VE v. VRJ

FCMC 7676/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 7676 OF 2011

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JUDGMENT
(Injunction)
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The Applications

1.  This is a high conflicting case.

2.  The background of the parties can be found in an earlier judgment dated 22 November 2013 when the court dealt with an injunction upon the application of the petitioner wife to restrain the husband from the disposal of his retirement funds. 

3.  There are 2 summonses before me, both in respect of the sale proceeds of the former matrimonial home (“the MH”), which was in the sole name of the respondent husband.

4.  By way of summons of 26 September 2014, the petitioner wife wishes to restrain the respondent husband from dealing with the proceeds of sale, which have been paid into court following the completion of sale on 30 December 2014.  Essentially, she wishes all the proceeds be retained in court against her claim in the ancillary relief proceedings.

5.  The respondent too has filed a summons on 8 December 2014, seeking permission to make various payments out of the proceeds, including the sum of US$32,504 for payment of overdue US taxes (“the US tax”), and $2,800,000 for payment of his legal fees for his relocation application in the present proceedings (“the Legal Costs”).

6.  By an Amended Order dated 10 December 2014, various aspects of the respondent’s summons have been dealt with.  Hence, the petitioner’s Notice of Intention to Proceed with an Application for Ancillary Relief was vacated from registration against the MH at the Land Registry so as to allow the respondent to complete the sale.  By the same order, it was also ordered that, in brief, the whole of the net proceeds of sale be paid into court pending the final determination of the ancillary relief matter or until further order, whichever is the earlier.  This was agreed to by the parties. Leave was also given for the parties to withdraw funds from the court for their maintenance. 

7.  Consequently, what remained for the court to deal with are:

(1) para 5 of the respondent’s summons relating to the US tax and the Legal Costs; and

(2) the petitioner’s application for injunction.

8.  Out of the total proceeds, apart from the necessary costs incidental to the sale and the redemption money, the respondent has used the initial deposit of $200,000 as legal costs.  By her summons, the petitioner is also seeking the disposition of this $200,000 be set aside.

9.  As of today, the amount now retained in court is about $6,049,146.

The Petitioner’s Case

10.  During the hearing, Ms Tsui, on behalf of the petitioner, accepts that the US tax needs to be paid and further that the respondent needs to pay his legal costs.  Thus, given these concessions, if I may call them, as far as the petitioner’s case is concerned, the remaining dispute boiled down to what should be the reasonable amount of the legal costs to be released.  In this regard, she reminds the court that what the respondent is asking for is the payment of the outstanding costs for the relocation and custody litigation only.  This already amounts to $2,800,000 and does not include (1) the costs previously incurred when the respondent was represented by another firm of solicitors and (2) the costs to be incurred.  Given that the trial on the children matters will be continued in March, which has been estimated to be 5 days, and the 6-day trial for the ancillary relief has now been scheduled to commence in June, there will certainly be further applications coming up for further payment out for costs.  She warns that there will not be sufficient money left to cover the petitioner’s legal aid first charge and the parties’ living expenses.  If the respondent’s application is granted, about $3,000,000 will be gone.  Bearing in mind that any sums awarded to the petitioner will be subject to the first charge of the Director of Legal Aid, it means that essentially the petitioner will be left with nothing.  Further, what is now in court is around $6,049,146, this is essentially what is remained within the jurisdiction of this court.  This amount would hardly enough to satisfy the petitioner’s claim.  There is a real risk here when the respondent is very determined to leave Hong Kong.  He indicated during the relocation hearing that he would leave even if the court would not allow the children to go with him.  It is therefore important that the remaining family assets in this jurisdiction are protected before the relocation hearing.

11.  In contrast with the situation of the petitioner, the respondent would still have his assets in the United States, being his Colorado House which is worth about $2,138,000 and his US pensions in the region of about $1,215,000, totalling $3,353,000.

12.  She also argues that the sale of the MH amounts to an unjustified disposal of family assets and the release of $2,800,000 is in essence a capital-redistribution.

The Respondent’s Case

13.  Ms Irving, counsel for the respondent, agrees that given the petitioner’s latest stance, the Mareva injunction and the section 17 application are not relevant anymore but they demonstrate the petitioner’s mindset.  Prior to the hearing, nothing has been heard from her regarding the concessions. 

14.  Ms Irving submits that the respondent is not making the disposition with the intention of defeating the petitioner’s claim for financial provision.  Given the fact that the respondent seeks only to pay his own liabilities, and that he has kept the petitioner and the court informed throughout by making the proper applications to court stating his intention, the suggestion that his intention is to defeat her claim is unsupportable.  There is virtually no evidence in this regard.  There is no reason why the respondent wants to pay money to his lawyers instead of to the petitioner.  Therefore, the petitioner’s section 17 application must fail.  

15.  As for the Mareva injunction, its purpose is not to set aside funds for the petitioner.  The basis of Mareva injunction is fraud.  There is no risk of dissipation of assets on the part of the respondent.  All he intends to do is to use the funds for paying his tax on income which has benefitted the family and for paying his legal costs.  The respondent is entitled to pay his own debts otherwise he will be sued.  There could be significant consequences on him as a US qualified accountant.  The petitioner simply fails to show the dissipation of assets on the part of the respondent. 

16.  Also, there has not been any misconduct by the respondent.  He has been keeping his job and maintaining the children and the petitioner.  He is just coming to court for the sanction of use of his own money.  There is nothing apprehensible.

17.  Although the petitioner’s summons is expressed to be under section 17 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“the MPPO”), it is in reality a pure Mareva injunction, not merely preventing a “wrongful disposition”, but preventing any use of the funds in question.  It is clear that given the history of the issue, there has never been any intention on the part of the respondent to defeat the petitioner’s claim, but only an intention to pay his bills.  The petitioner does not have a case of getting 100% of the assets and she also does not have a case that her claim in ancillary relief comes before the respondent’s right to discharge his debts and meet his legal costs, to the extent that all assets should be subject to an injunction.

18.  She further argues that costs in children cases as a matter of law and practice are deducted before the asset pool is established by Step One of LKW v DD (2010) 13 HKCFAR 537 at the date of ancillary relief final hearing.  The $2,800,000 legal costs now requested to be released are for the respondent’s costs incurred with his current solicitors, being costs of the CDR and the fully contested child custody proceedings.  They are already outstanding.  There will be further legal costs of about $800,000 in the up-coming trial of March.  There may not even be sufficient money to run the remaining of the relocation trial and the ancillary relief trial.  She frankly points out that there would be nothing left for the ancillary relief but this is the reality and the parties have to face it.  The present case is certainly not the first case with such a situation in the Family Court.

19.  That said, she accepts that there are assets in the United States but there are also liabilities there.  Furthermore, the Colorado house will be the home for the children.

20.  She also relies on L v K (Freezing Orders:  Principles and Safeguards) [2013] EWHC 1735 (Fam), [2014] Fam 35 and the Court of Appeal judgment in JRB v KLWW, CACV No. 28/2011 (date of judgment:  27 June 2011) to argue that the petitioner’s application is flawed in that the correct formalities have not been observed, in particular there are no undertakings as to damages from the petitioner.

21.  In a nutshell, the respondent is entitled to the full payment of $2,800,000.

Discussion

22.  In the last hearing of 10 December 2014 the parties agreed to have the proceeds of sale paid into court pending the determination by the court as to their disposal.  The assets have been retained so in a way the injunction prayed for by the petitioner either has been dealt with or is no longer necessary.  Ms Tsui agrees this to be the case.

23.  It is important to note that even on the terms of the respondent’s summons, he is not seeking for the release of or the liberty to make use of the whole proceeds of sale in whatever reasonable manner he sees fit, whether for living expenses, legal costs or otherwise.  By para 3 of the summons, the respondent prayed for the payment into court of the net proceeds of sale pending the final determination of the ancillary relief matter or until further order, whichever is the earlier; and by para 4, he asked for leave for the withdrawal of funds from the court for the payments of maintenance to the parties.   These have already been dealt with by way of an Amended Order dated 10 December 2014.  It is also in the same order that the petitioner was ordered to withdraw her Notice of Intention to Proceed with an Application for Ancillary Relief so that the sale could proceed to completion.  

24.  Now that the US tax is no longer in issue, I need only to deal with the Legal Costs.  Ms Tsui argues that the respondent should be given a reasonable sum only while Ms Irving argues that the respondent is entitled to the whole of $2,800,000.  This is the issue in dispute.

25.  To start with, there is some force in Ms Irving’s argument that the petitioner has the benefits of a team of legal representatives from legal aid while the respondent does not. The respondent should not be deprived of proper legal representation for a fully contested child custody and relocation hearing.  I have no argument with Ms Irving’s submissions that the respondent is entitled to pay his legal costs, and that per se, the respondent is not doing it with an intention to defeat the petitioner’s claim.  I am fully aware of the petitioner’s concern that she may be left with nothing, whether the children will remain with her or not.  However, this may be the reality if the parties chose to spend their monies on litigation rather than on some other purposes.  That said, in my view, it does not then follow that the respondent is entitled to have all his legal costs, whatever sums they are, to be paid out from the proceeds of sale.   

26.  It is beyond dispute that the MH is the only asset left in Hong Kong, the other substantial assets being the respondent’s house in Colorado and his US pensions.  The reality is there are some $3,353,000 worth of assets which are outside the jurisdiction of this court.  In my judgment, it would be wrong for me not to take these assets into account in considering the present application.  Looking at the figure alone, this would be more than sufficient to cover the Legal Costs.  The MH, once illiquid, has now become liquid assets.  There is nothing before me as to why the same cannot be done in respect of these overseas assets, for instance, whether any borrowing by way of a charge on these assets could be done.  This is a question that I raised in the hearing.  In this regard, it should be noted that all along the petitioner’s application is not one for a worldwide Mareva injunction.  Her eyes are on the proceeds of sale of the MH only, which have already been dealt with.

27.  To me, it would be an affront to the sense of fairness and justice if at the end of the day all the liquid assets in Hong Kong are evaporated with only those outside the jurisdiction remain intact, leaving the petitioner with an empty judgment.

28.  The petitioner states her highest claim is in the region of $6,118,000 while the respondent says it is only at about $2,400,000.  I do not think I need to express my view on this for the purpose of the present application.  

29.  As mentioned above, the amount now retained in court is about $6,049,146, together with the overseas assets of about $3,353,000, this would mean in the region of $9,402,146.  The parties are drawing monthly expenses pursuant to an order dated 17 April 2013 under which the respondent gets $120,000 (inclusive $20,000 as legal cost provision) and the petitioner gets $44,000.  The petitioner gets no legal costs provision because she is on legal aid.  Since the parties are earning some income now, the monthly drawdown is about $50,000.  Assuming that it takes another 10 months to conclude the ancillary relief, it would mean another $500,000, leaving about $5,500,000 in court; this, together with the overseas assets and leaving the family debts and liabilities aside, would be in the region of $8,853,000, half of it is $4,426,500.

30.  The court has been informed by Ms Tsui that the costs incurred by the petitioner up to the end of the part-heard trial on relocation were about $4,174,000 and it is estimated that her total costs up to the conclusion of the ancillary relief trial should be about $5,000,000.  This is of course a ballpark figure and is subject to taxation.  Nevertheless, to me, at any rates this is already out of proportion in terms of the assets owned by the family.

31.  I believe that as an antagonist in the same set of proceedings, the petitioner’s figure should be a good reference point.  Even on the assumption that the respondent at the end of the day will have incurred more or less the same amount of legal costs (ie a total of $5,000,000), this would mean the family assets by then would not be sufficient for the parties’ legal costs.  Not only that the parties will be left with nothing, the children also will have no money for their maintenance and even if they are to relocate to the United States, they will also be without their home in Colorado.

32.  I am told that the respondent has incurred about $2,600,000 when he was represented by another firm of solicitors. According to his Schedule of Assets and Liabilities (Exhibit “VRJ 17-2”), there are still some $621,000 outstanding.  As far as arithmetic goes, it means the respondent has already paid $2,000,000.  Apart from this, there are no further particulars.   On the other hand, for the reason that the petitioner is legally aided, she is yet to pay hers.  Further, as mentioned above, on the top of $2,800,000 now under application, Ms Irving has informed the court that the respondent would need another $800,000 to complete the relocation trial. Leaving the trial on ancillary relief aside, this would mean a huge sum of $6,200,000 ($2,600,000 + $2,800,000 + $800,000).   

33.  The respondent, and for that matter, his legal advisers, should be well aware of his means before incurring his liabilities.  This is quite different from his liabilities under the US tax. The respondent has provided to court a Statement of Account (Exhibit “VRJ19-1”) but it lacks helpful particulars.  The parties’ legal costs must be reasonable and proportional in light of the means of the parties and the complexities of the case involved.  Any excessive or out of proportion legal costs may not be capable of justification.  

34.  In considering the present application, I think it is fair that the respondent should have an equality of arms and so $5,000,000 should be a right figure.  On the assumption that half of the overseas assets could be liquidated, this would mean $1,676,500 ($3,353,000 ÷ 2).  Having regard to the facts that he has already paid some of his legal costs, that there might have been some duplication of work due to the change of solicitors, that he has also been drawing and will continue to draw a monthly sum of $20,000 as his legal costs and that he has already obtained the $200,000 from the initial deposit, doing the best I can and taking a board brush approach, I would allow a payment out of $1,000,000.

35.  I have to make it clear that I should be slow to allow further applications for payment out absent some significant change in the circumstances and good reasons.

36.  Ms Irving argues that undertakings as to damages from the petitioner are required as the present injunction affects third parties.  Despite the fact that the petitioner now agrees to the payment of the US tax, there is still a third party, ie the respondent’s solicitors, who would be affected.  Hence, an undertaking is still required.

37.  I do not agree.  First, as I see it, this is an application on the part of the respondent for the payment out of an appropriate amount for his legal costs.  He has other assets that he may resort to in satisfaction of his legal costs.  Secondly, even if this is in effect a freezing order, this is not one which is capable of embracing all of the respondent’s assets up to a specified figure so that it is essential that all the principles and safeguards are scrupulously applied: L v K (Freezing Orders:  Principles and Safeguards), at para 51.

Orders

38.  For the reasons aforesaid, I give the following orders.

The Petitioner’s Summons

39.  I only need to deal with Para 5 of the summons.  For the reason that I have already taken the $200,000 initial deposit in the calculation of the amount of payment out, Para 5 is dismissed.

The Respondent’s Summons

40.  I grant leave for the respondent to withdraw from the monies paid into court the following payments:

1. US$32,504 for payment of the respondent’s overdue US taxes and costs of transfer;

2. $1,000,000 for payment of his outstanding legal fees and his costs of the upcoming child custody and relocation hearing.

Costs

41.  With the concession made by Ms Tsui during the hearing that the issue is on the reasonableness of the legal costs to be paid out, it is crystal clear that the petitioner’s stance maintained by her throughout that the proceeds of sales were to be paid into court for the maintenance of the parties is unsustainable.

42.  Given that the respondent was laid-off in April 2013, all along since at least the end of 2013, the parties have realized that the MH needs to be liquidated as soon as possible in order to meet the final needs of the family.  The parties diverged only on how the proceeds of sale should be handled.  Broadly speaking, the petitioner’s position has been that the whole of the proceeds of sale be paid into court pending the determination of the ancillary relief claim.  At one time when the parties were negotiating on this issue and before the respondent entered into the provisional agreement for sale and purchase on 20 September 2014, the petitioner on 5 August 2014 had asked for $3,000,000 to be paid to the Director of Legal Aid to protect DLA’s First Charge.  It is of no surprise that the demand was not acceptable by the respondent.

43.  In my view, in the absence of an agreement between the parties, the petitioner cannot be criticised for taking out her application.  On the other hand, the respondent, by his application, has his own proposal as to how the proceeds of sale are to be dealt with.  Seen in this light, he cannot be criticised too.

44.  It is sad to see that although both parties recognised their situation was critical and that the MH had to be sold, it seemed they consciously preferred to see both of them and their children starving and the family assets go to legal costs rather than to work their way out sensibly.  Both parties are pointing their finger against each other as to how and why the present applications have been brought up.  Both are blaming the other side for wasting time and most importantly, legal costs, which for sure have been eating into the already fast shrinking family assets.  Sadly these complaints have led to nowhere but only served to generate further costs. It is fair to say that the financial predicament that the parties are facing and will be facing in the years to come cannot be attributed to the wrongdoings of one side, after all, to use a well-worn cliché, “it takes two to tango”.  As I see it, given the animosity and high level of conflicts between the parties, probably these might have adversely impacted on the communications between those representing them.  Thus, the way in which the proceedings have been turning out is no surprise.  It is perhaps pertinent for me to refer to the remarks made by the Court of Appeal in T, L v S, N, CACV No. 196/2009 (date of judgment:  19 October 2010),

“10.  As the Judge had remarked, this case was “bitterly fought and highly emotional … where feelings were clearly running high throughout, both as between the parties themselves and their legal advisers”. In view of the hostility and deep distrust that existed between the parties, their legal advisers should have taken a more dispassionate stance so as to focus on the real issues in a realistic way. And instead of each putting his or her case at the highest, the interest of clients would be better served if legal advisers had firmly advised them what was sought to be established in litigation might be achieved at wholly disproportionate costs, and might not overall be in the family’s best interests. The information provided to the Judge was that the parties had spent HK$5 million between them on legal costs within two years, a substantial drain of their assets by any standards, and, as the Judge had remarked, left R with virtually no financial security.”

45.  For the reasons aforesaid, I consider that the proper costs order for both summonses is no order as to costs; and I so order by way of an order nisi, with counsel certificate.  The petitioner’s own costs to be taxed in accordance with Legal Aid Regulations.