Rk Formerly Known As Ro v. Pjk
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FCMC 14165 / 2007 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MATRIMONIAL CAUSES NO. 14165 OF 2007 ---------------------------- BETWEEN
------------------------ Coram: Her Honour Judge Sharon D. Melloy in Chambers (Not open to public) Dates of Hearing: 1 – 3, 8 – 9 and 11 December 2009 Date of Judgment: 14 January 2010 ----------------------- J U D G M E N T ----------------------- Introduction 1.This is an application by a wife for ancillary relief generally and for an order to set aside a disposition made by the husband to his business partner, the intervener in these proceedings. 2.At its heart this case concerns the ultimate breakdown of an ailing marriage of some 23 years, against the backdrop of the economic financial crises and the effect that has had on the husband’s toy business in China. The issues 3.It seems to me that the following issues need to be determined by this court:
The applications 4.There are two substantive applications before the court as follows:
Background 5.The parties married on the X December 1984. Prior to that the parties cohabited for a couple of years. On the 19 November 2007 the wife issued divorce proceedings based on mild unreasonable behaviour. This is then a long relationship; it is a marriage of some 23 years duration. The wife is now 48 years old and the husband 55. Throughout the marriage the husband worked in a family business originally established by his own Father. I will refer to the business as M Company Limited, or MCL for short. Through a trust structure the husband became the 50% joint owner of MCL with Mr C, the intervener, approximately 10 years ago. It does not appear to be disputed that MCL has always provided the family with its major source of income. Originally the company made religious artefacts. Under the stewardship of the husband and Mr C it later developed into the toy manufacturing business - mainly involved in the production of hard toys (i.e. plastic toys) for companies such as C, MT and CCCI. 6.The wife was a homemaker. The parties had two children shortly after getting married. The wife has never worked in a paid capacity. The two children of the family are now almost grown up. T, their daughter is now 23 years of age. She has finished her tertiary education in the States and is now living and working in Hong Kong – although not always in a paid capacity. R is 19 years old and has just embarked on his second year of undergraduate study in the United States. 7.Following the breakdown of the marriage the wife relocated to Santa Barbara, to live close to her family and friends. She has lived there since the summer of 2008. The husband continues to live in Hong Kong with his second wife, who he has recently remarried. His second wife has a severely disable daughter, who now lives with them. T also bases herself at the husband’s home although she spends time with her boyfriend and is said to have plans to move out. Background to the litigation 8.Unfortunately the proceedings have become litigious and correspondingly expensive. 9.The main issue from the wife’s perspective appears to have been one of disclosure. Put simply the wife did not originally believe that the husband had made full and frank disclosure of his assets. In particular she was concerned that there had been no reference to MCL in the original disclosure. There have been four requests for further and better particulars by the wife and two requests by the husband. 10.From the husband’s side, his main complaint is that even once substantial disclosure had been made the wife still refused to negotiate. Quite rightly the husband attempted to settle matters early on by negotiation both directly with the wife and via solicitors. At trial an e-mail was produced dated the 27 August 2007 sent by the wife to her brother in law, Mr F. The body of the e-mail from the husband to Mr F states as follows:
11.Mr F’s advice to the wife in response was to see a lawyer. In evidence the husband said that he simply couldn’t believe it when he saw that response. 12.On the 18 September 2007 the husband’s solicitors wrote inter alia to the wife in essentially the same terms. Reference is made to MCL as follows::
Reference was made to mediators. On the 29 January 2008 this offer was formerly withdrawn. There had been no detailed response to it. 13.Understandably perhaps the wife initially sought disclosure and asked that Form E’s be filed. The wife eventually issued proceedings, but on the basis of unreasonable behaviour as opposed to one-year separation with consent, which the husband had originally suggested. Initial requests were made for further and better particulars. The husband paid maintenance on a voluntary basis until the wife applied for maintenance pending suit on the 24 June 2008. It was then agreed that the husband would pay the wife the sum of HK$150,000 forthwith in order that she might have funds to relocate to the States. It was also agreed that he would pay her maintenance pending suit of HK$50,000 per month. 14.Shortly thereafter in his affidavit of the 28 July 2008 the husband made another attempt to settle. He made particular reference to MCL when he said as follows:
15.During the trial it became clear that the wife had had concerns about the husband’s disclosure. She said that she had originally wanted to go further to find out more – that “it wasn’t ok for me”. When it was put to her that she should perhaps have accepted the original offer given the way in which things have developed – even with the benefit of hindsight she said that she could not agree. She said that at that time she could not accept the offer. 16.In any event, what is clear from the correspondence and pleadings filed is that the wife did not at any stage attempt to set out her needs or to negotiate with the husband. At no point did she put forward a financial proposal of any kind. As will be seen below this approach continued right up to and throughout the trial. It was further compounded by the fact that the wife did not attend the Financial Dispute Resolution hearing scheduled for the 23 September 2008. On the 29 July 2008 I set the matter down for a FDR hearing. One day was reserved. I ordered both parties to attend that hearing personally. Both parties were present on the 29 July. Each was represented – the wife by counsel and the husband by his solicitor. At that hearing I made the following comments:
17.Prophetic words. The day before the FDR hearing the wife’s then solicitors applied to come off the record. The wife did not appear at the FDR hearing and was not represented. During cross-examination she said that it had all been a “tremendous misunderstanding” and that it was “very unfortunate how that happened”. She said that she was not aware that she should have been in court until a few days after the hearing. I have to say that I do not accept that. The wife was in Court on the 29 July when I made the orders referred to above. She was aware that the FDR hearing had been set down for the 23 September. She was also aware that her personal attendance was required. The fact that the wife chose to change lawyers does not absolve her from her own responsibility in this respect. She did not inform the husband, who appeared in court with counsel, although her former solicitors wrote to them as a matter of courtesy on the 18 September 2008 seeking an adjournment. 18.On the 23 September, given the wife’s non-attendance, I agreed with counsel for the husband that there was no alternative but to proceed to trial. I made a costs order against the wife. The wife’s new solicitors did not come on the record until the 8 October 2008. 19.The wife’s other issue centred on the husband’s sale of the shares. On the 1 April 2009 the husband transferred his shares in MCL to Mr C. He did not inform the wife of this. 20.On the 7 May 2009 the wife issued a summons for an increase in interim maintenance by HK$20,000 per month to cover in part her increased legal costs caused by the husband’s actions and to injunct what was left from the proceeds of sale from the shares. I made an order in those terms. On the 18 May 2009 the wife issued a s 17 application to set aside the transfer of shares. The original trial dates were vacated and a second trial was set down for November and December. 21.This is in essence where the matter still stood at the time of the trial. The open proposals 22.By court order dated the 8 April 2009 both sides were to file open proposals before the trial (then scheduled for the end of April/beginning of May). The wife was to file her open proposals 14 days before the trial and the husband 7 days thereafter. The wife did not put in any open proposals. She filed Notice of Acting in Person on the 24 November 2009. When pressed at the first day of trial she said that she had spent many years with the husband and that she had left Hong Kong with nothing, whereas the husband continued to spend a lot of money. She said that she felt that she should be treated fairly and that she just wanted the settlement to be “fair”. She also said that wanted a fair share of the value of MCL and that depending on how much she obtained she would then seek a periodical payments order. The husband’s open proposals 23.The husband’s counsel said in her opening note that
Discussion 24.I must now turn to consider the issues, the law and the parties evidence as set out in their affirmations and as given orally by them during the hearing. I have also considered the evidence of Mr C and the evidence of the two expert accountants – Mr B for the wife and Mr A for Mr C. For the avoidance of doubt, in so far as the matters set out in this judgment differ from the evidence of the husband or wife, or of the intervener or indeed any of the witnesses, that is because I have preferred the evidence of one or other of the parties’ or it is because I do not find the evidence given credible, or because I consider that the documents produced confirmed my findings of fact. Setting aside dispositions The law - generally 25.The wife has issued an application pursuant to s.17(1)(b) Matrimonial Proceedings and Property Ordinance, Cap 192. This section states as follows:
26.Therefore, if I am satisfied that the husband transferred the shares in MCL to Mr C with the intention of defeating the wife’s claim for ancillary relief, then I may set that disposition aside. I accept that I need to look at the actual intention of the disponor at the time that the disposition was made. I also accept that it must be clear that there was an intention to defeat the other side’s claim for ancillary relief, although it may not be the only or even the dominant intention of the disponor. 27.In so far as the appropriate standard of proof to be applied, I agree that I need to be “satisfied”. In other words I must have made up my mind that, the husband transferred the shares to Mr C with the intent of defeating the wife’s claim for ancillary relief.
(See Loveden v Loveden (1810) 2 Hagg Con 1) And in the words of Rayden,
28.I agree that in considering the intention of the husband that I must look at his conduct at the time that the shares were transferred. Consequently I accept that the circumstances surrounding the transfer are highly relevant. 29.Reference has been made to the rebuttable presumption found in s 17(3) Matrimonial Proceedings and Property Ordinance, Cap 192. In other words if the disposition was made less than three years before the s.17 application was made, then there is a presumption that it was done with the intention of defeating the other’s claim for ancillary relief. In this case the transfer took place on the 1 April 2009. Consequently Ms Irving for the husband accepts that the burden of proof lies on the husband’s shoulders. It is for him to rebut the presumption that the transfer of shares was made with the intention of defeating the wife’s claim for ancillary relief. Was the sale of shares by the husband to Mr C, made with the intention of defeating the wife’s claim for ancillary relief? 30.The wife’s case is that the transfer of shares was highly suspicious and that it was done without her knowing about it. She said that she did not feel that it was a fair deal. She did not think that it was “kosher”. She accepted that MCL was the only asset that the parties had. However she said that she could not leave Hong Kong after 28 years with nothing. She said that she thought that she was entitled to 50% of the husband’s half share in MCL. She referred to her expert’s valuation of HK$37 million. She said that the actual sale was at an under value, but she did not wish to accuse Mr C of being dishonest. When pushed she said that she was not saying that the sale was not genuine – just that it was not fair. She accepted that the husband had no ability to borrow and said that she thought he might go into bankruptcy soon. 31.With respect there are many difficulties with the wife’s position. Certainly she did not appear to have thought the ramifications of her application. Was the transfer of shares made for valuable consideration? 32.Mr C has set out the circumstances surrounding the sale of the shares in his affirmations of the 17 April 2009 and the 19 November 2009. This version of events has been confirmed in the husband’s affidavit of the 1 December 2009. Generally speaking I found Mr C’s evidence to be entirely credible. I accept the evidence of both the husband and Mr C in this respect. 33.It was agreed in a series of e-mails exchanged between the husband and Mr C in March 2009 that Mr C would pay
In addition
34.Mr C concluded in his affirmation that
35.The wife seems to suggest that the transfer of shares was not made for valuable consideration and in support of her case on this she has referred to the report provided by her expert – Mr B. 36.There are however difficulties with the reports provided by the two experts. In essence they were asked to do different things and the result is rather like trying to compare apples with oranges.Although attempts were made to narrow the outstanding issues between them, it is clear from their joint statement that significant differences in approach and substance existed as at the date of the trial. Ms Lisa Jane Cruden, counsel for Mr C summarized the situation very succinctly in her closing written submission. In particular
She added
37.I agree. 38.Some time was spent during the trial cross-examining both experts with a view to establishing whether or not the sale was for valuable consideration. Reference was made to the different approach taken by them. Ultimately though it seems to me that the fundamental question is that posed by Ms Irving who asked in her closing – “Where in all of this was the “willing buyer?” 39.MCL is a limited company. In the words of Mr C
40.Sales had dropped significantly. In part this was due to a shift in the toy market from hard toys to plush (or soft) toys. But there were also other difficulties. For example a fault in one product (FP, LPP) had led to a voluntary recall of that product – a product produced by MCL. In addition MCL owed the Dongguan Government over RMB 20 million in arrears of rent. Changes in China’s labour laws had also placed further obligations on the shoulders of MCL directors including the payment of a severance fee for workers who were laid off. 41.It seems to be accepted by all involved that Mr C was the person responsible for running the business. In October 2008 he approached the husband in order to discuss MCL’s problems. A meeting was held. It seems that the situation was dire. Sale revenue’s were predicted to drop 40 – 50% in 2009. Consequently Mr C and the husband agreed a course of action. In the words of Mr C:
The husband also told Mr C in that meeting that he could not afford to reduce the amount that he took from the company. Neither did he have other funds to invest. Both sides were concerned about the all monies debenture. Mr C was clearly at risk if the husband was unable to pay in the event that the loan was called in. It seems that it was at this meeting that the stark reality of the situation became clear. It was then that the parties began to discuss the possibility of Mr C buying the husband out. 42.Initially the husband proposed that Mr C buy his interest in MCL for HK$18,540,000, plus a consultancy fee of HK$50,000 as long as the business was in operation. He agreed to resign as a director and for his name to be removed from the all monies debenture at HSBC. 43.Ultimately a deal was agreed as set out above. This was the most that Mr C could afford
44.It seems to me that the only willing buyer was Mr C and that he paid what he was able to pay. In such circumstances it seems to me that prima facie the shares were sold for valuable consideration – the valuable consideration was one that was agreed between the parties at that time. Does the value of the shares also stand up to professional scrutiny? 45.The parties have referred me to the professional valuations provided by the experts. Mr B originally valued MCL at HK$37 million. After a joint meeting both Mr B and Mr A agreed that the net asset value of MCL as at the 31 March 2009 stood at just over HK$29 million. They further agreed that approximately HK$2.5 million should be deducted as Director and related company expenses. Differences arose in that Mr B did not agree that projected losses or a contingent liability should also be deducted. Thus his revised net asset value of MCL stood at c HK$26,880,000, whereas Mr A’s stood at c HK$16,460,000, once the projected losses and contingent liability has been taken into account. Mr B therefore assessed the husband’s interest in MCL at c HK$13,440,000 whereas Mr A assessed it at c HK$8,300,000. 46.Mr A then went on to assess whether valuable consideration had been paid for the shares. He concluded as follows:
I also accept this to be the case. Did Mr C act in good faith in relation to the purchase of the shares? 47.I accept that Mr C acted in good faith when he purchased the shares. He did what he thought was best for the company and he sought to protect his own interest as best he could in the circumstances. There is no doubt that he considers himself to be a close friend of both the wife and the husband. There was no evidence of collusion between him and the husband. I accept that he paid a fair price for the shares from his own funds and that he had no intention at all of ever attempting to defeat the wife’s claim for ancillary relief. Did Mr C have notice that the husband intended to dispose of the shares with the intention of defeating the wife’s claim? 48.I accept that Mr C had no such notice, because none existed. What was the husband’s intention? Did he intend to transfer the shares with a view to defeating the wife’s claim for ancillary relief? 49.I accept that the husband sold the shares because he did not have any other alternative. He explained that he did not inform the wife of this because she had never been involved in the business and he considered this to be a business decision. He reiterates that he did not do so in order to defeat her claim. I accept that to be the case. However he should have kept the wife fully informed, given the ongoing ancillary relief proceedings and the duty to provide full and frank disclosure on an ongoing basis. He chose not to do so. Conclusion 50.As I said above I am also concerned that the wife has not thought through the ramifications of her application to set aside the transfer. This was pointed out to her during cross-examination. The wife seeks to set aside the transfer of shares, so that they return to the husband and re-vest in him. This would mean, in turn, that the husband would presumably be required to repay Mr C the HK$4 million originally paid to him as consideration for the shares; money that has since been spent. He has no means of raising that sum. Further the subsequent agreement whereby the husband is paid an income would be rendered null and void. Thus neither party would have access to any income at all in the short term. The agreement with HSBC means that MCL is unable to pay its shareholders any dividends – thus no income would be forthcoming from that avenue either. The husband’s case is that the consultancy fee that he receives is part of the remuneration for the company shares. As he no longer works for MCL he would not be entitled to receive any income from the company otherwise. Further the husband would then be liable under the “all monies debenture” at HSBC. If the company failed then HSBC would pursue both Mr C and the husband. In the event that the husband was without funds Mr C would be solely liable for the debt. Thus it seems to me that all parties would be potentially worse off if the wife succeeded in her application. 51.Having considered all the relevant circumstances the wife’s application to set aside the transfer of shares is dismissed. The law Ancillary relief 52.It is generally accepted that prior to determining the issue of ancillary relief, the court is charged with establishing what the matrimonial assets are and the value of those assets. This is clearly set out in DD v LKW (CACV no 91 of 2007). There the Hon Mr. Justice Cheung JA said at para 69 (3) as follows:
53.As referred to above, the Hon Mr Justice Cheung JA identifies the relevant section 7 factors under the headings of need, compensation and sharing. The court shall take into account the s.7 factors when determining an application for ancillary relief. For ease of reference I have set them out again here.
What then are the matrimonial assets and other financial resources owned legally and/or beneficially by the parties? Background to the parties’ finances 54.The difficulty with this case is that once the issue of MCL and the value of the shares falls out of the equation there is very little left to identify and ultimately divide. 55.It is the husband’s case that the parties’ always lived beyond their means and that the only source of income was MCL. He has been able to demonstrate that historically in the parties more recent past, they have lived off credit, accumulated significant debt and then repaid it by some means or other. The parties enjoyed a comfortable ex patriate lifestyle including a large apartment of 2,700 square feet, 2 domestic helpers, club memberships, frequent holidays over seas and part ownership of a number of race horses. The husband has in recent years managed to stay afloat by a variety of means including borrowing and gifts from friends (Mr C gave him HK$2 million), by cashing in his mpf fund, by selling shares and ultimately by selling his 50% interest in MCL. 56.The wife owns nothing in her own name or jointly with the husband or any other third parties apart from a few pieces of jewellery and other items of a personal nature. It is clear though that both sides have had the benefit of this lifestyle and that they have both enjoyed it. 57.As at the 15 April 2009 the husband had just over HK$600,000 in savings. I accept that those funds have now been largely depleted. He holds no stock or any other assets of any value. The sum of HK$311,843 still exists having been injuncted previously. 58.The only other financial resource available to the parties at present is the PK Trust. This is a trust set up by the husband’s father in his will for the children’s education. There was some dispute over the value of this trust during the hearing. The wife was concerned that there were insufficient funds to cover R’s fees and other expenses. The husband said during his examination-in-chief that he understood that there was US$84,000 left in the trust. He added that the figure was not written in stone. He thought there was enough left to pay for R’s education. He estimated that that would cost between US$23,000 – US$24,000 per annum. How then should those assets be divided, bearing in mind the principles of need, compensation and sharing and the s.7 factors? How much maintenance should the husband pay the wife? a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future; 59.As from 1 February 2010 the husband will receive HK$50,000 per month from MCL. All other benefits including payment of his rental and utilities will cease. He will continue to receive this amount until 2013 when the situation will be reviewed. He will need to pay tax on this sum. Ms Irving estimated that he would be required to pay in the region of HK$53,280 for tax next year – or HK$4,440 per month. In round figures his net income will be in the region of HK$45,500 per month. 60.It seems to have been acknowledged during the trial that the husband has not played a significant role in the running of MCL for quite some time. It is not clear exactly how he spends his days, given that he is not working and can no longer afford to play golf or indulge his other hobbies. What is clear is that he will need to find some form of gainful employment – and fast. He said during his cross-examination that he was applying for jobs. It is not clear what earning capacity he realistically has given that he has only ever worked for MCL. 61.The wife likewise said that she was looking for a job. She has never worked outside the home. She did not go to college. She has no qualifications. Just as with the husband it seems to me that the wife will also need to find some form of gainful employment – and again she will need to do so quickly. 62.Little was said of the husband’s new wife during the trial or of her own earning capacity. In the husband’s first affidavit he said that when he met C she was working as a hair stylist and that she was opening a salon of her own. Later he said that she had applied for an investment visa in Hong Kong and that she intended to be involved with a business selling beauty products. He confirmed that C would have her own income. In his last affidavit of the 27 November 2009 he said that C had started an e-commerce business selling fresh cut fruit bouquets and that she draws HK$14,000 per month. Apparently C is involved in her own litigation concerning financial support for her daughter from the daughter’s natural Father. Likewise it seems to me that C will need to do all that she can to maximize her own earning capacity and that she will need to do so quickly. Need (b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future; 63.Both parties have significant financial needs based in part on their previous lifestyle. It is clear that those needs in their present form cannot be maintained and that both sides will need to cut their expenses considerably. Both have an obligation towards R who is in his second year of college. Fortunately R is assisted by the PK trust. The wife said that he was also working part time. It seems to me that it may continue to be necessary for R to also work to pay for his own pocket money and to support himself as far as he is able over and above the financial support that is provided by the trust. (c) the standard of living enjoyed by the family before the breakdown of the marriage; 64.One of the difficulties with this case is that the parties have maintained a high standard of living throughout the marriage. Given the financial circumstances here it will no longer be possible for the parties to maintain that standard of living – or indeed anything close to that standard of living going forward. To an extent this would have happened even if the parties had not separated. It has however been made worse by the litigation process itself and the need to support two households with a dwindling amount of money available to provide for those households. Initially the husband paid the wife interim maintenance of HK$50,000 per month. This was increased to HK$70,000 per month as at 1 June 2009. Ms Irving has calculated that the wife has received the sum of just under HK$2 million since relocating to California in July 2008. (d) the age of each party to the marriage; 65.The wife is 48 years old and the husband 55. (e) any physical or mental disability of either of the parties to the marriage; 66.The husband produced a psychiatrist report. He is said to be suffering from an adjustment disorder with anxiety and depression. Compensation 67.This was not argued. Sharing (f) the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family; 68.I accept that both parties contributed fully to the welfare of the family, in their respective roles – the wife as Mother and homemaker and the husband as the financial provider. (e) the duration of the marriage; 69.This was a fairly long marriage of some 23 years. Orders 70.Given the circumstances here what would be the appropriate order to make for capital and maintenance? The husband offers the wife HK$311,843 plus HK$15,000 per month on the basis that it is all that he can afford. In the words of Ms Irving
71.That is true – given though that both are in an equally difficult situation I can see no basis for not awarding the wife anything less than 50% of the husband’s current net income. Thus the husband will pay the wife periodical payments of HK$22,750 per month commencing on the 1 February 2010 until further order. 72.In so far as a lump sum is concerned the husband offers the wife what he now has – i.e. HK$311,843. An order will be made that the husband pays the wife a lump sum of HK$311,843 in full and final settlement of her claims for capital ancillary relief. How should the issue of costs be determined? 73.The litigation conduct of both sides has been called into question in these proceedings. On the wife’s side her refusal or inability to negotiate or to attend the FDR hearing and on the husband’s his non-disclosure of the sale of the shares until after the event. I accept what Ms Irving says
I agree. 74.Similarly I am also of the view that the husband did have a duty to make full and frank disclosure on a continual basis. He must have known that the sale of the shares, although understandable from his perspective, was likely to arouse suspicion and concern. His behaviour in this respect is also regrettable. 75.When asked the wife said that her legal costs were paid up to date. She said that she had paid US$130,492.74 – or HK$1,017,843. The husband’s costs stood at approximately HK$1,350,000. Of that approximately HK$800,000 has already been paid. In the circumstances, given the litigation conduct of both sides I intend to make an order nisi that there be no order as to costs to be made absolute at the expiration of 14 days.
The Petitioner acted in person Ms. Frances Irving instructed by Messrs Hampton Winter & Glynn for the Respondent Ms Liza Jane Cruden instructed by Messrs Richards Butler for the Intervener |
Cases cited in this judgment