YSG(YX) v. LYAG

CAMP 442/2022 & 554/2022 (Heard Together), [2023] HKCA 1319

On Appeal From [2022] HKFC 199 and 202

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NOs. 442 & 554 OF 2022

(ON AN INTENDED APPEAL FROM FCMC NO. 15288 OF 2015)

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REASONS FOR JUDGMENT

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Hon Cheung JA (delivering the Reasons for Judgment of the Court) :

I.  Introduction

1.  On 12 October 2022 Deputy District Judge Barnes gave judgment on an ancillary relief proceeding by awarding the petitioner (‘Wife’) 50% of the parties’ total matrimonial assets of HK$248,193,224 (‘AR Judgment’). Five applications arose out of this judgment :

CAMP 442/2022

1)  The summons of the Wife’ dated 25 October 2022 applying for: (1) leave to appeal against the AR Judgment and (2) a stay of certain orders pursuant to the AR Judgment pending appeal (‘Wife’s Leave to Appeal (AR) Summons’). The Judge had previously refused this application.

2)  The two summonses of the Wife dated 25 October 2022 and 2 November 2022 respectively applying to adduce fresh evidence on the intended appeal against the AR Judgment (collectively ‘Wife’s Fresh Evidence Summonses’);

3)  The summons of the Wife dated 29 December 2022 applying for leave to appeal against the Judge’s costs order dated on 12 October 2022 (‘Costs Order’) (‘Wife’s Leave to Appeal (Costs) Summons’);

CAMP 554/2022

4)  The summons of the respondent (‘Husband’) dated 29 December 2022 applying for leave to appeal against the Costs Order (‘Husband’s Leave to Appeal (Costs) Summons’).

2.  We dismissed all the applications at the conclusion of the hearing. We now give our reasons.

II.  The AR Judgment and Costs Order

1)  Background

3.  The Husband and the Wife were married in Singapore in November 2000. They have two children, ‘N’ and ‘C’ respectively. At the time of the trial, N was undertaking national service in Singapore, whereas C was completing year 10 in an international school in Hong Kong. The parties separated in August 2014. Divorce proceedings were initiated by the Husband in August 2014 on unreasonable behaviour grounds. The divorce was contested by the Wife. Eventually, the parties consented to a divorce on a fresh petition presented by the Wife on the ground of one year’s separation. The decree nisi was pronounced in March 2016.

4.  Since then, in the course of several years, the parties litigated on issues of custody and access concerning the children. The matters were only concluded with a judgment given on 13 August 2019. In February 2022, the ancillary relief dispute came on for trial before the Judge. It lasted for 11 days concluding on 25 April 2022.

2)  The findings

5.  By the AR Judgment, the Judge, applying the 5‑step approach in LKW v DD (2010) 13 HKCFAR 537, made the following findings and determination :

i)  Step 1: assessed the matrimonial pot of assets to be worth HK$248,193,224 which consists of 1) net joint assets (K Property, C Property and bank accounts of HK$126,633,194; 2) Wife’s net assets of HK$7,054,174 and; 3) Husband’s net assets of HK$114,505,481 ([125]);

ii)  Step 2: assessed the Wife’s needs at a monthly figure of HK$200,000 ([161]) and the needs of the two children of the marrige to be HK$70,000 each per month ([164]);

iii)  Step 3: concluded that there are assets surplus to the Wife’s needs and that the ‘sharing principle’ ought to be applied; and on the basis of the Duxbury calculations proffered by the single joint expert (‘Duxbury SJE’), pursuant to which it was found that the Wife will need a Duxbury sum of between HK$75,000,000 and HK$80,000,000 for the rest of her life, i.e. a figure that is smaller than a notional 50% split of the matrimonial pot of assets ([182]‑[186]);

iv)  Step 4: found that there are no good reasons to depart from an equal division of assets ([194]);

v)  Step 5: determined that the matrimonial pot of assets should be equally divided, with specific orders being made in relation to certain assets, including an order that two jointly owned Singapore properties (‘C Property’ and ‘K Property’) should be sold and the net proceeds thereof to be equally divided.

3)  Black hole theory

6.  On the issue of the matrimonial pot of assets, the Wife advanced a ‘black hole’ theory, namely there is allegedly a significant shortfall of assets when comparing: i) the total amount which the Husband must have earned up to the point in time when they finally separated, less the estimated family’s expenses during the marriage, with ii) the Husband’s disclosed assets. The Wife said that the only logical conclusion was the Husband had siphoned off large amounts of money which he is now hiding from her and the Court. In the premises, she invited the Judge to find that such siphoning‑off did occur, and also to assign a figure to the missing assets to be added back to the matrimonial pot ([37]).

7.  This theory was first presented by the Wife by way of her summons for specific discovery dated 5 July 2021, seeking four categories of documents (each concerning the Husband’s compensation package and remuneration in the pre-separation years). In her supporting affirmation, the Wife postulated that there was about HK$122.2 million in earnings that was not accounted for in the Husband’s disclosure, and there were further unexplained withdrawals totalling some HK$105 million ([38]). The Wife explained that despite her being legally represented for most if not all of the time since the beginning of the legal proceedings, she had been concentrating on the disputed children proceedings and only started to focus on the financial aspects after judgment on children matters was handed down in August 2019 ([39]). The Husband, in response, retorted that the Wife’s requests were no more than fishing expeditions, and were made extremely late in the day, since the legal proceedings had been on foot since 2014 but no steps were taken to advance the allegations of material non‑disclosure prior to the specific discovery summons. The Husband also pointed to the voluminous amounts of documentary evidence produced and also to the fact that all his income and compensation were paid into joint accounts, save for the period of 2011 and beyond where his employer required him to open a private wealth management account and that statements for that account were disclosed since the first Form E ([43]-[44]).

8.  The Wife’s specific discovery application was heard on 20 October 2021. An order by consent was made whereby the Husband agreed to provide limited further disclosure on a without prejudice basis. The recital of the order by consent pertinently states as follows :

‘ AND WHEREAS THE parties agree that: -

(1)  This order is entirely without prejudice to either party’s contention as to whether the Petitioner’s summons filed on 6 July 2021 was necessary;

(2)  The Petitioner acknowledges that she has no pending or intended application for discovery, subject to the disclosure made by the Respondent in compliance with this order;

(3)  The trial hearing fixed for 9 days (but possibly will only need 7 days) on 25 January 2022 be preserved…’ (emphasis added)

9.  We note, at this juncture, that there has been no allegation by the Wife that the Husband was in breach of any discovery order.

10.  An attempt was made by the Wife on the PTR hearing of 13 December 2021 for leave to issue an expert forensic accounts report dealing with fund tracing and a Duxbury calculation. No order was made by the PTR judge on this application.

11.  In the course of the trial, the Wife sought to adduce a significant number of new documents said to be relevant to her black hole theory, which documents she claimed were just discovered a few days prior to trial. That application was dismissed by the Judge ([2022] HKFC 44).

12.  On day 6 of the trial, the Wife sought to introduce charts which were based on and cross-referenced to the existing disclosed materials and the documents newly discovered. Given the Judge’s ruling on the newly discovered documents, the Judge allowed the Wife to modify the charts to remove references to those disallowed documents.

13.  On day 7 of the trial, the Wife produced the modified charts (‘Charts’). The Wife says that they had been prepared with the assistance of an accountant over some time ([52]). On the basis of the Charts, the Wife says that the Husband had ‘unaccounted [-for] assets’ in the region of some HK$147 million.

14.  The Judge was not satisfied that there is any missing money or hidden assets, for the following seven reasons ([54]‑[71]) :

i)  An allegation of deliberate non-disclosure for the purposes of placing assets beyond the reach of the claiming party is a serious one. It is a subset of fraud. An inference of non‑disclosure or the existence of undisclosed assets should only be made where there is proper evidential foundation. The wife failed to show the husband was guilty of such non‑disclosure.

ii)  The Wife did not act timeously. While she explained that she was previously pre‑occupied with children matters, the Wife did not ever seek (prior to the pre-trial review) any expert directions for the appointment of a forensic accountant to conduct an audit of the family’s finances during the marriage. Furthermore, by a consent order made on 4 January 2022, additional directions were made which included provision for the parties to agree upon the additional materials to be used in cross‑examination of the single joint experts to be called at trial. No attempt was made by the Wife to introduce evidence in the form of the Charts explaining the alleged dissipation of assets or to call any person who may have assisted her in compiling them.

iii)  The Wife’s case was not credible. The Wife’s case was that the Husband had been siphoning off assets prior to 2011, i.e. before their separation. But during the years of the parties’ marriage, the parties held joint bank accounts, into which the Husband’s remuneration was paid and from which the family expenses were met. Yet, no such allegation of siphoning‑off had been made by the Wife until late in the day.

iv)  The Wife’s failure to seek a preservation order or reversal of transaction order underlined her lack of confidence in being able to point to any transaction undertaken by the Husband which had the stated effect of putting assets beyond the reach of the Wife.

v)  Part of the Wife’s theory involved the hiding of bonuses from the Husband’s employers. The direction and destination of the payments could have been tested by the Wife seeking third party discovery or subpoenaing the employers. Yet, the Wife did not pursue any such line of enquiries.

vi)  The Charts were seriously deficient. There were mistakes in the calculations, some of which were admitted by the Wife in her own written closing submissions. The Wife also conceded during cross‑examination that she had not properly accounted for tax liabilities on income. It was not possible for the Judge, unaided by any forensic accounting analysis, to be confident as to the extent of the parties’ expenditure over the years. The burden was on the Wife to make out her case and to do so with sufficient precision, with the assistance of expert evidence where necessary. The resulting imprecision was manifested in the fluctuating size of the ‘black hole’ as alleged by the Wife over the few months when it was first alleged until the trial.

vii)  To the extent the Wife relied on certain unexplained withdrawals, the Wife failed to take into account the fact that there were also significant amounts credited or wired into the same account by the Husband.

4)  Singapore properties

15.  The Singapore properties (i.e. C Property and K Property) were purchased by the parties during marriage. They were in joint names. The Judge referred to the Wife’s assertion that the parties’ intention and understanding was that C Property and K Property were purchased for the benefit for the children, and as such no order for sale should be made ([87], [91]). However, the Judge included them in the matrimonial pot. The Judge accepted the valuation rendered by the single joint expert, the K Property was valued at SG$20 million and the C Property at SG$3,550,000. The value of the two properties translated to a total figure of more than HK$125 million, i.e. more than 50% of the total matrimonial pot of assets as assessed by the Judge ([125]). The Judge found the Wife’s refusal to consent to a renting out of C Property was unreasonable, and resulted in a loss to the matrimonial pot of assets of at least SG$150,000. Such unreasonable behaviour of the Wife ought to be reflected in the final distribution of assets ([81]). The Judge did not find there is any loss due to the Wife’s refusal to allow K Property to be rented out ([84]).

5)  Needs

16.  On assessment of the Wife’s and the children’s needs, the Judge assessed the Wife’s monthly needs at HK$200,000, and those of the children at HK$70,000 per child. On the basis that N was undergoing national service in Singapore and that C would also have to report for national service when attaining the age of 18, the Judge took the view that Husband should continue to maintain the children if they continue with their tertiary education thereafter, although during the period when either children is serving in the Singapore army, the Wife’s expenses relating to such child would be reduced ([165]-[173]).

17.  Before the Judge were two reports compiled by the Duxbury SJE on the Duxbury amount needed by the Wife. A Duxbury figure is based on mathematical models designed to compute a lump sum which would earn an income but would be exhausted at the end of the recipient’s life, which sum would fully meet the recipient’s needs but no more: F v F [2003] 1 HKLRD 836 [196]‑[197]. In the first report dated 19 January 2022, the Duxbury SJE :

i)  analysed the Wife’s Duxbury calculations from the Wife’s then age (50 years old) until the life expectancy of a female according to the Census and Statistics Department;

ii)  conducted her calculations on the assumption that: (i) the Wife’s needs are being assessed at HK$50,000 per month; and (ii) the Wife will not earn a salary throughout her lifetime and will primarily earn investment-related income;

iii)  adopted two risk profiles – one assuming that the Wife will invest in relatively lower risk (and hence lower return) investment products resulting in an estimated rate of return of 3.52% (‘Low Risk Profile’), and another assuming that the Wife will invest in higher risk (and hence higher return) investment products resulting in a rate of return of 4.79%(‘High Risk Profile’);

iv)  concluded that the investment portfolio identified by Bharwaney J in Chan Pak Ting v Chan Chi Kuen (No 2) [2013] 2 HKLRD 1 (‘Bharwaney Profile’) is inappropriate for use in a matrimonial context, especially when part of the Bharwaney Profile includes placing monies in a time deposit, which rates of return are substantially below the weighted average inflation rate;

v)  determined the Duxbury sum to be HK$18,035,409 if the Low Risk Profile is adopted, and HK$14,597,029 if the High Risk Profile is adopted.

18.  In her second report, the Duxbury SJE produced calculations of the Duxbury amount of the Wife (on the basis of the same assumptions as outlined above) using the Bharwaney Profile, and came to a figure of HK$19,897,540.

19.  The Judge assumed, in favour of the Wife, that she will be conservative in her investments, and accepted the SJE Expert’s Duxbury figure compiled on the basis of the Low Risk Profile (i.e. HK$18,035,409). Since the Judge assessed the Wife’s needs as HK$200,000 per month (which is four times that of the assumption relied on by the Duxbury SJE, resulting in a figure of HK$18,035,409 x 4 = HK$72,141,636), he made certain adjustments and came to the view that the Wife will need a Duxbury sum in an amount between HK$75,000,000 and HK$80,000,000 ([182]).

20.  Since, on the Judge’s assessment, the Wife’s needs for the rest of her life (i.e. between HK$75,000,000 and HK$80,000,000) exceeded a 50% notional split of the matrimonial pot of assets (i.e. HK$124,000,000), the Judge concluded that there are assets surplus to needs and applied the sharing principle (Step 3) ([183]-[185]).

6)  The division

21.  The Judge also found that there were no reasons to depart from an equal division of assets ([194]). In the end, in determining that there should be an equal division of assets (subject to minor adjustments on account of the Wife’s unreasonable refusal to agree to a renting out of C Property) and that both Singapore properties should be sold with their net proceeds of sale equally divided (Step 5), the Judge took into account that the sale will enable each party to purchase suitable accommodation in Hong Kong should they wish to do so, and will enable their needs and those of their children to be met ([195]‑[198]). The balance of the total joint assets less the C Property and K Property amounts to HK$121,560,030. Half of that is HK$60,780,015. Deducting the assets in the Wife’s name leaves HK$53,725,466. The Judge exercised his discretion to reduce that to HK$53,500,000 to take into account the Wife’s unreasonable refusal to facilitate the renting of the C Property. The Judge ordered :

i)  The Husband do pay to the Wife HK$53,500,000 by three lump sum payments of HK$13,500,000, HK$20 million and HK$20 million;

ii)  The Husband do pay to the Wife periodical payments of maintenance for the children in the sum of HK$140,000 per month (i.e. HK$70,000 per child), until their reaching of their 18^th birthday or completion of full time education whichever is later; and

iii)  For periods during which any of the children is in national service, the monthly maintenance attributable to such child be reduced to HK$10,000.

7)  Costs orders

22.  The Judge also made a costs order nisi that there be no order as to costs of the ancillary relief proceedings, on the basis that neither party has succeeded fully ([200]).

23.  By a decision dated 12 October 2022 (‘Costs Decision’), the Judge acceded to the Husband’s application for a variation of the costs order nisi, and made the Costs Order that the Wife was to pay 20% of the Husband’s costs of the ancillary relief proceedings, to be taxed if not agreed on an indemnity basis. While the Judge was of the view that neither party had been wholly successful (Costs Decision [15]), and that the Calderbank offers exchanged by the parties do not easily fit within the matrimonial finance litigation regime as they do in ordinary civil litigation (Costs Decision [31]), he came to the view that the Wife’s persistent pursuit of her ‘black hole’ theory and the unreasonable manner in which she presented it justified ordering her to bear 20% of the Husband’s costs on an indemnity basis (Costs Decision [40]-[41], [45]-[47]). The Judge also ordered the Wife to bear 50% of the Husband’s costs of the application for variation of the costs order nisi on a party and party basis.

III.  Wife’s application for leave to appeal/to adduce fresh evidence

1)  Grounds of appeal and new evidence

24.  A total of five intended grounds of appeal are advanced by the Wife in her challenge of the AR Judgment. The Wife’s draft Notice of Appeal reads as follows :

‘1. The Learned Judged erred on various findings relating to the Petitioner's case of ‘black hole’, thereby, reaching incorrect conclusion that the Petitioner's case was not made out. In this connection, in this appeal the Petitioner will seek to introduce, in addition to the evidence produced at the trial below, the expert independent report of Mr. [Jerome] McDonagh dated 21^st October 2022 containing an analysis of the Withdrawals by the Respondent between 2007 and 2021.

2. The Learned Judge erred in failing to ensure that the Petitioner's ongoing needs would be at the standard enjoyed by the family before the breakdown of the marriage pursuant to section 7(3) of the Matrimonial Proceedings and Property Ordinance, Cap. 192, and subsequently failing to give sufficient weight to the Petitioner's evidence as to her needs. In addition, the Learned Judge failed to provide sufficient or adequate explanation in concluding the Duxbury figure for the Petitioner’s needs. In this connection, in this Appeal the Petitioner will seek to introduce in addition to the evidence produced at the trial below the expert independent report of Mr. [Jerome] McDonagh dated 21^st October 2022 containing his Duxbury calculation.

3. The Learned Judge further erred in finding that the Petitioner had an earning capacity of relevance to the Petitioner’s qualifications and lifestyle at all, and (without evidence) that the Petitioner was able to find relevant employment in the financial services industry. The Judge also erred in accepting the Respondent’s claims with [regard] to his earning capacity, and that the Petitioner’s potential salary could equate the Respondent's current salary.

4. The Learned Judge erred by ordering the sale of the [C Property] and the [K Property] being the only assets in which the Petitioner had an interest, and failed to take into account the Petitioner’s reasonable intentions and needs relating to her housing and that of the Children.

5. The Learned Judge further erred in calculating the Children’s needs, and in further reducing the Children’s maintenance, resulting in the burden of any shortfall to be borne by the Petitioner, which was in turn not factored into the Petitioner’s needs. In addition, the Learned Judge failed to take into account that the Petitioner will continue to incur fixed costs for the Children even when they are serving their National Service. In any event, the sum of HK$10,000 per month is plainly insufficient to meet the Children’s needs whilst in National Service.’

25.  It can be seen, within the draft grounds of appeal themselves, that the Wife seeks to introduce fresh evidence in the form of expert reports from Mr. McDonagh of MDD in support of her grounds 1 and 2. The fresh evidence comprises :

i)  Mr. McDonagh’s report dated 21 October 2022 containing his forensic analysis of the parties’ joint HSBC Hong Kong account and a single-named account of the Husband maintained with HSBC Hong Kong, and Mr. McDonagh’s supplemental report dated 1 November 2022 containing his forensic analysis of the parties’ joint HSBC Singapore account. Mr. McDonagh’s conclusion is that there were significant ‘unknown withdrawals’ from those accounts, which he is ‘unable to determine who received the funds’. These reports are in support of ground 1 in the draft notice of appeal.

ii)  Mr. McDonagh’s report dated 21 October 2022 containing his Duxbury calculations. On the basis of the Wife’s expenditure being HK$283,793 per month, and assuming that the Wife will have a capital gain rate of 0.78% and an investment income rate of 1.62%, Mr. McDonagh came to the conclusion that the Duxbury figure for the Wife would be HK$189,035,420. This report is in support of ground 2 in the draft notice of appeal.

2)  Principles for leave to appeal

26.  Section 63A of the District Court Ordinance provides that leave to appeal shall not be granted unless the Court is satisfied that :

i)  the appeal has a reasonable prospect of success; or

ii)  there is some other reason in the interests of justice why the appeal should be heard.

27.  An ancillary relief order made by the Judge is an exercise of discretion. It is well established that in challenging the exercise of discretion, it is not enough to establish that the appeal court might have made a different order. It is only where the discretion was wrongly exercised when, for example, the Judge has erred in principle, taken irrelevant factors into account, ignored relevant factors or where the decision is plainly wrong, or that the decision exceeds the generous ambit within which reasonable disagreement is possible, would the appeal court interfere: SSC v TGC, HCMP 315/2014 (18 May 2015) [15.1]‑[15.2]; HMSE v JJS [2020] HKCA 139 [3.2].

28.  Insofar as a party seeks to challenge the Judge’s findings of fact, it must be shown that the Judge had gone plainly wrong, or that his evaluation was tainted by a misapprehension of facts, or that he took into account irrelevant matters or failed to take into account relevant matters, or that his conclusion was one that is outside the generous ambit within which a reasonable disagreement is possible, before the appeal court would interfere: BMC v BGC [2020] HKCA 317 [82]‑[85]. An appellant faces a high threshold in this regard : KNM v. HTF and others, HCMP 288/2011 [1] and [23].

3)  Principles on fresh evidence

29.  The Wife’s Fresh Evidence Summonses are procedurally misconceived. The margin note for both summonses cites section 64(3) of the District Court Ordinance (Cap. 336) and Order 59, rule 10(2) of the Rules of the High Court (Cap. 4A). Both provisions deal with this Court’s power to admit fresh evidence on appeal. Lam VP (as he then was) observed in Man Lin Heung, the Administratrix of the Estate of Man Kwai Yin v 梁根林 & Ors [2019] HKCA 846 [2] :

‘ Procedurally, application for leave to adduce new evidence could not be entertained until after leave to appeal has been granted and it is a matter for the Court of Appeal in deciding whether the new evidence should be admitted. However, an applicant in an application for leave to appeal can support such application by reference to new evidence if he can demonstrate that it is reasonably arguable that the Court of Appeal would Ladd v Marshall grant leave by reference to the criteria in. Thus, a judge (including a first instance judge) processing the application for leave would have to examine if the new evidence could arguably satisfy these criteria. If these criteria are not satisfied, such evidence should be disregarded for the purpose of the application for leave to appeal.’

30.  Apply these principles, the Wife would only be able to rely on this fresh evidence in support of her leave to appeal application if she can demonstrate that it is reasonably arguable that the Ladd v Marshall criteria are satisfied, viz :

i)  The evidence could not have been obtained with reasonable diligence for use at the hearing below;

ii)  The evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive;

iii)  The evidence must be such as is presumably to be believed or it must be apparently credible, though it need not be incontrovertible.

4)  Our view

i)  Fresh evidence

31.  We will deal with the fresh evidence first. We are of the firm view that it is not reasonably arguable that the Wife can overcome the first condition, namely the proposed expert evidence could not have been obtained with reasonable diligence for use at trial. In fact, the contrary is plainly true.

32.  The parties disagreed as to whether the Wife’s application at the PTR for leave to adduce the forensic report and Duxbury calculationi was dismissed, or simply not pursued. In our view, there can be no doubt that the PTR judge did not grant the application. This was accepted by the Wife’s solicitors in their letters dated 15 November 2022 to the Husband’s solicitors. In our view, the Wife cannot on one hand elect to proceed with the trial without such expert evidence in the hope that her counsel would be able to persuade the Judge to reach a favourable conclusion on submissions alone but, when met with an adverse judgment, seek to overturn the entirety of the trial findings by contending on appeal that the Judge ought to have reached a contrary conclusion if the proposed expert evidence was taken into account.

33.  The Wife said she was short of fund then to obtain these expert reports. We reject the Wife’s contention. She could have sought legal costs funding from the Husband if she was indeed short of funds. The Wife had about $2 million ($1.1 million cash and the rest in the form of silver bullion) at her disposal. We also note that on the Wife’s own acknowledgement, she was represented by various senior counsel throughout the course of these proceedings. We do not think it credible for the Wife to say that she was unable, with reasonable endeavours, to place Mr. McDonagh’s reports before the Judge in good time prior to the trial.

34.  We do not think that we need to go so far, as submitted by the Husband’s counsel, to hold that the proposed expert evidence from Mr. McDonagh is in any event incredible and will not have an important influence on the results of the case.

35.  For these reasons, we had disregarded the Wife’s proposed fresh evidence when dealing with her intended grounds of appeal.

ii)  No merits in the grounds of appeal

36.  None of the five intended grounds of appeal put forward by the Wife is reasonably arguable.

37.  Ground 1 targets the Judge’s rejection of the Wife’s ‘black hole’ theory. We see no basis to disturb the Judge’s findings in the AR Judgment [54]-[71]. The Judge’s holding is premised on there being ‘no proper evidential basis’ in support of the Wife’s proposition ([71]). We agree. It is incumbent on the Wife to properly put forward evidence (including expert evidence where necessary) to substantiate her allegations. Her failure to do so (including her failure to seek expert directions at the appropriate juncture) would mean that her case is not made out. We also agree with the Judge’s observations made in the AR Judgment [62] that the Wife’s theory of systemic siphoning‑off of assets and her late presentation of it were incompatible with the fact that the parties held joint bank accounts during their marriage into which the Husband’s income was paid, and out of which expenses were met. Ground 1 is hence not reasonably arguable.

38.  Ground 2 challenges the Judge’s assessment of the Wife’s needs. On the Judge’s findings, this was a ‘sharing’ case, i.e. there were assets in the matrimonial pot surplus to the needs of the parties. The Wife’s real complaint is on the Duxbury calculations. She attempts to argue, with the assistance of Mr. McDonagh’s new report, that her needs (as represented by a Duxbury sum) are in the region of some HK$189 million, which exceed a 50% notional split of the matrimonial pot of assets. However, given we have disallowed the introduction of the fresh evidence, it naturally follows that there is no basis for us to overturn the Judge’s acceptance of the Duxbury figure as proffered by the Duxbury SJE. We also do not agree that the Judge had not given sufficient or adequate explanation on the Duxbury figure. It was clear that the Judge accepted the assessment and reasoning of the Duxbury SJE based on her adoption of the ‘Low Risk Profile’. The Judge was entitled to do so for the reasons he gave, especially in the absence of any contrary expert evidence. We detect no error in the Judge’s analysis. Ground 2 is not reasonably arguable.

39.  Ground 3 relates to the Judge’s comments on the Wife’s earning capacity. We agree with the Husband’s submissions that this complaint is irrelevant. It is clear from the AR Judgment that the Judge had not taken into account the Wife’s earning capacity in his distribution of the matrimonial assets. Ground 3 is not reasonably arguable.

40.  Ground 4 complains that the Judge should not have ordered the sale of the Singapore properties and the Judge had failed to take into account the Wife’s intentions and needs, as well as that of the children. These properties are clearly joint matrimonial assets having acquired during the marriage with the Husband also being responsible for the mortgage repayment after they ceased to be rented but when the rent was previously used to fund the mortgage repayment. Ground 4 is not reasonably arguable.

41.  Ground 5 challenges the Judge’s findings on the children’s needs. We agree with the Husband that the Wife had not discharged her burden in showing that the Judge’s assessment is impugnable on any of the recognized grounds. It was a matter of evaluation of evidence as to what each child’s needs are. Insofar as the Wife complains that the sum of HK$10,000 is insufficient to meet the children’s needs whilst in national service in Singapore, the Wife had provided no details as to N’s needs during his national service. The Judge’s exercise of discretion to order the Husband to pay a monthly maintenance figure of HK$10,000 during a child’s period of national service cannot be faulted. Ground 5 is not reasonably arguable.

42.  For the foregoing reasons, we have refused the Wife’s application for leave to appeal against the AR Judgment. It also follows that the Wife’s application for stay of execution pending appeal falls to be dismissed.

IV.  The parties’ application for leave to appeal against the Costs Order

1)  Principles

43.  Insofar as the parties seek to challenge the Costs Order, it is trite that costs are generally in the discretion of the first instance judge, and the Court of Appeal should be circumspect in interfering with the same. The first instance judge is the best person to exercise the discretion on costs because he is most familiar with the conduct of the case at the trial and the impact of the success and failure on each issue canvassed before him. An appellate court is institutionally disadvantaged from re‑assessing a decision of this nature as if it is hearing the matter in the first instance. The Court of Appeal will not disturb an exercise of discretion by the judge on costs unless the decision of the judge is either wrong in principle or is plainly wrong. Unless it can be shown that the judge has committed a palpable error in the exercise of the discretion on costs, the mere fact that the Court of Appeal would not have exercised the discretion in the same manner as the judge is not a sufficient ground to warrant interference with the decision of the judge: Chan Shun Kei v Hong Kong Construction (Hong Kong) Ltd, CACV 192/2014 (7 March 2016) [22]; LLC v LMWA [2019] 2 HKLRD 529 [7]; Industrial and Commercial Bank of China (Asia) Ltd v Tse Ching [2022] HKCA 1342 [27].

2)  Our view

44.  With the above principles in mind, neither of the Wife’s nor the Husband’s proposed challenge against the Costs Order is reasonably arguable.

45.  The Wife’s draft notice of appeal contends that: i) there should be no order as to costs because neither party had been wholly successful (ground 1); ii) the Wife’s pursuit of her black hole theory was not unreasonable and did not justify costs to be awarded against her, and on an indemnity basis (grounds 2 to 4) and iii) the Judge underestimated the financial impact of an indemnity costs order on the Wife (ground 5).

46.  The Husband submits that the Judge, in denying the Husband 80% of his costs, exceeded the generous ambit of his discretion. His draft notice of appeal contends that: i) the Judge failed to attach sufficient weight to the Respondent’s sanctioned or Calderbank offers (ground 1); ii) the Judge was wrong not to condemn the Wife for failing to negotiate reasonably (ground 2); iii) the Judge gave no reasoned basis for awarding the Husband only 20% of his costs (ground 3); iv) the Judge failed to recognize that the Husband had succeeded on the majority of the issues (grounds 4 to 5) and v) the Husband should not be denied 50% of his costs for the variation of the costs order nisi as he had been successful in his variation application (ground 6).

47.  We would deal first with the Husband’s reliance on the sanctioned offer regime in Order 22 on the basis of three settlement offers dated 19 September 2019, 1 September 2021 and 1 February 2022. The parties did not produce the actual letters before this Court. The Husband described them as ‘sanctioned offers’. In AVT v VNT [2016] 1 HKLRD 821, this Court observed that :

i)  As the matter now stands, Order 22 applies to the family jurisdiction in Hong Kong. Order 22 imposes discipline for responsible litigation. But whilst the consequence of failing to meet sanctioned offers should be rightly recognised, it should also be recognised that unlike a commercial dispute, the fundamental philosophy in the family jurisdiction is to make proper financial provision for a spouse (usually the wife) so that she could start afresh in life. Other than a simple case, the financial interest of the parties may be complicated. This underlying philosophy will be defeated if the costs that the wife has to pay by reason of her failure to meet the sanctioned offer will wipe out all or substantially all of her financial provision. The effect of the costs order will destabilize the financial provision intended for her ([13]).

ii)  Order 22, rule 23(6) provides that the Court may disapply the consequences stated in the rules if it would be ‘unjust’ to make those orders. This provides the basis for the Family Courts to resolve the tension between, on the one hand, litigation discipline and, on the other hand, the underlying philosophy of making adequate and meaningful financial provision for a spouse on divorce ([14]).

iii)  An example of where the above provision would apply is where disclosure was only undertaken at a late stage of the proceedings ([1]).

48.  The observations made in AVT are apposite. While the Judge did not find the Husband to have engaged in any intentional non‑disclosure, the fact remains that the parties have agreed, by consent, for the Husband to produce additional documents as late as 21 October 2021, and that it was only at the pre-trial review in December 2021 were directions given for the appointment of the Duxbury SJE. While we do not agree that these matters absolved the Wife of her duty to apply for expert directions in good time (and hence is not a good reason for us to receive the Wife’s fresh evidence on appeal), we accept that the Wife and her legal team were under some time constraints and, seen in that context, the Wife’s response to the Husband’s settlement offers could not be said to be unreasonable. None of this detracts from the Court’s expectation of the parties to explore settlement options in a constructive manner and that a party’s unreasonable and uncooperative attitude in the settlement negotiations may form a basis for the court to impose costs sanctions: LLC [51]-[54].

49.  Without deciding, we tend to agree with the Judge that this is not a straight‑forward application of Order 22, rule 23. Despite the general application of Order 22 to matrimonial proceedings, it is not readily apparent as to who is the ‘plaintiff’ and who is the ‘defendant’ in the instant case for the purposes of applying the rules. The rules provide for vastly different consequences depending on whether the sanctioned offer was made by the ‘plaintiff’ or the ‘defendant’. It is relevant to note that both the Wife and the Husband had made claims for ancillary relief.

50.  The question then becomes: is there any basis for either party to challenge the Judge’s exercise of discretion in ordering the Wife to bear 20% of the Husband’s costs, with such costs to be assessed on an indemnity basis?

51.  On the allocation of costs liability, the Judge’s essential reasoning was that i) both parties have succeeded on some issues, and that the starting point should be no order as to costs; but ii) since the Wife had unreasonably persisted in her pursuit of the ‘black hole’ theory which resulted in the trial being unnecessarily prolonged and additional costs being incurred, the Wife should bear 20% of the Husband’s costs. This is an exercise of discretion on the part of the Judge which he was entitled to make. We do not agree with either the Husband or the Wife that the Judge’s exercise of discretion can be impugned.

52.  On the imposition of an indemnity costs order, we agree with the Judge’s view in the Costs Decision :

‘ 46. In my view, although it may not have been unreasonable for her to raise her theory in her Discovery Summons, the fact that she persisted with it on the basis and in the manner she presented it, including the lack of any forensic accounting to confirm that there was some merit to her theory despite the Husband’s persistent denials, justifies an award of costs on an indemnity basis.’

53.  The Wife referred to the impact of a costs award (in particular on an indemnity basis) on her financial resources. The Judge had already taken this matter into account when making the Costs Order (Costs Decision [48]). It was open for him to make such an order especially when it was found that the Wife’s needs are met by an equal division of the matrimonial pot of assets. While an adverse costs order would no doubt have some impact on the Wife, this was simply a consequence of the Wife having unreasonably pursued the black hole theory which the Judge found to be unsubstantiated and which unnecessarily prolonged the trial. As Lam ACJHC noted in LLC [34]‑[37], legal costs in matrimonial litigation can easily run out of control and it is incumbent on the parties and their legal advisers to adopt a realistic and proportionate stance in their conduct of the litigation. It is unfortunate that the Wife failed to pay heed to such advice when pursuing the ‘black hole’ theory in the way and manner she did.

54.  For completeness, we also do not agree with the Husband that the Judge had no basis to deprive him of 50% of his costs for the variation application. The Husband did not fully succeed in obtaining what he sought, namely the Wife paid him the entirety of his costs for the ancillary relief proceedings. As such, it was within the Judge’s entitlement to apportion the costs.

55.  For the foregoing reasons, the applications of both parties for leave to appeal against the Costs Order are not reasonably arguable.

V.  Disposition

56.  We order all five summonses to be dismissed.

57.  As to costs, counsel are in agreement that no order be made on the costs of the parties’ respective applications for leave to appeal the Costs Order. We so order.

58.  In respect of the Wife’s Leave to Appeal (AR) Summons and the two Fresh Evidence Summonses, Mr. Scott fairly accepted that costs should follow the event. We accordingly order the Wife to pay the Husband the costs of these summonses to be summarily assessed.

59.  Having considered the Husband’s revised Statement of Costs dated 20 November 2023, we would observe that :

1)  As the costs are assessed on party-and-party basis, only the costs of one fee earner are to be allowed on one item of work, hence the fees of the TS in, for example, D3 (preparation for hearing) and D4 (Hearing) will not be allowed.

2)  In general, costs will not be allowed for gathering information and/or drafting statement of costs: see [13] of Practice Direction 14.3. E1 and E2 (drafting and updating statement of costs) will be disallowed.

3)  Viewed together, the total time incurred for C1 (attendance on client), C3 (attendance on counsel), and C4 (attendance on client and counsel) is on the high side and should be reduced.

4)  Considering that the Husband’s counsel was involved in the proceedings below and that a number of the matters and points in these applications had been argued before the Judge at the trial and also in the leave to appeal application, the total counsel fee under F1 (drafting submissions and papers, and conference), F2 (reviewing papers and drafting composite skeleton argument) and F3 (court attendance on the applications) is too high on party‑and‑party taxation and should be reduced by HK$50,000.

60.  Taking a broad-brush approach, we summarily assess the Husband’s costs of the Wife’s Leave to Appeal (AR) Summons and Fresh Evidence Summonses to be HK$750,000.