CMM v. CSYR

CACV 248/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 248 OF 2012

(ON APPEAL FROM HCMC NO. 9 OF 2011)

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REASONS FOR DECISION

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1. By Judgment handed down on 10 October 2012, Toh J ordered: (1) the respondent (appellant) (“Husband”) to pay to the petitioner (respondent) (“Wife”) by way of financial relief upon their divorce, a lump sum of HK$ 400 million; (2) the Wife to transfer to the Husband her 50% interest in the matrimonial home in Canada (“Canadian Property”) and in another property in Tin Hau Temple Road, Hong Kong (“Hong Kong Property”); and (3) the Husband pays the Wife the costs of the proceedings.[1]

2. By Notice of Appeal filed on 6 November 2012, the Husband appealed against the Judgment, contending that the award to the wife should be reduced to HK$80 million.  The appeal is scheduled to be heard on 29 and 30 October 2013.

3. Pursuant to a consent order made on 21 September 2012, the Husband had paid HK$8 million to the Wife by way of advance payment.

4. By summons filed on 4 January 2013, the Husband applied to stay the execution of the Judgment on terms that a further payment of HK$72 million be paid to the Wife pending the outcome of the appeal.  His previous application to Toh J for stay of execution upon the same term was refused on 21 December 2012.

5. After hearing counsel’s submissions, I granted a stay limited to the extent of HK$180 million. My reasons appear below.

Applicable legal principles

6. The legal principles governing an application for stay of execution pending appeal are well settled.  They are as set out by Ma J (as he then was) in Star Play Development Ltd v. Bess Fashion Management Co Ltd [2007] 5 HKC 84 at paras.7 to 10. It is not necessary to repeat them.

The Judgment

7. The parties were married in 1983 and the marriage lasted for 27 years according to the Wife and 23 years according to the Husband.  The Husband inherited very substantial wealth from his late father who died in 2000.  Without taking into account the inheritance, the assets available for distribution are more than sufficient to meet the parties’ financial needs, generously assessed.  The principal contention both in the court below and in the pending appeal relates to the inherited wealth.  It is the Husband’s contention that it should be excluded from the sharing principle whereas the Wife says she is entitled to a share of it, agreeing, however, that this is not a case for equal division.  The open proposal of the Wife was HK$400 million whereas that of the Husband was HK$80 million.

8. The Judge concluded that this is not a case where the Wife should get 0% of the inherited wealth as it had been a long marriage and that after the Husband had come into the inheritance, a small part of it had been used for the benefit of the family (paragraph 43 of the Judgment).  The Judge held that the only fair distribution would be as proposed by the Wife and awarded to her a lump sum of HK$400 million (approximately 25% of the total assets) subject to her transferring to the Husband her 50% interest in the Canadian and Hong Kong Properties (paragraph 44 of the Judgment).

The appeal

9. Broadly speaking, the Husband’s grounds of appeal on the issue of inherited wealth are that: (1) the Judge erred as a matter of law in her approach to the issue and in concluding that the inherited wealth should be shared; and (2) there was no reasoning to support the holding that the Wife’s proposal was the only fair distribution.  Mr Coleman SC (who together with Miss Rattigan appeared for the Husband) submitted that there are strong grounds of appeal.  It was said that, in determining whether the inherited wealth should be excluded from sharing, the length of the marriage alone is not of material importance and that there are other relevant matters that should be considered, such as the substantial amount of the inherited assets, the fact that they were inherited late in the marriage and had remained separate and distinct from matrimonial assets and there was limited reliance on them during the marriage, the parties’ relatively modest lifestyle and also the Wife’s needs, generously interpreted, have been more than sufficiently met by the Husband’s open proposal of HK$80 million.  Mr Coleman also complained that there is no justification for an award to the tune of HK$400 million and also of the absence of reasoning for the conclusion that this was a reasonable or fair award whereas the Husband’s open proposal was unreasonable.

10. Miss Lau, who appeared for the Wife, argued that the Judge had correctly followed the five-step approach set out in LKW v. DD (2010) 13 HKCFAR 537 and while the basis for departing from equality of division is required to be explained, the Judge was under no legal duty to articulate the reasons for agreeing with the Wife’s proposal.  It was further submitted that the Judge’s award could be supported by the circumstances of the case, on which submissions had been made to the Judge.  Miss Lau disagreed that the Husband had strong grounds of appeal, but was prepared to accept that the appeal was arguable.

Merits of the appeal

11. As held in Star Play Development Ltd (at para.9 (5)), it is not the court’s function, when dealing with an application for a stay of execution, to go deeply into the merits and strengths of an appeal; it only needs to form a preliminary view of these aspects.  In the pending appeal, the Husband seeks to substitute the Judge’s award of HK$400 million by an award of HK$80 million, which is the same as his open proposal.  Hence, in addition to demonstrating why the Judge’s award should be disturbed, he also has to show that the amount of HK$80 million proposed by him provides a fair outcome in the circumstances of the case.  The grounds of appeal in the Notice of Appeal however do not shed much light on the justifications for an HK$80 million award.  Mr Coleman had in his oral submissions made the point that HK$80 million was more than sufficient to meet the Wife’s needs, generously interpreted.  But the financial needs of the Wife are merely one of the factors to be considered and the court must have regard to the overall impact of all the relevant factors when deciding on what would be a fair distribution.  Taking a preliminary view of the matter, I am not persuaded that there is a strong likelihood that the Husband would succeed to the extent of reducing the award to HK$80 million.

Other reasons justifying stay of execution

12. On the basis that the appeal is arguable, it would be incumbent upon the Husband to show there are other reasons justifying a stay. Several matters were raised by the Husband.  Firstly, it was said that the refusal to grant a stay would have serious deleterious effect on him as he does not have liquid assets to meet the Judgment sum and that he would be forced to sell assets that he might (after a successful appeal) choose not to sell at all or at this point.  Mr Coleman indicated in his submission that a sensitive offer had been made to shareholders of CTFHL[2], which if the Husband was forced to accept would mean his shares would be sold at a substantial discount to that estimated by the single joint expert at the trial.  Secondly, it was said that on the term proposed for the stay, the Wife would have received $80 million in total (i.e. $8 million + $72 million), which would be more than sufficient to cover her needs.  Thirdly, it was said that the stay would cause no real prejudice to the Wife.  Mr Coleman made the point that as the judgment sum attracts interest at 8% p.a., the stay would probably generate a return that is better than what the Wife could get if she herself were to invest the money.

13. The second and third point can be quickly disposed of.  The starting point in the balancing exercise is that the Wife, being the successful party, is not to be deprived of the fruits of her success: Star Play Development Ltd at para.10.  The fact that the Wife does not need the award and/or that the stay would cause no real prejudice to the Wife is of little relevance.

14. Coming back to the first point, in contending that without a stay, the appeal would be rendered nugatory, the Husband does not have to prove that without a stay, he will face financial ruin or lose all his property; it suffices to demonstrate that without a stay he will suffer serious deleterious consequence: Star Play Development Ltd at para.9(4).  Miss Lau argued that the Husband had readily available liquid funds of HK$409.8 million, comprising (1) $178.2 million cash at bank, (2) $62 million investment portfolios held through Highcom Enterprises Ltd, of which the Husband and his brother are shareholders, (3) $31 million debts owed to the Husband, (4) $38 million cash held by the Husband’s brother; and (5) $100.6 million represented by 11.67% of the interest in the discretionary trust[3]. In my view, other than the cash at bank and the cash held by the Husband’s brother (totalling $216.2 million), the other items cannot properly be regarded as readily available cash.  If a stay is not granted, the Husband would have to liquidate his other assets in order to meet the judgment sum.  Taking into account the size of the award, the Husband would have to liquidate a substantial portion of his assets.  In terms of the shares in CTFHL, the difference between the offer price and the valuation given by single joint expert means that if the Husband were forced to sell the shares at this time, he stands to suffer serious financial loss.  The same is probably true in respect of other assets if he were forced to dispose of them now.  I accept that the refusal of a stay could have serious deleterious consequences on the Husband.

15. In the circumstances, there ought to be a stay of the judgment. However, in view of the fact that the Husband does have $216.2 million cash readily available, there should only be a partial stay.  I am of the view that the judgment should be stayed to the extent of $180 million, of which $80 million[4] (which the Husband accepts should be awarded to the Wife) is to be paid to the Wife and the remaining $100 million is to be paid into Court and kept in an interest bearing account pending the resolution of the appeal.

16. Counsel had no disagreement to making the costs of the application part of the costs of the appeal.

The order

17. Accordingly, I made the following orders:

  (1)  Execution of paragraphs 1 to 4 of the Order dated 10 October 2012 be stayed pending the resolution of the appeal upon:

  (a)  The Husband paying to the Wife within seven days from the date of the order a further sum of HK$72 million; and

  (b)  The Husband paying into court within 30 days from the date of the order the sum of HK$100 million to be kept in an interest bearing account until further order of the Court.

  (2)  The costs of the application shall be costs of the appeal.

[1]  By Judgment dated 9 January 2013, Toh J acceded to the Wife’s application and varied the costs order to the extent that the costs be awarded on indemnity basis.

[2]  The document containing the offer was not exhibited to supporting affirmation and was only handed up by counsel at the hearing.

[3]  See items (b)(iii), (iv), (vii), (ix) and (x) in paragraph 31 of Toh J’s Judgment.

[4]  This is inclusive of the $8 million paid to the Wife by way of advanced payment: see paragraph 3.