Chan Pi Tak Peter v. Yam Wai Fung

HCMP000860/1986

M.P. No.860 of 1986

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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BEWEEN

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Coram: The Hon. Mr. Justice Mayo in Court (sitting in Camera)

Date of Hearing: 28, 29 January; 1, 2 February 1988

Date of Delivery of Judgment: 12 February 1988

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JUDGMENT

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1. I am seized of a number of different applications. One of the summonses is a summons taken out by the Plaintiff (husband) for the variation of a Maintenance Order made in the wardship proceedings by Mr. Justice Power in July 1986.  Mr. Justice Power ordered the husband to pay $6,500 per month for the maintenance of the parties' son Henry. The Defendant (wife) had interim care and control of Henry. Subsequent to the wardship proceedings the wife commenced divorce proceedings in the District Court. In the course of the proceedings interin maintenance of $2,000 per month was ordered to be paid by the husband to the wife for her maintenance. Miss Leong representing the wife and Miss Yuen representing the husband both agreed that it would he appropriate that the present application should be treated as the final and substantive maintenance order pursuant to the divorce proceedings.

2. Sadly there has been a protracted and bitter disputed between the parties Putting it mildly relations between the parties are embittered. Fortunately in the context of these proceedings it is not necessary for me to consider all of the unhappy disputes and differences which have arisen. I need only concern myself with those matters which have some bearing on the finances of the parties.

3. It is however common ground that the husband is substantially in arrear in making payments to the wife of moneys payable to her. As a consequence of this the wife obtained leave to issue committal proceedings against the husband under Order 52 of the Rules of the Supreme Court.

4. She is seeking to establish that the husband has been in contempt of court in failing to comply with court orders.

5. To round off the position the wife has also issued a Judgment Summons against the husband in respect of his failure to fulfil his commitments under the orders. All of the applications I have referred to in essence addressed themselves to the same issue. The issue is the financial capacity of the husband and his willingness to comply with court orders. Put another way is the husband financially able to meet his obligations under the orders or has he wilfully brought about a situation whereby he can flout the orders. Collateral to this will be the necessity to weigh and consider the financial circumstances and needs of both parties so that a decision can be made as to the appropriate maintenance to be payable to the wife haying regard to the requirements of the parties and the relevant underlying considerations.

6. Initially I was also seized of a further summons in the wardship proceedings. The husband was applying for Henry's custody. At the commencement of the hearing I was advised that he no longer wished to prosecute this application. He was prepared to agree that the present arrangements should continue. Under these arrangements the wife has the interim care and control of Henry and he is permitted limited access.

7. The parties did however agree that it would be desirable that there should be one change in the order which was made by Mr. Justice. Power. He had predicated his order on the premise that the wife would remain at home to look after Henry and consequently that she would not go out herself to work. The parties have agreed that this underlying assumption may not necessarily be applicable in the future and that it was desirable that no constraints whatever should be imposed upon the wife in seeking such employment as she may be able to obtain. I agreed to this.

8. Even confining the matter to the issues I have referred to there still remained a substantial volume of evidence before me. The agreed bundle ran to almost 800 pages. Also the husband was in the witness box for best part of two days and the wife for two half days. Both parties adopted the contents of the many affidavits they had sworn and this had the effect of substantially reducing the amount of time which would otherwise have been spent in the witness box.

9. I have given careful consideration to the best approach to be adopted in preparing this judgment. I have come to the conclusion that it would be a somewhat futile exercise for me to submerge myself in all of the detailed matters which were canvassed, I think that it is much more likely to be helpful for me to adopt what I think can best be described as a broad brush approach and attempt to address myself to the substantive issues.

10. I think that it fairly could be said that both parties come from what could be accurately described as being middle-class backgrounds. Their respective parents were able to give them a good education but were not in a position to provide them with much capital to launch them in their careers.

11. Both parties attended secondary schools and the husband also did a short course at the Hong Kong Polytechnic. At the time when they met in 1979 the husband was working as a manager at a company called Brisk & Kindle at a salary of $4,000 per month and the wife was working as a secretary. They began to cohabit. Henry was born on the 29th of September 1980. The parties got married on the 23rd of April 1981. At that time they were living together in relatively humble circumstances in a flat in Portland Street Mongkok. Both parties agreed that at that time their finances were quite tight. It would seem that they did not have much opportunity to make any savings.

12. In 1983 the husband got together with two friends a Mr. Chong and a Mr. Yam and they agreed to form a company named China Bridge Agency Ltd. The object of the company was to engage in trade with China. The idea was that the husband who was in the shoe trade would be able to provide valuable connections in this trader Indeed he was able to secure the account of one of Brisk & Kindle's customers in this connection.

13. The husband who is both fluent in and literate in English would mainly be responsible for the Hong Kong side of business. Both Mr. Yam and Mr. Chong had valuable connections in China. Their main responsibility would be the China side of business.

14. In addition to this Mr. Yam was prepared to loan the husband moneys for his share capital in the venture. The amount of the loan was $33,000. It was agreed that the shares would be alloted in the wife's name and that the beneficial interest in the shares was vested in the husband.

15. The business got off to a fairly quiet start. One of the matters which was of considerable assistance to me was that audited accounts for China Bridge were filed with the evidence for the financial years ending the 31st of March 1984, 31st of March 1985, 31st of March 1986 and 31st of March 1987. Without these accounts my task in assessing the husband's financial position would have been very much more difficult.

16. In the first year the husband's average earnings were $1,666 per month plus an annual director's fee of $2,000 together with a year end bonus of $5,000. Obviously it was necessary for the wife to also go out to work which she did as a secretary and even then the parties were on a very tight budget. Indeed the husband had to ask the wife to settle medical bills for Henry in October 1983.

17. In the financial year 1st of April 1984 to 31st of March 1985 the fortunes of the company began to improve. The husband's earnings increased to $12,916 per month and he received a year end bonus of $20,000

18. The parties then took it upon themselves to improve their life style. In April 1985 they moved to a more commodious flat at Eastbourne Road. Just prior to this the wife transferred the shares in China Bridge back to the husband. In the financial year 1985/1986 there was a further improvement in the company's fortunes. During this year the husband's earnings increased to $18,666 per month plus an annual director's fee of $10,000 and his year end bonus amounted to $100,000.

19. In considering the husband's finances it is important to bear in mind the reality of the situation. As I have earlier indicated for all practical purposes China Bridge was a three men company. The equity in the company was spread three ways between the three promoters of the company. Obviously it would be a joint decision of the proprietors the extent to which profits of the venture were to be distributed amongst the shareholders.

20. I make these observations on account of the evidence which was given by the husband in the witness box. He very definitely gave the impression that he was simply an employee of the company and had to abide by the decisions of the company. Although he did acknowledge that he was a director of the company and took part in board meetings I think that it is likely that the impression that he was intending to convey was not an accurate one. I did not get the impression from observing the husband that he is a subservient person. I consider that it is very much more likely that he would have been a dominant influence at board meetings and would have assumed an important role in any decisions which were made.

21. This was the high watermark of the company's fortunes. It is evident from the audited account that the company sustained a heavy trading loss in the financial year 1986/1987. However the company continued to pay the husband a salary of $19,700 per month together with an annual directors's fee of $10,000. There was however no question of any bonus being payable after the 31st of December 1985.

22. At this point it may be helpful to make some observations concerning the audited accounts. I have considered these carefully.  While I an mindful of the fact that the auditor is dependent upon the directors of a company giving true and accurate records and information to him I have come to the conclusion that essentially the accounts do reflect a true and accurate picture of the trading of the company. The information which is disclosed in the accounts would appear to be of a consistent nature. I am also satisfied that the accountant preparing the audit would he sufficiently sophisticated to detect any serious irregularities. I do not think that any cause has been shown to throw doubt upon the contents of the accounts and I am satisified that I am able to attach weight to the information which is given.

23. In looking at these audited accounts it also has to be borne in mind that they present an historical record of the business activities of China Bridge. It is also necessary to bear in mind what must have been in the minds of the directors of the company at the relevant important dates. In doing this it is necessary to take cognizance of the evidence given by the husband. One characteristic of trading with parties in China is that business is done on a seasonal pattern. There is not much activity in the early part of the year as most business is transacted towards the end of the year. Also even when contracts are entered into there is a time lag of approximately 6 months before the financial rewards begin to be realized.

24. The significance of this is that when there is a down turn in business it is almost inevitable that sometime would elapse before untoward consequences began to he felt. What the husband says was when business did become slacker the company always hoped that the situation would improve.  Without the benefit of hindsight it is difficult to fault this logic. The consequence of this is that I do not believe that during the relevant period when this marriage was breaking up the husband was fully aware of the extent to which his financial fortunes had take a turn for the worse.

25. The breakdown of the marriage occurred at the end of 1985 and in early 1986. There was an unhappy alteration in December 1985 and as a result of this the wife left home. Shortly after this the wife's mother visited the husband and asked him for money for her daughter. The husband gave the wife $20,000. $12,500 of this represented the repayment of a loan the husband had obtained from the wife's parents for decoration work when they moved into the Eastbourne Road flat. The balance of the $20,000 was said to represent immediate living expenses for the wife and a deposit for the wife to take a tenancy of a flat where she would live separately. In her evidence the wife said that she understood from this that the husband was acknowledging the fact that she had separated from him. The husband's evidence was rather different. He said that the wife had left him for short periods previously and that he believed that she would return to him in due course. As it happened the wife did return in February:

26. She did not stay for very long. In April there was a very unhappy incident. A dispute arose between the wife and her mother-in-lair. It would appear that it escalated into physical violence. As a result a report was made to the police and proceedings were instituted in a Magistrates Court against the husband's mother. However the charges were not pressed and the husband's mother was released on a bond to be of good behaviour. It is not difficult to imagine the effect all of this would have had upon the marriage. I think that it is probably accurate to state that it was at this time that it could be said that the marriage had irretrievably broken down.

27. The wife left the matrimonial home with Henry. As the husband was unable to locate them he commenced the wardship proceedings. It was these proceedings which led to the order which was made in July by Mr. Justice Power for $6,500 per month to be paybale to the wife for Henry's maintenance.

28. The husband continued with his employment at China Bridge. In June 1986 he sold his shares to Mr. Yam for $121,815. The reason the husband gave for selling the shares was the pressure which was being applied to him by the wife in connection with the divorce proceedings she contemplated taking against him.

29. What seems to me to be of some significance is that after Mr. Justice Power made the Maintenance Order in July 1986 the husband did make payments under the order until November 1986. This would indicate to me that certainly initially it was not the husband's intention to deliberately flout Mr. Justice Power's order.

30. The next significant turning point was the tax demand which the husband received in September 1986. $92,060 was demanded to be paid by two instalments, $77,865 in February 1987 and the balance in May 1987. The tax was calculated on the husband's income when it included the $100,000 bonus I have referred to. I believe the husband's evidence that this demand came as a great shock to him and that he had not realized the extent of his liability to tax. The demand put an entirely different complexion on the husband's financial affairs. Among other things it called in question his capacity to comply with Mr. Justice Power's order.

31. In December he managed to obtain a loan from the Chase Manhattan Bank to pay the first instalment of his tax. However the Bank insisted upon his signing auto pay forms which had the effect of deducting $9,442.60 from each of his next 9 months salary payments.

32. It was his evidence that he was unable to meet his commitments to the wife while he was repaying the loan to the Chase Manhattan Bank. His position deteriorated further in January 1987 when Judge Lee made the interim maintenance order in the divorce proceedings commenced by the wife for him to pay her an additional $2,000 per month. At approximately this time he made an application to Mr. Justice Power to vary the wardship maintenance order of $6,500 per month but when this came on for hearing it was dismissed. It is perhaps relevant to observe that at this point of time he did not have the advantage of legal representation.

33. There is further reason to believe that the husband was under financial pressure at this time. He defaulted on the payment of the second instalment of $14,195 of his tax which as I have said was payable in May 1987.

34. At this same time the husband claimed that he was dismissed from his employment China Bridge. Amongst the evidence was what purported to be a letter of dismissal. The ground put forward in support of the decision was generally his lack of performance. Two months later he was offered and accepted a job with a company called Koon Wah Plastic and Knitting Co. Ltd.

35. Mr. Yam was one of the directors of Koon Wah. The explanation given by the husband for this was that it was the other directors in China Bridge who had decided to dispense with his services. Mr. Yam still had confidence in him and was prepared to employ him. His salary at Koon Wah was $6,000 per month plus commission. He estimated that he would be able to earn approximately $6,000 per month by way of commission. It would of course take time for payments to filter through the pipeline.

36. After being "dismissed" he vacated the flat he was living in and removed to a smaller flat in Shatin. Even adopting a more modest life style he claimed that he could only afford total maintenance payments of $2,000 per month. Even then there would be no lea way as his expenditure would equal or exceed his income.

37. Miss Leong subjected the husband to a lengthy and searching cross-examination.

38. The main thrust of her questions was directed to establishing that he had deliberately contrived or arranged his affairs so as to defeat the legitimate claims of the wife. He had from the time of the breakdown of the marriage deliberately dissipated assets so as to prevent the wife getting anything.

39. Also the purported sale of his shares in China Bridge and his alleged dismissal from his employment was a sham. She suggested that it was all part of a well concerted plan. His girl friend Miss Irene Lau had been appointed a director to represent his interest in the company. In reality she was holding his equity in China Bridge and when the present litigation had run its course he would resume his former position while still maintaining his equity in the company.

40. She claimed that the timing of the various steps I have referred to should be compared with the timing of some of the steps in the litigation.

41. For example Koon Wah was incorporated 5 days before the husband's application for variation of maintenance. The next significant point was the termination of employment by China Bridge.  This letter was dated shortly before the wife's application for maintenance was due to be heard.

42. Miss Leong cited a number of other examples where significant steps had been taken in the litigation and the timing had coincided with action he or his companies had taken. Some of these matters had been of relevance to the custody proceedings.

43. What I think all of this tends to boil down to is what I regard as being the central issue of these applications.

44. This is the issue as to whether the husband has given a satisfactory and plausible explanation for his financial dealings or whether on the wife's case he has deliberately done everything in his power to evade meeting his responsibility to the wife.

45. Before going into any specific detail it may be worthwhile to make some general observations.

46. In the first place voluminous evidence has been made available. Some of this consists of Bank Statements of the Standard Chartered Bank and Citibank including both a current account and a savings account. From going through the various debit and credit items the husband was mainly able to give a coherent and satisfactory explanation for the various entries which were recorded. Over and above this the entries seemed to me to be generally consistent with the husband's evidence as to what transpired. By this I mean that they reflect a financial situation which was gradually improving until the fortunes of China Bridge started to recede.

47. I was also taken through accounts relating to the husband's American Express Card. Again a fairly consistent pattern emerges. Until the fateful Tax Demand in September 1997 the entries seem to confirm what I think could fairly be described as generous expenditure. In this connection it is worth observing that the wife accepts that even in the early part of 1986 some of the expenditure was incurred by her. The evidence however would seem to me to fall far short of a deliberate dissipation of assets.

48. One point however on the credit card accounts which may be worth making is that it is obvious that some of the husband's expenditure was for the benefit of a lady friend. I say this because it is evident that sums of moneys were expended at Boutiques. All the husband was able to say to justify the items was that he could not remember. On the balance of probabilities it seems to me to be quite likely that the money was spent on a woman. In this connection I have also borne in mind that the wife alleged in her divorce petition that the husband had committed adultery with Irene Lau. The husband did not take issue on this in the divorce proceedings but in the witness box he denied an adulterous relationship with Miss Lau. I do not think that this takes matters much further. I would however comment that I am not satisfied that convincing evidence has been produced to satisfy me that Miss Lau took part in any consipiracy to siphen off assets or hold the husband's shares or assets during the currency of this litigation.

49. At the end of the day what I was left with was mainly a series of unsubstantiated allegations by the wife. She claimed that the husband had credit cards and Bank accounts which he had failed to disclose. The husband denied this and no definite evidence was produced to indicate that he was guilty of secreting assets or accounts.

50. I will deal next with the transfer of the husband's shares in China Bridge for a consideration of $121,815. The most significant aspect of this transaction seems to me to be the fact that it was demonstrated to me that the sum of $121,815 was indeed credited to his account with the Citibank. It was not simply a paper transaction.

51. I accept that this being the case I have to then go on and consider whether it can he established that the husband has deliberately dissipated his assets.  In this connection it is convenient also to take cognizancee of the bonus of $100,000 which the husband received at the end of 1985. The total of the last bonus and the proceeds of the sale of the shares is an amount slightly in excess of $220,000.

52. I am satisfied that the husband has been able to account for the expenditure of a substantial part of this amount. For example shortly after he received the $100,000 bonus he repaid to Mr. Yam the moneys he borrowed to acquire his original stake in China Bridge. This repayment amounted to $33,000. The explanation he gave that it was the first time he had a large capital sum and was in a position to make a repayment seems plausible enough to me.

53. He also incurred legal and other expenses in connection with the wardship proceedings and the criminal proceedings his mother was involved in as a result of the assault I have previously referred to. These expenses were of the order of $30,000. There was also the amount of $20,000 the husband paid to the wife in January 1986 shortly after she left home. He also gave evidence of having to replace the various household items which had been removed by the wife. He estimated this expenditure at $10,000.

54. Also after he received the $121,000 he started making monthly payments in respect of Mr. Justice Power's order for Henry's maintenance. According to my calculations these payments amounted to $32,500.

55. The husband also admitted that he spent approximately $20,000 on his mother and Henry after the wife left home as they were all depressed by what had transpired.

56. I accept that not all the moneys have been accounted for. However the shortfall is not so great as to inevitably lead me to a conclusion either that there was deliberate dissipation of assets or that funds have been secreted. It is also significant in my view that all of the more lavish expenditure was incurred before he husband received the tax bill for $92,000 in September 1986.

57. I will now consider what I regard as a much more serious aspect of this matter.

58. I refer to the husband's dismissal from China Bridge and his employment with Koon Wah. Here I am not satisfied with the explanations which were given by the husband.

59. As I have indicated earlier I am not prepared to accept that China Bridge was an entirely separate and independent entity from the husband. There is also the coincidence over timing of both the formation of  Koon Wah and more particularly the looming application for financial relief by the wife.

60. In addition to this we have the contradiction between the evidence of the husband being dismissed by China Bridge basically for inefficiency or lack of performance and his then being offered employment by a company partly or wholly owned and controled by Mr. Yam who was still at that time a director and shareholder of China Bridge. I am simply not prepared to accept the husband's evidence on this. On the balance of probabilities, it is much more likely that the dismissal and reemployment was a cosmetic device designed to frustrate or defeat the legitimate interests of the wife.

61. It is not a simple matter to work out the consequences of this. I have no idea what would be the value of any interest of the husband retained in China Bridge. I do not even know if China Bridge is trading profitably at the present time. The only conclusion I am able to come to with any degree of certainty is that I am convinced the husband has been less than frank and truthful in his testimony.  It is also indicative of the lengths the husband is prepared to go to in an attempt to defeat the claims of the wife.

62. I do not though consider it to be appropriate or right that I should make a punitive financial order simply on account of this. What I think it means is that I have to view the husband's evidence with the gravest suspicion and assume that there is at least some interest which the husband still has in China Bridge even though I do not know exactly what it may be.

63. Also of course his conduct is relevant to the consideration of the question as to whether he has been guilty of contempt of Court.

64. I think that I must wholly disregard the evidence concerning the husband's employment with Koon Wah and the alleged salary of $6,000 per month.

65. Having said this there is some evidence which I have already referred to that the husband is presently under some financial pressure at the present time. I do not think that I should assume that he is a wealthy person.

66. One approach to this problem is to attempt to have regard to the financial needs of the parties. In particular I should have regard to the wife's needs.

67. Unfortunately it is not a simple matter to ascertain what these needs are. I regret that I did not find her to be a wholly satisfactory witness. In fact it was strongly my impression that she exaggerated her evidence and told much less than the truth.

68. She was invited to make an assessment as to how much she thought she could earn if she resumed work. She gave evidence that if she went out to work she could not hope to receive a salary of more than about $3,000 per month. She gave this evidence notwithstanding a testimonial exhibited to the evidence to the effect that she had performed satisfactorily as a private secretary to one of the directors in a large company. I am simply not prepared to believe that she was attempting to make a truthful assessment of her earning capacity.

69. She also gave very unsatisfactory evidence concerning her domestic arrangements. She claimed that she could not engage the services of a Filipino maid. The reason she gave was that Henry who is aged 7 does not like Filipino maids. I do not believe that any mother would accept this as a valid reason for not employing a Filipino maid.

70. The wife gave me the impression that she is a mature and presentable lady of above average intelligence. I believe that if she attempted to obtain employment she could easily secure remuneration of at least $5,000 to $6,000 per month. In addition to her secretarial skills she also has experience of working in her parents' 2 Boutiques. One sells ladies dresses and the other sells handbags and shoes. Again I think that the wife was less than frank in her evidence to the effect that the only work she did in the shops was of a menial nature. I think it is much more likely that she was performing functions of a managerial nature.

71. Doing the best I can I propose proceeding on the assumption that she would he able to earn something of the order of $5,000 per month. I accept that I must deduct from this the sum of approximately $2,500 to provide for an amah to look after Henry.

72. According to the wife she has basically been supported over the past months by members of her family. I am satisfied that to an extent this can be offset by the services she has rendered in the shops. She claims to owe members of her family something of the order of $70,000. She should be able to repay much of this from the arrears I will be ordering the husband to pay.

73. I have given careful thought to all of the factors I consider to he relevant. Doing the best I can with the material available to me I order that the husband must pay maintenance to the wife of $4,000 per month. The interim maintenance order and the wardship proceedings mentioned in this judgment must each be adjusted to reflect this amount.

74. I further order that the amount will be payable retrospectively from the date when the husband applied for the variation order namely the 9th September 1987.

75. Miss Yuen produced to me a table which showed the amount of arrears payable. On the assumption that no maintenance was payable from September onwards the amount of the arrears was $46,000.  If the payments I have just ordered are added this would bring the amount up to $70,000 to the present date i.e.6 x $4,000 + $46,000.

76. I am anxious not to make an order which it will be impossible for the husband to comply with. I therefore propose to order that $25,000 should be paid within one month from the delivery of this judgment, a further $25,000 by the 30th of June 1988 and the balance by the end of the year.

77. The final matter that I have to decide is the question as to whether it has been established that the husband has been guilty of contempt of Court. I am satisfied that this has been established. There are two factors which have particularly concerned me in this connection. The first and most important is the fabrication as I have found it to be of his dismissal from China Bridge and his reemployment at a much lower salary with Koon Wah. I am satisfied that this was a deliberate contemptuous act. Also to a lesser extent the husband's complete failure to make any payments since September under Mr. Justice Power's order must also border on contempt.

78. Taking the cumulative effect of both of these matters I have no hesitation in finding that the husband has been guilty of contempt. However I am satisfied that it is not in anyone's interest that any committal order that I make should take immediate effect. I therefore propose suspending the operation of the committal order whilst the husband complies with the orders I have just made. In the event of his default I order that he will be imprisoned for one month. I do not propose that he suspended order is to be of indefinate duration. I order that it will continue for a period of 2 years from the present time. I hope that when the suspension expires the present bitterness between the parties will have abated. I will hear the parties on costs.

Representation:

Miss N. Yuen instructed by Knight & Ho assigned by D.L.A. for Plaintiff.

Miss J. Leong instructed by Helen A. Lo & Co. assigned by D.L.A. for Defendant.