LSY v. HTF

[English translation – 英譯本]
CACV 290/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 290 OF 2011

(ON APPEAL FROM FCMCNO. 2978 OF 2005)

____________________

BETWEEN

____________________

JUDGMENT

Hon Cheung JA (giving the judgment of the Court):

1.  The petitioner (wife) and respondent (husband) got married in 1975. The petitioner filed for divorce in 2005 and a divorce decree nisi was issued by the court on 4 February 2009.

Decisions by Deputy District Judge G. Own

2.  Deputy District Judge G. Own made the following decisions regarding the petitioner’s application for ancillary relief:

1)   Total Assets of the Parties

3.  The total assets of the parties amounted to HK$20,044,305.22, of which HK$19,353,000 belonged to the respondent and HK$691,305.22 belonged to the petitioner. The petitioner was held to be entitled to 70% of the total assets, i.e., HK$14,031,013.65, whereas the respondent was held to be entitled to the remaining 30%, i.e., HK$6,013,291.57. As the petitioner already owned assets of HK$691,305.22, she was awarded assets totalling HK$13,339,708.43.

2)   Assets of the Respondent  

4.  The assets of the respondent were as follows:

(1) The former matrimonial home of the parties registered in the sole name of the respondent. The property was free from mortgage and valued at HK$17,900,000.00 according to the valuation report.

(2) An office unit held by the parties as joint tenants. This unit was free from mortgage and valued at HK$2,840,000.00 according to the valuation report. On 28 September 2009, the petitioner registered a Notice of Severance of Joint Tenancy. The interest in the unit held under the names of the petitioner and the respondent was HK$1,420,000.00 each.

(3) Two motor vehicles respectively worth about HK$30,000 and HK$3,000.

5.  The total assets of the respondent, which consisted of the interests in the two properties and the two vehicles, amounted to HK$19,353,000.00 (HK$17,900,000 + HK$1,420,000 + HK$30,000 + HK$3,000).

3)   Assets of the Petitioner

6.  The assets and liabilities of the petitioner were as follows:

(1) Assets

(a) Cash in bank
Integrated Account: Hong Kong Dollars	$ 3,329.87
Savings Account: Hong Kong Dollars	$2,686.52
Savings Account: Hong Kong Dollars	$736.26
	$6,752.65
(b) Insurance
Life Insurance Policy No. (1)	$14,237.21
Life Insurance Policy No. (2)	$45,748.08
Life Insurance Policy No. (3)	$23,474.33
	$83,459.62
(c) Pension	$33,770.95

(2) Liabilities

(a) Loan from elder sister about	$850,000.00
(b) Credit Card Balance due to bank	$2,678.00
about	$852,678.00

7.  The net worth of the assets of the petitioner (including the valued 50% interest in the office premises) was HK$691,305.22 (i.e. HK$1,420,000 + HK$6,752.65 + HK$83,459.62 + HK$33,770.95 minus HK$850,000 and HK$2,678).

Appeal by the Respondent

8.  The respondent appeals against the ratio of distribution made by Judge Own, arguing that an order should be made for equal division of the assets between the parties.

Background of the Parties

9.  The background of the parties has been detailed in the judgment by Judge Own and will not be repeated here. In short, both parties were 58 years old. The respondent operated a jade business with presences in Mainland China, Hong Kong and Taiwan. Before the parties separated, the petitioner used to assist the respondent in the business. Although the respondent claimed that he was already advanced in age and suffering from poor health and was no longer able to work as he did in the past, Judge Own did not accept this point and held that the respondent earned an income of at least HK$100,000 per month from his business.

10.  The petitioner was suffering from depression and serious heart disease. She was unable to work. She had suffered from depression since 2002 and had received cardiac treatments since March 2004. From 12 October 2005 onwards, she had to receive long-term treatment from psychiatrists. According to the medical receipts produced by the petitioner, her monthly expenses in medical/dental care amounted to HK$10,300.

Reasons for decision of Judge Own

11.  On the issues involved in this appeal, Judge Own ruled as follows:

“Health Conditions of the Parties

81. The wife has been medically diagnosed as suffering from depression and heart disease and requires continual follow-up by doctors and medication. The husband’s health condition does not involve any serious disease.

Other Factors for Consideration

82. I am of the view that the present case differs in two aspects from other similar cases of its type. First, the husband has failed to make full and frank disclosure of assets. Second, the husband has caused delay in the present proceedings and his conduct is no doubt so gross and obvious that the court has to consider departing from the usual principle of equal division.

83. In light of the above, I am of the view that but for the delay caused by the husband, the question of ancillary relief would have been dealt with sooner. As a result of the delay, the wife has been deprived of financial relief and, in addition, has to face the financial predicament brought about by the husband’s failure to comply with the interim maintenance order as well as accumulation of the debt which she has been owing to her elder sister for years. This is a very serious situation which must be taken into account and to which the court cannot turn a blind eye.

Decision on Ancillary Relief

86. In light of the above facts, I believe that the most reasonable and equitable way of determining the question of ancillary relief is one which achieves a clean break between the parties. After all, the wife has been suffering for more than six years due to the delay of the proceedings.

87. Applying the legal principles set out in LKW v. DD, I think that an equal division of the total family assets in the present case is beyond question. For the following two reasons, I decide to depart from the yardstick of equal division and hold that, as far as ancillary relief in the present case is concerned, the wife is entitled to 70%, and the husband to 30%, of the total assets. I believe this division can fully cater for the future needs of the parties.

(a) An extra 10% is awarded to the wife for all the financial loss (including any loss of interest) which could have been avoided but for the recurrent and deliberate delays on the part of the husband;

(b) An extra 10% is awarded to the wife to cover the huge medical expenses she will incur in future.”

Examples of the Respondent’s Delay

12.  Judge Own set out in his judgment some examples of the delay in the proceedings caused by the respondent:

“5. On 26 March 2010, the Court of Appeal handed down judgment, dismissing the appeal and awarding the costs of the appeal to the wife. In the judgment, Kwan JA pointed out the highly unusual circumstances of the case. After reviewing the progress of the proceedings from the outset, she made the following observations:

“31. The petition was filed in March 2005, but the trial did not commence until almost four years later. This is extremely rare. The husband has made several applications to stay the proceedings on health-related grounds. The first three applications for adjournment, although not fully justified, were allowed by the court, which had shown sympathy with him and fully taken his interests into account. Given his financial means, the husband should not meet with any difficulty in hiring a lawyer. …

32. Several days before the trial was to commence on 4 February 2009, the husband was admitted to hospital. It appears from the medical report that he went to hospital to undergo various examinations instead of receiving treatment for urgent health problems. His admission to hospital on this occasion cannot be regarded as an independent incident but should be considered in light of the husband’s previous course of conduct. He had previously produced a number of medical reports to the court and successfully obtained adjournments or temporary stays of the proceedings. He was well aware of the grounds on which he would have a better prospect of obtaining an adjournment of the trial. He usually sought medical treatments on several days in a row prior to a hearing, or consulted a number of doctors within one day. We agree with the submission made by counsel for the wife that this is a series of conduct done by the husband for the purpose of applying to stay the proceedings or absent himself from the hearing.

33. I also notice that during the period in which he allegedly suffered from chronic illness, the husband travelled between Mainland China, Hong Kong and Taiwan frequently for business.

                                    34.  Without sufficient and reasonable cause, the husband did not attend the trial on 4 February 2009. His fourth application to stay the petition for not less than two years was an abuse of process. An adjournment of the trial would cause grave injustice to the wife. In the highly unusual circumstances of the case, it was correct for Judge Kot to exercise her discretion and refuse further adjournment as she did.”

6. On 8 November 2010, Deputy District Judge S. Lo heard the wife’s application for maintenance pending suit. On 16 November 2010 Judge Lo ordered the husband to pay the wife $47,000 per month as maintenance pending suit on the 1^st day of each month, starting retrospectively from 1 August 2008 until further order of the court. Judge Lo allowed the husband 28 days to pay maintenance pending suit for the period between 1 August 2008 and 1 November 2010. In paragraph 35 of the judgment, Judge Lo pointed out that all along the husband had been opposing the wife’s application for maintenance pending suit without making any offer for settlement, and that the husband was merely abusing legal process and applying delaying tactics to the application. Judge Lo ordered the husband to pay the wife the costs of and incidental to the application, including any reserved costs, and also granted Counsel’s Certificate.

7. The husband sought to appeal the decision of Judge Lo in HCMP No. 484/2011. On 20 April 2011, the Court of Appeal dismissed the application for leave to appeal on the grounds that no error in law was found in the decision and that the proposed appeal had no prospect of success. An order was also made debarring the husband from requesting, pursuant to O.59 r.2A(7), a reconsideration of the application at an inter partes hearing.

8. It should be mentioned in passing that, as at the commencement of this trial for ancillary relief, the husband had neither paid any costs ordered against him following his previous unsuccessful appeal nor paid any maintenance or costs pending suit. 

9. Prior to the commencement of the trial for ancillary relief, the husband instructed legal representatives and counsel to apply for an adjournment of the ancillary relief trial. I refused the application after hearing and on 15 September 2011 handed down reasons in writing for refusing the adjournment.”

LKW v DD

13.  In LKW v DD (2010) 13 HKCFAR582,the Court of Final Appeal stated that total assets should be divided equally between the parties unless there is good and obvious reason for departing from an equal division (see para. 82 of the judgment). The Court of Final Appeal then dealt with the reasons for such departure:

“83. The fourth step therefore involves considering whether good reasons exist for departing from the principle of equal division. Any such departure means increasing or reducing one party’s share and correspondingly reducing or increasing the share of the other. The question for the court is whether the balance ought to be shifted from a point of equality to some other point in the circumstances of the case. This is necessarily a complex question which raises a range of separate issues.

84. What then are potentially good reasons for such a departure? The answer is to be found in the terms of section 7 and the implicit objective of a fair distribution of the assets. Any of the matters listed in paragraphs (a) to (g) of section 7(1) may provide an appropriate reason, as may the ‘conduct of the parties’ and ‘all the circumstances’ referred to in section 7(1). The catch-all category of ‘all the circumstances’ makes relevant any matter which bears on the fairness of the financial outcome in a matrimonial context.

85.  It is important to stress that while such factors, individually or cumulatively, are potentially capable of resulting in a departure from an equal division, a finding that one or more of those factors are engaged does not necessarily mean that a departure must occur.  The weight to be given to such factors is in the court’s discretion to be exercised in Step 5 as described in Section E.6 below.  It cannot be over-emphasised that the matter is fact-specific and discretionary.  The sharing principle must not be mechanistically applied.”

14.  The Court of Final Appeal gave the following guidance on “conduct” as a factor:

“99. Section 7(1) makes it the court’s duty to have regard to the conduct of the parties in exercising its discretionary jurisdiction. It is therefore in principle a factor which may, alone or in combination with others, result in a departure from an equal division.

…

104.  Conduct, or more accurately, negative conduct, is therefore only to be regarded as a material factor if it is ‘obvious and gross’ in the sense explained in Wachtel v Wachtel or, which comes to the same thing, if it is such that it would in the opinion of the court be inequitable to disregard it.”

Starting Point

15.  The marriage between the parties had lasted 30 years by the time they separated in 2005, and 34 years by the time the court issued the divorce decree in 2009. Judge Own correctly applied the principle of equal division of total assets when he dealt with the distribution of the assets between the parties.

Grounds of Appeal

16.  Mr Wong, Counsel for the respondent, argues that there was no legal basis for the Judge Own to award an extra 10% of assets to the petitioner on the ground that she suffered from delay in the proceedings. It is also argued that there was no factual basis to award an extra 10% of assets to the petitioner to provide for future medical expenses.

“Misconduct”

17.  Mr Wong refers to English case law which points to the need for the court to distinguish between “misconduct” of different nature. The case law indicates that the courts have drawn a distinction between “marital misconduct” and “litigation misconduct”. Only the former may become a factor justifying a departure from equal division. The latter will usually be sanctioned by awarding costs against the party guilty of misconduct but will not be taken as a factor justifying a departure from equal division. See Tavoulareas v Tavoulareas [1998] 2 FLR 418 (at 426).

18.  Thorpe LJ stated:

“The criterion of conduct under s 25(2)(g) of the [Matrimonial Causes Act 1973, UK] is clearly stated to be relevant if the court concludes that it would be inequitable to disregard it. But it does seem to me that a clear distinction must be drawn in all these cases between what might loosely be described as marital conduct and what might conveniently be described as litigation conduct. It seems to me as a matter of construction that s 25(2)(g) is plainly aimed at marital misconduct. If the applicant’s misconduct is limited to misconduct within the ancillary relief case long after the separation of the parties, it is, in my judgment, questionable whether that factor should go to diminish the quantum of the financial award.”

19.  In the above case, Thorpe LJ also applied the following decision that he made in another case M v M (Financial Provision: Party Incurring Excessive Costs) [1995] 3 FCR 321 at 330):

“… Ordinarily speaking, it seems to me that the manner in which proceedings are misconducted is to be reflected in orders for costs rather than directly in the scale of the awarded sum. However, this seems to me to be the exceptional case where the husband’s strategy has been so extreme that it would be inequitable to disregard it. It seems to me that it is appropriate to look at the quantification of the wife’s share not of what remains today but of what would remain today had that policy of waste and destruction not been pursued.”

20.  Thorpe LJ reiterated this principle in Young v Young [1998] 2 FLR 1131 at 1140. See also Jackson’s Matrimonial Finance (9^th Edition),paragraphs3.72 and 3.73.

Our Views

21.  It appears from the judgment of the Court of Final Appeal that, the approach to cases involving “misconduct” has been consistent under English law and Hong Kong law. Furthermore, the distinction between different types of “misconduct” should in our view also apply in Hong Kong. The first instance judgment shows that the court has already ordered the respondent to pay costs as a result of his delaying the litigation and abusing the process. Besides, the respondent was held to be in contempt of court and committed to custody for 7 days by reason of having failed to comply with an order requiring him to give detailed replies to the petitioner’s questionnaire and to file documents.

22.  There is no evidence in the present case to suggest any litigation misconduct on the part of the respondent which has resulted in depreciation or loss of the matrimonial assets. Therefore, there does not exist in the present case any exceptional circumstance as envisaged in M v M which justifies a departure from equal distribution on the basis of litigation misconduct.

Physical or Mental Disability

23.  In LKW v DD the Court of Final Appeal accepted that special needs of a party arising out of his/her physical or mental disability is one of the factors leading to a departure from equal distribution:

“106. Assessment of the parties’ financial needs has beenexamined in describing the second stage of the exercise under discussion. It was noted that paragraphs (b) to (e) of section 7(1) have a bearing on such financial needs. In the present context, one or more of those matters may also be relevant to deciding whether an equal division should be departed from.

107. Thus, as envisaged by section 7(1)(b), one of the parties may be left with significantly more onerous obligations or responsibilities (most commonly involving care of the children) than the other. Baroness Hale gave as examples of “needs”, cases where one of the parties is unable or has a diminished ability to re-enter the job market; or has responsibility for the care of elderly relatives. Another example involves cases where one of the parties has special needs arising out of a physical or mental disability (as section 7(1)(e) recognizes). Circumstances like these are clearly capable of leading to a departure from equality of division.”

The Respondent’s Position

24.  Mr Wong points out that the petitioner has failed to provide medical reports on her present physical condition, apart from a medical report dated 20 July 2006 which showed that she had heart disease and had undergone stents implantation due to blockage of coronary arteries. That report stated that further cardiac examination was required of the petitioner as she had recently felt unwell while doing exercises. Mr Wong also submits that the applicant has failed to provide any receipt of recent medical consultation.   

Our Views

25.  With respect, we disagree with Mr Wong’s submission. In fact, the petitioner has submitted a cardiologist’s report dated 25 June 2007 which stated that the discomfort in her chest had worsened and that she had added nitroglycerin tablets to her medication. The petitioner is already 58 years old and there is no evidence of any improvement in her heart condition. 

26.  The psychiatrists’ reports in July and November 2007 adduced by the petitioner showed that she was diagnosed as suffering from depression with suicidal tendency. Although the psychiatrists pointed out in the reports that her mental health condition would be improved with the speedy resolution of the divorce litigation, the doctors did not say that she would fully recover from depression as a result of such improvement.

27.  Viewing the circumstances as a whole, we see nothing wrong in the approach taken by Judge Own, namely departing from the principle of equal distribution by reason of the petitioner’s needs in respect of medical expenses arising out of her health problem. In my view, the petitioner has provided sufficient evidence to prove her health conditions and her needs in respect of medical expenses. I therefore uphold the Judge’s decision on this point.

Full Disclosure of Assets

28.  The solicitors acting for the petitioner filed a notice to the respondent at the appeal hearing, requesting this Court to take into account the respondent’s failure to make full disclosure of assets, which (it is submitted) may also serve to support Judge Own’s decision on the distribution of assets. Although the Judge ruled that the respondent had failed to make full disclosure of his financial status, in the ancillary relief order the value of the jade business currently operated by the respondent was not included as part of the matrimonial assets. At trial, the petitioner neither adduced any evidence on the valuation of the respondent’s jade business nor asked the Judge to categorise the business as a matrimonial asset. At this stage, we are not in a position to make a valuation of the business. However, in light of the Judge’s finding that the respondent is now earning a monthly income of $100,000, no grave injustice will be caused to the respondent even if the petitioner is awarded an extra 10% of the assets (approximately HK$2,000,000) on account of her health problems.

Conclusion

29.  We allow the appeal and adjust the ratio of distribution of the assets from 70/30 to 60/40. We will not disturb the other orders made by Judge Own. We make a costs order nisi that the parties shall bear their own costs of the appeal, with the petitioner’s own costs to be taxed in accordance with the Legal Aid Regulations.

Translated by the Judgment Translation Unit of the Judiciary and vetted by Mr. Edmund Cham, Solicitor.