COURT OF FINAL APPEAL, HKSAR
JUSTICE KEMAL BOKHARY PJ
JUSTICE PATRICK CHAN PJ
JUSTICE R.A.V. RIBEIRO PJ
JUSTICE M. HARTMANN NPJ
LORD NEUBERGER OF ABBOTSBURY NPJ
12 NOVEMBER 2010
Justice Bokhary PJ
I agree with the judgment of Mr Justice Ribeiro PJ.
Justice Chan PJ
I agree with the judgment of Mr Justice Ribeiro PJ.
Justice Ribeiro PJ
The present appeal and the appeal in LKW v DD (FACV 16/2008) both concern applications for financial provision on divorce. They were heard together and the judgments are to be handed down at the same time.
A. THE COURT'S DECISION IN LKW v DD
In LKW v DD, it is held that in exercising the discretion conferred by section 7 of the Matrimonial Proceedings and Property Ordinance Cap 192 (“section 7”), Hong Kong courts should adopt the approach developed by the House of Lords in White v White  1 AC 596 and in the conjoined appeals in Miller v Miller and McFarlane v McFarlane  2 AC 618 (referred to here as “Miller/McFarlane”) as explained and applied by this Court. The present judgment follows that approach, adopting without repetition the analysis contained in LKW v DD. It is therefore necessary for this judgment to be read in tandem with the judgment in LKW v DD.
B. THE BACKGROUND FACTS
I shall refer to the appellant as “the husband” and the respondent as “the wife”. When HH Judge Bruno Chan gave judgment on 14 July 2008 (FCMC 5508 of 2005 (14 July 2008)) on the wife’s application for ancillary relief, the husband was aged 41 and she was aged 43. The husband, who is from Hong Kong, was then a director of various companies and took part in the family business. He is one of nine children whose father is a very wealthy and well-known business magnate with interests in property, banking, hotels and entertainment in Hong Kong and South-East Asia. The wife, who comes from Malaysia, was at the time of the hearing living in her parents’ house in Kuala Lumpur and working as a part-time music lecturer in a school of music.
The parties had first met in London in 1985 when the husband was doing his A-levels and the wife was in her first year of university reading music at King’s College London. They formed a relationship and soon afterwards the wife moved in with the husband in a house owned by his family in South-East London. The husband had adopted two dogs to which both parties were devoted. In September 1988, the husband went to Cambridge to read for a degree in economics. Having graduated from King’s College London in that year, the wife decided to stay in the London residence to look after the property and the dogs instead of pursuing a Masters degree in music in Oxford, Paris or New York as had previously been contemplated. The relationship between the parties continued with the husband returning to London at weekends and on holidays and with the wife occasionally visiting him in Cambridge. The husband graduated in 1991. Throughout the period described above, both parties were financially dependent on their respective parents.
In the summer of 1991, the husband left London for Singapore to join the family business there. A few months later, the wife also left London, returning to Malaysia and taking the dogs with her. It is part of the wife’s case that because of her relationship with the husband, she gave up her aspirations to be a concert pianist and worked instead as a part-time music teacher, taking care of the dogs.
In 1993 the husband returned to Hong Kong and continued his involvement in the family business. The parties exchanged visits, staying at their respective parents’ homes in Hong Kong and Kuala Lumpur. They also travelled together during the husband’s frequent business trips. They thought about getting married and went so far as to make marriage registry appointments in Hong Kong in 1992/1993 and in London in 1995. However, it is not in dispute that, particularly between 1995 and 1997, they broke up and were reconciled on many occasions. It was only on 21 September 1997 that they got married in Las Vegas although they did not inform their families of this until much later.
However, after the marriage they resided in the home of the husband’s parents, which was a four-storey 20,000 sq ft mansion. During that time, as the Judge describes it, the wife (at §11):
.... never worked and, in her own words, mainly kept her mother-in-law and sisters-in-law company, dining and shopping, as well as travelling with the Husband. She was also given one of his ATM bank cards and 2 credit cards for her personal use and expenses.
In the three years of their marriage, the parties continued to travel together and there was talk of moving out of his parents’ home and into a home of their own. However, that period was also punctuated by serious quarrels which resulted in the wife going off to Malaysia followed on each occasion by the parties’ reconciliation and the wife’s return to Hong Kong. Eventually, as the Judge puts it (at §12):
Matters finally came to a head in April 2000 when she left Hong Kong for Malaysia purportedly to renew her passport but did not return thereafter, and the Husband subsequently had a brief affair with another woman.
The husband made repeated attempts at reconciliation but these were unsuccessful and the parties never resumed cohabitation. On 1 June 2005, the wife petitioned for divorce in Hong Kong. This was initially on the ground of unreasonable behaviour but the petition was later amended to rely instead on two years’ separation beginning in April 2000. A decree nisi was granted on 7 February 2007.
C. THE DECISIONS AND AWARDS IN THE COURTS BELOW
Both the Judge and the Court of Appeal (CACV 339 of 2008 (22 July 2009), Tang VP, Le Pichon JA and Stone J) followed the lead of the Court of Appeal in DD v LKW  2 HKC 134 and took White v White and Miller/McFarlane to be applicable in Hong Kong. However, their views on the application of the principles and on important factual aspects of the case greatly diverged. The Judge found that the husband’s net assets came to $35.8 million and that the wife had assets worth $1.5 million. The Court of Appeal took the husband’s net assets to be $95 million and regarded the wife’s net worth as insignificant. The Judge awarded the wife $9.2 million on a clean break basis and the Court of Appeal increased that award to $37.5 million.
In the paragraphs which follow I shall adopt the guidelines provided in LKW v DD and in the process, will consider the differences which led the Judge and the Court of Appeal to reach such disparate conclusions.
D. STEP 1: IDENTIFYING THE PARTIES' ASSETS
The first step proposed in the LKW v DD at §71 guidelinesis to identify the financial resources of each of the parties calculated as at the date of the hearing. This initial stage of the exercise proved to be one of the most important battlegrounds in this case.
D.1 Reversal of the Judge’s findings on the husband’s net assets
At first instance, four different sums were put forward by the husband as liabilities which should be taken into account with the effect of drastically reducing his net assets. They are each further examined later. It suffices for the moment to identify them using the names employed at the hearing and below. They consisted of
the “Jade Seal loan” of $5,698,624;
the “Brother's loan” of $10 million plus $11,254,014 interest, totalling $21,254,000;
the “Magnicon loan” of $22,385,000 plus interest, against which the husband had set-off $4,490,926 due to him (the “Magnicon set-off”); and
the “Dahoon International repayment” of $28,800,000 plus $4,055,577 interest, coming to $32,855,577.
In arriving at his finding that the husband had net assets of $35.8 million, the Judge accepted as genuine liabilities the Brother's loan and the Dahoon International repayment. He did not recognize the Jade Seal and Magnicon loans (although he allowed the Magnicon set-off amount to be deducted). The liabilities he acknowledged therefore totalled about $58.6 million and those which he disregarded came to about $28 million.
In the Court of Appeal, Stone J (with whom Tang VP and Le Pichon JA agreed) left untouched the disregarded liabilities but reversed the Judge’s findings regarding the recognized liabilities. He held that the whole sum of $58.6 million should be brought back into the computation of the husband’s assets. That required a finding by the Court of Appeal that the husband’s net assets totalled $94.4 million instead of $35.8 million as found by the Judge. As we have seen, Stone J proceeded on the footing that the husband had net assets of $95 million. [There was an error in computation which turned out not to be material.]
D.2 Legal principles governing interference with such findings
In substituting its own net asset figure, the Court of Appeal had to reverse the Judge on findings of credibility and primary fact. A major question in this appeal is whether it was entitled to do so.
The legal principles governing appellate interference with findings of primary fact, and especially findings on credibility, are well established and were re-stated by Bokhary PJ in Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336. As his Lordship pointed out, in Benmax v Austin Motor Co. Ltd  AC 370 at 374, Viscount Simonds noted the “universal reluctance to reject a finding of specific fact, particularly where the finding could be founded on the credibility or bearing of a witness”, contrasting that with the treatment of inferences. In a well known passage in the same case (at 375), Lord Reid explained why there is such reluctance:
.... No one would seek to minimize the advantage enjoyed by the trial judge in determining any question whether a witness is or is not trying to tell what he believes to be the truth, and it is only in rare cases that an appeal court could be satisfied that the trial judge has reached a wrong decision about the credibility of a witness. But the advantage of seeing and hearing a witness goes beyond that: the trial judge may be led to a conclusion about the reliability of a witness's memory or his powers of observation by material not available to an appeal court. Evidence may read well in print but may be rightly discounted by the trial judge or, on the other hand, he may rightly attach importance to evidence which reads badly in print. Of course, the weight of the other evidence may be such as to show that the judge must have formed a wrong impression, but an appeal court is and should be slow to reverse any finding which appears to be based on any such considerations.
Lord Hoffmann made similar observations in Piglowska v Piglowski  1 WLR 1360 at 1372 about overturning findings on credibility and of primary fact, reiterating what he had said in Biogen Inc v Medeva Ltd  RPC 1 at 45:
The need for appellate caution in reversing the trial judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance … of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation.
D.3 Appellate interference in the present case
In the present case, having seen and heard the husband, the Judge accepted his credibility in general. His Honour stated (at §64):
He gave his evidence in a straightforward, truthful and balanced manner without any hint of exaggeration or self-serving. It is plain from his evidence that he still had very strong feelings towards the Wife and had tried hard to be fair by avoiding to lay any blame on her for the breakdown of their relationship.
It follows that for the Court of Appeal’s decision to overturn the Judge’s findings on credibility to be justified, it had to be founded (to paraphrase Lord Reid) on other evidence the weight of which was such as to show that the Judge must have formed a wrong impression. On what evidence did it rely?
Stone J of course examined each of the disputed liabilities in deciding whether each should be added back. He was highly critical of the fact that some items were disclosed late in the day and thought that reasons existed for doubting their validity. Those matters are discussed below. It is necessary first to examine what his Lordship perceived to be material non-disclosure indicating a serious lack of probity on the husband’s part, a finding which strongly coloured his analysis and was fundamental to the Court of Appeal’s decision to interfere with the Judge’s findings.
D.4 The perceived non-disclosure by the husband
The alleged material non-disclosure focussed on three items on the asset rather than the liability side of the ledger. They consisted of the husband’s Goldman Sachs account, a property referred to as the Federal Hill property and the husband’s membership of the Pacific Club, with a total value of over $20 million. The largest item by far was the Goldman Sachs account with a value of $18,598,538 (at §§126 and 132).
Stone J noted the submission of Mr Russell Coleman SC, appearing for the wife, that the husband’s first Form E filed in August 2005, putting his assets at about HK$38 million, was “blatantly untrue”. This was demonstrated, it was submitted, by the fact that assets of about HK$58 million were disclosed by September 2006, the $20 million or so differential being accounted for by the three assets mentioned above. The explanations offered for the difference were said to be “risible” (at §126).
After also noting counsel’s criticism of an “astonishing” increase in liabilities claimed from about $2.1 million to $71.1 million and subsequent variations, Stone J accepted the thrust of counsel’s submission that (at §129):
.... in the matter of his finances the husband had shown himself prepared to lie on oath, and clinically to attempt to mislead the court, and that it was this ‘catch me if you can’ attitude, whereby significant assets initially were not disclosed, and thereafter the alleged liabilities hugely increased in order to reduce the resources available for distribution, which ought to have informed the learned judge’s approach, although regrettably this had not proved to have been the case.
His Lordship was critical of the Judge’s acceptance of the husband’s probity, stating (at §130):
The judicial treatment of these extraordinary – and apparently wholly self-serving – discrepancies is, if I may say so with respect, less than compelling, and in my view forms the most unsatisfactory aspect of this case.
He added (at §§135-136):
.... the judge appears to have accepted the overall probity of the disclosure as given by the husband, notwithstanding the circumstances in which the disclosure of the alleged liabilities had emerged .... In light of the undisputed history of events, I confess that I find it extraordinary that the husband’s financial probity thus is accepted, and that the judge sees fit to proceed upon that basis.
Confining myself for the moment to the way the three assets mentioned above were disclosed, I do not think those criticisms are justified or fair to the husband or the Judge. The $18.6 million Goldman Sachs account had in fact been disclosed in the first Form E dated 16 August 2005 which announced its existence and stated that account statements would be provided. Details were duly provided two months later as an attachment to an answer dated 27 October 2005 to the wife’s questionnaire. I am therefore unable to see how this can be described as “non-disclosure” at all, let alone evidence that the husband was prepared to lie on oath or evidence of a “catch me if you can” attitude.
The Judge’s reaction to the wife’s submission on the Goldman Sachs account, far from being “extraordinary”, seems to me impeccable. He stated (Judgment §76):
Much has been made of the Husband’s failure to include the value of his Goldman Sachs account or Federal Hill property in his 1st Form E which is however in my view not fair and ultimately invalid. While it is true that he or his former solicitors should have clarified the former better in the summary of his net worth in his Form E, I do not think it was any attempt on the part of the Husband to conceal these assets, as after all, he did disclose the Goldman Sachs account in the same Form E with a clear assertion that its statements would be forthcoming, and that the funds in the account were in fact only recently transferred from another account already disclosed, I fail to see how that could be interpreted as an attempt to conceal the Goldman Sachs account, as otherwise he would not have mentioned it in the first place.
As to the two less valuable assets, the Judge accepted the husband’s explanation regarding disclosure of the Federal Hill property and pointed out that the Pacific Club membership was also disclosed in the first Form E albeit without giving its value (at §77):
As for his Federal Hill property, I accept his explanation given at the trial that at the relevant time it was not yet registered in his own name but that once it was done he did disclose it at the first opportunity, and in view of its relatively insignificant value in his portfolio, the same of which can also be said about his Pacific Club membership which he did disclose in his 1st Form E but without giving its value, I do not find anything suspicious about the way they were disclosed either.
No basis has been suggested for saying that the Judge was not entitled to form such a judgment. Subsequently, the club membership was sold for $93,000, showing that its value was indeed immaterial in the context.
I therefore consider the accusation of non-disclosure of those assets unfounded and an invalid basis for overturning the Judge’s findings on credibility. The non-disclosure argument should have been rebuffed rather than accepted as evidence of the husband’s general lack of probity.
Turning to the contested liabilities, the complaint was not about non-disclosure since it was accepted on the wife’s behalf that by 22 June 2007, full details of the loans underlying the claimed liabilities had been supplied. Her criticism relates to the alleged lateness and sporadic nature of the disclosure, which is a matter that can be dealt with in the substantive discussion of the Court of Appeal’s decision to add back those sums.
D.5 The contested liabilities of the husband
There is no doubt that the liabilities alleged by the husband deserved to be approached with great reserve and subjected to close scrutiny. It may have been just too tempting and convenient for the husband to be able to reduce “the size of the pot” by relying on liabilities to his father and brother, crystallized late in the day. The Judge was fully alive to this (at §78):
I do however agree that the Wife is entitled to raise her eyebrows over the Husband’s subsequent disclosure of his various debts and liabilities due to his father and brother, some of which incurred years before his 1st Form E, and that they warrant thorough investigation in each and every one of them in particularly over the necessity of their repayment with interest, which seems to be the Wife’s main dispute rather than their factual existence ....
These were not empty words, as his decision to disregard the Jade Seal and Magnicon loans demonstrates.
D.5.a The Jade Seal loan
Jade Seal Limited held a property valued by agreement at $10.5 million. The company owed the husband’s father $5,698,624 which the father, as director, had lent it to enable it to purchase that property. On 26 April 2005, the father made a gift of all the shares in the company to the husband although the company’s debt to the father remained on its books. The husband sought to rely on that debt as reducing the value of his shares in the company. The Judge, however, did not allow that reduction. He inferred that it could not have been intended that the company’s debt to the father had to be repaid since such an obligation would have deprived the gift of any meaning, given the amount outstanding on mortgage and the then current valuation of the property. That decision has not been challenged by the husband.
D.5.b The Magnicon loan
Magnicon Enterprises Limited, another of the father’s companies, had a piece of agricultural land in the New Territories. The husband was given a 50% interest in the company and assigned the task of securing a New Grant from the government in exchange for that land. The husband was successful in securing the exchange on payment of a government land premium of $16.23 million. The husband raised that amount partly by taking the Brother's loan of $10 million (discussed below) and partly from his own funds. The exchanged piece of land was later sold, netting a profit of $44.77 million. His father allowed him to keep the father’s 50% share of those profits, ie, $22.38 million, to be used by the husband as working capital for other business ventures. Magnicon was dissolved on 25 April 2003.
The husband set-off the sum of $4,490,926 due to him from his father’s company Dahoon Company Ltd (“Dahoon”) against the debt of $22.38 million which he asserted was due to his father and therefore disclosed a liability of $17,894,074 in respect of the Magnicon loan. The Judge did not deal with the set-off in any detail but allowed it as a reduction of the husband’s personal assets. However, he refused to recognize the net principal sum of $17,894,074 as a relevant liability, notwithstanding that the father’s solicitors had issued a demand letter dated 2 May 2008 requiring repayment with interest at 1.5% below prime “calculated from 1997 and accrued up to April 2008” totalling $31.87 million to be paid within 30 days.
The Judge considered the circumstances of the father’s demand for repayment as suspicious, pointing to the fact that the “demand came just 3 days before the re-start of the hearing” and the improbability of the father expecting the husband “to come up with more than $31.87 million in cash, which he did not have ... within such a short time,” especially “when the loan has been outstanding for more than 10 years” (at §91).
The Judge, in other words, took into account some of the very matters that were later stressed by Stone J. He refused, however, to find that the husband had deliberately set out to mislead the court “having heard and seen him in evidence and found him a truthful witness” (at §92). Rather, the Judge found that the Magnicon loan was genuine but a “soft” loan, “repayable but only when the husband is in a position to do so”. On that basis, he disregarded it as a liability for the purposes of the ancillary relief proceedings (at §93).
D.5.c The Brother’s loan
As mentioned above, the husband obtained the $10 million loan from his brother to help fund the government premium in the Magnicon project. It was not in dispute that it was a genuine loan. The issue raised by the wife was as to whether there was any obligation to repay it since it had been outstanding for more than 10 years. She was, in other words, seeking to suggest that this too should be treated as a “soft loan” not to be regarded as a liability. The Judge however allowed both principal and interest to be brought into account.
Stone J was sympathetic to the wife’s position and, in overturning the Judge’s findings, stated (at §176):
The brother must have known about the sale (which took place within months of the advance) and the profit it produced. However, the court has not been shown any evidence explaining why the loan was not repaid when the land was sold since, plainly, Magnicon could be said to have been awash with cash at that time.
His reasons for interfering with the Judge’s findings were explained as follows (at §178):
The earliest ‘demand’ from [the brother] for repayment that is in evidence is a letter dated 31 May 2000. There is no apparent reason why this demand should have been made ‘out of the blue’, as it were, although coincidentally the demand was made within weeks of the separation of the wife and the husband; nor is there any explanation as to why the husband was not required to make repayment to [the brother] upon completion of the sale, given the significant amount of profits the transaction apparently had generated. Subsequent requests for repayment, at a time manifestly advantageous to the husband, must ring hollow when no demand appears to have been made when it was most natural for such a demand to have been made, quite apart from the issue of statutory limitation which was never addressed.
With respect, Stone J evidently overlooked evidence given by the husband and the brother which the Judge accepted. The brother told the court that he had not wanted to lend the husband the money in the first place, but had done so in order to comply with their father’s wishes. He testified as follows:
In the past 10 years, I kept chasing him for the money. Honestly, since I became aware of this case .... I pushed him more. Previously, he explained to me that though the business relating to that loan had been finished but he continued with the investment. And that’s the reason why he kept saying that the repayment would took place later. Now in these two years, I chased him more often for the repayment of the money, and he told me not to worry about it and that he would return the money to me as we were brothers ....
As to interest, the brother’s evidence was that they had agreed it was payable but had not agreed the rate. Because of his concern about the present matrimonial litigation, the brother caused his accountant to work out interest at 1.5% below prime.
The husband was asked in evidence why, after accomplishing the project he didn’t then repay his brother. He replied: “I thought I could find projects later that justified borrowing the money further.” He also confirmed that from time to time over the years, his brother had asked for the money to be returned.
The court had therefore in fact been given an explanation as to why the money was not immediately repaid on completion of the project. And it was not correct to say that the accountant’s demand for repayment “came out of the blue”. Nor was it the case that there had been no demand made “when it was most natural for such a demand to have been made”.
The possible insinuation that the accountant’s written demand dated 31 May 2000 might have been something of a ruse, having been made “within weeks of the separation of the wife and the husband” or “at a time manifestly advantageous to the husband” is quite unjustified. There had been many such separations followed by reconciliations and the husband had made repeated efforts at reconciliation after that particular separation. There was nothing untoward about the timing of the demand letter. Indeed, in my view, it confirms the genuineness of the loan and of the brother’s consistent desire to be repaid. It was plainly not a “soft” loan.
The question of limitation mentioned by Stone J was not raised on the appeal. If it had been, it might have been necessary to consider evidence of written acknowledgments of debt within the preceding six years and also the Judge’s entitlement to disregard the taking of limitation points as a realistic prospect in relation to loans within a family such as the present.
It was not in any event for the Court of Appeal to re-try the case on hypotheses of its own devising. The Judge stated:
I find [the brother] a truthful and convincing witness and have no reason to doubt his evidence that he expects this loan and interest to be repayable soon, after all, it is a very significant amount by any standard even excluding the interest, and there is no reason why it should be simply written off or ignored between the brothers even though it has remained outstanding for years.
There was no basis for the Court of Appeal interfering with that finding and it was in my view wrong to add back the amount of the Brother's loan with interest to the husband’s net assets.
D.5.d The principal amount of the Dahoon International repayment
Dahoon International Limited (“Dahoon International”) was a subsidiary of Dahoon, both being companies within the family business. Dahoon International owned property known as Grandview Villas which the husband was given charge of. On 5 January 2006, he signed an agreement on Dahoon International’s behalf to sell the project to a company called Evermax Limited (“Evermax”) for $144 million. Evermax paid over a deposit in the sum of $28.8 million with completion to take place on 28 February 2006. With his father’s permission, the husband signed a Dahoon International cheque making over the $28.8 million to himself as a loan to be used for the purposes of a business the husband had in Shanghai. However, the sale to Evermax was not completed since certain family members objected to the sale. Evermax sued Dahoon International on the contract and the action was eventually settled. The husband repaid to Dahoon International $32,855,577 comprising the principal sum of $28,800,000 plus interest in the amount of $4,055,577. This was disclosed in his last Form E dated 16 April 2008.
The wife’s case, according to the Judge, was that Dahoon International ought to be regarded simply as the husband’s alter ego and that the entire transaction should be seen merely as involving him writing a cheque to himself with no obligation to repay (at §106). It was argued that the principal and interest ought to be added back in the computation of the husband’s assets. His Honour pointed out, however, that this was never put to the husband in cross-examination and agreed with the husband (whose evidence was found to be “clear and straightforward and well supported by documentary evidence”) that the Dahoon International repayment should be left out of the account of his net assets (at §108).
The Court of Appeal reversed the Judge suggesting that there were unexplained features in the accounting treatment of the loan in Dahoon International’s books; that objection by the family to the Evermax sale did not mean that they objected to the loan to the husband; and that the absence of “a plausible explanation ... as to why the repayment of the loan was necessary at that particular juncture” when there had been no written demand from Dahoon International for repayment was suspicious. Stone J held that in the absence of any evidence from the father (who had withdrawn his witness statement when notice of cross-examination was given) he did not consider that the judge reasonably could have concluded that the husband had discharged his burden of satisfying the court that the amount was due and payable as at 20 February 2008 (at §159).
He concluded (at §160):
The ineluctable and irresistible inference from the circumstances highlighted above, together with the timing of the repayment (made several months after the trial had commenced at a time when it was part heard), is that the sole purpose of the payment was cosmetically to reduce the husband’s apparent assets.
The Court of Appeal therefore ordered the $28.8 million principal amount to be added back to increase the husband’s assets. I deal separately with the interest.
With respect, the Court of Appeal’s decision is based on an erroneous characterisation of the transaction. The husband borrowed the money from Dahoon International in January 2006 thereby contracting a fresh and genuine liability to pay the money back. That was done almost six years after the parties had separated and over six months after the wife’s petition. When he repaid it in 2008, he was discharging that liability. There was no question of him thereby reducing assets which would otherwise have been available for distribution in the ancillary relief proceedings. His original receipt of the proceeds of the loan may superficially appear to have swelled his assets but that receipt was obviously subject to a matching liability to repay the same. The suggestion that “the sole purpose of the payment was cosmetically to reduce the husband’s apparent assets” is therefore unsustainable. The Judge’s non-inclusion of the repayment of principal was plainly correct.
Mr Coleman sought to suggest that the husband should not be allowed to take this point in this Court as it had not previously been raised. However, all the relevant evidence has always been before the court and Mr Coleman was unable to suggest that his client would be caused any prejudice if the point were now to be entertained. In my view, the point is clearly available to the husband. I consider that the Court of Appeal’s decision that the principal sum ought to be added back to the husband’s assets was wrong in principle and should be set aside.
D.5.e The interest element of the Dahoon International repayment
The Court of Appeal is, however, on much stronger ground in relation to the interest element in the Dahoon International repayment. The drawing of the loan occurred in the most informal way with the husband writing himself a cheque with the father’s permission. In Note 10 to Dahoon International’s accounts for the year ended 31 March 2007, the loan to the husband is recorded as “unsecured, interest free and [with] no fixed terms of repayment”. On its face, therefore, there was no obligation to pay interest to Dahoon International and any such payment would have amounted to a voluntary reduction of the husband’s assets which would normally be disregarded for financial provision purposes.
When the husband was asked in chief why repayment was made “plus interest”, he replied: “I am not sure”. When the question was repeated, he said: “Well, the company suffered damage .... loss of interest”. In cross-examination, his attention was drawn to Note 10 of Dahoon International’s accounts and asked: “So according to the accounts, it was interest free?” To which he replied: “At that time, sir, yes.” In re-examination, the husband was shown Note 14 of those accounts which recorded that Dahoon International had taken out a mortgage loan in the sum of $48 million in January 2007 on which interest was payable at the rate of 5.5% per annum subject to fluctuation. The accounts also indicated that in the previous year, the amount outstanding on that loan had been $24,967,166. Then by a series of leading questions, there was elicited from the husband the response that Dahoon International’s repayment of the deposit to Evermax was financed by that bank loan. There was in fact no evidence of the terms of settlement between Evergmax and Dahoon International since the husband had objected to producing the cancellation agreement entered into by the parties to the settlement on the ground of confidentiality. In another passage in re-examination, the husband was asked to explain what he had meant when he had agreed that “at that time” the loan was interest-free to which he answered: “We could not decide on the interest rate ... We decided on the interest rate payable to the company recently and then now I repaid the loan”.
In my view, the Court of Appeal were fully justified in reversing the Judge in respect of interest on the Dahoon International loan. The only evidence bearing on interest was found in the company’s own audited accounts and showed that the loan was interest-free. The husband’s evidence demonstrated that he really did not have any explanation for the interest element in the Dahoon International repayment. The attempt to justify it by reference to Dahoon International having had to finance the return of its deposit to Evermax was incoherent. Even if Dahoon International had had to finance such repayment, that did not show that the loan to the husband had been on interest-bearing terms, contrary to what the accounts stated.
Stone J pointed out in addition that the company’s management accounts said nothing about interest being payable and added (at §168):
.... the husband’s evidence effectively amounted to this: notwithstanding the terms of the loan from the bank, the interest the husband was to pay on that loan was something that only recently had been agreed, namely at prime less 1.5% compounded monthly (the schedule of interest calculation refers); this rate not only well exceeded that payable to the bank of 5.5%, but also interest was paid for a period a year before any loan was raised from the bank.
With respect to the Judge (who did not specifically focus on the interest element), there was no evidence to justify treating the interest as a liability properly deductible from the husband’s assets. On the contrary, the only clear evidence indicated that interest was not payable. The Court of Appeal properly decided that $4,055,577 should be added back to the husband’s assets.
D.5.f The Magnicon set-off
It is not in dispute that Dahoon owed the husband $4,490,926. One would therefore normally expect that amount to be included as part of his assets for the purposes of the proceedings. However, it was not included but was instead set-off against the Magnicon loan which was then treated as having been reduced from $22.38 million to $17,894,074. There was no discussion of the basis of that set-off in the Judge’s reasons.
The Court of Appeal ordered the $4,490,926 amount to be added back to the husband’s assets stating that “the logic of accepting the ‘Dahoon set-off’ is difficult to follow” and that “in the absence of compelling evidence establishing the necessity of such a set-off at that particular time, it should have been disregarded” (at §173).
Mr Benjamin Yu SC, appearing for the husband, submitted that the logic of accepting the set-off was readily understandable and consistent with disregarding the Magnicon loan. By refusing to allow deduction of the Magnicon loan, the Judge was telling the husband: “I think it is a ‘soft loan’ which you need not repay to your father and so won’t treat it as a liability”. If at the same time the Judge were to refuse to accept the set-off, it would be tantamount to saying: “But I find that your father’s company Dahoon must nevertheless pay you the $4.49 million it owes without setting it off against the ‘soft loan’”. The submission was essentially that if the debt owed by the son to the father was treated as “soft”, the same treatment should be given to the debt owing by the father’s company to the son: sauce for both goose and gander. To approach the set-off otherwise would, Mr Yu submitted, be unfair to the father.
That is a beguiling argument but, it does not rest on any factual basis. It is evident that the Judge simply assumed that the set-off ought to be recognized without giving it any specific thought or investigating the facts on which it was based. The debts are not strictly mutual debts. The debt arising out of the Magnicon loan is a debt to the father personally while the debt purportedly set-off was owed to Dahoon. The evidence was that Dahoon’s shareholders were various members of the family and had changed from time to time. Secondly, when, why and in what circumstances the Dahoon debt was incurred are matters which have not been explored. There is no reason to assume that it should be treated as a “soft” loan by the husband to Dahoon. It is one thing to infer that an extremely wealthy father made a soft loan to a son at the start of the son’s business career, but a very different thing to postulate that such son’s loan to a family company was “soft”.
It follows that no basis has been established for excluding the amount purportedly set-off from the computation of the husband’s net assets and the Court of Appeal was right to add back the sum of $4,490,926.
D.6 The wife’s assets
D.6.a A share portfolio worth $1.5 million
The Judge took the wife’s assets to comprise a share portfolio worth $1.5 million and took it into account as part of the $9.2 million award (at §§69 and 158). The Court of Appeal, however, pointed out that the portfolio was fully charged to meet legal costs and suggested that it was illusory to treat it as an asset. It did not, however, give its suggestion any specific financial effect, saying that it might not greatly matter in the overall scheme of things (at §§115-118).
Since the Judge has yet to make an order as to costs, the impact of any such order on the $1.5 million portfolio is not presently known. There may be no impact if the wife is not required to pay any costs. This Court will proceed on the basis that the wife does have such an asset worth $1.5 million, leaving costs to be dealt with in the ordinary way.
D.6.b The wife’s earning capacity
Addressing the wife’s earning capacity, the Judge described her as “a smart, intelligent and impressive person with great talent in music” and found that with such talent she (at §121):
.... should be able to earn much more than her present monthly income of $1,500 by giving piano lessons, as even at a more comfortable and manageable 2 hours per day on average at the rate of what the Husband believes she would be able to earn should get her an income of at least $30,000 per month.
His Honour took that sum to represent her earning capacity and used it in assessing her income needs. However, I do not think an assessment of her monthly earning capacity at $30,000 can be supported. As Stone J points out, that figure simply reflects the husband’s opinion or belief which there was no reason to think was well-founded, especially since he had an obvious interest in asserting a high earning capacity. It provided no evidential basis for the Judge’s finding. Stone J points out that (at §110):
The mathematics of this produces a rate of $750 per hour, and whilst in Hong Kong terms this may not be unusual, there was no evidence of what is the ‘going rate’ in Kuala Lumpur. Moreover, at the current exchange rate of MR1 to HK$2.2, this would translate into MR340 per hour, which is more than 5.5 times the rate at which the wife currently is being remunerated (at MR60 per hour) as a part-time lecturer.
Moreover (at §112):
.... there was no evidence of the demand in Kuala Lumpur for this level of teaching to warrant any finding that the wife would be able to teach 40 hours per month at that hourly rate.
The Court of Appeal, however, did not specify the financial impact of its conclusion. In my view, the Court of Appeal was right to reject use of $30,000 per month for her earning capacity. This Court should accept that on the evidence, the wife has some capacity to earn income as a piano teacher but, approaching the matter in a rough and ready way, significantly reduce the figure adopted by the Judge, substituting $15,000 per month in its place. This increases the award required to meet the wife’s income needs considered in Section E below.
I pause to note that there was no finding as to the husband’s earning capacity, no doubt because the Judge was focussing on an award solely to meet the wife’s needs. While the absence of such a finding does not cause any great difficulty in this case, it is a finding which should in general be made. Section 7(1)(a) requires the court to have regard to each party’s financial resources, including their earning capacity and, as Sir Mark Potter P stated in Charman v Charman (No 4)  1 FLR 1246 at §67:
Irrespective of whether the assets are substantial, likely future income must always be appraised for, even in a clean break case, such appraisal may well be relevant to the division of property which best achieves the fair overall outcome.
D.7 Summary as to Step 1
My conclusions in relation to the parties’ total assets may be summarized as follows:
The Court of Appeal’s order requiring the sum of $58.6 million to be added back to the husband’s assets cannot be upheld save in respect of the sums of $4,055,577 representing interest on the Dahoon International repayment; and $4,490,926 representing the amount purportedly set-off against the Magnicon loan.
Accordingly, the husband’s total assets should be taken to amount to $44,346,503 in place of $35,800,000 as found by the Judge and $95,000,000 as found by the Court of Appeal. The wife’s assets should be taken to be $1,500,000 (subject to the result of the pending costs hearing) so that the total assets of the parties come to $45,846,503.
E. STEP 2: ASSESSING THE PARTIES' NEEDS
Step 2 involves the court conducting an initial assessment of the parties’ financial needs and asking whether their total assets are such that a surplus would exist after catering for those needs.
The Judge assessed the wife’s capitalised income needs on a Duxbury calculation at $5.2 million and, adding sums totalling about $4 million to cover her “housing needs, decoration, a new car and a new piano”, he assessed her overall needs in the total capital amount of $9.2 million (at §158).
As indicated in Section D.6.b above, an adjustment to the wife’s earning capacity makes it necessary to revise the assessment of her capitalized income needs. The Judge approached such needs as follows (at §158):
I have earlier already capitalised the Wife’s income needs at $660,000 per annum, which must now be set against my findings of her earnings and earning capacity of $30,000 per month ($360,000 p.a.), giving a net annual sum of $300,000 which she would require from the Husband to meet her needs (generously interpreted), and hence a capitalised income needs by using the same Duxbury calculation to arrive at roughly $5.16 million which I would round up to $5.2 million.
Since I would substitute a finding of an earning capacity of $15,000 per month in place of $30,000, her estimated annual earnings come to $180,000. Setting off that amount against her annual income needs of $660,000 as assessed by the Judge, I would hold that she has an annual expenditure requirement of $480,000. The parties are agreed that, applying the same Duxbury calculation as that used by the Judge, the wife’s capitalized income needs come to $8.32 million (in place of $5.2 million as found by the Judge). Adding to that revised amount the unchallenged sum of $4 million allowed by the Judge for her non-income needs, the revised award in respect of her overall needs comes to $12.32 million (in place of $9.2 million allowed by the Judge). I will refer to this as “the adjusted needs-based award”.
There was no finding of the husband’s needs but it is obvious that the total assets of the parties are significantly greater than the amount required to see to their respective needs, generously interpreted.
F. STEP 3: DECIDING TO APPLY THE SHARING PRINCIPLE
Having found that the assets identified in Step1 exceed the needs assessed in Step 2, the court generally decides, as Step 3, that the sharing principle applies to the total assets, so that they should be divided equally between the parties unless good reason exists to the contrary. The “needs” discussed in Step 2 are to be included as one of the factors to be considered as part of Step 4 when addressing the question whether good reasons to depart from an equal division exist, and also as part of Step 5 when the final outcome is determined after examining the entire picture in the light of the “yardstick of equal division”.
The LKW v DD guidelines were obviously not available to the Judge when he delivered judgment. Referring to the three “strands” of need, compensation and the sharing principle mentioned in Miller/McFarlane, His Honour decided that neither the compensation principle nor the sharing principle was engaged and that this was solely a “needs” case. He held (at §§149-157) that the sharing principle was inapplicable because of the shortness of the marriage and because, as he put it, “there was virtually no marital acquest”.
I do not agree with the Judge’s suggestion (see §§151 and 153) that the sharing principle is capable of being “displaced” by such considerations, even where there are substantial assets surplus to the parties’ needs. There is nothing in White v White or Miller/McFarlane to support that view. If the Judge’s approach were to be adopted, one would have to define the conditions for such displacement, which in my view, introduces unnecessary complications. The better approach is to regard the sharing principle as always applicable when there are assets surplus to needs but accepting that, as part and parcel of that principle, an equal division should indeed be departed from if good reason exists for so doing. The shortness of a marriage, the absence of marital acquest and similar matters can all be considered as possible reasons for such a departure. The circumstances of a particular case may lead the court to decide, for example, that equal division should be departed from to the extent of restricting the award to a sum sufficient to meet one of the parties’ needs. But that is not to say that the sharing principle has been “displaced”.
In my view, the Judge should be treated as having effectively made such a decision, permitting his judgment to be brought within the LKW v DD framework. In other words, on the assumption that the sharing principle applies, the Judge can be interpreted as having ultimately decided at Step 5 that sufficient reasons exist in the present case for departing from an equal division to the extent of confining the wife’s award to a sum covering her needs (which he assessed at $9.2 million). One could then proceed to explore, in our discussion of Step 4, the adequacy of his reasons for arriving at that ultimate conclusion, taking into account the Court of Appeal’s disagreements with the Judge.
G. STEP 4: WHETHER GOOD REASONS FOR A DEPARTURE FROM EQUALITY EXIST
In LKW v DD (at §86 et seq) a range of potentially relevant considerations which might militate in favour of an award which is either greater or smaller than an equal share for one of the parties are discussed. In the present case, three major issues arise as possibly bearing on equal division, namely:
the nature and duration of the relationship;
“Conduct” was rejected by the Judge and not pursued. None of the other factors, including those listed in section 7, are relevant.
G.1 Nature and duration of the relationship
The first area of dispute concerns the significance of the parties’ earlier relationship for the purposes of financial provision.
There is no doubt that the marriage, contracted in Las Vegas on 21 September 1997, lasted some 31 months, ending when the wife left Hong Kong for Malaysia in April 2000. Her petition relied on her separation from the husband as from that date as the basis for the divorce. However, the relationship had clearly begun many years earlier and had started with a period of cohabitation in the United Kingdom when they were both students. The relationship then continued in the manner described above (i.e. Section B) up to the time they got married.
G.1.a The Judge and the Court of Appeal
The Judge decided that on the relevant authorities, the parties’ earlier relationship did not change the fact, as he saw it, that theirs was a “short childless marriage which lasted less than 3 years” (at §1). He did not consider there to have been any cohabitation of a kind which might justify financial recognition in the proceedings.
Acknowledging that the parties had lived together in their student days, the Judge likened this to a “student romance” rather than a relevant period of pre-marital cohabitation. The relationship had commenced when the husband was only a teenager and the wife aged 20 and when both were still financially dependent on their parents. That period of cohabitation in any event ended when they left London in 1991, and, said the Judge (at §36):
.... even though they did maintain a relationship, albeit on and off, up to their marriage in 1997, there was a lack of permanence or commitment in that relationship which was in fact wrought with uncertainties and instabilities that it cannot be said to have moved seamlessly to marriage, and certainly not without any major alteration in the way they lived ....
The Judge thought it significant that although there was “nothing to prevent them from entering into a more permanent or committed cohabitation had they really wanted to do so”, they had not done so, living as they did in separate cities with their respective parents. His Honour concluded (at §37):
.... no matter how close that relationship might have been, or how often the parties might have seen each other or travel together during that intervening period, there was simply no common household to share, and in my view no common intention to do so prior to the marriage which could be described as cohabitation, let alone one that should be included as part of the duration of the marriage. At best, it had been a long but unstable, turbulent and tumultuous relationship that eventually led to a shorter but equally unstable and turbulent marriage.
As noted above, the Judge took the shortness of the marriage as one of the main reasons for holding that the sharing principle was not engaged (at §151) or, putting it in terms of the present analytical framework, for departing from an equal division to the extent of confining the wife’s award to one catering only for her needs.
The Court of Appeal decided that the Judge had misdirected himself in regarding this simply as a short marriage. Stone J stated (at §80):
.... the practical reality was that for at least fully 15 years, that is, almost immediately after the parties met in 1985 until, at the earliest, the time of their separation, with the wife returning to Malaysia, this was a continuous union during which, in effect, the Las Vegas registration was, in date terms, a mere fortuity.
Stone J considered it a sufficient basis for treating a pre-marital relationship as relevant for ancillary relief purposes if that relationship or “union” bore the quality of an intense “emotional interlocking”. He noted that the Judge (at §73):
.... did not disagree with counsel’s characterization of ‘how interlocked the parties were both physically and emotionally throughout their relationship’, and that neither party was able to move on with their life ‘due to the ‘emotional connection’ preventing them from doing so, as emotionally they were ‘locked together’.
His Lordship continued (at §82):
.... I do not consider that the fact of continuous cohabitation is a necessary or conclusive indicia of a permanent union, which in my judgment most certainly existed between these parties during all those years; indeed, there is an argument that in practical terms this ‘emotional interlocking’ had continued even after the wife left Hong Kong in 2000, because, as Mr Coleman has observed, matters did not really come to a head until the husband’s farewell note of March 2004, finally enclosing divorce papers, wherein he stated that ‘after almost 2 decades of our relationship I have decided to pursue it no longer’.
He went on to hold that (at §83):
.... this conclusion is crucial to the basis upon which the application for ancillary relief should have been approached, because on these, albeit unusual, facts there was thus no proper basis for departing from the ‘sharing’ principle by reason of the fact that, as the learned judge clearly regarded the position, this was no more than a ‘short, childless marriage’.
G.1.b The legal principles
The Judge’s investigation of whether the parties had engaged in cohabitation of such a nature as to justify ancillary relief represents the orthodox approach in law. Pre-marital cohabitation is clearly capable of coming within section 7 as a species of “conduct” or as a fact to be taken into account as a relevant part of “all the circumstances”: Kokosinski v Kokosinki  Fam 72 at 85-86. But, as pointed out by Hartmann J (as he then was) in F v F  1 HKLRD 836 at §117, the fact of cohabitation per se is not sufficient. It is the nature of the cohabitation which dictates whether it should be taken into account in the exercise of the court’s discretion under section 7. Thus, in F v F, cohabitation on the parties’ express understanding that it was a trial period made it irrelevant.
Pre-marital cohabitation which is taken into account tends to involve the parties living together in circumstances which approximate to cohabitation as a married couple. Thus, in GW v RW (Financial Provision : Departure from Equality)  2 FLR 108 at §33, Mr Nicholas Mostyn QC, sitting as a Deputy High Court Judge, agreed with Hartmann J’s approach and stated:
.... in my judgment where a relationship moves seamlessly from cohabitation to marriage without any major alteration in the way the couple live, it is unreal and artificial to treat the periods differently.
And, in CO v CO (Ancillary Relief: Pre-Marriage Cohabitation)  1 FLR 1095 at §44, Coleridge J stated:
Committed, settled relationships which often endure for years in the context of cohabitation (often but not always with children) outside marriage must, I think, be regarded as every bit as valid as those where parties have made the same degree of commitment but recorded it publicly by civil registration, ie by marriage.
In contrast, in H v H (Financial Provision : Short Marriage) (1981) 2 FLR 392 at 399, Balcombe J considered the parties’ pre-marital relationship irrelevant:
To consider it as equivalent to a true period of marriage would be cynical in the extreme. It lacked any semblance of permanence; there were no children, and on the several occasions when they separated both considered themselves free to take another partner.
As we have seen, the Judge found that the parties’ pre-marital relationship did not constitute a relevant state of cohabitation.
G.1.c “Emotional interlocking”
Stone J’s position requires a radical extension of the jurisprudence. In holding that continuous cohabitation is not a necessary indicium of a permanent union, he was proposing to recognize a relationship for financial provision purposes even where it involves no cohabitation at all, let alone cohabitation moving seamlessly to marriage or having features of such permanence and commitment as to be comparable to married life. His Lordship suggests that in its place, a relationship over a substantial period involving an intense “emotional interlocking” is sufficient.
I am unable to accept such a proposition. Whether a pre-marital relationship short of cohabitation should be taken into account must be judged against the purpose of the court’s ancillary relief powers. As Lord Nicholls stated in White v White (at 604):
The purpose of these powers is to enable the court to make fair financial arrangements on or after divorce in the absence of agreement between the former spouses ....
The courts have therefore readily accepted that such powers, purposively construed, may be applied to a relationship of cohabitation that amounts to an anticipatory extension of the marriage which has been subsequently dissolved. They have not hesitated to regard as relevant relationships of cohabitation which span a significant period during which the parties have produced children, shared the equivalent of a matrimonial home, mingled their finances, and so forth. Such a relationship does often seamlessly move into the state of marriage, dissolution of which activates the powers being exercised.
There may be highly exceptional cases (such as where parties are unable to cohabit – because, for instance, they have high-powered jobs in different countries – but have children and otherwise generally conduct themselves as if they are married) where the absence of physical cohabitation may not stand in the way of treating them as in a de facto marital state. However, in the absence of such special circumstances, I can see no basis for construing the statutory powers and discretions to extend to relationships which do not involve cohabitation of the kind described above, however emotionally intense those relationships might be. There is no reason in logic or policy for regarding an “emotional interlocking” as an approximation of a matrimonial state. Thus, in M v M (Short Marriage : Clean Break)  2 FLR 533 at §30, Singer J noted:
There is not a case in the calendar where a court has expressly taken into account (whether while assessing the impact of the duration of the marriage, or simply as a circumstance deemed relevant) a relationship which did not involve cohabitation.
And in McCartney v Mills McCartney  EWHC 401at §62, Bennett J stated:
I am prepared to accept that the wife and the husband from 1999 to the date of their marriage spent many, many nights together, holidayed together and became engaged. They had a very close relationship. But that does not, in my judgment, in the circumstances of this case, equate with a settled, committed relationship moving seamlessly into marriage.
Accordingly, it is my view that the Court of Appeal had no basis for overturning the Judge’s conclusion that the marriage in the present case was a childless marriage of less than three years, with no account being taken of any period of cohabitation or of a state of “emotional interlocking” preceding that marriage. I would add that if the emotional intensity of a relationship not involving cohabitation were to be included as a basis for ancillary relief, the courts would be faced with a burdensome, time-consuming and impossibly subjective task.
The Judge thought that in the present case there was no basis for recognizing what Baroness Hale called “compensation for relationship-generated disadvantage” (at §49). The Court of Appeal held (at §96) that he had erred in failing to take such compensation into account. While I do not agree with Stone J’s suggestion that this question involved “compensation for ‘loss of a chance’” (ibid), I respectfully otherwise agree with the Court of Appeal’s conclusion.
G.2.a The Judge’s relevant findings
It was not in dispute that (Judgment §38):
.... in the summer of 1985, around the time when she first met the Husband, she was taking an intensive course in French in anticipation of applying to the Paris Conservatoire and I’Ecole Normale de Paris to pursue piano performance in order to fulfil her aspirations to be a concert pianist.
And the Judge was not in any doubt “of the Wife’s ability and talents as a pianist, as evidenced by the glowing appraisals from her professors” nor of her genuine desire to go the Paris or New York to pursue her career, even though he was inclined to question the necessity of doing so (at §§40-42).
It was the wife’s case that the husband (at §38):
.... was not supportive of her aspirations by ridiculing her performance and discouraging her from composing film music, and had instead reminded her that her duty as a woman was to concentrate on being a wife and a mother and to look after her future family .... Had she not met him, she asserts, she would have gone to Paris or New York to pursue her music studies and focus on her piano performance.
She also testified:
.... that from 1992 onwards, the Husband would travel extensively, both for leisure and for work, she therefore became his constant companion, and in order to accommodate his lifestyle and to spend time with him and to share a life with him, coupled with his demand not to pursue a career, she therefore gave up her lifelong aspiration of becoming a concert artist.
The Judge essentially accepted her case, noting that the husband had admitted that he had been against her travelling extensively for concert performances for fear of losing her; that he had objected to her becoming involved in film music composition because he did not like the film business; that he had believed that he should be the breadwinner; and that he had clearly preferred that she should keep him company during his travels instead of pursuing her career aspirations. The Judge concluded (at §47):
.... it is not in dispute that they were then also seriously contemplating marriage between 1993 and 1995, and that .... in anticipation thereof the Wife decided to forego her career as a concert pianist, which may have been an ‘embittered’ decision as Ms Yip for the Husband has put it, and which may be criticized as naive or unwise but it certainly pleased the Husband and probably had his tacit approval ....
It therefore appears plain that the wife had given up her career ambitions in order to fall into line with the husband’s wishes in contemplation of their getting married, a situation which persisted up to and during the marriage. One would have thought this was a clear case where an element of compensation ought to be recognized.
G.2.b The Judge’s rejection of compensation as a material factor (at §53)
Yet the Judge rejected compensation as a material factor. In my view, this was because he erroneously treated the question of compensation, not as an element of the sharing principle (which he thought was not engaged), but as if it were the equivalent of a separate civil claim for damages for financial loss. He found that cogent evidence of quantifiable financial loss was missing, and so concluded that the claim was “speculative” and that there was nothing “upon which she can base her claim for compensation”.
Thus the Judge stated (at §§51 and 52) that the absence of “firm evidence of her abilities and earning capacity [and a] proven track record of a career” were “ultimately fatal to her claim for compensation for loss of career ....” He pointed to the uncertainty of her success as a pianist, adding: “even if successful, this does not [necessarily] mean financial success” (at §52). He concluded (at §53):
.... even assuming the Wife would become a concert pianist, renowned or otherwise, had she not decided to give it up for the relationship, there is simply no evidence before me as to how much she would have been able to earn from giving concerts, let alone other sources of income such as recordings and endorsements. In other words, there was simply no career as a concert pianist upon which she can base her claim for compensation.
As acknowledged in LKW v DD (at §§119-130), and as Coleridge J pointed out (in RP v RP  1 FLR 2105 at §64):
.... it is simply not possible (and highly undesirable and costly) to conduct .... a speculative ‘what if ....?’ exercise to reconstruct the parties marriage on a different basis.
Accordingly, to approach the question of compensation as if it were a damages claim [an approach also adopted by Stone J who considered it to be a claim for loss of a chance (Court of Appeal at §96)], as the Judge did, is to engage in an inherently speculative and “impossible” exercise. But that does not mean that the question of compensation should be ruled out. What it does show is that the question of compensation was wrongly conceived to involve a “claim for compensation for loss of career” which must fail for want of “firm” evidence “as to how much she would have been able to earn from giving concerts [and] ... other sources of income such as recordings and endorsements”. An answer was found lacking because the wrong question had been asked.
The proper view, as explained in LKW v DD (at §130), is that the element of compensation ought to be approached as an aspect of the sharing principle’s application and not as a separate claim for financial loss. The court should proceed on the footing that compensation for relationship-generated disadvantage is usually factored in when applying the sharing principle to an extent determined by the nature, certainty, permanence and other qualities of the disadvantage incurred, and that it will only be in exceptional cases that a separate and further element of the award should be dedicated to such compensation.
It is also explained in LKW v DD (at §§123-124 and 130) that where it is necessary to address compensation as a separate element of the award, it should still not be treated it like a civil damages claim, but that a broad brush attribution of some percentage of the overall award to the element of compensation (as appropriate on the particular facts) would generally be sufficient.
G.2.c Conclusion as to “compensation”
It is accordingly my view that the Judge wrongly excluded compensation as a material factor. He should have applied the sharing principle, allocating a proportion of the award as compensation for relationship-generated disadvantage as a result of the wife abandoning her career aspirations to accept the role preferred by the husband in their marriage. Such an allowance could not be great as, on the facts, those aspirations involved a high degree of uncertainty. But fairness nevertheless dictates that her abandonment of those aspirations be recognized as a genuine disadvantage she incurred as a result of the marriage.
I would tentatively conclude that such an allowance necessitates an increase to the overall award by adding an amount to the adjusted needs-based award referred to in Section E above. On a rough and ready basis, I consider that a sum equivalent to 3% of the total assets (which have been adjusted to $45,846,503 as indicated in Section D.7 above) should be added. I would stress, however, that at this stage of the analysis, that view must necessarily be tentative. The overall adjusted award can only be finalized in Step 5 dealt with below, when the cumulative effect of every individual tentative adjustment can be considered. At that point, bearing in mind the ultimate objective of arriving at a fair financial outcome between the parties, a judgment as to the appropriate extent of any departure from an equal division can be made.
G.3.a The Judge and the Court of Appeal
The Judge similarly made no allowance in his award for any contribution by the wife to the welfare of the family – which means in this case – to the welfare of the couple in their married state. He appears to have accepted the submission for the husband that “there is almost nothing to say about contribution in kind or in monetary terms”, stressing that there had been no marital acquest and commenting that “at the end there was just a mutually destructive relationship with hardly any positive aspect, let alone positive contribution by either party to this marriage” (at §146). He went on (at §147) to agree with the submission of the wife’s counsel that she “was never expected to be other than as a wife at home”.
While the Court of Appeal noted in passing (at §58) that there was no appeal against the Judge’s finding as to a lack of contribution, it is clear in my view that the Court of Appeal did implicitly allow for contribution – not as a separate finding – but in holding that the sharing principle was engaged and overturning the Judge’s conclusion to the contrary.
Thus, Stone J referred to the three “factors or ‘strands’” derived from White v White and Miller/McFarlane as “determinative” (at §§61-62); noted the parties’ disagreement as to the applicability of the compensation and sharing principles (at §79); took the view that in reality the parties had shared a “continuous union” for 15 years (at §80) and described the wife’s role in that union as follows (at §81):
As the wife observed at one stage during her evidence, ‘he [the husband] was my universe’, and looking at the background it is clear that from the outset she gave up everything in deference to conducting herself in the manner in which the husband considered was appropriate and proper for a person in his position; this had been the situation since she had moved in with him at the Sydenham Hill property in order to keep house and in order to look after the two dogs, which animals appear to have been regarded by both parties as their substitute children: ‘our kids’.
On that basis, Stone J overturned the Judge’s rejection of the sharing principle:
.... there was thus no proper basis for departing from the ‘sharing’ principle by reason of the fact that, as the learned judge clearly regarded the position, this was no more than a ‘short, childless marriage’.
And in his conclusions, his Lordship reiterated (at §205):
Contrary to Mr Shieh’s persuasive submissions, and indeed contrary to the learned judge’s findings, in my view in the circumstances of this case the ‘sharing’ and ‘compensation’ principles indeed are engaged, and cannot simply be brushed aside on the basis that, as the judge held, this is purely a ‘needs’ case.
G.3.b Allowance for contribution
It is therefore evident that, while the Court of Appeal did not expressly deal with “contribution” (and correctly did not deal with it as an independent head of claim), by applying the sharing principle, it implicitly did factor in an allowance for the wife’s contribution to the marriage as a proportion of its award (without specifying what that proportion was) (at §§207-211). I have held that the Court of Appeal was wrong to treat the relationship as a continuous union for 15 years. However, in line with the guidelines set out in LKW v DD, it was in my view entitled, on the basis of the evidence indicated above, to make an appropriate allowance for her contribution during the 31 month duration of the marriage.
During that time, the wife complied with the husband’s wishes that she should accompany him on his frequent business travels; kept her mother-in-law and sisters-in-law company; and so forth. If she did not make innovative contributions of her own, this was at least in part because, as the Judge accepted (at §147), she “was never expected to be anything other than as a wife at home”. And if she did not have a household of her own to take charge of, that was because they had decided to reside in the home of the husband’s parents initially without telling them that they had got married. That is not the same thing as saying that she had made a “zero” contribution to the marriage, relatively short though it was. It is true that it was a turbulent relationship, but that does not justify ignoring its positive aspects. There were quarrels, but also reconciliations, “downs” but also “ups”.
In my view, fairness plainly requires an element of the award to reflect “contribution” as an intrinsic part of applying the sharing principle. Given the shortness and relatively unproductive nature of the marriage, such an allowance obviously cannot be large. But recognizing this, and again wielding the broad brush, I would tentatively allow the wife 2% of the total assets (adjusted to $45,846,503 as indicated in Section D.7 above) to be added to the adjusted needs-based award referred to in Section E above, in addition to the tentatively proposed 3% allowance for compensation referred to in Section G.2.c above.
H. STEP 5: DECIDING THE OVERALL OUTCOME
I turn then to Step 5 and consider what the overall adjustment to the wife’s award should be. As emphasised in LKW v DD, while factors such as those discussed above are individually or cumulatively capable of resulting in a departure from an equal division, a finding that one or more of those factors are engaged does not necessarily mean that a departure must occur. I have accordingly expressed tentative views on possible adjustments to be made subject to examination of the overall picture which now falls to be considered as Step 5 of the exercise. It cannot be over-emphasised that this exercise is fact-specific and discretionary.
In the present case, the facts are such – especially given the shortness and relatively unproductive nature of the marriage – as to justify a substantial departure from an equal division. Both the Judge and the Court of Appeal also departed from an equal division. The Judge allocated to the wife just under 25%, and to the husband just over 75%, of the joint total assets (awarding her $9.2 million out of total assets taken to be $37.3 million). The Court of Appeal allotted to the wife just under 40%, and to the husband just over 60%, of the total assets (making an award of $37.5 million out of total assets found to be $95 million).
For the reasons given in Section D above, I would take the husband’s net assets to be $44,346,503 (in place of $35,800,000 as found by the Judge and $95,000,000 as found by the Court of Appeal). The wife’s assets should for present purposes (before the Judge’s costs order is known) be taken to be $1,500,000 so that the total assets of both parties come to $45,846,503, which may conveniently be rounded up to $45.85 million.
If the tentative adjustments discussed in this judgment are all given effect, an award along the following lines would result:
As stated in Section D.6.b and Section E above, the wife’s earning capacity would be taken to be $15,000 (instead of $30,000) per month so that, employing the same Duxbury calculation, her capitalized income needs would come to $8.32 million (in place of $5.2 million as found by the Judge). Adding to that amount the sum of $4 million allowed by the Judge for her non-income needs, the adjusted needs-based award would amount to $12.32 million (in place of $9.2 million allowed by the Judge).
For the reasons stated in Section G.2 above, the sum of $1,375,500 (rounded up to $1.4 million, being roughly equivalent to3% of the total assets of $45.85 million) would be added to the adjusted needs-based award to allow for an element of compensation.
And for the reasons given in Section G.3 above, a further amount of $917,000 (rounded up to $920,000,being approximately 2% of the total assets of $45.85 million) would be added to allow for an element recognizing the wife’s contribution to the marriage.
Cumulatively, these adjustments would result in a lump-sum award of $14.64 million [$12.32m + $1.4m + $0.92m]. This represents a departure from an equal division, allotting to the wife just under 32% and to the husband just over 68% of the total assets. In my view, in the circumstances of this particular case, a departure of this amplitude represents a fair financial outcome for this ancillary relief application. It reflects the shortness and relatively unproductive nature of the marriage but upwardly adjusts the Judge’s award to accord the wife’s needs more realistic treatment and also to make some allowance, albeit not large, for the elements of compensation and contribution which had not been factored in by the Judge. I would therefore make an award taking in all the tentative adjustments discussed above.
There must be set-off against the aforesaid sum of $14.64 million the amount of $1.24 million which, as recorded by the Court of Appeal (at §211), has previously been advanced by the husband; as well as the sum of $1.5 million representing the value of the wife’s share portfolio. The husband is therefore required to pay over to the wife a net lump sum of $11.9 million.
I would accordingly make the following Orders, namely:
That the Order of the Court of Appeal be set aside and the appeal be allowed to the extent indicated herein;
That the Appellant husband do pay to the Respondent wife a lump sum of HK$11,900,000 within 28 days from the date of this judgment herein;
Upon compliance with paragraph (b), any claims which each party may have against the other or their estates for capital, income or other property adjustment including periodical payments, secured periodical payments, lump sum or sums, transfer or settlement of property and order for sale whether under the Matrimonial Causes Ordinance, Matrimonial Proceedings and Property Ordinance, Married Persons Status Ordinance, Inheritance (Provisions of Family and Dependants) Ordinance, or any other relevant Ordinance be dismissed;
That the costs of this appeal be dealt with by written submissions from the parties to be lodged with the Court within 28 days of the date of this judgment, with any submissions in reply to be lodged within 14 days thereafter, and any procedural questions relating to such submissions dealt with by the Registrar;
That the parties have liberty to apply to a single Permanent Judge in relation to the terms and implementation of this Order.
Justice Hartmann NPJ
I agree with the judgment of Mr Justice Ribeiro PJ.
Lord Neuberger of Abbotsbury NPJ
I agree with the judgment of Mr Justice Ribeiro PJ.
Justice Bokhary PJ
The Court unanimously allows the appeal in the terms set out in the concluding paragraph of Mr Justice Ribeiro PJ’s judgment.
Benjamin Yu SC and Anita Yip (instructed by Messrs Chaine, Chow & Barbara Hung) for the appellant
Russell Coleman SC and Robin Egerton (instructed by Messrs Stevenson, Wong & Co) for the respondent
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