KWC v. LYY

FCMC 14968 / 2006

   IN THE DISTRICT COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   MATRIMONIAL CAUSES

   NUMBER 14968 OF 2006

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BETWEEN

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RULING ON COSTS

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INTRODUCTION

1.  On 31 July 2009, I handed down a Judgment on ancillary relief (“Judgment”), and the order made on that day is as follows:

(i)  The Respondent (“W”) shall pay the Petitioner (H”) through the Director of Legal Aid a lump sum of HK$415,000 within 30 days of the date of this order.

(ii)  Upon full payment of the said lump sum, all the parties’ claims for whatever forms of ancillary relief shall be dismissed.

(iii)  There be an order nisi regarding costs that W shall pay H’s costs of and incidental to his application, to be taxed, if not agreed, on party and party basis, with a certificate for counsel.  The order nisi shall be made final and absolute, if no application is made before 21 days.

(the above order shall hereinafter be referred to as the “Order”)

2.  On 12 August 2009, W’s solicitors, Messrs. Alvin Cheng & Rosaline Choy (“CC”) wrote indicating that they would like to make submissions on costs. They are now seeking that the order nisi should be varied and that there should be an order that there be no order as to costs between 25 April 2007 and 25 September 2008, and that W should have her costs incurred after 24 September 2008 (or from a reasonable period of time, e.g. 14 days, after that date. The date of 25 April 2007 is the date of the first Calderbank Letter from W, and the date of 24 September 2008 is the date of the second Calderbank Letter from W.

LEGAL PRINCIPLES

3.  The general rules and principles as to costs in civil proceedings have been stated in In re Elgindata Ltd. (No. 2) [1992] 1 WLR 1207 where Nourse LJ said as follows : -

“The principles are these.  (i) Costs are in the discretion of the court.  (ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made.  (iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs.  (iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs.  Of these principles the first, second and fourth are expressly recognised or provided for by rules 2 (4), 3 (3) and 10 respectively.  The third depends on well established practice.  Moreover, the fourth implies that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs”.

4.  One of the leading authorities on costs in family cases is the case of Gojkovic v Gojkovic [1992] Fam 40, in which Bulter-Sloss L.J had said at p.54 that :

“That starting point, in my judgment, is that costs prima facie follow the event (see per Cumming-Bruce L.J. in Singer (formerly Sharegin) v Sharegin [1984] F.L.R. 114, 119) but may be displaced much more easily than, and in circumstances which would not apply, in other Divisions of the High Court.  One important example is, as the judge pointed out, that it is unusual to order costs in children cases.  In applications for financial relief the applicant (usually the wife) has to make the application in order to obtain an order by consent; and if money is available and in the absence of special circumstances, such an agreement would usually include the applicant’s costs of the application.  If the application is contested and the applicant succeeds, in practice in the Divorce Registries around the country where most ancillary relief applications are tried, if there is money available and no special factors, the applicant spouse is prima facie entitled to, and likely to obtain, an order for costs against the respondent.  The behaviour of one party, such as in material non-disclosure of documents, will be a material factor in the exercise of the court’s discretion in making a decision as to who pays the costs”.

5.  Butler-Sloss L.J. had further said in the same case :

“  In such cases the parties are likely to negotiate, and such negotiation, which may lead to a settlement, is much encouraged by the courts.  The Calderbank offer – a letter containing an offer only revealed after the order is made – bears some resemblance to, but is not identical with, a payment into court.  It takes its name from Calderbank v Calderbank [1976] Fam. 93 (a claim by a husband) in which Cairns L.J. referred to an apportionment offer in Admiralty proceedings, and said, at p. 106 :

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

6.  Having considered the various decisions on costs, Butler-Sloss went on to reach the following conclusion in Gojkovic v Gojkovic :-

“It is therefore clear that Calderbank offers require to have teeth in order for them to be effective.  This is recognised by the requirement in Ord. 62, r. 9 (and the equivalent Ord. 11, r. 10 of the County Court Rules 1981 (S.I. 1981 No. 1687 (L.20)), as amended, 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 matter for the parties which procedure they prefer.  There is a very wide discretion in the court in awarding costs, and as Ormrod L.J. said in McDonnell v McDonnell [1977] 1 W.L.R. 34, 38, THE Calderbank offer should influence but not govern the exercise of discretion.

7.  Order 22 Rule 14 of the Rules of the High Court now codifies and extends the procedure first approved by the English Court of Appeal in Calderbank v Calderbank. Hong Kong Civil Procedure 2009, under paragraph 62/5/3 also sets out the explanation of a “Calderbank Offer”.

8.  In the more recent case of C v C (Costs : Ancillary Relief) [2004] 1 FLR 291, Charles J having considered all the above principles in details, arrived at a practical approach in many cases as follows : -

(1) To ask who would, or should, have paid the costs if agreement had been reached at an early stage and why this was so.  Often this will be reflected in the common ground and the offers made.  The answer to this question will often identify who should be regarded as the paying party or the person who should prima facie be liable for costs and thus, in terms of the starting point referred to in Gojkovic v Gojkovic and Another, the event.  Also the answer to this may often support the view that up to a certain pint prima facie one party should pay the costs of the other.

(2) To identify :

(a) the issues that are not in dispute at trial; and

(b) the issues that have prevented an agreement being reached and placed before the court for its approval and to consider their impact on the question of costs and thus, for example :

(i)  their nature and whether the reality is that one party is going to be paying the other or whether there is a division of assets;

(ii) the time taken in resolving the disputed issues; and

(iii) who won on such issues.

(3) Consider the Calderbank offers and therefore apply FPR 1991 r 2.69 to the costs it covers.

(4) Consider the matters referred to in CPR r 44.3 (which include open offers).

(5) Consider how the costs of both parties have been affected by the disputed issues.

(6) Remember that the court has, and is exercising, a broad judicial discretion by applying the rules and earlier judicial guidance.”

9.  The above list is not intended to be exhaustive. It is clear that costs are in the court’s discretion.

10.  In the Costs Judgment dated 19 March 2008 in L v CCACV No. 169 of 2006, Hon Yuen JA has summarized the principles relating to costs in ancillary relief cases:

“Pointers as to how that discretion should be exercised include the following:

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

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

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

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

THE PARTIES’ ESTIMATES OF COSTS

11.  H’s estimates of costs were :

(i)  on 5 March 2007	HK$19,050
	(fixed costs under legal aid regulations)
(ii)  on 29 May 2007	HK$25,450
	(including costs incurred up to 1st Appointment on 30 May 2007)
(iii)  on 23 July 2007	HK$35,050
	(including costs incurred up to 2nd hearing of the 1st Appointment on 24 July 2007)
(iv)  on 10 January 2008	HK$43,850
	(including costs incurred up to 3rd hearing of the 1st Appointment on 11 January 2008)
(v)  on 29 February 2008	HK$42,050
	(including costs up to PTR on 4 March 2008)
(vi)  on 7 October 2009	HK$286,650
	(including costs of the trial).

12.  W’s estimates of costs were:

(i) on 5 March 2007	HK$28,000
(ii)  on 23 July 2007	HK$ 19,750
(iii)  on 10 January 2008	HK$147,800
(iv)  on 3 March 2008	HK$162,300
(v)  on 22 September 2009	HK$504,783.34

CHRONOLOGY OF PROPOSALS

13.  There were only 5 Calderbank letters between W’s solicitors CC and H’s solicitors Messrs. Au, Thong & Tsang (“ATT”):

a. On 25 April 2007, CC wrote a letter marked “without prejudice save as to costs” to ATT, proposing W to pay to H a sum of HK$300,000 within 14 days of Decree Absolute (“1^st Calderbank Letter”). There was no response to this letter.

b. On 19 January 2008, ATT wrote a letter to CC also marked “without prejudice save as to costs” indicating that H was prepared to accept a sum of HK$2.67m in full and final settlement of his claim for ancillary relief against W, giving 14 days for CC to reply, failing which the offer was to lapse automatically. There was equally no response to this letter.

c. On 24 September 2008, CC wrote a letter to ATT marked “without prejudice save as to costs” to offer a lump sum of HK$1m to H in full and final settlement of his claims for ancillary relief with no order as to costs, and to be paid by instalments:

(i)  HK$300,000 within 30 days of the signing of the Minutes of the Consent Order

(ii)  HK$300,000 within 6 months from the date of the 1^st payment

(iii)  HK$400,000 within 6 months from the date of the 2^nd payment

(“the 2^nd Calderbank Letter”).

d.  On 2 October 2008, ATT replied rejecting W’s proposal, indicating that H was prepared to accept of HK$2.67m, being one-third of the total value of the family assets as at the date of separation.

e.  H’s opening proposal at the commencement of the trial was W to pay to H a lump sum of HK$3,216,000, being one half of the total value of the family assets as at the date of separation of the parties i.e. in April/June 1998 , then revised to about HK$6.4m (“H’s Open Proposal”).

f.  W’s opening proposal at the commencement of the trial was simply H’s claims for ancillary relief were to be dismissed (“W’s Open Proposal”).

ISSUES AT THE TRIAL

14.  The main issues of the trial were set out in paragraph 35 of the Judgment :

(a)  the identification and valuation of the Family Assets.

(b)  the weight to be given to the Agreement ( a Chinese agreement signed by parties on 3 February 2000).

(c)  Whether H should be entitled to 50% of the Family Assets

15.  W’s position at the commencement of the trial was that H should be entitled to nothing due to the Agreement. She clearly failed on this issue.

16.  During the trial, H’s Counsel submitted a table showing the Family Assets as the time of separation in about middle of 1998 to be about HK$6.4m (P-7). W’s solicitor produced during the trial an estimate of the Family Assets at time of separation which she said was HK$10.68m (R-4). One of the major discrepancies between the parties was a sum of about HK$4m which W alleged was kept by H in Hong Kong and spent on gambling and other unknown destinations. At the time of the parties’ emigration to Canada at the end of 1993, there was a sum of about HK$7.58 in their joint accounts with Hang Seng Bank in Hong Kong , but by September 1995, the amount left was only about HK$3.96m. Having gone through some of the withdrawals which were set out in the Judgment, I found that there was no sufficient evidence that H had lost all the withdrawn sums with unknown destinations on gambling (paragraph 73). Thus, W failed in her allegations in this regard.

17.  Eventually in the Judgment, I found that at the time of the parties’ separation, apart from the agreed 3 properties ,the then cash balance in H’s bank accounts was about HK$265,361, and there was a loan repayment of HK$1.5m from a Mr. L which was in W’s possession at the time (paragraph 95). By the time of the date of the Agreement, H only had about HK$12,600 left in his personal savings account. I adopted the sale values of the 3 properties, which was about HK$3.1m, and thus I arrived at the total value of the Family Assets available for distribution to be about HK$4.618m. This was nearer to H’s estimate at the trial, and the differences between his and the Courts’ were the valuations of the 3 properties and the amount of the loan repayment then in W’s possession. After deducting the children’s maintenance which H agreed to be about HK$2.6m, the remaining balance was about HK$2m, and I made an order that H be entitled to 45 % thereof. After deducting a sum of HK$500,000 which W had paid H at the time of the Agreement and H’s cash at the time, the eventual award I made in favour of H was a sum of HK$415,000.

DISCUSSIONS AND CONCLUSIONS

18.  The 1^st Calderbank Letter was sent just one day after H had filed his affirmation on 24 April 2007 setting out his case as to what circumstances led to the signing of the Agreement, that he was in need of money and the Agreement was signed by him under W’s threat of not giving him any money, and that in any event the Agreement referred to assets generated after separation and not before.

19.  In this 1^st Calderbank Letter, CC stated that they were of the view that H’s case was very weak, but in order to save time and costs, W would pay H HK$300,000 with no order as to costs. There was no indication at all as to how the sum of HK$300,000 was arrived at, as no basis of calculations was provided. There was no response from ATT. This 1^st Calderbank Letter was also sent prior to the parties filing their respective 2^nd Form Es setting out their financial position between 1994 to 1998. W filed hers in May 2007, and H filed his in June 2007. H’s lack of response was not unreasonable in these circumstances.

20.  A Financial Dispute Resolution hearing (“FDR”) was eventually held on 11 January 2008, and there was no settlement. About a week after the FDR, ATT sent a Calderbank Letter indicating that H was prepared to accept a sum of HK$2.67m. This time there was no response from CC. By this time, H had set out in his 2^nd Form E a schedule of what he regarded as their assets at the time of separation i.e. June 1998, which he said was at least HK$8m including the landed properties. There was, however, nothing in W’s 2^nd Form E indicating what she regarded to be the total assets were at the time of separation, apart from listing out the landed properties with their purchase prices.

21.  It would appear that the parties then had some private discussions later on in the year, which led to CC sending the 2^nd Calderbank Letter to ATT. This time, W offered a lump sum of HK$1m to be payable by instalments spread over a period of 12 months. There was, however, again nothing in this letter to indicate how this amount was calculated or arrived at.

22.  ATT replied after about a week, maintaining that H should receive a sum of HK$2.67m. They stated that their offer was equivalent to one-third of the total value of the family assets as at the date of separation. By then, as H had already filed his 2^nd Form E, it was clear that his estimate of the family assets at the time of the separation to be about HK$8m and one third there of would be $2.67m. Thereafter, there was no response and no further Calderbank letters from CC.

23.  After this Court took over the matter after the FDR, and throughout the trial, W’s position was that H’s application should be dismissed and that he was not entitled to anything. The trial eventually lasted about 6 days, and the bulk of the time was taken up on issue of the Agreement, the issue of the HK$4m, and what were the Family Assets at the time of the separation.

24.  As I have mentioned earlier, it was not until the trial that W produced an estimate of the total Family Assets at the time of the separation. In her 2^nd Form E relating back to the period of the separation filed in May 2007, she simply said she had forgotten the amount which was in her bank accounts in Hong Kong, and disclosed only Can $400 cash. She said the banks did not keep records back to 1998. I accepted this, but as I have said in the Judgment, after these proceedings started towards the end of 2006 or early 2007, W could still have made an attempt to obtain bank statements back to 1999 or early 2000 (paragraph 167). This might have shed some light or prompt her memory, certainly as to her assets at the time of the Agreement, which was in early 2000. I must say compared to H, W had provided little evidence as to her financial position at the time of the separation or at the time of the Agreement. In fact, most of her case was not even stated in any of her Form Es or affirmation, but instead in a rather lengthy chronology filed in March 2008.

25.  As said by Bulter-Sloss L.J in Gojkovic v Gojkovic, for Calderbank offers to be effective, they are required to have teeth. There are certain preconditions, and both parties must make full and frank disclosure of all relevant assets, and put their cards on the table, and thereafter the respondent to an application must make a serious offer worthy of consideration.

26.  In my view, both W’s Calderbank Letters clearly fall short of these requirements. Making a Calderbank offer does not simply mean putting forward an amount, albeit a high amount which eventually in this case well exceeded the award, but also setting out the basis of the offer to enable the other side to consider it properly and seriously. At that time, H was saying his proposal of HK$2.67m was only one third of what he said were the Family Assets at the time of the separation, which was about HK$8m. If W disagreed with H’s calculations, she should have made it known, whether in her 2^nd Calderbank Letter or otherwise, and explained what she regarded as the value of the Family Assets were and how she arrived at the sum of HK$1m. It was also not clear whether W had arrived at this sum after taking into account her alleged amount of maintenance for the children. By failing to set out the basis of her offer, H might have thought that W was only offering him HK$1m out of the HK$8, i.e. 13% of the assets. This should also be seen against the background that W’s then disclosed net current assets of about HK$11m and H’s of about HK$14,000. In such circumstances, there being no proper explanation as to the basis of her offer of HK$1m, which was further to be paid over 12 months, it was not unreasonable for H to reject W’s offer in her 2^nd Calderbank Letter. I also note that there was no mention by W in her 2^nd Calderbank Letter as to what her estimated costs would be if the matter were to proceed to trial. H was under legal aid, but W was not and I would have thought it would be helpful for H to know what her costs might be if the matter were to proceed to trial and that such costs might have to be deducted from his award.

27.  I am of the view that W had failed to make any effective Calderbank offers. In any event, there is a very wide discretion in the court in awarding costs, and as Ormrod L.J. had said in McDonnell v Mc Donnell [1977] 1 WLR 34, 38, the Calderbank offer should influence but not govern the exercise of discretion.

28.  H did make one substantial concession, in that he agreed to the maintenance and education expenses for the children from May 1998, i.e. after separation, to May 2007 to be about HK$2.6m, and H further agreed for this sum to be deducted from the Family Assets before division. In view of the fact that W’s financial position had increased significantly and substantially more than H’s in those years, it would have been arguable as to whether H’s contribution would need to be that high, even if W were to be able to prove the amounts she alleged. If this Court eventually found that H’s contribution should be less and the amount to be deducted before division should be less than HK$2.6m, H’s award could be increased substantially. I am of the view that he made a generous concession. Further, had H not made such concession, the trial would have been lengthened considerably.

29.  If W were to succeed in this application regarding costs, it would result in the award to H being completely wiped out.

30.  Having considered all the circumstances of this case, I am of the view that my order nisi is a fair one. I see no reason to vary my order nisi, which I will now make final, namely that the Respondent shall pay the Petitioner the costs of and incidental to his application for ancillary relief, such costs to be taxed if not agreed, on party and party basis, with certificate for counsel. I am further of the view that the Respondent shall pay the Petitioner the costs of and incidental to her application for costs, such costs also to be taxed if not agreed, on party and party basis, with certificate for counsel. The Petitioner’s own costs are to be taxed in accordance with legal aid regulations.