MS v. SPC

FCMC 12160/2019

[2021] HKFC 57

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

No. 12160 OF 2019

----------------------------

------------------------

------------------------------------

J U D G M E N T

(Maintenance Pending Suit, capital payments and litigation funding)

------------------------------------

Introduction

1.  This is an application by a Respondent husband as follows:

1.  The Petitioner be at liberty to pay to the Respondent, a capital sum of HK$3,602,400 million as maintenance pending suit including maintenance pending suit for legal costs funding, such sum to be paid on the premise that it is without prejudice to either the Petitioner or the Respondent’s contentions at trial as to the treatment to be afforded to such payment; and

2.  In the event that the Petitioner chooses not to make such payment under paragraph 1 above:

(a) the Petitioner do pay to the Respondent maintenance pending suit, in the sum of HK$185,400 per month or such other sum as deemed appropriate by the Court, commencing forthwith and thereafter on the 1^st day of each and every calendar month until further agreement or an Order of the Court, to be backdated to 1 February 2021; and

(b) The Petitioner do pay to the Respondent legal costs provision in the sum of HK$415,000 per month or such other sum as the Court deems appropriate;

3.  The Petitioner do immediately pay to the Respondent interim maintenance and legal costs provision at such rate as the Court thinks fit pending determination of paragraphs 1 and 2 above;

4.  Time for service of this Summons be abridged;

5.  Such other directions as the Court deems fit; and

6.  The Petitioner do pay the costs of and incidental to this application.

2.  This application raises an interesting point of principle, namely, to what extent, if at all, is it possible for maintenance pending suit awards to be used for interim capital payments, such as mortgage repayments, loans etc. In this instance the husband says that he needs HK$185,400 per month in order to meet joint repayments mainly of a capital nature pending the adjourned ancillary relief trial in July. He also seeks monies in addition for litigation funding.

3.  Although the application is presented as being similar to the case of AB v MAW [2016] 1 HKFLR 34, in fact the point in contention is somewhat different. In AB v MAW, the court was concerned with the inherent unfairness that can be caused by what had become known as “Charman awards” i.e. interim lump sums that are sometimes forwarded to a party (often the wife) by agreement, in order that she might meet her legal costs (and indeed other expenses), on her express undertaking that this sum should then be off set against any award that she might receive on final ancillary relief.

4.  In this instance, it is not disputed that both parties have, until recently, paid for their own legal costs from funds presumably held by each of them, in their sole names. It is the husband’s case that the wife is paying for her fees from monies that although held in her sole name are clearly marital funds as they originated from monies that he gave to the wife, on his case for family savings and on hers to cover her own personal expenses.

5.  It is also of note that the wife is running a needs based case and is claiming a significant share of the matrimonial pot as a result, whereas the husband maintains that this is essentially a sharing case, although he seeks further adjustments for pre-marital assets and post separation accruals.    

6.  In so far as this application is concerned, it is the husband’s case that he is running out of cash and that he will not be able to meet all of the joint capital expenditure pending the trial without some assistance from the wife. This is not fully accepted by the wife, although she does offer to enter into an undertaking to pay for a number of items. She does not offer to make any contribution towards the husband’s legal costs. She maintains that even if the husband is short of money, he can make other appropriate arrangements in order to resolve the situation satisfactorily in the short term.      

Background

7.  Both parties counsel set out the background to the case in their submissions. Given that time is of the essence, I have taken the liberty of repeating some of Ms Rattigan’s paragraphs as set out below:

B. Relevant Background

6.   W is a            with         , H is an                 working for the         . Both parties have worked throughout the marriage, they both continue to have earning capacities. H’s has always been greater than W’s allowing the parties to build the significant assets that they have, although his earnings are now much reduced.

8.  The parties met in Hong Kong in 1996 and married on the XX November 1999; there is no agreement with respect to the date of separation, although there is correspondingly no dispute that the husband left the former matrimonial home in or about February 2018. The husband is        and the wife is      . He is now aged    and the wife is now aged    years old. There are two children of the family, both young adults and both studying       at reputable universities in     . 

7.   … Both boys have attended boarding school in      from the age of 12/13. They are both currently in the parties’ property in N, Japan having chosen to go there over the Christmas holiday period and being unable to return to their respective university campuses due to Covid restrictions. W’s parents have been staying with them with H reimbursing them for expenses of HK$45,000 that the boys are unable to meet on their credit cards that are settled by H. T will be returning to his      campus on 8^th March 2021 at his request, S will return to Hong Kong on Saturday 6^th March 2021, he will do three weeks of quarantine and then stay with both parties before he goes back to      in the summer.

8.   Having            in July 2019, … H’s income has reduced significantly. H’s new employer, the         is a Charitable Foundation set up by   ,                           for whom H had done some work in the past and who became a friend of the family. The foundation runs various global philanthropic initiatives such as education for children under five;                    ; anti-slavery initiatives; cancer research and initiatives to deal with the issues of plastic pollution.    invited H to work for the Foundation when he was leaving ABC.

9.  Central to the issues to be determined at trial include the extent of the husband’s earning capacity. It is not disputed that he commanded a significant salary historically and that he has been largely responsible for paying for the party’s expenses during the marriage and for building up their capital base. It seems that the parties maintained separate finances otherwise. Unfortunately, there have been several references to conduct in the papers, which on an initial review seems unlikely to advance either sides case one way or the other. It is not disputed that the husband has formed a further relationship. It does not appear that the wife has re partnered.       

The law

Maintenance pending suit and litigation funding

10.  The law is well known and not in dispute. Reference should be made to section 3 of the Matrimonial Proceedings and Property Ordinance Cap 192 which states that the only governing principle is that the court shall make such order as it considers reasonable in all of the circumstances of the case. Consequently, applications such as these are approached on a broad-brush basis.

11.  Reference has also been made by each side to the leading Court of Appeal decision in HJFG v KCY [2012] 1 HKLRD 95 where it was held inter alia that:

“(a) The sole criterion to be applied in determining the application is ‘reasonableness’, which is synonymous with ‘fairness’.

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

(c) 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.

(d) 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 a situation the court should err in favour of the payee.”

12.  It is trite, but worth repeating for the record, that the court has no jurisdiction to make an interim lump sum order, although it is possible for the court, as in AB v MAW to invite a party to make such a payment and in its absence to make an order in the alternative for maintenance pending suit, which usually includes a litigation funding component. It is also accepted that this approach is more commonly recommended when the parties are extraordinarily wealthy, although that was not the case in AB v MAW and it is not the case here.  

13.  The law on litigation funding is also uncontroversial. It is accepted that the criteria, as set out in Currey v Currey [2006] EWHC 1338, is still good law in Hong Kong. This was recently acknowledged by the Court of Appeal in WW v LNN formerly known as LSM [2020] HKCU 609, where it was stated inter alia as follows:  

…  (1)   In order to obtain litigation funding, the burden is on an applicant to demonstrate that she [or he] cannot reasonably procure legal representation by any other means. This includes showing that she [or he] cannot secure publicly funded legal help at a level of expertise apt to the proceedings. To the extent that she [or he] has assets, the applicant has to demonstrate that they cannot reasonably be deployed, either directly or as the means of raising a loan to fund legal services ...

(2)   The subject matter of the proceedings and the reasonableness of the applicant’s stance in the proceedings will always be relevant.

(3)   …

[21] The court should be alert to the risk of injustice arising from irrecoverable and/or unmerited sums paid for litigation funding which would call for extra caution in the balancing exercise. As stated by Thorpe LJ in Moses-Taiga v Taiga [2005] EWCA Civ 1013, at §20:

‘ … the whole purpose of alimony pending suit is to sustain the petitioner pending the court’s determination. There is manifestly a risk of unjustified and irrecoverable payments, but that has to be balanced against the risk of a denial of access to justice for the petitioner, if she has not the means to sustain herself and the litigation pending its determination.’”

49. There should be some breakdown of the anticipated costs to support an application for litigation funding: HJFG v KCY (supra) at §§78-79. The rationale for this requirement was explained by Hartmann J A at §78 as follows:

“Section 3 of the Ordinance, of course, still required the Judge to be satisfied that any contribution towards the wife’s [or husband’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 [husband], that required some breakdown of her anticipated costs.”

14.  In addition, Mr Todd made reference to a couple of helpful authorities from England and Wales including Rubin v Rubin [2014] EWHC 611, which states inter alia as follows:

13 ..... (iv) The court cannot make an order unless it is satisfied that without the payment the applicant would not reasonably be able to obtain appropriate legal services for the proceedings. Therefore, the exercise essentially looks to the future. It is important that the jurisdiction is not used to outflank or supplant the powers and principles governing an award of costs in CPR Part 44. It is not a surrogate inter partes costs jurisdiction. Thus, a LSPO should only be awarded to cover historic unpaid costs where the court is satisfied that without such a payment the applicant will not reasonably be able to obtain in the future appropriate legal services for the proceedings.”

Application of the principles to this case

16. In both applications the wife seeks to recover costs which have already been incurred in circumstances where there will be no further substantive litigation here whether about the children or about money. In my judgment in both applications she falls foul of principle (iv). This is not a case where her lawyers are saying that they will down tools unless they are paid outstanding costs as well as being funded for the future. Were her application to be granted it would represent a very dangerous subversion of the exclusivity of the inter partes costs powers and principles in CPR Part 44. A shadow or surrogate jurisdiction would emerge. Such a development must be stopped in its tracks.”

I tend to agree with the concerns that are expressed here.   

Discussion

Can the court make the order as sought in paragraph 1 of the summons?

15.  For the avoidance of doubt, and as acknowledged by Ms Rattigan during the hearing, in the absence of the wife’s agreement, the court has no jurisdiction to make the order sought in paragraph 1 of the summons.

Should the wife be ordered to pay the husband the sum of HK$185,400 per month as maintenance pending suit?

16.  Again I think not. The wife has offered to pay for the monthly mortgage on the former matrimonial home (HK$70,000 per month), the service charge on the former matrimonial home (HK$4,800 + HK$2,400 = HK$7,200 per month), the service charge on another property in Hong Kong – GV Gardens (which the wife believes to be in the sum of approximately HK$6,300 per month and the husband puts at HK$16,020 per month) and 50% of the monthly subscription fees and parking costs of the AMC and Cricket Club (say another HK$2,500 per month). In total then, the wife is undertaking to pay roughly HK$86,000 per month. This seems reasonable and I will hold the wife to her undertaking in this respect. She does not offer to assist the husband with the payment of the other items namely the mortgages on three other properties in Australia, which are held in his sole name, one of which, on his case is pre-marital in any event. It is also of note that two of these properties are rented out commercially and the third is occupied by his brother. In addition, she does not agree to contribute towards the maintenance costs of a property in Japan, which is also held in the husband’s sole name. This is where the boys have been staying until recently and is also normally rented out on a commercial basis.

17.  The husband maintains that since taking a dramatic reduction in his income (following his decision to leave private practice as a solicitor), that he can no longer afford to pay these sums as he has done historically during the marriage. Whilst it is accepted that the husband is now earning significantly less than before, he is still earning much more than the wife. Currently he is earning in the region of HK$162,500 per month and this amount is expected to increase once his housing allowance is approved in the sum of HK$65,000 per month. He also says that the housing allowance is likely to be backdated to July 2020. This of itself will provide the husband with a little more income in the short term (according to his asset schedule an additional HK$620,468). Further, he says that he is due to receive an additional HK$357,462 in reimbursable expenses. The fact that he also claims that these sums are post separation accruals, does not prevent the monies being used by him for current expenses, or indeed in order to pay for his legal fees. The wife in comparison is currently earning HK$23,500 per month, plus she receives the rental income from one of the properties, so making a total of HK$43,500 per month. Clearly she will not be able to afford to meet all of her own expenses and settle those that she has offered to pay for from her income only. She will also need to resort to some of the capital reserves held in her name.

18.  I have a number of difficulties with the stance taken by the husband with respect to this aspect of his case. Firstly, it is clear, and as pointed out by Mr Todd, that the husband is seeking an interim amount largely for capital repayments, which can only come from capital held by the wife. He is, in effect, asking for a redistribution of family capital on an interim basis, whilst at the same time making a case, inter alia, that some of the assets in question be ring fenced as pre-marital or post separation accruals. As I have already stated I have no jurisdiction to make an order that rejigs capital on an interim basis. I am also concerned about the strategic undertones of this request in the run up to the trial.

19.  Secondly, I am not convinced, having reviewed the husband’s updated Form E, that his financial situation is as dire as he claims. According to his Summary Table of Monthly Expenses (SPC4-2), he will need to pay in the region of HK$100,000 per month for the remainder of the expenses (once the wife has paid for those items referred to in paragraph 16 above).      It is accepted that in order to do this, it will be necessary for him to reduce some of his expenditure in the short term. For example, the payment of HK$30,000 per month towards his girlfriend’s expenses should not take precedence over the payment for the capital expenses identified.  

20.  He will also need to rely on what capital he has left, in addition to the sums referred to in paragraph 17 above which amounts to just under a further HK$1 million. It is not disputed that he does have access to some other funds. According to Ms Rattigan he currently has access to HK$2.6 million in cash reserves. The difficulty is that he also has some significant liabilities including HK$1,192,231 in outstanding tax which was due in January. Whilst I have some sympathy with the husband in this regard, I am not convinced that he will also need to repay all of the other items that he has identified, immediately, including for example the revolving credit facility and the anticipated tax for the consulting business. It is of note that he has not even received a tax demand for his consulting business as yet.

21.  I also tend to accept Mr Todd’s suggestion that in the short term, the husband has other options available to him, including requesting a mortgage holiday on the Australian properties and/or seeking other short term loans.    

Should the wife be ordered to pay the husband a further sum of HK$415,000 per month as litigation funding?

22.  Again I think not. According to the schedule of assets produced by Ms Rattigan for this hearing, the parties have assets in the region of HK105 million between them. Of that sum approximately 61 % of the assets are currently held by the husband and 39% are currently held by the wife. Although the wife has more of the liquid assets, it is not accepted that the husband has shown, as he is required to do, that none of the assets held by him can be reasonably deployed for litigation costs, or that he is unable to borrow or provide security for borrowing by utilizing these assets in some way. The estimate for costs is also very broad brush and lacking in the detail necessary for an application of this type. I also accept, as suggested by Mr Todd, that:

III … if it is H’s contention that his solicitors will not act unless their outstanding costs are paid then this needed to be put properly in evidence. H’s solicitors needed to set out in terms that they would not act for him but for the success of this legal services application. Please see LKH v TQA [2018] EWHC 1214; per Holman J held in respect of historical costs i.e., those already incurred:

28. Mrs. Carew Pole submitted that if Payne Hicks Beach are not relatively swiftly paid all their outstanding costs they would not continue to act for this client, even if there is an appropriate award of monthly payments to cover future costs. With the utmost respect to Mrs. Carew Pole, I cannot accept that as a matter of submission. If a partner of Payne Hicks Beach had made a clear and unequivocal witness statement, to be publicly relied upon, to the effect that they would now, to quote Mostyn J. “down tools” or, to use another metaphor, pull the plug on their client unless the past costs are rapidly paid, even if the future costs are provided for, then I would have to consider that. But it would in my view be a regrettable and regressive development in this class of expensive family litigation. I am not prepared to assume, on the basis of a submission, that this very distinguished firm would act in that way.

29. So, on the facts and in the circumstances of this case, I am not willing to make any order at all in relation to the costs that the wife has already incurred. I stress, of course, that I do not in any way whatsoever preclude that the amount of those costs should not later be the subject, either of a costs order, or of capital provision to be made by the husband at the substantive hearing. But for the time being, the solicitors, having made a decision to extend that credit, must, I am afraid, live with it.

Withers are a firm that are also entitled to the sobriquet, “very distinguished”. No such statement has been made and W submits there is no evidence that Withers have said “enough is enough” as per §14 of Holman J’s judgment in the second instalment of LKH interim funding litigation (neutral citation [2018] EWHC 2436).

With respect I agree.

Decision

23.  Consequently, and subject to the wife’s undertaking as set out in paragraph 16 above, the husband’s summons dated the 2 March 2021 shall be dismissed. Costs shall follow the event in the normal way. Thus, there shall be an order nisi to be made absolute in 28 days time, that the Respondent do pay the Petitioner’s costs of and arising out of his summons dated the 2 March 2021 on a party and party basis to be taxed if not agreed. There shall be certificate for counsel.