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FCMC 7235/2015
[2019] HKFC 129
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
MATRIMONIAL CAUSES NO. 7235 OF 2015
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| BETWEEN |
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CSY |
Petitioner |
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and |
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CPK |
Respondent |
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| Before : Deputy District JudgeDoris To in Chambers |
| Date ofHearing : 4, 5, 6, 11 December 2018 and 2 January 2019 |
| Date of Decision : 16 May 2019 |
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Decision
(Ancillary Relief)
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1. This is the hearing of the Petitioner/Wife’s (“W”) claimagainst the Respondent/Husband (“H”) for ancillary relief for herself and the 3 children of the family.
Relevant Background Facts
2. W and H were both born in Hong Kong. W was born in January 1984, now aged 35; H was born in March 1979; now aged 40.
3. They married in May 2010 when W was 4-month pregnant. 3 daughters were born in the wedlock respectively in September 2010, August 2012 and February 2014, now aged 8, 6 and 5.
4. W was a kindergarten teacher until she became a full time mother in 2011 after the birth of the 1st daughter. During 2013 and 2015 she has worked again from time to time on a part-time basis. W is now an insurance agent.
5. In October 2004 when H was only at his mid-20’s, he started to work as a sales manager for his family company which imports and exports plastic flowers (“A Ltd.”). In June 2005 he became a 50% shareholder of A Ltd; his mother owned the other 50% of shares. H was at that time also appointed a director until he resigned in around December 2015. According to the Single Joint Expert Report, valuation of H’s shares in A Ltd is $4,390,000.
6. The former matrimonial home at Banyan Garden on Lai Chi Kok Road Kowloon (“the Former Matrimonial Home”) was purchased in 2012 in H’s sole name. It was purchased with a down payment of $3,192,000 and a mortgage loan with HSBC for $4,788,000.
7. The Former Matrimonial Home is a property of approximately 1,000 sq. ft.; H is still living there by himself. Valuation of the Former Matrimonial Home is agreed at $13,250,000; outstanding mortgage loan at the time of trial is $4,311,334.
8. Shortly after W and the 3 daughters moved out of the Former Matrimonial Home in about May/June 2015, they have been living with W’s parents in their property which is a 400 sq feet apartment. Since June 2018, W has employed a domestic helper to assist in taking care of the 3 daughters when W is at work.
9. In June 2015 W issued Petition for Divorce on the grounds of unreasonable behavior. It was undefended; decree nisi was granted on 1 April 2016.
10. By Order dated 18 June 2017, W and H were granted joint custody of the 3 daughters, with sole care and control to W and defined access to H.
11. There is no question that the marital standard of living is average middle-class but not luxurious or lavish. In August 2016, the Court granted maintenance pending suit in the sum of $60,000 ($18,000 for W and $42,000 for the 3 daughters). H provided undertakings to continue to pay for the school fees, school bus and school books of the daughters and for the mortgage, management fees, rates and government rent of the Former Matrimonial Home (“the MPS Order”). Of the MPS award of $60,000, $15,000 was ear-marked as monthly rental expenses.
12. Unfortunately, H did not abide by the MPS Order. In December 2016, H unilaterally reduced the monthly MPS payment of $60,000 to $15,000, and has persistently been late in paying for the daughters’ school fees, school bus, and school book fees.
13. There were Garnishee proceedings and an application for Income Attachment Order in January 2017 for the recovery of the outstanding arrears in maintenance and to secure future payment of maintenance. Due to H’s refusal to abide by the undertakings provided to the Court under the MPS Order, W has also issued Committal proceedings against him in April 2017. All these proceedings are still pending.
Legal Principles
14. The law on how to exercise the Court’s powers on ancillary relief have become well-settled after the Court of Final Appeal decision in LKW v DD [2010] 6 HKC 528. Mr Justice Ribeiro PJ reiterated the four underlying principles: (1) fairness; (2) the absence of discrimination; (3) the upholding of the concept of the yardstick of equality; and (4) the rejection of a need for a minute retrospective investigation of parties’ finances. The case of LKWhas also laid down the four-step approach to be adopted in determining ancillary relief.
15. The first step is to identify assets and financial resources.
“71. The first step in the exercise is to ascertain the financial resources of each of the parties calculated as at the date of the hearing. In particular, under s.7(1)(a), the court must have regard to ‘the income, earning capacity, property and other financial resources’ which each of the parties ‘has or is likely to have in the foreseeable future’. The object will of course be to compute the net financial resources, taking account of all material liabilities. At this stage, the court need not attempt to distinguish between matrimonial and non-matrimonial property, that being an exercise best undertaken (if necessary) when considering distribution of the assets.”
16. The second step is to assess the parties’ financial needs.
“77. As s 7(1)(b) indicates, the process of evaluating ‘needs’ involves assessing the financial needs, obligations and responsibilities which each of the parties has or is likely to have in the foreseeable future in the light of present and foreseeable resources. The matters referred to in s 7(1)(c) to (e), that is, standard of living, age and disability, will often be relevant. As Lord Nicholls put it in White:
‘Financial needs are relative. Standards of living vary. In assessing financial needs, a court will have regard to a person’s age, health and accustomed standard of living.’
78. And in Miller/McFarlane his Lordship stated in respect of ‘needs’:
‘When the marriage ends fairness requires that the assets of the parties should be divided primarily so as to make provision for the parties’ housing and financial needs, taking into account a wide range of matters such as the parties’ ages, their future earning capacity, the family’s standard of living, and any disability of either party. Most of these needs will have been generated by the marriage, but not all of them. Needs arising from age or disability are instances of the latter.’
79. Baroness Hale stressed that the parties’ needs should be ‘generously interpreted’. Accordingly, in trying to ensure that each party and their children have enough to supply their needs set at a level that equates, insofar as resources allow, to the standard of living they enjoyed during the marriage, those needs should not be assessed according to some perceived lowest common denominator, but with flexibility in the light of all the relevant circumstances.”
17. The third step is to decide whether the “sharing principle” is applicable.
“80. If surplus assets would remain after the parties’ needs have been catered for, the next step in the exercise should generally be for the court to apply the sharing principle to the parties’ total assets, leaving the ‘needs’ question previously considered to be dealt with under that principle (as pointed out by Sir Mark Potter P in Charman v Charman (No 4) cited above). In other words, the court should not make an immediate allocation but should return to ‘needs’ for them to be dealt with alongside all other material factors in the processes described below as Steps 4
……
82. The point reached at this third stage of the s 7 exercise therefore involves the court deciding that the sharing principle applies and taking the view that the total assets should be divided equally between the parties unless there is good reason, capable of articulation, for departing from an equal division. It is worth emphasizing, however, that as pointed out by Lord Nicholls, the court will often ultimately not arrive at an equal division."
18. The fourth and final step is to consider whether there are good reasons for departing from equal division.
Issues for Determination
19. Adopting the 4-step approach, the following are issues for determination.
20. Identification of assets and financial resources:
(a) What are the disclosed assets?
(b) Did H has hidden assets?
(c) Whether there was a $1,000,000 advancement by H’s parents for the purchase of the Former Matrimonial Home in August 2012? If yes, whether it was a loan or actually a gift to H or a “soft loan” which need not be repaid?
(d) What are parties’ income and earning capacity?
21. Assessment of the parties’ financial needs and obligations:
(a) Whether H’s loans from his parents (apart from the $1,000,000 advancement aforementioned) represent “soft loans” which need not be repaid?
(b) Whether W’s loans from her friends and mother represent “soft loans” or do they have to be repaid?
(c) What are the reasonable needs of H, W and the 3 daughters?
22. Whether the “sharing principle” is applicable?
23. Whether there are good reasons for departing from equal division?
(a) Whether H’s conduct constitutes “gross and obvious” conduct that should be considered as a departing factor from equality?
(b) Whether W’s continuing contribution as the primary carer of the 3 daughters for future years should be reflected as a departing factor from equality?
24. What are the ancillary relief orders that should be made for the parties and the 3 daughters in light of all the relevant circumstances and considerations including the section 7 factors of MPPO?
(a) Should there be an “add-back” by W of the sum of $1,000,000 withdrawn from her bank accounts between December 2014 and October 2015?
(b) How should the arrears of interim maintenance payment be reflected in the ancillary relief order?
W’s Open Proposal
25. W’s open proposal is for H paying her a lump sum, and periodical maintenance payment for herself and for the 3 daughters.
26. According to W, total matrimonial assets should be around $18,000,000; this includes net sale proceeds of the Former Matrimonial Home, H’s shares in A Ltd valued at $4,390,000, and H’s hidden assets of over $4,400,000. After deducting her loan liabilities of $400,000 therefrom (although the amount of loans has up to trial accumulated at $949,500), there should be a sum of $17,600,000 available for distribution.
27. W said there should be a departure from equal division whereby W is entitled to 70% and H 30% of the family pot. Hence W is entitled to a lump sum payment of $12,320,000 (70% of $17,600,000).
28. It is proposed that the Former Matrimonial Home be sold at not less than $13,250,000. After deducting the outstanding mortgage as well as conveyancing and related expenses, the net sale proceeds (around $8,850,000) shall be paid to W as part of the lump sum payment.
29. H should pay to W the balance of the lump sum (around $3,470,000), and an extra sum of $400,000 being equalization money for W’s loan liabilities.
30. H shall pay to W periodical maintenance payment of $10,000 per month during the joint lives of the parties or until W remarries, whichever is the earlier.
31. H shall pay to W $67,000 per month as periodical maintenance payment for the 3 daughters ($28,000 for the eldest daughter, $21,000 for the 2nd daughter and $18,000 for the youngest daughter) until each child reaches the age of 18 or completes full time education, whichever is the later.
32. W requests the said periodical maintenance payments for W and the 3 daughters to be secured against a reasonable amount to be paid by H into court.
33. H should also pay back to W the arrears of interim maintenance under the MPS Order, with interest.
H’s Revised Open Proposal
34. There is a huge gap between parties’ open proposal. H’s open proposal makes no provision for lump sum payment nor periodical maintenance payment for W. His proposal deals mainly with maintenance for the 3 daughters.
35. H agreed the Former Matrimonial Home be sold. Out of the net sale proceeds, $1,000,000 will be used to repay the loan to his parents ($500,000 to his father and $500,000 to his mother).
36. Then 2 respective sums of $3,024,000 and $1,260,000 will be ring-fenced as the Children’s Fund and the Rent Fund.
37. The remaining sum of about $2,800,000 is to be kept by H to repay his outstanding loans and liabilities including his legal fees.
38. Regarding the Children’s Fund of $3,024,000, H contends that it is sufficient for the 3 daughter’s living and education expenses for 7 years, calculated on the monthly sum of $36,000. H proposes the said sum of $3,024,000 be paid into Court with a fixed sum of $36,000 paid out to W each month. Any shortfall is to be borne by W.
39. Regarding the Rent Fund, it will be solely used for the rental of a property for W and the 3 daughters for the next 7 years, calculated on the basis of $15,000 per month. Any shortfall is to be borne by W. The said sum shall be paid into a bank account to be opened and held in the joint names of H and W.
40. H also proposed the following as future maintenance for the 3 daughters. Upon the expiration of 7 years, H do pay W a sum of $36,000 per month for maintenance of the 3 children (i.e. $12,000 for each child) until each child attains the age of 18 or finishes full-time education, whichever is the later. Any shortfall is to be borne by W. The amount of maintenance would be adjusted by reference to the Hong Kong Consumer Price Index over the previous 7 years.
41. H proposed that the arrears of interim maintenance be dealt with and reflected in the outcome of the ancillary relief order.
Discussion & Analysis
Identification of assets and financial resources
(a) What are the disclosed assets?
42. There is a significant difference in parties’ respective calculation of assets for distribution. The main item of disagreement is whether H’s shares in A Ltd should be excluded from the matrimonial pot. I shall consider what approach to take regarding H’s business.
43. A Ltd was incorporated in around June 2015, taking up the business of H’s father. A Ltd started off with 3 to 4 employees; currently there are 9 employees including H, his father and mother. There should be no question that it is a small family-run business.
44. H relied on CCYM v PWH, unreported, FCMC 1544/2103 2 February 2015 where HH Judge Melloy has dealt with the same issue, making reference to 17.61 of Rayden (18th edition) and the commentary at p 834 of the family law book Butterworths Family Law Service.
45. The discussion can be summarized as follows:
Small companies of [the nature of a small family-run business] are generally only worth what someone is willing to pay for them. The Court must be realistic in dealing with figures for valuations, they are not in all cases the equivalent of cash, and in some cases, the Court must recognize that it may be impossible with any reasonable precision to place any value on a shareholding. It is necessary to look at the commercial reality of the situation beyond simple valuation exercises and consider whether there is a ready market for the shares or any business assets, how many could be raised by any of the business, and the impact that would have on companies as going concerns.
46. As stated in paragraph 31 of the Expert Valuation Report, the assessments of value with respect to A Ltd are considered in accordance with the International Valuation Standards, which defines market value as the “estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction”.
47. H only owns a 50% share and there was no intention to sell. The facts of the present case have many similarities with CCYM v PWH. I adopt the observation and finding therein and will not place H’s equity interest in the matrimonial pot for division purpose.
48. However, since the value of H’s shares lies primarily in its income-producing ability, this is highly relevant in the assessment of H’s income and earning capacity, particularly in light of the fact that A Ltd has been generating profits over the review period (paragraph 30 of the Expert Valuation Report). Further, H’s actual role and relationship with A Ltd will also be considered in achieving the overall fairness.
(b) Whether H has hidden assets?
49. W said H has hidden assets in the amount of over $4,427,226 :
$3,518,000 + $909,226
50. There were a number of cash withdrawals of significant sums by H from his HSBC premier account since November 2014, shortly before separation and at a time when W had already threatened divorce. Within the 17 months from November 2014 through March 2016, there were altogether 32 withdrawals which amount to $3,518,000. Amount of each withdrawal ranged from $13,000 to $600,000.
51. Further, there were significant cash withdrawals by H from hisforeign exchange account with HSBC. Within the 7 months from June to December 2015, there were altogether 13 cash withdrawals of foreign currencies which amount to an equivalent of HK$909,226.
52. In H’s 1st Answer, his explanation for all these cash withdrawals was that it was for exchanging foreign currency for clients of A Ltd, for personal use and business expenses.He explains that “when such clients travel to Hong Kong or China to do business with the Company, whether on sourcing trips or otherwise, the [Husband] would assist the clients in exchanging the foreign currency from their home country (e.g. CHF, EUR, USD) into HKD or RMB at the best possible rate. At times, the [Husband] would assist business partners with exchanging RMB in USD or EUR for their further business travels.”
53. W challenged that there is noevidence of corresponding deposits by these so-called “clients” to either provide H with the foreign currency for exchange or to subsequently reimburse H for the same.
54. H testified that about 20% of the withdrawals were spent on personal use and is no longer traceable; 80% of the withdrawals (over $3,500,000) were for foreign currencies exchange. H produced at trial a list of entries with an attempt to matching withdrawals of $2,778,000 with deposits of $2,730,608. However, the bank statements which H referred to did not show corresponding entries. The deposits are mostly in very small amount of thousands; H explained that deposits were made in small sums to avoid bank charges.
55. H said it would be very difficult to explain and match each withdrawal in the absence of transaction records. When asked why he did not keep record, he said there were records in his mobile phone but could no longer be retrieved, and there were records on some small pieces of notepaper but were already thrown away. H denied having hidden any money.
56. Given the large amount and frequency of the withdrawals, the alleged foreign currencies exchange must be assessed cautiously and viewed with reservation. H said the service could not be provided by using A Ltd’s bank accounts because of auditing problem, so he had to use his personal accounts. H said he had no gain in providing the service, sometimes he even suffered loss due to fluctuation of currency exchange rates.
57. While it is understandable that at times H would offer to exchange some foreign currencies with his overseas clients who needed some petty cash, it is hard to accept the scale of service involving millions of dollars.
58. While H on one hand stressed the importance and necessity to provide such service in order to maintain business relationship with his overseas clients, on the other hand H had purportedly stopped the foreign exchange service by March 2016. When cross-examined on this, he said he did not want to provide the service any longer because he was afraid that he would have to explain these transactions in Court.
59. I reject H’s evidence of the foreign exchange service. I find that H has dissipated the sum of around $3,500,000. W proposed to have the dissipated sum added back to the ‘matrimonial pot’ for distribution. However, there is no evidence of the whereabouts of this sum of money, it is therefore more appropriate to deal with the dissipation by considering a claw-back from H’s side of his balance sheet.
(c) H’s alleged loan of $1,000,000
60. According to H, in order to pay for the down payment of $3,192,000 in the purchase of the Former Matrimonial Home in August 2012, he had borrowed $1,000,000 from his parents ($500,000 from father and $500,000 from mother). W disputed this. The issue is whether the advancement was made; if yes, whether it was a loan, or actually a gift to H, or a “soft loan” which need not be repaid.
61. Despite W’s requests, H has not provided any documentary evidence in support. There are no bank statements showing deposits of the said sum into H’s bank account. On the other hand, evidence showed that the cheque in the sum of $698,663 being further deposit payment was made by H to his solicitors, not by his parents.
62. In the attempt to explain why there were no documents to show the transfer, H under cross-examination said his parents gave him the $1,000,000 in cash. His parents used to transact in cash, and they always keep huge amount of cash in the safe at home. H further explained that he did not deposit the money into his bank accounts because this is a businessman practice. I find H’s evidence wholly incredible.
63. W contended that there was no reason why H needed to borrow as much as $1,000,000 from his parents at the time of the acquisition of the Former Matrimonial Home. Not long before the purchase of the Former Matrimonial Home in August 2012, H has sold a self-owned property in May 2012 for $4,750,000. After the discharge of outstanding mortgage of around $2,000,000, H has received a net sum of around $2,750,000.
64. During cross examination, H changed his evidence and said that the $1,000,000 loan was not directly for the purchase of the Former Matrimonial Home but to pay for other expenses. This is contradictory to what he said in his Form Es and Affirmations.
65. It is noteworthy that since the purported advancement, there has been no repayment by H notwithstanding that he has received from A Ltd the dividends of $300,000 in 2014 and $400,000 in 2016. There was never any demand by his parents for repayment.
66. By reason of the aforesaid, I reject H’s evidence that his parents have advanced the sum of $1,000,000. Even if they have, I would still regard it as a gift to H as opposed to a loan. H testified under cross-examination that when the money was given to him, his father said “你都大個仔，成家立室啦…..”. I do not think such affectionate and earnest expression of a father sits well with lending of money to a son; it is more like a token of kindness and gifting by a senior member of the family.
67. By reason of the aforesaid, I reject H’s allegation that he had borrowed $1,000,000 from his parents in August 2012. The alleged sum is therefore not a liability of H to be deducted from the sale proceeds of the Former Matrimonial Home.
(d) What are parties’ income and earning capacity?
H’s Income/Earning Capacity
68. As a 50% shareholder, H works for A Ltd as the Director of Sales, earning $54,500 per month net of MPF. Taking into account an extra month’s bonus, H earns around $59,000 per month net.
69. Historically, as a director and shareholder of the Company,H was paid director’s remuneration of $59,167 per month for the year 2014/2015. Although he did not receive any dividends for 2016, he did receive dividends of $300,000 in 2015 and had received dividends of $400,000 in 2017.
70. The Court’s consideration is not limited to income but what is actually H’s earning capacity. As discussed in paragraph 48 above, the value of H’s shares in A Ltd lies primarily in hisincome-producing ability. Unlike what H describes the family business as a ‘sunset’ or ‘dying’ business, A Ltd has been generating profits and declaring dividends. H’s father was still willing to inject more than $5,000,000 as a director’s loan into A Ltd; H himself was willing to loan to A Ltd for more than $1,200,000. Entertainment expenses have been increasing over the years which means A Ltd continues to be actively marketing for business.
71. H has been the director of the Company until he resigned in around December 2015, shortly after W issued the Petition. H said it was his father who requested him to resign as a result of his unsatisfactory performance due to the divorce proceedings. When the arrangement is considered against timing and cause, I agree with W’s contention that the resignation is highly artificial and more likely than not H is still de facto in control of A Ltd. There is evidence that H is treating the business as his own; the Former Matrimonial Home was pledged as security for a HSBC Export Credit Facility security for A Ltd. It is also within reasonable expectation that H would one day succeed her mother’s interest and own the entire business.
72. In considering H’s financial capacity, onesignificant feature in the present case is the non-disclosure of his actual finances. This is evident from H’s conduct throughout these proceedings beginning with his 1st Form E and his 1st Affirmation contending that “I have only one bank account in Hong Kong…”.
73. This is a blatant lie. HH Judge G. Chan had the following comment in her MPS Judgment :-
“29. … A closer look into the monthly statements of his Main HSBC Premier Account, however, will show that what he alleges is plainly untrue, because the said monthly statements reveal that he has/had at least 4 other premier accounts, a SmartVantage Account, an Advance account, a FCY current account, a SEC margin settlement account, all held with HSBC (“the Undisclosed Accounts). He has failed to provide the monthly statements of these accounts… I am thus of the view that the husband has failed to make full and frank disclosure for the purpose of this hearing.”
74. H had also failed to disclose at that time that he had three additional accounts held jointly with his 3 daughters respectively, all of which he accepted under cross-examination that he had sole control.
75. Indeed, W had some last minute disclosures regarding her employmentand income which she could have updated much earlier.However, such late disclosure pales in comparison to H’s deliberate non-disclosure of bank accounts. It therefore lies ill in the mouth of H to complain about W’s late disclosure when he himself has failed to observe his duty for full and frank disclosure.
76. It goes without saying that parties in matrimonial proceedings have an absolute, positive and continuing duty to give “full and frank disclosure of his or her own means”. Deviation from the standard of disclosure required may be visited by the court drawing adverse inferences against the party in default.” See: Rayden and Jackson on Divorce and Family Matters, 18th Edition, Chapter 17.28; Baker v. Baker [1995] 2 FLR 829; J-P C v J-A F [1955] P215, [1955] 2 All ER 617 CA
77. The obligation was also summarized by Lam J. in L v. L, HCMC 1/2003 (FCMC 9860/2001)(18 November 2005), at §§197-8 at p.81F-S where he stated that:
“197. … A good litmus test for distinguishing a bona fide fulfillment of the duty to give disclosure from an attempt to obfuscate is to ask whether the answer or the material can on its own meaningfully assist in informing others as to the means of that party…
“198. It is high time that litigants in matrimonial proceedings and those advising them should appreciate that affirmation of means and answer to questionnaire are not a game of hide and seek. Too much legal costs and judicial time had been spent on such wasteful exercise. As stressed by Mr. Mostyn, the onus falls squarely and fairly on a party to give full and frank disclosure of his or her own means. To adopt a wait and see approach with a hope that the opponent might fail to ask the right question is a tactic to be deplored. That by itself is a breach of the positive duty to give disclosure. As Coleridge J. put it recently in J v V [2004] 1 FLOR 1042 “all cards must be put on the table face up at the earliest stage if huge costs bills are to be avoided.””
78. Mostyn J in NG v SG (appeal: non-disclosure) [2011] EWHC 3270 (Fam)had summarized the approach on a parties’ non-disclosure as follows:-
“16. Pulling the threads together it seems to me that where the court is satisfied that the disclosure given by one party has been materially deficient then:
(i) The Court is duty bound to consider by the process of drawing adverse inferences whether funds have been hidden.
(ii) But such inferences must be properly drawn and reasonable. It would be wrong to draw inferences that a party has assets which, on an assessment of the evidence, the Court is satisfied he has not got.
(iii) If the Court concludes that funds have been hidden then it should attempt a realistic and reasonable quantification of those funds, even in the broadest terms.
(iv) In making its judgment as to quantification the Court will first look to direct evidence such as documentation and observations made by the other party.
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(viii) The Court must be astute to ensure that a non-discloser should not be able to procure a result from his non-disclosure better than that which would be ordered if the truth were told. If the result is an order that is unfair to the non-discloser it is better that than that the Court should be drawn into making an order that is unfair to the Claimant.”
79. By reason of the above, the Court is entitled to draw adverse inference that H’s income and earning capacity is much higher than what he claims. This inference is also supported by the following.
80. H was the main breadwinner of the family and during the marriage he had been paying the mortgage, management fees, government rates and rent, and utilities for the Former Matrimonial Home; the daughters’ school fees, school bus expenses and interest class fees, and their medical insurance policies. On top of this, he would pay to W lump sums to cover all other expenses.According to H, in 2015these expenses alone were approximately $35,000 per month.
81. Further, between 2011 and 2015 H had paid the following lump sums to W:-
2011: $250,000 ($20,833 per month);
2012: $250,000 + $50,000 ($25,000 per month);
2013: $350,000 + $50,000 ($33,333 per month);
2014: $600,000 + $60,000 ($55.000 per month)[1];
2015: $200,000 (until May 2015) ($40,000 per month).
82. The above showed that even on H’s case, he had been living beyond his means. Despite the shortfall, the balance in H’s HSBC Premier Account has increased from about $881,667 in December 2014 to $2,042,279 in May 2015. H’s credit card liabilities in 2015 was only $40,000.
83. All these beg the question of where did the shortfall come from in all these years. The logical inference must be that H has some other financial resources.
W’s Income/Earning Capacity
84. W is an insurance agent; income is commission-based. Her average monthly income for the 10 months from December 2017 to September 2018 inclusive is $38,124. This has taken into account a monthly bonus of $10,000 which W is entitled to only in the first 18 months of service; such term will cease by June 2019.
85. W said it is unlikely she can maintain this income in future. In the past 10 months, she has been getting subscriptions through her close friends and family (including purchasing policies for herself and the daughters) which is reflected in a spike of her earnings during this time. W does not have that many other friends who can purchase policies from her.
86. W contend that her earning capacity should also be viewed in the light that she is the primary carer of the 3 daughters. This may limit the amount of time that she can meet clients. W’s estimate of her income in future will be around $20,000 to $25,000 per month.
87. Having considered the above, I think it is realistic that W would be able to earn $30,000 per month on average. Although W has to attend to children matters, she has the assistance of a domestic helper; working hours of an insurance agent is flexible. With time and experience in the career, W should be able to build up her clientele instead of relying solely on close friends and relatives.
Needs of the Parties and Children
Obligations & Liabilities of H and W
H’s loans of $1,700,000
88. Apart from the said purported loan of $1,000,000 in 2012, H said he has obtained the following loans from his parents during 2016 and 2018 which amount to a total of $1,700,000:-
$300,000 from his father on 17 May 2016;
$100,000 from his mother on 16 November 2016;
$200,000 from his mother on 28 September 2017;
$250,000 from his mother on 15 August 2018;
$200,000 from his mother on 11 October 2018; and
$650,000 from his mother on 26 November 2018
89. The dispute is whether the above loans are “soft loans” which are not real liabilities of H.
90. Each loan was supported by a respective Personal Loan Agreement signed by H and either his father or mother. The loans are purportedly interest free and can be repaid either in one lump sum or in monthly instalments determined by H “when he is capable” on or before a specified date. There are no collateral and no penalties for non-payment.
91. Neither of H’s parents has been called as witnesses or filed any Affirmation in support of H’s allegation of the loans. The Court is entitled to draw the necessary adverse inferences against H when an available witness to a material fact could have been called but was not (see: Ip Man Shan Henry v. Ching Hing Construction Co. Ltd (No.2) [2003] 1 HKC 256 at 307B paragraphs 155 and 156).
92. These loans appear artificial. Prior to the divorce, no loans were necessary; H could even loan to A Ltd the sum of $600,000 in 2015. H explained that the loans were used for paying legal fees. There are no documents in support of payment, and the amount of loans exceeded the figures in Form H (Estimate of Costs) dated 29 November 2018.
93. In breach of the MPS Order, H had only been paying maintenance of $15,000 per month. Therefore, with his salary income and dividends, it is hard to understand why he needed such large amount of loans.
94. I have grave doubt on whether those advancements were loans. Even if they were, the circumstances of the loans suggest that there is no pressing need for H to repay. I find them “soft loan” and will not regard them as a real liability of H (see: WLK v. TMC (FACV No. 21 of 2009)(CFA; 12 November 2010).
W’s loans of $949,500
95. Due to the H’s neglect to comply with the MPS Order, W had to borrow from her friends in order to maintain herself and the 3 daughters. Up to trial, the loans have accumulated to the total sum of $949,500. They comprised $759,500 from her 8 friends and $190,000 from her mother.
96. The loans from W’s friends are supported by loan receipts and are reflected in the respective deposits into W’s bank accounts. The repayment terms are usually within 2 to 2½ years, interest free.
97. H seeks to argue that these are “soft loans”, I disagreed. There is a significant difference between H’s loans and W’s loans, W borrowed from her friends where H’s loans are from his parents. Unlike a parent, a friend does not have any filial obligation to their child and it is highly unlikely that a friend would not seek repayment of the loans of significant amount.
98. I find that W’s loans from her friends of $759,500 (but not her mother’s) are real liabilities. However, I do not think it is appropriate to deduct this sum directly from the matrimonial pot. It should be dealt with in connection with H’s pay-back of arrears of maintenance. Otherwise, there will be double recovery.
What are the parties’ and the daughters’reasonableneeds?
99. Needs of the parties and the 3 daughters have to be assessed with reference to the standard of living enjoyed by them before the breakdown of the marriage.
100. W has detailed extensively the standard of living enjoyed by the family during the marriage in her 8th Affidavit. The family enjoyed private medical services;expenses for the birth of 3 daughters in private hospital, confinement lady fees and dry Chinese nutritional food, family holidays (at least twice a year) to places like Bali, Seoul, Australia, USA and Mexico; meals out of home at fine dining restaurants or hotels, The family had a use of a private vehicle and would take taxi if not driving. The family hashad use of 2 domestic helpers. H gifted to the Wife luxurious presents such as earrings, rings, watches, handbags and cosmetics (like Chanel, Dior, Valmont etc);
101. H also provided W with a supplementary credit card with limit of $84,000 for her and the children’s spending. Because of W’s genetic health problem with her family's history of the breasts tumours, and the eldest daughter also has eczema, a lot of attention was paid to maintain health care. The family would buy a lot of expensive nutritional food and health supplements and oils.
102. As observed by HH Judge Grace Chan in the MPS application, I agree that the family enjoyed a living standard comparable to an average middle class which is abundantly comfortable but not of a luxurious style.
The needs of W and the 3 daughters
103. At trial W submitted the following updated table of the needs/expenses for herself and the 3 daughters. Although H did not challenge each and every item during cross-examination of W, it does not prevent the Court to make necessary adjustment in order to achieve a fair and realistic outcome on financial relief. I have made the following adjustments.
General Expenses (shared among 4 persons):-
| Item |
W’s Estimate |
Remarks
|
Mortgage
rental inclusive of management fees |
$14,332 $18,000 |
Assuming that the Wife (after this trial) has to purchase a place for herself and the Children in Ma On Shan for around $9.5 million and to obtain a mortgage (with $6 million down payment) that she will be responsible for repayment.
implausible to purchase, a realistic outcome is to rent a property |
| Utilities |
$1,500 |
|
Management fees |
$1,500 |
Assuming that a property is purchased. |
| Food |
$16,000 $12,000 |
excessive |
| Household Expenses |
$3,000 |
|
| Car Expenses/Travelling Expenses |
$4,000 |
Assuming that the Wife will purchase a vehicle for the family in 2019 and these are the expenses for fuel, licenses and insurance. |
Domestic Helper
(salary, provision for food) |
$6,500 5,500 |
The Wife intends to employ a domestic helper so that she can return to gainful employment earning approximately $10,000 to $15,000 per month.
reasonably required so that W can work |
Subtotal
|
$46,832 $44,000 |
shared among 4;
each share is $11,000 |
W’s Personal Expenses:
| Item |
W’s Estimate |
Remarks
|
| Meals out of Home |
$5,000 $3,000 |
excessive |
| Transport |
$3,500 $1,000 |
provided for under general expenses |
| Clothing/Shoes |
$2,500 $1,500 |
excessive |
| Personal Grooming |
$2,500 $1,500 |
excessive |
| Entertainment |
$5,000 $2,000 |
excessive |
| Holiday |
$2,000 $1,000 |
excessive |
| Medical/Dental |
$1,500 |
|
| Others : mobile phone, monthly fees, ipad, insurance for W $2,400 |
$4,442 $3,400 |
excessive
*MPF of $1,500 not treated as expenses, relevant to ascertaining net monthly income |
Subtotal |
$15,500 $14,900
|
|
Children’s Expenses
| Item |
Amount (eldest child) |
Amount (2nd child) |
Amount (youngest
child) |
Remarks |
| School fees |
$3,850 |
$3,850 |
$2,158 |
currently reimbursed by H |
| Extra Tuition Fees |
$4,500
$2,500 |
$3,000
$1,500 |
$350 |
excessive |
| Books/Stationary |
$600
$350 |
$600
$350 |
$350 |
|
Transport to School (including school bus)
Other transport |
$1,275
$200 |
$1,275
$200 |
$960
$200 |
|
| Medical |
$2,500 (including Chinese medicine and Eczema) |
$500 |
$500 |
|
| ECA |
$2,250
$1,500 |
$950 |
$950 |
excessive |
| Entertainment/Presents |
$1,000
$500 |
$1,000
$500 |
$1,000
$500 |
excessive |
| Holidays |
$300 |
$300 |
$300 |
|
Clothing/Shoes
Uniform |
$300
$500$100 |
$300
$500$100 |
$300
$350$100 |
excessive |
| Insurance |
$518 |
$686 + $2,028 |
$646 + $2,422 |
see:
para 104 |
| School Lunches |
$350 |
$350 |
$0 |
|
| Others (creams, oils, supplements |
$2,500
$1,000 |
$1,750
$500 |
$1,750
$500 |
excessive |
| Subtotal |
$20,643
$15,243 |
$17,289
$11,261 |
$12,236
$7,814 |
|
| Total for Children’s Expenses |
$50,168
$34,318 |
104. H complained that in these difficult times, W should not have purchased insurance policies for herself and the Children. W explained that since she and her family have a history of breast cancer and it is cheaper and cost-effective to purchase the policies now whilst they are young. I do not think it is necessary to purchase life insurance at high premium at their young age; there are already medical insurance taken out for the 3 daughters. I believe it is more probable that W purchased the insurance plans to meet the minimum target value so W is entitled to the bonus of $10,000.
105. Taking into account that General Expenses of $44,000 are shared among 4, each person’s share would be $11,000per month. Hence, W’s expenses are $23,208 per month (i.e. $11,000+$14,900); total Children’s expenses is $67,318 per month with the following breakdown:
eldest daughter : $26,243per month (i.e. $11,000+$15,243);
2nd daughter : $22,261 per month (i.e. $11,000 + $11,261); and
youngest daughter : $18,814 per month (i.e. $11,000 + $7,814)
H’s Needs
106. H’s needs are set out in his 2nd Form E dated 17th October 2017 and has not been updated. I have made the following adjustment based on his reasonable needs upon sale of the Former Matrimonial Home.
General Expenses:
Item
|
H’s Estimate |
Remarks |
Mortgage
Rental inclusive of management fees |
$14,880 $15,000 |
Assuming that the Husband either rents an apartment for himself or purchases a property for himself and mortgage repayments of $14,880 per month.
implausible to purchase, a realistic outcome is to rent a property |
| Utilities |
$4,000 $1,500 |
excessive |
Management fees |
$1,879 |
|
| Food |
$3,000 |
|
| Household Expenses |
$500 |
|
Car Expenses/
Travelling Expenses |
$3,500 $3,000 |
excessive |
| Others |
$1,500 |
|
Subtotal
|
$29,269 $23,000 |
|
Personal Expenses
| Item |
W’s Estimate |
Remarks |
| Meals out of Home |
$3,000 |
|
| Transport |
$2,000 $1,000 |
Provided for under general expenses |
| Clothing/Shoes |
$1,000 |
|
| Personal Grooming |
$200 |
|
| Entertainment |
$500 |
|
| Holiday |
$1,000 |
|
| Medical/Dental |
$300 |
|
| Insurance Premia |
$1,946 |
|
Subtotal |
$9,946 $8,946
|
|
Therefore H’s reasonable expenses should be no more than $31,946 per month (i.e. $23,000 + $8,946).
Whether the “sharing principle” is applicable?
107. Both parties agree that this is a “needs” case. It is therefore unnecessary and impractical for H to pursue any argument against sharing based on short marriage and pre-marital asset.
108. Both parties are young, H is only 40 and W only 35; the 3 children are still at their young age. Parties’ needs will have to be met not only from the family pot, but also from parties’ respective income. A ‘clean break’ is impossible.
Whether there are good reasons for departing from equal division?
109. W proposed a departure from equal division in her favor based on (1) H’s conduct; and (2) W’s continuing contribution as the primary carer of the 3 daughters for future years.
Whether H’s conduct constitutes “gross and obvious” conduct that should be considered as a departure factor from equality?
110. W contends that H’s misconduct throughout the marriage constituted “gross and obvious” misconduct that is inequitable to disregard. W’s complaints are first set out in the Petition which was undefended. In her 8th Affidavit, W further elaborated on other negative conduct of H.
111. Although section 7(1) MPPO makes it the Court’s duty to have regard to the conduct of the parties, the Courts have recoiled from permitting the parties to indulge in a post-mortem of their marriage in order to find fault with each other or to air their mutual recriminations. Parties should not be permitted to embark upon costly, indecent and time-wasting investigation regarding conduct. Conduct is only relevant to financial provision if it was both obvious and gross.
112. As set out by Baroness Hale in the celebrated case ofMiller and McFarlane [2006] 2 WLR 1283:-
“Is there any need to qualify these aims, considered in the light of all the circumstances and the factors listed in section 25(2)? Two which have emerged in later case should, in my view, be firmly rejected: conduct and special contributions. … But once the assets are seen as a pool, and the couple as equal partners, then it is only equitable to take their conduct into account if one has been very much more to blame than the other: in the famous words of Ormrod J in Wachtel v Wachtel … the conduct had been “both obvious and gross”. This approach is not only just, it is also the only practicable one. It is simply not possible for any outsider to pick over the events of a marriage and decide who was the more to blame for what went wrong, save in the most obvious and gross cases. …”
113. This approach was accepted by the CFA in LKW v. DD, supra when Ribeiro PJ said,
“62. The fourth principle is that the court should not countenance any attempt to engage in costly and often futile retrospective investigations of the failed marriage which tend to deplete the parties’ (and the courts’) resources and to increase antagonism and discourage settlement.
63. Such attempts have been encountered in various contexts, including disputes over the extent of a party’s assets; over the contribution made to the welfare of the family; over the parties’ conduct; over claims to be compensated for having suffered some disadvantage, and so forth.
114. The conduct complained of must be negative and it must be recognizably ‘obvious and gross’ such that if it was not taken into account, it would “offend a reasonable person’s sense of justice” (see: Miller and McFarlane, supra, at paragraph 63).
115. Conduct need not have any impact on the property available for distribution before it could be taken into account. However, the conduct in question must be examined against the overall notion of fairness, before it can be decided whether there should be any adjustment on its account. It is necessary to search for the relevance of the conduct on the principles of needs, compensation and sharing. In respect of conduct which has no financial impact whatsoever, the relevance would be less apparent. TCWF v LKKS (No. 1) [2014] 1 HKLRD 896260
116. I find that W failed to establish that H’s negative conduct are both obvious and gross to justify departure from an equal division.
Whether W’s continuing contribution as the primary carer of the 3 daughters for future years should be reflected as a departure factor from equality?
117. W submitted that while there is an arduous task on her to be the primary carer of the 3 daughters for at least the next 18 to 20 years, H can concentrate on his career and accumulate his wealth. This type of continuing contribution should be reflected as a departing factor.
118. If there is any force or footing in this argument, it would mean in every case involving young children, there has to be departure from equal division in favor of the parent being granted care and control. This must be wrong in principle. The fact that W has to take care of the 3 daughters will definitely be a factor to be given regard to in the overall notion of fairness in making a financial order, but not a factor to justify departure.
What are the ancillary relief orders that should be made for the parties and the Children in light of all the relevant circumstances and considerations including the section 7 factors of the MPPO?
119. It is necessary to deal with H’s argument for adding-back of 2 sums by W into the family pot.
120. Under the MPS Order, $15,000 out of the award of $60,000 per month was earmarked for “renting a property in Ma On Shan for W and the 3 daughters”. H argued that such sum of $15,000 paid by him was not spent by W on rental as required, hence should be added back.
121. H’s stance provoked outrage. He shut his eyes from his own irresponsible act of not paying the full amount of $60,000, paying only $15,000 in neglect of the needs for W and the 3 daughters. While H has yet paid for the arrears, he is boldly seeking an add-back.
122. As said in paragraph 45 of the MPS judgment, any over-provision or under-provision at the stage of MPS application can be adjusted at the final hearing of the ancillary relief (See : F v F [1996] 2 FCR 397). In light of the assessment of reasonable needs above, I find that the needs of W and the 3 daughters justify an interim maintenance of $60,000 even W did not spend on rental. Therefore, the monthly sum of $15,000 paid by H need not be added back.
123. Another item of proposed add-back is the sum of $1,000,000 which W has withdrawn between December 2014 and October 2015 from her bank accounts.
124. In W’s 8th Affidavit, she explained that out of the $1,000,000, $520,000 was used for decoration, renovation and purchase of furniture and electrical appliances for her parents’ flat which W and the 3 daughters had moved into; $200,000 was for payment of legal fees in these proceedings and the remaining sum was spent on family, children and personal expenses.
125. During cross-examination, H conceded that he shall not claim for the “add-back” of money spent on legal fees and living expenses. While H did not dispute the need for renovation, he challenged the sum of $520,000 being grossly excessive. He said the amount is out of proportion when compared to the value of the parents’ property.
126. The legal principle of when expenses should be “added back” is clearly set out by the Court of Appeal in ARAV v. VP [2011] 3 HKLRD 759. Reference is made to Martin v Martin, Cairns LJ held at p.342G–H:
“Such conduct must be taken into account because a spouse cannot be allowed to fritter away the assets by extravagant living or reckless speculation and then to claim as great a share of what was left as he would have been entitled to if he had behaved reasonably.
And at p.344D, he said:
It is wrong to have regard only to the asset which now exists and to disregard those that have gone and of which the husband has had the benefit.”
127. In the present case, there is no evidence to suggest that the sum of $520,000 was wantonly or recklessly frittered away. It is not meaningful to assess reasonableness of renovation and furniture expenses by reference to value of the property. Hence, no add-back is required.
Ancillary Relief
128. The starting point is equal sharing, subject to the grant of relief concerning assets dissipated by H to achieve an overall fairness.
129. The Former Matrimonial Home be sold; net sale proceeds be shared equally between W and H.
130. In addition to his half share of the sale proceeds, H can also keep his shares in A Ltd with an equity interest of $4,390,000. It is important for H to continue with his business to generate profit, since there is a long term obligation on him to maintain the 3 daughters financially.
131. As regards H’s dissipated assets of $3,500,000, there should be a claw back of $1,750,000 from H’s side of his balance sheet. This is to be paid out of H’s half share of the net sale proceeds.
132. As regards arrears of maintenance, H has to pay back for what is outstanding under the MPS Order up to May 2019 inclusive. On W’s calculation, the amount should be sufficient for repaying her friends for the loans. Since W’s loans from her friends are interest-free, the arrears shall not bear interest. The arrears should also be paid out of H’s half share of the net sale proceeds.
133. W is young and has healthy earning capacity; she is able to maintain herself. However, since the 3 daughters are still very young, W’s financial situation may vary with the changing needs of the 3 daughters. Therefore, it is necessary to preserve W’s right to seek relief in future (if necessary) by awarding a nominal maintenance of $1 per annum in her favor.
134. H do pay W $67,000 per month as periodical maintenance payment for the 3 daughters ($26,000 for the eldest daughter, $22,000 for the 2nd daughter and $19,000 for the youngest daughter).
135. I am satisfied that H has the financial ability to pay the said maintenance and have sufficient to maintain himself, although the two add up to around $100,000 per month. As said, adverse inference was drawn against H and I find that he has income and financial resources more than he claims. Further, when H one day succeeds A Ltd or when there is a decision to sell the business, H will be able to pocket a significant sum.
136. Taking into account H’s history of non-compliance of court order, payment should be secured. H’s half share of the net sale proceeds be paid into court, pending W’s application for payment out for (1) the said sum of $1,750,000 and (2) the arrears of maintenance. The balance (roughly estimated at around $1,000,000) be retained in court to secure the periodical maintenance payment for the 3 daughters. Such sum should be sufficient to satisfy maintenance payment for about 15 months. Before H’s share of sale proceeds is paid into Court and after the security money is exhausted, H has to deposit into W’s designated account $67,000 per month.
137. Regarding the Garnishee proceedings, Income Attachment Order application and Committal proceedings which are pending, application(s) should be made in due course by W herself or with H jointly for disposal and/or necessary directions including the issue on costs.
138. Regarding costs of this ancillary relief proceeding, although W achieves a lesser award as proposed, her claim is properly grounded in law and on fact. On the contrary, H’s proposal is far from being realistic. W is therefore entitled to costs; but it is to be observed that $200,000 of W’s legal fees has already been paid out of family fund, hence should not be doubly recovered.
Order
139. Ancillary relief order is as follows :
(1) H do continue to pay the mortgage, management fees, government rates and rent, and utilities for the Former Matrimonial Home until the property is sold.
(2) The Former Matrimonial Home be sold within 3 months upon the grant of Decree Absolute at a price not less than $13,250,000. Deposit payment(s) received from the purchaser be shared equally between W and H forthwith. Upon completion, the net sale proceeds (after deducting the outstanding mortgage loan as well as conveyancing and related expenses) be shared equally between W and H, with H’s half share paid into court within 7 days of completion (“H’s Fund”).
(3) H do pay W a lump sum of $1,750,000 out of H’s Fund.
(4) H do pay back to W the arrears of maintenance accrued up to May 2019 inclusive, out of H’s Fund.
(5) Upon the grant of Decree Absolute, H do pay W nominal maintenance of $1 per annum during the parties’ joint lives or until W remarries, whichever is the earlier.
(6) Commencing 1st June 2019 and on the 1st working day of each subsequent month, H do pay W $67,000 per month as periodical maintenance payment for the 3 daughters ($26,000 for the eldest daughter, $22,000 for the 2nd daughter and $19,000 for the youngest daughter) until each child attains the age of 18 or completes full time education, whichever is the later. Payment should be made in the following manner :
(a) from 1st June 2019 until H’s Fund is paid into Court, H do pay W $67,000 on the 1st working day of each month into W’s designated bank account;
(b) upon payment of H’s Fund into Court, a monthly sum of $67,000 would be paid out from H’s Fund to W by the Court on the 1st working day of each month, until H’s fund in Court is exhausted; and
(c) upon exhaustion of H’s fund in Court, H do resume making monthly payment of $67,000 to W on the 1st working day of each month into W’s designated bank account.
140. Finally, section 18 declaration to issue.
Costs
141. I make a costs order nisi that H do pay W’s costs of the ancillary relief proceedings, with certificate for counsel, to be taxed if not agreed.
142. W’s own costs be taxed in accordance with the Legal Aid Regulations.
143. Unless there is an application within 14 days to vary, the nisi order shall become absolute.
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( Doris To ) |
| |
Deputy District Judge |
Mr Eric Leung instructed by Messrs Alvin Cheng & Rosaline Choy for the Petitioner/Wife
Ms Lareina J Chan instructed by Messrs Hampton, Winter and Glynn for the Respondent/Husband
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