LYE v. CWW AND ANOTHER

FCMC 14787 of 2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 14787 OF 2002

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R U L I N G ON
INDEMNITY COSTS

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1. At the hearing on 29^th March 2005, I gave an order that

(i)	The 1st Respondent do pay the Petitioner’s costs of and incidental to the suit up to 13th November 2003;
(ii)	There be no order as to costs of 13th November 2003;
(iii)	The 1st Respondent shall pay the Petitioner’s costs of 20th October 2004 and of the hearing on 29th March 2005.

2. The Petitioner’s solicitor submitted that for those costs of (i) and (iii) above, the 1^st Respondent should pay the costs on an indemnity basis.  I adjourned this issue and directed the parties to make written submissions thereon.

LEGAL PRINCIPLES

3.  According to Rule 3 of the Matrimonial Causes Rules, the Rules of the High Court (RHC) shall apply with the necessary modifications to the commencement of matrimonial proceedings in, and to the practice and procedure in matrimonial proceedings pending in the Court of First Instance or in the District Court.

4. Rule 91A of the Matrimonial Causes Rules provides that where the costs of and incidental to any matrimonial proceedings are directed to be taxed, R.H.C. Order 62 shall have effect in relation to the costs of proceedings in the Court of First Instance, and R.D.C. Order 62 shall have effect in relation to the costs of proceedings in the District Court.

5. Order 62 Rule 28(3) in both R.D.C. and in R.H.C. provides that the Court in awarding costs payable to one party by another may in any case in which it thinks fit to do so order or direct that the costs shall be taxed on the common fund basis or on the indemnity basis.

6. Any order for costs is in the discretion of the Court.  (see Headnote of Re Engindata Ltd (No. 2) 1993 1 All ER 232).

7. Section 53 of District Court Ordinance Cap. 336 (equivalent to Section 52A of High Court Ordinance Cap. 4) provides that the Court shall have full power to determine by whom and to what extent the costs are to be paid.  See also Hong Kong Civil Procedure, 62/2/5 : -

“The Court of Appeal in Choy Yee Chun (The Representative of the state of Chan Pui Yiu) v. Bond Star Development Ltd [1997] H.K.L.R.D. 1327, CA reviewed the cases and summarised the law as follows.  A taxation of the successful party’s costs on an indemnity basis could properly be ordered where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner.  Any proceedings instituted or prosecuted in such circumstances as to constitute an affront to the court could properly be the subject of a direction for the taxation of the successful party’s cost on the indemnity basis.  However, the circumstances in which an indemnity award might properly be made were not restricted to circumstances beyond the requirement that taxation on an indemnity basis must be “appropriate”.  The principle for the award of an order of costs on an indemnity basis applied equally to those who not only instituted proceedings but who defended them.  If a plaintiff had been forced to institute proceedings by a defendant whose conduct had been not only hostile in the normal litigious sense, but oppressive and with base ulterior motive, and if the pursuit of a defence constituted conduct which was part of an oppressive game plan, then invocation of the power to award costs on an indemnity basis might well be justified”.

8. I have been referred by the Petitioner’s solicitor, Mr. Ko, to the case of Re Tang Hong Yeun Andy HCB 19585 OF 2003 (at paragraph 18) quoting Choy Yee Chun (The Representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd. [1997] H.K.L.R.D. 1327 CA, where it was held that the discretion was not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”.  See also Hong Kong Civil Procedure, 62/App/12.

9. I have also been referred to the Judgment of the Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Limited. FACV No. 14A of 2003, at paragraphs 12, 14, 15, 18 and 23 where the Court of Final Appeal has made the following comments : -

(a)	The Court has a broad discretion to determine how costs shall be paid and whether indemnity costs should be ordered (paragraph 12).
(b)	The successive party should show, in order to obtain an order for costs on an indemnity basis, that the case has some “special or unusual feature” (paragraph 15).
(c)	In relation to the award of costs generally, it has been accepted, as Chu J pointed out, that while
	“the ground [upon which costs are awarded] must be connected with the case.  This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further”.
	There is no reason why this statement does not apply with equal force to the exercise of the discretion to award indemnity costs (paragraph 18).
(d)	Other factors, such as the reasonableness of the conduct of the parties, may need to be taken into account (paragraph 23).

SEQUENCE OF RELEVANT EVENTS IN THE PRESENT CASE

10. The relevant events and without prejustice correspondence are as follows :

(i)	On 18th December 2002, the Petitioner issued a petition for divorce on two grounds, namely unreasonable behaviour and adultery.  In relation to the alleged adultery, the 2nd Respondent, being a good friend of both the Petitioner and the 1st Respondent, apparently moved to the parties’ home for temporary residence in about July 2001 with the agreement of the Petitioner.  The Petitioner alleged that she discovered on about 16th July 2002 1st and 2nd Respondent were having a close relationship more than mere friends.  She alleged that the 1st Respondent admitted his adultery with the 2nd Respondent upon further questioning by the Petitioner.  Later on about 23rd September 2002 the Petitioner alleged that the three of them were having a discussion about their relationships during which the 1st Respondent assaulted her and as a result thereof she and the child moved out.  Since then, the 1st and 2nd Respondent have continued to reside at the matrimonial home.
(ii)	On 4th January 2003, the 1st Respondent and the 2nd Respondent respectively filed Acknowledgement of Service indicating that they would defend the case.
(iii)	On 28th January 2003, the 1st Respondent through his solicitors wrote to the Petitioner’s solicitors, inter alia, that the Petitioner had intention to settle the matter by relying on separation for one year with consent of the 1st Respondent.
(iv)	On 14th February 2003, the Petitioner’s solicitors replied to the 1st Respondent’s solicitors, inter alia, that the Petitioner was agreeable to a divorce on the sole ground of unreasonable behaviour.  There was no reply to this letter from the 1st Respondent’s solicitors until 4th March 2003.
(v)	On 4th March 2003, the 1st Respondent’s solicitors wrote to the Petitioner’s solicitors informing them again that the Petitioner had agreed to consent to divorce on the ground of “one year separation”.
(vi)	On 5th March 2003, the Petitioner’s solicitors replied to say that it was impracticable to rely on the ground of “consent one year” as the Petitioner and the 1st Respondent only separated in September 2002.  The Petitioner’s solicitors then proposed again to rely on the sole ground of unreasonable behaviour and indicated that if the matter were to be settled in an amicable way, they would only seek costs against the 1st Respondent based on the fixed costs scale.
(vii)	On 19th March 2003, the 1st Respondent and the 2nd Respondent respectively filed Answers denying all the allegations in the petition.  The 1st Respondent’s Answer also included a Cross Petition against the Petitioner alleging unreasonable behaviour on her part.  The allegation of adultery was denied by the 1st Respondent who averred that he and 2nd Respondent had been friends for many years.  He sought costs against the Petitioner in his Answer and Cross Petition.  The 2nd Respondent also denied the alleged adultery and asked to be dismissed from the suit and sought costs against the Petitioner.
(viii)	On 25th March 2003, the Petitioner’s solicitors wrote to the Respondents’ solicitors inviting them to withdraw the Answers and Cross Petition, and offering again to rely solely on “unreasonable behaviour” and further to delete certain allegations in respect of the unreasonable behaviour of the 1st Respondent and again offering to accept fixed cost against the 1st Respondent.
(ix)	On 26th March 2003, the Petitioner’s solicitors wrote again, explaining that as the parties separated only in September 2002, it was not possible to amend the petition to one based on one year’s separation, and reiterated their offer to rely only on “unreasonable behaviour” and to amend the particulars of the petition and to seek only fixed costs.
(x)	On 31st March 2003, the 1st Respondent’s solicitors wrote agreeing to the proposal of amending the particulars and indicated they had already prepared a consent summons, subject to their client’s instruction.
(xi)	On 2nd April, 2003, the Petitioner’s solicitors wrote to remind the 1st Respondent’s solicitors to send the 1st Respondent proposed amendments of the particulars in the petition.
(xii)	On 14th April 2003, the Petitioner’s solicitors wrote again to expressly state that if the dissolution of the marriage was settled amicably, they would be willing to accept fixed costs of HK$14,200 (before preparing and filing the Petitioner’s Reply).
(xiii)	On 29th April 2003, the Respondents’ solicitors sent over a draft Consent Summons containing terms to the effect that there be no order as to costs as between the 1st Respondent and the Petitioner and that the Petitioner should pay costs to the 2nd Respondent.  A proposed draft amended petition was also enclosed in the covering letter.
(xiv)	On 6th May 2003, the Petitioner’s solicitors replied that as the Petitioner had concrete evidence of the adultery and that she only agreed to delete the allegation of adultery and to the amendment of her petition as both she and 1st Respondent wanted to have a divorce.  Therefore the proposal that she should pay the 2nd Respondent’s costs and that that there be no order as to costs between her and 1st Respondent was “absolutely unacceptable” and asked the 1st Respondent to consider paying her costs and proposed there be no order as to costs between her and 2nd Respondent.  The Petitioner’s solicitors imposed a deadline of 7 days for the 1st Respondent’s solicitors to agree to the Petitioner’s proposals.
(xv)	There was no acceptance of the proposal by the Respondents on 13th May 2003, the deadline, and instead the Respondents’ solicitors replied requesting the Petitioner to provide proof of the alleged adultery.
(xvi)	On 14th May 2003, the Petitioner filed and served her Reply and Answer to Cross-Petition.
(xvii)	On 16th May 2003, the Petitioner also filed and served Interrogatories on the 1st Respondent and the 2nd Respondent respectively asking whether they admit to the Petitioner’s discovering their adultery on the spot in the sitting room of the matrimonial home on 16th July 2002 between 4 am to 5 am.  Further, the Petitioner asked the 2nd Respondent whether she kept a notebook containing statements or admissions to her having committed adultery with the 1st Respondent.
(xviii)	On 29th May 2003, the Respondents’ solicitors wrote and sent a revised consent summons, agreeing to no order as to costs between the Petitioner and the 2nd Respondent and the 1st Respondent agreeing to pay the Petitioner’s fixed costs.
(xix)	On 30th May 2003, the Petitioner’s solicitors replied that as the deadline had past, and the Petitioner had already filed and served her Reply and Answer to Cross Petition, and the two Interrogatories, costs could no longer be on fixed costs scale and that the 1st Respondent would have to pay the Petitioner’s costs on a party and party basis.
(xx)	On 3rd June 2003, the Petitioner’s solicitors further wrote with proposed amendments to the 1st Respondent’s draft amended petition.
(xxi)	On 9th June 2003, the 1st Respondent’s solicitors replied to say their proposed amendments are not acceptable and also the 1st Respondent refused to pay the Petitioner’s costs on party and party basis and only on fixed costs scale.
(xxii)	On 10th June 2003, with the 2nd Respondent then about 6 months pregnant, the 1st Respondent and the 2nd Respondent answered the Petitioner’s two Interrogatories served by the Petitioner about their adultery in the negative manner.  The Respondents continued to defend the suit.
(xxiii)	On 23rd June 2003, the Petitioner’s solicitors wrote and asked the Respondents to “consider again to act reasonably and not to incur any unreasonable costs”.
(xxiv)	There appeared to be no further reply.  The divorce then proceeded on a defended basis, and an order for mutual exchange of witness statements was given on 14th July 2003.  The Petitioner’s witness statement was duly filed on 18th June 2003.
(xxv)	The 1st Respondent applied for legal aid on about 27th August 2003, which resulted in there being a 42 day stay in the pretrial review relating to the divorce.
(xxvi)	On 13th October 2003, the 2nd Respondent gave birth to a child, as a result of her relationship with the 1st Respondent.
(xxvii)	On 15th October 2003, the 1st Respondent’s solicitors wrote, inter alia, to say the parties had had a family meeting and that they had agreed to a divorce based on one year’s separation.  By then, the parties had indeed separated for one year.  The 1st Respondent agreed to pay the Petitioner’s fixed costs, and further set out certain terms regarding custody and periodical payments.
(xxviii)	On 16th October 2003, the Petitioner’s solicitors wrote indicating that the Petitioner would agree to a divorce based on one year’s separation but refusing to accept fixed costs and sought costs, to be taxed.
(xxix)	On 5th November 2003, the Respondents’ solicitors wrote and, inter alia, claimed that the Petitioner would only be entitled to fixed costs, as they alleged that most of the costs were incurred unnecessarily in view of the Petitioner’s solicitors’ voluminous letters and her attitude throughout these proceedings, and that the costs were grossly inflated.
(xxx)	On 7th November 2003, the Petitioner’s solicitors wrote, inter alia, to say that the Petitioner considered that the unnecessary costs were incurred in view of the 1st Respondent’s obstructive attitude, and asked them to reconsider their stance.
(xxxi)	On 13th November 2003, I gave leave to the Petitioner to file a fresh petition based on one year’s separation, and the old proceedings to be stayed, to be dismissed upon the granting of the Decree Nisi in the new proceedings.  The costs of the suit in the old proceedings were adjourned for argument.
(xxxii)	A fresh petition was issued by the Petitioner on 17th November 2003 based on one year’s separation and a Decree Nisi was pronounced on 21st April 2004.
(xxxiii)	The 1st Respondent eventually admitted on 8th April 2004 that out of the adultery with the 2nd Respondent, a child was born on 13th October 2003.
(xxxiv)	On 1st April 2004, I had called for a social report, which was submitted on 16th October 2004.  In this report, the 1st Respondent admitted to the social worker a child was born out of his cohabitation with the 2nd Respondent, and that his cohabitation with the 2nd Respondent started in September 2002.

The Petitioner’s Grounds for Application

11. Mr Ko, on behalf of the Petitioner, submits that the Petitioner would have succeeded on either of the two grounds in her petition namely adultery or unreasonable behaviour, in which case costs of the divorce suit would be borne by the 1^st Respondent.

12. The Petitioner had, at all material times before 6^th May 2003 offered to settle the matter of the divorce on non-contentious basis and sought only costs on a fixed scale and imposed a final deadline on 13^th May 2003 for the Respondents to accept.  There was no acceptance.  Thereafter the Respondents defended the suit as if they had never committed adultery when in fact they started their cohabitation as man and wife at the former matrimonial home in about September 2002 and the 2^nd Respondent was in fact pregnant by the 1^st Respondent.

13. On 29^th September 2003, the 1^st Respondent in his Affirmation of Mean stated that he had transferred his benefit under two insurance policies to his younger sister CWS in July / August 2003 at consideration of HK$40,000 in order to pay for the deposit of legal costs of the defended divorce to his solicitors Messrs Rowland Chow, Chan & Co.

14. Despite the issue of the birth of a child out of the adultery was raised on 13^th November 2003 and subsequently by a letter dated 12^th March 2004, the 1^st Respondent only admitted the same to the Petitioner on 28^th April 2004 upon further interrogatories being served.

15. The Petitioner is legally aided from the outset to the date hereof.  The Respondents are well aware of it at the outset and Mr Ko submits that unnecessary costs have been wasted by reason of the 1^st Respondent’s conduct.

16. Mr Ko referred this Court to Choy Yee Chun v Bong Star Development Limited CACV 225 / 1996 where the Court granted indemnity costs when the judge clearly found the defence to be bogus (paragraph 36).

17. Mr Ko also referred the Court to the case Sung Foo Kee Limited v Pak Lik Company CACV 68A / 1996, the Court of Appeal took the view that when the trial judge in his judgment described the defendant’s conduct of the litigation as “disgraceful”, “an abuse of the process of the court”, “contemptuous” and “contumelious”, the trial judge should award indemnity costs (paragraph 3 and 9).

18. In Sung Foo Kee Limited v Pak Lik Company aforesaid, the Court of Appeal considered the following cases (paragraphs 15, 16, 17 and 18) : -

(a)	In Disney v Plummer, Kerr LJ said, “I do not accept, as counsel submitted, that indemnity costs are only appropriate if there is some deception or underhand conduct on the part of the losing party, but not if the litigation is merely fought bitterly or even unreasonably.  In the later type of cases judges can still exercise their discretion under RSC Ord. 62, r3(4)”.
(b)	In Disney v Plummer, Eastham J said, “In my judgment he (the trial judge) had ample material on which he could find that it was appropriate to order costs on the indemnity basis and indeed, after the defendants had been exposed to the very serious consequence of this bitterly conducted litigation, they would have felt a sense of considerable injustice if their costs had been whittled away down to the costs on a standard basis”.
(c)	In Macmillan Inc. v Bishopgate Investment Trust Ltd, Millett, J said, “The power to order taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose.  Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win.  Nor are these necessarily the only situations where the jurisdiction may be exercised; the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be ‘appropriate’.”
(d)	In Munkenbeck & Marshall v McAlpine (1995) 44 Const. LR 30, Hollis, J said, “In my view it is a pity that various courts have attempted to define in exactly what circumstances indemnity costs may be ordered.  It is a matter in each case of the judge exercising his discretion to order costs on an indemnity basis when appropriate to the facts before him”.

THE 1^ST RESPONDENT’S GROUNDS FOR OPPOSITION

19. The 1^st Respondent’s solicitor, Ms Yin, has referred me to the two cases : -

(i)	In Overseas Trust Bank Ltd v Coopers & Lybrand (a firm & Peat Marwick, Mitchell & Co (a firm) & Another [1991] 1 HKLR 177, Judge Godfery said that a case in which the successful party has demonstrated that the proceedings were initiated or prosecuted by the unsuccessful party in a manner which constitutes an abuse of the process of the court might well be a candidate for an award of taxation of costs on an indemnity basis.
(ii)	In Bowen-Jones v Bowen-Jones [1986] 3 All ER 163 (Knox J.), the indemnity basis may be ordered where the paying party is guilty of underhand or unmeritorious conduct or has been oppressive in the conduct of the litigation.

20. Ms Yin, on behalf of the 1^st Respondent, submits that the 1^st Respondent’s behaviour in this case does not go so far to cause a proper sense of indignation at his conduct and that there was no question of bad faith, ulterior motive or improper purpose and he simply wanted to defend “an untrue and unfair” case against him.

21. Ms Yin further submits that it was the Petitioner’s unreasonable act which “provokes the 1^st Respondent and turns him into a hostile litigant”.  She submits the Petitioner repeatedly going back in her words and does not come to Court with clean hards and refers to allegations in the Cross Petition.

CONCLUSION

22. It is clear that, as it turned out, the alleged adultery in the petition is true.  The onus of proof is of course on the Petitioner to prove her allegations of adultery and unreasonable behaviour against the 1^st Respondent.  She had alleged in her petition that the 1^st Respondent had admitted his adultery to her.  She alleged that the Respondent’s adultery was discovered “on the spot by her on about 16^th July 2002 and further she had in her possession a notebook of the 2^nd Respondent containing statements / admissions to the effect she had been having sexual relationship with 1^st Respondent.  It is my view that the Petitioner had a strong case based on either adultery or unreasonable behaviour.  There is no evidence to support Ms Yin’s submission that the Petitioner had an “untrue and unfair” case against the 1^st Respondent or that it was the Petitioner’s unreasonable act which provoked the 1^st Respondent and turned him into a hostile litigant.

23. Notwithstanding the evidence the Petitioner had, she was willing to delete the allegation of adultery and to rely solely on the 1^st Respondent’s “unreasonable behaviour” and even offered to delete certain particulars.  To me her proposals were very reasonable.

24. Although on 9^th June 2003, the Petitioner proposed certain amendments to the 1^st Respondent’s draft amended petition, the main disagreement then was not on the amendments but rather whether the 1^st Respondent should pay the Petitioner’s costs on a fixed costs scale or to be taxed on a party and party basis.  In my view, the 1^st Respondent should have agreed to pay costs on the party and party basis, since the difference between the two scales at that stage could not have been great.  He should have accepted the proposals from the Petitioner before 14^th June 2003, but instead he asked the Petitioner to provide proof of the alleged adultery when the 2^nd Respondent was already 6 months pregnant.

25. The 1^st Respondent continued to defend the petition.  He was entitled not to admit to his adultery but he specifically denied his adultery with the 2^nd Respondent when the 2^nd Respondent was then pregnant and their adultery must have started before the issue of the petition.

26. Not only did he not accept the Petitioner’s reasonable proposals, he further chose to pay in July / August 2003 $40,000 to his own solicitors to defend the divorce.  This sum of money could have been saved and would be part of family assets available for distribution particularly when ancillary relief is to be heard.  I therefore find that the 1^st Respondent has fought the case unreasonably after 14^th June 2003 until 13^th November 2003 on what turned out to be a “bogus” Answer and further he had persistently refused to agree to pay the Petitioner’s costs on a party and party basis, when additional costs were incurred by reason of his own unreasonableness.  As a result thereof further unnecessary costs had to be incurred.

27. In the above circumstances, I exercise my discretion to order the Petitioner’s costs from 14^th June 2003 onwards until 13^th November 2003 to be paid by the 1^st Respondent should be taxed on an indemnity basis.  For those costs prior to 14^th June 2003, such costs should be taxed on party and party basis.