H, RS v. X, Y

FCMC 6733 / 2023

[2023] HKFC 208

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 6733 OF 2023

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DECISION
( Costs and Discovery )

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INTRODUCTION

1.  This is the substantive hearing of the summons taken out by the Petitioner (“H”) on 21 June 2023 (“Summons”), which seeks:

a.  an order restraining the Respondent (“W”) from removing any of her assets up to the value of US$19,395,781.50 (“Injunction”): §1 of the Summons;

b.  a disclosure order requiring W to produce documents on the 4 Companies’ (namely, Bright Way Consultants Limited (“Bright Way”), Belsea Limited (“Belsea”), Dancom Holding Limited (“Dancom”) and Grace Chance Inc (“Grace Chance”) (collectively, “4 Companies”)) past transactions (“Disclosure Order”): §§2(1) to (3) of the Summons.

2.  On 21 and 22 August 2023, parties settled their disagreements on the Injunction ie §1 of the Summons. H invited W to continue her undertakings not to remove any asset from Dancom’s and Bright Way’s BNP Accounts, and W agreed (“Undertakings[1]”).

3.  However, they could not agree on:

a.  costs of the Summons (“Costs Issue”); and

b.  whether W should disclose the following documents as set out in §§2(1)(e) to (f) and 2(2)(c) to (f) (“Documents”) of the Summons:

In respect of Bright Way:-

(1)  all documents executed by W for:-

(a)  applying for a new Certificate of Incumbency showing W’s 100% shareholding and sole directorship; and

(b)  applying for financial institution(s) in order to open a new account(s) or effect a change in the financial institution’s “Know Your Customer” records.

In respect of Dancom and Belsea:-

(2)  all documents executed by W for:-

(a)  applying for a new Certificate of Incumbency;

(b)applying or attempting to open new accounts with any financial institution(s);

(c)  applying or attempting to change the ownership of these companies so that they are not 100% beneficially owned by W;

(d)changing or attempting to change the directors of these companies or adding new director(s) and/or removing W herself as a director.

(“Disclosure Issue”).

4.  By W’s 2^nd Affirmation and her Form E filed as per my Order dated 30 June 2023, parts of the disclosure requests in the Summons have been overtaken by events.

5.  On the Costs Issue, W initially made an open proposal that the costs be reserved.  But H refused to accept this. W now seeks costs of the Summons against H on an indemnity basis, payable forthwith, and with certificate for 2 Counsel.

6.  On the other hand, H asks for costs of and incidental to the Summons inclusive of the ex parte summons issued on 19 June 2023 with certificate for 2 Counsel, and to be paid forthwith. 

7.  On Disclosure Issue, Mr Man SC leading Mr Tsang for W contends that ancillary disclosure orders are meant to be ancillary to, and in aid of, injunction orders. Since H has accepted the Undertakings in lieu of an injunction, there is no basis for H to request disclosure of the Documents.

8.  Ms Yip SC leading Ms Yu for H argues that the discovery has two fold – (a) for ancillary relief, and (b) in aid of the injunction.

PROCEDURAL HISTORY

9.  H took out a summons for an ex parte injunction on 19 June 2023(“ex parte Summons”) over the assets of the 4 Companies before DDJ Lung.

10.  The 4 Companies held accounts with the BNP (“BNP Accounts”). The basis of H’s application was that the 4 Companies’ BNP Accounts held roughly US$38.8 million worth of assets; and that those assets represent the bulk of parties’ matrimonial assets. He accordingly asked in his submission that half of those assets (ie US$19.4 million) be frozen:

“… H respectfully asks the Court to restrain W from dealing in or with about half of the family assets, HK$160 million (around US$19.4 million)” (emphasis supplied).

11.  On 19 June 2023, H obtained an ex parte interim injunction for around US$19.4 million from DCCJ Lung who further ordered that W do make some disclosure in respect of the 4 Accounts but refused to order W to disclose the remaining documents as requested.  Return day on 30 June 2023 was also given.

12.  H later took out the Summons returnable on 30 June 2023 before me.

13.  On 29 June 2023, W disclosed that her personal HSBC bank statements, which shows that, in May 2023, she has made withdrawals for about US$10.333 million in total from the BNP Accounts to her HSBC personal account. 

14.  By way of her counsel’s submission lodged on 29 June 2023, W offered the Undertakings in lieu of an injunction. At the hearing on 30 June 2023, despite of the resistance by H, I made an oral ruling that the Undertakings were sufficient to protect H’s interest in his ancillary relief claims against W and that it was unnecessary to continue the interim injunction as requested by H.  As W had not filed any substantive affirmation in opposition, I accepted W’s counsel’s proposal to adjourn the Summons to 25 August 2023 for substantive argument with usual directions, inter alia, for filing of affirmations as well as exchange of the parties’ Form Es.

15.  On 18 August 2023 (one week before the adjourned hearing), H indicated that he was willing not to press on with the Summons if W agreed to continue the Undertakings. W accepted H’s proposal on 21 August 2023 and suggested that costs of the Summons be reserved.

16.  On 22 August 2023, H wrote to W asking:

a.  W to pay his costs in respect of the Summons forthwith with certificate for 2 counsel;

b.  W to agree to give disclosure of the Documents.

DISCLOSURE ISSUE

17.  I would deal with the Disclosure Issue first.

18.  On 19 June 2023, DDJ Lung ordered W to disclose within 7 days the documents showing “whereabouts” / “destinations” of outflow from the 4 Companies’ accounts from 2 May 2023.

19.  On 29 June 2023, W disclosed that her personal HSBC bank statements, which shows that, in May 2023, she has made significant withdrawals from the 3 BNP Accounts to W’s HSBC personal account (about US$10.333 million total).  

20.  However, the vast majority of those funds, upon arriving at W’s HSBC personal account, were immediately (within 1 day) paid out to unknown destination (about US$9.632 million total).

21.  Up to now, H still does not know where that US$9.632 million has gone exactly and that the ownership of Dancom and Belsea as well as whether there are new accounts opened under Bright Way, Dancom and Belsea.  Ms Yip SC leading Ms Yu for H submitted that it is very important to see if the US$9.632 million plus further funds are hidden there or have been siphoned off further.

22.  It is trite that W has the ongoing duty to make full and frank disclosure. Disclosure is not a game of hide and seek. The full and frank disclosure duty on W requires her to put “all the cards” “on the table face up at the earliest stage”: L v. L [2006] 1 HKFLR 121, §197 and §198.

23.  It is clear from the Summons’ marginal note that the requests for discovery / disclosure are also made pursuant to Order 24.  I accept that they are not discovery solely in aid of the injunction.

24.  In CK v. TCH (Specific Discovery and Mareva Injunction) [2013] HKFLR 21, Judge G Own disposed of a similar application for disclosure on the usual discovery rules together with the Mareva injunction.  I consider that there is no circumvention of PD 15.11 §3 to §6 and no requirement anywhere (not just PD15.11) to bar H from seeking discovery for ancillary relief at this stage.

25.  I have to clarify that I had not ruled at the hearing on 30 June 2023 that H was not entitled to disclosure as sought, but only adjourned the Summons for argument as W had not yet filed her affirmation in opposition.

26.  H considered that his shareholding and directorship in Bright Way must have been fraudulently diverted away. W’s case is that, on 15 April 2023, H instructed Karen (W’s sister) to instruct Iris (domestic helper) to prepare documents for share transfer and resignation of directorship of Bright Way, and Iris signed on 19 April 2023.

27.  Fraud is a very serious allegation that the Court should investigate about in these proceedings.  I agree that discovering documents W (and/or her agents) executed (e.g. emails, forms) for applying for the new COI for Bright Way helps to verify W’s account of events.  Furthermore, in W’s 2^nd Affirmation, she deliberately omitted to state whether or not she has opened any new accounts using the new COIs.  As H may no longer be a shareholder or director of Bright Way, Dancom and Belsea, he cannot find out by himself if there was no change of shareholding or directorship in these companies.

28.  I am satisfied that the Documents are relevant to H’s claims in the ancillary relief.  I thus make an order in terms of §§2(1)(e) to (f) and 2(2)(c) to (f) of the Summons with penal notice be endorsed.

COSTS ISSUE

29.  W now seeks costs of the Summons against H on an indemnity basis, payable forthwith, and with certificate for 2 Counsel.  Mr Man SC leading Mr Tsang for W contends that W is entitled to those costs because:

a.  It is H’s unreasonable litigation conduct that caused parties to incur costs in respect of the Summons; and it is W who prevailed in the Summons.

b.  H’s Summons is doomed to fail on grounds of material non-disclosure and no risk of dissipation.

30.  On the other hand, H asks for costs of and incidental to the injunction application inclusive of the ex parte Summons and the Summons with certificate for 2 Counsel, and to be paid forthwith. 

31.  Order 62 rule 5 of RHC sets out a list of factors which the Court shall consider in its exercise of discretion as to costs:-

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

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

…

(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; …

(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.” (emphasis added)

Hearing on 19 June 2023

32.  For H’s ex parte application on 19 June 2023 before DDJ Lung, H invited W for an undertaking to avoid the whole injunction by letter dated 16 June 2023[2] which was ignored by W.  Now the parties agreed to continue the Undertakings.  In Re Peaktop Technologies (USA) Hong Kong Ltd [2007] 4 HKLRD 207 (CFI), Barma J (as he then was) at §8 said,

“Further, it seems to me that where an Applicant’s application is doomed to failure by reason not of anything which he has done or not done, but because of an act of the Respondent which is within its control and out of the hands of the Applicant and is, further, a step which could have been taken either prior to the application being made or at an earlier stage in the application so as either to obviate the possibility of the application being made, or to minimise the costs associated with it, it may well be appropriate to recognise this by an appropriate costs order.” (emphasis added)

33.  If W could sensibly accept H’s invitation at that time, it would be wholly unnecessary for H to take out the Summons before me subsequently.  In the circumstances, I fail to see why W shall not bear H’s costs for that hearing and the ex parte Summons.

Hearing on 30 June 2023

34.  W volunteered an interim undertaking by way of Counsel’s submissions dated 29 June 2023, just one day before the hearing on 30 June 2023 before me, with the Summons to be adjourned for argument.  Ms Yip SC leading Ms Yu for H submitted that as H had engaged Counsel and even filed H’s Skeleton on 27 June 2023 for that hearing, this late undertaking has no costs saving effect at all.  With respect, I cannot entirely agree.  Although H may have to pay Counsel fees for that hearing in any event if brief to Counsel had already been delivered, his solicitors fees can still be saved if he accepted the interim undertaking by W with the agreement to adjourn the Summons for substantive argument to a date to be fixed and costs reserved.  In my view, H’s insistence to have the interim injunction instead of the interim undertaking at the hearing on 30 June 2023 was unnecessary and unreasonable as he still has the opportunity to argue the question of costs in the adjourned hearing.

35.  On the other hand, I note that I also refused W’s unreasonable request for H’s cross undertaking as to damages.  Hence, both parties cannot be said to be the effective winner for the hearing on 30 June 2023.

Alleged H’s unreasonable litigation conducts

36.  Mr Man SC leading Mr Tsang for W contended that it is H’s unreasonable litigation conduct that caused parties to waste significant costs on the Summons.

37.  Save as to the aforesaid, I disagree that H’s litigation conducts were unreasonable.  I consider that at the hearing on 30 June 2023, W should simply suggest the Undertakings to be continued until further order without proposing to adjourn the Summons for substantive argument.  The fact that W filed her 2^nd affirmation in opposition on 4 August 2023 will not only escalate further unnecessary costs but also trigger H to file his affidavit in reply and H to incur additional legal costs for preparation of the hearing on 25 August 2023.  All these costs are, in my view, wasted.

Alleged non-disclosure of illiquid assets by H

38.  Mr Man SC leading Mr Tsang for W argued that H gave the highly misleading impression to DDJ Lung at the ex parte hearing that all (or at least nearly all) of parties’ assets consist in the liquid assets held by the 4 Companies.

39.  Based on H’s Form E, he holds assets (liquid and illiquid) worth around US$13,050,746.17 (HK$101,926,327.56) under his own name/control.

40.  Based on H’s and W’s respective Form Es, the parties also hold the illiquid assets worth around US$18,387,979.67 (HK$143,610,121.26).

41.  The 4 Companies’ BNP Accounts held roughly US$38.8 million, which W alleged holding on trust according to her 2^nd affirmation filed 4 August 2023 but seriously disputed by H.

42.  In my view, according to H’s 1^st affidavit filed on 26 June 2023, he had made it clear at the ex parte stage that the family has other illiquid assets and the focus of this injunction is the liquid assets:

“[14] The assets held under the 4 BVIs at BNPP represents the vast majority of the liquid assets of our family.”

“[16] Other than the assets in the 4 BVIs enumerated above, (W) and I hold variety of other personal and corporate bank accounts and hold investments in our personal and other corporate names, as well as real property in Hong Kong and in a number of countries.

[17] Our home on Repulse Bay Road is in my name as are some other properties. Agricultural properties we own in Australia are held in a family trust. A property in London is in our joint names, and there are a number of properties held in my wife’s name and in our children’s names in Hong Kong and mainland China. Our family assets also include properties in Hong Kong and in mainland China that are, have been, or may in the future be held by my wife’s relatives. Some family assets have been held in (W)’s relatives’ names in the past and may still be. I believe that a property or properties in China have been or are in the process of being transferred to our daughter Sydney.

[18] As mentioned above, (W) also has a controlling business interest in a clothing company and related technology business that operates in Hong Kong and in Mainland China.”

(emphasis added)

43.  I disagree that H had misled DDJ Lung at the ex parte hearing.  I also accept H’s submission that it is immaterial what triggered H’s loss of access to the BNP accounts.  H repeatedly requested W to restore his access since mid-May 2023 but W denied.  Up to day, H was kept in the dark.  Indeed, there is clear evidence that W refused H’s repeated requests for a restoration as she said to the therapist, Dr Krain, on 19 May 2023 “(H) asked me to resume his access to my account. I refused…..[3]”

44.  The parties have no dispute on the legal principle that no injunction should be granted if there are assets that are not at risk of being dissipated that can be used to satisfy the eventual award: see CYYC v TVKT §§57, 61.

45.  Mr Man SC leading Mr Tsang for W contended that the parties have assets worth at least US$31,438,725.7 (US$13,050,746.17 thereof being under H’s own name/controlled by H) that are not at risk of dissipation and could be used to satisfy H’s award.

46.  Based on the parties’ Form Es, the total value of the family pot is roughly US$70.8 million (ie US$13 million[4] + US$19 million[5] + US$38.8 million[6]).  As the parties’ marriage is very long (almost 30 years) and subject to the good reasons to depart from the equality principle and the court’s finding of the W’s alleged trusts, it is arguable that H would be awarded half of the total value of the family pot in sum of around US$35.4 million.  In my view, if there is no interim injunction and W did dissipate all money in the 4 Companies’ BNP Accounts, it is very likely that H’s award in his ancillary relief claim cannot be wholly satisfied.  I consider that H’s request for restraining only half of the US$38.8 million is fair and reasonable.

47.  If W has merit on this ground of objection, I see no reason why she would agree to give and continue the Undertakings.  In the circumstances, I reject W’s argument that H had committed material non-disclosure.

Risk of Dissipation

48.  Mr Man SC leading Mr Tsang for W further contended that as W has already accounted for that transfer of the US$11,053,560.8 out of the BNP Accounts at §§81 to 93 of her 2^nd Affirmation, H fails to show any risk of dissipation.

49.  Similarly, if W has merit on this ground of objection, she should ask for discharge of the Undertakings and I see no reason why she would agree to continue the Undertakings. 

50.  Ms Yip SC leading Ms Yu for H rightly pointed out that on 17 April 2023, W sent H the email titled “Us and family”, threatening if H chose to leave the marriage, W would “fight dirty and hard to get [her] revenge from those pain and hurts [I] have caused. [My] life will be miserable until the day [I] die[7].”  Further on 13 June 2023, after receiving letter from H, W sent Whatsapp messages to H: “I hired the top lawyer… the fight will financially emotionally and physically destroy you! It will be a long… hard… extremely expensive battle! I will not… stop until the day you are on the floor and bagging…[8]”

51.  From these messages, it is very clear that the parties’ relationship had been rapidly deteriorated since April 2023. Coupling with the subsequent incidents of W’s refusal to re-open H’s access to the BNP’s Accounts and W’s transfer of the US$11 million out of the BNP Accounts, I have no doubt to find that there is a real risk of dissipation by W.

W’s alternative proposal of costs reserved

52.  Regarding W’s alternative proposal of costs reserved, Mr Man SC leading Mr Tsang for W submitted that when the parties’ dispute on ancillary relief is determined, the Court will have greater clarity on whether H ought to have sought the ex parte injunction in the first place and whether H is guilty of material non-disclosure.  I am of the view that this proposal is inappropriate as costs of an interlocutory application should usually, though not a norm, be dealt with immediately after the determination of such an application.

53.  Ms Yip SC leading Ms Yu for H rightly relied on Chow Steel Industries Public Company Ltd & Ors v. Ko Sung & Ors [2021] HKCA 1642, in which the plaintiffs successfully sought ex parte injunction order and a continuation and eventually were awarded costs forthwith with certificate for two counsel.  The 2^nd defendant applied for leave to appeal against the costs decision, asking for costs in the cause. This application was rejected by the Court of Appeal.  Kwan VP said:-

“19. In our view, in the context of the costs of an interlocutory injunction, the discretion is encapsulated in the following statement of Au J (as he then was) in Mendlowitz & Associates Inc. v Winner International Group Ltd & Anr (HCA 574/2009, 14 May 2010) at §28:

’28. I do not think it is now right to say that as a matter of principle, the costs of an interlocutory injunction should be in the cause unless there is justification for its departure. The Court is entitled to and should look at the merits of the injunction itself as at the time of the application to decide what should be the proper costs order for that application in all the circumstances, which do not necessarily depend on the outcome of the trial.” (original emphasis)’

20. DHCJ Kenneth Kwok SC expressed the same sentiment in Xcelcom Ltd v BGI-Hongkong Co Ltd (No 2) [2017] 1 HKLRD 436. The deputy judge described the “modern approach to costs of interlocutory applications” in §11:

‘11. There is no necessary correlation between success in an interlocutory application and success at trial. A successful plaintiff at trial may have no basis for wasting time and costs by making a thoroughly unmeritorious interlocutory application. A successful defendant at trial may have no basis for wasting time and costs in putting up frivolous grounds for resisting a proper interlocutory application. There is no reason why the costs of an interlocutory application should invariably be made to follow the event at trial. There is also no reason why payment of the costs of an interlocutory application should invariably wait until after trial. There may be no trial and this is not surprising in IP cases.’

21. These decisions correctly identify that there is no invariable principle against the making of an immediate order as to costs in respect of an application for interlocutory injunction. Nor is there any “default rule” or “starting point” that the costs of such an application should normally be in the cause of the action.”

(emphasis added)

54.  In California Red Ltd v. Neway Karaoke Box Ltd & Ors (HCA748/2008, 21 August 2008), in the context of an interlocutory injunction, the 1^st and 3^rd defendants applied to vary the costs order nisi to costs reserved to the trial judge but failed. A Cheung J (as the Chief Justice then was) said:-

“4. Turning immediately to the substantive application to vary, the 1^st and 3^rd defendants essentially ask the Court to reserve the costs to the trial judge. I start from the proposition that costs is really a matter of discretion and the further proposition that understandably, in the nature of things, the judge who deals with a particular application should, generally speaking, be in the best position to deal with the costs of that particular application…”

……..

“12. The next substantive point taken by Miss Chow [Defendants’ Counsel] is that since clause 17.4 has not been formally pleaded, there is a chance of the plaintiff not taking clause 17.4 as a point at trial or not succeeding on that point. In that case, it would be unfair if my costs order nisi were to stand and make the two defendants bear the costs of the interlocutory injunction.

13. I proceed on the basis that in the circumstances of the present case, there is no realistic possibility of the plaintiff not running clause 17.4 at trial. After some exchange between the bench and the bar during Miss Chow’s submission, I believe counsel accepts the court’s assessment of the situation.

14. The remaining point is, therefore, that the plaintiff may not succeed at trial in relation to clause 17.4 and I can, in fact, add that there is always the possibility of the plaintiff not succeeding at trial at all on any point. But the difficulty with Miss Chow [Defendants’ Counsel]’s argument is that if this sort of argument is given the weight that Miss Chow is urging this Court to give, it would mean that, at least in most cases where the court grants an interlocutory injunction, costs should be reserved to the trial judge. To say the least, that has not been the practice. When pressed, Miss Chow is only able to say that the only difference between the trial judge dealing with the matter after trial and this Court dealing with the question here and now, is that the trial judge, with the benefit of hindsight, might come to a different conclusion on the incidence of costs. I do not deny that that is a possibility but, in my view, that is not a sufficient reason for reserving the question of costs to the trial judge.

15.  As I intimated to Miss Chow, if her argument should be given the sort of weight that she has been contending for, it applies not only to the question of costs in an application for interlocutory injunction, it would also apply to the question of costs in all sorts of interlocutory applications.  Of course, that by itself may not be a conclusive reason for rejecting the argument.  But, having looked at the matter in the round and having asked myself why this Court, as compared with the trial judge, cannot and should not deal with the question of costs but instead should burden the trial judge with deciding the question of costs of a matter that the trial judge has not seized of, I cannot find any good answer.”

(emphasis added)

55.  Since I disagree with W’s submissions on H’s material non-disclosure and risk of dissipation, it would not be appropriate for me to defer or reserve the question of costs of the Summons to be dealt with at the ancillary relief trial or later.

Decision on Costs Issue

56.  W argued that the Undertakings were not what H sought.  In my view, an undertaking in lieu is as good as an injunction. H is effectively the winner of the application including the Disclosure Issue.  Save as to H’s unreasonable insistence to have the interim injunction instead of the interim undertaking offered by W at the hearing on 30 June 2023, I consider that W shall pay H costs.

57.  In the circumstances, having carefully considered all the relevant factors under Order 62 rule 5 of RHC, I exercise my discretion to order W to pay H 80% costs of and incidental to the application inclusive of the ex parte Summons and the Summons with certificate for 2 Counsel, and to be taxed and paid forthwith.

CONCLUSION

58.  Upon the Undertakings be continued until further order, I now make an order as follows:

i.    Order in terms of §§2(1)(e) to (f) and 2(2)(c) to (f) of the Summons;

ii.   W do pay H 80% costs of and incidental to the application inclusive of the ex parte Summons and the Summons with certificate for 2 Counsel, and to be taxed and paid forthwith;

iii.  penal notice be endorsed.

59.  Last but not least, I thank all Counsel for their assistance.