DYNAMIC ASSET MANAGEMENT LTD v. CHOI CHAU CHUNG ( 蔡湫松) by CHOI LAM HUNG, his Guardian ad litem

HCA 1566/2015

[2019] HKCFI 2932

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1566 OF 2015

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DECISION

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Introduction

1.  By a summons filed on 6 September 2019 (“the Summons”), the Plaintiff (“P”) applied for leave to re-amend its Amended Statement of Claim in the manner as shown in the draft (“the Draft RASoC”) annexed to the Summons.  The Defendant (“D”) opposed the Summons. 

2.  I heard the Summons substantively today.  My decision is to make the following orders: -

(1)  Leave be granted to P to re-amend its Amended Statement of Claim as per the Draft RASoC;

(2)  P do file and serve the signed version of its Re-Amended Statement of Claim, together with its signed Statement of Truth, within 7 days from today;

(3)  Leave be granted to D to make consequential amendments to its Re-Amended Defence and Counterclaim within 28 days from its receipt of the Re-Amended Statement of Claim;

(4)  Leave be granted to P to make consequential amendments to its Reply and Defence to Counterclaim within 28 days thereafter;

(5)  Costs of this hearing, summarily assessed with Certificate for Counsel at HKD 88,000, be paid by D to P forthwith; and

(6)  Save and except the above, the costs of and occasioned by the Summons, including all costs previously reserved, be paid by P to D in any event, to be taxed if not agreed.

(Collectively, “the Decision”). 

3.  My reasons for the Decision are as follows. 

Background Facts

4.  There is no dispute that P was a money lender registered under the Money Lenders Ordinance (Cap 163) (“the MLO”), and that D was a mentally incapacitated person (“MIP”) born in 1942. 

5.  P’s case was that by a written agreement dated 20 May 2015 (“the Loan Agreement”), P agreed to lend, and D agreed to borrow, HKD 1,500,000 (“the Loan”).  P sought to enforce the Loan Agreement and to seek repayment. 

6.  D’s case was that the Loan Agreement was unenforceable for, inter alia, illegality.  According to D, the effective interest rate under the Loan Agreement exceeded 60% per annum so that P committed a serious crime under Section 24(1) of the MLO, punishable by a fine of up to HKD 5,000,000, and Section 24(2) of the MLO specifically provided that in such a situation the Loan Agreement shall not be enforceable. 

7.  D further said while he did present 2 cheques, curiously drawn in favour of D by K B Chau & Co Solicitors instead of by P, for the sums of HKD 500,000 and HKD 757,300 respectively, to a bank, another person collected the cash.  In other words, D said he never received or benefited from the Loan (or any part thereof) in any meaningful way, and he was just manipulated into getting cash for a third person.  It is not entirely clear to me why K B Chau & Co Solicitors were involved in these transactions. 

8.  By a summons dated 22 October 2015, P attempted summary judgment application and the matter went before DHCJ Kenneth Kwok SC, who dismissed that application with costs on 3 August 2016, and gave full written reasons for doing so on 12 August 2016. 

9.  As a reaction to some of the remarks made by DHCJ Kenneth Kwok SC, P amended its Statement of Claim on 24 January 2017. 

10.  On 1 April 2019, the parties’ medical experts (both registered psychiatrists), Dr Wong Chung Kwok JP and Dr Law Wun Tong, produced a joint expert report (“the JER”), paragraph 43 of which stated their agreed expert opinion to the effect that D had no mental capacity to sign any legal document on 20 May 2015 (ie the date of the Loan Agreement).

11.  On 9 September 2019, P took out the Summons and sought to insert, inter alia, the following averment into its pleading: -

“Further or alternatively, the sum of $1,267,300 advanced by the Plaintiff to and received by the Defendant was made under and as a result of a mistake of the Plaintiff on the fact that the Defendant had the mental capacity at all material times to enter into the Loan Agreement and Mortgage and understand the general nature of the Loan Agreement and Mortgage when he signed them. In fact, the Defendant was at all material times mentally incapable of signing the Loan Agreement and Mortgage on 20^th May 2015. If the Plaintiff had knowledge that the Defendant did not have the mental capacity at all material times to enter into the Loan Agreement and Mortgage, the Plaintiff would not have advanced the sum of $1,267,300 to the Defendant. By reason of the advancement of the monies to the Defendant in those circumstances, the Defendant has been unjustly enriched.”

P’s Submissions

12.  Ms Shannon Leung, Counsel for P, submits, inter alia, that (1) the correct guiding principles on the exercise of discretion to allow or refuse an amendment post-CJR remain those laid down by the House of Lords in Ketteman v Hansel Properties Ltd [1987] AC 189, as approved in Topwell Corp Ltd v Kwan Kam Kee [2014] 5 HKLRD 1 at §39 (Kwan JA, as Kwan V-P then was), and more recently in Bruce James Stinson v Gu Ming Gao [2018] HKCA 10 at §35 (Kwan JA, as Kwan V-P then was); (2) there is no undue delay on P’s part as the proposed amendments are P’s reaction to the JER, which did not come into existence until April 2019; (3) P is not in any way seeking to introduce new causes of action in this round of amendment since the words “money had and received” had already been introduced on 24 January 2017 and are not new; (4) D’s objection based on its illegality argument is a red-herring because if the Loan Agreement was void for lack of capacity, the question of illegality would not arise; (5) the MLO cases cited by D in opposition can all be distinguished as the issue of incapacity did not arise in any of those cases; and (6) all in all there should be an order in terms of the Summons. 

D’s Submissions

13.  Mr Kim J McCoy, Counsel for D, submits, inter alia, that (1) P’s proposed amendments are “a clear attempt to circumvent the rigorous protections set out in the MLO” by seeking to use “an alternative method” to recover from D; (2) P’s proposed amendments are not necessary; (3) no costs order will be able to reasonably compensate D for the stress of having this action hanging over him for an undefined time; and (4) the Summons should thus be dismissed with costs. 

My View

14.  In gist, I agree with P and disagree with D. 

15.  Mr McCoy, Counsel for D, helpfully drew my attention to the history of the MLO.  He started with a discussion on the laws of England back in 1190 and ended with a discussion on the 13 March 2019 decision of DHCJ Anita Yip SC in the very interesting case of Chan Ping Che v Gao Gunter [2019] HKCFI 670. Between the years 1190 and 2019, there were the decision of Yang Long Shan v Chan Hau Kong (unrep, HCA 1265/2011, 5 June 2015) by Registrar K W Lung (as DHCJ Lung when was), and the decision of Lei Shing Hong Credit Ltd v San Tong Lee Co Ltd (unrep, HCA 2525/2013, 26 May 2017) of DHCJ Sakhrani.  I considered all cases cited by Mr McCoy carefully.  Curiously missing from the otherwise extremely thorough discussion on the law by Mr McCoy, however, were the cases of Tinsley v Milligan [1994] 1 AC 340 and Patel v Mirza [2017] AC 467, and all the Hong Kong cases which applied or analysed them. 

16.  Historically, Hong Kong courts have been applying the rule in Tinsley v Milligan to the effect that whether a litigant should or should not be entitled to recover money tainted with illegality depended on whether it would be necessary for the litigant to plea and rely on the illegality.  This “doctrine of reliance” had since been expressly “disowned” as wrong by the UK Supreme Court in Patel v Mirza, where Lord Toulson JSC had also said that a court of law would have to consider whether denying a claim on the ground of illegality would be a disproportionate response (or “overkill”) to the illegality, bearing in mind that punishment is a matter for the criminal courts.  Recent authorities suggest that the Court of First Instance in Hong Kong is currently still bound by Tinsley v Milligan and cannot apply Patel v Mirza unless a litigant takes the point of law further up. 

17.  Irrespective of whether the laws of Hong Kong should remain as set out in Tinsley v Milligan, or be reformed in the way as set out in Patel v Mirza, it seems to me that on the special facts of the present case, P should not be barred from arguing its case on restitution. 

18.  Firstly, as correctly pointed out by Ms Leung, Counsel for P, the existing version of P’s pleading does have the key phrase “money had and received” in it, and there has been no application to strike that out. 

19.  Secondly, a legitimate objective of P’s proposed amendments is to make it clear P does accept the conclusion in the JER to the effect that D had no mental capacity to sign any legal document on 20 May 2015, and to set out P’s case flowing from such acceptance.  That appears to me to be plainly necessary for the fair and effective resolution of the real dispute between the parties herein. 

20.  Thirdly, it seems to me that P can run its case without relying on its own illegality or criminality under Section 24(1) of the MLO, and a blanket prohibition on the recovery of not just the interests but the principal said to have been advanced to and enjoyed by D would be “an overkill” in the sense as stated by Lord Toulson JSC in Patel v Mirza. D’s arguments on illegality and its interaction with the law of unjust enrichment should in my view be left to the trial judge at the end of a full trial so that the law can be argued, applied and developed on facts as found to be established by the trial judge, instead of on unproven allegations as set out in pleadings.  See: Tadjudin v Bank of America National Association [2010] 3 HKLRD 417 at §7 per Stone J siting in the Court of Appeal.  

21.  Fourthly, whilst it is true there was some delay on the part of P in the prosecution of this action generally, and in taking out the Summons specifically, in my view the delay was not so serious as to justify dismissing the Summons altogether.  A more appropriate response to the delay would be to order some costs against P in any event, but concurrently allow P to make the proposed amendments. 

22.  Finally, whilst it is undesirable for a legal action to be hanging over the head of any person for any longer than necessary, D’s legal rights must be balanced against P’s legal rights.  Irrespective of P’s conduct vis-à-vis the MLO, P does have a general right to have access to this Court.  I am not prepared to dismiss the Summons on the ground that it had created “stress”.  Further, D is himself a plaintiff-by-counterclaim and as such, I do not consider it fair to put all the blame on P’s shoulders.  Just as P could have pushed its claim against D forward in a more diligent manner, D could also have pushed its counterclaim against P forward more aggressively.  I do hope that from this moment onwards, both parties can be more diligent in bringing this action towards a proper trial, if it cannot be settled amicably out-of-court, through mediation or otherwise. 

Costs

23.  Having heard oral submissions from Counsel, my decision is to split the costs order in the manner as suggested by Yam J in Lessy SARL v Pacific Star Development Limited and Another [1996] 2 HKLR 1 at 2-E, on the basis that I should not encourage litigants (such as D herein) to resist amendment applications unnecessarily. 

24.  On the question of Certificate for Counsel, in my judgment it was necessary for both sides to engage Counsel.  Both Ms Leung and Mr McCoy had been extremely helpful.  I certify the attendance of Counsel.

25.  On the quantum of costs, P claims HKD 96,400 just for this hearing.  I should allow Counsel’s Fees in full.  There should, however, be deductions for Items B2 (attendance on D) & D4 (time for this hearing).  Taking a broad-brush approach in the assessment of costs, I consider a total sum of HKD 88,000 to be fair and reasonable. 

Final Remarks

26.  I do thank both Ms Leung and Mr McCoy for their most able assistance.