loan receipts dated 23 June 2014 and 3 November 2015 and promised to repay the plaintiff HK$1,081,192.

6.  The defendant now says in the affidavit that he has no recollection of these loans. He says: -

“I have no recollection or knowledge whatsoever of some of the Alleged Loans. Yet for reasons set out above, I verily believe that they, too, could not have been loans as alleged by the Plaintiff.”

7.  As regards the loan receipts, the defendant admitted that he had actually signed a loan receipt dated 3 November 2015. He says in the affidavit: -

“For the present purposes, I would specifically add that the 2^nd Alleged Note was written on a paper table mat of the Japanese restaurant. I remember that it was written on that particular occasion solely for the purpose of comforting the Plaintiff, who was at that time very emotional, rather than to evidence any indebtedness as alleged.”

The defendant’s grounds of application

8.  In support of his application for stay, the defendant put forward the following grounds:

(a)   the issue of the present action and that of the ancillary relief overlap and are similar to a great extent;

(b)  the ancillary relief judgment is very likely to be binding on the parties on the issue of the present action; and

(c)   stay of the present action promotes cost effectiveness for the parties.

9.  The defendant, in the affidavit in support of the appeal, advanced the following grounds of appeal:

(a)   The plaintiff has brought up the so-called debt in the Family Court case FCMC 13870/2015. The Family Court is in the process of dealing with this claim. Repeating the issue of the claim would waste the court’s time.

(b)  The plaintiff has made a claim for the same so-called debt at the Family Court.

(c)   Judgments of the Family Court show that that Court is capable of dealing with issues which are in greater amount and more complex than a so-called debt of HK$180. It is groundless for two courts to deal with the same claim in issue.

The plaintiff’s grounds of objection

10.  In objection to this appeal, the plaintiff submitted the following:

(a)   the issue in the present action would not and could not be resolved at the Family Court, as the Court would not engage in close retrospective investigations in the loan issue;

(b)  the plaintiff would face substantive and procedural prejudice, if the loan issue in the present action is dealt with at the Family Court;

(c)   the plaintiff is highly likely to succeed in recovering the loans in the present action. She expects to make an application for summary judgment; and

(d)  the defendant made this application and appeal for delaying the determination of the present action.

The Family Court would not engage in costly and futile retrospective investigations

11.  Mr Chen on behalf of the plaintiff submitted that the defendant seemed to have misunderstood the issues the Family Court could deal with. Mr Chen submitted that, in dealing with ancillary relief, the Family Court would not deal with the issues over the indebtedness, as that Court would not engage in costly and futile retrospective investigations of the failed marriage.

12.  Mr Chen also referred to the following principle which the Court of Final Appeal explained in LKW v DD:

“The fourth principle is that the court should not countenance any attempt to engage in costly and often futile retrospective investigations of the failed marriage which tend to deplete the parties’ (and the courts’) resources and to increase antagonism and discourage settlement.” (§62)

13.  However, this argument, in my view, is inappropriate. This is because in her petition, the petitioner alleges that the cause for the irretrievable breakdown of the marriage between her and the defendant had nothing to do with the defendant’s failure to repay her the debts. Therefore, the Family Court would not in any event consider whether or not the failure of the marriage was related to the debts as alleged by the plaintiff. Nor is this the defendant’s ground of application for stay.

Unhelpful to the plaintiff substantively and procedurally

14.  Mr Chen submitted that if the plaintiff’s claim in the present action was dealt with by including it as part of the ancillary relief, the plaintiff would be put in a prejudiced position. Since the Family Court would only adopt a broad brush approach in dealing with the distribution of property, it is very unlikely that the plaintiff would recover all the loans. The plaintiff claimed in the Form E that her net assets were HK$1,700,236.08. On the other hand, the defendant denied in the Form E that he owed the plaintiff any loan, and also claimed that his net assets were below HK$20,000. As regards whether the defendant has concealed assets or not, it has to be dealt with in the ancillary relief hearing. Based on the information the plaintiff has now disclosed, under the equal sharing principle, she would not recover from the determination of the ancillary relief application the loan of HK$1,844,891.

15.  Moreover, Mr Chen submitted that the plaintiff’s claim in the present action was different from that for ancillary relief. The plaintiff, in the Amended Statement of the present action, required the defendant to repay a debt of HK$1,844,891 with interest. Mr Chen also cited what To J explained about the difference between a lump sum payment in ancillary relief awarded by the Family Court and damages awarded in a civil action in KJ v KMLM & Anor (unreported, HCMC 4/2010, 21 May 2014): -

“61 ...  The court’s power to award a lump sum to a wife is entirely statutory.  It is derived from section 4 of the Matrimonial Proceedings and Property Ordinance (“MPPO”).  It is not a debt but payment to effect the division of the family pool upon divorce.  Damages awarded in a civil action, on the other hand, is compensation for wrongful conduct.  Understood in this light, the nature of a lump sum ordered to be paid in a matrimonial case is different from that of debt or damages awarded in a civil action.”

16.  Mr Chen further submitted that the claims for debts between husband and wife should not be dealt with in the ancillary relief by the Family Court, but should be resolved through civil litigation. The Family Court, in considering how to share the family assets fairly, will take account of the judgment of the litigation. For this reason, the plaintiff did not ask the defendant for repayment of loans in the matrimonial case.

17.  Mr Chen has, in fact, put forward two points in this argument. The first point refers to the Family Court adopting a broad brush approach in dealing with ancillary relief; the second point refers to the different nature between the plaintiff’s grounds for the claims in the present action and those for ancillary relief. I agree that the plaintiff’s claim in the present action and her claim for ancillary relief at the Family Court differ in nature. However, I disagree with Mr Chen’s submission that as the Family Court deals with the ancillary relief by adopting a broad brush approach, the proceedings of the present action ought not to be stayed. 

Legal provisions relating to ancillary relief

18.  In deciding whether or not to stay the present action pending the determination of the ancillary relief application, in my view, the nature of ancillary relief has to be taken into consideration. Section 25(3) of the Matrimonial Proceedings and Property Ordinance, Cap. 192 of the Laws of Hong Kong specifies that “ancillary relief” means relief under any of the provisions of sections 3, 4, 5, 6 and 6A of the Ordinance.

19.  I now reproduce the relevant provisions in those four sections, and the relevant provisions of section 25(1) and section 7 as follows:

“Commencement of proceedings for financial provision orders, etc.

25. (1) Where a petition or joint application for divorce or a petition for nullity of marriage or judicial separation has been presented or made, then, subject to subsection (2), proceedings under section 3, 4, 5, 6 or 6A may be begun, subject to and in accordance with rules of court, at any time after the presentation of the petition or the making of the application; ...

Maintenance pending suit in case of divorce, etc.

3. On a—

(a) petition or joint application for divorce; or

(b) petition for nullity of marriage or judicial separation,

the court may order either party to the marriage to make to the other such periodical payments for his or her maintenance and for such term, being a term beginning not earlier than the date of the presentation of the petition or making of the application and ending on the date of the determination of the suit, as the court thinks reasonable.

Financial provision for party to a marriage in cases of divorce, etc.

4. (1) On granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation or at any time thereafter (whether, in the case of a decree of divorce or of nullity of marriage, before or after the decree is made absolute), the court may, subject to the provisions of section 25(1), make any one or more of the following orders, that is to say—

(a) an order that either party to the marriage shall make to the other such periodical payments and for such term as may be specified in the order;

...

(c) an order that either party to the marriage shall pay to the other such lump sum or sums as may be so specified.

Financial provision for child of the family in cases of divorce, etc.

5. (1) Subject to the provisions of section 10, in proceedings for divorce, nullity of marriage or judicial separation, the court may make any one or more of the orders mentioned in subsection (2)—

(a) before or on granting the decree of divorce, of nullity of marriage or of judicial separation, as the case may be, or at any time thereafter;

(b) where any such proceedings are dismissed after the beginning of the trial, either forthwith or within a reasonable period after the dismissal.

(2) The orders referred to in subsection (1) are—

(a) an order that a party to the marriage shall make to such person as may be specified in the order for the benefit of a child of the family, or to such a child, such periodical payments and for such term as may be so specified;

...

(c) an order that a party to the marriage shall pay to such person as may be so specified for the benefit of such a child, or to such a child, such lump sum as may be so specified.

…

Orders for transfer and settlement of property and for variation of settlements in cases of divorce, etc.

6. (1) On granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation, or at any time thereafter (whether, in the case of a decree of divorce or of nullity of marriage, before or after the decree is made absolute), the court may, subject to the provisions of sections 10 and 25(1), make any one or more of the following orders, that is to say—

(a) an order that a party to the marriage shall transfer to the other party, to any child of the family or to such person as may be specified in the order for the benefit of such a child such property as may be so specified, being property to which the first-mentioned party is entitled, either in possession or reversion;

(b) an order that a settlement of such property as may be so specified, being property to which a party to the marriage is so entitled, be made to the satisfaction of the court for the benefit of the other party to the marriage and of the children of the family or either or any of them;

(c) an order varying for the benefit of the parties to the marriage and of the children of the family or either or any of them any ante-nuptial or post-nuptial settlement (including such a settlement made by will or codicil) made on the parties to the marriage;

(d) an order extinguishing or reducing the interests of either of the parties to the marriage under any such settlement;

(e) an order for the sale of such property as may be specified in the order, being property in which or in the proceeds of sale of which either or both of the parties to the marriage has or have a beneficial interest, either in possession or reversion, and for the use of the proceeds of such sale,

and the court may make an order under paragraph (c) notwithstanding that there are no children of the family.

…

Orders for sale of property

6A. (1) Where the court makes an order under section 4, 5 or 6 then, on making that order or at any time after the making of that order, the court may make a further order for the sale of such property as may be specified in the order, being property in which or in the proceeds of sale of which either or both of the parties to the marriage has or have a beneficial interest, either in possession or reversion.

…

Matters to which court is to have regard in deciding what orders to make under sections 4, 5 and 6

7. (1) It shall be the duty of the court in deciding whether to exercise its powers under section 4, 6 or 6A in relation to a party to the marriage and, if so, in what manner, to have regard to the conduct of the parties and all the circumstances of the case including the following matters, that is to say—

(a)   the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

(b)   the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c)   the standard of living enjoyed by the family before the breakdown of the marriage;

(d)   the age of each party to the marriage and the duration of the marriage;

(e)   any physical or mental disability of either of the parties to the marriage;

(f)  the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(g)   in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

(2) Without prejudice to subsection (3), it shall be the duty of the court in deciding whether to exercise its powers under section 5, 6 or 6A in relation to a child of the family and, if so, in what manner, to have regard to all the circumstances of the case including the following matters, that is to say—

(a)   the financial needs of the child;

(b)   the income, earning capacity (if any), property and other financial resources of the child;

(c)   any physical or mental disability of the child;

(d)   the standard of living enjoyed by the family before the breakdown of the marriage;

(e)   the manner in which he was being and in which the parties to the marriage expected him to be educated;

and so to exercise those powers as to place the child, so far as it is practicable and, having regard to the considerations mentioned in relation to the parties to the marriage in paragraphs (a) and (b) of subsection (1), just to do so, in the financial position in which the child would have been if the marriage had not broken down and each of those parties had properly discharged his or her financial obligations and responsibilities towards him.

(3) It shall be the duty of the court in deciding whether to exercise its powers under section 5, 6 or 6A against a party to a marriage in favour of a child of the family who is not the child of that party and, if so, in what manner, to have regard (among the circumstances of the case)—

(a)   to whether that party had assumed any responsibility for the child’s maintenance and, if so, to the extent to which, and the basis upon which, that party assumed such responsibility and to the length of time for which that party discharged such responsibility;

(b)   to whether in assuming and discharging such responsibility that party did so knowing that the child was not his or her own;

(c)   to the liability of any other person to maintain the child.”

Discussion

20.  Section 25(1) of the Ordinance above provides that when a petition or joint petition for divorce or a petition for nullity of marriage or judicial separation (“the relevant petition”) has been made, either party to the petition may commence proceedings for ancillary relief pursuant to section 3, 4, 5, 6 or 6A. Section 3, 4, 5, 6 or 6A empowers the court to award various ancillary reliefs in respect of the relevant petition. Section 25(2) stipulates the rules of procedure for an ancillary relief application.

21.  Section 3 empowers the court to order a party to the marriage to make to the other party reasonable periodical payments as his or her maintenance for a period from the date of the presentation of the petition to the conclusion of the suit. The court can therefore order a party to the marriage to make to the other party payments as maintenance pending suit in such amount as the court thinks reasonable.

22.  Section 4 empowers the court, on granting a decree in respect of a relevant petition or at any time thereafter, to order either party to the marriage to make to the other periodical payments, or to pay to the other a lump sum or sums, or to pay to the other periodical payments and a lump sum payment for such term as may be so specified.

23.  Section 5 empowers the court, on granting the decree in respect of the petition, or before granting the decree or at any time thereafter, or where any such proceedings are dismissed after the beginning of the trial and within a reasonable period after the dismissal, to order either party to the marriage, for such term as may be so specified, to make periodical payments to the child of the family or to such person as may be specified for the benefit of such a child. This section also empowers the court to order the party to make a lump sum payment to the child of the family or to such person as may be specified for the benefit of such a child. The court may also order the party to make periodical payments and a lump sum payment. Section 10 overrides section 5, but only in restricting the time limit for a payment order made under section 5.

24.  Section 6 empowers the court, on granting the decree in respect of the petition or at any time thereafter, to order a party to the marriage to transfer to the other party, to any child of the family or to such persons as may be specified for the benefit of such a child certain property to which the party is entitled, either in possession or reversion. The court may also order a party to the marriage to make settlement of property, being property to which a party to the marriage is so entitled, for the benefit of the other party and of the child or either of them to the satisfaction of the court. Under this section, the court is empowered to vary, for the benefit of the other party and of the child of the family or either of them, any ante-nuptial or post-nuptial settlement (including such a settlement made by will or codicil) made by the parties to the marriage, or to reduce or extinguish the interests of either of the parties to the marriage under any such settlement. As regards certain property to which either or both of the parties to the marriage is or are entitled, either in possession or reversion, accordingly owned by either or both of the parties to the marriage or the proceeds of sale of which either or both of the parties to the marriage has or have a beneficial interest (“beneficial interest”), the court may order such property to be sold and specify the use of the proceeds of such sale.

25.  Section 6A empowers the court, on making an order for ancillary relief under section 4, 5 or 6, at the time or thereafter, to order for the sale of the “beneficial interest” of the property of either or both of the parties to the marriage and to specify that the proceeds of sale shall be used to secure the periodical payments to a party to the marriage.

26.  Section 7 further provides that the court, in deciding whether or not to make an order for ancillary relief under sections 4, 6 and 6A in relation to a party to the marriage, has to regard to a series of matters, which include the property, earning capacity, income and other financial resources which the parties to the marriage and the child severally owned then or own in the foreseeable future; the financial needs, obligations and responsibilities which the parties and the child severally had then or have in the foreseeable future; the standard of living enjoyed by the family before the breakdown of the marriage; and the manner in which the parties expected the child to be educated. These matters also include whether or not a party to the marriage is required to provide ancillary relief to a child of the family who is not the child of that party.

27.  In the light of the above provisions and discussion, it can be observed that the purpose of the Family Court’s making an order for ancillary relief is to deal with the respective financial resources and financial obligations of the parties to the marriage and of the child and to make reasonable distribution. However, the dealing of ancillary relief is not related to whether or not a party to the marriage has to discharge liabilities in contract, tort or a trust outside the marriage (not referring to the ante-nuptial or post-nuptial settlement made on the parties to the marriage as defined in section 6(1)(c) above). The provisions above do not empower the Family Court, in dealing with ancillary relief, to deal with these liabilities of a party to the marriage to the other party. Hence, the Family Court, in making an order in ancillary relief, has no power to require at the same time a party to the marriage to discharge these liabilities to the other party. In other words, the court, in making an order in ancillary relief, cannot, at the same time, ask a party to the marriage to pay off the debts owed to the other party, to pay to the other party damages for personal injuries, or to discharge liabilities in a trust unrelated to ancillary relief.

28.  In this appeal hearing, the defendant cited the Family Court case FCMC 1557/2013黄及陳v 黄及陳, and submitted that in that ancillary relief case, Judge K. K. Pang of the Family Court had dealt with whether or not the husband had actually assigned the interest of a certain property of his to an intervener of that suit, and whether or not the company in which he held shares would pay off the debts owed to him, and whether or not he had voluntarily transferred his shares in a pub to a friend.

29.  I am of the view that in the ancillary relief case above, it was necessary for Judge K. K. Pang to determine whether or not the husband had actually assigned the interest to others, whether or not the company in which he held shares would repay the debts to him, and whether or not he had voluntarily transferred his shares in a pub to a friend, because it was one of the steps to be taken in dealing with the ancillary relief, which is to identify, as a matter of fact (not on the face of it), how many assets the husband had.

30.  Judge K. K. Pang determined that the husband in that case had in fact assigned the interest of the property to the intervener, the company in which he held shares had no assets which could be used to repay debts to him, and he had actually and voluntarily transferred his shares in the pub to a friend. Hence, when calculating the husband’s net financial resources, Judge K. K. Pang did not add the values of the property, of the debts owed by the company and of the shares in the pub into the husband’s assets.

31.  However, if having determined that the husband had not actually assigned the interest of the property to the intervener, but still owned the beneficial interest of the property; the company in which he held shares had the means to repay the debts to him; and he had involuntarily transferred out his shares in the pub, Judge K. K. Pang would put the value of the beneficial interest of the property owned by the husband, that of the debts owed to him by the company and that of his shares in the pub under his financial resources before determining the ancillary relief application.

32.  Even if he had put these assets as part of the husband’s financial resources, Judge K. K. Pang would not have ordered the intervener to transfer back to the husband the interest that the husband had transferred to her on the face of it; he would not order the company in which the husband held shares to pay off the debts to the husband. If he further determined that the transferee of the pub’s shares had not paid the share price to the husband, he would not order the transferee to pay it to the husband. Judge K. K. Pang would only put the value of these assets under the name of the husband.

33.  A Family Court judge, in similar circumstances, would not order the third party who holds these assets to transfer them back to a party to the marriage who owns the beneficial interest of the assets, as the determination of the ownership of the beneficial interest of assets in the course of determining the ancillary relief application is used to calculate the net financial resources of each of the parties to the marriage.  Sections 3, 4, 5 6 and 6A above do not empower the Family Court to order the third party to transfer the assets back to a party to the marriage who owns the beneficial interest of the assets, or to make the third party discharge the outstanding liabilities to the party in contract, tort or a trust outside ancillary relief.

34.  If the party to the marriage asks the third party to transfer back the interest of the property, to pay off debts or to discharge outstanding liabilities in other contract, tort or a trust outside ancillary relief, and the third party is unwilling to comply, it is necessary for the party to the marriage to commence a civil action against the third party to recover the interest or compensation he is entitled to. However, he cannot ask for these reliefs in the ancillary relief case in the Family Court, as they are not within the scope of power conferred on the court under section 3, 4, 5, 6 or 6A above and the judge, in dealing with ancillary relief, also has no power to order the third party to discharge liabilities for these reliefs.

35.  My conclusion above, though relating to a third party’s outstanding liabilities to a party to the marriage in contract, tort and a trust interest outside ancillary relief or liability to pay compensation, also applies to situations of the same type between the parties to the marriage, that is, the Family Court, in dealing with ancillary relief, cannot order a party to the marriage to discharge outstanding liabilities to the other party in contract, tort or a trust outside ancillary relief. Even if the Family Court, under the section 6 above, orders a party to the marriage to transfer the beneficial interest of the property to the other party, the child of the family or a specified person; or to make settlement of property to the satisfaction of the court; or to vary the ante-nuptial or post-nuptial settlement made by the parties to the marriage, it only deals with ancillary relief in accordance with sections 6 and 7 above, and not with the outstanding liabilities of a party to the marriage to the other party in a trust outside ancillary relief.

36.  On the basis of the above conclusions, even if the plaintiff of the present action, in the ancillary relief case, asks the judge of the Family Court to determine whether or not the defendant owes her HK$1,844,891, and it is determined that the defendant has actually owed her the sum, the judge, when calculating the net financial resources of each of the plaintiff and the defendant, will only add the sum to the plaintiff’s assets and to the defendant’s liabilities. The judge will not order the defendant to pay off the debts to the plaintiff, as it is an issue of loan contracts between the parties, unrelated to ancillary relief. Accordingly, the judge has no power to make such an order. Hence, if the defendant really owes the plaintiff HK$1,844,891 or a lesser amount, and this action is stayed, the plaintiff will then be unable to obtain the judgment of the court to recover the debt from the defendant. Therefore, staying the present action will be unfair to the plaintiff.

37.  In the light of the above discussion and conclusion, I refuse the plaintiff’s application and reject his grounds of appeal. In my view, in principle, the present action should not be stayed, but should be allowed to continue; otherwise it will be unfair to the plaintiff. Accordingly, I will dismiss the appeal.

The plaintiff’s prospect of success in the present action

38.  Mr Chen submitted in this argument that the plaintiff would have a high prospect of success and would even obtain a summary judgment without a trial. However, I am of the view that in dealing with the defendant’s application, a principled approach should be adopted and the parties’ prospects of success should not be compared. Otherwise the court has to, prior to the hearing of the case, direct the parties to adduce all the evidence for the court to consider the strength of the evidence and to determine which parties has a higher prospect of success or how high that is. It is wrong to do it this way. Accordingly, I would not consider this argument advanced by Mr Chen.

Orders

39.  As I have pointed out above that it is wrong in principle for the defendant to apply for stay of proceedings of the present action, I now dismiss the appeal.

40.  I make a costs order nisi that the defendant do pay to the plaintiff the costs of this appeal, and I will assess the amount of costs summarily. Solicitors for the plaintiff shall file and serve on the defendant a bill of costs within 14 days from today, and the defendant shall file and serve on the solicitors for the plaintiff a summary of objections listing any items and sums of costs which he considers to be unreasonable and the grounds therefor. I will make an assessment in writing thereafter.