TWC v. LKL

FCMC 8460 / 2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 8460 OF 2012

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

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

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

RULING ON COSTS

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

1.  This is a hearing of a summons taken out by the Husband (“H”), the respondent in the action, to vary the costs order nisi given in a judgment dated 19 September 2014 (the “Judgment”).

2.  By a summons filed on 18 March 2014, the Wife (“W”), the petitioner in the action, sought a sum of HKD100,000 per month as legal costs provision.  On 26 March 2014 W issued another summons for an order to backdate the legal costs provision from the month of the hearing of the children matter i.e. October 2013.  The substantive hearing of the two summons took place on 29 August 2014.  By the Judgment, it is ordered H shall pay W a monthly sum of HKD45,000 as legal costs provision, the 1^st payment to be made on 12 October 2014 and thereafter on the 12^th day of each succeeding month until 12 January 2014 and on a nisi basis that H shall pay W’s costs of the application, including all reserved costs.  H now applies to vary the costs order nisi.  As stated by H, the appropriate costs order should be that W shall pay H’s costs of her two summons.

3.  The court has a wide discretion as to costs.  For the present application, the relevant provisions in the Rules of the High Court governing the exercise of discretion as to costs are Order 62 rules 3(2A) and 5, which contain amendments introduced as a result of the Civil Justice Reform.

4.  When dealing with costs orders, under Order 62 rule 5(1)(e) the court may take into account the conduct of the parties.  Rule 5(2) provides that conduct for this purpose includes (a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (b) the manner in which a party has pursued or defended his case or a particular allegation or issue; (c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and (d) conduct before, as well as during, the proceedings.

5.  First and foremost, H contended that his Calderbank offer beats the amount awarded by the court.  Under Order 62 rule 5(1)(d), the court may take into account a “without prejudice save as to costs” offer.  By a “without prejudice save as to costs” letter dated 20 February 2014, H offered to W the sum of HKD25,000 per month from 1 March 2014 up till the conclusion of FDR.  The FDR hearing being now fixed to take place on 25 January 2015, the sum awarded by the court i.e. HKD45,000 per months x 4 months = HKD180,000 is less than what H would pay under his Calderbank offer i.e. HKD25,000 x 11 month = HKD275,000.  If the FDR hearing could not take place in January 2015, H would pay even more, which will beat the award made by the court by far.

6.  W’s case is that this cannot be the right approach to evaluate and compare the offer made by H with the order made by the court.  Whilst the court considers the costs of the FDR hearing in a lump sum figure, which includes the preparation work such as exchanging the parties’ Form Es and raising further questionnaires, H offered to pay in a monthly term, which would have only come to a total sum of HKD100,000, considering the original FDR hearing date was 24 June 2014.  As the FDR hearing was originally scheduled on 24 June 2014, if W were to have accepted H’s Calderbank offer, she would have received HKD100,000 in total, which would not be sufficient to cover W’s costs for the FDR hearing.  It is W’s case that therefore, H’s Calderbank offer, which would originally be HKD100,000 in total, does not beat the order made by the court.

7.  In KWC v LYY, FCMC No 14968 of 2006, 17 November 2009 (unrep), the wife in the action, who put forward several Calderbank offers, was criticized by HHJ Bebe Chu in para 26:-

“In my view, both W’s Calderbank Letters clearly fall short of these requirements. Making a Calderbank offer does not simply mean putting forward an amount, albeit a high amount which eventually in this case well exceeded the award, but also setting out the basis of the offer to enable the other side to consider it properly and seriously. At that time, H was saying his proposal of HK$2.67m was only one third of what he said were the Family Assets at the time of the separation, which was about HK$8m. If W disagreed with H’s calculations, she should have made it known, whether in her 2^nd Calderbank Letter or otherwise, and explained what she regarded as the value of the Family Assets were and how she arrived at the sum of HK$1m. It was also not clear whether W had arrived at this sum after taking into account her alleged amount of maintenance for the children. By failing to set out the basis of her offer, H might have thought that W was only offering him HK$1m out of the HK$8m, i.e. 13% of the assets. This should also be seen against the background that W’s then disclosed net current assets of about HK$11m and H’s of about HK$14,000. In such circumstances, there being no proper explanation as to the basis of her offer of HK$1m, which was further to be paid over 12 months, it was not unreasonable for H to reject W’s offer in her 2^nd Calderbank Letter. I also note that there was no mention by W in her 2^nd Calderbank Letter as to what her estimated costs would be if the matter were to proceed to trial. H was under legal aid, but W was not and I would have thought it would be helpful for H to know what her costs might be if the matter were to proceed to trial and that such costs might have to be deducted from his award.”

8.  H did not set out the basis of his Calderbank offer to enable W to consider it properly and seriously.  W might have taken that H thought W’s future legal costs for the FDR was in the sum of only about HKD100,000 in total, as the FDR hearing was originally fixed on 24 June 2014, which said sum of HKD100,000 would not be sufficient to cover W’s costs for the FDR hearing.  Furthermore, after the parties agreed to have the FDR hearing adjourned to a date to be fixed pending for W’s summons for legal costs provisions, the total sum of H’s Calderbank offer became uncertain.  For example, were W to have accepted H’s offer in July 2014 or August 2014, and then the court fixed the FDR hearing in September 2014, she would have received only HKD175,000, which still would not be sufficient to cover W’s costs for the FDR hearing.  It is for the court to fix a date for the adjourned FDR hearing in consideration of, among other things, the court’s diary, which is outside the control of the parties.  In such circumstance, I take the view that it is not unreasonable that W did not accept H’s Calderbank offer.

9.  Second, H blamed W for her reluctance in making an offer for a settlement of the ancillary reliefs matter.  He contended that the court should discourage litigants from refusing to negotiate by considering costs sanctions.  Under Order 62 rules 5(1)(e) and 5(2)(d), the court may take into account parties’ conduct before, as well as during, the proceedings.

10.  The chronology relating to the parties’ negotiation is as follows:-

(i)  Upon the Court’s decision in respect of custody, in a letter dated 16 December 2013, H asked W to proceed with the FDR hearing.

(ii)  In a letter dated 17 December 2013, W replied to H’s letter asking H to make a monthly payment of HKD58,000 per month as her legal costs provision in preparation for the FDR hearing.

(iii)  In a letter dated 10 January 2014, W suggested the parties to exchange updated Form E and questionnaires.

(iv)  In a letter dated 22 January 2014, H said he was of the view that there was no need to file updated Form E or further questionnaire.  In a second letter on the same date, H asked W to apply for legal aid for her ancillary relief claim and said he would consider W’s request for legal costs provision if her application for legal aid failed.

(v)  In a letter dated 5 February 2014, W proposed to have a without prejudice conference with H along with their respective legal representatives.

(vi)  In a letter dated 7 February 2014, H asked for a breakdown of W’s anticipated legal costs, agreed to attend a without prejudice conference on the 18 February 2014 as suggested by W and proposed W to withhold issuing a summons for legal costs provision pending to the without prejudice conference.  He also repeated that W should try to apply for legal aid.

(vii)  In a reply letter dated 7 February 2014, W agreed not to take out a summons for legal costs provision pending to the without prejudice conference.  She also revealed that Mr Surman would be present at the proposed without prejudice conference.  As to an estimate of legal costs, she replied that it would depend upon how forthcoming H was with respect to his financial disclosure.

(viii)  In a letter dated 11 February 2014, H said he did not think W should instruct Mr Surman to be present at the without prejudice conference.  He also asked for W’s offer for settlement.

(ix)  In a letter dated 12 February 2014, W reiterated she would like to have Mr Surman’s attendance at the without prejudice conference.

(x)  On 17 February 2014, H called W directly asking her not to instruct counsel but she refused.

(xi)  On 17 February 2014 by fax H informed W that he would not attend the without prejudice conference because it was H’s view that it is a total waste of costs and time to have W’s counsel to be present at the without prejudice conference, and despite W’s repeated requests, W has not provided an offer for settlement.

(xii)  In a letter dated 18 February 2014, W said she would issue a summons for a contribution of HKD100,000 per month and repeated her request for updated Form E.

(xiii)  In an open letter dated 20 February 2014, H repeated his suggestion that W should try legal aid and repeated the request for W’s estimate of her future legal costs.  On the same dated by a “without prejudice save as to costs” letter H offered HKD25,000 per month from 1 March 2014 till the conclusion of FDR.

(xiv)  At the 1^st appointment hearing on ancillary reliefs on 17 March 2014, the court fixed the FDR hearing on 24 June 2014 with 1 day reserved.

(xv)  On 18 March 2014, W took out the summons for legal costs provision of HKD100,000 per month, which said summons was returnable for directions on 19 May 2014, with 15 minutes reserved.

(xvi)  On 26 March 2014, W took out her second summons for an order to backdate the legal costs provision.

(xvii)  In a letter dated 12 May 2014, H said he was opposing W’s summons and proposed that the hearing of W’s application be adjourned to 24 June 2014 after the FDR hearing for argument.

(xviii)  In a letter dated 14 May 2014, W agreed with H’s proposal for adjournment, but disagreed to proceed with FDR hearing before the hearing of her summons.  She said she had no means to afford legal representation for FDR hearing.

(xix)  By way of consent summons, the parties disposed of the directions hearing dated 19 May 2014 and also have the substantive hearing of W’s summons for legal costs provisions fixed on 29 August 2014 with 1 day reserved.

11.  Throughout the 10 months between the judgment of the custody trial and the legal costs hearing, W has repeatedly engaged with H by correspondence in relation to the ancillary reliefs matter and the child’s matter.  It seems that both parties has expressed an intention to negotiate with a view to reach settlement of the ancillary reliefs matter, and for that purpose, at one stage the parties agreed to hold a without prejudice conference.  It is unfortunate that: First, rightly or wrongly H considered that an updated Form E was unnecessary; Next, obviously W was unwilling to make an offer before having an opportunity of reviewing H’s updated Form E; Then, H called off the without prejudice conference.  W has agreed to delay taking out a summons pending to the without prejudice conference.  W eventually took out the application on 18 March 2014 when the FDR hearing was fixed to take place in about 3 months and the parties’ negotiation for settlement has not been successful.  It seems that it is reasonable for W to make the application dated 18 March 2014.  Also, I do not regard W should be blamed for her refusal to go ahead with the FDR hearing dated 24 June 2014 without legal representation.  Taking an overview of the evidence, I do not agree with H’s suggestion that W has refused to negotiate.

12.  Third, as the amount eventually awarded by the court is far less than W’s request, H contended that W could not be regarded as the successful party in the application.  Despite that in the Judgment, I consider that W has exaggerated her future costs and W’s reasonable legal costs up to FDR is only in the sum of HKD180,000, at the end of the day W was awarded a substantial sum of money.  It seems that in reality and substantively W has succeeded her claim.  However, it is noted that the “rule” that costs normally follow the event is no longer the usual order in an interlocutory application, though remains an option.  The effect of Order 62 rule 3(2A) was as explained by To J in Melvin Waxman & Another v Li Fei Yu & Another, HCA No 1972 of 2012, 11 September 2013 (unrep) at para 11:-

“The amendment to rule 3(2) and the introduction of rule 3(2A) specifically applicable to costs in interlocutory proceedings makes it clear that the legislative intent was to distinguish between costs in interlocutory proceedings and costs in other proceedings. Under the new rule 3(2), the general rule of costs to follow the event is preserved for costs in proceedings other than interlocutory proceedings. But a difference approach is provided under the new rule 3(2A) for costs in interlocutory proceedings. Under this new rule, the court may order costs to follow the event or make such other order as it sees fit. The court is no longer required to apply the general rule of costs following the event except in special circumstances, though that principle remains as one of the options. The court may make such other order as it sees fit. Rule 3(2A) gives the court even wider discretion than that under rule 3(2) in respect of costs in other proceedings.”

13.  It is worthy of noting that apart from the question of quantum, H vigorously contested W’s application on the issue of liability at trial and lost the argument.  It is also pertinent to take notice that much of the hearing time has spent on the issue of liability. A substantial part of the Judgment is a discussion on the issue of liability. On the other hand, W is responsible for what Deputy High Court Judge Mostyn QC (as he then was) guarded against in TL v ML (Ancillary Relief: Claim Against Assets of Extended Family) [2006] 1 FLR 1263 – forensic exaggeration.  It is clear W has overinflated her future legal costs.  Under rules 5(1)(e) and (2)(c), the court is entitled to consider that W’s conduct that she has exaggerated her claim when deciding costs.  As well, under rule 5(1)(f), the court may take into account whether a party has succeeded on part of his case, even if he has not been wholly successful.  The court is entitled to consider that after having heard H’s arguments on quantum at trial, the court finally awarded a sum far less than W’s request.

14.  Fourth, H put blame on W’s failure to provide a breakdown as to how the requested amount of HKD100,000 per month was arrived at.  W stated in her Affirmation that her solicitors is charging at the rate of HKD4,500 per hour for a partner and HKD3,000 per hour for an assistant solicitor and she needs about HKD500,000 to HKD700,000 from the time of the filing of the supporting Affirmation on 14 March 2014 to FDR, but she did not give any breakdown of her anticipated legal costs.  I said in the Judgment that without a proper breakdown, I cannot fathom why she needs HKD500,000 to HKD700,000 for the FDR hearing.  The applicant’s duty to provide a breakdown of the anticipated legal costs has been repeatedly emphasized by the courts: see KWTM v NSH, FCMC No 14639 of 2007, 3 September 2008, unrep at para 79; K v K CACV No 80 of 2010, 31 August 2010, unrep at para 14; HJFG v KCY [2012] 1 HKLRD 95 (CA) at para 90.  I am not persuaded by W’s contestation that she was not in a position to provide a breakdown of her anticipated legal costs because her future costs would depend on how forthcoming H is with respect to his financial disclosure and whether the parties would pursue updated Form E.  W can always provide a breakdown that covers her anticipated application for further discovery, if that is necessary. It might be true that in view of H’s dispute on liability to W’s claim for legal costs provision, it seems unlikely that the parties would have got rid of the hearing supposing W has provided H a breakdown of her anticipated legal costs, but after all a breakdown of the estimate of her legal costs can give the court and H an early opportunity to properly consider the reasonableness of her request and can work to narrow down the dispute between the parties on the issue of quantum, if not liability.

15.  All in all, I remind myself of the provisions of Order 62 rules 3(2A) and 5 of the Rules of the High Court, which set out the factors which the court shall have regard in exercising its discretion as to costs.  I place particular significance on the fact that by and large W is the successful party, at the same time bearing in mind that the court is no longer required to apply the rule of costs following the event except in special circumstances, though the rule remains as one of the options.  I caution myself of the need to consider the overall justice of the situation and examine all the factors and circumstance, taking into account whether a party has succeeded on part of his case, even if he has not been wholly successful, and the underlying objectives in Order 1A.  I also place particular significance on that W has overinflated her future legal costs, and her failure in providing a breakdown of her anticipated legal costs.  Looking at the matters in the round, I regard it is reasonable and just to make the order that H shall pay W 2/3 of the costs of the summons dated 18 March 2014 and the summons dated 26 March 2014, including all reserved costs, with certificate for counsel’s attendance, to be taxed if not agreed.

16.  For my ruling in the above, there be a costs order nisi that W shall pay H of 1/3 the costs of this application including reserved costs in any event, to be taxed if not agreed. This costs order nisi becomes absolute 14 days after the handing down of this ruling unless a party has applied to the court for varying the order.