LLC v. LMWA AND ANOTHER

FCMC 4683 /2014

[2018] HKFC 156

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 4683 OF 2014

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

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

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

DECISION
(Leave to appeal on a varied costs order
in respect of trial of preliminary issue)

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

1.  Before me are the applications of the 1^st and the 2^nd respondents by way of their respective summons dated 27 July 2018 for leave to appeal of a varied costs order made by me on 29 June 2018.

2.  I have directed that their applications shall be disposed of by way of paper, which appear in the decision below.

Background

3.  The petitioner of this case is the wife. The 1^st respondent is the husband. The 2^nd respondent is the father of the husband.

4.  Ever since the commencement of the divorce proceedings in 2014, the husband and the wife have been engaging in various pieces of contentious litigation concerning their ancillary relief matters, leading to 3 substantial judgment/decision handed down by this court. This decision is the 4^th substantial judgment/decision.

5.  Each side puts forward his/her own reason(s) that has led to such acrimonious litigation. The husband claims it is due to the greed of the wife, while the wife argues that it is due to his unreasonable litigation conduct. In my view, the sentiment expressed by each side is not helpful in setting the scene for an amicable settlement. Despite prior comment expressed by this court on the escalation of legal costs, neither party have paid heed to the concern of this court.  But for this leave to appeal application, the parties would have appeared before me on 10 August 2018 in the financial dispute resolution (FDR) which might have put their ancillary relief dispute to an end.  It is most unfortunate that the FDR has to be adjourned pending this intended leave to appeal application. All these give an impression that neither of them is prepared to come to his/her senses, despite they both repeatedly claim that they have the best interest of their children in mind. I send out my strong words to them, once again, that upon the release of this decision, they should return to the negotiation table and restore the FDR without delay.

6.  The litigation history that leads to the leave to appeal applications are like these.

7.  On 22 June 2017, I handed down my judgment on the preliminary issue involving the beneficial ownership of the former matrimonial home (registered in the joint name of the father and the husband) and a carpark (registered in the sole name of the father) situate at the Sorrento, Kowloon (“Main Judgment”).  I ruled in favour of the father and the respondent and rejected the wife’s contention that the husband was/is the sole beneficial owner of the said properties. In the same judgment, I awarded a costs order nisi, but without hearing full argument, that the wife shall bear the costs of the father and the husband (“Costs Order Nisi”).

8.  There is no appeal in respect of findings stated in the Main Judgment by any of the parties. However, the wife took out a subsequent application to vary the Costs Order Nisi.

9.  Upon hearing full argument on costs, I handed down another decision on 29 June 2018 (“Costs Decision”), ordering that the Costs Order Nisi should be varied to the effect that:

(1)there be no order as to costs between the husband and the wife of the trial of the preliminary issue;

(2)the wife shall bear 80% of the father’s costs of the trial of the preliminary issue; and

(3)no order as to costs between all parties of the application for variation of Costs Order Nisi.

10.  As said, the husband and the father each took out their respective summons for leave to appeal against the Costs Decision.

11.  In the following decision, I shall adopt the abbreviation and defined terms used in the Main Judgment and /or the Costs Decision, unless stated the otherwise. And since the Main Judgment and the Costs Decision have set out in great length the background of the parties, their litigation history and the issue of the beneficial ownership of the Sorrento Property and Carpark, I shall not repeat any of these in this decision any more.

The Costs Decision

12.  At the risk of repeating myself, I explain in the Costs Decision that the Costs Order Nisi should be varied to the extent set out at §[9] above for the following reasons:

(1)   Although the trial of the preliminary issue involving a dispute with a third party should be approached on the same legal basis as if it were being determined in the civil division (See: TL v ML & Other (Ancillary Relief: Claim Against Assets of Extended Family) [2006] 1 FLR 1263), I am of the view that such trial vis-à-vis the husband and the wife is still within the matrimonial proceedings (See: Goldstone v Goldstone [2011] EWCA Civ 39), and thus both of them are obliged to engage in constructive dialogue for exploring settlement of the preliminary issue in line with established legal principles (See: EJB v CJB [2011] 5 HKLRD 508).  Yet, the husband has failed to engage in the minimum level of negotiation for settlement with the wife so as to avoid the trial proper and has failed to give any response to her Calderbank Offer. Such conduct of the husband should not be encouraged by the family court, notwithstanding that the Calderbank Offer made by the wife is not able to beat the outcome of the Main Judgment (See: §22 to §40 of the Costs Decision);

(2)   The husband and the father attempted to make late discovery of documents during the trial, most of which were disallowed by me upon hearing submission from respective parties. Undoubtedly, the wife should have the costs of such applications, but costs orders were somehow not yet made at the material times. It is thus fair to reflect such costs in her favour by varying the Costs Order Nisi in a proportionate manner (See: §§44 - 47 of the Costs Decision);

(3)   While it is true that I ruled against the wife in the Main Judgment, it is equally true that I relied heavily on the oral evidence and clarification from the husband and/or the father given in the trial, in particularly the oral evidence of the father generally and his explanation to the 3 emails in 2006 (including the 9/5/2006 Email, the Portfolio Email and the Mortgage Email) in returning a judgment in their favour. Notably, the 3 emails are their own documents (in the sense that they were written by them), which were disclosed not by them, but by the wife to support her claim that the husband and the father had an agreed arrangement that the husband would pay for the mortgage of the Sorrento Property and would utilise a sum of about $1,000,000, being his money safe-kept by the father, for mortgage repayment. I accept her argument that the husband and the father should have provided their clarification to the 3 emails in their respective affirmations, rather than giving their clarification for the first time in the trial, as a result of which she was deprived of the chance to re-assess the strength or weakness of her case before the trial (See: §§50 - 59 of the Costs Decision);

(4)   The wife is basically a housewife taking care of the 2 young children of the family (now aged 7 and 4 respectively). The husband was/is the main breadwinner of the family, who is now providing interim financial maintenance for them. On the wife’s application for litigation funding, I handed down a judgment of 26 August 2016 ordering that he should pay her $100,000 for 12 months to fund her litigation. It is my view that if an adverse costs order was made against her in favour of the husband, this would increase her liability which may mean that she may have to ask for a larger share of the matrimonial assets to satisfy her needs. This may also lead to another round of application for litigation funding by her, resulting in the undesirable outcome of satellite litigation (See: §§65 - 69 of the Costs Decision);

13.  In the Costs Decision, I also express my concern that the husband and the father were then represented by the same solicitors’ firm, but engaged separate counsel to appear in the argument hearing, and thus incurring 2 separate brief fees. It was conceded in the hearing by the husband through his counsel, Mr Neal Clough, that there was no conflict of interest between the husband and the father on the costs issue. Ms Lily Yu, counsel appearing for the father in that hearing, did not offer any objection to such comment made by Mr Clough. The reasons proffered for separate counsel were that the husband and the father had different approach in the argument hearing, which was not accepted by me. In any event, due to the outcome of the application, I am of the view that none of the parties could be said as the winner of the application. I thus conclude in the Costs Decision that a fair order to make is “no order as to costs” (See: §§71 - 74 of the Costs Decision). 

Applicable Legal Principle

14.  Section 63A(2) of the District Court Ordinance provides that leave to appeal shall not be granted unless:

(1)   the intended appeal has a reasonable prospect of success; or

(2)   there is some other reason in the interests of justice that the appeal should be heard.

15.  The relevant test of whether an appeal has a reasonable prospect of success is whether the applicant for leave can show that he has an arguable case with reasonable chances of success on appeal.  A reasonable prospect of success therefore means an appeal with prospects that are more than “fanciful” but which do not need to be shown to be “probable”: SMSE v KL [2009] 4 HKLRD 125; KNM v HTF, HCMP 288/2011.

16.  In relation to the exercise of judicial discretion on costs, I only need to refer to the judgment of Lam JA in Poon Ching Man v Lam Hoi Pun [2016] 3 HKLRD 815, where His Lordship reiterates at §34 that a decision on costs given by the trial judge is highly discretionary and which the Court of Appeal would be very circumspect in intervening:

“34. This court has stressed repeatedly that costs is very much a matter of discretion for the trial judge and the Court of Appeal would be very circumspect in intervening with such a decision with high discretionary content: see Ho Shu Kwong v Chiang Chun Yuan [2002] 3 HKLRD 419; IO of King Yip Factory Building v Kwun Wah Flower and Plant Manufactory Ltd CACV 128 of 2003, 13 Nov 2003; Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679; Bonnie Blair Ltd v Witmore Ltd HCMP 1546 of 2015, 7 Aug 2015; Chan Shun Kei v Hong Kong Construction (HK) Ltd CACV 192 of 2014, 7 March 2016. In the last case, the court said at §22:

‘22. It must be stated at the outset that this court should acknowledge that costs is very much a matter of discretion of the judge and we should be circumspect in interfering with the same. The established approach is that this court will only interfere when it is satisfied that the decision of the judge is either wrong in principle or plainly wrong, see Ho Shu Kwong v Chiang Chun Yuan [2002] 3 HKLRD 419. The rationale for this approach was explained by Woo JA (as he then was) in Ho Shu Kwong. The trial judge is the best person to exercise the discretion on costs because he is most familiar with the conduct of the case at the trial and the impact of the success and failure on each issue canvassed before him. In a way it is like an appeal against findings of fact. As explained in numerous judgments (see e.g. China Gold Finance Ltd v CIL Holdings Ltd CACV 11 of 2015, 27 November 2015), an appellate court is institutionally disadvantaged from re-assessing a decision of this nature as if it is hearing the matter in the first instance. Thus, this court should examine whether a primary judge committed any palpable error in the exercise of the discretion on costs. In the absence of such an error, the mere fact that the appellate judges might have exercised the discretion in a different manner is not a sufficient ground to warrant interference with the decision of the primary judge.” (my emphasis added)

Grounds of appeal

17.  In this leave to appeal application, the husband and the father are no longer represented by separate counsel. They are both represented by Mr Clough. Two separate summonses with separate supporting affirmation enclosing proposed grounds of appeal were filed by each of them. The husband’s proposed grounds of appeal consist of 18 paragraphs, while those of the father of 8 paragraphs. But with respect to Mr Clough, they are not concise but rather convoluted. As such, I would not attempt to address to each of these paragraphs. Suffice it is for me to say that I have considered them all, but would only deal with the material points.

18.  The central theme of their intended appeal is that it is “unfair” to deprive them of their costs of the trial of the preliminary issue, because they are the winning party and that the father is an “unwilling” party being dragged into these proceedings by the wife.  Upon considering the proposed grounds of appeal and the written submission, I am of the view that their appeal grounds can be deduced into the following major points:

(1)   I failed to pay sufficient regard to my own findings in the Main Judgment that the wife had failed to prove her case on the Common Intention and that it is implicit in my own findings that her case was “fatally flawed”, and thus I erred in depriving the husband’s costs of the trial of the preliminary issue, and in ordering that the father could only recover 80% of his costs (“Ground 1”); [1]

(2)   I failed to pay regard that a “no order as to costs” order between the husband and the wife would mean that the husband would be condemned to fund his own costs and those of the wife who is the losing party in the trial (“Ground 2”); [2]

(3)   I erred by wrongly taking into account as a factor of the husband’s failing to reply to the wife’s Calderbank Offer and that I erred in holding that the preliminary issue trial, at least vis-à-vis the husband and the wife, should be regarded as matrimonial proceedings (“Ground 3”); [3]

(4)   I erred in holding that if a substantial costs order was made against the wife (who relies on the litigation funding from the husband) in favour of the husband, this may lead to the undesirable result of satellite litigation (“Ground 4”); [4]

(5)   I erred in failing to particularise the basis on which I exercised my discretion to deprive the father, being a third party brought into the proceedings by the wife whose case was rejected by me upon trial, of his costs (“Ground 5”). [5]

(6)   I erred in ordering no order as to costs of the application for variation of Costs Order Nisi and that I erred in holding that the husband and the father should not have engaged separate counsel (“Ground 6”); [6]

Ground 1

19.  Ground 1 is the intended ground of appeal of both the husband and the father.

20.  What they essentially argue is that it was wrong and unfair of me not to make a costs order of “costs to follow the event”. This is particularly not fair to the father, who is an unwilling party brought into these proceedings by the wife. Mr Clough of counsel adds that by ordering that the father can only recover 80% of his costs from the wife, he would suffer a further shortfall of costs (of about $900,000), because normally, on a party and party taxation, the bill of costs would be taxed down to about 66-70%. Counsel goes on to submit that “on reflection”, an order for indemnity costs would be appropriate between the wife and the father.

21.  Their argument of “costs to follow the event” was already made and considered but rejected by me in the Costs Decision. They are repeating the same line of argument in this leave to appeal application. When returning a decision to vary the Costs Order Nisi, I was fully alive to the fact that the wife is the losing party of the trial on the preliminary issue. I have given full reasons, upon hearing full argument, why I concluded that the Costs Order Nisi should be varied.

22.  The legal principles governing costs in the post-CJR era have already been set clearly in the Costs Decision.[7]  It needs no further elaboration that nowadays, the broad guideline of “costs shall follow the event” should no longer be regarded 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 that particular case (See: Hung Fung Enterprise Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679).  

23.  In my view, the submission made by Mr Clough for the first time on the possibility of the father to recover only 66-70% of the party and party costs is completely beside the point. I fail to see why and how this should relevant in the exercise of my discretion on the costs issue. Mr Clough’s other submission of seeking costs for the father on an indemnity basis is a belated request that ought to be rejected.  

24.  Hence, there cannot be any reasonable prospect of success in relation to Ground 1.

Grounds 2, 3 & 4

25.  I shall deal with Grounds 2 to 4 altogether, because they are the intended appeal grounds relevant to the husband only.

26.  Mr Clough says that as a result of the order for litigation funding in favour of the wife and the Costs Decision, the husband has ended up paying his own costs and $1.2 million towards the wife,[8] leading to the plainly unfair result that he was condemned to fund his own costs and those of the losing party. However, it is noted that there was never any appeal against my judgment on the litigating funding, which must then be regarded as a fair order between the husband and the wife. Against this backdrop, Mr Clough’s line of submission has overlooked the observation/comment of this court at §69 of the Costs Decision, which is not argued the otherwise in this leave to appeal application. At §69, I commented that the wife’s costs, though paid by the contributions from the husband from either his savings or his income, were part of the matrimonial assets, from which the husband had also drawn his own legal costs and of which the wife would arguably be entitled to have a fair share. Under such circumstances, it can only be said, at the best, that they each has his/her own legal costs paid out from the matrimonial pot, to which they would both be entitled. I thus fail to see the alleged unfairness suggested by the husband. In my view, Ground 2 cannot sustain.

27.  It is also the submission of Mr Clough that it is “wrong in principle” for me to take into account the husband’s conduct of failing to engage with the wife in the minimum level of negotiation for settlement by replying to the Calderbank Offer, because it is wrong to hold that the preliminary issue trial between them should be regarded as the matrimonial proceedings. Yet, no helpful authority has been offered to this court to substantiate this proposition. On the contrary, I have summarised the legal principles and performed the analysis as to why the preliminary issue trial, at least between the husband and the wife, should be regarded as the family proceedings between them in §§27-37 of the Costs Decision. Mr Clough has failed to identify any error therein. Mr Clough then argues that it was impossible for the husband to negotiate with the wife for settlement on the father’s share of the Properties. This is a repeated argument which was already advanced in the argument hearing by Mr Clough but was rejected by me in §§38-40 of the Costs Decision. I thus cannot see any reasonable prospect of success in respect of Ground 3.

28.  Mr Clough further submits that I have compounded my error by concluding that if I made a substantial costs order against the wife, who relies on the litigation funding from the husband, this may lead to another round of application for litigation funding and thus satellite litigation. The rationale and relevant analysis leading to my conclusion of possible satellite litigation can be found in §§65-69 of the Costs Decision. With respect to Mr Clough, I do not see any substance in this ground of appeal. Ground 4 cannot sustain.

Ground 5

29.  This is an appeal ground of the father only. With the greatest respect to Mr Clough, I think it is enormous to say that this court failed to particularise the basis on which I exercised my discretion to deprive the father of 20% of his costs. My rationale has been clearly set out at §§44-47, §50, §53, §55-56 and §59 of the Costs Decision.

Ground 6

30.  In so far as Ground 6 is concerned, I only need to point out that the order for “no order as to costs of this application” is not made solely on the ground that the husband and the father should not have engaged separate counsel. The other grounds for making such a costs order is set out at §73 of the Costs Decision, namely looking at the result of the Costs Decision, neither the wife nor the father could be said as the total winner of the application, and whereas between the wife and the husband, I remind myself of the possibility of satellite litigation.

31.  I would add that it is very telling that in this leave to appeal application, the husband and the father are now able to be represented by the same counsel, Mr Clough.

32.  Upon due consideration, I see no reasonable prospect of success in respect of this ground.

Conclusion

33.  Due to the matters set out aforesaid, I conclude that there is not any reasonable prospect of success of the husband and the father in their intended appeal against the Costs Decision. They have not shown that the “otherwise” ground under section 63A(2) of the District Court Ordinance is established. I refuse to grant leave to them to appeal against the Costs Decision.

34.  Since there is no submission on any of the parties on litigation conduct or other relevant factors that this court needs to take into account when considering the costs of this leave to appeal application, I deem it fit that costs shall follow the event, which means that the husband and the father have to bear the wife’s costs of this application, to be taxed if not agreed. I certify the assistance of counsel is appropriate in this application.

35.  I also direct that solicitors acting respectively for the husband and the wife shall lodge a joint letter with this court within 14 days to report/confirm whether:

(1)   the FDR should be restored; and if not, state the reason(s) why;

(2)   all the directions leading to the FDR have been complied with; and if not, state what are outstanding and why;

(3)   there are further proposed directions leading to the FDR.