SUN HUNG KAI BANK LTD AND ANOTHER v. CHAN PARK CHI

Civil Appeal
No. 165 of 1986

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HEADNOTE

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Practice and Procedure

Where after the close of pleadings an original plaintiff has assigned his claim and a counterclaiming defendant intends to continue with his counterclaim against the original plaintiff but not against the assignee of the claim: an order to carry on the action under Order 15 rule 7(2) may make the assignee of the claim a party to the action and direct that, save as regards the counterclaim, the proceedings he carried on as if the assignee of the claim had beer substituted for the original plaintiff: combined effect of Order 15 rules 2 and 7(2) considered.

IN THE COURT OF APPEAL

Civil Appeal
No. 165 of 1986

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REASONS FOR JUDGMENT

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Clough. J.A.

1. These are the reasons of the court for its order, made on the 26th May 1987, on appeal by the second plaintiff (“STC”) varying the order of Godfrey J. made on the 3rd December 1986 in an action on a guarantee brought against the defendant by Sun Hung Kai Bank Limited (“the Bank”).

2. The judge's order was made on the first day of the trial of the action in the running list. The defendant had applied by a summons issued on the 2nd December 1986 to vary an order to carry on made by a master on the ex parte application of STC on the 19th November 1986 under Order 15 rule 7(2) on the footing that the Bank had assigned its interest in the guarantee to STC after the commencement of the Bank's action. The order directed that STC be made a party to the action and that the proceedings be carried on as if STC had been substituted for the plaintiff Bank. The purpose of the defendant's application was to restore the Bank as a party so that the defendant could continue to prosecute in the action a counterclaim which had been pleaded by him against the Bank. It was not suggested on appeal that the defendant intended to counterclaim against STC.

3. The judge's order abridged the time for the hearing of the summons and varied the master's order so as to direct that STC be added as the second plaintiff to the action, thereby making the Bank a co-plaintiff of STC. He awarded the costs of the summons to the defendant In any event. By its notice of appeal STC sought to obtain an order setting aside the judge's order and restoring the earlier order of the master. By its respondent's notice the defendant sought to advance additional grounds for supporting the judge's order.

4. The parties having thus by their notices entrenched themselves behind the respective orders most favourable to their respective interests, adopted a more flexible stance when the appeal came to be argued. Their concern was understandably more with the issue of costs rather than the procedural niceties involved in permitting the defendant to maintain his counterclaim against the Bank in the action. For the reasons appearing below this court ordered that the order of Godfrey J. should be varied by making an order to carry on the proceedings on the footing that STC be substituted for the Bank as the plaintiff in relation to the claim but that the Bank should remain as the defendant to the counterclaim. A consequential direction was given as to the entitlement of the action.

5. The background of the action explains why the procedural issue arose. The Bank sued the defendant on a guarantee dated the 11th March 1982 under which he had guaranteed the indebtedness of two debtors to the Bank to the extent of $350,000 and interest. By its specially indorsed writ issued on the 12th October 1984 the Bank claimed an outstanding sum of $206,082.64 with interest after giving credit for $100,778.07 which it had appropriated, in purported exercise of a right in that behalf under the guarantee, from a call deposit account of the defendant with the Bank.

6. The defendant pleaded in his defence that the result of various dealings between him and the manager of the Bank's branch in Central was that not only had he discharged the guarantee but the Bank had wrongfully helped itself to the sum of $100,778.07 in his call deposit account. This latter sum was the subject of the defendant's counterclaim against the Bank.

7. The action proceeded at a sedentary pace. An order was made on summons for directions on the 2nd April 1985. On the 30th April 1985 the Bank executed a Deed of Assignment by which it assigned inter alia its interest in the guarantee to STC absolutely. Notice of the assignment was given to the defendant on the 25th November 1985, but the action seems to have gone to sleep until the 3rd June 1986 when the defendant gave notice of intention to proceed with his counterclaim. On the 6th October 1986 the Bank gave notice of intention to proceed with its claim.

8. It was only at this late stage that it seems to have occurred to those advising the Bank and STC that the action required to be reconstituted. There followed a sequence of events which resulted in the action coming up for trial before the judge on the 3^rd December 1986 in a state of disarray.

9. On the 19th November 1986 STC, for whom the Bank's solicitors were then acting, applied ex parte pursuant to Order 15 rule 7(2) for the order to carry on which they were granted in the terms indicated above. This order was served on the Bank and on STC itself pursuant to Order 15 rule 7(4) on the 21st November 1986. Evidently the defendant's solicitors were informed of the order on the 20th November. On the same day the defendant applied to set down the action for trial in the running list. It is not clear whether the defendant or his solicitors had already learned about the master's order at the time of the application to set down on the 20th November, but it is clear that the Bank's solicitors saw fit to endorse their agreement to the application on the relevant document on the 20th November notwithstanding the fact that it named the Bank as the plaintiff at a time when they knew that the master's order had directed that STC be substituted as the plaintiff.

10. On the 2nd December 1986 (the day before the trial of the action on the 3rd December) the defendant's solicitors issued a summons, expressed to be issued under Order 15 rules 6 and 7, which was intended to undo the procedural confusion and to achieve the reconstitution of the action in such a manner as to permit the defendant to prosecute his counterclaim against the Bank notwithstanding the absolute assignment by the Bank of its interest under the guarantee to STC. The summons named the Bank only as the plaintiff in the action and the respondent to the summons. It was expressed to be directed to the Bank through its solicitors. It sought abridgment of the time for hearing and the substance of the relief sought was that Master Jones' ex parte order made on the 19th November 1986 should be varied in such a way as to add SCT as a party to the action in addition to, and not in substitution for, the Bank.

11. On the hearing of the appeal we were informed by leading counsel for STC that a copy of the draft summons had been supplied to STC on the. 2nd December but that the original was not served on STC until the day of the trial on the 3rd December 1986.

12. On the 3rd December 1986, when the trial began, the judge had first to deal with the summons. The Bank, which was no longer a party, was not represented and there was no evidence of service on it or on its solicitors. However STC appeared at the trial by counsel instructed by the solicitors who had previously acted for the Bank in the action.

13. The judge was thus presented with a procedural muddle. He rightly felt obliged to intervene to put matters right and make an order which would permit the defendant to prosecute his counterclaim against the Bank in the action. He saw the two alternatives available to him as being to bring back the Bank as a party either (1) by restoring it as a plaintiff on the footing that STC and the Bank would be represented by the same counsel and solicitors; or (2) restoring the Bank as a defendant by counterclaim.

14. In his oral judgment he expressed a preference for the second alternative but he said he felt unable to adopt it on the application before him without the consent of the Bank. Accordingly he very sensibly adjourned the hearing in order to give STC the opportunity of considering with the Bank whether the action could be reconstituted with the Bank's consent.

15. On the resumption of the hearing the judge was informed that no agreement had been reached between the parties. It was left to him to resolve the procedural issue raised by a summons which did not name the substituted plaintiff (STC) as a party to the action but only the Bank which had not been served, which was not represented and which had been displaced as a party by the master's order. Furthermore the Bank had refused to consent to be brought back into the action and thereby remove the difficulty felt by the judge about adding it as a plaintiff in the action on the summons before him.

16. The judge regarded the overriding consideration as being the justice and convenience of ensuring that the defendant's counterclaim against the Bank should be heard at the same time as STC's claim (as assignee of the Bank) against the defendant. In the light of Order 15 rule 2(3) the judge was clearly right. The only real question was what order should be made to achieve such a result in the absence of consent by the parties concerned. The judge summed up the matter in the following words:-

"I cannot on this summons add the Bank as a defendant by counterclaim without its consent, so the only course is to restore the Bank as a Plaintiff. It is not argued (as I understand it) that STC should cease to be a Plaintiff. The vice lay, not in adding STC as a Plaintiff, but in removing the Bank as a Plaintiff, which thwarted the counterclaim."

17. Whilst appreciating that if STC and the Bank were made co-plaintiff’s they would have to continue to be represented by the same solicitors in the action if they were to remain plaintiffs, the judge did not consider this was an actual or potential conflict situation in all the circumstances. He accordingly decided to "vary the Order for substitution made by the Master so as to add Sun Tai Cheung Ltd. as 2nd Plaintiff" to the action.

18. As indicated above, the defendant's summons purported to have been issued under Order 15 rules 6 and 7. In so far as it was issued under rule 7(5) to obtain another order (varying the master's ex parte order) under rule 7, the court only had power to make an order substituting one plaintiff for another. It did not have power under that rule to make an order reconstituting the action with the original plaintiff (the Bank) and an added plaintiff (STC).

19. In so far as the summons invoked rule 6 in conjunction with the rule 7(5) on the footing that the master's order was to be set aside (thereby restoring the Bank as the original plaintiff) under the latter provision and STC was to be added as the second plaintiff under rule 6, there is the difficulty of consent raised by rule 6(4). The judge was right in saying that STC did not want to cease to be a plaintiff. However there can be no doubt that STC never consented to be the co-plaintiff of the Bank. STC did not object, below or on appeal, to the Bank being a party in the action but they sought to avoid being a co-plaintiff of the Bank because, rightly or wrongly, they wanted to be separately represented. While it is clear that STC had consented to be a plaintiff in substitution for the Bank when the ex parte application was made to the master under rule 7, it is equally clear that it had never consented to be added as the co-plaintiff of the Bank under rule 6. It is for this reason that STC has appealed against the judge's order which is flawed by lack of STC's consent under rule 6(4).

20. In a sense the appeal was concerned with sterile technicalities. Indeed it is tempting to wave the curative- wand of Order 2 over the judge's order which was made in an eminently sensible attempt to reconstitute the action and undo the procedural muddle with which he had been presented. However the joinder issue arising depends on the terms of the rules and we considered that the judge's second alternative proposal of restoring the Bank as the defendant to the Plaintiff's counterclaim was the right course. Furthermore the adoption of that course. Furthermore the adoption of that course will obviate further procedural difficulties caused by the decision of the Bank and STC to retain separate solicitors.

21. We felt no difficulty about the absence of the Bank at this stage. It has been given notice of the hearing of this appeal and has chosen not to intervene. It has also declined to agree to discuss any possible solution to the procedural problem with the defendant's and STC's solicitors with a view to avoiding the costs of this appeal. It clearly should be brought back into the action to defend the counterclaim.

22. We considered that the order we made on the hearing of the appeal was within the scope of, Order 15 rule 7(2). The Bank, having assigned its interest under the guarantee to STC by way of absolute assignment within the terms of section 9 of the Law Amendment and Reform (Consolidation) Ordinance (Cap. 23), had ceased to have any cause of action against the defendant. It was therefore clearly right for the master to make an order under rule 7(2) as of course for STC to carry on the Bank's claim as the plaintiff in substitution for the Bank.

23. However the counterclaim .was to be treated for all purposes, except execution, as an independent action. This is settled law. The relevant authorities are cited in the notes to Order 15 rule 2 at paragraphs 15/2/4 and 15/2/6 in the Supreme Court Practice. Rule 2 gives effect to that law. In particular rule 2(3) provides inter alia that a counterclaim may be proceeded with notwithstanding that the claim of the plaintiff has been discontinued. This provision reflects the decision in McGowan v. Middleton(1).

24. Order 15 rule 7(2) has to be understood and applied in the light of rule 2. The procedural independence of the defendant's counterclaim against the Bank from the Bank's claim against the defendant cannot have been considered by the master when he made his unqualified ex parte order substituting STC as a party to the action for the plaintiff Bank. The order had the effect of unwittingly destroying the defendant's counterclaim and it was demonstrably not a due exercise of the powers conferred by rule 7(2) which are expressed to be exercisable if thought to be “necessary in order to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon.”

25. On the other hand it seemed clear to us that the combined effect of rules 2 and 7(2) was that, since the Bank had assigned its interest (if any) in the guarantee and not its liability (if any) under the counterclaim, the independence of the claim and the counterclaim in the action required each of them to be treated as separate causes or matters for the purposes of rule 7(2). On this basis, being uninhibited, in the circumstances of the appeal, by the absence of the Bank (unlike the judge below who was in a different position) we made our qualified order under rule 7(2) which has the effect of substituting STC for the Bank as plaintiff in relation to the Bank’s assigned claim but restoring the Bank to its former capacity as defendant to the defendant's counterclaim.

26. On the question of costs, we considered that the defendant was compelled to apply, by his summons dated the 2nd December 1986, to reconstitute the action. We have varied the judge's order to reconstitute the action in a manner which I apprehend he would have directed had he nor been inhibited by the absence of the Bank when the matter was before him. The need for the defendant's application arose from the master's ex parte order which was palpably wrong and seems to have been obtained as of course by the solicitors who were at the time acting for both STC and the Bank and ought to have appreciated, as should counsel who advised them, that there should have been an inter partes hearing to deal with the counterclaim. Accordingly we did not disturb the judge's award below of costs in any event to the defendant on its application.

27. As regards the costs of the appeal, the order we have made varying the judge's order is not in accordance with the orders sought by either STC or the defendant respectively in their notice of appeal and respondent's notice. As indicated above, both sides altered their stance at the hearing of the appeal. We therefore considered that the proper course would be to make no order as to the costs of the appeal.

Silke, V.-P.:

28. I am in entire agreement with the reasons just delivered by my Lord Clough for the order which we made on the 26th May. In deference to the judge, whose order we have varied, I add the following observations.

29. It is clear beyond peradventrue that a plaintiff cannot put an end to a counterclaim and so prevent a defendant from enforcing it against him by discontinuance, or even by a dismissal of the action. Master's Order applied for ex parte by Sun Tai Cheung Credits Limited – “S.T.C.” -, the assignee of the Sun Hung Kai Finance Company Limited (as it then was) – “the Bank” was to give all the appearance of preventing Chan Park Chi – “the Defendant” - from proceeding with his counterclaim. Godfrey J. did his level best to see that justice was don as between the parties, and that includes all of those who are involved in this litigation. He made it clear that order which we eventually made was the form of order he much preferred. He felt, however that he was inhibited from making that order first by the nature and form of the process which brought the matter before him and second by the absence of the Bank before his Court. Because of events which have taken place between the making of his Order and the hearing of this Appeal, we no longer feel ourselves to be so inhibited. The Bank were fully aware of the proceedings in this Court, of their nature and of the orders to be sought. They chose not to appear.

30. In McCowan and Another v. Kiddleton(1), Brett M.R. at p.468 considered the issue whether or not a counterclaim is a cross-action. In the course of that consideration, he made reference to the Judicature Act of 1873 which, in its section 24 sub-section 7, states, inter alia, that all such remedies as any of the parties may appear to be entitled to shall be granted so that:

"So far as possible; all matters so in controversy between the said parties respectively may be completely and finally determined, and all multiplicity of legal proceedings concerning any such matters avoided."

He referred to this principle as having been acted upon by James L.J. and Jessel M.R., both of whom were determined to "sweep away every kind of technicality".

31. Here, we have placed ourselves back in the position of the ex parte application before the Master. We desire, as indeed did Godfrey J., to avoid multiplicity of proceedings. S.T.C. clearly are entitled to stand in the shoes of the assignor, the Bank. But that having been said, the Defendant is equally entitled to pursue his counterclaim as against the Bank. Were he to succeed, or indeed were he to establish a set off, then either S.T.C. 's claim would be extinguished or it would have its financial impact considerably diminished.

32. As I have said, we did not feel ourselves now to be constrained by the inhibitions which constricted the learned judge and, therefore, made the order which we thought best suited to bringing the matter fully before the Court all at the one time and for its speedy determination.