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CACV 246/2010
B B

IN THE HIGH COURT OF THE

C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D COURT OF APPEAL D

CIVIL APPEAL NO. 246 OF 2010

E E
(ON APPEAL FROM FCMC NO. 3230 OF 2007)
F F

G BETWEEN G
ARAV Petitioner
H and H

I VP, LJ also known as PJ Respondent I

J J
Before: Hon Tang Acting CJHC, Cheung and Fok JJA in Court
K K
Date of Hearing: 31 May 2011

L
Date of Handing Down Judgment: 16 June 2011 L

M JUDGMENT M

N N
Hon Tang Acting CJHC:
O O
1. I agree fully with Fok JA’s judgment which I have had the advantage of
P P
reading in draft.

Q Q
Hon Cheung JA:
R R
2. I agree with the judgment of Fok JA. I would like to add the following
S S
views of my own.
T T

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60/40 division (approximate)

B B

C 3. H H Judge Melloy found that the total assets of the parties were about C

HK$65 million. She ordered an approximate 60/40 division between the wife

D D
and the husband with the result the wife received $40 million and the husband
E $25 million. E

F Misconduct F

G G
4. The wife argued that the division is incorrect because of the misconduct of
H the husband and HK$32.5 million frittered away by the husband should be H

added back to the total assets.

I I

J
5. Section 7(1) of the Matrimonial Proceedings Property Ordinance (‘MPPO’) J
(Cap. 192) expressly provides that the exercise of the Court’s power in relation
K K
to financial provisions, is to have regard to the conduct of the parties and the

L
circumstances of the case. L

M 6. In LKW v. DD [2010] 6 HKC 528 the Court of Final Appeal (per Ribeiro PJ) M

held that
N N

‘ 104. Conduct, or more accurately, negative conduct, is therefore

O only to be regarded as a material factor if it is ‘obvious and gross’ in O
the sense explained in Wachtel v Wachtel or, which comes to the same
thing, if it is such that it would in the opinion of the court be
P P
inequitable to disregard it.’

Q Q
7. The conduct may be in many forms. The wife relied on financial misconduct

R
of the husband. If conduct (which must be obvious and gross or inequitable to R
disregard) is one of the factors to be taken into account, then obviously the
S S
Court is not handstrung in the precise way in which it will recognize this factor.

T
Where the misconduct involves the wastage of the matrimonial assets, one way T
is to order the wasted funds to be added back to the joint assets before the Court
U U
makes the distribution : Rayden & Jackson on Divorce and Family Matters (18th

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Ed), paragraph 16.54 and Norris v. Norris [2003] 2 FCR 245. However, in my

B B
view, that is not the only way to give recognition to misconduct. Another
C approach which is consistent with the Court’s power to achieve what is fair to C

the parties is to depart from the yardstick of equal division and equal sharing
D D
principle as explained by Ribeiro PJ in LKW at para 58 – 61.
E E

8. This is what the Judge had done in the present case. She awarded the wife a
F F
higher amount than the husband. She found that there was misconduct in the
G husband setting up the new company behind the wife’s back. Although she did G

not expressly say so, there must also be misconduct by the husband in not
H H
giving the wife any shares in the new company. However, reading the
I judgment as a whole, the Judge obviously did not find that there was frittering I

away of the family assets or of reckless overspending by the husband. The new
J J
company was used to carry out the trading activities of the family business.
K Initially my concern was whether the approximate 10% adjustment was too low. K

However, having considered all the circumstances of the case, I do not consider
L L
that the Judge was plainly wrong when she adopted that adjustment.
M M
Separate Finance
N N

9. The wife contended that the parties maintained separate finance during the
O O
marriage and the matrimonial home and a property known as Sorrento belonged
P to her exclusively and should not be included as part of the matrimonial assets P

to be divided between the parties.

Q Q

R 10.The evidence of the case does not support a finding of separate finance of the R

parties. Even if, for the sake of argument, such is the case, the matrimonial
S S
home although registered in the sole name of wife was still a matrimonial asset.
T The parties’ matrimonial home, even if this was brought into the marriage at the T

outset by one of the parties, usually has a central place in any marriage. So it
U U

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should normally be treated as matrimonial property for this purpose. In

B B
principle the entitlement of each party to a share of the matrimonial property is
C the same however long or short the marriage may have been, per Lord Nicholls C

of Birkenhead in Miller v. Miller and McFarlane v. McFarlane [2006] 2 WLR

D D
1283 at paragraph 22. Baroness Hale of Richmond likewise agreed at
E paragraph 147. She stated that the prime example of family assets of a capital E

nature were the family homes and its contents. This approach is expressly
F F
affirmed in LKW at paragraph 98. In this case the parties had been living in the
G matrimonial home for more than ten years of their marriage. The fact that the G

family company Bloomville Trading paid rent to the wife for the use of that
H H
property must be due to tax saving consideration than a recognition that the
I I
property belongs solely to the wife.

J J
11.As for the Sorrento property which was first acquired by Bloomville in 2003
K and later transferred to the wife in June 2004, even Baroness Hale who in Miller K

drew a distinction between ‘family assets’ and ‘non family assets’, such as
L L
business or investment assets not generated by the joint efforts of the parties,
M recognized the impact of the length of a marriage on these two types of M

properties. In respect of the latter category of assets she said at paragraph152

N N
that,
O O
‘If the assets are not “family assets”, or not generated by the joint
efforts of the parties, then the duration of the marriage may justify a
P departure from the yardstick of equality of division.’ P

Q 12.This means the departure will occur in short rather than long marriages. This Q

recognition is to give effect to one of the factors identified in the equivalent of

R R
section 7(1)(d) of MPPO, namely ‘the duration of the marriage’.
S S

13.Lord Nicholls at paragraph 20 was disinclined to draw a distinction between

T T
‘family’ assets and ‘business or investment assets’. He held that the nature and
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source of the parties’ properties are matter to be taken into account when
B B
determining the requirements of fairness.
C C

14.Ribeiro PJ observed in LKW under the heading of ‘Unilateral Assets’ that,

D D
‘ 97. The difference of opinion is relatively narrow as it only relates
E to cases where the marriage is of short duration. The merits of the E
competing views are open to debate and it is not necessary to reach a
firm conclusion in this judgment. I will content myself with saying
F that I am tentatively inclined to prefer Lord Nicholls’s approach as F
being simpler to operate and as avoiding the possible re-introduction of
G
a discriminatory element into the exercise.’ G

15.In the present case the parties were married for 27 years from 1980 to 2007
H H
and they had lived together for at least 24 years before they became separated.
I I
This was a long marriage and in my view, the Sorrento property was rightly

J
included as part of the family assets. J

K Hon Fok JA: K

L L
Introduction

M M
16.In her Judgment dated 7 May 2010 in ancillary relief proceedings, Her
N Honour Judge Melloy found that there was a matrimonial pot worth N

approximately HK$65 million. The Judge departed from the yardstick of

O O
equality and made an order that the respondent wife should retain
P HK$40 million and the petitioner husband should receive the remaining P

HK$25 million, giving the wife just over 60% and the husband just under 40%
Q Q
of that matrimonial pot.
R R

17.The wife appeals against the Judgment below pursuant to leave of this Court
S S
(Rogers VP and Le Pichon JA) granted on 9 November 2010.
T T
18.In this appeal, in broad terms, the wife contends, first, that a sum of
U HK$32.5 million should be added back into the matrimonial pot to reflect U

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financial misconduct on the part of the husband and, secondly, that separate
B B
properties of the wife and the husband ought to be excluded from distribution or
C sharing altogether or should not be subject to equal sharing. C

D D
The facts
E E
19.The relevant background facts, taken from the Judgment, can be briefly
F stated. F

G G
(a) The Parties
H H
20.The husband is French and the wife is Taiwanese. They were married on
I 31 May 1980 and separated sometime between 2004 and 2006. The husband I

J
relocated to Vietnam following the collapse of the family business. On J
20 February 2007, the husband issued a divorce petition based on two years’
K K
separation. A decree absolute was pronounced on 29 November 2007. As the

L
Judge observed, this was, by any calculation, a long marriage. L

M 21.At the time of the hearing below, the husband was aged 61 and the wife was M

aged 59. There are two children of the marriage, a daughter and a son, both of
N N
whom are self-supporting. The husband was involved in the garment trade
O throughout the marriage. The wife worked prior to the marriage and then O

concentrated on raising the children when they were small. In late 1980, the
P P
couple relocated to Hong Kong because of the husband’s work and lived here
Q until the husband’s relocation in October 2004. The wife continues to live in Q

Hong Kong. Since his relocation to Vietnam, the husband has been based there
R R
and works for a company called Elegant Team Development Limited.
S S

(b) The businesses

T T

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22.In 1981 the couple set up a company called Great Sales Limited, in which
B B
each of them was a shareholder and director. They set up a second company in
C 1983 called Bloomville Trading (“Bloomville”) of which each of them was and C

is a director and shareholder. Bloomville’s business was to act as an agent for

D D
customers dealing with garment manufacturers charging on a commission basis.
E In 1986 the wife started to work within the business as a quality controller. E

Each of the husband and wife drew a salary of HK$50,000 per month from the
F F
company and they each shared the only declared dividend equally. As many
G household and family expenses as possible were run through Bloomville’s G

books.
H H

I 23.In order to exploit opportunities to deal directly with certain customers as I

principals rather than as agents, the couple also established Sports Fashion
J J
Limited (“Sports Fashion”) to deal with a German customer, Ahlers AG, and
K Great Sales Limited to deal with a Swiss customer, Spengler AG. K

L L
24.The husband also established a company in Germany called Fashion Concept

M International GmbH (“Fashion Concept”) with those two customers, of which M

the husband was the 80% majority shareholder. The wife maintained, and the
N N
Judge found, that she knew nothing about this company prior to discovery in
O these proceedings. O

P 25.For the wife’s part, she was an investor in Perfect Coins Limited between P

1988 and 1995. In 1998, the wife began to manage the modelling career of the
Q Q
couple’s daughter and eventually, in 2003, Team Sky Limited was set up for
R this purpose. After a falling out in 2006, the daughter set up her own company R

and, since that time, the wife has not worked.

S S

T (c) The properties T

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26.After initially living in rented accommodation in Hong Kong, the couple

B B
purchased a property in Cavendish Heights in 1988 as their matrimonial home.
C The property was held in the name of Bloomville. It was sold in C

November 1991 after which Bloomville declared a dividend of HK$5 million

D D
from the sale proceeds. In July 1992, the husband and wife each received a
E dividend of HK$2.5 million. E

F F
27.In July 1991, a property was purchased in Moorsom Road, Jardine’s
G Lookout in the name of the wife only for HK$6 million and became the G

matrimonial home. The couple lived there initially with their children and then
H H
thereafter together until their separation. The wife continues to reside there.
I Bloomville paid rent to the wife for the property in the sum of US$10,000 per I

month until the collapse of that company in 2004.

J J

K
28.In 1993, Bloomville purchased a commercial unit in Wing On Plaza for K
approximately HK$28.6 million. The wife maintains that she lent the husband
L L
HK$5 million towards the purchase. The mortgage was paid off from income

M from the companies. In November 2004, this property was sold for M

approximately HK$34 million to help pay off business debts.
N N

29.In 2003, Bloomville also purchased a further property in a development

O O
called Sorrento, in Kowloon, for just under HK$5 million. On 3 June 2004, this
P property was transferred into the wife’s sole name for just over the purchase P

price. It appears that the transfer into the wife’s name was effected in order to
Q Q
satisfy a director’s loan made by her to Bloomville.
R R

(d) Financial difficulties

S S

30.In 2004, the business ran into serious financial difficulties. It is the wife’s
T T
case that this was due to the husband extracting a total of HK$32.5 million and
U U
transferring those monies to Fashion Concept. The husband maintains that the

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change in the fortunes of the business was due to the decision by each of
B B
Ahlers AG and Spengler AG deciding, for different reasons, that they no longer
C needed to do business with Sports Fashion and Great Sales respectively. C

D D
31.On 5 December 2004, Bloomville paid the sum of HK$10.4 million to the
E wife, in satisfaction of most of what was due to her from the various Hong E

Kong companies.
F F

The Judge’s treatment of the HK$32.5 million

G G

H 32.As noted above, the first issue raised by the wife on this appeal is the H

treatment of the HK$32.5 million which the husband caused to be transferred to

I I
Fashion Concept.
J J
33.In paragraph 86 of the Judgment, the Judge set out the following schedule of
K K
assets available for distribution:

L “Wife’s assets L

M a) Net value of the matrimonial home 23,109,051 M

(Moorsom Road)
b) Sorrento (HK flat) 12,300,000
N c) Bank accounts   6,473,572 N
d) Securities 21,069,978
e) Personal items     10,000
O O
f) Pension   133,201*

P Sub total HK$63,095,802 P

Less liabilities     43,918

Q Q
Sub total HK$63,051,884
R R
Husband’s assets

S g) French Property 1,244,320 S

h) Bank accounts   234,637
T
i) Bloomville France   205,000 T
j) Pension   393,545*

U Sub total HK$2,077,502 U

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B TOTAL HK$65,129,386” B

C 34.In reaching her finding in this regard, the Judge declined to add back the sum C

of HK$32.5 million into the pot of matrimonial assets.

D D

E 35.In respect of the HK$32.5 million, the Judge accepted the evidence of the in- E

house accountant for Bloomville Trading and Sports Fashion, Mr Paul Wan,
F F
who confirmed that the husband controlled the transfer of the funds from the
G Hong Kong companies to Fashion Concept. The sum of HK$32.5 million was G

an aggregate sum representing loans made to Fashion Concept to operate its

H H
business as well as outstanding commissions and monies due for unpaid goods.
I I
36.The Judge accepted that the wife did not know that the husband had
J J
transferred these sums out of the Hong Kong companies and that this seemed

K
“rather underhand”. She held (Judgment §41): K

“… All in all I am satisfied that she was not informed of this by the
L L
husband and that this had been a deliberate ploy on his part. Likewise I
accept that she had not been informed of the husband’s involvement
M with the German company until she found out through the discovery M
process.”
N N
37.However, notwithstanding that she considered the husband had been
O “reticent and difficult” with regard to his duty to make full and frank disclosure O

about the German company, the Judge declined to infer that the husband had
P P
access to these funds. She held it was unlikely that the husband would be able
Q to recover the monies and, to put the matter beyond dispute, accepted an Q

undertaking from the husband dated 30 March 2010 (the last day of the trial) in
R R
the following terms:
S S
“I, [ARAV] of … Hanoi, Vietnam acknowledge that the total
sum of Euro4,010,235.55 recorded in the financial statements of
T Fashion Concept GmbH for the year 2003, of which Euro1,716,085.04 T
owing to Sports Fashion Limited and Euro2,294,150.51 owning to me,
U
is in fact due to Sports Fashion Limited. I hereby undertake to the U

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Court and the Respondent that in the event that I receive any part of the
B said outstanding indebtedness, I will immediately inform the B
Respondent and shall hold the same for the benefit of Fashion Limited
and account to Sports Fashion and/her the Respondent for any such
C C
payments.”

D D
38.At paragraph 58 of the Judgment, the Judge held:

E “It seems to me that this undertaking effectively deals with any E

residual concerns that the wife might have in this respect. All in all,
F given the above, I am satisfied that the HK$32.5 million should not F
form part of the matrimonial pot available for distribution between the
parties. In the unlikely event that the husband receives any funds in
G this regard, his undertaking should be sufficient guarantee to the wife. G
Consequently I will expect the undertaking to form part of the court
order.”
H H

39.However, the Judge noted (Judgment §61) that she would refer to the issue
I I
of the HK$32.5 million again when dealing with “conduct”.
J J

40.At paragraph 107 of the Judgment, the Judge set out the following passage
K K
from §16.08 of Rayden and Jackson on Divorce and Family Matters (18th Ed.):
L L
“If one or both of the parties have by their dealings with the assets
enjoyed by the family severely depreciated or destroyed those assets,
M this is a matter to which the court might properly have regard… in the M
award that is made. It might be appropriate to add back the value of
the asset lost or diminished in value to the balance sheet of the
N N
defaulter’s assets.” [Emphasis added]

O 41.The crucial paragraph of her Judgment is paragraph 111 where the Judge O

held:
P P

“Do I accept then that this was simply a punt that failed? The difficulty
Q Q
with this argument is that it does not take into account the secretive
and underhand way in which the husband conducted these business
R dealings, at a time when the wife was lending funds to the business and R
acting as a personal guarantor. It seems to me that his behaviour goes
beyond a mere business dealing that has failed. I am also conscious of
S the fact that he has been very reticent when providing proper S
disclosure to the wife in this respect. It seems to me that given those
T
particular aspects that the husband’s behaviour is something that I T
should quite rightly take into account when considering a division of
assets, but not to the extent sought by the wife.”
U U

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42.As noted above, the Judge declined to add back the HK$32.5 million into the
B B
matrimonial assets. At paragraph 114 of the Judgment, the Judge said:
C C
“There is a matrimonial pot worth approximately HK$65 million. The
wife has lost some monies as a result of the financial crises. This sum
D will not be added in or otherwise taken into account. Likewise the D
balance of the mortgage will not be added back in or otherwise taken
E into account. In so far as the HK$32.5 million is concerned, this too E
will not be added back into the pot. I accept that those funds are
unlikely to be retrievable. In the event that any funds are forthcoming,
F the husband will be bound by his undertaking as set out above.” F

G 43.Instead, she took the husband’s conduct in respect of that sum into account G

when arriving at a division of the pot of assets. At paragraph 116 of the

H H
Judgment, she held:
I I
“In this case I will depart from the yardstick of equality and in broad
terms I will make an order that the wife is to retain HK$40 million and
J the husband shall receive the remaining HK$25 million. In percentage J
terms the wife will retain just over 60% of the matrimonial pot and the
K
husband will receive just under 40%.” K

44.And at paragraph 119 of the Judgment, the Judge explained that, in arriving

L L
at the division of assets, she had:
M M
“… also taken into account the husband’s conduct in so far as it relates
to the HK$32.5 million.”
N N

Was the Judge wrong in her treatment of the HK$32.5 million?

O O

P 45.The first question is whether the Judge’s exercise of discretion in the P

ancillary relief proceedings was vitiated by her failure to re-attribute (or add
Q Q
back) the HK$32.5 million transferred to Fashion Concepts.
R R
46.Mr Russell Coleman SC, leading counsel for the wife, submitted that, in the
S S
light of the Judge’s findings as to the husband’s misconduct, which she

T
described as “underhand” and a “deliberate ploy”, the HK$32.5 million should T
have been added back into the matrimonial pot and that the Judge’s failure to do
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so was an error of law which vitiated her exercise of discretion in the division of
B B
the matrimonial assets.
C C

47.In support of this submission, Mr Coleman referred to the fact that the Judge
D D
rejected the husband’s case that “this was simply a punt that failed” and held
E that this was “beyond a mere business dealing that has failed”. He identified the E

factors of financial misconduct, which he described in his skeleton as being “of

F F
the worse kind”, as three-fold: (1) the secretive transfers of funds to the German
G company; (2) the setting up of a company in which the wife did not have an G

interest; and (3) the transfers out of funds from a company in which the wife did
H H
have an interest.
I I
48.Reliance was placed on passages in Martin v Martin [1976] Fam 335, Beach
J J
v Beach [1995] 2 FCR 526 and Norris v Norris [2003] 2 FCR 245.

K K
49.In Martin, Cairns LJ held at p. 342G-H:
L L
“Such conduct must be taken into account because a spouse cannot be
allowed to fritter away the assets by extravagant living or reckless
M speculation and then to claim as great a share of what was left as he M
would have been entitled to if he had behaved reasonably.”
N N
And at p. 344D, he said:
O O
“It is wrong to have regard only to the asset which now exists and to
disregard those that have gone and of which the husband has had the
P benefit.” P

Q 50.Mr Coleman submitted that the relevant questions to ask were those posed Q

by Thorpe J (as he then was) in Beach at p. 535G, namely:

R R

“So the crux of the case is really the responsibility for the present near
S destitution of the husband. How has this come about? Who is S
responsible for this state of affairs? Is it the product of the husband’s
T misconduct?” T

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51.In Norris, in respect of whether overspending by the husband should be

B B
reflected by an add back into the matrimonial pot, Bennett J held (at §77):
C C
“The overspend, ie the expenditure over income of £350,000 in a little
over two years, at a time when he was about to and then did enter into
D protracted litigation with the wife, can only be classified as reckless, D
and particularly at a time later on when the dot.com and the stock
E market collapsed. A modest overspend in the context of a rich man E
would be understandable and could not be classified as reckless. But
in the circumstances of this case, as I have set them out, in my
F judgment the scale and extent of the overspend was reckless. I do not F
think it appropriate to add back the entire overspend, but I do not
consider it unfair to add back into the husband’s assets the figure of
G G
£250,000. In my judgment there is no answer that the husband can
sensibly give to the question, ‘Why should the wife be disadvantaged
H in the split of the assets by the husband’s reckless expenditure?’ A H
spouse can, of course, spend his or her money as he or she chooses, but
it is only fair to add back in to that spouse’s assets the amount by
I I
which he or she recklessly depletes the assets and thus potentially
disadvantages the other spouse within ancillary relief proceedings.”
J J
52.At first blush, the Judge’s comment in paragraph 111 of the Judgment to the
K K
effect that she did not accept the husband’s loss of the HK$32.5 million was

L
“simply a punt that failed” would appear to suggest that she was of the view that L
the loss was not an instance of “an entrepreneur taking a calculated risk with his
M M
investment strategy” but rather was the result of “deliberate and reckless

N
conduct”, this being the distinction drawn in Rayden and Jackson (supra) at N
§16.54.
O O

53.It is clear that, where a spouse has frittered away assets due to his or her
P P
extravagance or reckless speculation, the court can take this into account in
Q ancillary relief proceedings by notionally re-attributing (or adding back) the Q

value of the assets so squandered to that spouse’s side of the list of matrimonial
R R
assets. By doing so, the reckless spouse is deemed still to have those assets and,
S depending on the division of assets, to share them with the other spouse. S

T T
54.Martin and Norris referred to above are instances of the court doing so.
U Similarly, in C v C [1990] 2 HKLR 183, a proportion of the wife’s gambling U

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and futures speculation was added back to the assets to be divided between the
B B
parties to redress the wife’s financial irresponsibility.
C C

55.It is important, however, to recognise that misconduct that may constitute a

D D
factor for a judge to take into account in proceedings for financial relief under
E s. 7 of the Matrimonial Proceedings and Property Ordinance, Cap. 192, can be E

constituted by acts which cover a wide spectrum of behaviour. The

F F
characterisation of particular behaviour as amounting to reckless financial
G conduct will be highly fact sensitive and depend on the judge’s view of the G

evidence.
H H

I
56.Thus, in Martin, Cairns LJ considered the husband’s use of a false name, I
concealment and lack of documentation of his property dealings justified the
J J
judge drawing unfavourable inferences (p. 343D). He regarded the evidence as

K
justifying the conclusion: K

“… that he was entering into a transaction on a scale which was far

L L
beyond his own resources and which he could only finance by putting
in jeopardy money which the wife was entitled to share.” (p. 343F).
M M
57.In Norris, the husband’s conduct leading to the add back was in the nature of
N N
extravagant overspending on jewellery for his mistress, a Ferrari motor car and

O expensive holidays. And in C v C, as noted above, the financial irresponsibility O

consisted of gambling and futures speculation.
P P

58.It does not therefore follow that there is a unitary concept of misconduct that
Q Q
inexorably leads to the conclusion that expenditure made by a spouse guilty of
R any type of misconduct must inevitably be added back to the pot of assets for R

the purposes of ancillary relief proceedings. Moreover, in Vaughan v Vaughan

S S
[2007] 3 FCR 533 at §14, Wilson LJ (as he then was) noted that the re-
T attribution of assets by way of add back: T

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“… has to be conducted very cautiously, by reference only to clear

B evidence of dissipation (in which there is a wanton element) …”. B

C 59.Further, it is not the case, in my opinion, that a finding of misconduct on the C

part of a spouse must inevitably lead to a re-attribution of assets. In M v M

D D
[2006] 2 FLR 1253, for example, the judge found the husband had been guilty
E of compulsive gambling and channelling funds to his new partner. However, E

instead of adding back the monies spent, the judge took the husband’s conduct
F F
into account in arriving at a division of the proceeds of the couple’s joint assets:
G see §96(d). G

H H
60.Therefore, as I have endeavoured to demonstrate, the Judge was not faced
I with the stark choice of finding that the husband was guilty of financial I

misconduct so that the HK$32.5 million must be added back to the matrimonial

J J
pot, on the one hand, or on the other, absolving him from responsibility for
K simply having had the misfortune of having taken a calculated risk which did K

not succeed.
L L

61.I do not therefore accept the wife’s argument that the Judge’s exercise of
M M
discretion was vitiated by error of law in that, having found misconduct, she
N N
erred in inevitably not having added back the HK$32.5 million. Section 7 of the

O
Ordinance confers a very broad discretion on judges dealing with financial O
provision in divorce proceedings: LKW v DD [2010] 6 HKC 528 at §48. In my
P P
opinion, it was open to the Judge to decline to add back the HK$32.5 million

Q
and to decide to take the husband’s conduct relating to that sum into account at Q
the stage of determining the parties’ respective proportions of the matrimonial
R R
assets. This is what the Judge indicated she would do (Judgment §111) and

S what she ultimately did (Judgment §119). S

T 62.Mr Coleman also submitted that the Judge’s exercise of discretion in respect T

of the HK$32.5 million was also vitiated in law by her linking of the

U U

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irretrievability of the HK$32.5 million with her decision not to add back that
B B
sum into the matrimonial pot. He referred to the part of paragraph 114 of the
C Judgment where the Judge said: C

D “In so far as the HK$32.5 million is concerned, this too will not be D

added back into the pot. I accept that those funds are unlikely to be
retrievable. In the event that any funds are forthcoming, the husband
E E
will be bound by his undertaking as set out above.”

F 63.If the Judge had proceeded on the basis that the HK$32.5 million could only F

be added back in the event it was retrievable, I would accept that would have
G G
been wrong in law since it is clear that re-attribution or adding back does not
H H
depend on the availability of the assets extracted and may be done on a notional

I
basis. I

J 64.However, I do not think that the Judge made the error attributed to her. She J

addressed the issue of retrievability because the wife had expressly asked her to
K K
infer that the husband had access to the funds (Judgment §50). That the Judge
L declined to do so (Judgment §57) but she noted that, to allay the wife’s L

concerns, the husband’s undertaking dealt with any residual concerns the wife
M M
might have. All she was doing in paragraph 114 of her Judgment, in my
N opinion, was confirming her refusal to draw the inference that the husband had N

access to the HK$32.5 million and repeating the point that the wife had the
O O
benefit of the undertaking in the unlikely event the funds were recovered. She
P was not stating these two matters as the reasons for declining to exercise her P

discretion to re-attribute that sum to the pot of matrimonial of assets.

Q Q

R 65.The wife having failed, in my opinion, to show that the Judge’s exercise of R

discretion was vitiated by error of law, it falls to consider whether the Judge’s
S S
exercise of discretion in apportioning the assets in the ratio of 60:40 in favour of
T the wife was, in the light of the husband’s conduct in relation to the T

HK$32.5 million, plainly wrong so that this court should interfere.

U U

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66.In this regard, the threshold for the wife is a high one and deference must be
B B
given to the trial judge: see Piglowska v Piglowski [1999] 1 WLR 1360 at
C p. 1372. This is particularly so in the case of ancillary relief proceedings where C

the appellate court must be willing to permit a degree of pluralism: see ibid. at
D D
p. 1373A-D.
E E

67.It is, of course, true that the sum of HK$32.5 million is a significant sum
F F
and, if taken into account, would form a large proportion (approximately 30%)
G of the total matrimonial assets given the available assets totalling G

HK$65,129,386 found by the Judge. For this reason, it is right to consider

H H
whether the 10% differential in the Judge’s division of assets between the
I husband and wife is an appropriate reflection of the husband’s conduct. I

J J
68.Returning to the facts of the instant case, the husband’s expenditure of the

K
HK$32.5 million, whilst involving misconduct in the sense of deliberate K
concealment, was, in my view, not essentially in the nature of an exercise of
L L
extravagant and reckless dissipation of assets or involving a wanton element.

M M
69.The genesis of Fashion Concept was the demise of Sports Fashion’s main
N customer in Germany in 1999. This is reflected in the figures for Bloomville’s N

turnover which fell from HK$10.9 million in 1998 to HK$5.2 million in 1999

O O
and for Sports Fashion’s turnover which fell from HK$57 million in 1998 to
P HK$49 million in 1999. The husband decided to replicate Sports Fashion’s P

main customer through the vehicle of Fashion Concept.

Q Q

R 70.It would appear that the scheme was initially successful in that Sports R

Fashion’s turnover for 2000 rose to HK$106 million. Unfortunately, it appears

S S
that the expenses of Fashion Concept were increasing at a faster rate. The
T coincidental withdrawal of the business of Ahlers AG and Spengler AG led to T

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the financial crisis which precipitated the failure of the family trading
B B
companies.
C C

71.At this time, the Sorrento property was transferred into the wife’s name. To
D D
meet the family companies’ indebtedness, monies were raised by the sale of
E Bloomville’s property in Wing On Plaza and the realisation of insurance E

policies by the husband. Repayments were made to creditors and this included
F F
a debt of HK$10.4 million repaid to the wife by Bloomville. The Judge clearly
G thought the husband’s steps to ensure the wife was repaid most of what was due G

to her from the Hong Kong companies was to his credit (Judgment §23).
H H

I
72.The sum of HK$32.5 million transferred to Fashion Concept was not a single I
transfer of funds. It was instead made up of loans to Fashion Concept, trade
J J
debts and outstanding commissions. To the extent that the transactions giving

K
rise to the trade debts and outstanding commissions would have been profitable, K
the profit would have gone back to the family companies to be shared equally
L L
by the husband and wife.

M M
73.Mr Paul Shieh SC, leading counsel for the husband, demonstrated, with
N reference to the balance sheet of Fashion Concept, that the HK$32.5 million N

was the equivalent of EUR4,090,235.55 (@HK$7.94:EUR1) which was made

O O
up of EUR2,374,150.51 million owed by Fashion Concept to Sport Fashion
P (although incorrectly recorded as being owed to the husband) and P

EUR1,716,085.04 owed to trade creditors. Thus, approximately 58% of the

Q Q
HK$32.5 million was constituted by loans to Fashion Concept and 42% was
R constituted by trade debts and unpaid commissions. R

S S
74.If one were to apply the percentage (58%) reflecting the loan portion of the
T HK$32.5 million, i.e. $18.8 million, and notionally to add that back into the T

HK$65.1 million matrimonial assets, the total would be approximately

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HK$84 million. Applying then a 50:50 division of the assets would result in

B B
each of the husband and wife receiving approximately HK$42 million.
C C

75.In these circumstances, it can be seen that the Judge’s apportionment of the
D D
assets in the proportions of 60:40 to the husband and wife respectively,
E producing HK$40 million for the wife, is not obviously out of line with the E

exercise in the preceding paragraph (which is predicated on a partial add back).

F F

76.Furthermore, it should also not be overlooked that the Judge’s apportionment

G G
of 60:40 was arrived at in circumstances in which, having regard to the wife’s
H having taken out a mortgage over the matrimonial home at a time when she was H

I
avoiding service of the divorce petition and her subsequent investment losses of I
HK$12 million of the funds so raised, she found (§113):
J J
“… both parties behaviour at times to be questionable and probably
indicative of the unfortunate way in which they chose to conduct this
K K
litigation.”

L L
And it can also be assumed that the Judge took the husband’s conduct in

M
relation to the HK$32.5 million into account in ordering that there be no order M
as to costs of the proceedings before her.
N N

77.The Judge, who is an experienced family judge, received the evidence of the
O O
husband and wife at first hand and gave a full and careful judgment. At the end
P of the day, I am satisfied that her exercise of discretion in arriving at the P

apportionment is not one which this court can or should interfere with on
Q Q
appeal.
R R

78.Further, as Ribeiro PJ held in LKW v DD (supra), one of the principles

S S
which the courts are obliged to apply when considering an application under
T section 7 is that the court should not countenance any attempt to engage in T

costly and often futile retrospective investigations of the failed marriage which
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tend to deplete the parties’ (and the courts’) resources and to increase
B B
antagonism and discourage settlement (§62).
C C

79.Ribeiro PJ noted (at §69) the essence of that (fourth) principle is reflected in
D D
Thorpe LJ’s comment in Parra v Parra [2003] 1 FLR 942 at §22, namely:
E E
“... the outcome of ancillary relief cases depends upon the exercise of a
singularly broad judgment that obviates the need for the investigation
F of minute detail and equally the need to make findings on minor issues F
in dispute. The judicial task is very different from the task of the judge
in the civil justice system whose obligation is to make findings on all
G issues in dispute relevant to outcome. The quasi-inquisitorial role of G
the judge in ancillary relief litigation obliges him to investigate issues
H which he considers relevant to outcome even if not advanced by either H
party. Equally he is not bound to adopt a conclusion upon which the
parties have agreed. But this independence must be matched by an
I obligation to eschew over-elaboration and to endeavour to paint the I
canvas of his judgment with a broad brush rather than with a fine sable.
J
Judgments in this field need to be simple in structure and simply J
explained.”

K K
80.This obligation to endeavour to paint with a broad brush is a further reason

L
not to interfere with the Judge’s exercise of discretion in the present case. L

M Separate finances M

N N
81.The issue here is whether the financial arrangements between the parties

O during the marriage was such as to give rise to an agreement that upon divorce O

each party should retain such assets that he or she was respectively left with.
P P
The wife contends that they should.
Q Q
82.As regards the facts for this argument, Mr Coleman referred to the Judge’s
R comments at paragraph 6 of the Judgment, namely: R

S “One of the enduring features of this case is what might be termed the S
distinctly separate nature of the parties’ financial relationship.
Although husband and wife, the parties seemed to have largely conduct
T T
their financial affairs on an arms length basis. It also appears that
differences in approach towards financial matters caused significant
U friction within the relationship.” U

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83.He also referred to paragraph 18 of the Judgment, where the Judge said:
B B

“Another point of interest is that it appears to be common ground that

C the wife acted as the “banker” for the family business, lending money C
on a commercial basis, to ease cash flow difficulties from time to time.
It was put to her during cross-examination that she received a
D D
significant amount of money from the companies because of these
arrangements. This does not appear to be disputed. Again it appears
E that the husband agreed to this.” E

F 84.Next, he referred to paragraph 103 of the Judgment, where the Judge found: F

G “It is accepted that the party’s conducted their financial relationship G

largely on a commercial basis and at arms length. This was by
agreement. Similarly the wife’s financial relationship with R when
H managing her modelling career had a distinctly commercial flavour.” H

I 85.Mr Coleman submitted that the Judge was wrong when she then held: I

J “104. I do not accept that as a valid reason for departing from the J
yardstick of equality.
K 105. Counsel for the husband submits that the proposition is K
misconceived. I agree.”
L L
86.This was, he submitted, to “go directly and unthinkingly to a 50/50 award”
M and was “a mechanistic misapplication of the principles” (per Ribeiro PJ in M

LKW v DD (supra) at §45) and was therefore wrong in law.

N N

O 87.In support of the wife’s contentions on this issue, Mr Coleman relied on the O

speech of Baroness Hale of Richmond in Miller v Miller and McFarlane v

P P
McFarlane [2006] 2 AC 618 at §§150-153 supporting a concept of unilateral
Q assets which ought not to be subject to the sharing principle upon divorce: Q

R “150. More difficult are business or investment assets which have R

been generated solely or mainly by the efforts of one party. The other
party has often made some contribution to the business, at least in its
S early days, and has continued with her agreed contribution to the S
welfare of the family (as did Mrs Cowan). But in these non-business-
T
partnership, non-family asset cases, the bulk of the property has been T
generated by one party. Does this provide a reason for departing from
the yardstick of equality? On the one hand is the view, already
U expressed, that commercial and domestic contributions are intrinsically U

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incommensurable. It is easy to count the money or property which one

B has acquired. It is impossible to count the value which the other has B
added to their lives together. One is counted in money or money's
worth. The other is counted in domestic comfort and happiness. If the
C C
law is to avoid discrimination between the gender roles, it should
regard all the assets generated in either way during the marriage as
D family assets to be divided equally between them unless some other D
good reason is shown to do otherwise.
E 151. On the other hand is the view that this is unrealistic. We do not E
yet have a system of community of property, whether full or deferred.
F
Even modest legislative steps towards this have been strenuously F
resisted. Ownership and contributions still feature in divorcing couples'
own perceptions of a fair result, some drawing a distinction between
G the home and joint savings accounts, on the one hand, and pensions, G
individual savings and debts, on the other (Settling Up, para 128
earlier, chapter 5). Some of these are not family assets in the way that
H H
the home, its contents and the family savings are family assets. Their
value may well be speculative or their possession risky. It is not
I suggested that the domestic partner should share in the risks or I
potential liabilities, a problem which bedevils many community of
property regimes and can give domestic contributions a negative value.
J It simply cannot be demonstrated that the domestic contribution, J
important though it has been to the welfare and happiness of the family
K as a whole, has contributed to their acquisition. If the money maker K
had not had a wife to look after him, no doubt he would have found
others to do it for him. Further, great wealth can be generated in a very
L short time, as the Miller case shows; but domestic contributions by L
their very nature take time to mature into contributions to the welfare
of the family.
M M
152. My lords, while I do not think that these arguments can be
N ignored, I think that they are irrelevant in the great majority of cases. N
In the very small number of cases where they might make a difference,
of which Miller may be one, the answer is the same as that given in
O White v White [2001] 1 AC 596 in connection with pre-marital O
property, inheritance and gifts. The source of the assets may be taken
P
into account but its importance will diminish over time. Put the other P
way round, the court is expressly required to take into account the
duration of the marriage: section 25(2)(d). If the assets are not 'family
Q assets', or not generated by the joint efforts of the parties, then the Q
duration of the marriage may justify a departure from the yardstick of
equality of division. As we are talking here of a departure from that
R R
yardstick, I would prefer to put this in terms of a reduction to reflect
the period of time over which the domestic contribution has or will
S continue (see Bailey-Harris, "Comment on GW v RW (Financial S
Provision: Departure from Equality)" [2003] Fam Law 386, at p 388)
rather than in terms of accrual over time (see Eekelaar, "Asset
T Distribution on Divorce - Time and Property" [2003] Fam Law 828). T
This avoids the complexities of devising a formula for such accruals.
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153. This is simply to recognise that in a matrimonial property

B regime which still starts with the premise of separate property, there is B
still some scope for one party to acquire and retain separate property
which is not automatically to be shared equally between them. The
C C
nature and the source of the property and the way the couple have run
their lives may be taken into account in deciding how it should be
D shared. There may be other examples. Take, for example, a genuine D
dual career family where each party has worked throughout the
marriage and certain assets have been pooled for the benefit of the
E family but others have not. There may be no relationship-generated E
needs or other disadvantages for which compensation is warranted. We
F can assume that the family assets, in the sense discussed earlier, should F
be divided equally. But it might well be fair to leave undisturbed
whatever additional surplus each has accumulated during his or her
G working life. However, one should be careful not to take this approach G
too far. What seems fair and sensible at the outset of a relationship may
H
seem much less fair and sensible when it ends. And there could well be H
a sense of injustice if a dual career spouse who had worked outside as
well as inside the home throughout the marriage ended up less well off
I than one who had only or mainly worked inside the home.” I

J 88.He also relied on paragraph 170 of the speech of Lord Mance as further J

support for this approach:

K K

“Fourthly, and whatever the position on the third point, I agree with
L what Baroness Hale has said in paragraph 153, which is, as I see it, L
also consistent with the last sentence of paragraph 25 of Lord Nicholls'
speech. The present marriage had what one might call a traditional
M aspect. Mr Miller worked, and Mrs Miller gave up work to look after M
him. But there can be marriages, long as well as short, where both
N partners are and remain financially active, and independently so. They N
may contribute to a house and joint expenses, but it does not
necessarily follow that they are or regard themselves in other respects
O as engaged in a joint financial enterprise for all purposes. Intrusive O
enquiries into the other's financial affairs might, during the marriage,
be viewed as inconsistent with a proper respect for the other's personal
P P
autonomy and development, and even more so if the other were to
claim a share of any profit made from them. In such a case the wife
Q might still have the particular additional burden of combining the Q
bearing of and caring for children with work outside the home. If one
partner (and it might, with increasing likelihood I hope, be the wife)
R R
were more successful financially than the other, and questions of needs
and compensation had been addressed, one might ask why a court
S should impose at the end of their marriage a sharing of all assets S
acquired during matrimony which the parties had never envisaged
during matrimony. Once needs and compensation had been addressed,
T the misfortune of divorce would not of itself, as it seems to me, be T
justification for the court to disturb principles by which the parties had
U
chosen to live their lives while married.” U

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89.Mr Coleman submitted that, whereas family assets, such as Bloomville,

B B
should be divided equally, separate property should be left “undisturbed
C whatever additional surplus each has accumulated during his or her working C

life” (Miller/McFarlane §153). In the present case, he submitted, both the

D D
husband and wife had an equal benefit from Bloomville and chose to use that
E benefit separately as each saw fit. That was how the parties had “chosen to live E

their lives while married” (Miller/McFarlane §170).

F F

G 90.In Charman v Charman (No. 4) [2007] 1 FLR 1246 at §86, Sir Mark G

Potter P noted that Lord Mance’s extension of the concept of unilateral assets

H H
may:
I I
“… have foreshadowed future, albeit no doubt cautious, movement in
the law towards a more frequent distribution of property upon divorce
J in accordance with what, by words or conduct, the parties appear J
previously to have agreed.”
K K
91.In support of the trend of the courts to uphold contractual bargains made by
L parties to a marriage, whether before, during or after marriage, Mr Coleman L

cited a number of cases, including the recent decision of the UK Supreme Court
M M
in Radmacher v Granatino [2010] 3 WLR 1367.
N N

92.However, the present case is not a case involving a formal pre- or post-
O O
nuptial agreement or any express agreement. Instead, the wife’s case is based
P on a tacit or implied agreement that upon divorce each party should retain such P

assets that he or she is respectively left with. The question here is simply
Q Q
whether, on the facts, a relevant agreement to keep finances separate in the
R event the marriage should come to an end has been demonstrated. R

S 93.On the facts of this case, I do not consider that an agreement to the effect S

T
relied upon by the wife should be implied. The fact that the couple kept their T
financial arrangements separate in the manner found by the Judge does not, in
U U

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my opinion, give rise to an inference that they agreed that their respective assets
B B
should be ring-fenced in the event of a divorce.
C C

94.The cross-examination of the husband below indicates that the

D D
commerciality of the arrangements between the couple were due to the wife’s
E insistence, over which he had “no choice”. But, in any event, the separation of E

the parties’ finances, exemplified by the charging of interest on loans made by

F F
the wife to the family companies and the payment of rent by Bloomville for the
G occupation of the matrimonial home do not, in my view, give rise to a pressing G

inference of a post-nuptial agreement of the nature claimed by the wife. There

H H
may have been many sound reasons for adopting these arrangements without
I implying the agreement contended for. That those reasons do not appear to I

have been fully developed in the evidence appears to derive from the fact that
J J
the existence of a post-nuptial agreement to isolate each parties’ separate assets
K in the event of a divorce does not appear to have been put to the husband in K

cross-examination. (In this respect, I should note that neither Mr Coleman nor
L L
his junior, Mr Jeremy Chan, appeared below.)
M M
95.Mr Shieh submitted that this was not a case where the wife had inherited
N N
assets which she brought to the marriage. She did not have a separate career as
O such. Instead, she obtained an income from the family business, Bloomville, O

and invested her salary. The matrimonial home was purchased using a dividend
P P
declared by Bloomville from the sale of a previous matrimonial property. It
Q would appear that much of the increase in value of the assets in the wife’s hands Q

derived from increases in the property market. I would accept these

R R
submissions.
S S
96.No finding of an agreement of an implied post-nuptial agreement of the
T nature now advanced by the wife was made by the Judge below and it does not T

U
appear that she was invited to make such a finding. For that reason, I do not U

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agree with Mr Coleman’s criticisms of paragraphs 104 and 105 of the

B B
Judgment. On the facts of the case, I consider that the Judge was entitled to
C reject the invitation to depart from the yardstick of equality notwithstanding her C

acceptance of the way the parties conducted their financial relationship.

D D

E 97.I would add that I also agree with the submission made by Mr Shieh that E

separate finance arrangements apply to many households in Hong Kong and

F F
finding that such arrangements give rise to the insulation or quarantine of such
G assets from division between parties in the event of a divorce would have far- G

reaching consequences. Although the present case involves a wife seeking to

H H
ring-fence her assets, it is not unlikely that in many marriages where separate
I finances are kept it is the principal breadwinner (whether husband or wife) who I

holds the bulk of the assets. If the keeping of separate finances were too readily
J J
held to give rise to the type of post-nuptial agreement claimed in the present
K case, there would be a real risk of the weaker spouse being left without redress K

upon divorce.
L L

M 98.In the light of my conclusion that the post-nuptial agreement relied upon by M
the wife is not supported on the facts, I do not consider it necessary to analyse
N N
the cases cited by Mr Coleman relating to such agreements because, in my
O view, this case is not the opportunity to consider enforceability of the different O

types of matrimonial agreements that have been considered by other courts in

P P
other proceedings or the extent to which the courts of this jurisdiction should or
Q should not embrace the concept of unilateral assets within a marriage. Q

R 99.I would, however, note that the passages in Miller/MacFarlane on which the R

wife’s case is based should be considered with care. In the first place, the
S S
comments of Baroness Hale and Lord Mance relied upon are strictly obiter.
T Secondly, Lord Nicholls disagreed that separate business and investment assets T

U
should be immune from the sharing principle (see §§17 to 20). Thirdly, the U

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comments of Baroness Hale were made in the context of a short marriage and
B B
the present case is not such a marriage: on the contrary, it is common ground
C that this was a long marriage. Fourthly, Ribeiro PJ in LKW v DD at §97 C

indicated a tentative preference for the approach of Lord Nicholls.

D D

E 100. It is to be noted that a similar argument based on separate finances E

was rejected by this court in W v H and Z, unrep., CACV 127/2008, 12.5.09 at

F F
§§54 to 57. In my view, courts should be cautious lest they too readily imply
G post-nuptial agreements which might have the effect, if upheld, of ousting the G

discretion of the court under section 7.

H H

I
Disposition and costs I

J 101. For the reasons set out above, I would dismiss the appeal and make J

an order nisi that the wife should pay the husband’s costs of the appeal, to be
K K
taxed if not agreed with a certificate for two counsel.
L L

M M

N N

O (Robert Tang) (Peter Cheung) (Joseph Fok) O

Acting Chief Judge Justice of Appeal Justice of Appeal
P High Court P

Q Q
Mr Paul Shieh SC and Ms Corinne Remedios, instructed by Messrs Boase,
Cohen & Collins, for the Petitioner/Respondent
R R

Mr Russell Coleman SC and Mr Jeremy S K Chan, instructed by

S Messrs Stevenson, Wong & Co., for the Respondent/Appellant S

T T

U U

V V