KJ v. KMLM

HCMC 4/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO 4 OF 2010

(Transferred from FCMC No 6100 of 2006)

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D E C I S I O N

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INTRODUCTION

1. There are five summonses before the court, seeking to vary an order of this court made on 8 November 2012 (the “Ancillary Relief Order”) in the ancillary relief proceedings between the wife as respondent (the “Wife”), the husband as petitioner (the “Husband”) and his father as intervener (the “Father”). The Ancillary Relief Order is in the following terms:

(1)  the Wife be awarded a lump sum of HK$130 million in satisfaction of her claim for ancillary relief (the “Lump Sum”), and the Husband shall have ninety days to make full payment;

(2)  the Husband and Father shall continue to be restrained from dissipating assets to the value of HK$150 million pursuant to my order made on 6 January 2011 until the Lump Sum has been paid to the Wife;

(3)  the decree nisi shall not be made absolute until the Lump Sum and the costs are paid or secured to the satisfaction of the Registrar of the High Court;

(4)  the Husband shall continue to pay the Wife maintenance pending suit pursuant to the order of Deputy Judge Wong made on 29 February 2008 (the “MPS Order”) until the Lump Sum has been fully paid to the Wife;

(5)  there be liberty to apply as to the carrying out of the orders herein; and

(6)  there be a costs order nisi that unless otherwise provided for, all the costs of these proceedings, including all costs reserved, up to and including 15 March 2010 shall be paid by the Husband to the Wife and thereafter by the Husband and the Father to the Wife jointly on an indemnity basis, to be taxed if not agreed (the “Costs Order Nisi”).

2. First, by a summons filed on 20 November 2012, the Father seeks in essence (1) to limit his liability for costs to the issue of the beneficial ownership and valuation of the Husband’s 8,800 shares in a United States company (“Company A”) (the “beneficial interest issue”) and the section 17 application (“section 17 issue”) and an apportionment of those costs as between him and the Husband; (2) to reduce the Wife’s costs on issues in which she was unsuccessful; and (3) to reduce the basis of the Wife’s costs to party-and-party basis (the “Father’s Variation Summons”).

3. Second, by a summons filed on 21 November 2012, the Wife applies for a certificate for two counsel and costs of that application on indemnity basis (“Wife’s Counsel Certificate Summons”). 

4. Third, by a summons filed on 22 November 2012, the Husband seeks directions to be given with regard to the Costs Order Nisi (“Husband’s Variation Summons”).

5. Fourth, by a second summons filed on 30 November 2012, the Wife seeks enhance interest on the Lump Sum, interest on the Lump Sum, indemnity costs commencing from the latest date when the Husband should have accepted the Wife’s sanctioned offer dated 6 October 2009; enhanced interest on those indemnity costs; interest on outstanding maintenance pending suit and costs allowance; and indemnity costs of that application (“Wife’s Enhanced Interest Summons”).

6. Fifth, by a second summons filed on 4 February 2013, the Husband seeks (1) extension of time to pay the Lump Sum by three instalments; (2) that the MPS Order be discharged upon payment of the first instalment; and (3) that no interest shall accrue in respect of any or any instalment part of the Lump Sum (the “Husband’s Time Summons”).  By consent, this summons was adjourned on conditions, including an undertaking by the Father to pay the last instalment of $50 million and an undertaking by the Wife to discharge an injunction against the assets of the Husband and the Father in the United States (the “Jersey Injunction”).

7. There are some overlaps in these summonses.  I shall first consider the summonses separately.  Should my decisions in one or some of the summonses have impact on any other summonses, I shall then fine-tune my decisions as appropriate and make a global order in respect of all five summonses.

Background

8. The factual background of this case was summarised in paragraphs 33 to 49 of my judgment dated 8 November 2012 (the “Judgment”).  The Father is the creator of his family’s wealth.  The Husband became the owner of 8,800 shares of Company A, representing 48.89% of its issued share capital.  The Father holds another 8,800 shares.  The balance of 2.22% is held by one of his daughters.  Company A holds most of the Father’s assets in the United States.  The Husband was also given 20% shareholding in another Canadian company (“Company B”) holding properties in Canada.

9. The Husband and Wife were married in August 1983 and two children were born out of that wedlock.  In 2003, the Husband started to have an affair with a woman.  When that became known to the Wife, the Father and Husband ring-fenced the Husband’s 20% shareholding in Company B later that year.  In August 2005, the Husband commenced hostility against the Wife by drastically reducing her monthly maintenance and suspending her credit cards.  At the same time, the Father refused to allow the Wife to use the family driver and luxury family car.  In 2006, the Father and Husband set up a trust for the Father’s male descendants (the “Trust”) to which they transferred their shares in Company A.  Just two days after the transfer was completed, the Husband filed the divorce petition against the Wife (see §135 of the Judgment).  The transfer was the concerted action of the Husband and the Father who had knowledge of the Husband’s intention to file the petition and the actual filing of the petition (see §59 of the Judgment).

10. The decree nisi was pronounced on 26 February 2007.  The Wife commenced discovery proceedings on 25 January 2008.  The Husband rigorously obstructed the proceedings and staged his own dismissal by the Father from his directorship in the family companies for that purpose and for the purpose of supporting his application for reduction of the maintenance pending suit.  The Husband avoided discovery, sheltering behind the Father who also rigorously resisted discovery.  The Wife had to commence proceedings in the United States in order to discover the Husband’s interests in the various companies there owned by Company A.  

11. In July 2009, the Father applied to join in the proceedings as intervener.  He also rigorously resisted discovery to a stage when his conduct came close to contempt of court.  On 6 January 2011, I granted an injunction restraining the Father and the Husband from transferring the shares in the United States companies held by Company A and from giving directions to the trustees of the Trust to dissipate assets of the Trust to the value of $450 million.  The Wife also obtained the Jersey Injunction in Jersey mirroring the terms of the Hong Kong injunction.  Fortunately, with a change of solicitors and appointment of senior counsel, the Father was less obstructive.  While full discovery was never obtained, a qualified valuation of Company A was made.  The trial of the ancillary relief proceedings was concluded in March 2012 and the Judgment was delivered on 8 November 2012.

12. The Wife’s Counsel Certificate Summons and the Father’s Variation Summons are relatively straight-forward and do not involve the question of sanctioned offer.  I therefore deal with those two summonses first and get them out of the way.

SOME LEGAL PRINCIPLES APPLICABLE TO COSTS

Some general principles

13. The broad guidelines on costs have been set out by Nourse LJ in Re Elgindata (No 2)[1]. These guidelines were modified following the implementation of the Civil Justice Reform (“CJR”): see AEI Rediffusion Music Ltd v Phonographic Performance Ltd[2] in the United Kingdom and Wong Kam Tong v Tin Shing Court, Yuen Long (IO) (No 2)[3]; and Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China[4] in Hong Kong.  The modified guidelines are as follows.

14. First, costs are in the discretion of the court: Order 62, rule 2(4).

15. Second, the principle that costs follow the event is no longer regarded as a general rule but a convenient starting point from which a court can readily depart.  It only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of that particular case: Order 62, rule 3(2);

16. In the United Kingdom, the starting point of costs in family cases is no order as to costs.  That is based on the English Family Procedure Rules 2010 which are not applicable to Hong Kong.  The uniqueness of ancillary relief proceedings is carving up of family assets belonging to the parties as a result of the breakdown of their marriage as distinguished from recovering debt or damages by a victim of wrongful acts committed by another in an ordinary civil action.  Despite that the English Family Procedure Rules 2010 are not applicable to Hong Kong, in the light of the nature of ancillary relief proceedings, the starting point of costs following event can be easily displaced where the parties genuinely seek the court’s adjudication on their appropriate share from the family pool.  It would be within the court’s discretion to make a no costs order in an appropriate case.

17. Third, the starting point does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or costs of the proceedings he may be deprived of the whole or part of his costs.  Since CJR, the court is more ready to take an issue-based approach.  It is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed: see AEI Rediffusion Music Ltd[5]; Wong Kam Tong[6]; Chan Ching Kit, Katherine v Lam Sik Ying[7], Chan Mei Yiu Paddy v Secretary for Justice[8], Zhuhai International Container Terminals (Jiuzhou) Ltd v Lo Tong Hoi[9]. Nor is it necessary to show that the successful party has deliberately wasted time and costs: see Re Ricacorp Properties Limited[10].  For the purpose of this guideline, a significant increase in the length or costs of the proceedings means one that can be estimated as a more than trifling proportion of the total costs.  The costs need not be assessed with precision. It suffices if the court can give an estimate of the proportion of these costs: see Chan Lan v Shing Kei[11]. A party may be deprived of part of his costs on the failed issues even if such costs overlap with those of the succeeded issues: see Zhuhai International[12]. 

18. Fourth, where the successful party raises issues or makes allegations improperly or unnecessarily (or unreasonably, in the United Kingdom), the court may not only deprive him of his costs but may order him to pay the whole or part of the unsuccessful party’s costs: Order 62, rule 7(1).  By implication, a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs.

19. Fifth, as a result of the CJR, amendments were introduced to Order 62, rule 5 which requires the court in exercising its discretion to take into account certain special matters in appropriate circumstances.  In the circumstances of the present case, three special matters are pertinent: (1) the underlying objectives set out in Order 1A, rule 1, in particular, to increase the cost-effectiveness of any practice and procedure and to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings (rule 5(1)(aa)); (2) the conduct of all the parties, including whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; the manner in which it was pursued, whether the claimant who has succeeded in his claim, in whole or in part exaggerated his claim, and his conduct before as well as during the proceedings (rule 5(1)(e)); and (3) whether a party has succeeded on part of his case, even if he has not been wholly successful (rule 5(1)(f)).

20. The Father and Husband have no dispute that the starting point of costs to follow event applies.  The thrust of their arguments for variation of the costs order nisi is that the costs should be taxed on party-and-party basis and reduced by reason of the Wife’s conduct as reflected in the many issues she has raised but failed.

The principles applicable to indemnity costs

21. The principles applicable to indemnity costs are well settled.  The starting point for taxation in hostile litigation is that costs should be taxed between party and party: see Town Planning Board v Society for Protection of the Harbour Ltd (No 2)[13] and Overseas Trust Bank Ltd v Coopers & Lybrand (a firm)[14].  To qualify for costs on an indemnity basis, the successful party should show some special or unusual feature in the case.  The proceedings must be instituted or prosecuted in circumstances as to constitute an affront to the court.  Usually there must be something disgraceful in the conduct of the losing party or his legal representatives such as to cause the court to feel a proper sense of indignation.  Normal litigious hostility would not suffice: see Town Planning Board v Society for Protection of the Harbour Ltd (No 2)[15]; Overseas Trust Bank Ltd v Coopers & Lybrand (a firm)[16] and Man Fong Hang v Man Ping Nam[17].  In exercising its discretion as to costs, the court must take into account the conduct of both the successful and losing parties before, as well as during the proceedings: see Order 1A, rule 1(1) and Order 62, rule 5 of the Rules of the High Court (“RHC”).

22. If unreasonable conduct is relied on, the losing party’s conduct would need to be unreasonable to a high degree.  In this context, “unreasonableness” does not mean merely wrong or misguided in hindsight: see Kiam v MGN Ltd (No 2)[18].  Advancing a case which is difficult, unlikely to succeed or which in fact fails, or without any foundation in law or fact, or devoid of merits, is not necessarily in itself a sufficient reason for an award of indemnity costs: see Overseas Trust Bank[19]; Shaina Investment Corporation v Standard Bank London Ltd[20]; Golden Sand Marble Ltd v Hsin Chong Construction Co Ltd[21]; Kao, Lee & Yip (a firm) v Midland Realty International Limited[22].  The court’s finding that the claim or the ground of defence is plainly and obviously incredible on the fact, or that the evidence has been deliberately untruthful will not necessarily in itself warrant an order for indemnity costs.  The conduct of the losing party must be of a more venal kind and the conduct of the litigation has in some sense been wicked: see Choy Yee Chun v Bond Star Development Ltd[23]; and Kao, Lee & Yip[24].

23. The court may also mark its disapproval of the conduct pertaining to part only of a party’s case by ordering costs of that part only to be assessed on an indemnity basis, with the rest assessed on party-and-party basis: see Man Fong Hang[25].

24. Ms Yip, counsel for the Husband, referred to the uniqueness of family cases which usually involve highly sensitive and emotional matters such carving up of assets as result of breakdown of a marriage.  She argued that making a costs order would effectively be pouring salt on the wound, and worse still with indemnity costs.  Her argument is based on the English Family Procedure Rules 2010 which are inapplicable to Hong Kong.  That apart, if the conduct of the losing party is of a more venal kind and the conduct of the litigation has in some sense been wicked, the rules, even if applicable, could provide no answer to an award of indemnity costs.  An indemnity costs order is necessary to mark the court’s disapproval of such venal and wicked conduct and to provide consolation to the injured party.

WIFE’S COUNSEL CERTIFICATE SUMMONS

25. The Wife requested for a certificate for two counsel in the costs order.  At trial all parties were represented by two counsel.  Given the nature of the case, the certificate is entirely appropriate.  By a letter dated 13 November 2012, the Wife’s solicitors proposed to the Father’s solicitors and the Husband’s solicitors that there should be certificate for the two counsel.  But it was only until this hearing that the Father and Husband confirmed that they were not contesting the application. The Wife therefore asked for the certificate and for the costs of this application on indemnity basis.  The application should have been consented without the Wife having to invoke the jurisdiction of the court.  The Father and Husband should be penalised in cost, but there is nothing in the circumstances at this stage of the proceedings to suggest that those costs should be taxed at a level other than party-and-party basis.  The Father’s and Husband’s conduct before trial which led to the indemnity costs should have no bearing in this application to vary that costs order.  I shall consider the question of costs after considering the merit of all the five summonses.

THE FATHER’S SUMMONS

26. The Father asked for three variations.  First, the costs awarded against him after 15 March 2010 should be limited to the issue of the beneficial interest issue relating to the shares in Company A and the section 17 issue, which he shall bear jointly with the Husband while the costs relating to the ancillary relief issue should be borne by the Husband solely (“the apportionment variation”).  On a rough and ready basis, Mr Mok, leading counsel for the Father, suggested that the Father’s and Husband’s liability for the Wife’s costs should be apportioned on a 50:50 basis.  Second, as an alternative to the apportionment, he asked for a substantial reduction of the Wife’s costs on those issues in which she was unsuccessful (“the failed issues variation”).  Third, he asked for reduction of the basis of taxation of the Wife’s costs to party-and-party basis (“the taxation basis variation”).  It would be more convenient to consider these applications for variation in the reverse order.

The taxation basis variation

27. Applying the principles applicable to indemnity costs which I have set out in paragraphs 21 to 24 above, Mr Mok argued that the Father’s case on the beneficial interest issue was at least reasonably arguable.  He quoted my observations that the case was not an easy one; that Mr Mok had advanced some forceful arguments; that the execution of blank share transfer forms by the Husband was consistent with a nominee arrangement; that the Father made that arrangement in following his accountant’s advice.  I do not resile from those observations, but in the context of the Judgment, I was not finding for the Father at all.  But the fact that I disbelieved the Father and the Husband and rejected their case as incredible by itself was not the reason for which I awarded indemnity costs.

28. What I find venal in the Father’s and the Husband’s conduct was that with knowledge of the intending divorce, they put their heads together, set up the Trust, transferred the Husband’s shares in Company A to the trust and thus putting the most valuable family assets out of reach of the Wife.  Then two days after the transfer was completed, the Husband filed the divorce petition.  I could come to no other conclusion but that the Father was aware of the breakdown in the marriage, had knowledge of the intended petition and acted in concert with the Husband to defeat the Wife’s claim for financial provision.

29. Then, in the discovery proceedings, the Father assisted the Husband in obstructing discovery.  The Husband first sheltered himself behind the Father.  Then, with the Father’s connivance, he staged his own dismissal from the family companies both to obstruct discovery and to support his application for reduction in maintenance pending suit.  Eventually, the Father joined in the proceedings as protector of the Trust.  He also resisted discovery rigorously.  Despite penal notices were served with the orders for discovery, the Father remained obstructive. He might have been ill-advised by those then representing him.  Be that as it may, the fault was his.  He together with the Husband put the Wife to disproportionate costs in bringing and prosecuting her claim.  The Wife was forced to take out discovery proceedings in the United States and to obtain the Jersey Injunction, which was unnecessary had they been more forthcoming in the discovery proceedings.  The way they conducted the proceedings wasted much of her costs.  They must have known that her financial resources were limited. I cannot come to any other conclusion but that the obstructions were to bring financial and emotional pressure on the Wife in these proceedings and with a view to defeat her claim for financial provision.  Their conduct of the proceedings at that stage was wicked.

30. Mr Mok argued that the Father had been penalised with indemnity costs in the discovery proceedings.  Be that as it may, that is of no consolation to the Wife who was made to incur hefty and unncessary costs which but for their conduct she could have saved.  I do not think it is open to the Father and Husband to argue that way.  Their conduct of the litigation was of a venal kind.  It suggested that all along they acted with a fraudulent intention.  Their failure in the section 17 issue was another clear expression of their intention.  That intention coloured their entire conduct of the proceedings.  In the light of that, I do not consider it appropriate to order different basis of taxation for the different issues.  As fraud had been perpetrated, it was appropriate to order costs on indemnity basis: see Pacific Electric Wire & Cable Company Ltd v Texan Management Ltd & Others[26].

31. Even after a change of legal team, the Father was resisting discovery.  Discovery was never complete.  Valuation of the shares of Company A was qualified.  The Wife was forced to accept a half-baked cake for expediency reason and costs consideration.  I understand that an unpleasant relationship had developed between the Father and Wife prior to commencement of the proceedings.  I can also understand that hostility might have developed since commencement of the proceedings.  I do not take the resistance as an adverse conduct against the Father, but it was not anything to be said in his favour.

32. The Father is the creator of his family’s wealth as well as the wealth of the Husband’s and the Wife’s family.  He might think that the Wife had little or no contribution to that wealth.  He might even think the Wife had not been a responsible mother and good daughter-in-law.  I can well appreciate his resentment to the idea that this soon to be discarded daughter-in-law was going to take away about half of Husband’s wealth which he created for his son by his own time and effort which he wanted to pass onto his male descendants.  Nevertheless, it was a long marriage.  The Wife was being driven out of the family and the Husband was going to start a new one.  She is entitled to the protection which the law gives to her.  Viewed in the round, while I have some sympathy for the situation which the Father found himself in, I cannot come to any other conclusion but that his conduct was a more venal kind and his conduct of the litigation, at least before the change of his legal team, had in some sense been wicked.  Not only did they rigorously contest the proceedings and wasted the Wife’s costs, their evidence about the beneficial interest issue was not believed and they conspired together in the section 17 issue to defeat the Wife’s claim in circumstances tantamount to fraud.  They gave perjured evidence in support of their concocted case.  That was the reason I ordered indemnity costs against him.  My view was not the least changed after hearing counsel’s submission.

The apportionment variation

33. After having been joined as intervener, the Father sought directions on 28 September 2010 for the beneficial interest issue and the section 17 issue to be determined as preliminary issues while all further proceedings be stayed.  Those would have been the usual and appropriate directions to make in a situation involving dispute between a spouse and a third party about beneficial ownership of property which allegedly formed part of the family pool.  However, viewed against the background of this case, the Husband’s rigorous resistance to discovery, the Father’s assistance to that end, and the Father’s knowledge of the intended petition before the shares in Company A were transferred to the Trust, those directions appeared more like further delaying tactics of the Husband and the Father.  Viewed in 2010, three years had lapsed with discovery going nowhere.  The Wife’s financial resources were being exhausted in wasteful proceedings.  Going down that path would mean a delay of yet another year or two and added costs for the Wife.  As observed by the Court of Appeal, this case was crying for trial.  The Father was a party causing the delay.  On balance, his application for trial of preliminary issue had to be dismissed. Any prejudice caused to him could, if appropriate, be compensated for by costs at the end of the trial.

34. Mr Mok submitted that at trial the Father had clearly indicated that the issue between him and the Wife was the beneficial interest issue. That issue is quite distinct from the ancillary relief issue which was about the Husband’s interest in miscellaneous properties other than his shares in Company A and his interest in the Trust, the Wife’s means and assets, her standard of living before divorce and proper distribution of the matrimonial pool.  The Father had made clear that he was not interested in those issues and Mr Mok took no part in arguing those issues.

35. Miss Remedios, counsel for the Wife, argued that the Father and Husband had put the Wife to disproportionate costs in bringing and prosecuting her claim and acted in concert to defeat her claim for ancillary relief by transferring the disputed shares to the Trust.  She argued that the Father assisted the Husband fully in the litigation both as to discovery and as to the valuation of the assets and had been dishonest in their evidence.  Be that as it may, the argument advanced by Miss Remedios was solely addressed to the beneficial interest issue and the section 17 issue, which the Father accepted should be borne by him jointly with the Husband. Indeed, Miss Remedios’ argument was no answer to Mr Mok’s submission that the Father was not interested in the ancillary relief issue and did not contest those issues.

36. Despite the Father’s involvement in obstructing discovery at the initial stage of the proceedings, the beneficial interest issue and section 17 issue are clearly distinct from the ancillary relief issue.  While accepting that it was understandable that the court refused the Father’s application for trial of the preliminary issue, Mr Mok argued that it was unjust that the Father had to be forced to incur the costs of attending part of the trial in which he was not interested and, furthermore, to be ordered to pay the costs of the Wife incurred on the ancillary relief issue which the Father did not contest.  I think the Father was penalised in part for his conduct by having been deprived of a separate trial of the preliminary issue. I accept Mr Mok’s submission that it would be unjust to make the Father liable for the ancillary relief issue which he was not interested in and which he did not contest; but I but do not agree with his apportionment.  I think the Wife’s costs on the ancillary issue were considerably less, at most 25% of her total costs.  I think it fair that the Father be liable jointly with the Husband for 75% of the Wife’s costs.

The failed issues variation

37. Mr Mok argued that the Wife failed on ten distinct and far-fetched contentions.  Hence, he argued in the alternative that, if I do not agree with him on the apportionment variation, the Wife’s costs since 15 March 2010 should be substantially reduced to reflect her unreasonable conduct in pursuing those contentions.  Those contentions are mostly related to other properties in which the Husband had no beneficial interest. They are not related to the beneficial interest issue or the section 17 issue. As I agree that the Father’s liability for the Wife’s costs after 15 March 2010 should be apportioned, that apportionment would have excluded the Wife’s costs on the failed issues.  There is no need for me to consider this variation in respect of the Father’s costs liability.

Father’s liability for the Wife’s costs prior to 15 March 2010

38. Though the Wife has not formally applied for a review of the Father’s liability for costs prior to 15 March 2010 in the Wife’s Enhanced Interest Summons, Miss Remedios argued that as the Father opened up the issue of costs, it is open to the Wife to ask the court to consider the appropriateness of the entirety of the costs order insofar as it has any impact on the Father, including extending the Father’s liability for costs incurred before he formally joined in on 15 March 2010. 

39. Miss Remedios prayed in aid the court’s jurisdiction under Order 62, rule 6A to order costs against a non-party.  Under this rule, the court may order costs against a non-party if two conditions are satisfied.  First, that non-party must be joined as a party to the proceedings for the purposes of costs only. Second, that non-party must be given a reasonable opportunity to attend a hearing at which the court shall consider the matter further.  These conditions are satisfied with the Father formally joining in as intervener and attending the present hearing. 

40. Miss Remedios also relied on the commentary in Hong Kong Civil Procedure 2014[27] which describes the circumstances when a non-party may be made liable for costs.  One of those circumstances is that the non-party is the real party interested in the litigation.  She relied on the Father’s assertion in evidence that he wished to “protect the trust property”, ie the shares in Company A and preserve them for the third generation and that he was the one who called the shots.  Thus, on his own case, he was an interested party in the litigation and costs may be ordered against him. 

41. I agree with Miss Remedios, but a more compelling reason is this.  I think fairness and policy require that where someone knowingly participates in the act or design of another done in contemplation of litigation and if his participation results in costs having been incurred by a party to the litigation contemplated, he may be liable for such costs of that party which but for his participation would not have been incurred.  On my finding of fact, the Father knew of the intended petition when he caused the Husband to set up the Trust and then caused the Husband to transfer his shares in Company A to the Trust two days before the petition was issued.  All these were done for the purpose of defeating the Wife’s claim for ancillary relief and in contemplation of the ancillary relief proceedings. There is no dispute that the beneficial interest issue and the section 17 issue were at the heart of these proceedings.  The Father’s involvement had an impact on the Wife’s costs.  In the circumstances, it would be fair to set the Father’s liability for the Wife’s costs back to the date when the petition was presented.  This would render the Father jointly liable with the Husband for costs incurred before 15 March 2010.  I see no reason why the jurisdiction under Order 62, rule 6A should not be exercised in view of my finding of fact.

Conclusion

42. For the above reasons, I think my costs order nisi should be varied to the extent that the Father shall be jointly liable with the Husband for 75% of the Wife’s costs on indemnity basis since commencement of the proceedings.  The limitation of the Father’s liability to costs after 15 March 2010 has to be removed.  

THE HUSBAND’S VARIATION SUMMONS

43. The Husband sought directions to vary the costs order nisi.  At the hearing, Ms Yip made it clear that the Husband was seeking: (1) that the Wife’s costs be assessed on party-and-party basis instead of indemnity basis (the “taxation basis variation”); (2) that the Wife’s costs be reduced substantially to reflect her failures in proving most of her factual issues (the “failed issues variation”); and (3) that the Wife’s costs after 15 March 2010 be apportioned between him and the Father on a 50:50 basis, half of which shall be borne by him and the Father jointly and the other half shall be borne by him solely (the “apportionment variation”). He also asked for dismissal of the Wife’s application for enhanced interest and interest on outstanding maintenance pending suit.  The last item will be dealt with under the Wife’s Enhanced Interest Summons.

The taxation basis variation

44. The Husband’s stance is that the Wife’s costs should be taxed on party-and-party basis.  The court has complete discretion to determine by whom and to what extent the costs are to be paid.  The court shall take into account all the circumstances of the case as provided by Order 62, rule 5.  On the fact of this case, the conduct of the parties is most relevant.  Under rule 5(1)(e), the conduct of the parties includes: (a) whether it was reasonable for the party to raise, pursue or contest a particular allegation or issue; (b) the manner in which the party has pursued or defended his case or a particular allegation or issue; (c) whether the claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and (d) his conduct before and during the proceedings.

45. The applicable legal principles relevant to indemnity costs are set out in paragraphs 21 to 24 above.  The reasons I gave in paragraphs 27 to 32 in refusing the Father’s application to reduce the taxation basis of the Wife’s costs apply with much greater force against the Husband than the Father.  The Husband created acrimony even before the proceedings commenced.  He drastically reduced the Wife’s maintenance and suspended her credit cards and membership in the Hong Kong Jockey Club and the Hong Kong Country Club.  Apart from staging his own dismissal from the family companies, he concocted evidence of his lack of means.  He procured his driver to enter into a tenancy agreement for a small apartment under his name, while enjoying another luxury duplex opposite the matrimonial home and continuing with his luxurious life style.  His conduct of the litigation was appalling.  HH Judge Wong found him uncooperative, deliberately withholding discovery making it impossible for the court to assess his relationship with the family companies and the family assets.  I made the same finding of his conduct before me.  He refused to answer interrogatories or gave evasive or misleading answers.  He put the Wife to disproportionate costs in bringing and prosecuting her claim.  He repeatedly lied in affirmations filed for interlocutory applications.  He was evasive and perjured in the witness box.  He wasted much of the court’s time and the Wife’s costs.  Having regard to his pre-action dishonesty, pre-trial dishonesty, and his performance at trial, I consider indemnity costs appropriate to mark the court’s indignation of his conduct.

Failed issues variation

46. The Wife failed in a number of contentions.  Her tactic was to assume everything belonging to the Father or the family companies were the Husband’s.  Thus, she put into the family pool four valuable properties.  She failed to prove that those were matrimonial properties.  Those were major issues she lost.  She was aggressive and raised those issues unreasonably and unnecessarily.  The court was required to delve into the family arrangements between the Father and his children.  One property, in particular, is the Father’s own home.  Having been married into the family for more than twenty years, it would be monstrous for the Wife to even suggest that she did not know that those properties did not form part of the family pool.  The contentions were made for the purpose of exaggerating the value of the family pool.  I consider her conduct in claiming those properties unreasonable.  Some costs were wasted.  Those costs are not trivial.  She should not be awarded those costs, particularly as her costs are to be taxed on indemnity basis.  I estimate those costs to be 5% of her total costs.

47. The Wife grossly exaggerated her needs in the Duxbury calculation.  She inflated her monthly expenses from $184,280 to $445,000, ie 2.4 times and claimed a capital sum of $74 million which was about three times of what would be required to provide for her needs generously interpreted.  These were just paper calculations which this court took no time in rejecting and in making a proper assessment on the basis of the experts’ evidence.  This issue wasted little costs.  It does not fall within the category of unreasonable conduct which the court should take into account in depriving her of her costs despite that she was overall successful.

48. Ms Yip referred to the substantial difference in the valuation of the Husband’s shares in Company A by the Wife and that by the court.  I would not regard that as any unreasonable conduct or exaggeration by the Wife.  The valuation I arrived at was based on the expert evidence of both parties.  The court had to critically examine the evidence of the experts. That could not adversely reflect on the conduct of the Wife.  Besides, the discovery was never complete and the Wife’s expert’s valuation was qualified.

49. I think I ought to consider some other failed issues raised by Mr Mok when addressing the Father’s Variation Summons.  He argued that the Wife failed in proving that a commercial property held by the Father’s company and the Father’s 50% stake in another commercial building in Leighton Road should be treated as the Husband’s financial resources in the foreseeable future.  Those properties arose only in the course of cross-examination of the Father.  Mr Scott, counsel for the Wife at trial, found it convenient to make submission relating to those properties.  Likewise, Mr Scott raised issue of the illegality of the share transfer form but did not follow through.  These were just counsel’s points which could not be taken as the Wife’s adverse conduct as to penalise her in costs.  There was no follow through in those issues.  Little time was wasted.

50. In conclusion, I think the Wife’s costs should be reduced by 5% to reflect her unreasonable conduct and failure in pursuing those failed issues in respect of the four properties in which the Husband had no beneficial interest. 

The apportionment variation

51. The Husband agreed with and supported the Father’s contention for apportionment of their liability for the Wife’s costs after 15 March 2010.  For reasons as given in paragraph 37 above, I would apportion the costs liability between the Husband and Father on 75:25 basis.  In view of my decision in respect of the Husband’s failed issue variation, that apportionment requires fine tuning.  Now that I have assessed a 5% reduction of the Wife’s total costs for her failed issues, I should revise the apportionment of the Father’s liability upwards to 20% of the Wife’s reduced costs, otherwise the Father would enjoy a double reduction.  The Father’s liability might have slightly increased as a result, but this is a fairer approach.

Conclusion

52. As explained in paragraphs 38 to 41 above, in view of the Father’s involvement prior to and at the commencement of the proceedings and its impact on the Wife’s costs, it is fair that he be liable jointly with the Husband for the Wife’s costs incurred right from the commencement of the proceeding, subject to a 5% reduction to reflect the Wife’s conduct in respect of her failed issues and that the Father’s and Husband’s liability for the Wife’s costs should be apportioned on the basis of 80:20.   

HUSBAND’S TIME SUMMONS

53. By this Summons, the Husband sought (i) extension of time to pay the Lump Sum by three instalments starting on 28 February 2013; (ii) discharge of the MPS Order upon the Wife’s receipt of the first installment of $40 million; and (iii) an order that no interest should accrue in respect of any instalment part of the Lump Sum from 8 February 2013.  This summons was partially resolved by consent and the three instalments were duly paid. The remaining issue is the Husband’s application to vary or discharge the MPS Order upon payment of the first or the second instalment and whether interest should not accrue from 8 February 2013. 

54. On 29 February 2008, HH Judge Wong ordered the Husband to pay maintenance pending suit at the rate of $80,000 per month, which was later reduced to $75,000 to take into account the discharge of the order in respect of his son.  On 8 November 2012, I made the Ancillary Relief Order awarding the Wife the Lump Sum of $130 million and giving the Husband ninety days to make full payment and ordering the Husband to pay maintenance pending suit until the Lump Sum has been fully paid.  

55. Shortly after the issue of four of the summonses in November 2012, the Father’s solicitors informed the other parties’ solicitors that he would not appeal the Judgment and was willing to assist the Husband in satisfying the Lump Sum.  The Father’s solicitors proposed a joint meeting of the parties’ respective legal representatives to discuss a global settlement on the timing of the payment of the Lump Sum and the parties’ outstanding applications.  The parties exchanged correspondences and a meeting was held on 17 December 2012.  On 4 February 2013, the Husband issued the Husband’s Time Summons seeking payment of the Lump Sum by three instalments and discharge of the MPS Order. 

56. Not unexpectedly, the Lump Sum was not paid on 6 February 2013 when the time for payment expired.  On 28 February 2013, the Husband paid the Wife $40 million (the “first sum”) which was advanced by the Father.

57. The Husband’s Time Summons was heard on 19 March 2013.  Upon the cross undertakings of the Father and the Wife, I made an order by consent that the Husband shall pay the Father’s solicitors as stakeholder a second sum of $40 million within fourteen days (the “second sum”) which shall be released to the Wife upon her vacating the matrimonial home.  The Father undertook that he will pay the balance of the Lump Sum of $50 million (the “last sum”) within four months of the discharge of the Jersey Injunction or by 31 August 2013, whichever is the later.  The Wife undertook to use her best endeavours to discharge the Jersey Injunction.  All further issues were adjourned to the hearing on 4 September 2013.  The second sum was duly paid and released to the Wife upon her vacating the matrimonial home on 22 April 2013.  The Jersey Injunction was discharged on 3 September 2013 and the last sum was duly paid on 2 January 2014 in fulfilment of the Father’s undertaking.  The only outstanding matters are the discharge of the MPS Order and interest on the Lump Sum or the various instalments of the Lump Sum. 

58. It is Ms Yip’s submission that the any variation of the Ancillary Relief Order should be backdated to 28 February 2013 in line with the Husband’s Time Summons.  She argued that the Wife suffered no loss or prejudice in the period since 28 February 2013 when she was in receipt of the first sum of $40 million, which could be used for investment or for accruing interest.  She asked for the MPS Order to be discharged on 28 February 2013 or at least reduced to $20,000 and discharged altogether upon receipt of the second sum.

Discharge of the MPS Order

59. Maintenance pending suit is to provide for a spouse’s maintenance while the proceedings are on-going. Though the proceedings were still on-going on 28 February 2013, the Ancillary Relief Order had been made, and there was going to be no appeal against that order.  One of the purposes of my ordering the MPS Order to continue until full payment of the Lump Sum was to provide an incentive or pressure for early settlement of the Lump Sum.  It was not intended to be a penalty nor would it be fair to regard it as a bonus.  Though the Lump Sum was not paid on due date, a substantial sum was received about three weeks later.  As a matter of fact, upon receipt of the first sum of $40 million, the Wife would be adequately provided for and maintained.  At the time, she could have bought herself a flat of reasonable size and appropriate for her station in life and with substantial cash for investment and for generating interest for her outgoings.  Her position was further improved with the receipt of the second sum.  The Wife did not contend otherwise.  In the circumstances, it is only fair that the order for continued payment of maintenance pending suit ought to be varied upon the Wife’s receipt of the first instalment and discharged upon receipt of the second sum as proposed by Ms Yip.  For similar reasons, the order for payment of costs allowance should also be discharged. 

Whether interest to accrue on any of the instalment part of the Lump Sum

60. I now turn to the Husband’s application that no interest should accrue in respect of any of the instalment part of the Lump Sum.  In the Wife’s Enhanced Interest Summons, the Wife has made an application for interest on the Lump Sum pursuant to the court’s inherent powers and section 48 of the High Court Ordinance.  The two applications are dealt with together here. 

61. I shall begin with explaining the difference between the court’s approach in making an order for payment of lump sum in ancillary relief proceedings and an order for payment of debt or damages in an ordinary civil action.  The court’s power to award a lump sum to a wife is entirely statutory.  It is derived from section 4 of the Matrimonial Proceedings and Property Ordinance (“MPPO”).  It is not a debt but payment to effect the division of the family pool upon divorce.  Damages awarded in a civil action, on the other hand, is compensation for wrongful conduct.  Understood in this light, the nature of a lump sum ordered to be paid in a matrimonial case is different from that of debt or damages awarded in a civil action.  Different considerations apply as to whether interest is payable and the interest rate. In a matrimonial case, there are no wrongdoers as such.  The interests of the party ordered to pay and the interests of the party to receive payment should be considered on equal footing.  A lump sum ordered to be paid is money from the family pool.  Usually, the family pool is made up of investments, properties, shares and other assets which would have to be sold to realise cash for payment of the lump sum.  Thus, where a lump sum can only be paid out of the proceeds of sale of property, the order should ordinarily link payment to the completion of the sale and the receipt of the proceeds: see Robson v Robson[28]. Interest can be awarded from the date when such proceeds are received because until then there are no funds from which to pay the lump sum; or from the date when the sale ought to have been concluded otherwise there is a plain incentive for the paying party to stall.  Similarly, if the paying party has no means to pay except with the help of a third party, the order for payment should also take into account the date when such funds would become available for it would not be correct to make an order which a party could not comply and to burden him with additional liability for interest.  The court adopts a realistic but more relaxed approach in fixing the date for payment of the lump sum than the date for payment of debt or damages.

62. Similar considerations apply in awarding interest.  It may be unfair to burden a party to a marriage which has broken down with the exceedingly high rate of interest applicable to payment of debt or damages which are compensation for a wrongful act.  There are no wrongdoers, no debt, or damages, but division of the family pool.  The court is more flexible in fixing the interest rate for outstanding payment of the lump sum ordered.  Section 28AA of the MPPO provides for a regime for the paying party to make application not to pay interest if he has reasonable grounds.  The loss of interest to the receiving party or the benefit to the paying party in retaining the use of the money should be considered as the starting point rather than judgment rate. 

63. It was with the above consideration in mind that when I made the Ancillary Relief Order on 8 November 2012, I gave the Husband ninety days to pay the Lump Sum and liberty to apply.  It was a huge sum of money, which not even the Father could make available at the stroke of a pen. Though the Husband is rich and the Father is enormously rich, their assets are tied down in their family companies and in the Trust.  The ninety day period was just a notional period which has to be adjusted with realism depending on the Husband’s ability to pay and all the circumstances.  Hence, I deliberately left it to the parties to discuss among themselves as to how the Lump Sum was to be paid and then to make appropriate applications under the liberty to apply clause, if necessary.  Eventually, they came up with the arrangement and the Husband’s Time Summons.  I shall fix of the due date for payment of the Lump Sum and the interest rate by adopting a more relaxed approach and with realism.

64. Under my Ancillary Relief Order, 6 February 2013 was the last date when the Lump Sum shall be paid.  The only basis of the Wife’s claim is that both the Husband and the Father delayed the payment of the Lump Sum for over a year and she was forced by reality to accept payment by instalment.

65. The Husband advanced two grounds for objecting to payment of interest on the Lump Sum.  First, he relied on the principle that interest does not begin to accrue until the judgment sum is due.  This principle is derived from the following dicta of Yuen JA in PLTO v KLK and HITL[29]:

“It must follow that when the learned judge granted an extension of time to 30 May 2012 for compliance with the order, payment made on that day was due and proper compliance. There being no failure to comply, section 28AA simply would not be engaged. That must be the logical consequence of the extension of time order, whatever may have been the parties’ understanding of the position.”

That was a case in which the wife claimed interest on arrears of maintenance pursuant to section 28AA of MPPO which prescribed a regime for enforcement of maintenance orders including application by the paying party not to pay interest.  Despite that, I consider the principle is of universal application to any judgment debt.

66. But I consider the second case of Preston v Preston quoted by Ms Yip[30] more directly on the point. There, Brandon LJ said:

“So far as interest on instalments of the lump sum is concerned, I am of the opinion that the judge had no power to impose this additional liability on the husband in that form. The power to award a lump sum to a wife is entirely statutory, and is to be found in section 23(1)(c) and (3)(c) of the Matrimonial Causes Act 1973. Nothing in those provisions can be construed as conferring on the court, expressly or impliedly, the power to order the payment of interest on instalments in respect of periods before they become due for payment, as the judge has seen fit to do in this case.

The position is that, once any instalment falls due and remains unpaid, it is a judgment debt on which statutory interest is payable in the normal way.  But, until any instalment becomes payable, the payment of interest on it cannot be awarded.”

67. There is no doubt that the principles in PLTO v KLK and HITL and Preston v Preston are correct.  The law is simple and straight forward.  Judgment debt carries interest from the date it is due to the date it is paid.  Likewise, overdue instalment is a judgment debt and carries interest; but instalment not yet due is not a judgment debt and does not carry interest. What divided the parties is whether the instalments were due before they were paid. This depends on what the parties have agreed when they consented to the terms of the consent order made on 19 March 2013.

68. I shall begin with the Husband’s Time Summons. In that summons, he sought:

(1)  payment of the Lump Sum by three instalments: the first instalment of $40 million on 28 February 2013; the second instalment of $40 million within sixty days of the Wife’s delivering vacant possession of the matrimonial home; and the third instalment of $50 million within six months after the payment of the second instalment;

(2)  discharge of the MPS Order upon payment of the first instalment;

(3)  no interest to accrue in respect of any instalment part of the Lump Sum whether accruing from 8 February 2013 or at any time or for any period thereafter; and

(4)  provision for costs of the application.

Simply put, the Husband asked for payment by instalment with no interest to accrue in respect of any instalment part of the Lump Sum from 8 February 2013, if paid in accordance with the new time table.  I presume, by that date, he meant the original due date of 6 February 2013.

69. I now turn to what was agreed in the terms of the consent order of 19 March 2013.  The terms are as follows:

(1)  the Husband to pay the Wife $40 million within 14 days of the order (the first instalment having been paid on 28 February 2013 after the original due date);

(2) a reduction in the amount restrained under the injunction;

(3) the usual default clause;

(4) all further issues as to the payment of the Lump Sum be adjourned to the hearing on 4 September 2013;

(5) the Husband’s Time Summons be adjourned to the hearing on 4 September 2013;

(6) liberty to apply; and

(7) costs reserved.

There were three undertakings which did not form part of the order, notably the Father’s undertaking to pay the third instalment of $50 million within four months of the discharge of the Jersey Injunction. 

70. The word “instalment” used in the Husband’s Time Summons was not used in the consent order.  The word “instalment” is defined in the Shorter Oxford Dictionary, 6^th ed as meaning “each of the several parts, successively falling due, of a sum payable”.  The use of that word suggests there is a due date for payment of the instalment.  Under the Ancillary Relief Order, there was a Lump Sum ordered to be paid on or before 6 February 2013.  Obviously, when the Husband sought payment by instalment, his intention was to seek extension of time to pay the Lump Sum by three instalments each with a new due date.  Thus, if the instalments were paid according to the new time-table, there would be no outstanding instalments and no interest would accrue.  However, the word “instalment” used in the Husband’s Time Summons was not used in the consent order. That indicates a lack of consensus on the issue of extension of time to pay or due date for payment of the instalments.  Instead, an amount of $40 million was ordered to be paid within 14 days.  And more significantly, all further issues as to the payment of the Lump Sum and the Husband’s Time Summons were adjourned to the hearing on 4 September 2013.  What other issues could have been adjourned for hearing, if not the question of extension of time and entitlement to interest specifically mentioned in the Husband’s Time Summons?  In my opinion, against that background, the order to pay the amount of $40 million, ie the second sum, was carefully worded by the parties to avoid any implication of any consent to payment by instalment which carried with it an agreement to extend the due date of payment of the Lump Sum or the instalment parts of the Lump Sum.  Though in fact the Lump Sum was paid by three partial payments, to use a neutral phrase, there was no agreement to extend the original due date for payment.  Instead, that together with other issues were expressly agreed to be adjourned for argument at the hearing on 4 September 2013 and then at this hearing.  I am satisfied that there was no agreement for extension of time to pay under the consent order.  Thus, at this hearing, I have to consider whether to grant extension of time to pay under the Husband’s Time Summons and, if not, the amount of interest to be paid under the Wife’s Enhanced Interest Summons.

71. According to the Husband’s 11^th affidavit, he has no immediate means to meet the Lump Sum of $130 million because the trustees, in view of the injunction imposed, were not prepared to in any way deal with or dissipate the assets under the Trust in which the Husband has settled most of his assets.  Even with the reduction of the amount restrained under the injunction, the trustees of the Trust indicated that they would need time to apply to the Jersey Court for approval before dealing in or with any of the trust assets.  The Husband’s shares in Company B have been mortgaged to the Father to meet his legal costs in these proceedings.  For obvious reasons, those shares could not be sold unless within the Father’s family.  As I have said, the ninety day period was just a notional period for the parties to work out the scheme of payment.  Though it has taken more than a year to pay the Lump Sum in full, it was nevertheless a huge sum of money.  On the facts of the present case, I am satisfied that the Husband has no immediate means to pay and that the time table for payment as worked out between him and the Father was practical and reasonable in the circumstances.  It would be unfair to require payment within the ninety day period resulting in additional burden of interest on the Husband.  And importantly, for as long as it was not paid, the Wife continued to receive substantial maintenance pending suit which is more than interest at judgment rate.  She should not receive double benefit.  On the other hand, as I have indicated, the Wife was adequately provided for upon the receipt of the first sum of $40 million.  She has no immediate use of the balance of the Lump Sum.  Her position was further improved with the payment of the second sum and then the last sum.  As already indicated, the ninety day period was just a notional period.  Approaching the issue with realism, I decide in favour of the Husband.  I grant him extension of time to pay the Lump Sum by three instalments in the amount and on the dates when they were actually paid.  Hence, the payments were made when due resulting in no liability for interest.

Conclusion

72. Accordingly, I allow the Husband’s application for extension of time to pay the Lump Sum by three instalments.  The instalments having been paid in accordance with the new table, no interest shall be payable on the Lump Sum or any instalment part of the Lump Sum.  I also vary my Ancillary Relief Order to the extent that the maintenance pending suit be reduced to a monthly sum of $20,000 with effect from 28 February 2013 and the MPS Order be discharged altogether on 22 April 2013 upon receipt of the second instalment. 

THE WIFE’S ENHANCED INTEREST SUMMONS

73. The variations sought by the Wife are very substantial.  They are based on the Husband’s rejection of her sanctioned offer dated 6 October 2009 made in accordance with Order 22.  She sought interest and enhanced interest on the Lump Sum; costs on indemnity basis commencing from the latest date when the Husband should have accepted her sanctioned offer and enhanced interest on such indemnity costs on the basis of the Husband’s rejection of the sanctioned offer; interest on maintenance pending suit and costs allowance for such period as they were outstanding; and costs of this application on indemnity basis to be paid by the Husband and the Father jointly.  In the course of her submission, Miss Remedios also asked for the costs order to be extended to the Father for the entire period of the litigation, ie to cover period before he joined as intervener, though this variation has not been sought in the Wife’s Enhanced Interest Summons.  The issue on indemnity costs has been resolved in favour of the Wife when dealing with the Father’s Variation Summons and the Husband’s Variation Summons on the basis of their conduct which I considered to be venal without having to resort to Order 22.  I have also found in favour of the Wife in respect of the Father’s liability for costs before he joined as a party to these proceedings.  The issue of interest on the Lump Sum has been resolved against the Wife when dealing with the Husband’s Time Summons.  The remaining issue is enhanced interest.  The Husband’s rejection of the sanctioned offer made under Order 22 was the basis of the Wife’s claim.

74. The facts relevant to the sanctioned offer are as follows.  On 8 January 2008, one day before the FDR hearing, following repeated urgings by the Husband’s solicitors, the Wife made her first “without prejudice save as to costs offer” to the Husband.  Nothing turned on that offer.  Then the Father joined in the proceedings as intervener in September 2009.  On 6 October 2009, the Wife’s solicitors wrote to the Husband’s solicitors in a letter marked “without prejudice save as to costs” and “sanctioned offer” in which the Wife offered to settle upon (i) payment by the Husband of a lump sum of $100 million within twenty-eight days; (ii) the Husband’s undertaking to pay the education, living and medical expenses of the two children; and (iii) the Husband paying her legal costs in Hong Kong and in the United States.  This is the sanctioned offer relied on by the Wife in her summons.

75. On 10 December 2009, the Wife’s solicitors sent another letter to the Husband’s solicitors marked “without prejudice save as to costs” in which the Wife proposed to settle for $80 million cash or real property of equivalent value and the right to use the income from another sum of $20 million cash or property of equivalent value during her life time which shall be transferred to her children upon her demise.

76. None of the offers was accepted by the Husband.

The sanctioned offer regime under Order 22

77. The sanctioned offer regime under Order 22 is a new initiative under the CJR to promote settlement to save costs.  The Order stemmed from the practice of using Calderbank offers which had certain costs consequences.  But Order 22 is statutory and has wider import. 

78. Under Order 22, rule 2, a party to an action containing a monetary claim or a non-monetary claim or both arising from any cause or causes of action may make an offer to settle the whole claim or a part of it or any issue arising from it.  To have the benefit or consequences as provided by the Order, an offer must be a sanctioned offer made in accordance with the Order.  The form and contents of a sanctioned offer is provided by rule 5.  Basically, a sanctioned offer must be in writing and must state whether it relates to the whole claim or to part of it or to an issue arising from it and if so to which part or issue.  A defendant may, without leave of the court, accept a sanctioned offer not later than twenty-eight days after the offer was made or after that period if the parties agree on the liability for costs.  Failing that a defendant may only accept the offer with leave of the court.  Rule 21 and 22 provide respectively for the costs and other consequences of the defendant’s acceptance of the sanctioned offer.

79. Rule 24 provides for the consequences of refusal of the sanctioned offer in situation where the plaintiff obtains an award or judgment which is more advantageous than the proposals contained in his sanctioned offer.  In essence, the court may award the plaintiff: (i) enhanced interest, ie interest on the whole or part of any monetary award at a rate not exceeding 10% above judgment rate for some or all of the period after the latest date on which the defendant could have accepted the offer without requiring the leave of the court; (ii) costs on indemnity basis after that date; and (iii) interest on those costs not exceeding 10% above judgment rate.  Rule 24(4) requires the court to make the above orders unless it considers it unjust to do so.  In considering whether it would be unjust to make those orders, rule 24(5) requires the court to take into account: (i) the terms of any sanctioned offer; (ii) the stage in the proceedings at which any sanctioned offer was made; (iii) the information available to the parties at the time when the sanctioned offer was made; and (iv) the conduct of the parties with regard to the giving or refusing to give information for the purpose of enabling the offer to be made or evaluated.

Inapplicability of Order 22 to matrimonial proceedings

80. A major disagreement among counsel is whether the sanctioned offer regime is applicable to matrimonial proceedings. Miss Remedios argued that it is.  Mr Mok and Ms Yip argued that it is not.  The argument of Miss Remedios is that Order 22 stemmed from the practice of using Calderbank offers which were in turn a product of a matrimonial case. Hence, she submitted that the Order applies in respect of matrimonial proceedings.

81. On the other hand, Mr Mok argued that the fundamental objection to application of Order 22 to matrimonial proceedings is that the regime under the Order is couched in terms of acceptance of sanctioned offers without leave of the court whereas ancillary applications cannot be settled by way of such acceptance without leave of the court.  The family court is charged with the duty of making orders for financial provision for parties to a marriage and more importantly for child of the family.  Section 7 of the MPPO imposes on the court the duty when deciding whether to exercise its power under section 4, 6 or 6A (ie making financial provision for child of the family, orders for transfer and settlement of property and variation of settlements, and orders for sale of property, respectively) and, if so, in what manner, to have regard to the conduct of the parties and all, including certain specified, circumstances.  One of those specified circumstances is the financial needs of the child of the family, his financial resources, physical or mental disability, the standard of living he enjoyed and the manner in which he was being and in which the parties to the marriage expected him to be educated.  The court has a supervisory role over the making of such agreement by the parties to the marriage.  It views any such agreement with jealousy, particularly when the interest of a child of the family is involved.  Hence, for policy reasons, the court will not permit the parties by agreement to oust the jurisdiction of the court in matters touching upon matrimonial finance or to control the exercise of the court’s jurisdiction once that jurisdiction is invoked.  Even where the parties to the marriage have reached agreement on financial provision upon a divorce, the court will jealously exercise its supervisory jurisdiction to make sure that justice would not require some other forms of settlement.  In L v C[31], Stock JA (as he then was) said:

“37. …For reasons of policy, the courts will not permit the parties by agreement to oust the jurisdiction of the court in matters touching upon matrimonial finance or to control the exercise of the court’s jurisdiction once that jurisdiction is invoked (Hyman v Hyman)[32], and the courts will be astute in maintaining their supervisory jurisdiction (Pounds v Pounds)[33] even in the absence of provisions seeking to oust jurisdiction. In matrimonial matters, the courts have a particular role in ensuring protection for parties to a marriage that has broken down. The fact that there has been an agreement for the division of assets is not of itself determinative of an application, for the statute enjoins the Court to have regard to all the circumstances that prevail at the time the court is required to make its determination for ancillary relief, and an agreement is but one of those circumstances, though it may transpire to be an important one. Precisely because agreements for the division of assets tend to be concluded against an emotionally charged backdrop, steeped in present and future uncertainty, the courts will take particular care to examine an assertion that an agreement should be accorded no or little weight because of this or that unconscionable aspect to the circumstances in which it was concluded. So too, because of the way in which the statutory duty is framed, it is incumbent on a court, even though there exist no circumstances surrounding the making of the agreement that should vitiate it, nonetheless to examine the present condition of the parties to determine whether justice demands a different dispensation. The subject matter is peculiarly fact-sensitive. Many questions will arise: the availability of legal advice at the time of the negotiations and conclusion of the agreement; whether those negotiations and the conclusions reached were attended by undue pressure, including self-induced pressure; whether there is some factor in the relationship between the parties, such as the exploitation of a dominant position, or the use of children as a weapon wielded against one of the parties; whether judgement has been impaired by emotion or fear or misapprehension of the factual or legal position; whether the parties have acted upon the agreement reached; and whether there has arisen since the making of the agreement a fresh unforeseen event by reason of which it may be unconscionable to hold the parties to the strict letter of the agreement. If one or more such circumstances are shown, then the court in the exercise of its supervisory jurisdiction might well interfere with the dispositions effected under the agreement.”

(My emphasis underlined.)

Thus, in the case of ancillary relief applications, a sanctioned offer cannot be accepted without leave of the court.  As such, there is no latest date on which the defendant could have accepted the offer without requiring the leave of the court within the terms of Order 22, rule 24(2) and (3)(a).  I therefore agree with Mr Mok and Ms Yip that the sanctioned offer regime without requiring the leave of the court is unworkable in application touching on matrimonial finance.

82. Support for this approach can be found in Law Ping Leung v Ng Sze Pong[34] which is a case of settlement by a plaintiff under disability.  In that case, Recorder Benjamin Yu SC said[35]:

“4. … The difficulty with the plaintiff’s argument however is that this is a case where the plaintiff was under disability. Not only does Order 80, rule 10 apply to prevent any settlement to be valid without court approval, Order 22, rule 19 specifically provides that in proceedings under Order 80 a sanctioned offer cannot be accepted without leave of the court.

5. That being the case, I cannot see how the sanction under Order 22, rule 24(2) and (3) can apply. (quoting rule 24(2) and (3))

6. Given the terms of Order 22, rule 19 it is not possible to say that there is a date on which the defendant could have accepted the offer without leave of the court.

7. Mr Lam, on behalf of the plaintiff, argues that notwithstanding Order 22, rule 19, the defendant could still have accepted the offer and the parties should then obtain the court’s approval under Order 80, rule 10 and Order 22, rule 19. He argues that unless the court construes rule 19 in the manner he suggests it would frustrate the purpose of the new legislation in encouraging early settlement.

8. I have a great deal of sympathy with that argument but in my view rule 19 is clear. The offer may, “only be accepted with the leave of the court.” There is hence no date one can point to for the purpose of rule 24 that the defendant, “could have accepted the offer without requiring the leave of the court.”

9. Mr Lee, on behalf of the defendant, suggests that a sanctioned offer can still be taken into account under Order 62, rule 5. That may be the case, but in my view, the present rules do leave a lacuna for proceedings governed by Order 80.

10. So for these reasons I would not accede to the plaintiff’s application to vary the cost order to provide for indemnity costs and for the increased rate of interest.  This leaves the defendant’s cross-application to vary the cost order on the basis that the plaintiff should be deprived of part of its costs by reason of its conduct before and during the trial.  I have read the defendant’s submission and listened to Mr Lee’s argument on this but I can see no merit in that application.” 

That was a case in which the court’s leave under Order 80, rule 10 was required for any settlement agreement to be valid and Order 22, rule 19 expressly provides that in proceedings under Order 80 a sanctioned offer cannot be accepted without leave of the court.  Despite the absence of similar provisions in the Rules of the High Court applicable to matrimonial proceedings, I do not see why the same approach should not be applicable to acceptance of an offer to settle an agreement touching on matrimonial finance, if the court’s leave is required for such an agreement under the MPPO.

83. The learned authors of Halsbury’s Laws of Hong Kong are of the same opinion.  They wrote[36]:

“Calderbank offers will still, therefore, play an important role in cases where sanctioned payments are not appropriate. Such cases will include offers where the plaintiff claims matrimonial relief …”

84. Next, Mr Mok prayed in aid paragraph 9 of Practice Direction 15.12 (“Matrimonial Proceedings and Family Proceedings”), which comprehensively sets out the measures under the CJR applicable to matrimonial proceedings.  Those measures do not include sanctioned offers under Order 22, implying that the sanctioned offer regime is inapplicable to matrimonial proceedings.

85. Lastly, Mr Mok demonstrated how the sanctioned offer regime is unworkable in the context of an application for financial relief in this case.  In the Wife’s sanctioned offer, she sought to comply with Order 22, rule 5 by stipulating that “after expiry of 28 days from the date hereof, [the Husband] may only accept this sanctioned offer if (a) parties agree on the liability on costs; or (b) the court grants leave to accept it”. The fact is that even before the expiry of the twenty-eight day period, the Husband could not have accepted the offer without leave of the court; and after the expiry of that period, even if the parties agree on the liability for costs, the Husband could still not accept the offer without leave of the court.  This amply demonstrated that the sanctioned offer regime is in practice unworkable in the context of an application touching on matrimonial finance and in law inapplicable to such application.

86. In conclusion, I agree with Mr Mok’s and Ms Yip’s submission that the sanctioned offer regime under Order 22 is inapplicable, at least, to application touching on matrimonial finance.  With that conclusion, all of the Wife’s applications for enhanced interest on the Lump Sum, indemnity costs and enhanced interest on indemnity costs based on sanctioned offer fail as matter of law.

87. During the course of deliberation, the Father’s solicitors wrote to my clerk to inform me of the recommendation of the Chief Justice’s working party on review of Family Procedure Rules that sanctioned offer under Order 22 shall not apply in family proceedings.  The Wife’s solicitors objected to the course taken by the Father’s solicitors and were of the view that if that issue is to be argued all parties should be present.  I did not find it necessary to re-open that issue.  I had heard arguments from all parties.  The recommendation of the working party was only a recommendation and had no force of law.  I had not taken it into account in my deliberation. The conclusion I reached is founded on Mr Mok’s and Ms Yip’s well presented submissions.

Interest on maintenance pending suit

88. Though maintenance pending suit had been outstanding in the past, eventually they were fully paid.  The Wife now asked for interest on the maintenance pending suit for the periods in which they were outstanding from January 2009 up to October 2013.  Ms Yip argued that there is no jurisdiction to order interest at all.

89. The court’s power to award interest on judgment debt or damages is derived from section 43 of the High Court Ordinance.  Thus, unless outstanding maintenance pending suit is a judgment debt, the court has no power to award interest.  Maintenance pending suit is neither a debtor damages. The court’s power to order maintenance and maintenance pending suit is also statutory, being derived from section 4 and 3 of the MPPO respectively. 

90. Miss Remedios sought to rely on section 28AA of the MPPO as the basis for the Wife’s claim for interest.  That section provides the regime for recovery of interest in respect of arrears of maintenance awarded under a maintenance order by treating such arrears as a judgment debt for the purpose of section 50 of the District Court Ordinance and recoverable as such with interest.  However, as submitted by Ms Yip, “maintenance order” is defined under section 2 to mean order for periodical payments, secured periodical payments or lump sum payments awarded under certain subsections of sections 4, 5, 8 and 15.  It does not include an order for maintenance pending suit made under section 3.  The position in the United Kingdom is similar.  Hence, Ms Yip argued that the court has no jurisdiction under section 28AA to order interest on maintenance pending suit. 

91. Ms Yip also drew support for her argument from the absence of a statutory provision for recovery of interest in judgment summonses issued for recovery of maintenance pending suit under rule 88(6)(a) of the Matrimonial Causes Rules.  That sub-rule provides that if a judgment summons was issued but did not proceed to hearing, which was the case here, the judgment creditor’s costs of and incidental to the judgment summons shall be fixed without taxation in accordance with the provisions of that sub-rule.  That sub-rule provides for recovery of court fees, travelling expenses and solicitors’ fees, but not interest on outstanding maintenance pending suit.

92. Furthermore, rule 87(5)(a)(ii) provides for award of interest on the hearing of the judgment summons relating to maintenance pending suit.  That sub-rule provides:

“On the hearing of the judgment summons the judge may –

(a) where the order is for –

(ii) maintenance pending suit or other periodical payments and it appears to him that the order would have been varied or suspended if the judgment debtor had made an application for that purpose,

make a new order for payment of the amount due under the original order, together with the costs of the judgment summons, the interest and surcharge payable, either at a specified time or by instalments”

Though the sub-rule provides for award of interest, “interest” was defined in rule 87(1) specifically for that rule and rule 88 as meaning interest in respect of arrears of maintenance payable under a number of provisions in various Ordinances including section 28AA of the MPPO, but does not include maintenance pending suit under section 3 of the MPPO.  The wording of sub-paragraph (ii) also seems to have been tailored for a judgment debtor’s intended application not to pay interest under section 28AA of the MPPO which does not apply to maintenance pending suit.  

93. Miss Remedios also sought to rely on the court’s power to award interest on arrears of maintenance under section 53A of the Matrimonial Causes Ordinance (“MCO”).  For the purpose of that section, “maintenance order” is defined to mean an order made in the matrimonial cause for payment of money.  However, “matrimonial cause” is defined in section 2 to mean divorce, nullity, judicial separation, and presumption of death and dissolution of marriage.  It does not cover maintenance pending suit awarded under MPPO. Prior to 1972, MCO contained provisions for financial relief in sections 27 to 44 which included maintenance pending suit.  Those sections were repealed by Ordinance No 39 of 1972 with the enactment of the MPPO which contains more comprehensive provisions for distribution of the family pool on divorce, including maintenance pending suit.  Section 53A was introduced into the MCO along with the introduction section 28AA into MPPO under the Interest and Surcharge on Arrears of Maintenance Ordinance 2003 (Ordinance 18 of 2003).  At the same time, similar amendments were introduced into the Guardianship of Minors Ordinance and Separation and Maintenance Orders Ordinance.  With the repeal of the ancillary relief provisions in the MCO and the enactment of similar and more comprehensive provisions in the MPPO, it is difficult to see what purpose is left to be served by section 53A of MCO.  I conclude, as a matter of statutory construction, that an order for payment of maintenance pending suit made under section 3 of the MPPO is not a maintenance order within the meaning of section 53A of the MCO.  It is not treated as a judgment debt for the purposes of section 50 of the District Court Ordinance, whether under section 52A of the MCO or section 28AA of the MPPO.  This court has no jurisdiction to order interest on arrears of maintenance pending suit.

94. This conclusion may sound like an astounding proposition.  But by its very nature, maintenance pending suit is an interim payment by one spouse to the other to enable that other spouse to meet his or her immediate needs, without having to decide on how the family pool shall be divided.  When the court ultimately makes the ancillary relief order, it makes distribution on the basis of the situation of the parties then before it, including any financial impact as a result of non-payment of maintenance pending suit.  If the maintenance pending suit ordered was excessive or inadequate, adjustment could have been made in the ancillary relief order.  The question of interest on maintenance pending suit normally would not arise.  This may not be satisfactory but maintenance pending suit is a creation of the statute and this is the framework provided by the statute.

95. In conclusion, I find that the Wife is not entitled to claim interest on maintenance pending suit and similarly on costs allowance.

Conclusion

96. In conclusion, the sanctioned offer regime under Order 22 is not applicable, at least, to applications touching on matrimonial finance.  Hence, the Wife’s applications under Order 22 for enhanced interest on the Lump Sum and on her costs from the last date when the Husband could have accepted her sanctioned offer have no legal basis.

97. I allow the Wife’s application to vary my costs order nisi against the Father to the extent that he shall be liable jointly with the Husband for 80% of the Wife’s costs on indemnity basis subject to a reduction of 5% from the commencement of the proceedings.

98. I have granted the Husband’s application for extension of time to pay the Lump Sum by instalment and the Lump Sum was duly paid within time.  The question of interest on the Lump Sum does not arise.

99. The Wife’s application for interest on maintenance pending suit and costs allowance is refused as this court has no jurisdiction to award such interest. 

CONCLUSION

100. These summonses are mainly applications to vary my costs order nisi.  The Father and Husband are not appealing the Judgment, indicating their acceptance of it. In response to the court’s encouragement, the Father assisted the Husband in paying the Lump Sum.  I have to give him respect for his assistance.  I consider the hostility of the proceedings over at this stage of the proceedings.  I treat these applications as bona fide applications for giving effect to my Ancillary Relief Order and for the purpose of resolving out each other’s costs liabilities.  The parties are partially successful and partially unsuccessful in their respective applications.  Fairness would require me to make no order as to costs in respect of the five summonses. 

101. I make a global order covering all the applications under the five summonses in the following terms:

(1)  the Husband has extension of time to pay the Lump Sum by three instalments on 28 February 2013, 2 April 2013 and 2 January 2014;

(2)  no interest is payable on any instalment parts of the Lump Sum;

(3)  paragraph 4 of my Ancillary Relief Order is varied to the extent that the maintenance pending suit be reduced to a monthly sum of $20,000 with effect from 28 February 2013 until 21 April 2013, and the MPS Order be discharged altogether on 22 April 2013;

(4)  my costs order nisi made on 8 November 2012 is set aside and replaced by the following costs order:

(a)  unless otherwise provided for, the Wife shall be entitled to 95% of her costs in these proceedings, including all costs reserved with certificate for two counsel, such costs are to be taxed on indemnity basis, if not agree (“the said costs”);

(b)  80% of the said costs shall be borne jointly and severally by the Father and the Husband with the remaining 20% to be borne solely by the Husband;

(5)  the Wife’s application for indemnity costs, enhanced interest on the Lump Sum, and indemnity costs pursuant to Order 22 is dismissed;

(6)  the Wife’s application for payment of interest on the Lump Sum is dismissed;

(7)  the Wife’s application for interest on the maintenance pending suit and costs allowance for the various periods during which they were outstanding is dismissed; and

(8)  there be no order as to costs of the applications under the five summonses.

102. Again, I express my gratitude to counsel and their respective legal teams for their very comprehensive submissions and authorities.  I hope the dispute can now be put to rest.