W v. C

FCMC 2201 / 2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 2201 OF 2014

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RULING ON COSTS

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1.  This is hearing of a Summons taken out by the Husband (“H”), the respondent in the action, to vary the costs order nisi given in a judgment dated 11 August 2014 (the “Judgment”).

2.  By a summons filed on 8 May 2014, the Wife (“W”), the petitioner in the action, sought a sum of HKD46,000 per month as maintenance pending suit (“MPS”) plus a sum of HKD35,000 per month as legal costs provision.  The substantive hearing of the application took place on 25 July 2014.  By the Judgment, it is ordered H shall pay W HKD15,000 per month as MPS and HKD35,000 per month as legal costs provision and on a nisi basis that H shall pay W’s costs of the application, including all reserved costs, with certificate for counsel (“the Costs Order Nisi”).

3.  H now applies to vary the Costs Order Nisi.  H says that the appropriate costs order should be that the costs of W’s application for MPS and legal costs provision (including the costs of the hearing dated 25 July 2014 and all costs reserved) shall be paid by W to H with certificate for counsel.

4.  The court has a wide discretion as to costs.  For the present case, 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.  Both parties accept that the effect of Order 62 rule 3(2A), was as explained by To J in Melvin Waxman & Another v Li Fei Yu & Another, HCA No 1972 of 2012, 11 September 2013 (unrep) at para 11:-

“The amendment to rule 3(2) and 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 than 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.”

5.  In other words, the “rule” that costs normally follow the event is no longer the usual order in an interlocutory application, but remains an option.  When dealing with costs orders, under Order 62 rule 5(1)(e) the court may take into account the conduct of all 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.

6.  W’s application for MPS consists of two parts: (a) W’s monthly living expenses; and (b) legal costs provision for W.

7.  About W’s application for monthly living expenses, H contended that he is the successful party in this part of W’s application.  When W took out her summons on 8 May 2014, she sought a monthly sum of HKD46,000 for her living expenses.  The same amount was requested in the skeleton submissions filed on her behalf on 22 July 2014.  At the beginning of the hearing dated 25 July 2014, W reduced her request to HKD38,600.  After trial, it is eventually ordered that H shall pay MPS for W’s living expenses at the rate of HKD15,000 per month.  H’s open offer was HKD12,000 per month.  The difference between the amount awarded by the court and H’s open offer is HKD3,000, but there is a difference of HKD23,600 between the amount awarded and W’s last request.  H took notice that out of the 17 items of expense put forward by W in her monthly budget, 4 items were accepted by H.  The court did not agree with either H or W for 1 item.  The court only agreed with W’s claim for 2 items while it agreed with H on 10 items. 

8.  Despite that W has lost a good many issues on the expenses put forward by her in her monthly budget, at the end of the day H has to pay W money of an amount well over his open offer. I am not myself able to follow H’s contention that he is the successful party in W’s application for monthly living expenses pending suit.  It seems that in reality and substantively W has succeeded in this part of her claim.

9.  However, I agree with H that W is responsible for what Deputy High Court Judge Mostyn QC (as he then was) guarded against in TL v ML (Ancillary Relief: Claim Against Assets of Extended Family) [2006] 1 FLR 1263 – forensic exaggeration.  It is clear to me W has overinflated her monthly budget.

10.  The court is entitled to consider that W’s conduct that has exaggerated her claim for living expenses when deciding costs.  It is pertinent to note that substantial evidence has filed by the parties and much of the hearing time was spent on the parties’ contention about the W’s reasonable needs.

11.  At the same time, the court is entitled to consider H’s conduct that he has tried to paint a picture that he has no income, and with limited assets do not have the ability to pay the requested MPS.  His financial position is contradicted by evidence of Ah Lung and the court is “incredulous” to the alleged financial position of him.

12.  Regarding W’s request for legal costs provision, the court accepted W’s request and awarded legal costs provision for W at the rate of HKD35,000 per month.  One of the two core objections raised by H in relation to this part of W’s application was that she failed to provide a breakdown as to how the requested amount of HKD35,000 per month was arrived at.  As it was not until the day of the hearing did W through her counsel produce an estimate of her legal costs up to FDR, H contended he was entirely justified in resisting W’s request for legal costs provision when the burden is squarely on her to substantiate her own application.  As well, H asked for the costs of this part of W’s application.

13.  I am not persuaded by W’s contestation that her estimate of only HKD35,000 per month up to FDR is very conservative and practical and therefore a breakdown of her anticipated legal costs is not necessary.  The applicant’s duty to provide a breakdown of the anticipated legal costs has been repeatedly emphasized by the courts: see KWTM v NSH, FCMC No 14639 of 2007, 3 September 2008, unrep at para 79; K v K, CACV No 80 of 2010, 31 August 2010, unrep at para 14; and HJFG v KCY [2012] 1 HKLRD 95 (CA) at para 90.

14.  W’s summons was taken out on 8 May 2014, which came with a supporting affirmation containing no information about her legal costs.  She filed two lengthy affirmations in reply on 9 July 2014.  Again, there was no information about her legal costs.  Even her Form H filed on 24 July 2014 (i.e. the day before the hearing) contains no information about her anticipated legal costs.  Parts 2 and 3 of her Form H were simply stated as “to be assessed”.  W provided a breakdown of her legal costs on the day of the hearing, but she failed to give a satisfactory explanation on why she waited until the last minute to provide such information.

15.  It is noted by W that H has never challenged the amount of HKD35,000 being unrealistic or excessive.  In his “without prejudice” letter, H’s position is that he has no obligation to pay as the W has a property in Hong Kong which allegedly could be sold to meet her legal costs.  H’s position remained the same during the hearing.  In view of H’s denial of the liability to W’s claim for legal costs provision, it seems unlikely that the parties could get rid of the hearing on this part of W’s claim supposing W had provided H a breakdown of her anticipated legal costs. Nonetheless, a breakdown of the estimate of her legal costs can give the court and H an earlier opportunity to properly consider the reasonableness of her requests and can work to narrow down the dispute between the parties on the question of quantum, if not liability, and surely H would drop his point on W’s duty to provide a breakdown of her legal costs.  In the present hearing, Mr Yiu has cited cases in H’s List of Authorities to advance his point on the applicant’s duty to provide a breakdown of the anticipated legal costs.

16.  Under Order 62 rule 5(1)(d), the court may take into account a “without prejudice save as to costs” offer.  By a “without prejudice save as to costs” letter dated 26 Jun 2014, H offered as MPS to W the sum of HKD12,000, but he did not make an offer for legal costs provision.  The offer was rejected by W by a “without prejudice save as to costs” letter dated 15 July 2014, in which W indicated her willingness to accept the sum of HKD60,000 per month.  H then sent an open letter dated 23 July 2014 repeating his offer of HKD12,000, still making no offer for legal costs provision on the basis that W could sell her property in Hong Kong to meet her legal costs.  It is noted by W that the sum finally awarded by the court i.e. HKD15,000 + HKD35,000 is not too far from W’s without prejudice offer of HKD60,000 per month.

17.  I agree with H that the “without prejudice save as to costs offer” by W dated 15 July 2014 should be viewed in the backdrop that at that stage H was faced with a blanket request for HKD35,000 per month as legal costs provision with no information as to how the sum of HKD35,000 was arrived at.

18.  In KWC v LYY, FCMC No 14968 of 2006, 17 November 2009 (unrep), the wife in the action, who put forward several Calderbank offers, was criticized by HHJ Bebe Chu in para 26:-

“In my view, both W’s Calderbank Letters clearly fall short of these requirements. Making a Calderbank offer does not simply mean putting forward an amount, albeit a high amount which eventually in this case well exceeded the award, but also setting out the basis of the offer to enable the other side to consider it properly and seriously. At that time, H was saying his proposal of HK$2,67 m was only one third of what he said were the Family Assets at the time of the separation, which was about HK$8 m. If W disagreed with H’s calculations, she should have made it known, whether in her 2^nd Calderbank Letter or otherwise, and explained what she regarded as the value of the Family Assets were and how she arrived at the sum of HK$1 m. It was also not clear whether W had arrived at this sum after taking into account her alleged amount of maintenance for the children. By failing to set out the basis of her offer, H might have thought that W was only offering him HK$1 m out of the HK$8 m, ie 13% of the assets. This should also be seen against the background that W’s then disclosed net current assets of about HK$11 m and H’s of about HKD14,000. In such circumstances, there being no proper explanation as to the basis of her offer of HK$1 m, which was further to be paid over 12 months, it was not unreasonable for H to reject W’s offer in her 2^nd Calderbank Letter. I also note that there was no mention by W in her 2^nd Calderbank Letter as to what her estimated costs would be if the matter were to proceed to trial. H was under legal aid, but W was not and I would have thought it would be helpful for H to know what her costs might be if the matter were to proceed to trial and that such costs might have to be deducted from his award.”

19.  W’s “without prejudice save as to costs” offer dated 15 July 2014 falls short of the requirements referred to in KWC v LYY, supra.  Additionally, in fact there is a large difference between the without prejudice offer of HKD60,000 and HKD15,000 + HKD35,000 per month.  It follows that I agree with H that W’s “without prejudice save as to costs offer” dated 15 July 2014 does not assist her.

20.  In view of that the amount awarded is well over his offer, neither H’s without prejudice nor open offer of HKD12,000 assist him.

21.  All in all, 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 by and large W is the successful party, 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 whether a party has succeeded on part of his case, even if he has not been wholly successful, and the underlying objectives in Order 1A.  I also place particular significance on that W has overinflated her monthly budget, that despite H’s argument to the contrary, it is the court’s finding that there can be no question of H not having the ability to pay W the requested MPS, and that the two most outstanding matters for the purpose of the present MPS application are W’s reasonable needs and H’s ability to pay.  I also place particular significance on W’s conduct in her claim for legal costs provision, particularly her inordinate delay in providing a breakdown of her anticipated legal costs.  Looking at all matters in the round, I regard it is reasonable and just to make the order that H shall pay W half of the costs of the MPS application including all reserved costs with certificate for counsel’s attendance, to be taxed if not agreed.

22.  During the hearing of this application, I told the parties that I was minded to have the question of costs of this application to be disposed on the papers.  Second though about this, I make the order that there be a costs order nisi that W shall pay H half of the costs of this application with certificate for counsel’s attendance, to be taxed if not agreed.  This costs order nisi becomes absolute 14 days after the handing down of the Ruling unless a party has applied to the court for varying the order.