SPY v. KYH

HCA 579/2017

[2021] HKCFI 861

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 579 OF 2017

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JUDGMENT

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A. INTRODUCTION

1.  The plaintiff and the defendant married each other on 6 July 1987 in Hong Kong.  There are two sons of the marriage, born in 1990 and 1991 respectively.

2.  The marriage with the plaintiff was the defendant’s second marriage.   He has a daughter from the previous marriage, which ended in divorce.

3.  On 5 July 2007, the plaintiff filed a petition for divorce (“the Divorce Proceedings”[1]).

4.  In the course of the Divorce Proceedings, on 13 November 2007, Deputy District Judge Kot (as she then was) made an order by consent (“Consent Order”), pursuant to a Consent Summons dated 13 August 2007, in the following terms:

“The Judge upon the making of the Decree Nisi herein ordered by consent that there be no order as to costs for the suit including the application by way of the Consent Summons dated 13^th August 2007 save that the Petitioner’s own costs be taxed in accordance with the Legal Aid Regulations.

UPON the Respondent undertaking to the Court that he shall move out from the [matrimonial home] which is jointly owned by the Petitioner and the Respondent latest on 31^st December 2007.

AND UPON the Petitioner undertaking to the Court that she shall be responsible for repayment of the existing mortgage loan in respect of the matrimonial home until full repayment.

AND UPON the Petitioner and the Respondent agreeing and undertaking to the Court that (i) they shall jointly sell the matrimonial home 10 years immediately after the date of the pronouncement of the Decree Absolute at the then market price or at any time and such price as the Petitioner and the Respondent may mutually agree and (ii) half of the sale proceeds (after deducting therefrom the related legal costs and disbursements) without deducting therefrom the balance then outstanding of the said mortgage loan shall be paid to the Respondent and the other half of the said sale proceeds after repayment of the then outstanding mortgage loan shall be paid to the Petitioner.

The Judge by consent ordered that the custody of the children of the family … be granted to the Petitioner with reasonable access to the Respondent …”.

5.  Despite the fact that at the time the plaintiff was legally represented while the defendant was not, as correctly pointed out by the plaintiff, the Consent Order was clearly disadvantageous to her because:

(1)  There was no provision for any financial payments or support by the defendant, whether for the plaintiff or the two sons (who were then aged 17 and 16 respectively and still receiving education).  There was no nominal “HK$1-maintenace” provision which would have enabled the plaintiff to apply for a variation later, for example, when the parties’ financial positions changed. The plaintiff therefore was to be solely responsible not only for her own living expenses but those of the sons (including their education) as well.

(2)  The plaintiff was to be solely responsible for paying off the mortgage loan of the matrimonial home which was in the joint names of herself and the defendant, although she was to have the sole and exclusive possession thereof together with the sons[2].  Not only was this reflected in her undertaking to the Court to pay the mortgage loan, when the matrimonial home was sold in future, the outstanding balance was to be wholly paid out from her half-share.

6.  The plaintiff says that she agreed to those terms because the defendant had on various occasions represented to her, orally, in writing and by conduct, that he was impecunious, jobless and with no place to live.   She also says that she took out a mortgage loan for HK$440,000 from Wing Lung Bank, which was replaced by a mortgage loan for HK$1,820,000 from GE Capital (together “the Loans”), having been misled by the defendant into believing that he was impecunious and the Loans were required for family expenses.  However, she subsequently found out, from an Affidavit of Means (usually called a “Form E”) filed by the defendant on 15 April 2011, that he in fact had a number of assets which he did not disclose at any time leading up to the negotiations resulting in the making of the Consent Order, in breach of his duty to make full and frank disclosure.  His representation that he was impecunious was, she says, false.

7.  The plaintiff applied, on 1 November 2013 in the Divorce Proceedings, to set aside the Consent Order by reason of the alleged non-disclosure and misrepresentation of the defendant.   By an order dated 4 March 2015 made by Deputy District Judge Tse (as she then was), upon the undertaking of the plaintiff to issue a writ of summons in the High Court (which she did on 26 March 2015[3]) to apply to set aside the Consent Order, her application to set aside the Consent Order before the Family Court was adjourned sine die with liberty to restore.  By order dated 8 March 2017 made by B Chu J, this matter was reconstituted a High Court Action.

8.  This is the trial of the action.[4] Before me, the plaintiff appears in person and gives evidence.  The defendant does not appear and is not represented.  There are no other witnesses.

B.  DISCUSSION

9.  The jurisdiction of this Court to set aside a consent order made by the Family Court for non-disclosure and/or misrepresentation is not in issue.  As recently summarised by Au-Yeung J in A v B[5]:

“29. There is no dispute that the duty of full and frank disclosure exists. It applies not only to contested proceedings but also to exchanges of information between the parties and their solicitors leading to orders by consent without further inquiry by the court. The disclosure must also be correct and up to date, to enable the court to properly exercise its discretion Jenkins v Livesey [1985] AC 424, at 437H and 438B.

30. Even innocent misrepresentation as to a material fact is a vitiating factor and courts will set aside orders because the undisclosed fact undermined the whole basis on which the order was made: Sharland v Sharland [2015] 3 WLR 1070, at §30.

31. Where a party’s non-disclosure was inadvertent, there is no presumption that it was material and the onus is on the other party to show that proper disclosure would, on the balance of probabilities, have led to a different order. But where a party’s non-disclosure was intentional, it is deemed to be material, so that it is presumed that proper disclosure would have led to a different order, unless that party can show on the balance of probabilities that it would not have done so: see Gohil v Gohil (No 2) [2015] 3 WLR 1085, at §44”.

10.  The non-disclosure or misrepresentation must not be relatively minor in the sense that the proper disclosure would not have made any substantial difference to the order which the Court would have made.  As Lord Brandon of Oakbrook said in Livesey (formerly Jenkins) v Jenkins[6]:

“It is not every failure of frank and full disclosure which would justify a court in setting aside an order of the kind concerned in this appeal. On the contrary, it will only be in cases where the absence of full and frank disclosure has led to the court making, either in contested proceedings or by consent, an order which is substantially different from the order which it would have made if such disclosure had taken place that a case for setting aside can possibly be made good. Parties who apply to set aside orders on the ground of failure to disclose some relatively minor matter or matters, the disclosure of which would not have made any substantial difference to the order which the court would have made or approved, are likely to find their applications being summarily dismissed …”.

11.  In my judgment, therefore, the issues that arise in this case are as follows:

(1)  What was said or otherwise represented by the defendant to the plaintiff regarding his financial circumstances at various times leading up to the making of the Consent Order?

(2)  Whether there was non-disclosure and/or misrepresentation by the defendant?

(3)  If so, whether that led to the taking out of the Loans, and to the making of an order (i.e. the Consent Order) which was substantially different from the order which the Court would otherwise have made had there been no non-disclosure or misrepresentation by the defendant?  That is, whether the non-disclosure or misrepresentation was material, in reliance on which the plaintiff acted as she did. 

B1.  What did the defendant represent to the plaintiff regarding his financial circumstances?

12.  In her witness statement, the plaintiff gives the following evidence:

(1) She and the defendant used to own a property in Scarborough, Canada, jointly (“the Scarborough Property”).

(2) In 2005, when the family was living in Hong Kong, they decided to sell the Scarborough Property to finance the family’s expenses.

(3) The defendant flew to Canada to sell the Scarborough Property.  He told the plaintiff that he had no money and borrowed CAD5,000 from her as living expenses in Canada.

(4) After the Scarborough Property was sold, in response to a letter dated 9 March 2006 from the solicitors for the plaintiff demanding the defendant to pay her a half-share of the net sale proceeds (which the solicitors said amounted to HK$603,000), the defendant sent a letter dated 20 March 2006 in Chinese.  In summary, in that letter, the defendant said:

(a)  He lost his job in 2004 and given his age he would not be able to find employment again.

(b)  After the sale of the Scarborough Property, the net proceeds were CAD80,000, which he would need to use for the sons’ university education and insurance.

(c)  His earnings when he had a job were not sufficient to pay for his expenses, and had to borrow from his friends.

(5) Sometime in 2005 and then in 2007, the plaintiff obtained the Loans to finance the family’s expenses, on the belief that the defendant was impecunious by reason of his various representations, including events concerning the operation of a restaurant in Canada which resulted in substantial losses.

(6) Sometime before February 2007, when the plaintiff obtained the loan from GE Capital, the defendant attempted to borrow HK$500,000 from her.

(7) In the summer of 2007, the defendant told the plaintiff that he had no place to live and sought an extension to stay in the matrimonial home (when the draft terms for the divorce at the time provided that the defendant was to move out after the divorce).

(8) She also says in her witness statement:

“20. Prior to the signing of the Consent Order, the Defendant had on various occasions represented to me orally and/or in writing and/or by conduct that he was impecunious and jobless, and that he had no place to live.

21. The Defendant was, at that time, 62 years old. He claimed from time to time that:

21.1 he has been unemployed since 7^th November 2004;

21.2 he was unable to rent out the Scarborough Property but still had to repay the mortgage loan to Royal Bank of Canada;

21.3 he insisted that I had to seek employment to finance the daily and our 2 sons’ education expenses of the family or that the family had to move back to Canada and live on social welfare. At that time, my monthly meagre tutor’s fee income was around HK$8,000 to maintain the monthly expenses of the family at around HK$20,000”.

13.  Her evidence is supplemented by a supplemental witness statement, in which she gives further evidence of various representations made by the defendant since 1990 as to his poor financial circumstances.

14.  Having considered the plaintiff’s evidence as contained in her two witness statements, I find that when she was negotiating with the defendant leading up to the making of the Consent Order, and in fact since at least 2005, the defendant did represent to her that he was impecunious and she believed that to be the case, which induced her to take out, and in reliance on which she took out, the Loans, and which induced her to agree, and in reliance on which agreed, to the terms eventually made in the Consent Order.  Otherwise, it is difficult to see that, with her own difficult financial circumstances, she would agree to give up to take out the Loans alone, and would give up once and for all any financial ancillary relief whatsoever from the defendant, with not even a cent for the education of the sons, and giving him half of the sale proceeds of the matrimonial home without him having to pay for the mortgage loan even from his share of the sale proceeds.

B2.  Was there non-disclosure and/or misrepresentation by the defendant?

15.  In the Form E filed by the defendant on 15 April 2011, it was disclosed that, apart from his half-interest in the matrimonial home (which he put at HK$2,075,000):

(1)  He was the sole owner of a property in Shenzhen (“the Shenzhen Property”), which was purchased on 3 December 2007. He made a down payment of RMB118,149 and paid other expenses of RMB15,219.31. There was a loan of RMB440,000 which by the date of the Form E he had paid off totally.  He estimated the then value of the Shenzhen Property, which was free from encumbrance, to be RMB850,000 (equivalent to HK$1,002,358.40).  I note that while the Form E stated that the Shenzhen Property was purchased on 3 December 2007, a copy of the sale and purchase agreement thereof dated 18 April 2006 is produced before me.  The date of 3 December 2007 is presumably the date of completion of the purchase.

(2)  He had seven bank accounts with a total balance of HK$445,604.71.

(3)  He had six securities accounts with a total value of HK$271,906.

(4)  He had two insurance policies with a total value of HK$95,013.41.

(5)  He also wholly owned a property in Dongguan with a value of HK$182,783, which he purchased on 26 November 2009 for RMB120,000 plus expenses of RMB22,880.65, without any financial assistance.

(6)  In summary, the value of his net assets (other than the half-share in the matrimonial home) was HK$2,010,052.52.

(7)  According to his Form E, he was also able to lend a total of HK$77,030 to the plaintiff in the period between February 1999 to October 2000.

16.  I find that the representations by the defendant to the plaintiff that he was impecunious (referred to at [14] above) to be false, and that there was a failure by the defendant to discharge his duty to make full and frank disclosure of his financial circumstances to the plaintiff and to the Court.  In particular, barely a few weeks after the Consent Order was made, the defendant completed the purchase of the Shenzhen Property, but I find that, on the basis of the evidence of the plaintiff, the defendant ought to but did not disclose his interest therein to the plaintiff at any time before the Form E was filed.  Further, while he claims that he had been unemployed since 7 November 2004, he was able somehow to pay off the loan of RMB440,000 (plus interest) for the Shenzhen Property before the date of the Form E[7], while in the meantime he purchased another property at Dongguan for a total of RMB142,880.65, without the need to borrow.  He had over HK$700,000 in his bank and securities accounts as at 15 April 2011, and net assets (apart from the half-share in the matrimonial home) of HK$2,010,052.52.   There is no evidence before me that he accumulated most or all of those assets after the date of the Consent Order by some means despite the fact he had been unemployed. In fact, in his Form E the defendant declared that in the past 36 months, there had been no substantial changes in his assets, save that he “increased” his investments in real properties in China and in Renminbi.  In my judgment the more probable scenario is, and I find, that he did have at least some or all of those assets since 2005, and certainly during the negotiations with the plaintiff but which he failed to disclose.

17.  In fact, from the documents produced by the defendant, his financial position in the latter half of 2007, after the Divorce Proceedings had commenced and negotiations took place between the plaintiff and the defendant, can be gleaned.  In particular, the net position of an integrated bank account held by the defendant at Hang Seng Bank was a positive balance of HK$1,008,288.56 (cash and investment) as at 14 July 2007, shortly after the Divorce Proceedings had commenced, and of HK$748,215.69 as at 15 November 2007, shortly after the Consent Order was made.  This is a substantial amount which I find that, on the basis of the evidence of the plaintiff, the defendant ought to but did not disclose to the plaintiff.  The evidence also suggests that the defendant did have substantial assets in 2005 and representations to the effect since at least 2005 that he was impecunious were false.

B3.  Materiality

18.  I also find that, had the defendant disclosed to the plaintiff the true value of his assets during the negotiations, and at least since 2005, and thus the fact that he was not impecunious, the plaintiff would not have agreed to the terms eventually embodied in the Consent Order, or to take out the Loans.   Given the financial circumstances of the plaintiff, had she known that the plaintiff did have some meaningful assets, it is plain that she would not have agreed to the Loans or those terms in the Consent Order, but would have insisted on some financial provision from the defendant and which, if there was no agreement, the Court would have likely to have granted, taking into account in particular the Loans for which she paid and had to pay interest.  The whole basis of the Consent Order was undermined by the non-disclosure and misrepresentation by the defendant.

19.  Further, the representation that he was impecunious could not have been made by the defendant inadvertently or negligently.  The only inference I can draw is that the representation, and the failure to make full and frank disclosure, by the defendant was deliberate and intentional.  

20.  In the premises, the misrepresentation and non-disclosure by the defendant which induced and led to the Consent Order was material, whether as a presumption or as a fact.

B4.  Damages

21.  In her Amended Statement of Claim, the plaintiff also asks for damages for fraudulent misrepresentation.    While the plaintiff is prima facie entitled to damages, including any loss which she might have suffered because of the taking out of the Loans, the measure will largely depend on what ancillary relief she would have got had the Consent Order not been made.  The question of what ancillary relief (if any) the plaintiff should get is, however, not an exercise which this Court can or ought to undertake, but ought to be an exercise to be undertaken by the Family Court under my order to be made that there shall be a hearing de novo of the plaintiff’s application for ancillary relief.  Further any ancillary relief she may get in the hearing de novo may also affect what damages she can get (in terms of avoiding double recovery). In all the circumstances, I think the fairest order is for me to adjourn sine die the plaintiff’s claim for damages with liberty to restore, so as to see what results from the hearing in the Family Court.  I make clear that nothing herein shall fetter the full discretion of the Family Court to award whatever ancillary relief to the plaintiff (or the defendant, as the case may be) whether for the past or the future.

C.  DISPOSITION

22.  For the above reasons, I give judgment to the plaintiff and order that the Consent Order be set aside and there be a hearing de novo of the plaintiff’s application for ancillary relief in the Family Court, together with costs of this Action to be paid by the defendant to the plaintiff, to be taxed if not agreed, and in so far as necessary and applicable, the plaintiff’s own costs are to be taxed in accordance with the Legal Aid Regulations (as the plaintiff had at one time, but not now, legal aid).  The plaintiff’s claim for damages is adjourned sine die with liberty to restore.