ALDL v. FTFC AND ANOTHER

FCMC 13698/2013

[2025] HKFC 125

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 13698 OF 2013

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

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

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

DECISION
( Variation of costs order nisi )

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

1.  There are 2 applications before me which are taken out by the 1^st respondent for variation of the 2 cost orders nisi made by me on 17 April 2024 in the Preliminary Issues Judgment[1] and the Ancillary Relief Judgment[2] respectively.

2.  I will refer the wife petitioner as W, the 1^st respondent as H and the 2^nd respondent as R2 respectively below. In so as far as applicable, I will also use the same abbreviations as that in the said 2 Judgments below.

3.  In the Preliminary Issues Judgment, I made an order nisi that no order as to costs of the 4 sets of the preliminary issues and section 17 applications including all costs reserved in relation thereto (“Preliminary Issues Costs Order”).

4.  In the Ancillary Relief Judgment, I made an order nisi that H do pay W 80% costs of the ancillary relief proceedings including all costs reserved in relation thereto with certificate for one Counsel, to be taxed if not agreed. I further ordered that all legal costs provisions made by H to W shall be deducted from the costs taxed or agreed (“Ancillary Relief Costs Order”).

5.  H now applies to vary the Preliminary Issues Costs Order so that W is to pay:

(1)  100% of H’s costs (including costs reserved) incurred after 13 May 2022 on an indemnity basis, with interest not exceeding 10% above judgment rate and with certificate for two counsel, to be taxed if not agreed; and

(2)  80% of H’s costs incurred up to and including 13 May 2022 on an indemnity (or party-and-party) basis[3], with certificate for two counsel, to be taxed if not agreed.

6.  H further applies to vary the Ancillary Relief Costs Order so that W is to pay 30% of H’s costs (including costs reserved) of the ancillary relief proceedings, with certificate for two counsel, to be taxed if not agreed.

7.  Directions were given by consent on 20 May 2024 for paper disposal of these 2 applications by this court.

H’s case for Preliminary Issues Costs

8.  In gist, H argues that:

a.  At the Preliminary Issues trial, W failed to establish that H had any interest in $465,300 withdrawn from Citibank to R2, and failed to establish that H had any interest in 49A Banyan Garden, 52G Banyan Garden, the sales proceeds of Liberte, Parc Oasis or the Car Parking Spaces Nos 12 and 13 (“Landed Properties”). See: Preliminary Issues Judgment §§42-45, §§54-56, §58, §65, §§69-72.

b.  By his solicitors’ letter marked “without prejudice save as to costs” dated 29 April 2022[4] (“H’s PI Sanctioned Offer”), H had offered to compromise / dispose of the Preliminary Issues trial and proceed to the Ancillary Relief trial on the basis that (i) withdrawals from Citibank to R2 be taken as part of H’s assets; and (ii) he had a 50% interest in the Landed Properties. The final day for accepting the H’s PI Sanctioned Offer by W is 13 May 2022 and W did not reply.

c.  W failed to do better at trial, than the H’s PI Sanctioned Offer, whether one takes a global approach, focusing on the sum of assets awarded (~$9.3 million award vs ~$18.1 million offer) or an issue-based approach, counting the Landed Properties, Dividends and Unit Trust issues. The H’s respective sanctioned offers and W’s respective awards at trial are summarized by H as follows:

Issues	H’s respective sanctioned offers	W’s respective awards at trial
Citibank withdrawals of $465,300	$465,300	$0
49A Banyan Garden, valued at $8.93m	50% ie $4,465,000	$0
52G Banyan Garden, valued at $11.99m	50% ie $5,995,000	$0
Sales proceeds of Liberte	$945,000	$0
Parc Oasis, valued at $12.51m	50% ie $6,255,000	$0
Car park spaces, valued at $3.06m	$0	$0
Dividends excluding Directors’ Emoluments	$0	$7,500,000
Unit Trust	$0	$1,804,936
Value of H’s offer:	$18,125,300
Value of W’s award:		$9,304,936

d.  By Order 22, rule 23(5) RHC, the Court ‘shall’ order W to pay H’s costs on the indemnity basis after the latest date on which the offer could have been accepted (ie 13 May 2022) with interest not exceeding 10% above judgment rate, unless it considers it ‘unjust’ to do so, in which case it has a discretion to award less, or none at all.

W’s case for Preliminary Issues Costs

9.  W pointed out that the terms of the H’s PI Sanctioned Offer state as follows:

(1)  The offer relates to “the whole of the Petitioner’s claim in [the] Properties Preliminary Issue against the 1^st and 2^nd Respondents”.

(2)  If the offer is not accepted and P fails to obtain a judgment that is more advantageous than the offer, P is required to pay “costs of our clients on indemnity basis after the latest date on which your client could have accepted the offer”.

10.  Therefore, W contends that:

i.  The H’s PI Sanctioned Offer only applies to one (ie the Landed Properties Preliminary Issue) out of the four preliminary issues determined in the Preliminary Issues Judgment. It is misleading for H to ask for 100% of his costs therein on an indemnity basis, when the H’s PI Sanctioned Offer is not engaged for the costs of the TF Co. Ltd. Preliminary Issue, the Dividends and Directors’ Emoluments Section 17 Application, and the Unit Trust Section 17 Application;

ii.  The H’s PI Sanctioned Offer is not relevant to his request for 80% of his costs on an indemnity basis incurred before 13 May 2022.

11.  Besides, W argues that there are compelling reasons why it would be inappropriate and unjust for the consequences in Order 22, rule 23 RHC to apply, namely destabilising W’s financial relief and H’s non-disclosures.

12.  For destabilising W’s financial relief, as this court only awarded W a periodical monthly payment of $260,700 to cover her reasonable, day-to-day needs, W submitted that no provision has been made to allow her to pay off her indebtedness. This will have to come from the award on costs. Allowing these 2 applications would reverse or substantially undermine the financial provision awarded to W by the court. This cannot be just, in view of my findings in the Ancillary Relief Judgment on her serious medical conditions (which contribute significantly to her increased living expenses and put her in a financially precarious condition) as well as her negligible / non-existent earning capacity.

13.  If W were forced to liquidate her only home ie Parc Royale[5] to pay her costs and those of H, this would inflict grave hardship on her and seriously undermine the thorough investigation on needs undertaken by the Court in rendering the Ancillary Relief Judgment. There would be no possibility of W starting life ‘afresh’ at the conclusion of these divorce proceedings if any variation of the costs orders nisi were allowed in favour of H.

14.  W also argues that H’s repeated non-disclosures are another reason why W was not in an adequately informed position to accept the H’s PI Sanctioned Offer.

15.  H’s case had evolved so much that substantial amendments were still being made to H and R2’s pleadings on the Landed Properties in late February 2022, nearly ten years after proceedings began and just two months before the H’s PI Sanctioned Offer. Thus, it is unreasonable to expect W to accede to the H’s PI Sanctioned Offer before having any opportunity to ascertain the state of H’s non-disclosures and misconduct.

My views on applicability of Order 22 RHC

16.  To start with, Mr Marwah and Mr Baker for H heavily relied on Arnold Robert Ltd v Glorious Motors Ltd [6]. I accept the submission of Ms Cheng and Mr Kwan for W that this decision arises from a straightforward commercial claim not family financial claim and thus bears no resemblance to this case. Arnold Robert’s case must be distinguished.

17.  Secondly, I also agree that the applicability and application of Order 22, rule 23 RHC in matrimonial proceedings is controversial and not straight forward. In KJ v KMLM[7], §§80-86, §96, To J held that the sanctioned offer regime under Order 22 RHC is inapplicable, at least, to applications touching on matrimonial finance. Ms Cheng and Mr Kwan for W submitted that this view apparently continues to be endorsed by the editor of White Book 2025 (Vol. 1), §22/1/4.

18.  Further in Hong Kong Family Court Practice (4^th Ed.), §§9-10, it said that “….for O 22 to take effect, any offer must be one that could have been accepted without requiring leave of the court. Since agreements for ancillary relief always require the court’s permission, O 22 does not apply in ancillary relief.”

19.  However, I think that the Court of Appeal took a different view in AVT v VNT[8]though not citing KJ v KMLM. In AVT v VN, Lam VP (as Lam PJ then was) said in §2:

“… Since our O 22 r 23(5) is applicable generally, what are relevant circumstances of a case is to be guided by the general approach of the court in awarding costs. It is well established that generally the means of a party is irrelevant. A poor litigant cannot expect the court to make a different costs order on account of his lack of means to pay the costs of his opponent. This remains to be the case even though the purpose of the litigation is to assess what the litigant should recover to support his living. Thus, in a personal injury case, a plaintiff who fails to beat a sanctioned offer cannot ask the court to exonerate him from the cost consequences under Rule 23 simply because such a cost order would deprive him substantially of the award he should otherwise receive as fair compensation for his injuries … the means of the parties cannot be a relevant circumstances for the purpose of our Rule 23(5) …” (emphasis added)

20.  On one hand, Peter Cheung JA acknowledged in the same case that Order 22 RHC gave rise to a real ‘tension’ between litigation discipline and the need to ensure meaningful financial provision for a spouse on divorce. On the other hand, the learned Judge said that:

(a)  As the matter now stands, Order 22 RHC applied to the family jurisdiction and imposed discipline for responsible litigation, it could not be forgotten that unlike a commercial dispute, the ‘fundamental philosophy’ of the Family Court was to make proper, adequate and meaningful financial provision for a spouse on divorce so that she could start afresh in life.

(b)  This underlying philosophy would be defeated if the costs that the wife had to pay by reason of her failure to meet a sanctioned offer would wipe out or ‘destabilise’ the financial provision intended for her. (emphasis added)

21.  Eventually, Lam VP and Poon JA (as they then were) went further, suggesting that:

(a)  It might well be appropriate for a different regime on costs to apply in matrimonial litigation to resolve the tension identified in Cheung JA’s judgment;

(b)  The Working Party on Family Procedural Rules chaired by Poon JA (as he then was) had proposed that sanctioned offers and payments should not apply to matrimonial proceedings. But insofar as it did, its application would not always be an easy or straightforward exercise and parties ought to think twice before resorting to O 22. (emphasis added)

22.  In a subsequent Court of Appeal case YSG(YX) v LYAG[9], Cheung JA ( and Chu VP agreed) reiterated the applicability of Order 22 RHC to the family jurisdiction in Hong Kong.

23.  It is noteworthy that the Family Procedure Ordinance Cap 646 has been enacted on 30 June 2023 but as at this date, it is not yet in operation save sections 1, 2 and 3 (apart from section 3(1)(e) and (3)). Since the Family Procedure Rules has not been enacted, it is uncertain whether or not sanctioned offers and payments will apply to matrimonial proceedings including preliminary issue proceedings and section 17 application etc.

24.  To conclude, as the Court of Appeal judgments in AVT v VNT and YSG(YX) v LYAG are binding on me, the sanctioned offer regime under Order 22 RHC is applicable in matrimonial proceedings. As said in LLC v LMWA[10], the Court of Appeal confirmed that a dispute on preliminary issues has no independent existence of its own and is firmly part of the matrimonial proceedings. Hence, I consider that Order 22 RHC is also applicable in the preliminary issues proceedings as well as section 17 application.

My views on Preliminary Issues Costs

25.  In §13 of the Preliminary Issues Judgment, I identified four main questions are to be determined, namely the Landed Properties Preliminary Issue, TF Co. Ltd. Preliminary Issue, Dividends and Directors’ Emoluments Section 17 Application and Unit Trust Section 17 Application.

26.  For costs effectiveness and case management purpose, all these preliminary issues and section 17 applications shall be tried together in one goal as they concern the same parties and the facts of the four main issues in the Preliminary Issues Judgment are not only seriously disputed but also interrelated to each other. No doubt, I am of the view that at the end, W is the loser in respect of the Landed Properties Preliminary Issue. Based on the general rule of costs following event, she shall at least pay costs of the Landed Properties Preliminary Issue to H on a party-and-party basis without considering the application of Order 22 rule 23.

27.  However, it is very clear from the wording of the H’s PI Sanctioned Offer that it merely applies to the Landed Properties Preliminary Issue but not the remaining three issues. Therefore, even if W accepts it, the court still has to try the remaining three issues and the trial already fixed on 24 to 28 October 2022 could not be vacated. At most, the length of the trial may be reduced. Hence, H offer to compromise / dispose of the Preliminary Issues trial and proceed to the Ancillary Relief trial could not be practically accepted by W.

28.  On the other hand, W must be regarded as winner of the remaining three issues except that concerning Directors’ Emoluments and no doubt, H shall pay the relevant costs to her on a party-and-party basis. Therefore, on an issue-based approach, I fail to see how H can seek 100% of his costs (including costs reserved) incurred after 13 May 2022 on an indemnity basis against W.

29.  It is also noteworthy that W filed her Points of Claim whilst H and R2 filed their respective Points of Defence in the Landed Properties Preliminary Issue, and on the other hand, R2 filed her Points of Claim whilst H and W filed their respective Points of Defence in the TF Co. Ltd. Preliminary Issue. It is not clear as to whether W or R2 shall be regarded as “plaintiff” whilst who are “defendants” in the Preliminary Issue Judgment for the purpose of Order 22 rule 23 RHC. Cheung JA observed in YSG(YX) v LYAG[11],

“49. Without deciding, we tend to agree with the Judge that this is not a straight‑forward application of Order 22, rule 23. Despite the general application of Order 22 to matrimonial proceedings, it is not readily apparent as to who is the ‘plaintiff’ and who is the ‘defendant’ in the instant case for the purposes of applying the rules. The rules provide for vastly different consequences depending on whether the sanctioned offer was made by the ‘plaintiff’ or the ‘defendant’. It is relevant to note that both the Wife and the Husband had made claims for ancillary relief.”

30.  Regarding the global approach, focusing on the sum of assets awarded (ie ~$9.3 million award vs ~$18.1 million offer), as suggested by H, it is simply one of the many approaches the court may take in exercising the discretion on costs. In my view, if H really intends to make use of this global approach, he shall unequivocally state in the H’s PI Sanctioned Offer somewhat like “if W agrees to withdraw or waive all her claims in the preliminary issues and section 17 applications against H and R2, the sum of $X (or ~$18.1 million) be taken as part of H’s assets for the purpose of W’s ancillary relief claims” or similar wordings to such effects. Obviously, the H’s PI Sanctioned Offer does not have such effect. Hence, I refuse to adopt the global approach in the present case.

31.  Unlike the H’s AR Sanctioned Offer[12] which H offered to pay W 50% of costs of the ancillary relief proceedings capped at $1.8 million, the H’s PI Sanctioned Offer fails to mention whether H would pay W costs of the preliminary issues and section 17 applications or any portion thereof, or to suggest no order as to costs, costs reserved or costs in the cause of the ancillary relief proceedings etc. Even if W agreed to accept the H’s PI Sanctioned Offer and to withdraw or waive all her claims in the preliminary issues and section 17 applications against H and R2, the parties may not be able to reach the agreement as to the costs order. Therefore, it cannot be said that W fails to obtain a more advantageous judgment than the H’s PI Sanctioned Offer.

32.  Furthermore, I am satisfied that as H had not fulfilled his duty to make full disclosure of his finance[13] as well as the romantic relationship and cohabitation between H and R2 only until late 2020, I consider that W was not in a position to offer any settlement or accept any offer made by H for the preliminary issues and section 17 applications at the material time or at least before late 2020. I see no reason as to why H is entitled to seek 80% of his costs on a party and party basis for the entire period before the H’s PI Sanctioned Offer ie up to 13 May 2022.

33.  To sum up, I am of the view that assuming H as defendant, the H’s PI Sanctioned Offer is not qualified as a defendant’s sanctioned offer in the Preliminary Issues Judgment under Order 22 rule 23(1)(b). By way of overall impression and as a result of setting off the costs payable to each other as discussed above, I maintain to exercise my discretion to make no order as to costs, which must be fair after taking into account all the circumstances of the case.

34.  H’s application for variation of the Preliminary Issues Costs Order be dismissed.

H’s case for Ancillary Relief Costs

35.  H contends that the without prejudice correspondence shows that W (1) failed to beat another letter of his solicitors also marked “without prejudice save as to costs” and issued on 29 April 2022[14] (“H’s AR Sanctioned Offer”), which proposed a lump sum of $16,728,000 with 50% of costs capped at $1.8 million, and (2) repeatedly ignored and frustrated opportunities to compromise in repeated and flagrant breach of her duty to participate in dispute resolution processes in good faith.

36.  In the Ancillary Relief Judgment, W did not obtain any lump sum order but was awarded a ‘joint lives’ periodic payment of $260,700 as her maintenance. H argues that it is fair to expect him to retire at 65, which is the ‘Hong Kong’ retirement age. When H turns 65 in September 2029, W’s maintenance award is equivalent to $15,642,000 (ie $260,700 x 12 months x 5 years), which is materially less than the $16,728,000 of the H’s AR Sanctioned Offer. W has failed to ‘do better’ in substance than she did at trial and Order 22, rule 23 again applies.

37.  H also complains W of wanton disregard for her duty to engage in compromise discussion, in particular failure to reply to H’s and R2’s WP Offer in March 2018, Private FDR suggestion in August 2019, further attempt at FDR in March 2021 and the H’s AR Sanctioned Offer. H further relies on other matters, such as W’s belated insistence on Duxbury experts (more than 7 months after trial date was fixed) which was found by me unnecessary in light of parties’ limited assets, W’s ‘exaggeration’ and ‘excessive’ maintenance expenses etc, which are relevant under Order 62, rule 5(1)(aa), (d), (e), (f) and (g), and rule 5(2) RHC.

38.  H now seeks an order that W do pay 30% of his costs in the ancillary relief proceedings on a party and party basis.

W’s case for Ancillary Relief Costs

39.  W submitted that the correct calculation of maintenance up to 8 September 2029 (when H turns 65) after adopting the correct starting date should be as follows:

Payments of Periodic Payment
Year	Number of Payments
2024 (1 May to 1 December 2024)	8
2025 (1 January to 1 December 2025)	12
2026 (1 January to 1 December 2025)	12
2027 (1 January to 1 December 2025)	12
2028 (1 January to 1 December 2025)	12
2029 (1 January to 1 September 2029)	9
Total Number of Payments:	65
Total Periodic Payment up to September 2029
$260,700 x 65 months	$16,945,500

40.  This point alone renders the H’s AR Sanctioned Offer irrelevant since the award of $16,945,500 has plainly beaten H’s lump sum offer of $16,728,000.

41.  As the Ancillary Relief Judgment requires him to make periodic payment “until the joint lives of the parties” or upon W’s remarriage, H only subjectively thinks it is “fair to expect” him to retire at 65. There is no basis for H to presume that his attempt to vary down the periodic payment to $nil upon his reaching the age of 65 will succeed.

42.  W repeated her submissions relating to her grave financial hardship if the Ancillary Relief Costs Order is varied.

My views on Ancillary Relief Costs

43.  First, I entirely agree with the W’s submission that there is no basis for H to presume that his attempt to vary down the periodic payment to $nil upon his reaching the age of 65 will succeed. There is no retirement age for a private medical practitioner who is not working in a government hospital. He himself is the 100% owner of TF Co. Ltd., who can decide to retire even at whatever age he likes. But, it does not mean the court will accept at the hearing or trial of the intended application. Besides, the successfulness of such intended application depends on many findings of facts by the court, which may be seriously disputed by W, such as value of assets owned by H at the time of the alleged retirement, the question whether he is able to resume practice a period of time after claiming retirement etc.

44.  Secondly, I agree with the correctness of the W’s calculation of her maintenance up to 8 September 2029 (when H turns 65) in the sum of $16,945,500 which is plainly better than the H’s AR Sanctioned Offer of $16,728,000. I reject the H’s submission in his reply that the H’s AR Sanctioned Offer includes a costs payment of $1.8 million. H is actually offering 50% of costs capped at $1.8 million. It is possible that after taxation or agreement of the parties, the 50% of costs may be much less than $1.8 million. In any event, W has to bear half of her own costs if the H’s AR Sanctioned Offer is accepted.

45.  Thirdly, since the periodic payment is a “joint lives” order, it is always possible that one of the parties may pass away before the alleged retirement of H at 65, such that the total amount eventually paid by H to W may be less than the figures of $16,945,500 or $16,728,000. In any event, there must be no basis to predict the lifespan of the parties.

46.  As to W’s submissions relating to her grave financial hardship, the total value of W’s net assets is HK$17,641,153.01[15] which I had already taken into account of her liability to repay Prof. Cummins for HK$2.2 million. She may choose to sell her interest in Brisbane property to her brother or mother, or surrender part of the values of her insurance policies, so that the said HK$2.2 million can be repaid. In short, I disagree that she will suffer from any grave financial hardship even if the Ancillary Relief Costs Order is varied.

47.  There is no dispute as to the applicability of Order 62, rule 5 RHC in the matrimonial cases. As said in LLC v LMWA[16]“The conduct of a party in adopting an uncooperative stance can, and very often will, be taken into account under O.62 r.5(2)”, I see no reason why it is not applicable in the present case.

48.  As regard W’s failure to respond to H’s and R2’s WP Offer in March 2018 and Private FDR suggestion in August 2019, I disagree with their complaints as H and R2 only complied with the Order for specific discovery against them made by Judge A N Tse Ching on 27 October 2020 until late 2020. For H’s and R2’s further attempt at FDR in March 2021, it was my decision to dispense with FDR and to set down for trial of both the Preliminary Issues and the Ancillary Relief at the hearing on 1 December 2021 as the case had been dragged on for too long. So, W shall not be blamed.

49.  As to H’s complaint of W’s ‘exaggeration’ and ‘excessive’ maintenance expenses, I also disagree. The amount of reduction of her maintenance is not huge and after all, these are minor issues only.

50.  For W’s insistence on Duxbury experts, as she only made this request in July 2022 ie about 7 months after the trial was set down, I am of view that she was belated without good reason. As a result, H had paid $310,110 to W for expert fees, which is not a small money. Since I found Duxbury experts totally unnecessary in light of parties’ limited assets in the Ancillary Relief Judgment, I agree with H’s submission that she is unreasonable to incur and waste such costs in this regard. As Lam ACJHC (as he then was) noted in LLC[17] , legal costs in matrimonial litigation can easily run out of control and it is incumbent on the parties and their legal advisers to adopt a realistic and proportionate stance in their conduct of the litigation.

51.  Besides, W claims the needs of $138.6 million in her Open Proposal, which I also consider unrealistic as H is in no circumstances able to afford this lump sum payment. It just shows that W was not eager to resolve her ancillary relief claims.

52.  After reading the Chronology attached to the H’s submission and the relevant correspondence between the parties’ solicitors, I do have the impression that even after adequate disclosure of H on his finance, W was not active enough to participate in dispute resolution processes, such as delay in arranging mediation, and to make realistic open or without prejudice offer to H.

53.  As said in §167 of the Ancillary Relief Judgment and based on my overall impression, W shall be regarded as the winner as most of the issues in dispute are ruled in her favour, except some minor issues and her request for the maximum possible lump sum payment. But after having carefully considered the matters discussed above which I have not taken into account at the time of the Ancillary Relief Judgment, I exercise my discretion afresh and vary the Ancillary Relief Costs Order downward to the effect that H do pay W 70% costs of the ancillary relief proceedings including all costs reserved in relation thereto with certificate for one Counsel, to be taxed if not agreed.

54.  Parties made no submission in respect of my order that all legal costs provisions made by H to W shall be deducted from the costs taxed or agreed. This order shall be maintained and repeated here, if necessary.

Question of costs of H’s applications

55.  H fails in his application for variation of the Preliminary Issues Costs Order entirely but partly succeeds in reducing costs of the ancillary relief proceedings downward. In any event, he has no basis to ask W to pay 30% of his costs of the ancillary relief proceedings or any part thereof. Since these 2 applications are dealt with together on paper, I now exercise my discretion to make an order that H do pay W 70% costs of these 2 applications including all costs reserved, if any, with certificate for one Counsel, to be summarily assessed pursuant to §11 (a) to (c) of the direction given on 20 May 2024.