FANG MENG SUNG, JOHN v. LUK MAN LOK ROCKY AND OTHERS

HCMP 1959/2009

[2019] HKCFI 2530

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1959 OF 2009

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D E C I S I O N

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Introduction

1.  By a judgment dated 17 May 2019 (“the Judgment”), the Plaintiff’s claims against D1 for recovery of the balance of a loan of $950,000 and enforcement of an equitable charge were all dismissed.  D1 succeeded on the counterclaim and the Plaintiff was ordered to return the title deeds to D1.  This court ordered, on a nisi basis, that costs should be paid by the Plaintiff to D1.

2.  By a letter dated 13 July 2011 from his former solicitors, Boughton Peterson Yang Anderson (“BPYA”), D1 offered to pay the Plaintiff $450,000 in full and final settlement of the claim whilst the Plaintiff shall return the title deeds of the Property to D1 (“the Calderbank Offer”).  Through his solicitors, the Plaintiff rejected the Calderbank Offer on the following day. 

3.  As the Calderbank Offer was not beaten, D1 applies for:

(1)     Extension of time to vary the order nisi; and

(2)     To vary the order nisi to the extent that costs of the Plaintiff’s claim against D1 be on a party-and-party basis up to 14 July 2011 and thereafter on indemnity basis.

4.  The Plaintiff opposes the application on the ground that there was no reasonable explanation for the delay in the application to vary and there were reasonable grounds for the Plaintiff to reject the Calderbank Offer.

Legal principles on extension of time

5.  The court has power to extend time even after the initial 14 days for variation of a costs order nisi has expired: Tang Man Kit and Foo Tak Ching (suing as Managers of Wah Yan Mo Fan Heung) v Hip Hing Timber Co Ltd, CACV 137/2002 (8 June 2006), §11.

6.  The court exercises its discretion by considering the length of delay, reasons for the delay, and the merits of the application for variation: Tang Man Kit.  The absence of a reasonable explanation for the delay may lead the court to refuse the application for extension of time without regard to the merits: eg Terkild Johan Terkildsen & anor v Barber Asia Ltd & ors, HCA 1963/2003 (31 May 2007), §14, Saunders J.

7.  In the case of YiFung Developments Limited v Liu Chi Keung, Ricky & ors, unrep, HCA 1341/2014 (24 November 2016), §2, the court held that a mistaken reference to the procedural rules on the part of the legal representative was not a good explanation for the delay in taking out the application.

The reasons for delay

8.  The application for variation was 21 days out of time. 

9.  The reasons, in summary, are that the Calderbank Offer was made nearly 8 years ago.  D1’s current solicitors (“ONC”) had taken up the case since 2012 and was not aware of the Calderbank Offer until 21 June 2019.  D1 did not have recollection of the Calderbank Offer until informed by ONC.  BPYA ceased practice in 2015.  The present handling solicitor is the 3^rd solicitor of ONC.  ONC lost no time in taking out the present summons immediately on 21 June 2019.

10.  Even accepting all these to be true, the fault all lay on D1’s side.  What was more important was that ONC was aware that papers handed over from BPYA were incomplete as early as 2017 when ONC investigated a mediation issue.  ONC made no further investigation to get more documents.

11.  It transpired that the Calderbank Offer and the Plaintiff’s reply had been in the possession of ONC.  Although the 2 documents were not in the correspondence file, they were in a brown envelop.  ONC could not tell whether the 2 documents were placed in the brown envelop by BYPA or ONC.  This was an issue with the system of keeping documents of D1’s solicitors.

12.  Delay in itself would cause prejudice to the opposing party as he has to prepare submissions to contest the variation summons and to explain to the court why it should not be entertained.  Whilst there was no deliberate delay on the part of D1, I find no justifiable cause for extending time for the application, particularly since the Plaintiff had not contributed in any way to the failure to locate the Calderbank Offer.  This is sufficient to dismiss the application.

Merits of the application

13.  In any case, I have considered the merits of the application. 

14.  O.62 r.5(1)(d) of the Rules of the High Court provides, amongst others, that when exercising its discretion as to costs, the Court shall take into account any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22.

15.  Had D1 made a sanctioned offer, he would have exposed himself to costs and could not protect himself as to costs if the offer was accepted: Wong Yim Man Anthea v Wong Ho Ming Felix [2016] 3 HKLRD 249, §§8-18; Leung Lai Kwan v Lo Kai Ming & anor, HCMP 1554/2015, 20 August 2015, §7.  So he made a Calderbank Offer in full and final settlement, inclusive of costs, but did not pay the $450,000 into court.

16.  The proper approach of the court is to ask whether the offeree ought reasonably to have accepted the offer: Butcher v Wolfe [1999] 1 FLR 334 at p 340.  A party who is in receipt of an offer which is reasonable and who goes to trial having rejected that offer is always liable to a higher level of costs if they do not do better than the offer that has been rejected: Leung Lai Kwan v Lo Kai Wing [2015] 3 HKLRD 152 (CFI) at §27.

17.  At the stage when the Calderbank Offer was made, the defence was not yet filed.  ONC submits that the Plaintiff could have waited for 2 more days for the defence to be filed instead of rejecting the offer a day after it was made. 

18.  Further, ONC points out that the Plaintiff had not produced any document that ever named D1 as a borrower (§73, Judgment).  The Legal Charge was signed by D2 and D3 in favour of the Plaintiff.  Oral evidence suggesting D1 as a borrower was not admissible (§85, Judgment).  The Plaintiff’s case as to the alleged Equitable Mortgage would fail as a matter of law and was illogical (§§143-151 and 157, Judgment).  The fact that D1 was not a party to the Legal Charge was pointed out by BPYA in the Calderbank Offer.  Even without considering the defence, the Plaintiff’s case had no merits.  It was unreasonable for the Plaintiff to believe that he stood a reasonable chance of winning the case at the time he rejected the Calderbank Offer.

19.  I am unable to agree with ONC.  In 2009 after the OS was filed, D1 had applied to the Wing Hang Bank for a mortgage to assist D2 and D3 in repayment. This court held that it at least reflected a belief in D1 that the title deeds would not be returned until full repayment of the Loan (§59, Judgment).

20.  At the time the Calderbank Offer was made, the only certainty known to the Plaintiff was that the Legal Charge was not signed by D1.  However, as regards D1, the Plaintiff was suing on an oral loan agreement and an Equitable Mortgage by deposit of title deeds that were truly in his possession.  The loan money had actually been given to D1 and/or the other Defendants.  Someone had to repay the Plaintiff. 

21.  The Calderbank Offer did not even cover the outstanding principal amount.  D1, as he was entitled to, made the Calderbank Offer alone.  However, the Plaintiff was not unreasonable in holding onto a belief that he would not want to release all 3 Defendants on the limited terms of settlement from one Defendant (cf §56, Judgment).  The Plaintiff stood a reasonable chance of winning the case.

22.  In Section F of the Judgment on credibility, this court commented negatively that D1’s conduct before action lacked common sense.  This court had not found him to have an inherently logical story. 

23.  In view of paragraphs 19-22 above, faced with the Calderbank Offer from only one Defendant, it was not unreasonable for the Plaintiff to reject the Calderbank Offer.  That continued to be the case even after the defence of D1 was filed.  The Calderbank Offer had not been renewed or revised.  The application has no merits.

The reference to matters arising out of mediation

24.  D1 referred to matters (including an offer higher than the Calderbank Offer) made during a mediation which was rejected by the Plaintiff.  Quite apart from the fact that this was raising a new matter in his reply affirmation, it was wholly inappropriate for D1 to disclose to the court matters arising during mediation.  It was also wholly unprofessional for his solicitors to allow him to state so on affirmation.  I have therefore totally disregarded paragraphs 16(b)-(d) and 19 of D1’s reply affirmation filed on 16 August 2019.

Conclusion

25.  The application has no merits.  I decline to give leave to extend time and dismiss the summons.

26.  D1’s application was doomed to fail from the start when the fault was entirely on his side.  D1 should bear costs of this application on indemnity basis.

27.  I shall summarily assess the Plaintiff’s costs of the summons on the papers without a hearing.  The Plaintiff do file and serve his costs statement within 3 days of the handing down of this decision, and the 1^st Defendant do file and serve his grounds of objection 3 days thereafter.