AVT then known as MAM v. VNT

CACV 234/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 234 OF 2014

(ON APPEAL FROM FCMC 6762 OF 2012)

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REASONS FOR DECISION

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Hon Lam VP :

1.  I am generally in agreement with Cheung JA in respect of the reasons he gives for our decision on 11 December 2015. On the decision as to costs, in particular the reason for holding that it is unjust to attach the consequences in Order 22 Rule 23 notwithstanding the sanctioned offer of the husband, as my Lord states at paragraphs 11 and 12 below, we were of the view that the further disclosure in the course of the preparation of the valuation report was material to the wife’s consideration of the offer. Bearing in mind the late stage at which the exercise was undertaken, we considered it unjust to attach the cost consequences provided by Rule 23. In matrimonial proceedings, where the parties have positive duties to give full and adequate disclosure of their financial position, the court should find it easier to accept that it would be unjust to attach such consequences when the party who made a sanctioned offer did not give full and adequate disclosure until a very late stage.

2.  However, with respect, I have reservations on applying the rationale of Norris v Norris [2003] 1 WLR 2960 to our current regime.  As my Lord points out, there is a distinction between Rule 2.69D of the Family Proceedings Rules 1991 and our Order 22 Rule 23(5).  As presently advised, I am unable to accept that the absence of the equivalence of Rule 2.69D(1)(e) is immaterial.  Since our Order 22 Rule 23(5) is applicable generally, what are relevant circumstances of a case is to be guided by the general approach of the court in awarding costs.  It is well established that generally the means of a party is irrelevant.  A poor litigant cannot expect the court to make a different costs order on account of his lack of means to pay the costs of his opponent.  This remains to be the case even though the purpose of the litigation is to assess what the litigant should recover to support his living.  Thus, in a personal injury case, a plaintiff who fails to beat a sanctioned offer cannot ask the court to exonerate him from the cost consequences under Rule 23 simply because such a cost order would deprive him substantially of the award he should otherwise receive as fair compensation for his injuries.  In the absence of a provision like Rule 2.69D(1)(e), the means of the parties cannot be a relevant circumstances for the purpose of our Rule 23(5).

3.  It may be that there should be a different regime for matrimonial litigation in light of the positive duty of full disclosure and the court’s quasi-inquisitorial function in ancillary relief application.  There should also be a more forceful drive for a positive duty to engage in meaningful negotiation in good faith and in that respect I fully agree with the observations of the learned President in Norris  v Norris, supra.  The Working Party on Family Procedure Rules chaired by Poon JA had made recommendation that Order 22 should not be applicable to matrimonial proceedings.  For my part, I certainly see some bases for having a special set of rules in the context of ancillary relief proceedings to resolve the tension alluded to by Cheung JA at paragraphs 13 and 14 below.

Hon Cheung JA :

Our orders

4.  Our judgment of 3 July 2015 reduced the wife’s financial provision to $6 million.  We directed the parties to make submissions on costs.

5.  The husband asked for the costs below to be in his favour from 24 May 2013 which is 28 days from the date of his sanctioned offer of $6 million.  The wife did not accept the offer within time.  At trial, the husband made an open offer of $3.074 million.

6.  The husband also asked for the costs of the appeal in his favour because he had succeeded in reducing the judgment below of $9.98 million to $6 million.

7.  The husband also asked for the maintenance pending suit (‘MPS’) of $110,000 per month paid to the wife since the date of the judgment below to be deducted from the judgment sum of $6 million.

8.  At the conclusion of the hearing we ordered there should be no order as to costs below and of the appeal.  We further ordered that the judgment sum of $6 million should carry interest at judgment rate from the date of the judgment below and the MPS paid to the wife since the judgment below should be deducted from the $6 million. There is to be no deduction of the judgment interests on the $6 million by reason of the payment of the MPS from time to time.

9.  We had also made no order on the costs of the application before us.

1) Costs below

Sanctioned offer

10.  Sanctioned offers are governed by Order 22 of the Rules of the High Court.  The costs consequence where a party fails to do better than the sanctioned offer is set out in Order 22, Rule 23.  This includes the Court ordering a party to pay costs incurred by the other party after the latest date on which the offer could have been accepted without requiring the leave of the Court, unless it is unjust to do so : Rules 23(3) and (5).  In considering whether it would be unjust to make the costs order, the Court is required under Rule 23(6) to take into account all the circumstances of the case including―

(a) the terms of any sanctioned payment or sanctioned offer;

(b) the stage in the proceedings at which any sanctioned payment or sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned payment or sanctioned offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the payment or offer to be made or evaluated.

Insufficient information

11.  The reason why no order as to costs was made below is this.  The sanctioned offer was made on the day after the Financial Dispute Resolution (‘FDR’) hearing was held.  At that time the valuation of the two companies associated with the husband was not yet available.  The valuer in his report dated 5 November 2013 provided three bases of valuation and explained which basis he adopted.  In preparing the report, the valuer met the husband’s father on 26 September 2013 and was provided with certain information during the meeting and in subsequent e-mail correspondence and telephone conversation with the father and husband.  The report was then only supplied to the wife shortly before the trial. 

12.  In the light of this, while the wife was prepared to attend and did attend the FDR hearing (no doubt acting responsibly with the aim of achieving a settlement) it can hardly be said that she possessed all the information on the husband’s finance which would enable her to come to a concluded view on whether the sanctioned offer should be accepted.  The basis of the valuation clearly required it to be properly canvassed at the trial.  The husband on appeal went as far as to challenge the basis of valuation adopted by the trial judge and failed.  This lends further credence that the valuation of the husband’s finance was not a straight forward exercise.  Accordingly we ordered that there be no order as to costs below.

The tension

13.  I would like to make this further observation.  As the matter now stands, Order 22 applies to the family jurisdiction in Hong Kong.  Order 22 imposes discipline for responsible litigation.  But whilst the consequence of failing to meet sanctioned offers should be rightly recognized, it should also be recognised that unlike a commercial dispute, the fundamental philosophy in the family jurisdiction is to make proper financial provisions for a spouse (usually the wife) so that she could start afresh in life.  Other than a simple case, the financial interest of the parties may be complicated, particularly like the present case, where third party interest may be involved.  This underlying philosophy will be defeated if the costs that the wife has to pay by reason of her failure to meet the sanctioned offer will wipe out all or substantially all of her financial provision.  The effect of the costs order will destabilise the financial provision intended for her. 

14.  In my view the ‘justice of the case’ consideration under Rule 23(6) provides the basis for the Family Courts to resolve the tension between, on the one hand, litigation discipline and, on the other hand, the underlying philosophy of making adequate and meaningful financial provision for a spouse on divorce.

15.  I draw comfort that this is a concern not only of this Court but of the United Kingdom Family Courts where there are similar provisions on ‘without prejudice save as to costs’ offers.  The case of Norris v. Norris [2003] 1 WLR 2960 shows that the Family Proceedings Rules1991 governs such offers in the family jurisdiction.  Specifically, there are provisions on how the Court should consider whether it is unjust to award costs to the party whose offer was not beaten by the judgment.  The only difference with our Rule 23(6) is an additional clause (e), namely, ‘the respective means of the parties’.  Whilst our Rule 23(6) does not have the additional clause (e), my provisional view (since this matter was not fully argued before us) is that in the matrimonial context (and I am not dealing with the application of Order 22 in civil litigation generally) this is not a matter of significance because the Court is required in both jurisdictions to consider all the circumstances of the case in deciding on the issue of justice. Irrespective of clause (e), I do not see why Family Courts in Hong Kong are in any way restricted in ensuring that financial provision orders are to be given effect in substance.  This may well be a way forward before the implementation of the recommendations detailed by Poon JA are given effect. 

16.  Dame Elizabeth Butler-Sloss P stated this :

‘ 24 Rule 2.69D and its effect on rule 2.69B merit closer consideration. In rule 2.69D the court must take into account all the circumstances of the case including the list set out therein. This includes in (a) the terms of any offers. That must include counter-offers. It also requires in (e) the court to take into account the respective means of the parties. In my view, (e) enables the court to look at the whole position of the parties after the order has been made and see whether costs may fall disproportionately on one party rather than the other. It may enable a judge or district judge to mitigate to some extent the uncomfortable consequences of a Calderbank situation in a case where there is some but not a substantial amount of property and/or money to divide and costs will have to be paid from the available capital. The judge in such a case may make an order, often just enough to buy a suitable property for the wife, and then find that the effect of the Calderbank offers may totally destabilise his order. Equally, of course, the Calderbank process must have teeth which can bite. Both parties are under an obligation to engage in genuine negotiation with the other side, otherwise one party may have to be penalised in costs. In medium asset cases I do not underestimate the difficulties. Rule 2.69D does, however, give the court a greater latitude in making costs orders than may so far have been widely recognised.’ (emphasis added)

17.  She further stated this :

‘ 25 …… In my view, in some offer and counter-offer cases the proper approach might well be, under the present procedure, to make no order as to costs and leave each party to pay his/her own costs.’

Effect of the wife responsible for husband’s costs

18.  In this case the husband’s own costs below are about $3.66 million. The appeal costs are about $2.15 million and his costs between the date of our judgment and now are about $700,000. As for the wife, her own costs below are about $1.47 million, the appeal costs are about $1.04 million and the costs since our judgment are about $780,000.  These are huge sums for a case like this.  Mr Surman (together with Ms Tseng) for the wife indicated that if the wife is to be ordered to pay costs to the husband, she will suffer a loss of $2 million.  This may well be a matter that this Court can take into account in deciding whether it is unjust to make such a costs order.  But as indicated above, the reason why the no costs order was made in this case is because of the inadequate information possessed by the wife at the time of the sanctioned offer, hence it is not necessary to decide the case on this ground as well.

2)  Costs of the appeal

19.  It is not disputed that Order 22 does not apply to Court of Appeal proceedings.  Although the husband succeeded in reducing the amount of the wife’s entitlement, he failed in many of his challenges which we had dealt with in our judgment.  We considered no order as to costs of the appeal was the appropriate order.

3)  Deduction of the MPS

20.  On 23 November 2012, H H Judge C K Chan ordered the husband to pay the wife MPS $110,000 per month until the FDR hearing.  In April 2013 the parties agreed on the continuation of the payment of the MPS.  Deputy District Judge Lo gave judgment on the wife’s financial provision on 6 February 2014.  He ordered the MPS to continue until the payment of the judgment sum.  The husband’s failed to obtain leave to appeal before Judge Lo and renewed his application before this Court on 11 November 2014.  He also applied for stay of execution of the judgment.  While the husband agreed to continue to pay the MPS from the money he deposited with his solicitors, there was no indication that such payment was to be treated as payment by instalment of the judgment sum as the basis of the stay of execution of the judgment.  Likewise, while the husband’s solicitors had mentioned in correspondence about deducting the MPS, it was never expressly mentioned that the MPS payments after judgment were to be treated as instalment payments of the judgment sum.  However, having said this, it is not the intention of our judgment of 3 July 2015 to extend the maintenance of the wife beyond a three year period.  The appropriate approach is to award interest to the wife for being kept out of pocket of the judgment sum of $6 million and allowed the MPS paid between the judgment and now to be deducted from the $6 million.

Hon Poon JA :

21.  I agree that for the reasons stated by Cheung JA in paragraphs 11 and 12 above, the wife should not be visited with the cost consequence of her failure to beat the husband’s sanctioned offer.  I also agree with his Lordship’s reasons for our decision on the costs of the appeal and deduction of MPS.  I would add a few words about the applicability of Order  22 to financial provision cases in family and matrimonial proceedings.

22.  In the Review of Family Procedure Rules – Interim Report and Consultation Paper issued in February 2014, the Working Party on Family Procedural Rules (of which I was the Chairman) said :

‘ 248. Due to the nature of financial order proceedings and the potential and possible outcomes thereof, there may be more scope and latitude for reasonable debate concerning the question of, for example, whether or not the eventual judgment is ‘more advantageous than’ the sanctioned offer, as compared to general civil litigation; similar to the manner in which orders for ‘costs in the cause’ for interlocutory matters are generally inappropriate in financial relief proceedings.

249. Careful thought will also need to be directed at the interplay, if any, between the mandatory ‘open proposals’ (or other optional open proposals voluntarily made) and sanctioned offers (which by their very nature are necessarily optional and elective) which may otherwise cause confusions to practitioners and/or parties.

250. The mandatory provisions and conditions in Order 22 were designed with general civil proceedings in mind, and careful thought will be required for necessary and appropriate modifications to be made, including for example, the matters which must be stated or provided for before there is a valid sanctioned offer and the conditions which must be fulfilled before the default consequences will follow, and which may be deemed as unsuitable or inappropriate in family proceedings.’

23.  For the reasons articulated, the Working Party proposed that sanctioned offers and sanctioned payments under Order  22 shall not apply in family proceedings (Proposal 65). Proposal 65 received support during consultation. Thus in the Final Report on Review of Family Procedure Rules issued in May this year, the Working Party formally recommended that the new unified procedural code for family and matrimonial proceedings should specifically stipulate that Order 22 shall not apply : see pp 68 – 72 of the Final Report and Recommendation 64. All the recommendations in the Final Report including Recommendation 64 were subsequently accepted by the Chief Justice.

24.  As illustrated by the judgments of Lam  VP and Cheung JA, applying Order 22 to a financial provision case is not always an easy or straightforward exercise.  If the matter has to be resolved in court, as is here, more costs will be incurred.  The uncertainty associated with how the court would ultimately resolve the matter and the further costs incurred really defeat the very purpose of invoking the statutory regime of Order 22.  For my part, I think a party and his or her legal advisers should think twice before resorting to Order 22.