TSUI YUEN (formerly known as HO WAI HUNG) v. HO TSE WAI, PHILIP LI & PARTNERS (A FIRM) (formerly known as HO, TSE & WAI & PARTNERS)

CACV 57/2020

[2021] HKCA 1613

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 57 OF 2020

(ON AN APPEAL FROM HCA NO 587 OF 2015)

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J U D G M E N T

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Hon Yuen JA:

Introduction

1.  On 26 November 2018, a master struck out the plaintiff’s statement of claim in HCA587/2015 on all the grounds under Order 18 rule 19 of the Rules of the High Court and under the inherent jurisdiction of the court (“the master’s Strike-Out order”).

2.1.  The plaintiff wished to appeal the master’s Strike-Out order, but was late by 11 days.  On 21 December 2018, he applied to the Court of First Instance (“CFI”)  for an extension of time to appeal.  The application was heard by M Ng J (“the judge”)  on 15 March 2019. 

2.2.  On 13 June 2019, the judge handed down a 38-page Judgment (“the Judgment”)[1] dismissing the application, not for delay, but because the judge decided that the appeal had no merits[2].

3.  On 3 July 2019, the plaintiff filed a notice of appeal against the Judgment in CACV305/2019 but on 5 August 2019, it was struck out by Kwan VP as the Judgment was interlocutory and leave to appeal had not been obtained.

4.1.  Accordingly, on 11 September 2019, the plaintiff issued a summons in the CFI for an extension of time to apply for leave to appeal the Judgment (“the 9.2019 summons”). The application was heard by the judge on 26 September 2019.

4.2.  On 4 October 2019, the judge dismissed the 9.2019 summons on the grounds that the intended appeal had no merits and there was no satisfactory explanation for the delay.

5.1.  On 11 October 2019, the plaintiff renewed his application for leave to appeal out of time in a summons filed in this court in CAMP257/2019.  This court decided to determine the summons on the basis of written submissions only.

5.2.  On 23 December 2019, this court[3] handed down judgment giving the plaintiff leave to appeal the Judgment out of time (“the CA Leave Judgment”)[4]].  Accordingly, the plaintiff filed CACV57/2020 on 9 March 2020, and a hearing was fixed before this court on 21 October 2021.

5.3.  Ms Sara Tong, counsel for the defendant in this court, took the point in her written submissions that the present appeal was only concerned with the question of whether the plaintiff should have been granted extension of time to appeal against the master’s Strike-out order (and not whether the Strike-out order should be set aside). 

5.4.  However, as noted above, the Judgment contained a detailed discussion of the merits of the proposed appeal against the Strike-out, and before this court, comprehensive submissions have been filed by the parties’ respective counsel. Even if Ms Tong were correct in her submissions above, it would be a waste of time and costs if the hearing on 21 October 2021 was confined only to a determination of the issue whether an extension of time should have been given.  At this court’s invitation, counsel for both parties agreed that the hearing would deal not only with the issue whether the judge should have extended time for the plaintiff to appeal the master’s Strike-out order, but also the proposed appeal against the actual Strike-out order.

Factual background

6.  The factual background has been extensively recounted in the Judgment, but in view of the arguments before this court, it is necessary to list the following events:

(1)  13.8.1996	The plaintiff underwent an operation at a hospital run by the Hospital Authority (“HA”).
(2)  2.1997	The defendant (a firm of solicitors)  was assigned by the Director of Legal Aid (“DLA”)  to act for the plaintiff in relation to a claim against the HA for medical negligence arising out of the operation.
(3)  20.5.1998	On behalf of the plaintiff, the defendant issued a writ in HCPI529/1998 (“the PI Action”)  against the HA claiming compensation.  It was pleaded that as a result of the operation, he has suffered post-traumatic stress disorder and severe depression[5].
(4)  5.5.1999	The plaintiff was diagnosed with paranoid psychosis and admitted to a hospital psychiatric unit (where he remained for 1 month).
(5)  20.5.1999	The defendant asked DLA for authority to ask the treating doctor for a medical report on the plaintiff’s mental status and mental capacity.
(6)  29.5.1999	The defendant wrote to Dr CH Kwok, who treated the plaintiff, for a “short medical report describing the current mental status capacity of the [plaintiff]. ... whether in your opinion, he has the mental capacity to make rational decisions regarding his affairs in general and his legal affairs in particular”[6] (emphasis added).
(7)  4.6.1999	Dr Kwok conducted a mental state examination on the plaintiff on his discharge from hospital.
(8)  6.7.1999	Dr Kwok’s report stated (among other things)  that the plaintiff was “last seen on 4/6/1999, mental state examination showed he was free of psychotic symptoms with stable mood and normal cognition. [The plaintiff] was considered to have recovered from mental illness and have the mental capacity to make rational decisions.   As long as he continues to take psychiatric medications and remain mentally stable, he is medically capable of full-time employment”[7] (emphasis added).
(9)  22.9.1999	According to the plaintiff[8], he signed written instructions to settle the PI Action without understanding its legal implication and consequence and further arrangements.  Without prejudice correspondence ensued between the defendant and the HA regarding settlement (23.9.1999 - 20.11.1999).
(10)  13.11.1999	The plaintiff was diagnosed with continuous paranoid schizophrenia with increasing irritability and auditory hallucination[9].
(11)  22.11.1999 -   24.11.1999	According to the defendant[10], the plaintiff considered he was entitled to more compensation, and requested copies of court documents.
(12)  30.11.1999	The defendant informed DLA that the plaintiff has applied for another legal representative, and that he did not wish to settle the PI Action.
(13)  14.12.1999	Legal aid was discharged.
(14)  13.1.2000	The plaintiff was diagnosed with relapse of paranoid schizophrenia after deterioration of his mental state for the previous 2 months, and admitted to a hospital psychiatric unit11 (where he remained for a little over a month).
(15)  16.2.2000	The plaintiff was discharged from hospital, assessed as a “priority follow up target”.
(16)  15.3.2000	The community psychiatric nurse commented that the plaintiff could not plan for the future, especially on the “spending of medical reimbursement”[12].
(17)  18.4.2000	DLA re-assigned the defendant as the plaintiff’s solicitors in the PI Action.
(18)  20.4.2000	The plaintiff signed a document stating (among other things)  that he agreed to accept $1.1 million plus legal costs in full and final settlement of his claims in the PI Action. According to the plaintiff[13], (a)  he told the defendant that he could not understand the content of the document, but (b)  he was told that he could not tell anyone about his mental illness or the HA would ask for return of the funds, and (c)  he was persuaded or pressurized by the defendant to sign the document; the plaintiff also relies on the medical report of Dr Paul Tam Mo Shing dated 19 December 2014 which states that the plaintiff was a mentally incapacitated person as at (at least)  20.4.2000[14].
(19)  17.5.2000	A Consent Order in the PI Action was made under which the plaintiff agreed to receive from the HA a sum of $1.1 million plus costs.
(20)  26-31.5.2000	The plaintiff received $1,090,713 (“the settlement monies”).
(21)  2001	The plaintiff married his 3rd wife[15].
(22)  Since 2002	According to the plaintiff[16], because of his mental condition, he behaved abnormally in disbursing some of the settlement monies, eg giving out money and emptying his wallet to strangers on the street, and threw money onto the street (“the abnormal disbursements”).
(23)  2003	According to the plaintiff[17], he was detained in a hospital psychiatric unit.
(24)  2003-6	According to the plaintiff[18], on many occasions, his 3rd wife asked him to withdraw settlement monies from his bank account until funds were exhausted in 2006, after which his wife divorced him (“the wife’s exploitation”).
(25)  4.9.2007	Divorce decree nisi (from the plaintiff’s 3rd wife)  was pronounced.
(26)  5-14.10.2009	The plaintiff was diagnosed with schizophrenia and suicidal idea, and admitted to a hospital psychiatric unit.
(27)  10.2009	According to the plaintiff[19], he ceased to be mentally incapacitated.
(28)  20.3.2015	The plaintiff issued HCA587/2015 (“the Retainer Action”)  against the defendant.

Plaintiff’s claim against the defendant in the Retainer Action

7.1.  The plaintiff’s claim against the defendant in the Retainer Action, in a nutshell, is that in breach of contract and negligently, the defendant failed to exercise care and skill when acting as his solicitors in the PI Action in that they:

(1)  did not enquire into his mental capacity at the time when he agreed to the settlement, and

(2)  did not safeguard his interests by adopting the procedure under Order 80 Rules of the High Court, which protects persons under disability who are involved in legal proceedings, such as approval of settlements by the court (O.80 r.11)  and the giving of directions by the court as to how settlement monies should be invested, applied or dealt with (O.80 r.12)[20].

7.2.  The following pleadings in the SOC[21] are relevant to the issues raised before this court:

para. 9:  the plaintiff was a mentally incapacitated person on 22.9.1999;

para. 10:  the plaintiff could not understand the legal implication and consequence of the settlement, and further arrangements. 

para. 16:  the plaintiff was a mentally incapacitated person on 20 April 2000;

para. 17:  on 20 April 2000, the plaintiff told the defendant that he could not understand the content of the settlement document which he signed;

para. 22:  since 2002, because of his mental condition, the plaintiff made abnormal disbursements of the settlement monies;

para. 23:  since 2003, because of his mental condition, the plaintiff has been exploited by his wife until the settlement monies were exhausted;

para. 27:  “as a result of the defendant’s breach of the Retainer, the plaintiff was exploited by his relatives financially and he could not maintain himself and reimburse medical expenses from the recovered money of the settlement of the PI Proceedings”;

para. 28:  “by reason of the matters pleaded from paragraphs (1)  to (26)  hereinabove, the plaintiff has suffered loss and damage to be assessed”.

7.3.  On 26 May 2015, the plaintiff provided further and better particulars (“1^st FBP”)  which included the following statement as particulars:

§22:  due to his mental incapacity, he has limited ability to recollect factual details of the abnormal disbursements, but when he repeatedly kept his wife company shopping, he would carry around $3,000 to $5,000 when he went out, and before returning home, he would give out money to strangers;

§23:  the withdrawals he made on demand by his 3^rd wife ranged from $3,000 to $20,000 on each occasion.

Question (26)  under §23 was as follows:

“Please state clearly the exact proportion or amount (in Hong Kong dollars)  of the settlement monies which were (1)  ‘dispatched by [the Plaintiff] under abnormal behaviour’ since 2002, as per paragraph 22 of the Statement of Claim and (2)  ‘further withdrawn from the plaintiff’s account’ since 2003, as per paragraph 23 of the Statement of Claim”.

Answer (26)  was as follows:

“The total amount dispatched by the plaintiff under abnormal behaviour since 2002 amounted to over HK$130,000; and (2)  the amount ‘further withdrawn from the plaintiff’s account’ since 2003 amounted to around HK$200,000 to HK$500,000".

8.  On 6 March 2017, the plaintiff filed a notice to act in person.

9.  On 5 April 2017, the parties exchanged witness statements.  It is noted that the plaintiff’s witness statement was signed more than 8 months ago (on 27 July 2016)  and had apparently been prepared by his former solicitors.  It is pertinent to the issues before this court that in §34, the plaintiff stated (translation from Chinese):

“After I became mentally ill, my ability to distinguish between right and wrong was very low. As a result of this, I have been cheated many times, resulting in huge losses to my life and money, but my mind is not like that now, I have resumed normality, and am not easily cheated” (emphasis added).

10.1.  On 5 January 2018, the defendant made a second request for further and better particulars of §28 of the SOC which pleaded “by reason of the matters pleaded from paragraphs (1)  to (26)  hereinabove, the plaintiff has suffered loss and damages to be assessed”.  The request was for:

(1)  the precise amount of the ‘loss and damage’ which the plaintiff claims to have suffered and identify the relevant heads of loss and damage;

(2)  provide full particulars as to the computation of each such head of loss and damage;

(3)  in respect of each such head of loss and damage, identify the material facts upon which the computation is based.

10.2.  Pausing here, the particulars for the claims under the heads of “abnormal disbursements” and “the wife’s exploitation” in §§22-23 respectively had already been provided in Answer (26)  of the 1^st FBP quoted in §7.3 above.  

10.3.  On 15 January and 2 February 2018, the plaintiff (acting in person)  provided further and better particulars (“2^nd FBP”)  as follows[22]:

(1)  The plaintiff has been suffering from long-term Schizophrenia since 1998 and has been needing injections and medication for the past 20 years.  The plaintiff still needs to take medication every night.  He seeks compensation in the amount of HK$12,000,000.

(2)  The plaintiff has lost his ability to work for 29 years (from 1996 and until he reaches the age of 65).  His annual loss of earnings is HK$480,000 and he seeks compensation in the amount of HK$13,920,000.

(3)  The plaintiff seeks compensation for loss relating to family in the amount of HK$3,000,000.

(4)  He seeks compensation for the legal and medical fees he has incurred in the amount of HK$600,000.  The total compensation he seeks amounts to HK$29,520,000.

(5)  He contends that the defendant’s solicitors should pay court fees.  

Strike-out application

11.1.  On 9 April 2018, the defendant issued a summons to strike-out the Retainer Action. 

11.2.  On 8 May 2018, the plaintiff filed an affirmation in opposition.  In §4, he refers (among other things)  to financial exploitation by his relatives.  In §§5-6, he refers to the fact that he is not legally represented, and asked for the opportunity to amend his pleadings and supplement his witness statement. 

11.3.  As mentioned earlier, on 26 November 2018, a master struck out the action, and the matter eventually came before the judge as an application for extension of time to appeal the master’s Strike-out order.  The plaintiff was then still acting in person.

The judge’s Judgment

12.1.  The judge refused an extension of time, not for delay[23], but because the judge considered that the claim had no merits[24].

12.2.  The following summary of the Judgment is taken from Ms Tong’s submissions (“holdings (1)  to (5)”):

(1)  P’s pleaded case in the SOC as to the loss and damages he allegedly suffered as a result of the defendant’s alleged breaches were contradicted by the 2^nd FBP which referred to other loss and damage not pleaded in the SOC (Judgment §48).

(2)  P’s Witness Statement did not provide any evidence to support how P was exploited by his relatives, and P’s List of Documents did not disclose documents in relation to pecuniary loss and damages.  P’s Witness Statement claims that P’s loss was his inability to seek a more favourable settlement from HA (which is not his pleaded case in the SOC).  P provided no explanation as to the different versions (Judgment, §§48, 51).

(3)  P’s alleged loss as a result of having been exploited by his relatives was too remote. The settlement monies in P’s hands at the material time merely provided the opportunity for the alleged harm to happen, but viewed objectively, the effective cause of the alleged harm was the conduct of the P’s relatives (Judgment, §49).

(4)  In respect of P’s pleas as to loss and damage in the 2^nd FBP, no material facts have been pleaded in the SOC as to how such loss and damage were caused by the alleged breaches, and it must be obvious that such losses were caused by his mental illness (Judgment, §50).

(5)  In any event, P’s claim for loss and damage (being special damages)  is unparticularised and unclear (Judgment, §§52 - 55).

Appeal

13.1.  Following the CA Leave Judgment, DLA assigned legal representatives for the plaintiff who filed a notice of appeal with two broad grounds:

(a)  in respect of holding (3), the judge erred in holding that there was no causal link between the defendant’s alleged breaches and the plaintiff’s loss, and that the plaintiff’s loss was too remote, and the judge failed to consider O.80, under which directions would have safeguarded the proceeds of the plaintiff’s claim in the PI Action from losses from his abnormal disbursements and the wife’s exploitation;

(b)  in respect of the other holdings, the judge failed to consider the 1^st FBP which had pleaded loss due to the abnormal disbursements and the wife’s exploitation.

13.2.  There was no respondent’s notice.

Discussion

14.  I shall first discuss the judge’s holding (3).  It is well-established in law, and both counsel before this court agree, that a plaintiff needs to show that the defendant’s breach is the effective cause of his loss, and that the loss is not too remote in that the loss is of the type that would be normally anticipated. 

15.  In §49 of the Judgment, the judge took the view that the loss from the wife’s exploitation was too remote, and it was her act of exploitation (and not the defendant’s breaches)  which was the effective cause of the plaintiff’s loss.

16.1.  With respect, I disagree.  For the purposes of the strike-out application, it must be assumed[25] that the plaintiff was mentally incapacitated at the time when he received the settlement monies in May 2000.  In this respect, although Ms Tong sought to argue that the defendant was entitled to rely on Dr Kwok’s report that the plaintiff was “considered to have recovered from mental illness”,

(1)  that report was (a)  made on the basis of an examination in June 1999, some 10 months before the settlement in April 2000 (the defendant not having asked for an update), and (b)  predicated upon the plaintiff continuing to take psychiatric medicines “and remain mentally stable”.  However, it is clear from the plaintiff’s medical history that he did not remain mentally stable before April 2000, as he had suffered a relapse in January 2000 for which he was admitted to the psychiatric unit for over a month.  In any event, there is no respondent’s notice for Miss Tong to make such a submission; 

(2)  the plaintiff has alleged that he had told the defendant in September 1999 and April 2000 that he could not understand the legal implication and consequence of the settlement and further arrangements, which allegations, in a strike-out application, must be assumed to be true;

(3)  the report of the community psychiatric nurse of 15 March 2000 reported that the plaintiff could not plan for the future, especially on the “spending of medical reimbursement” (which presumably means the compensation from the PI Action)[26].  

16.2.  It is in my view arguable that had the defendant made an updated enquiry in April 2000 and become aware of the plaintiff’s mental incapacity, it should have protected his interests by seeking approval from the court under O.80 r.11 to consider if the proposed settlement was in his best interests; and directions from the court under O.80 r.12 as to how any settlement monies should be invested, applied or dealt with so that they would not be lost, e.g. by his falling victim to exploitation. 

16.3.  In Reeves v Commissioner of Police of the Metropolis[28], X was placed in police custody. The police were alerted to the risk that he might commit suicide, but a doctor who examined him stated that he showed no signs of any psychiatric disorder or clinical depression.  However, X then hanged himself when the police inadvertently left open a flap in the cell door, to which X tied his shirt. X’s estate sued the police for negligence.  The commissioner of police argued that since X was of sound mind, his deliberate act of hanging constituted a novus actus interveniens or was volenti.

16.4.  The House of Lords held that a deliberate and informed act (in that case, X hanging himself)  intended to exploit a situation created by a defendant did not negative causation where the defendant was in breach of a specific duty imposed by law to guard against that very act. 

16.5.  At p.368, Lord Hoffmann also referred to cases “in which liability has been imposed for causing events which were the immediate consequence of the deliberate acts of third parties [such as the wife] but which the defendant had a duty to prevent or take reasonable care to prevent”.

16.6.  The abnormal disbursements made by the plaintiff himself and the subsequent exploitation by the 3^rd wife[27] were the very acts that the defendant should have guarded the plaintiff from.  As such, it is reasonably arguable that, contrary to holding (3), the wife’s act did not negative the defendant’s breach as the effective cause of the plaintiff’s loss, and the loss was not too remote.

17.1.  As for holdings (1), (4), and (5), these are all based on the assumption that the 2^nd FBP contained the only or final particulars of loss and damage.  With respect, there is no ground for making that assumption. The 1^st FBP had provided figures of the loss and damage caused by the abnormal disbursements and the wife’s exploitation pleaded §§22-23.  Those particulars were never withdrawn. 

17.2.  The defendant then made another request of FBP, this time of §28, which pleading includes §§22-23.  If the plaintiff had been legally represented, the answer to the request would have said “in addition to Answer (26)  in the 1^st FBP, [etc]”.  Whilst he did not say that in the 2^nd FBP, neither did he say anything to give the impression that the 1^st FBP were being withdrawn or deleted or superseded. 

17.3.  In other words, the plaintiff was claiming the figures in the 1^st FBP for the heads of damage in §§22-23, and the figures in the 2^nd FBP represented what he would have used the settlement monies for, had he obtained court-approved compensation in the higher amounts specified, and had the settlement monies not been disbursed by himself abnormally, or been taken away by his 3^rd wife while he was mentally incapacitated. 

17.4.  At the very least, it could not be said in holding (1)  that the SOC was contradicted by, or (in Ms Tong’s words)  “inconsistent with”, or “not supported” by, the 2^nd FBP.  

17.5.  As for holding (4), if the 1^st FBP are considered together with the 2^nd FBP in light of the above, it would be seen that the SOC does provide material facts in support thereof.

17.6.  In any event, in respect of holding (5), if the judge considered that the 2^nd FBP were unclear (on the incorrect assumption that they superseded the 1^st FBP), the plaintiff should have been given an opportunity to clarify himself as to whether he intended the 2^nd FBP to supersede the 1^st FBP.

18.1.  Finally, as to holding (2), first, it can be seen in §34 of the witness statement that the plaintiff did refer to being cheated by others, although he did not identify whom.  The defendant could of course administer interrogatories for the identity of the person(s)  who the plaintiff claims had cheated him.  In fact, in §4 of his affirmation in opposition to the strike-out application, the plaintiff referred to being cheated by his relatives although they were not identified by name. 

18.2.  Secondly, as for the complaint that the plaintiff’s list of documents did not disclose documents in relation to pecuniary loss and damages, the plaintiff had disclosed in Answer (25)  of the 1^st FBP that he had an account with the Bank of East Asia, that he had lost the passbook, and that he had withdrawn monies through ATM or at bank counters.  If the defendant had wanted these bank records disclosed, an appropriate application could have been made under the discovery procedure. 

18.3.  Thirdly, it is said that the plaintiff’s witness statement claimed that his loss was his inability to seek a more favourable settlement from HA which was not his pleaded case in the SOC.  Whilst it is correct that it was not pleaded in the SOC what figure the plaintiff asserts he should have obtained from the HA in the PI Action, it was pleaded in §26(f)  that the defendant had failed to seek court approval of the settlement and the proper costs order.  The defendant could have, but did not, request FBP of the specific assessment of damages that the plaintiff claims he could have obtained in the PI Action had the defendant sought court approval.

18.4.  It is well-established that a strike-out order is a last resort.  This is especially important in a case where it should be assumed that the plaintiff was mentally incapacitated at the time of the settlement and when he received the settlement monies, where the duty of the defendant to the plaintiff is not disputed, where the plaintiff had supplied the 1^st FBP but did not have the benefit of legal representation to navigate the second request for FBP, and had asked expressly for an opportunity to amend his pleadings or to supplement his witness statement. 

19.1.  In light of the above discussion, I take the view that in respect of the 1^st ground of appeal, the judge had erred in law, and in respect of the 2^nd ground of appeal, that she had failed to properly take the 1^st FBP into account.  As such, the exercise of discretion in refusing an extension of time to appeal the master’s Strike-out order must be set aside, and considering the matter afresh, an extension of time should have been given for the plaintiff to appeal the master’s Strike-out order, which order should be set aside. 

19.2.  Having said that, it is clear that the plaintiff’s case would benefit from a thorough review, and it is to be hoped that that can be done expeditiously now that he has been given legal aid.  A properly thought out and clearly pleaded claim can only be of benefit to both parties, as well as the court. 

Order

20.  For the reasons set out above, I would allow the appeal, set aside the Judge’s order of 13 June 2019, set aside the master’s Strike-out order of 26 November 2018, and make a costs order nisi that the plaintiff should have the costs of the appeal and of the hearing before the judge and the master.  The plaintiff’s costs are to be taxed in accordance with Legal Aid Regulations. 

Hon Barma JA:

21.  I agree.

Hon G Lam JA:

22.  I agree.