PW v. PPTW

CACV 224/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 224 OF 2013

(ON APPEAL FROM HCMC NO. 5 OF 2011)

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REASONS FOR DECISION

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Hon Lam VP (giving the Reasons for Decision of the Court):

1.  On 7 November 2014, after hearing counsel, we refused to grant leave to the respondent [“the husband”] to rely on the new evidence which he sought to admit for the purpose of this appeal by his summons of 7 October 2014. We now give our reasons for the decision.

2.  The new evidence is in the form of a witness statement from a Mr Sherman dated 7 October 2014.  Mr Sherman is a partner in the limited partnership Welton USA.  He held 20.3% interest in it whilst the husband held 39.35%.  The interest of the husband in Welton USA was a major item in his assets which, at the ancillary relief trial, Deputy High Court Judge Bebe Chu [“the judge”] assessed on a going concern basis at US$5.9 million.  The judge had regard to the evidence before her in coming to the conclusion that the interest should be assessed on that basis and her reasons were set out at paras 70 to 73 of her judgment of 11 October 2013.  It should also be read together with paras 55 to 60 which set out the background and the issues on Welton USA before the judge.  Further, at paras 74 to 100, the judge explained why she adopted the Asset Approach in the valuation of Welton USA.  In so doing, as she said at para 98, she had taken into account the uncertainty of the future of this company.  At para 97, she observed that orderly liquidation is essentially an asset approach.

3.  The judge considered 55:45 as a fair distribution of assets between the husband and the wife (the Petitioner).  Thus, the valuation of US$5.9 million (or HK$46 million) was translated into HK$20.7 million credited into the overall award of HK$131.4 million in favour of the wife.

4.  The effect of Mr Sherman’s recent statement is that he had found a purchaser for a large part of the assets of Welton USA and he finally decided to liquidate the company.  He said that under that process, the husband’s interest in Welton USA would be US$4,840,050 (distributed to the husband by 31 August 2014) plus another sum of US$130,601 estimated to be paid in 2015.   Thus, the value would add up to about US$4.97 million.

5.  According to the calculation of counsel for the wife, even if that valuation were to be adopted in place of the one accepted by the judge, the difference in the award in favour of the wife would be HK$3.2 million.

6.  At this juncture, we should refer to the chronology leading to the issue of the summons of 7 October 2014.  Soon after the judge delivered her judgment, Mr Sherman sent an email to the husband on 4 November 2013 informing him of his decision to liquidate the company.  The husband replied on 4 November indicating that he would accept Mr Sherman’s decision.  On 21 November 2013, Mr Sherman notified the husband as to the progress on the liquidation.  An asset purchase agreement was made on 10 December 2013.   The schedule of payments now produced by Mr Sherman shows that the husband received payments from the process as follows:

7.  In the meantime, the husband issued his Notice of Appeal on 25 October 2013.  Application to fix the date of hearing of the appeal was lodged on 20 January 2014.  The actual hearing date was fixed with the agreement of the parties on 30 January 2014.

8.  The husband did not explain why the application for admission of new evidence was not made earlier. In this respect, in the absence of any account by him as to why efforts were not made earlier to obtain the statement from Mr Sherman, we did not attach any significance to the date when the statement was actually signed.  On the information before us, we could not see why steps could not have been taken in, say, December 2013 and January 2014 to prepare the evidence on the liquidation. We were not satisfied that the husband had exercised due diligence in procuring such evidence.          

9.  The unexplained delay was particularly serious given that, as submitted by Mr Pilbrow SC (appearing together with Mr Chan for the wife), there were grounds for disputing whether Mr Sherman’s statement had given us a complete picture of the affairs of Welton USA.  The late presentation of such evidence had a disruptive effect on the preparation of the appeal.

10.  In the recent case of Law Kwok Fai Paul v Wellmei (HK) Plastics & Electronics Industrial Ltd CACV 45 of 2014, 31 October 2014, Yuen JA refused an application for admission of fresh evidence on the ground of lateness quite apart from the criteria of Ladd v Marshall.  Her Ladyship said at para 18:

“Even if the application had satisfied the conditions in Ladd v Marshall, I would have dismissed it in the exercise of the court’s discretion.

Order 1A r.3 of the Rules of the High Court requires parties and their legal representatives to assist the court to further the underlying objectives of the Rules. One of the underlying objectives is to ensure that cases are dealt with as expeditiously as is reasonably practicable and to ensure that the resources of the court are distributed fairly. It is common sense that the less time there is between the filing of an application to adduce fresh evidence on appeal and the hearing of the appeal proper, the greater the risks of not finding a slot for a judge to hear the application in good time before the appeal.

If a slot can be found at short notice, this gives the judge less reading and preparation time. And an appeal from the single judge’s decision would lead to further complications as it would be difficult to find time for it before the appeal proper is heard.

If no slot can be found, the application would have to be heard at the same time as the appeal proper.  If the application is granted, the appeal may well have to go off, and a hearing day which may have benefited other litigants would be lost.  It is perhaps time for legal representatives to be made aware that late applications for leave to adduce fresh evidence may be refused on this ground only, and with attendant costs orders to reflect the court’s discouragement of this practice.”

11.  We respectfully endorse this sentiment.  The undesirability of late interlocutory application in an appeal has also been highlighted in another recent judgment in To Pui Kui v Ng Kwok Piu [2014] 5 HKLRD 103 in which similar observations were made by reference to Order 1A rule 3.  It is high time that litigants and those advising them appreciate that case management is as applicable in the conduct of an appeal as in the first instance proceedings.  This court has come across too many last minute interlocutory applications in which the party making such application did not even begin to explain why the application was not made earlier.  In general, parties should be able to prepare for an appeal soon after notice of appeal and respondent’s notice are filed.  Insofar as there is a practice of not instructing counsel to work on the substantive appeal until a month or so before the deadline for the lodging of skeleton submissions, we must now disapprove of such practice in clear and uncertain terms. There is no reason why counsel instructed to prepare the notice of appeal or respondent’s notice should not be instructed at the same time to start preparation for the appeal, at least in terms of ensuring that no further interlocutory application is necessary before a date is fixed for hearing the appeal.  To leave things till one or two months before the actual hearing date run a serious risk of last minute applications which, for the reasons canvassed in the recent cases, this court may not entertain.

12.  In so saying, we are not adopting a dogmatic rule that all late applications will be dismissed without regard to their merits.  As observed in Chan Cheung Ming Jacky v Siu Sin Man [2014] 5 HKLRD 89, this is not the correct approach.  However, litigants and lawyers will be ill-advised if they shall continue to conduct appeals without regard to proper case management. Gone are the days when an appellant (or a respondent) could put in a last minute summons for admission of fresh evidence simply because the criteria of Ladd v Marshall can be satisfied.  It should not come as a surprise that this court takes account of the underlying objectives in Order 1A in deciding how its case management discretion (including the discretion to admit new evidence) is to be exercised.  Late applications without any proper explanation (supported by proper evidence) will not be well received.

13.  As we said, in the present instance, despite his usual eloquence, Mr Sussex had not been able to give any satisfactory explanation for the delay in this application.

14.  Further, counsel accepted that if such evidence is admitted, in view of the dispute raised by the wife as to the reliability of Mr Sherman’s evidence, there would have to be a re-trial, at least in relation to the valuation of the husband’s interest in Welton USA.  That would involve substantial costs.  According to the costs estimates placed before the judge, the parties had incurred $19.47 m in terms of costs of the trial.  As mentioned earlier, even if the husband’s case in this respect were accepted at the end of the day, it would only result in $3.2 m adjustment in the overall award of $131.4 m in favour of the wife.  In all likelihood, the costs of such a re-trial will be disproportionate.  In such circumstances, the court must be extremely cautious in permitting such course to be taken.

15.  Mr Pilbrow submitted that the effect of admitting the new evidence would be the displacement of the valuation date as directed by the judge.  If the date for the valuation of Welton USA were to be changed, the valuation of the other assets would have to be adjusted accordingly.  Conversely, if the date of valuation was not changed, the new evidence was simply irrelevant and it could not form the basis for re-opening the judge’s finding that Welton USA should be valued on a going concern basis at US$5.9 million.

16.  We agree.  In Barder v Caluori [1988] AC 20, Lord Brandon identified four conditions which must be satisfied before leave to appeal out of time can be granted from an order for financial provision or property transfer made after a divorce on the ground of new events:

“The first condition is that new events have occurred since the making of the order which invalidate the basis, or fundamental assumption, upon which the order was made, so that, if leave to appeal out of time were to be given, the appeal would be certain, or very likely, to succeed. The second condition is that the new events should have occurred within a relatively short time of the order having been made. While the length of time cannot be laid down precisely, I should regard it as extremely unlikely that it could be as much as a year, and that in most cases it will be no more than a few months. The third condition is that the application for leave to appeal out of time should be made reasonably promptly in the circumstances of the case. To these three conditions, which can be seen from the authorities as requiring to be satisfied, I would add a fourth, which it does not appear has needed to be considered so far, but which it may be necessary to consider in future cases. That fourth condition is that the grant of leave to appeal out of time should not prejudice third parties who have acquired, in good faith and for valuable consideration, interests in property which is the subject matter of the relevant order.”

17.  In the present case, we do not think the husband can meet the first condition.  Though superficially it may be argued that Mr Sherman’s evidence (if accepted) suggested the assumption that Welton USA continued to be a going concern was wrong, we are not satisfied that the reception of the evidence would lead to the result that the appeal by the husband is certain, or very likely, to succeed.  First, the primary issue in the appeal is what should be the award to the wife, the valuation of the husband’s interest of Welton USA on the date of valuation is only a subsidiary issue.  Given the disputes on the reliability of Mr Sherman’s evidence and the adjustment of the date of valuation, it is by no means certain, or very likely, that even if Mr Sherman’s evidence were taken into account, the final outcome would be different.  Bearing in mind the relatively small impact on the overall award and the likelihood of further substantial costs being incurred if the evidence is admitted, it may well be that if the incidence costs are added to the equation, the practical result would not be too different.

18.  Actually, the husband might even be worse off because in our view, if there were to be a retrial on this issue, it is most likely that the husband would have to bear a substantial part (if not the whole) of the colossal costs of the first trial which was wasted.  We can say this because from the history of the proceedings before the judge, it was plain that the judge had given ample opportunity to the husband to call Mr Sherman as a witness.  However, he refrained from doing so and was content with the evidence of the interview of Mr Sherman by the experts.  In light of such evidence, for the reasons she gave in her judgment, the judge was perfectly entitled to come to her finding that as at the valuation date of 30 April 2013 the value of Welton USA should be assessed on a going concern basis. 

19.  In so saying, we are of course aware that the judge did order the husband to pay the costs of the wife in the ancillary relief application.  However, the husband is appealing against the award on other grounds and if he succeeds, there might be arguments on whether the costs order of the judge should be disturbed.

20.  In W v H [2009] HKFLR 230, Stone J (sitting as an additional judge in the Court of Appeal), in rejecting an attempt to re-open an ancillary relief award on the basis of fall in share prices and house values in the midst of global economic collapse, agreed with the observations of Thorpe LJ in Myerson v Myerson [2009] EWCA Civ 282.  The relevant passage was actually a citation from an earlier judgment of Hale J (as she then was) in Cornick v Cornick (1994) 2 FLR 530.  At paras 28 to 30, Thorpe LJ said:

“28. The judgment of Hale J is of particular value since she analyses what circumstances will satisfy Lord Brandon’s test and equally what circumstances will not satisfy his test. Her judgment then advances three possible categories, the first of which does not qualify for relief, the second and third of which may qualify. In the commentary that precedes the categorisation there is this paragraph at 531:

‘Where such a dramatic change in the comparative wealth of the parties takes place very shortly after a capital settlement in divorce proceedings, it is not surprising that the disadvantaged party should want the settlement set aside in some way. But it is only possible to do this in very limited circumstances and it is important not to allow ones natural sympathy for the position in which the wife finds herself to colour the application of those principles to the facts of the particular case.’

29. Again on the following page I cite this paragraph:

‘There are three possible interpretations of a situation such as this. The first is that it is simply a change in the parties circumstances which has taken place since the order. This would not normally give rise to any case for reopening matters. The Matrimonial Causes Act 1973 does not allow for the variation of capital settlements, including lump sum orders save as to instalments. Capital settlements are by their nature intended to be final. They have to be based upon a snapshot taken at the time of trial. The court has to do its best with the evidence available to apply the considerations which the court has, under section 25 of the 1973 Act to take into account at the time. Under section 25(2)(a), these include the assets which each party has or is likely to have in the foreseeable future.’

30. I come now to her analytical categorisation which appears at 536:

‘On analysis, therefore, there are three possible causes of a difference in the value of assets taken into account at the hearing, each coinciding with one of the three situations mentioned earlier:

(1) An asset which was taken into account and correctly valued at the date of the hearing changes value within a relatively short time owing to natural processes of price fluctuation. The court should not then manipulate the power to grant leave to appeal out of time to provide a disguised power of variation which Parliament has quite obviously and deliberately declined to enact.

(2) A wrong value was put upon that asset at the hearing, which had it been known about at the time would have led to a different order. Provided that it is not the fault of the person alleging the mistake, it is open to the court to give leave for the matter to be reopened. Although falling within the Barder principle it is more akin to the misrepresentation or non-disclosure cases than to Barder itself.

(3) Something unforeseen and unforeseeable had happened since the date of the hearing which has altered the value of the assets so dramatically as to bring about a substantial change in the balance of assets brought about by the order.  Then, provided that the other three conditions are fulfilled, the Barder principle may apply.  However, the circumstances in which this can happen are very few and far between.  The case-law, taken as a whole, does not suggest that the natural processes of price fluctuation, whether in houses, shares or any other property, and however dramatic, fall within this principle.’ ”

21.  Since it was the deliberate choice on the part of the husband in not calling Mr Sherman as witness at the trial before the judge, we do not think this is a case falling within category (2).  Further, since the question of liquidation of Welton USA had always been on radar when the experts did its valuation, it cannot be suggested that it was an unforeseen development.  Nor are we satisfied that it would bring about a dramatic alteration of the value of the assets.  Thus, the case does not fall within category (3).

22.  Though valuation on a going concern basis is different from a liquidation basis, what we have here is not a liquidation of Welton USA in the usual sense.  This is clearly borne out by the evidence of the experts on a true liquidation basis.  As stated earlier, though the judge took the going concern basis, she ultimately adopted the asset approach, which she also observed to be the correct approach in the event of orderly liquidation.  And this is as far as Mr Sherman’s evidence could take the husband’s case to: an orderly liquidation.  Thus, in the end, the difference in values between Mr Sherman’s new evidence and the judge’s assessment does not stem from whether valuation should be done on going concern basis or orderly liquidation basis.  It is, at the highest, only a function of price fluctuation over time (as such coming within category (1) for which no account should be taken on appeal).  Alternatively, it may simply be a difference between the opinions of the expert (which was adopted by the judge in the valuation exercise) and the actual reckoning of the values of the assets as a matter of negotiation between Mr Sherman and the purchaser of the assets in the orderly liquidation.  Neither of these can afford a ground for re-opening the valuation by the judge.

23.  Mr Sussex referred us to Robson v Robson [2011] 1 FLR 751 where Ward LJ suggested at para [59] that admission of fresh evidence in an appeal brought within time should not be considered on the same approach as Barder v Caluori, supra.  His Lordship was of the view that the relevant test for the former situation is Ladd v Marshall [1954] 1 WLR 1489.  With respect, we do not think Barder v Caluori is wholly irrelevant in an appeal brought within time.  Even in the context of Ladd v Marshall, the court must examine whether the fresh evidence would probably have important influence on outcome.  If a new event cannot have influence on the outcome for the reasons explained by Hale J in Cornick v Cornick, supra, the evidence of such event should not be admitted.  In this respect, we echo the observation of Hughes LJ in Robson v Robson, supra, at [96]:

“The Ladd v Marshall criteria of former unavailability, important significance and credibility are principally designed for evidence relating to past events. It does not follow that because evidence of new events is, by definition, evidence which was not available at trial, it should be admitted, and the reverse will normally be true. A great many judicial decisions involve an attempt to forecast uncertain events. That is particularly true of ancillary relief trials. In particular, the market value of assets is almost bound to move; if it does, that does not constitute a reason for re-opening the judge’s decision, and the public interest (and also that of the parties) in a single final determination by the judge ought to prevail. …”

24.  Subject to our observations on case management at the beginning of this judgment, we think the correct approach is the one adopted by this court in TL v SN [2010] HKFLR 506 at [103] to [106].  In our view, the reason why the court rejected the admission of fresh evidence in that case is equally applicable in the present case.

25.  In the present circumstances, having considered all relevant matters as set out above, we came to the firm conclusion that the new evidence should not be admitted and we ordered accordingly.