LWH also known as WHHL v. NKWS also known as KWSN

FCMC 2953 / 2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 2953 OF 2015

----------------------------

----------------------------

-----------------------------------------------

RULING ON INDEMNITY COSTS

-----------------------------------------------

Introduction

1.  In my judgment of the 13 June 2017, which arose out of a preliminary issues hearing, I made the following direction with respect to costs:

Costs

71.  It seems to me that this is a case where costs may quite rightly be ordered on a higher basis than normal. I will therefore reserve costs for argument.

2.  I made that direction because I was particularly concerned about the wife and the interveners litigation conduct. This is summarized in paragraph 69 of the judgment when I said as follows:

69.  Overall it seems to me that the wife and interveners failed repeatedly to come up to proof and that their version of events was inherently implausible from the start. Mr Coleman put it to the wife that she had gone into the husband’s office without his consent and that she had taken documents from locked drawers in his office without his agreement. The wife categorically denied this in the witness box. A video later produced however showed her doing just that and over a period of time. This is perhaps an indication of the lengths that the wife has been prepared to go. She certainly lied to the court on this occasion and appears to have done so repeatedly throughout this trial. The same can be said of the 1^st and 2^nd interveners.

3.  Mr Pilbrow SC appears on this occasion for the wife and interveners. He does not resist an order for costs on a party and party basis, but he does maintain that this is not a suitable case for costs to be ordered on an indemnity basis. Mr Coleman SC for the husband does not agree.  

4.  In summary, this was not a case where each side had an arguable case and each then chose to put their case at its very highest – as they are entitled to do. Rather it seems to me that this was a case where both the wife and the interveners appeared to have lied repeatedly during the course of the litigation process and over a long period of time. They did so because they wished to obtain the family businesses that the husband and wife had spent a life time building up. Although it is true that the factual situations relied upon in some instances occurred more than 25 years ago and consequently there was on occasion a lack of documentary evidence to support what each side had said, nevertheless it seems to me that the litigation behaviour of the wife and interveners is culpable and should be recognised as such. Mr Pilbrow S.C said that his clients genuinely believed in their cause. For the avoidance of doubt I do not accept that to be the case.

5.  There was also a further difficulty in that the wife and intervener’s case was not properly pleaded, making it very difficult indeed to properly identify the issues to be determined and to then deal with them appropriately.            

Background

6.  The background to both the parties’ marriage and the litigation can be found in paragraphs 6 – 17 of the judgment. Reference can be made to those paragraphs as required. I do not intend to repeat the same here.

7.  I also summarized what appeared to be each party’s case as follows:

The Husband’s case
18.  It is the husband’s case that he and the wife established a garment trading business in or about 1997 and that they set this up together and worked in it together. It is the husband’s case that all five companies are jointly and beneficially owned by him and the wife and that all assets held by these companies are likewise jointly and beneficially owned by them. He denies absolutely that the interveners are beneficial owners of any of the five Family Companies or that they hold any ownership interest of any kind in any of them. In the event that the court finds that any of the Family Companies or any of the assets held by the companies are infact legally held by the interveners then the husband maintains that they do so on trust for him and the wife.

The wife and the intervener’s case
19.  In essence it is the wife and intervener’s case that the interveners, Ip and J own the Family Companies and that J is the “boss”. It is further alleged that they provided all of the original seed money for the family businesses and that they then employed the husband and wife to work in them. Thus all of the companies either in whole or in part belong to them. As I have said it was never determined during the trial in what way they were claiming a part only of PCH, PCA and B. However, in the alternative they also advanced an argument in their closing submission, (not originally pleaded), that all of the Family Companies are infact wholly and beneficially owned by the interveners. I will come to this point again later.

The judgment

8.  At the end of the day I found entirely for the husband and said as follows:  

70.  In conclusion then I accept that all five Family Companies belong beneficially to the husband and wife. I further accept that whereas OB is held legally by the wife, that all of the other four remaining companies are held legally in the names of the husband and wife. For the avoidance of doubt it follows that all of the Family Companies shall be regarded as family assets, to be included in the matrimonial pot for distribution upon divorce. The properties held in the names of the Family Companies are also held beneficially by the husband and wife and they will also form part of the matrimonial pot. The declaration sought by the wife and the interveners in the Re Amended Points of Claim is therefore dismissed.

9.  Throughout the judgment I made findings against the wife and interveners. For the avoidance of doubt those findings do continue to stand. I will further particularize those findings below.

The issue

10.  There is then only one issue to be determined namely should costs be awarded against the wife and interveners on a party and party basis or on an indemnity basis?

Legal Principles

11.  The law is not in dispute and both parties referred me to similar legal authorities. In the first instance however I think it might be helpful to refer to my sister judge’s analysis of the correct approach in an unreported family case namely LYE and CWW and HWL, FCMC 14787 of 2002, 6 May 2005. In that case HH Judge Bebe Chu (as she then was) sets out the Legal Principles relating to indemnity costs as follows:

LEGAL PRINCIPLES

3.  According to Rule 3 of the Matrimonial Causes Rules, the Rules of the High Court (RHC) shall apply with the necessary modifications to the commencement of matrimonial proceedings in, and to the practice and procedure in matrimonial proceedings pending in the Court of First Instance or in the District Court.

4.  Rule 91A of the Matrimonial Causes Rules provides that where the costs of an 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.

5.  Order 62 Rule 28(3) in both R.D.C. and in R.H.C. provides that the Court in awarding costs payable to one party by another may in any case in which it thinks fit to do so order or direct that the costs shall be taxed on the common fund basis or on the indemnity basis.

6.  Any order for costs is in the discretion of the Court.  (see Headnote of Re Engindata Ltd (No. 2) 1993 1 All ER 232).

7.  Section 53 of District Court Ordinance Cap. 336 (equivalent to Section 52A of High Court Ordinance Cap. 4) provides that the Court shall have full power to determine by whom and to what extent the costs are to be paid.  See also Hong Kong Civil Procedure, 62/2/5:-

“The Court of Appeal in Choy Yee Chun (The Representative of the state of Chan Pui Yiu) v. Bond Star Development Ltd [1997] H.K.L.R.D. 1327, CA reviewed the cases and summarised the law as follows. A taxation of the successful party’s costs on an indemnity basis could properly be ordered where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner. Any proceedings instituted or prosecuted in such circumstances as to constitute an affront to the court could properly be the subject of a direction for the taxation of the successful party’s cost on the indemnity basis. However, the circumstances in which an indemnity award might properly be madewere not restricted to circumstances beyond the requirement that taxation on an indemnity basis must be “appropriate”. The principle for the award of an order of costs on an indemnity basis applied equally to those who not only instituted proceedings but who defended them. If a plaintiff had been forced to institute proceedings by the defendant whose conduct had been not only hostile in the normal litigious sense, but oppressive and with base ulterior motive, and if the pursuit of a defence constituted conduct which was part of an oppressive game plan, then invocation of the power to award costs on an indemnity basis might well be justified”.

HH Judge Chu continued

8.  I have been referred by the Petitioner’s solicitor, Mr. Ko, to the case of Re Tang Hong Yeun Andy HCB 19585 OF 2003 (at paragraph 18) quoting Choy Yee Chun (The Representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd. [1997] H.K.L.R.D. 1327 CA, where it was held that the discretion was not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”.  See also Hong Kong Civil Procedure, 62/App/12.

9.  I have also been referred to the Judgment of the Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Limited.  FACV No. 14A of 2003, at paragraphs 12, 14, 15, 18 and 23 where the Court of Final Appeal has made the following comments:-

(a)  The Court has a broad discretion to determine how costs shall be paid and whether indemnity costs should be ordered (paragraph 12).

(b)  The successive party should show, in order to obtain an order for costs on an indemnity basis, that the case has some “special or unusual feature” (paragraph 15).

(c)  In relation to the award of costs generally, it has been accepted, as Chu J pointed out, that while

“the ground [upon which costs are awarded] must be connected with the case. This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further”.

There is no reason why this statement does not apply with equal force to the exercise of the discretion to award indemnity costs (paragraph 18).

(d)  Other factors, such as the reasonableness of the conduct of the parties, may need to be taken into account (paragraph 23).

12.  In addition I have been referred to a number of other cases which go to support these general principles such as Choy Yee Chun referred to above. In addition, I was referred to the more recent case of Lee Yuk Shing v Dianoor International Ltd (unrep, 30 March 2016. HCMP 2483/2011). In that decision the Honourable Mr Justice To reiterates the general principles as follows:

4.  Thus, the threshold which a party seeking indemnity costs has to prove against his opponent is a very high one.  He has to show some special or unusual feature in the case, such as that the action involves an abuse of process of the court, the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously or for an ulterior motive, or in an oppressive manner. The common theme in these examples is that the proceedings are instituted or prosecuted in such circumstances and in such manner as to constitute an affront to the court.

5.  The thrust of Mr Burn’s argument is that a defendant is entitled to put the plaintiff to strict proof and that failure in proving a defence pleaded is not a justification for indemnity costs.  I fully acknowledge and have repeatedly said so in my Judgment that a defendant is entitled to put the plaintiff to strict prove the case against him.  However, this liberty is not without limit.  Where the challenges were unnecessary or went beyond what was reasonable in the circumstances and thereby unnecessary prolonging the trial of the action, they may, not necessarily will, have some bearing on the scale of costs which the unsuccessful party may be liable for.  Such conduct may be indicative of bad faith, ulterior motive, abuse of the process of the court, or oppression as to constitute an affront to the court.

6.  The same consideration applies to a defendant’s failure to prove a pleaded defence.  It is the right of a defendant to plead any defence.  A finding that a party has been deliberately untruthful or that a defence is wholly devoid of merit by itself does not warrant an order for indemnity costs.  Failure to make good a defence has the usual consequence of costs on a party and party basis, but not indemnity basis.  However, such failure must not be viewed in isolation.  Where the conduct leading to such failure when viewed against the factual circumstances is indicative of bad faith, ulterior motive, abuse of the process of the court, or oppression as to constitute an affront to the court, indemnity costs must follow.

My findings   

13.  With these legal principles in mind reference should be made to my findings and in particular the following:

a)  That the wife’s story in relation to Cornwall avenue was “inherently implausible”, that her evidence did not come up to proof, that the story made no sense at all, was not supported by collaborating evidence and had “all the hallmarks of being made up after the event for the purposes of this litigation”.

b)  The wife’s evidence in relation to the Deed of trust “was not very convincing” and that the real reason why OB was set up was so that the wife could receive her income in a more tax efficient manner.

c)  I accepted that the monies for the deposit for the purchase of K Villa and the solicitor’s fees and agency fees all came from the husband and wife. I said that the interveners case that they had contributed some funds by injecting money into OB appeared to be “pure fabrication”.

d)  The wife and intervener’s case on the payment of the mortgage for the 3/F property was “convoluted and hard to believe”. I added that “There is no evidence to support the wife and intervener’s case that OB is beneficially held by the interveners”.

e)  The wife and intervener’s case on B was “highly speculative and almost impossible to decipher”.

f)  I accepted the husband’s version of events with respect to the setting up of PCH and PCHK; I did not accept the wife’s case and noted that it was not supported by the evidence. I also found that J’s assertions in the witness box in relation to the management of the company “had all the hallmarks of having been made up on the spot”. I further added that I did not “accept that any of the assertions made by the wife and the interveners with respect to the formation and management of PCHK really stood up to detailed cross examination”. I further noted that the interveners had contradicted themselves and that this had not been adequately explained.

g)  I concluded that there “can be no doubt” that PCHK is legally and beneficially owned by the husband and wife and similarly the 36/F flat.

h)  With respect to the pleaded case on PCH I said that:

62. Once again this is difficult to follow. Generally speaking, it seems to me that the husband’s version of events is credible and comes up to proof. As indicated above I also accept that there is an intrinsic difficulty with the wife and intervener’s case as pleaded i.e. that part of PCH is beneficially owned by the interveners. It was never explained to me which part, or alternatively what percentage was claimed by them. I accept that this part of their case was also poorly pleaded and was in many respects unanswerable as a result.

i)  The wife’s assertion with respect to the workshop “simply does not come up to proof”.

j)  There can be no doubt that PCA is legally and beneficially owned by the parties.

k)  Finally I said this of the closing submissions:

67.  I had significant difficulty with the wife and intervener’s closing submission. I accept, as explained by Mr Coleman, that this is because it was produced as if the trial had not taken place and the evidence had not been tested. As a document it was singularly unhelpful. In particular, it had a tendency to make statements as if they were findings of fact when that was far from the case. The other major difficulty was that it sought to introduce an entirely new and un pleaded case after the event. It sought to do this on the premise that all material facts were before the court and that the newly argued case was no more than a “variation, modification or development” of the pleadings. This is clearly not so. Indeed, it seems to me the wife and interveners have attempted after the event to put forward an entirely new case and one that is not based on the evidence and which has failed come up to proof in any event. 

Discussion

14.  Mr Coleman SC says that there are a number of special or unusual features in this case which would support an indemnity costs order. Some of these have already been referred to above. However, for the avoidance of doubt I set these out in full below:

20.  There are plainly a great number of “special or unusual features” in these proceedings which would attract costs on an indemnity basis as an “appropriate” award:

(i)  H has had resounding success in all aspects of his case.

(ii)  All findings of facts were so convincingly made in H’s favour in part as W’s Family’s case made no sense.

(iii)  As set out above, their case was essentially ill-conceived from the start.  Over 50% of their pleaded case was irrelevant and liable to be struck out.  Much of the rest was bound to fail as there was really no proper evidence as would have supported even what they wanted to say.

(iv)  This is despite their attempt to pull out all stops by including vast materials in voluminous trial bundles which were never referred to – an abuse of court process which should not be tolerated.

(v)  What they did say was usually flatly contradicted by the contemporaneous evidence, or inherently implausible to an extraordinary degree.  It would not be unfair to describe W’s Family and their witnesses as apparently living in a parallel universe, perhaps deliberately so and on instructions.

(vi)  The Court has held that “the wife and interveners failed repeatedly to come up to proof and that their versions of events was inherently implausible from the start”.

(vii)  The assessment on credibility is also damning.  The Court stated on a number of occasions that their evidence was fabricated for purposes of these proceedings.  The court particularly highlighted the fact that W “lied” about not going into the husband’s office to take documents from locked drawers without his consent, when she was caught on video doing just that.  W and the Interveners were also held to have repeatedly lied throughout the trial.

(viii)  The circumstances leading to the litigation make unhappy reading of a series most unreasonable conduct, including an utterly baseless report to the ICAC alleging corruption on H’s part, and criminal proceedings for alleged assault of W in the Magistrate’s Court.

21.  This is a case which should never have been started, let alone taken to trial by W’s Family.  It was initiated and prosecuted in an oppressive and irresponsible manner as a kind of personal vendetta for vengeance of a marriage that no longer is – a deeply unattractive ulterior motive which should not be condoned.  W’s Family has deceived this Court on multiple aspects of the case, and attempted to deprive H of relevant documentary evidence by stealthy and underhand conduct.

22.  Litigation conduct of the type exhibited by W and, at her direction, the Interveners and their witnesses, is of an extreme type which is thankfully not often seen.  This Court was entirely right to invite an application for costs on a higher basis.

Mr Pilbrow SC seeks to persuade me that this would not be an appropriate order. In particular, he suggests that credibility should not be a determinative factor and is not a sufficient reason to award costs on a higher basis than normal and he points to comments made in a taxation decision to support his assertions in this respect. (See Sun Hoi Tat v Profectus Investment Group Ltd (unrep 13 October 2016 HCA 1366/2013).

15.  As indicated above however this is not a situation where the parties each had a genuine case and each simply fought their corner hard; rather this is a case where on the face of it the wife and interveners have deliberately sought to mislead the court. Such action cannot and should not be tolerated. It seems to me that there was clearly an ulterior motive here and the court has been affronted not only by the substance of the allegations made – which were often entirely without merit, but also by the way in which the case has been presented in court. The trial ran over its original time estimate and the parties spent 13 days in trial. This was entirely unnecessary. It was also a waste of the court’s time and resources. I asked for an estimate of costs from the wife and intervener’s side and one was produced as follows:

FCMC 2953/2015

The Costs of the Petitioner, 1^st Intervener and 2^nd Intervener

(prepared pursuant to the directions of HHJ Melloy in the hearing on 12 October 2017)

Stage	Costs (Legal costs and Counsel fee) (HK$)
1st PTR dated 13/4/2016	130,000
2nd PTR dated 26/8/2016	130,000
Trial (13 days)	2,050,000
Preparation for Trial	1,270,000
Global Figure:	3,580,000

Note:
Items (iii) and (iv) under §4 of the Respondent’s Submissions, namely “H’s successful application to strike out all references to fraud in W and Interveners’ Amended Points of Claim on Day 2 of trial” and “W’s failed application to amend pleadings to introduce a new claim on Day 2 of trial”, have already been covered by the costs under the 13-day trial, and ought not be repeated.

This is an extraordinary figure given that the parties have not even got to FDR yet.

Conclusion 

16.  In such circumstances I accept that it is appropriate to make the order in the terms sought by the husband as follows:

(i)  W and the Interveners do jointly and severally pay H’s costs of and occasioned by their summonses dated 24/6/2015 and 25/8/2015 (including all costs reserved) on an indemnity basis and forthwith to be taxed if not agreed, including but not limited to:

(a)  The preliminary issued trial on 10-13, 17, 25-26/1/2017 and 7, 9-10, 14-15/2/2017 and 12/4/2017;

(b)  PTRs dated 13/4/2016 and 26/8/2016;

(c)  H’s application to strike out all references to fraud and other irrelevant pleas in W and Interveners’ Amended Points of Claim on Day 2 of trial;

(d)  W’s application to amend pleadings to introduce a new claim on Day 2 of trial.

(ii)  W and the Interveners shall also pay H the costs of this application for indemnity costs forthwith to be taxed on a party and party basis if not agreed.

(iii)  There shall be certificate for two Counsel.

17.  I accept the point made by the wife and intervener’s lawyers in paragraph 15 above and care should clearly be taken to ensure that there is no doubling up of the costs between items a) and b) and c) and d) in paragraph 16. I will though leave that to the domain of the taxation specialists who will no doubt be called upon to draft a bill of costs and ultimately to the taxation master for consideration.