NLT v. LYKJ

FCMC 8680 / 2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 8680 OF 2012

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RULING
(Costs on a defended suit)

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Introduction

1.  This is an application by a respondent husband who challenged my costs order nisi that he do pay the wife’s costs of and incidental to a defended suit. He does so because he says that he offered to settle the matter and that the wife unreasonably refused to agree to his proposal.

Background

2.  On the 25 October 2013 I handed down a judgment in which I granted the petitioner wife a divorce based on the husband’s unreasonable behaviour. At the end of that judgment I said as follows:

Conclusion

24.  I will therefore grant a decree nisi of divorce based on the husband’s unreasonable behaviour.  In doing so I accept that the behavior complained of falls within the lower end of the spectrum deemed to be unreasonable. It is though quite clear that this marriage has broken down irretrievably and that there is no possibility, certainly as things stand at present, of a reconciliation. I am also of the view that this matter can and should have been dealt with differently and by consensus if at all possible. Trials of this nature only serve to make things worse between parties. This is to be avoided where at all possible, especially where children are concerned.

25.  The husband was warned on several occasions of the possible cost consequences if he failed to be reasonable. I understand and appreciate his concerns, but notwithstanding that I intend to make an order nisi to be made absolute in 28 days time that the husband do pay the wife’s costs of and incidental to the suit, including any costs reserved on a party and party basis with certificate for counsel.

…

27.  Written submissions [on costs] to be filed within 28 days.  

3.  I should add that generally speaking defended suits are never encouraged by the courts. Thus parties are routinely told during any preliminary hearings prior to trial, that there will be cost consequences in the event that one or other of the parties is deemed to be unreasonable, regardless of the outcome.

4.  The judgment on the defended suit was handed down on the 25 October 2013. The husband had acted for himself during the trial. Following the delivery of the judgment in open court the husband said that he had been prepared to compromise the matter on the basis of one year separation with consent. This came as something of a surprise given that the parties had been encouraged to try to compromise the matter throughout and had seemingly been unable to do so.

Delay

5.  There was then a significant delay in relation to the costs issue caused in part by new solicitors coming on the record for the husband post trial. They attempted to rely on an alleged settlement proposal dated the 23 September 2013 that the divorce proceed on the basis of husband’s unreasonable behaviour.

6.  It later transpired that no such offer was ever received by the wife. It is still not clear how this confusion arose. In any event this situation led to the cost hearing being delayed whilst the matter was clarified.  

7.  Subsequently initial attempts to deal with this matter on paper proved to be fruitless – mainly because it became difficult to follow the sequence of events that occurred both immediately prior to and after trial. Other difficulties followed. The matter was finally set down for hearing on the 11 March 2015. In the intervening period there have been numerous hearings pertaining to the children plus a maintenance pending suit hearing. Although the level of conflict between the parties remains very high, they are to be commended for being able to settle some matters relating to the children in a series of Children Dispute Resolution hearings. Final ancillary relief has not yet been resolved.

The issue

8.  The issues to be determined in this Ruling then are as follows: a) what is the appropriate order for costs bearing in mind the outcome of the trial and the without prejudice negotiations entered into prior to that trial. b) should there be any cost consequences arising out of the nonexistent offer of compromise of the 23 September 2013?    

The judgment

9.  It is clear from the judgment that there was an issue concerning the separation between the parties. At paragraph 2 I said as follows: 

2.  It would appear from both parties testimony that this marriage has been in considerable difficulty for a very long period of time. The wife makes a number of allegations against the husband most of which he denies. What is not in dispute however is that the wife moved out of the matrimonial home in May 2009 after a very heated argument, which also involved the elder child. Shortly thereafter the wife discovered incriminating evidence which implied that the husband was having an affair. The husband accepts that to be the case. He says that he had a relationship outside the marriage sometime between 2007 and 2008. The wife discovered this in June 2009. Both parties agree that their sexual relationship came to an end from May 2009 when the wife moved out.

3.  t seems that the wife’s father then intervened in an informal way and that he acted as a middle man helping the parties to resolve disputes as and when they arose. It was because of this that the parties agreed, rather strangely in the circumstances, that the wife moving out in May 2009 would not constitute a separation for legal purposes and they entered into an agreement to that effect. It is not clear whether the parties were legally represented at that time.

4.  Two years later in May 2011 the wife moved back into the matrimonial home but it does not seem that this was in order to effect reconciliation. Rather it seems to be accepted that there was an arrangement between the two whereby the husband supported her financially and the wife agreed to take care of the children’s homework. The husband in turn cooked and undertook most of the household chores. To all intents and purposes it seems that the parties were simply “flat sharing” and dividing up their domestic responsibilities between the two of them. There is some dispute regarding the extent to which they interacted socially or as a family. However, their marital relationship did not recommence and that much is clear.

5.  The wife now asks that the marriage be dissolved, something that even now is still being resisted by the husband.

10.  At paragraph 10 – 12 I added:

10.  Consequently the question that arose in this case was whether or not the parties had been separated for two years when the wife issued her [unreasonable behaviour] divorce petition in June 2012. The difficulty in this instance however, is that although the parties had begun living separately and apart in May 2009, they had also entered into an agreement which stated quite categorically that they were not legally separated.

11.  Further, the wife for her part said in the witness box that she did not formulate the intention to separate until sometime in 2010 which is after she left the matrimonial home initially in May 2009. Up until that point she had still held out some hope that the marriage could be saved. She said that she had been very shocked when she discovered the photographs of the husband with another woman in June 2009 but she did not actually decide that the marriage was over from her perspective until sometime between 2010 and 2011. During that time her father acted as an informal middle man and attempted to mediate between the couple. This led in part to the wife moving back to the matrimonial home in May 2011. Unfortunately from the wife’s perspective the situation between her and the husband did not improve and she then decided to proceed with a divorce. As I have said she issued proceedings on the 18 June 2012.

12.  Unfortunately this sequence of events has made it difficult to determine when exactly the husband and wife became separated. This has meant that a short trial has become inevitable. 

11.   Put simply then, based on the evidence before me at the time, I found largely in favour of the wife and I pronounced a decree nisi based on the husband’s unreasonable behaviour. 

The without prejudice correspondence

12.  It is now clear that immediately prior to the trial a number of without prejudice letters passed between the parties. These are as follows:

Date	Letter From	Contents/Events
2/9/13	H’s solicitors	The husband offered to settle the divorce based on one year separation with consent
5/9/13	W’s solicitors	The wife agreed to a divorce based on one year separation with consent on condition that the husband paid the costs of the petition
11/9/13	H’s solicitors	The husband sent a draft consent summons without stating the date of separation
16/9/13	W’s solicitors	The wife pointed out that there would be technical issues without identifying what those might be. She also did not accept the husband’s proposal on costs
16/9/13	H’s solicitors	The husband sent a chasing letter which crossed over with the wife’s letter of the same date
23/9/13	H’s solicitors	The husband sent another letter with a draft consent summons attached but again did not provide a date of separation
25/9/13	W’s solicitors	The wife stated that she would only proceed on the basis of her original unreasonable behaviour petition

13.  The real difficulty with these letters is that they are lacking in detail. Further, on the face of it no attempt seems to have been made by either side to discuss the matter fully or to otherwise seek a sensible compromise on the issue of the divorce. Attempts were made by counsel for the wife to give evidence from the bench on this point and to also file an affidavit setting out her version of events, whilst still acting for the wife. This was not permitted. In any event what is clear is that the without prejudice correspondence – such as it is, and putting it as neutrally as I can, is very limited in scope. Both sides must accept some responsibility for this. For example when the husband’s solicitors wrote on the 11 September 2013 enclosing a draft consent summons based on 1 year separation with consent, it is clear that the date of separation was not stated nor agreed; further it was not clear whether the original petition could be amended or whether a further petition would be necessary. None of this is stated in the letter. There is no proposal relating to the date of separation. In turn none of this is identified in the wife’s solicitor’s letter in response of the 16 September. That letter simply says that the court would not allow the petition to be amended in the way proposed. There is no further detail in that letter either. Just as the husband should have provided a full offer of settlement containing all relevant detail, likewise so should the wife have set out clearly what she identified as being the difficulties with the husband’s proposal. It was also incumbent upon her to make a sensible counter proposal. Instead she simply reverted back to the original petition based on unreasonable behaviour. It should also be noted that many of the unreasonable behaviour particulars relied upon by the wife were not accepted at trial. So although the wife could be said to have “won” she did not “win” on all the points raised.

14.  Counsel for the wife says that her client had no alternative but to proceed with the trial because there were difficulties with the period of separation. However this is something that only became clear during the hearing. I do not necessarily accept that that was a reason for not settling matters prior to the trial. Certainly it was not something that was raised properly in correspondence. If the period of separation was perceived to be a problem then that was something that could and should have been identified in the without prejudice letters and discussed. In the event that both parties agreed that they had not infact been separated for a year then alternatives could also have been explored. On the face of it I blame both parties for this impasse. This is a case that can and should have settled.

Following the trial

15.  Following the trial further difficulties ensued when the husband’s new solicitors maintained that the husband had offered to settle the issue of the divorce based on unreasonable behaviour. Reference to a consent summons attached to a letter dated the 23 September 2013 was referred to in their written submission on costs. Not surprisingly perhaps the wife’s solicitors wrote to the court pointing out that they had never received such a letter. Consequently although the husband’s solicitors filed a revised submission on costs on the 27 November 2013 removing this reference, the damage was done and it was necessary for the matter to be further clarified. Further issues arose over confusion between other letters. In any event what is clear is that the wife’s solicitors did not receive the letter dated the 23 September 2013 originally attached to the submission on costs. Foul play was suspected. However on the face of the evidence before me I think that is probably unlikely – but certainly costly mistakes were made which only served to raise the temperature between the parties even higher and for no useful purpose.

The law

16.  The relevant law is not in dispute and can be found in Order 62 RHC on costs. To summarize it is accepted that the issue of costs lies in the discretion of the court and that costs are normally expected to follow the event.  This presumption is more easily displaced in family proceedings than in others. In exercising the courts discretion reference can also be made to a number of factors as set out in Order 62 r 5 including inter alia any without prejudice save as to costs letters, the litigation conduct of the parties and whether either party could be said to have succeeded in whole or in part.

Each party’s respective positions on costs

17.  In counsel’s oral submissions the husband asks that there be no order as to costs up until the 1 September 2013. (On the 2 September the husband sent his first without prejudice save as to costs letter to the wife). Thereafter, i.e. from the 2 September 2013 the husband seeks his costs from the wife on an indemnity basis.

18.  The wife for her part says that she “won” the trial and that therefore costs should follow the event. She asks for her costs on a party and party basis up until the 21 November 2013 (which is when the husband’s then solicitors filed their submission on costs) and costs on an indemnity basis thereafter.

Decision

19.  Bearing in mind all of the above it seems to me that the most appropriate order is that there should be no order as to costs up until the 1 September 2013. Thereafter i.e. from the 2 September 2013 to the 10 March 2015 the husband shall pay 50% of the wife’s costs of and arising out of the defended suit on a party and party basis to be taxed if not agreed. There shall be certificate for all counsel involved. It seems to me that this order recognises the following facts:

a)  The husband did attempt to settle matters on sensible terms. Had he not done so then the original order on costs would most likely have remained in place. But although he attempted to compromise the matter, his offer was not a detailed one and it was not one that he followed up on fully. Likewise this order recognises that the wife failed to enter into sensible and fruitful settlement negotiations with the husband at this stage. As I have said both sides must bear some responsibility for the fact that the settlement negotiations failed needlessly;

b)  It also recognises that the wife was ultimately successful in the trial - although as I have said she was not successful on all of the particulars contained in the original divorce petition;

c)  In so far as the costs from the 21 November 2013 to the 11 March 2015 are concerned I accept that these arose in part because of what appears to have been a mistake by the husband’s then solicitors. However this mistake was corrected on 27 November 2013. There were also a number of hearings during the period which followed and both parties filed written submissions on costs which were relied on in part during the hearing on the 11 March 2015. In such circumstances it seems to me that the husband should pay a contribution towards the wife’s costs during this period also. A 50% contribution seemed fair and reasonable in all the circumstances, such costs to be taxed on a party and party basis if not agreed. This recognises the mistakes made by the husband’s legal team and the cost consequences which flowed from that mistake. I do not accept that the mistake was of such magnitude as to lead to an indemnity costs order. Neither do I think that the husband should be wholly responsible for the wife’s costs during this period.

20.  Given that I have not found completely for one side or the other there shall be no order as to costs of this hearing.