Introduction

In matrimonial cases, it is not uncommon for one party with insufficient means to ask for litigation funding from the other party by filing an application for maintenance pending suit. According to section 3 of the Matrimonial Proceedings and Property Ordinance, the Court may make orders as it thinks fit requiring one party in a marriage to pay maintenance for the other party from the date of the presentation of the petition for divorce until the date of the determination of the suit. However, under what circumstances can a party seek such funding? What will such funding cover? A recent Court of Appeal case WW v LLN [2020] HKCA 178 has provided valuable guidance. 

Background

The parties were married in 1993. The husband first filed a petition for divorce based on the behaviour ground in April 2018 and later filed a fresh petition in July 2019 after 2-year separation with the wife. 

On 30 January 2019, the wife issued a summons for maintenance pending suit (“MPS application”) and asked for, amongst others, HK$50,000 as litigation funding per month from 1 March 2019. The MPS application was opposed by the husband as 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 also alleged that the wife had other sources of income, such as a UK property, to raise funds for the litigation.

However, the Family Court Judge (the “Judge”) relied on the figures shown from Form E (Financial Statement) and Form H (Estimate of Costs) and ordered the husband to make a monthly payment of HK$50,000 to the wife’s solicitors directly from 1 August 2019 (the month immediately after the date of the application). The Judge further ordered a backdated sum of HK$300,000 to run from 1 February 2019 (the month immediately following issue of the MPS Application) to 1 July 2019, notwithstanding that the wife had only incurred HK$238,000 for litigation during that period.

Appeal to the Court of Appeal

The husband’s grounds of appeal are twofold:

1.        the 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.        the 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.

Issues

We shall discuss the following issues in the appeal:

1.        The need of litigation funding

2.        The form and duration of the litigation funding; and

3.        The backdated amount

Judgment

(1)  Need of litigation funding

As regards the need of litigation funding, the Court of Appeal (“CA”) cited the well-established principles for granting litigation funding in HJFG v KCY [2012] 1 HKLRD 95:

1.        To obtain litigation funding, the burden is on the 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;

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 financial dispute resolution (“FDR”) hearing (i.e. a hearing set at an early stage of the suit where the judge will play an active role, giving necessary indications on the parties' claims with a view to assisting the parties in reaching a settlement on finances), 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.

Given the financial position of the wife, it was unlikely that she could procure a mortgage based on the UK property. The CA held that the Judge was correct in holding that this was a case where the wife needed litigation funding from the husband.

(2)  Form & duration of litigation funding

The CA noted that the wife’s MPS application was made much earlier than the FDR hearing. According to Currey v Currey [2006] EWCA Civ 1338, FDR is a watershed for parties to negotiate positively in the light of informal judicial indications given by the judge. The need of a spouse to take out a fresh application for further litigation funding will be a reasonable inducement for the parties to reach settlement in FDR. The court's exercise of discretion as to the duration of a litigation funding order cannot be influenced by a party's attitude/outlook towards FDR. Given the policy considerations behind FDR and mediation in family disputes, it would take very cogent ground to depart from the guidance in HJFG v KCY. The CA held that the Judge had erred in not imposing a temporal limit on the litigation funding and ordered periodical litigation funding to commence on 1 August 2019, to continue up to and including the FDR.

(3)  Backdated amount

In relation to the backdated amount, the Judge considered that litigation funding awarded by way of backdating was not simply for the reimbursement of legal costs paid by the wife and 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. The CA disagreed with the approach of the Judge and held that a backdated sum should only cover costs already incurred (including those incurred but not yet paid). It therefore reduced the backdated sum and substituted the $300,000 ordered by the Judge with the figure of $155,000.

Conclusion

In matrimonial cases, a party is entitled to apply for litigation funding from the other party at the early stage of the proceedings. If such an application is made prior to the FDR hearing, the court in general will only order funding up to the FDR hearing in order to encourage parties reach a settlement. If FDR fails, a party will have to take out a fresh application for litigation funding in the subsequent proceedings. Also, an application for litigation funding asking for a backdated sum can only be made in respect of the costs already incurred.