XCHRX LEUNG SIU YING v. CHUNG TAT MING AND OTHERS

For Reference

DCCJ 6323 of 2001

HEADNOTE

Jurisdiction - Court of First Instance - District Court - Transfer of civil action - Judgment - Compromise after Judgment - Stay of Proceedings - Stay of Execution.

The Plaintiff obtained default judgment at the Court of First Instance for $685,493.74 against 4 of the Defendants jointly and severally. The 2nd Defendants alleged that a compromise had been reached between those 4 Defendants and the Plaintiff whereby each of the 4 Defendants would have to pay only $180,000 to discharge their respective liability towards the Plaintiff. The compromise, arguably, was reached shortly before judgment was entered against the Defendants. The Plaintiff denied that there was any compromise and sought to enforce judgment against the 2nd Defendant for the whole judgment sum. A master of the High Court, on the ground that the balance at stake, after subtracting $180,000 ordered to be taken from the 2nd Defendant in partial satisfaction of judgment, was within the jurisdiction of the District Court ordered that the case be transferred to the District Court to determine (factual and legal) issues relating to the alleged compromise.

Held : (1) a judgment of the Court of First Instance, even though entered on an order by a master of the High Court, is as good as any other Court of First Instance judgment which may be binding authority on the District Court even after the action has been transferred to the District Court; hence there is at least conceptual difficulty for the District Court to determine a matter in the action that may require setting aside a High Court judgment; (2) the alleged compromise ought to be determined within the action rather than in a new action as a separate cause; (3) the alleged compromise, if proven and found to have been reached before judgment, may well justify setting aside the judgment because the compromise would be a new debt agreement for lesser sum that displaced the original basis for liability for the greater sum in the judgment; (4) the alleged compromise, if proven and found to have been reached after judgment, would render the judgment unenforceable and the action ought to be stayed once the compromise has been proven; (5) in determining the amount at stake for deciding the proper forum for a matter or an action, the test should not be simple subtraction of the amount admitted by one party from the amount claimed by the opposite party; for the admission may be on an entirely different cause; jurisdiction should primarily be determined by the amount claimed under each cause even though in appropriate cases amounts claimed under separate causes may be aggregated to bring an action to a higher court.

Quere : whether a court of equity would intervene if a plaintiff who has obtained judgment jointly and severally against several defendants and then compromises with some of the defendants but refusing to compromise with the remaining defendants on the same terms.

DCCJ6323/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6323 OF 2001

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Reasons for Decision

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1. This is an appeal against the order of Master Chow made on 30th May 2001. The relevant terms of the order by Master Chow are as follows :-

"IT IS ORDERED THAT :-

1. The following issues :-

a. whether the Plaintiff and the 2nd Defendant had arrived at a binding settlement agreement for the sum of HK$180,000.00; and

b. whether an order staying all further proceedings in this action insofar as the 2nd Defendant is concerned after payment of HK$180,000.00 to the Plaintiff

be determined by a hearing to be heard in front of a judge on a date to be fixed.

..........

7. there be an interim stay of all proceedings against the 2nd Defendant pending final disposition of this Summons."

2. The bundle prepared for the appeal is not particularly helpful and it took some time during the hearing before me to ascertain the course of events, the circumstances of the case and the issues in hand.

3. The action itself was commenced in the Court of First Instance. In essence, the Plaintiff claimed against all 5 Defendants jointly and severally for repayment of outstanding debt at $685,493.74. The writ was issued on 29th May 2000. On 25th August 2000, Master Kwan of the High Court gave leave to the 1st to 4th Defendant to defend on condition that those four defendants pay into court $670,000.00 as security within 30 days from the date thereof; in default of payment, the order stipulated, the Plaintiff would be at liberty to enter final judgment for the sum claimed. None of the said four defendants paid any money into court pursuant to the order of Master Kwan.

4. On 23rd September 2000, the Plaintiff was granted an ex parte injunction herein restraining the 2nd Defendant from disposing of by sale a property jointly owned by her and her husband. This ex parte injunction was varied by Sakhrani J after hearing the parties concerned on the return date on 29th September 2000. The learned judge ordered that the sale of the property could proceed provided that the net proceeds of the sale be paid into court as security. Consequently, on 7th October 2000 a sum of $444,850.89 was paid into court being the net proceeds subject to the order by Sakhrani J. On 9th October 2000, the Plaintiff entered judgment against the 1st to 4th Defendants for $685,493.74 pursuant to the order of Master Kwan made on 25th August 2000 on the basis that none of the four Defendants met the stipulated condition for leave to defend.

5. On 7 November 2000, the Plaintiff by summons applied for the entire sum of $444,850.89 in court be paid out in partial satisfaction of judgment. On 22 February 2001, the 2nd Defendant took out a cross summons seeking stay of all further proceedings against the 2nd Defendant on the ground that "terms of settlement had been reached by the parties". The two summons were eventually heard together on 8th March 2001 on which occasion Master Yuen of the High Court ordered that $180,000 be paid out to the Plaintiff in partial satisfaction of judgment and that the case be transferred to the District Court. The actual effect of such transfer to the District Court, it would seem, is to place before the District Court the issue of whether the Plaintiff may enforce the Court of First Instance judgment entered on 9th October 2000.

6. The allegations of "terms of settlement" can be found in the affirmation of one Mr. CHAN Ming Shing dated 22nd February 2001. Mr. Chan is the husband of the 2nd Defendant. Mr. Chan's said affirmation stated that :-

"8. In the course of these proceedings on 25th September 2000, subsequent to a negotiation and discussion between one Mr. Yau Yick Keung, who is the husband of the Plaintiff on the one part and the 4th Defendant and I for and on behalf of the 2nd, 3rd and 4th Defendants on the other part, the Plaintiff's claim against the 1st to 5th Defendants were settled thereunder, my spouse should pay the Plaintiff HK$180,000.00 (inclusive of interest) plus legal costs to be assessed by the court if not agreed.

.........

29. As far as I know, the 4th Defendant had already presented post-dated cheques or paid sums to the Plaintiff in the total amount of HK$180,000.00 plus legal costs agreed at HK$100,000.00 in October 2000.

...........

30. I was informed that the 3rd Defendant had also raised through his present solicitors, Messrs. Y.L. Yeung & Co, on 8th November 2000 to the Plaintiff that there was a concluded settlement. There is now produced and shown to me exhibit marked "CMS-9" which is a copy of the letter. I was told that the Plaintiff had similarly denied the settlement agreement. She, however, agreed to settle at HK$180,000.00 payable by 9 equal monthly instalments plus legal costs agreed at HK$100,000.00"

7. The basic tenor of the Plaintiff's case is, naturally, that she is entitled to enforce the judgment already entered in her favour to full hilt. As regards the 2nd Defendant's allegation of out of court settlement, Mr. Lo, counsel for the Plaintiff, contended that :-

(1) the issue of such a settlement is a new lis that should not be tried under this action; the Defendant should commence a fresh action for specific performance (of the terms of settlement) against the Plaintiff; Eden v. Naish (1878) Ch. D. 781 cited;

(2) the story of alleged settlement is patently incredible and ought to be rejected outright because there are major inconsistencies between the story told in Mr. Chan's said affirmation and that alluded to in a letter from solicitors for the 3rd Defendant; moreover, the "fact" of settlement was not raised before Sakhrani J on 29 September 2000;

(3) the Plaintiff having obtained judgment against the Defendants, the alleged settlement for payment of lesser sum is unsupported by consideration and hence not a valid ground for impeding the enforcement of judgment; Pinnel's Case 5 CO. REP. 117 a and In re Selectmove Ltd [1995] 1 W.L.R. 474 cited;

(4) neither the Plaintiff nor the 2nd Defendant were present at the meeting at which the alleged settlement was agreed, the affirmation by Mr. Chan of what he and Plaintiff's husband said or agreed is irrelevant and inadequate.

8. I say at once that Point (1) canvassed by Mr. Lo is grossly misleading. In Eden v. Naish, there was a petition for dissolution of partnership. In due course the court granted a decree of dissolution and a date fixed for dealing with the matter of appointment of a receiver. However, before any appointment of receiver was made, the partners negotiated a compromise whereby the Plaintiff, one of the partners, was to be paid a sum of money for his share in the business. The Plaintiff on that basis took out a summons seeking stay of the dissolution proceedings. The other partners objected and sought to proceed with realization of the partnership accounts by a receiver through normal rules. Hall VC in his judgment at p.786 said,

"........... It was, however, further objected, on behalf of the Plaintiff, that this case was of such a nature that the Court, in its discretion, should require an action for specific performance to be brought, or at all events give the Plaintiff the opportunity of bringing his case before a jury. It appears to me that that objection ought not to be allowed. Both parties have gone fully into evidence, and there has been a cross-examination of the witnesses on behalf of both parties, and I have not seen any reason why the case should not be heard and determined now. If the Plaintiff had wished for a trial by a jury, I think that he should at an earlier stage have taken steps to obtain it if he could; but I say further, that in this particular case, had an application for a trial by a jury been made even in an action brought for the purpose of enforcing the agreement, I should not have granted it. I think it is a case in which I should have refused it, considering the language of Order XXXVI., rule 26. I am of opinion, therefore, that the case must be dealt with upon its merits. I have since the arguments carefully read over all the affidavits and cross-examinations, and I have come to the conclusion that Mr. Taylor had such authority from the Plaintiff as fully entitled him to agree on his behalf to take the sum of ￡1,200 for his share in the business, and that, too, without obtaining the sanction of Mr. Manton, or the agreement being subject to the subsequent approval of Mr. Manton; and further, that the Plaintiff did not sign the agreement under any circumstances which entitled him to resist its performance."

Quite clearly, the learned Vice Chancellor held that a fresh action was not the appropriate manner to deal with a compromise reached after decree.

9. Point (2) can also be disposed of relatively easily. I do not know what precise instructions were given by the 3rd Defendant to his solicitors resulting in the contents of the letter by those solicitors. However, the contents of a letter is not evidence before the court if the court is to determine the matter on the basis of affidavit evidence. Neither the 3rd Defendant nor his solicitors have deposed to the contents of the letter. Moreover, for all we know, there may well be good evidence from the 3rd Defendant explaining the so-called major inconsistencies between the version canvassed on behalf of the 2nd Defendant and that said to be coming from the 3rd Defendant.

10. As to Point (3), Pinnel's case and Re Selectmove Ltd do state the general principles. However, we have seen that the facts in Eden v. Naish are much more similar to those of the instant case and a court of equity presided by a formidable Vice Chancellor in the earlier case has expressly held that a compromise reached even after decree has been granted must be given effect to. If that decision is correct, and I am in no position (nor do I see reasons) to depart from it, the alleged settlement in the instant case ought to be upheld too.

11. As to Point (4), Eden v. Naish also indicated that a compromise reached through agents can be good. I cannot say on the basis of the evidence before the court that the settlement was not agreed by the husbands as respective agents for the parties.

12. Now, if what Mr. Chan stated in Paragraphs 29 and 30 of his affirmation about the arrangement for settlement between the Plaintiff and the 3rd and 4th Defendants are true, it would seem that the Plaintiff after all has been willing to settle by taking $180,000 from each judgment debtor. This tends, and I put it no higher at this stage, to support the 2nd Defendant's case that the Plaintiff compromised with the 2nd Defendant on the same terms. In other words, the allegations by the 2nd Defendant of a settlement cannot be ruled out as patently untrue.

13. In the premises, particularly in the light of Eden v. Naish, I believe the issue of whether there was a binding settlement agreement and, if so, the terms thereof call for factual determination. Even if there was no global settlement between the Plaintiff and the four Defendants but the Plaintiff has reached separate compromise agreements with the 3rd and 4th Defendants leaving the 2nd Defendant fully answerable for the whole judgment debt, a court of equity may well feel justified to intervene on behalf of the 2nd Defendant because the Plaintiff gives preferential treatment to the other Defendants and has not acted fairly (with equality) towards the 2nd Defendant. But I have not done serious research into this problem.

14. Having decided that there should be determination of factual issues, I should lift the interim stay of proceedings in this action against the 2nd Defendant. Instead, I should and did order stay of execution against the 2nd Defendant until the factual issues have been resolved. In Eden v. Naish, stay of proceedings was ordered after the court had determined that there was a binding compromise. In the present action, if eventually it is determined that there was a binding settlement agreement, I suppose there would then be stay of proceedings except for the purpose of enforcing the terms of settlement.

15. As to how the factual issues should be resolved or determined, there are two technical problems. First, there is the question of whether the factual issues may be determined by a paper trial, i.e. by reference to affidavit evidence only or by a viva voce trial. In Eden v. Naish, Hall VC appeared to be able to resolve factual conflicts by reference to affidavit evidence. I do not think the learned judge purported to lay down a preference for paper trial. The fundamental principle in our system is that where there are serious disputes on facts a viva voce trial should be held. The circumstances of this case clearly warrant the hearing of witnesses in person.

16. Secondly, the question of venue. Now Master Yuen of the High Court transferred the case to the District Court ostensibly on the ground that, after subtracting $180,000 from $685,493.74, the balance of judgment debt falls within the jurisdiction of the District Court. Counsel has also helpfully drawn my attention to American Express Bank Ltd v. Cheung Kam Fung, Betty [2000] 2 HKC 510 where the Court of Appeal held that a judge of the Court of First Instance had power under section 43 of the District Court Ordinance, Cap. 336 to order transfer of an action commenced in the Court of First Instance to the District Court even after the Court of First Instance had already given judgment.

17. However, in American Express Bank Ltd v. Cheung Kam Fung, Betty the Court of Appeal also took the view that the Court of First Instance should have dealt with the matter without transfer. So, the fact that the Court of First Instance has power to transfer does not necessarily mean that it is appropriate to order transfer. In that case, the matter requiring decision was an application for mareva injunction to preserve assets liable to satisfy judgment. Arguably, the District Court can deal with the application as a self-contained matter. Whether the injunction would be granted or not, it does not impinge upon the judgment already given by the higher court. However, in the present action, a finding of a settlement reached before judgment (contrast the date of the alleged agreement and the date judgment was entered) may well justify setting aside the judgment. Even if it is found that the settlement was a post-judgment compromise, there is at least conceptual difficulty for a lower court to in effect overturn the judgment of the Court of First Instance.

18. The District Court Ordinance, Cap. 336 does confer jurisdiction and powers on the District Court to deal with cases transferred from the Court of First Instance :-

44(3). Upon a transfer under subsection (1), the Court shall have jurisdiction to hear and determine all or part of an action or proceeding, including a counterclaim, so transferred notwithstanding any enactment to the contrary.

48(1). The Court has the same power as the Court of First Instance in any proceedings before it -

(a) to grant the relief, redress, or remedy or combination of remedies, either absolute or conditional; and

(b) subject, to section 46, to give effect to every ground of defence or counterclaim, equitable or legal,

which ought to be granted or given.

However, it is trite law that decisions of the Court of First Instance are binding on the District Court. Suppose in this case the judgment was given with reasons by a judge of the First Instance after trial and then transferred to the District Court, is the District Court entitled to set aside such judgment? The fact that judgment in this action was given by a master of the High Court without trial is neither here nor there. For all intents and purposes, judgment given by a master of the High Court (unless overturned) is deemed as good as a judgment given by a judge of the Court of First Instance. Unless clear principle has been laid down by, say the Court of Appeal, to the effect that judgments, or certain types of judgments, of the High Court may be set aside by a District Judge after transfer of the case to the District Court, I hesitate to take liberty in this regard which may have serious consequences to the judicial system and constitutional law as I understand it.

19. There is another objection to the transfer of this action from the Court of First Instance to the District Court. With all due respects to the master of the High Court concerned, I believe that in determining whether a claim falls within the jurisdiction of a certain level of court one must not simply look at the net amount at stake. Suppose a plaintiff claims $1 million for price of goods sold and delivered under one contract and the defendant counterclaims and defends with equitable set-off on the ground that the plaintiff owes the defendant $600,000 under a separate loan agreement. One should not in such circumstances subtract $600,000 from $1 million and say that because the net amount at stake is only $400,000 and so the action falls within the jurisdiction of the High Court. The better view should be that the amount claimed by the Plaintiff remains at $1 million and the action is still a matter for the Court of First Instance.

20. The present case is analogous to the example given in the preceding paragraph. The Plaintiff herein still maintains that the full amount of $685,493.74 is enforceable. The Defendant however contends that by a compromise agreement only $180,000 is payable to the Plaintiff. Notionally, the Defendant is not accepting any liability under the original loan agreement relied upon by the Plaintiff; the Defendant is asserting a separate agreement under which it accepts the full liability for $180,000. It would be wrong to treat the Defendant herein as having accepted partial liability at $180,000 under the original loan agreement; although for the purpose of enforcement of judgment and as a matter of equity it is not wrong to order payment out of $180,000 on the ground that the Plaintiff should get that amount in any event. However, when it comes to determination of jurisdiction, the dispute to be determined is still between $685,493.74 and $180,000. If the "subtraction principle" is to be test, we may well find a case where the total amount counterclaimed reduces the net amount at stake and thus compelling the case to be transferred to the District Court and then where the plaintiff succeeds in getting interlocutory partial judgment against the defendant in the District Court the case has to be transferred to the Small Claims Tribunal. Whilst obviously some cases may be justifiably transferred, I do not think the system is designed for cascading down of cases by simple arithmetic operation.

22. The situation will be different if in fact the claim or counterclaim is combinational. Suppose the plaintiff sues on a large number of invoices for price of goods sold and delivered, each invoice on its own amounts to a matter for the Small Claims Tribunal but the plaintiff adds all invoices together to get an aggregate of $700,000 and issues writ in the Court of First Instance. Now the Defendant may well admit liability on some invoices and dispute liability on respectively diverse grounds for the other invoices. In such a case, I am very much inclined to say that prima facie there is an abuse of process of the Court of Instance by the plaintiff because each invoice should be treated as a separate cause and pursued as a different action. Even if the plaintiff is not to be blamed for issuing a combinational action, the proper action to take in the Court of First Instance would be to give judgment for liability admitted and split the disputed invoices into separate actions for transfer to a lower court. But, in the instant case, there is only one cause for the Plaintiff and one ground for the Defendant to dispute liability.

23. Before I leave the subject, I think the relevant rules and forms for Court of First Instance and District Court actions ought to be revised for combinational claims. Whereas the law does expressly prohibit splitting of claims to evade higher courts, the obverse - combination of claims - is just as, if not more, mischievous because of the costs of litigation in higher courts. Even if for practical reasons combinational claims should not be barred, such claims ought to be considered for re-assignment to the appropriate forum as soon as the defendant has pleaded. DCCJ14439 of 2000 is a case in point. That case was brought before me for trial on 26 June 2001. The Plaintiff claimed about $270,000 for 5 dishonoured cheques. The Defendant right at the beginning admitted liability for about $230,000 for 3 cheques. The plaintiff lost no time in obtaining summary judgment for that sum. But the defendant disputed liability for the 2 other cheques for $40,000. The ground of defence was that the two cheques (unrelated to the other three) were issued in exchange for payments to be made to the defendant by the plaintiff. Since the plaintiff did not pay in, there were insufficient funds to meet the 2 dishonoured cheques. In fact, each of the 2 disputed cheques related to a different transaction. Obviously, the trial would concern 2 separate causes of action each involving a stake within Small Claims Tribunal jurisdiction; the combined outstanding sum did not exceed the Tribunal's jurisdiction either. The plaintiff was represented by lawyer all along. The defendant acted in person from day one. Imagine the legal and public costs involved for such a trial in the District Court over less than $50,000! Even if the defendant ought to be found liable, it is scandalous to allow the defendant to be visited with the costs of a District Court trial in these circumstances.

24. For all the reasons given, I decided that the appropriate forum to deal with the matter in issue should be the Court of First Instance. In the interim, stay of proceedings is not appropriate because, as can be seen in Eden v Naish, the proceedings should be stayed only after the court has found on the evidence an enforceable compromise, until then the proceedings should proceed so that factual and legal issues can be resolved. However, to preserve the status quo, stay of execution ought to be ordered.

Order

25. Accordingly, I ordered that :-

(1) interim stay of proceedings ordered by the Master Chow be lifted forthwith;

(2) stay of execution forthwith until further order;

(3) the case be transferred to the Court of First Instance;

(4) costs reserved to the Court of First Instance.