W v. H AND ANOTHER

CACV 127/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 127 OF 2008

(ON APPEAL FROM HCMC NO. 1 OF 2006)

----------------------

----------------------

 

----------------------

J U D G M E N T

----------------------

 

Hon Rogers VP:

1.  This was an appeal from a judgment of Saunders J given on 29 February 2008.  The matter before the judge was an application for ancillary relief by the wife, the petitioner, in matrimonial proceedings.  The judge ordered that the husband, the first respondent, should pay the wife HK$49,100,000 within 42 days in full and final settlement of the wife’s and the husband’s claims for financial relief.

2.  Notice of appeal was filed on behalf of the wife on 7 May 2008 and on 12 March 2009, 12 days before the hearing of this appeal, a summons was filed on behalf of the husband seeking leave to serve a respondent’s notice out of time.  The orders sought by that respondent’s notice were to the effect that the wife should repay to the husband part of the sum awarded to her because the value of the husband’s investments had fallen since the date of the order of the court below.

3.  This court heard the application for leave to serve the respondent’s notice at the commencement of the hearing and that application was refused.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

4.  The husband and wife married in August 1982.  At that stage they were in their 20s.  The wife is a US citizen although she was born in Hong Kong.  There are two children of the marriage; the daughter is now in her early 20’s and seeking employment and the son is aged 20 and has had learning disabilities.

5.  In June 1982, in anticipation of the marriage, a flat was purchased for $1.75 million.  The 10% deposit was provided by the husband’s father and the bank, for which the wife worked, provided a mortgage at a favourable interest rate.  Both parties to the marriage worked in the financial field, specifically, at that time, in international merchant banks.

6.  In 1985 the family moved to London where both the husband and the wife worked in the London offices of their respective banks.  It would seem that, probably, the husband instigated the move.  Whilst in London they lived in a flat owned by the husband’s parents.

7.  In 1991 the husband decided to leave his employment in London and he returned to Hong Kong to start his own fund management business.  The wife did not return to Hong Kong at that stage but, instead, changed employment and moved to New York with the children.  The judge records that the wife had the assistance of a domestic helper in respect of the children, although there were difficulties with that, and the husband visited the wife and children in New York from time to time.

8.  In August 1991 the husband set up his own investment company and was able to raise funds.  US$5 million came from his father, a further US$10 million from a friend of his mother and he was able to invest US$1 million which he raised himself.

9.  When the business was started the husband offered the wife a 30% share in the company in return for payment by her of US$200,000.  The wife did not take up any shareholding in the company.  The reason she has given for not doing so is, as the judge said in paragraph 92 of the judgment, that the company was an untested new venture and, were that to fail, the family would have to look to that money, apart from anything else, for its support.

10.  The husband’s investment strategy was to operate a hedge fund along lines that might, perhaps, be said to accord with the original meaning of that term.  It would appear that investments were “hedged” by the purchase of other securities selected with a view to their projected movement in value counteracting, or at least cushioning, any downfall in the value of the basic security.  That is in contrast to the way in which funds that have been classified as hedge funds have been operated in recent times.  It would appear that, more recently, funds which are classified, or whose operators term them, hedge funds, operate by short selling shares, which the funds do not own.  Many of the more turbulent events on the stock markets have been attributed to this.  As the charts that have been produced by the husband show, in 1993 there was a considerable increase in the value of funds under his management.

11.  The wife returned to Hong Kong with the children in September 1992.  At that stage, the parties did not live in the flat which they had bought at the commencement of marriage because it had been let out.  They lived, instead, in a flat owned by the husband’s father.  In 1994 the wife paid off the outstanding mortgage on the original flat.  The amount paid off was approximately $770,000.  She paid that out of monies which she had earned from her employment but, as noted by the judge, she did not inform the husband that she had done so.

12.  Between August 1995 and March 1997 the wife took what has been described as sabbatical leave.  She ceased working.  The husband kept the family, indeed, he paid the wife $45,000 per month until she took up work again.  In March 1997 the wife returned to work for an international bank and the judge recorded that she continued to work there and hold “a significant place in the organisation, and earns a salary and bonus appropriate to such a post.”

13.  In 1997 the husband wished to sell the flat which had been bought at the commencement of the marriage because, at that time, the family was living in his father’s flat and they had no need for the other flat.  The property prices in Hong Kong were then rising fast.  The wife took a contrary view and the upshot was that the flat was transferred into a BVI company which was ostensibly owned by the wife’s brother-in-law although beneficially owned by the wife.  The parties transferred their shares into that company for HK$4.5 million each.  In paragraph 104 of the judgment, the judge said that he accepted the wife’s evidence that it was necessary for a third-party to purchase the property so that the capital gain arising would be crystallised and any future capital increase in the value of the property would not give rise to any capital gains tax liability for the wife as a US citizen.  The judge went on to say that he accepted that the wife had taken professional advice that such a scheme would enable her to avoid capital gains tax lawfully in the future.  As part of the netting off, the wife insisted that half the HK$770,000 which had been paid to the wife’s former employer three years earlier, in 1994, was to be taken into account.  Whilst it appeared that there was disagreement between the parties as to whether the husband had received a fair value for his share of the property, the judge regarded that as a matter which was in the past and could not be reopened.

The breakdown of the marriage

14.  Whereas the judge records that the husband claimed that the marriage had begun to deteriorate as long ago as 1985, it would seem that in the summer of 2002 the husband had suggested to the wife that there should be a divorce.  Again, as the judge recorded in paragraph 109 of the judgment, the husband accepted that a relationship had begun between himself and the second respondent during 2002.  That relationship continues to today.  It was clearly at that time that the marriage started to disintegrate irretrievably.

15.  The second respondent joined the husband’s company in January 2003 under a contract of employment which had been offered in December of the previous year.  No exception was taken to the terms of that employment but it can be said that the terms were reasonable to the extent that there was a HK$200,000 signing on bonus and there was to be a year-end bonus of not less than US$150,000 of which US$80,000 would be paid as a contribution into the company’s retirement scheme.  There would also be a year-end bonus payable each year before Chinese New Year.  In addition there was to be a place of residence provided, which would, seemingly, be treated as a worth HK$20,000 per month.

16.  2003 was certainly an eventful year.  The judge records in paragraphs 110-112 that on 21 March 2003 the husband had proposed to the wife that they should enter a “post-nuptial” agreement.  Then just a few days later, by letter dated 10 April 2003, the second respondent was offered greatly enhanced terms of bonuses.  It was said in that letter that it had been agreed that the second respondent would receive a share of the fees of the husband’s company in the form of cash or units in designated funds.  That share would be 30% of the relevant fees up to US$10 million per year.  Beyond that it would be a 20% share.

17.  In July 2003, the wife consulted a marriage counsellor and a psychiatrist.  On 20 September 2003, the husband proposed that there should be a divorce.  A month later the husband simply moved out of the matrimonial home, without giving the wife any notice.  It did not take the husband long to set about trying to put whatever assets he could beyond the reach of the wife.  On 23 November 2003, he set up what has been referred to as the Charitable Foundation and on 5 December 2003 he set up what has been termed the Family Trust, in the Cayman Islands.

18.  When, in January of the next year, the wife was informed that some US$20 million had been settled into those trusts, there was, quite understandably, an immediate protest.  Far from deterring the husband in what can only be taken to have been a deliberate effort on his part to divest assets beyond the reach of the wife and, in some respects, to the benefit of the second respondent, nearly US$2.5 million was transferred on 28 February 2004 as an additional contribution to the second respondent’s account in the company retirement scheme.

19.  Between March and September 2004, a further US$5 million in fund units, and cash of some $3.5 million was transferred into the Charitable Foundation.  Some of that came from the husband, and some from one of his companies.

20.  Divorce proceedings were commenced in May 2005 and a decree nisi was entered on 2 September 2005.

The proceedings below

Section 17 of the Ordinance

21.  As part of the dispute between the parties, the wife claimed that dispositions that had been made by the husband to the Charitable Foundation, the Family Trust and the retirement scheme administered by the husband’s company should be set aside under the provisions of section 17 of the Matrimonial Proceedings and Property Ordinance, Cap. 192 (“the Ordinance”).  It is convenient to set out the provisions of that section in so far as they are relevant to this case:

“17.  Avoidance of transactions intended to defeat certain claims 

(1) Where proceedings for relief under any of the relevant provisions of this Ordinance (hereafter in this section referred to as “financial provision”) are brought by a person (hereafter in this section referred to as “the applicant”) against any other person (hereafter in this section referred to as “the other party”), the court may, on an application by the applicant-

(a) if it is satisfied that the other party is, with the intention of defeating the claim for financial provision, about to make any disposition or to transfer out of the jurisdiction or otherwise deal with any property, make such order as it thinks fit for restraining the other party from so doing or otherwise for protecting the claim;

(b) if it is satisfied that the other party has, with the intention aforesaid, made a disposition to which this paragraph applies and that if the disposition were set aside financial provision or different financial provision would be granted to the applicant, make an order setting aside the disposition and give such consequential directions as it thinks fit for giving effect to the order (including directions requiring the making of any payment or the disposal of any property);

……………..

and an application for the purposes of paragraph (b) shall be made in the proceedings for the financial provision in question.

(2) Paragraphs (b) and (c) of subsection (1) apply respectively to any disposition made by the other party (whether before or after the commencement of the proceedings for financial provision), not being a disposition made for valuable consideration (other than marriage) to a person who, at the time of the disposition, acted in relation to it in good faith and without notice of any such intention as aforesaid on the part of the other party.

(3) Where an application is made under this section with respect to a disposition which took place less than three years before the date of the application or to a disposition or other dealing with property which is about to take place and the court is satisfied-

(a) in a case falling within subsection (1)(a) or (b), that the disposition or other dealing would (apart from this section) have the consequence,

………………

of defeating the applicant’s claim for financial provision, it shall be presumed, unless the contrary is shown, that the other party disposed of the property with the intention aforesaid or, as the case may be, is, with that intention, about to dispose of or deal with the property.”

22.  Although the husband initially resisted the wife’s claim in its entirety, by the time the matter came to be heard before the judge the husband conceded that $181,200,000 that had been transferred to the Family Trust should be treated as his property.  At paragraph 182 of the judgment, the judge came to the clear conclusion that the dispositions to the Charitable Foundation and the Family Trust were made by the husband with the intention of defeating a potential claim by the wife.  Although he went on to say that he accepted that the husband had a genuine desire to undertake charitable work through the Charitable Foundation, he was satisfied that it was the husband’s intention to ensure that his wife did not share in the assets that were the subject of the dispositions to the Charitable Foundation and the Family Trust.

23.  One part of the evidence clearly impinged on the judge, he said that he found it particularly telling in relation to the husband’s intention in relation to the establishment of the Family Trust.  The husband was being asked about the creation of the Family Trust and the transfer of funds thereto and said in evidence in chief, at page 339R-340I of the transcript:

“ Q.  Well, let’s take it chronologically.  Why $20 million in setting up a trust?

A.  Okay.  Several reasons, the most important of which is that when you set up a trust, you’re talking about the future, I mean, it has to last 50, 80, even 100 years, so it needs a high margin for error because nobody can predict the future.  I mean, the Great Depression happened 70 years ago.  We haven’t seen anything near that but that’s not to mean that something similar might not happen sometime in the future during the lifetime of the trust.

Q.  Yes.

A.  It’s precisely during extremely adverse conditions that a trust will be needed by the children, so the trust needs to be able to fulfil what it’s intended to fulfil under extremely adverse conditions.

Q.  I see.

A.  Now, even 20 million doesn’t reduce the chance to zero.  I mean, it’s still - -there are possibilities where the trust would fail under severe conditions.  It just reduces the probability to such a low point that I feel comfortable with it.

Q.  Well, you’ve described that as one of the reasons.  Were there any other reasons?

A. Yes.  Because at the time the petitioner was saying that, “I’m going to take the family assets, gift - - and run away and abandon the family,” I just want to show - - and I think it’s also fair that I give all my assets to my children.

Q.  Now…..

A.  I mean, in fact - - I mean, the way I think this - -if she hadn’t had so much assets, I would probably have included her.

Q.  Now, she’s an excluded - -excluded from being a beneficiary.

A.  Yes, less US tax, I mean, like the children.”

24.  That was, apparently, said in relation to a time when the wife was complaining to the husband’s parents.  As the judge said at paragraph 189, in cross-examination the husband said that had the wife not been so wealthy herself he “would have given her something”.  In paragraph 200 of the judgment the judge said:

“200.    In the present case I do not find it necessary to rely upon the presumption contained in s 17(3) to be satisfied that the necessary intention was present.  The evidence overwhelmingly establishes not only that the husband intended to exclude the wife from his assets, but that he intended to do so in order that she may not succeed in any matrimonial claim against him.  The existence of the presumption merely adds force to the conclusion that I have reached.”

25.  The judge examined the circumstances in relation to the Charitable Foundation and came to the conclusion that in respect of the Charitable Foundation the donations which had been made by one of the husband’s companies should be brought back into the matrimonial balance sheet as also the payments made into the Family Trust.

26.  The third category of payments in respect of which the section 17 applications were made related to payments into the retirement scheme run by the husband’s company in respect of the second respondent.  There was a payment in for the year 2003 of US$2,415,860.25.  For the year 2006 the payment in was US$676,691.93.  These payments were made following the letter of 10 April 2003.  The judge came to the conclusion, based on the “Alpha Hedge Fund Compensation Report” for the year 2006, that the second respondent’s remuneration, which in this context clearly included the payments to the retirement fund, was “well within the normal range of income for fund managers”.  He also said that the remuneration package was commensurate with that of the second respondent’s previous employment.  For those reasons the judge held that there was no basis upon which the payment to the retirement fund for the second respondent might be said to have been made with the intention of defeating a claim on the part of the wife.  He held that they could not be challenged under section 17.

27.  The judge came to the conclusion that it was not necessary to make any specific orders under section 17, acceding in this respect to the request made on behalf the husband that the Family Trust and the Charitable Foundation should be kept intact, if at all possible.  Instead of making specific orders the judge left the matter open but made an order for payment by the husband to the wife on the basis that the final order would be on the basis that it had been held that the wife was entitled to the orders.

28.  The judge came to the conclusion that the total value of the matrimonial property in the hands of the husband was $247,200,000 and in the hands of the wife was $57,500,000 amounting to a total of $304,700,000.  In reaching that calculation the judge had attributed the value of $1,300,000 to a property under development in Vancouver which the husband had contracted to purchase through a company.

The application of sections 4 and 7 of the Ordinance

29.  In approaching the case the judge considered whether the provisions in sections 4 and 7 of the Ordinance were to be applied on the basis of reasonable requirements of the parties.  That was the contention on behalf of the husband, who relied upon the decision of this court in C v C [1990] 2 HKLR 183.  It can be said that that had been the approach that had been previously adopted.  At the risk of being over concise, the issue between the parties was whether the approach that had been set out in the case of White v White [2001] AC 596, namely that when making a division of the assets the court should use the yardstick of equal division as a foil against any preliminary views, should now be the test applied in Hong Kong.  Lord Nicholls put the matter on the basis that:

“As a general guide, equality should be departed from only if, and to the extent that, there was good reason for doing so.”

30.  What was clearly a new approach adopted under the English legislation since the case of White v White, had been considered at first instance in Hong Kong but, up until the time the judge gave judgment in this case, the only indication from this court had been that the approach in C v C remained the approach of the courts in Hong Kong.  As it happens there was a decision of this court, DD v LKW [2008] 2 HKLRD 523, which was handed down a few days after the judgment in the present case.  In that case the court took a different view.

31.  However, the judge considered various authorities in the United Kingdom and set out, in paragraphs 22-24 of the judgment, a summary of the submissions that had been made on behalf of the wife, which he accepted reflected the law as to entitlement in ancillary relief proceedings as it stood in England.

32.  The judge considered the provisions of the Basic Law and, in particular, Articles 19 and 22 of the Bill of Rights and came to the conclusion that the law as applied on the basis of what might be termed reasonable requirements, in accordance with C v C, was no longer the law in Hong Kong.  The judge also considered that he could reach the same conclusion by interpreting the decision in C v C as requiring that the courts of Hong Kong would follow whatever the English rule was in respect of the equivalent legislation.

33.  In the court below the case on behalf of the wife had been put that she was entitled to 45% of the matrimonial property.  In the result the judge took that as the starting point but reduced the amount he was prepared to order in favour of the wife by 10% of the combined total of assets.  He applied the reduction on the basis that the assets accumulated as a result of the husband’s business so exceeded that which might be considered normal, that it would be inequitable to disregard them and not treat his skills as a special contribution.  In addition the judge considered that there had been a rigid separation of the husband’s and wife’s finances during the course of marriage and that was also a matter to be weighed in the balance in determining the level at which the matrimonial property should be shared.  The judge did not attribute any specific proportion of the 10% reduction to these 2 considerations.  There was simply a global reduction from 45% to 35%.

This appeal

34.  On this appeal, Mr Shieh SC, who appeared on behalf of the wife, argued that the wife should be entitled to 50% of the matrimonial property.  He said that the two reasons given by the judge provided no justification for reducing the amount to be awarded to the wife.  He also said that the 2 transfers of the assets into the retirement fund, namely of US$2,415,860.25 and US $676,691.93 should be set aside.  Finally it was said that the matter should be remitted to the Court of First Instance for a valuation to be undertaken of the Vancouver property.

35.  For his part, Mr Mostyn QC, who appeared on behalf of the husband, argued the case on the basis that the judge had been correct to approach the case on the basis of equality and that the approach of the court should be in accordance with that laid down in the case of White v White and the cases in England that followed that.  It was maintained that the judge had been correct in only awarding the wife 35% of the matrimonial property and the other contentions on behalf of the wife were resisted.  In addition, as already noted, an attempt was made on behalf of the husband to obtain leave to serve a respondent’s notice.

The two transfers into the retirement fund

36.  The first transfer into the retirement fund was the disposition by the husband’s company “Management” of shares in his “Asia Fund” to the “Retirement Scheme” to the value of US$2,415,860.25.  The second disposition was to the value of US$676,691.93.  That was made in 2006 by “Management”, again, of shares in the “Asia Fund” to the same “Retirement Scheme”.

37.  The judge appears to have refused section 17 orders in respect of these transfers for three reasons.  In the first place, he said in paragraph 220 of the judgment that “If any complaint about the payments would be made it could only succeed if all payments were challenged.”  In this respect, the judge was alluding to the fact that no attack had been made in respect of the payments in 2004 and 2005.  In the second place, the judge held that the total amount of remuneration with which the second respondent was credited, in particular in respect of the bonuses, was “well within the normal range of income for fund managers” based on the Alpha Hedge Fund Compensation Report.  In the third place the judge said that the package which the second respondent received was commensurate with that in her previous employment.

38.  Taking the last point first, although the judge said (at paragraph 221) that the counsel below was unable to challenge that evidence, Mr Shieh argued that there had been no evidence relating to the second respondent’s remuneration in her previous employment.  Mr Mostyn was not able to draw this court’s attention to any relevant evidence.  Thus, in this respect, Mr Shieh’s criticism would appear to be valid.

39.  In respect of the Alpha Hedge Fund Compensation Report one thing is clear and that is that only figures for 2006 were provided.  It was also pointed out that, whereas the computer-generated report was based on hedge fund managers with 5-8 years experience, it would appear that prior to joining the first respondent’s company, the second respondent had only two years experience as an investment manager, as opposed to an analyst.

40.  The above matters, on their own, call into question primarily the 2003 figures, but, in respect of the overall amount, a number of matters have to be considered.  In the first place the timing of the April 2003 letter, juxtaposed, as it was, immediately after the husband had requested the wife to enter a post-nuptial agreement and a few months before the marriage fell apart irretrievably, followed by the attempts by the husband to prevent the wife having access to the matrimonial properties, is one such factor.

41.  The other matter is that the basis of the calculation of the bonus is again, something which causes considerable concern.  As already noted, the second respondent was, by letter of the 10 April, given a 30% share of the relevant fees until the level of US$10 million per annum was reached.  In the first place, there was no apparent consideration for this.  The second respondent had only three months earlier commenced working under a contract whereby she was, seemingly, fully remunerated.  That earlier contract did not indicate that the bonus would be reviewed after three months.  Perhaps, equally importantly, was the fact that although the bonus was to be calculated on the relevant fees, the husband admitted, when giving evidence, that fees which were due from related parties, in particular his family and the family’s companies, had been waived.  Hence, the payment made in 2003, which had been calculated on fees of some US$6 million, had been calculated on the basis of fees that could have been charged but were not.  Moreover, as was pointed out by Mr Shieh, the amount which was credited to the second respondent’s retirement fund for the year 2003 dwarfs by an enormous margin the total amount of the husband’s own contributions to the retirement scheme.

42.  It would appear that there may have been some misapprehension on the part of the judge as to the amount transferred in respect of 2006.  That a benefit to the value of US$676,691 was credited to the retirement scheme in February 2007 in respect of the year 2006 is not disputed.  For my part, I cannot see the relevance of the fact that the payments in respect of the intervening years have not been challenged.  In my view the amounts credited for the years 2003 and 2006 should be treated as coming within the terms of transactions that should be set aside under section 17.

The distribution

43.  In respect of the distribution of the assets, despite the decision in White v White and the cases which followed it, it must still be borne in mind that, in respect of orders for payment either of maintenance or a lump sum under section 4 of the Ordinance, section 7 sets out what the court must do when deciding how the matrimonial property is to be divided:

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

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

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

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

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

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

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

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

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

44.  These provisions have not been repealed.  What has happened, as the judge below pointed out, is that the Bill of Rights has provided in Article 19(4):

“Spouses shall have equal rights and responsibilities as to marriage, during marriage and at its dissolution.  In the case of dissolution, provision should be made for the necessary protection of any children.”

45.  The judge below, having referred to that provision in the Bill of Rights and other provisions in the Basic Law, considered that it was appropriate to depart from what may be referred to as the previous approach, namely, the reasonable requirements of the parties.  That approach was said to be laid down in C v C [1990] 2 HKLR 183.  He then went on to consider the case of White v White and a number of other cases following that including in particular Miller v Miller; MacFarlane v MacFarlane [2006] 2 AC 618 and Charman v Charman [2007] 1 FCR 217.  Indeed, it can be said that he followed particularly what had been said in those later decisions.

46.  As an alternative justification for applying the law as set out in the various English decisions over the last decade, the judge said that paragraphs 72-74 of the judgment:

“72.  Thus, it can be seen that Hunter JA’s summary of the principles to be extracted from the English cases, including that of reasonable requirements, is arguably nothing more than an analysis designed to determine what the English law was, which law would be applied in Hong Kong, consequent upon his conclusion that the legislative intention in Hong Kong was to use English experience and to follow English example.

73.   On this basis it is contended that the true ratio of C v C is not merely that reasonable requirements is the law in Hong Kong, but that whatever the English law was, would also be the law in Hong Kong.  I find considerable strength in this argument, particularly having regard to the progression through the argument made by Hunter JA in his judgement.

74.   Consequently, even if I am wrong as to the significance of the constitutional provisions relied upon by Mr Pilbrow is justifying a departure from C v C, I am satisfied that in applying C v C, I must follow English law as it is presently stated.  The end result is the same.”

47.  In so saying the judge anticipated by a few days what was said by another division this court in DD v LKW [2008] 2 HKLRD 523.  I consider that there are grave difficulties in accepting that the Hong Kong courts are bound by the decisions of English courts.  Naturally, decisions of the House of Lords are to be given respect.  But since the resumption of sovereignty in 1997, it would appear difficult to suggest that decisions, even of the House of Lords, could be considered as binding.

48.  I consider it unnecessary to examine what was said in all the cases, but the provisions of the Ordinance mandate a flexibility in the exercise of discretion which in each case is necessary to meet the circumstances of the case.  The English decisions have shown a progression towards the realisation that fairness often dictates that, on dissolution of the marriage, the family assets should, in principle, be shared between the parties unless there was good reason to depart from such a distribution.  Nevertheless, each case must be decided on its own facts and its own merits.  In cases of divorce, the facts and circumstances relating to the parties and the marriage can and do vary significantly.  In my view it would be dangerous to attempt to decree a principle that is applicable in all cases.

49.  As already indicated, the judge appears to have started on the basis that the matrimonial property should be divided between the parties on the basis of 55/45, as had been argued on behalf of the wife.  He reduced that ratio to 65/35 for two reasons, although he did not quantify which of the reasons caused a reduction for any particular amount.

50.  The first matter which the judge took into account was what was said to be the contributions of the two parties.  He said at paragraph 256 of the judgment:

“What stands out in this case is the very substantial assets that had been accumulated through the husband’s application of his financial skills.  I am driven to the conclusion that the extent of these assets, deriving as they do from the husband’s effort, so exceed that which might normally be considered mere income, and are such that it would be inequitable to disregard them, and not treat his skills as a special contribution.”

51.  In so saying he appears to have been applying what was said in the Miller decision at paragraphs 66-68.  Reference is made in the cases to what was referred to as “stellar” contributions by one party to the marriage.  As Mr Shieh pointed out in the course of argument, the English cases have over the last decade shown that it has been appreciated that any alteration in the distribution of the assets can only be justified in exceptional circumstances.  The judge below recognised that both parties to the marriage provided as much as they were able by way of income.  But, as Mr Shieh suggested, it might have been the size of the eventual assets which influenced the judge, because he said in paragraph 254:

“That said, it must be recognised that the husband’s ability as a fund manager has enabled very substantial assets to be accumulated, certainly assets well beyond those which might normally be accumulated, even by high earning professional.”

52.  The comparison between a fund manager and a high earning professional is somewhat obscure.  If, by that, the judge was intending to compare what a lawyer, accountant or doctor might expect to accumulate by reason of professional fees alone, then the comparison, in my view, is not legitimate.  The function of those working in the financial sector, such as fund managers, is to create wealth.  Making money is the primary object of their work and is the yardstick by which their success or otherwise is measured.  A professional, such as a lawyer or doctor, is directed to enhancing his professional work and, thereby, service to the community.  It may well be that many high earning professionals accumulate wealth.  But even in cases of high earning professionals, the extent of their wealth during their lifetime is often multiplied by the successful investments which their fees enable them to make.

53.  In the present case, this court was shown what has been referred to as the performance profile of the husband’s companies.  In some years it would appear that the funds under his management have outperformed what had been referred to as the benchmark.  Assuming the benchmark figures were the appropriate figures to take.  In more recent years the performance can be said to have been flat, if not an underperformance of the benchmark.  In my view it would be wrong to categorise the husband’s talents as being of “stellar” proportions.  It could be said he was good at his job; and the highest that it could be put is that he was better than most or above average.

54.  The other factor which the judge took into account was what he held to have been the rigid separation of the parties’ finances.  How much weight he gave to that is difficult to tell, since, at the end of the passage dealing with that matter, at paragraph 268 he said that it was simply a matter to be weighed in the balance in determining the level of sharing.

55.  This court was taken through a number of passages in the transcript with a view to demonstrating the extent and the purpose for which the parties kept their finances separate.  In my view, they demonstrate little more than what would normally be expected of a couple when both were earning income and where one of whom had considerable difficulties because she was a US citizen and, therefore, had to be careful over her liability to US tax.   At one stage, the parties were working in different jurisdictions and each had their own income and their own requirements.  One aspect which impinged was, for example, at page 85 of the transcript, where the wife said in answer to whether there was any other reason, apart from US tax, that finances were kept separate:

“A.   Well, US tax is a big reason; two is at the beginning of our marriage we had a joint account but then it get into a situation in which he wants to be able to spend “his” money and as a woman I would like to spend it the way I want to spend it.  For example, you know, I like to spend some shoes or clothes, whereas he wants to go and buy his hi-fi.  So after awhile it just became more convenient that we just don’t co-mingle, but by and large clearly the US tax Consideration is a key consideration.”

56.  In considering this one has to bear in mind that with parties who are sufficiently affluent that the purchase of luxuries does not pose a financial strain, their interests may vary.  No doubt one may be interested in listening to music at home and home entertainment systems.  On the other hand, it also has to be borne in mind that appearance is often regarded as important, particularly amongst those who have senior positions in financial institutions.  For ladies who hold such posts their appearance, whether it be in respect of clothes or otherwise, is often looked upon not so much as a matter of a luxury as a necessity.

57.  On this aspect of the case, Mr Mostyn placed considerable reliance on the fact that the wife had not agreed to the sale of the original flat purchased at the commencement of the marriage but had bought out the husband’s interest therein, after taking into account the payment of the outstanding mortgage loan, which she had made some years previously.  Two matters should not be overlooked in this respect.  The first is that when the mortgage loan was paid off, the wife simply paid the sum required.  What should not be overlooked is the way that that was done.  The fact that the wife paid off the loan, out of monies which she had earned, but did not even raise it at the time with the husband, indicates that there clearly was a community of assets.  Secondly, as already noted, that flat had not been used as the matrimonial home for many years.  It was simply an investment property.  As such, no doubt, it was regarded as an alternative investment to investments in shares and other securities.  The fact that the wife considered that the flat should be kept, and it would seem that it was the only real estate which the parties had at the time, is indicative that the wife considered that there should be some diversity in the assets held.  No doubt, had the flat been sold, the only alternative would have been to invest the proceeds of the sale in shares and other securities.  It is clearly a matter of investment choice and philosophy as to whether all the family’s assets should be put into the shares or whether some of it should be kept in other forms of investment.  The arrangement between the parties had the effect of freeing up sufficient funds to allow for the wife’s choice of keeping some investment in real estate whilst not preventing the husband from having access to additional capital, doubtless for investment in securities.

58.  In the court below, the wife sought a 45% share of the total assets.  This court was not informed as to the basis upon which the wife sought 45% rather than equality.  Although on this appeal Mr Shieh has argued that the assets should be split equally, I consider that there would be difficulties in permitting the wife now to seek a higher proportion, particularly as the assets in question were investments.

59.  Mr Mostyn, for his part, has not pursued the husband’s case in the court below that the distribution should be based upon the reasonable requirements of the parties.  He has argued the case on the basis that this court should follow the decision in White v White and what was said in that case as has been modified, refined and adjusted in subsequent cases.  Essentially, he has sought to maintain the 65/35 ratio distribution.

60.  In this case I consider that it is fair that the wife should have 45% of the total assets.  That is the percentage which was sought in the court below, doubtless for good reasons.  If the wife considered that 45% was a fair distribution, having regard to the way the case was argued on her behalf, that is some indication of what could be considered fair.  It is fair to the husband because it does no more than give the wife what she had sought originally.  It is a percentage which he would have appreciated at the time of the hearing below, he might have to cater for.

The Vancouver property

61.  One of the matters which Mr Shieh sought on this appeal was that the case should be remitted to the court below for an assessment of the value of what has been referred to as the Vancouver property.  At the relevant time that was an interest which the husband had in a property that was being built.  No doubt because many other issues were being ventilated in the court below, this aspect of the case attracted very little attention.  It has to be said that any complaint in respect of the value attributed to the husband’s interest in the development was very much an afterthought.  Given the overall value of the assets that are in issue in this case, I do not consider it is warranted that this matter should, in effect, be raised at a very late stage and, primarily, in this court.

The respondent’s notice

62.  As already stated, an application was made on behalf of the husband for leave to file a respondent’s notice out of time.  That was refused after hearing argument at the commencement of the hearing.  Quite simply, it was the husband’s case that the court should reassess the value of the joint assets in a way which would require of the wife to repay some of the money which had been ordered to be paid to her.  The reason put forward was that the assets which the husband retained and controlled had diminished in value after the order had been made and complied with, in a way which he had not anticipated.

63.  In paragraphs 225-227 the judge considered whether, despite the fact that the necessary preconditions for making orders under section 17 had been established, such orders should be made.  The judge recorded that the wife did not consider it necessary that the Charitable Foundation and the Family Trust should be dismantled provided that her entitlement could be met by the husband.  Although the judge was clearly at a loss to understand how the husband would meet his obligations without, in some way, disturbing part of the investments in the Charitable Foundation and the Family Trust, he acceded to the husband’s request saying:

“Further, it appears to me that the husband wishes to be in a situation whereby, if he can meet any order that may be made, without the dismantlement of the Charitable Foundation and the Family Trust, then he would prefer to keep them intact.  I have to confess that I find Mr Coleman’s final submissions in this respect to lack clarity as to the precise position he sought.  But it does appear to me that the husband would prefer not to dismantle the Charitable Foundation or the Family Trust.”

64.  On that basis the judge simply made an order for payment by the husband.  It is quite clear that the husband chose to keep the investments intact as they were and to handle them according to the way he saw fit.  In doing so, he strenuously resisted any order which would have prevented that.  The court is not ignorant of the fact that shares and financial securities have diminished in value in the last year to an enormous extent.  But how the husband chose to handle the assets and investments under his control was a matter for him.  It can only be considered ironic that a person who has sought to convince a court that his investment ability and past success should be recognised by giving him a higher proportion of the family assets, should a year after the original order was made ask the court to give him back some of the money on the basis that the wife had held cash whereas he had deliberately chosen to keep investments.

Conclusion

65.  I would therefore allow this appeal and order that the wife should be entitled to 45% of the whole of the parties assets namely, the amount of $304,700,000 plus the sums aggregating US$3,092,552.18 referred to in paragraph 36 above.  I would make an order nisi of costs of this appeal in favour of the wife.

Hon Le Pichon JA:

66.  I agree with the judgment of Rogers VP.

Hon Stone J:

67.  I have read in draft, and agree with the judgment of Rogers VP.  I also agree with the Order proposed by the Vice President.

68.  For my part I wish to add a few words upon two issues which arose during argument in this appeal.

(i)  Subsequent ‘dramatic events’

69.  The argument which was advanced by Mr Mostyn QC at the outset of this appeal, pursuant to the husband’s Respondent’s Notice, that the court also should consider a variation on the basis of the dimunition in the husband’s wealth consequent upon the current financial contagion, was not a contention I found persuasive.

70.  As the Vice President has commented (at paragraph 64 above), the husband’s argument in this regard was particularly ironic when viewed against the backdrop of his stance as to his “stellar” financial contribution within the marriage arising from his fund management skills, and it is not difficult to surmise what would have been the husband’s reaction had the positions been reversed, and instead had it been the wife who had returned to court to complain about the vicissitudes of the market, and accordingly to request a corresponding variation of the percentages of matrimonial assets as apportioned by the trial judge.  With due respect to Mr Mostyn’s apparent enthusiasm for the point, it strikes me that those who choose to live by the market also die by the market.

71.  No more than a week after this court’s summary rejection of the husband’s attempt to recompute the award on Barder principles (Barder v Calouri [1988] AC 20), the English Court of Appeal also sounded to the like issue in Myerson v Myerson, Approved Judgment dated April 1, 2009, Times Online.

72.  In that appeal Mr Mostyn QC, appearing on that occasion on the other side of the fence on behalf of the wife in opposition to a similar ‘financial contagion’ argument mounted by the husband, succeeded in roundly defeating the husband’s contention that the forces within the global economy and the collapse in his company’s share price had rendered the original compromise financial resolution order “both unfair and unworkable”.

73.  In Myerson, the husband had retained 57% of the matrimonial assets (consisting of shares in his company and properties, worth £14.5 million), and the wife had received 43% amounting to £11 million, comprising cash of £9.5 million, together with a house worth £1.5 million. 

74.  In rejecting the husband’s argument, which in substantial part was based upon the destruction of the “fundamental assumption” upon which the agreed compromise had been made, and that the drop in share prices and house values, together with the global economic collapse, constituted new events sufficient to satisfy the analysis in the speech of Lord Brandon in Barder, op cit., Thorpe LJ (with whom Smith and Sullivan LJJ agreed) reviewed the existing case law on the point, and concluded (at paragraph 30) that:

“…the circumstances in which this can happen [the Barder principle may apply] are very few and far between.  The case-law, taken as a whole, does not suggest that the natural processes of price fluctuation, whether in houses, shares or any other property, and however dramatic, fall within this principle…”

75.  I respectfully agree with this observation.  It is wholly likely that were governing principle to be less rigorous, and less rigorously applied in Hong Kong, the floodgates would be opened with a vengeance, and that numerous attempts would be mounted to re-open and to vary existing ancillary relief orders on the purported basis of subsequent and alleged dramatic ‘change of circumstance’.

(ii) Applicable law

76.  A further curiosity in this appeal is that it was decided at first instance on the basis of the principles adumbrated in White v White [2001] 1 AC 596 (HL), notwithstanding that, on behalf of the husband in the court below Mr Coleman SC had argued, in the event unsuccessfully but in my view probably correctly, that the appropriate principle to be applied in the division of matrimonial assets was that of ‘reasonable requirements’ as established in C v C [1990] 2 HKLR 183 (CA).

77.  As Rogers VP has pointed out (at paragraph 45 above), Mr Justice Saunders had rejected the C v C approach on the basis either that the true ratio of C v C “is not merely that reasonable requirements is the law in Hong Kong, but that whatever English law was, would also be the law in Hong Kong”, alternatively that the effect of the Bill of Rights produced the like result; as the judge pithily put it (at paragraph 74 of his judgment), “the end result is the same”.

78.  It is clear that when he rendered his judgment Saunders J felt constrained, for the reasons he gave, to circumvent C v C and to apply White v White, op cit., although for my part I would observe that this approach does not sit well with the decision of the Court of Appeal in L v C, CACV 169 of 2006 & L v L, CACV 181 of 2006 (Stock and Yuen JJA, Hartmann J), Judgment dated 25 May 2007, wherein – as indeed the learned judge recognised (at paragraph 29) – Stock JA expressly had stated (at paragraph 106) that:

“the law is at present governed by the 1990 decision of the Court of Appeal in C v C by reason of which there is an evaluation of the wife’s reasonable requirements, a quantification of needs, rather than the approach adopted in England by the House of Lords in the landmark cases White v White and Miller v Miller…”

79.  The issue of the applicable law inevitably would have been a focus of the current appeal had it not been for the subsequent decision of the Hong Kong Court of Appeal in DD v LKW [2008] 2 HKLRD 523 (Cheung, Yuen JJA and Lam J), which landmark judgment, as the Vice-President has noted, was issued but a few days after the judgment of Saunders J in the present case, and in which that division of the Court of Appeal firmly grasped the nettle, holding that the ‘reasonable requirement’ principle in C v C was outdated, and in future should be replaced by the new ‘fairness’ approach of White v White – a result which no doubt resulted in the pragmatic approach adopted by both parties to the present appeal, who chose to argue this appeal solely upon White v White principles.

80.  However, we have been told that DD v LKW, op. cit., is to go further, and whilst it is clear that this case currently represents the applicable law in this jurisdiction, I respectfully venture to suggest that unqualified acceptance and adoption of the approach in White v White – which appears to have encountered its share of difficulties in its application in ‘big money’ cases in England – ultimately may not provide the appropriate prescription for Hong Kong, with its different social and cultural norms.

81.  As Rogers VP has pointed out (at paragraph 47 above) the Hong Kong courts are not bound by decisions of the House of Lords, notwithstanding the respect that such decisions automatically engender, and for my part I would respectfully agree with the obiter observation of Yuen LJ in DD v LKW; whilst her Ladyship clearly felt bound to apply the House of Lords interpretation of the like legislation in the cases of White and Miller, nevertheless she expressed the view (at paragraph 90) that “there is much to be said” for the Australian position as set out in such cases as Figgins v Figgins [2002] Fam CA 688; [2003] 2 FLR 299 – an approach which also echoes the sage observations of Stock JA in L v C & L v L, op cit., (at paragraphs 106-108), although the court in this latter case expressly did not form any conclusion as to competing principle because in that instance it was common ground that those parties always had intended an equal division of assets.