H v. W

FCMC 11958/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 11958 OF 2006

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BETWEEN

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

Date of Hearing: 19 September 2008

Date of Ruling: 10 October 2008

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R U L I N G

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1.This was a hearing to determine costs following my judgment of the 20 May 2008, when I reserved costs for argument.  In that judgment I awarded 25% of the total assets to the husband or 33%, if one of the properties was taken out of the equation and treated as non- matrimonial property.  Based on the valuations before the court this award, equated to HK$4,372,763.  In addition the husband was ordered to pay maintenance of HK$8,000 per month for the child of the family, C. Both sides were to continue to contribute equally to a Zurich fund for C. Both sides now seek their costs of and incidental to the ancillary relief proceedings.  Both allege that the other has been unreasonable.  The wife says that the husband was unreasonable in not settling with her prior to trial.  The husband says that the wife conducted the litigation itself in an unreasonable manner.  The husband also says that the court order exceeded the wife’s best offer to him; the wife says that her offer on the day at trial exceeded the court’s order.

The issues to be determined

2.Who should bear the costs in this case, in view of :

(a)  the way in which the parties conducted the litigation;

(b)  the fact that neither party has either entirely won nor entirely lost on the substantive issues at trial;

(c)  the history of offers made, including calderbank offers and the timing of those offers.

Background

3.I have set out the background to this case in my judgment of the 20 May 2008.  I will not repeat the same here.  As indicated in that judgment, this case centred on the husband’s entitlement to a share of the family assets where it was accepted that the majority of those assets were either brought into the marriage by the wife or accumulated and/or maintained largely as a result of her earnings and other financial resources.  This was also a highly emotive case, where, as in many cases that come before the family court, feelings were running high.

The law

4.The law in relation to costs is well settled.  For a recent discussion of the principles as they apply in this jurisdiction – see B Chan J’s exposition in W v W [2005] 1 HKFLR at 78.  In particular, in the context of this case, his reference to Butler-Sloss LJ in the leading case of Gojkovic v Gojkovic [1992] Fam 40 where it is stated as follows:

“There are many reasons which may affect the court in considering costs, such as culpability in the conduct of the litigation: for instance (as I have already indicated earlier) material non-disclosure of documents.  Delay or excessive zeal in seeking disclosure are other examples.  The absence of an offer or of a counter-offer may well be reflected in costs – or an offer made too late to be effective.  The need to use all the available money to house the spouse and children of the family may also affect the exercise of the court’s discretion.  It would, however, be inappropriate, and indeed unhelpful, to seek to enumerate and possibly be thought to constrain in any way, that wide exercise of discretion.  But the starting point in a case where there has been an offer is that, prima facie, if the application receives no more or less than the offer made, she/he is at risk not only of not being awarded costs, but also of paying the costs of the other party after communication of the offer and a reasonable time to consider it.  That seems clear from the decided cases and is in accord with the Rules of the Supreme Court and the County Court Rules 1981 requiring the court to have regard to the offer.  I cannot, for my part, see why there is any difference in principle between the position of a party who fails to obtain an order equal to the offer made and pays the costs, and a party who fails by the offer to meet the award made by the court.  In the latter case prima facie costs should follow the event, as they would do in a payment into court, with the proviso that other factors in the Family Division may alter that prima facie position”.

5.Clearly the issue of costs lies in the discretion of the court and costs are normally expected to follow the event.  This presumption is more easily displaced in family proceedings that in others.  I may be influenced by the existence of calderbank offers but they do not bind the exercise of my discretion.  (See In re Elgindata Ltd (No.2) [1992] 1 WLR and Gojkovic v Gojkovic [1992] Fam 40)              

6.In England and Wales they have identified perceived difficulties with this approach:

“52.19  Problems have been identified with the current costs regime in ancillary relief proceedings1.  The first is the de-stabilising effect that costs can have on financial settlements that have been carefully constructed by the court.  Having considered the facts and circumstances of a case the court arrives at a settlement that, in its judgment, does justice between the parties.  If at the conclusion of judgment it is revealed to the court that one party has failed to ‘beat’ a Calderbank offer, the consequences of failing to ‘beat’ a Calderbank offer by an order to pay the others side’s costs can undermine completely the substantive order for ancillary relief than the court has just made.  The second problem is that the system of closed offers has introduced a degree of procedural games-manship.  This, in turn, leads to uncertainty and has, in effect, also introduced an undesirable element of gambling into ancillary relief proceedings.  Calderbanks have been likened to a form of spread betting2.  Orders for costs can be disproportionate and, in some cases, produce real financial hardship as well as undermining the court’s division of the matrimonial assets.  Lastly, making orders for costs which involve a detailed assessment can result in expensive satellite litigation and delay.”

(See Rayden – 18^th edition paragraph 52-19)

7.These same problems also exist in this jurisdiction.

8.However, pending the introduction of Civil Justice Reform next year, this court remains bound by the established principles referred to above together with the Practice Direction on Financial Dispute Resolution.

Discussion

Litigation conduct of the parties

The wife

9.The husband has suggested that the wife should be penalized in costs because she argued, successfully against having a second Financial Disputes Resolution (FDR) hearing.  Pointing to the Practice Direction itself, counsel for the husband submitted that

Parties attending the FDR hearing shall use their best endeavours to reach agreement on relevant matters in issue between them

(See paragraph 8f)

10.It seems to me that this is an aspirational clause.  As far as possible the parties should attend an FDR open to the possibility of settling the matter in a fair and reasonable way, with the assistance of the courts indication.

11.In this case the parties attended a FDR hearing on the 6 July 2007.  It was listed for a second FDR hearing on the 14 September, but was vacated at the express request of the wife on the 31 July 2007.

12.In the transcript of that hearing it is clear that the parties had made some headway at the FDR with the wife offering HK$3 million and the husband seeking HK$3.5 million.  Deputy Judge K W Wong confirmed that, when he said

“… I have indicated to the parties that my view is that the amount to be paid over will be somewhat between one-third and one-fourth and that’s why I think at the end of the day, the parties come up with 3 million on one side and 3.5 on the other side.  And I think it all depends on whether, as a matter of fact, there is loan from the father or it’s a gift from the father.”

13.It is also clear from the transcript that both parties then moved away from this possible compromise, with the husband revising his offer to what was perceived to be an amount of between HK$4.55 and 4.45 million and the wife then reducing her offer to HK$2 million.  In addition the husband’s lawyer was clearly concerned about litigation tactics

“Your Honour, may I just address one point which my friend raised?  I’m sorry about this.  The crux of the matter was it did appear in my friend’s argument: maybe if they have to pay legal costs, they will settle.  Now, that is the crux of the argument because the disparity between the parties’ ability here to pay legal costs at a full hearing is apparent in the Form Es.  This wife thinks that by forcing it to a full trial, she will force a settlement on her husband who can’t afford any more legal fees and I would say to you that we are asking you to keep this FDR because that is the prospect of having any – we have any help to resolve this matter without an escalation of costs which the wife can just about afford and the husband can’t, and that is the crux of the matter, your Honour.

14.It is also clear that the indication given by Deputy Judge K W Wong was spot on.  Had the parties listened to him they might have been saved a great deal of money and heartache.  They did not.  Although I accept that the wife’s actions in not proceeding with a second FDR seems, in hind sight, to be precipitous, it also seems clear that both sides are to blame in not accepting the clear indication given by the Judge.  They are also both to blame for then raising the stakes and in engaging in what appears to be positional bargaining.  The fact is that both parties took more extreme positions and it is not clear whether or not, given the circumstances, a second FDR would have been helpful.

15.I also accept that the wife then appears to have resorted to other questionable litigation tactics including bringing her father into the proceedings.  Whether this was a stunt or the father was infact asking for repayment of the so called loan, we will never know, because he never appeared at court to give evidence.  It would have been helpful had the court and the otherside been informed of this fact earlier.

16.am also mindful of the fact that the husband attempted to introduce new and higher valuations of the properties at trial, despite clear orders relating to valuations having been given earlier. 

The substantive issues at trial

17.There were a number of substantive issues at trial, which I identified in my judgment as follows:

The issues

7.

(a)  Should the money advanced to the wife by her father be treated as a loan or a gift?

(b)  Should the money advanced to the husband by his parents be treated as a loan or a gift?

(c)  Is the wife’s contribution to the family’s finances to be treated as a special contribution?

(d)  Are any of the assets to be regarded as non-matrimonial property?

(e)  If so how should such assets be treated?

(f)  What is the computation of available assets?

(g)  How should those assets be divided bearing in mind the principles of need, compensation and sharing and the s.7 factors?

(h)  To what extent can and should the court depart from the yardstick of equality bearing in mind all of the factors set out above and the overriding concept of fairness?

(i)  How much maintenance should the husband now pay for C?”

18.It is true that in general terms I came down more in favour of the husband than the wife.  In particular I made a number of comments about the role of the wife’s father; including from para 20 -22

20.  Generally I am also aware of the timing of the father’s statement namely that it was signed the day before the Financial Dispute Resolution, which took place on the 6 July 2007.  It seems to me that the father must have been aware at that time that he would be expected to give evidence at the trial, if the parties were unable to reach any settlement.  I had expected the father to be called as a witness.  I was led to believe at the pre trial review that he would give evidence.  However he has not been called.  The wife has given reasons for not doing so, including the fact that her father is 84 years of age.  She also claims that her father has a congenital heart condition and cataracts and that he is not enjoying very good health.  This is not withstanding the fact that in his affirmation of the 14 February 2007 the father says:

Despite my age I do not have any major health issues.  I only visit the doctor once every few months to do check-ups.  I live a healthy and disciplined lifestyle.  I get up everyday at 6am to go jogging and exercise.  I then have lunch at 11:30am (usually with C), tea at 3pm and have dinner at around 6:30pm.  I would then sleep at 8:30pm in the evening.

21.  The two different versions do not sit happily together.  It is impossible for me to determine whether what the wife says in this regard is true.  In any event, given the circumstances, I do not intend to attach any weight to what the father says in these documents, as his evidence has not been tested.

22.  Further I am mindful of the fact, as I have said above, that there is no documentary evidence to support the existence of the so-called loans.  In addition I have noted that although the father says that he wishes to recall the money, he then goes on to say that he intends to use those funds to set up a trust fund for C.  There is no suggestion that the simply requires the funds to be returned to him to be used for his own living during retirement.  This also does not accord with his statement as paragraph 9 of his affirmation:

“I gave W the above sums of money on the understanding that she did not have to make prompt or regular payment.  She could repay me when she would be able to do so.  Since I retired at the age of 58, such sums were a substantial part of my savings.  W was well aware of my financial status.  She was appreciate that I helped her out of her bad times and she promised to repay later.  I was not eager to press for repayment, as I believed her well being is more important than money”

Consequently, bearing in mind all of the above, it seems to me that the sums advanced by the father should more properly be described as gifts as opposed to loans.

19.I found the wife’s conduct in this respect very much regrettable.  I have no doubt that it did increase costs as a large amount of time was spent dealing with this issue in the pleadings and questionnaires.  Not to then produce the father as a witness or to inform the other side or the court of this until the first day of trial was culpable and is something that I intend to take into account when making the costs order.

The history of offers made, including calderbank offers and the timing of those offers

20.Both sides claim to have “won” in that both sides claim to have beaten the court order and both refer to the previous calderbank offers made in that respect.

21.Looking at the situation afresh it appears that although the wife initiated settlement negotiations, the original offers going back to the spring of 2007 where very much on the low side.  The parties then appeared, as I have said above, to have been very close to settlement during the FDR hearing.  Each then withdrew their respective offers and reverted to something close to their original stance.

22.On the 7 September 2007, shortly after the hearing, when the second FDR hearing was vacated, the wife wrote to the husband offering him HK$2.8 million on a clean break basis.  She also sought HK$8,000 per month for C.  No further offers were made until shortly before the trial which began on the 21 April 2008.  On the 8 April the wife wrote offering the husband HK$3.5 million on a clean break basis, with no order as to costs.  It is interesting to note that this is the amount that the husband had been prepared to accept at the FDR hearing.  The husband responded a week before the trial on both an open and without prejudice basis.  At that stage he introduced the prospect of new valuations for the properties.  No order had been sought from the court and this was in contradiction to my order of the 16 October 2007, which said as follows:

“Valuation of the following properties to be agreed between the parties failing which a valuer shall be jointly appointed by the parties and a valuation report shall be filed no more than 28 days before the hearing of the trial …”

23.On the basis of the new valuation, the husband sought one property (31B), a car park space and a cash sum equivalent to the outstanding mortgage on 31B.  The outstanding mortgage stood at HK$3,267,236.  On my calculation this counter offer, relying on the existing valuations equated to HK$6.4 million.

24.The wife countered on the 17 April 2008 offering 31B subject to the existing mortgage and a further HK$450,000.  This offer, in cash terms was lower than her previous offer and would have amounted to just under HK$3 million.

25.Thus as at the date of trial neither party came close to my final order, which gave the husband 31B subject to the mortgage, the car park space and a lump sum of HK$1,240,000, totalling just under HK$4.4 million.

26.But the husband did beat all offers made by the wife prior to the first day of the trial. Consequently I accept the argument, that he had no option at that stage but to proceed with the trial.

27.Given that, how much weight should be given to the wife’s final offer made on the first day of the trial outside the door of the court? Was this offer too late to be effective in any event?

28.On that day the wife offered, in addition to the property, a lump sum of HK$900,000 (i.e. an additional HK$450,000), plus HK$450,000 in return for the husband’s share of the Zurich fund. In addition she proposed setting up a trust fund for C, into which she would pay HK$4 million, HK$2 million of which would be the husband’s contribution. It was unclear where the HK$4 million would come from. From the husband’s perspective, he would receive HK$3.9 million for himself and C’s future financial needs would be provided for. He would continue to pay maintenance. Putting the provision for C to one side for a moment, it is quite clear that this proposal does not beat the court ordered amount. I am also of the view that this proposal was made too late in the day to be effective. The approach taken was very different and if it had been a serious proposal then the husband would have needed some time to consider its ramifications properly.

29.In so far as the trust fund for C is concerned, it has been suggested that it was inappropriate to confuse finances for C with the general ancillary relief proceedings.  I do not necessarily accept that this was inappropriate, as the issue of financial provision for C was something upon which the parties could quite properly have addressed me during the trial, if they had chosen to do so.  They did not.  This was also not a case of the parties using money to bargain in relation to formal orders for custody, care and control and access.  If that had been the case then I agree that that would have been wholly inappropriate. This was not the case.

Conclusion

30.Having considered all the relevant factors I will order that the wife pay a contribution towards the husband’s costs. The wife shall pay 1/3 of the husband’s costs of and up to the trial. She will pay the husband’s costs of and relating to this present hearing on costs. All costs to be taxed on a party and party basis if not agreed. There shall be a certificate for counsel.

31.In so far as the costs relating to the husband’s application pertaining to the 2008 Easter holiday is concerned, I will make no order as to costs.  It seems to me that emotions were running high at the time and that whereas the wife could be said to have acted unreasonably, the husband’s ex-parte application was also somewhat precipitous.

Mr. Robin Egerton instructed by Boase Cohen & Collins for the Petitioner

Ms. Jennifer Tsui instructed by Andrew Law & Frankie Ho for the Respondent

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[1] Report of the Costs Sub-Committee of the President’s Ancillary Relief Advisory Group (2003) endorsed by the Court of Appeal in Norris v Norris; Haskins v Haskins [2003] 2 FLR 1124, CA.

[2] GW v RW (financial provision: departure from equality) [2003] EWHC 611 (Fam), [2003] 2 FCR 289, [2003] 2 FLR 108.