MGB aka MAG v. GCB

FCMC No. 5376/2015
[2018] HKFC 8

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 5376 OF 2015

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DECISIONS

(Costs & Leave to Appeal)

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1.  On 19^th June 2017, after a 7-days trial on the Petitioner Wife’s application for ancillary relief, and on the basis of equal sharing of the matrimonial assets which I found to be about HK$65.8M between the parties with HK$40.7M in the Respondent Husband’s name and HK$25.1M in the Wife’s, and upon certain undertakings given by the Husband, and as a clean break between the parties, I ordered the Husband to inter alia pay the Wife a lump sum of HK$7.8M within 3 months of the pronouncement of the decree absolute of divorce, plus a further lump sum of HK$4.56M as capitalised maintenance at HK$76,000 per month for 5 years payable by 5 equal annual instalments of HK$912,000 each commencing from 19^th June 2018 to 19^th June 2022.        

2.  At the conclusion of my judgment and notwithstanding my criticisms of some of the Wife’s conducts in the proceedings and that the total legal costs then incurred by the parties amounted to a wholly disproportionate sum in excess of HK$10 million with hers twice as much as his, I decided that this was an exceptional case in the circumstances for there to be no order as to costs in the ancillary relief proceedings in the hope that it could finally bring closure to what had appeared to me a most bitter and acrimonious marital dispute.     

3.  Sadly it was not to be, as both parties now seek to continue their feud by each bringing further applications, with the Wife seeking leave to appeal against my order for miscalculating the value of the final matrimonial asset pool for equal division and for wrongly ordering a clean break between the parties given her medical conditions and uncertain financial future, while the Husband seeks to vary the costs order nisi in his favour against the Wife due to her litigation conducts and her failure to accept his Calderbank offers which were much more generous than what she has been awarded under my judgment, of which I propose to deal with first.

Husband’s Application for Costs

4.  As noted above and in my judgment, the combined legal costs of the parties were in excess of HK$10M with the Wife’s at more than HK$6.7M and the Husband’s at HK$3.3M, with most of the Wife’s costs being funded by certain advanced distributions from the Husband of their capital assets under certain mediation agreement reached between the parties shortly after their divorce proceedings and subsequently by several consent interim maintenance orders.

5.  As part of the Husband’s case during the trial against the Wife as to her litigation conduct for which evidence were heard, and for those reasons set out in paragraphs 143 – 166 of my judgment, I was able to form a fairly firm view “that this is one of those exceptional cases in which the Wife deserves the compassion of this court notwithstanding such litigation conduct”, and proposed to make an order nisi of no order as to costs. That was of course made in the absence of any knowledge of the “Without Prejudice” offers and counter-offers exchanged between the parties before the conclusion of the trial and which have now been disclosed to the court.         

6.  Ms Mairéad Rattigan representing the Husband submits that while the court has decided that this was an exceptional case for no order as to costs, the Husband now asks the court to reassess the Wife’s litigation misconduct in the light of what he believes to be an overly generous offer made to her at the time of the FDR hearing where she would have received a staggering HK$19.3 million over and above her award under the judgment, with further “Without Prejudice” offers made during the adjourned period of the trial all of which he says were unreasonably rejected by her, and hence in the exercise of its discretion to vary the costs order, the court should consider the appalling manner in which the Wife has continued to litigate this matter since the judgment.

7.  That first “Without Prejudice” offer was made in the Husband’s letter on 26^th February 2016 [E1/2] in which he put their total assets at about HK$74.4 million, with HK$55.8 million in his name and about HK$18 million in hers including her property in USA at US$1.25 million, upon which he proposed that there be a 65/35 split in favour of the Wife thereby giving her HK$48.4 million to effect a clean break.

8.  In addition the Husband proposed that while the value of his company GCB was effectively nil, he was prepared to ascribe to it the value of his shareholder’s loan of HK$7.749,334 which he used to start up the company, and to offer to pay the Wife a further sum of HK$3,874,667 being 50% of the said shareholder loan, thereby giving her effectively well over 70% of the actual total assets, whereas he would be left with just over HK$22 million from the assets [E1/3-5].

9.  The letter concluded by stating that the offer would be open for acceptance until 5 pm on Tuesday 1^st March 2016, which happened to be the parties’ first FDR hearing during which, the Husband submits, that the FDR Judge did indicate to the Wife that his offer was reasonable and warned her about the costs consequences of not accepting it but ultimately to no avail.

10.  The Wife did however make a counter proposal on 30^th March 2016 [E1/21] which was according to the Husband preceded by some 7 pages of unreasonable allegations against him and a misrepresentation of many of the facts and the assets, and which he submits was clearly not a proposal that was reasonable, as on top of a lump sum of HK$25 million over and above the assets already in her name, she was seeking monthly maintenance of HK$192,000 until the expiration of the tenancy of her then apartment on 1^st December 2017, then HK$132,000 during their joint lives and to be secured by way of a life insurance or a charge against the husband’s assets, and that he was to pay for all her legal costs.

11.  This proposal as expected was rejected by the Husband as it was by then clear that the major issue between the parties was whether there should be ongoing maintenance for the Wife or a clean break between them, and therefore the trial proceeded as scheduled in November 2016 but as explained in my judgments, it was adjourned to February 2017 after the Wife suffered a panic attack during cross-examination, and on 9^th February 2017, about 2 weeks before the trial was to resume when the Husband made a further “Without Prejudice” offer with an additional lump sum of HK$4,560,000 for the Wife payable by 5 equal instalments of HK$912,000 annually as capitalised monthly maintenance for 5 years commencing from end of 2017 and to be secured by a life insurance policy in her favour for the whole amount in the event of his death with its costs to be equally shared equally by both, and that he was prepared not to seek any order for costs against her due to her litigation misconduct if she would agree to drop her demand for nominal maintenance [E1/84].

12.  Ms Rattigan submits that still that offer was rejected by the Wife and as the trial continued, the Husband on 1^st March 2017 extended his offer further in that he would agree to an order for nominal maintenance on condition that no application would be brought by the Wife for a variation of the nominal maintenance order unless it related to her pre-existing condition of Interstitial Cystitis, that the medical treatment that she required was no longer covered by her existing medical insurance policy, and that she had used up her capital [E1/98].                

13.  Ms Rattigan submits that the Husband made these offers in one last desperate attempt to settle with the Wife, but even this was not acceptable to her and as a result the parties had to go through the second tranche of the trial where the Wife was ultimately unsuccessful in securing any order for nominal maintenance, and that once again the Husband’s offer bettered what was awarded by the court.

14.  Ms Rattigan argues that such conduct of the Wife in her refusal to accept generous offers of settlement all of which would have placed her in a better position than going through trial certainly merits a costs order being made against her should be recognised by the court as serious litigation misconduct, for which the Husband has suffered enormously both financially and emotionally, and that it would be extremely unjust for the Wife’s behaviour to go without any sanction at all.

15.  She therefore submits that the Husband should be entitled to costs on many different levels, such as from the time of his offer of 26^th February 2016, for the first part of the trial which was wasted on a pursuit of an over inflated case that was never sustainable as demonstrated by a drastic revision of her position during the adjournment, and for the second tranche of the trial where the Wife refused to accept the Husband’s further offers to settle on terms that were more advantageous than what she was ultimately awarded.

16.  Mr David Pilbrow SC (with Mr Egerton) for the Wife however argues that as a matter of general principle of costs in all civil proceedings with costs following the event, prima facie the Wife is therefore entitled to her costs of the proceedings, unless it can be displaced by a valid Calderbank offer, and that the opportunity of settlement and use of such Calderbank offers during negotiations is a factor the court should consider, as while the purpose is to encourage settlement and promote a consciousness of a risk as to costs if reasonable offers are refused by the parties, this also discourages unreasonable offers made without any proper opportunity to consider and/or reply, as the relevant teeth for a Calderbank letter to bite are rigidly enforced due to severe financial consequences of not accepting such an offer unknown to the court at the time it is made.

17.  On this Mr Pilbrow relies on Rayden and Jackson on Relationship Breakdown, Finance and Children, 17^th ed, where it stated at Chap 23.35:

“The person to whom the offer is made is normally protected as to costs up to the date of the offer, but thereafter, assuming that sufficient information is available on which a reasonable assessment of the offer may be made, the offeree is at risk, in the sense of having to pay either the other side’s costs or at least his or her own costs …

      It has, however, been said that Calderbank offers require to have teeth in order for them to be effective and that there are certain preconditions to their efficacy, notably full and frank disclosure by both parties of all relevant assets. Thereafter, the respondent to the application must make a serious offer worthy of consideration. If he does so, then it is incumbent on the applicant to accept or reject the offer and if the latter to make his or her position clear and to indicate in figures what he or she is asking for (a counter-offer).”

18.  The requirement for Calderbank offers to have teeth to be effective was discussed by Butler-Sloss LJ, as she then was, in Gojkovic v Gojkovic (No.2) [1991] 2 FLR 233 at 238:

“It is … clear that Calderbank offers require to have teeth in order for them to be effective. This is recognised by the requirement in RSC Ord.62, r.9 (and the equivalent CCR Ord.11, r.10) for the court to take account of Calderbank offers, and by analogy, open offers, in exercising its discretion as to costs. There are certain preconditions. Both parties must make full and frank disclosure of all relevant assets, and put their cards on the table. Thereafter, the respondent to an application must make a serious offer worthy of consideration. If he does so, then it is incumbent on the applicant to accept or reject the offer and, if the latter, to make her/his position clear and indicate in figures what she/he is asking for (a counter-offer). It is incumbent on both parties to negotiate if possible and at least to make the attempt to settle the case. This can be done either by open offers or by Calderbank offers, both adopted by the husband in this case. It is a matter for the parties which procedure they prefer. There is a very wide discretion in the court in awarding costs, and as Ormrod LJ said in McDonnell (about at p.38, the Calderbank offer should influence, but not govern, the exercise of discretion.

      There are many reasons which may affect the court in considering costs, such as culpability in the conduct of the litigation; for instance (as I have already indicated earlier) material non-disclosure of documents. Delay or excessive zeal in seeking disclosure are other examples. The absence of an offer or of a counter-offer may well be reflected in costs, or an offer made too late to be effective. The need to use all the available money to house the spouse and children of the family may also affect the exercise of the court’s discretion. It would, however, be inappropriate, and indeed unhelpful, to seek to enumerate, and possibly be thought to constrain in any way, that wide exercise of discretion. But the starting-point in a case where there has been an offer made, she/he is at risk not only of not being awarded costs, but also of paying the costs of the other party after communication of the offer and a reasonable time to consider it. That seems clear from the decided cases, and is in accord with the Rules of the Supreme Court and County Court Rules requiring the court to have regard to the offer. I cannot, for my part, see why there is any difference in principle between the position of a party who fails to obtain an order equal to the offer made and pays the costs, and a party who fails by the offer to meet the award made by the court. In the latter case, prima facie, costs should follow the event, as they would do in a payment into court, with the proviso that other factors in the Family Division may alter that prima facie position.”

19.  Accordingly it is the Wife’s argument that the Husband’s Calderbank offer was in effect missing some relevant teeth to be effective or worthy of consideration. Whilst accepting that this offer of 26^th February 2016 was a 65/35 split of the assets in favour of the Wife of a then alleged marital pool of HK$74.4M, Mr Pilbrow submits that it had in fact been significantly reduced in 8 months from the HK$86M stated in the Husband’s Form E of 15^th June 2015, hence he submits that it was not surprising that the parties did not settle at the time of the FDR hearing on 1^st March 2016 due to the Husband’s piecemeal and incomplete disclosure, and for the reasons set out in the Wife’s 6^th Affidavit which can be summarised as follows:                            

(a) that the offer was not open for a reasonable opportunity of 28 days for it to be considered, as it was open for only 5 ½ days and with such a short deadline that the Wife was unable to accept, that it provided no proper reason and was particularly inappropriate in light of the lack of full and frank disclosure;

(b) that the Husband had not yet answered her 2^nd Questionnaire filed on 2^nd February 2016;

(c) that it was on 26^th February 2016 and only 2 business days before the FDR hearing when the Husband updated his Form E in which he failed to disclose the termination letter between his company GCB and key consultant PBG which was allegedly generated and sent on 30^th December 2015 but not disclosed to the Wife until 9^th March 2016 and almost a week after the expiration of his offer;

(d) that as of the date of his offer on 26^th February 2016 the Husband’s company GCB had not yet been valued by the appointed single joint expert despite the order of the FDR Judge made on 5^th November 2015 that GCB be valued for settlement purposes;

(e) that there were good reasons for the Wife to believe that notwithstanding the said termination of a key consultancy agreement, GCB was an ongoing enterprise and that just 10 days before his offer the Husband had asked for her consent to inject US$300,000 into the company and hence GCB could still have considerable value and a future;

(f) that during the FDR hearing on 1^st March 2016 the Husband conducted himself rudely towards her and made certain obscene gesture to her that she became distressed and intimidated, coupled by her being unnerved by the short deadline and lack of transparency on the part of the Husband that she was unable to properly consider the offer to accept it before the deadline.

20.  Many of these appear to me valid points, in particularly when it is clear that there was simply no reasonable time and opportunity for the Wife to properly consider the offer when it was first communicated to her solicitors on 26^th February 2016 which was a Friday followed by a weekend and was stated to be opened only until the following Tuesday 1^st March 2016 which was the parties’ first FDR hearing and, as pointed out by Mr Pilbrow thereby giving the Wife only 2 working days to consider it and more importantly to seek proper legal advice, and the facts that there may well be detailed discussions between the parties and their lawyers at the FDR hearing with helpful indications from the FDR Judge, in my view they cannot and should not as a matter of principle displace or deprive the Wife’s entitlement to a reasonable time to consider something as important as an offer for overall settlement on a clean break situation between the parties.      

21.  According to Mr Pilbrow reasonable time requires 28 days as stipulated in the English Family Proceedings Rules 1991 following Gojkovic v Gojkovic (No 2) in which the Calderbank process was formally written into the rules in rr 2.69 which states:

“2.69 Offers to settle

(1) Either party to the application may at any time make a written offer to the other party which is expressed to be ‘without prejudice except as to costs’ and which relates to any issue in the proceedings relating to the application

(2) Where an offer is made under paragraph (1), the fact that such an offer has been made shall not be communicated to the court, except in accordance with r 2.61E(3), until the question of costs falls to be decided.

2.69B Judgment or order more advantageous than an offer made by the other party

(1) This rule applies where the judgment or order in favour of the applicant or respondent is more advantageous to him than an offer made under rule 2.69(1) by the other party.

(2) The court must, unless it considers it unjust to do so, order that other party to pay any costs incurred after the date beginning 28 days after the offer was made.

2.69C (revoked)

2.69D Factors for court’s consideration under rules 2.69B

(1) In considering whether it would be unjust, or whether it would be just, to make the order referred to in rule 2.69B, the court must take into account all the circumstances of the case, including –

(a) the terms of any offers made under rules 2.69(1);

(b) the stage in the proceedings when any offer was made;

(c) the information available to the parties at the time when the offer was made;

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated; and

(e) the respective means of the parties.” 

22.  Mr Pilbrow therefore submits that the Wife should have been given the same period of 28 days to consider that offer of the Husband, and while there are no similar provisions in our rules but which I find most useful and persuasive as guidelines, and that I am unable to say whether the Wife in this case would indeed require as many as 28 days to consider that offer in the absence of any such evidence at the trial, it is clear to me that 2 working days or for that matter even 5 days with or without a weekend in between to consider such an important offer cannot be said to be reasonable in the circumstances of the case, in particularly when it was the Wife’s then position that the true value of the total matrimonial asset pool and/or full details of the Husband’s assets had yet to be ascertained or disclosed by him, and which were subjects of one of her Questionnaires served on him earlier in February 2016 but which he had yet to answer.         

23.  The same criticisms however may not be levelled against the Husband’s 2^nd “Without Prejudice” offer dated 9^th February 2017 essentially with an additional lump sum payable by 5 annual payments, as although it was still not made with as many as 28 days before the trial was to resume on 21^st February 2017, in my view it would have in the circumstances given the Wife sufficient time to consider and to seek proper legal advice, and of which I note there was never any complaint from her in any event. Both this offer and its improved version offered by the Husband later on 1^st March 2017 with a conditional nominal maintenance were again rejected by the Wife.

24.  It is therefore plain that under the terms of my judgment with no nominal maintenance order in favour of the Wife but instead a clean break between the parties, the Husband can be said to be the successful party and therefore entitled to costs in his favour at least for the second part of the trial after the Wife had failed to accept his second offer to settle on that particular aspect which was more advantageous than what she was ultimately awarded.

25.  While it is as yet clear as to the quantum of the Husband’s costs for that part of the trial, but on the basis of an equalization of the total costs incurred between the parties, which was what the Husband was then seeking at the trial as referred to in my judgment, it would mean something in the vicinity of HK$1.7M, and whatever the final amount of which no doubt will have to go through another contentious and therefore expensive assessment procedure given the historical background of this case, would it then not run the risk of seriously undermining the structure of the substantive order for ancillary relief that I have made in my judgment having considered all the facts and circumstances of the case including the Wife’s future needs so as to do justice between the parties?

26.  On the other hand, there is no question that the court must continue to determine costs applications in accordance with the rules, as clearly stated in Gojkovic supra that the starting point in a case where there has been an offer is that if the applicant receives less than the offer made, she/he is at risk not only of not being awarded costs, but also of paying the costs of the other party after communication of the offer and a reasonable time to consider it, as otherwise it would not only be unfair to the other party, but also necessary to ensure that a party will not be allowed to indulge in unreasonable litigation with impunity. How then is one to resolve these conflicts or problems?                      

27.  These problems encountered in the proper construction of r 2.69B in fact lied at the heart of the criticism of Mr Mostyn QC sitting then as a deputy High Court judge in GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 (Fam), [2003] 2 FLR 108 where he set out his objections in principle to the general rule that costs should follow the event:

“[85] It is very easy to see why in an era where the wife’s claim was perceived to be against the husband’s money for a sum necessary to meet her reasonable requirements, costs should, prima facie, follow the event. Her position was comparable to that of an ordinary civil claimant. It is much more difficult to apply the analogy in the post-White era where the court’s function is (per Thorpe LJ in Cowan v Cowan [2001] EWCA Civ 679, [2002] Fam 97, [2001] 2 FLR 192 at para [70]) to determine the parties “unascertained shares” in the pool of assets that is the fruit of the marital partnership.

[86] In this case I have ascertained W’s share in this pool to be 40% and H’s to be 60%. In such circumstances what is the event that the costs are supposed to follow? It is an intellectual concept with which I find it hard to grapple … this is a submission that is often made: “… the wife has had to come to court to get her money”. But surely the husband has equally had to come to court to get his? Each party has had to come to the court to obtain an order which fairly disposes of the issues between them.”

28.  Mr Mostyn QC raised further objections in that the existing procedure forces parties to engage in a form of ‘spread betting’ by requiring them to guess the outcome of the case and take a position accordingly without making an award for those who might guess better than others, and went on to conclude:

“[92] In my judgment, a safer starting point nowadays in a big money case, where the assets exceed the aggregate of the parties’ needs, is that there should be no order as to costs. The starting point should be readily departed from where unreasonableness by one or the other party is demonstrated. This approach is, I believe, consistent with the spirit of the judgment of Butler-Sloss LJ in Gojkovic v Gojkovic and Another [1992] Fam 40, sub nom Gojkovic v Gojkovic (No 2) [1991] 2 FLR 233 where due allowance is made for the seismic shift in the law since that decision was given. It reflects the terms of CPR 44.3(5). It also reflects the disapplication by FPR 10.27(1)(b) of the general rule within CPR 44.3(2) of the unsuccessful party paying the costs of the successful party.

  [93] It may also reduce the extent of satellite costs assessment litigation, which itself can be protracted and acrimonious, and which prolongs the agony between the parties.”       

29.  These problems have since been recognised and reported by the UK Costs Sub-Committee of the President’s Ancillary Relief Advisory Group in 2003 and discussed in Rayden and Jackson on Divorce and Family Matters, 18^th ed, at 52.19:

“Problems have been identified with the current costs regime in ancillary relief proceedings. The first is the de-stabilising effect that costs can have on financial settlements that have been carefully constructed by the court. Having considered the facts and circumstances of a case the court arrives at a settlement that, in its judgment, does justice between the parties. If at the conclusion of judgment it is revealed to the court that one party has failed to reach the high water mark of a Calderbank offer, the consequences of failing to ‘beat’ a Calderbank offer by an order to pay the other side’s costs can undermine completely the substantive order for ancillary relief that the court has just made. The second problem is that the system of closed offers has introduced a degree of procedural gamesmanship. This, in turn, leads to uncertainty and has, in effect, also introduced an undesirable element of gambling into ancillary relief proceedings. Calderbanks have been likened to a form of spread betting. Orders for costs can be disproportionate and, in some cases, produce real financial hardship as well as undermining the court’s division of the matrimonial assets. Lastly, making orders for costs which involve a detailed assessment can result in expensive satellite litigation and delay.”

30.  This report has since been endorsed by the English Court of Appeal in Norris v Norris; Haskins v Haskins [2003] 3 FLR 1124, CA where both cases concerned contested applications for financial provisions on divorce in which both judges had awarded the wives roughly 50% of the matrimonial assets and went on to consider the offers and counter-offers made by the parties before making costs orders. In the first case the judge took into account the fact that the final award was higher than the husband’s Calderbank offer, but gave the wife only 80% of her costs to reflect the fact that she had lost on a major issue, but the husband had argued before the judge that where assets were divided equally and neither party had beaten their own Calderbank offer there should be no order as to costs, whereas in the second case the judge considered the husband’s offers had been inadequate but balancing that with the consideration that although the wife’s final counter-offer was extremely close to the final lump sum order, she had failed to negotiate until shortly before the final hearing, he awarded the wife 85% of her costs of the application. The husband in both cases appealed against the costs orders.

31.  In dismissing both appeals, the Court of Appeal (Dame Elizabeth Butler-Sloss P, Thorpe and Mantell LJJ) examined in details the correct approach of the court to the treatment of costs in family financial disputes, of which Butler-Sloss P recognised as issues of general importance at the beginning of her judgment at 1126:

“[1] The two cases before this court raise similar issues of general importance, that is to say, the correct approach of the court to the treatment of costs in family financial disputes. One feature relevant to both the cases is that they come within the bracket sometimes described as big money cases. The main issue raised is the proper approach of the court to the making of confidential offers and counter-offers by the parties which are then disclosed to the judge after he/she has made an award in an ancillary relief application, otherwise called ‘the Calderbank offers’.”

32.  The President proceeded to first consider the background to costs orders and how the Calderbank doctrine was adopted as the established procedure in matrimonial financial claims and subsequently written into the rules under the Family Proceedings Rules 1991 in the aftermath of the Court of Appeal’s decision in Gojkovic v Gojkovic (No 2), and confirmed that decision must be read in the light of the 1991 Rules:

“[10] We have been told by counsel in the two appeals that the approach to the award of costs in ancillary relief cases, where Calderbank offers have been made, has been dominated by the decision of this court in Gojkovic v Gojkovic and Another [1992] Fam 40, sub nom Gojkovic v Gojkovic (No 2) [1991] 2 FLR 233 and less attention, it appears, has been paid to the Family Proceedings Rules 1991 as amended by the Family Proceedings (Amendment No 2) Rules 1999 and the judicial exercise of discretion provided by rr 2.69B and 2.69D (see below).

…

  [16] Whatever may have been understood by the profession from my judgment in Gojkovic v Gojkovic and Another [1992] Fam 40, sub nom Gojkovic v Gojkovic (No 2) [1991] 2 FLR 233 it has been overtaken by and has to be read in the light of the Family Proceedings Rules 1991 as amended...”

33.  Whilst Her Ladyship recognised the difficulties expressed by Mr Mostyn QC in GW v RW (Financial Provision: Departure from Equality) [2003] as set out above and exacerbated by the removal of r 2.69C thereby presenting problems in the construction of r 2.69B, and shared by the submissions made for Mr Haskins in the subject appeal, she insisted that it is the duty of the court to apply the rules and to do its best to make sense of them unless or until they are amended:

“[21] I recognise the difficulties which arise and which have been so trenchantly expressed by Mr Mostyn QC as set out above. The removal of r 2.69C increases the awkwardness of the language of r 2.69B and has presented problems. It does not, however, make that rule incomprehensible. In any event it is not for judges to deem a rule or a section of an Act of Parliament incomprehensible or unworkable. If passed by Parliament, whether it be primary or secondary legislation, it is the duty of the court to do its best to make sense of it. Judges do not have the right to dump the awkward passage wholesale. In my judgment therefore, Mr Mostyn QC in his judgment in GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 (Fam) [2003] 2 FLR 108 was wrong to treat the rule as incomprehensible and to substitute his own approach by making a decision which was not based on the existing rules.

[22] Mr Le Grice QC, for Mr Haskins, made submissions to the effect that since the decisions in White v White [2001] 1 AC 596, [2000] 2 FLR 981 and Lambert v Lambert [2002] EWCA Civ 1685, [2003] 1 FLR 139, the traditional approach to the award of costs required to be changed in order to do justice between the parties. He referred to the court’s move away from the concept of ‘reasonable requirements’ in the division of family assets, a concept which Mr Mostyn QC in GW v RW {Financial Provision: Departure from Equality) said, at para [84], had now been ‘comprehensively condemned as discriminatory’. It was submitted that in light of the radical in approach to the division of marital assets post-White, and in particular the ‘yardstick of equality’ approach, the proper starting point should now be that there should be no order as to costs. This was the approach of Mr Mostyn QC in GW v RW (Financial Provision: Depart from Equality). It was also the approach of the Costs Sub-Committee of the President’s Ancillary Relief Advisory Group in its report (see below), which said at para 4(b):

‘Family proceedings arise out of the breakdown of a marriage, which may be seen as a misfortune falling on both parties. The fact that the court has to assist the parties to re-adjust their finances should not of itself imply blame on the part of either party … As Mr Mostyn QC points out at para [86] of his judgment [in GW v RW], it may often be that “each party has had to come to the court to obtain an order which fairly disposes of the issues between them”.’

  [23] the court is, nonetheless, obliged to apply the rules unless or until they are amended. Rule 2.69, as amended, provides the current code on Calderbank offers to be followed until any further rule changes are made. Subrules 2.69(1) and (2) give statutory authority to the Calderbank practice in ancillary relief proceedings. The starting point r 2.69B is whether the offerer offers more or less than the court order. If less, he/she will pay the costs incurred after 28 days after the offer was made, unless the court considers it would be unjust to do so.”

34.  Her Ladyship further explained that the court must take into account all the circumstances of the case including the list set out in r 2.69D and that its effect on r 2.69B is to give the court greater latitude in making costs orders in those difficult or problematic situations mentioned above:

“[24] Rule 2.69D and its effect on 2.69B merit closer consideration. In r 2.69D the court must take into account all the circumstances of the case including the list set out therein. This include, in (a), the terms of any offers. That must include counter-offers. It also requires, in (e), the court to take into account the respective means of the parties. In my view, (e) enables the court to look at the whole position of the parties after the order has been made and see whether costs may fall disproportionately on one party rather than the other. It may enable a judge or district judge to mitigate, to some extent, the uncomfortable consequences of a Calderbank situation in a case where there is some but not a substantial amount of property and/or money to divide and costs will have to be paid from the available capital. The judge, in such a case, may make an order, often just enough to buy a suitable property for the wife, and then find that effect of the Calderbank offers may totally destabilise his order. Equally, of course, the Calderbank process must have teeth which can bite. Both parties are under an obligation to engage in genuine negotiation with the other side, otherwise one party may have to be penalised in costs. In medium asset cases I do not underestimate the difficulties. Rule 2.69D does, however, give the court a greater latitude in making costs order than may so far have been widely recognised.

  [25] In my judgment, therefore, r 2.69B and 2.69D can be managed and, where the court considers it unjust to apply r 2.69B, it can make a different costs order to reflect the injustice of the case. Mr Pointer QC, in his thoughtful and comprehensive skeleton argument, sets out in a bar chart a series of permutations arising from a court order to a wife of £1 million. I take one hypothetical situation. If a husband offers £800,000 and the wife asks for £1,200,000, neither has achieved the figure of the order and each is wide of the mark by the same amount. In broadly comparable situations, not tied to exact percentages since each case must be decided on its own facts, the result might be termed, as Mr Cusworth for Mr Norris suggested, a draw. In my view, in some offer and counter-offer cases, the proper approach might well be, under the present procedure, to make no order as to costs and leave each party to pay his/her own costs.”   

35.  Her Ladyship however accepted that the difficulties arose from r 2.69 set out by Mr Mostyn QC in GW v RW supra did urgently require a rethink for further amendments to the rules governing awards of costs in ancillary relief cases, and endorsed the recommendations made in the said report of the Costs Sub-Committee of the President’s Ancillary Relief Advisory Group:

“[28] The difficulties which undoubtedly arise from r 2.69, set out by Mr Mostyn QC with clarity in his judgment in GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 (Fam), [2003] 2 FLR 108, do now urgently require a rethink and it is time for further amendments to the rules governing awards of costs in ancillary relief cases. The present rules may affect disproportionately the payers in big money cases. The effect of costs is, however, to be felt across all ancillary relief claims. Although I have criticised Mr Mostyn QC for the cavalier way in which he dismissed the Family Proceedings Rules 1991, his approach to the reconsideration of costs requires careful thought, and I agree with the overall direction of his judgment for the future.

  [29] The Costs Sub-Committee of the President’s Ancillary Relief Advisory Group, to which I refer above, under the chairmanship of Bodey J, recently reported to the main committee. We have been provided with a copy of the report. It makes a series of excellent suggestions, many of a radical nature, which would meet the current requirements in relation to costs in family financial disputes. I agree with them and endorse them. I hope time may be found to bring them into effect by amendments to the Family Proceedings Rules 1991 in the near future.”    

36.  Her Ladyship lastly referred to a letter from the senior costs judge on 27 January 2003 which had reinforced her view that the present approach of the courts in family financial matters needed reconsideration, and which she cited as follows:

“As you know we took over the assessment of costs in family proceedings comparatively recently. Large numbers of bills are payable out of the CLS Fund and, because of the rigorous funding regime, are comparatively modest. Where a party obtains an order that the costs be paid by the other spouse (usually the husband) and costs recovered go to reduce the statutory charge on property recovered or preserved (usually a share of the matrimonial home). In such cases solicitors have a vested interest in maximising the costs recoverable from a paying party because those costs are recoverable at commercial rates. The effect of this is twofold, the detailed assessment proceedings are very hard fought, and, perhaps more importantly, the underlying family proceedings may be pursued with unnecessary extra vigour to ensure an adequate return for the legal representatives.

Whereas in non-family civil proceedings the resolution of the substantive dispute frequently takes the heat out of any animosity between the parties, and enables settlement of the costs to be achieved in a significant number of cases, in family proceedings that animosity, which is in any event likely to be at a very high level, continues unabated during the assessment proceedings. The successful spouse on one side vows to bleed the other dry of every penny if at all possible, whilst the paying spouse goes out of his or her way to deny the other the possibility of any recovery. The number of settlements in assessments arising out of family proceedings is very low. This in turn means that the assessment hearings themselves last for longer than similar assessments in non family proceedings. Where a party is LSC funded the cost of the assessment proceedings is not added to the statutory charge and is therefore borne by the CLS Fund.

The purpose of this letter is to suggest that it may be worth giving serious thought to doing away with fee shifting in family proceedings. The Family Proceedings (Miscellaneous Amendment) Rules 1991 disapply CPR 44.3(2) (costs follow the event). It is therefore a relatively short step to providing that in family proceedings no order for costs will be made unless a particular party has behaved in such an unreasonable manner that the court feels that a sanction should be imposed. I would suggest that if this idea were to be adopted the court making such an order should decide what amount should be paid by way of costs there and then.

       The level of venom in detailed assessment in family proceedings is such that I am firmly of the view that the removal of costs as an area of conflict would have an overall beneficial effect. If costs were never in issue the heat would be taken out of the situation far more quickly and any incentive in legal representatives to pursue remedies over vigorously in the hope of recovering greater costs would also disappear.”

37.  The warning and proposals expressed in that letter were endorsed by the President who concluded her view for urgent changes to the proper approach to costs in ancillary relief disputes by stating:

“[31] I am extremely grateful to the senior costs judge for his timely warning as to the adverse effect of the costs assessment process on family financial litigation. His sensible proposals require urgent consideration and provide a spur to taking action to introduce a radical approach to costs in all ancillary relief or similar disputes.”

38.  Thorpe LJ sitting in the same court agreed with the President’s proposals for changes and added his views as follows:

“[63] What then is the rationale for change? First, as these appeals illustrate, r 2.69B and D are difficult to construe and apply to any case in which there has been a progressive Calderbank negotiation with the exchange of several offers and several counter-offers. These rules were drafted at a time when the predominant culture endured that if the judge’s award clearly exceeded the husband’s best Calderbank offer then he paid the costs. Of course in the aftermath of this court’s decision in Gojkovic v Gojkovic and Another [1992] Fam 40, sub nom Gojkovic Gojkovic (No 2) [1991] 2 FLR 233 the obligation on the applicant to counter-offer in response to an unacceptable Calderbank offer was plainly established. However, that did not impact much on the culture. That was perhaps understandable throughout a time in which the applicant’s award in substantial cases was calculated by reference to her reasonable requirements. If a husband’s Calderbank proposal had not sufficiently recognised her reasonable requirements then he should pay her costs even if the wife had put her case higher than the judge’s assessment. Of course the culture encouraged the husband to put forward generous proposals, the more so if he perceived the wife to be unreasonable, in order to avoid the costs liability. Equally if the wife’s unaided reaction was to reject the husband’s Calderbank offer it enabled those advising her to issue a clear warning of the risks of going forward to trial. Thus it cannot be doubted that the Calderbank conventions as then understood made a significant contribution to the resolution of ancillary relief cases in the high range.

        [64] However, for all the reasons given by Mr Mostyn QC in his judgment in GW v RW (Financial Provision: Departure from Equality) [2003] EWHC 611 (Fam), [2003] 2 FLR 108 ancillary relief cases are now litigated under very different principles. He had long been an advocate for the proposition that in ancillary relief, as in Children Act cases, there should be no order for costs unless exceptional circumstances justify an order. He has found an ally from a quarter which I doubt he anticipated. The experience of the senior costs judge, having taken over from the Principal Registry the task of assessing costs in ancillary relief cases, is in my judgment extremely significant. His view has undoubtedly influenced the report of the costs sub-committee. The committee has also factored in the considerations identified by Mr Mostyn QC in his judgment. The committee, upon which the relevant professional associations are duly represented, has endorsed the direction indicated by the senior costs judge and by Mr Mostyn QC. The report has been adopted by the President’s Ancillary Relief Advisory Group without qualification. More importantly the report has the support of officials from the Lord Chancellor’s Department and the Legal Service Commission. Our judgments in these appeals add further support for the reform movement. To introduce the new regime it will be necessary not only to consider the required amendments to the Family Proceedings Rules 1991 but also the application of CPR 44.3 to ancillary relief proceedings. The ultimate shape is a matter of policy and the report of the sub-committee offers a carefully considered detailed model…”     

39.  His Lordship concluded in the same paragraph of his judgment his endorsement of the report of the sub-committee for amendments to the Family Proceedings Rules 1991 by referring again to the said letter of 27 January 2003 from the senior costs judge and citing the following passage:

“[64] … If I were expressing my own view of the objective of the amendments I could not do better than to cite the following sentences from the letter of 27 January 2003 from the senior costs judge to the President:

‘The Family Proceedings (Miscellaneous Amendment) Rules 1991 disapply CPR 44.3(2) (costs follow the event). It is therefore a relatively short step to providing that in family proceedings no orders for costs will be made unless a particular party has behaved in such an unreasonable manner that the court feels that a sanction should be imposed. I would suggest that if this idea were to be adopted the court making such an order should decide what amount should be paid by way of costs there and then.’

  [65] The senior costs judge’s proposal demonstrates simplicity, clarity and overall fairness. Those should be the standards to which we aspire in all aspects of ancillary relief proceedings.”         

40.  The proposition that in ancillary relief cases, as in children cases, there should be no order as to costs unless exceptional circumstances justify an order, though sound attractive to me given the similarly high level of animosity encountered here as in this case but has yet to be seriously considered either by our courts or the professions, there does seem to be a growing practice in cases where one party, usually the non-earning wives, is able to fund her litigation with money from the asset pool either by way of a maintenance pending suit order or with the other party’s consent, thereby taking the heat out of any animosity between them and enabling settlement of the issue on costs at the end in an increasing number of cases in our jurisdiction.

41.  In the case now before me, as noted above and in my judgment most of the Wife’s costs were met by the Husband’s contributions from funds in his bank accounts, which were no doubt part of the matrimonial assets and from which he had also drawn to meet his own legal costs, hence it seems to me that his claim for costs is in effect not to recoup his costs paid out of his pocket but rather to compensate him for the consequential reduction to his half share in the matrimonial assets eaten up by the additional costs incurred by both parties as a result of the Wife’s failure to accept his last offer, and for which no doubt he would want to seek to set off such costs of his against the final lump sum award for the Wife and thus impacting on the estimated capital required to meet her future needs, let alone to guard against any unforeseen eventualities such as her ill-health or medical uncertainties which might strike at her earning capacity, all these in the absence of the safety valve of a nominal maintenance order for periodical payment, as Mr Pilbrow has submitted on her behalf.                   

42.  In my judgment I found that by awarding the Wife half of the total assets of HK$65.8M which together with her own earnings should meet all her future needs and living expenses at about HK$120,000 per month plus accommodation under a clean break situation, and without second guessing myself, I agree that in reality the available capital from her share of HK$32.9M, of which about 1/3 represents a property which she may need to house herself, cannot be expected to generate any huge surplus for her when she retires even before taking into account of the impact a costs order would have against her.

43.  As stated above, r 2.69D requires that in considering whether it would be unjust, or whether it would be just, to make the costs order under r 2.69B, the court must take into account of all the circumstances of the cases including those matters specifically mentioned therein, of which it would be relevant to note that firstly, the Wife’s reason for not accepting the Husband’s second offer was not because she had wanted more money or a bigger share of the matrimonial assets, but for the reservation of a right to ask the court to review her situation in the event that she had exhausted the award which the court had considered as sufficient to meet all her needs including medical for the next 30 odd years up to the time of her demise which necessarily involve certain degree of guesswork or speculation, when such needs had always been wholly and comfortably met by the Husband for the past 26 years until my order for the clean break; and secondly, the vast disparity in earnings and earning capacity which the Husband had over the Wife, so that I am unable to say that the Wife did not have any merits, or that she acted unreasonably, in insisting for a nominal maintenance order, even though ultimately I was not with her on this issue for those reasons set out in my judgment.

44.  Furthermore, notwithstanding the Husband’s offers since disclosed, I maintain my view expressed in the judgment that this is one of those exceptional cases in the circumstances that justifies no order as to costs. In conclusion and for the reasons given above I refuse to vary the costs order nisi which is to be made absolute forthwith, and for similar reasons I make no order as to costs of this application of the Husband.

Wife’s Application for Leave to Appeal

45.  The Wife’s complaints against the judgment essentially consist of 2 grounds as set out in her 5^th Affidavit [A1/7] in that the court has made a miscalculation of the matrimonial assets for distribution between the parties, and that when the court ordered a clean break between the parties, it failed to take any or sufficient account of certain relevant matters and erred in law by failing to award the Wife nominal maintenance in the circumstances. I shall start with her first ground.

Miscalculation of Assets

46.  For this ground the Wife’s case is that due to relying upon the asset schedules annexed to the parties’ Opening Submissions at HK$65M, the court had made a miscalculation of the assets by the end of the trial as it was clearly stated in her Closing Submission the asset pool had gone down to HK$60.7M with her assets at only HK$19.2M with the Husband’s at HK$41.95M, and in her draft grounds of appeal, she adopted the asset pool to be HK$61M with her assets at HK$20.36M and the Husband’s at HK$40.7M which was what the court had found that he had in the judgment.  

47.  Mr Pilbrow therefore submits for the Wife that this court has erred in fact by finding that the assets pool was HK$65M as opposed to HK$61M by miscalculating the Wife’s assets at HK$25.1M which was HK$4.74M more than she had net of the court’s increases in other assets by erroneously finding that:

(a) she had HK$11.7M in her bank account when she in fact had only HK$8.5M;

(b) her US tax liability for 2016 of HK$543,000 was not taken into account;

(c) whilst correctly setting out her legal costs of HK$6.7M but failing to deduct the sum of HK$1M of her legal costs owing;

(d) by including her future rental liabilities of HK$1,170,000 which had already been removed and conceded by her prior to the 2^nd part of the trial in February 2017;

(e) by including the outdated figure of the Husband’s monies and addbacks of HK$13,484,486 which had already been reduced and agreed to a lower sum of HK$5,153,065, as correctly stated in paragraph 63 of the judgment.  

48.  Mr Pilbrow argues that the Husband’s position of the asset pool as stated in his Asset Schedule attached to his Closing Submission was similarly incorrect at HK$65M in total with his asset at HK$36.9M and the Wife’s at HK$27.6M, and as explained above he submits that the correct figures should be those as stated in the Wife’s Closing Submission with hers at only HK$20.36M and the Husband’s at HK$40.7M, thus giving the asset pool HK$61M instead of HK$65M, and hence the Wife should have been awarded the lump sum of HK$10.5M as opposed to HK$7.8M.

49.  In opposing the Wife’s case Ms Rattigan argues for the Husband that the court was entitled to find the asset pool as it did based on the figures presented in the Opening Submissions and Asset Schedules before the court submitted by both parties at the time of the trial, and hence it is wholly wrong for the Wife to now seek to rely on post-trial figures to say that the court erred in calculating the asset pool and that this therefore merits a grant of leave to appeal, as she submits that the court acted entirely correct in finding the assets as it did on the basis of the material presented at the trial. And for the Wife to now say that those later figures should be used which were never before the court and never capable of being examined or challenged by the Husband would be entirely wrong, and therefore there is no merit in this aspect of the Wife’s intended appeal and leave should be refused.         

50.  This discrepancy of some HK$4M in the asset pool between the parties’ Opening Submissions and Closing Submissions can perhaps be explained by what happened to the Wife during the trial, as explained in paragraph 36 of my judgment, when she suffered a panic attack in the middle of cross-examination on 8^th November 2016 and the trial had to be adjourned for more than 3 months to late February 2017 when the evidence was finally concluded but closing submission could only take place on 5^th May 2017 upon consultation of the diaries of all concerned, with a significant time gap of some 6 months between the start of the trial and its conclusion, during which, of course as and when life goes on, the living expenses of the parties in particularly the Wife’s medical expenses as well as their legal costs would continue to be incurred which may go to explain the alleged reduction to the funds in the Wife’s bank accounts.

51.  I put her such reduction as ‘alleged’ because, as pointed out by Ms Rattigan for the Husband, if indeed that was what actually happened to her financial situations, evidence should and could have been adduced by the Wife when she resumed her evidence in February 2017, or that application could have been made on her behalf for leave to present new evidence as to her additional spending during that period so that they could be properly examined or challenged by the Husband, or that leave could have been sought by those representing her to take her instructions as to such alleged spending or additional expenses but somehow none of these were done, and as the matter now stands I agree with the Husband that it would be wrong both in principle and in procedure, and unfair to him, for the Wife to now rely on figures never properly presented before the court or capable of being examined or challenged, and accordingly leave to appeal on this ground is refused. I shall proceed to consider her next and remaining ground.             

Error in Ordering a Clean Break

52.  Mr Pilbrow submits that the Wife all along in the proceedings was seeking an order for equal share of the matrimonial assets with a nominal maintenance due to her limited financial means and ability and her medical conditions that it was essential that she be protected with a nominal maintenance to guard against any unforeseen eventualities, as it was held in Scallon v Scallon [1990] 1 FLR 194 in which the petitioner, who suffered from asthma and had been married for a long time to the respondent, was awarded the nominal maintenance.

53.  Mr Pilbrow further submits that the Wife had also included in her open offers an undertaking that she would not seek an increase for herself within a 5-year period save if she is suffering from severe illness or disability.

54.  Mr Pilbrow therefore submits that the court failed to take any or sufficient account of the following matters and erred in law by failing to award the Wife nominal maintenance:

(a) by ordering a clean break on an asset pool of HK$65M which was actually HK$61M, so that the Wife is deprived of income upon the difference, as the asset pool in the beginning of the proceedings had depleted from HK$86M to HK$65M which was in fact only HK$61M, hence a failure to make provision for periodical payments to cover the Wife’s loss of income on the reduced lump sum or at the conclusion of the lump sum by instalments;

(b) due to the chronic nature of the Wife’s medical condition confirmed by unchallenged medical evidence, the court should have awarded her nominal maintenance;

(c) failing to take into account of the Wife’s reasonable needs given her medical condition, the Husband’s future earning capacity, the Wife’s limited earning capacity, and the payment of periodical payments of HK$76,000 per month made into lump sum payments by instalments for a period of 5 years;

(d) failing to take into account of the Wife’s agreement to accept a 50/50 division of the assets was on the basis that she was to retain nominal maintenance;

(e) failing to take into account of the Wife’s unopposed evidence of her agreement to a 50/50 division of assets was expressly conditional upon receiving nominal maintenance after the payment of lump sum by instalments in the sum of HK$4,560,000.   

55.  Mr Pilbrow further submits that the Wife’s health condition has not improved since the judgment and has in fact worsened, as recently when she attended clinic in order to undergo her planned pain management medical procedures as set out in her original narrative affidavit and referred to in the judgment, she was unable to carry through because of her high blood pressure, and while she does have insurance that may cover such procedure, the policy is subject to the palliative care ceiling of US$50,000, and once that ceiling is reached, she will have no more reimbursement for any of the pain management procedures, and if she must proceed to the next level of procedure which will require hospitalization, she will immediately exceed this limit, which means that not only will she not be covered, there will also be nothing left for her end-of-life care.

56.  Mr Pilbrow therefore submits that the court erred by ordering a clean break without considering the need to guard against unforeseen eventualities referred to in Scallon such as the Wife’s ill-health and future medical uncertainties, which he argues will no doubt diminish her earning capacity, and leave should therefore be granted to her to appeal accordingly.        

57.  Ms Rattigan argues for the Husband that again there are no reasonable prospects of the Wife succeeding on an appeal against a carefully considered judgment on this aspect of her case which has correctly found that her needs have been more than met by her award, that this is not a case where an order for nominal maintenance is appropriate, and that the court has exercised its discretion against awarding it, and as there is no error of law or mistake of fact, this case more than any other needs to end, there will have no prospect of success on appeal, and that the Wife’s present application is all but a continuation of her unreasonable litigious behaviour which the Husband argues must end.

58.  The law on application for leave to appeal is clear, and the appropriate test as set out in Section 63A District Court Ordinance, Cap 336 is that either the appeal has a reasonable chance of success or that there is some other reason in the interests of justice why the appeal should be heard. Given the circumstances and medical conditions of the Wife I am unable to say that there is no reasonable chance of success in her appeal on this ground. Accordingly I grant leave to her application for appeal on this ground, with costs to be costs of and incidental to the appeal.    

59.  At the conclusion of my earlier judgment I urged the parties to finally bring closure to their litigation so that they could move on. It is still my hope that they would be able to do so by returning to mediation to resolve any remaining issue between them. Lastly it remains my wish to express my gratitude to counsel for both sides for their most valuable assistance rendered to the court.