XY v. DIRECTOR OF LEGAL AID

LAA 675/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LEGAL AID APPEAL NO 675 OF 2017

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J U D G M E N T

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BACKGROUND

1.  This appeal raises a novel point as to whether or not payments to children attract the first charge of the Director of Legal Aid (“DLA”).

2.  The appellant (“the Mother”) has been legally aided in ancillary relief proceedings before the Family Court.

3.  After protracted proceedings and negotiation, the Mother and the Father came to a settlement in principle (“the proposed Settlement”), subject to consent of the DLA to an order that there be no order as to costs.  One of the terms was that a sum of HK$4.25 million (“the Sum”) from the sale proceeds of the matrimonial home shall be put on trust in favour of the children, with payments out periodically.

4.  DLA took the view that the proposed payments to the children would be subject to the first charge (“DLA’s first charge”) under section 18A of the Legal Aid Ordinance, Cap 91 (“the Ordinance”).

5.  On 17 May 2017, the FDR Judge of the Family Court directed, amongst others, that “unless the [Mother] is able to fully resolve her liability for costs under the DLA 1^st Charge (which is a matter of contract between her and the Legal Aid Department) and have it incorporated into the agreed terms of settlement with the [Father], there is no jurisdiction for this Court to adjudicate the issue of 1^st Charge between an aided person and the DLA in these proceedings.”

6.  Since the proposed Settlement could not be finalized, the ancillary relief proceedings have been remitted to a new judge for trial.  However, the Father and the Mother are anxious to avoid further proceedings and expenses on litigation.

7.  On 31 May 2017, the Mother, through her solicitors, requested DLA for an extension of her legal aid certificate to cover her intended interlocutory application under Order 14A, rule 1 of the Rules of the District Court (Cap 336H) (“the O14A Summons”) seeking the Family Court’s determination on the following issue:

“Does the DLA’s First Charge apply to ancillary relief payments in trust for the benefit of the children of the family?

Alternatively, are monthly payments (secured by a solicitor’s trust account) for the benefit of the children of the family within ambit of the exception for maintenance of a child to the DLA’s First Charge in section 18A(5)(b) of the LAO?”

8.  DLA refused to extend the legal aid certificate to cover the O14A Summons.  The reason was that the Family Court already decided that it did not have jurisdiction to determine the application of the First Charge.  The Mother should have appealed against DLA’s decision pursuant to section 26 of the Ordinance as a decision of the DLA.

9.  This is the Mother’s appeal against the DLA’s decision pursuant to section 26(4) of the Ordinance.  The Mother submits that she has a reasonable chance of success in arguing that the Family Court does have jurisdiction to resolve the aforementioned questions of law, and that those questions will be resolved in her favour.

MATERIAL PROPOSED TERMS OF THE PROPOSED SETTLEMENT

10.  The material terms of the proposed Settlement are as follows:

“(i) The Respondent [Father] do pay periodical monthly maintenance for the children in the sum of HK$16,500 per month commencing from 1 April 2017 until the completion of sale of the matrimonial property;

(ii) There shall be no maintenance for the Petitioner [Mother] commencing from 1 April 2017;

(iii) The matrimonial property to be sold within 1 year from the date of this Order;

(iv) Upon the completion of the sale of the matrimonial property

(a) The Respondent do pay periodical monthly maintenance for the children in the sum of HK$14,500 per month until [the daughter] attains her age of 18 years old and thereafter reduced to a sum of HK$7,250 per month until [the son] attains his age of 18 years old;

(b) On the date of completion of sale, a sum of HK$4.25 million be paid out from the sale proceeds, free from mortgage and charges, into a solicitors’ trust account agreed by the parties for the benefit of the children (“Solicitors’ Trust account”), and the residual of the sale proceeds be to the Respondent;

(c) Parties to agree the appointment of the Solicitors’ Trust account within 6 months from the date of this Order, failing which there be liberty to apply in writing for directions from the Court; and

(d) From the date of transfer of the amount mentioned in (iv)(b) above, periodical monthly maintenance for the children in the sum of HK$125,000 per month be paid out from the Solicitors’ Trust account for the first 24 months and then in the sum of HK$25,000 per month to be paid out from the Solicitors’ Trust account until the Solicitors’ Trust account is completely depleted of funds.”

11.  The guiding principles of the proposed Settlement were that the parties would provide for the needs of the children and whatever surplus would be left with the Father.  The Mother would disclaim all of her interest in the assets of the parties to avoid a trial and to secure the long term needs of the children.  She was concerned about the Father’s long-term liquidity and earning capacity and wanted appropriately timed payments secured by a lump sum or by a reliable third party.

12.  The Father sought to provide funds for his own retirement and prevent the possibility of the Mother or children returning for further maintenance. He opposed any lump sum payments in favour of periodical payments.

13.  The Father agrees to the proposed Settlement provided he shall not be liable for the Mother’s costs.  The Mother’s position is that if the DLA’s first charge shall diminish the amount set aside for the children, she intends to seek an order for costs of indemnity basis to preserve their interest.

14.  Mr Marwah, Counsel for the Mother, contends that the proposed Settlement is to provide for unsecured periodical payments for the childhood of the children from the Father, and for secured periodical payments from the Father for the children out of the Sum to cover the medium term.  The purpose of the secured payments is to cover the expected needs of the children in financing new housing, new schooling, and a possible move to Europe as anticipated by both the Mother and the Father. 

THE LEGISLATIVE FRAMEWORK

15.  Section 18A(1) of the Ordinance provides for the DLA’s first charge:

“(1) Subject to this section—

(a) the amount of a contribution to the extent that it is unpaid; and

(b) except where legal aid has been granted under the Supplementary Legal Aid Scheme, if the total contribution is less than the net liability of the Director on the aided person’s account, a sum equal to the deficiency,

shall be a first charge for the benefit of the Director on any property, whether situated in Hong Kong or otherwise, which is recovered or preserved for the aided person in the proceedings or in any other proceedings in respect of which the person was aided and which, in the opinion of the Director, were substantially related to or connected with the proceedings in which property was recovered or preserved.

…

(3) The reference in subsection (1) to property recovered or preserved for an aided person in any proceedings shall include—

…

(c) any property recovered for the benefit of any person on whose behalf the aided person is acting or for the benefit of any estate or fund out of which that aided person is entitled to be indemnified”

16.  Section 18A(5) of the Ordinance stipulates the exceptions to which DLA’s first charge will not apply:

“(b) maintenance pending suit or a periodical payment under an order made in domestic proceedings, or under an agreement having the same effect as an order, for the maintenance of a child, spouse or former spouse unless the payments are for the maintenance of a spouse or former spouse and are at a rate exceeding $4800 (or its equivalent) each month.”

17.  Under Section 2,

“ ‘domestic proceedings’ means proceedings under the Matrimonial Proceedings and Property Ordinance (Cap. 192), the Matrimonial Causes Ordinance (Cap. 179), the Guardianship of Minors Ordinance (Cap. 13), the Separation and Maintenance Orders Ordinance (Cap. 16) or the Parent and Child Ordinance (Cap. 429).”

ISSUES

18.  The issues before the court are:

A.   Whether the Family Court has jurisdiction to decide the applicability of the DLA’s first charge and the O14A Summons;

B.   Whether maintenance for a child (periodical or otherwise) is “property recovered or preserved for the Mother” so as to attract the DLA’s first charge;

C.   Whether payments made periodically over a fixed time period and secured in the Solicitors’ Trust Account are “periodical payments” within the meaning of section 18A(5)(b); and

D.   Whether DLA’s first charge would apply to the Sum to be paid into a Solicitor’s Trust Account for the benefit of the children.

Issue A: Whether the Family Court has jurisdiction to decide the applicability of the DLA’s first charge and the O14A Summons

19.  The jurisdiction of the Family Court is governed by statute.  The FDR Judge was correct in saying that the Family Court had no jurisdiction to decide the applicability of DLA’s first charge.  I also agree with DLA that the Mother should have appealed against DLA’s refusal pursuant to section 26 of the Ordinance.

20.  Mr Marwah seeks to argue otherwise on the following bases:

(a)   That the Family Court did not consider the Court of Appeal case in Yeung Wong Fung Hing v Yeung Tim Tung [1999] 3 HKLRD 370 where the Family Court held as a matter of law that the DLA’s first charge applied to a payment made by a husband to an aided wife;

(b)   That the Family Court did have jurisdiction under section 7 of the Matrimonial Proceedings and Property Ordinance, Cap 192 (“MPPO”).

21.  With respect, in Yeung Wong Fung Hing, the Court of Appeal was not asked to deal with any issue regarding the DLA’s first charge.  The order, as drafted by the parties (and presumably approved by the Court of Appeal) only stated that the matrimonial property should be sold and that the net proceeds of sale be applied, amongst others, in payment to the wife of a sum of $1 million and such sum shall be subject to DLA’s first charge; and the balance shall be paid to the husband.

22.  That kind of order appears in all kinds of cases, like personal injuries, matrimonial or contract cases, where an aided person is awarded money judgment.  It does not mean that a court was required to resolve an issue relating to DLA’s first charge. 

23.  Yeung Wong Fung Hing does not assist the Mother at all.  Mr Marwah, rightly in my view, does not press the point.

24.  As for MPPO, the Family Court of course has a duty to consider under section 7, amongst others, the financial resources (including any liability to an outsider that may reduce those financial resources) that a party has or is likely to have in the foreseeable future.

25.  However, whether that liability would actually fall on a party is a matter that should be litigated between that party and the outsider.  By way of example, a dispute between the Mother and her employer (school) is the Mother’s potential liability, to be litigated between the two.  The Father would not be involved.  By the same token, the dispute over DLA’s first charge is a matter between DLA and the Mother only.  The Father has no interest and there is no cause for taking out the O14A Summons against him.

26.  The present appeal is the proper channel to appeal against DLA’s interpretation of the Settlement and his consequent refusal to grant a legal aid certificate.  Family Court has no jurisdiction.

Issue B: whether maintenance for a child (periodical or otherwise) is “property recovered or preserved for the Mother” so as to attract the DLA’s first charge

27.  Mr Marwah contends that payments for the maintenance of children are not “property recovered or preserved for the aided person and are therefore not subject to the DLA’s first charge, unless the aided person is acting in a representative capacity under section 8.

28.  I agree with Mr Marwah that the Sum is plainly to be set aside for the benefit of the children and the Mother will not have any beneficial right over them.

29.  However, I am unable to agree that the money is not recovered for the Mother under section 2 of the Ordinance; “aided person” means a person to whom has been granted a legal aid certificate which is still in force; “domestic proceedings” includes proceedings under MPPO.  It is common for a child to be awarded periodical payments in proceedings under MPPO through his/her parent.  It will be costs wasting for the child to be separately granted a legal aid certificate.  In any case, a certificate granted to a child will be to his parent under section 8(3).

30.  Accordingly, property recovered under domestic proceedings for the benefit of a child ought to be regarded as property recovered or preserved for the aided mother.  Otherwise the exceptions under section 18A(5)(b) of the Ordinance need not refer to payment “for the maintenance of a child”.  The Ordinance could simply have said that all recoveries on behalf of a child are excepted from DLA’s first charge.

31.  Moreover, section 18A(5) clearly shows that DLA’s first charge does not apply to periodical payments for the maintenance of a child but would apply, eg to a lump sum payment for the benefit of a child.  There is good reason.  If, eg a rich father is ordered to pay a huge lump sum to a child well exceeding his needs, there is no reason why the public purse should fund the litigation.  In those cases, where lump sums are to meet only the needs and not luxury of a child, an order is made for costs on common fund basis so as to ensure that the lump sum will not be depleted by costs.

Issue C: Whether payments made periodically over a fixed time period and secured in the Solicitors’ Trust Account are “periodical payments” within the meaning of section 18A(5)(b)

32.  There is no definition of the term “periodical payment” under the Ordinance or MPPO. 

33.  Mr Wong, Legal Aid Counsel, invites the court to make reference to section 94 of The Civil Legal Aid (General) Regulations 1989 (“the Regulations”) of the United Kingdom for the definition:

“94. The charge created by section 16(6) of the Act [ie the Legal Aid Act 1988 which contains a provision similar to the DLA’s first charge] shall not apply to–

…

(c)  any periodical payment of maintenance which, for this purpose, means money or money’s worth paid towards the support of a spouse, former spouse, child or any other person for whose support the payer has previously been responsible or has made payments;”

34.  The words underlined do not appear in the Hong Kong legislation.  Rather, under section 7(2) MPPO, the court has to consider a basket of factors and may order periodical payments notwithstanding that the payor has failed to take up such responsibility in the past.  Accordingly, I decline to rely on the definition in the Regulations.

35.  In my view, the plain and ordinary meaning of “periodical payments” is that they are made over a period, at regular weekly, monthly or annual intervals.  There are often ordered where the payor cannot afford to pay a lump sum.  It is common for the amount of the periodical payments to be for the maintenance of the payee.

36.  In my view, the periodical payments in the proposed Settlement are not really periodical payments in substance for the following reasons:

37.  Firstly, there is already a provision for periodical monthly maintenance at a rate of HK$14,500 in support of the children.  There is no need to provide for a second type of periodical payments.

38.  Secondly, where the joint income of the Father and Mother were $84,451.50 per month during marriage and they owned one property, there is hardly any justification for the children to spend HK$125,000 per month even taking into account the need for advanced education, housing and relocation to Europe.

39.  Thirdly, the amount of HK$125,000 per month admittedly contains an element of a capital nature, ie to provide for housing of the children in the form of eg a deposit or down payment.

40.  Fourthly, assuming the proposed Settlement is approved at the time of this judgment, it would mean that the Sum would be depleted well before the daughter (born on 15 May 2006) and the son (born on 8 December 2008) would reach 18.  Such could hardly fulfil the intention to maintain the children on a periodical basis until they reach majority or finish full time education.

41.  Mr Marwah points out that the Mother is currently of extremely limited means, having lost much of her earning capacity.  She is currently under re-training so she needs more liquidity now.  After the retraining, she will be able to support herself and the children in future.  Since the Father refused to provide the full amount needed for the children, the Mother accepted the proposed Settlement as a compromise to cover the children’s short and medium term needs.

42.  Even so, these can hardly explain away the first 3 reasons above and why she would not seek maintenance for herself.

43.  Taking all these factors into account, I find that the periodical payments are more in the nature of instalment payments of a lump sum payment.  The instalments are merely to ensure that the children (or the Mother) would not squander the Sum soon and go back to the Father for more in future.

44.  The next question is whether the periodical payments from the Solicitors’ Trust Account are secured periodical payments. 

45.  Secured periodical payments occur where the payor sets aside some security so that if he defaults in the periodical payments, the payee can resort to the security.  The title in the security remains with the payor.  If he does not default, the security may never be utilized. 

46.  Under the proposed Settlement, the title in the money vests in the Trustee.  The Father is not required to make any periodical payments.  All payments will be made in favour of the children directly out of the Solicitors’ Trust Account. The trust fund will not revert to the Father under any circumstances.

47.  Between 23 March and 7 April 2017, the Mother has informed DLA of 3 sets of proposed settlements.  They all referred to the Sum being made in favour of the children.  The only difference was the change of trustee from the Mother to the solicitors; and the amounts of monthly payments out under the 2^nd and 3^rd set of proposed settlements.

48.  I find that the periodical payments out of the Solicitors’ Trust Account are not secured periodical payments.

Issue D: whether DLA’s first charge would apply to the Sum to be paid into a Solicitors’ Trust Account for the benefit of the children

49.  Given the above analyses, I am of the view that DLA’s first charge should apply to the Trust Fund. 

50.  There is no proper issue to be laid before the Family Court under the O14A Summons.  That summons has no merits anyway.  DLA has rightly refused to grant a legal aid certificate for the issue of the O14A Summons.  This appeal is therefore dismissed.

COSTS

51.  Mr Wong invites the court, where it makes the finding under Issue D above, to consider denying costs of the Mother’s solicitors.  This means that if and in so far as the lawyers have intentionally deprived the legal aid fund of a charge on their costs, they are themselves precluded from making any claim on the legal aid fund for those costs: Manley v Law Society and others [1981] 1 All ER 401, Lord Denning MR.

52.  In the present case, DLA submits that there is evidence showing that the assigned solicitor has devised a scheme so as to avoid the charge to the legal aid fund.

53.  With respect, I am unable to agree.  The solicitors for the Mother have drafted terms to try to avoid DLA’s first charge but they acted with complete candour with DLA.  They have sent the 3 sets of proposed settlements to DLA.  Mr Wong conceded that at least in relation to the 1^st set, it was reasonable for the solicitors to invite DLA to express a view on whether DLA’s first charge would apply. 

54.  The Solicitors were acting in discharge of their duties to assist the Mother in reducing the impact of DLA’s first charge and to protect the legal aid fund.  Their honest but erroneous interpretation as to children’s maintenance being excepted from DLA’s first charge is not a reason to deprive them of costs.  Unlike Manley, the legal aid fund is not deprived in any way as the proposed Settlement is not yet finalized.  I am not satisfied that the solicitors’ conduct fell within the principles of Manley.

CONCLUSION

55.  This appeal is therefore dismissed, but I decline DLA’s request to deprive the Mother’s solicitors of costs.

56.  I thank counsel for their assistance.