Llc v. Lmwa and Another

CAMP 143/2018

[2019] HKCA 347

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 143 OF 2018

(ON AN INTENDED APPEAL FROM FCMC 4683/2014)

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REASONS FOR JUDGMENT AND
DECISION ON COSTS

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Hon Lam Acting CJHC (giving the Reasons for Judgment and Decision on Costs of the Court):

1.On 29 June 2018, Judge G Chan of the Family Court ordered that there be no order as to costs between the 1^st respondent husband and the petitioner wife in respect of the trial of preliminary issue before her. The trial was in respect of the beneficial ownership of a property known as the Sorrento Property and Sorrento Carpark. In an earlier judgment of 22 June 2017, the judge found that the husband and his father (the 2^nd respondent) were beneficial owners of the Sorrento Property and the father was the sole beneficial owner of the Sorrento Carpark. In so doing, the judge rejected the wife’s case that these properties were beneficially owned by the husband alone.

2.The judge ordered the wife to pay 80% of the costs of the father.  She however made no order as to costs between the husband and wife. 

3.The husband and the father sought leave to appeal against the costs decision.  On 11 September 2018, the judge refused to grant leave.

4.By a summons of 26 September 2018, the husband renewed the application in this Court.  The father also made a similar application by another summons by way of CAMP 144 of 2018.  The father’s application was dismissed by this Court (Lam V-P and Poon JA) on 4 December 2018 on the papers.

5.In respect of the husband’s application, the Court directed that a rolled-up hearing be held on 27 February 2019.

6.At the rolled-up hearing, after hearing counsel, we refused to grant leave to the husband and dismissed the summons of 26 September 2018.  These are our reasons for that decision.  We shall also give our decision on the costs of this application.

Reasons for refusal of leave

7.Since the intended appeal is an appeal on costs only, Mr Clough (appearing for the husband) properly acknowledged that he faced a high threshold.  As observed by Lam VP and Poon JA when this Court dismissed the renewed application by the father, this Court will not interfere with the costs decision of a lower court unless it can be shown that the lower court has erred in principle or its decision was plainly wrong: see Ho Shu Kwong v Chiang Chun Yuan [2002] 3 HKLRD 419 at [12] – [19]; Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679 at [100] – [105]; Chan Shun Kei v Hong Kong Construction (HK) Ltd CACV 192/2014, 7 March 2016 at [22]; and Poon Ching Man v Lam Hoi Pun [2016] 3 HKLRD 815 at [34].    

8.In the present case, the judge explained her decision on costs at great length in her written decision of 29 June 2018.  She took the view that the costs position between the husband and wife was different from that between the father and the wife.  For the former, the trial of preliminary issue remains part of the family proceedings under the petition for divorce.  It is both in form and substance part of the wife’s claim for ancillary relief.  Thus, the duty to engage in constructive dialogue and to negotiate in good faith is equally applicable as between the husband and wife in respect of the trial of preliminary issue. 

9.The judge found that the husband failed in such duty in his neglect to respond to a Calderbank offer from the wife.  In light of the previous proposal by the husband regarding the Sorrento Property, she did not accept his contention that it was impossible for him to negotiate since the father’s interest was involved.  At [39] of the Costs Decision, the judge adopted the observations of Singer J in A v A [1996] 1 FLR 14 at p.25E-F:

“ While one can never say that this or any other case would have settled if the Calderbank door had been kept open by timely and reasonable reply, the critical point is that to slam the door through inactivity, lack of objectivity, indecision or for whatever other reason makes potentially avoidable litigation inevitable.”

10.The judge went on at [40] of the Costs Decision:

“ Importantly, adopting a complete silence to the Calderbank Offer (save and except a holding letter) eats away any possible and potential chance of settlement but opens up the floodgate of incurring further and sometimes unfortunately unnecessary costs leading to the unavoidable result of further draining away of the assets of the husband and/or the wife, which in turn very likely would jeopardise the interest of the children of the family.”

11.In so saying, the judge was obviously mindful of the positive duty of a spouse to explore settlement in a constructive manner as adumbrated by Hartmann JA in EJB v CJB [2011] 5 HKLRD 508 at [130], which the judge cited earlier in the Costs Decision at [28]:

“ 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 a significant drain on the joint matrimonial estate, both parties, directly or indirectly, being the losers.”

12.The judge also alluded to other matters she took account in deciding on the costs between the husband and the wife:

(a)  The wife had laid her cards on the table and placed reliance on 3 emails which called for clarification and explanation from the husband and the father.  Such clarification and explanation was not forthcoming in their affirmations and they only put forth the same at the trial by way of oral evidence.  The wife was thus deprived of the chance to re-assess the strength and weakness of her case.  See [55] to [59] of the Costs Decision.

(b)  The impacts of a costs order against the wife in respect of the matrimonial proceedings including the effect of the liability of the wife for such costs in the overall redistribution of wealth and the risk of further application for litigation funding and satellite litigation, see [65] to [69] of the Costs Decision. 

13.The judge also borne in mind her concerns at [69] in deciding that there would be no order as to costs in the application for costs, see [73] of the Costs Decision.

14.In the Leave Decision of 11 September 2018, the judge gave careful considerations to the proposed grounds of appeal and gave reasons for rejecting the same.

15.The draft grounds of appeal appended to the summons of 26 September 2018 is a lengthy document.  Instead of setting out the grounds concisely, there are many repetitions and parts of the document contained submissions instead of grounds.  The statement in support of the application filed together with the summons only briefly stated that important issues of principle are involved and oral hearing is sought. 

16.The skeleton submissions of counsel for the husband lodged on 2 January 2019 sought to argue the matter as if it is a re-running of the costs hearing before us.  As this Court had said on many occasions in the past, this is not the proper approach for appellate advocacy.  Bearing in mind the limited scope for appellate intervention on costs decision, counsel should focus on identifying the errors in principle allegedly made by the court below or explaining how the decision below is said to be plainly wrong. 

17.Having read all the materials together, the grounds relied upon by the husband can broadly be stated as follows:

(a)  The judge erred in holding that as between the husband and the wife, the trial of preliminary issue is part of the family proceedings and the principles on costs applicable to family proceedings are applicable;

(b)  the judge failed to pay sufficient regard to her own finding that the Wife’s case was “fatally flawed” and “chronologically impossible” and she brought up the issue of beneficial ownership of the Sorrento Property and Carpark causing the costs of the trial of preliminary issue to be incurred;

(c)  the judge failed to pay regard to the net effect of the litigation funding order and the financial implications of no order as to costs on the husband;

(d)  the judge erred in penalizing the husband for his failure to reply to the Calderbank offer because the husband could not respond to the same without the consent of the father;

(e)  the judge erred in considering that a costs order against the wife would increase her liability and that it might trigger satellite litigation.

18.We start by making some general observations on the resolution of dispute of beneficial ownership which may involve third party interest in the context of ancillary relief applications.  In TL v ML [2006] 1 FLR 1263, Deputy High Court Judge Mostyn QC highlighted the difference between determining a dispute of ownership between a spouse and a third party and the discretionary exercise of determining ancillary relief between spouses. Procedurally, he opined as follows at [36] and [37]:

“ [36] In my opinion, it is essential in every instance where a dispute arises about the ownership of property in ancillary relief proceedings between a spouse and a third party, that the following things should ordinarily happen:

(i) The third party should be joined to the proceedings at the earliest opportunity;

(ii) Directions should be given for the issue to be fully pleaded by points of claim and points of defence;

(iii) Separate witness statements should be directed in relation to the dispute; and

(iv) The dispute should be directed to be heard separately as a preliminary issue, before the financial dispute resolution (FDR).

[37]  In this way, the parties will know at an early stage whether or not the property in question falls within the dispositive powers of the court and a meaningful FDR can take place.  It also means that the expensive attendance of the third party for the entire duration of the trial can be avoided.  It is a great pity that none of these steps took place in this case.  Had they happened, I believe that a great deal of the costs would have been saved.”

19.Those observations were taken on board in subsequent cases.  In A v A [2007] 2 FLR 467, Munby J said at [23] and [24],

“ [23] The deputy judge recorded, at para [35] [in TL v ML], the complaint of counsel in that case that the issues had never been ‘properly defined, pleaded or particularised’ and went on to suggest, at para [36], how such issues should in future be handled by way of appropriate case management. I am sympathetic to the approach being suggested by the deputy judge, though I would not wish to be quite so prescriptive as he appears to be. Vigorous judicial case management in such cases is vital, but the appropriate directions to be given in any particular case must reflect the case managing judge's appraisal of how, given the forensic realities of the particular case, the issues can best be resolved in the most just, effective and expeditious manner.

[24]  I do, however, entirely share the deputy judge's view that directions should normally be given for such issues to be properly pleaded by points of claim and points of defence.  In the present case the muddle, confusion and ambiguities in the wife's case would have been more pitilessly exposed, and at a much earlier stage in the proceedings, had the presentation of her case been exposed to the intellectual discipline which is one of the advantages of any system of pleading.  Moreover, if the wife had been required to plead her case everyone would have had a much clearer idea, and at a much earlier stage, as to exactly what she was or was not asserting and as to exactly what the husband and the interveners were or were not saying by way of defence.  As it was, matters were wholly unclear even as late as the first day of the final hearing.”

20.In Hong Kong, similar endorsement of these procedural considerations can be found in the judgment of Stock NPJ in Leung Wing Yi Asther v Kwok Yu Wah (2015) 18 HKCFAR 605.  In that case, the concern was about the lack of pleadings to identify the issues in the trial on beneficial ownership, see [29] and the judgment of Kwan JA in the Court of Appeal, CACV 151 and 152 of 2013 at [30] and [31]. 

21.We agree that issues on ownership between a spouse and a third party, insofar as it is necessary to determine the same, have to be decided by reference to the general law of property and in many cases formal pleadings should be required in order to identify the issues for such determination. However, we have reservations on prescribing that a trial of preliminary issue as the only way forward once an issue on third party beneficial ownership is raised.  We also have reservations on prescribing that a FDR must be postponed until after the trial of preliminary issue.   

22.One must not lose sight that the dispute on ownership in these cases often arisen from matrimonial proceedings.  But for the breakdown of marriage and the application for ancillary relief by one spouse in a divorce petition, there would not be any claim on the property.  In other words, the parties only raise the issues on beneficial ownership for the court to determine because of the matrimonial proceedings.

23.The underlying matrimonial dispute and the application for ancillary relief, in our judgment, is the origin and the substratum for the litigation on ownership irrespective of the procedural routes adopted by the parties and the court to resolve the same.  If the underlying ancillary relief claim is settled or resolved satisfactorily between the spouses, often there would be no further need or justification for proceeding with a determination of a dispute on the ownership. 

24.Alternatively, if the ancillary relief can be determined or settled without any adjustment to or encumbrance being imposed upon the title to and/or the proprietary interest in that property (e.g. where a spouse does not seek any transfer of property order or any charge being imposed on the same to secure a claim [“a proprietary order”], and content with the claim being satisfied by other properties in the matrimonial pot whilst having the value of the disputed property being taken into account), it may be possible to confine the dispute to one between the spouses.       

25.Further, even in cases where a spouse seeks a proprietary order in respect of the disputed property, the third party must be involved only if he or she has a competing claim to that property.  In this respect, there is a difference between cases where the third party is the legal owner or one of the legal owners of the disputed property and cases where a spouse claims that the third party has a beneficial interest in a property legally held under the name of that spouse.  In the former case, the third party should be joined as a party since the legal title of the disputed property would have to be transferred or subject to encumbrance if the ownership issue is resolved by the making of a proprietary order.  In the latter case, the third party should be notified of the claim and if he or she decides to contest the ownership issue, he or she should apply to be joined as party to the proceedings.  If the third party does not apply to be joined, he or she shall be bound by the judgment: see Order 15 Rule 13A(4) of the Rules of the High Court, applicable by virtue of Rule 3 of the Matrimonial Causes Rules.

26.Irrespective of the role of the third party in contesting the ownership issue, given the ancillary relief application is the substratum for such contest, the primary protagonists are often the spouses.

27.Having regard to the above analysis, the observations of Thorpe LJ in Goldstone v Goldstone [2011] 1 FLR 1926 on the underlying nature of the proceedings despite the joinder of a third party are apt even in respect of cases where the relief sought is only a proprietary order without any claim for setting aside some property transaction as in that case.  At [39], the learned judge said:

“ Of course, the ultimate trial required the family division judge to apply the law of property and the law of sham just as his brother judge would do in the Chancery Division. Careful preparation for that trial was necessary. However, these impeccable directions do not require or permit the import of the CPR. In its essence the claim remains a claim by the wife against the husband. Ultimately it is a claim for discretionary relief. In this, as in many cases, there must be a preliminary issue trial to establish the extent of the assets over which the discretion is ultimately exercised. Here, as in many cases, the preliminary issue trial determines the claims and the rights of third parties. The preliminary issue trial is pendent on the originating application. It has no independent existence.” (our emphasis)

28.Thus, we firmly reject Mr Clough’s submission that the trial of preliminary issue is not part of the matrimonial proceedings.

29.By now, it should be recognized that in matrimonial or family proceedings[1] the parties and those advising them have a positive duty to engage in constructive settlement negotiations and to participate in alternative dispute resolution processes like mediation, FDR and CDR in good faith.  The rationale for such duty has been explained in the cases and the judgment of the judge cited at [9] to [11] above. 

30.A characteristic of matrimonial or family proceedings which all those involved in it (parties and those relatives who supported them, lawyers as well as judges) should always be mindful is that the resources (including both time, monies as well as energy) of the parties should not be disproportionately squandered away in litigation.  This is particularly so in cases where there are children in the family.  For each $10,000 spent on legal fees, the parties would eventually have $10,000 less to be distributed amongst themselves (in a sharing case) or for maintaining themselves and their children (in a need case).  For each hour spent on preparation and attending hearing, the party would have one hour less for rebuilding their lives after divorce or for spending time with their children.  Actually, it could probably be worse because in many instances the time and energy spent on litigation would generate ill-feelings and hostilities for which much more time is needed to restore the litigant’s peace of mind. 

31.Like other places in the world, the divorce rate in Hong Kong is getting higher and higher.  The caseload for the Family Court is increasing every year and the cases are getting more complicated.  It is not uncommon that matrimonial or family proceedings lasted much longer than they should have and the legal costs incurred by the parties drained away an unreasonably large proportion of the family wealth.  Based on our experience on the bench in hearing family cases, there is an urgent need for those practising family law to embrace a more proactive mindset to resolve family disputes through effective and proportionate means.  There is also a need for the courts to adopt proactive case management to curtail excesses in litigation which ultimately do not do any good in resolving the matter for the parties. 

32.In England, Munby J lamented about similar state of affairs in that jurisdiction in KSO v MJO and MJO (PSO intervening) [2009] 1 FLR 1036. In that case, the original net matrimonial assets were about £770,900, but the parties had paid £276,471 in costs, and £276,989 remained to be paid.  In addition, there was a liability for costs of the father-in-law (in the sum of £120,139) whom the wife had joined as a party.  The judge ordered the husband to pay the wife one half of the costs she was paying to the father in law.  At the FDR, the judge learnt that the family wealth had been so much dwindled that it was insufficient to meet the most basic needs of the parties.  Unsurprisingly, the FDR failed to achieve a settlement.  Shortly afterwards, the husband declared himself bankrupt and the litigation collapsed under the burden of costs.    

33.The observations of Munby J reflecting on the problem of disproportionate family litigation provided much food for thoughts.  At [76] to [81] of the judgment, His Lordship said:

“ [76] Not for the first time I have here been faced with ancillary relief litigation conducted at ruinous expense to the parties. I should like to think it will be the last time, but I doubt it.

[77] In A v A (No 2) (Ancillary Relief: Costs) [2007] EWHC 1810 (Fam), [2008] 1 FLR 1428, at para [269], I observed that in that case some 41.5% of matrimonial assets of £2,669,715 had gone in costs. I continued at para [270]:

'It may be that the “mega” rich can afford to squander grotesque sums in costs. The allusion is, of course, to Moore v Moore [2007] EWCA Civ 361, [2007] 2 FLR 339, at para [6]. Lesser mortals cannot. Costs in too many so-called “big money” cases – in modern conditions many such cases do not in truth involve “big” money at all – are, as here, grossly disproportionate to either the amounts or the issues at stake. I have had occasion before to deplore the expenditure – one is tempted to say the waste – of money in such cases: see, for example, Re G (Maintenance Pending Suit)[2006] EWHC 1834 (Fam), [2007] 1 FLR 1674, at para [46]. Other judges have also expressed their concerns. A very recent example is provided by Wood v Rost [2007] EWHC 1511 (Fam), [2007] All ER (D) 198 (Jun), where, speaking of a case which had been conducted at “vast expense”, the Deputy Judge lamented that the late Mr Charles Dickens was no longer alive to write a 21st century sequel to Bleak House. The simile, if I may say so, is all too apt. The accusatory finger which in the 19th century was appropriately pointed at the High Court of Chancery is, in the modern world, more appropriately pointed at the Family Division.'

[78] Only a few weeks later, in Whig v Whig [2007] EWHC 1856 (Fam), [2008] 1 FLR 453, I had occasion again to lament what I described (at para [88]) as 'ruinously expensive' ancillary relief proceedings. In that case the ancillary relief proceedings had been overtaken by the husband's bankruptcy – on his own petition – and the aggregate costs of both sets of proceedings amounted, as I explained, to more, on the husband's view, than the net aggregate value of the identified family assets and not far short of what the wife said they were worth. I commented at para [5]:

'One wonders with astonishment at what has been going on. One can only speculate as to what anyone thinks they could possibly hope to salvage from this expensive and utterly futile fiasco.'

[79] A year earlier, in C v C (Costs: Leave to Appeal), at para [19], I had commented on how costs amounting to no less than £394,275 had been spent in the course of ancillary relief proceedings which had been commenced scarcely 3 months earlier and which had, as to the substance of the matter, not yet progressed very far despite the intensity of the interlocutory skirmishing.

[80] The picture is deeply dispiriting. And it is not as if it is only the adults who suffer from the consequences of such folly. The luckless children do as well. The present case is a sobering, and for me deeply saddening, example. If, instead of spending – squandering – over £430,000 in costs, the wife and the husband had been able to resolve their differences at a more modest and, dare I say it, more seemly level of costs, there might very well have been enough left in the matrimonial 'pot' to house the wife and children and to enable the children to remain at their school, whilst still leaving something more than a mere consolation prize over for the husband. As it is, it is hard to see much being left from the wreck, not least after the trustee in bankruptcy has had his costs, expenses and remuneration. It is difficult not to be reminded at this point of Jarndyce v Jarndyce (see the Appendix). And the wife and the husband – and for this purpose I refer to them as the mother and the father, for that is what they are – are faced now with the wretched and thankless task of trying to explain to their daughters how it has all come to this.

[81]  Something must be done about the problems highlighted by this and by too many similar cases.  We simply cannot go on as we are.  The expenditure of costs on the scale exemplified by this and by too many other such cases is a scandal which must somehow be brought under control.”

34.We are sad to say that the lesson has not been learnt in Hong Kong.  The present case (which unfortunately is by no means atypical in terms of how matrimonial and family litigation is being conducted in Hong Kong) provides another sobering illustration.  At the hearing, we were informed by counsel that the value of the Sorrento Property and Carpark was about $22 million, and in accordance with the findings by the judge, the husband’s beneficial interest in the same (restricted to the Sorrento Property) is worth only about $10 million.  By the time of the hearing before us, the husband had already incurred costs of about $4.5 million and the wife had incurred about $3 million.  The father’s costs were about $2 million (for which the judge had ordered the wife to pay 80% of the same). 

35.The excess that the parties have gone to is (even taking account of this Court’s direction for a rolled-up hearing) highlighted by the costs they have incurred for this application for leave to appeal against the costs order of the judge as between the husband and the wife.  On the husband’s side, his costs add up to $699,335.  On the wife’s side, her costs add up to $655,010. 

36.The parties had yet to reach the stage of FDR.  In other words, the litigation had already devoured most if not all the family wealth represented by the Sorrento Property without much achievement in terms of resolution of ancillary relief.  Though there is another major item in the family asset which allegedly has a value of about $28 million, viz the shares of the husband in 2 private companies, Mr Clough told us that such shares are not readily realizable.

37.No matter how one sees it, legal costs had run out of control and it is high time someone should instill a heavy dose of realism and proportionality on the conduct of this piece of litigation. 

38.In this connection, Mr Clough told us there is a belief in some quarters that there had to be a trial of preliminary issue once an issue of third party beneficial ownership has been brought up.  As the present case illustrated, such a trial can be disastrously expensive, substantially increase the financial burden on the parties and unduly prolong the resolution of the ultimate issue which is the fair distribution of matrimonial asset.  We have already mentioned the amounts of costs incurred. 

39.As for the prolongation of the process, the petition was filed by the wife on 14 April 2014.  After the filing of Form E by the respective parties, the father was joined as an intervener on 27 January 2015.  The trial of preliminary issue took place between 20 November 2015 and 15 February 2016.  It lasted for 6 days.  The judgment on preliminary issue was handed down on 22 June 2017.  In between the trial and judgment on preliminary issue, there was an application for litigation funding by the wife which was heard on 25 April and 13 June 2016.  Judgment on litigation funding was handed down on 26 August 2016.  Costs of the preliminary issue were argued before the judge on 8 May 2018 and the Costs Decision was given on 29 June 2018.  The father and the husband sought leave to appeal against the Costs Decision and the judge refused leave on 11 September 2018.  They then renewed their leave applications to this Court.  This Court dismissed the father’s application on 4 December 2018.  We disposed of the application by the husband at the hearing on 27 February 2019.   

40.Thus, for a petition in 2014, because of the trial of preliminary issue, no FDR hearing has yet been held (we were told that no date has yet been fixed for that).  In the meantime, about $8.8 million of the family wealth had already been spent on costs.

41.We do not mean to criticize the joinder of the father in the present case.  Based on what we have seen, there is no reason for us to disagree with the directions for having a trial of preliminary issue in this case.  However, the giving of such direction and having actually to go through a preliminary trial are not the same thing.  As the present case illustrates emphatically, the adoption of such a procedure can be very expensive and time-consuming.  As we shall explain, even in a case where the court gives directions for preliminary trial, the parties and the third party should engage positively in resolving the ownership dispute by a more proportionate means.  In this connection, there are provisions under Part 2.5 of PD 15.10 on Family Mediation for other respondent/intervening party to the proceedings to consider the use of mediation.  The general guidance at paras 1.1 to 1.5 of PD 15.10 is equally applicable to these parties.

42.As Munby J observed in A v A [2007] 2 FLR 467 at [23], vigorous judicial case management in these cases is vital and the appropriate directions to be given in any particular case must reflect the case managing judge’s appraisal of how, given the forensic realities of the particular case, the issues can best be resolved in the most just, effective and expeditious manner. As with all case management matters, it cannot be right to be dogmatic or prescriptive.  The deputy judge, Mr Mostyn QC (as Mostyn J then was) in TL v ML, supra, devised the procedural directions with a view to save costs (see [37]) instead of increasing the burden of costs on the parties.

43.Further, it is always possible that the process would be further prolonged with escalation of costs if a party decides to appeal against the decision on preliminary issue.  In the present case, the judge stated at [5] of the Leave Decision of 11 September 2018 that but for the application for leave to appeal the FDR would have taken place on 10 August 2018.   

44.In our judgment, these practical considerations should be weighed against the advantage that is to be gained by having a trial of preliminary issue.  In the exercise of the case management power in deciding on the proper course to be adopted, the court should also bear in mind what we said at [23] to [25] above and in the ensuing paragraphs on alternative dispute resolution.  The factual context in which the beneficial ownership issue arises vary greatly from case to case.  Obviously, the dynamics involved can be very different if the subject property is the matrimonial home as opposed to, say, some shares in a private company (where the third party is a trading partner) or monies deposited in a bank account. As we have tried to emphasize, as with all case management discretion, one cannot be dogmatic or rigid in the approach.  The guiding principle is that one must have regards to the particular circumstances in the case to decide what is the best procedure to resolve the dispute in a just, effective and expeditious manner.   

45.In connection with [25], it is important to give a choice to the third party to decide on the extent to which he or she would wish to participate in the proceedings.  In many cases, the third party is a parent or other relative of one of the spouses.  Whilst we agree that in principle the third party is entitled to have separate legal representation, the necessary implication of so doing is that there would be another set of costs which shall have to be borne by someone at the end of the contest.  The third party would have to incur upfront those costs in the first place.  In a case where young children are involved and the property has been used as matrimonial home by that family (as in the present case), such third party might take account of the welfare of these children (who are after all either grandchildren or nieces or nephews) in deciding the extent of involvement in the ownership dispute.  

46.It is therefore wrong to assume that the third party would necessarily wish to take active part in contesting the beneficial ownership issue.  It is also wrong to assume that the third party would not be willing to undergo some alternative dispute resolution processes in order to settle the matter.  Even in the context of general civil actions where ownership dispute is litigated amongst family members, the court will encourage them to participate in such processes.  Given that the underlying substratum of the ownership dispute is the matrimonial or family proceedings with the attendant financial implications for the family as discussed above, it is all the more imperative for the parties, their lawyers as well as the court to take a strong proactive approach to steer the parties to efficient and proportionate mode of dispute resolution. 

47.Hence, whilst it may not fruitful to have a FDR solely between the spouses before the determination of a preliminary issue (when the court has decided that there should be a trial of preliminary issue), it does not follow that there should not be any form of alternative dispute resolution processes involving all the interested parties, including the third party.  On the contrary, such processes should be explored vigorously.  In general, though there could be exceptional cases, there is no reason why there could not be any mediation involving the third party for the resolution of the dispute of the ownership before moving onto a mediation of the remaining issues in the matrimonial dispute. 

48.Further, though the FDR as provided under PD 15.11 is on its face a process between the spouses only, it is possible for that procedure to be adapted to cover a dispute on beneficial ownership involving third party.  Under PD 15.12 para 15, the court can extend the procedure in PD 15.11 to other applications in matrimonial or family proceedings.  FDR is a without prejudice process to facilitate parties in matrimonial disputes to resolve the same without the need to go through an adversarial (and often hostile and attritional) trial.  The rationale for having such process in matrimonial proceedings is to avoid the adverse effects on the overall welfare of the family as discussed above. 

49.Bearing in mind the origin of such ownership dispute and the above analysis regarding the underlying character of these proceedings, and in light of our above observations on the implications for the third party if he or she has to undergo a full blown trial to resolve the dispute, in appropriate cases judges in the Family Court should exercise the case management power to direct a process akin to FDR (with modified directions) to take place involving the third party.  The exercise of case management power to facilitate settlement of dispute is one of the underlying objectives provided for under Order 1A Rule 1(e) of the Rules of the High Court and the power to give a direction for a modified FDR to be held can be derived from Order 1B Rule 1(2)(l).  Practice Direction 15.12 paras 6 and 8 underscore the applicability of these provisions to matrimonial proceedings of which the trial of preliminary issue, as discussed above, is part of such proceedings.  See also Practice Direction 15.10 para 1.1. 

50.With developments in the past decade in Hong Kong on modern litigation ethos placing great emphasis on litigation being a last resort, it is high time that the courts should acknowledge that the positive duty to negotiate and to participate in alternative dispute resolution process in good faith to a third party in matrimonial or family disputes.  In this respect, we are of the view the judge was too conservative.  At [33] of the Costs Decision, the judge confined such duty to the spouses in the matrimonial proceedings.  That conservative approach seems to be based on the notion that similar duty would not arise in ordinary civil action. 

51.With respect, we do not accept that premise.  Since the Civil Justice Reform, all parties to litigation are under a duty to assist the court in the promotion of the underlying objective in Order 1A Rule 1, including a duty to co-operate in a process facilitating settlement. 

52.Thus, even in the context of general civil litigation, the courts expect litigants to explore settlement (with or without undergoing alternative dispute resolution process like mediation) in good faith.  A failure to participate in mediation is a ground for costs sanction, see Practice Direction 31 paras 4 and 5, Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273; Ansar Mohammad v Global Legend Transportation Ltd HCPI 1507/2007, 23 November 2010; Kwan Wing Leung v Fung Chi Leung DCPI 2489/2013, 13 September 2014; Wu Yim Kwong v Manhood Development Ltd [2015] 4 HKC 598.  The Court has repeatedly deplored the nonsensical disproportionate litigation when other modes of dispute resolution were not explored: iRiver Hong Kong Ltd v Thakral Corporation (HK) Ltd CACV 252/2007, 8 August 2008; Incorporated Owners of Shatin New Town v Yeung Kui CACV 45/2009, 10 December 2009; Chiang Ki Chun Ian v Li Yin Sze CACV 26/2011, 21 October 2011; Lam Chi Tat Anthony v Kam Yee Wai Andrew CACV 139/2012, 28 January 2013; Chan Shun Kei v Hong Kong Construction (HK) Ltd CACV 192/2014, 7 March 2016. 

53.The conduct of a party in adopting an uncooperative stance can, and very often will, be taken into account under Order 62 Rule 5(2).  Even in a commercial context, the need to engage in constructive negotiations even in face of an unacceptable sanctioned offer was alluded to by this Court in Antwerp Diamond Bank NV v Brink’s Inc (No 2) [2015] 5 HKC 329 at [21]. 

54.We cannot find any justification for exonerating a third party from the obligation to participate in good faith in a process designed to facilitate settlement of matrimonial or family dispute as directed by the court though he or she is not a party to the marriage.  The financial burden on the family pot occasioned by a trial of preliminary issue is no less than those occasioned by other issues in the ancillary relief application.  Even though the family pot may not be of as much concern to the third party as the spouses, the third party is very often (as we observed above) closely related to the family.  In any event, in view of the serious costs and time implications arising from a trial of preliminary issue, we cannot see anything objectionable to require the third party to participate in such process in good faith in order to explore if overall or partial settlement can be achieved.  We are of the view that a failure to do so should be taken into account under Order 62 Rule 5(2).

55.At this juncture, we can address ground (d).  The judge rejected the husband’s assertion that he could not respond constructively to the Calderbank offer of the wife due to the interest of the father at [38] to [40] of the Costs Decision.  Primarily, the judge disbelieved the husband’s claim that he was unable to respond constructively in light of his earlier offer regarding the Sorrento Property.  We do not see any ground for disturbing such assessment. 

56.Also, the matter has to be considered in light of the following background.  The parties were married in 2008.  They gave birth to two children in 2011 and 2014 respectively.  The Sorrento Property and the Carpark had been used as the matrimonial home until 2011 when the family moved to a rented accommodation.  During their absence, the Sorrento Property were leased out and the rental income was used by the husband for family expenses.  The husband worked in two companies which the wife alleged to be controlled by the husband’s family.  The husband owned 8% and 12% respectively of the shares of these companies.  The wife had been a full-time housewife and the husband had been responsible for maintaining the family.  The marriage broke down in 2014 and the wife and the children moved back to live at the Sorrento Property.  The father had never lived there. 

57.In these circumstances, it must be obvious that the needs of the wife and the two children have to be provided for.  The utilization of the Sorrento Property and the Sorrento Carpark for meeting their accommodation need could be a sensible solution.  The compensation to the father for his proprietary interest would have to be worked out.  But it is highly questionable whether costly and time-consuming litigation is the best or satisfying way to work out an answer acceptable to all the parties.  Even with the resolution of the beneficial ownership by the trial of preliminary issue, there is still no final resolution regarding the use and occupation of the Sorrento Property and the Sorrento Carpark.  As far as we understand, the wife and the children are still using the same.  Unless a viable solution is in place, it is unlikely that the father could effectively assert his proprietary interest without regard to the detriments that could be occasioned to welfare of his grandchildren. 

58.If the parties have not addressed their minds to these questions, it is hoped that with the benefit of this judgment, the experience in the trial of preliminary issue with all its attendant costs and other implications can at least wake them up to face the reality. 

59.As far as we can see, there is no insurmountable differences between the Calderbank offer and the earlier offer from the husband concerning the use of the Sorrento Property.  It is certainly not a case where the gap was impossible to bridge through some positive dialogues.  If the husband had genuine difficulties, he should have explained them to the wife.  If necessary, the father should also be engaged in the dialogues.

60.Ground (d) does not have any reasonable prospect of success.

61.Likewise, we are not impressed by ground (e).  Since, as analysed above, the trial of preliminary issue is part of the family proceedings, the judge was entitled to take account of the overall picture in terms of financial impacts upon the parties in deciding what costs order should be made.  Though there are some flaws in the logic behind the judge’s comment at [69] of the Costs Decision, her finding that a costs order against the wife in the present instance would do more harm than good is, in our view, correct.  Having regard to the other reasons given by the judge for the costs order, we do not think this Court could disturb that order because of those flaws.

62.Turning back to ground (b), in the context of the matrimonial dispute, it is not correct to run an argument based on the perception that the husband was made to bear the whole burden of the costs of the trial of preliminary issue.  The litigation funding order was made on the basis that it is necessary to redress the imbalance arising from the fact that the husband was in control of the family pot.  Thus, he was ordered to provide the means to the wife to finance her legal costs.  Viewed thus, it is more accurate to perceive the effect of the costs order of the judge as imposing the costs of the trial of the preliminary issue, including the 80% costs of the father, on the family pot. 

63.Since the ownership dispute was spawned out of the matrimonial proceedings, the husband cannot rely on the fact that such costs had to come out of assets under his control to complain about the costs order when the judge held with cogent reasons that both he and the wife had played their parts in causing such costs to be incurred.  The position would have been different if the judge were to find the husband blameless in the handling of the ownership dispute. 

64.We must stress the importance of the duty of those advising the parties to provide them with a correct understanding on the burden of costs on matrimonial disputes.  Since the parties shall undergo FDR with mediation, we urge them (with the assistance of their lawyers) to purge themselves of any misconception on the incidence of costs of the trial of preliminary issue and bear in mind the heavy financial burden of costs of litigation on the family pot (reducing whatever there for satisfaction of needs of the parties and for redistribution) as this is obviously more a need case rather than a sharing case.  We believe this is essential to the adoption of the correct attitude in the participation in FDR and other alternative dispute resolution process in the future.

65.As regards ground (a), the judge had duly taken account of the wife’s failure to prove her case on beneficial ownership.  On a fair reading of the judgment on preliminary issue of 22 June 2017, the judge did not conclude that the wife’s case was doomed to fail from start to finish.  She took account of the oral evidence of the husband and the father (which had not been forthcoming in their affirmation evidence) before she rejected the wife’s case built upon the emails and other circumstantial evidence.  Thus, the judge found that the wife had been deprived of the opportunity to have an informed assessment of the merit of her case.  Mr Clough was unable to persuade us that these evaluations by the judge were wrong.  In light of such evaluations, ground (a) cannot take the husband’s intended appeal further.

66.On the whole, we do not find any reasonable prospect of success in the intended appeal.  Nor do we see any other reasons in the interest of justice to warrant leave being granted.

67.We are further of the view that the judge had already addressed the proposed grounds of appeal in the Leave Decision.  In the circumstances, we would order the husband to pay the costs of the wife in the application before us.  Having considered the statement of costs of the wife (which is for the costs of the application in this Court as well as the Family Court), we find that some of the charges (solicitors charging $227,000, with 4 counsel involved, charging a total of $264,600) are unreasonably high and wholly disproportionate for an application of this nature, even taking account of the direction for rolled-up hearing.  We shall only deal with costs before us as we are not minded to disturb the judge’s order on costs of the application for leave below.  We would fix the costs of the wife in CAMP 143 of 2018 at $300,000.

68.The husband and the wife had previously attempted mediation without success.  At the hearing, this Court suggested that the effectiveness of the process could be enhanced if a FDR can be held with the assistance of a mediator.  There can be matters on which a FDR judge can give useful views and steer the parties to explore at greater length with a mediator.  With such steering, a mediator can work more effectively with the parties separately in a way which a FDR judge cannot.  The mediator can also refer some issues which divided the parties to the FDR judge for an authoritative opinion.  With synergy between the FDR judge and the mediator, it is also more likely in cases where parties reach agreement on some but not all the issues, a more costs effective way to resolve the outstanding issues could be worked out. 

69.At the hearing, Mr Clough and Ms Lam informed us that the wife and the husband are willing to undergo a FDR presided by a Family judge and a family mediator.  In light of that we direct the parties to write jointly to the Principal Family Judge on or before 15 April 2019 to seek directions for a FDR assisted by a mediator. 

70.As mentioned above, there are outstanding issues which cannot be resolved without the involvement of the father.  The parties should also consider if it will be useful to invite the father to join in such FDR.  They should provide the Principal Family Judge with some tentative suggestions in that regard so that the appropriate directions could be devised.

Ms Catrina Lam and Mr Tom Ng, instructed by T.C. Foo & Co, for the petitioner

Mr Neal Clough, instructed by King & Co, for the 1^st respondent