AU YEUNG ON v. CHE SHING CHEONG WILFRED AND OTHERS

HCMP 4745/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4745 OF 1999

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BETWEEN

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D E C I S I O N

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Background

1.  This is the Defendants’ application to vary my costs order nisi made on 20 July 2006 when I allowed the Plaintiff’s appeal against Master Lung’s decision made on 27 September 2004 under Order 28 rule 10 of the Rules of the High Court striking out the Plaintiff’s action for failing to prosecute proceedings with due dispatch.  I made a costs order nisi that there be no order as to costs of the Defendants’ application to strike out the Plaintiff’s action before the Master and that the costs of the appeal including the costs reserved at the adjourned hearing on 22 March 2005 be to the Plaintiff, to be taxed if not agreed.  Mr Cheung, counsel for the Defendants, argued that despite the Plaintiff’s success on the appeal, the Defendants should have costs of the appeal and the costs of the hearing before the Master.

2.  The facts of the case and the law based on which I allowed the appeal were set out in my written decision handed down on 20 June 2006.  Very briefly, the Defendants were the registered owners of a plot of land which was resumed by the Government in 1999 for a sum of $3,243,000 as compensation.  Following the resumption, the Plaintiff Mr Au Yeung On commenced action by originating summons on 6 August 1999 against the Defendants on the ground of adverse possession.  Apart from introducing an amendment to the originating summons on 17 September 1999, the action went dormant for four and half years.  On 18 May 2004, the Defendants took out a summons to strike out the Plaintiff’s action under Order 28 rule 10.  Au Yeung On filed an affirmation in opposition on 28 June 2004.  The application to strike out the Plaintiff’s action was subsequently set down for hearing before Master Lung on 27 September 2004.  In July 2004, Au Yeung On was diagnosed with liver cancer.  He passed away on 5 August 2004, about seven weeks before the hearing.  On 24 September 2004, Au Yeung On’s then solicitors, Messrs Johnny Chiu & Co (“Messrs Johnny Chiu”), took out a summons seeking a declaration that the firm had ceased to be solicitors acting for the Plaintiff.  On 27 September 2004, Master Lung heard and granted Messrs Johnny Chiu’s application to cease to act as solicitors for the Plaintiff.  Immediately, Master Lung proceeded to hear the Defendants’ application to strike out the Plaintiff’s action in the absence of Au Yeung On or his legal representative and dismissed the Plaintiff’s amended originating summons for his failure to prosecute proceedings with due dispatch.  On 25 November 2004, Au Yeung On’s daughter, Almaz Au Yeung as the personal representative of the estate of Au Yeung On, obtained leave to be substituted as the Plaintiff in this action.  On 26 November 2004, she filed a Notice of Appeal against the decision of Master Lung out of time.  The appeal was heard before Deputy High Court Judge Saunders on 22 March 2005 and was adjourned pending the decision of the Court of Final Appeal in Chan Tin Shi and Li Tin Sung and Others, FACV 7/2005 on the interpretation of section 6 of the New Territories Leases (Extension) Ordinance.  On 5 January 2006, the Court of Final Appeal delivered judgment in which the interpretation of the section was resolved in favour of the Plaintiff.

The principles in striking out for failure to prosecute proceedings with due dispatch

3.  Counsel had no dispute that the principles governing the court’s exercise of jurisdiction in striking out originating summons, whether under Order 28 rule 10 or under the inherent jurisdiction, were set out by the House of Lords in Birkett and James [1978] AC 297 which had been followed by the Court of Appeal in Hongkong and Shanghai Banking Corp Ltd and Kuan Tao Sheng & Others [1998] 2 HKLRD 585.  There are two limbs under which the court’s jurisdiction to strike out originating summons may be exercised.  Under the first limb, the jurisdiction may be exercised at any time where the plaintiff’s default had been intentional and contumelious.  Under the second limb, the jurisdiction may be exercised where there had been inordinate and inexcusable delay on the plaintiff’s or his lawyers’ part giving rise to a substantial risk that a fair trial would not be possible or to serious prejudice to the defendant, but such jurisdiction should not normally be exercised within the currency of the limitation period, save in an exceptional case.

The merit of the Defendants’ striking out application

4.  The Defendants’ grounds for striking out the Plaintiff’s amended originating summons were:

(1) there were no merits in the Plaintiff’s claim;

(2) there had been contumelious and/or inexcusable delay in the prosecution of the claim and further the Plaintiff had no intention to prosecute the claim;

(3) the delay in prosecuting the claim had caused serious prejudice to the Defendants and further the development of land in question since the issue of the originating summons had made a fair trial impossible.

Mr Chow, counsel for the Plaintiff, argued otherwise and relied on the additional ground that the Master’s order was irregular because the order was made when Au Yeung On was deceased and unrepresented. 

5.  The thrust of the Defendants’ case before the Master as it was before me was that the Plaintiff had, in breach of Order 28 rule 1A, failed to file affidavit evidence on which he intended to rely before the expiration of fourteen days after the Defendants had acknowledged service of the originating summons and that the Plaintiff had failed to do so for four and half years evincing no intention to proceed with his action.  Mr Cheung protested that even at the hearing of the appeal, he was not provided with the skeleton argument of the Plaintiff until five minutes before the hearing and he was given no prior warning that the Plaintiff would rely on Au Yeung On’s death as nullifying the orders of Master Lung made on 27 September 2004.

6.  It was unfortunate that Mr Chow had not given Mr Cheung advanced notice of his argument.  Indeed, I took the view that irrespective whether Messrs Johnny Chiu had been informed of the death of Au Yeung On, Master Lung’s decision granting Messrs Johnny Chiu’s application to cease to act for Au Yeung On as well as the Defendants’ application to strike out the Plaintiff’s amended originating summons were null and void because of the death of Au Yeung On.  However, as I proceeded to hear the appeal de novo and determined the appeal on its own merit rather than allowing it by reason only of Au Yeung On’s death, the Defendants were not prejudiced by Mr Chow’s argument based on Au Yeung On’s death.  Furthermore, as it never was the Defendants’ position that had they known of the argument, they would have conceded the appeal.  Thus, the failure of Mr Chow to alert Mr Cheung of his reliance on Au Yeung On’s death had no bearing on the issue of costs.

7.  Despite Mr Cheung argued that there had been contumelious default in the prosecution of the claim, his argument only revolved around delay, the lack of merit, the lack of intention to proceed and prejudice.  He had utterly failed to prove that the Plaintiff’s default had been intentional and contumelious within the meaning as defined by Lord Diplock.  The Defendants’ application based on the first limb failed.  While I accept that there had been inordinate and inexcusable delay in the prosecution of this action by the Plaintiff, Mr Cheung failed to show the delay had given rise to a substantial risk that a fair trial would not be possible or had given rise to serious prejudice to the Defendants.  Furthermore, the Defendants had failed to show this was an exceptional case which justified the exercise of this extraordinary jurisdiction during the currency of the limitation period.  The Defendants’ application based on the second limb also failed miserably.

The appropriateness of the costs order

8.  I made two costs orders when allowing the appeal: (1) there be no order as to costs of the Defendants’ application to strike out the Plaintiff’s amended originating summons before Master Lung and (2) the costs of the appeal including the costs reserved at the adjourned hearing before Deputy High Court Judge Saunders be to the Plaintiff.  Mr Cheung argued that Master Lung’s order dismissing the Plaintiff’s amended originating summons and the present appeal seeking to have it set aside were occasioned or necessitated by the Plaintiff’s default in contesting the striking out application on 27 September 2004.  Hence, he submitted that all costs should be borne by the Plaintiff.  He also repeated his argument about the Plaintiff’s delay of four and half years before filing affidavit evidence in support of his claim, that the Defendants had no idea of the Plaintiff’s case against them which necessitated the striking out application and his grievance that he was not given the Plaintiff’s skeleton argument until five minutes before the hearing of the appeal. 

9.  Breach of Order 28 rule 1A by itself is not a ground for striking out an originating summons for failure to prosecute an action with due despatch.  Thus, inordinate delay alone is not a ground which justifies taking out an application for striking out under Order 28 rule 10.  Argument on delay could not assist the Defendants at all so far as costs are concerned.  There were two limbs under which the Defendants could succeed in a striking out application under Order 28 rule 10.  However, under the first limb, not only did the Defendants fail to prove intentional and contumelious default on the part of the Plaintiff, there was not even a scintilla of evidence of any contumelious conduct.  Under the second limb, the Defendants failed to show the delay had given rise to a substantial risk that a fair trial would not be possible or had given rise to serious prejudice to the Defendants.  And most fatally, it was beyond dispute that the application was made during the currency of the limitation period and the Defendants failed to show this was an exceptional case which justified the making of such a draconian order.  Whether the Defendants were at risk that a fair trial would not be possible or were being prejudiced were solely within the knowledge of the Defendants themselves.  They also had the burden of proving an exceptional case.  On the facts and on the law, the Defendants should have known that there was no ground for them to launch the application in the first place or to resist the appeal in the second.  There was simply no merit in the application or in resisting the appeal.  On this ground alone, the Plaintiff should not be liable for the costs of the application before Master Lung and should have the costs of the appeal.

10.  Furthermore, it is counsel’s duty, whether in an ex-parte application or in an inter-partes application in which the opponent defaulted appearance, to direct the court on the law applicable to the matter before the court.  Mr Cheung had no dispute that the principles as set out by the House of Lords in Birkett and James are applicable to a striking out application under Order 28 rule 10.  Had counsel properly directed the Master on the law, the Master would certainly have dismissed the striking out application even in the absence of the Plaintiff or his legal representative.  This is obvious for the Defendants had utterly failed to show intentional and contumelious default under the first limb or special case under the second limb.  It therefore lies ill in counsel’s mouth to argue that nevertheless the Defendants should have costs of the application before the Master which, on the law with which counsel had no dispute, was bound to fail.

11.  In an ordinary case of default, the “but for” argument is a strong argument, especially where a judgment or order obtained by default was set aside as an act of indulgence, for example, neglect in complying with time orders.  However, in the present case, having heard the striking out application de novo, I found there was no merit at all in the application.  The “but for” argument must give way to consideration of merit of the application.  In my view, the application should not have been made at all.  In the circumstances, in respect of the costs of the hearing before the Master, there is no reason why the Plaintiff should bear the costs of the application.

12.  In respect of the costs of the appeal, apart from relying on the “but for” test, Mr Cheung also sought to justify depriving the Plaintiff’s costs of the successful appeal by reason of the Plaintiff’s conduct.  I have dismissed the “but for” test as being relevant where the party seeking to rely on it has shown no merit in his application.  To deprive a successful party of his costs, the unsuccessful party has to show that the successful party has put litigation on himself in the sense that he has misled the unsuccessful party into believing that he had a good cause of action or a good defence against the successful party: Ritter v Godfrey, [1920]2 KB47.  In my view, a party could only be said to have put litigation on himself if he has done something other than that which gave rise to the cause of action or defence, which has led the unsuccessful party into believing that he has a good defence or a good cause of action.  Such conduct has to be distinguished from that which gives rise to the cause of action or the defence.  Failure to recognise this distinction would confuse between two different issues, one of costs and the other of the merit of the action, which would lead to the erroneous conclusion that if one has a prima facie case or a strong case, he will be spared of the consequence of having a costs order made against him if he is unsuccessful.  That could not be right.

13.  The conduct being relied upon by Mr Cheung was the four and half years’ delay on the part of the Plaintiff in filing affidavit evidence in support of the Plaintiff’s action.  This is just one of the elements which the Defendants have to prove in the striking out application under the second limb.  It is a conduct giving rise to the application.  The Defendants cannot rely on that also as conduct that the Plaintiff has put litigation on himself.  I therefore dismiss Mr Cheung’s argument that the Plaintiff had put litigation on himself as to justify depriving him of his costs.  The basic rule under Order 62 is applicable.  The Plaintiff being successful in the appeal should have costs against the Defendants and the Defendants could put forward no reason why I should depart from that rule.

Conclusion

14.  In the circumstances, I consider no costs is the fairest order that should be made in respect of the application before the Master while in respect of the costs of the appeal, the appropriate order is that the Plaintiff shall have costs of the appeal.  Accordingly, I affirm the costs order nisi that I made on 20 June 2006.  I also make an order that the Plaintiff shall have the costs of this hearing.