LLC v. LMWA AND ANOTHER

FCMC 4683 /2014

[2018] HKFC 100

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 4683 OF 2014

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DECISION

(Variation of costs order nisi in respect of
the trial of preliminary issue on beneficial ownership of
landed properties)

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The application

1.  This court handed down its judgment on 22 June 2017 (“Judgment”), after a 6½ days’ trial on the preliminary issue concerning the beneficial ownership of the former matrimonial home of the petitioner (“wife”) and the 1^st respondent (“husband”) and a carpark situate at Sorrento, Kowloon (respectively “Sorrento Property” and “Sorrento Carpark”; and collectively “Properties”), and decided in favour of the husband and his father, the 2^nd respondent herein (“Father”).

2.  In the Judgment, a costs order nisi was made to the effect that the wife should bear the costs of the husband and the Father to be taxed if not agreed, with certificate for 2 counsel.  This is her application to vary the costs order nisi to:

(1)  (her primary position) no order as to costs of the trial of the preliminary issue wholly; or

(2)  (her secondary position) no order as to costs vis-à-vis her and the husband, and only 50% of the Father’s costs should be borne by her.

3.  In the following discussion, I would adopt the abbreviations and defined terms used in the Judgment, unless stated the otherwise.

The Judgment

4.  The background of the case and the parties are set out in §§8-38 of the Judgment. The case of each party is set out in §§39-43 (wife’s pleaded case), §§44-47 (husband’s pleaded case) and §48 (Father’s pleaded case) of the Judgment. Therefore, I shall not repeat them at length in this decision.

5.  For the purpose of this decision, it is quite sufficient to highlight the following points from the Judgment.

6.  According to the land registry records, the Sorrento Property is registered in the joint names of the husband and the Father, whereas the Sorrento Carpark is registered in the sole name of the Father. The Properties were purchased about 2 years prior to the marriage of the husband and the wife. The conveyance documents were executed in the following sequence and manners:

Sorrento Property (purchase price of $7.7 million)
Conveyancing documents	Date of execution	Purchaser(s)/remarks
Preliminary sale and purchase agreement	19/1/2006	The Father (solely)
Formal sale and purchase agreement	10/2/2006	The Father (solely)
Nomination	11/3/2006	The Father nominated to add the husband as a joint owner
Assignment	18/3/2006	The Father and the husband as joint owners
Sorrento Carpark (purchased price of $478,000)
Conveyancing documents	Date of execution	Purchaser(s)/remarks
Formal sale and purchase agreement	18/3/2006	The Father (solely)
Assignment	28/4/2006	The Father (solely)

7.  In respect of the Sorrento Property, it is indisputable that the Father had paid for its down payment (ie $2,310,000). The balance of the purchase price ($5,390,000) was financed under the Mortgage Link Arrangement with Hang Seng Bank under which the Father was required to lock up $2,695,000 (ie 50% of the mortgage loan amount) in the Deposit Account and he deposited a total sum of $1,084,880 on divers dates into the Deposit Account in order to fulfil the requirement of the said locked-up sum of $2,695,000. In/about August 2012, the husband paid about $4,640,000 to pay off the remaining balance of the outstanding mortgage. The total mortgage repayments payable between the date of acquisition of the Sorrento Property in 2006 and date of redemption of mortgage in 2012 was $1,898,596. There was dispute whether it was the Father or the husband who had paid for the mortgage of the Sorrento Property before its redemption.

8.  It was not dispute in the trial that the purchase price of the Sorrento Carpark was fully paid by the Father. 

9.  In the trial, the wife sought to argue that the legal ownership should be differentiated from the beneficial ownership, to the extent that the husband was the sole beneficial owner of both the Sorrento Property and the Sorrento Carpark. She advanced that the husband and the Father had express discussion/agreement as to the acquisition and beneficial ownership of the Properties. She pleaded that “since no later than December 2005 and prior to the acquisition of the Properties”, they had reached the Common Intention that the Sorrento Property was intended to be the matrimonial home of the couple and that the down payment of the Sorrento Property and the full purchase price of the Sorrento Carpark was gift from the Father to the husband.[1] She relied on a series of pre- and post-purchase conduct of the husband and/or the Father to prove the Common Intention, such as the extensive online chat records between the husband and her during their courtship;  the invitation of her by the husband to view various properties in December 2005;  the 3 emails between the husband and the Father in May 2006 on the money safe-kept by the Father for the husband and the husband’s suggestion of paying the 1^st year’s mortgage repayment of the Sorrento Property; [2]  the payment of $612,000 by the husband to the Father;  the fact that the decoration of the Sorrento Property was decided and taken charge of by the husband and the wife, and that the Properties were all along used and occupied by them; the fact that the rental income of the Properties was received and used by the husband as part of the family household expenses, and that he later considered selling the Properties and prepared spreadsheets showing how much he could cash out by selling the Properties.

10.  In the Judgment, I found that the wife failed to discharge her burden of proving that the beneficial ownership of the Properties should differ from their legal ownership. I opined that she had pitched her case too high by pleading that the Common Intention of the husband and the Father was formed and time-locked as “since no later than December 2005 and prior to the acquisition of the Sorrento Property”. I were of the view that it was “chronologically impossible” that the Common Intention would have been formed at the pleaded point of time when the wife had reservation about marriage and/or relocation to Hong Kong, and the husband himself had not really made up his mind if he was going to be relocated to Hong Kong. I also found that the Father had been servicing the mortgage of the Sorrento Property under the Mortgage Link Arrangement with his own money (about 78 monthly repayment ranging from $30,119 to $21,930 each in the total sum of $1,898,596) until the husband fully redeemed the mortgage in August 2012.  I reiterated in the Judgment that a dollar-to-dollar approach in terms of financial contribution to the Properties is not applicable in the domestic context between the husband and the Father.

11.  At the same time, I pointed out in the Judgment that at the material times when the Properties were purchased, the husband was trying to woe the wife and would refer the Sorrento Property as “our love nest”, “our room in Hong Kong”, “our master bedroom” and the wife as “little queen of the Sorrento” etc in their online chat, so as to convince her that he was serious about their relationship.  However, it was found that he was not being totally honest to her during the online chats. [3]  I also ruled that the intention of the husband and/or the intention shared by the couple on the beneficial holding of the Properties was irrelevant; what was crucial was the intention shared by the husband and the Father. 

12.  There is no appeal in respect of the finding of facts and the beneficial ownership of the Judgment.

Applicable legal principles

13.  There is no dispute that costs are within the discretion of the court which shall have full powers to determine by whom and to what extent the costs are to be paid (See: Order 62 rule 3 of the Rules of the High Court).

14.  The starting point for discussion on legal principles on costs are set out in the often quoted English authority of Re Elgindata Ltd (No 2) [1993] 1 All ER 232 at 237f-g, which can be summarised in the following:

(1)  Costs are in the discretion of the court;

(2)  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;

(3)  The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or costs of the proceedings he may be deprived of the whole or a part of his costs;

(4)  Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but order him to pay the whole or a part of the unsuccessful party’s costs.

15.  The Civil Justice Reform (“CJR”), however, has brought about new elements on costs in civil litigation. For example, Order 62 rule 3(2) of the Rules of the High Court (“RHC”) provides that the court shall 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.   For another example, in exercising its discretion, the court is required to take into account, where appropriate in the circumstances, the following special matters set out in Order 62 rule 5(1) of RHC,

“ (aa) the underlying objectives set out in Order 1A, rule 1;

(a) any such offer of contribution as is mentioned in Order 16, rule 10, which is brought to its attention in pursuance of a reserved right to do so;

(b) any payment of money into court and the amount of such payment;

(c) any written offer made under Order 33, rule 4A(2);

(d) any written offer which is expressed to be "without prejudice save as to costs" and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(g) any admissible offer to settle made by a party, which is drawn to the Court's attention.”

16.  On the “conduct of the parties”, Order 62 rule 5(2) explains that,

“(2) For the purpose of paragraph (1)(e), the conduct of the parties includes -

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d)   conduct before, as well as during, the proceedings.”

17.  In Hung Fung Enterprise Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679, Kwan JA commented that the broad guideline of “costs shall follow the event” should not be regarded as a general rule but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of that particular case:

“100. Although the principles in Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214A to C continue to apply after the Civil Justice Reform, the approach these days is to regard the proposition that costs should follow the event not as a general rule but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case (Chan Mei Yiu Paddy & Anr v Secretary for Justice & Ors, HCAL 16/2007, 9 December 2010, Saunders J, para 5), the rationale being that a mechanistic adoption of follow the event principle may result in parties incurring unnecessary costs in civil litigation (Wong Kam Tong v The Incorporated Owners of Yuen Long Tin Shing Court, HCMP 1454/2011, 6 December 2011, Court of Appeal, paras 10 to 13).” (emphasis added)

18.  Her Ladyship went on to explain the relevant considerations in deciding whether to deprive a successful defendant of his costs in the following way:

“101. To deprive a wholly successful defendant of costs, the relevant considerations are as stated by Atkin LJ in Ritter v Godfrey [1920] 2 KB 47 at 60:

‘In the case of a wholly successful defendant, in my opinion, the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains.’

102. Atkin LJ further explained at 60 to 61 that by (1) is meant that the defendant “has so conducted himself as to lead the plaintiff reasonably to believe that he had a good cause of action against the defendant, and so induce him to bring the action”. Such conduct may be unreasonable or improper, or conduct other than that which constitutes the alleged cause of action. (2) and (3) may possibly overlap and would include improper conduct in or connected with the litigation calculated to defeat or delay justice.

103. It is not necessary to prove all three matters to deprive a wholly successful defendant of costs, one or more of those matters would do. The principles in Ritter v Godfrey have been applied in Hong Kong, see for example the decision of the Court of Appeal in Ho Shu Kwong v Chiang Chun Yuan [2002] 3 HKLRD 419 at para 18.” (emphasis added)

19.  Put simply, the starting point is that the unsuccessful party will have to bear the costs of the successful party/parties, unless the former can show that a different approach on costs should be adopted on the facts of the case.

Basis of her application

20.  On behalf of the wife, Ms Jacqueline Law of counsel reduces the basis of her application into 4 grounds, all of which are directed against the conduct of the husband and the Father, namely:

(1)  They failed to negotiate in good faith;

(2)  They made very late discovery before or during the trial;

(3)  They failed to give crucial clarification/elaborations of their case in their affirmations, but chose to amplified them only during their oral testimony;

(4)  They attempted to pursue inherently weak defences.

21.  I shall now deal with each basis one after one.

Failure to negotiate in good faith

22.  By a letter dated 21 August 2015, which was sent to the husband and the Father some 3 months before the trial, the wife proposed the following offer to settle the trial on the preliminary issue (“Calderbank Offer”):

(1)  The joint tenancy of the Sorrento Property be severed and held by the husband and the Father as tenants in common in equal shares;

(2)  The husband’s share shall form part of the family assets to be divided and determined in the ancillary relief claim of the wife;

(3)  A trust be set up (with the Father and the wife as trustees) holding the Father’s half share in the Sorrento Property and the full share in the Sorrento Carpark on trust for the use and benefit of the children of the family;

(4)  The trial be vacated with no order as to costs.

23.  It is indisputable that neither the husband nor the Father gave any reply to the Calderbank Offer, save and except a holding reply dated 28 August 2015.  

24.  In his affirmation of opposition to this application, the husband deposes that since the Calderbank Offer fails to beat what he got from the Judgment, it is well justified for him not to accept the Calderbank Offer in the first place. The Father, on the other hand, explains in his affirmation in opposition that the Calderbank Offer is not a reasonable offer because it would mean that he needs to give up his ownership to the Sorrento Carpark and the beneficial ownership to his half share of the Sorrento Property.

25.  Ms Jacqueline Law, counsel for the wife, puts forwards a 2-fold argument as follows.

26.  In the 1^st limb, she submits that although the Calderbank Offer of the wife is not able to “beat” the result of the case, what this court should focus here is the conduct of the husband and the Father, ie their refusal to engage in the minimum level of negotiation for settlement so as to avoid the trial of the preliminary issue. Such conduct, Ms Law says, should not be encouraged because it is not in line with established legal authorities that in the matrimonial proceedings, the parties have an obligation to explore settlement in a constructive manner.  Counsel refers me to the following authorities.

27.  In the English authority of A v A (Costs Appeal) [1996] 1 FLR 14, Singer J ruled that a spouse who does not respond constructively to an offer stymies any chance of settlement cannot expect immunity from the responsibility for costs for that, and had these to say at 25C-D:

“The lesson of this case, which litigants and lawyers alike must recognise and give effect to, is that just because ancillary relief applications have to be conducted and prepared in the fraught emotional atmosphere that so often and understandably exists after the marriage and its breakdown, nevertheless that does not mean that common sense and commercial realities can be allowed to fly out of the window. A spouse who does not respond constructively to a Calderbank offer, whether a good offer as in this case or only one that is bad or indifferent, stymies whatever chance there is of the settlement. Such a spouse cannot with impunity expect immunity from responsibility for that…”

28.  In the local jurisdiction, Hartmann JA (as he then was) explained in EJB v CJB [2011] 5 HKLRD 508 at §130 the following:  

“As I understand it, the approach today is that, unless the parties are of the reasonable view that they do not have sufficient information available to them to enter into negotiations, they are under an obligation to explore settlement and to do so in a constructive manner.”

29.  As to her 2^nd limb of argument, Ms Law relies on Practice Direction (PD) 31 on mediation in civil proceedings, which provides that adverse costs order may be made against the party who unreasonably fails to engage in mediation, and that the fact that there is active without prejudice settlement negotiation between the parties is regarded as a reasonable explanation for not engaging in mediation. The said PD shows, according to Ms Law, that even if the trial of the preliminary issue is regarded to be within the civil proceedings (but not matrimonial proceedings), there is a duty to participate in the minimum level of settlement negotiation. [4]

30.  In response, Mr Neal Clough, counsel for the husband, and Ms Lily Yu, counsel for the Father, adamantly submit that the cases of A v A (supra) and EJB v CJB (supra) cited by the wife do not have any application here, because these are cases of ancillary relief within the matrimonial proceedings. In accordance with the principles laid down in TL v ML & Other (Ancillary Relief: Claim Against Assets of Extended Family) [2006] 1 FLR 1263, a trial of preliminary issue involving a dispute with a third party must be approached on exactly the same legal basis as if it were being determined in the civil division. Simply put, the husband and the Father cannot be held to bear any duty to explore settlement with the wife at the stage of the preliminary issue trial, which is treated as civil proceedings.

31.  Further, both counsel reiterate that the wife is the losing party in the trial, as the court found that she pitched her case too high. [5] The outcome of the trial shows that the Calderbank Offer was not an effective one, as she was not able to “beat” her own offer at all.

32.  Upon consideration of all the submission, I believe that different approaches should apply to the husband and the Father.

33.  I shall start with my analysis relating to the husband. In my view, the husband, as one of the spouses in the ancillary relief of the family proceedings, has the duty, as much as the wife, to engage in the minimum level of exploring settlement of any potentially avoidable litigation, even at the stage when a preliminary issue trial involving third party is to be held. I say so due to the following reasons.

34.  First, although the preliminary issue trial should be proceeded as if it was being determined in the Chancery Division, it remains true that at least between the husband and the wife, the preliminary issue trial should be regarded as the family proceedings, because it is both in form and substance the wife’s claim for ancillary relief against the husband.

35.  In Goldstone v Goldstone [2011] EWCA Civ 39, the wife there issued an application under section 37 of the Matrimonial Causes Act 1973 to set aside the root agreement between the husband there and the foreign third party, the Jeeves group. [6] The said root agreement was made about 2 years before the breakdown of the marriage and had, since then, been the depository of the bulk of the husband’s fortune.  An order was made, after a failed FDR, to join the Jeeves group as one of the respondents, who later issued an application to set aside the order for joinder. Their application for setting aside the joinder order was refused by Hedley J. The Jeeves group lodged an appeal, but its appeal was dismissed.

36.  There, the English Court of Appeal (Thorpe LJ, Hooper LJ & Hughes LJ) held that while the case of TL v ML (supra)rightly emphasised that issues involving a third party were to be determined according to ordinary principles of property, in exactly the same way as if such issues arose in free-standing Chancery proceedings, that did not mean that such issues must be separated from the family proceedings to which they were directly critical. TL v ML correctly identified the procedure for determination of such third party claims within family proceedings, and this procedure did not permit or require the import of the Civil Procedure Rules. Ancillary relief proceedings such as this were family proceedings: in essence this case involved a claim by the wife against the husband for discretionary relief. Although there would have to be a preliminary trial to establish the extent of the assets over which the discretion was ultimately exercised, a preliminary trial was pendent on the originating application, and had no independent existence (per Thorpe LJ & Hughes LJ at §§[36], [39], [51], [66] of the Judgment).

37.  Since the preliminary issue trial should be regarded as the family proceedings, then both the husband and the wife are obliged to engage in constructive dialogue for exploring settlement of the preliminary issue.  The importance of such obligation in family proceedings was explained in the illuminating words of Hartmann JA (as he then was) in EJB v CJB (supra) at §130,

“Unless attempts are made to settle, potentially avoidable litigation becomes inevitable. In family litigation there are two almost inevitable results. First, ill will between the parties is heightened. If there are children of the marriage this can have profoundly deleterious consequences. Second, except in big money cases – and this was not a big money case – there will be a significant drain on the joint matrimonial estate, both parties, directly or indirectly, being the losers.”

38.  Second, I duly note Mr Clough’s argument that it was impossible for the husband to negotiate with the wife on the Father’s interest in the Properties and that he did not have the duty to ask the Father to give up his interest in the Properties to the children of the family beneficially and completely through the trust arrangement suggested by the wife in the Calderbank Offer.  However, with respect to counsel, this argument does not sit too well with the without prejudice offer made by the husband to the wife. Before the divorce proceedings were commenced, his former solicitors wrote a without prejudice letter dated 12 March 2014 to her proposing, inter alia, that he would provide the Sorrento Property to her and the children as their accommodation and make a lump sum payment of $1,000,000 to her as full and final settlement of her claim for ancillary relief.

39.  I hold the view that if the husband was able to make the aforesaid without prejudice offer touching on the Sorrento Property, presumably after consultation with the Father as one of its legal and beneficial owner, he should also be in a position, upon further consultation with the Father, to make a reply or counter-offer to the wife on the Calderbank Offer, such as rejecting her proposal to name her as one of the trustees of the Properties.  The critical point is that in matrimonial proceedings, the door to explore settlement should not be shut down, though the negotiation through Calderbank offers/counter-offers may not, at the end of the day, lead to a fruitful result.  I shall gratefully beg to agree with the observation of Singer J in A v A (supra) at 25E-F as follows:

“While one can never say that this or any other case would have settled if the Calderbank door had been kept open by timely and reasonable reply, the critical point is that to slam the door through inactivity, lack of objectively, indecision or for whatever other reason makes potentially avoidable litigation inevitable. These observations most potently apply where, as here, the issues were clear and the evidence in relation to them sufficiently established at the time of the offer.” (emphasis added)

40.  Importantly, adopting a complete silence to the Calderbank Offer (save and except a holding letter) eats away any possible and potential chance of settlement but opens up the floodgate of incurring further and sometimes unfortunately unnecessary costs leading to the unavoidable result of further draining away of the assets of the husband and/or the wife, which in turn very likely would jeopardise the interest of the children of the family. Such apathetic attitude of the husband in the overall circumstances of this case should not be endorsed by this court.  I thus agree with Ms Law that I should take this conduct of the husband into account in the overall consideration on the costs order.

41.  I now turn to the Father.  

42.  Ms Lily Yu for the Father agrees that the preliminary issue trial has no independent existence and is pendent on the matrimonial proceedings (see: Goldstone v Goldstone (supra)), but she argues that it would be too far-fetched for the wife to suggest that the Father, being an outsider to the marriage, should bear a duty of exploring settlement as if it is between spouses in the trial of ancillary relief.  Ms Yu reminds this court that the wife is unable to cite one single authority on her proposition vis-à-vis the Father.

43.  I do see some force in Ms Yu’s argument.  It is true that all the cases on the duty to explore settlement that are cited by the wife concern the spouses only.  I believe that the Father’s position should be differentiated from that of the husband due to the reasons set out above.  Ms Law seeks to rely on PD 31, but I have to point out that the wife herself has not triggered the mediation process in order to protect her costs position, which she could have done when she found out the non-responsiveness of the Father to the Calderbank Offer. I am thus not persuaded by Ms Law’s submission concerning the Father on this issue.

Late discovery

44.  In her submission, Ms Law says that while the wife did put all her cards on the table by highlighting her case and the facts/historical conduct of the parties in her various affirmations well in advance of the trial. She also exhibited documents that refuted the inaccurate explanations made by the husband and/or the Father, so that the latter two had sufficient opportunity to consider these documents for their preparation of the trial.[7] However, such proper and fair attitude, Ms Law points out, was not shared by them, who sought very late disclosure of documents at the 11^th hour before and during the trial as follows:

(1)  2 days before the trial was due to commence, the Father disclosed the power of attorney (dated 18 February 2006), land search records of his Provence Park property (the address of which was never mentioned in his affirmations) and a repayment schedule of the Sorrento Property issued by Hang Seng Bank, and demanded the same to be included in the trial bundles (“Father’s 1^st disclosure”);

(2)  Just 1 day immediately before the trial, the husband provided an email from the Estate Agent to him (dated 18 January 2006), and demanded the wife’s solicitors to insert the same into the trial bundle, without explaining how he proposed to rely on it and why it was not disclosed earlier (“husband’s 1^st disclosure”);

(3)  During his oral evidence given on 27 November 2015, the husband adduced another email exchange between him and the Estate Agent dated 4 and 9 January 2006 (“husband’s 2nd disclosure”);

(4)  On the return day of the part-heard on 15 February 2016, the Father sought to disclose, by way of an inter partes summons, a letter from Hang Seng Bank on the mortgage arrangement of the Elder Brother’s Flat,[8] a letter from the police on the burglary of his home, and a payment form from Baker & McKenzie on payment of Provence Park (purchased by the Father in 2012) (“Father’s 2^nd disclosure”).

45.  For the records, the Father’s 1^st disclosure and the husband’s 2^nd disclosure was not objected by Mr Douglas Lam, leading counsel for the wife in the trial, but the husband’s 1^st disclosure and the Father’s 2^nd disclosure met her opposition. Argument was thus heard on the 1^st day of trial (20 November 2015) [9] and on return day of the part-heard (15 February 2016) [10] respectively, in the result of which the husband’s 1^st disclosure was not allowed and the Father’s 2^nd disclosure was allowed but limited to the Hang Sheng Bank’s letter on the mortgage arrangement of the Elder Brother’s Flat. 

46.  Also for the records and contrary to the wife’s written submission that this court already made costs orders in respect of the above discovery applications/summons, the court records (including the transcript) show that I have not expressly made any costs order in respect of these applications.   

47.  It is fair to rule that the wife should have the costs of the application/summons relating to the husband’s 1^st disclosure and the Father’s 2^nd disclosure, because these applications were wholly or substantially rejected by me. Reading the written submission of Mr Clough for the husband and Ms Yu for the Father in their totality, both counsel have not suggested the otherwise. I shall take this into account in the costs order to be awarded in this decision.

48.  On behalf of the wife, Ms Law makes further argument that these multiple and belated discovery applications by the husband and/or the Father at the 11^th hour of trial unnecessary prolonged the preliminary issue trial. They should not have occurred, much less repeated, orchestrated attempts by them to introduce late documents in the course of the trial. This constituted ambushing, as a result of which the wife was clearly prejudiced, in that she never had the fair opportunity to evaluate and assess her case with the benefit of these documents. She was also repeatedly placed in the dilemma of whether to consent or oppose the applications, and whether to adjourn or press on with the trial (See: Jose Miranda Da Costa Junior v Lorenzo Yih, HCA 156 of 2010, date of judgment 28 April 2014).  Ms Law discreetly suggests that a costs order more favourable to the wife should be made by this court.

49.  However, I find myself unable to embrace the above argument of Ms Law because,

(1)  As I have already said in §[47] above, the wife should have the costs of the various late discovery applications/summons and that this court would take that into account in the overall evaluation of costs order to be awarded in this decision. To give further allowance of costs in her favour on the same ground of late discovery is prone to double-counting, in particularly when the documents sought to be disclosed by the husband’s 1^st disclosure and/or the Father’s 2^nd disclosure were wholly or substantially ruled out by this court;

(2)  Of the Father’s 1^st disclosure and the husband’s 2^nd disclosure to which the wife did not object, most of the documents did not turn out to be material in nature, so that the lack of which would deprive her of a fair chance to evaluate her case;

(3)  It is true that the Father did not give the address of Provence Park property in his affirmations, but disclosed its land search by way of the Father’s 1^st disclosure. But it is equally true that the wife could have sought further and better particulars of its full address before the trial, which she did not do;

(4)  The comparatively more crucial document is the letter of Hang Seng Bank on the mortgage arrangement of the Elder Brother’s Flat, which disclosure was necessitated by her own oral evidence, elicited for the first time in the trial, that the Elder Brother’s Flat was also serviced by the Mortgage-Link Arrangement. The letter of Hang Seng Bank was to rebut this allegation. As such, the “ambush” argument does not stand on any solid ground.

Failure to provide crucial information in their affirmations

50.  In her 14^th affirmation, the wife sets out over 12 pages those alleged material evidence introduced by the husband and/or the Father for the first time in their oral evidence, instead of in their affirmations, by going through literally each and every topic covered in the Judgment.[11] The overall sentiment expressed by her is essentially these:

(1)  that the husband and/or the Father held back material evidence in their affirmations, but chose to disclose the same only in their oral evidence for the first time during the trial, thus depriving her of the chance of properly assessing and evaluating the strength of the case of the parties.  One of the obvious examples is their oral explanation to the 3 emails made in May 2006 between them relating to the 1^st year’s mortgage repayment arrangement of the Sorrento Property; [12]

(2)  due to the lack of clarification in their affirmations in response to her affirmations/documents in full disclosure, she was led or induced by them to believe that their defence was based on half-truth and that Properties were wholly and beneficially owned by the husband alone;

(3)  the material evidence given in the husband’s and /or the Father’s oral testimony, though given so belatedly, was nevertheless accepted by this court. And the court relied heavily on their oral evidence in returning a judgment in their favour;

(4)  But for these late evidence, she believes that it is more likely than not that her case would prevail over theirs.

51.  For the purpose of this decision, I do not think it is helpful to set out the wife’s full comment on the husband’s and/or the Father’s late oral evidence or their failure to depose the same in their affirmations. Suffice it is for me to say that save and except from the more crucial points to be discussed in the later part of this decision, the wife, despite she repeatedly said that she respected the court’s relevant findings, gave the impression that she was somehow critical of the court’s acceptance and reliance of these oral evidence.  However, it remains true that she has not lodged any appeal to the Judgment, and so she is bound by it.

52.  On behalf of the wife, Ms Law argues that most of the wife’s perception of what was the true position flowed from her recollection of past events. But it was evident that the husband and the Father’s pleaded case and affirmation evidence did not chime with what she was told during the marriage. There was a chain of events that was consistent with her perception, and which would be a series of coincidence which is too good to be true if the husband and the Father’s pleaded case is correct. Their non-forthcoming stance in relation to trial preparation gave all the more reason for her to be deeply suspicious as to their motives. Faced with the affirmation evidence then, or the lack of benefit of the oral testimony and late disclosures, the wife was not obliged to assume that everything they might say at the trial would ultimately be believed. She could not have been reasonably expected to reach a conclusion that her case was completely a false hope (which this court did not expressly so find) before the trial.

53.  In my decision, the following matters are relevant to my consideration on this topic.

54.  First, our legal system is of adversarial nature, under which oral evidence, in additional to written witness statements or affirmations, would be received and tested, after which the court will rule on credibility and facts. I accept Ms Yu’s submission that it is natural for a witness, such as the Father, to clarify and supplement his evidence under cross-examination, since a witness could not predict the cross-examination questions from the other side. I generally agree with the submission of Ms Yu given in part C3 of her written submission dated 4 May 2018, subject to the crucial point appearing immediately below.

55.  Second, though our legal system is of adversarial nature which means that oral evidence, including clarification and elaboration, is inevitable, it does not alleviate a party from his/her duty to lay all the cards on the table, in line with the approach in modern civil litigation and the guiding objectives under Order 1A introduced by the CJR.   This must, in my view, include that a party should give a direct response or clarification to the material documents that are relied on by the opponent party, in particularly when the documents were that party’s own documents but may tend to support the case run by the opponent party.

56.  Here in our case, it was very clear to all the parties in the preliminary issue trial that one of the conduct relied on and alleged by the wife to prove that the husband was the sole beneficial owner of the Sorrento Property was the alleged arrangement to utilize the said $1,000,000 safe-kept by the Father for the husband for payment of the 1^st year of the mortgage repayment of the Sorrento Property. To prove her case, she disclosed in her 7^th affirmation the 3 emails between the husband and the Father (namely the 9/5/2006 Email, the Portfolio Email and the Mortgage Email). [13]  Indisputably, these 3 emails were the material evidence relied on by her. However, neither the husband nor the Father directly responded to or clarified what they meant to say in these 3 emails in any of their affirmations.  As a matter of fact, they did not mention or seek to directly clarify these 3 emails at all in their affirmations. [14]  Rightly pointed out by the wife, their clarification and elaboration only emerged for the first time during their oral evidence in the trial, and this court relied on their oral evidence, especially that of the Father, and returned a judgment in their favour.

57.  In LCJWY v LCKS [2016] 5 HKLRD 89 cited by Ms Law, HHJ Bruno Chan (as he then was) had to rule on the beneficial ownership of certain assets held in the name of the husband but which he claimed were on trust for his father and/or his mother. There was no declaration of trust in respect of any of those assets.  Upon trial, the learnt judge found for the husband and his parents, and awarded a costs order nisi that the wife there should bear the costs of the preliminary issue trial.  The learnt judge later, upon an application by the wife, varied the costs order nisi to the effect that she would only be liable for half of their costs. In gist, he was of the view that (i) the wife’s case was not without merit and certain information she relied on was significant and warranted clarification and explanation from both the husband and his parents, and that (ii) what the husband and his parents said in their affidavits was not entirely corroborated by documentary evidence, in particular as to the parents’ true intention in transferring the assets into the husband’s name which could only be properly and adequately explained and clarified through oral testimony.

58.  I am fully alive to the response made by Mr Clough and Ms Yu that that the facts of LCJWY v LCKS (supra) is totally different from the facts in our case. There, the assets in question were in the name of the husband who, together with his parents, claimed that the assets were beneficially owned by the parents. The burden of proof in that case rested on the husband and/or his parents, and the wife there was perfectly entitled to challenge or test their case. But here in our case, the Properties were/are held either in joint names of the husband and the Father, or in the sole name of the Father, and thus the wife bears the burden of proof.  

59.  However, I hold the view that although the facts of the 2 cases may be different, the principles enunciated therein are still applicable to our case.  I am convicted to say that the 3 emails relied on by the wife in our case were material and significant evidence, so that they warranted clarification and explanation from the husband and the Father, which was not forthcoming in their affirmations but emerged only in the trial. In such circumstances, the wife was truly and actually deprived of her chance to re-assess the strength or weakness of her case. This is a factor which this court should take into account in this decision.

Running inherently weak defences

60.  On this ground, Ms Law for the wife submits that despite the outcome of the trial, it cannot be disputed that this court, in the Judgment, decided not to believe the husband and the Father on a few of their erroneous explanation. Counsel provides 2 major examples in her written submission. The 1^st example relates to the payment of $612,000 by the husband to the Father. Both of them explained that these were for reimbursement of the Father to pay the husband’s US tax and allowances for the Father to buy gadgets, including a replacement brand-named watch which was stolen during a burglary to the Father’s residence. The Father went so far as to attempt to prove his defence of burglary by belatedly introducing a police letter dated 14 June 2010. The late application was rejected by this court.  This court also rejected both explanations in relation to the US tax and the buying of gadgets at §§[161]-[163] of the Judgment. Ms Law argues that the husband and the Father ought not have raised and pursued these lies or fanciful excuses, which have caused the wife to incur unnecessary legal costs to locate the documents to rebut them. Another example concerns the evidence of Mr Fung (the Estate Agent). Ms Law says that the Father should not have filed and relied on the affirmation of the Estate Agent who was held by this court of not telling the whole truth in the trial.[15]

61.  In my view, although the above 2 explanation provided by the husband and the Father in relation to the payment of $612,000 was not accepted by this court in the trial, this court was unable to rule out their 3^rd explanation, ie gift by the husband to the Father to show his gratitude for letting allowing his family to stay in the Sorrento Property for all these years.[16] As such, the wife cannot be regarded as the winner of this issue.

62.  The rejection by this court of the late discovery by the Father on the burglary documents, and thus the consequential costs order to be made, has already been dealt in the preceding parts of this decision. No further elaboration is required.

63.  It is true that the evidence of the Estate Agent was not accepted by this court due to his demeanour and his failure in providing all the truth to the court. However, this cannot be escalated to amounting to running a weak defence by the husband and/or the Father. After all, their main defence, ie the Properties were purchased for the common intention of co-investment, but not as the matrimonial home of the husband himself or with the wife, was accepted in the Judgment.

64.  Upon due consideration, I reject the wife’s contention on this ground.

Other consideration

65.  Towards the end of the Judgment, I made the following observation and comment:

“204. However, I do wish to remind all parties at this stage that the husband is contributing to the wife’s litigation costs pursuant to my last judgment dated 26 August 2016 on her application for legal costs contribution. Massive costs have been incurred. As I have said in my last judgment of 26 August 2016, litigation costs are flaring up to about $4.6 million within 2 years (up to March/April 2016) merely between the husband and the wife. This has not yet taken into account of the Father’s costs of this trial, which according to his Form H dated 22 July 2015 is running up to $862,000. The total costs set out above already account for about ¼ of the total price of the Properties (said to be worth about $20 million as at the trial)...”

66.  An order for maintenance pending suit for the wife and interim maintenance for the children of the family (now aged about 7 and 4 respectively) has been put in place by consent since 30 June 2014 for the husband to pay her, on top of his various undertakings, a total sum of $57,500 per month, [17]  which was varied by another consent order made on 6 December 2017 to the effect that the wife’s maintenance pending suit would be reduced from $27,500 per month to $13,000 per month.  

67.  Pursuant to my judgment of 26 August 2016 on the litigation funding, the husband was ordered to pay the wife a sum of $100,000 for 12 months leading up to the stage of FDR. 

68.  The case history shows that the wife is basically a full-time housewife taking care of the children of the family with the assistance of a maid. Her recent Form E filed on 17 March 2017 shows that she has taken up a part time consultancy job since November 2016, earning an average income of about $3,300 per month. Other than this job, she and the children are financially dependent on the husband at this stage. The husband has all along been the bread winner of the family.

69.  No doubt, the wife’s costs in these proceedings were met by the husband’s contributions from either his savings in his bank accounts or from his income, which were part of the matrimonial assets and from which he had also drawn his own legal costs. Given such case history, if a costs order in substantial sum, such as one concerning this preliminary issue trial, is made against the wife to be paid to the husband, her liability would increase which may mean that a larger portion of the matrimonial assets would have to be given to her in order to satisfy her needs.  There may also be a possibility for another round of application of litigation funding, leading to the undesirable result of satellite litigation.  In my view, this is also a vital consideration that needs to be taken into account by this court in this application.

Exercise of discretion

70.  Due to the matters aforesaid and having considered all the circumstances in the round including the various disclosure applications made by the husband and/or the Father immediately before/during the trial, I am of the view that it is fair and just to vary the costs order nisi to the effect that:

(1)  There be no order as to costs between the husband and the wife of the trial of the preliminary issue (including all costs reserved);

(2)  The wife shall bear 80% of the Father’s costs of the trial of the preliminary issue (including all costs reserved). For avoidance of doubt, I maintain my endorsement of granting certificate for 2 counsel of the Father.

Costs of the argument hearing

71.  Towards the end of the oral submission, I raised my concern as to the arrangement of engaging separate counsel to represent the husband and the Father in this argument hearing, albeit that they both instruct the same legal firm.  Upon taking instruction, Mr Clough for the husband submits that although the husband has changed his solicitors to the same legal firm representing the Father (ie Messrs King & Co),[18]  different partners of Messrs King & Co are engaged by the husband and the Father. Mr Clough further says that separate counsel is required because the husband and the Father have a different approach in this argument hearing.  In response, Ms Law replies that there is no need to engage 2 counsel to put forward a different approach/argument of the husband and the Father.

72.  In the hearing, it is conceded by the husband through his counsel that there is no conflict of interest between the husband and the Father in so far as this application is concerned. And upon considering all the submission of the parties, I do not see that there is a marked difference in the argument relied on by the wife for her application vis-à-vis the husband or the Father, nor do I observe that there is a material difference in the approach/argument put forward by the husband and the Father in response to the wife’s case for her application.  And even if different approach was really adopted by the husband and the Father, it is not cost-proportionate that separate counsel should be engaged for this hearing. 

73.  Besides, looking at the result of this decision, neither the wife nor the Father can be described as the total winner of the application. As between the wife and the husband, I remind myself of my observation in §[69] of this decision.

74.  It is under such circumstances and for all the reasons set out above that it is my firm view that I shall exercise my discretion by ordering no costs as to this application.

Order

75.  For completeness, I list out my order as follows:

(1)  The costs order nisi made on 22 June 2017 be varied to the effect that:

(a)  there be no order as to the costs between the wife and the husband in respect of the trial of the said preliminary issue (including all costs reserved);

(b)  the wife shall bear 80% of the Father’s in respect of the trial of the said preliminary issue (including all costs reserved). be made absolute forthwith;

(2)  The costs order nisi (as varied) be made absolute forthwith;

(3)  There be no order as to costs between all the parties of this application.