Ww v. Lln Formerly Known As Lsm

CACV 524/2019

[2020] HKCA 178

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 524 OF 2019

(ON APPEAL FROM FCMC NO 2996/2018)

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Before: Hon Lam VP and Au-Yeung J in Court

Date of Hearing: 14 January 2020

Date of Reasons for Judgment and Decision on Costs: 25 March 2020

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REASONS FOR JUDGMENT

AND

DECISION ON COSTS

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The Court:

1.These are the reasons for the judgment of this Court.

Introduction

2.Although the parties are divorced, we shall call them husband and wife for ease of reference.

3.This was the husband’s appeal against the Family Court’s order requiring him to pay litigation funding together with a backdated sum.  His grounds of appeal are twofold:

(1)  That the learned judge erred in allowing litigation funding of HK$50,000 per month without any scope or limit (temporal or in relation to the stage of proceedings); and

(2)  That the learned judge erred in allowing the backdating of the monthly payments in the sum of HK$300,000 from 1 February 2019 to 1 July 2019.

4.After hearing submissions, we gave leave to the wife to file her 4^th affirmation (“the 4^th affirmation”), the 2^nd affirmation of her solicitor, Ms Chan Lai Hung (“Ms Chan”) (“the 2^nd affirmation”), to correct an alleged mistake as regards costs estimates in the Form H placed before the Judge (“Form H (1)”).  The affirmations also addressed an issue raised by this court as to availability of a property in UK to fund the wife’s legal costs. 

5.We also allowed the appeal and set aside the order on litigation funding below.  We upheld the Judge’s order on litigation funding in the amount of $50,000 per month but specified that it should be up to and including the hearing for FDR.  We also ordered the back-dated award to be HK$155,000.  Here are our reasons.

Background

6.The parties were married in 1993.  They have 2 sons, who are now aged 25 and 23 respectively.  The petition for divorce was filed by the husband first on 27 April 2018 on behaviour ground.  A fresh petition was later filed by him on 17 July 2019 on the ground of 2-year separation.

7.On 30 January 2019, the wife issued her summons for maintenance pending suit (“MPS application”).  She asked for, amongst others, HK$50,000 as litigation funding per month from 1 March 2019.

8.The husband opposed the application.  He claimed that the parties had agreed to separate their finance since 2005 and hence he should not be responsible for the wife’s expenses.  He claimed that the wife was and still is a director of a few private companies and her company bank accounts, which have not been disclosed to date, were still active.  He also claimed that the wife could have used the UK Property to raise funds for litigation.

9.The Forms E filed by the parties before the Judge showed that the husband had net assets of about HK$38.58 million and income of HK$70,000 per month.  The wife claimed to have negative equity, her debts being about HK$24 million from her failed business in Mainland China.  Each party made cross allegations of lack of full and frank disclosure against the other.

10.Before the Judge was Form H (1) dated 13 June 2019 wherein Part 1 showed estimated costs of HK$238,000 incurred up to and including the disposal of the MPS application.  It was not signed by the wife though signed by the solicitor.  It was only placed before the Judge as an attachment to counsel’s submissions of the same date. There were also figures under Part 2 (for future costs up to FDR) adding up to a total of $353,000; and figures under Part 3 (for future costs from FDR to Trial) adding up to a total of $335,000.

11.The Judge placed reliance on those figures and found that the wife’s estimated total costs for the ancillary relief proceedings (HK$926,000) were reasonable.  He ordered the husband to make a monthly payment of HK$50,000 to her solicitors directly.  The Judge ordered the litigation funding to begin from the month immediately after the date of the application, i.e. 1 August 2019, as evidently there were still funds in the wife’s bank account before that time.  He ordered a backdated sum of HK$300,000 to run from 1 February (the month immediately following issue of the MPS Application) to 1 July 2019.

12.In the application for leave to appeal before the Judge, it was the wife’s stance that there was nothing wrong for the Judge to order the backdated sum of HK$300,000 despite the fact that she had only spent HK$238,000, as the excess was “actually a kind of rain check for [the wife] to handle situations like this [leave application]”.

13.On 1 November 2019, in the course of the leave application before this court, the wife disclosed, for the first time, that there was a “serious mistake” in the figure of HK$238,000 provided to the Judge in Form H (1). In light of that, the Court did not proceed with the rolled up hearing and instead only addressed the question of leave to appeal at the hearing on 8 November 2019.  Leave to appeal was granted for an appeal to be brought in respect of litigation funding and directions were given for further affirmations to be filed.  See WW v LLN [2019] HKCA 1278.

14.Ms Chan, explained on affirmation that the HK$238,000 figure was an “inadvertent mistake”.  Her clerk had adopted an old Form H which was prepared for the First Appointment Hearing originally scheduled for 31 January 2019. The clerk forgot to review the estimated costs and simply changed the date to 13 June 2019 to prepare Form H (1).  As Ms Chan was very busy, she did not check the contents of Form H (1) before it was filed with counsel’s submissions for the MPS application.

15.Ms Chan affirmed that since the figures on a Form H were “only estimates”, she did not put much thought on them and was not aware of the wrong estimates at the material time.   It was only in reviewing the documents for the leave application before the Court of Appeal that she discovered that the figures on Form H (1) were inaccurate.  After discussion with counsel, Ms Chan prepared another Form H (dated the same date of 13 June 2019, presumably representing the true position as at that date) (“Form H (2)”) and produced the same in her 2^nd affirmation of 18 November 2019.

16.Comparing with Form H (1), the figures under Part 1 in Form H (2) added up to $393,000, an increase of $155,000.  Ms Yue, counsel for the wife, confirmed that that amount represented the costs for preparing for paper disposal of the MPS application.  The figures in Part 2 and Part 3 were also increased to $510,000 and $1,036,000 respectively. Ms Chan did not proffer any explanation for these increases.  Like Form H (1), it was signed only by the solicitor and not by the wife.

17.Solicitors for the wife lodged another Form H (“Form H (3)”) dated 13 November 2019 for the 3^rd First Appointment Hearing on 14 November 2019.  A copy of Form H (3) was produced by the husband in his 5^th affirmation.  The estimated costs up to this hearing as set out under Part 1 of Form H (3) were HK$765,000.  Apparently the estimated costs of this appeal was added under Part 1 of Form H (3).  The total figures under Parts 2 and 3 remained the same as per Form H (2).

18.The issues raised by the husband in this appeal were:

(1)  The need for litigation funding;

(2)  The lack of reliable evidence on quantum in the light of inaccuracies in Forms H;

(3)  The form and duration of the litigation funding; and

(4)  The backdated amount.

19.The wife alleged that the husband unreasonably engaged her in satellite litigation to jack up costs.  He commenced litigation in the District Court on 17 December 2019 to sue her for rent.  The plaintiff and the defendant in the District Court action were family companies but the husband’s conduct caused further financial strain on her.  She asked the court to uphold the Judge’s order on litigation funding.

The need for litigation funding

20.The principles for granting litigation funding are well-established:

(1)  In order to obtain litigation funding, the burden is on an applicant to demonstrate that she cannot reasonably procure legal representation by any other means.  This includes showing that she cannot secure publicly funded legal help at a level of expertise apt to the proceedings.  To the extent that she 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[1];

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

(3)  The period over which costs allowance is to be paid is also relevant.  If the application 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.  If the FDR fails, it would be for the new judge, on the basis of the materials properly before him, to determine whether a new allowance for legal costs should be granted and if so, in what amount.

HJFG v KCY [2012] 1 HKLRD 95, §§80-83; Currey v Currey [2006] EWCA Civ 1338.

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.”

22.The wife claimed that she had already made full and frank disclosure. She claimed that she could not procure legal representation at a level of expertise apt to the proceedings by her own resources.  She has a UK property bought without a mortgage but she claimed it was held by her on trust for the 2 adult sons. 

23.The Judge took a broad brush approach and did not engage himself in deciding the truth of each parties’ assertions.  He held that the case was in the early stage of litigation.  Hedid not think it would be fair to deny the wife’s application for litigation funding before any ruling on the beneficial ownership of the UK Property.  He held that if there should be findings contrary to the wife’s assertions after a full trial, proper adjustment in the final ancillary relief order could always be made.

24.In this appeal, the husband claimed that the UK property was purchased as an investment for rental income.  He alleged, for the first time in the appeal, that the property belonged to him and he intended to pass his assets to the 2 sons equally upon his death.

25.The UK Property has been occupied by the elder son since June 2016.  He was a Cambridge graduate with First Class Honours and is a trainee solicitor.  He has been paying the bills of the property but has not been paying any rent. His girlfriend has been living there with him whilst leasing out her own flat. The husband suggested that the elder son could have moved out to live with his girlfriend or the elder son could rent a flat in London with his income.  The UK Property could also be mortgaged to raise a loan for litigation.

26.We agreed with the approach of the Judge.  In the circumstances of the present case, it was not unreasonable for the wife to allow the elder son to occupy the UK Property whilst he was starting his career in law.  In any case, given the present financial position of the wife as it appeared on paper, it was unlikely that she could procure a mortgage based on the UK Property.  We agreed with the Judge that this was a case where the wife needed litigation funding from the husband.

The lack of reliable evidence on quantum in the light of inaccuracies in Forms H

27.There should be some breakdown of the anticipated costs to support an application for litigation funding: HJFG v KCY, at §§78-79.  The rationale for this requirement was explained by Hartmann JA 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 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, that required some breakdown of her anticipated costs.”

28.In KWTM v NSH,FCMC 14639/2007, Her Honour Judge Chu (as she then was) had this to say in [79] of the judgment of 3 September 2008 concerning the use of costs estimates to support an application for litigation funding,

“There is no prescribed form for an Estimate for Costs in Hong Kong. Practice Direction 15.9, in relation to Estimates for Costs for Ancillary Relief was introduced before the PD 15.11. At present, the estimates for costs provided by practitioners in different cases vary, some are more detailed and some merely a rough sum. In the present case, both H’s and W’s estimates were in the latter category. This matter is not in fact relevant in view of my decision on this issue in this Judgment. I would however, find it helpful in future, if a party wishes the Court to make an order for provision for legal costs, particularly when the amounts involved are high, for some more information to be provided, such as the amount of costs already paid and to be incurred. A skeleton bill is not necessary, but information of the estimated number of hours involved and the charging rate would also be helpful to enable the Court to make a decision on whether the amount sought is reasonable.”

29.That was said in 2008 and in those days, Form H had not yet been prescribed though there was already a Practice Direction 15.11 on FDR.  That Practice Direction was revised and the new version issued on 23 July 2012 prescribed the use of Form H under para 10.

30.Thus, when the Court of Appeal considered the matter in K v K CACV 80/2010, 31 August 2010 (a decision relied upon by counsel for the husband), there was no Form H in use.  At [14], Rogers VP had this to say,

“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 envelope type bill of costs itemising out what counsel’s fees are likely to be and what solicitor’s expenses are likely to be. That can be done in a very simply (sic) 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.”

31.Form H as we now have it does provide for breakdown between solicitor’s costs, disbursements and counsel’s fees.  It seems to us that the information contained in it does meet the requirement of a “back of the envelope type” bill of costs as described by Rogers VP.

32.Form H is designed to be a written estimate of costs incurred and costs to be incurred in the proceedings, so that for each hearing the court and the parties are fully aware of the costs position.  Practice Direction 15.9 highlights the significance of updated information on costs.  In particular, the following is said in this Practice Direction,

“It is, moreover, in the interests of the parties themselves that each should be aware, as early as possible before the hearing, of their potential liability for costs. It has been found that if the parties themselves are made to realise that the value of the assets after payment of costs may be so reduced as to make litigation unjustified a sensible compromise can be effected.”

33.Costs in matrimonial proceedings inevitably diminish the family assets which are available for distribution by way of ancillary relief and reduce the resources available for future maintenance of the children of the family.  This Court has commented on such impacts and the problems arising from disproportionate litigation in the recent judgment of LLC v LMWA [2019] HKCA 347, §30-37.

34.Order 1A of the Rules of the District Court is equally applicable to the Family Court.  See Practice Direction 15.12, §8.  Family judges are aware of the problems of costs in family cases.  The requirement to submit Form H (as prescribed by Practice Direction 15.11, which should also be read together with Practice Direction 15.9) is an important measure to equip the court with the necessary information to conduct FDRs and to exercise its case management power (in particular the case management duty under Order 1A, Rules 4(2)(c), (d), (e), (f), (g) and (h)) to achieve a sense of proportionality in family litigation.

35.Under Order 1A, Rule 3, the parties and their legal representatives are under a duty to assist the court to further the underlying objectives.  The provision of accurate information on costs in Form H should be viewed in this light.

36.A solicitor must prepare Form H carefully as the costs estimates should serve the following purposes:

(i)  Indicate that party’s willingness to give instructions to this solicitor to act and to carry out the steps at the level of fees covered by Form H;

(ii)  Assist that party’s assessment of his/her potential liability for costs of his/her own legal representatives (which may or may not be recovered from the other party);

(iii)  Enable an opponent to assess her/his potential liability for the costs of the other party;

(iv)  Affect each party’s decision on whether to pursue, resist or settle an interlocutory application or the trial; and

(v)  Assist the court’s case management as to whether or not procedural steps taken or to be taken are proportionate to the matrimonial pool of assets.

37.Though the Practice Direction and Form H refer to “estimates of costs”, it does not mean that solicitors have no duty to vouch for the accuracy of the information provided in Form H.  The first paragraph of Practice Direction 15.9 refers to “an approximate indication of the anticipated costs of each side”.  

38.A Form H containing figures which are unrealistic and which substantially deviate from the actual figures is a misleading document.  The information contained in a Form H should have a reasonable measure of accuracy, distinguishing between costs incurred (including those incurred and not yet paid) and future costs.  See also PD 15.9.

39.In our judgment, though it is appreciated that the accuracy of the figures in a Form H would not be as precise as in a bill of costs for taxation, it should be commensurate with figures put forward in a statement of costs for summary assessment.  In this respect, the figures in a Form H as to future costs are necessarily predictive and provisional as there are always some elements of projection as to the course of a piece of litigation in the future and unexpected contingencies are unavoidable.  However, there must still be some reasonable bases for the projected future costs.

40.As regards figures of incurred costs, there should be greater certainty on the same.  In the absence of material changes in circumstances, the ultimate costs claimed by a party should not be substantially at variance with the figures for incurred costs in the estimates.  Whilst there could be greater room for adjustment in respect of the figures for future costs in a Form H, the court may demand the solicitor to give an account for the variation when the difference is so great that some explanation is called for.

41.As pointed out above, the parties and their legal representatives owe a duty to the court to prepare a Form H properly.  It is wrong and unprofessional for a solicitor to insert unrealistic figures (be they too high or too low) in a Form H in order to achieve some forensic or bargaining advantage for a client. It is equally unacceptable for a Form H to be prepared negligently, without verifying if there is any reasonable basis for believing that the figures are accurate.  As mentioned, such conduct is tantamount to misleading the court which is always regarded as a serious matter. When such a case occurs, the court may consider referring the matter to the Law Society for disciplinary proceedings.

42.We regret to say that the cavalier manner in which the Forms H were prepared by the solicitor for the wife might have led to substantial costs incurred in this appeal which could otherwise be avoided.  This is particularly so when the solicitor put forward Form H (1) as the only evidence on quantum in support of the application for litigation funding.

43.Form H does not provide greater details like the estimated number of hours and charging rates and it does not contain as much breakdown as a bill of costs or statement of costs in support of an application for security for costs. But the authorities show that such details are not always necessary.  In KGL v CKY [2003] 2 HKLRD 301, the Court of Appeal upheld an award of $20,000 per month for litigation funding when the only evidence on legal costs was a paragraph in the affidavit deposing to the wife’s indebtedness to her solicitors for legal fees in the sum of $180,000 and the solicitors demanded payment by monthly instalment at $20,000.  At [24], Woo JA commented that the judge was entitled to use his experience in family matters to arrive at a rough idea of how long the matrimonial proceedings would take and the probable amount of costs to be incurred.

44.A party’s Form H is not the same as affidavit evidence on the breakdown of costs.  In general, notwithstanding that paragraph 10 of PD 15.11 only requires lodging and exchange of Forms H no later than 4 pm on the last working day prior to each court hearing, an applicant for litigation funding should give some broad breakdown of costs in a supporting affidavit.  The affidavit need not be elaborate; breakdowns and details commonly found in a statement of costs for summary assessment[2] will usually suffice.  But the extent of details required must depend on the stage at which the application is made, the facts and circumstances of the case, the reasonable level of representation (in light of the representation on the other side), proportionality to the family pool of assets available and the amount sought.

45.In our judgment, there should be some flexibility in the evidential requirement on the quantum of costs in a litigation funding application which should be processed summarily.  In a case where the claim is for a modest amount and the case is at a relatively early stage, it would be counter-productive to require a detailed breakdown for future costs as this may generate lengthy and costly but fruitless debates on such details.  This would go against the summary nature of the exercise and the broad brush approach that the court should adopt in processing the same.  Provided that a judge can be satisfied on the strength of a Form H that the ongoing costs are reasonable and the sums asked for are commensurate with a proportionate scale of the litigation, an award could still be made.

46.On the other hand, a “big money case” in which both sides are represented by counsel of senior standing with high level of fees would merit greater details being given.  Even in those cases, breakdowns and details commonly found in a statement of costs for summary assessment should be sufficient. The court would only demand greater details in cases where the amount sought is exorbitant or there are other reasons for a closer examination of the figures put forward by an applicant.  In this connection, we note that the amount awarded in HJFG v KCY, supra, is $500,000 per month.

47.In the present case, Form H (1) was the only information on the costs of the wife before the Judge made his decision on litigation funding including the backdated award.  There was no affidavit evidence from the wife to explain her breakdown of legal costs.  The wife did not provide any basis upon which she sought the monthly sum of HK$50,000.

48.The application for litigation funding was made by a summons of 30 January 2019 and the wife’s affirmation in support was filed on the same date.  In the paragraphs dealing with litigation funding, she did not give much information on her legal costs.  The husband’s affirmation of 2 May 2019 in opposition to the summons focused on the financial positions of the parties.  The wife’s affirmation in reply on 23 May 2019 did not address the quantum of her legal costs.  Form H (1) was only attached to the skeleton submissions of counsel for the wife “for the court to consider the legal costs incurred by [her] thus far”[3].

49.We have to say that this was not a satisfactory way to make an application for litigation funding.  Counsel for the husband told this Court that the copy of those submissions sent to the husband or his lawyers did not include Form H (1) and therefore the husband was deprived of the opportunity to respond to Form H (1).  On the other hand, counsel for the wife disputed that.

50.There was a clear reference to Form H (1) at para 29 of the submissions of the wife of 13 June 2019.  In the submissions in opposition of 4 July 2019 prepared by solicitors for the husband, it was only asserted that the Form H “could not be found in the MPS Bundle”[4]. If the solicitors for the husband did not receive a copy of Form H (1), one would expect them to have written to the solicitors for the wife to demand a copy pending the lodging of their submissions in opposition.  If a copy of Form H (1) had been supplied, the reference to the omission of the Form H in the MPS Bundle was neither here nor there.

51.We could not regard such reference as a complaint that the husband had not received a copy of Form H (1).  There was no such suggestion in the submissions of 26 September 2019 of counsel for the husband in CAMP 237 of 2019.  Likewise, there was no such suggestion in the 4^th and 5^th affirmations of the husband.  In the absence of any evidence supporting the assertion of counsel as to the lack of receipt of Form H (1), we proceeded on the basis that Form H (1) had been sent to solicitors for the husband together with the submissions of 13 June 2019.

52.The Judge was prepared to take the figures of Form H (1) into account.  Thus, at [52] of the judgment of 23 July 2019, he alluded to those figures in coming to the conclusion that the wife’s costs estimates were reasonable.  That conclusion formed the basis for his award of $50,000 per month at [58].  See also the Judge’s decision on 12 September 2019 refusing to grant leave to appeal at [33].

53.No doubt the Judge took account of the positions taken by the parties before him in adopting the approach he did.  As mentioned above, in the submissions in opposition of 4 July 2019, solicitors for the husband only referred to the omission of Form H (1) from the MPS Bundle and made no adverse comment on the figures set out in that document.  There was a general assertion in those submissions that the wife had failed to provide a sufficiently detailed breakdown of anticipated costs.  But there was no assertion that the husband could not respond to the figures in Form H (1).

54.It should be borne in mind that the Judge was familiar with the case, having presided over all the hearings in the matrimonial proceedings since July 2018.  He heard the injunction application by the husband in January, March and May 2019 and gave directions at the First Appointment Hearing on 13 March 2019 including directions for paper disposal of the wife’s summons of 30 January 2019.

55.The amounts sought were not exorbitant and could even be said to be relatively modest for a piece of litigation of this scale.  This was clearly not a big money case.  Based on the family assets disclosed, the estimates in Form H (1) were proportionate.

56.Against this background, though the way in which the wife made the application had much room for improvement, the approach adopted by the Judge in terms of his reference to Form H (1) for assessing the quantum for litigation funding was a sensible one.  Certainly, it could not be said to be so clearly wrong that this Court should disturb what was after all a case management matter.

57.The observations of Woo JA in KGL v CKY, supra, concerning a family judge’s entitlement to use his judicial experience on family cases to arrive at a rough and ready figure in similar circumstances were, in our respectful view, applicable in the present instance.

58.Ms Lareina Chan, counsel for the husband, pointed out that despite the fact that the wife’s “serious mistake” only related to the figure of HK$238,000 in Part 1, the figures as at 13 June 2019 for Parts 2 and 3 in Form H (2) and Form H (3) were inflated.

59.With respect, we did not find Form H (3) to be of much relevance for the present purposes.  Since Form H (3) was a document setting out the position of 13 November 2019 as opposed to 13 June 2019, the deviation in the figures under Part 1 was not surprising.  We were not going to be involved in the debate as to whether the costs of this appeal should be included under Part 1, but we had no reason to doubt that this was the reason for the increase.

60.As regards the increases in the figures under Parts 2 and 3 in these later Forms H, they were also quite beside the point since the Judge was working on the figures in Form H (1) and made the award of $50,000 per month based on his finding that such figures were reasonable.  We could not find any good reason to disturb these findings and conclusion of the Judge.

61.For these reasons, subject to what we shall say below regarding the duration of the payment, we upheld the Judge’s decision on the award of monthly sum of $50,000 for litigation funding.

The form and duration of the litigation funding

62.There was no serious issue before us that litigation funding should take the form of monthly payments.  Since the application was made under the jurisdiction provided in Section 3 of the Matrimonial Proceedings and Property Ordinance Cap 192, the award had to take the form of periodical payments.

63.The Judge was fully aware that in some MPS orders, a time limit may be imposed on litigation funding but he regarded the same to be a matter of judicial discretion.  In the particular circumstances of this case and in view of the relatively modest amount claimed for litigation funding, he had not imposed a temporal limit on the litigation funding.

64.The wife’s application for litigation funding was made at an early stage of the proceedings.  FDR was (and, regrettably, still is) nowhere in sight.  Notwithstanding that the wife was not optimistic on the prospect of resolving the dispute at FDR, we did not think that was a justification for not following the guidance of Wilson LJ in Currey v Currey, supra at [28] and Hartmann JA in HJFG v KCY, supra at [82]. In the former case, the following observations were made,

“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.”

65.Whilst the duration of a litigation funding order was ultimately a matter of discretion, we respectfully disagreed with the Judge that the modest amount sought was a reason for departing from the above guidance.  In the circumstances, we should examine the duration of the order afresh.

66.We were unable to see any justification for not adhering to the guidance in the present case.  Given the policy considerations behind the setting of such duration limit and the importance attached by the courts to FDR and mediation in family disputes, it would take very cogent ground to depart from the guidance.  This is particularly so when parties are expected (and the court will not hesitate to reinforce such expectation) to participate in family mediation and FDR in good faith and with sincerity.  Lawyers are also expected to act in collaborative mode when they represent parties in FDRs.  Recently, the Family Court has introduced the new mode of mediator assisted-FDR which has produced very good results.

67.The court’s exercise of discretion as to the duration of a litigation funding order cannot be influenced by a party’s attitude or outlook towards FDR.

68.The Judge held that the litigation funding should only start from the date of the application because before that date, there were still funds of HK$3,350,000 in the wife’s HSBC Account being spent by her at a rate of about HK$160,000 per month and that should have covered her monthly expenses and legal costs before that date.  We had no reason to depart from this view. Accordingly, we ordered periodical litigation funding to commence on 1 August 2019, to continue up to and including the FDR.

The backdated amount

69.The Judge considered that the litigation funding awarded by way of backdating was not simply for the reimbursement of legal costs paid by the wife so far.  One had to look at the broad picture and the overall costs position of the wife, including legal costs already paid and costs yet to be incurred.  Thus, a sum of $300,000 (based on $50,000 x 6) was awarded instead of the sum evidenced by Form H (1).

70.With respect, we were unable to agree with such approach.  By its very nature, a backdated sum should only cover costs already incurred (including those incurred but not yet paid).  The rest would be estimates that would be covered by the future monthly litigation funding. 

71.In any event, the Judge was working on the false premise that the figures under Part 1 of Form H (1) represented costs incurred during the backdated period.  We now know that it was not correct.

72.The Form H (1) was, according to the evidence of Ms Chan, computed up to the date of the first First Appointment Hearing which had taken place on 31 January 2019.  It was accepted by counsel for the wife that the difference between Form H (1) and Form H (2) represented the estimated costs of the MPS Application and covered the period identified by the Judge.  Since the backdating as found by the Judge should start from 1 February 2019, the original amount in Part 1 of Form H (1) should not be taken into account (as they were incurred prior to 1 February 2019 and should be paid by the wife’s own resources, see [60] of the judgment).  The only backdating amount should therefore be the difference between Form H (1) and Form H (2). We therefore reduced the backdated sum and substituted the $300,000 ordered by the Judge with the figure of $155,000.

Order

73.We therefore allowed the appeal in part and set aside the order in paragraph 61(2) of the MPS Judgment.  We ordered, instead, that:

(1)  The Petitioner shall pay maintenance pending suit by way of litigation funding in the sum of HK$50,000 on the first day of every month starting from 1 August 2019 until FDR or until further order, whichever was the earlier; such payments shall be made directly to the firm of solicitors representing the Respondent to cover her legal costs in the ancillary relief proceedings; and

(2)  That the monthly payments for litigation funding be backdated to the period from 1 February to 1 July 2019 in the total amount of HK$155,000.

Costs

74.As for costs, we would not disturb the costs order made by the Judge in respect of the summons of 30 January 2019 because the wife had to apply to obtain an order for litigation funding (and MPS) and there was sufficient evidence to support the award of the Judge as to the order for the periodical sum.  As regards the backdated amount, though the Judge adopted a wrong approach, it was not due to the fault of the wife.

75.Though leave was granted to the husband to appeal against the order for litigation funding, he only succeeded on two aspects: the duration of the order and the backdated amount.  He did not succeed in his argument that no litigation funding should be ordered due to the wife’s ownership of the UK Property.  He also failed in his attempt to persuade us to reverse the periodical payment order of $50,000.

76.In the circumstances, bearing in mind how the matter has developed and the arguments run before us, we are of the view that the wife should pay one third of the costs of the husband in the appeal proper.  According to the statement of costs of the husband, adding costs from 9 November 2019 onwards, the total amount was $190,338.  Bearing in mind that substantial works have already been done in the two leave applications, we found this amount unreasonable and we would fix the same at $150,000.  One third of that is $50,000. This is the amount that would be payable by the wife.

77.As regards the leave applications (both before the Judge and before us), the husband sought leave to appeal against the MPS order, a stay of execution on appeal and the order for litigation funding.  As presently transpired, this court refused him leave to appeal on MPS and stay of execution.  We only granted leave to appeal on litigation funding.

78.Bearing in mind the failure of the husband on MPS and ultimately limited success on litigation funding, subject to what we shall say regarding costs of the wife below, we would order the husband to bear half of the wife’s costs in the applications for leave to appeal at the court below as well as before us.

79.In the wife’s statement of costs, a sum of $244,525 was incurred for the leave application before us (with counsel charging $80,000). Out of that amount, a portion of the costs was attributable to the mistake of the solicitor on Form H (1).  We would take out one third of the costs on that account.  Further, the amount charged was unreasonable for a leave application of this scale.  We would only fix the reasonable amount at $135,000 and taking out one third for the reason already given, the amount would be reduced to $90,000.

80.That means the husband should pay half of $90,000, viz $45,000 to the wife on account of the costs of the leave application before us.

81.For the leave application before the Judge, the amount payable by the husband is reduced by half, viz $97,000 ÷ 2 = $48,500.

82.Since the husband had already paid $97,000, the wife should repay $3,500 to the husband after setting off the $45,000 payable by the husband to the wife on account of costs of the leave application before us.

83.In the circumstances, the overall amount that is payable by the wife to the husband is $50,000 + $3,500 = $53,500.  To avoid unnecessary dispute, we would order this sum of $53,500 to be deducted from the next two periodical payments of litigation funding.

84.Counsel for the husband indicated that the husband would seek a wasted costs order against the wife’s solicitor.  This was a separate matter from the liability for costs inter partes.  If no agreement could be reached between the husband and Ms Chan in the light of what was said in this judgment, the husband shall take out an application within 28 days of this order. 

85.In practical terms, the husband’s success in the appeal was the reduction of the backdated award by $145,000 and, on longer terms, the cessation of the current periodical litigation funding order upon FDR (though if the matter is not resolved by or before FDR, another judge presiding over the case may entertain another litigation funding application).

86.Against that he had to incur, according to his statement of costs placed before us, $397,500 in respect CAMP 237/2019 and CACV 524/2019.  For the leave application before the Judge, he was ordered to pay the wife’s costs in the sum of $97,000 (which is now reduced by us to half of that amount) and he himself incurred, according to his counsel, $93,876.

87.On the wife’s side, she has incurred, according to her statement of costs, $480,169 for CAMP 237/2019 and CACV 524/2019.

88.Irrespective of the adjustments on incidence of costs between the parties as per our order above, amongst the two of them they spent costs in the total sum of $1,068,545 on the leave to appeal applications and the appeal itself. 

89.On top of that, there were also costs of the litigation funding application before the Judge.  The wife’s costs were covered by the $155,000 backdated amount.  We had no figure for the costs of the husband.

90.After the hearing before us, solicitors for the husband wrote a letter of 16 January 2020 to the Court copied to solicitors for the wife.  Two main points were raised: (1) double counting of the $155,000 backdated award with the costs order the Judge made in favour of the wife in the original application; (2) the adjustment in respect of the set-off with the $145,000 balance of the $300,000 previously paid as backdated award.

91.We have not received any reply from solicitors for the wife when we prepared this judgment.  Of the two matters: (2) was simply a matter of arithmetical correction of the set-off exercise and the parties and the solicitors should be able to reach an agreement between themselves.  On (1), we have not been referred to any authorities on the practice of the courts in making orders for costs when litigation funding has been ordered.  We were not minded to increase the costs and prolong the disposal of this appeal by re-opening this issue for arguments.

92.What we would say tentatively is this: when the order for costs is obviously made in respect of costs incurred by the receiving party which are covered by litigation funding, there is nothing wrong in principle for a costs order (including summary assessment of the sum) to be made (reflecting the court’s assessment on the proper incidence and quantum of costs on inter partes basis).  However, notwithstanding Order 62, rule 9B which requires payment of assessed costs within 14 days, the enforcement of that costs order should normally be suspended pending the final resolution of the whole proceedings.  

93.In the present case, we will make an order that the costs order in respect of the summons of 30 January 2019 made by the Judge should not be enforced without leave of the court.

The way forward

94.In our judgment granting leave at [33], we implored the parties to adopt a more sensible approach to resolve litigation funding.  Unfortunately, the appeal had continued.

95.The parties should focus on pushing the case forward with the completion of discovery.  There will inevitably come a point in time when questionnaires would not yield further useful information and the court must resort to drawing adverse inferences against the party making inadequate disclosure.  Once the point is reached, mediation and FDR should take place.  Too much time and costs have already been spent on peripheral skirmishes in these proceedings which did not contribute much to the resolution of the overall disputes.

96.In K v K, supra, Roger VP commented on the time taken for matrimonial proceedings at [2] of that judgment and His Lordship observed that trials should take place within nine months of proceedings starting, not pre-trial reviews within nine months of the dispute resolution failing.  That was only an obiter remark and in view of the steps that have to be taken and the heavy caseload resulting in time lapse in listing in the current matrimonial proceedings regime, we fully understand it is impossible for a case to complete within nine months in the Family Court.

97.There is however much to be said for setting a timeline for family cases in the whole proceedings at an early stage.  Family judges should take a more proactive role in working out a reasonable timeframe which is proportionate (both in terms of time and money) in light of the overall resources and needs of the parties for the whole process of resolution of dispute in the Family Court.  Trial dates for ancillary relief (as well as children disputes) should be fixed as a milestone date not too long after the commencement of proceedings.  The current practice of trial dates not being fixed until FDR ended without success has contributed to substantial delay to the final resolution.  Interlocutory skirmishes should be limited to those which serve useful purposes in the resolution of disputes and must be fit into the overall timeframe without disruption to the milestone dates for trials.  Only then can we aim at achieving resolution of matrimonial disputes at reasonable costs within a reasonable time, which should be the goal of our family justice system.

98.Finally, we thank counsel for their assistance.

Ms Lareina J Chan, instructed by Hampton, Winter & Glynn, for the petitioner

Ms Percy Yue, instructed by K. T. Chan & Co, for the respondent