LTF v. SCW

FCMC 9973 / 2016

[2018] HKFC 180

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 9973 OF 2016

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D E C I S I O N
(Legal Costs Provisions)

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Background

1.  The Petitioner is the Wife and the Respondent is the Husband.    For the sake of convenience, I will refer to them as “W” and “H” respectively in this Decision.

2.  Parties married in Hong Kong in 1995.  W is now at the age of 41 and H at the age of 43.  There are 5 children born out of the marriage who are at the age of 22, 21, 17, 11 (twins).  At the time of this hearing, the eldest and second eldest children are in their tertiary education, the third and fourth children are in their secondary education and the youngest child in Primary 5. 

3.  On 13/8/2014, W issued a petition under FCMC No.10790/2014 for divorce relying on the fact of “Unreasonable Behaviour”.  Subsequently, parties were able to reach consensus for the marriage to be dissolved by way of a “2-Year Separation” divorce.  The present proceedings were then issued on 8/8/2016.  Decree Nisi was granted upon the present proceedings on 16/1/2018.  The marriage lasted for 23 years.

4.  As early as 27/10/2014 under FCMC No.10790/2014, parties had agreed that H would provide W with a monthly sum of HK$18,000 towards W’s maintenance pending suit and children’s interim maintenance.  There is no dispute that the parties and the children all along are living under the same roof though H from time to time had to travel to Mainland China for business.

5.  On 20/10/2017, W issued a Summons seeking legal costs provisions in a lump sum of $500,000 or alternatively, a monthly sum of $55,000 until Financial Dispute Resolution (“FDR”), and such provision either to be paid by H or alternatively, to be withdrawn from a joint account with H at the Bank of China (“BOC” account).

6.  On 24/11/2017, H issued a Summons seeking for each party separately to withdraw from the BOC account a sum of $500,000 for temporary use and then to be accounted for upon conclusion of the ancillary reliefs.  H’s stance, as confirmed by his Counsel, is that he would not contest W’s application for withdrawal of $500,000 provided that he may also be allowed to withdraw the same amount from the BOC account.

7.  Thus, there is W’s application followed by H’s cross application to be decided at this hearing.

The applicable law and legal principles

8.  There is no issue between parties that Section 3 of the Matrimonial Proceedings and Property Ordinance, Cap.192 (“MPPO”) empowers the Court in maintenance pending suit applications to make financial orders to include legal costs contribution.

9.  The English Court of Appeal in the leading case of Currey v. Currey [2006] EWCA Civ 1338 sets out the guiding principles on application for legal costs provisions in matrimonial cases.  At paragraph 20 of the Judgment where Wilson LJ said :-

“In my view the initial, over arching 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.”

10.  In the Hong Kong Court of Appeal case of HJFG v. KCY [2012] 1 HKLRD 95 where Mr. Justice Hartmann JA (as he then was) said :-

“74.  Whatever may have been the position ten years ago, it is no longer disputed that the words of s.3 of the Ordinance are wide enough to empower the Hong Kong courts to include an element towards a party’s legal costs in an order for maintenance pending suit: see KGL v. CKY [2005] 1 HKFLR 215.

75.  In submitting that, in light of existing authority, the wife had not made out a claim for a contribution towards her costs, Ms Stone relied principally on guiding principles enunciated by Wilson LJ, as he then was, in Currey v. Currey [2007] 1 FLR 946.

76.  Those principles have been adopted in Matrimonial Division of the District Court: see H v. H [2007] HKFLR 311. To my knowledge, however, they have not been adopted in this Court or the Court of First Instance.

77.  Accordingly, before Jeremy Poon J, the guiding principles set out in Currey v. Currey, while of persuasive value, were in no way binding on him.

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 were 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.

80.  In the view of Wilson LJ, the initial, overarching inquiry should be 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.

81.  As Wilson LJ pointed out, satisfying that condition alone may not be sufficient. In the broad exercise of discretion, a judge may consider that other factors must come into play :

The subject matter of the proceedings will surely always be relevant; and, insofar as it can safely be assessed at so early a juncture, the reasonableness of the applicant’s stance in the proceedings will also be relevant.

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. Applicants 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 :

The FDR appointment is a watershed and all reasonable inducements to both parties there to negotiate positively in the light of informal judicial indications should be in place. The knowledge of a spouse in receipt of a costs allowance that, absent settlement at or in the immediate aftermath of the FDR, she will have to apply for a further allowance, which may or may not be granted, seems to me to amount only to a reasonable inducement, as opposed to improper pressure, to reach settlement.

83.  In this regard, as Wilson LJ pointed out, if the FDR hearing fails, it will be for the new judge, on the basis of material properly before him – for example, rival open offers of settlement – to determine whether a new allowance for legal costs should be granted and, if so, in what amount.

84.  Those observations accord with my understanding of the Hong Kong FDR procedures.

85.  Wilson LJ spoke of a legal costs allowance being structured, especially as to its duration, so as to best encourage a spouse in receipt of the allowance to act reasonably, looking in good faith to try and reach settlement. In KGL v. CKY (page 219), this Court adopted the same fundamental reasoning albeit by reference to the spouse paying the allowance :

There is no reason why public funds should be expended to fund litigation when there are ample resources available within family funds. With proposals for more active juridical involvement in pre-trial proceedings to restrict the incidence of costs this is in line with the modern approach. The court can keep better control of litigation if it’s funding is at least in part within its purview. The party that controls the funds will be less willing to use them on unnecessary interlocutory procedures if he or she will have to provide funding for the                                     other side.”

11.  In the case of H v. H, FCMC No.1969/2007 where His Honour Judge Bruno Chan at paragraph 44 of his Judgment sets out the conditions for costs allowance as follows :-

(1)  That the applicant has no assets, or none that can 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.

12.  With these principles in mind, I now start to consider the evidence before me and the parties’ submissions.

Discussion

13.  I will first deal with W’s Summons.

14.  W estimated her legal costs required to bring the matter up to the stage of Financial Dispute Resolution (“FDR”) amount to approximately HK$700,000.  Such estimate was not contested by H though H would also seek to withdraw the same amount of HK$500,000 from the BOC account same as what W had requested.

15.  H’s main contention rests with W having the ability to pay her legal costs from her own savings accumulated out of the interim maintenance of $18,000 paid by him over the years.  H estimated that W would have accumulated at least HK$ 1 million which had not been disclosed.  The other contention rests with his inability to pay W’s legal costs provisions.

16.  I find H’s first contention completely unmeritorious.  The interim maintenance of HK$18,000 only started from October 2014 which, when counted up to this trial, had lasted for around 45 months with a total sum of only HK$810,000 (that is, HK$18,000 x 45 months) having been paid.  Such interim maintenance was to cater for W and also 5 children of the family financial needs such as food, household and sundry expenses.  Putting H’s case to the highest and assuming W did not have to spend a single dollar and cent out of such interim maintenance over the past 45 months and had placed the whole sum of HK$810,000 in bank savings, it is not possible for W to have earned HK$190,000 interest to accumulate at least HK$ 1 million as H now contended.  H was not able to produce any single piece of evidence except his bare allegation for such imaginary and unrealistic contention that W had accumulated HK$ 1 million out of the interim maintenance that he had paid.

17.  I also find H’s other contention as to his inability to pay fails.  In my view, H’s financial ability or inability to pay W’s legal costs provisions had never arisen as an issue in W’s application.  It is always W’s case that any such legal costs provisions could be withdrawn from the BOC joint name account where there was a credit balance of around HK$1,302, 629.34 (as at 7 September 2016) rather than insisting that H has to pay out from his other savings or monthly income.  This is in fact also H’s position in terms of his own summons.  Thus, H’s ability to pay is not an issue which calls for consideration in the present application.

18.  Over the years W was and is a housewife with no earned income.  W’s personal assets disclosed in her Form E, leaving aside the value of the joint ownership landed property and savings in the bank accounts, was only approximately HK$448,631.07 which consists of bank savings around HK$233,422.04 (HK$50,826 + HK$182,596.04), insurance policies of HK$253,791.08 and MPF of HK$1,408.63.  There is not much dispute by H about W’s disclosed personal asset values save and except the contention of W having accumulated but undisclosed HK$ 1 million out of the interim maintenance that he had paid her over the years.  Such contention had already been rejected outright by this Court.  Having said, I find W does not have the means to provide for litigation funding up to FDR and that legal costs provisions for W are wanting.

19.  I will now consider whether W has satisfied the 4 limbs or conditions set forth in the case of Currey v. Currey (supra) for her legal costs provisions (the “Currey test”).

20.  Though there are cash savings in bank accounts for W to deploy for funding legal services, I find it unreasonable for W to deploy the last bits of her savings for funding legal services; in particular and undisputedly, that H had disposed of 3 other landed properties under his sole name shortly before and during the course of these proceedings and had received substantial proceeds out of the transactions.  It is H’s admitted case that those proceeds, after deducting mortgages and expenses, amount to the sum of HK$7,693,799.50 of which he had allegedly either invested in a business venture in the PRC which had failed or had lost through gambling in Macau. There was also a part of the net proceeds of which the whereabouts are in issue. H did not deny that W had not been given any part of the said net proceeds of sale. 

21.  In my view, given the fact that this is a long marriage of around 23 years (up to Decree Nisi in 2018), those proceeds of sale which had once gone into the hands of H and now “spent” might have formed part of the family assets after determination of the parties’ ancillary reliefs of which W might have a share of it.  On balance and given careful consideration of all the circumstances, I find it unfair and unreasonable that W should deploy what she now has on hand to fund litigation services whereas H could have, or possibly had already, utilised the net proceeds of sale or part of it to fund his side of this litigation.  Thus, I find W satisfied condition (1) of the “Currey” test. 

22.  Since W was and is a housewife for years with no earning income, it is unlikely if not impossible for her to obtain loans from bank or financial institutions.  Although she is one of the joint owners of landed property worth around HK$27,000,000, it remains unclear and uncertain that she could reasonably offer it as security for borrowing given the fact that the other registered owner being H and both of them are now in financial dispute.  Hence, I also find W satisfied condition (2) of the “Currey” test.

23.  For conditions (3) and (4) of the “Currey” test, it is unlikely that she could reasonably obtain legal services by arranging a “sears tooth” arrangement with her lawyers.  In my view, and indeed I am entitled to take judicial notice, the fact that W is one of the joint owner of landed property worth around HK$27,000,000 and also a joint holder of the BOC account with over HK$1 million in credit, would render her unable to obtain legal aid.  Thus, the absence of any application for legal aid or attempt to do so by W so alleged by H is neither here nor there.  I also find W satisfied conditions (3) and (4) of the “Currey” test.

24.  Now I will deal with H’s Summons.

25.  As rightly pointed out by W’s Counsel Mr. Leung, H did not state clearly in the wordings of his Summons the purpose of seeking withdrawal of HK$500,000, whether it is for his interim maintenance or any other specific purpose.  In H’s 2^nd Affirmation in Chinese at paragraph 5 filed in support of the Summons, he deposed the reason being that his financial situations could not cope with his needs (“本人的經濟狀況不敷應用”) and he then made reference to the following :-

(a)  Loss in his metal and aluminium business, namely CN Aluminium Engineering Company Limited;

(b)  No other income sources;

(c)  Loss in his PRC investments;

(d)  Breakdown of the profit and loss in his sale and purchase of 3 landed properties in Hong Kong between 2013 and 2014;

(e)  The landed properties in PRC;

(f)  The Order dated 27/10/2014 under FCMC No.10790/2014;

(g)  Breakdown of bank accounts of himself and his company;

(h)  Explanation for the credit balances in bank accounts under paragraph (g) above.

26.  At paragraph 5(h)(iii) of the Affirmation, H deposed that he had not yet paid his lawyers’ fees of HK$104,700 calculated up to 7/9/2017.  It was anticipated that a further sum of HK$51,000 would be required for his lawyers to proceed this case to the FDR hearing.  Thus, his liability and potential liability for legal costs up to FDR would be around the region of HK$155,700 (that is, HK$104,700 + HK$51,000).

27.  Given careful consideration to what was said by H in his Affirmation as a whole, and it is also undisputed by W, that H seemed to be seeking maintenance pending suit for himself which also covers legal costs provisions.

28.  The legal principles governing maintenance pending suit are well settled.  The Court has a wide and unfettered discretion in the subject matter provided that the overall result is fair and reasonable.  The Court would only be required to examine parties’ means and needs on a so called “broad brush” approach since any over provisions or under provisions would be made good at the ancillary reliefs trial.  There will be no findings of fact at this stage on the matters set forth in the parties’ affirmation and also their credentials would not be tested through cross examination.

29.  At paragraph 5(a) of his 2^nd Affirmation, H purported to say that notwithstanding he had received Director’s remuneration for the past 6 years between 2012 and 2017 totalling HK$2,429,250, the audited financial loss of his business for the same period was HK$1,183,732.08.  Thus, by subtracting these figures and divided by 72 months (that is, 6 years), his average monthly income was only HK$11,677.58.

30.  In my view, such submission cannot be considered as sufficient evidence to show that H himself was in financial hardship or difficulty.  Given the fact that his business venture is a limited liability company, which is a separate legal entity in law, any gain or loss of the company’s revenues recorded in the books and accounts could not be equated as H’s personal gain or loss.  To make a direct and simple mathematical subtraction of the company’s revenue loss from directors’ remuneration is over simplistic and could not be accepted as sufficient evidence to show H’s personal financial ability.  In any event, for a company allegedly to have suffered financial loss continuously for 6 years but nonetheless capable of paying Directors’ remuneration for the whole period of 6 years speak for itself.  Thus, I find the alleged monthly income of H at HK$11,677.58 achieved by way of the simple mathematical subtraction could not reflect H’s genuine average income. In any event, as I have said above, H’s ability to pay is not an issue here.

31.  At paragraph 5(b) of his 2^nd Affirmation, H’s case that he did not have other source of income could only be further explored at trial; in particular, there is W’s case of unexplained disposal of part of the net proceeds of sale by H and also some “dubious” monetary transactions.  The Court would not accept the mere “say so” of the maintenance payer and, in appropriate circumstances, could err in favour of the payee.

32.  At paragraph 5(c) of his 2^nd Affirmation, H referred to the loss in investment in a PRC company.  For the period from December 2013 to December 2015, the PRC company recorded a loss of RMB 5,925,837 after H had invested RMB 6 million (roughly HK$7.5 million) between 2013 and 2014.  H’s submission must fail for 2 reasons.  First, any loss in investment, even if proved to be genuine, would not be accepted as any kind of ‘financial need’ justifying that party to then seek maintenance pending suit.  Secondly, H could not explain why the Court should allow him to withdraw HK$500,000 now in 2018 for his assertion that he had made an investment in 2013/2014 and which had turned out to be a lost in 2014/2015.  I find against H on such submission.

33.  At paragraph 5(d) of his 2^nd Affirmation, H tried to account for the ‘disappearance’ of the net proceeds of sale of 3 landed properties in Hong Kong totalling HK$7,693,799.50 by referring to the investment loss in the PRC company under paragraph 5(c).  Since this Court had rejected H’s submission under paragraph 32 above, this submission also falls apart as a reason for seeking maintenance pending suit.

34.  At paragraph 5(e) of his 2^nd Affirmation, H was providing information as to the 2 landed properties in PRC rather than setting out any legitimate reasons for seeking maintenance pending suit.  Such submission is not accepted by this Court.

35.  At paragraph 5(f) of his 2^nd Affirmation, H referred to the interim maintenance of HK$18,000 and other additional payments that he had made towards utilities, management fees, domestic helper and education costs of the children around HK$23,310, thus totalling expenses of HK$41,310 (that is HK$18,000 + HK$23,310) a month.  Upon reviewing the terms of the Order in FCMC No.10790/2014 dated 27/10/2014, it was H who had agreed to pay such additional items on top of the HK$18,000 interim maintenance.  Thus, H could not rely upon his own agreement to pay as any form of financial burden or hardship and to make it as a reason for seeking maintenance pending suit.  Such submission is not accepted by this Court.

36.  At paragraph 5(g) of his 2^nd Affirmation, H sets out the balances of his own bank accounts and that of his limited company’s bank accounts showing a total credit balance of HK$414,615.83.  For the reasons set forth under paragraph 30 above which I do not intend to repeat here, I find such credit balance could not be supportive of H’s case for applying maintenance pending suit.  Moreover, H’s own case of his liability and potential liability for legal costs at HK$155,700 (see paragraph 26 above) would be well covered by such credit balances thus disentitling him from seeking any legal costs provisions by way of maintenance pending suit.  

37.  At paragraph 5(h) of his 2^nd Affirmation, H attempted to explain the credit balance of HK$414,615.83 could not be taken as his surplus income.  Given careful consideration to what was said by H, I find the explanation there could not be considered as legitimate reason for seeking maintenance pending suit.

38.  As to paragraphs 6 and 7 of his 2^nd Affirmation, H only sets out the status of his bank accounts and estimated value of landed properties.  These are nothing more than figures rather than any legitimate grounds for seeking maintenance pending suit.

Conclusion

39.  For all the above reasons, I accept W’s application and dismiss H’s application.  I find it fair and reasonable for withdrawal of lump of HK$500,000 instead of monthly sums of HK$55,000 for W’s legal costs provisions up until FDR.

40.  I also decided that W should be granted the costs of her application and also the costs of H’s application.

41.  I also grant Certificate for Counsel.

Orders

42.  I now make the following Orders :

(1)  The Petitioner (W) do have leave to withdraw a sum of HK$500,000 from the joint name bank account with Bank of China (“BOC Account”), that is, account number 019xxx102xxx16 within 14 days from the date of this Decision as maintenance pending suit for her legal costs provisions;

(2)  The Respondent’s (H’s) Summons dated 24/11/2017 be dismissed;

(3)  The Respondent (H) do pay the Petitioner (W) costs of W’s Summons dated 19/10/2017 and also costs of H’s Summons dated 24/11/2017, to be taxed if not agreed;

(4)  There be Certificate for Counsel.

43.  This is a Costs Order Nisi which would become absolute if no application to vary the same is filed within 14 days from the date of this Decision.