K v. K

CACV000277/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 253 & 277
(Civil)

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Coram: Mortimer V-P, Godfrey JA and Woo J in Court

Date of judgment: 23 February 1999

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J U D G M E N T

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Mortimer, V-P:

1. There are two appeals before us against orders for discovery and inspection of documents made by His Honour Judge Carlson in ancillary relief proceedings following a divorce between the parties. The orders followed judgments that were given on 24 September 1998 and 23 October 1998. These were discretionary orders and the question for the court is whether in each case the judge properly exercised his discretion in making them.

The background

2. The husband petitioner is in private practice as a solicitor. His assets have come in the past from his earnings in his practice. He has disclosed his assets and nothing turns upon this. The accounts of his practice have also been disclosed. They show that he took steps to minimise his tax payable in various ways. Those accounts show substantial expenses which relate to expenses of a personal or family nature which were paid out of the firm and allowed for tax. As examples, the 1994 accounts demonstrate that during that year, on consultancy and management fees $4,486,000 were expended; on entertainment $7,247,104 were spent; and upon overseas travel a further $1,181,658. After those substantial sums had been deducted as expenses, the profit for the year before taxation was just over $8m.

3. Those accounts and the accounts for the following years which have also been disclosed were certified by the accountant. They complied with the Law Society standards, which are stringent. The tax authorities have accepted them. But this is not the issue. The issue is whether it is open to the wife to require further information of these expenses.

4. The claim is for a lump sum and a clean break. So in assessing the wife's reasonable needs and the matters which have to be considered by the judge under s.7 of the Matrimonial Proceedings and Property Ordinance (Cap. 192), it is necessary for a general assessment to be made of the earning capacity of the husband and the income which he may properly have at his disposal. The certified profits of the practice are, of course, calculated after the items I have set out have been deducted. Yet, as is indeed agreed, some of those items are available as part of his disposable income. The question how much will be for the judge in due course - not as a definite figure which cannot be calculated, but as a general assessment.

The husband's appeal

5. Mr John Griffiths SC who appears for the husband on this appeal accepts that the judge set out the correct principles which he has to apply in the exercise of his discretion in making these orders for discovery and inspection. But, he contends, that the judge fell into serious error in making the orders. He says that they are oppressive and that they are unnecessary. Complying with them will involve unjustified expense and time. Having regard to the matters which have been disclosed and the number of entries which may have to be considered, he says the orders cannot be right and are unnecessary because the issue which the judge will have to decide is simple and general.

6. During the submissions, I said that the orders made appeared to be ridiculous in the amount of detail that was required. So, indeed, it appeared to me at that time. I thought that this could not be right and it was not necessary to have this detail in order to decide the issues.

The exercise of discretion

7. But, of course, that is not the point. The issue here is whether the judge fell into error. It is of the greatest importance that an appellate court in considering the exercise of discretion by judges at first instance should not be tempted to interfere save on those specific grounds which are trite and conveniently set out in Hadmor Productions Limited v Hamilton [1982]2 WLR 322 at 325. The reasons for that are clear. The judge has the conduct of the case. He knows the case. He has before him the issues that he or another judge must eventually decide and he has a feel of the matter. Appellate courts cannot ever be in the same position as a judge at first instance in the exercise of discretion. Therefore, we must remind ourselves frequently that only when the necessary circumstances are made out should this Court interfere.

Ancillary relief proceedings

8. Nevertheless, Mr Griffiths invites the court to take a strong line and put an end to this type of discovery. He points out that ancillary relief proceedings have got out of hand. Discovery is often so lengthy, complicated and expensive that it cannot be justified. Money is spent upon determining issues which ought to be available to the parties. He points out that when one party makes proper disclosure, this often simply breeds further requests by industrious and meticulous counsel.

9. When he makes these submissions, he strikes a chord with me. It is well known that ancillary proceedings take too long and are too expensive. Often too great a detail is gone into. Too much time and expense is involved. This Court has said as much on previous occasions. Without citing them one can find relevant passages in Tao Chen Pi O v Tao Hsiuo Ming (1993) CA No. 37 and 38 (unreported) in the judgments of Litton JA (as he then was) and Bokhary JA (as he then was). Earlier in Bernadette Escaler v Noel Escaler No. 1057 of 1988 Bokhary J (as he then was) in a judgment given in chambers said much the same. It is as well that the statements which fell from those judges should be remembered and where possible applied.

The first appeal

10. But what about this case? The orders which the judge first made related to management fees, entertainment and travel. He required, as an example, that all invoices and demands for payments in respect of the practice's expenditure for entertainment of clients should be disclosed and that each invoice should be identified as to whether it related to private or professional work and, if there was an overlap, to identify the relevant business part and private part, not only by the husband petitioner, his family and clients, but also similar information about the other partners and employees. Receipts for the payment of invoices were ordered to be disclosed or an explanation given if they were not available. The method of payment was to be given, whether from bank statements or credit card accounts or other accounting documents. Where there were client names, they were not to be edited out. The nature of payments made to Brain World Ltd which in due course found their way to the petitioner's mother (now unfortunately deceased) was to be disclosed.

11. In considering these matters the judge was fully aware of the general approach to which I have adverted. He said in his first judgment that the wife was only entitled to such particulars as would be necessary for the fair and just disposal of her application. He referred to the case of B v B [1979]1 All ER 801 where the approach to discovery in matrimonial proceedings is considered. Having considered and set out the proper approach - as is agreed - he also considered the question whether his orders were oppressive. He referred to Tschoepke v Tschoepke CA 11 of 1995:

"What I get from this case is that the court will not order particulars that are oppressive."

12. So, applying the proper principles, he considered whether it was necessary for the orders to be made. He said:

"It seems to me that the wife and court is entitled to have a closer understanding of the amount of more conventional professional expenditure such as amounts spent on travel for professional work and entertainment to get a truer picture of the disposable income of the practice of Ko & Company and of its principal, the husband."

13. He then went on to consider what was necessary and what was not necessary in fairly considerable detail.

14. What it open to him in these circumstances to order the wife should have this sort of detail? It was suggested that this was a fishing expedition. With that I cannot agree - nor did the judge think it was so. A wife's application for particulars of accounts falls into a different category to the normal. She does not know the details and cannot inform herself save by asking questions. Of course a judge will not allow simple fishing but if the figures obviously demand explanation - as these figures do in my judgment - the judge is entitled to make the order. It is to be noted that the expenses - certainly for 1994 - are extremely substantial. The firm was spending something like $19,000 a day on entertainment. The question, in the judge's mind, was whether the wife was entitled to have a closer understanding of that and whether it would be important to the court when the issue comes on for trial. There is no basis - so far as those orders are concerned - upon which I can say that the exercise of the judge's discretion was flawed.

15. Similarly, the orders relating to the management fees which in due course found their way into the hands of his mother. Those were figures which were not substantial. The judge and others, including myself, may have hesitated a considerable time before making that order. It was nevertheless an unexplained expense and the judge was entitled to make the order he did.

16. Also, the same principle applies, it seems to me to the order that none of the names on these documents should be expunged. The judge considered the question of confidentiality. He made provision for it. A provision which is criticised but nevertheless made by forbidding the disclosure of any names found on those documents.

The second appeal

17. Following upon his order in the first case, the judge was asked to order disclosure of the firm's bank statements. Again, the judge applied the same principles and indulged in the balancing exercise. It was argued with force below that if the accounts were disclosed the result would simply be further requests for discovery increasing the waste of time and expense. But again the judge was fully aware of this. He said:

"I am impressed by the argument that this may result in yet further request for specific discovery. The answer to that perfectly legitimate concern is that the court which has already much of what the wife has asked for in this most recent round of applications will be extremely vigilant in its scrutiny of any further applications for specific discovery. I will therefore order disclosure of the accounts asked for within 28 days but restrict the period that she went on to do."

Conclusion

18. In these circumstances there is, in my judgment, no basis upon which this Court should interfere with the exercise of the judge's discretion. I would dismiss the appeals.

Godfrey, JA:

19. I agree.

Woo, J:

20. Although I would not have made orders in similar terms as wide as those made by the District Judge himself, I do not think that it is proper in the circumstances of this case for me to interfere. I agree that for the reasons given by my Lord, the Vice-President, I would also dismiss the appeals.

Mortimer, V-P:

21. The appeals are dismissed with costs. Costs thrown away by the adjournment of the hearing consequent upon these appeals are reserved to the trial judge.

Representation:

Mr John Griffiths SC and Mr Neal Clough (M/s Stevenson, Wong & Lai) for Appellant/Petitioner

Mr C.S. Grossman SC and Mr Christopher Lam (M/s Fung, Wong & Ha) for Respondent/Respondent