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CACV 48/2012
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 48 OF 2012
(On Appeal from HCMC No. 2 of 2010)
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BETWEEN
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PLTO
(formerly known as PLTO)
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Petitioner |
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and
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KLK
(also known as KLKK) |
1st Respondent
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HITL |
2nd Respondent
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| Before: Hon Cheung, Fok JJA and Macrae J in Court |
| Dates of Hearing: 13-14 December 2012, 27 February 2013 |
| Date of Judgment: 25 March 2013 |
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J U D G M E N T
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Hon Cheung JA :
Background
1. The petitioner husband (‘husband’) married the respondent wife (‘wife’) on 6 January 1968. On the husband’s petition based on two year separation, a divorce decree nisi was pronounced on 26 May 2009. The decree absolute was made on 1 September 2010. The wife applied for ancillary relief before Deputy High Court Judge Carlson. This is an appeal by her from the judgment of the Judge.
2. The husband who is now 72 and the wife who is now 73 have a grown up daughter K. Two other children, namely, another daughter and a son died in 1995 and 2000 in tragic circumstances.
3. Although the parties were married for 41 years, the husband claimed that they had in fact been separated since 2001 after the death of their son. His petition stated that the parties had separated since February 2001. Although this was disputed by the wife in the ancillary relief application, who claimed that the separation only began in July 2008, the Judge found that the parties had separated in February 2001. The relevance of this finding is related to the great wealth generated by the husband’s construction business Analogue Holdings Limited (‘Analogue’) after the parties’ separation in 2001. 84.63% of the shares of Analogue were settled by the husband on a Jersey Island trust (‘the Family Trust’). The husband, the wife and K are, for all intents and purposes, the three beneficiaries of the Family Trust. The two deceased children were former beneficiaries. The husband regarded himself, the wife and K as each having an equal one-third interest in the Family Trust.
4. The Judge, based on expert evidence, valued 84.63% of Analogue at HK$1,560,686,000. The Judge regarded that each of the three beneficiaries notionally has a one-third interest in the trust. Hence the husband and wife’s interest in the Family Trust is $1,040,457,300.
5. Outside of the Family Trust, the husband has assets of HK$46,052,707 and the wife $58,259,660.
6. The total value of the matrimonial assets as found by the Judge is as follows :
| 1) The husband and the wife’s interest under the Family Trust |
HK$1,040,457,300 |
| 2) The husband’s assets |
46,052,707 |
| 3) The wife’s assets |
58,259,660 |
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HK$1,144,769,667 |
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(round up to $1,144.8 million) |
7. If equal distribution was to be effected on $1,144.8 million, the wife should get $572,384,833.50 (or rounded up to $572.4 million). The Judge recognised that with the long marriage (even excluding the period of separation) the wife should be entitled to equal distribution of the matrimonial assets. However, at the end, the award to the wife was $432 million (round figure). This represents 37.74% of the joint assets of $1,144.8 million. The $432 million is made up as follows :
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HK$370,000,000 |
(lump sum payment to be made by the husband) |
| 58,259,660 |
(the wife’s own assets) |
| 3,750,000 |
(transfer of the husband’s half share in a property) |
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| HK$432,009,660 (rounded down to $432 million)
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8. Out of the $432 million, the husband was ordered to pay a lump sum of $370 million to the wife. The wife would keep her own assets (similarly the husband would keep his own assets). The husband has agreed to transfer his half share of a property (1402 Westland Gardens) which is registered in the joint names of the husband and wife to the wife. The property is valued at $7,500,000. As a result of the transfer, the wife will get an additional $3,750,000.
9. The lump sum was to be paid by instalments. First, a payment of $250 million within three months and the balance of $120 million to be paid over six years in six equal instalments from 1 May 2013.
The wife’s appeal
10. The wife contends that the award is only 25.95% of the parties’ assets plus the total of the value of the Family Trust. Her appeal is focused on two main issues. First, the whole of the Family Trust should be taken into account as the matrimonial assets and not merely two-thirds of it. Second, she should be entitled to equal distribution of the matrimonial assets, namely, $832,499,370 or 50% of the matrimonial assets of $1,664,998,740 ($46,052,707 (the husband’s assets) + $58,259,660 (the wife’s assets) + $1,560,686,373 (Family Trust)).
The Family Trust
11. The Family Trust was set up in 1995. Although it is Jersey based, it is locally operated. The Trustee is a professional trustee, namely, HSBC International Trustee Limited.
12. The assets of the Family Trust comprised the shares in two companies, Analogue (being 84.63% of its shares) and 100% in Realty Limited when the trust was first set up. The beneficiaries were the husband, the wife, K, the two deceased children and ‘any other person born hereafter who is a lineal descendant of the [husband]’. The husband in his 5th Affirmation dated 4 October 2011 set out the reasons for setting up the Family Trust :
‘ 50. It was correct that the Trust was set up in 1995. The reasons why I decided to take this step were:
1) first, the company was beginning to take off and doing well and envisaged to do even better. It was thus that in those days, estate duty, which is of course abolished now, would be on any astute businessman’s mind. I was thus advised by my financial and legal advisors that this was an appropriate and proper step to take in order to avoid estate duty and protect my family,
2) second, at all times, and even up to the present moment, I had no thoughts for anyone or anything else except to protect and provide for my family. Thus it was that from the very word go, the beneficiaries of the Trust would comprise of myself, [wife] and our three children. After [deceased daughter] and [deceased son] died, the family became a threesome and accordingly, the beneficiaries of the Trust comprise of myself, [wife] and [K]. My intention at all times was thus that the family fortune would be equally divided among our family members. Even after the divorce, my intention had not wavered and my latest Statement of Wishes dated May 2010 continued to provide for an equal division of Trust assets among our family of three,
3) thirdly, the Trust was set up when my family were all still in Canada and the family were all expected to be Canadian citizens. Setting up a Trust would be one way to minimise Canadian tax.
4) fourthly the Trust was established to mitigate the political risks for the business with the change of sovereignty in 1997.’
(For ease of reading, I have numbered the four reasons.)
13. Earlier in his affirmation dated 18 June 2010 the husband dealt with the beneficial interest of the Family Trust :
‘ From the very beginning when I started my trust in the 1990s, I had considered every member of our family to be equal partners and beneficiaries of my trust. Thus it was that even in those early days, the trust was always to be shared between the 5 members of our family. Now that we are only 3, it is and has always been my view and intention that my entire estate plus all [wife’s] assets, that is the total matrimonial or family assets, should be equally divided between the three of us - myself, the Respondent [wife] and our only remaining child, our daughter [K], now almost 40, an intelligent, absolutely reliable young woman, who now helps with and is totally involved with the management of my companies and is undeniably completely worthy and deserving of our trust. This offer had been made in writing to the Respondent at least 6 months ago but to-date the same had not been accepted.’
Structure of the Family Trust
14. It is not seriously challenged that the Family Trust has the following features :
1) It is a discretionary trust.
(1) The Trustee holds the capital and income in trust for all or such one or more to the exclusion of the other or others of the beneficiaries and in such proportions or manner as the Trustee shall revocably or irrevocably from time to time before the Vesting Date appoint…… (Clause 5(a))
(2) Before vesting the Trustee may apply the income to or for the benefit of all or such one or more to the exclusion of the other or others of the beneficiaries and in such proportions or manner as the Trustee shall in its absolute discretion from time to time think fit and the Trustee shall not be bound as such trustee to see to the application by any person of any moneys so paid to that person. (Clause 6(a))
(3) After the vesting, and in default of an appointment of a charity by the settlor the Trustee likewise holds the capital and income on trust and discretionary power to distribute the same to the beneficiaries or any one or more of them to the exclusion of the other or others of them as the Trustee shall in its absolute discretion determine,…. (Clause 7(b))
(4) The Trustee also has the discretion to apply the trust fund to or for the advancement maintenance education or benefit of all or such one or more to the exclusion of the other or others of the beneficiaries and in such proportions or manner as the Trustee shall in its absolute discretion from time to time think fit… (Clause 8)
2) The Trustee is given power to remove existing beneficiaries (Clause 3(a)) and appoint new beneficiaries (Clause 5(b)).
3) The husband is the Protector under the Family Trust. He is given the power to remove...
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