YYT v. CCM AND OTHERS

FCMC 4498 / 2016

[2023] HKFC 201

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 4498 OF 2016

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

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

_____________________________________

DECISION
(Variation of Costs Order Nisi in
Preliminary Issue Proceedings)

______________________________________

A.  Rs’ Application

1.  On 31 October 2022, this court handed down a judgment (“Judgment”) [1] after a 9-day trial on preliminary issue with a costs order nisi (“Costs Order Nisi”) to the effect that Rs pay 70% of W’s costs of the preliminary issue proceedings on a party and party basis with certificate for two counsel.

2.  Rs seek to vary the Costs Order Nisi to either:

(1)  W pays 30% of Rs’ costs of the preliminary issue proceedings on a party and party basis with certificate for counsel; or

(2)  there be no order as to costs of the preliminary issue proceedings.

3.  The definitions and abbreviations used in the Judgment are adopted in this decision.

B.  Brief Background

4.  The parties were in dispute on the beneficial ownership of 3 groups of properties (collectively “Disputed Assets”):

(1)  First, properties held in the name of R6, i.e. House D44 and the 3 Workshops (“Assets 1”).

(2)  Second, properties held or once held in the name of R1 to R4, i.e. Lotus Villas, House 63 and House 29 (“Assets 2”).

(3)  Third, shares of the Companies held in the name of R5 (“Assets 3”).

5.  W argued at the trial that it was the common intention and/or mutual understanding of R1 and her that they shall be the equal beneficial owners of the “family business” set up and operated by them. The “family business” includes the Companies. The Disputed Assets were acquired with the funds of or generated from the “family business”. Her primary case was that R1 and W have the beneficial interests of the Disputed Assets in equal shares. Alternatively, if Assets 1 and 2 were “made out of” H’s own money, W shall have beneficial interest in those properties to an extent to be assessed in due course[2]. In respect of Assets 1 and 3, W relied on the operation of common intention constructive trust and/or resulting trust[3]. In respect of Assets 2, W relied on the operation of resulting trust only[4].

6.  Rs relied on the principle of equity interest follows the legal title. They maintained that beneficial ownership of the Disputed Assets vested in the legal owners. Those legal owners who had not provided financial contribution to the acquisition of the properties acquired a specific proportion of the beneficial interests by way of gift from R1. There is no dispute that R3 to R5 had made no financial contribution to the respective assets. Rs failed to prove their assertion that R2 had financially contributed to the acquisition of Assets 2.

7.  After trial, this court dismissed W’s claim on Assets 1. H’s evidence on the use of House D44 was also rejected.[5] Rs’ case on Assets 2 and 3 failed. It was found that by operation of resulting trust, Assets 2 and 3 were/are beneficially owned by H[6].

C.  Legal Principles

8.  It is not in dispute that the court has an unfettered discretion in the determination of costs. This discretion must be exercised judicially. In exercising the discretion, Order 62 rule 5(1) sets out special matters to be taken into account by the court. These include,

(1)  the underlying objectives set out in Order 1A, rule 1 (paragraph aa);

(2)  the conduct of the parties (paragraph e);

(3)  whether a party has succeeded on part of his case, even if he has not been wholly successful (paragraph f).

9.  Order 62 rule 5(2) further provides that the “conduct of the parties” include:

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

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

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

(4)  Conduct before, as well as during, the proceedings.

10.  After the implementation of the Civil Justice Reform, the well-known principles in Re Elgindata (No. 2) were modified. The proposition of costs follow the event operates as a starting point, but not as a general rule. The unsuccessful party has the burden of showing that a different approach should be adopted.

11.  In Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China[7], Kwan JA held that:

“100. Although the principles in Re Elgindata (No. 2) [1992] 1 WLR 1207, 1214A-C continue to apply after the Civil Justice Reform, the approach these days is to regard the proposition that costs should follow the event not as a general rule but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case (Chan Mei Yiu Paddy v Secretary for Justice (unrep., HCAL 16/2007, [2010] HKEC 1910), para. 5 (Saunders J)), the rationale being that a mechanistic adoption of follow the event principle may result in parties incurring unnecessary costs in civil litigation (Wong Kam Tong v Tin Shing Court, Yuen Long (IO) (No.2) [2012] 2 HKLRD 1128, paras. 10-13).”

12.  Rs invited this court to adopt an issue-based approach. They cited KJ v KMLM[8], per To J,

“17. … the starting point does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or costs of the proceedings he may be deprived of the whole or part of his costs. Since CJR, the court is more ready to take an issue-based approach. It is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed … Nor is it necessary to show that the successful party has deliberately wasted time and costs … For the purpose of this guideline, a significant increase in the length or costs of the proceedings means one that can be estimated as a more than trifling proportion of the total costs. The costs need not be assessed with precision. It suffices if the court can give an estimate of the proportion of these costs … A party may be deprived of part of his costs on the failed issues even if such costs overlap with those of the succeeded issues …”

18. … where the successful party raises issues or makes allegations improperly or unnecessarily (or unreasonably, in the United Kingdom), the court may not only deprive him of his costs but may order him to pay the whole or part of the unsuccessful party’s costs: Order 62 rule 7(1). By implication, a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs.”

13.  On an issue-based approach, the practice commonly adopted is to make a global order in terms of the overall percentage of costs to be awarded to one side instead of giving separate orders for different issues: Keen Lloyd Holdings Ltd & Ors v Commissioner of Customs and Excise[9] and Hung Sau Fung v Lai Ping Wai[10].

14.  The credibility of the witnesses and conduct of the parties in regard to the case they allege and seek to prove is a relevant matter for a judge to take into consideration in dealing with costs: Hung Fung Enterprises Ltd v Agricultural Bank of China, supra [104(4)].

15.  In Zhuhai International Container Terminals (Jiuzhou) Limited v Lo Tong Hoi[11], Kwan JA said that:

“33 … On the established principles, it is not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs. The court may so order where the failed allegation of the successful party has caused a significant increase in the length or costs of the proceedings … By the amendments introduced to Order 62 rule 5, litigants should bear in mind the possible costs implications. There is incentive to conduct litigation in a responsible way and be selective as to the issues raised.”

16.  Rs also referred to Lui Ming Lok v Ng Im Fong Loretta, the executrix of the estate of Lui Kwan Cheung, Deceased under the Grant of Probate No. HCAG016896/2015[12], and Siu Shu Ching and others v Siu Kwok Cheung and Anor[13], in which the above principles were applied.

D.  Rs’ Grounds for Variation

17.  Rs first advanced that they are the only successful party in the preliminary issue proceedings, because they succeeded in Assets 1 claim and, Rs argued, no party succeeded in the claims on Assets 2 and 3.

18.  Rs’ second ground was that W shall be deprived of her costs or part of it because she had unnecessarily, improperly and/or unreasonably took and maintained the following points which unduly complicated and prolonged the proceedings, time and costs had been wasted[14]:

(1)  the Matrimonial Pot issues which was outside the scope of the preliminary issue proceedings;

(2)  the pleas of common intention constructive trust which disclosed no reasonable cause of action;

(3)  the issue of accounting practice; and

(4)  D Limited issue.

E.  Decision

19.  There are two issues in this application. Firstly, whether W succeeded on Assets 2 and 3 claims. Secondly, whether W shall be deprived of her costs or part of it for failure in four identified areas which were said to have unduly complicated and prolonged the proceedings.

20.  Before I consider the first issue, it is useful to repeat that the preliminary issue trial was to establish the extent of the assets to be considered in the ancillary relief proceedings, and was pendent on the ancillary relief proceedings. The effect of the court’s finding on the beneficial ownership of Assets 2 and Assets 3[15] was that these assets would be included as part of the matrimonial assets in the ancillary relief dispute. On this, W succeeded although the court did not accept the other part of her case that she was one of the beneficial owners. Whether W would be entitled to any interests or shares in these properties on divorce would be one of the issues to be determined in the ancillary relief dispute.

21.  Pursuant to Order 62 rule 5(1)(f), the court may take into account the factor that a party has succeeded on part of his case, even if he has not been wholly successful.

22.  Rs referred this court to FWY v TYCY[16] in which it was found that all parties are unbelievable witnesses. HHJ I Wong took the view that none of the parties can be considered as successful in terms of each of their cases, the litigation could be avoided if the parties were not led by greed, and they should take the consequences for not being truthful. An order nisi that there be no order as to costs was made in the third party ownership dispute.

23.  FWY v TYCY is different from the present case. Here, this court only found that H is not a reliable witness. W successfully established her case that R5 is holding R5’s Shares as nominee only and a resulting trust arose. In a similar vein, R2 to R4 held/are holding Assets 2 as nominee only. Although this court did not find for W’s claim on direct beneficial interest in R5’s Shares, whether she has an indirect beneficial interest in R5’s Shares (which is not within the scope of the preliminary issue proceedings) is a live issue. See [136] of the Judgment.

24.  As to the second issue, the starting point of costs follow the event does not cease to apply because the successful party failed on issues or allegations raised by him. If these issues have caused a significant increase in the length or costs of the proceedings, the court may exercise the discretion to deprive the successful party of his costs or part of it. It is not necessary to show that the successful party have acted unreasonably or improperly nor that he has deliberately wasted the time and costs. The court shall evaluate the entirety of the case in the exercise of discretion.

25.  The issue on accounting practice was raised by Rs in their pleadings. This evidence is essential for H to establish his own case that the funds used to purchase Assets 2 were his own funds although they were mostly drawn from the Companies, the funds drawn were recorded in the Companies’ accounting documents, and H has to repay them to the Companies. I do not see any basis to deprive W from any part of her costs for the time spent on the evidence on the accounting practice. It may create unnecessary complication and unfairness if, in the award of costs, the court is to separately consider the success of proving each and every category of the evidence that are not improperly or unnecessarily raised.

26.  W’s allegation in connection with D Limited was premised on a wrong factual basis. The time spent on this point did not cause a significant increase in the length or costs of the proceedings.

27.  Substantial amount of time was spent in W’s failed arguments on the Matrimonial Pot Issue and her defective pleadings on the common intention constructive trust claims. These two matters had been dealt with extensively in [56] to [72], and [86] to [110] of the Judgment. The time and costs spent on these arguments could be avoided if care had been taken to make sure that the pleadings were properly drafted and did not go beyond the scope of the preliminary issue proceedings. Although W lost the claims on Assets 1 for this reason, the time spent on these issues are also relevant to the other claims. It is fair to deduct part of the costs awarded to W for the time and costs spent on these matters.

28.  Taking all these matters into consideration as a whole, the proper costs order is to reduce the amount of W’s costs to be paid by Rs to 30%. The Cost Order Nisi be varied to this effect. The basis for taxation remain to be party and party, and so is the Certificate for two counsel.

F.  Costs of this application

29.  Rs succeeded in the variation application. Having considered the parties’ Statement of Costs and Lists of Objections, I order that W do pay Rs forthwith the costs of this application, with certificate for one counsel, at an amount summarily assessed to be HK$95,000.