L v. E

FCMC007178/1998

Headnote

L v. E

Family Law - ancillary relief - deed of separation whether parties should be held to prior agreement dividing their assets.

IN THE DISTRICT COURT OF

THE HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 7178 OF 1998

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Coram: Deputy Judge Jenkins in Chambers

Date of Hearing: 11 - 14 & 19 October 1999

Date of Judgment: 19 November 1999

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JUDGMENT

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Introduction

1. The parties in this case whom I will refer to as Husband and Wife were married in Hong Kong on 9^th June 1990. On 8^th October 1993 a child was born to the wife. The Husband is not the natural father of this child.

2. The wife's claim is a simple one. She seeks a sum of Singapore $410,000 plus the return of two sums of money loaned to the husband of HK$59,000 and Singapore $5,000. The wife says that in March 1998 the husband agreed to pay her the sum of S$410,000 and that this agreement was confirmed in an exchange of letters between their respective solicitors in April 1998. The husband does not dispute this. His case is that he is not bound by the agreement because of the circumstances that led to it and that because of his present financial position it would be unjust to hold him to it.

3. I will relate so much of the background as is relevant to the issues.

4. At the time of the marriage the husband was Vice President And Regional Director for international corporation. The wife was the Regional Director of Sales (China) for a hotel group. They lived at a property in Sai Kung which had been bought by the husband in 1986 for HK$1,230,000. In May 1991 the husband and wife bought a flat in Singapore for S$835,000. The husband paid S$155,000 towards this sum the balance being funded by a mortgage. The wife is able to identify the sum of S$62,000 as her contribution to the mortgage installments between 1993 and 1996 with the remaining installments being paid by the husband. The flat was tenanted and the rent paid into a joint account in the names of the wife and her father who lives in Singapore.

5. Another property bought during the marriage was a house in France. The husband was solely responsible for the financing of this purchase.

6. Each of these properties has now been sold. In July 1999 the property in Sai Kung was sold the net proceeds being $1,712,622.59 and in accordance with an order of Deputy Judge Leung dated 12^th December 1998 this sum has been paid to the wife's solicitors as stakeholders. The sale of the French property was agreed at about the same time but was only completed recently. According to the husband the net proceeds are 1,017,084 Francs. On 8^th October 1999 I made an ex parte order restraining the husband from dealing with $400,000 of the proceeds of that sale.

7. The Singapore property has too been sold I will deal with the circumstances of the sale and the disposal of the proceeds at a later stage of this judgment.

History

8. I turn now to the marriage itself. It is plain that for the first three years or so the marriage was happy and uncomplicated. Both were in well paid employment, the wife earning $30,000 a month and the husband earning in the region of $130,000 a month. They enjoyed a comfortable life style with both contributing financially.

9. In about April 1993 the wife was three months pregnant. By chance the husband found a letter that the wife had written but not yet posted to another man S. It seems that this letter was in intimate terms and to put it mildly caused great shock to the husband. The man involved whom the husband had briefly met in 1992, but had no reason to suspect (until the letter) was having an illicit relationship with his wife. The husband spoke to the wife about the letter and the man. The contents of this conversation were disputed with the wife saying that she admitted to her husband that the relationship was a sexual one but that she did not know who was the father of her unborn child. The husband's account was that her explanation was that the relationship was not a sexual one and that the child was definitely his. It was also the wife's evidence that she told her husband that she could not promise not to see S in the future. I am inclined to accept the husband's version of the conversation but do feel that despite it he must have harboured a doubt as to who was the father of his wife's child.

10. In any case it is plain that both parties wanted their marriage to survive. Both the husband and the wife are intelligent, mature and civilized people. For the next two years after the birth of the child; a daughter called WY, the marriage continued and the husband seemed prepared to treat WY as his own daughter. But the wife continued seeing S and by the end of 1995 had decided to leave her husband. At this time the husband was having problems in his relationship with his employers. He was able to engineer a situation whereby he was dismissed with a substantial pay off. On 26^th January 1996 he received $7,717,028.18 from his employer. On 31^st January 1996 he remitted $5,550,000 to Singapore in order to repay the mortgage on the Singapore flat.

11. The husband and wife went their separate ways. She and her daughter went to Singapore to live with S and he took himself off for a year travelling. They remained in touch and in January 1997 met up in Singapore. She had had a DNA test which confirmed that S was the father of WY. The wife told the husband this and suggested a divorce which the husband refused hoping for a reconciliation. Eventually though and after reflection he accepted that the marriage was over.

12. The wife (I think more so than the husband) was anxious to settle the financial side of things. In March 1997 they agreed to sell the Singapore flat. It was sold for S1,170,000. The wife's evidence was that they agreed that she would receive S$600,000 with the balance going to her husband. She said she in fact received only S$400,000 as her husband requested from her a loan of S$200,000 as he was about to set up a business. This loan was to be repaid within five years, and was evidenced in a promissory note dated 2^nd May 1997.

13. The husband's account of this transaction was rather different. He said that the agreement was that his wife would receive only S$400,000 but that he would in the future give his wife a further S$200,000 to be used for the benefit of WY if it was needed. He felt that WY was S's responsibility but his wife told him that she did not think S would provide for his daughter and she was reluctant to ask him to do so. Therefore the husband agreed to make S$200,000 available for WY.

14. The difficulty with the husband's version is that it is not supported by two subsequent documents. The promissory note of 2^nd May 1997 is in these terms:-

"Five years after the date hereof, I E promise to pay to L or order the sum of Singapore dollars two hundred thousand (S$200,000) value received" (emphasis added).

15. The Husband explained that he only signed this document at his wife's insistence because otherwise "she would take legal action".

16. And then there is the deed of settlement. This is dated 23^rd June 1997. It recited that the parties had lived apart since 1^st February 1996 and that the husband would institute divorce proceedings based on one year's separation. The promissory note was referred to. The operative part of the deed provided that the husband was to contribute one third of the educational expenses of WY and her other expenses at his discretion. The husband also covenanted to provide medical insurance for both the wife and daughter and to allow the wife to visit and stay in his house in France. The deed provided that apart from these provisions neither party was to have any financial claim against the other.

17. It is plain from these documents that the S$200,000 referred to in the promissory note was a straight loan from the wife to the husband and was not, as the husband, claimed a future provision for WY.

18. Two weeks after the deed was executed the husband sent a fax to the wife. In this document (dated 5^th July 1997) he suggests that he does not owe his wife any money saying:-

"The S$200,000 you refer to is totally covered in what you owe me for the Singapore house rental which was paid to your parents, all the money I have spent on WY over the last four years."

19. This was followed up by a letter from the husbands solicitors to the wife's solicitors of 21^st July 1997 stating, inter alia, that "after much reconsideration [the husband] has decided in the best interests of WY E he should serve all relationships with her." The letter also referred to a fax dated 26^th June 1997 from the husband to the wife which stated that the husband would not be assuming any financial obligations in respect of WY. The wife's solicitors took the view from this letter and the earlier faxes that the husband had repudiated the deed and by letter of 28^th July 1997 to the husband's solicitors accepted that repudiation.

20. Matters than rather drifted. The wife spent some time in Nepal with S and the husband was busily engaged in setting up his own recording and music publishing business. Two companies were incorporated in June 1997 and in November 1997. A number of artists have been signed up but it is evident that the business has not prospered. The accounts for the company, from its incorporation up to 31^st December 1998 show a loss of HK$4,029,558 with an unsecured loan to the husband of $4,576,323. For the same period another company had a loss of $1,268,180 with the husband being owed $2,447,139. There seems little prospect of the husband recovering the capital that he has put into the business.

21. Eventually in March 1998 the parties met and discussed their financial position. The husband knew that his music business was ailing. Indeed he had just two months earlier mortgaged his Sai Kung property for HK$4,000,000 in order to inject more capital into the business. The wife said that her husband agreed to pay her S$200,000 (being repayment of the loan of March 1997) once the Sai Kung property was sold, and a further S$210,000 within four years of 1^st March 1998. This latter sum was said to represent wife's contribution to the shared wealth of the marriage.

22. The husband appeared to agree in evidence that that was the arrangement and it was confirmed in an exchange of correspondence between the parties' respective solicitors on 22^nd and 24^th April 1998.

23. In addition to these sums the wife also claims repayment of two loans to the husband of HK$59,000 and S$5,000 in July 1998. The husband accepts that he received these sums, which he requested in order to put into his business.

24. The present position of the parties in this:-

The wife is living with WY in a flat in Singapore. She purchased the flat in April 1998 for S$250,000 from S. She funded the balance from her own resources. She is the business manager of a Singapore based company, which trains hotel staff, and is paid S$10,000 a month, although S$3,500 of this is paid in Hong Kong through an associated company. She is aware of her right to pursue S for financial support for their daughter but chosen not to do so. It seems that he would be financially able to support WY if he was called upon to do so but the wife prefers to rely on her own resources. In any case, she says, what she seeks from the husband is money which he has in the past agreed to pay and is unconnected with WY.

25. The husband lives in USA with his girlfriend in her rented house. He is persevering with his music business, and hopes it will succeed but it has to be said that there is little prospect of this, at least in the near future. He says that he has no assets apart from the proceeds of sale of both the Sai Kung property (HK$1,712,622) and the French property (FF1,017,084). Court orders restrain him from dealing with the former and HK$400,000 of the latter.

26. He has substantial debts in the form of loans from friends of around HK$2.2M and credit card bills of around HK$500,000. When his legal costs are included his debts amount to about HK$4M a similar figure to the funds from the sale of Sai Kung and the French house. So, even if he is permitted to keep those funds he will be left with nothing.

The Law

27. Mr. Pilbow, for the husband, says that the agreement reached between the parties in March 1998 and subsequently confirmed in the solicitors letters cannot be upheld for two reasons. Firstly he says the husband was pressured and/or misled into reaching this agreement. Secondly he says that it would be unjust to hold him to the agreement because of what he describes as the "vastly changed circumstances." He relies on the cases of Edgar v Edgar (1981) 2 FLR 19, Camm v. Camm (1983) 4 FLR 577 and Beach v. Beach [1985] 2 FLR 160. In Edgar described as "a wholly exceptional case on the facts" a wife entered into a deed of separation agreeing to certain financial provision and undertaking not to seek any further capital provision on divorce. Subsequently the wife brought proceedings for financial provision and was awarded a substantial lump sum. The Court of Appeal allowed the husband affect holding that

28. But in Camm where a wife agreed not to seek financial provision for herself (as opposed to her children) the Court of Appeal ruled that she should not be bound by the agreement because it was unfair and unjust as she had not received competent legal advice and had been under extreme pressure arising partly from her own state of mind and partly from her husband's attitude.

29. In Beach described as "an unusual and sad case" a husband was held not to be bound by a separation agreement which had been "reached in circumstances which were totally different from those contemplated by the contracting parties". This was despite the husband's financial misconduct the court holding that "the disparity between the relative position of the husband and wife was so great that simply to dismiss [his] claim would not be a proper reflection of the s.25 [Matrimonial Causes Act] criteria." (s.7 Matrimonial Proceedings and Property Ordinance Cap. 192) is based on s.25 of the English Act).

30. Mr. Pilbow suggests that at the time of the March 1998 agreement the husband was under great emotional pressure from his wife and was affected by the disclosure that WY was not his daughter. He had received no legal advice (although his solicitor subsequently confirmed the agreement) and was not in possession of all the material facts which would normally be disclosed in negotiations proceeding a settlement. Further the vastly changed circumstances since the agreement mean that it would be unjust to hold the husband to the agreement. The husband had in March 1997 received HK$6,673,038.56 from the proceeds of sale of the Singapore property. At the time of the agreement he still owned the Sai Kung property (subject to a $4M mortgage) which was sold in July 1999 with net-proceeds of HK$1,712,622. Now he has debts of HK$2,700,00 not including has legal costs.

31. Mr. Pilbow explains that this change of fortune is not because of any financial misconduct on the husband's part but simply because his business has not flourished.

32. Miss Cruden contends that these will be no injustice to the husband if he is held to his agreement. She relies on the passage in Edgar that "formal agreements, properly and fairly arrived at with competent legal advice should not be displaced unless these were good and substantial grounds for concluding that an injustice would be done by holding the parties to the terms of their agreement." She argues that this agreement was not reached in circumstances totally different from those contemplated as in Beach. Alternatively, she says that if the circumstances are totally different then that difference has been caused by the husband's financial misconduct in depleting his once substantial assets to their present level and that I should not disregard that conduct.

Conclusion

33. As I see it the position is that in January 1997 the husband knew that he was not the natural father of WY. In March 1997 the Singapore flat was sold it being agreed that 40% of the proceeds would be paid to the wife with 60% going to the husband. From her 40% the wife agreed to lend S$200,000 to the husband. Including this loan the husband received S$1,300,000 (about HK$6,600,000). In June 1997 the parties enter into a deed of separation. The S$200,000 loan is acknowledged and the husband agrees to pay one third of WY's education expenses and to provide medical insurance cover for the wife and child. In July 1997 the husband repudiates the agreement. In March 1998 a further agreement is reached. The husband is to repay the S$200,000 loan from he proceeds of the sale of Sai Kung and a further S$210,000 within four years. This agreement is confirmed by the parties respective solicitors in April 1998.

34. On the evidence I do not find any undue pressure influencing the husband when he made the agreement in March 1998. He had then known for well over a year that he was not the natural father of WY. It may well be that the discussion that led up to the agreement was emotional on both sides but not, I find, to the extent that the husband was (or felt that he was) under undue pressure. Neither was the wife exploiting a dominant position. The husband, I believe, had full knowledge of his and her financial position. In particular he knew what each had contributed or had not contributed to their joint assets. He knew, for example, that the rent from the Singapore property was being paid to the wife's parents. There is no suggestion that the husband had received bad legal advice.

35. I find too that these have been no radical change of circumstances justifying setting aside the agreement. In August 1997 the husband set up his business. He might not have expected it to make an immediate profit but despite the initial capital invested he was forced to mortgage Sai Kung in January 1998 for HK$4M to inject further capital into the business. He may well have been optimistic for the business to succeed but it seems to be the case that in April 1998 he would have known that his business was not going to be the success he had hoped. He made reference to one project in Taiwan that he hoped would be successful which ultimately in November 1998 was not but I do not think he reasonably expected the fortunes of the business to depend on this one transaction. Again, the loans that he has borrowed from various friends are not recent events. They began in December 1997, well before the April 1998 agreement, with the equivalent of HK$428,285 borrowed from F. They continue with HK$350,000 and HK$50,000 being borrowed from D on 14^th and 28^th April 1998 respectively. Further borrowings were made later in 1998 but overall it seems to me that his financial position now is not substantially worse now than it was in April 1998.

36. In short I must therefore find that there has not been an important change of circumstances justifying setting aside the agreement. This agreement was fairly negotiated and is not lightly to be set aside. As Oliver LJ said in Edgar (p896E).

"Men and women of full age, education and understanding, acting with competent advice available to them must be assumed to know and appreciate what they are doing and their actual respective bargaining strengths will in fact depend in every case upon a subjective evaluation of their motives for doing it. One may, of course, find that some unfair advantage has been taken of a judgement impaired by emotion, or that one party is motivated by fear induced by some conduct of the other or by some misapprehension of a factual or legal position, but in the absence of some such consideration as that - and these are examples only - the mere strength of one party's desire for a particular result a the mere fact that one party has greater wealth than the other cannot, I think affect the weight attributed to a freely registered bargain."

37. I believe that the agreement of March 1998 was a freely negotiated bargain and I cannot on the evidence find that it would be unjust to hold the husband to it.

38. That agreement was that the husband was to pay to the wife S$200,000 from the proceeds of sale of Sai Kung property and a further S$210,000 within four years of 1^st March 1998.

39. In addition I rule that the wife is entitled to the return of the two sum of (HK$59,000 and S$5,000) money advanced to the husband in July 1998.

40. The order I make is this:

41. In case further directions are needed in respect of Orders 2 and 3 there be liberty to apply.

Representation:

Miss Cruden instructed by m/s Oldham, Nie & Li for petitioner

Mr. Pilbrow instructed by m/s Stevenson, Wong & Lai for Respondent