"L" v. "C"

CACV 169/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 169 OF 2006

(On Appeal from HCMC 5/2006)

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JUDGMENT

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Hon. Stock JA:

1.  I agree with the judgment of Yuen JA.

Hon Yuen JA:

Introduction

2.  On 25 May 2007 this court handed down judgment in three appeals: CACV 169/2006, CACV 181/2006 and CACV 182/2006. 

3.  CACV 169/2006 was an appeal by the Petitioner (‘the Husband’) from Lam J’s order in ancillary relief proceedings.  In that appeal the Respondent (‘the Wife’) had also raised a cross-appeal.  The other two appeals (CACV 181/2006 and CACV 182/2006) were appeals by the Wife from orders made by the judge consequential to his finding that she had committed bigamy.

4.  The result of the appeals was that the Husband was in the main successful.

5.  When this court handed down judgment, we made a number of orders nisi as to costs. 

6.  In the Wife’s appeals (CACV181/2006 and CACV182/2006) and also in respect of her cross-appeal in the Husband’s appeal (CACV169/2006), we made orders nisi that she should pay the Husband’s costs.  There has been no application for variation of these orders and consequently these have been made absolute.   

7.  In the Husband’s appeal, we gave an order nisi that there should be no order as to the costs before the judge and before this court.  The Husband has applied to vary this order nisi.  This is our judgment on his application for variation.

Summary of relevant background

8.  It may be helpful for me to provide a very brief summary of the relevant background. 

9.  When the parties started living together in the mid-1960's, the Wife had had a relationship with a Mr Lo and had four children by him.  Mr Lo had deserted her soon after the birth of the fourth child.  The parties started cohabiting and after some 25 years together, they married in 1991.  Unfortunately their relationship deteriorated and they separated in 1999.  Divorce proceedings were commenced in 2001.

Agreements covering part of assets

10.  By that time, the parties had become very successful business people.  After their separation, they entered into two agreements (in 2000 and 2001) dividing up part of their assets.  I shall refer to the assets covered by these agreements as ‘the agreement assets’ and the rest of their assets as ‘the remaining assets’.

Parties’ position regarding agreement assets

11.  When the parties first came before the judge in ancillary relief proceedings in February 2005, neither party sought to argue that the judge should leave the agreement assets as they were and deal only with the remaining assets (an approach which has been referred to as ‘the partial Edgar approach’: see Edgar v Edgar [1980] 3 All ER 887). 

12.  In fact the Husband alleged in evidence that he had signed the agreements under undue pressure and that there were other vitiating circumstances.  As far as the Wife was concerned, there had been a suggestion from her then leading counsel Mr Robert Kotewall SC

on the first day of the hearing before the judge that the agreements were meant to be a ‘clean break’ but that was disavowed the next day.  Her position was that the agreement assets should remain as they were - but only so far as allocation was concerned. 

Hearing before the judge

13.  The parties thereupon embarked on a lengthy and complex hearing involving testimony from both parties (some of which the judge did not find credible) and late disclosures, as well as experts whom the judge did not find helpful providing valuations of both the remaining assets and the agreement assets.  The hearing took 29 days.   

14.  On Day 22 (19 April 2005), during final submissions by leading counsel for the Husband, the judge posed the question why he could not adopt the partial Edgar approach (which the judge called the ‘mid-way house’ approach). 

15.  Mr Mostyn QC said the judge’s question was ‘a bolt from the blue’.  It was obviously an unwelcome question as the Husband’s case throughout was that he had signed the agreements under undue pressure and other vitiating circumstances.  The ‘mid-way house’ approach would mean that the judge was rejecting the Husband’s case that the agreements should be invalidated.

16.  Mr Mostyn QC dealt with the judge’s question by submitting that there was no authority where the court had taken into account a partial Edgar agreement.  When the judge asked if there was any authority which said that could not be done, he said:

“No, either way.  Your Lordship is in unknown territory here because I have been through the cases extremely thoroughly; I know them all. ...

Whether your Lordship should now, in effect, reject what are in effect joint submissions by the parties, that the agreements should only be given weight as to the distribution of the assets they have affected, not as to the distribution of value that was affected.  As I say, your Lordship would be acting against the joint submissions of the parties at this point”.

That was how the matter was left.  Leading counsel for the Husband did not ask for time to come back to the judge’s question after more mature reflection, nor did he indicate that he would be submitting calculations to assist the judge should he adopt the ‘mid-way house’ approach.

17.  It is only fair to say that when on Day 25 (22 April 2005), the judge posed the same question to leading counsel for the Wife, all that Mr Kotewall said was that the “short answer” was that there was nothing in principle that precluded the judge from taking the ‘mid-way house’ approach.

18.  So it would be seen that after 25 days of hearing, neither party had embraced the partial Edgar approach, and the judge’s ‘feeler’ regarding this ‘mid-way house’ approach was obviously unwelcome.      

Disclosure of the Lin He West Road construction costs 

19.  However in the course of final submissions on Day 22 (19 April 2005), the Wife sought leave to issue a subpoena against a bank for documents pertaining to the Husband’s Lin He West Road project.  On Day 23 (20 April 2005) the judge ruled that the Wife could have leave to issue the subpoena.

20.  To cut a long story short, the upshot of the subpoena application was that the Husband disclosed a different set of figures for the construction costs of the project which were lower than the ones originally provided.

21.  In July 2005, the hearing resumed.  The parties eventually agreed on a new set of figures of construction costs, with the result that the Lin He West Road project (which had been allocated to the Husband under the agreements) was worth substantially more.

Husband’s ‘final final submissions’

22.  It was at this stage in July 2005 (5 months after the start of the hearing and nearly 3 months after the April hearing when the judge had asked about the ‘midway house’ approach) that the Husband came up with his “final final submissions”.  In those submissions he included the partial Edgar approach for the first time.  

Principles

23.  As a matter of law, it is clear that costs are in the court’s discretion.  Pointers as to how that discretion should be exercised include the following:

Discussion

24.  Having heard the submissions made by both parties, I consider that in the circumstances which I have summarized above the costs order nisi should be varied as follows (following the numbering in the Husband’s summons):

(1)   the Husband is to have half of the costs of the hearing before Lam J, to be taxed if not agreed;

(2)   the Husband is to have the costs of the appeal to be taxed if not agreed;

(3)   the costs of the summons is to be included as costs of the appeal.

25.  As far as the costs of the hearing before the judge are concerned, this is a rough and ready division to reflect the fact that although the Husband should now be regarded as the successful party (given the judgment on appeal), this was the result of the Husband’s very late change of position.  Substantial costs were incurred and time wasted by reason of his attempt to open up the agreements, whether by reason of his allegation of duress, or as part of his argument (no longer pursued on appeal) that they should be opened up for being “unfair” notwithstanding the principles stated in Edgar.  He had also urged the case that the Wife’s bigamy should be reflected in the order for ancillary relief.  An order that the Husband should be deprived of 50% of his costs for “lost issues” is in accordance with the Elgindata principles.  This was nearly a case won only on a ‘new point’ on appeal.  As it was, it is clear from the summary I have given of the history of the litigation that the Husband only resurrected the partial Edgar approach and provided assistance to the judge on the point some 3 months after the judge’s enquiry, and only after he agreed higher values for the Lin He West Road project.  In the judge’s words the new figures for the project had a “pivotal impact on the way in which the case was argued on behalf of the Husband” (Reasons for Decision (Costs), 15 May 2006, §47(b)).

26.  Indeed, the percentage of deduction might have been greater had his change of position and late disclosure of the Lin He West Road valuation not been rivalled by the Wife’s own litigation misconduct of material non-disclosure.  In this respect Mr Shieh SC had argued on her behalf that whilst litigation misconduct could be taken into account in the award of costs in that a receiving party may be deprived of part of his/her costs for misconduct (Order 62 rule 7 RHC), that misconduct should play no part in the court’s considerations when that party is the paying party.  I see no reason for construing Order 62 rule 7 in that restrictive way.  The language of the rule makes no distinction between the successful (presumptively receiving) party and the losing (presumptively paying) party.  In an appropriate case, litigation misconduct by a losing (presumptively paying) party may be penalized by an award of indemnity costs.

27.  Dealing now with the costs of the appeal, the Notice of Appeal showed that the Husband was no longer pursuing his argument that the agreements should be re-opened due to vitiating circumstances, nor the argument that the bigamy issue should affect ancillary relief.  The arguments on appeal primarily focussed on the partial Edgar approach.  The Wife resisted the appeal.  An appeal cannot of course be allowed by consent, but the hearing before us would have been shorter had the Wife accepted the Husband’s arguments on appeal.  In the circumstances, it being necessary for the Husband to bring the appeal to achieve the result he obtained from this court, he should be entitled to the costs of the appeal.  The fact that he succeeded on (virtually) a new point has been reflected in the order for costs before the judge. 

28.  Finally the usual practice is to regard the costs of the summons to vary a costs order nisi as part of the appeal.  This is because had the court not handed down judgment and made an order nisi, the parties would have had to come to court to receive the judgment and to argue costs as part of the appeal.

Order

29.  I would therefore make the following orders on the Husband’s summons:

(1)     the Husband/Appellant is to have half of the costs of the hearing before Lam J, to be taxed if not agreed;

(2)     the Husband/Appellant is to have the costs of the appeal to be taxed if not agreed;

(3)     the costs of the summons is to be included as costs of the appeal.

 

Hon. Hartmann J:

30.  I agree.

Hon. Stock JA:

31.  Accordingly there will be an order in the terms proposed by Yuen JA at paragraph 29 above.