PKJ v. WMLA

FCMC8604/2016

[2019]HKFC196

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 8604 OF 2016

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J U D G M E N T

(Litigation Funding)

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Background

1.  This is the substantive hearing of the petitioner husband (‘H’)’s application by summons filed on 15 February 2018 for an order that the respondent wife (‘W’) to pay or cause to be paid to him the sum of $1,230,000 as maintenance pending suit towards H’s legal costs provision that includes the fees for adducing expert evidence on the valuation of the business run by H and his brother, pursuant to s.3 Matrimonial Proceedings and Property Ordinance, Cap 192.

2.  H is 58 years old and W is 53 years old.  The parties were married in 1996. 

3.  There is one child of the family, a boy, now 19 years old, who is studying in the UK.

4.  On 22 September 2014, W unilaterally withdrew a total of $6.3 million from the parties’ joint account.

5.  The parties were separated in November 2014. 

6.  The parties jointly own a landed property in Yuen Long that was the family home until H moved out on 1 November 2014.

7.  On 7 November 2014, H withdrew $3.3 million from a company jointly owned by the parties.

8.  On 6 January 2015, H filed a petition on unreasonable behaviour for divorce and subsequently by consent, on 11 July 2016, H filed a fresh petition on one year consent for divorce.  On 20 October 2016, Decree Nisi was pronounced.  On 17 January 2017, it was ordered that sole custody, care and control of the child of the family was granted to W with reasonable access to H.

9.  On 5 September 2018, W further unilaterally withdrew £459,688.84 from the parties’ joint bank account.  On 5 September 2018, W unilaterally sold 14,811 HSBC shares held in the parties’ joint bank account without any prior consultation. On 10 September 2018, H took out a summons for injunctive relief in relation to the said sum of £459,688.84.  On or about 11 September 2018, W through her legal representative declared she would transfer the said amount back to the parties’ joint bank account.

10.  The only remaining issue is ancillary relief.  W worked as a flight attendant throughout the marriage.  H and his brother have carried on the business of marketing and organizing football events across Asia via a corporate structure involving two BVI companies, three HK companies and one Singapore company.  H’s true financial position and in particular the proper value of his business is hotly disputed. 

11.  Since about January 2017, the parties have entangled in protracted discovery proceedings.  Throughout these proceedings, W has been grumbling and complaining that H’s disclosure was glaringly deficient.  On the other hand, H has repeatedly maintained he did not and does not have any hidden assets as alleged.

12.  On 17 January 2017, leave was given to the parties to adduce single joint expert (‘SJE’) evidence on the valuation of H’s business.  There were previously drawn out proceedings before the court for determination of the wording to be used in the joint draft instructions to the SJE, and a court hearing was held on 8 September 2017 to determine what wording was to be used.  At the end, leave was given to the parties to adduce separate expert report and directions were given for the preparation of a joint statement by the parties’ separate experts. This case was however stalled as H claimed that he was unable to pay the expert’s fees for the preparation of his valuation report.  Despite W’s vehement resistance, in view of the fact that to move this case forwards the money is required, at the hearing on 12 September 2018, I made the order that $280,000 be provided to H by W so that he could pay his expert for his valuation report.  At the hearing on 19 July 2019, I was told by H that his expert’s valuation report should be ready for exchange by the end of July 2019.

The Law

13.  The relevant legal principles have been recently reviewed by B Chu J in LCYP V JEK [2018] HKCFI 1907: -

‘26. The Court's power to order MPS (including element for legal costs provision) is stated in section 3 of the Matrimonial Proceedings and Property Ordinance, Cap 192. The sole criterion stipulated by that section is "reasonableness", which has been said to be synonymous with "fairness" ⁵.

27. Wilson LJ had said in Currey v Currey (No 2) [2007] 1 FLR 946 ⁶:-

"In my view the initial, overarching inquiry is into whether the applicant for a costs allowance can demonstrate that she cannot reasonably procure legal advice and representation by any other means. Thus, to the extent that she has assets, the applicant has to demonstrate that they cannot reasonably be deployed, whether directly or as the means of raising a loan, in funding legal services. Furthermore, not to forget the third of Thorpe LJ's three features, she has also to demonstrate that she cannot reasonably procure legal services by the offer of a charge upon ultimate capital recovery. I would add, fourthly, that the court needs also to be satisfied that there is no such public funding available to the applicant as would furnish her with legal advice and representation at a level of expertise apt to the proceedings, i.e. that the applicant does indeed in that regard fall within the unserved constituency…"

28. In short, the overarching inquiry is into whether the applicant for a costs allowance can demonstrate that she cannot reasonably procure legal advice and representation by any other means and that:

•     (i) To the extent that she has assets, the applicant has to demonstrate that they cannot reasonably be deployed, whether directly or as the means of raising a loan, in funding legal services.

•     (ii) She has also to demonstrate that she cannot reasonably procure legal services by the offer of a charge upon ultimate capital recovery;

•     (iii) The court needs also to be satisfied that there is no such public funding available to the applicant as would furnish him/her with legal advice and representation at a level of expertise apt to the proceedings.

29. What was said by Wilson LJ in Currey was endorsed by Cheung JA and Hartman JA in HJFG v KCY [2012] 1 HKLRD 95 ⁷who held that the Currey principles should in future be adopted as providing prudent guidance to both judges and practitioners in this jurisdiction.

30. Mr Yim had also referred the Court to the English case of A v A (Maintenance Pending Suit: Payment of Legal Fees) [2001] 1 WLR 605 , in which the wife who was dependent upon the husband applied for an order for maintenance which includes provision for legal costs. Holman J had stated as follows ⁸:-

"But Mr Singleton submits that the costs of the suit itself are in a different category. I do not agree. Just at the moment they are, after the provision of a roof over her head and food in her mouth, the wife's most urgent and pressing need and expense. She could manage without holidays, though I have made some provision for them. She could no doubt manage for a while without buying new clothes. She could manage for a while without buying new clothes. She could manage without her manicures, pedicures and yoga and keep fit classes, for all of which I have, on the facts of this case, made provision. She could even manage without the provision for forms of private medical care (to which the family has been accustomed) for, if necessary, she could fall back on the NHS. But she simply cannot make any progress with the dominating issue in her life if she cannot pay her lawyers, and for this the state will not provide ." (emphasis added)

31. As to why legal costs provision is particularly crucial in cases where there is a great disparity in wealth and earning capacity as a consequence of the marriage, Holman J had this to say:-

"This wife has always been dependent on her husband. She is locked into a bitter struggle with him, whose outcome is of intense importance to her. She has an acute need for good legal representation and in circumstances in which her lawyers do not lawyers have to be desperately economizing relative to the husband. He himself is spending huge sums on the litigation. He can, in my judgment, afford to pay the sums I have ordered and it is reasonable that I should require him to do so ⁹."

He then went on to say:

"In my judgment, in an appropriate case, maintenance pending suit provides a partial answer and, for the reasons I have now given, I made the order in the present case. I add that, since I made the order, the House of Lords has given its judgment in White v White [2000] 3 WLR 1571. That did not, of course, impact at all on my decision which I had reached and announced several days earlier, not on my reasons for it. However, Lord Nicholls of Birkenhead stressed, in relation to the substantive outcome, that there is to be no place for discrimination between husband and wife and their respective roles. In my view, that substantive approach may be illusory if a wife is unable to vindicate it due to the difference in their roles, and its discriminatory effect upon their income and capital and upon a wife's ability to match the legal representation of her husband. The changing climate for the outcome of matrimonial litigation, which the House of Lords has clearly heralded, further fortifies me in my view as to financing its interlocutory stages ¹⁰." ’

14.  I also take notice that in KGL v CKY [2003] 2 HKLRD 301,  Woo JA at 307 stated: -

“There is no reason why public funds should be expended to fund litigation when there are ample resources available within family funds.”

H’s case

15.  H’s arguments were that :

(1) The said $3.3 million that H withdrew from the company jointly owned by the parties was already used up to pay for the shortfall of his living expenses and to support the operation of his business.

(2) The football event business had deteriorated over the last few years.  Not only he stopped receiving salary, but also, between January 2016 and October 2017, he and his brother asked his wife advanced the total sums of $1.6 million and $1.2 million to the business respectively.

(3) Between November 2014 and December 2017, he paid interim maintenance in the sum of $25,000 per month for the child of the family, totalling $950,000.

(4) Between November 2014 and December 2017, he incurred rental payments in the total amount of $772,400.

(5) For his monthly expenses, it used to stand at $64,060 per month, inclusive of the monthly interim maintenance of $25,000.  Because of his financial plight, since June 2017, however, his monthly expenses was dramatically reduced to $30,000 per month.

(6) According to his Form H dated 3 January 2019, the estimated costs incurred up to and including the hearing dated 7 January 2019 were $1,724,366 and the estimated costs thereafter up to and including FDR were $441,000.  After having already spent about $1 million on legal costs, he owed his former solicitors about $700,000.  As a result of his inability to pay, his former solicitors ceased to act for him. 

(7) H needed to borrow from his friends.  Up to date, H was indebted in the total sum of $800,000 to two long term friends.

(8) H was unable to obtain any further loan.

(9) As at July 2019, H had less than $130,000 in his bank account.

(10) On the other hand, W’s day to day living and lifestyle was unaffected by the separation – she continued to live in the matrimonial home that was of 1,300 sq ft with 3 bedrooms and including the said $6.3 million withdrew from the parties’ joint account, as disclosed by her 3^rd Affirmation, she had over $7 million in her bank account.  In the circumstances, it would be highly unjust to deny H access to what were the parties’ funds that H built up for the benefit of the family through his endeavours in order to fund his litigation costs when he had no other means and when W had free unfettered access to those funds and was funding her litigation.

(11) H was only asking for a very modest amount from the family pot to enable him to move the case to the FDR stage.

W’s case

16.  W argued that H had failed to bring himself within the Currey test.  In particular, W argued that: -

(a)  H had undisclosed financial resources that he could use;

(b)  He could borrow with or without security; and

(c)  There was no reason why he should not or could not apply for legal aid.

Discussion

17.  I deal with the last two points first.

18.  H did not apply for legal aid.  W argued that there was no reason why H did not exhaust the alternative of applying for legal aid.  According to the Schedule of Assets and Liabilities prepared by H pursuant to the additional directions given on 11 September 2018, the family pot was valued at approximately $22 million, of which the value of his business was $1,807,883, primarily based on the net asset value as of 31 December 2013.  In W’s case, the value of H’s business alone is over $100 million.  I take notice that this is not the case where there are not enough assets in the matrimonial pot for the parties to go ahead with the expert valuation or the FDR.  The present application is only for the sum of $1,230,000.  Considering that there are adequate resources available in the family pot and applying Woo JA’s remarks in KGL V CKY, despite W’s argument to the contrary, I regard that, in an appropriate case, H is entitled to draw from the resources available within the family pot for the purpose of the present application.  Nonetheless, it is yet to be determined whether the present is an appropriate case to provide H provision for litigation funding.

19.  W urged the court to draw the inference that H can continue borrowing.  For my part, I take the view that H was able to borrow once or twice from his friends in the past does not at all mean that he is able to borrow in the future.  After having carefully considered the matter, for the present purpose, I do not accept that H can borrow with or without security.

20.  W also argued that there was no explanation why H could not recover his loan to his business to fund his litigation.  The parties went to great lengths to show their respective cases on the true financial positions of H’s business.  That naturally is relevant consideration in ancillary relief matters, but for the present purpose, it suffices to say that cautiously I feel constrained to tentatively treat that his business has not been doing well over the last few years and that it is out of the question that he can turn to his business for litigation funding. 

21.  In my view, the thrust of W’s case is about the argument that H has undisclosed assets that can be used.  First, W argued that funds were transferred away from H’s personal accounts.  H and his brother had jointly held a Standard Chartered Bank (‘SCB’) account that was closed in March 2015 and was not disclosed in H’s Form E.  The closing balance of $921,292.6 was first deposited into a joint account of H’s brother and his wife and was then transferred to one BVI company of H and his brother’s group of companies.  In his 3^rd Affirmation, H affirmed that the said sum of $921,292.6 was then used up to pay for a contract for a football match in Malaysia.  In addition, H had a Bank of China (‘BOC’) account that again was closed in March 2015 and was not disclosed in his Form E.  The closing balance of $1,774,120.94 was deposited into the bank account of one company of his business.  W disbelieved H’s affirmed evidence that the said sums of $921,292.6 and $1,774,120.94 respectively were held on trust by H/ his brother for their business.  I do not lose sight of that, though he was represented by experience counsel and solicitors in this application, only scanty details of the alleged trust were provided, I however regard that perhaps the court still needs to look at all the evidence holistically and examine the whole course of the parties’ conduct concerning the matter before I can make any fact finding on the matter.  I am not prepared to make any factual finding on paper examination and, for the purpose of the present application, I will not treat the said sums of $921,292.6 and $1,774,120.94 as assets that H can use to fund his litigation.

25.  On the top of the above, W identified a number of large deposits in the above said BOC account between October and December 2014.  According to H, the deposited money belonged to one Mr. Yung living in PRC and was transferred to H so that H could use the same to make payments on Mr. Yung’s behalf for the latter’s purchase of a landed property in Hong Kong.  Despite W’s disbelief, in view of that Mr. Yung has filed and served an affirmation in support of H, for the purpose of the present application, again I am not prepared to make any factual finding on paper examination and I will not treat the said deposits as asset that H can use to fund his litigation.

26.  Last but not least, W believed that it could be seen from the profit and loss account of for the year ending December 2012 of one BVI company that H received no less than $32 million of ‘dividends’[1] and H failed to explain where the said $32 million went.  What is more, W believed that it could be seen from the profit and loss account of for the year ending December 2014 of the same BVI company that H received no less than $731,119 of ‘dividends’[2] and H once more failed to explain where the money went.  In reply, H produced an e-mail dated 12 September 2018 sent from his accountant who sought to clarify that no such ‘dividends’ nor any cash payments were actually made and that the ‘dividends’ entries seen were accounting journals made to offset against the directors current account[3]. To that, in the valuation report dated 6 May 2019, W’s forensic accountant expert held the opinion that it was unusual that the directors’ current account would record such a large ending balance.  W’s expert may be surprised by the unusual large ending balance recorded in the directors current account of the relevant balance sheets, but in view of the e-mail dated 12 September 2018 sent by H’s accountant, I accept that H’s contention on if such ‘dividends’ having been factually paid, whether it is right or wrong, is arguable.  However, taking H’s case to the highest, as remarked by W’s forensic accountant expert, the amount of ‘dividends’ declared as per the profit and loss account for the year ending December 2012 exceeds the accumulated balance in the directors current account.  It results in a negative balance of approximately $2.5 million in H’s director current account and it follows that there is an obligation on the part of the BVI company to transfer an economic resource e.g. cash payment to H.  H is unable to offer any explanation about where the said $2.5 million goes.  That said, after having carefully considered, I accept Mr. Yim’s submission that that must be fatal to H’s Curry application.

Disposal

27.  It is hence ordered that H’s application by the summons dated 15 February 2018 be dismissed.

Costs

28.  H fails in his application.  Accordingly, I make the order nisi that H do pay W the costs of this application including reserved costs with certificate for counsel.  The nisi order becomes absolute 14 days after the order is made unless a party has applied to the court for varying the order.