TSF v. YMSW

FCMC 11790 / 2013

[2018] HKFC 234

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 11790 OF 2013

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D E C I S I O N
(Costs of aborted Summons)

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Background

1.  The Petitioner and the Respondent are respectively Husband and Wife in these proceedings.  For the sake of convenience, I will refer to them as “H” and “W” in this Decision.

2.  The divorce proceedings have been concluded.  Decree Nisi was granted on 8 May 2015.  Parties through their respective legal representatives managed to achieve settlement on children issues and global settlement over ancillary reliefs which was embodied in a 34-page Consent Order dated 19 October 2015 (“Consent Order”).  There are comprehensive mutual agreements, acknowledgement and undertakings in the Consent Order over finance arrangement.  The Decree Nisi was then made absolute on 12 November 2015.

3.  The present dispute arises from Recital F in the Consent Order.  Recital F specifically deals with a property which I will refer to it as “Property X” and which, amongst other arrangements, provides each party with an option to purchase.  It is W’s case that she had exercised the option to purchase and by reason thereof a legally binding sale and purchase agreement (“SPA”) came into existence which H now disputed. Suffice to say is that W had commenced proceedings against H in the Court of First Instance on 8 June 2018 under HCA No.1334 of 2018 in respect of the SPA.

4.  For the sake of completeness, Recital F of the Consent Order is now set out as follows :-

“F. AND UPON the Respondent and the Petitioner agreeing and undertaking to the Court and to each other that, in respect of Property X :-

(i)  Upon signing of the said Consent Summons, the parties shall at their own costs enter into a Consent Summons to discharge and vacate the registration of Certified True Copy Notice of an Application for Ancillary Relief in FCMC 12016 of 2009 by Memorial No.091xxxxxxx0017 (“the 2009 Notice”). The Petitioner shall provide to the Respondent the original of the 2009 Notice together with the original of the relevant Order to discharge the 2009 Notice duly registered within 2 months from 12^th October 2015;

(ii)  The Form A (Form 25) registered by the Petitioner against Property X on 22^nd August 2013 by Memorial No.130xxxxxxx0016 (“the said Form A”) shall remain registered until the agreed sale of the Property X whereupon the Petitioner shall at the parties’ own costs discharge and vacate the registration of the said Form A;

(iii)  The Respondent will not create or cause any new mortgage, charge or encumbrance to be made against Property X;

(iv)  The Petitioner or the Respondent may each provide 14 days’ written notice to the other party demanding the sale of Property X (such 14 days’ written notice shall be calculated by reference to the days when the other party is in Hong Kong), to which the other shall agree Provided That the said other party shall have the first right to purchase it at market valuation (i.e. at a price to be agreed by both parties, failing agreement they are to obtain an independent valuation within 7 days and the average of the 2 valuations shall be used as the market valuation). Such first right to purchase shall be exercised within 14 days after the date of the said written demand for sale and the sale and purchase shall then be completed within 60 days thereafter;

(v)  In the event the Respondent sells Property X without the knowledge of the Petitioner, the Respondent shall pay the Petitioner a sum equivalent to 60% of the net sale proceeds (i.e. the selling price less the outstanding mortgage at the time Property X is sold, repair costs (if any), valuation fees (if any), legal costs and expenses and estate agency fees) within 7 days after completion of the sale. In the event that the Petitioner does not agree to the selling price (when the sale is without the knowledge of the Petitioner), each of the parties shall obtain an independent valuation within 14 days and the average of the 2 valuations (if it is higher than the actual selling price) shall be used for calculation of the net sale proceeds and the Petitioner's share of the net sale proceeds shall be adjusted accordingly;

(vi)  The parties are to discuss and agree on the sale price within 14 days of the notice in Recital F(iv) above, failing which each of them shall have Property X independently valued within 7 days thereafter and the sale price will be the average of the two valuations unless otherwise agreed by the parties in writing;

(vii)  After deducting the cost of sale for Property X (i.e. redemption money for discharge of the outstanding mortgage and legal charge, repair costs (if any), valuation fees (if any), legal costs and expenses and estate agency fees), the net proceeds of sale, including any deposits received from the purchaser, will be divided equally between the Petitioner and the Respondent; and

(viii)  Prior to sale of Property X above and subject to Recitals D(iii) and D(v) above :-

(a)  Property X is to be rented out to a third party at an amount to be agreed in writing between the parties, failing which, the rental amount will be set at the Prevailing Market Rate of Rental calculated pursuant to Recital H below;

(b)  Property X is to be rented out with the written consent of both parties. If either one of the parties refuses to rent out Property X, the refusing party shall pay 50% of the Prevailing Market Rate of Rental to the other party and pay half the expenses and costs of the upkeep of Property X, including any mortgage repayment, property tax (if any), Rates, Government Rent, rent for short-term tenancy of the car park, maintenance of the swimming pool, maintenance and costs of upkeep, etc. but excluding all utilities consumed thereon or therein (“Expenses”)(and the remaining 50% of the Expenses shall be borne and paid by the other party) and have the option of living at Property X should he/she wish and the party residing at Property X shall be solely responsible for payment of all charges for telephone, gas, water and electricity consumed thereon or therein and shall apply and pay all necessary deposits for the supply of electricity gas water and telephone services thereto when required. For the avoidance of doubt, such Prevailing Market Rate of Rental shall be adjusted every 2 years and paid accordingly;

(c)  The rental and any other amount generated by Property X and actually received from any third party (“Income”) shall be used towards meeting the Expenses;

(d)  If there is any surplus Income after settling all Expenses each month, this amount shall be divided equally between the Petitioner and the Respondent and is to be paid into the Petitioner’s and the Respondent’s respective bank accounts on or before the last day of each leasing month. For the avoidance of doubt, if both parties are residing under the same roof, the Respondent shall use the surplus Income (after settling the Expenses each month save and except that the expenses on maintenance, upkeep, repairs and purchase of household appliances for the use of the tenant shall be paid by the parties in equal shares) to meet the general household expenses and the children’s expenses in accordance with Recital D(v) above, and Recital D(v) shall apply accordingly;

(e)  Regardless of whether the parties are residing under the same roof or not, if the Income is insufficient to meet the Expenses, then the shortfall shall be paid by the Petitioner and the Respondent in equal shares and if there is no tenant in Property X, the Expenses shall be settled by the Petitioner and the Respondent in equal shares; and

(f)  If the parties are residing under the same roof but the Income is insufficient to meet the Expenses or there is no tenant at Property X, the parties shall immediately work out and agree on an updated list of the general household expenses and the children’s expenses, and after deduction of the sum of HK$88,500 per month to be paid by the Petitioner pursuant to Recital D(iv) above, any shortfall of the said general household expenses and the children’s expenses shall be shared by the parties equally.”

The Summons taken out by W

5.  On 14 December 2017, W issued a Summons (“Vacation Summons”) seeking to vacate the charge registered against Property X under Memorial No.130xxxxxxx0016 by H. The Summons was scheduled for a 15-minute call-over hearing on 5 February 2018.  Parties were able to agree on directions for exchange of affirmations and the call-over hearing was then vacated for a date to be fixed for substantive argument with half day reserved.[1] The substantive argument was then fixed for 18 July 2018 at 10:30 a.m.

6.  In compliance with the agreed directions, parties filed and exchanged their respective affirmations.

7.  On 13 July 2018, W issued a Summons seeking leave to withdraw the Vacation Summons which, with leave of the Court, was scheduled for hearing today at 10:00 a.m. prior to the trial.  Leave was granted for W to withdraw the Vacation Summons leaving behind the question of costs of the Vacation Summons and of today’s hearing be reserved for determination.

HCA No.1334 of 2018 commenced by W

8.  As said, W commenced proceedings against H in the Court of First Instance under HCA No.1334 of 2018 on 8 June 2018 seeking declaratory reliefs in connection with the SPA which H disputed.  There was also an alternative claim for losses and damages.  I was informed by the parties that the proceedings in the Court of First Instance are ongoing at the time of this hearing.

9.  Shortly after commencement of the proceedings in the Court of First Instance, there were letters exchanged between H’s and W’s lawyers.  By that time, it was suggested by W to have the Vacation Summons adjourned sine die pending determination of HCA No.1334 of 2018.  Eventually, W decided to seek withdrawal of the Vacation Summons as opposed to adjourning it sine die.

The Husband’s contention

10.  H’s Counsel in his written submissions, apart from citing the legal principles on costs generally, also referred to a number of cases such as Trend Publishing (HK) Limited v. Vivien Chen & Co. [1996] 2 HKLR; Sawlani v. Sawlani (HCA 2231/2011) and Re: China Solar Energy Holdings Limited (HCCW 108/2015) and Re Lucky Ford Industrial Ltd [2013] 3 HKLRD 550 where costs order was granted against the party seeking to discontinue or withdraw the proceedings in which he or she had initiated.

11.  Reference was also made to the factual background as well as the procedural history leading up to the present dispute which necessitated the parties coming back to the Family Court for reliefs. H raised doubts over W’s conduct of litigation for commencing the HCA No.1334 of 2018 and also went further into the merits of such proceedings.

12.  H criticised W for abusing the Court process without justification when dealing with matters which essentially are enforcement by nature thus falling within the Family Court’s jurisdiction (citing De Lasala v. De Lasala [1980] AC 546) but was somehow disingenuously taken up by W as separate proceedings in the Court of First Instance.

The Court’s Views

13.  To start with, costs are always a matter of discretion for the Courts.  With the coming into force of the Civil Justice Reform, the long established rule of costs following the event has now been taken precedence by the introduction of new Order 62 Rule 5 of the Hong Kong Civil Procedure (“HKCP”) 2018.

14.  Order 62 Rule 5 of the HKCP 2018 reads :-

“5(1)  The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

(aa)  the underlying objectives set out in Order 1A, rule 1;

(a)  any such offer of contribution as is mentioned in Order 16, rule 10, which is brought to its attention in pursuance of a reserved right to do so;

(b)  any payment of money into court and the amount of such payment;

(c)  any written offer made under Order 33, rule 4A(2);

(d)  any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(e)  the conduct of all the parties;

(f)  whether a party has succeeded on part of his case, even if he has not been wholly successful;

(g)  any admissible offer to settle made by a party, which is drawn to the Court’s attention.

(2)  For the purpose of paragraph (1)(e), the conduct of the parties includes –

(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.”

15.  Those cases of Trend Publishing and Sawlani (supra) referred by H’s Counsel dealt with discontinuance of the entire proceedings when the issues between the parties had become academic.  In Re China Solar (supra), Deputy High Court Judge Le Pichon (as she then was) cited with approval the applicable legal principles set forth in English Court of Appeal decision in Brookes v. HSBC Bank plc [2011] EWCA Civ 354 when considering the costs of an aborted application. 

16.  Whilst I am bound by the authorities cited, I find the facts of the present case distinguishable from those cases. 

17.  In the Re China Solar case, the 1^st opposing contributories in that case (which I noted was represented by H’s Counsel in the present case) was granted leave to withdraw their summons originally intended for setting aside a court order for appointment of provisional liquidators and for other reliefs.  It was found by the Court that the considerations motivating the 1^st opposing contributories not to proceed with their summons are insufficient to justify a departure from the normal rule of costs following the event[2].  The 1^st opposing contributories were ordered to pay costs for the withdrawal of their summons under the principles enunciated in the Brookes case (supra). 

18.  In the present case, W is asserting a positive case (my emphasis) of having validly exercised the option to purchase Property X as a result of which the SPA came into existence.  H is now challenging the existence of the SPA.  The existence or absence of the SPA is thus a live issue depending on the Court’s findings of fact after trial in HCA No.1334 of 2018.

19.  Under Clause F(ii) of the Consent Order, the charge which W is now seeking to vacate ought to be discharged and vacated by H but for his contention over the SPA.  Thus the Vacation Summons could not be said to have been rendered futile by H’s contention and need to be withdrawn as a matter of course or necessity.  The Vacation Summons could, in my view, stand on its way pending disposal after determination of the SPA issue by the Court of First Instance.  W’s withdrawal of the Vacation Summons was merely a matter of better case management or convenience which W should not be penalised for costs.  This is factually different from the scenario in the Re China Solar case and is thus distinguishable.

20.  As for the cases of Trend Publishing and Sawlani (supra), the withdrawal related to the entire proceedings.  Withdrawal of a step taken within proceedings is different from withdrawal of the entire proceedings.

21.  Moreover, the present dispute could hardly be said to be within the ambit of enforcement under Recital F of the Consent Order.  As a matter of fact, this is a step taken by W further and beyond enforcement.  Thus, I do not accept H’s Counsel’s submission of W disingenuously commenced proceedings in the Court of First Instance which could have been resolved in the Family Court.  There is no question of any “forum shopping” and W is legitimately entitled to do so.  Quite to the contrary, I can hardly see what kind of reliefs W could readily obtain from the Family Court when the existence of the SPA or any obligation to sell was raised as an issue by H.  With respect, H’s Counsel’s submission of the applicability of section 6A(2)(b) of the Matrimonial Proceedings and Property Ordinance, Cap.192, to the present dispute is incorrect.  Such statutory provision is only applicable when there was no issue of obligation to sell, whether under the SPA or otherwise. This is plainly not H’s position.

22.  As rightly submitted by W’s Counsel Mr. Jeremy Chan, had HCA No.1334 of 2018 been decided in W’s favour at the end of the day finding the existence of the SPA, it follows the Vacation Summons was justifiably issued and that W should be entitled to the costs of it.  Since H had fairly conceded to the withdrawal of the Vacation Summons, there is no basis for H turning around to seek the costs of the Vacation Summons at this stage whilst justification of the Vacation Summons has yet to be seen.  I accept W’s Counsel’s submission that such costs should be reserved rather than determined at this stage.  Moreover, there is also no issue as to any wasted costs at this stage which H could seek against W.

23.  As to W’s change of stance 3 days ahead of the substantive trial from seeking adjournment sine die to a complete withdrawal of the Vacation Summons, H’s Counsel had not been able to persuade this Court of any prejudice that H might have suffered, in terms of costs or otherwise, which could not be remedied at a later stage upon revival of the reserved costs.      

24.  Finally, I do not accept that it is appropriate for the costs in issue here to be reserved in the cause of HCA No.1334 of 2018.  I also do not see any complexity which call for Certificate for Counsel.

25.  For all the above reasons, I find in favour of W in that the costs of the Vacation Summons and of today’s hearing be reserved. 

Order

26.  I now make the following Orders :-

(a)  The costs of W’s Summons dated 13 July 2018 be reserved; and

(b)  The costs of today’s hearing be reserved.

27.  This is a costs order nisi which will become absolute unless any party applies to vary it within 14 days from today.