LAU HAK SHING v. CHAN KWOK HUNG AND ANOTHER

DCCJ 3758/2015

[2022] HKDC 408

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3758 OF 2015

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DECISION

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1.  The hearing before me today is the pre-trial review (“PTR”) in these proceedings. A contentious matter in the PTR is the summons (“the Summons”) taken out by the 2^nd defendant (“D2”) on 19 April 2022. By the Summons, D2 seeks leave to re-amend her Amended Defence and leave to file her draft supplemental witness statement (“the Statement”). The Statement consists of 13 pages, but the documents annexed to the Statement (“the Documents”) are voluminous. The Documents run to about 500 pages. The Summons is supported by D2’s 2^nd Affirmation filed on 19 April 2022.

2.  The trial will commence on 5 July 2022, with 6 to 8 July 2022 and 11 July 2022 reserved. The estimated length of the trial is 5 days.

3.  The PTR date and the trial dates were fixed on 28 April 2021, in the presence of both the legal representative of the plaintiff (“P”) and the legal representative of D2.

Background

4.  I would first briefly set out the background facts.

5.  P was the proprietor of a hardware trading business (“the Business”) between around 1989 and 1995.

6.  The 1^st defendant (“D1”) and D2 were married and joint owners of Flat 15 on 28^th Floor of Block A, Ching Nga Court, No. 3 Nga Ying Chau Street, Tsing Yi, New Territories (“the Property”) until the events described below.

7.  D1 was employed by P as a sales manager in the Business to handle the supply and sale of goods.

8.  In 1993, P discovered irregularities in the financial accounts of the Business in that supplier invoice references were inconsistent with corresponding sales invoice references.

9.  D1 handwrote a memorandum of confession/repentance (悔過書) dated 16 December 1993 admitting to his wrongdoing in misappropriating the assets of the Business to the tune of at least HK$100,000.00, and offering to repay moneys owed by instalments.

10.  P reported the D1’s wrongdoing to the police in December 1993. D1 was prosecuted and the criminal trial took place in May 1995. D1 was acquitted.

11.  D1 ultimately failed to repay any sums owed and P therefore commenced civil proceedings against D1 by writ of summons issued on 16 December 1999 under DCCJ 23864 of 1999 (“the Civil Action”).

12.  Final judgment for the aggregate sum of HK$366,107.62 with interest (“Judgment Debt”) was entered on 18 August 2003 against D1 after trial (D1 being absent in the trial).

13.  D1 has failed to repay any part of the Judgment Debt to date.

14.  D1 petitioned for divorce from D2 in October 1997 under DCMC 10440 of 1997 (“the Divorce Proceedings”).

15.  By an order dated 15 July 1998 made under the Divorce Proceedings (“the Divorce Order”), it was ordered, inter alia, that D1 shall transfer unto D2 all his estate, right, title, benefit and interest of and in the Property.

16.  On 29 April 1999, the Housing Authority gave consent to the transfer of D1’s interest in the Property to D2.

17.  By an assignment dated 27 August 1999 (“the Assignment”), D1 transferred his interest in the Property to D2 absolutely.

18.  On 15 August 2015, P commenced these proceedings against D1 and D2 to seek an order to set aside the Assignment under s.60(1) of the Conveyancing and Property Ordinance (“CPO”). P’s case is that the Assignment is a disposition made with intent to defraud creditors. S.60(1) of the CPO provides:-

“Subject to subsections (2) and (3), every disposition of property made, whether before or after the commencement of this section, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.”

19.  By a summons dated 12 June 2017 (“D2’s striking out application”), D2 applied to strike-out P’s claim against her on various grounds. D2’s striking out application was dismissed by HH Judge Winnie Tsui on all the grounds raised.[1]

The proposed amendments and the proposed new evidence

20.  By the Summons, D2 is seeking leave to re-amend her Amended Defence to introduce a defence based upon s.60(3) of the CPO. S.60(3) provides:-

“This section does not extend to any estate or interest in property disposed of for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the disposition, notice of the intent to defraud creditors.”

21.  The Statement and the Documents are new evidence from D2. By the Summons, D2 is seeking leave to adduce all these as evidence in the coming trial.

22.  In her 2^nd Affirmation, D2 has offered some explanations as to why she seeks leave to introduce the proposed amendments and the proposed new evidence at this stage of the proceedings but not at an earlier time. D2 said the following in her affirmation:-

“3. Upon receiving [P]’s Reply, I am advised by legal representatives and I verily believe that I would need to amend the Amended Defence to ensure that the true controversies between parties are pleaded. However, we did not do so immediately as we hoped to save costs through settlement by mediation and the Court mediation which took place on 31 May 2021 and 16 September 2021 but ultimately did not succeed.

4. After the failure of mediation, steps were taken to prepare for trial including whether any amendments to pleadings or supplemental witness statements should be made.

5. All of these materials were being prepared and were ready to be filed just as the 5^th wave of coronavirus hit Hong Kong. As a result of the closure of the Court’s registry, my solicitors were unable to file the application to amend.

……

7. I shall leave the legal arguments to Counsel but I wish to set out the following matters:-

(1) The particulars set out [in the draft Re-Amended Defence] provide fully the details which I had previously been reluctant to think about or disclose to the world. The Court can see that I had previously instructed my counsel to assert my legal professional privilege. However, due to the defence now expressly run regarding good faith, I have been advised that I must disclose how I obtained the ancillary relief orders;

(2) Furthermore, the particulars also sets[2] out more information regarding the financial arrangements of [D1] and [P] and [P]’s wife. The Court should note again that this is an area which is very emotionally painful for me and therefore I also did not wish to recall too many of their sordid details, especially the fact that [D1] was living with [P]’s wife and child as a family whilst abandoning my child and me.”

23.  Before turning to the merits of D2’s application, I have to point out a problem in D2’s application. Regardless of the outcome of D2’s application made by the Summons, this problem must be rectified. The problem is that it would not be permissible for D2 to produce the Documents by annexing the same to the Statement. The proper way is to disclose the Documents by a supplemental list of documents. In the Statement, D2 may mention the Documents by making reference to the items in that supplemental list. Producing the Documents by merely annexing the same to the Statement is objectionable for the following reasons:-

(1)  If the Documents are disclosed by a supplemental list of documents, P would know whether D2 is in possession of the originals or the copies of the Documents. Further, P would have an opportunity to inspect the Documents.[3] If the authenticity of any document is disputed, there is a proper procedure governing the resolution of the dispute.[4] However, by not disclosing the Documents by a supplemental list of documents, all these safeguards have been removed. That would not be fair to P.

(2)  To annex all the Documents to the Statement would unreasonably and unnecessarily increase the volume of the court files. Only the Statement and the supplemental list of documents disclosing the Documents should stay in the court files. There is no reason to file all the Documents, and the Documents should not stay in the court files.

24.  I order that D2 shall file and serve a supplemental list of documents disclosing the Documents within 7 days. The application as per the Summons would be deemed as including an application for leave to rely upon the Documents as disclosed in that supplemental list in the trial.[5] I further direct that the Documents be expunged from the court files.

The principles

25.  It is undeniable that D2 has only taken out the Summons at a very late stage of these proceedings, and the application is a last minute pre-trial application. It is trite that the court may refuse an application by reason of the delay in taking out the application, and the application can be dismissed on the ground of delay alone.

26.  In Wise Union Industries Ltd v Hong Kong Science and Technology Parks Corp[6], A Cheung J (as he then was) made observations on post-CJR considerations. The learned judge said:-

“4. As Mr Fok pointed out, this delay, viewed in the context of a judicial review application which requires an application for leave to apply for judicial review to be taken out promptly, and in any event within three months from the date when the grounds first appeared, was a lengthy one, and I should immediately add that there is no satisfactory explanation from the applicants regarding the delay. …

9. Talking about prejudice, I do not accept that in this new era, the fact that the innocent party can ask for an adjournment (even if one that is to be paid for by the other side) would mean that there is no prejudice. In my view, at least nowadays, an adjournment itself is a prejudice. Equally, the fact that a party, not wanting to lose a hearing date, refrains from asking for an adjournment, does not mean that there is no prejudice. The unenviable position that such a party finds himself in is in itself a prejudice.” (Emphasis added)

27.  In Li Xiao Yun v China Gas Holdings Limited[7], the Court of Appeal dismissed an appeal against the trial judge’s refusal of a last minute pre-trial application to add new defendants and to amend the pleadings on the ground of delay and that the trial date would very likely to be derailed. In that case, Lam JA (as he then was) said:-

“18. …… Last minute pre-trial applications also disrupt the preparation for the trial on the part of a trial judge in terms of reading into the case. Instead of getting himself or herself familiar with the issues that have to be tackled at the trial, the judge would have to divert attention and spend time and efforts on such application. Thus, such practice has to be discouraged and, unless there are good justifications, the unsuccessful appellant should normally be expected to face an order for indemnity costs”.

28.  In Waddington Limited v Chan Chun Hoo Thomas[8], DHCJ Lok (as he then was) reiterated that late applications could be dismissed on the basis of delay alone. In that case, the learned judge said:-

“51. In this action, the parties have taken out a lot of late applications shortly before the PTR. This practice is highly unsatisfactory and should be discouraged. Apart from the prejudice likely to be caused to the parties by such late applications including the possible adjournment of the trial, there is serious disruption to the court diary as the court has to struggle to find some time during the limited time before the trial to hear the applications. …

53. Express warning about late applications has already been given in §34 of Practice Direction 5.2, and practitioners should be reminded that late applications may be dismissed on the basis of delay alone. Unless there are exceptional circumstances and there are good reasons for the delay, one should not expect the courts to grant any late applications taken out shortly before the PTR.”

29.  In Hongkong Changyi Real Estate Development Ltd v Neo-China (Group) Infrastructure Investment Ltd[9], Mimmie Chan J said:-

“1. Nearly 5 years after the implementation of the Civil Justice Reform, parties should be under no doubt by now that the courts will have no hesitation now to reject a late application, made when trial is imminent, for either amendment of pleadings, discovery or the filing of witness statements, which application has the effect of disrupting the preparation for trial with the risk of milestone dates such as a pretrial review or the trial dates themselves being affected. Delay itself is a ground justifying refusal of leave, since delay of a trial is prejudice to a party, who has every right to expect that a trial fixed months ahead with due notice to the parties can proceed without disruption and time and costs being wasted…. The applicant for leave must establish, by affidavit evidence, exceptional circumstances to explain and justify the delay. Change of the legal team has rarely, if ever, been accepted as justification for a last minute change of case or amendment of pleadings, which would result in or necessitate a response from the other side which it cannot in all fairness be expected to do in the availability of time before trial. PD 5.2 makes it clear that change of the legal team will not be treated as exceptional circumstances.” (Emphasis added)

30.  It is no answer to contend that the other party should use the time leading up to trial to meet the new case by filing consequential amendments and further evidence in response. There is no reason to require the innocent party to “squeeze its investigation, preparation and decision‑making processes all into the coming few weeks”.[10]

Delay

31.  In my view, D2 has not offered any satisfactory explanation justifying the delay in taking out the Summons.

32.  D2 was granted legal aid in 2017. Since then, D2 has been represented by the same legal team.

33.  While it is for the party seeking to set aside a transaction to prove that the disposition was made by the disponor with intent to defraud creditors under s.60(1) of the CPO, the burden is on the disponee to prove that the transfer was made for valuable consideration and in good faith without notice if the exception under s.60(3) is relied upon.[11]

34.  The fact that s.60(3) of the CPO has not been raised in the Amended Defence has been raised by P in P’s written submissions dated 24 January 2018 (at [44.5]) filed in respect of D2’s striking out application.

35.  It is trite that issues are defined by the pleadings, not by the evidence.[12]

36.  Since D2 has not raised s.60(3) of the CPO in her Amended Defence, it is plain and obvious that s.60(3) would not be an issue in the trial.

37.  D2’s striking out application was dismissed on 26 November 2018. After the dismissal of the striking out application, naturally D2 and her legal team should consider whether any amendment to D2’s pleading is necessary, including whether D2 should introduce s.60(3) of the CPO as a defence to P’s claim.

38.  P’s Reply was filed and served on 21 December 2018.

39.  No application for leave to amend her pleading, and no application for leave to file further evidence, has been made by D2 in 2019, 2020 and 2021.

40.  D2 now submits that “the factual basis of [s.60(3) of the CPO] defence (which is a matter of law) has already been pleaded see§§10 and 11 of the Amended Defence … It is now being pleaded expressly with further expansion of particulars. ……”[13] With respect, this submission is plainly wrong.

(1)  I have read the Amended Defence carefully. It is plain and obvious that s.60(3) of the CPO has not been pleaded in the pleading.

(2)  The defence under s.60(3) of the CPO is not a pure question of law. In order to establish the defence, there must be material facts in support of each and every element in that section. Such facts have to be pleaded and proved by D2.

(3)  D2 has never spelt out in the Amended Defence that she is relying upon the first limb of s.60(3), i.e. “for valuable consideration and in good faith”; or the second limb of the section, i.e. “upon good consideration and in good faith”; or both. D2 has also not spelt out the material facts in support of the first limb and/or the second limb.

(4)  D2 has also not spelt out the material facts in support of “not having notice, at the time of the disposition, notice of the intent to defraud creditors” in the Amended Defence.

(5)  Without all the aforesaid, any reasonable reader would not be able to know that D2 intends to raise and rely upon the s.60(3) defence by the matters pleaded in [10] and [11] of the Amended Defence.

(6)  In the draft Re-Amended Defence, many new factual matters are raised, including the advice received by D2 from her solicitor in the Divorce Proceedings. Obviously, the fact that all these new factual matters are raised in the proposed amendments means that no or no sufficient material facts has been pleaded in the Amended Defence in support of a defence based upon s.60(3) of the CPO.

(7)  Without pleading s.60(3) of the CPO, and without pleading the material facts in support of each and every essential element in that section, plainly the s.60(3) defence has not been raised in the Amended Defence.

41.  The mediation in May 2021 and the court mediation in September 2021 cannot be reasonable excuses for not seeking leave to amend the pleading and to introduce further evidence at an earlier time, given that the mediation attempts were long after the parties had been advised by their respective legal teams on the merits of their respective cases.

42.  Further, one may not forget the fact that the PTR date and the trial dates were fixed on 28 April 2021. After the fixing of these milestone dates, there is no reason why D2 should continue to sit on the papers and do nothing to tidy up her case.

43.  I should also mention that although there has been a general adjournment of proceedings during the period from 7 March 2022 to 11 April 2022 (“the 2022 GAP Period”), that period has only lasted for slightly more than one month. Further, during the 2022 GAP Period, D2 would still be able to give notice to P that she is going to make an application for leave to introduce the proposed amendments and the proposed new evidence, and D2 would also still be able to serve the papers on P. D2 cannot rely upon the 2022 GAP Period as a reasonable excuse for the delay.

44.  D2 claims that she has previously asserted legal professional privilege with legal advice but now has a change of heart and wishes to disclose the circumstances in which the ancillary relief orders were obtained. This is in fact an admission that the non-disclosure of the details of the Divorce Proceedings was a strategic decision made by D2 with the benefit of legal advice. It is therefore clear that D2 has made a conscious choice not to deal with the issues which she seeks to now address at the eleventh hour. The delay in taking out the Summons is therefore the consequence of D2’s conscious and informed decision. In these circumstances, there is no reason why the court should exercise the discretion in D2’s favour to condone the delay at the expense of P.

45.  In my view, the Summons should be dismissed on the ground of delay alone.

Prejudice to P

46.  Insofar as may be necessary, the prejudice to P as set out below constitutes further reasons for the dismissal of the Summons.

47.  First, since the trial will take place very soon, the delay has the effect of unjustifiably requiring P to divert his time and resources to deal with the matters occasioned by D2’s application when P should be preparing for trial. This is particularly problematic, when P is legally aided, with additional work inevitably requiring extension of the legal aid certificate and approval of the Legal Aid Department.

48.  Second, the timing of the Summons is such that it leaves virtually no time for P to properly consider the new materials (including the Documents, which are voluminous), conduct the necessary enquiries and investigations, make appropriate applications (such as seeking further and better particulars, inspection of documents, specific discovery or applying for a writ of subpoena for potential witnesses) or to be properly advised by counsel and solicitor as to what course of action to take in response to these new materials (including any supplemental evidence or consequential amendments to P’s own pleadings). There is no justification for squeezing P’s investigation, preparation and decision-making processes into the coming few weeks, particularly when D2 has had years to do the same.

49.  The proposed new pleas and the proposed evidence effectively operate as a waiver of legal professional privilege and refer extensively to alleged legal advice obtained from D2’s then solicitors, apparently for the purpose of establishing that the Divorce Order was arrived at after considered negotiation. In light of the express waiver of legal professional privilege which D2 has confirmed, P is entitled to make further enquiries of the legal advice obtained including through specific discovery, seeking further and better particulars, contacting the solicitor involved, or even issuing a writ of subpoena if deemed appropriate depending on the outcome of the aforesaid enquiries.

50.  Third, if the trial takes place as scheduled, there would simply be no room for P to do all the aforesaid. This is a prejudice to P. If the trial is adjourned, the adjournment itself is also a prejudice to P.

51.  On any view, if D2’s application as per the Summons is allowed, there would be serious prejudice to P.

Prejudice to D2

52.  I am fully aware that dismissing the Summons would mean that D2 cannot rely upon s.60(3) of the CPO as a defence in the coming trial. Of course, this would be a prejudice to D2. However, given the unduly long and unjustified delay on D2’s part as set out in the above, it can only be said that D2 is the author of her own misfortune.

Deposition

53.  For the reasons above, the Summons must be dismissed.

54.  Costs should follow the event. In the light of the Court of Appeal’s decision in the Li Xiao Yun case, those costs should be indemnity costs. I order that costs of the Summons be paid by D2 to P in any event, with a certificate for counsel, to be taxed on indemnity basis if not agreed. P’s own costs and D2’s own costs are to be taxed in accordance with the Legal Aid Regulations.

55.  I thank counsel for the assistance rendered to the court.