H v. H

CACV 322/1999 & CACV 323/1999

   IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

      COURT OF APPEAL

   CIVIL APPEAL NOS. 322 & 323 OF 1999

   (ON APPEAL FROM FCDJ NO. 10877/1997)

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BETWEEN

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J U D G M E N T

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Hon Mayo VP:

1.  There are two appeals and one cross appeal. The first appeal is an appeal lodged by the husband from the judgment of Her Honour Judge Wong when she made a number of orders on the wife’s application for ancillary relief. The wife has lodged a cross appeal in relation to these orders. The second appeal is an appeal lodged by the husband against an order made by the same Judge on 10 September 1999 which upheld the wife’s objection to Messrs Hampton Winter and Glynn solicitors continuing to represent the husband.

2.  The parties were married on 31 December 1989 in Hong Kong. The wife was aged 29 and the husband 24. After their marriage the parties lived in the United Kingdom. The husband was an officer in the Royal Navy and the wife undertook part-time employment.

3.  In 1994 the family moved to Hong Kong on the husband obtaining employment with GEC Alsthom. Since January 1997 the husband has been employed by the MTRC as an engineer.

4.  There are two children of the marriage – A who at the time of the hearings before the Judge was aged 8 and B who was aged 4.

5.  The husband left the matrimonial home in March 1997. At about that time the wife took up employment with Biwater Man Lee Limited as an engineer at a monthly salary of $25,000 per month which was later increased to $28,000 per month when she became a service consultant.

6.  The wife filed a petition for divorce in October 1997 on the grounds of the unreasonable behaviour of the husband. The proceedings were undefended and a decree nisi was granted on 11 March 1998.

7.  At the hearing before us the husband said that he had now re-married. His wife was the lady who had been referred to in the divorce proceedings. She was presently residing in the mainland and it is not practicable to attempt to take into account her earning capacity. If and when she comes to Hong Kong and earns a salary this is a matter which could be weighed in the balance.

8.  Prior to the hearing before the Judge the husband had been ordered to pay $25,000 per month maintenance for the wife and children pursuant to an order for interim maintenance made by Deputy Judge Leung in January 1999.

9.  The Judge had before her affidavits of means from both parties. She summarised the material which was before her on pages 2, 3 and 4 of her judgment.

10.  According to the wife’s evidence when the hearing began she was receiving $28,000 per month for the part-time work she did as a service consultant. As will be seen later in this judgment one of the main complaints made by the husband was that by the date to which the hearing had been adjourned in fact the wife had obtained another job which was better remunerated. She accepts that she had by then become employed as a senior environmental specialist by the KCRC and is paid $31,260 per month. In addition to this she receives $8,400 housing allowance and a gratuity of 15% of her salary (though this will reduce when the company’s mandatory provident fund scheme comes into operation).

11.  The husband’s salary at the time of the hearing was $44,060 per month plus a housing allowance $16,300 per month plus an education allowance for the children and medical and dental allowances. He will be entitled to a gratuity when his current contract expires at the beginning of next year.

12.  The husband has savings of $216,695.59 out of which he needed to pay outstanding tax. He has an Armed Forces Preserved Pension of £3,482 per annum. According to the Judge the other assets of the parties include:

“His other assets include:

1.  Armed Forces Pension valued at 24 June 1999	£27,151.94
2.  Armed Forces Preserved Terminal Grant	£10,446.00
3.  GEC Pension	£11,392.00
4.  Standard Life Insurance (joint names)	£13,460.00
5.  Smithy Court Property (£51,000 value – £48,000 mortgage)	£3,000.00
6.  UK Shares	£2,128.00

Petitioner’s assets include:

1.  Savings in bank	HK$28,414.41
2.  HK Shares	HK$95,004.00
3.  UK Shares	£2,218.00
4.  Jewellery	HK$22,500.00

13.  The parties also jointly owned a flat in Shatin and a property in Scotland. It would appear that the net value of these properties is negligible as they were heavily mortgaged and the value of the properties decreased.

14.  The hearing before the Judge was heavily contested. After considering all the evidence the Judge made an order in these terms:

“1.  The Respondent to pay the Petitioner rates, rental and managementcharges of the current resident of the Petitioner and the 2 children of the family in the sum of $14,984.00 per month commencing on the 1^st day of July 1999.

2.  The Petitioner do pay for one-third of the household expenses namely, the domestic helper and general household maintenance of $7,682.00 per month and the remaining two-third shall be paid by the Respondent commencing on the 1^st day of July 1999.

3.  The Respondent do pay the Petitioner maintenance for the children of the family in the sum of $11,369.00 per month being $7,402.00 per month for the elder child of the family namely, A and $3,967.00 per month for the younger child of the family namely, B commencing on the 1^st day of July 1999.

4.  The Respondent do pay the Petitioner the said children’s school fees currently applicable for the 1999-2000 school term in the sum of $6,460.00 per month being $4,510.00 per month forthe elder child ofthe family and $1,950.00 permonthfor the younger child of the family.

5.  The Respondent do pay the Petitioner an amount equivalent to half of the annual gratuity for the period commencing on 1999 to 2002 inclusive received by him, namely half of the annual gratuity of (a) 25% of his salary from January to December 1999, (b) 20% from January to December 2000, (c) 15% from January to December 2001 and (d) 15% from January to December 2002; such sums to be payable within 1 month of receipt of payment from his employer.

6.  The $7,000.00 held by the solicitors in charge ofthe sale ofthe property at 14/F, Flat F, Block 49, City One, Shatin, N.T, Hong Kong shall be equally divided between the parties after deduction of all expenses including agency and decoration charges forthwith.

7.  The property at Smithy Court, Cardross, Dunbartonshire, Scotland, United Kingdom (the ‘UK property’) shall be sold within 9 months of the order and proceeds of sale after deduction of all expenses and costs to be divided equally between the parties within 1 month of completion of the sale.  Should there be a deficit, it shall also be borne by the parties equally.

8.  Upon sale of the UK property, the Standard Life Endowment Policy to be transferred to the Petitioner forthwith.

9.  The said children’s school fees and medical and dental expenses shall be paid directly by the Respondent.

10.  There shall be no orders as to costs.”

15.  The main complaint made by the husband is that having regard to the wife’s present financial position he was having to pay far too much for the maintenance of the children.

16.  This was partly on account of the fact that the Judge had failed to take cognisance of the wife’s new employment. At the time of the hearing in March she had given evidence to the effect that she had been offered a new job but had not decided to accept it. At the adjourned hearing in June this matter had not been ventilated and the Judge had proceeded upon the basis of her previous part-time employment. This was a matter of some importance because if her housing allowance is also taken into account her actual earnings are approximately $12,000 per month in excess of the figures upon which the Judge made her calculations. It is pertinent to add that the wife did not contest the evidence of her increased earnings.

17.  The husband also made reference to other misunderstandings on the part of the Judge. She had been under the mistaken impression that the husband’s employers defrayed the full cost of the children’s education. This was not so. In the case of A who is at primary school he is only able to recover 83% of the cost. In the case of B who at the relevant time was at kindergarten he was unable to recover any part of the fees. However as he was now attending primary school 83% of the fees could be recovered.

18.  Also the Judge had been labouring under a misapprehension concerning his assets. The Armed Forces Preserved Terminal Grant referred to as item 2 in his assets in fact was a component part of the first item being the Armed Forces Pension.

19.  The husband helpfully analysed the financial position of the parties taking into effect the order made by the Judge by reference to what each party’s net financial position would be at the end of a month accepting the correctness of the items of expenditure detailed in the respective affidavits of means. It was as follows:

	“Income	Expense
Salary	HK$60,360
Maintenance		HK$31,474
Rent		HK$6,600
TaxProvision		HK$9,439
Living Expenses		HK$11,821
A’s School Fees		HK$767
B’s School Fees		HK$1,436
Deficit Remaining		(HK$1,177)

For the Petitioner they are as follows:

Salary		HK$28,000
Maintenance	HK$31,474
Rent etc		HK$14,984
TaxProvision		HK$1,500
Domestic helper etc		HK$7,682
Living expenses (A)		HK$7,402
Living expenses (B)		HK$3,967
Living expenses (Petitioner)		HK$20,855
Excess Remaining		HK$3,084”

20.  What immediately needs to be borne in mind is that the actual position is now much more favourable to the wife as she is $12,000 per month better off as indicated earlier in this judgment.

21.  The wife also prepared a table indicating the respective net effects of the order placing reliance upon her previous employment. The complaints which she made were of a more general nature. She referred to the difficulties she had encountered since the husband had left and the fact that initially the husband had paid her a larger amount of maintenance. It does however have to be added that this had been based upon the wife not being employed at that time.

22.  I have no doubt that having regard to the overall financial position of both parties the total amount of maintenance payable by the husband is excessive.

23.  It will be noted that there was no direct order that maintenance should be payable to the wife. The way that the order was framed was in relation to the expenses themselves and the children.

24.  Both parties have given considerable thought and attention to this subject. A number of different calculations have been produced taking into account such matters as the proportion of the Amah’s salary which should be attributable to each of the parties. The husband in a note at p. 289 of the core-bundle summarises the differences of view between the parties. According to the wife the total amount payable should be $28,802 and to the husband $27,906. There is however a significant difference. The husband’s calculation includes the school fees which at that time amounted to $7,460.

25.  The total amount payable under items 1, 2 and 3 of the Judge’s order is $31,474.

26.  It seems to me to be highly artificial to attempt to work out in minute detail exactly how much of the maintenance should be attributable to each party by reference to each item of expenditure. A more global approach is required. In my view an appropriate total amount should be $20,000 together with the requirement that the husband must pay all the school fees.

27.  As it happens if payment of this amount is ordered the reduced amount payable by the husband would be very similar to the difference between the wife’s old salary and the new salary which the Judge did not consider.

28.  In my view the best way of doing justice to these parties would be to substitute a requirement for the husband to pay to the wife $20,000 which would be for the maintenance of the children in lieu of the provisions contained in paragraphs 1, 2 and 3 of the order. The requirement for the husband to pay the school fees would of course remain.

29.  The next part of the appeal relates to the orders made in relation to the wife’s “pension rights”.

30.  The husband contended that the factual position concerning the payments of his gratuity had been incorrectly recorded in para. 5 of the order. The gratuity is not paid annually. It is paid at the completion of the 2-year contract. There is of course no certainty that the husband’s contract will be renewed. The only share of gratuity which should be payable is the gratuity payable at the expiration of the current contract which expires on 1January 2001. The wife should be entitled to receive 50% of this.

31.  I can see no reason why the wife should receive anything over and above this. Generally speaking a gratuity is payable in lieu of the pension rights which are receivable by some employees.

32.  It has to also be borne in mind that the husband is still quite a young man who is at a relatively early stage in his career. The amount of pension rights which will have accrued to him will be relatively insignificant in comparison to the amount of his salary.

33.  This is in contrast to the situation existing in a number of the cases which were cited to us by the wife.

34.  It is perhaps worth adding that pension rights will be receivable by the wife in her new employment in substitution for the gratuity which is presently payable to her.

35.  I also do not see why the Judge made the order she did at para. 8 that the Standard Life Endowment Policy which was collateral security for the property in Scotland should be transferred to the wife.

36.  While the surrender value may not now be very great if premiums are paid over the next 14 years the minimum value of the policy is stated to be £60,000. I can see no justification for the wife receiving this benefit. The reality of the situation is that the husband has been paying the premiums which are payable. If he decides to continue to make these payments it will effectively be the case that he will have paid for any benefits which will be payable. It is right that he should have the sole benefit. The wife must transfer her interest in the policy to him.

37.  The next question which has to be addressed is the wife’s cross appeal. In essence what the wife is seeking by this is some form of security for the periodic payments payable by the husband and in particular the payments relating to the gratuities. In addition to this she contends that she is entitled to compensation for the loss of pension rights which she claims would have been payable to her had the marriage not been dissolved.

38.  The basis of the first issue was her contention that her husband had failed to meet all his maintenance commitments timeously and that his overall conduct had been such as to justify such an order being made.

39.  In my view the husband has to a large extent fulfilled his commitments to the wife and their children. In as much as he failed to comply with court orders he gave to the court explanations for his failure to comply. These were to an extent reasonably convincing. Viewed as a whole the husband’s conduct has not been such as would warrant making an order along the lines sought by the wife.

40.  So far as the pension rights are concerned I have already dealt with this subject earlier in this judgment. Particularly having regard to the length of this marriage and the fact that the wife will receive pension rights consequential upon her present employment there is no need to make any further provision for the wife over and above an order that she should be entitled to receive half of the gratuity payable at the expiration of the husband’s present contract of employment.

41.  Finally there is the question of the second appeal namely the order which the Judge made that Messrs Hampton Winter and Glynn would not be permitted to represent the husband in these proceedings.

42.  The problem which arose was that the wife had met two solicitors in the firm in a social context. They were Miss Fusco and Miss Au Yeung. Miss Fusco who was the solicitor assisting the husband had not realised who the wife had been. However she swore an affidavit in which she stated that she would be shortly leaving Hong Kong.

43.  While it was entirely understandable that it was undesirable that Miss Fusco should continue to act for the husband no satisfactory reason was given by the Judge why the restriction she made should be extended to the whole firm. The consequence of the order was rather unfortunate for the husband as it would have been necessary for any other solicitor who may represent the husband to read himself or herself into the papers. The cost of doing this was more than the husband could afford.

44.  As I have indicated I do not consider that the order should have extended to the whole firm and the appeal should be allowed to this extent. It may be the case that the practical consequences flowing from this will not be very great.

45.  To summarise the position in my view the first appeal should be allowed to the extent that in substitution for the provisions contained in paras. 1 – 3 of the order the husband should pay $20,000 per month for the maintenance of the children.

46.  Para. 5 should be amended so that the only payment of gratuity which should be payable to the wife is 50% of the gratuity payable at the conclusion of the husband’s current contract. The husband should be entitled to the Standard Life Endowment Policy and the wife should transfer her interest in this to him. I also agree the minor amendments proposed by Keith JA to paras 4 and 9 of the Judge’s order. The cross appeal should be dismissed.

47.  So far as costs are concerned in my view no order should be made.

Hon Leong JA:

48.  I agree and have nothing to add.

Hon Keith JA:

49.  The judge’s conclusions as to (a) the level of maintenance to be paid to the husband and (b) the distribution of the parties’ assets were based – as one would expect – on her assessment of (a) the parties’ income and (b) the value of those assets. If her assessment of their income and of the value of their assets was flawed in a significant way, her conclusions on the level of maintenance to be paid and the distribution of the assets would be undermined. In those circumstances, the court would be entitled to substitute its own view on those topics.

50.  In my opinion, the judge’s assessment of the parties’ income and of the value of their assets was flawed in the following principal respects:

(i)  The wife’s salary.  At the time when the wife gave evidence on 25 March 1999, she was employed as a service consultant by Biwater Man Lee Ltd. (“Biwater”) earning $28,000.00 a month.  She admitted that she had been offered a better paid job by the KCRC which, if she accepted it, would start on 12 April.  The fact that she had accepted the offer was brought to the judge’s attention by the husband on 28 June, which was the date to which the hearing had been adjourned.  But the judge did not ask the wife to confirm that, nor did she ask the wife what her new salary and benefits were.  The judge simply assumed that the wife was still working for Biwater and earning $28,000.00 a month.  In fact, the wife confirmed to us that she had been working for the KCRC as a senior environmental specialist since 12 April 1999.  Her salary is $31,260.00 a month.  She receives a housing allowance of $8,400.00 a month, as well as an annual gratuity of 15% of her salary (though that gratuity will be reduced to 5% when the KCRC’s mandatory provident fund scheme comes into operation).

(ii)  The Standard Life endowment policy.  The husband took out this policy before the parties were married.  The wife’s name was added to the policy when they purchased the Smithy Court property in Scotland.  It is linked to the mortgage on the property, and cannot be charged or surrendered while the mortgage loan remains outstanding.  The premiums payable on the policy are £76.00 a month, and the policy matures in 2014.  It will provide a capital sum on maturity, which is guaranteed to be at least £60,000.00.  In her judgment, the judge referred to this policy as having a value of £13,460.00.  I assume that this was a reference to the surrender value of the policy at the time of the hearing.  However, elsewhere in her judgment, the judge referred to the policy as having a “guaranteed minimum value” of £6,000.00.  That was corrected to £60,000.00 some months later, but it may be that the judge’s conclusions as to the level of maintenance to be paid and as to how the parties’ assets should be distributed had been based on the original erroneous figure.

(iii)  The husband’s pension.  The husband has pension benefits as a result of his service in the Navy.  They include a preserved annual pension and a preserved lump sum.  In June 1998, the preserved pension was £3,481.86 a year, and at the date of the hearing the preserved lump sum was £10,446.00.  In June 1998, those benefits had a transfer value of £27,151.94.  Unfortunately, the judge did not appreciate that that transfer value included the current value of the preserved lump sum.  Accordingly, in listing the husband’s assets, she correctly included the transfer value of his pension benefits as at June 1998, but incorrectly added the sum of £10,446.00.

(iv)  The husband’s gratuity.  In addition to a salary of $44,060.00 a month (paid 13 times a year) and a housing allowance of $16,300.00 a month, the husband receives a gratuity from his employers.  The percentage rate of the gratuity is decreasing.  In 1999, it was 25%.  In 2000, it is 20%.  From 2001, it will be 15%.  However, the judge thought that the gratuity was payable annually.  In fact, the husband’s unchallenged evidence was that it was paid at the end of each of his contracts.  Since he is employed on two-year contracts, he is paid the gratuity only every two years.  However, that error on the part of the judge is not a significant one if the gratuity is the relevant percentage of his salary over both years of his contract, rather than the relevant percentage of his salary over one year of his contract.  I read his evidence as being the former rather than the latter, and that accords with my experience as to how gratuities are calculated.  Thus, the judge’s error resulted only in her being mistaken as to when the gratuity was payable, not the amount.

(v)  The husband’s education allowance.  The judge thought that the husband’s education allowance was sufficient to pay the whole of the children’s school fees.  In fact, the husband’s unchallenged evidence was that he was reimbursed only 83% of A’s school fees (i.e. he had to pay $767.00 a month towards her school fees), and that he was not reimbursed anything for B’s kindergarten fees (i.e. he had to pay those fees of $1,950.00 a month himself).  However, since the judge’s award, the position relating to B has changed.  B has left kindergarten, and the husband is reimbursed 83% of his school fees.  Since they amounted to $1,436.00 a month in the 1999-2000 academic year, the husband only had to pay $244.00 a month towards B’s school fees.

There were a few other errors in the judge’s judgment relating to the parties’ income, but they were of a minor nature.  However, in my opinion, the errors which I have identified, when taken cumulatively, undermined the judge’s conclusions on the level of maintenance to be paid and on how the assets should be distributed to such an extent as to justify the court substituting its own view on those topics.

51.  The factors which the court is required to take into account are set out in sections 7(1) and 7(2) of the Matrimonial Proceedings and Property Ordinance (Cap. 192) (“the Ordinance”). They are too well-known to warrant repetition here. However, taking those factors into account, I agree with Mayo V-P about the level of maintenance which the husband should pay, and like Mayo V-P I would order that

(a)  paras. 1, 2 and 3 of the judge’s order of 26 July 1999 should be set aside, and in place of them the husband should be ordered to pay the sum of $20,000.00 a month to the wife for the maintenance of A and B, and

(b)  paras. 4 and 9 of the judge’s order should be set aside, and in place of them the husband should be ordered to pay directly the school fees, medical and dental expenses for A and B as they fall due.

52.  I have already referred to some of the parties’ assets, i.e. the Standard Life endowment policy, the husband’s pension benefits as a result of his service in the Navy and the gratuities which both the husband and the wife will be paid in their current employments. The others are

(a)  the proceeds of sale of a property jointly owned by them in Shatin,

(b)  the Smithy Court property in Scotland,

(c)  the parties’ savings,

(d)  the parties’ shares in Hong Kong and the U.K.,

(e)  the wife’s jewellery, and

(f)  the husband’s pension as a result of his employment by GEC.

Having regard to the level of maintenance which I believe to be appropriate, and having regard to the factors set out in the Ordinance, I agree with the judge’s conclusion relating to the distribution of all these assets, save for the orders which she made relating to the husband’s gratuity and the Standard Life endowment policy.  The length of the parties’ marriage, and the gratuity in the wife’s current and any future employment (plus pension rights under her current and any future employers’ mandatory provident fund schemes), justified the judge’s decision not to transfer any of the husband’s pension benefits to the wife.  However, something had to be done to counter-balance the judge’s refusal to transfer any of those benefits to the wife, and in my view that could be achieved by either

(a)  ordering that the husband’s half-share in the endowment policy be transferred to the wife once the Smithy Court property has been sold, or

(b)  ordering the husband to pay all or part of the gratuity in his current employment to the wife.

The judge took the view that both these steps would be appropriate.

53.  I disagree. The parties’ respective shares in the endowment policy are not worth much at the moment. They only become valuable closer to the time when the policy matures. Moreover, the policy will only become a valuable asset as a result of the continued payment of the monthly premiums. On the other hand, the gratuity which the husband can expect to be paid in 2001 is a sizeable sum already. I calculate it to be about $200,000.00. In the circumstances, what the husband, I think, should have to do is to pay one-half of that gratuity to his wife. To counter-balance the fact that the wife will soon receive the benefit of that sum, the wife should be required to transfer her half-share in the endowment policy to the husband once the Smithy Court property has been sold. Although that would have the effect of rendering the husband the sole beneficiary of the policy on its maturity, the wife would be saved having to make any contributions to the premiums payable in respect of her half-share in the policy. Thus, I would vary para. 5 of the judge’s order, and I would order the husband to pay to the wife one-half of the gratuity to be paid to him in 2001 in respect of the husband’s current contract of employment within 14 days of the receipt by him of it. I would also set aside para. 8 of the judge’s order relating to the endowment policy, and I would substitute for it an order that within 28 days of the completion of the sale of the Smithy Court property, the wife transfers her half-share in the endowment policy to the husband. The husband will, of course, have to pay all the premiums in respect of the endowment policy in the future.

54.  I turn to the cross-appeal and the second appeal. I agree with Mayo V-P that the wife’s cross-appeal should be dismissed. There is no sufficient reason for providing for the husband’s maintenance obligations to be secured. And as I have said, the length of the parties’ marriage, and the gratuity in the wife’s current and any future employment (plus pension rights under her current and any future employers’ mandatory provident fund schemes), justify the judge’s decision not to transfer any of the husband’s pension benefits to the wife. As for the second appeal, I agree with Mayo V-P that the husband should not have been prevented from continuing to retain the services of Messrs. Hampton, Winter and Glynn, even though it was entirely appropriate for the judge to conclude, in the light of the wife’s objection, that Ms. Fusco should not have handled the husband’s case. Accordingly, I would set aside para. 1 of the order of 10 September 1999, and I would substitute for it an order that Ms. Fusco should not advise or represent the husband in the proceedings. Finally, I agree with Mayo V-P that the order nisi which should be made as to costs is that there should be no order as to the costs either of the appeals or the application for ancillary relief in the Family Court.

Hon Mayo VP:

55.  As we are all agreed the appeal is allowed and we make orders as outlined in the judgments of Keith JA and myself.