TSC v. LYK

FCMC 2359 /2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 2359 OF 2013

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DECISION
(Leave to appeal; variation of costs order nisi)

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Introduction

1.  On 6 September 2013, I handed down my decision (“Decision”) in respect of the petitioner wife’s 2 summonses on inspection and taking copies of the books of accounts and underlying records of 14 family companies (“inspection summonses”), whereby I rejected her argument that the Family Court has the jurisdiction to grant an order for inspection of companies’ books of accounts pursuant to section 121 of the Companies Ordinance (”Section 121”) or under the common law. However, I allowed inspection of some documents requested by her upon exercise of my discretion under Order 24 rule 13 Rules of the High Court and on concession made by the respondent husband during the hearing (see §78 and Schedule 1 of the Decision).

2.  In the same Decision, I made a costs order nisi that the husband should bear half of the wife’s costs of her application.

3.  By way of her summons filed on 19 September 2013, the wife now applies for:

(1)leave to appeal against my Decision;

(2)variation of the costs order nisi.

4.  The facts relevant to the wife’s inspection summonses were already set out at §§4-8, 12-26 of the Decision and I do not propose to repeat them at length here. For convenience, I would adopt herein the abbreviations used in the Decision.

5.  It may, however, be helpful to note by way of background that before separation of the parties, the wife was an equal director with the husband in the family companies, in that she was in charge of the accounts and management of these family companies. The parties are now in the stage of discovery leading to FDR (yet to be fixed). It is apparent that one of the issues to be examined is the value of these family companies which by itself would throw light on the size of the matrimonial pot.

6.  It is under such circumstances that I once indicated to the legal representatives of both parties at the call-over hearing of the wife’s inspection summonses that in order to ascertain the value of the family companies, it might be more appropriate and time-and-costs-effective for parties to try to agree on the value of the family companies, in lieu of which they should seek expert directions from this court on the appointment of a (single) joint expert. I still maintain the same view up to now.

Applicable Legal Principles on leave to appeal

7.  Section 63A(2) of the District Court Ordinance provides that leave to appeal shall not be granted unless the intended appeal has a reasonable prospect of success or that there is some other reason in the interests of justice that the appeal should be heard.

8.  The wife’s application for leave to appeal is premised on the limb of “reasonable prospect of success”.

9.  The relevant test of whether an appeal has a reasonable prospect of success is whether the applicant for leave can show that he has an arguable case with reasonable chances of success on appeal.  A reasonable prospect of success therefore means an appeal with prospects that are more than “fanciful” but which do not need to be shown to be “probable”: SMSE v KL [2009] 4 HKLRD 125; KNM v HTF, HCMP 288/2011.

The wife’s Proposed Grounds of Appeal

10.  In her draft notice of appeal, the wife seems to seek to appeal against the Decision relating to the jurisdictional point that the Family Court does not have the jurisdiction to make an order under Section 121 (see §1/ on p3 of draft notice of appeal). However, upon clarification by me with Ms Anita Yip, counsel for the wife, in this hearing, it becomes apparent that she is not appealing against the jurisdictional point of the Decision.

11.  Ms Yip now confirms that the appeal is directed only to the wrongly exercise of my discretion under Order 24 rule 13 RHC, which essentially boil down to the following:

(1) I failed to take into full account the effect of Section 121 and her right as a director under the common law;

(2) Because of (1), I erred in finding that it was not necessary to consider and rule on ulterior motive of the wife as alleged by the husband;

(3) I have misconstrued and misunderstood H v M [2000] 2 HKLRD 306, the most direct authority on the issue;

(4) I went wrong in finding that the wife had not explained how inspection of each item of company document was necessary;

(5) I went wrong in finding that the “reminder” documents (as defined in the draft notice of appeal) were too wide and petty.

The starting point

12.  The wife’s appeal is directed to my ruling made in the exercise of my discretion. It is trite to say that where the court below exercised a discretion, the appellant court would only intervene when it considered that the judge below had exceeded the generous ambit within which the judicial disagreement was reasonably possible, and was in fact plainly wrong, and not merely because the appellant court preferred a solution which the judge had not chosen (See: G v G [1985] 2 All ER 225; RK v YS, HCMP 1969/2012 (date of judgment: 1 November 2012)).

13.  Mr Robert Pang SC, counsel for the husband, goes one step further to submit that the wife’s appeal is against a “case management decision” of this court, which are only subject to appeal “in rare circumstances”. He refers me to Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887, where Kwan JA says at §31 of her judgment that,

“Case management decisions are only subject to appeal in rare circumstances. The appellant faces a ‘very high hurdle’ and must show that the Judge ‘has gone clearly wrong and made orders which will clearly involve an injustice or inability for the trial court to carry out its task’, or if the Judge ‘erred in principle or the order was irrational having regard to the issues that had to be resolved’.”

14.  Ms Yip does not agree and attempts to argue that the Mimi Wong’s case is not relevant to our case because it relates to the issue of the ownership of the matrimonial home, whereas our case concerns the value of the family companies. She reminds me that the Judge in Mimi Wong’s case was exercising his case management power whereas in our case, I am to exercise the inquisitorial power as a family judge.

15.  In my view, through the facts in Mimi Wong’s case is not exactly the same as ours, the general legal principles propounded by Kwan JA are applicable to our case, to which I humbly beg to agree.

16.  I shall now turn to the wife’s grounds of appeal.

Grounds (1) & (2)

17.  Since grounds (1) and (2) relate to the director’s right to inspect the books of accounts of a company, I shall deal with them together.

18.  Under these 2 grounds, Ms Yip submits that the wife did not seek to invite this court to assume the jurisdiction of the Companies Court under Section 121.[1] But she argues that I failed to take into full account of her right (as a director of the family companies) under Section 121 and/or under the common law in the exercise of my discretion.

19.  As rightly pointed out by Mr Robert Pang SC, this was not the argument put forward by the wife in the hearing of 12 August 2013. In that hearing, the wife ran a 2-limbs argument and grouped Section 121 and/or the common law position under the umbrella of the “jurisdictional” argument.[2]

20.  I have explained at §§35-38 and 43-46 of the Decision why I concluded that the Family Court do not have power to make an order under Section 121 and/or under the common law.

21.  Having decided not to challenge, or, in the words of Ms Yip, not to pursue on the jurisdictional point, the wife is, in my view, effectually conceding that the Family Court do not have the jurisdiction to make an order under Section 121. On this basis, I cannot see why and how I can and should take this section into account in the exercise of my discretion under Order 24 rule 13 RHC. If to do so, this court would be assuming the jurisdiction of the Companies Court in disguise.

22.  Ms Yip refers me to further cases (not cited in the hearing of 12 August 2013) to support her argument that it is desirable for all matters arising out of the divorce and ancillary relief proceedings to be dealt with in one court. They are:

(1) Poon v Poon [1994] 2 FLR 857;

(2) Wan Wai Hei v Golden Lake Development Ltd, CACV 247/2008 (date of judgment: 12 November 2008); and

(3) Park Young Sook v Chu Dean Yuan Frankin, HCA 2353/2009 (date of judgment: 15 July 2010).

23.  In Poon v Poon, the husband and wife were directors and shareholders of a private family company. The wife called an emergency general meeting to resolve to remove the husband as a director. The husband sought an injunction restraining the wife from putting the resolution forward. Thorpe J (as he then was) rejected the argument that the matter should go before the Companies Court holding that the company was a family business. An injunction was granted in favour of the husband.

24.  In Wan Wai Hei v Golden Lake Development Ltd, D1 (a company) was the owner of the matrimonial home of P1 (husband) and D2 (wife). D3 was the wife’s mother. The matrimonial home was transferred from D1 to D4 (another company in control by the wife). The husband sued on his own behalf and as a shareholder of D1. Roger VP (as he then was) commented that this was not a company case, but a case about the matrimonial home which should be dealt with by the Family Court.

25.  In Park Young Sook v Chu Dean Yuan Frankin, the ex-wife, after final ancillary relief trial, made claims against her ex-husband. On the application by the ex-husband, her claim was struck out by To J, ruling that as a matter of legal principles, the court required the parties to put forward their whole case in one go and the family Court had the jurisdiction to adjudicate on all civil disputes arising out of family assets between the parties to a marriage as well as non-parties.

26.  I take note, and Ms Yip has conceded in this hearing, that all the above authorities are from the level of Court of First Instance or above. These courts clearly fall within the definition of “court” in the Companies Ordinance[3] and hence have the requisite jurisdiction to make an order under Section 121 and/or to consider it in the exercise of discretion. In my view, these cases cannot serve to advance the wife’s case any further.

27.  In the circumstances, the wife’s argument has to be rejected. 

Ground (3)

28.  In the hearing of 12 August 2013, Ms Yip relied on H v M (supra) to support her proposition that this court had the jurisdiction to make a Section 121 order.[4] Now she changes and seeks to argue that I should consider H v M (supra) in the exercise of my discretion.

29.  I have already explained at §§39-42 of my Decision why H v M (supra) is of no assistance to the wife. I have not been persuaded the otherwise by her in this hearing. I would add that according to Ms Yip (who coincidentally represented the husband in H v M (supra)), Godfrey JA (as he then was) decided to let the wife inspect some of the books of accounts of the company on the concession of the husband that the wife would be entitled to such inspection had she made an application to the Companies Court. No such concession was made by the husband in our case, at least not in relation to the Contested Items.

Ground (4) & (5)

30.  Ms Yip has not explained in details why and how I went wrong in ruling that the wife had not explained how inspection of each item of company document was necessary, or, in finding that the “reminder” documents were too wide and petty. It is telling to note that in her submission on the wife’s application to vary the costs order nisi, she agrees with the observation of this court that the wife had not deposed/explained by way of affidavit item by item why each item was necessary for the fair disposal of the matter or for saving costs.

31.  As such, I cannot see there is any reasonable prospect of success of these 2 grounds.

No reasonable prospect of success

32.  Due to the matters set out above, I am not satisfied that the wife’s proposed grounds of appeal show any realistic prospect of success. Her leave to appeal must be refused.

The wife’s argument to vary costs order nisi

33.  I shall now turn to deal with the wife’s application to vary the costs order nisi that she is awarded 50% of her costs of the inspection summonses. She now seeks an order that the husband do bear 100% of her costs.

34.  The gist of Ms Yip’s argument is like this. The wife was pre-dominantly successful and thus the real winner in her application. Even though she did not succeed in obtaining an inspection order on the “reminder” documents, she had not caused a significant increase in the length or costs of the proceedings by raising issues on which she did not succeed. Therefore, costs should follow the event and should not be determined by dividing litigation into quantifiable subjects and figures: EJB v CJB [2011] 5 HKLRD 508 per Hartmann JA (as he then was) at §133; F v F (No 2) [2003]3 HKLRD 976 per Hartmann J (as he then was) at §22; Commissioner of Inland Revenue v Hit Finance Ltd (Judgment on Costs), FACV Nos 8 and 16 of 2007 (date of judgment: 26 June 2008). 

35.  Besides, this court should take into account the litigation conduct of the husband, including continual conduct of non-disclosure, and make a costs order which would reflect the court’s disapproval to his wait-and-see approach (See: L v L, HCMC 1/2003 (date of judgement: 18 November 2005) per Lam J (as he then was) at §198; L v C [2007] 3 HKLRD 819, per Stock JA at §69; ML v YJ (no 2) [2008] 6 HKC 313, per Lam J (as he then was) at §§19-21).

The husband’s contention

36.  Mr Pang SC, on behalf of the husband, opposes to the wife’s application to vary the costs order nisi. He draws my attention to the fact that this is an interlocutory application, to which a different approach for costs order is to be adopted in the post-CJR era under the new Order 62 rule 3(2A) of the RHC. Nowadays, “costs to follow the event” is simply one of the options available to the court, but is no longer a general rule which must be applied: Melvin Waxman & Another v Li Fei Yu & Another, HCA 1972/2012 (date of judgment: 11 September 2013).

37.  He submits that the wife was not pre-dominantly successful in her application. For example, out of the 14 items in her 1^st Summons, she was allowed to inspect only 6 of them, 3 out of which were conceded by the husband at the outset of the hearing of 12 August 2013. Her argument on Section 121, taken up a substantial portion of time in the hearing, was rejected by this court.

38.  He rejects the allegation that there is no non-disclosure conduct on the part of the husband.

Costs of interlocutory applications

39.  As a starting point, no one can argue the otherwise that the wife’s inspection summonses are interlocutory applications, to which the new Order 62 rule 3(2A) of the RHC applies. And Mr Pang SC must be right in drawing my attention to the difference in the new rule 3(2) and rule 3(2A) under Order 62, which read as follows:

“(2) If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, 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.

(2A) If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.” (my emphasis)

40.  In Melvin Waxman’s case (supra), To J analysed succinctly  the difference in the court’s approach under the new Order 62 rule 3 of the RHC at §11 of his judgment:

“… the introduction of rule 3(2A) specifically applicable to costs in interlocutory proceedings makes it clear that the legislative intent was to distinguish between costs in interlocutory proceedings and costs in other proceedings. Under the new rule 3(2), the general rule of costs to follow the event is preserved for costs in proceedings other interlocutory proceedings. But a different approach is provided under the new rule 3(2A) for costs in interlocutory proceedings. Under this new rule, the court may order costs to follow the event or make such other order as it sees fit. The court is no longer required to apply the general rule of costs following the event except in special circumstances, though that principle remains as one of the options. The court may make such other order as it sees fit. Rule 3(2A) gives the court even wider discretion than that under rule 3(2) in respect of costs in other proceedings.” (my emaphasis)

41.  I humbly beg to agree entirely with To J and share His Lordship’s view that the principle that costs normally follow the event is no longer the prescribed usual order in an interlocutory application but is instead just an option.

42.  Further, in the exercise of its wider discretion of costs under Order 62 rule 3(2A), the court is empowered under Order 62 rule 5 to take into account special matters set out therein. This rule is of general application and applies to costs in interlocutory proceedings as well as to other proceedings.  Of relevance in this application, in my view, is rule 5(1) (e) and (f), which read as follows:

“5(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-

…

(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 successfully;

…

(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.” 

The exercise of discretion

43.  It has been argued by Ms Yip for the wife that she has pre-dominantly won on the issue of entitlement in her inspection summonses and thus should not be penalised by way of depriving her of the costs of the parts in which she failed to obtain an order for inspection. Ms Yip relies heavily on the case of Hit Finance Ltd (supra) where Bokhary PJ (as he then was) stated that:

“6. So the Commissioner is the real winner. The general rule is that costs follow the event – in other words, go to the real winner – except if and when it appears to the court that in all the circumstances some other order as to costs should be made. We heard argument on sections 16, 17, 61 and 61A of the Inland Revenue Ordinance, Cap.112. Having done so, we decided in the Commissioner’s favour under s.61A. We rejected her arguments under sections 16 and 17, and did not rule on s.61. Not every point taken by the Commissioner proved to be a winning one. But there is nothing exceptional about a case being won on only some of the winner’s points.

7. There is a discretion in the court to deprive a successful party of the whole or part of his costs because he had caused a significant increase in the length or costs of the proceedings by raising issues on which he did not succeed. That can be done even if it was not unreasonable to have raised those issues. Whether or not it should be done depends on all the circumstances. This discretion exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event. It is to be approached with due circumspection so as not to undermine the utility of that general rule. In the circumstances of the present case, after weighing the rival arguments on costs, we do not consider it appropriate to deprive the Commissioner of any of her costs. We have set out, in paragraph 4 above, the order as to costs for which the Commissioner asks. In our view, it is appropriate to make that order as to costs, and we do so.” (Ms Yip’s emphasis)

44.  First of all, I agree with Mr Pang SC that all the cases cited by Ms Yip in her written submission, including Hit Finance Ltd (supra), deal with “final” costs instead of costs of interlocutory applications. They are, prima facie, of limited application to the present application of the wife. It is also quite clear that Hit Finance Ltd (supra) is decided before the advent of the CJR.

45.  Further, as discussed above, the new Order 62 rule 3(2A) gives the court a much wider discretion on costs matters. Order 62 rule 5(1)(e) and (f) expressly empowers this court to consider, when exercising my discretionary power of costs, the conduct of the parties and if a party is partly successful in his/her application.

46.  On my part, I do not agree that the wife was pre-dominantly successful in her application. Her 2 inspection summonses seek altogether disclosure/inspection of 14 items of books of accounts and underlying records of the family companies. In my opinion, though contained in 2 summonses, each item of these 14 documents should be viewed, and in fact was considered and analysed by this court in the Decision, as a separate and individual application for disclosure/inspection. Out of the 14 separate and individual applications, the wife succeeded in 6 applications only, either as a result of the concession made by the husband or upon discretion exercised in her favour by this court. Arguably, if the rule of “costs to follow the event” was to apply, the wife should have been ordered to bear the husband’s costs of those 8 applications in which she has failed.

47.  On the allegation of litigation conduct of the husband, I am not prepared to conclude at this preliminary stage that the husband has committed the conduct of non-disclosure. Nevertheless, I do not commend him in his disclosure of the audited accounts of the family companies, in that the wife had to take out a summons in order to get the same. I also take the view that he made a belated concession to disclose some of the documents sought by the wife. I have considered his conduct and reflected this in the costs order nisi that even if the wife lost in 8 of her 14 separate and individual applications, she was not made to bear his costs.

48.  Having considered the matters set out in Order 62 rule 5, I accept Mr Pang SC’s submission and come to the conclusion that the costs order nisi made on 6 September 2013 is fair and just in the circumstances of the case, in that the wife is not being deprived of her costs, nor is she being asked to pay any of the husband’s costs. I refuse to vary this costs order nisi.

Conclusion

49.  Since the wife fails in both parts of her application, I see no reason why costs should not follow the event. Accordingly, the wife should pay the husband’s costs of this application.

50.  I will thus make the following order:

(1) the petitioner’s (wife) summons for leave to appeal and to vary the costs order nisi filed on 19 September 2013 is dismissed;

(2) the costs order nisi of 6 September 2013 is made absolute;

(3) There be a costs nisi to the effect that the respondent (husband) do have the costs of this application to be taxed if not agreed. For avoidance of doubt, I certify the attendance of Counsel in this hearing. If neither party applies to vary the costs order nisi within 14 days from today, the said costs order nisi will be made absolute.

[1] §19 of Ms Yip’s written submission

[2]  §§8-10 of Ms Yip’s written submission of the inspection summonses

[3] Poon v Poon is an English case. Since both counsel have not submitted the otherwise, I have assumed that the English Companies Act contains similar definition on “court” per the Companies Ordinance of Hong Kong

[4] §8 of her written submission of the inspection summonses