WMY v. CSK

FCMC 17011 / 2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 17011 OF 2011

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

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

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

J U D G M E N T
(Variation of Costs Order Nisi)

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

Introduction

1.  This is the application for variation of the Costs Order Nisi by the Petitioner (Wife) under the Judgment dated 30 June 2016 (“Judgment”) on Ancillary Reliefs after a 5-day trial.

2.  At paragraphs 93 to 95 of the Judgment where this Court, when deciding the issue of costs, had said :

“93. What left behind is the question of costs of these proceedings. The Wife’s Open Proposals are identical to the outcome of this case save and except she had asked for nominal maintenance. Given the fact that she only sought costs of and incidental to the Husband’s claim for the alleged loan of HK$1.6 million, I will accordingly grant such costs order in respect of which would have to be taxed if not agreed on party and party basis.

94. Although the issue of the alleged loan of HK$1.6 million is one amongst the six items listed in the Joint Issues, a substantial part of the time for trial was spent on the evidence upon such issue. On all fairness, I will also apportion the costs for such issue to form 30% of the entire costs of the ancillary reliefs trial. As for the remaining 70% of the costs, there will be no Order as to costs.     95.  I also grant Certificate for Counsel.”

The Wife’s Application

3.  In the Summons dated 14 July 2016 filed by the Wife, she seeks variation of the Costs Order Nisi to the extent that the costs of and incidental to the ancillary reliefs proceedings starting from the commencement of this suit up to and including the trial be paid by the Husband to the Wife to be taxed, if not agreed on party and party basis, with Certificate for two Counsel.

4.  The Grounds in support of the variation can be summarised as follows :

(a) The Wife is the successful party on all the 6 contested issues at trial (including the alleged loan issue of HK$1.6 million).  There is no good reason to depart from the starting point in family proceedings that costs should follow the event (see Gojkovic v. Gojkovic [1992] Fam 40, L v.C, CACV 169/2006 (unrep 19 March 2008 and TL v. SN (Ancillary Relief) [2010] HKFLR 506) (“Ground One”);

(b) There were Calderbank Offers made prior to and at the early stage of the ancillary reliefs which the Husband consistently refused and/or failed to show efforts to explore settlement (“Ground Two”);

(c) The Wife had not been unreasonable in the course of the proceedings and there was no litigation conduct which would deprive the Wife having full costs of the ancillary reliefs trial (“Ground Three”). 

The Husband’s Opposition

5.  The Husband raised 3 Grounds of Opposition which can be summarised as follows :-

(a)  The Costs Order Nisi was based on the orders sought by the Wife in her Open Proposals.  The Wife should not be allowed to resile from her open position;

(b)The Husband could not be said ought reasonably to have accepted the Wife’s Calderbank Offers;

(c)  The Wife’s conduct before and after the trial provided sufficient basis for the Court to deprive her part of her costs.

The applicable legal principles

6.  The Court has a wide discretion in deciding costs.  There is no difference between civil litigation and family court cases.  The rules on costs are contained in Order 62, rules 3 and 5 of the Rules of the High Court (“RHC”).

7.  Order 62 rule 3(2) of the RHC provides : “(2) If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other   order should be made as to the whole or any part of the costs.”

8.  Order 62 rule 5(1) of the RHC provides :

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

(aa) the underlying objectives set out in Order 1A, rule 1;

(a) any such offer of contribution as is mentioned in Order 16, rule 10, which is brought to its attention in pursuance of a reserved right to do so;

(b) any payment of money into court and the amount of such payment;

(c) any written offer made under Order 33, rule 4A(2);

(d) any written offer which is expressed to be ‘without prejudice save as to costs’ and which relate to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful;

(g) any admissible offer to settle made by a party, which is drawn to the Court’s attention.

 (2) For the purpose of paragraph 1(e), the conduct of the parties 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.”

The case law

9.  In civil proceedings, the general principles on costs can be found in the English case of In re Elgindata Ltd (No. 2) [1992] 1 WLR 1207, where Nourse LJ said at page 1214 as follows:-

“The principles are these. (i) Costs are in the discretion of the court. (ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made. (iii) The general rule 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 cost of the proceedings he may be deprived of the whole or part of his costs. (iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs. Of these principles the first, second and fourth are expressly recognised or provided for by rules 2(4), 3(3) and 10 respectively. The third depends on well established practice. Moreover, the fourth implies that 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.”

10.  For family proceedings, the principles on costs can be found in the leading case of Gojkovic v Gojkovic[1992] 1 All ER at page 271 where Butler-Sloss LJ said :- “That starting point, in my judgment, is that costs prima facie follow the event (see per Cumming-Bruce L.J. in Singer (formerly Sharegin) v. Sharegin [1984] FLR 114 at 119) but may be displaced much more easily than, and in circumstances which would not apply, in other divisions of the High Court. One important example is, as the judge pointed out, that it is unusual to order costs in children cases. In applications for financial relief the applicant (usually the wife) has to make the application in order to obtain an order by consent; and if money is available and in the absence of special circumstances, such an agreement would usually include the applicant’s costs of the application. If the application is contested and the applicant succeeds, in practice in the divorce registries around the country where most ancillary relief applications are tried, if there is money available and no special factors, the applicant spouse is prima facie entitled to, and likely to obtain, an order for costs against the respondent. The behaviour of one party, such as in material non-disclosure of documents, will be a material factor in the exercise of discretion in making a decision as to who pays the costs.

11.  Further down the Judgment, Butler-Sloss LJ went on to say :-

“There is however a minority of case, of which the present appeal is an example, where the assets are substantial and an order for costs can (if appropriate) be made. In such cases the parties are likely to negotiate, and such negotiation, which may lead to a settlement, is much encouraged by the courts. The Calderbank offer – a letter containing an offer only revealed after the order is made – bears some resemblance to, but is not identical with, a payment into court. It takes its name from Calderbank v Calderbank [1975] 3 All ER 333, [1976] Fam 93 (a claim by a husband) in which Cairns L.J. referred to an apportionment offer in Admiralty proceedings, and said ([1973] 3 All ER 333 at 342, [1976] Fam 93 at 106): -

‘If that is not accepted no reference is made to that offer in the course of the hearing until it comes to costs, and then if the court’s apportionment is as favourable to the party who made the offer as what was offered, or more favourable to him, then costs will be awarded on the same basis as if there had been a payment in. I see no reason why some similar practice should not be adopted in relation to such matrimonial proceedings in relation to finances as we have been concerned with.’

12.  At page 272 g to 272 j, Butler-Sloss LJ went on and said :

“It is therefore clear that Calderbank offers require to have teeth in order for them to be effective. This is recognised by the requirement in Ord.62, r 9 (and the equivalent CCR Ord 11, r10) for the court to take account of Calderbank offers, and by analogy open offers, in exercising its discretion as to costs. There are certain preconditions. Both parties must make full and frank disclosure of all relevant assets, and put their cards on the table. Thereafter the respondent to an application must make a serious offer worthy of consideration. If he does so, then it is incumbent on the applicant to accept or reject the offer and, if the latter, to make her/his position clear and indicate in figures what she/he is asking for (a counter-offer). It is incumbent on both parties to negotiate if possible and at least to make an attempt to settle the case. This can be done either by open offers or by Calderbank offers, both adopted by the husband in this case. It is a matter for the parties which procedure they prefer. There is a very wide discretion in the court in awarding costs, and as Ormrod LJ said in McDonnell v. McDonnell [1977] 1 All ER 766 at 770, [1977] 1 WLR 34 at 38, the Calderbank offer should influence but not govern the exercise of discretion.

There are many reasons which may affect the court in considering costs, such as culpability in the conduct of the litigation: for instance (as I have already indicated earlier) material non-disclosure of documents. Delay or excessive zeal in seeking disclosure are other examples. The absence of an offer or of a counter-offer may well be reflected in costs, or an offer made too late to be effective. The need to use all the available money to house the spouse and children of the family may also affect the exercise of the court’s discretion.  It would, however, be inappropriate, and indeed unhelpful, to seek to enumerate and possibly be thought to constrain in any way, that wide exercise of discretion.  But the starting point in a case where there has been an offer is that, prima facie, if the applicant receives no more or less than the offer made, she/he is at risk not only of not being awarded costs, but also of paying the costs of the other party after communication of the offer and a reasonable time to consider it. That seems clear from the decided cases and is in accord with the Supreme Court and County Court Rules requiring the court to have regard to the offer.  I cannot, for my part, see why there is any difference in principle between the position of a party who fails to obtain an order equal to the offer made and pays the costs, and a party who fails by the offer to meet the award made by the court.  In the latter case prima facie costs should follow the event, as they would do in a payment into court, with the proviso that other factors in the Family Division may alter that prima facie position.”

13.  In Hong Kong, starting with the case of F v. F [2003] HKLRD 976 where Hartmann J (as he then was) after setting out the founding principles as to award of costs in civil proceedings propounded in In re Elgindata (No.2) (supra), said :

“12. Contested family proceedings, being civil in nature, are subject to the founding principles that I have outlined. However, it has long been accepted that, because of the special dynamics of family litigation, the discretion is broader than it may be in civil matters generally. The seminal case on this point, long followed in this jurisdiction, is Gojkovic v. Gojkovic [1991] 2 FLR (CA) 233in which Butler-Sloss LJ said :

‘….there still remains the necessity for some starting-point. That starting-point, in my judgment, is that costs prima facie follow the event (see Cumming-Bruce LJ in Singer v Sharegin [1984] FLR 114 at p.119), but may be displaced much more easily than, and in circumstances which would not apply, in other Divisions of the High Court. One important example is, as the judge pointed out, that it is unusual to order costs in children cases.’

13. Butler-Sloss LJ spoke of the great majority of cases in which assets were not substantial, observing that –

‘The incidence of legal aid, the inadequacy of the financial assets available, for instance, to house both parties or even one spouse and the children, are major circumstances which may affect or even distort an order for costs that would otherwise have been expected to be made.’

However, in respect of cases where the assets are substantial and an order for costs can be made, emphasis was laid on the requirement that the parties attempt to settle their differences by negotiation. In so doing, a tool of importance is the use of Calderbank offers. In looking to the nature of the policy on which Calderbank offers have assumed such importance, reference was made to the judgment of Oliver LJ in Cutts v. Head [1984] CH 290 :

‘As a practical matter, a consciousness of a risk as to costs if reasonable offers are refused can only encourage settlement whilst, on the other hand, it is hard to imagine anything more calculated to encourage obstinacy and unreasonableness than the comfortable knowledge that a litigant can refuse with impunity whatever may be offered to him, even if it is as much or more than everything to which he is entitled in the action.’

Butler-Sloss LJ said that it was clear that “Calderbank offers require to have teeth in order for them to be effective.” Accordingly –

‘….the starting-point in a case where there has been an offer is that, prima facie, if the applicant receives no more or less than the offer made, she/he is at risk not only of not being awarded costs, but also of paying the costs of the other party after communication of the offer and a reasonable time to consider it.’

14.  But that being said, while Calderbank offers should be a material influence in the exercise of discretion in costs, they should not govern it entirely.  Butler-Sloss LJ emphasised that a broad range of matters may have to be taken into account :

‘There are many reasons which may affect the court in considering costs, such as culpability in the conduct of the litigation; for instance…...material non-disclosure of documents.  Delay or excessive zeal in seeking disclosure are other examples. The absence of an offer or of a counter-offer may well be reflected in costs, or an offer made too late to be effective. The need to use all the available money to house the spouse and children of the family may also affect the exercise of the court’s discretion. It would, however, be inappropriate, and indeed unhelpful, to seek to enumerate, and possibly be thought to constrain in any way, that wide exercise of discretion.’

14.  At paragraph 22 of the same Judgment, His Lordship said :

“22. Leaving aside what I consider to be the long-established principle that costs are determined not by dividing litigation into quantifiable subjects and figures, like a profit and loss account, but rather by way of overall impression……”

15.  In the case of W v. K and Anor (Costs) [2008] HKFLR 378 where Saunders J at page 383 said :

“13. In the course of exercising the discretion as to costs the court will also take into account Calderbank offers: see O22 r 12 and O62 r 5 RHC. Such offers influence, but do not govern, the exercise of discretion. The proper question to be asked is whether the party to whom offer was made ought reasonably to have accepted the proposal made. In addition, litigation misconduct or neglect may be taken into account in deciding the incidence of cost: see O62 r 7.

16.  Her Ladyship Hon Yuen JA in the case of L v C, CACV No. 169/2006 (Date of judgment: 19 March 2008) sets out the principles in costs in family court cases said at paragraph 23 :

“23 . As a matter of law, it is clear that costs are in the court’s discretion. Pointers as to how that discretion should be exercised include the following :

(1) in family cases, as in others, costs should normally follow the event;

(2) however, because of the special dynamics of family litigation (eg where the cased involved children, or where financial resources were inadequate to meet the needs of both parties, etc.), the discretion may be broader than in civil matters generally (Gojkovic v. Gojkovic [1991] 2 FLR 233, F v. F (No.2) [2003] 3 HKLRD 977……;

(3)  the court also retains a discretion to deprive successful litigants of costs under the Elgindata principles (In re Elgindata Ltd (No.2) [1992] 1 WLR 1207];

(4)  where a litigant succeeds on appeal but only on a new point, the court can deprive him of the costs below (Farquharson v Morgan [1894] 1 QB 552) or even order him to pay those costs (Yip Lai Fong v Sin Tung Hing [2004] 3 HKLRD 230), and the court can deprive him of the costs of appeal (Chard v. Jervis (1882) 9 QBD 178).

17.  In the later case of T, L v. S, N, CACV No.196/2009 (Date of Judgment : 19 October 2010) where Hon Kwan JA said :

“123. In matrimonial cases, as in other cases, costs should normally follow the event. The court also retains a discretion to deprive successful litigants of costs under the principles in In re Elgindata Ltd (No.2) [1992] 1 WLR 1207 (L v.C, CACV 169/2006, 19 March 2008, paragraph 23, per Yuen JA). The general rule that costs follow the event does not cease to apply simply because the successful party raised allegations on which he failed, but where that has caused a significant increase in the length or costs of the proceedings, he may be deprived of the whole or a part of his costs….”

18.  Further, in the case of Z v. X & C, CACV No.166/2011 (Date of Judgment : 8 March 2013) where Hon Cheung JA said :

“10. Although Saunders J in W v.K & Anor (Costs) [2008] HKFLR 378 stated that in ‘big money case’ each party should bear its own costs, this Court’s approach on costs in ancillary relief application is that costs should follow the event although because of the special dynamics of family litigation (e.g. where the case involved children, or where financial resources were inadequate) the discretion may be broader than in civil matters generally : L v.C (CACV 169/2006, Judgment 19 March 2008) applying Gojkovic v. Gojkovic (No.2) [1991] 2 FLR 233; TL v. SN (Ancillary Relief) [2010] HKFLR 506.

11. In England the approach has now been changed where the general rule is that the Court will not make an order requiring one party to pay the costs of another. However, costs orders may be made because of the litigation conduct of another party. The factors to be considered include, for example, whether an open offer to settle has been made, whether it was responsible to raise, pursue or contest a particular allegation or issue and the financial effects on the parties of any costs order. (See Rayden and Jackson on Divorce and Family Matters, 18^th Ed, Noter up to Col 1(2) [52.17] – [52.20] and see further the Noter up on Family Procedure Rules 2010).

12. The changes in England were carried out by prescribed rules. The position in Hong Kong has remained unchanged since L v.C and TL v. SN).

19.  Guided with the above principles, I now consider the Wife’s application. Discussion Ground One – Normal Rule of Costs should be applied ?

20.  As set out in paragraph 11 of the Judgment, the ancillary reliefs trial focused upon 6 Issues jointly agreed by the parties to be determined by this Court.  The Husband does not dispute that the Wife is the winner of all the 6 Issues.  He contended that the normal rule of “costs to follow the event” not applicable because the Costs Order Nisi was exactly what the Wife had asked for in her Open Proposals.  Submission was made by Husband’s Counsel to the nature of Open Proposals made pursuant to Practice Direction 15.11 at §11 to be the best-case scenario which the Wife adopted openly to the Court.  The Wife should not be permitted to resile from her open position (Husband’s Ground No.1).

21.  As the winner of all the 6 agreed Joint Issues, I accept that the normal rule of costs should apply (In re Elgindata Ltd (No. 2).  The issue to be decided is whether the Wife, by complying with the Practice Directions and stating her position on costs openly and proposing settlement terms before trial, would then be barred (my emphasis) from having her full costs after trial when her proposals are being rejected ? 

22.  Practice Directions (“PD”) for all purposes are aimed at providing guidance on practice and procedure to facilitate the legal process or litigation in Court.  It does not carry the force of law or the compliance of which would result in any waiver of rights which a party would acquire under any established rule or procedure or operates as a ‘bar’ to such right.  The Open Proposals regime under PD 15.11 is, in my view, to facilitate settlement before trial on ancillary reliefs solely for costs saving which, if accepted, would bring the matter to an end without the parties having to spend their days in Court.  Needless to say, the costs for the trial could then have been saved by both parties rather than spent on legal fees.  Thus, I do not accept that this is a scenario of the Wife ‘resiling’ from her position as to costs so submitted by Husband’s Counsel. 

23.  There is the contention by the Husband’s Counsel that the Wife could have, but had not, reserved the right to address the Court on the costs issue in her Open Proposals.  Failing such reservation, it is the Wife’s clearest expression that she would seek no order as to costs (save for costs on the alleged loan issue) to those other issues regardless of the outcome of trial, and even if she turned out to be the winner of the other issues.

24.  With respect, I do not agree.  The rationale behind attempting a pre-trial settlement is to avoid the costs of the trial.  It always happen that the party proposing settlement was, by so doing, more than happy to take a smaller amount than what he or she was claiming for if settlement could be reached at that stage.  The reason behind is obvious.  This applies not only to the subject matter of the claim.  It equally applies to costs which may even be the more pre-dominate reason since costs frequently are not proportionate to the amount in dispute.  From a legal perspective, there is no consideration for, if I may use the word, ‘abandonment’ of the right to seek full costs by the party whose proposals were rejected and then have to go through a full blown trial.

25.  Husband’s Counsel also referred to the case of TL v. YSW aka WSY, FCMC No.13455/2011 where a party’s Open Proposal had been used by the Court to define the upper limit of what may be awarded after trial.  With respect, this case is distinguishable on 2 aspects.  First, it relates to a party’s benevolent offer to the other spouse for only taking HK$16 million for his claim instead of HK$22 million as calculated by the Court.  The present application is to review the liability for costs incurred in the litigation, which is of a different nature and, as I said above, could be out of proportion to the value of the claim in dispute.  Secondly, the other 5 Joint Issues which the Husband had lost related mainly to matters of conduct such as misappropriation of assets (Agreed Joint Issue (2)(a)), refusal to account (Agreed Joint Issue 2 (b)), identification of businesses as family assets (Agreed Joint Issue (3)), non-disclosure (Agreed Joint Issue (4)), the effect of taking away of items (Agreed Joint Issue (5)) and accountability of legal fees in assessing the pool of family assets (Agreed Joint Issue (6)), where the quantification of all of which only had to be done when liability was established against the Wife after trial.  This is not just a choice between a quantified sum of HK$22 million and a benevolent offer of HK$16 million as in that case.   

26.  Given careful consideration, I agreed with Wife’s Counsel that there are no good reasons to depart from the normal rule of costs to follow the event. 

27.  I accept Wife’s Ground One.

Ground Two - The Calderbank Offers

28.  There are altogether 4 Calderbank Offers (under 5 letters) made by the Wife since September 2011. These divorce proceedings were commenced by the Wife in December 2011, which is 3 months after the 1^st Calderbank Offer was made. 

29.  I will deal with each of the offers separately and by chronological order, reciting those paragraphs on finances between the parties and costs proposals (if any), as follows :

(a) Letter dated 9/9/2011

30.  This can be said to be a pre-action letter.  The Wife proposed to have sole custody, care and control of the 2 children of the family.  On the parties’ finances, the following was what she proposed :

“2. Each party shall retain the assets in her/his own name. There shall be no financial or monetary claim whatsoever against each other; and

3. Each party shall maintain and support herself/himself. Neither will make any claim against the other for ancillary relief; such as periodical payments, secured periodical payments, lump sum   payment, or any other financial relief whatsoever.”

31.  On 4 October 2011, the Husband replied inter alia as follows :

“We have been further instructed that our respective clients are financially fit to support themselves and there is no claim for periodical maintenance or lump sum against each other. Presently, the only family asset capable for distribution is the matrimonial home known as xxxxxxxxx (the “Matrimonial Home”). Our client would like to retain the Matrimonial Home to accommodate the Children until they finish fulltime education. With respect of your client’s loan of HK$1.6 Million owed to our client, our client would like to know how your client intends to repay the said loan after the dissolution of the marriage. A copy of the loan   agreement dated 13^th December 2008 is enclosed herewith.”

(b) Letter dated 12/9/2012

32.  The Wife proposed, inter alia, as follows :

“5. The Petitioner and the Respondent, agreed not to seek any maintenance or ancillary relief against each other.

6. There shall be no distribution of family assets, if any.

7. All assets now held by or in the name of the Petitioner shall remain with the Petitioner who shall also withdraw and/or waive all her claims against the matrimonial home.

8. All assets now held by or in the name of the Respondent shall remain with the Respondent who shall also withdraw and/or waive all his claims against the Petitioner for the repayment of the alleged loan of HK$1,600,000.     

9.  There shall be no order as to costs.”

33.  In the 2^nd paragraph of this letter, the Wife said :

“Having received from your client’s latest costs estimate of over HK$486,144, the total costs so far incurred by the parties are over HK$800,000. Given the assets of the parties involved in this suit, we believe you would agree that the costs incurred are disproportionate to   the claims of the parties.”

(c) Letter dated 6/2/2013

34.  There was no reply to the 2^nd letter for 5 months until a reminder letter was sent by the Wife on 6 February 2013.  The following was said by the Wife :

“Solely for the purpose of avoiding spending substantial amount of costs and time, we believe that it is in the interest of our respective clients to engage in negotiation for settlement in the first place. Therefore, we strongly urge you to pass our previous letter of 12 September 2012 as well as this letter to your client and advise him of the costs implications balanced against what he can achieve at the end and to come up with a reasonable and rational proposal to resolve the present proceedings in an amicable manner. To this end, we are instructed that our client’s offer as stated in our previous letter dated 12 September 2012 will re-open for your client’s    considertation”

35.  On 8 February 2013, the Husband replied :

“Your client’s offers made in September 2012 is not acceptable to our client as they remain the same as those which she put forth in 2009 when the parties first separated. We are instructed that unless your client is prepared to change her stance, her current proposals seem to be unrealistic in encouraging our client to reach any possible settlement given that our client has already spent considerable legal costs up to date. We are instructed that unless your client is willing to make a constructive proposal as to hoe the repayment of the loan owed by her to ours is to be dealt with, our client is of the view that it would be a waste of time to make any attempt to reach a global settlement in the interest of    all parties.”

(d) Letter dated 7/12/2013

36.  The Wife wrote :

“Our client is deeply disappointed that the despite her repeated attempts and efforts of trying to reach an amicable settlement with our client during the past 15 months, that has been no progress in narrowing the gap between the parties. As your client should be well aware, any further proceeding in this suit will incur more time and costs which will in turn lower the family assets of the parties. This will certainly take away/diminish the funds available for the future use of the children, in particular their education expenses.

We have been instructed by our client to appeal to yours, this is in no one’s interest for this suit to be continued. The legal costs incurred by our respective clients have been significant. Just take the latest valuation of the companies of our respective clients as an example. The parties have spent a total sum of HK$180,000 for the valuation of our respective clients’ companies of which the profits before tax for even the “more profitable one (our client’s company) was less than HK$60,000. It is the belief of our client, as repeated by us on many occasions, that the parties should have saved all their time and legal costs for the use and benefits of the two children. They are still of very young age and money should be spent on their future education instead of the present litigation.

Our client understands that your client would NOT withdraw, even partly, his claim for the alleged “loan” of HK$1,600,000 against her, despite our client’s willingness to withdraw all her claims against yours. Against such position of your client, we were instructed to propose to your client before the 1^st Appointment Hearing outside the Court in October, 2013 that instead of spending further legal costs, the parties should consider using the same to set up an education fund for the two children with each party contributing HK$800,000 to such fund (“Last Proposal”). Unfortunately, this was rejected promptly by your client.”

37.  On 13 December 2013, the Husband replied :

“Your client’s proposed offer of setting up an education fund in favour of the children and asking our client to contribute HK$800,000 towards the fund is not acceptable to our client at all. Our client appreciates that the children’s future are important and he will continue to work hard to discharge his obligation as a caring and supportive father.

As you have repeatedly mentioned to us that your client is very adamant in spending her available resources to dispute over the loan, our client is doubtful whether your client is in fact sincere in wanting to reach an amicable settlement for the sale of preserving the family assets in the interests of the children.

However, if your client do change her mind and is prepared to settle the sum of HK$2,834,497.60 owed to our client, our client is more than happy to negotiate further on the terms of the repayment. Below is a table showing how the said sum was calculated on the loan agreement dated 13 December 2008 :-

[ Table of Calculation ]”

(e) Letter dated 5/11/2014

38.  The Wife wrote :

“We understand that the most disputed issue is your client’s claim against our client for the loan of HK$1.6 million allegedly due to him by ours. As you know, it has all along been our client’s stance that each party shall not pursue the claim for ancillary relief against each other including but not limited to the value of the three companies and the Court shall be invited to determine the issue regarding the alleged loan of $1.6 million only so as to save unnecessary costs.

Solely with a view to save the parties’ costs which would greatly deplete the value of their respective assets, we propose that the parties should consider withdrawing their respective claim for ancillary relief against each other including but not limited to the value of the three companies and the Court shall be asked to deal with issue of the alleged loan only.

39.  The Husband made no reply to this letter.

Husband’s explanation of his responses to the Calderbank Offers

40.  The Husband’s explanation of his responses to the Wife’s Calderbank Offers was contained in his 11^th Affirmation dated 1 September 2016.

41.  At the time of the letter dated 9/9/2011 (1^st Offer), the children issue was in serious dispute.  There had been no disclosure of assets of the parties at all.  It is premature to consider any settlement proposal on ancillary reliefs.

42.  At the time of the letter dated 12/9/2012 (2^nd Offer), the children issue had not yet been resolved.  There were several issues in the ancillary relief proceedings hotly disputed which precluded possibility of settlement.  This includes the 3^rd party’s, namely his mother’s interest, in the former matrimonial home and that he had undertaken to join his mother as an intervening party.  Nonetheless, he had narrated down the differences and issues by waiving his claim over the Wife’s landed property in Mainland China and, as a result thereof, the intervening party issue was also resolved.

43.  At that time, there was also an issue unresolved as to the Wife’s suspected non disclosure of her interest in a factory in Mainland China.  His questionnaire on such issue was faced with the Wife’s evasive answer which did nothing but to alleviate his suspicions.  Since discovery had yet to complete, he considered it premature to accept the Wife’s settlement proposals.

44.  At the time of the letter dated 6/2/2013 (3^rd Offer), the children and ancillary relief issues were still outstanding.  Discovery had not yet completed and both parties were still assessing the strength and credibility of each other’s cases.  Thus, he again considered premature to accept any settlement proposals.

45.  At the time of the letter dated 7/12/2013 (4^th Offer), the setting up of an education fund ran counter to the idea of a clean break which was desired by both of them.  He strongly believed such arrangement would only provide opportunity for troubles and arguments.  He considered not unreasonable to refuse such proposal.

46.  At the time of the letter dated 5/11/2014, some events had occurred which led him to consider Wife was being obstructive and deployed an unreasonable attitude in these proceedings. 

47.  I have been referred by Wife’s Counsel to paragraph 91 of the Judgment where I found that there are peculiar circumstances in this case.  Set out below are few of them relied upon by Wife’s Counsel :-

“(a) The marriage was for a short period of 3 years and 10 months only;

(b) Soon after the separation, the parties set up their own companies to engage in garment business akin to their matrimonial enterprise. Each of them had made their own living since then.

(c) The income and assets were earned and accumulated from their respective businesses for the past 6 years without any contribution from the other party. They were fully capable of looking after their own financial    needs of themselves and their children.” 

48.  From reading the contents of the letters exchanged between the parties’ lawyers; in particular, those of the Husband’s, I am not satisfied that the Husband ever had any slightest desire to avoid a trial, if not pushing for it.

49.  It can clearly be seen in the pre-action letter (1^st Offer), the Wife was conscientious about their respective assets being drained out unnecessarily through contentious litigation.  Given the peculiar circumstances of this case that children’s maintenance was never an issue between the parties, and that there had never been any claim by the custodian parent for periodical payments for the children, I agree with Wife’s Counsel that issues as to custody of children could be dealt with separately and would not hinder negotiations of the parties’ respective ancillary reliefs against each other.  Children custody and caring issues could, on the peculiar facts of this case that there is no claim for child’s finances against the non-custodian parents and both parents are fully financially capable and independent, be separately negotiated in parallel to parents’ finances if the Husband is really minded to do so. 

50.  Ever since the 1^st Offer was made in 2011 when the Wife was seeking for custody of the two children, there was no claim for financial support of the children from the Husband.  Such stance of the Wife continued throughout the entire period of negotiation since 2011 up until trial and even after such issue was later resolved by the parties’ consent on 2 April 2013.  It can easily be seen that the Husband’s reply to the 1^st Offer and all his subsequent replies just focused upon finance issues between himself and the Wife; in particular, the alleged loan of HK$1.6 million with no indication or suggestion whatsoever that settlement would be explored or negotiated after (my emphasis) the children custody and caring issues were resolved.  An indicia is that he just gave an outright refusal to the Wife’s proposal of setting up an educational fund of HK$1.6 million for the children without any reasons but only stating the obvious that he would continue to work hard to discharge his obligation as a caring and supportive father.  It is my firm belief that the Husband’s stance throughout was that settlement could only be explored after the alleged loan issue was admitted by the Wife.  It can easily be seen that he even ran out of patience and work out a table in his letter of reply on 13 December 2013 urging for repayment of the alleged loan together with interest adding up to HK$2,834,497.60 without any other options for settlement.  The words “owed to our client” appeared after the sum of HK$2,834,497.60 clearly show how assertive the Husband was at the time.  

51.  The Husband’s explanation at present for not exploring settlement because of children custody and caring issues was outstanding only appeared in his 11^th Affirmation but not in any of his letters of reply to the Calderbank Offers.

52.  In the case of EJB v. CJB [2011] 5 HKLRD 508 where Hon Hartmann JA (as he then was) said :

“As I understand it, the approach today is that, unless the parties are of the reasonable view that they do not have sufficient information available to them to enter into negotiations, they are under an obligation to explore settlement (my emphasis) and to do so in a constructive manner. Unless attempts are made to settle, potentially avoidable litigation becomes inevitable. In family litigation there are two almost inevitable results. First, ill will between the parties is heightened. If there are children of the marriage this can have profoundly deleterious consequences. Second, except in big money cases – and this was not a big money case – there will be a significant drain on the joint    matrimonial estate, both parties, directly or indirectly, being the losers.” 

53.  Given the peculiar circumstances as found by this Court (and undisputed by the parties) that both parties’ finances are independent, with income earned and assets accumulated separately and independently for some 6 years after separation, I believe there is no issue at any stage of the proceedings (my emphasis) as to whether they would have sufficient information available for them to enter into negotiations.  The Husband all along was legally represented would have been properly advised that assets acquired and liabilities incurred (if any) post-separation would fall outside the pool of family assets.  Having said, the proper question then to be asked is, whether the Husband would be prevented from exploring settlement because the alleged discovery or children custody and caring issues, which he now asserted as his explanation, not being completed or finalised ?  In my view, the answer must be “No”.  From a careful reading of the contents of the Husband’s letters of reply and considered objectively, I do not see he had ever explored or, to the very least, attempted to explore settlement without getting the Wife’s admission of the alleged loan of HK$1.60 million with interest.  At the end, the Husband completely lost on such issue.

54.  I find in favour of the Wife on Ground Two that the Calderbank Offers, which turn out matched with the “walk away” result in the Judgment but had not been accepted by the Husband, entitled the Wife to receive full costs of the ancillary reliefs. Since the Wife triggered the negotiation well before the filing of her Petition for divorce, I also find such costs to start from the commencement of the proceedings to the date of trial, subject to any finding of litigation conduct against the Wife for causing delay or increasing costs (see Z v. X & C, supra).  Although the Husband was entitled not to accept any of the Calderbank Offers by the Wife, the fact that can be clearly seen from the correspondence is that he had not made any genuine efforts to explore or attempted to explore settlement that was required of him (see EJB v. CJB, supra). 

Ground Three – The Wife’s litigation conduct

55.  Now I will deal with the alleged litigation conduct against the Wife, which was raised by the Husband that the Court should deprive the Wife for part of the costs.  

56.  The Husband’s contentions are categorised in paragraph 51 of his Counsel’s written submissions as :-

(a) Refusal to cooperate with the Single Joint Expert (“SJE”);

(b) Abandoned Challenges of the Report and the SJE;

(c) Over-zealous Pursuit of AMG’s Documents.  

57.  There was disagreement of the Wife as to the methodology adopted by the SJE for the valuation of the companies.  The Wife had also been unable to provide business forecast of her company to the SJE due to the small scale of her business.  However, in the absence of oral testimony from the SJE, it is not at all possible to make any finding that the Wife had been so determinative and uncooperative that it could be said to amount to litigation conduct.

58.  On 23 October 2014, the Wife issued a Summons for leave to obtain another valuation report notwithstanding that the SJE had already provided his Report.  The Husband now submitted that this was an attempt to challenge the SJE Report.  Such Summons was later abandoned for not being able to list it for a substantive hearing before the trial started.  The Wife’s another Summons for adjourning the trial was also dismissed by the Court but without any mention of the costs of the 23 October 2014 Summons.  

59.  In my view, there is no concession by the Wife that the 23 October 2014 Summons was abandoned because it was wrongly issued. The reason for abandonment was correctly stated by the Husband.  Having said, before the Summons was fully argued in Court, it is premature for the Husband to say such Summons was issued to stir things up or cause delay and increase costs.  There is always the possibility that another valuation report might be needed after the Summons was fully argued.  Moreover, to accept the evidence of the SJE without cross examining him or insisting to challenge the SJE Report would have served the purpose of savings time and costs.  The Wife should not be criticised for or penalised on costs for agreeing to the SJE’s evidence and Report even though this only came in at the later stage of the trial or could the Court then make any adverse inference that there was litigation conduct on the part of the Wife and to deprive part of her costs.

60.  The Wife was said to be oppressive in seeking voluminous amount of documents of AMG since 2009 who also sought a kind of ‘special audit’ upon the information produced by the Husband. The Husband believes she had tried to engage in an extensive fishing expedition regarding AMG’s documents.  In my view, in the absence of any finding that the Wife’s conduct being unwarranted or manifested with any ulterior motive, it is wrong to accept Husband’s perception and then to find there was litigation conduct on the part of the Wife and to deprive part of her costs.

61.  Given all the above, I find the Husband’s contention as to the Wife’s litigation conduct for depriving part of the costs not substantiated.

Other Observation

62.  I wish to add that with each of those “Without Prejudice Save as to Costs” letters between the parties now being revealed to this Court, I am minded to say that the position is quite to the contrary to what the Husband had said.  I believe there exists litigation conduct on the part of the Husband rather than of the Wife which had taken the entire ancillary reliefs to nowhere except a full blown trial.  As a losing party at the end, the Husband who had been legally advised throughout should only have himself to blame and should bear the costs consequences thereof.

63.  For all the above reasons, I now come to the conclusion that the Wife should receive the costs of the ancillary reliefs to start from commencement of these proceedings, including all costs reserved, to be taxed if not agreed.

64.  Given such a conclusion, I also decided that the Wife should have the costs of this application for review of the Costs Order Nisi, also to be taxed if not agreed, with Certificate for Counsel.

65.  The Costs Order Nisi dated 30 July 2016 is varied accordingly.

Certificate for Two Counsel

66.  Order 62/App/48 of the Hong Kong Civil Procedure 2016 sets out the different factors for the Court to consider whether to grant Certificate for two Counsel.

67.  Given further and detailed consideration to the entire case and the Wife’s submissions, I do not find there are sufficient grounds to justify the assistance of 2 Counsel.  

68.  Thus, I do not grant Certificate for Two Counsel for the ancillary reliefs trial.