WPN v. YKYB

FCMC 3308/2016

[2019] HKFC 33

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIALCAUSES NO. 3308 OF 2016

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Decision
(Maintenance Pending Suit & Litigation Funding)

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1.  This is the hearing of the Petitioner/Wife’s (“W”) application by Summons dated 28 June 2018for maintenance pending suit (“MPS”) and litigation funding.

2.  W claims the sum of HK$45,000 per month for MPS for herselfand the sum of HK$40,000 per month as litigation funding, both to be backdated from February 2018.

Background

3.  The Respondent/Husband (“H”) was born in July 1978, now aged 40. W was born in November 1984, now aged 34. They were married in April 2010. W petitioned for divorce in March 2016; and decree nisi was pronounced in June 2016.

4.  There is one child of the family, a boy born in November 2011, now aged 7 (“the Son”). H & W are granted joint custody of the Son, with care and control to W and reasonable access to H.

5.  Pursuant to the Order dated 6 June 2016, H has been paying W interim maintenance for the Son in the sum of HK$20,000 per month, plus tuition fee and extra-curricular expenses. In addition to this, H has been voluntarily paying an extra sum of HK$3,000 for the Son’s maintenance.

6.  W has worked as a secretary in a law firm until March 2016 when she ceased working due to depression.  In December 2017, she resumed working for the same law firm on a part-time basis. According to W’s 2^nd Affirmation, she is currently earning  HK$6,000 to 8,000 per month.

7.  W has on various occasions received from H capital advancements in the total sum of HK$900,000:

11 November 2016       HK$100,000;

23 December 2016      HK$400,000;

22 August 2017        HK$200,000; and

26 January 2018        HK$200,000

8.  H has not paid W any maintenance or capital advancement since February 2018. In May 2018, W made further requestfor capital advancement. H refused, hence this application.

9.  At all material times, H is the sole director and shareholder of a company incorporated in February 2012 for the business of construction engineering (“the Company”). There are also 2  associated companies incorporated respectively for holding machinery leases and for carrying out material research.

The Law

Maintenance Pending Suit

10.  The law is well known and not in dispute. Pursuant to section 3 of Matrimonial Proceedings and Property Ordinance (Cap 192), the governing principle is that the court shall make such order as it considers reasonable in all of the circumstances of the case.

11.  In order to determine what is or what is not reasonable, analysis should be conducted on a broad-brush basis to determine the immediate and reasonable needs and the ability to pay. As interim maintenance is a temporary measure pending the final outcome of the ancillary relief application, it is unnecessary for the Court to take a dollar to dollar approach and go into great details of investigating the financial position of both parties.

12.  Both counsel have referred to the Court of Appeal decision in HJFG v KCY (CACV 127/2011, 28 October 2011) where the following principles were reiterated with respect to interim maintenance applications:

37. (i) The sole criterion to be applied in determining the application is “reasonableness”, which is synonymous with “fairness”.

(ii) A very important factor in determining fairness is the marital standard of living. This is not to say that the exercise is merely to replicate that standard.

(iii) In every maintenance pending suit application there should be a specific maintenance pending suit budget which excludes capital or long term expenditure, more aptly to be considered on a final hearing. That budget should be examined critically in every case to exclude forensic exaggeration.

(iv) Where the affidavit or form E disclosure by the payer is obviously deficient, the Court should not hesitate to make robust assumptions about his ability to pay.  The Court is not confined to the mere say-so of the payer as to the extent of his income or resources.  In such situation, the Court should err in favour of the payee.”

Litigation Funding

13.  Currey v Currey [2006] EWCA Civ 1338 continues to be the governing authority on litigation funding in Hong Kong. It has laid down the following conditions for a ‘costs allowance’:

(1) the applicant spouse has no assets, or none that can reasonably be deployed;

(2) she can provide no security for borrowing, or none which can reasonably be offered;

(3) she cannot reasonably obtain legal services by offering a charge on the outcome of the litigation;

(4) she cannot secure publicly funded legal help ‘at a level of expertise apt to the proceedings.’

14.  Reference can also be made again to HJFG v KCY  (supra) where it was stated that:

78. Section 3 of the Ordinance, of course, still required the Judge to be satisfied that any contribution towards the wife’s ongoing legal costs was reasonable.  That meant that he had to be able to conduct some analysis of the nature and extent and purpose of the contributions sought.  On the part of the wife, that required some breakdown of her anticipated costs.

79. Aside from the fundamental requirement of supplying a sufficiently detailed breakdown of anticipated costs, I am of the view that the following principles articulated by Wilson LJ in Currey v Currey should in future be adopted as providing prudent guidance to both judges and practitioners in this jurisdiction.

It is therefore essential, in any application for litigation funding, that the applicant is able to supply the court with “a sufficiently detailed breakdown of anticipated costs”.

15.  Further, the period over which an allowance for legal costs was to be paid was also considered to be a factor of considerable relevance.  An applicant should not therefore expect an order that the allowance be paid until the final determination of all proceedings. 

Marital Standard of Living

16.  On accommodation, the former matrimonial home is a 2-bedroom flat of 500square feet in Ap Li Chau, rented from W’s parents at the concessionary rental of HK$10,000 per month.Photographs of the interior show a modest and simple family home.

17.  On family spending, credit card statements show the living standard of a middle-class family in Hong Kong.  There was no pattern of visiting luxurious or high-end shops and restaurants.

18.  On recreation and leisure, there were constant family trips. The family visited Tokyo and Seoul in 2015; they also went on a ski trip to Sapporo in 2016.

19.  W said she was not required to make any contribution towards the family expenses; shekept her income for personal use. H paid for the bulk of her personal expenses and settled all her credit card bills. Despite H never imposed any limit on W’sexpenditures, I do not see from W’s credit card statements any pattern of lavish spending on her part.

20.  I note that there were some occasions of sumptuous spending, e.g. the family fly business class to Tokyo and Seoul in 2015; and H has bought designers clothing and accessories for W. However, these do not change the fact that the marital standard of living is overall of an average middle-class. They do not lead a lavish, luxurious or elaborate lifestyle.

W’s immediate and reasonable needs

21.  W does not have substantial savings and funds in her bank account. As at November 2018, she is left with limited savings of HK$6,858.92 in her HSBC bank accounts and has an overdraft of HK$336,819.44. As stated in W’s 3^rd Affirmation, she has already borrowed over HK$500,000 from her parents and HK$200,000 from her boss for legal fees.

22.  Although W asks for interim maintenance for herself only in the sum of HK$45,000 per month, the budgeted monthly expense is HK$74,820 (exclusive of the Son’s expenses). Thebreakdown is as follows: -

General expenses:

Rent	$28,000
Utilities	$ 3,000
Food	$10,000
Household expenses	$ 1,000
Domestic helper	$ 4,500 $46,500
Personal expenses:
Meals out of home	$ 3,000
Transport	$ 3,000
Clothing / Shoes	$ 8,000
Personal grooming	$ 1,500
Entertainment / presents	$ 1,000
Holiday	$ 8,000
Medical / Dental	$ 3,000
Insurance premium	$ 820 $28,320 Total : $74,820

23.  H submitted that W’s budget is unreasonable and are grossly exaggerated.

General Expenses

24.  On accommodation, upon leaving the matrimonial home in 2015, W and the Son moved to a 1-bedroom flat in North Point at the rental of $18,800 per month. In April 2017, they moved to a 2-bedroom flat of 500 square feet in North Point at the rental of HK$28,000 per month, inclusive of management fee, government rent and rates. In terms of size and rank, living conditions commensurate with the marital standard of living.

25.  While H boldly suggested that $18,000 on rental for a 1-bedroom flat is sufficient for W, the Son and the domestic helper, he himself is enjoying a very comfortable living condition in a 1,000 square feet flat in Kowloon Tong area.

26.  H, upon leaving the matrimonial home in 2016 moved to a 700 square feet flat in Kowloon Tong. The monthly rental of HK$28,000 was paid by the Company as housing allowance for himself.

27.  Since April 2017, H has been living in a 1,000 square feetflat inYau Yat Chuen, Kowloon Tong (“the YYC Property”), provided by the Company ashis housing allowance. The YYC Property was purchased at HK$14,880,000 with the Company’s funds. The Companyhas paid about HK$5,022,000 for downpayment and related fees, and is now paying monthly mortgage of HK$56,428.

28.  Although H’s accommodation is said to be funded by the Company, it is obvious from the background of this case that H is using the Company’s fund as his own pocket. It was H as the sole controlling director and shareholder who caused and procured the Company to purchase the YYC Property for his personal enjoyment. Whether expenses for H’s benefit are booked as director’s allowance or director’s loan, as W suggested, the Company’s fund is H’s financial resources.

29.  I find that the sum of HK$28,000 expended by W on rental is reasonable.

30.  On food expenses of HK$10,000, I find it excessive. A reasonable sum should be $6,000 per month. In arriving at this figure, I have taken into account the fact that the Son has lunch at school and that W has already budgeted for meals out of home for herself.

31.  Although utility expenses of HK$3,000 and household expenses of HK$1,000 are not fully supported by documentary evidence, I am satisfied that it is more or less within a reasonable range.

32.  Since W has to work, the assistance of a domestic helper to take care of the Son cannot be regarded as unreasonable.

33.  Therefore, I find that the reasonable budget for general expenses should be HK$42,500 of which W’s split share with the Son should be HK$21,500.

Rent	$28,000
Utilities	$ 3,000
Food	$6,000$10,000
Household expenses	$ 1,000
Domestic helper	$ 4,500
	$42,500

Personal Expenses

34.  For meals out of home, assuming W has lunch out of home during all workdays, she has to spend about HK$1,200 per month ($60 x 20 days); assuming W has meals with the Son out of home twice a week during weekends or holidays, her split share of the expenses should be about HK$1,800 ([$450 x 8]/2). Therefore, Ws budget of HK$3,000 is not unreasonable.

35.  On transportation, the sum of HK$3,000 is excessive. W’s transportation fee during workdays to and from office should not exceed HK$1,000 ($50 x 20 days); her split share of transportation fee going out with the Son on weekends and holidays should be about HK$500 ([HK$125 x 8]/2). Therefore, I find that the reasonable budgetfor transportation should be HK$1,500.

36.  On clothing/shoes, HK$8,000 isobviously excessive. H challenged that W’s credit card statements do notsupportsuchamount, but this is not the issue; the Court’s concern is whether the sum is reasonable. I find that HK$3,000 on clothing/shoes should be sufficient. 

37.  Holiday expenses of $8,000 a month (HK$96,000 a year) is also excessive; it is beyond immediate and reasonable short-term needs. I think the reasonable sum is HK$4,000; $48,000 a year would be sufficient for at least 2 trips to Asian countries.  

38.  Although medical/dental expenses of HK$3,000 appear to be on the high side, taking into account that W requires on-going medical treatments, I am satisfied that the sum is not unreasonable. 

39.  Expenses on personal grooming, entertainment/presents and insurance premium are not unreasonable.

40.  Therefore, reasonable personal expenses should be  $17,820:

Meals out of home	$3,000
Transport	$1,500   $3,000
Clothing / Shoes	$3,000   $8,000
Personal grooming	$1,500
Entertainment / presents	$1,000
Holiday	$4,000   $8,000
Medical / Dental	$3,000
Insurance premium	$ 820
	$ 17,820

41.  By reason of the aforesaid, W’s financial needs for herself is HK$39,070 (general expenses of $21,250 + personal expenses of 17,820) per month. She earns HK$6,000 to 8,000 per month, so she still needs about HK$32,000 to make ends meet.

42.  W submitted that interim maintenance of HK$23,000 for the Son is insufficient to cover his needs; she has to dip into her limited financial resources to make up the shortage. However, this is beyond the scope of W’s MPS application for herself.

Husband’s financial status and ability to pay

43.  As a general rule a corporation is a legal entity distinct from is shareholders. However, it is evident that H being the sole controlling shareholder of the Company is using the Company’s fund as his own pocket. While H’s monthly income as a director for the Company is HK$45,000, the Company actually provides him with accommodation and funds his miscellaneous expenses such as entertainment and cars etc. As extensively illustrated in W’s affirmations, all family expenses and H’s personal expenses were funded by theCompany, although H’s cash withdrawals from the Company’s account are booked as director’s loans.

44.  In such circumstances, the assessment of H’s ability to pay MPS should extend to his ability to procure the use of the Company’s fund for such purpose.

45.  H submitted that if unconstrained director’s loans are being withdrawn from the Company’s management account, the Company and the associated companies will be stifled from normal business operation and financial sustainability I do not think making reference to the valuation of the Company at HK$13,431,189.42 can advance H’s argument, lest to say the valuation was obtained in March 2016, almost 3 years ago.

46.  The Company owns 3 properties which are all realizable assets and can be used as securities for bank facilities. They include the YYC Property purchased at HK$14,880,000 in April 2017,two workshops in Kwai Chung purchased respectively in May 2016 at HK$3,080,000 and in March 2017 at HK$2,928,000.

47.  There is no question that H has caused and procured the Company to utilize cash of HK$7.5 million for the down-payment in purchasing the 3 properties:  HK$5,022,000 for the YYC Property, HK$1,159,040 and HK$1,376,800 respectively for the 2 workshops in Kwai Chung. There is no evidence the Company may not survive the short-term business turmoil (if any) if its capital is further disposed of.

48.  By reason of the aforesaid, I have no doubt H has the ability to pay or arrange to pay MPS in the sum of HK$32,000 per month backdated from February 2018.

Litigation Funding

49.  W has no immediate financial resources at her disposal which she can reasonably deploy to obtain legal services. She does not have substantial savings and funds in her bank account which can be deployed to obtain legal services at a level of expertise apt for the proceedings. she has no landed properties which can be put up for sale or as security for borrowings.

50.  As stated in W’s 3^rd Affirmation, the HSBC bank has refused to grant her loans due to her unstable employment and overdraft with the bank. W has already borrowed over HK$500,000 from her parents; her father has retired in 2018 and her mother is a homemaker; they are living out of their own savings and W cannot rely on them financially in a long run and they are also reluctant to fund W indefinitely.

51.  H asserted that W is a director of a company which holds an associated company in Mainland China selling mobile phone games.  H said W should have provided management accounts for the Court to consider whether she is able to obtain legal services by offering a charge on the outcome of the litigation. While the proper approach is on broad-brush basis, the Court shall not be invited to examine or investigate management accounts as suggested.

52.  H challenged that W has received capital advancement in the total sum of HK$900,000 but failed to account for how the sum is exhausted. I note that W in her 2^nd Affirmation has explained that up to July 2018 she has paid HK$415,000 out of HK$900,000 for legal costs, leaving an outstanding sum of HK$250,000 unpaid.

53.  As a matter of fact, it is not difficult to understand how the sum of HK$900,000 was exhausted. From the 1^st advancement in November 2016 up to this hearing, there was a period of 25 months. It is obvious that an average sum of HK$36,000 per month (HK$900,000/25) is insufficient to cover both her living expenses and legal costs. This also explains why W has incurred loans.

54.  H also challenged that W has not made any application for legal aid. A party is not necessarily required to apply legal aid before making an application for legal costs provisions. In the present case, there is no reason why public funds should be expended to fund litigation when there are available resources within family funds.  

See: KGL v. CKY [2003] 2 HKLRD 301 at 307B-D.

55.  By reason of the aforesaid, I find that the conditions under Currey v Currey(supra) are satisfied. There cannot be serious disputes that W could not reasonably procure legal service other than by looking to H. 

56.  While it is essential for W to provide the Court with a sufficiently detailed breakdown of anticipated costs, there is none. There is only a Form H dated 10 December 2018 where it is stated with rough breakdowns that costs for further proceedings to cover the trial is estimated at HK$590,000.

57.  W submitted that taking the notional trial date for Ancillary Relief to be in August 2019, litigation funding at HK$40,000 per month for 17 months (backdated from March 2018 up to July 2019 inclusive) would amount to HK$680,000. Although W suggested that this is a modest sum to cover costs of the trial, it exceeds the Form H estimate of HK$590,000 by almost HK$100,000.

58.  Another factor of considerable relevance is the period over which an allowance for legal costs is to be paid. Having considered the history and progress of the proceedings, I do not think it is necessary to order costs allowance up to final determination of the proceedings.

59.  In the present case, there were 3 FDR hearings in October 2017, February 2018 and August 2018. On failed FDR, a PTR hearing was fixed. Since the matter is obviously not ready for trial, the PTR hearing is therefore adjourned to 30 April 2019.

60.  At the 1^stPTR hearing before me, among other case management directions such as obtaining valuation reports and preparing  updated Form E, parties are also directed to attempt mediation.  Parties have never attempted mediation; despite failed FDR they are still willing to do so. The Court will be informed of the progress of mediation 14 days before the adjourned PTR hearing.

61.  When parties are trying to resolve their disputes without a trial, ordering costs allowance to cover trial is not only unnecessary at this stage, it would have an adverse effect of defeating parties’ volition to settle amicably through mediation.

62.  Therefore, what W requires is funding up to the adjourned PTR hearing. From now until the adjourned PTR hearing, there are no significant legal costs to be incurred. I have directed H to pay for costs of valuation upfront. W only has to incur costs for preparing her updated Form E and draft Questionnaire (if any) to H’s updated Form E, mediation-related expenses, and legal representation at the adjourned PTR hearing. On a rough estimate, it should not exceed HK$75,000. 

63.  For the time being, H should pay W a sum of HK$75,000 to cover her legal costs up to and inclusive of the forthcoming PTR hearing on 30 April 2019. Based on what is previously discussed, I have no doubt H has the ability to pay or arrange to pay this sum.

Conclusion

64.  I order that :

(a)    the Respondent do pay maintenance pending suit to the Petitioner for herself in the sum of HK$32,000 per month; the first payment to be backdated to 1 February 2018 and thereafter to be paid on the 1^st day of each succeeding month until further order;

and

(b)    the Respondent do pay the Petitioner within 14 days hereof a sum of HK$75,000 as litigation funding.

65.  There shall be an order nisi that the Respondent do pay the Petitioner’s costs of this application on a party and party basis, to be taxed if not agreed. There shall be certificate for counsel.

66.  Unless there is an application within 14 days to vary, the nisi order shall become absolute.