LCYP v. JEK AND ANOTHER

HCMC 3/2018

[2019] HKCFI 1588

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO. 3 OF 2018

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J U D G M E N T

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1.  This is the application of the Petitioner (“Wife”) for ancillary relief against the 1^st Respondent (“Husband”). There is also an application by her to set aside a number of dispositions by the Husband made in favour of a trust in his name (“Trust II”) pursuant to s.17 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“Ordinance”). The Trustee, a Delaware company, is the 2^nd Respondent (“R2”) in these proceedings. Although R2 had been served with these proceedings, it takes the position that this court has no jurisdiction over it and has not made an appearance.

2.  There is an interesting point of law involved in these matters, namely, the standard at which the Wife’s needs are to be assessed in the context of an unvitiated[1] Pre-Nuptial Agreement (“PNA”).

Background

3.  Save where indicated otherwise, the background facts are not in dispute.  The Husband is now aged 47.  He was born in New York.  The Wife was born in Hong Kong and is now 46 years old.  They met in Hong Kong in 1994 and were married in New Jersey, USA, in September 1997. They have 2 boys, X (now 18) and Y (14 years old).  Both the Husband and Wife are US citizen, the latter acquiring her citizenship in February 2004.

4.  When the couple met, the Husband, who had a degree in business administration, was working for the business of his family in the garment industry, ABC and its affiliates.  The business was started by his father (“Father”) and in which the Husband had a 10% shareholding.  The relationship of the Husband and Father in the business may be described as partners. 

5.  Just before the marriage, the Wife was working in Hong Kong as an executive secretary in an international investment bank earning between HK$18,000 to HK$20,000 per month.  She was serving 2 directors of the human resources department.  She had completed her Form 5 education and attended a 1-year course in secretarial training between 1990 and 1991.

6.  The Wife just turned 25 when she got married (the Husband was about 4 months older).  It was a first marriage for both of them.  They lived in New Jersey after marriage, and both continued to work – Husband for the family business and the Wife as an executive secretary for the same company (after she had obtained a work permit in late 1997).  They lived in a house acquired by the Husband in anticipation of the marriage. 

7.  According to the unchallenged evidence of the Wife, the couple had a joint bank account into which she paid her income.  It was the only account she had in the US, whilst the Husband maintained his personal bank account(s).  The Wife contributed to the family expenses, including the mortgage repayments, whilst she was employed.

8.  The financial situation of the family improved significantly after the marriage.  The family business was doing well and the Husband’s income increased.  In 1999, the couple enjoyed a comfortable life and wanted to expand the family.  They decided that the Wife should cease working to become a full-time housewife in preparation for the enlargement of their family.  X was born the next year, and Y was born in 2005. 

9.  Nine months after Y was born, the family moved into a large house in New Jersey (November 2005), which was financed partly with the proceeds of sale of the previous home, acquired in the joint names of the couple (“House”).  It stood on a plot of land 1.3 acres in size and had an area of about 10,000 sq ft.  There were 2 storeys and a furnished basement, 6 en suite bedrooms and 4 covered car parking space.  It was generously furnished as a dream home, eg, there was a custom designed theatre and an additional sitting room with a grand piano. 

10.  It is quite clear from the improvements in the quality of life enjoyed by the family that the financial position continued to improve.  The family went to cruises, ski trips, and holidays in Europe, North America, Central America, South America, Africa, India and South East Asia. They stayed at top hotels and enjoyed privileges on flights.  Money was not a concern and no budget was set for monthly expenses.  The Wife enjoyed the use of credit cards with no spending limit.  In addition to settling the card expenses, the Husband also replenished the funds in the joint account as and when needed.

11.  In December 2012, the assets of ABC and 5 of its affiliates (I shall refer to them as ABC and Company 2 to Company 6) were sold to a subsidiary, NN, of a listed conglomerate of Hong Kong at, according to the Husband, the total consideration of US$70,067,872 (“Proceeds”).  The amount of Proceeds received from the sale of the family business (“Sale”) is in dispute.  The Husband said that his shareholding in the family business was increased to 30% shortly before the completion of the Sale by way of gifts from his parents.  The amount of shares owned by the Husband, and consequently his share of the Proceeds are also in dispute.

12.  Shortly before the completion of the Sale, the Husband set up Trust II, and in which he later injected much of his share of the Proceeds.  These injections are the subject matters of the s.17 Application. 

13.  In June 2013, the House was transferred into a company.  Later, 99% of the shares in that company were also injected into Trust II.  The remainder 1% share was (and is) held by the Husband.

14.  In mid-2013, the Wife and the children moved to Hong Kong.  It is disputed whether such move was intended to be temporary or permanent.  However, it was a time when the marriage was at a low point. According to the Wife, her husband had to spend a substantial amount of time away from the family due to business commitments[2].  It is uncontroversial that the Husband started an extra-marital relationship not later than April 2012.  In any event, the Wife’s case is that although the move to Hong Kong was initially intended to last 1 to 2 years, she was determined to stay in Hong Kong permanently after the breakdown of her marriage.  She petitioned for divorce on 17 April 2014.

15.  The Husband was shocked by the Petition. Jurisdictional challenge was made by him against the Petition on the basis that the appropriate forum was New Jersey court.  The Husband also made an application to have the children returned to the US under the Hague Convention. These applications were decided against the Husband after 2 years’ of litigation, which resulted in delay in these proceedings, eg, the parties only exchanged their Forms E in August 2016.  The decree nisi was pronounced on 1 February 2018.

16.  Care and control of the children with the Wife was not disputed.  The children have been attending school in Hong Kong since the end of 2013.  X will commence his graduate study in the US this September. Y is in grade 8 at an international school.

17.  After the move to Hong Kong, the Wife and the children stayed at a development in Tai Kok Tsui for about 1 year.  They then moved to another place in Tai Tam (“OO”), which was very close to the school, to avoid the long travelling time.  They have been staying in OO ever since. 

Issues

18.  It is uncontroversial that having been entirely dependent on the Husband since 1999, at the end of a marriage lasting over 16 years the Wife’s financial needs have to be provided by the Husband.  The controversy concerns the amount of funds sufficient to meet the Wife’s needs.  There is no dispute that the Husband will have to continue to provide for the children, but there is also arguments over the quantum. 

19.  The appropriate financial provision for the children is fairly straightforward.  That cannot be said in the case of the Wife.  In fairness, although there is a significant gap between the Open Proposals of the Wife and the Husband, one cannot say that either one is entirely unreasonable.  However, to determine the appropriate financial provision for the Wife, there are a number of issues to be decided. 

20.  Firstly, the assets of the Husband, under that heading there are a number of sub-issues, namely, his non-disclosure, his share of the Proceeds, whether the assets in a number of Trusts should be regarded as his financial resources, the s.17 Application and whether certain sums should be added-back as part of the assets of the Husband.  It will be seen below that it is unnecessary to determine each of the disputes because the Husband clearly has sufficient assets to meet the appropriate award for the Wife.

21.  Secondly, the financial needs of the Wife, bearing in mind the existence of the PNA the validity of which is not in dispute.  In particular, the Husband takes issue with the Wife’s earning capacity and whether he should be funding a whole life order. 

General legal principles

22.  The general principles applied for ancillary relief are not in dispute: see WYSL v FHCBA [2018] HKCFI 1543, [34] to [39] and [42] to [45].  In trying to reach a fair result, the court will have to bear in mind the provisions of s.7 of the Ordinance and the guidance in the authorities. 

23.  Of the 5 steps exercise (WYSL, [37]): identification of assets, assessing financial needs, deciding to apply the sharing principle, consider whether there are good reasons for departing from equal division and deciding the outcome, steps 3 and 4 must be considered in light of an unvitiated nuptial agreement.  It may be said that such an agreement may justify the departure from equal division (WYSL, [41]). It is not seriously contended by Ms Yip SC[3] that the Wife is entitled to an equal division in this case (see Wife’s Open Proposal below), although it had been suggested at times that she should be so titled.

24.  In the context of this case, I shall consider needs after dealing with the PNA.

25.  In respect of the s.17 Application, there are 3 issues (WYSL, [50] to [52]), namely, disposition, intention and provision :

(i)  whether the Husband made any disposition of property within the meaning of s.17;

(ii)  if so, whether any of the disposition was made with the Husband’s intention of defeating the Wife’s claim for financial provision;

(iii)  whether, if the disposition(s) was/were set aside, different financial provision would be granted to the Wife.

Open Proposals

26.  In addition to maintenance for the children, the Wife is seeking an award of HK$70 million, which is significantly less than her capitalised needs of HK$200,000 per month (as claimed) according to the Duxbury Report (“Report”) of the Single Joint Expert (“SJE”), ie, HK$99 million.

27.  The Husband had made 2 Open Proposals[4].  The 2^nd Proposal was made in response to the suggestion of the court that it might be undesirable to uproot Y from Tai Tam where he studies and his friends are located. 

28.  The Husband’s Proposals are complex but essential they contained 2 funds to provide for housing and income.  Broadly speaking, under the 2^nd Proposal the Husband will have to provide about HK$50 million as capital provision for the Wife.  However, there will be a charge of about HK$12 million in the Husband’s favour to be executed on the property acquired for housing, which will be triggered upon the Wife’s remarriage or death.

Witnesses

29.  Both the Wife and the Husband gave evidence.  In addition, the Father was called as a witness for the Husband.

30.  There was limited challenge to the Wife’s credibility.  The most contentious part her evidence concerned, firstly, the move to OO.  I accept the Wife’s evidence that the move was preceded by viewing of the property with the Husband and approval by him.  Her evidence is inherently probable because: (i) the place at which the Wife and the children were staying at the time was very inconvenient due to the long travelling time required for school attendance; (ii) the Husband would have been concerned and no doubt the couple would have discussed alternative accommodations; (iii) quite likely, the Husband would have participated in the viewing of alternative accommodation(s); and (iv) it is unlikely for the Wife to have agreed to rent an expensive accommodation without the approval of the payer.

31.  Secondly, there is a dispute whether the Husband had ever agreed to a permanent move by the Wife and the children to Hong Kong. I am inclined to believe that he did not.  It is unlikely for him to have agreed to his family being permanently away from his base in US.  On the other hand, I see no reason to doubt the Wife’s evidence that she did tell the Husband about her wish to stay in Hong Kong permanently with the children. Such conversation is likely to have taken place at a time when the relationship was under much strain, and matters were in a state of uncertainty.   

32.  Taking all relevant matters into consideration, I have no reason to doubt the general credibility of the Wife.  She was a straightforward witness, ready to make concessions when calculation errors were identified to her.

33.  I also accept that the Father’s evidence is credible, apart from his evidence of refusal as the Distribution Advisor to approve distribution from Trust II to satisfy the Wife’s claims against his son.  It is clear from the evidence that he is a loving father and very generous to his only son.  Even on his evidence, he was quite willing to act in accordance with his son’s request.  I believe that, in maintain his refusal, the Father felt obliged to support his son’s case (see also the analysis of the evidence below).  It is unfortunate that he was dragged into these matters.  

Credibility of the Husband

34.  The Husband is clearly a highly intelligent man.  Regrettably, he was not a candid witness.  The lack of candour has an important bearing on the adjudication of this case, eg, it is quite impossible for the court to come to an accurate view on his assets.  

35.  As I shall explain below, the Husband had knowingly failed to fulfil his duty of full and frank disclosure of his assets.  Intentionally, he adopted a strategy of evasion, with an aim to cause maximum difficulty to the Wife and her legal team and to exhaust her limited resources for these proceedings.  When he gave evidence, he was determined not to give any quarter to the Wife’s case.  Even when he was confronted with obvious inconsistencies with his previous statements, he resorted to excuses, often blaming it on the professionals.  Another excuse he used a number of times was to hide behind his parents.  For instance, he said that he injected the House into Trust II at the direction of his father.  Whereas the latter’s evidence was that the injection was his son’s idea. 

36.  I start with the non-disclosure of the Husband. He confirmed that he had been advised of his duty to make full and frank disclosure.  In respect of the most important part of his assets, his share of the Proceeds, there can be no question that the discovery should have been a simple exercise of identifying the total sum received, when the various constituent parts were paid and providing the supporting documents, in particular, the Sale Agreement and the bank receipts.  Identify the present whereabouts of the Proceeds received should not be an unduly complicated matter either, because the lion share had apparently gone into Trust II.   

37.  Regrettably, the discovery given by the Husband on the Proceeds he received was nothing like this.  Ms Yip characterised such discovery as sketchy and shambolic.  I agree.  The Agreement was only produced on 31 August 2018, nearly 4½ years after the Petition was filed and more than 2 years after the filing of the Husband’s Form E.  The Agreement contradicted the Husband’s evidence about the nature and details of the Sale.  As regards the Proceeds he received, much reliance is placed on letters from Attorneys and Accountants, without the supply of source documents.  The contents of some of these letters were contradicted by the Husband in his evidence. 

38.  The state of the Husband’s discovery was repeatedly criticised by the Family Judge (see Decisions dated 16 August 2018 [2018 HKCFI 1907] and 18 December 2018 [2018 HKCFI 2738]), who was dealing with these matters until the 1^st PTR.  At that hearing, this court tried to impress on the Husband (represented by his team of lawyers) that he should pay heed to the views expressed by the court.  Such advice simply fell on deaf ears. 

39.  Quite rightly, Mr Nagpal[5] did not try to defend the state of the Husband’s discovery. 

40.  The dicta in L v L [2006] 1 HKFLR 121, §§197 to 200, are particularly apposite in this case and were reflected in the above Decisions of the Family Judge :

“197. … Given the level of professional advice the Wife could have obtained if she so wished, I find it hard to believe that she could not provide a more intelligible and meaningful answer in a timely and orderly manner. The party who gives disclosure also carries the obligation to present the information in a way that could be readily comprehensible to his opponent. Straightforward and direct answers could have been given by the Wife to questions like how much has been invested into a business and what were the sources of fund. A good litmus test for distinguishing a bona fide fulfilment of the duty to give disclosure form an attempt to obfuscate is to ask whether the answer or the material can on its own meaningfully assist in informing others as to the means of that party. I regret to say that having regard to the way in which the Wife had given disclosure of her means throughout the course of these proceedings, it is clear to me that she deliberately chosen not to give meaningful disclosure of her means.

198. It is high time that litigants in matrimonial proceedings and those advising them should appreciate that affirmation of means and answer to questionnaire are not a game of hide and seek. Too much legal costs and judicial time had been spent on such wasteful exercise. As stressed by Mr Mostyn, the onus falls squarely and fairly on a party to give full and frank disclosure of his or her own means. To adopt a wait and see approach with a hope that the opponent might fail to ask the right question is a tactic to be deplored. That by itself is a breach of the positive duty to give disclosure. As Coleridge J put it recently in J v V [2004] 1 FLR 1042, ‘all cards must be put on the table face up at the earliest stage if huge costs bills are to be avoided.’

199. Although the financial affairs of the Wife were complex involving accounts relating to a number of businesses, there is all the more reason for her to give clear and meaningful disclosure of her affairs as early as possible. Understandably, she needed to engage the services of professional advisers to assist her in the exercise. But she should appreciate that the primary duty rested on her to see to it that the exercise was done properly and satisfactorily in a timely fashion. She should have enlisted the necessary help from the professionals and supply them with all the necessary information soon after the commencement of ancillary relief proceedings. It is no excuse, as the Wife had tried to mitigate in the witness box, to say one had no idea as to how such an unsatisfactory state of disclosure has arisen because the job had been left to others.

200. If the court shall come to the conclusion that a litigant has been recalcitrant in failing to come clean in giving full and frank disclosure of his or her means, it should not hesitate to draw adverse inference against such a litigant, see Baker v Baker [1995] 2 FLR 829.”

41.  I shall revisit below the issue of drawing adverse inference.

42.  The Husband said that he had provided some 20,000 pages of discovery in these matters, but I see no genuine attempt to make discovery in an organised and easily intelligible manner.  Given the resources deployed by the Husband (his legal expenditure incurred to date (nearly HK$43 million) is just short of 4 times that of the Wife), it is difficult to resist the inference that there was a deliberate attempt to run down the Wife’s resources.  The difficulties in deciphering the Husband’s discovery is well-demonstrated by the many tables produced by the Wife’ team of counsel to assist the court (“W-Table”) for which hours must have been spent to try to piece together the information from various materials produced by the Husband (including his affirmations), much of which were inconsistent. 

43.  I need only give 2 further examples on the quality of the Husband’s evidence.  Under cross-examination, he insisted that once injected into Trust II, the assets no longer belonged to him.  This is contrary to the Father’s evidence that those assets belonged to his son.  When the Husband was asked to explain to whom those assets belonged, he said with visible discomfort that he would have to consult with New Jersey Attorney. Later, he also said that the assets were held on trust for the next generation. 

44.  I am unable to accept the evidence.  First and foremost, a man of the Husband’s sophistication would not have any difficulty answering question over the ownership of the most important asset he had generated.  Secondly, it is quite improbable that he would have divested himself of his largest asset at a time when his career and earning capacity were on the rise.  I have no doubt that he had in mind various profitable manners in which the asset might be deployed.  Thirdly, his children already had the benefit of 2 Trusts (see below).  If he was minded to put away further assets in their favour, he would likely have injected them to their Trusts. 

45.  The Husband was also cross-examined on the whereabouts of approximately US$1.51 million he had received as part of his share of the Proceeds[6]. He identified 3 expenses which purportedly accounted for the money, namely, outstanding debts of the companies which had to be cleared prior to the Sale, professional fees incurred for the Sale and expenses to wind down the ABC companies.  He said that the biggest chunk of the money went to professional fees.  When the answer was further explored, the Husband said that the total professional fees were a little over US$2 million, and he was required to shoulder less than US$700,000 of that sum as his share.

46.  The Husband then changed his story and said that a big chunk of the US$1.51 million (a little over US$1 million) had gone to bonuses he paid to the existing employees so that he could secure the future success of the business for which he would continue to work and on which the deferred portion of the Proceeds depended.  When he was asked why he had to bear the entire burden of the bonuses, he said that his Father was retiring and not involved in ABC’s future.  It was then pointed out to him that he was (on his case) not entitled to the entirety of the deferred Proceeds, and in purported answer to which he embarked upon a long and irrelevant speech about his relationship with the Purchaser to try to divert attention.

47.  As I have said, the Husband is a highly intelligent person.  The Sale must be one of the most important, if not the most important, transaction he had ever handled.  He came to court fully aware that he would be cross-examined about his assets.  He was asked about large sums of money.  I therefore must be careful not to simply attribute unsatisfactory evidence to faulty recollection. 

48.  Whilst it is true that the Husband had maintained that bonuses were paid to employees by him personally[7], if one adds up the 2 alleged payments of bonuses, they amounted to more than US$1.72 million, which contradicted the answer in para 46 above. Further, it does not answer the question why he had to shoulder the entirety of the bonuses when he was only entitled to 30% of the Proceeds. 

49.  Furthermore, according to the Husband’s tax returns for 2014 and 2016[8], those bonuses were allegedly booked under line 17 “Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E”.  In the Schedule E of the 2016 return[9], the alleged 2016 bonus was booked as “Self-employment earnings (loss)/Wages” under “Miscellaneous”.  I agree with Ms Yip that these documents are very difficult to understand and the Husband’s evidence cannot be taken at face value in light of the same.  However, as Ms Yip pointed out, there is no source documents produced against which the Husband’s evidence may be verified.

50.  Most importantly, it would have been a straightforward exercise for the Husband to give a full and accurate account of the Proceeds he received and the expenses which needed to be deducted.  There must be a reason or reasons for the Husband’s refusal to do so.  This court is not prepared to act on scraps of information which may be misleading.  The irresistible inference is that at least one of the reasons for the sorry state of the evidence is that the Husband is hiding the truth from the court. 

Earning Capacities

51.  There is a gulf of disparity here.  The Husband has a degree in business administration and graduated very recently from a well-known university with an Executive MBA.  After the Sale, the Husband was employed by the Purchaser to continue to manage ABC’s business.  There can be no dispute that the Husband commands a high earning capacity[10].  No doubt he can look to doing even better in the future.

52.  According to the Husband, his current total earned income per annum is US$811,460, which amount to US$438,432 (HK$3,419,768) after tax at 45.79%.

53.  The Husband had a consultancy business for 7 years prior to the Sale.  He was and is an expert in predicting consumer trend in his trade.  As part of the arrangements under the Sale, the Husband was paid handsomely by the Purchaser for discontinuing his consultancy business.  The business had a gross income of about US$250,000 during the few years prior to and including 2012.  Under the arrangement with the Purchaser, he was paid US$600,000 per year for 3 years (2013 to 2015) with a final payment of US$50,000 for 2016. 

54.  Despite the challenge by the Wife, I accept that the Husband did not continue with his consultancy business after the Sale. That would be inconsistent with his duties to ABC. 

55.  However, I believe that the Husband has every intention to rekindle that business if he ceases to work for the Purchaser. That is evident from the change of business activity for one of the ABC companies from “wholesaler” of “soft goods” to “consulting services” in 2015 as stated in its tax return.  The Husband had no proper explanation for the switch for this dormant company, and his answer that it was a question for the accountant is unconvincing.  More likely than not, he is keeping the company ready for the future. 

56.  Further, I do not accept his evidence that he would have to start from scratch if he rekindles the consultancy business. Whilst he might be right that the industry model had changed, I am sure that the experience he continued to gain since 2013 can only augment his expertise. He will also be able to take advantage of the network he had developed whilst working for the Purchaser. 

57.  Therefore, there is a significant additional earning capacity on the part of the Husband.  Although there is no evidence of the monetary value of that capacity, what the Husband used to generate from the consultancy business in 2012 when he was working part-time on it serves as a reference.

58.  As submitted by Ms Yip, in accordance with his 2016 tax return[11] the Husband also had passive incomes made up of qualified and ordinary dividends as well as interest income at US$350,983 (HK$2,737,667). 

59.  If the assets in Trust II are regarded as the Husband’s resources, the growth in those assets ought not be ignored. Regrettably, like so many aspects of the evidence on assets, the growth rate achieved is not clear and is subject to disagreement between the parties. However, even on the Husband’s case, those assets had growth about 12% over a 5 year period.

60.  It is disputed by the Wife that she has an earning capacity which should be valued at between HK$20,000 to HK$30,000 as suggested by the Husband.  In a general sense, any able-bodied person has an earning capacity.  However, the assessment here is made in the context of fairness.  For instance, it would not be fair to say that the Wife can get a job as a waitress (it is not so suggested).

61.  The evidence is that Wife’s secretarial skill had been rendered out of date by the advancement in technology.  Neither her training nor experience in her past employment involved the use of computer. Prior to giving up her career, apart from secretarial work, the Wife’s only experience was working at the trading office of a small garment business which belonged to her family.  The fact that she had ceased working since 1999 would only add to the difficulties in returning to the labour market.

62.  I am unable to accept the criticism that the Wife should get a part-time job now since Y is 14.  The Wife is in the best position to judge the amount of attention to be given to her children.  She will be approaching 51 years old when Y becomes 18.  I do not believe that it is realistic or reasonable to maintain that the she should return to the labour market at a lower position, say a receptionist.  Mr Nagpal accepted that the Wife would require a transitional period for retraining before re-entry into the labour market as a secretary. 

63.  Doing the best in the absence of a crystal ball, I accept that the Wife will be able to re-enter the labour market after Y became 18 and with a year of retraining.  I also accept that the suggested monthly earning of HK$20,000 is not unreasonable.  On the other hand, there will likely be difficulties faced by a 52 year old newly retrained secretary, eg, it will likely take longer for her to find a suitable position.

Identification of assets

64.  The total agreed net family assets are valued at HK$30,103,009 (consisted of only 1% of the House (the remainder is held in Trust II)) or HK$44,388,709 (including the House).  Of those assets, only a small part (HK$5,515,708[12]) is in the hands of the Wife[13].

65.  As regards the disputed assets of the Husband, it is already foreshowed that it is impossible for the court to come to an accurate view due to the non-disclosure of the Husband.  Before I deal with adverse inference, I shall consider some of the disputed assets of the Husband.

Proceeds

66.  I accept the evidence that the total Proceeds were a little over US$70 million.  That figure is consistent with clause 3.5 of the Sale Agreement which put a ceiling on the Proceeds at US$79 million.  The payments were structured in that about US$31 million was paid in 2 tranches in November 2012 and December 2013.  The remainder was performance related. 

67.  Ms Yip submitted that the Husband’s share of the Proceeds might have exceeded 30%.  The proposition was based on a reverse calculation based on the data contained in a Distribution Summary as at 31 December 2013 provided by the Husband[14]. Such calculation showed that the Husband was allotted between 30% to 40% of the distributions from ABC, Companies 2 to 5.  However, he received nearly 65% in respect of Company 6.  All the performance related Proceeds received from December 2014 to May 2018 were paid to Company 6.

68.  There is certainly force in Ms Yip’s submission that an increased interest of the Husband after the Sale would tally with the evidence of the Father that during the 5 years before the Sale he did not spend much time in the business, which was run by his son, and he retired after the Sale.  Further, the Husband’s evidence that he had paid substantial bonuses to key employees is also consistent with the picture that he had a larger stake in the performance related Proceeds. 

69.  In his final submissions, Mr Nagpal sought to demonstrate with his Appendices III and IV that: (a) the Husband’s tax records showed that his interest in the ABC Companies amounted to exactly 30% and he had been taxed on that basis; and (b) the reverse calculation exercise was forensically meaningless and flawed because of, eg, double counting. 

70.  On the other hand, Ms Yip took the court to the tax documents and showed that in the absence of adequate explanation it would be unfair for the court to simply accept the interpretation of the documents proffered on behalf of the Husband.  Similar submission was made in respect of Mr Nagpal’s analysis of the Distribution Summary set out in his Appendix IV.

71.  The upshot is that this court is left in the dark as to precisely the amount of Proceeds received by the Husband. 

Distributions from the ABC Companies

72.  In cross-examination, the Husband agreed that he had received distributions from the ABC Companies in respect of their pre-Sale business.  Valiantly, Mr Nagpal sought to establish the amount of such distributions by referring to various tax returns and suggested that the net receipt was US$1,211,260.  The explanation is not properly based on evidence. In any event, there is no explanation on where that significant sum of money had gone to.

Adverse inference

73.  Both sides had referred to the case of NG v SG (Appeal: Non-disclosure) [2012] 1 FLR 1211 citing the dicta of Mostyn J at [7] and [16] :

“[7] There must surely be a sound evidential basis for reaching a conclusion as to the scale of undisclosed assets. The court should not be led into a knee-jerk reaction that says simply because evasiveness and opacity is demonstrated there is some vast sum salted away. This is not to say that the court has to put a precise figure on the scale of the hidden assets, let alone to identify by reference to evidence where they are or what they comprise ...

[16] Pulling the threads together it seems to me that where the court is satisfied that the disclosure given by one party has been materially deficient then:

(i) The court is duty bound to consider by the process of drawing adverse inferences whether funds have been hidden.

(ii) But such inferences must be properly drawn and reasonable. It would be wrong to draw inferences that a party has assets which, on an assessment of the evidence, the court is satisfied he has not got.

(iii) If the court concludes that funds have been hidden then it should attempt a realistic and reasonable quantification of those funds, even in the broadest terms.

(iv) In making its judgment as to quantification the court will first look to direct evidence such as documentation and observations made by the other party.

(v) The court will then look to the scale of business activities and at lifestyle.

(vi) Vague evidence of reputation or the opinions or beliefs of third parties is inadmissible in the exercise.

(vii) The Al-Khatib v Masry technique of concluding that the non-discloser must have assets of at least twice what the claimant is seeking should not be used as the sole metric of quantification.

(viii) The court must be astute to ensure that a non-discloser should not be able to procure a result from his non-disclosure better than that which would be ordered if the truth were told.  If the result is an order that is unfair to the non-discloser it is better that the court should be drawn into making an order that is unfair to the claimant.”

74.  Whilst I am satisfied that the Husband had failed to properly disclose his receipts from the Proceeds and the pre-Sale distributions, there is no satisfactory manner in which the court can come to a figure for the unaccounted money.  I am not prepared to accept the sum of US$7,864,691 suggested by Ms Yip because of the possibility of, eg, double counting.  Further, I cannot say whether some of the money had already been expended on, eg, the payment of the Husband’s vast legal bills. On the other hand, it is unlikely that the Husband would have gone to such length to hide an insignificant sum from the Wife.  However, the non-disclosure will be taken into consideration for the present purpose.

Trust

75.  There are 2 Trusts in favour of the Husband, and 2 Trusts each in favour of the children.  I shall consider the latter first.

76.  There was a Trust established in favour of X in 2001 after he was born.  Similarly, a Trust was established in favour of Y in 2009.  The Husband is the Settlor under these Trusts.  The Husband, the Wife and the Father are the Trustees.  X and Y are respectively the only beneficiary under their Trusts and the trust funds are preserved for distribution to them.

77.  The Wife’s contention that these Trusts are the resources of the Husband is premised solely on the fact that he had borrowed US$150,000 from each of these Trusts to pay for a property (“RR”) which was acquired in the sole name of the Wife in November 2013.  The Husband maintains that the money has to be returned.  I see no reason to doubt the Husband’s case, nor is there any reason to believe that a loving father would treat the resources he had put away for his children as free for his own use.

78.  In 2012, 2 Trusts were set up in favour of respectively X and Y by the Father, with Husband as the Trustee.  The beneficiaries under these Trusts are confined to X and Y respectively, and not the Husband as contended by the Wife.  I agree with the Husband that this is clear when Clauses 1 and 2 of the Trust Deed are properly read together.  Despite the Wife’s submission that US$500,000 each was injected into these Trusts shortly after her Petition, I see no adequate reason to regard these Trusts as the Husband’s resources.

79.  In 1988, the Father set up a Trust in favour of the Husband and his sister (“Trust I”).  Husband’s mother was the Trustee[15].  In January 2018, the Husband emptied the balance of Trust I[16] and the balance of one of his accounts (respectively US$554,565 and the US$39,152) purportedly to repay an outstanding loan from the Father (“KK Loan”) by way of one transfer of US$593,716 on 5 January 2018. 

80.  The Father’s evidence was that he was not aware of this repayment.  He never requested for repayment of the KK Loan, which he granted to his son in 2001 for the purchase of a holiday home.  He said that his son would pay back the Loan when he wanted to.  

81.  When asked in cross-examination why he chose to repay the KK Loan when he was, according to his own evidence, in financial difficulty and without any request by the Father for repayment, the only reason given by the Husband was that interest was accumulating on the Loan.  According to the Father, interest was charged on the Loan because he was advised by lawyer and accountant that it would make the Loan legitimate. 

82.  On 12 January 2018, 7 days after the purported repayment, the Husband made his 7^th Affirmation which contained an assertion that he had “not been able to make ends meet without obtaining [certain loans] from my father”.

83.  In light of the evidence, I agree with Ms Yip’s submission that the KK Loan was a “soft loan” from the Father.  The Husband was free to choose whether and when to repay it.  The purported repayment of US$593,716 was driven by this litigation with the aim to bring down his side of the net assets.  The amount ought to be restored to the Husband’s side of the balance sheet.

Trust II

84.  This Trust had a value (as of 31 December 2018) of US$14,930,714.30 (approx. HK$116,459,569.43). 

85.  It was set up in late 2012 at about the time of the Sale.  The Husband is the Grantor.  R2 is the Trustee.  The Father is the Distribution Advisor as well as the Trust Protector.  The Husband’s case is that all distributions from Trust II can only be made with the written direction of the Father (Clause 5.1 of the Trust Agreement), who had indicated his disagreement to making any distribution in favour of the Wife. 

86.  In addition to the injection of 99% of the interest representing the House in July 2013 and a non-cash injection of US$618,470 in September 2013, between November 2013 and September 2015 the Husband injected a total of US$10,994,193 in cash into Trust II[17] on 6 occasions.  The cash came from part of the Husband’s share of the Proceeds.  The non-cash injection and the 6 cash injections are the subject matters of the s. 17 Application. 

87.  Insofar as arguments concerning the construction of the Trust Agreement are concerned, firstly, I agree with the Husband that any distribution to him would be subject to the agreement of his father as the Distribution Advisor. 

88.  The second argument is less clear cut.  The Wife contends that, as the Grantor of the Trust, the Husband has the power to substitute the Trust Protector under Clause 4.13, who in turn will have the power to amend or change the provisions of the Trust Agreement (Clause 4.12). Thus, Clause 5.1 can be removed or replaced as directed by the Husband. 

89.  The Husband disagrees.  It was argued that the Trust Protector’s powers under Clause 4.12 are not unbounded.  He does not have powers or authorities that are specifically denied by the Trust Agreement.  His power is for the “prompt and effective administration of the trusts”.  More significantly, the Trust Protector is bound to act in a manner consistent with the Grantor’s intent as expressed in the Agreement.  The Grantor’s expressed intention was to ensure that no distributions could be made without the Distribution Advisor’s consent.  A new Trust Protector cannot therefore violate that clear intention.

90.  There is force in the Husband’s argument, and given that the Trust Agreement is governed by the law of the State of Delaware, I am reluctant to express a firm view on the issue. 

91.  This brings me to the Wife’s case that the assets in Trust II are financial resources likely to be available to the Husband. 

The test

92.  To determine whether a discretionary trust forms part of a party’s resources, the court applies the “Charman test” (see WYSL, supra, [48] to [49]): whether “if the husband were to request it to advance the whole (or part) of the capital of the trust to him, the trustee would be likely to do so”.

Analysis

93.  The Husband’s case that the assets in Trust II should not be regarded as part of his resources is hinges on the evidence of his Father that he would not agree to any distribution through which assets would end up with the Wife (with the exception of 50% interest in the House). 

94.  I am unable to place any weight on the Father’s evidence in this regard.  Firstly, there was a significant shift in his evidence.  He was quite categorical in his affirmation that he would only agree to authorise the release of 50% of the net value of the House to the Wife as part of a divorce settlement.  However, shortly before he gave evidence, he was agreeable to authorise distribution of assets to satisfy the Husband’s Open Proposal (there was no other assets sufficient to meet the Open Proposal, according to the Husband’s case).  His evidence was that he was told the day before he gave evidence that his son had made a settlement offer.  He asked his son to confirm the position and he agreed to the release of assets afterwards. He said that the case had gone on for 4 years, and if it helped to settle it he would make the authorisation.  He also lamented about the costs expended in this case. 

95.  Secondly, the Father accepted that the assets in Trust II belonged to his son.  He agreed that if his son had asked for a distribution to meet a legitimate purpose, he would agree to it.  However, he frankly acknowledged that the PNA was the “sticking point”, and he was not happy with the Wife getting money from the Trust because he saw it as being inconsistent with the PNA.   

96.  Thirdly, it is quite clear from his evidence concerning the many loans he made to his son (which totalled some US$1 million), and the injection of the House into the Trust, that the Father was merely doing what he was asked by his son. 

97.  In fairness to the Father, I have considerable doubt whether the Wife’s claim had been properly explained to him.  In particular, unless the needs of the Wife are provided for, she would be left in a lurch for having given up her career for the sake of the family, and that such sacrifice had enabled his son to focus on his career which had blossomed. 

98.  I have no doubt that Father is a reasonable person.  Unfortunately, he had to support his son’s case when called upon to do so.  However, the compelling inference from the evidence is that the Father will not stand in the way of a distribution of assets to meet the obligations of his son in these matters.  He will be glad to see the end of this unfortunate and very expensive episode. 

99.  In the premises, I hold that the assets in Trust II are the resources of the Husband. 

S. 17 application

100.  As an alternative, the Wife says that the 7 injections of assets into Trust II (see para 86 above) should be added back to the Husband’s assets because they were done with the aim to defeat her financial claims.

101.  The Wife’s case is based solely on inference, which of course can be very powerful.  In particular, the court is asked to examination the injections against the events set out in W-Table K.  In respect of the first 3 injections between September and November 2013, the Wife is relying solely on the fact that the Husband was having an extra-marital affair. 

102.  I am unable to agree that it supports an inference that the dispositions were made with the Husband’s intention of defeating the Wife’s claim for financial provision (see para 25(ii) above). The Wife’s evidence was that the Husband was shocked by her petition for divorce.  The fact that she was a beneficiary under Trust II as the Husband’s spouse strongly militates against the suggested intention.  Further, it should not be overlooked that the Husband and his family seemed to favour the use of Trust to ring-fence their assets.  The injection of the House and the Husband’s non-cash assets into Trust II was consistent with that modus operandi. 

103.  As regards the 4^th injection of about US$4.69 million on 23 December 2013, it was made at the time when the marriage was in serious difficulty as a result of the confrontation between the couple on the extra-marital affair.  On the other hand, the timing coincided with the receipt of Proceeds.  I do not believe that the Husband wanted or was planning a divorce at time.  His children were quite young.  I see no sufficient evidence on which to infer the requisite intention. 

104.  In respect of the next large injection of US$4.1 million on 17 December 2014, I see nothing in the suggestion that it was connected to the hearing on 4 December 2014 of the Husband’s jurisdictional and forum challenge against the Wife’s Petition.  The judgment handed down on 16 January 2015 was in favour of the Husband.

105.  Finally, it was said that the 6^th injection of US$400,000 and 7^th injection of US$500,000 were made respectively shortly after the grant of leave to the Wife to appeal against the said judgment and after the appeal was allowed.  I am inclined to agree with the Husband that the connections are tenuous.  These injections should not be viewed in isolation but in the context of the other injections.  The evidence showed that Trust II was set up at a time when the Husband expected to receive substantial sums from the Sale and he wanted to ring-fence his assets.  My finding that he had failed to make proper disclosure so as to hide his assets from the Wife does not change that picture. 

106.  In the premises, the s. 17 Application must fail.

Husband’s litigation costs

107.  According to the latest Forms H, the Husband had spent HK$43.77 million on costs, whereas the Wife’s legal expenditure was HK$11.85 million.  Both the level of costs incurred by Husband and the disparity are staggering, especially when the Wife has the carriage of these proceedings and should have incurred higher costs.  

108.  The Wife contends that, based on well-established legal principles, the excess of the Husband’s costs over hers (about HK$31.92 million) ought to be added back onto the Husband’s side of the balance sheet when computing the family assets in order to achieve fairness.

109.  It is well-established that the court has the power to “add back” any non-marital expenses spent or squandered by a spouse in order to achieve fairness (see Norris v Norris [2003] 1 FLR 1142, [77] and MKKWH v RKSH, CACV 197/2012, unrep, 24 September 2013, [61], [62] and [66]).

110.  There was a summary of the legal principles relating to “adding back” which was referred to by Mostyn J in BP, KP and NI [2013] 1 FLR 1310 at 1319 :

“[31] In my decision of BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC 2708 (Fam), [2012] 1 FLR 667 I attempted to summarise the law concerning the technique of add-back at the final trial at paras [50] and [51]:

‘[50] On 1 July 2009 H gifted C £18,000 and this was followed by further gifts of £57,000 on 3 July 2009, £50,000 on 10 July 2009 and £15,010 on 12 August 2009; a total of £140,030. W seeks that these sums be added back to the pool of divisible assets as a wanton dissipation. I attempted to summarize the principles applicable to this technique in my decision of N v F (Financial Orders: Pre-Acquired Wealth) [2011] 2 FLR 533 where I stated at para 39:

“In this country we have separate property.  If a party disposes of assets with the intention of defeating the other party’s claim then such a transaction can be reversed under s 37 of the MCA 1973.  Similarly, where there is ‘clear evidence of dissipation (in which there is a wanton element)’ then the dissipated sums can be added back or re-attributed (see Vaughan v Vaughan [2007] EWCA Civ 1085, [2008] 1 FLR 1108 at para [14]).  But short of this a party can do what he wants with his money.  What is not acceptable is a faint criticism falling short of either of these standards.  If a party seeks a set aside or a re-attribution then she must nail her colours to the mast.”

[51] Although intellectually pure, the problem with this technique is that it does not re-create any actual money.  It is in truth a process of penalization.  In my judgment it should be applied very cautiously indeed and only where the dissipation is demonstrably wanton …”

111.  In RH v RH [2008] 2 FLR 2142, the legal costs incurred by the husband was almost double that on the wife’s side.  Singer J decided to compute the size of the family pot by adding back the disparity in costs between the parties.  The learned Judge explained :

“[8] In arriving at the capital award I had regard to the very considerable disparity in the costs each had run up in the course of the litigation to that date (£265,000 on W’s side, and £486,000 on H’s) and decided to adjust the assets subject to division by, in effect, writing back £225,000 of H’s costs. …

[16] The converse argument is that if one party profligately runs up for him or herself a grossly disproportionate costs liability, then, if it is fully taken into account, the effect (in a case resolved by equal or other proportional redistribution) is to saddle the party who has expended less with an automatic contribution of half the disparity.

…

[19]  Moreover, I have to say that I am now firm in my view that it was unreasonable for H to expend so much more on the case.  A number of arguments were advanced for why this might be, such as the higher charging rate of the solicitor dealing with his case.  Beyond that, says Mr Crayford, it is speculation arrived at without analysis, and one which bears unfairly on H.  I have listened to what has been said, and I have looked again at the scale of the disparity, and I have come to the conclusion after hearing the costs debate that I was right in the main judgment to suspect ‘that for some years he has regarded this litigation as his principal activity’, and indeed that his approach to it has verged on the obsessional.  He directed huge analysis to the bewildering detail of which party (on his case, W) and which party’s properties (on his case, those in W’s name) benefited more from monies released from the sale or refinancing of the other’s.  This was unfathomable, and should have been seen to be so from an early stage, given not least that the attempt at such a tracing exercise itself engendered myriad issues as to the accuracy of their assertions, and that there, for the most part, was no documentary or other satisfactory evidence to establish these issues one way or the other.  The considerations advanced (whether in isolation or in combination) do not explain the disparity, that his total costs to the end of the main hearing are almost double hers.  The ratio is 97:53.”

112.  Finally, I refer to the recent dicta of the Court of Appeal in LLC v LMWA & Anr [2019] HKCA 347 :

“30. A characteristic of matrimonial or family proceedings which all those involved in it (parties and those relatives who supported them, lawyers as well as judges) should always be mindful is that the resources (including both time, monies as well as energy) of the parties should not be disproportionately squandered away in litigation. This is particularly so in cases where there are children in the family. For each $10,000 spent on legal fees, the parties would eventually have $10,000 less to be distributed amongst themselves (in a sharing case) or for maintaining themselves and their children (in a need case). For each hour spent on preparation and attending hearing, the party would have one hour less for rebuilding their lives after divorce or for spending time with their children. Actually, it could probably be worse because in many instances the time and energy spent on litigation would generate ill-feelings and hostilities for which much more time is needed to restore the litigant’s peace of mind.

31. Like other places in the world, the divorce rate in Hong Kong is getting higher and higher.  The caseload for the Family Court is increasing every year and the cases are getting more complicated.  It is not uncommon that matrimonial or family proceedings lasted much longer than they should have and the legal costs incurred by the parties drained away an unreasonably large proportion of the family wealth.  Based on our experience on the bench in hearing family cases, there is an urgent need for those practising family law to embrace a more proactive mindset to resolve family disputes through effective and proportionate means.  There is also a need for the courts to adopt proactive case management to curtail excesses in litigation which ultimately do not do any good in resolving the matter for the parties.”

113.  In respect of the Husband’s arguments against the add-back, firstly, I am alive that this is a needs case and not one of sharing.  Nevertheless, for the purpose of evaluating the amount of available assets, I see nothing unfair in adding back on the Husband’s side the grossly excessive legal expenditure.

114.  Secondly, the Husband’s argument based on the need for a taxation exercise to judge whether the costs are excessive is addressed by the above dicta of Singer J.  I do not believe that the vast disparity can be explained by, eg, the fact that the Husband had to do some of the running in this litigation.  More likely than not, the way in which the Husband chose to present his discovery had added very significantly to the costs.

115.  However, I must bear in mind the Father’s evidence that the Husband had borrowed from him to pay the legal costs.  Taking a reasonably board-brush view, I believe that a sum of HK$22 million should be added back as the Husband’s assets.

Identified assets

116.  Adding together the Agreed Net Family Assets (HK$44,388,709), Trust II (HK$116,459,569.43), the KK Loan (HK$4,630,984.80) and the costs add-back (HK$22,000,000) yields a total of HK$187,479,263.23.

117.  In light of the finding on the Husband’s non-disclosure, the above figure is likely to be an underestimate.  On the other hand, given the Open Offer of the Wife, the precise amount of assets is unimportant. 

The PNA

118.  Under the terms of the PNA, in the event of a divorce the Wife’s entitlement to financial provision would be confined to: (a) on the condition that the marriage lasted for at least 5 years or there is a child of the parties living, alimony for a period capped at 5 years and the amount of which would be based on the Husband’s base weekly salary, exclusive of bonuses, income or profits from any business or investments, trusts, gifts and inheritances (clause 5.1); and (b) up to half of the matrimonial home (the House) depending on the length of the marriage (the 50% applied by the end of the 10^th year) (clause 7.9(b)).

119.  Although the PNA foresaw that the parties might have children, it contained no provision for the maintenance of children (clause 5.2).

120.  I agree with Mr Nagpal that the PNA covered the Husband’s wealth generated from his work and from the Sale (clauses 3.2(a) and 3.2(d)). The PNA had a “sunset clause” (clause 7.17) by which it would cease to have effect if the parties had been married for 40 years.

121.  Although there is no challenge to the validity of the PNA, it is not irrelevant to looks briefly at the circumstances pertaining to its creation.  In August 1997, shortly after she turned 25 the Wife went to the US to get married.  It was her 3^rd visit to that country.  About 1 week after her arrival, she was asked by the Husband to enter into a PNA.  It was the first time that she heard about such a document.  She was taken by the Husband to see a lawyer who would represent her in that exercise.  It appears that the lawyer was paid by the Husband.  After negotiations between the lawyers acting respectively for the parties, the PNA was entered into.  The Wife’s evidence was that she had difficulties understanding the language used in the PNA.

122.  The PNA provided for separation of the assets of the spouses.  At the time, they were young and had limited assets.  As identified in the PNA, the Husband had a modest income and assets of about US$570,000.  Whereas, it was stated that the Wife planned to work for a company as a secretary beginning in January 1998.  She only had assets worth about US$12,500. 

123.  I have already identified the material terms of the PNA.  Apart from the lack of provision for children, it did not provide for the situation where the Wife had given up her career to become a full-time home-maker, and from which the Husband would benefit.  In particular, the opening words of clause 5.1 should be noted :

“The parties do mutually warrant and represent to each other that each has sufficient earnings and the capacity in the future to support themselves adequately in the event of … divorce …”

[emphasis added]

Plainly, the present situation was not one envisaged by the parties back in 1997.

Legal principles

124.  The guiding authority in this jurisdiction on nuptial agreements is the CFA judgment in SPH v SA [2014] 3 HKLRD 497, in which the Court adopted[18] the principles enunciated in the English Supreme Court in the case of Granatino v Radmacher [2011] 1 AC 534.

125.  In SPH, in the course of referring to Radmacher, the CFA held at [33] :

“In particular, an agreement would carry full weight only if each party had entered into it of his or her own free will, without undue influence or pressure, having all the information material to his or her decision to enter into the agreement and intending that it should be effective to govern the financial consequences of the marriage coming to an end; and the court should give effect to an agreement which was freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement. Enforcement of the agreement could be rendered unfair by the occurrence of contingencies unforeseen at the time of the agreement or where, in the circumstances prevailing at the time of separation, one partner would be left in a predicament of real need while the other enjoyed a sufficiency.”

[emphasis added]

126.  Although there is no serous dispute on legal principles between the parties, they differ strongly on the standard which the Husband has to meet in order to provide for the Wife.  On one hand, the Wife says that the needs of herself and the children have to be generously interpreted (there is no dispute that a generous barometer should be used in respect of the needs of the children[19]). Whereas, the Husband maintains that he is only required to meet her real needs.  However, it was said that his Open Proposals had gone further such that the Wife’s reasonable needs can be met by it.

127.  It is thus important that the principles enunciated in Radmacher are carefully considered.  The Supreme Court held :

“2. A court when considering the grant of ancillary relief is not obliged to give effect to nuptial agreements … The parties cannot, by agreement, oust the jurisdiction of the court. The court must, however, give appropriate weight to such an agreement.

3. … Under English law it is the court that is the arbiter of financial arrangements between the parties when it brings a marriage to an end. A prior agreement between husband and wife is only one of the matters to which the court will have regard. …

7. There can be no question of this court altering the principle that it is the court, and not any prior agreement between the parties, that will determine the appropriate ancillary relief when a marriage comes to an end, for that principle is embodied in the legislation. …

(under “Factors detracting from the weight to be accorded to the agreement”)

68. If [a nuptial agreement] is to carry full weight, both the husband and wife must enter into it of their own free will, without undue influence or pressure, and informed of its implications. …

69. … the Court of Appeal was correct in principle to ask whether there was any material lack of disclosure, information or advice. Sound legal advice is obviously desirable, for this will ensure that a party understands the implications of the agreement, and full disclosure of any assets owned by the other party may be necessary to ensure this. …

71. In relation to the circumstances attending the making of the nuptial agreement, this comment of Ormrod LJ in Edgar v Edgar [1980] 1 WLR 1410, 1417, although made about a separation agreement, is pertinent:

‘It is not necessary in this connection to think in formal legal terms, such as misrepresentation or estoppel; all the circumstances as they affect each of two human beings must be considered in the complex relationship of marriage.’

The first question will be whether any of the standard vitiating factors: duress, fraud or misrepresentation, is present. Even if the agreement does not have contractual force, those factors will negate any effect the agreement might otherwise have. But unconscionable conduct such as undue pressure (falling short of duress) will also be likely to eliminate the weight to be attached to the agreement, and other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, would reduce or eliminate it.

72. The court may take into account a party’s emotional state, and what pressures he or she was under to agree. But that again cannot be considered in isolation from what would have happened had he or she not been under those pressures. The circumstances of the parties at the time of the agreement will be relevant. Those will include such matters as their age and maturity, whether either or both had been married or been in long-term relationship before. For such couples their experience of previous relationships may explain the terms of the agreement, and may also show what they foresaw when they entered into the agreement. What may not be easily foreseeable for less mature couples may well be in contemplation of more mature couples. Another important factor may be whether the marriage would have gone ahead without an agreement, or without the terms which had been agreed. This may cut either way.

73. If the terms of the agreement are unfair from the start, this will reduce its weight, although this question will be subsumed in practice in the question of whether the agreement operates unfairly having regard to the circumstances prevailing at the time of the breakdown of the marriage.

(under “Fairness”)

75. White v White [2001] 1 AC 596 and McFarlane v McFarlane [2006] 2 AC 618 establish that the overriding criterion to be applied in ancillary relief proceedings is that of fairness and identify the three strands of need, compensation and sharing that are relevant to the question of what is fair. If an ante-nuptial agreement deals with those matters in a way that the court might adopt absent such an agreement, there is no problem about giving effect to the agreement. The problem arises where the agreement makes provisions that conflict with what the court would otherwise consider to be the requirements of fairness. The fact of the agreement is capable of altering what is fair. It is an important factor to be weighed in the balance. We would advance the following proposition, to be applied in the case of both ante- and post-nuptial agreements, in preference to that suggested by the Board in MacLeod v MacLeod [2010] 1 AC 298:

‘The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.’

(“Autonomy”)

78. The reason why the court should give weight to a nuptial agreement is that there should be respect for individual autonomy. The court should accord respect to the decision of a married couple as to the manner in which their financial affairs should be regulated. …

(“Non-matrimonial property”)

79. Often parties to a marriage will be motivated in concluding a nuptial agreement by a wish to make provision for existing property owned by one or other, or property that one or other anticipates receiving from a third party. The House of Lords in White v White [2001] I AC 596 and McFarlane v McFarlane [2006] 2 AC 618 drew a distinction between such property and matrimonial property accumulated in the course of the marriage. That distinction is particularly significant where the parties make express agreement as to the disposal of such property in the event of the termination of the marriage. There is nothing inherently unfair in such an agreement and there may be good objective justification for it, such as obligations towards existing family members. …

(“Future circumstances”)

80. Where the ante-nuptial agreement attempts to address the contingencies, unknown and often unforeseen, of the couple’s future relationship there is more scope for what happens to them over the years to make it unfair to hold them to their agreement. The circumstances of the parties often change over time in ways or to an extent which either cannot be or simply was not envisaged. The longer the marriage has lasted, the more likely it is that this will be the case. Once again we quote from the judgment of Rix LJ, at para 73:

‘… I have in mind … that a pre-nuptial agreement is intended to look forward over the whole period of a marriage to the possibility of its ultimate failure and divorce: and thus it is potentially a longer lasting agreement than almost any other …. Over the potential many decades of a marriage it is impossible to cater for the myriad different circumstances which may await its parties. Thorpe LJ has mentioned the very relevant case of a second marriage between mature adults perhaps each with children of their own by their first marriages. However, equally or more typical will be the marriage of young persons, perhaps not yet adults, for whom the future is an entirely open book. If in such a case a pre-nuptial agreement should provide for no recovery by each spouse from the other in the event of divorce, and the marriage should see the formation of a fortune which each spouse had played an equal role in their different ways in creating, but the fortune was in the hands for the most part of one spouse rather than the other, would it be right to give the same weight to their early agreement as in another perhaps very different example?’ The answer to this question is, in the individual case, likely to be “no”.

81. Of the three strands identified in White v White [2001] I AC 596 and McFarlane v McFarlan [2006] 2 AC 618, it is the first two, needs and compensation, which can most readily render it unfair to hold the parties to an ante-nuptial agreement. The parties are unlikely to have intended that their ante-nuptial agreement should result, in the event of the marriage breaking up, in one partner being left in a predicament of real need, while the other enjoys a sufficiency or more, and such a result is likely to render it unfair to hold the parties to their agreement. Equally if the devotion of one partner to looking after the family and the home has left the other free to accumulate wealth, it is likely to be unfair to hold the parties to an agreement that entitles the latter to retain all that he or she has earned.

82. Where, however, these considerations do not apply and each party is in a position to meet his or her needs, fairness may well not require a departure from their agreement as to the regulation of their financial affairs in the circumstances that have come to pass.  Thus it is in relation to the third strand, sharing, that the court will be most likely to make an order in the terms of the nuptial agreement in place of the order that it would otherwise have made.”

[emphasis added]

128.  It should be noted that there was a variation in the formulation of the test proposed by the majority of the Court and the dissenting judgment of Baroness Hale JSC at [169] :

“It seems to me clear that the guiding principle in White v White … is indeed fairness: but it is fairness in the light of the actual and foreseeable circumstances at the time when the court comes to make its order. Those circumstances include any marital agreement made between the parties, the circumstances in which that agreement was made, and the events which have happened since then. The test to be applied to such an agreement, it seems to me, should be this: “Did each party freely enter into an agreement, intending it to have legal effect and with a full appreciation of its implications? If so, in the circumstances as they now are, would it be fair to hold them to their agreement?” That is very similar to the test proposed by the majority, but it seeks to avoid the “impermissible judicial gloss” of a presumption or starting point, while mitigating the rigours of the MacLeod v Macleod test in an appropriate case. … It may well be that Lord Mance is correct in his view that the difference between my formulation and that of the majority is unlikely to be important in practice. I would prefer not to take the risk.”

[emphasis added]

129.  At [129], Lord Mance JSC expressed the view that the difference between the tests was unlikely to be significant in practice :

“… The majority (para 75) and Baroness Hale JSC (para 169) both accept the overriding criterion or guiding principle for exercise of the statutory discretion as being one of fairness. But they suggest differently worded tests for approaching this exercise where there has been an ante-nuptial agreement. I cannot think the difference in wording likely to be important in practice. It appears to relate primarily to the starting point or onus, when feeding into the discretionary exercise the circumstances as they currently appear compared with those that existed or were contemplated at the date of the ante-nuptial agreement. ... My own inclination, in agreement with the majority, is that this is how the application of the overriding criterion should be approached. Given an ante-nuptial agreement, made freely and with full appreciation of the circumstances, it is natural in the first instance to ask whether there is anything in the circumstances as they now appear to make it unfair to give effect to the agreement. But this ultimate question remains on any view what is fair, and its starting point or onus is, as I have said, unlikely to matter once all the facts are before the court.”

130.  I pause here to summarise in very simple terms the task for the court where there exists an unvitiated nuptial agreement the application of which may conflict with the court’s decision in its absence. The overriding consideration remains that of fairness.  An unvitiated nuptial agreement is one of the circumstances to be considered in arriving at a fair distribution of assets.  The court will have to assess its weight.  In that assessment, needs and compensation would be important, whilst sharing less so.

131.  This court is of course alive to the test adumbrated in [75] of Radmacher, which suggested a starting point or onus.  That is not a relevant consideration in this case because the Wife has been entirely dependent on the Husband for financial support since she became a full-time home-maker.  Further, as opined by Lord Mance JSC, there is little practical difference in the application of the 2 tests propounded in Radmacher.

The metric for needs

132.  This court had been taken by Mr Nagpal to a number of post Radmacher first instance English authorities[20] which suggested that in the context of an unvitiated nuptial agreement the court should only make an award to alleviate the payee from real need[21].

133.  The term “real need” can be traced to [81] of Radmacher (see above) under the heading “Future circumstances”[22].  In the sentence in which the term appeared, the Court was giving an example of future circumstances which were not intended by the parties at the time when they entered into the nuptial agreement.  With great respect, when the judgment is read as a whole, I do not see that it was intended to prescribe any particular metric with which to measure needs.  On the contrary, the task of the court is to arrive at a fair result after taking into account all the circumstances of the case.  In particular, the court is not to disregard the compensation strand (Radmacher, [81]).  I believe that the approach of the court is a nuanced one, depending on the facts presented before it.  I propose to approach the issue of needs with reasonableness as the guide. 

134.  I note that in WW, [53] (see footnote 20 above), the learned Deputy Judge agreed with a nuanced approach to the assessment of needs :

“The level at which a party’s needs should be assessed, if they are not met by an agreement which might otherwise be binding upon them, must surely depend upon all of the circumstances of the case, amongst which the fact of the agreement may feature prominently as a depressing factor. But each case will be different.”

135.  I find further support in a very recent judgment of Mostyn J, Anil Burak Ipekci v Morgan Alexandra Mcconnell [2019] EWFC 19 (4 April 2019), where the learned Judged held at [27] :

“I have no hesitation in deciding on the facts of the case before me that it would be wholly unfair to hold the husband to the agreement that he signed. This is for the following reasons:

…

iv) The agreement does not meet any needs of the husband. I do not take the language used by the Supreme Court, namely “predicament of read need” as signifying that needs when assessed in circumstances where there is a valid prenuptial agreement in play should be markedly less than needs assessed in ordinary circumstances. If you have reasonable needs which you cannot meet from your own resources, then you are in a predicament. Those needs are real needs.”

[emphasis added]

136.  Finally, I do not believe that it is particularly helpful to debate how needs ought to be assessed in this case when the task is to arrive at a fair distribution of assets taking into account the PNA, and needs is only 1 of the 3 strands which the court has to consider.

The weight of the PNA

137.  I do not believe that the law requires the court to quantify the amount of weight to be attached to an unvitiated nuptial agreement.  In this case, it would not be right to attach no weight to the PNA.  On the other hand, it would be wrong to place great weight on it because it would be unfair to do so. 

138.  The couple were young at the time of entering the PNA.  The circumstances had changed in a way which they did not anticipate.  In particular, the financial landscape at the time of breakdown of marriage was vastly different.  The advancement of the family’s standard of living had much to do with the sacrifice of the Wife.  She is now left in a much disadvantaged position having given up the opportunity to develop her career for the sake of the family.  It is simply wrong for her to be held to the terms of the PNA whilst the Husband got to keep the fruit of her sacrifice. 

139.  However, this court shall have regard to the PNA where it is not unfair to do so.  I bear in mind also the Husband’s position that the balance of probabilities is that the Wife would not have developed a career of a high flyer in light of her level of education and experience.

Standard of living

140.  S. 7(1)(c) of the Ordinance mandates the court to consider the standard of living of the family prior to the breakdown of marriage.  This issue presents a challenge in that the family was living in US until the middle of 2013.  The marital relationship was on the downhill since the move to Hong Kong culminating in the Wife’s Petition in April 2014.  The Husband did not agree to a permanent move by the Wife and children to Hong Kong.  The situation gives rise to the following questions: (a) how far the family’s standard of living in the US can realistically be taken into account for the present purpose, eg, the House had an area of 10,000 sq ft and the family had the use of a private airplane owned by one of the ABC companies; and (b) how far should the Husband be responsible for the cost of living in Hong Kong, one of the most expensive cities.

141.  In endeavouring to reach a fair result, this court shall be guided by reasonableness and these questions would be borne in mind. 

Non-matrimonial property

142.  The Husband seeks to rely on Radmacher, [79] and Luckwell (see footnote 20 above), [134]-[137] in support of the argument that the shares in the ABC companies were non-matrimonial properties.

143.  I do not believe that the argument can apply to the shares he obtained after marriage.  The Father acknowledged that he earned those shares.  I believe that the Husband must have shared that view strongly bearing in mind that the Sale was very much the fruit of his hard work. 

The Report

144.  The Husband disagrees with the rate of return adopted by the SJE (0.78% after inflation) as too conservative.  Mr Nagpal advocated the adoption of the rate used in England and Wales (3.75% after inflation).

145.  The SJE was invited by the Husband to consider the E&W rate.  He disagreed with it and had provided his reasons for doing so.  The SJE was not required to give evidence at the hearing.  There is no sufficient ground for the court to disagree with his reasons and adopt the E&W rate.

146.  In any case, I do believe that the Duxbury calculation is of great importance in this case because, as submitted by Ms Yip, it is only relied upon by the Wife as a scale to gauge the reasonableness or otherwise of her claim.

Assessing the children’s financial needs

147.  Mr Nagpal had helpfully produced 2 tables dealing with the expenses of children (“Children’s Expenses (Revised)”) and the Wife (“Wife Expenses”).  I shall work on those tables.

148.  I start with a few general points.  Firstly, this court shall adopt a reasonably board-brush approach on matters of expenses (see WYSL, [139]-[140]).  Secondly, it is fair to say that the expenses claimed are large.  Whilst there is no reason to believe that the Wife had inflated the figures for litigation purpose, it is right to say that with a large overall award there would be scope for adjustments of various expenditures to meet the circumstances encountered. 

149.  Thirdly, the Husband had offered an undertaking to meet various expenses of the children.  I am not inclined to accept such undertaking unless the Wife had indicated her agreement.  The reasons being: (a) the Husband had not been a diligent payer in the past; (b) as much as it is possible, the court should thrive to achieve a clean break between the parties; and (c) the relationship between them are strained (they had rarely spoken to each other after the Petition), thus keeping the undertaking to the minimum would avoid further straining the relationship.

150.  The children’s share of the General Expenses is agreed (the accommodation need would be separately addressed) at HK$21,121 each.

151.  Under Children’s Expenses (I need only deal with the contentious items), the Wife is agreeable to an undertaking by the Husband to pay their school fees.  The expenses for the school trips will be billed by the school.  I see no reason to treat them differently, and the undertaking should cover those trip expenses.

152.  As regards the extra tuition fees, transport to school and the medical expenses of HK$10,105 in total, I see no reason not to accept them in full. 

153.  In respect of the extra-curricular activities, entertainment/ presents, holidays and other transportation (taxi).  The sums claimed are not insubstantial, they are not basic necessities and therefore there must be room of adjustment.  I accept the position of the Husband with the exception that X’s guitar expenses should be part of the award instead of the subject matter of an undertaking.  Further, I note that it is not in dispute that the Husband should undertake to book and buy air-tickets for 4 round trips per year at economy class fares for each child, including escort service if necessary for Y before he attained 18, for their visits to the US.

154.  The total Children’s Expenses are HK$86,665, and HK$43,332.50 each.  The aggregate of Children’s Expenses and their share of the General Expenses are HK$64,453.50 each per month.  I shall round that up to HK$65,000.

155.  X will pursue his studies in the US this September, and the Wife is agreeable to an undertaking by the Husband to be fully responsible for paying X’s college fees and all living and education expenses in the US. 

156.  The payment to the Wife for X’s benefit until he finishes full-time education to cover the time when he will be in Hong Kong is agreed at 25% of the total expenses, ie, HK$16,250.

157.  In addition, the Husband had agreed to meet the cost of Y’s orthodontic treatment of HK$80,000, which I understand to be a one-off payment.  

Wife’s financial needs

158.  The Wife’s share of the General Expenses is agreed at HK$21,121. 

159.  As regards the 3 disputed items of personal expenses, I accept the Husband’s position for meals out of home, and those of the Wife in respect of medical/dental expenses as well as insurance premia. Her total Personal Expenses are HK$57,603.

160.  The Wife’s total expenses are HK$78,724 per month.  I round it up to HK$79,000.

Accommodation

161.  The Husband’s offer to pay the rent of OO until Y ceases full-time secondary education in Hong Kong, a total sum of HK$3.7 million if paid within 2 months of the order to be made by this court[23], is reasonable and should be approved.

162.  Thereafter, according to the Husband’s 2^nd Open Proposal, the Wife should have a housing fund of HK$26.613 million (made up of a lump sum payment of HK$7.215m representing 50% of the interest in the House; the value of RR, HK$5.819m; transfer to the Wife of a Hong Kong property in the name of the Husband (“MM”), HK$7.89m; and another lump sum of HK$5.689m), subject to a charge in favour of the Husband in the sum of HK$12.266m representing MM and the 2^nd lump sum payment.  I shall come back to the charge below.

163.  On the Wife’s part, it was said that she will require housing assessed at HK$35 million inclusive of all related tax and expenses. 

164.  I agree with Mr Nagpal that in this case the court should not lose sight of the fact that the House in which the Husband continues to reside is worth only HK$14.43 million.  In coming to a fair decision, the court should balance the interest of both the payer and the payee. 

165.  Unfortunately, the Wife did not adduce any evidence on the kind of properties which can be acquired at HK$35 million (inclusive) because of her position that it would be reasonable for her to stay at OO indefinitely.  A property there will cost no less than HK$40 million to buy.  I am unable to agree with the Wife that it would be fair to require the Husband to fund an indefinite stay by her at OO, which admittedly is located at one of the most expensive areas in Hong Kong. 

166.  There is evidence adduced by the Husband of properties in the HK$30 million region and HK$20 million region.  Mr Nagpal had asked the court to infer from such evidence that a property in the region of HK$25 million would be suitable for the Wife given that X will be leaving in September, and the likelihood is that Y will follow his brother’s footstep. Such a property can accommodate the children when they return on holiday.  I agree. 

167.  However, Ms Yip had pointed out that, judging by the evidence before the court, the available choice is likely to be an older property which will require higher renovation expenses.  I accept Ms Yip’s calculation that to acquire a HK$25 million property will require the payment of tax and expenses of HK$2.3125 million[24].  I round up the total to HK$27.5 million.

168.  In respect of the charge proposed by the Husband against the property to be acquired by the Wife, which will become exercisable upon the earlier of the Wife’s remarriage[25], death or voluntary vacation of the property for a continuous period in excess of 12 months, Mr Nagpal submitted that there is a consistent theme in the outcome of various English authorities, including and since Radmacher, of the payee having to return capital to the payer.  There is an obvious fairness in a payee having to return capital when it is not needed if that party has been provided capital to meet his or her needs, in circumstances where that capital is in excess of what was agreed in an unvitiated nuptial agreement.

169.  I am alive to the fact that the Wife had given up her career.  Had it not been the case, she might have accumulated same capital of her own (see also para 139 above).  On the other hand, she will be provided with an income fund (see below).  On balance, I agree with Mr Nagpal that there is nothing in the facts of this case which militates in favour of the Wife receiving capital outright over and above that which she is entitled to, in circumstances where it was agreed that she would not have claim to such capital. I therefore agree with the chargeback in favour of the Husband. 

170.  On the basis of a housing fund of HK$27.5 million, a charge in the sum of HK$13 million in favour of the Husband is, in my view, fair.  In the event that the Wife decides to live in the US, she will have HK$14.5 million at her disposal from the housing fund after paying off the charge.  She will be able to buy a property in the US which is comparable to the House (see para 164 above). 

Income fund for the Wife

171.  I have already covered the financial needs of the children and the accommodation needs of both the children and the Wife. The only remaining issue is the size of the income fund for the Wife.

172.  The Husband had offered an income fund of HK$20 million, whereas the Wife’s is asking for HK$35 million.

173.  I have assessed the Wife’s total monthly expenses at HK$79,000.  Viewed against the Duxbury calculation, it would require just over HK$35 million to fund a lifetime monthly income of HK$75,000, but just under HK$30 million with a step down of 25% when the Wife reaches age 65. 

174.  First of all, it is not unreasonable for older people to have fewer or lower expenses.  Secondly, it would not be fair to ignore the Wife’s earning capacity (see W v W [2005] 1 HKFLR 53, [39]). Thirdly, the court should not lose sight of the fact that under the PNA the Wife would only be entitled to 5 years of maintenance.  Fourthly, the maintenance for the children would indirectly provide a cushion for the Wife (see Radmacher, [119]). 

175.  Taking all relevant matters into consideration, the fair balance is to provide the Wife with an income fund of HK$30 million. I should make it clear that I disagree with the Husband that the Wife should not be provided with a whole life award because she is handicapped with a reduced earning capacity for the rest of her life.

176.  To effect a net balance of HK$57.5 million on the Wife’s side, an allocation from the Husband’s side should be: HK$57.5m – HK$1,532,152 (being the Wife’s net assets[26]) = HK$55,967,848.  In addition, there should be a payment of HK$3.7 million for the rent of OO (see para 161 above). 

177.  The Wife asks that the allocation be met by: (1) a transfer of MM from the Husband to her (HK$7.89m); and (2) a lump sum payment of the balance.  The transfer of MM is not controversial, but it is not clear whether the Wife will maintain this position in light of this judgment.  There is also a question of when the lump sum payment should be made.  Further, the terms of the charge will have to be agreed by the parties or resolved by the court.

Disposition

178.  I dismiss the s. 17 Application.

179.  As indicated at the trial, the parties should endeavour to agree the terms of the Order to be made herein.  They should do so within 21 days from today, failing which a succinct joint letter be sent to the court identifying the points of disagreement and the respective position of the parties.  Any unreasonableness may be penalised in costs.  If the scope of disagreement is limited, the matter may then be resolved on paper by the court.  Otherwise, a 30 minute hearing should be fixed, and for which skeleton arguments are to be restricted to no more than 3 pages.

180.  I expect the 3 outstanding matters raised by the Husband, namely, joint US tax returns, discharging him as a mortgage guarantor and resignation by the Wife as trustee of the children’s trust be resolved in a consensual manner as indicated by the parties.

181.  Once the liabilities of the Wife are discharged by the Husband as he had agreed, all her costs would have been paid by him.  I make no order as to costs (including all costs reserved) on that basis.

182.  I am grateful to counsel for their assistance.