Ph v. Dl

FCMC 14153/2019

[2021] HKFC 166

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 14153 OF 2019

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J U D G M E N T
( Jurisdiction )

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Introduction

1.This is the application of the respondent (“Husband”) by way of his Summons dated 6 August 2020 challenging the petitioner’s (“Wife”) claim that she has jurisdiction to litigate in Hong Kong.  In the alternative, the Husband seeks a stay of proceedings pending determination of the divorce proceedings in Singapore (action no. FC/D 2461/2020).

2.The Wife commenced and filed the petition for divorce in the Hong Kong Court on 29 November 2019. The sole pleaded ground for jurisdiction is the Husband’s “substantial connection” with Hong Kong. 

3.It is not in dispute that neither she nor the Husband are domiciled or habitually resident in Hong Kong.

Background

4.The Husband is 53 years old and the Wife is 50. The parties married at Xian City, the People’s Republic of China (“PRC”) on 23 June 1993.  There are three children of the family, namely a boy born in PRC in May 1994, now aged 27, a girl born in the United States of America (“the US”) in November 2004, aged 16 and another boy born in the US in November 2007, aged 13 (collectively “Children”).

5.The Wife and the Children are habitual residents of Massachusetts, the US. The Children grow up in the US and go to school in the US. The Children were residents of Hong Kong with Hong Kong Identity Cards, but their visas expired in 2017.

6.The last time the Wife and the Children visited Hong Kong was in 2013, over 8 years ago.  She herself states that she has always intended for the US to be her home, and the country where she wished to raise the Children. The parties agreed that the Children should receive the best education in the US (which is one of the reasons for their move to the US)[1] and the Children are accustomed to the lifestyle in the US[2].

7.The Wife, according to her Form E, has interests in 3 landed properties in California (including the former matrimonial home), Nanshan District, PRC, and Singapore. She has a home in Massachusetts. The Wife does not argue that she has a substantial connection with Hong Kong.

8.The Husband is a Singaporean national. He habitually resides in both Singapore and PRC (not Hong Kong but he holds a Hong Kong Identity Card). He shuttles between those two for work.

9.The Husband is the founder and shareholder of about 75% of a technology company (“LIT”) which engages in the lead-acid battery business. This company originated in Shenzhen, PRC (incorporated in 1999) and listed in Hong Kong in 2010.  LIT has eight regional production bases. These are located in Guangzhou, Jiangsu, and Anhui in PRC, as well as in Malaysia, Sri Lanka, Vietnam, and India.  In total, more than 10,000 employees (of which there are 500 technical officers) work for LIT.

10.The Husband commenced divorce proceedings in Singapore under the action no. FC/D 2461/2020 on 23 June 2020. On 18 March 2021, the Wife’s stay application in Singapore was allowed by the Singaporean Court, the decision of which is currently being appealed by the Husband in Singapore.

Applicable Legal Principles

11.Jurisdiction is governed by section 3 of the Matrimonial Causes Ordinance (Cap. 179) (“MCO”), which states:

“The Court shall have jurisdiction in proceedings for divorce under this Ordinance if:

a) either of the parties to the marriage was domiciled in Hong Kong at the date of the petition or application;

b) either of the parties to the marriage was habitually resident in Hong Kong throughout the period of three (3) years immediately preceding the date of the petition or application; or

c) either of the parties to the marriage had a substantial connection with Hong Kong at the date of the petition or application.”

12.In the present case, jurisdiction does not arise by virtue of s 3(a) or (b) of the MCO as neither party was domiciled or habitually resident in Hong Kong for a period of 3 years preceding the date of the Petition.  The only dispute relates to s3(c) MCO, namely whether the Husband had a substantial connection with Hong Kong at the date of the petition.

13.In the leading case ZJW v SY (Jurisdiction; Substantial connection) [2017] HKFLR 612, the Court of Appeal considered the process of determining substantial connection a “well-trodden area”, with there being well established applicable principles derived from case law (§36).

14.A two-stage process is to be adopted whereby the Court must: (1) determine whether the party concerned has a connection with Hong Kong (connection “must mean physical presence in Hong Kong”) and, if so, (2) whether that connection is a substantial one.

15.The phrase ‘a substantial connection with Hong Kong’ is not a term of art and should be given its ordinary meaning (B v A [2008] 1 HKLRD at §18; ZC v CN [2014] HKFLR 469 at §9.1). A party’s substantial connection is a question of fact. Like any other question of fact, the Court must have regard to all of the circumstances of the case to determine if the party had the requisite substantial connection at the time of the Petition (ZJW v SY (supra), §37).

16.The Court will identify all the factors relevant to the consideration of substantial connection (or the lack thereof), evaluate them, and give them such weight as is appropriate in the overall circumstances of the case. As this is a fact sensitive exercise, there can be no exhaustive list of factors set out as pertinent to the Court’s analyses, and no mechanistic formula directing how much weight is to be attached to any particular relevant factor (ZJW v SY (supra), §§39-40).

17.It is not necessary to show that a party’s substantial connection to Hong Kong is his or her only connection with a jurisdiction, or even that it is the single most substantial connection to any given jurisdiction. A party may have a substantial connection with more than one place, although the Court may compare and contrast a party’s connections to assist in the evaluative exercise. Such connections may also be relevant to the consideration of forum non conveniens: ZC v CN (supra), §9.8; see also S v S [2006] 3 HKFLR 460 at §§13-19.

18.An artificially constructed connection is not a substantial one. A connection must be real in the sense that it is not engineered for temporary tactical advantage. As noted by Hartmann J (as he then was), “it was not the intention of the Legislature (in passing s. 3(c) into law) to create a convenient off-shore divorce jurisdiction. As it has been said in an earlier authority, the subsection is not intended for “birds of passage”: S v S (supra), §17.

19.After carefully evaluating and weighing the relevant factors in the overall circumstances of the case, the Court is required by the statute to determine, as a matter of fact, whether a party had a substantial connection with Hong Kong at the time of the presentation of the petition (ZJW v SY (supra), §43).

The Wife’s case

20.Mr Egerton for the Wife submitted that over the years, LIT is not only a business of the Husband, but also of and for the family. The Wife mainly relies on the following:

i)   She was the CFO and a director of a Corporation in the US relating to LIT for 18 years until the Husband terminated her employment in January 2020;

ii)  As the spouse and an associate of the Husband who is the controlling shareholder of LIT, she assisted in the listing and post-listing compliance of LIT.

21.LIT is a family business and the shares of which fall within the matrimonial assets of the family.

22.In light of this background, the Wife advances her case that the Husband’s connection with Hong Kong is objectively substantial, for the following reasons:

a.  The shares of LIT, which constitute the majority of the matrimonial assets, are listed and traded in Hong Kong.

b.  A substantial part (if not majority) of the family’s income is derived from the fact that LIT is listed in Hong Kong and that the Husband is its controlling shareholder.

c.  The Husband’s business activities are associated with his role as the chairman, an executive director and the controlling shareholder of LIT, which is a family business listed in Hong Kong.

23.According to the Husband’s own valuation in his Form E dated 7 December 2020, he held 74.36% of the shares of LIT, which were then worth approximately HK$223,477,981. The net value of his assets was HK$300,229,039. The net value of the Wife’s assets was HK$43,957,790 as of 14 July 2020, which is the date of her Form E. The Husband’s shareholding in LIT represented 64.93% of the total matrimonial assets which are subject to the volatility of the Hong Kong stock market.

24.As the controlling shareholder as defined in the Listing Rules of the Hong Kong Stock Exchange, the Husband’s dealing with the shares in LIT is subject to various stringent regulations, including Listing Rules and the Take-over Code of the SFC.

25.Mr Egerton contended that the Husband’s business activities in Hong Kong are highly relevant and significant to his substantial connection with Hong Kong and that his roles as the chairman, an executive director and controlling shareholder of the LIT attract regulatory duties on him. One example of the Husband’s significant involvement in the business activities of LIT is that, as its controlling shareholder and chairman, he personally undertook, in the 3-year term loan facility agreements for US$200 million with many restrictions as to his beneficial interest in and management control over LIT.

26.As declared in the annual report, for the years 2019 and 2018, LIT paid dividends totalling RMB24,321,000 and RMB23,184,000 (representing HK2 cents per share each year). By reason of his shareholding approximately around 75% of LIT, dividends were paid to the Husband as well as his remuneration received as the executive director of LIT. Hence, a substantial part of the family’s income is derived in Hong Kong.

27.Mr Egerton further argued that the Husband’s substantial connection with Hong Kong is enhanced by the fact that the Husband has a second family in Hong Kong with his partner Ms Liu (“Ms Liu”) mainly based on the photos of the Husband’s and Ms Liu’s son found on the Husband’s phone.

The Husband’s case

28.Mr Todd leading Ms Booth for the Husband submitted that the Husband plainly does not have substantial connection with Hong Kong. The onus is on the Wife to establish this. The Husband is a Singaporean citizen and is domiciled and resident in Singapore. He has never had any intention to reside in Hong Kong.  There is no other marital or familial connection. The Husband has only ever visited Hong Kong for business purposes, and on a transitory basis.  

29.The “natural” forum for this case is where the parties live – the US or Singapore. The Wife is desperate not to petition in her home country of the US. The Husband suspects that she is concerned that there will be greater visibility over her misdeeds there. US Courts will readily support other US courts. That includes in respect of the presently ongoing legal proceedings concerning the Wife’s theft / embezzlement (by misusing her position at LIT to the tune of US$8 million).

30.In the Wife’s petition, it was pleaded that LIT has at least 9 extant Hong Kong incorporated subsidiaries all controlled by the Husband.  He said that these companies are subsidiaries of another company (“Cat Holdings Ltd”) which in turn a subsidiary of LIT and the Husband is a director but does not have any such shareholding.

31.Based on a bare spreadsheet from the Husband’s secretary dated 13 June 2016, the Wife also refers to some other Hong Kong registered companies which she avers the Husband “is or [has] been involved in” although several of them have been dissolved well in advance of the Petition.  Mr Todd contended that it not only pre-dates the petition but is probative of nothing to do with the Husband’s actual substantial connection.

32.The Husband spends substantially more time in Singapore than Hong Kong.  Prior to Covid-19, the Husband would live in Singapore for an average of 2-3 months per year.  He files income tax in Singapore, not Hong Kong. Since Covid-19 began, the Husband has not been able to leave PRC and has continued to work there remotely for several months.

33.The Wife has spent a total of 76 days in Hong Kong over the course of 3 years, an average of 25 days per year. The Children have spent even less time in Hong Kong than the Wife, with a total of 69 days over 3 years (from 2010 to 2013), an average of 23 days per year.

34.The Husband denies the allegations made by the Wife, namely he (1) resides at a unit in Dragon’s Range, Shatin, Hong Kong (“the Dragon’s Range Property”); (2) owns the Dragon’s Range Property; (3) has a mistress or illegitimate child residing in Hong Kong.

35.LIT’s core business is conducted in China; its regional production bases are located predominantly in China and Singapore. All factories in Malaysia, Sri Lanka, Vietnam, and India are financed and managed from Singapore. There have no significant production activities, trading or sale activities, or operations carried out in Hong Kong.

Discussion

LIT and its subsidiaries

36.Mr Egerton for the Wife has not made any submission in relation to the 9 extant Hong Kong incorporated subsidiaries of LIT allegedly all controlled by the Husband as pleaded in the petition.  I therefore accept the Husband’s evidence that these companies are subsidiaries of Cat Holdings Ltd which is a subsidiary of LIT and the Husband is a director but does not have any shareholding.  I consider that the Wife fails to show as to how these companies including Cat Holdings Ltd have any bearings in this application.

37.Indeed, one of the main arguments of the Wife is that LIT is a family business.  Mr Egerton for the Wife submitted that the Wife was the CFO and director of a US corporation and had assisted in the listing and post-listing compliance of LIT.  With respect, I fail to see how such evidence is relevant to this application.  Although the Husband is its majority shareholder of about 75%, he is only one of 4 directors of LIT and the Wife is not, I cannot accept that LIT should be regarded as a family business in any sense.  In any event, Mr Egerton has not provided any legal definition of “family business” in the context of the family law.

38.Apart from being listed in Hong Kong, it is not in dispute that LIT’s core business is neither centred nor largely based in Hong Kong. According to the Husband’s affirmation, there are several trading centres for LIT, which are located in PRC, the US, Europe (UK, France, Germany, Italy, Greece) and Singapore, and there have no significant production activities, trading or sale activities, or operations carried out in Hong Kong.

39.The Husband explained that the primary reason for LIT to have a place of business in Hong Kong is for communication purposes with the stock exchange as LIT is a listed company in Hong Kong.  LIT is listed on the Hong Kong Stock Exchange because the company’s shareholders agreed in 2010 that Hong Kong would be the best place for listing given its proximity to mainland China (the main base of LIT’s operations) as well as Singapore.  Comparing with more than 10,000 employees and over 500 technical officers in other places, the Hong Kong office only has 7 staff. These staff generally handle administrative matters.  The Hong Kong offices do not carry out substantial business activities.  LIT’s business headquarters are in Shenzhen whilst Singapore is the overseas headquarters for managing most of the overseas business.

40.Such evidence is not challenged by the Wife.  Hence, I conclude that save and except that the trading of LIT’s shares in Hong Kong, the substantial business activities of LIT are not carried out in Hong Kong.

41.In my view, although the Husband’s shares in LIT constitute the majority of the matrimonial assets, it is not sufficient by itself to establish the Husband’s substantial connection with Hong Kong. At most, it is only a factor which the court has to take into account.

42.The Court of Appeal said in Z v Z (Substantial Connection and Forum) [2012] HKFLR 346,

“It was not uncommon for someone in this modern age of globalisation to hold foreign properties, bank accounts and companies, particularly in light of the close proximity between Hong Kong and the Mainland and the large volume of commuters crossing the borders. Although the husband was a permanent resident, his travel record clearly revealed that his entry into and stay in Hong Kong was really in the nature of a residence by passage only consisting of frequent same day returns and short overnight stays.”

43.Hong Kong has been recognised as an international city, with a significant number of Mainland Chinese nationals and expatriate workers often obtaining permanent residency. However, these people may not actually live and work in Hong Kong substantively. It is also not uncommon for the international companies deciding to be listed in the Hong Kong stock market instead of other stock markets, such as New York or London etc.  In my view, the decision of listing LIT (a PRC incorporated company) is a pure commercial one and has nothing to do with the Husband personally or his family.

The Husband’s second family

44.Regarding the Wife’s contention that the Husband has a second family in Hong Kong with Ms Liu and their illegitimate son, the Wife relies on some photos allegedly found in the Husband’s phone whilst the Husband strongly denied. Since it involves serious factual dispute and the burden rests on the Wife to prove her allegation, I consider that she fails to discharge such burden.  In other words, I will not take it into account as a factor in this application.

45.The Wife also seems to suggest that the purchase of the Dragon’s Range Property by Ms Liu is financially supported by the Husband. Similarly, I consider that it is a mere speculation of the Wife without any solid evidence and that the Wife must fail to discharge the burden of proof. 

Other factors

46.In relation to the factors to be considered, Cheung JA in ZC v CN, [2014] 5 HKLRD 43, at [9.8], observed:

“ The fact that a party has resident status which allows him or her to live here legally is only a factor to be taken into account. He or she may not be living here on a long term basis and only comes here occasionally. No doubt one has to look at other factors such as the party’s past pattern of life, the frequency of his visit to Hong Kong, the length and purpose of the stay, whether the party is engaged in business or work here, whether the rest of the family is here and whether a home has been established here and whether the children are at school here. It is also important to bear in mind that since the legislation only requires the party to establish a substantial connection in Hong Kong, he or she at the same time may have a substantial connection elsewhere, see S v S. In my view, if a party is shown to have substantial connection elsewhere by reason of his home or work, this may be used to contrast with the connecting factors he has in Hong Kong to see whether the Hong Kong connection is a substantial one.”

The Husband’s past pattern of life

47.As most of the Husband’s evidence in this regard is not challenged by the Wife, I accept that the Husband has never had any intention to reside in Hong Kong. The Husband spends substantially more time in Singapore and China than Hong Kong. Prior to Covid-19, the Husband would live in Singapore for an average of 2-3 months per year.  Since Covid-19 began, the Husband has not been able to leave China and has continued to work there remotely for several months.

Frequency of the Husband’s visit to Hong Kong, length and purpose of stay

48.I also accept that he has only visited Hong Kong for business purposes and on a transitory basis.  His travel records show that:

(a)  from 1 January 2014 to 14 August 2020 (about 6 years), the Husband has only spent a total of 230 days (average of 38 days per annum) in Hong Kong, inclusive of single day visits and transiting through Hong Kong for travel elsewhere.

(b)  Of this, only 100 days (in 6 years) were trips that the Husband spent more than 24 hours in Hong Kong (an annual average of less than 17 days per annum (or 4.5% of the year)).

(c)  None of the Husband’s visits ever exceeded 7 days.

Whether the Husband is engaged in business or work here

49.No doubt, the Husband is engaged in business here as LIT is a listed company in Hong Kong.  I agree that by virtue of his controlling shareholding of LIT, he must be bound by the listing rules of the Hong Kong Stock Exchange.  However, I do not find that the engagement of LIT’s business in Hong Kong is very substantial when comparing with the business in other places, such as PRC and Singapore, Malaysia, Sri Lanka, Vietnam, and India.  Nowadays, it is not uncommon for businessmen to engage in business in many different countries in view of globalization of the world. 

Whether the rest of the family is here and whether a home has been established here and whether the children are at school here

50.The Wife and Children have never resided in Hong Kong for an extended period of time.  The Wife has not visited Hong Kong since 2013, about 8 years ago. The Children all studying in the US have spent even less time in Hong Kong than the Wife.

51.In respect of the Harbour Property in Hong Kong which had been sold few years ago, I accept that the Husband is not its beneficial owner and that it is never a matrimonial home of the family.  In my view, no home is established in Hong Kong.

Exceptional cases

52.Mr Egerton for the Wife further argued that the Husband’s income is substantially derived by virtue of him being the controlling shareholder of LIT[3] and therefore, this case falls within the exceptions envisaged by the Court of Appeal in LCYP v JEK and ZC v CN.

53.In ZC v CN, Cheung JA said:

“9.9   It is said in Savournin at page 184 (and also B v A at paragraph 20) that a meaning must be given to substantial connection wider than domicile or three years’ ordinary residence.  But this is not intended to be interpreted so loosely as to encourage residence of passage (Indyka v Indyka [1969] 1 AC 33 at 105) or divorce of convenience.  At the same time it will be unduly restrictive if one confines the connecting factors solely to that of a family context, namely, accommodation in a matrimonial home and presence of spouses and children.  While in the majority of cases, family context is the focus of the inquiry and a material factor, there may well be situations where a party is in Hong Kong without the presence of his family, but nonetheless is able to show that he has a substantial connection here.  It really depends on the circumstances of the case.  Such cases, however, must be regarded as exceptional.”

54.In LCYP v JEK, Cheung JA further said:

“42. I think the judge has fallen into error here. The fact that the parties have not lived here as man and Wife is not necessarily determinative (S v S at §18). Section 3(c) of Cap. 179 requires only either, not both, of the parties to the marriage to have a substantial connection with Hong Kong. And as stated in ZC v CN at §9.9, it will be unduly restrictive if one confines the connecting factors solely to that of a family context (matrimonial home and the presence of spouses and children), and while in the majority of cases family context is the focus of enquiry and a material factor, there may be exceptional situations where a party is in Hong Kong without the presence of his family and nonetheless has a substantial connection here.”

55.I am of the view that even if a substantial part of the family’s income is derived in Hong Kong as contended by the Wife, this case does not fall within the exceptions.  It is note-worthy that both parties have a lot of properties, either solely or jointly owned, in many other places, such as the US, PRC, Singapore.  Besides, the parties’ bank accounts are primarily based in the US. The Wife’s bank accounts are all US based, e.g. her Retirement Account in the US.  The Husband’s bank accounts are located in the US, Singapore and PRC.  The Husband’s shareholding’s/beneficial interests in private companies are primarily located in Singapore, PRC, and the BVI.  In my view, the Husband’s connection with the US, PRC and Singapore is much more substantial than that in Hong Kong. 

56.As said above, the Court must have regard to all of the circumstances of the case to determine if the party had the requisite substantial connection. The Court will identify all the factors relevant to the consideration of substantial connection (or the lack thereof), evaluate them, and give them such weight as is appropriate in the overall circumstances of the case.  At most, the fact that a substantial part of the family’s income is derived in Hong Kong is a factor to be considered by the court.  Nonetheless, I do not think that much weight shall be given to this factor in this particular case.  In any event, I do consider that the financial resources of the Husband are strong enough to support the entire family even without relying on the dividends paid or payable by LIT every year.

57.In ZC v CN, the Court of Appeal (differing from the judge at the first instance) accorded little significance or weight to the husband’s directorship and shareholding in the Hong Kong business and found that he did not have a substantial connection with Hong Kong.  Cheung JA said:

“11.1   With respect to the Judge, she was plainly wrong on the finding on substantial connection.  The overall view that emerges from the parties’ pattern of life is that they conducted their matrimonial life in the Mainland prior to the wife’s petition.  Let us look at the position of the husband first.  For the past 30 years he has conducted his life away from Hong Kong in the Mainland where he has his business and matrimonial home.  He still lives in Shenzhen.  The wife in her oral submission said that the husband spent his time in other parts of the Mainland as well, namely, Shanghai and Zhanjiang.  But this does not detract from the fact that the husband’s life has been spent away from Hong Kong.  The fact that the husband has Hong Kong properties where he can stay while in Hong Kong, local bank accounts and also a company registered in Hong Kong does not necessarily establish a substantial connection here.  It is not uncommon for someone in this modern age of globalization to hold foreign properties, bank accounts and companies, particularly in light of the close proximity between Hong Kong and the Mainland and the large volume of commuters crossing the Mainland borders to Hong Kong. While the husband is a Hong Kong permanent resident, his travel record clearly reveals that his entry into and stay in Hong Kong is really in the nature of a residence by passage only.  They consist of frequent same day returns and short overnight stays.”

Conclusion

58.As said, the Husband’s substantial connection with Hong Kong is a question of fact.  The burden of proof rests on the Wife as the petitioner of the divorce proceedings.  Having regard to all the circumstances of the case and considered them carefully, I come to the conclusion that on balance of probability, the Wife fails to prove that the Husband had a substantial connection with Hong Kong at the date of petition.

59.As regard the alternative application for stay, it is unnecessary for me to make any determination.

60.I now order that the petition herein be dismissed on the ground that the Hong Kong court lacks jurisdiction.

61.There is no reason why costs shall not follow event.  I make an order nisi that costs of the proceedings including this application and all costs reserved be paid by the Wife with certificate for one counsel, to be taxed if not agreed, which shall become absolute within 14 days unless any of the parties apply to vary within 14 days by way of summons.

MPS application

62.The Wife issued a summons for maintenance pending suit on 29 September 2020 which has been heard substantially on 10 June 2021.  As the court does not have jurisdiction on the Wife’s petition, I order that her MPS application be dismissed.  Similarly, I make an order nisi that costs of this application including all costs reserved be paid by the Wife with certificate for one counsel, to be taxed if not agreed, which shall become absolute within 14 days unless any of the parties apply to vary within 14 days by way of summons.

63.Last but not least, I would take this opportunity to thank all counsel for their assistance. 

Petitioner: Mr Robin N Egerton instructed by M/S Gall

Respondent: Mr Richard Todd QC leading Miss Madeleine Booth instructed by M/S Hugill & Ip