15 MAY 2017

Chai v Khoo

Chai v Khoo
Ayesha Vardag and Catherine Maguire, Vardags

On 6 April 2017, Bodey J handed down judgment in the financial proceedings in the case of Chai v Khoo, over 4 years since the wife, Ms Chai, filed her divorce petition in the English courts, seeking to bring the parties’ 43-year marriage to an end.

Hard-fought litigation ensued, with the husband, Malaysian business tycoon Dr Khoo, filing competing Malaysian proceedings and disputing the jurisdiction of the English courts in respect of the divorce. Nearly 2 years, and several further petitions (in England and Malaysia) down the line, Bodey J determined in a final jurisdiction hearing in October 2014 that the English courts had jurisdiction in respect of the divorce. The husband unsuccessfully appealed this finding to the Court of Appeal, who in December 2015 dismissed his appeal unanimously, leaving the wife free to pursue a financial award in the English courts.

Background

The parties were both by origin Malaysian. The husband remained of Malaysian domicile and citizenship, whereas the wife had Australian and Canadian citizenship. Following their marriage in 1970 in Malaysia, the wife moved into the husband’s property, which he had bought before the marriage. They lived there together for the next 10 years, during which time the elder two of their five (all now adult) children were born.

The wife subsequently moved to Australia with the two eldest children in 1980, while the husband continued to live and work in Malaysia. The parties’ three younger children were born after the move. The wife brought the five children up with visits from time to time by or to see the husband. Thereafter, in 1989, the wife and five children moved to Canada. The husband continued working out of Kuala Lumpur.

In 1995, a house was purchased in the UK. The husband subsequently became a director of Laura Ashley Holdings PLC in 1999. The following year, a 1,000-acre estate in Hertfordshire, the Rossway Estate, was purchased for £6.75 million by a BVI company, Central Point Group.

On 5 December 2001, Central Point transferred the main house at Rossway to another company, Dunross Properties Limited, thereby separating the main house from the commercial part of the estate. Those two companies between them remain today the legal owners of the Rossway Estate.

A major issue between the parties was whether or not the beneficial interest in the estate was held by the husband. Both companies are incorporated in the BVI and are owned 100% by a Hong Kong company (Norcross), itself owned 50% each by two Malaysian companies (KKP and Soo Lay) ultimately owned 99.98% and 99.99% respectively by the husband. Effectively, therefore, the husband owns the companies that own the Rossway Estate. Norcross, Central Point and Dunross were joined as respondents in these proceedings.

The assets

The assets comprised:
  1. Property totalling £26.8 million, including the Rossway Estate;
  2. Funds of £24.7 million;
  3. The husband’s pensions of £970,000; and
  4. The husband’s business interests, held within a variety of inter-related companies incorporated in Malaysia, Hong Kong, BVI, and Great Britain. 
The husband’s case was that the values of these businesses was £66.4 million a value obtained by taking the SJE’s valuation of the ‘empire’ (i) on the basis of the net asset value in the accounts at historical cost and (ii) on the basis that the husband does not own Noble Faith Foundation Inc.

The wife’s case was that the true value of the husband’s business empire was £153.3 million. She relied upon two different bases of the SJE valuation to the husband: (i) that the valuations of at least some of the underlying company assets should be updated from their historical cost value in the company accounts to an estimate of their 2017 value; and (ii) that the husband owns Noble Faith.

The relevance of the position under Malaysian law

It was the husband’s case that the wife was a dishonest 'forum-shopper' who had fraudulently obtained the October 2014 jurisdiction finding. He argued that she should therefore be awarded no more than that which she would have received in Malaysia.

The wife argued that this amounted to a collateral attack on the jurisdiction finding. This matter had already been considered by the Court of Appeal, who had approved Bodey J’s jurisdiction finding. The issue was therefore either res judicata or else the subject of an issue estoppel.

The judge was not persuaded by the husband’s claims that the wife had lied to the UK Border Agency to secure her entry into the UK (disclosure from the agency having contained no such evidence). Likewise, the husband’s argument that the wife had dishonestly 'stockpiled' MPS funds with their daughter D, was demonstrated to be unsustainable. The money had either been spent by way of payments by D on behalf of the wife and for the wife's benefit or else otherwise explained. Nor was the judge persuaded by the husband’s claims that the fact that the wife had spent substantial time visiting their disabled son in Canada evidenced that she was a 'forum-shopper'.

Bodey J concluded that he was not persuaded that it would be right to re-open that which was judicially determined in October 2014 (and, again, by the Court of Appeal in December 2015).

As regards the 'sideways glance' he had been asked to take at the position under Malaysian law, Bodey J noted that the current position under English law is, per Lord Phillips in Radmacher v. Granatino [2010] 2 FLR 1900: 'In England, when the court exercises its jurisdiction to make an order for financial relief, … it will normally apply English law, irrespective of the domicile of the parties, or any foreign connection'.

Bodey J concluded that the word 'normally' in Radmacher may admit of the possibility of some very exceptional case, where the connections with this jurisdiction (although sufficient to found jurisdiction) are otherwise very much weaker than both parties' connections with another jurisdiction. In that situation a 'sideways look' might be appropriate, as part of 'all the circumstances' of the case, although he noted that even then the correlation of two potentially inconsistent regimes could prove highly problematic. Here, however, the point did not arise, because the wife had no subsisting meaningful connections with Malaysia at all, Therefore the Malaysian legal position should not be taken into consideration.

The parties' respective positions

The wife sought, on a ‘sharing’ basis, 50% of the total 'kitty', which she stated to be £205.8m. The husband had made an open offer of £15 million on the basis of his position that this was a ‘needs’ case.

Special contribution

In considering the husband’s claim that he had made a special contribution to the marriage justifying a departure from equality, the judge noted that the judgment in Gray v Work on special contribution in the Court of Appeal was pending (and has since been delivered: [2017] EWCA Civ 270), but that he had been asked not to delay judgment to await this. Bodey J recognised that, in capitalising on Malaysia’s changing and burgeoning economy in the early days of the marriage, the husband was in the right place at the right time and astutely made the most of it through his business acumen and hard work. In cross-examination he had, however, accepted that he had never described himself as a 'genius'. He agreed that he had not come up with any particular invention, nor done anything particularly innovative in the commercial sphere.

The judge also noted that the wife had shouldered the burden of bringing up five children in a separate continent to her husband, and two of these children had additional needs, which meant that they continued to rely on the wife into adulthood. A specialist who had previously advised the court did not think that E would ever be able to obtain non-sheltered employment in the outside world, nor live independently.

He concluded that, setting the husband's substantial contribution as breadwinner against the wife's substantial contribution in the home and in caring for the children, there was no room for a departure from equality based on any differential between the parties' respective contributions.

Pre-marriage wealth

The husband sought to argue that his pre-acquired wealth meant that a departure from equality was appropriate, notwithstanding the length of the 43-year marriage. His argument relied on the fact that he had owned the Malaysian property (which later became a family home) prior to the marriage as well as some land in Malaysia and some shares in MUI. The judge found that the general approach that the matrimonial home usually becomes so much a part of the shared family economy as to be swallowed up in the concept of 'matrimonial property' applied in this case, and that the remainder of the husband's pre-marriage wealth was unquantified, with no evidence having been adduced as to what became of it. It was a sensible assumption that it had been mingled with the general family finances, particularly given that it was 'a drop in the ocean when compared with the assets now available'. The judge was therefore not persuaded that it should be taken into account as a basis for a departure from equality.

Non-disclosure on the part of the husband: Fresh Approach?

It was the wife’s position that the husband has been guilty of multiple episodes of non-disclosure, and that he had secreted assets over many years. In the interests of reducing the issues and allowing the hearing to proceed within the time estimate (given the risks she faced if the husband died domiciled in Malaysia before a financial order had been achieved), she had agreed not to pursue many of the allegedly undisclosed entities. She did, however, continue to pursue the argument that a BVI company, Fresh Approach, either belonged to, or was at least indirectly controlled by, the husband. The husband denied this.

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Fresh Approach owned part of the main company at stake in the case, MUI. The total of the husband’s disclosed interests in MUI (excluding Fresh Approach) was 47.67%. However, if Fresh Approach belonged to the husband, he would indirectly own a sizable majority of the company. The percentage ownership was also such that, if the husband could ensure that Fresh Approach abstained from voting at any meeting, then his other companies would be bound to succeed on any motion, being greater than all the other shareholdings combined. Thus, the ownership of Fresh Approach was very significant in terms of the true value of the husband's business empire.

The judge noted various references to Fresh Approach within the enclosures to husband’s form E (which he sought within his evidence to disavow). The judge considered other aspects of the husband's evidence which 'did not come over as apparently credible, or was otherwise unsatisfactory'. He noted that the husband had first claimed that the occasions on which he had not paid the wife’s MPS and LSPO (necessitating enforcement action) had been because he had not been able to pay at that time, but that on a later occasion in evidence, his guard had slipped, and he had admitted that the true reason for non-payment had been 'because [he] did not agree with the amount'. 

Bodey J concluded that the husband had sought, in his evidence, to adhere to positions 'which are not or do not appear to be true'. In carrying out the balance of probabilities that the husband had an undisclosed interest in Fresh Approach, he had taken in account the unlikelihood of someone in the husband's position and of his status maintaining a controlling interest in a listed company without disclosing the fact. However, the evidence relied on by the wife was sufficiently persuasive to surmount that unlikelihood. He concluded that the husband owned, or was to be treated as owning, Fresh Approach and, thereby, a further share of MUI over and above his holding through companies already disclosed. He therefore had a majority holding in MUI.

Valuation of the husband's business interests

A key dispute between the parties centred around a substantial increase in the SJE’s valuation of the husband's business empire as between his first report and second reports, resulting in an increase of roughly £50 million, from £122.9 million to £173.5 million. 

The difference resulted from the SJE’s decision subsequent to the issue of his first report that desktop indicative valuations of hotels and other properties owned by the companies would be desirable to produce more meaningful valuations. Such valuations were therefore ordered by Bodey J. The desktop valuations were obtained but heavily caveated due to lack of time, lack of detailed trading information, lack of inspection and lack of discussion with management. The husband had unsuccessfully asked the judge to exclude the second report, on the basis that it had come in too late for the husband fairly to deal with it. 

The husband had maintained that, since MUI was a listed company, there existed a price per share and one should look no further. The SJE’s evidence was that strict adherence to the listed price on the Bursa of MUI's shares would fail to give a realistic value of the husband's business empire in circumstances where the asset base was now greatly increased in value above that contained in the company accounts. 

Bodey J accepted that the valuation of the business empire (including Fresh Approach) was £173,513,187, as concluded in the SJE’s second report.

Is Rossway, or any part of it, held on a resulting trust for the husband?

The wife’s position was that the Rossway estate was held on resulting trust for the husband. In considering submissions on this point, the judge noted that neither the husband nor the companies had chosen to deal in evidence with any of the details in respect of the purchase of Rossway by Central Point, or the subsequent transfer of the commercial part of the estate from Central Point to Dunross.

Bodey J noted that, per Lord Sumption in Prest v Petrodel Resources Ltd [2013] UKSC 34: 'There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party's failure to rebut it'. 

In the absence of evidence which it had been open to the husband and the companies to provide him, Bodey J concluded: that the various transfers were effectively accounting exercises conducted after the husband had simply put the conveyancing solicitors in funds using his money (as he accepted it was); that the property was duly purchased from the vendor and placed in the name of Central Point Ltd; and that the company accounts were then so prepared as to state a loan by Norcross Ltd to Central Point Ltd, and a subsequent transfer from Central Point to Dunross. 

There was not any question in this respect of lifting the corporate veil in order to 'get at' the properties; rather there was good justification for holding that Central Point Ltd and Dunross Ltd held their respective properties at Rossway on resulting trusts for the husband, as the provider of the money. That beneficial interest in each property therefore represented an asset of the husband's capable of being transferred to the wife as part of her award.

The judge also provided for the eventuality that he was subsequently found wrong about the resulting trust point, in which case he would rely upon the discretionary remedy available to him under section 24(1)(c) MCA 1973 to find that he was entitled to extend the licence given to the wife notionally (but not actually) by Dunross Ltd, via the husband, to use the main house, such that the licence would pertain for her life, without payment. This finding only became relevant if for the judge’s decision on the resulting trust point were successfully impugned.

The wife's civil claims

In addition to the matrimonial proceedings, the wife had filed particulars of claim asserting that the parties had during the marriage reached a legally binding agreement that they would share everything.

It was agreed during the hearing that the judge should 'fact-find' at this hearing as regards the wife's civil claims, but that to save time the legal consequences of the facts found (if found in her favour) should be adjourned over to wait and see whether the husband honoured the financial remedy order. If he did so, the civil claims would be dismissed; but if not, then they could be restored.

The judge accepted that there were likely to have been occasions during the marriage when the husband made the kind of assurances that the wife relied upon in seeking to pursue a civil claim against him, such as that they were 'in this together'. However, he did not consider that the husband would have intended this to clothe the wife with enforceable legal rights (and obligations) nor that the wife would have understood him to do so. There was no intention to create legal relations, nor (where detrimental reliance is necessary) any detrimental reliance. 

'Unenforceable orders'

The judge noted that the husband had argued that, as a point of general principle, orders should not be made if they would be unenforceable, thereby seeking to rely on the husband’s track record of thumbing his nose at orders of the English court. The judge rejected this argument outright, stating that 'If this were the principle applied in cases like this, then wives would never receive an award, in case they could not enforce it'. This was not a reason to depart from the order that the judge would consider to be fair and just as between the parties.

Resolution

The judge had determined that the total 'kitty' was in the sum of £205,895,894, but explained that further discounts were in his judgment appropriate because:
  1. The valuations of the corporate properties, which had resulted in the substantial increase between the two SJE reports, were heavily caveated. Justifying a discount of 10% of the value attributed by the SJE to the husband's indirectly owned MUI shares.
  2. Although the judge had accepted the SJE’s approach to valuing the MUI shares based on the updated desktop valuations of the underlying real property, the SJE had accepted in cross-examination that there would be 'a respectable body of accountancy opinion' which might well have a very different view from him on the point. There was also a substantial measure of illiquidity in the case and the husband may have difficulties finding a buyer for his shares. Therefore, a further discount of 20% would be fair, to take account of these factors.
The judge therefore reduced the MUI share valuation by 30%, leading to a discounted valuation of the total funds available for distribution of £161,153,571. 

Having rejected the husband's various arguments as to the grounds on which a departure from equality was justified, the judge concluded that there was no reason why the starting point should not be the yardstick of equality. He rejected the husband’s claim that this marriage, spanning five decades and producing five children, was anything other than a sharing case.

However, the wife would prefer to have a lump sum rather than shares, particularly given the practical difficulties of enforcement against shareholdings in companies spread across the world, and the fact that the share transfer option would leave the parties financially linked. 

In order to take account of the difference in the type of the assets being provided to the parties, the judge concluded that the wife should receive 40% of the discounted kitty, less the MPS and LSPO which she had conceded throughout the case should be treated as paid on account of her final award. 
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