DC v. AZF

FCMC 13675/2015

[2021] HKFC 77

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 13675 OF 2015

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BETWEEN

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J U D G M E N T

( Ruling on Costs )

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1.  In these proceedings, the Wife sought maintenance for the two children of the family. Judgment was handed down on 24 September 2020. Put shortly, the Wife succeeded in her claim. Costs were reserved. The Court gave the following directions:

(1) The Wife do file and serve her submissions on costs within 21 days;

(2) The Husband do file and serve his submissions on costs within 21 days thereafter,

(3) There be a paper disposal on costs.

2.  The Wife is now seeking costs on an indemnity basis. As is consistent with his past behavior, the Husband has failed to respond to the Court’s directions in any way.

Applicable Principles

Costs Follow the Event

3.  Section 91A of the Matrimonial Causes Rules, Cap 179A provides as follows:

“Where the costs of and incidental to any matrimonial proceedings are directed to be taxed, R.H.C. Order 62 shall have effect in relation to the costs of proceedings in the Court of First Instance, and R.D.C. Order 62 shall have effect in relation to the costs of proceedings in the District Court”.

4.  Order 62 of the R.D.C. and the R.H.C. provide that costs normally follow the event. Order 62 rule 5 sets out the matters to be taken into account by the Court when exercising its discretion as to costs:

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

(aa) the underlying objectives set out in order 1A, rule 1…

(a) …

(b) …

(c) …

(d) Any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(e) The conduct of all the parties;

(f) Whether a party has succeeded on part of his case, even if he has not been wholly successful;

(g) Any admissible offer to settle made by a party, which is drawn to the Court’s attention.

(2) For the purpose of paragraph (1)(e), the conduct of the parties includes –

(a) Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) The manner in which a party as pursued or defended his case or a particular allegation or issue;

(c) Whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) Conduct before, as well as during, the proceedings.”

Indemnity Costs

5.  In KJ v KMLM and KCK [2014] HKCU 1409 at paragraphs 21, 22 and 24, the Court of First Instance stated:

“21. The principles applicable to indemnity costs are well settled. The starting point for taxation in hostile litigation is that costs should be taxed between party to party: See Town Planning Board v Society for protection of Harbour Ltd. (No.2) and Overseas Trust Bank Ltd v Coopers & Lybrand (a firm). To qualify for costs on an indemnity basis, the successful party should show some special or unusual feature in the case. The proceedings must be instituted or prosecuted in circumstances as to constitute an affront to the court. Usually there must be something disgraceful in the conduct of the losing party or his legal representatives such as to cause the court to feel a proper sense of indignation. Normal litigious hostility would not suffice: See Town Planning Board v Society for protection of Harbour Ltd. (No.2); Overseas Trust Bank Ltd v Coopers & Lybrand (a firm) and Man Fong Hang v Man Ping Nam. In exercising its discretion as to costs, the court must take into account the conduct of both the successful and losing parties before, as well as during the proceedings: See Order 1A, rule 1(1) and Order 62, rule 5 of the Rules of the High Court (“RHC”).

22. If unreasonable conduct is relied on, the losing party’s conduct would need to be unreasonable to a high degree. In this context “unreasonableness” does not mean merely wrong or misguided in hindsight: See Kiam v MGN Ltd (No.2). Advancing a case which is difficult, unlikely to succeed or which in fact fails, or without any foundation in law or fact, or devoid of merits, is not necessarily in itself a sufficient reason for an award of indemnity costs: See Overseas Trust Bank; Shaina Investment Corporation v Standard Bank London Ltd; Golden Sand Marble Ltd v Hsin Chong Construction Co Ltd; Kao, Lee & Yip (a firm) v Midland Realty International Limited. The court’s finding that the claim or the ground of defence is plainly and obviously incredible on the fact, or that the evidence has been deliberately untruthful will not necessarily in itself warrant an order of 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: Choy Yee Chun v Band Star Development Ltd; and Kao. Lee & Yip.

23. The court may also mark its disapproval of the conduct pertaining to part only of a party’s case by ordering costs of that part only to be assessed on an indemnity basis, with the rest assessed on party-and-party basis: see Man Fong Hang.

24. Ms Yip, counsel for the Husband, referred to the uniqueness of family cases which usually involve highly sensitive and emotional matters such carving up of assets as result of breakdown of a marriage. She argued that making a costs order would effectively be pouring salt on the wound, and worse still with indemnity costs. Her argument is based on the English Family Procedure Rules 2010 which are inapplicable to Hong Kong. That part, if the conduct of the losing party is of a more venal kind and the conduct of the litigation has in some sense been wicked, the rules, even if applicable, could provide no answer to an award of indemnity costs. An indemnity costs order is necessary to mark the court’s disapproval of such venal and wicked conduct and to provide consolation to the injured party”.

6.  In KJ v KMLM, the Court set out the extensive conduct by the husband and his father both before and during the proceedings. In respect of the husband’s father’s conduct:

“29. Then, in the discovery proceedings, the father assisted the Husband in obstructing discovery. The Husband first sheltered himself behind the Father. Then, with the father’s connivance, he staged his own dismissal from the family companies both to obstruct discovery and to support his application for reduction in maintenance pending suit…Despite penal notices were served with the orders for discovery, the father remained obstructive. He might have been ill-advised by those then representing him. Be that as it may, the fault was his. He together with the Husbnad put the Wife to disproportionate costs in bringing and prosecuting her claim…The way they conducted the proceedings wasted much of her costs. They must have known that her financial resources were limited. I cannot come to any other conclusion but the obstruction were to bring financial and emotional pressure on the Wife in these proceedings and with a view to defeat her claim for financial provision. Their conduct of the proceedings at that stage was wicked.

30. Mr. Mok argued that the father had been penalized with indemnity costs in the discovery proceedings. Be that as it may, that is of no consolation to the Wife who was made to incur hefty and unnecessary costs which but for their conduct she could have saved. I do not think it is open to the father and Husband to argue that way. Their conduct of litigation was of a venal kind. It suggested that all along they acted with a fraudulent intention. Their failure in the section 17 issue was another clear expression of their intention. That intention coloured their entire conduct of the proceedings. In the light of that, I do not consider it appropriate to order different basis of taxation for the different issues. A fraud had been perpetrated, it was appropriate to order costs on indemnity basis: See Pacific Electric Wire & Cable Company Ltd v Texan Management Ltd & Others.

31. Even after a change of legal team, the father was resisting discovery. Discovery was never complete. Valuation of the shares of Company A was qualified. The Wife was forced to accept a half-baked cake for expediency reason and costs consideration. I understand that an unpleasant relationship had developed between the father and Wife prior to commencement of proceedings. I can also understand that hostility might have developed since commencement of the proceedings. I do not take the resistance as an adverse conduct against the father, but it was not anything to be said in his favour”.

7.  As to the Husband’s conduct:

“45. The applicable legal principles relevant to indemnity costs are set out in paragraphs 21 to 24 above. The reasons I gave in paragraphs 27 to 32 in refusing the father’s application to reduce the taxation basis of the Wife’s costs apply with much greater force against the Husband than the Father. The Husband created acrimony even before the proceedings commenced. He drastically reduced the Wife’s maintenance and suspended her credit cards and membership in the Hong Kong Jockey Club and the Hong Kong Country Club. Apart from staging his own dismissal from the family companies, he concocted evidence of his lack of means. He procured his driver to enter into a tenancy agreement for a small apartment under his name, while enjoying another luxurious life style. His uncooperative, deliberately withholding discovery making it impossible for the court to assess his relationship with the family companies and the family assets. I made the same finding of his conduct before me. He refused to answer interrogatories or gave evasive or misleading answers. He put the Wife to disproportionate costs in bringing and prosecuting her claim. He repeatedly lied in affirmations filed for interlocutory applications. He was evasive and perjured in the witness box. He wasted much of the court’s time and the Wife’s costs. Having regard to his pre-action dishonesty, pre-trial dishonesty, and his performance at trial, I consider indemnity costs appropriate to mark the court’s indignation of his conduct.”

8.  In Hashem v Ali Shayif [2009] 2 FLR 896, Munby J pointed out:

“The costs: the wife’s costs of the ancillary relief proceedings

[17] Mr. Wagstaffe submits that so far as the wife’s costs are concerned, she has the plainest possible claim for costs against the husband. He reminds me of the following points:

(i)…

(ii) The wife has been obliged to pursue her claim against the husband to trial (and beyond), and has been fully vindicated by the outcome. The husband’s stance was that the wife was not entitled to anything, and to the extent that he made any offer at all – his acceptance that the wife could have the value of his 30% shareholding in the company – that offer was too little and too late. The wife’s claim for financial provision against the husband was completely successful: she was awarded not a penny more and not a penny less than she had contended for at trial. As against him her stance was entirely vindicated.

(iii) The husband wholly failed to co-operate with the litigation process, failing even to complete a Form E. Such disclosure as he provided was woefully inadequate and demonstrably false. These failures di not simply sound in the inferences adverse to the husband which the court has already drawn; they should also sound in costs. The husband has adopted a deliberate strategy of ‘stringing out’ the proceedings for as long as possible.

(iv) The husband’s repeated breaches of substantive orders for financial provision as opposed to orders dealing with directions and so forth) – in particular the maintenance pending suit order, the A v A order and the substantive financial provision orders which he has wholly failed to comply with – are, on the court’s findings, willful and contumacious.

(v) Both because the wife has succeeded in full in her ancillary relief claim, and as a badge of the court’s displeasure as regards the husband’s litigation conduct, the wife should have her costs paid by the husband in full from the outset of the proceedings.

18. I agree with Mr. Wagstaffe. This is the plainest possible case for making the husband pay the wife’s costs of proceedings in which, as against him, she has been fully vindicated. For all the reasons given by Mr. Wagstaffe, costs should here follow the event and should be awarded on an indemnity basis.

9.  In LYE v CWW and Another (Indemnity Costs) [2008] HKFLR 148, HH Judge Bebe Chu (as she then was) cited Macmillan Inc v Bishopgate Investment Trust Ltd:

“The power to order taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose. Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win. Nor are these necessarily the only situations where the jurisdiction may be exercised; the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be appropriate”.

Application of Principles

10.  The Wife submitted that the Husband’s conduct in the present case has been appalling. He has been in repeated breach of various Court Orders:

(1) In breach of the Order dated 22 November 2016 and his undertaking, he has failed to pay the children’s maintenance and their school fees for the academic year of 2016/2017. The Wife had no alternative but to take out proceedings in the US to enforce the order;

(2) In breach of the Order dated 28 February 2018, the Husband failed to:

(a) File his updated Form E;

(b) File his narrative Affirmation; and

(c) Attend the 1^st PTR on 8 June 2018. As a result, a 2^nd PTR had to be fixed for 26 September 2018;

(3) In breach of the Order dated 6 June 2018, the Husband again failed to:

(a) file his updated Form E;

(b) file his narrative Affirmation;

(c) Attend the 2^nd PTR on 26 September 2019

(4) In breach of the Unless Order dated 26 September 2018, he failed to attend the ancillary relief trial. He never filed his updated Form E or narrative Affirmation

11.  The Husband’s financial disclosure was piecemeal, incomplete and inaccurate.

12.  The Husband eventually disclosed some financial information on 30 August 2018 (which was only provided to the Wife on 18 September 2018) and on 4 October 2018 (6 days before the ancillary relief trial. His purported Form E was incomplete and unsworn. The Court found that:

“80. His purported disclosure was described by the Wife as “an information dump”, meaning that he has simply provided a bundle of documents with no explanation whatsoever, leaving the Court and the Wife to search for information and work out his financial circumstances. It is trite law that provision of information in this manner is no disclosure at all…

82. …This Form E was unsworn and the Husband deliberately chose not to attend Court to be cross examined. No documents were attached to his Form E. It is next to impossible for the Court to place any weight on this document.”

13.  This Court has repeatedly found the Husband’s disclosure to be “inconsistent”, “untrue”, “evidently wrong” or “an attempt to mislead the Court”. The Husband has also repeatedly failed to explain the whereabouts of his assets. He has also been found to be untruthful about both his income and expenditure. As a result, the Court drew adverse inferences against the Husband as he had clearly failed to make full and frank disclosure.

14.  The Husband’s conduct has also prolonged the proceedings. The 2^nd PTR was fixed for 26 September 2018 to give the Husband a second chance to attend the PTR and file his evidence. This hearing was fixed because the Husband indicated in one of his many letters that he would be available after early September 2018. Notwithstanding the Court’s accommodation, he still failed to attend the hearing and or file any evidence. Not only was the Court’s time wasted, so was the Wife’s costs for preparation and attending the hearing.

15.  The Wife has also incurred costs to address the Husband’s various ‘requests’. His requests included:

(a) To adjourn the hearing on 8 June 2018;

(b) To attend the hearings by way of video conferencing facilities and Skype;

(c) To withdraw and or transfer these proceedings to the Court in San Francisco;

(d) To challenge jurisdiction and/or forum.

16.  The Husband sought to adjourn the PTR hearing on 8 June 2018 by reason of ‘work unavoidable commitments and not being able to take time off”. The Court found his excuses to be untrue and described such “request” to “make no sense”.

17.  The Husband did not appear at the trial, leaving the Court to consider whether trial should be conducted in his absence.

18.  The Husband claimed that he could not make arrangements to attend trial in October 2018. However, the Court found that he came to Hong Kong in October 2018 and had access with the children on 17 to 19 October 2018 and that his failure to appear at the trial was deliberate.

19.  The Husband repeatedly requested to attend by way of video-conferencing facilities. He knew that he must formally apply to the Court and make arrangements. Nevertheless, no application was ever made. Significant time and costs were wasted dealing with these requests not only by the Court but also by the Wife’s solicitors in correspondence.

20.  The Husband also made repeated requests by correspondence to withdraw and or transfer these proceedings to San Francisco. No proper application was ever made. The Wife was forced to waste costs in repeated correspondence with the Husband in this respect.

21.  The Husband is the Petitioner in these proceedings. He chose to commence proceedings here and has submitted to jurisdiction. His forum challenge was made in August 2018, almost 3 years after the commencement of proceedings. During this time, he actively participated in the proceedings. Even if a formal application had been made, the application would have bene utterly hopeless and a waste of time and costs.

22.  This Court granted a Hemain injunction against the Husband for taking further steps in the divorce proceedings in San Francisco. He was aware of the injunction against him. In breach of the injunction, he proceeded to fix a hearing for the US proceedings, which was scheduled for 7 January 2021.

23.  The Wife submitted that the Husband’s conduct in this case is similar to those of the Husband in Hasem v Ali Shayif. Like that case, the Husband wholly failed to co-operate with the litigation process, failing even to complete a Form E. His disclosure being wholly inadequate and demonstrably false. Similarly, the Husband’s repeated breaches of substantive orders for financial disclosure and court attendance were willful and contumacious.

24.  The interim payment made by the Husband in September 20176 was clearly inadequate to meet the children’s needs. The Wife has been forced to take out personal loans to pay for the children’s expenses. The Husband also ceased to pay the children’s school fees since the academic year of 2017/2018. As a result, the children were left at the mercy of the school’s bursary system. Had the school refused to provide or had substantially reduced financial aid, the Wife would not have had the financial resources to maintain the children at their school.

25.  The Husband knew of the Wife’s precarious financial situation but chose to avoid financial disclosures and prolonged these proceedings. His ulterior motive was clearly to exert emotional pressure on the financially stricken Wife and the children in an attempt to stifle the Wife’s claims and to force the Wife to agree to relocate to the US.

26.  During the course of these proceedings, the Wife has issued various without prejudice offers in an attempt to achieve an amicable settlement with the Husband. The last without prejudice offer was set out in a letter dated 5 October 2018. She offered inter alia to accept:

(1) A sum of HK$13,667 per month, being tuition fees for both children;

(2) A sum of HK$594 per month, being the children’s non-refundable building levy;

(3) A sum of HK$12,000 per child per month (to be index linked) as maintenance;

(4) A lump sum of HK$168,000, being the overdue/underpaid maintenance since September 2017.

27.  In her closing submissions, the Wife sought, inter alia:

(1) The Husband do pay the Children’s tuition (inclusive of school fees and building levy);

(2) Subject to the Husband paying the children’s tuition expenses, the Husband do pay he Wife periodical payments in the sum of HK$13,969.50 per month for each child (to be index linked);

(3) The Husband do pay the Wife a sum of HK$47,364, being 2 months’ worth of school fees;

(4) The periodical payments for the children to be back dated to September 2017.

28.  The order made by this Court after trial was better than the Wife’s without prejudice offer. The Husband was ordered to pay:

(1) The children’s tuition expenses (inclusive of school fees and building levy);

(2) Subject to the payment of the tuition expenses, the Husband do pay the Wife periodical payments in the sum of HK$13,969.50 per month for each child, such payments to be index linked;

(3) Periodical payments to be backdated to September 2017.

29.  The Court agrees with the Wife’s submissions. Not only has the Husband failed to make full and frank disclosure, his attempts to mislead the Court, his “information dump”, his total disregard for law and procedure and his litany of unmeritorious ‘requests” has resulted in a complete waste of time and costs. His behavior has been wicked and venal and this is an appropriate case for the Court to mark its disapproval by ordering the Husband to pay the Wife’s costs on an indemnity basis.

30.  By reason of the above, I make the following Orders:

(1) Costs of these ancillary relief proceedings (including all costs reserved) be to the Respondent on an indemnity basis, to be taxed if not agreed;

(2) The Respondent’s own costs be taxed in accordance with Legal Aid Regulations.