LCC v. LTLA

HCMC 4/2019

[2022] HKCFI 1922

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO 4 OF 2019

(Transferred from FCMC No 10000 of 2017)

____________

BETWEEN

____________

_______________

J U D G M E N T

_______________

A. INTRODUCTION

1.  This is the trial on ancillary relief. Despite the divorce, the Court shall refer to the Petitioner as the Wife and the Respondent as the Husband for the sake of convenience, with no disrespect to the parties.

2.  The agreed assets are in the region of $500 million. The core dispute turns on:

(1) Whether 3 companies running business in frozen meat, cold storage and a chain of restaurants are matrimonial assets. The Wife says yes. The Husband says no. He says that 2 companies were pre-marital and became the springboard for the third.

(2) Whether gambling loss of the Husband since separation in the sum of $96.59 million should be added back to the matrimonial pot (“add-back order”). The Wife says yes, because gambling was wanton dissipation of assets. The Husband says no because gambling has been his hobby. It yielded huge gains and the Wife shared in the winnings and perks. She condoned his gambling. The Husband also disputes the amount of the gambling loss.

(3) Whether the loans which the Husband has borrowed from the companies in the sum of $90 million (less $36 million) should be shared between the parties. After trial, the Wife treats the sum of $54 million as subsumed into the gambling loss. The Husband says that the money has been spent on the family and business. He wants the Wife to share in the loans.

(4) Whether 2 Taiwan properties transferred by the Wife to the Son and money in the joint names account of the Wife and Daughter should be added back to the matrimonial pot. The Wife says that the Taiwan properties were her gifts to the Son and the money belongs to the Daughter. The Husband does not agree.

3.  The Wife seeks to apply the sharing principle and asks for a lump sum order of $300,000,000. The Husband agrees to bear the task of monetizing the assets. Whilst not objecting to a lump sum order, he claims that the Court should take into account his “unmatched contribution” in bringing in huge wealth from his father’s family from the start of the marriage and in building up the businesses. Those are non-matrimonial assets taking up about 20% of the pool of assets. There is no ready cash to meet the lump sum order and there is risk of litigation raised by the Husband’s brother A (“Brother”) who owns 50% of 2 businesses. The Husband thus asks for an order to divide the assets between him and the Wife in the ratio of 60:40, with 2 years to pay, taking into account the risk, time and expenses needed.

B. THE FACTS

4.  Unless otherwise specified, the facts set out in this Section are undisputed or indisputable, on which I shall base my judgment.

5.  The parties started courtship in around December 1980. They were married on 21 April 1984. On the Husband’s case, they have lived in separate bedrooms since 1995 but did not divorce because the children were young. However, the parties have maintained, even on its face, the appearance of a marriage and lived at the matrimonial home until the Husband moved out in 2014. By the time of closing submission, there is no dispute that this was a marriage of 30 years.

6.  The parties have 2 adult children, a Daughter and a Son, aged 35 and 34 respectively.

7.  The Wife came from Taiwan before the marriage. She had not studied beyond middle secondary school. At the age of 18, she became a film actress. She was impoverished and had to go to the Husband’s home for basics such as hot water for bath. Her contract with the movie producer was terminated early after she fell off a horse when shooting publicity photos and was hospitalized.

8.  The Husband grew up in a wealthy family with a high standard of living. His father was a successful businessman. The Husband learnt driving without having to leave the gate of his home.

9.  The Husband worked in 2 companies set up by his father:

(1) WEL which was in the business of cold storage, frozen meat, chemicals and steel pipes, and owned warehouses; and

(2) MIL which was in the frozen meat distribution business.

These 2 companies were set up in the 1960s and are now owned 50:50 by the Husband and his Brother. At their peak, these companies sold cold meat to 3,000 outlets in Hong Kong.

10.  The Wife has been a full-time housewife whilst the Husband remained “employed” by MIL. The Husband used money generated from his interests in the frozen meat business for the family and financed the purchase of the matrimonial home.

11.  In 1997, the Asian Financial Crisis hit Hong Kong. The frozen meat business was greatly impaired.

12.  In September 1999, using $370,000 from MIL, the Husband took over a small restaurant in Hung Hom and converted it into a restaurant known as SE (“the Restaurant”). The Restaurant was run by a company of the same name, SEHL, and quickly flourished to over 44 chain restaurants at its peak. It also was a real legend in the restaurant business in Hong Kong. By now, it has dwindled to 2. It was this Restaurant business that the couple was best known for and derived the vast majority of their assets.

13.  The Husband initially invited his Brother to be a shareholder of the Restaurant but the Brother declined. Eventually, the Husband held 50.01% shareholding, the Wife 49.9% and OW (a loyal accountant and employee of the Husband) 0.09% of SEHL.

14.  On discovering the Husband’s extra-marital affair with one of the employees, the Wife started working at the Restaurant. There is dispute as to the extent of the Wife’s contribution. The Wife claims to have actively participated in staff training and management, attended the Restaurants every day to help with chores and serving customers. The Husband and SWM (the previous chief chef of SEHL between 2002 and 2006) deny the Wife’s contribution. SWM described her conduct at the Restaurant as affecting staff morale in a negative way. Her suicide attempt in 2006 after the Husband hired an infamous person gave the business a lot of unwelcome publicity at the time. She so used her position as the boss’ wife to disturb SWM. Later, the Wife had to resign from the companies and the Husband solely managed the Restaurants.

15.  It is not necessary to decide the true extent of the Wife’s involvement given this long marriage. Suffice to say that I accept that she played a part in promoting the Restaurant, using her fame and connections in the entertainment industry, such as with a food critic. She participated in interviews to promote the Restaurant as evidenced by the magazine reports. She was referred to as the “boss lady”. In November 2015, the Husband himself acknowledged the Wife’s contributions to the SEHL business by WhatsApp messages. I also accept that the Husband played the leading role in running the Restaurants.

16.  In running the business, the Husband brought in huge wealth from his Father’s side. The Husband has been using the resources of MIL in terms of staff (who helped to run the Restaurants), living expenses, payment of utilities for his matrimonial home, purchase of expensive cars and car-related expenses, credit card expenses of himself and the Wife and even to pay for the Husband’s gambling expenses. The Husband also has been using the workshops and cold storage space/facilities of WEL.

17.  The expenses for the parties’ expensive lifestyle have been supported by MIL and, later, SEHL. Save for his salaries, the money taken out of those 2 companies was entered in the accounts as “receivables” from the Husband. (The same applies when the Brother takes money out of MIL and WEL.)

18.  Meanwhile, the Husband engaged in extra-marital affairs. He even has a child with one of his mistresses.

19.  The parties separated in 2014. Till now, the Wife has been living on the financial support of the Husband. The Husband continues to be “employed” by MIL. He used to draw a salary of $40,000 each from MIL and SEHL. By the time of the trial, he testified that he only drew a total of $40,000 per month. He has opened a supermarket in Shatin to sell frozen meat.

20.  The Wife petitioned for divorce on 2 August 2017 on the ground of two-year separation. Decree nisi was granted on 10 October 2017.

21.  The Wife claims that right from the start, there has been mingling of the parties’ resources, without ringfencing of any part of the Husband’s assets. The Husband has always used his interests in WEL and MIL to support his family, including purchasing the matrimonial home. SEHL was plainly a family business built up during the marriage. Even if the Husband alone has built up SEHL, his efforts in SEHL all took place during the marriage.

22.  The Wife says that, post-separation, the Husband has incurred a gambling loss of about HK$96.59 million.

23.  The Wife also says that between 2014 and 2020, the Husband has taken out $90 million worth of director’s loans from SEHL. The Wife accepts that $36 million were invested in stocks of Overseas Chinese Banking Corporation Ltd (“OCBC stocks”), but the rest was not accounted for. That $54 million were in addition to $42.1 million he had received in terms of director’s loans, dividends and salary in the same period.

24.  The Wife seeks 50% of the joint assets, being a lump sum of $300,000,000. She requests that the amount be represented by the former matrimonial home at House 15 to be conveyed to her, mortgage free, with the balance of the lump sum in cash, payable in 3 tranches over 18 months. She does not insist on having another house.

25.  The Wife objects to adding back 2 Taiwan properties transferred by her to the Son at a time when she was ill and $2 million in the joint names account which belongs to the Daughter.

26.  The Husband heavily relies on the wealth brought in from his father’s family, principally WEL and MIL, from which SEHL was built. Although he asserts that he, and not the Wife, has been the decision maker in businesses, the Husband does not advance stellar contribution.

27.  The Husband claims to have gambling as a hobby since days of old, condoned by the wife who has enjoyed the winnings and perks. The gambling loss (the amount of which he disputes) should not be added back. Loans have all the while been taken out during the marriage to run the businesses and to support the luxurious lifestyle of the family. The Wife should share in the loans and losses.

28.  The Husband seeks a 60:40 split between him and the Wife. Whilst accepting that there should be a clean break, there is no ready cash to meet a lump sum order. Each party will keep his/her residence as part of the 60:40 split.

(1) The Husband would liquidate the joint companies, paying the creditors, and dividing the net amount as to 60:40 between the Husband and the Wife;

(2) The Wife would cooperate with the Husband to wind up dormant companies, resign as their director, and transfer her shares to the Husband in the most tax efficient manner. The Husband would solely bear the incidence of ancillary expenses; and

(3) OW would be compensated for the loss of value in her shareholding caused by the removal of properties from the joint companies. The liability would be shared 60:40 between the Husband and the Wife.

C. LEGAL PRINCIPLES UNDER SECTION 7 MPPO

29.  In determining the appropriate ancillary relief to be granted to a party, the Court takes into account the factors set out in section 7 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“MPPO”).

30.  In the exercise of its discretion under that section, there are 5 steps to the exercise: LKW v DD (2010) 13 HKCFAR 537, at p 563 Ribeiro PJ:

(1) Step 1: ascertain the financial resources of the parties as at the date of the hearing. At this stage, the Court need not distinguish between matrimonial and non-matrimonial assets (§71);

(2) Step 2: assess the parties’ financial needs (§74);

(3) Step 3: decide whether to apply the sharing principle (§§ 80-82);

(4) Step 4: consider whether there are good reasons to depart from the principle of equal division (§83). Such reasons may include all the matters and circumstances in the case, and the implicit objective of fair distribution of the assets (§84). Examples of such reasons include:

(a) The source of assets, the importance of which will diminish over time (§§92-93);

(b) The duration of the marriage (§§108-109); and

(c) Negative conduct that is “obvious and gross” such that it is inequitable to disregard it (§104).

D. ISSUES

31.  As the wealth of the parties is in the region of at least $500 million, it is agreed that Steps 2 and 3 in LKW v DD do not have to be considered.

32.  Under Step 1, the assets have been identified. They consist mostly of shareholding in companies which, in turn, holds landed properties. The most valuable is SEHL. The dispute is on how to value the insolvent companies and whether assets given by the Wife to the Children should be added back to the matrimonial pot.

33.  Under Step 4, there are 3 major issues:

(1) Whether any or all of the assets are non-matrimonial in nature (“Matrimonial Property Issue”);

(2) How the Husband’s gambling losses should be reckoned and how much (“Gambling Loss Issue”); and

(3) Whether the HK$90 million loans taken out post-separation from SEHL should be shared between the parties (“Loans Issue”).

34.  Under Step 5, apart from the proper percentage split to apply,

(1) The Husband invites the Court to order certain companies to be liquidated to realize their net value. The Wife queries the Court’s jurisdiction to make such an order;

(2) The Husband does not agree a lump sum to be adopted or, if it is to be adopted, a higher than 50% figure for him to take account of his responsibility to monetize the assets. His concerns are (i) the possibility of the assets being wrongly valued at too high a figure, specifically with regard to the frozen meat stock; (ii) that inter-company loans ought to be taken into account; and (iii) the attitude of his Brother towards realization of companies in which the Brother has interest and the risk of litigation by the Brother; and

(3) The Husband asks for 2 years to pay. The Wife suggests 18 months counting from the last day of trial.

E. CREDIBILITY OF WITNESSES

35.  The Wife, the Husband, OW and SWM gave evidence.

36.  Without disrespect, the Wife was not a sophisticated witness. Despite repeated reminders, she would often digress to irrelevant matters instead of answering questions directly. She was prone to verbosity. However, I find her to be a truthful witness although I also find her negative views of OW to be without evidential foundation. Save where otherwise specified, I accept her evidence.

37.  The Husband was initially credible in his evidence on the businesses until he came to explain the gambling loss and $54 million loan. His oral testimony on 12 October 2021 was particularly unreliable. His Answers to the Wife’s Questionnaires were largely that he could not recall the purpose of certain withdrawals in large amounts. In the witness box, he disowned his Answers, until he was shown that he had signed a statement of truth.

38.  Whilst under cross-examination, the Husband prepared Exhibits R1, R2 and R4 to explain his gambling loss and loans. Exhibit R3 was prepared by his current solicitors, setting out significant sums and asking the Husband to prepare answers for cross-examination, but he did not do so. As shall be demonstrated, those explanations were not supported by documents, some were double counted and some incredible. The Husband was completely shattered under cross-examination on those Exhibits.

39.  When it came to gambling loss, the Husband kept asking Mr Man SC, the Wife’s counsel, to refer to OW. It transpired that the deposits and withdrawals relating to gambling were in the Husband’s personal bank account of which OW had no knowledge of.

40.  It was quite apparent that the Husband was making up evidence as he went along. Save where otherwise specified, I accept his evidence on how the businesses were run but not on the Gambling Loss Issue and Loans Issue.

41.  OW was a frank witness and a loyal employee to the Husband for 40 years. However, despite §51 of her witness statement that she would “exercise independent judgment and observe her fiduciary duties owed to the company as a director”, she has plainly done the opposite. For example, she regarded SEHL as the Husband’s and would allow him to withdraw millions of dollars without ascertaining the purposes, well knowing that part of the money would be used for gambling. On the other hand, despite having 49% in SEHL, the Wife had to obtain approval of the Husband before she could withdraw money from the company, according to OW. I would rely on OW’s evidence only where it was supported by documentary evidence.

42.  SWM gave evidence as to how little the contribution by the Wife but great adverse impact on the Restaurant business was. However, with the Husband’s abandonment of the stellar contribution argument, SWM’s evidence (which I accept) carried little weight.

F. STEP 1 – IDENTIFYING THE ASSETS

43.  The agreed Schedule of Joint Assets and Liabilities shows the net worth of the assets to be about $500 million (on the Husband’s version). There is no dispute that the corporate group has to be liquidated and valuation is on that basis. The disputes concern valuation of Insolvent Companies, sale of the frozen meat and add back of assets which the Wife gave to the Children.

F1. Valuation of Insolvent Companies

44.  The Insolvent Companies are PJL, GLIDL, SEL, GAPHL, MIL and MHL. Their major creditor is SEHL. The total amount due to SEHL is over $104 million.

45.  The Wife suggests that the value of the Insolvent Companies should be written down to zero, with SEHL writing off receivables of solvent companies from those Insolvent Companies.

46.  The Husband suggests that the Wife’s approach is an over simplification of the matter. Some of the companies (eg GLIDL, MFL, PWIL) have provided their landed properties as security for bank loans drawn in SEHL’s favour in exchange for inter-company loans from SEHL. The outstanding loans owed to SEHL far exceed its assets. SEHL and the Husband (under personal guarantees) will remain liable for the bank loans. Just the loans of WEL are already $130 million What remains to be done is far more complicated than simply writing down debts to zero. Mr Todd, the Husband’s counsel, suggests writing off $56 million due to SEHL to zero instead and the loss should be shared between the Husband and the Wife in the ratio of 60:40.

47.  In principle, if the liabilities of a company exceed its assets, the shareholders should not be liable for the debts. As the companies are going to be liquidated, I agree with Mr Man SC’s submission that the parties’ interest in Insolvent Companies should be valued at “nil”.

48.  In respect of SEHL, the account receivables from the Insolvent Companies should be written off, as set out in the Annex to Man SC’s closing submission. The Husband has personal guarantees in respect of bank loans borrowed by WEL and SEHL. Neither of these 2 companies are insolvent and no adjustment to their valuation need to be made. I am satisfied that the suggested approach of Mr Man SC is correct.

49.  This issue actually has little impact on the undisputed assets worth $500 million. Comparing the Annex of Mr Man SC to the Joint Schedule of Assets and Liabilities, the difference in the Wife’s NAV in SEHL is less than $100,000. In view of the size of the assets, it is not worth dwelling further into this issue.

F2. Valuation of frozen meat stock

50.  Mr Todd submits that the stock of frozen meat should be dealt with on an “as sold” basis, with the proceeds split between the parties. That is because some of the meat has been kept in stock since 2020, some as far back as 2005. There is a real risk that the full value of $17,083,177.31 cannot be recovered. If the Wife thinks otherwise, she can have the stock as part of her award.

51.  With respect, any difficulty with marketing the frozen meat stock is something that the valuer should have been informed of before the valuation. It is too late now to question the agreed value.

52.  I do consider, however, that liquidation of companies and selling the frozen meat can be a cumbersome process. I will come back to this in Step 5.

F3. Add back of money in the Daughter’s joint account with the Wife

53.  The Husband seeks to add back monies in 2 HSBC accounts:

(1) A savings account held in the names of the Daughter and the Wife (“Joint Names Account”), holding $367,819.09; and

(2) A consolidated account holding $2,543,620.60 (“Investment Account”), $2 million of which were transferred from the Joint Names Account.

54.  On the evidence, the earliest entries in the Joint Names Account was in 2017 (post-separation) when the balance was already over $1.1 million. There followed some 6-digit deposits from time to time until the balance accumulated to over $2 million. The Wife explained how the Joint Names Account was opened when the Daughter was aged 15 and did not have much money. She had given $500,000 to the Daughter and another $500,000 to the Son on one occasion. The Daughter got married and got money as gifts. The Wife chipped in some money of her own because an amount over RMB1 million would attract more interest. The Wife did investment on behalf of the Daughter.

55.  The money has been freely moved between the Joint Names Account and the Wife’s sole-name account. On 21 October 2020, the Wife transferred $2 million from the Joint Names Account to the Investment Account in order to purchase RMB, but the purchase was eventually not done. The money still belonged to the Daughter.

56.  Although the Wife was not exact as to dates and numbers, I am satisfied from her natural narration of events that she had told the truth about the money belonging to the Daughter. The Wife merely invested on her behalf despite the Daughter being already 35 years old. I decline to make any add-back order in respect of the 2 HSBC accounts.

F4. Add back of the Taiwan Properties transferred to the Son

57.  On 20 January 2015, the Wife transferred 2 Taiwan Properties she had previously purchased from her sister to the Son. According to the Wife, the transfers were made as gifts at a time when she realized that she was in poor health. She did not consider herself as retaining beneficial ownership in those Properties. The Taiwan Properties are valued at cost, at HK$2.52 million and HK$4.2 million.

58.  There appears to be no sign of the Son exercising ownership or occupation of the Taiwan Properties. He does not live in Taiwan and does not have a bank account there. To the contrary, by the end of 2017, the Wife was still the only person paying for the outgoings for the Taiwan Properties. If she was not there, her sister would pay (even the insurance) for the Wife. It was the Wife who has used one of the Properties when she was in Taiwan. It was she who collected the rent and did not just distribute it to the Son but also shared it with herself and the Daughter. She considered that it was similar to giving them pocket money and the calculation would not be very precise.

59.  I find that it was more an informal arrangement between mother and son, rather than the Wife retaining for herself beneficial ownership in the Taiwan Properties.

60.  Further, given the financial background of the parties, it is not surprising that the Wife would make gifts of property to the Son. The Husband himself admitted under cross-examination that he bought an apartment for $3.25 million for the Son and a diamond worth $255,000 on his evidence for the Son and Rolex watches for the Children. I do not think either party made the gifts to defeat the other’s claim for ancillary relief even though the gifts were made post-separation.

61.  I decline to make an add back order in respect of the Taiwan Properties.

G. MATRIMONIAL PROPERTY ISSUE IN STEP 4

G1(1). Legal principles on distinguishing between matrimonial and non-matrimonial assets

62.  A party who asserts that assets are non-matrimonial must prove it by clear evidence that does not require the Court to engage in a sort of detailed forensic analyses: Christoforou v Christoforou [2018] 1 FLR 1090, Moylan J, at §§77 & 137; N v F (Financial Orders - Pre-Acquired Wealth) [2011] 2 FLR 533, Mostyn J, at §24.

63.  There is no reason to limit the form or scope of the evidence to documentary evidence. The normal evidential rules apply. The Court will make such factual decisions as the evidence enables it to make, including drawing of inferences if such are warranted. If the evidence establishes a clear dividing line between matrimonial and non-matrimonial property, the court will obviously apply that differentiation at the next, discretionary stage. If, however, at the other end of the spectrum, there is a complicated continuum, it would be neither proportionate nor feasible to seek to determine a clear line. See Hart v Hart [2018] Fam 93, §§91-94, Moylan LJ.

64.  Assets independently acquired (before the marriage from a source wholly external to the marriage, eg by gift or inheritance) and unilateral assets (derived from a business or investment conducted solely by one party) may constitute non-matrimonial assets. Courts may depart from equal sharing to reflect one party’s stronger call on those assets. See LKW v DD (2010) 13 HKCFAR 537 at §§89-98, Ribeiro PJ; PW v PPTW [2015] HKFLR 213 at §51, Kwan JA (as she then was).

65.  The duration of the marriage and the time that the wealth has been enjoyed by the parties are relevant. So too are their standard of living and the extent to which it has been afforded by and enhanced by drawing down on the added wealth. The way the property was preserved, enhanced, or depleted are factors to take into account. The more and the longer that wealth has been enjoyed, the less fair it is that it should be ringfenced and excluded from distribution in such a way as to render it unavailable to meet the claimant’s financial needs generated by the relationship. See PW v PPTW, at §58(8), following Robson v Robson [2011] 1 FLR 751, at §43(8), CA.

66.  At PW v PPTW, §80, following K v L [2012] 1 WLR 306, §18, there are 3 non-exhaustive examples as to how the time element operates:

“(a) Over time matrimonial property of such value has been acquired as to diminish the significance of the initial contribution by one spouse of non-matrimonial property.

(b) Over time the non-matrimonial property initially contributed has been mixed with matrimonial property in circumstances in which the contributor may be said to have accepted that it should be treated as matrimonial property or in which, at any rate, the task of identifying its current value is too difficult.

(c) The contributor of non-matrimonial property has chosen to invest it in the purchase of a matrimonial home which, although vested in his or her sole name, has as in most cases one would expect come over time to be treated by the parties as a central item of matrimonial property.”

67.  The position must even be stronger where inherited or unilateral assets have been used and integrated into a matrimonial business. Examples can be found in PW v PPTW; Christoforou v Christoforou; and WX v HX [2021] EWHC 241 (Fam), summarized below.

68.  In PW v PPTW, the marriage was of 14 years with 2 children. Unilateral assets of the husband included Welton Electronics set up 6 years before marriage and 39.35% of Welton USA’s shares held through Urban Group Limited (“Urban”) 12 years before the marriage. During the marriage, Welton USA made distributions amounting to HK$150 million. Welton Electronics purchased what became 2 floors and 5 van parking spaces (“Chaiwan Property”). Welton Electronics ceased business 13 years into the marriage. Shortly after that, the parties separated and the wife petitioned for divorce. See §§10-18 of the judgment.

69.  In the Court of Appeal, the husband contended that he had kept the above assets ringfenced and wanted the same reflected in the award (see §§38 & 82). Kwan JA rejected the contention because the distributions from the Welton USA were used to maintain the high standard of living of the parties during marriage, cover Welton Electronics’ losses and to repay (through Urban) the mortgage of the Chaiwan Property to prevent that property from being foreclosed. The husband’s business activities through Welton Electronics and the net equity of the Chaiwan Property were inextricably linked. It was held that the case fell within situation (b) of K v L. See §§77 & 81 of the judgment.

70.  In Christoforou v Christoforou, the marriage was of 34 years with two adult children aged 35 and 33 respectively. The parties had no wealth when they got married (§2). During the marriage, the husband set up a company (“CC”) to establish what became a successful property business (§12). The parties’ London properties were held under a company (“DL”). The husband argued, amongst others, that there were non-matrimonial assets as his parents substantially paid for them during the marriage and their contributions formed the genesis of CC (§§16, 75 & 82)

71.  Moylan J rejected the argument and refused to depart from equal sharing on the ground of the assets being non-matrimonial (§145):

(1) The husband said that DL has only become financially independent in the last 6 or 7 years with CC financially contributing towards DL ‘even recently’. If this evidence is correct, it would clearly undermine the husband’s case for categorising these properties as non-marital assets because on no basis can CC be said to be a source external to the marriage.” (at §100)

(2) DL and CC were so mingled that their affairs were operated as one, without regard to what belongs to whom:

“…CC did not charge for managing the properties and [the husband] has always ‘run [his] business and the intercompany arrangements’ with ‘a degree of informality’. All the London commercial properties have become so integrated into the marital business that it is not possible fairly to attribute any weight to any non-marital contributions.” (at §144)

72.  In WX v HX, the marriage was of 33 years with 3 adult children. The husband had inherited substantial pre-marital wealth, which was kept in the “A Trust” with the husband and the children as beneficiaries. The A Trust was firmly ringfenced until 2011, when payments were channelled to the husband from another trust and the money was in turn used to finance the high living standard of the family (§34). Mingling then occurred later in around May 2017, when the husband indirectly loaned the A Trust £9.285 million, so that it could make payments to him, who would in turn pay for family expenses (§36). The parties separated a mere year later in September 2018 (§37). It was held that the entire A Trust with the wealth it contained were non-matrimonial in terms of their provenance, but “they fell in towards the end of this long marriage” despite the mingling for a short span of time (§§143 &145). Roberts J refused to depart from equal sharing with reference to the husband’s pre-marital wealth.

73.  Mr Todd submits that it is not necessary to distinguish matrimonial and non-matrimonial assets. The Court can simply “pluck out of the air” a percentage to reflect the non-matrimonial assets injected into the marriage. He relies on the authority of Hart v Hart, §85-87, Moylan LJ where it was held that the concept of property being either matrimonial or non-matrimonial property is a “legal construct which is not always capable of clear identification”. An asset can be entirely the former, or entirely the latter, or both, in the sense that it can be partly the product of marital endeavour and partly of a source external to the marriage. When property is a combination, it can be artificial even to seek to identify a sharp division because the weight to be given to each type of contribution will not be susceptible of clear reflection in the asset’s value. The exercise is more of an art than a science. Investigation can be extremely expensive and of doubtful utility and costs involved can be disproportionate. One application of principles may be more specific than the other but this will typically reflect the degree of particularity or generality appropriate in the case.

74.  With respect, Mr Todd’s submission needs only to be stated to be dismissed as going against the established authorities cited in this Section. Departure from equal sharing is based on a principled, though not a rigid approach. The Court must make a finding as to existence of non-marital property before departing from equal sharing: WX v HX §§122-125, Roberts J; Christoforou, §77, Moylan J. The outcome may be reflected by a percentage that reflects broad fairness and not necessarily with arithmetical precision: Christoforou, §4, Moylan J.

75.  Further, Hart v Hart was a needs case where the trial judge expressly held that an equal division was unfair. The judge’s inability to give a value to the non-matrimonial assets was due, amongst others, to lack of reliable evidence of the husband’s worth at the time the parties met and the husband’s poor disclosure, patent misinformation and, at times, deliberately obstructive evidence. So the trial judge adopted a multi-faceted approach to determine needs and analyzed mingled assets, the husband’s non-matrimonial assets, the wife’s current assets, plus a share of the assets in trust set up by the husband. (See §§15-18, 20 & 32 of the judgment). The trial judge held that deducting each party’s non-matrimonial wealth from the total wealth and dividing the net figure equally did not found the basis of his decision (§35). The decision was affirmed on appeal and the English Court of Appeal held, amongst others, that the court was not required to adopt a formulaic approach.

76.  Still further, Moylan LJ himself has explained in other cases that Hart v Hart was never meant to dispense with the need to distinguish matrimonial and non-matrimonial properties. In XW v XH (Financial Remedies: Business Assets) [2020] 1 FLR 1015, he says,

“… having regard to the judgment below…I need to make clear that, when I said in Hart v Hart … that the court can ‘undertake a broad evidential assignment’ when there is a ‘complicated continuum’ and ‘leave the specific determination of how the parties’ wealth should be divided to the next stage’, I did not mean that the court need not identify at the next stage, namely quantification of the award, how this factor [ie assets being non-matrimonial in nature] impacted on the award. The ‘court does not have to apply any particular mathematical or other specific methodology… because… there is no ‘single route to determining what assets are marital’. However … ‘the court will have to decide... what award of such lesser percentage than 50% makes fair allowance for the parties’ wealth in part comprising or reflecting the product of non-marital endeavour’. This can be a broad assessment, but when this is the only factor justifying a departure from equal sharing, the percentage division will inevitably make plain the court’s decision … (at §115)

…

Hart v Hart… may also have created confusion when I added…that the court did not have ‘to apply any particular mathematical or other specific methodology’…I was talking about a broad assessment as being a permissible route to the division of the wealth which would be fair and not that the ultimate effect of this determination need not be identified. As I have said above, the answer will be clear when the only issue is what proportion of the parties’ wealth is marital, as it was in Hart. It will not be clear when there are a number of issues as in this case. (at §128)

…

However, when applying the sharing principle, I would suggest that in most cases the court will be able to, and should, make clear at some stage what part of the value of the asset or assets the court has determined is non-marital property. (at §130)

The difficulty with the approach the judge took in this case is that, … sharing applies to the marital wealth and special contribution, as a factor, impacts on the division of the marital wealth and not on what part of the wealth is marital. (§131)”

(underlines added)

G2. Any non-matrimonial assets?

77.  It cannot be disputed that at least for the first 15 years of the marriage, the Husband has brought in the enormous wealth of his family. I accept that MIL and WEL (with 2 industrial properties and 5 car parks acquired before the marriage) were then non-matrimonial companies. The Wife was then able to enjoy the luxury of a housewife.

78.  Business-wise, before the Asian Financial Crisis, MIL was one of the top 3 importers of frozen meat in Hong Kong, selling to 3,000 outlets. The Husband asserts that the success of SEHL was largely attributable to MIL and other related companies, aided by his remarkable contribution and business acumen.

79.  The Restaurant was purchased with seed money from MIL. The Husband did not dispute that the Wife’s sister had provided $1,000,000 at that time. The Wife said it was a gift. The Husband said the sister wanted a better return on interest and that loan had been repaid with interest. I prefer the Husband’s version, for otherwise the sister’s money would not have gone to the Husband at a time of financial crisis.

80.  The initial purpose of setting up SEHL was to promote the frozen meat business of MIL, although some meat (like chicken feet) was not useful to the Restaurants’ business. With WEL and MIL, the Husband was able to import cheap but quality meat, had food processing facilities, cold storage and delivery trucks. As the Husband testified:

“Since start of business of SEHL, everything was free. Office was rent free. 20,000 sq. ft warehouse, rent free. 20,000 sq. ft manufacturing place can use anytime. 150 staff were employed by MIL / WEL but they worked as volunteers for SEHL.

Water, electricity, gas bills, rates, computers etc were all free.

The 10,000 sq. ft odd office did not even have one SEHL staff. All staff were paid by MIL.

Car, petrol, repair and maintenance were all paid by MIL.

Even director housing where I lived was paid by MIL; water electricity, gas bill, petrol, maintenance and repairs, too.”

81.  That was why the Husband insisted that advertisements of the Restaurant should include the brand name of MIL. In the news clippings, the Wife was quoted as saying that the Restaurants were based on frozen meat business which the family had run for 20-30 years. The Restaurant’s success was built on the advantage of being a frozen meat seller. By securing supply of high quality meat at wholesale price, SEHL managed to cut the middleman costs of around 20% and still made a profit of 50-60% on very competitive pricing. The Husband’s interest in food started when he took over his family business since 1974.

82.  Over the years MIL’s business scale has greatly decreased after the Brother was detached from the business and since the launch of SEHL, such that 90% of MIL’s operations were for the benefit of SEHL and only 10% for MIL, according to the Husband. MIL had accumulated a large quantity of stock over the years and it was losing money each year.

83.  OW corroborated the Husband’s case on how MIL contributed to SEHL. I accept her and the Husband’s evidence in these aspects. WEL and MIL were the springboard that led to SEHL’s success. It was not an exaggeration for the Husband to say that he ran the business with his own hard work.

84.  Mr Todd submits that the Wife, at best, had 7 years’ involvement in the running of SEHL’s business from 1999 to 2006. She was a minority shareholder whose shareholding was “valueless”.

85.  In my view, with a marriage of 30 years, the question of actual contribution to SEHL paled into insignificance. Rather, the Wife’s contribution, however little, showed that the parties treated SEHL/the Restaurants as a family business. The Wife’s close to half share in SEHL was the decision of the Husband for which he cannot complain.

86.  Property-wise, on the Husband’s own evidence, SEHL’s group profit was mostly derived from buying and selling properties at his discretion. A number of properties (including the former matrimonial home at Estoril Court) were sold by MIL to SEHL without actual payment of cash but partly booked as loans from the Husband to MIL. Just Estoril Court itself produced a gross profit of $37 million. SEHL had distributed dividends in the sum of about $310,000,000 over the years. The total market value of all properties currently held by SEHL is around HK$386,650,000. I accept the Husband’s evidence.

87.  To sum up, it is the Husband’s case that SEHL has its roots in pre-marital business, such that SEHL was an additional outlet for the products of MIL and WEL. MIL and WEL gave tremendous support crucial to SEHL’s success, which the Husband estimated at $300 million over the years, for which they were not reimbursed. Mr Todd submits that the consequential property investment gain was a continuum of the wealth and resources left to the Husband by his father and a continuation of management, custodian and husbanding of resources which are non-matrimonial in nature.

88.  In my view, whilst the Husband is correct that SEHL’s success has its provenance in MIL and WEL, the present case has strong factors for the sharing principle to apply for the following 5 reasons.

89.  Firstly, this marriage of 30 years is much longer than many of the authorities (except Christoforou and WX v HX) referred to. The significance of what assets have come from where dims out.

90.  Secondly, there are matrimonial assets, to which both parties contributed, of much greater success and value. SEHL was set up during the marriage and operated for over 20 years without the Brother’s involvement. The Husband and the Wife have had almost equal shareholding right from the start. Even on the Husband’s own evidence, he has always thought of SEHL as a family business. So had the Wife (paragraph 86 above). This is limb (a) of K v L (paragraph 66 above).

91.  Thirdly, there was clear mingling of the pre-marital assets with family finance. MIL and WEL had admittedly been “the family’s wallet” for at least 15 years since 1984, until SEHL was established, even on the Husband’s evidence. As SEHL became more successful, it continued to finance the parties’ high standard of living. SEHL purchased the then matrimonial home in Estoril Court from MIL in 2002 and paid for the mortgage, as verified by OW. This is limb (c) of K v L.

92.  Fourthly, there was mingling of pre-marital assets with matrimonial business. This is limb (b) of K v L.

(1) Even Mr Todd accepts in his closing submission that the profit generated from the Restaurant chain was made possible by the wholesale prices of meat that MIL provided to SEHL, free storage of WEL and free provision of many administrative functions. The Husband admitted having taken tremendous advantage of MIL, and having diverted his focus to SEHL, sacrificing MIL’s business. The Brother has complained to the Husband and OW about the free support given by MIL and WEL to the parties.

(2) On the other hand, SEHL had financial contributions to WEL and MIL by making loans to them. By the end of 2014, MIL owed SEHL accumulated debt of HK$74,120,324; WEL owed MIL HK$25,713,495.14. The Husband agreed under cross-examination that if SEHL had called on those loans, WEL and MIL would have to sell their properties.

(3) SEHL has also financially contributed to WEL and MIL by reducing their liabilities. For example, after the Asian Financial Crisis, MIL sold Laguna City and Estoril Court, both subject to mortgages, to SEHL between 2002 and 2003 (at undervalue). When WEL took out a loan from Hang Seng Bank on 17 August 2021, the Husband personally guaranteed the loan to the extent of $130 million, without any corresponding guarantee from the Brother.

(4) The Husband accepted under cross-examination (as corroborated by OW) that there was mutual benefit to the frozen meat business and SEHL, even though the Husband attributed only 10% of the mutual benefit to MIL.

93.  Fifthly, there was integration of the business of SEHL, MIL and WEL. The 3 companies used one another’s business assets for free and with a high degree of informality. As stated by the Husband, because of the business of SEHL, in the first 2-3 years, he increased the personnel in MIL to prepare the menu for SEHL. MIL paid for virtually of all of SEHL’s bills. On the other hand, the frozen meat business used the 7 units in Kwai Tak which SEHL owns through MFL for free.

94.  It is therefore quite clear that MIL, WEL and SEHL have pooled their resources together to run a business. MIL or WEL have never been ringfenced during the marriage. They, together with SEHL, have not been run as the business of the Husband’s father and/or the Brother. Instead, they have been run as that of the Husband and the Wife. This is a situation of 3 matrimonial assets mingling with one another. This is limb (b) of K v L. This finding can be arrived at even on the Husband’s own evidence, without the need for complicated investigation.

95.  Mr Todd submits that since MIL and WEL were the sine qua non (ie without which, nothing) of SEHL, the non-matrimonial elements pervade all 3 companies as a result. I reject the argument as it has the effect of turning plainly matrimonial assets (especially SEHL) into non-matrimonial ones and simply runs contrary to the authorities cited in Section G1 above. I find that all 3 companies are matrimonial assets.

G3. The 60:40 norm

96.  Mr Todd submits that the Court should simply pluck a percentage out of thin air to reflect the non-matrimonial contributions of the Husband. He relies on Hart v Hart. Enclosed with his closing submission is a table of cases which, he submits, show the “norm” of a 60:40 split between husband and wife in favour of the former who brought in pre-marital assets.

97.  Without disrespect to Mr Todd, this is not a personal injuries case where the Court compares injuries suffered in similar cases in order to decide on damages for pain, suffering and loss of amenities. His approach is against the line of authorities in Section G1 above.

98.  In fact, the authorities in his table of cases only show 14 out of 41 cases having a 60:40 split or thereabouts. A number of cases do not depart from the sharing principle. Worse still, Mr Todd has not even begun to show the features in those 14 cases comparable with the present one. I therefore reject the suggestion of a 60:40 norm.

H. GAMBLING LOSS ISSUE IN STEP 4

H1. The parties’ case

99.  To recap, the Wife says that the Husband’s gambling conduct was wanton and reckless dissipation and HK$96.59 million should be added back to the matrimonial pot.

100.  The Husband’s case is that:

(1) The Wife should take him as he is. Gambling has been his pastime since the age of 20. The Wife actively went along with it, shared the winnings and perks, and condoned the gambling, both during the marriage and post-separation.

(2) He does not accept that there is a net loss at all and certainly not in the sum claimed by the Wife. His computation of gambling loss was about $20.687 million (Exhibit R2, item 3).

(3) He invites the Court to deduct the following amounts from the alleged gambling loss:

Table 1

Item in Exhibit R2	Amount (HK$)
6. Cash and cheques deposits from LL and KW as repayment of gambling chips borrowed from H	2,578,000
6A. Various cash and cheques deposits	4,061,689
5. Legal fees of FEL in the I Proceedings	4,400,000
5. Irrecoverable loan to “Shanghai Boy”	12,000,000
4. Repayment of loan by German friend for gambling chips by crediting H’s SEHL current account	1,000,000
TOTAL:	24,039,689

(4) There is dispute as to whether there had been cash transactions and whether cash winnings had been expended on luxury items or daily use. 

H2. Legal principles

101.  The Court has power to take conduct into account when deciding on what order to make on ancillary relief: section 7(1) of MPPO.

102.  However, the Court should “avoid costly, indecent and time-wasting investigations” regarding conduct. Otherwise, it will be faced with a “lengthy, costly and most likely, profitless investigation stretching over days, when allegations and counter-allegations are made by the ex-spouses or spouses.” See LKW v DD, §§99-100.

103.  Only conduct that is both “obvious and gross” that it would be inequitable to disregard should be taken into account: LKW v DD, §§101 &104.

104.  Having considered the authorities cited on both sides, I have distilled the principles as follows:

105.  Firstly, a spouse cannot take advantage of all the good characteristics of his or her partner whilst disavowing the bad ones. One has to take the spouse as he/she finds her or him: MAP v MFP [2015] EWHC 627 (Fam) at §69, Moor J; AP v ALP [2018] EWHC 2758 (Fam) Moor J, §119.

106.  In MAP v MFP, the husband spent £259,559 on rebuilding works (at §89), and £250,000 on prostitutes, cocaine and treating his addiction. The court found it wrong for the wife to take advantage of the husband’s great abilities that enabled him to make such a success of the company while not taking the financial hit from his personality flaw that led to his cocaine addiction and his inability to rid himself of the habit. The husband may have been morally culpable and, overall, irresponsible. However, those expenses were found not be deliberate or wanton dissipation and the wife must take the husband as she finds him (§§86 & 91). The total spending of £509,559 was less than 2.03% of the matrimonial pot worth £25,139,445. No add back order was made.

107.  In AP v ALP (also decided by Moor J and followed MAP v MFP), the investment loss was US$172 million (§18) suffered by the husband who was an entrepreneur. He made enormous sums from 2 companies through risk taking and reinvestment in further businesses. Moor J was of the view that if that had not been the husband’s approach, he would never have made the money in the first place. The husband did not deliberately go out to lose his money. No add-back order was made. It was held that the wife should take the husband as he was (§§118-119).

108.  Secondly, the fact that a spouse has always known from the outset that the other was of a certain character or liked to engage in certain activities, yet continued to condone or indulge the other in such acts would militate against any add-back: AG v VD [2021] EWFC 9, §§105 & 112, Cohen J. In that case, Cohen J refused to add back the wife’s overspending of at least £4.7 million, as the husband knew from the outset that the wife was a big spender, yet he continued to provide her with the funds, had not asked her to account for them at any time and had not sought to limit her expenditure. He was happy to indulge her.

109.  Thirdly, the mere fact that the matrimonial pot has been depleted by unilateral expenses (such as substantial legal costs) and reduces the share of the spouse who has not benefited from such expenditure alone does not justify an add-back order: MKKWH v RKSH [2013] HKFLR 540 (CA) at §4, Lam VP (as he then was). Reattribution of assets by way of add back has to be conducted cautiously by reference only to clear evidence of dissipation: ARAV v VP [2011] 3 HKLRD 759, Cheung JA, §7 and Fok JA (as he then was), §§58-61.

110.  Fourthly, a distinction should be drawn between wanton, reckless or extravagant dissipation on the one hand, and irresponsible expenditure or morally culpable conduct on the other. It is only the former type of conduct that would justify an add back order. See MKKWH v RKSH, §11, Lam VP; ARAV v VP, at §11, Lam VP (as he then was), at §53 & 58, Fok JA (as he then was); Martin v Martin [1976] Fam 335, (at pp.342G-H).

111.  The guiding principle is one of fairness and it depends on global assessment: MKKWH, at §66, Cheung JA; and §4, Lam VP:

“The Court is of course not a court of morals. If the husband chose to be a philanderer and have mistresses and children born from these relationships, it is not for the Court to condemn his behaviour as being immoral. But when these activities caused funds (which would be in the matrimonial pot) to be depleted, then clearly the Court is entitled to ask whether unfairness has been caused to the other spouse because of the non-marital expenditure. If this matter is considered under the ambit of conduct, then one has to examine whether the financial misconduct by way of depletion of the matrimonial funds (and not the husband’s moral conduct in respect of his association with other women) is obvious and gross or inequitable to disregard.” (MKKWH, at §66, Cheung JA)

112.  Fifthly, specifically, on gambling loss, a distinction should be drawn between recreation or entertainment which involves gambling and indulgent gambling.

113.  Playing mahjong with friends, going to horse races from time to time, occasional cruises to play a few games of baccarat are examples of entertainment. It is different from daily gambling or frittering away of substantial sums ending up in gambling debts. It is always a matter of degree: L v T, FCMC 2250/2000, 2 September 2002, HH Judge Bruno Chan, §§104-105.

114.  Indulgent gambling or speculation is an archetypal form of reckless dissipation that would attract an add-back order:

(1) In C v C [1990] 2 HKLR 183, over about a 12-month period after separation, the wife lost more than $1 million in Macau and between $0.5 million to $1 million speculating on futures. The trial judge added back HK$1 million of the Macau losses. In the Court of Appeal, Hunter JA further ordered an add back of $0.4 million of the futures losses (at p.190C).

(2) In Vaughan v Vaughan [2008] 1 FLR 1108, the husband accepted that he had spent large sums of money by gambling or engaging in other improvidence, which the trial judge found to be “profoundly irresponsible”, although “largely attributable to his [serious depressive] illness and no moral culpability attached to it” (at §§13&14). The circuit judge held that the dissipation was a fact without satisfactory explanation (at §28). The Court of Appeal added back the dissipated amount (§46).

(3) In A v A [2018] 7 WLUK 147, the husband accepted that he had lost a considerable portion of over £1 million in spread betting and incurred gambling losses of more than £600,000 (at §48). His Honour Judge Booth held that the husband was entitled to gamble his own money or money lent to him specifically for the purpose. However, most of the money “lost” had been raised by taking further borrowings on the property portfolio and, in the case of the Hyde Project, on the family home. The learned judge attributed to the husband several hundred thousand pounds to lie on his side of the balance sheet (at §§66-68).

115.  Sixthly, mental incapacities of a sufficient severity may render re-attribution unfair: Vaughan v Vaughan, at §28. In that case, following the breakdown of the marriage, the husband suffered from a serious depressive illness, leading to his suspension as a pilot and loss of his pilot’s licence. Despite warning itself that notional reattribution had to be conducted very cautiously by reference only to clear evidence of dissipation with a wanton element (§14), the Court ordered an add back of £100,000 dissipated by the husband.

116.  Seventhly, it is clear from these authorities that where a spouse engages in wanton, reckless or extravagant dissipation, the courts have never expected the other spouse to take that spouse as she/he is.

117.  Eighthly, there are 2 alternative ways to achieve a fair result in dealing with non-marital expenses: by adding back specific sums or by departure from equal distribution. Either way, the ultimate goal is to achieve fairness. See MKKWH v. RKSH, Lam VP, §1; Cheung JA, §54.

H3. Taking the Husband as he is?

118.  I accept that the Husband has been a risk taker – in gambling, property investment and even setting up the Restaurant business.

119.  According to the Husband, he has started gambling in casinos even before meeting the Wife and they had visited Las Vegas together even before the marriage. On the other hand, the Wife says that she only became aware of the Husband’s indulgent gambling in the 10 years leading up to the divorce. Whichever version one takes, the Husband’s gambling has taken place for a significant number of years before the parties’ separation.

120.  Even on the Husband’s own evidence, a contrast could readily be seen between his and the Wife’s gambling behavior.

121.  The Wife has plainly gambled occasionally as entertainment. She would go with the children on the Husband’s gambling trips, to enjoy the good food, hotel and purchase of luxurious goods, using the winnings and perks of the Husband. She brought along family members and friends. Post separation, she has gone on several trips with the Daughter to Macau, organized by the Husband. She and the Daughter spent several thousand or tens of thousands of dollars, using a Paiza Chairman card. The scale of money was far lower than the gambling loss incurred by the Husband.

122.  On the other hand, a gambling loss of $96.59 million (the accuracy of which will be analyzed below) comprised about 20% of the agreed matrimonial pot. Both the Husband and OW have confirmed under oath that the Husband was not a gambling addict, so there was no medical issue involved. The Husband accepted in the witness box that as a gambler, he knew he would always lose, with no way to win in the long run. In my view, the level of gambling loss showed nothing but indulgent gambling.

123.  Mr Todd submits that gambling and making high-risk financial investments are not dissimilar in nature, and there is no reason why gambling should be classified as wanton, reckless, or extravagant expenses when it has produced significant gains as in investment. The Courts have consistently refused to penalize a spouse for having engaged in risk-laden financial activities by notionally adding back or departing from equality in light of the loss. He relies on the authorities of Martin v Martin [1976] Fam 335, English CA; and AP v ALP, Moor J.

124.  With respect, both of these cases are not gambling but investment loss cases. Neither of them support Mr Todd’s proposition. I have referred to AP v ALP in paragraph 107 above.

125.  In Martin v Martin, there was a disastrous fall in agricultural land values in the 12 months following the husband’s investment, which took many reasonably prudent business people by surprise (at p343). Cairns LJ observed that the husband was entering into a transaction on a scale which was far beyond his own resources, by mortgaging the farm built up by the couple, selling the house which they bought for the husband’s mother to live in and raised money on the parties’ insurance business, and using the money on his own business. The Court of Appeal upheld the trial judge’s order that the farm should be given to the wife as its equity was equivalent to those assets which the husband had already benefitted in terms of the loan money and insurance proceeds (at p345C-D); but the lump sum payable to the wife was reduced because of the husband’s lack of means to pay. Although there was no add-back order as such, it was effectively a departure from the equality principle.

H4. Has the Wife condoned the Husband’s gambling?

126.  The parties agreed that the Husband often gave the Wife cash (including winnings) to spend. However, it was never clear from the evidence how much of the spending during the marriage had come from gambling. It was also difficult to conclude from the Wife’s occasional visits to casinos that she condoned the Husband’s gambling.

127.  More material was the Wife’s express disapproval of the Husband’s loans from SEHL to fund his post-separation gambling as evidenced by:

(a) Her WhatsApp message to OW on 15 July 2014 (“2014 WhatsApp Message”); and

(b) A document dated 6 September 2017, signed at the request of the Wife, whereby the Husband acknowledged that up to 4 September 2017, he owed SEHL HK$46,002,112.52; that he would borrow another HK$15,000,000 and he had taken a cheque for HK$3,000,000 on 5 September; and that he promised not to borrow from the company again before his divorce (“2017 Promise”).

128.  The Husband accepted that these documents referred to his gambling, though they did not expressly say so. He explained that it was due to his concern about potential emotional outbursts of the Wife that he signed the 2017 Promise. In his and OW’s views, that document had no effect because the Husband has been the majority owner of SEHL. The business and the family (even till now) have been surviving on bank loans and mortgages of properties. It was impossible to cease borrowing.

129.  I do not accept the Husband’s explanations. The Wife’s has not barred him from borrowing to do business or support the family but only objected to gambling. The Husband’s gambling stakes raised considerably post separation. He considered himself a retired person and chose to enjoy himself in Macau, spending what he earned during marriage. He admitted in the witness box that, before 2014, he had not lost millions per year at casinos or else he would have gone bankrupt.

130.  I find that the Wife has not condoned and did not have to take the Husband as he was because his indulgent gambling was wanton and reckless dissipation of matrimonial assets.

H5. The amount of gambling loss

131.  The Gambling Schedule has fairly summarized both the deposits to and withdrawals from casinos from February 2014 to April 2018 to arrive at the net loss of $96.59 million. The documentary evidence came from the Husband, but he qualified his agreement to the Gambling Schedule with a disclaimer: that any cash transactions have not been accounted for.

132.  In his opening submission, Mr Todd stated that the gambling losses were insignificant or minimal because the Husband would return with huge amounts of cash. However, the trial ended without the Husband making good this submission. Mr Todd’s closing submission that the Wife has failed to particularize her case on quantum of gambling loss is unsustainable as the Husband could not contradict the contents of the Gambling Schedule.

H6. The Husband’s explanations for his gambling loss

133.  The Husband did not properly respond to the Wife’s issues on the gambling loss in his Answers or Exhibit R3 prepared by his solicitors. The explanations in Table 1 above were only raised for the first time in the witness box, and were not acceptable for the reasons given below.

134.  Firstly, with regard to the cash and cheque deposits, the Husband’s evidence was inconsistent. His 2^nd Answers were that he could not recall the purpose of the majority of cash deposits. For 3 particular cash deposits and cheque deposits, his Answers were that they were repayments of advancement from a friend, without specifying who that friend was or that the advancement was related to gambling: see items 259, 316 to 318 in the 2^nd Answer; and items 48 and 49 in the Supplemental Answer. And yet in the witness box, the Husband could remember that LL and KW repaid him for gambling chips borrowed.

135.  The Husband accepted that it was possible that cash deposits might have come from surplus cash brought back from Macau, rather than gambling winnings. He seemed to be just deducing that “such big amounts of money must have come from casinos” while in the witness box, rather than stating facts.

136.  He claimed that OW or his previous solicitors filled in the Answers for him. He found some Answers incorrect but he could always come to testify to let the judge know if he was lying.

137.  Such evidence was unacceptable because the Husband has had litigation experience in proceedings concerning a restaurant (“I Proceedings”). It was nonsensical for a person to give answers in legal documents that he affirmed the truth of.

138.  Further, OW has denied knowledge of the Husband’s personal bank accounts or her involvement in filling out the Husband’s Answers relating to the gambling loss. There was also no reason why the Husband’s ex-solicitors would have made up answers for him.

139.  Secondly, with regard to legal fees in the I Proceedings, it would have been a legitimate expense deductible from the matrimonial pot of assets. And yet the Husband has never produced any document in support despite the fact that payment of legal costs would be something documented. Although the Wife knew that the Husband had been embroiled in litigation for many years, that was not equivalent to saying that she knew or accepted the amount of legal costs incurred.

140.  The Husband further claimed to have been told that his cash winnings (not SEHL’s director’s loan) were first deposited into FEGL’s account and then paid to the lawyers for the I Proceedings. However, in his Answer to the Wife’s Questionnaire on 27 June 2018, he stated that there was no bank account held by FEGL. His evidence was unreliable.

141.  Accordingly, I reject the Husband’s evidence on legal fees.

142.  Thirdly, the $12 million loan to Shanghai Boy was a clear example of wanton and reckless dissipation. The Husband testified that he placed $8 million worth of bets on behalf of Shanghai Boy (a stranger to him) at the latter’s request. Shanghai Boy gave the Husband a bag of jewellery as security, saying that it was worth $15-20 million. He entrusted the Wife to value it, which turned out to be worth $2.5 million. Despite that knowledge and without being repaid, the Husband gave the jewellery back to Shanghai Boy for $4 million chips in return. Those chips could only be used on a casino boat and the Husband lost them all, apparently after being drugged.

143.  There was no evidence of $8 million coming from SEHL’s director’s loans. A sum of $4 million (not sure if it related to Shanghai Boy) had appeared in the Wife’s schedule of gambling since December 2018. The Husband dedicated 7 paragraphs of his Answers to respond to gambling loss, but he never mentioned the Shanghai Boy Incident. He said that it was “simply impossible for [him] to account for all of these sums of money”. And yet he spent 25 minutes in the witness box to describe that Incident.

144.  Although the Wife may have some knowledge of the Shanghai Boy Incident due to seeking valuation of jewellery, that was not equivalent to condoning the gambling or knowing the amount of loss.

145.  I reject the Husband’s explaination on the Shanghai Boy Incident.

146.  Fourthly, the repayment of $1 million loan by MW was said to have gone through SEHL’s account and the Husband asked Mr Man SC to ask OW. If so, the Wife has already taken this into account when calculating the loans that the Husband owes SEHL.

147.  Having regard to the analyses in this Section, it is plain that the Husband’s explanations were not credible. I find that the Wife has not condoned his indulgent gambling. The Husband’s gambling was wanton and reckless dissipation of matrimonial assets which is inequitable to disregard. It justifies an add-back order.

I. LOANS ISSUE IN STEP 4

I1. The Wife should not be liable for post-separation loans

148.  The Husband owed SEHL Loans of $9,890,000 as at 31 December 2014. Post separation, the loans become $99 million. By the end of the trial, the Wife has accepted the SEHL Loans as $89,115,753 (ie $99,005,753 less $9,890,000). She accepted that, at the insistence of the bank, $36 million was to purchase OCBC shares, the equities of which have reduced. She has assumed that all the rest of the $53 million have been subsumed in the gambling loss, hence no double counting.

149.  The Wife should not be liable for the Loans anyway for 2 reasons: (a) they were all incurred post-separation, not proved to be for family purposes and not for reasonable amounts; and (b) she has expressly conveyed her disapproval to the Husband’s taking out of the loans.

150.  With regard to the first reason, see for example LYI also known as YIL v. JJ also known as JJ [2021] HKFC 160, where His Honour Judge I Wong held that money borrowed by the wife to fund the daughter’s education and $350,000 borrowed by the husband up till the breakdown of the relationship were family liabilities that the parties had to share (at §§48-49). The remaining HK$550,000 borrowed by the husband after separation had to be borne by him because, even on the husband’s own figures, the need to borrow was not established (at §65-67).

151.  In the present case, as the Wife has demonstrated, the Husband has had around $42,100,000 available to him since 2014:

(a) Directors’ loans taken from WEL ($3.8 million): the Husband currently owes WEL $3,596,700, compared to WEL owing him $200,000 back on 31 December 2014.

(b) Directors’ loans taken from MIL ($16.4 million): the Husband currently owes MIL $5,346,250, compared to MIL owing him $11,055,223 back on 1 January 2015.

(c) Dividends from SEHL and GAPHL ($16.9 million): Since 2014, SEHL distributed $10.102 million in dividends to the Husband. In January 2015, GAPHL distributed around $5.6 million in dividends to the Husband.

(d) Salaries (HK$40,000 to HK$80,000 per month): the Husband received $80,000 per month by way of salary as on 14 July 2021 as per his 3^rd Form E, though he said that at the time of separation he was only receiving $40,000 per month.

152.  These were all based on documentary evidence. With $42.1 million, the Husband has not demonstrated the need for extra $90 million Loans.

153.  With regard to the second reason, the Wife relies on the 2014 WhatsApp message, the 29/1/2019 WhatsApp message and the 2017 Promise to convey her express disapproval to further loans.

154.  Mr Todd submits that the Wife was only a minority shareholder of SEHL, of which the directors considered the ultimate controlling party to be the Husband. The Wife cannot rely on those documents to ask for a veto power over the Husband’s drawing of loans from SEHL. The Wife has never applied for any Mareva injunction or a s.17 MPPO application to regulate the loans, despite having first retained solicitors for intended divorce proceedings more than 10 years ago.

155.  Nor could she rely on the 2017 Promise, Mr Todd submits. It was litigation driven, being issued soon after the Wife petitioned for divorce on 2 August 2017. In any case, the 2017 Promise showed that she was prepared, with the benefit of legal advice, for a further $15 million loan to be made out to the Husband when the outstanding balance was $46 million. In fact, at that time, only $10 million out of $36 million of the OCBC had been drawn down. Without being able to borrow more money, the parties could not continue to function with their lives.

156.  Mr Todd further submits that without independent legal advice, such “arrangements” (presumably those under the 2017 Promise), which could not be commercially explained, were presumed to have been procured by undue influence. The Wife has confirmed under cross-examination that she had tried to harm herself during the marriage. Mr Todd submits that it was not difficult to see the influence the Wife wielded over the Husband and his attempts to appease her by signing the 2017 Promise in the wake of divorce proceedings.

157.  The Wife’s version was different. When cross-examined as to whether her frame of mind would have affected the Husband to sign the 2017 Promise, the Wife explained that OW told her that the Husband had gone to borrow $50 million. The Wife denied that she was depressed and emotional then. She did not talk to the Husband directly. OW asked the Wife to give him a financial chance and the Wife asked for proof as she did not want his money to go somewhere it should not go. She asked that the Husband should sign the document first before he should be allowed to take out a loan once more. She did not want to be left with only $8 or $10 million on divorce.

158.  I am more inclined to accept the Wife’s version. The 2017 Promise was carefully worded to set out the amounts. It could not be undue influence to ask the Husband not to obtain more loans before divorce. The Husband did not refrain from taking out loans (or gambling), indicating that he was not really influenced.

159.  If company law was relevant, it was the Wife, instead of the Husband, who would have the right to vote against at least part of the loans to be used on gambling.

160.  I accept that the Wife had anticipated further loans to be taken out by the Husband even under the 2017 Promise, but that could not be taken as her consent to let the Husband gamble it away or spare the Husband from having to account for the Loans. Yes, it would require him to account for the Loans for 7 years but he has been given sufficient time to do so before the trial, with the assistance of OW.

161.  I therefore reject Mr Todd’s submission. The Wife is not liable unless the Husband has good reasons for the Loans.

I2. Husband’s explanations for the Loans

162.  The Husband claimed that in return for the Loans, the companies have received his immensely valuable services which increased the matrimonial pot. The borrowings were used to defray family expenses (including maintenance of $200,000 per month for the Wife). Even if the Husband had not taken out those loans, he would have to find other resources for the family expenses post-separation. Under cross-examination, he prepared Exhibits R2 and R4 to explain how he expended the $90 million Loans.

Table 2

Item	Amount (HK$)	Reference
1. OCBC Loan	36,000,000 (accepted by the Wife)
2. Living expenses of W from 2014 till now (7 years)	108,000/month, thus 9,072,000	R2 p6
	98,000/ month, thus 8,232,000	W 3rd Form E
3. W’s credit card spending	1,800,000	R2 p6
4. Special items of family expenses between 2014 and 2018	9,275,000	R2 p1
5. H’s expenses	130,000/month, thus 10,920,000
6. Additional family expenses		R4 p1 R2 p5
(i) Apartment for Son	3,250,000	R4 p1 item 1(a)
(ii) H’s apartment in Zhongshan	800,000	R4 p1 item 1(b)
(iii) Diamond for Son	255,000	R4 p1 Item 1(e)
7. Redecoration of House 15	3,300,000	R2 p6
8. Legal fees of Fine Elite	4,400,000	R2 p2 Item 5
9. Legal fees of these divorce proceedings	9,885,846
10. Irrecoverable loan to Shanghai Boy	12,000,000	R2 p2 Item 5
TOTAL:	109,189,846

163.  The Husband claimed that he also had his own income and drawings from the other companies to make up this shortfall. Some of the family expenses could have come from cash from Macau.

164.  With regard to items 2 and 3, it was double-counting for the Husband to use $108,000 per month on top of HK$98,000.

165.  With regard to items 3, 4 and 7, there was double counting when the Husband included the Wife’s credit card spending, special items of family expenses and redecoration of the former matrimonial home in addition to her monthly spending. Besides, the parties’ expenses have in fact come out of MIL or SEHL.

166.  Item 5 purported to cover the Husband’s monthly expenses, including his alleged living expenses of $6 million when he lived in Macau for 5 years. His Form E for the relevant period stated the monthly expenses to be $105,000 for things like tax, utilities, dependent expenses, car, etc. Those expenses did not include anything related to living in Macau. Those expenses also did not sit in well with the perks he received from high stake gambling in terms of free hotel, food and transportation.

167.  The Husband explained that nothing was free and he had to pay for expenses in Macau either by way of losing money or paying by cash. That, in my view, was an indirect way to explain his gambling loss.

168.  With regard to item 6 for purchase of an apartment, an apartment in Zhongshan and a diamond for the Son, these were not disputed by the Wife but it was put to the Husband in cross-examination that the diamond was only bought at $166,000 instead of $255,000. As the Husband has not produced documentary proof, I only accept the figure of $166,000.

169.  With regard to item 8 on legal fees for the I Proceedings and item 10 on loans to Shanghai Boy, I have rejected these under the Gambling Loan Issue.

170.  In respect of item 9, the estimated amount in legal fees for this case is acceptable.

171.  In summary, I accept the Husband’s explanations in Table 2 to the extent of $14,101,846 (ie $3,250,000 + $166,000 + $800,000 + $9,885,846). Even so, there was nothing to show that these items came out of the $90 million Loans as opposed to the $42.1 million received by the Husband. In any case, these explanations do not assist him in reducing the amount to be added back under the Gambling Loss Issue.

J. FINDINGS ON THE TOTAL MATRIMONIAL POT UNDER STEP 4

172.  Under Step 4, I find that:

(1) On the Matrimonial Property Issue: the pre-marital assets of WEL and MIL have all become matrimonial after being the family wallet, and then mingled and integrated with SEHL. All 3 companies are matrimonial assets.

(2) On the Gambling Issue, the Husband has wantonly and recklessly dissipated $96.59 million by gambling it away.

(3) On the Loans Issue, the Wife has assumed that all the $53 million of the SEHL loans were subsumed into the gambling loss. The Husband has failed to account for them except to the extent of $14,101,846 but that has no impact on the add-back order.

173.  Since I have accepted the Wife’s submission on valuation of Insolvent Companies, I adopt her figures in the Joint Asset Schedule. The sum total of matrimonial assets is therefore:

Joint Assets	$582,402,202.98
Less: SEHL Loans Add: gambling loss	(HK$99,005,753 – HK$9,890,000) $ 96,590,486.00
Total:	HK$589,876,935.98

K. STEP 5 – FORM OF AWARD

174.  The Wife wants the former matrimonial home, whereas the Husband wants the property in Sheung Shui that he is now living in, held by MFL. No issue turns on that, save that the value of the matrimonial home will form part of the award to the Wife.

175.  In Mr Todd’s closing submission, the Husband has proposed 3 options:

(1) An order to liquidate the joint companies and divide the proceeds of sale 60:40.

(2) Award a lump sum to the Wife together with the properties that she requests, with the mortgage to be discharged later. The Husband would raise the lump sum by monetizing the assets and the lump sum should be discounted.

(3) There will be a “make whole” provision whereby OW is compensated for the loss of value in her shareholding caused by the removal of the properties from the companies. That liability should be shared as to 60:40 between the Husband and the Wife.

176.  With regard to option (1), I dismiss it as this Court is not sitting in its winding-up jurisdiction. There is no power to order the companies to be liquidated, as they are not parties to this case and some have third party shareholders.

177.  With regard to option (2), the Wife accepts a lump sum subject to 2 caveats: (i) that properties should be transferred to her free from mortgage; and (ii) that there should be no adjustment to the lump sum on account of the Husband having carriage of the monetization of the assets. The Wife is agreeable to payment of the lump sum in tranches, which can tie her over in the first few months after trial. She is agreeable to getting the matrimonial home in the last tranche, so as to facilitate the Husband’s arrangement of finance. She will share the stamp duty for transfer.

178.  I agree with the first caveat. At her age and without income, the Wife should not be burdened with a mortgage.

179.  However, I am unable to accept the second caveat. Sharing is achieved by a fair division of both the copper-bottomed assets and the illiquid and risk laden assets: Wells v Wells [2002] 2 FLR 97 (CA), §24, Thorpe LJ. The Court may depart from equality where one party may receive the former types of assets, leaving the other party with the latter: Chai v Peng [2018] 1 FLR, §140.

180.  In Chai v Peng, the court rejected the husband’s argument about, amongst others, pre-acquired wealth and special contribution. Bodey J adopted equality as the starting point. The wife preferred to have a lump sum rather than shares. The husband was elderly and not in the best of health and so could soon sell up. But if the husband did not wish to pack it in yet, Bodey J thought it would be wrong to approach the division of wealth in a paternalistic way that it would be better for him if he did. Taking into account the difference in the type of assets with which the parties would be left, he awarded the wife 40% (ie £60 million out of £161 million) and made a lump order of £40 million after taking account of the sums already received by her.

181.  Further, whether there should be some adjustment to the lump sum for monetization of the assets depends on the circumstances. In general, both parties have a duty to comply with court orders and, in so doing, may have to incur expenses. The Court would not require a party to pay the other a “service charge”, especially where there is no issue on what the service charge may be. When the court order is simply for the parties to share, say, 50:50 in the “net” proceeds, the parties will, by necessary implication, share the costs of monetization. There is nothing peculiar in requiring the party who has all along been handling the business and family finance (often the husband) to carry out the monetization of assets.

182.  In this case, whilst the Wife may enjoy the certainty of a lump sum (including the former matrimonial home worth $26 million), the Husband runs the risks and costs of monetization. It may be difficult to seek loans because of the strict controls imposed by the Monetary Authority, his age and his intention to retire. Interest rates on loans may rise.

183.  Moreover, the present case is talking about 24 companies to liquidate and 20 properties to sell. Common sense tells that the Husband has much to do in terms of marketing, agency fees, legal documentation, liaising with professionals to handle accounting and liquidation, laying off staff and selling the frozen meat. Just 1% of agency fees to sell properties worth over $300 million will mean $3 million.

184.  Mr Todd contends that the lump sum should be discounted to compensate the Husband for having to deal with the Brother. The Brother has complained to the Husband and OW over the years about the free support given by MIL and WEL to companies owned by the parties. The Husband is particularly concerned by the recent threat of litigation by the Brother when the Husband asked that MIL and WEL do sell the landed properties in order to repay debts owed to SEHL.

185.  I decline to accord weight to this. Apart from the Husband’s say-so, I see no evidence of legal action taken by the Brother. I doubt if the Brother would object to liquidation at all when he has also retired (being 5 years older than the Husband) and is suffering from bad health, provided he gets his proper share out of the liquidation, of course.

186.  For the reasons given, I therefore reject the second caveat.

187.  With regard to option (3), OW’s shareholding in companies has not been included in the Schedule of Joint Assets and Liabilities. Her rights and liabilities will be taken care of by the respective companies upon liquidation. There is no need to make special provision for her.

188.  I step back to see if the outcome is overall fair having regard to all the relevant factors in section 7 of MPPO. There is no need for mathematical precision but a broad assessment of the division which would affect overall fairness suffices. I remind myself that even a 1% adjustment would mean close to $6,000,000 in this case.

189.  The Husband asks for a long period of payment of the lump sum. However, he has had 7 years since separation, or 4 years since the Petition to monetize the assets. Meanwhile he has had control over the cash flow. Immediately after the trial, I have also asked him to start monetizing assets and that any time I shall allow for him to pay the lump sum would take into account the lapse of time since trial.

190.  Half share of the matrimonial pot is $294,938,467.99. Taking into account the preceding paragraphs in this Section, I order the Husband to pay a lump sum of $292,000,000 to the Wife. This would mean that the Husband would get $297,876,935.98. This is a split of 49.5 to 50.5.

191.  The lump sum shall be paid to the Wife as follows:

(1) $10 million (if the Husband has not yet done so since the trial) within 14 days of this Order;

(2) $94 million (if he has not yet done so since the trial) within 14 days of this Order;

(3) $94 million by 19 October 2022 (12 months from end of trial); and

(4) $94 million by 19 April 2023 (18 months from end of trial) which would include the value of the former matrimonial home;

(5) there be liberty to apply.

192.  I accept the undertakings of the parties to ensure smooth implementation of the lump sum order with slight adjustments to the terms as underlined:

The Husband undertakes:

(1) not to further encumber the former matrimonial home;

(2) to procure SEHL to transfer House 15 to the Wife free of encumbrances on the date of payment of the last instalment of the lump sum;

(3) to pay 50.5% of any stamp duty and conveyancing costs payable by SEHL or any other party for the transfer of the former matrimonial home.

The Wife undertakes:

(4) to transfer her shares in SEHL and its subsidiaries (which should be set out in the order for the sake of clarity) to the Husband upon compliance with all orders and undertakings herein and upon the Husband’s request;

(5) to pay 49.5% of any stamp duty and conveyancing costs payable by SEHL or any other party for the transfer of the former matrimonial home.

193.  On a nisi basis, costs of the ancillary relief proceedings including all cost reserved should be to the Wife, with certificates for 2 counsel, to be taxed if not agreed.

L. A PROCEDURAL REMINDER

194.  I wish to remind practitioners that examination-in-chief is generally not permitted in civil proceedings. If a party seeks to do so, his legal representatives ought to inform the other party in broad terms or provide a short supplemental witness statement in advance instead of keeping a secretive attitude. If the other party agrees, this would save costs and court’s time.

195.  I thank counsel for their assistance.