LCYP v. JEK

HCMC 3/2018

[2018] HKCFI 2738

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO. 3 OF 2018

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D E C I S I O N
(Variation)

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1.  There were three summonses fixed before this Court and chronologically they were:

(i)   a summons issued on 6 August 2018 by the Husband for variation (“1^st Variation Summons”) of an interim maintenance order made by Family Judge CK Chan (“Judge”) on 17 June 2016 (“MPS Order”);

(ii)   a summons issued on 11 October 2018 by the Wife for directions, including directions for the appointment of a single joint expert for the Duxbury calculations and a single joint valuer for 3 items of the Husband’s assets (“SJE Summons”);

(iii)   a recent summons issued on 5 December 2018 by the Husband for variation (“2^nd Variation Summons”) of an order made by this Court on 16 August 2018 for costs provision (“Costs Provision Order”).

2.  At the hearing, I reserved my decision on the 1^st Variation Summons, allowed the appointment for SJE for Duxbury calculations and dismissed the 2^nd Variation Summons.  My decision and reasons are set out hereinafter.

3.  The background of this matter has been set out in the Judge’s judgment handed down on 17 June 2016 (“MPS Judgment”) and also in this Court’s decision handed down on 16 August 2018 (“Costs Provision Decision”) and will not be repeated here.  Unless otherwise stated herein, I shall follow the definitions in the Costs Provision Decision.

4.  In the MPS Judgment, the Judge ordered, amongst other things and subject to the Husband’s undertakings to pay the children’s school fees and school bus fees and to procure the reimbursement of the Wife’s and the children’s medical and dental expenses covered by the family medical insurance plan as soon as practicable, the Husband to pay to the Wife a total sum of HK$210,000 per month, namely HK$70,000 per month for the maintenance pending suit of the Wife, and HK$70,000 per month for interim maintenance for each of the children, from 1 January 2016 until further order.

5.  In the Costs Provision Decision, it was my finding that the Husband had the ability to pay the amount of HK$3.5m towards the Wife’s costs, and I ordered him to pay the sum by monthly instalments of HK$500,000 each, to be added to the Wife’s maintenance over a period of 7 months commencing from September 2018 until March 2018.

6.  Counsel Mr Enzo Chow appeared for the Wife at the latest hearing and Mr Marcus Dearle appeared for the Husband.

7.  Due to the late filing of the Husband’s paginated bundles, they were rejected by this Court and the bundle references herein are those of the Wife’s core bundle.

1^st Variation Summons

8.  The Husband’s 1^st Variation Summons was supported by his 8^th affirmation, and the Wife had filed her 11^th affirmation in opposition, to which the Husband filed his 9^th affirmation.

9.  During the hearing, Mr Dearle complained that the Wife’s team had referred to the Husband’s “bonuses” and that they were confused, and that the correct expression should be “earn-up payments” rather than “bonuses”.  In my view, if the Wife or her team were confused, it could only be caused by the Husband and his own legal team.  As seen in the letter dated 26 April 2016, a copy of which was exhibited in the Husband’s 8^th affirmation as “JEK8-4”, it was the Husband’s own lawyers who after attaching the Husband’s Income Summary from his 2014 Tax Return and his Earnings Statement for 16-29 February 2016, then stated:

“Our client’s total income has previously been made up of four parts- his base salary, consultancy payment, bonus and dividend income.”

10.  The Husband’s then solicitors proceeded to explain the 4 components, and had referred to the “Bonus” as “Bonus (or ‘earn out’) payments”.  Now according to the Husband or Mr Dearle, the correct expression should be “earn up” payments. 

11.  I pointed out the above only to demonstrate that firstly any confusion was caused by the Husband’s side and secondly, there were 4 components to the Husband’s income, and “base salary” would only be part of the Husband’s income.

12.  The 26.04.16 Letter was in fact referred to by this Court in the Costs Provision Decision and that the Court had set out according to that letter, the Husband’s “base salary” was stated to be USD23,800 net of taxes per month, or about HKD184,000. 

13.  For the hearing for the costs provision on 13 and 17 July 2018, the Husband disclosed for the first time in his 7^th affirmation of 12 January 2018 that his “base salary” had become USD811,000 gross per annum, and that net was HKD290,000 per month and that he had stressed that this was inclusive and that he was no longer entitled to any bonus or any other emoluments[1].   

14.  Again, it was the Husband himself who used the expression “bonus”.  In his 8^th affirmation, he had attached a letter dated 17 July 2018 from his employers stating, amongst other things, that his annual salary was USD811,460.  I do not understand why this letter could not be obtained earlier and produced in his 7^th affirmation, and why the Husband chose to give an inaccurate figure (albeit a very small variance of only USD460) of his annual base salary.  In fact, all it said in his employer’s letter was that all payments under the “FRC acquisition contract” had been paid.  There was no confirmation nor clarification from his employers as whether the Husband is entitled to any other benefits under his current employment package.

15.  More importantly, the Husband filed his Form E, after the hearing for the costs provisions.  In his Form E filed on 30 August 2018, he disclosed his “gross earned income” of USD811,460 per annum, and claimed that this was his only earned income but he then disclosed that he had received part of his final 2017 “earn-up award” in paragraph 3.2 of his Form E[2], without disclosing exactly what he had received or when he received it, and instead referred to paragraph 24 (xxiv) of his 8^th affirmation[3].

16.  What he had disclosed in paragraph 24 (xxiv) was that his gross share of the earn-up payments for 2017 were paid to and held by Rinchy LLC pending the determination of his tax position and all business expenses, and that:

(i)   he received USD300,000 from Rinchy LLC as part of his 2017 “earn-up payments” on 21 May 2018;

(ii)   a sum of USD170,000 was paid by Rinchy LLC to the State of New Jersey and a sum of USD 425,000 to the IRS for federal taxes, all on his behalf on 31 May 2018;

(iii)   he estimated that he had a further tax and business expenses of USD250,000-USD300,000 to pay.

17.  Rinchy LLC was formerly called Kra Trading, which was incorporated on 12 May 2012 in New Jersey of which the Husband holds 30%.  According to him, this is a non-trading company and he had stated in his latest Form E that there is “0” value of his beneficial interest in this company.  It is not clear what “business expenses” the Husband was referring to.

18.  The Husband had claimed that one could see the credit of USD300,000 in his bank statements which he had disclosed. 

19.  The duty is on the Husband to make clear, frank and full disclosure voluntarily.  The Wife is not expected to trawl through his bank statements and to raise queries.  As I have said in the Costs Provision Decision, the Husband’s financial disclosure has been piece-meal. And I will add, he only provides answers/information when the Wife raises the queries.  

20.  What is clear to this Court is that the Husband did not make full and clear disclosure of the 2017 “earn-up payments” in his 7^th affirmation, nor the payment of his taxes by Rinchy LLC on his behalf of those payments.  In his 9^th affirmation, the Husband produced an email dated 8 October 2018 from the Listco purporting to show all the payments (including all earn-ups) made by the Listco to FRC totalled US$70,067,872[4].  No dates of payments were stated.  The payments were paid to FRC and other companies.  The list of payments only started with the a “closing date payment” and it is not clear whether any payments were made prior to closing.  As I have said at the hearing, the email raises further queries.

21.  In Mr Dearle’s skeleton submissions (filed late, and received by this Court only in the afternoon prior to the present hearing), he has attached an alleged updated schedule which purported to set out the Husband’s gross and net income and the shortfall from 2012 to 2018.  As I had pointed out during the hearing, I do not understand why Mr Dearle was producing evidence attached to his skeleton submissions and only at last minute.

22.  Even if I were to accept the updated schedule to be correct, the net income (including earn-up payments) the Husband has received since 2016 has been:

(i)   2016 – USD1,204,521, or @7.8, HKD9,395,263.80;

(ii)   2017 – USD1,866,496, or @ 7.8, HKD14,558,668.80;

(iii)   2018 – USD1,606,912, or @ 7.8, HKD12,611,913.60;

23.  At the time of the MPS Judgment, the Judge found that the Husband’s total income earned for 2015 was USD1.6m, equivalent to about HK$12,480,000, and even allowing half of it for US taxation, the Judge was of the view that the Husband still had HK$6,240,000 as his net income, averaging HK$520,000 per month[5].

24.  The updated Schedule produced by Mr Dearle showed that the Husband’s net income was substantially higher than the net income which the Judge had assumed at the time of the MPS Order.  In fact, for 2018, the net amount received/to be received by the Husband for this year was almost double the figure the Judge had assumed.

25.  In any event, due to the Husband’s unsatisfactory financial disclosure, there was no sufficient evidence that the Husband’s total income had decreased at the time when he issued his 1^st Variation Summons.

26.  The Husband’s annual “base salary” disclosed in his latest Form E was USD811,460 or HKD527,449.  Even if, as submitted by Mr Dearle, there will be no other benefits from his employment which is not accepted by the Wife, Husband’s new “base salary” will be HK$320,000 per month net.  In my view, he can still afford to continue to pay a total of HK$210,000 per month to the Wife, leaving some HK$110,000 for his own expenses, which in fact is much higher than HK$70,000 which the Wife is receiving for herself. 

27.  Mr Dearle has raised the issue of rental income the Wife is receiving and her earning capacity.  The rental income issue had been taken into account by the Judge at the time of the MPS hearing.  As for the Wife’s earning capacity, this should be a matter to be raised at the trial.  The present evidence shows that the Wife has been not worked or has been a homemaker since 1999.  In fact, the maintenance pending suit the Husband is paying the Wife is less than US$10,000 per month and much less than what the Husband has been paying his lawyers on average a month. 

28.  Mr Dearle had submitted that taking an average of the Husband’s income from 2012 to 2018 and deducting all his injections into the 3 of the 5 Trusts, and legal costs, there was a net shortfall of HK$12.72m as per a schedule set out by him[6]. As set out in the Costs Provision Decision, the last injection into the trusts disclosed by the Husband was in September 2015, prior to the MPS Judgment.  In any event, any alleged shortfall was created by the Husband himself and the injections into the trusts will be a hotly disputed issue at the trial.  In addition, the Husband claimed that he had spent about USD3.76m to date on legal costs, which contributed to his alleged shortfall.  This is almost double the amount of USD1.98m for the maintenance payments and legal fees he made to the Wife and the Children.

29.  In any event, an interim maintenance order is always on a broad brush approach, and the trial is coming up in about 5 months’ time, any overpayments or underpayments can be addressed at the trial.

30.  Having considered all the circumstances in this case, I do not see any ground for variation downward of the MPS Order at this stage.  I dismiss the 1^st Variation Summons and order the Wife’s costs to be summarily assessed and to be paid by the Husband within 7 days of summary assessment.  The Wife is to lodge her statement of costs within 7 days from today and the Husband to lodge his list of objections within 7 days thereafter.

2^nd Variation Summons

31.  I dismissed the 2^nd Variation Summons at the hearing.  There was no supporting affirmation filed by the Husband for his 2^nd Variation Summons, which appeared to be only a knee jerk reaction to the Wife threatening to issue a bankruptcy petition against the Husband.  The Wife is entitled to take whatever enforcement actions deemed appropriate if the Husband fails to comply with court orders.  I see no ground for variation based on the Wife’s threat.  In fact, the Husband in his 9^th affirmation of 7 November 2018 stated that he was not applying for variation of the Costs Provision Order.  Mr Dearle did not press on the matter and did not oppose the Wife’s proposed costs of HKD3,500.  I ordered the Husband to pay the Wife’s costs of HK$3,500 within 7 days.

The SJE Summons

32.  The valuations of 3 items of the Husband’s assets were agreed only at the commencement of the latest hearing, leaving only the issue of whether there should be single joint expert or parties to instruct their respective experts for the Duxbury calculations.

33.  The Wife had proposed to appoint a Mr Tupila. The Husband had initially replied to say that Mr Tupila was “conflicted” and subsequently, the Husband made clear his position was that he would like to instruct his own expert. 

34.  The Wife’s position that after the Civil Justice Reform, a single joint expert would normally be appointed unless with good reasons and that Duxbury calculation is rather simple and common in matrimonial proceedings.

35.  Mr Chow referred this court to Order 38 rule 4A(1)and rule 4A(5) of the Rules of the High Court and the commentary in paragraph 38/4A/2 of the Hong Kong Civil Procedure 2019.  In particular, Mr Chow pointed out that if parties were to instruct their own experts, additional costs would be incurred and further family assets would be depleted.

36.  Mr Dearle submitted in his skeleton that the position was not “simple” as asserted by the Wife, and that it would be highly likely that there would need to be 3 experts appointed if a SJE were appointed.  I have to say I do not understand his submissions as to why there would be 3 experts if a SJE were to be appointed.  At the hearing, he also submitted that that given there would be challenges to assumptions and rates of inflations adopted, there would be good reasons for the parties to each have their own expert.

37.  It appears from Mr Dearle’s submissions that the Husband is going to challenge any expert’s evidence without even knowing what assumptions or rates of inflations are going to be used by the expert.

38.  It is exactly to avoid unnecessary challenges and disputes, and to save costs, and indeed not to lengthen the trial, that one single expert should be appointed.  Duxbury calculations are common in matrimonial finance cases and in my view should not be complex.

39.  Having considered the circumstances in this case, and as Mr Chow had pointed out, any costs would have to come out of family assets, I am of the view that that it is in the interest of justice and the parties that one single joint expert is to be appointed for the preparation of the Duxbury calculations.  For these reasons, I have allowed the Wife’s application at the hearing.  The parties were then able to agree to directions for the appointment of the expert.  I have ordered the Wife’s costs to be paid by the Husband within 7 days of summary assessment, the Wife to lodge her statement of costs within 7 days from the date of the hearing and the Husband his list of objections within 7 days thereafter.  I also recorded that the time of hearing related to the SJE Summons to be not more than 30 minutes.