HSYC v. CLTK

FCMC 11141 / 2013

NUMBER 11141 OF 2013

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J U D G M E N T
(Litigation funding)

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Introduction

1.  This is an application by a Petitioner wife for litigation funding, pursuant to s 3 Matrimonial Proceedings and Property Ordinance, Cap 192 (MPPO).

2.  This litigation has been ongoing for some time. I am told that the parties have been before the court on no less than eight separate occasions for First Appointments and other callovers. In addition there was a maintenance pending suit hearing in March 2014. In the maintenance pending suit judgment dated the 2 April 2014 I ordered inter alia as follows:

UPON the Respondent husband undertaking to continue to provide for the Petitioner’s housing at the “C road property” and to undertake to pay for the management fees and utility expenses on the said property by auto pay.

AND UPON the Respondent undertaking to continue to make available to the wife the supplemental credit card up to a limit of at least HK$4,000 per month.

AND UPON the Respondent undertaking to continue to pay for the children’s school fees directly.

IT IS ORDERED THAT:

1) The Respondent shall pay maintenance pending suit to the Petitioner for herself in the sum of HK$20,000 per month and interim maintenance to the Petitioner for the two children of the family in the sum of HK$15,000 per month per child the first payment to be made on the 1 April 2014 and thereafter to be paid on the 1^st day of each succeeding month until further order.

There was no provision in that judgment for litigation funding.

The litigation

3.  It would be fair to say that I was fairly critical of the husband and the approach taken by his legal team in the maintenance pending suit judgment. In particular I found that the husband had taken a de minimalist approach to disclosure and that there was a catch me if you can element to it. I added at paragraph 30 that:

c) Alleged drop in income

30. The husband’s main point is that in any event, regardless of the financial resources that were made available to him previously, that this has now changed. As indicated above it is not possible for me to make any definitive findings of fact in relation to this at the current stage of the proceedings. I would however accept the point made by counsel for the wife that if indeed that is the husband’s case then the onus is on him to provide clear and unequivocal evidence in support of what he says. To date such evidence has not been forthcoming.

4.  Since then there have been three further rounds of discovery. It is the husband’s case that he has provided a great deal of additional information to the wife at her request. It is of note that she has not set out her case on further disclosure in correspondence or otherwise. Indeed there have been no further requests for additional information for about a year or so. Infact even in this hearing her position was only explained in very general terms. It was said on her behalf by Mr Surman that:

22. Given the complex and opaque corporate structure of H’s family business included but not limited to X and X D with X adopting trade names such as “X” and “Y”; it has been an almost impossible task for W and her legal team to understand the true financial position of H as he had offered little to no assistance coupled with bare denials and patchy information in this regard throughout these proceedings.

23. W has a pressing need to obtain specific discovery on H’s family companies in order to fully understand H’s financial position by obtaining assistance from forensic accountants, property/ business valuers and experienced lawyers.  However, she is unable to given the lack of funds to obtain proper legal and expert assistance.

5.  However it is still not clear exactly what it is that the wife wishes to further discover and what her case is precisely other than as set out above. The rather unfortunate impression is that she is set to embark on a fishing expedition. Mr Surman pointed to a number of small points in his submission, but unfortunately this does not really take the matter very much further forward. Counsel for the husband suggested that:

15. The Wife seems determined to run her case by blaming it on the Husband’s non-disclosure.  But increasingly such an argument does not seem to hold water after rounds of discovery (see Appendix A).  Other than two US investment accounts that the Husband is jointly holding with and for the benefit of the Children and life insurance policies having the Children as beneficiaries, the only valuable asset of the Husband that was found to have been omitted to include in his Form E is a second handed Alfa Romeo Spider vehicle with a market value of $70,000.  Apart from the above, there is no evidence supporting the Wife’s allegation that the Husband still holds assets that have not been fully disclosed in the action.

6.  Time will tell if this is right or not. However given the way in which this case has evolved since the maintenance pending suit hearing I have to say that I now have some sympathy with the husband on this aspect of the case.

7.  The husband’s case continues to be that he is a laid back individual who supported his wife and children by relying in part on the financial assistance of his parents. This assistance is no longer forthcoming – for reasons which I will not go into here. Consequently he has turned to his sister, the 2^nd intervener for financial support. She has filed an affidavit in which she has set out the difficulties that she is now facing plus the present financial status of the family companies. Although it is of course correct that I can take into account what the husband’s current financial resources are, including his ability to borrow, that does not mean that I should ignore completely what now appears to be the reality of the situation. Certainly there is no reason for me to disbelieve the sister’s evidence.

8.  The preliminary issue has now been set down for trial for four days in April 2016. This hearing is concerned with establishing whether or not the husband has any beneficial interest in a factory premises. If so what is the extent of that beneficial interest and how should it be treated when considering the distribution of assets between the parties on the breakdown of their marriage. I think it is important at this stage to put that dispute into its proper context. The value of the factory premises is put at HK$7 million. There is very little otherwise that is arguably held in the husband’s name. The wife owns very little. Thus

18. In the event that the Wife is unsuccessful in the Preliminary Issue, the total asset left in the family pool will be reduced to about $1M to $1.4M.  Both the Wife and the Husband claim that they are borrowing moneys from their own family to maintain this action, if these “soft” loans are to be further deducted from their assets, each of Husband and Wife has only net debt.

9.  It is in this context that the wife seeks litigation funding of HK$85,000 per month. She estimates her costs up to and including the FDR hearing at just over HK$1 million.

The central issue

10.  The only issue to be determined then is whether or not in this context, this is an appropriate case to award litigation funding, and if so, in what amount?

Litigation costs

11.  In so far as the law on the funding of litigation costs is concerned, Currey v Currey [2006] EWCA Civ 1338 continues to be routinely applied in Hong Kong. This states inter alia that:

“the conditions for a ‘costs allowance’ are as follows:

(1) That the applicant spouse has no assets, or none that can reasonably be deployed (at para [19], [20]).

(2) That she can provide no security for borrowing, or none which can reasonably be offered (at paras [19], [20]).

(3) That she cannot reasonably obtain legal services by offering a charge on the outcome of the litigation (at para [20] and see Sears Tooth, per Wilson J).

(4) That she cannot secure publicly funded legal help ‘at a level of expertise apt to the proceedings’ (at para [20])”

There is also a requirement to undertake an overarching enquiry

At para [20], Wilson J held that the initial, overarching enquiry should be into whether the applicant for a costs allowance could demonstrate that she cannot reasonably procure legal advice and representation by any other means. Therefore, to the extent that an applicant has assets (as in C v C), she has to demonstrate that they cannot reasonably be deployed (whether directly or as the means of raising a loan) in funding legal services …… Other factors may well come into play.  The subject matter of the proceedings would always be relevant, as would the reasonableness of the applicant’s stance in the proceedings.

12.  In addition reference can be made to the English case TL v ML [2006] 1 FLR 1263 and in particular to paragraph 124 (v):

[124] (v) Where the paying party has historically been supported through the bounty of an outsider, and where the payer is asserting that the bounty had been curtailed, but where the position of the outsider is ambiguous or unclear, then the court is justified in assuming that the third party will continue to supply the bounty, at least until final trial (M v M).

13.  In this case the position of the outsider is not ambiguous or unclear. On the face of it the husband’s parents are no longer willing to provide the husband with additional financial support for the wife and two children of the family. Further the 2^nd intervener has clearly set out her own financial difficulties and those of the companies.

14.  Reference was also made by both sides to the leading Court of Appeal decision on the issue of maintenance pending suit and litigation funding namely HJFG v KCY [2012] 1 HKLRD 95, 28 October 2011. In that judgment The Honourable Mr Justice Hartmann (as he then was) said inter alia as follows:

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.

15.  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”.

16.  In addition Mr Justice Hartmann said:

82. The period over which an allowance for legal costs was to be paid was also considered by Wilson LJ to be a factor of considerable relevance.  Applications should not therefore expect that an order that the allowance be paid until the final determination of all proceedings will be the inevitable order.  It was observed that if the application for an allowance for legal costs was made before the FDR hearing, it may well be wise to order that the costs allowance should fund the applicant only up to that hearing:

17.  In that case the Court of Appeal ordered that the wife should receive HK$500,000 per month by way of a contribution towards her litigation funding, such sum to be paid until the FDR hearing or until further order.  

Is this an appropriate case to award litigation funding, and if so, in what amount?

18.  I have a number of difficulties with this application. I accept that the wife satisfies the four conditions referred to above at paragraph 11 in Currey and Currey, namely she has no assets of her own and there are none that could be deployed for litigation funding. I accept that it follows that she can provide no security for borrowings. She cannot offer a charge on the outcome of the litigation and she has applied for and been refused legal aid. Thus on the face of it she has no ability to raise funds for her own litigation. The husband argues that he is in a similar position. When considering the matter overall then – as part of the requirement for an overriding enquiry, can it be said that the wife’s stance is a reasonable one? My difficulty is that it seems to me that the wife’s stance is not entirely reasonable. I am particularly concerned that she seems intent on proceeding with further discovery but she has not been able to identify in precise terms what the outstanding issues are.

19.  Further any application should include a breakdown of the anticipated expenditure. Although the wife did provide the court with a breakdown of such costs, the content of that document was a matter of some concern. It was suggested for example in that schedule that there would be four more First Appointment hearings and that both a senior junior and a more junior counsel were necessary in order to properly represent the wife’s interests. With respect this cannot possibly be right. Certainly I can see no need for a further four First Appointment hearings prior to the preliminary issues trial, nor do I necessarily accept at this stage that it will cost an extra HK$155,000 to launch an additional request for discovery, although I accept that some expenditure in this regard is probably inevitable. In the first instance if the wife has any further concerns about discovery it should be dealt with in correspondence. I do accept that the wife will need proper legal representation for the preliminary issues hearing. One counsel should suffice. All the pleadings have been completed thus there is no need for there to be further summonses and affidavits settled. Thus it should be possible to ensure that the costs are reasonably contained.

20.  Counsel for the husband argues that in this case the outcome of the preliminary issues hearing is likely to be a definitive moment in the litigation. I would accept that. However I am also concerned to move this litigation along. Consequently as part of my case management function I intend at this stage to provide the parties with a Financial Dispute Resolution hearing date, the idea being that the litigation funding should continue up until that point. The situation may be further reviewed in the event that an agreement is not reached and the matter proceeds to trial.

21.  Counsel for the husband and the interveners also argues that it is manifestly unfair to make an order when it is clear that the onus for paying will fall on the 2^nd intervener – when she says that she can ill afford to pay any further sums. Again I accept that there is merit in that argument. Counsel says that the husband may seek to take out a mortgage presumably on the factory premises in order to pay for both sides’ litigation costs. I accept that he may have no option but to do so.

Conclusion

22.  Having considered the above arguments I will therefore rather reluctantly make an order that the husband do contribute HK$350,000 towards the wife’s legal costs – i.e. HK$50,000 per month with effect from the 1 December 2015 until the 1 June 2016. The preliminary issue hearing is scheduled to take place in late April 2016. In addition I will set the Financial Dispute Resolution hearing down for hearing on the 13 June 2016 at 2:30 pm with 2 hours reserved. Both parties do personally attend that hearing. This order is made on the premise that the wife will undertake to apply those funds only to the payment of her legal costs and that this sum shall be paid directly to her legal representatives. There shall also be liberty to apply.

Costs

23.  Costs shall be reserved.

24.  Finally – a word of warning. It seems to me that the parties should seriously take steps to try to settle this case. The alternative is likely to be huge and unrecoverable costs for all concerned. This is something that needs to be avoided if at all possible.