LCJWY v. LCKS AND OTHERS

FCMC 16239/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

SUIT NO. 16239 OF 2013

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DECISIONS ON COSTS

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1.  These are two matters on costs before me, the first in time is the Petitioner Wife’s application by way of a summons dated 22^nd January 2016 for variation of the costs order nisi made in my judgment handed down on 8^th January 2016 after the trial of the preliminary issue over the beneficial ownership of certain assets, in which I made that order nisi for costs of the trial to follow the event against the Wife in favour of the Respondent Husband and his parents the Interveners herein. The Wife now proposes that in the particular circumstances of the case she should only be liable for half of their costs, which is opposed by both the Husband and Parents.    

2.  The second matter is the costs of the Husband’s unsuccessful application for leave to remove the 2 children of the family, both daughters aged 9 and 11 respectively, for summer holiday to Singapore in August 2016, in which the Wife seeks her costs while the Husband proposes that there be no order. I propose to first deal with the more difficult one in respect of the trial of the preliminary issue.   

Trial of Preliminary Issue

3.  The relevant backgrounds of the parties leading to the trial of the preliminary issue were already set out in details in my said judgment and I do not propose to recite them here, suffice it to say that the preliminary issue arose because those assets (“Disputed Assets”) were held in the Husband’s name but which he claimed were on trust for his Father and/or Mother. There was however no declaration of trust in respect of any of those assets, hence the trial was to determine their beneficial ownership so that the matrimonial assets between the parties could be ascertained and identified for the purpose of the Wife’s ancillary relief application.

4.  Upon hearing oral testimonies from the parties as well as the Mother and Sister of the Husband during the trial, I accepted the case of the Husband and Parents and found that all of the Disputed Assets belong beneficially to the Father and/or the Mother, and concluded in my judgment with the order nisi for costs to follow the event against the Wife for the reasons as I saw at that time:

“[112] Thus bring me to the question of costs of the trial. As already noted above and in my decision on her discovery application, while the Wife was entitled, in the absence of any expressed trust, to require the Husband and Parents to prove their case in respect of the Husband’s interests in the Disputed Assets, surely by the time when all the evidence in particularly those disclosed pursuant to my discovery order were before the court, it clearly encumbered on her and those advising her to properly re-consider or re-assess her case before proceeding to trial, so as not to run any risk of being held liable for the costs not only of the husband but also the parents, instead of so aggressively and stubbornly pursuing what has now proved to be a false hope, which is in fact quite surprising to me as it seems wholly disproportionate to her claims which were at the time essentially only for appropriate accommodation and financial provision for her 2 daughters upon divorce with no claim for herself. In the premises I see no reason why she should not have to face the inevitable consequence: That she is to bear the costs of both the Husband and Parents for the trial of the preliminary issue with certificate for Counsel to be taxed if not agreed, which is an order nisi to be made absolute at the expiration of 14 days.”

5.  By her Skeleton Argument dated 27^th June 2016 the Wife now seeks to advance further points why costs should not follow the event, and that she should only pay half of those costs of the Husband and Parents.

6.  Firstly, Mr Russell Coleman SC who did not appear for the Wife at the trial submits that it is trite that though the ownership question is one giving rise to a Civil or Chancery-type claim, it has arisen in the course and context of matrimonial proceedings, where the Court is required to adopt a quasi-inquisitorial approach.

7.  In such circumstances, he submits, the Court needed to investigate and itself be persuaded that assets held in the name of the Husband in fact belonged to someone else. The question only arose for the Court to be able to conduct the first stage of the process of identifying the parties’ assets, matrimonial and non-matrimonial, as laid down by the Court of Final Appeal in LKW v DD [2010] 13 HKCFAR 537.

8.  It is in that context, Mr Coleman submits, that the fact that the burden of proof lay on the Husband to prove the assets did not belong to him is relevant to the costs question. It is however also relevant, he submits, that the discovery sought by the Wife was not only opposed by the Husband but also by the Parents, hence it is hardly surprising that the Wife was deeply suspicious as to their motives, and their trenchant opposition did nothing to assist the Wife in believing their position.

9.  Mr Coleman also submits that much of the vesting of legal title in the Husband occurred prior to the marriage so that the Wife had no direct involvement or knowledge of the details and based her case on her own impressions and what she had heard from the Husband and the Mother, while there is no finding by this Court that she was not to be believed in her recollection of what she said she heard and was told during the marriage.

10.  It is relevant, Mr Coleman submits, to the facts that there was a presumption of advancement unless the Court were able to deduce from the evidence the real intention of the Father and/or the Parents behind each of the transactions, while both the Husband and Parents bored the burden of proving their intention at the time did not coincide with the transfer of the legal title, hence not only the Court but also the Wife had had to look at, as stated in the judgment, “all the evidence holistically including the whole course of the parties’ conduct in relation to the assets which had admittedly spread over almost 20 years ...”             

11.  Furthermore, Mr Coleman submits that this Court also noted in the judgment that “on the face of it, I cannot say that there is no merits in such case of the Wife against the Husband and his parents” [71], that it was in effect “only upon close scrutiny of the evidence before the court such case of the Wife is in fact fraught with all sorts of difficulties and inconsistencies” [72], but then, Mr Coleman argues, the evidence before the court to which such close scrutiny could be applied included oral evidence which was not available either to the Court or the Wife before the trial.

12.  All of these, Mr Coleman submits, emphasize the need for the Court, and the Wife, to have had the ability to consider holistically the entirety of the evidence, both documentary and oral, prior to being able to form a firm conclusion one way or the other on the parties’ respective case, which was however not possible until the conclusion of the trial. Hence, it can be seen and submitted that:    

(1)  most of the Wife’s perception of what was the true position flowed from her recollection of past events, so it was understandable she was unable to give evidence on the facts, as she was in a position where she simply did not know, but the Husband’s evidence or case did not chime with what she was told during the marriage;

(2)  the Court made no finding that the Wife did not have that recollection, or that it was not properly based;

(3)  rather, in the circumstances, the Court agreed that the Wife was perfectly entitled to challenge the Husband’s case;

(4)  the burden was on the Husband and Parents to prove that the beneficial ownership was separate from the legal ownership of the Husband;

(5)  as there was no declaration of trust but a series of coincidence which the Court recognised and which required exploration in light of the evidence as a whole including the oral evidence;

(6)  the Wife should not be unfairly penalised for wanting to explore and make the Husband prove his case and satisfy his burden;

(7)  this issue of beneficial ownership is relevant to what the Wife would otherwise get in ancillary relief;

(8)  the non-forthcoming stance the Husband and Parents took in relation to discovery gave all the more reason for the Wife to want to investigate and go to trial on the issue. The difficult stance they chose to take with disclosure made the Wife more suspicious;

(9)  with the evidence before the Court, or the lack of it, the Wife’s advisors would not have advised the Wife to drop her application unless they were to assume that everything the Husband and the Parents might say at the trial would ultimately be believed, but which the Wife was not obliged to do on the documents alone;

(10)  indeed the documentary evidence submitted by the Husband and the Parents pursuant to the discovery order did not sufficiently prove their case and did not explain the series of coincidences in the chronology of events relating to the transfer of ownership of the assets in question;

(11)  credibility and evidence at trial was the most important factor which led to the Court making the decision in the judgment, which could only do so ‘holistically’ after having looked at the documentary evidence and hearing the oral evidence, that the Court believed the Husband, his sister and the Mother as to their case;

(12)  credibility was all the more important because the father was not there to give evidence and his case was based solely on the evidence of the Mother who represented what his intentions were when he transferred the assets to the name of the Husband;

(13)  the trial hearing was necessary for the husband and the Parents to succeed in their case and on their burden of proof;

(14)  in the circumstances it was not unreasonable for the Wife to have tested the case at trial.               

13.  Mr Coleman therefore submits that while the Wife accepts that having lost the trial she should bear some responsibility for costs, it would in the circumstances be wholly disproportionate and unfair for her to bear all the costs of the Husband and the Parents, and that the fair and appropriate costs order is for her to bear only one half thereof.

14.  The Wife’s application is as noted opposed by both the Husband and Parents, with Mr Jeremy Chan for the former arguing that the Wife should be liable for all the costs as it was her unreasonable stance and position that put the Husband and the Parents through a full-blown trial.

15.  It is not the law, Mr Chan submits, that whatever properties or assets are held in the hands of one spouse (as opposed to being held in the hands of third-parties), then the other spouse is entitled to ‘test the case’ or ‘test the evidence’, and thereby push for a full-blown trial together with cross-examination of all of the witnesses, and to be able to do so with impunity.

16.  This was a case, Mr Chan argues, where the Wife gave no quarter and essentially took almost every possible point up until the very end, and her such approach must be visited by appropriate costs orders in the normal and usual manner, which is to follow the event, including for those few concessions that she only made at the first day of the trial, such as something as simple and straightforward as the ‘source of funds’ must have come from the parents and could not from the Husband as it is not a case that he bought properties and assets with his earned income.

17.  Even in the case of the Husband’s 1 share out of 60,000 shares in WS Ltd on trust for the Mother, Mr Chan points out that the Wife, having no sense of proportionality, chose to proceed full steam ahead with her challenge until the very end, as also in the case of his 1 share in GC Ltd with just some undeveloped New Territories agriculture lands that had sat idly for many years.

18.  Furthermore, Mr Chan submits, the Wife laid extremely serious allegations against not just the Husband but also the Parents and even the Sister of “making a concerted effort ... to mislead about his true financial means” which the court has found to be unsubstantiated nor justified, while her propositions and submissions of estate planning and tax avoidance in relation to some of the transactions on the part of the Father were complete and utter speculation not based upon any facts nor evidence.

19.  Whilst accepting that the Wife was entitled to challenge the Husband’s case, Mr Chan argues that it does not follow that she was thereby entitled to push for a full-blown trial together with cross-examination of all of the witnesses with impunity, as one only needs to look at her position during the trial to see just how unreasonable was her litigation conduct by the time when she came to give evidence, bearing in mind by then she had already heard all of the evidence of the Husband, the Mother and Sister, as illustrated as follows:

(1)  that even during cross-examination she still continued to insist that the London Property wholly belongs to the Husband;

(2)  that she continued to refuse to accept that GC Ltd does not belong to the Husband;

(3)  that she continued to insist that the 1 out of 60,000 shares in WS Ltd belonged to the Husband;

(4)  that she continued to insist that the Husband was the beneficial owner of all the other Disputed Assets;

(5)  that she went further to claim that the Husband owned 100% of the Regent-on-the-Park and Po Garden Properties and that the Mother and Sister held them on trust for him;

(6)  that she only dropped her case in relation to the investment agreement between the Husband and Mother on the last day of evidence.  

20.  Therefore the trial was inevitable, Mr Chan submits, not because as a matter of law and procedure that the Wife was entitled to take the Husband and his family to court so as to elicit oral evidence before she would believe them, but because of her staunch position and stance that even after hearing their oral evidence, she still required a decision from the court for which she should be held fully liable for all the costs as a result.

21.  As for the Wife’s submission that her advisors would not have advised her to drop her application unless they were to assume that the court would ultimately believe everything the Husband and Parents might say at trial, but that she was not obliged to think, on the documents alone, that the court was bound to believe his evidence, Mr Chan argues that the same thing could be said of all cases that essentially hinge upon credibility/oral evidence but it is a non sequitur and simply does not follow that this thereby means that the Wife can escape the normal and usual costs consequences that inevitably flow from her own choice  not to believe the Husband and the Interveners when the court had found and determined that she was wrong not to believe them.

22.  Accordingly and in the premises Mr Chan submits that the Wife’s application be dismissed with costs and certificate for counsel to the Husband, and that the costs order nisi be made absolute.

23.  Similarly Ms Bonnie Cheng, appearing for the Parents, submits that as the trial of the preliminary issue falls squarely within the Chancery realm and is no different from ordinary ownership disputes in civil litigations, hence O.62 r.3(2) which sets out the general position that the unsuccessful party will be ordered to pay the costs of the successful party shall apply to this case where both the Husband and Parents were wholly successful parties who prevailed on each and every issue in dispute at the trial, hence there is simply no reason to deny them of any of their costs.

24.  Whilst it is accepted, Ms Cheng submits, that the Parents did not execute written declarations of trust regarding any of the Disputed Assets and they bore the burden of proof at trial, but that did not give the Wife a carte blanche to run a case “fraught with all sorts of difficulties and inconsistencies” or to make serious allegations against the Husband and Parents for “conspiring to mislead the court” based on “mere suspicions, conjecture or speculation”, which were subsequently all found by the court to be unfair and unjustified. 

25.  In particularly, she submits, when the detailed affidavits filed by the Husband and Parents and the discovery they gave, both voluntarily and pursuant to the court’s decision on 30^th June 2015, provided a detailed account and a holistic picture of the circumstances of all the relevant transactions and the parties’ actual intentions at the time, while the 2^nd affidavit of the Mother fully explained the circumstances and reasons in the creation of the trusts with supporting documents on the provision of funds with almost 700 exhibits, and with the discovery exercise completed by 21^st July 2015, it was therefore incumbent on the Wife and her advisors to properly re-consider or re-assess her case before proceeding to trial, which was in fact also her case in her discovery application when she informed the court that she was “entitled to be provided with such information so that she can take proper advice on whether and if so which of the Disputed Assets she seeks to pursue”, yet she chose to pursue a full-blown challenge in respect of all the Disputed Assets save for two relatively minor items which she only conceded towards the end of the trial.

26.  Regarding the Wife’s point about the Husband and Parents being non-forthcoming or trenchantly opposed to her discovery application and which contributed to her decision to pursue her challenge, Ms Cheng argues that was not fair considering her very extensive requests and the substantial volume of documents and information that were volunteered by the Parents both before and after the requests, and for those which they did object, it was mainly over the Parents’ own divorce documents for which they had good and obvious reasons to oppose.

27.  As for the Wife now seeking to place great emphasis on the credibility and oral evidence of the Husband and Parents at the trial, Ms Cheng submits that their oral testimonies were in substance the same as in their affidavits and were corroborated by documentary evidence, hence their case was advanced well before trial and remained consistent throughout the proceedings, it is therefore submitted that whatever basis the Wife may have to proceed to trial, the inevitable consequence is that she being the losing party should bear the costs of the Parents being the winning party.

28.  That last submission for the Parents brings me back to what I said about their position in my earlier decision on the Wife’s discovery application against them, which is worth repeating here:

“[32] ... In my view any person who elects to place his/her property under the name of another person without any express declaration of its beneficial ownership has or can be said to have given up his/her right to privacy or confidentiality vis-à-vis the other party when there is a dispute over the ownership of the property, in particularly when the dispute arises from ancillary relief proceedings of the person given the legal title who is under an obligation to make full and frank disclosure of his financial resources to the court and hence cannot refuse disclosure of any information or documents in his name or legal title, so as to enable the court to achieve justice between him and his spouse who may very often not even present when such legal ownership was created and has no personal knowledge or information thereof, as is the situation of the Wife here.”

29.  It was upon these reasons that I went on to state in my decision why the Wife was entitled to the information and documents sought from the Parents:

“[33] In my judgment the relevancy of the information and documents sought by the Wife against GC Ltd can only be known once production and examination have taken place, and in that situation the only practical course is for the court to look at all the available evidence to determine whether a prima facie case has been made out as to the relevancy of evidence and documents.”

30.  Thus, having been provided with all such information and documents before the trial, the relevant question to be asked is whether the Wife would then be in a position to make a proper re-assessment and re-evaluation of her case and to arrive at a considered conclusion that the Husband was indeed not the beneficial owner of any of the Disputed Assets without going through the trial?

31.  The fact is that the discovery exercise was completed only on 28^th July 2015, as I am now told, which was just about 2 weeks before the trial was to commence, hence it is submitted for the Wife that it was wholly unrealistic, and would not be reasonable, to assume that she could or should have reviewed all the evidence when completed within such a short time, and that it must be the case that she could not have done a proper reassessment in that 2 weeks before trial as would have prevented the occurrence of the substantial part of the costs of the trial. In any event, Mr Coleman submits, that evidence when all was provided was largely circumstantial, and was in piecemeal fashion, leaving the Wife and her advisers to have to fit the pieces together and construct what they believe happened.

32.  It must be noted that the dispute involved a number of assets including a property in London, shares in 4 companies and funds in certain bank accounts vested or created in the Husband’s name over a period spanning more than 10 years, commencing from the time when he was still a student in UK up to after his marriage to the Wife, and under various arrangements made by his parents at different stages of the parents’ marriage as well as after their own separation and eventual divorce, all with a single salient feature behind almost all of the transactions: that they all took place after the Father was diagnosed with the neurodegenerative disease which rendered him completely incapacitated, and which caused the Wife to believe that they were all part of estate planning by a very wealthy father to his only son of a very traditional Chinese family, of which I agreed in my judgment was not without merits:

“[71] There is no question, as noted above, that some of the transactions relating to the husband’s shareholdings in various companies and the acquisition of landed properties took place well before the parties’ marriage or even their acquaintance, such as the purchase of 25B Po Garden by WS Ltd and its transfer of 30,000 shares to the Husband in 1993, or the allotment of 1 share in CW Investment to him and the company’s acquisition of 16A Po Garden in 1999, which were therefore beyond the Wife’s first hand or personal knowledge and hence her case is admittedly in effect based on her subsequent observations and information including hearsay, aided no doubt by being able to now look back at the entire history of those transactions relevant to the particular and objective circumstances of the Husband’s family in order to build and frame a case of a traditional Chinese family where a very wealthy father intended to make outright gifts to his only son as part of his estate planning as a result of his own incurable illness. On the face of it I cannot say there is no merits in such case of the Wife against the husband and his parents.”

33.  Some of those observations and information which the Wife relied upon for her case, such as the Husband’s response to his neighbour’s request to purchase 16A Po Garden, their matrimonial home at that time, when the Husband claimed to be one of the owners, and that he was never required to pay any rent to the Father for occupying the same, were indeed significant as far as the Wife‘s case was concerned, and certainly warranted clarification and explanation from both the Husband and Parents.          

34.  As noted in my judgment, their case was that the Disputed Assets were essentially the investments of the Father but managed by the Mother after his incapacitation with the main purpose of preserving his assets and earning some income to meet his daily needs and expenses after it became impossible for him to continue with his medical practice, and when the Parents were divorced and the Husband became a lawyer, they decided to involve him in the management only without diverting any beneficial interests in those assets to him.

35.  Furthermore, as reflected by the chronology of events set out in my judgment, it cannot be denied that the factual matrix pertaining to each creation and/or acquisition of those companies and/or landed properties by the Parents and the subsequent vesting of some of their shares in the Husband’s name were much more complicated than those run-of-the-mills disputes involving usually only one landed property such as typically a former matrimonial home, which certainly explains why the trial required 5 days of oral evidence.

36.  Were then those oral evidence necessary to corroborate and substantiate the Husband’s case and those of the Parents so as to enable this court to look at all the evidence holistically and to arrive at the conclusion which it did? I can say without any reservation that the answer must be yes, for the various reasons already articulated above and the fact that what the Husband and Parents said in their affidavits were not all corroborated by documentary evidence, in particularly as to the Parents’ true intention in transferring those assets into the Husband’s name which could only be properly and adequately explained and clarified through oral testimonies, in particularly those of the Mother whom I made the following observation in my judgment:

“[108] ... having heard the Mother, Husband and Sister in evidence, all of whom I find to be honest and credible witnesses whose testimonies were in the main spontaneous, straightforward and consistent, especially those of the Mother with so much details of her management of the father’s financial affairs that not only clearly reveal and reflect her devotion and dedication to her former husband notwithstanding their separation and divorce all these years which is both remarkable and admirable, but also render her case that these Disputed Assets were investments carried out by her for the father to protect and preserve his wealth all the more convincing and credible.”

37.  Furthermore, the fact that the Father, whose intention was central to the preliminary issue, was unable to provide any affidavit, and it was necessary for the Mother to also speak on his behalf, hence to determine what was his real intention very much depended on her credibility, which could only be established through oral evidence at the trial.                        

38.  In the premises I agree that while the Wife was guilty of making certain unfounded and unjustified allegations against the Husband and his family as pointed out in my judgment, it would not be wholly fair that she should be held liable for all the costs of both the Husband and Parents, and that her proposal to be liable for only half of their costs is in the circumstances proper and reasonable, and in the exercise of my discretion I accordingly so order, with certificate for 2 counsel in the case of the Parents.           

Leave Application for Summer Holiday

39.  The Husband’s proposal was to take the 2 daughters to Singapore for a 4-days holiday during which his mother and sister would also come along as it was an extended family reunion on his mother’s side with many of the members residing there. The Wife’s solicitors were accordingly informed on 31^st May 2016 but as no reply was received by 23^rd June 2016, the Husband therefore issued his summons on that day which was subsequently heard on 27^th July 2016.

40.  Leave was required due to a standard term in a Consent Order made on 27^th January 2014 in relation to the daughters, in which the parties were granted their joint custody with care and control to the Wife and reasonable access to the Husband, with the usual direction that the daughters not be removed from Hong Kong without leave until they attain the age of 18. There were however also certain agreed arrangements set out in the recital of the order in respect of the Husband’s access to the daughters including the following:

(a)  for weekdays, he was to have dinner access at least twice a week including one dinner at the daughters’ home ...

(b)  for weekends, he was to have access every Saturday from 10:30 a.m. to 9 p.m.;

(c)  for holiday access, the parties agreed to share the daughters’ school holidays equally; and

(d)  the Husband may have additional access on special occasions or functions such as Father’s Day, his birthday, paternal grandparents’ birthday, etc.;

(e)  the parties were to continue to have family time together for meals outings with the daughters and to celebrate special occasions with the daughters, such as birthdays and other such normal special events as mutually agreed;

(f)  the parties were to continue to share together family events and functions with each other and/or both of their extended families and the daughters as mutually agreed;

(g)  the parties were to continue to share family holidays together as mutually agreed.    

41.  With such wide and mutually agreed provisions clearly designed to promote the daughters’ relationship not just with the Husband but also his extended family including the paternal grandparents, one would have expected little resistance from the Wife to such a simple request for a relatively short trip to a neighbouring city well familiar to the daughters, as I understand they last visited in 2013 albeit together with their mother.

42.  Ms Mairead Rattigan who appeared for the Wife on this occasion explained that this Consent Order specifically did not provide for overnight or staying access for the Husband, and that for family holidays to be shared together as mutually agreed, was for some very specific reasons first made known during the parties’ negotiations in January 2014 which led to the said Consent Order, and were subsequently detailed in the Wife’s 2^nd Affirmation of 20^th March 2014 and again referred to in a letter from her solicitors dated 27^th June 2014 when she objected to a similar request of the Husband at that time, of which I do not propose to go into details here given their sensitive nature, but which according to Ms Rattigan did cause the Husband to abandon his original request for staying access in the Consent Order, and which still remain today her main concern for the daughters and her reason for objecting staying access to the Husband and hence his removal application, as the 4-days trip to Singapore would invariably provide him such an opportunity to which he was not entitled under the said Consent Order.     

43.  These allegations of the Wife have always been denied by the Husband, but they have somehow remained unresolved either through investigation by Social Welfare Officer or other appropriate experts or through a proper hearing, and while I found the Husband’s application not without merits and that he did propose to arrange for the daughters to sleep with his sister and their aunt during the entire trip so as to alleviate the Wife’s concern, and for which his sister had given an undertaking to do so, I agreed with the Wife at the hearing that as long as these alleged behaviour of the Husband remain unresolved one way or the other and still a serious concern to the Wife over the daughters’ welfare, it would not be appropriate for them to go on any overseas trip with the Husband at this stage, and hence I refused his application.

44.  It is in this factual context and for these reasons of my decision that I now come to decide on the question of costs, and given the nature of the application I agree with Ms Cheng that it would be appropriate in the circumstances to make no order as to costs of the Husband’s application.