A A

B CACV 224/2013 B

C IN THE HIGH COURT OF THE C

HONG KONG SPECIAL ADMINISTRATIVE REGION

D D
COURT OF APPEAL
E CIVIL APPEAL NO. 224 OF 2013 E

(ON APPEAL FROM HCMC NO. 5 OF 2011)

F F

G BETWEEN G

PW Petitioner
H H
and
I I
PPTW Respondent
J J

Before: Hon Lam VP, Kwan and Chu JJA in Court

K K
Dates of Hearing: 7 November 2014 and 19 January 2015
L L
Date of Judgment: 12 March 2015

M M
JUDGMENT
N N

O O

Hon Kwan JA (giving the judgment of the Court):

P P

Q 1. On 11 October 2013, DHCJ Chu made an order for ancillary relief Q

after a seven-day trial in August and September 2013. The parties will be
R R
referred to as “the husband” and “the wife” in this judgment. This is the
S husband’s appeal. S

T 2. In a nutshell, the judge held that the total assets of the parties were in T

the region of HK$292 million. There are surplus assets after catering for
U U

V V
A - 2 - A

B the parties’ respective needs. She considered that there are good reasons B

for departing from the principle of equal division and came to the view
C C
that a fair distribution would be for the wife to receive 45% of the total
D assets, and the husband 55%. D

E E
3. The order set out the undertakings each party agreed to give. On the

F part of the wife, she undertook to fully discharge the living expenses of F
the two children of the family, other than the expenses the husband
G G
undertook to pay, until they reach the age of 25 or finish full time
H education, whichever is later. For the husband’s part, he undertook to H

pay the children’s school fees including the costs of boarding, on the
I I
same basis. The order then made these pertinent provisions:
J J
(1) the husband is to pay to the wife a lump sum of
K HK$130,318,980 (being HK$131,400,000 minus the net K

value of the wife’s assets at HK$1,081,020) in full and final

L L
settlement of her ancillary relief claim; and
M M
(2) the wife shall transfer the following assets to the husband,
N and any and all costs and expenses of the transfer shall be N

borne 45% by the wife and 55% by the husband

O O
respectively:
P P
(a) all her title and interest in a property in Pudong New
Q District, Shanghai (“the Shanghai Property”); Q

R (b) all the shares of and in Angelwings Enterprises R

Limited (“Angelwings”) held by the wife; and

S S

(c) all the shares of and in Katerini Limited (“Katerini”)

T T
held by the wife.
U U

V V
A - 3 - A

B 4. On 18 December 2013, the judge ordered the husband to pay the wife B

her costs of the ancillary relief application, including all costs reserved,
C C
on a party and party basis.
D D
5. The husband filed a Notice of Appeal on 30 October 2013 to set aside
E E
the order for ancillary relief, but without stating what provision for

F ancillary relief should be made in the event the appeal is allowed. F

G 6. A month before the hearing of the appeal, the husband issued a G

summons for leave to adduce new evidence on appeal regarding the

H H
distributions made to him after judgment was handed down in October
I 2013 in the liquidation of Welton USA, a company in Texas, contending I

that the value of his shares in Welton USA should be assessed by

J J
reference to the distributions he has received and is to receive in the
K liquidation. We refused leave at the outset of the hearing for the reasons K

given in a separate judgment on 16 December 2014.

L L

M 7. It was only when the husband’s leading counsel, Mr Sussex, SC1 came M

to make oral submissions on the first day of the appeal that it became
N N
clear what was the main, indeed, the only, point in this appeal. The
O husband abandoned his challenge to the judge’s valuation of his interest O

in Welton USA and the judge’s assessment of the reasonable needs of the
P P
wife, generously interpreted, at HK$95 million. His only contention was
Q that the judge had erred in principle and was plainly wrong in ordering Q

that the total assets should be split between the parties in the proportion
R R
of 45/55, when the bulk of the assets were acquired by the husband before
S the marriage and were non-matrimonial assets. S

T T

1
Appearing with Mr Neal Clough. Mr Sussex did not appear at the trial.
U U

V V
A - 4 - A

B Background B

C C
8. The relevant background matters for this appeal may be stated as

D
follows. D

E 9. The parties were married in Vancouver in January 1996. The husband E

was then aged 54 and the wife 38. They are now aged 72 and 56. Two
F F
sons were born out of the marriage, now aged 16 and 14. The marriage
G lasted 14 years. During the marriage, the husband was a business man G

and the wife was a full time housewife and mother.

H H

I 10.The husband had acquired all the major assets prior to the marriage. I

J 11.In 1980, he set up a company in Hong Kong, Welton Electronics J

Limited (“Welton Electronics”), which was involved in manufacturing hi-

K K
fi systems. In 1984, he started to relocate part of the manufacturing
L business to Mainland China. In the same year, Welton USA was L

incorporated in the United States as a limited partnership, with the

M M
husband as a partner. Its business was mainly in the design, import,
N N
assembly and distribution of furniture products. According to the

O
partnership agreement of Welton USA in 1987, the husband’s O
shareholding, which he held through a BVI company Urban Group
P P
Limited (“Urban”), was 39.35%. There were two other partners. S

Q became the operating partner of Welton USA since 1989. The husband Q
did not participate actively in the management of Welton USA.
R R

12.In 1986, the husband incorporated Katerini which was used to hold
S S
properties. The wife later held 8.33% Class B shares in Katerini as the
T husband’s nominee. The other shares were held by the husband. T

U U

V V
A - 5 - A

B 13.From 1989 to 1992, three floors and some parking spaces were B

purchased for Welton Electronics by its wholly owned subsidiary

C C
Wallford Limited (“Wallford”). 90% of the purchase price was financed
D by mortgage loans. Later one floor was sold and there were remaining D

two floors and five van parking spaces (“the Chaiwan Property”). Since
E E
1993, the Chaiwan Property had been rented out and the gross rental
F income collected at the time of the trial was about HK$340,000 a month. F

The mortgage loans on the Chaiwan Property were repaid and the
G G
mortgage released in 2009, with money from Urban and Katerini. The
H agreed valuation of the Chaiwan Property at the date of the trial was H

HK$130 million.
I I

J 14.Since around 1990, Welton USA had generated profits in the region of J

US$82 million over the years and Urban’s share was about US$20.9
K K
million (HK$163 million) net of tax. During the marriage, distributions
L from Welton USA amounted to about HK$150 million. The profits L

generated through Welton USA over the years were used to cover the
M M
losses of Welton Electronics, to pay off the outstanding mortgage loans of
N the Chaiwan Property and to fund the expenses of the family. N

O O
15.A year prior to the marriage, the husband purchased a property in

P
Vancouver (“the Vancouver Property”). Ownership was transferred to a P
Canadian company Angelwings which was owned equally by the parties.
Q Q
The Vancouver Property was kept as the holiday home of the family.

R R
16.The Shanghai Property, bought in 2007, was the only landed property
S purchased during the marriage. It was jointly held by the parties and the S

gross rental income from this property at the time of the trial was RMB
T T
20,000 a month.
U U

V V
A - 6 - A

B 17.In 2009, Welton Electronics ceased business due to heavy losses and B

other reasons.
C C

D
18.In January 2010, the parties lived apart and the wife issued her petition D
for divorce. A decree nisi of divorce was granted to the wife in
E E
September 2011. The parties have joint custody of the children, with the

F wife having their care and control and detailed access arrangements were F
made for the husband.
G G

The judgment below

H H

I 19.The parties were in agreement that the wife’s claim for ancillary relief I

should be met by a lump sum payment. There remained five issues in the
J J
agreed list to be resolved by the judge. They were framed as follows:
K K
(1) whether the Chaiwan Property was a non-matrimonial asset,
L and if so, whether it should be excluded from sharing L

(“Chaiwan Property Issue”);

M M

(2) whether the rental deposits owed by Wallford to tenants of

N N
the Chaiwan Property should be deducted from the
O husband’s personal balance sheet (“Rental Deposit Issue”); O

P (3) what should be the valuation of Welton USA and the P

husband’s interest therein (“Welton USA Issue”);

Q Q

(4) what should be the appropriate assessment and

R R
determination of needs, generously interpreted, for the wife
S and the husband (“Needs Issue”); and S

T (5) what should be the appropriate percentage split between the T

husband and the wife on a sharing basis (“Sharing Issue”).

U U

V V
A - 7 - A

B 20.On the Chaiwan Property Issue, the judge had regard to LKW v DD B

(2010) 13 HKCFAR 537 at §93, in which Ribeiro PJ, after quoting the
C C
dictum of Baroness Hale in Miller v Miller/McFarlane v McFarlane
D [2006] 2 AC 618 at §148 that the importance of the source of the assets D

“will diminish over time”, stated as follows:

E E

“So where it is a short marriage, the court may well be inclined

F to regard as excludable non-matrimonial property, assets F
acquired by one of the parties before the marriage or acquired
in the course of the marriage from some wholly external
G G
source. But after a long marriage, those factors are likely to
have much less weight.”
H H
21.She referred also to ARAV v VP [2011] 3 HKLRD 759 at §§11 and 12,
I I
in which Cheung JA, after citing Baroness Hale in Miller/McFarlane at

J §152 – that “If the assets are not “family assets”, or not generated by the J

joint efforts of the parties, then the duration of the marriage may justify a
K K
departure from the yardstick of equality of division.” – went on to say as
L follows: L

M “This means the departure will occur in short rather than long M
marriages. This recognition is to give effect to one of the
factors identified in the equivalent of s. 7(1)(d) of the
N Matrimonial Proceedings and Property Ordinance, namely “the N
duration of the marriage”.”
O O
22.She noted there was no attempt of the husband to ascribe a value to
P the allegedly non-matrimonial asset, the Chaiwan Property, at the date of P

the marriage, unlike Jones v Jones [2012] Fam 1 and K v L (Ancillary

Q Q
Relief: Inherited Wealth) [2012] 1 WLR 306, and the percentage of the
R mortgage loans were 90%. There had been several mortgage loans and a R

couple of re-mortgages. They were paid off in April 2009, when the
S S
husband decided to fold the business of Welton Electronics and to pay off
T all bank loans, liabilities to employees and trade creditors with money T

from Urban and Katerini.

U U

V V
A - 8 - A

B 23.It was apparently common ground that Welton USA was regarded as a B

matrimonial asset in that the husband had not asked for it to be excluded
C C
from sharing in the agreed list of issues 2. And it was the wife’s case that
D had distributions from Welton USA not been poured into Welton D

Electronics to cover its losses, those amounts of at least HK$150 million

E E
would have been available for distribution as matrimonial assets.
F F
24.It was only in the closing submissions that the husband’s counsel, Mr
G G
Clough, asked the judge to consider the source of funds not just for the
H Chaiwan Property, but also Welton USA and the Vancouver Property, to H

justify departure from equal division having regard to the source being
I I
pre-marital.3 The judge understood that submission to mean that the
J husband was not asking that “the Chaiwan Property was to be excluded J

completely from sharing but only sought a departure from equal

K K
division”4.
L L
25.Having regard to the above matters, and having taken the view that the
M M
“Chaiwan Property was never kept separate from other assets”, the judge

N
held that the Chaiwan Property should not now be ‘ring-fenced’ as being N
excludable completely from sharing. As to how the court should exercise
O O
its discretion and whether there should be departure from equal division,

P
these would be considered under the Sharing Issue5. P

Q 26.On the Rental Deposit Issue, the judge held that the rental deposits Q

should not be taken into account as the husband’s personal liabilities, this
R R
being consistent with the parties’ agreed approach of only relying on the
2
S The judgment, §43 S
3
The judgment, §44
T 4
T
The judgment, §45 and §26
5
The judgment, §§46, 47
U U

V V
A - 9 - A

B valuation of the underlying non-current asset of Wallford 6. The parties B

had agreed on an approach that no valuation of any of the companies

C C
would be carried out, save for Welton USA, and agreed valuations were
D obtained only for the underlying assets of Welton Electronics (club D

memberships), Wallford (Chaiwan Property), Katerini and Angelwings

E E
on the basis that such assets were then treated as the parties’ personal
F assets for distribution7. F

G G
27.The valuation of Welton USA was a major dispute at the trial. The
H judge valued the company as at 30 April 2013 on a going concern basis H

using the asset approach at US$15 million and the husband’s

I I
shareholding at about US$5.9 million or HK$46 million8.
J J
28.Moving on to the Needs Issue, the wife’s monthly expenses, as set out
K in her second Form E, were about HK$128,731 and the single joint expert K

Mazars provided the Duxbury calculations which yielded a lump sum of

L L
9
HK$46.4 million . She was not seriously challenged as to her outgoings
M M
and expenses. The main disagreement was over her housing needs. It

N
was not in dispute that the parties were living in luxurious properties N
10
during the marriage and their standard of living was high . The judge
O O
took the view that HK$45 million would be reasonable to cover the

P
purchase price and furnishing costs of a flat for the wife11. She found that P

Q Q
6
The judgment, §54
R R
7
The judgment, §§50 and 51
8
S The judgment, §§73, 98, 110, 111 S
9
The judgment, §114
T 10
T
The judgment, §117
11
The judgment, §122
U U

V V
A - 10 - A

B the wife’s financial needs, generously interpreted, would be met by a B

capital sum of about HK$95 million12.

C C

D
29.The judge found that the husband’s financial needs, generously D
interpreted, would be met by a capital sum of about HK$61 million, made
E E
up of a capital sum under Duxbury calculations of HK$15.8 million and

F the costs of purchase and furnishing of a residential property of HK$45 F

13
million .
G G

30.The judge then considered the Sharing Issue. In performing the

H H
exercise under section 7 of the Matrimonial Proceedings and Property
I Ordinance, Cap 192 (“MPPO”), she bore in mind the four principles set I

out in LKW v DD at §§56 to 70 (the objective of fairness, the rejection of

J J
discrimination, the yardstick of equal division and the rejection of minute
K retrospective investigations). She then applied the five steps mentioned K

in LKW v DD at §§ 71, 74, 80, 83 and 131 (identification of the assets,

L L
assessing the parties’ financial needs, deciding to apply the sharing
M M
principle, considering whether there are good reasons for departing from

N
equal division and deciding the outcome). N

O 31.For Step 1, the judge found that the total assets of the parties were in O

the region of HK$292 million14. As stated in LKW v DD at §71, the court

P P
need not attempt to distinguish between matrimonial and non-
Q matrimonial property at this stage. For Step 2, the parties’ respective Q

needs had been considered under the Needs Issue and there are surplus
R R
assets after catering for their respective needs15.
12
S The judgment, §123 S
13
The judgment, §128
T 14
T
The judgment, §§141, 142
15
The judgment, §143
U U

V V
A - 11 - A

B 32.In dealing with Steps 3 and 4, the judge had regard to these statements B

of Ribeiro PJ in LKW v DD:

C C

“84. [whether there are potentially good reasons for a

D departure from equality] … The answer is to be found in the D
terms of s. 7 and the implicit objective of a fair distribution of
the assets. Any of the matters listed in paras.(a) to (g) of s. 7
E E
may provide an appropriate reason, as may the “conduct of the
parties” and “all the circumstances” referred to in s. 7(1). The
F catch-all category of “all the circumstances” makes relevant F
any matter which bears on the fairness of the financial outcome
in a matrimonial context.
G G
85. It is important to stress that while such factors,
individually or cumulatively, are potentially capable of
H H
resulting in a departure from an equal division, a finding that
one or more of those factors are engaged does not necessarily
I mean that a departure must occur. The weight to be given to I
such factors is in the court’s discretion to be exercised in Step 5
as described in Section E.6 below. It cannot be over-
J J
emphasised that the matter is fact-specific and discretionary.
The sharing principle must not be mechanistically applied.”
K K
33.The judge went through the matters in section 7(1)(a) to (g) of the
L L
MPPO including the following: neither the wife nor the husband has any

M
significant earning capacity in the foreseeable future which the court M
would need to have regard to; the wife still has to care for the children as
N N
the younger son lives with her and the elder son returns home during term

O breaks; the parties’ marriage of 14 years was not a short marriage, nor O
was it very long; the wife stopped working after marriage and fully
P P
looked after the home and cared for the family during the marriage; the

Q husband’s investments in the Chaiwan Property, Welton USA and the Q

16
Vancouver Property were all acquired before marriage .
R R

34.She noted it is clear from LKW v DD that the source of assets might
S S
provide a reason for excluding them from the sharing principle on the
T T

16
The judgment, §§147 to 150
U U

V V
A - 12 - A

B basis that they are not matrimonial property17. She cited Ribeiro PJ in B

LKW v DD at §91 and Lord Nicholls in White v White [2001] 1 AC 596 at

C C
610 that there is no hard and fast rule as to whether assets independently
D acquired should be excluded and it is very much a matter within the D

judge’s discretion to be exercised taking account of all the circumstances

E E
of the particular case18. She referred again to the passage in LKW v DD at
F §93 on the importance of the duration of the marriage19. F

G G
35.She accepted the submission of the wife’s leading counsel, Mr
H Pilbrow, SC20, that the court should have regard to these matters: very H

substantial distributions of Welton USA to the tune of HK$150 million

I I
were earned during the marriage and were available to and directly
J enjoyed by the family; there was no dispute that Urban or Welton USA J

was matrimonial property available for sharing; a part of the

K K
HK$150 million had gone into the repayment of mortgage loans of the
L Chaiwan Property and a large unquantified part might have been spent on L

meeting the losses of Welton Electronics21.

M M

N
36.The judge then arrived at her conclusions on Steps 3, 4 and 5 in this N
manner:
O O
“156. Whether classified as matrimonial, or non matrimonial,
P
the “source” of the funds for the investment of Welton USA, P
the initial payments for the purchase of the Chaiwan Property,
or for the purchase of the Vancouver Property were all from
Q H’s funds prior to the marriage. Q

R R
17
The judgment, §151
18
S The judgment, §152 S
19
The judgment, §153
T 20
T
Appearing with Mr Jeremy Chan, at the trial and on appeal
21
The judgment, §155
U U

V V
A - 13 - A

B 157. There was no sufficient evidence as to the amount of B

H’s initial investment in Welton USA in 1984/85 which was
some 11 or 12 years prior to this marriage of about 14 years. I,
C however, accept the evidence that it was after Mr S took over C
the management in about 1989 that the company started to turn
D around. H said he (or through Welton Electronics) paid 10% D
towards the initial purchase price of the Chaiwan Property in
1989. Subsequent mortgage repayments were presumably paid
E by Welton Electronics. The Chaiwan Property was also re- E
mortgaged, presumably for funds for use by Welton
Electronics, but ultimately all loans were paid off in 2009. The
F F
Vancouver Property was purchased a year prior to the marriage
but this was used mainly for family home.
G G
158. Having considered the circumstances of this case, and
the source of the initial investments in particular Welton USA
H and the Chaiwan Property, I have come to the view that there H
are good reasons to depart from equal division. In my view, a
I
fair distribution would be for W to receive 45% of the total I
assets, and H 55%.”

J J
This appeal

K K
37.The judge’s decision in the application for ancillary relief is highly
L fact-specific and very discretionary, as repeatedly emphasised in LKW v L

DD at §§52, 85 and 131. The husband’s appeal involves challenging the

M M
judge’s findings of fact and exercise of discretion. The approach of the
N appeal court in this regard is well established. It is only where the N

decision exceeds the generous ambit within which reasonable

O O
disagreement is possible, and is, in fact, plainly wrong, that an appeal
P court is entitled to interfere (Bellenden (Formerly Satterwaite) v P

Satterwaite [1948] 1 All ER 343 at 345). As stated by Lord Hoffmann in

Q Q
Piglowska v Piglowski [1999] 1 WLR 1360 at 1373A to D:
R R
“Thirdly, the exercise of the discretion under section 24 in
accordance with section 25 [of the Matrimonial Causes Act
S S
1973]22 requires the court to weigh up a large number of
different considerations. The Act does not, as I have said, lay
T down any hierarchy. It is one of the functions of the Court of T
Appeal, in appropriate cases, to lay down general guidelines on
22
Equivalent to sections 6 and 7 of the MPPO
U U

V V
A - 14 - A

B the relative weights to be given to various factors in different B

circumstances. … These guidelines, not expressly stated by
Parliament, are derived by the courts from values about family
C life which it considers would be widely accepted in the C
community. But there are many cases which involve value
D judgments on which there are no such generally held views. … D
These are value judgments on which reasonable people may
differ. Since judges are also people, this means that some
E degree of diversity in their application of values is inevitable E
and, within limits, an acceptable price to pay for the flexibility
of the discretion conferred by the Act of 1973. The appellate
F F
court must be willing to permit a degree of pluralism in these
matters.”
G G
38.The husband’s contention in this appeal was that the judge had erred
H H
in principle and was plainly wrong in ordering a division of 45/55 of the

I total assets. The division giving the wife 45% was manifestly unfair as at I
the date of the marriage the husband had already acquired his assets, the
J J
main ones being Welton USA (valued at HK$46 million) and the
K Chaiwan Property (valued at HK$130 million). This was a case where K

the judge was justified in making a needs award which had the effect of
L L
“de-quarantining” non-matrimonial property. But there was no
M justification for applying the sharing principle to non-matrimonial M

property.
N N

39.Mr Sussex submitted there were three major problems with the
O O
judgment.
P P

40.Firstly, there was fixation with duration of the marriage in deciding to

Q Q
apply the sharing principle and considering whether there were good
R reasons for departing from equal division, whereas time of itself should R

have no freestanding significance. The length of the marriage does not

S S
automatically make it more difficult to disentangle assets; it all depends
T on the particular circumstances. The judge would appear to have been T

heavily influenced by the observations of Cheung JA in ARAV v VP at

U U

V V
A - 15 - A

B §12 as quoted earlier, that “the departure [from equal division] will occur B

in short rather than long marriages”. She failed to recognize that in the
C C
particular circumstances of this case, the source and ring-fencing of the
D assets independently acquired are much more significant. D

E E
41.It was suggested by Mr Sussex that the courts here23 have adopted a

F mechanistic application of the guiding principles in the context of non- F

matrimonial property. Judges have tended to regard non-matrimonial
G G
property as automatically having no significance in a long marriage, and
H as being properly excluded from sharing in a short marriage. In the case H

of marriages that are neither long nor short, the courts have tended to
I I
make some adjustment by departing from the yardstick of equality, but
J not to such an extent as totally to exclude non-matrimonial property, J

apparently to reflect the gradual decline of the significance of pre-marital

K K
assets in the percentage distribution. Mr Sussex criticized this as illogical
L and smacks of “palm tree justice”. L

M M
42.Secondly, the judge adopted an incorrect approach in considering

N
whether there were good reasons for departing from equal division in that N
she had failed to justify her decision by reference to one or more of the
O O
strands that informed fairness, namely, financial needs, compensation and

P 23
These cases of the District Court were cited to us in which the sharing principle was applied to non- P
matrimonial assets: TL v YSW, FCMC 13455/2011, 3/12/2013, Deputy District Judge Grace Chan
(almost 10-year childless marriage, family’s personal and financial interdependence made it difficult to
Q Q
disentangle what came from where, equal division would have been ordered but for husband’s open
proposal he would take less than half from the total assets); AVT v VNT, FCMC 6762/2012, 6/2/2014,
R Deputy District Judge S Lo (3-year childless marriage, needs of the wife assessed at $9.45 million, R
judge made an award of $9.98 million giving her 33% of the total assets, allowing for an additional
sum above needs to recognise her contribution to the marriage); SCT v CH, FCMC 15783/2011,
S 28 February 2014, Deputy District Judge I Wong (10-year relationship including cohabitation before S
marriage, parties bore a son, equal sharing of matrimonial assets and wife given 20% of unilateral
assets); LMH v LYC, FCMC 10733/2011, 8/4/2014, Deputy District Judge I Wong (10-year
T relationship including cohabitation before marriage, raised 3 children, shares in private company gifted T
to husband by parents essentially represented the whole of the assets in the matrimonial pot, in addition
to periodical payments wife given a lump sum of $6 million which was over 25% of total assets).
U U

V V
A - 16 - A

B equal sharing of the fruits of the matrimonial partnership B

(Miller/McFarlane at §§11 to 17 per Lord Nicholls, §§137 to 145 per

C C
Baroness Hale). For example, an award in excess of needs having the
D effect of sharing non-matrimonial property may be justified where one D

spouse has given up valuable earning capacity for the benefit of the
E E
matrimonial partnership, see Lord Nicholls in Miller/McFarlane at §28.
F There was no articulation in the conclusion at §158 of the judgment why F

the judge arrived at the division of 45/55, and less still why she
G G
considered it fair that pre-marital assets should be divided in that way.
H There was no mention of justification such as an additional need for H

compensation, or that a pre-marital asset has changed its characterization

I I
by reason of co-mingling or the plain intention of the parties to the
J marriage. The award in excess of needs was wrong in principle, where J

the judge had failed to identify or articulate a reason to justify the sharing
K K
of pre-marital assets.
L L

43.Thirdly, the judge had confused the capital value of the husband’s
M M
shares with income in the shape of distributions from his shares. The fact
N that the husband had applied income being distributions from Welton N

USA does not mean that the capital value of his investment should be
O O
regarded as a matrimonial asset available for distribution. Similarly,
P insofar as income from Welton Electronics (derived from rental income P

in respect of the Chaiwan Property) had been applied towards the family,
Q Q
that did not mean the capital value of the Chaiwan Property had become a
R matrimonial asset. That Welton USA and the Chaiwan Property were R

cash cows in providing valuable income for the family does not mean that
S S
the cows belonged to the family.
T T

U U

V V
A - 17 - A

B 44.Besides, the husband did not have any interest in Welton USA or the B

Chaiwan Property. The relevant shares in the former were held by Urban,
C C
which was wholly owned by the husband; the latter was registered in the
D name of Wallford, which in turn was a wholly owned subsidiary of D

Welton Electronics. So both Welton USA and the Chaiwan Property

E E
were ring-fenced throughout the marriage. There was no justification for
F piercing the corporate veil. The fact that income derived from the F

husband’s indirect shareholding in Welton USA and his shareholding in

G G
Welton Electronics had been applied to the family did not mean that the
H capital value of the shares in those entities had over time transmogrified H

into matrimonial assets.

I I

J 45.Furthermore, the increase in the value of the Chaiwan Property and J

the value of the investment in Welton USA was passive growth in the
K K
sense that the husband had not contributed to the growth in any way.
L Passive growth should be regarded as non-matrimonial (Jones v Jones L

[2012] Fam 1 at 15 §46, per Wilson LJ). Even if the Chaiwan Property
M M
could be regarded as in large part paid for by distributions from Welton
N USA, those distributions were the fruit of a pre-marital investment, and N

should not be characterized as a matrimonial property. The indebtedness

O O
of Welton Electronics in favour of the husband (HK$143 million as at 31
P December 2012) was incurred by advancing income from a pre-marital P

investment, so it too should be regarded as the fruit of a pre-marital asset.

Q Q

R The law – general guidance R

S 46.The starting point must be the guidance given in LKW v DD as to how S

the broad discretion in section 7 of the MPPO should be approached.

T T
That guidance does not purport to be comprehensive, as financial
U U

V V
A - 18 - A

B provision applications are highly fact-specific and the judges dealing with B

them must ultimately be guided by section 7 and the implicit aim of

C C
arriving at a fair financial outcome (LKW v DD, §52).
D D
47.Four overriding principles that underpinned the White v White and
E E
Miller/McFarlane line of cases were explained by Ribeiro PJ in LKW v

F DD. We do not propose to repeat them as they have been set out when F
we dealt with the judgment below. These principles were mentioned by
G G
the judge who must have borne them in mind when she embarked on the
H exercise under section 7. H

I 48.Five steps were laid down by the Court of Final Appeal in this I

exercise. They were applied by the judge below as mentioned earlier. In

J J
relation to Step 1 (identification of the assets), Ribeiro PJ said at §71: “At
K this stage, the court need not attempt to distinguish between matrimonial K

and non-matrimonial property, that being an exercise best undertaken (if

L L
necessary) when considering distribution of the assets.” This statement
M M
was repeated in Kan Lai Kwan v Otto Poon Lok To (2014) 17 HKCFAR

N
414 at §26. The Court of Final Appeal does not favour the approach of N
quarantining non-matrimonial assets, they definitely fall within the Step 1
O O
exercise.

P P
49.When one comes to Step 4 (considering whether there are good
Q reasons for departing from equal division), Ribeiro PJ said at §83: “The Q

question for the court is whether the balance ought to be shifted from a
R R
point of equality to some other point in the circumstances of the case.
S This is necessarily a complex question which raises a range of separate S

issues.” In §84, he answered the question what are potentially good

T T
reasons for departing from equal division, namely, that they are to be
U U

V V
A - 19 - A

B found in section 7 and the implicit objective of a fair distribution of the B

assets. In §85, he emphasised that a finding that one or more of the

C C
factors in section 7(1) are engaged does not necessarily mean a departure
D must occur and the weight to be given to such factors is in the court’s D

discretion. These two paragraphs were specifically mentioned in the

E E
judgment below, so the judge was plainly aware that “the sharing
F principle must not be mechanistically applied”. F

G G
50.We do not understand Mr Sussex to have advanced a proposition that
H non-matrimonial assets should automatically be excluded from sharing as H

a starting point, although certain parts of his submission might seem have
I I
come close to it, such as his submission that “the Court should be astute
J to exclude pre-marital assets unless it has become impossible realistically J

to distinguish them from matrimonial property”, and “if property is pre-

K K
marital, and that property still exists in specie, and there is therefore no
L difficulty in disentangling it from matrimonial property, it should be L

excluded totally from the sharing principle”. We agree with Mr Pilbrow

M M
this would appear to elevate non-matrimonial property into the status of a
N golden rule, when it is just one out of a number of possibly relevant N

factors potentially capable of giving rise to good reason for departing

O O
from equality.
P P
51.Source of assets was considered by Ribeiro PJ among a variety of
Q Q
matters which may be material to the sharing principle’s operation as part

R of the Step 4 exercise. He identified two classes of assets as possible R

candidates for exclusion from sharing on the basis of source: assets
S S
independently acquired (property acquired before marriage or during
T marriage by one spouse from a source wholly external to the marriage, T

such as by gift or inheritance), and unilateral assets (property derived

U U

V V
A - 20 - A

B from business or investment activities conducted solely by one party). B

We are here concerned with assets independently acquired.

C C

D
52.The rationale for drawing a distinction between assets independently D
acquired and matrimonial property and how the former should be
E E
approached was explained by Lord Nicholls in White v White at 610:

F F
“This distinction is a recognition of the view, widely but not
universally held, that property owned by one spouse before the
G marriage, and inherited property whenever acquired, stand on a G
different footing from what may be loosely called matrimonial
property. According to this view, on a breakdown of the
H marriage these two classes of property should not necessarily H
be treated in the same way. Property acquired before marriage
I and inherited property acquired during marriage come from a I
source wholly external to the marriage. In fairness, where this
property still exists, the spouse to whom it was given should be
J allowed to keep it. Conversely, the other spouse has a weaker J
claim to such property than he or she may have regarding
matrimonial property.
K K
Plainly, when present, this factor is one of the circumstances of
L the case. It represents a contribution made to the welfare of the L
family by one of the parties to the marriage. The judge should
decide how important it is in the particular case. The nature and
M value of the property, and the time when and circumstances in M
which the property are acquired, are among the relevant matters
N
to be considered. However, in the ordinary course, this factor N
can be expected to carry little weight, if any, in a case where
the claimant’s financial needs cannot be met without recourse
O to this property.” O

P 53.Lord Nicholls developed this further in Miller/McFarlane: P

Q “22. This does not mean that, when exercising his discretion, Q
a judge in this country must treat all property in the same way.
The statute requires the court to have regard to all the
R circumstances of the case. One of the circumstances is that R
there is a real difference, a difference of source, between
S
(1) property acquired during the marriage otherwise than by S
inheritance or gift, sometimes called the marital acquest but
more usually the matrimonial property, and (2) other property.
T The former is the financial product of the parties’ common T
endeavour, the latter is not. … As already noted, in principle
the entitlement of each party to a share of the matrimonial
U U

V V
A - 21 - A

B property is the same however long or short the marriage may B

have been.

C 23. The matter stands differently regarding property (“non- C

matrimonial property”) the parties bring with them into the
marriage or acquire by inheritance or gift during the marriage.
D D
Then the duration of the marriage will be highly relevant. …

E 24. In the case of a short marriage fairness may well require E

that the claimant should not be entitled to a share of the other’s
non-matrimonial property. The source of the asset may be a
F good reason for departing from equality. This reflects the F
instinctive feeling that parties will generally have less call upon
G each other on the breakdown of a short marriage. G

25. With longer marriages the position is not so

H straightforward. Non-matrimonial property represents a H
contribution made to the marriage by one of the parties.
Sometimes, as the years pass, the weight fairly to be attributed
I to this contribution will diminish, sometimes it will not. After I
many years of marriage the continuing weight to be attributed
J to modest savings introduced by one party at the outset of the J
marriage may well be different from the weight attributable to a
valuable heirloom intended to be retained in specie. Some of
K the matters to be taken into account in this regard were K
mentioned in the above citation from the White case24. To this
L
non-exhaustive list should be added, as a relevant matter, the L
way the parties organised their financial affairs.”

M M
54.The Court of Final Appeal emphasised that the warning issued by

N
Lord Nicholls in Miller/McFarlane must be borne in mind, that effort and N
expense should not be wasted in trying to establish a sharp dividing line
O O
between matrimonial and non-matrimonial property. As stated by Lord

P Nicholls at §§26 and 27: P

“26. … Fairness has a broad horizon. Sometimes, in the case

Q Q
of a business, it can be artificial to attempt to draw a sharp
dividing line as at the parties’ wedding day. …
R R
27. Accordingly, where it becomes necessary to distinguish
matrimonial property from non-matrimonial property the court
S may do so with the degree of particularity or generality S
appropriate in the case. The judge will then give to the
T contribution made by one party’s non-matrimonial property the T
weight he considers just. He will do so with such generality or
24
The passage at 610 last quoted.
U U

V V
A - 22 - A

B particularity as he considers appropriate in the circumstances of B

the case.”

C C
55.The upshot of the above guidance is as stated in LKW v DD at §91,
D that “there is no hard and fast rule as to whether [assets independently D

acquired] should be excluded. It is very much a matter within the judge’s

E E
discretion to be exercised taking account of all the circumstances of the
F particular case”. F

G G
56.Lord Nicholls alluded to the significance of the duration of the

H
marriage in the context of non-matrimonial property in the passages H
quoted in Miller/McFarlane. Ribeiro PJ said in LKW v DD at §92 that
I I
this is “an important factor which comes into play”, this being a factor

J mentioned in section 7(1)(d), and quoted the explanation given by J

Baroness Hale in Miller/McFarlane at §148: “As the family’s personal
K K
and financial interdependence grows, it becomes harder and harder to

L disentangle what came from where.” L

M 57.There was further discussion on the duration of the marriage as a M

material factor in LKW v DD:

N N

“108. Section 7(1)(d) specifies duration of the marriage as a

O factor which the court must consider when exercising its O
discretionary powers. This is potentially of great importance to
P the question whether the court should depart from an equal P
division. While the sharing principle applies to both long and
short marriages, it is clear that when a short marriage comes to
Q an end, fairness may dictate that one party should exit the Q
relationship with less than half of the total assets.
R 109. In Lord Nicholls’s words, this “reflects the instinctive R
feeling that parties will generally have less call upon each other
S on the breakdown of a short marriage”. Viewing marriage as a S
partnership of equals, the fruits of the partnership are likely to
be less substantial after a short marriage. Mutual commitment
T being shorter-lived, the extent of any disadvantage brought T
about by separation may well be less profound. Moreover, as
U
we have seen after a short marriage, the court may well treat U

V V
A - 23 - A

B property acquired by one of the parties before marriage or B

during the marriage by way of inheritance or gift or from some
other wholly external source as excludable non-matrimonial
C property. We have also noted that Baroness Hale held that C
following a short marriage, unilateral assets in the sense
D explained above might be excluded. Accordingly, the duration D
of the marriage is highly relevant and an equal division is more
likely to be sustained after a long, rather than a short,
E marriage”. E

F 58.Valuable guidance was also given by Ward LJ in Robson v Robson F

[2011] 1 FLR 751:

G G

“43. How then does the court approach the ‘big money’ case
H where the wealth is inherited? At the risk of over- H
simplification, I would proffer this guidance:
I (1) Concentrate on s 25 of the Matrimonial Causes Act I
1973 as amended because this imposes a duty on the
J court to have regard to all the circumstances of the case, J
first consideration being given to the welfare while a
minor of any child of the family who has not attained
K the age of 18; and then requires that regard must be had K
to the specific matters listed in s 25(2). Confusion will
be avoided if resort is had to the precise language of the
L L
statute, not any judicial gloss placed upon the words, for
example by the introduction of ‘reasonable
M requirements’ nor, dare I say it, upon need always M
having to be ‘generously interpreted’.
N (2) The statute does not list those factors in any hierarchical N
order or in order of importance. The weight to be given
O
to each factor depends on the particular facts and O
circumstances of each case, but where it is relevant that
factor (or circumstance of the case) must be placed in
P the scales and given its due weight. P

(3) In that way flexibility is built into the exercise of

Q discretion and flexibility is necessary to find the right Q
answer to suit the circumstances of the case.
R R
(4) Like every exercise of judicial discretion, the objective
must be to reach a just result and justice is attained
S when the result is fair as between the parties. S

(5) Need, compensation and sharing will always inform and

T will usually guide the search for fairness. T

U U

V V
A - 24 - A

B (6) Since inherited wealth forms part of the property and B

financial resources which a party has, it must be taken
into account pursuant to subs 2(a)25.
C C
(7) But so must the other relevant factors. The fact that
wealth is inherited and not earned justifies it being
D D
treated differently from wealth accruing as the so-called
‘marital acquest’ from the joint efforts (often by one in
E the work place and the other at home). It is not only the E
source of the wealth which is relevant but the nature of
the inheritance. Thus the ancestral castle may (note that
F I say ‘may’ not ‘must’) deserve different treatment from F
a farm inherited from the party’s father who had
G acquired it in his lifetime, just as a valuable heirloom G
intended to be retained in specie is of a different
character from an inherited portfolio of stocks and
H shares. The nature and source of the asset may well be a H
good reason for departing from equality within the
I
sharing principle. I

(8) The duration of the marriage and the duration of the

J time the wealth had been enjoyed by the parties will J
also be relevant. So too their standard of living and the
extent to which it has been afforded by and enhanced by
K drawing down on the added wealth. The way the K
property was preserved, enhanced or depleted are
L factors to take into account. Where property is acquired L
before the marriage or when inherited property is
acquired during the marriage, thus coming from a
M source external to the marriage, then it may be said that M
the spouse to whom it is given should in fairness be
allowed to keep it. On the other hand, the more and the
N N
longer that wealth has been enjoyed, the less fair it is
that it should be ringfenced and excluded from
O distribution in such a way as to render it unavailable to O
meet the claimant’s financial needs generated by the
relationship.
P P
(9) It does not add much to exhort judges to be ‘cautious’
Q and not to invade the inherited property ‘unnecessarily’ Q
for the circumstances of the case may often starkly call
for such an approach. The fact is that no formula and no
R resort to percentages will provide the right answer. R
Weighing the various factors and striking the balance of
fairness is, after all, an art not a science”.
S S

T T

25
Equivalent to s 7(1)(a) of MPPO
U U

V V
A - 25 - A

B The law – two schools of thought B

C C
59.In English cases, there is disagreement over the approach to be taken

D
to sharing where the existence of pre-marital property is established. D

E 60.The first approach is the technique of simply adjusting the percentage E

from 50% to take into account non-matrimonial assets. This was the
F F
approach taken by the English Court of Appeal in Charman v Charman
G (No 4) [2007] 1 FLR 1246 and in Robson v Robson, and by Moylan J in G

C v C [2009] 1 FLR 8 and in AR v AR (Treatment of Inherited Wealth)

H H
[2012] 2 FLR 1.
I I

61.Potter P in Charman explained how this technique works at §66:

J J
“To what property does the sharing principle apply? The
K answer might well have been that it applies only to matrimonial K
property, namely the property of the parties generated during
the marriage otherwise than by external donation; and the
L consequence would have been that non-matrimonial property L
would have fallen for redistribution by reference only to one of
M the two other principles of need and compensation to which we M
refer in para [68], below. Such an answer might better have
reflected the origins of the principle in the parties’
N contributions to the welfare of the family; and it would have N
been more consonant with the references of Baroness Hale in
Miller at paras [141] and [143] to “sharing … the fruits of the
O O
matrimonial partnership” and to “the approach of roughly equal
sharing of partnership assets”. We consider, however, the
P answer to be that, subject to the exceptions identified in Miller P
to which we turn in paras [83] to [86] below 26, the principle
applies to all the parties’ property but, to the extent that their
Q property is non-matrimonial, there is likely to be better reason Q
for departure from equality. …”
R R
62.The alternative approach is to identify the scale of the non-
S matrimonial property to be excluded, leaving the matrimonial property S

alone to be divided in accordance with the equal sharing principle. This

T T

26
In which the concept of unilateral assets was discussed.
U U

V V
A - 26 - A

B was the technique favoured by the English Court of Appeal in Jones v B

Jones, and by Mostyn J in FZ v SZ & Ors (Ancillary Relief: Conduct:

C C
Valuations) [2011] 1 FLR 64, N v F (Financial Orders: Pre-Acquired
D Wealth) [2011] 2 FLR 533, S v AG (Financial Orders: Lottery Prize) D

[2012] 1 FLR 651.

E E

F 63.This is a two-step approach and the process was explained by Mostyn F

J in N v F at §§14 and 15 in this way:
G G
“[14] I adhere to my view that the two-step approach is the
H right one, generally speaking. It is precisely what Wilson LJ did H
in Jones v Jones. It seems to me that the process should be as
follows:
I I
(i) Whether the existence of pre-marital property should be
reflected at all. This depends on questions of duration
J J
and mingling;

K (ii) If it does decide that reflection is fair and just, the court K
should then decide how much of the pre-marital
property should be excluded. Should it be the actual
L historic sum? Or less, if there has been much mingling? L
Or more, to reflect a springboard and passive growth, as
happened in Jones?
M M
(iii) The remaining matrimonial property should then
N normally be divided equally; N

(iv) The fairness of the award should then be tested by the

O overall percentage technique. O

[15] Of course, all of this is subject to the question of need.

P P
…”

Q 64.Mostyn J’s preference for this two-stage approach over the alternative Q

approach which “telescoped” the consideration of matrimonial and non-

R R
matrimonial property was for these reasons:
S S
“A telescoped approach runs the risk of insufficient logical
rigour being applied to the identification and treatment of the
T T
two very different categories. It runs the risk of palm-tree
justice being applied. It is so easy to say – ‘well there is a good
U U

V V
A - 27 - A

B deal of non-matrimonial property here so I will reduce the B

claimant’s share to 40%’, but that approach simply does not tell
anyone what weight is being given to that factor” (FZ v SZ,
C §143). C

D 65.See also the Law Commission Report on Matrimonial Property, Needs D

and Agreements, Law Com No 343, 26 February 2014, chapter 8, §8.81,

E E
in which the Law Commission in England expressed the view that the
F two-stage approach (simply to exclude the non-matrimonial property F

from the calculation) is preferable, “for the sake of clarity and because it
G G
may encourage settlement because it obviates the need to guess what
H proportions a judge would apply to the property once its nature as non- H

matrimonial has been established”.

I I

J 66.Moylan J however took the view that the two-step approach may J

unduly fetter the exercise by the court of its discretionary powers. He

K K
said this in AR v AR:
L L
“78. In Charman, the Court of Appeal makes it clear that the
sharing principle applies to all the parties’ property. To repeat
M what Ward LJ said in Robson, “No formula and no resort to M
percentages would provide the right answer. Weighing the
various factors and striking the balance of fairness is after all an
N N
art not a science”. In addition in that case, Hughes LJ said at
paragraph 95:
O O
“That the origin of assets is a relevant factor in no sense
means that the approach to inherited assets ought always to
P be the same. What is fair will depend on all the P
circumstances; those cannot be exhaustively stated but will
Q
often include the nature of the assets, the time of the Q
inheritance, the use made of them by the parties and the
needs of the parties at the time of trial.”
R R
79. In N v F [2011] EWHC 586 , Mostyn J said, “the
treatment of pre-marital wealth is highly fact specific and very
S discretionary”. In K v L itself, Wilson LJ said, I repeat, that, S
“non-matrimonial property also falls within the sharing
T principle.” T

U U

V V
A - 28 - A

B 80. These brief extracts are sufficient to demonstrate that B

the sharing principle can apply to non-matrimonial property if
such an approach is justified by the circumstances of the case.
C In my view, the court should not apply the guidelines identified C
by the House of Lords in Miller and McFarlane with undue
D rigidity. Fairness requires a broader approach. Further, if the D
courts were to limit the exercise of the discretion in the manner
proposed by [counsel for the husband], this would in my view
E risk re-imposing the ceiling identified as resulting in unfairness E
in White and Miller and McFarlane . …”
F F
67.In K v L (Non-Matrimonial Property: Special Contribution) [2011] 2
G FLR 980, at §22 it was noted by Wilson LJ that when counsel for the G

husband was asked to show the court a reported decision in which the
H H
assets were entirely non-matrimonial and in which, by reference to the
I sharing principle, the applicant secured an award in excess of her or his I

needs, counsel confessed to be unable to do so. Whilst Wilson LJ did not

J J
doubt that such a decision will be made in an appropriate case, he
K declined to do so on the facts in K v L. Mostyn J also pointed out in S v K

AG at §7 that England awaits the first decision where the sharing

L L
principle has led to an award from non-matrimonial property in excess of
M needs. M

N N
68.The Law Commission in England has not recommended reform of the
O law relating to non-matrimonial property in its report in February 2014, O

as this is an issue that affects only a minority – those whose assets exceed
P P
their financial needs – and the better option is to enable legal self help by
Q leaving those who wish to make arrangements for pre-acquired and Q

inherited property to do so by making a qualifying nuptial agreement

R R
rather than to recommend controversial reforms when there is no
S consensus on the right direction for the development of the law. So the S

response is to continue to leave it to the courts to resolve issues one by

T T
one, in response to the case that happens to raise a particular issue.
U U

V V
A - 29 - A

B 69.The judge in the present case applied the approach in Charman and B

Robson, rather than the two-step approach. That was also the approach
C C
adopted in all except one of the District Court cases cited to us as
D mentioned in footnote 23 of this judgment. The basis for adopting this D

approach would seem to be founded on WLK v TMC (2010) 13 HKCFAR

E E
618, in which Ribeiro PJ said at §84:
F F
“I do not agree with the Judge’s suggestion that the sharing
principle is capable of being ‘displaced’ by such considerations
G [i.e. the shortness of the marriage and there was virtually no G
marital acquest, see §83], even where there are substantial
H assets surplus to the parties’ needs. There is nothing in White v H
White or Miller/McFarlane to support that view. If the Judge’s
approach were to be adopted, one would have to define the
I conditions for such displacement, which in my view, introduces I
unnecessary complications. The better approach is to regard the
sharing principle as always applicable when there are assets
J J
surplus to needs but accepting that, as part and parcel of that
principle, an equal division should indeed be departed from if
K good reason exists for so doing. The shortness of a marriage, K
the absence of marital acquest and similar matters can all be
considered as possible reasons for such a departure. The
L circumstances of a particular case may lead the court to decide, L
for example, that equal division should be departed from to the
M extent of restricting the award to a sum sufficient to meet one M
of the parties’ needs. But that is not to say that the sharing
principle has been ‘displaced’. ”
N N

70.In TCWF v LKKS & Ors [2014] 1 HKLRD 896, the Court of Appeal
O O
said at §194:
P P
“… Since the discretion is unfettered and the factual matrix of
each case would be different, the approach of Mostyn J [in N v
Q F] should only be regarded as an illustration of how the Q
discretion could be exercised as opposed to laying down a
formula which should be followed mechanically in every case.
R R
There may well be factors which are not relevant in the
previous cases which have to be considered on the facts and
S circumstances of another case.” S

T 71.We do not understand Mr Sussex to have submitted that the judge was T

in error in not adopting the two-step approach in deciding whether to

U U

V V
A - 30 - A

B apply the sharing principle, although he might have been advocating this B

as the preferable technique in isolating non-matrimonial property and

C C
dividing up only matrimonial property equally subject to the question of
D need. We are mindful that “the exercises on the one hand, of adopting A D

and of testing against B and, on the other, of adopting B and of testing

E E
against A may indeed have subtly different consequences” (Jones v
F Jones, §35, per Wilson LJ). But we do not think it should impact on the F

resolution of this appeal whether the court should apply the telescoped
G G
approach or the two-step approach, as the same relevant factors should be
H considered in deciding whether and how to apply the sharing principle H

whichever approach is adopted.

I I

J 72.Thus, in applying the telescoped approach regarding non-matrimonial J

property, and in deciding to what extent equal division should be departed

K K
from where needs have been satisfied, according to the guidance given by
L the courts relevant factors may include: the duration of the marriage; the L

nature and value of the non-matrimonial property; the way the parties
M M
organized their financial affairs; their standard of living and the extent to
N which it has been afforded or enhanced by drawing on the non- N

matrimonial assets; the way the non-matrimonial property was preserved,

O O
enhanced or depleted during the marriage.
P P
73.Similarly, in applying the two-step approach, in deciding whether it is
Q Q
fair and just that the existence of non-matrimonial property should be

R reflected, as stated in N v F at §14, this “depends on questions of duration R

and mingling”. And if it does decide that reflection is fair and just, in
S S
considering how much of the pre-marital property should be excluded,
T the court would be looking at factors such as the historic sum, the extent T

of mingling, springboard effect and passive economic growth, not

U U

V V
A - 31 - A

B dissimilar to some of the relevant factors considered in the telescoped B

approach. In any event, the fairness of the award in applying the two-step
C C
approach is to be tested by the “overall percentage technique”.
D D
74.We turn to consider if the judge was in error in considering the
E E
relevant factors in applying the sharing principle.

F F
Duration of the marriage
G G

75.The judge no doubt attached much importance to the duration of the

H H
marriage in considering how the sharing principle should be approached.
I She mentioned this factor at the outset before she embarked on a I

discussion of the issue whether the Chaiwan Property should be excluded

J J
from sharing, and returned to this when she considered the matters in
K section 7(1) of the MPPO and whether there were good reasons to depart K

from equal division.

L L

76.But far from regarding the length of the marriage of itself to have
M M
freestanding significance, or taking the view that a long marriage would
N N
automatically make it more difficult to disentangle non-matrimonial

O
assets, the judge had explained why in the particular circumstances of this O
case much less weight should be attached to the pre-marital source of the
P P
assets. She had not failed to recognize the importance of the source and

Q ring-fencing of assets as relied on by the husband, but gave reasons why Q

she considered the Chaiwan Property should not now be ring-fenced as
R R
being excluded from sharing, with regard to how the assets were treated

S in the course of the marriage. S

T 77.Thus, the judge had regard to the fact that the Chaiwan Property was T

initially purchased with a mortgage loan that was 90% of the purchase
U U

V V
A - 32 - A

B price, and there were a couple of re-mortgages until the property was B

released from mortgage in 2009 when the husband decided to stop

C C
running the business of Welton Electronics. There was no attempt of the
D husband to ascribe a value to the net equity of this property as at the date D

of the marriage. Part of the substantial distributions from Welton USA

E E
earned during the marriage were used to repay the mortgage loans of the
F Chaiwan Property and a large part had gone towards meeting the F

substantial losses of Welton Electronics. Hence, she took the view that
G G
the Chaiwan Property was “never kept separate from other assets”.
H H

78.The duration of the marriage also impacted on other relevant matters

I I
in the discretionary balancing exercise, such as the high standard of living
J enjoyed by the parties throughout the 14-year marriage by drawing on the J

wealth generated by pre-marital assets (thereby showing acceptance by

K K
the husband of sharing the added wealth and the parties would have
L grown accustomed to the standard of living enhanced by the added L

wealth), and the period of time over which domestic contribution by the
M M
wife in looking after the family has continued and will continue (under
N the order for joint custody, the wife has to care for the children as the N

younger son lives with her and the elder son returns home during term
O O
breaks, and she will continue to be responsible for their day-to-day living
P expenses until they reach the age of 25 or finish full time education, P

whichever is later). This is akin to the point made in Law Commission

Q Q
Report on Matrimonial Property, Needs and Agreements at §8.48 cited
R by Mr Sussex: R

S “The point is not that the status of the [pre-matrimonial] assets S

changes by virtue of time alone, but that as time goes on the
lives of the two people become more intermingled, and it may
T T
cease to matter to them (at least while the relationship
continues) who first owned (say) the shares or the piano”.
U U

V V
A - 33 - A

B 79.We do not think Mr Sussex was justified in criticizing the judge for B

attaching undue importance to the duration of the marriage. Nor do we

C C
think the judge had failed to articulate any reason to justify the sharing of
D pre-marital assets in emphasizing the duration of the marriage. D

E E
80.Mr Sussex relied on this passage in the judgment of Wilson LJ in K v

F L at §18, which three examples were given of situations of diminution in F

the importance of the source of assets over time:
G G
“… I believe that the true proposition is that the importance of
H the source of the assets may diminish over time. Three H
situations come to mind: (a) Over time matrimonial property of
such value has been acquired as to diminish the significance of
I the initial contribution by one spouse of non-matrimonial I
property. (b) Over time the non-matrimonial property initially
contributed has been mixed with matrimonial property in
J J
circumstances in which the contributor may be said to have
accepted that it should be treated as matrimonial property or in
K which, at any rate, the task of identifying its current value is too K
difficult. (c) The contributor of non-matrimonial property has
chosen to invest it in the purchase of a matrimonial home
L L
which, although vested in his or her sole name, has – as in most
cases one would expect – come over time to be treated by the
M parties as a central item of matrimonial property. The situations M
described in (a) and (b) were both present in White v White. By
contrast, there is nothing in the facts of the present case which
N logically justifies a conclusion that, as the long marriage N
proceeded, there was a diminution in the importance of the
O
source of the parties’ entire wealth, at all times ringfenced by O
share certificates in the wife’s sole name which to a large
extent were just kept safely and left to grow in value.”
P P

81.On the view taken by the judge of the facts, the present case could be
Q Q
regarded as falling within situation (b). No value was ascribed to the net
R equity of the Chaiwan Property as at the date of the marriage. The R

husband’s business activities during the marriage through Welton

S S
Electronics and the net equity of the Chaiwan Property were inextricably
T linked. As Mr Pilbrow had reasoned, if the mortgages of Chaiwan T

Property had not been paid off, there would essentially be no net equity –
U U

V V
A - 34 - A

B given that Welton Electronics owes the husband personally $143 million B

at the end and the Chaiwan Property was only worth $130 million
C C
mortgage free. Similarly, the distributions received from Welton USA of
D $150 million during the marriage were deployed for the benefit of the D

family, the husband’s business activities, keeping Welton Electronics

E E
afloat and preventing the Chaiwan Property from being foreclosed by the
F bank. There was mixing or intermingling with matrimonial activities and F

assets in circumstances in which it may be said that the husband must

G G
have accepted that the Chaiwan Property and Welton USA should not be
H excluded from sharing. H

I I
The way the assets were treated during the marriage
J J
82.Mr Sussex took issue that there was mixing or mingling of pre-marital
K assets with matrimonial property in this case, and contended that the pre- K

marital assets did not transmogrify over time into matrimonial assets.
L L

M 83.He submitted that the present situation was akin to K v L, in which M

substantial assets were “at all times ringfenced by share certificates in the
N N
wife’s sole name which to a large extent were just kept safely and left to
O grow in value.” But the circumstances in K v L were very different and O

unusual. There, the entire wealth and only means of support of the family
P P
came from the shares inherited by the wife from her grandfather, either
Q by way of dividends or by sale of the shares when there was need to do Q

so. Both the husband and the wife stayed at home and participated
R R
equally in caring for the children and the family. Throughout the
S marriage, they lived “an extraordinarily modest lifestyle” (at §7) and S

continued to do so in a modest way after separation. In those

T T

U U

V V
A - 35 - A

B circumstances, it was held that the shares had been ring-fenced as the B

wife’s property and there had been no mixing with matrimonial property.
C C

D
84.In contrast, in the present case, the wealth generated from the D
husband’s substantial assets acquired before the marriage was mingled
E E
with the family budget to fund the high standard of living of the family.

F It was used for family purposes and needs and for the husband’s business F
activities conducted through Welton Electronics during the marriage.
G G
The fact that the shares of Welton USA were held by Urban (which was
H in turn wholly owned by the husband) and that the Chaiwan Property was H

owned by Wallford (which was in turn a wholly owned subsidiary of

I I
Welton Electronics) did not set these assets apart, in view of the way in
J which the financial affairs of the parties were organized, and the way in J

which some of the assets were preserved and others depleted during the
K K
marriage as mentioned earlier. In the present situation, characterizing the
L income received during the subsistence of the marriage as the fruit of pre- L

marital assets is not particularly helpful. It should be more pertinent to

M M
consider whether such assets were well and truly ring-fenced from the
N matrimonial budget. N

O O
85.Mr Sussex submitted that distributions from Welton USA and rental

P
income from the Chaiwan Property should not be confused with the P
capital value of these assets, making the point that the capital value of
Q Q
pre-marital assets should not be regarded as matrimonial property for

R sharing. But without the capital value of the assets, the needs of the R
parties, generously interpreted at $95 million for the wife and $61 million
S S
for the husband, could not be met. So there was a valuation of the shares
T in Welton USA, and the parties agreed on the approach of obtaining T

valuations only for the underlying assets of Welton Electronics (club

U U

V V
A - 36 - A

B memberships), Wallford (Chaiwan Property), Katerini and Angelwings B

on the basis that such assets were treated as the parties’ personal assets
C C
for distribution. This also deals with Mr Sussex’s submission that strictly
D speaking the husband did not have any interest in the Chaiwan Property D

and there should be no piercing of the corporate veil.

E E

F 86.Mr Sussex further submitted that the increase in the value of the F
Chaiwan Property was passive growth without activity on the husband’s
G G
part and should be treated as non-matrimonial in nature, relying on the
H majority view of the English Court of Appeal in Jones v Jones at §46. H

But unlike Jones v Jones, there has been no attempt by the husband to
I I
“ascribe to [the alleged non-matrimonial asset] a value, as at the date of
J the marriage, which is both realistic and apt to the context in which it is J

required” (at §37), nor was there attempt to assess passive economic
K K
growth or activity. In K v L, evidence was adduced as to the values of the
L wife’s inherited shares at different times (at §5). We agree with Mr L

Pilbrow that the husband cannot rely on passive growth in these

M M
circumstances.
N N
Conclusion and costs
O O

87.We are not persuaded that the judge had erred in principle or in law or
P P
was plainly wrong in applying the sharing principle to non-matrimonial
Q property or in ordering a division of 45/55 of the total assets. She had Q

weighed the relevant factors and struck a balance of fairness. The

R R
decision she made in the exercise of her discretion is well within the
S generous ambit within which reasonable disagreement is possible. We S

therefore dismiss the husband’s appeal and make an order nisi that he
T T

U U

V V
A - 37 - A

B should pay the wife’s costs of the appeal, with a certificate for two B

counsel.
C C

D D

E E

F F

G G

H (M H Lam) (Susan Kwan) (Carlye Chu) H

Vice-President Justice of Appeal Justice of Appeal
I I

J Mr Charles Sussex SC & Mr Neal Clough, instructed by Henry Lam & J

Associates, for the Husband (Appellant)
K K
Mr David Pilbrow SC & Jeremy S K Chan, instructed by Withers, for the
Wife (Respondent)
L L

M M

N N

O O

P P

Q Q

R R

S S

T T

U U

V V