Wyl v. Wws

FCMC 17623 / 2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 17623 OF 2012

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RULING ON COSTS

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1.This is a hearing of two summons respectively taken out by the respondent husband (hereinafter called “R”) on 20 April 2015 and the petitioner wife (hereinafter called “P”) on 22 April 2015 to vary the costs order nisi given in a judgment dated 8 April 2015 (hereinafter called the “Judgment”) that was handed down after a 3-day trial on the question of ancillary relief.

2.In the paragraph 55 of the Judgment, it is ordered nisi that R is to pay 50% of P’s costs of the ancillary relief proceedings, including the reserved costs.  R applied to vary the costs order nisi such that there shall be no order as to costs.  His application is premised on two grounds: - (i) Either party should not be regarded as the successful party; and (ii) R succeeded on the issue of family assets.  On the contrary, P considered that the appropriate costs order should be that R shall pay P’s costs of the ancillary relief proceedings from 8 January 2015.  P’s application is based on a Calderbank letter dated 24 December 2014 that was open for R’s acceptance within 14 days thereof.

Legal principles

3.The court has a wide discretion as to costs.  The relevant provisions in the Rules of the High Court governing the exercise of the discretion as to costs in the present applications are Order 62 rules 3 and 5.

4.The general principles as to costs in civil proceedings were stated in In re Elgindata Ltd (No. 2) [1992] 1 WLR 1207, 1214 where Nourse LJ said as follows:-

“The principles are these. (i) Costs are in the discretion of the court. (ii) They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made. (iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs. (iv) Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs. Of these principles the first, second and fourth are expressly recognised or provided for by rules 2 (4), 3 (3) and 10 respectively. The third depends on well established practice. Moreover, the fourth implies that a successful party who neither improperly nor unreasonably raises issues or makes allegations on which he fails ought not to be ordered to pay any part of the unsuccessful party’s costs.”

5.On costs in family cases, in Gojkovic v Gojkovic (No 2) [1992] 1 All ER 267 Bulter-Sloss L.J said at 271 that:

“That starting point, in my judgment, is that costs prima facie follow the event (see per Cumming-Bruce L.J. in Singer (formerly Sharegin) v Sharegin [1984] F.L.R. 114, 199) but may be displaced much more easily than, and in circumstances which would not apply, in other Divisions of the High Court. One important example is, as the judge pointed out, that it is unusual to order costs in children cases. In applications for financial relief the applicant (usually the wife) has to make the application in order to obtain an order by consent; and if money is available and in the absence of special circumstances, such an agreement would usually include the applicant’s costs of the application. If the application is contested and the applicant succeeds, in practice in the Divorce Registries around the country where most ancillary relief applications are tried, if there is money available and no special factors, the applicant spouse is prima facie entitled to, and likely to obtain, an order for costs against the respondent. The behaviour of one party, such as in material non-disclosure of documents, will be a material factor in the exercise of the court’s discretion in making a decision as to who pays the costs.”

6.Further in the same page, Bulter-Sloss L.J. said that:

“There is however a minority of case, of which the present appeal is an example, where the assets are substantial and an order for costs can (if appropriate) be made. In such cases the parties are likely to negotiate, and such negotiation, which may lead to a settlement, is much encouraged by the courts. The Calderbank offer – a letter containing an offer only revealed after the order is made – bears some resemblance to, but is not identical with, a payment into court. It takes its name from Calderbank v Calderbank [1975] 3 All ER 333, [1976] Fam 93 (a claim by a husband) in which Cairns L.J. referred to an apportionment offer in Admiralty proceedings, and said ([1973] 3 All ER 333 at 342, [1976] Fam 93 at 106): -

‘If that is not accepted no reference is made to that offer in the course of the hearing until it comes to costs, and then if the court’s apportionment is as favourable to the party who made the offer as what was offered, or more favourable to him, then costs will be awarded on the same basis as if there had been a payment in. I see no reason why some similar practice should not be adopted in relation to such matrimonial proceedings in relation to finances as we have been concerned with.’

7.Bulter-Sloss went on and said at 272 that:

“It is therefore clear that Calderbank offers require to have teeth in order for them to be effective. This is recognised by the requirement in Ord. 62, r. 9 (and the equivalent Ord. 11, r. 10 of the County Court Rules 1981 (S.I. 1981 No. 1687 (L.20)), as amended, for the court to take account of Calderbank offers, and by analogy open offers, in exercising its discretion as to costs. There are certain preconditions. Both parties must make full and frank disclosure of all relevant assets, and put their cards on the table. Thereafter the respondent to an application must make a serious offer worthy of consideration. If he does so, then it is incumbent on the applicant to accept or reject the offer and, if the latter, to make her / his position clear and indicate in figures what she / he is asking for (a counter-offer). It is incumbent on both parties to negotiate if possible and at least to make the attempt to settle the case. This can be done either by open offers or by Calderbank offers, both adopted by the husband in this case. It is a matter for the parties which procedure they prefer. There is a very wide discretion in the court in awarding costs, and as Ormrod L.J. said in McDonnell v McDonnell [1977] 1 W.L.R. 34, 38, the Calderbank offer should influence but not govern the exercise of discretion.

8.In L v C, CACV No. 169 of 2006 (19 March 2008), Yuen JA at para 23 summarized the principles relating to costs in ancillary relief cases as follows:

“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:

(1) in family cases, as in others, costs should normally follow the event;

(2) however because of the special dynamics of family litigation (e.g. where the case involved children, or where financial resources were in adequate to meet the needs of both parties, etc.), the discretion may be broader than in civil matter matters generally (Gojkovic v Gojkovic [1991] 2 FLR 233, F v F (No.2) [2003] 3 HKLRD 977);

(3) the court also retains a discretion to deprive successful litigants of costs under the Elgindata principles (In re Elgindata Ltd (Nos 2) [1992] 1 WLR 1207);

(4)     where a litigant succeeds on appeal but only on a new point, the court can deprive him of the costs below (Farquharson v Morgan [1894] 1 QB 552) or even order him to pay those costs (Yip Lai Fong v Sin Tung Hing [2004] 3 HKLRD 230), and the court can deprive him of the costs of appeal (Chard v Jervis (1882) 9 QBD 178).”

9.I respectfully accept that the guiding principles with regard to the exercise of discretion on costs in family cases are as stated in the passages quoted above.

Discussion

10.Bearing the above principles in mind, I shall approach the present applications in the following steps:

(1)    Ask whether any parties can be regarded as the successful party, in terms of the starting point referred to in Gojkovic v Gojkovic;

(2)    Identify the issues in dispute at trial and consider their impact on the question of costs;

(3)    Consider P’s Calderbank offer;

(4)    Consider the provisions of Order 62 rules 3 and 5 and their impact on the question of costs;

(5)    Exercise the court’s wide discretion by taking into consideration the entire circumstances and applying the rules and judicial guidance.

Whether any parties can be regarded as the successful party

11.R’s application is to vary the costs order such that there shall be no order as to costs.  The first ground for the application is R’s contention that not either party can be regarded as the successful party, and duly the court should make no order as to costs on the basis of “honours even”.  R cited HK v BD, CACV 252/2009 (15 October 2010) as authority in support of the “honours even” approach.

12.In the present case, the only substantial family assets are two properties known as Princess Mansion and Ko Chun Court, both were jointly held by the parties.  At the pre-trial review hearing dated 13 June 2014, the parties agreed the value of Princess Mansion and Ko Chun Court at HKD3.8M and HKD2.84M (secondary market value) respectively.  At the trial, the parties agreed to update the value of Princess Mansion and Ko Chun Court to HKD4M and HKD3.1M respectively, which makes the total value of the family assets to HKD7.1M. 

13.P’s offer was as follows (see paragraph 17 of the Judgment):

(i) R would transfer his interests in Princess Mansion as well as Ko Chun Court to P;

(ii) P would pay R a lump sum of HKD1,328,000;

(iii) The net effect was: (a) P would have HKD7.1M – 1.328M = HKD5.772M i.e. 81.3% of the family assets; (b) R would have HKD1.328M, i.e. 18.7% of the family assets; and

(iv) R would pay P’s costs including all reserved costs. 

14.R’s offer was as follows (see paragraph 30 of the Judgment):

(i) P could opt to keep Princess Mansion or Ko Chun Court;

(ii) If her choice was Ko Chun Court, R would transfer his interests in Ko Chun Court to her and P would transfer her interests in Princess Mansion to R;

(iii) The net effect of the above (ii) was: (a) P would have HKD3.1M i.e. 43.66% of the family assets; (b) R would have HKD4M, i.e. 56.34% of the family assets;

(iv) If she chose Princess Mansion, R would transfer his interests in Princess Mansion to her and P would transfer her interests in Ko Chun Court to R and at the same time would pay her a lump sum of HKD300,000;

(v) The net effect of the above (iv) was: (a) P would have HKD4.3M (HKD4M + HKD300,000) i.e. 60.6% of the family assets; (b) R would have HKD2.8M (HKD3.1M – HKD300,000) i.e. 39.4% of the family assets; and

(vi) There would be no order as to costs.

15.The award granted by the court was as follows (see paragraph 52 of the Judgment):

(i) P is entitled to HKD4.923M i.e. 69.3% of the family assets;

(ii) R is entitled to HKD2.175 i.e. 30.7% of the family assets.

16.In these ancillary relief proceedings, both parties were making a substantial claim for the family assets that mainly consist of two jointly owned landed properties.  Despite that P is named as the petitioner in this suit, in my view both parties (however described) shall be construed as in the position of a claimant in substance in the ancillary relief proceedings.  It is obvious that the ancillary relief granted by the court in favour of P is far better that R’s open offer.  However, P’s open offer is also distinctly below the ancillary relief granted by the court in favour of R.  Taking an overview of the matter, I accept that it is fair to regard that neither party is successful in the present case.

Issues in dispute and their impact on the question of costs

17.R’s second ground for his application is that he succeeded on the issue of family assets.

18.P contested that under the Elgindata principle, P being the successful party should not be penalized in costs even though she had raised issues or made allegations that were not accepted by Court unless those issues or allegations had significantly increased the length or costs of proceedings, and nothing of that sort had happened, referring to the “well established practice” on which Nourse LJ based his third principle (see paragraph 4 in the above).

19.Contrary to P’s assertion that she was the successful party, I have held in the above that there is no successful party in the present case.  Nevertheless, about the legal principles in this regard, I take notice that in Pfeiffer GmbH v Cheung Hay Kit trading as Sun Wai Construction, CACV 245/2013 (29 October 2014) Kwan JA stated at para 7-9 that:

7. 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(2), 5 and 7, which contain amendments introduced as a result of the Civil Justice Reform.  The impact of these amendments is similar to the effect of the Civil Procedure Rules as commented upon by Lord Woolf MR in AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507 at 1522H to 1523B and 1523H, which have been adopted by Cheung JA in giving the judgment of the court in Wong Kam Tong v Tin Shing Court, Yuen Long (IO) (No 2) [2012] 2 HKLRD 1128 at §§ 11 to 13.

8. The relevant comments of Lord Woolf read as follows:

“I draw attention to the new Rules because, while they make clear that the general rule remains, that the successful party will normally be entitled to costs, they at the same time indicate the wide range of considerations which will result in the court making different orders as to costs. From 26 April 1999 the “follow the event principle” will still play a significant role, but it will be a starting point from which a court can readily depart. This is also the position prior to the new Rules coming into force. The most significant change of emphasis of the new Rules is to require courts to be more ready to make separate orders which reflect the outcome of different issues. In doing this the new Rules are reflecting a change of practice which has already started. It is now clear that too robust an application of the “follow the event principle” encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take. If you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your effort to do so.”

“The “well established practice” on which Nourse L.J. based his third principle is, as I have already indicated, less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed.”

9. After quoting the above comments, Cheung JA went on to say in § 13 in Wong Kam tong:

“One can see immediately that Hong Kong has adopted a similar approach under O.62 r.3(2) in terms of the “consideration whether a party has succeeded on part of the case, even if he has not been wholly successful, and conduct.  In our view, one can say with equal confidence that after 2 April 2009, while the “follow the event principle” will still play a significant role in Hong Kong, it will nonetheless only be a starting point from which the Court can depart, the rationale being that a mechanistic adoption of the “follow the event principle” may result in parties incurring unnecessary costs in civil litigation.  We do not consider the provisions of O.62 r.7(1) (which enable the Court to disallow a party’s costs or order it to which is improper or unnecessary) will by itself curtail the power of the Court under the new regime.  The amendment to r.7(2) had specifically added the new (aa), namely, regard to the underlying objectives set out in O.1A, r.1.  In our view O.62 r.7 enable the Court to address the costs issue when there are improper or unnecessary acts or omissions but it does not confine the Court’s power only to such situations”.

20.I respectfully accept that the legal principles stated by Cheung JA in the above passages represent the correct approach. 

21.The determination of ancillary relief in the present case can be reduced to two major issues, namely:

(i) the size of family assets (i.e. issue (i) & (iii) identified in paragraph 35 of the Judgment); and

(ii) contribution respectively made by the parties (i.e. issue (ii) identified in paragraph 35 of the Judgment).

22.As stated in P’s offer dated 24 December 2014, P took the stance that only 21% of Ko Chun Court should be counted as family assets.  It was based on the misapplication of WSW v YKK, CACV 388/2007 (30 June 2008) which was held to be distinguishable to the present case (see paragraph 42 of the Judgment)

23.I accept R’s contention that the parties’ disputes on the size of family assets that include but not limited to the parties’ disputes on Ko Chun Court are of importance.  It is trite that a proper identification of the family assets is in many cases a precondition to a pre-trial settlement.  In the present case, it is clear that P’s stance on the size of the family assets (which is adjudged to be wrong) is one of the fundamental barriers that stood in the way of settlement, forcing the parties to trial.  I agree that R’s success on the issue of family assets is important to the court’s determination on costs.

24.On the other hand, the court should not lose sight of that R lost most of his contention about contributions made by him to the welfare of the family, including contribution allegedly made by him by looking after the home or caring for the family.

P’s Calderbank offer

25.P’s foremost ground for her application is that her Calderbank offer beats the ancillary relief granted by the court in favour of R.

26.Under Order 62 rule 5(1)(d), the court may take into account a “without prejudice save as to costs” offer.

27.P through solicitors sent out a “without prejudice save as to costs” letter on 24 December 2014.  In the said letter, it was said that P considered only 21% of Ko Chun Court should be treated as family asset because of the total money spent on acquiring Ko Chun Court i.e. down-payment of HKD48,740 + mortgage repayments of 160 months X HKD8,324/month = HKD1,380,580, only HKD48,740 + 29 months X HKD8,324/month = HKD290,136 (i.e. 21% of HKD1,380,580) was incurred before the separation of the parties, and that as R did not provide any maintenance to the family after the separation of the parties, nor did he ever show any care and concern to them, R should be entitled to less than 30% of the family assets.

28.Notwithstanding that she believed that R was only entitled to HKD1,227,040.8 ( i.e. (HKD3.8M + HKD290,136) X 30%), P made the settlement proposal that:

(1) R would transfer his interests in Ko Chun Court and Prince Mansion to P, and the costs of the transfer were to be shared equally between the parties;

(2) P would pay R a lump sum of HKD1,992,000;

(3) There would be no order as to costs.

29.By the Judgment, R is entitled to HKD2.175M.  On the face value of it, there is a difference between the P’s Calderbank offer and the Judgment of HKD2,175,000 – HKD1,992,000 = HKD183,000.

30.P’s Calderbank offer was for each party to bear own costs.  The court now orders R to pay ½ of P’s costs.  As stated in P’s costs estimate filed on 24 February 2015, P’s costs stood at a total of HKD331,000.  Half of the said sum would be HKD165,500.

31.The court’s order under the Judgment is for the Princess Mansion to be sold.  There will be expenses such as estate agency fee, solicitors’ costs etc. to be incurred.  P contended that the difference between HKD183,000 and HKD165,500 = HKD17,500 can easily be absorbed by the expenses to be incurred.  Therefore, P suggested that her Calderbank offer is not less favourable than R’s entitlement granted by the court.

32.However, P does not take into consideration the fact that P’s costs, if not agreed, are subject to taxation.  It is difficult, if not impossible, for the purpose of the present application to foretell how much eventually R is required to pay P for her costs.

33.At the same time, apparently P mistakenly presumes that Princess Mansion will be sold for not more than HKD4 million.  In the Judgment, it is ordered that Princess Mansion shall be sold with the reserved price of HKD4 million.  That is to say, it is to be sold for not less than HKD4 million.  54.5% of the net profits will be paid to R.  So, it is probable that R will receive more than HKD2,175,000.

34.Taking the evidence that I now have in the round, I am not persuaded that P has proved on the balance of probability that her Calderbank offer dated 24 December 2014 beats the Judgment.

Parties’ conduct

35.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 is 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, exaggerates his claim; and (d) conduct before, as well as during, the proceedings.

36.In relation to Order 62 rule 5(2)(a) to (c), I have made a discussion on: - (i) whether any party can be regarded as the successful party, and (ii) the issues in dispute at trial and their impact on the question of costs in the above.  As to Order 62 rule 5(2)(d), P blamed R for his failure in making a response to her Calderbank offer.  She contended that the court should discourage litigants from refusing to negotiate by considering costs sanction.

37.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 (now Bebe Chu J) 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.”

38.In the present case, P has set out the basis of her offer.  In the letter dated 24 December 2014, P explained her calculation of the family assets and gave reason for her view on R’s entitlement.  In my view, R cannot gainsay that P’s Calderbank offer is a serious offer worthy of consideration.  It follows that it is incumbent on R to make a response: Gojkovic v Gojkovic.

39.It is noted that my ruling that P’s Calderbank offer did not beat the Judgment does not necessarily discharge R from the responsibility to engage in settlement talk.  Despite that the husband in the action’s Calderbank offer did not beat the judgment, the wife in the action’s obligation to respond to his Calderbank offer and make an effort explore a settlement was reiterated in EJB v CJB [2011] 5 HKLRD 510 (CA), 534:

“As I understand it, the approach today is that, unless the parties are of the reasonable view that they do not have sufficient information available to them to enter into negotiations, they are under an obligation to explore settlement and to do so in a constructive manner. Unless attempts are made to settle, potentially avoidable litigation becomes inevitable. In family litigation there are two almost inevitable results. First, ill will between the parties is heightened. If there are children of the marriage this can have profoundly deleterious consequences. Second, except in big money cases – and this was not a big money case – there will be significant drain on the joint matrimonial estate, both parties directly or indirectly, being the losers.”

40.Failure to engage in settlement talk initiated by offers of the opposing party was held in KEWS v NCHC, CACV 75/2011 (6 March 2012) as the factor that caused the original 100% costs in favour of the wife in the action to be reduced by 15% (see para 10 & 11 at p 5-6).

41.Not only did R make no response to P’s Calderbank offer.  Worse still, he was late in the service of his open offer dated 26 February 2015, which said service was held up until the 1^st day of the trial i.e. 3 March 2015.  No satisfactory explanation was given as to why he did so.  As a result, the beginning of the trial was delayed to give time to P to properly consider R’s open offer.

42.I accept that the court should consider costs sanctions for R’s failure to respond to P’s Calderbank offer.

43.Further on the subject of the parties’ conduct, however, R took notice that after her Calderbank offer was rejected P had sought a greater share of the family assets by reverting to making an uncharitable open offer (see paragraph 13 in the above) that was eventually rejected by the court.  He contended that therefore much of the costs of the trial should lay with P.

44.P accepted that her subsequent open offer is unarguably a fact that the court might take into consideration.

Conclusion

45.Although all circumstances need to be taken into account, it is plain that none of the parties can be regarded as a successful party.  As a starting point, I shall take a neutral position as to the question of the parties’ costs.

46.I take notice that R is not wholly successful in his argument on contribution.  Additionally, P vigorously contested R’s case on the issue of the size of the family assets that includes but not limited to the parties’ disputes on Ko Chun Court at the trial and lost the argument.  It is also pertinent to take notice that much of the hearing time was spent on these two major disputed issues between the parties.  It is clear that they were each successful on one, but not on the other.  Again, it suggests that the net effect should be that there would be no order as to costs.

47.On top of the above, the court may take into account R’s failure to respond to P’s Calderbank offer.  To this end, applying KEWS v NCHC, P would have a moderate uplift of her costs entitlement.  However, the court is also entitled to similarly take a dim view on the fact that P had reverted to seeking a greater share of the family assets after the Calderbank offer was rejected and therefore make a reduction of P’s costs entitlement.  I take notice that P’s Calderbank offer dated 24 December 2014 was open for acceptance for only 14 days from the date thereof.  Once again, it appears that it is not unfair to order that each party shall bear own costs after having taking into account P’s Calderbank offer and the parties’ conduct of the proceedings.

48.I remind myself of the provisions of Order 62 rules 3 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.  Having considered all relevant circumstances, I have come to the conclusion that the costs order nisi should be varied to the effect that there shall be no order as to costs of the ancillary relief proceedings, including reserved costs.  Accordingly, it is ordered that P’ summons dated 22 April 2015 shall be dismissed.

49.For my ruling in the above, it is ordered nisi that P shall pay R the costs of the present two applications including reserved costs, to be taxed if not agreed, with certificate for counsel’s attendance. This costs order nisi becomes absolute 14 days after the handing down of this ruling unless a party has applied to the court for varying the order.

Ms Winnie W M Chan instructed by Or & Lau, solicitors for the petitioner

Mr Alex A H Lai instructed by Edmund W H Chow & Co, solicitors for the respondent