LWH also known as WHHL v. NKWS also known as KWSN

FCMC 2953 / 2015

[2018] HKFC 12

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 2953 OF 2015

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R U L I N G

(Leave to appeal and stay of execution)

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Introduction

1.  This is an application by the Petitioner wife and her sister and brother in law (the 1^st and 2^nd interveners) for leave to appeal against my Preliminary Issues Judgment dated the 13 June 2017, which was held in order to determine the beneficial ownership of five family companies and the assets held by those companies. In the Re-amended Points of Claim the wife and intervener’s sought as follows: 

AND THE 1^ST INTERVENER AND THE 2^ND INTERVENER CLAIM FOR A DECLARATION THAT:-

(1)  PCHK and OB are beneficially owned by the 1^st Intervener and the 2^nd Intervener only, and that PCHK and OB should not form part of the matrimonial assets to be distributed between the Petitioner and the Respondent in the present proceedings; and

(2)  PCH, PCA and B are in part beneficially owned by the 1^st Intervener and the 2^nd Intervener only, and that PCH, PCA and B should only form part of the matrimonial assets to be distributed between the Petitioner and the Respondent in the present proceedings.

In addition, the wife and interveners seek a stay of execution of the judgment. Late in the day they also sought leave to appeal against the Indemnity Costs Ruling dated the 6 November 2011.

The law

2.  There is no dispute over the law and it is trite but nevertheless worth repeating that the appropriate test when seeking leave to appeal is set out in section 63A of the District Court Ordinance which allows for an appeal to be made to the Court of Appeal with the leave of the presiding District Court judge.  Section 63A of the District Court Ordinance provides as follows:

“Leave to appeal shall not be granted unless the judge hearing the application for leave is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.”

3.  Further the Court of Appeal is unlikely to interfere with the exercise of a judge’s discretion unless it can be shown that she [or he] has clearly exercised her discretion incorrectly i.e. that it was exercised according to a mistake of law, or she had misunderstood the facts, or had taken into account something that was irrelevant or “the exercise of the discretion was ‘outside the generous ambit within which a reasonable disagreement is possible’”.

4.  In this instance the application for leave is mainly a challenge to the findings of fact made in the judgment. Thus the wife and interveners have a particularly high hill to climb in attempting to convince the court that this is an appropriate case in which to grant leave. I also accept as stated by Mr Coleman SC for the respondent husband in his skeleton submission that

22.  By way of preface, many of the GOA [Grounds of Appeal] ignores analysis of facts conducted or adopted by the Court.  They are essentially a re-run of W’s Family’s closing submissions, which has been heavily criticised as a “singularly unhelpful” document which was “produced as if the trial had not taken place and the evidence had not been tested”.

and

69.  All points now dressed up as a ground of appeal are a re-run of failed arguments which have been rejected on the facts.

5.  As indicated above, the wife and interveners initially forgot to also issue a summons seeking leave to appeal against the Ruling on Indemnity Costs dated the 6 November 2017. They conceded that they were out of time by 9 days and that further they had not referred to the appropriate section from the District Court Ordinance in either summonses. I accept as pointed out by Mr Coleman that this sort of procedural imprecision has been something that has plagued this case from the beginning. In any event, in order to proceed in a timely manner, I nevertheless gave leave for the wife and interveners to file their summons seeking leave to appeal against the Ruling on Indemnity Costs out of time and further it was agreed that all matters would be dealt with together at this hearing.   

6.  In so far as the wife’s application to stay pending the appeal is concerned it is accepted as set out in her written submissions that:

8.  The law on Stay of Execution is clear and not in dispute.

9.  Firstly, whether or not to grant a stay is entirely in the discretion of the court: The Ratata [1897] P.D. 118 [P#1] at 132; Att.-Gen. V. Emerson (1889) 24 Q.B.D. 56 [P#2] at 58,59).

10.  Star Play Development Ltd v. Bess Fashion Management Co. Ltd, [2007] 5 H.K.C. 84 [P#3] (“Star Play”) is the leading authority on the applicable principles in relation to stay of execution:

“… unless the defendant can justify a stay of execution, one will not be ordered. The practice of the court is that justification can be demonstrated only if good reasons exist.

 8.  Good reason can exist in a variety of forms.  … commonly, reference is made to factors such as whether the absence (or existence) of a stay would render an appeal nugatory (thus bringing into focus the relative prejudice that may be caused to the appellant and to the respondent by a stay of execution), and the merits of the appeal.”

11.  As to the requisite quality of evidence, it is sufficient to demonstrate that “the failure to grant stay would have a serious deleterious effect”: Caine Tai Investment Co. Ltd v. Ayala International Finance Ltd & Republic National Bank of New York [1983]1 H.K.C. 163 [P#5] at 163, 166.

12.  On the merits of appeal, “where it is demonstrated that an appeal would be rendered nugatory if a stay was not grated, the court may require no more than the existence of an arguable appeal.” (§9(8) of Star Paly [P#3] at 89)

7.  I further accept the comments made by Mr Coleman as follows:

For completeness, it need only be said that an appeal does not operate as a stay.  The most important consideration in respect of whether a stay of execution should be granted is whether there are strong grounds of the proposed appeal.  That hurdle is higher than that of chances of success for considering whether leave to appeal should be granted.  Unless a stay can be justified by good reason, one will not be ordered.  The Court does not make a practice of depriving a successful litigation of the fruits of his litigation and locking up funds to which prima facie he is entitled pending an appeal.  See Hong Kong Civil Procedure 2018 at [59/13/1].

In other words, however exceptional the circumstances may be otherwise justifying a stay of execution, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted: Star Play Development Ltd. V Bess Fashion Management Co. Ltd. [2007]5 HKC 84 per Ma J (as he then was) at §9(6).

Summary

8.  In summary, I will not give leave to appeal in relation to either my Preliminary Issues Judgment of the 13 June 2017 nor my Ruling on Indemnity Costs dated the 6 November 2017. Further there will be no stay of proceedings pending any further application to the Court of Appeal for leave. My reasons are set out below. 

Judgment

9.  In the Preliminary Issues Judgment I came inter alia to the following conclusions:

70.  In conclusion then I accept that all five Family Companies belong beneficially to the husband and wife. I further accept that whereas OB is held legally by the wife, that all of the other four remaining companies are held legally in the names of the husband and wife. For the avoidance of doubt it follows that all of the Family Companies shall be regarded as family assets, to be included in the matrimonial pot for distribution upon divorce. The properties held in the names of the Family Companies are also held beneficially by the husband and wife and they will also form part of the matrimonial pot. The declaration sought by the wife and the interveners in the Re Amended Points of Claim is therefore dismissed.

Costs

71.  It seems to me that this is a case where costs may quite rightly be ordered on a higher basis than normal. I will therefore reserve costs for argument.

10.  In the Ruling on costs I said inter alia as follows:

4.  In summary, this was not a case where each side had an arguable case and each then chose to put their case at its very highest – as they are entitled to do. Rather it seems to me that this was a case where both the wife and the interveners appeared to have lied repeatedly during the course of the litigation process and over a long period of time. They did so because they wished to obtain the family businesses that the husband and wife had spent a life time building up. Although it is true that the factual situations relied upon in some instances occurred more than 25 years ago and consequently there was on occasion a lack of documentary evidence to support what each side had said, nevertheless it seems to me that the litigation behaviour of the wife and interveners is culpable and should be recognised as such. Mr Pilbrow S.C said that his clients genuinely believed in their cause. For the avoidance of doubt I do not accept that to be the case.

5.  There was also a further difficulty in that the wife and intervener’s case was not properly pleaded, making it very difficult indeed to properly identify the issues to be determined and to then deal with them appropriately.

The Grounds of Appeal

11.  In the draft Grounds of Appeal the wife and interveners identify 10 possible grounds where they say that I erred when coming to my decision. Given that they have indicated that they intend to seek leave from the Court of Appeal, in the event that I refuse their application, it seems that it will be necessary for me to address these grounds one by one.

Ground (1) –Failure to give adequate reasons

12.  This is not accepted. The wife and interveners identify three areas in particular where they say that this applies. With respect I beg to differ. 1) Reasons were given for my decision on the ownership of the Cornwall property - see paragraphs 26 – 30 of the judgment. 2) In so far as the Sham Business argument is concerned, Mr Coleman is right when he says that this was an unpleaded argument. See paragraphs 68 of the judgment when I pointed this out and said that “it ill becomes the wife and interveners to introduce them (this and two other points) through the back door and after the event”. I stand by that comment. 3) Lastly the wife and interveners refer to my findings on the C & S litigation. Again with respect, although one of the problems in this case related to the lack of hard evidence, this did not apply here. There was evidence produced in relation to the C & S litigation and it supports the conclusions reached – see in particular paragraph 50 of the judgment.  

Ground 2 – Declaration of trust

13.  The wife and intervener’s challenge what I have said about the declaration of trust in paragraph 34 of the judgment where I concluded as follows:

34.  In summary there is nothing at all on the face of the documentation produced to support the wife and intervener’s case that the wife was holding and continues to hold OB on trust for the interveners. Indeed, the letter from Ernst Young dated the 17 December 1991 to the wife makes it clear that OB was set up as a service company in order for the wife to receive her income from C & S in a more tax efficient manner. I accept that this was the real reason why OB was originally established. Although OB was the wife’s company and the husband signed a declaration of trust to that effect, I also accept that the situation changed over time. In particular, it is of note that in September 1997 the wife authorized the husband to be a signatory of OB’s HSBC account. I do not accept, as was later alleged, that the wife needed J’s authorization to do this.  

14.  Mr Coleman makes the following points with respect to this in the Grounds of Appeal

39.  It is not understood how this Declaration of Trust of H’s share in OB in favour of W has any implication on the preliminary issue.  Even if it is upheld, it does not demonstrate that W held OB on trust for the Interveners.

40.  Further, the Court held that “the situation changed over time” in the sense that the Declaration of Trust was not relied upon as between H and W later on.  This is supported by the fact that H was authorised to be a bank signatory and dealt with funds therein as with those of other Family Companies.  It is unnecessary to consider revocation.  

With respect, I agree. 

Ground 3 – Errors of fact

15.  The wife and interveners put forward alternative interpretations of the facts, rather as they did in trial. I stand by the findings made as set out in the judgment. 1) In particular, it is not accepted that the court erroneously interpreted the Director’s Report and Accounts of C Development Ltd for the year ended 31 March 1989. Further I agree with Mr Coleman that even if I was wrong and JF [the 2^nd intervener and brother in law of the wife] was found to be wealthy, it does not necessarily follow that he funded the purchase of the Cornwall property, for the other reasons set out in the judgment. 2) Further, again, even if I was wrong in the reference to “another cheque” from the husband (which is not accepted), it does not necessarily follow that the interveners invested monies into the purchase of the Kingsland Villa property. I stand by the conclusion reached that there was no evidence that any monies had come from the interveners or that IL [the 1^st intervener and sister of the wife] had paid for other expenses by injecting money into the company known as OB.

Ground 4 –Credibility of the other witnesses

16.  It is said in the Grounds of Appeal that I failed to give sufficient analysis or indeed any analysis at all of the two witnesses who work or had worked in the family businesses or indeed the wife. This is not accepted. See in particular paragraphs 52 and 53 of the judgment with reference to the two third party witnesses. Frequent reference is also made to the credibility of the wife throughout the judgment. See in particular paragraphs 26 and 27, paragraph 39, 49 and 50. In conclusion I said this at paragraph 69 as follows:

Credibility

69.  Overall it seems to me that the wife and interveners failed repeatedly to come up to proof and that their version of events was inherently implausible from the start. Mr Coleman put it to the wife that she had gone into the husband’s office without his consent and that she had taken documents from locked drawers in his office without his agreement. The wife categorically denied this in the witness box. A video later produced however showed her doing just that and over a period of time. This is perhaps an indication of the lengths that the wife has been prepared to go. She certainly lied to the court on this occasion and appears to have done so repeatedly throughout this trial. The same can be said of the 1^st and 2^nd interveners.

I stand by these findings.

Ground 5 and 6 – Failure to fully consider the evidence

17.  1) The court is not required to consider each and every point raised during a trial. It is also said that the court failed to give any or sufficient consideration to the injections by the interveners into the bank accounts of OB. In reply to this Mr Coleman states as follows:

A pay-in slip in 1996 does not go anywhere to show JF’s alleged beneficial ownership of the company, and indeed, a Judge is not required to make factual finding on every single issue.

With respect I agree. 2) Further the wife’s and intervener’s case on the allotment of shares was simply not believed – see paragraph 54 and 55 of the judgment. 3) Lastly it is not accepted that insufficient consideration was given to the substantial level of financial and other benefits enjoyed by the interveners, including the fact that they left their daughters in the care of the husband and wife for a considerable period of time.

Ground 7 – Improperly adduced evidence and compound questions

18.  The suggestion that accepting answers to compound questions is an acceptable Ground of Appeal, is roundly rejected. If this is in reference to the wife’s answers to Mr Coleman’s questions about entering the husband’s office, taking documents and then denying it in court, then that is similarly rejected. The point about reliance on an insurance policy produced at re-examination is neither here nor there. I do not accept that it identifies an acceptable Ground of Appeal.

Ground 8 - Failure to take into consideration the fact that it was difficult for the interveners to produce evidence going back many years

19.  Again this is not accepted as a Ground for Appeal. The burden of proof lay with the wife and interveners. The issue was that the wife and interveners had seemingly made no or very little attempt to produce any contemporaneous documents in support of their case. They may not have been successful, but they should nevertheless have tried to obtain more evidence to support what they said.

Ground 9 – Credibility as a basis for ordering indemnity costs

20.  With respect it is suggested that the Ruling of the 6 November 2017 be read in its entirety. I stand by the findings made in that Ruling and the reasons given for ordering costs on an indemnity basis, the credibility of the parties being one of them. Reference in particular should be made to paragraph 14 of the Ruling which reads as follows:

14.  Mr Coleman SC says that there are a number of special or unusual features in this case which would support an indemnity costs order. Some of these have already been referred to above. However, for the avoidance of doubt I set these out in full below:

20.  There are plainly a great number of “special or unusual features” in these proceedings which would attract costs on an indemnity basis as an “appropriate” award:

(i) H has had resounding success in all aspects of his case.

(ii) All findings of facts were so convincingly made in H’s favour in part as W’s Family’s case made no sense.

(iii) As set out above, their case was essentially ill-conceived from the start.  Over 50% of their pleaded case was irrelevant and liable to be struck out.  Much of the rest was bound to fail as there was really no proper evidence as would have supported even what they wanted to say.

(iv) This is despite their attempt to pull out all stops by including vast materials in voluminous trial bundles which were never referred to – an abuse of court process which should not be tolerated.

(v) What they did say was usually flatly contradicted by the contemporaneous evidence, or inherently implausible to an extraordinary degree.  It would not be unfair to describe W’s Family and their witnesses as apparently living in a parallel universe, perhaps deliberately so and on instructions.

(vi) The Court has held that “the wife and interveners failed repeatedly to come up to proof and that their versions of events was inherently implausible from the start”.

(vii) The assessment on credibility is also damning.  The Court stated on a number of occasions that their evidence was fabricated for purposes of these proceedings.  The court particularly highlighted the fact that W “lied” about not going into the husband’s office to take documents from locked drawers without his consent, when she was caught on video doing just that.  W and the Interveners were also held to have repeatedly lied throughout the trial.

(viii) The circumstances leading to the litigation make unhappy reading of a series most unreasonable conduct, including an utterly baseless report to the ICAC alleging corruption on H’s part, and criminal proceedings for alleged assault of W in the Magistrate’s Court.

21.  This is a case which should never have been started, let alone taken to trial by W’s Family.  It was initiated and prosecuted in an oppressive and irresponsible manner as a kind of personal vendetta for vengeance of a marriage that no longer is – a deeply unattractive ulterior motive which should not be condoned.  W’s Family has deceived this Court on multiple aspects of the case, and attempted to deprive H of relevant documentary evidence by stealthy and underhand conduct.

22.  Litigation conduct of the type exhibited by W and, at her direction, the Interveners and their witnesses, is of an extreme type which is thankfully not often seen.  This Court was entirely right to invite an application for costs on a higher basis.

Ground 10 – Rejection of an unpleaded case

21.  Mr Coleman says this of this last Ground of Appeal:

C.10  Ground 10-Rejecting an upleaded case

87.  This ground begs to be dismissed on CFA authorities in Kwok Chin Wing and Sinoearn.  The Courts have been urged, and indeed bound by these authorities, to reject an unpleaded case.  See in particular, Kwok Chin Wing at §§21-23 (emphasis supplied):

“It should by now really be quite unnecessary to issue yet another reminder on the rationale behind pleadings. The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues … It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced …

… It is simply not permissible for an issue to be raised in this way: one does not sift through the evidence adduced in a trial in the hope that something was said that can conceivably found a cause of action. Issues, I would reiterate, must be properly pleaded unless for some reason the pleadings have assumed a less significant role in the proceedings …

The propose of pleadings, in clearly and unambiguously setting out the true extent and nature of a dispute not just for the benefit of the parties but also for the Court in managing and trying cases, remains important under our system of civil justice.  The retention of the old rules as to pleadings as well as the introduction of new provisions over four years ago under the Civil Justice Reform, reinforce this.”

88.  W’s Family has never condescended to explain which “part” of the beneficial ownership they say are held on trust by H and W for the Interveners, and why.  They said in cross-examination that it is for the lawyers to sort out.

89.  H simply could not plead to or adduce evidence in answer to W’s Family case on which “part” of the Family companies is held on trust for the Interveners and why.  The Court has even adjudged various pleas unanswerable.  If the unpleaded case were to be run, the prejudice to H is plain and grave.

90.  This is not an instance where material facts have been pleaded, to which the legal result is left for the Court’s adjudication.  On the contrary, none of the relevant facts for this argument has been pleaded.  By no stretch of imagination can this be a “variation, modification or development” of the pleaded case.

I agree. This case presented huge difficulties mainly because of the way in which it had been presented from the beginning. Pleadings were convoluted and difficult to follow and amended and then re amended. The end result was a document that was more akin to an affidavit or witness statement as opposed to a pleading.

Conclusion

22.  The wife and interveners applications for leave to appeal against the Preliminary Issues Judgment and the Ruling on Indemnity Costs are dismissed. Costs shall follow the event in the normal way, but on a party and party basis only. There shall be certificate for two counsel. I will not in this instance make an order for costs on an indemnity basis.

Stay of execution

23.  Mr. Pilbrow has confirmed that in the event that I turn down the wife and intervener’s application that they intend to make a fresh application before the Court of Appeal. Consequently, it seems to be incumbent upon me to deal with the issue of the stay of execution, at least until such time as it can be considered again by the Court of Appeal.

24.  The wife has set out the reasons for seeking a stay in her 6^th affirmation of the 16 October 2017. In essence she takes issue with the husband refusing to keep the second intervener on the pay roll, which in turn has led to difficulties with paying the other staff’s salaries. That of course begs the question why she or the interveners would think it appropriate for them to continue to receive any money or other benefits from the family companies given the findings made in the Preliminary Issues Judgment. With respect this application smacks of litigation window dressing.

25.  In any event as indicated above an application for a stay has a stronger chance of success if there are correspondingly strong grounds for the appeal. That is not the case here. The other issue is that the family businesses may fold if there is not some form of intervention. Staff have handed in their resignations and there is concern that one major customer in particular may go elsewhere. That is as maybe. Nevertheless, it seems to me that it would not be possible to grant a stay of execution at this juncture. This is a matter that can be raised again with the Court of Appeal if necessary. For the avoidance of doubt costs shall follow the event in the normal way and the Petitioner and interveners shall pay the Respondent’s costs of and arising out of this application on a party and party basis to be taxed if not agreed. There shall be certificate for both counsel.