Breadth of views - breadth of capabilities
We will give you a choice of best approaches

FOLLOW US ON:

04.03.2015 03:48 Age: 15 days

Forum feud

Patrick Hamlin and Sharon Ser


Patrick Hamlin and Sharon Ser discuss a Hong Kong ruling on the appropriate forum for divorce proceedings between a German couple, and the status of their prenuptial and postnuptial agreements.

In the case of SPH v SA [2014] HKCFA 56, the Hong Kong Court of Final Appeal (Hong Kongís highest court) considered whether the jurisdiction was the appropriate forum for divorce proceedings between a German couple, and also the status of their prenuptial and postnuptial agreements. The bench of judges hearing the appeal included Lord Collins of Mapesbury, sitting as a non-permanent judge of the Court of Final Appeal.

 

Background

The husband and wife were both born in Germany and German citizens. The wife was also a Hong Kong permanent resident. The parties met in Hong Kong in 2005 and married there in 2008. They both carried on businesses in Hong Kong and paid taxes there. Before marriage, they executed a prenuptial agreement that provided their marriage was to be governed by German law. Their marriage did not last and they separated in 2010.

 

The UK Supreme Courtís decision in Radmacher now represents Hong Kong law

They then entered into a separation agreement, which brought the prenuptial agreement to an end and restated their respective rights and liabilities towards each other. The wife subsequently petitioned for divorce in Hong Kong, whereupon the husband applied to stay the Hong Kong proceedings on the basis that the divorce should be dealt with in Germany.

The Court of First Instance agreed with the husband and stayed the Hong Kong divorce, but left open the possibility that the wife could apply for financial provision from the husband in Hong Kong after the conclusion of the German divorce. The Court of Appeal reversed that decision and lifted the stay, holding that the husband had failed to show that Germany was the appropriate forum to deal with the matter. Following a hearing in the Court of Final Appeal in May 2014, the Court of Appealís decision in favour of the wife was upheld by Hong Kongís highest court.

 

The prenuptial agreement

This agreement (executed in Germany before a notary) gave the partiesí addresses as Hong Kong and (1) declared they would be married in Hong Kong; (2) the notary opined that the proprietary effects of the marriage were governed by German law as both parties were German nationals; (3) as a precaution, they chose German law to govern the proprietary effects of the marriage; and (4) they had been informed by the notary of the agreementís consequences, in particular relating to modification of the German matrimonial property regime.

Both parties held significant business assets and they both anticipated receiving future assets by way of inheritance. It was agreed the respective business assets and any gifts or inheritances would be excluded from the computation of their assets on the termination of the marriage, other than on death. The focus of the agreement was, therefore, the exclusion from the matrimonial property regime of business assets and any further gifts or inheritances, not the position on divorce.

 

The separation agreement

This agreement was executed in Germany following the decision to separate. The wife signed without the benefit of any financial disclosure or independent legal advice. She complained her signature was obtained as a result of duress. That agreement also gave the addresses of both parties as Hong Kong. It provided that the prenuptial agreement was thereby rescinded and assets in their respective possession should be kept in sole ownership. Critically, both parties waived any right to recover maintenance from each other. Four experts produced written evidence of German law as to the validity of the two agreements. However, there was no general agreement between the experts and the Court of Final Appeal did not purport to make any finding on this point.

The Court went on to review English and Welsh case law on prenuptial and separation agreements, and, in particular, Radmacher v Granatino [2011] 1 AC 534. The Court noted that the UK Supreme Court had decided in Radmacher that such agreements would carry full weight only if each party had entered into them of their own free will, without undue influence or pressure, having all the information material to their decision to enter into the agreement and intending that it should be effective in governing the financial consequences of the marriage coming to an end. Such agreements could not oust the jurisdiction of the court but the court must give appropriate weight to such agreements. The Hong Kong Court then confirmed that Radmacher now represents the law in Hong Kong.

The Court emphasised that the prenuptial agreement in this case only concerned the effect of the marriage on property rights. Unlike the agreement in Radmacher, it did not purport to exclude the right to financial relief on termination of the marriage. Whether such an agreement, dealing only with an adjustment in the matrimonial property regime, would be upheld in Hong Kong in the same way as an agreement made in anticipation of divorce (as in the Radmacher case) remains a grey area.

 

Forum non conveniens

The Court of Final Appeal then addressed the issue of forum non conveniens. It has long been the law in Hong Kong that, when jurisdiction is founded in the Hong Kong court as of right (as in these divorce proceedings), the party seeking a stay has to establish that there is another available forum that is clearly a distinctly more appropriate one than Hong Kong. The existence of a prenuptial or postnuptial agreement (such as the separation agreement in this case, in which the couple appeared to have opted to have their affairs regulated by foreign law) is an important factor in exercising the discretion to stay divorce proceedings on the ground of forum non conveniens.

The possibility of financial relief in Hong Kong after a German divorce was a factor that led the first-instance judge in this case to stay the proceedings. However, the conditions laid down in the Hong Kong legislation that permits the Hong Kong court to exercise such an ancillary jurisdiction after a foreign divorce are stringent and are based on Part 3 of the English and Welsh Matrimonial and Family Proceedings Act 1984. However, the Court of Appeal held the parties had an overwhelming connection with Hong Kong. If the German court upheld the agreements, there would be no basis for merely giving them appropriate weight in the light of fairness. German law apparently does not require full financial disclosure of assets or independent legal advice before enforcing such agreements. By staying the Hong Kong proceedings, the likely outcome would be the enforcement of the agreements by the German court. In view of all this, the Court of Appeal set aside the decision of the Court of First Instance and lifted the stay on the Hong Kong court proceedings.

Reviewing the decision of the Court of Appeal, the Court of Final Appeal felt the trial judge had failed to give appropriate weight to the factors connecting the parties to the marriage and the matrimonial home with Hong Kong, and that the trial judge had given too much weight to the partiesí nationality and the two agreements (which nonetheless stated Hong Kong as the residence of both parties). Although their agreements were governed by German law, they were silent as to jurisdiction. There were no provisions for exclusive submission to the German court. The Court of Final Appeal, therefore, dismissed the husbandís appeal and upheld the Court of Appealís decision, lifting the stay of the Hong Kong divorce proceedings and thus permitting the wife to proceed in Hong Kong with her petition, including an application for ancillary relief.

 

Conclusion

The decision gives clear guidance to the Hong Kong courts that the UK Supreme Courtís decision in Radmacher now represents Hong Kong law. The Hong Kong court will hold the parties to their agreements even where this results in a radically different financial provision to that which the court would have awarded. Such agreements do not involve ousting the courtís jurisdiction, as it is still the court that decides the appropriate relief and not the parties. However, such agreements will only be given their full weight if each party entered into them of their own free will, without undue influence or pressure, having all the information material to their decision and intending that it should be effective to govern the financial arrangements in the event of the marriage coming to an end.

The Courtís endorsement of Radmacher necessarily involves a greater emphasis on holding parties to agreements entered into before or during marriage with the objective of defining their respective obligations upon termination of their marriage. However, SPH v SA also makes it clear that the Hong Kong court will not depart from the well-settled principles of English and Welsh law relating to conflicts and decisions about the appropriate forum available for divorce proceedings. These principles derive directly from Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460, which has been regularly applied in Hong Kong over many years. Thus, in SPH v SA, despite the Courtís greater willingness to allow parties to decide in advance the financial consequences applicable on the breakdown of their marriage, the partiesí close connection with Hong Kong coupled with an obvious sympathy for the wifeís submission that she had been unfairly treated by the husband and his advisors, led to Germany being rejected as an appropriate forum. This case provides a welcome degree of certainty for both family lawyers and wealth planners that parties will be held, in appropriate circumstances, to their prenuptial and postnuptial agreements.

The unpredictability of discretionary financial provision has thereby been reduced. 

 

 

Resources:

www.step.org/forum-feud