Mcyp v. Cwyw
Read the full judgment text of FCMC 11432/2018 on BabelCite. This Family Court judgment was delivered on 12 August 2022 before Deputy Judge R. Chow.
Matrimonial Proceedings – Litigation Funding – Maintenance Pending Suit – Ability to Pay – Reasonable Costs – District Court – Petitioner husband (H) and Respondent wife (W) in divorce proceedings – W applied for litigation funding allowance to cover legal costs – H argued financial deterioration and inability to pay – Court held H had ability to pay based on liquid assets and family company financing – Court held W’s budget reasonable for big money case – Order made for H to pay W HK$350,000 monthly litigation costs allowance – Costs of application awarded to W.
Legal issues: H's ability to pay · Reasonable amount to be ordered
Outcome: Application granted. H ordered to pay W monthly litigation costs allowance.
Cites 3 cases
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FCMC 11432/2018 [2022] HKFC 169 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MATRIMONIAL CAUSES NO. 11432 OF 2018 ------------------------
------------------------ Before Coram: Deputy Judge R. Chow in Chambers (Not Open to Public) Date of Hearing: 23 December 2021 Date of Decision: 12 August 2022 ----------------------- DECISION ( Litigation Funding ) ------------------------ Introduction 1.This is an application by the Respondent wife (“W”) to apply for litigation funding. 2.The Petitioner husband (“H”) and W are both in their fifties and were married in 1995. H filed a petition for divorce on 5 September 2018, a Decree Nisi was granted on 11 July 2019. The marriage lasted 23 years. H and W have three children aged 23, 20 and 17 (“the Children”). 3.An Order by consent with H’s undertakings was made on 30 November 2018 (“the Consent Order”), the main terms are essentially (1) H shall pay W her MPS at HK$120,000 per month; (2) H shall provide W (i) usage of credit cards for the expenses of W and the Children up to HK$30,000 per month and HK$60,000 per month respectively; (ii) the matrimonial home for W to live; (iii) travelling and overseas accommodation for W and the Children; (iv) the use of the current domestic helpers and driver; (v) the club facilities and (vi) Chinese medicine and consultation fees up to HK$90,000 per month for 12 months; and (3) H undertakes to pay school fees, tuition fees, school related expenses, living expenses (including pocket money) for the Children. 4.The Husband was born into a wealthy family, his father passed away in 1980s and substantial wealth passed on to him and his siblings. The Husband admittedly had asset worth over $370 million according to his Form E filed on 14 May 2019. 5.From the Husband’s Form E, he holds shareholdings in 18 private companies and 1 publicly listed company. 6.W filed on 20 August 2021 a summons for litigation funding for H to pay her a monthly sum of HK$420,000 as litigation cost allowance to cover her legal costs until the end of the FDR or further order. W’s Case 7.It is an ultra-big money case, W has engaged Ms. Anita Yip, SC and Ms. Lily Yu as her counsel and Mr. Yuen as her forensic accountant. 8.It is W’s case that she had about HK$3.2 million as costs incurred and billed up to the end of March 2021 for the matrimonial proceedings herein since H’s filing of the Petition on 5 September 2018. As of 29 September 2021, legal costs incurred already billed and paid amounted to HK$2,998,175 including costs for solicitors, counsel and accountants. W had not settled the outstanding legal fees in the sum of about $900,000 of which HK$240,000 had been billed and over HK$650,000 costs had not yet been billed. 9.It is estimated that another HK$5.89 million would be incurred up to and the end of the FDR. 10.Assuming it would take 14 months to the FDR, the monthly provision W would need should be about HK$420,000 per month. 11.Most of the W’s cash funds were saved in her bank accounts, although there was a credit balance of HK$700,000 odd in her bank accounts, out of which over $200,00 were foreign currency which she would need to keep for use when she has to travel to the UK or USA to visit the Children. 12.W has always been financial dependent on H even after the Petitioner, she would be unable to afford the legal costs. 13.On the other hand, H’s ability to pay should not be an issue as he had nearly HK$20 million worth of stocks in his securities account as shown in his Form E filed on 14 May 2019. 14.In order to save costs of this application, W instructed her solicitors to request H to pay her a sum of HK$5 million or alternatively HK$420,000 per monthly but was declined. 15.So far, apart from the present application, there had been 3 summons taken out including W’s Summons for variation of MPS, W’s application for discovery and third party discovery and H’s application for discharge of undertaking. 16.Further to the outstanding costs due to solicitors and forensic accountant in the sum of approximately HK$600,000, the brief breakdown of the estimated costs up to FDR by W’s solicitors is as follows:
H’s Case 17.H’s financial circumstances had been deteriorating to the extent of not being able to sustain in the long run. 18.H was paying HK$480,000 per month to W and the Children as per the Consent Order. When H filed his Form E on 14 May 2019, he had assets of about HK$370 million of which he had liquid assets of about HK$1.96 million (comprising of cash of HK$2.2 million and non-pledged stocks of HK$4.16 million). 19.H’s monthly income was about HK$413,000 with reimbursement of director’s expenses of about HK$50,000 per month. 20.His net assets are about HK$358 million with the bulk of his assets being company shares which are not tradeable due to the restrictions against transfer to non-family members. 21.H had been relying on overdrafts from his family company [KC] & Co Ltd (“KC”). 22.In order to deal with W’s ever increasing expenses and applications in court, H had to increase his overdrafts and borrow further from KC. The overdraft in his bank account as at 28 September 2018 was -HK$1,878,926.17. But his current overdraft had gone beyond HK$5,65 million by 31 August 2021. 23.H’s debts owed to KC was HK$633,000 as at 28 September 2018 and HK$330,000 as at 23 February 2019 according to his Form E filed on 14 May 2019. His debts owed to KC was HK$633,000 as at 3 September 2021 amounted to more than HK$11,343,000. 24.KC had expressed concern as early as on 30 March 2020 that his accumulative and increasing loans. KC by a letter informed H that he owned them HK$1,363,000 on 30 March 2020. 25.On 21 December 2020, KC informed H that his outstanding loans amounted to HK$6,493,000 and he was requested to settle his loan. 26.On 10 September 2021, KC by letter expressed concerns on the long outstanding loans amounting to HK$11.34 million, and asked him to provide repayment solutions. 27.The loans owed to KC had almost been increased by 10 times in the preceding 18 months as of 29 September 2021. 28.KC had been exerting enormous pressure on H to repay and/or reduce the existing loans. H was not optimistic that further loans be advanced to him. 29.While H had HK$307 million, they are not cash readily available to H. 30.H would have difficulties to sell all his shares as they are family holding meant to be passed on the next generation. H could not sell his shares in the 2 private companies KC and [H] Limited (“HL”) as any transfer of shares are subject to restrictions and non-transferable to non-family members and had to be approved by the board of directors. 31.H had to sell his personal assets to help fund W’s lavish spendings. H sold a property on Pokfield Road for HK$8.3 million in March 2017 to help pay off the huge debts incurred by W in October 2016. 32.Further, the costs estimated by W are unreasonably high and excessive. Legal Principles 33.The Court has power to order MPS including or legal costs provision in accordance with section 3 of the Matrimonial Proceedings and Property Ordinance, Cap 192. 34.It should be noted that Wilson LJ stated the following in Currey v Currey (No 2) [2007] 1 FLR 946:-
35.Currey was endorsed by Cheung JA and Hartman JA in HJFG v KCY [2012] 1 HKLRD 95. Issues 36.As an applicant, W would have to demonstrate that she cannot reasonably procure legal advice and representation by any other means and her asset cannot reasonably be deployed, whether directly or as the means of raising a loan, in funding legal services. 37.W had already incurred close to HK$4 million in legal costs. While W has HK$700,000 cash in bank accounts, it is quite apparent that that fund would not have been sufficient to support this level of legal costs in the future up to the FDR hearing. 38.Although W had been receiving MPS from H, her monthly expenses amounted to about HK$480,000 per month without taking into account of legal costs. There is no allegation from H that the MPS by consent was agreed to cover her legal costs. 39.I am of the view that there is no obligation that W should cut down on her expenses to save for legal costs. I do not think it would assist much in financing her legal costs even if she could still have some savings left from her MPS in any event. 40.Mr. Chan for H made submissions by reference to the Husband’s ability to pay and reasonableness of the amount of litigation funding claimed, it was not argued that W could afford her legal costs. 41.In my view, the 2 issues in this hearing are H’s ability to pay and the reasonable amount to be ordered. H’s Ability to Pay 42.Mr. Chan submitted that the family was living far far beyond their means. The level of spending, including legal fees, was simply disproportionate and unsustainable and H was desperately staying afloat by incurring massive liabilities. H’s borrowing ability was not infinite and there were few avenues left for him. H’s creditors (in particular KCC) was expressing concern. H’s assets were mostly in the shareholdings in private companies with restrictive covenants against transfer to non-family members, these were not liquid assets for the purposes of MPS or this application. 43.H updated his financial positions since his Form E filed on 14 September 2019 that his bank overdraft position was –HK$1.878 million in September 2018, –HK$2.2 million in May 2019 and –HK$5.65 million as at 31 August 2021. 44.Ms. Yip for W submitted that H’s asset was substantially understated in his Form E. 45.H reported to have over HK$370 million worth of assets. According to H’s Form E, he directly owns 0.0444% shareholding in [TSLD] Limited (“TSL”) which was worth HK$3,475,553. 46.Ms. Yip said H actually beneficially owned 13.26% of TSL directly and indirectly via his shareholding in KCC and HL. By calculation, when 0.0444% was admittedly worth HK$3,475,533, 13.26% of the shareholding should become HK$1,037,969,207. In other words, simply looking at the value of H’s total beneficial interest in the shareholding in TSL, H’s total asset should be over 3 times as he stated in his Form E. 47.There were other instances of material non-disclosure by H in relation to Children’s accommodation expenses abroad, charitable donations, monthly spending and undisclosed director’s emoluments, there were further loans not reported in H’s Form E but in his Answer to 2nd Questionnaire and undisclosed loan owed to H in his Answer to 1st Questionnaire. 48.In my view, these allegations of non-disclosure have not been relied upon in W’s affidavits in support of this application. It would not be fair for this Court to rule on these allegations without affording H an opportunity to respond. 49.Ms. Yip drew to this Court’s attention that H reported to have a close to HK$20 million security portfolio placed in various securities accounts. 50.H claimed that HK$15 million of such securities were subject to a pledge for an overdraft facility with the bank, that would mean H would be accessible to HK$15 million liquid asset from the overdraft facility. As H claimed that he owed the bank only HK$5.65 million in the overdraft facility by 31 August 2021, that would still leave H with over HK$9.35 million worth of overdraft facility. 51.Ms. Yip stated that therefore H had ready cash of HK$9.35 million and HK$5 million worth of securities. H had HK$14.35 million liquid assets at his disposal which should be enough to cover W’s claim for litigation funding herein. 52.Further, Ms. Yip disagreed that the loans from KCC were really loans. 53.H’s reported income was HK$413,166 plus HK$50,000 director’s fee or household allowance from KCC, totaling HK$463,166 per month. However, H’s expenses were close to HK$1.2 million per month HK$570,000 out of which were for W and the Children. 54.According to H’s Answer to the Answer to the 1st Questionnaire, the exceeded amount of about HK$720,000 per month was said to be covered by TSL and KCC as fringe benefits in his Answer to the 1st Questionnaire. No loan had been mentioned. It was only afterwards that H changed the label to say that he owed KCC loans. 55.In any event, ability to raise loan is considered financial resources. (Jackson’s Matrimonial Finance (9th edn.) at para. 3.92). 56.Whether the funding from KCC ought to be regarded as loans ought to be dealt with only when parties have been afforded opportunities to address the matter by way of evidence. 57.However, even if I consider the funding from KCC to be loans, I am of the view that despite all the express concerns from KCC about H’s ongoing financial liabilities, all was just a gesture. 58.In my view, KCC is a family company of H, it is so closely connected to H to the extent that it would keep financing H despite all the express concerns about H’s inability to repay. 59.It is clear that despite all the express concerns, KCC nevertheless kept giving H financing assistance in the form of loans or otherwise. Even assuming that what KCC gave H were loans, I am still satisfied that KCC would keep providing such loans. 60.I find that H has the ability to give W litigation funding without the need to tap into his asset, H’s liquid assets worth HK$14.35 million as mentioned and his ability to borrow from KCC are enough already. Reasonable Amount to be Ordered 61.Mr. Chan submitted that the estimated costs by W was disproportionate and unreasonably high. Being rich or having money does not mean that costs would become not an issue, applications would still have to be proportionate and reasonably necessary to take the case to the FDR. 62.Mr. Chan argued that W’s budget was ludicrous and should not be allowed without the Court’s sanction. 63.Ms. Yip submitted that the Court should not be functioning as a taxing master and it was not a court’s function to sanction a party’s budget. 64.Ms. Yip submitted that HJFG v KCY [2012] 1 HKLRD 95 encouraged, in a big money case, parties should consider making a capital pre-advancement to the payee so that the costs and time for interlocutory applications for interim maintenance could be saved. It was H who refused to accept W’s proposal. 65.Ms. Yip further argued that it would be unfair for W’s budget to be sanctioned because in these circumstances, only W’s budget would be sanctioned but not H’s budget when W was dependent on H’s financial aid. 66.I agree with Ms. Yip. Looking at the authorities, litigation funding allowance is an item of maintenance pending suit. (KGL v CKY & Anotr [2003] 2 HKC 512, para 12). The sole criterion to be applied in determining the application is reasonableness or fairness. 67.Mr. Chan submitted that it was W’s litigation strategy that had caused the effect of inflating expenses and legal costs. 68.Ms. Yip disagreed and submitted that it was H who did not behave reasonably in the litigation to avoid unnecessary costs. 69.H’s case is that general handling should not cost as much. As for work related to Duxbury calculation and H’s asset valuation, no heavy work should be involved by counsel and solicitors. 70.However, I accept W’s case that both Form Es are out of date and require updating and solicitors and counsel have to understand the figures before they could prepare their arguments. 71.As for interlocutory applications that may be made by parties, my view is that it would not always be easy to pre-assess the need and merits of such applications. 72.H admitted to have assets of over HK$370 million. The family spent over HK$1.2 million per month including allowance to W and the Children. I am satisfied that this is a big money case. 73.In big money cases, it is quite often that higher costs would be incurred. Not only because parties can afford higher legal costs, very often any difference in parties’ view over a matter or an item could mean a significant difference in value of the matter or item perceived by the parties and that could make litigation worth the costs. 74.Ms. Yip referred to HJFC that although no breakdown was provided by W, the court still granted HK$500,000 per month to W as legal costs provision because it was a big money case. 75.In the present case, I accept that W had given sufficiently detailed budget and breakdown of the legal costs. 76.In this case, H had incurred costs of HK$3.6 million up to 25 August 2021 since the filing of the Petitioner. W’s costs were about HK$3.89 million up to 20 August 2021. 77.Parties had incurred substantial legal costs at comparable level. It could be difficult for H to say that W’s legal costs should not be maintained at a consistently high level. 78.I am of the view that substantial costs would be inevitable before approaching the FDR as parties apparently have very strong differences in their views over the value of H’s assets to say the least. 79.I have considered the budget and estimate of W’s legal costs, by taking a broad brush approach, I accept the figures put forward by W to be reasonable. 80.In assessing the ancillary relief, the court will have to follow the approach laid down in LKW v DD (2010) HKCFAR 537 by the Court of Final Appeal. 81.Any over payments in legal costs provisions could be adjusted from W’s award at the final ancillary relief. 82.W revised her request of litigation funding by letter dated 20 December 2021 to H to a total of HK$6.54 million in light of H’s application for discharge of his undertaking filed on 23 November 2021. 83.I am not convinced that this is the proper way to seek a higher amount without amending the present Summons. I therefore would not consider the revised amount requested by W by the said letter. 84.While I generally find the W’s budget of HK$5.89 million to be reasonable, I reckon it could take longer time for this case to reach the FDR hearing, I therefore would allow the sum of HK$350,000 per month. Conclusion 85.Costs should follow the event, W is considered the successful party and she should be entitled to costs of this application. 86.In light of the foregoing, I make the order as follows:
Mr. Jeremy SK Chan instructed by Withers, Solicitors, for the Petitioner (H) Ms. Anita Yip, SC and Ms. Lily Yu instructed by Chaine, Chow & Barbara Hung, Solicitors, for the Respondent (W) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under FCMC 11432/2018