Arav v. Vp, Lj

CACV 246/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 246 OF 2010

(ON APPEAL FROM FCMC NO. 3230 OF 2007)

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BETWEEN

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Before: Hon Tang Acting CJHC, Cheung and Fok JJA in Court

Date of Hearing: 31 May 2011

Date of Handing Down Judgment: 16 June 2011

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J U D G M E N T

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Hon Tang Acting CJHC:

1.I agree fully with Fok JA’s judgment which I have had the advantage of reading in draft.

Hon Cheung JA:

2.I agree with the judgment of Fok JA.  I would like to add the following views of my own.

60/40 division (approximate)

3.H H Judge Melloy found that the total assets of the parties were about HK$65 million.  She ordered an approximate 60/40 division between the wife and the husband with the result the wife received $40 million and the husband $25 million.

Misconduct

4.The wife argued that the division is incorrect because of the misconduct of the husband and HK$32.5 million frittered away by the husband should be added back to the total assets.

5.Section 7(1) of the Matrimonial Proceedings Property Ordinance (‘MPPO’) (Cap. 192) expressly provides that the exercise of the Court’s power in relation to financial provisions, is to have regard to the conduct of the parties and the circumstances of the case.

6.In LKW v. DD [2010] 6 HKC 528 the Court of Final Appeal (per Ribeiro PJ) held that

‘  104.  Conduct, or more accurately, negative conduct, is therefore only to be regarded as a material factor if it is ‘obvious and gross’ in the sense explained in Wachtel v Wachtel or, which comes to the same thing, if it is such that it would in the opinion of the court be inequitable to disregard it.’

7.The conduct may be in many forms.  The wife relied on financial misconduct of the husband.  If conduct (which must be obvious and gross or inequitable to disregard) is one of the factors to be taken into account, then obviously the Court is not handstrung in the precise way in which it will recognize this factor.  Where the misconduct involves the wastage of the matrimonial assets, one way is to order the wasted funds to be added back to the joint assets before the Court makes the distribution : Rayden & Jackson on Divorce and Family Matters (18^th Ed), paragraph 16.54 and Norris v. Norris [2003] 2 FCR 245.  However, in my view, that is not the only way to give recognition to misconduct.  Another approach which is consistent with the Court’s power to achieve what is fair to the parties is to depart from the yardstick of equal division and equal sharing principle as explained by Ribeiro PJ in LKW at para 58 – 61.

8.This is what the Judge had done in the present case.  She awarded the wife a higher amount than the husband.  She found that there was misconduct in the husband setting up the new company behind the wife’s back.  Although she did not expressly say so, there must also be misconduct by the husband in not giving the wife any shares in the new company.  However, reading the judgment as a whole, the Judge obviously did not find that there was frittering away of the family assets or of reckless overspending by the husband.  The new company was used to carry out the trading activities of the family business.  Initially my concern was whether the approximate 10% adjustment was too low.  However, having considered all the circumstances of the case, I do not consider that the Judge was plainly wrong when she adopted that adjustment.

Separate Finance

9.The wife contended that the parties maintained separate finance during the marriage and the matrimonial home and a property known as Sorrento belonged to her exclusively and should not be included as part of the matrimonial assets to be divided between the parties.

10.The evidence of the case does not support a finding of separate finance of the parties.  Even if, for the sake of argument, such is the case, the matrimonial home although registered in the sole name of wife was still a matrimonial asset.  The parties’ matrimonial home, even if this was brought into the marriage at the outset by one of the parties, usually has a central place in any marriage.  So it should normally be treated as matrimonial property for this purpose.  In principle the entitlement of each party to a share of the matrimonial property is the same however long or short the marriage may have been, per Lord Nicholls of Birkenhead in Miller v. Miller and McFarlane v. McFarlane [2006] 2 WLR 1283 at paragraph 22. Baroness Hale of Richmond likewise agreed at paragraph 147.  She stated that the prime example of family assets of a capital nature were the family homes and its contents.  This approach is expressly affirmed in LKW at paragraph 98.  In this case the parties had been living in the matrimonial home for more than ten years of their marriage.   The fact that the family company Bloomville Trading paid rent to the wife for the use of that property must be due to tax saving consideration than a recognition that the property belongs solely to the wife.

11.As for the Sorrento property which was first acquired by Bloomville in 2003 and later transferred to the wife in June 2004, even Baroness Hale who in Miller drew a distinction between ‘family assets’ and ‘non family assets’, such as business or investment assets not generated by the joint efforts of the parties, recognized the impact of the length of a marriage on these two types of properties.  In respect of the latter category of assets she said at paragraph152 that,

‘If the assets are not “family assets”, or not generated by the joint efforts of the parties, then the duration of the marriage may justify a departure from the yardstick of equality of division.’

12.This means the departure will occur in short rather than long marriages.  This recognition is to give effect to one of the factors identified in the equivalent of section 7(1)(d) of MPPO, namely ‘the duration of the marriage’.

13.Lord Nicholls at paragraph 20 was disinclined to draw a distinction between ‘family’ assets and ‘business or investment assets’.  He held that the nature and source of the parties’ properties are matter to be taken into account when determining the requirements of fairness.

14.Ribeiro PJ observed in LKW under the heading of ‘Unilateral Assets’ that,

‘ 97. The difference of opinion is relatively narrow as it only relates to cases where the marriage is of short duration. The merits of the competing views are open to debate and it is not necessary to reach a firm conclusion in this judgment. I will content myself with saying that I am tentatively inclined to prefer Lord Nicholls’s approach as being simpler to operate and as avoiding the possible re-introduction of a discriminatory element into the exercise.’

15.In the present case the parties were married for 27 years from 1980 to 2007 and they had lived together for at least 24 years before they became separated.  This was a long marriage and in my view, the Sorrento property was rightly included as part of the family assets.

Hon Fok JA:

Introduction

16.In her Judgment dated 7 May 2010 in ancillary relief proceedings, Her Honour Judge Melloy found that there was a matrimonial pot worth approximately HK$65 million.  The Judge departed from the yardstick of equality and made an order that the respondent wife should retain HK$40 million and the petitioner husband should receive the remaining HK$25 million, giving the wife just over 60% and the husband just under 40% of that matrimonial pot.

17.The wife appeals against the Judgment below pursuant to leave of this Court (Rogers VP and Le Pichon JA) granted on 9 November 2010.

18.In this appeal, in broad terms, the wife contends, first, that a sum of HK$32.5 million should be added back into the matrimonial pot to reflect financial misconduct on the part of the husband and, secondly, that separate properties of the wife and the husband ought to be excluded from distribution or sharing altogether or should not be subject to equal sharing.

The facts

19.The relevant background facts, taken from the Judgment, can be briefly stated.

(a)  The Parties

20.The husband is French and the wife is Taiwanese.  They were married on 31 May 1980 and separated sometime between 2004 and 2006.  The husband relocated to Vietnam following the collapse of the family business. On 20 February 2007, the husband issued a divorce petition based on two years’ separation.  A decree absolute was pronounced on 29 November 2007.  As the Judge observed, this was, by any calculation, a long marriage.

21.At the time of the hearing below, the husband was aged 61 and the wife was aged 59.  There are two children of the marriage, a daughter and a son, both of whom are self-supporting.  The husband was involved in the garment trade throughout the marriage.  The wife worked prior to the marriage and then concentrated on raising the children when they were small.  In late 1980, the couple relocated to Hong Kong because of the husband’s work and lived here until the husband’s relocation in October 2004.  The wife continues to live in Hong Kong.  Since his relocation to Vietnam, the husband has been based there and works for a company called Elegant Team Development Limited.

(b)  The businesses

22.In 1981 the couple set up a company called Great Sales Limited, in which each of them was a shareholder and director.  They set up a second company in 1983 called Bloomville Trading (“Bloomville”) of which each of them was and is a director and shareholder.  Bloomville’s business was to act as an agent for customers dealing with garment manufacturers charging on a commission basis.  In 1986 the wife started to work within the business as a quality controller.  Each of the husband and wife drew a salary of HK$50,000 per month from the company and they each shared the only declared dividend equally.  As many household and family expenses as possible were run through Bloomville’s books.

23.In order to exploit opportunities to deal directly with certain customers as principals rather than as agents, the couple also established Sports Fashion Limited (“Sports Fashion”) to deal with a German customer, Ahlers AG, and Great Sales Limited to deal with a Swiss customer, Spengler AG.

24.The husband also established a company in Germany called Fashion Concept International GmbH (“Fashion Concept”) with those two customers, of which the husband was the 80% majority shareholder.  The wife maintained, and the Judge found, that she knew nothing about this company prior to discovery in these proceedings.

25.For the wife’s part, she was an investor in Perfect Coins Limited between 1988 and 1995.  In 1998, the wife began to manage the modelling career of the couple’s daughter and eventually, in 2003, Team Sky Limited was set up for this purpose.  After a falling out in 2006, the daughter set up her own company and, since that time, the wife has not worked.

(c)  The properties

26.After initially living in rented accommodation in Hong Kong, the couple purchased a property in Cavendish Heights in 1988 as their matrimonial home.  The property was held in the name of Bloomville.  It was sold in November 1991 after which Bloomville declared a dividend of HK$5 million from the sale proceeds.  In July 1992, the husband and wife each received a dividend of HK$2.5 million.

27.In July 1991, a property was purchased in Moorsom Road, Jardine’s Lookout in the name of the wife only for HK$6 million and became the matrimonial home.  The couple lived there initially with their children and then thereafter together until their separation.  The wife continues to reside there.  Bloomville paid rent to the wife for the property in the sum of US$10,000 per month until the collapse of that company in 2004.

28.In 1993, Bloomville purchased a commercial unit in Wing On Plaza for approximately HK$28.6 million.  The wife maintains that she lent the husband HK$5 million towards the purchase.  The mortgage was paid off from income from the companies.  In November 2004, this property was sold for approximately HK$34 million to help pay off business debts.

29.In 2003, Bloomville also purchased a further property in a development called Sorrento, in Kowloon, for just under HK$5 million.  On 3 June 2004, this property was transferred into the wife’s sole name for just over the purchase price.  It appears that the transfer into the wife’s name was effected in order to satisfy a director’s loan made by her to Bloomville.

(d)  Financial difficulties

30.In 2004, the business ran into serious financial difficulties.  It is the wife’s case that this was due to the husband extracting a total of HK$32.5 million and transferring those monies to Fashion Concept.  The husband maintains that the change in the fortunes of the business was due to the decision by each of Ahlers AG and Spengler AG deciding, for different reasons, that they no longer needed to do business with Sports Fashion and Great Sales respectively.

31.On 5 December 2004, Bloomville paid the sum of HK$10.4 million to the wife, in satisfaction of most of what was due to her from the various Hong Kong companies.

The Judge’s treatment of the HK$32.5 million

32.As noted above, the first issue raised by the wife on this appeal is the treatment of the HK$32.5 million which the husband caused to be transferred to Fashion Concept.

33.In paragraph 86 of the Judgment, the Judge set out the following schedule of assets available for distribution:

“Wife’s assets

a)  Net value of the matrimonial home (Moorsom Road)	23,109,051
b)  Sorrento (HK flat)	12,300,000
c)  Bank accounts	6,473,572
d)  Securities	21,069,978
e)  Personal items	10,000
f)  Pension	133,201*
Sub total	HK$63,095,802
Less liabilities	43,918
Sub total	HK$63,051,884

Husband’s assets

g)  French Property	1,244,320
h)  Bank accounts	234,637
i)  Bloomville France	205,000
j)  Pension	393,545*
Sub total	HK$2,077,502
TOTAL	HK$65,129,386”

34.In reaching her finding in this regard, the Judge declined to add back the sum of HK$32.5 million into the pot of matrimonial assets.

35.In respect of the HK$32.5 million, the Judge accepted the evidence of the in-house accountant for Bloomville Trading and Sports Fashion, Mr Paul Wan, who confirmed that the husband controlled the transfer of the funds from the Hong Kong companies to Fashion Concept.  The sum of HK$32.5 million was an aggregate sum representing loans made to Fashion Concept to operate its business as well as outstanding commissions and monies due for unpaid goods.

36.The Judge accepted that the wife did not know that the husband had transferred these sums out of the Hong Kong companies and that this seemed “rather underhand”.  She held (Judgment §41):

“… All in all I am satisfied that she was not informed of this by the husband and that this had been a deliberate ploy on his part. Likewise I accept that she had not been informed of the husband’s involvement with the German company until she found out through the discovery process.”

37.However, notwithstanding that she considered the husband had been “reticent and difficult” with regard to his duty to make full and frank disclosure about the German company, the Judge declined to infer that the husband had access to these funds.  She held it was unlikely that the husband would be able to recover the monies and, to put the matter beyond dispute, accepted an undertaking from the husband dated 30 March 2010 (the last day of the trial) in the following terms:

“I, [ARAV] of … Hanoi, Vietnam acknowledge that the total sum of Euro4,010,235.55 recorded in the financial statements of Fashion Concept GmbH for the year 2003, of which Euro1,716,085.04 owing to Sports Fashion Limited and Euro2,294,150.51 owning to me, is in fact due to Sports Fashion Limited. I hereby undertake to the Court and the Respondent that in the event that I receive any part of the said outstanding indebtedness, I will immediately inform the Respondent and shall hold the same for the benefit of Fashion Limited and account to Sports Fashion and/her the Respondent for any such payments.”

38.At paragraph 58 of the Judgment, the Judge held:

“It seems to me that this undertaking effectively deals with any residual concerns that the wife might have in this respect. All in all, given the above, I am satisfied that the HK$32.5 million should not form part of the matrimonial pot available for distribution between the parties. In the unlikely event that the husband receives any funds in this regard, his undertaking should be sufficient guarantee to the wife. Consequently I will expect the undertaking to form part of the court order.”

39.However, the Judge noted (Judgment §61) that she would refer to the issue of the HK$32.5 million again when dealing with “conduct”.

40.At paragraph 107 of the Judgment, the Judge set out the following passage from §16.08 of Rayden and Jackson on Divorce and Family Matters (18^th Ed.):

“If one or both of the parties have by their dealings with the assets enjoyed by the family severely depreciated or destroyed those assets, this is a matter to which the court might properly have regard… in the award that is made. It might be appropriate to add back the value of the asset lost or diminished in value to the balance sheet of the defaulter’s assets.” [Emphasis added]

41.The crucial paragraph of her Judgment is paragraph 111 where the Judge held:

“Do I accept then that this was simply a punt that failed? The difficulty with this argument is that it does not take into account the secretive and underhand way in which the husband conducted these business dealings, at a time when the wife was lending funds to the business and acting as a personal guarantor. It seems to me that his behaviour goes beyond a mere business dealing that has failed. I am also conscious of the fact that he has been very reticent when providing proper disclosure to the wife in this respect. It seems to me that given those particular aspects that the husband’s behaviour is something that I should quite rightly take into account when considering a division of assets, but not to the extent sought by the wife.”

42.As noted above, the Judge declined to add back the HK$32.5 million into the matrimonial assets.  At paragraph 114 of the Judgment, the Judge said:

“There is a matrimonial pot worth approximately HK$65 million. The wife has lost some monies as a result of the financial crises. This sum will not be added in or otherwise taken into account. Likewise the balance of the mortgage will not be added back in or otherwise taken into account. In so far as the HK$32.5 million is concerned, this too will not be added back into the pot. I accept that those funds are unlikely to be retrievable. In the event that any funds are forthcoming, the husband will be bound by his undertaking as set out above.”

43.Instead, she took the husband’s conduct in respect of that sum into account when arriving at a division of the pot of assets.  At paragraph 116 of the Judgment, she held:

“In this case I will depart from the yardstick of equality and in broad terms I will make an order that the wife is to retain HK$40 million and the husband shall receive the remaining HK$25 million. In percentage terms the wife will retain just over 60% of the matrimonial pot and the husband will receive just under 40%.”

44.And at paragraph 119 of the Judgment, the Judge explained that, in arriving at the division of assets, she had:

“… also taken into account the husband’s conduct in so far as it relates to the HK$32.5 million.”

Was the Judge wrong in her treatment of the HK$32.5 million?

45.The first question is whether the Judge’s exercise of discretion in the ancillary relief proceedings was vitiated by her failure to re-attribute (or add back) the HK$32.5 million transferred to Fashion Concepts.

46.Mr Russell Coleman SC, leading counsel for the wife, submitted that, in the light of the Judge’s findings as to the husband’s misconduct, which she described as “underhand” and a “deliberate ploy”, the HK$32.5 million should have been added back into the matrimonial pot and that the Judge’s failure to do so was an error of law which vitiated her exercise of discretion in the division of the matrimonial assets.

47.In support of this submission, Mr Coleman referred to the fact that the Judge rejected the husband’s case that “this was simply a punt that failed” and held that this was “beyond a mere business dealing that has failed”.  He identified the factors of financial misconduct, which he described in his skeleton as being “of the worse kind”, as three-fold: (1) the secretive transfers of funds to the German company; (2) the setting up of a company in which the wife did not have an interest; and (3) the transfers out of funds from a company in which the wife did have an interest.

48.Reliance was placed on passages in Martin v Martin [1976] Fam 335, Beach v Beach [1995] 2 FCR 526 and Norris v Norris [2003] 2 FCR 245.

49.In Martin, Cairns LJ held at p. 342G-H:

“Such conduct must be taken into account because a spouse cannot be allowed to fritter away the assets by extravagant living or reckless speculation and then to claim as great a share of what was left as he would have been entitled to if he had behaved reasonably.”

And at p. 344D, he said:

“It is wrong to have regard only to the asset which now exists and to disregard those that have gone and of which the husband has had the benefit.”

50.Mr Coleman submitted that the relevant questions to ask were those posed by Thorpe J (as he then was) in Beach at p. 535G, namely:

“So the crux of the case is really the responsibility for the present near destitution of the husband. How has this come about? Who is responsible for this state of affairs? Is it the product of the husband’s misconduct?”

51.In Norris, in respect of whether overspending by the husband should be reflected by an add back into the matrimonial pot, Bennett J held (at §77):

“The overspend, ie the expenditure over income of £350,000 in a little over two years, at a time when he was about to and then did enter into protracted litigation with the wife, can only be classified as reckless, and particularly at a time later on when the dot.com and the stock market collapsed. A modest overspend in the context of a rich man would be understandable and could not be classified as reckless. But in the circumstances of this case, as I have set them out, in my judgment the scale and extent of the overspend was reckless. I do not think it appropriate to add back the entire overspend, but I do not consider it unfair to add back into the husband’s assets the figure of £250,000. In my judgment there is no answer that the husband can sensibly give to the question, ‘Why should the wife be disadvantaged in the split of the assets by the husband’s reckless expenditure?’ A spouse can, of course, spend his or her money as he or she chooses, but it is only fair to add back in to that spouse’s assets the amount by which he or she recklessly depletes the assets and thus potentially disadvantages the other spouse within ancillary relief proceedings.”

52.At first blush, the Judge’s comment in paragraph 111 of the Judgment to the effect that she did not accept the husband’s loss of the HK$32.5 million was “simply a punt that failed” would appear to suggest that she was of the view that the loss was not an instance of “an entrepreneur taking a calculated risk with his investment strategy” but rather was the result of “deliberate and reckless conduct”, this being the distinction drawn in Rayden and Jackson (supra) at §16.54.

53.It is clear that, where a spouse has frittered away assets due to his or her extravagance or reckless speculation, the court can take this into account in ancillary relief proceedings by notionally re-attributing (or adding back) the value of the assets so squandered to that spouse’s side of the list of matrimonial assets.  By doing so, the reckless spouse is deemed still to have those assets and, depending on the division of assets, to share them with the other spouse.

54.Martin and Norris referred to above are instances of the court doing so.  Similarly, in C v C [1990] 2 HKLR 183, a proportion of the wife’s gambling and futures speculation was added back to the assets to be divided between the parties to redress the wife’s financial irresponsibility.

55.It is important, however, to recognise that misconduct that may constitute a factor for a judge to take into account in proceedings for financial relief under s. 7 of the Matrimonial Proceedings and Property Ordinance, Cap. 192, can be constituted by acts which cover a wide spectrum of behaviour.  The characterisation of particular behaviour as amounting to reckless financial conduct will be highly fact sensitive and depend on the judge’s view of the evidence.

56.Thus, in Martin, Cairns LJ considered the husband’s use of a false name, concealment and lack of documentation of his property dealings justified the judge drawing unfavourable inferences (p. 343D).  He regarded the evidence as justifying the conclusion:

“… that he was entering into a transaction on a scale which was far beyond his own resources and which he could only finance by putting in jeopardy money which the wife was entitled to share.” (p. 343F).

57.In Norris, the husband’s conduct leading to the add back was in the nature of extravagant overspending on jewellery for his mistress, a Ferrari motor car and expensive holidays.  And in C v C, as noted above, the financial irresponsibility consisted of gambling and futures speculation.

58.It does not therefore follow that there is a unitary concept of misconduct that inexorably leads to the conclusion that expenditure made by a spouse guilty of any type of misconduct must inevitably be added back to the pot of assets for the purposes of ancillary relief proceedings.  Moreover, in Vaughan v Vaughan [2007] 3 FCR 533 at §14, Wilson LJ (as he then was) noted that the re-attribution of assets by way of add back:

“… has to be conducted very cautiously, by reference only to clear evidence of dissipation (in which there is a wanton element) …”.

59.Further, it is not the case, in my opinion, that a finding of misconduct on the part of a spouse must inevitably lead to a re-attribution of assets.  In M v M [2006] 2 FLR 1253, for example, the judge found the husband had been guilty of compulsive gambling and channelling funds to his new partner.  However, instead of adding back the monies spent, the judge took the husband’s conduct into account in arriving at a division of the proceeds of the couple’s joint assets: see §96(d).

60.Therefore, as I have endeavoured to demonstrate, the Judge was not faced with the stark choice of finding that the husband was guilty of financial misconduct so that the HK$32.5 million must be added back to the matrimonial pot, on the one hand, or on the other, absolving him from responsibility for simply having had the misfortune of having taken a calculated risk which did not succeed.

61.I do not therefore accept the wife’s argument that the Judge’s exercise of discretion was vitiated by error of law in that, having found misconduct, she erred in inevitably not having added back the HK$32.5 million.  Section 7 of the Ordinance confers a very broad discretion on judges dealing with financial provision in divorce proceedings: LKW v DD [2010] 6 HKC 528 at §48.  In my opinion, it was open to the Judge to decline to add back the HK$32.5 million and to decide to take the husband’s conduct relating to that sum into account at the stage of determining the parties’ respective proportions of the matrimonial assets. This is what the Judge indicated she would do (Judgment §111) and what she ultimately did (Judgment §119).

62.Mr Coleman also submitted that the Judge’s exercise of discretion in respect of the HK$32.5 million was also vitiated in law by her linking of the irretrievability of the HK$32.5 million with her decision not to add back that sum into the matrimonial pot.  He referred to the part of paragraph 114 of the Judgment where the Judge said:

“In so far as the HK$32.5 million is concerned, this too will not be added back into the pot. I accept that those funds are unlikely to be retrievable. In the event that any funds are forthcoming, the husband will be bound by his undertaking as set out above.”

63.If the Judge had proceeded on the basis that the HK$32.5 million could only be added back in the event it was retrievable, I would accept that would have been wrong in law since it is clear that re-attribution or adding back does not depend on the availability of the assets extracted and may be done on a notional basis.

64.However, I do not think that the Judge made the error attributed to her.  She addressed the issue of retrievability because the wife had expressly asked her to infer that the husband had access to the funds (Judgment §50).  That the Judge declined to do so (Judgment §57) but she noted that, to allay the wife’s concerns, the husband’s undertaking dealt with any residual concerns the wife might have.  All she was doing in paragraph 114 of her Judgment, in my opinion, was confirming her refusal to draw the inference that the husband had access to the HK$32.5 million and repeating the point that the wife had the benefit of the undertaking in the unlikely event the funds were recovered.  She was not stating these two matters as the reasons for declining to exercise her discretion to re-attribute that sum to the pot of matrimonial of assets.

65.The wife having failed, in my opinion, to show that the Judge’s exercise of discretion was vitiated by error of law, it falls to consider whether the Judge’s exercise of discretion in apportioning the assets in the ratio of 60:40 in favour of the wife was, in the light of the husband’s conduct in relation to the HK$32.5 million, plainly wrong so that this court should interfere.

66.In this regard, the threshold for the wife is a high one and deference must be given to the trial judge: see Piglowska v Piglowski [1999] 1 WLR 1360 at p. 1372.  This is particularly so in the case of ancillary relief proceedings where the appellate court must be willing to permit a degree of pluralism: see ibid. at p. 1373A-D.

67.It is, of course, true that the sum of HK$32.5 million is a significant sum and, if taken into account, would form a large proportion (approximately 30%) of the total matrimonial assets given the available assets totalling HK$65,129,386 found by the Judge.  For this reason, it is right to consider whether the 10% differential in the Judge’s division of assets between the husband and wife is an appropriate reflection of the husband’s conduct.

68.Returning to the facts of the instant case, the husband’s expenditure of the HK$32.5 million, whilst involving misconduct in the sense of deliberate concealment, was, in my view, not essentially in the nature of an exercise of extravagant and reckless dissipation of assets or involving a wanton element.

69.The genesis of Fashion Concept was the demise of Sports Fashion’s main customer in Germany in 1999.  This is reflected in the figures for Bloomville’s turnover which fell from HK$10.9 million in 1998 to HK$5.2 million in 1999 and for Sports Fashion’s turnover which fell from HK$57 million in 1998 to HK$49 million in 1999.  The husband decided to replicate Sports Fashion’s main customer through the vehicle of Fashion Concept.

70.It would appear that the scheme was initially successful in that Sports Fashion’s turnover for 2000 rose to HK$106 million.  Unfortunately, it appears that the expenses of Fashion Concept were increasing at a faster rate.  The coincidental withdrawal of the business of Ahlers AG and Spengler AG led to the financial crisis which precipitated the failure of the family trading companies.

71.At this time, the Sorrento property was transferred into the wife’s name.  To meet the family companies’ indebtedness, monies were raised by the sale of Bloomville’s property in Wing On Plaza and the realisation of insurance policies by the husband.  Repayments were made to creditors and this included a debt of HK$10.4 million repaid to the wife by Bloomville.  The Judge clearly thought the husband’s steps to ensure the wife was repaid most of what was due to her from the Hong Kong companies was to his credit (Judgment §23).

72.The sum of HK$32.5 million transferred to Fashion Concept was not a single transfer of funds.  It was instead made up of loans to Fashion Concept, trade debts and outstanding commissions.  To the extent that the transactions giving rise to the trade debts and outstanding commissions would have been profitable, the profit would have gone back to the family companies to be shared equally by the husband and wife.

73.Mr Paul Shieh SC, leading counsel for the husband, demonstrated, with reference to the balance sheet of Fashion Concept, that the HK$32.5 million was the equivalent of EUR4,090,235.55 (@HK$7.94:EUR1) which was made up of EUR2,374,150.51 million owed by Fashion Concept to Sport Fashion (although incorrectly recorded as being owed to the husband) and EUR1,716,085.04 owed to trade creditors.  Thus, approximately 58% of the HK$32.5 million was constituted by loans to Fashion Concept and 42% was constituted by trade debts and unpaid commissions.

74.If one were to apply the percentage (58%) reflecting the loan portion of the HK$32.5 million, i.e. $18.8 million, and notionally to add that back into the HK$65.1 million matrimonial assets, the total would be approximately HK$84 million.  Applying then a 50:50 division of the assets would result in each of the husband and wife receiving approximately HK$42 million.

75.In these circumstances, it can be seen that the Judge’s apportionment of the assets in the proportions of 60:40 to the husband and wife respectively, producing HK$40 million for the wife, is not obviously out of line with the exercise in the preceding paragraph (which is predicated on a partial add back).

76.Furthermore, it should also not be overlooked that the Judge’s apportionment of 60:40 was arrived at in circumstances in which, having regard to the wife’s having taken out a mortgage over the matrimonial home at a time when she was avoiding service of the divorce petition and her subsequent investment losses of HK$12 million of the funds so raised, she found (§113):

“… both parties behaviour at times to be questionable and probably indicative of the unfortunate way in which they chose to conduct this litigation.”

And it can also be assumed that the Judge took the husband’s conduct in relation to the HK$32.5 million into account in ordering that there be no order as to costs of the proceedings before her.

77.The Judge, who is an experienced family judge, received the evidence of the husband and wife at first hand and gave a full and careful judgment.  At the end of the day, I am satisfied that her exercise of discretion in arriving at the apportionment is not one which this court can or should interfere with on appeal.

78.Further, as Ribeiro PJ held in LKW v DD (supra), one of the principles which the courts are obliged to apply when considering an application under section 7 is that the court should not countenance any attempt to engage in costly and often futile retrospective investigations of the failed marriage which tend to deplete the parties’ (and the courts’) resources and to increase antagonism and discourage settlement (§62).

79.Ribeiro PJ noted (at §69) the essence of that (fourth) principle is reflected in Thorpe LJ’s comment in Parra v Parra [2003] 1 FLR 942 at §22, namely:

“... the outcome of ancillary relief cases depends upon the exercise of a singularly broad judgment that obviates the need for the investigation of minute detail and equally the need to make findings on minor issues in dispute. The judicial task is very different from the task of the judge in the civil justice system whose obligation is to make findings on all issues in dispute relevant to outcome. The quasi-inquisitorial role of the judge in ancillary relief litigation obliges him to investigate issues which he considers relevant to outcome even if not advanced by either party. Equally he is not bound to adopt a conclusion upon which the parties have agreed. But this independence must be matched by an obligation to eschew over-elaboration and to endeavour to paint the canvas of his judgment with a broad brush rather than with a fine sable. Judgments in this field need to be simple in structure and simply explained.”

80.This obligation to endeavour to paint with a broad brush is a further reason not to interfere with the Judge’s exercise of discretion in the present case.

Separate finances

81.The issue here is whether the financial arrangements between the parties during the marriage was such as to give rise to an agreement that upon divorce each party should retain such assets that he or she was respectively left with.  The wife contends that they should.

82.As regards the facts for this argument, Mr Coleman referred to the Judge’s comments at paragraph 6 of the Judgment, namely:

“One of the enduring features of this case is what might be termed the distinctly separate nature of the parties’ financial relationship. Although husband and wife, the parties seemed to have largely conduct their financial affairs on an arms length basis. It also appears that differences in approach towards financial matters caused significant friction within the relationship.”

83.He also referred to paragraph 18 of the Judgment, where the Judge said:

“Another point of interest is that it appears to be common ground that the wife acted as the “banker” for the family business, lending money on a commercial basis, to ease cash flow difficulties from time to time. It was put to her during cross-examination that she received a significant amount of money from the companies because of these arrangements. This does not appear to be disputed. Again it appears that the husband agreed to this.”

84.Next, he referred to paragraph 103 of the Judgment, where the Judge found:

“It is accepted that the party’s conducted their financial relationship largely on a commercial basis and at arms length. This was by agreement. Similarly the wife’s financial relationship with R when managing her modelling career had a distinctly commercial flavour.”

85.Mr Coleman submitted that the Judge was wrong when she then held:

“104.  I do not accept that as a valid reason for departing from the yardstick of equality.

105.  Counsel for the husband submits that the proposition is misconceived. I agree.”

86.This was, he submitted, to “go directly and unthinkingly to a 50/50 award” and was “a mechanistic misapplication of the principles” (per Ribeiro PJ in LKW v DD (supra) at §45) and was therefore wrong in law.

87.In support of the wife’s contentions on this issue, Mr Coleman relied on the speech of Baroness Hale of Richmond in Miller v Miller and McFarlane v McFarlane [2006] 2 AC 618 at §§150-153 supporting a concept of unilateral assets which ought not to be subject to the sharing principle upon divorce:

“150. More difficult are business or investment assets which have been generated solely or mainly by the efforts of one party. The other party has often made some contribution to the business, at least in its early days, and has continued with her agreed contribution to the welfare of the family (as did Mrs Cowan). But in these non-business-partnership, non-family asset cases, the bulk of the property has been generated by one party. Does this provide a reason for departing from the yardstick of equality? On the one hand is the view, already expressed, that commercial and domestic contributions are intrinsically incommensurable. It is easy to count the money or property which one has acquired. It is impossible to count the value which the other has added to their lives together. One is counted in money or money's worth. The other is counted in domestic comfort and happiness. If the law is to avoid discrimination between the gender roles, it should regard all the assets generated in either way during the marriage as family assets to be divided equally between them unless some other good reason is shown to do otherwise.

151. On the other hand is the view that this is unrealistic. We do not yet have a system of community of property, whether full or deferred. Even modest legislative steps towards this have been strenuously resisted. Ownership and contributions still feature in divorcing couples' own perceptions of a fair result, some drawing a distinction between the home and joint savings accounts, on the one hand, and pensions, individual savings and debts, on the other (Settling Up, para 128 earlier, chapter 5). Some of these are not family assets in the way that the home, its contents and the family savings are family assets. Their value may well be speculative or their possession risky. It is not suggested that the domestic partner should share in the risks or potential liabilities, a problem which bedevils many community of property regimes and can give domestic contributions a negative value. It simply cannot be demonstrated that the domestic contribution, important though it has been to the welfare and happiness of the family as a whole, has contributed to their acquisition. If the money maker had not had a wife to look after him, no doubt he would have found others to do it for him. Further, great wealth can be generated in a very short time, as the Miller case shows; but domestic contributions by their very nature take time to mature into contributions to the welfare of the family.

152. My lords, while I do not think that these arguments can be ignored, I think that they are irrelevant in the great majority of cases. In the very small number of cases where they might make a difference, of which Miller may be one, the answer is the same as that given in White v White [2001] 1 AC 596 in connection with pre-marital property, inheritance and gifts. The source of the assets may be taken into account but its importance will diminish over time. Put the other way round, the court is expressly required to take into account the duration of the marriage: section 25(2)(d). If the assets are not 'family assets', or not generated by the joint efforts of the parties, then the duration of the marriage may justify a departure from the yardstick of equality of division. As we are talking here of a departure from that yardstick, I would prefer to put this in terms of a reduction to reflect the period of time over which the domestic contribution has or will continue (see Bailey-Harris, "Comment on GW v RW (Financial Provision: Departure from Equality)" [2003] Fam Law 386, at p 388) rather than in terms of accrual over time (see Eekelaar, "Asset Distribution on Divorce - Time and Property" [2003] Fam Law 828). This avoids the complexities of devising a formula for such accruals.

153.     This is simply to recognise that in a matrimonial property regime which still starts with the premise of separate property, there is still some scope for one party to acquire and retain separate property which is not automatically to be shared equally between them. The nature and the source of the property and the way the couple have run their lives may be taken into account in deciding how it should be shared. There may be other examples. Take, for example, a genuine dual career family where each party has worked throughout the marriage and certain assets have been pooled for the benefit of the family but others have not. There may be no relationship-generated needs or other disadvantages for which compensation is warranted. We can assume that the family assets, in the sense discussed earlier, should be divided equally. But it might well be fair to leave undisturbed whatever additional surplus each has accumulated during his or her working life. However, one should be careful not to take this approach too far. What seems fair and sensible at the outset of a relationship may seem much less fair and sensible when it ends. And there could well be a sense of injustice if a dual career spouse who had worked outside as well as inside the home throughout the marriage ended up less well off than one who had only or mainly worked inside the home.”

88.He also relied on paragraph 170 of the speech of Lord Mance as further support for this approach:

“Fourthly, and whatever the position on the third point, I agree with what Baroness Hale has said in paragraph 153, which is, as I see it, also consistent with the last sentence of paragraph 25 of Lord Nicholls' speech. The present marriage had what one might call a traditional aspect. Mr Miller worked, and Mrs Miller gave up work to look after him. But there can be marriages, long as well as short, where both partners are and remain financially active, and independently so. They may contribute to a house and joint expenses, but it does not necessarily follow that they are or regard themselves in other respects as engaged in a joint financial enterprise for all purposes. Intrusive enquiries into the other's financial affairs might, during the marriage, be viewed as inconsistent with a proper respect for the other's personal autonomy and development, and even more so if the other were to claim a share of any profit made from them. In such a case the wife might still have the particular additional burden of combining the bearing of and caring for children with work outside the home. If one partner (and it might, with increasing likelihood I hope, be the wife) were more successful financially than the other, and questions of needs and compensation had been addressed, one might ask why a court should impose at the end of their marriage a sharing of all assets acquired during matrimony which the parties had never envisaged during matrimony. Once needs and compensation had been addressed, the misfortune of divorce would not of itself, as it seems to me, be justification for the court to disturb principles by which the parties had chosen to live their lives while married.”

89.Mr Coleman submitted that, whereas family assets, such as Bloomville, should be divided equally, separate property should be left “undisturbed whatever additional surplus each has accumulated during his or her working life” (Miller/McFarlane §153).  In the present case, he submitted, both the husband and wife had an equal benefit from Bloomville and chose to use that benefit separately as each saw fit.  That was how the parties had “chosen to live their lives while married” (Miller/McFarlane §170).

90.In Charman v Charman (No. 4) [2007] 1 FLR 1246 at §86, Sir Mark Potter P noted that Lord Mance’s extension of the concept of unilateral assets may:

“… have foreshadowed future, albeit no doubt cautious, movement in the law towards a more frequent distribution of property upon divorce in accordance with what, by words or conduct, the parties appear previously to have agreed.”

91.In support of the trend of the courts to uphold contractual bargains made by parties to a marriage, whether before, during or after marriage, Mr Coleman cited a number of cases, including the recent decision of the UK Supreme Court in Radmacher v Granatino [2010] 3 WLR 1367.

92.However, the present case is not a case involving a formal pre- or post-nuptial agreement or any express agreement. Instead, the wife’s case is based on a tacit or implied agreement that upon divorce each party should retain such assets that he or she is respectively left with.  The question here is simply whether, on the facts, a relevant agreement to keep finances separate in the event the marriage should come to an end has been demonstrated.

93.On the facts of this case, I do not consider that an agreement to the effect relied upon by the wife should be implied.  The fact that the couple kept their financial arrangements separate in the manner found by the Judge does not, in my opinion, give rise to an inference that they agreed that their respective assets should be ring-fenced in the event of a divorce.

94.The cross-examination of the husband below indicates that the commerciality of the arrangements between the couple were due to the wife’s insistence, over which he had “no choice”.  But, in any event, the separation of the parties’ finances, exemplified by the charging of interest on loans made by the wife to the family companies and the payment of rent by Bloomville for the occupation of the matrimonial home do not, in my view, give rise to a pressing inference of a post-nuptial agreement of the nature claimed by the wife.  There may have been many sound reasons for adopting these arrangements without implying the agreement contended for.  That those reasons do not appear to have been fully developed in the evidence appears to derive from the fact that the existence of a post-nuptial agreement to isolate each parties’ separate assets in the event of a divorce does not appear to have been put to the husband in cross-examination.  (In this respect, I should note that neither Mr Coleman nor his junior, Mr Jeremy Chan, appeared below.)

95.Mr Shieh submitted that this was not a case where the wife had inherited assets which she brought to the marriage.  She did not have a separate career as such.  Instead, she obtained an income from the family business, Bloomville, and invested her salary.  The matrimonial home was purchased using a dividend declared by Bloomville from the sale of a previous matrimonial property.  It would appear that much of the increase in value of the assets in the wife’s hands derived from increases in the property market.  I would accept these submissions.

96.No finding of an agreement of an implied post-nuptial agreement of the nature now advanced by the wife was made by the Judge below and it does not appear that she was invited to make such a finding. For that reason, I do not agree with Mr Coleman’s criticisms of paragraphs 104 and 105 of the Judgment.  On the facts of the case, I consider that the Judge was entitled to reject the invitation to depart from the yardstick of equality notwithstanding her acceptance of the way the parties conducted their financial relationship.

97.I would add that I also agree with the submission made by Mr Shieh that separate finance arrangements apply to many households in Hong Kong and finding that such arrangements give rise to the insulation or quarantine of such assets from division between parties in the event of a divorce would have far-reaching consequences.  Although the present case involves a wife seeking to ring-fence her assets, it is not unlikely that in many marriages where separate finances are kept it is the principal breadwinner (whether husband or wife) who holds the bulk of the assets.  If the keeping of separate finances were too readily held to give rise to the type of post-nuptial agreement claimed in the present case, there would be a real risk of the weaker spouse being left without redress upon divorce.

98.In the light of my conclusion that the post-nuptial agreement relied upon by the wife is not supported on the facts, I do not consider it necessary to analyse the cases cited by Mr Coleman relating to such agreements because, in my view, this case is not the opportunity to consider enforceability of the different types of matrimonial agreements that have been considered by other courts in other proceedings or the extent to which the courts of this jurisdiction should or should not embrace the concept of unilateral assets within a marriage.

99.I would, however, note that the passages in Miller/MacFarlane on which the wife’s case is based should be considered with care.  In the first place, the comments of Baroness Hale and Lord Mance relied upon are strictly obiter.  Secondly, Lord Nicholls disagreed that separate business and investment assets should be immune from the sharing principle (see §§17 to 20).  Thirdly, the comments of Baroness Hale were made in the context of a short marriage and the present case is not such a marriage: on the contrary, it is common ground that this was a long marriage. Fourthly, Ribeiro PJ in LKW v DD at §97 indicated a tentative preference for the approach of Lord Nicholls.

100.It is to be noted that a similar argument based on separate finances was rejected by this court in W v H and Z, unrep., CACV 127/2008, 12.5.09 at §§54 to 57.  In my view, courts should be cautious lest they too readily imply post-nuptial agreements which might have the effect, if upheld, of ousting the discretion of the court under section 7.

Disposition and costs

101.For the reasons set out above, I would dismiss the appeal and make an order nisi that the wife should pay the husband’s costs of the appeal, to be taxed if not agreed with a certificate for two counsel.

Mr Paul Shieh SC and Ms Corinne Remedios, instructed by Messrs Boase, Cohen & Collins, for the Petitioner/Respondent

Mr Russell Coleman SC and Mr Jeremy S K Chan, instructed by Messrs Stevenson, Wong & Co., for the Respondent/Appellant

Please refer to FAMV43/2011 for the relevant appeal(s) to the Court of Final Appeal.

Please refer to FAMV43/2011 for the relevant appeal(s) to the Court of Final Appeal.