IDC v. SSA

FCMP 158/2011

[2019] HKFC 255

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FAMILY COURT

MISCELLANEOUS PROCEEDINGS NO. 158 OF 2011

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DECISION
(LITIGATION FUNDING)

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Application

1.  This is a hearing of the Applicant mother (“the mother”)’s summons dated 4 April 2019 (A/162) for litigation funding in which she asked for the following provisions for her legal fees in the parties’ respective application for variation of the minor’s maintenance:

(1)     A lump sum of $500,000 or a sum which the court considers reasonable in the circumstances; and

(2)     A periodic sum of $50,000 per month, or a periodic sum which the court considers reasonable in the circumstances.

2.  The Respondent father (“the father”) opposes the application.

Background

3.  This case has a long history.  Ms. Booth for the mother has helpfully set out the background in paragraph 3 of her “NOTE FOR THE APPLICANT MOTHER” most of which, if not all, will be adopted here so as to give the necessary background to the present applications.

4.  The parties were unmarried and had cohabitation between 2006-2010, during which the minor (“Z”) was born.  Z is now 10 years old and resides with the mother in London.

5.  After the deterioration of the parties’ relationship, the mother applied for financial provisions for Z under the Guardianship of Minors Ordnance, Cap. 13 (“GMO”) in 2011.

6.  On 14 September 2012, HH Judge Bruno Chan ordered joint custody of Z to the parties, with care and control to the mother and defined access to the father.  On 22 January 2013, the father was also ordered to pay monthly maintenance of HK$118,000 for the benefit of Z in addition to his undertakings to pay Z’s school fees, domestic helper, flight tickets, holiday allowance, etc.  As far as costs are concerned, the father was ordered to bear 70% of the mother’s costs with credit to be given for the litigation funding of HK$750,000 previously paid by him. 

7.  The mother subsequently applied for the relocation of Z to London during which hearing the father gave an undertaking to pay HK$500,000 as contribution towards the legal costs of the mother.  The relocation application was allowed and both the mother and Z have started to live in London since 2015.  The father was ordered to pay the costs of the relocation application which was later agreed at HK$1,782,680 less the litigation funding of HK$500,000 previously paid.  Since relocation, the father has in fact been paying a monthly sum of about HK$144,000 as Z’s maintenance due to the increase in rental costs in London.

8.  On 26 April 2018, the mother issued her summons asking for a whole list of financial orders for Z including the transfer/sale of 6 landed properties. 

9.  On 17 May 2018, the father issued his summons asking for a downward variation of the maintenance order and the discharge of certain undertakings given by him back in 2013.

10.  After the filing and exchange of the parties’ Form E, there were allegations of insufficient disclosure on the part of the father and a summons for discovery was issued with an argument date being set on 31 October 2019.  In order to fund the said discovery application and the application for variation generally, the mother issued her summons for litigation funding on 4 April 2019 which was adjourned to today for argument.  Just prior to the hearing, the father issued another summons asking for a Single Joint Expert (“SJE”) to be appointed to make an objective assessment of Z’s reasonable monthly needs by reference to the supporting documents to be provided by the mother.  If this could be done, coupled with the father’s continuous stance on his “millionaire defence”, the need for a detailed discovery process may not be really necessary.  Under those circumstances and subject to the mother’s further consideration on the appointment of SJE, the parties now agreed for the discovery application to be adjourned sine die with liberty to restore.  Be that as it may, the mother still asks for litigation funding so as to allow her to move the case forward, at least up to the next stage of litigation, i.e. the FDR hearing.

Applicable laws

11.  Despite the fact that both parties do not question the court’s powers in granting orders on litigation funding, if appropriate, they have very different views on the statutory basis upon which such orders could be made.

12.  According to Ms. Booth, the court could grant such orders on litigation funding based on section 10(2) of GMO:

“(2) The court may as regards a minor, on the application of a person with whom, whether by virtue of an order under subsection (1) or otherwise, custody of the minor lies at law, make in respect of the minor any one or more of the following orders-

(a) An order requiring payment to the applicant by the parent or either of the parents of the minor of such lump sum (whether in one amount or by instalments) for the immediate and non-recurring needs of the minor or for the purpose of enabling any liabilities or expenses reasonably incurred in maintaining the minor before the making of the order to be met, or for both, as the court thinks reasonable having regard to the means of that parent;

(b) An order requiring payment to the applicant by such parent or either of such parents of such periodical sum towards the maintenance of the minor as the court thinks reasonable having regard to the means of that parent;

…”

13.  Counsel submits that the court can order lump sum payments in guardianship and minors proceedings where there are specific needs to meet.  The court is not restricted to the granting of a single lump sum, but may grant several lump sums as confirmed by the Court of Appeal in their previous decision in this case.[1]

14.  On the other hand, whilst accepting that the court does have power to grant orders on litigation funding, Mr. Chan for the father submitted that such jurisdiction could only be exercised under section 13(3) of GMO, which provides for interim orders on maintenance to be made:

“(3) On an application under section 10 the court may, in any case where it adjourns the hearing of the application for more than 7 days, make an interim order, to have effect until such date as may be specified in the order and containing –

(a) provision for payment by either parent to the other, or to any person given the custody of the minor, of such periodical payments towards the maintenance of the minor as the court thinks reasonable having regard to the means of the parent on whom the requirement is imposed; and

(b) where by reason of special circumstances the court thinks it proper, any provision regarding the custody of the minor or the right of access to the minor of either of his or her parents,

but an interim order under this subsection shall not be made to have effect after the end of the 3 months beginning with the date of the order or of any previous interim order made under this subsection with respect to the application, and shall cease to have effect on the making of a final order or on the dismissal of the application.

…”

15.  It is Mr. Chan’s submission that an order on legal costs provision is necessarily dealt with on an interlocutory basis, while lump sum orders (under section 10(2) of GMO) are final orders which could only be made by agreement or after trial.  In granting lump sum orders, the court has to be satisfied that the sum(s) incurred or to be incurred are reasonable which is only possible if either the parties agree on them, or failing which upon the court’s adjudication after considering the parties’ evidence.  He further submits that legal costs provisions are payments “on account”, meaning that they will be taken into account later, including by way of set-off where appropriate.  The same cannot be said for lump sum orders made under section 10(2) of GMO.

My Views

16.  In this regard, I note from WGL v ASB [2]which was a similar case on litigation funding but heard in the Court of First Instance, in which Mr. Chan was acting for the applicant in that case.  In the judgment, Hon B Chu J gave an analysis of the differences between the Hong Kong and English provisions concerning financial reliefs for children born outside wedlock.  It was then stated at paragraph 9 of the Judgment, when it came to the issue of litigation funding, that:

“9. …Notwithstanding these discrepancies, neither counsel disputed that this court has jurisdiction to make a costs allowance order under sections 10(2)(a) or (b) for the benefit of a child, or ILB in the present case….”

It seems that Mr. Chan’s previous stance in WGL v ASB was quite different.

17.  Be that as it may, I note that the issue on whether a litigation funding order should be made under section 10(2) or 13(3) was not fully argued in WGL v ASB,and in the present case, counsel have not cited any clear binding authorities on this point.  After hearing counsel, I accept Mr. Chan’s present submission that if the order on litigation funding is granted under section 10(2) of GMO, the court must be satisfied that they are expenses reasonably incurred or to be incurred, which is, failing the parties’ agreement, an impossible exercise before the full consideration of the evidence.  On the contrary, if the order is to be granted under section 10(3) as an interim order, the usual broad-brush approach can be adopted and there is no need to go into the evidence in detail.  By this analysis, I accept that a section 10(2) order must be a final order, subject only to appeal or a future variation if change of circumstances, whereas a section 13(3) order is only an interim order which can be properly adjusted or taken into account after the final adjudication of the claim.

18.  I am further aware that the wordings of section 10(3) may impose a period of 3 months for such an interim order.  But as pointed out by Mr. Chan, the accepted practice is to treat such period being automatically extended saving the parties’ trouble in coming back to court every 3 months, provided that the court should consider such a longer period is indeed justified.

19.  Based on the above discussion, I am satisfied that a litigation funding order should be made under section 13(3) instead of section 10(2) of GMO.

Should litigation funding be allowed, and if yes, how much?

20.  Having ruled on the legal basis upon which a litigation funding order could be made, I now come to consider whether such an order should be made in the present case, and if made, the quantum of such an order.

21.  It is common ground that in considering whether such a litigation funding order should be made, the principles as set out in Currey v Currey [3] are applicable, despite the fact that these are not matrimonial proceedings (see R, ER v H, IF[4] at §11 ). Those principles are:

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

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

(2) That she can provide no security for borrowing, or none which can reasonably be offered (at para [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.”

No Skeleton Bill of Costs

22.  Before we proceed to discuss the mother’s application for litigation funding by reference to the 4 Currey principles, I note from Mr. Chan’s written submissions that his first complaint concerns with the lack of a proper skeleton bill from the mother.  I was referred to HH Judge Melloy’s case in YS v TTWD [2011] HKFLR at 447 §27, in which the learned Judge cited the Court of Appeal decision in K v K[5]:

“Ms. Yip complained however (and with some justification it seems to me) that the wife was not K v K compliant in that there was no skeleton bill of costs or any real indication of what she was seeking or why…. In K v K, CACV N0.80, 31 August 2010, Rogers VP said

‘It seems to me that the appropriate course would be for a court to be told what the foreseeable anticipated costs are likely to be. That can be done in much the same way as the detail in which a court is told when security for costs is asked for. In other words, not an elaborate bill of costs, but a simple back of the envelop type bill of costs itemizing out what counsel’s fees are likely to be and what the solicitor’s expenses are likely to be. That can be done in a very simple sort of way but not in a complicated sort of way. Then the court should try and make the appropriate order. If it is to be on a monthly basis, the order should come to an end when it is foreseen that the expenses would be fully covered.’ “

23.  I was further referred to the father’s 3^rd Affirmation dated 12 July 2019 at §17 (B/168) in which he stated that:

“17. I cannot verify how much out of the HK$1,427,360 stated in [the mother]’s Form H dated 4 April 2019 was specifically related to the parties’ respective applications on variation of maintenance, as are claimed in [the mother] ‘s Current Summons for Litigation Funding. Without further clarification, it will entirely be unjustified for me to pay HK$500,000 for the outstanding legal fees in association with [the mother] ‘s Summons for Variation of Maintenance, and my summons dated 17 May 2019.”

24.  It was submitted that the mother was made aware of the father’s concerns in this regard, but she did not bother to address this issue in her latest 24^th Affidavit prepared in September 2019.

My Views

25.  I note that the mother’s solicitors did lodge the mother’s costs schedule on 13 September 2019 which was divided into 2 parts.  The first part concerns with costs from 1 January 2018 to 30 August 2019.  The second part concerns with costs after 30 August 2019 to 31 October 2019.  There was no explanation on why the demarcation was set on 30 August 2019.  Furthermore, for the costs incurred before 30 August 2019, there was also no explanation on why some of those costs were quoted on a monthly basis but some were not.

26.  I was reminded by Mr. Chan that we are here to deal with litigation funding for the wife so as to allow her to proceed with her claim for variation and to defend the father’s cross claim.  It also has to be borne in mind that when the previous costs of the mother being incurred, some of them were related to her unsuccessful interlocutory applications with adverse costs orders against her. Therefore, the quotation of all her previous costs is not helpful at all in identifying the real costs position of the mother, as far as her prospective costs are concerned.

27.  Having said the above, I note that from Part 2 of the costs schedule that the mother did quote her estimated costs from 30 August 2019 to 31 October 2019 in the sum of $201,400 in which $73,000 of counsel’s costs were included.  Although I accept that this part of the costs schedule can be improved upon by, for example, providing more details on the solicitors’ costs to be incurred, I consider this to be an acceptable skeleton bill of costs to be relied upon by the court in arriving at a proper order on litigation funding, if any.

Unreasonable Litigation Conduct

28.  Another complaint of Mr. Chan was the mother’s unreasonable litigation conduct.

29.  In his Written Submissions, Mr. Chan referred me to various passages in HH Judge Bruno Chan’s judgments about the unreasonably high level of legal costs being incurred in this case.  I do not intend to go into the details of those costs, not only that they are already history but more importantly, the same criticism applied not only to just one party, but to both of them.

30.  It is regrettable to note that the learned Judge’s comments have fallen on deaf ears.  I note that the mother has incurred legal costs in these applications in the sum of $2,079,746 up to 30 August 2019 (i.e. within a period of 20 months), which does not even include the present hearing on 18 September 2019.  That is a huge sum of money if compared to Z’s maintenance order in the sum of $118,000 per month, bearing in mind that we have yet to reach the discovery hearing, not to mention the FDR. 

31.  On the other hand, the father has also incurred substantial legal costs of $1,776,181.50 up to 6 September 2019, which is not a small sum either.  According to his estimate, he needs to spend another $470,000 till the end of the applications, bringing his total costs to about $2,246,181.50.  Although he may argue that part of the costs incurred was due to the unsuccessful interlocutory applications lodged by the mother in which he was actually granted costs by the court, I am still of the view that the costs incurred by the father were far too high.  I think it is high time for the parties to rethink about their litigation strategies.  The combined legal costs of $3,800,000 incurred so far can benefit Z a lot, if they are channeled into proper use, instead of into the pockets of their respective legal representatives.

32.  In this respect, I think the proposal on the appointment of SJE by the father may be a right step.  But as the mother needs time to consider the proposal, I would refrain from further comments at least until the next hearing on 31 October 2019. 

33.  Another related submission by Mr. Chan is that despite the accumulation of the mother’s legal costs of $2,079,746, which were confirmed to be outstanding by Ms. Booth on behalf of the mother, there was no explanation on what arrangements have been made so as to allow such default to continue.  I think there may be some force in this criticism. However, I have to remind myself that we are still at the interlocutory stage dealing with an interim application for litigation funding of which a broad-brush approach would be adopted.  It may not be appropriate for this court to read too much into this and come to a conclusion that the mother must have financial assistance from other sources, be they from family or friends. 

34.  Having considered the above, and in order for the mother to obtain proper legal advice and to have some equality of arms before the court, I am convinced that the mother should be entitled to some form of litigation funding provided that the 4 principles as laid down by Currey could be satisfied.  

35.  I now turn to the discussion on the 4 Currey principles.

The Currey Principles

36.  Just a quick reminder of the 4 Currey principles:

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

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

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

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

The mother’s financial resources

37.  As can be seen from the mother’s Form E (B/18-41), it is the mother’s case that she does not have income (being a student), resources or means to raise capital to pay her legal fees.  She has confirmed on many occasions that she has no other source of income other than the maintenance paid by the father.

38.  The father has raised queries on such propositions pointing out that the mother’s legal representation seems to be unaffected despite the accumulation of huge outstanding legal fees, suggesting that there may be other source of financial assistance available to her.  I have dealt with such query in paragraph 33 above.  All in all, I am satisfied at this interim stage that the mother has no financial resources or assets that can reasonably be deployed to pay for her legal costs. 

Security for borrowing

39.  After considering the mother’s Form E, I am also satisfied that, at least at this interim stage, the mother could provide no security for borrowing, or none which can reasonably be offered for such purpose.

Obtaining legal services by offering a charge on the outcome of the litigation

40.  There were no discussions on this option by either counsel in their submissions. That is the case because I think such an arrangement is almost unheard of in the Hong Kong context.  In any event, no objection was raised on this aspect by counsel for the father and I will say no more on this.

Whether the mother could have obtained legal aid

41.  I think this is the more contentious issue under the Currey test.

42.  It is the father’s case that in view of the mother’s claim of lack of financial resources, she could have applied for legal aid.  Apparently, the mother has failed to do so and therefore, she should not be allowed litigation funding.

My Views

43.  I think we have to take a more realistic view of the matter.  The mother is now residing in London taking care of not only Z, but also another minor (“N”) born from another relationship.  Both these 2 minors are now attending school and need the full time attention of the mother.  There is no suggestion that a legal aid application can be done by post, or through email, or through a firm of solicitors representing the applicant.  It is just unrealistic to expect the mother to return to Hong Kong simply for the purpose of making an application for legal aid.  Moreover, there is no offer from the father to pay for her air tickets and hotel accommodation for such purpose.  Under these circumstances, I think it is unfair to criticize the mother in not making an application for legal aid.  After all, there is no dispute that her previous legal aid application has been turned down and I see no significant change of circumstances that would change the result of another legal aid application.

44.  Based on the above discussion, I am of the view that the mother has satisfied the Currey test for litigation funding and the only other issue is the quantum, to which I now turn.

The amount of litigation funding

45.  There is no dispute that the order on litigation funding should be structured, especially as to its duration, so as to best encourage the receiving party to act reasonably, looking in good faith to try and reach settlement.  Therefore, if such a litigation funding order is to be made before the FDR, it may well be wise for it to be granted up to that hearing: HJFG v KCY [2012] HKFLR 27 at §§82 & 85.

46.  Although a FDR hearing is yet to be fixed pending the decision on whether a SJE is to be appointed, I have checked my diary and it seems that a date in February or March 2020 is likely to be available. Therefore, I am minded to granted a litigation funding order up to the month of March 2020 and see how it goes from there.

47.  The next issue is the reasonable amount of litigation funding that I should grant so as to allow the mother to carry on these proceedings up to March 2020.  I note from the mother’s schedule of costs that her estimated costs from 30 August 2019 to 31 October 2019 is about $200,000.  The estimated costs of the father from 18 September 2019 to 31 October 2019 is about $270,000.  Doing the best as I could, I would say that a sum of about $400,000 as litigation funding for the mother up to March 2020 is reasonable.  By reference to this figure, I am minded to grant the mother litigation funding by way of interim maintenance in the sum of $35,000 per month payable on 4th day of every month backdating to 4 April 2019.

Orders

48.  Based on the above reasons, I hereby grant an interim maintenance order for litigation funding for the mother as follows:

(1)     A sum of $35,000 per month payable on 4th day of every month starting from 4 October 2019 up to 4 March 2020;

(2)     A lump sum of $210,000 being backdated payments from 4 April 2019 to 4 September 2019 payable within 14 days from the date of this order;

(3)     The above payments are to be made directly to the solicitors representing the mother; and

(4)     The above payments on litigation funding are to be taken into account and subject to a set-off, if appropriate, on the parties’ costs at the end of the present proceedings.

Costs

49.  Costs to follow event. The mother has to come to court before she could have an order on litigation funding.  She should have the costs of the application, including costs reserved with certificate for counsel.  The costs order will be in the form of an order nisi which will be made absolute after the expiry of 14 days from the handing down of this Judgment.

[1] IDC v SSA [2013] HKFLR 61

[2] HCMP 489 of 2013, Date of Judgment: 30 November 2017

[3] [2006] EWCA Civ 1338

[4] [2018] HKFC 229

[5] CACV No. 80, 31 August 2010 unreported