Final Appeal No 22/2013 (civil)

IpsofactoJ.com: International Cases [2014] Part 6 Case 7 [cfa]


COURT OF FINAL APPEAL, HKSAR

Coram

S.P.H.

- vs -

S.A.

CHIEF JUSTICE GEOFFREY MA

JUSTICE R.A.V. RIBEIRO PJ

JUSTICE ROBERT TANG PJ

JUSTICE KEMAL BOKHARY NPJ

LORD COLLINS OF MAPESBURY NPJ

9 JUNE 2014


Judgment

Geoffrey Ma CJ, Ribeiro J, Tang J, Bokhary J, Lord Collins

I  Introduction

  1. This is an appeal from a judgment of the Court of Appeal refusing a stay of matrimonial proceedings in Hong Kong. The appellant husband (H) and the respondent wife (W) are German nationals. W has lived in Hong Kong since 1997 and is a permanent resident. They were married in Hong Kong and during their short marriage they lived there. W commenced divorce proceedings in Hong Kong. H commenced divorce proceedings in Germany and sought a stay of the Hong Kong proceedings. Prior to the marriage they executed an ante-nuptial agreement under German law, and they also executed a post-nuptial, or separation, agreement before the divorce proceeding.

  2. Differing from Poon J, the Court of Appeal (Cheung, Fok and Lam JJA) decided that a stay should not be granted. The reasoning of the Court of Appeal will be outlined below. At this stage it is sufficient to mention that the principal reason why it decided to interfere with the judge’s decision, in a case which essentially involved the exercise of a discretion in accordance with well-settled principles of forum non conveniens, was that it considered that Poon J’s exercise of the discretion was plainly wrong because, in finding at the first stage of the enquiry that Germany was clearly and distinctly the more natural and appropriate forum, the judge had failed to give sufficient weight to the facts that W had commenced divorce proceedings in Hong Kong as of right and that the connection of the parties with Hong Kong was overwhelming.

  3. The Court of Appeal exercised the discretion afresh, and in the normal course, where it had done so properly, such a case would not have been a suitable one for this court. But what takes it out of the ordinary is that, as mentioned above, the parties entered into an agreement prior to their marriage varying their matrimonial property rights under German law, and when they were about to divorce the parties entered into a separation agreement restricting W’s rights to claim maintenance. 

  4. Consequently the appeal has a much wider significance, since it involves the potential impact of these agreements in Hong Kong should the proceedings continue here. Such agreements were once considered at common law to be contrary to public policy because, not only were they seen somehow to affect the institution of marriage itself, they ousted the jurisdiction of the court to grant ancillary relief, but they have been the subject of a slow evolution in English law, and also reflected in Hong Kong law, to the point where, although not regarded as definitively binding, they have substantial legal effects. The two crucial decisions were,

    • first, Edgar v Edgar [1980] 1 WLR 1410 (CA), on the effect of post-nuptial agreements or separation agreements (to which we will generally refer as “separation agreements”), which was applied in Hong Kong by the Court of Appeal in L v C [2007] 3 HKLRD 819, and,

    • second, Radmacher v Granatino [2010] UKSC 42, [2011] 1 A.C. 534 in which the UK Supreme Court gave qualified effect to ante- or pre-nuptial agreements (to which we will refer as “ante-nuptial agreements”).

    This is an opportune occasion to consider whether Radmacher v Granatino represents the law in Hong Kong. If it does not, this would obviously be an extremely important factor in considering whether or not the present proceedings ought to be stayed.

    II   The marriage and its breakdown

  5. As is so often the case in bitter matrimonial disputes, there are almost no uncontested facts, and there are angry disputes in the affidavits on questions (concerning such matters as the size of W’s engagement ring, and the use by the couple of first class air travel) which are peripheral to the issues which arise on the present appeal. There have, of course, been no findings of fact, and the following account must be read in that light.

  6. H is German. He is now 50. He is a successful specialist in luxury hotel interior design. His business is based in Cologne, Germany, and has grown internationally over the years. He now has a business presence in several parts of the world including Hong Kong, which he regards as a gateway to enter into the mainland and the Asia Pacific region. In about 2006, he set up Company A, a hotel interior design company, in Hong Kong. Company A’s business is funded by loans from HSBC, and he has paid income tax in Hong Kong.

  7. W is also German. She is 46. She has been living in Hong Kong since 1997 and is a permanent resident. Prior to the events giving rise to the present proceedings, she worked in Hong Kong as a general manager for a German-based Hong Kong company.

  8. H and W first met in Hong Kong in 2005 when H was on a business trip here. He was then married to his first wife, whom he married in 1997 and from whom he separated in 2006. Later that year H and W began an intimate relationship. In early 2007 H proposed marriage, and they were married at the Peninsula Hotel, Hong Kong, on February 15, 2008. The Hong Kong marriage certificate was used also to obtain registration of the marriage in Germany by April 3, 2008 at the Family Court of Berlin.

  9. During their married life, the parties lived together in Hong Kong, although H (often accompanied by W) spent much of the time outside Hong Kong in the pursuit of business and leisure interests, and they frequently visited Germany. 

  10. H owns, or owned, a castle in Germany (“the castle”) initially through a company, Company C. He had acquired it for €2 million from his former wife as part of their ante-nuptial agreement or their separation agreement – it is not clear from the evidence which is the relevant agreement. H allowed W’s elderly retired parents to live in the guest house in the castle. H claims that as a result of the financial crisis in 2008 he was forced to sell the castle to discharge the loan used to purchase the castle from his former wife. H says that the purchaser was an independent wealth management company, which, on H’s request, granted a lease of the guest house to W’s parents (from which they have moved).W says that H is still the owner. 

  11. The marriage was a short one, and by 2010 it had broken down. W presented a divorce petition in Hong Kong in October 2010. In the following month H applied for a stay of the Hong Kong proceedings on the basis that the German courts were the forum conveniens. H also commenced divorce proceedings in December 2010 in the Family Court of Berlin. Poon J granted the stay by a decision of November 10, 2011, and an appeal was allowed by the Court of Appeal on February 8, 2013. H now appeals.

    III  The Agreements

  12. H and W entered into two agreements. The first was an ante-nuptial agreement executed on December 17, 2007 (“the Ante-nuptial Agreement”). The second was a separation agreement executed on September 9, 2010 (“the Separation Agreement”).

    The Ante-nuptial Agreement

  13. H’s evidence of the genesis of the Ante-nuptial Agreement is as follows. W knew that he had entered into an ante-nuptial agreement with his first wife. H told W that as they had already accumulated wealth before meeting each other, their finances should remain independent and separate from each other. W agreed, and suggested that they should sign an ante-nuptial agreement. W knew that H had to carry a lot of business loans after his divorce with his ex-wife, including the €2 million he took out to purchase the castle from his former wife. If there were an ante-nuptial agreement he would be free from any claim against her business and assets, and she would be free from any potential claims from his creditors. So he agreed with her suggestion, even though he was concerned that the process would damage their relationship.

  14. H then instructed his lawyers to draft an ante-nuptial agreement. On December 17, 2007, H and W flew back to Germany to execute the Ante-nuptial Agreement before a notary, who explained the contents and legal effect to them beforehand. H says that both parties intended their marriage to be governed by German law, and to have all matrimonial matters dealt with by the German courts.

  15. W's evidence is substantially different. She accepts that H told her about the €2 million he had agreed to pay to his ex-wife for the castle, but not that he raised a bank loan to fund it. She denies that it was she who suggested that they should have an Ante-nuptial Agreement. The idea came from H who said that it was for her protection and for the purpose of keeping them safe, just in case if he had to go bankrupt, or had to let his companies go bankrupt. She received no independent legal advice before signing the Agreement before the notary, who was a long standing personal friend of H’s. She says that they did not discuss what law should govern their marriage, or what courts should deal with matrimonial proceedings.

  16. The Ante-nuptial Agreement executed on December 17, 2007 stated that the parties (whose residential addresses were stated to be Hong Kong ones) declared:

    1. they intended to be married in Hong Kong on February 15, 2008;

    2. the notary had pointed out to them that in his opinion the proprietary effects of the marriage were governed by German law since they were both German citizens;

    3. purely as a matter of precaution, they selected German law, in accordance with Article 15 of the Introductory Act to the German Civil Code, to govern the proprietary effects of the marriage; and

    4. they had been informed by the notary of the consequences of the agreement, in particular about the meaning of the modification of the statutory matrimonial property regime.

  17. The Agreement provided that they agreed to retain the German matrimonial property regime for the common ownership of gains accrued in marriage, subject to modification. They had both acquired substantial assets, in particular shares in companies (namely W’s Hong Kong company, and several companies owned by H, including  Company A and Company C), and they assumed they would receive substantial assets from parents or third parties by way of gift, inheritance or succession. Accordingly, the companies which they owned (and debts associated therewith) and any such gifts etc would be excluded from computation of the parties’ assets in the event of the termination of the marriage (except on death). The present value of the assets was declared to be only €1 million, perhaps for the purpose of the calculation of ad valorem fees.

  18. The Agreement was therefore essentially concerned with the exclusion from the matrimonial property regime of business assets and assets to be derived from gifts and inheritance, and not with the position on divorce.

    The Separation Agreement

  19. H’s evidence is that the relationship deteriorated from February 2010, and that after a public incident in London in August 2010, he decided to divorce her, and told her of his decision on September 4, 2010. W had no objection and they had detailed discussions about the terms of the divorce on the following day. H then asked his lawyer to draft a separation agreement based on their agreement. On September 7, 2010, the notary emailed a copy of a draft Separation Agreement to H’s office in Hong Kong. H’s secretary printed it out and gave it to H and W, who then discussed it. W agreed to various handwritten amendments. In the same evening, H and W left for Germany separately. H denies that W signed the Agreement under duress.

  20. W’s evidence is that there was no sign or indication from H that he had any problem with their marriage. Then on September 4, 2010, while she and H were discussing some business at the office, H suddenly told her that they were to separate and that she had to sign a separation agreement. He told her later that day that he had instructed his lawyers in Germany that she had to sign a separation agreement when she was there. He asked her to fly back to Germany immediately to inform her parents of their separation and if she were not to sign the agreement, she would be left with nothing. H then presented to her orally a list of terms to be included in the agreement. W denied that she saw the draft.

  21. On September 9, 2010, she was collected from the castle by a tax adviser, a friend of H’s, who drove her to the notary’s office. It was during the journey that the tax adviser showed her, for the first time, a copy of the Separation Agreement. W declined to look at it, as she was already very upset and could not read while riding in a car. When they arrived at the notary’s office, she was presented with the original document and was told to sign. She had not received any financial disclosure or any legal advice nor was there any time to consider the contents away from H’s representatives. She felt pressured to sign, and her signature was procured by H through his representatives while she was under duress.

  22. The Separation Agreement is dated September 9, 2010. The residential addresses of both parties were again Hong Kong ones. The Agreement provided that the Ante-Nuptial Agreement was rescinded, and that the assets in their respective possession should be retained in sole ownership. The Agreement made provision (inter alia) for W to stay in the matrimonial home until  September 30, 2012, and for W to continue to receive her existing salary until  September 30, 2012; for W to be able to use the castle as a guest until the end of 2011; for H to pay €500 per month for 2 years for the accommodation of a horse which was to be transferred to W, and for H to pay W’s private health insurance in Germany of €1200 per month for 2 years; H agreed to pay W’s parents an allowance of €20,000 should Company C terminate the tenancy which enabled them to stay at the castle.

  23. For present purposes the most important provisions are those by which claims for maintenance were renounced. There are competing translations of the Agreement, but the following translation seems to represent its sense:

    11.

    The parties concerned are in agreement that mutual support will not be due upon implementation of the present Agreement, since both will be in the position of supporting themselves. In the event of a legally effective divorce from the marriage, the husband and wife will waive mutual support, even in the case of emergency need, and adopt this waiver mutually.

    12.

    The parties concerned are in agreement that a maintenance settlement should not be implemented. Claims for a maintenance settlement are mutually waived.

    With this provision it has been taken into account that both parties, even if indeed they have only earned negligible accrued pension rights, are each capable in the future of themselves looking after their own security in old age.

    ....

    15.

     

    All claims for equitable division of community property as well as possible effects of divorce shall be governed by the foregoing provisions. No mutual claims shall exist after implementation of the foregoing agreement.

    16.

    Since all agreements to be made between us shall be governed by this contract, in the event of the initiation of a divorce proceeding only one of us will be represented by counsel. The costs arising thereupon shall be borne by the husband alone ....

    German law

  24. There is substantial written evidence from four experts (two instructed by each party) on German law. Some of the opinions go far beyond the proper scope of an opinion on foreign law, and express views on the merits of the case. Nothing in this judgment is to be taken as a finding on German law in relation to any contentious or unclear matter.

  25. This point will be expanded below, but at this point it is only necessary to say that the effect of the Ante-nuptial Agreement was to modify the German matrimonial property regime, which is not one of community of property, but community of accrued gains, i.e. separation of property with a claim for participation in the gains which accrued during the marriage. The parties can opt out of the matrimonial regime: BGB (German Civil Code), section 1408(1). According to the husband’s expert and one of the wife’s experts (but not the other) there is no need for independent legal advice in relation to marital agreements. There is evidence that conclusion of the agreement requires a notarial deed, and the notary is an independent holder of public office, who is supposed to be a neutral adviser owing a duty to both parties to explain the consequences of the agreement.

  26. Three of the experts have given evidence on questions relating to the validity of the Agreements. Dr Palm and Dr Scherpe, instructed on behalf of H and W respectively, are of the view that there was no duty of disclosure prior to the Ante-nuptial Agreement, although Dr Pilati, also instructed on behalf of W, takes a contrary view. Dr Scherpe considers that there is no requirement for W to have separate advice where there is a notary, whose position is independent. He also expresses the view that an Ante-nuptial Agreement may be challenged on the ground that it is so one-sided as to be contrary to public policy, or on the basis that there was undue influence, fraud etc. Dr Pilati considers that an Ante-nuptial Agreement may be challenged on the basis of mistake if W was labouring under the mistake that (as she was told by H) the Agreement was necessary for her own protection.

  27. On the validity of the Separation Agreement, Dr Scherpe considers that if W entered into the Ante-nuptial Agreement without disclosure or knowledge of the assets, then the Separation Agreement might be open to challenge. It might also be set aside on the ground H is found to have been abusing his dominant position. Dr Pilati also expresses the view that the Separation Agreement can be challenged if W did not receive independent advice, she was in a state of shock and subject to unequal bargaining power, and proper disclosure was not made.

    IV  Radmacher v Granatino

  28. There was extensive discussion in the courts below and in the arguments of the parties of the application of the decision of the UK Supreme Court in Radmacher v Granatino [2010] UKSC 42, [2011] 1 A.C. 534 concerning the effect of ante-nuptial agreements and, as indicated above, this is an opportune time for this court to state the law in Hong Kong. But a word of qualification is necessary in this respect, to which it will be necessary to return. Some ante-nuptial agreements, as frequently happens in the United States, are designed primarily for the consequences of divorce. This was partly so in Radmacher v Granatino, where the wife was a German heiress whose father had threatened that she would not receive a further inheritance unless she entered into an agreement with the French husband, providing for a mutual waiver of claims for maintenance on divorce, as well as for separation of property on marriage.But, as will appear below, that is not the typical ante-nuptial agreement in civil law countries.

    Separation or post-nuptial agreements

  29. Separation or post-nuptial agreements were the subject of the leading English decision in Edgar v Edgar [1980] 1 WLR 1410 which decided that, although separation agreements did not override the powers of the court to grant ancillary relief, they carried considerable weight in relation to the exercise of the court's discretion when granting such relief. Such an agreement should be upheld unless there were vitiating factors or a compelling case of unforeseeable circumstances. 

  30. In Hong Kong the Court of Appeal conducted an extensive review of the English cases in L v C [2007] 3 HKLRD 819 and confirmed that when parties who are sui juris freely enter upon a bargain for the division of matrimonial assets then, in the absence of unfair or unconscionable circumstances surrounding the conclusion of the agreement and material and drastic unforeseen circumstances arising thereafter such as to cause manifest prejudice to one of the parties, the courts will hold the parties to their bargain. Determining whether injustice would be done under the agreements involved more than simply ascertaining whether there was any disparity in the value of the assets. The court would only allow one of the parties to depart from an agreement if that party demonstrated good and substantial grounds for doing so.

    Ante-nuptial agreements

  31. The evolution in relation to ante-nuptial agreements was considerably later. In MacLeod v MacLeod [2008] UKPC 64, [2010] 1 AC 298 the Privy Council (on appeal from the Isle of Man) held that it was not open to the Privy Council to reverse the long standing rule that ante-nuptial agreements were contrary to public policy and thus not valid and binding in the contractual sense, since it was more appropriate that any such policy change should be made by legislation rather than by judicial development: [31], [35].

  32. In Radmacher v Granatino [2010] UKSC 42, [2011] 1 A.C. 534 a wealthy German heiress entered into an ante-nuptial agreement with her prospective husband, who was French. The agreement was subject to German law and provided (inter alia) for separation of property and also for a waiver of claims of maintenance on termination of the marriage. When the marriage broke down, the husband, despite the terms of the agreement, brought a claim for ancillary relief, seeking an order for a lump sum and periodical payments. The UK Supreme Court decided that, although it was the court and not any prior agreement between the parties which would determine the appropriate ancillary relief when a marriage came to an end, the rule that agreements providing for the future separation of the parties to a marriage were contrary to public policy was obsolete and no longer applied; the court should give weight to an agreement, made between a couple prior to and in contemplation of their marriage, as to the manner in which their financial affairs should be regulated in the event of their separation in circumstances where it was fair to do so; in appropriate circumstances, the court could hold the parties to the agreement even when the result would be different from that which the court would otherwise have ordered; on an application for ancillary relief the court should apply the same principles when considering ante-nuptial agreements as it applied to post-nuptial agreements.

  33. In particular, an agreement would carry full weight only if each party had entered into it of his or her own free will, without undue influence or pressure, having all the information material to his or her decision to enter into the agreement and intending that it should be effective to govern the financial consequences of the marriage coming to an end; and the court should give effect to an agreement which was freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement. Enforcement of the agreement could be rendered unfair by the occurrence of contingencies unforeseen at the time of the agreement or where, in the circumstances prevailing at the time of separation, one partner would be left in a predicament of real need while the other enjoyed a sufficiency.

  34. The particular matters which were stressed by the Supreme Court were these. The court when considering the grant of ancillary relief was not obliged to give effect to nuptial agreements—whether they were ante-nuptial or post-nuptial. The parties could not, by agreement, oust the jurisdiction of the court. The court must, however, give appropriate weight to such an agreement. But it was the court, and not any prior agreement between the parties, that would determine the appropriate ancillary relief when a marriage came to an end, for that principle was embodied in the legislation. [2], [7].

  35. The Supreme Court said:

    68.

    If an ante-nuptial agreement, or indeed a post-nuptial agreement, is to carry full weight, both the husband and wife must enter into it of their own free will, without undue influence or pressure, and informed of its implications . ....

    69.

    .... the Court of Appeal was correct in principle to ask whether there was any material lack of disclosure, information or advice. Sound legal advice is obviously desirable, for this will ensure that a party understands the implications of the agreement, and full disclosure of any assets owned by the other party may be necessary to ensure this. But if it is clear that a party is fully aware of the implications of an ante-nuptial agreement and indifferent to detailed particulars of the other party's assets, there is no need to accord the agreement reduced weight because he or she is unaware of those particulars. What is important is that each party should have all the information that is material to his or her decision, and that each party should intend that the agreement should govern the financial consequences of the marriage coming to an end.

    ....

    71.

     

    The first question will be whether any of the standard vitiating factors: duress, fraud or misrepresentation, is present. Even if the agreement does not have contractual force, those factors will negate any effect the agreement might otherwise have. But unconscionable conduct such as undue pressure (falling short of duress) will also be likely to eliminate the weight to be attached to the agreement, and other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, would reduce or eliminate it.

    72.

    The court may take into account a party's emotional state, and what pressures he or she was under to agree. But that again cannot be considered in isolation from what would have happened had he or she not been under those pressures. The circumstances of the parties at the time of the agreement will be relevant. Those will include such matters as their age and maturity, whether either or both had been married or been in long-term relationships before. For such couples their experience of previous relationships may explain the terms of the agreement, and may also show what they foresaw when they entered into the agreement. What may not be easily foreseeable for less mature couples may well be in contemplation of more mature couples. Another important factor may be whether the marriage would have gone ahead without an agreement, or without the terms which had been agreed. This may cut either way.

    73.

    If the terms of the agreement are unfair from the start, this will reduce its weight, although this question will be subsumed in practice in the question of whether the agreement operates unfairly having regard to the circumstances prevailing at the time of the breakdown of the marriage.

    The foreign element

  36. There are several distinct aspects to the foreign element. One is what law governs the matrimonial property rights of the parties. The relevant conflict of laws rules in Hong Kong (which are the same as those in England) are that the rights of married persons in each other’s movable property are governed by the law of the matrimonial domicile (which for this purpose is almost certainly Germany), and the law governing the effect of the Ante-nuptial Agreement is German law, which was expressly chosen to govern it: see Dicey, Morris and Collins, Conflict of Laws (15th ed. 2012), Rules 165 and 166; Johnston, Conflict of Laws in Hong Kong (2nd ed 2012), para 7.099.

  37. Radmacher v Granatino was a case (as is the present case) in which the ante-nuptial agreement was expressed to be governed by German law. The Supreme Court said (at [74]) that foreign elements may bear on the important question of whether or not the parties intended their agreement to be effective:

    In the case of agreements made in recent times and, a fortiori, any agreement made after this judgment, the question of whether the parties intended their agreement to take effect is unlikely to be in issue, so foreign law will not need to be considered in relation to that question.
  38. The second, and distinct, question is what law governs the availability of financial relief. In Hong Kong, as in England, when the court exercises its jurisdiction to make an order for ancillary relief under the Matrimonial Proceedings and Property Ordinance (“MPPO”), or the Matrimonial Causes Act 1973, it will normally apply Hong Kong law, or English law, as the case may be, irrespective of the domicile of the parties, or any foreign connection: Dicey, Morris & Collins, Conflict of Laws (15th ed 2012), vol 2, rule 99(9) and e.g. C v C (Ancillary Relief: Nuptial Settlement) [2005] Fam 250, [31]. Consequently, the issues in Radmacher v Granatino were governed exclusively by English law, and the relevance of German law and the German choice of law clause was that they clearly demonstrated the intention of the parties that the ante-nuptial agreement should, if possible, be binding on them: [108].

    The application of Radmacher v Granatino in Hong Kong

  39. There have been signs of approval of Radmacher v Granatino in this court in LKW v DD [2010] HKEC 1727, (2010) 13 HKCFAR 537 (per Ribeiro PJ at [53], [105], obiter since the appeal did not concern an ante-nuptial agreement). In the view of this court, the principles enunciated in Radmacher v Granatino should also be regarded as the law in Hong Kong. In common with the UK Supreme Court, we see no reason for distinguishing between ante-nuptial agreements and separation agreements.

  40. As we have said, the Hong Kong Court of Appeal has already accepted in L v C [2007] 3 HKLRD 819 that the old rule that agreements providing for future separation are contrary to public policy is obsolete, and we endorse its judgment. We agree with the UK Supreme Court that this should not be restricted to separation agreements. None of the supposed distinctions between them can any longer be supported, although we accept that there may be circumstances where it is appropriate to distinguish between an ante-nuptial and a separation agreement. As the UK Supreme Court said (at [61]) the circumstances surrounding the agreement may be very different dependent on the stage of the couple's life together at which it is concluded, but it is not right to proceed on the premise that there will always be a significant difference between an ante-nuptial agreement and a separation agreement.

    V   Matrimonial property regimes

  41. It is now necessary to revert to the word of qualification referred to above, when it was pointed out that the agreement in Radmacher v Granatino went beyond the normal matrimonial property agreement by providing that the parties were to have no claims against each other on divorce. In the present case the Ante-nuptial Agreement, like many such agreements entered into in civil law countries in Europe, was concerned only with the effect of the marriage on property rights. European countries in the civil law tradition operate matrimonial property regimes, which take a number of different forms. Some involve immediate community of property, others involve deferred community of property where the property is pooled on death, bankruptcy or divorce. Some involve total community, where all property is jointly owned. Others involve a community of acquests, where property acquired before marriage, and property gained gratuitously (e.g. by inheritance or gift) is excluded. But a common feature of these systems is that the parties may contract out of them: see Law Commission of England and Wales, Marital Property Agreements: A Consultation Paper (Consultation Paper No 198, 2011), paras 4.6 et seq. Contractual matrimonial property regimes are often entered into, not in contemplation of divorce, but to regulate the financial position of the parties during and after the marriage, sometimes to protect one of the spouses from the insolvency of the other.

  42. Under German law the default matrimonial property regime is an accruals system, that of the Zugewinngemeinschaft, a community of acquired gains or a system of separation of property with a claim for participation in the gains of the spouses accrued during the marriage (Zugewinnausgleich): BGB, sections 1363 et seq. In the present case the Ante-nuptial Agreement excluded participation in the gains of the major assets of the parties at the time of the marriage and in assets to be acquired by gift or inheritance after marriage. It did not purport to restrict claims for financial relief on divorce.

  43. Under German law, the matrimonial property regime and financial provision on divorce are entirely separate matters. The German rules on divorce provide for maintenance provision: (a) for the care of joint children; (b) if sufficient income cannot be expected due to age, or due to illness, or unemployment, or education or re-education requirements. The yardstick is standard of living during marriage (with a statutory discretion to limit it to reasonable requirements). The parties may, by an agreement made before the marriage or in contemplation of divorce, modify the default rules on maintenance (as in Radmacher v Granatino itself, above), but the Ante-nuptial Agreement in the present case dealt only with the matrimonial property regime.

  44. It is not yet settled what effect matrimonial property regime agreements in the strict sense have in the case of matrimonial proceedings in Hong Kong (or England).

  45. Comparable agreements in France providing for séparation de biens were involved in the stay cases, de Dampierre v de Dampierre [1988] AC 92 (which appears only from the transcript of the decision in the Court of Appeal) and Louvet v Louvet [1990] 1 HKLR 670 (see at 672), and several other stay cases discussed below have involved similar agreements under other laws.

  46. Since Radmacher v Granatino matrimonial property agreements have been considered in several cases at first instance, but the position cannot be regarded as settled.

  47. In Z v Z [2011] EWHC 2878 (Fam) such an agreement was treated by Moor J as an exclusion of the sharing principle in White v White [2001] AC 596 (adopted in Hong Kong in LKW v DD (2010) 13 HKCFAR 582). Moor J gave effect to what he regarded as the agreement to exclude sharing and granted ancillary relief on a reasonable needs only basis in a case which would otherwise “undoubtedly be a case for equal division of the assets” (at [31]). The decision is questioned by Cretney and Probert, Family Law (8th ed Probert, 2012), para 8-005, who say:

    This inevitably raises questions about the very basis of the ‘sharing’ principle, and why any requirement to share, as opposed to meeting the other’s needs, should be capable of being displaced by agreement. In other words, is sharing a fundamental element of marriage, to be required whatever the individual wishes of the spouses, or does it rest on the inferred intentions of the spouses? If the former, one might ask why we have a system of separate property within marriage; if the latter, we perhaps need more empirical data about the actual intentions of married couples. And if, as the Law Commission have claimed, the prospect of sharing assets on divorce ‘may indeed be a serious disincentive to marriage for some’ [citing Law Commission of England and Wales, Marital Property Agreements (Consultation Paper No 198, 2011), para 5.23], then is the solution to move away from sharing, to allow those who do not want to share their wealth to marry but opt out of sharing, or simply to leave this group to live together outside marriage? Any of these approaches could, of course, be described as promoting marriage – and any of them could equally be viewed as devaluing marriage, depending on whether it is the obligations of marriage or the numbers marrying that is regarded as more important.
  48. In B v S [2012] EWHC 265 (Fam) [2012] 2 FLR 502 Mostyn J said (at [5]), in a case involving an agreement varying the Spanish matrimonial property regime, that there is a marked difference between a negotiated ante-nuptial agreement which specifically contemplates divorce and which seeks to restrict or influence the exercise of discretion to which the law gives access, and an agreement made in a civil law jurisdiction which adopts a particular marital property regime. On the facts Mostyn J found that the marital property agreement was only to be effective in England if the parties intended the agreement to have effect wherever they might be divorced and particularly were they to be divorced in a jurisdiction that operated a system of discretionary equitable distribution. See also GS v L [2011] EWHC 1759 (Fam) (Spanish law agreement between Spanish wife and German-Polish husband); [2013] 1 FLR 300; V v V [2011] EWHC 3230 (Fam) (Swedish law agreement between Italian husband and Swedish wife); AH v PH [2013] EWHC 3873 (Fam) (Scandinavian  couple); Law Commission of England and Wales, Marital Property Agreements (Consultation Paper No 198, 2011); Matrimonial Property, Needs and Agreements: A Supplementary Consultation Paper (Consultation Paper No 208, 2012), Part 6;  Matrimonial Property, Needs and Agreements (Law Com No 343, 2014), Chap 8.

  49. The application of Radmacher v Granatinoto matrimonial property agreements of the type involved in this case (which the Separation Agreement purported to supersede) was not argued on this appeal. The material referred to above shows that this is a controversial area which is not free from difficulty, and nothing in this judgment is intended to pre-judge any question which may arise on this aspect in the substantive divorce proceedings, and in particular whether the application of Radmacher v Granatino requires any adjustment or qualification in such cases.

    VI  Forum non conveniens: principles

  50. It is now well established in Hong Kong that the general principles of forum non conveniens apply to the stay of matrimonial proceedings: Johnston, Conflict of Laws in Hong Kong (2nd ed 2012), para 7.104.

  51. We adopt the re-statement of the principles in matrimonial proceedings by the Court of Appeal (Cheung JA and Tang JA (as he then was)) in DGC v SLC (née C) [2005] 3 HKC 293, 297-298, applying Spiliada Maritime Corporation v Cansulex Limited [1987] 1 AC 460, 477 and Louvet v Louvet [1990] 1 HKLR 670, 674-675:

    1.

    The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action i.e. in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

    2.

    In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

    3.

    If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

    4.

    If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court's satisfaction that substantial justice will be done in the available appropriate forum.

  52. The Court of Appeal in that case (as in the present case) emphasised that the husband was entitled to sue in Hong Kong as of right. Where jurisdiction is founded in the Hong Kong court as of right (as in divorce proceedings like the present case), the party seeking the stay has to establish that there is another available forum which is clearly or distinctly more appropriate than the Hong Kong forum. This derives from what Lord Goff said in Spiliada (at 477), which has been regularly applied in Hong Kong: e.g. The Kapitan Shvetsov [1997] HKLRD 374 at 377; The Peng Yan [2009] 1 HKLRD 144, at [22].

  53. The existence of an ante-nuptial or post-nuptial agreement (particularly one governed by foreign law) is plainly a factor in the exercise of the discretion to stay on the ground of forum non conveniens, and there have been several decisions in this area involving such agreements. The facts in one case are not, of course, a guide to the exercise of discretion in another case, and they are presented here as merely illustrative. In England the decisions arise in the context of a statutory discretion to stay on “the balance of fairness (including convenience)” (Domicile and Matrimonial Proceedings Act 1973, Sched 1, para 9), which was held in de Dampierre v de Dampierre [1988] AC 92 to engage the same principles as those in the Spiliada case. In de Dampierre v de Dampierre itself the agreement for séparation de biens played no express part in the House of Lords’ reasoning that France was the appropriate forum for the divorce proceedings. In the Court of Appeal (whose decision was reversed) Dillon LJ thought it had no bearing on the appropriate forum. That approach was followed at first instance and on appeal in Louvet v Louvet [1990] 1 HKLR 670 (see at 681).

  54. In R v R (Divorce: Stay of Proceedings) [1994] 2 FLR 1036, where there was a Swedish separation of property contract, Ewbank J held that justice demanded that a stay of English proceedings be refused because the Swedish court could do no more than apply Swedish law and enforce the marriage contract, whereas the English court could grant a property adjustment, a lump sum and periodical payments. In S v S (Divorce: Staying Proceedings) [1997] 2 FLR 100 Wilson J granted a stay of English proceedings in a case where the parties had entered into an ante-nuptial agreement (in the negotiation of which each of the parties was represented by a distinguished New York lawyer) which provided for the financial aspects of divorce, and which was governed by New York law, and provided that it could only be enforced in New York. In C v C (Divorce: Stay of English Proceedings) [2001] 1 FLR 624 Johnson J placed decisive importance on the French ante-nuptial agreement (apparently for séparation de biens) in granting a stay of English proceedings. In Ella v Ella [2007] 2 FLR 35 the parties had entered into an ante-nuptial agreement, governed by Israeli law, providing for separation of property and for Israeli jurisdiction (see at [38]), and it was treated as a major factor in granting a stay, even though the wife contested its validity: but the wife’s lawyers had taken steps in the Israeli proceedings which were virtually a submission. In Hong Kong, in  L v H, unreported, November 27, 2007 Rogers VP, refusing the husband’s leave to appeal from Judge Chan’s refusal to stay proceedings in favour of Germany, said, at [10], that the terms of an ante-nuptial agreement, if adhered to, would involve a grave injustice to the wife.

    VII  Financial relief in Hong Kong after divorce outside Hong Kong

  55. The possibility of financial relief in Hong Kong after a divorce in Germany is relevant because Poon J took the view that the balance of fairness between the parties would be achieved by staying the Hong Kong proceedings without prejudice to W’s right to make an application under the provisions in Part IIA of the MPPO, which came into effect on March 1, 2011.

  56. Part IIA is based on, and is in material respects identical to, Part III of the English Matrimonial and Family Proceedings Act 1984 (the relevant Scottish provisions being different), which was introduced as a result of concern at the hardship to wives and children caused by the effect of the combination of  the liberality of the rules for recognition of foreign divorces and the restrictive approach of some foreign jurisdictions to financial provision: Agbaje v Agbaje [2010] UKSC 13, [2010] 1 AC 628, at [4].

  57. The conditions for the application of Part IIA are stringent. The applicant must obtain leave to bring an application. The court has to consider whether Hong Kong is an appropriate venue, and then the applicant must persuade the court to make an order. Part IIA contains a filter mechanism in section 29AC, which provides that no application for an order may be made unless the court considers that there is substantial ground for the making of an order for financial relief. Section 29AE sets out the jurisdictional criteria for entertaining an application for an order for financial relief under Part IIA, which

    1. the domicile of either of the parties in Hong Kong on the date of the application for leave, or the date on which the foreign divorce took effect;

    2. the habitual residence of either of the parties for 3 years before such dates; and

    3. a substantial connection of either of the parties with Hong Kong on such dates.

  58. Before making the order, the court must consider whether it would be appropriate for the court to make the order, and must have regard to a number of factors, including the connection of the parties with Hong Kong and any place outside Hong Kong: section 29AF, which is headed “Duty of court to consider whether Hong Kong is appropriate venue for application.”

  59. So far as material, the factors are these:

    (a)

    the connection that the parties to the marriage have with Hong Kong;

    (b)

    the connection that those parties have with the place where the marriage was dissolved ....;

    (c)

    the connection that those parties have with any other place outside Hong Kong;

    (d)

    any financial benefit that the applicant .... has received, or is likely to receive, in consequence of the divorce .... by virtue of any agreement or the operation of the law of a place outside Hong Kong;

    (e)

    if an order has been made by a competent authority outside Hong Kong requiring the other party to the marriage to make any payment or transfer any property to, or for the benefit of the applicant ....-

    (i)

    the financial relief given by the order; and

    (ii)

    the extent to which the order has been complied with or is likely to be complied with;

    (f)

    any right that the applicant has, or has had, to apply for financial relief from the other party to the marriage under the law of any place outside Hong Kong and, if the applicant has not exercised that right, the reason for that;

    (g)

    the availability in Hong Kong of any property in respect of which an order for financial relief in favour of the applicant may be made;

    (h)

    the extent to which any order for financial relief is likely to be enforceable;

    (i)

    the length of time that has elapsed since the date of the divorce ....

  60. The English equivalent of Part IIA was considered in detail by the UK Supreme Court in Agbaje v Agbaje, ante. In particular the UK Supreme Court, in a judgment of the court delivered by Lord Collins, said (at [50]) (adapted for the MPPO):

    Many of the factors in section [29AF] have much in common with those which would be relevant in a forum non conveniens enquiry, but they are not directed to the question of which of two jurisdictions is appropriate. They are directed to the question whether it would be appropriate (which is the meaning of the word conveniens in forum conveniens) for an order to be made by a court in [Hong Kong] when ex hypothesi there have already been proceedings in a foreign country (including proceedings in which financial provision has been made). Little assistance can therefore be obtained from the stay cases (and still less from the anti-suit injunction cases) in the Part [IIA] exercise. The task for the judge under Part [IIA] is to determine whether it would be appropriate for an order to be made in [Hong Kong], taking account in particular of the factors in section [29AF], notwithstanding that the divorce proceedings were in a foreign country which may well have been the more appropriate forum for the divorce.
  61. As regards the basis for an order, the UK Supreme Court held that hardship was not a pre-condition of the exercise of the power, and there was no rule that the court would only make an award to the minimum extent necessary to remedy injustice ([60]-[63]); but it was not the intention of the legislation to allow a simple “top-up” of the foreign award so as to equate with a forum award ([65]); nor was it the purpose of the legislation to allow a spouse to make an application in order to take advantage of the more generous approach in England (and Hong Kong) in “big-money” cases ([72]).

  62. The possibility of an application for financial relief after a foreign divorce has been taken into account in two stay cases involving ante-nuptial agreements, both of which were relied upon by Poon J.

  63. In S v S (Divorce: Staying Proceedings) [1997] 1 WLR 1200 the wife was Swedish. The husband was a citizen of Austria, Turkey and Israel, and was enormously wealthy. After their marriage the parties lived together in New York and London, but the wife was based primarily in London. Prior to the marriage, the parties had entered into an ante-nuptial agreement, in which all rights to financial provision on divorce were renounced. Each of the parties was represented by a prominent New York lawyer. The agreement was governed by New York law and in substance provided for the exclusive jurisdiction of the New York courts. The husband was granted a stay of the wife’s English divorce proceedings. In the course of his judgment, Wilson J said (at 1202):

    Were the English proceedings to be stayed, she would probably be confined to such financial claims, if any, as she could mount under New York law. She would probably be so confined because, although there is power under Part III of the Matrimonial and Family Proceedings Act 1984 to entertain claims for ancillary relief following an overseas divorce, I have doubts whether, had her suit been stayed, she would be able to satisfy the threshold requirement as to appropriate venue set by section 16 of the Act of 1984.
  64. In Ella v Ella [2007] EWCA Civ 99, [2007] 2 FLR 35 a couple of Israeli nationality entered into an ante-nuptial agreement immediately prior to their marriage in Israel. The agreement provided for separation of property with future assets belonging exclusively to the spouse creating them – the wife was not independently advised and the agreement was drawn up by a notary who had acted for the husband for some time: at [4]. The family home was in London. The wife petitioned for divorce in London, and the husband commenced proceedings in the rabbinical court in Israel (where divorce is administered by the religious courts). The wife’s lawyer took steps in the Israeli proceedings which amounted virtually to a submission. She then appointed new lawyers to contest the jurisdiction of the rabbinical court, and the husband sought a stay of the English divorce proceedings. Macur J granted a stay, and said that she was reassured by the fact that if the wife did not receive substantial justice in Israel she could make an application under Part III of the 1984 Act. The Court of Appeal upheld the decision. Thorpe LJ said (at [28]) that if the rabbinical court in Tel Aviv were to impose on the wife the terms of the pre-nuptial agreement with fullest vigour then the likelihood was that she would bring an application for ancillary relief in London under Part III of the 1984 Act. He did not express a view on the prospects of success on an application, but Charles J (at [56]) considered that, if the husband succeeded in Israel, the wife’s prospects of getting permission under Part III of the 1984 Act in England were good.

    VIII  Conclusions

  65. The application for a stay, of course, involves the exercise of a discretion and the Court of Appeal may only interfere with exercise of the judge’s discretion in accordance with well-settled principles which it is unnecessary to repeat: Hadmor Productions Ltd v Hamilton [1983] 1 AC 191, which has been applied frequently in Hong Kong (e.g. Tsit Wing (Hong Kong) Co Ltd v TWG Tea Co Pte Ltd [2013] 2 HKLRD 505 (CA)). Also, if the Court of Appeal has good grounds for interfering with the exercise of the judge’s discretion, and exercises the discretion afresh, this court will only interfere with the exercise of that discretion in accordance with the same principles.

    The decision of Poon J

  66. In granting the stay, Poon J decided that Germany was clearly and distinctly the more natural and appropriate forum, in the light of the following matters in particular: both parties were German nationals with family ties in Germany; H’s business was essentially based in Cologne, Germany, although he had an international business presence at different places including Hong Kong; H had already commenced divorce proceedings in Germany; the Ante-nuptial Agreement and the Separation Agreement were executed in Germany, and the Ante-nuptial Agreement was expressly, and the Separation Agreement was impliedly, governed by German law; it was arguable that the parties had also, by necessary implication, designated Germany as the forum for their divorce; in resolving the question of validity of the Agreements, Germany was distinctly the more natural and appropriate forum, because most of the vitiating events relied on by W took place in Germany, and the  notary and the tax adviser were allegedly involved, and were material witnesses in Germany; and German law was best dealt with by a German court.

  67. As regards juridical advantage, W would not be disadvantaged in having to dispute the validity of the Agreements in a German court, which she was entitled to do. But if the Agreements were held to be valid in Germany, she would suffer “serious juridical disadvantage” because the German court would simply apply them, thus severely restricting her entitlement to financial relief. We would point out here that this view was consistent with the opinion of Dr Scherpe that the courts in Germany do not adopt what he calls a “holistic approach”; in his view the German courts aim more for certainty and there is not much scope for judicial discretion.

  68. If the German court were to find that the Agreements were valid and simply apply them, W could still come back to Hong Kong to make an application under Part IIA of the MPPO for additional financial relief. Accordingly, the balance of fairness was achieved by staying the proceedings in favour of Germany without prejudice to W's right to make an application under Part IIA of the MPPO after the conclusion of the German proceedings.

    Court of Appeal

  69. In the Court of Appeal Cheung JA emphasised that because W had brought the divorce proceedings in Hong Kong as of right, the burden was on H to show that not only Hong Kong was not the appropriate forum, but that Germany was distinctly more appropriate than Hong Kong.

  70. Apart from the Agreements, the real and substantial connection of the parties with Hong Kong was overwhelming. There were three matters for determination by the Hong Kong courts: the divorce; the applicability of the Agreements (both in respect of the issue whether they had been vitiated by duress and also the weight to be given to them); and if the Agreements were not to be given effect, what should be the financial relief to be given to the parties, in the light of the circumstances of the case including the seven factors identified in section 7 of the MPPO.

  71. The Agreements did not provide for exclusive jurisdiction in the German courts. Expert evidence on German law as regards the validity of the Agreements had already been filed. The German notary and tax adviser might have to testify in Hong Kong (so far there were no witness statements from them), but this was a matter affecting convenience or expense only. If the case were to be tried in Germany, then the parties and a Hong Kong witness (an employee of H) would have to travel there to attend court.

  72. As regards juridical advantage, if the Agreements were found to be valid in the German court, there would be no basis for merely giving them appropriate weight in the light of fairness. Under German law, there was apparently no requirement for full financial disclosure or access to independent legal advice, which was of particular importance in the context of H’s admittedly close and life-long relationship with the notary. By staying the Hong Kong proceedings, the Hong Kong court would already have considered Germany to be the appropriate forum where substantial justice could be given to W, and W might not be able to satisfy the “substantial ground” requirement in the leave application under Part IIA of the MPPO, which could not be a proper factor to be considered in an application for stay.

    Overall conclusion

  73. In the view of this court, the Court of Appeal was entitled to interfere with the exercise of discretion by the judge for these reasons.

  74. While the judge referred to the principle that in stay cases, where jurisdiction is founded as of right, the applicant must show that the foreign forum is distinctly more appropriate than Hong Kong, he failed to give appropriate weight to the factors connecting the parties, the marriage, and the matrimonial home with Hong Kong, and gave inappropriate weight to their nationality, and to the Ante-Nuptial Agreement and the Separation Agreement (which, as observed earlier, stated the residence of the parties to be in Hong Kong). The principal issues in the Hong Kong proceedings would relate to the matters to be considered under MPPO, section 7, in determining the financial relief to be granted to W, and the weight to be given to the Agreements.

  75. It is true that the Agreements are governed by German law. However, like the agreement in Radmacher v Granatino (see NG v KR (Pre-nuptial Contract) [2008] EWHC 1532 (Fam), [2009] 1 FLR 1478, [43]), the Ante-nuptial Agreement in this case says nothing about jurisdiction. The Separation Agreement contains no exclusive submission to the German courts, although it plainly contemplates divorce proceedings in Germany by providing that one lawyer is to act for both parties. It is also true that proceedings would be much more expensive in Hong Kong, although W can afford that less than H. But W contests the validity of the Agreements, and the evidence seems to show that their validity can be challenged on a number of grounds which are available under German law, and which have already been the subject of extensive written evidence in these proceedings.

  76. We also agree with the Court of Appeal that if the judge had not erred at the first stage, he was correct in concluding that W would suffer a juridical disadvantage if the stay were granted. If the German court held that the Agreements were valid, they would be applied without the discretion inherent in the Radmacher v Granatino approach. The judge found that W would suffer a serious juridical disadvantage but we agree with the Court of Appeal that he erred at the third stage in finding that the balance of fairness would be achieved by staying the proceedings in favour of Germany without prejudice to W’s right to make an application under Part IIA of the MPPO. He placed too much reliance on statements by the English Court of Appeal in Ella v Ella [2007] EWCA Civ 99, [2007] 2 FLR 35 that if the Israeli court gave full effect to the ante-nuptial agreement, the wife could apply in England under Part III of the 1984 Act. That appeal was decided before Agbaje v Agbaje and Radmacher v Granatino, and it must be doubtful whether the decision could be supported on that ground. More relevant is the statement by Wilson J in S v S (Divorce: Staying Proceedings) [1997] 1 WLR 1200, 1202, that, where proceedings are stayed on the ground of forum non conveniens, there is room for doubt whether the threshold requirements for appropriate venue under Part III would be met. That is so even though the UK Supreme Court recognised in Agbaje v Agbaje that the Part III requirements were not the same as the forum convenienstest.

  77. Since in our judgment the Court of Appeal was justified in interfering with the exercise of discretion, the sole remaining question is whether the exercise of discretion by the Court of Appeal is flawed and open to challenge on familiar grounds. In our view it is not. The Court of Appeal correctly held that H had not shown that Germany was clearly or distinctly more appropriate than Hong Kong.

  78. We therefore dismiss the appeal. We would only add that W should not necessarily think that the very considerable costs she is bound to incur in these proceedings will be well spent. As was indicated in the oral argument, victory on this appeal might well be pyrrhic.

  79. As to costs, we make an order nisi that the respondent (W) should have the costs of this appeal, such costs to be taxed if not agreed. If either party wishes to have a different order for costs, written submissions should be served on the other party and lodged with the Registrar of the Court within 14 days of the handing down of this judgment, with liberty on the other party to serve and lodge written submissions within 14 days thereafter. In the absence of such written submissions, the order nisi will stand absolute at the expiry of the time limited for these submissions.


Representations

Mr David Pilbrow SC and Ms Frances Irving (instructed by m/s Joseph Chu, Lo & Lau), for the Appellant.

Mr Russell Coleman SC and Mr Richard Todd QC (instructed by m/s Withers), for the Respondent.


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