WKF v. CCH

FCMC 359 / 2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 359 OF 2014

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J U D G M E N T

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Application

1.  This is the trial of the Petitioner’s and the Respondent’s respective application for ancillary relief upon the dissolution of marriage.  For convenience, the Petitioner is hereinafter referred to as the “Husband” whilst the Respondent is hereinafter referred to as the “Wife”.

The Law

2.  In deciding on ancillary relief claims between the parties to the marriage, the Court is required by section 7(1) of Matrimonial Proceedings and Property Ordinance, Cap 192 (MPPO) to have regard to the conduct and all the circumstances of the case including the following matters:

(a) the income, earning capacity. Property and other financial resources which each of the parties has or is likely to have in the foreseeable future;

(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c) the standard of living enjoyed by the family before the breakdown of the marriage;

(d) the age of the party to the marriage and the duration of the marriage;

(e) any physical or mental disability of either of the parties to the marriage;

(f) the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(g) in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefits (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

3.  The parties agree to the 4 principles to be borne in mind, as set out in in LKW v DD [2010] in LKW v DD (2010) 13 HKCFAR 537 at 559 - 563:

(a) Objective of Fairness;

(b) Rejection of Discrimination;

(c) Yardstick of Equal Division;

(d) Rejection of Minute Retrospective Investigation.

4.  The steps to be taken in an ancillary relief trial, as set out in LKW v DD at 563 - 579, are also agreed by the parties:

i) Identification of assets;

ii) Assessing the parties’ financial needs;

iii) Deciding whether to apply the sharing principle;

iv) Considering whether there were good reasons for departing from equal division;

v) Deciding the outcome.

5.  Little evidence was adduced on the parties’ financial needs as there was consensus between the parties that there were more assets than the parties’ financial needs.  The parties agree that their respective application for ancillary relief should be met by a lump-sum payment, a clean break between the parties.

6.  Given the parties’ positions, including not asking the court to consider their respective needs and the Court of Final Appeal’s guidance in Mimi Kar Kee Wong Hung v Raymond Kin Sang Hung (No 2) [2015] 18 HKCFAR 210 that it is desirable to have finality in matrimonial litigations, it is agreed that after identifying the assets and assessing their value, the Court would decide whether to apply the sharing principle and whether there are good reasons for departing from equal division.

Identification Of Assets

Assets not in dispute

7.  The parties have no dispute as to the following assets and their division:

Assets	Value	Manner of Division
i) Matrimonial Home in Fanling	HK$2,620,000.00	50/50 equal division
ii) FS’s account in Communications Bank	HK$4.35	50/50 equal division
iii) Joint accounts with Bank of China	HK$5,468.82 RMB 93.22	50/50 equal division
iv) P’s bank accounts	HK$145,399.80 RMB 125.87	50/50 equal division
v) R’s bank accounts	a) HK$6,369 (half share interest of joint account with WTN) b) HK$32,328	50/50 equal division
vi) interests in insurance policies, MPF policies		The Husband, the Wife and the children will retain 100% of all interests under their own respective names.
vii) trailers, cars	HK$255,054.00	50/50 equal division
viii) Debts under the Husband’s name	-HK$169,975.37	50/50 equal division
ix) Mortgages under the Wife’s name	-HK$2,742,874.60	50/50 equal division
x) Credit card debts under the Wife’s name	-HK$163,997.43	50/50 equal division

Assets in Dispute

8.  Much of the Husband’s assets and liabilities are not disputed.  The Husband on the other hand claims a share in assets that are alleged to be in the Wife’s name and disputes loans alleged to be owed by the Wife.

9.  The Wife has in her name the following disclosed assets.  It is noted that the Wife only owns 50% of these properties as there are co-owners to the various properties.  The Husband does not dispute that the Wife only has a 50% interest in these properties.  The co-owners to these properties were never joined as third parties as there has never been any allegation by the Husband that the co-owners’ share in the properties also belong to the Wife. The only dispute is that the Husband claims half of the Wife’s 50% interest in these properties whereas the Wife says they do not form part of the matrimonial assets at all.  The properties in dispute are:

i) the “Unit 8B Factory”

ii) the “Unit 15A Factory”;

iii) the “Unit 4A Factory”;

iv) the “Unit 14D Factory”;

    together, the (“4 Properties”).

10.  The details of the 4 Properties are as follows:

Properties	Date of Purchase	½ share Valuation (net of mortgage)	Alleged Source of Funding	Registered Owners
Unit 8B Factory	8 Nov 2010	HK$1,584,402	Borrowed from CSY	Wife (50%)	WTN (50%)
Unit 15A Factory	25 Jan 2011	HK$1,847,711	Borrowed from CSY	Wife (50%)	WTN (50%)
Unit 4A Factory	30 Apr 2013	HK$727,680	profit from previous investment	Wife (50%)	TCM (50%)
Unit 14D Factory	23 Aug 2013	HK$777,332	-	Wife (50%)	WTN (50%)

11.  The Husband has in his first questionnaire dated 2 September 2014 asked for particulars of the Wife’s alleged debts.  The Husband disputes the following loans:

Alleged Debts	Value	Manner of Division
Debt owing to CSY	HK$1,875,000	all debts are disputed as to existence and value
Debt owing to KYF	HK$500,000
Debts owing to WTN	HK$864,000
Debt owing to LHL	HK$750,000
Debt owing to YWY	HK$29,000
Debt owing to TCM	HK$90,000
Debt owing to LTK	HK$120,000
Total:	HK$4,228,000

Hidden Assets

12.  The Wife’s Counsel contends that the Husband should have about HK$100,000 – HK$200,000 in terms of hidden assets, the figure is obtained by looking at his bank statements and deducting his usual expenses. The court does not consider that it can be inferred from merely circumstantial evidence that the Husband has hidden assets.

13.  On the other hand, there is more basis to complain that the Wife has hidden assets: on the last day of the trial, the Wife, under cross-examination, admitted that during 2012 and 2013, she had in fact sold 6 more properties, with profits amounting to HK$779,155.  Such profits were never disclosed in her Form E or witness statements. She alleged that such sums had already been re-invested into various other properties, but she had no recollection of any details.

14.  Whilst the court finds the Wife to be evasive, both in terms of her non-disclosure and in terms of the quality of her oral testimony, there is insufficient evidence to say that such profits had not been utilized in the Wife’s investments and that such amount should be counted as additional to the matrimonial pool of assets.

15.  Mostyn J. held in Kremen v Agrest [2012] 2 FCR 472 that: “where the court was satisfied that the disclosure given by one party had been materially deficient, the court was duty bound to consider, by the process of drawing adverse inferences, whether funds had been hidden.  Such inferences had to be properly drawn and reasonable.  If the court concluded that funds had been hidden, it should attempt a realistic and reasonable quantification of those funds, even in the broadest terms.  In making its judgment as to quantification, the court would first look to direct evidence such as documentation and observations made by the other party…”

16.  There was no attempt by the Husband to explore, even in the broadest of terms whether such profits remain or whether they have been subsumed in other investments.  The court holds that the Husband had not produced sufficient evidence to assert that the Wife has hidden assets.

Should the Sharing Principle apply?

Background

17.  The Husband (now 53 years old) and the Wife (now 49 years old) were married in Foshan, PRC in August 1989.  Two children were born to the marriage: a son was born in 1992 (the “Son”) and a daughter was born in 1997 (the “Daughter”).  The parties agree that this is a long marriage of more than 24 years.

18.  The Son is now 24 years old and currently studying full-time in the USA.  The Daughter is 19 years old and is currently studying full-time in Hong Kong.  There are plans for her to study overseas in future.

19.  Before the parties were married, the Husband worked as a cross-border truck driver and the Wife worked as a waitress.  Later on, the Husband acquired more driving licences which enabled him to drive cross-border trailers.

Establishment of KF

20.  In about 1992, the Husband bought his first second-hand trailer by hire and purchase and he began running a business.  A sole proprietorship was set up in the name of KF to run the trailer business (“KF”). 

21.  The mode of operation of KF was that the Husband was responsible for driving the trailers and liaising with other drivers whilst the Wife was responsible for all the administrative matters, including receiving orders, preparing import/export documents, depositing cheques received from customers, and paying the expenses of the business.

22.  A Home Ownership Scheme property in Fanling was purchased in 1996 (the “Matrimonial Home”).  Although the Wife did not make any monetary contributions, nonetheless the Matrimonial Home was put in their joint names as the Husband treated her as a family member.

23.  The Matrimonial Home was used also as the home office for the business of KF.  The business was run out of the Matrimonial Home, using the home telephone and fax lines.  There can be no dispute that KF was very much a family business with the Husband and the Wife at the helm and with no other outside employees.

24.  At the beginning, the Wife took about HK$4,000 to HK$5,000 per month from the business of KF for her own use.  This amount gradually increased to about HK$20,000 per month from about mid-1997 onwards.  An extra HK$10,000 was taken by the Wife for the family’s daily expenses. There is no dispute that all of the family’s household expenses and mortgage instalments were paid out of money in KF’s business bank account.  There was no other family income.

25.  KF was later turned into a limited company in around 2000.  At its peak, KF was reaping HK$300,000 to HK$400,000 turnover per month with the operation of 4 trailers.  The Wife was given a 20% shareholding in the limited company.  The Wife agreed that she did not contribute any money for this shareholding.  At that time, each of the Wife and the Husband drew a monthly salary of HK$30,000 out of KF’s business bank account.

26.  The Wife never used any of her private money (paid to her as salary) to pay for the company’s outgoings.  The Husband on the other hand did from time to time use his own money to inject into KF whenever there were cash flow problems. 

27.  It cannot be disputed that all the money the Wife put aside into her private account all came from the family business, as the Wife had never worked elsewhere and she did not earn much from her insurance business.  From her own evidence, she only acquired the insurance agent licence, which was not really put to much use in terms of generation of income.

Original FS

28.  Since 2002, the Husband and the Wife set up another company in the name of FS (“Original FS”) to run the family trailer business.  The same mode of operation continued where Original FS was run from the Matrimonial Home by only the Husband and the Wife.  Original FS was set up primarily to separate the PRC business from the Hong Kong business.  KF was used mainly for Hong Kong business with Hong Kong drivers, whereas Original FS was used for cross-border business in the PRC with PRC drivers.

Purchase of Royal Green Property and Flora Plaza Property

29.  In or about December 2006, the Wife put down a down payment of about HK$140,000 for the purchase of a flat in Royal Green in Sheung Shui (the “Royal Green Property”).  The purchase price was HK$2,972,000 and the Royal Green Property was purchased in her sole name. There is little dispute that the down payment was from the money she took as salary from the family business throughout the years. 

30.  It is notable that the Wife had asked the Husband to procure KF to be a guarantor for taking out a second mortgage.  She admitted that she had never told the Husband that she treated the Royal Green Property as her own or that the Husband would not have any interest in it.  It is not disputed that without the guarantee from the Husband and KF, the Wife would not have been able to obtain mortgage to complete the purchase of the Royal Green property.

31.  The Wife said she treated the Royal Green Property as her own property and did not consider the Husband eligible for any of its interest.  However, she could not provide any basis or explanation for this.  Without informing the Husband beforehand, she sold the Royal Green Property in December 2009 at a loss at HK$2,680,000 and did not share with him any of the sale proceeds. 

32.  On the other hand, according to the Husband, despite the fact that he was not a registered owner of the Royal Green Property, he treated it as a family asset; as evidenced by the fact that the family business and he had acted as a second guarantor. 

33.  The Wife subsequently used part of the sale proceeds from the Royal Green Property to purchase another property at Flora Garden in Fanling (the “Flora Garden Property”) with a friend, WTN, in November 2012.  This was again done without the Husband’s knowledge.  The Flora Garden Property was subsequently sold and according to the Wife, she used the proceeds to invest in the Unit 4A Factory (a property which the Husband claims to be a matrimonial asset as discussed below).

The Yantian Property

34.  In 2007, the Husband bought a property in Yantian, Shenzhen for the running of the family business.  The Husband also put the Yantian Property in the joint names with the Wife.  Again, he did so despite having received only little financial contributions (RMB30,000) from her as he treated her as a family member.

35.  The Yantian Property was subsequently sold for about HK1.1 million.  At the Wife’s insistence, half of the proceeds were put into the Son’s bank account and half were put into a joint account for auto transfer to the Son.  This was to support the Son’s overseas studies.

36.  It can thus can be seen from the Husband’s treatment of the Matrimonial Home and the Yantian Property that the Husband very much treated all of the assets that he owned as family assets.

37.  On the contrary, the Wife kept a private pool of money from the money she received from the family’s business (be it KF, Old FS or subsequently, New FS – as discussed below) and treated it as her own money, which she would not share with the Husband.  Whatever investments she made from this private pool of money she treated as her own investments in which the Husband does not have a share.

New FS

38.  In 2007, the Wife set up another company in the exact same name as FS under another Business Registration number (“New FS”).  The Husband said the Wife diverted all of the business and account receivables from Original FS to New FS.  The Husband says that this was done without his knowledge and consent. 

39.  The Wife says that she had justification to do so.  The Wife says that at around 2007 the Husband was having an affair with a woman surnamed L (“Ms L”).  The Husband left the family to be with Ms L and set up another company in the name of SF (“SF”).  The name SF was made up of one Chinese character from each of the Husband’s name and Ms L’s name.  As the Husband took away the cheque book and bank account information of KF and Original FS and set up SF first, the Wife says she was unable to pay the outstanding fees due to the drivers of Original FS.  She says she was being chased by drivers for payment of salary as she had always been the point of contact.  Thus she was forced to establish another company in the same name to take the profit from the business of KF to pay the bills of Original FS.

40.  The Wife also says she found out about SF by receiving its business registration documents that were mailed to the Matrimonial Home address.  However, this cannot be possible as the registered address of SF is not the Matrimonial Home address.

41.  More importantly, the dispute as to which company was set up first can be easily resolved by looking at the respective dates of establishment.  New FS was set up by the Wife on 23 November 2007 and SF was established on 30 November 2007. Thus it is clear that in terms of timing, it was the Wife who established New FS first before the Husband set up SF with Ms L.

42.  The court thus rejects the wife’s explanation that she was forced to set up New FS because the Husband took away the cheque books of KF and Original FS first.

43.  There is a dispute as to whether the Husband was having an affair at the time with Ms L.  Although this might have been a cause of the rift between the parties, for present purposes the Court does not need to decide on this issue.  The parties agreed that whether there was indeed an affair is irrelevant to the determination of how the assets ought to be distributed.

44.  The Wife further says that she diverted the proceeds to New FS with the Husband’s consent pursuant to an agreement dated 20 December 2007 (the “Agreement”).  The Wife says that the Agreement was entered into as the Husband had previously sold the trailers belonging to the business and the proceeds therefrom had been retained by him alone.

45.  However, the diversion of proceeds came before, not after the Agreement.  Further, at one point during cross examination the Wife agreed that it was wrong to have used Old FS’ name to collect receivables and then putting it into New FS’ bank account, as New FS was a sole proprietorship controlled by her when it was first established.  If the Wife indeed believed the Agreement allowed her to divert the proceeds to New FS, she would not have felt that it was wrong.

46.  Overall, the Wife’s testimony on this issue of why she set up another company in the exact same name as the family company and then diverted the receivables therefrom was unbelievable and do not tally with documentary records.  The Court does not find the Wife to be honest or credible and rejects the Wife’s explanation. 

1^st Divorce Petition & Reconciliation

47.  In 2008, the Husband issued a divorce petition (the “1^st Divorce Petition”).  The 1^st Divorce Petition was subsequently withdrawn after a few months as the parties wished to reconcile.

48.  After their reconciliation, the Wife agreed to add the Husband’s name to New FS and agreed to once again carry on the family business under New FS.  The Husband says that all along he was only responsible for driving the trailer/truck and the Wife was responsible for all paper work and the finance of New FS.  She was responsible for depositing cheques received from customers as well as writing cheques to discharge expenses of the company.  Although the Wife says that since 2008, the Husband kept a much tighter eye on the finance of New FS, there is little dispute that the Wife remained the main person to handle the paperwork and finance of New FS.

49.  The family business continued to pay for all of the family’s expenses, in that mortgage repayments as well as the daily expenses of the family would be drawn from the company’s accounts.  There is little dispute that the bank accounts for KS or Old FS or New FS were very much the family’s purse.  When the Husband learnt of insufficient funds in the bank account of New FS, he would inject money into it so that the smooth operation of the business is maintained.

50.  The Husband alleges that within a few months after their reconciliation in 2008, he had noticed the Wife draining the bank account of New FS for her own use.  As soon as a cheque was deposited, the Wife would transfer the funds away immediately.  He began to notice the bank account was always short of funds and he had to inject funds into it from time to time, using the money he got (around HK$500,000) from the selling of his trailers.

51.  After that, the Husband found it necessary for him to find new customers and asked those customers to deposit cheques into his personal account to sustain the business.  He would also check all payments out of New FS’ bank account and had stopped several cheques which were payable to the Wife which he found suspicious.

52.  The Wife said that the reconciliation in 2008 was primarily for business purposes as she could not carry on the business of New FS as she did not have any trailers.  On the other hand the Husband could not carry on the business either as he did not have the skills to handle the administrative side of things.  It was for the welfare of the children that the Husband and the Wife agreed to co-operate for business and see if their relationship could improve.

53.  The Wife’s case was that very soon thereafter, upon the Husband refusal to stop seeing Ms L, they were sleeping in separate rooms and having meals separately at different times.

54.  Despite the fact that it seemed that both parties were not happy with their marriage in around late 2008, the Husband only filed another petition for divorce in January 2014.

Wing Fai FS

55.  In July 2013, after the Husband was locked out of the Matrimonial Home and left for the second time, the Wife set up another company called Wing Fai FS to collect receivables of New FS. Essentially, this was again to enable the Wife to intercept receivables which were due to New FS into another company over which only she had control.

56.  The Wife’s testimony was contradictory on whether she had deposited cheques for New FS into Wing Fai FS.  Viewed objectively, there is little reason to name the new business in such a similar name as the family business, except to take over the family business or take over the receivables of the family business.

Credibility

57.  The Wife and the Husband were the only 2 witnesses.  As seen from their testimony on different issues, the Court finds the Husband to be an overall honest and straightforward witness.  In contrast, the only stance which the Wife managed to not change was that the Husband was not entitled to share in the assets under her name.  However, this was more wishful thinking than being substantiated by any evidence.

58.  As a result of her trying to reach a desired result, the Wife’s oral testimony was inconsistent and against common sense throughout.  The Court finds her to be an unreliable witness.

Separate finance?

59.  The Wife says that the funding for the purchase of the 4 properties did not come from any of the family assets and thus should not form part of the matrimonial assets.

60.  The Husband disputes what the Wife says about the source of funding and says that the source of funding for these 4 properties came from the family business, from which the Wife was at liberty to withdraw over the years.

61.  To resist sharing her substantial investments in the 4 Properties, the Wife was at pains to paint a picture that from the very beginning of their relationship, the Husband and the Wife kept separate finances.  The Wife alleged that she was from a well-off family. However upon further questioning, it transpired that at the time they got married, other than a monthly income of RMB2,800 per month and a motorcycle, the Wife did not have any other major assets after contributing RMB30,000 into their first property in Guicheng, China.  This is to be contrasted with the monthly income of around HK$20,000 to HK$30,000 that the Husband was earning at the time.

62.  It was also clear from the Wife’s evidence that she depended on the Husband paying her a monthly allowance of around RMB1,000 to RMB1,500 after they were married.  When the Wife eventually came to live in Hong Kong in 1994, she did not bring with her any assets and started helping the Husband with his business.  She was given 5% of the turnover of the business at that time as her salary.

63.  At around end of 1994, the Wife suggested the Husband to establish KF, the sole proprietorship.  She had no share in the proprietorship but had 5% of the turnover as her salary for helping out with the administrative work of the business.  The 5% salary was paid to her irrespective of whether the business was profitable or not.

64.  The Wife agreed that all of the family’s household expenses were paid out of the family business.  Any household items over HK$1,000 that she had paid for would be reimbursed out of the KF bank account.  She would buy her personal items using her salary, which was paid to her from the family business.

65.  The Wife agreed that she had never taken money from her personal account to inject into the family business even when it was in difficulty.  The most that she had done was to postpone receiving her 5%.

66.  The Wife was clear about how much the family business was doing as most cheques were deposited through her into the KF bank account.

67.  The Husband on the other hand, as acknowledged by the Wife in her oral testimony, never took money out of the KF bank account and deposited into his own account.

68.  The Wife agreed that the Husband treated her as his wife, not a business partner.  On the other hand, the Wife was always keen to carve out assets as her own, separate from that of the Husband, the family and the family business.

69.  The court rejects that there was separate finance from the very beginning of their relationship, as alleged by the Wife (see also analysis below from paragraph 79 onwards).  To the contrary, the Husband and the Wife’s finances were all along intertwined and depended on the family trailer business.

Date of Separation and Post-Separation Accruals?

70.  The Wife contends that she had in fact separated from the Husband since around August 2008 and thus all investments made on or after that date ought not be counted as matrimonial assets.  It is notable that the Wife only sought to introduce evidence on separation such as sleeping in separate rooms by way of examination-in-chief on the 2^nd day of trial.

71.  The Husband objects to this and argues that they reconciliated and the 1^st Divorce Petition (which was issued on 4 March 2008) was withdrawn on 15 April 2008.  Although the Husband agrees that their relationship deteriorated again a few months after their reconciliation in 2008 and that he started locking his bedroom soon afterwards, the fact remained that the parties had chosen to continue living under one roof and appearing as husband and wife, whether to the children, or the outside world. 

72.  The Husband says that they only separated when the Wife unilaterally changed the lock to the Matrimonial Home in July 2013 and the Husband could not return since then.  The Husband issued a petition for divorce again on 10 January 2014 and a decree nisi was granted on 2 July 2014.

73.  It is undisputed that the Husband had moved back to live in the Matrimonial Home since April 2008.  The Wife’s explanation was that it was a purely commercial decision as they needed each other to continue running the business and they were merely business partners.  The Husband disagrees and says that they reconciliated for the sake of the children.

74.  As pointed out by the Wife’s Counsel, in Kan Lai Kwan (KLK) v Poon Lok To Otto & Anor (PLTO) [2014] HKFLR 329, the lack of sexual relationship, living in separate bedrooms, limited communication and occasional meals in and of themselves were not held to be sufficient to hold that the couple had separated, as there were contradicting facts pointing to an ongoing relationship. 

75.  In the present case, whilst the court accepts that the parties’ relationship might have been strained since late 2008 even after their reconciliation, there is insufficient evidence to suggest that they had separated.  There is no dispute that the Husband and the Wife continued living under one roof and that they had gone on holiday in Dubai together with the children as a family during the relevant period.  They were also still running the family business together, as husband and wife.

76.  The court agrees with the Husband that the parties were trying to maintain the family and their marriage for the welfare of the children.  Whether it was out of obligation, for the family business or for some other reason, the parties had chosen to continue living together as a married couple.

77.  The court rejects the Wife’s suggestion that the parties had separated since 2008 and that they were merely business partners.  If they were only concerned about running the business, the parties could have continued running the business as partners without the Husband moving back to the Matrimonial Home or indeed without any reconciliation.  The court accepts the Husband’s explanation that the parties tried to reconcile for the sake of the children and he returned to live in the Matrimonial Home since April 2008.  This is supported by the fact that the 1^st divorce Petition was withdrawn, indicating the parties’ desire to give the marriage another chance.  The court holds that the parties separated in July 2014 when the Wife changed the lock to prevent the Husband from returning to the Matrimonial Home.

78.  Even if the court were wrong on the issue of separation dates, as analyzed below, it does not affect whether the court should depart from equal division in the present case.

Analysis

79.  The fact that one party to a marriage kept their financial arrangement separate does not necessarily give rise to an inference that they agreed that their respective assets should be ring-fenced in the event of a divorce.  ARAV v VP, LJ also known as PJ (Ancillary Relief: Conduct) [2011] HKFLR 330

80.  As set out by District Judge B Chan in the recent case of A v B [2016] HKEC 2468 at para 139:

“For the current state of the law in relation to post-separation accruals, given the divergence of the judicial approach referred to above being considered and analysed by different judges in both UK and Hong Kong from the standpoint of different factual matrices of each case over recent years, in my view the starting point for that analysis has always been the oft-cited passage from the decision of Deputy Judge Nicholas Mostyn QC, as he then was, in Rossi v Rossi [2006] EWHC 1482 (Fam), [2007] 1 FLR 790 , where he provided the following guidance at [24], and as applicable to this case:

24.1 "The statute requires all the assets to be valued at the date of trial.

…

24.3 Assets acquired or created by one party after (or during a period of) separation may qualify as non-matrimonial property if it can be said that the property in question was acquired or created by a party by virtue of his personal industry and not by use (other than incidental use) of an asset which has been created during the marriage and in respect of which the other party can validly assert an unascertained share. Obviously, passive economic growth on matrimonial property that arises after separation will not qualify as non-matrimonial property. (emphasis added)

24.4 If the post-separation asset is a bonus or other earned income then it is obvious that if the payment relates to a period when the parties were cohabiting then the earner cannot claim it to be non-matrimonial. Even if the payment relates to a period immediately following separation I would myself say that it is too close to the marriage to justify categorisation as non-matrimonial. Moreover, I entirely agree with Coleridge J when he points out that during the period of separation the domestic party carries on making her non-financial contribution but cannot attribute a value thereto which justifies adjustment in her favour. Although there is an element of arbitrariness here, I myself would not allow a post-separation bonus to be classed as non-matrimonial unless it related to a period which commenced at least 12 months after the separation.

24.5 By this process the court should, without great difficulty, be able to separate the matrimonial and non-matrimonial property. The matrimonial property will in all likelihood be divided equally although there may be deviation from equal division: (a) if the marriage is short; and (b) part of the matrimonial property is 'non-business partnership, non-family assets' (or if the matrimonial property is represented by autonomous funds accumulated by dual earners).

…

24.7 In deciding whether a non-matrimonial post-separation accrual should be shared and, if so, in what proportions, the court will consider, amongst other things, whether the applicant has proceeded diligently with her claim; whether the party who has the benefit of the accrual has treated the other party fairly during the period of separation; and whether the money-making party has the prospect of making further gains or earnings after the division of the assets and, if so, whether the other party will be sharing in such future income or gains and if so in what proportions, for what period, and by what means."

81.  Rayden & Jackson on Divorce and Family Matters sets out in para. 16.53 that:

“The word resources” in [section 7(1) of MPPO] is entirely unqualified: accordingly assets acquired after the breakdown of the marriage are included in the overall computation of a spouse’s resources at the date of the hearing. A spouse cannot be heard to say that a particular asset should be “ring-fenced” and not be taken into account because it was acquired after separation, or that it has increased in value post separation as a result of his or her sole efforts.

In circumstances where an asset had increased in value post-separation in Conwan v Conwan Thorpe LJ considered that, as the husband had traded his wife’s unascertained share as well as his own between separation and trial, she was plainly entitled to what in the event proved to be a substantial profit.  Mance LJ agreed with this approach and stated: “Here the parties have lived apart, either content or obliged to wait before any divorce.  The bulk of the assets was in the meantime the husband’s and under his control.  He could do with it as he wished.  She had no opportunity to use the assets or to increase them in the meanwhile.  If the husband lost the monies, the wife would suffer.  If he added to them, one might expect the wife to benefit.”

The provenance of the assets acquired post separation and the timing of their receipt may be a matter for the court to consider in the exercise of its discretion when considering the quantum of the claim.  The court might consider on the particular facts of the case that it is fair to reflect in the award the distinction between assets acquired post separation that in fact derive from financial resources generated during the marriage, and assets acquired post separation that emanate from sources wholly external to the marriage, or which did not exist at the time of separation having been subsequently accrued by hard work.” (emphasis added)

82.  Thus, even if the court were wrong to decide that separation occurred some time in 2014, and that the parties did separate some time in late 2008, considering the indisputable fact that the relevant assets were acquired with financial resources generated from the family business during the marriage, in deciding ancillary claims under section 7(1) of MPPO, the court finds it fair to include the 4 Properties in the matrimonial pool of assets.

83.  The Wife relies on the Court of Final Appeal judgment in Kan Lai Kwan (KLK) v Poon Lok To Otto & Anor to assert that post-separation accrual could be considered to be non-matrimonial assets in certain cases.  However, as was held in the Otto Poon case, the court is of the view that where there is a long marriage of more than 24 years, the post separation period (even if the court accepts the Wife’s case) was 5 years, which is relatively insignificant. 

84.  The court also takes into account the fact that there was no argument put forward by the Wife that the investments made by the Wife in relation to the 4 Properties were active growth by reason of her “stellar” professional efforts or personal industry.  No evidence was adduced in this respect by the Wife. It is likely that the gains in such investments were merely passive growth by reason of the rise in general market condition of the industrial property market rather than the Wife’s superior knowledge or insight in the property market.  Passive growth of investing family money does not change the nature of the money from matrimonial to non-matrimonial.

85.  The court finds this to be a clear case where assets belonging to both parties should be treated as matrimonial assets.  The Wife has failed to demonstrate how the 4 Properties, or indeed any other assets under her name should not form part of the matrimonial pool of assets.  The income of the family business, be it under the name of KF, FS, new FS or Wing Fai FS, had always been utilized and treated as matrimonial in nature by the Husband and the Wife, in using such income to defray all family expenses. 

86.  The fact that the Wife unilaterally carved out certain sums of money she obtained out of the family business and treated it (and other investments subsequently made from it) as her own does not make such assets not part of the matrimonial assets.

87.  The court thus finds that there is no ground for departing from equal distribution.

Alleged Loans

88.  Another facet of the Wife’s case is that she relied on loans from banks and friends to fund the investments and thus they should not form part of the matrimonial properties.  There is no dispute that the burden falls on the Wife to prove that these loans are genuine and are still owing.

89.  Whilst the Husband accepts the existence and the amount of various mortgage loans from banks (which are agreed to be deducted from the pool of matrimonial assets), the Husband disputes all alleged personal loans of the Wife.

90.  First of all, all of the alleged loans are without security.  The little documentation produced and relied upon by the Wife such as IOUs were very simplistic and are mostly, if not all, one-page hand-written documents.  Although the Wife tendered certain pay-in slips showing sums of money had been deposited into her account by the alleged creditors, there was no documentary evidence produced in support of under what circumstances the money was deposited, whether they are loans or shares of investment.

91.  The Wife’s Counsel tried to downplay the fact that little documentary proof was provided by saying that “friends may not put everything in writing and the loans were made without litigation in mind”. However, even when litigation was clearly inevitable, and the Husband had made clear prior to trial (by way of various questionnaires asking for documentary support of the various loans) that these loans were going to be challenged, the Wife had still not sought for any of these creditors to be a witness in support of these alleged loans.  No witness statement of any creditor was produced.  As such, no creditor was available for cross-examination by the Husband.  No explanation was given as to why the Wife did not ask these creditors to be her witnesses except that she did not have legal representation until very late in the day.

92.  However, it is not suggested that the Wife could not afford legal representation.  Her application for legal aid was unsurprisingly denied in view of her ownership of various properties.  The fact that the Wife had chosen not to engage professional legal advice until the eleventh hour does not mean that she is not bound by the adverse inferences that may be drawn against her.

93.  In Ip Man Shan & Ors v Ching Hing Construction Co Ltd & Ors (unrep., HCA 3675/1985, [2003] HKEC 49), Deputy Judge Lam (as he then was) held:

“In my judgment, the relevant principles applicable to civil proceedings can be summarized as follows,

(a) if a prima facie case is made out, and if there are evidence available to the party against whom the case is established which could displace the prima facie case, and he omits to call such evidence, an inference could be drawn;

(b) however, the inference could be rebutted by a plausible explanation by the party who elected not to call the evidence;

(c) if an inference is to be drawn, it would be an inference that such available evidence, even if adduced, would not displace the prima facie case;

(d) it is also open to a tribunal of fact, upon the drawing of such an inference, to take it into account in respect of a matter with respect to which the person not called as a witness could have spoken,

i. in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party;

ii. in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given.

94.  The court now turns to each of the alleged loans and their creditors.

CSY

95.  CSY is the Wife’s sister.  It is alleged that the Wife had borrowed HK$1,875,000 from CSY.  The Wife produced an IOU dated 10 September 2010, which stated that the money borrowed is for 50% share in 2 of the 4 Properties, namely Unit 8B and Unit 15A. 

96.  The Husband challenges this alleged loan. Firstly, the two factories were only bought on 22 September 2010 and 11 October 2010.  At the time the Wife allegedly signed the IOU, the price of one of the two factories were not yet known.  This, the Husband says is highly suspicious as CSY and the Wife would not have known what 50% share of the 2 factories would be worth. 

97.  Secondly, and more suspicious is the fact that the Wife never gave CSY any rental return for Unit 8B and Unit 15A, even though they were rented out.  If there was really a loan for investment in the 2 properties, the Wife should have shared any rental income generated with CSY.  Further, the Wife had in fact re-mortgaged the 2 factory units 3 times, getting more funds out of them, without seeking prior permission from CSY.  All these only came out of the Wife’s testimony during cross-examination.  The funds obtained from these re-mortgages were never disclosed by the Wife prior to the trial and no detail was included in any discovery.  In fact, the Wife admitted that CSY does not know up to this date the true status of her supposed investment (if there was one).

98.  Thirdly, the Wife failed to explain how CSY could have loaned such a large sum in Renminbi to the Wife at the time, as there were foreign exchange restrictions.

99.  Fourthly, as admitted by the Wife, CSY was not well-off at all, and there was no satisfactory evidence or explanation given as to where CSY came up with the money to lend to the Wife.

100.  Based on the above, the court finds that the Wife has failed to come up to proof on the existence of the alleged loan of HK$1,875,000 owed to CSY.  There is a prima facie case that there was no such loan.  The court draws adverse inference against the Wife for failing to call her sister as a witness or produce any documentary evidence that CSY had withdrawn money from her own account for the purposes of lending the money to the Wife.

KYF

101.  The Wife produced a Chinese hand-written note dated 27 February 2013 which set out that the Wife borrowed HK$500,000 from KYF for a period of 2 years, at the end of which the Wife would pay KYF a total of HK$60.  In her oral testimony, the Wife corrected the amount to be repaid from HK$60 to HK$600,000, which means KYF would get interest of HK$100,000 in 2 years.  No security was given by the Wife for the loan.  The Wife admitted that this IOU was only signed subsequently due to the ancillary relief trial and she did it casually (隨便寫).  As such, this was not a contemporaneous document. The fact that this note was back-dated only came out during cross-examination. It is clear that the Wife only subsequently manufactured this document to appear as a contemporaneous document in support of her case in this trial. The court attaches little weight to it.

102.  A receipt dated the same day (27 February 2013) was issued by the Wife to KYF.  A note was written on the receipt indicating the payment was made by way of internet transfer. The Husband suggests that this could have been payment for the services of the family business instead of a loan.  However, the Husband could not provide any evidence to support this contention.

103.  Even if the court were to hold (based on the evidence of the bank statement) that KYF did lend HK$500,000 to the Wife, the Wife bears the burden to prove there is an existing loan.  There is no documentary evidence whatsoever to show whether this loan, which supposedly needed to be repaid by 2015, had been repaid.  On the face of the Chinese hand-written note, the loan ought to have been repaid by 2015.  The court draws adverse inference against the Wife for failing to call KYF to prove that the loan is still owing.  The court holds that the Wife has failed to prove the loan from KYF, (even assuming there was once a loan) is still due and owing.

WTN

104.  WTN is the co-owner of 3 out of the 4 Properties with the Wife.  The Wife produced a 1-page letter from WTN dated 15 July 2015 chasing the Wife for repayment of HK$1,075,700 in total.  The letter was written by the Wife and signed by WTN.

105.  The Wife has not explained the basis upon which the amount of HK$1,075,700 was calculated.  No detail of the loans was provided in the letter except that they were all made from November 2013 onwards.  The only details ever given were only in the Wife’s Form E.

106.  In her first Form E dated 14 July 2014, the Wife alleged that she owed WTN a total of HK$831,700. In her updated Form E dated 23 October 2015, the loans alleged to be owed to WTN increased to HK$864,000.  However, neither of these figures match the figure of HK$1,075,700 mentioned in the letter signed by WTN.

107.  WTN, being such a close partner with the Wife in her investments, should have been interested enough and should have been willing to give evidence on behalf of the Wife.  However, WTN did not even make a witness statement in support of the alleged loan.

108.  The Wife produced some official bank pay-in slips by WTN to her amounting to HK$420,000, all of these payments were made in November 2013.

109.  Given that these payments amounting to a total of HK$420,000 by WTN are supported by official bank pay-in slips, and coincide with the disclosure made in the Wife’s Form E, and that WTN has on the face of the letter dated 15 July 2015 indicated that the loans are still owed, the court is of the view that the Wife has proved the existence of HK$420,000 debt which is prima facie still owing to WTN. The Husband on the other hand has failed to disprove this prima facie case by way of cross-examination.

110.  The Wife also provided copies of various cheques issued by WTN to the Wife as evidence of part of the rest of the loans.  However, no other evidence was adduced to show that these cheques had been deposited.  Given that the Court is of the view that the Wife was an unreliable witness and that WTN was not available for cross-examination, the Court is not satisfied that the Wife has proved the rest of the alleged loans due to WTN exist.

LHL

111.  The Wife produced an IOU dated 2 September 2010 stating that LHL had lent her HK$4.8 million, repayable before 30 June 2013.  The interest charged was stated to be HK$480,000.  However, the loan, according to the Wife, should have been RMB4.8 million.  This mistake in the currency unit was not picked up by either the Wife or LHL at the time the IOU was written, which was surprising there is a considerable difference in value.  This demonstrates how sloppy this IOU was.

112.  Further, no credible explanation was made as to why LHL was willing to lend the Wife such a large sum of money without any security.  No evidence was adduced as to any previous relationship, business or otherwise between LHL or the Wife to justify LHL making such a big loan without any security.

113.  During cross-examination, the Wife admitted that contrary to her case of the original remaining debt of HK$750,000, after set-off of service fees, about less than HK$40,000 of the interest remains outstanding.  This again, was contrary to her Form E disclosures and no exact amount was mentioned and no documentary evidence was provided to support how much remains due and owing.

114.  The court also notes that at one point in time the Wife admitted that the HK$4.8 million was never really paid to her, but merely as a procedure of setting up a PRC company.  The Wife’s explanation of this loan was confusing and incredible.  Based on the quality of the evidence, the court holds that the Wife has failed to prove that there is an existing loan of HK$750,000 due to LHL.

LTK

115.  No documentation was provided to prove this debt.  The Wife’s explanation was that she did not know how to submit evidence.  The court rejects this explanation as she had obviously put in other documentary evidence throughout preparation for the trial.

116.  In the absence of documentary evidence, the court finds that there is no basis to hold that the alleged debt of HK$120,000 owed to LKY exists or is still subsisting.

TCM

117.  Only a copy of a transaction slip with the amount HK$90,000 was provided by the Wife as evidence in support of the alleged loan from TCM.  Other than the hand-written note by the Wife alleging that this is a loan from TCM, there is no evidence showing that the account number belongs to TCM, nor is there any evidence that the alleged debt is still owing.

118.  The court holds that the Wife has failed to prove the loan from TCM, (even assuming there was once a loan) is still due and owing.

YWY

119.  Similarly, only a copy of a transaction slip with the amount HK$29,000 was provided by the Wife as evidence in support of the alleged loan from YWY.  Other than the hand-written note by the Wife alleging that this is a loan from YWY, there is no evidence showing that the account number belongs to YWY, nor is there any evidence that the alleged debt is still owing.

120.  The court holds that the Wife has failed to prove the loan from YWY, (even assuming there was once a loan) is still due and owing.

Conclusion on the Wife’s alleged loans

121.  In conclusion, out of all the loans alleged to be in existence by the Wife, the court finds that only HK$420,000 owed to WTN is supported by evidence to be due and owing.

Calculation of One-off Payment

122.  A summary of the family assets are as follows:

	Assets under Joint Names	Assets under Wife’s Name	Assets under Husband’s Name
Matrimonial Home	HK$2,620,000
FS Communications Bank Account	HK$4.35
Bank of China Joint Account	HK$5,468.82 RMB93.22 (HK$105.4)
Half interest in 4 Properties net of mortgages		HK$1,584,402 HK$1,847,711 HK$727,680 HK$777,332
P’s bank accounts			HK$145,399.80 RMB125.87 (HK$142.32)
R’s bank accounts		HK$6,369 HK$32,328
R’s debts		-HK$420,000
Trailers, cars			HK$255,054
Husband’s Debts			-HK$169,975.37
Wife’s credit card debts		-HK$163,997.43
Sub Total	HK$2,625,578.6	HK$4,391,824.6	HK$230,620.8
Half share	HK$1,312,789.3	HK$2,195,912.3	HK$115,310.4

123.  It was agreed that each of the Husband and the Wife should get half of the value or the sale proceeds of the Matrimonial Home.  The Matrimonial Home is currently occupied by the Wife and the children.  If they do not wish to sell the Matrimonial Home, the Wife should pay the Husband within 3 months of Decree Absolute HK$1,310,000, being half the agreed value whereupon the Husband ought to transfer his half interest in the Matrimonial Property to the Wife.  Otherwise, the Matrimonial Home should be sold within 3 months of Decree Absolute and the proceeds net of any expenses incurred should be shared equally between the Husband and the Wife.

124.  It was agreed that the joint accounts as well as FS’s account should be closed within 3 months of Decree Absolute and any remaining sum should be divided in half between the parties and each party should get: (HK$4.35 + HK$5,468.82 + HK$105.4 + HK$93.22) x 0.5 = HK$2,835.9 each.

125.  If the parties were to hold onto the assets under their respective sole name, the net amount the Wife should pay to the Husband within 3 months of Decree Absolute amounts to HK$2,195,912.3 – HK$115,310.4 = HK$2,080,601.9. Otherwise, the parties should sell the properties under their respective names within 3 months of Decree Absolute and the proceeds net of any expenses incurred should be shared equally between the Husband and the Wife.

Maintenance of children

126.  The parties did not deal with the issue of children’s maintenance during the trial, except there were references to the Son’s maintenance and the Daughter’s maintenance in their respective open proposals.  Regarding the Son, the court considers that a one-off payment of HK$73,500 suggested by the Wife is reasonable, bearing in mind a previous sum had already been set aside for the Son.  Regarding the Daughter, the court considers that the Wife’s proposal of a monthly maintenance of HK$6,000 to be paid by the Husband directly to the Daughter until she finishes full-time education is reasonable.

Orders

127.  IT IS ORDERED that:

(a) The Petitioner and the Respondent shall sell the Matrimonial Home within 3 months of Decree Absolute and share the net proceeds equally, (any costs involved to be shared equally) or alternatively, the Respondent shall pay to the Petitioner within 3 months of Decree Absolute, half the agreed value of the Matrimonial Home at HK$1,310,000;

(b) The Respondent shall pay to the Petitioner within 3 months of Decree Absolute HK$2,080,601.9;

(c) Each of the Petitioner and the Respondent shall receive from the joint accounts HK$2,835.9 upon the closure of all joint accounts;

(d) Upon payment of all of the above, all claims the parties may have against each other do stand dismissed;

(e) The Petitioner is to pay HK$6,000 per month to the daughter directly as maintenance on the 1^st day of each month until the completion of her full time education.

(f) The Petitioner is to make a one-off payment of HK$73,750 directly to the Son within 3 months of Decree Absolute.

Costs

128.  Taking the into account:

(a) the court’s ultimate award is much higher than that of the Wife’s open offer;

(b) the court’s ultimate award is also much higher than what the Husband asked for in his open offer;

(c) most of the contentions put forward by the Wife were rejected by the court;

(d) the Wife has provided unsatisfactory disclosure before trial;

after consideration, IT IS ORDERED THAT:

1) the Respondent shall pay 80% of the Petitioner’s costs for the ancillary relief trial, including all costs reserved, to be taxed if not agreed, with certificate for Counsel;

2) The Petitioner’s own costs to be taxed in accordance with Legal Aid Regulations. 

3) This will be in the form of an order nisi, to be made absolute upon the expiry of 14 days from the handing down of this judgment.