ZY v. YATM

FCMC 9685 / 2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 9685 OF 2011

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RULING ON INDEMNITY COSTS

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Introduction

1. In my judgment of the 14 June 2013, which arose out of a preliminary issues hearing, I made a costs order nisi that the husband do pay the wife’s costs on an indemnity basis to be taxed if not agreed. I did so in order to accurately reflect my concerns about the husband’s litigation conduct, which had been quite appalling. The order nisi was to be made absolute in 14 days time. On the 28 June the husband filed a submission it which he challenged the order nisi. He accepted that costs should be awarded against him - but only on a party and party basis. The wife filed a submission in reply on the 19 July. I then gave the husband leave to file a response if necessary. None has been received.     

Background

2. I have set out the background to this case in my judgment of the 14 June as follows:

   2. Rarely has there been an application before this court where one party has so blatantly attempted to circumvent the court’s jurisdiction. The wife accuses the husband of blatant non disclosure. In addition to the dissolution and transfer of shares referred to above, the wife also says that the husband has failed to disclose other significant financial transactions. She says that he adopted a “catch me if you can policy”. She points to the fact that there have been eight First Appointment Hearings; she says that the husband concocted a story after the event to explain his actions and that his non disclosure was “deliberate and contemptuous”; she asks for costs of this four day hearing on an indemnity basis. It seems that the husband’s rationale was that the wife had no ground upon which to make a claim against his assets, he accuses the system of being unjust and says in his closing submission that “a marriage certificate must not become a licence to plunder”.  He says that he will challenge the applicability of LKW v DD to his case “all the way to the high court and court of appeal if needed”.  At one point he said that he had evidence that LKW v DD was a “fraudulent case”. There is a sense that the husband believed that a pre emptive strike was needed in order to secure his financial position. 

3. For the avoidance of doubt the comments that I made in that paragraph continue to stand.  I also made other findings in relation to the way in which the husband conducted the proceedings in the body of the judgment – which I will come to again later.

The issue

4. There is only one issue namely should costs be awarded against the husband on a standard party and party basis or on an indemnity basis?

Legal Principles

5. Both parties have referred me to a number of different legal authorities. However in the first instance I think it might be helpful to refer to my sister judges 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 made were 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).

6. In addition the Respondent has referred to a number of other cases which go to support the general principles relating to the award of costs on an indemnity basis (see Overseas Trust Bank Ltd v Coopers & Lybrand (a firm) and Others and Peat Marwick, Mitchell & Co (a firm) and Another [1991] 1 HKLRD 177 adopted in Choy Yee Chun referred to above. In addition he referred to Wong Din Shin v Nina Kung CACV No 460 of 2002 and CACV No 67 of 2003. It would be fair to say that the Respondent concentrates on cases where costs were ordered where there had been an “abuse of process”, or the litigation was for an ulterior motive or the litigation had been conducted in an oppressive manner.

7. The Petitioner wife for her part refers in particular to Town Planning Board v Society for Protection of the Harbour Ltd No 2 (2004) 7 HKCFAR 114, which supports her general proposition that indemnity costs orders are based “on a wide range of factors and circumstances” and that an order must be “appropriate”.

My findings 

8. With these legal principles in mind it should be noted that I made the following findings in my judgment:

a) The husband refused to progress his own divorce proceedings (paragraph 4);

b) He ignored the proceedings and did not attend the first three First Appointment hearings (para 5);

c) He deliberately avoided being served with the new petition (paragraph 5);

d) Penal notices were endorsed on orders and leave was given to the wife to issue contempt of court proceedings (paragraph 5 and 7);

e) He was extraordinarily slow to file his Form E (paragraph 7);

f) He was guilty of deliberate non disclosure (paragraph 7, 10 and 12);

g) He was slow to provide additional information when requested. Information is still outstanding necessitating a subpoena to the Registrar of the Probate Registry (paragraph 8);

h) I found that “All in all he has behaved in the most appalling manner” (paragraph 8);

i) I accepted that the husband did not give a credible explanation for his actions and that his stories “was made up after the event in order to justify his actions” (paragraph 36). In other words I accepted that he concocted a story in order to explain himself for the purpose of this litigation;

j) I found that the husband’s true intention was to try to ensure “that by virtue of a pre emptive strike, that he put his companies beyond the reach of the wife and the power of the court” (paragraph 38);

k) I found that he transferred shares in his company in order to falsely present an image to the court that he was no longer the legal and beneficial owner of a number of companies. I found that that was incorrect and that he had “never given up control of the companies”. Further that he was the beneficial owner and that he continued to operate them as before (paragraph 40);

l) I found that “the husband was simply not credible on this and almost every other aspect of the preliminary issues trial” and that his clear intent was to try to defeat the wife’s claim for ancillary relief (paragraph 41);

m) I added that “the almost overwhelming inference is that the transfer of shares was premeditated possibly because there was concern that a settlement could not be achieved on the basis of the husband’s offer. It is clear that the transfer of shares was designed to undermine the wife’s claim for ancillary relief” (paragraph42);

n) I found that both interveners were complicit in the husband’s most appalling behavior and that both assisted in trying to ensure that the husband’s assets were put beyond the wife’s reach (paragraph 44); 

Discussion

9. The husband argues that his behavior does not put this case in the category of cases where an indemnity costs order would be appropriate. He says that he did not bring the case himself and that there was no suggestion that there was an ulterior motive or an improper purpose. With the greatest respect I could not disagree more. As I said in my introduction rarely has a case come before my court where there has been such a blatant attempt to circumvent the court’s jurisdiction. I accept that this was both deliberate as it was contemptuous. The husband lied on oath; he concocted a story to hide the truth and he took active steps to ensure that assets were put beyond the wife’s reach. Although I accept the wife’s point that the court’s discretion is wide and that an order for indemnity costs is not limited to cases where a) there been either an ulterior motive or b) an improper purpose or c) oppressive conduct or d) an abuse of process, in this case I also agree that the husband was indeed guilty of many of these things. I accept that he “was driven by an ulterior motive and improper purpose to defeat the W’s [wife’s] legitimate claim for ancillary relief”. This was not a situation where the parties each had a genuine case and each simply fought their corner hard. Neither can the husband rely on the fact that he was acting in person. The husband is a well educated professional man. There can be no excuse for the way in which he chose to conduct these proceedings. 

Conclusion 

10. In such circumstances the order nisi shall be made absolute. The husband do pay the wife’s costs of and occasioned by the summonses dated the 23 December 2012 and the two summonses dated the 11 January 2013 including but not limited to the trial on the 23 – 26 April 2013 on an indemnity basis to be taxed if not agreed. The husband shall also pay the wife the costs of this application on a party and party basis. There shall be certificate for counsel.