LGA nee P v. LKKD

FCMC 13921 / 2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 13921 OF 2010

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R U L I N G
(on costs)

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Introduction

1. I now have to rule on the costs of these ancillary relief proceedings in which the parties joint bills exceed the lump sum of GBP900,000 which I awarded the wife.  Whilst it is well-settled that, even in matrimonial ancillary relief proceedings, costs will follow the event this is a starting point that is liable to be displaced by a variety features peculiar to the particular case. 

2. This is a jurisdiction which encourages and rewards efforts by the parties to reach early settlement.  It draws in the need for full and frank disclosure as an on-going obligation and, the duty to make sensible offers and counter-offers. Having done so the parties can protect themselves as to costs by making Calderbank offers, the efficacy of which can then be considered in the light of the judgment.  Even then, when the judge, as I have to now, decides on costs he is still required to have serious regard to the incidence of costs on the order that he has made, particularly where a costs order is likely to affect the interests of any children of the family.  This is such a case.

The basis of the order on the ancillary relief application

3. What I am about to say is no substitute for a full reading of my judgment.  In this very short marriage the application was dominated by the particular needs of the parties young children.  The object of the judgment was to arrive at a figure for a lump sum payment which would provide a suitable home for the wife, in a short marriage of 18 months, and for the parties two sons.  The property that could be purchased had to be reasonable and adequate for this sort of family and have very real regard to what the husband, who is the payer, could afford.  In the event, GBP900,000 seemed to be just about right, also having regard to the fact that the wife owns a GBP600,000 flat of her own in Regents Park.  In addition, I made what I considered reasonable maintenance provision for the wife and the children, taking into account the husband/father’s expensive undertaking as to the payment of their private education.

4. In arriving at an order for costs, if I were minded to accept Miss Rattigan’s submissions on the husband’s behalf, which would require the wife to bear a significant burden of her own costs from the lump sum payment I would need to assess and take into account how such an order would impact on the wife’s and the children’s housing requirements and whether such an order would materially diminish what I had hoped to achieve for them in terms of location, size and general amenity.  Equally, but perhaps to a lesser extent, I will need to see what effect a proposed costs order will have on the husband’s finances and general way of life, although he is far less vulnerable than the wife and the children, whose care and control she has.

The general course of the litigation

5. The husband has been subjected to much criticism in respect of his attitude to R’s medical condition as to which he has been less overtly anxious and hands-on than the wife.  This said, he has always recognised that R has his problems with ADHD which are at times very disturbing but he takes the view that a less fussy and intense approach might be more effective.  In part he blames the wife for exacerbating the problem by drawing too much attention to it.  She has consulted widely and R has seen a number of professional people.  In Hong Kong he has also had a shadow teacher and a specialist nanny at home.  Although this should not bear directly on the costs of the ancillary relief application, the fact of the matter is that the mother has spent a great deal of time and money in trying to do what is best for R.  Apart from heightening the discord between the parties, this has also served to increase legal and medical costs which have now found their way into the solicitors bills upon which I must now rule.

6. But what has done most harm is the contest on discovery.  I have said this elsewhere in this case, which is that the wife and her solicitors had persuaded themselves that the husband, being a member of a wealthy extended family, must have an awful lot of money somewhere, which he was hiding and which they were determined to winkle out.  This in itself is bad enough but, as the litigation progressed the hostility between the parties and unfortunately, their respective solicitors increased.  The reason put forward for this part of the costs bill is that because the husband was not forthcoming it has to be accepted that the wife’s solicitors were duty-bound to keep returning for yet more disclosure.  This pressure did have the effect of producing a number of undisclosed bank accounts, although what was in them did not in the event change the landscape.  The final test as to whether this pressure was justified must be the ultimate result of the disclosure.  By the time that I had come to write my judgment I was satisfied that disclosure was sufficient although, Mrs Irving’s response to this is that, if it was sufficient this was because of the pressure that had been and, had to be applied to produce it.

7. The other feature which has poisoned the atmosphere is that the wife had decided that the man she had married was far wealthier than he was prepared to say. This had two consequences.  Firstly, it caused an expensive battle on discovery as her solicitors sought to expose a wealth which, in the end, on my finding was simply not there.  And secondly, this underpinned the wife’s case on her and the children’s needs without any regard to the realities of the case.  Her expectations as to what might be an appropriate award were based on a case which did not exist.  Her expectations were based on wealth that was never there and, completely ignored the unreal basis of the parties way of life in Hong Kong which was largely funded by drawing down on capital. 

8. As a result, costs were expended on both sides, the wife pushing for yet more discovery and, as I found, for an unrealistic award which had no regard to the husband’s true financial position and, notwithstanding the importance of doing what was right for R and O in London, simply ignored the fact that this had been a very short marriage.

9. This created mutual hostility, with the husband having to fund both ends of the litigation.  He was paying for his and her legal costs.

10. In this regard I would like to say something of general application about costs in ancillary relief proceedings where, in recent years, there has been an alarming rise in costs, and all of this despite the advent of FDR and Mediation, all of which, it seems to me, have at times become pegs upon which additional legal bills are hung.

11. In cases such as this, where the wife has insufficient independent means to pay for her own legal representation and the husband is perceived as having an ability to pay for his own costs and her’s, the court will usually order, often by way of maintenance pending suit, an element for the wife’s legal costs. Whilst I do not suggest that a wife’s solicitors should skimp on the quality of their representation and prosecution of it, in most cases it will be a wife’s case, it seems to me that it behoves those legal representatives to be alert to the fact that ultimately a price will have to be paid by both parties.  Frequently, there is a perception that the husband will be ordered to pay the wife’s costs whatever the outcome of the application and the order made against him be it, for example, a lump sum payment and/or a transfer of property orders, with or without periodical payments and in addition all the costs, because otherwise, not to pay the wife’s costs or most of them would de-rail what the judge will have sought to achieve for her and any relevant children of the family.  Whilst judges, especially in cases where, as in this case, the interests of young children are involved, will be very reluctant to undermine what has been put in place for the wife and particularly for the children, by an adverse costs order against her, there must come a point where any element of excess capital capacity in an order, which might be there for the benefit of the wife, may have to be trimmed or even completely eliminated by virtue of a costs order which results in her having to bear a proportion of her own costs.

12. And so, provided a husband has conducted his case reasonably and overall, is seen to have done better than the wife’s demands in the application there must be a very real risk that she will be required to, at the very least, bear a proportion of her own costs which will to that extent diminish the capital award made to her by the court.  In a big money case, and this is not such a case, that may not materially affect the outcome for the wife where the capital award would easily absorb the effect of any adverse costs order but, in a case such as this, where the matter has been far more finely-tuned by the judge in making his award, an adverse costs order is bound to be felt by her, its extent depending on how adverse to her that order is.  

13. What I am saying therefore is that there can be no carte-blanche in running up costs on the husband’s tab and there can be no immunity from costs for the wife who has behaved unreasonably in her demands, be they for discovery and/or for the award of capital, property and maintenance.  I desire to say all of this because this husband’s case on costs is precisely that.  Miss Rattigan submits that he has been subjected to unconscionable demands in terms of pre-trial, and indeed post-trial and post-judgment disclosure and for quite unrealistic amounts in terms of a lump sum payment as well as for periodical payments. 

14. My observations therefore, in the preceding three paragraphs, whilst of general application, are also of particular relevance in this case. 

The parties respective costs applications

15. In keeping with the rythmn of this case the parties are very far apart.  The wife, who has fallen very well short of what, for much of this case, she had been looking for still feels able to ask for all of her costs including in respect of one or two costs orders that have already been decided, to be taxed on an indemnity basis.  The husband, apart from seeking orders for costs on a few particular interlocutory applications, accepts that on an overall basis he can do no better than an order of no order for costs which, as I have already drawn attention to, will almost certainly undo quite a lot of what I had hoped to achieve for the wife and the two children.

The Law on costs in ancillary relief

16. The cases show that because of the nature of family proceedings such as these the court has a wide discretion on costs.  One starts from the principle the costs follow the event, as explained by the English Court of Appeal in Re Elgindata Ltd (No.2) [1992] 1 WLR 1207, but this starting point can be displaced more easily than in ordinary civil litigation.  The leading case in this area of the law remains the English Court of Appeals’ decision in Gojkovic v Gojkovic (No. 2) [1991] 2 FLR 233.  A useful starting point is para. 1 of the headnote to the report which serves to emphasise the importance of Calderbank offers in the context of parties being required to show a willingness to make offers and counter-offers designed to arrive at a sensible and hopefully, early settlement of their differences. 

(1)   The court had a wide discretion in the apportionment of costs, particularly in domestic proceedings.  Nevertheless, the starting point where a Calderbank offer or an open offer was made was that, prima facie, if the applicant received no more or less than the offer made, he/she was 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.  The same principle applied where the party making the offer failed to meet the award made by the court, so that in that case, prima facie, costs followed the event.

This was picked up in the judgment of Butler-Sloss LJ (as she then was) at page 236.  It is helpful to remind oneself of this part of her judgment:

   What are the principles governing costs in applications for financial relief in the Family Division and, in particular, in cases where open offers and Calderbank offers are made?  In particular, what is the starting-pont of entitlement to costs?

   The general principles as to entitlement to costs in civil litigation are to be found in RSC Ord. 62.  Order 62, r. 3(3) states:

‘If the court in the exercise of its discretion sees fit to make any order as to the costs of any proceedings, the court shall 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.’

Rule 3(5) states:

‘Paragraph (3) does not apply to proceedings in the Family Division.’

   However, in the Family Division 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, In applications for financial relief, the applicant (usually the wife) has to make the application in order to obtain an order.  If the financial dispute can be resolved, it is usual, and normally in the interests of both parties, that the applicant should 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 the court’s discretion in making a decision as to who pays the costs.

The importance and therefore the effectiveness of Calderbank offers were highlighted at page 238-239 of the judgment:

   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 RSC Ord. 62, r. 9 (and the equivalent CCR Ord. 11, r. 10) 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 the 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 matte 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 (above at p. 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 Rules of 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.

These passages reflect how the discretion, which is a wide one is to be exercised.  Although I have also been referred to other decided cases it is this general approach which must govern my task as I apply the particular circumstances of this case to that approach.

Matters to put to one side

17. When the time comes to tax these costs it will be important to be clear about what orders are already in place which will not and cannot be affected by this ruling.  In this regard I am grateful to Miss Rattigan and her instructing solicitors for having identified them.  There are 8 orders, made by Judge Melloy, where the order was “no orders as to costs”.  I do not propose to set them out again here, suffice it to say these order are listed at pages 2 and 3 of the respondent’s submission on costs dated the 5^th April 2013. In addition at page 3, there are 2 orders in April and May 2012 following which the wife had to pay the husband’s costs.  So these 10 orders are not before me.

18. It is also convenient for me to deal with two hearings concerning applications by the wife to suspend the husband’s access or alternatively, to have it supervised.  Miss Rattigan submits that this summons culminated in a judgment by Judge Melloy dated the 24^th September 2012 after which she made no order as to costs.  The summons is dated the 12^th January 2012 in which there were two interlocutory hearings after which the judge reserved costs on each occasion.  These reserved costs remain to be dealt with and Miss Rattigan submits that, almost by necessary implication, given the ‘no orders as to costs’ on the conclusion of this summons, the reserved costs orders should go with that order.  This must be the correct analysis and so on these two hearings of the 2^nd February and the 20^th June 2012 I will also order ‘no order as to costs’.  And so, one can see already that the wife is having to bear a certain amount of her own costs as well as a total of $13,900 of the husband’s costs in addition to her own costs on the hearings of the 2^nd April 2012 and the 9^th May 2012 (see P. 14/4410-2 and P. 14/4424-4425) to which I have already made reference.

19. Then there are no less than 18 hearings where costs were reserved, 15 by Judge Melloy and 3 by myself.  May I say that the trouble with orders of ‘costs reserved’ which, as in this case, can go back many months and often years is that these can either be completely forgotten about or, at best, the merits of the particular occasion when the costs were reserved will no longer be readily apparent either to the judge who made the order and is now having to decide what to do about the particular order or, worse still, as in this case, by another judge. In this matter, 8 of these orders were made in 2011.  May I say that if an order reserving costs is made, serious consideration should be given to restricting its final resolution to the event to which the particular application is made such as a final hearing and disposal of the particular summons which initiated that proceeding, rather than leaving over the order reserving costs to await the end of the main ancillary relief application.  In most cases where costs have been reserved an order of costs in the cause of the particular summons or, in the main ancillary relief application will usually be more appropriate.  Reserving costs is really only particularly apt on ex-parte or other hearings where the judge wants to wait and see what the outcome will be on the inter partes or subsequent immediately following hearing.  Other instances are where applications are required to come before the court such as a First Appointment for example, and the matter then proceeds to the next stage there will be no need to reserve costs unless someone has been at fault, or perhaps not appeared and the judge wants to see what happens on the next occasion.  More usually, on such occasions where directions are given and the matter proceeds to the next stage, an order of costs in the cause will be more appropriate and those costs will be dealt with at the end of the case without having to remember back to the occasion when costs were reserved and having to remember why it was that they were reserved.

20. In this case I must now re-visit 15 orders of costs reserved which I did not make and decide what I should do about them.

21. As to the orders made in 2011, starting with the First Appointment on the 29^th March 2011 and ending on the 10^th November 2011, I take the view that the appropriate order is one of costs in the cause on each occasion with the result that the total of the amounts of costs expended on these hearings will now roll over and be part of the final order for costs on the ancillary relief application.  There will be one exception to this which is the children-related hearing of the 17^th August 2011 which came on as a result of the husband having bricked-up the dividing wall between the parties two flats in Stanley.  Although Miss Rattigan submits that ‘no order as to costs’ is correct, I do not think that this is an appropriate outcome.  It seems to me that it was asking for trouble to have bricked-up the wall without telling the wife and, whilst she was overseas.  It is this which caused the hearing to take place and I have decided that on this hearing the wife must have her costs to be taxed on the party and party basis.

22. There are also hearings on the 7^th and 10^th November 2011 in which I have decided that the appropriate orders are costs in the cause.  Miss Rattigan has submitted that as to these hearings where the wife failed to get what she was applying for she should pay the husband’s costs.  At the moment I am merely disposing of the ‘costs reserved’ orders which, as to these two hearings, I have directed to be costs in the cause.  In arriving at the final order for costs I still retain the jurisdiction to deal with these hearings on their merits, which I propose to do in due course.

23. I now come to the orders of ‘costs reserved’ in 2012, starting on the 13^th January and ending with the order of the 29^th November 2012.

24. The hearings on the 13^th January, 17^th January and 2^nd February all dealt with the wife’s unsuccessful attempt to increase her maintenance pending suit.  In this regard I have seen Judge Melloy’s judgment which was very critical of the wife’s application.  With very great respect, I cannot see why an order for costs could not have been made between the parties then, on the 2^nd February, rather than reserving them.  It strikes me that the costs of this unsuccessful and criticised application should be to the husband to be taxed on a party and party basis.

25. I now turn to the orders made by me in 2012.  There were three occasions where costs were reserved.  Miss Rattigan has submitted that costs orders more favourable to the husband should now be made.  For my part, on reflection, I feel that I was mistaken in reserving costs.  There was no reason to reserve these, either some order between the parties could have been made at the time or otherwise an order of costs in the cause.

26. As to the 9^th November, the wife was only partly successful on her application for discovery.  Miss Rattigan says this should be met with an order of ‘no order as to costs’.  Each party should bear their own costs. Re-visiting this now, it seems to me that where the wife did get something out of the summons which she would not otherwise have got and, the husband had successfully resisted a considerable amount of what was being asked for, that honours can be said to have been shared.  I am therefore persuaded to say that there should be no order as to costs.

27. As to the directions for the sale of Arbuthnot House, I take a view which differs from that of Miss Rattigan.  This was one of those applications which needed to be made and the court was then able to progress the matter which facilitated the eventual sale of this property.  There was no clear winner and the order at the time should have been costs in the cause, which I now make.

28. As to the ruling on the 4^th December.  I have re-read my judgment on this and whilst I needed to make a costs order so far as F.S. Li and Co. was concerned, I left over the costs between the parties on that subpoena.  The trial had already started and so as between the parties I am prepared to say that although this interlude in the course of the trial took sometime, it did not materially affect the length of the trial.  In such circumstances I will say that these costs between the parties are to be part of the costs of the trial and no separate costs order needs to be made.

29. This therefore disposes of the various reserved costs orders.  The majority, as I have already ruled, I have ‘converted’ to costs in the cause on their merits and I will now turn to the costs of the trial of the  ancillary relief application of which the hearings which have now resulted in orders of costs in the cause are a part of. 

The costs of the ancillary relief application

30. Whilst the detail of the process of litigation is very important and it is this which goes to make up the overall picture, it seems to me important to stand back and ask the question ‘who has done better?’.  In this case there is no clear-cut winner, if that is an expression that should be used in a case where the court was not only trying to be fair to the parties themselves but also to their two young sons.  Nevertheless, having posed this question for myself I propose to answer it and, it seems to me that the husband has done rather better than the wife.  Whilst he was somewhat ungenerous, in my view, on capital by suggesting that she should take what was offered and go and live in Purley near her mother, he was prepared to be more generous on maintenance than the court ultimately ordered.  The overall impression of this case, I am afraid to say, is of the wife, very well supported by her solicitors, trying to squeeze as much out of  the husband as possible.  Whilst it might be said that this is what most litigants do in every case, this particular application has been driven to completely unrealistic boundaries to the extent that on occasions, as I read and then heard the evidence in court, I considered that greed pure and simple was the main driving force.  That is a harsh assessment of the wife and mother who has displayed great pluck, courage, love and understanding for her children’s needs specially towards R but, when it came to translating her needs as she saw them into money, the case turned into a campaign to take the husband for everything that he had.  I found her initial demands unattractive.  It was only when the case came to its conclusion that those demands, certainly on capital, were trimmed to something that was understandable and far better judged.

31. Much has been made of the husband not being prepared to make sensible offers but, given the level of animosity generated by almost every aspect of the litigation, it is hardly surprising that the necessary atmosphere and good-will conducive to an early settlement was not there.

32. In the event offers came late but it is quite unrealistic to just concentrate on late offers and counter-offers without looking at the overall hostile and aggressive conduct of the wife in prosecuting her application.  I think this is one of those cases where the husband can be largely excused for his failure to make earlier offers.  The only regrettable thing was that he failed to appreciate that it was going to be totally insufficient to suggest that the wife and children should house themselves in a 4-bedroom semi in Purley with no adequate research being made for the right school for R.  On this aspect the husband is on weak ground.

What is the right order and why

33. Even now the wife says she should have all her costs taxed on an indemnity basis, this when she has been awarded far less than she was pushing for until very late in the case, only when Mrs Irving got to her feet to make her final speech.  In terms of pure merits having regard to the outcome the best that I believe she would be entitled to is to bear all of her own costs – therefore no order as to costs.  But I am afraid that such an order would completely undo what I have now put in place for the children and in consequence for the wife herself.  Her costs are so substantial that most of the lump sum would go if she had to pay for her own costs and such a result cannot be right.  As it is, she is having to already bear some of her costs from interlocutory orders and an element for costs ordered against her.

34. In this regard I wish to return to the hearings of the 7^th and 10^th November 2011 which are now before me as previously reserved costs orders but now made costs in the cause by me.  These orders stemmed from what had been an application for a Mareva-type injunction.  The outcome was compromised but the final outcome represented a very considerable climb-down by the wife following strong comment from Judge Melloy as to her prospects of success.  It seems to me that the costs of this particular application should lie where they have fallen.  This may seems to be harsh on the husband who was prepared to be sensible and to offer undertakings as to giving notice but another way of viewing this is to say that this was one of those occasions when the court had to be seized of this matter so as to assist the parties to come to a compromise.  I say this notwithstanding the wife’s aggressive and high-handed way of bringing the matter before the court.

35. This therefore removes the last of the discrete matters arising from the initially reserved costs orders.  The remainder and bulk of the costs must now to be dealt with. 

36. I have decided that the only way to safeguard the children’s position is to order the husband to pay the great majority of the wife’s costs.  I do not think for one moment that this is a just outcome as between the parties themselves but I must preserve the lump sum, I hope in its entirety.  The husband will pay 78% of the wife’s costs.  Such an order will almost inevitably result in the wife having to sell Regents Park unless she can find funds elsewhere to pay for her 22% and in addition the costs which she is separately having to bear as ‘no order for costs’ and those other orders where I had ordered her to pay the husbands costs.

37. The taxation will be party and party.  This is not a case for an indemnity taxation.  The husband’s overall behaviour in this litigation has been perfectly acceptable.  The husband must, of course receive credit for the amount of costs that he has already paid to the wife by means of the $75,000 a month contributions that he was ordered to make.

38. I am afraid that I have set the solicitors quite a task to perform.  They must now separate out the orders of ‘no order for costs’ and the orders where I have ordered costs against the husband or against the wife on discrete occasions and what is left will be governed by the main order that the husband will pay 78% of the wife’s costs.  If the husband feels hard done by on this proportion frankly, I do not blame him but he must understand that I need to preserve my principal objective which is to house the children and their mother in these circumstances.  This is a proportion that I believe will make that possible notwithstanding  that it will take up a majority of the husband’s remaining free capital.  These are the consequences I am afraid of a most unhappy piece of litigation and serves to underline what I have said in paragraphs 10 and 11 above.  The husband has been very badly served by a process which strives to fair be to both parties.