MKK v. YSM

FCMC 11948/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11948 OF 2010

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Ruling
(Costs of Ancillary Relief)
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Introduction

1. This is a Ruling on the costs of an ancillary relief application. 

2. By a Judgment dated 23 June 2015 (“the Judgment”), I found that the petitioner husband should be entitled to 45% of the family assets upon divorce with his wife and on that basis I gave an order that the respondent wife do pay the petitioner a lump sum of $20,996,000 within 6 months by 2 equal instalments.  At the same time, I reserved the issue of costs. 

3. Though not without some hiccups, the wife has since paid the judgment sum.  The parties, however, have not been able to resolve the costs issue, necessitating the intervention of the court.

4. For convenience, I shall continue to adopt the same nomenclatures and abbreviations used in the Judgment.  Thus, the petitioner husband will be referred to as “P”, the respondent wife as “R” and the daughter “KY”. 

Applicable Legal Principles

5. Parties have no dispute over the general legal principles.  They are that no party shall be entitled to recover any costs of or incidental to any proceedings from another party to the proceedings except under an order of the court and that in general terms, the starting point on costs in matrimonial and family proceedings, as they are in civil litigations, remains to be “costs follow the event”:  Order 62, rule 3(1) & (2), RHC. 

6. It is trite that the issue of costs is a matter of discretion for the court.  The discretion is a wide one and of course must be exercised judicially.  Broadly speaking, in the exercise of its discretion, the court will have to take into account, where appropriate in the circumstances, the special matters set out in Order 62, rule 5 of RHC, namely, the underlying objectives set out in Order 1A, rule 1, any offer of contribution, any payment of money into court and the amount of such payment, any written offer made under Order 33, rule 4A(2), any written “without prejudice save as to costs” offer (Calderbank offer), the conduct of the parties, whether a party has succeeded on part of his case, even if he has not been wholly successful; and any admissible offer to settle made by a party, which is drawn to the Court’s attention:  see Order 62, rule 5(1)(aa) to (g), RHC.

7. Of particular relevance to the circumstance of the present case is the Calderbank offer.  It is because shortly after the failed FDR hearing in July 2012 P made a Calderbank offer and at the end, he obtained an award more favourable than the offer.  I will come to this Calderbank offer in due course. 

8. In Gojkovic v Gojkovic [1992] Fam 40, Butler-Sloss LJ (as she then was) had the following to say on Calderbank offer:

“There is, however, a minority of cases, of which the present appeal is an example, where the assets are substantial and an order for costs can (if appropriate) be made. In such cases the parties are likely to negotiate, and such negotiation, which may lead to a settlement, is much encouraged by the courts. The Calderbank offer - a letter containing an offer only revealed after the order is made - bears some resemblance to, but is not identical with, a payment into court. It takes its name from Calderbank v. Calderbank [1976] Fam. 93(a claim by a husband) in which Cairns L.J. referred to an apportionment offer in Admiralty proceedings, and said, at p. 106:

“If that is not accepted no reference is made to that offer in the course of the hearing until it comes to costs, and then if the court's apportionment is as favourable to the party who made the offer as what was offered, or more favourable to him, then costs will be awarded on the same basis as if there had been a payment in. I see no reason why some similar practice should not be adopted in relation to such matrimonial proceedings in relation to finances as we have been concerned with.”

This useful practice has since been followed in the Family Division, and has now been extended to the other divisions of the High Court by R.S.C., Ord. 22, r. 14 - a written offer "without prejudice save as to costs." Ord. 62, r. 9 states: “(1) The court in exercising its discretion as to costs shall take into account . . . - (d) any written offer made under Ord. 22, r. 14 . . .”

Later decisions referring to the effect of a Calderbank offer have accepted, in my view, the basic assumption as expressed by Cairns L.J. that if an applicant spouse failed to exceed the sum offered, prima facie she/he would pay the costs after the date of communication of the offer. For example, in McDonnell v McDonnell [1977] 1 W.L.R. 34, this court applied Calderbank's case to a legal aid case subject to the limitation on her legal aid certificate, on the basis that the offer in the letter should have been accepted by the wife. (57H-58E)

…

It is therefore clear that Calderbank offers require to have teeth in order for them to be effective. This is recognised by the requirement in Ord. 62, r. 9 (and the equivalent Ord. 11, r. 10 of the County Court Rules 1981 (S.I. 1981 No. 1687 (L.20)), as amended, for the court to take account of Calderbank offers, and by analogy open offers, in exercising its discretion as to costs. There are certain preconditions. Both parties must make full and frank disclosure of all relevant assets, and put their cards on the table. Thereafter the respondent to an application must make a serious offer worthy of consideration. If he does so, then it is incumbent on the applicant to accept or reject the offer and, if the latter, to make her/his position clear and indicate in figures what she/he is asking for (a counter-offer). It is incumbent on both parties to negotiate if possible and at least to make the attempt to settle the case. This can be done either by open offers or by Calderbank offers, both adopted by the husband in this case. It is a matter for the parties which procedure they prefer. There is a very wide discretion in the court in awarding costs, and as Ormrod L.J. said in McDonnell v McDonnell [1977] 1 W.L.R. 34, 38, the Calderbank offer should influence but not govern the exercise of discretion.

There are many reasons which may affect the court in considering costs, such as culpability in the conduct of the litigation: for instance (as I have already indicated earlier) material non-disclosure of documents. Delay or excessive zeal in seeking disclosure are other examples. The absence of an offer or of a counter-offer may well be reflected in costs - or an offer made too late to be effective. The need to use all the available money to house the spouse and children of the family may also affect the exercise of the court's discretion. It would, however, be inappropriate, and indeed unhelpful, to seek to enumerate and possibly be thought to constrain in any way, that wide exercise of discretion. But the starting point in a case where there has been an offer is that, prima facie, if the applicant receives no more or less than the offer made, she/he is at risk not only of not being awarded costs, but also of paying the costs of the other party after communication of the offer and a reasonable time to consider it. That seems clear from the decided cases and is in accord with the Rules of the Supreme Court and the County Court Rules 1981 requiring the court to have regard to the offer. I cannot, for my part, see why there is any difference in principle between the position of a party who fails to obtain an order equal to the offer made and pays the costs, and a party who fails by the offer to meet the award made by the court. In the latter case prima facie costs should follow the event, as they would do in a payment into court, with the proviso that other factors in the Family Division may alter that prima facie position.”

Parties’ consensus and their differences

9. Guided by these authorities, counsel have in fact narrowed down much of their differences during the substantive hearing.  Thus, the parties agree that, with a lump sum of $20,996,000, P has achieved a result more favourable than what he offered, on a without prejudice basis, to R in July 2012.  By his ‘without prejudice save as to costs’ offer on 11 July 2012, P offered to accept a payment of $8,000,000 in full and final settlement of his ancillary relief claim.  Mr Li, who appears on behalf of R on the costs issue but not at trial, concedes that this $8,000,000 was merely 35.80% of the assets under R’s name at that time and, on any view, would be less than 45% of the family assets.  He accepts that in the premises R should have accepted the offer within a reasonable time, say within 14 days.  On that basis, Mr Li agrees the starting point should be that P should have the costs of the ancillary relief proceedings as from 26 July 2012 (ie 14 days after 11 July 2012) but this entitlement should be subject to apportionment and deduction for various reasons.  Mr Li seeks to argue that R should bear a percentage of P’s costs only; such percentage shall in no case be more than 50%.  He urges the court to take the following matters into consideration so as to reach a just and appropriate apportionment of P’s costs. 

1. P’s ‘short-reported’ tax evasion;

2. P’s substantial failure on the issue of ‘seed money’; 

3. P’s evidence was found not credible in multiple aspects; and

4. P’s unexplained disappearance at trial on 17 January 2014.

10. These reasons have become Mr Li’s main bone of contention in resisting costs.  As for P’s costs before the without prejudice offer of 11 July 2012, both parties agree that it should be no order as to costs.

11. I now deal with R’s grounds. In doing so, I do not propose to repeat what I have said regarding my findings of facts in the Judgment.  As a matter of fact, I do not think I need to be long in dealing with these grounds.  This Ruling has to be read in conjunction with the Judgment and references to relevant parts of the Judgment will be made as and when necessary. 

(1) ‘Short-reported’ tax return

12. Mr Li launches heavy criticism on P’s own admission of tax evasion when he was cross-examined in trial.  He submits that this is a very serious misconduct, has criminal implications and must be condemned.  Also, P was not forthcoming in relation to the accounts of FPC.  As a result, ample time was spent in court to ‘corner’ him.  Mr Li argues that this clearly is an unreasonable conduct and P ought to be penalized in depriving him a portion of his costs.

13. In my view, it is important to remember that P’s evidence on this aspect was given in relation to R’s contention of separate finance.  The evidence was given in response to R’s assertions that each party kept his or her investments and P made no financial contribution at all towards the acquisition of R’s assets.  Put simply, if R had not raised this ground, there was virtually no need for this part of evidence to be adduced.

14. As it turned out, with the canonical opinion of the Court of Appeal in ARAV v VP, LJ also known as PJ [2011] 3 HKLRD 759 that separate finance as a factor warranting departure is relevant to short marriages only, this separate finance ground, as a legal proposition in the context of a long marriage, served little chance of success at its very inception.  Not only that this ground failed as a matter of legal proposition, it failed on facts too.  It should not be forgotten that the factual disputes surrounding R’s contention of separate finance took up a great portion of the trial.  At the end, I found against R that there were some payments made by FPC towards her investments, that P also played a part in the building up of the investment portfolio and hence in the accumulation of wealth of the parties, that there was mixing or intermingling with matrimonial activities and assets and that the investments in FPC are inter-related; in particular, funds or financial resources available from one source would be utilized in the use of another in order to maximum the gain or to keep the investments of the parties: §§ 167 - 188 of the Judgment.

15. I am not saying that P should not be penalized.  Quite to the contrary, I think he should.  Report can be made to the proper law enforcement agency for further investigation and prosecution against him so that justice can be done but for the reasons that I have said in the forgoing paragraph, I do not consider I should make a deduction of the costs here. 

(2)  P’s substantial failure on the issue of ‘seed money’

16. Mr Li submits that R was successful in proving that she had accumulated substantial sum of money – what she called ‘seed money’ - prior to the parties’ marriage.  This money served as her initial capital for her property investments.  Though at the end the court found she had around $80,000 only and not as much as $100,000 that she asserted, R should be considered as the substantial winner of this issue.

17. The ‘seed money’ was a main pillar of R’s separate finance ground.  Her case was that she made use of the money in her investment portfolio which, at all times, was kept distinctly in her hands and thus, whatever was generated from the ‘seed money’ it did not concern P at all.  As I said in the Judgment, given the long marriage of the parties, the significance of the ‘seed money’ diminished over time.  Further, a substantial part of the seed money was deployed in the acquisition of the parties’ very first matrimonial home, which was intended for and devoted to family use and had a central place in any marriage : § 216 of the Judgment. Thus, on any view, the ‘seed money’ is merely a minor point.

18. The question remains whether I should give some discount or deduction to reflect R’s success on this point. I have no doubt that P is overall the winner of these proceedings.  Not only that I have rejected the separate finance ground, I have also rejected her other main contentions.  As I said in § 221 of the Judgment:

“221. I have rejected R’s claim on separate finance and illiquidity. I have also found there was no clean break in 2000. As regards the long separation, I accept that there was delay on the part of P in pursuing the ancillary relief claim but I consider that the delay per se should not deprive him of his claim. I do give some consideration to the fact that there were still activities, at least on the money side, between the parties in the first one or two years after the separation and P remained as the guarantor of the BH House until November 2007. Whilst I do not rate the foreign exchange trading as such a positive factor, I do give weight to the efforts that R has been putting in attending to and managing the properties investments. Finally, it would be wrong for me not to give weight to the fact that this is a very long marriage.”

19. This brings me to what Hartmann J (as he then was) said in F v F (No 2) [2003] 3 HKLRD 976, § 22, that, “the long-established principle that costs are determined not by dividing litigation into quantifiable subjects and figures, like a profit and loss account, but rather by way of overall impression”.

20. For these reasons, I decide not to give any deduction.

(3)  P’s Credibility as a Witness

21. Mr Li submits that P’s evidence crumbled in various aspects and this is a factor upon which the court is entitled to adjust the costs order accordingly.  He draws my attention to, by way of examples, P’s initial assertion regarding when the parties separated from each other, his failure to disclose his FPC account and income and his liabilities and financial needs

22. It is true that I have mentioned, in various parts of the Judgment, that P’s evidence crumbled on a number of issues: §§ 61 – 65 of the Judgment.  Equally, I have also found that R was not truthful on various aspects of her evidence, for instance, the transfer of the WF shares from P to KY, her surging liabilities arising from the alleged unauthorized overdraft owed to HSBC and the re-mortgage exercise carried out by her in 2013.  All these have far greater ramifications on the outcome of the ancillary relief proceedings than those of P’s crumbled evidence. 

23. For the present purpose, it is not necessary for me to do a ‘stock-taking’ on who lied what and then come to a conclusion as to who should be qualified as the champion of being the bigger liar.  As Mr Li has fairly accepted, both parties’ evidence is far from satisfactory.  For this reason, I do not see it a departing factor. 

(4)  P’s unexplained disappearance at trial on 17 January 2014.

24. P was absent at trial on 17 January 2014 when KY was giving her evidence.  At that point the court was informed that P was so emotionally disturbed by KY’s evidence that he did not come to court and even harboured some suicidal ideas.  As a result, the trial was interrupted in the afternoon and the proceedings had to be adjourned to another date.  The trial was subsequently resumed and proceeded in the normal fashion.  To me, it is only fair that P should bear the costs of and occasioned by the adjournment on 17 January 2014.

25. Finally, Mr Li also tries to rely on the post-judgment conduct on the part of P.  There is no direct allusion as to what this conduct is but it appears that he is referring to P’s refusal to negotiate and the astronomical figure of P’s costs being put to R.  All these, submitted by Mr Li, have not been promoting settlement at all.

26. I do not think post-judgment conduct is relevant here.  Furthermore, if P is awarded costs, his bill of costs would be subject to taxation if the parties are not able to agree on the quantum.  If the court makes a deduction now on account of P’s conduct, there would be a risk of double deduction.  Lastly, R can always consider protecting her position by invoking the aid of Order 62A (Costs offer and payments into court), RHC. 

Conclusion

27. To conclude, I consider that P should be awarded costs of the ancillary relief proceedings.  For the reasons aforesaid, I give the following costs orders:

1. The respondent do pay the petitioner costs of the ancillary relief proceedings, including costs reserved and this costs application, as from 26 July 2012, with counsel certificate.

2. There be no order as to costs of the ancillary relief proceedings before 26 July 2012, including costs reserved.

3. The costs of and occasioned by the adjournment of the trial on 17 January 2014 be borne and paid by the petitioner, with counsel certificate.

4. All the above costs are to be taxed on party and party basis, if not agreed.