Hsyc v. Cltk

FCMC 11141/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11141 OF 2013

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Coram: Her Honour Judge Sharon D. Melloy in Chambers (Not open to public)

Date of written submissions on costs: 8, 9 and 10 March 2017

Adjourned hearing: 2 June 2017

Date of Ruling: 28 July 2017

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RULING
(Costs)

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Introduction

1.I am now asked to determine the issue of costs following a preliminary issues hearing where ultimately I came down in favour of the Interveners. In my preliminary issue judgment of the 9 February 2017 I said as follows when it came to the issue of costs:

Costs 

34. As stated above I have expressed my concern about costs on several occasions and in particular the potential effect that a costs order might have on the eventual outcome of this case. There have also been issues with respect to the late production of documents etc. In such circumstances I will in the first instance reserve the issue of costs for argument. Both sides are invited to file and exchange a written submission on costs within the next 28 days. It is the court’s intention to then try to deal with this matter on paper only without the need for a further hearing on the issue. In addition, there shall be a further First Appointment hearing on the 13 April 2017 at 10:30 am. Both parties do personally attend that hearing. Any further applications, restored or otherwise shall also be fixed in the first instance for directions on that date.

2.Both the Petitioner and Interveners’ filed substantive submissions on costs on the 8 and 9 March respectively. In addition, the Interveners sought to file a written submission in Reply under cover of a letter dated the 10 March 2017, without in the first instance seeking leave or alternatively issuing a summons in relation to the same. In addition, the husband filed a short submission on costs in Chinese. There was then a short delay whilst that document was translated.

3.On the 22 March 2017 the matter returned to court as the wife had issued a summons for a further legal costs contribution from the husband. The lawyers for the Interveners did not attend that hearing. However, at that hearing the wife’s lawyers sought to make submissions with respect to the issue of costs and in particular to the Interveners Reply submission. They said as follows in their written note:

8.   The Reply should be disallowed for the following reasons:-

i. There was no leave from the Court;

ii. Nothing raised in the reply submissions was of substantial importance to the Interveners’ arguments on costs;

iii. The Reply incurred further unnecessary costs for all parties, and most importantly for W, who already does not receive any legal costs contribution from the non-paying H despite having being Ordered to pay such contribution in multiple Court Orders and repeated reminders from W, her lawyers and even the Court itself; and

iv. The Reply yet again demonstrates the Interveners’ attitude and conduct throughout the case – they did and will keep filing documents without leave from the Court.

4.Consequently, the issue of costs was then adjourned until the 2 June 2017 in order to allow the Interveners to be properly represented and to make whatever representations they deemed appropriate with respect to the Reply submission and generally.

5.On the 9 May 2017 the court received a further letter from the Intervener’s solicitors which stated inter alia as follows:

Recently, there has been discussion between Counsel for the Petitioner and the Interveners with regard to the upcoming hearing.  The Interveners and the Petitioner agreed that their positions on costs have already been set out in their respective written submissions.  So unless there is further assistance to the Court, the parties agreed to invite the Court to hand down her judgment and the hearing on 2 June 2017 be vacated so as to save time and costs.

I was not addressed further, either in writing or otherwise on the issue of the Reply submission. It is of note that it was very short and written it seems to me with a view to simply assisting the court. For the avoidance of doubt therefore leave is given retrospectively for that document to be filed.   

The issue

6.At the end of the day the Intervener’s were entirely successful. My findings can be found at paragraph 32 where I said as follows:

32.   On a balance of probabilities therefore I accept that the husband and F [the 2^nd Intervener] are holding the entire beneficial interest of Factory 5B on trust for F. For the avoidance of doubt I accept that Factory 5B is not beneficially owned by the husband and that it is not available for distribution between husband and wife in the current matrimonial proceedings.  

33.   Given that I am able to come to this conclusion by examining the whole history of the ownership of the property holistically since its purchase to date and by reference in particular to F’s and the husband’s conduct in relation to it, there is no need for me to look to presumptions or to consider whether or not that this is indicative of a resulting trust or a common intention constructive trust.

7.Consequently, the Intervener’s now seek their costs of the entire proceedings, including their summons of the 24 October 2016 when they sought retrospective leave to file a further affidavit which dealt with issue pertaining to discovery and the late production of documents.

8.In contrast, notwithstanding the fact that she has been entirely unsuccessful the wife seeks her costs on an indemnity basis. She does so because in the words of counsel in her written submission on costs:

5. This circumstances which lead to these proceedings has been most unfortunate for W, as the entire preliminary issue trial may have been avoided from the outset if Interveners had given proper, full and frank disclosure; and if W was given the chance to fully assess the evidence.

6. To put it more simply, W says that but for:

(1) H’s and the Intervener’s poor conduct in discovery, she would not have to take discovery actions;

(2) H’s and the Interveners’ vigorous resistance to discovery, the trial would not have been unnecessarily and unreasonably prolonged.

Such conduct has caused a significant increase in the length and costs of the proceedings and costs should be awarded to W on an indemnity basis.

9.In answer to this complaint it is both the husband and interveners’ case that their position has been consistent throughout in that they have continually stated that Factory 5B belongs to the 2^nd Intervener i.e. the husband’s sister. The husband says that this was done from the beginning. In his closing submission dated the 10 March 2017 he stated as follows:

1. In relation to the dispute about the title to the 5B factory, I have stated early on in the Form E dated November 2013 that the down payment for the 5B factory was made by my elder sister.

2. In the Answer to the Petitioner’s Questionnaire on Respondent’s Form E dated January 2014, I have declared that I have no beneficial interest in the 5B factory.  I have also clearly stated in the same Answer that the mortgage payments of the 5B factory were debited from a joint account of me and my elder sister, and the money in the said joint account came from X.  The passbook(s) of the said joint account was/were disclosed to the other party along with my Answer to the Petitioner’s 2^nd Questionnaire on the Respondent’s Answers back in April 2014.  Anyway, I have stated early on that I only held the title to the 5B factory on behalf of (the owner).

3. Since I am not the actual owner of the 5B factory nor a director or shareholder of X, I do not have any audit report or accounts (one homophone) of X.  As to the passbook(s) of the joint account from which the 5B factory mortgage payments were made, I provided what I had to the petitioner as per her request in the stage of answering the petitioner’s Questionnaire.

4. I have stated to the court and the other party early on that I have no interest in the 5B factory and said the same when (I) testified in court.

10.Similarly the Interveners state that they set out their position early on and have not reneged on that. I have been taken to a without prejudice later dated the 26 March 2015 in which the interveners set out their case inter alia with respect to Factory 5B. It seems that documentary evidence in support was attached. It is not clear to me why this letter was written on a without prejudice basis, but it any event is true that at the end of the day I accepted what was said in that letter.

Background

11.I have set out the background to this case in my first judgment of the 2 April 2014, which I then repeated in the judgement of the 9 February 2017. I do not intend to repeat the same here. Reference can be made to those judgments as necessary.

The court’s criticisms

12.It is of note that at various stages of the proceedings I have been critical of all of the parties involved in these proceedings. I was critical of the husband early on, for what appeared to be his de minimalist approach to discovery. However, as the case progressed and given his answers to further rounds of questionnaires, this initial criticism abated. I then became concerned at what appeared to be the stance of the wife and her requests for further discovery and her inability to define exactly what it was that she sought to further discover. I was also at times critical of the Interveners and their failure to provide additional documents in a timely manner. Consequently, I urged the parties on several occasions to try to settle matters. It seems that my entreaties fell on deaf ears. I should also add that whereas I was critical of the Interveners and to the way in which they initially conducted the preliminary issues trial and by their attempts to introduce evidence late, I also accept that some criticism must lay at the wife’s door. I agree as pointed out by counsel for the Interveners, that she did try to broaden the scope of the trial and to introduce issues that had not been pleaded by her and which were ultimately found to be irrelevant to the only issue that I had to determine namely who were the beneficial owners of factory 5B.

Discovery

13.Counsel for the wife sets out a chronology of events in their written submission with respect to discovery and the trial which highlights the difficulties from their perspective. It is of note that the without prejudice letter from the interveners was received about 6 months before this chronology begins. 

Chronology of Events

	Event	Note
5 Nov 2015	1st PTR & Contribution to Legal Costs hearing	·   W’s counsel notified the Court that the Interveners refused to disclose relevant audited reports of X ·   H & Interveners’ counsel said that no request was made for such documents ·   Judge made comment that such documents could be produced seeing that it was a family company and H & Interveners’ should produce them[1] ·   W’s counsel made position clear that documents were required especially regarding G[2]
9 Nov 2015	Letter from W’s lawyers to H & Interveners’ lawyers	·   W’s lawyers requested for relevant audited reports and bank statements
23 Nov 2015	Letter from W’s lawyers to H & Interveners’ lawyers	·   To follow up on the documents requested by letter dated 5 Nov 2015
9 Dec 2015	Letter from H & Interveners’ lawyers to W’s lawyers	·   H & Interveners’ lawyers stated that they did not see the need to disclose the documents W’s lawyers requested ·   Ms CCC (“I2”) was making enquiries with G Ltd, the L Company, for relevant information ·   No reference was made to any bearer shares in X
27 Jan 2016	2nd PTR
19 April 2016	Day 1 of Preliminary Issue Trial	AM: ·   Late application of supplemental witness statement from I2 ·   Interveners’ Opening & discussion between Counsels and the Court on potential conflict(s) of interest[3] ·   H was now acting in person for the trial and only Interveners were left with legal representation PM: ·   Court adjourned for Interveners to obtain bearer shares of G Ltd and for X to pass a special board resolution to prevent it from launching potential separate claim(s) as against Factory 5B
20 April 2016	Day 2 of Preliminary Issue Trial	·   Judge unwell and Court adjourned
21 April 2016	Day 3 of Preliminary Issue Trial	AM: ·   Examination in Chief (“EIC”) of I2 in her personal capacity and also as representative of X ·   Judge requested for originals of the “journal adjustments” from X as I2 did not produce them PM: ·   Cross-examination (“XXN”) of I2 ·   First time I2 mentioned a re-mortgage of Factory 5B in 2007 ·   W’s counsel raised the issue of not being able to cross reference the journal adjustments with audited reports from X because the relevant audited reports were not provided to W
22 April 2016	Day 4 of Preliminary Issue Trial	AM: ·   Cont’d XXN of I2 ·   Judge commented on lack of evidence from Interveners to substantiate their claim[4] ·   Interveners’ Counsel attempted to introduce X’s Audited Reports for the years 2004 – 2010 as new evidence right before lunch[5] PM: ·   Discussion of whether X’s Audited Reports and Journal Adjustments should be allowed[6] ·   Interveners’ Counsel requested special leave to obtain instructions from I2 who was still in witness box ·   XXN of I2 continued ·   Interveners’ counsel confirmed in open court that they had the audited reports long before the trial started and did not provide them to W’s legal team despite repeated requests[7] ·   Case went part-heard until 1-3 Nov 2016
29 April 2016	Letter from W’s lawyers to H & Interveners’ lawyers	·   W’s lawyers requested that the further disclosure by Interveners be made clear and as soon as possible
13 June 2016	First Appointment & return date for Inter-Partes Summonses	·   W had taken out several summonses, one of which was for specific discovery of Interveners’ production of relevant documents ·   Summonses were adjourned sine die with liberty to restore, whilst Interveners’ counsel said they will disclose further documents ·   W’s counsel yet again clearly stated the position that W will invite the court to draw adverse inference due to lack of documents
27 June 2016	W’s lawyers received X’s Audited Reports for the years 2004 – 2013 and director’s loans slips	·   Again, there was no complete set of journal adjustments for W’s cross-reference nor the help of forensic accountants
19 October 2016	W’s lawyers received I2’s bank account statements for Dec 2002 to Mar 2003	·   Shortly before the preliminary trial resumed, I2 produced these bank statements and claimed that she “suddenly found” these bank statements as she was cleaning her apartment
25 October 2016	W’s lawyers received H’s bank statements and photographs of X’s office
1 Nov 2016	Day 5 of Preliminary Issue Trial (part heard)	AM: ·   Housekeeping matters and late application of I2’s 2nd and 3rd Affirmations PM: ·   Re-opened EIC and then XXN of I2 on new evidence
2 Nov 2016	Day 6 of Preliminary Issue Trial (part heard)	AM: ·   Re-XN of I 2 ·   EIC and XXN of H PM: ·   EIC and XXN of Wife

14.In answer to this criticism counsel for the interveners says this in his Reply submission of the 10 March:

8.   Seventh, as to the discovery of X’s audited reports from 2004 onwards, C [the wife] never provided a legitimate ground for their production.  The relevance of these documents is not known.  The learned Judge also did not specifically refer to these audited reports in her Judgment.

The issues 

Is this a case where indemnity costs principles are engaged?

And should an indemnity costs order be made in the circumstances of this case?

Should costs follow the event? Or should an alternative costs order be made?    

Legal Principles

15.Reference is made by both sides to Order 62 and to the leading case In re Eligindata Ltd (No 2) [1992] 1 WLR 1207 which states 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.”

16.Given that the wife seeks costs on an indemnity basis (which I accept is an extreme position to take given the circumstances) reference can also be made to an unreported family case namely LYE and CWW and HWL, FCMC 14787 of 2002, 6 May 2005, which has been relied upon by this court in the past. In that case HH Judge Bebe Chu (as she then was) sets out the legal principles relating to indemnity costs as follows:

LEGAL PRINCIPLES

3. According to Rule 3 of the Matrimonial Causes Rules, the Rules of the High Court (RHC) shall apply with the necessary modifications to the commencement of matrimonial proceedings in, and to the practice and procedure in matrimonial proceedings pending in the Court of First Instance or in the District Court.

4. Rule 91A of the Matrimonial Causes Rules provides that where the costs of an incidental to any matrimonial proceedings are directed to be taxed, R.H.C. Order 62 shall have effect in relation to the costs of proceedings in the Court of First Instance, and R.D.C. Order 62 shall have effect in relation to the costs of proceedings in the District Court.

5. Order 62 Rule 28(3) in both R.D.C. and in R.H.C. provides that the Court in awarding costs payable to one party by another may in any case in which it thinks fit to do so order or direct that the costs shall be taxed on the common fund basis or on the indemnity basis.

6. Any order for costs is in the discretion of the Court.  (see Headnote of Re Engindata Ltd (No. 2) 1993 1 All ER 232).

7. Section 53 of District Court Ordinance Cap. 336 (equivalent to Section 52A of High Court Ordinance Cap. 4) provides that the Court shall have full power to determine by whom and to what extent the costs are to be paid.  See also Hong Kong Civil Procedure, 62/2/5:-

“The Court of Appeal in Choy Yee Chun (The Representative of the state of Chan Pui Yiu) v. Bond Star Development Ltd [1997] H.K.L.R.D. 1327, CA reviewed the cases and summarised the law as follows. A taxation of the successful party’s costs on an indemnity basis could properly be ordered where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner. Any proceedings instituted or prosecuted in such circumstances as to constitute an affront to the court could properly be the subject of a direction for the taxation of the successful party’s cost on the indemnity basis. However, the circumstances in which an indemnity award might properly be made were not restricted to circumstances beyond the requirement that taxation on an indemnity basis must be “appropriate”. The principle for the award of an order of costs on an indemnity basis applied equally to those who not only instituted proceedings but who defended them. If a plaintiff had been forced to institute proceedings by the defendant whose conduct had been not only hostile in the normal litigious sense, but oppressive and with base ulterior motive, and if the pursuit of a defence constituted conduct which was part of an oppressive game plan, then invocation of the power to award costs on an indemnity basis might well be justified”.

HH Judge Chu continued

8. I have been referred by the Petitioner’s solicitor, Mr. Ko, to the case of Re Tang Hong Yeun Andy HCB 19585 OF 2003 (at paragraph 18) quoting Choy Yee Chun (The Representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd. [1997] H.K.L.R.D. 1327 CA, where it was held that the discretion was not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”.  See also Hong Kong Civil Procedure, 62/App/12.

9. I have also been referred to the Judgment of the Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Limited.  FACV No. 14A of 2003, at paragraphs 12, 14, 15, 18 and 23 where the Court of Final Appeal has made the following comments:-

(a) The Court has a broad discretion to determine how costs shall be paid and whether indemnity costs should be ordered (paragraph 12).

(b) The successive party should show, in order to obtain an order for costs on an indemnity basis, that the case has some “special or unusual feature” (paragraph 15).

(c) In relation to the award of costs generally, it has been accepted, as Chu J pointed out, that while
“the ground [upon which costs are awarded] must be connected with the case. This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further”.

There is no reason why this statement does not apply with equal force to the exercise of the discretion to award indemnity costs (paragraph 18).

(d) Other factors, such as the reasonableness of the conduct of the parties, may need to be taken into account (paragraph 23).

Discussion

Is this a case where indemnity costs principles are engaged?

And should an indemnity costs order be made in the circumstances of this case?

17.For the avoidance of doubt it seems to me that this is not a case where indemnity cost principles can properly be engaged. It is true that there was an issue concerning discovery. But there were also other issues as have been identified in paragraph 11 above. Not one party can be said to be blameless for the way in which this case has developed. Certainly, in my view, it cannot be said that the stance taken by the Interveners was:

“scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or [was conducted] in an oppressive manner”.

18.Nor was there any special or unusual feature here which would lead one to consider making an order for indemnity costs against a successful party – of itself a highly unusual stance to take in any event.

Should costs follow the event? Or should an alternative costs order be made?    

19.It seems to me that the issue of costs can be divided into two halves, costs up to and including the first tranche of trial and costs thereafter.

Costs up to and including the first tranche of trial

20.There was an issue concerning discovery that had subsisted prior to the trial and became an issue during the first tranche of trial. I was certainly of the view that the Interveners needed to produce sufficient evidence to substantiate their claim. Counsel for the Interveners points out, with the benefit of hindsight, that the information initially disclosed should have been sufficient and that I did not rely on the subsequent documents disclosed after the first tranche of trial, in my judgment. Whilst that may be correct it does not alter my initial view that the Interveners needed to produce sufficient evidence to substantiate their claim and that at the time I agreed with wife’s counsel that the Interveners needed to provide a full set of audited reports in order to cross reference the journal adjustments. I remain of the view that the wife was entitled to see those documents. It subsequently became clear that the Interveners did infact have those documents but had decided that the wife was not entitled to see them. Counsel for the Interveners then attempted to introduce audited reports from the company (i.e. the 1^st Intervener) for the period from 2004 – 10, as new evidence on day four of the trial. This was far from satisfactory and led in part to the matter going part heard. (Although by that stage it was clear that the original estimate of four days was not going to be sufficient in any event especially given the fact that I was unwell and absent from work for one day – which was completely unforeseen and the fault of no one).

21.In such circumstances it seems to me that notwithstanding the fact that the Interveners are the winning party overall that it would be more appropriate to make an order that there be no order as to costs up to and including the first tranche of the trial from the 19 – 22 April 2016. I accept that by not producing the audited accounts in a timely manner that there was a significant increase in the length of the trial and the costs associated with that.

22.Thereafter I accept that the more appropriate order is that costs should follow the event in the normal way and that this should include the Interveners’ summons of the 24 October 2016.

Order

23.Thus I shall make an order as follows – there shall be no order as to costs with respect to the preliminary issues trial concerning the ownership of Factory 5B up to and including the first tranche of trial from the 19 – 22 April 2016. Thereafter the Petitioner wife shall pay the Intervener’s costs on a party and party basis to be taxed if not agreed. There shall be certificate for both counsel. 

Mr Giles Surman and Ms Grace Chau instructed by Humphrey and Associates for the Petitioner

Mr Timothy Harry and Ms Miranda Li instructed by SY Wong & Co for the 1^st and 2^nd Interveners

The Respondent appeared in person