Hong Kong Family Law: Misconduct as a ground for departing from equal division of matrimonial assets
In deciding the question of financial relief in matrimonial proceedings, under section 7 of the Matrimonial Proceedings and Property Ordinance (Cap.192) (MPPO) the Court has a duty to consider, inter alia, the conduct of the parties. This could mean two things – marital misconduct and litigation misconduct: LSY v HTF [2013] 2 HKLRD 1233.
Usually, only marital misconduct could justify a departure from equal division of matrimonial assets between the parties, whereas litigation misconduct would be sanctioned by costs unless the circumstances are exceptional. Ted Chan provides an overview of the two types of misconduct and the Court’s current approach to each in the context of financial relief.
Marital Misconduct
The matrimonial proceedings are most certainly not the occasion for the parties to endlessly find fault with each other. Therefore, to persuade the Court to take into account marital misconduct of a party, such conduct must be so serious that it is “obvious and gross”: LKW v DD (2010) 13 HKCFAR 582.
Perhaps the most commonly encountered complaint is the other party’s excessive or extravagant spending, thereby reducing dramatically the matrimonial assets to be distributed. The key is whether the party’s spending is excessive or wanton. When a client suggests that the other party might be overspending, it is essential for legal practitioners to first learn about the purpose of the expenditure. Clearly, for example, extravagant overspending on jewellery for a mistress would be a financial misconduct (as in Norris v Norris [2003] 1 FLR 1142). In other instances, loans to friends in need and failed investments could be genuine and without dishonesty.
Another important question that legal practitioners should ask is: what financial impact does the alleged misconduct actually have? Each family functions differently and, for this reason, the Court would assess the level of personal spending by a party during the pre-trial period against the standard which the couple had been enjoying during the marriage. For instance, in TCWF v LKKS (No.1) [2014] 1 HKLRD 896, the Court of Appeal declined to adjust the financial relief awarded to the wife because during marriage she also benefited indirectly from the husband’s extravagant lifestyle, which had formed the Family Court’s generous assessment of her needs.
As the Court of Appeal held in TCWF v LKKS (No.1), it is necessary to search for the relevance of the conduct on the principles of needs, compensation and sharing. In respect of conduct which has no financial impact whatsoever, the relevance would be less apparent.
In a case where there is clear evidence of dissipation of assets with a wanton element, the Court may order reattribution of assets by way of addbacks. But this is not the only option. The Court may alternatively take the misconduct into account and depart from equal division of the matrimonial assets: ARAV v VP [2011] 3 HKLRD 759. Much depends on the impact and nature of the misconduct (e.g., the irretrievability of the dissipated assets and the guilty party’s proposed remedies), and what is the fairest solution in a particular case.
Litigation Misconduct
As discussed at the beginning of this article, the Court’s disapproval of litigation misconduct is usually reflected in the costs orders; only in exceptional circumstances where the litigation misconduct is so extreme that it would be inequitable to disregard would the Court take litigation misconduct into account when conducting a section 7 analysis.
For litigation misconduct to be so serious that it convinces the Court to depart from equal division, one may anticipate that the misconduct would have the effect of severely depleting the matrimonial assets by unnecessarily incurring substantial amount of legal costs. It is, however, only a possible consequence of litigation misconduct rather than a necessary condition. Litigation misconduct could also be, for instance, abduction of the family child; adopting gross and extreme strategy by making numerous pointless and expensive applications to the court; consistent non-compliance with court orders in the past, leading to findings of contempt; non-disclosure of the removal of moneys from the jurisdiction.
Recently, the issue of litigation misconduct has arisen in the trial of ancillary relief in a highly contentious case: JTMW v NAV [2022] HKFC 46. The Family Court was specifically invited by the Husband to depart from equal division on the basis of the Wife’s alleged misconduct in conducting litigation in the past.
This case had lasted for 9 years, during which the parties had had disputes over a wide range of matters, including two relocation applications, non-removal, non-molestation, custody, maintenance pending suit, etc. In the meantime, the children sadly became estranged from their mother because of her behaviour, leading to the Court’s decision that the Husband would have sole custody, care and control, whereas the Wife would only have access by 2 emails per week. As a result of these bitterly fought battles, the proceeds of the sale of Former Matrimonial Home (which represent the matrimonial pool of assets), have mostly been spent on legal fees – dropping from HK$4.6 million to just under HK$1 million.
In JTMW v NAV, the Family Court examined closely the history of the entire divorce proceedings (and not only the financial remedies proceedings), particularly both parties’ actions and positions on various issues: see [70]-[94]. After conducting a detailed analysis of the Wife’s attitude at various stages, the Court held that the Wife acted within reasonable bounds (e.g., the Wife’s withdrawal of her meritless relocation application, seeking only regular and defined access to children, no possible litigation misconduct on her part after custody of children was decided) and was not guilty of litigation misconduct. In the end, equal division was ordered as the Court found that it was the fairest solution.
It is worth emphasizing that litigation misconduct refers to the unreasonable attitude one party has adopted towards the entirety of the divorce proceedings. It is not restricted to the ancillary relief proceedings but also includes all stages since the divorce petition was presented. Although the threshold for the Court to be satisfied of litigation misconduct is high, legal practitioners should remind their clients that the reasonableness of each step they take in the divorce proceedings could be subject to scrutiny at the financial relief stage and may lead to consequences beyond adverse costs orders. In my own view, this goes hand in hand with legal practitioners’ duty to assist the parties in matrimonial proceedings to save costs and drive towards settlement.
In the event that the Court makes a finding that a party is guilty of litigation misconduct, it would become a significant factor (amongst all other factors under section 7 of the MPPO) in deciding whether a departure from equal division can be justified. The Family Court held that the principles from TT v CDS [2021] 1 FLR 996 would apply, namely, the Court is ultimately concerned with whether departure from equality is necessary to achieve “a fair outcome which properly reflects all the relevant circumstances and gives first consideration to the welfare of any minor children.”
In advising clients, legal practitioners should be sensitive to the impact of litigation misconduct on other factors under section 7. For instance, it is particularly relevant to the welfare of the children. Where the innocent party has the main burden of maintaining the children, the Court would be more willing to depart from equality (as in TT v CDS), so that the children’s needs are met and their welfare is protected.
Needless to say, the Court would also take into account the parties’ respective financial needs section 7 of the MPPO. In this context, legal practitioners should be aware of the Court’s readiness to order that the party guilty of litigation misconduct should receive less than their needs. The Family Court specifically referred to [80] of TT v CDS that even in a “needs” case, the whole of the matrimonial assets can be awarded to the innocent party if it is fair to do so. In other words, fairness could trump the needs of the party guilty of litigation misconduct.
Whilst the Court would only in exceptional circumstances depart from equal division on the basis of litigation misconduct, it is entirely possible when adverse costs orders are not enough to reflect the seriousness of the misconduct, and the unfortunate fact that much matrimonial assets have been depleted due to one party’s ruinous approach to litigation. When this happens, the Court would, in its award on financial relief, ensure that the litigant responsible bears the wasted costs in full.
| Ted Chan
Ted Chan is the law reporter of JTMW v NAV [2022] HKFC 46, which is to be published in Part 1 of May Issue (2022) of the Hong Kong Law Reports and Digest. Ted regularly advises and handles matrimonial and family cases, including ancillary relief, custody, relocation applications, parentage order, etc. He also has experience in dealing with intricate cases with parallel proceedings in the High Court (e.g., involving third party’s beneficial interest disputes) or Juvenile Court (e.g., involving a care/protection order), or with certain criminal elements. Ted also has extensive experience in conducting mediation in a wide range of disputes, including matrimonial cases. Visit Ted’s profile for more details. |
This article was first published on 26 May 2022.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photograph which appears in this article is included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related.