Financial Provision for Children Born out of Wedlock

Chantelle Woo examines the Family Court and the Court of Appeal’s interpretation of the Guardianship of Minors Ordinance concerning applications for lump sum payment and settlement of property orders.

In light of the increasing number of unmarried parents in Hong Kong, there has been increasing discussion about the financial provision available to children born out of wedlock. It is well established that children of married parents are entitled to the financial provisions set out in sections 4-6 of the Matrimonial Proceedings and Property Ordinance (Cap. 192) (“MPPO”), which include orders for periodical payments, lump sum payments, transfer of property and settlement of property.

Four years ago, the Court of Appeal decision in IDC v SSA [2014] 4 HKLRD 220 confirmed that the financial provision available in Hong Kong are the same for all children, regardless of whether their parents are married or not.

We shall consider the Family Court and the Court of Appeal’s interpretation of sections 10(2)(a) and 10(2)(e) of the Guardianship of Minors Ordinance (Cap. 13) (“GMO”) in the applications for lump sum payment and settlement of property orders in IDC v SSA and in the cases of CCMJ v. SSM formerly known as SKL (FCMP 67/2010) and CWYW v CCH (FCMP 124/2013) that follow.

IDC v SSA – Family Court decision (Judgment date: 22 January 2013)

By way of background, the Mother and the Father were not married, and had cohabited since October 2006 together with the Mother’s son (“N”) born out of her previous marriage. Their daughter (“Z”) was born on 8 March 2009. The couple’s relationship subsequently broke down and they separated in 2010. The Father continued to pay child maintenance for Z, as well as Z’s educational expenses and rent for the Mother and Z’s accommodation.

The Mother subsequently made an application, amongst other things, for a lump sum order under section 10(2)(a) of the GMO for the purchase of a property for Z. The Mother’s application for a lump sum order was on the basis that accommodation is an “immediate and non-recurring” need. The Mother asked for HK$32 million to purchase a property. Alternatively, she sought an order that a property be purchased on trust for Z during her minority with a reversionary interest to the Father under section 10(2)(e) of the GMO.

The Mother’s application was dismissed by His Honour Judge Bruno Chan of the Family Court as he held that the Court had no jurisdiction to make a lump sum order for such purpose.

The Mother appealed against the Court’s finding that it had no jurisdiction to make a lump sum order or settlement of property order for the purchase of a property for Z.

IDC v SSA – Court of Appeal decision (Judgment date: 6 June 2014)

Discussions on sections 10(2)(a) and 10(2)(e) of the GMO

In determining whether accommodation for a child is an “immediate and non-recurring” need, the Court of Appeal explored the legislative history of the enactment of the current section 10(2) of the GMO.

In 1986, the power to award a lump sum payment was added to section 10(2)(a) as a result of the similar legislative changes to the Guardianship of Minors Act 1971 in England. In the memorandum for Executive and Legislative Councils in respect of the 1986 amendments to the GMO, the purposes of the amendment were explained as follows:

“To empower the court under all three ordinances [including the GMO] as in similar legislation in England and Wales to order payment in the form of a lump sum either in one amount or by instalments and to permit such an order to be made either in addition to or instead of an order for periodical payments.

To ensure that a lump sum payment in respect of a child is limited to one for the child’s immediate and non-recurring needs.”

However, in the English statutes, there was no reference to “immediate and non-recurring needs”. Thus, though one of the purposes of the 1986 amendment was to follow the trend in England, this additional qualification was a special feature in the Hong Kong legislation.

The memorandum explained that a lump sum order could provide for non-recurring expenses for which a periodical payments order may be unsuitable, for example the expenses of medical treatment, or of meeting reasonable expenses for maintenance incurred before the making of the order.

In summary, the Court of Appeal held the following views:-

  1. The power under section 10(2)(a) can be exercised more than once. For instance, a child may need to have non-recurring medical treatment on more than one occasion. The power to cater for the needs of a child may span over a long period of time.
  2. The Court can only make a lump sum award for needs within the immediate future. In the case of a child of tender age (like Z in the present case who is only 5 years old), there must be non-recurring needs several years down the road which cannot be covered by a lump sum award made today.
  3. There should not be any discrimination against children of unmarried parents stemming from the requirement of “immediate and non-recurring needs”.

The Mother argued that a child’s accommodation need arises at birth and does not need to be met again once it is fulfilled, and it is therefore an “immediate and non-recurring need”. The Court of Appeal however agreed with the Father that housing is an ongoing everyday need of a child. The attempt to have the need satisfied by a property already owned by a parent would not change the nature of the need to a non-recurrent one. The child may have to be relocated to some other residences in the years ahead and her housing need would still have to be satisfied. The purchase of a property to cater for such need for the time being cannot satisfy such need once and for all.

The Court of Appeal, having considered the Judgment of Singer J in the case of Phillips v. Peace [2005] 2 FLR 1212, went further and decided that since a lump sum order is to be paid once and for all, it is therefore not appropriate if the intention is to reserve a reversionary interest to the paying party.

Importantly, the Court of Appeal confirmed that the Courts in Hong Kong do have a jurisdiction under the GMO to order a sum of money to be held on trust for the purchase of a property to cater for the accommodation need of a child with a reversion to the paying parent.

The Decision

The Court of Appeal concluded that:-

  1. A lump sum to purchase a property for a child does not come within section 10(2)(a) because a need for housing cannot be said to be non-recurring.
  2. The Court does have jurisdiction under section 10(2)(e) to order a settlement of a sum of money to be held on trust for the purchase of a property to cater for the accommodation need of a child with a reversion to the paying parent. However, in this case, the Court of Appeal did not find that the existing housing arrangement for Z was unreasonable. The Mother and Z had resided in a 3-bedroom Bel-Air apartment for almost 3 years i.e. since the Mother and the Father’s separation. The Father continued to pay for the rent of the accommodation, including an increase in rent. The Court also sympathised with the Father’s concern about the timing of investing into the volatile property market in Hong Kong at the time.

CCMJ v. SSM formerly known as SKL (FCMP 67/2010) (Judgment date: 5 June 2015)

Background

The Mother and the Father came to know each other in 2005 and started cohabitation around 2 years later in 2007. The Mother gave birth to their daughter (“N”) in November 2008. Throughout the period of cohabitation, they lived at the Father’s parents’ residence in Kowloon Tong, which is a 4-storeys townhouse of about 4,800 sq. ft., together with the Father’s 4 other family members and 2 domestic helpers.

When N was about 6 months old in May 2009, the parties’ relationship broke down. The Mother and N left the Kowloon Tong property and moved back to live with her maiden family in their 3-bedroom apartment of about 800 sq. ft. (in which 5 persons were living there) whereas the Father continued to stay in the Kowloon Tong property. Back in November 2007, the Father himself bought a newly built property in One Silver Sea for a consideration of HK$6.9 million.

The Mother made an application, amongst other things, for transfer of the One Silver Sea property, or alternatively a lump sum of HK$13 million to be held on trust for the purchase of a property with reversion to the Father.

It is the Father’s evidence that he only moved into the One Silver Sea property in around May 2014, and that the property was purchased for his financial security and all along intended to be his ultimate home after his parents pass away. He therefore opposed the Mother’s application for transfer of the property.

Decision

Upon consideration of the relevant principles in IDC v SSA and the other English authorities considered in that case, the Court held that N should be entitled to be brought up in circumstances which are in line with the Father’s current resources, so as to maintain the standard of living for N’s best interests:-

“Considerations as to the length and nature of the parents’ relationship and whether or not the child was planned are generally of little if any relevance, since the child’s needs and dependency are the same regardless” : J v. C (Child : Financial Provision) [1999] 1 FLR 152 at 154B.

On arriving at its decision, the Court considered the practical difficulties of fixing the appropriate level of money needed to acquire a suitable accommodation for N. Since whatever property to be acquired would be purchased under the Father’s name and settled for N’s use with reversion to the Father, there is a Secondary Stamp Duty (SSD) issue which may be payable because the Father had already owned his first property, namely, the One Silver Sea. Such SSD would absorb most of the money available for the purchase. There was also a difficulty for the Father to obtain mortgage financing because of his possible early retirement.

After eliminating the option of purchase of a new property for the Mother and N, the Court decided that the One Silver Sea property owned by the Father could be settled on trust with a reversion to the Father upon N reaching 18 or completing full time education, whichever is the later, in accordance with section 10(2)(e) of the GMO. The fact that the property is encumbered by a mortgage would not prevent it from becoming the subject matter of a settlement.

The Father later sought leave to appeal but his application was dismissed.

CWYW v CCH (FCMP 124/2013) (Judgment date: 19 August 2016)

This is the Mother’s application under section 10(2) of the GMO for the maintenance and benefit of her daughter TS born out of a very short relationship with the Father between December 2010 and May 2011.

Having placed particular emphasis on what is considered to be reasonable having regard to the means of the parent to whom the application is directed, the Court ordered the Father to pay, amongst other things:-

  1. Periodical payments for the benefit of the child until the child reaches the age of 18 or completes full time education, whichever is the later;
  2. The estate agency fees and rental deposit for the rental of future accommodation for the child;
  3. A lump sum as the cost of setting up a new home and purchase of a new car.

Conclusion

In a city such as Hong Kong which has a high end and volatile property market, we await a decision in which the Court exercises its jurisdiction under Section 10(2)(e) of the GMO to make an order for the settlement of property. In the meantime, the Court will continue to make provision for the housing needs of a child by making orders to meet rental costs.

 

Contacts:

Caroline McNally, Executive Partner
+852 3405 7629
carolinemcnally@gallhk.com

Chantelle Woo, Associate
+852 3405 7600
chantellewoo@gallhk.com