GC v. SRHW

FCMC 2105/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 2105 OF 2015

----------------------------

------------------------

------------------------------

RULING ON COSTS

------------------------------

1.  This is the hearing of the respondent husband (hereinafter called “H”)’s application for costs on an indemnity basis of the petitioner wife (hereinafter called “W”)’s ex-parte summons dated 16 September 2015, his inter-parte summons dated 9 October 2015, and his further inter-parte summons dated 1 December 2015 to amend the order dated 9 October 2015.  W takes the position that the appropriate costs orders for the ex-parte summons and H’s inter parte summons are costs in the cause to W or no order as to costs.  As to the further summons, if the court is not amenable to an order as to no costs, W will offer a sum of HK$700 as fixed costs for the further summons.

A. Background

2.  W, 52, is a senior purser with a global airline.  H, 54, is an architect with a global architects firm and is now working in that firm’s London office.  The parties married in 2006.  Separation took place in 2014. There are no children.  The divorce petition was issued by W in February 2015. Since the issuance of the petition, the parties have proceeded to negotiate ancillary relief by way of mediation and without prejudice and open correspondence.

3.  The bulk of the matrimonial assets in dispute are three landed properties of the parties, namely, the Hebe Haven Property, the Nam Wai Property and the Singapore Property.  The Hebe Haven Property was in H’s sole name and the Singapore Property was in the parties’ joint names.  Both properties have now been sold.  The remaining Nam Wai Property is in W’s sole name.  She now occupies that property.

4.  The subject property of both W’s ex-parte summons dated 16 September 2015 and H’s summons dated 9 October 2015 concern HK$3 million of the net sale proceeds of the Hebe Haven Property, which was sold by H between February and March 2015, deposited in the client account of the solicitors for H (hereinafter called “BCC”).

5.  On 16 September 2015 W obtained an interim order restraining H from using the said HK$3 million proceeds of sale of the Hebe Haven Property.  Part of the Order of 16 September 2015 granted leave to H to apply to discharge the injunction.  H took out the summons dated 9 October 2015 for the setting aside of the interim order dated 16 September 2015, or in the alternative its variation so as to reduce the amount injuncted to such sum as the court thinks reasonable. 

6.  On 9 October 2015 upon H’s undertakings: (1) to pay the sum of HK$910,776 into court; and (2) that the proceeds of sale of the Singapore Property be held in escrow with the Singapore lawyers, to be released by consent, or order of this court, by consent it is ordered that the above-mentioned interim injunction order be discharged, with the costs of W’s ex-parte summons dated 16 September 2015 and his summons dated 9 October 2015 reserved for argument.

B. Legal principles

7.  The court has a wide discretion as to costs.  For the present application, the relevant provisions in the Rules of the High Court governing the exercise of discretion as to costs are Order 62 rules 3(2A) and 5, which contain amendments introduced as a result of the Civil Justice Reform (“CJR”).         

8.  Both parties accept that the effect of Order 62 rule 3(2A), was as explained in Melvin Waxman & Another v Li Fei Yu & Another [2013] 6 HKC 424 that the “rule” that costs normally follow the event is no longer the usual order in an interlocutory application, but remains an option. 

9.  In applications for interim injunctive relief, it was formerly the practice of the court to grant the successful party his costs “in the cause”, on the basis that the interim relief is often linked with the final adjudication of the matter: see White Book at 29/1/55 (p690 2016 HK Civil Procedure Vol 1)  The parties accept that that is no longer the case.  The issue of costs on such applications can now be determined as a discrete question, on the basis that the court is entitled to and should consider the merits of the injunction application at the time the application is determined: see Mendlowitz & Associates Inc in its capacity as trustee in bankruptcy of Jay Tien Chiang v Winner International Group Ltd & Anor (unrep., HCA574/2009, 14 May 2010, Hon Au J, at para 28)

10.  In considering the appropriate order the court must have regard to the underlying objectives of CJR: Order 62 r.5 (1)(aa).  One of these objectives is the discouragement of unnecessary or unmeritorious applications: see White Book at 62/3/3B (pp1162-1163 2016 HK Civil Procedure Vol 1). 

11.  When dealing with costs orders, under Order 62 rule 5(1)(e) the court may take into account the conduct of the parties.  Rule 5(2) provides that conduct for this purpose 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.

C Discussion

12.  In the present case, the parties’ main contentions centred on :-

(i) The merits of W’s ex-parte application;

(ii) Who can be regarded as the successful party; and

(iii) Conduct of the parties.

13.  The chronology relating to the parties’ negotiations is as follows:-

(i) In or around February 2015 H unilateral sold the Hebe Haven Property without prior notice to or the consent of W.  Net proceeds of sale of HK$5,549,292 were realised by H from the sale and he retained HK$2,549,292.  At W’s insistence by letter of her solicitors (hereinafter called “TDW”) it was agreed between the parties that the remaining HK$3 million was transferred to BCC client account pending settlement at or separate from mediation or three months from 3 March 2015 (hereinafter called the “March Agreement”).  This HK$3 million is the subject of her ex-parte application.

(ii) At about the same time, the parties also agreed the sale of the Singapore Property and that the net sale proceeds will be held by BCC.

(iii) By letter dated 18 May 2015 TDW set out W’s open offer for settlement.  In short, the offer proposed an equal split of the landed matrimonial properties and the parties to retain their own property and liabilities whatever they might be.  By the 2^nd letter dated 18 May 2015 TDW requested BCC to further retain the HK$3 million until such time as settlement was agreed.

(iv) The open offer was rejected by H by letter dated 29 May 2015, in which BCC also took the position that there was no need for the said HK$3 million to be frozen but, in order to avoid argument, H will agree to that out of the HK$3 million, HK$1 million will continue to be held by BCC for a further period of 1 month i.e. until 3 July 2015 or until settlement or further agreement whichever is the earlier.

(v) By letter dated 1 June 2015 TDW expressed W’s concerns that H had already made use of HK$2.5 million from the sale of the Hebe haven Property and her concern as to why he required a further HK$2 million only 2 months later. She also set out her concerns on the valuation of the Nam Wai Property and the Singapore Property.  She took the view that the HK$3 million ought to be held to mitigate any potential loss should the Singapore Property be sold at a loss.

(vi) By letter dated 3 June 2015 from TDW she put forward another proposal.  In the 1^st paragraph she requested that “that the HK$3 million now be retained by you terminable only on a 7-day notice by her to allow the parties time to come to agreement on all remaining issues”

(vii) By letter dated 8 June 2015 from TDW W requested a response to confirm that BCC continue to hold the HK$3 million “terminable only on a 7-day notice as requested in our letter dated 3 June 2015”

(viii) By letter dated 8 June 2015 BCC confirmed that their client “agrees to the arrangement proposed on the first paragraph of your letter dated 3^rd June” (hereinafter called the “June Agreement”)

(ix) Negotiations continued but unfortunately no settlement has been reached between the parties.

(x) By letter dated 17 July 2015 from TDW W made another open offer that on an equal division of the value of the landed properties, the Singapore Property would be sold and the net proceeds would be divided equally, and the parties were entitled to a half share of the net value in the Nam Wai Property (i.e. [$5.8 million less the mortgage of HK$2,072,240 = HK$3,727,760] ÷ 2 = HK$1,863,880) plus half share in the proceeds of Hebe Haven (HK$2,774,646) or HK$4,638,526 each.  If W retained the Nam Wai Property at a net value of HK$3,727,760, it was suggested that the sum payable from H to W to meet the shortfall would be HK$910,776.

(xi) By letter dated 10 August 2015 from BCC H refused W’s open offer dated 17 July 2015, he made a counter offer, and expressed his intention to remove HK$2,089,224 from the HK$3 million of net proceeds in BCC’s client account and to leave behind HK$910,776 as security for W’s last open offer.

(xii) By letter dated 17 August 2015 from TDW W refused H’s counter offer as well as his request to withdraw HK$2,089,224.

(xiii) By letter dated 9 September 2015 BCC wrote to purportedly give W 7 days’ notice that he intended to have the sum of HK$2,089,224 transferred from their client account to him leaving behind the balance of HK$910,776 to be held on account.

(xiv) W did not agree to the proposal set out in the letter dated 9 September 2015.  She raised objections to H’s position by TDW’s letter dated 14 September 2015.  She also proposed, to alleviate alleged financial difficulties of H and to help her, that HK$1 million be released to each of them pending further agreement.  She also requested an extension to H’s intended transfer of money.

(xv) These proposals were rejected by BCC’s letter dated 15 September 2015.

(xvi) On 16 September 2015 W took out the ex-parte application.

(xvii)The Singapore Property was sold and the transaction was completed on 7 January 2016.  The need proceeds of the sale are about HK$2 million.

C.1 Merits of the interim injunction

14.  The hearing on 9 October 2015 was not the substantive hearing of W’s application.  The court indicated its view as to the order it was minded to make pending the further substantive hearing.  W was given the option of pursuing her application or withdrawing it.  She chose to have the matter disposed of in the terms as set out in the paragraph 6 above.

15.  W had pursued her application on the basis that the amount H had offered to leave behind might be insufficient to satisfy her claim for ancillary relief.  Her view was that the “status quo” should be maintained at least until sale of the Singapore Property was completed. 

16.  The court may make a freezing order restraining a party from disposing of or dealing with the assets pending the determination of the substantive issues.  The purpose of the relief is to prevent a party from dealing with his assets so as to make himself judgment proof, thus depriving the successful applicant from obtaining the fruits of her judgment.  Relief can be granted where the court is satisfied that (see Ninemia Maritime Corpn v Trave Schiffahrtsgesellschast and Co, The Niedersachsen [1984] 1 All ER 398) :

(i) The applicant has a good arguable case against the respondent;

(ii) There is a real risk that judgment will go unsatisfied by reason of the disposal by the respondent of his assets, unless he is restrained by court order from disposing of them; and

(iii) It would be just and convenient in all the circumstances of the case to grant the relief sought.

17.  W sought to demonstrate the alleged need to preserve the funds by reference to disputes over the value of the Nam Wai Property and the uncertainties on the sale of the Singapore Property.  W had initially valued the Nam Wai Property at HK$4 million, making a value net of the mortgage on that property of just over HK$2 million.  H’s valuation of that property has been HK$6 million.  By letter dated 17 July 2015 from TDW W said she was prepared to retain the Nam Wai Property with a valuation of HK$5.8 million. Therefore, insofar as it is alleged that there was a substantial dispute over the value of Nam Wai Property, this was no longer the case at the time of W’s ex-parte application.  As to W’s alleged uncertainties on the sale of the Singapore Property, by 16 September 2015 when W made the ex-parte application, a buyer at a more favourable price than had been anticipated had been found. 

18.  H contended that W’s claim for ancillary relief is well covered by his promise to leave behind HK$910,776 and the ex-parte application is unnecessary and wholly unmeritorious.  After having carefully considered, I accept that W’s claim for ancillary relief can be covered by a security of not less than HK$910,776 i.e. the sum that she requested under her open offer by the letter dated 17 July 2015, but for my view that there was deep distrust between the parties that was caused by H’s repeated unilateral actions and failure to hold the agreed sums from the sale proceeds of the Hebe Haven Property (see the paragraph 20 below), I do not accept that his promise to leave behind HK$910,776 should stop W from making the ex-parte application. Suffice to say, the result of W’s ex-parte application is that W was undeniably in a better position (having HK$910,776 paid into court) than she would have been (having a mere promise on the part of H, who had historically taken repeated unilateral actions and had reneged on the June Agreement, to leave behind HK$910,776) had she not taken out the ex-parte application.  I do not accept that W’s ex-parte application is baseless or unnecessary.

C2. Who can be regarded as the successful party

19.  H is successful in his application for the setting aside of the ex-parte injunction order, and to substantially reduce the amount injuncted.  W sought an order for payment of the HK$3 million into court as an alternative to an order for injunction of HK$3 million in the ex-parte application and H eventually gave an undertaking to make payment of HK$910,776 into court.  This shows that W’s application was not wholly unsuccessful. 

C3  Conduct of the parties

20.  I accept W’s contention that the chain of events leading to W’s application must be considered when looking to her motives to pursue the application for an ex-parte injunction and the relative merits of the application at the time it was made.  There was deep distrust between the parties that apparently was caused by H’s repeated unilateral actions and failure to hold the agreed sums from the sale proceeds of the Hebe Haven Property.  H had entered into a sale and purchase agreement of the Hebe Haven Property unilaterally without prior notice to and without the consent of W.  He said he was forced to do so due to financial difficulties.  After the completion of the sale, he transferred out of Hong Kong HK$2.5 million of the sale proceeds allegedly to finance his high level of expenditure and fund an investment.  On W’s insistence, the parties reached agreement that H would leave the remaining HK$3 million of the sale proceeds in BCC’s client account pending settlement at or separate from mediation or three months from 3 March 2015.  H made a request for release of a further HK$2 million from BCC as early as 29 May 2015, allegedly to fund his high living expenses and debts.  W disagreed and expressed her concern and incomprehension that H required a further HK$2 million to fund living expenses only 2 months after taking approximately HK$2.5 million of the net proceeds in March 2015.  By early June 2015 the parties reached the June Agreement that the HK$3 million retained by BCC terminable only on a 7-day notice by W.  On 9 September 2015 H reneged on the June Agreement by giving 7-day notice of the intention to transfer HK$2,089,224.  It is obvious that such unilateral breach of the June Agreement exacerbated W’s distrust of H and prompted her to take out the ex-parte application.  I take the view that the court should make a costs order that reflects H’s unilateral actions and his failure to abide by the June Agreement.

D. Conclusion

21.  I remind myself of the provisions of Order 62 rules 3(2A) and 5 of the Rules of the High Court, which set out the factors which the court shall have regard in exercising its discretion as to costs.  I place particular significance on the fact that H is successful in his application for the setting aside of the ex-parte injunction order and to substantially reduce the amount injuncted, at the same time bearing in mind that the court is no longer required to apply the rule of costs following the event except in special circumstances, though the rule remains as one of the options.  I caution myself of the need to consider the overall justice of the situation and examine all the factors and circumstance, taking into account that W has succeeded on part of the ex-parte application, even if she has not been wholly successful.  I also place particular significance on the background that H had repeatedly taken unilateral actions and had reneged on the June Agreement, and the distrust between the parties was caused by H’s repeated unilateral actions and failure to hold the agreed sums from the sale proceeds of the Hebe Haven Property.  Looking at the matters in the round, I regard it is reasonable and just to make the order that W shall pay H half of the costs of her ex-parte application dated 16 September 2015 and H’s summons dated 9 October 2015, including all reserved costs, with certificate for counsel’s attendance, to be taxed if not agreed.  It is rejected that this is an appropriate case to order costs on an indemnity basis against W.  There is no finding that W has deliberately withheld material in the ex-part application.  The merits of her case have been set out under the paragraph 18 above.  I also take the view that her agreement to compromise does not warrant penalisation by an indemnity costs order.

22.  As to the question of costs of H’s summons dated 1 December 2015 for the amendment of the order dated 9 October 2015, if the court is not amenable to an order as to no costs, W will offer a sum of HK$700 as fixed costs.  H replied that the sum of HK$700 is obviously insufficient, and he would accept HK$8,000 on an indemnity scale and HK$5,000 on a party/party basis.  No doubt H should be granted his costs of correcting the original order that was drawn up by W’s solicitors.  Approaching with broad brush I fix the costs of the summons dated December 2015 at HK$3,000 on a party/party basis.

23.  IT IS ORDERED that:

(1) W shall pay H half of the costs of the ex-parte application dated 16 September 2015 and the summons dated 9 October 2015, including all reserved costs, with certificate for counsel’s attendance, to be taxed if not agreed;

(2) W shall pay H costs of the summons dated 1 December 2015, summarily assessed at HK$3,000, payable forthwith.