EJB v. CJB

CACV 16/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 16 OF 2011

(ON APPEAL FROM FCMC NO. 10332 OF 2008)

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BETWEEN

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J U D G M E N T

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Hon Hartmann JA:

Introduction

1.  In September 2008, the petitioner, the wife, issued a petition in the Family Court seeking a divorce from the respondent, her husband, together with various forms of ancillary relief.  As the parties were unable to agree matters of ancillary relief, the issue fell to be determined by the Family Court.  After a five day hearing, in a lengthy judgment dated 8 November 2010, Judge K.W. Wong made various orders determining the parties’ finances.

2.  In so doing, the judge awarded approximately 39% of the matrimonial estate to the wife with approximately 61% going to the husband.

3.  In the course of his judgment, Judge Wong found it necessary to consider the source of the various assets making up the matrimonial estate.  He classified property acquired by the parties before the marriage or during the marriage from a source wholly external to it as ‘non-matrimonial’ and classified the remaining property, that is, the property acquired by the parties during the course of their marriage as ‘matrimonial’.  That classification was in accordance with standing jurisprudence which states that, in appropriate circumstances, ‘non-matrimonial’ property may be excluded from the sharing principle, especially where there is a short marriage.  It would seem that the judge considered it necessary to classify the source of the various assets in the possession of the parties because he found the marriage to be relatively short, one of six and a half years, there being no child of the union.

4.  Such an exercise is not required in all cases.  For the reasons which I give later in this judgment, I did not consider it to be essential in the present case.  Be that as it may, the source of the assets possessed by the parties was one of the circumstances of the case and in that broad sense it was for the judge to take it into account, determining its importance.  In respect of those assets which the judge classified as ‘matrimonial’, he ordered that the wife should receive 47.5% and the husband 52.5%.

5.  The wife appealed.  Fundamental to her appeal was that an award of only 39% of the assets making up the matrimonial estate was too low and inconsistent with the proper approach to ancillary relief.  Mrs Irving, her counsel at trial and before us, submitted that, having regard to all the relevant circumstances, there was no reason for the judge to depart from the principle of equality.  Put simply, fairness dictated that, in the circumstances of the present case, each party be awarded half of the matrimonial estate.

6.  Mrs Irving submitted that, in depriving the wife of a fair distribution of the matrimonial estate, the judge fell into error in a number of respects, principally –

7.  First, the judge erred in his finding as to the length of the marriage.  The correct assessment of the length of the marriage was important because, apart from supporting in general terms the wife’s contention that there should have been an equal sharing of the matrimonial estate, it directly affected the degree to which certain of the husband’s pensions would have increased in value during the marriage: at a time therefore when the wife was, absent good reason, entitled to a share in those increases.

8.  Second, in his computation of the husband’s net assets, the judge incorrectly deducted a tax liability of some $131,000 when that sum had already been paid.  In the result, the net assets in the possession of the husband were wrongly reduced by that figure.

9.  Third, in classifying the assets in the possession of the two parties as ‘matrimonial’ and ‘non-matrimonial’, the judge wrongly classified certain of the assets in the possession of the husband as being ‘non-matrimonial’, more particularly certain shares and pensions.  This error in classification was important because, even if there was good cause, which the wife denied, to depart from equality in respect of the matrimonial estate as a whole, there was no good reason to depart from an equal division of the assets which should accurately have been described as ‘matrimonial’ assets.

10.  The husband cross-appealed.  He did so on the basis that the judge had fallen into serious error in his assessment of the wife’s appropriate needs.

11.  On behalf of the husband, Mr Pilbrow SC submitted that in the present case the following factors were of importance, indeed determinative.  This was a marriage of just six and a half years.  There was no child of the marriage.  As such, the mutual commitment of the parties was short lived and the results of their separation, in all the circumstances, could not be said to be profound.  In addition, the family’s personal and financial interdependence had not grown to such an extent that it was difficult to disentangle what came from where.  The wife was still relatively young.  She had an impressive commercial background and, while she may have given up her employment in Hong Kong on the basis of stress, there was no evidence that she was still suffering from stress.  Accordingly, all the indicators suggested that she would be able within a short period of time to forge an independent life for herself.  The husband, now in his early fifties and some 10 years older than the wife, had a limited working life ahead of him.  He had brought into the marriage assets of far greater value.

12.  In the circumstances, this was not a case which demanded an equal distribution of the matrimonial estate.  To the contrary, said Mr Pilbrow, the percentage of the matrimonial estate awarded to the husband had not met the ends of fairness.  Mr Pilbrow submitted that a fair result would have been met by awarding the wife approximately 26% of the parties’ total assets.

Background

13.  The wife and the husband met in October 1996.  The wife’s first marriage had failed and she was separated.  There was no child by that marriage.  The husband was still a bachelor.  An intimate relationship ensued.

14.  At that time, both parties were working in London.  Both were employed as insurance underwriters, the wife in the field of international property, the husband in the energy sector.  Both had successful careers.

15.  A year after they met, in or about November 1997, the husband purchased a house: the ‘Al. Road property’.  In order to finance the purchase he used the proceeds of an earlier property owned by him and earlier bonuses.  The property was purchased in his own name.

16.  In May 1999, the parties’ intimate relationship came to an end, albeit temporarily.  The period of separation lasted some eight months.  During this time, the wife purchased a property in her own name: the ‘Br. Road property’.  At about this time, the wife also gave up underwriting work and worked instead in the field of insurance consultancy.

17.  The parties came back together in about January 2000.  They became engaged in February 2000 and married in October of that year.

18.  During the period of their married life in England they leased out the Br. Road property and resided in the Al. Road property, that becoming the matrimonial home.

19.  At about the time of their marriage, the husband found himself unemployed for a period of about nine months until, in about mid-2001, he took up the post of a senior underwriting specialist with an international insurance company.  During this period of unemployment, the wife sold a property in Kent, returning part of the proceeds to her mother and using the balance to support herself and her husband.

20.  In 2001, the wife then found herself without work.  A number of directors of the company which employed her were prosecuted for fraud and the company went into liquidation.  In the result, the wife lost her pension and other accrued benefits.  Thereafter, the wife worked as a mediator for a time before returning to work in the insurance field.

21.  In October 2005, the husband was transferred to Hong Kong by his employer.  The wife gave up her job in order to accompany him.

22.  Some six months later, in or about April 2006, the husband first indicated his unhappiness in the marriage and some three months after that, at the end of July 2006, the couple separated.

23.  When the separation took place, the wife was in her late thirties, the husband was in his late forties.  As I have said, there was no child of the union.

24.  At about the time of the separation, the wife took up full-time employment with an insurance broking company in Hong Kong, her monthly income rising to a sum of about $100,000.  However, in or about January 2009, she left the company.  As to the circumstances of her departure, the wife’s evidence was that internal politics and lack of support had resulted in such a degree of stress that her continued employment became untenable. 

25.  Pending the ancillary relief hearing, the wife received maintenance from the husband in the sum of $60,000 per month.

26.  By the time of the ancillary relief hearing, the wife had entered into a relationship with another man.  It was her evidence, however, that she had no plans concerning marriage.

27.  At the time of the hearing, although the wife was said to be involving herself in certain commercial matters, there was no evidence that she had secured any sort of employment that promised the same responsibilities and high levels of remuneration that she had enjoyed in the past.

28.  It was never the wife’s case that she should remain a housewife.  She had no responsibilities for caring for a child; she was still relatively young and had an impressive background in commerce.  The judge found that the wife was well able to re-establish herself in a lucrative career if given sufficient time.  He estimated that time to be about three years.

29.  As for the husband, the judge noted that, while he was now in his early fifties with a limited number of years of work available to him, he was a high earner, his income for the 2009/2010 tax year, including provision for housing, being some $3.9 million.  The judge accepted that his re-negotiated salary package may be based on local and not expatriate terms resulting in a loss of travel allowance and perhaps a loss or diminution of housing benefits.  The judge was satisfied, however, that he would remain a high earner.

30.  As to the value of the matrimonial estate at the time of trial, the judge found that, after provision had been made for liabilities, the wife possessed assets worth $2,778,817 while the husband possessed assets worth $17,701,206.  The total net value of the matrimonial estate was therefore $20,480,023, a figure which the judge ‘rounded off’ to $20.48 million.

The judge’s recognition of the defining factor in the case: the respective needs of the parties

31.  A reading of Judge Wong’s judgment makes it clear that, for obvious and entirely sensible reasons, he was at the end of the day concerned essentially with one factor, that is, the respective needs of the parties.

32.  Without any disrespect to the very evident capabilities of both the husband and wife, this was not what is sometimes called a ‘big money’ dispute.  The estate had a value of just over $20 million, a large sum perhaps in certain circumstances but not in others.  As Lord Nicholson put it in White v White [2001] 1 AC 596, at 608:

“Financial needs are relative. Standards of living vary. In assessing financial needs, a court will have regard to a person’s age, health and accustomed standard of living.”

33.  In the later case of McFarlane v McFarlane and Miller v Miller [2006] 2 AC 618, at paragraph 11, Lord Nicholson said:

“When the marriage ends fairness requires that the assets of the parties should be divided primarily so as to make provision for the parties’ housing and financial needs, taking into account a wide range of matters such as the parties’ ages, their future earning capacity, the family’s standard of living and any disability of either party.”

34.  Both of these statements by Lord Nicholson were cited with approval by the Court of Final Appeal in LKW v DD [2010] 6 HKC 528 (paragraphs 77 and 78).

35.  Also cited with approval in LKW v DD was the observation of Baroness Hale in McFarlane v McFarlane and Miller v Miller (paragraph 144) that the parties’ needs should be “generously interpreted”.

36.  In his judgment in LKW v DD, Ribeiro PJ (paragraphs 79) stated:

“Accordingly, in trying to ensure that each party and their children have enough to supply their needs set at a level that equates, in so far as resources allow, to the standard of living they enjoyed during the marriage, those needs should not be assessed according to some perceived lowest common denominator, but with flexibility in the light of all the relevant circumstances.”

37.  It is now well-settled therefore that, the primary responsibility of a judge determining matters of ancillary relief is to make provision for the parties needs, particularly their housing needs and, insofar as it is possible, some security financially.  Those needs are to be judged generously in accordance with the circumstances of the case.  Only if surplus assets remain after the needs of the parties have been met will the court then apply the sharing principle, that principle being measured by the ‘yardstick of equal division’.

38.  In the present case, it appears that the parties wanted a clean break solution and this was clearly the sensible way to proceed, especially as there was no child of the marriage.  Sometimes the assets of the parties, and in particular their respective earning powers, do not allow for a clean break solution.  But such was not the case here. 

39.  The wife, however, was not in secure and lucrative employment.  It was therefore imperative, if there was to be a clean break, that she be able to reclaim a career.  There was still time for her to do so.  She was not yet 40 years of age.  But it could not be accomplished overnight.  As I have said, the judge concluded that the wife would require a period of three years during which time she should have available to her a capital sum sufficient to enable her to live to a standard insofar as possible commensurate to the standard that the parties had themselves enjoyed during the course of the marriage.

40.  During the course of his career, the husband had acquired a number of insurance bonds and pensions.  These were not assets which he could mortgage or pledge.  But, when he came to retire, they would give him a measure of security.  The wife had no pensions of her own.  The judge was of the view that she should be compensated for the fact that she would be deprived of being able to share in the husband’s future pensions.  He was further of the view that the compensation should take the form of an award that would provide the wife with some form of future security of her own.

41.  As far as the wife was concerned, therefore, the judge recognised two manifest needs.  First, a capital sum was needed to enable the wife to be able to live to an appropriate standard while she reclaimed her career and became independent again.  Second, a capital sum was needed to provide her with some security for the future.

42.  As far as the husband was concerned, the judge recognised that, while he had a high earning capacity, the orders that he intended to make would deprive the husband of a home, that is, ownership of the Al. Road property in London.  The husband should therefore be given the ability, if he chose, to secure a property for himself.

43.  There was of course the additional need of both parties for a measure of general financial security.

44.  Before us, Mrs Irving submitted that the judge seemed almost to have adopted a ‘reasonable requirements’ approach.  He assessed the needs of the wife but did not then go on to consider the sharing principle.  Mrs Irving further submitted that the judge effectively acknowledged that this was the case in a hearing that had taken place after the judgment had been handed down. I do not agree.  I have had the benefit of reading the relevant portion of the transcript and it seems to me that the judge was saying the following.  First, that he had looked to the needs of the wife, coming to the decision that he did in that regard, and thereafter he had looked to that figure in the context of all the relevant circumstances, at all times being aware that he should not discriminate against either party, to determine whether the decision he had reached on an overall distribution of the assets was a fair one.  

45.  It is true that the judge, having assessed the needs of the parties, did not then go on to conduct a specific exercise in which he identified surplus assets, looked to the principle of sharing and then determined the degree to which it would in all the circumstances be fair to depart from an equal share.

46.  While in some cases that may constitute a material error of approach, bearing in mind that s. 7(1) of the Ordinance does not lay down any set procedure nor any hierarchy of considerations, I do not see that it did so in the present case.  As Ribeiro PJ emphasized in LKW v DD, s.7 of the Ordinance confers a broad discretion on judges dealing with matters of ancillary relief and at the end of the day judges must be guided by the section.  Accordingly, it is not possible to lay down a rigid set of principles that must in each case govern how an ancillary relief dispute is to be determined.  As such, principles that may be articulated by our higher courts are in the nature of guidelines and those guidelines may be departed from when it is just and equitable to do so.

47.  In the present case, having determined – on a ‘needs’ basis – what should happen to the two London properties and the husband’s pensions, which together made up the great bulk of the matrimonial estate, the judge then moved to consider those dispositions in the context of all the circumstances of the case and came to the view that, if the parties were left with the remaining assets still in their possession, that would achieve a fair result.

48.  If, in respect of any surplus assets making up a relatively small percentage of the remainder of the estate, the judge had, in accordance with the orthodox procedure, conducted an exercise in accordance with the sharing principle, as I have said earlier, he would have been entitled, indeed obliged, as an integral part of that exercise, to consider those factors which, to a greater or lesser degree, excluded assets from disposition in accordance with the sharing principle.  Those factors would have included the relative shortness of the marriage and, allied to that, the fact that the husband had brought into the marriage assets of materially greater value than the wife.  As it was, having disposed of the bulk of the matrimonial estate on the basis of ‘need’, the judge then took into account those very factors in the context of all the circumstances of the case in order to arrive at a just result.  In my view, for the reasons which are given in this judgment, I am satisfied that, even if the judge had conducted a discrete exercise in accordance with the sharing principle, the result would, for all practical purposes, have been the same.  As the judge said during the post-judgment hearing to which I have referred, having looked to the needs of the parties, he then looked to see whether a fair distribution of the estate had been obtained.  He was satisfied that it had.

49.  This was not the easiest case for the judge to determine.  Of significance, in my view, is the fact that the judge was clearly at all times aware of the implicit statutory obligation to achieve a fair solution.

Classifying assets as ‘matrimonial’ or ‘non-matrimonial’

50.  As I have said, the judge undertook a fairly extensive exercise of classifying the various assets in the possession of the parties as being ‘matrimonial’ or ‘non-matrimonial’.  In a short marriage, where the parties have less of a call upon each other, the source of a particular asset may, in appropriate circumstances, provide a reason for excluding it from the requirement to share all surplus assets.  But the needs of the parties must take priority.  The sharing principle only applies when there are surplus assets available to share.  In the result, although the judgment was in many ways exemplary, and although the exercise of classification assisted the judge in looking to all the circumstances of the case, in a number of respects the exercise appears to have hindered more than helped.

51.  By way of an overview, the breakdown of the matrimonial assets by the judge may be stated as follows.  In looking to the breakdown, I have included the judge’s references to ‘matrimonial’ and ‘non-matrimonial’ property.

52.  The Al. Road property – which had become the matrimonial home – was given a net value of $7,348,153.  As the matrimonial home, this was classified as matrimonial property.  But, as it was, in order to meet the needs of the wife and husband, the judge ordered that this property should be sold, the wife taking the greater share of the proceeds.

53.  The Br. Road property – purchased by the wife in her own name prior to the party’s marriage – was given a net value of $2,530,200.  Classified as non-matrimonial property, it was the judge’s determination that, if the mortgage was cleared, this would provide the wife with a good source of capital and, more importantly, a future income stream: in short, her own form of pension.

54.  The judge gave the two properties a value of $9,878,353, constituting approximately 48% of the matrimonial estate.

55.  During his career as an underwriter, the husband had acquired a number of insurance bonds and pensions which would provide him an income upon retirement.  The judge gave a total value to them of $7,233,990.

56.  In respect of the bonds and pensions, the judge found all of them to be non-matrimonial assets with the exception of a group of pensions described as the ‘Z Pensions’.  The judge gave a value of $3,818,146 to these Z Pensions.

57.  The judge further found that the value of the Z Pensions had accrued over a period of approximately 9 years which included some five years of the marriage.  On this basis, he found that a value of $2,121,192 had accrued during the course of the marriage, the balance of $1,696,954 having accrued before or after the marriage and therefore being properly classified as non-matrimonial property.

58.  In respect of the wife’s assets worth $2,778,817, the judge found that these included two non-matrimonial assets, namely, the Br. Road property and some shares, their joint value being $2,547,094.  By far the greatest percentage of the wife’s assets was therefore judged to be non-matrimonial, her matrimonial assets being worth just $231,723.

59.  In respect of the husband’s assets worth $17,701,206, the judge found that these included a number of non-matrimonial assets comprising shares and pensions, their joint value being $6,404,456.  The matrimonial assets in his possession were therefore judged to be worth $11,296,750.  Of these assets, the Al. Road property, had the greatest value.

The judge’s orders as to the distribution of the matrimonial estate

60.  As I have said, in seeking a fair distribution of the matrimonial estate, the judge appears to have been driven by three principal aims, all essentially ‘needs’ based: first, that the wife should be set back on her feet so that she could be re-integrated into the workforce in an occupation worthy of her talents; second, that the wife, requiring future security herself, should receive some degree of compensation for the fact that she would have no share in the husband’s future pension income and, third, insofar as it was possible, that there should be some balance in the distribution of the estate so that both parties would have liquid assets readily available together with assets that would provide some future security.  In this latter respect, for example, the judge did not think that it would be fair to award the wife both landed properties in London, that being her suggested division, both being “readily realisable and income-producing” while the bulk of the husband’s award would be his retention of his pension benefits which, although substantial, could not be touched until retirement.  In respect of these three aims, the judge said the following:

“The wife has considerable earning capacity and a rather long working life. A fair distribution of the assets is to provide the wife a lump sum which enables her to adjust herself to full employment so that she will become self-supporting again, either in Hong Kong or England, and a further sum to compensate her for her loss of chance to the husband’s pensions as a result of the divorce. The net sum has to be counter-checked with the yardstick of equality for the matrimonial assets, and whether a party will be stuck with assets not readily realizable, such as pensions, to the extent that it becomes unfair…”

61.  Concerning the requirement that the wife should be set on her feet again, capable of forging an independent future for herself, the judge gave effect to this in two ways.

62.  First, the judge was of the view that the existing mortgage over the Br. Road property should be discharged in full, the cost being $2,530,200.  The discharge of the mortgage, he said, would ensure an immediate income stream for the wife which would not be depleted with monthly mortgage payments.  In addition, if the wife chose to return to England, it would provide her with a ‘rent-free’ home so that rentals that she would otherwise have to pay to secure accommodation could be invested for her future.

63.  Second, the judge was of the view that, during the three years that he believed it would reasonably take the wife to re-integrate herself into the workforce, either in Hong Kong or in England, she should be assured of a sufficient income to maintain herself.  In this regard, he estimated that, in addition to any rental that the wife received from the Br. Road property, she would require about $900,000 per year, a total over the three-year period of $2,700,000.

64.  In the result, in order to discharge the mortgage and to provide the wife with an income of $900,000 per year for three years, a lump sum of $5,230,000 was required.

65.  In order to obtain this amount of money, the judge directed that the Al. Road property be sold and, as his calculations turned out, the net sale proceeds be distributed as to 71.2% to the wife and 28.8% to the husband.

66.  Concerning the judge’s aim to provide compensation to the wife for any future loss of her share in the husband’s pension income, he was of the view that the award of a sufficient sum to discharge the Br. Road property in full would provide the wife with sufficient compensation. 

67.  As for the husband, the judge determined that his share of the sale proceeds of the Al. Road property, taken together with his existing liquid assets, would provide readily realisable assets in a sum in excess of $5 million together with pensions, realisable only well into the future, worth $7.23 million.

68.  It was the judge’s determination that a fair balance had been ensured, first, by ensuring that the wife had the Br. Road property free of mortgage, this giving her both immediate and long-term security, while the husband retained his pensions and, second, by ensuring that both parties were left with a reasonable amount of liquid assets.

69.  The judge made no further orders affecting the property held by either party; that property was left undisturbed.

70.  In the end result, as I have indicated earlier, the judge awarded some 39% of the matrimonial estate to the wife with a balance of close to 61% going to the husband.

71.  Looking to the ‘matrimonial’ assets as a discrete class of assets, he awarded approximately 47.5% to the wife and 52.5% to the husband.

72.  The judge was satisfied that the orders he made constituted a “fair division” of the matrimonial estate.  

The wife’s complaint that the judge failed to include a period of time ‘after’ separation as part of the duration of the marriage

73.  It is well-settled that, depending on its nature, pre-marital cohabitation which moves seamlessly into marriage may be taken into account pursuant to s.7(1) of the Matrimonial Proceedings and Property Ordinance, Cap. 192 – either as a form of conduct or as one of the circumstances of the case – as being integral to and therefore part of the marriage: see WLK v TMC [2010] 6 HKC 571(paragraphs 87-107).

74.  S. 7(1)(d) of the Ordinance directs that, in assessing a fair distribution of the matrimonial estate, a court is obliged to take into account the duration of the marriage.  The reason why the duration of the marriage may be such an important factor was set out by Ribeiro PJ in his judgment in LKW v DD (paragraphs 108 and 109):

“[The duration of the marriage]… is potentially of great importance to the question whether the court should depart from an equal division. While the sharing principle applies to both long and short marriages, it is clear that when a short marriage comes to an end, fairness may dictate that one party should exit the relationship with less than half of the total assets.

In Lord Nicholls’s words [Miller v Miller and McFarlane v McFarlane [2006] 2 AC 618, paragraph 24], this ‘ reflects the instinctive feeling that parties will generally have less call upon each other on the breakdown of a short marriage’. Viewing marriage as a partnership of equals, the fruits of the partnership are likely to be less substantial after a short marriage. Mutual commitment being shorter-lived, the extent of any disadvantage brought about by separation may well be less profound. Moreover ... after a short marriage, the court may well treat property acquired by one of the parties before marriage or during the marriage by way of inheritance or gift or from some other wholly external source as excludable non--matrimonial property.”

75.  Mr Pilbrow placed heavy reliance on this principle in emphasising that the shortness of the marriage between the parties determined that the husband should be given a greater award than the award determined by the judge at first instance.

76.  In this respect, it is to be noted that, while LKW v DD was handed down after Judge Wong had delivered his judgment in this matter, the Court of Final Appeal was not making reference to new law but was instead synthesizing existing law.

77.  Judge Wong calculated that the period of cohabitation leading seamlessly into the marriage commenced in February 2000 when the parties became engaged.  Although the wife submitted at trial that the marriage had commenced earlier, that issue was not contested before us on appeal.

78.  As to the end of the marriage, the judge found that it came to an end when the parties separated at the end of July 2006.  On this basis, the judge found that, for the purposes of determining an equitable distribution of the matrimonial estate, the marriage of the parties should be taken to be one of six and a half years.

79.  The judge described this as a relatively short marriage.  Bearing in mind that marriages may endure for just a few months or for over 50 years, he was clearly correct to describe it in the manner he did.

80.  On behalf of the wife, Mrs Irving, submitted that the judge fell into error in failing to include in the length of the marriage a period of some nine months after the parties separated at the end of July 2006.  It was her contention that during this period of time a special relationship existed between the parties, one that should properly be equated to a continuance of married life.

81.  It was submitted that it was only at about the end of April 2007, when the husband failed to make arrangements for a planned holiday together, that the wife appreciated that there was no hope for a shared future.  According to Mrs Irving, the length of the marriage should therefore have been adjudged to be some seven years and three months.

82.  As I have indicated earlier, the addition of the extra nine months was said to be important because, apart from reflecting the true length of the marriage, it directly affected the degree to which the husband’s pensions would have increased in value at a time when, being partially ‘matrimonial’ assets, the wife was entitled to a share in those pensions.

83.  In advancing her submission, Mrs Irving said that, although the couple lived apart after July 2006 when the husband, who said he was no longer committed to the relationship, began to stay with friends or in hotels, nevertheless, as she put it, they continued to work on their relationship.  They had marital counselling, they sought advice from a fertility expert.  The husband, it was said often stayed at the matrimonial home and kept many of his belongings there.  They went on holiday together and jointly hosted the husband's family over Christmas 2006 in the matrimonial home.  As Mrs Irving put it, neither party “abandoned” the marriage.

84.  In addition, for a reason not given to us, it seems that the husband did not wish the wife to institute divorce proceedings until about September 2008 and we are told that she agreed to this.

85.  While the judge accepted that from August 2006 until February 2007, although no longer cohabiting, the parties did attempt to salvage their marriage by seeking counselling and consulting a fertility expert, he did not think that this nine-month period could properly be counted as integral to the overall duration of the marriage.  In coming to this conclusion, the judge relied upon the following statements of principle set out in GW v GW (Financial Provision: Departure from Equality) [2003] 2 FLR 108:

“33. In assessing the duration of the marriage the court has always looked at the position de facto rather than de jure. For example, the end of the marriage is always taken as the date of separation rather than the date of decree absolute…

34. I am of the view that it is… unreal to characterise the 18-month period of estrangement, conducted under the umbrella of a divorce petition which alleged the irretrievable breakdown of the marriage, as counting as part of ‘the duration of the marriage’. In my judgment, a period of estrangement where there has been a formal separation should not count as part of the duration of the marriage.”

86.  In my view, the judge was correct to come to the finding of fact that the nine-month period after the parties had separated should not be counted towards the duration of the marriage.  I say so for the following reasons.

87.  First, there is the technical point but nevertheless one of substance that, when the wife issued her petition for divorce in September 2008, she did so on the basis that there had been an irretrievable breakdown of the marriage, that breakdown being evidenced by the fact that she and her husband had lived separately from each other since the end of July 2006 – not the later period of February 2007.  That petition was not withdrawn nor was it amended, indeed it was the basis for the issue of a decree nisi in February 2009.

88.  Second, as the Court of Final Appeal recognized in WLK v TMC [2010] 6 HKC 571, in matters of ancillary relief the basis upon which our courts recognise the existence of a de facto married state is the fact of continuous cohabitation comparable to married life.  In this regard, Ribeiro PJ said the following in his judgment (para 105):

“There may be highly exceptional cases (such as where parties are unable to cohabit – because, for instance, they have high-powered jobs in different countries – but have children and otherwise generally conduct themselves as if they are married) where the absence of physical cohabitation may not stand in the way of treating them as in a de facto marital state. However, in the absence of such special circumstances, I can see no basis for construing the statutory powers and discretions to extend to relationships which do not involve cohabitation of the kind described above, however emotionally intense those relationships might be. There is no reason in logic or policy for regarding an ‘emotional interlocking’ as an approximation of a matrimonial state. Thus, in M v M (Short Marriage: Clean Break) [2005] 2 FLR 533, Singer J noted:

‘There is not a case in the calendar where a court has expressly taken into account (whether while assessing the impact of the duration of the marriage, or simply as a circumstance deemed relevant) a relationship which did not involve cohabitation.’”

89.  Importantly, Ribeiro PJ went on to observe (para 107):

“I would add that if the emotional intensity of a relationship not involving cohabitation were to be included as a basis for ancillary relief, the courts would be faced with a burdensome, time-consuming and impossibly subjective task.”

90.  It was never in dispute that the parties separated at the end of July 2006.  From that time on, even if the husband and the wife did maintain a friendly relationship, perhaps on occasions an intimate one, the two of them seeking some way to reconcile, the fact remains that they were no longer living on a daily basis as husband and wife.  As such there was no longer in existence a voluntary partnership in which “mutual emotional, economic and general support” was provided: see the judgment of Charles J in H v H below.  Their separation at the end of July 2006 was not an episode in their married life followed by a resumption of cohabitation.  Viewed objectively, their separation was the definitive step that led to the dissolution of their marriage.

91.  In H v H [2007] 2 FLR 548 (paragraphs 120 and 121), Charles J, in determining a similar contention, held that, after the parties had separated in January 2005, their earlier relationship, one that he described as “an equal and voluntary partnership providing mutual emotional, economic and general support” fell away.  Accordingly:

“… it cannot be said that the unsuccessful attempts to reconcile, or the discussions about reconciliation that took place continued the mutual co-operation, support and goal that had existed during the happy years of the marriage beyond the date when the husband left the matrimonial home. Indeed in my judgment the conclusion that they did would fly in the face of the reactions of these parties to and after that event, and indeed of normal human nature.

Thus, in my view, the sad reality was that in January 2005 the underlying foundation of the marital partnership was brought to an end and was not re-established.”

92.  By way of a general observation, it needs to be said that, when couples separate, it does not mean that their feelings for each other are thereby set to one side.  In many marriages, especially if there are children, a degree of ‘emotional interlocking’ will bind the parties perhaps for the rest of their lives.  In the early stages of separation there may be attempts to see if reconciliation is possible.  Our law encourages such attempts.  Using Mrs Irving’s expression, neither party at that stage may wish to simply ‘abandon’ their marriage.  But realistically, if the parties are no longer living together as man and wife, if the reason for their separation is the contemplation of the end of their marriage, attempts at reconciliation can only in the very rarest of cases be equated to a continuation of the married state.

93.  In the present case, whatever the depth of feelings that the parties may have had for each other after their separation, I am satisfied that the judge was correct to find that, for purposes of determining matters of ancillary relief, their union ended when they separated at the end of July 2006. 

The wife’s complaint that the judge erred in his computation of the husband’s net assets

94.  On the evidence presented to him, it would appear that the judge calculated that the husband had tax liabilities of some $526,000 when in fact an examination of the papers revealed that he had already discharged a liability of some $131,000.  The result was that the husband’s net assets in his possession should more accurately have been set at a figure of about $17.832 million rather than $17.701 million.

95.  There was therefore an error in computation which favoured the husband. In order to ensure a fair result, it seems to me that the question to be asked is whether, if that error had been known to the judge at the time, it would have made any difference to his award?  The answer is uncertain.

96.  In the light of my findings generally in respect of the wife’s appeal, it seems to me that some provision should be made therefore in respect of this error.  Simply to ignore it as a relatively minor figure in the overall context of matters would not, I think, constitute a fair resolution.  Doing the best I can, I am of the view that the wife should be awarded a capital sum that reflects the judge’s overall disposition, namely, approximately 39% of the matrimonial estate going to the wife and 61% going to the husband.

97.  On that basis, dealing in round figures, I would award the wife a capital sum of $50,000 to be paid by the husband within 60 days of the date of this judgment.

The wife’s complaint that the judge erred in his classification of a number of the assets in the possession of the husband

98.  On behalf of the wife, Mrs Irving submitted that the judge made three errors in his classification of certain of the assets in the possession of the husband.  First, he classified three assets as non-matrimonial when they had been acquired during the course of the marriage and should therefore have been classified fully as matrimonial.  Second he classified one asset as being non-matrimonial when it had in part been acquired during the marriage and should therefore have been classified as partially matrimonial.  Third, he classified some four assets as being non-matrimonial when they had in part been paid for during the course of the marriage and should therefore also have been treated as partially matrimonial.  In the result, said Mrs Irving, the matrimonial assets in the possession of the husband should have been increased by a sum of approximately $1.333 million, this being based on certain pro rata calculations, while of course the non-matrimonial assets should have been decreased by the same figure.

99.  Even if Mrs Irving was correct in these calculations, I do not consider that anything turns on the issue.  I say that because, for reasons which I have already visited, it is apparent that for all substantial purposes the judge determined the distribution of the matrimonial estate on the basis of ‘need’ rather than ‘sharing’.

100.  In respect of the husband, for example, having directed that the wife should be provided with sufficient capital in order to clear the mortgage on the Br. Road property and to support herself for a period of three years, the judge went on to consider his resulting position.  In doing so, the judge looked very much to the husband’s ability to meet his own future needs.  In this regard, the judge said (paragraph 138):

“… after division the wife will have assets worth about $8 million all in a form other than pensions. On the other hand, the husband will have assets worth $5.23 million in the form of cash or readily realisable investments or insurance policies and $7.23 million worth of pensions. Although more than 50% of the assets retained by him are still in the form of pensions which can neither be realised nor pledged nor mortgaged, it is to be remembered that he has a high earning capacity (about $3.9 million per annum) and still has a working life of eight years if he is to retire at 60 (or even 13 years if he chooses to retire at 65). No doubt, with his high earning capacity, he will be able to rebuild his assets quickly before his retirement.”

101.  The judge went on (in the same paragraph) to note that, with over $4 million in realisable assets, the husband would not have any difficulty in paying the deposit on a property in England as an investment or for his own use after retirement.  He would not therefore have a problem in having a property free of mortgage by the time he retired.

102.  Clearly, the judge’s principal concern in respect of the husband was meeting his future needs, especially in respect of a home.  The judge concluded the paragraph by saying:

“In the circumstances of the present case, I consider the above a fair division. I do not consider the husband has shown a good case justifying a departure from the principle of equality in respect of the matrimonial assets.”

103.  In making that statement, the judge was not talking in accounting terms. He had just a few paragraphs earlier spoken of the wife receiving less than 50% of the ‘matrimonial’ assets.  The judge was referring to the guiding principle that, unless there was good reason not to do so, matrimonial assets available after the needs of the parties had been met should be shared between the parties.  On behalf of the husband, it had been argued – just as it was argued before us – that, because of the relative shortness of the marriage and the other factors to which I have referred, this guiding principle should have no application in the present case.  The judge did not accept that argument.  Needs took priority.

The husband’s complaint that the judge was in error in his assessment of the wife’s appropriate needs

104.  In his cross-appeal, it was submitted on behalf the husband that, in coming to the finding that the wife required financial support of $900,000 per annum for three years (a total sum of $2.7 million) before she could reclaim a lucrative career, the judge failed to give sufficient consideration to a number of factors.

105.  First, it was said that the wife had given up a job earning about $100,000 per month after the issue of her petition.  In this regard, however, as Mrs Irving said in response, the husband himself had accepted that the wife had given up her employment because of stress and not for tactical reasons.  The judge recorded the fact that the wife had given up her employment because the stress factors had become intolerable.

106.  Second, it was suggested that the wife had been receiving interim maintenance of $60,000 per month, together with rentals from the Br. Road property, without complaint.  I presume that the basis of this submission was that $60,000 per month was sufficient and not the higher figure arrived at by the judge.  In my view, little, if anything, can be taken from the fact that the wife did not seek to contest the issue of interim maintenance.  That would have involved her in further costs in respect of a measure that is meant to be temporary.  It was for the judge to assess at the time of the hearing, in the light of the parties’ standard of living and all other relevant circumstances, how much the wife would require.  There is nothing to suggest that the figure reached by him was unrealistic.

107.  Third, it was said that the judge had failed to give due consideration to the fact that the wife was residing in a flat, the tenancy agreement being in the name of her boyfriend.  Again, as Mrs Irving responded, this was a matter that was aired at the hearing.  Evidence was given that the tenancy was in the name of the boyfriend because he was able to prove an ability to pay while for her it would have been more difficult.  If the judge had been concerned by that evidence, there is no reason to think that he would not have raised the issue in his judgment.

108.  Fourth, the wife admitted that she was recovered from her stress-related problems and was already involving herself in some business matters.  But it is to be remembered that the judge was looking to the wife forging an independent life for herself, one in which she would be able to secure steady employment of a lucrative nature.  While the wife may have been looking to make her future in Hong Kong, it was implicit in the judgment that events may dictate that she must return to England.  Bearing in mind such uncertainties, including the vagaries of the employment market, I do not see how the judge can be criticised for coming to the conclusion that such an exercise, in all reality, could take up to three years and assessing the wife’s needs on that basis.

109.  On behalf of the husband, the further complaint was made that, in assessing the needs of the wife, the judge provided her with a mortgage free home while depriving the husband of a home at all.  But in determining that the matrimonial home must be sold, the judge took into account that the husband would be left with a relatively large sum of realisable assets and that these assets, allied to his high earning power, could be used to purchase a home which, by the time of his retirement, would be mortgage free.

110.  As I have said earlier, the judge felt it necessary to look not only to the present needs of the parties but also to their future needs.  The husband had the benefit of a number of pensions.  The wife did not.  

111.  The judge was also entitled to take into account a further relevant circumstance, namely, the fact that when, in the early days of the marriage, the husband was unemployed, the wife had sold a property and used certain of the proceeds to support herself and her husband.  The wife had thereby lost a further source of future income.

112.  On behalf of the husband, it was said that the judge had compounded his error in requiring the mortgage on the Br. Road property to be discharged in full by equating it to the wife’s entitlement to a percentage of the husband’s pensions.  As Mr Pilbrow put it, the judge assessed the value of the pensions (deemed to be matrimonial property) to be a figure of some $2.12 million.  On that basis, if the wife was entitled to 50%, the award to her should have been some $1.06 million only.

113.  I do not, however, take the judge to have expressed himself in absolute mathematical terms.  He spoke of adopting a ‘broad brush’ approach.  He did not enter into a close mathematical analysis of the extent to which, in respect of all the pensions which the husband acquired, he made payments towards them during the course of the marriage.  This indeed was a source of complaint by the wife.

114.  Even if the judge permitted himself to speak in terms that were too mathematically specific, his aim was manifest.  It was to meet two fundamental needs of the wife, first a capital sum to provide a living for her for a limited period of time and second a capital sum to ensure that she had a capital asset that would provide a future stream of income.

115.  In my judgment, both of those needs, as described by the judge, were prudent and rational.  Fairness, of course, dictated that the husband not be himself unfairly prejudiced by meeting the needs of the wife.  The judge took this into account, being satisfied that the architecture of his judgment, insofar as it went to the needs of both parties, had resulted in a fair division.

The issue of the matrimonial home

116.  The Al. Road property, the property which for the greater part of the marriage was used as the matrimonial home, was the single most valuable asset in the matrimonial estate.

117.  Mr Pilbrow, for the husband, conceded that the judge was correct in law to classify it as a ‘family asset’, an asset kept during the course of the marriage so that it could be devoted to family use.  In Miller v Miller and McFarlane v McFarlane, Lord Nicholson said of the particular identity of the matrimonial home in ancillary relief proceedings (paragraph 22) –

“The parties’ matrimonial home, even if this was brought into the marriage at the outset by one of the parties, usually has a central place in any marriage. So it should normally be treated as a matrimonial property for this purpose ... in principle the entitlement of each party to a share of the matrimonial property is the same however long or short the marriage may have been.”

118.  That being said, the guiding principle is not an absolute one.  It cannot usurp the broad discretion of the judge under s. 7(1) of the Ordinance.  In the present case, for example, the judge saw fit – on a ‘needs’ basis – to award the wife a far greater share of the matrimonial home than the husband.

119.  Equally, there may be occasions, especially if the marriage has been a short one, when fairness demands that the judge gives consideration to how it was that the matrimonial home came into the marriage.

120.  In the present case, the evidence revealed that the husband had purchased the property prior to the marriage, financing it himself with much of the money coming from a property he had previously owned in another suburb of London.  The evidence also showed that the wife’s property in Br. Road had been purchased by her prior to the marriage but, for whatever reason, had not been chosen as the matrimonial home and had instead been used for investment purposes.

121.  In looking to ‘all the circumstances of the case’ under s. 7(1), I am of the view that the judge, while not entitled to ignore the fact that the matrimonial home was the principal family asset, was nevertheless entitled to give some consideration to the matters that I have set out in determining what, in the light of all the circumstances, was a fair disposition of the matrimonial estate.

Stepping back and looking at the impact of the judge’s orders

122.  For myself, stepping back and looking at the overall impact of the manner in which the judge saw fit to order the division of the matrimonial estate, I am satisfied of two things.  First, that the needs of the parties were met not in a miserly fashion but, in accordance with the circumstances of the parties, with the required level of generosity.  Second, that, all the circumstances being taken into account, the overall distribution of the estate was one that was fair to both parties.

123.  Bearing in mind the relative shortness of the marriage, the fact that there was no child of the union and the fact that the husband brought into the marriage assets of considerably greater worth than the wife, including the matrimonial home, I do not see that the judge can be faulted for determining at the end of the day that this was a case which did not merit an equal division of all of the matrimonial assets.

124.  Equally, however, even though the marriage was relatively short, the wife had committed herself to the husband, playing a full role in their marital partnership.  As I have said, among other things she disposed of a property, using certain of the proceeds to support herself and the husband.  For almost all of the marriage, she worked.  She gave up her employment in England to join the husband here in Hong Kong.  However willing she was to do so, it does not detract from the fact that it was a major step for her, to a degree a step into uncertainty.  Her contribution to the welfare of the family must be undisputed.  At the time of the hearing, without in any way apportioning blame or debating the reasons, the wife found herself effectively without employment while the husband remained secure in his employment earning an enviable salary. In such circumstances, it seems to me that fairness demanded that the judge look to a way to secure the wife’s position.  An award close to just 25% of the parties’ total assets – that being the figure suggested by the husband – would have done the wife no justice at all.

125.  Taking an overview, I do not see how it can be said that the decision to award effectively 60% of the matrimonial estate to the husband and 40% of it to the wife is so misguided in principle or wrong in fact that it falls outside the ambit of reasonable disagreement and must for that reason be set aside.

The issue of costs

126.  The judge gave a brief ruling as to costs, making an order nisi which was confirmed.  It was as follows:

“In the circumstances of this case, although the wife is able to achieve a sum more than the husband’s open offer, it is fair to say the court found against her on some issues, e.g. duration of the marriage. Provisionally, I consider that, save and except the costs in respect of the argument on valuation of the pensions which I have formed the view to have been triggered off by the husband’s delay in making discovery for which he should pay the wife’s costs, it will be fair to order no order on costs concerning ancillary relief. I estimate this part takes up 10% of the total trial time. I therefore make an order nisi that the husband do pay 10% of the wife’s total costs of the ancillary relief application....”

127.  It appears that the wife made no offer of settlement during the course of litigation.  She did not do so because, as she saw it, the husband had not made sufficient disclosure to her concerning the value of his various pensions. An informed offer was not therefore possible.  The husband, I am told, made two offers of settlement, the first being made without prejudice and the second being an open offer.  Both offers, however, were made very late in the day, less than a week before the commencement of the ancillary relief hearing.

128.  The husband’s first offer was based on the sale of the matrimonial home which, I understand, the husband always accepted would have to be sold in order to meet the needs of the wife.  The husband offered to pay the wife a lump sum of £325,140 on the sale of the property less estate agent’s commission.  In addition, he offered to pay the wife’s party and party costs.  As Mrs Irving pointed out, the judgment ‘beat’ the husband’s offer by over £125,000, that figure translating into $1.4 million at the rate of exchange at the time.

129.  On 4 June 2010, the following day, the husband made an open offer to the wife to settle by way of a lump sum payment to her of £227,598, that representing 35% of the value of the matrimonial home.  This offer did not include any offer as to the wife’s legal costs.  As Mrs Irving pointed out, the judgment ‘beat’ this offer too, more especially as the wife was given 10% of her costs.

130.  As I understand it, the approach today is that, unless the parties are of the reasonable view that they do not have sufficient information available to them to enter into negotiations, they are under an obligation to explore settlement and to do so in a constructive manner.  Unless attempts are made to settle, potentially avoidable litigation becomes inevitable.  In family litigation there are two almost inevitable results.  First, ill will between the parties is heightened.  If there are children of the marriage this can have profoundly deleterious consequences.  Second, except in big money cases – and this was not a big money case – there will be a significant drain on the joint matrimonial estate, both parties, directly or indirectly, being the losers.

131.  The judge having heard the evidence, was of the view that there had been a delay on the part of the husband in providing sufficient information as to the value of the pensions.  It was on this basis that he awarded the wife 10% of her costs.  Although, in light of the contemporary approach to which I have just alluded, I have some misgivings as to why it was that the wife was not able to put forward some form of offer, it must be accepted that the finding of the judge supported the wife’s contention that she was not able to make any kind of informed offer of settlement at a time when, if accepted, could have resulted in a material saving in costs.

132.  There appears to have been no similar obstacle facing the husband.  Yet, on the information put before me, the husband chose not to make any offer of settlement until, for all practical purposes, he stood at the door of the court.  On balance, it appears that the offers the husband did make were at that late stage tactical, a last minute bulwark against costs.  As such, I think it probable that, if either of the husband’s offers had ‘beaten’ the judgment, he would have pressed for his costs.  As it was, as I have said, both offers were materially less than the judgment awarded the wife.

133.  In family matters, as in civil matters generally, costs prima facie follow the event but may be displaced more easily in the family jurisdiction.  The court has a broad discretion to do what is just.

134.  Calderbank offers are not determinative.  They are one of the factors that must be taken into account by a judge in the exercise of his discretion.  In the present case, although the judge noted that the wife had achieved more than the husband’s open offer, he did not see fit to translate that into any consequence in costs.

135.  In that latter regard, I am of the view that the judge fell into error in the exercise of his discretion by not giving considerably more weight to the fact that the husband did not make any offers of settlement until he was at the door of the court and that the offers made fell materially short of the award made to the wife.  When that is taken together with the finding by the judge that there had been culpability on the part of the husband in his failure to make timely discovery concerning the value of his pensions, it seems to me that there were two consequences relevant to the wife.  First, she was placed in difficulties in discharging the burden on her to try and settle and thereby avoid litigation and, second, she was correct to reject the husband’s two very late offers, proceeding to trial and obtaining a more favourable result by that route. 

136.  Mr Pilbrow submitted that the husband did not intentionally cause any delay in supplying information on the pensions.  He submitted that the delay was of short duration and that, on all the evidence, it was clear that the wife was seeking her own actuarial report before she had issued summons seeking production of relevant documents from the husband.  As it was, said Mr Pilbrow, the wife’s expert report was rejected by the court which accepted instead the report of the pension fund’s actuary.  The fair result therefore should have been an order of no order as to costs.  

137.  Mr Pilbrow’s assertions relating to the factual circumstances were known to the judge.  As the primary finder of fact, he would have taken them into account in the exercise of his discretion.  Nevertheless, he still came to the view there had been culpability on the part of the husband.  As the judge found, the husband had the duty to ensure that wife received full and frank disclosure of matters concerning the pensions within a reasonable time frame. 

138.  It is a material factor of course that when the relevant information was given to the wife in the form of the actuarial report of the pension fund actuary, she rejected it and proceeded with her own report which was in turn rejected by the court.  It is also a material factor, as the judge observed, that a material portion of the trial time was taken up on such issues as the duration of the marriage, issues unsuccessfully advanced by the wife.

139.  The judge had a number of matters to weigh in the balance in the exercise of his discretion.  Nevertheless, as I have said, I am of the view that the judge, in the difficult exercise facing him, should properly have given more weight to matters favouring the wife in respect of costs.  I am of the view that the wife should have been awarded 50% of the total costs.

Conclusion

140.  For the reasons given, with the exception of one matter, that is, the payment by the husband to the wife of a capital sum of $50,000, I would dismiss the wife’s appeal and the husband’s cross-appeal concerning the substantive awards made by the judge at first instance.

141.  I would however set aside the judge’s order as to costs, substituting it with an order that the husband pay 50% of the wife’s costs, such costs to be taxed or agreed.

142.  In respect of the payment of $50,000 to which I have just made mention, this is to be paid by the husband to the wife within 60 days of the date of this judgment.

143.  As to the costs of the appeal, I am of the view that the appropriate order is one of no order as to costs.

Hon Fok JA:

144.  I agree with the judgment of Hartmann JA and the orders he proposes.

Hon Chu JA:

145.  I agree with the judgment of Hartmann JA and the orders proposed.

Hon Hartmann JA:

146.  Accordingly, the orders proposed in paragraphs 140-143 (inclusive) are made the orders of this Court.