This is one of the most important family law decisions to be handed down in Hong Kong in the 9 years since the Court of Final Appeal’s landmark decision in LKW v DD in 2010 which brought in the ‘equal sharing’ principle.
It has clarified the law and provided for the first time much-needed guidance about the standard at which the financially weaker party’s needs are to be assessed in the context of an unvitiated PNA and how PNAs are to be enforced:
- It clarifies the meaning of ‘real need’ (when the Court of Final Appeal case of SPH v SA  3 HKLRD 497 had not done so) in the context of determining whether financial terms of a PNA are to be treated as ‘fair’;
- It clarifies that in certain circumstances the court will order that some capital should be returned to the financially stronger party at a future date: the court agreed with H that a substantial amount of the financial capital award for his wife (W) should be returned to him or his estate upon the occurrence of certain future triggering events - when W was against any capital being returned at all. Such a condition has never before been imposed by a court in Hong Kong in any reported case involving a PNA:
- The judge held: “Mr Nagpal [counsel for H] submitted that there is a consistent theme in the outcome of various English authorities, including and since [the UK Supreme Court case of] Radmacher, of the payee having to return capital to the payer. There is an obvious fairness of the payee having to return capital when it is not needed if that party has been provided capital to meet his or her needs in circumstances where that capital is in excess of what was agreed in an unvitiated nuptial agreement.“ “On balance I agree with Mr Nagpal that there is nothing in the facts of this case which militates in favour of the Wife receiving capital outright over and above that which she is entitled to, in circumstances where it was agreed that she would not have claim to such capital. I therefore agree with the chargeback in favour of the Husband.”
- The chargeback amounts to 21.24% of W's award.
- It powerfully demonstrates the impact on and the material financial consequences for a financially weaker spouse on divorce when parties sign up to an unvitiated PNA - while still achieving fairness.
- It should act as a deterrent against forum shopping in future.
DISCRETIONARY TRUSTS ARE OFTEN NOT SAFE FROM ATTACK - USA TRUSTS, TOO
There were significant divorce and trust aspects to the case.
This was the first reported Hong Kong divorce case involving USA discretionary trusts. The trusts were situated in Delaware, New York, Florida and New Jersey:
- Applying the Charman ‘likelihood test’ set out in the landmark Hong Kong Court of Final Appeal case of Otto Poon, the judge held that the assets of the main high value Delaware discretionary trust “are the [financial] resources of the Husband”.
- The case serves as further warning that if either or both of the parties in a divorce in Hong Kong are beneficiaries of a discretionary trust there is usually a high risk that a Hong Kong Court will treat that trust as a financial resource for division by the court - and discretionary trusts alone are not always effective asset protection vehicles - as it is a common misconception that they generally are.
ALREADY A PRECEDENT FOR THE ‘INTEGRATION TEST’ AND ‘SUBSTANTIAL CONNECTION’
Stage 1 of this litigation concluded in 2015 which determined the initial dispute about which jurisdiction the divorce case should proceed in: New Jersey, USA or Hong Kong. The Hong Kong Court of Appeal ruled that Hong Kong was the appropriate forum: in LCYP v JEK (Children: Habitual Residence)  4 HKLRD 798. This judgment also established the ‘integration test’ for the first time under Hong Kong law in Hague Convention Child Abduction cases and remains one of the leading authorities on the interpretation of the divorce jurisdictional hook of ‘substantial connection’. The impact this decision has had on expatriate and forum shopping divorces in Hong Kong has been significant and has highlighted the importance for parties to enter into PNAs that are likely to be enforced in the Hong Kong Court. And the stage 2 High Court judgment in LCYP v JEK provides guidance which, if followed, significantly increases the prospects of the Hong Kong Court enforcing an unvitiated PNA.
THE JEK TEAM
BCLP Partner and Global Head of Family Asset Protection, Marcus Dearle, led the team acting for H, working with Ruben Sinha, Rebecca Alexander and Veronica Lee in Hong Kong, Jess Henson in London and Charles Lin in the United States. Over the past 10 years Marcus has led the teams acting in a number of groundbreaking international family law cases that have gone to the Hong Kong Court of Appeal and/or Court of Final Appeal including the LCYP v JEK (Children: Habitual Residence) case above, the Florence Tsang case (leading to the largest divorce financial award in Hong Kong history) and the case of Otto Poon above when he acted for the professional trustee.
THE FUTURE IS IN PNAs: BCLP’s Accord PNA | Technology in family law
In 2016, BCLP launched its Family Asset Protection group in Hong Kong and London, with a pioneering focus not just on financial protection but also on family protection: protecting family relationships.
Marcus Dearle stated in his 24 May 2018 article in the London Times, “No-fault divorce will not end the blame game", that:
“Insufficient attention is generally given by family lawyers to developing acrimony-busting strategies to deflect and contain the corrosive and self-destructive atmosphere of blame……Constructive deterrence - warning about the often unforeseen adverse consequences of antagonism and the risks of damage to relationships with children - who are the silent witnesses - is key.”
This applies in Hong Kong. Just as much as in London. Creating an effective PNA is the key acrimony-busting deterrent. PNAs are crucial for family relationship protection. The negotiation of complex PNAs are often fraught with pitfalls. To simplify the process, and to increase the chances of creating an effective PNA, the group has launched a new cutting-edge and anti-vitiation process mapping device: Accord PNA. This has resulted in the team being shortlisted for the prestigious Lexis Nexis Family Law, Family Law Innovation of the Year Award, 2019.