TSANG KAM MING t/a GOOD HARBOUR PROPERTY AGENCY CO. v. ARTCHAMP INVESTMENT LTD.

HCA 256/1998

Headnote

Master's appeal. Practice and procedure. Application by defendant for leave to withdraw notice of payment into court and for order for payment out. After payment in was made defendant located a key witness and filed an amended defence as well as a counterclaim. Court satisfied that the matters pleaded in the amended pleading put a wholly different complexion on the case. Good reason shown for leave to defendant to withdraw notice of payment into court. No express provision in the rules for payment out to defendant. Held that it matters not whether the court's jurisdiction to order payment out to defendant is by implication in r.1(3) of O.22 or under the court's inherent jurisdiction. The court has a complete discretion over the matter. If in a proper case the court came to the view that the defendant should be given leave to withdraw the notice of payment in then it can go on to consider whether or not it is just to order payment out of the money in court to the defendant. Application granted. Appeal allowed.

HCA 256/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 256 OF 1998

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J U D G M E N T

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1. This is the defendant's appeal against the decision of Master M. Rogers given on 30 October 2001 ordering that the defendant's summons dated 27 July 2000 be dismissed. By the defendant's summons the defendant applied for leave to withdraw the notice of payment into court dated 7 March 1998 and for the payment out to the defendant's solicitors of the sum of HK135,000.00 which was paid into court on 7 March 1998.

2. The background facts are that at all material times the plaintiff carried on the business of a property agency. The defendant at all material times was the vendor of nine properties which were sold to various purchasers through the plaintiff's agency. The plaintiff claimed that commission was due to him which was not paid by the defendant. On 17 January 1998 he issued his writ and his statement of claim against the defendant claiming the sum of HK$262,033.80 for commission which the plaintiff claimed was due to him from the defendant.

3. By its defence filed on 20 February 1998 the defendant denied liability to the plaintiff. The defence consisted of non-admissions and denials. No positive case was asserted.

4. By its amended statement of claim filed on the same day, i.e. 20 February 1998, the plaintiff made amendments to the statement of claim giving particulars of the commission agreements in support of his claim for the commission due to him from the defendant.

5. On 7 March 1998 the defendant served a notice of payment into court on the plaintiff giving notice that it had paid into court the sum of HK$135,000.00. The said sum was paid into court in satisfaction of all the causes of action in respect of which the plaintiff claimed.

6. After that notice was served, the defendant filed its amended defence and counterclaim dated 20 March 1998 whereby a positive defence was asserted together with a counterclaim for the sum of HK$1,243,340.00. In short, the defendant's case in its amended pleading was that the purchasers of six out of the nine properties who were introduced by the plaintiff to the defendant were in fact the plaintiff himself, a company controlled by him namely, United System Consultant Co. Ltd., and his servants or agents. It was also alleged in the amended pleading that the plaintiff was in a position in which his interest and his duty to the plaintiff was in conflict and that there was no disclosure by him to the defendant of his conflict of interest in the property transactions. It was further alleged that the plaintiff made secret profits from the re-sale of the said six properties totalling HK$1,243,340.00. A defence of set-off was also pleaded together with a counterclaim which would far exceed the amount claimed by the plaintiff.

7. By its amended reply and defence and counterclaim the plaintiff denies the allegations of the defendant.

8. By its summons dated 27 July 2000 but filed on 28 July 2000 the defendant made its application for an order that it be at liberty to withdraw the notice of payment into court dated 7 March 1998 and that the sum of HK$135,000.00 paid into court on 7 March 1998 be paid out to its solicitors without further authority. The application came before Acting Registrar, C. Chan (as he then was) on 4 September 2000 who adjourned it for argument to a date to be fixed. No steps were taken by either party to fix a date until much later and the matter came before the master on 30 October 2001 who dealt with the application and dismissed it.

9. Order 22 r.1(3) of RHC provides as follows :

"A defendant may, without leave, give notice of an increase in a payment made under this rule but, subject to that and without prejudice to paragraph (5), a notice of payment may not be withdrawn or amended without the leave of the Court which may be granted on such terms as may be just."

10. There is no dispute between the parties that the court has a discretion to permit a defendant to withdraw a notice of payment into court on such terms as may be just. A defendant who has made a payment into court is not entitled as of right to withdraw or amend the notice of such payment in and the court has a complete discretion. In Cumper v. Pothecary [1941] 2 KB 59, it was held, inter alia, that a defendant who has paid a sum into court is not entitled, as of right, to resile from that step but must satisfy the court that he has good reasons for so doing.

11. It is accepted by Ms Wong, counsel for the defendant, and Ms Fung, counsel for the plaintiff, that the defendant has to satisfy the court that there are good reasons for allowing the defendant to withdraw the notice of payment in. The discovery of further evidence which puts a wholly different complexion on the case would be a good reason (Cumper v. Pothecary at page 70 per Goddard LJ).

12. The evidence filed on behalf of the defendant shows that the sum of HK$135,000.00 was paid into court out of goodwill in the hope that the litigation could be disposed of at an early stage thereby saving time and costs. The sum of HK$135,000.00 was an arbitrary figure namely, 50% of the amount claimed.

13. The evidence shows that it was only after the payment into court on 7 March 1998 by the defendant that the defendant was able to locate a key witness. This was a witness who had dealt with the plaintiff's representatives at the material time. He had resigned in about November 1996 long before the plaintiff brought these proceedings in July 1998. In para. 5 of the affirmation of Yeung Wing Sang of the defendant, he states :

"Prior to the date of the payment into Court, the Defendant was unable to secure evidence to substantiate a case as it now stands as the Amended Defence and Counterclaim. Hence the Defence filed by the Defendant before the payment in was no more than a bare denial. Since the date of the payment into Court, the Defendant was able to locate a key witness who would give evidence at the trial of this case to the effect that :-

(1) the Plaintiff has failed to disclose to the Defendant his interest in the sale and purchase of the properties concerned prior to the signing of the agreements for sale and purchase or at all; and

(2) the Plaintiff has failed to obtain the Defendant's consent to his entering into the agreements for sale and purchase of the properties in advance or at all."

And in para. 6, he states :

"This key witness of the Defendant was the person who dealt with the staff or representative of the Plaintiff at the material time. He had resigned from the Defendant in about November 1996 long before the Plaintiff sued the Defendant in January 1998. The Defendant was only able to locate this key witness and obtain legal advice as to its defence in light of the new evidence after the sum of HK$135,000 was paid into Court."

14. The plaintiff has filed evidence to the effect that the defendant has all along known that he himself had purchased one of the properties and also that he had represented United System Consultant Co. Ltd. when signing provisional sale and purchase agreements on behalf of that company in relation to two properties. His case as pleaded in the amended reply and defence and counterclaim is that the defendant knew at all material times that the plaintiff had an interest in some of the properties and that there was no conflict of interest. His case is also that no secret profit was made by him as the defendant had consented to those transactions without objection.

15. As is accepted by both counsel the court cannot deal with the merits of the case at this stage. Whether the plaintiff is right in his contentions or whether the defendant is right in its contentions is a matter to be resolved at trial. However, I am convinced that the matters pleaded in the amended defence and counterclaim do put a wholly different complexion on the case. If the defendant succeeds in its amended defence and counterclaim the plaintiff would not be entitled to commission in respect of the six transactions out of the nine. As regard the remaining three transactions the commissions claimed for these amount to only HK$77,700.86. The counterclaim if successful is far in excess of this amount. In the circumstances I am satisfied that the matters pleaded in the amended defence and counterclaim put a wholly different complexion on the case and that is a good reason for allowing the defendant to withdraw its notice of payment in. I am satisfied that on the evidence before the court at the time of the payment in on 7 March 1998 the defendant was not in a position to allege and prove and hence, unable to plead, the matters raised in the amended defence and counterclaim. The defendant was only able to plead the same after locating its key witness and obtaining the relevant information from him. This occurred after the payment in had been made on 7 March 1998.

16. Although O.22, r. 1(3) gives the court a discretion to give leave to a defendant to withdraw a notice of payment in there is no express provision for an order that the money be paid out to the defendant. It is to be observed that r.5 of O.22 with the heading "money remaining in court" provides as follows :

"If any money paid into court in an action is not accepted in accordance with rule 3, the money remaining in court shall not be paid out except in pursuance of an order of the Court which may be made at any time before, at or after the trial or hearing of the action; and where such an order is made before the trial or hearing the money shall not be paid out except in satisfaction of the cause or causes of action in respect of which it was paid in."

So, by r.5, money paid into court shall not be paid out except in satisfaction of the cause or causes of action in respect of which it was paid in.

17. This was considered by Lawton LJ in his dicta in Garner v. Gleggs [1993] 1 WLR 862 at page 868 when he said after reciting the English r.5 which is the same as our r.5 :

"That seems to me to be to be mandatory in its terms, and to be in conflict with Ord. 22 r.1(3) unless there is read into sub-rule 3, by implication, a provision that if the notice of payment is withdrawn, the money in court may also be withdrawn. We understand from counsel that the practice has been that defendants are allowed, on application to the court, to withdraw money in court."

I would observe that Oliver LJ ( as he then was) agreed with the judgment of Lawton LJ. Goff LJ (as he then was) also took the view that the money could be withdrawn by implication in r.1(3). At page 871 he said :

"Third, notice of payment in (and, by implication, a payment in itself) may only be withdrawn by the defendant by leave of the court : see r.1(3). In practice such leave will only be given where the defendant has shown good reason, and that ordinarily means a material change of circumstances."

18. Ms Fung does not dispute the court's jurisdiction to permit a defendant not only to withdraw a notice of payment in but also to obtain an order for payment out to the defendant but she submitted that this was under the court inherent jurisdiction rather than by implication in r.1(3). It seems to me that it matters not whether the court's jurisdiction to order payment out to a defendant is by implication in r.1(3) or under the court's inherent jurisdiction. As was said by Oliver LJ (as he then was) in W.A. Sherratt Ltd. v. John Bromley (Church Stretton) Ltd. [1985] 1 QB 1038 at 1054 when he was dealing with O.22, r.1(3) :

"In terms it does no more than enable a defendant to withdraw his notice with leave so that the moneys in court are no longer capable of being accepted by the plaintiff. It has been said that, by implication, it also authorises the court to order payment out, but whether this is so or whether the court's power to order payment out rests on the inherent jurisdiction which as Cumper v. Pothecary [1941] 2 K.B. 58 shows was previously exercisable is immaterial."

19. The court in my judgment has a complete discretion over the matter. And if in a proper case the court came to the view that the defendant should be given leave to withdraw the notice of payment in then it can go on to consider whether or not it is just to order payment out of the money in court to the defendant.

20. It is said on behalf of the plaintiff that the money should not be paid out to the defendant because the plaintiff, being a secured creditor to the extent of the amount paid in, would become an unsecured creditor once payment out has been effected (W.A. Sherratt Ltd. v. John Bromley Ltd. [1985] 1 QB 1038).

21. In that case, however, the only ground advanced for an order for payment out to the defendant was that the defendant went into liquidation after the payment in was made. It was held that the defendant's liquidation was not by itself a material consideration which could properly be regarded as justifying the court exercising its discretion to order repayment. That is quite different from the circumstances of this case. Even though the plaintiff is a secured creditor to the extent of the amount paid in that is not, in my view, a cogent reason for not ordering the payment out to the defendant. There is no suggestion at all that the defendant is insolvent or is or will be in liquidation before trial. That is not a sufficient reason in this case for refusing an order for payment out to the defendant.

22. The plaintiff also relied on para. 12 of his affirmation where he states :

"Since I am legally aided, I am advised that even if the Defendant succeed in its Counterclaim, it could not get any costs from me. As the Defendant is a limited company, once the payment in is allowed to be withdrawn out from the court, there is high possibility the Defendant could dissipate all its money or assets, then I may face an empty judgment and the legal aid could not recover any contribution from me."

Two points emerge from this. The first point to note is that there is no evidence at all from which any court could reasonably draw an inference that there is a real risk that the defendant is dissipating any of its assets. This is just a bare assertion without any evidential basis. The second point is that, as I have pointed out to Ms Fung, the legal aid certificate dated 18 November 2000 granted to the plaintiff states that the maximum contribution payable by the plaintiff to the Legal Aid Office is HK$1,000.00. Ms Fung confirmed that this amount has not been increased and she did not pursue the point that somehow the Legal Aid Office would be unable to recover this contribution from the plaintiff if the money was to be paid out to the defendant.

23. There is also the complaint made by the plaintiff that there has been a long delay in taking out the application by the defendant. There is no doubt that there has been a long delay. The amended defence and counterclaim was filed on 20 March 1998 but the defendant only took out its application on 28 July 2000 about 2 years and 4 months later. There has been no explanation for the delay. Delay is, in my view, a factor to be taken into account. However, it has to be viewed in the context of whether the plaintiff has been prejudiced by the delay. The plaintiff has not taken out the money paid into court within the time provided by the rules. There is no suggestion or evidence that the plaintiff even wishes to apply to the court for leave to take the money out of court. Despite the delay the plaintiff has not, in my view, been prejudiced.

24. I am satisfied that the defendant is entitled to the order sought. I allow the appeal and set aside the order of the master. I make an order that the defendant is to be at liberty to withdraw the notice of payment into court dated 7 March 1998 and that the sum of HK$135,000.00 paid into court on 7 March 1998 be paid out to its solicitors without further authority.