YSG (YX) v. LYAG

FCMC 15288 / 2015

[2022] HKFC 199

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO.15288 OF 2015

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

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

____________________

J U D G M E N T
(COSTS)

____________________

1.  On 2 June 2022 the Court handed down its Judgment on the parties’ respective claims for ancillary relief.  Part of the Order upon Judgment was that there be “no order” as to costs of the proceedings, including all costs reserved (“Costs Order”). This was made on a nisi basis to be made absolute in the absence of any application to vary it within 28 days. 

2.  The Respondent/Husband has now applied (within the 28 days) to the Court for variation of the Costs Order and for it to be replaced with an order that the Petitioner/Wife pay his costs of the proceedings, and that these costs be taxed in default of agreement, on an indemnity basis.  The Wife resists the application. 

Legal principles relating to costs orders in family cases

3.  Order 62 of the RHC governs the exercise of the Court’s discretion in respect to costs of legal proceedings: MCR, rule 3, rule 91A.  O 62 r 3(2) states that “If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”  O 62 r 5 sets out the matters to be taken into consideration by the Court in the exercise of its discretion, including the underlying objectives of the Rules under Order 1A, rule 1, which emphasises the need for cost-effective and expeditious disposal of matters and the promotion of reasonable proportion and procedural economy in litigation before the Court. 

4.  Calderbank offers made “without prejudice save as to costs” and which one party unreasonably refuses to accept may be considered in the exercise of the Court’s discretion.  In this respect, Order 1A rule 1 additionally emphasises the importance of parties making all reasonable efforts to settle disputes.  This has been repeatedly emphasised in respect of family cases.  Neither party may “ignore sensible and rational offers of compromise in the comfortable knowledge that they can do so with impunity”: HK v BD [2010] HKCA 357; CACV 252/2009 (15 October 2010) at [94]. 

5.  During the Trial, the Court reminded both parties of the potentially adverse costs consequences of litigating issues on which they might not ultimately succeed.  In exercising its discretion on costs the Court may have regard to the conduct of the parties, namely (sub-rule 5(2) ):

“(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.”

6.  It is recognised that due to the special dynamics of family proceedings the discretion of the Court to fashion orders for costs is wider than in other civil proceedings and the general rule that costs should follow the event may be displaced more easily: L v C [2008] HKCA 92 (CACV 169/2006, 19 March 2008)applying Gojkovic v Gojkovic (No. 2) [1992] 1 All ER 267; TL v SN (Ancillary Relief) [2010] HKCA 389 (CACV 196/2009, 9 December 2010); Z v X [2013] HKCA 124 (CACV 251/2011, 8 March 2013). 

The Judgment and Order

7.  The Judgment followed a 10-day Trial held in February 2022.  The award provided for an equal division of the net matrimonial assets, which included two landed properties in Singapore, a house (“K Property”) and an apartment (“C Property”).  The Order was for both of these properties to be sold, with the net proceeds to be distributed equally between the parties (paragraphs 1 and 2).  The Order further provided for the Husband to pay three lump sums to the Wife (paragraph 4) which, together with the division of the proceeds of sale of the two properties, and with the assistance of a Duxbury calculation, would provide for her future needs and enable a clean break.  Finally, the Order granted the Wife’s application for continuing support for the Children, including ongoing payments of maintenance to be made through to adulthood or completion of their full-time education (whichever is later). 

8.  The Wife has applied to this Court for leave to appeal the Judgment and aspects of the Order including the order for sale of the properties.  Her application is being dealt with by separate Judgment handed down at the same time as this Judgment. 

The Husband’s grounds to vary the Costs Order

9.  The Husband advances five reasons which he says justify an award of his costs:

a.  First, that the Judgment/Order achieved no better a result for the Wife than pre-Trial offers made by the Husband in September 2019, September 2021 and shortly before the Trial.  The Husband says these should be regarded as Sanctioned Offers pursuant to O 22 r 23(3)-(5). 

b.  Secondly, that the Judgment also reflects his Open Offer in January 2022 which proposed equal division of the net matrimonial pool of assets.

c.  Thirdly, that the Wife has failed to negotiate or provide a timely response to the various offers.

d.  Fourthly, that the Wife ran an unsuccessful case of deliberate non-disclosure on the part of the Husband and that this justifies an award of his costs on an indemnity basis.

e.  Fifthly, that the Husband was successful on the vast majority of the contentious issues.

10.  For the Wife, it was submitted that pending the determination of her application for leave to appeal, the Husband’s application to vary the Costs Order should be adjourned.  Judgment on her leave to appeal application is being handed down at the same time as this Judgment. 

11.  In the alternative, the Wife says that the existing Order for “no order” as to costs should be maintained.  She says that she did not unreasonably reject any of the Husband’s pre-Trial WP offers, nor did she negotiate on an unreasonable basis.  She says that she was entitled to put forward her case vigorously at Trial, including her claim that the Husband was hiding significant assets.  Finally, she says that neither party succeeded fully on all issues and that this underpins her submission that “no order” as to costs is the most appropriate order to be made. 

Issues

12.  It is convenient to deal with the Husband’s last point first. 

13.  The Husband says that he was successful in the vast majority of the issues at Trial including the Wife’s “black hole” theory/allegation of serious non-disclosure (H’s Submissions paragraph 11).  He says that on many other points his case was accepted by the Court – the “over-housing” of the Wife, his claim that she had a significant earning capacity, and that the ultimate award must include orders for the sale of the Singapore properties.  He also submits that the Trial was lengthened unnecessarily by the Wife insisting on the calling of three experts – as to the value of the properties, the appraisal of the Husband’s wine collection and the Duxbury report – when their views were accepted by the Husband, and ultimately the Court. 

14.  The Wife submits otherwise and says that on several issues, her position was preferred, namely

a.  As to the alleged loss arising from the non-rental of the K Property, where the Court rejected the Husband’s argument that this should result in a downwards adjustment of the Wife’s award by way of compensation;

b.  As to the value of his wine collection, where the Court agreed that the wine had, overall, increased considerably in value from the date of the SJE report to Trial;

c.  As to the Husband’s claim that the Wife could expect a sizable inheritance from her father, on which the Court agreed with the Wife’s contentions; and

d.  The rejection of the Husband’s case that child maintenance for N should cease, as he is reporting for national service with the Singapore military. 

15.  Leaving aside for the moment the question of whether it was reasonable for the Wife to pursue her black hole theory and the question of unnecessary lengthening of the trial, which I will deal with under “conduct”, I maintain my view that neither party has won on all of the issues – the Husband did on some, the Wife on others.  On this Ground, I am not persuaded the Costs Order should be disturbed. 

Offers

16.  The Husband refers to three “without prejudice save as to costs” letters from his solicitors (“CRB”) to those acting for the Wife (“PCW”) dated respectively 19 September 2019, 1 September 2021 and 1 February 2022.  It is his contention that these constituted Sanctioned Offers, all made prior to Trial, and which he bettered at the Trial.

17.  The first of these proposed that the Wife would receive slightly more than half of the net matrimonial assets of approximately HK$200M, by the split of the properties in Singapore, K Property to the Wife and C Property to the Husband; a cash payment of HK$5M to the Wife, and various other adjustments to arrive at the broadly equal division of assets. 

18.  On 20 April 2021 the Wife advanced a Without Prejudice proposal of her own through PCW.  This was one week before the FDR on 27 April 2021.  This proposal argued for the ring-fencing of the Singapore properties on the basis of her assertion that when they were acquired, it was the common intention of the parties that they be held for the Children and for this reason they should be excluded from the matrimonial pool. The Wife also suggested the Husband had hidden assets (based on her estimate of his past income and the family expenses) and that the total family assets should be at least HK$345M – excluding the Singapore properties.  She did not dispute that the assets should be divided equally, but on her calculation this would result in her being entitled to approximately HK$172.5M with, as noted, the Singapore properties being excluded from the pot.  She proposed that the properties be transferred to her to hold on trust for the Children.  She sought a lump sum payment for the Children’s future maintenance. 

19.  The next WP offer was CRB’s letter dated 1 September 2021.  It proposed a slightly improved proposition to the offer of September 2019, namely that the Wife would receive 50.5% of the assets and the Husband 49.5%. All disclosed assets were to be divided, including the two Singapore properties. The letter did not explicitly reject the Wife’s case on the alleged hiding of assets, but it did not need to: the Husband’s position rejecting the Wife’s claim that he was hiding money or other assets has been made very clear in open correspondence and in his narrative affirmations. 

20.  The 1 September 2021 offer letter confirmed that the Husband would continue to support the Children at the rate of HK$25,475 per child per month with direct payment by him of their school fees, and that he would discuss with the Children directly on his support during their national service with the Singapore military, and during university. 

21.  The next offer came from PCW on 26 January 2022.  This proposed the transfer of the two Singapore properties to the Wife for $nil consideration for the use of the Wife and Children in the future and, “for the intended benefit of the Children”, a lump sum of HK$40M from Husband to Wife together with a somewhat reduced lump sum for the Children. 

22.  On 1 February 2022 the third and final “sanctioned” offer was made by the Husband. It proposed a 52%/48% split in favour of the Wife, the components of which included the sale of the K Property and equal division of the net proceeds, with the C Property to be transferred to the Wife and an overall reconciliation to achieve the proposed percentage split. It included an agreement to pay $30,000/month for the younger child, C, but none for N who had by this time turned 18 and commenced his national service in Singapore.  The offer was expressed to be open for acceptance “in its entirety” until 10am on 7 February 2022 (the second day of the Trial) after which the percentage split would revert to 50.05%/49.95%. 

23.  At Trial, as in the now disclosed WP communications, the Wife maintained that the Singapore properties should be hers, enabling them to be handed down to the Children in the fullness of time.  The Husband’s open position was that this was not possible, as they represented the majority of the matrimonial assets and that in order to achieve a fair division and, at the same time providing for the needs of the parties and the Children, the properties had to be sold. 

24.  The Wife’s black hole theory was that having regard to the Husband’s total earnings during the marriage, net of tax, and allowing for the family’s expenses over the years, the Husband must be possessed of far more wealth than he had disclosed.  The Wife could not be precise about exactly how much was missing but estimated it to be at least HK$100 million: Judgment, §15.  She relied heavily on her black hole theory to underpin her claim that the two Singapore properties, into which she had sunk all her pre-marital savings, should be transferred to her as part of her award. 

25.  This part of her case was rejected: Judgment, §§36-71. 

26.  The Husband says that “beat” each of his three offers at Trial and that it is a simple matter of applying O 22 r 23(5) and awarding him his costs from 17 October 2019 (28 days after the first sanctioned offer), and on an indemnity basis with interest at 10% above the judgment rate.  Alternatively, he says that each of the offers are expressed as Calderbank offers and, per Gojkovic, he should receive his costs as the final result in the Judgment was either the same as his offers or more favourable to him. 

27.  The Wife, in response, says that she was entitled to maintain at the Trial her position on the Singapore properties and her hidden asset/black hole theory, views she says were genuinely held and arguable.  She says that it is misleading of the Husband to assert that he succeeded in beating either the first or second sanctioned offers, and that it was only the third which numerically trumped the Judgment and then “only due to the phenomenal appreciation” of the Singapore Properties.  In any event, she says, the offer failed on the issue of maintenance for the Children. 

28.  She makes the same point in respect of the Open offers/proposals which are noted in the Judgment. Again, she says that she was entitled to maintain and argue her position at Trial and that her views were reasonably held.  She rejects the suggestion that she failed to negotiate reasonably. 

29.  In his Reply submissions on this point, the Husband maintained his position that the Wife’s case on the retention or ring-fencing of the Singapore properties and her black hole theory were both unrealistic and irrational and the fact that they may have been “genuinely held”, as the Wife claimed, is of no relevance. 

30.  I do not accept the Husband’s assertion that this is a simple matter of applying O. 22 r. 23.  I note that the second offer dated 1 September 2021 was expressed to be accepted if at all, “in its entirety”.  So too was the last WP offer, which, if accepted, would have deprived the Wife of any maintenance for the older of the two Children and for the younger when he attends National Service in Singapore.

31.  I bear in mind that Calderbank offers do not easily fit within matrimonial finance litigation as they do in ordinary civil litigation, such as a claim for damages for personal injury where it may be a simple mathematical analysis of comparing the offer with the final monetary award: W v K and Anor (Costs) [2008] HKFLR 387, at [16] – [19]; GW v RW [2003] 2 FLR 108. 

32.  What does resonate from this correspondence is that the parties were negotiating without any common ground on the net asset position.  This was due to the Wife’s insistence that the Husband was hiding very significant assets of at least HK$100M and that both of the Singapore properties should be transferred to her.  Neither of these was accepted by the Court in its Judgment. 

Conduct

33.  The Husband then says that the Wife was guilty of litigation misconduct by pursuing her black hole theory in her written evidence and then through to Trial. 

34.  Further, he says the Trial itself was unnecessarily lengthened by the calling of three witnesses.  I will deal with this point first. 

35.  I do not accept that the attendance at Trial of these witnesses was without good reason. 

36.  First, the calling of Ms. Fong enabled the Wife to put her case that the value Ms. Fong had attributed to the K Property (by far the more valuable of the two Singapore properties) was too high having regard to its location in Singapore, its overall condition and the “cooling measures” introduced by the Singapore government in 2021 (this last issue was also relevant to the estimated value of the C Property).  This was important evidence, and although ultimately the Court concluded that Ms. Fong’s valuations of the two properties constituted an appropriate basis for the purposes of the ultimate award, it was proper for the Wife to ask that she give evidence, which was of considerable assistance to the Court.  I should add that Ms. Fong being called enabled the Husband to put to her his case that the K Property was worth more than she had estimated. See Judgment, §§93 – 108.

37.  Secondly, as to Mr. Wainwright, the wine expert.  Approximately a day was spent on his evidence, during which he was questioned by both parties.  The majority of the questions were put by the Wife, both with respect to individual lots in the collection, which Mr. Wainwright agreed had risen in value since his report of only a few months before, as well as to particular categories: e.g. White Burgundies had decreased in value and Red Burgundies had increased, in Mr. Wainwright’s view. This was perfectly reasonable and the conclusion of the Court in what this meant in dollar terms was not insignificant: Judgment, §§109 – 121.

38.  Thirdly, as to Ms. Chi, the SJE who provided a Duxbury calculation.  Her report, and her oral evidence, were both important as they provided a basis on which the Court could assess the Wife’s claim for a lump sum to provide for her future needs on a life-long basis.  The analysis of her evidence, including in the witness-box, has been set out in the Judgment and there is no need to repeat it here: Judgment §§177-182.  I would add that Ms. Chi was appointed at a fairly late stage, only a matter of weeks before the Trial.  It was not unreasonable for the Wife to want her to give evidence at the Trial and for the Wife to put her case to Ms. Chi on various aspects, including which of the investment scenarios advanced by Ms. Chi should be adopted for the purpose of the correct Duxbury figure. 

39.  Of much more significant concern is the Wife’s persistence in maintaining her black hole theory throughout.  I have already referred to the passage in the Judgment which addressed this theory: §§36 – 71.  In my view, it was unreasonable for the Wife to pursue this aspect of her case.  She may well have genuinely believed it, but that is not sufficient.  The question is not simply whether something is genuinely believed, but whether this belief is reasonable and soundly based.  It was not, for the reasons explained in §§55 – 71 of the Judgment.

Conclusion

40.  The pursuit by the Wife of her black hole theory has been significant in three main respects.  First, it hampered any reasonable prospect of settlement, as the Wife approached negotiations at least in part on her belief that the Husband was vastly under-representing his true asset holding and she would not consider any settlement which did not include the Singapore properties being transferred to her.  Secondly, it forced the Husband to respond to the theory, in all its manifestations, in his written evidence and then again at Trial, resulting in him expending significant additional costs.  Thirdly, it added to the length of the Trial and the written Submissions which preceded and succeeded it.  Inter alia, the Husband was forced to respond to the various charts by which she sought to flesh out the mathematical basis of her theory, but these were only produced at the Trial itself and they were not the product of a professional forensic accounting analysis of the documents in evidence (Judgment, §§65 – 68). 

41.  I find that there is a basis to depart from the Costs Order nisi.  I intend to grant the Husband’s application to the extent that the Wife will be ordered to pay 20% of the Husband’s costs of the ancillary relief proceedings. 

42.  The Husband asks that these costs be assessed summarily on an indemnity basis. 

43.  I am aware of the power of the Court to assess costs summarily in lieu of taxed costs (O. 62, r.9), but in my view given the length of the case and the sum claimed, it is neither practicable nor appropriate for the Court to conduct a summary assessment, which is necessarily broad-brush (PD14.3/4).  A formal taxation will be required unless the parties are able to come to an agreement. 

44.  In seeking indemnity costs, the Husband refers to and relies upon the case of Clutterbuck v HSBC PLC and others [2015] EWHC 3233, which he submits as authority for the proposition that where a party unsuccessfully pursues an allegation of fraud, the Court is “very likely” to award indemnity costs.  That case involved an action in tort for deceit and/or negligence. One of the defendants to the action applied to strike out the action against him. Ultimately before the application was heard, the claimants filed a notice of discontinuance.  It was in these circumstances that the Court ordered costs to be paid by the claimants on an indemnity basis. 

45.  Nonetheless, I find that the Wife’s conduct in pursuing her case in this respect is of the kind which justifies an order that costs be taxed on an indemnity basis.  I have considered the relevant authorities, including those referred to in para 62/App/12, Hong Kong Civil Procedure, 2022 Edn, Vol 1.  The governing principle is that an award of indemnity costs must be “appropriate”: Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 (CA).  The Court must be additionally satisfied that the case has some “special or unusual feature” and the reasonableness of the conduct of the parties may also be relevant:  Town Planning Board v Society for Protection of the Harbour Limited [2004] HKCFA 22; (2004) 7 HKCFAR 114, at §§14 – 23.  See also, in the context of family cases, LYE v CWW [2005] HKFC 5; FCMC 14787/2002. 

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. 

47.  I therefore grant the Husband’s application to vary the Costs Order, and replace it with an order that the Wife do pay 20% of the Husband’s costs of the ancillary relief proceedings, to be taxed in default of agreement on an indemnity basis.  As the Husband has not been wholly successful in his application to vary the Costs Order, I will award him 50% of his costs of the Summons to be taxed in default of agreement, on a party and party basis.  In respect of both Orders, I grant a certificate for counsel. 

48.  I have borne in mind the financial consequences of this change to the Costs Order, and have noted the Husband’s Estimate of his costs of the ancillary relief proceedings.  I see no reason to alter the overall award set out in the Judgment.