M v. M

FCMC 5793/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 5793 OF 2006

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JUDGMENT  (ON COSTS)

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Background

1.  This is a hearing on costs after a trial on the petitioner wife (hereinafter called “the wife”)’s application for ancillary relief against the respondent husband (hereinafter called “the husband”).

2.  On 16 January 2009, I handed down a Judgment granting the wife the following orders: 

(1)  Subject to the First Charge of and through the Director of Legal Aid, the husband do pay a lump sum of $5,894,474 to the wife within 2 months from the granting of Decree Absolute;

(2)  The above payment is in full and final settlement of the wife’s claim for ancillary relief against the husband;

(3)  The husband shall continue to pay a monthly sum of $26,000 to the wife until the full payment of the lump sum above;

(4)  There be liberty to apply on how to carry out the above orders;

(5)  The husband’s summons for variation of the interim maintenance order be dismissed; and

(6)  The wife’s summons for further directions on valuation be also dismissed.

3.  On the issue of costs, I granted an order nisi that the wife should have the costs of the ancillary relief application, including all costs previously reserved with a certificate for counsel.  She should also be entitled to the costs of the husband’s summons for the variation of the interim maintenance order as the husband failed in that application.  But since the wife also failed in her summons for further directions on the valuation of the former matrimonial home, there should be no order as to costs in that summons.

4.  The husband now applies for the costs order nisi be varied to a no costs order.

The Proper Approach

5.  Mr. Egerton, counsel for the husband started off by addressing the court on the applicable principles that should be adopted in the decision of costs.

6.  He attempted to persuade this court that the starting point for costs in ancillary relief applications should be no order as to costs, citing the English case of GW v RW [2003] EWHC 911 (Fam) D 289 in which Deputy High Court Judge Mostyn QC said:

“92.  In my judgment, a safer starting point nowadays in a big money case, where the assets exceed the aggregate of the parties’ needs, is that there should be no order as to costs. The starting point should be readily departed from where unreasonableness by one or other party is demonstrated….”

7.  The reasoning behind such an approach is that after the case of White v White [2001] 1 AC 596, when the court decides on the division of properties as between husband and wife, the reasonable requirements’ approach has been replaced by the “fairness” approach and therefore, the former principle of costs following event should no longer apply.  This is what the learned Deputy Judge said at paragraph 85 of his Judgment:

“85.  It is very easy to see why in an era where the wife’s claim was perceived to be against the husband’s money for a sum necessary to meet her reasonable requirements, costs should, prima facie, follow the event. Her position was comparable to that of an ordinary civil claimant. It is much more difficult to apply the analogy in the post-White era where the court’s function is (per Thorpe LJ in Cowan v Cowan [2001] EWCA civ 679, [2002] Fam 97, [2001] 2 FLR 192 at para [70]) to determine the parties ‘unascertained shares’ in the pool of assets that is the fruit of the marital partnership.”

8.  The same argument was raised in a more recent Hong Kong case of W v K and Anor (Costs) [2008] HKFLR 378 in which Saunders J adopted a similar approach (at para 11-12 of his Judgment):

“11.  …It is [the principle of cost should normally follow the event] that requires closer examination now. The replacement of the ‘reasonable requirements’ approach with the ‘fairness’ approach enables a new look to be taken at the appropriate incidence of cost in big money ancillary relief cases.

12.  In big matrimonial cases where the available assets exceed the parties needs, and where the fairness approach is applied, the normal starting point in my view should be that each party should bear their own costs. In this respect I agree entirely with the view of Mr Nicholas Mostyn QC, sitting as a Deputy High Court Judge in GW v RW [2003] EWHC 911 (Fam), [2003] Fam D 289, at para 92 & 93…”

Discussion

9.  My first observation on this new approach as adopted by GW v RW and followed by W v K and Anor (Costs) is that both were big money cases.  Both the Deputy Judge and His Lordship specifically referred to “A safer starting point in big money cases….” (underline added) and “In big money matrimonial cases where the available assets exceeds the parties needs….” (underline added) when they first developed or adopted this new approach. 

10.  However, the present case cannot be regarded as a big money case as the total family assets only amounted to slightly more than $10,000,000.

11.  Furthermore, I must point out here that the no costs order approach in GW v RW was expressly overruled by the Court of Appeal in Norris v Norris [2003] 2 FLR 1124.  The main Judgment was delivered by Dame Elizabeth Butler-Sloss P and she said at para 18- 21:

“18.  Mr Mostyn QC in his judgment then went on to set out his objections in principle to the general rule that costs should follow the event:

….

21.  I recognise the difficulties which arise and which have been so trenchantly expressed by Mr Mostyn QC as set out above. The removal of r 2.69C increases the awkwardness of the language of r 2.69B and has presented problems. It does not, however, make that rule or a section of an Act of Parliament incomprehensible or unworkable. If passed by Parliament, whether it be primary or secondary legislation, it is the duty of the court to do its best to make sense of it. The Judges do not have the right to dump the awkward passage wholesale. In my judgment, therefore, Mr Mostyn QC in his judgment in GW v RW  (Financial Provision: Departure from Equality) [2003] EWHC 611 (Fam), [2003] 2 FLR 108 was wrong to treat the rule as incomprehensive and to substitute his own approach by making a decision which was not based on the existing rules.”

12.  In other words, the English Court of Appeal did not approve of the Deputy Judge’s total disregard of the relevant Civil Procedure Rules concerning costs in matrimonial cases in the UK. They were of the view that they had to apply the rules (at para 23 of the Judgment) although they also recognised the advantages of the new approach:

“23.  The court is, nonetheless, obliged to apply the rules unless or until they are amended…”

13.  Unlike England, there are no separate rules in Hong Kong governing the issue of costs in matrimonial cases.  Therefore, we have to resort to either the Rules of the High Court (“RHC”) or the Rules of the District Court (“RDC”), which are on almost identical terms.  As the present case was tried in the District Court, it is my view that the RDC should apply as far as the issue of costs is concerned (O.62, r.2 (1) of RDC).

14.  The relevant rule in the RDC is O.62 r.3 (2):

“(2)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.”

(underline added)

15.  Three things are clear from the above rule:

(1)  Costs are awarded at the court’s discretion;

(2)  The starting point should be costs to follow the event; and

(3)  The starting point can be deviated from if there are special circumstances to justify such deviation.

16.  I am also bound by the case of L v C (unreported, CACV 169/2006, date of Judgment: 19 March 2008) in which Yuen JA set out the relevant principles on costs in matrimonial cases at para 23 of the judgment as follows:

“23.  As a matter of law, it is clear that costs are in the court’s discretion.  Pointers as to how that discretion should be exercised include the following:

	(1)	in family cases, as in others, costs should normally follow the event;
	(2)	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); these special dynamics do not however apply to the present case;
	(3)	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);
	(4)	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).”

17.  One should note that the L v C decision was handed down by the Court of Appeal on 19 March 2008, that was 14 days after the handing down of the leading case of DD v LKW (2008) 2 HKC 134, [2008] HKFLR 119 on 5 March 2008 when the new ‘fairness’ approach in ancillary relief applications was first adopted in Hong Kong. Yuen JA was also one of the appeal judges in DD v LKW and therefore, it can be safely assumed that when Her Ladyship made her rulings on costs in L v C, she had already taken into account the replacement of the reasonable needs approach by the new ‘fairness’ approach in the division of family assets in matrimonial cases.

18.  All in all, and despite the attractiveness of adopting a starting point of no order as to costs in all ancillary relief applications, it is my judgment that this court is bound by the principles as laid down in L v C and therefore, I will adopt those principles in considering the issue of costs in this case.    

The Husband’s Grounds for Variation

19.  The husband accepts that the wife has succeeded in getting a sum ($5,894,474) higher than the husband’s open offer ($3,219,036), but not a sum as high as her own open proposal (which was about $11,468,382.50).  But as one can glean from the written submissions and his counsel’s argument in court, he is of the view that there should be no order as to costs because:

(1)  The wife can not be said to have “won” the case because out of the 4 major issues as identified in the judgment, the wife only won 2 of them whilst the husband won the other 2;

(2)  The wife had conducted the trial in such a way that unnecessary costs were incurred; and

(3)  Most important of all, the wife had pitched her claim so high that it was impossible for the husband to settle with her in the first place.

Number of Issues Won

20.  The husband argues that there were 4 major issues as identified by the court in this case, namely:

(1)  Whether there were loans from the husband’s father which amounted to more than HK$4,000,000;

(2)  Whether the wife should account for the interim maintenance that he had overpaid the wife;

(3)  Who had taken the jewellery from the family safe; and

(4)  Whether the husband had dissipated the funds in his bank account.

21.  It is the husband’s case that the wife won on issues (1) and (2) whilst he won on issues (3) and (4). Therefore, it is very difficult to say who “won” the case overall.

The Court’s View

22.  My first comment is that the above calculation on the number of issues won is over simplistic.  During the course of trial, there were other sub-issues or minor issues raised.  For example, they include:

(1)  Whether the Friends Provident Fund was destined as the children’s educational fund;

(2)  Whether further sums of money or how much money should be set aside from the family assets to cater for the children’s future education;

(3)  The earning capacity of the wife; and

(4)  Whether the wife should be entitled to continued support from the husband.

23.  The husband failed in almost all of those sub-issues.

24.  Furthermore, it is my view that in a case of litigation, there are bound to be many issues raised and argued.  As far as costs is concerned, the test should not be whether a party succeeded in winning more issues than the other, but rather costs should follow the event and only subject to the final discretion of the court in denying such costs under proper circumstances.  In this regard, I think it would be helpful to repeat what was said by Nourse LJ in the English Court of Appeal case of In re Elgindata (No.2)[1992] 1 WLR 1207:

“(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 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 of him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs…”

25.  It is true that the wife had failed in some of the issues but they were, in my view, only of a relatively minor nature.  As I see it, the most important issue in this case was whether there had been some “loans” from the husband’s father amounting to over HK$4,000,000.

26.  According to the wife, the parties had tried mediation and they were close to reaching a settlement but only failed because the husband insisted to take into account these so called loans from his father. This fact can be seen from the wife’s e-mail to the husband dated 18 November 2006:

“The biggest hurdle to overcome are these “loans” to your parents. You know as well as I do that they have been repaid and we celebrated this event with your parents at the Hong Kong Club earlier this year. We will not be able to reach a settlement outside of Court if you continue to claim that these loans still exist.”

27.  At the trial, a substantial portion of the time had been spent on these “loans” and at the end of the day, the court was of the view that those were not loans but father-to-son advancements.  Therefore, I do not consider that the wife should be denied of her costs just because she had failed in some other minor issues in the case.

Were unnecessary costs incurred because of the Wife’s conduct?

28.  As part of the written submission filed on behalf of the husband, the following conduct of the wife were argued in justifying a no costs order in this case:

(1)  Considerable time was taken up in court with the wife’s application that the former matrimonial home to be re-valued, both at the beginning and at the end of the trial.

(2)  The husband’s mother was called under a subpoena but the wife decided not to cross-examine her at the last minute.

(3)  The wife made an allegation on the husband’s conduct making it necessary for the transcription of a telephone conversation, thus resulting in the trial being part heard. The court finally ruled that there was nothing serious enough for that conversation to be taken into account when it decides on the wife’s application for ancillary relief.

(4)  During the second day of the trial, the wife admitted that she had not been truthful in giving evidence on the first day which clearly caused further time and expense to be spent.

29.  I do not intend to go into each and every detail of the points raised in the above paragraph except to say that I do not consider them to be serious default sufficient enough in persuading me to exercise my discretion in denying the wife’s costs or any part of it.

Was the wife pitching her claim too high that it was impossible for the husband to settle with her before trial?

30.  It is the husband’s case that the wife had pitched her claim too high during the negotiation making it impossible for the husband to settle with her before trial.

31.  In order to have a better understanding of this argument, it may be necessary to list out some of the without prejudice correspondence in order to ascertain the parties’ respective positions during the negotiation.

32.  The first relevant offer was from the husband on 15 November 2006 in which he offered a sum of $2,015,300 which had taken into account of his father’s “loans” of $4,219,370 and based on the respective valuations of the former matrimonial home at $12,800,000 and the Thai property at $1,500,000.

33.  In the wife’s e-mail dated 18 November 2006, she had made it clear that it was impossible to reach a settlement if the husband insisted on taking into account of his father’s “loans”.

34.  The first relevant counter offer of the wife was on 15 March 2007 in which she had made counter proposals on the valuation and calculation of the matrimonial assets, coming to a total figure of $17,176,558.  Towards the end of the letter, she offered to accept a settlement at 75% of the matrimonial assets (which should be $12,882,418 based on the wife’s valuation of the assets).

35.  The next offer from the husband was on 8 May 2007 in which he offered a sum of $3,013,604 which comprised the transfer of the Thai property, some of the jewellery, one of the car and a cash payment of $660,000. 

36.  That offer was not accepted and the husband increased it to a cash payment of $3,000,000 together with the jewellery and half of the Thai property.  It is important to note that this offer was based on the valuation of the total matrimonial assets (except the Thai property which both parties agreed not having a realisable value) at $10,440,000.  This figure was in fact very close to the court’s final rulings on the value of the total matrimonial assets at $10,036,598.  The husband’s offer of $3,000,000 cash payment represents about 30% of the total realisable matrimonial assets.

37.  The next counter offer from the wife (24 September 2007) was 70% of the matrimonial assets in the forms of specific assets or cash, which was subject to the parties’ further negotiation.  This represents a sum of about $7,000,000 in cash if based on a valuation of the total matrimonial assets at about $10,000,000.

38.  The next offer from the husband was on 23 May 2008 which was shortly before the start of the trial. In this letter, the husband offered a cash sum of $4,378,503.52 together with two cars, making it a total of $5,115,606.66.  In this offer, the husband set the total value of the matrimonial assets at about $9,000,000, thus making this a 57% offer.

39.  I wish to pause here to say that up to this moment, both parties were making efforts towards a settlement, in terms of readjusting their offers on valuation, the % of division and the actual lump sum figures.  However, there was one important feature in the husband’s offers in that he was very adamant in deducting his father’s “loans” of about $4,200,000 from the family assets.  Had he been more flexible in respect of this “loan”, for example, being prepared to negotiate further on the sum to be deducted, I think a settlement could have easily been reached before trial. 

40.  Despite the commencement of the trial, I can see that the wife was still making efforts in trying to reach a settlement.  In her letter dated 21 November 2008, she made a last effort in proposing, among other things, to accept a sum of $6,000,000, representing 60% of the total family assets of about $10,000,000.  Despite this being a very reasonable offer, the husband did not accept it. 

41.  From the above chronology, it is my view that the wife has been acting reasonably in her negotiation for a settlement. It was true that her first offer was 75% of the family assets but that was made at the early stages of the litigation when everything was rather unclear or unsettled.  Her counter offers were subsequently lowered as a result of the parties’ negotiation and finally reached an offer of $6,000,000 or about 60% of the total family assets. If one compares that to the court’s final judgment at $5,894,474 which is 59.33% of the total matrimonial assets, I do not think it would be fair to criticise the wife in her conduct of the negotiation for settlement prior to or during trial.

42.  In short, I do not think there is any substance in the husband’s argument that it was the wife’s fault in causing the breakdown of the negotiation of a settlement.

Conclusion

43.  After considering all the circumstances, I still maintain my view that the wife is the winner of the case.  As costs should follow the event, and there is no special circumstances justifying the deprivation of all or part of her costs, it is my judgment that the wife should have the costs of the ancillary relief application, including all costs previously reserved.

44.  Finally, counsel for the husband urged this court to give a ruling on the costs of individual hearings as listed under Annex B of his Supplemental Submissions.

45.  Upon perusal of the said list, I notice that item 2 concerns with the costs of the decree nisi in the main suit.  I understand that although the main suit was based on the behaviour of the husband, the particulars have been watered down by consent in order to avoid unnecessary litigation.  Therefore, it is fair that there shall be no order as to costs in respect of the main suit, including all costs previously reserved, if any.

46.  As to the other items, the court has already ruled at some of the hearings that there shall be no order as to costs and there is no reason to disturb those orders.  As to the other hearings, costs were either reserved or in the cause.  As they all relate to the wife’s application for ancillary relief, therefore, the wife should have the costs of those hearings as well.  

Final Order on Costs

47.  Based on the above reasons, I now make the following orders:

(1)  There shall be no order as to costs in the main suit, including all costs previously reserved, if any.

(2)  The costs order nisi made on 16 January 2009 is now made absolute, i.e. the wife shall have the costs of her ancillary relief application, including all costs previously reserved or in the cause, and also the costs of this hearing, such costs to be taxed if not agreed.

(3)  There shall be a certificate for counsel.

(4)  The wife’s own costs to be taxed in accordance with the Legal Aid Regulations.