ZQA AND OTHERS v. SCC (sued as Executor and Beneficiary of the Estate of the Deceased) AND OTHERS

FCMP 63/2017

[2023] HKFC 78

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 63 OF 2017

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DECISION
( Variation of Costs Order Nisi )

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Applications

1.  On 29 November 2022, this court handed down the written judgment after trial in the present action (“Judgment”), whereby the claim of the 1^st Applicant (“Madam Z”) was dismissed and a total sum of HKD3,240,000 (“Judgment Sum”) was ordered to be paid out of the net estate of the Deceased for maintenance of the 2^nd and 3^rd Applicants (collectively, “Children”). An order nisi on costs (“Order Nisi”) was also made. The abbreviations in the Judgment are adopted herein.

2.  By three summonses, separately taken out on 13 December 2022 by the First Family and the Brother (1^st to 3^rd Respondents), the Second Family (the 4^th to 6^th Respondents) and the Parents (the 7^th to 8^th Respondents), each sought different variations of the Order Nisi.

3.  However, when it comes to the submissions of the Respondents at the present hearing, all the Respondents confirm that the variation sought is limited to the Order Nisi insofar as it relates to the costs between the Applicants and the Respondents only. It is argued for the Respondents that the order nisi to the effect that there should be no order as to costs between the Applicants and the Respondents in the whole proceedings should be varied.

4.  Instead, the Second Family contends that there should be no order as to costs up to and inclusive of 7 June 2021 only and thereafter their costs of the proceedings should be paid by the Applicants on indemnity basis. On the other hand, the other respondents ask for their costs of the whole proceedings be paid by the Applicants on indemnity basis.

5.  The Applicants oppose their applications, seeking the Order Nisi should be made absolute.

Grounds of Applications

6.  The Respondents, in general, invite this Court to consider the following three matters in arriving at the variation prayed for: -

(1)   The without prejudice Calderbank offer put forward jointly by all the Respondents on the morning of the first day of the trial on 8 June 2021 (“Joint Offer”).

(2)   The adverse conclusions and inferences reached in the Judgment on the evidence of Madam Z who was the sole witness for the Applicants.

(3)   The unreasonable conduct of the Applicants, or more accurately Madam Z who also acted on behalf of the Children throughout the proceedings.

Procedural History

7.  I should briefly set out the procedural history relevant to the present applications as follows.

8.  Madam Z, the mistress of the Deceased, commenced the present proceedings, seeking financial provisions for herself and the Children to be made out of the net estate of the Deceased pursuant to the Inheritance (Provision for Family and Dependents) Ordinance, Cap 481 (“IPFDO”).

9.  Of the value of the estate of the Deceased (“Estate”), the Applicants served interrogatories on the Executors. Subsequently, the Eldest Son produced the Executor’s Account which purportedly showed the size of the Estate in his affirmation filed in May 2018. Dissatisfied with the Executors’ answers to the interrogatories and their delay, the Applicants commenced separate contempt proceedings against the Executors, ending up with the Executors being found to be in contempt of court and accordingly, sentenced to three months’ imprisonment on 31 July 2020.

10.  In the appeal brought by the Executors against both conviction and sentence under actions CACV363/2020 and CAMP 171/2020 (“Appeal”), the Court of Appeal allowed the appeal on the finding of contempt and the sentence. The Reasons for Judgment was handed down on 24 February 2021 (“Reasons for Judgment”). The Court of Appeal ordered the Applicants to pay costs of the appeal to the Executors (“Appeal Costs Order”) and no order as to the costs below. The trial of this action was directed to be listed before another judge. The trial was subsequently listed before me.

11.  By letter of the solicitors newly appointed by the Executors dated 15 April 2021 (“2021 Letter”), the Executors updated the size of the Estate amounting to HKD9,780,257. The same was reflected in the Schedule of Assets and Liabilities of the Deceased jointly submitted by the parties at the pre-trial review hearing on 7 May 2021. Such sum was reached by deducting the disputed liabilities of the Estate claimed by Madam T in the sum of HKD2,870,992 (“Alleged Payments”) from the agreed value of the Estate of HKD12,651,249.

12.  Shortly before the trial, all the parties were in general consensus that the value of the Estate of the Deceased was no less than HKD12,651,249. The Applicants however sought to argue that the net value of the estate should be HKD14,211,249. On the other hand, Madam T asked for reimbursements of the Alleged Payments, allegedly her payments in settlement of the Deceased’s debts and liabilities, out of the Estate.

13.  Other than Madam T who sought to claim for reimbursement of the Alleged Payments, the Respondents had neither made any competing claims nor raised any positive case in present action. They sought to maintain a neutral stance and put the Applicants to strict proof of their case. Only Madam Z, Madam T and the Eldest Son (in the capacity of the Executor) gave evidence at trial. The other parties neither filed any affirmations nor gave evidence in court.

14.  After trial, I found Madam T to have succeeded in recovering some of the Alleged Payments and the net value of the Estate was HKD12,897,260.

15.  The circumstances giving rise to the Joint Offer are not disputed. The Joint Offer was made jointly by all the Respondents out of court to settle all the Applicants’ claims in the present action in the global sum of HKD5,000,000 with no order as to costs of the whole proceedings, plus a waiver of the Executors’ entitlement to the costs under the Appeal Costs Order.

Legal Principles

16.  It is trite that costs are in the discretion of the Court. The discretion is a wide one, albeit to be exercised judicially. Generally, costs follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs: Order 62, rule 3(2) of the Rules of the District Court (Cap. 336H) (“RDC”).

17.  In exercising its discretion, the court will take into account the matters set out in Order 62 rule 5(1) RDC, such as the conduct of the parties, whether a party has succeeded on her case, in whole or in part, together with sensible offers to settle. The underlying objectives in litigation of fairness, proportionality and procedural economy in Order 1A rule 1 RDC should be considered.

18.  The conduct of the parties includes whether it was reasonable for the party to raise, pursue or contest a particular allegation or issue, the manner in which a party has done so and the conduct of the parties before and during the proceedings.

19.  Advancing a case without any foundation in law or fact is not necessarily in itself a sufficient reason for an award of indemnity costs. The court’s finding that the claim is plainly incredible on the fact, or that the evidence has been deliberately untruthful will not strictly in itself warrant an order for indemnity costs. The conduct of the losing party must be of a more venal kind and the conduct of the litigation has in some sense been wicked: KJ v KMLM and KCK [2014] HKFLR 227 at §§21-23.

20.  A Calderbank offer is a matter which the court is entitled to take into account in exercising its discretion as to costs pursuant to Order 62 rule 5 RDC. The question is whether, on the basis of the facts known to the offeree and her advisers and without the advantage of hindsight, she ought to have accepted the offer, bearing in mind the difficulty of making accurate forecasts. The rejection of a reasonable Calderbank offer may attract an adverse cost order against the offeree, even on a higher scale. The extent depends on the circumstances of the case.

Post-Joint Offer Costs

21.  At the present hearing, all the Parties confirm that the Joint Offer constitutes a Calderbank Offer and Order 22 RDC has no application in these proceedings. Hence, the exclusionary provisio under Order 62 rule 5(1)(d) RDC is not engaged.

22.  On the argument on whether the rejection of the Joint Offer should attract adverse cost consequences, the Applicants, sensibly, raised no serious arguments to dispute that the Joint Offer was much more generous than what they were awarded under the Judgment and they have failed to beat the Joint Offer.

23.  The Applicants’ arguments focus on the timing of the Joint Offer. It is contended that the Joint Offer was made at too late a stage, on the morning of the first day of trial. It was not reasonable to expect them to make a decision in such a short time frame. They seek support from several decided cases to argue that a settlement offer which was put forward at a late stage in the proceedings might not be taken in account when awarding costs.

24.  Suffice it to say that those decided cases were remarkably different from the present case in many ways. Each case turns on its own facts and no general principle in this aspect can be formulated on the peculiar facts in those cases. What is a reasonable time depending on the circumstances of each case: Wong Yik Po & Ors v Director of Lands [1996] 1 HKC 586 at §§593H to 594B.

25.  The present action was commenced by Madam Z to seek financial provisions for herself as well as her 2 minor daughters under the IPFDO. She was the sole witness for the Applicants who bore the burden of proof. The financial resources and the financial needs of the Applicants were within her personal knowledge. The Applicants were indeed complete strangers to the Respondents until around the commencement of the present proceedings.

26.  Other than Madam T who sought to claim for reimbursements of the Alleged Payments from the Estate, none of the Respondents had put forward any competing claims or positive cases. Except for the Eldest Son who gave evidence for the value of the Estate in the capacity of the executor and Madam T who testified for her claim for the Alleged Payments, none of the Respondents gave evidence in the present action. The Respondents simply put Madam Z to strict proof of the Applicants’ case.

27.  Coupled with the fact that the Applicants have engaged legal teams to assist them throughout the whole proceedings, Madam Z, undoubtedly, was the one who had the best knowledge of the financial resources and financial needs of the Applicants and should stand ready to realistically consider any settlement offer put forward.

28.  I am also alive to the fact that the parties actually reached consensus on the value of the Estate of no less than HKD12,651,249 shortly before the commencement of the trial. The Applicants were indeed fed with actual figures to assess their claims as well as the Joint Offer. Despite the Applicants sought to argue the actual net value of the estate should be HKD14,211,249 at trial, my findings was the net value should be HKD12,897,260, a figure very close to the general consensus of HKD12,651,249. The difference between the two figures would not add much impact on the Applicants’ claims.

29.  I should add that as early as at the pre-trial review hearing on 7 May 2021, the legal teams of the parties had helpfully prepared and submitted the agreed list of issues in dispute as well as the agreed schedules on non-agreed assets, liabilities and expenses. The matters in dispute were clearly confined and defined by then. Accordingly, the Applicants should have been in a better position to more sensibly assess the validity and quantum of their claims.

30.  It goes without saying that the Applicants were familiar with settlement procedures and costs implications through the series of settlement negotiations between the parties since as early as 2019. Since then the parties had embarked on mediation, exchanges of offers and counter-offers. Attempts to settle continued and settlement offers were put forward even at around the pre-trial review hearing.

31.  The Joint Offer was the last attempt of settlement which was put forward by the Respondents jointly on that morning of the first day of trial. Apart from some housekeeping matters which this Court dealt with in the meantime, the parties jointly agreed to a short adjournment for out-of-court settlement negotiations.

32.  Indulgence was further granted to the parties to consider and exchange settlement offers. The Applicants did not open their case until after 3:30 p.m. on that day. Madam Z only gave evidence at trial on the next day, 9 June 2021. During the period, the parties made use of the opportunity to consider and exchange settlement offers. Madam Z, through solicitors, had considered and rejected the Joint Offer. She further put forward a counter-offer of HK$6,500,000 with no order as to costs for the present action plus the Executors’ waiver of their entitlement to costs under the Appeal Costs Order.

33.  The exchange of the Joint Offer and the counter-offer before Madam Z testified on the second day of the trial gave no room for a complaint of deprivation of opportunity to seek legal advice and consider the Joint Offer. I should however state that the legal team who acts for the Applicants at the present applications did not represent the Applicants at trial. Mr Leung was not the trial counsel for the Applicants.

34.  The peculiar circumstances of this case considered, the Applicants’ proposition that they were in lack of opportunity to consider the Joint Offer or to be advised of it is unconvincing. In my view, Madam Z was in a good position to consider the Joint Offer. She was given reasonable time to assess it.

35.  I also take the view that the Respondents should not be blamed for the lateness of the Joint Offer bearing in mind that Madam Z had, only in her fifth affirmation filed on 10 May 2021, for the first time, disclosed the total worth of her assets at HKD25,445,617, which was far more than that she had disclosed previously.

36.  By choosing to have her day in court, Madam Z took the risk of not being able to discharge the burden of proof and beat the Joint Offer. She did so not without problems in terms of the quality and quantity of evidence in respect of the financial resources and financial needs of the Applicants that were highlighted in the Judgment. Several aspects of the Applicants’ case were found to be incredible or inflated.

37.  At the present hearing, the Applicants do not seriously dispute that the Joint Offer had exceeded to a significant extent the award eventually made in the Judgment. They could have walked away with HK$5,000,000, freeing themselves from the burden of paying the costs of the present proceedings as well as the costs under the Appeal Costs Order right at the start of the trial and before Madam Z gave evidence, saving the costs and time of a full blown trial. The Executors says that their bill of costs for taxation pursuant to the Appeal Costs Order amounts to HK$1,328,314.4 plus interest.

38.  All relevant factors considered, the fact that the Applicants could not beat the Joint Offer is a good reason to order the costs against them for having refused to accept the Joint Offer from that point onwards. The existence of the Joint Offer which I could not have been cognizant of, when I made the costs order on a nisi basis.

39.  That said, in view of the fact that the Joint Offer was made orally on the spot on the first day of trial before the Applicants opened their case, which was reduced into writing that evening, the Applicants should be provided with reasonable time to take advice and consider the Joint Offer before she chose to give evidence at trial on 9 June 2021. I take the view that in any event the Applicants ought to have accepted the Joint Offer on 9 June 2021. They should bear the costs of the Respondents thereafter.

40.  I am also not impressed by the Applicants’ another argument that the Joint Offer ought not be accepted because it was essentially an “in principle” global offer without detailed payment terms or apportionment between the Applicants.

41.  Plainly the Joint Offer was in clear and unambiguous terms that a lump sum payment was to be paid. It was however rejected by the Applicants outright instead of working out the logistic of payment. It is not right for the Applicants now turn to use this to shift the blame onto the Respondents.

42.  Strictly a settlement agreement for the benefits of minors requires approval of the court under Order 80 rule 10 RDC. In a settlement involving minors, the costs of the proceedings would normally be paid by the paying party on a common fund basis so as to avoid the legal costs draining the benefits of the minors.

43.  However, such arrangement is just a general practice but not a rule of law. As long as the judge is alert to these dangers and is satisfied that the interests of the minors are well protected, there is no prohibition on the judge from making other costs order. All depends on the circumstances of the case.

44.  Given the Joint Offer exceeded to a significant extent the award eventually made in the Judgment, to that the Applicants have raised no serious challenge or basis of challenge, there is simply no basis to suggest that the Joint Offer would not be approved by the court. Nor is there any indication that the legal costs would in effect substantially reduce the benefits of the Children to a position less favourable than that in the Judgment.

45.  In fact, not until the present applications, the Applicants had not complained to the Respondents that they were deprived of sufficient time to consider the Joint Offer. Nor had they asked for common fund costs or apportionment of settlement sums for the Children.

46.  Thus analyzed, I am not persuaded that the Applicants could justify their rejection of the Joint Offer given the peculiar features of the present case.

Pre-Joint Offer Cost

47.  I however take the view that this is not a case which warrants pre-Joint Offer costs or indemnity costs. While this Court had misgivings about Madam Z’s credibility, I do not ignore the fact that the present proceedings were in substantial part to secure the maintenance of the Children and for which the Children were at least partly successful bearing in mind that not until the Joint Offer, no realistic settlement offers had been put forward by the Respondents.

48.  The two settlement offers jointly put forward by the Respondents in the sums of HK$1,000,000 and HK$2,000,000 respectively on 7 and 14 May 2021 were plainly unrealistic and too low as compared to the Judgment Sum. Prior to the Joint Offer, the Children were indeed left with no option but to proceed to trial to claim for their maintenance.

49.  Further, the Respondents’ position on the size and nature of the Estate evolved over time from 15 May 2018 (when the Eldest Son filed his first affirmation) until shortly before the commencement of the trial, when the solicitors newly appointed by the Executors updated the size of the Estate amounting to HKD9,780,257 on 15 April 2021. It was not until shortly before the commencement of the trial, the parties then reached consensus on the value of the Estate at no less than HKD12,651,249.

50.  Given the outcome of this case, there is no overall successful party in this case. Madam Z’s own claim was dismissed and the Children’s claims succeeded but only to the extent that the sums awarded were far less than the amounts they claimed. The dispute between Madam T and the Applicants focused on Madam T’s claim for the Alleged Payments. Eventually the Applicants succeeded in opposing part of the claim.

51.  Having regard to all the relevant circumstances, it is just and appropriate to make no order as to costs between the parties prior to and inclusive of 9 June 2021 and thereafter the Respondents’ costs shall be paid by the Applicants.

Higher Scale

52.  Failure to beat a Calderbank offer does not necessarily attract indemnity costs. Although this was hard-fought litigation, Madam Z’s litigation conduct was not so reprehensible as to warrant higher scale as sought by the Respondents.

53.  Much has been said about how Madam Z had prosecuted the present claim by animosity. I however do not see how the animosity found its way from the unique relationship of the parties as suggested by the Counsel for the First Family and the Brother. The suggestions that the animosity was originated from the Deceased keeping his relationship with the Applicants hidden, leaving them out of his will, not spending his final days with them is a mere speculation without valid basis. Plainly there was no such finding of animosity in the Judgment.

54.  The Counsel further seek support from the Applicants’ prosecution of the contempt proceedings as well as opposition of the bail application and the Appeal to justify their contention of animosity and vexatious investigation of the estate by the Applicants.

55.  Looking the matter in the round, I am slow to find such litigation conducts as a proof of the present proceeding being tainted with animosity and vexation. I had the benefit of reading the Reasons for Judgment. In the contempt proceedings and the Appeal, the Executors filed further affirmations to account for the value of the Estate and explain their delay in so doing. While the Court of Appeal allowed the appeal and set aside the orders given by the family court in the contempt proceedings, the costs order granted in the Appeal was costs of the appeal be to the Executors with no order as to the costs below.

56.  The Applicants were not penalized with costs on a higher scale or the costs below. Instead, the parties in the Appeal were granted liberty to make applications for wasted costs order against the former solicitor of the Executors which would include, inter alia, to indemnify the Applicants against costs in the present proceedings and another proceedings occasioned by any delay or failure on that solicitor’s part to comply with the order of discovery given by the learned family judge dated 16 November 2017.

57.  I also cannot ignore the fact that the Executors kept updating the value of the Estate even after the contempt proceedings and lately, by the 2021 Letter. Upon which, the Applicants subsequently reached consensus with the Respondents on the value of the Estate of no less than HKD12,651,249, leaving the arguments on the value of the Estate be confined to essentially the Alleged Payments at trial.

58.  Viewed in this light, I am not persuaded that the prosecution of the contempt proceedings leading to the Appeal lends any support to the Respondents’ arguments. As to the argument on the Alleged Payments, both Madam Z and Madam T succeeded only part of their respective arguments and there was no overall winner on this issue.

59.  It is trite that costs may be ordered on an indemnity basis where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously or for an ulterior motive or in an oppressive manner: Hong Kong Civil Procedure 2023 Vol 1 at §62/28/2 and §62/App/12. All the relevant factors considered, no such features can be found in the present proceedings.

60.  Much reliance has been placed on Madam Z’s understatement of her financial resources and exaggeration of the Applicants’ financial needs aiming at building a claim sufficient to take more or take all from the Estate. Although Madam Z had been untruthful in part of her evidence, I did not find the present proceedings had been conducted maliciously, vexatiously or with ulterior motive in the Judgment. Nor did I find her conduct was so unreasonable to the extent that attracted liability to pay indemnity costs. After all, she managed to prove part of the claims of considerable amounts for the Children.

61.  Taking into account all the matters in Order 62 rule 5 RDC, the present action does not differ much from other hostile litigations in the normal litigious sense involving credibility. I am not of the view that this action merits the Respondents’ costs to be paid by the Applicants on a higher scale basis. The applications for the Respondents’ costs be paid on indemnity basis, trustee basis or common fund basis as suggested by the Respondents are not justified.

Summary Assessment

62.  It is not uncommon that the costs provided in the final judgment after trial would be taxed and not be summarily assessed. In further consideration of this case involving several parties, a number of costs orders between the parties in relation to these proceedings and the Appeal, the respondents’ own costs would have to be taxed if no agreement can be reached, it may not be appropriate or convenient to summarily assess the post-Joint Offer costs. I should order the costs to be taxed if not agreed.

Conclusion

63.  Having considered the submissions of all the parties and all the relevant circumstances, I order that the Costs Order Nisi made in the Judgment in so far as it relates to the costs between the parties be varied from “there be no order as to costs” to the following order:

(1)  there be no order as to costs between the Applicants and the Respondents up to and inclusive of 9 June 2021; and

(2)  the Applicants shall pay the costs of the Respondents thereafter, including all costs reserved, on party and party basis, to be taxed if not agreed. Certificate for two Counsel is granted.

Costs

64.  In the present applications, the Respondents only succeed in part of their applications. Each party succeeds some of its arguments but loses the others. There is no overall successful party in the present applications.

65.  Given the outcome of the present applications and having regard to all the relevant circumstances, the parties should bear their own costs of the present applications.

66.  I make an order nisi that there be no order as to costs between the parties in the present applications. The Respondents’ own costs be paid out of the Deceased’s estate, to be taxed on a solicitor and client basis, if not agreed. Certificate for two counsel is granted.

67.  This costs order nisi shall be made absolute in the absence of application to vary by way of summons within 14 days hereof.

68.  I thank Counsel, Mr Ng and Mr Wong for their assistance.