TYM AND OTHERS v. WSP, THE INTENDED EXECUTRIX OF THE ESTATE OF LM, DECEASED AND ANOTHER

FCMP 309 / 2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS

NUMBER 309 OF 2014

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D E C I S I O N
(Variation of Costs Order)

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Introduction

1. By the Judgment dated 19 October 2016 (the “Judgment”), it was ordered nisi that the Applicants were to pay the 1^st Respondent the costs of the Hadkinson Application to be taxed if not agreed (the “Costs Order Nisi”).

2. There are before the court two applications:

(1)   The Applicants’ Summons dated 2 November 2016 for varying the Costs Order Nisi to the effect that there shall be no order as to costs between the parties notwithstanding the dismissal of the Hadkinson Application;

(2)   The 1^st Respondent’s Summons dated 4 November 2016 (filed on 21 November 2016) for varying the Costs Order Nisi to the extent that the costs awarded be payable forthwith.

3. In so far as it is necessary but not otherwise, it is not in serious dispute that leave should be given to the parties to take out the said applications out of time.

4. I shall first deal with the Applicants’ application.

The Applicants’ case

5. The grounds of the Applicants’ application are as follows:

(i)    The court should take into account the conduct of the parties and overall justice in the exercise of its discretion on the question of costs.

(ii)   The court should take into account the special feature of the Hadkinson Application that it was taken out to enforce the Consent Order dated 6 March 2016 (the “Consent Order”).

(iii)   The Applicants did not have any other effective means to enforce the Consent Order.

(iv)   The question of costs should not be approached on the over-simplistic basis of costs follow the event.  Due regard should be given to the question of whether the Hadkinson Application was reasonably taken out by the Applicants.

(v)   In face of her non-compliance, it was the 1^st Respondent’s burden to explain about the default.

(vi)   The Applicants were entitled to take active steps to enforce the consent Order.

(vii)   The 1^st Respondent’s consent to the making of the Consent Order was akin to an undertaking to the court and the Applicants that the estate of the Deceased had the means to pay and would pay the periodical payments.

(viii)  It was reasonable for the Applicants to assume that, at all material times, the 1^st Respondent had the means to comply with the Consent Order but wilfully refused to do so.

(ix)   Notwithstanding that the court held that the 1^st Respondent had adopted the “open position” that the estate of the Deceased did not have the cash flow to pay the interim periodical payments:

(a)   The Applicants had disputed such stance before the Consent Order was made.

(b)   After the making of the Consent Order, the Applicants could legitimately expect that the issue on the estate of the Deceased’s ability to pay had already been spent by the doctrine of merger, i.e. the 1^st Respondent had practically admitted/conceded about the estate of the Deceased’s ability to pay.

(c)   In such circumstance, the Applicants could reasonably assume the estate of the Deceased’s ability to pay and such matter should not be re-litigated during the Hadkinson Application.

(d)   Moreover, even according to the Profit and Loss Statements produced by the 1^st Respondent, Cheung Fat had an annual business turnover of more than HK$3M.  Such fact alone could cast reasonable doubt on whether the estate of Deceased was truly short of cash flow.

(x)   Despite that, after the 1^st Respondent defaulted in her payment in July 2015, the Applicants repeatedly chased for an explanation, the 1^st Respondent refused to give an explanation.

(xi)   It was only until the letter dated 19 April 2016 that she barely asserted that the estate of the Deceased was short of cash.  Although it would be necessary to apply to vary the Consent Order in the circumstance, she did not make any application for variation.

(xii)   From the above, it was submitted that the conduct and behaviour of the 1^st Respondent were deplorable and could reasonably give rise to an adverse inference that the 1^st Respondent was in wilful disregard of the Consent Order;

(xiii)  The 1^st Respondent was unresponsive from the Applicants’ request for documentary evidence of the financial situation of Cheung Fat’s business.

(xiv)  The Applicants’ inability to discharge the burden to adduce evidence to establish the 1^st Respondent’s contempt was indeed caused by her non-disclosure.  For such reason, it was not entirely correct to put the blame on the Applicants for the failure to prove wilful contempt.

(xv)   The Hadkinson Application would not have been necessarily taken out if the 1^st Respondent had acted in a more cooperative manner in relation to disclosure.

(xvi)  Speaking of the Profit and Loss Statements:

(a)   The Profit and Loss Statements were on the face appeared to be highly dubious; it was justifiable for the Applicants to believe that the Profit and Loss Statements could not be accepted on their face value.

(b)   It was submitted that, evidentially, the criticisms made on behalf of the Applicants regarding the 1^st Respondent’s assertions and/or the reliability of the Profit and Loss Statements still remained to be valid.

(c)   In particular, the Profit and Loss Statements highlighted the fact that there was no material change in the financial position of Cheung Fat before and after the Consent Order.

(d)   On the foregoing basis, it could not be fairly said that it was unreasonable or unduly speculative for the Applicants to put the 1^st Respondent to strict proof as to the estate of the Deceased’s ability to pay.

(xvii)  It was further submitted that the Court’s refusal to exercise its discretion to make a Hadkinson Order against the 1^st Respondent could not be equivalent to the notion that the 1^st Respondent was not at fault at all.

(xviii)It was a pity that the 1^st Respondent could rely on the fact that the Applicants were legally aided to argue that there was no impediment to the course of justice in the Hadkinson Application.

(xix)  Apparently, the greater injustice lied on the fact that the Applicants’ right to their daily needs as guaranteed under Consent Order became seriously undermined as a result of the 1^st Respondent’s non-compliance in her payment obligations.  Such injustice had to be redressed and reflected under the costs order.

My view

6. O 62 r 5(1)(e) of the Rules of the District Court (Cap 336H) provides that the Court shall place due regard to the conduct of the parties in exercising its discretion as to costs.  O 62 r 5(2) of the RDC further defines conduct of the parties to include the following matters:

(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.

7. It is accepted that after CJR, the costs follow the event principle no longer applies mechanistically as a general rule.  It only operates to shift the unsuccessful party the burden of showing why a different approach should be adopted.  See: Mega Yield International v Fonfair Co Ltd HCA 948 of 2009 (unrep, 14^th May 2013, § 6 to 12 per DHCJ Woo).

8. It is also accepted that the court would depart from ordering costs to follow the event in disallowing a successful defendant’s costs from his or her improper conduct which brought up the litigation.  See: Hung Fung Enterprises v Agricultural Bank of China [2012] 3 HKLRD 679 § 100-103 (with passages cited from Ritter v Godfrey [1920] 2 KB 47).

9. The Applicants accept that they are the losing party and that prima facie costs should follow the event. However, the Applicants proceed to suggest that the 1^st Respondent should be deprived of her costs in the Hadkinson Application even though the 1^st Respondent was successful in resisting the Hadkinson Application.  The Applicants’ contention is that the 1^st Respondent has brought the litigation on herself because she has breached the Consent Order.  I accept that the 1^st Respondent’s submission that that cannot be right, and that were they right, it would mean that in each and every contempt application (brought on the strength of a breach of an order), the applicant would always be shielded from any adverse costs order even if, ultimately, the application is ruled as unmeritorious.  Such a proposition would have the effect of encouraging unmeritorious contempt applications (whenever there is on the face a breach of a court order), which goes against the spirit of CJR.  This is particularly so in the present case where the Applicants have failed to even establish contempt on the 1^st Respondent’s part.

10. In the present case, in my Judgment:

(1)   Based on the Profit and Loss Statements produced by the 1^st Respondent, it is not shown (even on a balance of probabilities) that the 1^st Respondent was in contempt of court (Judgment §21);

(2)   While the failure to prove contempt would mean that the Hadkinson Application should be dismissed, the court proceeded to observe that it would exercise its discretion against the making of a Hadkinson Order in any event, since:

(a)   The fact that the 1^st Respondent had failed to pay the interim periodical payments did not impede the course of justice (Judgment §26); and

(b)   the effect of the court making a Hadkinson order will not advance the interests of justice (Judgment §27).

11. In my view, the Hadkinson Application should never have been brought at all.

12. I take notice of the Applicants’ contention that they had thought that the estate of the Deceased had the means to pay the interim periodical payment and their compliant that the 1^st Respondent did not supply the financial documents requested by the Applicants.  Yet, in my Judgment:

“18. The 1^st Respondent did not agree the fact that she had not applied for varying down the interim periodical payments suggested that she was evading payment rather than having been unable to pay. She remarked that as at December 2014, the Deceased’s estate only comprised only (a) Cheung Fat; (b) the Cooke Street Property and (c) balance in bank accounts in the sum of around HK$160,000 and before she accepted the consent order dated 6 March 2015, in her Affirmation dated 30 December 2014, she had already stated that there were insufficient cash flow in the Deceased’s estate to meet the Applicants’ request for interim maintenance, that she had been contributing significant amount of money to Cheung Fat, that looking at the liquid assets of Cheung Fat potentially available for distribution to the Applicants, a significant part thereof actually was her own money, and that should it prove too burdensome on her part, she would have no alternative but to cease contributing further money to Cheung Fat. In other words, it is always her open position that despite that Cheung Fat does not have the cash flow to pay the interim monthly periodical payments as requested by the Applicants, the payments were made possible by her own money, and she might choose not to accommodate the Applicants’ request with her own money anymore at any time. In the circumstance, despite the Applicants’ contention to the contrary, I consider that I should not make too much of the fact that the 1^st Respondent did not take out a formal application to vary down the monthly periodical payments.

19. The 1^st Respondent also did not agree that she had no justification to vary down the money periodical payments. She produced the Profit and Loss Statements of Cheung Fat. It can be seen from those document, which were submitted to the Inland Revenue Department, that the net profits of Cheung Fat for year 2014/2015 and 2015/2016 were HK$84,572.53 and HK$75,483.6 respectively. She argued that, in view of the downturn in the business of Cheung Fat, after the balance in the bank accounts were fully paid out to the Applicants pursuant to the Order dated 6 March 2015, she was only able to pay 50% of the interim monthly periodical payments.

20.   It is the Applicants’ contention that the Profit and Loss Statements produced by the 1^st Respondent are self serving, and they also made complaint about that the 1^st Respondent has not provided the accounts and ledgers of Cheung Fat, or the authorization letter to the Applicants for making an enquiry with the Food & Environmental Department about the records of burial and cremation undertaken by Cheung Fat.  Up to the present stage, however, I consider that it is not readily apparent to me that the Profit and Loss Statements produced are unreliable.  Despite the Applicants’ contentions to the contrary, I do not see that it is inherently improbable that the business of Cheung Fat got worse after the death of the Deceased, or that the expenses of Cheung Fat went up when its incomes went down.  Suffice to say, as life happens, there are tons of ups and downs.”

13. In my view, it is unreasonable for the Applicants to pursue the Hadkinson Application and there is therefore no basis to deprive the 1^st Respondent of costs.  The Applicants’ application by the Summons dated 2 November 2016 for varying the Costs Order Nisi must fail.

14. I now turn to the 1^st Respondent’s application. 

The 1^st Respondent’s Application

15. In opposing to such application, the Applicants refer to O 62 r 9D(1) and (2) of the RDC which provides:

(1)  … the costs of any proceedings shall not be taxed until the conclusion of the action.

(2)  If it appears to the Court when making a costs order that all or any part of the costs ought to be taxed at an earlier stage it may order accordingly.

and O 62 r 9D(3) of the RDC that provides:

“No order may be made under paragraph (2) in a case where the person against whom the costs order is made is an aided person”

16. The Applicants therefore suggested that no forthwith costs order should be made against them as they were legally aided.  However, nothing in O 62 r 9D prohibits the court from ordering the costs of an interlocutory application to be paid by a legally aided person forthwith upon summary assessment.  In fact, in Lam Sai Kit v Poon Kwok Hung, HCA 580/2010 (unrep, 19 January 2011, §32 Poon J), it was held that the legally aided plaintiff should pay the costs of the unsuccessful O.14 application to the defendants forthwith.

17. In Midland Business Management Ltd v Lo Man Kui (No 2) [2011] 2 HKLRD 667 §§9-12, it was held that:

7.  In my judgment, what emerges from Kickers International SA v Paul Kettle Agencies Ltd and Naf Naf SA v Dickens (London) Ltd is neatly summarised by Hoffmann J (as he then was) at p.429 of Naf Naf SA v Dickens (London) Ltd:

I indicated in a judgment in [Kickers International SA v Paul Kettle Agencies Ltd] the matters which ought to be taken into consideration in deciding whether or not to make an order for immediate taxation and as I remember them, what they were concerned with was, first of all, the extent to which the proceedings are from a taxation point of view severable and self-contained from the rest of the action, secondly the justice of making such an order having regard to the effect on the cash flow of the respective parties, and the third matter to be taken into account was whether the amount at stake on the taxation was sufficient to justify putting the parties to the expense of having a separate taxation for it rather than bringing it in on the final taxation.

8.  In Kickers International SA v Paul Kettle Agencies Ltd, Hoffmann J also referred to the possibility that there may be no trial.  His Lordship also emphasised that his list of factors was not intended to be exhaustive, see p.439.  Thus Ms Tam is correct in pointing out that the Kickers approach is not set in stone and the Court must still exercise its discretion having regard to all relevant circumstances.

9.  Under Civil Justice Reform, the court is encouraged to order immediate payment of costs of interlocutory proceedings and if possible by way of summary assessment of costs.  The objective is to discourage unnecessary and disproportionate interlocutory applications.  It is recognised that the lack of immediacy of orders to pays costs “in the cause” or “in any event” weakens costs as a sanction against unwarranted applications or resistance, see paras. 529-536 of the Final Report of the Chief Justice’s Working Party on Civil Justice Reform.

10.   By reason of O.62 r.5(1)(aa), the court should take into account the underlying objectives in O.1A r.1 in the exercise of its discretion.  The objective in r.1(a), 1(c) and 1(d) are particularly relevant in the present context.  In my view, the approach recommended by the Working Party should be adopted in furtherance of these objectives.  Unwarranted interlocutory applications should normally be sanctioned by an immediate costs order.

11.   In so saying, I must not be taken as saying that an immediate costs order should be made against every unsuccessful party in any interlocutory application.  I can readily see that there are cases where such a party may have a proper justification for making an interlocutory application even though he fails at the end of the day.  There could also be cases where the court considers that it would be more appropriate to make an order “in any event” or “in the cause” or to reserve costs.

12.   However, what I do say is that after Civil Justice Reform the court is more astute to the impact of costs on legal proceedings and an order for immediate payment of costs will be made more readily as a discipline against unmeritorious interlocutory applications.”

18. It can be seen from the above that, in making a decision on the 1^st Respondent’s application, relevant considerations include:

(a)   the extent to which the proceedings on taxation were severable and self-contained from the rest of the action;

(b)   the justice of making such an order having regard to the effect on the respective parties’ cash flow;

(c)   whether the amount at stake on taxation was sufficient to justify the expense of a separate taxation for it rather than bringing it on the final taxation.

19. In the present case:

(1)   It is my finding that it is unreasonable for the Applicants to pursue the Hadkinson Application.

(2)   The Hadkinson Application has little bearing on the substantive merits of the Applicants’ claim in these proceedings, and is readily severable and self-contained.

(3)   If an immediate costs order is made, it will have no effect on the Applicants’ cash flow since they are legally aided.  On the contrary, the costs of these legal proceedings have had an adverse effect on the 1^st Respondent, given that she is acting in the capacity as the estate of the Deceased’s personal representative, and it is my Judgment that the estate of the Deceased has had cash flow problem.

(4)   It also appears that the amount of costs at stake is sufficient to justify summary assessment and to be payable forthwith.

Dispositions

20. In conclusion, it is ordered that the Applicants’ application be dismissed, the time for the filing and service of the 1^st Respondent’s Summons be abridged, and the costs awarded under the Costs Order Nisi be payable forthwith and to be assessed summarily.

21. It is ordered nisi that the Applicants shall pay the 1^st Respondent’s costs of the Summons dated 2 November 2016 and the Summons dated 4 November 2016 (filed on 21 November 2016) forthwith, to be assessed summarily.

22. It is further directed that:

(a)   The 1^st Respondent shall lodge with the court and serve on the Applicants the Statement of Costs within 28 days of this order;

(b)   The Applicants shall lodge with the court and serve on the 1^st Respondent the List of Objections within 28 days thereafter;

(c)   The 1^st Respondent shall lodge with the court and serve on the Applicants the Reply within 14 days thereafter, if any;

(d)   Subject to further directions, the court will make the summary assessment on the papers.