LCYP v. JEK

HCMC 3/2018

[2018] HKCFI 1907

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO. 3 OF 2018

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D E C I S I O N

(Litigation Funding)

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1.  This is the application of the petitioner (“Wife”) for the respondent husband (“Husband”) to provide litigation funding for her.

2.  As the 1^st Directions Hearing, trial dates have been fixed for 8 days from 15-24 May 2019.

Background

3.  The parties have been litigating for over 4 years since about April 2014.  For present purposes, I will highlight certain aspects of this case as set out hereunder.

4.  The parties are both aged 45.  The Husband was born and raised in the United States and the Wife was born and raised in Hong Kong.  They met in 1994 when the Husband was stationed in Hong Kong for work.  They married in the United States in September 1997 and after marriage, the Wife moved to live there with the Husband.

5.  On 5 September 1997 and 15 days prior to the marriage, the parties  entered into a pre-nuptial agreement (“PNA”)[1].  The essential provisions of the PNA will be set out later. Suffice to say at this stage, the validity of the PNA is no longer challenged by the Wife.  Instead, the Wife’s case is that no weight should be put on the PNA by the Hong Kong Court in view of the overall circumstances of this case.

6.  The parties have two sons during their marriage, the elder one was born in 2000 and will be 18 in October this year, and the younger one was born in 2005 and is now about 13 years old.

7.  The Wife initially worked as a secretary in the United States for about two years after marriage.  She then gave up work to become a full time housewife in 1999, and since then she has assumed the role as the homemaker and children carer while the Husband has worked full time throughout.

8.  Since his graduation from college, the Husband has worked in a clothing manufacturing business in partnership with his father (“Father”).  The business, which I shall refer to simply as “FRC”, which was found by the Father, took off and experienced significant growth during the marriage.  FRC was sold in 2012 to a Hong Kong listed company (“HK Listco”) for a substantial purchase price, which the Wife understood to be about USD60-80 million (or @7.8, HK $468m-$624m)[2].  As seen later in this decision, it is not really disputed by the Husband that he received 30% of the sale proceeds.  It was part of the terms of the sale agreement with the HK Listco that after sale, the Husband was to remain to be employed as a Co-President of FRC division pursuant to the terms of an employment agreement.

9.  The Wife and the children lived in the USA until about 6 July 2013 when they moved to Hong Kong.  The Husband said he only agreed to the Wife and the children moving here temporarily for one to two years. 

10.  In December 2013, the Wife said she discovered the Husband’s infidelity.  The Wife issued a divorce petition in April 2014 in Hong Kong based on the Husband’s unreasonable behavior.  This was followed by the Father issuing divorce proceedings in New Jersey in May 2014 and he further challenged the jurisdiction of the Hong Kong Court in the divorce proceedings and applied for a stay of the Hong Kong proceedings on forum non conveniens.  In January 2015, Judge Melloy handed down a decision that the Hong Kong court did not have jurisdiction over the Wife’s divorce proceedings.

11.  In the meantime, as the Wife had evinced an intention to retain the children in Hong Kong, the Husband issued an application in February 2015 for the return of the children to the United States under the Hague Convention (HCMP 468/2015).  This application was later dismissed by this Court in May 2015.

12.  The Husband’s appeal to the Court of Appeal on the Hague proceedings was subsequently dismissed ( CACV 125/2015)[3].  The Court of Appeal however allowed the Wife’s appeal on Judge Melloy’s decision on jurisdiction and held instead that there was jurisdiction in the Hong Kong Court to entertain the Wife’s divorce proceedings, and the matter of whether the Wife’s divorce proceedings should have been stayed on forum non conveniens was remitted to be dealt with by the Family Court (CACV 98/2014).

13.  The Husband’s application for stay on forum non conveniens was later dismissed by Judge CK Chan (“Judge”) in a judgment handed down on 29 March 2016 (“Forum Judgment”).

14.  It was only after the Husband failed in his jurisdictional and forum challenges that the Wife could proceed with her divorce proceedings in the Family Court. 

15.  At one time, the Husband had paid a monthly sum of HK$120,000 for interim maintenance for the Wife and the children and the amount was temporarily raised to HK$170,000 per month and a further sum of HK$120,000 per month was provided as interim provision for the Wife’s legal costs.  After December 2014, the interim maintenance was reduced by the Husband to HK$120,000 per month and the provision for legal costs was withdrawn.  This resulted in the Wife issuing a summons for maintenance pending suit (“MPS”). Pending the determination of the MPS summons, the Judge ordered the interim maintenance to be reverted to HK$170,000 per month together with a lump sum of HK$580,000 to cover the Wife’s legal costs at least up to the substantive arguments on the MPS.

16.  The Judge later handed down his judgement on MPS on 17 June 2016 (“MPS Judgment”) and ordered that, upon the Husband’s undertakings to (i) pay the children’s school fees and school bus fees; (ii) procure the reimbursement of the Wife’s and the children’s medical and dental expenses covered by the family medical insurance plan as soon as practicable, the Husband is to pay (1) MPS of a total of HK$210,000 per month (HK$70,000 per month for each of the Wife and the children) as from 1 January 2016 and (2) a lump sum of HK$1,500,000 as interim costs provision until the conclusion of the FDR hearing.  The Judge further ordered the Husband to pay costs of the MPS application with certificate for two counsel.

17.  As seen in the MPS Judgment, for the legal costs provision, the Judge applied the Currey test, following the English Court of Appeal case of Currey v Currey [2006] EWCA Civ 1338 and the Judge was satisfied that all in all the Wife had satisfied the Curry Test.  As for quantum, he was of the view that the Husband’s then open offer of HK$1,500,000 was sufficient to cover the Wife’s legal costs from then (June 2016) to the FDR hearing. 

18.  The Husband initially failed to comply with the MPS order, even though there had been no appeal therefrom. It was only after the Judge granted leave to the Wife to commence contempt proceedings in August 2016 that the Father eventually paid the Wife the MPS in arrears and the said sum of HK$1,500,000 as legal costs provision.

19.  The parties’ respective Form Es were exchanged on 17 August 2016.  It was then disclosed to the Wife for the first time that the Husband’s share of the sale proceeds of FRC was injected into and locked up in a trust set up around the same time in his name under the Delaware law which I shall simply refer to as the “JK Trust”.  The Wife’s case is that up until now she has no idea as to how much of the sale proceeds have been placed into the JK Trust and I will come back to this issue later.  Further, the parties’ matrimonial home in Warren, New Jersey, USA (“Warren Property”) which was originally held by the parties in joint names in equal shares but in June 2013 was arranged to be transferred to one of the Husband’s companies incorporated on 29 May 2013 under New Jersey law (“D Properties LLC”) in consideration of a nominal sum of USD10 and on 30 June 2013, under the arrangement by the Husband, 99% shareholding of D Properties LLC was acquired and transferred to JK Trust, with the remaining 1% to be continued to be held by the Husband. 

20.  It was against the above background that the Wife said in the hope that an early conclusion of the case could be achieved that the Wife agreed to proceed to FDR even though at that time discovery had not been completed and she said she had expressly reserved her rights to seek further discovery.  The FDR was eventually concluded on 11 September 2017.  Unfortunately, the parties were unable to settle their differences and the Wife’s application for ancillary relief was adjourned to a PTR hearing.

21.  The Wife issued a further summons for costs provision on 2 November 2017 (“Costs Provision Summons”).  The Wife had in her 7^th affirmation filed in support of the Costs Provision Summons set out her then estimated legal costs up to setting down of the ancillary relief trial to be HK$4,681,894. 

22.  At the PTR hearing on 17 November 2017, the Judge decided to transfer the ancillary relief proceedings to the Court of First Instance including the Costs Provision Summons.  Pending the substantive argument of the Costs Provision Summons, the Judge ordered the Husband to make an interim order for costs provision of HK$500,000 to the Wife.   He handed down a short written decision on the transfer and the interim provision on the same day (“Transfer Decision”).

23.  In the Transfer Decision, the Judge has said that it is quite clear that the Husband is in control of the majority of the family assets, if not all[4]. The Judge did not think that the Husband would argue on liability and that an order for further provision of legal costs by the Husband was inevitable.  The Judge then made an interim provision of HK$500,000 for the Wife’s costs.  There was no appeal against that interim provision.

24.  According to the Husband’s Form H dated 17 April 2018, his total costs up to the that time was about HK$23.5m and the estimated costs of the trial would be another HK$5.4m, totaling about HK$28.9m.

25.  As for the Wife’s Form H dated 12 July 2018, her costs up to 3^rd July 2018 was about HK$6.3m and further costs up to and including trial would be about another HK$7.1m.

The relevant legal principles

26.  The Court’s power to order MPS (including element for legal costs provision) is stated in section 3 of the Matrimonial Proceedings and Property Ordinance, Cap 192.  The sole criterion stipulated by that section is “reasonableness”, which has been said to be synonymous with “fairness”[5].

27.  Wilson LJ had said in Currey v Currey (No 2) [2007] 1 FLR 946[6]:-

“In my view the initial, overarching inquiry is into whether the applicant for a costs allowance can demonstrate that she cannot reasonably procure legal advice and representation by any other means. Thus, to the extent that she has assets, the applicant has to demonstrate that they cannot reasonably be deployed, whether directly or as the means of raising a loan, in funding legal services. Furthermore, not to forget the third of Thorpe LJ’s three features, she has also to demonstrate that she cannot reasonably procure legal services by the offer of a charge upon ultimate capital recovery. I would add, fourthly, that the court needs also to be satisfied that there is no such public funding available to the applicant as would furnish her with legal advice and representation at a level of expertise apt to the proceedings, ie that the applicant does indeed in that regard fall within the unserved constituency…”

28.  In short, the overarching inquiry is into whether the applicant for a costs allowance can demonstrate that she cannot reasonably procure legal advice and representation by any other means and that:

(i)  To the extent that she has assets, the applicant has to demonstrate that they cannot reasonably be deployed, whether directly or as the means of raising a loan, in funding legal services.

(ii)  She has also to demonstrate that she cannot reasonably procure legal services by the offer of a charge upon ultimate capital recovery;

(iii)  The court needs also to be satisfied that there is no such public funding available to the applicant as would furnish him/her with legal advice and representation at a level of expertise apt to the proceedings.

29.  What was said by Wilson LJ in Currey was endorsed by Cheung JA and Hartman JA in HJFG v KCY [2012] 1 HKLRD 95[7] who held that the Currey principles should in future be adopted as providing prudent guidance to both judges and practitioners in this jurisdiction.

30.  Mr Yim had also referred the Court to the English case of A v A (Maintenance Pending Suit: Payment of Legal Fees)[2001] 1 WLR 605, in which the wife who was dependent upon the husband applied for an order for maintenance which includes provision for legal costs.  Holman J had stated as follows[8]:-

“But Mr Singleton submits that the costs of the suit itself are in a different category. I do not agree. Just at the moment they are, after the provision of a roof over her head and food in her mouth, the wife’s most urgent and pressing need and expense. She could manage without holidays, though I have made some provision for them. She could no doubt manage for a while without buying new clothes. She could manage for a while without buying new clothes. She could manage without her manicures, pedicures and yoga and keep fit classes, for all of which I have, on the facts of this case, made provision. She could even manage without the provision for forms of private medical care (to which the family has been accustomed) for, if necessary, she could fall back on the NHS. But she simply cannot make any progress with the dominating issue in her life if she cannot pay her lawyers, and for this the state will not provide.”(emphasis added)

31.  As to why legal costs provision is particularly crucial in cases where there is a great disparity in wealth and earning capacity as a consequence of the marriage, Holman J had this to say:-

“This wife has always been dependent on her husband. She is locked into a bitter struggle with him, whose outcome is of intense importance to her. She has an acute need for good legal representation and in circumstances in which her lawyers do not lawyers have to be desperately economizing relative to the husband. He himself is spending huge sums on the litigation. He can, in my judgment, afford to pay the sums I have ordered and it is reasonable that I should require him to do so[9].”

He then went on to say:

“In my judgment, in an appropriate case, maintenance pending suit provides a partial answer and, for the reasons I have now given, I made the order in the present case. I add that, since I made the order, the House of Lords has given its judgment in White v White [2000] 3 WLR 1571. That did not, of course, impact at all on my decision which I had reached and announced several days earlier, not on my reasons for it. However, Lord Nicholls of Birkenhead stressed, in relation to the substantive outcome, that there is to be no place for discrimination between husband and wife and their respective roles. In my view, that substantive approach may be illusory if a wife is unable to vindicate it due to the difference in their roles, and its discriminatory effect upon their income and capital and upon a wife’s ability to match the legal representation of her husband. The changing climate for the outcome of matrimonial litigation, which the House of Lords has clearly heralded, further fortifies me in my view as to financing its interlocutory stages[10].”

32.  There was no dispute about the general legal principles.  I now turn to the facts of the present case.

The PNA and forum shopping

33.  First of all, there are two issues which have been repeatedly brought up by the Husband, namely (i) the PNA and (ii) the Wife had “forum shopped”.  These are two of the five issues on the agreed “List of Issues” placed before this Court at the 1^st Directions Hearing. 

34.  On the forum-shopping issue, as noted by the Judge in the Forum Judgment, there has been a constant theme in the Husband’s argument that the Wife has “forum shopped”.  The Husband repeats this in his 7^th affirmation and that the Wife had lied on oath regarding her move to Hong Kong and he exhibited a 25 page schedule prepared by his lawyers which is said to detail the “clear and obvious inconsistencies” in the Wife’s evidence regarding her move to Hong Kong.  The Husband alleged that the Wife “forum shopped” for what she perceived to be the most advantageous jurisdiction, and he said “Had she not deceived me in the first place I would never have agreed to her move to Hong Kong and the divorce would have had to proceed in New Jersey”[11].

35.  Even if the Wife did deceive the Husband into agreeing to her move to Hong Kong with the children for a temporary period, and after moving here decided not to return to USA with the children, this would not necessarily mean that she moved here with the intention of divorce and forum shopping.  There was no sufficient evidence that the Wife was aware of the Husband’s latest extra marital affair at the time of her move on 6 July 2013. According to the Wife, she only discovered the Father’s latest marital affair in about December 2013 after her move to Hong Kong.  Nor was there sufficient evidence before this Court that the Wife had already consulted lawyers in USA and in Hong Kong with a view to divorce at the time of her move in July 2013 and that the move was with this in mind.  

36.  As pointed out by the Judge in the Forum Judgment, the Court of Appeal had already ruled that the Wife was entitled to issue the divorce proceedings in Hong Kong as of right, given her domicile being in Hong Kong and her having a substantial connection to Hong Kong at the date of her petition.  The Judge was not prepared to speculate on the Wife’s motive as her choice of Hong Kong was not so unusual that one would question her motive.  There was no appeal against the Forum Judgment.

37.  So far as the PNA is concerned, this has been described by the Husband as a “magnetic factor”.  It is the Husband’s case that the PNA is a valid agreement and full weight should be given to it.  At the MPS hearing, the Husband had referred to the PNA.  The Judge noted in the MPS Judgment that at that time, it was the Husband’s case that no cost provision should be made as the whole purpose of entering into the PNA was to avoid litigation and substantial legal costs to be incurred and that it would be wrong in principle to compel the Husband to fund the Wife’s very substantial legal costs[12]. However, the Judge noted that notwithstanding those arguments, the Husband had at the time made an open offer to pay a lump sum of HK$1,500,000 to cover the Wife’s legal costs up to the FDR hearing.

38.  For the present application, notwithstanding what the Judge had said in the MPS Judgment and no doubt on the Husband’s instructions, Mr Chan devoted no less than 5½ out of his 16 page written submissions again on the PNA and the Wife’s “forum shopping”.

39.  Suffice to say, I agree with the Judge’s views that the Wife’s choice of Hong Kong for the issue of her divorce proceedings was not so unusual that one would question her motive.  Further, in my view, there is no sufficient evidence at this stage that would point to the Wife having forum shopped for the most advantageous jurisdiction namely Hong Kong for her divorce proceedings, but in any event, this will be an issue to be determined at trial.

40.  As for the PNA, I note that the agreement provides, amongst other things, that:

(i)  Joint or marital property shall be solely limited to property acquired in joint names of the parties, and any other property shall be deemed the sole and separate property of either the Husband or the Wife (clause 2.1);

(ii)  Should joint property be sold or disposed of, from the sale proceeds of the sale the parties shall each receive back their original investment and any increase in the value of the property, over and above their original investment, shall be split in proportion to the amount the parties originally invested in the joint property (clause 2.1);

(iii)  Each party shall keep and retain sole ownership of his/her separate property and that the Husband’s separate property will include his income both earned and unearned, interests in real estate, partnerships, corporations and other business and personal assets derived from his efforts prior to the marriage, as well as his employment during the marriage and his family relationship (clause 3.2);

(iv)  As for alimony for the Wife, if the parties have been married for at least 5 years or if there is a child of the parties living, then in the event of the marriage is terminated the Wife shall be entitled to alimony for a period of 5 years, and the amount of alimony shall be based upon the Husband’s base weekly salary exclusive of bonuses, income or profits from any businesses or investments, trusts, gifts and inheritances.

41.  Although the Warren Property appeared to be the parties’ “joint or marital property” under the PNA, being their matrimonial home and held in joint names, as said earlier, it has been transferred out, and 99% of the D Properties LLC which holds Warren Property is now held by and tied up in the JK Trust.  At this stage, it is not clear whether there are other properties held by the parties which are regarded as their “joint or marital properties” under the PNA.  If none, it would appear that the Wife would only be entitled to her own separate property under the PNA and in relation to her alimony, as seen in (iv) above, this will essentially be limited to a period of 5 years only notwithstanding the fact that she was married to the Husband 17 years by the time she issued the divorce proceedings.

42.  As held by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364 and seen in those passages quoted by Mr Chan in his submissions, the court should give effect to an agreement freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement[13].

43.  Thus, whether the court should give full weight to the PNA is a matter which can only be determined at the trial after consideration of all the circumstances of this case.

44.  Having considered the above, in my view, neither of those two matters assist the Husband in the present application.

The MPS Judgment

45.  At the time of the MPS hearing, the parties’ Form Es had not yet been filed.  There was no reference in the MPS Judgment to the Wife having any income.  She is the registered owner of a property called Park Metropolitan Property purchased in her name in 2013 with the financial assistance of the Husband as an investment property.  It is subject to a mortgage loan for which she has to pay a monthly instalment of about HK$20,000. It was said to be rented out at the time at a rent of about HK$20,000 per month.

46.  The orders sought by the Wife at the MPS hearing were (i) HK$250,000 per month as MPS for herself and the children on the basis of the Husband’s undertakings to pay the children’s school fees and school bus fees directly, which came to about HK$35,000 per month, and (ii) HK$120,000 per month for legal provision which the Husband used to pay[14].

47.  At the time, the Husband’s total income in 2015 was said to be USD 1.6m (USD500,000 as salary and USD 1.1m as bonus), equivalent to about HK$12.48m.  As said by the Judge, even allowing half of it for US taxes, he still had HK$6,240,000 as his net income, averaging at HK$520,000 per month.

48.  It was the Husband’s case at the time that the Park Metropolitan Property should be liquidated so as to alleviate the financial pressure claimed to be faced by the Wife at the time, or to cover her past or future legal costs.

49.  The Husband’s then stance was that he would continue to pay for the children’s school fees with an additional monthly sum of $120,000 as MPS.  As far as interim legal costs provision was concerned, the Husband made an open offer of a lump sum of $1,500,000 to last until the FDR hearing.

50.  Although the Judge accepted that the Park Metropolitan Property is an asset under the Wife’s name, he decided that the liquidation should not be required at that stage and he had set out his reasons, one of which was that after considering the available evidence on the Husband’s financial resources, he was convinced that he could afford to pay a reasonable amount of MPS and therefore, there was no need to resort to a quick sale of the property[15].

The parties’ respective Form Es and answers to questionnaires

51.  The parties’ Form Es were filed after the MPS Judgment.  The Wife confirmed in her Form E affirmed in August 2016 that she had no income apart from the rental income from Park Metropolitan Property.  Apart from the Park Metropolitan Property, which she placed a net value of about HK$2.4m at that time, the balances in her bank accounts totaled about HK$260,000 and her valuable personal items about HK$567,000.  Her total assets came to about HK$3.2m at the time, but her liabilities were about HK$3.85 m.

52.  As for the Husband, according to his Form E affirmed in August 2016, his income was USD44,000 gross (pre-tax) per month, but instead of setting out his total income in the Form E, he referred to a letter from his solicitors to the Wife’s solicitors of 26 April 2016 in relation to his income position (“26.04.16 Letter”)[16].  This letter states that his income consists of:

(i)  Base salary - USD23,800 net of taxes per month, or about HK$184,000;

(ii)  Consultancy payment - USD211,728 net of taxes in 2015 but the consultancy business ended in 2015 and from January 2016 onwards, he will not receive any further payments;

(iii)  Bonus/“Earn Out” payment - he received a bonus of USD1.1m in 2015, and after US taxes deducted, the net amount was paid directly by the Company[17] to JK Trust, and the majority of that was to be used to cover his employees’ bonuses;

(iv)  Dividend income – in 2014, this totaled USD173,389

53.  The Husband had stated the total value of his assets was about USD1.2m and his pension was about another USD1.2m, totaling USD2.4m, but stated his liabilities to be USD1.63m.

54.  Briefly, the Husband disclosed the following assets:

(1)  Landed properties

(i) his 1% interest in the Warren Property

(ii) a property held in his sole name in Tseung Kwan O, Hong Kong (“Tseung Kwan O Property”)

(2)  Cash at bank

(3)  Shares of his private companies in New Jersey, of value to be confirmed

(4)  Stocks, bonds and quoted securities and/or investments

(5)  valuable personal items

(6)  retirement funds

55.  The Tseung Kwan O property was purchased in the sole name of the Husband in 2002 since when according to the Wife there has been an arrangement pursuant to which the property has been occupied by the Mother’s maiden family members/relatives.  As mentioned earlier, it was only disclosed for the first time in the Husband’s Form E that his share of the sale proceeds of FRC was said to be injected into the JK Trust and that the trust also holds 99% of the Warren Property through D Properties LLC.

56.  The 5 Trusts disclosed by the Husband were (i) a New York trust settled by the Husband’s father (“Father”) on 13 April 1988 for the Husband and his sister as beneficiaries (“Father’s Trust”), (ii) the JK Trust, as mentioned earlier, which is a Delaware trust set up by the Husband on 26 November 2012, and 3 trusts (“Children’s Trusts”), one set up by the Husband for the elder son as beneficiary, one set up by the Husband for the younger son as beneficiary, and the third one set up by the Father for the parties two sons as beneficiaries.  The approximate values given by the Husband at the time were:

(i)	Father’s Trust	USD 488,000
(ii)	JK Trust	USD 14,000,000
(iii)	The elder son’s trust	USD 1,129,500
(iv)	The younger son’s trust	USD 1,129,500
(v)	The two sons’ trust	USD 1,000,000

57.  As for the Husband’s liabilities of a total of USD1.6m about USD743,322 was said to be owed to the Father, USD 600,000 was said to be loans from parents.  Then a sum of USD 792,500 was said to be the special bonuses for FRC employees due in December 2016.

58.  According to the Husband, the liabilities to the Father arose as follows:

(1)  The Father advanced a loan to the Husband in 2001 for USD374,705 at interest at 3% pa, ie USD11,241 pa for the purchase of a vacation home in Key Largo, Florida, which was sold in 2010, but the loan had not yet been repaid to the Father (“Key Largo Loan”), and the then outstanding amount was USD543,322;

(2)  Loans said to have been advanced by the Father at the time (“Father’s Other Loans”)-

(i) For the Husband’s holidays – USD37,000

(ii) For the Husband’s life insurance premia – USD23,266

(iii) For the Husband’s legal costs and outgoings – initial loan instalment of USD200,000

59.  The parties’ Form Es were followed by each other’s questionnaire.  The Wife’s questionnaire in respect of the Husband’s Form E and financial documents were filed and served on the Husband on 5 December 2016.  It was not until 14 March 2017 that the Husband provided his 1^st answers “1^st Answers”), and his outstanding answers were only provided on 24 August 2017 (“2^nd Answers”).  However, those answers were still not complete.  I will deal with to the Husband’s financial disclosures later.

60.  Up until the present hearing, there had been no further updated Form Es filed by the parties.

The Husband’s proposal for the present application

61.  On the 1^st day of hearing before this Court, namely 13 July 2018, the Husband’s solicitors sent a letter to the Wife’s solicitors making an open offer that the Park Metropolitan Property and the Tseung Kwan O Property both be sold and that upon their sale, the net proceeds to be divided equally between the parties to cover their respective legal costs, and that any net proceeds received by the Wife to be on account of any final ancillary relief award and without prejudice to any further costs orders made[18].

62.  The proposal was not accepted by the Wife.

The issues in the present application

63.  The issues in the present application are:

(i)  Whether the Wife meets the Currey ‘test’

(ii)  If so, the quantum required by the Wife

(iii)  Whether the Husband has the ability to pay

Whether the Wife meets the Currey ‘test’

The Wife’s means

64.  In her 7^th affirmation filed in support of her application, the Wife has stated that she has no other income save and except the MPS of HK$210,000 ordered by the Judge.  She disclosed that she had already borrowed HK$2,182,080 from her friend Ms Tse and another HK$97,500 from another friend Ms Chiu.  The Wife explained that the loan from Ms Tse was for her to settle the legal fees for the Hague proceedings and the subsequent appeal, and that she would have to repay those loans immediately upon recovery of the legal fees from the Husband, and there was a common understanding between them that Ms Tse would not advance any further loan to her if her appeal was allowed by the Court of Appeal because she would then be able to seek for costs provision against the Husband.

65.  The Wife said that she has commenced taxation proceedings against the Husband.  She also states that by the time of her 7^th affirmation, her outstanding legal fees have rolled up to HK$310,894.  She sets out that she seeks a sum of about HK$4.37m for costs provision until setting down.  She later filed her 8^th affirmation in response to the Husband’s 7^th affirmation and to deal with, amongst other things, his ability to pay, his income and other allegations.

66.  After the 1^st day of the hearing before this Court, the Wife sought leave to file her 9^th affirmation in which she disclosed her latest bank statements and credit card statements to show that she had run up unpaid amounts to HSBC on her credit cards amounting to about HK$930,000 as at 11 January 2018.  In light of this, she had applied for and obtained a personal loan from Prime Credit Limited in the amount of HK$600,000 at an interest rate of 18.84 % repayable with 5 years to cover her credit card debts for which she has to repay monthly a sum of HK$14,800 for part of principal and interest.  The Wife further disclosed that in March 2018, she had no other alternative but to ask Ms Tse again to lend her a further loan of HK$400,000.  The Wife also set out a table of how she had applied the personal loan from Prime Credit and Ms Tse’s loan towards the payment of outstanding credit card amounts due to HSBC.

67.  Under the agreement for the personal loan, the Wife has to pay to Prime Credit a monthly sum of HK$14,800.  

68.  The Wife has also said that the current market value of Park Metropolitan Property is HK$8m and less outstanding mortgage of about HK$3.79m, as at June 2018, the net equity of Park Metropolitan Property was about HK$4.2m.  The Husband does not accept this valuation and has alleged that the net equity in the property is at least HK$5.8m based on a recent transaction of an almost identical flat which was sold for HK$9.6m[19]. 

69.  Mr Chan pointed out that the Wife’s 9^th affirmation contradicts the Wife’s evidence in her 7^th and 8^th affirmation that she has no ability to borrow and further proves that she has managed to borrow a further HK$1m, including an amount from her friend Ms Tse again.  Mr Chan further submits that the Wife can place the Park Metropolitan Property on the market and raise at least HK$5.8m through sale.

70.  Park Metropolitan Property is the main asset held in the Wife’s name, and is subject to a tenancy.  Assuming that its market price with a sitting tenant is about HK$8.8m (the median of the Husband’s valuation and the Wife’s), the net equity would be about HK$5m.  However, according to the Wife, she has the following liabilities: -

(i)  Ms Tse – HK$2,182,080 + HK$400,000 = HK$2,582,080

(ii)  Ms Chiu – HK$ 97,500

(iii)  Prime Credit – outstanding principal of about HK$570,000 as at 2 July 2018 after 5 repayments

(iv)  Billed but unpaid legal costs – HK$359,411.19

71.  Even if the Wife were immediately able to liquidate and sell Park Metropolitan Property for HK$8.8m, it seems after deducting all sale expenses and all her liabilities, the most she would end up with would be about HK$1.3m.  There is no evidence as to whether she could raise a further loan with Park Metropolitan park as security, but even assuming she can refinance the property from a bank up to 50-60% of the present market value of HK$8.8m, the most she can raise is between about $600,000 to HK$1.5m or say, at the median figure, about $1.05m.  Having considered this and that the Wife did manage to borrow again from Ms Tse and Prime Credit, I am of the view that the Wife should be able to raise about another HK$1m.

The quantum required

72.  The Wife’s latest Form H updated to 12 July 2018 indicated that the total amount billed by the Wife’s former solicitors and present solicitors was about HK$6.3m of which up until 3 July 2018, as seen earlier, a sum of HK$359,411.19, or about HK$360,000 was outstanding.  Her estimated costs going forward up until and including trial amount to a total of approximately another HK$7.1m.

73.  On 6 July 2018, the Wife’s solicitors had sent a letter to the Husband’s solicitors setting out the breakdown of the costs going forward.  It appears from this letter that it is anticipated that leading and junior counsel will be instructed for the general conduct of the case until the conclusion of the trial. It is also anticipated that forensic accountants will be instructed, as well as a Hong Kong trust expert and a US trust expert and other experts for valuations of the Husband’s private companies and properties, and also there will be potential interlocutory proceedings for “discovery and other preliminary or ancillary issues”.

74.  As will be seen later in this decision, it is my view that the Husband’s disclosure so far has not been satisfactory.  I accept further discovery proceedings will be necessary and the Wife has been given 28 days after the handing down of this decision or after exchange of updated Form Es, whichever shall be later, to issue any necessary applications in this regard. 

75.  So far as forensic accountants are concerned, the Wife said she has already instructed a forensic accountant to assist in preparing her Questionnaire and that she wishes to continue to instruct her own forensic accountant to assist her in reviewing the Husband’s updated Form E and answers.  As for experts, there are no present applications by either party for appointment of experts yet.  If expert evidence is necessary, it is now the general practice in matrimonial proceedings to instruct single joint experts for which the costs are to be shared.  In relation to preliminary and ancillary issues, there has been no evidence in the Wife’s 7^th affirmation as to what other potential applications she has in mind. 

76.  Going forward, out of the Wife’s estimate of about HK$7.1m of total costs, HK$4.12m is for counsel fees (including both leading and junior). In my view, the costs estimate is on the high side and in particular I do not find it necessary to instruct a leading counsel for discovery or further interlocutory applications, since the Wife has instructed a well known firm of solicitors in this field and her junior counsel is also an experienced counsel. 

77.  Having considered her estimates, I find a sum of about HK$3.2m (including both leading and junior) for preparation for trial and attending the 8 day trial is reasonable.  However, the estimate of some HK$3.9m for further general conduct and interlocutory applications prior to the trial appears to be on the high side.  In my view a sum of about HK$1.8m (allowing one junior counsel’s fees) is reasonable for all pre-trial applications and expert fees.  Thus, in my view, going forward, the Wife will need a total of about HK$5m for her legal costs.

78.  In light of the above quantum, even if say, the Wife could raise HK$1m, there is still a shortfall of about HK$4m.  I understand that she is now proceeding to taxation of costs previously awarded to her.  Taking all this into account and the costs order I am going to make in this decision, going forward, I am of the view the Wife will need a cost provision of about HK$3.5m.

My Views on the Currey Test

79.  I am satisfied that the Wife has demonstrated that she cannot reasonably procure legal advice and representation or fund legal services until conclusion of trial with her own assets whether directly or as the means of raising a loan.  There is no evidence that she can reasonably procure legal services by the offer of a charge upon ultimate capital recovery.  With the level of MPS she is receiving, it is unlikely that she will meet the means test for legal aid. All in all, I find that the Wife has satisfied the Currey test.

Whether the Husband has the ability to pay

80.  The Husband says in his 7^th affidavit that he has minimal liquidity and limited resources.  This, he has in fact been saying since 2016[20].

The Husband’s income

81.  The Husband has said in his 7^th affirmation that his current income is USD 811,000 per annum but he is subject to US taxes of 45%, leaving about US$446,050 per annum, ie US$ 37,170 per month or about HK$290,000 per month. The Husband has also said he used to receive bonuses but that has now ended.  As under the MPS Order, he has to pay to the Wife HK$210,000 per month, that leaves only HK$80,000 per month and on top of that, the Husband says he has to meet his undertakings to pay the children’s school fees and their other related expenses, his own living expenses and his own legal fees.  However, the Husband has not really explained how he has been meeting the deficit.

82.  As mentioned earlier, after the sale of FRC, the Husband was employed as Co-President of the FRC division.  The Husband had produced a copy of his employment agreement dated 5 December 2012 in his 1^st affirmation (“Employment Agreement”), which was entered into between a subsidiary of the HK Listco (“Company”) and the Husband.

83.  The Employment Agreement provides for, amongst other things, the following:

(i)  The term of employment shall continue for the “Initial Term” provided that such Initial Term shall renew automatically for successive 12-month periods following such Initial Term, each a “Renewal Term”, unless at least 120 days prior to the scheduled expiration date either the Husband or the Company notifies the other party not to renew;

(ii)  The Husband’s “Base Salary” will be USD500,000 per annum, less applicable payroll deductions, paid semi-monthly, and subject to annual review by the Board;

(iii)  The Husband will be entitled to participate in all employee benefit plans or programs of the Company available to the senior level executives of a similar grade;

(iv)  The Husband will be entitled to participate in the HK Listco’s stock option plan made available to Grade 1 level executives;

(v)  The Husband will be reimbursed for reasonable and appropriate travel, entertainment and other business expenses incurred in connection with the performance of his duties;

(vi)  The Husband will be entitled to a monthly automobile allowance of US$ 2,048.

84.  The “Initial Term” is stated to be a period commencing effective as of the date of the Employment Agreement, ie 5 December 2012 and continue for a period ending on the later of (a) 21 December 2016 or (b) if Section 3.3(f) of the Asset Purchase Agreement applies, 31 December 2017.  The Employment Agreement also refers to a Deed of Guarantee of 5 November 2012 between [a subsidiary of the HK Listco and the “Sellers”, the Father and the Husband pursuant to which the payment obligations of the Company under the Employment Agreement are guaranteed.

85.  The Husband has up until now not produced a copy of the Asset Purchase Agreement.  From its definition in the Employment Agreement, this appears to be the agreement concerning the sale of FRC executed on 5 November 2012 among, what appears to be 6 companies under the FRC group, the Father, the Husband, the Husband’s sister on one side and on the other side, a company which appears to be a subsidiary/associated company of the HK Listco.  

86.  As the Husband has not produced a copy of the Asset Purchase Agreement, it is therefore not in fact clear when the Initial Term was supposed to expire, but for the time being, there appears to be no real dispute that the expiry of the Initial Term was 31 December 2017.

87.  The Husband disclosed for the first time in his 7^th affirmation of 12 January 2018 his “new employment package”.  What he said was that he continued to work for the Company on a “temporary extended basis” and that his original 5 year service contract which was part of the terms of the sale agreement expired in December 2017 and that as of 2 January 2017, he receives a new substantially reduced income of USD811,000 gross per annum, and that he is no longer entitled to any bonus or any other emoluments. The Husband has highlighted that the original 5 year contract gave him significantly more generous terms than the present interim terms as they were agreed as part of the terms for the sale of FRC.  He has also said that he remains subject to fierce non-compete terms for 2 yearsand consequently his negotiating hand in agreeing extended interim terms is substantially weakened.

88.  The Husband produced no supporting evidence to what he said above in his 7^th affirmation.  In particular, there was no explanation in his 7^th affirmation why the Initial Term was not automatically renewed for a 12 month period as provided in the Employment Agreement.

89.  There was no evidence that the Company had given the Husband 120 days prior notice or any prior notice of its decision not to automatically renew the Initial Term upon expiry, or to terminate the Employment Agreement.  The Husband did not disclose any negotiations between him and the Company leading to him being an “at-will employee”.  

90.  The lack of supporting documentary evidence by the Husband was pointed out by the Wife as early as 5 February 2018 when her 8^th affirmation was filed.  Yet, it was not until the Wife’s solicitors wrote to seek documentary evidence on 28 June 2018 that eventually that the Husband’s solicitors sent a letter dated 12 July 2018, the day prior to the hearing of the present application, enclosing 3 documents as follows:

(1)  A one page document signed by the Husband on 5 January 2018 acknowledging receipt of an “Employee Handbook” (“Acknowledgment”) and, amongst other things, indicating his understanding that he is “employed on an at-will basis”, meaning that either the Company or he may terminate employment at any time, for any reason, with or without cause or prior notice;

(2)  A short letter dated 10 July 2018 issued by the Company verifying that (“Verification Letter”):

(i) the Husband has been employed by FRC since 6 December 2012

(ii) as the Husband was part of an acquisition, the Company honours the original hire date of 1 August 1993 for seniority purposes

(iii) the acquisition contract ended effective 31 December 2017

(iv) thereafter the Husband is considered an at-will employee

(v) currently the Husband works as the Executive Vice President of the division of the Company and earns an annual salary of USD 811,460

(3)  a copy of the Husband’s Earnings Statement for the two week period 16 to 30 June 2018

91.  In the Verification Letter, the Company had referred to an “acquisition contract” which ended effective 31 December 2017.  It was not clear whether the Company was referring to the Asset Purchase Agreement or the Employment Agreement.  Assuming the Company was referring to the Employment Agreement, the Company appeared to be prepared to treat the Husband as being employed from 1 August 1993 for “seniority purposes”, namely employment for a 24 year period of employment.  It was also not clear what “seniority purposes” meant, or whether there was any compensation on termination or there will be.  This Verification Letter was only produced by the Husband at last minute and there was no chance for the Wife to raise any further queries on it.

92.  In the Acknowledgment, the Husband states he has reviewed the policies therein and that by signing the Acknowledgment he has agreed to follow those policies and procedures therein.  It can be seen from the Acknowledgment that the Handbook is said to supersede any and all prior understandings, policies and practices at [the holding company] on the subjects contained in the Acknowledgment and replaces all prior published or unpublished policies, practices or arrangements, except any agreements relation to confidential information, non-disclosure, solicitation of employees or current or prospective customers or competition.  Further, in the event of a conflict between the contents of this Handbook and a plan document or summary plan description, the terms of the plan document and summary plan description controls.

93.  The Husband has however not produced a copy of the Employee Handbook, or any plan document or summary plan description.

94.  In the letter of 12 July 2018, the Husband’s solicitors has also stated that the Husband is no longer entitled to any bonus. 

95.  However, the Verification Letter from the Company does not state that the Husband is no longer entitled to any bonus or any other emoluments as alleged by the Husband. 

96.  In the 26.04.16 Letter, the Husband’s solicitors had stated that it was possible for the Husband to receive bonus or ‘earn out’ payments following the sale of FRC in 2012, depending on how the business performed.  Further, when FRC was sold, as an incentive to retain employees, it was agreed that they would each be paid a special bonus, 50% was to be paid 2 years after the sale (2014) and the other 50% 4 years after the sale (2016).  The 26.04.16 Letter further states that the Husband did not receive any bonus or earn out payment in 2014, and the USD 1.1m, after tax was paid into the JK Trust but that he had to pay the employees the special bonuses, and that for 2016 the position would be similar.  Thus, what the Husband appeared to be saying was the bonus or ‘earn out’ payment for 2016 would be used to pay the special bonuses for the employees.

97.  Again, no supporting evidence was produced in the 26.04.16 Letter as to the basis for calculation of the bonuses or ‘earn out’ payments to the Husband.  Any provisions for “earn out” payments should normally be contained in the sale and purchase agreement of a business.  In any event, at the moment, there has not been any documentary evidence in relation to how those ‘earn out’ payments were calculated.

98.  As for the “special bonuses”, the Husband has produced two documents entitled “FRC Special Bonus Plan Concept” dated 17 July 2012[21]. The Wife has asked the Husband to produce documentary evidence to support his allegation that he is personally liable to pay USD792,500, in his 1^st Answers, he only referred to the two documents again and said this would be reflected in his 2016 tax return when available. The 2016 tax return has not yet been produced.  In any event, neither the two documents nor his 2016 tax return would explain why he was personally liable to pay those special bonuses.  In the 26.04.16 Letter, his solicitors said a sum of USD961,287 on the Husband’s 2014 tax return (only one sheet of this form was produced)[22] was for the special bonuses he had to pay his employees, and this was reflected under “17, Rental real estate, royalties, partnerships, S corporations, trusts etc Attach Schedule E” under Income (“Item 17”).  Again, no supporting evidence was produced.

99.  The Earnings Statement for 16-30 June 2018 indicates a gross pay of USD33,825.96 and a net pay of USD20,780,42.  As stated in the Husband’s solicitors’ letter of 12 July 2018, this is after all deductions including federal and other income tax.  This means the Husband’s monthly salary is a net of about USD 41,564.84, or, if @ 7.8, about HKD324,205.75 a month, and not HK$290,000 as the Husband stated in his 7^th affirmation. Further, as pointed out by Mr Yim, his present net base salary is actually substantially higher than the net base salary of HKD184,000 per month disclosed by the Husband in the 26.04.16 Letter or his Form E.

100.  In any event, as seen above, the Husband’s disclosure in relation to his income has so far been piecemeal and unsatisfactory. 

The Husband’s assets

101.  The Husband had produced a schedule of assets in his 7^th affirmation, setting out, according to him, the parties’ assets as at 15 November 2017 and that their net assets (ie after liabilities) liquid and non-liquid (excluding the trust assets) amounted to approximately HK$15.6m as at 15 November 2017 as follows:

(i)  The two properties in Hong Kong, his (Tseung Kwan O Property) had a then net value of HK$5.5m and the Wife’s (Park Metropolitan Property) had a then net value of about HK$2.4m;

(ii)  Balances in bank accounts of a net value of HK$1.7m but reduced to a mere HK$240,000 as of date of his 7^th affirmation;

(iii)  Investments with a face value of approximately HK$530,000 essentially with Mellon Securities but he had since 15 November 2017 used this amount as part of his repayment for the outstanding loans to the Father and the balance at Mellon Securities was zero at date of his 7^th affirmation;

(iv)  The Key Largo Loan of approximately HK$4.23m as at 15 November 2017 had been settled from the distributions owed to him from the Father’s Trust;

(v)  The Father’s Other Loans amounted to HK$4.5m as at 15 November 2017;

(vi)  4 pensions of aggregate value of approximately HK$10.25m which will be subject to significant tax liabilities if withdrawn prior to the Husband reaching 59 years of age.

102.  So far as the Key Largo Loan was concerned, the Husband had produced in his Form E a copy of a document signed on 8 September 2001[23] by him and the Father indicating that an amount of the closing balance of USD374,705 would be paid by the Father and that this would be a loan which the Husband would have to pay back at some time in the future and would have an interest rate of 3% per annum, ie USD 11,241 per year.  The outstanding amount at the time of the Form E was stated to be USD543,322 (ie the principal + 15 year interest), or about HK$4.24m.

103.  In the Husband’s Form E, the Husband attached a schedule of trusts as at 1 August 2016 with approximate value of each of the 5 Trusts but with no supporting documents (“Schedule of Trusts”)[24].  Then, when asked for the updated portfolio valuations as at 30 November 2016, in his 1^st Answers in March 2017 he produced a short one page letter from Windrose Advisors of valuations for 4 out of the 5 Trusts as at 30 November 2016 for (i) JK Trust – about USD 13m (ii) The Father’s Trust – USD512,730 (iii) and (iv) – each child’s trust of about USD1.7m[25]. There was no address or contact details of Windrose Advisors on the letter and there was no information as to the role of Windrose Advisors but more importantly, there were no supporting documents to show how those valuations were arrived at by Windrose Advisors.

104.  It was confirmed by the Husband in his 1^st Answers that his “portion” of the trust funds in the Father’s Trust had vested in him since he turned 35 (in 2007) but his portion had remained in the trust.  It was however not made clear what his portion was. 

105.  Anyway, according to the valuations, the value of the Father’s Trust as at 30 November 2016 was USD512,730, or just under HK$4m, which according to the Husband, this was a gross value and that his sister had previously received one capital distribution (of undisclosed amount).  As mentioned earlier, in his 7^th affirmation, the Husband referred to the Key Largo Loan being settled from the distribution owed to him from the trust and said that he had used all those funds to reduce the level of debt owed to the Father[26]. Again, no supporting documents were produced by him.

106.  According to the Husband’s 1^st Answers, his reply to the question as to why there was no immediate repayment to the Father out of the net sale proceeds of the Key Largo property (which was sold in 2011 at USD 310,000), the Husband said it had been agreed between him and the Father that it would be repaid at a later date.  There was thus no deadline stated for repayment.  The Husband had said that the sale proceeds were paid into his own account.  There was no explanation by the Husband in his 7^th affirmation as to why suddenly the Key Largo Loan had to be settled in January 2018.  There would have been further accrued interests since the date of the Husband’s Form E and if the Father’s Trust was only valued at about HK$4m gross, it was not clear how the shortfall, if any, was met.  It was not clear whether the funds from Mellon Securities were used for repayment of the Key Largo Loan or not.

107.  As for the Father’s Other Loans, the total outstanding amount in the Form E was stated to be USD260,266, or about HK$2m @7.8. 

108.  Since the Husband failed to comply with the MPS Order, the Wife issued contempt proceedings whereupon the Husband then paid up. According to a letter from the Husband’s solicitors dated 20 September 2016 (“20.09.16 Letter”), the Husband had to borrow from the Father the maintenance arrears of HK$430,000 and the sum of HK$1.5m for the provision of the Wife’s legal costs[27]. In the 20.09.16 Letter, it was stated that the Husband had entered into a formal arrangement regarding the loans with the Father.  It was not until his 1^st Answers that the Husband then provided a copy of a loan agreement dated 26 December 2016 signed by him and the Father(“Loan Agreement”)[28] .

109.  There was no mention by the Husband in his Form E that he had to pay interest on the Father’s Other Loans totaling USD 260,266 at 3% per annum at the time.  In fact, out of the USD 260,266, the amounts for holidays were said to be paid by the Father in April 2015, July 2015, and April 2016, the insurance premia paid in January 2016 and the USD200,000 paid in July 2016.  The Father signed another document dated 26 December 2016 (the same day of the Loan Agreement) that he had lent the Husband another USD300,000 in August 2016. The Loan Agreement was only created in December 2016 but for some reasons, the Father did not refer to the alleged loan amount of USD 300,000 therein, but signed another separate document in relation to this loan. Anyway, according to these documents, as at 26 December 2016, a total of USD560,266 was outstanding to the Father, or about HK$4.37m.

110.  In his 7^th affirmation, the Husband had said the outstanding balance as at 15 November 2017 was approximately HK$4.5m.

The 5 Trusts

111.  As to the 5 Trusts, at present, none of the trusts/trustees have been joined and there is no application for variation of nuptial settlement. The children are the sole beneficiaries under the Children’s Trusts and the Husband says they are not financial resources available to the Husband (or the Wife).  At present, no one has suggested that the Children’s Trusts are available for the parties’ themselves.

112.  The Husband had said in the “Notes” to the Schedule of Trusts  (“Notes”)[29] that the 5 Trusts were not resources likely to be available to him at the time “or in the foreseeable future”.  Contrary to what he said at that time, as mentioned earlier, the Father’s Trust was clearly a financial resource available to him since he now says he has used all the funds therein for repayment to the Father. 

113.  The Wife has in her 8^th affirmation set out a list of the Husband’s unsatisfactory disclosures.  For present purposes, I will concentrate on only the matters set out below.

114.  The Wife first mentioned the sale of FRC in 2012 in her 4^th affirmation filed on 23 December 2015 in support of her MPS application and she had also mentioned that the deal was worth about USD 50-80m.  As pointed out by Mr Yim, the Husband has not disputed nor denied the value placed by the Wife on the deal.  The Husband’s then position in his 4^th affirmation filed in the MPS application was that he had no means to pay the MPS requested by the Wife, but did not to produce any financial document in support of his allegations.  Further, notwithstanding the Wife had in her 5^th affirmation filed in April 2016 mentioned again that the Husband had received a substantive amount from the sale of his family business, he had continued to fail to make proper financial disclosure in relation to the same.

115.  About 8 days after the Wife’s 5^th affirmation, the Husband’s solicitors sent the 26.04.16 Letter.  Yet, all this letter did was to set out the Husband’s income, stating that the Husband’s savings had been drastically reduced and that the only remaining capital the Husband had left (excluding any potential trust interests) was approximately HK$6m in his bank accounts.  In the 26.04.16 Letter, although reference was made to the JK Trust of which it was stated that the Husband would be “providing full details” in due course, there was no information as to the whereabouts of the sale proceeds of FRC.

116.  Then there was another letter from his solicitors dated 21 July 2016 (“21.07.16 Letter”), and it appeared that after the MPS Judgement, the Husband was maintaining that his financial position was becoming increasing precarious and that he had virtually no liquid capital left.  However, he did not appeal against the MPS Judgment and notwithstanding his complaints about his precarious financial position, he later disclosed in his Form H dated 23 August 2016 his costs up until 31 July 2016 had already exceeded HK$10m.

117.  Finally, the Husband’s Form E was filed on 18 August 2016. As stated in the opening paragraphs of the standard Form E, the person filling the form has a duty to the court to give a full, frank and clear disclosure of all his financial and other relevant circumstances.  

118.  The documents attached by the Husband in his Form E can be  seen in the Husband’s “Master Index” to his Form E (“1^st Master Index”)[30]. The Husband had provided numerous copies of bank statements, securities/investment account statements, credit card statements, valuations or his retirement funds, Key Largo documents, PNA etc.

119.  Although he had produced numerous statements and documents, other than what was stated in the one paragraph Notes to the one page Schedule of Trusts he disclosed no information nor any supporting documentation on the sale of FRC.  On his income, under 3.1 of his Form E, he was supposed to give details of his income and to attach copies of proof of income for the last 3 months or contract of employment, if any and tax returns for the last 2 years.  He produced only the 26.04.16 Letter attaching a one page of his 2014 Form 1040 (income tax return) and one Earnings Statement for 16-29 February 2016.

120.  His Form E led to a long detailed questionnaire from the Wife’s side.  When asked to provide full particulars of the sale of FRC, in his 1^st Answers, the Husband replied that he had already provided all the information that he could about his share of the sale proceeds and claimed that he was not in a position to provide information disclosing confidential third party interests.  When asked to provide all the relevant legal documents in relation to the merger and acquisition of FRC by the HK Listco, including but not limited to the sale and purchase agreement, the Husband again said this was confidential information.

121.  Any documents produced in these proceedings are subject to an implied undertaking and they will not be used for any other purposes other than for these proceedings, which are held in chambers not open to public.  In any event, there appears to be no reason why the Husband could not produce redacted copies of these documents if necessary. 

122.  At the present hearing, the Husband’s side suddenly produced a letter dated 8 July 2016 from the Husband’s US lawyers Skoloff Wolfe to his HK solicitors (“08.07.16 Letter”)[31] purporting to explain the sale of the business of FRC and the creation of the JK Trust.  Although Mr Yim had initially objected to the lateness in producing this letter, he accepted that the letter was no more than a letter written on the instructions of the Husband by his US lawyers and as such, it would only be self serving and would not serve as independent evidence supporting the Husband’s allegation. 

123.  What the letter has stated is that upon the closing of the sale, the Father gifted an additional amount of monies to the Husband which led to the amount the Husband received from the sale of FRC equating to a 30% ownership.  According to the letter, the Husband then created the JK Trust, and along with a trust for each of the children, and approximately USD 1m was deposited into each child’s trust account and all remaining sale proceeds received by the Husband (of approximately USD12.4m) from the sale of FRC were immediately rolled into the JK Trust.

124.  It would appear from what was said above, the amount of sale proceeds were about USD14.5m.

125.  However, as said earlier, the amount of USD 60-80m for the sale of FRC given by the Wife in her 4^th affirmation was never disputed by the Husband.  This would mean his share should be in the region of about USD 20m-USD 24m.  It is not clear at this stage whether the figures given by the Wife were gross or net of taxes, and it is also not clear whether the USD 14.5m figures were gross or net of taxes. In any event, the burden is on the Husband to provide proof as to the taxes payable on his share of the sale proceeds and the actual net amounts received by him and the dates received.  He has a duty to make voluntary disclose and not wait until he is asked.

126.  In any event, it would appear from the 08.07.16 Letter that the amounts were first received by the Husband and then “immediately rolled into” the JK Trust.   It is not clear whether this means that the amounts were directly paid into the trust accounts, or they were first paid into the Husband’s bank accounts and then paid out, and if so, which accounts. 

127.  The Husband has been asked by the Wife in her questionnaire to provide particulars of all asset injections into the 5 Trusts for the last 5 years including the time and amount.  The Wife’s questionnaire was dated 5 December 2016 and last 5 years would be from 5 December 2011 and yet the injections into the JK Trust stated by the Husband in his 1^st Answers were from 8 September 2014 onwards whereas the USD 1m into each child’s trust was in December 2012.  It was not clear when the closing or the completion of the sale was, but according to the Notes, it appeared to be in December 2012.  The Husband disclosed no injections into JK Trust in 2012 or 2013 in his 1^st Answers, only 3 injections in 2014 totalling USD10,575,308 and then one injection in September 2015 of USD500,000.

128.  In fact, it is also not clear whether the last injection in 2015 was part of the Husband’s bonus/earn out payment or part of the price of the sale.  In the 26.04.16 Letter, as mentioned earlier, the Husband had said that when an ‘earn out payment’ was due to be paid to him, it was first taxed and then used to pay the employees’ bonuses, and any balance was then paid by the Company into the JK Trust. He then went on to say in 2015 he received a bonus of USD 1.1m and as no employees were paid special bonuses that year, the bonus was paid directly into the JK Trust after the US taxes had been deducted and paid by the Husband.  The Husband did not disclose when this was received by JK Trust nor the net amount received.   

129.  The Husband did in his 1^st Answers produce bundles of tax returns. Briefly, it would appear from his individual income tax returns (Form 1040) from 2012 -2015 as follows:

(all figures in USD)

	Income from various sources (gross)	Total taxes	Taxes paid	Taxes Overpaid	Tax Refund
2012	17,824,875	3,257,647	3,907,434	649,787	649,787
2013	773,926	197,138	326,332	129,194	59,155+70,000 applied to 2014 taxes
2014	Net 155,478 (total less 961,287 for Item 17, or special bonuses as alleged by the Husband)	211,953	216,307	211,953	111,953 +100,000 applied to 2015 taxes
2015	2,162,366	779,878	797,036	17,158	Applied to 2016 taxes

130.  First of all, income taxes are not really 45% of the gross income as portrayed by the Husband and in fact, as seen from the above table, can be much less since there are various deductions allowed.  Secondly, as seen in the 2012 Form 1040, out of the total income, USD2,500,880 was the Husband’s wages, and USD 13,261,589 was “capital gain”, and USD1,755,449 for Item 17.  It would appear this “capital gain” could be part of the sale proceeds from FRC and should have been received by the Husband in 2012.  It was not clear whether the Item 17 figure was part of the sale proceeds, or other payments.  All this should have been explained clearly by the Husband.

131.  Further, according to the Husband’s 1^st Answers, there were FRC distributions to pay off US taxes for the sale of the business which he deposited into his US HSBC Premier account, namely about USD1.5m in April 2013, about USD 94,00 in January and March 2014, and about USD426,236 in August and September 2015[32].  These appeared to be payments after the sale.

132.  The amounts of the injections into the JK Trust as disclosed by the Husband in his 1^st Answers did not match the amounts stated in the 08.07.16 Letter or the amounts in his tax returns. As the Husband has not disclosed any injections into the JK Trust for 2012 and 2013 in his 1^st Answers, it is not clear where he deposited the sale proceeds or “capital gain” in the 2012 Form 1040 upon receipt.  Also, as mentioned earlier, it is not clear whether the USD500,000 injected in the JK Trust on 10 September 2015 was part of the Husband’s bonus of USD 1.1m received in 2015 mentioned in the 26.04.16 Letter.  

133.  It is for the Husband to explain clearly all the above amounts.  Those letters from his lawyers have thrown up even more questions than answers. It would have been much simpler had the Husband provided explanations with reference to the supporting underlying documents.

134.  In any event, the Husband has up until today not yet disclosed the information/documents relation to the particulars of the sale of FRC.   Since the Husband had admitted in his 1^st Answers to having started an extra-marital affair with a woman called Anee prior to April 2012, the Wife is not unjustified to be suspicious of the Husband’s actions in relation to transactions involving assets (of which the Wife is contending to be family assets) placed out of her reach. Although the Wife, while she remains a spouse, is a beneficiary under the JK Trust, she is not a “named” beneficiary, and after the divorce, she will cease to be a beneficiary.

135.  The Husband’s case in the 08.07.16 Letter is that his interest in FRC was acquired as follows:

(i)  At the time of marriage – he already held 10%

(ii)  In September/October 2012 – the Husband’s parents each gifted him 6.67% totaling 13.33% making his interest 23.33%

(iii)  Upon the closing occurring – the Father gifted an additional amount of monies which led to the total amount received by the Husband equating to 30%

136.  Subject to documentary proof, and assuming what is stated above is correct, the Husband received 30% of the sale proceeds in total.  What is unclear is the exact amount received and how much of that went into the trusts.

137.  The JK Trust expressly provides that there shall be no distributions unless directed by the “Distribution Advisor”, namely the Father.  The Father has said that he will not be directing any distributions at all.  Mr Chan submitted that there is no evidence of any historical distributions and that the Husband confirms that there have never been any distributions whether of income or capital from the JK Trust.  Mr Chan has also submitted that although the Husband has previously been able to borrow funds from the Father, this is no longer possible.

138.  The Husband’s solicitors have written to the trustee of the JK Trust, Commonwealth Trust Company, to make enquiries as to whether the trustee would or could make distributions to the Husband should he request for the same and whether any distributions have been made from the trust in the past.  The trustee has in a letter dated 31 October 2016 explained that the trust is a “Delaware directed trust” and that the authority to make distributions is a power which the trustee may only exercise upon the direction of another party and the trust provides under section 5.1 that the trustee shall exercise the powers granted to it relating to making discretionary distributions from the trust fund to beneficiaries only upon receiving the written direction of the Distribution Advisor of the trust[33].

139.  The Father, in response to the Husband’s solicitors enquiry,  replied by email on 8 November 2016, confirmed that he would not be prepared to sign a written direction to the trustee were the Husband to make a request to the trustee for a distribution to him for all or part of the capital or income of the trust.[34]

140.  The Husband has also produced a letter dated 30 March 2018 from the Father (“Father’s Letter”)[35].  The Father has stated in the letter as follows:

(1)  Were the Husband to make a request to the trustees, the Father would not be prepared to sign a written direction authorizing the distribution of any capital or income from the JK Trust and that this remains the case;

(2)  Of the two hard loans that the Husband borrowed from the Father, the 1^st loan was settled in January 2018 with interest, and the 2^nd is still outstanding, and the Father says he wishes to make it clear he expects the Husband to repay the 2^nd loan in full with interest;

(3)  The Father says he also wishes to make it clear that while historically he has been prepared to help the Husband by way of the two loans referred above, he is not prepared under any circumstances to pay any monies by loan or otherwise to the Husband, the Wife or any other person which will be used for the payment of his daughter-in-law’s legal costs or any financial settlement for her;

(4)  The Father then goes on to ‘explain’ as to why he adopts this position, namely that the Wife had lied to the Husband and the Husband’s mother about moving temporarily to Hong Kong and that the Wife moved to Hong Kong for financial reasons in an attempt to dishonestly obtain a higher financial award than she would have obtained had the divorce proceeded in New York.

141.  Mr Chan submits that insofar as the law is concerned it matters not whether the Father is being “reasonable” or “unreasonable” and/or whether his explanations are “good ones” or not.  The reasons given by the Father in (4) clearly echoed the Father’s own case on the Wife’s forum shopping.

142.  Mr Chan has referred to the ‘test’ in Kan Lai Kwan v Poon Lok To Otto (2014) 17 HKCFAR 414 and also the ‘test’ in KEWS v NCHC (2013) 16 HKCFAR 1 and submits the answers to the following questions are :

The question under the Kan Lai Kwan test

(i)  If the Husband were to ask for it, would the Trustee distribute to him?

The answer is a “resounding No” or at least one cannot say “Yes” on the balance of probabilities

The two questions under the KEWS test

(i)  What is the extent of the financial assistance provided by the third party to the Husband or the Wife?

(ii)  What is the likelihood of such financial assistance continuing in the forseeable future?

         The answer is that JK Trust fails both limbs.  In so far as the loans from the Father, this fails limb (ii) above.

143.  However, what the Father’s Letter states is only that he will not loan any money to the Husband or anyone which will be used for the payment of his daughter-in-law’s legal costs or any financial settlement for her. The Father has not said that he will not continue to loan money to the Husband for the Husband’s own living expenses, his holiday costs, his insurance premia or his legal costs.

The Husband’s financial resources

144.  Notwithstanding the Husband’s repeated claims about his financial difficulties, he has continued to incur and seems able to meet a substantial amount of legal costs.  The Husband has not disclosed his US lawyer’s fees so far.  However, according to the Husband’s estimate of costs in his Form H dated 16 November 2017, his costs up until the then PTR was HK$23.6m[36].  He later said in his Form H dated 17 April 2018 that there was an error in his previous Form H and that his costs billed up to April 2018 should be about HK$23.5m[37].

145.  The Husband has up to the hearing provided no proper explanation with supporting evidence as to how his legal costs have been met. When the Wife’s solicitors asked the Husband by their letter of 28 June 2018 to provide with supporting documentary evidence the source of the sum of about HK$23.5m for his legal costs, the Husband’s solicitors replied on 12 July 2018 complaining that it was “far too late in the day to be raising these sorts of questions”.  This in my view a rather odd response since the Husband should have explained it in the first place with supporting documents without being asked. 

146.  Anyway, the Husband’s solicitors then claimed that they had told the Wife many times the sources of payments for the Husband’s legal fees in addition to payments of the Wife’s legal fees, MPS, school fees and his own personal expenses.  They then set out 3 sources namely (i) his liquid capital which was almost depleted and now very little cash remaining; (ii) loans from the Father and all loans had been disclosed; (iii) employment income and bonuses on his old employment package.  The Husband’s solicitors further said they were instructed that all legal fees were paid through the Husband’s Hong Kong HSBC account.   

147.  When confronted with a schedule of withdrawals from the Hong Kong HSBC account from May 2013 to September 2016 showing no indication of any withdrawals were for the Husband’s legal costs, the Husband’s solicitors then corrected what they said and that it was through the Husband’s USA HSBC account.

148.  In relation to his (i) source, as early as April 2016, in the 26.04.16 Letter, the Husband had said his savings had been drastically reduced in order to fund the MPS, the legal costs and his own expenditure and that he had approximately HK$6m in his bank accounts. Later in the 21.07.16 Letter, the Husband’s solicitors then clarified that the figure of HK$6m included his illiquid retirement and investment accounts, and that he had exhausted most of the cash and had virtually no liquid capital left[38].   In his Form E in August 2016, he disclosed only USD23,455 in all his bank accounts.  The amounts disclosed by him would not have been sufficient to pay his legal costs.

149.  In relation to his (ii) source, namely his loans from the Father, as seen earlier, apart from loans for his holidays and payment for his life insurance premia, there was only a loan of USD200,000 in July 2016 said to be for the Husband’s legal costs and outgoings plus another sum of USD300,000 in August 2016.  However, it is not clear whether any part of the loans of USD500,000 in July and August 2016, or HK$3.9m went towards the payments in September 2016 to the Wife for the MPS arrears of HK$430,000 and the HK$1,500,000 for her legal provision under the MPS Order, or whether there were further loans.   In any event, those amounts of the loans from the Father so far disclosed by the Husband would not have been sufficient to meet his legal costs.

150.  As for the (iii) source, according to the 26.04.16 Letter, the Husband had received no bonus for 2014, and a bonus of USD1.1m (HK$8.58m) for 2015.  It is not clear how much bonus the Husband in the end received for 2016, but according to the 26.04.16 Letter, the majority of the 2016 bonus, after tax, would be used to pay the ‘special bonuses’ to his employees.  According to his list of special bonus for 2016 , the amount was adjusted to USD766,000[39] or about HK$5,959,480 as opposed to USD792,500 as earlier disclosed.  Notwithstanding this adjustment, it does not look like his bonuses will be sufficient to meet his legal costs.

151.  His Form H in August 2016 indicated that the Husband had already incurred billed and unbilled costs of some HK$13.8m at that time.  Between then and April 2018 over a period of some 20 months, his billed costs had increased by HK$9.7m to about HK$23.5m.

152.  The fact is notwithstanding the Husband’s solicitors having told the Wife many times, the figures do not appear to add up at the moment, and there has been no sufficient evidence at present to support the Husband’s allegations that his legal costs of HK$23.5m came from those 3 sources as stated.

153.  Having considered the above, I agree with the Wife, the Husband has so far failed to comply with his obligation to make a full, frank and clear disclosure of his financial position.  His disclosures have been piecemeal and he provided information only when asked.  His lack of clear disclosure as to his financial position, in particular the source of the payments for his legal costs in the past of HK$23.5m and the source for payment of his future estimated costs of another HK$5m has led this Court to draw an inference against him that he has undisclosed financial resources of at least some $20m in the past.     

Conclusion

154.  In the above circumstances, I have come to the view that the Husband has the ability to pay the amount of HK$3.5m.  I thus order the Husband to pay a sum of HK$3.5m to the Wife’s solicitors to be applied towards the Wife’s legal costs up to conclusion of trial, payable by monthly instalments of HK$500,000 each, to be added to the Wife’s MPS over a period of 7 months commencing from September 2018 until March 2018.  Any amounts paid by the Husband towards provision of the Wife’s legal costs shall be taken into account by this Court in any final order for ancillary relief.

155.  The Wife has succeeded in her application. I order the Husband to pay her costs of and incidental to this application, such costs to be summarily assessed and paid within 14 days of assessment by this Court.  The Wife is to lodge her statement of costs within 14 days, and the Husband to file his list of objections within 7 days thereafter.