DGB v. SDGK

FCMC 12078/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 12078 OF 2013

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R U L I N G
(On Costs)

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1. On 12 March 2014, after a 4-day trial, judgment on the ancillary relief of the present divorce proceedings (“the Judgment”) was handed down with the issue of costs reserved for argument.

2. In the Judgment, I ordered that the 2 landed properties, one being the former matrimonial home in Hong Kong and the other an apartment in KL, be sold with the proceeds of sale together with other family assets to be divided between the parties on a ratio that the husband is to have 32% of them and the wife has the remaining 68%.

3. Both parties now seek costs of the ancillary relief proceedings against each other.

4. For convenience, I continue to refer the petitioner husband as “H” and the respondent wife as “W”.  I will also adopt the same the same abbreviations and nomenclatures as in the Judgment.

The Applicable Legal Principles

5. In general terms, apart from children’s cases, 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(2) RHC.

6. Broadly speaking, in the exercise of its discretion in civil cases including matrimonial and family cases, 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 ancillary relief proceedings and in the present case is the Calderbank offer, ie a written “without prejudice save as to costs” offer made by a party to the other.  It has been commented that a Calderbank offer may be an important and material consideration in the exercise of court’s discretion as regards to costs but the existence of a Calderbank offer should influence but not govern the exercise of court’s discretion.  The proper question to be asked is whether the party to whom offer was made ought reasonably to have accepted the proposal made.  Para 22/2/A, Hong Kong Civil Procedure (2015); also W v K and Anor (Costs) [2008] HKFLR 379 at para 13.

8. In the leading case of Gojkovic v Gojkovic [1992] Fam 40 Butler-Sloss LJ stated as follows:

“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. ... 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 application 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”.

9. Locally, as regards the costs in ancillary relief cases, Hon Yuen JA sets out the principles in L v C, CACV No. 169/2006 (date of judgment:  19 March 2008),

[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 (eg 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); …;

(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).

10. Notwithstanding the starting point remains to be “costs follow the event”, it is important not to forget that the basic principle is that costs are in the court’s discretion.  The court has full power to determine by whom and to what extent the costs are to be paid.  Accordingly, the discretion of the court is much wider in family cases and the starting point is more easily displaced than in any other civil proceedings.  In TL v SN  (CACV 196/2009) (19 October 2010), Hon Kwan JA, in her unanimous judgment for the Court of Appeal, reaffirmed that in matrimonial cases, as in other cases, costs should normally follow the event. More recently in Z v X & C, CACV 166/2011 (8 March 2013), Hon Cheung JA, in para 10 of the judgment, reaffirmed the court’s approach on costs in ancillary relief application is that costs should follow the event although because of the special dynamics of family litigation, the discretion may be broader than in civil matters generally:  para 10 of the Judgment. 

11. In the determination of the issue of costs, I am guided by the above principles.

12. W now seeks to have her costs of and incidental to the ancillary relief proceedings to be paid by H on a party and party basis with a certificate for counsel.  On the other hand, H also seeks costs against W.

W’s Grounds

13. W’s ground is simple and straightforward.  What she obtained under the Judgment is more than what she offered, on a without prejudice basis, on 7 June 2012.

14. She says that the net family assets in the judgment are determined at $8,113,462 and she is awarded 68% of the assets, ie $5,517,154.  On 7 June 2012, via her solicitors, she made a without prejudice offer (“the WP Offer”) seeking 55% of the assets and maintenance of $35,000 for a period of 3 years providing her with a total settlement of $5,202,091 on a clean break basis, particulars of which are as follows:

Asset division 55%	$3,942,901
Maintenance for 36 months at $35,000	$1,260,000
Total:	$5,202,901

15. Mr Egerton, for W, submits that H should have accepted W’s without prejudice proposal of 7 June 2012 and in particular should have accepted that in the event of a clean break ‘fairness’ required a departure from equality in favour of W.  As at 18 July 2012, W’s cost estimate was $242,256 and her costs after trial, as at 14 October 2014, were $922,928, H’s failure to accept W’s proposal resulted in W incurring additional costs of approximately $680,671. Since W ultimately obtained an award in excess of her offer of June 2012, she is entitled to an order for costs in her favour.

16. In addition to this ground, Mr Egerton also relies on H’s conduct since the Judgment. Pursuant to the Judgment, H is to pay the maintenance of $25,000 per month until the sale of the matrimonial home but he has failed to pay the maintenance since March 2014.  Mr Egerton argues that the post judgment conduct of H is a further illustration of the good sense of the WP offer for a clean break as H continually fails to comply with court orders as to the payment of maintenance.

H’s Case

17. H has 2 grounds.

18. The first is the delay caused by W’s failure to proceed with the obtaining of the decree of judicial separation and the second is that H actually is the winner in terms of the issues raised by the parties.  There is also a minor point that I have already taken the costs paid by the parties into consideration. 

19. For these reasons, H says he should have the costs.

Discussion

20. Following the parties’ separation in about August 2011, W took out her petition for judicial separation on 1 November 2011 on the ground of H’s unreasonable behaviour.  That was under the case number FCMC 15208/2011.

21. The history of the proceedings shows prior to the unsuccessful FDR hearing on 16 August 2012, there were MPS application on the part of W, several exchanges of discovery and a judgment summons against H for her outstanding MPS.  Apart from the judgment summons, the proceedings could not be said to have taken an unusual path or to be particularly protracted.

22. On 14 June 2012, after a half-day hearing, H was ordered to pay MPS at the rate of $35,000 up to January 2012 and as from February 2012, at a rate of $25,000. 

23. The FDR hearing on 16 August 2012 was a failure.  The trial of the ancillary relief was then fixed for PTR and eventually took place on 24 July 2013.  This was a 4-day trial with 22 August 2013 being the last day followed by the parties’ Up-dated Financial Information submitted on 6 and 9 September 2013 respectively.

24. By the time when it came to the close of the trial, the parties had already separated for 2 years.  With the leave of the court, on 15 August 2013 H filed a petition for divorce on the ground of 2 years separation and this became the present divorce proceedings.

25. However, it was not until 12 March 2014 that the court was able to hand down its judgment for the reason that notwithstanding W’s petition for judicial separation was taken out on November 2011, she had never applied for directions for trial, whether on the special procedure list or otherwise, and therefore bound by section 25(1)(a) of the Matrimonial Proceedings and Property Ordinance, Cap 192, the court was not able to hand down the Judgment.  The parties were notified of the lacuna by the court on 8 October 2013.  At the end, the parties agreed to a sensible solution that all documents filed in the judicial separation proceedings that related to the ancillary relief application should stand as if they had been filed in H’s divorce proceedings and that the decision as to the appropriate orders to be made in the judicial separation proceedings be handed down and the consequential orders be made on the decree nisi of the present divorce proceedings.  The decree nisi of the divorce proceedings was finally pronounced on 12 March 2014.

W’s WP Offer

26. With this background, I proceed to refer to the WP Offer relied upon by Mr Egerton.

27. The WP Offer was put forward not only before the FDR hearing of 16 August 2012 but also before the half-day hearing of W’s application for MPS on 14 June 2012, with the hope to arrive at a full and final settlement with H. 

28. By her WP Offer of 7 June 2012, W offered:

1.	The former matrimonial home be sold and the net proceeds of sale be divided 60% to her and 40% to H.  This would mean $3,156,129 to her and $2,104,086 to H and for the avoidance of doubt, whatever the net proceeds of sale, they should be divided on 60% to 40% basis.
2.	The Hong Kong stocks to be divided equally.
3.	W is to keep the KL property, the KL car and the Malaysian stocks.
4.	H is to keep the entire interest of his Mandatory Provident Fund, to be responsible for his personal liabilities and to repay the AUD56,000 loan to W’s father .
5.	Each party is to keep their cash in banks and their own personal possessions.
6.	H is to pay a lump sum cash payment as capitalized spouse maintenance of $1,260,000 for a clean break settlement. This represents a capitalised lump sum payment of W’s maintenance at $35,000 per month for 36 months.
7.	H is to pay the outstanding MPS.
8.	Apart from the costs order dated 26 January 2012 in favour of W, there be no order as to costs.

29. The above division represents approximately 55% of the parties’ assets to W and 45% to H prior to the payment of the capitalised lump sum.  In other words, if the capitalized lump sum is included, the percentage would be even higher for W.

30. In response, by a letter dated 8 June 2012 from his solicitors, H insisted on 50/50 split of the matrimonial assets but agreed to pay $20,000 per month for 24 months.  He also mentioned that he was prepared to consider sharing the matrimonial assets on the basis of more than a 50% share to W but only on the basis she did not claim any ongoing maintenance. 

31. Following this letter there were a few further correspondences exchanged between the parties but I do not think I need to refer them in details.  Suffice for me to say is that the parties were disputing over (1) whether there should be 50/50 split or the split should be in favour of W and (2) the amount and duration of W’s spousal maintenance.  W made her last attempt to settle by revising her offer on 1 August 2012 so that the proposed settlement equates to a 51.76% to W and a 48.23% to H but this did not meet with any agreement.

32. This is on this basis that W now says she has obtained a more advantageous result under the Judgment.

33. In reply to W’s arguments that she has won in terms of the percentage awarded, Mr Clough, for H, argues that the difficulty here is that this issue remains a matter of speculation. The former matrimonial home, a major matrimonial asset, is still not sold.  Mr Clough submits that the figure of $13,150,000 as the value of the former matrimonial home taken in the Judgment was merely the median of the 2 figures respectively provided by the parties in trial and he criticizes the excessive valuation adopted by W in the proceedings.  He submits that as of now according to the current “e” valuations by HSBC, Bank of China and the Hang Seng Bank, the former matrimonial home is worth less, at around $11,000,000 only.  Further, there is a real possibility that the properties might have to be auctioned.  This will result in more uncertainty as to the final net proceeds but a greater likelihood of reduced available funds.

34. In reply, Mr Egerton points out that at the time of the WP Offer, W’s valuation on the former matrimonial home was $12,000,000 which was not unrealistic.

35. Since both parties agreed before the trial that the 2 landed properties were to be sold, they did not have them properly valued by professional surveyors.  This was their deliberate decisions.  The values ascribed to the properties in the judgment were obtained on the basis of the figures provided by the parties.  As regards, the former matrimonial home, doing the best I could, as pointed out by Mr Clough, I took the median of the 2 figures respectively provided by the parties and this came down to $13,150,000.

36. It is a matter of commonsense that market in a free economy fluctuates on a daily basis.  It is even more so given the volatility of the Hong Kong real property market.  I accept that the sale proceeds of the 2 landed properties may not be the same as what were assessed in the Judgment.  They may be less or they may be more.  This situation would happen in any case where property has to be sold and there is a lapse of time between judgment and time of sale.  This would happen even if the property has been professionally valued.

37. To me, what is material or relevant is the reason for the result.  In the judgment, I accepted that W needs a place of accommodation and also needs time to achieve independence.  I agreed with W’s argument for a departure from equal division mainly on the basis that W’s housing need should be catered for when H has already secured his by way of a houseboat.  I found that given W has no or no sufficient income proof, it would be difficult for her to raise a mortgage in the purchase of an apartment, so she should be given sufficient capital for the purchase of one, mortgage-free.  I assessed her housing need at $4,400,000 which was the costs of acquiring a 2-bedroom apartment in the same locality as the former matrimonial home.  On the top of this, W would have a sum roughly about more than 6 years of spousal maintenance on the basis of $15,000 per month. 

38. I repeat what I said in paras 155-157 of the Judgment:

“155. Considering all the above and looking at the matter in a round, I think it is an appropriate case where there should be a departure from equal division. I consider that, on a clean break basis, the net family assets are to be shared on a ratio that H is to have 32% of them and W has the remaining 68%. On the basis that the net family assets are $8,113,462, it would mean W would have about $5,517,154. This would mean a sum of about 1,117,154 ($5,517,154 - $4,400,000) after the purchase of her home and this is roughly about more than 6 years of periodical payments on the basis of $15,000 per month, with a scenario that her wages remain unchanged throughout. I believe with this capital sum and with the income generated, and also given her qualifications and language ability, she should be able to gain self-sufficiency in the course of time and maintain her marital standard of living in the long years to come.

156. On the other hand, as for H, it is true it means he would only be getting $2,596,308 ($8,113,462 X 32%), but it should not be forgotten that as Mr Clough correctly pointed out, earning capacity is a resource, and on the evidence before me, H undoubtedly has substantially higher earning capacity than W. The repayments of his three loan liabilities would relieve him of as much as $32,490 per month from his living expenses such that he should be in a much better position to save and accumulate his wealth in the days to come, and to answer his family commitments. As I have analyzed in paras 121 – 124 above, after the sale of the matrimonial home and when M and the son get their visa to stay in Hong Kong, I believe H could comfortably save up at least $50,000 per month.

157.  I need to step back and look at the overall impact.  I am conscious of the fact that W is getting about $2,920,846 ($5,517,154 - $2,596,308) more than that of H, but I believe this is justifiable due to her housing need and inferior earning capacity. In my judgment, this is a fair outcome.”

39. It is of significance to note that there is a large measure of resemblance between my reasons and W’s reasons in her WP Offer.  I repeat the relevant part below:

“…We consider this to be a case where our client’s needs are to be considered. There is simply not enough capital to adequately provide for our client’s needs particularly when in comparison to your client’s ability to advance his future he will have the benefit of a good salary from (his employer) which will soon increase when he becomes a Captain, he has the benefit of the very significant benefits of the housing allowance, medical and dental health provision and the travel allowance. Our client’s circumstances are considerably compromised by the loss of these benefits and will have the challenge of re-housing herself and entering the workforce in a manner in which she increase her income over time and that can only be done with having an opportunity to re-train. The re-training requirement for our client is similar to the opportunity that your client had at the early stages of the marriage when our client supported your client in following him to various countries to build his skill and experience that he has at this current date. Therefore it is necessary for our client to have a greater share of the assets and a maintenance provision. Our client says that she requires capitalised maintenance simply because of your client’s wilful breach and continuing breach of the Order dated 26 January 2012 for a periodical payment to our client of $35,000 per month. Your client says he has a willingness to pay our client $20,000 per month but he has not even bothered to pay this amount therefore our client simply will not accept any ongoing periodical payment and she requires a clean break with three years capitalised maintenance.”

40. Hence, as can be seen, the reasons for departure from equal divisions are substantially the same as the reasons in the Judgment.

41. Further, the $4,400,000 that constitutes a substantial portion of the said 68% awarded by the court is the value of an apartment in the same locality as the former matrimonial home.  I think it is logical to assume that even if the property market fluctuates, whether upward or downward, both the sale price of the former matrimonial home and the cost of acquisition of W’s apartment would at least in the short term follow the same trend, thus percentage wise this should not make much difference.

42. For the above reasons, I find that W has established her ground for costs.

Post Judgment Conduct of H

43. With the conclusion that I have reached, I do not need to consider W’s another ground based on H’s post judgment conduct.  In any event, I agree with Mr Clough that post judgment conduct is not relevant here.

44. I now turn to H’s arguments.

W’s Delay

45. H’s first ground is the delay caused by W’s failure to proceed with the obtaining of the decree of judicial separation.  Mr Clough argues that as a result, there have been adverse consequences for H.  The properties have still not been sold and in an uncertain market the value of the main asset is depreciating.  It has been 14 months since the hearing and 7 months since the Judgment.  The order provides for sale of the properties within 6 months of the decree absolute.  W has been enjoying her continued occupation of the former matrimonial home rent free with H paying the mortgage during this extended period.

46. As I observed in the Judgment, it is obvious that due to inadvertence both parties at the time of trial failed to notice the requirement under the said section 25(1)(a) of MPPO.  No doubt, W was responsible for the conduct of the main suit for judicial separation, but I think it must to right to say that it was the duty of both parties to ensure that the ancillary relief proceedings were conducted and proceeded with properly.  Viewed from this perspective, I consider that both parties are to blame.

47. As for the delay, there is no suggestion that there was any delay in the ancillary relief proceedings.  The delay was on the handing down of the judgment.  H’s petition for divorce was taken out on 23 August 2013.  W’s Form 4 (Acknowledge of Service) was filed on 9 September 2013 but it was not until 19 November 2013 that H applied for directions for trial.  However, due to various problems and requisitions including the filing of the marriage certificate and its English translation, it was not until 5 months after the court’s notification and nearly 7 months after H’s petition for divorce that the decree nisi was obtained. H was fully aware that W had been occupying the former matrimonial home, for his own interest he should have tried his best endeavours to obtain the decree in no time.  In my view, there is no reason why it has taken H this length of time to obtain a decree. 

48. Further, it was not until 27 August 2014 that the decree was made absolute when the properties could then be sold.  I agree with Mr Egerton that W could not be criticised for this.

H is the Winner in terms of the Issues Raised

49. H’s second ground is that he is the winner in terms of the issues raised by the parties.  Mr Clough, however, does not provide much elaboration on this ground. In any event, at the end, he concedes it is more accurate to say that neither has won.

50. As set out in para 41 of the Judgment, the issues that needed to be determined were:

1.  Whether or not there should be a clean break;

2.  The earning capacity of W;

3.  The value to be attributed to H’s Mandatory Provident Fund; and

4.  The minor issues of whether the parties had borrowed RM30,000 from W’s sibling and the value of the parties’ personal possessions.

51. Apart from the above issues, since the parties did not have the properties valued, much time was spent in cross-examination on the value of the 2 landed properties. 

52. On the first issue, H was adamant that there should be a clean break but as for W, she asked for monthly maintenance in the sum of $50,000 which was to be reduced to nominal when she achieved self-support.  At the conclusion of the trial, she was willing to accept spousal maintenance of $35,000 for 3 years and thereafter nominal maintenance.  At the end, I was in favour of a clean break. 

53. The second is W’s earning capacity.  H argued that W could work as a paralegal, legal secretary or legal assistant earning up to $25,000 per month.  On the other hand, W said she wanted to retrain herself to become a professional teacher by taking the Postgraduate Diploma in Education course at the University of Hong Kong.  I ruled against her in this regard and found that she had no intention of becoming a teacher and I further found that she could obtain at the start a salary of $8,000 to $10,000 per month, with gradual increase in the course of time to about $15,000 or above. 

54. On the third issue, the value of MPF, H argued that since the fund would not become a capital asset or an income stream for another 18 years, a discount of more than 50% must be made.  H suggested that the then value was no more than 40% of the face value of the fund.  On the other hand, W asked for its full value.  At the end, I assessed it at 60% of its face value at that time.

55. Finally, on the minor issue, I held that on H’s own confirmation there was a loan of $20,000 only and W failed to prove the rest of the claim.  As for the value of the parties’ personal possessions, I held that both parties’ layman valuations were unreliable. 

56. As can be seen above, I think it is fair to say that both parties have mixed success in terms of the issues raised in the trial.  As for the time spent on their investigation and determination as well as to the net effect of the final order, since I did not have counsel’s assistance in this respect, I would not venture into a detailed analysis in this aspect.  Suffice for me to say is that one issue’s overall effect on the final order may be off-set by the failure of another. 

Legal Costs have already been Included

57. Finally, Mr Clough also argues that I have already taken the costs paid by the parties into consideration.  In the Judgment, I considered that since W had made use of the family assets in payment of her $450,000 legal costs, it would only be fair that H’s personal loan of $450,000 for the payment of his own legal costs to be paid out from the family assets.  Thus, the parties’ position is equalized. However, it should be noted that each party’s $450,000 has been included for the purpose of ascertaining the net value of the family assets only but not otherwise.  Certainly, this would not preclude the court from dealing with the costs issue. 

58. On the above analysis, I am not persuaded that H should have the costs.

Order

59. For the above reasons, W succeeds in her application for costs.  I give an order that the petitioner do pay the respondent costs of and incidental to the ancillary relief proceedings and the costs of this application on a party and party basis with a certificate for counsel.