WONG WAI WING v. MANG FAN LIN

HCMP 1498/2016

[2019] HKCFI 2309

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1498 OF 2016

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DECISION ON COSTS

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Introduction

1.  In my judgment of 8 July 2019 (“the Judgment”) I made the following costs order in paragraphs 201 – 202 (“Costs Order Nisi”):

“ 201. Neither party has emerged as victor in these proceedings. While this court does not necessarily agree entirely with [the defendant’s counsel’s] suggestion in the summing up of his closing submissions that the whole matter was a ‘farce’ (鬧劇), this court does have reservations and concerns about the way in which the divorce was instigated and conducted, and the veracity of some of the evidence of both parties.

202. In light of the above, save for any interlocutory cost orders already made which do stand, I make a costs order nisi pursuant to Order 42, rule 5B(6) that there be no order as to costs.”

2.  In the action, the plaintiff sought (i) to set aside a consent order made in FCMC 12013/2013 (“Divorce Proceedings”) on 31 March 2014 and (ii) a declaration that all gifts and money given and/or entrusted to the defendant by the plaintiff do stand to his credit and be considered as his assets for the consideration of financial relief in the Divorce Proceedings.  The gifts include two properties in Shenzhen and Hong Kong respectively.  The defendant made a counter-claim of HK$393,000.  Details of the relief sought by the plaintiff and the defendant’s counter-claim are set out in the Judgment. 

3.  The nomenclatures in the Judgment are adopted for this decision.

4.  In the Judgment, I ordered that (i) the Consent Order be set aside; (ii) the Shenzhen Property and the Coronation Property, and all related payments and expenses paid by the plaintiff do stand to his credit and be considered as his assets for the consideration of financial relief in the Divorce Proceedings; and (iii) the defendant’s counter-claim be dismissed.

5.  By a summons issued on 11 July 2019, the plaintiff seeks a variation of the Costs Order Nisi so that the plaintiff be given (i) costs of his claim in the action; and (ii) costs of his defence to the defendant’s counter-claim (“Plaintiff’s Summons”).   

6.  I directed that the Plaintiff’s Summons be disposed of by written submissions. Both Mr Chong and Mr Chow, counsel for the plaintiff and defendant respectively, filed their written submissions on which this decision is based.    

Legal principles on costs

7.  There is no dispute between the parties about the principles that govern the exercise of the court’s discretion in awarding costs.  

8.  Four principles governing the award of costs were set out in Re Elgindata Ltd (No 2) [1993] 1 All ER 232, [1992] 1 WLR 1207, and elaborated in the editorial note to Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd(No 4) [2005] 4 HKC 162 at 163I – 164C, namely: (i) costs are in the discretion of the court (Order 62, rule 2(4), Rules of the High Court (“RHC”)); (ii) they should follow the event, except where it appears to the court that in the circumstances of the case some other order should be made (Order 62, rule 3(2), RHC); (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; and (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 (Order 62, rule 7(1), RHC).

9.  The principles are well established and continue to apply in Hong Kong notwithstanding the amendments to the rules of procedure under the Civil Justice Reform (see Kam Leung Sui Kwan, Personal Representative of the Estate of Kam Kwan Sing, deceased v Kam Kwan Lai& Others (FACV 4/2015, 3 February 2016, paragraph 8)).   

10.  The starting point is that a successful party is prima facie entitled to the full costs of the action.  The burden is on the losing party to show that there is good reason to depart from the general rule.  The exercise is a matter of discretion and it would be wrong to read Elgindata as laying down that as a rule.  The court has to exercise its discretion to achieve a just result having regard to the circumstances of the case [1].

11.  In exercising its discretion, the court shall take into account the conduct of all the parties which 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 (Order 62, rule 5(1)(e), (2)).

12.  The discretion must be exercised judicially with relevant grounds which must be connected with the case.  This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further (see Scherer& Another v Counting Instruments Ltd & Another [1986] 1 WLR 615 at 621E–F; Town Planning Board v Society for Protection of the Harbour Ltd(No 2) (2004) 7 HKCFAR 114 at para 18).    

13.  Also relevant is the credibility of the witnesses:

“ The credibility of the witnesses and the conduct of the parties in regard to the case they allege and seek to prove is a relevant matter for a judge to take into account in dealing with costs. Any comparison to be made of the conduct or misconduct of the parties on each side is a matter for the Judge, and he is entitled to weigh one against the other. If he finds one party has behaved particularly badly, although in the end successful in his claim, that is a matter which he can take into account, even though the conduct of the other party might appear to be equally or almost culpable”

(Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679 at 703 per Kwan JA (as she then was) at paragraph 104(4)).

Analysis

14.  The conduct and the credibility of the parties in this action are relevant to the exercise of discretion by this court. 

15.  The dispute between the parties emanated from a sham divorce which was dealt with extensively in the Judgment.  In short, the evidence given by the parties at the trial suggested that both the plaintiff and the defendant feigned the divorce with a view to appeasing the plaintiff’s children who disapproved the parties’ fast developed relationship and subsequent marriage.  The objective of the sham divorce was to enable the plaintiff to recover assets which he had transferred to his children.    

16.  Whoever instigated the sham divorce, the other party actively colluded and participated in it.  This included the execution of the Divorce Agreement, the Supplemental Agreement, the Maintenance Agreement, and the Consent to Divorce.

17.  The defendant lied about the date from which she and the plaintiff had separated in her declaration in support of the divorce petition (see para 189 of the Judgment).  In his written submissions, Mr Chong argued that it was the defendant, as the petitioner, who ‘engineered’ the factual basis of the petition and the plaintiff should not be blamed for the falsity of the factual assertion in the divorce petition.  With respect, I disagree with him. The plaintiff confirmed in the Consent to Divorce, inter alia, that he did not intend to defend the divorce, having seen the divorce petition and the supporting declaration, which would have put him on notice of the falsity of the date of separation.  He would of course have known personally the date was false in any event.   

18.  Mr Chong also argued that the conduct of the parties in the defendant’s divorce petition were not “matters relating to the present litigation”; alternatively, the plaintiff’s conduct (which was passive in the divorce petition) was not “conduct in it (i.e.the present litigation)”.  Again, I disagree with him.  The defendant’s divorce petition was so intertwined with the subject matter and issues of the litigation.  It was the last step and implementation of the parties’ planned sham divorce to achieve its objective.  The plaintiff said when giving evidence that he had not realized the defendant was taking the sham divorce seriously until the call over hearing of the petition.  This led to the commencement of the action by him.

19.  While the plaintiff succeeded in his claim in respect of the Shenzhen Property and the Coronation Property on the basis of unconscionable bargain on the part of the defendant, I disagree with Mr Chong’s submissions that the plaintiff succeeded in both undue influence and unconscionable bargain.  This court disallowed the plaintiff’s claim for the monetary payments and gifts to the defendant on the basis that there was no evidence to suggest his will was overborne that it was not independent and voluntary such that he was unduly influenced when paying money and making gifts to the defendant.  In fact, it was the plaintiff’s evidence that he was happy to give money to the defendant and buy her gifts without questioning as he trusted her, that he was not a petty but a generous person, and he treated her as a family member even before their marriage.  (See paras 160 and 170 of the Judgment.)

20.  There are other examples in the Judgment of the plaintiff not unduly influenced by the defendant.  Among others, he made a conscious decision to avoid the defendant and disappeared for 10 months because of the conflicts between his elder daughter and the defendant.  This led to the defendant’s frantic search for him.  He also transferred assets to his children, withdrew money from his and the defendant’s joint account, commenced proceedings seeking declaratory relief against the defendant in respect of the Coronation Property (see paras 166, 169 and 180 of the Judgment).

21.  The credibility of the parties and the veracity of their evidence were also called into question.  Neither the plaintiff nor the defendant was totally honest when giving evidence.  During their cross examination, both the plaintiff and defendant challenged the authenticity of certain contemporaneous reports and notes made by independent third parties (medical personnel and social worker) who were professionals and had no interest in the dispute between them, apparently because the reports and notes contradicted their evidence (see paras 77 and 87).  Further, this court had to warn both parties of the risk of self-incrimination during their cross examination.  Both declined to answer further questions upon being given the warning.

22.  This court does not consider that issue-based costs order is appropriate in this case.  The dispute essentially stemmed from the deterioration of the parties’ relationship from being total strangers when they first met on a coach to mainland China in October 2010 to lovers within weeks of their chance encounter, and husband and wife in April 2012, which ended in their divorce in March 2014 (although only a decree nisi had been granted before the trial).  There were ups and downs in their relationship, and the problems in their relationship were largely due to the plaintiff’s children whose disapproval of the parties’ relationship and marriage led to the sham divorce, the catalyst of the action.

23.  The many problems that arose during their relationship and the issues on which this court had to adjudicate were so closely related and intertwined that taking a global and holistic view in exercising its discretion on the question of costs would more fairly reflect the realities of the case and be more appropriate.

24.  This court found that the transactions in relation to the Shenzhen Property and the Coronation Property were marred by moral culpability and impropriety on the part of the defendant which made them unconscionable bargains.

25.  The plaintiff paid RMB 3.38 million for the Shenzhen Property in November 2010 and also other expenses for, inter alia, decoration, stamp duties, agency fees.

26.  According to Annexure 1 to Mr Chong’s closing submissions, the plaintiff expended a total amount of about HK$5.06 million on the Shenzhen Property.  He paid HK$6.388 million for the Coronation Property in January 2012.

27.  Annexures 1 and 2 to Mr Chong’s closing submissions showed that the total amount of monetary payments and gifts given by the plaintiff to the defendant, disputed and undisputed, from 26 November 2010 to 9 March 2014 was approximately HK$12 million.  The aggregate amount of the plaintiff’s spend on the Shenzhen Property and the Coronation Property was about HK$11.45 million.

28.  As I ordered that the Shenzhen Property and the Coronation Property and all expenses relating to the two properties do stand to the credit of the plaintiff and be considered his assets for the consideration of financial relief in the Divorce Proceedings, he recovered approximately 95% (HK$11.45 million ⁄ HK$12 million) of what he had claimed in the action.  However, for the reasons in the following paragraphs, of the HK$11.45 million, it is likely that his share, when the Family Court considers the financial relief in the Divorce Proceedings, would be halved, namely HK$5.725 million.

29.  Mr Chong, in paragraph 50 of his Opening, submitted that since 2010, prima facie, the Family Court is required to conduct a ‘7-step approach’ under section 7 of the Matrimonial Proceedings and Property Ordinance (Cap 192) (“MPPO”) when considering the parties’ financial relief.  He submitted that the starting point was 50/50 on the basis of White v White [2001] 1 AC 596.  He referred to a number of authorities in support of his proposition.  He further submitted in paragraph 51 that “the very fact that [the defendant] has chosen to defend the [plaintiff’s] claim is self-evidence of [the defendant’s] lack of confidence in recovering the prima facie 50% of the value of the asset as claimed by [the plaintiff] (in the proceedings herein) should there be assessment of financial relief by the Family Court in due course” [sic].    

30.  In light of Mr Chong’s own submissions, the statutory provisions and the authorities relied upon by him, I do not believe Mr Chong would challenge the defendant’s prima facie entitlement to “equality of division” under White v White and section 7(1) of MPPO in respect of the Shenzhen Property and the Coronation Property.  That being the case, the plaintiff effectively recovered approximately 48% of his claim (HK$5.725 million ⁄ HK$12 million).

31.  In fact, given the application of section 7 of MPPO and the adoption of the principles of ‘equality of distribution’ in White v White by the Family Court in Hong Kong when determining the distribution of marital assets which Mr Chong refers to in his Opening, it begs the question whether, despite the defendant being the registered owner  of the  Shenzhen Property and the Coronation Property, it was indeed necessary for the plaintiff to commence the current proceedings for the relief sought.  The parties’ evidence in almost every facet of their relationship is diametrically opposed.  This includes why the Shenzhen Property and the Coronation Property were registered in the defendant’s name.  (See paras 5, 63 – 65, and 68 – 69 of the Judgment.)

32.  The conduct and credibility of the parties are relevant to the court’s exercise of its discretion on the question of costs (see paragraphs 11 – 13 above).  As mentioned above and addressed in details in the Judgment, the plaintiff and the defendant orchestrated a sham divorce with the ulterior motive of appeasing the plaintiff’s children so that the plaintiff could recover assets which he had transferred to them.  They entered into a number of self-serving agreements and undertakings, and subsequently the Maintenance Agreement which formed part of the Consent Order.  The defendant made a false declaration in support of the divorce petition which contained a false date from which the parties had separated.  The plaintiff effectively participated in it by indicating in the Consent to Divorce that he did not intend to defend the divorce.  The parties therefore knowingly filed a document with the Family Court which they both knew contained false information.  Other examples of the parties’ conduct and credibility were dealt with in details in the Judgment. 

33.  This court, when comparing the conduct or misconduct of the parties, is entitled to weigh one against the other.  If this court finds one party has behaved badly, even though he is successful in his claim, his conduct can be taken into account even though the conduct of the other party might appear to be equally or almost culpable [2].

34.  It would be a futile exercise to evaluate the proportion of blame to the parties for their conduct.  Given the parties’ collusion in the sham divorce and their participation in its implementation, they should be equally responsible.

Disposition

35.  The action was a direct result of the sham divorce going wrong as, according to the plaintiff, he only knew at the call over hearing of the divorce petition that the defendant wanted to enforce the Maintenance Agreement despite what was said in the Divorce Agreement and the Supplemental Agreement and realized that it was a set up.  Both agreements were self-serving and they described the divorce as temporary for special reasons.  (See paras 44, 45, 85, 187 and 188 of the Judgment.)

36.  Having considered all the circumstances, including matters relating to the litigation and the parties’ conduct in it, and the circumstances leading to the litigation, the relevant Rules of the High Court (including in particular RHC Order 62, rule 5(1)(e), (2)) and authorities, and the submissions from both parties, I make an order that there be no order as to costs of the plaintiff’s claim in the action.

37.  As for the costs of the plaintiff’s defence to the defendant’s counter-claim, I am persuaded by Mr Chong’s submissions that the plaintiff’s claim and the defendant’s counter-claim were two different actions involving different issues.  In the Judgement, I dismissed the defendant’s counter-claim on the basis that it was devoid of any merits.  I make an order that the defendant is to pay the plaintiff’s costs of his defence to the defendant’s counter-claim.   

38.  As the plaintiff has failed to vary the Costs Order Nisi in respect of the costs of his claim in the action but succeeded in recovering the costs of his defence to the defendant’s counter-claim, he is entitled to be paid 50% of the costs of the Plaintiff’s Summons by the defendant, and I so order.