Qcsl v. Gcj
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FCMC 2157 / 2013 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MATRIMONIAL CAUSES NUMBER 2157 OF 2013 ----------------------------
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----------------------- J U D G M E N T ----------------------- Introduction 1.This judgment followed a four day trial which was conducted in two tranches - to determine the issue of final ancillary relief. 2.Both parties agree that this is more of a “needs” based case as opposed to a “sharing” case. The main point in dispute is how much the wife should receive from the net proceeds of sale of the former matrimonial home. The wife seeks 80%, whereas the husband originally offered 65% subject to a number of caveats. The husband said that he needed at least 35% of the net proceeds of sale in order to pay off his outstanding debts, which he says arose as a direct result of the breakdown of the marriage. There is also an ongoing dispute with respect to a “loan” from the wife’s father. The wife says that this money should be deducted from the net proceeds of sale prior to distribution, whereas the husband says that this is at best a “soft” loan and as such it should not be so deducted. Both parties are in debt otherwise, the husband significantly so and there is a related issue with respect to each party’s relative earning capacity. The husband asks for sufficient funds to enable him to pay off his most pressing debts. The wife for her part asks for funds to put down a deposit on a home for herself and the two children of the family; in the alternative she seeks assistance with her rent. Background 3.The parties, who are both Australian passport holders, met in Hong Kong in 2006 and began living together in 2007. The husband was born in the United Kingdom, but he immigrated to Western Australia with his family when he was 11 years old. The wife for her part is Chinese Malay and likewise her family also immigrated to Western Australia when she was quite young. In June 2004 the wife moved to Hong Kong from Perth and in February 2006 the husband was seconded by his employer to Hong Kong from Sydney. They met through work in Hong Kong. The wife holds a degree in architecture, but has never practiced as an architect. From a professional perspective she has mainly been involved in project management, whereas the husband originally worked in retail and then moved into procurement. In April 2008 the parties’ first son, C was born and the wife stopped working in order to concentrate on raising him. She did not work outside the home from the beginning of 2008 until April 2011, although she did take her real estate exams during this period. C is now 6½ years old. The parties subsequently married in December 2008. A year or so later the husband was made redundant. He recommenced paid employment on the 1 April 2010. Meanwhile in February 2010 the parties’ second son D was born. He will be 5 in three months or so. On the 9 March 2011 the husband set up his own company X, with two other partners. He holds a 35% stake in that company and in its sister Y Company. In July 2011 the husband began working full time for X and he stopped receiving a regular salary. In May 2011, in order to assist with the family finances the wife returned to work as senior project manager with a well known international law firm. This was a full time position but was on a fixed term contract – originally for a 9 month period. Infact the position lasted for 14 months and in order to assist with child care the wife’s father came to Hong Kong to help out and a second helper was also employed for some of that time. In June 2012 the wife stopped working for the international law firm and instead started working part time as a property agent. In December 2012 the parties separated and the husband moved out of the former matrimonial home. Costs increased as a result. On the 21 February 2013 the wife filed for divorce based on the husband’s unreasonable behaviour. On the 25 June 2013 the parties agreed joint custody with care and control of the boys to the wife and reasonable access to the husband. In September 2013 the wife began working part time as a project manager earning HK$35,000 per month. The husband’s income has gradually increased and he is now also earning HK$35,000 per month. He expects his salary to rise to approximately HK$50,000 within a relatively short period of time. On the 29 January 2014 the former matrimonial home was sold and the net proceeds of sale were paid into the husband’s solicitors’ escrow account. Other points to note from the litigation 4.One of the main points of contention between the parties has related to the children’s schooling and how that should be funded going forward. The parties eventually came to terms and agreed inter alia as set out in the court order dated the 13 August 2013 as follows:
5.Thus there will, as a direct consequence of this order, need to be a variation of the maintenance for the children and the way in which the children’s schooling is funded longer term. This variation will need to take place prior to C turning 9 or him completing P4, whichever is the earlier. This judgment is therefore written on the premise that this variation will take place either by agreement or in the absence of agreement by further court order. Issues 6.It seems to me that the following issues now fall to be determined by this court:
The law on Ancillary Relief 7.The Court of Final Appeal’s decision in LKW v DD (FACV no 16 of 2008) 13 HKCFA 537 sets out the approach that the lower courts should now take when determining issues relating to final ancillary relief. 8.Mr Justice Ribeiro PJ reiterates that there are four underlying principles that should guide ancillary relief proceedings namely fairness, the absence of discrimination, the upholding of the concept of the yardstick of equality and the rejection of a need for a minute retrospective investigation of the parties finances. 9.In addition he identifies a four step approach to be adopted in an ancillary relief trial which if I may I will summarize as follows:
10.The s 7 factors are largely dealt with within this general framework. They are:
11.The court is also asked, when looking at the financial provision for the children of the family, to look at the financial position that the children would have been in had the marriage not broken down. I should add that it is normally accepted that save for in the more affluent cases, it is generally accepted that each parties standard of living will of necessity reduce on a divorce. This also means that the children’s standard of living will come down as a matter of practical reality. This is especially so in a case like this where money is in short supply. Open Proposals 12.Both parties have each filed open proposals which for the avoidance of doubt I will repeat below. The wife’s open proposals 13.The wife says as follows:
The husband’s open proposals 14.The husband for his part put his updated proposals thus in his Counsel’s note prior to the start of the second tranche of the trial:
15.I must now turn to consider the issues, the law and the parties’ evidence as set out in their respective Form E’s, together with their narrative affidavits and their answers to the questionnaires raised by each side. Further I will rely on each party’s oral testimony. Discussion What is the computation of assets available for distribution? 16.A schedule was produced at court, which I have set out below at paragraph 20. I have marked in bold the areas in dispute or areas where there is likely to be some adjustment including the computation of the net proceeds of sale and how to treat the sum of HK$835,821.96 received from the wife’s father. Computation of the net proceeds of sale 17.By virtue of court order dated the 21 March 2014 it was agreed that the wife’s rent would continue to be met from the net proceeds of sale held in escrow by the husband’s solicitors in the sum of HK$38,000 per month until further order. The sum calculated below includes the rental payments up until September. Since then there have been two further rental payments for the months of October and November totalling HK$76,000. Thus I am proceeding on the basis that there is approximately HK$4,646,173.16 held in escrow (i.e. HK$4,722,173 less HK$76,000 = HK$4,646,173). This will be subject to final confirmation. 18.The parties are in dispute regarding the treatment of the rental payments. The husband asks that this amount be accounted for and included in the wife’s percentage share of the net proceeds of sale whereas the wife asks that this amount be deducted from the net proceeds of sale and that the remaining funds are then divided between them. 19.Given that the wife clearly needed somewhere to live with the two boys and that it is not clear where provision for the rent would have come from otherwise, I accept that it is not appropriate for the rental payments to be included as part of her share of the net proceeds of sale. 20.The original schedule of assets table
How should the loan from the wife’s father be treated? 21.It is now accepted by the husband that the wife’s father did transfer the sum of HK$835,821 to the parties in three tranches, the first on the 21 September 2010 in the sum of HK$245,881.96. This was originally paid into the wife’s sole account and three days later the wife transferred this sum into the parties’ joint account. It appears that HK$100,000 of this money was then used to purchase a car. On the 5 January 2011 the wife’s father transferred a further HK$190,000 to the wife, which she then transferred into the parties’ joint account as before. On the 26 January 2012 the wife’s father transferred a third sum of HK$399,940 to the wife’s account. This sum was not subsequently transferred into the parties’ joint account. These payments were all made during the course of the marriage. There is a dispute over the purpose of these payments and the husband also maintains that he knew nothing about the third tranche until after the divorce proceedings were commenced. The husband’s original stance was that he did not believe that these monies were loans. Rather he alleged that the wife had undisclosed assets and maintained that these funds in truth belonged to her. Later when the evidence was produced which showed clearly the way in which these funds had been transferred from the wife’s father to the wife, he alleged in the alternative that these were either soft loans or gifts. 22.Some of the difficulty with respect to these monies arose because the wife’s version of events changed as the litigation progressed with very little explanation in the first instance of the reasons behind this. Her oral testimony was similarly quite confused. In her affidavit of the 11 February 2014 she said as follows:
23.I should say at the outset that I do not accept what the wife says at the end of paragraph 39 with respect to the husband’s contribution – given that it is not in dispute that the husband will remain responsible for repayment of the debts out of his share of the net proceeds of sale. I do not accept that he has deliberately overspent or increased his level of debt. Rather it seems to me that he found himself in an untenable position brought about by the need to maintain two households instead of one. This was also at a time when it had been acknowledged that his income would decrease significantly. 24.Having heard both parties and the wife’s father give evidence in the witness box I have come to the conclusion that the wife’s father did indeed lend the parties this sum of money. I do not accept that this money represented undisclosed assets of the wife. There is no evidence to support such a conclusion. Neither do I accept that this money was a gift. I accept that it was a loan, albeit a “soft” loan. I also accept that had the parties not divorced that the wife’s father may have been quite content not to have insisted on its repayment. The situation has of course now changed and I accept that the wife’s father is quite within his rights to insist on the loans repayment at this juncture especially given the change in his own financial circumstances following the death of his wife and the cost of her medical treatment. I do not accept the argument that because these loans may be regarded “soft” that the burden for repayment should sit on the wife’s shoulders only. These monies were forwarded to the parties during the course of their marriage and therefore the burden for repayment rests with both of them. Consequently I accept that this sum of money should be deducted from the net proceeds of sale prior to the division of the remainder between the parties - and returned to the father. 25.It is also the wife’s case that given that the wife’s father intended the monies to be used as part payment of the deposit on the matrimonial home, that it was also agreed that he should receive 10% of any net profit on the sale in addition to the return of his capital. The wife’s father also confirmed in the witness box that if the net profit had been quite small that he probably would not have insisted on the additional 10% in any event. In such circumstances and given the fact that I accept that the funds were not actually used in order to help put down the deposit on the matrimonial home, the wife’s father shall receive the sum of HK835,821.96 only. There will not be an additional 10% uplift of the net profit paid in addition. How should the issue of the parties’ debts be regarded? 26.The wife complains about what she perceives to be the husband’s mismanagement of the parties finances. She is bitter about the current level of debt and puts the blame for this squarely at the door of the husband. With respect, the parties agreed whilst they were married that the husband should set up his own company with two other partners. There were always going to be risks associated with that course of action. This was recognised to an extent by the wife when she agreed to go back to work initially in order to ensure that there was a steady income stream whilst the husband tried to get the business up and running. I have no doubt that had the parties stayed together that they would have continued to have made joint decisions concerning the viability or otherwise of continuing with the husband’s business venture and the possible necessity of the wife returning to the work force in a more full time capacity. 27.The husband explains the situation thus in his affidavit of the 10 February 2014:
28.Despite the wife’s scepticism I accept the husband’s explanation in this respect. I also agree that the husband will need to pay off as many of these debts as possible from his share of the net proceeds of sale. Further I do not accept the argument as indicated above, that the husband has been “double dipping” – i.e. that the husband pays for items for or on behalf of the children and then claims that back as debt. The husband is not seeking a bigger share of the assets because of the debts. Neither is he arguing that the debts be deducted from the asset base prior to an equitable division. He is simply telling the court what he will of necessity be required to do with his share of the net proceeds of sale. In such circumstances it seems to me that the wife’s assertions in this respect must fail. What are the reasonable needs of the parties? 29.In broad terms it seems to me that both parties need a home in which to live and sufficient money to live on. The issue is whether or not in the circumstances it is reasonable or even possible for the wife to purchase a property in which to live with the boys. If not, how are her reasonable accommodation expenses to be met? In addition the husband also “needs” to pay off as many of his debts as possible. In the event that this is a needs based case how should the assets be divided? The net proceeds of the matrimonial home 30.I accept that the net proceeds of sale amounts to approximately HK$4,646,173 (i.e. HK$4,722,173 as set out in the schedule of assets less a further sum of HK$76,000 being the rental for October and November 2014 leaving a balance of HK$4,646,173). Out of these monies the sum of HK$835,822 (rounded up) shall be deducted and repaid to the wife’s father within the next 28 days. This leaves a balance of HK$3,810,351 – say HK$3,810,350. 31.Although admirable I do not think that it is realistic to expect the wife to be able to buy a property at present. This would be the case even if I were to award her 80% of the net proceeds of sale as requested (which I am not). Even with a deposit of just over HK$3 million, it is not clear to me how she could then hope to repay a mortgage when both she and the husband have a current salary of HK$35,000 per month each. I am also concerned that this would leave the husband with dangerously little money with which to pay off the outstanding debts. I am also not convinced that it is sensible to make an order based on the husband’s anticipated earning capacity – when at best it will take some time for him to find alternative employment in the event that he leaves X. 32.Having given this matter considerable thought I have therefore decided to accept the husband’s basic proposition which is that the net proceeds of sale shall be divided on a 65/35 basis. I have not accepted the other caveats namely that the wife’s father’s loan should not be repaid or that the wife should pay for her rental out of her share of the net proceeds of sale. 65% of the net proceeds of sale will give the wife a lump sum of approximately HK$2,476,727.50. This should be regarded primarily as a housing fund and I will certainly expect the wife to use these monies to rent (or possibly buy) a property in the immediate to short term. The remaining 35% i.e. HK$1,333,622.50 will be paid to the husband. This should enable him to pay off the most pressing of his debts. In addition the wife also has some other debts to repay, which she will also need to do from her share of the assets. How should the rest of the assets be split? 33.I also accept the husband’s other proposals as set out in paragraph 12 above, namely that:
34.In broad terms then the assets will be split as follows: Wife:
Husband:
35.In addition some money has been put to one side to cover the costs related to the children’s education in the immediate to short term. Thus, if one were to look as this as a whole, after the repayment of the wife’s father’s loan and rental, the wife will receive just over 53% of the total matrimonial pot and the husband the remaining 47% odd. Of those assets the wife will receive the vast majority of the liquid assets. I have also noted the husband’s submission that most of the Australian superannuation fund was accumulated by him prior to marriage. I accept what he says in this respect and have taken this into account when coming to a final decision. How should the court regard each party’s earning capacity? 36.Both parties are currently earning HK$35,000 per month, although the husband has said that he is hopeful that his income will shortly rise to HK$50,000 per month. The wife seeks a maintenance award of HK$39,000 per month – which is more than the husband is currently earning, based not on his actual earnings but on his current earning capacity. (This request is made up of HK$11,000 per child per month and HK$17,000 per month as a contribution towards the mortgage or rent). 37.I should say at the outset that it seems to me that both parties have a greater earning capacity than HK$35,000 per month and that both parties will need to do everything within their power to realize that within the next two years. As I have said this order is therefore made on the premise that there will of necessity need to be a revision to the children’s maintenance prior to C turning 9 years of age or completing P4. 38.However I should add that it seems to me that the onus for providing for the children financially lies with both parties. I appreciate that the wife would like to spend more time at home and that in an ideal world she would have preferred to have been a full time mother until the children reached the age of 8 years. Unfortunately the parties jointly made a decision which led to the husband setting up his own business. Although the ramification of that decision might have been unexpected, it ill becomes the wife to shy aware from that now. Thus it seems to me that the wife will need to consider returning to work on a full time basis – especially if she wishes to purchase a property in which to live. 39.Likewise the husband will need to take stock of the situation and give his company a realistic time frame within which it must start to make a more acceptable profit margin. If it does not do so within say the next two years then there may be no alternative but for the husband to return to corporate in order to earn a higher income. 40.The responsibility for supporting the children financially lies with both parents and they are each put on notice now that this is what I will expect of them going forward. How much maintenance should the husband pay for the two children of the family going forward? 41.The wife sets out her current outgoings as follows:
42.Likewise the husband says that he has the following outgoings.
43.Once the majority of his debts have been settled the husband should be able to live more easily within his means. He indicated during the trial that he is now paying HK$12,000 per month for rent. Consequently that brings his outgoings down to approximately HK$50,000 per month. In the event that he is able to pay off the outstanding personal loans and his credit card debt – his outgoings should reduce by a further HK$20,000 per month. Thus in round figures the husband should be able to reduce his outgoings to HK$30,000 per month. Other items such as holidays may also be reduced in the short term. Thus depending on his income he should have between HK$5,000 – HK$20,000 available each month to pay for other items including the boy’s maintenance. 44.In so far as the wife’s general expenses are concerned, as indicated above, I am approaching this case on the premise that her housing needs have been covered by her share of the net proceeds of sale. I accept the remainder of the general expenses as being reasonable. They amount to approximately HK$30,000 per month. I also accept that a certain percentage of the general household expenses should be attributed to the wife directly. The remainder, being costs associated with the children should then be split between the husband and wife in an equitable manner. I should add that it seems to me that the wife only has a full time domestic helper because of the children and that this is an expense that is attributable directly to them. Consequently this expense will be included under the children’s expenses as opposed to the general expenses. Thus I would accept that the mother’s general expenses stand at approximately HK$23,156 per month (i.e. HK$67,156 less the rent of HK$38,000 and the domestic helper of HK$6,000 = HK$23,156). Of this half should be apportioned to the wife in the first instance and half to the children – i.e. HK$11,578 each. The wife and husband will then each be responsible for half of children’s general expenses – i.e. HK$5,789 each or rounded up to say HK$6,000 each. It seems to me that this would be an equitable approach to the general household expenses. 45.The wife estimates the children’s direct expenses at HK$22,400 per month – but this includes items that are presently covered by the education fund (i.e. school fees, extra tuition fees, extracurricular activities and school uniform). What is left is the domestic helper salary of HK$6,000 and the children’s other direct expenses as follows:
46.Prima facie if the parties are to split the children’s expenses 50:50 then they should each pay HK$13,500 per month (i.e. HK$6,000 as a contribution towards the general expense plus half of the children’s direct expenses in the sum of HK$7,500 per month each). The husband is offering HK$10,000 per month – or HK$5,000 per month per child. If the husband is earning more than HK$35,000 per month as indicated then he should be able to contribute a little more to the children’s expenses. I also accept that the wife should be able to make some economies – especially in the area of entertainment and holidays. Thus I will order that the husband shall pay the wife maintenance for the children of HK$12,000 per month or HK$6,000 per child per month. This is on the premise that this sum will of necessity need to be reviewed once C reaches the age of 9 or completes Form 4 – whichever is the earlier. Should the husband pay the wife nominal maintenance or some other sum? 47.I accept, and this does not seem to be seriously disputed, that given the fact that the wife is the primary carer for two small children that it is entirely appropriate that there should be a nominal maintenance order made in her favour. The Section 7 factors 48.I have largely dealt with these factors when discussing the various issues as set out above. However for the avoidance of doubt I will summarize the situation under the various heads as follows: It shall be the duty of the court in deciding whether to exercise its powers under section 4, 6 or 6A in relation to a party to the marriage and, if so, in what manner, to have regard to the conduct of the parties and all the circumstances of the case including the following matters, that is to say- (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; 49.As indicated above both parties have a fairly limited income at present. Each party has argued that the other has a greater earning capacity than their present incomes might imply. I largely accept that to be the case. It seems to me that both parties must now exploit their true earning capacity to the full. 50.The suggestion during the trial is that the husband also has an additional financial resource in that he is able to run certain expenses through his company. Having heard the husband give evidence I accept that this was done in a wholly legitimate way. Further I do not accept the suggestion that the husband was hiding assets in the sister Y Company. (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; 51.Both parties clearly have an ongoing obligation to financially support the two children of the family. This is central to the case. (c) the standard of living enjoyed by the family before the breakdown of the marriage; 52.I accept that the parties enjoyed a reasonable standard of living commensurate with the husband generally earning in excess of HK$100,000 per month. They were also able to purchase properties in Hong Kong and to take regular trips overseas either to Australia or Malaysia or otherwise. (d) the age of each party to the marriage and the duration of the marriage; 53.The wife is 37 and the husband is 46 years of age. The parties were married for four years. If one includes the period of cohabitation prior to marriage it would be fair to state that this was a fairly short relationship of 5 ½ years but one that produced two young children. (e) any physical or mental disability of either of the parties to the marriage; 54.Thankfully this is not in issue. (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; 55.I accept that both parties made a full contribution to the marriage. (g) in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring. 56.As indicated above each party will retain their own Australian superannuation funds. I accept that given the relative shortness of the marriage that this is an entirely appropriate way to proceed. What order should be made for costs? 57.Although the husband has on the face of it been more successful than the wife – he did not win on two of the main issues – i.e. how the loan from the wife’s father should be treated and whether the division of assets should take effect after payment of the wife’s rental. In such circumstances I have decided to exercise my discretion and to make an order nisi to be made absolute in 14 days time that there be no order as to costs. Each party will therefore be responsible for their own legal costs from their share of the assets. The order 58.1. Upon the parties acknowledging and agreeing that
IT IS ORDERED THAT 1. The net proceeds of sale of the former matrimonial home shall be divided between the parties as set out in paragraph 30 and 32 above. In particular the sum of HK$835,822 shall be paid to the wife’s father from the net proceeds of sale held in escrow by the Respondent’s lawyers within the next 28 days. 2. Nominal periodical payments to the Petitioner to be paid by the Respondent at the rate of HK$1 per annum for her maintenance during the joint lives of the parties or until the Petitioner’s remarriage whichever is the shorter first payment to be made upon the pronouncement of the decree absolute. 3. The Respondent do pay periodical payments for the children of the family in the sum of HK$6,000 per month per child first payment to be made on the 1st day of December 2014 and subsequent payments to be made on the 1st day of each succeeding month until each child’s 18th birthday or cessation of full time education, whichever is the later or until further order. It is further directed that the maintenance for the children shall be reviewed prior to C reaching the age of 9 years or completing Form 4 at primary school whichever is the earlier. 4. The division of capital as set out in the preamble and order 1 above shall be in full and final settlement of the Respondent’s claims for all forms of ancillary relief and in full and final settlement of the Petitioner’s claims for capital ancillary relief. 5. There shall be an order nisi to be made absolute in 28 days time that there be no order as to costs. 6. A section 18 declaration to issue.
Mr Giles Surman instructed by Howse Williams & Bowers for the Petitioner Mr Ian Wingfield instructed by Boase Cohen & Collins for the Respondent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
