Lp v. Lwcf

Citation No. : [2018] HKFC 2

FCMC 18105 / 2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 18105 OF 2013

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J U D G M E N T
(Ruling on Costs)

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1.This is the 5^th Intervener’s application for the costs of and incidental to the Petitioner’s withdrawal of her application under section 17 of the matrimonial Proceedings and Property Ordinance, Cap 192.

Background

2.The Petitioner (Wife) and the Respondent (Husband) were married on 1 May 1987. There are 3 children of the family who are all adults. During the marriage, the parties lived in a property in the Mid-Levels (the Former Matrimonial Home). The registered owner of this property is a company called G Ltd (G Ltd). In his Form E, the Husband claimed to be the registered holder of 1,000 shares in this company. The 2 other shares in G Ltd were held by 2 Liberian companies known as AH Inc and KH Inc. The Husband was the sole shareholder and director of the 2 Liberian companies.

3.On 18 December 2013, the Wife petitioned for divorce on the ground of unreasonable behavior. The Petition was uncontested and a Decree Nisi was granted on 21 February 2014. The only outstanding issue is that of ancillary relief. The crux of the disputes between the parties is the identification of matrimonial assets.

4.The Husband is the eldest son of a wealthy family. The 1^st to 4^th Interveners are the Husband’s siblings. The 5^th Intervener is the Husband’s mother. In the late 1970s, the Husband’s father (the Deceased) operated a business with his siblings. On 12 June 1978, Deceased made a Will (the Will). The Husband and the 5^th Intervener were appointed as the executors and trustees of the Will. The Husband and the Interveners were the beneficiaries under the Will. The estate was to be divided according to the following proportions:

(i) the Husband 5/15

(ii) the 5^th Intervener 2/15

(iii) the 1^st Intervener 1/15

(iv) the 2^nd Intervener 5/15

(v) the 3^rd Intervener 1/15

(vi) the 4^th intervener 1/15

5.The Deceased passed away on 11 July 1987. In 2008, the 1^st to 4^th Interveners commenced proceedings in the High Court intituled Probate Action No 9 of 2008 against the Respondent and the 5^th Intervener. It was their case that the Respondent has constituted himself either as a constructive trustee holding the family assets of the Deceased, or as a named executor under the Will. They alleged that the Respondent has intermeddled and gained control of the Deceased’s estate without taking out probate, and without ever rendering any accounts to the beneficiaries. The assets which were alleged to be part of the trust assets included all the shares in G Ltd. They sought an order that the estate of the Deceased be administered by the Court and an appointment of administrators and various accounts by the Husband. The 1^st to 4^th Interveners obtained an injunction against the assets under the Husband’s name in the High Court.

6.In their Defence filed in those proceedings, the Husband and the 5^th Intervener admitted that the Deceased had been extremely successful as a businessman, who during his lifetime built up a very significant fortune for the family. He structured the holding of his assets or settled them during his lifetime in such a way that he could direct the registered holders or trustees of these assets to hold them on trust or otherwise for the benefit of his family members (the Trust Assets). All the properties listed in the Statement of Claim were part of the Trust Assets (including all the shares in G Ltd). As the eldest son, the Husband was given the task of managing the Trust Assets. The Husband admitted that in the course of managing the Trust Assets, he and some of his siblings had made some unsound decisions in good faith.

7.In other words, there was no dispute amongst the Husband and the Interveners that the shares in G Ltd was part of the Trust Assets. However, it is the Wife’s case that part of the Trust Assets have been distributed and has vested in the beneficiaries. She alleged that the shares in G Ltd were part of the distribution to the Husband and that those shares are part of the Matrimonial Assets.

8.The process of discovery in both these proceedings and the High Court proceedings have been very slow and painful. There were 2 orders for discovery against the Respondent in the High Court proceedings. It is the 1^st to 4^th Interveners’ case that the Respondent has been in breach of those orders. The High Court proceedings basically came to a standstill. The Interveners were joined as parties to the present proceedings.

9.At the hearing before this Court on 17 January 2017, the Court and the Wife were informed that there were settlement negotiations between the Husband and the Interveners in relation to the High Court proceedings. The Court then ordered the Husband to give at least 14 days’ notice before any settlement agreement in respect of the Probate Action is executed. Subsequent to that hearing, the Wife was joined in the High Court proceedings by consent of all the parties.

10.On 6 July 2017, the Wife was informed by the Husband that he and the Interveners were “still negotiating on terms of settlement”. On 11 July 2017, in a letter from the 1^st to 4^th Interveners stated that “our clients…have reached an amicable settlement with the Defendants…and a settlement agreement is going to be signed within this month”.

11.By a letter dated 13 July 2017 (a week before the hearing of the Husband’s application to the High Court for payment out to fulfil the maintenance pending suit Order granted by this Court), a draft and then a finalized Deed of Family Arrangement and (the Deed) was circulated by the Husband to the Wife’s solicitors and stated that the Wife was to be “informed that the parties shall execute the Deed after the expiry of 14 days” from the date of the letter.     

12.The parties to the Deed were the Husband and all the Interveners. Under the Deed, the 5^th Intervener’s entitlement to the trust assets suddenly increased from 2/15 to 2/7. Further, there were signs from the Deed that the Husband had, unknown to the Wife, made certain dispositions. In the Husband’s Form E (where he admitted to ownership of 1,000 shares in G Ltd and the 2 shares in AH Inc and KH Inc. Contrary to those admissions, the deed provided that the 1,000 shares in G Ltd were held equally by AH Inc and KH Inc. It was unclear whether the Husband continued to be the registered holder of the shares in the 2 Liberian companies.

13.On 26 July 2017, the Wife issued a letter to the Husband and the Interveners, alleging that the Deed was a colluded effort amongst them to defeat the Wife’s claim for financial provision. The Wife’s solicitors further stated that:

“Our client hereby gives notice to your client and the 1^st to 5^th Interveners that your client is not to enter into the Deed and/or any settlement with the other parties in HCAP pending resolution of the matter by the Court or among the parties, including our client, to FCMC 18105/2013. Meanwhile, all our client’s rights are reserved.”

14.The Wife did not wait for any response from the Husband or any of the Interveners. On the following day, ie on 27 July 2017, the Wife took out a summons to apply for final and interim injunctive relief under section 17 of the Matrimonial Proceedings and property Ordinance, Cap.192 against the Husband and all the Interveners (the Section 17 Application). That summons was returnable on 24 August 2017.

15.Only paragraphs 3 and 4 of the Section 17 Application summons were directed against the Interveners (including the 5^th Intervener):

“3. In the alternative, if the Respondent has made any of the Dispositions, then the Dispositions be set aside under section 17(1)9b) of the Matrimonial Proceedings and Property Ordinance (Cap.192) and the 1^st to 5^th Intervening Parties (as the case may be) do re-transfer to the Respondent any rights, interests, claims and/or entitlement in or to the “Family Properties” he has disposed of to them;

4. Pending the re-transfer in paragraph 3 above or further Order, the 1^st to 5^th Intervening Parties (as the case may be), whether by themselves, their servants, agents or otherwise, be restrained from disposing of, transferring away or otherwise dealing with the said rights, interests, claims and or entitlement in or to the “Family Properties” he has disposed of to them;”          

16.Despite ongoing correspondence between the legal representatives of the Wife and the 1^st to 4^th Interveners in respect of other matters, there was no response from the Husband or any of the Interveners in respect of the Wife’s letter dated 26 July 2017 or the Section 17 Application. It was not until 21 August 2017 (ie 3 days before the hearing) that the 3^rd Intervener filed her 2^nd Affirmation to inform the Court and the Wife that the parties did not execute the Deed. The 3^rd Intervener also revealed to the Court and the Wife for the first time that in September 2016, the Husband had already made various disposition, including the shares in AH Inc and KH Inc (which held shares in G Ltd, the registered owner of the Former Matrimonial Home) to the 3^rd Intervener. She then offered an undertaking from the 1^st to 4^th Interveners at the end of her Affirmation.

17.The Section 17 Application came before the Court on 24 August 2017 and was resolved by way of undertakings from the 1^st to 4^th Interveners and a cross undertaking as to damages from the Wife. The terms of the undertaking from the 1^st to 4^th Interveners are as follows:

“AND UPON the 1^st, 2^nd, 3^rd and 4^th Intervening Parties’ undertaking through Counsel not to dispose of, give up, forfeit or transfer away their rights, interests, claims and/or entitlement in or to the properties transferred to them by the Respondent in anticipation of the entering into and execution of the draft Deed of Family Arrangement exhibited as Exhibit ‘LP3-3’ to the 3^rd Affidavit of (the Petitioner) herein sworn on 27 July 2017, to the extent of HK$40,000,000, pending disposal by the Court of the Petitioner’s Summons or until further order, the said undertaking shall include the property known as (address of the Former Matrimonial Home)”

18.Further, by consent, leave was granted to the Wife to withdraw her Section 17 Application against the 5^th Intervener. The costs of and occasioned by such withdrawal were reserved pending argument. By an order dated 20 September 2017, such issue of costs relating to the Section 17 Application was directed to be dealt with by paper disposal.

Applicable Legal Principles

19.Order 62, rule 3(2A) of the Rules of the High Court, Cap 4A (RHC) provides that the Court may order the costs of or incidental to any interlocutory proceedings to follow the event or make such other order as it sees fit.

20.Order 62, rule 5 RHC sets out the matters to be taken into account by the Court in exercising its discretion as to costs:

“(1) The Court in exercising its discretion as t costs shall, to such extent, if any, as may be appropriate in the circumstances take into account –

(aa) the underlying objective set out in Order 1A;

(a) Any such offer of contribution as is mentioned in Order 16, rule 10, which is brought to its attention in pursuance of a reserved right to do so;

(b) Any payment of money into court and the amount of such payment;

(c) Any written offer made which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or sanctioned offer under Order 22;

(d) The conduct of the parties;

(e) Whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(f) Any admissible offer to settle made by a party, which is drawn to the Court’s attention

(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;

(d) conduct before, as well as during, the proceedings.”

21.As a general rule, an applicant or appellant had to pay the other side’s costs if he decided to withdraw an application or appeal:  To Wai Chan Henry v Aon Services Hong Kong Ltd [2015] HKLRD 811. An applicant or claimant should consider its own situation before making an application to the Court: The Federation of Hong Kong Hotel Owners Ltd v Tang Yin Ngor HCA No 2018 of 2005, unrep 11 May 2006, Mr. Registrar C Chan.

The Arguments

22.The 5^th Intervener argued that she was given no opportunity to respond to the Wife’s letter before the Section 17 Application was issued. The purpose of a “pre-action” letter is to give the recipient a reasonable opportunity to respond and to try to resolve the matter amicably with the intended claimant before legal proceedings are commenced such that unnecessary litigation can be avoided and legal costs can be saved. It is the 5^th Intervener’s position that the letter dated 26 July 2017 does not even have the effect of a pre-action letter. She also pointed out that the Wife had failed to make reasonable enquiries before making the Section 17 Application.

23.On the other hand, the Wife denied that the 5^th Intervener had not been given sufficient opportunity to respond to the intendedSection 17 Application. She pointed out that the 5^th Intervener had all along been legally represented and that she could have informed the Wife that she would not be executing the Deed and had not received any dispositions from the Husband. Even after the Section 17 Application was taken out, he 5^th Intervener failed to inform the Wife of her position during the 4 weeks prior to the hearing. The Wife was only informed 3 days before the hearing by the 3^rd Intervener’s Affidavit that the 5^th Intervener was not in receipt of any Trust Assets. She alleged that by that stage, there was insufficient time for her to consider her position.

Conclusion

24.I agree with the 5^th Intervener’s submission that the letter dated 26 July 2017 did not constitute a pre-action letter at all. The Wife only demanded that the Husband and Interveners not to execute the Deed and expressly reserved her rights. There was no mention of any action to be taken. It was wholly understandable that the Wife became concerned upon receipt of the Deed. Her suspicions that the Husband had made dispositions of the shares in G Ltd, AH Inc and KH Inc were also proved to be correct. However, she made absolutely no enquiries as to whether there were any dispositions and if so, who were in receipt of the assets before coming to Court.I agree with the 5^th Intervener that the Wife had the carriage of the Section 17 Application. It was up to her to consider her position before coming to Court. In those circumstances, I see no reason why the 5^th Intervener should not be compensated by costs.

Order

25.The Petitioner Wife to bear the 5^th Intervener’s costs of and occasioned by the withdrawal of the Petitioner’s summonses dated 27 July 2017 and 21 August 2017 (including the costs of the hearing on 24 August 2017 and of preparing written submissions on costs), to be taxed forthwith, if not agreed, with certificate for counsel.

Ms. Bonnie Cheng, instructed by M/S Chaine Chow & Barbara Hung for the Petitioner

Mr. Eric Leung, instructed by M/S Edward Lau, Wong & Lou for the Respondent

Mr. Eugene Yim, instructed by M/S Li & Partners for the 5^th Intervener