CHN v. CCY

FCMC 1755 / 2020

[2023] HKFC 48

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 1755 OF 2020

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______________________________________

JUDGMENT
( Ancillary Relief: Conduct )

______________________________________

A.  THE DISPUTE

1.  This trial is on the Respondent husband’s (“H”) claims for ancillary relief against the Petitioner wife (“W”).

2.  The parties were married in 2013 and separated in 2017. They have not consummated and have no children. W presented this divorce petition. Decree nisi and decree absolute were pronounced respectively on 17 November 2020 and 8 March 2021.

3.  A special feature in the parties’ relationship is the complete lack of physical intimacy and romance throughout the entire marriage of 4 years. They had never shared a bed. They had not shared a kiss or taken a photo together. W had wilfully and persistently refused to have any physical and emotional intimacy with H. H was very disturbed by W’s rejection of him. W said that she was not emotionally ready, and she found it difficult to develop feelings for H because of his behaviour and attitude.

4.  The parties also took issues on matters in the financial aspects. In summary, the major areas in dispute as revealed in the parties’ closing submissions are:

(1)  What is the true nature of a sum of over HK$16 million described by W as loans from her parents (“Parental Loans”) and a sum of HK$3.6 million said to be held by W on trust for her father and brother (“Trust Money”).

(2)  What is the true nature of a sum of HK$1,100,000 described by H as loans due to his mother and his sister.

(3)  Whether the parties maintained separate finances.

(4)  Whether there shall be a distribution on the non-matrimonial assets.

(5)  Whether it is inequitable to disregard W’s marital conduct.

(6)  Whether it is inequitable to disregard W’s financial conduct.

5.  H gave evidence at trial for his case. W and her father (“Father”) testified for W’s case.

B.  THE PARTIES’ OPEN PROPOSALS

6.  W contended that H is not entitled to any ancillary relief. In the interest of facilitating settlement, W proposed a lump sum payment of HK$250,000 to H to achieve a clean break.

7.  H proposed that on a clean break basis, W shall pay him a lump sum of HK$2,500,000.

C.  BACKGROUND FACTS

8.  H and W met in around 2005 through the introduction of their respective grandfathers. They have been seeing each other for around 8 years. In 2013, W proposed marriage to H. The parties got married in December 2013 in Las Vegas.

9.  H said that he treated W seriously as a potential life partners. Before marriage, they went out for meals, movies and hiking. He had sent W home after gatherings, bought her expensive items such as the latest iPhone 3G in 2008 and took the initiative to get to know about W’s religion. He paid most of the expenses at that time.[1]

10.  W accepted that they had maintained contact by having meals together[2] but denied having any romantic relationship with H. She said that she made the proposal for marriage because she was approaching the age of 40 and was urged by Father to get married. She found H to be a suitable husband as he was running his own business, he was also capable of seeking employment and could look after himself.[3] W said that she considered H “to be a potential partner that [she] could hopefully spend the rest of [her] life with”.[4]

11.  The parties’ expectations of marriage are in stark contrast:

(1)  W said that H “knew before [their] marriage that, even though on an emotional and personal level, [she] was not ready to get married, [she] wanted to follow [her] father’s wishes. The understanding was that [they] could have the formalities of a wedding first, and then try to see whether a romantic relationship would work out.” [5]

(2)  H denied having such understanding. He said that as he is the only male descendant in his family and was expected to have children, he would not agree to marry as a formality only. He had discussed with W about having children. It was only after W confirmed her wishes to get married and promised to have a child in a year’s time that H agreed to the marriage. W denied that they had such conversation.

12.  According to H (which W denied), W told H that she needed a family with a husband to psychologically support her and maintained her image to facilitate her career. She asked H to accommodate her in building up a good image and help developing her career. H found out later that after W built up her career and became the CEO of a listed company, the relationship between H and W was not improved but worsen.[6]

13.  H said that he incurred about HK$700,000 to HK$800,000 to buy Cartier wedding ring, to pay the wedding expenses and the expenses for setting up their new family. They spent a holiday of 9 days as their honeymoon.[7] W disagreed that the expenses for the wedding trip were all paid by H.

14.  During the honeymoon trip, W refused to consummate with H. According to H, W first gave him the reason of not having obtained the marriage certificate. He thought that perhaps W had not accustomed to her role as a wife, therefore he had not insisted at that time. H had proposed to sleep on the floor of the same bedroom so that he could be close to her. W refused.

15.  It is not in dispute that throughout the marriage, W had avoided H conscientiously. H referred to one incident when they were taking a ferry, a third party approached them for a seat, W moved away from H and let the third party sit between them.

16.  H was greatly disturbed by W’s refusal. He had attempted to discuss the issues with W but of no avail. He felt humiliated and frustrated, but he did not force W. He suffered from depression and has been receiving medical treatments since April 2016. He sought helps from W’s brother and people from W’s church, but all in vain. He could not concentrate on his works and had to quit the job. His career and earning capacity were thereby affected.

17.  W admitted that she did not want to have any physical intimacy with H although she could have physical contact with other friends, including male friends. She had tried to hold H’s arm on his request while they were walking in a Chinese New Year, but W found that it did not work.

18.  W said that she could not get along with H. In her affirmation, W said that she could not stand to be in the same room with H as H complained about everything, and they argued frequently. She gave the examples that H complained about her job requiring her to be often out of Hong Kong. H blamed her for not having consulted him before accepting such a demanding job. She said H criticised her for going home late from work and still doing work whilst at home. H complained on why she would attend social events without him and spent too much time with her parents. W said it came to a point where she found it unbearable to deal with H.[8] W also did not like H complained not only to her, but also to third parties. She considered H was unmotivated, unenthusiastic with life and kept making excuses not to find a job.

19.  After the marriage, W found it difficult to develop romantic feelings for H, she could not have any intimacy with H, nor adjusted to living as H’s wife. They never lived together as husband and wife in the traditional sense.[9]

20.  H rented a flat near the residence of W’s parents as their matrimonial home (“FMH”) in January 2014. It is a 2-bedroom flat of about 500 square feet. The first two leases were signed by H. The monthly rent was about HK$9,800. The third lease was signed by W. The monthly rent was about HK$10,800.[10]

21.  H said that the first year rental of FMH at HK$9,000 per month was paid by him. He was responsible for the payment of daily expenses including household groceries, meals out of home and entertainment expenses. W paid the expenses for the utilities of FMH.[11]

22.  In January 2015 (about one year after marriage), the parties opened a joint bank account and agreed that each of them would deposit $5,000 per month to the joint account for the rental payment.[12]

23.  The parties’ evidence on how they settled their daily expenses are different. By and large, both had contributed to their daily expenses.

24.  The parties were not completely detached from each other in their daily life. Take for example, the parties’ whatsapp messages showed that they had meals together after work.

25.  The parties separated in October 2017. H described that on one day in October 2017 when typhoon signal 8 was hoisted, H was sick at home. Instead of taking care of him, W went out with the last umbrella at home. H had to go out for lunch himself without umbrella. That evening, he declined W’s request for dinner out because he was sick, W left alone unhappily. She went to the residence of her parents and never returned despite H had persuaded her to.[13]

26.  The parties’ expectation and devotions to the marriage were polarised. It is not surprising that at trial, they pointed to the other on the failure of their marriage.

27.  H’s case was that W had lured him into a trial marriage and subsequently abandoned him. He stressed that this action was not aimed for condemnation that carries moral judgment, nor was an attempt to seek a vendetta against W or civil penalty through the backdoor. H maintained that it would be inequitable to disregard W’s conduct when considering the financial provisions upon divorce.[14]

28.  W contended that though she had tried to work on the relationship, it simply did not work. H had exaggerated and wrongly painted himself as the victim. It was wrong for H to blame her on the failure of the marriage. He was not entitled to seek financial relief by using this as a pretext.

29.  This is an application for ancillary relief. I shall not engage in minute investigation of the parties’ marital life and less so to form any moral judgment on the conduct of the parties. On the issue of martial conduct, the question is whether the marital conduct as found in the context of the present case is so “gross and obvious” that is inequitable to disregard in order to achieve fairness in the outcome of this ancillary relief claim.

30.  I shall exercise the discretions with reference to well defined principles and take into account all relevant circumstances of the case.

D.  LEGAL PRINCIPLES

31.  The legal principles and approaches to be adopted are not in dispute. The Court’s power to make orders for financial provisions for spouse in divorce proceedings are set out in sections 4, 6 and 6A of Matrimonial Proceedings and Property Ordinance (Cap. 192) (“MPPO”). Financial provisions can be awarded in the form of periodical payments or lump sum payments[15], transfer and settlement of property for spouse and/or children[16], and sale of property[17].

32.  Section 7 of MPPO specified the matters of which the Court has a duty to consider in determining whether financial provision orders under sections 4 to 6 shall be granted. These matters serve as guidelines and shall be applied with the implicit aim of arriving at a fair financial outcome as between the parties: LKW v DD[18] [48] – [53].

33.  Section 7(1) provides as follows:

“7(1) It shall be the duty of the court in deciding whether to exercise its powers under section 4, 6 or 6A in relation to a party to the marriage and, if so, in what manner, to have regard to the conduct of the parties and all the circumstances of the case including the following matters, that is to say—

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c) the standard of living enjoyed by the family before the breakdown of the marriage;

(d) the age of each party to the marriage and the duration of the marriage;

(e) any physical or mental disability of either of the parties to the marriage;

(f) the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(g) in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.”

34.  The proper approach to deal with application for financial provisions orders on and after dissolution of a marriage are well settled by the Court of Final Appeal in LKW v DD. A four-step approach was laid down as guideline:

(1)  identification of the assets;

(2)  assessing the parties’ financial needs;

(3)  deciding to apply the sharing principle;

(4)  considering whether there are good reasons for departing from equal division.

35.  The above steps shall be conducted against the following underlying principles:

(1)  objective of fairness;

(2)  rejection of discrimination;

(3)  yardstick of equal division;

(4)  rejection of minute retrospective investigations.

36.  The Court is not bound to adopt a conclusion upon which the parties agreed. The Court shall investigate issues relevant to the outcome, but such investigations shall be approached in a broad brush manner. As described by Thorpe LJ in Parra v Parra, the canvas of the judgment shall be painted with a broad brush rather than a fine sable. In LWK v DD, Riberio PJ explained:

“69. The essence of this fourth principle is reflected in Thorpe LJ’s illuminating comment in Parra v Parra:

… the outcome of ancillary relief cases depends upon the exercise of a singularly broad judgement that obviates the need for the investigation of minute detail and equally the need to make findings on minor issues in dispute. The judicial task is very different from the task of the judge in the civil justice system whose obligation is to make findings on all issues in dispute relevant to outcome. The quasi-inquisitorial role of the judge in ancillary relief litigation obliges him to investigate issues which he considers relevant to outcome even if not advanced by either party. Equally he is not bound to adopt a conclusion upon which the parties have agreed. But this independence must be matched by an obligation to eschew over-elaboration and to endeavour to paint the canvas of his judgement with a broad brush rather than with a fine sable. Judgments in this field need to be simple in structure and simply explained.”

(See also: ARAV v VP[19] [79] per Fok JA (as he then was))

37.  The Court has a board discretion. The exercise of discretionary power must be guided by section 7 of MPPO and the implicit aim of arriving at a fair financial outcome: LKW v DD [52], [85], [131]; PW v PPTW[20] per Kwan JA [37], [46]. This is a highly fact sensitive exercise. A finding that one or more factors in section 7(1) is engaged does not necessarily lead to the result of a departure from the sharing principle. The sharing principle must not be mechanistically applied: LKW v DD [85], PW v PPTW [49].

38.  I embark on an evaluation of the factors set out in section 7 with the above principles in mind.

E.  IDENTIFICATION OF ASSETS

39.  The first step is to identify the financial resources of both parties at the date of trial. At this stage, there is no need to separate matrimonial or non-matrimonial assets of the parties: LKW v DD [71]:

“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.”

40.  Thus, non-matrimonial assets definitely fall within the first step and not to be quarantined: PW v PPTW [48]. The effect of having non-matrimonial assets on the outcome of ancillary relief will be considered at the fourth step below when the Court is to weigh and decide whether there is good reason to depart from the equal sharing principle, and if so, how.

E1.  W’s assets and liabilities

E1a.  Overview

41.  The majority of W’s assets are 3 properties acquired by her prior to the marriage, viz. 14A, 14B and 16C (“the 3 Properties”). These are also the majority of both parties’ total assets.

42.  14B was initially owned by W’s parents in 1993. In around 2004, they sold 14B to W. The consideration was stated to be HK$1,350,000, the payment of which was funded by a mortgage loan equivalent to 70% of the price. Her parents allowed her to pay the balance of around HK$405,000 when she is able to do so.[21] Since around 2017 when W’s salary was substantially reduced, the mortgage repayment was settled with the financial assistance from Father.

43.  14A is adjacent to 14B. In 2006, W acquired 14A at the price of HK$1,380,000. The purchase was funded by a mortgage loan of 70% of the price. W borrowed HK$520,000[22] from her parents to cover the balance and for renovation. Her parents allowed her to repay the above sum when she is able to do so.[23] Since around 2017 when W has a substantial reduction of income, the mortgage repayment was made with Father’s financial assistance.

44.  W’s parents have been and are residing in 14A and 14B rent free. W moved to reside together with her parents there after she separated from H.

45.  W acquired 16C in 2011 (two years before the marriage) at the price of HK$4,970,000 for investment. She borrowed HK$1,140,000 from her parents and a sum of HK$200,000 from her brother. She repaid the sum owed to her brother, but has not repaid the sum of HK$1,140,000 to her parents. She said that she is required to pay her parents back when she affords it.[24]

46.  In 2017 and 2018, W re-mortgaged the 3 Properties and obtained further loans. In W’s Answers dated 3 July 2019, she said the 3 loans in a total sum of HK$5,550,000 (HK$1,740,000, HK$1,770,000 and HK$1,990,000 respectively) were for her personal use.[25] Later in her 3^rd Affirmation dated 12 August 2022, she said that she only received a total of HK$2,942,424.03 (but not HK$5.5 million) from the re-financing as some of the money was used to discharge the then existing mortgage loans[26].

47.  The value of the 3 Properties were agreed as follows:[27]:

(1)  14A: HK$6,460,000;

(2)  14B: HK$6,380,000;

(3)  16C: HK$8,395,000.

48.  According to W, she has the following assets[28]:

	Landed Property:
	-  14A	HK$4,185,480[29]
	-  14B	HK$4,141,235[30]
	-  16C	HK$5,500,778[31]
	Bank deposits	HK$217,182
	Stock and securities	HK$147,075
	Insurance	HK$284,700
	Valuable personal items	HK$50,000[32]
	MPF/Pension	HK$645,799
	Total:	HK$15,172,249

49.  W claimed a huge liabilities of HK$23,923,794, breakdown as follows[33]:

	Credit card balance	HK$60,212[34]
	Credit card loan	HK$700,151
	Tax loan	HK$282,667[35]
	Personal loan	HK$1,062,840[36]
	The Parental Loans	HK$16,142,316
	The Trust Money	HK$3,652,720
	Legal fees for the High Court Action (“HCA Legal Costs”)	HK$2,022,888
	Total:	HK$23,923,794

50.  H took issue on the Parental Loans, the Trust Money and HCA Legal Costs. He also doubted the real purpose of the substantial amounts of bank loans created by W after separation.

E1b.  Parental Loans and Trust Money

51.  W’s evidence was that the Parental Loans are money lent to her from time to time by her parents since 2003, including the loans to finance the purchase of the 3 Properties. The accumulated outstanding sum is over HK$16 million. The Trust Money (over HK$3.6 million) is the money held by her on trust for Father and her brother for making investment on their behalf.

52.  H contended that these are not real loans or trust money, rather these are gifts or soft loan to W and shall not be counted as W’s liabilities for the purpose of the ancillary relief application.

53.  W and Father’s respective evidence on the Parental Loan and the Trust Money can be summarized as follows:

(1)  The HK$16 million Parental Loans were advanced by W’s parents to W from time to time since 2003 with no interest and no repayment terms.

(2)  The Trust Money are sums that Father and her brother placed with W from time to time for investment.

(3)  They comprise:

a.  A lump sum of HK$100,000 to W in 2003 for her living expenses when she returned to Hong Kong from studies but before she took up gainful employment.

b.  Various payments for the balance of the purchase price of the 3 Properties and for renovations (over HK$2 million) in 2004, 2006 and 2011.

c.  Between November 2013 and November 2019, large sums of over RMB100,000 in cash were passed to W on many occasions for her use in Mainland trips to entertain her friends, to buy gifts and to build up her personal network.

d.  From 2014 onwards, annual sums of around HK$100,000 to HK$120,000 were paid by Father on W’s behalf for the annual management and utility fees of the 3 Properties. No breakdown was provided.

e.  Between December 2013 and November 2017, Father left “small changes” (散纸) (ranging from several thousands of Renmenbi to HK$300,000) to W in anticipation of investment opportunities. In 2016, W identified an Australian share as a good investment. She invested in this share for Father and her brother, but not for herself although she knew this is a profitable investment. W’s explanation at cross examination was that it would be difficult to account if her money was mixed (條數好難計). The money of Father and her brother was mixed. In May 2017, a bank account was opened for the investment of the Australian share.

f.  Post separation since in or around 2017 when W’s income was substantially reduced, large sums of money were paid to W from 12 June 2018 to 23 July 2022 for W’s living and on-going expenses.

(4)  There was no contemporaneous document evidencing the payments to W as loans or trust money.

(5)  W started to record the sums in excel table in 2006. She did not do so earlier because there were only 2 sums in 2003 and 2004 and they were easy to remember.

(6)  In W’s reply affirmation filed in August 2022 (about 2 months before the trial), W exhibited the Loan Excel and the Trust Excel (“Excel Tables”). According to her, the Excel Tables are the “tidy up” records of the Parental Loans and Trust Money prepared for this litigation. The purpose of “tidying up” was to differentiate “loans” and “trust” for investment after she received legal advice in these proceedings.

(7)  There was no demand for repayments.

(8)  On 27 February 2017 (about 8 months before separation), W repaid Father HK$1,300,000.

(9)  On 26 April 2021 (around 3.5 years after separation), W repaid HK$1,000,000.

(10)  In 2021 and 2022, Father instructed his lawyer to prepare the Promissory Notes and the Declaration of Trust. They were signed by W. Father said these documents were prepared to record the loans because W was involved in litigation. The Declaration of Trust was signed by W in July 2021 to declare 134 items of remittances between 2013 and 2018 are held by her on trust.

54.  I find that the Parental Loans and the Trust Money are either gift or soft loan repayable when W is in a position to do so. It is fair to disregard them as part of W’s liabilities for the purpose of the ancillary relief proceedings. The reasons are as follows:

(1)  There are no repayment terms for the loans. There was no demand for repayments since 2003.

(2)  W admitted that her parents allowed her to repay the loans relating to the purchase of the 3 Properties when she is able to do so. W was also allowed to charge the 3 Properties as security for bank loans (over HK$5.5 million or HK$2.9 million) for her personal use, while the loans owed to her parents remained unsettled.

(3)  There was no loan document or other contemporaneous written record evidencing these sums as loans or trust money. The Excel Tables were edited (or ‘tidy up’) version prepared for the litigation. I am aware that it is not unusual for family members to lend money with no written loan documentations.

(4)  W was well educated, knowledgeable in finances and management. She obtained a Master’s degree in financial management. She was the Dean of Faculty of Business in a tertiary institution. She led a team to obtain the listing of a company successfully and was the CEO of the listed company. She was legally represented in these proceedings. If W genuinely considered that the Parental Loans and Trust Money are true loans or trust monies, there was no reason for her not to disclose them as her liabilities when she filed the first Form E in December 2018. Instead, in her first Form E, she only disclosed debts of about HK$1,850,000 in connection with her purchase of the 3 Properties with no mention of the Parental Loans or the Trust Money. According to the Excel Tables, the money owed to Father by that time already added up to over HK$8.5 million.

(5)  W only disclosed for the first time in her second Form E dated 14 February 2022 that she owed her parents a sum of HK$17,833,036.42 as at 4 February 2022.

(6)  Given W’s education background and work experience, it is unconvincing that she wrongly treated the money placed with her by family members for their investments as loans, and only made the differentiation for this litigation.

(7)  The Promissory Notes and Declaration of Trust were made post-event. The Promissory Notes did not record the genuine terms of the arrangements between W and her parents. The Promissory Notes expressly stipulated a provision of 5% interest. This is contrary to the evidence of W and Father that no interest was charged on the Parental Loans. I do not accept Father’s attempt to rectify in re-examination by suggesting that W did promise to pay him interest but the same was foregone in his mind since he was allowed to reside rent free in 14A and 14B. This was never mentioned by W or Father in their earlier evidence. The Promissory Notes were prepared by solicitors acting for Father. If Father had indeed foregone the charging of interest in his mind, his solicitors would not introduce on their own an interest term in the Promissory Notes. I attach little weight to the Declaration of Trust, which is self-serving.

(8)  The finances of W and her parents were not as separate and distinct as they sought to portray. W admitted, at least in respect of the loans in connection with the 3 Properties, that she was only required to pay back when she is able to do so. The objective evidence supports that the same arrangements apply to the other part of the Parental Loans.

(9)  Father funded or financed the purchase of the 3 Properties. Two of which were used as his own residence.

(10)  Father has been and continued to fund W’s extravagant expenses despite her humble income.

(11)  W’s expenses were not commensurate with her humble earnings since 2017. W claimed that her monthly expenses were over HK$130,000. This amount is 3 to 4 times of W’s income (about HK$36,300) in the past 4 years.

(12)  Even after W was put on no pay leave and had a very significant reduction in income, she made huge spending on dining and purchases, for example, she made a purchase of HK$16,435 at Godiva Chocolate Shop in December 2021[37]; purchases of about HK$4,000 to HK$5,500 at Kee Wah Bakery in January 2022 and April 2022 respectively. There were dining expenses for groups of people of about HK$20,000 for each transaction. W said these expenses were personal. She justified this by saying that she needed to do these to maintain the social network.

(13)  This indicated two points. Firstly, W sees that she has the career prospect for which she needs to maintain the network. In other words, her career prospect is not as dim and declining as she sought to describe at the trial. Secondly, Father is able to and will provide generous financial support for her extravagant expenses despite her humble income.

(14)  It is also noted that a very significant portion of the Parental Loans (HK$13 million out of HK$16 million) was made after the parties’ separation for W’s living expenses, maintenance of the 3 Properties, and payment of legal fee.

(15)  While W was relying on her parents’ financial support (in particular after 2017) and had a hefty debt owed to the parents, she claimed to have made substantial payments as gift to the parents. These include (a) HK$240,000 paid in 2016 to 2017 as maintenance for parents; (b) HK$100,000 paid as Chinese New Year gift in 2018; (c) HK$600,000 to her mother in 2018. W chose not to apply the money for repayment to the loans, nor kept the money for her own use so as to obviate the need to incur further loans from Father. Instead, she increased her liabilities by these payments. The true purpose of these transactions are doubted.

(16)  The repayment of HK$1,000,000 to Father in April 2021 was sourced by a DBS loan of HK$1,176,000[38]. There is no good reason for the need to obtain a bank loan to repay Father while W was still relying on the continual financial support from her wealthy Father.

(17)  W said that she did not participate in the Australian shares investment because she did not want to mix her money with those of Father and her brother. This is unconvincing. This investment generated HK$2,400,000 profits from an investment of about HK$2,542,000 in less than a year. W saw fit to mix the funds of Father and brother in the investment. She had also mixed her own funds with those from Father and brother since December 2013. The subsequent set up of a bank account in May 2017 was not for fund segregation but because W was unable to purchase foreign securities using her other bank accounts. Further, if segregation of funds is an issue, there ought to have means to do it properly.

(18)  Notwithstanding Father’s evidence that all capital and profits earned from this investment were returned to him, W was keeping some HK$581,000 from the investment gain.

E1c.  HCA Legal Costs

55.  W produced a loan agreement made in December 2021 whereby a company controlled by Mr S (“M Ltd”) lent W a loan subject to a ceiling of HK$2 million for the settlement of legal fees in defending a high court action against W, Mr S and Y Group as third parties (“HCA”). There are 33 defendants in the HCA. According to the 2016 Annual Report of the Y Group, Mr S was a founder and the chairman of the board of the Y Group. The loan was interest free, repayable on demand and unsecured.

56.  According to W, M Ltd has paid HK$740,580 legal fee for her. The outstanding invoices for legal fees as at September 2022 are over HK$1,282,308 (including HK$698,920 billed and HK$583,388 unbilled) for both the HCA and Y Group Investigation Committee against W. No detailsof the work done was provided.

57.  As in all litigation, there is a possibility of a party recovering legal costs from the other sides. It is yet to see the development of the HCA in this respect.

58.  In WLK v TMC [70], Court of Final Appeal approved the judge’s decision to treat assets fully charged to meet legal costs as assets of the party because the judge has yet to make an order as to costs and the impact of such order on the assets concerned was not known at that time, leaving costs to be dealt with in the ordinary way.

59.  Although the subject matter here is the legal costs of a different action, there is no material difference in that it remains unknown as to whether W would recover the costs in the litigation. It is fair at this stage to disregard the HCA Legal Costs as a liability of W, but I will take this into account in the overall assessment of the outcome.

E1d.  Payments by W to her parents and third parties

60.  One of the issues framed in paragraph 16(3) of H’s opening submission concerns 8 items of payments by W to her parents or third parties (amounting to a total of HK$9,640,000), which H described as “questionable withdrawals” and suggested that they were dissipation or reckless spending that should be notionally add-back to the pot or taken into account on the question of determining departure from equal sharing.

61.  At closing, H affirmed that he did not pursue the claims for add-back on these transactions, but invited the Court to consider these transactions as financial misconduct and accordingly adjust the yardstick of equality sharing in favour of H. H put his case in the written closing submission as follows:

“10. While H reaffirms his position of not pursuing a case of notionally add-back in relation to W’s suspicious payment-outs to multiple parties including her parents, these transactions shed light on the financial arrangement between W and her family, which magnifies the flaws in her so-called Parental Loans and Trust Money. Further, the Court is fully entitled to take into account these financial conducts (in addition to her marital conducts) in adjusting the yardstick of equality resulting in a fair share of $2.5M to H.”

62.  The following are the 8 items of payments:

(1)  $900,000 paid to W’s parents as medical expenses in September 2016;

(2)  $800,000 paid to JJ Investment Limited (a company owned by the majority shareholder of W’s employer) in August 2017, as repayment of money borrowed by W in cash from 2014 to 2017 for her personal expenses while traveling abroad;

(3)  $2.3 million paid to W’s parents in 2017 and 2021 as repayment of loans;

(4)  $240,000 paid to W’s parents in 2016 to 2017 as maintenance in performing her filial duties;

(5)  $600,000 paid to W’s mother in 2018 as repayment of loans;

(6)  $100,000 paid to W’s parents as gift for Chinese New Year in 2018;

(7)  $350,000 lent to WBQ on behalf of Father in November 2017, which was repaid to W in the form of rental payments originally payable to Father;

(8)  $4.35 million paid to Father as gains from investment under the trust arrangements between W and her parents/brother (i.e. the Trust Money).

63.  W explained that the HK$350,000 loan to WBQ on behalf of Father had been repaid. This was not challenged by H.

64.  As stated above, I have doubt on the true nature of the substantial amounts of maintenance paid to W’s parents when W was heavily relied on Father’s financial support. This issue will be considered at the fourth step below.

65.  Among the expenses made by W, there was a HK$4.4 million repayment of American Express credit card (“AE Card”) expenses to Company H. W said that these were expenses incurred for work. HKJA had settled these expenses in around October 2015 to October 2019. There was however a change in the senior management of the Y Group in February 2019, they cast doubt on the transactions. After a comprehensive internal audit, it was resolved that the transactions in the AE Card expenses were unauthorised and W was required to personally pay back the same. W adduced a redacted document of the company set out the above findings. W said that she was not happy about this, but she did not want to create more trouble, therefore she made the repayment.

E2.  H’s assets and liabilities

E2a.  H’s assets

66.  H has a modest size of assets comprising[39]:

	Bank deposits	HK$298,942
	Stock and securities	HK$1,471
	Valuable personal items	HK$18,323[40]
	MPF/Pension	HK$315,632
	Total:	HK$634,368

E2b.  H’s liabilities

67.  H disclosed a total liabilities of HK$442,835[41], as follows:

(1)  2 credit cards loans of HK$515;

(2)  a loan owed to his mother as at 22.2.2022 in the sum of HK$100,000; and

(3)  a loan owed to his younger sister as at 22.2.2022 in the sum of HK$342,320.00.

68.  At trial, H testified that in addition to the above, he borrowed a total of about HK$1 million from his younger sister, mostly for settling his legal fees in the divorce proceedings. There is no written agreement for these loans. He promised his family members that he would repay these loans although there is no fixed term of repayment.

69.  I find the above loans owed by H to his mother and sister are soft loans, and are to be disregarded as H’s liabilities for the purpose of this ancillary relief application.

E2c.  H’s Mainland bank accounts

70.  W criticised H on the failure to disclose his Mainland bank accounts prior to his second Form E, and also his failure to produce bank statements of these accounts from September/October 2019. W suggested that H hid his assets in the Mainland bank accounts.

71.  H’s explanation was that he could not recall the account number and the balance when he prepared the first Form E. The money in the Mainland accounts were transferred from his account in Hong Kong to earn higher interest rate. There was no hidden business or income stream in the Mainland. He was not able to produce the updated bank statements from September/October 2019 due to the traveling restrictions arising from Covid-19. He has written to the bank through solicitors requesting the same in January, March, May and July 2022. However, the Mainland bank did not provide him with the statements.

72.  I accept H’s explanation. These bank accounts were disclosed by H in his second Form E. I do not see evidence to support the existence of undisclosed assets or business in the Mainland.

E3.  Both parties’ assets and liabilities

73.  In summary, for the purpose of identification at step 1, and without differentiation of matrimonial and non-matrimonial assets,

(1)  W has a net asset of HK$13,066,379 (HK$15,172,249 less HK$2,105,870).

(2)  H has a net asset of HK$633,853 (HK$634,368 less HK$515).

(3)  The total net assets in the matrimonial pot is HK$13,700,232.

E4.  W’s Earning Capacity

74.  W is 48 years old. After graduating from a university in HK in May 1995 with a degree in business administration, she went to the United States of America and lived there for four years. By June 2001, she obtained a Master’s degree in Science on financial management from a university in the UK and a Master’s degree in computer science from a university in USA. She worked in the USA for 1 year and returned to Hong Kong in around 2002.[42]

75.  Between 2003 to November 2013, she worked at an educational institute (EI) as Dean of Faculty of Business, Vice President, chairperson of the Quality Assurance Committee, chairperson of the Student Affairs Committee, member of the Board of Governors, member of the Academic Board, and member of Finance Sub-Committee over the years. While working in EI, she was responsible for overall management, strategic and academic planning, as well as supervising the financial matters and the human resources.[43] Her monthly salary was around HK$86,000.

76.  Through Father, she came across the opportunity to work at Company H. She left EI for a career change in around November 2013, and married H in December 2013. On 1 January 2014, W started working in Company H (a subsidiary of Y Group) as General Manager, with a monthly salary of HK$60,000.

77.  Her annual employment income for 2014 was HK$1.22 million. She became the CEO in July 2015. Her employment income for 2015 was around HK$1.45 million, including a discretionary bonus. From August 2016, her monthly salary was increased to HK$100,000. She successfully helped the Y Group to get listed and earned an annual income of around HK$2.27 million (including a one-off bonus of around HK$1.07 million) in 2016.

78.  She was a director with official titles in many of the Y Group’s corporate entities. I accept W’s evidence that she did not receive separate salary, allowances or bonuses from these other roles.

79.  She was put on no pay leave in 2017. Her annual employment income dropped to HK$700,000 in 2017, further to HK$226,200 in 2018, and then to HK$220,000 (around HK$18,300 per month). According to the annual report of the listed company, she ceased to be the CEO as from 17 February 2019.

80.  W also received rental income of around HK$18,000 per month from her tenant of 16C. W informed the Court at trial that the tenant has indicated the intention not to renew the lease. There was no basis to suggest that W cannot find a replacement tenant.

81.  In view of W’s educational background, experience, calibre and capabilities, she could have much higher earning capacity than her current monthly employment income of HK$18,300. Even if we disregard the bonus of HK$1.07 million in 2016, W used to earn an annual salary of about HK$1.2 million, roughly HK$100,000 per month. Before she joined Company H, she earned a monthly salary of HK$86,000.

82.  W said that because of office politics and the financial difficulties of Company H, she would not be able to resume her previous position in Company H or the Y Group.

83.  She was not legally restrained from getting other employment. It is strange that she chose to stay in Company H earning a monthly salary of about 7 times less than her usual salary for the last 4 years. W appeared to suggest that she would continue to stay and earn this substantially low level of income.

84.  Although W said that her monthly income was around HK$36,300 (HK$18,300 employment income and HK$18,000 rental income), she spent over HK$130,000 every month. I will say more on this below.

85.  Having considered W’s educational background, calibre and work experience, I find that she has the capacity to earn a total of around HK$130,000 per month (including rental income).

E5.  H’s earning capacity

E5a.  Overview

86.  H is 53 years old. He is a graduate of a university in HK with a bachelor’s degree in computer science. He worked in the IT industry for some years. In 2003, he started his small business of selling watches on eBay, earning a monthly income of around HK$20,000. The business ceased in about 2009. H then explored the possibility of watch trading in the Mainland. This was not successful. In 2011, he ran another joint venture selling puff cigarette. This lasted less than a year. He moved to work as an IT consultant in a company in Kwun Tong, and at the same time writing programmes for stock and futures trading on a self-employed basis.

87.  In about October 2013 (2 months before the marriage), he was employed as an IT technician in a secondary school. H said (which was denied by W and Father) that he was requested by W and Father to close his business and seek a stable employment so that after marriage, W could feel settled and focused on the new job that she was about to start.

88.  In 2016, H resigned from the employment with the secondary school because of his emotional problem. His salary at that time was about HK$19,000.

89.  H testified that since 2016, he had sent hundreds of job applications and had about 8 to 10 opportunities for interview. They were all unsuccessful. He said that because of his emotional problem, he could not fully concentrate on works.

90.  In the meantime, H was exploring a self-invented stock-trading system. He made some trading through the system to test its efficiency. The system was not yet ready for market. H expected that if it was proven successful, he would be able to sell it to securities firm or individual investors. There was no evidence as to whether, and if so, when the system is good for sale. H continued to run an online sale business including collecting and repairing “display cards” for technological devices and mining the cryptocurrency of Ethereum. He was making about HK$1,500 to HK$2,000 per month.

E5b.  H’s emotional problem

91.  H said that he was emotionally disturbed by W’s rejection of him. He started to have insomnia, weariness, weight loss and eating disorder in 2014 (about 1 year after marriage).

92.  The medical certificate issued on 17 July 2018 by Fanling Health Centre stated that on 19 April 2016, H complained of low mood for two years. He was put on counselling. He was diagnosed on 17 November 2017 (after separation in October 2017) to have depression and was prescribed with anti-depressant. He was mentally well except for mood problem and he was not suicidal. He attended consultation on 5 August 2018. His condition was stable.

93.  He also attended the counselling services provided by Joyful (Mental Health) Foundation from March 2017 to early 2019. This service was terminated in 2019 due to limited resources. H is attending regular consultation at the Fanling Health Centre.

94.  H said that he had to quit the job at the secondary school because of his depression. At cross-examination, he said he would get sad and shed tears when he saw parents with children at the school.

95.  There is no evidence to contradict the medical certificate. H suffered from depression at least since November 2017. I accept that this affected his work. However, it was not suggested that H was unsuitable to work at all. Under cross-examination, H confirmed that he was hoping to find work with less interaction with people.

96.  H might need some time to resume his work to the full extent. Given time, and with the resolution of the present divorce proceedings, he should be able to pick up the work. I find that if he recovers from depression, he has the capacity to earn a monthly income of around HK$15,000 to HK$20,000.

F.  FINANCIAL NEEDS OF THE PARTIES

F1.  General

97.  The second step is to conduct an initial assessment of the parties’ financial needs.

98.  In LKW v DD, Riberio PJ explained the second step as follows:

“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.’

99.  As a matter of principle, the parties’ need should be “generously interpreted”: LWK v DD [79]

“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”

F2.  W’s financial needs

100.  W claimed to have a monthly expense of over HK$134,000 as follows[44]:

Mortgage instalments	$45,113
Household utilities	$5,000
Management fee	$4,800
Food	$12,000
Household expenses	$6,000
Insurance premia	$200
Meal out of home	$20,000
Transport	$4,000
Clothing/shoes	$6,000
Personal grooming	$6,000
Entertainment/presents	$5,000
Holiday	$5,000
Medical/dental	$3,000
Personal insurance premia	$2,000
Contribution to parents	$10,000
Total:	$134,113

101.  At trial, W contended that with the rise in interest rate, the mortgage payments would be higher. Commencing in around September 2022, the monthly mortgage instalments was HK$54,917 after the adjusted interest rate, in which case, her total monthly expenses were increased to HK$143,917.

102.  There was a marked disproportion when compared her monthly income (about HK$36,300) in last 4 years and her huge monthly expenses (HK$134,000 or HK$143,917). W said that she relied on money advanced from Father. She adduced the audited account of one of Father’s property management company in Hong Kong. [45] The audited account showed that this company has a profit of $134,210,876 for the year 2016 and HK$276,027,897 for the year 2015. The owner’s equity for the year 2015 was HK$277,303,838 and was increased to HK$411,514,714 for the year 2016.

103.  W claimed that she spent a monthly sum of HK$32,000 for food and meal expenses, HK$5,000 each for entertainment and holiday expenses (i.e. HK$120,000 a year). The total expenses claimed are about 3 to 4 times of W’s claimed income. These expenses did not commensurate with the standard for the household expenses during marriage as shown in the evidence. It is noted from the whatsapp messages between her and H that during marriage, they visited restaurant such as Italian Tomato, and W has a habit of earning points from dining.

104.  W’s credit card statements after separation showed that W had meals in restaurants, such as, Chiu Tang (HK$19,677), Harbourview Horizon (HK$18,340), Cuisine Cuisine (HK$46,592) and regular restaurant bills of around HK$2,000 to HK$4,000 per transaction. W contended that this high level of personal expenditure is not surprising as she came from a wealthy family background. This contention does not sit well with W’s assertion that in her upbringing, Father instilled in her “the value of hard-earned money”[46], bearing in mind her claimed regular expenses were disproportionate to her humble earnings.

105.  I do not accept W’s claim for HK$10,000 monthly contribution to her parents. She was in fact heavily beyond her means and was relying on the financial support of her wealthy Father.

106.  I find W’s reasonable needs, generously construed, is around HK$90,000 per month.

F3.  H’s financial needs

107.  H’s expenses are as follows[47]:

Household utilities	$130
Food	$300
Household expenses	$500
Computer and related expenses	$200
Contribution to parents	$4,000
Meal out of home	$2,000
Transport	$500
Clothing/shoes	$300
Personal grooming	$600
Entertainment/presents	$400
Holiday	$600
Medical/dental	$400
Self-learning computer science	$100
Total:	$10,030

108.  H said that he was unemployed. He has no money and therefore lived in his parents’ residence. He contributed about HK$4,000 to his parents. He expected that his budget for rental, utilities, food and transportation would increase when he starts work. He anticipated that his monthly expenses should be HK$26,800.

109.  On the assessment of his reasonable need, it is fair to include rental and utilities expenses for his own accommodation and the increase in budget for food and transportation when he starts working. I find that, generously construed, H’s reasonable needs is HK$20,000.

G.  APPLICATION OF SHARING PRINCIPLE & ANY GOOD REASONS TO DEPART FROM IT

110.  Where the parties’ total assets are such that a surplus would exist after catering for their needs, the equal sharing principle shall always apply unless there are good reason for departing from it: LKW v DD [80] – [82]; WLK v TMC[48] [84].

111.  The guidance in LKW v DD is as follows:

“83. The fourth step therefore involves considering whether good reasons exist for departing from the principle of equal division. Any such departure means increasing or reducing one party’s share and correspondingly reducing or increasing the share of the other. The question for the court is whether the balance ought to be shifted from a point of equality to some other point in the circumstances of the case. This is necessarily a complex question which raises a range of separate issues.

84. What then are potentially good reasons for such a departure? The answer is to be found in the terms of s.7 and the implicit objective of a fair distribution of the assets. Any of the matters listed in paras. (a)–(g) of s.7(1) may provide an appropriate reason, as may the “conduct of the parties” and “all the circumstances” referred to in s.7(1). The catch-all category of “all the circumstances” makes relevant any matter which bears on the fairness of the financial outcome in a matrimonial context.

85. It is important to stress that while such factors, individually or cumulatively, are potentially capable of resulting in a departure from an equal division, a finding that one or more of those factors are engaged does not necessarily mean that a departure must occur. The weight to be given to such factors is in the court’s discretion to be exercised in Step 5 as described in Section E.6 below. It cannot be over-emphasised that the matter is fact-specific and discretionary. The sharing principle must not be mechanistically applied.”

(emphasis in bold added)

112.  The sharing principle is not capable of being “displaced” by factors listed in section 7(1). Riberio PJ reiterated in WLK v TMC [84]:

“84. I do not agree with the Judge’s suggestion that the sharing principle is capable of being ‘displaced’ by such consideration [i.e. the shortness of marriage and there was virtually no marital acquest: see [83]], even where there are substantial assets surplus to the parties’ needs. There is nothing in White v White or Miller/McFarlane to support that view. If the Judge’s approach were to be adopted, one would have to defined the conditions for such displacement, which in my view, introduces unnecessary complications. The better approach is to regard the sharing principle as always applicable when there are assets surplus to needs but accepting that, as part and parcel of that principle, an equal division should indeed be departed from if good reason exists for so doing. The shortness of marriage, the absence of marital acquest and similar matters can all be considered as possible reasons for such a departure. The circumstances of a particular case may lead the court to decide, for example, that equal division should be departed from the extent of restricting the award to a sum sufficient to meet one of the parties’ needs. But that is not to say that the sharing principle has been “displaced”.”

(emphasis in bold added)

113.  To determine “whether the balance ought to be shifted from a point of equality to some other point in the circumstances of the case”, the Court ought to consider a host of factors listed in section 7(1) of MPPO, and decide whether the final award should be restricted or adjusted accordingly.

114.  It is recognised that this is necessarily a complex question which raises a range of separate issues: LKW v DD [83]. As stated in Section D above, this Court is tasked to consider and weigh all the relevant factors in the context of this case with the aim to achieve a fair result. The exercise is fact-specific and discretionary: LKW v DD [88], [92] – [94], PW v PPTW [46].

115.  The pertinent factors in the present case include short duration of marriage, most of the assets were acquired before marriage, the parties’ arrangement for their finances during marriage, W’s marital and financial conduct and any compensation for relationship-generated disadvantage.

G1.  Duration of marriage

116.  It is not in dispute that this is a childless marriage of 4 years.

G2.  Non-matrimonial property

117.  The source of an asset is one of the factors under section 7(1)(a) of MPPO. Asset not acquired during marriage may be a reason for exclusion from distribution. There is however no rule mandating the exclusion. The Court shall refrain from wasting efforts in trying to distinguish matrimonial and non-matrimonial property: LKW v DD [87] - [88].

118.  The 3 Properties were acquired by W prior to marriage. Repayment of the mortgage loans were made during marriage. W argued that the mortgage repayments were made from her own earnings, separate and distinct from H’s income. She also argued that the parties’ finances during the marriage were all separate and not mixed.

119.  Suffice to note, there is no serious dispute on the fact that a majority of the total assets were acquired by W prior to the marriage. H had not financially contributed to the repayment of the mortgage loans.

120.  There are two approaches in English cases when considering ancillary relief applications that involve non-matrimonial properties, viz, the two-stage approach and the telescoped approach. Hong Kong Courts commonly adopt the telescoped approach: WLK v TMC [84], PW v PPTW [69].

121.  Kwan JA explained the two approaches in PW v PPTW [59] to [63]. Briefly, the two-stage approach is to identify the scale of the non-matrimonial property to be excluded and leaving the matrimonial property alone to be divided in accordance with the equal sharing principle. The telescoped approach is to adjust the percentage of sharing from 50% to take into account non-matrimonial assets. No matter which approach is adopted, the Court will have to weigh all the factors to reach the outcome of the percentage of sharing:

“72. Thus, in applying the telescoped approach regarding non-matrimonial property, and in deciding to what extent equal division should be departed from where needs have been satisfied, according to the guidance given by the courts relevant factors may include: the duration of the marriage; the nature and value of the non-matrimonial property; the way the parties organized their financial affairs; their standard of living and the extent to which it has been afforded or enhanced by drawing on the non-matrimonial assets; the way the non-matrimonial property was preserved, enhanced or depleted during the marriage.

73. Similarly, in applying the two-step approach, in deciding whether it is fair and just that the existence of non-matrimonial property should be reflected, as stated in N v F at §14, this ‘depends on questions of duration and mingling’. And if it does decide that reflection is fair and just, in considering how much of the pre-marital property should be excluded, the court would be looking at factors such as historic sum, the extent of mingling, the springboard effect and passive economic growth, not dissimilar to some of the relevant factors considered in the telescoped approach. in any event, the fairness of the award in applying the two-step approach is to be tested by the ‘overall percentage technique’.”

122.  The Court of Appeal in AVT then known as MAM v VNT[49] refrained from deciding which approach is to be preferred, and emphasized that this is a discretionary relief to be determined with reference to established principles and perimeters. Cheung JA (Lam VP and Poon J (as they then were) agreed) said in [6.9]:

“6.9 Personally I do not find the argument in the English cases about which is the preferred approach helpful. More importantly the Court of Final Appeal has already given guidelines on how non-matrimonial property should be dealt with under the sharing principle in a short marriage which I will deal with in the following paragraphs. Hence the starting point of excluding the matrimonial property from consideration will be contrary to the Court of Final Appeal judgment which this Court must follow. But for the purpose of discussion, my view is that the second approach which may eventually include the non-matrimonial assets should not be regarded as the touchstone to the solution of the problem. Words such as ‘insufficient logical rigour’ or ‘risk of palm-tree justice’ used by the proponents of the second approach to criticise the first approach are really, with respect, not helpful at all. This is after all a discretionary relief to be exercised by reference to well defined perimeters and established principles. Further, under the second approach the determination of how much of the non-matrimonial property is to be included is very much as discretionary decision as well.”

123.  In SSLT v SMFC[50], HHJ I. Wong reviewed various English authorities[51] in [97] to [104]. In those cases, the English courts acknowledged that the guidelines are not to be applied with undue rigidity, a broader approach is required to achieve fairness. Non-matrimonial property could be distributed if it is justified by the circumstance of the case. It is more common that non-matrimonial property was distributed to meet the needs of the other party.

G3.  Separate finances

124.  The keeping of separate finances by the parties would not necessarily lead to a quarantine or ring-fence of their assets.

125.  Fok JA (as he then was) commented in ARAV v VP[52]:

“97. I would add that I also agree with the submission made by Mr Shieh that separate finance arrangements apply to many households in Hong Kong and finding that such arrangements give rise to the insulation or quarantine of such assets from division between parties in the event of a divorce would have far-reaching consequences. Although the present case involves a wife seeking to ring-fence her assets, it is not unlikely that in many marriages where separate finances are kept it is the principal breadwinner (whether husband or wife) who holds the bulk of the assets. If the keeping of separate finances were too readily held to give rise to the type of post-nuptial agreement claimed in the present case, there would be a real risk of the weaker spouse being left without redress upon divorce.”

(emphasis in bold added)

126.  The parties were not in dispute that by and large they had not mingled their assets and incomes. The only joint asset is a joint bank account opened for the purpose of settling rental payment for FMH. This was opened about one year after they moved in. Each of them deposited HK$5,000 into the account for rental payment. At the time of trial, there was no or only nominal credit balance in this joint account.

127.  It was not the parties’ practice to split expenses or restaurant bills into half on every occasions. H paid the first year’s rent of the FMH. The restaurant bills were paid by H on some occasions, and by W on other occasions. Each of them had also contributed to a pool of money for petty cash.

128.  There was no implied agreement (pre-nuptial or post-nuptial) to ring fence the parties’ assets. I do not agree that the parties have kept their finances strictly separate from the other.

G4.  Conduct

129.  Conduct of the parties is a factor under section 7(1) of MPPO. In principle, this is a factor which may, alone or in combination with the others, result in a departure from an equal division: LKW v DD [99].

130.  Conduct features in ancillary relief cases in various distinct scenarios. Mostyn J listed four distinct scenarios in OG v AG[53] [34] to [39]. The first one is where there was gross and obvious personal misconduct (including economic misconduct) by one party against the other. This is the scenario relevant to the fourth step. The other three scenarios are the add-back jurisprudence in identification of assets, the litigation misconduct which is usually penalised by costs, and the evidential technique of drawing adverse inferences as to the existence of assets from a party’s failure to give full and frank disclosure.

131.  This section focus on the conduct falls within the first scenario. In addition, I also deal with the point on compensation on relationship-generated disadvantages which may arise from the parties’ conduct, not necessarily misconduct.

G4a.  Compensation on relationship-generated disadvantages – legal principles

132.  Compensation for relationship-generated disadvantages is usually factored in when applying the sharing principle. It was only in exceptional circumstances that a separate award was granted to such compensation by a broad brush attribution of some percentage of the award: LKW v DD:

“118. In my view, our courts ought to proceed on the footing that the parties’ respective contributions to the welfare of the marriage are implicitly recognized within the sharing principle itself and that there will, if at all, only be rare and exceptional cases where an issue can properly be raised in favour of departing from equality on the basis of “special” or “stellar” contribution.”

“130. In my view, the approach to “compensation” should be similar to the approach to “contribution” previously discussed. Our courts ought to proceed on the footing that compensation for relationship-generated disadvantage is generally already factored in upon any application of the sharing principle. The extent of the compensation allowed for in applying that principle and deciding the extent of any possible departure from an equal division is, in any particular case, a fact-specific question which will depend on the nature, certainty, permanence and other qualities of the disadvantage incurred, viewed in a broad brush way. It will only be in exceptional cases that a separate element of the award over and above the amount already factored in should be dedicated to such compensation on the special facts of the particular case. In such exceptional cases, the court should not attempt to try the issue evidentially or conceptually as if it were a damages claim. A broad brush attribution of some percentage of the award to the element of compensation would generally be sufficient.”

(emphasis in bold added)

  (See also: WLK [119] to [120])

133.  Compensation principles can go beyond the core needs. There shall be a direct causal link between the additional economic disadvantage and the relationship: ND v GD (Financial Remedies)[54]

134.  In WLK, a 2% of the total assets was awarded to the wife on top of her needs to reflect the wife’s contribution and 3% as compensation for giving up her career ambition as a concert pianist in order to fall in line with husband’s wish in contemplation of them getting married. The Court of Final Appeal held that:

“129 During that time, the wife complied with the husband’s wishes that she should accompany him on his frequent business travels; kept her mother-in-law and sisters-in-law company; and so forth. If she did not make innovative contributions of her own, this was at least in part because, as the Judge accepted, she “was never expected to be anything other than as a wife at home”. And if she did not have a household of her own to take charge of, that was because they had decided to reside in the home of the husband’s parents initially without telling them that they had got married. That is not the same thing as saying that she had make a “zero” contribution to the marriage, relatively short though it was. It is true that it was a turbulent relationship but that does not justify ignoring its positive aspects. There were quarrels, but also reconciliations, “downs” but also “ups”.”

135.  The percentages adopted in WLK is not intended to be applied as a formula. See AVT then known as MAM v VNT :

“6.12 … In terms of the wife’s contribution, she was performing very much the same tasks as the wife in WLK. However, I do not consider that the 2% for contribution adopted in WLK was intended to be applied as a formula. Inevitably the extent of contribution in each case is different. In this case the appropriate amount is $500,000. The final award to the wife is $6 million. This is about 20% of the total joint assets. The issue of compensation does not arise in this case.”

136.  In RC v JC[55], a compensation was awarded to the wife who was an excellent lawyer but left the law firm after marriage as the husband did not want her to remain at the law firm (where the husband was also working with) if they were to marry and the wife accepted that she could not remain. Following the relationship breakdown, the wife suffered from very serious depression (with suicide attempts and alcohol misuse) and ill-health. The English court found that she gave up her legal career with the support of the husband, there was a significant relationship-generated disadvantage and made an award of a sum over and above her half share of the assets. The court expressly warned that this case is an exception rather than the rule.

G4b.  Gross and obvious “negative” conduct – legal principles

137.  Besides, there are cases where one party has engaged in conduct which is so “obvious and gross” that to order one party to support another whose conduct falls into this category is repugnant to anyone’s sense of justice: Wachtel v Wachtel[56], cited in LKW v DD [101], [104].

138.  In Wachtel v Wachtel, both parties accused the other of adultery. The first instance judge was not satisfied that any relevant charge of adultery had been proved on either side. He found that the responsibility for the breakdown of marriage rested equally on both parties. On the husband’s appeal, Lord Denning MR said that:

“It has been suggested that there should be a ‘discount’ or ‘reduction’ in what the wife is to receive because of her supposed misconduct, guilt or blame (whatever word is used). We cannot accept this argument. In the vast majority of cases it is repugnant to the principles underlying the new legislation, and in particular the 1969 Act. There will be many cases in which a wife (although once considered guilty or blameworthy) will have cared for the home and looked after the family for very many years. Is she to be deprived of the benefit otherwise to be accorded to her by s 5(1)(f) because she may share responsibility for the breakdown with her husband? There will no doubt be a residue of cases where the conduct of one of the parties is in the judge’s words ‘both obvious and gross’, so much so that to order one party to support another whose conduct falls into this category is repugnant to anyone’s sense of justice. In such a case the court remains free to decline to afford financial support or to reduce the support which it would otherwise have ordered. But, short of cases falling into this category, the court should not reduce its order for financial provision merely because of what was formerly regarded as guilt or blame. To do so would be to impose a fine for supposed misbehaviour in the course of an unhappy married life. Counsel for the husband disputed this and claimed that it was but justice that a wife should suffer for her supposed misbehaviour. We do not agree. Criminal justice often requires the imposition of financial and indeed custodial penalties. But in the financial adjustments consequent on the dissolution of a marriage which has irretrievably broken down, the imposition of financial penalties ought seldom to find a place.”

(emphasis in bold added)

139.  It is well established that the “gross and obvious” test does not carry any moral judgement, and has to be approached broadly. Generally, the misconduct must be extremely serious to justify a departure from the equal sharing principle, and such cases are rare. The Court of Appeal in WMC v STW[57] held that:

“4. Both parties in this appeal accepted that the relevant test for Hong Kong is still based on the Wachtel v Wachtel [1973] Fam 72 test of “gross and obvious” where Ormrod J observed at p.80 that:

As s.25 stands, conduct is to be taken into account as a factor which may modify the result which is arrived at after consideration of all the other factors specified in the section. The court can only approach this issue in a broad way. It should bear in mind the new basis of divorce which recognises that, generally speaking, the causes of breakdown are complex and rarely to be found wholly or mainly on one side, and that the forensic process is not well-adopted to fine assessments or evaluations of behaviour, and that it is not only conduct in relation to the breakdown which may have to be considered. Conduct subsequent to the separation by either spouse may affect the discretion of the court in many ways, e.g. the appearance of signs of financial recklessness in the husband or of some form of socially unacceptable behaviour by the wife which would suggest to a reasonable person that in justice some modification to the order ought to be made. In my experience, however, conduct in these cases usually proves to be a marginal issue which exerts little effect on the ultimate result unless it is both obvious and gross. (Emphasis added).

5. Rayden & Jackson on Divorce and Family Matters (18^th ed., 2005) Vol. 1, para. 16.77 gives a summary of the “gross and obvious” requirement:

The word “gross” in this context does not carry any sort of moral judgment: it means “of the greatest importance”. It has been said that the test is whether or not it would “offend a reasonable man’s sense of justice” to leave the conduct in question out of account. It has also been said that, in assessing the gravity of a party’s conduct in the context of financial provision, a party’s conduct is of sufficient gravity to affect the issue if the facts are such that, after making all allowances for his disabilities and for the temperament of both parties, the character and gravity of this behaviour are of such a nature that it would be repugnant to anyone’s sense of justice to ignore it in deciding the provision to be made by one for the other or what should be their appropriate share in the family assets. A finding that one party has significantly contributed to the breakdown of the marriage may be relevant on the issue of financial provision: but that does not mean that the party whose conduct is so described loses his or her right to provision, or indeed even loses his or her right to ample provision: that must depend on all the circumstances of the case. If there is misconduct of an obvious and gross character, the conclusion is pretty clear; if it is less than that, then a difficult value judgment is required of the court, but that, of course, is the sort of judgment that the courts exist to make. (Emphasis added)

6. The editors of Rayden at para. 16.76 further observed that it has been said that the words in the amended s.25 “may give a broader discretion to the court than envisaged hitherto under the authorities”. Nevertheless, as a matter of both language and logic, it would seem inequitable to disregard conduct which is “both obvious and gross”. Accordingly, the cases in which that was the test are still relevant.

My view

7. Since the MPPO is differently worded, on reflection it was not necessary in DD v LKW to adopt the words of the English legislation as if they are part of our legislation. Consistent with the interpretation on conduct based on the Hong Kong legislation, it would be more appropriate to say that conduct will be taken into account if it is “gross and obvious”. However, in terms of substance, my view is that there is no difference in whether one adopts the “inequitable to disregard” test or the “gross and obvious” test. As a matter of principle, if the financial provision is to start from the premise of equal distribution, then the misconduct must be an extremely serious one in order to justify a departure from the equality starting point. In the majority of matrimonial cases such misconduct must be rare. It has been repeatedly said that it is difficult for judges to unravel mutual recrimination about the events in a marriage and it is undesirable for them to do so. In Miller v Miller [2006] 2 AC 618, Baroness Hale at para. 145 addressed the distinction between the old and new approaches on financial distribution. In respect of the old approach, since all the assets were assumed to be the breadwinner’s and he was making an allowance to enable his wife to live separately from him, the wife’s conduct might reduce the allowance she would otherwise have needed or even extinguish it altogether. But in respect of the new approach:

… 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 [1973] Fam 72, 80, 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.

(emphasis in bold added)

140.  In West v West[58], the wife had persistently refused to move in the house provided by the husband. The couple had met intermittently and they had children. The judge found that the wife was in desertion from the date of the marriage and it was a marriage in which there has been no crossing of the matrimonial threshold in the true sense. The judge found that the wife’s conduct was not gross and obvious, but held that her conduct justified a substantial reduction in the amount of her financial provision, directed while there was maintenance sufficient to keep a home for the two children, she was awarded considerably less than would have been proper to award. The English Court of Appeal found that the judge arrived at the right conclusion in the award but erred in founding that the wife’s failure to live with her husband or to face up to the responsibilities and obligations of married life was not gross and obvious conduct. It was emphasized that one should not read in the word “gross’ as meaning gross in any moral sense. At p. 712d, Ormrod LJ said that:

“… it would be quite wrong to read the word ‘gross’ in the context of Wachtel v Wachtel as meaning gross in any moral sense. A refusal or a failure by a wife ever to join her husband in spite of his having bought a house for her must, in my judgment, be described as ‘gross’, unless it is found that the house is totally and absolutely unsuitable for her occupation.”

141.  Clark v Clark[59] is a case where a young wife married a rich husband who was nearly 80 years old. The wife refused to consummate the marriage. Over the 6 years’ marriage, the husband paid off the wife’s debts, and transferred properties to her. The wife oppressed the husband in various ways, requiring him at times to live in a caravan in the garden, or relegating him to an annexe in the large property that the husband purchased as the matrimonial home. The wife also invited a younger man moved in the property as her lover. On appeal against the order on the award of ancillary relief to the wife, it was held that the wife’s conduct provided much justification for awarding her substantially less than the husband proposes.

142.  The couple in S v S (Non-Matrimonial Property: Conduct)[60] were married for 7 ½ years. The marriage ended after the husband was convicted of the charge of assault occasioning actual bodily harm on the wife upon his guilty plea. On evidence, the court accepted that the marriage had been tumultuous since its outset due to the conflicting personalities of the couple. The court did not find that the conduct was such that it would be inequitable to it in making an order for financial provision.

“[57] If I had been satisfied that he had deliberately smashed her head against the shower pole, that might have had an effect on my conclusion, but I am not satisfied: indeed I am satisfied that he did not do so. It is plain that the respondent was indeed absolutely furious, and that he did assault her by hitting her several times when she was lying on the floor in the middle of the room. However, although the whole sad history of the marriage, which I have sketched, and which Her Honour Judge Hughes made unavailing attempts to save, may leave me with what might be called a ‘gulp factor’, arising out of what each of these two parties did to each other, verbally and physically, I am not left with Mr Mostyn QC’s ‘gasp factor’. I do not conclude that the conduct of the respondent on 27 December 2004 was such that it would be inequitable to disregard it in making my orders as to proper financial provision.”

(emphasis in bold added)

143.  The finding of whether a conduct is both “gross and obvious” is a very fact specific exercise. There ought to have no moral judgment. The Court should not increase or reduce a financial provision merely because of a conduct which may be regarded as a guilt or blame by the society.

G4c.  Financial Conduct – legal principles

144.  In ARAV v VP, the Court of Appeal held that there are two approaches to achieve fairness in cases where the financial conduct of a party is so “obvious and gross” that it would be inequitable to disregard. These two approaches are notional reattribution or departure from equal distribution:

“53. It is clear that, where a spouse has frittered away assets due to his or her extravagance or reckless speculation, the court can take this into account in ancillary relief proceedings by notionally reattributing (or adding back) the value of the assets so squandered to that spouse’s side of the list of matrimonial assets. By doing so, the reckless spouse is deemed still to have those assets and, depending on the division of assets, to share them with the other spouse.

54. Martin v Martin and Norris v Norris referred to above are instances of the court doing so. Similarly, in C v C [1990] 2 HKLR 183, a proportion of the wife’s gambling and futures speculation was added back to the assets to be divided between the parties to redress the wife’s financial irresponsibility.

55. It is important, however, to recognise that misconduct that may constitute a factor for a judge to take into account in proceedings for financial relief under s.7 of the Matrimonial Proceedings and Property Ordinance (Cap. 192), can be constituted by acts which cover a wide spectrum of behaviour. The characterisation of particular behaviour as amounting to reckless financial conduct will be highly fact sensitive and depend on the judge’s view of the evidence.

56. Thus, in Martin v Martin, Cairns LJ considered the husband’s use of a false name, concealment and lack of documentation of his property dealings justified the Judge drawing unfavourable inferences (p.343D). He regarded the evidence as justifying the conclusion:

… that he was entering into a transaction on a scale which was far beyond his own resources and which he could only finance by putting in jeopardy money which the wife was entitled to share. (p.343F)

57. In Norris v Norris, the husband’s conduct leading to the add back was in the nature of extravagant overspending on jewellery for his mistress, a Ferrari motor car and expensive holidays. And in C v C, as noted above, the financial irresponsibility consisted of gambling and futures speculations.

58. It does not therefore follow that there is a unitary concept of misconduct that inexorably leads to the conclusion that expenditure made by a spouse guilty of any type of misconduct must inevitably be added back to the pot of assets for the purposes of ancillary relief proceedings. Moreover, in Vaughan v Vaughan [2008] 1 FLR 1108, para.14, Wilson LJ (as he then was) noted that the reattribution of assets by way of add back:

… has to be conducted very cautiously, by reference only to clear evidence of dissipation (in which there is a wanton element) …

59. Further, it is not the case, in my opinion, that a finding of misconduct on the part of a spouse must inevitably lead to a reattribution of assets. In Morgan v Morgan [2006] 2 FLR 1253, for example, the Judge found the husband had been guilty of compulsive gambling and channelling funds to his new partner. However, instead of adding back the monies spent, the Judge took the husband’s conduct into account in arriving at a division of the proceeds of the couple’s joint assets: see para.96(d) …”

(emphasis in bold added)

G4d.  The present case

145.  Bearing the above legal principles in mind, I now consider the conduct in the present case.

146.  One of the parties’ major arguments at trial was whether the balance shall tilt towards H because of relationship-generated disadvantage or misconduct laid against him during or as a result of the marriage. Specifically, H relied on the following:

(1)  The giving up of his business as requested by W and Father before marriage.

(2)  W’s rejection of him physically and emotionally which caused his depression and loss of work.

(3)  The substantial amount of payments made by W to her parents and third parties before and after separation.

147.  This is a very unusual case. The proposal to get marry came from W. After the marriage, W had persistently rejected H. She refused to have any physical or emotional intimacy with H. She refused to hold hands with H, let alone consummation. W accepted that her relationship with H is different from a conventional married couple.

148.  Prior to the marriage, the parties hanged out with each other for 8 years. There ought to have plenty opportunities for them to get to know each other. It turned out that the parties had polarised expectations in their marriage life.

149.  I am of the view that H’s complaint was genuine. I do not accept, as W suggested, that they had agreed to have the formality of the wedding first and then try to see whether a romantic relationship would work out. On the other hand, H had not proved on the balance of probabilities that his consent to marry was premised on W’s agreement to have children with him. I do not agree with H that W had somehow lured him into an empty marriage.

150.  I am not approaching this issue with any moral judgment. I have carefully considered and weighed the evidence. Many people see marriage as a union of the couple. Non-consummation is a ground for divorce. But the question here is whether the financial provisions that may be awarded to H shall be enhanced as a result of W’s conduct. I would not go so far to suggest that the financial provisions that may be awarded to H upon divorce should be enhanced because W rejected to consummate or refused to have physical intimacy with him. I do not find W’s conduct in context of this case was so “gross and obvious” that the outcome would be inequitable if H was not awarded some financial relief on this ground.

151.  Moving on to H’s depression. There could be little dispute on the diagnosis of depression as evidenced by the medical certificate. I accept that W’s attitude towards H was a factor leading to his depression, which impacted on H’s working ability and earning capacity. The financial provision will be adjusted to cater for H’s needs in the next 5 years to allow H to fully recover and to fully integrate into the working environment.

152.  H, however, failed to establish his claims for compensation on the giving up of his business. W did not want to get H involved in the gathering with her colleagues. Doing small business (as H used to do) is not necessarily bad for image. It is unlikely that W had made such request to H in order to build up her good image in her career.

153.  There was no evidence of appreciable track record of H’s business before marriage nor evidence that he was worst off in the employment at the secondary school: SA v PA (Pre-marital Agreement: Compensation)[61]. No compensation will be awarded on this claim.

154.  H did not pursue the allegation that the substantial payments made by W to her parents and third parties were wanton dissipation. He only asked the Court to take these into account in the final outcome.

155.  These transactions showed the close financial connection between W and Father. It is W’s own case that she relied on Father’s substantial financial support to the extent of enabling her to spend 3 to 4 times over her monthly income for the last 4 years.

156.  There are simply no teeth in W’s argument that she does not have the resources to make financial provisions to H. The Court is entitled to take into account the financial support made available by Father to W. This is supported by the Court of Appeal decision in AVT then known as MAM v VNT:

“7.3 … as Ma CJ observed in KEWS the Court had to look at the reality of the situation and have regard to matters of substance and not just form. In looking at reality, it could take into account not only what a party actually had, but what might reasonably be made available to him or her if a request for assistance were to be made. As to what might occur in the foreseeable future, past conduct was often a useful guide. In this case the husband is actually a working son in the company in which he has a 30% share. The only other sibling is the sister who has no share in the company. The husband’s lifestyle has always been funded by the company. While the funding is by way of borrowings from the company, one may ask how likely it is that the father would actually call for the loans to be repaid by the son? The reality is that the husband plainly has the financial resources to meet the order of financial provision for the wife.”

(emphasis in bold added)

H.  THE OUTCOME

157.  I have found that the parties’ total assets are HK$13,700,232. W’s earning capacity and financial needs are HK$130,000 and HK$90,000. H’s earning capacity is HK$15,000 to HK$20,000 and his financial needs are HK$20,000.

158.  The parties agreed that the ancillary relief shall be determined on a clean break basis.

159.  I am of the view that W has the earning capacity and financial resources to cover her reasonable needs.

160.  Weighing the matter on a broad brush approach and to exercise my discretion with a view to achieve fairness, H is entitled to a provision from the total liquid assets of the parties to cater for his reasonable needs in full for 2 years, and 50% for the next 3 years, calculated as follows:

(1)  HK$20,000 x 12 x 2 = HK$480,000.

(2)  HK$10,000 x 12 x 3 = HK$360,000.

(3)  That makes a total of HK$840,000.

161.  The MPF/pension (HK$315,632) is not a liquid asset. This sum is not to be counted for the provision of H’s capitalised needs for the next 5 years. Accordingly, to achieve a clean break, W is ordered to pay H a lump sum of HK$521,264 (i.e. HK$840,000 less HK$318,736[62]).

162.  This is a short childless marriage with no marital acquest. The majority of the assets were acquired by W prior to their marriage. I do not consider it appropriate to make specific distribution of the surplus on the total assets. In reaching the above conclusion, I have considered all factors stated above, including the substantial payments made by W to the parents on one hand and W’s potential liability in paying the HCA Legal Costs on the other.

163.  Costs follows the event. There be an order nisi that W do pay H the costs of this application to be taxed if not agreed, with certificate of 2 counsel.

I.  ORDER

164.  In summary, I order that:

(1)  W do pay H a lump sum of HK$521,264 on a clean break basis.

(2)  On a nisi basis, the above sum of HK$521,264 be paid by W within 35 days from the date of this judgment. This order will become absolute after 14 days.

(3)  On a nisi basis, W do pay H the costs of this application to be taxed if not agreed, with certificate of 2 counsel. This order will become absolute after 14 days.

165.  I thank all counsel for their helpful assistance.