Civil procedure — costs — matrimonial proceedings — preliminary issue trial involving third party interest — application for leave to appeal against decision on costs — refused
Family law — divorce — ancillary relief — costs — dispute on beneficial ownership involving third party interest — duty of parties and third party to engage in constructive settlement negotiations, such as mediation — Practice Direction 15.10
Family proceedings — observations on problem of disproportionate legal costs — urgent need for practitioners to be more proactive in resolving disputes through effective and proportionate means — need for courts to adopt proactive case management
At a preliminary issue trial concerning the beneficial interest in matrimonial property, the Trial Judge found against the wife (“W”) and held that the husband (“H”) and his father (“F”) were the beneficial owners of the property and F was the sole beneficial owner of the car park. The Judge made no order as to costs between W and H, and ordered that W pay 80 percent of F’s costs. H and F’s application for leave to appeal against the costs decision was rejected by the Judge. H and F renewed their respective applications to the Court of Appeal which dismissed F’s application. At the rolled-up hearing in respect of H’s application, the Court rejected the submission that the trial of preliminary issue was not part of the matrimonial proceedings. The Court also made observations on case management issues to facilitate parties in matrimonial disputes to undergo alternative resolution processes, including extending FDR procedures to cover disputes on beneficial ownership involving interested parties.
Held, refusing to grant leave to H to appeal against the costs decision and dismissing his application for costs, that:
Preliminary issue trial procedure
1) Issues on ownership between a spouse and a third party, insofar as it was necessary to determine the same, had 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, there were reservations as to prescribing that a trial of preliminary issue was the only way forward once an issue on third party beneficial ownership was raised. There were also reservations on prescribing that a FDR hearing must be postponed until after the trial of the preliminary issue (TL v ML  1 FLR 1263, A v A  2 FLR 467, Leung Wing Yi Asther v Kwok Yu Wah (2015) 18 HKCFAR 605 considered). (See para. 21.)
2) There was a difference between cases where the third party was the legal owner or one of the legal owners of the disputed property and cases where a spouse claimed that the third party had a beneficial interest in a property legally held under the name of that spouse. In the former situation, 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 was 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 decided to contest the ownership issue, he or she should apply to be joined as a party to the proceedings. If the third party did not apply to be joined, he or she would be bound by the judgment. Irrespective of the role of the third party contesting the ownership issue, given that the ancillary relief application was the substratum for such contest, the primary protagonists were often the spouses. H’s submission that the trial on preliminary issue was not part of the matrimonial proceedings was rejected (Goldstone v Goldstone  1 FLR 1926 applied). (See paras. 23, 25–28.)
Parties’ duty to engage in constructive settlement negotiation
3) It was not uncommon for matrimonial or family proceedings to last too long and for the costs to be disproportionate to the family wealth. The parties and their advisers had a positive duty to engage in constructive settlement negotiations and to participate in alternative dispute resolution processes like meditation, FDR and CDR in good faith. There was an urgent need for practitioners to embrace a more proactive mindset to resolve family disputes through effective and proportionate means and a need for the courts to adopt proactive case management to curtail excesses in litigation. The best procedure for resolving the dispute would depend on the circumstances of the case (KSO v MJO and MJO (PSO intervening)  1 FLR 1036 considered). (See paras. 29, 31, 44.)
4) The adoption of the procedure for a preliminary issue trial could be very expensive and time-consuming, as in this case. While this Court did not disagree with the directions for a preliminary trial, even where such direction was made, the parties and the third party should engage positively to resolve the ownership dispute by more proportionate means. There were provisions in Pt.2.5 of Practice Direction 15.10 on Family Mediation for other respondents/intervening parties to the proceedings to consider the use of mediation. The general guidance at paras 1.1–1.5 of Practice Direction 15.10 was equally applicable to these parties. (See paras. 38, 41.)
5) The conduct of a party in adopting an uncooperative stance could, and very often would be taken into account under O. 62 r. 5(2) of the Rules of the High Court (Cap. 4A, Sub.Leg.). There was no justification for exonerating a third party from the obligation to participate in good faith in a process designed to facilitate settlement of a matrimonial or family dispute as directed by the court though he or she was not a party to the marriage. The financial burden on the family pot occasioned by a trial of a preliminary issue was no less than that occasioned by other issues in the ancillary relief application. Even though the family pot might not be of as much concern to the third party as the spouses, the third party was very often closely related to the family, as here. In any event, in view of the serious costs and time implications arising from a trial of a preliminary issue, there was nothing objectionable in requiring the third party to participate in such a process in good faith in order to explore if overall or partial settlement could be achieved. Failure to do so should be taken into account under O. 62 r. 5(2). (See paras. 53–54.)
6) On the whole, there were no reasonable prospects of success in H’s intended appeal nor any other reasons in the interest of justice to warrant leave being granted. (See paras. 55–66.)
This was the first respondent-husband’s application for leave to appeal against an order for no order as to costs made by Judge Grace Chan on 29 June 2018 in respect of a preliminary issue trial in which the first respondent-husband was successful as against the petitioner-wife. The facts are set out in the judgment.