GLORY SKY FINANCE LTD v. CHEN JIANHUA AND ANOTHER

HCMP 2482/2014

[2018] HKCFI 1657

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2482 OF 2014

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D E C I S I O N

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The appeal

1.  By an order made on 19 March 2018 upon the defendants’ application by summons dated 4 December 2017 (“Amendment Summons”), Master Phoebe Man:

(1) gave the defendants leave to file and serve their amended defence and counterclaim within 14 days;

(2) directed the plaintiff to make consequential amendments and file and serve its amended reply and defence to counterclaim within 14 days thereafter;

(3) directed the defendants to file and serve their reply to the plaintiff’s amended defence to counterclaim (if any) within 7 days thereafter;

(4) ordered the defendants to pay the plaintiff the costs of and occasioned by the amendments to their defence and counterclaim, to be taxed if not agreed; and

(5) ordered the plaintiff to pay the defendants the costs of the hearing on 19 March 2018 (“Hearing”), to be taxed if not agreed.

2.  Before the court is the plaintiff’s appeal by notice dated 28 March 2018 against the order that it should bear the costs of the Hearing (“Appeal”).

The amendments and the reason therefor

3.  To put the order under appeal in context, in these proceedings, the plaintiff, a licensed money lender, claims against the defendants for:

(1) repayment of loans (“Loans”) under 2 loan agreements secured by 2 mortgages dated 17 February 2014 and 12 May 2014 (“Mortgages”) over Flat B, 41/F, Tower 3, Grand Promenade, 38 Tai Hong Street, Hong Kong (“Property”), of which the defendants (husband and wife) have been the registered owners since 25 October 2007; and

(2) vacant possession of the Property.

4.  It is the plaintiff’s case that the 1^st defendant acting for himself and for the 2^nd defendant under a power of attorney dated 10 January 2014 approached the plaintiff on 12 February 2014 and 28 April 2014 for the Loans, offering the Mortgages as security.[1]

5.  By their defence and counterclaim filed on 7 April 2016, the defendants:

(1) denied that they borrowed the Loans or entered into the Mortgages;

(2) averred that the person who approached the plaintiff was not the 1^st defendant but a fraudster;

(3) in particular, pleaded in paragraph 5 that the original title deeds of the Property (“Title Deeds”), then said to have been kept in the drawer of the bedside table of the master bedroom of the Property, had been stolen by some fraudsters who had misused the defendants’ identities to forge the 1^st defendant’s signatures on various documents in relation to the Loans and the Mortgages;

(4) counterclaimed for, inter alia, the Title Deeds to be returned to them.

6.  According to the 2^nd defendant, the initial averment of the theft of the Title Deeds was based on an assumption that the documents were with the plaintiff, made partly due to the claim made by Ching & Co (“CC”), the plaintiff’s solicitors, at a hearing on 11 January 2016 (which was before the service of the statement of claim) that the Title Deeds had been surrendered to the plaintiff and partly when the 2^nd defendant could not find the Title Deeds in the said drawer where she has kept some other documents relating to the purchase of the Property. Such assumption was also subsequently reinforced by the statement in the affirmation made on 16 June 2016 by one Lai Sau Lan, clerk to Wong Fung & Co, the firm acting as independent advisor to the person believed to be the 1^st defendant in respect of the Loans and the Mortgages that the Title Deeds had been delivered to CC who acted as the plaintiff’s solicitors in the transactions on 13 February 2014.

7.  It became necessary for the defendants to seek leave to amend their pleading because on 7 September 2017, the 2^nd defendant discovered that, contrary to her previous belief and contrary to what was pleaded in paragraph 5 of the defence and counterclaim, the Title Deeds have in fact always been kept by her inside a safety deposit cabinet located in a safety deposit room at the headquarters of the defendants’ company in Wujiang, Jiangsu, China.

8.  The defendants made this discovery in the following circumstances.  On 29 August 2017, at the hearing of the plaintiff’s application for extension of time to file witness statements, Mr Ching Ming Yu of CC stated for the first time that the Title Deeds were then held by the Hong Kong Police.  After the hearing, on 30 August 2017, the defendants’ solicitors, Holman Fenwick Willan (“HFW”), sought confirmation from the police.  On 6 September 2017, HFW learned from the police that the title deeds obtained from the plaintiff had been found to be inauthentic and that the plaintiff had been informed accordingly in around early August 2017.

9.  Having been so alerted that the plaintiff does not in fact have the Title Deeds, a thorough search by the defendants resulted in the discovery of the Title Deeds at the headquarters of their company on 7 September 2017.

The correspondence on the amendments and the associated costs issue

10.  Upon discovery of the Title Deeds on 7 September 2017, by a letter dated 21 September 2017 from HFW to the clerk to Master Simon Ho and copied to CC, the defendants informed both the court and the plaintiff of such discovery and requested for leave for the defendants to file and serve an affirmation to inform the court of the relevant details.  HFW wrote to Master Simon Ho’s clerk about this because the master had reserved decision on the defendants’ application for specific discovery of, inter alia, the original title deeds of the Property made in the belief that they were in the plaintiff’s possession.

11.  On 3 October 2017, CC wrote to the court, copied to HFW, making the submission that the defendants ought to amend their defence first; that they should be allowed to adduce further affirmation only after the defence has been amended and that the defendants’ application for specific discovery should be put on hold until the defendants has amended the defence.

12.  On 21 November 2017, CC wrote to HFW to suggest that the case management conference scheduled for 7 December 2017 (“CMC”) should be adjourned by consent as the plaintiff expected that the defendants may apply for leave to amend the defence and counterclaim given their change of position regarding Title Deeds.

13.  HFW replied on 22 November 2017 that they would try to prepare the amended defence and counterclaim before the CMC and take out a summons for leave to amend to be fixed on the same date as the CMC, so that the court could give directions for amendments to the pleadings.  By letter dated 23 November 2018 to CC, HFW invited the plaintiff to agree to such directions.

14.  Then, by letter dated 27 November 2017 from CC to HFW, the plaintiff questioned for the first time whether the defendants were entitled to leave to amend as they wanted to resile from an “admission” that the Title Deeds had been stolen.

15.  HFW filed the Amendment Summons on 4 December 2017 returnable before Master A Ho on 7 December 2017, i.e. the date of the CMC.  I note that the defendants have explained in details why the defendants initially thought that the Title Deeds had been stolen and how the 2^nd defendant came to locate them in sub-paragraphs (a) to (o) under paragraph 5 of the amended defence and counterclaim, which was attached in draft form to the Amendment Summons.

16.  Given the plaintiff’s said stance, at the CMC, the Amendment Summons was adjourned for argument with directions for the filing and service of affirmations in support / opposition.

17.  The defendants filed and served a 7 page (or 28 paragraph) supporting affirmation made by the 2^nd defendant on 28 December 2017.  In particular, paragraphs 3 to 25 of the affirmation verify paragraph 5 of the amended defence and counterclaim.

18.  The plaintiff did not file or serve any affirmation in opposition.  By letter dated 22 January 2018 from CC to HFW, the plaintiff informed the defendants that, having had sight of the 2^nd defendant’s supporting affirmation, it was considering its objection to the amendments and would confirm whether it would maintain or withdraw the same by 21 February 2018.

19.  In response, on the same date, HFW asked the plaintiff to confirm before noon on 15 February 2018 if it intended to withdraw the opposition as counsel for the defendants required for the brief for the Hearing to be delivered to her by mid February 2018 at the latest because of her other commitments.

20.  On 15 February 2018, CC informed HFW that it was likely that the Amendment Summons would no longer be opposed and that the plaintiff would make a final decision by 21 February 2018.  CC asked HFW to withhold delivering brief to counsel in the meantime.

21.  CC finally confirmed that the Amendment Summons would no longer be opposed and asked for the costs of and occasioned by the application and the amendments to be paid by the defendants to the plaintiff at 15:37 on 21 February 2018.

22.  HFW disagreed with the costs order proposed by CC.  By letter dated 27 February 2018, HFW countered that any costs incurred as a result of the plaintiff’s late withdrawal of objection should be borne by the plaintiff.  One of the reasons put forward by HFW was that the need for amendment arose partly (if not wholly) due to the plaintiff’s concealment of the whereabouts of the Title Deeds and of the police’s finding that the title deeds held by the plaintiff were in fact not authentic.  At the same time, by a “without prejudice” letter of the same date from HFW to CC, the defendants offered to agree to the costs of the application and the amendments being made costs in the cause.

23.  There was no reply to either of HFW’s letters of 27 February 2018.  On 7 March 2017, HFW sent a chaser.  On the same date, CC informed the court that the plaintiff no longer opposed the Amendment Summons but that costs was still being negotiated between the parties.

24.  By letter dated 8 March 2018, CC repeated to HFW that the defendants should bear the costs of and occasioned by the application and the amendments.

25.  In reply on the same date, HFW maintained that the usual costs order should not apply to the Amendment Summons because of the plaintiff’s conduct in misleading the court and the defendants on the whereabouts of the Title Deeds and that the appropriate order should be costs in the cause.  Given the parties’ disagreement, HFW suggested that the matter of costs be dealt with by written submissions.

26.  By letter dated 13 March 2018, HFW stated to CC that as the plaintiff had failed to respond as to whether it agreed for the costs issue to be dealt with by written submissions, the defendants would proceed to prepare for the Hearing, to which CC replied on 14 March 2018 that the plaintiff was in favour of dealing with the matter of costs at the coming hearing instead of by way of written submissions without a hearing.

27.  The final round of correspondence on costs before the Hearing took place on 14, 15 and 16 March 2018 with the plaintiff sticking to its position and the defendants offering the following on a “without prejudice” basis;

“(1) Costs of the application to be costs in the cause; and

(2) Costs of and occasioned by the application and the amendment to the Defence and Counterclaim be costs in the cause (except that the consequential amendment to pleadings by the Plaintiff, namely the amendment to the Reply and Defence to Counterclaim, if any, shall be paid by the Defendants to the Plaintiff).”

28.  In summary, by the time of the Hearing, the plaintiff no longer opposed the Amendment Summons but the parties could not agree on costs.

Relevant principles

29.  A judge in chambers will not allow an appeal from a costs order made by a master unless it is unreasonable or erroneous in law, i.e., if the master either failed to take into account proper matters or took into account matters that should not have beentaken into account.  See Hong Kong Civil Procedure 2018, Volume 1 at §58/1/6 and the cases cited therein.

30.  Where the indulgence of the court is sought and contested, an example of which is an application for leave to amend pleading, the court distinguishes between two sets of costs:

(1) the costs of and occasioned (or thrown away or wasted) by the indulgence being granted and the costs of the summons by which the application for indulgence is made; and

(2) the costs of the contested substantive hearing.

31.  Although the first set of costs would normally be awarded in favour of the other party in any event, the second set of costs would be made against him if he unreasonably opposes the application.  As explained by Yam J at 2C-J in Lessy SARL v Pacific Start Development Ltd[1996] 2 HKLR 1:

“The rationale behind differentiating these two sets of costs is not to encourage the other side who has decided to resist an application to amend to have a try-on. Otherwise the resisting party would be under an impression that, win or lose, they will get their costs any way. The resisting party should be deterred to adopt such an attitude. In deciding to resist the amendment, they should know that in the event they have lost the argument, they would be ordered to pay the cost of the argument and that is the costs of the hearing whilst the first set of costs (i.e. the costs of an occasioned by the amendment), would be to them in any event.”

32.  The English courts adopt a similar approach.  In Le Chemise Lacoste v Sketchers USA[2006] EWHC 3642 (Ch), which concerned an application for amendment by the claimant of the particulars of claim, Mann J observed in response to the claimant’s submission that the costs that had been inflated by an unreasonable refusal to consent to the amendment should be borne by the defendant:

“The first matter I have to deal with is whether that principle is right, and how it applies in this case. It has been agreed that under the CPR regime as party who has an amendment which really ought to be consented to and which it is obvious that the court is going to grant if there is a dispute, is an amendment in respect of which the costs of an application can be visited on the amended-against party, notwithstanding the normal rule as to the costs of amendment. It will behove parties in commercial litigation, and indeed in all litigation, to view sensibly applications to amend by the other side and not to inflate the costs unnecessarily by an unreasonable refusal to consent. If the amending party is put to the trouble of an application which is acceded to … it demonstrates the financial folly of the parties not dealing with matters sensibly and in a way in which the courts expect matters to be dealt with nowadays. The principle therefore is that which I have just expressed, that is to say the amended against party can expect to end up paying costs of an application for permission to amend which ought to be unnecessary.”

33.  In the different context of an application for leave to serve a notice of appeal out of time after leave to appeal had been granted, the Court of Appeal ordered the opposing party to pay the costs of the application incurred by the applicant after he had had the opportunity to peruse the summons and the supporting affirmation upon which he should have acceded to the application: Asgain Company Ltd v Cheng Ka Yan, HCMP 1019/2017, unreported, 31 August 2017.  Lam VP, giving the judgment of the court, said at [20]:

“Lessy SARL v Pacific Star Development Ltd [1996] 2 HKLR 1 and Man Fong Hang v Man Ping Nam [2002] 4 HKC 538 are simply instances where the court, in the exercise of its discretion on costs, took account of the unreasonable conduct of the litigation by a party. Thus, notwithstanding that the nature of relief is a matter of indulgence, if the opposition to such indulgence is unreasonably made, the party who unsuccessfully opposed could be ordered to bear some of the costs. Put in another way, if the court is of the view that the application should not have been opposed based on matters already known to the opposing party, the costs attributable to the unsuccessful opposition were actually caused by the opposition rather than the party seeking indulgence. In that event, there is no reason in principle why the court could not consider ordering costs against the unsuccessful opposing party.”

Discussion

34.  I have set out in detail the correspondence on the amendments and the associated costs issue in paragraphs 10 to 27 above.  I do so deliberately with a view to showing that neither party emerged blameless.

35.  In applying for leave to amend the defence and counterclaim, the defendants were seeking an indulgence.  It was irrational for the defendants to blame the plaintiff for their false original pleading that the Title Deeds had been stolen.  They are the registered owners of the Property.  They hold the Title Deeds.  They could have found, and would have realised, that the documents are in their possession had they conducted an exhaustive search for the same.  And they should have done so before putting forward the positive case that the Title Deeds had been stolen.

36.  Further, according to paragraph 18 of the 2^nd defendant’s supporting affirmation, the information provided by the police to HFW is that the plaintiff was informed of the inauthenticity of the title deeds held by it only in around August 2017, which was well after the filing and service of the defence and counterclaim containing the averment that the Title Deeds had been stolen from the defendants.  Before it was so informed by the police, the plaintiff could not be criticised for thinking that the title deeds in its possession were genuine.

37.  As held by the Master, contrary to the defendants’ contention in correspondence, the plaintiff is entitled to the costs of and occasioned by the defendants’ amendments to the defence and counterclaim.  On a fair reading of the solicitors’ correspondence, the defendants’ refusal to agree to such usual costs order did contribute to the issue of costs having to be resolved by the court.

38.  Nevertheless, on the costs of the Hearing, as confirmed by the Master’s notes of her reasons on the court file, which I have taken the precaution of reading, she took the view that the plaintiff should have consented to the proposed amendments at an earlier time and its refusal to do so was unreasonable and the ultimate cause of the Hearing.  It is not unreasonable for the Master to think so.  She certainly did not err in law in thinking so.

39.  The purpose of the amendments to paragraph 5 of the defence and counterclaim is to correct an allegation since found to be inaccurate.  The defendants had no alternative but to amend.  As shown in CC’s letters of 3 October 2017 and 21 November 2017 (see paragraphs 11 and 12 above), upon being informed of the defendants’ discovery of the Title Deeds in their possession, the plaintiff itself immediately saw the need for the defendants to amend paragraph 5 of the defence and counterclaim. 

40.  There were simply no conceivable grounds upon which the plaintiff could raise any or any arguable objection to the amendments.  Mr Ching for the plaintiff places reliance on the following paragraphs in the decision handed down by Master Simon Ho on the defendants’ application for specific discovery on 17 November 2017:

"26. Notwithstanding it was so said in the defendants' solicitors' letter that they discovered the authenticity issue of the title deeds only after the hearing by making further enquiry with the police, the fact remains that so far I see no genuine extenuating reason that can be offered by the defendants to explain why they could not have discovered much earlier what they believe to be the original title deeds in their Suzhou office.

27. Not only that, the defendants' account of their recent discovery of title deeds as related in their solicitors' letter immediately causes one to raise one's eyebrows when the defendants out of the blue can now somehow discover what they believe to be the original title deeds in their office in Suzhou City after being urged by their solicitors (following from their recent enquiry with the police) to search again thoroughly the whereabouts of the title deeds. One must be mindful of the fact that the defendants had pleaded earlier in their Defence that they are both residents of Mainland China, and after becoming aware of the demand letter from the Plaintiff as notified by their daughter on or about 3^rd November 2014, the 2^nd Defendant came to Hong Kong on 4^th November 2014 to investigate and discover that the title deeds originally place in the drawer of the bedside table of the master bedroom of the subject property were missing.  On that basis, they pleaded that the original title deeds were stolen, and reported to the police about the matters of missing title deeds and some fraudsters misusing their identities to obtain loans from the Plaintiff. Whereas, now in fact (according to their solicitors' recent letter) what they believe to be original title deeds were actually kept in their office in Suzhou. Or, if those title deeds were not in their Suzhou Office when the 2^nd Defendant conducted the search of the subject property on 4^th November 2014, one would then rhetorically ask why such title deeds now miraculously re-appear in their office?"

41.  I do not quite follow the point being made.  If the plaintiff is casting doubt on the credibility of the defendants’ alleged initial belief that the Title Deeds had been stolen, that is a matter for cross-examination at trial and not a ground for opposing the amendments.

42.  There are no hard and fast rules as to how much time a party can reasonably take on considering an application for leave to amend pleading by his opponent.  Each case depends on its own circumstances. However, reasonable time is not measured with reference to the date of the hearing for substantive arguments so that, as suggested by Mr Ching, the plaintiff may such time as it pleased provided that some time is allowed for the substantive hearing to be vacated by a consent summons.  Rather, reasonable time starts to run from the time when the responding party is put in possession of the material necessary for a proper consideration of the matter. A draft of the proposed amendments is normally sufficient.  In appropriate cases, such as where the proposed amendments withdraw the admission of a material assertion, the responding party may expect a supporting affidavit.

43.  In the instant case, the plaintiff was served with a draft of the amended defence and counterclaim, together with the Amendment Summons, on 4 December 2017.  There were 2 clear days before the CMC on 7 December 2017, which should have been sufficient for CC to consider the amendments and advise the plaintiff of the position that it should take on the same to enable the Amendment Summons to be disposed of at the CMC. 

44.  What I fail to understand is why the plaintiff should need more than 2½ months after the Amendment Summons (or more than 1½ months after the 2^nd defendant’s supporting affirmation) to sort out its stance on such a straightforward matter.  Mr Ching submits that the plaintiff was entitled to an explanation by the defendants on affidavit as to how they came to the wrong belief that the Title Deeds had been stolen and how they ended up locating the documents.  Such submission is premised upon the notion that the defendants were withdrawing an admission by the amendments.  This is clearly wrong.  The statement of claim was silent on the matter of the Title Deeds.  The averment of the theft of the Title Deeds was not a response to any allegation in the statement of claim but formed part of the defendants’ positive case that they were also the victims of a crime.  That being the case, the defendants need not have served any supporting affirmation. 

45.  Anyway, as noted in paragraph 15 above, the defendants have already given the explanation desired by the plaintiff in the particulars under paragraph 5 of the amended defence and counterclaim.  The supporting affirmation has not really added much to the matter.

46.  Had the plaintiff indicated consent (or no opposition) to the Amendment Summons at the CMC, any dispute over costs could and would have been dealt with there and then without the need for another hearing.  So analysed, if one gets to the root of the matter, the view can be legitimately taken that the Hearing was ultimately necessitated by the plaintiff’s failure to consent to the Amendment Summons at the CMC.  Consequently, the Master did not act unreasonable or err in law in awarding the costs of the Hearing to the defendants.

Orders

47.  For these reasons, I dismiss the Appeal. I also make an order nisi that the plaintiff should pay the defendants’ costs of and occasioned by the Appeal, to be taxed on a party and party basis if not agreed with a certificate for counsel for the hearing before me.