LCF v. LCW

FCMC 575 /2017

[2018] HKFC 84

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 575 OF 2017

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JUDGMENT
(Variation of a consent order for
maintenance pending suit/interim maintenance)

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The application

1.  The petitioner of this case is the wife. The respondent is the husband.

2.  On 28 August 2015, upon an application by the wife for maintenance pending suit for herself and interim maintenance for the 2 children of the family under the old suit (FCMC 1380 of 2015), the parties entered into a consent summons, which was made into a consent order of even date, in the following terms (collectively “MPS Order”):

(1)  The husband do pay for the wife for a sum of $9,500 per month, comprising of $5,000 as her maintenance pending suit and $4,500 to cover the wages of the maid, starting from 1^st September 2015;

(2)  The husband do pay the wife for the interim maintenance of the 2 children of the family in the total sum of $5,000 per month, ie $2,500 per child per month starting from 1 September 2015;

(3)  The husband do pay the school fees and school bus fees of the children.

3.  By his summons dated 7 September 2017, the husband now seeks to vary the MPS Order as follows:

(1)  The order for maintenance pending suit and maid’s expenses payable to the wife be discharged totally;

(2)  The children interim maintenance be reduced from $5,000 per month to $3,000 per month, ie $1,500 per child per month;

(3)  The outstanding arrears payable under the MPS Order by him between April and August 2017, in the total sum of $72,500, be remitted.

4.  In a nutshell, the husband’s application can be reduced into 3 major grounds:

(1)  There has been a drastic reduction in his monthly income from $50,000 to about $20,000, caused by (i) the cutting of the business profit that he used to receive from the game centres business of the wife’s brother(s), and (ii) instability of his own business;

(2)  He has been taking on additional family expenses of the matrimonial home and of the children, to the extent of about $24,000 per month, set out more particularly in §[36] below;

(3)  The wife has sufficient financial means that she has failed to disclosed.

5.  The wife opposes to his application, arguing that the husband has sufficient assets, including stock worth of $750,000, to comply with the MPS Order. She further accuses him of leading a luxurious life, such as buying a Tesla of $760,900 in early 2017 and taking his girl-friend to Japan to celebrate the Valentine’s Day between 14-18 February 2017.

Litigation history

6.  I shall begin by pointing out that the parties have been litigating since 2015 but the case is nowhere near the stage of financial dispute resolution (FDR). The hiccups are caused by a mixture of events, including the attitude that they have displayed in the case history so far.

7.  In respect of the main suit, they have each alleged “unreasonable behaviour” of the other side, with the wife claiming that the husband has an affair with another woman since December 2014, while the husband alleging that she has a dubious relationship with a man. It took them almost 2 years before they could finally agree to have a fresh petition issued on the ground of separation for 1 year (ie this suit). However, up to the date of this judgment, decree nisi is still pending.

8.  Then, at various stages of the 1^st appointment hearings, the parties had dispute as to the beneficial ownership of their matrimonial home,[1] as well as about 19 companies of the wife’s maiden family. Although the parties have finally agreed that they would no longer allege/claim any 3^rd party interest in the above-mentioned property or companies, they find themselves unable to come to term as to the beneficial ownership of 3 game centres licences held in the name of the wife allegedly on trust for her brother(s), in the result of which a trial to determine their beneficial interest seems unavoidable.   

9.  As I have repeatedly told the parties in various 1^st appointment hearings, this is certainly not a big money case. Yet legal costs have been accumulated to approaching $800,000 in total up to May 2018. It is anticipated that further and substantial amount of costs will have to be spent on the trial of the preliminary issue. I thus send out again my strong words to the parties that they should think twice as to how to proceed with their ancillary relief dispute before they lament that their litigation costs have eaten up into all of their assets, thus leaving nothing, if any, for their own children. 

Background

10.  Before I go into the law and the argument, something should be said about the background.

11.  The parties were married in 2007. They have 2 children born within their wedlock, namely a daughter born in 2009 and is now aged 9, and a son born in 2012 and is now aged 6.

12.  The parties had/have close connection with in game/games centres businesses. For example, the husband himself is the sole proprietor of GM Amusement Company, specialising in printed circuit board and game machine parts. He used to hold a game centre licence which was sold at $1,950,000 pursuant to an agreement dated 30 April 2014.  On the part of the wife, her maiden family, namely her brother(s), own 19 companies running game centres businesses or holding game centre licences. She used to work as an account clerk in one of her brother(s)’ companies earning $18,000 per month. She also claims that she is holding 3 game centre licences on trust for her brother(s), which is now the subject matter of the preliminary issue to be tried in due course. 

13.  Towards the end of 2014, the wife hired a private investigator and allegedly found out that the husband was having an affair with another woman. She then said that she had to leave her employment since/about 1 February 2015 in order to take care of the children.

14.  One day after she left her employment, ie on 2 February 2015, she filed her petition for divorce. By then, the marriage has lasted for about 8 years.

15.  In August 2015, the wife took out an application for interim financial provision for herself and the children. The MPS Order was made on 28 August 2015 by consent.

16.  On 10 June 2016, the parties reached a settlement on the custody matter after 2 hearings of children dispute resolution (CDR). A consent order dated 10 June 2016 was made whereby they are granted custody of their children jointly, with their care and control to the wife while the husband enjoys defined access.

17.  About 1 ½ years after the MPS Order was made, the husband started to default payment since or about 1 November 2016, triggering the wife to take out garnishee proceedings in respect of his HSBC and Hang Seng Bank accounts in early 2017.  In the end and by the consent of the parties, a garnishee order absolute was made in respect of the HSBC account to satisfy the then outstanding sum of $62,500 and costs of $5,000, while that of the Hang Seng Bank was discharged.

18.  After the garnishee proceedings were concluded, however, the husband continued to default paying $14,500 per month to the wife pursuant to the MPS Order since April 2017. The total outstanding sum cumulated from April 2017 up to August 2017 is $72,500. As at the date of this substantial hearing (ie up to May 2018), the total outstanding sum is $203,000.

19.  However, it is pertinent to say that he has continued to pay for the school fees, refreshment and school bus fees of the children, which the wife accepts to be in the sum of $10,893 per month.

20.  About 5 months since his default, he took out his summons in September 2017 for variation of the MPS Order.

Applicable Legal Principles

21.  The power for this court to make a maintenance pending suit for a spouse and interim maintenance order for the children of the family is set out in sections 3 and 5 of the Matrimonial Proceedings and Property Ordinance (“MPPO”) respectively.

22.  The relevant legal principles touching on maintenance pending suit/interim maintenance are succinctly set out by Hartmann JA (as he then was) in HJFG v KCY [2012] 1HKLRD 95, where his lordship quoted Nicholas Mostyn QC sitting then as a deputy High Court judge in TL v ML and Others (Ancillary Relief: Claim against Assets of Extended Family) [2006] 1 FLR 1263, at §§33-38, in particularly §37 as follows:

“ 37. The principles that have emerged over time to guide judges in matters of interim maintenance have been fashioned in the main to ensure fairness. This is well illustrated in the judgment of Nicholas Mostyn QC, sitting then as a deputy High Court judge, in TL v ML and Others (Ancillary Relief: Claim against Assets of Extended Family) [2006] 1 FLR 1263, at 1289, in which, having looked at earlier authorities, he derived the following principles that speak specifically to fairness or are based on the need to ensure it. For present purposes, it is sufficient to cite the relevant principles without citing the judge’s reference to the source of those principles:

i. The sole criterion to be applied in determining the application is ‘reasonableness’, whichis synonymous with ‘fairness’.

ii. A very important factor in determining fairness is the marital standard of living. This is not to say that the exercise is merely to replicate that standard.

iii. In every maintenance pending suit application there should be a specific maintenance pending suit budget which excludes capital or long-term expenditure, more aptly to be considered on a final hearing. That budget should be examined critically in every case to exclude forensic exaggeration.

iv. Where the affidavit or form E disclosure by the payer is obviously deficient, the court should not hesitate to make robust assumptions about his ability to pay.  The court is not confined to the mere say-so of the payer as to the extent of his income or resources.  In such a situation, the court should err in favour of the payee.”

33.  The husband’s application is one of variation of the MPS Order pursuant to section 11 of the MPPO. Further, the MPS Order to be varied is a consent order and thus the court is required to inquire if there is any change of circumstances, including the means of the parties.

34.  In the case of AEM v VFM [2008] 3 HKLRD 36,Cheung JA explained the modern approach in dealing with an application for variation of maintenance at para 14 of the Judgment, in particularly the following sub-paragraphs:

“3. The traditional approach to variation was not to re-fix afresh the amount of maintenance but to consider the amount of change in the actual means of the parties so that the new order should merely be increased or decreased roughly in proportion to the change in the means : Foster v. Foster [1964] 3 All ER 541, Jackson’s Matrimonial Finance and Taxation 7^th Ed. Ch. 3. 131.

4. The modern approach, as required by section 11(7), is for the Court to consider all the circumstances of the cases. The Court is not required to proceed from the starting point of the original order but look at the matter afresh: Flavell v. Flavell [1997] 1 FLR 353 at 357B following Lewis v. Lewis [1977] 1 WLR 409 and Garner v. Garner [1992] 1 FLR 573.

5. Any change in any of the matters to which the Court was required to consider when making the original order was one of the circumstances to be considered.

…

8. At the same time the basis and intended effect of the original order are relevant factors to which the Court on variation should pay regard and there should not be a radical departure from the approach taken by the parties themselves when they had entered into an agreement embodied in a consent order: Boylan v. Boylan [1988] FLR 282.”

35.  It is with these principles in mind that I shall go into the husband’s grounds of variation.

The husband’s expenses and additional expenses

36.  The husband says that apart from paying the amount of $14,500 ($5,000 + $4,500 + $5,000) directly to the wife under the MPS Order, he has also been paying more than $24,000 per month to cover other expenses of the household and the children as follows:

For the children	Amount
School fee of the daughter	$3,730
School fee of the son	$3,600
Refreshment of the son	$1,013
School bus of the daughter	$1,700
School bus of the son	$850
Insurance of the daughter	$1,700
Insurance of the son	$1,400
Sub-total:	$13,993
For the matrimonial home	Amount
Mortgage	$7,000
Management fee	$1,324
Electricity	$1,100
Rate and government rent	$900
Town gas	$300
Sub-total:	$10,624
TOTAL:	$24,617

37.  The total sum he had been paying on the family is thus $38,500 ($14,500 +$24,000) per month. Therefore, he says that,

“…the huge family burden which lies solely on me have exhausted my personal savings and it is foreseeable that I am not able to continue to support the existing family expenses without the [wife] returning to workforce given my limited income of around HK$20,000 per month.”

38.  The husband also mentions that pursuant to the order of 10 June 2016, he is granted joint custody of the children and have equal access to them for their school terms and holidays, which means that he has been sharing half of their expenses apart from the $14,500 as ordered. 

39.  First of all, I would point out that apart from the school fees and school bus fees, the other items listed in the above table at §[36] are not separate items covered by the MPS Order. It also needs to be stated that the husband does not have equal access time to the children during school term. He has only alternate staying access during school terms from either Friday to Saturday, or Friday to Sunday.

40.  During the hearing, the wife through her counsel, Mr Ken Lee, argues that the insurance of the children is not necessary and does not object if the husband terminates the same. In my view, if the children’s basic needs are not able to be properly provided for, due to the allegation of lack of funds by the paying parent, then it would be a luxury of keeping 2 policies costing $3,100 per month. I tend to agree with the wife that the policies may be terminated and the cash value received can be used for the interim financial provision of the children.

41.  Regarding the expenses of the matrimonial home in the above table, the wife does not agree that the husband is now paying for such items. She is able to provide undisputed/indisputable documents showing that at least from May 2017, she has been shouldering the payment of the rates and government rent, management fees, electricity and gas of the matrimonial home.

42.  There is another area of dispute on who has been paying the mortgage repayment of the matrimonial home, which is about $7,000 per month. The mortgage repayment account is in the husband’s sole name with the Bank of China (BOC). He says that he has been the paying party, but he has failed to provide his BOC account to prove the same. On the other hand, the wife avers that she has been paying $3,500, being half of the mortgage repayment, into his BOC account since July 2017, and she is able to provide some bank-in slips to support her case.[2] At this preliminary stage, the court is not expected to make any conclusive finding on this dispute of the mortgage repayment, save that I only wish to say the respective case put forward by the parties is not mutually exclusive. Whatever the truth is, it seems to me that the parties will, despite their complaint of lacking of financial resources, nevertheless continue to service the mortgage repayment, because failure to do so would mean that the stability of their children’s accommodation would be adversely affected.

43.  To complete the analysis, I shall now focus on the husband’s expenses solely based on the material provided by him. I take note that apart from the above table at §[36], he has not provided any updated figures on his own and other expenses for the purpose of this variation application. As such, I can only take it that the expenses stated in his Form E still hold good, subject to the updated figures given in the above table. His alleged updated expenses would thus be something like these (excluding the $14,500 paid directly to the wife under the MPS Order):

(1)	General expenses:	$32,024
(2)	Personal expenses	$10,460
(3)	Children’s expenses:	$19,093
	Total:	$61,577

44.  The first and foremost observation by this court is that such monthly expenses do not sit well with his own case that his income has dropped to $20,000 or less per month. I take note that his solicitor, Mr Tse, tries to argue that the husband has made good the shortfall (of about $41,577 per month) by dipping into his savings. But to do so would need roughly $997,848 from September 2015 (the commencement month of the MPS Order) to September 2017 (the month he took out his variation application). Yet, he had only $719,000 in his bank accounts as at the date of his Form E, which is obviously insufficient to cover the alleged shortfall. It is thus very possible that he has either exaggerated his monthly expenses, or underplayed his own financial resources, which takes me to the next issue on his alleged reduction in his income.

The husband’s financial means & drastic reduction in income

45.  In his 1^st affirmation filed in support of his application, the husband explains “since January 2015”, his income has dropped substantially from $50,000 per month to $20,000 or less per month. This is how he says in his affirmation:

“5. Since January 2015, I have experienced a substantial drop in income from around HK$50,000 in the past to around HK$20,000 or sometimes, even less than HK$20,000. Prior to January 2015 when the [wife] and I have not been separated, I used to receive the business profit of around HK$30,000 monthly from the [wife’s] brother[‘s] companies or business in Hong Kong and Macau which I have invested in the total sums of around HK$1.2 Million into since the year 2004… However, after the breakdown of relationship between the [wife] and me, I have not been able to receive the business profit due to the hostile relationship between me and the [wife’s] family…Therefore, the income of around HK$20,000 which I have been receiving from [GM Amusement Company] has become my sole income source since January 2015.”

46.  In her affirmation in opposition, the wife does not agree that he has a drastic reduction in his income, as she argues that he has led a luxurious lifestyle since the MPS Order was made, such as purchasing a 2015-made Tesla in/about May 2017; taking various overseas trips to Japan or Taiwan including taking his girlfriend to Japan to celebrate the Valentine’s Day between 14-18 February 2017. Moreover, she points out that the husband still has stock worth of $750,000 as stated in his Form E.

47.  Upon considering the evidence and argument from both sides, and by taking a broad brush approach, I have the following view/comment.

48.  First, the husband’s 1^st affirmation set out above at §[45] above is in direct contradiction to his own Form E. In his 1^st affirmation, he says that his income has started to dropped to $20,000 per month “since January 2015”, but according to his Form E which was affirmed in “April 2015”, he says that his income was $50,000 per month and his business profit in the last 12 months was $370,000 (ie about $30,833 per month). He has not offered any explanation in any of his affirmation on the discrepancy.

49.  Second, GM Amusement Company is solely owned by the husband under a sole proprietorship. Subject to further discovery to show the otherwise, it is not moonshining to say that some of his personal expenses are/were covered by the company, such as “motor vehicle expenses”, “entertainment”, “local travelling fee” and “transportation”, which means that the financial resources available to him each month are likely to be more than $20,000.

50.  Third, I note that in his affirmation in reply to the wife’s affirmation in opposition, the husband is totally silent as to the whereabouts and current value of the stock mentioned in his Form E. As a matter of fact, despite the variation application is taken out by him who thus bears the burden of proof, he has not provided any supporting documents on the current situation of his bank/stock accounts.

51.  Fourth, he alleges that the business GM Amusement Company has been declining since many of the game players have switched online games and apps. He has disclosed its financial statements for the financial years ending 31 March 2013, 2014, 2015 and 2017. I have briefly gone through these financial statements and note that:

(1)  They are merely unaudited accounts which were signed by the husband;

(2)  For unknown reason(s), the financial statement for the financial year ending 31 March 2016 is not disclosed. This is vital, because in the previous financial year ending 31 March 2015, there was a proprietor fund in the total sum of $922,387 appeared in the balance sheet of that year. This proprietor fund, as well as the balance sheet, is no longer shown in or attached to the financial statement ending 31 March 2017. I have raised this point with Mr Tse for the husband in the argument hearing, but no explanation and the whereabouts of the said proprietor fund is forthcoming.

52.  Fifth, it is well established that in the ancillary relief proceedings, including MPS, there is a duty on both parties to make full and frank disclosure of all relevant materials to enable the court to exercise its discretion in making the order. If the court is of the view that the evidence disclosed by a party is deficient, adverse inferences may be drawn against that party (See: C v F (Maintenance Pending Suit) [2006] HKLFLR 41at §28).  It is obvious to me that the husband has failed to make full and frank disclosure of the financial statement of his sole proprietorship ending 31 March 2016 and to account for the whereabouts of the said proprietor fund.  He has also failed to provide any updated bank statements to show his bank balance, including the value of the stock which is said to worth about $750,000 as at the date of his own Form E.  In the result, this court will draw the adverse influence he still has the financial means to pay the order for interim financial provision that this court is going to make in this judgment. 

53.  Due to the matters aforesaid, I do not see the need to analyse the alleged luxurious lifestyle of the husband. Suffice it is for me to take note that he attempts to explain in his affirmation in reply that the Tesla was bought by utilising the net sale proceeds of his Porsche (about $465,000) for the purpose of “becoming a part-time driver but this was not feasible due to government policies.” His Form E shows that solely on car expenses alone, he spends about $14,000 a month. I see no reason why the Tesla has to be kept because the alleged original purpose for acquiring it is no longer there. If so, the said $14,000 can be conveniently saved up for the interim financial provision of the children and the wife.

Expenses of the wife/children

54.  In her Form E (dated 17 April 2015), she states that her total monthly expenses are about $36,306 per month. Such expenses, she claims, have increased to $46,657 per month according to her affirmation in opposition like these:

(1)	General expenses:[3]	$20,875
(2)	Personal expenses	$13,533
(3)	Children’s expenses:[4]	$12,249
	Total:	$46,657

55.  It should be noted that despite such alleged increase in her monthly expenses, the wife has not sought any varying up of the MPS Order. She claims that she has made up the shortfall (ranging from about $20,000 to about $32,000 per month between the period of her Form E and her affirmation in opposition) by using her own savings. According to her Form E, she had about $1.23 million as at April 2015. However, by a broad brush calculation, her bank reserve would be fully exhausted to meet the said shortfall within 3 years or so. It begs an answer as to how she would be able to make her ends meet in the view that her bank reserve soon would soon be used up. I am sure the wife would have more to explain in the ancillary relief trial.

56.  Be that as it may, the husband has not taken any issue with the reasonableness of the expenses of the wife/children in his affirmations filed for this application. His main challenge relates to the wife’s financial resources, to which I shall now come to discuss.

The wife’s financial means

57.  On this issue, the husband mainly argues that:

(1)  The wife should have returned to work;

(2)  He believes that the wife has substantial business profit sharing from her business or her brother(s)’ business which she has shares.

58.  To begin with, I do see some force in the husband’s argument that the wife should have returned to work, especially when she has a maid to assist in the caring of the children. Her explanation that the children are now studying in separate primary schools, in my preliminary view, should not pose a problem, because both children are using the school bus service paid by the husband.  By way of background, she used to work as a clerk in one of her brother(s)’s company, which inherently means that she should be able to enjoy some flexibility in working hours when the needs arise. After all, it is quite obvious to me that she maintains a good relationship with her maiden family, because it is her case that her brother(s) have trusted her sufficiently to let her hold 3 game centres licences on trust for him/them.  

59.  Whether a party’s earning capacity should be considered at the stage of a MPS application is considered and discussed by the Court of Appeal in LJ v LWHH (maintenance pending suit) [2003] 3 HKC 455. In that case, Yuen JA was to determine, inter alia, whether the deputy judge fell into error of principle in taking into account the petitioner’s earning capacity at MPS stage. Her Ladyship explained as follows:

“23. In our judgment, there is no rule that the parties’ earning capacity can never be considered in an application for maintenance pending suit…

24. In other words, a judge hearing an application for maintenance pending suit would not, by nature of the application, consider the parties’ long-term prospects, but he does not shut his eyes to obvious short-term prospects either. To take an example, if either the applicant (or the respondent) to an application for maintenance pending suit were to give up a job, so that she (or he) has no income, so as to increase her need for maintenance pending suit (or to defeat such an application), a judge would be clearly entitled to take her (or his) earning capacity into account.

25. However, in our view, what a judge should not do, at this stage, is to consider earning capacity in circumstances which are less obvious. In the present case, the wife has not worked for the past 6-7 years, since she started living with the husband. She is a new immigrant and speaks no English. Her former employment was as a saleslady on the Mainland and she has no skills. With the present state of unemployment in Hong Kong, it is by no means clear that she can easily find suitable employment…” (my emphasis added)

60.  Unlike the wife in the case of LJ v LWHH (supra) who had not worked since she started living with that husband, the wife here, in my view, made a strategic choice to leave her job just one day before she filed the petition. In such circumstances, I am of the view that her earning capacity should be taken into account. Further, I take a broad brush view that she should be able to earn the same level of income, ie $18,000, for the purpose of this application.

61.  In relation to the husband’s allegation that the wife has business profits from her brother(s)’ businesses and/or she has taken the business profits which used to be paid by her brother(s) to the husband, this court is unable to make a conclusive finding at this interim stage. That should better be left to be decided by the trial judge of the ancillary relief matters when oral testimony is received. However, I do have 2 points of observation and they are these:

(1)  it is pertinent to point out that in the recital of the order of 10 February 2017, the parties have acknowledged and agreed that there is no allegation of any 3^rd party beneficial interest in the 19 companies or companies limited (set out more particularly in the said court order) legally and beneficially held by the brother(s) of the wife;

(2)  both the husband and the wife’s maiden family are closely connected to game/game centres businesses. If it is the husband’s case that his own business was in the decline due to the general trend that the users have switched to online games and phone apps, is it not that the similar decline in business and profits would be experienced by the companies of the wife’s side? I do urge both parties to refrain from applying double standard in their ancillary relief dispute.

Deciding on the result

62.  Due to the matters aforesaid, I do not accept that the husband has only $20,000 per month available for his disposal. I also find that he has not fully and frankly disclosed his financial means, such as the whereabouts of the proprietor fund of $922,387 shown in the unaudited financial statement ending 31 March 2015. I have decided that adverse influence shall be drawn against him that he has the financial ability to pay the MPS Order.

63.  He does not expressly dispute the monthly expenses of the wife and the children, which are more than $40,000 more month, including half of the mortgage repayment now allegedly paid by the wife. Even if this court takes into account for this interim period that the wife should be able to work and earn about $18,000 per month, her likely income is not sufficient to cover her total monthly expenses. In all the circumstances, it is not fair to vary the MPS Order at this stage.

64.  A stable accommodation for the children of the family is vital at this interim stage, pending final resolution of the ancillary relief matters. I shall therefore hold the parties to their undertaking that they shall each continue to pay half of the mortgage repayment in respect of the matrimonial home in this interim period.

65.  Also due to the same matters aforesaid, I do not accept that the outstanding payment under the MPS Order in the sum of $72,500 shall be remitted. I refuse the husband’s application.

66.  Both parties have confirmed in the argument hearing that costs shall follow the event. I shall thus make an order that the wife’s costs shall be borne by the husband, to be taxed if not agreed.

Conclusion

67.  I shall thus make the following order:

(1)  the husband’s summons dated 7 September 2017 shall be dismissed; and

(2)  the husband shall bear the wife’s costs of this application to be taxed if not agreed, with certificate for counsel.

68.  I shall hold the parties to their undertaking that they shall continue to each bear half of the mortgage repayment of the matrimonial home in this interim period, pending resolution of the ancillary relief matters.