YUAN LIANYE v. YUEN LEI GWUN, the Administratrix of the Estate of LEUNG HOP FOOK, Deceased AND ANOTHER

DCCJ 4337/2023

[2024] HKDC 843

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4337 OF 2023

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BETWEEN

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DECISION

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The plaintiff’s application

1.  By a summons dated 1 December 2023, the plaintiff seeks judgment against the defendants under Order 19 rule 7 of the Rules of the District Court, Cap 336H (“RDC”) on their default in filing and serving their Defence in this action.

2.  There is no dispute that on 5 October 2023, the Writ of Summons endorsed with the Statement of Claim in this action was issued and personally served on Madam Yuen Lei Gwun (“Madam Yuen”). Madam Yuen is acting as the administratrix of the estate of Leung Hop Fook (梁合福), deceased, being the 1^st defendant, and in her own right as the 2^nd defendant.

3.  On 17 October 2023, the defendants’ solicitors, Messrs Raymond Cheung & Chan filed an Acknowledgement of Service on behalf of both defendants indicating that the defendants would contest the plaintiff’s claim.

4.  As no Defence has been filed subsequently, the plaintiff issued to the defendants a Notice of Intention to Enter Judgment pursuant to Order 19 rule 8A of the RDC on 28 November 2023. Notwithstanding such notice, the defendants have not filed a Defence.

The plaintiff’s pleaded case

5.  As pleaded in the Statement of Claim, the plaintiff’s case is that by an assignment dated 29 July 2009, he acquired 50% of the property known as Sections A, E, F and the Remaining Portion of Lot No 842 in Demarcation District No 10, Tai Po, New Territories (“the Lands”), and became registered owner of the same.

6.  The title of the other 50% of the Lands was acquired by one Mr Tang Tat Kuen (“Mr Tang”) by an assignment dated 4 August 2006. Mr Tang is and was at the material time a close friend of Madam Yuen, who is an elder sister of the plaintiff.

7.  The plaintiff was acquainted with Mr Tang through the introduction of Madam Yuen. According to the plaintiff, on the recommendation of Madam Yuen, the 50% interest in the Lands held by Mr Tang was subsequently also acquired by the plaintiff from Mr Tang.

8.  Madam Yuen was married to Mr Leung Hop Fook (梁合福) (“Mr Leung”) who died wholly intestate on 11 December 2016 at the age of 84. As his surviving spouse, Madam Yuen became entitled to Mr Leung’s estate. She also became the administratrix of the estate of her late husband as mentioned above, by virtue of a grant of Letters of Administration dated 12 February 2018.

9.  In 2019, the plaintiff discovered that without his knowledge and a few months before Mr Leung’s death, 50% of his title and interest in the Lands had been purportedly sold to Mr Leung at an alleged consideration of HK$200,000, as shown in the following documents:

(a) A Memorandum of Agreement for Sale and Purchase dated 15 May 2016 and registered in the Land Registry with memorial no 17083002110025 (“the Memorandum”);

(b) An Assignment dated 15 May 2016 and registered in the Land Registry with memorial no 17083101620079 (“the Assignment”); and

(c) A Chinese declaration dated July 2016 showing that the plaintiff and Mr Leung had privately dealt with payment of the consideration without the involvement of conveyancing solicitors (“the Declaration”).

10.  The Memorandum and the Assignment were registered in 2017, some months after Mr Leung had passed away. Messrs Wong Fung & Co, were the conveyancing solicitors purportedly acting for both the plaintiff and Mr Leung in the alleged sale. By the purported sale, Mr Leung had become, and is still is the registered owner of 50% of the title and interest in the Lands.

11.  It is the plaintiff’s case that his purported signatures appearing on the Memorandum, the Assignment and the Declaration were not his signatures, which were all forged. He had no knowledge of the existence of the documents until his discovery of the same in 2019. Neither did he authorise anyone to sign the documents on his behalf, nor did he receive the purported consideration of HK$200,000.

12.  The plaintiff claims that Madam Yuen was the one who procured the above forged documents for the purpose of the alleged sale to Mr Leung, based on the following pleaded facts:

(a) She was the one who instructed Messrs Wong, Fung & Co and produced a forged or expired passport of the plaintiff to them for preparation of the purported sale;

(b) She could have inherited the relevant part of the Lands, as part of Mr Leung’s estate, if the fraud was not discovered. At the material times, Mr Leung was bedridden with deteriorating health. He could not have been able to carry out the fraud himself;

(c) Madam Yuen also procured an undated Chinese “waiver declaration” purportedly signed by Mr Leung in the format of a cross mark in favour of Messrs Wong, Fung & Co waving any inspection of the property or investigation of title. It is the plaintiff’s case that Madam Yuen also procured or forged this declaration in order to facilitate the fraudulent conveyance.

13.  The plaintiff further pleaded that eventually on 24 December 2020, the Council of the Law Society had intervened in the practice of Messrs Wong, Fung & Co under the statutory powers and procedures in the Legal Practitioners Ordinance, Cap 159, on the ground that breaches involving dishonesty were involved in their practice. It is not clear, however, whether the intervention was due to the events referred to in this case or was related to other events.

14.  The plaintiff had also reported the matter to the Hong Kong Police in August 2023, and would seek to rely on any subsequent conviction of any person, including Madam Yuen.

15.  The plaintiff therefore claims for declaratory relief and orders setting aside the forged documents and the sale, and vacation of the registration of the documents at the Land Registry.

The defendants’ application

16.  On 19 January 2024, the defendants issued a summons seeking an order that all further proceedings in this action be stayed unless and until a next friend be appointed to act for Madam Yuen.

17.  The application was initially supported by an affirmation dated 19 January 2024 of Mr Chan Shu Yung of Messrs Raymond Cheung & Chan, the solicitor having conduct of the proceedings on behalf of the defendants, stating, inter alia, that Madam Yuen has been admitted to the Psychiatric Department of the Tai Po Hospital on 27 October 2023.

18.  The court was also informed that the defendants’ solicitors have recently applied to cease to act for the defendants, but the application was refused by the Master on 11 January 2024.

The hearings of the applications

19.  The matter first came before me on 24 January 2024, when Mr Chan sought to rely on a letter dated 19 December 2023 issued by a resident doctor of the Psychiatric Department of the Tai Po Hospital exhibited under his aforesaid affirmation confirming the admission of Madam Yuen. The letter merely stated that she was required to “continue her hospital stay to optimize her condition”.

20.  In light of the obvious lack of sufficient evidence before the court as to the actual condition of Madam Yuen at the hearing, I adjourned the matter to allow the defendants’ solicitors to seek clarification from the Psychiatric Department of the Tai Po Hospital, in particular as to whether there is any medical report or certificate issued showing the condition of Madam Yuen.

21.  At the resumed hearing on 29 February 2024, Mr Chan relied on a certificate issued by Dr Wong Sin Ying of the Department of Psychiatry of the Tai Po Hospital dated 24 January 2024, simply stating that Madam Yuen “suffered from dementia and is mentally unfit for instructing the solicitor for her legal proceedings”[1].

22.  Upon being questioned by the court as to a lack of mention on the said certificate of the stage of her dementia and her detailed condition, Mr Chan then handed up a photographic copy of a letter apparently obtained from Madam Yuen that appeared to have been issued by a hospital. The legible part of the letter appeared to be stating that Madam Yuen was suffering from “elements of DLB, vascular dementia…with a past history of depression”, and that she was mentally unfit to handle legal proceedings. However, the date as well as the name and address of the hospital on the letter were not legible, and the name and title of the doctor issuing the letter were not even stated. As expected, Mr Wong for the plaintiff questioned the genuineness and the reliability of this copy letter.

23.  Mr Chan said the hospital would require an authorisation letter signed by Madam Yuen before the complete formal document could be obtained. He told the court that he had spoken with Madam Yuen over the phone, and she told him she would sign the authorisation letter. Mr Chan thus urged the court to wait for the formal medical evidence before making a decision.

24.  I agreed with the plaintiff’s submission that the matter cannot be suspended for an unspecified period. I therefore adjourned the matter for the defendants to submit, by 29 April 2024, any further medical evidence obtained from the hospital indicating the lack of capacity of Madam Yuen to continue with the proceedings, and for the parties to file and serve further written submissions on this issue by 8 May 2024. I also indicated that the court will deliver its Decision on 29 May 2024.

25.  Despite the further time given, the defendants have not submitted any further medical evidence by 29 April 2024, nor was the court informed of any steps taken by the defendants’ solicitors and the situation by that time.

26.  However, by a letter dated 27 May 2024, which was received by the Registry of the District Court on 28 May 2024 and which only came to my attention on 29 May 2024, the defendants’ solicitors submitted to the court a letter dated 13 May 2024 issued by the Hospital Chief Executive of the Alice Ho Miu Ling Nethersole Hospital to them, attaching a medical report dated 25 April 2024 issued by one Dr Tsui Lok Yi, Resident of the Department of Psychiatry of the Tai Po Hospital stating as follows:

“This medical report was prepared upon the request from Raymond Cheung & Chan Solicitors…The inter-partes summons, medical records of the above named were perused, and the above named was assessed in preparation of this medical report.

Madam Yuen was known to psychiatry since 2003 for depression after birth of her daughter with ongoing legal proceedings related to the ownership of her flat. She was voluntarily admitted to New Territories East Psychiatric Observation Unit between October 2023 to February 2024 for cognitive impairment and low mood secondary to persecutory ideas. She harboured persecutory ideas that her nephew has cheated her from her flat and has ganged up with strangers to follow and monitor her. She also heard non-existent voices. Cognitively, she has several episodes of overcooking, forgetting to turn off the water tap and getting lost. She needed assistance from family members to maintain basic self-care. Montreal Cognitive Assessment on admission 3/30. She was diagnosed with dementia with [behavioral] and psychological symptoms. She has been transferred to the care of the undersigned since discharge in February 2024.

Madam Yuen was last assessed by the undersigned on 22 March 2024. Upon assessment, she talked irrelevantly with mild loosening of associations. She had residual persecutory delusion towards her nephew, and minimal auditory and visual hallucinations. She was unable to recall her charge. She was unable to delineate the events leading to her charge. She was unable to differentiate the difference between pleading guilty and not guilty. She demonstrated difficulty in following legal proceedings, or instructing solicitor to defend these proceedings…”

27.  As this medical report was submitted at such a late stage (on the day fixed for delivery of my Decision), the plaintiff has not been given the opportunity to make any submissions in response. I note that this report was sent to the defendants’ solicitors by registered post under cover of the letter dated 13 May 2024 from the hospital as mentioned above, but the report was not submitted to the court until 28 May 2024. Apparently, this is not conducive to good case management.

28.  However, since the capacity of a party is an important matter that would cause concern, I would nevertheless consider the latest report before making a decision. As Deputy District Judge Kenneth KH Lee in Ng Tin Yeung v Lo Shuk Fa trading as Loyal Decoration Co., DCPI 2356 of 2017, 18 August 2023 has said at paragraph 28, “when a party is mentally ill, the continuation of the proceedings by the court may be a denial of natural justice. Therefore, when there is sufficient concern about the mental capacity of a party, the court may need to adjourn the proceedings to examine that question, where appropriate, of its own volition”, referring to Bell J in the Australian case of Goddard Elliott v Fritsch [2012] VSC 87 at paragraphs 566-567.

29.  Bearing the above in mind, I shall first deal with the application by the defendants to stay the proceedings unless and until a next friend be appointed to act for Madam Yuen.

The relevant principles on stay of proceedings

30.  Under section 48(5) of the District Court Ordinance, Cap 336, the court “may stay any proceedings before it, where it thinks fit to do so, either of its own motion or on the application of any person, whether or not a party to the proceedings”. Order 1B rule 1 of the RDC also states that except where the rules provide otherwise, the court may by order stay the whole or any part of any proceedings either generally or until a specified date or event.

31.  Mr Wong for the plaintiff referred to Re Chime Corporation Limited, HCMP 4146 of 2001, 8 March 2005 where Kwan J (as she then was) said:

“14. The correct approach, as submitted by Mr Potts and Mr Ng, in an application for a temporary stay of proceedings is “to consider the balance of convenience and fairness as between the parties” (Alfred McAlpine Construction Ltd v Unex Corporation Ltd (1994) 70 BLR 26 at 45C to D, per Glidewell LJ; applied in Clinton Engineering Ltd v B-Tech (Holdings) Ltd [2001] HKCU 1002 at para 9 and SWE Ltd v Chong Lai Fun, HCA No 1064 of 2004, 28 October 2004, Reyes J, pages 5 and 6; see also Halsbury’s Laws of Hong Kong, Vol 5(2), footnote 7 to para [90.0938]) and the court should exercise its discretion in such a manner “to ensure that its procedures are used in a logical, fair and cost-efficient manner” (SWE Ltd, page 5). The question at hand is not a question of deprivation of the right of a litigant to proceed altogether, but a question of case management.”

32.  The relevant principles have also been summarised by Au-Yeung J in Poon Ka Man Jason v Cheng Wai Tao & others, HCA 304 of 2011, 13 April 2018; [2018] HKCFI 771 at paragraphs 37 to 39:

“37. Where, as here, the action was commenced as of right, the court should only grant a stay when there are “very good reasons” and in “rare and compelling circumstances”. The stay must not cause injustice to the Plaintiff, and the Defendants must show that continuing the proceedings would be unjust to them. See: Zhang Xiuhong v Liu Wenchen & ors (HCA 2118/2012, 20 July 2017), §34, per Au-Yeung J, citing Ng J’s judgment in AIG Europe Ltd & ors v Fast-Link Express Ltd & ors (HCAJ 114/2014, 10 January 2017), §§9-13. The ultimate question is what would serve the ends of justice.

38. Exercise of discretion would involve balancing between (1) possible wastage of Court’s time and resources and also parties’ time and costs (if there is no stay) on the one hand and (2) possible delay of the proceedings for a short period of time (if there is a stay) on the other hand: see The Al Dhabiyyah [1999] 4 HKC 414, at p 420A-F.

39. The court must bear in mind that the underlying objectives of the court is to increase cost-effectiveness of court proceedings; ensure that a case is dealt with as expeditiously as is reasonably practicable; promote reasonable proportion and procedural economy in the conduct of proceedings; and to facilitate settlement of disputes: Order 1A, rule 1(a), (b), (c) and (e) of the RHC.”

The principles concerning the appointment of a next friend or guardian ad litem

33.  Order 80, rule 2(1) of the RDC provides that a “person under disability” may not bring a claim except by his next friend or defend a claim except by his guardian ad litem, and a “person under disability” is defined in Order 80, rule 1 as “a person who is ... a mentally incapacitated person”.

34.  A “mentally incapacitated person” is in turn defined in Order 80, rule 1 as “a mentally disordered person or a mentally handicapped person (within the meaning of the Mental Health Ordinance (Cap. 136)) who, by reason of mental disorder or mental handicap, as the case may be, is incapable of managing and administering his property and affairs”.

35.  Order 80, rule 3(5) further provides:

“(5) Where, after any proceedings have been begun, a party to the proceedings become a mentally incapacitated person, an application must be made to the Court for the appointment of a person to be next friend or guardian ad litem, as the case may be, of that party.”

36.  The rationale of the mental capacity rule was described by Chadwick LJ in Masterman-Lister v Brutton & Co (Nos 1 and 2) [2003] 1 WLR 1511 where he stated at paragraph 65 that “[t]he pursuit and defence of legal proceedings are juristic acts which can only be done by persons having the necessary mental capacity; and the court is concerned not only to protect its own process but to provide protection to both parties to litigation which comes before it” (referred to by Deputy District Judge Kenneth Lee in Ng Tin Yeung (above) at paragraph 26).

37.  As for the proof of mental incapacity, Mr Wong for the plaintiff has referred to paragraph 80/2/2 of Hong Kong Civil Procedure 2024, Vol.1 where it is stated:

“As RHC, O.80, r.2 is of wide application, the Courts will adopt a flexible approach regarding the evidential requirements for mental incapacity under RHC, O.80. Considerations that may affect the stringency of the requirements may include the nature of the legal proceedings, whether they are clearly for the benefit of the person in question, and whether a next friend or guardian ad litem is already involved. See Ho Po Chu v. Tung Chee Wah [2006] 3 H.K.L.R.D. 553 C.A.”

38.  Mr Wong has further referred to Ever-Long Finance Ltd v Yeung Wah Lung [2017] 1 HKLRD 500 where Deputy District Judge Simon Ho said at paragraph 22:

“22. Kwan JA has lucidly expounded in Ng Hong Ki[2] that the test of mental incapacity under Order 80 is issue-specific and the test has to be applied is ‘whether the party to the legal proceedings is capable of understanding, with the assistance of such proper explanation from legal advisors the issues on which his consent or decision is likely to be necessary in the course of the proceedings’. The focus of inquiry should be on the litigation under consideration rather than on the whole of that person’s property and affairs. Complete incapacity is not required to be established. (See: Ng Hong Ki, para 34 of the judgment)”

Discussion and ruling on the defendants’ application

39.  The plaintiff questioned the genuineness of the sudden purported disability of Madam Yuen as there was no past medical history of the claimed mental illness shown on the records. Mr Wong submitted that the court should not easily accept the claim that whilst Madam Yuen was able to instruct a law firm to contest these proceedings so as to file an Acknowledgment of Service of the Writ, she would shortly afterwards become unable to handle the legal proceedings.

40.  Further, although Mr Chan, the solicitor having conduct of these proceedings have made affirmations exhibiting various documents and describing his dealings with Madam Yuen, he has not made any suggestion that he had any difficulties in communicating with Madam Yuen. In short, Mr Wong submitted that this is only a pretext relied on by Madam Yuen to delay the proceedings.

41.  It is also submitted by Mr Wong that the proceedings would be delayed for an indefinite period if a stay is granted. On the other hand, the plaintiff has a strong case for default judgment on his pleaded case, and it would be unjust to the plaintiff not to allow him to proceed with the case on insufficient evidence of the claimed disability of Madam Yuen. This submission was made in the absence of the latest medial report dated 25 April 2024, and as I have mentioned, I will take into account the latest report when considering the appropriate order to make in the circumstances.

42.  Further, Mr Wong submitted that additional legal costs for a resumed hearing for default judgment would be incurred if a stay was granted. Of course, the matter of the appropriate costs order to be made after disposal of the two applications is something that will need to be considered in due course.

43.  Mr Chan, on the other hand, submitted that the proceedings would not be stayed for an indefinite period. Even if no one could be located who would agree to become the next friend of Madam Yuen, an application would be made for the Official Solicitor to become the next friend of Madam Yuen for the purpose of carrying on these proceedings.

44.  Pausing here, it is to be noted that Mr Chan has indeed in his affirmation dated 14 February 2024 already stated that he will make enquiries as to whether any person would be consenting to act as the next friend or guardian ad litem of Madam Yuen, and if such enquires were in vain, Madam Yuen would make an application for the Official Solicitor to be appointed in that regard. However, no such application has been made up to now.

45.  Nevertheless, as I have mentioned above, it is the duty of the court to see to it that there is no denial of natural justice, once a concern has been raised as to whether proceedings should be continued because of the mental incapacity of a party. Despite the plaintiff’s submissions previously made, there is now before the court some medical evidence that Madam Yuen is suffering a degree of dementia that would render her incapable of managing and administering her property and affairs, such that the appointment of a next friend may become necessary under Order 80, rule 3 of the RDC.

46.  After considering the circumstances, I take the view that the defendants’ solicitors should take the appropriate steps to apply for the appointment of a next friend or guardian ad litem for Madam Yuen. If necessary (i.e. if no person is willing to so act), the defendants’ solicitors should liaise with the Official Solicitor to ascertain his stance with regard to being so appointed, and an application should be duly made.

47.  Of course, as Kwan JA has stated in Ng Hong Ki v Leung Fong Kiu, [2012] HKLRD 435 at paragraph 41, “where there is an application to appoint a next friend or guardian ad litem, it does not mean the court is bound to make the appointment if it is satisfied that the person is under disability. The court would still need to consider if the appointment is beneficial to that person”.

48.  There has been inaction on the part of the defendants up to now for the appointment of a next friend or guardian ad litem. For better case management, I would not stay the proceedings in the circumstances of this case. Further, the plaintiff has not even been given an opportunity to respond to the latest medical evidence submitted by the defendants’ solicitors. I would therefore dismiss the defendants’ application by summons dated 19 January 2024 for a stay of the proceedings, but would make the following directions instead:

(1) The case be fixed for a directions hearing on a date not earlier than 26 June 2024, with 30 minutes reserved before a Judge (“the Directions Hearing”);

(2) If any application for the appointment of a next friend or guardian ad litem for Madam Yuen is to be made, such application is to be made before the Directions Hearing, and fixed to be heard thereat;

(3) The plaintiff’s application by summons dated 1 December 2023 for default judgment be adjourned for further directions to be made at the Directions Hearing.

49.  I also order that the costs of and incidental to both the defendants’ application for a stay and the plaintiff’s application for default judgment be reserved.