TCWF v. LKKS

CACV 154/2012 &

CACV 166/2012

(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 154 AND 166 OF 2012

(ON APPEAL FROM HCMC NO. 5 OF 2008)

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______________________

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Hon Lam VP, Kwan JA and Barma JA:

A. INTRODUCTION

1.  This is a joint judgment to which each member of this court has contributed.  For convenience, we will refer to the petitioner as the wife, the respondent as the husband and the 2^nd intervener, who is the husband’s father, as the father.

A.1 Main Judgment and Barrell Judgment

2.  On 1 December 2011, Saunders J handed down judgment (“the Main Judgment”) in the proceedings for ancillary relief under the Matrimonial Proceedings and Property Ordinance, Cap 192 (“the MPPO”) in HCMC No 5 of 2008, after a trial of 23 days from 10 October 2011 to 11 November 2011.  The Main Judgment was not published, but a summary of the main findings was made public on 1 December 2011.

3.  Thereafter, the parties issued a number of summonses relating to matters arising out of the Main Judgment.  Both the husband and the father invoked the jurisdiction in In re Barrell Enterprises [1973] 1 WLR 19 and sought amendments to various parts of the Main Judgment.  They sought reversal of certain findings of forgery and perjury against them concerning a convertible loan agreement between them dated 9 February 2006 (“the 2006 CLA”), consequential redaction of the relevant parts of the Main Judgment, rescission of a direction that the Registrar should forward a copy of the Main Judgment to the Director of Public Prosecutions (“the DPP”), and directions that the Main Judgment should remain private until further order. The husband also sought to correct various factual and arithmetical errors in the Main Judgment.

4.  The judge, who had by then retired and was sitting as a Deputy High Court Judge, heard the summonses on three days in June 2012 and gave reasons for his decision on 6 July 2012.  This came to be referred to as “the Barrell Judgment”.  He refused to reverse his findings of forgery and perjury concerning the 2006 CLA or his decision to refer the matter to the DPP. He made some corrections to the Main Judgment, increasing the net worth of the husband.  Pursuant to the Barrell Judgment, the Main Judgment was re-issued on 6 July 2012 incorporating the corrections he made.  The judge ordered the publication of the Main Judgment as amended and with parts redacted to protect the commercial confidentiality of those matters which were heard in private, but stayed the publication pending appeal by the husband and the father.

5.  By the order made in the Main Judgment, as corrected in the Barrell Judgment, the judge ordered the husband to pay the wife a lump sum of HK$1,470.4 million, of which HK$1,410.4 million was 20% of the total assets available for division as found by the judge, and the balance of HK$60 million was a fighting fund to enable the wife to resist litigation that may be brought by the father in future.  Of the lump sum of HK$1,470.4 million, HK$202 million was to be paid forthwith, HK$1,208.4 million was to be paid on or before 30 September 2012, and the fighting fund of HK$60 million was also to be paid on or before 30 September 2012[1].  The father and the husband were ordered to pay the wife’s costs jointly and severally on a party and party basis.

6.  The father and the husband brought separate appeals against the Main Judgment and the Barrell Judgment, being CACV Nos 154 and 166 of 2012.  The wife cross appealed.  She sought to increase the lump sum award to 50% or a higher percentage than 20% of the total assets.

7.  The father appeared in the appeal by Mr Michael Thomas, SC and Mr Richard Todd, QC[2]. The husband appeared by Mr Martin Pointer, QC and Mr Russell Coleman, SC[3], and the wife was represented by Mr Charles Howard, QC[4].

A.2 The background

8.  The background matters as found by the judge or which are non-controversial may be stated as follows.

9.  The father is a property developer and an extremely wealthy man.  The husband, who was born in 1973, is one of his children.  The wife was born in 1974.  They met in London in 1995, when the wife was studying law.  They soon formed a relationship and became engaged on 7 April 1999.  They were married in Hong Kong on 8 January 2000.

10.  The wife became pregnant in July 2007.  The husband was genuinely reluctant to have children.  When the conception became known, he presented her with the ultimatum that she must have an abortion or the marriage would end.  The wife was not willing to abort the child.  From that time their relationship became strained.  Their daughter was born in February 2008.  The husband made it plain he does not wish to participate in her life.  The father wishes to have contact with his granddaughter and is willing to assist in the financial support of the child.

11.  The judge found that the marriage effectively ended in January 2008, following an email of the wife that she awaited the divorce papers from the husband’s lawyers.  She eventually presented a petition for divorce on 27 May 2008.  A decree nisi was pronounced on 25 August 2008 and it was made absolute on 5 April 2013.  The marriage was of eight years duration.

12.  In the 1990s, the husband became a director of a number of property companies operated by the father.  In 1996, the husband travelled to Japan to investigate opportunities for real estate investment in that country.  The investigations continued in 1997 and 1998.  On a number of occasions, the wife, who was then his girl friend, accompanied him to Japan.  She was admitted as a solicitor in England in September 1998 and as a solicitor in Hong Kong in February 1999.

13.  On 27 February 1998, Veloqx City Investment Ltd (“VCIL”) was incorporated in the British Virgin Islands and was intended to be a vehicle by which real estate investment would be made in Japan by the husband. With the assistance of the father both financially and through his business expertise, the husband accumulated a portfolio of high-quality real estate in Tokyo.  The purchase of the first building, subsequently known as the V28 building, was completed on 19 March 1999.  Between the acquisition of the first building and 2008, partly with the assistance of loans from the father’s business enterprises and utilising funds released by way of refinancing from buildings that had been acquired and redeveloped, 13 iconic buildings have been acquired in a high-end retail area in Tokyo.  This portfolio of properties was referred to in the proceedings as “the Japanese business”.

14.  The judge found that the wife took a fully active role in the Japanese business, devoting the whole of her time to the husband and the business until she became pregnant.  Until 7 November 2008, she was a director of 15 companies and the company secretary for a number of the BVI companies.  She was effectively the in-house legal counsel for the structure.  She was deeply involved in drafting various documents for the business, and was involved in the financing and refinancing of the business, including reviewing loan documentation.

15.  The funds for the purchase of the V28 building came from a gift by the father to the husband in the sum of J¥3.6 billion odd (equivalent to about US$47.3 million at the time of the Main Judgment).  The advance of the J¥3.6 billion was subject to an agreement between the father and the husband dated 29 June 1999.  It was entitled “Agreement for the Grant of Call Options over Shares in Veloqx City Investment Ltd and Daiwa Fudosan Corporation (relating to business in Tokyo)”, and was known in these proceedings as “the Framework Agreement”.  The recitals of the Framework Agreement recorded that the father had made or caused to be made a gift to the husband of J¥3.5 billion on 19 March 1999, that the husband had subscribed or would subscribe for the same amount of J¥3.5 billion for bearer shares in Daiwa Fudosan Corporation (“Daiwa”, a company incorporated in the British Virgin Islands), that Daiwa had subscribed or would subscribe for the same amount of J¥3.5 billion for registered shares in VCIL, that VCIL acquired the V28 building on 19 March 1999 for J¥3.5 billion, and that the husband agreed to grant or procure the grant to the father of call options over the entire issued share capitals of Daiwa and VCIL on the terms and conditions in the Framework Agreement.

16.  Attached to the Framework Agreement are the required forms of the Daiwa Call Option Agreement and the Veloqx Call Option Agreement (collectively “the COAs”).  Although the COAs were not executed, it is not in dispute that pursuant to the Framework Agreement the father had the right to call upon the husband to execute the COAs in his favour upon payment of US$1 and thereby sell the husband’s shares in those companies to the father.

17.  Pursuant to the Framework Agreement, special articles (“the Special Articles”) in the form set out in Schedule 6 to the agreement were duly incorporated into the articles of association of VCIL and of Daiwa.  By the Special Articles, the prior written consent of the father is required for various actions by those companies as stipulated and the companies are precluded from disposing of all or a substantial part of their business or assets.  There are restrictions on the power to borrow and to make loans.  The effect of the Special Articles, as described by Mr Todd and accepted by the judge, is to give the father a “dead hand of control” during his life time, over VCIL and Daiwa and any of their subsidiaries.

18.  The wife had participated in the drafting of the Framework Agreement, and she incorporated the Special Articles into the articles of association of the companies.

19.  The father, as part of his estate planning methods, and to protect what he saw as dynastic property in the possession of the husband, requested the husband to persuade the wife to enter into a pre-nuptial agreement defining the provision that would be made for her in the event of the breakdown of their marriage.  There were discussions on this prior to the marriage, but it was after the marriage that a post-nuptial agreement (“the PNA”) was entered into by the husband and the wife on 5 June 2000.  However, the PNA was cancelled by the husband and the wife on the same day it was executed.  A copy of the PNA, with certain passages redacted to preserve confidential matters between the husband and the wife, was subsequently made available to the father through solicitors, but the father was not told of the deed of cancellation of the PNA at the time.

20.  After the breakdown of the marriage, on 4 November 2009, a date that was called “D-Day” by the husband and the father, they executed a number of documents prepared by the solicitors for the father, purportedly acting pursuant to the Framework Agreement and the 2006 CLA.  The effect of the documents executed was to shift the legal and beneficial ownership of the Japanese business from the husband to the father, leading to a serious depletion of the husband’s assets on the wife’s assessment.

21.  Also on 4 November 2009, the father brought proceedings in England against the wife, alleging a conspiracy between the husband and the wife of fraudulent misrepresentation in relation to the cancellation of the PNA.  The basis of this claim was the concealment from the father of the fact of cancellation.  The wife immediately made an application in the matrimonial proceedings in Hong Kong under section 17 of the MPPO (“the s 17 proceedings”) to set aside the dispositions that had taken place on 4 November 2009.

22.  On 30 March 2010, the action for fraudulent misrepresentation in England was dismissed on the grounds of forum non conveniens, with indemnity costs to the wife.  The father then brought an identical fraud claim against the wife in Hong Kong.  This is HCA No 566 of 2010.  The wife defended and counterclaimed in those proceedings, joining in the husband and alleging that the father and the husband had conspired together by unlawful means to remove all or almost all of the assets available to meet her claims for financial provision on behalf of herself and her daughter, alternatively they had conspired together with the predominant intention of injuring her and her daughter.  This was referred to as “the conspiracy counterclaim”.

A.3 The compromise and the father’s undertaking

23.  On 27 July 2010, the judge gave directions by consent that the s 17 proceedings, the father’s fraud claim and the wife’s conspiracy counterclaim be tried together, prior to the substantive ancillary relief proceedings, in order to ascertain the extent of the property owned by the husband and was available for distribution.  On 23 February 2011, all three proceedings came on for trial before the judge and they were compromised in the wife’s favour.  In short, the husband and the father abandoned their positions in respect of the s 17 proceedings and did not oppose an order setting aside the various documents executed on D-Day.  An order was also made setting aside the 2006 CLA.  The father’s fraud claim against the wife was discontinued with the leave of the court.  As for the conspiracy counterclaim, judgment on liability was entered against the husband and the father, with damages to be assessed.  The husband and the father agreed to pay the wife’s costs in respect of all those proceedings on an indemnity basis.

24.  As part of the compromise, an order was made in the s 17 proceedings (and an undertaking was given by the husband and the father in identical terms in the fraud action) that until the final determination of the wife’s ancillary relief application and satisfaction in full of her claim for ancillary relief, the husband and the father shall not in any way dispose of or diminish the value of or in the shares of OIL (the 3^rd intervening party in these proceedings), Daiwa, VCIL and other companies as specified, save in the ordinary course of business and save as may be necessary to put into effect or comply with the orders made on 23 February 2011.

25.  In the fraud action, the father gave a further undertaking to the wife and to the court (“the father’s undertaking”) that until the final determination of the wife’s ancillary relief application and satisfaction in full of her claim for ancillary relief, he will not take any steps to exercise any right he has or may have pursuant to the Framework Agreement, including any right under the options granted or to be granted pursuant to the notice he served on the husband on 21 February 2011, by which he required the husband to forthwith grant to him the call options as provided in the COAs.

A.4 Salient findings in the Main Judgment and Barrell Judgment

26.  In her application for ancillary relief, the wife alleged that the 2006 CLA was forged by the husband and the father and sought to rely on this as matrimonial misconduct.  The judge ruled that as a result of the compromise on 23 February 2011, it was not open to her to contend that the forgery of the 2006 CLA, if established, constituted “conduct” in the sense that that expression is used in section 7 of the MPPO.  He however ruled that the conduct of the husband and the father leading to, and including, the execution of the 2006 CLA was relevant to their credibility in the trial of the ancillary relief proceedings and that the husband and the father could be cross-examined on those matters “with the usual limitations that are imposed upon cross-examination on credit”[5].

27.  The husband and the father declined to answer questions from Mr Howard on matters relating to the creation or execution of the 2006 CLA or the emails and faxes that were exchanged, invoking the privilege against self-incrimination.  The judge relied on and drew inferences from contemporaneous documents in Attachment 2 and bundle SP1 in reaching his conclusion on the allegation of forgery[6]. He found on the civil standard of proof that the husband and the father had forged the 2006 CLA which they had then used to attempt to defeat the wife’s claim for ancillary relief.  He held that this document, which was dated 9 February 2006, was not signed by them on that day but was executed on a date subsequent to the breakdown in the marriage and was backdated and used as though it were executed on that day.  He further held that the husband and the father were likely to have committed perjury in relation to the 2006 CLA in numerous affidavits in the ancillary relief proceedings.  The forgery of the 2006 CLA was a peripheral matter, going only to the credibility of the husband and the father.  He held that they were persons whose evidence was not capable of belief[7].

28.  The judge was satisfied that the whole of the Japanese business, and the assets owned through a Liberian company established by the husband, Citic Pacific Ltd (“Citic”), which included a Boeing business jet, two Pershing motor yachts, a wine collection, a house in the Belvedere district of San Francisco, are all assets legally and beneficially owned by the husband and available for distribution in the ancillary relief proceedings[8].  He assessed the husband’s net worth as at 31 March 2011 at HK$7,367.95 million, the wife’s assets at HK$79 million and the total assets available for division at HK$7,447 million[9].

29.  As for the father’s option rights under the Framework Agreement, the judge held that the father had not exercised those rights as part of the D-Day exercise on 4 November 2009 or by the notice given on 21 February 2011, and is unable to do so until the wife is paid in full her claim in ancillary relief by virtue of the orders and his undertaking on 23 February 2011[10]. The real issue for the court was the effect of the future rights that the father has over the property to be distributed[11] and whether the father would exercise in future those rights against the husband[12].  The judge was satisfied that had the marriage not broken down, and the father’s relationship with the husband continued as it was prior to the breakdown, the father would not have exercised his rights[13].  He accepted that the considerable contributions by the father to the husband enabling him to begin and continue the development of the Japanese business should be taken into account when considering the sharing principle[14].

30.  The judge found that the total capital sum, based on the wife’s needs, generously interpreted, would be HK$524.5 million excluding the fighting fund.  After giving credit for the wife’s own assets, the net sum would be HK$445.5 million[15].

31.  As there are significant surplus assets remaining after the needs of both the parties have been catered for, the judge held this was an appropriate case to apply the sharing principle[16].  He found the husband’s conduct in presenting the ultimatum to the wife that she must have an abortion or the marriage would end as gross and obvious but did not think this should be taken into account in applying the sharing principle[17].  He accepted that the husband had brought to the marriage capital of US$50 million but held that apart from that capital, the contributions of the husband and the wife to the marriage partnership were equal[18]. What set this case apart from others was the very significant contribution made by the father in that the entire empire owned by the husband has been totally dependent upon the father’s assistance, and the future contingent rights the father has under the Framework Agreement[19]. These were factors sufficient to justify departure from equal sharing and he awarded the wife 20% of the total assets available for division[20].

A.5 An overview of the appeals and cross appeal

32.  In their appeals, the husband and the father sought to set aside the findings of forgery and perjury against them and the referral of the matter to the DPP.  They contended that the judge should have recused himself from hearing the ancillary relief application on account of apparent bias, as he had prejudged the issue of their credibility on the pre-reading of documents and submissions in respect of the trial in February 2011 which did not take place.  Besides, the findings of forgery and perjury should be set aside due to procedural irregularities and the referral to the DPP was in breach of their constitutional rights.  It was also contended that the judge was wrong to allow the wife to pursue her allegation of forgery as relevant to credibility, as the effect of the compromise in February 2011 was to preclude her from pursuing this allegation in any way.  On behalf of the wife, it was contended that there was no question of any estoppel and that the judge should have permitted her to pursue the forgery allegation, not just as relevant to credit, but also to establish relevant misconduct under section 7 of the MPPO. We will address all these arguments in Section B of this judgment.

33.  The main contention of the husband and the father in respect of the lump sum award was that the judge was wrong not to find that all of the Japanese business constituted non-matrimonial assets to which the sharing principle would not apply and instead the wife should have been granted a needs award, generously interpreted.  This raised the questions of the proper approach to the rights of the father under the Framework Agreement and the Special Articles, the effect of the father’s undertaking, the likelihood of the father exercising his rights, and the husband’s right under the Framework Agreement to repay the father and terminate the latter’s rights.

34.  There was no appeal in respect of the needs award assessed by the judge.  The father issued an open position statement before the hearing of these appeals that in the event this court makes a needs award no more than the amount assessed by the judge, he would consent to an order against him to cover any default by the husband, if the husband is unable to meet the award, on condition that the wife gives an undertaking to the court she would not appeal this substituted order.

35.  The wife’s main contention in her cross appeal was that the judge was wrong to depart from an equal division of the assets.  He had in effect made a case for stellar contribution on the part of the father, a non-party to the marriage; he failed to take into account conduct of the husband which he had found to be gross and obvious; he should have held that the marriage was of ten years duration as there was no break in the cohabitation which started in 1998 and the entire business of the husband was built up after the commencement of cohabitation.  Further, the sharing award should be increased by 50% of what the husband in all likelihood spent on extravagant living out of disposable capital during the two years’ delay for the ancillary relief application to be heard.

36.  All the above contentions will be addressed in Section C of our judgment.

37.  In Section D of our judgment, we will address the remaining issues raised in the appeals and the cross appeal.  They are mainly concerned with matters that go to the computation of the assets.  The topics to be covered are: expert valuation of the Japanese properties; the Aoyama project; arithmetical error in respect of ‘soft’ loans from the Japanese business to the father; other arithmetical errors raised in the letter of CRA Lee & Allen[21] dated 9 December 2011 (“the L&A letter”); four cars; the wine collection; Juniper Hill; tax of the husband; the wife’s resources: deduction of costs awarded to her and costs she had incurred; the wife’s resources: adjustment in respect of the Hollywood Heights property; the uplifted values of the Harajuku and Almost Blue properties; the fighting fund; the time and mode of payment; the adjournment of the assessment of damages in the wife’s conspiracy claim; and the exchange rate.

38.  The outcome of the appeals and cross appeal will be set out in Section E.  We will also deal with the publication of the Main Judgment and the Barrell Judgment and the question of costs.

B. APPARENT BIAS, PROCEDURAL IRREGULARITIES, ESTOPPEL, REFERRAL TO DPP, AND BREACH OF CONSTITUTIONAL RIGHTS

B.1 Apparent bias

39.  The complaint of the father and the husband is not actual bias of the judge but apparent bias, as Mr Thomas made very clear in his oral submission[22] and Mr Pointer in his written submission[23].  It was contended that to a fair-minded and informed observer, the judge was pre-disposed to find criminality of the father and the husband and to refer the matter to the DPP.  Apparent bias was said to arise in this way.

40.  On 7 June 2012, on the application of the father (and supported by the husband), the judge recused himself from hearing an application brought by the Secretary for Justice in HCMP No 188 of 2012 for the release of documents for criminal investigation by the Hong Kong police arising from the findings of criminal behaviour against the husband and the father in the Main Judgment[24]. One of the grounds[25] was that there was an appearance of bias in that the judge had expressed views in relation to the alleged offences such that a fair-minded person might think he was incapable of bringing an open mind to hear the application of the DPP.  This was based on the following statement made by him in the course of argument in the Barrell application heard on 5 to 7 June 2012:

“It is hard to think of a more egregious attempt to pervert the course of justice in matrimonial litigation it would be hard to think of circumstances in which a judge faced with that would not send it to the DPP. This is something that strikes at the whole heart of the obligations of the parties in matrimonial litigation.”[26]

41.  The judge accepted that while that statement was made purely for the purpose of discussion in the course of submissions, the husband and the father would find it difficult to accept that he could bring an open mind to the issue whether or not the documents should be released to the DPP[27]. He therefore recused himself from dealing with that application.

42.  In these appeals, it was contended by the father and the husband that the recusal came too late, in that the judge should not even have conducted the trial of the ancillary relief, as he would appear to have prejudged the issue of credibility of the father and the husband and might well have prematurely and unjustifiably formed a view on the pre-reading of the papers and submissions for the earlier trial in February 2011 which did not take place, seven months before the substantive trial for ancillary relief, that they had forged the 2006 CLA.

43.  This contention was based on the following statements in the Barrell Judgment[28]:

“98. Not surprisingly, I was aware of the possibility of such a reference [to the appropriate authorities for action to be taken] from the very moment the wife first began to make allegations of forgery of the 2006 CLA. The possibility of such a reference must have been obvious to anybody involved in the proceedings through the interlocutory steps, when the wife continued to insist that while such a document as the 2006 CLA existed, it had been forged. The allegation was one of criminality on the part of those who had created the document, if it existed.

99. Throughout the interlocutory proceedings and the trial I was careful not to raise this possibility, for to have done so could have been seen to be placing undue pressure on the husband and father to resolve the proceedings other than by way of trial.”

44.  It was submitted that the true views of the judge were only revealed in the above statements when the Barrell Judgment was handed down seven months after the Main Judgment.  It would appear he had prejudged the issue of whether the matter should be referred to the DPP even before the trial for ancillary relief commenced.  As the judge had deliberately concealed his views from the parties, they were deprived of the opportunity to apply for his recusal before the trial.  And the suppression of his mind-set meant that the ancillary relief application was tried by a judge who was disposed to find criminality that justified a referral to the DPP.

45.  Furthermore, the views were formed by the judge before the trial for ancillary relief began, and not on the basis of admissible evidence or argument in open court, but on the pre-reading of the trial bundles for the trial in February 2011 and the written opening of Mr John Wardell, QC, then leading counsel for the wife.  Moreover, in the course of the section 17 proceedings and the fraud action, the judge had made an order for discovery of documents that were otherwise protected by legal professional privilege, pursuant to the fraud exception in R v Cox & Railton (1884) 14 QBD 153.  To do so, he would have to be satisfied there was a strong prima facie case of fraud.  The judge would seem to have brought the knowledge and views he had formed in pre-reading for the earlier section 17 proceedings that did not go to trial to arrive prematurely at conclusions in the subsequent trial.  That knowledge would seem to have improperly coloured his approach to the issues that were litigated in the later proceedings and he was unable to assess the evidence to those issues with an open mind.

46.  Further in support of the contention there was an appearance of bias, it was submitted that the emphatic expression of the judge’s findings indicated a strongly prosecutorial mind-set.  Not to mention that the definite finding of criminality was unnecessary, as the only point he had to decide was the credibility of the father and the husband on a cross-examination as to credit regarding the 2006 CLA, having ruled against the wife that the allegation of forgery could not be relied on as relevant conduct in the ancillary relief proceedings.

47.  It was submitted that in striking contrast to the harshness of the findings against the father and the husband, the judge took an overly lenient view of the conduct and activities of the wife[29].  And the lack of fairness was exemplified by adverse findings in the Main Judgment against two solicitors, who were not called as witnesses, of complicity in the forgery of the 2006 CLA, without giving notice to either of them of his intention to do so.

48.  It was submitted that all the above matters taken together would justify a fair-minded and informed observer in concluding objectively that there was a real possibility that the judge was biased against the father and the husband in the trial for ancillary relief (Porter v Magill [2002] 2 AC 357 at para 103).  The principle applies even when the allegation of apparent bias is made after the proceedings said to have been affected by it have taken place (O’Neill v Her Majesty’s Advocate (No 2) [2013] 1 WLR 1992 at para 48).  They sought a re-trial as the only appropriate remedy.

49.  Applying the test of the fair-minded and informed observer, we do not think apparent bias is made out in this instance.

50.  As stated by the Constitutional Court of South Africa in President of the Republic of South Africa v South Africa Rugby Football Union, 1999 (4) S.A. 147 at 177 (this passage was quoted with approval in Locabail (UK) Ltd v Bayfield Properties Ltd [2000] QB 451 at para 21):

“The question is whether a reasonable, objective and informed person would on the correct facts reasonably apprehend that the judge has not or will not bring an impartial mind to bear on the adjudication of the case, that is a mind open to persuasion by the evidence and the submissions of counsel. The reasonableness of the apprehension must be assessed in the light of the oath of office taken by the judges to administer justice without fear or favour; and their ability to carry out that oath by reason of their training and experience. It must be assumed that they can disabuse their minds of any irrelevant personal beliefs or predispositions. They must take into account the fact that they have a duty to sit in any case in which they are not obliged to recuse themselves. At the same time it must never be forgotten that an impartial judge is a fundamental prerequisite for a fair trial and a judicial officer should not hesitate to recuse herself or himself if there are reasonable grounds on the part of a litigant for apprehending that the judicial officer, for whatever reasons, was not or will not be impartial.”

51.  The judge’s statements in paras 98 and 99 of the Barrell Judgment must be looked at in context.  Those statements were made in addressing counsel’s arguments at the Barrell hearing that he should not have made a referral to the DPP, and the judge was referring to an obvious possibility of a reference to the DPP once an allegation of forgery was made.  To the fair-minded and informed observer, he would understand the proper context in which these statements were made and would not have construed the judge’s remarks as an inclination to make a referral.  Nor would this observer have read any improper motive into the judge’s words that he was careful not to raise the possibility of a referral until the trial was concluded.

52.  The fair-minded and informed observer would not have overlooked the fact that other matters relied on in support of the argument the judge should have recused himself from conducting the ancillary relief trial – his pre-reading of the papers for the section 17 proceedings and the order he made for disclosure of privileged documents under the fraud exception – were matters known to the highly experienced and huge legal teams of the father and the husband all along.  And yet no complaint of bias or application for recusal was made, until 7 June 2012, after the judge had raised his concerns two days earlier, on different considerations.  The hypothetical observer might well find it odd, if those matters had really provided a basis for objecting to the judge trying the ancillary relief application, why no objection was taken on behalf of the father or the husband much earlier. 

53.  As Lord Bingham of Cornhill CJ had stated in Locabail at para 25:

“The mere fact that a judge, earlier in the same case or in a previous case, had commented adversely on a party or witness, or found the evidence of a party or witness to be unreliable, would not without more found a sustainable objection. … The greater the passage of time between the event relied on as showing a danger of bias and the case in which the objection is raised, the weaker (other things being equal) the objection will be.”

54.  The fair-minded and informed observer would be familiar with the detailed history of these proceedings and with the norm that judges are expected to do a considerable amount of pre-reading for a complex case and would be exposed to pre-trial evidence as a judge designated to try a case would usually deal with the interlocutory applications.  This observer would not reasonably apprehend that the judge, notwithstanding his detailed knowledge of the case as it developed and having made a ruling for disclosure of privileged documents under the fraud exception (he was merely making a preliminary assessment of the materials placed before him at the time), might not be able to put himself into a state of mind where he would have no preconceptions about the credibility of the husband and the father when the ancillary relief application came to trial.

55.  The judge rejected a submission at the Barrell hearing that he should not have made a finding of forgery in that this would be contrary to his ruling that the wife would not be permitted to pursue the allegation of forgery as relevant conduct.  He held that he was entitled and obliged to make the findings of criminal behaviour, having regard to the way in which Mr Howard ran his case, as those findings formed the basis for rejecting the evidence of the husband and the father as lacking in credit[30].  Whether the judge was correct in this holding will be considered in the next section.  But assuming for the time being that the judge had made an error in law, the hypothetical observer would not have held this error against the judge as indicative of bias. A fair-minded and informed observer would be able to distinguish between an error in law and a situation in which the judge was pre-disposed to find criminality against the father and the husband.

56.  We do not think there is substance in the contention that the judge was unduly lenient towards the wife on those matters where her conduct was impugned, such as resorting to inappropriate self-help.  He was fully entitled to come to the view he did on the evidence.

57.  As for the adverse findings of complicity against two solicitors, even if these findings were not entirely appropriate, we do not think they were sufficient to support a case of apparent bias, without more.  In any event, on the application of Mr Todd at the Barrell hearing for one of the solicitors, the judge agreed to make the amendments sought and deleted from the Main Judgment the relevant paragraph where he was critical of that solicitor’s involvement in the matter[31].

58.  The judge was keenly alive to any reasonable concern of bias.  He raised concerns of possible appearance of bias on his own initiative on 5 June 2012 and made the right decision to recuse himself on 7 June 2012 when he accepted there was arguably an appearance of bias that he was incapable of bringing an open mind to adjudicate on the application by the DPP. The late objection on appeal of pre-judgment apparent bias is plainly not established.  There could be no justification that the judge should have recused himself hearing the ancillary relief application.

B.2   Procedural irregularities: admissibility of SP 1

59.  When the trial opened, the judge had before him the “rolling bundles” (which comprised the documents disclosed on discovery and all the correspondence in the litigation), the “AR bundles” (which the wife’s solicitors prepared for the use of that trial) and bundle “SP1” (which was compiled by the wife’s solicitors from documents disclosed by the father and was similar to the “CLA bundle” placed before the judge at the hearing in February 2011).  None of these bundles were agreed.  There was an agreed reading list for the judge, but this did not include any of the documents relating to the allegation of forgery.  As noted by the judge in the Barrell Judgment[32], Practice Direction 5.6 para 3[33] was not complied with.

60.  On Day 2 of the trial, the judge made the ruling that the issue of forgery of the 2006 CLA was relevant only to the credit of the husband and the father in their evidence before him, and that the wife was not permitted to pursue the allegation of forgery for the purpose of assisting in the interpretation of the Framework Agreement or as gross and obvious conduct to be taken into account in determining ancillary relief.  He ruled that both may be cross-examined “with the usual limitations that are imposed upon cross-examination as to credit”[34]. As subsequently stated in the Main Judgment, the principal limitation is that “a party may not, in general, impeach the credit of his opponent’s witness by calling witnesses to contradict him as to matters of credit or other collateral matters, and his answers thereon will be conclusive: see Phipson on Evidence (17^th ed), §12-46.”[35]

61.  Immediately after the ruling, Mr Howard sought clarification from the judge and there were these exchanges:

“Mr Howard: … Just so I’m entirely clear, because I don’t want to obviously proceed on a false basis, first of all, I think it must be the thrust of your judgment that I can rely on all other conduct apart from the forgery?

His Lordship: Yes.

Mr Howard: Secondly, that the cross-examination that I’m entitled to carry out in relation to both the husband and to STL includes, obviously, as you said, the execution, but you’ve made it referable to what’s called the 2006 CLA, and that really should be in inverted commas.

His Lordship: Yes.

Mr Howard: Because it must be to include when it was executed.

His Lordship: That’s its name. That is the only way I’m using that expression.

Mr Howard: I assumed so, and I’m presuming also that I can put, in relation to credit, the supporting documents?

His Lordship: Yes.

Mr Howard: And supporting circumstances. So, I can investigate on credit the entire circumstances? Thank you. …”[36]

62.  When Mr Howard came to cross-examine the husband and the father on the 2006 CLA and put documents in bundle SP 1 to them, both declined to answer claiming the privilege against self-incrimination.

63.  There followed these exchanges between the judge and counsel in the course of the cross-examination of the husband:

“Mr Howard: But my Lord, there are a lot of supporting documents and if I’m going to get the answer to every one, then I would rather deal with it by my submissions. But if you want me - -

His Lordship: I don’t quite understand that.

Mr Howard: Well, why I say that they’re relevant - - I’m not going to get any profit out of cross-examination - -

His Lordship: Exactly.

Mr Howard: - - if every time this witness says I’ve been advised not to answer questions.

His Lordship: Well, I think we can reasonably assume in respect of other documents what his position will be, and you can deal with that by way of submission.

Mr Howard: It seems to me that it’s idle for me to go through - - I’ve got about 50 documents.

…

His Lordship: I wouldn’t let you put 50 documents to him. It’s as simple as that.

Mr Howard: I’m sure you wouldn’t and therefore that’s why I’m seeking guidance. But I do say so my learned friend’s know, and [the husband] knows that the fact that he won’t answer questions about this we say is in itself relevant to credit. And I’m entitled to do that.”[37]

64.  And there were these exchanges in the course of the cross-examination of the father:

“His Lordship: Mr Howard, may we do this in a shorter way? Mr Todd, Mr Pointer, would you take any exception to a comprehensive question being put: do I take it that you decline to answer any question at all in relation to the 2006 CLA?

Mr Todd: My Lord, that seems to be exactly the right way to deal with it.

His Lordship: Yes, and no point would be taken that a document has not been put.

Mr Pointer: None.

Mr Todd: Not in relation to this issue, my Lord.

Mr Howard: While it is fresh in your mind, I would perhaps like to identify the documents - -

His Lordship: Well, you can do that in your speech.”[38]

65.  In his closing submission, Mr Howard set out in Attachment 2[39] and bundle SP 1 the documents he said demonstrated that the 2006 CLA was a forgery.  The judge accepted his submission.  The judge embarked on a detailed analysis of the documents in SP 1 that he was referred to and concluded that the father and the husband had committed forgery, and as both had made numerous affidavits in relation to the 2006 CLA, their affidavits contained perjury.  He held that these findings went to the credit of both and he would attach little or no weight to their evidence.

66.  In the Barrell hearing, the judge rejected the submissions of Mr Pointer and Mr Todd that the findings in paragraphs 78 to 139 of the Main Judgment, which related to the findings of forgery and perjury, should be deleted.  His reasoning may be summarised as follows:

(1) The issue of the 2006 CLA was a live issue firmly before the court.  In his ruling on Day 2, he held that the conduct of the father and the husband leading to and including the execution of the 2006 CLA was relevant to their credit and that they could be cross-examined on those matters with the usual limitations on cross-examination as to credit[40].  Having ruled that the circumstances of the 2006 CLA were relevant to credit, it must have been plain to all concerned that a finding of criminal behaviour was open to the court[41].

(2) It was open to Mr Howard to put the alleged forgery to the father and the husband.  Such questions were put, and they were not, and could not have been, objected to[42].

(3) It is correct that when the cross-examination went to credit only, by the collateral evidence rule, if forgery was denied by the witness, the wife could not call a witness to prove the contrary.  However, if there was admissible evidence already before the court to which the wife could point as a basis for the rejection of such a denial, she was entitled to rely on such evidence[43].  What Mr Howard did was to ask the court to look to other admissible evidence in the face of the silence of father and the husband to his questions[44].

(4) The documents in SP1 were taken from the rolling bundles, being documents given on discovery in respect of the whole of the proceedings, which included the section 17 proceedings.  The section 17 proceedings were ordered to be heard with the fraud action and the conspiracy counterclaim.  No objection to the admission or production of the documents in SP 1 pursuant to Order 27 rule 4(1)[45] was taken.  Although Practice Direction 5.6 para 3 was not complied with, it is the long standing practice of the civil courts, including the matrimonial court, to accept as properly admissible evidence all the documents in a bundle put before the court, unless specific objection is taken to any particular document.  Although Mr Pointer and Mr Todd complained about the assembly of the documents into SP 1, they did not seek a ruling from the court that those documents were not admissible, nor did they suggest that those documents had not been properly proved and were not available as part of the evidence for consideration[46].  There was no doubt that the documents in SP 1, like the other documents in the rolling bundles, formed part of the available evidence[47].

67.  It is pertinent to bear in mind the relevant legal principles which are set out in this passage in Phipson cited by the judge:

“No contradiction on collateral matters: the principle

A party may not, in general, impeach the credit of his opponent’s witness by calling witnesses to contradict him as to matters of credit or other collateral matters, and his answers thereon will be conclusive. This rule is not absolute. The test of whether the matter is collateral or not is this: “If the answer of a witness is a matter which you will be allowed on your own part to prove in evidence – if it had such a connection with the issues that you would be allowed to give it in evidence – then it is a matter on which you may contradict him.” ”

68.  The footnote to the first sentence in the quote reads as follows: “It is perhaps misleading to say that the answer of a witness on a collateral matter is conclusive, or that the cross-examining party is bound by the witness’s answer.  That party must presumably be entitled to suggest to the court or the jury that the denial was evasive or unconvincing.”

69.  By the ruling on Day 2 (whether the judge was correct in so ruling will be considered next), the wife was allowed to cross-examine on the 2006 CLA as to credit only.  By the principle relating to collateral matters, the wife was not allowed on her own part to put in evidence to contradict the denial of the father and the husband that the 2006 CLA was a forgery.  The judge accepted that the wife could not call a witness to give evidence to contradict the father and the husband, but he held that she could rely on “already admissible evidence”.  We think the judge is in error.  There is no difference in the wife relying on documentary evidence (assuming it is admissible) instead of calling a witness to testify.  She would still be seeking to contradict the father and the husband by proving in evidence matters to the contrary, when those matters had nothing to do with the issues in the case but were only relevant to credit.

70.  As correctly submitted in a note of Mr Pointer dated 11 November 2011 at the stage of closing speeches to the judge, the effect of the ruling on Day 2 was that:

“As to credit what [the wife] was entitled to do was:

a. to challenge other evidence given by [the father and the husband] by reference to the events surrounding the making of the 2006 CLA;

b. to put to the witnesses and thus draw to the attention of the court any demonstrable inconsistencies; and

c. to put the alleged forgery to the witnesses.

She was not entitled to lead any evidence herself as to the alleged forgeries: including by the adduction in evidence of any documents.”

71.  The judge should not have regard to the documents in SP 1.  It is simply incorrect to say that the documents in SP 1 were already in evidence.  Insofar as there were documents in the rolling bundles that related to the allegation of forgery, they had ceased to be of relevance to an issue in the proceedings because of the judge’s ruling on Day 2. As by that ruling the wife was allowed to cross-examine on the 2006 CLA as to credit only, and she was not able to lead evidence herself on the topic, it was necessary for any documents relied on to establish forgery to be strictly proved.  But none of the materials relied on by the judge in reaching his findings of forgery and perjury were proved in evidence.

72.  The judge was in error about the admissibility of SP 1.  We do not think Order 27 rule 4(1) referred to by the judge is of relevance, as this deals with the reaction of a recipient of a list of documents and does not prove the documents.  Although Mr Howard was at liberty to put the documents in SP 1 to the father and the husband, merely putting a document that had been the subject of discovery to a witness does not make it admissible or render it self-proving.  The fact that Mr Pointer and Mr Todd did not object to Mr Howard putting the documents to the witnesses or to the comprehensive question suggested by the judge in putting the documents is immaterial.

73.  Mr Howard pointed to the exchanges he had with the judge as quoted earlier indicating that he was permitted by the judge to make submissions when he was met with silence from the witnesses who claimed privilege against self-incrimination.  But that begs the question as to what submissions he could have made.  As submitted by Mr Thomas, it was by no means clear from the exchanges that what Mr Howard intended to do in his final submission was to set up the documents in SP 1, treat them as proof of a fact on a collateral matter, and seek a definite finding that forgery was committed.

74.  And it is not correct to say that no objection was taken to the admissibility of SP 1 or that it should not form part of the available evidence.  Such objection was taken in the note mentioned above submitted by Mr Pointer during the closing speeches.  The objection was not taken earlier as it was only after Mr Pointer and Mr Todd had given their closing submissions that they were presented by Mr Howard with his written closing submissions which incorporated extensive references to the documents in SP 1.

75.  Mr Howard submitted that as the judge had an inquisitorial duty under section 7 of the MPPO, he was obliged to investigate credit if it was raised and if it was relevant.  He could have called for the documents in SP 1, if any point as to their admissibility was taken earlier.  But that does not get over the hurdle who was to prove these documents.  Counsel does not and cannot give evidence.  Besides, it was no part of the judge’s judicial function to decide something which was not an issue.

76.  As the judge had recognised, the husband and the father were entitled to claim privilege against self-incrimination and to decline to answer questions concerning the creation or the execution of the 2006 CLA and he had placed no weight on their refusal to answer in reaching his conclusions in respect of the 2006 CLA[48]. Instead of making a definite finding of forgery and perjury, if the judge had merely said he would be inclined to treat the evidence of the father and the husband with reservation, that might have been a legitimate course open to him. But in making definite findings of forgery and perjury against the father and the husband in the absence of proper admissible evidence, and treating as being in evidence documents that had not been proved, the judge had clearly fallen into error.

77.  As the findings of forgery and perjury could not stand in the absence of evidence, on this ground alone, those findings must be set aside.

78.  We cannot leave this matter without stating firmly our views on the practice about the preparation of bundles used for trial, in view of the “long standing practice” of civil courts mentioned by the judge.  We see no good reason why parties should choose not to comply with Practice Direction 5.6 para 3, and instead use rolling bundles whether for reasons of expediency or convenience.  In a civil trial, it is always important for there to be agreed bundles.  That the trial is complex and documents disclosed on discovery voluminous are all the more reason for trial bundles to be agreed.  It is important for each party to know the documentary evidence that is deployed against him, so that he can make suitable response by marshalling his evidence and in his submissions.  It is important for the trial judge to know the scope of the documentary evidence adduced before the court, so that his findings would be based on proper admissible evidence.  If proper agreed bundles had been placed before the judge, he would not have treated SP 1 as already admissible evidence.

B.3 Estoppel and the true effect of the compromise

79.  Mr Pointer went further and submitted that the judge was wrong in permitting the wife to cross-examine on the allegation of forgery, albeit going only to credit, as the effect of the compromise on 23 February 2011 was to preclude the wife from pursuing her allegations of forgery or other fraudulent conduct (perjury, conspiracy) at all, and the judge was wrong not to hold her to that agreement.  He contended the true effect of the compromise and the orders made in February 2011 was that a cause of action estoppel arose from the order in the fraud action, and if the s 17 proceedings were not separate proceedings (separate proceedings would give rise to cause of action estoppel), they were a preliminary issue capable of giving rise to issue estoppel.  Furthermore, it was an abuse of process for the wife to seek to revive the issue of forgery at the ancillary relief trial, having regard to res judicata in the wider sense by the rule in Henderson v Henderson (1843) 3 Hare 100.  See also Johnson v Gore Wood & Co [2002] 2 AC 1; and Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581.

80.  For his part, Mr Howard challenged the ruling on Day 2 that prohibited the wife from alleging forgery as an issue of fact in the ancillary relief proceedings and from relying on the finding of forgery to contend that the husband was guilty of gross and obvious conduct for the purpose of section 7 of the MPPO.  He contended that there was no agreement on the part of the wife not to pursue the forgery allegation at the ancillary relief trial.  There was no unequivocal statement from her at the time of the agreement that forgery would not be pursued subsequently.  There was no res judicata as a finding of forgery was not necessary to the conclusion reached in that the wife could obtain and did obtain full relief in the s 17 proceedings without such a finding.  And there was no res judicata in the wider sense as it was not proportionate for her to pursue her claim for a declaration that the 2006 CLA was a sham at the trial of the s 17 proceedings, given that it was agreed that the dispositions under the 2006 CLA were to have no effect and the disputed transactions were going to be set aside.  The judge had failed to take proportionality into account in that the wife who obtained full interlocutory relief would not have to press for unnecessary findings at that stage as the appropriate time to consider conduct would be in the ancillary relief trial under section 7 of the MPPO.

81.  To ascertain the true effect of the compromise, it is necessary to look at the pleadings, the correspondence that resulted in the compromise and the orders made on 23 February 2011 in the fraud action, the conspiracy counterclaim and the s 17 proceedings.

B.3.1 The pleadings

82.  The wife brought the s 17 proceedings claiming that dispositions were made with the intention of defeating her claim for financial provision.  Her case as pleaded in the amended points of claim was encapsulated in paragraph 37:

“37. [The wife’s] case is that:

37.1 The revised Daiwa COA [i.e. call option agreement] and the transfers of shares made under it (and/or the Framework Agreement) should be set aside pursuant to section 17 of the MPPO.

37.2. The 2006 CLA is a forgery and a sham in that it was drafted and signed after the filing of the petition with the sole intention of defeating [the wife’s] claim for financial provision with the result that dispositions purportedly made pursuant to the 2006 CLA are a sham and/or of no effect.

37.3. If the court determines that the 2006 CLA is not a forgery or a sham but is an authentic instrument and that the dispositions made thereunder were not a sham and/or of no effect, then the transfers made under the 2006 CLA should be set aside pursuant to section 17 of the MPPO.

37.4. The transfers of the shares in Mizuho should be set aside pursuant to section 17 of the MPPO.

37.5. The transfer of the 2 shares in PEL [Prudential Enterprises Ltd] made under the PEL COA should be set aside pursuant to section 17 of the MPPO.”

83.  Paragraph 39 of the amended points of claim pleaded the wife’s case in respect of the 2006 CLA.  It was averred that by the facts and matters pleaded therein it is to be plainly inferred that the 2006 CLA is a forgery and a sham in that it was produced by the father in collusion with the husband after the issue of the petition with the sole intention of defeating her claim for financial provision.

84.  The reliefs she claimed in the prayer were:

“(1) A declaration that the 2006 CLA is a sham and that any dispositions made under it are of no effect.

(2) An order setting aside the following:

(a) The revised Daiwa COA

(b) The transfer of the shares of Daiwa from [the husband] to [OIL] on or about 4 November 2009

(c) The 2006 CLA

(d) The transfer of the shares of Veloqx Pte from [the husband] to [OIL] on or about 4 November 2009

(e) The transfer of the shares of Mizuho from [the husband] to [OIL] on or about 4 November 2009

(f) The transfer of the two shares in PEL [Prudential Enterprises Ltd] from [the husband] to [the father] on about 4 November 2009 pursuant to the PEL COA

(3) Further or other relief to include, but not be limited to, an injunction restraining [the husband] and [the father] from taking any future comparable steps to those taken by them in November 2009 pending the final determination (to include any appellate review) and satisfaction in full of [the wife’s] claim for ancillary relief.”

85.  In respect of the conspiracy counterclaim, the wife made these relevant allegations in the re-amended defence and counterclaim:

“35.3. The [2006 CLA], pursuant to which the transfer of the shares in Veloqx Pte was made, is a sham or forged document in that it was drafted and signed by STL [the father] and SL [the husband] after the issue of the Petition and backdated with the intention of defeating the claims for financial provision brought by FT and FT on behalf of [the daughter].

…

44. Further or alternatively, at all material times since the issue of the Petition, STL and SL have wrongfully and with intention to injure FT [the wife] and [the daughter], conspired, colluded, combined together and agreed to defeat by unlawful means the claims for financial provision brought by FT and FT on behalf of [the daughter].

…

45.7. SL and STL forged the 2006 CLA, a sham document, in that it was drafted and signed by STL and SL after the issue of the Petition and backdated so as to justify the transfer of shares in Veloqx Pte to [OIL] with the intention of defeating the claims for financial provision brought by FT and FT on behalf of [the daughter].

…

46. Further or alternatively if contrary to her primary case the means used by STL and SL were not unlawful FT will contend that STL and SL at all material times had a predominant intention to injure her and [the daughter].

…

49. If the transfers of the shares effected by SL on about 4 November 2009 are set aside by this Court in the related action brought by FT pursuant to section 17 of [the MPPO] and the value of the shares re-transferred to SL have as at the date of the re-transfer not materially diminished, FT’s claim for damages for the tort of conspiracy will be extinguished.”

86.  She claimed damages in paragraph (1) of the prayer for relief.

B.3.2 The compromise as evidenced by the correspondence

87.  The s 17 proceedings, the father’s fraud claim and the wife’s conspiracy claim were ordered to be tried together commencing on 21 February 2011 with 25 days reserved.  The first day of the trial was actually on 23 February 2011.  On 22 February 2011, the following letters were exchanged between the parties which resulted in a compromise.

88.  By the first letter[49], the father’s solicitors made an offer to the wife in these terms:

“1. Pursuant to Order 21, Rule 3, [the father] will seek leave to discontinue his action against [the wife] under HCA No 566 of 2010. He will not thereafter seek to commence any fresh action based on the post-nuptial deed or the cancellation deed.

2. Pursuant to Order 21 Rule 2(2) [the father] will withdraw his defence to [the wife’s] counterclaim (HCA No 566 of 2010). We do this on the basis of no admissions as to (a) the allegations made in [the wife’s] Re-Amended Defence and Counterclaim paragraphs 44, 45.7 and 46; and (b) paragraph 37.2 of [the amended points of claim in the s 17 proceedings]. Furthermore it is without prejudice to [the father’s] contention that the 1999 Framework Agreement was and is a lawful agreement. However it goes without saying that we thereby recognise that no meaning or effect will be given to the 2006 CLA. We note that [the wife] rightly accepts in her counterclaim that any issue as to damages falls away with the concession made in paragraph 3 below that [her] section 17 application should succeed.

3. As to [the wife’s] claim in [the s 17 proceedings] [the father] will withdraw [his] Defence and agree to an order in the terms sought in [her] application under section 17 (save paragraph 1) to the effect that the transactions on the 4 November 2009 be set aside (but not in respect of the two PEL shares …). The declaration as per the first part of [her] paragraph 1 is not agreed and indeed not needed as we do agree to the second part of paragraph 1; viz that any dispositions under the 2006 CLA shall be declared to have no effect. We accept that if there is any material loss in value in the shares then either [the father and OIL] and/or [the husband] are liable to [the wife] in respect of the same (as per [her] paragraph 49 of the Counterclaim). As has already been contemplated by Mr Justice Saunders the quantum of any such claim would need to be determined in the ancillary relief enquiry.

4. We agree to pay [the wife’s] costs of the claim, counterclaim and application referred to in paragraphs 1, 2 and 3 above, to be taxed if not agreed.

5. The above will dispose of the matters listed as beginning in the week of the 21 February 2011 so far as [the father and OIL] are concerned.

For the avoidance of doubt [the father and OIL] maintain that the Framework Agreement of 29 June 1999 holds good. … In accordance with that agreement [the father] served notice yesterday on [the husband], that [the husband] should grant call options contemplated by that agreement.  [The father and OIL] also agree that there should be an order that no further steps should be taken to exercise those Options (when granted) pending the hearing of the ancillary relief enquiry.”

89.  The husband’s solicitors also wrote to the wife’s solicitors with this offer in respect of the s 17 proceedings and the conspiracy counterclaim:

“FT’s Section 17 Application in HCMC No 5 of 2008

[The husband] hereby gives notice that he withdraws his Defence to [the wife’s] Amended Points of Claim, save that [the husband] does not admit paragraphs 37.2, 37.5, 38.7A[50], 39 and 43[51] of the Amended Points of Claim.

In the premises, [the husband] will not resist default judgment being entered in terms of paragraphs (2)(a) to (e) of [the wife’s] prayer for relief. [The husband] will also not resist an injunction in terms of paragraph (3) of the prayer for relief, namely that he will be restrained from taking any future comparable steps to those taken by him in November 2009 pending the final determination of [the wife’s] claim for ancillary relief.

In anticipation of judgment being entered in terms of paragraph (2)(c) as above, paragraph (1) of [the wife’s] prayer for relief is accordingly unnecessary, academic and serves no useful purpose.

Kindly let us know whether [the wife] will agree not to pursue paragraph (2)(f) of her prayer for relief.

FT’s Counterclaim in HCA No 566 of 2010

[The husband] hereby gives notice that he withdraws his Defence to [the wife’s] Re-Amended Counterclaim, save that [the husband] does not admit paragraphs 35.3, 45.2[52], 45.2A[53], 45.7 and 45.16[54] of the Re-Amended Defence & Counterclaim.

In the premises, subject to proving actual loss and damage (if any have occurred) and assessment of quantum (if any), [the husband] will not resist default judgment being entered in terms of paragraph (1) of [the wife’s] prayer for relief on her Counterclaim. We propose that investigation into and assessment of damages (if any) be adjourned, on terms and a timetable to be agreed.

We believe paragraph (1A)[55] of [the wife’s] prayer for relief on her Counterclaim would fall away if STL’s Main Action claim goes.

Costs – HCMC No 5 of 2008 & HCA No 566 of 2010

We are also instructed that [the husband] agrees to pay [the wife’s] costs, to be taxed if not agreed.”

90.  The wife’s solicitors responded to the letter of the father’s solicitors by a letter in these terms:

“Despite your reference in the first paragraph to it being an offer, we do not read the contents as containing a proposal as such but instead a statement of what your open position is.

Subject to this, we have the following observations.

1. We note that [the father] will be seeking leave to discontinue his fraud action against [the wife] pursuant to Order 21, Rule 3. We confirm that we will not object to such application provided the discontinuance is on terms that STL will not hereafter commence or procure the commencement of any fresh action in any jurisdiction against FT and/or SL based on or related to the post-nuptial deed or the cancellation deed or issue or cause to be issued any proceedings which interfere with the due process of FT’s application for financial provision.

2. We note that [the father] wishes to withdraw his defence to [the wife’s] counterclaim in the fraud action and that [the father’s solicitors] agree that judgment should be entered for damages to be assessed in respect of paragraph 49 of the Counterclaim. However, there has to be a cause of action on which the right to damages accrues. It seems to us therefore that for [the father] to take this course he has to reduce the scope of his non-admissions and exclude paragraph 44 therefrom (in the same way as SL has done).

3. As for the section 17 claim, we agree that, even though the evidence on the point is overwhelming, it would not be proportionate for [the wife] to pursue the relief under paragraph (1) of the prayer for relief bearing in mind that [the father] does not oppose paragraphs 2(a) to (e). We also agree not to pursue paragraph 2(f) of the prayer.

As for costs, we assume that in the circumstances there will be no dispute that costs should be taxed on an indemnity basis. If you do not agree to this, we will have to debate the matter before the Judge.

In the light of the events over the last 18 months or so we are very concerned to read the proposal that fresh options should be granted now in respect of the Framework Agreement. We invite [the father] to reconsider this as we regard such a step now as inappropriate and inflammatory and instead to submit to an appropriate injunction to prevent [the father] taking any steps at all that might result in a loss or diminution of the matrimonial assets which are now being restored (including of course the exercise or purported exercise of any rights under the Framework Agreement). If he is not prepared to do this, we will canvass this before the Judge.

Once we have received clarification from you that [the father] will not seek to resist paragraph 44 of the Counterclaim as well as to the appropriate injunctive relief that should be granted, we will ask junior counsel to liaise in producing a minute of order.”

91.  The father’s solicitors replied to the above letter of the wife’s solicitors by a letter as follows, adopting the same paragraph numbering as the wife:

“1. We confirm that we agree a term that STL will not hereafter commence or procure the commencement of any fresh action in any jurisdiction against FL and/or SL based on or related to the post-nuptial deed or the cancellation deed. However, we do not believe that the last part of the final sentence of your first paragraph adds anything.

2. On further consideration we believe the point you raise is correct. We confirm that [the father] will reduce the scope of his non-admission by excluding paragraph 46 therefrom.

3. As to the second paragraph under “3” we confirm that there will be no dispute that costs should be taxed on an indemnity basis.

As to the third paragraph under “3”, the position is that STL has already served a notice on [the husband] requiring him to grant the call options contemplated by that agreement with the consequence that [the husband] is now under a legally enforceable obligation to comply with the notice.

We do however recognise and accept that pending the hearing of [the wife’s] ancillary relief application no steps should be taken to exercise the options and as stated in the final paragraph of our letter of this morning we agree that [the wife] [is] entitled to the protection of a court order injuncting STL from taking any steps to exercise the option.”

92.  The last letter was the reply of the wife’s solicitors to the offer of the husband’s solicitors in which these observations were made:

“FT’s Section 17 Application in HCMC No 5 of 2008

We note that, subject only to the identified paragraphs in respect of which no admission is made, [the husband] withdraws his Defence to the Amended Points of Claim and will not resist default judgment being entered into in the terms of paragraphs 2(a) to (e) of the prayer for relief as well as an injunction being granted in the terms of paragraph 3.

For the avoidance of doubt when it comes to the terms of the injunction, we think the language of paragraph (3) of the prayer is a little loose and will need tightening up when it comes to drafting the order. We do not anticipate this to be contentious as it is clear what is intended.

As for paragraph 1 of the prayer, we agree that, even though the evidence on the point is overwhelming, it would not be useful to spend court time proving this in the light of [the husband’s] acceptance that judgment should be entered in respect of paragraphs 2(a) to 2(e) inclusive.

[The wife] has considered [the husband’s] request in respect of paragraph 2(f) and is willing not to press for this head of relief.

FT’s Counterclaim in HCA No 566 of 2010

We note that, subject only to the identified paragraphs, [the husband] withdraws his Defence to the Re-Amended Counterclaim and [the husband] will not resist a default judgment being entered for damages to be assessed.

In the light of the abandonment of the claim brought by STL, we agree that paragraph 1A falls away.

As for costs, we assume that in the circumstances there will be no dispute that costs should be taxed on an indemnity basis. If you do not agree to this, we will have to debate the matter before the Judge.

We will ask junior counsel to liaise in producing a minute of order.”

B.3.3 The orders

93.  As a result of the compromise, two sets of orders were made by the judge on 23 February 2011.

94.  In the s 17 proceedings, the order recited that it was made (1) upon the husband withdrawing his defence to the amended points of claim, save that he does not admit paragraphs 37.2, 37.5, 38.7A, 39 and 43 of the amended points of claim; and (2) upon the father withdrawing his defence to the amended points of claim, save that he does not admit paragraphs 37.2, 37.5, 38.7A, 39 and 43 of the amended points of claim.  The material parts of the body of the order provided as follows:

“1. The following be set aside: -

a. the Daiwa Call Option Agreement dated 4 November 2009;

b. the transfer of shares of Daiwa Fudosan Corporation (“Daiwa”) from SL to [OIL] on or about 4 November 2009;

c. the [2006 CLA];

d. the transfer of shares of Veloqx Pte Ltd (“Veloqx Pte”) from SL to [OIL] on or about 4 November 2009;

e. the transfer of shares of Mizuho Fudosan Limited (“Mizuho”) from SL to [OIL] on or about 4 November 2009;

2. No order be made in respect of paragraph (1) of the prayer for relief in the Amended Points of Claim.

3. Paragraph 2(f) of the prayer for relief in the Amended Points of Claim be dismissed.

4. The shares of Daiwa which were transferred from SL to [OIL] on or about 4 November 2009 be transferred back to SL within 28 days.

5. The shares of Veloqx Pte which were transferred from SL to [OIL] on or about 4 November 2009 be transferred back to SL within 28 days.

6. The shares of Mizuho which were transferred from SL to [OIL] on or about 4 November 2009 be transferred back to SL within 28 days.

…

9. Until the final determination of FT’s ancillary relief application and satisfaction in full of her claim for ancillary relief, SL and STL shall not in any way dispose of or deal in or with or diminish the value of or in the shares of [OIL], Daiwa, Veloqx Pte, Mizuho, [VCIL], [Citic] or any of their subsidiary or associated companies (including for the avoidance of doubt those companies listed in the undertaking given by SL to the Court on 16 December 2009), save in the ordinary course of business and save as may be necessary to put into effect or comply with this Order;

10. SL and STL do pay FT the costs of and incidental to the Application on an indemnity basis to be taxed if not agreed, with certificate for two counsel.”

95.  In the fraud action and conspiracy counterclaim, the order recited that it was made upon:

(1) the father’s undertaking he will not hereafter commence or procure the commencement of any fresh action in any jurisdiction against the wife and/or the husband based on or relating to the post-nuptial agreement or the cancellation deed;

(2) the father’s undertaking that until the final determination of the wife’s ancillary relief application and satisfaction in full of her claim for ancillary relief, he will not take any steps to exercise any right or rights he has or may have pursuant to the Framework Agreement including any right or rights under the options granted or to be granted pursuant to the notice served by him on the husband on 21 February 2011;

(3) the husband withdrawing his defence to the re-amended counterclaim, save that he does not admit paragraphs 35.3, 45.2, 45.2A, 45.7 and 45.16 of the re-amended defence and counterclaim;

(4) the father withdrawing his defence to the re-amended counterclaim, save that he does not admit paragraph 45.7 of the re-amended defence and counterclaim; and

(5) the father and the husband undertaking that until final determination of the wife’s application for ancillary relief application and satisfaction in full of her claim for ancillary relief, they will not in any way dispose of or deal in or with or diminish the value of or in the shares of [OIL], Daiwa, Veloqx Pte, Mizuho, [VCIL], [Citic] or any of their subsidiary or associated companies (including for the avoidance of doubt those companies listed in the undertaking given by the husband to the court on 16 December 2009), save in the ordinary course of business and save as may be necessary to put into effect or comply with this order or the order made in the s 17 proceedings. 

96.  The body of the order provided as follows:

“1. STL’s claim be discontinued, with leave.

2. Judgment on liability be entered against STL and SL in respect of paragraph 1 of the prayer for relief in FT’s Re-Amended Counterclaim for damages to be assessed, such assessment to be determined at FT’s claim for ancillary relief.

3. Costs of and incidental to STL’s Original Action be paid by STL on an indemnity basis, to be taxed if not agreed with certificate for two counsel.

4. Costs of and incidental to FT’s Counterclaim be paid by STL and SL on an indemnity basis, to be taxed if not agreed with certificate for two counsel.”

B.3.4 The true effect of the compromise

97.  The judge in his ruling on Day 2 held that the terms of the compromise precluded the wife from further pursuing the allegation of forgery as gross and obvious conduct in the ancillary relief trial.  He took the view that the time to pursue this was when the issue was brought before the court in February 2011.  She could either have rejected the terms of the compromise and gone to court to prove the forgery, or sought a specific reservation in the compromise leaving open the issue of forgery.  But she did neither.  As a result, by virtue of the terms of the compromise, she was prevented from further raising the question of forgery in the ancillary relief application.  In so ruling, the judge was applying the principle of res judicata in the wider sense.  He did not find there was cause of action estoppel or issue estoppel.  Had he found res judicata in the form of cause of action estoppel or issue estoppel, there would be no valid basis upon which he could allow cross-examination on forgery as a collateral matter going to credit, as res judicata operates as an absolute bar to re-litigation.

98.  Mr Pointer sought to persuade us that cross-examination on forgery as going to credit should not have been allowed as there was res judicata in the form of cause of action estoppel and issue estoppel.  Cause of action estoppel could be invoked for the conspiracy counterclaim as that was a separate action.  For the s 17 proceedings, he would rely on issue estoppel if they were not regarded as separate proceedings.  He submitted it is plain from the specific terms of settlement in the correspondence and the orders made that it was accepted by the wife that the alleged forgery was not admitted and it was agreed that this issue would not be tried.  It was a fundamental term of the compromise that no admissions would be made about the forgery allegation.  It was not agreed that the forgery allegation would be stood over to the ancillary relief trial.  The claim for a declaration that the 2006 CLA is a sham was disposed of by the order made as a result of the compromise that no order would be made in respect of paragraph (1) of the prayer for relief in the amended points of claim.  If the wife had wished to pursue forgery as a matter of conduct in the ancillary relief application, she should not have agreed to settle on those terms.

99.  We have summarised earlier the gist of Mr Howard’s submissions.  He further submitted there was no cause of action estoppel because the cause of action in the earlier proceedings was not forgery, perjury, or conspiracy to pervert the course of justice.  There was no issue estoppel because forgery, perjury or conspiracy was not the issue in the earlier proceedings.  The issues that had to be resolved in the earlier proceedings were whether the dispositions carried out by the father and the husband were created to defeat the wife’s claim for ancillary relief, and whether a different financial provision was going to be awarded as a result.  In any event, perjury and conspiracy to pervert the course of justice were not on the agenda at all for the trial in February 2011.  And the issue of forgery was just not decided, either expressly or by necessary implication.  It was not necessary to decide the issue of forgery because it was agreed that the wife was entitled to relief.  The forgery allegation was not an essential ingredient of the consent orders in February 2011 as no admission on this was made by the father and the husband.

100.  Cause of action or issue estoppel would apply to facts which are necessary to decide and are actually decided in the earlier decision or order.  We do not think the relevant issue here should be framed as broadly as submitted by Mr Howard.  It is apparent from the pleadings that the forgery allegation was an integral part of the wife’s case in the s 17 proceedings and the conspiracy counterclaim.  She specifically claimed relief in the s 17 proceedings for a declaration that the 2006 CLA is a sham.  As for the allegations of perjury and conspiracy to pervert the course of justice, they are not free-standing but are dependent on the forgery allegation.

101.  The effect of the compromise was that it was agreed that the father and the husband would make no admission to the alleged forgery and the wife’s claim for a declaration was disposed of in that no order was made in the consent order.  It is apparent from the correspondence that the wife was to receive part of the relief she sought and that she would not receive the remainder.  If the s 17 proceedings and the conspiracy counterclaim had gone to trial, and forgery was found, it could not possibly be argued there was no issue estoppel or cause of action estoppel.  The fact that the proceedings were compromised on the basis of no admission and no order should make no difference in that there was disposal of an essential ingredient of the wife’s case.  This is very different from the case of an interlocutory injunction given by Mr Howard as an example, where the court would not be required to make definite findings on a party’s case.

102.  We think the compromise as embodied in the consent orders would give rise to an estoppel to preclude the wife from raising forgery in the latter part of the proceedings.

103.  Mr Howard referred us to the opening remarks of Mr Wardell when the settlement was announced to the judge on the first day of the hearing on 23 February 2011[56] , by which the court was informed that the reason for the “capitulation” and “climb-down” of the father and the husband was that the wife was able to prove the forgery of the 2006 CLA “beyond any reasonable doubt”, and that “none of the other participants are prepared to stand up in the witness box because of the potential consequence of them being disbelieved on their oaths”.  Mr Howard submitted in the light of these opening remarks, the suggestion that the wife was dropping the forgery allegation in the matrimonial proceedings was insupportable.

104.  We do not think what Mr Wardell said could derogate from the compromise or the terms of the order made by consent.  But what counsel said was perfectly clear, there was not going to be a trial because the parties had reached an agreement and the father and the husband did not want to have the issue of forgery tried.  Likewise, the allegation of forgery made in the subsequent Form E of the wife, the list of issues put forward by her in the ancillary relief proceedings[57] and her third and fourth witness statements in which she raised forgery do not alter the true effect of the compromise.

105.  As res judicata in the form of a cause of action estoppel or an issue estoppel operates as an absolute bar to re-litigation, there is no valid basis upon which the judge could allow cross-examination on forgery going only as to credit and proceeded to make a finding on this.  We hold the findings of forgery and perjury were erroneous for this reason as well.

B.3.5 If there was abuse of process

106.  Abuse of process may arise where there has been no earlier decision capable of amounting to res judicata in the form of cause of action estoppel or issue estoppel.  This is res judicata in the wider sense, as was held in favour of the father and the husband by the judge’s ruling on Day 2.  This is Mr Pointer’s fallback position, in case he should fail on res judicata.  As we are of the view that res judicata was made out, it is not strictly necessary to consider if there was abuse of process.  We will deal with the arguments on this concisely as it was contended by the wife in her cross-appeal that the judge was wrong in his ruling which precluded her from raising forgery as relevant conduct in the ancillary relief application.  This would only result in a re-trial if the wife were to succeed on this, as the trial had been conducted on the basis that the forgery allegation only went to the credit of the father and the husband and they elected not to give or call evidence concerning the 2006 CLA.

107.  Res judicata in the wider sense is capable of applying where the earlier proceedings concluded in a settlement.  As stated by Lord Millett said in Johnson v Gore Wood, supra at 59, the principle here is “to protect the integrity of the settlement and to prevent the defendant from being misled into believing that he was achieving a complete settlement of the matter in dispute when an unsuspected part remained outstanding.”

108.  Mere re-litigation, in circumstances not giving rise to cause of action or issue estoppel, does not necessarily give rise to abuse of process.  It is wrong to hold that because a matter could have been raised in earlier proceedings, it should have been raised, so as to render the raising of it in later proceedings necessarily abusive.  The courts do not adopt a dogmatic approach to what should be a “broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case” (Johnson v Gore Wood, at 30 per Lord Bingham of Cornhill).  Lord Millett made similar pertinent observations at 59 to 60.

109.  Mr Howard emphasised it is a high burden to establish abuse of process.  It has to be shown that the later proceedings amounted to unjust harassment.  He contended that as the wife had got all she sought by way of relief in the orders made on consent in February 2011, it was totally unnecessary for her to ask the judge to rule on her forgery allegation in the s 17 proceedings which are only interlocutory.  She must be at liberty to pursue that allegation at the final stage of the proceedings.  She should not be denied the opportunity to litigate the issue of forgery which had not previously been adjudicated on.  And the judge had a duty under section 7 of the MPPO to take relevant conduct into account.

110.  Further in support of his contentions, Mr Howard cited Tumath v Tumath [1970] 1 All ER 111 and BP, KP and NI [2013] 1 FLR 1310 at paras [18] to [30].

111.  We are not persuaded by his submissions.  In our view, adopting a broad, undogmatic, merits-based approach, the husband and the father would be unjustly harassed if the wife were allowed to pursue her forgery allegation in the ancillary relief proceedings because a compromise, which embraced both the s 17 proceedings and the fraud action and conspiracy counterclaim with a range of allegations common to both proceedings including the forgery allegation, had been reached on terms that disposed of those proceedings on the basis that the father and the husband would make no admission to the alleged forgery and the wife would not further pursue her claim for a declaration of the alleged forgery in that no order would be made for that specific relief she claimed.

112.  Tumath v Tumath [1970] 1 All ER 111 was cited by Mr Howard in support of his proposition the fact that findings are not sought in an earlier hearing does not preclude the taking of the point in ancillary relief.  In that case, the husband in the divorce hearing did not take the point the wife had deserted him, which might theoretically have constituted a discretionary bar to the decree of divorce.  He was allowed to take the point as relevant conduct in the maintenance proceedings, as he was entitled to take the view that the marriage having broken down irretrievably, no court would refuse the wife a decree on the ground of his adultery because of her desertion, and it would have been a waste of time and money to defend the suit on her desertion (at 113g to h).  This was a far cry from the present situation.  We do not think this case would provide support for the broad proposition advanced by counsel.

113.  As for BP, KP and NI, we do not think this decision would advance Mr Howard’s submission.  The wife in that case brought an action in the Chancery Division to set aside a default judgment entered against the husband by his friend alleging a fraudulent conspiracy.  Later the wife, the friend and the husband reached a compromise in which it was agreed that her application to set aside the default judgment would be dismissed.  Mostyn J ruled that she was precluded by the doctrine of res judicata from asserting in ancillary relief proceedings that the agreement being the subject of the default judgment was procured by fraud.  However, she was not precluded from raising in ancillary relief proceedings the date when the agreement was formed, there being no issue estoppel (as the date of the agreement was not essential to its validity), and no res judicata in the wider sense as the husband would not be unjustly harassed.  The ruling that there was no res judicata in the wider sense was made applying the guidance in Johnson v Gore Wood, not by reference to any consideration of the quasi-inquisitorial function of the matrimonial court, as argued by Mr Howard.

114.  We are in agreement with the judge and Mr Pointer that the attempted pursuit by the wife of the forgery allegation constituted an abuse of process.  The opportunity for her to seek a finding on that issue was in February 2011, when the issue was brought before the court in the s 17 proceedings.

B.4 Referral to the DPP

115.  In the last two paragraphs of the Main Judgment, the judge mentioned that he had found “criminal behaviour”, “albeit only on the civil standard of proof”, regarding the father and the husband that involved forgery of the 2006 CLA, conspiracy to pervert the cause of justice and numerous acts of forgery in the affidavits they filed in the proceedings.  He said it is his duty in the circumstances to direct the Registrar of the High Court to forward a copy of the Main Judgment to the DPP for such action as the latter may think appropriate.  In the order drawn up in respect of the Main Judgment, it was provided in paragraph 6 that the Registrar be directed to forward a copy of the Main Judgment to the DPP in terms tracking the wording of the judgment.

116.  The Registrar had acted on the direction of the judge and the referral to the DPP could not be reversed.  Nonetheless, the father and the husband appealed against the order seeking to have it set aside so that the basis of the referral could be removed.

117.  First and foremost, we need to consider whether the act of referral is truly appealable, notwithstanding that the direction of referral was contained in a court order.

118.  We are inclined to think not, for the following reason.

119.  The act of the judge in referring the matter to the DPP is in substance no different from the referral made by any ordinary citizen.  That the DPP may be inclined to give greater weight to the referral of a judge is nothing to the point.  Regardless of who made the referral, the DPP is required to exercise his independent professional judgment on what investigations should be carried out in a particular matter and whether any prosecution should be brought as a result.  In referring the matter to the DPP, the court is not ordering him to act or expecting him to act in any particular way.

120.  For this reason alone, we would refuse to set aside the order of referral made by the judge.

121.  Besides, there is no doubt that it was open to the judge to refer the matter to the DPP.

122.  The long standing practice of the courts is that where an arguable case of serious misconduct is disclosed by evidence in a civil trial, the court will consider referring the matter to the prosecuting authority, as it is part of the court’s duty in upholding the rule of law (R (Mohamed) v Secretary of State for Foreign and Commonwealth Affairs (No 2) [2009] 1 WLR 2653 at §92).  See also Summers v Fairclough Homes Ltd [2012] 1 WLR 2004 at §60.  Mr Howard also referred us to a number of cases in which a referral to the DPP was considered or made by courts of various levels in Hong Kong[58].

123.  As we understand Mr Thomas’ submissions, the complaint here was the manner in which the referral was made.

124.  Mr Thomas submitted that the judge should be circumspect in the language he used when making the referral.  He should simply refer the matter to the DPP as a matter for investigation, without mention of any finding of criminal behaviour, as that might tend to prejudice the DPP’s consideration and the way in which the matter is going to be dealt with by the public prosecutors thereafter.  We do not think this is a complaint of substance.  The judge had made findings of criminal behaviour (whether he was right to do so is a separate question that has been considered in the earlier parts of this judgment).  He stated clearly that those findings were made on the civil standard of proof.  Without any embellishment, he merely directed the Registrar to provide a copy of the Main Judgment to the DPP for such action as he considers appropriate.  We do not think it likely that the language in which the referral was made would have influenced the professional judgment of the DPP.

125.  Mr Thomas also referred to A v A; B v B [2000] 1 FLR 701 at 706D and 755H.  In that case, Charles J indicated to the parties before the orders were drawn up that he was minded to disclose papers in the case to one or more of the authorities including the Revenue and the DPP, but he would not do so without hearing argument.  There was an admission by the husbands before the hearing that they had attempted to hide the true extent of their assets.  The report of the accountant engaged by the wives was made available to the court.  Settlement was reached at the end of the first day, so the matter did not go to trial.  It was in those particular circumstances that Charles J invited arguments before he decided on whether referral was to be made and to which of the authorities.  This is very different from the present case when findings were made after a full trial (leaving aside any question of procedural irregularity, which we have dealt with).  We are inclined to agree with the judge[59] it could not have escaped the mind of any counsel in the present proceedings that a referral of findings of criminal behaviour to the DPP may be a likely outcome should a finding of forgery be made (whether the judge was in error in making this finding is another matter).  Whether any party or witness in a case should be given advance notice and the opportunity to make representations before a referral to the DPP is made must depend on the facts and circumstances of each case.

B.5 Breach of constitutional rights

126.  Mr Thomas submitted that the finding of criminal behaviour and the referral to the DPP were in breach of the constitutional rights of the father and the husband.  Put succinctly, it was contended that their rights to be presumed innocent until proved guilty according to law – under Article 39 of the Basic Law and Article 11(1) of the Hong Kong Bill of Rights – were infringed.  Under the Strasbourg jurisprudence, the court would look beyond the absence of a formal charge and ascertain whether a person is being called upon to answer an allegation of serious conduct, which, if determined against him, would result in punishment (Ozturk v Germany (1984) 6 EHRR 409 at para 55; Koon Wing Yee v Insider Dealing Tribunal (2008) 11 HKCFAR 170 at para 51).  Here, although the proceedings were civil, what happened in substance was that a criminal charge was developed by the judge but not articulated and which the judge went on to hold had been formally proved.  The finding of criminal behaviour in the Main Judgment imputed criminal conduct to the father and the husband when they have not been tried and convicted according to law and it undermines one of the elements of a fair criminal trial which is the presumption of innocence (Allenet de Ribemont v France (1995) 20 EHRR 557 at paras 35 to 41; Fatullayev v Azerbaijan (2011) 52 EHRR 2 at paras 159 to 163).

127.  We do not propose to deal with the above arguments in any detail.  We have decided earlier that the finding of forgery must be set aside, on the grounds of procedural irregularity and res judicata.  It is unnecessary to decide whether the finding made was also in contravention of any constitutional rights as contended by counsel.  We have ruled that the act of referral is not appealable, nor was there anything improper in the language used in the referral and the manner of referral.  We have specifically pointed out that the judge had stated his findings were made on the civil standard of proof[60]. We do not think this was a premature expression by the judge of the opinion that the father and the husband are guilty of any criminal offence they may subsequently be charged with.  This is sufficient to dispose of the arguments on referral.

C. THE LUMP SUM AWARD BY THE JUDGE

C.1 The rights of the father

128.  We have already summarized the arrangements between the father and the husband with regards to the Japanese business under the Framework Agreement and the Special Articles and the wife’s participation in the preparation of the relevant documents.  In other words, she had full knowledge of the arrangements before she married the husband.

129.  At the time when the husband investigated for real estate development in Japan, he was working for the father.  There is no dispute that the father played a part in the establishment and the subsequent development of the Japanese business.  When time came for real capital to be injected into the business, viz. the acquisition of the V28 building in March 1999 at the price of J¥3.6 billion odd, the husband did not have any independent means to pay for it.  The father paid for it.  It was meant to be a business venture on long term basis as opposed to a one-off purchase.  The initial injection of fund was to become the seed money and with refinancing further funds would became available for further acquisitions.

130.  Though the husband held the share in VCIL through Daiwa, it was also clear that the J¥3.6 billion was not an absolute gift from the father to the husband.  Whilst formal documentation was being prepared for the arrangement between the father and the husband, there were discussions and correspondence between them.  For present purposes, it is not necessary to recite them at length.  It was certainly not a situation of the father simply providing financial assistance to the husband to start the latter’s business.  The upshot was the execution of the Framework Agreement on 29 June 1999 and the incorporation of the Special Articles in the Articles of Association of VCIL and Daiwa.

131.  At para 146 of the Main Judgment, the judge stated the position of the wife as follows:

“Mr Howard accepts that the Framework Agreement was a genuine document, and that any rights that it may give to the husband or the father may not be attacked in these proceedings. He does not seek to impugn it in any way.”

132.  In these appeals, this remains the position of the wife.  Thus, in assessing the value of assets held by the husband through VCIL in terms of the Japanese business, the starting point is that the rights of the father under the Framework Agreement and the Special Articles must be taken into account.

133.  Mr Howard relied on several paragraphs in the Main Judgment and contended the judge had found that the husband was the legal and beneficial owner of the Japanese business.  For example, at para 133, the judge said:

“… Both knew that the Japanese business was legally and beneficially owned by the husband, and at the time both believed that the Framework Agreement was not sufficient to remove the property from the husband to the father. …”

And at para 198:

“I am satisfied that the whole of the assets in the Japanese business, that is the Japanese real estate, and the assets owned through Citic, that is the BBJ, the two yachts, the wine collection, the Belvedere house, are all assets that are presently ultimately legally and beneficially owned by the husband …”

134.  Whilst such description might be a convenient reference to the husband’s title over the shareholdings in VCIL and Daiwa (and over the TMKs, see discussion below; TMKs are structures in Japan), it is not a complete statement of the true position.  The husband’s ownership of the shares in these companies was at all material times and still is subject to the arrangements under the Framework Agreement and the Special Articles.  By reason of these arrangements, the husband is not at liberty to utilize the assets of these companies (and their subsidiaries) for his own purpose without the consent of the father and, until full repayment of the J¥3.5 billion, the father is always able to call on the transfer of shares to him.  Though the COAs were not executed, the judge found at para 151 of the Main Judgment that this was not material.

135.  With respect, it is not entirely accurate to analyse the effect of the Framework Agreement by asking whether the Framework Agreement had removed the assets in the Japanese business from the husband to the father.  The question should be what rights the husband had in terms of those assets by reason of his ownership of these shares bearing in mind that the ownership is subject to the Framework Agreement and the Special Articles.  The rule of Salomon v Salomon is equally applicable in matrimonial cases: Prest v Petrodel Resources [2013] 3 WLR 1 and a shareholder does not have interest in the company’s assets.  The interest of a shareholder is in the shares.  Values of the assets of the company are relevant to the valuation of the shares.  However, when there are other relevant factors, the value of the shares in the hands of a person may be affected by those other factors as well.  In the present context, the impact of the Framework Agreement and the Special Articles (unless they could for some reasons be disregarded) on the value of the shares in the husband’s hand has to be taken into account.  It is not a matter of removing the assets from the husband.  It is simply a matter of valuation of assets in the hands of the husband taking all relevant factors into account.

136.  At this juncture, we should mention about the subsequent acquisitions of Japanese properties by using the funds and resources of VCIL and Daiwa through TMKs and a Singaporean company called Veloqx Pte Ltd [“VPL”].  The judge referred to those at paras 157 to 161.  The juxtaposition of VPL was without the father’s knowledge or consent.  The judge found that to be breaches of the Framework Agreement and the Special Articles and Mr Howard did not dispute that.

137.  At the tail-end of the hearing before us, Mr Howard indicated he did not accept that those other Japanese properties were subject to the arrangements under the Framework Agreement and the Special Articles.

138.  In light of how the judge dealt with the rights of the father under Framework Agreement and Special Articles generally (as discussed below) he did not find it necessary to deal with this as a separate issue.  He referred to the argument of Mr Howard before him that though the father had a cause of action against the husband for these breaches, the properties were still held by the husband.  Since we respectfully part company with the judge on his conclusions as regards the general impact of the rights of the father on the lump sum award, we have to address this issue.

139.  We do not accept the contention of Mr Howard.  In opening the appeal on behalf of the husband, Mr Pointer took this court to the relevant evidence of the husband and the wife that the use of TMKs and the Singaporean structure were only for the purpose of tax planning and there was no intention on their part to prejudice the rights of the father under the Framework Agreement. The husband had tried to explain the new structure to the father and he had given him the warranty that it did not affect the father’s right over the Japanese business.  In those circumstances, the husband must be estopped from contending that the TMKs and VPL had placed those parts of the Japanese business outside the scope of the Framework Agreement.  Mr Howard did not advance any submission to the contrary in his round of submissions.  Thus, Mr Pointer regarded this as being accepted by Mr Howard in his reply.  It came as a surprise that Mr Howard indicated to the contrary (without further elaboration) after Mr Pointer’s submissions.  As Mr Howard had no right of further reply, this was as far as counsel could take it.  On the submissions and the materials before us, we have no reason to disagree with Mr Pointer.  We shall proceed on the basis that the Framework Agreement covered the TMKs as well as VPL.

140.  Mr Todd submitted that the Special Articles conferred rights on the father which are independent of his rights under the Framework Agreement.  Counsel laid emphasis on the need for the father’s consent in writing for the various acts of the companies as set out in Article 1 and the prohibition against the change of the articles without such consent under Article 1(b) and the prohibition against the transfer of shares to anyone other than the husband or a company controlled by him in Article 2.  He submitted that the Special Articles shall continue to have their effects despite the termination of the Framework Agreement or the death of the father.  Thus, even if the husband shall terminate the Framework Agreement by making the full repayment, the Special Articles would still govern the affairs of the companies.  And in the event of the demise of the father, his personal representative would decide whether consent is to be given.

141.  On the other hand, Mr Howard submitted that the Special Articles were part of the Framework Agreement as they were provided for in the schedule to the Framework Agreement.  He submitted that the rights of the father under the Special Articles could not be exercised independently from his rights under the Framework Agreement.  In other words, once the rights under the Framework Agreement were terminated, the father could no longer enforce the rights under the Special Articles.  It also means that if the father is constrained by the undertakings he gave in the s 17 proceedings in the exercise of his rights under the Framework Agreement, he would also be barred from exercising his rights under the Special Articles.

142.  The judge accepted the submissions of Mr Howard on this point, see paras 170 to 173 of the Main Judgment.  On the rights of the father upon the termination of the Framework Agreement, we agree with the judge.  As the judge said at para 173, it could not have been the intention of the parties that after the husband has acquired the unencumbered rights of the shareholdings in the companies by terminating the Framework Agreement, the father could still exercise control over the affairs of those companies by means of the Special Articles.  As a matter of general law, Mr Todd accepted that the shareholders of the companies could alter the articles.  We do not accept his contention that Article 1(b) could prevent that course from being taken by the shareholders of the companies after the termination of the Framework Agreement.  The articles of association of a company are a contract between the shareholders inter se and a contract between the company and the shareholders.  The father’s interest in the articles stems from the Framework Agreement.  As long as that interest subsists, the father could have enforced the Special Articles in order to protect such interest, if necessary by mandatory or prohibitory injunctions.  However, after the interest ceases to exist upon the termination of the Framework Agreement, the father no longer has any interest or standing to enforce the terms of the Special Articles.  He is not a shareholder of the companies and he has no standing to intervene in the affairs of the companies.  Thus, he cannot enforce the articles directly.  Nor can he enforce it indirectly through the enforcement of his interests under the Framework Agreement.  We see no legal hurdle to the articles being altered by the unanimous decision of the shareholders at a general meeting in such circumstances.  This analysis also provides the answer to what would happen after the demise of the father.  Pursuant to Clause 6.1.1 of the Framework Agreement, it would be determined upon death of the father.  There is thus no question of the personal representative of the estate of the father exercising the power of giving consent under the Special Articles.  Such personal representative would not have the requisite standing to enforce such articles or to prevent the alteration of the same.

143.  However, in the meantime, during the subsistence of the Framework Agreement, we agree with the contention of Mr Todd that the Special Articles do confer an extra layer of protection to the father.  The companies could not act contrary to the provisions of the Special Articles and the father could enforce those Special Articles by seeking injunctive relief.  This would have significance in terms of the arguments on the effect of the undertaking given by the father under the s 17 proceedings, which we shall discuss below.

144.  Under the Framework Agreement, the husband had the right to terminate the father’s entitlement to exercise the call options by repaying the J¥3.6 billion.  A partial repayment in the sum of J¥1.1 billion was made in October 1999.  But that was not enough to determine the Framework Agreement pursuant to Clause 6.1.2.  At paras 167 to 169 of the Main Judgment, given what was stated under Clause 6.3 of the Framework agreement on the refund of previous payments and Clause 2.2 of the COAs on the obligation to sell and purchase, the judge held that upon the exercise of the option by the father, the husband would lose the ability to terminate the Framework Agreement by repaying the outstanding balance.  There is no cross-appeal against this holding and Mr Howard did not advance any submission against this holding.

145.  Disregarding the notices tainted by the 2006 CLA which had been set aside, the father had issued notice of intention to exercise the options on 21 February 2011.  The judge referred to this notice at paras 183 to 192 of the Main Judgment.  His conclusion was that the father was being restrained from exercising those rights by the orders made and undertakings given in the s 17 proceedings until the final determination of the ancillary relief and the satisfaction of the orders that may be made in her favour.

146.  In this respect, we agree with the judge.  However, it does not follow that the possibility of the options being exercised sometime in the future should not be taken into account in the valuation of the shares held by the husband.  The judge held that because the father could not have exercised the options before the satisfaction of the claims of the wife, those options are not relevant for the purpose of assessing whether the Japanese business should form part of the matrimonial assets to be distributed between the husband and the wife.  However, later on in his judgment, he held that the “amorphous” rights of the father under the Framework Agreement was an enormous factor which dictated that he should depart from equal sharing.  With the greatest respect to the judge who had immense experience in hearing matrimonial cases, we cannot agree with this approach.  In order to explain our analysis, we must now turn to the effect of the undertaking given and the orders made in the s 17 proceedings.

C.2 The effect of the February 2011 undertaking

147.  We have referred to the s 17 proceedings in the earlier sections.  Before the compromise on 23 February 2011, there were already undertakings given to the court by the husband and the father.  The s 17 proceedings were initiated by the wife by her summons of 9 November 2009 seeking to set aside the 2009 transfers to the father.  She also sought injunctive relief in that summons.  The summons was heard on 16 December 2009.  At that hearing, in lieu of injunction, the father and Octaland III gave undertakings to the court not to further deal with the shares of VPL and Daiwa.

148.  The scope of the s 17 proceedings was defined by the Points of Claim filed by the wife on 26 October 2010.  The prayers in that document sought a declaration that the 2006 CLA is a sham and that any dispositions made under it are of no effect, the setting aside of those dispositions.  It also sought an injunction in these terms:

“an injunction restraining [the husband] and [the father] from taking any future comparable steps to those taken by them in November 2009 pending the final determination … and satisfaction in full of [the wife’s] claim for ancillary relief.”

149.  The s 17 proceedings were directed to be tried together with the fraud action.  The wife had a conspiracy counterclaim in the fraud action.  Again the allegations of conspiracy revolved around the 2006 CLA and the transactions subsequent thereto.

150.  Neither the s 17 proceedings nor the conspiracy counterclaim impugned the father’s rights under the Framework Agreement and the Special Articles.  The nature and effect of the father’s interest under those documents was not the subject matter of the dispute in these proceedings.

151.  It was against such background that the undertaking of 23 February 2011 was given.  There were two orders made on that date: one in the fraud action, the other in the s 17 proceedings.  The order in the fraud action granted leave to the father to discontinue his claim and entered judgment on liability against the father and the husband in respect of the conspiracy counterclaim, with damages to be assessed.  Undertakings were given in the context of the fraud action, including those in these terms:

“… [the father] by his Leading Counsel undertaking to [the wife] and the Court that until the final determination of [the wife’s] ancillary relief application and satisfaction in full of her claim for ancillary relief, he will not take any steps to exercise any right or rights he has or may have pursuant to the Framework Agreement entered between him and [the husband] on 29 June 1999 including for the avoidance of doubt any right or rights under the options granted or to be granted pursuant to the notice served by [the father] upon [the husband] on 21 February 2011” [“the 1^st Undertaking”]

… [the father] and [the husband] by their Leading Counsel undertaking to [the wife] and the Court that until the final determination of [the wife’s] ancillary relief application and satisfaction in full of her claim for ancillary relief, they will not in any way dispose of or deal in or with or diminish the value of or in the shares of [OIL], [Daiwa], [VPL], Mizuho Fudosan Limited, [VCIL], Citic Pacific Limited or any of their subsidiary or associated companies … save in the ordinary course of business and save as may be necessary to put into effect or comply with this Order …” [“the 2^nd Undertaking”]

152.  In the order made in the s 17 proceedings, no undertakings were referred to.  Apart from the setting aside of the relevant transactions, the reversal of some share transfers, para 9 of that order said:

“Until the final determination of [the wife’s] ancillary relief application and satisfaction in full of her claim for ancillary relief, [the husband] and [the father] shall not in any way dispose of or deal in or with or diminish the value of or in the shares of [OIL], [Daiwa], [VPL], Mizuho Fudosan Limited, [VCIL], Citic Pacific Limited or any of their subsidiary or associated companies … save in the ordinary course of business and save as may be necessary to put into effect or comply with this Order.”

153.  Thus, this paragraph was basically a mirror order of the 2^nd Undertaking.

154.  The debate before us focuses on the 1^st Undertaking.  The judge held that because of this undertaking, the father’s interest under the Framework Agreement and the Special Articles could not be exercised in the meantime, see paras 45 to 49 and 189 to 192 of the Main Judgment.  We have no quarrel with that insofar as the rights under the Framework Agreement are concerned.  But there was no reference to the giving of consent under the Special Articles.  We do not think one can construe the 1^st Undertaking as obliging the father to give any consent under the Special Articles.

155.  Further, it does not appear to us that the judge went as far as Mr Howard.  Counsel contended that because of the 1^st Undertaking the father’s rights under the Framework Agreement and the Special Articles have no bearing on the question as to whether the Japanese business would be subject to the wife’s claim based on the sharing principle.  In effect, counsel tried to persuade us that the 1^st Undertaking operated as a deed of subordination suspending the father’s rights under those documents pending the full satisfaction of the wife’s claims.  Obviously, the judge did not agree with that proposition because he did take the interest of the father under the Framework Agreement into account in departing from equal sharing: see paras 490 to 496 of the Main Judgment.

156.  We do not agree with Mr Howard’s contention as to the effect of the 1^st Undertaking.  Conceptually, there is a distinction between the withholding of the exercise of one’s rights in the meantime and the discounting of such rights altogether for the purpose of a particular exercise.  The 1^st Undertaking provides for the former but not the latter.  We do not accept that the father had agreed by the 1^st Undertaking to refrain from contending before the court in the ancillary relief application that his rights under the Framework Agreement should be taken into account in the valuation of the husband’s shares in the companies.

157.  Mr Howard invited us to read the 1^st Undertaking together with the order made in the s 17 proceedings.  He submitted that the order had the effect of determining the legal and beneficial ownership of the husband and the 1^st Undertaking was to make sure that such legal and beneficial ownership remains intact, leaving all the Japanese assets in the matrimonial pot for distribution between the husband and the wife.  With respect, we do not accept this argument.  The order in the s 17 proceedings only has the effect of setting aside the transactions and transfers executed pursuant to the 2006 CLA.  Whilst the ownership of shares was restored to the husband, they were still subject to the rights of the father under the Framework Agreement and the Special Articles.  Those documents had not been impugned at all.  For reasons already discussed, the legal and beneficial ownership of the shares is not determinative of the question whether the valuation of the shares should take account of the adverse rights of the father under those documents.

158.  In deciding how much is available for distribution, one should not simply examine whether the husband is the owner of the shares in question.  One must also examine whether the ownership is subject to the incidence of other obligations and how much those shares are worth.  As we have explained above, the latter is a question of valuation and the rights of the father, which are subsisting and not in any way subordinated to the rights of the wife, must be taken into account in the process of valuation.  As regards the former, it is relevant to the determination of whether the shares form part of the matrimonial acquest.  As explained above, the 1^st Undertaking does not have the effect of barring the father from relying on his rights under the Framework Agreement to contend that the Japanese business had been ring-fenced by the special arrangements he had brought into existence before the marriage by these documents.  This does not depend on the exercise of his rights under the Framework Agreement in the meantime.

159.  We therefore reject Mr Howard’s arguments based on the 1^st Undertaking.

C.3 Estoppel and deemed admissions

160.  Before we turn to the judge’s approach, we have to discuss another argument of Mr Howard based on the s 17 proceedings.  He submitted that by reason of the order made in the s 17 proceedings, there is an issue estoppel against the father and the husband as regards the characterization of the Japanese business as matrimonial assets.  This contention of Mr Howard does not appear in his Respondent’s Notice or in his written skeleton submissions.  The judge did not decide the case on the basis that the s 17 proceedings order gave rise to an estoppel barring the father and the husband from arguing that the Japanese business was not part of the matrimonial assets.  Be that as it may, it is a relatively short point and can be readily disposed of.  

161.  Mr Howard argued that because the court must be satisfied that a disposition was made with the intention of defeating the wife’s claim for financial provision before it could exercise the power under s 17 of the MPPO, the father and the husband are estopped from contending that the Japanese business were not part of the matrimonial assets.

162.  The short answer is that in her petition, the wife asked for transfer of properties from the husband in her prayer.  This was particularized at her Form E as “the Veloqx properties in Tokyo and/or the shares in the companies owning such properties that the Court deems just and equitable to fully reflect my contribution in building up the Veloqx property business …”.  The judge case-managed the ancillary relief proceedings by spinning off the s 17 proceedings (to be heard first) from the main ancillary relief application (to be heard later).  It was possible to do so because plainly the transfer of the shares in these companies from the husband to the father made it impossible for the court to make a transfer order even if it deems just to do so after hearing the main ancillary relief application.  The presumption in s 17(3) is triggered.  Accordingly, the court can set aside the transactions pursuant to the 2006 CLA without pre-empting its decision on whether the Japanese business was part of the matrimonial assets in the main ancillary relief hearing.  That issue was reserved for the trial in October 2011 and that appears to be the understanding of the judge and the parties.

163.  Thus, there cannot be any issue estoppel when the issue was argued and decided in the main ancillary relief application.

164.  Mr Howard also ran a related argument based on the withdrawal of the defence in the fraud action and the points of defence in the s 17 proceedings.  He contended that there were deemed admissions of the wife’s allegations in those pleadings on the husband’s beneficial ownership of the Japanese business, the lack of intention on the part of the father to deprive him of the same and the ability of the husband to make repayment under the Framework Agreement.  Whilst the judge did refer to the withdrawal of pleadings and the effect thereof under Order 18 Rule 13, he did not rely on the so-called deemed admissions in his assessment of the likelihood of the father’s exercising his rights under the Framework Agreement or his returning the assets back to the husband after the conclusion of the divorce proceedings.  The wife did not raise this related argument based on deemed admissions to support the judge’s conclusions in these respects in her Respondent’s Notice.  Nor was it raised in the skeleton submissions lodged on her behalf.

165.  We do not think this contention can be of much avail in advancing the case of the wife.  Even assuming that there could be any deemed admission due to the withdrawal of defence (we express no view on the accuracy of this assumption), the weight to be attached to such admissions is still at large.  Given the circumstances under which the admissions are said to be made implicitly, and given our conclusion on the lack of issue estoppel regarding the exercise of the rights of the father under the Framework Agreement, and given the other evidence before the court, we think the judge was correct in attaching no significance to these so-called admissions in dealing with that issue.

C.4 Third party rights and matrimonial assets in ancillary relief application

166.  We shall examine the relevant legal principles on third party rights and matrimonial assets in the context of ancillary relief application before we come back to the judge’s approach with regard to the Japanese business.

167.  For the sake of clarity, it is necessary to explain three expressions used by counsel in their submissions: (1) “non-assets”; (2) “non-matrimonial assets”; and (3) “matrimonial assets”.  “Non-assets” referred to assets not belonging to the parties of the marriage.  The obvious case is assets not owned by a husband or wife at all, even though he or she may have possession of the same. Non-assets may also be assets held by a husband or wife as a nominee or bare trustee for others.  Assets held by a husband and wife subject to adverse claims from third party which have the effect of completely or substantially reducing the value of the assets may come within this category.  The adverse claims may also be relevant in the context of valuation of the asset in question.  

168.  “Non-matrimonial assets” are assets owned by a husband or wife but, by virtue of its source, may be excluded from sharing though not excluded from being distributed under the principle of need as discussed in McFarlane v McFarlane [2006] 2 AC 618  and LKW v DD (2010) 13 HKCFAR 537.  We shall elaborate on this concept later.  “Matrimonial assets” are assets of a husband or wife which are susceptible to distribution under the sharing principle.

C.4.1 “Non-assets”

169.  Generally, “non-assets” are not available for distribution between the divorced couple.  A dispute on whether an asset is “non-asset” is relevant to the first step in the determination of an application for ancillary relief in the structured approach set out by Ribeiro PJ in LKW v DD: the identification of the assets of the parties to the marriage.  However, as observed by the Chief Justice in the recent case of KEWS v NCHC [2013] 2 HKLRD 314 para 33, section 7(1)(a) of the MPPO is stated in wide terms and financial resources of a party are not confined to assets which in law represent the property of that party.  The Chief Justice said:

“These resources will include those assets or resources to which the relevant spouse has or is likely to have access but to which he or she may not have a legal entitlement.”

170.  The Chief Justice also emphasized the need to look beyond the present position to take account of what is likely to be the position in the foreseeable future.

171.  In KEWS, the court examined the likelihood of financial assistance to a party from the parents of a husband.  At para 36, the Chief Justice identified two evidential questions:

“(1) What is the extent of the financial assistance provided by the third party to the husband or wife?

(2) What is the likelihood of such financial assistance continuing in the foreseeable future?”

172.  It is essentially a fact-finding exercise.  The Chief Justice highlighted at para 39 that the outcome in any given case is inevitably fact-sensitive.

173.  KEWS also reiterated the principle that the court in hearing matrimonial proceedings does not have the power to bind non-parties, nor should it attempt to do so under the disguise of “judicious encouragement”, see paras 40 to 52.  At para 49, the discrete nature of the two evidential questions was highlighted:

“… the courts have concentrated on the necessity to find, on the evidence before them, not only that third parties have provided financial assistance to the husband or wife, but that it was likely this would continue in the foreseeable future …” (our emphasis)

Then at para 50, the Chief Justice said,

“… if [judicious encouragement] means a form of pressure on third parties to add to the relevant spouse’s resources which, on the evidence, they would not do or are unlikely to do, I would for my part reject such a concept.”

174.  This is the law in Hong Kong on financial resources in terms of assistance from third party.

175.  Before we come to that, in the present context, some prior questions have to be addressed: whether the Japanese business should be regarded as assets of the husband and how such assets encumbered by third party rights should be valued.  In the ascertainment of the third party interest for these purposes, the court should in the first place be guided by the general law.  This was acknowledged by the judge below, see para 142 of the Main Judgment citing TL v ML [2006] 1 FLR 1263 at paras 33 to 37.

176.  However, there is a caveat in respect of assets subject to adverse claims or obligations owed towards a third party.  This was alluded to by the judge at para 204 of the Main Judgment.  As it is a paragraph which is criticized by Mr Pointer and Mr Todd to be erroneous as a matter of law, we would quote it below:

“… The long-standing approach of the Family Court is to look through the façade of inter-family commercial structures and arrangements in order to discern the reality of the situation. If a loan exists, technically at law, or if rights in a person exist, strictly at law, but the reality is that the lender would not have demanded repayment of the loan, but for the breakdown of marriage, or the rights would not have been exercised, but for the breakdown of a marriage, then it is open to the matrimonial court to disregard that loan or those rights. ”

177.  The words underlined are the subject of complaints by counsel.  As we shall discuss later, this was indeed the basis on which the judge disregarded the rights of the father under the Framework Agreement in deciding whether the Japanese assets shall be treated as matrimonial assets.

178.  The judge further said at para 204:

“Their existence [viz the rights of a third party] may be appropriately reflected in the balancing exercise undertaken in determining whether or not to apply the sharing principle.”

179.  He later applied this approach in departing from equal division.  This aspect of para 204 and his subsequent application of the same in reducing the wife’s share to 20% of the net value of the assets of the husband and wife was the subject of criticism by Mr Howard in the cross-appeal.  We shall come back to this when we discuss the application of the legal principles to the facts of this case.

180.  As a matter of general principles, we agree with the judge that the court in the exercise of its family jurisdiction in ancillary relief matter may disregard third party rights if it comes to the conclusion that  such rights would unlikely be exercised in the foreseeable future.  It is indeed the corollary of the situation in KEWS.  Third party rights can come into the s 7 equation in the MPPO in two different routes.  Firstly, third party rights which encumbered upon assets held by a husband or a wife could affect the entitlement and value of those assets in the hands of the husband or wife.  As such it would be relevant in the assessment of what financial resources are actually available to the husband or wife under s 7(1)(a).  As held by the Court of Final Appeal in that case, it is necessary to give the expression “financial resources” a wide interpretation having regard to the reality and the likely situation in the foreseeable future.

181.  Secondly, in respect of third party rights which do not have a direct impact on the assets held by a husband or a wife, they can be brought into the equation under s 7(1)(b) as the financial obligations or responsibilities of the husband or wife.  Even in that context, we are of the view that the approach of KEWS should equally be applicable.  In other words, when it is asserted that a husband or wife has certain financial obligations or responsibilities towards a third party (whether backed up by legally enforceable claims or otherwise) the court should resolve the highly fact-sensitive question of whether such obligations or responsibilities are likely to be met or fulfilled in the foreseeable future. If the third party has a legally enforceable claim, the likelihood of such claim being enforced by the third party in the foreseeable future is a highly relevant consideration.  If the court shall come to the conclusion that the third party is likely to enforce his legal claim in the foreseeable future, it would be very difficult to disregard the corresponding obligation on the part of the husband or wife to meet the same.

182.  The controversial part of para 204 of the Main Judgment to which Mr Pointer and Mr Todd took exception is the exclusion of the breakdown of the marriage from the consideration of what is likely to happen in the foreseeable future.  Counsel relied principally on the judgment of the Supreme Court in Granatino v Radmacher [2011] 1 AC 534.  That case concerned the extent to which the court would give effect to a nuptial agreement.  It was held that a nuptial agreement freely entered into with full appreciation of its implications would carry full weight unless in the prevailing circumstances it would not be fair to hold the parties to it.  And there was nothing inherently unfair in an agreement which made provision, in the event of the termination of the marriage, as to the disposal of existing property or property the receipt of which from a third party was anticipated.

183.  Mr Todd referred us specifically to para 52 of the judgment.  In that paragraph, Lord Phillips PSC, after referring to the judgment of the Privy Council in MacLeod v MacLeod [2010] 1 AC 298, held:

“We wholeheartedly endorse the conclusion of the Board, in paras 38 and 39, that the old rule that agreements providing for future separation are contrary to public policy is obsolete and should be swept away, for the reasons given by the Board. … this should not be restricted to post-nuptial agreements. If parties who have made such an agreement, whether ante-nuptial or post-nuptial, then decide to live apart, we can see no reason why they should not be entitled to enforce their agreement. ….”

184.  At paras 38 and 39 of the judgment in MacLeod, the Board examined the rationale for the old rule and concluded that the reasoning which led to the rule has disappeared and time had come for the rule to disappear as well.

185.  It is also pertinent to have regard to the guidance in the majority judgment on the relevant considerations as to whether it will not be fair to hold the parties to their agreement at paras 76 to 83 of the judgment.  For present purposes, we would highlight what was said at para 79:

“Often parties to a marriage will be motivated in concluding a nuptial agreement by a wish to make provision for existing property owned by one or other, or property that one or other anticipates receiving from a third party. The House of Lords in White v White [2001] 1 AC 596 and McFarlane v McFarlane [2006] 2 AC 618 drew a distinction between such property and matrimonial property accumulated in the course of the marriage. That distinction is particularly significant where the parties make express agreement as to the disposal of such property in the event of the termination of the marriage. There is nothing inherently unfair in such an agreement and there may be good objective justification for it, such as obligations towards existing family members …” (our emphasis)

186.  Further at paras 81 and 82, there was a discussion on how, of the three strands identified in White and McFarlane, needs and compensation may more likely to provide for grounds for holding that it would be unfair to hold the parties to an ante-nuptial agreement as opposed to sharing.  Though Baroness Hale had approached the question differently, Her Ladyship appeared to echo this analysis at paras 177 and 178.

187.  The case of Radmacher was about an agreement between husband and wife.  In respect of agreement between a third party with a husband or a wife concerning the financial dealings between them, Mr Pointer and Mr Todd submitted that it is a fortiori that the court should not disregard such agreement simply because it provides for certain contingency upon the dissolution of the marriage.  By the same token, so they submitted, the court should not disregard the prospect of enforcement of third party legal rights simply because he chooses to do so because of the dissolution of the marriage.

188.  Notwithstanding Mr Howard’s thoroughness in his submissions, we did not have any submission from him as to the flaw of this analysis as a matter of law.  Instead, he focused on the factual findings by the judge, which we will come to later.  He also contended that Radmacher was a fairness point as opposed to a resource point.  With respect, it depends on the context in which the question is considered.  In relation to whether the court should disregard the likelihood of the father exercising his rights under the Framework Agreement upon the dissolution of this marriage, for the reasons we have explained, it is pertinent to the question of financial resource of the husband which must be resolved in Step 1 in LKW v DD.

189.  In our judgment, the criticism of Mr Pointer and Mr Todd in terms of the error of law on the part of the judge at para 204 of the Main Judgment is well founded.  The court should take into account the likelihood of the exercise of the third party right because of the divorce.  It is not against public policy for a third party to structure a bona fide business transaction with a husband or wife (whether before or after the marriage) so that in the event of divorce certain rights would become enforceable.  Given the facts of the present case, it is not necessary for us to consider the position of a conditional gift from or other domestic arrangement with a parent.  Those scenarios would be reserved for debate on some other occasion when they actually arise for consideration.  In this judgment, we would confine ourselves to bona fide commercial arrangement supported by valuable consideration.

C.4.2 “Non-matrimonial assets”

190.  We can now move the focus of our discussion to “non-matrimonial assets”.  Assuming after Step 1, the court accepts that certain assets are assets of a husband or wife, and they are not encumbered by adverse third party rights which are likely to be exercised in the foreseeable future, the assets would be available for distribution between the husband and the wife.  Step 2 in LKW v DDis the assessment of the parties’ needs which is not in issue here given the position of the father (which we would mention below).  If there is surplus in the assets after meeting the needs of the parties generously interpreted, the court will come to Steps 3 and 4 in the consideration and application of the sharing principle.  In the context of those steps, the question of “non-matrimonial assets” would become relevant.

191.  In LKW v DD, Ribeiro PJ referred to the source of an asset as a potential reason for excluding it from the sharing principle, see paras 87 to 98.  Two categories of possible candidates for exclusion were identified and commented upon by His Lordship: (a) assets independently acquired (paras 90 to 94); and (b) unilateral assets (paras 95 to 97).  On (b), the tentative view of Ribeiro PJ was that there should not be any distinction between family assets and business or investment assets.  Counsel have not argued against that tentative view in these appeals.

192.  On (a), there are sub-categories.  It could be assets acquired during the marriage by gift or succession.  It could also be assets acquired before marriage or after separation without any help or contribution from the other party to the marriage.

193.  We agree with Mr Howard that even if an asset is externally sourced or independently acquired, it is still a matter of discretion to be exercised judicially by the court in deciding whether it should be excluded from equal sharing.  There is no hard and fast rule, see LKW v DD paras 91 and 94.  Apart from source, the duration of the marriage and the extent of mingling can be important factors.  The cases also show that the exclusion need not be a total exclusion.  Depending on the facts and circumstances of the case, the court could make adjustments to achieve what is ultimately a fair result.  Thus, in N v F [2011] EWHC 586 (Fam), Mostyn J, after reviewing the cases on the topic, said at para 14:

“…It seems to me that the process should be as follows:

Whether the existence of pre-marital property should be reflected at all. This depends on questions of duration and mingling.

If it does decide that reflection is fair and just, the court should then decide how much of the pre-marital property should be excluded. Should it be the actual historic sum? Or less, if there has been much mingling? Or more, to reflect a springboard and passive growth, as happened in Jones?

The remaining matrimonial property should then normally be divided equally.

The fairness of the award should then be tested by the overall percentage technique.”

194.  That was how the discretion was exercised on the facts of that case which involved pre-marital assets.  Since the discretion is unfettered and the factual matrix of each case would be different, the approach of Mostyn J should only be regarded as an illustration of how the discretion could be exercised as opposed to laying down a formula which should be followed mechanically in every case.  There may well be factors which are not relevant in the previous cases which have to be considered on the facts and circumstances of another case.

195.  K v L [2012] 1 WLR 306 is another recent case which counsel has referred us to.  That was a case where the wife had received such a large inheritance that the dividends from her shareholding were almost enough to support the family expenditure over the 21 years of cohabitation.  Neither party generated any earned income during those years.  Despite the duration of the marriage, the court only awarded the husband a sum based on needs generously assessed.  His appeal to the English Court of Appeal was dismissed.  Wilson LJ (as he then was) explained why at para 18:

“… I believe that the true proposition is that the importance of the source of the assets may diminish over time. Three situations come to mind: (a) Over time matrimonial property of such value has acquired as to diminish the significance of the initial contribution by one spouse of non-matrimonial property. (b) Over time the non-matrimonial property initially contributed has been mixed with matrimonial property in circumstances in which the contributor may be said to have accepted that it should be treated as matrimonial property or in which, at any rate, the task of identifying its current value is too difficult. (c) The contributor of non-matrimonial property has chosen to invest it in the purchase of a matrimonial home which, although vested in his or her sole name, has --- as in most cases one would expect --- come over time to be treated by the parties as a central item of matrimonial property. The situations described in (a) and (b) were both present in White v White. By contrast, there is nothing in the facts of the present case which logically justifies a conclusion that, as the long marriage proceeded, there was a diminution in the importance of the source of the parties’ entire wealth, at all times ringfenced by share certificates in the wife’s sole name which to a large extent were just kept safely and left to grow in value.”

196.  We refer to this case to underscore what we said in the preceding paragraph.  The court must have regard to the facts of the case before it in the exercise of this discretion instead of blindly following what was said in other cases on a different set of facts.  Another case where the court, because of inheritance, achieved fairness by departing from equal division is B v B [2008] 2 FLR 1645.  What was said by Wall LJ at para 54 of that judgment provides, in our respectful view, a sage reminder on the nature of an exercise under s 7 of the MPPO:

“One of the frustrations of family law, as well as one of its fascinations, is that no two cases are ever the same.  Since the essence of any judicial discretion lies in its application to particular facts, and since each case requires its own particular resolution, the concept of fairness becomes, essentially a matter of judgment.  In this context I am reminded of the wise words of Ormrod LJ, in Martin v Martin [1978] Fam 12 at 20; words spoken more than 30 years ago on 10 March 1977, but still, in my judgment, as applicable today as when they were first uttered:

“….. I only want to add one or two observations arising out of Mr. Aglionby’s submissions. I appreciate the point he has made, namely, that it is difficult for practitioners to advise clients in these cases because the rules are not very firm. That is inevitable when the courts are working out the exercise of the wide powers given by a statute like the Matrimonial Causes Act 1973. It is the essence of such a discretionary situation that the court should preserve, so far as it can, the utmost elasticity to deal with each case on its own facts. Therefore, it is a matter of trial and error and imagination on the part of those advising clients. It equally means that decisions of this court can never be better than guidelines. They are not precedents in the strict sense of the word. There is bound to be an element of uncertainty in the use of the wide discretionary powers given to the court under the Act of 1973, and no doubt there always will be, because as social circumstances change so the court will have to adapt the ways in which it exercises discretion. If property suddenly became available all over the country many of the rationes decidendi of the past would be quite inappropriate.”

197.  Though several other cases on this topic were cited before us, we do not think it is helpful or necessary to comment on each of them.

198.  Before we leave the topic of “non-matrimonial assets”, we must address Mr Howard’s submission that the contribution from the father cannot be a relevant factor under s 7 of the MPPO.  Counsel submitted that the section refers to the contribution by the parties to the marriage, not their parents.  Thus it would be wrong in law to take into account of the contribution by a parent (as the judge did at paras 479 and 494 of the Main Judgment) in the application of the sharing principle.

199.  We agree that s 7 does not refer to the contribution from a parent.  However, we do not accept that the substantial funding of a business of a party to the marriage by his or her parents cannot be a relevant consideration for the purpose of the application of the sharing principle.  It is obvious from what we have said above that there is a sound jurisprudential basis for source of wealth being taken into account.  Whilst it would have been better for the judge to avoid the expression “contribution from the father”, it is plain to us that he was referring to the fact that the seed money and other capital (by way of what he called soft loans) for the Japanese business came from the father.  In substance, the judge was considering the source of the assets.  That must be a relevant matter.  Whether he had exercised his discretion in a manner which warrants intervention from this court shall be discussed below.

C.5 The relevant reasoning and findings of the judge on the father’s rights

200.  The judge reminded himself in accordance with LKW v DD that the inquiry under s7 of the MPPO is a five stage process (see paras 17 and 19 of the Main judgment).  He embarked on Step 1 at para 140 of the Main Judgment under the heading of ascertainment of the extent of the property.  He did so by examining the father’s rights under the Framework Agreement and the Special Articles.  After doing so at paras 145 to 162, concluding that those were genuine and substantive rights with the father having a cause of action against the husband in respect of breaches of the Special Articles, he alluded to the husband’s right to repay the balance at paras 163 to 173.  At paras 164 to 166, the judge set out the dilemma facing the husband and his expectation that “if all went well with the father, the husband could reasonably expect that the father would not exercise his rights under the Framework Agreement” (see para 165 of the Main Judgment).

201.  Then the judge proceeded to examine the question whether the father has or can exercise his rights under the Framework Agreement at paras 175 to 192.  He concluded that the father had not validly exercised his rights and he could not do so in the meantime because of the orders and undertakings in the s 17 proceedings.  At para 199, the judge said:

“The real issue in respect of the Framework Agreement which must be considered is the effect, in ancillary relief proceedings, of the future rights that the father has over the property to be distributed. That is a matter that I will consider in the course of deciding whether or not to apply the sharing principle.”

202.  With respect, the judge conflated what he should do under Step 1 with Steps 3 and 4.  As explained in sub-section C4 above, the identification of assets involved the determination of the rights of the third party and its adverse effects on the value of the assets.  The future rights of the father, if they are real and likely to be exercised in the foreseeable future, must have a bearing on whether and the extent to which the value of the Japanese business could be regarded as the assets or financial resources of the husband to be taken into account under s 7(1)(a) of the MPPO.  First, the father’s rights must be determined as a matter of strict legal rights according to the general law.  Then, secondly, the likelihood of such rights being exercised by the father must be determined as a fact-sensitive question in accordance with the approach in KEWS.  These questions should not be left to Steps 3 and 4 as in those stages, as we have discussed above, it would be a matter of exercise of judicial discretion involving fairness between the husband and the wife having regard to the source of wealth.

203.  The judge examined the question of likelihood of the father exercising his rights at paras 200 to 235.  Unfortunately, the approach of the judge was tainted by the error of law in para 204 as discussed above.  Effectively, he had excluded from his consideration the probability of the father exercising his rights due to the divorce between the husband and the wife.  Thus he said at para 205:

“… But the whole of the evidence overwhelmingly establishes that had the marriage not broken down, and the father’s relationship with the husband had continued as it was, prior to the breakdown, the father would never have exercised his rights.”

204.  In the subsequent paragraphs, the judge explained why he came to the conclusion.  In those paragraphs, he described the father’s rights as liabilities or obligations of a “soft” nature and remote possibility (see paras 206, 209, 229, 230, 231, 232 and 233).

205.  Mr Todd submitted that the judge effectively made a finding that the father would exercise his rights in the event of a divorce.  The judge did not say so in terms in his judgment.  However, there are findings very close to that.  His characterization of the D-Day exercise and the letter of 14 January 2009 as devices to frustrate the wife’s claims (paras 215 to 217) and his finding that the father considered the Japanese business to be his (para 224) are telling.  And it is against such background that the judge said:

“I am quite satisfied that until the breakdown of the marriage it was simply never in the mind of either the father or the husband that there would ever be a requirement that the payments, even though they might be called loans, would ever have to be repaid to the father. …”

206.  Coupled with the finding about the sentiment of the father at para 232 in the protection of his estate from claims from “another man’s daughter”, the inevitable conclusion is that had the judge given proper consideration to the likelihood of the exercise of the rights by the father in the event of the divorce, he would have come to the conclusion that the father would exercise his rights.  This conclusion is also inevitable in view of his demand for the PNA to be executed at the time when the investment was made in the Japanese business and the secrecy in the cancellation of it, the active participation of the father in the ancillary relief application and his notice of intention to exercise the option in the letter of 21 February 2009.  In such circumstances, it would be perverse for a court to find it is unlikely that the father would exercise his rights under the Framework Agreement in the event of divorce. 

207.  Mr Howard relied on the judge’s inference at para 212:

“…the father had reached the stage where he was satisfied with the ability of the husband to manage the Japanese business which could then be safely passed on to the husband, without any further threat from the father to exercise his rights under the Framework Agreement and take the property away.”

And also the judge’s finding at para 215:

“the D-Day exercise was merely a device, to be kept quietly within the family and used only in confidential ancillary relief proceedings, and then no doubt, quietly, privately, reversed once the ancillary relief proceedings were complete …”

And the following sentence at para 232:

“The sentiment too goes to show that the reality of the situation was that the so called ‘loans’ and the rights of the father under the Framework Agreement are soft loans and rights, in reality not intended to be exercised.”

208.  We have already seen the earlier part of para 232.  Thus, what the judge said as regards the reality was clearly based on the wrong premise that what the father would have done in the event of divorce should not be taken into account.  As regards para 212, it was again referring to the state of affairs when there was no threat of divorce.

209.  Para 215 is relied upon on a different footing. In his oral submissions, Mr Howard advanced the argument that one must consider whether the father intended to exercise his rights under the Framework Agreement in the long term, viz other than a tactical device taking the property for a while and then giving it back to the husband later.  Thus, the focus was not on whether the father would exercise his rights in the event of divorce.  Mr Howard agreed that he would.  But he said that exercise of right was a charade because eventually the father would give the assets back to the husband after the claims of the wife have been disposed of.

210.  Section 7(1)(a) refers to the financial resources of a party to the marriage in the foreseeable future.  Thus, we are not talking about whether 10 years down the road the father would give back to the husband by way of inheritance or otherwise what he retrieves by the exercise of his rights under the Framework Agreement.  In our judgment, Mr Pointer was correct in his criticism that the judge had not really addressed his mind to the issues as to how, when and on what terms would such “reversal” be effected, if at all.  There is also force in Mr Todd’s criticism that given the purpose of the father in setting up such a corporate structure in the first place and the experience in this litigation, it would be most unlikely that the father would simply reverse what he would have done by way of the exercise of his rights under the Framework Agreement and the Special Articles as soon as the ancillary relief proceedings are over.

211.  In substance, Mr Howard postulated that the father would actually give up all his interest in the Japanese business and the husband’s ownership will be free from the encumbrances created by the Framework Agreement and the Special Articles.  This is the only way in which the full value of the Japanese business could be regarded as available to the husband as his financial resources.  As Mr Todd pointed out, the father did not need to do anything with regards to the Special Articles as they were already in place.  There were no further steps that needed to be taken and then to be reversed.  In order for the scenario postulated by Mr Howard to happen, it is not simply a reversal of the exercise of the rights in terms of the options.  Rather, it is the wholesale giving up by the father of all his rights under the Framework Agreement and the Special Articles.  We do not think the judge went as far as holding that as a likely scenario at para 215 because if His Lordship meant to make a finding there the father would give up all his interest in the foreseeable future, he should not be referring to the “amorphous” and “future contingent” rights of the father under the Framework Agreement in the application of the sharing principle at para 490 of the Main Judgment.

212.  One must bear in mind the context of the discussion leading to para 215.  The judge was concentrating on the D-Day exercise and the reversal referred to was confined to the purported exercise of the options in 2009.  It is not a finding as to the wholesale abandonment of rights under the Framework Agreement and the Special Articles.

213.  We also agree with Mr Todd that the matters extracted by Mr Howard from the judgment could not support a finding of wholesale abandonment by the father of his rights under the Framework Agreement and the Special Articles in the foreseeable future.  The non-information of the HSBC as to the exercise of option in the D-Day exercise was, on a correct analysis, a matter of little moment and Mr Howard’s submission on events of default was demonstrated by Mr Pointer to be a false point.  The lack of action in terms of past breaches of the Special Articles had to be examined against the background that the father was not told of the cancellation of the PNA at that stage.  Further, there was assurance from the husband to the father that his rights would not be affected by the TMKs and VPL structure.  The continuous support from the Japanese business to the extravagant lifestyle on the part of the husband cannot be taken as indication that the father has completely abandoned his rights under these documents.  The maintenance of control over the Japanese business empire of this scale is quite a different matter from such support.

214.  We do not think there is sufficient basis for concluding that the father would give up his interest in the Japanese business in the foreseeable future.  With respect, the judge was wrong in regarding the father’s rights under the Framework Agreement and the Special Articles as mere “devices” or “soft obligations” which could be left out of account at Step 1.

215.  The judge also referred to the right of the husband to repay and terminate the Framework Agreement, see paras 163 to 173 of the Main Judgment.  He again referred to the right to repay at para 206 as an indication of the soft nature of the obligations under that agreement.  At para 210, after characterizing the rights of the father as a threat hanging over the husband’s head to see if he could pass the test in terms of ability, the judge said:

“If the husband had had any real concern about that, I have no doubt that long ago he would have exercised his right to repay the balance of the original gift, thereby terminating the Framework Agreement and all its consequences. …”

216.  But the judge had found in the earlier paragraphs that the husband might have his reasons for not exercising that right.  At paras 165 and 166, the judge alluded to the husband’s expectation that the father would not exercise his rights “if all went well”.

217.  The judge did not elaborate upon what he meant by “all went well”.  It seems that he was referring to the relationship between the husband and the father and also the latter’s assessment of the former’s commercial acumen.  Within those parameters, the judge’s discussions at paras 200 to 234 could be taken as his finding that until the breakdown of the marriage, things were going well between the father and the husband.  As such, the husband did not deem it necessary to exercise his rights to repay.

218.  However, as we have explained above, that analysis failed to take account of the effect of the breakdown of the marriage on the father’s choice in terms of exercising his rights under the Framework Agreement.  And one of the main purposes of the structure adopted at the time of setting up the Japanese business was to ringfence the business from any matrimonial claims in case of a divorce between the husband and the wife.  Hence, the parameters of the judge were inadequate because he had taken an important consideration out of the equation.  This is apparent from what was said at para 232 of the Main Judgment.

219.  Mr Howard took one step further than the judge in respect of the right of the husband to repay.  He submitted that as the father’s rights could be terminated by the exercise of the right to repay by the husband, the court should proceed on the basis that the husband should exercise such right in order to remove the ring-fence set up by the father.

220.  The judge did not adopt this approach because he clearly recognized the continued subsistence of the father’s rights in departing from equal division.  We would reject this submission as well.  As submitted by Mr Pointer and Mr Todd, the argument proceeded on the premise that the husband could and would exercise the right to repay in the foreseeable future.  The reality is that he could not do so and as things stand he has no reason to do so.  All the resources in the Japanese business are subject to the Framework Agreement and the Special Articles.  Without the consent of the father, the husband could not utilize his interest in those resources to make the repayment.  It is not simply a matter of whether the husband can sign a cheque for repayment as signatory of the bank accounts of the Japanese business.  The tendering of such a cheque, being in breach of the Special Articles, can be rejected by the father as a valid repayment.  Moreover, we have no doubt that but for the orders and undertakings given in the s 17 proceedings, the father would have exercised his rights under the options.  For the reasons already canvassed, we do not think these orders and undertakings should have the effect of negating the father’s rights for the purpose of Step 1 in this exercise.  With the exercise of the options, as the judge held, the husband’s right to repay would be extinguished.

221.  Further, there is no evidence of the husband having any independent financial means to make the repayment.  Given that his interest in the shares is subject to the rights of the father under the Framework Agreement and the Special Articles, it is not possible for him to obtain credit-financing by mortgaging or charging the shares.

222.  As submitted by Mr Pointer, the exercise of the right of repayment would be a declaration of war, particularly in light of the prevailing circumstances.  With the divorce proceedings in the background, the father would have every incentive to call the repayment of the inter-company loans which the judge had classified as soft loans.  The court, in the exercise of its s7 jurisdiction, does not have the power to restrain the father or his companies from exercising such power to recall the loans.

223.  Even though the court could take into account the right to repay in the exercise of discretion, it must likewise take into account the feasibility of such course being taken as a matter of reality.  Again the KEWS approach should be applied.  On the facts of the present case, it is unlikely that the husband can do so.

224.  The judge placed great emphasis on the legal and beneficial ownership of the shares on the part of the husband, see paras 189, 198, 221, 421, 424 of the Main Judgment.  Mr Howard submitted it followed from such a finding that all the assets in the Japanese business should be regarded as assets of the husband and as such susceptible to equal distribution given the judge’s finding on contribution as between the husband and the wife.  The fallacy in this approach is to treat the legal and beneficial ownership of the shares as equivalent to the absolute and unencumbered ownership of the Japanese business.  As explained above, it is not correct to write off the father’s rights in Step 1.  The legal and beneficial ownership of the shares by the husband has always been (and still is) subject to the adverse rights of the father.  We have already explained why those rights cannot be discounted as “soft” rights unlikely to be exercised in the foreseeable future.  Nor can they be discounted as a sham exercise with the father intending to abandon all his rights in the foreseeable future.  In such circumstances, the net effect of the exercise of the rights by the father is, as recognized at para 421 of the Main Judgment:

“… if [the father] had lawfully [exercised his rights], legal and beneficial ownership of that property would have gone to the father. In those circumstances the wife would be restricted to arguing that the potential inheritance of the husband constituted a resource to which the court should have regard. …”

225.  In other words, short of expectation in terms of inheritance (which was not argued below, and nor was it argued before us), the inevitable conclusion is that upon the exercise of those rights, the legal and beneficial ownership of the husband over the shares would not be of much value in terms of financial resources available to him.  In our judgment, this should be the conclusion even though the rights have not yet been exercised at the present moment.  In view of the findings of the judge on the assets and needs, if the Japanese business is excluded from the financial resources of the husband, the remaining assets would not be sufficient to pay for the needs of the wife generously interpreted, which was found be the judge to be HK$524.5 million plus a fighting fund, deducting HK$79 million therefrom on account of her own assets.  In short, the award in her favour cannot be higher than a needs figure and, in light of the positions of the parties, we do not propose to consider whether it should be lower than that (though theoretically it may be so since the exercise of the rights by the father should be taken into account at Step 1 as opposed to Steps 3 and 4).

C.6 The cross-appeal against departure from equal division

226.  In light of the conclusion in the preceding sub-section, the cross-appeal must fail and we would be brief on the judge’s approach in departing from equal division.  We have already said why it is open to the judge to have regard to the source of capital for the Japanese business though it should not be expressed in terms of contribution from the father.

227.  Mr Howard submitted that the initial injection of J¥3.5 billion seed money and the subsequent soft loans from the father’s companies should be regarded as joint gifts to the husband and the wife.  We cannot accept this submission.  It is wholly inconsistent with the evidence in terms of the Framework Agreement, the Special Articles and the requirement of the father to have the wife to sign a PNA to characterize the initial injection as a joint gift.  Neither would it be right to characterize it as an absolute gift.  In these regards, the documents really speak for themselves.  As regards the subsequent inter-company fund transfers, they were booked as inter-company loans.  We have already explained why the judge’s finding that they were soft obligations was flawed as he failed to have proper regard to the scenario what the father would do in case of a divorce between the husband and the wife.  In any event, we do not see any evidential basis for suggesting that these inter-company fund transfers were intended to be a gift by the father to the husband and the wife jointly.  Given the sentiment of the father as alluded to at para 232 of the Main Judgment, it is most unlikely that he would make such a joint gift.

228.  The judge considered whether there should be any departure from equal division at para 416 onwards.  He started by referring to the yardstick of equality and its significance as stated in B v B (Ancillary Relief) [2008] 2 FLR at para 24 (approved by Ribeiro PJ in LKW v DD at para 81): non-discrimination as to the nature of contribution and the overriding consideration of fairness.  He then considered the case of dynastic property advanced by the father and the husband and rejected the same.  At the same time, he made these observations at paras 427 and 428:

“427. I accept the submission made by both Mr Pointer and Mr Todd, that “without the father, the husband would be nothing”.  It is impossible in this case to escape from the proposition that the father has given the husband, first a quite extraordinary starting base, a gift of J¥2.3 million, without which the Japanese property empire could not have started.  It is right that subsequent acquisitions have been made in part from the redevelopment and refinancing, first of the V28 building, and subsequently the process was repeated with other buildings.  But as well as that, secondly, the father has made continuous payments to the husband to help expand the Japanese business. I have held these payments, in so far as they are loans and not gifts, constitute soft loans which are in reality, not repayable by the husband.  That must serve only to enhance the extent of the assistance given by the father.

428. This is a very significant fact which must be taken into account, and having regard to the value of the property in this case, and the extent of the assistance by the father, by itself might well be argued to be a sufficient reason for departing from equal sharing.”

229.  The judge then reviewed other factors: conduct; other factors under s 7(1)(b) to (e); duration of marriage; and contributions.  We shall need to discuss some of them below in order to deal with the other parts of the wife’s cross-appeal.  In the context of contributions, the judge found at para 471 that she was effectively the in-house legal counsel for the business structure.  At para 472, he found that she was in fact a partner in the business and this was supported by acknowledgment by the husband in some emails highlighted at para 473.  He found at para 477 that apart from the US$50 million which came from the father, the wife and the husband contributed equally to the welfare of the family.  Then the judge acknowledged the exceptional financial assistance from the father at para 479, and because of that he held that as between the husband and the wife, it is not a case of stellar contribution from the husband (paras 480 to 484).

230.  At paras 485 to 488, the judge explained why it is not appropriate to apply the compensation principle in this case.

231.  The crux of the judge’s reason for departure from equal division is set out at paras 489 to 496.  In essence, he held that the father’s rights under the Framework Agreement and his assistance given to the establishment and his continued support to the Japanese business are “enormous factors” calling for departure from equal sharing.  The judge did not place any particular discount percentage to each component of these factors (para 490).  He adopted a global approach and allocated to the wife a sum equivalent to 20% of the net value of the assets of the husband and the wife.

232.  Mr Howard submitted that it was a 30% departure from equality and as such it is excessive.  Counsel also submitted that there was no justification for departure.  We reject the latter submission for the reasons we discussed above on source of assets being a relevant consideration.  On the facts of the present case, given the judge’s finding on the importance of the financial support of the father to the Japanese business, we cannot see how it can be regarded as wrong in principle for the judge to take this factor into account in deciding whether to depart from equal division.

233.  However, we agree with Mr Howard that on the facts of this case the father’s rights should no longer be relevant when we come to Steps 3 and 4 (though they are highly relevant at Step 1).  If the judge were correct in holding that those rights should be disregarded for the purpose of Step 1 on the ground that those rights would never be exercised as a matter of fact, they should not have any bearing in Steps 3 and 4.  However, for reasons already given, this cannot assist the wife in this appeal because we respectfully disagree with the judge over his conclusion in Step 1.

234.  As regards the extent of departure, the judge did not apply a total exclusion.  Assuming that the Japanese business were absolutely owned by the husband, this must be right in view of his conclusions on the contribution by the wife to the Japanese business.  In this connection, we do not accept the submission of Mr Todd and Mr Pointer that the exclusion of non-matrimonial asset under Steps 3 and 4 must be total exclusion because of the finding that “without the father, the husband is nothing”.

235.  Mr Howard submitted that the 30 % departure means giving 80% of the business to the husband as compared with the 20% to the wife.  He submitted that it was plainly wrong to exclude 60% of the business from any division with the wife.  He said 32% of the initial gift had been paid back by the husband and effectively the judge had disproportionately allowed a 3% capital in the business sourced from the father to be converted to 60% exclusion.

236.  We do not accept this submission.  There is no reason why the capital input into the business by the father should be confined to the initial seed money.  The judge also included in it the so called soft loans from inter-company fund transfers.  As regards the repayment of J¥1.1 billion in 1999, it was made pursuant to the understanding between the father and the husband before the initial seed money was advanced and they were actually repaid from the surplus capital of VCIL after refinancing of the V28 land and construction costs were procured.  Since then, the father had continued to provide financial support for the business.  Quite apart from the extraordinary quantum of financial support, what is also important is the finding by the judge that without such support the husband could not be able to have a business of such a scale.

237.  Mr Howard asked this court to have regard to the following factors said by Lord Nicholls to be relevant in White at [2001] 1 AC 596 at p.610 (and repeated in McFarlane at para 23) and at para 25 in McFarlane in the context of non-matrimonial property: the nature of the property and the time and circumstances in which the property was acquired and the way the parties organized their financial affairs.

238.  Lord Nicholls also made it clear that this is a non-exhaustive list, see para 25 in McFarlane.  We have already explained in our discussion on the law that there cannot be any hard and fast rule and the discretion should not be exercised by following any mechanical formula.

239.  Even having due regard to the factors on which Mr Howard placed much emphasis in his oral submissions, we are of the view that the judge was still entitled to conclude that the financial support from the father is an enormous factor in the present case.

240.  On the duration of the marriage, for reasons to be canvassed below, we agree with the judge that this was a marriage of 8 years and it was not of such a long duration so that the source factor had completely lost its significance.

241.  Mr Howard then invited us to compare this case with the results in White , C v C [2007] EWHC 2033 (Fam), Lambert v Lambert [2002] EWCA Civ 1685, N v F [2012] 1 FCR 139, AC v DC [2012] EWHC 2420 (Fam) and Jones v Jones [2011] 1 FLR 1723.  We decline to do so.  We do not think those cases set any conventional bracket as claimed by Mr Howard.  As we have said above, each case depends on its own facts and the factual matrix in the present case is obviously very different from those other cases cited by counsel.  There is simply no comparison between the financial input by the father to the Japanese business and the assistance provided or pre-marital wealth built up in other cases.  We do not see much to be gained by comparing the award to the wife with the percentages awarded to Mrs White, Mrs Lambert or the wives in C v C or in N v F.

242.  Having said so, we can say that the judge’s application of the sharing principle is mistaken by reason of his inclusion of the exercise of the father’s rights in the equation at Steps 3 and 4 (assuming his conclusion at Step 1 were correct).  We also accept that there is force in counsel’s criticism as to the inadequacy of explanation for the quantum of departure from equal division.  It is difficult to tell what award he would have made had he not taken the father’s rights into account in view of his approach at para 490 of the Main Judgment.

243.  However, in the light of our conclusion on Step 1, we do not find it appropriate for us to exercise the discretion afresh on the entirely unreal basis that the father’s rights would not be exercised in the foreseeable future.

C.7 The cross-appeal against the finding as to the duration of marriage

244.  The wife contended that a period of premarital cohabitation should be taken into account under s 7(1)(d).  She said she had cohabited with the husband since July 1998 in England though they were only married in January 2000.  The judge disagreed.  He held that the period of cohabitation was broken after the wife came back to Hong Kong in September 1998 and therefore the duration of marriage was only 8 years.

245.  The leading authority is WLK v TMC (2010) 13 HKCFAR 618.  After reviewing the authorities, Ribeiro PJ held at paras 104 and 105:

“The courts have therefore readily accepted that such powers, purposively construed, may be applied to a relationship of cohabitation that amounts to an anticipatory extension of the marriage which has been subsequently dissolved. They have not hesitated to regard as relevant relationships of cohabitation which span a significant period during which the parties have produced children, shared the equivalent of a matrimonial home, mingled their finances, and so forth. Such a relationship does often seamlessly move into the state of marriage, dissolution of which activates the powers being exercised.

There may be highly exceptional cases (such as where parties are unable to cohabit --- because, for instance, they have high-powered jobs in different countries --- but have children and otherwise generally conduct themselves as if they are married) where the absence of physical cohabitation may not stand in the way of treating them as in a de facto marital state. However, in the absence of such special circumstances, I can see no basis for construing the statutory powers and discretions to extend to relationships which do not involve cohabitation of the kind described above, however emotionally intense those relationships might be. …”

246.  The judge correctly had these observations in mind and found on the fact after the wife came back to Hong Kong she lived principally with her parents.  Though she had spent time with the husband as well, she had to live on a full-time basis with her parents due to cultural pressure instead of living with the husband as man and wife.  Under such circumstances, he held that the previous cohabitation had been broken.

247.  Mr Howard submitted that the period of cohabitation in this case should be characterized as a pre-marital anticipatory extension of the marriage and the parties were only apart because of the exigencies of their work and work-related travel.  He placed emphasis on the engagement of the parties prior to April 1999.  His submission was that once they became engaged, the break in cohabitation should be regarded coming within the exceptional category envisaged by Ribeiro PJ.  Counsel further contended that the concept of anticipatory extension of marriage is grounded not so much in physical cohabitation itself, but rather in the requirement for a relationship of sufficient permanence and commitment comparable to married life.

248.  With respect, we cannot accept this submission.  It is only a disguised attempt to revive the test of emotional interlocking adopted by the Court of Appeal but rejected by the Court of Final Appeal in WLK v TMC.  We do not see any valid basis for disturbing the holding of the judge in this respect.

C.8 The cross-appeal on conduct

249.  Mr Howard submitted that the following aspects of conduct should be regarded as gross and obvious and should be taken into account by the judge in enhancing the wife’s share of the distributable matrimonial assets:

(a) the forgery of the 2006 CLA;

(b) the ultimatum by the husband; and

(c) the over-spending by the husband during the course of the matrimonial proceedings.

250.  In the previous section, we have already explained why the judge was correct in holding that forgery should not be permitted to be raised as a conduct issue at the trial by reason of the settlement in February 2011.  We also held that forgery should not be raised as a credit issue either and the judge could not fairly found that the husband and the father were guilty of forgery.

251.  Mr Howard also submitted that the wife should be permitted to rely on the allegations of conspiracy and perjury as gross and obvious conduct.  By those conduct, the course of the proceedings was prolonged and, he said, in the meantime the husband had diminished the assets available for distribution by overspending.

252.  In substance, the allegations of conspiracy and perjury were founded upon the allegation relating to forgery.  For the same reasons which barred the allegation of forgery from being raised at the trial, the allegations of conspiracy and perjury should not be relied upon as a conduct issue.

253.  In respect of the alleged over-spending by the husband, it is not contended that the level of personal spending by him during the pre-trial period was out of line with the standard the couple had been enjoying during the marriage.  The judge actually adopted his level of personal spending as a reference point to their standard of living during the marriage (see para 369 of the main judgment) and assessed the needs of the wife along the same line (see para 372).  As such, this is not a case for the type of add-back in Norris v Norris [2003] 1 FLR 1142 on the ground of reckless or wanton expenditure and the judge did not make any finding to that effect.  Insofar as the extraordinary lifestyle of the husband was concerned, the wife had already benefited from it indirectly in the very generous assessment of her needs by the judge.

254.  This is also not a case of frittering away of matrimonial assets.  For the reasons given above, the resources which the husband utilized were those ultimately subject to the control of the father.  Thus, there had not been any diminishing of the matrimonial assets due to the prolongation of the litigation. 

255.  Though litigation misconduct can sometimes be a ground for enhancing the innocent party’s share, we do not think this is such a case.  First, the conduct issue was not argued along this line before the judge. Second, as we have seen, the prolongation of the litigation did not result in the reduction of assets available for distribution to the wife.  Third, the wife has already had the redress in terms of costs in the indemnity costs awarded in her favour in February 2011.

256.  The other conduct relied upon is the ultimatum.  The judge found that to be gross and obvious.  But he held that it was not conduct that would be inequitable to disregard because it had no impact on the property available for division, see para 458 of the Main Judgment.  Mr Howard submitted that there is no requirement in law for conduct to have an impact on the property available for division before one can take it into account under s 7.  He further submitted that the wife did suffer financial detriment (losing the financial support of an extremely wealthy marriage) by reason of the unilateral curtailment of the marriage and this should be relevant under s 7(1)(g).  Counsel did not advance any submission in the appeal as regards the extent to which the wife’s share should be enhanced though he had contended for a 5% increase in the court below, see para 439 of the Main Judgment.

257.  In terms of the financial detriment suffered by the wife, the judge did have regard to it at para 437 of the Main Judgment.  He said:

“…It is right that as a result of the breakdown of the marriage the wife suffers financially in the sense that she loses the financial support of an extremely wealthy marriage. But that is a matter which is dealt with by the division of property between the parties. The making of the ultimatum did not reduce the funds available to the husband, against which the wife’s entitlement might be measured, or from which he might satisfy any order made by the court.”

258.  It would be wrong in law to take account of expectation beyond the standard of living enjoyed by the party during the marriage, see McFarlane v McFarlane [2006] 2 AC 618 at paras 56 to 58.  At para 58, Lord Nicholls said:

“…No doubt both parties had high hopes for their future when they married. But hopes and expectations, as such, are not an appropriate basis on which to assess financial needs. Claims for expectation losses do not fit altogether comfortably with the notion that each party is free to end the marriage.”

259.  One must remember that the ultimate goal is to achieve fairness between the husband and the wife.  Even though our s 7 does not refer explicitly to conduct which is “inequitable to disregard”, this is built into the equation because of the concept of fairness.  See also LKW v DD at paras 103 to 104.

260.  Whilst Mr Howard is correct in his submission that conduct need not have any impact on the property available for distribution before it could be taken into account, the conduct in question must be examined against the notion of fairness before it can be decided whether there should be any adjustment on its account.  Thus, it is necessary to search for the relevance of the conduct on the principles of needs, compensation and sharing as explained in the case law.  In respect of conduct which has no financial impact whatsoever, the relevance would be less apparent.  Apart from the loss of financial support, Mr Howard had not advanced other justification on the relevance of the conduct in question.  On the facts of the present case, in view of the very generous assessment of the wife’s needs, and in view of our conclusion on assets which could properly be regarded as resources available to the husband, we do not think the ending of the marriage by the husband’s ultimatum warrants any further adjustment in the financial relief awarded to the wife.

C.9 Fairness

261.  The judge assessed the wife’s needs at HK$524.5 million (excluding the fighting fund).  After deducting assets of her own, the needs award would be HK$445.5 million.  In these appeals, neither the father nor the husband challenged this figure.

262.  A sum of HK$202.8 million had been paid to the wife by the father as part satisfaction of this assessment.  There is still a shortfall of HK$242.7 million.  Further, the father indicated in a position statement dated 11 October 2013 that he would underwrite the shortfall on these terms:

“6. There is therefore a shortfall in [the wife’s] needs of HK$242.7m / US$31.115m. [The husband] should pay this. The order should, in the first instance, be directed to [the husband]. Only if the award is no more than the needs provided for by Saunders J, [the father] would then consent to an order against him to cover any default by [the husband]. However [the father] should be at liberty to recover any such shortfall against [the husband]. [The father’s] consent to such an order is, however, subject to the following 2 conditions:

a. The appeal is allowed in full and an order is substituted in this sum; and

b. That [the wife] undertakes to the court not to appeal such substituted order. …”

263.  In the course of his oral submissions, Mr Todd informed the court he had instructions from the father to offer this as an undertaking to this court to that effect.  It is not very clear whether the undertaking is dependent upon the wife accepting the condition.

264.  For the reasons discussed above, once the adverse effect of the father’s rights over the Japanese business is taken into account, the assets and resources available for division would be less than such a needs award.  It is submitted by Mr Todd and Mr Pointer that this should be the award made by this court.

265.  Mr Howard submitted it is unfair and discriminatory to the wife in view of the finding of the judge as to her contribution to the business as an equal partner.  But his submission was wrongly premised on the assumption that the full value of the Japanese business belonged to the husband.  The true position, as we have seen, is that the value of the Japanese business is in the control of the father though it takes the form of rights under the Framework Agreement and the Special Articles.  The beneficial ownership of the shares by the husband is subject to these rights which are real and likely to be exercised by the father.  The wife was fully aware of the father’s control over the business and there is nothing unfair towards her in giving effect to those commercial arrangements between the father and the husband.  When she undertook works for the business, she did not labour under the misapprehension that the father had given up his control.  This was illustrated by her unsuccessful attempts with the husband to procure the father’s consent for the deletion of the Special Articles and the amendments of the Framework Agreement over the years.  In substance, the husband and the wife worked in the Japanese business for the father.  In exchange, they enjoyed a very high standard of living.

266.  In such circumstances, it is not discriminatory to make an award in favour of the wife based on the very generous assessment of needs with reference to the very high standard of living previously enjoyed during the marriage.  As Wilson LJ (as he then was) said in K v L [2012] 1 WLR 306 para 15:

“…Lord Nicholls makes clear that what is unacceptable is discrimination in the division of labour within the family, in particular between the party who earns the income and the party whose work is in the home, unpaid. … But the law does not abjure all discrimination. On the contrary it is of the essence of the judicial function to discriminate between different sets of facts and thus between different claims. What is outlawed is discrimination on the ground of superficial differences which, on analysis, do not reflect substantive differences …”

267.  In the present case, the stark reality is that neither the husband nor the wife had “full ownership” of the Japanese business.  It is not a case of discrimination at all.  Though superficially the husband remains as shareholder of the companies, the shareholding is subject to the rights of the father under the Special Articles and the Framework Agreement.

268.  In the circumstances, we would substitute the lump sum award made by the judge in favour of the wife with an award in the sum of $242.7 million, after taking into account of the $202.8 million already paid to the wife.

D. REMAINING ISSUES

D.1 Introduction

269.  As noted in Section A of this judgment, a number of other issues were raised in the appeals and the cross appeal.  Many of these related to the computation of the assets available for distribution between the husband and the wife under a sharing award to the wife.

270.  As a result of our conclusion that the husband’s interests in the Japanese property group should be excluded from the matrimonial assets available for sharing in Section C above, the amount of the assets available would mean that a sharing award would be smaller than the amount which the judge found would meet the wife’s reasonable needs, generously interpreted.  The consequence, as we have indicated above, is that the award to the wife falls to be assessed by reference to her needs.

271.  This means that a number of these remaining issues are now academic (namely: expert valuation of the Japanese properties; the Aoyama project; arithmetical error in respect of ‘soft’ loans from the Japanese business to the father; other arithmetical errors raised in the L&A letter; the four cars; the wine collection; Juniper Hill; the Husband’s tax; and the uplifted values of the Harajuku and Almost Blue properties), as they are relevant to a sharing award, and not one based on needs.  However, as these matters were argued, we propose to express our views on them briefly, in case we should be wrong in our view that this is a needs, and not a sharing, case.

272.  The issue relating to the exchange rate would also seem, on this basis, to be academic, although we shall also deal with it briefly.

273.  Of the other issues, those relating to the wife’s resources, both in relation to deduction of costs awarded to her and costs she had incurred, and the adjustment in respect of the Hollywood Heights property, remain relevant as they impact on the amount of the resources available to the wife, which would fall to be deducted from the amount of her needs as determined by the judge (against which, as we have noted, there has been no appeal).  The issue relating to the fighting fund also remains relevant, as does the issue in relation to the time and mode of payment.

274.  Finally, the complaint about the adjournment of the assessment of damages in the wife’s conspiracy claim remains a live issue, as it arises whatever the basis of the award to her.

D.2 Valuation

275.  The value of the Japanese properties was the key factor in determining the value of the Japanese business, which was by far the largest single item in what the judge found to be the husband’s assets available for distribution under a sharing award.  Pursuant to directions that had been given for the calling of expert evidence in relation to valuation of the Japanese properties, both the husband and the wife adduced expert evidence – the husband’s expert being Mr Takayama of Cushman & Wakefield (“C&W”) and the wife’s being Ms Yamamoto of Morii.  The valuers were instructed to provide an open market valuation, assuming a willing buyer and willing seller, and otherwise in accordance with the Japanese Real Estate Appraisal Standard, and not a desktop valuation.

276.  C&W valued the Japanese properties at a total value of J¥ 114.465 billion, while Morii valued it at a total of J¥ 167.582 billion.  The difference in valuation was substantial – some J¥ 53.117 billion, with the Morii valuation exceeding that by C&W by some 46%.  The judge preferred Morii’s valuation, and accepted it, for the reasons he gave at paras 256 to 289 of the Main Judgement.

277.  The husband contends that the judge was wrong to prefer Morii’s valuation of the Japanese properties, and that he failed properly to address many of the points made by C&W in the expert evidence, and by counsel for the husband in submissions at the end of the trial.

278.  Having regard to our decision in Section C above that the Japanese business should not be included in the husband’s assets available for sharing, and our consequent conclusion that the award to the wife in the present case should be based on her needs, this point does not impact on the amount of the ultimate award, and it is therefore unnecessary to express a view on it.  However, we shall nonetheless deal with it briefly.

279.  The judge dealt with this aspect of the matter as follows:

(1) At para 256 of the Main Judgment he noted the substantial difference between the valuations of the two experts.

(2) At paras 257 to 263, he expressed the view that the main reason for the difference in valuations between the experts was their assessment of market rent, with Morii taking the approach that current rents under existing leases were market rent, while C&W took the view that current rents were premium rents that might not be achieved when leases came up for renewal.  The judge considered that as the buildings in question were “iconic”, it was unlikely that tenants would wish to leave at the end of the lease, or that tenants would necessarily have a stronger hand in negotiations at that stage, and placed weight on the example of one tenant, Zara in the V28 building, which had renegotiated its lease by agreeing an increase of about 25% and extending the lease, which had about two years to run, for an additional 10 years with specified rent increases of 4% every two years – the judge thought that this showed that tenants were keen to stay in their “iconic” locations and were willing to pay more to do so, suggesting that the rents currently charged were not at a premium.

(3) At para 264, the judge dismissed the relevance of a challenge to Morii’s approach by reference to the cost approach to valuation, on the basis that C&W’s figures derived from such an approach displayed a large range of redeveloper’s premiums for the different buildings under consideration (from -22% to 56%, compared with what Mr Takayama said was a standard premium of about 20%) meant that they could not be relied upon.

(4) At paras 265 to 266, the judge dealt briefly with (and dismissed) a suggestion by C&W that the then recent earthquake in Japan had had a dampening effect on property values.

(5) From paras 267 to 283, the judge made reference to various other valuations that were in existence – ranging from desktop valuations for banking purposes to internal property valuations of the Japanese companies – as support for the Morii valuations, on the basis that they tallied better with Morii’s valuations than those of C&W.  In doing so, he rejected a submission that such valuations were not admissible, as they were not the subject of the leave that had been given for expert evidence of valuation to be adduced.

(6) The judge then (at paras 284 to 288) rejected a submission that there should be a marketability discount applied to the Japanese properties, and concluded at para 289 by adopting the Morii valuation and assessing the value of the Japanese business at HK$7,327 million.

280.  The husband’s main complaints, as set out in his grounds of appeal, written submissions and the oral submissions by Mr Coleman, SC were:

(1) In expressing the view that Morii’s adoption of current rents as representing market rent was to be preferred to C&W’s view that current rents were often at a premium, he failed to deal with the submissions and evidence set out in the husband’s closing submissions (from paras 271 onwards) which put the case for regarding current rents as having a premium element which might not be maintainable on a renewal, and which provided several examples of tenants either renegotiating the terms of leases which contained unfavourable (from the tenant’s viewpoint) rent review clauses so as to continue with the leases at lower rents than would have been paid had the lease terms been adhered to, or choosing to terminate or not renew the leases.

(2) In particular, the example of the Zara tenancy relied upon by the judge failed to consider or deal with the points made in respect of it in the husband’s closing submissions (at paras 292 and following), which, on the husband’s case, demonstrated that Zara was able to negotiate a revised lease term which had the effect of substantially reducing the amount of the increase in rent it would otherwise have had to pay for the remaining two years of the lease, and thereafter fixing the rent for a significantly extended term on the basis of relatively modest periodic rent increases.

(3) The judge appeared (at para 262) to have misunderstood the methodology adopted by both C&W and Morii, in that contrary to his apparent understanding that the experts were making predictions as to future market rental levels, the methodology adopted did not involve such predictions, but made use of present market rental levels, with future levels being provided for by the model used by both experts, save in cases where future rent levels were determined by the terms of an existing lease.

(4) The judge failed to appreciate the utility of the costs approach as a cross-check and comparison.  He was, in particular, wrong to dismiss it on the basis stated in para 264 of the Main Judgment, that the variation in redeveloper’s premium arrived at using C&W’s valuations was so substantial as to render the costs approach an irrelevance.

(5) The judge erred in treating other valuations (whether desktop valuations by banks or internal valuations) as evidence of the value of the properties, and in any event failed to consider and deal with the reasons why such other valuations did not provide a good guide to such value.

281.  For the wife, Mr Howard argued that the judge had considered all the evidence and the submissions, and had dealt adequately with them in the Main Judgment.  He also submitted that the judge had, as he was entitled to, adopted a broad approach to valuation and preferred the evidence of Morii to that of C&W.

282.  With respect to Mr Howard, and to the judge, we are unable to agree that the judge adequately explained his reasons for preferring Morii’s valuations.  We do not think that it is possible to avoid this conclusion by reference to a broad approach to valuations – while it may be appropriate in a suitable case to avoid the need for potentially expensive and time consuming expert evidence on valuation matters by adopting such an approach, we do not think it is one that can be justified where the time and expense has already been incurred, and where there is, as here, extensive and detailed expert evidence which calls for evaluation.  Nor does it appear that the judge in fact adopted such a broad approach.  We think that it was, in this case, necessary for the judge to deal with, and explain his reasons for rejecting, the major submissions advanced in support of the evidence put forward by C&W.

283.  Thus, the husband’s closing submissions clearly put forward a case for thinking that the rent levels currently being achieved included a premium element, which would (or at least might well) not continue to be achievable into the future.  This included such points, for example, as the likelihood that the current rent paid by a tenant for in effect customised premises would reflect the costs of customisation, which would not need to be incurred on a continuation of the tenancy if the lease were renewed.  In such circumstances, the tenant might well be able to successfully negotiate a renewal at a lower rate, at or closer to the then prevailing market rate. Examples were given of tenants renegotiating the terms of their leases so as to pay a lower rental than would have been payable under the terms of the rent review mechanism contained in the lease – the Zara tenancy was one such example.  But the possibility of renegotiation of leases during their currency does not seem to have been recognised by the judge, notwithstanding these arguments being placed before him. While there would undoubtedly be factors that would tend to make the tenant choose to stay, giving the landlord bargaining power as well, it seems to us that it was necessary for the arguments raised by the husband to be addressed in the judgment, but this does not, with respect, appear to have been done.

284.  In relation to the costs approach to valuation, the judge dismissed its utility and relevance on the apparent basis that C&W’s valuations on this basis implied a redeveloper’s premium with a fairly wide range for the various buildings under consideration.  But as Mr Coleman pointed out, the Morii valuations also contained a very wide range of redeveloper’s premium, suggesting that the existence of variation as such was not in itself a reason for doubting its relevance.  More significantly, the judge appears to have overlooked the fact that the redeveloper’s premiums implied by the Morii valuations were significantly greater than those using the C&W valuations – an overall premium of 87% as opposed to 45%, with most properties achieving a premium of over 60% and several achieving premiums of more than 100%.  C&W’s evidence was that the average redeveloper’s premium across the market as a whole was some 20%, while Morii suggested it was much lower (in the 6-8% range).  Bearing this in mind, there is (to put it no higher) force in the submission that this casts doubt on the validity of the Morii valuations.  This is not to say that there was not an answer to the point, but none was, so far as one can see, identified in the Main Judgment.

285.  In his oral submissions, Mr Coleman also made the point that using a direct capitalisation approach, even adopting existing rental levels, and the lowest yield postulated by Morii, the result was an implied valuation range of J¥ 112-135 billion, which encompassed the C&W valuation, but was significantly lower than the Morii valuation.  While this was again not necessarily a conclusive point in favour of the C&W valuation, it was to our mind one that should also have been addressed, but it does not appear from the Main Judgment that it was.

286.  Similar points can also be made in relation to the complaint about reference to other valuations.  While we do not think that they were strictly inadmissible, it does seem to us that it was necessary for caution to be exercised in relation to them, having regard to the methodology by which they were arrived at, which does not appear to accord with the methodology (using a discounted cash flow analysis involving contractual and market rents) which both the experts were agreed was the appropriate valuation method.

287.  Mr Coleman accepted that there was not sufficient material in the submissions to us to enable us to substitute a different view on valuation to that reached by the judge, and invited us, if we were with him, to remit this matter for reconsideration in the event of a retrial.  It will be apparent from the foregoing that we consider that the judge failed to deal with important aspects of the submissions made to him.  Had it been necessary to have determined this matter, we would have set aside his findings on the valuation point, and adopted the course proposed by Mr Coleman.

D.3 Aoyama project

288.  This is a matter that does not arise in the context of a needs award.  The husband contends that the judge erred in concluding that the value of the Aoyama project should be regarded as an asset of his.  Initially, Mr Pointer suggested that the Aoyama project was ultimately owned by OIL, which was a company of the father’s.  However, Mr Howard correctly pointed out that the property that was the subject of the Aoyama project was in fact owned by Aoyama Project GK, a company that was wholly owned by the husband.  This was accepted by Mr Pointer, who (in his reply submissions) said that while this was correct, the economic interest in the project was in fact owned by OIL as the result of an agreement between the husband and OIL, under which OIL was entitled to 99% of any profits from the project.

289.  Mr Howard also pointed out that the husband had accepted, in the course of giving evidence, that the funds with which the property to be used for the Aoyama project was purchased had come from the Japanese business.

290.  The judge dealt with the Aoyama project at paras 194 to 197 of the Main Judgment.  There, the judge noted the husband’s contention that the Aoyama project should not be regarded as an asset of his on the basis of the profit sharing agreement mentioned above, but expressed the view that that agreement, which was entered into some time after the breakdown of the marriage, should be disregarded as having no commercial justification, and because it was no more than a device by which the husband sought to divest himself of a valuable asset.  In support of this conclusion, the judge relied on the fact that the property was purchased with funds that originated from a company in the Japanese business, which the judge had held to be an asset of the husband’s.

291.  For the reasons we have explained in Section C above, the judge erred in regarding the Japanese business as an asset of the husband’s that should be regarded as part of the matrimonial property available to satisfy a sharing award.  In those circumstances, the fact that the funding for the Aoyama project property originated from the Japanese business does not have the significance that the judge attached to it so as to support his conclusions that the Aoyama project was in fact an asset of the husband’s and that the profit sharing agreement between the husband and OIL should be disregarded.  In our view, these findings were therefore reached on a flawed basis, and should be set aside.  Had it been necessary for the matter to be re-tried, this would have been a further matter to be remitted for reconsideration by the Court of First Instance.

D.4 Soft loans

292.  In the Main Judgment, the judge summarised his findings as to the net value of the husband’s assets in a table (set out in para 350), which he subsequently revised upwards in the Barrell Judgment (at para 116).  The first item in the table was the value of the Japanese business, which the judge assessed at HK$7,327 million.  This was the value that had been ascribed to the Japanese business by the wife’s expert accountants PwC, on the stated footing that loans from the father’s companies to the husband’s companies were “excluded”.  If such loans were “included”, the value of the Japanese business was said by PwC to be some HK$6,706 million (see the table at para 2.39 of Mr Clokey’s second report dated 16 September 2011[61]).  In Note 1 to Mr Clokey’s table, it was stated that:

“… there are several amounts owing to and receivable from [the father] and his group of companies.  Whilst documentary evidence has been provided for amounts owed by [the father] (and his companies) to [the husband]’s group of companies, no documentary evidence has been provided to support amounts [the father] has loaned to [the husband]’s group.  I have therefore presented my valuation conclusions with and without “Loans from [the father]”, which is calculated as the sum of the relevant payable balances in those companies within [the husband]’s group which have a net payable to [the father].”

293.  In the Main Judgment, the judge decided that it was appropriate to disregard all loans from the father and his companies to the husband and his companies.  The stated basis for this approach was the judge’s conclusion (at paras 230 and 231 of the Main Judgment) that such loans were “soft” loans – i.e. fund transfers booked as loans, but which were never intended by either the father or the husband to be repaid.  As such, they should be disregarded in assessing the value of the husband’s companies, since their inclusion would unjustifiably reduce the value of the husband’s companies by the recognition of liabilities which would never need to be met.  This conclusion was reached on the basis of the matters canvassed at paras 218 to 229 of the Main Judgment, where the judge explained his reasons for concluding that the movements of funds from the father’s companies to those of the husband should be regarded as “soft” loans.

294.  The judge went on, in para 233 of the Main Judgment, to express the view that loans from the husband from the father should also be regarded as “soft” loans, saying:

“The accounting experts agreed that entities owned by the father, including OIL, and Mount Cook Land Ltd owed J¥27 billion (HK$2.5 billion), and J¥1.4 billion (HK$0.13 billion) to Veloqx Pte Ltd. It must follow that just as the loans to the husband by the father are soft loans, so equally any “debts” due from the father to the husband’s companies are soft loans. Both sets of loans are a demonstration of the manner in which the two groups of companies, separately legally and beneficially owned by the husband on the one part and the father on the other part, work between each other. They use each others funds simply for their mutual convenience, with no real intention that there should ever be a legally recoverable debt.”[62]

295.  Before the judge, the husband had contended that all liabilities, in both directions, between himself and his companies, and the father and his companies, were real (or “hard”) liabilities, which should be taken into account in arriving at the value of the Japanese business.  On this appeal, it was not entirely clear whether Mr Pointer challenged the Judge’s finding that such payments should be regarded as “soft” loans, although for the reasons set out in para 227 we do not think this was the right position.  Mr Pointer submitted even accepting that the payments from the father’s companies to the husband’s companies should be so regarded, it follows from the judge’s finding at para 233 of the Main Judgment that payments in the other direction, from the husband’s companies to the father’s companies, should be treated in the same way, so that amounts totalling HK$3,891 million recorded in the books of the husband’s companies as loans made by them to companies owned by the father should not be regarded as real assets with any value (as they were also never intended to be repaid), and should therefore be deducted in arriving at the value of the Japanese business when computing the net value of the husband’s assets available to be shared between the parties. This point was raised in the L&A letter, where Mr Allen suggested that the correct value to be ascribed to the Japanese business, on the basis that all loans in either direction were “soft” liabilities, was HK$4,650 million, a figure which he arrived at by adopting Mr Clokey’s assessment of the value of the Japanese business, including loans from the father, at HK$6,706 million, adding to that what Mr Allen said was the correct amount of debts due to the father of HK$1,835 million and deducting the amount of debts owed by the father of HK$3,891 million.

296.  Although the judge was invited to make these corrections at the Barrell hearing, he declined to do so, suggesting that the evidence as to the nature of payments by the husband’s companies to the father’s companies was in a state of disarray, such that he could not be satisfied as to the nature of the payments.  This was notwithstanding what he had earlier stated, at para 233 of the Main Judgment, to the effect that such payments should also be regarded as “soft” liabilities.

297.  Before us, Mr Pointer submitted that it was not open to the judge to disregard his earlier finding in order to get around his oversight in failing to deduct the value of the “soft” loans from the husband’s companies to those of the father when arriving at the value to be ascribed to the Japanese business.  He submitted that the proper valuation of that business, when this oversight was corrected for, was the HK$4,650 million figure put forward by Mr Allen.

298.  For the wife, Mr Howard sought to maintain the judge’s valuation of the Japanese business, and to justify the judge’s treatment of the “soft” loans from the husband’s to the father’s companies differently to those in the other direction by reference to the reasons given at paras 111 to 113 of the Barrell Judgment. There, the judge suggested that it did not follow from his finding that loans from the father’s companies to the husband’s companies were “soft” ones that advances from the husband’s companies to the father’s should automatically be deducted from the value of the Japanese business, owing to what he considered to be the unsatisfactory state of the evidence and the lack of credibility of the husband and father as witnesses.

299.  Mr Howard also suggested that it would be unfair to the wife if this conclusion of the judge were displaced without making a simultaneous upward adjustment to the percentage share in the matrimonial assets to be awarded to the wife, as the judge had arrived at a sharing percentage of 20% (which the wife complains is, in any event, too low) ostensibly to take account of the contribution made by the father, a contribution which would be significantly reduced if the loans from the husband’s companies to those owned by the father were treated as not being assets of the Japanese business.

300.  We do not think that the judge’s refusal to make an adjustment of the nature contended for by the husband can be justified.  It is quite clear from para 233 of the Main Judgment that the judge had found that payments from the husband’s companies to those owned by the father were, like those made by the father’s companies to those owned by the husband, not real liabilities and were never intended to be repaid.  This is made plain by the last two sentences of that paragraph.  We do not agree with Mr Howard’s suggestion that, by placing the word “debts” in inverted commas earlier in the paragraph, the judge was casting doubt on the nature of the payments made by the husband’s companies to the father’s companies.  The judge’s reference, in the very next sentence to “both sets of loans” indicates, to our minds, that the quotation marks were intended to connote only that such payments did not involve legal liabilities and did not require repayment.

301.  Having made this finding, it was not open to the judge to depart from it in the Barrell Judgment.  Moreover, the reasons there given for not according the same treatment to the movements of funds in both directions do not withstand scrutiny.  The nature or basis of the payments was not a matter of significance.  Whether the payments were called loans, gifts or investments (or something else) did not matter.  What was important was the judge’s conclusion that whatever they were called, the payments in both directions were not intended to be recoverable. That being so, the inflows from the father’s companies could (as the judge found) be regarded as assets of the husband’s companies, but it followed also that the outflows in the other direction could not.  Further, there was, as Mr Pointer demonstrated, no dispute as to the fund flows from the husband’s companies to those owned by the father.  Both parties’ accounting experts were agreed (as the judge noted in para 233 of the Main Judgment) on the amount of such payments from VCIL to two of the father’s companies, and PwC had acknowledged that documentary evidence had been provided for all payments from the husband’s companies to the father’s companies in the note to Mr Clokey’s table set out in para 292 above.  The uncertainties and unsatisfactory record keeping described by the judge in paras 218 to 223 of the Main Judgment related to payments from the father’s companies to those in the husband’s ownership, and not the other way around.  The failure by the father and the husband to keep a ledger setting out the payments between their respective groups of companies does not seem to us to be of any real significance, particularly when it is borne in mind that such payments appear (for the most part at least) to have been recorded in the books of the companies concerned.

302.  We are therefore satisfied that this complaint by the husband is justified, and that loans and payments from the husband’s companies to the father’s companies should not be regarded as assets of the husband’s companies.  It follows that the value of the Japanese business (assuming it is, contrary to our view, to be treated as an asset of the husband’s) should be adjusted to the extent necessary to exclude the amount of such advances.

303.  However, we are not satisfied that the value of HK$4,650 million put forward by Mr Pointer as the adjusted value of the Japanese business is the right value to adopt.  We have noted in para 295 above how this figure was arrived it. It adopts as its starting point a value for the Japanese business including loans from the father’s companies, of HK$6,706 million.  The L&A letter proceeds to add back the amount of HK$1,835 million on the basis that this represents the amount of loans from the father’s companies, and then to deduct the amount of HK$3,891 million, which is said to be the amount of loans to the father’s companies.  It will be observed that the figure of HK$621 million for loans from the father’s companies put forward by Mr Clokey (being the difference between his two valuations depending on whether such loans are included or excluded) differs dramatically from the figure of HK$1,835 million suggested by Mr Allen.  This difference was not addressed by Mr Allen in the L&A letter, or by counsel in the course of submissions before us.

304.  The answer may lie in the last sentence of note 1 to Mr Clokey’s table.  The “loans from [the father]” which he had regard to was “the sum of the relevant payable balances in those companies within [the husband’s group] which have a net payable to [the father].”  But this is not necessarily the same as the total amount of the advances made by the father’s group to the husband’s group.  To take a simple example, assume Company A (in the husband’s group) has received HK$100 million from the father’s group, and paid out HK$60 million from the father’s group.  Mr Allen would say that the (total) amount of the loans from the father’s group amounted to HK$100 million (at least if the companies making the advances were different from those to which advances were made), while on Mr Clokey’s basis, the (net) amount of such loans reflected in his table would be HK$40 million.  By netting off the amounts in both directions, Mr Clokey has in effect treated part of the advances from the father’s side as being “hard” loans, matched by similar “hard” loans from the husband’s side, and by adopting Mr Clokey’s figures, the Judge would appear to have done the same.  If one were to adopt Mr Clokey’s table as the starting point, it seems to us that in principle, the adjustment to be made in respect of the “soft” loans from the husband’s companies to those owned by the father would require the deduction of an amount representing the total net receivable balances in those companies in the husband’s group which have a net receivable from companies in the father’s group.

305.  That figure does not appear to be in the materials before us, and we are accordingly unable to ascertain the amount of the adjustment that is called for.  It also seems to us that it might arguably be more appropriate to look at all loan balances individually, rather than at a group level, which may produce a different result.  We are conscious of the fact that we have not had the benefit of full submissions as to this, and in the circumstances, had it been necessary to come to a view as to value of the Japanese business on the basis that all loans between the father’s group and the husband’s group, in both directions, should be disregarded, we would not have found it possible to do so, and would have remitted this issue to the Court of First Instance for retrial.

306.  That said, we would accept that the effect of doing this might well be to reduce the extent of the overall contribution by the father to the success of the Japanese business, a matter that might call for an adjustment in the percentage of the matrimonial assets to be awarded to the wife if a sharing award were to be made.  However, for the reasons explained in Section C of this judgment, this is not something that need concern us in this case.

D.5 Other arithmetical errors

307.  Apart from the arithmetical impact of the failure to take full account of the judge’s conclusion that loans in both directions between the father’s group of companies and the husband’s group of companies should be regarded as “soft” loans, and therefore disregarded in the valuation of the Japanese business and other businesses, three other alleged arithmetical errors were identified in the L&A letter.  These related to: treatment of inter-company loans and the exclusion of the Citic group from the valuation of the husband’s assets; the Aoyama project; and alleged double counting of assets.  The husband complains that the first and third of these were not rectified by the judge, and the second was not fully rectified, despite being drawn to the judge’s attention in the Barrell hearing.  Again, although it is not strictly necessary to deal with any of these matters in the light of our conclusion that a needs award rather than a sharing award is appropriate in this case, we shall briefly express our views on each of these matters.

308.  In Mr Clokey’s table to which we have previously referred, he included values for both the Japanese business (which the husband contends is not an asset of his) and the Citic group of companies (which the husband accepts is an asset of his), based on their underlying assets and liabilities (on the alternative bases depending on the treatment of loans from the father’s companies to the husband’s companies in the manner we have already discussed).  However, the judge, while including in his tables at para 350 of the Main Judgment and para 116 of the Barrell Judgment, a value for the Japanese business, omitted to include any figure in respect of the Citic group, notwithstanding that, on the basis of Mr Clokey’s evaluation, it had a positive value of some HK$125 million if loans from the father’s group of companies were excluded (as the Judge thought was appropriate).

309.  In the L&A letter, it was suggested that it was inappropriate not to include a value for the Citic group, while including a value for the Japanese business, as this would have the effect of distorting the value of the husband’s assets.  This was because there were considerable fund movements between the two groups, by which the Japanese business was a net financier of the Citic group.  By failing to include a value for the Citic group, the debts owing by it to the Japanese business are left out of account, thus inflating the value of the husband’s assets by taking those debts into consideration as assets of the Japanese business, but failing to take them into account as liabilities of the Citic group, which clearly belonged to the husband.  It seems to us that this is, in principle, a valid complaint.  The value of the Citic group, excluding all loans as between the father’s companies and the Citic group companies in either direction, should have been included when valuing the husband’s assets.

310.  Mr Allen suggested that, as with the Japanese business, the starting point should be Mr Clokey’s assessment of the value of the Citic group including the advances from the father’s side, to which should be added back sums due to the father’s companies and from which should be deducted sums due from the father’s companies, concluding that if such adjustments were made, the value of the Citic group would be HK$126 million.  However, for the reasons already explained in the section above dealing with the question of the proper treatment of “soft” loans, we do not think that this is the correct approach, given Mr Clokey’s treatment of loans from the father’s side whereby only net balances in favour of the father’s side were excluded.  As with the Japanese business, we do not have available to us the information necessary to enable the appropriate value of the Citic group to be ascertained, treating all loans in both directions between the Citic group and the father’s companies as “soft” liabilities.  Had it been necessary, this issue too would have had to be remitted to the Court of First Instance for determination.

311.  But beyond the adjustment in respect of “soft” loans, Mr Allen further suggested that an amount of HK$825 million should be deducted from the value of the Citic group in respect of assets that were separately listed in the tables at para 350 of the Main Judgment and para 116 of the Barrell Judgment (these were the Boeing business jet, the two Pershing yachts, the Belvedere property, a watch, certain cars and a collection of wine).  We shall deal with the question of double counting below.  However, at this stage we observe that the effect of making this further adjustment (which the judge declined to make[63]) would, on Mr Allen’s figures, have resulted in the Citic group having a negative net value of HK$699 million.

312.  Although the judge appears to have declined to include a negative value in respect of the Citic group so as to deduct it in his assessment of the husband’s wealth on the basis (which we have held to be incorrect) that “soft” loans from the husband’s companies to the father’s companies should not be excluded, we can see that if it were truly the case that Citic had a negative net asset value, it should be treated as having no value (and omitted from the list of the husband’s assets on this basis), rather than being treated as a liability of his which would reduce the overall value of his assets (which would be the effect of including it as a negative value).  Generally, an investment consisting of shares in a company with a negative net asset value would be treated in the hands of the shareholder as being of no value, rather than as a liability.  This follows from the fact that the company in question is a separate legal entity with its own assets and liabilities for which its shareholders are not responsible.  There was nothing to suggest that the husband was under some obligation to make good any supposed deficiency in the Citic group’s net assets, and so it would not have been appropriate to include it at a negative value in ascertaining his wealth, had it truly been the case that it had a negative net asset value.

313.  That said, adopting for present purposes Mr Allen’s calculation of the effect of excluding loans in both directions between the father and the husband’s companies, it was not in fact the case that the Citic group had a negative net asset value.  Mr Allen arrived at a negative value for the Citic group by removing the value at which the assets (which it owned and were said to have been double counted) were included in the books of the relevant asset owning companies in the Citic group.  We do not think that this was appropriate.  There was no reason to treat the assets concerned as not being owned by the corporate entities by which they were held.  If it were desired to value them at their actual value as at the relevant date for assessment of the husband’s wealth, they could have been taken into account at their realisable values, rather than their book values.  But they should still have been taken into account as being under the ownership of the Citic group. Any question of double counting should have been addressed not by removing the book value of the assets from the value of the companies by which they were owned, but by including the assets (at current realisable values) in ascertaining the values of the relevant companies or groups of companies, and not including them in the list as separate assets.  The net result, so far as the husband’s wealth is concerned, is the same, but this approach respects the ownership of the assets in question by the companies concerned.

314.  So far as the Aoyama project is concerned, the L&A letter pointed out that the value of HK$4 million adopted as the net asset value for the project was incorrect, and suggested a corrected value of HK$839 million, taking into account loans from and to the father’s companies.  In the Barrell Judgment, the judge adjusted the value of the Aoyama project to HK$835 million, apparently by taking in the adjustment, but omitting to have regard to the original value that had been included.  Mr Pointer accepted before us that the correct valuation of the Aoyama project should be HK$839 million.  However, he contended that the Aoyama project should not be regarded as an asset of the husband’s at all – a point we have dealt with separately above.

315.  The L&A letter also contended that one further adjustment should be made in respect of the Aoyama project, on the footing that (contrary to Mr Pointer’s submission) it was in fact an asset of the husband’s.  This related to a payment of US$2 million (equivalent to HK$15.6 million) made by OIL to the husband in February 2011, as a commission for his assistance in the purchase of the Aoyama project property.  It was suggested that if the project was in fact the husband’s own property, there would have been no basis for this commission to have been paid, so that it would be repayable to OIL, and should be treated as a liability of the husband’s to OIL and deducted from the value of his assets when ascertaining his wealth.

316.  This point was not dealt with by the judge in the Barrell Judgment.  In our view, whether or not it is well founded depends not just on the outcome of the husband’s appeal against the finding that the Aoyama project was his property, but also, assuming for the moment that that appeal were to fail, on whether the evidence established that the liability suggested by Mr Allen was a real liability which was likely to be enforced.  It was not possible for us to come to any conclusion as to this latter point on the material before us, and if it were necessary, this would have been a further point to be remitted to the Court of First Instance for consideration.

317.  That leaves the point on double counting of assets.  This arises in relation to both the Citic group, in relation to the assets mentioned in para 311 above, and in relation to the Japanese business, in relation to some three watches and eight motor cars which were valued in the books of companies in the Japanese business at HK$28.5 million, but were also included under separate items for cars and watches in the judge’s summaries of the husband’s assets at paras 350 of the Main Judgment and 116 of the Barrell Judgment.

318.  Although Mr Howard sought to suggest that the judge had not erred in this respect, having regard to the husband’s own statement in his Form E that the ownership of some of these assets was not entirely clear, and that he had therefore included them under his personal assets in the Form E, and having regard to supposed discrepancies and uncertainty in relation to the number of watches and cars with which these points were concerned, we are satisfied that the judge erred in including these assets separately and not simply accounting for them in the valuation of the Japanese business and the Citic group.

319.  In the case of the Japanese business, the assets concerned were the three watches and eight motor cars identified at page 6 of the L&A letter[64].  Each of these was clearly identified in the balance sheets of the various companies in the Japanese business set out in the table. The husband’s confusion as to whether they were owned by himself personally or by one of the companies is not something that can justify their inclusion in the list of assets twice.  The watches and cars concerned are individually identified, and there is no basis for thinking that there were in fact two of each.  That being the case, they should only be included once in the computation of the husband’s wealth.

320.  The same is true of the Boeing business jet, two Pershing yachts, the Belvedere property, watch, cars and wine collection held by companies in the Citic group.  There was no doubt at all that there was only one jet, two yachts and one property.  No basis was shown for thinking that there were two of any of the other assets referred to. They too, should be included once only in working out the level of the husband’s wealth.

321.  For the reasons we have explained above, the appropriate method of accounting for these assets is for them to be included at their realisable values as assets of the companies by which they are owned. This will no doubt require some adjustment to the value of the groups of companies concerned.  The items in question should not then be separately listed as assets of the husband, and the values included for the Boeing business jet, yachts, and Belvedere property removed from the list.  As for the cars, watches and wine collection, it will be necessary to reduce the amounts set out for those items by removing the value of such items as are owned by the companies concerned.  If there are further cars, watches and wine not owned by companies in the two groups, they may be recorded separately.

322.  Again, given the limitations of the information available to us, these adjustments would be matters to be dealt with by the Court of First Instance had it been necessary to deal with them.

D.6 Four cars

323.  The husband complained that the judge should not have made the finding in para 331 of the Main Judgment that there were an additional four cars owned by the husband, which had not been disclosed by him.  The judge made this finding on the basis of a statement by an enquiry agent instructed by the wife, which stated that the husband had purchased four cars in 2008 at a cost of about US$1.1 million in total.  The husband challenged this finding on the basis that the enquiry agent’s statement was not served as a witness statement, but was only included as an annexure to one of the wife’s witness statements, the enquiry agent had not been tendered for cross-examination, and the point as to the four cars had not been put to the husband during his cross-examination.

324.  Again, this point is academic given our conclusion that the award in this case should be based on the wife’s needs.

325.  In any event, we do not think that the criticism of the judge in this respect is justified.  The statement by the enquiry agent was, we think, evidence (albeit hearsay) which was available to the judge subject to questions of weight.  It was open to the judge to accept it, as he did, if he thought it appropriate to do so.  We would not, therefore, interfere with this finding by the judge.

D.7 Wine

326.  The husband also contended that the judge had erred in relation to the value he ascribed to a collection of valuable wines, when assessing the value of the husband’s assets.  As with a number of other complaints, this complaint is academic in the light of our conclusion that the award to the wife should be needs based.  Again, we deal with it as briefly as possible.

327.  The judge dealt with the valuation of the wine collection at paras 318 to 327 of the Main Judgment.  He started by commenting that the husband’s evidence in relation to the wine collection was in a state of disarray, pointing to a change in stance relatively late in the proceedings, when the husband, who had all along described the wine collection as his own, referred to it in his evidence at the hearing as being an investment of the Citic group of companies. Having regard to the fact that the Citic group of companies was an asset of the husband’s which would have been available for division had a sharing award been appropriate, whether the ownership lay with the husband personally or the Citic group was not of particular importance, save for the need to ensure that the wine collection was only accounted for once.  For the reasons explained above, it appears that the wine collection was double-counted, since it was recorded in the books of the Citic group as an asset of that group of companies.

328.  Leaving aside the question of double counting, the question remains as to the value that should have been ascribed (once only) to the wine collection.  As to this, the judge pointed out that the husband’s evidence at different times ascribed different purchase costs to the wines that had been purchased, with discrepancies of between US$1.7 million and US$2.7 million odd.  The judge then observed that the wife’s accounting expert, Mr Clokey, had raised what the judge considered to be significant issues regarding the reliability of the husband’s evidence concerning the wine collection, and accepted a submission by Mr Howard that questions concerning the difference between the cost and value of the wines remained unanswered.  After noting that the husband’s expert on wine valuation (whom the judge did not consider to be truly independent, since the husband had purchased some of the wines from the expert) had valued the collection at US$10.58 million, the judge expressed surprise at the valuation, having regard to the acquisition cost, which on any basis appeared to have been in excess of US$20 million.  Having referred to evidence from Mr Clokey as to information obtained in relation to trends in prices of different types of wine and the movement of Sotheby’s wine index suggesting a 30% increase in the value of wines between the time when wines were purchased and the time of the hearing, the judge adopted a value of US$20 million for the wine collection.

329.  Mr Pointer submitted that the judge’s approach to valuing the wine collection could not be justified.  He pointed out that the judge had overlooked the fact that the wife had in fact also put forward expert evidence as to the value of the wine, which valued the wine collection at US$11 million, a figure very similar to that put forward by the husband, and well below that adopted by the judge.  He submitted further that it was not open to the judge to rely on evidence of valuation of the wine collection advanced by Mr Clokey, who was not an expert in such matters, and whose evidence was, in this respect, inadmissible.

330.  Mr Howard contended that there was no basis for interfering with what he said was a finding of fact or broad evaluation by the judge on a matter on which the husband’s evidence was unsatisfactory.

331.  With respect to the judge, we do not think that it was open to him to value the wine collection at US$20 million in the face of evidence from the two experts (on wine valuation) which valued the collection at US$10.58 million to US$11 million (the latter figure having apparently been overlooked by the judge).  Mr Clokey was not an expert in wine valuation, and evidence from him as to the likely value of the wine collection was not, in our view, admissible.  No reliance should have been placed on it.

332.  Mr Howard sought to uphold the valuation by the judge on the basis that the husband might not have fully disclosed the extent of the wine collection.  But there does not appear to be any basis for this suggestion, other than the difference between the acquisition cost and the value according to the (qualified) experts.  More importantly, nowhere in the paragraphs of the Main Judgment dealing with the wine collection is there any finding by the judge to the effect that the wine collection was not fully disclosed, or that there was (or might have been) additional undisclosed wine.  On the contrary, the judge’s focus was on the value of the wine collection, and not the quantity of wine to be valued.

333.  In these circumstances, we would, if necessary, have reduced the value of the wine collection to US$11 million (being the figure put forward by the wife’s wine valuation expert).  As the wine collection was in fact held by companies in the Citic group, this would affect the net value of that group of companies.  For the reasons already explained in relation to the double counting point, it would not be appropriate to include the value of the wine collection as a separate asset of the husband’s as well.

D.8 Juniper Hill

334.  The husband also complains that the judge should not have included in the pool of matrimonial assets available for sharing the property in England known as Juniper Hill.  The judge rejected the husband’s evidence that this property was not his, and concluded that it formed part of the husband’s assets available for sharing, valuing it at HK$82.68 million.

335.  The husband says that this was wrong, since even if the property was his, it was given to him by the father at the earliest in October 2009, when it was acquired, well after the marriage had broken down. It should not, therefore be regarded as matrimonial property available for sharing, even if (contrary to our view) a sharing award were appropriate.

336.  For the wife, Mr Howard contended that given that the funds for the acquisition of Juniper Hill came from the Japanese business, it should nevertheless be regarded as part of the matrimonial property available for sharing.  However, having regard to our conclusion that the Japanese business is not to be regarded as a matrimonial asset, this argument does not assist the wife.  If, as we think, the Japanese business is to be regarded as belonging to the father, the husband’s argument is well-founded, and the value of Juniper Hill should be omitted from his assets available to be shared between the parties, as (even if an asset of the husband’s) it was acquired well after the breakdown of the marriage from an external source.

D.9 Tax

337.  The Japanese business made use of a corporate structure involving Singapore incorporated companies to take advantage of a double taxation treaty between Japan and Singapore in order to obtain the greatest taxation advantages possible.  It was the husband’s case that this structure was at risk of challenge by the Japanese tax authorities, as the Singapore companies were in fact managed out of Japan.  This, it was said, meant that there was a potentially significant taxation liability, which should be taken into account in assessing the value of the husband’s assets in the context of a sharing award.  The husband complains that the judge erred in concluding, on the balance of probabilities, that the risk of such tax liabilities arising were not such as to call for any reduction in the value of his assets.

338.  As we have concluded that the award to the wife should be needs based, this point, like many of the other points discussed in this section, falls away.  However, we would in any event not have been minded to disturb the judge’s conclusions on this point.  The question of potential tax liabilities was considered by the judge in paras 336 to 348 of the Main Judgment.  There, he explained why he preferred the evidence of the wife’s taxation expert on this point, leading to the conclusion that the risks were not such as to call for a reduction in the value of the Japanese business to be made.  Having considered the submissions made by the husband at the trial, and the judge’s reasons for preferring the evidence of the wife’s expert witness, we see no reason to interfere with this particular finding.

D.10  Harajuku/Almost Blue

339.  On the wife’s side, it was contended that, having preferred the evidence of the wife’s experts on valuation of Japanese property to that of the husband’s expert, the judge was wrong to have failed to take into account what the wife’s expert had provided as “subsequent and uplifted values” for properties owned by two Japanese companies known as Harajuku and Almost Blue, on the basis that such properties would be redeveloped.  Mr Howard suggested that both sides’ valuers had put forward values on the basis of possible redevelopment, so that this basis should have been adopted.  It was suggested that had the judge done so, the value of the husband’s net assets should have been increased by HK$1,630 million.

340.  The judge does not appear to have dealt with this point in the Main Judgment, or the Barrell Judgment.

341.  However, as Mr Pointer submitted, this was unnecessary because in a Joint Statement prepared by the husband’s and wife’s valuers following a meeting between them, the wife’s valuers agreed to value these companies and their properties on the basis of the current use of the property, as there was an absence of information as to whether a redevelopment plan was feasible.

342.  In these circumstances, we see no reason to interfere with the judge’s assessment of the husband’s net worth on this basis.

D.11  Exchange rate

343.  The husband contended that having regard to the size of the award, it must have been obvious to the judge that the award would have to be settled by selling some of the Japanese property, which was likely to require some time in order to implement, and that in those circumstances, any sharing award in favour of the wife should be denominated in Japanese Yen, so that both parties would share equally in exchange rate risks.  The judge had said, at para 505 of the Main Judgment, that the wife should not be disadvantaged by adverse currency movements, but in the Barrell Judgment, indicated that this comment had only been directed to the situation in which the sum of HK$202 million which the father had said was immediately available for payment was not paid promptly, and that as the father had paid that amount to the wife, this issue fell away.  However, the award (as varied by the Barrell Judgment) was and remained denominated in Hong Kong dollars.

344.  As we understood Mr Pointer’s submissions, this point only arose in relation to a sharing award, and not one that was based on needs.  Given that we have concluded that a needs based award is appropriate in this case, the point falls away.

345.  In any event, even if we had concluded that this was an appropriate case for a substantial sharing award, it seems to us that what currency the award should have been denominated in was a matter within the judge’s discretion, and it was in our view within the range of reasonable exercises of such discretion for the judge to determine that it should be denominated in Hong Kong dollars, not least because the wife seems likely to reside primarily in Hong Kong.  Moreover, while it may be that a large award might have to be met by the sale of Japanese property, the means by which the award is to be satisfied is not within the wife’s control, but will be a matter for the husband.  To the extent that assets need to be realised to satisfy the award, it will be up to the husband to decide, in the light of all the circumstances, what assets to have recourse to, and how to realise them. 

D.12  Wife’s assets (Costs)

346.  The husband contends that in assessing the level of the wife’s assets (a matter which is relevant whether the award to her was a sharing award or a needs-based award), the judge erred in failing to include among her assets the sums that she was due to recover from the husband and the father under costs orders made in her favour.  There were two parts to this complaint: first, it was said that some HK$25,841,143 (being the wife’s costs laid out on the section 17/fraud proceedings, in respect of which she was to recover her costs on an indemnity basis) should have been included among her assets; and second, the sum of HK$11.87 million charged by the wife herself for her work as her own solicitor, which she would recover as costs in the proceedings, should also have been included among her assets.  The argument here was that these were sums which the wife would receive, and to fail to take them into account would result in double recovery.

347.  Mr Howard sought to characterise this as an unappealable exercise of discretion by the judge.  With respect, we cannot agree.  In coming to an assessment of the wife’s assets, whether for the purposes of a needs-based or sharing award, it seems to us that it was necessary for all of her assets to be taken into consideration.  To do otherwise would, as the husband submits, effectively give her a double recovery in respect of such costs.

348.  If, as we think, the award to be made to her is to be needs-based, the amount payable will be arrived at by deducting her assets from the amount found to represent her needs – if these costs which she will recover are not treated as part of such assets, the needs award would be increased by the amount of the costs, which would then separately be recovered under the costs orders, thus being recouped by her twice.

349.  We would, however, accept Mr Howard’s submission that it would not be appropriate to deduct the whole of the amount of such costs, as such costs would be subject to assessment by way of taxation, and even on the indemnity basis, would be liable to be taxed down to some extent. We would therefore assess the value of her claims to costs, doing the best that we can, at HK$30 million.

350.  The costs (assessed at the level we have indicated) would also have had to be brought into account as part of her assets available for sharing (had we found such an award to be appropriate), since her presently available assets would (but for the expenditure of such costs) have been higher, and can be expected to be replenished under the costs orders in due course.  However, in this case, we would have accepted Mr Howard’s further submission that it would not be appropriate to take this course without requiring the husband to account for the costs he has expended on the litigation, as not to do so would in effect penalise the wife, since she would be contributing to the husband’s costs, which should be borne by him alone. This is not an assessment that we can perform on the information available to us, and would, if it had arisen, have been another matter that would have had to have been remitted to the Court of First Instance for consideration.

D.13  Wife’s assets (Hollywood Heights)

351.  The husband also complains about a further aspect of the judge’s assessment of the wife’s assets.  This relates to the value of a property owned by the wife (through a company) in Hollywood Heights, on Old Peak Road.  It was agreed that the property had a net value of some HK$37.42 million.  At para 354 of the Main Judgment, the judge acceded to a submission by Mr Howard, made in written submissions in response filed after the hearing, that 10% of the value of the property should be ignored in computing the value of the wife’s assets on the basis that 10% of the purchase price had come from bank accounts of the wife’s mother, so that the wife should be regarded as having a 90% interest in the property, and her mother a 10% interest.  Accordingly, he reduced the value of the wife’s assets by HK$3,742,000 to reflect this.

352.  Mr Pointer contended that the judge was wrong to do so, as the evidence relied upon by the wife was only referred to in written submissions submitted after trial, and had not been raised during the trial so as to give the husband’s representatives an opportunity to cross-examine the wife in relation to it.  More importantly, Mr Pointer demonstrated, by reference to the transcript of his cross-examination of the wife in relation to the Hollywood Heights property, that not only did the wife fail to produce the documentation eventually relied upon when being cross-examined, but that she had accepted under cross-examination that the whole of the funding for that property had originated from the husband, and that in the circumstances, it made no difference whether payments for the property were made out of accounts of the wife or her mother, as the funds lodged in the wife’s mother’s account that were used to pay for the property must, in the light of that acknowledgment, be regarded as in truth the wife’s own money, there being nothing to suggest that the husband was making gifts to his mother-in-law as opposed to providing funds to the wife.

353.  With respect, it seems to us that by accepting the wife’s mother’s bank statements at face value, the judge has overlooked the wife’s admission that the Hollywood Heights property was entirely funded by the husband.  Having regard to that admission, it seems to us that the correct conclusion to draw would have been that the precise account from which the funds for the purchase came was not of any particular importance, and that the property should be regarded as belonging wholly to the wife.  We would therefore include the whole of the Hollywood Heights property as an asset of the wife’s, and in consequence the value of her assets should be increased by a further HK$3,742,000.

D.14  Fighting fund

354.  In addition to the award made to the wife on the sharing basis, the judge awarded the wife a further HK$60 million as a “fighting fund” to enable the wife and members of her family to resist litigation that might be brought against them by the father.  He explained his reasons for doing so in paras 397 to 401 of the Main Judgment. Having stated that the father had made it plain that he would pursue the wife and her parents for alleged wrongful conduct on their part towards himself or his companies (such as alleged breaches of the Special Articles in relation to the Japanese property companies), and that the father accepted that he could properly be described as an extremely litigious man, the judge decided that the wife should not have to have recourse to her award to meet her costs in defending any such litigation, which the judge described as appearing to be “entirely unjustified and vindictive”, apparently on the basis that he considered that any acts by the wife and her parents of which complaint might be made were undertaken at the direction of the husband.  However, he added that if the father were to give the wife and her parents a complete release, this additional amount need not be paid.

355.  In the Barrell application, the judge was asked to clarify whether the “fighting fund” was intended to be payable only as part of a needs award, and not as part of the sharing award that he eventually made.  At paras 104 to 107 of the Barrell Judgment, the judge answered this question in the negative.  However, he did slightly modify his earlier ruling by indicating that rather than a one-way undertaking from the father (and husband) in favour of the wife and her parents, there should be mutuality, so that if such undertakings were forthcoming, there should also be undertakings from the wife and her parents not to bring any claims against the husband and father either.

356.  Mr Pointer submitted that the Judge was wrong to have made such an additional award.  He argued that:

(1) While an award of a sum to cater for anticipated future litigation costs might properly be made as part of a needs based award, it should not have been made in the context of a sharing award.

(2) Even in the context of a needs award, it was necessary for there to be proper evidence of the existence of the need for such a fund, and there was no such evidence in this case.

(3) If an award was to be made, it should be made subject to terms which made it clear that the fund was to be used for the specific purpose of defending litigation of a defined nature, with provisions put in place to ensure that account was taken of any costs orders made in such litigation, should it transpire, and for the fund (to the extent that it was not utilised, or replenished as a result of costs orders made in the wife’s or her parents’ favour) to be returned at the end of a particular period of time.

(4) So far as the amount of the award was concerned, as this had not been the matter of debate before the judge, he had no particular submissions to make as to this aspect of the matter.

357.  Mr Howard, however, submitted that:

(1) There was authority for the award of a fighting fund, and it was therefore an award which was within the judge’s powers to make.

(2) There was no reason why a fighting fund should only be awarded in a needs-based case.  Even in a sharing case, the amount of the sharing award reflected the receiving party’s entitlement, and it would not be appropriate for that entitlement to be reduced by having to spend it to deal with unjustified or vindictive litigation.

(3) There was clear evidence of a real risk that the father would launch proceedings against the wife and her family, having regard to the position he had taken in English proceedings brought by him against the wife, the now-compromised conspiracy claim, and the complaints made in these proceedings, both before the judge and in this court, about the wife’s and her parents’ conduct in relation to companies in which the father claimed to be interested, and the judge was entitled to conclude that any such litigation would be unjustified and vindictive.

(4) There was no need to impose any terms on the award to cater for the outcome in relation to any litigation that might be brought.

(5) The amount of the fighting fund to be awarded was a matter for broad assessment by the Judge, and it could not be said that HK$60 million was an excessive amount.

358.  Both Mr Pointer and Mr Howard referred us to two English decisions in which a fighting fund had been awarded: Al-Khatib v Masry [2002] 1 FLR 1053 and Ben Hashem v Al Shayif [2009] 1 FLR 115.  Mr Pointer, however, suggested that an examination of the facts of those cases demonstrated that the award of a fighting fund was something that, while within the court’s jurisdiction to grant, should be rarely done, and only where the circumstances truly justified such an award, which was not the case here.  For his part, Mr Howard contended that there being jurisdiction to make such an award, the judge was entitled, having regard to his assessment of the situation, and in particular the father’s propensity to engage in litigation, to do so.

359.  In Al-Khatib v Masry, Munby J awarded a wife an additional sum of £2,500,000 for the specific purpose of enabling her to engage in litigation to attempt to recover custody of the four youngest children of the marriage, who had been abducted and removed from the jurisdiction by the husband.  Munby J considered that such an award could be justified, over and above a financial award based on sharing principles, on the basis that the wife had a need to take steps to recover the children, both in their own interest and hers, and for this purposes, needed to be provided with funds to enable her to do so.  It was, however, made clear that the award in this respect was for the specific purpose of funding future litigation directed to the recovery of the children, and that on the return of the children to the wife or the jurisdiction of the court, any unused funds should be returned to the husband.  So structured, the award clearly had the effect of acting as an incentive to the husband to return the children.

360.  In Ben Hashem v Al Shayif, Munby J awarded a wife the sum of £250,000 (as part of a needs award of £7.061,570) in respect of anticipated litigation costs that would be incurred in seeking to enforce the award against the husband, having regard to the husband’s conduct of the litigation to date, which had been the subject of serious criticism by the court.  The conduct of the litigation was such as to leave the court in little doubt that the husband would not cooperate in meeting the award, and that litigation to enforce it would be inevitable.  It does not appear, however, that any restrictions were placed on the use of the £250,000, or that any requirement to return unused funds was imposed.

361.  In Hong Kong, there has been one case in which the question of a litigation fund or fighting fund has been considered – WGL v ASB (unreported, HCMP 489/2013, CFI, 28 June 2013), an application under the Guardianship of Minors Ordinance.  Deputy Judge Bebe Chu was of the view that such an award was not one which the court had jurisdiction to make under that Ordinance, and that, in any event, the litigation conduct of the father (against whom orders for interim maintenance and maintenance for a child born outside marriage were made) was not such as to justify the making of such an award, even if the court had jurisdiction to do so.  The case does not, therefore, take matters any further.

362.  We would accept that there is jurisdiction in the court to make an order for an award in respect of anticipated future litigation expenses in an appropriate case, and that such an award can be made in both needs-based and sharing cases.  However, it seems to us that this is a jurisdiction that should be exercised cautiously, and only in cases where it is truly justified.  Factors that should be taken into consideration will include:

(1) the likelihood of the anticipated future litigation actually arising;

(2) the nature and merits of such anticipated future litigation, in particular its connection, if any, to the matrimonial proceedings;

(3) the ability for the party seeking such an award to recover costs against the other party in such future litigation, or to obtain protection in respect of his or her costs position in such future litigation;

(4) the resources that the party seeking such an award already has available to conduct such litigation;

(5) the unfairness of imposing such obligation on the part of the paying party when he or she does not have control over the conduct or course of the anticipated future litigation.

The foregoing factors are not exhaustive.  There may be other factors which will be relevant in a given case.  Consideration should also be given to the need for mechanisms to avoid double recovery of costs, or other unfairness, and for the return of unused funds.  It would rarely be appropriate for the court to require a party to underwrite the costs of his or her former spouse in a future litigation with a third party on a subject matter unrelated to the matrimonial proceedings, particularly when the court has no idea as to the merits of the case in such litigation.

363.  In both the Al-Khatib and Ben Hashem cases, all of these factors pointed strongly towards the appropriateness of making an award.  The need for future litigation was obvious, having regard to the conduct to date of the husbands in each of the cases.  The nature of the litigation in each case was, in effect, to enforce obligations of the husbands arising in the matrimonial proceedings themselves – in one case, to recover the abducted children, and in the other to enforce the ancillary relief award itself.  In both cases, it appears that litigation would be required in a number of jurisdictions, in some of which recovery of costs might be problematic.  In neither case does it seem that the wife had very substantial assets of her own from which she could finance such litigation.  There would, further, be relatively little unfairness in making an award of this nature, which in effect meant that the husbands would be required to underwrite the litigation against themselves, having regard to the objectives of the litigation, and the ability (at least in Al-Khatib) for the husband to avoid having to pay the award by complying with his obligation (in that case, to return the children).

364.  In the present case, however, it seems to us the situation is far removed from those cases, and that the factors we have identified point firmly the other way.  We note that the justification for the award was not that there was any reason to think that the husband would refuse to pay any award that might eventually be made – the award, although made against the husband, was in respect of potential litigation by the father against the wife and her parents.  This is apparent from the passages in the judgments of the judge to which we have referred, and also from a formulation which Mr Howard provided during the hearing before us, at our request, of the proceedings which the fighting fund was intended to cover, which referred to proceedings of any nature, anywhere in the world, by the father and his companies against the wife, her parents or their companies, based on any of the allegations made, or facts, documents and evidence produced, relating to or relied upon, in either the conspiracy claim (HCA 566/2010) or these ancillary relief proceedings (HCMC 5/2008).

365.  It is true that the father has described himself as litigious.  It is also true that he has, in the course of these and other proceedings, expressed the view that he has been wronged by actions of the wife and her parents in relation to, for example, the Japanese property business. It may be that he will in future seek to bring proceedings against the wife and her parents in respect of such alleged wrongs.  But it must be borne in mind that, at this point, no such claims have been brought – they have yet to be properly formulated, yet to be answered and yet to be considered by the courts.  Should such claims be brought in future, there are (at least in Hong Kong) avenues open to the wife and her parents to protect their position in relation to them: by applications to strike out, if the claims are thought to be wholly unmeritorious; by applications for security for costs, if the circumstances justify such an application; orders for costs, if appropriate on an enhanced scale of taxation, if the claims ultimately fail; applications to join the husband as a party and to seek an indemnity or contribution from him, if it is the case that he was (as the judge seems to have thought) the person at whose behest steps were taken that exposed the wife and her parents to potential liability to the father.  While we do not in any way seek to encourage the father to embark on litigation against the wife and her parents, it does not seem to us that it is possible, at this stage, to express the view, as the judge did, that any litigation of any sort would necessarily be unjustified or purely vindictive.

366.  It must also be borne in mind that the wife is not without resources.  As we have indicated, she has assets of her own of HK$79 million on the judge’s finding, and she has also been paid some HK$202 million by the father, as the judge had ordered in the Main Judgment.  She therefore has ample means with which to defend herself should that become necessary.  Should she be vindicated, she should be able to obtain costs orders through which she will recoup much of the costs she may expend.

367.  On the other hand, unlike the two English cases, in which the prospects of the husbands succeeding were practically non-existent, if the father is ultimately successful in litigation against the wife and obtains a costs order in his favour, the effect of the order made by the judge would be that the husband (or whoever assists him to meet the award in these proceedings) will have effectively funded her defence, and the costs award in favour of the father.  Such an outcome does not seem to us to be one that can be justified.

368.  Thus, although we would accept that it is possible that proceedings of the sort envisaged by Mr Howard and the judge may materialise, the nature of those proceedings points against the making of any order of this sort.  Additionally, it does not seem to us that it is possible to say (at least at present) that the likely outcome of those proceedings is such that the wife should be given the advance protection in respect of costs that a fighting fund of the nature awarded by the judge provides, particularly having regard to the other avenues open to her to protect her position in such proceedings, and the financial resources presently available to her to do so.  With respect, the judge did not consider these factors, and we therefore cannot agree with his decision to award the wife a fighting fund in respect of possible litigation by the father.  We therefore set aside the award of a fighting fund.

D.15  Adjournment of wife’s damages claim

369.  The husband further complains of the judge’s decision to adjourn the assessment of damages under the wife’s counterclaim in the section 17/fraud proceedings to be dealt with separately after the conclusion of the ancillary relief proceedings, when it had earlier been ordered that these matters should be dealt with at the same time, in a single hearing.  Mr Pointer submits that this was wrong in principle, as it was necessary for both matters to be dealt with together, as the amount to be recovered by the wife by way of damages on her counterclaim would form part of her assets, which would have to be taken into account whatever the basis of the award to her in the ancillary relief proceedings.

370.  Mr Pointer went further, and submitted that it was now clear that there was no actual loss to the wife, since her damages claim was based on the difference in the value of the Japanese business between the time when her ancillary relief claim should have been tried (absent the delay caused by the section 17/fraud proceedings) and the time when that claim was actually tried (at the end of 2011).  However, it was, said Mr Pointer, the wife’s own case (when cross-examining the husband’s Japanese property valuation expert) that the value of the underlying buildings owned by the Japanese business would not have changed in that period.

371.  Mr Howard submitted that this was simply a case management decision by the judge, and was one which was within his discretion to make.

372.  We tend to think that although this was a case management decision, it was at least arguably one which was plainly wrong, having regard to the necessity to have the outcome of the damages assessment in order to deal fully with the ancillary relief claims.  However, the difficulty is that the decision was not appealed immediately on its being made.  The result is that even if we were to agree that it is one which this court would have been justified in interfering with, it is now too late for the error in case management to be rectified to any useful purpose.  The ancillary relief proceedings have been completed, and the appeal from them has been heard and dealt with in this judgment.

373.  We do not think that it would be right for us to accede to Mr Pointer’s invitation to dispose of the counterclaim ourselves on the basis that he suggests.  The wife has not had the opportunity to deploy her material and arguments in relation to the assessment of damages, and we do not think that it would be right to pre-emptively prevent her from doing so.

374.  In the circumstances, we do not think that the appeal on this point is one that should be entertained, and we dismiss it.

D.16  Time and mode of payment

375.  In para 502 of the Main Judgment, the judge directed that the parties should have 90 days from the date of the Judgment to attempt to agree on the method by which the award in favour of the wife was to be satisfied.  It would seem from the immediately preceding paragraphs that the judge considered that having regard to the size of the award that had been made, this might involve complicated tax or corporate issues.  In default of agreement being reached, he directed that an application should be made to him to enable the matter to be resolved.  He also indicated, at para 504 of the Main Judgment, that if the award were not paid or “satisfactorily settled” within 90 days, interest on any outstanding amount should accrue at judgment rate from the date of the Main Judgment (1 December 2011).

376.  Prior to the Barrell hearing, the husband put forward a timetable for payment of the award (the time limit for the putting forward of his proposals for payment having been extended until then by Poon J).  The judge did not give further directions for a hearing to take place at which such proposals should be considered, but instead ordered (by his order of 6 July 2012) that the amount payable to the wife should be increased by some HK$188.4 million and that interest should run on this additional amount at judgment rate with effect 1 December 2011 (the date of the Main Judgment) – see paras 7 and 8 of the order.

377.  Mr Pointer submitted that having given directions on how the mode of payment should be dealt with, recognising that this was not a straightforward issue, it was not open to the judge to order that payment should be made immediately.  In support of this submission, Mr Pointer relied on Ranson v Ranson [2002] 1 FCR 261.  For the wife, Mr Howard submitted that the judge in effect had given the husband 10 months to pay, since on his reading of the order of 6 July 2012, the lump sum was not payable until 30 September 2012.

378.  In our view, the orders of 1 December 2011 and 6 July 2012 provided that interest on the amount of the award (as adjusted upwards by the latter order) should run at the judgment rate from 1 December 2011 until payment.  The only amount which was to be payable on 30 September 2012 was the additional HK$60 million awarded as a fighting fund, which would become payable on that date if the main award had not been satisfied, and cross-undertakings between the husband and the father on one side, and the wife and her parents on the other, that they would not bring proceedings against each other (or companies in which they had an interest) in relation to any matters occurring prior to 1 December 2011.

379.  But such an order is not inconsistent with the Main Judgment.  It seems to us that reading paras 499 to 504 of the Main Judgment as a whole, the judge was saying that the award should, in principle, be settled at the earliest opportunity, although he provided a 90 day window for the parties to try to reach agreement as to how it should be settled.  In default of such agreement (which would, we would have thought, included terms as to interest for delayed payment), the award would simply remain payable in full, with interest at the judgment rate accruing from the date of the award. To suggest that the judge had in mind that the award should not be payable until agreement had been reached (or an order made) in relation to the mode of payment, is, in our view, a misunderstanding of what the judge had in mind.  We therefore do not think that there is merit in this complaint.

E. OUTCOME OF THE APPEALS AND CONSEQUENTIAL ORDERS

380.  For the reasons given above, we allow the appeal to this extent: we would set aside the award of the judge in favour of the wife and substitute it with an award in the net sum of HK$208.958 million.  This amount is arrived at by taking the wife’s needs as assessed by the judge (HK$524.5 million) and deducting from it the following amounts: HK$202.8 million (the amount already paid to the wife in partial satisfaction of the award by the judge); HK$79 million (the wife’s assets as assessed by the judge); HK$30 million (the amount of costs the wife is due to recover as assessed under section D.12); and HK$3.742 million (10% of the value of Hollywood Heights as decided under section D.13).  The sum should be payable forthwith.

381.  The parties have not advanced submissions before us on the question of interest.  We direct that written submissions on interest shall be lodged by the wife within 14 days of the handing down of this judgment and submissions from the husband and the father shall be lodged within 14 days thereafter.  Subject to other directions that may be given in the meantime, the court will determine the question of interest on paper.  We draw the attention of the parties to a recent Court of Appeal judgment in PLTO v KLK & Anr, CACV 157 of 2012, 4 July 2013, which may be of relevance.

382.  In respect of the challenges to the judge’s findings on forgery, perjury and conspiracy, we do not think our criticism of those findings warrant a retrial of the case.  Nor do we think it appropriate to set aside the referral to the DPP by the judge.  In an appeal, this court does not grant remedy by way of setting aside particular paragraph(s) in a judgment.  We shall consider the question of publication and redaction below.

383.  We dismiss the cross-appeal by the wife.

384.  As regards costs, though we do not agree with the husband and the father in terms of an order for retrial, they are substantially successful before us.  We make a costs order nisi that the wife shall pay the husband and the father 85% of the costs of the appeal and all the costs of the cross-appeal, such costs shall be taxed if not agreed.  We give a certificate of two counsel in respect of the husband, and likewise for the father.

385.  We do not see why our judgment should not be published with the names of the parties anonymised.  Mr Thomas and Mr Pointer did not argue otherwise.

386.  As regards the publication of the judgment below, the judge concluded that with certain redactions, the judgment should be published, see paras 508 to 510 of the Main Judgment.  The question of redactions was argued again at the Barrell hearing and in the Barrell Judgment, the judge remained of the same view, see paras 119 to 122 of the Barrell Judgment.  However, he directed that his judgment shall remain private pending appeal to preserve the position of the parties.

387.  A division of this court has considered the principle of open justice in the context of matrimonial proceedings in the judgment in this appeal handed down on 29 July 2013.  We shall not repeat what has been said in that judgment.  Mr Pointer also referred this court to the judgment of the English Court of Appeal in Lykiardopulo v Lykiardopulo [2011] 1 FLR 1427.  In that judgment, the court considered the options open to the court when it found that there was fraud or litigation misconduct in terms of deliberate breach of the duty of full and frank disclosure by way of forgery of documents and perjury.  Publication of the judgment with suitable redaction is one of the options.  However, as observed by Thorpe LJ at para 38,

“… Each case will depend on its particular context and the degree of iniquity. Thus a response of general application is hardly possible.”

388.  In the present case, though the judgment itself had not been published, the judge had published a summary of it which mentioned his findings on forgery, perjury and conspiracy.  For reasons given above, we have to reverse the judge’s findings on the ground that forgery, perjury and conspiracy stemming from the 2006 CLA were not properly before the court at the trial and the husband and the father should not be required to deal with them.  Whether they were guilty of such misconduct is not a question this court should attempt to answer in this judgment.

389.  Apart from the prejudicial effect and reputational damage caused to the husband and the father flowing from the parts of the judgment dealing with forgery, perjury and conspiracy stemming from the 2006 CLA, they have not pinpointed other reasons for objecting to the publication of the judgment as redacted.

390.  In the circumstances, we think the proper course to take is, in addition to the redactions ordered by the judge, to direct further redactions regarding the paragraphs dealing with forgery, perjury and conspiracy stemming from the 2006 CLA, viz paras 75 to 137 of that judgment.  Though there are other paragraphs in the judgment referring to these findings and the 2006 CLA, we do not think they went further than what had been published by way of the summary and the judgment of this court should provide sufficient redress for the same.  With these redactions and the references to the parties and the names of their businesses and companies anonymised, the Main Judgment should be published given that the trial had been open to the public and a summary of the judgment had been published.

391.  We direct the parties to prepare jointly a redacted and anonymised version of the Main Judgment in accordance with the above direction for the approval of this court within 30 days from the handing down of this judgment.