Kcy v. Hjfg
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HCMP 685 /2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL MISCELLANEOUS PROCEEDINGS NO. 685 OF 2011 (ON AN INTENDED APPEAL FROM HCMC NO. 11 OF 2010) ________________________ BETWEEN
Before: Hon Hartmann JA and Lam J in Court Date of Hearing: 6 July 2011 Date of Judgment: 6 July 2011 Date of Handing Down Reasons for Judgment: 12 July 2011 ________________________ REASONS FOR JUDGMENT ________________________ Hon Hartmann JA (giving the Reasons for Judgment of the Court): Introduction 1.The respondent in this matter sought leave to appeal a decision of the Court of First Instance refusing her application for the appointment of an interim receiver. She had sought the appointment of a receiver to protect certain matrimonial assets pending the resolution of ancillary relief proceedings between herself and her husband, the petitioner. Having heard submissions, we dismissed the application. We said that we would give our reasons later and do so now. Background 2.The petitioner and respondent were married to each other in 1987. Two children were born of their union. Unhappy differences fell on the marriage and in September 2009 the husband petitioned for divorce. On 20 July 2010, a decree nisi of divorce was granted to the wife, the respondent, on her cross petition. Proceedings to determine an equitable distribution of the matrimonial estate then followed. 3.During the course of the marriage, the husband and wife acquired great wealth. In the course of the ancillary relief proceedings the husband disclosed assets in excess of $1 billion. The wife disputed that estimate, alleging that it constitutes a gross understatement. 4.It appears that the source of the wealth lay in a decision to exploit the burgeoning economy of Vietnam by way of setting-up a series of investment funds. There are today a series of such funds which are concentrated on various aspects of the Vietnamese economy and on the economies of other countries in the Asia-Pacific area. These funds are quoted on the London Stock Exchange. 5.The funds, it appears, are managed in part from Hong Kong and in part from Vietnam. Not unusually in respect of businesses of this magnitude which are geographically and economically diverse, the control and management of the funds and any allied businesses are managed and controlled by a complex architecture of companies. Many of the holding companies are incorporated in ‘off-shore’ jurisdictions. 6.The husband’s interest in the businesses is not singular. There are other shareholders. That being said, it is apparent that the husband together with one other man, a certain G, is the most substantial shareholder. 7.It further appears that the most strategic holding company controlled by the husband is a company incorporated in the British Virgin Islands by the name of K. 8.During the progress of the ancillary relief litigation, the wife became increasingly concerned that the husband was attempting by various stratagems both to appear to have a lesser interest in the businesses than in truth he does and also to move his wealth, or the great bulk of it, beyond the jurisdiction of the Hong Kong courts. 9.In February of this year, the wife brought an application for the appointment of an interim receiver over many, perhaps most, of the husband’s business assets, they being matrimonial assets. The interim receiver, during the term of his appointment, would have control of the following:
10.In answer to the application for the appointment of a receiver, the husband gave an undertaking to the effect that, pending determination of the ancillary relief proceedings, he would not “transfer, mortgage, charge or otherwise howsoever deal with” any of the marital assets which fell under the umbrella of the assets that the wife sought to have placed in receivership. 11.On behalf of the husband it was said that the undertaking gave sufficient protection to the wife without any need for the appointment of a receiver. The wife, however, did not consider the undertaking to be sufficient and proceeded with the application for the appointment of a receiver. 12.In respect of the wife’s application, it was not, nor has it been, disputed that the Court of First Instance has the jurisdiction in appropriate cases, including matrimonial cases, to appoint a receiver. In this regard, s. 21L(1) of the High Court Ordinance, Cap. 4, provides that:
13.Having determined the legal principles upon which the application must be decided, Deputy Judge Carlson turned to the merits. 14.The judge was faced with numerous areas of factual conflict, most, if not all, of which were rehearsed before us. 15.In the end result, he determined that the undertaking given by the husband would sufficiently protect the interests of the wife. Having regard to all the circumstances of the case, the judge was of the view that the appointment of a receiver would amount to an “excess of judicial zeal”. As to why this was so, the judge concluded his very full and impressively reasoned judgment in the following terms:
16.The judge therefore dismissed the summons seeking the appointment of an interim receiver, doing so subject to the undertaking given by the husband continuing until the disposal of the ancillary relief proceedings. 17.As we have said, the wife came before us seeking leave to appeal that judgment. If we granted leave, the wife sought the appointment of an interim receiver until the determination of the appeal itself. Interlocutory judgments: the basis upon which leave may be granted 18.S. 14AA(4) of the High Court Ordinance, Cap. 4, directs that, in respect of interlocutory judgments, leave to appeal shall not be granted unless the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why an appeal should be heard. 19.The wife sought leave to appeal on both bases; first, on the grounds that the appeal had a reasonable prospect of success and/or, second, that, having regard to the combined factors of the uniqueness of the application itself and the material change in Hong Kong’s law of ancillary relief following the judgment of the Court of Final Appeal in LKW v DD (unreported) FACV 16/2008, the interests of justice required that this Court should pronounce on the matter. Seeking leave on the basis that the appeal had a reasonable prospect of success 20.Recent guidance as to how applications made under this ground are to be determined was provided by Chu J (as she then was) in Wynn Resorts (Macau) SA v Mong Henry [2009] HKEC 1283:
21.In respect of this ground, what needs to be stressed at the outset is that no issue was taken with the correctness of the judge’s determination of appropriate legal principles. It was submitted, however, that he had failed to correctly apply them. In short, it was submitted that, in coming to his determination that it was neither ‘just’ nor ‘convenient’ to appoint an interim receiver, the judge had exercised his discretion in a way that fell outside of what was reasonably open to him. 22.The wife had a difficult burden to discharge. In the course of submissions, Mr Scott SC, counsel for the husband, referred us to the observations of Sir John Donaldson, Master of the Rolls, in Elan Digital Systems Ltd v Elan Computers Ltd [1984] FSR 373:
23.As we have said, underlying the wife’s application for the appointment of an interim receiver was her concern that the husband was using various illicit stratagems to attempt to achieve two results; first, to make it appear that his wealth was less than in truth it is and, second, to move all, or at least the greater bulk of, his wealth beyond the jurisdiction of the Hong Kong courts. On her behalf, Mr Barlow SC submitted that, on a consideration of all the evidence, it should be obvious that the husband was playing out what in the Court of First Instance was described as an ‘exit strategy’. 24.Mr Barlow pressed the point that the husband was simply not to be trusted. He pointed to the fact that the husband had met a woman in Vietnam, that he had children with her and was no doubt intent on marrying her when this was possible. He pointed to the fact that the husband was progressively focusing his financial interests on Vietnam as opposed to Hong Kong. He observed that the husband had engaged in at least two restructurings of his business interests without disclosing the fact. Mr Barlow submitted that the husband had failed on a number of occasions in the ongoing ancillary relief proceedings to make full and frank disclosure of his assets. Accordingly, he submitted, any undertaking given by the husband had no value. If the husband was permitted to proceed, so the argument went, there was a real danger that any judgment that the wife obtained in these courts concerning her equitable share of the matrimonial estate would be rendered virtually worthless. 25.The judge was aware of the depth of the wife's concerns and of the matters that had given rise to those concerns. Equally, however, he had to take into account the husband’s response. In this regard, the judge said the following:
26.A brief overview of certain of the areas of conflict between the husband and wife illustrates the difficult balancing exercise that faced the judge at first instance. 27.During the course of submissions, it was said that the ‘catalyst’ which gave rise to the wife’s profound concerns was an asset swap between the husband and G. In terms of that swap, so it was said, the husband had given up 25% of his shareholding in a company which, for present purposes, can be described by its initials of P in return for receiving a 5% shareholding in a less valuable company, V. Mr Barlow submitted that, having regard to the quantity of shares that were the subject of the swap and the relative values of the two companies, common sense dictated that the deal had to involve a large cash element of which there was no account. In response, it was said that the swap had been one of a 5% shareholding in P – not 25% – for 5% in V, that the legitimate purpose of the swap had been fully explained both by the husband and G and that, in light of the value of the husband’s business interests, the amount involved hardly suggested some clandestine attempt either to materially reduce the husband’s apparent wealth or to move a large portion of it to some protected jurisdiction. On behalf of the husband, it was said that, even on the assessment of the wife’s accountant, the difference in share values was US$5 million. 28.During the course of submissions, it was further said on behalf of the wife that dividends well in excess of US$60 million had not been accounted for by the husband, that these dividends should in the ordinary course of business have gone to particular entities but had instead been diverted. In response, it was said that the wife had been supplied with a full breakdown of the dividends in question, a breakdown provided by the husband’s own accountants, and that it was open to her to seek further information if she wished. It was said that the dividends were being dealt with in the ordinary course of business by the husband, that there had never been any attempt to conceal their value or to disguise to which corporate entity they had been paid. 29.As to the funds that had been held in the trust called the H Trust, it was the wife’s case that the husband had plundered the assets without her consent. It was the husband’s contention, however that this trust had been set up originally for tax purposes, particularly to protect the wife from United States taxes but, as it was, the trust did not provide the required protection. No assets had been transferred into it and, in the result, it was agreed by the husband and wife that the trust would be dissolved. In support of this, the husband put into evidence a statement signed by a senior officer of BNP Singapore to the effect that no assets had been transferred to the trust or conveyed to the trustee and that the trust was ‘lifeless’. 30.It may well be of course that, when the ancillary relief hearing takes place, the husband will be found to be culpable in respect of these matters or other matters which it has not been necessary to refer to for the purposes of this judgment. But the judge was entitled to take into account that this was not a case where the husband had simply refused to participate in the litigation or where there was evidence, utterly unanswered, of wholesale plunder. To the contrary, the judge at first instance was faced with very detailed written evidence from the husband attempting to explain that the actions taken by him were in the legitimate course of business. 31.There may perhaps have been a failure to make full and frank disclosure timeously or in certain respects to make of it all. Such matters will be determined by the court of ancillary relief. But, as the judge recognised, when questioned on such issues, the husband has been prepared to answer fully, doing so with the assistance of accountants and his legal representatives. 32.On behalf of the wife, Mr Barlow made a further submission that the appointment of a receiver would prevent the husband’s erratic actions which, so it was said, have placed the continued good running of the businesses which form the basis of the family wealth in jeopardy. In this regard, Mr Barlow spoke of board disputes with other major shareholders. On behalf of the husband, Mr Scott gave the riposte that these disputes had either been settled or that action was being taken to ensure that they did not harm the interests of the businesses. 33.It was said that the husband was spending matrimonial money lavishly, purchasing large pleasure boats and an aeroplane. In answer it was said that these were company purchases for the benefit of not just the husband but other senior officers. 34.As we have said, we have given this brief overview of certain of the issues to illustrate the difficult exercise faced by the judge in determining whether a receiver should be appointed or whether the wife would be adequately protected by the husband’s undertaking. In this regard, the judge said the following:
35.One of the matters which the judge took into account was the danger to the continued successful running of the businesses by the appointment of a receiver. He was entitled to do so, giving it such weight as he thought fit. In this regard, the judge made reference to a number of authorities which warn of the consequences of an unwise appointment. In the present case, it is to be remembered that the businesses which form the basis of the matrimonial estate are, at core, investment funds quoted on the London stock exchange, funds which are concentrated, so it seems, on emerging markets. If investors turn their backs on those funds then, as a direct consequence, the value of the family wealth is placed in jeopardy. Mr Barlow said that this fear was an exaggerated one. We do not necessarily agree. Investors are at best skittish when news of a possible paralysis in management comes to their attention. 36.In our judgment, despite both the length and vigour of his submissions, Mr Barlow was unable to identify any particular area of the exercise of the judge’s discretion in which clearly he had fallen into error. Another judge may have given greater weight to certain matters and less to others. But that is not to the point. As we have said earlier, the judge at first instance gave a full and reasoned judgment, taking an overview of the contested factual issues and coming to a conclusion that we believe cannot be faulted. Seeking leave on the basis that it was in the interests of justice 37.There were two foundations to this ground. First, that the application for the appointment of a receiver in respect of ancillary relief proceedings was novel, there being no known previous instances of a receiver being appointed in such circumstances in this jurisdiction, or indeed in the much larger jurisdiction of England and Wales. Second, in light of the material advance in the law of matrimonial finances brought about by the judgment of the Court of Final Appeal in LKW v DD, the equitable employment of receivership was now that much more possible and that guidance from the Court of Appeal as to its use would be of great assistance. 38.The principles to be applied concerning the appointment of receivers have, of course, been considered on numerous occasions by different courts in respect of corporations and partnerships. To that extent, the law is fairly well-settled. With the assistance of counsel, the judge at first instance was able to canvass relevant authorities, coming to a determination as to the principles to be applied in matrimonial matters or, more correctly perhaps, in this particular matrimonial matter. There has been no criticism of his determination by counsel for either the wife or the husband. 39.What then is left is whether, in light of the advances in the law of matrimonial finances, principles more akin to those related to a business partnership should perhaps, in appropriate circumstances, be adopted. 40.On behalf of the wife, Mr Barlow pointed to the fact that, when partnerships are in dispute, it is common for a receiver to be appointed and, if the advances in our law of ancillary relief, now place spouses in a position more analogous to partners in a business partnership, then applications for the appointment of receivers in ancillary relief disputes are likely to be more common. 41.As to the appointment of receivers when partnerships are in dispute the following was said in Re A Company [1987] BCLC at 135J per Harman J:
42.But have the advances in our law of ancillary relief made the role of spouses more analogous to that business partners? In our view, by way of any general principle, the answer is no. 43.In LKW v DD, the court looked to the principles that underpin an application for ancillary relief made under s. 7 of the Matrimonial Proceedings and Property Ordinance, Cap. 192. In doing so, the court emphasised that the implicit objective is to arrive at a distribution of assets which is fair as between the parties. Discrimination is the antithesis of fairness. Accordingly, fairness requires the refutation of any gender or role discrimination. In order to ensure that courts do not inadvertently apply principles that are discriminatory, the court in LKW v DD said that, with a view to eliminating such discrimination and promoting fairness, judges should check their tentative views on distribution against a ‘yardstick of equal division’ which should be departed from only for good and articulated reasons. 44.The court in LKW v DD did not say that spouses now have a vested entitlement to any particular share of the matrimonial assets. The yardstick of equal division is literally that and no more; it is a tool to be employed after a judge has reached a tentative view of how best to distribute an estate, a tool to be used to ensure that the objective of fairness – not some vested right to an equal share – is achieved. 45.In a long marriage, if – rarely - all else is equal, then it may be said that the parties have an entitlement, if not to an equal share, then at least to something close to that. But that is because contemporary concepts of fairness demand it. 46.LKW v DD does not attempt, in our view, to alter the roles of spouses in a marriage. Marriages have often been described as partnerships and, of course, in a very real way they are. But there are also fundamental differences between the partnership of marriage and a business partnership. In some marriages, especially where both parties have worked in a business shoulder to shoulder over an extended period of time, it may be said that their relationship was, either for the whole or part of the marriage, analogous to that of partners in a business partnership. But it will depend on the circumstances of each and every case. In our view, there is no merit in suggesting that some general rule can be drawn because our law of ancillary relief is now founded on an objective of fairness. 47.That being the case, the issue of whether it would be appropriate to appoint a receiver remains an open question depending on the circumstances of each individual case. We do not see that it can be argued otherwise. In the present case, in the circumstances that presented themselves to him, the judge at first instance determined that it would not be appropriate to appoint a receiver even though he was satisfied that he had the power to do so. 48.That, in our view, disposed of the matter. There are no issues that in the interests of justice require to be determined by the Court of Appeal.
Mr Barrie Barlow SC and Ms Mairéad Rattigan, instructed by Messrs Withers, for Respondent/Applicant Mr John Scott SC and Ms Sara Tong, instructed by Messrs Robertsons, for the Petitioner/Respondent |
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